Offshore Trove Exposes Trump-Russia Links And Piggy Banks Of The Wealthiest 1 Percent
A trove of 13.4 million records exposes ties between Russia and U.S. President Donald Trump’s billionaire commerce secretary, the secret dealings of the chief fundraiser for Canadian Prime Minister Justin Trudeau and the offshore interests of the queen of England and more than 120 politicians around the world.
The leaked documents, dubbed the Paradise Papers, show how deeply the offshore financial system is entangled with the overlapping worlds of political players, private wealth and corporate giants, including Apple, Nike, Uber and other global companies that avoid taxes through increasingly imaginative bookkeeping maneuvers.
One offshore web leads to Trump’s commerce secretary, private equity tycoon Wilbur Ross, who has a stake in a shipping company that has received more than $68 million in revenue since 2014 from a Russian energy company co-owned by the son-in-law of Russian President Vladimir Putin.
In all, the offshore ties of more than a dozen Trump advisers, Cabinet members and major donors appear in the leaked data.
The new files come from two offshore services firms as well as from 19 corporate registries maintained by governments in jurisdictions that serve as waystations in the global shadow economy. The leaks were obtained by German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and a network of more than 380 journalists in 67 countries.
There is this small group of people who are not equally subject to the laws as the rest of us, and that’s on purpose
The promise of tax havens is secrecy – offshore locales create and oversee companies that often are difficult, or impossible, to trace back to their owners. While having an offshore entity is often legal, the built-in secrecy attracts money launderers, drug traffickers, kleptocrats and others who want to operate in the shadows. Offshore companies, often “shells” with no employees or office space, are also used in complex tax-avoidance structures that drain billions from national treasuries.
The offshore industry makes “the poor poorer” and is “deepening wealth inequality,” said Brooke Harrington, a certified wealth manager and Copenhagen Business School professor who is the author of ‘Capital without Borders: Wealth Managers and the One Percent.’
“There is this small group of people who are not equally subject to the laws as the rest of us, and that’s on purpose,” Harrington said. These people “live the dream” of enjoying “the benefits of society without being subject to any of its constraints.”
The records expand on the revelations from the leak of offshore documents that spawned the 2016 Panama Papers investigation by ICIJ and its media partners. The new files shine a light on a different cast of underexplored island havens, including some with cleaner reputations and higher price tags, such as the Cayman Islands and Bermuda.
The most detailed revelations emerge in decades of corporate records from the white-shoe offshore law firm Appleby and corporate services provider Estera, two businesses that operated together under the Appleby name until Estera became independent in 2016.
At least 31,000 of the individual and corporate clients included in Appleby’s records are U.S. citizens or have U.S. addresses, more than from any other country. Appleby also counted clients from the United Kingdom, China and Canada among its biggest sources of business.
Nearly 7 million records from Appleby and affiliates cover the period from 1950 to 2016 and include emails, billion-dollar loan agreements and bank statements involving at least 25,000 entities connected to people in 180 countries. Appleby is a member of the “Offshore Magic Circle,” an informal clique of the planet’s leading offshore law practices. The firm was founded Bermuda and has offices in Hong Kong, Shanghai, the British Virgin Islands, the Cayman Islands and other offshore centers.
Appleby has a well-guarded 100-year reputation and has avoided public scrapes through a mixture of discretion and expensive client monitoring.
In contrast to Appleby’s public image, the files reveal a company that has provided services to risky clients from Iran, Russia and Libya, failed government audits that identified gaps in anti-money-laundering procedures and been fined in secret by the Bermuda financial regulator. Appleby did not reply to ICIJ’s detailed questions but released an online statement saying it had investigated ICIJ’s questions and is “satisfied that there is no evidence of any wrongdoing.”
The firm said it is “subject to frequent regulatory checks, and we are committed to achieving the high standards set by our regulators.”
The leaked cache of documents includes more than half a million files from Asiaciti Trust, a family-run offshore specialist that is headquartered in Singapore and has satellite offices from Samoa in the South Pacific to Nevis in the Caribbean.
The leaked files also include documents from government business registries in some of the world’s most secretive corporate havens in the Caribbean, the Pacific and Europe, such as Antigua and Barbuda, the Cook Islands and Malta. One-fifth of the world’s busiest secrecy jurisdictions are represented in these databases.
Yes, the Duchy was aware that the Jubilee Absolute Return Fund was run offshore
Taken as a whole, the leaks reveal offshore traces of spy planes purchased by the United Arab Emirates, the Barbados explosives company of a Canadian engineer who tried to build a “super gun” for Iraqi dictator Saddam Hussein and the Bermuda company of the late Marcial Maciel Degollado, the influential Mexican priest who founded the Catholic religious order the Legionaries of Christ and whose legacy was marred by allegations of child sexual abuse.
Queen Elizabeth II has invested millions of dollars in medical and consumer loan companies, Appleby’s files show. While the Queen’s private estate, the Duchy of Lancaster, provides some details of its investments in U.K. property, such as commercial buildings scattered across southern England, it has never disclosed details of its offshore investments.
“Yes, the Duchy was aware that the Jubilee Absolute Return Fund was run offshore,” said Chris Addock, chief finance officer of the Duchy of Lancaster.
The records show that as of 2007, the queen’s private estate invested in a Cayman Islands fund that in turn invested in a private equity company that controlled BrightHouse, a U.K. rent-to-own firm criticized by consumer watchdogs and members of Parliament for selling household goods to cash-strapped Britons on payment plans with interest rates as high as 99.9 percent.
Other royals and politicians with newly disclosed offshore ties include Queen Noor of Jordan, who was listed as the beneficiary of two trusts on the island of Jersey, including one that held her sprawling British estate; Sam Kutesa, Uganda’s foreign minister and a former U.N. General Assembly president, who set up an offshore trust in the Seychelles to manage his personal wealth; Brazil’s finance minister, Henrique de Campos Meirelles, who created a foundation in Bermuda “for charitable purposes”; and Antanas Guoga, a Lithuanian member of the European Parliament and professional poker player, who held a stake in an Isle of Man company whose other shareholders included a gambling mogul who settled a fraud lawsuit in the United States.
Wesley Clark, a one-time Democratic presidential hopeful and a retired four-star U.S. Army general who served as NATO’s supreme commander in Europe , was a director of an online gambling company with offshore subsidiaries, the files show.
A spokesman for Queen Elizabeth II told ICIJ partner The Guardian that the Duchy has an ongoing investment in the Cayman Island fund and was not aware of the investment in BrightHouse. The Queen voluntarily pays tax on income from the Duchy and its investments, the spokesman said.
Queen Noor told ICIJ that “all the bequests made to her and to her children by [the late King Hussein] have always been administered according to the highest ethical, legal and regulatory standards.”
Brazil’s Meirelles said the foundation he created does not benefit him personally and will support education charities after his death.
Guoga said he declared his investment in the Isle of Man company to authorities and sold the last of his shares in 2014.
“I thought you could avoid, not evade, taxes but I found it was not practical,” Kutesa told ICIJ’s media partner The Daily Monitor. He said he did nothing with the company. “ I told Appleby to close it many years ago.”
Clark did not reply to requests for comment.
In addition to disclosures about politicians and corporations, the files reveal details about the financial lives of the rich and famous – and the unknown. They include Microsoft co-founder Paul Allen’s yacht and submarines, eBay founder Pierre Omidyar’s Cayman Island investment vehicle, and music star Madonna’s shares in a medical supplies company. Pop singer and social justice activist Bono – listed under his full name, Paul Hewson – owned shares in a company registered in Malta that invested in shopping center in Lithuania, company records show. Other clients listed their occupations as dog groomer, plumber and wakeboard instructor.
Madonna and Allen did not reply to requests for comment. Omidyar, whose Omidyar Network donates to ICIJ, discloses his investment to tax authorities, a spokeswoman said. Bono was a “passive, minority investor” in the Malta company that closed down in 2015, a spokeswoman said.
Justin Trudeau and Donald Trump
Wealthy people across the political spectrum use the offshore system.
The files reveal that Stephen Bronfman, Canadian Prime Minister Trudeau’s adviser and close friend, teamed up with Liberal Party stalwart Leo Kolber and Kolber’s son to quietly move millions of dollars to a Cayman trust. The offshore maneuvers may have avoided taxes in Canada, the United States and Israel, according to experts who reviewed some of the 3,000-plus files detailing the trust’s activities.
As the offshore riches grew, lawyers for Bronfman, the Kolbers and other wealthy interests lobbied Canada’s Parliament to fight legislative proposals to tax income from offshore trusts.
Bronfman remains a key fundraiser for Trudeau, who has championed openness in government and promised a crackdown on offshore tax dodging. In September, Trudeau told the U.N. General Assembly: “Right now, we have a system that encourages wealthy Canadians to use private corporations to pay a lower tax rate than middle-class Canadians. That’s not fair and we’re going to fix it.”
Kolber’s lawyers said in a letter to ICIJ’s partner CBC that “none of the transactions or entities at issue were effected or established to evade or even avoid taxation.” They added that the trusts “were always in full conformity with all applicable laws and requirements,” and said that no further comment would be provided by Stephen Bronfman. Trudeau’s office declined to comment.
In the United States, the files reveal personal or corporate offshore ties of key Trump associates who are charged with helping to put “America First.”
The Appleby files show how Ross, Trump’s commerce secretary, has used a chain of Cayman Islands entities to maintain a financial stake in Navigator Holdings, a shipping company whose top clients include the Kremlin-linked energy firm Sibur. Among Sibur’s key owners are Kirill Shamalov, Putin’s son-in-law, and Gennady Timchenko, a billionaire the U.S. government sanctioned in 2014 because of his links to Putin. Sibur is a major customer of Navigator, paying the company more than $23 million in 2016.
When he joined Trump’s Cabinet, Ross divested his interests in 80 companies. But he kept stakes in nine companies, including the four that connect him to Navigator and its Russian clients.
These revelations come against a backdrop of growing concerns about hidden Russian involvement in U.S. political affairs.
Sibur is “a company with crony connections,” said Daniel Fried, a Russia expert who has served in senior State Department posts in Republican and Democratic administrations. “Why would any officer of the U.S. government have any relationship with a Putin crony?”
A spokesman for Ross said that the Commerce Secretary never met Putin’s son-in-law or Sibur’s other owners and that he was not on the board of Navigator when it initiated its relationship with Sibur.
Ross recuses himself from matters that relate to international shipping, his spokesman said, and “has been generally supportive of the administration’s sanctions” against Russian entities.
The leaked files also led to other discoveries about U.S.-Russian business ties.
A document in the new cache of records helped steer ICIJ and its media partners to public documents and Panama Papers files that illuminate links between a pair of Kremlin-owned financial firms and major investments in Twitter and Facebook.
In 2011, the investment fund run by tech mogul Yuri Milner received $191 million from one of the Russian government firms, VTB Bank, and quietly invested that money in Twitter. Documents also show that a financial subsidiary of the Kremlin-controlled energy giant Gazprom funded a shell company that invested in a Milner-affiliated company that held roughly $1 billion in Facebook shares shortly before the social network’s 2012 initial public offering.
More recently, Milner invested $850,000 in Cadre, a real estate firm co-founded by Trump’s son-in-law and White House adviser, Jared Kushner.
Milner is a Russian citizen who lives in Silicon Valley. His ties to Twitter, Facebook and Kushner’s firm have been previously disclosed. But his links to the Kremlin financial institutions weren’t known.
VTB confirmed that it had used Milner’s fund to make an investment in Twitter. Facebook and Twitter said they had properly reviewed Milner’s investments.
In an interview, Milner said he was unaware of any possible involvement by the Gazprom subsidiary in any of his deals and that none of his many investments have been related to politics. He said he used his own money in the Kushner investment.
On the other side of the U.S. political divide, Ross’ predecessor as secretary of commerce, Penny Pritzker, pledged to sell investments to avoid conflicts of interest after she assumed her post in Democratic President Barack Obama’s Cabinet. The files show that soon after she received Senate confirmation in June 2013, Pritzker transferred her interests in two Bermuda companies to a firm that used the same mailing address as her private investment firm in Chicago. The company was “owned by trusts that are for the benefit of Penny Pritzker’s children,” according to Appleby’s files. These transfers may have fallen short of federal ethics standards for divestment, according to ethics expert Lawrence Noble.
Republican and Democratic donors alike appear in offshore records, including Randal Quarles, a GOP-leaning donor and the new Wall Street watchdog at the Federal Reserve. Quarles was an officer of two Cayman Island companies, including one that was involved in a loan deal with a Bermudan bank, N.T. Butterfield & Son. Until recently, Quarles held an indirect interest in the bank, which is under investigation by U.S. authorities for possible tax evasion by its American account holders. Private equity funds controlled by Democratic mega-donor George Soros, a hedge fund billionaire, use Appleby to help manage a web of offshore entities, including an investment in one company engaged in reinsurance, or insurance for insurers. His charitable organization, the Open Society Foundations, is a donor to ICIJ.
A spokesperson at the Federal Reserve said Quarles divested his indirect interest in the Bermudan bank after he was confirmed for the government post. Soros declined to comment. Pritzker did not respond to requests for comment.
When Appleby is not serving the interests of some of the world’s wealthiest individuals, it provides nuts-and-bolts legal help to corporations that seek to reduce their taxes in the countries where they do business. Appleby is not a tax adviser, but the firm plays a role in tax programs used by companies across the world.
In addition to top-flight international banks such as Barclays, Goldman Sachs and BNP Paribas, other elite Appleby clients have included the founder of one of the Middle East’s largest construction conglomerates, the Saad Group, and the Japanese company operating the crippled nuclear power plant in Fukushima.
The files reveal that America’s most profitable company, Apple Inc., shopped around Europe and the Caribbean for a new island tax shelter after a U.S. Senate inquiry found that the tech giant had avoided tens of billions of dollars in taxes by shifting profits into Irish subsidiaries.
In one email exchange, Apple’s lawyers asked Appleby to confirm that a possible move to one of six offshore tax havens would allow an Irish subsidiary to “conduct management activities . . . without being subject to taxation in these jurisdictions.” Apple declined to comment on details of the corporate reorganization but told ICIJ that it explained the new arrangements to government authorities and that the changes did not reduce its tax payments.
The files also reveal how big corporations cut their taxes by creating offshore shell companies to hold intangible assets such as the design of Nike’s “Swoosh” logo and the creative rights to silicone breast implants.
One of Appleby’s top corporate clients was Glencore PLC, the world’s largest commodity trader. The files contain decades of deals, emails and multimillion-dollar loans to bankroll ventures in Russia, Latin America, Africa and Australia.
Glencore was such an important client that it once had its own room within Appleby’s offices in Bermuda.
Company board meeting minutes document how Glencore representatives leaned on Daniel Gertler, an Israeli businessman with high-level friends in the Democratic Republic of the Congo, to help seal a deal for a valuable copper mine. Glencore lent millions to a company, widely believed to belong to Gertler, described in a U.S. Department of Justice inquiry as a conduit for bribes. Gertler and Glencore were not named in the case.
Glencore said its background checks on Gertler were “extensive and thorough.” The Justice Department investigation “does not constitute evidence of anything against Mr. Gertler,” his lawyers said, adding that he “rejects absolutely any allegations of wrongdoing or criminality by him.” No loans were used improperly or for inappropriate purposes, Gertler’s lawyers said.
The offshore industry is a globe-circling labyrinth of accountants, bankers, money managers, lawyers and middlemen who get paid to serve the interests of the rich and well-connected.
Appleby, for example, is one link in a chain of offshore actors who helped sports stars, Russian oligarchs and government officials to purchase jets, yachts and other luxury items. The offshore experts helped Arkady and Boris Rotenberg, two Russian billionaires and childhood friends of President Putin, buy jets worth more than $20 million in 2013. U.S authorities blacklisted the Rotenbergs in 2014 for their support of “Putin’s pet projects” and for having banked “high price contracts” through the Russian government. Appleby cut its ties with the brothers but, in one case, received approval from the Isle of Man government nearly two years after sanctions were imposed to disburse fees to keep one of the brothers’ companies on the business register. The Rotenbergs did not reply to Süddeutsche Zeitung’s requests for comment.
Clients prize Appleby for its expertise, efficiency and global network of professionals. Its peers repeatedly crown it Offshore Law Firm of the Year.
But decades of private documents also show that even one of the offshore industry’s brightest stars has hidden shortcomings: accepting questionable clients and failing to monitor multimillion-dollar money flows.
Bermuda financial regulators fined the firm’s trust unit for breaching anti-money-laundering rules, according to a confidential 2015 deal struck by Appleby and the regulator. This year, Appleby reached a $12.7 million settlement in a lawsuit in Canada in which nurses, firefighters and police officers accused the firm of unquestioningly circulating money on behalf of a client who designed an alleged alleged tax-avoidance scheme. Appleby and the alleged mastermind did not admit wrongdoing.
Family-owned Asiaciti advertises itself as helping clients to accumulate and “preserve wealth from the ravages of litigation,” political upheavals and family breakups. It has attracted Chinese millionaires, family members of a Kazakh official convicted of corruption and a broad swath of Americans, including doctors, poker players and a Colorado alfalfa farmer.
If you say that you’ve cleaned it up, at the end of the day, can you really say that you’ve picked up every piece of seaweed?
The leaked files from Asiaciti reveal how the firm set up trusts in the Cook Islands for Kevin Trudeau, a U.S. infomercial frontman who sold millions of copies of self-help books such as “The Weight-Loss Cure ‘They’ Don’t Want You to Know About.” In 2014, a Chicago judge sentenced Trudeau to 10 years in federal prison for criminal contempt, calling him a shameless fraudster who was “deceitful to the core” and once even used his mother’s Social Security number in one of his scams.
Appleby said in its online statement that it is committed to meeting regulators’ standards. Appleby provides advice to clients “on legitimate and lawful ways to conduct their business,” the firm said, and it does not tolerate illegal behavior.
“It is true that we are not infallible,” Appleby said. “Where we find that mistakes have happened we act quickly to put things right.”
Asiaciti did not respond to requests for comment.
Adrian Alhassan, a former compliance manager at Appleby’s Bermuda office told ICIJ that if someone is “hellbent” on breaking the law, there’s only so much an offshore services provider can do. “It’s not the FBI,” he said. If the law firm spent years doing background research on clients, it wouldn’t “get any work done.”
“It’s like cleaning a beach,” Alhassan said in a telephone interview. “If you say that you’ve cleaned it up, at the end of the day, can you really say that you’ve picked up every piece of seaweed?”
Tax havens’ secrecy laws entice those who wish to place their wealth and dealings beyond the reach of regulators, investigators and the tax collectors.
The documents from corporate registries in 19 such jurisdictions reveal company names and details, directors and real owners of companies created in many of the world’s busiest offshore hideouts.
The documents come from high- and low-profile bastions of financial secrecy such as Marshall Islands, Lebanon and St. Kitts and Nevis, a low-lying Caribbean country recently hit by hurricanes. Some jurisdictions’ records are publicly available but impossible to search by an individual’s name. Others, such as the Cayman Islands’ registry, charge more than $30 for a one-page record that provides only basic information. Six registries do not make information available online.
The leaked files contain more than a thousand records from Antigua and Barbuda, a Caribbean country that provides no online corporate information and more than 600,000 documents from the online registry of Barbados, which does not list shareholders or directors.
Over the past decade or more, the European Union and other international organizations have pressured offshore havens to reform their laws and require that offshore go-betweens aggressively screen clients. Progress has been slow, experts say, both because of the challenges of changing practices across a global web of jurisdictions and because powerful people and big companies benefit from the offshore system.
They do so at the expense of the many – shifting the burden of taxation to middle-income taxpayers and giving multinational corporations an advantage over smaller competitors. Where it hurts most is in nations struggling to provide the basics for their populations.
In West Africa, Burkina Faso officials who monitor the tax payments of the largest companies doing business there work from cramped offices with broken air-conditioning units. Burkina Faso is among the poorest countries in the world. On average, a citizen there earns less annually than the owner of an offshore company in Bermuda pays in registration fees. The country’s tax office sought $29 million in unpaid taxes and penalties from Glencore, the world’s 16th-largest company and a major user of Appleby’s services. Glencore protested and the penalty was reduced to $1.5 million.
Helping the rich get richer through offshore maneuvers is not a “benign benefit,” said Harrington, the Copenhagen Business School professor. “When the rich get richer, the poor get poorer, because individual wealthy people are not paying their fair share of taxes.”
“It won’t be lost on wealth managers and those in the offshore industry,” she said, “that we are reaching sort of French Revolution levels of inequality and injustice.”
Contributors to this story: Will Fitzgibbon, Michael Hudson, Marina Walker Guevara, Scilla Alecci, Richard H. P. Sia, Gerard Ryle, Emilia Díaz-Struck, Simon Bowers, Hamish Boland-Rudder, Sasha Chavkin, Ryan Chittum, Rigoberto Carvajal, Matthew Caruana Galizia, Cecile S. Gallego, Pierre Romera, Tom Stites, Amy Wilson-Chapman and Miguel Fiandor Gutiérrez
HABITS OF THE RICH
Offshore Gurus Help Rich Avoid Taxes On Jets And Yachts
Buying a $27-million private jet or plush mega-yacht means millions in sales taxes — unless you know the right pro.
- Private jet owners touch down in the Isle of Man and avoid millions in sales taxes
- K. outpost in the Irish Sea has registered roughly 1,000 aircraft since it started in 2007
- Registered luxury yachts for UAE royal family and Microsoft co-founder Paul Allen
Formula One auto racing star Lewis Hamilton got a new luxury jet, a $27 million candy-apple-red Bombardier Challenger 605 with Armani curtains. He also got a refund on the value-added tax.
And the lawyers at Appleby, an elite law firm founded in Bermuda, were there to help.
They teamed with the London-based accounting giant Ernst & Young to craft an arcane plan to sidestep the VAT, a consumption tax charged in Europe on everything from socks to cars. One of the conditions: Hamilton’s inaugural flight would have to touch down on the Isle of Man, the British crown dependency in the Irish Sea known for its lenient tax treatment of the world’s super-rich.
“This will involve a short stay, normally less than 2 hours,” Appleby said in a written explanation of the tax-avoidance strategy.
The four-time Formula One world champion was up to the challenge. He and his girlfriend, Pussycat Dolls pop star Nicole Scherzinger, planned to make a layover on the Isle of Man on their first time out to Europe on his new jet in January 2013, according to an itinerary sent to Appleby.
Whether Hamilton actually made the trip could not be learned. But in the end, he did pick up a $5.2 million VAT refund, according to secret documents reviewed by the International Consortium of Investigative Journalists, the BBC, The Guardian, and more than 90 other media partners.
The documents come from the internal files of offshore law firm Appleby and corporate services provider Estera, two businesses that operated together under the Appleby name until Estera became independent in 2016. The files, which are now called the Paradise Papers, were originally leaked to the German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists.
In a statement to The Guardian, Hamilton’s lawyers said that the race car driver has a set of professionals in place who run most aspects of his business operations on his behalf and that no subterfuge or improper levels of secrecy have been put in place.
Shielding offshore trillions
The episode opens a window onto a low-profile network of lawyers, bankers, accountants, financial advisers and other professionals who operate offshore in the gray international area between tax jurisdictions. This global system exists largely to shield assets from taxes, creditors and competitors and has been instrumental in luring trillions of dollars offshore, leaving other taxpayers to make up the difference.
An offshore subspecialty that handles private jets and mega-yachts has prospered even as concerns about the wealth and privileges of the global 1 percent have grown.
The yacht-and-jet offshoring business extends far beyond secretive tax havens and discreet law firms. It has involved U.S. banking giants such as Wells Fargo & Co., respected regional banks such as the Bank of Utah, and U.S. legal powerhouses such as Akin Gump Strauss Hauer & Feld. The banks have helped create trusts that have enabled otherwise ineligible foreigners to register jets in the United States, which can increase their resale value. Akin Gump helped an Arab monarchy qualify for a VAT refund on private jets it wanted to turn into spy planes. Ernst & Young worked with Appleby on a range of tax-related matters.
A spokeswoman for Wells Fargo said the bank is in the process of exiting the business of acting as trustee for foreign owners of non-commercial jets. “As a regular course of business, Wells Fargo evaluates its products and services to make sure we deliver the best experience for our customers while maintaining appropriate risk levels,” she said.
Alex Cobham, chief executive of Tax Justice Network, a U.K.-headquartered nonprofit that fights financial secrecy, said offshore ownership of luxury planes and boats is “a symptom of global inequalities.” These arrangements allow the rich to exploit the weaknesses of the international tax system through “hidden ownership and circular financing schemes,” he said.
Leaked documents from Appleby and other sources reveal a long list of rich and super-rich individuals who rely on offshore operatives to handle the tax issues and other challenges involved in owning luxury planes and boats. Among them: celebrities like Hamilton; the crown prince of Saudi Arabia and other royalty; and politicians and figures connected to them, such as Russian President Vladimir Putin’s friends the billionaire brothers Arkady and Boris Rotenberg.
U.S. President Donald Trump, too, has taken advantage of offshore arrangements to organize ownership of private aircraft.
Leaked documents from the Bermuda corporate registry, not related to Appleby, list Trump as the owner of a Bermuda shell company that in turn owned a Boeing 727 jet used by Trump, who put it up for sale in 2009. Trump disclosed the company, D.J. Aerospace (Bermuda) Ltd., in his election disclosure filings. Trump’s offshore ownership of the jet has been previously reported. The jet is now owned by Weststar Aviation, a Malaysian company.
The Wall Street Journal reported in December that another Trump aircraft – a Boeing 757-200 he used during his presidential campaign – is controlled through a complex ownership and leasing setup involving limited liability companies; the arrangement could have enabled Trump to avoid paying $3.1 million in New York sales tax upfront and to instead pay it in installments spread over many years.
Trump and Rotenberg did not respond to requests for comment from ICIJ and partners.
Isle of riches
A craggy, rain-swept island otherwise known for its tailless Manx cats, the Isle of Man has long been a key outpost in the offshore industry, thanks in large part to its close but ambiguous relationship with the United Kingdom.
It has a “partnership” with the U.K., but it controls its own domestic policy — and has turned itself into a hub in the global financial system by offering low tax rates and tolerating high levels of corporate secrecy. It didn’t have an aircraft registry until 2007 but now maintains the largest offshore plane registry in the world, with roughly 1,000 private airplanes, each generating fees for the island’s financial services industry, the Isle of Man’s biggest employer.
The registry’s growth is in part due to the Isle of Man’s lenient VAT policy and tolerance for arrangements that exploit it. Appleby alone has been responsible for creating companies that owned at least 48 private jets with an average price of $33.9 million, according to an analysis of the law firm’s internal documents by the BBC and ICIJ.
Appleby also has a big business in registering yachts, particularly in the Cayman Islands, where it has set up offshore companies that claim ownership of dozens of yachts and ships. The owners of these vessels include the royal families of the United Arab Emirates and Saudi Arabia, Russian fertilizer billionaire Andrey Guryev and Microsoft co-founder Paul Allen. Guryev did not respond to request for comment. An Allen representative declined to comment.
On the Isle of Man, Appleby has drawn big-name customers by creating offshore arrangements that push the boundaries of EU tax rules, according to international tax experts contacted by ICIJ and its partners the BBC and The Guardian.
For instance, the Isle of Man grants, on a case-by-case basis, pre-approved exemptions that are not subject to public scrutiny. EU member states could choose to offer similar exemptions to the super-rich, but political pressures constrain them from doing so.
In 2011, under pressure from the European Union, the United Kingdom tightened a rule that had allowed owners to avoid the VAT if the aircraft weighed more than 8,000 kilograms.
That created an opening for firms on the the Isle of Man, which has access to the giant EU market through its relationship with the U.K., to attract even more offshore business.
Some of the complex Isle of Man arrangements don’t appear to meet the criteria set out in the EU’s VAT-exemption language, tax experts said. EU language, for instance, requires companies to be real operating businesses and not “letterbox” companies. “It doesn’t pass the smell test,” said Maria Martinez, a former international tax attorney now with the antipoverty nonprofit Oxfam America, referring to the Isle of Man’s handling of many tax arrangements.
After ICIJ partners sent questions about the arrangements to the Isle of Man’s government, its chief minister, Howard Quayle, called an October 23 press conference and declared: “We have found no evidence of wrongdoing or reason to believe that our customs and excise division has been involved in a mistaken refunding of VAT.” He added, “The Isle of Man is not a place that welcomes those seeking to evade or abusively avoid taxes.”
At the same time, however, Quayle announced that he had invited the U.K. treasury to conduct an assessment of the Isle’s jet-registration business.
And in response to The Guardian and ICIJ questions, the government disclosed that VAT refunds for 231 jets registered on the island had totaled more than $1 billion. Without the Isle of Man structures, much of that revenue would have gone to EU countries where the planes would have been registered.
How Lewis Hamilton’s jet deal flew
The exemption that Appleby helped secure for Formula One champ Hamilton’s jet, for instance, shows how expansively the Isle of Man interprets EU aircraft rules.
Appleby began with a pitch to Hamilton and his representatives: “By working with Ernst & Young LLC as a VAT specialist and through the use of their dedicated VAT Deferment Account together with appropriate structuring, the need to fund the VAT would not be required.”
A new leak of confidential records reveals the financial hideaways of iconic brands and power brokers across the political spectrum.
- ‘Offshore Magic Circle’ Law Firm Has Record of Compliance Failures
- Justin Trudeau's chief fundraiser linked to offshore tax maneuvers
Officials from Ernst & Young and Appleby, and other advisers, exchanged emails and held conference calls to puzzle over how to deal with EU rules, which allow VAT refunds for private planes only when they’re used for business purposes by real companies that operate in the EU.
Appleby set up an Isle of Man company called Stealth (IOM) Ltd. to lease the jet from Hamilton’s British Virgin Islands holding company, Stealth Aviation Ltd., and import the plane to the Isle of Man and, thus, thanks to the island’s relationship with the U.K., into the EU. The letterbox company then subleased the plane to TAG Aviation Ltd., a third-party jet operator in England.
But EU rules require that the company that imports the plane be a real – not a shell – company that actually operates in the EU. Only “fixed establishments” are eligible, and a fixed establishment is defined as having a “sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to provide the services which it supplies,” according to EU rules.
Stealth (IOM) Ltd. has no employees. Knock on the door at 33-37 Athol St. in Douglas, the capital, and you’ll find an Appleby office that also serves as headquarters for more than 1,100 companies and trusts. Stealth (IOM) has no staff and no building of its own. It has a “brass-plate” address and a single director, General Controllers Ltd. – another Appleby shell company used as a “nominee director,” a stand-in for the controlling parties.
Although the importing firm clearly exists only on paper, Isle of Man officials pre-approved Hamilton’s arrangement. After that, all that was required was a layover on the Isle of Man for customs to sign the jet’s paperwork allowing the VAT refund. Neither Hamilton nor his plane ever had to visit the island again, even though the firm that imported it is incorporated there.
Appleby sold its Isle of Man jet operation and the rest of its fiduciary business to the unit’s managers in early 2016; the new company took the name Estera.
In their statement, Hamilton’s lawyers said Stealth (IOM) Ltd. is not a shell company and was formed to run a leasing business and hire the aircraft on a long-term basis at a commercial rate. They said the company made all necessary disclosures to Isle of Man officials, who approved the approach.
The lawyers said that reducing taxes was not the motive for the arrangements, but even if it had been, it is lawful to lease, rather than buy, to reduce the VAT.
They added that it was not correct that Hamilton had paid no VAT on any of the arrangements.
In a separate statement, Ernst & Young said commercial leasing arrangements such as those used by Hamilton constitute entirely legitimate commercial practice. The accounting firm said that as a commercial business, the import company is entitled to reclaim the VAT incurred on its business asset against the VAT which it is due to pay on the import of the aircraft into the European Union if the aircraft is being used wholly or predominantly for business purposes by the end user.
It said the relevant consideration for such arrangements is where the aircraft flies (not where the aircraft is bought, leased to or leased from). Ernst & Young said it advises clients they should consider whether VAT needs to be charged for all flights within EU airspace and added that it is not able or required to monitor a client’s use of an aircraft on a day to day basis following registration.
“All our advice, whether in planning or compliance, is based on our knowledge of tax law and providing transparency to tax authorities,” Ernst & Young said in the statement.
It could not be learned whether any Hamilton entities paid VAT on trips within the EU.
EU rules forbid VAT refunds for personal jet purchases and imports. Hamilton, however, received a refund even though he had planned to use the plane for non-business purposes one-third of the time, according to draft leases in the Appleby files. And his social media feeds and website often flaunt his private use of the plane. One video, uploaded to Hamilton’s YouTube account, shows him, his dog Coco, and some friends aboard the plane, followed by scenes of him cavorting on four-wheeled dirt bikes in Colorado and dancing and drinking at a 2015 festival in Barbados.
The jet was used primarily for business purposes, Hamilton’s lawyers said, adding that on the few occasions that it was used for private purposes, a proper hire charge was invoiced and paid.
An unsigned statement to the Guardian on behalf of the Isle of Man government, said the government is committed to enforcing tax rules. “Whilst it is clear that no jurisdiction in the world could ever guarantee that instances of evasion, abusive tax avoidance and error do not occur on an individual basis, the Isle of Man is committed to ensuring that it is not used by those seeking to evade taxes or to abusively avoid taxes,” the statement said.
The statement added that in October 2016 the government began “to review the accuracy and efficacy of the declarations being made to it” by the roughly 270 aircraft ownership arrangements there.
Such arrangements aren’t so unusual among the very rich.
The United Arab Emirates – one of the world’s wealthiest countries – sought to avoid the VAT with help from Appleby. In 2012, the authoritarian Persian Gulf monarchy bought two Bombardier Global 6000s for $120 million and committed to paying $98 million more to convert them into high-tech spy planes.
Because it’s a state, the UAE wasn’t eligible to register an aircraft in the Isle of Man. Appleby and Washington-based Akin Gump lent a hand. Appleby created a shell company called Advanced Integrated Systems (IOM) Ltd. that could register the aircraft on behalf of the UAE.
Appleby also received assurance from the island’s customs officials that the planes wouldn’t be taxed. Akin Gump helped arrange Appleby’s registration of the plane, according to emails sent from its lawyers to Appleby. Neither Akin Gump nor the UAE returned requests for comment.
Not all such maneuvers, in the Isle of Man or elsewhere, are particularly complicated.
When Mohammed bin Salman, now crown prince of Saudi Arabia, bought the mega-yacht Serene from Russian vodka billionaire Yuri Shefler for $456 million, it was docked in the Port of La Ciotat, in the south of France. (The hefty price bought 30,000 square feet of living space, including an underwater viewing room, a climbing wall, a cinema and an indoor seawater pool, as well as space for 52 crew members. The yacht also has a helicopter hangar, at least five onboard boats and a submarine garage.)
Advisers proposed motoring the 439-foot yacht to international waters in the western Mediterranean and closing the sale there, according to documents sent from the American law firm Baker McKenzie to Appleby in 2015.
It couldn’t be learned if the plan was ever carried out. It’s unclear if any VAT was paid. A spokeswoman for the Saudi government declined to comment, as did Baker McKenzie.
Martinez, of Oxfam, said moving yachts is a common tax-avoidance strategy. “If you’re in international waters, no country can claim it,” she said. “It’s stateless income.” Whether the sale closed in international waters and whether the location was part of a tax-avoidance strategy could not be learned.
The lucrative business of working around ownership problems for aircraft and yachts has also attracted U.S. financial institutions. Appleby worked at least nine times total with Wells Fargo and Bank of Utah to create trust structures enabling noncitizens to register jets in the United States.
The Bank of Utah served as a trustee on one such deal involving natural-gas oligarch Leonid Mikhelson, deemed by Forbes the richest man in Russia, with a fortune estimated at $17 billion. Appleby made arrangements that included creating an Isle of Man branch of Mikhelson’s Panama company, Golden Star Aviation Ltd., which leased a Gulfstream G650 from a Cayman Islands company to also avoid VAT in Europe on the $60 million plane. (Golden Star Aviation’s president is listed as James Ackroyd-Cooper, a personal trainer in Suffolk, England.) The arrangement saved Mikhelson up to $12 million, according to Isle of Man documents approving the exemption from the 20 percent tax. Using the Bank of Utah as trustee also gave Mikhelson access to the U.S. jet registry, which would likely increase the plane’s resale value.
“Mr. Mikhelson acts strictly within the boundaries of the law and in compliance with applicable legislation at all times,” a spokesperson said. “He does not deem it necessary to provide any comments on his personal property activities.”
Gabriel Zucman, an assistant professor of economics at the University of California, Berkeley, and the author of “The Hidden Wealth of Nations,” said tougher information-sharing requirements for the offshore industry are required to stop the wealthy from avoiding taxes. “This confirms that the offshore system benefits a tiny elite who uses it to avoid and sometimes evade billions of dollars in taxes,” he said. “Unless we are willing to accept ever rising inequality, this situation is unsustainable.”
Appleby cut its ties to Mikhelson after U.S. authorities retaliated against Russia’s 2014 invasion of Crimea by blacklisting his natural-gas company, Novatek, along with other businesses and people tied to Putin.
This confirms that the offshore system benefits a tiny elite who uses it to avoid and sometimes evade billions of dollars in taxes.
An Appleby official wrote that, “with regret,” he had to advise Mikhelson’s representatives of the law firm’s decision to end relationships that were directly or indirectly connected to entities or people on the U.S. sanctions list. Appleby helped transfer Mikhelson’s arrangements to another Isle of Man firm.
The Bank of Utah applied to renew Mikhelson’s plane’s registration with the Federal Aviation Administration in 2016, two years after his company was sanctioned, according to FAA records.
In an interview with an ICIJ partner, The New York Times, Bank of Utah trust officer Joe Croasmun said the bank took seriously its obligations to know its customers and to be on guard against suspicious activities. When asked about the bank’s relationship with Mikhelson, Croasmun went to look in the bank’s files. When he returned, he said that the bank was indeed trustee for Golden Star Aviation but that he couldn’t find any mention of the Russian businessman.
“His name is not in there,” he said.
In a later statement, Croasmun said, “We view our risk management processes to be a living and breathing methodology, always growing to implement best practices and enhancing our country risk assessment as the world changes. We are currently doing a review of all countries we have designated as ‘higher risk’ – including transactions involving Russia.”
Elizabeth II has ruled the United Kingdom as queen since 1952, when her father, King George VI, died.
IN THE DATA
In 2005, the Duchy of Lancaster, Queen Elizabeth II’s private estate and portfolio, invested $7.5 million in Dover Street VI Cayman Fund LP, according to files from the offshore law firm Appleby. The fund invested in and profited from a company that developed fingerprint technologies for mobile phones and made investments in other high-tech and pharmaceutical companies. Other investors included British and U.S. universities, a United Arab Emirates bank and charitable foundations. In June 2008, the queen’s estate received about $360,000 from its investment.
The Cayman fund also invested in a private equity company that controlled BrightHouse, a U.K. rent-to-own firm that has been criticized by consumer watchdogs and members of Parliament for selling household goods to disadvantaged Britons on payment plans with annual interest rates as high as 99.9 percent. From at least 2004 to 2010, the duchy also invested in the Bermuda-based Jubilee Absolute Return Fund.
The queen’s offshore investments have not been disclosed in annual financial reports of the duchy, which is not obliged to reveal the details of her personal wealth. The queen voluntarily pays tax on income received.
The duchy has an ongoing investment in the Cayman Island fund and was not aware of the investment in BrightHouse, a spokeswoman for Queen Elizabeth II told The Guardian, an ICIJ media partner. The queen voluntarily pays tax on income from the duchy and its investments, the spokeswoman said. She also confirmed the duchy’s investments in two additional offshore funds. “The duchy’s investment policy is based on advice and recommendations from our investment consultants and asset allocation rather than tax strategy,” the spokeswoman said.
The Isles Are Alive With The Sound Of Music
Royalties from thousands of American classics are tucked away tax-free.
- A Jersey company owned the publishing rights to 26,000 songs, including classics such as "Louie, Louie," and "Country Roads”.
- Between 2007 and 2014 the company paid no tax on income generated by the catalog which made, on average. $4.6 million a year in royalties.
- The fund behind the company, First State Media Works Fund I, attracted investments from pension plans in North America, Europe and Australia.
Rummaging through the records of offshore havens turns up a fairly predictable list of assets – real estate, cash, earnings shifted to low-tax jurisdictions by multinational companies, hidden masterpieces by Picasso and other artists, antique cars, yachts and planes.
But musical memories? The songs that you danced to in your youth or at your son’s or daughter’s wedding? The summertime hit you sang driving down backroads or the reggae tune blasting at the beach? What are they doing offshore?
They’re there for the same reason as other assets – tax advantages. Skipping taxes increases earnings from intellectual property – patents, copyrights, trademarks and trade secrets – as well as other holdings.
Files from the Appleby law firm office on the island of Jersey, in the English Channel, include a cache of music publishing rights, a stream of royalties to be collected for music produced by artists that included John Denver of “Country Roads” fame, Duke Ellington, Chubby Checker (not your usual Jersey Boys) and Sheryl Crow.
It’s a music catalog, held until 2014 by a Jersey-registered company and originally managed by a company registered in Ireland. Why Jersey? Its standard corporate tax rate is zero.
Music publishing rights have retained value despite turmoil in the industry that has eroded the worth of related rights and caused a steep decline in royalties from sales of vinyl records and compact discs.
The universal language
“There is a burgeoning market for music catalogs among institutional investors who are looking for fairly reliable revenues in the future,” said Chris Hayes, an economist at the research firm Enders Analysis, which specializes in media, entertainment and telecommunications. Publishing rights generate income from a diversified pool of sources that includes, among other things, licensing the music to gyms, bars and even ringtone services.
The market’s steadiness has attracted new institutional investors, including pension funds. And, just like the owners of other valuable commodities, owners of music rights have looked to maximize value by stashing money-making music where the earnings flow tax-free.
It is not surprising that music publishers would want to go offshore. There is “a global structure in the music industry with national laws that are very different from country to country,” explains Luiz Augusto Buff, a Brazilian specialist on the industry. “But the users are global so that tends to make sense, with that much international transactions happening, to try to find a more efficient strategy tax-wise.”
If the owner plays it right, music catalogs can be real moneymakers. “The music publishing industry generates around $6 billion a year globally,” according to a 2015 analysis in the Berklee College of Music’s Music Business Journal. Every time a song is used in a movie or on TV, in a video game, on the internet or sold as sheet music, the owners of those rights cash in.
The Trammps’ 1976 “Disco Inferno” was the Jersey catalog’s most profitable song in 2009 and 2010, producing royalties of more than $600,000.
The owner of the catalog-owning Jersey company, First State Media Works Fund I, attracted investments from pension plans in North America, Europe and Australia. It created the Jersey subsidiary FS Media Holding Co.(Jersey) Ltd. as an investment vehicle, which was managed by First State Media Group (Ireland) Ltd. (FSMG) acting as a publisher – promoting the songs on behalf of songwriters, the way a label would for records.
Steve McMellon, former managing director of FSMG and now director of Southern Crossroads Music, did not respond to ICIJ’s repeated requests for comment.
The subsidiary was set up in 2007 specifically to acquire music rights. In July 2009, Crow sold the rights to 153 songs written between 1993 and 2008 to the Jersey company for about $14 million. The package included chart-topping hits “All I Wanna Do” and “My Favorite Mistake.”
Crow did not respond to requests for comment.
In April 2010, FSMG, the Irish company managing the catalog, was acquired by the U.K. media company Chrysalis PLC for about $16.8 million. The sale did not include the catalog. The combined companies were acquired by Bertelsmann Music Group less than a year later for $168.6 million. Steve Redmond, head of communications for BMG, said the company had been offered the catalog but did not acquire it. “We merely inherited a company which had a deal to manage those assets on behalf of the owners.”
In time the catalog owned by First Media grew to a collection of 26,000 songs from the last seven decades.
An offshore failure
The Jersey company continued to make money on royalties from Ellington’s “Day Dream,” Bob Marley’s “Get Up, Stand Up,” Avril Lavigne’s “Nobody’s Home,” Kelly Clarkson’s “Because of You” and others. From 2010 through 2012, it made on average $4.6 million a year in royalties.
And, in a 2013 overview written for its proposed sale, the catalog was described as “one of the larger aggregations of copyrights to have been recently available on the market.”
We have assumed the tax structure position of the Company as an off-shore tax structure whereby no tax is payable on income generated by the Catalogue.
The review of the Jersey company by the accounting firm KPMG also noted its tax advantages. In the first half of 2012, 68 percent of the royalties earned by the publisher – after paying writers, copyright-collection societies such as ASCAP and BMI, commissions and charges – came from the United States. Yet FS Media Works Fund I, an English limited partnership, paid no taxes in the United Kingdom, according to KPMG, and was not subject to U.S. federal income tax. Nor was there withholding tax associated with the catalog.
“We have assumed the tax structure position of the Company as an off-shore tax structure whereby no tax is payable on income generated by the Catalogue,” the accounting firm observed.
KPMG declined to comment on details of these reports but underlined that “they were prepared not in connection with tax, but as a basis for the valuation of certain assets to be included in the company’s financial statements.”
Despite the tax savings, things weren’t looking good for the catalog sale. Making money also requires good marketing.
An even earlier analysis by accounting firm PwC in 2011 found that the portfolio dropped more than half of its value in a single year – to $75 million in 2010 from $153 million in 2009. The 2013 KPMG analysis confirmed a decline in value of the catalog’s assets, underlining that the biggest drop came from the Sheryl Crow tunes, which suffered a 24 percent loss. “Changes in ownership . . . over the past three years have led to a lack of marketing of the Catalog and the copyrights have been under-exploited as a result,” according to a 2013 “teaser” to attract investors.
Documents show that FS Media Works Fund I was struggling to pay back $19 million still owed to the Royal Bank of Scotland on a loan taken out in 2009. The catalog ended up being sold in 2014 to Reservoir Media Management Inc., which declined to comment. The company, an independent music publisher based in New York City but incorporated in Delaware, acquired it for $38 million – about a quarter of its value five years before.
It sold for a song.
Prince Andrew’s words are a royal slap in the face to thousands of young people
On 5 November, leaked documents in the Paradise Papers suggested royal financial investments are linked to “offshore interests and activities”. And the following day, the Duke of York presented awards for technical education to young people at St James’s Palace. But at the awards ceremony, Prince Andrew claimed that he “did an apprenticeship”, because he learned to fly rather than going to university. His comment shows just how out of touch the royal family are.
A dubious past?
Prince Andrew is not new to controversy. He was forced to stand down as “special representative” for UK Trade and Investment (UKTI) in 2011. And as part of this role he was responsible for promoting British arms exports through its Defence & Security Organisation.
- Andrew’s friendship with US financier Jeffrey Epstein, led to allegations linking him to a series of sex scandals, some involving minors. But these claims were denied by the palace.
- His links with Kazakhstan oligarch Timur Kulibayev, led to allegations that he stood to gain over £4mfrom private deals brokered through his UKTI role.
- In 2010 Andrew was named in the WikiLeaks cache. And this revealed his criticism of a Serious Fraud Office investigation of arms giant BAE Systems. But leaks also outlined potential abuse of his UKTI position in dealings with Kyrgyzstan.
- And even after losing his UKTI position Andrew has been criticised. According to Campaign Against Arms Trade (CAAT) “Prince Andrew has consistently worked with the oppressive Bahraini regime and helped to promote arms sales abroad”.
Educated at private schools, Prince Andrew is seventh in line to the throne. And so his apprenticeship ‘experience’ is difficult to reconcile with the reality of most young people. Given increasing cuts to benefits and services for young people, comparing his life with theirs seems misplaced and out of touch.
In April 2017 the Conservative Government launched the apprenticeship levy. But although designed to create 3 million new apprentices by 2020, the scheme has been widely criticised. The Institute for Fiscal Studies said the scheme offered “poor value for money” and there is widespread confusion about the levy.
And according to The Young Women’s Trust there are further concerns about apprenticeships, especially for women. It found [pdf]:
- Two in five apprentices receive less in wages than it costs them to do their apprenticeship.
- Male apprentices continue to earn more than women: women earn an average £6.67 per hour compared to £7.25 for men.
- In key sectors such as engineering, men outnumber women 25 to 1.
- There are still too few part-time apprenticeship opportunities: Fewer than 1 in 10 apprentices work under 30 hours per week. Lack of part-time opportunities is a particular barrier to women.
But despite the issues with the new scheme, apprenticeships are the only opportunity available for many young people.
- Benefit changes in March 2017 removed housing benefit entitlement for 18-to-21-year-olds.
- Under the Conservatives, spending on mental health services for young people has been cut by nearly £50m.
- The 2017 Youth Index report [pdf, p5] revealed “that many young people feel that they have no control over their lives, are full of self-doubt and feel trapped by their circumstances.”
- And as The Canary previously reported, interest rates on student loans have soared. Many young people are reluctant to take on large debt by going to university.
Given Prince Andrew’s privileged upbringing, his comment is an insult to the harsh reality of most young people in the UK.
THE PROBLEM WITH THE PARADISE PAPERS
Moralistic exposés of people’s tax affairs won’t drag us out of the economic mire.
7 NOVEMBER 2017
GET SPIKED BY EMAIL
n what felt like page 278 of the Guardian’s feature-length exposé of the offshore tax and financial arrangments of the world’s super-rich, its editors clearly thought a justification was necessary, hence the piece entitled ‘Why we are shining a light again on the secretive world of tax havens’. And you can see the editors’ reasoning. Because, in a sense, it is not immediately obvious why the Guardian, the BBC, the New York Times and similarly virtuous others are currently feasting with such self-congratulatory glee on the so-called Paradise Papers – a collection of 13.4million leaked files from two offshore service providers, law firm Appleby and its sold-off fiduciary arm, Estera.
After all, what exactly are they exposing? That the very wealthy pay an ever-expanding retinue of financial experts, tax advisers and lawyers to minimise their tax liabilities, and manage their assets and capital? How exactly is something that is well known capable of being exposed? It’s like exposing the sugar content of ice cream, or the toiletry habits of bears in highly wooded areas.
Yes, admittedly, the details are interesting in a curtain-twitching way. So far we’ve learnt that the the queen, through her private estate, the Duchy of Lancaster, has invested millions of pounds in a Cayman Island fund, which in turn invested some of Lizzie’s easily-earned in the now defunct booze chain Threshers, and glorified pawnbrokers-cum-loansharks, Brighthouse, which has recently been accused of ripping off desperate customers. Of course, the queen herself is no doubt ignorant of how and where her vast wealth is managed and invested, with responsibility resting with those who advise the Duchy’s chief financial officer, but, still, it’s not good PR for our unelected head of state.
We’ve also learnt that right-on Canadian prime minister Justin Trudeau’s chief fundraiser, Stephen Bronfman, heir to the fortune of one-time Prohibition flouters Seagram, has built up a complex network of trusts and enterprises in several territories which passes money around itself with barely a look-in from Mr Taxman. And we’ve learnt that U2’s global statesman Bono was a ‘passive investor’, to use his agent’s words, in a Maltese firm that used the much mocked one’s cash to pay for a share in a shopping centre in north-eastern Lithuania. The lengths some will go to to dodge a bit of tax, eh?
And there’s plenty more where that came from, from ‘revelations’ about that already well-known tax exile and Tory donor Lord Ashcroft to the tax-dodging antics of multinationals Nike and Apple.
MUST-READS FROM THE PAST WEEK
NAOMI FIRSHT RACE
FRANK FUREDI USA
TIM BLACK HOUSING
TARA MCCORMACK RUSSIA
But if the leaked details are new, the story is not. Like the news that so-and-so is cheating on his wife with an aspiring model, the news that so-and-so is trying to pay as little tax as legally possible is revealed against a background in which we all know that ‘it goes on’. The Paradise Papers project is little more than the broadsheet equivalent of a tabloid ‘sex-shocker’, offering up the lip-licking detail of an affair as moral titilation for faithful taxpayers, a salacious peek into the sordid spreadsheets of the rich and sometimes famous, a voyeuristic gawp at the financial pecadilloes of the super-rich masquerading as an oh-so-righteous concern with society’s moral fabric.
But what it is not is revelatory. Tax avoidance is as old taxation itself, and, for most us, about as interesting. The question that really needs to be asked is why what wealthy individuals and companies do to reduce their liabilities has become such a prominent issue over the past five years or so. If you search online for news stories about tax avoidance, and its illegal close relative, tax evasion, there is virtually nothing from before 2008.
There were stories, of course, just as there were high-profile tax-dodgers, but they were not accorded the same public significance. This is not because the public were anymore tolerant of it then than they are now, but because what the wealthy pay in tax only acquired its contemporary meaning in the aftermath of the 2008 financial crash, and in the context of the underlying economic crisis. And that significance was generated by the political elite’s response to the crisis. That is, unable to confront the deep-seated problems of a stagnant, unproductive economy, which only boomed on the bubble-producing back of the financial-service industries and easy credit, the political and media classes moralised the crisis instead. They transformed it into the product not of capitalism’s systemic flaws, but of individuals’ greed and selfishness, which in turn generated a specious solution – a condemnation of individuals’ behaviour.
The moral reproaches and condemnation initially came the way of bankers, but it soon went towards the wealthy in general. They were accused of being selfish, avaricious, of keeping wealth to themselves, and fuelling ‘inequality’, itself a political buzzword of an anti-growth era in which bringing the rich down was preferred to raising the poor up. It was, and still is, in this context that individuals’ tax affairs have become fair game for broadsheet exposés and grist to the mill for politicians searching for a virtuous pose, from the former Tory prime minister David Cameron’s denuniciation of ‘the moral repugnance’ of the tax arrangments of that scourge of the impoverished, comedian Jimmy Carr, to the tedious accountancy carnivalesque of last year’s Panama Papers.
The problem with the moralisation of the economic crisis, the tendency to blame individuals’ behaviour rather than confronting the historically low levels of economic productivity, is that it militates against finding actual solutions. Instead of exploring ways in which the conditions of economic growth might be restored, invigorating the wealth-producing parts of economy, the political and media class is determinedly poring over how much tax is paid on existing wealth instead, re-dividing an ever-shrinking pie rather than working out how to make it bigger. Hence tackling tax avoidance, and not generating economic growth, is being presented, at some level, as a social and economic solution to our woes – and salivating over people’s private tax affairs as an exercise in moral virtue.
This is not to defend tax avoidance. There’s nothing virtuous or morally good about trying to limit the amount one pays to the state, no matter how legal it is. But then there is nothing virtuous or morally good about maximising the amount one pays to the state, either. As George Orwell put it during the Second World War, ‘Towards the government I feel no scruples and would dodge paying the tax if I could. Yet I would give my life for England readily enough, if I thought it necessary. No one is patriotic about taxes.’ His point was a simple one, and one rehearsed a thousand times in the history of political struggle, from the American Revolution to the present day: he did not support the beneficiary of tax, namely the state. And why should he or, indeed, anyone? The shadow chancellor John McDonnell said in response to the Paradise Papers that ‘every pound avoided in tax by the super-rich is a pound desperately needed by our NHS, our schools and our caring services’. And, yes, he’s right that the state does provide services that we largely value in healthcare and education. But it also provides billions of investment for the UK’s huge arms industry, wages war in and destabilises vast swathes of the globe, and treats its main sources of tax revenue less as citizens than as problems to be tackled, managed and treated. How, in that sense, is furnishing the state’s coffers a virtue?
But then, the obsession with people’s tax arrangements does not rest on political argument, let alone economics, but on moralism. Its main function, it seems, is to displace a necessary confrontation with the economy in favour of taking a shallow, posturing stand against really rich people doing self-interested things with their cash. Nothing is salved except the egos of these seekers of the moral high-ground. Yet, if we are really to pull ourselves out of the economic mire, we need more than grandstanding politicians and smug, broadsheet scandalmongering.