A number of high profile South Africans and local institutions are flagged in the biggest tax leak since the Panama Papers, which is set to cause ripples amongst many who have stashed their wealth in offshore tax havens.
Most of the 13.4-million documents which have emerged relate to Appleby, an elite law firm with offices in offshore jurisdictions across the globe, and its corporate services provider Estera, which operated together under the Appleby name until last year.
This leak, dubbed the Paradise Papers, highlights damning cases of tax abuse and questionable business practices involving multinational companies, high level politicians, celebrities, wealthy executives and even royals.
It includes never-before-seen details of corporate registries in 19 countries infamous for ensuring high levels of secrecy – key nodes in the global shadow economy.
Among Appleby’s long list of international clients are multinationals and high net-worth individuals with links to South Africa, including the world's largest commodities company, Glencore.
The Paradise Papers leak also includes references to Illovo Sugar and Shanduka (the company which deputy president Cyril Ramaphosa founded and in which he held a stake until 2014) as well as Glencore's SA-born CEO Ivan Glasenberg.
While merely being an Appleby’s client, or simply being mentioned in the leaks, does not imply wrongdoing, the leak of information is likely to embarrass companies.
A number of top SA banks also make regular appearances in the data. Several SA banks maintain offices in secrecy jurisdictions, from where account details were compromised – including Investec and Standard Bank.
In a brochure for potential clients, Appleby brags about its role in “advising Standard Bank of South Africa Limited on a US$70-million facility for the purpose of refinancing Zambia Sugar Plc, a subsidiary of Illovo Sugar Limited”.
That loan to JSE-listed Illovo Sugar, then 51% owned by British Foods Plc, was itself the subject of a tax avoidance scandal after a report by international NGO ActionAid exposed how Illovo used artificial structuring to dodge Zambian taxes. This meant Illovo paid an effective tax rate of 0.5% when Zambia had a corporate tax rate of 35%.
ActionAid estimated that Illovo deprived the Zambian government of up to $3-million in taxes – 14-times larger than UK aid provided to the country to combat hunger.
That Illovo Sugar case offers a sense of some of the kinds of transactions Appleby was engaged in – involving secret trusts and webs of offshore shell companies to avoid taxes.
David Lewis, director of Corruption Watch and the former chair of the Competition Tribunal, says it’s not illegal for South African firms to put money into places considered tax havens.
“However, the problem is, some companies abuse this privilege by using it for transfer pricing, evading taxes and hiding transactions behind secrecy provisions,” he says.
While there is nothing intrinsically illegal in having a company registered in Mauritius or other tax havens, and though tax avoidance isn’t necessarily illegal per se, the built-in secrecy this offers has historically attracted money-launderers, kleptocrats and politicians eager to hide bribes.
Of particular interest in this regard is the case of one of Appleby’s top corporate clients - Glencore, the JSE-listed commodity trading giant.
Glencore was such an important client that it once had its own room within Appleby’s offices in Bermuda. Board minutes show how Glencore representatives leaned on Daniel Gertler, an Israeli businessman with high-level friends in the Democratic Republic of the Congo (DRC), 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 US Department of Justice inquiry as a conduit for bribes.
Responding in recent days to questions, Glencore said its background checks on Gertler were “extensive and thorough".
Gertler’s lawyers said the US Justice Department investigation “does not constitute evidence of anything” adding that he “rejects absolutely any allegations of wrongdoing”.
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”.
Two years ago, Thabo Mbeki, who chaired the African Union (AU) panel on illicit flows, said that over the last five decades it is believed that Africa lost more than $1-trillion in “illicit financial outflows”.
Even today, Mbeki said the continent loses about $50-billion every year through these illicit flows, based on data from the International Monetary Fund (IMF) and other sources.
"The various tax havens and financial secrecy jurisdictions in Africa and elsewhere in the world are at the centre of the problem,” he said.
The Paradise Papers revelations, which follow in the wake of last year’s Panama Papers expose, also by the International Consortium of Investigative Journalists (ICIJ), will ratchet up pressure on authorities to crack down on tax havens.
The Paradise Papers were obtained by German newspaper Süddeutsche Zeitung and shared with the ICIJ and a network of more than 380 journalists in 67 countries, including amaBhungane and the Financial Mail in South Africa.
The leak involves more than half a million secret records from Appleby’s office in Mauritius. The country is touted as a gateway for those seeking to do business in Africa and is a tax haven favoured by many large SA companies to establish their offshore arms.
Dick Forslund, an economist whose Alternative Information and Development Centre (AIDC), has tackled companies like Lonmin for putting in place “transfer pricing arrangements”, designed to push money through secrecy jurisdictions.
“In most cases, there’s no reason for these arrangements other than to siphon-off money or to get some tax benefit. If you buy a hotel in Mauritius, that’s legitimate – but for a company to push sales commissions or management fees through Mauritius when there’s nothing there, that’s not legitimate,” he says.
Forslund describes this as “an accepted practice now – everyone is doing it. And Sars is doing nothing about it”.
In all, around half of the 13.4-million documents in the leaks are from Appleby – founded in Bermuda more than 100-years ago – and its affiliates. The data dates from 1950 to 2016 and includes emails, and loan agreements, from more than 25,000 entities in 180 countries.
Appleby would not respond to detailed questions, but it did release a statement saying it had investigated ICIJ’s questions and is “satisfied that there is no evidence of any wrongdoing".
Included among the leaks are offshore traces of spy planes bought by the United Arab Emirates and the Barbados explosives company of a Canadian engineer who tried to build a “super gun” for Iraqi dictator Saddam Hussein.
Others who will likely have to face tough questions include US President Donald Trump, whose billionaire commerce secretary can be linked to Russia through the documents,
Canadian prime minister Justin Trudeau, whose chief fundraiser’s secret dealings have emerged, and more than 120 politicians.
Globally, the leak also shows how corporate giants such as Apple, Nike and Uber avoided taxes through increasingly imaginative bookkeeping.
When it comes to Trump, documents reveal how his commerce secretary, private equity tycoon Wilbur Ross has a stake in a shipping company that has received more than $68-million since 2014 from a Russian energy company co-owned by the son-in-law of Russian President Vladimir Putin.
Intriguingly, the leaked Appleby files show how Queen Elizabeth II invested millions of dollars in medical and consumer loan companies, Appleby’s files show. This is the first time details of the Queen’s private offshore investments have emerged.
The records show that as of 2007, the queen’s personal estate invested in a Cayman Islands fund that in turn invested in a private equity company that controlled BrightHouse, a UK 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.
A spokesman for Queen Elizabeth II told The Guardian that while she has an ongoing investment in the Cayman Island fund, she was not aware of the investment in BrightHouse.
The files also reveal detail about the financial lives of the rich and famous.
They include Microsoft co-founder Paul Allen’s yacht and submarines, music star Madonna’s shares in a medical supplies company, U2 singer Bono (listed under his full name, Paul Hewson)’s shares in a Malta-company that invested in a shopping centre in Lithuania.
While Madonna and Allen did not reply to requests for comment, a spokesman for Bono said he was just a “passive, minority investor” in the Malta company that closed down in 2015.
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 Foundation, is a donor to ICIJ and amaBhungane. Soros declined to comment.
Other revelations include how the US’s most profitable company, Apple, shopped around Europe and the Caribbean for a new island tax shelter after a US 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 said the changes did not reduce its tax payments.
The files also show 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.
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 tax-avoidance scheme.
Appleby and the alleged mastermind did not admit wrongdoing. Appleby said in its response that it “provides advice to clients on legitimate and lawful ways to conduct their business,” – and doesn’t 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.”
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