The Paradise Papers leak of 13.4-million documents from more than 19 "secrecy jurisdictions" across the world will put pressure on authorities to tighten up tax avoidance laws.
The Paradise Papers were obtained by German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and more than 380 journalists in 67 countries.
It provides unprecedented insight into the mechanics of a number of countries considered key nodes in the global shadow economy, threatening to embarrass thousands of high-profile individuals.
Most relevant for South African companies, the leak involves more than half a million secret records from Appleby’s office in Mauritius — a country touted as a gateway for those seeking to do business in Africa and a tax haven favoured by many large South African corporates to establish their offshore arms.
Dick Forslund, an economist whose Alternative Information and Development Centre has tackled companies like Lonmin for putting in place "transfer-pricing arrangements" designed to push money through secrecy jurisdictions, says there’s often no good reason for setting up offices in tax havens.
"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."
Forslund describes this as "an accepted practice now — everyone is doing it".
And the South African Revenue Service "is doing nothing about it".
Experts agree that while there is nothing illegal in having a company registered in Mauritius or other tax havens, the built-in secrecy has historically attracted money-launderers, kleptocrats and politicians eager to hide bribes.
About 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 date from 1950 to 2016 and include e-mails and loan agreements from more than 25,000 entities in 180 countries.
Take the case of Glencore — the largest JSE-listed commodities company and the biggest commodities trader in the world. 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, to 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 department of justice investigation "does not constitute evidence of anything" and he "rejects absolutely any allegations of wrongdoing".
But the leaks include numerous explosive details of the private lives of celebrities, high-profile politicians and multinationals.
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.
US President Donald Trump will also feel the heat, as the documents reveal how his commerce secretary, private equity tycoon Wilbur Ross, has a stake in a shipping company that received more than $68m 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 invested millions of dollars in medical and consumer loan companies. This is the first time details of the English 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 criticised 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%.
A spokesman for Queen Elizabeth told The Guardian that while she had an investment in the Cayman Island fund, she was not aware of the investment in BrightHouse.
The files reveal details 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; and U2 singer Bono’s shares (listed under his full name, Paul Hewson) in a Malta company that invested in shopping centres in Lithuania.
While Madonna and Allen did not reply to requests for comment, Bono’s spokesman said he was a "passive, minority investor" in the Malta company, which 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.
His charitable organisation, the Open Society Foundation, is a donor to the International Consortium of Investigative Journalists and amaBhungane. Soros declined to comment.
Other disclosures 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 e-mail 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 reorganisation, but said the changes did not reduce its tax payments.
The files also show how large corporations decrease their taxes by creating offshore shell companies to hold intangible assets, such as the design of Nike’s "Swoosh" logo or 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 antimoney laundering rules, according to a confidential 2015 deal struck by Appleby and the regulator.
In 2017, 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 that it certainly did not tolerate illegal behaviour.
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