Archive for the ‘tax evasion’ Category
Money trail leads home to New Zealand, Sunday Star-Times
by Nicky Hager
Leaked documents reveal one of New Zealand’s richest families was for a time at the heart of a major international tax haven company that hit the news in the United States last week.
John Spencer, New Zealand’s richest man in the 1980s and still incredibly wealthy, was – with his family – majority owners of the company called TrustNet, whose extremely secret client records have been leaked en masse to a Washington DC-based journalism organisation. The leaks reveal the identity of tens of thousands of people who use tax havens: some involved in dodgy activities and evading tax, others in lawful activities including companies doing business across political borders and individuals living in multiple countries or legitimately minimising their tax.
Surprisingly, the leaks show New Zealanders are involved extensively in this shadowy world of offshore companies and secret bank accounts.
The company at the centre of the Washington leaks was set up by New Zealanders, has been staffed by many New Zealanders and for 14 years was majority-owned by the Spencers.
The Spencers have courted controversy. John Spencer waged a 19-year battle to stop public access to the Stony Batter gun emplacement on his Waiheke Island farm, including barricading a public road. The Star-Times revealed in 2005 that his son Berridge and daughter Mertsi were secret National Party donors. And now Spencer is the Kiwi connection to secret tax haven records that may be the largest leak of financial information in history.
They expose the hidden activities of wealthy, secretive or criminal people in around 150 countries and territories. In total, about one-and-a-half million documents were leaked to the International Consortium of Investigative Journalists (ICIJ), an independent network of reporters who work together on cross-border investigations. There is currently hot debate around the world about corporations which don’t pay tax and the respectable bankers and lawyers who assist them.
The Tax Justice Network and other organisations are pushing for governments like New Zealand’s to stop tolerating tax havens and work together to close them down. TrustNet has helped set up and manage companies, trusts and bank accounts in tax havens for about 80,000 individual clients.
According to overseas news stories based on the leaks, they include the mega-rich, corrupt regimes, corporations dodging tax, fraudsters, companies shifting wealth out of poor countries, companies with controversial or secretive business, mercenaries and spies, and also many ordinary people who want to move their money and business “offshore”.
The Tax Justice Network estimates that about one-third of the world’s wealth is held offshore and about half of all the world’s trade flows through tax havens. New Zealanders have had occasional glimpses of the offshore world. Star-Times stories have exposed:
* Geoffrey Taylor, and his sons Ian and Michael, setting up companies in New Zealand for North Korean arms trading and organised crime;
* an Auckland Burger King cook was a director for some of these companies;
* and a Nelson woman who supposedly owned a Moldovan TV station, again through a chain of Taylor companies.
Mostly these people and their shell companies have been pawns in a much bigger system.
KIWIS IN KEY ROLES
The TrustNet leaks show New Zealanders in key roles helping to run the system. TrustNet markets itself today as the largest independent offshore services company in Asia. It was set up 25 years ago by Kiwis in what was then the newly established Cook Islands tax haven.
In the early 1980s business lobbyists from New Zealand and Australia persuaded the Cook Islands government that becoming a tax haven would bring riches to the small island group. These lobbyists included New Zealander lawyer Trevor Clarke, “father of the Cook Islands tax haven”, who with others used the new tax haven laws to build a company called European Pacific.
Documents about European Pacific’s tax schemes were leaked and tabled in the New Zealand Parliament by MP Winston Peters, igniting the Winebox scandal (see breakout).
Another key figure was New Zealand lawyer Mike Mitchell, the Cook Islands solicitor-general in the early 1980s and main government adviser as the tax haven was established. He resigned from that role in 1986 to move into the offshore business himself. On April 29, 1987, he established an offshore services company called Pacific Trustee Company. The company was later renamed TrustNet, the company at the centre of last week’s leaks.
TrustNet’s first chief executive was another New Zealand lawyer, Steve Breed, who was joined a few years later by fellow Auckland law school graduate David Sceats. Early staff included people who’d worked on the Cook Islands Winebox schemes. The European Pacific tax expert accused in court of leaking the Winebox documents, New Zealand lawyer George Couttie, had moved on to work for TrustNet in Hong Kong. But soon after this accusation was made, according to internal documents, senior TrustNet staff recorded a terse company resolution that “accepted” his resignation “effective from the date hereof”.
In contrast, European Pacific’s former senior executive Geoff Barry was later hired by TrustNet and rose to become the chief executive officer. Today, 10 years later, he is executive director of TrustNet’s Hong Kong office.
Spencer’s ownership of TrustNet was never publicised. It came to light only during analysis of the leaked records. A note about an obscure offshore entity says “Client is our big boss, John Spencer”.
Spencer, who had inherited his family’s Caxton toilet paper empire, owned, with his family, a majority share of TrustNet from July 1990 until September 2004, through a Bahamas company called International Trustee Holding Company Limited. John and Berridge Spencer also used TrustNet to place some of their own money and investments in a complex web of offshore companies and trusts. These were based in the British Virgin Islands and Cook Islands, with names such as Northern Lights Trust, Star One Trust and Tristar Capital Service Limited. A spokesperson for the Spencer family said neither John nor Berridge Spencer have been New Zealand residents since the 1990s and in those circumstances it was hardly surprising that the family have assets invested outside of New Zealand.
With the Spencers’ backing TrustNet grew quickly, opening offices in Hong Kong in 1991, the British Virgin Islands in 1993 and Singapore in 1994. The early clients included a controversial Indonesian rainforest logging tycoon named Prajogo Pangestu, who had four British Virgin Islands companies.
Another TrustNet client was the former European Pacific manager Trevor Clarke. He had his own set of offshore companies and trusts administered by TrustNet. They were home to millions of dollars of assets, the leaked documents reveal, and TrustNet staff were given special instructions about keeping them secret. One document reads: “We are to contact Trevor by phone only unless otherwise instructed . . . No documents are to be kept here. All docs are to be held in our Hong Kong office.”
Clarke was appointed chair of the Cook Islands’ new Financial Supervisory Commission from 2003 until 2010, which was set up to oversee the offshore industry. Throughout those years he had the secretive offshore trusts and companies. Clarke responded that he was not “a user of any Cook Islands entities” – his companies and trusts were in Samoa and the British Virgin Islands – and said these were set up well before his role as FSC chair. He had disclosed them to a number of authorities. He said there were lots of reasons for people to want to have assets outside the country where they live. The secrecy instructions did not come from him, he said.
The TrustNet files also show a close relationship between the company and the BNZ and ANZ banks, which had dedicated staff for offshore banking. The leaked documents show bank staff routinely helping TrustNet move money in and out of its clients’ offshore bank accounts held at the BNZ Singapore branch and ANZ Cook Islands branch.
In September 2004, the Spencers sold TrustNet to a Singaporean offshore lawyer named David Chong. But many of the New Zealanders, especially lawyers, continued to work in the company and be part of tax haven politics.
Lawyers created the offshore world and lawyers and accountants run it. They lobby in each tax haven for special laws to attract clients and often actually write the laws themselves. The leaked TrustdhNet papers show this clearly in the minutes of the Cook Islands Trusdhtee Company Association. The offshore services company heads are seen sitting around deciding what laws they want, putting the hat around for money to have them drafted and then arranging to predhsent the new laws to the Cook Islands government. The same lawyers then use these laws to help their clients.
They also deal with the problems when things go wrong. One of TrustdhNet’s New Zealand lawyers Penny Purcell was on duty, for instance, when two officers from the Hong Kong Commercial Crime Bureau turned up on August 20, 2007, at TrustNet’s harbour-front offices. They were investigating a fraud case involving a British Virgin Islands company called Sound Financial Management Limited.
The secret TrustNet files include Purcell’s written record of the meeting. Detective Sergeant Steven Lam produced a formal letter from the Hong Kong commissioner of police requesting ‘‘all relevant documents’’ about Sound Financial Management Limited and details of the company’s director and shareholder. Purcell replied that the officers would need to contact TrustNet’s British Virgin Islands office and, according to her own notes, assured them ‘‘we do not keep any files or records here’’.
She said the police ‘‘were surprised’’ the office had no records and asked how this could be ‘‘if the client is based here in Hong Kong’’. ‘‘I then explained,’’ Purcell wrote, ‘‘that we acted as a marketing/secretarial office but that all information including the registers of the Company were kept in its registered office.’’
Detective Sergeant Lam tried one last time, she wrote, asking if they kept any information there in Hong Kong, including correspondence. ‘‘I said no,’’ Purcell wrote. A few days later TrustNet repeated the denial by letter. ‘‘Portcullis TrustNet (Hong Kong) Limited does not hold any corporate or statutory records of the Company, nor is it required to,’’ the letter said. However, the details the police were looking for would have been instantly available on Purdhcell’s computer. The leaked TrustdhNet documents show that she routinely used the company’s Offshore Management Information System (OMIS), which was available in all the TrustNet offices and contained all the client records.
The OMIS database, which was leaked to ICIJ, lists Sound Financial Management’s director and shareholder as Glen Douglas Crankshaw, a Canadian living near Bangkok. TrustNet helped his company open a bank account at the Standard Chartered Bank, Hong Kong branch, located on the ground floor of the same building as TrustNet. According to Purcell’s notes, she told them none of this. Two years later the Hong Kong police issued an arrest warrant for Crankshaw for ‘‘dealing with property known or reasonably believed to represent the proceeds of indictable crime’’. They had traced him through a different offshore company, with the similar name ‘‘GS Sound Management Limited’’.
Purcell has since returned to help run TrustNet’s office on Auckland’s North Shore. She remains part of a network of New Zealand offshore lawyers scattered in tax havens around the world. They include former TrustNet lawyer Barry Mitchell who, according to court documents, gave assistance during the setting up of the Trinity investment scheme, New Zealand’s largest tax avoidance case; and Act Party-aligned blogger Cathy Odgers (‘‘Cactus Kate’’) who has worked as an offshore lawyer in the British Virgin Islands and Hong Kong.
Various offshore lawyers have brought their skills home, taking advantage of New Zealand’s loose company and trust law. The original TrustNet lawyers, Breed and Sceats, came home and set up Nexus Trust, promoting New Zealand’s tax haven potential to foreign clients. Two other former Cook Island lawyers, Nick Shepherd and (former European Pacific executive) Mike Reynolds set up Anchor Trustees which offers services to ‘‘non-resident families and corporates’’.
Long-term TrustNet client Tim Brears on Auckland’s North Shore offers clients advice on the ‘‘advantages of moving ownership and control of assets and investment offshore out of New Zealand’’.
Nicky Hager has worked in a multi-country team for the past 15 months analysing the leaked materials and co-ordinating local journalists in Asia, Africa and part of Europe who collaborated in the International Consortium of Investigative Journalists project, www.icij.org.