A massive leak of records of the global offshore financial system has revealed financial secrets relating to more than 120,000 offshore companies and trusts and exposed secret dealings of politicians, international fraudsters and the world's rich.
The records, a cache of 2.5 million files, obtained by a non-profit organization, the International Consortium of Investigative Journalists (ICIJ), a global network of journalists in more than 60 countries, reveal the identities of individuals behind covert companies, shady businesses and private trusts in the British Virgin Islands, the Cook Islands and other offshore locations where the world's rich and politically influential stash their wealth in sworn secrecy.
ICIJ.org reports that the records cover details of previously secret financial transactions of people and companies in more than 170 countries and territories of the world. The documents represent the biggest cache ever of inside information about the global offshore system ever obtained.
According to ICIJ.org, the names revealed include a medley of people of diverse backgrounds, including American professionals, relatives and friends of African and Asian despots, Wall Street swindlers, Eastern European, Russian, Asian billionaires and global arms dealers.
The leaked files lay bare for the first time the extent to which financial institutions that provide financial secrecy have been able to help wealthy and influential people to dodge taxes, facilitate official corruption especially in poor developing economies and exacerbate the widening gap between the poor and rich of the world.
ICIJ worked in collaboration with 86 journalists from 46 countries. Media firms involved in the collaborative effort included The Guardian and the BBC in the UK; Le Monde in France, Süddeutsche Zeitung and Norddeutscher Rundfunk in Germany; The Washington Post, the Canadian Broadcasting Corporation (CBC) and 31 other media partners around the world.
The journalists sifted through a formidable mass of information contained in emails and accounting records accumulated over a period of 30 years.
Arthur Cockfied, law professor and tax expert at Queens University in Canada, who saw some of the documents, said in an interview with the CBC: "I've never seen anything like this. This secret world has finally been revealed." According to Cockfield, the documents were reminiscent of the classic movie The Wizard of Oz, in which "they pull back the curtain and you see the wizard operating this secret machine."
The global impact of offshore secrecy
The massive flow of global wealth obtained both legally and illegally to a restricted circle of privileged service providers who guarantee secrecy for their clients continues to impact adversely on the world's economies.
One of the major arguments against offshore secrecy is that it promotes global corruption, and provides a means for the wealthy to avoid paying their fair share of taxes, thus increasing the burden of taxation on ordinary people. According to ICIJ.org, studies have estimated that the flows of global proceeds of financial crimes to offshore havens total up $1.6 trillion a year.
ICIJ's investigation found that secrecy offered by the offshore financial services facilitates fraud, tax dodging, corruption and global financial crimes. According to experts the offshore industry provides opportunities for crooked officials to loot national treasuries and provide cover for global crime syndicates.
The anonymity of the offshore accounts makes it very difficult for authorities to keep a tab on the flow of funds. According to ICIJ.org, a study by James S. Henry, former chief economist at McKinsey & Company, and board member of the Tax Justice Network, estimates that private wealth amounting to about 21 trillion to $32 trillion, stashed away in offshore havens, is roughly equivalent to the size of the US and Japanese economies combined.
Henry reports that while European and US economies run into stormy waters, offshore funds continue to grow. According to Henry, assets managed by the world’s 50 largest "private banks" which provide access to offshore financial services for their high net-worth clients, grew from $5.4 trillion in 2005 to more than $12 trillion in 2010.
ICIJ’s report focused on two of the most successful offshore firms, the Singapore-based Portcullis TrustNet and British Virgin Islands-based Commonwealth Trust Limited (CTL), who help their clients to set up offshore companies, trusts and bank accounts that are difficult to trace.
BVI regulators, for instance, found that on several occasions between 2003 and 2008, CTL violated the islands' anti-money-laundering laws. The company often failed to take care to verify its client's identity and background.
ICIJ’s investigation of TrustNet documents found about 30 American clients who have been accused in lawsuits, including criminal cases of fraud, money laundering and other serious financial crimes. According to ICIJ, the individuals include Paul Bilzerian, who was convicted of tax fraud and securities violations in 1989; Raj Rajaratnam, a billionaire hedge fund manager jailed in 2011 for involvement in one of the biggest insider trading scandals in US history.
The records also show the methods offshore financial services providers and their clients employ to hide funds through multi-layered global structures consisting of multiple companies, foundations and financial products. According to ICIJ.org:
When they (TrustNet) create companies for their clients, offshore services firms often appoint faux directors and shareholders — proxies who serve as stand-ins when the real owners of companies don’t want their identities known. Thanks to the proliferation of proxy directors and shareholders, investigators tracking money laundering and other crimes often hit dead ends when they try to uncover who is really behind offshore companies.
An analysis by ICIJ.org, the BBC and The Guardian identified a cluster of 28 "sham directors" who served as the on-paper representatives of more than 21,000 companies between them, with individual directors representing as many 4,000 companies each.Offshore owners exposedThe Guardian identifies "an extraordinary array" of government officials and rich families from countries including Canada, the US, India, Pakistan, Indonesia, Iran, China, Thailand and former communist states.
According to The Guardian, the data its reporter saw was related mainly to offshore holdings in the British Virgin Islands. Offshore owners identified include:
Jean-Jacques Augier, François Hollande's 2012 election campaign co-treasurer, launched a Caymans-based distributor in China with a 25% partner in a BVI company. Augier says his partner was Xi Shu, a Chinese businessman.
Mongolia's former finance minister, Bayartsogt Sangajav set up "Legend Plus Capital Ltd" with a Swiss bank account, while he served as finance minister of the impoverished state from 2008 to 2012. He says it was "a mistake" not to declare it, and says "I probably should consider resigning from my position".
The president of Azerbaijan and his family. A local construction magnate, Hassan Gozal, controls entities set up in the names of President Ilham Aliyev's two daughters.
The wife of Russia's deputy prime minister. Olga Shuvalova's husband, businessman and politician Igor Shuvalov, has denied allegations of wrongdoing about her offshore interests.
A senator's husband in Canada. Lawyer Tony Merchant deposited more than US$800,000 into an offshore trust.He paid fees in cash and ordered written communication to be "kept to a minimum".
A dictator's child in the Philippines: Maria Imelda Marcos Manotoc, a provincial governor, is the eldest daughter of former President Ferdinand Marcos, notorious for corruption.
Spain's wealthiest art collector, Baroness Carmen Thyssen-Bornemisza, a former beauty queen and widow of a Thyssen steel billionaire, who uses offshore entities to buy pictures.
US: Offshore clients include Denise Rich, ex-wife of notorious oil trader Marc Rich, who was controversially pardoned by President Clinton on tax evasion charges. She put $144m into the Dry Trust, set up in the Cook Islands.
It is estimated that more than $20tn could lie in offshore accounts.