Massive tax avoidance leak

Byron Clark

Members of the International Consortium of Investigative Journalists (ICIJ) including Nicky Hagar, have spent the past 15 months working though a cache of 2.5 million leaked files full of information on the people using off shore tax havens- foreign jurisdictions one can use to avoid paying tax on their income. According to ICIJ:

“The leaked files provide facts and figures, cash transfers, incorporation dates, links between companies and individuals that illustrate how offshore financial secrecy has spread aggressively around the globe, allowing the wealthy and the well-connected to dodge taxes and fuelling corruption and economic woes in rich and poor nations alike.”

The documents mostly concern the British Virgin Islands but the Cook Islands also feature prominently. This has put Cook Island authorities on the defensive, Jennifer Davis from the Cook Islands Financial Services Authority told One News:

“The media and information that we’ve seen come out … in relation to this matter seems to presume that anyone using the services or structures of the international finance centres are dodgy and that is simply not the case,”

Island nations often face limited development opportunities because of their small population and land area, so legislation giving them ‘tax haven’ status is seen as a method of attracting foreign capital. In 2002 The Economist described the main asset of these countries as the right to write the laws- something the Cook Islands did in the early 1980s, following lobbying from Australian and New Zealand business people. Today financial services are second only to tourism in the nation’s economy.

New Zealanders – that is, those New Zealanders with wealth significant enough to make using a tax haven worthwhile- began to take advantage of the Cook Islands after the removal of financial institution regulations and foreign exchange controls, as well as the liberalisation of the banking sector in New Zealand that occurred during the era of neoliberal reforms referred to as ‘Rogernomics’

One of the organisations the leaks have come from was set up by Former New Zealand lawyer Mike Mitchell, who was the Cook Islands solicitor-general in the early 1980s and main government adviser as the tax haven was established, before resigning to establish what was then called Pacific Trustee Company, now TrustNet.

TrustNet has continued to be staffed by many New Zealanders. The company has an office on Auckland’s North Shore. For 14 years the company was majority-owned by the Spencer family. John Spencer was New Zealand’s richest man in the 1980s and still incredibly wealthy, his son Berridge and daughter Mertsi were both National Party donors in 2005. TrustNet markets itself today as the largest independent offshore services company in Asia.

Documents show TrustNet has a business relationship between BNZ and ANZ, with bank staff routinely helping TrustNet move money in and out of its clients’ offshore bank accounts at branches in Singapore and the Cook Islands respectively. This demonstrates that despite widespread concern over “foreign ownership” around issues such as asset sales, ownership by New Zealand capitalists is no indication that money will “stay in the country”.

The secrecy and anonymity associated with tax havens has led to criticism relating to their use by corrupt politicians and fraudsters. This sort of activity does appear to be wide spread, the leaked documents show individuals and companies linked to Russia’s ‘Magnitsky Affair’, a tax fraud scandal and a Venezuelan deal maker who is accused of using offshore entities to bankroll a U.S.-based Ponzi scheme as well as funnelling bribes to a Venezuelan government official.  Indonesian billionaires with ties to the late dictator Suharto have also made use of tax havens. Suharto enriched a small circle of elites during his decades in power.

ICIJ’s examination has also identified 30 American clients accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct. They include ex-Wall Street titans Paul Bilzerian, a corporate raider who was convicted of tax fraud and securities violations in 1989, and Raj Rajaratnam, a billionaire hedge fund manager who was sent to prison in 2011 in one of the biggest insider trading scandals in U.S. history.

In the mid 1990’s tax havens were at the centre of tax evasion schemes that became the subject of the ‘Winebox’ inquiry. These schemes involved some of New Zealand’s most powerful companies such as The Bank of New Zealand, Brierleys and Fay Richwhite. Undoubtedly there are enormous amounts of dubious activity going on in the network of small island states and banks.

However, most customers of the financial services offered by tax havens are using offshore accounts “legitimate” purposes, such as escaping the “rules and red tape” of onshore jurisdictions. While tax evasion is a crime, tax avoidance is “best practice” for businesses and at present perfectly legal.

Far from just being a white collar criminal underworld, tax havens have become an integral part of global capitalism. Tax Justice Network, an international research and advocacy group estimates a third of the world’s wealth is held in tax havens, with a majority of world trade moving though them.