the audit

Investigative collaboration, cross-border edition

A landmark series on offshore tax havens from the International Consortium of Investigative Journalists
April 8, 2013

A good sign that your investigation has hit the mark is when law enforcement agencies start demanding to see your data.

That’s the position the International Consortium of Investigative Journalists finds
itself in as officials from Germany, Greece, South Korea, Canada, and the US have requested access to its massive exposé of the off-shore tax haven business.

The project has to be a landmark of some sort. The numbers alone are eye-catching: 86 journalists from 37 news organizations, including The Washington Post, Le Monde, the Guardian, the Canadian Broadcasting Corp, in 46 countries analyzing 2.5 million records relating to 120,000 companies in ten offshore jurisdictions.

Got all that?

The records come from two unlucky offshore-servicing firms that happened to lose control of a trove of data: Commonwealth Trust Ltd. (CTL) in the British Virgin Islands and Portcullis TrustNet, which operates mostly in Asia and the Cook Islands. The records were obtained by Gerard Ryle, ICIJ’s director, as a result of an investigation he was conducting in Australia.

In a blog post, Ryle, quite naturally enough, says the group isn’t turning over documents to any law enforcement agency:

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The ICIJ is not an arm of law enforcement and is not an agent of the government. We are an independent reporting organization, served by and serving our members, the global investigative journalism community and the public.

Founded in 1997, the philanthropically funded ICIJ was launched as a project of the Center for Public Integrity to extend the Center’s style of watchdog journalism, focusing on cross-border issues and emphasizing collaboration among news organizations.

The best single story summarizing the off-shore findings is the Post‘s version, which informs us that fully one third of the world’s wealth resides in offshore jurisdictions—some of it legitimately so, much of it not. The purpose of the accounts is keeping assets hidden from someone—tax authorities, ex-spouses, Ponzi-scheme victims, and courts trying to enforcement judgments. The biggest fallout from the expose, as we’ll see, stems from the publishing of public officials and other bold-faced names from countries around the world secretly keeping assets in offshore accounts, sometimes in violation of local law.

The whole phenomenon is made possible by shadowy firms that specialize in setting up the shell companies that hold foreigners’ assets anonymously, usually in jurisdictions that do not honor foreign subpoenas.

Here’s a bit from the Post involving CTL, one of the larger links in the off-shore daisy chain:

There’s no evidence that CTL participated in fraud or other crimes. Internal records suggest, however, that the firm often did little to screen its clients to make sure they weren’t involved in illicit activities.

CTL co-founder Thomas Ward blamed many of the firm’s problems on “the law of large numbers.” Anytime you form thousands of companies for thousands of people, he said, it’s likely that a few of them are going to be up to no good.

“I regard myself as an ethical person. I don’t think I intentionally did anything wrong,” said Ward, an entrepreneur from Canada who has worked as a consultant for CTL since selling it to new owners in 2009. “I certainly didn’t aid and abet anybody doing anything illegal.”

In late 2005, CTL’s general manager, Sandy Holburn, warned about the firm’s Russian clients: “There’s obviously a lot going on that we don’t really know or understand concerning the users of the companies we form for these clients.”

Ward agreed that such clients might “cause some difficulty,” but told Holburn there was “little we can do about that unless we wish to stop growing,” according to an e-mail exchange at the time.

The expose is having ripple effects around the world, from Malaysia to Georgia, India, Britain, Mongolia, the Phillipines, Canada, etc.

The revelations, for instance, rocked the Hollande government in France as former Socialist Party treasurer, Jean-Jacques Augier, was found to have invested in two Cayman Islands offshore companies. The news came as Hollande was trying to deal with his ex-budget minister Jerome Cahuzac’s confession of having undeclared bank accounts in Switzerland and Singapore.

Tony Merchant, one of Canada’s top class-action lawyers, faces questions from that country’s authorities about a Cook Islands trust that, the ICIJ found, he’d stocked with more than $1 million in 1998. In a filing to Canadian tax authorities, Merchant checked “no” when asked if he had foreign assets of more than $100,000 in 1999, the report found. His wife is Canadian Senator Pana Merchant.

Philippine government officials said that they will look into a media organization’s disclosure that the eldest daughter of the late dictator Ferdinand Marcos was a beneficiary of a secret offshore trust in the British Virgin Islands.

In India, Indian Finance Minister P. Chidambaram said an inquiry had been started by the authorities against individuals whose names figured in the global media report. “Yes. We have taken note of the names and inquiries have been put in motion in respect of the names that have been exposed,” he told a press conference.

Greek members of parliament asked the government’s deputy finance minister what he planned to do about the 103 offshore companies that ICIJ found hadn’t been registered with Greece’s tax authorities.

The deputy speaker of the Mongolian parliament is considering resigning after acknowledging his involvement in offshore business and saying it was a mistake.

And so on. Not a bad start.

And the series has two more weeks to go.

Dean Starkman Dean Starkman runs The Audit, CJR’s business section, and is the author of The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.