Paradise Papers: Massive New Leak Exposes Tax-Haven Secrets, Links Wilbur Ross To Russia

One year after the Panama Papers revealed billions in assets are held in offshore “tax haven” accounts by some of the world’s most powerful and wealthy individuals, on Sunday a huge new leak of financial documents disclosed by the International Consortium of Investigative Journalists (ICIJ) – a global network that won the Pulitzer Prize this year for its work on the Panama Papers – and its 94 media partners has revealed how the powerful and ultra-wealthy, including the Queen’s private estate, secretly invest vast amounts of cash in offshore tax havens. Of particular interest for the US media will be the discovery that Donald Trump’s commerce secretary, Wilbur Ross, is shown to have a stake in a firm dealing with Russians sanctioned by the US, including Vladimir Putin’s immediate family, which Ross failed to clearly disclose prior to his confirmation.

The leak, dubbed the Paradise Papers, contains 13.4 million documents, mostly from the Bermuda-based offshore finance law firm, Appleby, has been investigated by 95 media groups, with the findings released today.  The records expand on the revelations from the leak of offshore documents that spawned the 2016 Panama Papers investigation. The new files shine a light on a different cast of underexplored island havens, including some with cleaner reputations and higher price tags, such as the Cayman Islands and Bermuda.

The year-long investigation exposes offshore interest and activities of more than 120 politicians and world leaders. That includes ties between Russia and U.S President Donald Trump’s billionaire commerce secretary Wilbur Ross. It also highlights the offshore activities of another 12 Trump allies.

The Paradise Papers’ key findings summarized:

• Reveals offshore interests and activities of more than 120 politicians and world leaders, including Queen Elizabeth II, and 13 advisers, major donors and members of U.S. President Donald J. Trump
• Exposes the tax engineering of more than 100 multinational corporations, including Apple, Nike and Botox-maker Allergan
• Reveals tax haven shopping sprees by multinational companies in Africa and Asia that use shell companies in Mauritius and Singapore to reduce taxes
• Shines a light on secretive deals and hidden companies connected to Glencore, the world’s largest commodity trader, and provides detailed accounts of the company’s negotiations in the Democratic Republic of the Congo for valuable mineral resources
• Provides details of how owners of jets and yachts, including royalty and sports stars, used Isle of Man tax-avoidance structures

That said, as the BBC admits, “the vast majority of the transactions involve no legal wrongdoing.”

The BBC reports that as with last year’s Panama Papers leak, the documents were obtained by the German newspaper Süddeutsche Zeitung, which called in the International Consortium of Investigative Journalists (ICIJ) to oversee the investigation. Sunday’s revelations form only a small part of a week of disclosures that will expose the tax and financial affairs of some of the hundreds of people and companies named in the data.

The most detailed revelations emerge in decades of corporate records from the white-shoe offshore law firm Appleby and corporate services provider Estera, two businesses that operated together under the Appleby name until Estera became independent in 2016. At least 31,000 of the individual and corporate clients included in Appleby’s records are U.S. citizens or have U.S. addresses, more than from any other country. Appleby also counted clients from the United Kingdom, China and Canada among its biggest sources of business.

Nearly 7 million records from Appleby and affiliates cover the period from 1950 to 2016 and include emails, billion-dollar loan agreements and bank statements involving at least 25,000 entities connected to people in 180 countries. Appleby is a member of the “Offshore Magic Circle,” an informal clique of the planet’s leading offshore law practices. The firm was founded Bermuda and has offices in Hong Kong, Shanghai, the British Virgin Islands, the Cayman Islands and other offshore centers. Appleby has a well-guarded 100-year reputation and has avoided public scrapes through a mixture of discretion and expensive client monitoring.

Appleby, for example, is one link in a chain of offshore actors who helped sports stars, Russian oligarchs and government officials to purchase jets, yachts and other luxury items. The offshore experts helped Arkady and Boris Rotenberg, two Russian billionaires and childhood friends of President Putin, buy jets worth more than $20 million in 2013. U.S authorities blacklisted the Rotenbergs in 2014 for their support of “Putin’s pet projects” and for having banked “high price contracts” through the Russian government. Appleby cut its ties with the brothers but, in one case, received approval from the Isle of Man government nearly two years after sanctions were imposed to disburse fees to keep one of the brothers’ companies on the business register. The Rotenbergs did not reply to Süddeutsche Zeitung’s requests for comment. 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.

The leaked files also include documents from government business registries in some of the world’s most secretive corporate havens in the Caribbean, the Pacific and Europe, such as Antigua and Barbuda, the Cook Islands and Malta. One-fifth of the world’s busiest secrecy jurisdictions are represented in these databases.

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Many of the stories focus on how politicians, multinationals, celebrities and high-net-worth individuals use complex structures of trusts, foundations and shell companies to protect their cash from tax officials or hide their dealings behind a veil of secrecy.  In the United States, the the Appleby files show how Ross, Trump’s commerce secretary, has used a chain of Cayman Islands entities to maintain a financial stake in Navigator Holdings, a shipping company whose top clients include the Kremlin-linked energy firm Sibur. Among Sibur’s key owners are Kirill Shamalov, Putin’s son-in-law, and Gennady Timchenko, a billionaire the U.S. government sanctioned in 2014 because of his links to Putin. Sibur is a major customer of Navigator, paying the company more than $23 million in 2016. When he joined Trump’s Cabinet, Ross divested his interests in 80 companies. But he kept stakes in nine companies, including the four that connect him to Navigator and its Russian clients. These revelations come against a backdrop of growing concerns about hidden Russian involvement in U.S. political affairs.

Among the key stories being released on Sunday are:

• Wilbur Ross, Trump’s commerce secretary, shares business interests with Vladimir Putin’s immediate family, and he failed to clearly disclose those interests when he was being confirmed for his cabinet position
• About £10m ($13m) of the Queen’s private money was invested offshore
• Justin Trudeau’s close adviser, Stephen Bronfman, helped move huge sums offshore
• A key aide of Canada’s PM has been linked to offshore schemes that may have cost the nation millions of dollars in taxes, threatening to embarrass Justin Trudeau, who has campaigned to shut tax havens
• Lord Ashcroft, a former Conservative party deputy chairman and a significant donor, may have ignored rules around how his offshore investments were managed. Other papers suggest he retained his non-dom status while in the House of Lords, despite reports he had become a permanent tax resident in the UK

How is the Queen involved?

The BBC reports that the Paradise Papers show that about £10m ($13m) of the Queen’s private money was invested offshore. It was put into funds in the Cayman Islands and Bermuda by the Duchy of Lancaster, which provides the Queen with an income and handles investments for her £500m private estate. There is nothing illegal in the investments and no suggestion that the Queen is not paying tax, but questions may be asked about whether the monarch should be investing in offshore finance. There were small investments in the rent-to-buy retailer BrightHouse, which has been accused of exploiting the poor, and the Threshers chain of off-licences, which later went bust owing £17.5m in tax and costing almost 6,000 people their jobs.

The Duchy said it was not involved in decisions made by funds and there is no suggestion the Queen had any knowledge of the specific investments made on her behalf. The Duchy has in the past said it gives “ongoing consideration regarding any of its acts or omissions that could adversely impact the reputation” of the Queen, who it says takes “a keen interest” in the estate.

The records show that as of 2007, the queen’s private estate invested in a Cayman Islands fund that in turn invested in a private equity company that controlled BrightHouse, a U.K. rent-to-own firm criticized 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 percent.

Wilbur Ross’ Russian connection

Of bigger impact to the US news cycle will be the revelation that Trump’s commerce secretary, Wilbur Ross has retained an interest in a shipping company, Navigator Holdings, which earns millions of dollars a year transporting oil and gas for a Russian energy firm whose shareholders include Vladimir Putin’s son-in-law and two men subject to US sanctions.

The leaked files showed a chain of companies and partnerships in the Cayman Islands through which Ross has retained his financial stake in Navigator.

As NBC details, Ross — a billionaire industrialist — retains an interest in a shipping company, Navigator Holdings, that was partially owned by his former investment company. One of Navigator’s most important business relationships is with a Russian energy firm controlled, in turn, by Putin’s son-in-law and other members of the Russian president’s inner circle.

In Ross’s case, the documents give a far fuller picture of his finances than the filings he submitted to the government on Jan. 15 as part of his confirmation process. On that date, Ross, President-elect Donald Trump’s choice for commerce secretary, submitted a letter to the designated ethics official at the department, explaining steps he was taking to avoid all conflicts of interest. That explanation was vital to his confirmation, because Ross held financial interests in hundreds of companies across dozens of sectors, many of which could be affected by his decisions as commerce secretary. Any one of them could represent a potential conflict of interest, which is why the disclosures, by law, are supposed to be thorough.

“The information that he provided on that form is just a start. It is incomplete,” said Kathleen Clark, an expert on government ethics at Washington University in St. Louis. “I have no reason to believe that he violated the law of disclosure, but in order … for the Commerce Department to understand, you’d have to have more information than what is listed on that form.”

Ross, through a Commerce Department spokesperson, issued a statement saying that he recuses himself as secretary from any matters regarding transoceanic shipping, and said he works closely with ethics officials in the department “to ensure the highest ethical standards.”

The statement said Ross “has been generally supportive of the Administration’s sanctions of Russian” business entities. But the statement did not address the question of whether he informed Congress or the Commerce Department that he was retaining an interest in companies that have close Russian ties.

In his submission letter to the government, Ross pledged to cut ties with more than 80 financial entities in which he has interests.

However, NBC News claims that the documents seen by the news organization along with a careful examination of filings with the Securities and Exchange Commission, “tell a different story than the one Ross told at his confirmation. Ross divested most of his holdings, but did not reveal to the government the full details of the holdings he kept.”

In his letter to the ethics official of the Commerce Department, Ross created two lists: those entities and interests he planned to get rid of and those he intended to keep. The second list consisted of nine entities, four of which were Cayman Islands companies represented and managed by the Appleby law firm, which specializes in creating complex offshore holdings for wealthy clients and businesses. The Wilbur Ross Group is one of the firm’s biggest clients, according to the leaked documents, connected to more than 60 offshore holdings.

The four holdings on the list of assets that Ross held onto were valued by him on the form as between $2.05 million and $10.1 million. These four, in turn, are linked through ownership chains to two other entities, WLR Recovery Fund IV DSS AIV L.P. and WLR Recovery Fund V DSS AIV L.P., which were listed in Ross’ financial disclosure prior to confirmation, but were not among the assets he declared he would retain. According to an SEC filing, those entities hold 17.5 million shares in Navigator, which constitutes control of nearly one-third of the shipping firm.

The value of Ross’ investment could change substantially by the time the funds that hold Navigator shares wind up – and holds a significant upside. If the funds performs well enough, the general partnerships in which he is invested stand to receive 20 percent of the entire funds’ profits. In addition, Ross has reported billions in assets to Forbes magazine that did not appear on his government disclosure forms, which he later told the magazine he had placed in trusts that benefit his family members.

Ross started investing in Navigator in 2011, when WL Ross & Co. acquired a 19.4 percent stake, and his firm was granted two seats on Navigator’s board, one of which Ross filled himself early the next year. A few months later, with a bankruptcy court judge’s approval, WL Ross acquired a block of shares from the bankrupt financial services firm Lehman Brothers, becoming Navigator’s majority shareholder. In November 2013, Navigator went public. Shares that WL Ross had bought for about $8 each were put on the market at $19. Afterward Ross bragged at a conference for shipping investors that the investment had been “a home run.” Ross stepped down from Navigator’s board in November 2014 after he became vice chairman of the struggling Bank of Cyprus, which was well known for its dealings with Russian oligarchs. His Navigator board seat was taken by Wendy Teramoto, managing director and partner of WL Ross & Co., who left in 2017 to become Ross’ chief of staff at the Commerce Department.

“The disclosure requirements weren’t written with Wilbur Ross in mind,” said Kathleen Clark, “and I don’t think adequately provide the public or a government ethics official with an understanding of the wide variety of financial interests that he has.”

“You look at all of these names,” Clark said, referring to the financial entities, “and they actually look like a code. And what we actually have to do is find — in a sense — a code that decrypts what these names mean and what these companies actually do.”

She added the way the companies were listed was deliberately vague. “I would say this gives the appearance of transparency,” she said, referring to Ross’s disclosure documents. “It’s sort of fake transparency in a sense.”

The complexity of the offshore structures adds legal and reputational distance and obscures the full extent of Ross’s business relationships even as it allows him to profit from them, according to tax and ethics experts consulted by ICIJ.

The Office of Government Ethics, which is responsible for executive branch oversight, approved Ross’s arrangement, and it was left almost entirely unchallenged by the Senate.

Sen. Richard Blumenthal, D-Conn., said members of Congress who were part of Ross’ confirmation hearings were under the impression that Ross had divested all of his interests in Navigator. Furthermore, he said, they were unaware of Navigator’s close ties to Russia.

“I am astonished and appalled because I feel misled,” said Blumenthal. “Our committee was misled, the American people were misled by the concealment of those companies.” Blumenthal said he will call for the inspector general of the Commerce Department to launch an investigation.

A look at Navigator’s annual reports reveal an apparent conflict of interest. Navigator’s second-largest client is SIBUR, the Russian petrochemical giant. According to Navigator’s 2017 SEC filing, SIBUR was listed among its top five clients, based on total revenue for the previous two years. In 2016, Navigator’s annual reports show SIBUR brought in $23.2 million in revenue and another $28.7 million the following year. The business relationship has been so profitable that in January, around the time Ross was being vetted for his Cabinet position, Navigator held a naming ceremony for two state-of-the-art tankers on long-term leases to SIBUR.

One of the owners of SIBUR is Gennady Timchenko, a Russian billionaire on the Treasury Department’s sanctions list. He has been barred from entering the U.S. since 2014 because authorities consider him a Specially Designated National, or SDN, who is considered by Treasury to be a member “of the Russian leadership’s inner circle.”  The Treasury Department statement said that Timchenko’s activities in the energy sector “have been directly linked to Putin” and that Putin had investments with a company previously owned by Timchenko, as well as access to the company’s funds.

Daniel Fried, who was the State Department sanctions coordinator under President Barack Obama, said the connection to Timchenko’s interests should have raised alarm bells. “I would think that any reputable American businessman, much less a Cabinet-level official, would want to have absolutely no relationship — direct, indirect — … with anybody of the character and reputation of Gennady Timchenko,” Fried said. “I just don’t get it.”

Another major SIBUR shareholder is Leonid Mikhelson, who, like Timchenko, has close ties to the Kremlin. One of his companies, Novatek, Russia’s second-largest natural gas producer, was placed on the Treasury’s sanctions list in 2014.

Included in the Appleby documents are details of an internal discussion that resulted in the law firm dropping Mikhelson as a client in 2014, over concerns regarding his financial affiliations. “I would say to anybody who asked,” said Fried, “treat SDNs as radioactive. Stay away from them.

A third shareholder of SIBUR – and deputy chairman of the board – is Kirill Shamalov, husband of Vladimir Putin’s daughter, Katerina Tikhonova. After the wedding, Shamalov’s meteoric rise to wealth led him to own as much as 21.3 percent of SIBUR’s stock until April, when he sold off around 17 percent for a reported $2 billion.

“It’s a new generation which is currently being prepared and groomed… to inherit whatever power and wealth Putin’s team has accumulated over the past years,” said Vladimir Milov, a former deputy energy minister in Putin’s government who is now working with the opposition. Milov also said companies like SIBUR are often the way sanctioned Kremlin insiders have to keep doing business despite restrictions. 

The Commerce Department statement said Ross never met Timchenko, Mikhelson, or Shamalov. It said he was not on the board of Navigator in March 2011 when the ships in question were acquired, and said Sibur was not under U.S. sanctions now or in 2012 when the charter agreement with Navigator was signed. The statement said Ross was on the board of Navigator from 2012 to 2014, and that no funds managed by his company ever owned a majority of Navigator’s shares.

Fried said he has no doubt of the connections between SIBUR and the Kremlin. “If any senior official of the U.S. government, much less a Cabinet secretary … had any business dealings with sanctioned individuals, direct or indirect,” he said, “I would be appalled.”

The news comes at a time when every relationship between the Trump administration and Russia is closely scrutinized: Richard Painter, the chief White House ethics lawyer during the George W. Bush administration, said there needs to a close examination of whether Ross’ testimony to the Senate violated perjury laws. Painter also said Ross must recuse himself from all Russia-related matters because of the SIBUR connection.

“Secretary Ross cannot participate in any discussion or decision-making or recommendation about sanctions imposed on Russia or on Russian nationals when he owns a company that is doing business with Russian nationals who are either under sanctions or who could come under sanctions in any future sanctions regime,” Painter said. “That would be a criminal offense for him to participate in any such matter.”

On Nov. 30, 2016, hours after being nominated as commerce secretary, Ross celebrated at Gramercy Tavern, an upscale Manhattan restaurant, an event hosted by Navigator Holdings. According to Bloomberg Businessweek, he and Butters arrived early at the chandeliered private room and had a conversation. “Your interest is aligned to mine,” Butters recalled Ross saying, according to Bloomberg. “The U.S. economy will grow, and Navigator will be a beneficiary.”

Butters told Bloomberg that as other guests arrived and tucked into sherry-sauce sea bass and pear buckle, they took turns congratulating Ross. “It was like – we have a chance now,” Butters told Bloomberg. “We have a chance to make some differences.”

(Much more on Ross’ questionable business dealings can be found here)

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In the ICIJ report, the consortium has put together the following infographic revealing what it calls “The Influencers”, or 13 Trump advisers, donors and cabinet members:

U.S. President Donald Trump vowed to fight the power of global elites and told voters he would put “America First.” But surrounding Trump are a number of close associates who have used offshore tax havens to conduct business. Scroll through their offshore stories

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The Paradise Papers also show  Stephen Bronfman, Canadian Prime Minister Trudeau’s adviser and close friend, teamed up with Liberal Party stalwart Leo Kolber and Kolber’s son to quietly move millions of dollars to a Cayman trust. They reveal that Bronfman was involved in the movement of millions of dollars to offshore havens. Stephen Bronfman, heir to the Seagram fortune, who was instrumental in Trudeau’s successful bid for the leadership of the Canadian Liberal party in 2013 and the premiership two years later, engaged through his family investment business in a complex web of entities in the US, Israel and the Cayman Islands. Multimillion-dollar cashflows between the three jurisdictions might legally have avoided taxes in the US, Canada and Israel.

The leaked documents unveil a close relationship between two wealthy families who collaborated to shift millions of dollars to the Cayman Islands. On one side were the Bronfman family, inheritors of the Seagram distillery fortune in Montreal. On the other side was the Cayman Islands-based trust of Leo Kolber, a former Canadian senator and powerhouse within the Liberal party Trudeau now leads.

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Other royals and politicians with newly disclosed offshore ties include Queen Noor of Jordan, who was listed as the beneficiary of two trusts on the island of Jersey, including one that held her sprawling British estate; Sam Kutesa, Uganda’s foreign minister and a former U.N. General Assembly president, who set up an offshore trust in the Seychelles to manage his personal wealth; Brazil’s finance minister, Henrique de Campos Meirelles, who created a foundation in Bermuda “for charitable purposes”; and Antanas Guoga, a Lithuanian member of the European Parliament and professional poker player, who held a stake in an Isle of Man company whose other shareholders included a gambling mogul who settled a fraud lawsuit in the United States.

In addition to disclosures about politicians and corporations, the files reveal details about the financial lives of the rich and famous – and the unknown. They include Microsoft co-founder Paul Allen’s yacht and submarines, eBay founder Pierre Omidyar’s Cayman Island investment vehicle, and music star Madonna’s shares in a medical supplies company. Pop singer and social justice activist Bono – listed under his full name, Paul Hewson – owned shares in a company registered in Malta that invested in shopping center in Lithuania, company records show. Other clients listed their occupations as dog groomer, plumber and wakeboard instructor.

Madonna and Allen did not reply to requests for comment. Omidyar, whose Omidyar Network donates to ICIJ, discloses his investment to tax authorities, a spokeswoman said. Bono was a “passive, minority investor” in the Malta company that closed down in 2015, a spokeswoman said.

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Glencore

One of Appleby’s top corporate clients was Glencore PLC, the world’s largest commodity trader. The files contain decades of deals, emails and multimillion-dollar loans to bankroll ventures in Russia, Latin America, Africa and Australia. Glencore was such an important client that it once had its own room within Appleby’s offices in Bermuda.

Company board meeting minutes document how Glencore representatives leaned on Daniel Gertler, an Israeli businessman with high-level friends in the Democratic Republic of the Congo, to help seal a deal for a valuable copper mine. Glencore lent millions to a company, widely believed to belong to Gertler, described in a U.S. Department of Justice inquiry as a conduit for bribes. Gertler and Glencore were not named in the case.

Glencore said its background checks on Gertler were “extensive and thorough.” The Justice Department investigation “does not constitute evidence of anything against Mr. Gertler,” his lawyers said, adding that he “rejects absolutely any allegations of wrongdoing or criminality by him.” No loans were used improperly or for inappropriate purposes, Gertler’s lawyers said.

(Much more on Glencore here)

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A full list of the politicians implicated in the Paradise Papers can be found here.

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Summarizing much of the data contained in the Paradise Papers, is the following brief primer from the BBC revealing “how to hide your cash in 5 easy steps“:

How to hide your cashhttps://t.co/lig25C5o6s#ParadisePapers pic.twitter.com/i5nToqlubZ

— BBC News (World) (@BBCWorld) November 5, 2017