Big Names in Paradise Papers Hidden Wealth Revelations
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Big Names in Paradise Papers Hidden Wealth Revelations

    A massive data leak shows that some of the world's richest and most powerful people and businesses are secretly sheltering hundreds of billions of dollars in offshore tax havens.

    Dubbed the Paradise Papers, more than 13 million files detail how two international firms helped companies, politicians and celebrities reduce tax and protect wealth through complex structures.

    The leaks were obtained by German newspaper Suddeutsche Zeitung and shared with the International Consortium of Investigative Journalists to help with the year-long investigation. Nearly 100 media outlets were involved, including NHK. Some of the people named in the papers include the Queen of England, former international leaders, and companies including Nike, Uber and Apple.

    One of the two firms at the center of the leak is Appleby, a law office that helps clients set up companies and trusts in jurisdictions with low or zero tax rates. The company maintains that it has thoroughly investigated the revelations and has found no evidence of any wrongdoing.

    One of the highest-profile names included is President Donald Trump's Commerce Secretary Wilbur Ross. Documents show that Ross, who was a billionaire investor, owns a major stake in a shipping firm that has links to Russian President Vladimir Putin's family.

    During his confirmation process Ross did not disclose these interests, even though he was repeatedly questioned about his business ties to Russia, particularly in relation to his role as vice-chairman of the Bank of Cyprus.

    In a statement the US Commerce Department says Ross is recusing himself from any shipping matters and is committed to "ensuring the highest ethical standards".

    While the legality of the behavior detailed in the Paradise Papers is questionable, a moral debate is underway about the ethics of the world's wealthiest and most influential people benefiting from what is referred to as a "magic circle" of offshore law firms.

    What are the Paradise Papers?

    The Paradise Papers are a set of files obtained by the International Consortium of Investigative Journalists, or ICIJ, that reveal business activities of offshore corporations in Bermuda, a British territory, and other known tax havens.

    They include internal documents from two firms: Appleby, a law firm based in Bermuda, and Singapore-based Asiaciti Trust, a global trust and corporate service provider. They also include 19 corporate registries maintained by governments in secrecy jurisdictions, such as Bahama, Barbados, and Malta.

    The Paradise Papers consist of a total of 13.4 million files, almost 2 million more than 2015’s Panama Papers leak which had been regarded as the biggest expose of inside information in history.

    Just like the Panama Papers, the leaks were initially obtained by German newspaper, Suddeutsche Zeitung, and shared with the ICIJ, which organized the global media collaboration. The German newspaper declined to comment on how it obtained the files or who handed them over.

    The ICIJ named the files the Paradise Papers because tax havens are often located on scenic islands dubbed tax paradises.

    About half of the records relate to Appleby. At least 31,000 corporate and individual clients in the firm’s records are US citizens or have US addresses. Appleby also counts 14,000 British clients and 1,056 Japanese. The ICIJ says the latest leak covers one fifth of countries and regions known to be tax havens.

    Appleby has made a statement maintaining that the firm provides advice to clients on legitimate and lawful ways to conduct their business. It says it does not tolerate illegal behaviors and claims there is no evidence of any wrongdoing either on the part of the company or its clients. The statement also expresses disappointment that the ICIJ exposed the information which was obtained illegally.

    Who took part in the investigation?

    The global media project included 382 journalists and 96 media organizations across 67 countries.

    In addition to German newspaper Suddeutsche Zeitung, which originally obtained the records, files were shared with many of the world's largest media outlets, including The New York Times in the United States; The Guardian and the BBC in Britain; and Le Monde in France.

    Japan’s national broadcaster NHK, plus the Asahi Shimbun newspaper and Kyodo News, joined the investigation last December.

    Each member of the project shared information relating to his or her own country with other members using highly encrypted codes. The journalists worked together with a goal of releasing the data simultaneously.

    Former Japanese Prime Minister named

    Three former members of the Japanese Diet are mentioned in the leaked files, including former Prime Minister Yukio Hatoyama.

    The documents show Hatoyama became an honorary chairman of Hong Kong-based Hoifu Energy Group from 2013 after retiring from politics. The company is registered in Bermuda.

    Hatoyama has responded to the release of the information. He says that an acquaintance introduced him to Hoifu and he agreed to accept the post of honorary chairman.

    The former prime minister says he receives consulting fees but adds they are properly reported to Japanese tax authorities. He explains that he is not engaged in the company's business and plays no particular role.

    Hatoyama says he was unaware that the company is registered in Bermuda.

    Japanese firms, employees cited

    More than 1,000 Japanese companies and individuals are cited in the Paradise Papers. The documents list many large Japanese businesses as well as individual employees.

    Some companies say tax havens help them operate overseas, as they can more easily set up subsidiaries in places with looser regulations.

    Leading Japanese trading house Marubeni set up two corporate entities in the Cayman Islands to invest in a project to develop aircraft engines.

    Marubeni paid about $70 million via the entities over the four years through 2010 to Japanese machinery maker IHI, the operator of the project. The company says it used the entities on the islands because it was convenient to settle accounts in US dollars.

    Another trading house, Sumitomo Corporation, used four corporate entities on the islands for the thermal power generation and seawater desalination businesses it joined in the United Arab Emirates in 2008.

    Sumitomo earned at least $20 million in dividends from the businesses.

    Sumitomo says it took over an existing structure when it acquired the business rights from an investment firm in the UAE, and as a result it ended up using the entities.

    Telecom giant Softbank Group set up a business entity based in the Cayman Islands to operate an investment fund four years ago. The name of the company's CEO, Masayoshi Son, was mentioned in one of the documents.

    Softbank says it registered the investment fund there to avoid dual taxation for its investors.

    Hiding personal wealth

    The Paradise Papers shed light on the possible existence of personal wealth hidden in tax havens.

    They show that the former chairman of a well-established Tokyo metal products company was trading bonds through an outfit in Bermuda. The leaked financial statements reveal the Bermuda entity had an outstanding bond asset of about $1.75 million dollars as of 2014. He died suddenly nine years ago, and his son, who is now the president of the firm, has told reporters that the family had no knowledge of the trade.

    He says the family became aware of the existence of the entity only after receiving an invoice from the Bermuda-based law firm for a fund management fee following his father’s death. The president says that the family has renounced ownership of the corporation.

    The Paradise Papers also contain a will from the founder of a Japanese drugstore chain. It was written 19 years ago and declares that the founder's property, on the British island of Jersey, will be passed down to his eldest son.

    The drugstore company says the founder died a year ago and his eldest son has already filed for his inheritance tax. But the son was unaware of the property in Jersey nor the will itself.

    Offshore product to reduce taxes

    The Paradise Papers offer an insight to the identities of people who purchased a financial product sold around 2000 by a foreign securities firm targeting wealthy Japanese looking for ways to minimize tax.

    The fund was to be invested into a rental housing business in the US state of Delaware, allowing investors to deduct the depreciation in property values and other losses incurred in the rental property business from their income tax return.

    Japanese tax authorities, backed by the country’s Supreme Court, have since rejected the deduction scheme. The list of investors who signed up includes company owners and a famous cartoonist.

    Commercial moneylender SFCG, which went bankrupt eight years ago after a series of scandals, is also named in the leak. A lawsuit between former SFCG chairman Kenshin Oshima and bankruptcy trustees over the ownership of a fund based in Jersey resulted in Oshima paying out about $5 million.

    Tax Haven: Status and Countermeasures

    A tax haven, also known as an "offshore", means a low-tax country or region under secrecy jurisdictions.

    Despite their convenience for global companies seeking to register companies easily, tax havens are also known for criminal activity including illegal tax evasion and money laundering.

    The Organization of Economic Cooperation and Development issued a list eight years ago citing 42 countries and regions as tax havens.

    Since then, the number is decreasing, but a string of major companies including Starbucks and Apple have been found to have evaded massive amounts of tax using loopholes in international tax laws.

    A report presented to the United Nations University in Japan earlier this year finds the practices are costing countries around the world a total of about $530 billion every year in the form of lost tax revenue. Japan is the third-biggest loser at about $45 billion dollars after the US and China.

    To counter, Japan obliges corporations and individuals to consolidate in their tax declarations incomes from the so-called "paper" companies they have set up in low-tax countries and regions.

    Incomes from about 4,200 offshore entities were filed during the one-year period ending June last year. But amid mounting international criticism over tax havens, Tokyo is considering further measures.

    A new global system is scheduled to be launched next year to exchange bank account information among more than 100 countries and regions including Japan. Authorities hope it will serve as an important step to counter tax evasion.