Editor’s Note: The following investigative report is by the International Consortium of Investigative Journalists, based on millions of leaked records involving offshore secrecy. The International Consortium of Investigative Journalists is an independent network of reporters in more than 60 countries who collaborate on cross-border investigations. It is a project of the Washington-based Center for Public Integrity.
The story
of Portcullis TrustNet and its birthplace — the Cook Islands — is in many ways
the story of the offshore system itself.
It’s a
largely invisible world, a curious blend of the parochial and the global that’s
made up of the minor personalities and politics inside each offshore
jurisdiction — many with populations no larger than a small town.
But by
establishing special zones, these tiny provinces have changed the face of
international finance and business and impacted law enforcement, tax policies
and political and economic transparency across the planet.
The Tax Justice Network, an international advocacy group
opposed to tax havens, estimates that about one third of all world wealth is
held offshore, and about half of all world trade flows through there.
TrustNet, now headquartered in Singapore and with
branch offices in 16 other locations, describes itself as a “one-stop shop,”
employing lawyers and accountants who help “high net worth” clients manage
their money and business activities.
In this
they are not alone: there are dozens of other so-called offshore service
providers.
They rarely
draw attention to themselves. Unlike many of their clients — like banks and
accountants — there are no high-profile industry associations that represent
their interests. They advertise almost entirely on the Internet.
Few are as
big as TrustNet, whose website claims it is the largest independent operator in
Asia.
The size of
their operations is confirmed in hundreds of thousands of documents obtained by
the International Consortium of Investigative Journalists, which show the
internal day-to-day workings of TrustNet.
They reveal
clients spread across about 140 countries and territories, among them many
prominent business and political figures. They include about 4,000 names from
the U.S. and Canada, and about 1,300 from the European Union.
A bulk of
them however — roughly 45,000 of about 77,000 — come from China, Taiwan,
Singapore and other East and Southeast Asian nations, a sign of the growing
importance of that region as a source of shadowy money.
The main
product that TrustNet sells can be summarized in one word — secrecy.
The firm
helps ensure names, finances, business interests and political links remain
hidden. It does this using a variety of methods, such as creating maze-like
layers of companies and financial trusts in multiple countries and in many
cases helping clients open overseas bank accounts in the names of anonymous
companies rather than in their own names.
Sometimes
parked inside purpose-built corporate vehicles are luxury yachts or
masterpieces by famous artists.
Some of the
entities TrustNet helps create are made-to-measure. Others are prefabricated
“shell” companies,
often with slightly
absurd names such as Golden Honest Enterprises Limited, Jolly Good Fortune
Investment Limited and Sunny Islands Overseas Limited.
Offshore empire
The Cook
Islands were a sleepy place more than three decades ago when a group of
promoters broached the idea of turning the islands into an offshore financial
center. Parliament met in a structure built years earlier as temporary barracks
for construction workers building
the international airport across the street. The population numbered less than
20,000 and was dropping, with many Cook Islanders living in
New Zealand.
Given the
micro-nation’s economic struggles, its political leaders were willing to hear a
sales pitch about the economic benefits of aligning the islands within the
offshore financial system.
The Cooks
fit the profile for an island-based offshore satellite. They’re 3½ hours by
plane from a regional economic center — New Zealand. And, like the Caymans and
many other modern-day tax havens, they have the British Union Jack in the
corner of their flag.
While the
Swiss pioneered secret bank accounts and tax
shelters almost a century ago, remnants of the British empire took a leading
role in the spread of the system offshore, beginning with Bermuda, the Bahamas
and the Channel Islands in the 1930s, followed by the Cayman Islands in
the 1960s, the British Virgin Islands in the 1980s and many others along the way.
Offshore
centers all sell secrecy as their primary item, but over time the types of
secrecy products they began to peddle and the markets they targeted varied,
depending on their histories, geography and laws.
The British
Virgin Islands, for example, where TrustNet’s busiest office is located, are
mass marketers of offshore companies that can be bought cheaply, used for
single purposes like opening bank accounts in the name of the company rather
than an individual. “Corporations in a box,” one U.S.-based offshore promoter
calls them.
The Cook
Islands generally target a higher-end market — smaller numbers of wealthy
people who want to set up long-term “asset protection trusts” that will protect
their fortunes from lawsuits, creditors and, if necessary, government
authorities.
Growth industry
The Cook
Islands’ Parliament approved laws covering offshore banking, companies, trusts
and insurance in 1981.
One of
those who helped oversee the introduction of the legislation was Mike Mitchell,
a New Zealand lawyer who served as the Cook Islands’ solicitor general in the
early 1980s.
Five years
later, in keeping with an apparent pattern of tax-haven officials moving freely
between government and industry, Mitchell decided to go into the offshore
business himself.
He left his
post as solicitor general in 1986 and established an offshore services firm in
1987. The firm, initially called Pacific Trustee Company Limited and then
International Trust Corporation Limited, was named TrustNet in the early 1990s
and, eventually, Portcullis TrustNet.
Mitchell
was the main shareholder and company chair when the enterprise opened its doors
with a staff of two and offices on Rarotonga, the largest of the Cook Islands,
which even now only has a population of about 13,000 and measures about 20
miles in circumference.
Scandal of decade
TrustNet
grew quickly, opening a Hong Kong office in 1991, the same year Mitchell told
the Cook Islands News that the company dealt mainly with clients brought in by
lawyers and accounting firms in Hong Kong. He said, “Sometimes we don’t know
the identity of the clients,” but added that “anything that looks remotely
dubious or of the laundering variety we just won’t handle.”
Anti-money
laundering experts say that sort of logic doesn’t make sense — it’s impossible
to know whether someone’s involved in money laundering or other crimes, they
say, without knowing their identity. “You’ve got to know who your customer is,”
said Charles Intriago, a former U.S. prosecutor and president of the
Miami-based Association of Certified Financial
Crime Specialists.
“If you don’t know who the guy is, there’s no way to know why he’s bringing his
money offshore.”
Mitchell
could say that in 1991, though, without anyone taking much notice. Things would
soon change. The Cook Islands were about to become the epicenter of scandal.
In 1994,
Winston Peters walked into New Zealand’s Parliament carrying a cardboard wine
box containing a trove of secret corporate tax documents. Peters, a member of
Parliament, said the box held evidence of “wholesale cheating” on taxes.”
The Winebox Affair, as it was called, became New
Zealand’s scandal of the decade.
The
documents came from a company called European Pacific Banking Corporation, part
of the European Pacific Group, which counted among its senior executives Trevor Clarke,
one of the key players who helped the Cook Islands to become a tax haven.
One of the
allegations at the center of the scandal involved European Pacific persuading
the Cook Islands authorities to accept NZ$2 million in taxes — money that was
later returned, minus a NZ$50,000 fee.
A European
Pacific subsidiary then presented the Cook Islands tax certificate to the New
Zealand tax authorities without disclosing that the money had mostly been
returned, creating a massive tax write-off in New Zealand.
As a British judge summed it up later, “thus
European Pacific was better off by $1.95 m[illion], the Cook Islands was better
off by $50,000 and the New Zealand Government was worse off by $2 m[illion].”
Many other
contentious transactions were alleged in the Winebox Affair but in the
inquiries and court cases that followed, few witnesses were willing to come
forward. The Cook Islands’ solicitor general, John McFadzien, publicly warned people
subpoenaed by New Zealand authorities that they could be prosecuted under Cook
Islands offshore secrecy law if they gave evidence.
Nevertheless,
tens of millions of dollars in unpaid taxes were eventually retrieved, New
Zealand’s tax laws were tightened and, for many years after, the Cook Islands
were synonymous in Australasia with dodgy offshore deals.
A less
known part of the story is what happened to others involved in the Winebox
Affair. One of them was George Couttie. He had been a senior European Pacific
tax expert handling the secret transactions and had gone to work for TrustNet
in Hong Kong before the affair broke.[vii]
Lawyers for
European Pacific later accused him in court of leaking the documents that had
led to the scandal. Couttie has always remained silent about his alleged role.
Soon after
this accusation was made, according to the ICIJ documents, senior TrustNet
staff recorded a terse company resolution that “accepted” his resignation
“effective from the date hereof.”
In
contrast, John McFadzien, the solicitor general who had invoked offshore
secrecy that helped shield the activities of European Pacific, resigned from
government and found a new job — as a senior TrustNet lawyer. McFadzien has
since died.
Geoff
Barry, a European Pacific manager in the Cook Islands during the years of the
Wine-box deals, returned to New Zealand for a few years. Then he, too, took a
job at TrustNet.
Within
three years he had become the TrustNet’s chief executive officer. Today, more
than ten years later, he is a group director in TrustNet’s Hong Kong office. He
did not respond to a request for comment.
The
revolving door between industry and officials was also seen at the islands’ new
Financial Supervisory Commission. Trevor Clarke, the founding patriarch of the
Cooks’ offshore industry in the 1980s and a key figure in the Winebox Affair,
was appointed chairman of the regulatory commission from 2003 until 2010.
During that
time, the ICIJ documents show, he maintained a complex set of personal offshore
companies and trusts that were administered by TrustNet. These entities were
home to millions of dollars of assets, the documents reveal, and TrustNet
staffers were given special instructions.
One document reads: “We are to contact Trevor by phone only
unless otherwise authorized. … Minimum documents to be kept in the Cooks. All
docs are to be held at our HK [Hong Kong] office.”
Clarke responded that he was not “a
user of any Cook Islands entities” and the ones he had elsewhere were set up
well before his role as FSC chair. Trustnet records show his companies and
trusts were in Samoa and the British Virgin Islands.
He said he had disclosed them to a
number of authorities and there were lots of reasons for people to want to have
assets outside the country where they live. The secrecy instructions did not
come from him.
Variety of clients
TrustNet’s
low-profile services were being used by many of the world’s major banks, such
as UBS, Deutsche Bank and Credit Suisse subsidiary Clariden, and by the world’s
biggest auditing firms, such as PricewaterhouseCoopers, Deloitte and KPMG.
Bank
accounts were being opened for clients in many parts of the world, from
branches of HSBC in Singapore to the Cook Islands branch office of the
Australian bank, ANZ.
The
individual client list included a wide variety of politically and financially powerful figures.
In 1996 and
1997 TrustNet helped establish two British Virgin Islands companies for Aye Zaw
Win, the son-in-law of General Ne Win, a military strongman who ruled Burma for
three decades. He could not be reached for comment.
After the
fall of the Indonesian dictator Suharto in 1998, a number of his family and
other rich Indonesians began appearing as TrustNet clients, the documents
obtained by ICIJ show.
Some were
disguised even within TrustNet’s own internal records — referred to simply as
“Client A,” “Client B,” “Client C.”
Among the
wealthy Indonesians was Suharto’s cousin Sudwikatmono, who’d accumulated a
fortune in rubber, wheat and other business dealings.[viii]
In the
months after Suharto’s fall, Sudwikatmono retained a lawyer thousands of miles
away in California by the name of Machiavelli W. Chao. The lawyer in turn sent
Sudwikatmono and his money thousands of miles from both California and
Indonesia, to the Cook Islands.
TrustNet
helped the family set up the secret Wilshire International Trust and two
offshore companies, Truease Ltd. and Rodeo International. The trust’s
beneficiaries, according to documents, included Sudwikatmono’s wife, his son
Agus and what appear to be his three daughters.
Sudwikatmono
has since died, but his son emerged as one of Indonesia’s richest people,
according to Forbes.[ix] He did not respond to a request for
comment.
TrustNet
also set up the secretive Sintra Trust in the British Virgin Islands for Maria Imelda
Marcos Manotoc [MW1] and her three sons. Imee, as she is
known, is the oldest child of the former Philippines dictator Ferdinand Marcos
who plundered his country’s finances and resources and enriched his family and
business associates. She declined to comment.
Clients who
signed up during the late 1990s included international mercenaries working in
war-torn Sierra Leone. TrustNet helped set up a company called Hinterland Mining Brokers Limited, listing its directors as four
ex-special forces officers from Britain, Fiji and New Zealand who’d been hired
to protect mining sites in central Sierra Leone from opposition groups.
Hinterland
was one of many hundreds of gold and mining companies working in developing
countries that filtered their operations through offshore entities established
through TrustNet.
In July
2008, TrustNet set up a British Virgin Islands company called Hall Kingston International for a Thai businesswoman and former
cabinet minister named Nalinee Taveesin.
It is
unclear what Taveesin used the new company for, but in November 2008 the U.S.
Department of Treasury designated her as a “Mugabe regime crony,” a reference
to Zimbabwe dictator Robert Mugabe. It froze assets she held in the United
States and prohibited Americans from doing business with her.
The agency accused her of “secretly supporting
the kleptocratic practices of one of Africa’s most corrupt regimes” through
“financial, real-estate and gem-related transactions” made on behalf of the
dictator’s wife, Grace Mugabe, and Gideon Gono, governor of the Zimbabwe
Reserve Bank, and other suspect Zimbabwean elites.
Responding
to questions through her secretary at the Thailand Trade Representative’s
Office, Taveesin said she had no knowledge of the existence of Hall Kingston
International Limited.
Taveesin
continued to deny her involvement when later confronted with information from
documents that showed the address used for the directors and shareholders in
Hall Kingston International Limited matched the registered address of a number
of Taveesin’s companies in Bangkok.
Rich American clients were attracted by the asset protection afforded
under Cook Islands legislation. Records obtained by ICIJ, for example, show that the firm established
more than 700 trusts for American clients since the law came into being,
including large numbers of doctors, dentists, financiers and real-estate
developers.
The ICIJ
review also identified at least 30 American clients accused in government
actions or private lawsuits of fraud, money laundering or other serious
financial misconduct.
They
include ex-Wall Street titans such as corporate raider Paul Bilzerian, who was
convicted of securities and tax fraud in 1989, and billionaire hedge fund
manager Raj Rajaratnam, who was imprisoned in 2011 in one of the biggest
insider trading scandals in U.S. history.
TrustNet
declined to answer a series of questions for the story.
Asia rising
In 2004, a
Singaporean lawyer named David Chong bought TrustNet and merged it with his
existing offshore services company, called Portcullis.
Chong was
an experienced offshore operator who had helped draft the offshore legislation
for the Malaysian island offshore centre of Labuan, a jurisdiction that
features in the company’s work.
Chong named
the consolidated company Portcullis TrustNet and appointed a new chairman to
the Singapore branch of the company: His Excellency Tee Tua-Ba, a former
Singapore commissioner of police who later served as a senior Singapore
diplomat.
Having
their headquarters in Singapore may have favored TrustNet when, in 2009, events
elsewhere shifted the focus of offshore secrecy away from its traditional home
in Switzerland.
In 2009 the
U.S. Department of Justice successfully brought a criminal
case against Switzerland’s largest bank UBS for assisting offshore tax evasion.
This was
followed by actions against a dozen other Swiss banks, such as Credit Suisse.
Wegelin, Switzerland’s oldest bank, folded early this year after admitting it
had sheltered U.S. tax evaders.
Singapore —
on the other side of the world and with vault-like banking secrecy — offered a
solution to those determined to resist the U.S. action.
London-based
international lawyer Jamison Firestone summed it up: “You’re not going to get
any banking information out of Singapore,” he said. It is “a respectable-sounding
black hole.”
TrustNet,
with its range of secrecy products, was perfectly placed to benefit from the
offshore world’s ever evolving geography.
Nicky Hager is an ICIJ member and author from
New Zealand. ICIJ member Prangtip Daorueng contributed reporting from Thailand.
The International Consortium of Investigative Journalists is an independent network of reporters in more than 60 countries who
collaborate on cross-border investigations. It is a project of the
Washington-based Center for Public Integrity.
