Panama Papers whistleblower cites Pacific isles, NZ, for good reasons

Written By: - Date published: 6:37 pm, May 8th, 2016 - 23 comments
Categories: john key, tax - Tags: , , , , , , , , , , ,

Jürgen Mossack (photo: Jandrade97/Creative Commons)Panama Papers whistleblower “John Doe” in his “manifesto” published Friday  drew attention to Pacific island tax havens for the same good reason he singled out New Zealand Prime Minister, John Key, as the only national leader to be named.

Doe noted Panama law firm Mossack Fonseca, whose 11.5 million files revealed a tsunami of tax dodging around the globe, “used its influence to write and bend laws worldwide to favour the interests of criminals over a period of decades.”

“In the case of the island of Niue, the firm essentially ran a tax haven from start to finish.”

He noted Key had been “curiously quiet about his country’s role in enabling the financial fraud Mecca that is the Cook Islands”.

Key dismissed this accusation as “confused” because the Cooks use the New Zealand dollar.

The Cook Islands “Wine Box” tax haven scandal was very familiar to all New Zealanders in the 1990s – it was a by-product of the fast and loose financial culture introduced to New Zealand by fourth Labour Government Finance Minister, Roger Douglas.

The Wine Box documents which came into the hands of some journalists and NZ First leader Winston Peters, bore much similarity to the 11.5 million documents leaked from Mossack Fonseca and include similar taxpayer rorts, just like New Zealand’s current policy of not taxing foreign entities registered here.

The Wine Box papers detailed extensive tax avoidance and evasion schemes run through Cook Islands offshore companies associated with a special purpose company, EPI, owned by the then New Zealand state bank, Bank of New Zealand, merchant bank Fay Richwhite & Co, whose principals Michael Fay and David Richwhite, were closely connected to both the Labour and National parties.

The Commission of Inquiry into Certain Matters relating to Taxation, better known as the Wine Box inquiry, after a tortuous three-year investigation, controversially concluded that no fraud was committed. Legal appeals to that ruling taken by Peters partially overturned the conclusion with the PrivyCouncil stating there was a prima facie case of fraud.

By then the whitewashing action had achieved its purpose.

In the aftermath of the Wine Box, the Cooks, which are constitutionally part of New Zealand, agreed that it would allow New Zealand oversight of its tax affairs.

Journalist Fran O’Sullivan, a key figure in the Wine Box affair, noted on Q&A yesterday, that a dump of Cook Islands documents in 2013 showed little had changed.

The whole concept of establishing the Cook Islands as a tax haven was overtly and covertly supported by the likes of Roger Douglas and his successor Ruth Richardson on the precept that the islands would become more self sufficient and less dependent on aid.

That philosophy – of trying to build businesses rather than alleviate poverty — essentially is still followed today, as evidenced by the recently revealed tawdry affair in Niue, whereby New Zealand company Scenic Hotels was in 2014 awarded the contract to run Matavai Resort, funded to the tune of $7.5 million by New Zealand aid.

It transpired Scenic’s founder, Earl Hagaman, donated $101,000 to the National Party. Foreign Minister Murray McCully denies any connection but in the words of Christine Keller’s famous phrase, “well, he would say that wouldn’t he.”

The Cook Island tax haven model was imitated by Niue, Samoa and Vanavatu among others.

Mike Field, a journalist who knows more about dark activities in the Pacific islands than anyone, has, since the Panama Papers scandal has erupted, written two detailed articles outlining their nefarious operations in different Pacific islands.

Back in the 1990s, he exposed Mossack Fonseca’s Pacific activities, and he will be surely one of the only journalists to get a full interview with Mossack’s German principal, Jürgen Mossack, , who he likened to the Waffen SS staffer Jürgen father was.

For the Nikkei Asian Review, he noted that by the time Mossack turned his attention to the South Pacific, the Cook Islands, Vanuatu and Nauru were already deeply into the offshore financial sector business.

Nauru had 450 “banks” registered to a single government mailbox through which $70 billion of Russian mafia money passed in 1998, according to statements by the Russian central bank.

Mossack bypassed those islands after reaching a 20-year exclusive deal in 1996 to handle offshore incorporations for Niue, a dependency of New Zealand with a population of under just over 1,100.

Niue received $100 a year from each of the 6,000 international business companies set up by Mossack Fonseca over eight years. Local lawyer Peleni Talagi, daughter of the current prime minister, became the firm’s agent.

Niue registration offered “total secrecy and anonymity,” with no need to file annual returns, the firm’s web ads bragged. . There were no requirements to disclose beneficial owners, nor any need to to file annual returns. “Complete business privacy and confidentiality” was assured. Opaqueness was enhanced by allowing company creation in Chinese characters as well as Cyrillic or Russian script.

Such was its success that by the late 1990s Niue’s activities were attracting the attention of the Group of Eight, the Organization for Economic Cooperation and Development and the U.S. State Department’s 1999 International Narcotics Control Strategy Report which said: “Niue’s thriving offshore financial sector has been linked with the laundering of criminal proceeds from Russia and South America.”

Credit card activities were blocked threatening its tiny tourism industry. The Reserve Bank of New Zealand saw Niue, because it used the New Zealand dollar, as a threat to the currency.

New Zealand’s Labour Government in 2000 tried to close down Niue’s haven business which led to Jürgen Mossack’s visit, but Foreign Minister Phil Goff refused to meet him.

Jürgen Mossack denied to Field his Niue operation was laundering “criminal receipts” as there was no banking system there. He told Field his business involved people “trying to avoid paying taxes in their home countries” – crucially “avoidance”, “unlike evasion”, is within the law, he said.

The OECD was using money laundering as a pretence to go after tax, he claimed. Niue had been offering “unfair tax competition” to the OECD.

He suggested the rich should protect their tax base in their own countries, not by beating up Niue.

“If OECD countries want to be serious about unfair tax competition they are going to have to close down their own operations first.”

According to data compiled from Mossack Fonseca’s files by the International Consortium of Investigative Journalists, the firm’s use of Niue as a tax haven peaked in 1999 with over 6000 accounts, and Mossack shut down its operations in 2004, though the island still ranks as the fifth most-used tax haven by the firm since 1977, according to the ICIJ’s calculations.

Mossack relocated its regional operations to Samoa, taking advantage of local legislation on international financial operations that had been in place since 1987. Samoa ranked as the sixth most-used tax haven by Mossack Fonseca. Nine other trustee companies are licensed by the Samoan Government.

In response to the publication of the papers, the Samoan government said the sector complied with international standards and “made assurances that Samoa will redouble its efforts to ensure Samoa cannot and will not be used by money launderers and tax evaders.”

Field notes Samoa has been less than cooperative in the past. According to documents cited by the Australian Financial Review, a member of the ICIJ team, a 2007 letter from the chief executive of the Samoa International Finance Authority wrote to Mossack Fonseca saying, “As you are aware, we have been deliberately stalling the proposals from OECD countries to enter into Tax Information Exchange Agreements.”

Field, in his colourful Spinoff article cataloguing his career in the Pacific, reveals how Nauru, under corrupt former president Bernard Dowiyogo became even more of a Wild West for tax havens than Niue. Over 450 banks were registered to a single Nauru mailbox, which was a money laundering front, used, according to the Russian Central Bank, to launder over US$70 billion of Russian mafia money in 1999, with the actual money channelled through accounts in the Bank of New York.

Field’s sources revealed that around a third of the 450 “banks” were of Middle Eastern origin, including Al-Qaeda fronts. The same names turned up again a few years later, when Tonga instituted a flag of convenience shipping scheme.

In 2001, after the 9/11 attacks the dying Dowiyogo was pressured to close down the tax haven in return for treatment in the US.

Field comments on the hypocrisy of Pacific leaders, espousing Christianity, but who are happily complicit to establishing schemes of malfeasance, and sometimes blatant criminality that rip off nations which are invariably their main aid donors.

“They would justify it by saying places like Hong Kong and Delaware were doing it. There were no victims, they would say,” Field says

Mossack correctly stated in Field’s interview that money laundering via “states” like Nauru could only be done with the aid of the world’s big banks such as HSBC and Bank of America which have recently been convicted for money laundering. HSBC last year paid a fine of 40 million Swiss francs in return for shutting down an investigation into its laundering.

Field points out that vast amounts of Mexican drug money was laundered via US-based banks using shell New Zealand company fronts, mostly set up by father and son operation Geoffrey and Michael Taylor, who have registered a huge percentage of companies registered in New Zealand.

“Every operation of that scale needs the intervention of the big international banks,” Jurgen Mossack told Field. “When they see an unusual operation they must know it, and if they then continue the business it is because either they are not interested in the morals of the story, or they see it as good business to continue these operations.”

“If you have figures of that sort… then the international banks know what they are doing.”

Mossack claimed his firm was being picked on because it was from Panama and he may be right. “Why is somebody who is based in Panama any different, any worse, than somebody based in the United States or Europe? Panama is a country like any other, it is an on-shore country, it is not an island in the middle of nowhere.”

If Pacific leaders are hypocritical being Christian while running these operations, there are equally hard questions to be asked about New Zealand’s politicians, especially of Key.

He is simply wrong both to say that John Doe is confused about the Cooks, or that it is not New Zealand’s responsibility.

Constitutionally, New Zealand has a “special relationship” and the influence over Niue is even more powerful. We may not have constitutional influence over Samoa but the influence is undeniable. Neither Key, nor Helen Clark before him, were prepared to wield the aid card.

As Winston Peters said on The Nation today, given that Key was a “financial whizz” in his former role with Merrill Lynch, he can’t have been unaware of what the Cooks, Niue and co have been up to.

New Zealand’s own laws facilitating foreigners’ tax avoidance are also untenable.

It comes down to this – why are Key and his mates both here and abroad, not just content to tolerate, but are active in setting up these “legal” means to allow criminal tax evasion, avoidance and money laundering? The answer is this – they want to avoid paying their fair share of tax.

The ICIJ, that has been given access to the Mossack Fonseca files, plans to publish a “map” on the documents linking all the companies and the officers involved with them on Tuesday NZ time. We await with interest.

(Simon Louisson formerly worked for The Wall Street Journal, NZPA, Reuters, The Jerusalem Post and was most recently a political and media adviser to the Green Party)

23 comments on “Panama Papers whistleblower cites Pacific isles, NZ, for good reasons ”

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  1. Paul Campbell 1
    8 May 2016 at 7:08 pm

    “John Doe” the Panama Papers leaker has drawn attention to National’s changes to our trusts laws in 2010 as being responsible for us becoming a tax haven, as usual Key keeps trying to pin the blame on earlier changes by Labour but this focuses us back on what National has done and why.

    I think we’ve been sidetracked by Key’s connection to his lawyer, his foreign trust activities, the good old boys, smoked filled rooms, insider lobbying … National business as usual. We can also remember Key publicly championing NZ as a southern hemisphere centre for international finance ….

    What I think we’re not looking into is how and why did those 2010 changes happen – who lobbied Key? was it his ‘lawyer’ who runs Key’s ‘blind’ trust? who else? was it’s Key’s idea that these changes should happen? who else championed the changes? what connections do they have? who donated money to the Nats during that time?

  2. Gangnam Style 2
    8 May 2016 at 7:38 pm

    No wonder Mr Angry (Hooton) is spinning wildly on Twitter, just saw this tweet from Bryce Edwards, “Nicky Hager, TVNZ, and RNZ will release NZ-related #panamapapers research tomorrow at 6am.” … Could be very interesting!

    • Paul 2.1
      8 May 2016 at 7:41 pm

      Thought it was Tuesday…

    • Anne 2.2
      8 May 2016 at 9:21 pm

      Love this tweet from you know who:

      Matthew Hooton ‏@MatthewHootonNZ
      I don’t take the word of an anonymous criminal. Hand over papers to tax authorities for proper investigation

      Well, isn’t that why the papers are being released? So that the tax authorities can look into the data for any possible illegal or criminal activity? Why, didn’t Key say he expected the IRD to investigate anything “unusual” about 24 hrs ago?

      Anyway Matty boy… a lot of people don’t take your word for anything much either.

      • save nz 2.2.1
        9 May 2016 at 12:07 pm

        But the NZ tax authorities also have their nose in the trough!

        TVNZ reveals the New Zealand operation centres on an accountancy firm called Bentleys, run by Roger Thompson, a former Inland Revenue executive.

        Bentleys, in downtown Auckland, is the New Zealand agent for Mossack Fonseca.

        Bentleys charges NZ$4000 to set up trusts for wealthy foreigners who then use New Zealand’s limited disclosure rules to stay anonymous even to IRD. Bentleys charges another $2000 a year to send a one page form to IRD to confirm the trust clients don’t need to pay any tax under New Zealand law.

  3. Alan W 3
    8 May 2016 at 7:52 pm

    you leap from fact to conjecture in your second to last paragraph, got any evidence to back that up?

    • lprent 3.1
      9 May 2016 at 12:34 am

      I think at this point the onus of proof is pretty much on our public servants like politicians to prove that they aren’t screwing other taxpayers.

      That is particularly the case for John Key bearing in mind that his “personal lawyer” was a shill for at least tax avoidance schemes here. It is pretty clear that John Key doesn’t want to disclose that kind of information. I’m afraid that is unacceptable bearing in mind what has been disclosed with other public servants world wide.

      There are far too many opportunities for public servants like John Key to feather their own nests and those of their friends by their decisions made when they don’t disclose their interests.

      • Henry Filth 3.1.1
        9 May 2016 at 5:04 am

        No, I think that here, as everywhere else, the burden of proof is on the accuser. That’s a principle, not ” . . . particularly the case for John Key”.

        Assertion is not argument, and accusation is not evidence.

        On the other hand, should the evidence be found, impeach the little b*gger.

        • Gristle 3.1.1.1
          9 May 2016 at 6:46 am

          HF there already is recognition that politicians need to have greater financial disclosure. This is the basis for the register in parliament. Further, the use blind trusts by PM’s shows they recognise the need to isolate their financial interests from their ability to influence outcomes favourable to their financial interests.

          The surprising thing with Key’s blind trust is that he can actually look into it and see the disposition of its assets.

          The question being asked now is does that disclosure level have to up a level to show tax records. For NZ tax records are private whereas this is not the case throughout the western world.

          As to your position on the burden of proof, I think many issues inside the tax regime have already shifted the burden of proof onto the taxpayer.

  4. Nick 4
    8 May 2016 at 8:54 pm

    The Panama leaks get right to the core of how people like ShonKey make their millions. Hopefully enough NZers realise in time for the electionthat this guy has been scamming his whole life and is now scamming the whole country.

  5. AmaKiwi 5
    8 May 2016 at 9:07 pm

    Little says he would shut down foreign trusts.

    Good work, Andrew. Clear and unequivocal. Excellent timing.

    Another excellent article by Simon Louisson. Thank you.

    • Whateva next? 5.1
      8 May 2016 at 9:55 pm

      Seconded

    • NZJester 5.2
      8 May 2016 at 10:12 pm

      I would say what about all the tax we will loose from the income of the ones running the trusts. But then I remembered they are running trusts to help others avoid tax and so very likely know how to hide their own income from tax. Looks like all we have to loose is our label as a tax haven.

      • Hanswurst 5.2.1
        9 May 2016 at 8:14 am

        “Lose”. Please, for the love of God, it’s “lose”, not “loose”. Sorry to single you out, but I’ve been seeing that particular misspelling so often that it’s really starting to set my teeth on edge.

        • Ed 5.2.1.1
          9 May 2016 at 2:01 pm

          Would that we could “loose” some tax from all those legal tax avoidance schemes. Good on you for raising the spelling issue.

  6. seeker 6
    8 May 2016 at 11:14 pm

    Was john key singled out by the Panama Papers hacker because he is now the chairman of the right wing International Democratic Union, as well as pm of New Zealand, so could have extra fish to fry?

  7. save nz 7
    9 May 2016 at 8:05 am

    Also of note is that One News last night made sure to say that trusts had been happening since the 1980’s i.e. Labour does it too!

    Nothing like having biased news here in little corrupt NZ!

    Also forget about tax avoidance being legal, it is pretty clear these lawyers and their clients have crossed the line into tax evasion and money laundering which is NOT legal.

    Even worse and scary is that politicians and lobbyists have bought themselves power to change legalisation so that they change the laws to steal tax payers money and resources and then use the weasel words “but it is legal” with laws they put in themselves to steal the money and assets and make corruption legal!

    http://www.theguardian.com/world/2016/may/07/10bn-dollar-question-marcos-millions-nick-davies

  8. Venezia 8
    9 May 2016 at 10:26 pm

    Yes. The John Doe manifesto helps us join the dots. The links between rapidly growing global social inequality, the seeming inability of those with power to do anything to change it, the skimming off from the tax base of countries desperate for funds to develop their economies, the rise and rise of the fortunes of the 1% – all assisted by the financial power plays of foreign trusts and shell companies. John Key and his mates may keep saying it is all legal, but ethical and moral? Mossack Fonseca have been shown to be very dodgy. The vehicles they tout in the financial market place assist a variety of serious crime. Let us see what is uncovered in the weeks and months to come………

    https://panamapapers.icij.org/20160506-john-doe-statement.html

  9. Jack Ramaka 9
    10 May 2016 at 1:50 pm

    The legal profession in NZ has been extremely dodgy since year dot=Fact.

  10. webbrowan 10
    11 May 2016 at 5:04 pm

    I don’t think the issue is having all a person’s finance in a trust. It’s the lack of disclosure isn’t it? I mean at the end of the day, it shouldn’t matter where you put your money and what benefits you’re getting from putting your money in a particular place as long as you are truthful and honest about it right?