What are the Paradise Papers and who are Named in the Scandal?
The leaked Paradise Papers reveal how large multinational corporations, such as Apple and Nike avoid paying taxes, and how the world’s rich and famous, including the Queen, Bono and members of Trump’s cabinet can hide their wealth.
The Paradise Papers is a haul of 13.4m files, which is equivalent to 1,400GB of data, that contains documents from a combination of offshore professional service providers as well as from company registries from 19 tax havens, which, for the most part, are located in the Caribbean.
At the centre of the Paradise Papers is the world’s largest offshore law firm, Appleby, which had its computer servers hacked, exposing client agreements, financial statements, trust deeds, etc., spanning 50 years. The hackers took 6.8m files and shared the haul with German newspaper Süddeutsche Zeitung. A similar amount of data, totalling 6m files, was taken from company registers in 19 tax havens. Hackers also took a smaller batch of financial documents from the family-owned trust company, Asiaciti, which is based in Singapore.
Paradise Papers vs Panama Papers
The contents of the Paradise Papers are very different from the Panama Papers as this huge 13.4m file leak exposes the numerous ways in which multinationals and the global elite avoid paying tax using artificial structures. According to Pascal Saint-Amans, Director at the OECD’s Centre for Tax Policy and Administration, the schemes are mostly, if not legal. “Some are not even questionable from a legitimacy point of view.”
Süddeutsche Zeitung obtained the leaked material from an anonymous source in a similar scenario to the Panama Papers. It then shared the financial material with the International Consortium of Investigative Journalists (ICIJ) that collaborated with 380 journalists across six continents to investigate the haul, aptly named the Paradise Papers due to the idyllic locations of many of the offshore jurisdictions involved.
Although these schemes are legal when operated correctly, politicians and economists around the world are beginning to question whether they should even exist. Jeremy Corbyn, the leader of the opposition, has voiced his concerns strongly, claiming society is being damaged by a “super-rich elite which holds the taxation system and the rest of us in contempt”.
The Global Elite
In addition to revealing the secret offshore financial affairs of the global elite, including politicians, celebrities and high-net-worth individuals (HNWIs), the Papers also shine a light on the law firms, financial institutions and accountants working within the offshore sector as well as on the tax havens that adopt offshore tax rules to attract money.
According to the BBC, more than 100 UK millionaires have been identified as tax dodgers after concealing their wealth through offshore schemes. Here is a list of just some a few of them.
- The Queen’s private estate invested £10m offshore, including in the company behind BrightHouse, a chain accused of irresponsible lending
- Prince Charles failed to disclose that his private estate had an offshore financial interest
- Apple has moved certain key parts of the business to Jersey to protect its low-tax regime
- Four-time F1 champion Lewis Hamilton avoided tax on his £16.5m luxury jet by renting it from himself
- One of President Trump’s top administration officials has a financial stake in a firm whose partners include a Russian company part-owned by President Vladimir Putin’s son-in-law
- A shopping centre in Lithuania, which is part-owned by Bono is under investigation for tax evasion
- Three stars of the BBC sitcom, Mrs Brown’s Boys, channelled more than £2m into an offshore tax-avoidance scheme
- Former Conservative Party Deputy Chairman Lord Ashcroft may have broken the rules around how his offshore investments were managed by retaining his non-dom tax status while in the House of Lords in spite of becoming a UK resident
- Oxford and Cambridge and other top US universities have invested offshore, with some of the money going into fossil fuel investments
Appleby, the offshore magic circle law firm at the centre of the Paradise Papers, advises companies, financial institutions and HNWIs on how to set up and register companies in offshore jurisdictions. It is an established firm that was founded in Bermuda and dates back to the 1890s.
The leaked material shows that it’s client register is dominated by the US, with more than 31,000 US clients. There were more than 14,000 UK clients and 12,000 clients located in Bermuda.
In a press statement, Appleby said: “Appleby has thoroughly and vigorously investigated the allegations, and we are satisfied that there is no evidence of any wrongdoing. We are a law firm which advises clients on legitimate and lawful ways to conduct their business. We operate in jurisdictions which are regulated to the highest international standards. We do not tolerate illegal behaviour, and we reiterate our commitment to responsible business conduct. We are committed to the highest standards of client service and confidentiality. It is what we stand for; this commitment remains unequivocal.”
Of the (ICIJ) investigation, it added: “The journalists do not allege, nor could they, that Appleby has done anything unlawful. There is no wrongdoing. It is a patchwork quilt of unrelated allegations with a clear political agenda and movement against offshore.”
Appleby has agreed to take part in any formal inquiries that come out of the leaked documents.
Protesters and Defenders
For many, there is little doubt that tax havens are harmful. Last year, more than 300 economists wrote a letter to world leaders that stated: “The existence of tax havens does not add to overall global wealth or wellbeing; they serve no useful economic purpose.”
Equally, there are those who strongly defend the dealings of offshore finance, which has been described as an essential cog in a world of increasingly cross-border trade and investment. Tax havens are tax neutral, which ensures that individuals from different jurisdictions who make collective investments can avoid double taxation.
Martin Sullivan, chief economist for Tax Analysts, a not-for-profit publisher, said: “There is nothing illegal about having a bank account in Bermuda. It’s only a problem if you don’t disclose it on your tax return.”