Charities are unwittingly being used to hide the identities of tax avoiders in schemes involving millions of pounds
Jon Ungoed-Tomas, Duncan Campbell and Craig Shaw | Published in Sunday Times 28 April 2013
- The British Virgin Islands is one of the world’s most secretive tax havens (Jean-Pierre De Mann)
A FEW minutes’ walk from Buckingham Palace lies one of London’s most exclusive terraces. Apartments in the imposing grade II listed buildings that line Grosvenor Crescent, prestigious even for Belgravia, sell for as much as £50m.
Yet Grosvenor Crescent has had a troubled history in recent years. It is a story that leads more than 4,000 miles to the offshore tax haven of the British Virgin Islands and to a mysterious charitable trust of which even the charities it was supposedly set up to benefit have never heard.
Five years ago, an ambitious entrepreneur, Raheem Brennerman, then 29, unveiled plans for a development of part of the crescent. Residents would have their own in-house chef, use of a yacht and a Rolls-Royce Phantom to ferry them to shops or restaurants.
The Royal Bank of Scotland (RBS) was impressed, lending £146.5m to the scheme for the “trophy” apartments in June 2007. It was a part of the ill- considered spending and lending splurge that led to the bank announcing the biggest losses in British corporate history the following year.
In June 2009, RBS asked for the return of a large portion of its money — £118m — as the Grosvenor Crescent development was hit by tumbling property prices. In a letter sent to the British Virgin Islands (BVI), a group of islands in the Caribbean where the company behind the scheme was based, a lawyer asked hopefully for the cash to be paid back “within one hour”.
It was, however, a complicated money trail and RBS is still waiting to get all its cash back. The initial loan had been made to Zegna III Holdings, incorporated in the BVI — a British overseas territory that has become notorious as one of the world’s most secretive tax havens. It was controlled by a Seychelles company Nuevitas International Holdings.
The actor Paul Hogan, seen with his wife Linda Kozlowski, is taking legal action against a trust based in the British Virgin Islands (Lucas Dawson)
Brennerman, who is originally from Nigeria, and Nuevitas International Holdings in turn controlled a BVI trust — the Trigon Trust — which could be used to bank the profits from property deals and buy “yachts, boats, motor vehicles [and] works of art”.
Trust documents seen by The Sunday Times reveal the unlikely beneficiaries supposed to enjoy such trappings of huge wealth: Cancer Research UK, the National Society for the Prevention of Cruelty to Children, the National Trust and a diabetes charity.
Last week, the charities involved said they had never given permission for their names to be used and had not received any money from the Trigon Trust.
The London firm Bloomsbury Management Services, which helped create the trust, said it had advised its clients that the charities should be informed about the Trigon Trust. According to the charities, that never happened.
Brennerman insists Trigon was formed in good faith and it was initially intended that the charities would benefit. In the event, a source close to Brennerman says no money was distributed.
Whatever the intention of the Trigon Trust, experts say tens of thousands of similar charity-fronted trusts have been quietly formed in tax havens. They say such structures are used to conceal the ultimate beneficiaries.
Naming a charity as the main beneficiary of a trust reduces the requirements for identity and anti-money-laundering checks and they can be removed from trust documents shortly before any funds are distributed without the charity knowing anything about it.
Robert Peach, a trust recovery law specialist at Coffin Mew solicitors in Portsmouth, said: “We call [these trusts] ‘black holes’ because you never normally know who is really intended to benefit.
“They are mainly offshore, taking advantage of lax laws. Billions [of dollars] could be out there.”
A leak of 2.5m records relating to more than 120,000 offshore companies and trusts to the International Consortium of Investigative Journalists (ICIJ) has lifted the lid on this practice. Hundreds list charities and campaign groups as beneficiaries of tax haven trusts, including Greenpeace, Amnesty International and the British Red Cross.
Last week charities and campaign groups expressed their anger at the way they had been exploited. John Sauven, executive director of Greenpeace, which has been named as a beneficiary of a trust in the Cook Islands in the south Pacific, said: “It looks like our name has been exploited by somebody operating from an island notorious for facilitating tax avoidance.
The Red Cross was unaware it was being used by tax avoiders (Ben Gurr)
“Global tax loopholes are costing governments trillions, setting back the fight against poverty and environmental destruction. The fact that tax avoiders may be using the names of campaign groups to pull it off is a distasteful irony.”
Many foreign charities are also on the list. Some are now investigating whether they can take legal action to stake a claim on these hidden offshore assets.
One of the financial advisers who has honed the use of trusts for tax avoidance is Philip Egglishaw, known at “the Bowler Hat Englishman”. He is subject of an international arrest warrant after allegedly masterminding one of Australia’s biggest tax evasion schemes. He denies wrongdoing.
In November 2003, investigators in Operation Wickenby, Australia’s biggest tax evasion crackdown, found documents Egglishaw had unwittingly left behind at the Sheraton On the Park hotel in Sydney.
The documents revealed how trusts could be set up without disclosing any link between the trustees and beneficiaries. The documents stated: “Trusts are typically used to avoid the following forms of taxation: income tax; capital gains tax; death duties; gift taxes; wealth taxes.”
Egglishaw helped devise a trust scheme for Paul Hogan, the Crocodile Dundee actor who has been investigated in Australia for unpaid tax. Hogan, who moved to America, has since settled his case with the tax authorities.
Egglishaw formed the Carthage Trust, which was run from the British Virgin Islands. About $34m was kept in the Corner Bank in Lausanne, Switzerland, for the benefit of the trust. The trust documents, however, listed the beneficiary as the British Red Cross.
A legal action was filed on Hogan’s behalf in a Californian court last year, revealing that this trust structure was bogus and that the British charity was never the intended beneficiary.
“The sole intended beneficiary of the Carthage Trust is Hogan, and this structure was adopted to maintain his privacy,” the documents say.
The action states Hogan had correctly declared his interest in the Carthage Trust to the US authorities. Hogan now accuses Egglishaw of stealing the money that he was meant to stash in a tax haven.
“The British Red Cross has no record of ever being a beneficiary of the Carthage Trust and we have never received any funds,” the charity said.
The leaked documents revealed that a London legal firm, Pearson Lowe, helped administer a number of trusts that appear to have been established for three wealthy Italian families.
Three Italian charities caring for blind people, mistreated children and Aids sufferers were named as the beneficiaries of the SICC Trust set up in the Cook Islands in January 2002.
All three charities — Lega Italiana per Lotta Aids, Unione Italiana Ciechi and Centro Bambino Maltrattato — have said they had no knowledge of this trust and never received any donations. They are now considering legal action to see if they can claim any of the funds sheltered in the trusts.
Trust experts say the use of charities to front trusts without their permission or knowledge has been going on for years. The International Red Cross has legitimately been used as a “reserve” beneficiary in some trusts, but the practice expanded to using charities as the main beneficiaries to conceal the ultimate destination of the funds.
Many of the trusts are “discretionary”, which in effect means the assets do not have to be distributed to the main beneficiaries. Financial experts say more rigorous compliance checks are required to stamp out the practice.
They warn the trust industry, however, that charities might now have a legitimate claims over the hidden funds. L Burke Files, an international trust agent and recovery expert, said charities could apply to take over the fund if courts rule that the trusts were shams to conceal the identity of true beneficiary.
Glimpse into secret world
The leaking of 2.5m documents, mainly from the offshore tax haven of the British Virgin Islands, has lifted the lid on the secretive world of offshore finance, writes Peter Newlands.
The material comes from two finance firms that specialise in offshore trusts: Commonwealth Trust Limited, based in the BVI, and Portcullis Trustnet, which has offices in many tax havens, including the BVI and the Cook Islands.
The material reveals how business leaders, politicians and other prominent figures around the world have benefited from moving money into offshore trusts.
Although the documents detail 122,000 offshore entities, most of the BVI’s 600,000 companies are still cloaked in secrecy and about 5,000 more are registered each month.
In a statement Portcullis Trustnet Group said it considered the leaked information to have been stolen: “We are taking this theft . . . very seriously.”