The uncharitable use of trust to deceive



In 1983, an ambitious 26-year-old doctor graduated from the Wisconsin Medical School. Thomas Ziolkowski, who was born in Milwaukee, chose to specialise in dermatology and set up a clinic in Boulder, Colorado. He also took a liking to Australia, and would visit from time to time.

But whatever he was paid and whatever satisfaction he felt from his work, it was not enough; Ziolkowski craved a grander existence and he found a shortcut. Just two years after leaving university, the young doctor had worked out a way to systematically gouge medical insurance companies for significantly increased fees.

In all, despite the millions of dollars flowing through it, the trust fund is worth a mere $11.

As a subsequent Colorado Medical Board investigation would find, Ziolkowski lined his pockets by charging separate fees to examine individual lesions on his patients. He brought each patient back again and again for appointments they otherwise did not need and for health checks they did not get.

Dr Tom Ziolkowski Australian citizen Tom Ziolkowski used two Australian AIDS charities as fronts to hide money from US tax authorities. Photo: Facebook

After receiving at least four complaints between 1993 and 1996, the board ordered him to stop his “continuing practice of requiring patients to make unnecessary return appointments”.


Noting that he had claimed top billing of about $160 for one “high complexity” case that required him to look at two benign spots on a patient’s back, the board warned him in March 1996 that “your actions are highly suggestive of an intent to unfairly profit at the insurance companies’ or patients’ expense. This behaviour is totally unacceptable”.

That month, he was issued a “letter of admonition” by the medical authority and warned that “complaints disclosing any repetition of such practice may lead to the commencement of formal disciplinary proceedings against your license to practice medicine”.

Map of the countries in which Portcullis operated.

Ziolkowski ignored the warning. Within two years he was the subject of four new complaints that were found to warrant disciplinary proceedings and which were passed to Colorado’s attorney-general for prosecution.

On May 26, 1988, Ziolkowski gave up his licence to practice instead of contesting the new complaints (claiming to be suffering from ill health). But by then he had gone to significant lengths to protect the money he was making.

With the help of a Denver lawyer and a wealth management company that specialised in offshore secrecy, the Portcullis Trustnet Group, Ziolkowski then salted away his money in a trust hidden in Bermuda and companies domiciled in the British Virgin Islands. He turned from medicine to the sharemarket.

By 2004, he was trading via disguised accounts that were worth $2.4 million. He had properties stretching from the Colorado highlands to the glittering waterfront of Sydney; he later renovated a $2.5 million Manhattan loft in the same building as Tom Cruise’s ex-wife, Katie Holmes.

Ziolkowski, who became an Australian citizen in 2006, had been shown a means by which he could hide his funds and profits from US tax authorities – by using charities as a front. He chose two Australian not-for-profits, the AIDS Council of NSW and the AIDS Trust of Australia.

Although each charity has, since 2002, been listed as having an individual 47 per cent beneficial interest in the master entity created for Ziolkowski – dubbed the Voyager Trust – neither has received a single dollar.

The Portcullis global network.In all, despite the millions of dollars flowing through it, the trust fund is worth a mere $11, the nominal value of the shares in the two British Virgin Islands companies that sit within it.

In this deliberately complicated structure, the rivers of cash being traded by these companies is deemed as debts due to be paid back to Ziolkowski, a “creditor” under the scheme. That repaid money is regarded as a tax-free annual annuity.

Ziolkowski’s offshore adventures are a single example of what has become a booming and competitive market in tax avoidance. He is just one of hundreds of thousands of people around the world who have used the murky offshore world to manage their wealth and minimise their taxes.

So industrialised has the practice become that financial analysts suspect that 30 per cent of the world’s wealth is now domiciled in offshore tax havens.

Now, the veil is being lifted from this secretive world. Since 2010, 260 gigabytes of offshore secrets, leaked to the International Consortium of Investigative Journalists, have been scoured by more than 80 journalists from 40 countries. The volume of material is larger than the diplomatic cables provided to Wikileaks.

So far, the ICIJ’s stories, published in newspapers around the world, have rocked governments and caused serious indigestion for private bankers in places such as Switzerland, the Cayman Islands and Hong Kong.

Then there are the rich and the powerful. French banking aristocrat Baron Elie de Rothschild created an offshore empire involving at least 20 trusts and 10 holding companies in the Cook Islands; two members of India’s Parliament were revealed to have links to the offshore world; French President Franç¸ois Hollande’s campaign treasurer was exposed as having secret investments in the Cayman Islands.

One of Mongolia’s most senior politicians, meanwhile, has said publicly he is considering the need to resign after his secret Swiss bank account was revealed.

And as the Herald reported in April, Crocodile Dundee star Paul Hogan has now accused his former tax adviser Philip Egglishaw of taking off with $34 million he helped Hogan hide in Switzerland. Like Ziolkowski, Hogan’s affairs were also hidden behind a charity, the British Red Cross.

‘If anybody in this country doesn’t minimise their tax, they want their heads read, because as a government, I can tell you you’re not spending it that well that we should be donating extra.”

Kerry Packer was blunt about both his tax strategies and his view of the government in 1991 when he testified before a parliamentary committee. But for those who use offshore havens, it is not a simple affair.

For Ziolkowski, the critical first step was finding someone in the business of offshore “asset protection”. Getting money offshore and into tax havens is only part of the problem. The rest is masking who really owns and controls it. This involves creating a so-called Special Purpose Vehicle comprising multiple companies and trusts.

On the top layer of the Ziolkowski scheme were the AIDS charities that were listed as beneficiaries of the Voyager Trust. The trust was nominally managed by its trustee, Managecorp Ltd (which was a subsidiary of the company that specialised in managing money in zero-tax jurisdictions, Portcullis Trustnet).

In fact, through Portcullis, the trustee answered only to Ziolkowski under the terms of a hidden “Nominee Service Agreement”.

The Voyager Trust’s sole assets, with a book value of a mere $11, were two British Virgin Island companies set up for Ziolkowski in the late 1990s, called Falcor Australia Ltd and Voyager International Enterprises Ltd.

On paper, the director of each company was Sydney accountant Steven Rosen. Each company has had at least $1 million in its accounts, according to bank records, which were used for stock and derivatives speculation.

As far as the banks and traders were concerned, Rosen managed these accounts. But in practice, Rosen had handed back the power to give instructions to Ziolkowski under a hidden “Limited Power of Attorney”. Mr Rosen confirmed to the Herald he made none of the decisions affecting the company: ”I had nothing to do with anything that the companies did or the way they operated.”

He said he had agreed to act as a nominee director but didn’t know of the existence of the trust, nor of its tax benefits to Ziolkowski. ”I was asked if I would fill the role because he needed an Australian resident … and so I agreed,” he said.

To ensure that the money in Ziolkowski’s stock accounts never reached the stated beneficiaries of his sham trust, the deal was set up as a loan from Ziolkowski to his own companies.

The effect was to create a tax avoidance shell around Ziolkowski, in which – but for the offshore leaks to the ICIJ – no one could have found out who owned the company accounts, or whether they paid tax in the US or Australia.

The use of charities’ names to mask the real owners of offshore trusts is a common and long standing practice of “doubtful validity”, according to offshore experts and investigators.

It’s largely known as the ”Red Cross” sham, of which many tens of thousands are believed to have been created around the world since the 1960s, most frequently citing the International Red Cross in Geneva or elsewhere as the purported beneficiary.

“This type of scheme [using charities as nominal beneficiaries] has been going for at least 30 years,” a trust recovery law specialist at UK solicitors Coffin Mew, Robert Peach, said. “We call them ‘black holes’ because you never normally know who is really intended to benefit,” Peach said.

The good names of dozens of other charities have been similarly exploited, according to trust documents seen by ICIJ. They include two other AIDS charities in Italy and Indonesia.

According to a study by Professor Peter Willoughby of the City University of Hong Kong, “the selection of the Red Cross [or other charity] as a discretionary beneficiary without intending to benefit it, is bogus”.

“The 90 per cent trick using the names of charities is something we often uncover,” offshore tax specialist and asset recovery expert Burke Files said. “These are sham trusts.”

Files’ opinion about the real purposes of trusts such as Voyager appeared to be confirmed by confidential correspondence between Portcullis Trustnet’s Jamie Williams and Ziolkowski’s Cayman Islands broker in December 2004.

“[The] discretionary beneficiaries … do not have a fixed interest. Most trusts we administer are discretionary in nature. In most cases this means the discretionary beneficiaries are not aware they have a discretionary interest and it is not often the intention of the trustee to inform them of such because of possible disruptive (and even negative) implications for the trust. This is the same situation here.”

Certainly neither AIDS charity has benefited. They’ve not received a cent and knew nothing of this until contacted by the Herald. Ziolkowski did not respond to the Herald’s inquiries .

Jailed property man hid his assets in offshore network during divorce

By Duncan Campbell and Craig Shaw

Scot Young, left, is accused by his ex-wife, Michelle, right, of hiding his £400m fortune offshore during their bitter seven-year divorce battle. Photograph: Composite

Jailed British property developer Scot Young, an associate of Russian oligarch Boris Berezovsky, constructed a secret network of offshore companies to hold his assets during a multimillion-pound divorce battle, according to the International Consortium of Investigative Journalists (ICIJ’s) research.

His story graphically demonstrates the way hideaways such as the British Virgin Islands (BVI) can be used by a man bent on cheating the law.

Young, 51, described as a fixer for the super-rich, rose suddenly from working-class origins in Dundee to occupy a £14m Oxfordshire mansion and to throw his money about in spectacular fashion. He once bought his then wife, Michelle, a Range-Rover filled to the roof with couture dresses. For her 40th birthday, he gave her a £1m necklace.

He is held in Pentonville prison for contempt of court, following bitter seven-year divorce proceedings in which he failed to explain where his fortune had gone. He could be eligible for parole in two weeks. He has not responded to requests for comment.

Michelle Young is suing for a share of the £400m fortune that Young reportedly owned in 2005, but which he claims disappeared and became debts of £28m within three months. He owes nearly £1m in maintenance and £1.28m in unpaid tax.

Despite declaring bankruptcy in 2010, Young continued to live lavishly. He told the high court that top businessmen were supporting him with gifts and loans.

Mrs Young alleges that associates such as the exiled Berezovsky, who was found hanged at his Ascot mansion last month, helped her ex-husband conceal his assets.

Click here to read more

‘Sham trusts’ used charities to reap millions

AIDS organisations unwittingly listed as beneficiaries, write Duncan Campbell, Craig Shaw and Linton Besser.

Dr Tom Ziolkowski, left, with Hillary Clinton.

Two of Australia’s top AIDS charities have been unwittingly exploited by a discredited former American doctor in a complex offshore scheme designed to conceal millions of dollars from US tax authorities.

Since 1997, Potts Point resident Thomas Ziolkowski has been operating trading accounts in the Cayman Islands, Switzerland and the US through companies based in the British Virgin Islands, using a “sham” trust set up in Bermuda to evade the US tax office. His accounts have been worth at least $3.5 million.

Now, a joint investigation between the Herald and the International Consortium of Investigative Journalists has discovered that Dr Ziolkowski kept his ownership of the trading accounts secret by listing the AIDS Council of NSW and the AIDS Trust of Australia as the main beneficiaries of an offshore trust set up in 1997.

Dr Tom Ziolkowski

Since 2002, Dr Ziolkowski has claimed the charities were beneficiaries of the ”Voyager Trust” and would share 94 per cent of its funds. Neither charity has seen a single dollar. Until contacted by the Herald, they were unaware of how their names had been used. One is now considering whether to launch a claim for millions of dollars to which it may technically be entitled. Agents for Dr Ziolkowski used copies of the charities’ financial statements – which are public – to pass US anti-money-laundering checks.

The revelations come as the ICIJ continues to unveil the secretive world of offshore tax havens in a groundbreaking global investigation. To date, it has exposed a Paraguay presidential candidate, the daughter of the Philippines’ former president Ferdinand Marcos, and the campaign treasurer to French President Francois Hollande as having benefited from the use of secret offshore companies.

The AIDS Council of NSW had been approached before 2008 by Dr Ziolkowski to be a beneficiary. But ”to date, ACON has not received any donations from the Voyager Trust, nor does ACON have any other connection to or knowledge of the financial activities of Mr Ziolkowski or any of his associates”, a spokesman Michael Badorrek said.

Map of where Portcullis operated.

Greg Gahl, the chief executive of the AIDS Trust of Australia, said ”this would appear to be yet another instance of a third party abusing the notions of charity for their own enrichment”.

”We would like to pursue any funds or distributions,” he said. ”Much good would come from such money. However the very nature and intent of the suggested scheme makes such action challenging and very costly.”

Using charities to conceal ownership and evade taxes is a vintage scam called a “Red Cross trust”, according to experienced US offshore tax expert and fraud investigator Burke Files. “These are sham trusts,” he said. ”Claiming that [percentage] of the funds will go to charities also means that the owners of the remaining 10 per cent do not have to be disclosed.”

Dr Ziolkowski took Australian citizenship in 2006. But almost two decades ago, he was accused by Colorado health authorities of “unacceptable behaviour” by charging Medicare and insurance companies for unnecessary work. When Colorado’s medical board warned he was to be prosecuted in December 1997, Dr Ziolkowski surrendered his licence to practise medicine, citing poor health.

Within two years, he had turned to share trading, managing millions of dollars of investments through two offshore companies registered in the British Virgin Islands and controlled through The Portcullis global network.Australian and BVI agents.

Despite the complex structure and the use of the charities’ names, emails seen during the investigation show that all decisions regarding the trust and the two companies, and especially the stock-trading activity, were taken directly by Dr Ziolkowski.

The nominee company controlling the Voyager trust was a subsidiary of the Portcullis TrustNet Group – a global “wealth administration” outfit.

In February 2009, a Denver lawyer who had advised Dr Ziolkowski, Alan Jahde, explained in an email to Portcullis how the structure benefited his client. “Dr. Z,” Mr Jahde wrote, “funded the Trust … via transfers into the 2 corps the Trust owns in return receiving a Private Annuity payment obligation back from each corp.”

Dr Ziolkowski did not respond to Herald messages.

In July 2009, Portcullis assisted Dr Ziolkowski in opening an account for one of the BVI-registered companies with Lombard Odier, a private Swiss bank. Portcullis signed and stamped registration forms on behalf of the two Australian charities, declaring their interest in the trust – and implying that funds and profits were guaranteed to them.

By 2010, Dr Ziolkowski had more than $US1.1 million banked in Zurich.

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