Inside Offshore Leaks @ CIJ Summer School

The Centre of Investigative Journalism‘s Summer School 2013 starts in three days.  I will be joining Duncan Campbell and David Leigh to discuss the work involved in producing stories for the International Consortium of Investigative Journalists‘s “Offshore Leaks” project.

INSIDE OFFSHORE LEAKS

David Leigh, Duncan Campbell, Craig Shaw | Sunday 14 July (15:05-16:15)

The 2012-13 Offshore Leaks reporting project of the Washington-based International Consortium of Investigative Journalists (ICIJ) has forced law enforcement authorities in Britain, the US and Australia to admit that they had failed to act on information they held about secret offshore accounts, and to start taking action. The project has helped changed tax policy in the EU and with other international organisations (see www.icij.org/offshore; #offshoreleaks).

The Offshore Leaks reports were prepared from the largest collection of leaked data ever gathered and analysed by any investigative journalism team anywhere. The information analysed totalled 260 gigabytes (GB) of data. This is 162 times larger than the 252,000 US State Department cables leaked to and published by Wikileaks. The leaked data included company and trust documents and instructions, emails, databases, personal identity documents, accounting information and agents’ and companies’ internal papers and reports. The speakers will focus on the successes and failures of work on the project, the lessons learned and experience gained.
* * *
See timetable below, click here to visit CIJ site and find out more about this year’s Summer School.
Friday 12 July
8.20-9.10 Registration, tea and coffee in the Great Hall Foyer
9.10-9.40 Welcome by Gavin MacFadyen, Director of the CIJ in the Great Hall 
Talks: AG07 Talks: AG08 Talks: AG09 Labs: AG34A+B Labs: A308
9.45-10.55 The Secret History of Torture
Ian Cobain
Understanding Company Accounts: How to Get the Most of Companies House Martin Tomkinson and Robert Miller Libel and Privacy Law Justin Walford CAR Intro: Start Here if you are New to CAR (B) David Donald and Alex Plough
11.10-12.20 Understanding Company Accounts: Profits and Losses Raj Bairoliya Interviewing 1: Melanie McFadyean A Web Documentary Primer Kat Cizek Stats for stories with SPSS 1:  Frequencies and Other Descriptives (A) Jennifer LaFleur Excel 1: Power of Data Analysis for Stories (B) hands-on  David Donald and Caelainn Barr
12.20-13.30 Lunch
13.30-14.40 The Savile Panel Discussion with Mark Williams-Thomas, Paul Connew, Gavin Millar QC (chair) and Miles Goslett  in the Great Hall
Talks: AG07 Talks: AG08 Talks: AG09 Lab: AG34A+B Labs: A308
15.00-16.10 Understanding Company Accounts: Assets and Liabilities
Raj Bairoliya
Interviewing 2: Three Types of Interview: Roleplay
Robert Miller and Martin Tomkinson
The Politics of the Internet
Dr Richard Stallman
Stats for Stories with SPSS 2: Cross Tabulations (A) Jennifer LaFleur Excel 2: Finding the Patterns in the Data (B) hands-on David Donald and Caelainn Barr
16.25-17.35 Understanding Company Accounts: The Small Print and Q&A Raj Bairoliya How to Request Documents Under the Freedom of Information Act Brendan Montague and Lucas Amin Introduction to Offshore  John Christensen and Nick Mathiason Stats for Stories with SPSS 3: Linear Regression (A) David Donald Excel 3: Summarising Your data for the Big Picture (B), hands-on Jennifer LaFleur and Aron Pilhofer
17.55-19.05 Jim Nichol will be talking about  The Marikana Tragedy
In the Great Hall
19.05-21.00 Party

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Fraud trail leads to OAP’s tiny flat

A hard-drinking pensioner in Latvia has been revealed as the frontman for a network of scandal-hit companies

By Jon Ungoed-Thomas, Craig Shaw and Kevin Dowling in Riga Published in Sunday Times | 16 June 2013
 
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IN A bustling cobbled street in central Riga, an alleyway leads to a modest red-brick and wooden apartment block. It is the last known address of an apparent business colossus — Erik Vanagels.

Friends and relatives of the former factory worker claim he has poor sight, is a capacious drinker and disappears for weeks on end.

A leak of offshore documents to the International Consortium of Investigative Journalists (ICIJ) reveals a rather different figure: an apparent tycoon with interests in banking, investment funds, pharmaceuticals and shipping. He is a director or an owner of several hundred companies around the world.

On paper Vanagels is probably a billionaire. In reality the 73-year-old is a corporate cipher used as a veil to conceal the real beneficiaries of companies.

Among the world of investigators and lawyers who unravel complex frauds, Vanagels is an almost mythical figure. His companies have been involved in a series of financial scandals and alleged frauds. These include:

■ The Hermitage Capital fund money laundering scandal in which $230m (£146m) was allegedly looted between December 2007 and February 2008 in a fraud involving the fund’s Russian operations.

■ Technomark Business, a London company, is alleged to have received $43m of stolen Hermitage funds that were wired to a Latvian bank account. Vanagels was a director of Technomark’s parent company.

■ Mukhtar Ablyazov, who has been sued by BTA Bank, for which he worked, for misappropriating billions of dollars using various companies including British-based Loginex Projects. Vanagels was a shareholder and director of the companies that controlled Loginex.

■ A Ponzi scheme that operated in America in 2009 — the Rockford Group — routed more than $500,000 illicit funds to a British company, Intercity Transit, according to court filings by the US Securities and Exchange Commission.

A Cypriot company in which Vanagels was a director was used as a UK corporate director of Intercity Transit.

Vanagels has not just been caught up in complex financial scandals. In September 2008 Somalian pirates hijacked the Faina, a Ukrainian ship which was carrying 33 Soviet-era tanks, rocket-launch systems and anti-aircraft guns bound for Sudan, which was the subject of an arms embargo. It emerged that the ship had been chartered by Marine Energy Trading Company (METC), a UK firm. Vanagels was a shareholder and director of the companies that owned METC.

More recently, in May 2010, the High Court ruled on allegations that a Shell trader, Evgeny Tikhonov, had hidden commissions in an offshore deal. Tikhonov was acquitted, but Shell is still pursuing him for compensation, along with a company that received some of the funds, T Capital Ltd (TCL).

In a High Court judgment in July 2010, Mr Justice Jack identified a familiar figure. His judgment stated: “TCL was incorporated in the British Virgin Islands and Mr Erik Vanagels was the nominee shareholder and director.”

Vanagels has also been named in a financial scandal in Ukraine in which it was alleged that the government was overcharged for pharmaceuticals.

 (PAUL VICENTE/GUY CRITTENDEN) Who is Vanagels? For some years it was considered he might be a useful namesake, the John Doe of the corporate world. It was a suspicion fuelled by the fact that he appears to have two different dates of birth in British company records.

The leak of 2.5m offshore records to ICIJ included British Virgin Islands (BVI) for the first time and revealed the scale of Vanagels’s interests. He has acted as director and shareholder in two key BVI companies, Milltown Corporate Services and Ireland and Overseas Acquisitions, with interests in other companies around the world including Britain, Cyprus and Panama.

Among the documents was a photocopy of Vanagels’s passport and numerous emails testifying to his existence. An April 2007 email from a company agent said Vanagels’s two key companies were involved in “several thousands (mainly UK) companies”.

Graham Stack, a journalist based in Kiev, Ukraine, has previously tried to track down Vanagels and reported many of the scandals connected to his network. Stack said Vanagels was in a network of Latvian nominee directors recruited as the country emerged from communism.

In the late 1990s the British government cracked down on the scandal of some residents on the tiny Channel island of Sark offering their services as nominee directors to disguise company ownership. Enterprising company agents were already enlisting recruits elsewhere and Latvia proved promising territory.

Vanagels, who was first appointed a BVI director in 2000, was willing to provide identity documents and for his name to be used in companies around the world. He would have been paid at least £1,000 a month for the use of his identity but would not have been aware of the companies’ alleged involvement in unlawful activities.

One of Vanagels’s sidekicks in the corporate structures was a fellow Latvian, Stan Gorin, who worked in a Latvian office which helped to construct the companies. He lives with his wife in a small fourth-floor flat near the centre of Riga. He said last week that he had allowed his name to be used in the past as a nominee director, but said he now works exclusively as an insurance broker.

“My name was used but I did not do any operations with these companies,” he said.

Philip Burwell, a company agent who works from a house in Dublin, told The Sunday Times that he had set up companies with Vanagels, Gorin and other Latvians as nominee directors or shareholders. He said he was always acting on client instructions and was never aware that any of the companies might be used for unlawful activities.

One of the British addresses used by some of the companies set up by Burwell was a London law firm, Pearson Lowe. James Pearson, a lawyer at Pearson Lowe, said last week that his company provided legitimate services as a registered office for companies, but he was not aware of any unlawful activities involving any of them.

■ The ICIJ this weekend launched the offshore leaks database, which allows users to search details of more than 100,000 offshore companies, trusts and funds. See offshoreleaks.icij.org.

Tax dodgers hide behind top charities

By Jon Ungoed-Thomas, Duncan Campbell and Craig Shaw | Originally published in the Sunday Times on 28 April 2013
Yacht moored next to tropical beach

The British Virgin Islands is one of the world’s most secretive tax havens (Jean-Pierre De Mann)

SOME of Britain’s best known charities are being used by offshore trusts to shelter hundreds of millions of pounds from the tax authorities.

A cache of 2.5m leaked documents from one of the world’s biggest tax havens reveals that rich investors are naming charities as the main beneficiaries of offshore trusts that in reality have been created to benefit themselves.

By naming charities as the purported beneficiaries of a trust, the real owners can avoid scrutiny by the tax authorities.

Cancer Research UK, the NSPCC, the National Trust, Greenpeace and Amnesty International are among organisations whose names have been used by trusts in the British Virgin Islands (BVI), a British overseas territory, and the Cook Islands in the Pacific.

The charities say they were never told of the existence of these trusts and have not received any money.

The investigation by The Sunday Times and the International Consortium of Investigative Journalism reveals:

Cancer Research UK and the NSPCC were among four charities that were named as beneficiaries from a BVI trust which was set up to receive profits from property deals. The charities were not told about the trust and received no money.

— Paul Hogan, the Crocodile Dundee actor investigated for illegally evading tax, placed $34m in the offshore Carthage Trust which listed the British Red Cross as the beneficiary. Hogan admits this was a sham to “protect his privacy”.

— A London firm set up trusts for wealthy Italians naming charities for the blind, for mistreated children and for Aids sufferers among beneficiaries. None has received any money and they are considering suing.

Margaret Hodge, chairwoman of the Commons public accounts committee, said: “It is beyond belief that people have stooped so low [as] to name charities in schemes which could be used to avoid tax, conceal identities or launder money. We need to lift the lid on the tax havens to stop this abuse. The problem is the complete lack of transparency.”

The leaked documents reveal more than 300 trusts with charities named as the key beneficiaries. The most commonly used charity is the Red Cross.

A nunnery in the US state of Virginia, the international charity World Vision and the Save the Children Fund are among other beneficiaries in the leaked files.

Offshore financial experts say there is no tax advantage in creating elaborate and costly offshore trusts for charities, which are already tax exempt.

“The trick of using charities is something that we often uncover,” said L Burke Files of the Lubrinco Group, a US financial compliance company. “These are sham trusts. They are a very effective money laundering tool.”

Experts believe there may be tens of thousands of charity trusts controlling billions of dollars in tax havens. The trust deeds are worded to ensure the concealed owners maintain full control of the funds.

Yesterday George Osborne announced a deal to clamp down on British taxpayers’ use of tax havens. The chancellor has signed an agreement with the Cayman Islands under which it will share information about UK taxpayers who have bank accounts on the islands. The Treasury is believed to be working on a similar deal with the BVI.

Agent behind complex webs

By Duncan Campbell and Craig Shaw | Originally published in the Sunday Times on 28 April 2013
Consultant Philip Burwell operates from a house in Dublin

Consultant Philip Burwell operates from a house in Dublin

 

 

A MODEST terraced red-brick house in southeast Dublin is the hub of a worldwide corporate empire that has set up companies involved in vast money-laundering operations.

The leaked offshore documents reveal that corporate consultant Philip Burwell, who operates from this address, is one of the world’s most prolific corporate offshore agents.

Burwell’s skill is creating complex networks of companies with nominee directors and nominee companies, often in remote corners of the world, acting as directors and shareholders.

These nominees have little or no involvement in the businesses for which they are ostensibly responsible and their only role is to act as a front for the real owners.

Investigators on the trail of illicit funds have often found themselves trying to unpick one of Burwell’s labyrinthine corporate structures.

Burwell said last week that he had formed more than 1,000 British companies that are controlled offshore. He said the use of nominee offshore directors could help conceal the identities of the backers and avoid tax. He said he always conducted the required checks and complied with all relevant laws.

Burwell admitted that the use of nominee directors was not properly regulated by the authorities, but said it was beyond his control. “It’s an abuse and should not be allowed to happen,” he said.

Emails in the leaked cache of documents, however, reveal Burwell has used a panel of Latvian nominee directors, including Erik Vanagels, a pensioner, and Stan Gorin, a law graduate. He has  appointed more than 10 nominee companies to own shares, including one called Milltown Corporate Services and another called Ireland and Overseas Acquisitions.

Eurostate Corporation, a company managed by Burwell’s nominee companies, was at the centre of an alleged sham vaccine contract with Ukraine’s health ministry. The Ukraine government has tried to recover its money in the British and American courts.

Another of Burwell’s companies, Tomex Team Inc, was revealed to be the owner of the MV Faina, a Ukrainian cargo ship containing tanks and arms which was hijacked by Somali pirates in 2008. The shipment was bound for Sudan, then under an arms embargo.

Burwell also helped to create a company for Mukhtar Ablyazov, the Kazakh billionaire accused of looting the BTA bank in Kazakhstan  of $5bn. The company,  Loginex Projects LLP, was among a number of companies that were allegedly used to move $1bn illegally from the bank.

Burwell said the financial ransacking of the bank was considered “the biggest fraud” in history. He created Loginex Projects LLP, but said he did not know it would be used for laundering. Burwell also set up offshore companies for the son of Valery Kargin, one of the founders of Parex, Latvia’s largest private bank.

The bank collapsed in December 2008. Kargin and a fellow director were sued for having “enriched themselves at the bank’s expense”.

Burwell said he was not responsible for the operation of the companies he helped to create and appointed nominee directors and shareholders under instruction from clients.

The uncharitable use of trust to deceive

art-ziolkowski-620x349

 

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”.

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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.

Do you know more? investigations@smh.com.au

 

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