Money trail leads home to New Zealand, Sunday Star-Times
April 7, 2013
Leaked documents reveal one of New
Zealand’s richest families was for a time at the heart of a major international tax haven company that hit the
news in the United States last week.
John Spencer,
New Zealand’s
richest man in the 1980s and still incredibly wealthy, was – with his
family – majority owners of the company called TrustNet, whose extremely
secret client records have been leaked en masse to a Washing
ton
DC-based journalism organisation. The leaks reveal the identity of tens
of thousands of people who use tax havens: some involved in dodgy
activities and evading tax, others in lawful activities including
companies doing business across political borders and individuals living
in multiple countries or legitimately minimising their tax.
Surprisingly, the leaks show
New Zealanders are involved extensively in this shadowy world of offshore companies and secret bank accounts.
The company at the centre of the Washing
ton leaks was set up by New
Zealanders, has been staffed by many
New Zealanders and for 14 years was majority-owned by the Spencers.
The Spencers have courted controversy. John Spencer waged a 19-year
battle to stop public access to the Stony Batter gun emplacement on his
Waiheke Island farm, including barricading a public road. The Star-Times
revealed in 2005 that his son Berridge and daughter Mertsi were secret
National Party donors. And now Spencer is the Kiwi connection to secret
tax haven records that may be the largest leak of financial information
in his
tory.
They expose the hidden activities of wealthy, secretive or criminal
people in around 150 countries and territories. In total, about
one-and-a-half million documents were leaked to the International
Consortium of Investigative Journalists (ICIJ), an independent network
of reporters who work
together on
cross-border investigations. There is currently hot debate around the
world about corporations which don’t pay tax and the respectable bankers
and lawyers who assist them.
The Tax Justice Network and other organisations are pushing for governments like
New Zealand’s to stop tolerating tax havens and work together
to
close them down. TrustNet has helped set up and manage companies,
trusts and bank accounts in tax havens for about 80,000 individual
clients.
According to overseas
news stories
based on the leaks, they include the mega-rich, corrupt regimes,
corporations dodging tax, fraudsters, companies shifting wealth out of
poor countries, companies with controversial or secretive business,
mercenaries and spies, and also many ordinary people who want
to move their
money and business “offshore”.
The Tax Justice Network estimates that about one-third of the world’s
wealth is held offshore and about half of all the world’s trade flows
through tax havens.
New Zealanders have had occasional glimpses of the offshore world.
Star-Times s
tories have exposed:
* Geoffrey Taylor, and his sons Ian and Michael, setting up companies in
New Zealand for North Korean arms trading and organised crime;
* an Auckland Burger King cook was a direc
tor for some of these companies;
* and a Nelson woman who supposedly owned a Moldovan TV station, again through a chain of Taylor companies.
Mostly these people and their shell companies have been pawns in a much bigger system.
KIWIS IN KEY ROLES
The TrustNet leaks show
New Zealanders in key roles helping to run the system. TrustNet markets itself
today as the largest independent offshore services company in Asia. It was set up 25 years ago by Kiwis in what was then the
newly established Cook Islands tax haven.
In the early 1980s business lobbyists from New Zealand and Australia
persuaded the Cook Islands government that becoming a tax haven would
bring riches to the small island group. These lobbyists included New
Zealander lawyer Trevor Clarke, “father of the Cook Islands tax haven”, who with others used the
new tax haven laws
to build a company called European Pacific.
Documents about European Pacific’s tax schemes were leaked and tabled in the
New Zealand Parliament by MP Wins
ton Peters, igniting the Winebox scandal (see breakout).
Another key figure was
New Zealand
lawyer Mike Mitchell, the Cook Islands solicitor-general in the early
1980s and main government adviser as the tax haven was established. He
resigned from that role in 1986 to move in
to
the offshore business himself. On April 29, 1987, he established an
offshore services company called Pacific Trustee Company. The company
was later renamed TrustNet, the company at the centre of last week’s
leaks.
TrustNet’s first chief executive was another New
Zealand
lawyer, Steve Breed, who was joined a few years later by fellow
Auckland law school graduate David Sceats. Early staff included people
who’d worked on the Cook Islands Winebox schemes. The European Pacific
tax expert accused in court of leaking the Winebox documents,
New Zealand lawyer George Couttie, had moved on to work for TrustNet in Hong Kong. But soon after this accusation was made, according
to
internal documents, senior TrustNet staff recorded a terse company
resolution that “accepted” his resignation “effective from the date
hereof”.
In contrast, European Pacific’s former senior executive Geoff Barry
was later hired by TrustNet and rose to become the chief executive
officer. Today, 10 years later, he is executive direc
tor of TrustNet’s Hong Kong office.
Spencer’s ownership of TrustNet was never publicised. It came
to
light only during analysis of the leaked records. A note about an
obscure offshore entity says “Client is our big boss, John Spencer”.
Spencer, who had inherited his family’s Caxton toilet paper empire,
owned, with his family, a majority share of TrustNet from July 1990
until September 2004, through a Bahamas company called International
Trustee Holding Company Limited. John and Berridge Spencer also used
TrustNet
to place some of their own
money
and investments in a complex web of offshore companies and trusts.
These were based in the British Virgin Islands and Cook Islands, with
names such as Northern Lights Trust, Star One Trust and Tristar Capital
Service Limited. A spokesperson for the Spencer family said neither John
nor Berridge Spencer have been New
Zealand residents since the 1990s and in those circumstances it was hardly surprising that the family have assets invested outside of
New Zealand.
With the Spencers’ backing TrustNet grew quickly, opening offices in
Hong Kong in 1991, the British Virgin Islands in 1993 and Singapore in
1994. The early clients included a controversial Indonesian rainforest
logging tycoon named Prajogo Pangestu, who had four British Virgin
Islands companies.
TREVOR CLARKE
Another TrustNet client was the former European Pacific manager
Trevor Clarke. He had his own set of offshore companies and trusts
administered by TrustNet. They were
home
to millions of dollars of assets, the leaked documents reveal, and
TrustNet staff were given special instructions about keeping them
secret. One document reads: “We are to contact Trevor by phone only
unless otherwise instructed . . . No documents are to be kept here. All
docs are
to be held in our Hong Kong office.”
Clarke was appointed chair of the Cook Islands’
new
Financial Supervisory Commission from 2003 until 2010, which was set up
to oversee the offshore industry. Throughout those years he had the
secretive offshore trusts and companies. Clarke responded that he was
not “a user of any Cook Islands entities” – his companies and trusts
were in Samoa and the British Virgin Islands – and said these were set
up well before his role as FSC chair. He had disclosed them to a number
of authorities. He said there were lots of reasons for people to want
to have assets outside the country where they live. The secrecy instructions did not come from him, he said.
The TrustNet files also show a close relationship between the company
and the BNZ and ANZ banks, which had dedicated staff for offshore
banking. The leaked documents show bank staff routinely helping TrustNet
move
money in and out of its clients’ offshore bank accounts held at the BNZ Singapore branch and ANZ Cook Islands branch.
In September 2004, the Spencers sold TrustNet to a Singaporean offshore lawyer named David Chong. But many of the
New Zealanders, especially lawyers, continued
to work in the company and be part of tax haven politics.
Lawyers created the offshore world and lawyers and accountants run it. They lobby in each tax haven for special laws
to
attract clients and often actually write the laws themselves. The
leaked TrustdhNet papers show this clearly in the minutes of the Cook
Islands Trusdhtee Company Association. The offshore services company
heads are seen sitting around deciding what laws they want, putting the
hat around for
money to have them drafted and then arranging to predhsent the
new laws to the Cook Islands government. The same lawyers then use these laws
to help their clients.
They also deal with the problems when things go wrong. One of TrustdhNet’s
New Zealand
lawyers Penny Purcell was on duty, for instance, when two officers from
the Hong Kong Commercial Crime Bureau turned up on August 20, 2007, at
TrustNet’s harbour-front offices. They were investigating a fraud case
involving a British Virgin Islands company called Sound Financial
Management Limited.
The secret TrustNet files include Purcell’s written record of the
meeting. Detective Sergeant Steven Lam produced a formal letter from the
Hong Kong commissioner of police requesting ‘‘all relevant documents’’
about Sound Financial Management Limited and details of the company’s
director and shareholder. Purcell replied that the officers would need
to contact TrustNet’s British Virgin Islands office and, according
to her own notes, assured them ‘‘we do not keep any files or records here’’.
She said the police ‘‘were surprised’’ the office had no records and
asked how this could be ‘‘if the client is based here in Hong Kong’’.
‘‘I then explained,’’ Purcell wrote, ‘‘that we acted as a
marketing/secretarial office but that all information including the
registers of the Company were kept in its registered office.’’
Detective Sergeant Lam tried one last time, she wrote, asking if they
kept any information there in Hong Kong, including correspondence. ‘‘I
said no,’’ Purcell wrote. A few days later TrustNet repeated the denial
by letter. ‘‘Portcullis TrustNet (Hong Kong) Limited does not hold any
corporate or statutory records of the Company, nor is it required
to,’’
the letter said. However, the details the police were looking for would
have been instantly available on Purdhcell’s computer. The leaked
TrustdhNet documents show that she routinely used the company’s Offshore
Management Information System (OMIS), which was available in all the
TrustNet offices and contained all the client records.
The OMIS database, which was leaked to ICIJ, lists Sound Financial
Management’s director and shareholder as Glen Douglas Crankshaw, a
Canadian living near Bangkok. TrustNet helped his company open a bank
account at the Standard Chartered Bank, Hong Kong branch, located on the
ground floor of the same building as TrustNet. According to Purcell’s
notes, she told them none of this. Two years later the Hong Kong police
issued an arrest warrant for Crankshaw for ‘‘dealing with property known
or reasonably believed
to represent
the proceeds of indictable crime’’. They had traced him through a
different offshore company, with the similar name ‘‘GS Sound Management
Limited’’.
Purcell has since returned to help run TrustNet’s office on Auckland’s North Shore. She remains part of a network of
New Zealand offshore lawyers scattered in tax havens around the world. They include former TrustNet lawyer Barry Mitchell who, according
to court documents, gave assistance during the setting up of the Trinity investment scheme,
New Zealand’s
largest tax avoidance case; and Act Party-aligned blogger Cathy Odgers
(‘‘Cactus Kate’’) who has worked as an offshore lawyer in the British
Virgin Islands and Hong Kong.
Various offshore lawyers have brought their skills home, taking advantage of
New Zealand’s loose company and trust law. The original TrustNet lawyers, Breed and Sceats, came
home and set up Nexus Trust, promoting
New Zealand’s
tax haven potential to foreign clients. Two other former Cook Island
lawyers, Nick Shepherd and (former European Pacific executive) Mike
Reynolds set up Anchor Trustees which offers services
to ‘‘non-resident families and corporates’’.
Long-term TrustNet client Tim Brears on Auckland’s North Shore offers
clients advice on the ‘‘advantages of moving ownership and control of
assets and investment offshore out of
New Zealand’’.
Nicky Hager has worked in a multi-country team for the past 15
months analysing the leaked materials and co-ordinating local
journalists in Asia, Africa and part of Europe who collaborated in the
International Consortium of Investigative Journalists project, www.icij.org.
