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OFFSHORE LEAKS

This is big — a sign of better things to come.

This is an expansion of the post previously released.

Release of offshore records draws worldwide response

ICIJ’s “Offshore Leaks” probe has ignited reactions around the globe – sparking official investigations, sweeping policy changes and high-profile resignations.

Since the series of stories – based on a leak of 2.5 million secret offshore records – began rolling out in April 2013, responses have come rapidly, from India, Mongolia, France and dozens of other nations. The European Union’s top tax official has called Offshore Leaks “the most significant trigger” behind Europe’s newfound resolve to crack down on offshore hideaways and global tax dodging.

“We’re in a completely different context today” because of the Offshore Leaks revelations, Belgium’s secretary of state said. “It’s a new world.”

Shutterstock “>Photo: Shutterstock Among the latest impacts and responses:

  •           A leading political party in Taiwan vowed to promote a new measure to crack down on offshore tax avoidance as its top agenda item. The Democratic Progressive Party,Taiwan’s leading opposition party, said that it would seek to pass an amendment to Taiwan’s Income Tax Act prohibiting corporations from using overseas subsidiaries and paper companies to avoid taxation. The proposal came days after ICIJ and its partner in Taiwan, CommonWealth Magazine, revealed that more than 16,000 Taiwanese, including more than a dozen billionaire family owners of some of Taiwan’s  largest corporations, owned offshore companies.
  •         The tax commissioner of China, Wang Jun, pledged that China would step up its participation in international efforts to combat tax evasion and crack down on tax fraud within the nation. The move came as Chinese authorities were still scrambling to block internet access in China to the China Leaks reports by ICIJ and its partners.
  • Chinese authorities moved aggressively to block online access to news reports exposing the secrecy-cloaked offshore holdings of China’s political and financial elites. Censorship of the latest investigation, which draws on previously secret records of nearly 22,000 clients with addresses in mainland China and Hong Kong, was unusual in its broad international scope. In addition to ICIJ’s own website, Chinese authorities blocked the sites of ICIJ publishing partners including Spain’s El PaísLe MondeSüddeutsche Zeitung in Germany, the Canadian Broadcasting Corp., and the U.K. and U.S. editions of The Guardian, according to reports from news organizations and analytics by GreatFire.org.

In Beijing, a spokesman for the Ministry of Foreign Affairs Qin Gang dismissed the story calling it “hardly convincing” and said it raises “suspicions over the motives behind it.”

  • Incorporations of new offshore companies in the British Virgin Islands declined sharply last year, falling 21 percent from 2012. The change echoes a recent report by the company Offshore Incorporations Limited that found that ICIJ’s Offshore Leaks had created a “crisis of confidence” in the offshore industry, with more than three-quarters of the offshore professionals it surveyed said that ICIJ’s stories have reduced demand for offshore financial vehicles or prompted clients to move their business from one haven to another. Most of the secret accounts exposed by Offshore Leaks were incorporated in the BVI.
  • The recent attention to financial secrecy has also prompted the BVI and the Cayman Islands to enter into consultations on whether they should develop a registry that reveals the real owners of companies incorporated there, known as a “beneficial ownership” registry. UK Prime Minister David Cameron has been pressing British territories such as the BVI and the Caymans to improve their financial transparency, and pledged last fall to make the UK the first country in the world to create a publicly available beneficial ownership registry.  A recent paper issued by the BVI solicited comments from the public and “in particular” the financial services industry on whether it should create an ownership registry.
  • The number of Germans voluntarily disclosing secret offshore accounts tripled in 2013, according to the chairman of the German tax union, Thomas Eigenthaler. The disclosures are expected to result in a surge of revenue to the German treasury. Eigenthaler said that ICIJ’s Offshore Leaks investigation was a major factor that sparked the increased disclosures, as well as the admission by a prominent soccer club manager and former star player that he had a secret bank account in Switzerland.
  • The Deputy Prime Minister of Russia, Igor Shuvalov, has repatriated his and his wife’s offshore assets to comply with a Russian law prohibiting state officials from holding their wealth abroad. An offshore company belonging to Shuvalov’s wife, Olga Shuvalov, was revealed in April by ICIJ. Shuvalov, a close ally of President Vladimir Putin, had pledged to return the assets to Russia soon after they were exposed.The move comes during a broad crackdown on offshore tax avoidance by Putin. Last week, Putin announced that Russian-owned companies registered in offshore jurisdictions would be forced to pay Russian taxes, and that companies registered abroad would be barred from getting funding from the budget or from state banks.
  • The European Parliament voted last week to strengthen its requirements for automatic exchange of tax data between EU member nations. The new rules, approved by 360 votes to 59, will require nations to collect and share data by 2017 on additional types of income such as employment, property and capital gains. In endorsing the measure, the Parliament voted to reject the “availability principle,” which would limit nations’ data sharing obligations to information that they decided independently to collect.“This important measure… responds to the challenges raised by [ICIJ’s] Offshore Leaks and the staggering €1 trillion annual losses of tax revenues in the EU,” stated a summary of the reform that was prepared by the European Parliament’s Green Party.
  • The Danish Tax Minister announced a plan to crack down on offshore tax havens on the day after the last of a four-part series of documentaries about tax havens was aired by ICIJ’s Danish partner, DR Documentary at Danish Broadcasting Corporation. Danish tax authorities will devote $7.3 million to pursue both individuals who hide money offshore and their professional advisers. The plan is expected to result in “a substantial number of new cases about illegal use of tax havens,” said Holger K. Nielsen, the Danish Tax Minister.The documentaries exposed reliance on offshore havens by a leading Danish bank as well as a major law firm. One film used a hidden camera to reveal Jyske Bank, Denmark’s third largest bank, advising an undercover journalist posing as a wealthy client to stash his money offshore in a plan that experts described as immoral and in some parts illegal. Others revealed the offshore tax advice given by Bech-Bruun, one of Denmark’s leading law firms, and by the massive accounting firm EY.
  • Authorities in Ireland have recovered 4.3 million euros in settlements after receiving offshore tax data shared by French authorities, and are expecting “a very significant amount of data” on offshore holdings from the governments of U.S., Britain and Australia. The French data was obtained from Herve Falciani, a whistleblower and former employee of HSBC. Much of the data from the U.S., Britain and Australia was initially unveiled in Offshore Leaks.
  • The Colombian government announced new regulations that will slap a 33-percent tax on financial transactions between Colombian companies or individuals and third parties in 44 countries identified as tax havens. “The party is over for those who were taking advantage of tax havens,” Mauricio Cárdenas, the country´s economics minister, told local journalists.Colombia’s top tax official, Juan Ricardo Ortega, said ICIJ’s Offshore Leaks stories “without doubt helped the government push forward regulations” that had been blocked for nearly a decade. The secret offshore files obtained by ICIJ revealed that the sons of former Colombian president Álvaro Uribe were shareholders in a British Virgin Islands company.
  • Tax authorities in India say they have sent notices to more than 500 individuals whose offshore holdings were revealed earlier this year by ICIJ and The Indian Express. These individuals included two members of Parliament and several prominent industrialists, and the inquiries from the income tax department seek details and transactions of their offshore companies and trusts. A new list of individuals with offshore holdings found in the Offshore Leaks database was also published earlier this week, and included a decorated former civil service officer and the wife of Delhi’s energy secretary.
  • South Korean authorities announced they had uncovered evidence that the family of former dictator Chun Doo-Hwan had engaged in illegal offshore transactions. Earlier this year, ICIJ and the Korea Center for Investigative Reporting revealed that Chun’s son, Chun Jae-kook, had a secret offshore company in the British Virgin Islands. On October 8  the Korea Customs Service announced that it had found that offshore companies held by Chun’s family, including those belonging to Chun Jae-Kook, were involved in illegal foreign currency transactions. The Korea Customs Service said the transactions were intended to evade taxes and that it had informed Korean state prosecutors of its findings. The developments are the latest in a series of responses to ICIJ and the Korea Center for Investigative Journalism’s reporting, which have also included raids by Korean prosecutors on both men’s homes and an agreement by Chun’s family to pay $154 million in fines.
  • The Anti-Corruption Commission in Bangladesh decided on September 30 to open an investigation into the offshore activities of Kazi Zafarullah, a leading member of Bangladesh’s governing Awami League political party. In July, ICIJ and its reporting partners at the Bangladeshi daily New Age revealed that Zafarullah and his wife, Nilufer Zafar, were directors and shareholders of two offshore companies.  The couple had also opened a joint account at the Singaporean branch of the Swiss bank UBS AG. The Anti-Corruption Commission decided to investigate Zafarullah’s activities after a two-month assessment of ICIJ and New Age’s findings, an official with the commission said.
  • The son of disgraced former South Korean president Chun Doo-hwan issued a public apology and vowed that his family would pay the government $154 million in fines related to corruption during Chun’s rule. Prior to the announcement, the former dictator’s family had claimed for years that Chun was bankrupt and unable to pay the fines. But earlier this year, ICIJ and the Korea Center for Investigative Journalism revealed that Chun’s son, Chun Jae-kook, had a secret offshore company in the British Virgin Islands. Chun Jae-kook denied any connection between his offshore holdings and his father, but South Korean prosecutors recently raided both men’s homes in a search for hidden assets.
  • Members of the G20 announced new measures to combat offshore tax evasion, including a plan to automatically share tax data among G20 nations by the end of 2015. Today’s G20 Leaders Declaration, released from a summit in St. Petersburg, Russia, also pledged the G20’s assistance to developing countries seeking to establish automatic tax information sharing, but stopped short of providing a timeline for doing so.  According to the advocacy group Global Financial Integrity, illicit financial flows cost developing countries nearly $6 trillion between 2001 and 2010.
  • South Korea has ordered 11 individuals named in the Offshore Leaks investigation to pay a total of $64.6 million for using offshore paper companies to evade taxes. According to Yonhap News Agency, South Korea’s state news service, the country’s National Tax Service reviewed a list of Koreans suspected of running paper companies in offshore locales that was published by ICIJ and the Korea Center for Investigative Journalism. Thirty-nine of those individuals were chosen for further investigation, and today’s news marks the completion of 11 of those cases.
  • Australian tax authorities said they are stepping up efforts to crack down on corporate tax dodging and taking a hard look at wealthy Australians and small companies with offshore holdings following “Offshore Leaks”. The Australian Tax Office’s plan includes 680 reviews and 115 audits of individuals and small businesses suspected of using offshore hideaways help them avoid taxes.
  • India’s Finance Minister said government probes into the offshore holdings of hundreds of Indians have made significant headway. “I am reviewing the progress every fortnight and can say that not a single case will go unpursued,” Finance Minister P Chidambaram said. The government’s effort was sparked by a joint investigation by ICIJ and The Indian Express.
  • Philippine authorities said the launch of ICIJ’s Offshore Leaks Database will prompt them to review the tax records of Philippine residents whose names appear in the data. Kim Jacinto-Henares, commissioner of the country’s Bureau of Internal Revenue said she welcomes the public release of the database, saying it can aid the agency’s efforts to gather information that could lead to tax investigations and cases. “We will look into it and match (the information on Philippine residents in the database) with income tax returns,” Henares told the Philippine Center for Investigative Journalism, an ICIJ reporting partner.
  • Algirdas Semeta: wants ICIJ and partners to keep digging.EU Commissioner Algirdas Semeta says the Offshore Leaks investigation by ICIJ and its partners has transformed tax politics and amplified political will to tackle the problem of tax evasion.”I personally think Offshore Leaks could be identified as the most significant trigger behind these developments … It has created visibility of the issue and it has triggered political recognition of the amplitude of the problem”, he told EU Observer. He added that tax transparency overrides the principle of data privacy.
  • South Korean financial regulators have opened an investigation into possible illicit fund transfers by hundreds of Koreans whose names are included in ICIJ’s “Offshore Leaks” database.  “We will investigate every one of them,” a top regulator said. “When doing capital transactions, they’re required to report to the authorities prior to the trades, so now we are investigating whether they violated the law.” ICIJ’s investigative partner, the Korea Center for Investigative Journalism, revealed that it had identified at least 245 Koreans who established companies in the British Virgin Islands, Cook Islands and other offshore havens.
  • Canadian Senator Vern White has called for a probe into a fellow legislator’s role in her husband’s use of an offshore hideaway in the South Pacific.  The conservative Senator said he has asked the Senate’s ethics officer to look into Liberal Senator Pana Merchant’s role in the matter, saying there are “serious questions” to be dealt with.  The Senate ethics office said in a statement that will give Merchant a chance to respond before deciding whether to launch a formal investigation. CBC News and ICIJ revealed last month that Merchant’s husband, famed class-action lawyer Tony Merchant, had shifted some CA$1.7 million (US$1.1 million) into a Cook Islands trust while he was locked in battle with Canadian tax authorities.
  • After meeting with President Barack Obama at the White House, British Prime Minister David Cameron made a strong call to tackle what he called “the scourge of tax evasion,” one of the key topics in next month’s G8 meeting in Ireland. “We need to know who really owns a company, who profits from it, whether taxes are paid.  And we need a new mechanism to track where multinationals make their money and where they pay their taxes so we can stop those that are manipulating the system unfairly,” Cameron said.
  • British, U.S. and Australian tax authorities announcedthat they are pursuing tax evasion investigations based on a cache of offshore documents that link to the Cook Islands, Singapore and the Cayman Islands, among other jurisdictions. The secret records are believed to include those obtained by ICIJand that are the basis of the Offshore Leaks investigation. British tax authorities said the files “reveal extensive use of complex offshore structures to conceal assets by wealthy individuals and companies.” The three agencies plan to share the information with their counterparts from other countries in what could be the beginnings of one of the largest tax investigations in history.
  • Canada’s revenue minister Gail Shea announced a $30 million commitment to fight tax evasion and target the practice of hiding money in offshore accounts, and the formation of an international tax expert “SWAT team”. Asked if her department now has the list of 450 Canadian names contained within the documents obtained by ICIJ, Shea said: “We currently don’t have the list and I can assure you that we’re looking at all of our options. We’re working with our international partners to get that list.”
  • The UK Treasury announced that following the lead of the Cayman Islands, all British overseas territories – including Bermuda, the British Virgin Islands, Anguilla, Montserrat and the Turks and Caicos Islands – have agreed to share information about individuals holding bank accounts in their jurisdictions with the UK, France, Germany, Italy and Spain.
  • The South China Morning Post reported that the new information exchanges will have real implications for Hong Kong and China companies, which do significant business through the Cayman islands, the British Virgin Islands and other offshore locales.
  • European finance ministers may reach an agreement to eradicate tax havens on May 13, after a meeting in Helsinki between finance ministers from Finland, Luxembourg, Greece, Slovakia, and Lithuania as well as the European Commissioner on Taxation  to discuss measures against tax evasion.
  • The European Commissioner on Taxation Algirdas Šemeta  and Irish Finance Minister Michael Noonan sent a letter to all EU Finance Ministers, setting out 7 key areas for immediate action in improving the fight against tax fraud, evasion and avoidance. Member States were asked to agree on these actions at the ECOFIN in May. The letter credits the offshore leaks investigation with “sharpening the focus” on tax fraud, and says it will ask ICIJ to supply names and details of European citizens from its data.
  • Finance ministers and central bankers at the G20 meeting in Washington said in a communiqué that automatic exchange of tax-relevant bank information should be adopted as the global standard to overcome international tax evasion. Skeptical European leaders reportedly “became more enthusiastic” after the public outcry over ICIJ’s offshore leaks revelations.

  • Bayartsogt Sangajav, deputy speaker of the Mongolian Parliament, hasbeen dismissed from his post following ICIJ’s revelations about his undeclared offshore company and bank account. In a parliamentary session he was asked to explain his actions. Several MPs called for further disciplinary action, including expelling him from Parliament entirely.
  • Santosh Kumar Agarwal (Kedia), a member of the board of directors for the Antwerp World Diamond Centre, has resigned from the organization after his offshore dealings were revealed. “In the interest of the integrity of the Antwerp World Diamond Centre as [an] organization and the industry as a whole, Kedia has taken the initiative to withdraw from the AWDC’s board of directors, awaiting the outcome of a potential investigation,” said a statement released by the company.”
  • French president Francois Hollande has published the personal financial details of  government ministers on the official government website, following the Jerome Cahuzac and Jean-Jacques Augier offshore assets scandals. The list of assets includes details of bank accounts, life insurance, property and other expensive items such as cars, art works and antiques. Various properties in Paris and the south of France have already been itemized by ministers, as well as designer lounge chair (Industrial Renewal Minister Arnaud Montebourg) and a David Beckham t-shirt (Culture Minister Aurelie Filippetti).
  • European Council president Herman Van Rompuy announced that tax evasion will be discussed at the next European Council in May, saying “we must seize the increased political momentum to address this crucial problem.”
  • BVI government officials have announced they are opening a new business headquarters in Hong Kong, with Orlando Smith, BVI Premier and Finance Minister, confirmed to officiate the opening. Executive director of BVI International Finance Centre, Elise Donovan, said the data obtained by the ICIJ was “a small fraction” of the total number of BVI firms. She later added, “We want to reassure clients in Hong Kong and the region that this is an isolated incident. We remain committed to clients’ privacy and confidentiality.”
  • The Swiss and U.S. governments are investigating a possible solution to the dispute over wealthy Americans using Swiss banks to hide their money. These talks come at time when Switzerland’s banking sector is under increased pressure to surrender personal information about suspected tax evaders. Swiss Finance Minister Eveline Widmer-Schlumpf said all countries should be treated equally in the drive for bank transparency. “We consider it very important that rules must apply to all and are engaging ourselves for a level playing field in multilateral forums,” Widmer-Schlumpf said.
  • German Chancellor Angela Merkel urged UK’s PM David Cameron to crack down on tax havens during talks in Berlin, following a public outcry in Germany over the “offshore leaks.” Sources “close to Cameron” claim he was actually the first to raise the issue, spelling out how his government was cracking down on tax avoidance in places such as Jersey and Guernsey.
  • Russian Deputy Prime Minister Igor Shuvalov.Russian Deputy Prime Minister Igor Shuvalov is moving his offshore assets back to Russia after ICIJ’s revelations that Shuvalov’s wife Olga Shuvalova was either a shareholder or owner of several secretive offshore entities. The Shuvalovs had a declared income of $12.7 million in 2011, most of which was earned by Olga.
  • Spanish political party Unión Progreso y Democracia submitted written questions to the Spanish Congress today in the wake of French president François Hollande’s announcement that French banks had to declare their tax haven subsidiaries. The questions read: Is the government going to present in the European institutions any initiative to eradicate the tax havens within the Member States? and Is the government going to force banks to disclose the subsidiaries they have in tax havens and what are their activities?
  • Francois Hollande: called for tax havens to be “eradicated.”French president François Hollande called for “eradication” of the world’s tax havens and told French banks they must declare all of their subsidiaries. He also announced the creation of a special prosecutor to pursue cases of corruption and tax fraud. French government ministers have been ordered to declare their assets publicly within days.
  • Luxembourg’s Prime Minister Jean-Claude Juncker announced his country plans to lift bank secrecy rules for European Union citizens who have savings based in the country, ending decades of bank secrecy in Luxembourg. “We are following a global movement,” Juncker told parliament in a state-of-the-nation address. The new transparency regime would begin in January 2015. Austria is now the only EU country not sharing data about bank depositors. In a recent interview, Austrian Vice Chancellor and Finance Minister Spindelegger Fekter said: “How much money someone has in the bank is a matter between the bank and the customer and is no one else’s business.”
  • Algirdas Semeta, European Union Tax Commissioner stated in a recent interview that it is time to move “quicker and harder” against tax evasion. He said the “growing willingness to act” increases the likelihood of a more coordinated EU stance against tax havens.
  • Europe’s five biggest economic powers — Britain, France, Germany, Italy and Spain — announced they would begin regularly exchanging banking and tax information as a way of identifying tax dodgers and other financial wrongdoers.
  • Meanwhile, the British Virgin Islands (BVI) authorities are not fans of the ICIJ investigation. The BVI premier and Finance Minister Orlando Smith told the South China Morning Post that “BVI authorities are actively investigating how this private information has been illicitly obtained and used to attack the BVI financial services industry, which operates compliantly within international guidelines and the law.”
  • Athens’ district attorney Panayota Fakou has started a preliminary probe to find out if Greeks who own offshore companies unearthed by the ICIJ investigation have evaded taxes or laundered money. According to the Greek newspaper Ta Nea, prosecutors will send information requests to British Virgin Islands’ financial authorities asking them to turn over records of 107 entities connected to Greek citizens.
  • An investigation by Finnish State Televisionand ICIJ exposing the offshore connections of state-owned postal company Itella has been received with surprise by the Finnish Finance Minister, Jutta Urpilainen. The minister said that “state owned companies should be an example for other companies. That is why it is especially unacceptable that Itella owns a company in a tax haven.” Urpilainen said the Finnish government should adopt clear rules on the use of offshore jurisdictions by state-owned corporations and called tax havens “one of the biggest threats to the Finnish welfare state.”
  • The Mongolian Deputy Speaker, Bayartsogt Sangajav, admitted to an “ethics failure” over his undeclared million-dollar Swiss bank account. He told a press conference: “It is true that there is 1,658 Euros or 2.9 million MNT in a Swiss bank account. I opened the account to trade in international stocks with three other acquaintances in 2008. My failure of responsibility is that I did not include the company in my declaration of income. I have admitted my ethic failure and I am ready to take responsibility.”
  • Philippine government officials said they will investigate evidence that Maria Imelda Marcos Manotoc, a provincial governor and daughter of the late dictator Ferdinand Marcos, was the beneficiary of a secret BVI offshore trust.
  • George Mavraganis, the Deputy Finance Minister of Greece announced that the Greek government is moving to address offshore-driven tax dodging. Greek members of parliament asked Mavraganis what he planned to do about the 103 offshore companies that ICIJ found hadn’t been registered with Greece’s tax authorities.
  • George Sourlas from Greece’s Ministry of Justice said the revenue loss caused by offshore was huge. “By the actions of offshore companies in Greece, the revenue loss to the Greek government is in the order of 40% or more of the debt of our country,” Sourlas said. “The offshore companies cast a shadow at this time of great crisis, when some get rich and many get poor.”
  • In France, President Francois Hollande denied knowledge of the offshore accounts held by his 2012 campaign manager, Jean-Jacques Augier, asserting that it’s up to the tax administration to monitor Augier’s private activities. Reports about Augier’s offshore dealings by Le Monde, the BBC and other ICIJ partners came in the wake of news about tax fraud charges against Hollande’s ex-budget Minister, Jerome Cahuzac.
  • The office of Azerbaijani President Ilham Aliyev asserted there was nothing unusual about the information in the leak – which showed that his two daughters were shareholders of three offshore companies. The statement said the President’s daughters “are grown up and have the right to do business.”  A spokesperson for Azersun – a holding company controlled by Hasan Gozal, a corporate mogul who was listed as the director of the daughters’ companies – said the report was biased and based on inaccurate information. “I regret that authority of Press Council doesn’t go beyond Azerbaijan and there is no such institution worldwide to fight racketeer journalists,” the spokesman said.
  • Ex-Colombian President Álvaro Uribe Vélez publicly defended his sons’ involvement in offshore business. Uribe stated that his sons Tomás and Jerónimo are entrepreneurs and “have participated in business dealings since they were children” and “they are not tax evaders.”
  • In the UK, David Cameron is facing renewed pressure to take action over Britain’s entanglements within the offshore world. Lord Oakeshott, a senior Liberal Democrat said that the secrecy haven of the British Virgin Islands “stains the face of Britain.” Oakeshott and others are questioning whether Cameron will raise the issue in June of at the G8 summit of wealth nations. “How can David Cameron keep a straight face calling for the G8 to make big business pay tax when we let the BVI use British law and British protection to suck in billions in dirty money?” Oakeshott asked.
  • German Finance Minister Wolfgang Schäuble stated on public radio that he was “pleased” with the ICIJ reports. He went on to say, “I think that such things as have been made known will increase the pressure internationally, and we will be able to increase the cooperation with those who have been more reticent,” a sentiment reflected in Germany’s previous lobbying to stamp out tax avoidance.
  • Canadian Federal Revenue Minister Gail Shea called the released of offshore banking information as “good news” for Canadians and bad news for tax evaders. Ms. Shea urged ICIJ or anyone else with information on tax cheats to come forward.
  • Pascal Saint-Amans, director of the Organization of Economic Cooperation and Development, said: “Secrecy is no longer acceptable. We need to get rid of it. If the rules make it possible, then we’ll change the rules.”

source »

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Chinese Cabalists: New Carribean Pirates

One way of identifying who are the Cabalists here in Asia is to look at their attitude and actions. Why would you stash currencies to off-shore accounts?

This is what the hierarchy of the Chinese Communist Party has done over the past few years.

Although they are so visible here, it was Karen Hudes who dropped the Jesuit word on RT when asked if economic reforms are indeed possible in this part of the world.

Communists and Jesuits are sweet bedfellows, too, of course.

China’s Epic Offshore Wealth Revealed: How Chinese Oligarchs Quietly Parked Up To $4 Trillion In The Caribbean

Tyler Durden's picture

Submitted by Tyler Durden on 01/21/2014 20:02 -0500

The last time the International Consortium of Investigative Journalists made a splash in the financial media was in April of last year year when it disclosed a trove of secret documents revealing a massive treasury of offshore wealth parked away from taxation-happy host governments. The context was clear: in the aftermath of the Cyprus deposit confiscation, public opinion had to turn against those who were exploiting offshore tax loophole in order to avoid a panic that the same “bail in” could happen to the common man.

Needless to say, the circumstances surrounding the release then were rather curious: one day thousands of files – revealing the names behind covert companies used by people from American doctors to Russian executives and international arms dealers – just happened to turn up at a source’s house.

Well, the ICIJ is back in the spotlight once again, this time revealing “nearly 22,000 tax haven clients from Hong Kong and mainland China. Among them are some of China’s most powerful men and women — including at least 15 of China’s richest, members of the National People’s Congress and executives from state-owned companies entangled in corruption scandals.”

Once again, the source of this treasure trove of data is secret, although we feel the recent Bloomberg cover up (and suspension and termination of Michael Forsyth) regarding a certain investigation into Chinese tycoons’ connections with Communist party leaders may have something to do with it. All ICIJ says on the matter is that “In November, a mainland Chinese news organization that was working with ICIJ to analyze the offshore data withdrew from the reporting partnership, explaining that authorities had warned it not to publish anything about the material. ICIJ is keeping the identity of the news outlet confidential to protect journalists from government retaliation.” But where the data comes from is largely irrelevant.

What is relevant is that once again the two largest Swiss banks are about to be embroiled in yet another money laundering scandal, this time involving the parking of wealth belonging to China’s aristocracy – including its princelings – in various Caribbean, and mostly British Virgin Island, tax havens.

From the ICJC’s findings:

PricewaterhouseCoopers, UBS and other Western banks and accounting firms play a key role as middlemen in helping Chinese clients set up trusts and companies in the British Virgin Islands, Samoa and other offshore centers usually associated with hidden wealth, the records show. For instance, Swiss financial giant Credit Suisse helped Wen Jiabao’s son create his BVI company while his father was leading the country.

The files come from two offshore firms — Singapore-based Portcullis TrustNet and BVI-based Commonwealth Trust Limited — that help clients create offshore companies, trusts and bank accounts. They are part of a cache of 2.5 million leaked files that ICIJ has sifted through with help from more than 50 reporting partners in Europe, North America, Asia and other regions.

Since last April, ICIJ’s stories have triggered official inquiries, high-profile resignations and policy changes around the world.

Until now, the details on China and Hong Kong had not been disclosed.

What is notable, if not unexpected, is just how pervasive the parking of offshore capital has been, and confirms that it is not inflow of money that the PBOC has to be afraid of when its internationalizes the Yuan, it is the outflow that will be far more worrisome.

The data illustrates the outsized dependency of the world’s second largest economy on tiny islands thousands of miles away.  As the country has moved from an insular communist system to a socialist/capitalist hybrid, China has become a leading market for offshore havens that peddle secrecy, tax shelters and streamlined international deal making.

Every corner of China’s economy, from oil to green energy and from mining to arms trading, appears in the ICIJ data.

But the biggest stunner is the sheer size of the wealth transfer: according to ICIJ estimate, up to $4 trillion in “untraced assets” may have left China since 2000.

Chinese officials aren’t required to disclose their assets publicly and until now citizens have remained largely in the dark about the parallel economy that can allow the powerful and well-connected to avoid taxes and keep their dealings secret. By some estimates, between $1 trillion and $4 trillion in untraced assets have left the country since 2000.

And while the parking of capital abroad is not illegal, it does contribute to concerns about vast corruption in China, which is also why the current Politburo has been scrambling to cut down on superficial among China’s higher echelons. At least optically… And certainly not going to the very top, where it appears the bulk of the corruption resides as the initial data dump discloses.

To be sure, this is just the start of peeling away the layers of China’s offshore wealth: the ICIJ provides this teaser: “Along with the China and Hong Kong names, ICIJ’s files also include the names of roughly 16,000 offshore clients from Taiwan. ICIJ will continue to publish stories with its partners in the next few days and will release the Greater China names on its Offshore Leaks Database on Jan. 23.”

In the meantime, the ICIJ has disclosed select key individuals that suddenly may have a lot of explaining to do, considering China’s very theatrical crackdown on corruption and all that.

The key players, whose life is about to get a whole lot more difficult, are without doubt China’s princelings.

China’s Politburo Standing Committee is the all-powerful group of seven (formerly nine) men who run the Communist Party and the country. The records obtained by ICIJ show that relatives of at least five current or former members of this small circle have incorporated companies in the Cook Islands or British Virgin Islands.

China’s “red nobility” — elites tied by blood or marriage to the current leadership or Party elders — are also popularly known as “princelings.” Ordinary Chinese have grown increasingly angry over their vast wealth and what many see as the hypocrisy of officials who tout “people-first” ideals but look the other way while their families peddle power and influence for personal gain.

The leaked offshore records include details of a BVI company 50 percent owned by President Xi’s brother-in-law Deng Jiagui. The husband of Xi’s older sister, Deng is a multimillionaire real estate developer and an investor in metals used in cell phones and other electronics. The records show the other half of Excellence Effort Property Development was owned by yet another BVI company belonging to Li Wa and Li Xiaoping, property tycoons who made news in July by winning a $2 billion bid to purchase commercial real estate in Shenzhen.

Since taking over as the Communist Party’s top official in 2012, Xi has sought to burnish his image with an aggressive anti-graft campaign, promising to go after official corruption involving both low-level “flies” and high-level “tigers.” Yet he has crushed a grassroots movement that called for government officials to publicly declare their assets. Wen Jiabao, who stepped down as premier in 2013 after a decade-long tenure, also styled himself as a reformer, cultivating an image of grandfatherly concern for China’s poor.

The ICIJ offshore files reveal that Wen’s son Wen Yunsong set up a BVI-registered company, Trend Gold Consultants, with help from the Hong Kong office of Credit Suisse in 2006. Wen Yunsong was the lone director and shareholder of the firm, which appears to have been dissolved in 2008.

Bare-bones company structures are often created to open bank accounts in the offshore firm’s name, helping obscure the relationship to the real account owner. It isn’t immediately clear from the documents what Trend Gold Consultants was used for. A U.S.-educated venture capitalist, Wen Yunsong co-founded a China-focused private equity firm and in 2012 became chairman of China’s Satellite Communications Co., a state-owned firm that aspires to be Asia’s largest satellite operator.

ICIJ made repeated attempts to reach Wen Yunsong and other individuals named in this story. Only a few responded. Wen was among those who did not. Citing confidentiality rules, a Credit Suisse spokesman said the bank is “unable to comment on this matter.”

The ICIJ files also shed light on the BVI’s previously unreported role in a burgeoning scandal involving Wen Jiabao’s daughter, Wen Ruchun, also known as Lily Chang. The New York Times has reported that JPMorgan Chase & Co. paid a firm that she ran, Fullmark Consultants, $1.8 million in consulting fees. U.S. securities regulators are investigating the relationship as part of a probe into the bank’s alleged use of princelings to increase its influence in China.

Fullmark Consultants appears to have been set up in a manner that obscured Wen Ruchun’s relationship to the firm, the ICIJ files indicate. Her name does not show up in any of the incorporation documents in the ICIJ data, though a ‘Lily Chang’ is CC’d in one August, 2009 email correspondence about the company. Her husband Liu Chunhang, a former Morgan Stanley finance guru, created Fullmark Consultants in the BVI in 2004 and was the sole director and shareholder of the firm until 2006, the same year he took a government job at the agency that regulates China’s banking industry.

Liu transferred control of the company, the ICIJ files show, to a Wen family friend, Zhang Yuhong, a wealthy businesswoman and colleague of Wen Jiabao’s brother. The Times reported that Zhang also helped control other Wen family assets including diamond and jewelry ventures.

The ICIJ files show that offshore provider Portcullis TrustNet billed UBS AG for a certificate of good standing for Fullmark Consultants in October 2005, indicating a business relationship between Fullmark and the Swiss bank. In response to ICIJ’s questions, UBS issued a statement saying its “know-your-client” policies as well as procedures to deal with politically-sensitive clients are among “the strictest in the industry.” Liu and Zhang did not respond to ICIJ’s requests for comment.

A 2007 U.S. Department of State cable passed along a source’s tip that Premier Wen was “disgusted with his family’s activities,” and that “Wen’s wife and children all have a reputation as people who can ‘get things done’ for the right price.” The cable, part of the Wikileaks document dump, reported that Wen’s kin “did not necessarily take bribes, [but] they are amenable to receiving exorbitant ‘consulting fees.’ ”

The records also include incorporations by relatives of Deng Xiaoping, former Premier Li Peng, and former President Hu Jintao.

China experts say that the growing wealth and business interests of the princelings, including offshore holdings, are a dangerous liability for the ruling Communist Party but that people in leadership positions are too involved to stop it.

What’s the point of running the Communist Party if you can’t get a couple billion for your family?” said Steve Dickinson, a China-based American lawyer who has investigated fraud cases involving BVI companies. “The issue is enormous and has tremendous significance for China, and the fact that everybody dances around it and doesn’t want to talk about it is understandable but scandalous.”

Perhaps now, finally, the dancing will stop. Because for the first time, key players are named. First the “Red Nobility” (full list here)

Deng Jiagui, Brother-in-law of president Xi Jinping

Wen Yunsong, Son of former Premier Wen Jiabao

Liu Chunhang, Son-in-law of former Premier Wen Jiabao

Hu Yishi, First cousin once removed of former President Hu Jintao

 

Li Xiaolin, Daughter of former Premier Li Peng

Wu Jinchang, Son-in-law of paramount leader Deng Xiaoping

Che Feng, Son-in-Law of a former central bank governor

Wang Zhi, Son of a former vice president

And then, the merely super-wealthy:

Ma Huateng, Co-founder of Internet giant Tencent

Yang Huiyan, China’s richest woman

Zhang Xin, Co-founder of property developer SOHO China

Zhang Zhidong, Co-founder of Internet giant Tencent

Shen Guojun, Chairmain of Yintai Group

Jia Yueting, Chairman of web giant Leshi

Huang Guangyu, Jailed founder of GOME appliances chain

Du Juan, GOME executive and wife of founder

Finally, here is what the ICIJ has to say about the future of China’s wealth offshoring efforts:

As concerns grow about the wealth of corporate oligarchs, government officials and their families, some Chinese have braved the government’s anger by raising questions about corruption.

A grassroots group, the New Citizens Movement, uses the Internet and small demonstrations to press for greater transparency. “How can you fight corruption if you don’t even dare to disclose your personal assets?” the group’s founder, legal advocate and activist Xu Zhiyong, wrote last spring.

The government’s response has been swift. It has arrested Xu and detained more than 20 other members of the group, indicting some for “disturbing public order” or “illegal assembly,” charges frequently used to silence dissidents.

The government has also cracked down on foreign media that have focused attention on the gap between wealth and poverty in China. After The New York Times and Bloomberg News reported on the onshore assets of China’s princelings, the government blocked their websites and delayed approving visas for their journalists.

After years of inaction, the U.S., the U.K. and international organizations have begun pushing reforms that, they say, would reduce offshore abuses. China has been less aggressive in pressing for changes in the offshore system.

Big loopholes in tax laws have allowed Chinese individuals to operate with relative freedom offshore. They weren’t required to report their foreign holdings.

Chinese policy makers didn’t envision individuals absconding with that much money,” Lee, the Beijing-based corporate lawyer, said.

Now mainland authorities are moving to get a handle on the flow of private wealth offshore. New rules that went into effect Jan. 1 require Chinese to report their overseas assets.

How aggressively China joins global efforts to reshape the offshore system may have a big impact on the current push for reform. Just as China has become an increasingly important player in the global economy, it has also become more important as a supplier of clients to the market for offshore accounts and companies.

A 2013 industry-sponsored poll of 200-plus bankers and other offshore professionals found that “China-related demand” is the key driver in the offshore market’s growth. The chief of a BVI offshore services firm said in the survey: “China is the most important location for client origination for business in the next five years.”

* * *

Finally, it is worth pointing out some basic arithmetic: there is a little over $1.2 trillion physical dollars in circulation. If just the Chinese super corrupt, uber wealthy, have parked up to $4 trillion in offshore venues, it stands to reason that it is not in actual paper format, and the bulk is simply binary representations of dollars, in 1 and 0 format.

Let’s hope no “hackers” figure out how to make those 1s and 0s disappear without a trace, and let’s certainly hope the NSA isn’t tasked by various tax (or non-tax) authorities to provide evidence of just where every single one of these untaxed dollars is located. Because then the real scramble for hard assets – or even Bitcoin for that matter – will truly begin…

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