By: Steven Lui & Caitlin Syho
Unveiling Layers
On October 3rd, 2021, a leak of millions of documents regarding both high-risk and high-wealth individuals was published through the International Consortium of Investigative Journalists (ICIJ). Through 140+ media organizations within the ICIJ, the group of journalists was able to identify the corruption amongst multiple governments and people of power. A common trend within these documents involved money laundering across multiple countries through layers of shell companies. This includes moving money to tax havens, starting new trust funds, investing in real estate or real assets, and requesting loans from shell companies. One prime example of the 14 organizations in charge of the allocation of money is Asiaciti Trust.
Asiciti Study
Asiaciti has helped many clients in multiple continents move their money to Samoa which is an island for tax havens. A good number of companies are registered in Samoa and the information provided to other companies can be quite vague, making it significantly harder to trace the origins of the money. On top of the singular shell company, Asiaciti also sets up layers of multiple funds that can act as another trust, private equity, or venture capital that purchase assets or have minority/majority stakes in other funds. An example of a client of Asiaciti includes Bright Ruby Resources that has ties to Du Shuanghua who is a chair in one of China’s largest private steel manufacturers. Bright Ruby Resources purchased two office towers worth $300mm and Hilton Hotel in 2015 for $442mm in the city of Sydney. As this is only one example of Asiaciti’s work, the next section will discuss the effects of the rich moving around money.
Governmental Complications
Many companies across the world use multiple corporate structures in tax haven destinations to establish a legal framework for tax reduction. Specifically, many corporations can get access to the most beneficial legal taxation advice and are able to structure their business operations to benefit shareholders in the most tax efficient manner. Pandora Papers did not have a direct effect on the general population as there are already existing legal structures that have been created by tax lawyers in tax haven domiciles. From a legalist perspective, the creation of multiple corporate tax entities is all legitimate, within the confines of the tax law in the US and other countries. The government can contest companies/corporations that abuse these tax loopholes; however, it must be brought up through the court of law. The general populations’ views on political leaders are granted a higher amount of visibility, however it doesn’t have any legal impact on the owners of these legal tax haven structures, until the US or international government takes action to step in.
Although the public are made aware of the scandals and the laundering of money, mainly public and political figures are the ones attacked. It makes sense why Asiaciti identified these types of political clients as high-risk individuals as their leakage of information will almost certainly lead to an investigation. For example, King Abdullah II was caught for at least setting up twelve shell companies and secretly purchased over US$100 million worth of real estate in U.S. and the U.K..
Future Possibilities
As a result of the leakage of data, this may incentivize more firms to find new methods of evading taxes. It is understandable that the wealthy want to hold their wealth since they believe that it is a result of their hard work. On top of that, the firms in charge of laundering money won’t let their years of client relationships go to waste. This leakage of data may have caused a lot of people the shame the activities, but it may be a signal to innovate a new way of laundering money making it much harder to track.
Not only would this leakage signal a new method of reallocating money, but it demonstrates the corruption within many governments. With higher-level government officials already moving their money offshore, they would be less incentivized to actually implement new rules or policies to prevent the movement of money. Hence, the general public can choose to ignore what the high-wealth individuals have done or find a new way to potentially reshape political systems across the world for less corruption.