Panama Papers expose Malta’s role in facilitating offshore tax avoidance

Was there surprise at the names revealed in Monday’s leak of Mossack Fonseca intermediaries and clients, which registered over 700 entities with Maltese interests in tax havens like Panama and the British Virgin Islands?

Little if any. The profiteers of Malta’s financial services world, lawyers and accountants, leapt to the defence of the island’s reputable jurisdiction and its regulation by the MFSA. Labour’s spin doctors sought to minimise the attention on its most famous PEPs – Keith Schembri and Konrad Mizzi – by hitting out at intermediaries whose bread is buttered by the offshore world.

But little was said about Malta’s role in facilitating both domestic and foreign businesses’ attempts to minimise their tax exposure – another word for tax evasion.

The names revealed on Monday include those of Malta’s minister Konrad Mizzi and the Prime Minister’s chief of staff Keith Schembri, old holdings used by Farsons chairman Louis Farrugia or the late Vivian Bianchi of the Bianchi group, hotel groups Island Hotels Group and San Antonio plc, and even the wife of a Belarusian oligarch came up in Monday’s cache of Mossack Fonseca clients leaked by the International Consortium for Investigative Journalists.

The 11.5 million files that revealed almost 320,000 offshore companies and trusts from the Panama Papers and Offshore Leaks investigations revealed, as expected, people like Kasco group director Malcolm Scerri, former Allied Newspapers managing director Adrian Hillman, and Redmap Construction’s Pierre Sladden have all appeared in the ICIJ database.

But as the names started coming out, many rushed to clear their associations with Panama and the British Virgin Islands, the main tax jurisdictions preferred by Mossack Fonseca to hide away the ownership of their clients.

Farsons chairman Louis Farrugia was listed as an intermediary of Petrofina Holdings, a firm opened back in 1984 and dissolved in 2005. Farrugia said in a statement that the firm had been declared to the Central Bank and was intended to house a UK property.

“In 1985, I purchased an apartment in London at a time when my young family was seriously considering the possibility of moving to the UK. I was advised at the time by a reputable London firm of solicitors to own the property through a Panamanian company. The company was never used for any other purpose. I do not own any shares in any overseas company nor have any beneficial interest in any overseas trust.”

Farrugia is a director of Allied Newspapers, which is carrying out an inquiry into alleged kickbacks because of the Panama Papers, specifically the creation of offshore companies by Keith Schembri and Adrian Hillman in 2011 when Schembri supplied newsprint to Allied.

The former Nationalist energy minister Ninu Zammit was the shareholder of Fiveolives Services when it was incorporated in 2005, through which he held a bank account with HSBC Private Bank Suisse. At this time Zammit was minister for resources and infrastructure. In the ICIJ’s Swissleaks exposé in 2013, it was revealed that he had $3.2 million held in his Swiss bank account, which led to his suspension from the Nationalist Party.

In a comment he sent by email, Zammit said that he repatriated his incomes through the 2014 investment repatriation scheme, which he pointed out “involved circa 1,500 applicants.” He said his HSBC bank account was closed upon registration in 2014 and that communicated written instructions for the immediate termination and effective closure of his offshore company mentioned in the Panama Papers.

Zammit also said that a Tax Compliance Unit audit was carried out on him in 2015, “resulting in the regularization of my position as regards the Inland Revenue Department.”

Zammit did not answer whether he would apologise to the country for having harboured the offshore company during his tenure as minister.

Antonio Depasquale, a lawyer, who appears as a shareholder of City Advisory together with Michael del Vecchio, the man who set up Colson Services for Keith Schembri, is a former president of the PN youth organ MZPN.

Malta Football Association president and accountant Norman Darmanin Demajo appears as shareholder of Reznik Holdings, Sawasadee Holdings and Denver Global Tech, which have been dissolved, while Street Nine Marketing is still active. 

The companies were set up between 2005 and 2006. Categorically refuting any connection with his role as MFA boss, Darmanin Demajo said that his involvement was due to his profession as an accountant. “During the past 20 years I have held, and continue to hold, various directorships and shareholdings in various companies, mainly in offshore jurisdictions, in which companies I do not have ultimate ownership. These companies are registered for perfectly legal reasons, and have nothing to do with laundering illicit gains, evading taxes, or hiding corruption money or commissions.”

He said that most companies are not trading companies, but hold intellectual property rights, trademarks and trade names. “Any income earned from services provided to these companies falls within the income of my Maltese company and are subject to yearly audit and fully taxed in Malta. All my trading activities and interests in other companies are fully declared and taxable in Malta. I do not have, or have ever had, personal interests in any companies outside Malta’s tax jurisdiction. I do not have any bank accounts or hold any assets outside of Malta. Everything I own is in Malta – I have no reason or intention to transfer any of my personal assets to foreign jurisdictions.”

He said he would be “very willing” to be subjected to any independent audit or Inland Revenue investigation in confirmation of any of the above.

Olga Makarova, the wife of Vladimir Peftiev, widely considered to be the ‘bagman’ for Belarus dictator Alexander Lukashenko, is the shareholder of Seychelles companies Kelly Bay Pacific Overseas and Isley Investments, and the beneficiary of Sarles International and Milden Holdings. She may have used these offshore companies when her husband was hit by EU sanctions on his arms trading business Beltechexport.

The late Raymond Caruana, gunned down outside the house of a lover in Siggiewi, and a suspect in the bribery case of the late judge Ray Pace, owned the BVI company Dram Properties.

Tyson Debattista, owner of Silver Score in Malta, is the owner of Virile Traffic in the BVI.

Hotel San Antonio plc appears as the shareholder of Evergreen Travel Limited in the BVI, while Island Hotels Group Holdings plc is a shareholder in Island Resorts International Limited, and Bay Point Collection in the BVI – these were declared in their annual reports.

Frenchman Andre Guelfi, connected with graft between Elf Aquitane and French politics, and retired in Malta, is the owner of Umbrella International.

Alan Bruno Olivier – a director and shareholder in Fuelserve and MY Marine with Frank Sammut, the man charged with bribery in the Enemalta oil scandal – is the owner of Ice Cold Limited in the BVI, set up in 2014. He was not available for comment yesterday.

Joseph Zammit, a shareholder of Associated Motors Company, Diamond Properties, Fergun Shipping, Mira Holdings, and Mediterranean Maritime Services amongst other companies, would not deny that he is the beneficiary of the BVI company Aburrah Limited. He refused to comment to MaltaToday.

David Demarco and Daniela Grioli work in the remote gaming industry, and are shareholders of Flying Colours Consultancy Limited, set up for them by Jeanne Borg’s Intertax Services of Sliema. MaltaToday’s attempts to seek comment from her, proved futile.

The late Vivian Bianchi, from one of Malta’s oldest business groups, had set up Openview Inc. in 1984 and later dissolved it.

FZD Trustee and EMD Advisory

Nationalist MP Francis Zammit Dimech’s FZD Trustee & Fiduciary Services, which is now renamed as Valletta Trustees, is no longer his firm since he resigned in August 2014. But in April 2013 the firm acted as the intermediary for BVI-incorporated International Goods and Services Limited. Valletta Trustees is owned by Reuben Balzan, president of the Chamber of Advocates.

One of the main Malta intermediaries for offshore companies is EMD Advisory, one of whose senior consultants is Richard Cachia Caruana, Malta’s former ambassador to the Europea Union. They acted as intermediaries for 72 companies.

Cachia Caruana’s name featured prominently with Labour spin doctors eager to include his name as part of the army of intermediaries who make offshore possible. He declared that he held “no shares in companies in Panama, the British Virgin Islands or any other tax haven and has never held any.”

EMD on its part said that it had never assisted any politically exposed persons (PEPs) from any jurisdiction, including Malta, to set up any company, trust or other entity, whether as fiduciary or not, in the British Virgin Islands (BVI), Panama or similar jurisdiction.

Nexia and others

Nexia BT on the other hand, with so much store set by the fact that they set up offshore companies for Schembri and Mizzi, were connected with 14 companies.

Mary Ellen Mercieca, the wife of Charlie Albert Cordina, is registered as the beneficiary of Comerco, a company registered in the BVI by Nexia Ltd. Mercieca is a secretary in the rural affairs ministry and her husband is a businessman. 

Fenlex Corporate Services, from the Fenech & Fenech law firm, was found connected to three companies, Timber Trading Capital, Winsome Global Incorporated, and Shawnee Business Corp.

Businessman Mark Borda is the shareholder of Harrison Equities, again set up by Intertax.

Henley & Partners, the Malta IIP concessionaries, set up offshore companies in the British Virgin Islands and Hong Kong after 2013, as well as in Panama and the Bahamas.

Businessman Jacobus Van Vliet, of Portomaso, is listed as the shareholder of JVV (Portomaso) Limited, a BVI company.

Another oil company, CBA International Oilfield Services was registered by Mossack Fonseca’s Jurgen Mossack himself in 1983: it belongs to directors John Camilleri, John Camilleri Jnr, and Charles Camilleri. They were recently indicted in a court case when a Maltese court lifted the corporate veil and ordered them to pay the heirs of one of its employees after they attempted to wriggle out of their responsibility by liquidating the company quickly after an accident in Libya in 1984.

The former MEPA chief executive Ian Stafrace appeared in the list – the status is suspended – as intermediary for BVI company Gilman Financial Services. Stafrace told MaltaToday that he has “no connection” with the company other than having rendered a legal service. “The company was incorporated in 2002 after a client sought my advice,” he said, adding that there was nothing illicit or tax-related behind the setting up of the company.

“The client had particular exigencies,” Stafrace said. He confirmed that the client was Maltese but did not add any further details. He went on to point out that it had nothing to do with his role as MEPA CEO, which followed years after.

Mokhtar Ihsan Aziz, a financial intermediary who is based in Gwardamangia, is registered as a shareholder of the BVI company Roney Holdings.

Island Hotels Group Holdings P.L.C.

Island Hotels Group, owners of the Radisson in Malta, appears as a shareholder of Bay Point Collection Ltd – a vacation ownership company – which is registered in the British Virgin Islands.

The Group owns investment company Island Resorts International Ltd which is also registered in the BVI.

Winston Zahra, Island Hotels Group’s CEO, said that none of the companies in which the Group is involved has any connection to Panama. 

“The company categorically states that it has never had any trust, company or account of any kind in this jurisdiction and should not be linked in any way to the Panama Papers story,” Zahra told MaltaToday when contacted.

“In as far as your first question is concerned, as reported regularly in our annual report, which is a public document widely available, our Group has interests in a number of companies that are registered in the BVI. This is a fact that has never been in any way hidden or concealed.  On the contrary, it has always been made very clear in our public financial statements clearly showing that there is nothing whatsoever to hide and that all is above board.”

Zahra said that Island Hotels Group Holdings plc is a locally registered company with the MFSA and its shares were publicly traded between October 2009 and August 2015. It furthermore has locally listed bonds which are traded regularly on the local stock exchange. “It is not and has never been an offshore company.”

What is the difference between tax avoidance and tax evasion

The term “tax evasion” is usually understood as fraudulent under-declaration of tax liability. It is usually a criminal activity. 

Tax avoidance, by definition, is supposed to mean escaping tax by getting around (or avoiding) the spirit of the law, without actually breaking it.

But there is a large overlap between the two. In fact, a lot of what gets called ‘avoidance’ looks rather more like evasion: it involves pocketing tax money that legally should be paid. It’s just that they don’t get challenged or caught.

What is a tax haven? 

There is no generally agreed definition of what a tax haven is. The term is a bit of a misnomer, because these places offer facilities that go far beyond tax. Loosely speaking, a tax haven provides facilities that enable people or entities escape (and frequently undermine) the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool. Those rules include tax – but also criminal laws, disclosure rules (transparency), financial regulation, inheritance rules, and more.

Corporate and trust service providers set up, organise and/or administer corporations, limited liability companies, trusts and partnerships in tax havens or secrecy jurisdictions.

How do trusts work?

Trusts are one of the most important mechanisms used in modern global finance. They can have legitimate purposes, but they have many illegitimate uses too.

A trust normally involves three main parties. The “settlor” is typically a wealthy person who hands an asset to a trusted second party known as “the trustee”, for example a lawyer or a dedicated trust company – who in turn control the property on behalf of a third party known as “the beneficiary” who might be the settlor’s child, for example.

In theory, the settlor is supposed to have genuinely given away the asset. This already creates the potential for a secrecy barrier: if the settlor no longer owns the asset, then it can be very hard to find any link between them and the asset.

But in practice, trusts can be extremely slippery mechanisms for manipulating the different attributes of ownership and control. 

Although the settlor has supposedly been separated from the asset, they may still through devious side measures (such as a secret ‘letter of wishes’) retain a measure of control over the asset, or have the power to enjoy its income or other benefits. 

They may, for instance, manage to get their hands on the asset’s income through a loan (that is never repaid) or a fee. Tax havens specialise in facilitating this kind of complex trickery. Discretionary trusts, which are especially good at this kind of manipulation, are especially common types of offshore trusts, and they alone are responsible for trillions of dollars’ worth of assets sitting in a kind of ‘ownerless’ limbo.

What’s the difference between a shareholder and the beneficial owner? 

A shareholder is an individual or a corporation, in whose name shares in a particular offshore company are registered. However, in some cases the shareholder may hold shares for the benefit and on behalf of another person. Such shareholder would be called “nominee shareholder”. In such instance, the other person – who would accordingly be the real owner of the shares – is the beneficial owner. In other words, the beneficial owner is the person who is the real, de facto owner of the shares, entitled to all gains, profits and benefits accruing to such shares. The beneficial owner would also be the one who decides on eventual sale or disposition of shares. So, not all beneficial owners are shareholders and not all shareholders are beneficial owners – while, certainly, it is also possible that both are the same person.

What is an intermediary? 

Tax evasion and avoidance are facilitated by a global network of offshore tax havens and financial secrecy. This in turn requires a large infrastructure of intermediaries or “enablers” to make the whole system function. These include tax advisers, lawyers, accountants and audit firms. 

Financial institutions such as commercial banks, investment banks, brokerage firms and trust companies also play an important role.