A question of trust

It is ironic that Energy Minister (now also deputy Labour Party leader) Konrad Mizzi would defend his previously undeclared trust set-up on the basis that New Zealand is “a stable parliamentary democracy that is one of the world’s most well-governed nations, having ranked in the top tier of indexes on the strength of its democratic institutions, government transparency and lack of corruption.”

As a senior Cabinet minister in a government that had been elected precisely on the promise of ‘transparency’, this is almost tantamount to an admission of failure. Malta’s democratic institutions, Dr Mizzi seems to be telling us, were so untrustworthy that he felt he had to entrust his family assets elsewhere.

It is obvious that New Zealand also holds a different charm, and it is the zero tax for non-residents who hold trusts there that attracted the minister to this far-flung part of the world.

A second irony also emerges when one looks at the details that are now (very slowly) emerging. It now transpires that the trust in question also owns a ‘shell company’ in Panama: a country notorious for its opaque financial/fiscal structures.

At present, too little is known about the details of the Mizzi family trust to state, with any certainty, that tax is being evaded. But the bottom line is that, under New Zealand law, a trust can open accounts anywhere in the world… and New Zealand will not tax these monies if they are foreign-sourced.

This raises serious doubts regarding the decision to incorporate a Panamanian company. What sort of company is it, exactly? If the trust owns a Panama IBC (international business company), and is conducting its business outside of Panama, it would be exempt from all local taxes: including income tax, capital gains tax, dividend tax, and stamp duty on transfer of corporate shares, and other property.

The key is that the money is held offshore – neither in Panama, nor in New Zealand – ‘suspending’ the tax payable on any wealth, only until that income is ‘brought back home’ onshore. The question then becomes: when will that wealth be taxed?

There is another more generic problem underpinning these revelations. If the arrangement is as innocuous as both Mizzi and Prime Minister Joseph Muscat are keen to reassure the public… why did Mizzi not come clean about the exact circumstances of his asset management before? 

Even if we accept the government’s assurances without question – something that no independent media would dream of doing – already there has been a basic breach of trust.  

The first impression that springs to people’s minds is the possibility of tax avoidance, or – worse – undeclared incomes being channelled to these overseas accounts. Otherwise, why a trust in New Zealand and not here in Malta? Why also own a shell company in Panama? This is the fundamental problem with Mizzi’s financial set-up.

To give Mizzi the benefit of the doubt, he said this was for the management of his London property, at a time when his wife does not live in Malta. From an ordinary business perspective this may even make sense; but Mizzi is no ordinary businessman. He has Constitutional obligations as an elected member of parliament... not least, to make a full disclosure of all his assets, held locally or abroad.

Besides, a minister of the Cabinet cannot hold his money in foreign jurisdictions with a set-up that lays him bare to accusations that there is tax avoidance on a significant amount of wealth, because non-doms in New Zealand do not pay tax on assets kept in trusts, or capital gains tax.

Secondly, all ministers are politically-exposed persons (PEPs) – and so are their spouses. If they wish to serve their country as ministers of the state, they have to be above suspicion; and that includes showing the people who elected them that they are not likely to abuse of their office. Konrad Mizzi is responsible for multi-million decisions, while also having been identified by a NAO audit of having given ministerial instruction to Enemalta to hedge fuel from SOCAR: his position does not sit well with his intercontinental financial set-up.

It must be said that the blanket trust placed in Mizzi by Prime Minister Joseph Muscat may have been premature. Muscat has admitted that he is unaware of the precise details regarding the Panama company. How, then, can he be so confident that it is all above board? 

Ultimately, it is now incumbent upon Joseph Muscat to revise the Code of Ethics to enforce a culture of full accountability (which, let’s not forget, he promised before the election) and to include full spousal declarations that are not just related to the community of acquests.

As for the man who has since become Labour’s deputy leader for party affairs, there is only one route available. Mizzi must make a full disclosure on the beneficiaries of the trust and the Panamanian company; declare it in his register of assets, and then close the operations. As a social democrat minister, the sheer callousness of minimising his tax exposure using offshore companies is simply setting the wrong kind of example.

He has to pledge full transparency. It is the very least to be expected, from a Labour minister who campaigned so vociferously on accountability, meritocracy and good governance.