17 June 2024 | 01:51 PM

Exposed: The South Africans named in the Paradise Papers

Key Takeaways

More than 500 SA individuals and companies are named in the 13.4m records exposed in the ‘Paradise Papers’, the latest trove of offshore tax haven leaks, raising afresh questions about the morality of tax avoidance, good governance, risk and the most efficient ways of structuring tax regimes.

Leona Helmsley, the American real estate mogul who died a decade ago, was reviled for her infamous throwaway line that “only the little people pay taxes”.

The release this week of the Paradise Papers — the widest leak yet of secret records from more than 19 tax havens, as well as those of two of the largest offshore firms — illustrates that her sentiment is perhaps more on the money than ever before.

It’s a leak that has bust open the myth that if you stash your cash in Guernsey or the Bahamas or Mauritius, no-one will know. The largest number of records emerged from Appleby, a 119-year-old law firm that helps clients reduce taxes and obscure assets.

The Paradise Papers were obtained by German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and more than 380 journalists in 67 countries, including amaBhungane and the Financial Mail in SA.

In all, 13.4-million records tipped out, embarrassing no less than US President Donald Trump (exposing links between his commerce secretary Wilbur Ross and Russian President Vladimir Putin), Queen Elizabeth II (revealing her investments in exploitative payday loan firms) and 120 politicians.

The names of more than 500 South Africans or SA-registered companies emerge in the Papers.

They include companies that have set up operations in “secrecy jurisdictions” — such as Spar (Isle of Man), Aspen and SABMiller (Mauritius), Illovo Sugar (Mauritius) and Lonmin (Bermuda), as well as wealthy executives.

A number of blue-chip SA financial institutions are named too, including Standard Bank, Liberty, Sanlam and First National Bank.

Investec also crops up as central to an investment which helped Shanduka — in which deputy president Cyril Ramaphosa was a shareholder until 2014 — structure an investment in a Mozambican energy deal through Mauritius.

In that case, Shanduka used a company it set up in Mauritius, Shanduka African Investments, to invest $20-million through a murky company called Marihold One, which was red-flagged by Appleby.

Though this is no evidence that Ramaphosa did anything wrong, it would seem unwise for politicians to invest in countries known to be tax havens, at a time when anger is rising over the estimated $50-billion that leaves Africa in illicit flows annually.

Ramaphosa’s rival for the ANC presidency, Nkosazana Dlamini-Zuma, is also named in the papers — but only because, when she chaired the African Union, Appleby set up a trust in Mauritius called the “Africa Against Ebola Trust”.

This would have been a forgettable detail, were it not for a ferocious response by Dlamini-Zuma’s spokesman Carl Niehaus. Niehaus said references to Dlamini-Zuma in the Paradise Papers were part of the “clear and deliberate smear campaign” to “display a mirage of the supposed corruptibility” of Dlamini-Zuma.

“We suppose the good story of Africans doing it for themselves in raising over $15-million is less juicy than peddling a negative African narrative to bring down an upright and upstanding African woman,” he said.

Niehaus said that after the 2014 ebola outbreak in West Africa, it was “agreed that the African Union Foundation, which is based in Mauritius, would be used as a stop-gap measure”.

Mauritius, an island of just 1.3-million people, is a favoured destination for SA companies.

By 2000, the IMF described Mauritius’s offshore industry as “enormous”. Global businesses based on the island have assets valued at $630-billion — 50 times Mauritius’s gross domestic product.

“Only Luxembourg has a bigger stock of foreign direct investment relative to the size of its economy,” says the Financial Times.

In a PR brochure, Appleby boasts of its services in Mauritius: “Investors commonly use Mauritius, which has a growing number of tax treaties with other African nations, as a place to base a holding company, joint venture or investment fund, which will then invest in projects in a number of different countries.”

For many companies, creating structures in these tax havens is an answer to SA’s rapidly weakening rand, which has shed 39% against the dollar over five years. Companies also cite SA’s exchange controls which, though less tight than a decade ago, still limit the flow of money offshore.

Spar CEO Graham O’Connor says his company set up a structure through the Isle of Man to hold Spar’s R690-million purchase of 60% in Spar Switzerland, entirely because of the rand.

“It was all about minimising the currency risk. With all that’s going on in SA now, this seemed like too much of a risk.”

O’Connor says there was “no sinister objective” in setting up shop in the Isle of Man. “We could have set this structure up elsewhere. We could have chosen Netherlands or France, but we chose Isle of Man because we were already there (through an earlier deal in Ireland). We’re a very ethical company, and we pay the tax that’s due.”

Magnus Heystek, director of Brenthurst Wealth, says he understands O’Connor’s argument “about 70%”.

“Currency risk can wipe out profits and cause companies to close doors. While most companies would love to pay taxes to a government that’s doing well and respects its citizens, if that’s not happening, you’re forced to look at ways of reducing your risk”.

Xhanti Payi, an economist for Nascence Research, doesn’t buy this.

“If the excuse is that the rand is too weak, then nobody would ever set up companies in Nigeria or Malawi. We’d all run to the UK, so I don’t think that’s necessarily legitimate.”

Payi says the Paradise Papers are important because details about ownership and assets are fastidiously hidden in tax havens.

“In SA the sort of transparency we take for granted just isn’t there in places like Guernsey. The only way it’ll ever come out is through a leak like this.”

Payi says transparency is critical.

“As Thomas Piketty wrote, one of the starting points to addressing the inequality we see in SA is transparency. We need to know where your money is, why you put it there and why you think it should be hidden offshore.”

Heystek says while many of the deals in the Paradise Papers are legal, a minority are either dubious or outright illegal.

“Where you have a situation of transfer pricing, where you choose a jurisdiction in which you don’t operate and structure deals primarily to reduce the tax payable to the country where profits are made, it becomes grey.”

For example, a company seeking to pay less than SA’s 28% corporate tax could establish a “marketing” or “royalties” office in Mauritius, which charges an effective rate of 3%.

The Mauritian office would then levy extortionate fees on the SA operating business for “marketing”, ensuring the bulk of the profits go to a country where taxes are low.

“It might seem immoral, but the lawyers will argue this right exists,” he says.

Heystek says this often happens when there is a “rising tide of anger towards government for mishandling finances”.

“More people are saying screw this, how can I give as little money as possible to government.”

More SA names will emerge in the next few weeks. Already, many of them are acutely aware of the saying that the only difference between tax evasion and tax avoidance is the width of a prison wall.

* Written in collaboration with the Financial Mail (RSA)

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Warren Thompson and Micah Reddy

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