In 2010 a lawyer for James H. Simons, the billionaire founder of the hedge fund Renaissance Technologies, submitted a secret application to Bermuda’s highest court.
They were making changes to a trust fund Simons had quietly maintained on the island since 1974.
Getting approval required Simons to give the court, but not publicly, data relating to his overall wealth. But Simons’ legal team insisted he should do no such thing.
The “exact quantum” of Simons’ wealth was a strictly private matter, trust lawyer John Robert Balfour Richmond argued, in what should be called the “Just Google it” defence.
He told the court, “A Google search against Mr. Simons’ name will throw up any number of estimations of his or his family’s wealth.” While Google itself knows a lot about avoiding tax, a search for Simons’ wealth would be quite a few billion quid out.
Simons had amassed £5.6 billion in a very low-profile Bermudan trust that is one of the largest private trust funds ever discovered.
A secret accounting document attached to the 2010 filing projected that the offshore fortune would grow to £12 billion by the end of this year, and reach £26 billion by 2030.
Just eight people control as much wealth as the more than three billion people who make up the poorest half of the global population.
That’s the conclusion of a report released in January by Oxfam, relying on the Forbes magazine billionaire list and data from investment bank Credit Suisse.
Forbes celebrated this year as “another record year for the wealthiest people”. Three—Bill Gates, Jeff Bezos and Warren Buffett—own as much wealth as the bottom half of the US population.
Billionaires included in Forbes’s list of the 400 richest people in the US were worth a combined £2.2 trillion—more than the economic output of Britain.
But in the case of Simons he is at least four times as wealthy as he appears on the Forbes list. Where he languishes at 25th richest.
Offshore trusts are a powerful tool for the wealthy to store, protect and grow their stashes under a veil of privacy.
An offshore trust based in Bermuda can, for instance, own assets in Taiwan on behalf of a beneficiary in California. They play off tax rules and regulations around the globe.
They are of course often charitable foundations.
Jeffrey Winters is an academic who studies economic elites. “There’s a reason why this might feel like a hall of mirrors,” he explained. “It’s designed that way.”
The leaked files from the Paradise Papers contain information about over 2,600 offshore trusts linked to individuals and companies from more than 100 countries.
Roughly two thirds of these trusts are based in the Cayman Islands and Bermuda. “The Bermuda trust,” according to an article on Appleby’s website, “is a popular estate planning vehicle for private clients wishing to structure their affairs in a tax efficient manner.”
The leaked documents from Appleby’s Bermuda office show that, between 2012 and 2015, the firm provided legal services to at least five secretive trust structures. Each one contained a billion dollars or more.
In each case, the Appleby file lists the clients as “CONFIDENTIAL.” One of these anonymous clients held three related trusts—two in Bermuda, one in the Bahamas—that together contained £6 billion in 2015. It remains unclear who is behind these particular fortunes.
James Simons founded Renaissance Technologies in 1982. It developed secret trading algorithms making Simons a billionaire many times over.
Simons has given fortunes to the Democratic Party in the US. Meanwhile, his business partner at Renaissance, Robert Mercer, is a top Republican Party donor and influential backer of Donald Trump’s presidential campaign. Mercer is also an Appleby client.
No one knows how many more massive holdings remain undiscovered offshore.
Economist Gabriel Zucman estimated that £5.4 trillion in assets of wealthy households has simply gone missing in countries, mainly tax havens, other than those where the owners reside. That doesn’t include corporations or money that is declared by individuals—even if they don’t pay tax on it.
“There’s a lot of wealth that’s becoming harder and harder to measure,” Zucman said. “The end result is that we know way too little about how wealth is distributed and how wealth is growing.”
The line between legitimate and illegitimate tax and money scams is so thin only lawyers can see it.
Depending on how you do the sums, up to 15 percent of total global wealth is stored in tax havens.
Companies only pay tax on their profits—and it’s possible to structure your company so that, on paper, you make almost nothing. Capitalism is built on accumulation—turning money into more money. It’s enforced by ruthless competition. Capitalists who fail to grab as much as they can risk being torn apart by the rest.
Glencore, the world’s biggest commodity trader, was one of the top clients of Appleby. Appleby’s Bermuda office even had a “Glencore Room”.
The exploitation of the world’s resources is dependent not just on profits on the markets but on the back room scams of tax minimisation.
For all the noise about clamping down on tax havens the truth is the system relies on them.
Lobbyists—Access all areas
Tax avoiders have “superb penetration” at the highest levels of the Tory government. That was the claim made by the International Financial Centre's (IFC) forum shortly before the G8 summit in 2013.
Promises of clamping down on tax evasion at the summit came to nothing.
In the weeks leading up to the summit, the IFC secured meetings with David Gauke, who was then the exchequer secretary to the Treasury. Gauke has now been promoted to work and pensions secretary clamping down on poor people’s benefits.
They also met officials at HMRC, Lord Blencathra, Lord Flight and the permanent secretary at the Department for Business, Innovation and Skills.
A week before the G8, they secured an 80-minute meeting with Dominic Martin, an official in the Cabinet Office who was then director of the Britain’s G8 presidency unit.
The access was organised by Lansons, a PR and lobbying firm in London. IFC members were told that their concerns had been “passed to UK experts preparing Cameron”.
The IFC, it said, had provided “a full briefing regarding our concerns over a public registry of beneficial ownership. Well done Lansons for orchestrating contact at this very high level.”
Two days before the summit the IFC secured another “crucial meeting” with Shona Riach, a Treasury official.
G8 leaders met on 17 June and a day later, Richard Hay from IFC gloated that the government had backed off from introducing any transparency.
“The UK did not get buy-in for the intrusive and unworkable proposals—evident hubris for those claiming its adoption by G8 was inevitable,” he said.
Apple—Taking a bite out of our public services
It was May 2013, and Apple boss Tim Cook was angry.
He was before the US Senate inquiry into how Apple avoided tens of billions of dollars in taxes by shifting profits into Irish subsidiaries that the inquiry chair called “ghost companies”.
“We pay all the taxes we owe, every single dollar,” Cook declared. “We do not depend on tax gimmicks. We do not stash money on some Caribbean island.”
Five months later, Ireland announced a bit of a crackdown. Apple’s advisers at one of the world’s top law firms,
US-headquartered Baker McKenzie, canvassed Appleby.
They emailed a list of 14 questions to Appleby’s offices in the Cayman Islands, the British Virgin Islands, Bermuda, the Isle of Man, Guernsey and Jersey.
One email asked for confirmation “that an Irish company can conduct management activities without being subject to taxation in your jurisdiction.”
Apple also asked for assurances that the local political climate would remain friendly. The firm's lawyers asked, “Are there any developments suggesting that the law may change in an unfavourable way in the foreseeable future?”
In the end, Apple settled on Jersey, which charges no tax on corporate profits for most companies.
Meanwhile, the Irish government’s crackdown on shadow companies has had little effect.
For years Apple reported two-thirds of its profits were made outside US and taxed at a low single digit rates. It continues to do so.
Parasites in Paradise
The Netherlands, Ireland and Bermuda have become go-to destinations for big corporations looking to avoid taxes.
Between them these three spots hold less than one-third of 1 percent of the world’s population but over a third of the profits that US multinationals reported overseas last year.
Britain tries to keep up. It is a firm participant in the race to the bottom, keeping taxes low to “attract business”.
Blackstone, the private equity firm of Donald Trump associate Stephen Schwarzman, minimised tax payments on large rental properties in Britain. The properties were held by trusts in Jersey, themselves owned by subsidiaries in Luxembourg.
No tax was paid anywhere.
The company said, “Blackstone’s investments are wholly compliant with UK and international tax laws and regulations.” Which is true.
Blackstone also said that, “the arrangements were commonplace for such real estate investments.” Which is also true.
Right royal racket
Many tax havens are British-run overseas territories. These include the Cayman and British Virgin Islands, Bermuda, Guernsey Jersey, and the Isle of Man.
Just 90,000 people live on the Channel Islands—yet 800,000 companies are registered there. There are 400,000 firms and around a trillion pounds worth of assets registered in Jersey alone. All are untaxed.
The British Virgin Islands have 30,000 people and 457,000 companies.
According to the US government, some 75 percent of the world’s hedge funds are “located in” the British Caymans. There are some £4.5 trillion of US bank deposits located in British “crown colonies”.
No wonder the queen banks offshore.