High-profile South Africans and local institutions are flagged in the biggest tax leak since the Panama Papers, which is set to cause ripples among many who have stashed their wealth in offshore tax havens.

Most of the 13.4-million documents, which emerged from more than 19 “secrecy jurisdictions”, relate to Appleby, an elite law firm with offices in offshore jurisdictions across the globe, and its corporate services provider Estera, which operated together under the Appleby name until 2016.

This leak — dubbed the Paradise Papers — highlights damning cases of tax abuse and questionable practices involving multinational companies, politicians, celebrities, wealthy executives and royals. It includes previously hidden details of corporate registries from countries infamous for ensuring high levels of secrecy.

Disclosures in the Paradise Papers are likely to lead to tough questions for US President Donald Trump over the business links of his billionaire Commerce Secretary Wilbur Ross with Russia. They also reveal questionable dealings involving Canadian Prime Minister Justin Trudeau’s chief fund raiser, investment in consumer loans by Queen Elizabeth II and dealings of more than 120 politicians.

New details of how global corporate giants including Apple, Nike and Uber avoided taxes through increasingly imaginative bookkeeping are flagged in the leak.

Appleby’s long list of international clients include multinationals and high net worth individuals with links to SA, such as the largest JSE-listed commodities company, Glencore, and the country’s largest bank, Standard Bank.

While merely being an Appleby’s client, or simply being mentioned in the leaks, does not imply wrongdoing, the leak of information is likely to embarrass companies. In particular, South African banks that have offices in several secrecy jurisdictions, including Investec, will have to deal with the fallout from client records possibly being compromised in the leak.

Besides half a million records from Mauritius, the leak includes corporate records from the Isle of Man and the British Virgin Islands, in which a number of JSE-listed companies have subsidiaries. Details will emerge this week.

The Paradise Papers include references to Shanduka — the company in which Deputy President Cyril Ramaphosa held a stake until 2014 — and a number of Glencore’s South African-born executives including CEO Ivan Glasenberg.

In a brochure for potential clients, Appleby brags about its role in “advising Standard Bank of SA on a $70m facility for the purpose of refinancing Zambia Sugar plc, a subsidiary of Illovo Sugar Limited”.

That loan to Illovo Sugar, which was listed on the JSE until February 2016, was the subject of a tax avoidance scandal after a report by nongovernmental organisation ActionAid exposed how Illovo used artificial structuring to dodge Zambian taxes. This meant Illovo paid an effective tax rate of 0.5% when Zambia has a corporate tax rate of 35%. ActionAid estimated that Illovo deprived the Zambian government of up to $3m in taxes – 14 times larger than British aid provided to it to combat hunger.

Besides half a million records from Mauritius, the leak includes corporate records from the Isle of Man and the British Virgin Islands, in which a number of JSE-listed companies have subsidiaries

The Illovo deal offers a sense of the transactions in which Appleby was engaged — involving secret trusts and webs of offshore shell companies.

David Lewis, director of Corruption Watch and former chairman of the Competition Tribunal, says it is not illegal for South African companies to put money into places considered to be tax havens. “However, the problem is, some companies abuse this privilege by using it for transfer pricing, evading taxes and hiding transactions behind secrecy provisions.”

Two years ago, former president Thabo Mbeki, who chaired the AU panel on illicit flows, said that over the past five decades, it was believed that Africa had lost more than $1-trillion in “illicit financial outflows”. He said the continent lost about $50bn every year through these illicit flows. “Tax havens and financial secrecy jurisdictions in Africa and elsewhere in the world are at the centre of the problem.”

Appleby would not respond to detailed questions, but it did release a statement saying it had investigated the International Consortium of Investigative Journalists’ questions and was “satisfied that there is no evidence of any wrongdoing”.

The offshore industry makes “the poor poorer” and is “deepening wealth inequality”, said Brooke Harrington, a Copenhagen Business School professor. “There is this small group of people who are not equally subject to the laws as the rest of us, and that’s on purpose,” Harrington said. These people “live the dream” of enjoying “the benefits of society without being subject to any of its constraints”.

Judge Denis Davis, who is head of the inquiry into the tax policy framework has also raised transfer pricing as a mechanism through which there was “considerable haemorrhaging of money” out of SA.

Davis recommended to the Treasury that the special unit in the South African Revenue Service dedicated to base erosion and profit shifting be strengthened.

Written in collaboration with AmaBhungane

The amaBhungane Centre for Investigative Journalism produced this story. Like it? Be an amaB supporter and help us do more. Know more? Send us a tip-off.

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