A number of 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 13.4m documents that have 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 under the Appleby name until last year.

This leak — the “Paradise Papers” — highlights damning cases of tax abuse and questionable business practices involving multinational companies, high-level politicians, celebrities, wealthy executives and royals. It includes previously hidden details of corporate registries from countries infamous for ensuring high levels of secrecy — key nodes in the global shadow economy.

Financial Mail will release the details of South Africans in the Paradise Papers on Thursday.

Revelations in the Paradise Papers are likely to result in US President Donald Trump facing tough questions over business links between his billionaire commerce secretary Wilbur Ross and Russia. The leaks also reveal questionable dealings involving Canadian prime minister Justin Trudeau’s chief fundraiser, investments in consumer loans by Queen Elizabeth II and the dealings of more than 120 politicians.

The leak also flags new details of how global corporate giants such as Apple, Nike and Uber avoided paying taxes through increasingly imaginative bookkeeping.

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

Simply being an Appleby client or being named in the leak does not necessarily imply wrongdoing, but it is likely to embarrass companies. In particular, SA banks such as Investec that have offices in several secrecy jurisdictions will have to deal with the fallout from the possibility of client records being compromised in the leak.

In addition to 500,000 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 Financial Mail will later this week publish extensive details of the companies and individuals named in the papers.

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 SA-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 US$70m facility for the purpose of refinancing Zambia Sugar Plc, a subsidiary of Illovo Sugar Limited”.

However, that loan to Illovo Sugar, which was listed on the JSE until last year, 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 the company 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 more than the value of UK aid provided to combat hunger in that country.

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

Corruption Watch director and former competition tribunal chairman David Lewis says it’s not illegal for SA firms to put money into places considered tax havens.

“However, the problem is [that] some companies abuse this privilege by using it for transfer pricing, evading taxes and hiding transactions behind secrecy provisions,” he says.

Experts agree that while there is nothing illegal in registering a company in Mauritius or another tax haven — and while tax avoidance isn’t necessarily illegal — the built-in secrecy of tax havens has historically attracted money-launderers, kleptocrats and politicians eager to hide bribes.

Of particular interest is the case of JSE-listed commodity trading giant Glencore — one of Appleby’s top clients.

Glencore was such an important client that it once had its own room within Appleby’s Bermuda offices. Board minutes show Glencore representatives leant on Daniel Gertler, an Israeli businessman with influential friends in the Democratic Republic of Congo, to seal a deal for a valuable copper mine.

Glencore lent millions to a company widely believed to belong to Gertler and described in a US justice department inquiry as a conduit for bribes.

Responding in recent days to questions, Glencore said its background checks on Gertler were “extensive and thorough”.

Gertler’s lawyers said the US justice department investigation “does not constitute evidence of anything” and that their client “rejects absolutely any allegations of wrongdoing”.

The offshore industry makes “the poor poorer” and is “deepening wealth inequality”, according to Brooke Harrington, a certified wealth manager, Copenhagen Business School professor and author of Capital Without Borders: Wealth Managers and the One Percent.

While tax avoidance isn’t necessarily illegal — the built-in secrecy of tax havens has historically attracted money-launderers, kleptocrats and politicians eager to hide bribes

“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 says. These people “live the dream” of enjoying “the benefits of society without being subject to any of its constraints”.

Two years ago, former president Thabo Mbeki, who chaired the AU panel on illicit flows, said Africa is thought to have lost more than $1trillion in “illicit financial outflows” over the past five decades.

Mbeki said the continent loses about $50bn a year through illicit flows. “The various tax havens and financial secrecy jurisdictions in Africa and elsewhere in the world are at the centre of the problem,” he said.

The Paradise Papers revelations, which follow in the wake of last year’s Panama Papers exposé, also by the International Consortium of Investigative Journalists (ICIJ), will ratchet up pressure on authorities to crack down on tax havens.

The papers were obtained by German newspaper Süddeutsche Zeitung and shared with the ICIJ and a network of more than 380 journalists in 67 countries, including SA’s investigative journalism outfit amaBhungane and the Financial Mail.

The leak of more than 500,000 secret records from Appleby’s Mauritius office is significant, as the country is touted as a gateway for those seeking to do business in Africa because of its low-tax jurisdiction, and it is favoured by many large SA companies as a location for their offshore arms.

Dick Forslund is an economist whose Alternative Information & Development Centre has tackled companies such as Lonmin for putting in place “transfer pricing arrangements” that are designed to push money through secrecy jurisdictions.

“In most cases, there’s no reason for these arrangements other than to siphon off money or to get some tax benefit,” says Forslund. “If you buy a hotel in Mauritius, that’s legitimate — but for a company to push sales commissions or management fees through Mauritius when there’s nothing there, that’s not legitimate.”

Forslund describes this as “an accepted practice now — everyone is doing it. And the SA Revenue Service is doing nothing about it”.

This is the first time details of the queen’s private offshore investments have emerged

In all, about half of the 13.4m documents in the leaks are from Appleby — founded in Bermuda more than 100 years ago — and its affiliates. The information dates from 1950 to 2016 and includes e-mails and loan agreements from more than 25,000 entities in 180 countries.

Appleby would not respond to detailed questions, but it did release a statement saying it has investigated the ICIJ’s questions and is “satisfied that there is no evidence of any wrongdoing”.

The leaks include information about spy planes bought by the United Arab Emirates, as well as about the Barbados explosives company of a Canadian engineer who tried to build a “super gun” for Iraqi dictator Saddam Hussein.

When it comes to Trump, documents reveal how his commerce secretary, Ross, has a stake in a shipping company that has received more than $68m since 2014 from a Russian energy company co-owned by the son-in-law of that country’s president, Vladimir Putin.

Intriguingly, the leaked files also show how Queen Elizabeth II invested millions of dollars in medical and consumer loan companies. This is the first time details of the queen’s private offshore investments have emerged.

The records show that, as of 2007, the queen’s personal estate invested in a Cayman Islands fund that, in turn, invested in a private equity company that controlled UK rent-to-own firm BrightHouse. BrightHouse has been criticised by consumer watchdogs and members of parliament for selling household goods to cash-strapped Britons on payment plans with interest rates as high as 99.9%.

A spokesman for the queen told The Guardian that while she has an ongoing investment in the Cayman Island fund, she was not aware of the investment in BrightHouse.

The files also reveal details about the financial lives of the rich and famous, including Microsoft co-founder Paul Allen’s yacht and submarines, music star Madonna’s shares in a medical supplies company and the shares that U2 singer Bono — listed under his full name, Paul Hewson — has in a Malta-based company that invested in shopping centres in Lithuania.

Other revelations include how Apple shopped around for a new island tax shelter after a US senate inquiry found that the tech giant had avoided tens of billions of dollars in taxes by shifting profits into Irish subsidiaries

While Madonna and Allen did not reply to requests for comment, a spokesman for Bono said he was just a “passive, minority investor” in the Malta company, which closed in 2015.

Private equity funds controlled by hedge fund billionaire and US Democratic Party mega-donor George Soros use Appleby to help manage a web of offshore entities, including an investment in a company engaged in reinsurance, or insurance for insurers. Soros’s charitable network, the Open Society Foundations, is a donor to the ICIJ and amaBhungane. Soros declined to comment.

Other revelations include how the US’s most profitable company, Apple, shopped around Europe and the Caribbean for a new island tax shelter after a US senate inquiry found that the tech giant had avoided tens of billions of dollars in taxes by shifting profits into Irish subsidiaries.

In a leaked e-mail exchange, Apple’s lawyers are shown to have asked Appleby to confirm that a possible move to one of six offshore tax havens would allow an Irish subsidiary to “conduct management activities ... without being subject to taxation in these jurisdictions”.

Apple declined to comment on details of the corporate reorganisation, but said the changes did not reduce its tax payments.

The files also show how big corporations cut their taxes by creating offshore shell companies to hold intangible assets, such as the design of Nike’s “swoosh” logo and the creative rights to silicone breast implants.

Clients prize Appleby for its expertise, efficiency and global network of professionals. Its peers repeatedly crown it offshore law firm of the year. But decades of private documents show that even one of the offshore industry’s brightest stars has hidden shortcomings: accepting questionable clients and failing to monitor multimillion-dollar money flows.

Bermuda financial regulators fined the firm’s trust unit for breaching anti-money-laundering rules, according to a confidential 2015 deal struck between Appleby and the regulator.

This year, the law firm reached a $12.7m settlement in a lawsuit in Canada in which nurses, firefighters and police officers accused the firm of unquestioningly circulating money on behalf of a client who designed an alleged tax-avoidance scheme. Appleby and the alleged mastermind did not admit wrongdoing.

Appleby said in its response to the Paradise Papers that it provides advice to clients “on legitimate and lawful ways to conduct their business”, and that it doesn’t tolerate illegal behaviour.

“It is true that we are not infallible,” Appleby said. “Where we find that mistakes have happened we act quickly to put things right.”

* 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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