Singapore-based firm mentioned in Pandora Papers leak: When are shell companies legal?
The papers show Singapore-based Asiaciti Trust helped to set up trusts and shell companies in secrecy jurisdictions for clients.
Asiaciti Trust, a Singapore-based offshore services provider, has been in the public eye since the biggest trove of offshore data on the world's richest and most powerful people was leaked earlier this month.
According to the International Consortium of Investigative Journalists (ICIJ), the organisation that received the leaked documents dubbed the Pandora Papers, Asiaciti helped hundreds of clients across the world set up and manage trusts and shell companies in secrecy jurisdictions.
A secrecy jurisdiction is a tax haven that specialises in enabling individuals to hide their wealth and financial affairs from regulators.
Asiaciti Trust, founded in 1978 by Australian accountant Graeme Briggs, is now under close supervision by the Monetary Authority of Singapore (MAS).
The authority has said it is "examining the information from these latest reports and will conduct supervisory follow-up as warranted".
Asiaciti Trust Singapore's registered address is listed as #19-02, 61 Robinson Road.
A search on the Accounting and Corporate Regulatory Authority website reveals that at least two other companies - Derwent Investments and Pacific Dream - are registered under the same address.
Singaporean Halyn Chai is listed as director of Derwent Investments and also secretary at Asiaciti Trust Singapore. Her LinkedIn profile states that she is director of client services at AsiacitiTrust, but does not list Derwent Investments.
Pacific Dream does not appear to have links to Asiaciti, but its principal activity is managing investments and trusts for single or multiple families.
Briton Ross Belhomme is listed as managing director as well as director of Asiaciti Trust Singapore.
Mr Belhomme is a committee member of the International Business Structuring Association. According to his LinkedIn profile, he advises the association's members on how to help their clients around the world.
Australian Cara Briggs Yousry is listed as director of Asiaciti Trust Singapore. She was connected, along with Mr Graeme Briggs, to the Paradise Papers offshore leak four years ago, which linked them to a company called Green Gables.
Asiaciti had also surfaced in the Paradise Papers then, with the ICIJ saying it was "managing millions for a carousel of millionaires and fraudsters".
Lawyers and tax experts told The Straits Times that while shell companies tend to have a bad name, the use of such companies is not in itself unlawful.
Associate Professor Stephen Phua from the National University of Singapore's law faculty likened shell companies to knives - in that "a knife is a weapon only in the hands of a murderer".
"Fraud and embezzlement may involve the use of shell companies to create layers for opacity, but the converse (that shell companies are always involved in fraud and embezzlement) is not true," said Prof Phua, who specialises in tax issues.
One use of shell companies is for tax avoidance, but this is not unlawful.
Shell companies do not have assets or employees, and generally have no business activities.
Prof Phua said such companies can be used by businesses to "separate ownership", or to receive profits earned in other countries separately so as to avoid tax in the firm's home country, which is not necessarily an act of corruption.
For example, many US multinational corporations take advantage of a tax law that allows profits earned abroad to remain tax-free as long as they are not brought back into the United States.
iPhone maker Apple has made headlines over the years for its tax strategy that has saved it billions of dollars in US taxes, through subsidiaries in places such as Ireland.
A US Senate sub-committee that investigated the matter said Apple had used a complex web of offshore entities to avoid paying billions of dollars in US income taxes, but that there was no indication the firm had acted illegally.
Mr Suang Wijaya, a partner at law firm Eugene Thuraisingam, said the line blurs when such companies are set up in order to "disguise transactions that would otherwise be legally prohibited".
He cited an example of a company in a country with laws prohibiting financial dealings with individuals linked to terrorism activities.
"In order to get around these prohibitions, a complicated structure of companies can be structured, with the prohibited individual having an ultimate beneficial interest. The companies can then engage in a 'sham' provision of goods and services, so that money and assets can be funnelled to them," said Mr Wijaya.
One way in which such companies are regulated is through "know your customer" and money laundering regulations, he said. Institutions that deal with large financial transactions, such as banks, law firms or payment services providers, must comply with these regulations, he added.
Before such institutions take on companies as clients, or deal with financial transactions involving companies, they have to go through stringent procedures to ensure they are not inadvertently facilitating money laundering or other illegal activities.
"For example, they have to take stringent steps to ascertain who are the ultimate beneficial owners of corporate entities, and whether funds have been obtained through legitimate sources," said Mr Wijaya.
An MAS spokesman said financial institutions in Singapore are required to have robust controls to prevent money laundering and other illicit finance.
These include measures to identify customers as well as their effective controllers - of corporate vehicles and trust arrangements, for example.
"Financial institutions must properly assess that the customer's assets are not illicit, effectively monitor transactions and report suspicious ones to the authorities, and conduct follow-up actions to mitigate the customer's risk," said the MAS spokesman.
Local banks said they have strict measures in place to combat financial crimes.
These include conducting customer due diligence as well as performing monitoring and analysis of transactions, said Ms Loretta Yuen, head of group legal and regulatory compliance at OCBC Bank.
A spokesman for DBS Bank said: "With regard to offshore or trust structures, the law obliges us to take steps to identify ultimate beneficial owners, and we do not support the use of concealment techniques."
The Pandora Papers dump of more than 11.9 million records, amounting to about 2.94 terabytes of data, allegedly ties world leaders to secret stores of wealth. These leaders include King Abdullah of Jordan and Czech Prime Minister Andrej Babis. Associates of Russian President Vladimir Putin were also implicated.
This comes five years after the Panama Papers leak, which exposed how money was hidden by the wealthy in ways that law enforcement agencies could not detect.
Pandora Papers leak: Unravelling trusts, holding companies and shell companies
According to the International Consortium of Investigative Journalists (ICIJ), Singapore-based company Asiaciti Trust has helped to set up and manage trusts and shell companies in secrecy jurisdictions for hundreds of clients across the world.
The consortium, an independent network of investigative journalists and media organisations based in Washington, received a trove of leaked documents dubbed the Pandora Papers that included those from Asiaciti Trust.
The papers reveal that Asiaciti, which has operations in Singapore, Hong Kong, Cook Islands, Panama and other places, served at least 25 politicians.
These documents span over two decades, from 1996 to 2019, and shed light on the firm's dealings with its clients.
For example, a leaked PowerPoint presentation in 2001 detailed how it might set up a complex offshore structure of trusts and shell companies registered in New Zealand and Singapore so that a Mexican client would not be required to disclose the existence of offshore assets to tax authorities, the ICIJ said.
The Straits Times breaks down the differences between various types of institutions.
1. Trust company
A trust company is a company incorporated to hold assets - including shares in a company and other types of assets - for beneficiaries.
An example is when parents create a trust for their children to preserve their assets for the distribution of income.
The trustee can disburse a sum of money periodically to the children for their maintenance so as to prevent them from squandering the capital.
However, trust companies can be used to unlawfully conceal the true beneficial owner of assets where there are restrictions, such as foreign ownership of properties.
2. Holding company
Broadly speaking, a holding company is any company that owns shares in one or more subsidiary companies.
Associate Professor Stephen Phua of the National University of Singapore's law faculty said: "A holding company is like a landlord holding on to five condominiums, although in itself the business is confined to holding shares from companies and receiving dividends."
Holding companies may be abused when they are used as intermediaries to mask the identity of the true ultimate beneficial owner or shareholder.
3. Shell company
A shell company can be a holding company or a trust company, but it may not necessarily be the case the other way around.
Shell companies do not have assets or employees and generally have no business activities.
They tend to be registered in tax haven territories like the British Virgin Islands, with loose regulatory oversight, said Prof Phua, who specialises in tax issues.
They can be used - legally - by companies to collect offshore income and avoid taxes upon repatriation to their home countries.
Shell companies are like knives in the sense that "a knife is a weapon only in the hands of a murderer", Prof Phua said.
The use of a company may become unlawful when it is set up to promote activities to frustrate regulatory oversight, or to create opacity to defeat the interests of stakeholders who are entitled to know about the business.
Such people could include family, business partners, regulators and tax authorities.
Prof Phua said: "The line (whether such a company is legal or not) blurs when it becomes entirely unclear as to whether there is any legitimate business and bona fide reasons to justify the company's structure."
Source: Straits Times © Singapore Press Holdings Ltd. Permission required for reproduction.