Secret real estate purchases drive the offshore economy
What do a Beatle, the daughter of an autocrat, and a scandalous Catholic order have in common? Each has made multi-million dollar real estate investments through offshore companies or trusts that obscured ownership of the property.
For Beatles drummer Ringo Starr, the property in question was a Los Angeles mansion. Arzu Aliyeva, daughter of the President of Azerbaijan, bought an office building in London. The Legion of Christ, a wealthy religious order dishonored by a sex abuse scandal, has poured millions of dollars into rental properties across the United States.
Starr, Aliyeva and the Legion are among the hundreds of property owners or investors whose identities are revealed in the Pandora Papers, a huge cache of documents that has prompted a global investigation by the International Consortium of Journalists of investigation.
Starr and Aliyeva did not comment on these findings. In statements to the ICIJ, the Legion admitted to setting up an offshore trust identified in the leaked files, but said it was not aware of two others.
The leaked documents expose billions of dollars in spending by the rich and famous – celebrities and politicians, oligarchs and other members of the uber-rich. And they not only buy luxury real estate, but also properties that are usually not associated with overseas purchases. Dairy farms in Tasmania, a shopping center in Uganda and rental housing in suburban America have all been purchased directly or indirectly through offshore companies or trusts, according to records.
Hundreds of companies in Pandora Papers files indicated owning real estate as a goal. The ICIJ’s analysis found that politicians were using offshore companies to own properties in more than 10 countries, including the UK, US, France, Monaco, Barbados and Italy. The owners included King Abdullah of Jordan and the Prime Ministers of the Czech Republic and Lebanon. King Abdullah and the Czech Prime Minister have denied wrongdoing.
Real estate is a stable investment that often increases in value. By purchasing a property through a shell company, buyers can get tax breaks and protect their identity from law enforcement authorities and creditors.
Secrecy also empowers criminals, including money launderers and drug cartels. Their real estate business through offshore companies moves millions of dollars while avoiding controls. In the UK, a director of the National Crime Agency said he believed dirty money had “distorted” the London property market.
The combination of asset security and secrecy has also made offshore holdings a haven for money and other assets from less stable economies. There is growing evidence to suggest that overseas purchases in the high end of the real estate market have a ripple effect, making people lower down the real estate scale pay.
In the UK alone, the Pandora Papers reveal the beneficial owners of around $ 5 billion in assets, much of it in London, where more than 36,000 properties are owned by offshore companies.
The leaked documents reveal a small fraction of the homes, hotels, factories and other properties owned worldwide by companies and trusts established in tax havens. A recent study estimated that real estate worth between $ 5,000 billion and $ 10,000 billion, roughly as much as Spain’s total wealth, could be held through offshore vehicles.
“Whether people are hiding from tax authorities or law enforcement, or from scrutiny from a confident public, these transactions are aimed at achieving impunity,” said Alex Cobham, director of the Tax Justice Network, a tax fairness advocacy group.
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The Pandora Papers are based on a leak of nearly 12 million records from 14 offshore service providers. Some of these providers explicitly offer the use of offshore companies to purchase real estate as a tax evasion technique.
According to SFM, based in Geneva, specializing in the creation of offshore companies, owning property through an offshore shell company “allows the beneficial owner (s) to benefit from an improved tax regime and reduce many costs associated with investing in real estate abroad ”. Inheritance taxes, withholding taxes, land sales taxes and capital gains taxes can all be reduced or eliminated, says SFM on its website.
Leaked documents show music superstar Julio Iglesias owns several multi-million dollar properties in Miami through offshore companies. The Florida lawyer listed as the contact for these companies was unequivocal about the tax benefits of these structures for clients who are neither US citizens nor permanent residents. He told ICIJ partners: “I have never advised clients to buy a property directly because that would be a terrible structure.”
The Pandora Papers have revealed that former British Prime Minister Tony Blair – whose government had tried to curb tax evasion by buyers of offshore properties – and his lawyer, Cherie Blair, saved nearly half a million dollars. tax dollars by buying a townhouse in London via an offshore company.
Stephen and Anthony de Heinrich, heirs to a multi-million dollar oil fortune, have invested in Tasmanian dairy farms through an offshore company aimed at reducing their tax burden.
And the development arm of the World Bank has committed up to $ 7.5 million in a fund whose Cambodian hotel investment was channeled through a Singaporean structure designed to reduce the fund’s tax bill.
Cherie Blair told ICIJ partners that there was “nothing unusual or devious” about purchasing the couple’s property, and she said she made sure that the property was owned by a UK company after the transaction.
A spokesperson for the World Bank’s development fund told ICIJ that its indirect investment in the Cambodian hotel group was aimed at “creating a significant number of jobs and providing essential goods and services to their local populations” .
U.S. lawmakers, in response to the Pandora Papers investigation, have proposed requiring lawyers and real estate agents to perform more rigorous background checks on their clients and their wealth. A division of the Treasury Department that is investigating money laundering said it would need more information on the real owners of homes held through shell companies.
But to date, authorities have done little to try to prevent the common – and legal – use of offshore vehicles to reduce tax bills on real estate purchases.
Cobham, of the Tax Justice Network, said the ability of the rich and well-connected to avoid taxes by using offshore corporations and trusts was a way to “lock in” inequality.
“We need to eliminate, definitively, any kind of tax advantage that can be obtained just by dressing up a transaction with an offshore company,” he said.
Contributors: Jelena Cosic
Lords of the earth
Explore nine case studies that show how investors invest not only in luxury real estate, a traditional store of wealth, but also in a diverse range of properties, from farmhouses to suburban rental homes.
Reporters: Scilla Alecci, Will Fitzgibbon, Margot Gibbs, Sean McGoey, Spencer Woodman
Contributed reports: Uri Blau, Petra Blum, Simon Goodley, Luke Harding, Echo Hui, Anna Kluhspies, Latashia Naidoo, Miranda Patrucic, Rory Tinman
Editors: Asraa Mustufa, Ben Hallman
Data and research: Agustin Armendariz, Jelena Cosic, Emilia Díaz-Struck
Checking the facts: Richard HP Sia, Kathleen Cahill
Design and development: Antonio Cucho Gamboa
Illustrations: Rocco Fazzari