Issue link: https://maltatoday.uberflip.com/i/678126
4 MATTHEW VELLA WAS there surprise at the names revealed in Monday's leak of Mos- sack Fonseca intermediaries and clients, which registered over 700 entities with Maltese interests in tax havens like Panama and the British Virgin Islands? Little if any. The profiteers of Malta's financial services world, lawyers and accountants, leapt to the defence of the island's reputa- ble jurisdiction and its regulation by the MFSA. Labour's spin doc- tors sought to minimise the at- tention on its most famous PEPs – Keith Schembri and Konrad Mizzi – by hitting out at intermediaries whose bread is buttered by the offshore world. But little was said about Malta's role in facilitating both domestic and foreign businesses' attempts to minimise their tax exposure – another word for tax evasion. The names revealed on Monday include those of Malta's minis- ter Konrad Mizzi and the Prime Minis- ter's chief of staff Keith Schem- bri, old hold- ings used by Farsons c h a i r m a n Louis Far- rugia or the late Vivian Bianchi of the Bianchi group, hotel groups Is- land Hotels Group and San Antonio plc, and even the wife of a Belaru- sian oligarch came up in Monday's cache of Mossack Fon- seca clients leaked by the Interna- tional Consortium for Investiga- tive Journalists. The 11.5 million files that re- vealed almost 320,000 offshore companies and trusts from the Panama Papers and Off- shore Leaks investiga- tions revealed, as expected, peo- ple like Kasco group direc- tor Malcolm Scerri, former Allied News- papers man- aging director Adrian Hillman, and Redmap Con- struction's Pierre Sladden have all ap- peared in the ICIJ data- base. But as the names started coming out, many rushed to clear their associations with Panama and the British Virgin Islands, the main tax jurisdictions preferred by Mossack Fonseca to hide away the ownership of their clients. Farsons chairman Louis Far- rugia was listed as an intermedi- ary of Petrofina Holdings, a firm opened back in 1984 and dis- solved in 2005. Farrugia said in a statement that the firm had been declared to the Central Bank and was intended to house a UK prop- erty. "In 1985, I purchased an apart- ment in London at a time when my young family was seriously considering the possibility of moving to the UK. I was advised at the time by a reputable London firm of solicitors to own the prop- erty through a Panama- nian company. The company was nev- er used for any other purpose. I do not own any shares in any overseas company nor have any ben- eficial interest in any overseas trust." Farrugia is a director of Allied Newspapers, which is carrying out an inquiry into alleged kickbacks because of the Panama Papers, specifically the creation of off- shore companies by Keith Schem- bri and Adrian Hillman in 2011 when Schembri supplied news- print to Allied. The former Nationalist energy minister Ninu Zammit was the shareholder of Fiveolives Services when it was incorporated in 2005, through which he held a bank ac- count with HSBC Private Bank Suisse. At this time Zammit was minister for resources and infra- structure. In the ICIJ's Swissleaks exposé in 2013, it was revealed that he had $3.2 million held in his Swiss bank account, which led to his suspension from the Na- tionalist Party. In a comment he sent by email, Zammit said that he repatriated his incomes through the 2014 invest- ment re- p a t r i a t i o n scheme, which he pointed out "involved circa 1,500 applicants." He said his HSBC bank account was closed upon registration in 2014 and that communicated written instructions for the im- mediate termination and effective closure of his offshore company mentioned in the Panama Papers. Zammit also said that a Tax Compliance Unit audit was car- ried out on him in 2015, "result- ing in the regularization of my position as regards the Inland Revenue Department." Zammit did not answer whether he would apologise to the country for having harboured the offshore company during his tenure as minister. Antonio Depasquale, a lawyer, who appears as a shareholder of City Advisory together with Mi- chael del Vecchio, the man who set up Colson Services for Keith Schembri, is a former president of the PN youth organ MZPN. Malta Football Association president and accountant Nor- man Darmanin Demajo appears as shareholder of Reznik Hold- ings, Sawasadee Holdings and Denver Global Tech, which have been dissolved, while Street Nine Marketing is still active. The companies were set up be- tween 2005 and 2006. Categori- cally refuting any connection with his role as MFA boss, Darmanin Demajo said that his involvement was due to his profession as an ac- countant. "During the past 20 years I have held, and continue to hold, various di- rectorships and shareholdings in various c o m p a n i e s , mainly in off- shore jurisdic- tions, in which companies I do not have ul- timate ownership. These companies are registered for per- fectly legal reasons, and have nothing to do with laundering illicit gains, evading taxes, or hiding corrup- tion money or commissions." He said that most companies are not trading companies, but hold intellectual property rights, trademarks and trade names. "Any income earned from services provided to these companies falls within the income of my Maltese company and are subject to yearly audit and fully taxed in Malta. All my trading activities and interests in other companies are fully de- clared and taxable in Malta. I do not have, or have ever had, per- sonal interests in any companies outside Malta's tax jurisdiction. I do not have any bank accounts or hold any assets outside of Malta. Everything I own is in Malta – I have no reason or intention to transfer any of my personal assets to for- eign jurisdic- tions." He said he would be "very willing" to be subjected to any independent audit or Inland Revenue investi- gation in confirmation of any of the above. Olga Makarova, the wife of Vladimir Peftiev, widely consid- ered to be the 'bagman' for Bela- rus dictator Alexander Lukashen- ko, is the shareholder of Seychelles companies Kelly Bay Pacific Overseas and Isley Investments, and the beneficiary of Sarles In- ternational and Milden Holdings. She may have used these offshore companies when her husband was hit by EU sanctions on his arms trading business Beltechexport. The late Raymond Caruana, gunned down outside the house of a lover in Siggiewi, and a sus- pect in the bribery case of the late maltatoday, WEDNESDAY, 11 MAY 2016 News PANAMA PAPERS The term "tax evasion" is usually understood as fraudulent under-declaration of tax liability. It is usually a criminal activity. Tax avoidance, by definition, is supposed to mean escaping tax by getting around (or avoiding) the spirit of the law, without actually breaking it. But there is a large overlap between the two. In fact, a lot of what gets called 'avoidance' looks rather more like evasion: it involves pocketing tax money that legally should be paid. It's just that they don't get challenged or caught. What is a tax haven? There is no generally agreed definition of what a tax haven is. The term is a bit of a misnomer, because these places offer facilities that go far beyond tax. Loosely speaking, a tax haven provides facilities that enable people or entities escape (and frequently undermine) the laws, rules and regu- lations of other jurisdictions elsewhere, using secrecy as a prime tool. Those rules include tax – but also criminal laws, disclosure rules (transparency), financial regulation, inheritance rules, and more. Corporate and trust service providers set up, organise and/or administer corporations, limited liability companies, trusts and partnerships in tax havens or secrecy jurisdictions. How do trusts work? Trusts are one of the most important mechanisms used in modern global finance. They can have legitimate purposes, but they have many illegitimate uses too. A trust normally involves three main parties. The "settlor" is typically a wealthy person who hands an asset to a trusted second party known as "the trustee", for example a law yer or a dedicated trust company – who in turn control the property on behalf of a third party known as "the benefi- ciary" who might be the settlor's child, for example. In theory, the settlor is supposed to have genuinely given away the asset. This already creates the potential for a secrecy barrier: if the settlor no longer owns the asset, then it can be very hard to find any link between them and the asset. But in practice, trusts can be extremely slippery mechanisms for manipulating the different at- tributes of ownership and control. Although the settlor has supposedly been separated from the asset, they may still through devious side measures (such as a secret 'letter of wishes') retain a measure of control over the asset, or have the power to enjoy its income or other benefits. They may, for instance, manage to get their hands on the asset's income through a loan (that is never repaid) or a fee. Tax havens specialise in facilitating this kind of complex trickery. Discretion- ary trusts, which are especially good at this kind of manipulation, are especially common types of offshore trusts, and they alone are responsible for trillions of dollars' worth of assets sitting in a kind of 'ownerless' limbo. What's the difference between a shareholder and the beneficial owner? A shareholder is an individual or a corporation, in whose name shares in a particular offshore company are registered. However, in some cases the shareholder may hold shares for the benefit and on behalf of another person. Such shareholder would be called "nominee shareholder". In such instance, the other person – who would accordingly be the real owner of the shares – is the ben- eficial owner. In other words, the beneficial owner is the person who is the real, de facto owner of the shares, entitled to all gains, profits and benefits accruing to such shares. The beneficial owner would also be the one who decides on eventual sale or disposition of shares. So, not all beneficial owners are shareholders and not all shareholders are beneficial owners – while, certainly, it is also possible that both are the same person. What is an intermediary? Tax evasion and avoidance are facilitated by a global network of offshore tax havens and financial secrecy. This in turn requires a large infrastructure of intermediaries or "enablers" to make the whole system function. These include tax advisers, law yers, accountants and audit firms. Financial institutions such as commercial banks, investment banks, brokerage firms and trust companies also play an important role. Panama Papers expose Malta's role in What is the difference between tax avoidance and tax evasion? Louis Farrugia Antonio Depasquale Ninu Zammit