Lawyers and accountants help rich manage their money
The story of Portcullis TrustNet and its birthplace — the Cook Islands — is in many ways the story of the offshore system itself.
It's a largely invisible world, a curious blend of the parochial and the global that's made up of the minor personalities and politics inside each offshore jurisdiction — many with populations no larger than a small town.
But by establishing special zones, these tiny provinces have changed the face of international finance and business and impacted law enforcement, tax policies and political and economic transparency across the planet.
The Tax Justice Network, an international advocacy group opposed to tax havens, estimates that about one third of all world wealth is held offshore, and about half of all world trade flows through there.
TrustNet, now headquartered in Singapore and with branch offices in 16 other locations , describes itself as a "one-stop shop," employing lawyers and accountants who help "high net worth" clients manage their money and business activities.
In this they are not alone: there are dozens of other so-called offshore service providers.
They rarely draw attention to themselves. Unlike many of their clients — like banks and accountants — there are no high-profile industry associations that represent their interests. They advertise almost entirely on the Internet.
Few are as big as TrustNet, whose website claims it is the largest independent operator in Asia.
The size of their operations is confirmed in hundreds of thousands of documents obtained by the International Consortium of Investigative Journalists, which show the internal day-to-day workings of TrustNet.
They reveal clients spread across about 140 countries and territories, among them many prominent business and political figures. They include about 4 000 names from the US Canada, and about 1 300 from the European Union.
A bulk of them however – roughly 45 000 of about 77 000 – come from China, Taiwan, Singapore and other East and Southeast Asian nations, a sign of the growing importance of that region as a source of shadowy money.
The main product that TrustNet sells can be summarised in one word – secrecy.
The firm helps ensure names, finances, business interests and political links remain hidden. It does this using a variety of methods, such as creating maze-like layers of companies and financial trusts in multiple countries and in many cases helping clients open overseas bank accounts in the names of anonymous companies rather than in their own names.
Sometimes parked inside purpose-built corporate vehicles are luxury yachts or masterpieces by famous artists.
Some of the entities TrustNet helps create are made-to-measure. Others are prefabricated "shell" companies, often with slightly absurd names such as Golden Honest Enterprises Limited, Jolly Good Fortune Investment Limited and Sunny Islands Overseas Limited.
The Cook Islands were a sleepy place more than three decades ago when a group of promoters broached the idea of turning the islands into an offshore financial centre. Parliament met in a structure built years earlier as temporary barracks for construction workers building the international airport across the street. The population numbered less than 20 000 and was dropping, with many Cook Islanders living in New Zealand .
Given the micro-nation's economic struggles, its political leaders were willing to hear a sales pitch about the economic benefits of aligning the islands within the offshore financial system.
The Cooks fit the profile for an island-based offshore satellite. They're three-and-a-half hours by plane from a regional economic center — New Zealand. And, like the Caymans and many other modern-day tax havens, they have the British Union Jack in the corner of their flag.
While the Swiss pioneered secret bank accounts and tax shelters almost a century ago, remnants of the British empire took a leading role in the spread of the system offshore, beginning with Bermuda, the Bahamas and the Channel Islands in the 1930s , followed by the Cayman Islands in the 1960s , the British Virgin Islands in the 1980s and many others along the way.
Offshore centres all sell secrecy as their primary item, but over time the types of secrecy products they began to peddle and the markets they targeted varied, depending on their histories, geography and laws.
The British Virgin Islands, for example, where TrustNet's busiest office is located, are mass marketers of offshore companies that can be bought cheaply, used for single purposes like opening bank accounts in the name of the company rather than an individual. "Corporations in a box," one US-based offshore promoter calls them.
The Cook Islands generally target a higher-end market — smaller numbers of wealthy people who want to set up long-term "asset protection trusts" that will protect their fortunes from lawsuits, creditors and, if necessary, government authorities.
The Cook Islands' Parliament approved laws covering offshore banking, companies, trusts and insurance in 1981.
One of those who helped oversee the introduction of the legislation was Mike Mitchell, a New Zealand lawyer who served as the Cook Islands' solicitor general in the early 1980s.
Five years later, in keeping with an apparent pattern of tax-haven officials moving freely between government and industry, Mitchell decided to go into the offshore business himself.
He left his post as solicitor general in 1986 and established an offshore services firm in 1987. The firm, initially called Pacific Trustee Company Limited and then International Trust Corporation Limited, was named TrustNet in the early 1990s and, eventually, Portcullis TrustNet.
Mitchell was the main shareholder and company chair when the enterprise opened its doors with a staff of two and offices on Rarotonga, the largest of the Cook Islands, which even now only has a population of about 13 000 and measures about 32km in circumference.
Scandal of the decade
TrustNet grew quickly, opening a Hong Kong office in 1991, the same year Mitchell told the Cook Islands News that the company dealt mainly with clients brought in by lawyers and accounting firms in Hong Kong. He said, "Sometimes we don't know the identity of the clients," but added that "anything that looks remotely dubious or of the laundering variety we just won't handle".
Anti-money laundering experts say that sort of logic doesn't make sense — it's impossible to know whether someone's involved in money laundering or other crimes, they say, without knowing their identity. "You've got to know who your customer is," said Charles Intriago, a former U.S. prosecutor and president of the Miami-based Association of Certified Financial Crime Specialists. "If you don't know who the guy is, there's no way to know why he's bringing his money offshore."
Mitchell could say that in 1991, though, without anyone taking much notice. Things would soon change. The Cook Islands were about to become the epicenter of scandal.
In 1994, Winston Peters walked into New Zealand's Parliament carrying a cardboard wine box containing a trove of secret corporate tax documents. Peters, a member of Parliament, said the box held evidence of "wholesale cheating" on taxes."
The Winebox Affair, as it was called, became New Zealand's scandal of the decade.
The documents came from a company called European Pacific Banking Corporation, part of the European Pacific Group that was co-founded by Trevor Clarke, one of the key players who helped the Cook Islands to become a tax haven.
One of the allegations at the center of the scandal involved European Pacific persuading the Cook Islands authorities to accept NZ$2 million in taxes — money that was later returned, minus a NZ$50,000 fee.
A European Pacific subsidiary then presented the Cook Islands tax certificate to the New Zealand tax authorities without disclosing that the money had mostly been returned, creating a massive tax write-off in New Zealand.
As a British judge summed it up later, "thus European Pacific was better off by $1.95 m[illion], the Cook Islands was better off by $50,000 and the New Zealand Government was worse off by $2 m[illion]."
Many other contentious transactions were alleged in the Winebox Affair but in the inquiries and court cases that followed, few witnesses were willing to come forward. The Cook Islands' solicitor general, John McFadzien, publicly warned people subpoenaed by New Zealand authorities that they could be prosecuted under Cook Islands offshore secrecy law if they gave evidence.
Nevertheless, tens of millions of dollars in unpaid taxes were eventually retrieved, New Zealand's tax laws were tightened and, for many years after, the Cook Islands were synonymous in Australasia with dodgy offshore deals.
A less known part of the story is what happened to others involved in the Winebox Affair. One of them was George Couttie. He had been a senior European Pacific tax expert handling the secret transactions and had gone to work for TrustNet in Hong Kong before the affair broke.
Lawyers for European Pacific later accused him in court of leaking the documents that had led to the scandal. Couttie has always remained silent about his alleged role.
Soon after this accusation was made, according to the ICIJ documents, senior TrustNet staff recorded a terse company resolution that "accepted" his resignation "effective from the date hereof."
In contrast, John McFadzien, the solicitor general who had invoked offshore secrecy that helped shield the activities of European Pacific, resigned from government and found a new job — as a senior TrustNet lawyer. McFadzien has since died.
Geoff Barry, a European Pacific manager in the Cook Islands during the years of the Wine-box deals, returned to New Zealand for a few years. Then he, too, took a job at TrustNet.
Within three years he had become the TrustNet's chief executive officer. Today, more than ten years later, he is a group director in TrustNet's Hong Kong office. He did not respond to a request for comment.
The revolving door between industry and officials was also seen at the islands' new Financial Supervisory Commission. Trevor Clarke, the founding patriarch of the Cooks' offshore industry in the 1980s and a key figure in the Winebox Affair, was appointed chairman of the regulatory commission from 2003 until 2010.
During that time, the ICIJ documents show, he maintained a complex set of personal offshore companies and trusts that were administered by TrustNet. These entities were home to millions of dollars of assets, the documents reveal, and TrustNet staffers were given special instructions.
One document reads: "We are to contact Trevor by phone only unless otherwise authorized. … Minimum documents to be kept in the Cooks. All docs are to be held at our HK [Hong Kong] office."
Clarke declined to comment.
Variety of clients
TrustNet's low-profile services were being used by many of the world's major banks, such as UBS , Deutsche Bank and Credit Suisse subsidiary Clariden, and by the world's biggest auditing firms, such as PricewaterhouseCoopers , Deloitte and KPMG .
Bank accounts were being opened for clients in many parts of the world, from branches of HSBC in Singapore to the Cook Islands branch office of the Australian bank, ANZ.
The individual client list included a wide variety of politically and financially powerful figures.
In 1996 and 1997 TrustNet helped establish two British Virgin Islands companies for Aye Zaw Win, the son-in-law of General Ne Win, a military strongman who ruled Burma for three decades. He could not be reached for comment.
After the fall of the Indonesian dictator Suharto in 1998, a number of his family and other rich Indonesians began appearing as TrustNet clients, the documents obtained by ICIJ show.
Some were disguised even within TrustNet's own internal records — referred to simply as "Client A," "Client B," "Client C."
Among the wealthy Indonesians was Suharto's cousin Sudwikatmono, who'd accumulated a fortune in rubber, wheat and other business dealings.
In the months after Suharto's fall, Sudwikatmono retained a lawyer thousands of miles away in California by the name of Machiavelli W. Chao. The lawyer in turn sent Sudwikatmono and his money thousands of miles from both California and Indonesia, to the Cook Islands.
TrustNet helped the family set up the secret Wilshire International Trust and two offshore companies, Truease Ltd. and Rodeo International. The trust's beneficiaries, according to documents, included Sudwikatmono's wife, his son Agus and what appear to be his three daughters.
Sudwikatmono has since died, but his son emerged as one of Indonesia's richest people, according to Forbes. He did not respond to a request for comment.
TrustNet also set up the secretive Sintra Trust in the British Virgin Islands for Maria Imelda Marcos Manotoc and her three sons. Imee, as she is known, is the oldest child of the former Philippines dictator Ferdinand Marcos who plundered his country's finances and resources and enriched his family and business associates. She declined to comment.
Clients who signed up during the late 1990s included international mercenaries working in war-torn Sierra Leone. TrustNet helped set up a company called Hinterland Mining Brokers Limited, listing its directors as four ex-special forces officers from Britain, Fiji and New Zealand who'd been hired to protect mining sites in central Sierra Leone from opposition groups.
Hinterland was one of many hundreds of gold and mining companies working in developing countries that filtered their operations through offshore entities established through TrustNet.
In July 2008, TrustNet set up a British Virgin Islands company called Hall Kingston International for a Thai businesswoman and former cabinet minister named Nalinee Taveesin.
It is unclear what Taveesin used the new company for, but in November 2008 the U.S. Department of Treasury designated her as a "Mugabe regime crony," a reference to Zimbabwe dictator Robert Mugabe. It froze assets she held in the United States and prohibited Americans from doing business with her.
The agency accused her of "secretly supporting the kleptocratic practices of one of Africa's most corrupt regimes" through "financial, real-estate and gem-related transactions" made on behalf of the dictator's wife, Grace Mugabe, and Gideon Gono, governor of the Zimbabwe Reserve Bank, and other suspect Zimbabwean elites.
Responding to questions through her secretary at the Thailand Trade Representative's Office, Taveesin said she had no knowledge of the existence of Hall Kingston International Limited.
Taveesin continued to deny her involvement when later confronted with information from documents that showed the address used for the directors and shareholders in Hall Kingston International Limited matched the registered address of a number of Taveesin's companies in Bangkok.
Rich American clients were attracted by the asset protection afforded under Cook Islands legislation. Records obtained by ICIJ, for example, show that the firm established more than 700 trusts for American clients since the law came into being, including large numbers of doctors, dentists, financiers and real-estate developers.
The ICIJ review also identified at least 30 American clients accused in government actions or private lawsuits of fraud, money laundering or other serious financial misconduct.
They include ex-Wall Street titans such as corporate raider Paul Bilzerian, who was convicted of securities and tax fraud in 1989, and billionaire hedge fund manager Raj Rajaratnam, who was imprisoned in 2011 in one of the biggest insider trading scandals in US history.
TrustNet declined to answer a series of questions for the story.
In 2004, a Singaporean lawyer named David Chong bought TrustNet and merged it with his existing offshore services company, called Portcullis.
Chong was an experienced offshore operator who had helped draft the offshore legislation for the Malaysian island offshore centre of Labuan, a jurisdiction that features in the company's work.
Chong named the consolidated company Portcullis TrustNet and appointed a new chairman to the Singapore branch of the company: His Excellency Tee Tua-Ba, a former Singapore commissioner of police who later served as a senior Singapore diplomat.
Having their headquarters in Singapore may have favored TrustNet when, in 2009, events elsewhere shifted the focus of offshore secrecy away from its traditional home in Switzerland.
In 2009 the US Department of Justice successfully brought a criminal case against Switzerland's largest bank UBS for assisting offshore tax evasion.
This was followed by actions against a dozen other Swiss banks, such as Credit Suisse . Wegelin, Switzerland's oldest bank, folded early this year after admitting it had sheltered U.S. tax evaders.
Singapore — on the other side of the world and with vault-like banking secrecy — offered a solution to those determined to resist the U.S. action.
London-based international lawyer Jamison Firestone summed it up: "You're not going to get any banking information out of Singapore," he said. It is "a respectable-sounding black hole."
TrustNet, with its range of secrecy products, was perfectly placed to benefit from the offshore world's ever evolving geography.
Nicky Hager is an ICIJ member and author from New Zealand. ICIJ member Prangtip Daorueng contributed reporting from Thailand.
The International Consortium of Investigative Journalists is an independent network of reporters in more than 60 countries who collaborate on cross-border investigations. It is a project of the Washington-based Center for Public Integrity.