Are funds of China’s elite here in Bermuda?

Leaked documents have raised the possibility that China’s political elite have fortunes stowed away in offshore locations — including Bermuda.

A database built by the International Consortium of Investigative Journalists details 138 officers and master clients* of offshore financial entities that have had connections to Bermuda in recent years.

The consortium grabbed international headlines this week after some of its reporting linked Chinese leaders with offshore funds.

‘No secrecy’

Bermuda has nothing to hide, Minister of Finance Bob Richards, said yesterday. He says there is no client secrecy provision that can withstand a Tax Information Exchange Agreement (TIEA) request. 

Offshore financing, according to the consortium, buys “secrecy, minimal or zero taxes and legal insulation, the distinctive products that tax havens market and that allow companies its various interested parties to operate”.

The consortium, which built the database through leaks of financial documents, has identified more than 120,000 offshore companies and trusts. Just because an entity appears in the database, however, does not mean the stakeholders of that entity have done anything illegal. 

The database lists seven Bermudian offshore financial entities that have connections to stakeholders in countries including Canada, Taiwan and Singapore in recent years. Of those entities, some are believed to be defunct. The various officers and master clients and financial entities have connections to 68 listed Bermudian addresses.

But those numbers are nothing, however, when compared to Caribbean locales like British Virgin Islands, where there are more than 67,000 offshore financial entities in recent years. 

Bermuda has always chafed at the tax haven label.  

Minister of Finance Bob Richards is among those to assert that Bermuda’s financial services are transparent: “My powers eliminate any attempt to withhold information I seek under the provisions of TIEAs,” he said in a statement issued yesterday. “Bermuda Ministers of Finance were among the first to eliminate any attempts at secrecy.”

Bermuda has 41 signed bilateral TIEAs and the island’s’ network of tax information exchange is global, Mr Richards says, with more than 60 multilateral TIEA partners: “Any country that has cause to seek information from Bermuda under provisions of any of our TIEAs we are pleased to assist them to the fullest,” said Richards through a statement.

David Marchant has a different take. He publishes OffshoreAlert, a Miami-based media outlet that specializes in offshore financing. He was a reporter in Bermuda during the 1990s.

He says Bermuda collectively “sticks its head in the sand” when it comes to questionable financial activity. “I’ve seen this time and again. I would even go so far as to say that a cult-like mentality exists in Bermuda whereby anyone from within who rocks the boat is likely to be ostracized.”

No surprise

The fact that Bermuda entities appear in the database, said Mr Marchant, is  not surprising and doesn’t necessarily say anything about the island in and of itself.

“It should come as no surprise to anyone that Bermuda firms provide accounts and services to foreign companies and individuals. Like all offshore financial centres, that’s the mainstay of the country’s economy.”

Mr Marchant says it’s incorrect to compare Bermuda and locales like the British Virgin Islands as they’re different jurisdictions.

“Bermuda probably has about 15,000 to 20,000 foreign-owned companies and other legal entities, while the BVI has hundreds of thousands,” he said. “Virtually no foreign companies in the BVI have a physical presence there, unlike Bermuda, where several do.”

And Mr Marchant is convinced that “far more” suspect activity takes place on Bermudian soil than in the BVI.

One story published by the journalists’ consortium this week focused on the suspicious arrest of Chinese oil tycoon Sun Tiangang and his subsequent lawsuit against oil giant Sinopec. That report states: “He set up dozens of companies, he says, in the Cayman Islands, Bermuda and the British Virgin Islands as he made a fortune in hotels, electronics, food packaging and, eventually, as an oil baron. 

“He liked the ease of doing business – and the tax savings and secrecy – that working through offshore refuges provided.”

Bermuda, Mr Richards says, signed one TIEA agreement with China in 2012.

Craig Simmons, a senior economics lecturer at Bermuda College, said in the offshore financial service market, reputation is everything and Bermuda should be careful to avoid the ‘tax haven’ label.

“Unless the island can separate itself from rent-seeking tax havens – fiscal pirates – we will continue to be tarred with the same brush. It would help our reputation if we could systematically eliminate those non-value adding elements from our jurisdiction.”

Tax havens, said Mr Simmons, do not add value to products and services.

“Google, for example, uses Bermuda to reduce its US tax bill even though the island has no role to play in producing its services,” Mr Simmons said. “The cost to Bermuda’s reputation of such tax avoidance schemes dwarf what little benefits accrue to the island.” 

*An officer is a person or company who plays some role in an offshore financial entity, whereas a master client is an intermediary who helps a client set up such an entity.