OFFSHORE SECRECY : tax Haven Mauritius’ Rise comes at the rest of Africa’s expense

Companies are rushing to the island nation to benefit from secrecy and tax benefits.

Key findings

• Files from Appleby’s Mauritius office reveal complex schemes and shell companies

• Managers of Angola’s sovereign wealth fund used Mauritius and other havens to move millions of dollars in fees and dividends

• Controversial tax agreements signed between Mauritius and countries in Africa can help companies slash tax rates

Jean-Claude Bastos de Morais was trying to invest offshore but was having a hard time finding a place to put his money. The 50-year-old Swiss-Angolan financier turned to Appleby, an elite law firm with offices in tax havens around the globe.

First, Bastos tried Appleby’s office on the island of Jersey, a popular offshore financial center in the English Channel. But Appleby employees there balked at his 2011 request to set up a shell company without being told why it was needed or what assets it would hold. One thing that concerned Appleby’s Jersey lawyers was the possibility that the shell company would own a shipping port in corruption-prone Angola.

Next Bastos, an amateur tennis player who runs an asset-management firm, Quantum Global Group, tried Appleby’s office on the Isle of Man, in the Irish Sea. Appleby’s management there decided that Appleby would require a seat on the offshore company’s board of directors to exercise some supervision over what they described as his high-risk business. The arrangement did not go ahead.

Finally, in 2013, after Angola’s sovereign wealth fund entrusted Bastos with $5 billion, he turned to another Appleby outpost: Mauritius, an island nation in the Indian Ocean, 1,200 miles off the east coast of southern Africa.
“We are pleased to be able to act on your behalf,” Appleby’s top lawyer in Mauritius, Malcolm Moller, wrote to Bastos’ Quantum Global in October 2013.

A window onto a tax haven

The warm email welcome for Bastos’ business is one of more than half a million secret records from Appleby’s Mauritius office that were obtained by the German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and 94 media partners around the world. The Paradise Papers come from the offshore law firm Appleby and corporate services provider Estera, two businesses that operated together under the Appleby name until Estera became independent in 2016.

The emails, bank account applications, PowerPoint presentations on tax avoidance, and other confidential documents open a window into the operations of Appleby’s 40-plus-employee operation in Mauritius; By extension, they illuminate the surprising importance of Mauritius, an island nation with a multiethnic population of 1.3 million, as a hub in the secretive offshore financial network that enables legitimate, humdrum business to thrive but also helps wealthy people and profitable businesses shield their assets and profits from taxation.

Using an array of complex schemes and companies that are little more than addresses on a piece of paper, this global system has helped corporations shift $100 billion to $300 billion a year in tax revenue away from developing countries, according to the International Monetary Fund.

Appleby vets Bastos

The Appleby records show that the law firm did its own research on its new client. A compilation of internet search results compiled in January 2014 by an employee at Appleby’s Mauritius office included media references to lingering “questions” about how the fund would operate. The Appleby employee highlighted in yellow an article included in the search results that noted the “close personal” friendship between Bastos and dos Santos.

Appleby’s customer-screening process also flagged media accounts of Bastos’ past legal problems in Switzerland. Records show that Appleby’s Mauritius office had classified Bastos as a “risky client” but moved forward with its new business.

The first step was getting a coveted Mauritius business license. In a letter accompanying Quantum Global’s license application, Appleby’s Mauritius office told regulators that it had “made all reasonable enquiries” into Bastos, Quantum Global and their plans to manage the Angolan money.

On the application form – supplementing a question about whether any company director had been convicted, penalized or sanctioned in court – a summary was appended in which his personal lawyer disclosed that Bastos had paid a $5,390 fine after a Swiss court convicted him in 2011 of approving loans that he shouldn’t have.

Bastos’ lawyer, however, failed to mention that the Swiss court had also imposed a suspended fine of nearly $188,646. The application form also didn’t mention that the Swiss court also found Bastos guilty of withdrawing about $100,000 from a company account without authorization, according to a copy of the judgment obtained by ICIJ media partner SonntagsZeitung.

Bastos acknowledged the suspended fine but told ICIJ that the larger of the two fines did not have to be paid under a good conduct probation provision. Bastos said the suspended fine and convictions have since been expunged from Switzerland’s register of convictions. “The authorities were informed correctly,” Bastos said.

‘Please do not share’

With the license approved, Appleby’s Mauritius office helped Bastos and his company move some Angolan public funds slated for the management of investments in African hotels and infrastructure. The money moved through offshore companies in three jurisdictions – including some incorporated in Mauritius, known for its low taxes and high tolerance for secrecy.

The Angola fund once paid $20 million for shares in a company incorporated in the British Virgin Islands, Capoinvest, which was helping to finance the development of a major port in northern Angola. In its 2014 annual report, Angola’s sovereign wealth fund twice mentions Capoinvest, which also owns the Angolan company that is developing the port.

There is no mention, however, of the additional offshore companies that own Capoinvest. Appleby’s files reveal it is owned by a chain of three companies incorporated in the British Virgin Islands and two more in the Seychelles, in the Indian Ocean, all of them ultimately owned by Bastos.

In his statement, Bastos said Quantum Global complies “in all countries with legal, tax and regulatory standards.” He said, “I have routinely disclosed my shareholding in Capoinvest.”
Mauritius also provided a low-tax haven for substantial fees the Angolan fund paid Bastos’ operation. The financial statements of QG Investments Africa Management Ltd., Bastos’

Mauritius company, show it received $63.2 million in management fees throughout 2015, of which $21.9 million was sent to a Quantum Global company in Switzerland.
“The fees seem extraordinarily high,” said Andrew Bauer, an economic analyst and sovereign wealth fund expert who reviewed the fee payments.

Records show one Bastos-owned company paying dividends to another. In 2014 and 2015, QG Investments Africa Management paid $41 million in dividends to his QG Investments, based in the British Virgin Islands.

Bastos told ICIJ that Quantum Global was paid advisory fees “according to standard industry practices, all of which have been and continue to be fully disclosed.” He said that “as any other shareholder, I am earning dividends out of the distributions of my companies.” He said his ownership of QG Investments Africa Management is tax-efficient.

Bastos declined to comment on “confidential business matters” that led him to approach Appleby offices in Jersey and the Isle of Man. Bastos said Quantum Global chose Mauritius because of its low taxes, “excellent infrastructure, relaxed reforms” and advantageous tax treaties, known as “double taxation agreements,” with most African countries.

Excerpt from The Paradise Papers
International Consortium of Investigative Journalists