• A glimpse into offshore havens, money laundering, and Panama Papers

By Madhusha Thavapalakumar A number of international incidents that occured last week had a profound impact locally as well, including but not limited to an outage of Facebook, Instagram, and WhatsApp that made these social media platforms inaccessible for users for hours, a sharp hike in global oil prices that has led Sri Lanka’s Ministry of Energy to contemplate a local fuel price hike in the near future, and then the leak of Pandora Papers that highlights two Sri Lankans and has stirred-up controversial local reports. The Pandora Papers, or “Pandora Leak”, consists of 12 million documents that reveal hidden wealth, money laundering, and tax avoidance by some of the richest of the world. By now, enough has been said and discussed over Pandora Papers and Nirupama Rajapaksa, a former member of the Sri Lankan Parliament and a former Deputy Minister who is also a relative of the ruling party leaders. Market Mine of The Sunday Morning Business this week is looking at the second Sri Lankan name that was involved in these papers, while also touching on the Panama Papers. Sneak-peak into Thirukumar Nadesan Thirukumar Nadesan, husband of Nirupama Rajapaksa, who was out of the media spotlight for some time, is now making headlines globally, thanks to the Pandora Papers. But Nadesan by mid-last week claimed not guilty of any wrongdoings as mentioned in the leaked documents. The International Consortium of Investigative Journalism (ICIJ) claims that leaked documents from Asiaciti Trust, a Singapore-based financial services provider, indicate that a politically connected Sri Lankan, namely Thirukumar Nadesan, secretly controls the Samoan-registered shell company Pacific Commodities Ltd. “As of 2017, Rajapaksa and Nadesan’s offshore holdings, which haven’t previously been made public, had a value of about $ 18 million. In emails to Asiaciti, a longtime adviser of Nadesan’s put his overall wealth in 2011 at more than $ 160 million,” ICIJ noted. According to ICIJ, a 2011 document shows that Nadesan’s family fortune amounts to £ 100 million ($ 160 million) while, in 2017, the Sri Nithi Trust and the Pacific Trust combined held about $ 18 million in total. He has reportedly set up consultancy companies called Rosetti and Pacific commodities in Jersey, a known tax haven. The companies provided consultancy for government contracts in Sri Lanka. Pacific Commodities Ltd. provided services to Sumitomo Corp as well as to the German company Contract GMBH, as ICIJ reveals. According to records, Rosetti was used to buy apartments in Sydney and London, worth more than $ 4 million, and documents show he retrieved thousands of dollars in income from London property in cash. As per the Pandora documents, Nadesan’s wealth is reportedly justified as his father and grandfather were claimed to have had involvement in the banking sector. According to the review Asiaciti provided on Nadesan in 2011, Nadesan had been the owner of a couple of prime London flats and an investment portfolio by that time. He had also claimed his Trust was well-established well before his connection with the Rajapaksas. Nadesan, according to the information available in the public domain, received an undergraduate degree from Middlesex University. Although there is little to no information on his initial career, he was the Vice President of American Express Co. (Sri Lanka) from 1980-1989. Nadesan is also on the Boards of The Lighthouse Hotel, Waters Edge Ltd., Lanka Hotels and Residences (Pvt.) Ltd. (the owning company of Sheraton Hotel Colombo), and Fortune Premier (Pvt.) Ltd. In addition to this, he was also the Chairman of Hotel Developers (Lanka) (the owning company of Hilton Colombo) and the Group Director at Capital Maharaja Organisation. The Lighthouse Hotel Annual Report 2020/2021 states that Nadesan has been a freelance business/investment consultant for many reputed companies since 2001 to date. In 2011, a local media report stated that the Board of Directors of the owning hotel of Hilton Colombo approved a monthly salary of Rs. 0.4 million to its Chairman Nadesan with effect from October 2011, two months prior to the acquisition of Hilton by the Sri Lankan Government. In September the same year, the Board also reportedly purchased SUV vehicles to its Chairman who was said to have been using a Hyundai vehicle which was put for sale soon. While the salary and the vehicle is not a new phenomenon for a Chairman, there were concerns about these decisions made by the Board, given the owning company was listed as an underperforming asset. The previous year’s (2010) annual report of the company reported that it had made losses of Rs. 10.3 billion. In 2016, Nihal Sri Ameresekere, a litigation support consultant, author on fraud and corruption, and public interest activist, levelled a number of allegations against Nadesan. This included drawing Rs. 0.4 million monthly salaries from Hotel Developers Lanka, having no qualification to head Hotel Developers Lanka, an allegation of selling assets of Hotel Developers Lanka at questionably low prices to unknown persons with the involvement of Nadesan, purchasing of a couch for Rs. 20 million, and issuance of a misleading annual report in 2010 to cover up such frauds. Nadesan responded to these allegations. He said that he received merely Rs. 304,000 per month credited by the Government’s Consolidated Fund, which totalled Rs. 9.12 million from September 2012 to January 2015. Nadesan also went ahead and challenged Ameresekere to disclose old assets he claimed were sold at questionably low prices. However, Nadesan stated that old furniture was indeed donated to a temple and a cricket club. Further, he denied purchasing a couch for Rs. 20 million and claimed (there was) no misleading information in the Annual Report 2010. He went ahead and stated that “during his tenure, he successfully negotiated the management agreement with Hilton Worldwide, despite the agreement being valid till 2037 at a fixed management fee of 33%, by which the management fee payable to Hilton was reduced after much negotiations from 33% to 11.75% of the gross operating profit, thereby saving approximately Rs. 250 million a year for the company and indeed for the country”. In October 2016, Nadesan was arrested for the alleged purchase of a property in Malwana on which current Finance Minister Basil Rajapaksa denied having any ownership. The 16-acre plot of land was reportedly said to have been purchased using public money for Basil Rajapaksa, and Nadesan was said to have been involved in this alleged purchase, with him being the former owner of the said land. However, Nadesan was granted bail swiftly. The same case was taken up multiple times in the following years and the Attorney General filed charges against Basil Rajapaksa and Nadesan for the purchase of the said land in Malwana and also for constructing a large house with a swimming pool at a reported cost of Rs. 250 million. The Attorney General also prohibited (Basil) Rajapaksa from travelling overseas; however, this ban was lifted in December 2020. Apart from what has been already provided in the Pandora documents, the information available on the internet on Nadesan is repetitive and limited. Do shell companies equal illegal assets? Offshore companies, also referred to as shell companies, are set up in low tax jurisdictions. According to The Sydney Morning Herald, tech giants like Alibaba and Tencent use offshore companies to bypass local laws that restrict offshore investment. Businesses and individuals set up offshore companies in tax havens to avoid double taxation of their profit or, in some cases, taxes altogether. This act becomes illegal only when the profits are not declared in the person’s or business’ home country. According to reports, shell companies are also used for outright illegal purposes – tax evasion, money laundering, fraud, organised crime, etc. Investopedia claims that “shell corporations are legitimate, legal entities that do not possess actual assets or run business operations and they are used to obtain financing, maintain control over a conglomerate company, allow firms more favourable tax treatment, and occasionally facilitate money laundering as well as other illegal activities”. While shell companies do not equal illegal assets or money laundering always, it can be so sometimes. Meanwhile, a tax haven is a country that offers little or no tax liability for investments from foreign individuals and businesses and shares limited or no information about investors with tax authorities. Characteristics of a tax haven country generally include no or low income taxes, minimal reporting of information, lack of transparency obligations, lack of local presence requirements, and marketing of tax haven vehicles. As the European Parliament notes, tax havens have one thing in common: They make it possible to escape taxation. Distinctive characteristics of tax havens include low or zero taxation, fictitious residences (with no bearing on reality), and tax secrecy. The last two are key methods for hiding ultimate beneficial owners. In March 2018, it was revealed that the amount of Indian black money currently present in Swiss and other offshore banks is estimated to be $ 1,500 billion. According to the 2015 Financial Secrecy Index, a comprehensive survey on global financial secrecy, Switzerland ranks number one in the list of countries with black money, followed by Hong Kong and the US. What happened to the riches of the Panama Paper? While it is not as huge as the Pandora Papers, Panama Papers too made jaw-dropping revelations when they were leaked in the form of 11.5 million documents in April 2016, documents which were properties of Panama-based law firm Mossack Fonseca. The documents revealed the tax havens of the riches. In February 2017, in Panama, the Police raided law firm Mossack Fonseca and arrested its founders on charges of money laundering. Jürgen Mossack and Ramón Fonseca spent months in jail. While the Panama Papers had a list of names, only a few of them were legally charged. According to Investopedia, US taxpayer Harald Joachim von der Goltz was convicted of wire and tax fraud, money laundering, and a host of other crimes relating to the Panama Papers scandal. He was sentenced to four years in a US federal prison. Further, according to ICIJ, a US accountant who helped American residents evade taxes in a case exposed by the Panama Papers investigation has been sentenced to more than three years in prison in 2020. In 2017, in the UK, a taskforce told Parliament that it had investigated dozens of people for tax evasions, arrested four others, and was set to recover $ 252 million in back taxes and fine. In December 2018, BBC reported that four men have been charged in the US with fraud and tax evasion in connection with investigations prompted by the leaked Panama Papers. Conclusion However, in terms of Sri Lanka and the Pandora Papers, we might have to wait and see how incidents related to the two Sri Lankan nationals would be taken up after the President-ordered investigation wraps up, and if the wrongdoings are connected with the two individuals and whether legal action would be served against them regardless of them being kins of the ruling party.