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Why The Pandora Papers Matter


Once again, there has been a massive leak of confidential data from offshore jurisdictions—this time, the biggest one ever, called the Pandora Papers—and once again, we find the names of several diamond industry members in that data.

Most of the industry names leaked to the International Consortium of Investigative Journalists (ICIJ)—which include Beny Steinmetz and Nirav Modi—are known to have had offshore holdings. (Steinmetz has said any holdings were perfectly legal.) 

In 2016, when the Panama Papers were released, the Belgian newspaper Knack wrote: “The Panama Papers’ list of 732 Belgian citizens and residents includes no fewer than 65 diamond dealers. After the financial sector, the diamond industry is the professional category most strongly anchored offshore.”

With the Pandora Papers, it was much the same, according to another Belgian newspaper, De Tijd:

Diamantaires…still work with tax havens.… [They] often have a company in Antwerp, but through their underlying companies in the United Arab Emirates we arrive at a tangle of opaque, exotic mailbox constructions. A classic case is a diamond group that only lists offices in Mumbai and Antwerp on its website. The group’s Antwerp company reported an official turnover of barely 25 million euros last year. The diamond dealers then paid the Belgian carat tax, worth several hundred thousand euros.

But they also have—under the same name—a P.O. Box company in the British Virgin Islands. This offshore acts as ‘a holding company for all their diamond activities, including those in Antwerp,’ worth about 90 million dollars. In the Virgin Islands, the most notorious tax haven, nothing substantial happens: it’s a mailbox construction, the paperwork is kept up in Dubai.

We should note, as the ICIJ itself says on the site for its Offshore Leaks Database, “There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any people, companies, or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly.”

However, The Indian Express notes that offshore “trusts are also used by some as secret vehicles to park ill-gotten money, hide incomes to evade taxes, protect wealth from law enforcers, insulate it from creditors to whom huge moneys are due, and at times to use it for criminal activities.”

Under the Patriot Act guidelines, financial institutions—which jewelers qualify as—that are doing business with companies that have offshore holdings must conduct “enhanced due diligence.”

(The leaks also reveal that so-called offshore jurisdictions aren’t the only problem; South Dakota’s lax financial laws have made the state a “haven of dirty money,” reports say.)

Last year, Congress passed a new financial transparency law as part of the National Defense Authorization Act.

The law would create “a nonpublic, secure central registry to be administered by FinCen [the U.S. Treasury’s Financial Crimes Enforcement Network] to track the beneficial ownership of businesses formed or registered in the U.S.,” says Sara Yood, deputy general counsel of the Jewelers Vigilance Committee.

“As far as I know, regulations implementing this law have not been written or proposed yet, but clearly the U.S. government already knows that shell companies are being used to park money in ways that could enable money laundering or terrorist financing,” she says. “It will be interesting to see how this gets implemented, and what affects it has on the use of these shell companies in the future.”

Authorities are also cracking down elsewhere. In January, 14 individuals connected to the diamond industry went on trial in Antwerp, “charged with using Swiss bank accounts and offshore front companies to launder millions of euros in profits from diamond dealing, in order to avoid paying tax,” according to The Brussels Times. (JCK was unable to determine that trial’s outcome.)

But these issues aren’t just about legal compliance; it’s about financial protection. Bailey Banks & Biddle was reportedly owned by a hedge fund based in the British Virgin Islands. Vendors didn’t have much recourse when the jeweler suddenly dissolved.

And in this time when the industry is under increased scrutiny from banks, governments, and consumers, and faces demands for increased transparency, these kinds of setups are just a bad look.

As Oliver Bullough—whose Moneyland is well worth a read—put it recently in The Guardian:

At the core of [these leaks] is one single tool: the shell company, which has been used time and again by powerful people to hide their activities from fellow citizens, tax authorities, and law enforcement agencies. It is perhaps the most damaging thing ever invented, since it facilitates the theft of hundreds of billions of pounds a year, while defeating investigators—no matter how determined they are, or how powerful the country, cause, or corporation they represent.

He adds:

It shouldn’t need saying, but this is bad. Democracies only survive because the law applies equally to everyone. If a shadow system persists that allows the rich and powerful to avoid obeying the same rules as the rest of us, the trust that underpins our system will disappear. Without trust, democracy cannot survive.

We have been hearing a lot lately about “corporate social responsibility.” What is a more basic social responsibility than paying your taxes?

(Photo: Getty Images)



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By: Rob Bates

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