BILLIONAIRE Dmitry Rybolovlev, Russia’s 14th-richest person, and his wife, Elena, have been brawling for about five years in at least seven countries over his $9.5bn fortune.
In a divorce complaint originated in Geneva in 2008, Ms Rybolovleva accused her husband of using a "multitude of third parties" to create a network of offshore holding companies and trusts to place assets — including about $500m in art, $36m in jewellery and an $80m yacht — beyond her reach.
She has brought legal action against the 48-year-old Mr Rybolovlev in the British Virgin Islands, England, Wales, the US, Cyprus, Singapore and Switzerland, and is seeking $6bn.
The suits provide a window into the offshore structures and secrecy jurisdictions the world’s richest people use to manage, preserve and conceal their assets. According to Tax Justice Network, a UK-based organisation that campaigns for transparency in the financial system, wealthy individuals were hiding as much as $32-trillion offshore at the end of 2010.
Fewer than 100,000 people own $9.8-trillion of offshore assets, according to research compiled by former McKinsey & Co economist James Henry.
"For a lot of people, it’s not just the objective of not paying taxes," said Philip Marcovici, an independent Hong Kong-based tax lawyer and board member of Vaduz, Liechtenstein-based wealth adviser Kaiser Partner Group. "It’s the objective of obtaining the human right to privacy and seeking confidentiality about their financial affairs."
More than 30% of the world’s 200 richest people, who have a $2.8-trillion collective net worth, according to the Bloomberg billionaires index, control part of their personal fortune through an offshore holding company or other domestic entity where the assets are held indirectly. These structures often hide assets from tax authorities or provide legal protection from government seizure and lawsuits.
Mr Rybolovlev, who lives in Monaco, made most of his fortune from the sale of two potash fertiliser companies for a combined $8bn in 2010 and 2011. He held both companies — OAO Uralkali and OAO Silvinit — through Cyprus-based Madura.
Some of his art is now held in Xitrans Finance, a British Virgin Islands-based company, and stored in Singapore. Mr Rybolovlev bought a New York City flat for $88m in 2011 using a trust associated with his daughter, Ekaterina. The penthouse was purchased from the wife of former Citigroup chairman Sandy Weill, according to divorce documents filed in New York.
In the suit, Ms Rybolovleva said the billionaire moved many of his assets under the control of two trusts, Aries and Virgo, that he established in Cyprus in 2005, a few weeks after she refused to sign a postnuptial agreement he offered her. Sergey Chernitsyn, a spokesman for Mr Rybolovlev at his Monaco-based family holding company Rigmora, said he declined to comment. Marc Bonnant, Mr Rybolovlev’s Geneva-based attorney, also declined to comment.
Since the onset of the global financial crisis in 2008, the laws and treaties that created and sustained the offshore tax-dodging industry have been undergoing a shift towards transparency. Liechtenstein, once fabled for its banking secrecy laws, began in 2009 to require its financial institutions to hold — and release when required — details about the beneficial owners of all accounts held there. Andorra and Switzerland made their own concessions within a day of Liechtenstein. Singapore, the heart of Asia’s banking and offshore industry, will make laundering of profits from tax evasion a crime under a law taking effect on July 1. Luxembourg announced on April 10 that it would end its bank secrecy policy in 2015.
Cyprus was bailed out of its financial troubles last month by the European Union, which required the nation to impose a tax on bank deposits of more than €100,000. That month, the country lost $2.4bn in deposits, according to data from the European Central Bank.
The shift towards transparency has led many of the world’s wealthiest to reassess how and where they hold their assets, says Goran Grosskopf, a Lausanne, Switzerland-based economist who has advised several billionaires, and the Russian government.
Li Ka-Shing and Lee Shau-Kee, Asia’s two richest men, control parts of their fortunes through offshore structures. Mr Li owns his 43% stake in Hong Kong-based property developer Cheung Kong through namesake trusts and companies in the Cayman and British Virgin Islands, according to regulatory filings. Mr Lee holds his shares in Henderson Land Development Co through 10 firms set up in the two British Island territories and Panama, filings show.
Alisher Usmanov, Russia’s richest man, earlier this year restructured the way he holds his $19.7bn fortune, moving the majority of his assets — including his two most valuable, Metalloinvest and OAO MegaFon, worth $12.7bn combined — under the control of British Virgin Islands-based USM. He controls at least one asset — a 30% stake in London soccer team Arsenal worth $225m. The holding company is based on the Channel island of Jersey, a Crown dependency of the UK that has threatened to sever ties with the country after being criticised last year for its tax policies.
Paolo Rocca, an Italian billionaire living in Argentina, is continuing a cat and mouse game with the Argentinian government that was started by his grandfather in 1949. The family first established its San Faustin SA holding company in Uruguay that year, moving it to Panama in 1959, to Curacao and then to Luxembourg in 2011, using side entities in the British Virgin Islands and the Netherlands from which to control it.
A small part of the $15.3bn fortune controlled by Texas billionaire Elaine T Marshall, 70, is based in Liechtenstein, where her late husband, E Pierce Marshall, started a foundation for their grandchildren, according to his will. The Dallas resident controls about 15% of Koch Industries, the second-largest closely held company in the US, after inheriting the stake in 2006.
Many of today’s wealthy remained focused on finding places to minimise their taxes and avoid double taxation, Mr Grosskopf said. Mario Gassner, CEO of Liechtenstein’s Financial Market Authority, said there were other reasons the wealthy sought discretion. "If you’re married and have a girlfriend in another country, you may have a lot of assets that perhaps you don’t want your wife to know about.
"Or, perhaps, you’re looking for a solution for your children to finance university studies, or you’re not in good relations with them and you don’t know what’s going to happen to your fortune in the future."
Russian billionaires create entities in the British Virgin Islands because they find its legal system, which is based on British law, more attractive than their own, said Valery Tutykhin, an attorney with John Tiner & Partners, a Geneva-based law firm that specialises in wealth management.
The Cayman Islands are popular among billionaires because they do not impose any type of income or investment taxes on funds organised in the Caribbean country, according to a 2013 taxation report by Amstelveen, the Netherlands-based tax and accounting firm KPMG International.
Delaware is the legal home to more than half of the corporate entities in the US. The state’s favourable tax laws cut companies’ tax burdens an average of 40%, according to a 2011 study by Jacob Thornock at the University of Washington Foster School of Business. Delaware also does not require officers and directors to be US citizens, and allows them to remain anonymous. There are other structures, such as the Dutch stichting, the Liechtenstein foundation, and the German gemeinnuetzige Gesellschaft mit beschraenkter Haftung (gGmbH) — a limited liability company with a charitable purpose — that billionaires can use to control their assets.
Ingvar Kamprad, who controls Ikea Group, the world’s biggest home-furnishings retailer, fled Sweden for Switzerland in the 1970s in protest against his home country’s tax policies. Mr Kamprad placed shares of Ikea into a Dutch foundation in the 1980s and later put the company’s intellectual property rights into a Liechtenstein foundation.
The transfers removed Kamprad, the world’s fifth-richest man, from any direct ownership of Ikea. He is credited with the wealth by the Bloomberg index because he controls those entities. The billionaire disputes that he controls the company.
Per Heggenes, a spokesman for Stichting INGKA Ikea, the owner of the Ikea Group, said in an interview last year that Kamprad’s goal was to protect Ikea. The multiple layers of ownership served as a deterrent to takeover. The foundations, if kept intact, will hold the ownership of Ikea in perpetuity.
Dieter Schwarz, Germany’s second-richest man, created a gGmbH in 1999 to hold his Lidl and Kaufland discount supermarket chains, which form the largest closely held food retailer in Europe. The 73-year-old controls a $23.6bn fortune through the Neckarsulm, Germany-based Dieter Schwarz Stiftung gGmbH, a tax-exempt entity that had more than €30m designated for charitable giving by the end of October last year — about 0.1% of Mr Schwarz’s net worth — according to Gertrud Bott, a company spokeswoman. The retail chains are overseen by his company, Schwarz Group.
In the UK, structures to help billionaires avoid taxes are attracting growing public scrutiny, says Chizu Nakajima, a co-director of the Centre for Research in Corporate Governance at London’s Cass Business School. Billionaire Philip Green controls Arcadia, the clothing retailer that includes the Topshop and Topman chains, through London-based Taveta Investments, according to filings with the Companies House registry.
Taveta Investments is owned by Jersey-based holding company Taveta, the documents show. Taveta is controlled by Mr Green’s wife, who is a Monaco resident. The arrangement enabled a £1.2bn dividend paid by Arcadia to Mr Green’s wife in October 2005 to go untaxed, according to an article published in the Guardian newspaper.
Mr Green, who did not respond to a request for comment, defended the arrangement in a November interview with the Financial Times newspaper. He said the structure was legal, and that Arcadia had paid £2.3bn in taxes since 2002.
Establishing an offshore account remains cheap and easy, according to Mr Tutykhin. The typical structure costs about $1,500, he said, although he has seen ones "marketed by Russian students for $200".
Even the most reputable firms do not charge much more to establish an offshore structure, he said, although billionaires would often spend "tens of thousands" of dollars a year on lawyers to manage their holdings and assure discretion.
Those wealthy individuals should stop searching for new tax havens to hide their assets, said tax adviser Mr Marcovici. "We live in a world where you only have two choices: play by the rules of the country you live in, or get out if you don’t want to play by the rules."