How Offshore Legal Firm Appleby Works, In Short

Why did the registrar turn a blind eye to the source of money?
20.11.2017
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Any law company specializing in “offshore” services should check the source of the money provided by its clients. The leak of the “Paradise Papers” – the documents of Appleby – showed: even the largest players of the market do not worry about this issue. Sponsoring the Iraqi nuclear program, a fraudulent scheme, managing dictators' “vaults”? Russiangate briefly tells how Appleby worked.


WHAT IS APPLEBY?

Appleby is one of the leading offshore law firms in the world. It was founded in 1989 in Bermuda. The company was established as a private practice of Major Reginald Woodfield Appleby – a judge who influenced Bermuda's guarantee of zero profit tax. When this issue was decided in July 1940, he stated that he supported those who “see any income tax as newfangled torture, the introduction of which must be prevented at any cost,” as the edition of The Royal Gazette wrote. The major has been long gone, but the zero profit tax remains.

In 1979, Appleby became an international organization. Nowadays, it employs 470 people, including 60 partners, says the company's official website. It has 10 offices, including in the main offshore jurisdictions: Bermuda, Seychelles, Cayman and British Virgin Islands, the Isle of Man and Guernsey, Mauritius, Jersey, as well as in Hong Kong and Shanghai. Appleby specializes in corporate law, dispute resolution, private consulting, property management and trusts.

Also, Appleby is considered to be the “Magic Circle of Offshore” – the informal group of leading offshore law firms competing in the same industry.

The company has earned a public reputation through the financing of the America's Cup regatta, five thousand family businesses and a confectionery business. In its promotional materials, Appleby talks about how they help return money stolen by the family of former Nigerian dictator Sani Abacha and run a fund with a multi-million dollar budget designed to support health workers struggling with the Ebola virus in West Africa.

Appleby’s customers are the richest oligarchs of Russia, Asia and the Middle East, as follows from the “Paradise Papers” leak. In a year, the company earns more than $ 100 million.

KNOW YOUR CLIENT

The internal guides of the company clearly states that employees should check potential customers, as wrote OCCRP. The necessary information is obtained using online search and is to be updated for political connections annually. The company itself and its subsidiaries conduct internal audit, keep records of “problematic” companies.

There were cases when Appleby refused to provide customers with services. For example, the company of Russian developer Boris Shemyakin. During the audit, it was found that at home he was charged with fraud for several billion dollars.

The company also refused to cooperate with the international audit company Ernst & Young when it requested assistance in the purchase of two Gulfstream aircrafts at a cost of $ 20 million. Apppleby staff found that one of the contact persons of the US Embassy called a client named Manuchehr Khangah “a frontman” of a former politician who headed “one of the most corrupt organizations in Azerbaijan”. They also refused the two sons of the former state minister of Azerbaijan.

For ten years – from 2005 to 2015 – the internal and audit checks at Appleby offices showed that there were violations that can end up in trials and have “serious financial consequences, and also affect the company's reputation.”

In October 2014, an audit of the Bermuda Financial Control Bureau showed that the company has “principal or significant” deficiencies in nine indicators. Almost half of the analyzed dossiers did not contain information about the origin of client funds. The regulator did not find “evidence” that the company clearly monitors the risks associated with money laundering and the financing of terrorism. The report also said that the company did not take into account the recommendations of previous audits.

APPLEBY AND SADDAM HUSSEIN

In June 1993, a subcommittee of the House of Representatives met to discuss the Iraqi nuclear program. Iraq violated the agreement, and the UN inspectors had to study the country's nuclear resources. The situation caused international concern.

The report mentioned the private oil company Crescent Petroleum. The report drawn up by the members of the subcommittee said that the company became the subject of an investigation by the US authorities: they suspected that Crescent could be a front company of Iraqi President Saddam Hussein. According to the report, Crescent could not manufacture weapons themselves, but “it was definitely connected with the largest Iraqi producer”.

Crescent Petroleum, owned by Abdul Hamid Dia Jafar, has collaborated with Appleby since 1984. The company noticed interesting details only 30 years later – in 2013, when Crescent needed assistance in restructuring.

For example, the brother of the company's owner headed the Iraqi nuclear program under Saddam Hussein.

CONTRIVANCE SCHEMES

For 33 years, Michael Cannon has worked as a police officer in Toronto. He was saving money for investments that would help reduce his taxes in Canada.

In 2009, he became the main plaintiff in a collective civil lawsuit filed in Canada by 10,000 investors – teachers, nurses, lawyers, who invested more than $ 100 million in a cunning scheme.

This scheme was presented as a “charitable contribution” with the possibility of tax burden deduction. In fact, it was just a tax evasion scheme, Canadian fiscal authorities said later. The investors were enticed by promises to make good money: $ 10 thousand with a loan of $ 2.5 thousand in the form of “donations” (all amounts in Canadian currency).

The claimants demanded to return money – from lawyers, consultants and those who advertised the scheme. One of the accused was the so-called leader of the “charitable program” Edward Fertak. The second target was the representative office of Appleby in Bermuda.

Fertak has long enjoyed the services of Appleby. The company lent him $ 2.6 million to buy real estate on the peninsula in Costa Rica, helped manage at least three offshore funds and the Takapuna yacht sailing under the Jamaican flag – a 34 meter vessel that costs at least $ 5 million.

In 2010, court made its decision: there is ample reason to believe that Appleby inflicted damage on citizens of Canada. In conclusion, the judge said that the company “just did what Fertak wanted from it.” The company ignored the requirement to check the money that it operates.

The case was settled at an early stage. Fertak did not admit blame. Appleby closed the case in May 2017, paying $ 12.7 million and not pleading guilty.

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