R ci el al ea In se fo d rm un at de io r n th A e ct 19 82 . Appendix Page 79 Operation TIMEPIECE Charities Services Investigation Andy Grieve O ffi 19 December 2016 Appendix Page 80 Table of Contents Executive Summary ......................................................................................................................... 2 2. Charity Background ......................................................................................................................... 2 3. Initiation .......................................................................................................................................... 3 4. Issues & Investigation Purpose ....................................................................................................... 4 5. Investigation Methodology ............................................................................................................. 4 6. Analysis ........................................................................................................................................... 4 7. Conclusion ....................................................................................................................................... 8 8. Recommendations .......................................................................................................................... 8 O ffi R ci el al ea In se fo d rm un at de io r n th A e ct 19 82 . 1. Appendix Page 81 Investigation Operation TIMEPIECE The Mulligan Charitable Trust The Birdy Charitable Trust Shepherd Charitable Trust Registration Number CC50518 (Mulligan) CC49450 (Birdy) CC49451 (Shepherd) Date Assigned 5 June 2015 2 Date Completed 14 December 2016 Investigator Andy GRIEVE, Investigator 1. Executive Summary The Mulligan Charitable Trust, The Birdy Charitable Trust and Sheph Mulligan Charitable Trust, The Birdy Charitable and Shep .- T: 1 - and Shepherd respectively, the Charities together) are very and women?s at} Mulligan and 3% on 10 ecember 2012. Shepherd was originally established as Shepherd Trust on?26 executed to mic cwges he trust and to rename it Shepherd Charitable Trust. The Charities ., ve . Corporate Trustee Company Number Chasselat Trustee Limited 4153298 Alpage Trustee Limited 4152559 til 10/12/12) Bellerive Trustee Limited 4153118 (prior to 10/ 12/ 12) L?Orangeraie Trust Limited 1494948 The Charities were settled by various corporate entities? Charity Settlor Jurisdiction Mulligan Albatross Charitable Foundation Panama Birdy Yellowstone Trust New Zealand Shepherd Eagle Charitable Trust Isle of Man Appendix Page 82 Two individuals are listed as the Protector and Default (Successor) Protector respectively of each of the Charities, Mr Dominique and Bhavna All three of the current Corporate Trustees have the same structure? Name Address Position Yves BONNARD Avenues De Senaleche 12 Director 1009 Pully 49% Share. SWITZERLAND Jean DE SAUGY Avenues Des Cavaliers 11 Direct . 1224 Chene-bougeries Geneva SWITZERLAND Kevin George TAYLOR 32 Gulf View Road Murrays Bay AUCKLAND 0630 Lauren Cherie WILLIS 42C Merani Street \lk' Narrow Neck AUCKLAND Megan $th Chui wu 133 0m - A mom. \1 4' (the Act) on or around 13 June 2013. Shepherd and Birc 1% - 3" 3. The author, in his previous role as The Charities applied for re' Analyst, received th- further into its operation than the Analyst 2014 with an IO . ne 2013. 3. Initia f. During the ap . that the Ch i A factors in charge of Shep -of this, Mulligan was registered on 21 May _a,n a number of factors were noted that raised concerns . ration under the Act for Improper purposes. Speci?cally these ction to New Zealand; regarding natural persons involved in the Charities other than professional ink to entities in otherjurisdictions; . se of complex corporate structures facilitated by the same trust and company service providers; and unusually high equity from unknown sources. These factors closely align with traditional typologies used to launder money and ?nance terrorism. The high wealth of the Charities coupled with these typologies led to proactive investigations into the Charities being opened. Appendix Page 83 4. Issues & Investigation Purpose Unlike more traditional investigations undertaken by Charities Services, this investigation was opened based in large part on wider issues regarding the integrity of the Charities Register and the abuse of the New Zealand charity/tax system. It was unknown what (if any) wrongdoing may be s6(c) facilitated through the Charities. R ci el al ea In se fo d rm un at de io r n th A e ct 19 82 . With this issue specifically in mind, the investigation sought to determine whether the Charities— • • were established to facilitate tax evasion or other transnational crime (i.e. serious wrongdoing); and/or were established for non-exclusively charitable purposes. 5. Investigation Methodology In undertaking this investigation, Charities Services— • • • • • • s6(c) s6(c) s6(c) s6(c) Worked with Financial Integrity to obtain information on the Charities’ Trust and Company Service Provider (TCSP); Obtained bank statements for the Charities’ corporate trustees from their New Zealand bank; and Served s51 notices on the Charities. 6. Analysis The essential question throughout this investigation has been “Why are the Charities registered under the Act?” When asked this question, representatives of the Charities provided the following answer— The Trust was established under New Zealand law because the Trust is committed to carrying out its charitable purpose from New Zealand benefitting charities situated in New Zealand and overseas. O ffi New Zealand is a well-known trust jurisdiction which offers political and economic stability. It also has a well-developed legal system. New Zealand has a good international reputation and is one of the least corrupt countries in the world. The choice was initially made between New Zealand and Switzerland, but as the donations are often made to charities registered in Anglo-Saxon jurisdictions, a common law jurisdiction with a solid base of trust law was preferred. As Switzerland does not recognise trust law, it was therefore decided to establish the Trust in New Zealand. The Act imposes a certain level of compliance cost (for example the requirement to file publicly accessible financial statements and the ability of Charities Services to conduct investigations) and it Appendix Page 84 can be assumed that in most cases registrants have balanced these costs against the bene?ts gained by registration. However, as can be seen from the below table, the usual bene?ts do not have the same weight in respect of the Charities? Benefit Reason Exemption from income While the Charities will qualify for their passive taxation income to be exempt from taxation, this is not an extra bene?t to the Charities. The Charities will /i already have an exemption from taxation e?ptio r)und'r Exemption from fringe ption from benefit tax Ability for donors . donation tax 1: Donor Recipient Amount Mulligan Plunket New Zealand Shepherd Starship Foundation New Zealand Birdy Plunket New Zealand While it is likely that Plunket and Starship would take increased con?dence in receiving funds from the Charities because they are registered under the Act, it must be noted that these donations are a Appendix Page 85 small fraction of the asset base of the Charities. At year-end 2015, the Charities had the following net assets? Charity Net Assets Mulligan Shepherd Birdy Nzo1z,349,580 yhe Further, the distributions to New Zealand charities are a relatively small perce expenditure of the Charities? NZD2 144 72 NZD282 796 The Charities do provide distributions to 433 CHF50 000 136 CHF100 000 547 465 CHF400 NZDS47 465 CHF400 NZDZ73 733 CHFZOO NZDG7 228 CHF50 Fondation for the Swiss foundation ?Fondation Eagle pour la d?favoris?s?. This foundation is incorporated in Vaud Canton with and Bhavna as the listed of?cers. It is clear from this Eagle and the Charities are closely related. Therefore, the receh aide Jean cross-over of extension of the Charities to Fondation Eagle can be considered to be simply an rities to an extent. 1 Chasselat Trustee Limited provided information that the recipient of the funds directed to Malawi Project was Ripple Africa, a charity registered with the Charity Commission for England and Wales. There is no overt connection between this entity and the Charities. 2 Alpage Trustee Limited provided information that the recipient of the funds directed to Condor Trust Ecuador was The Condor Trust for Education, a charity registered with the Charity Commission for England and Wales. There appears to be no overt connection between this entity and the Charities. 6 Appendix Page 86 Therefore, given the small proportion of funds distributed to New Zealand charities, it is considered unlikely that registration under the Act will greatly increase the ability of the Charities to carry out their charitable purposes. In light of this, the question of why the Charities have registered under the Act remains. In their response to a s51 notice, the Charities each provided an invoice for “Legal Services Relating to s9(2)(a) FATCA Planning and Registration” from , attorney in Washington, DC. The s9(2)(a) description of services provided by is— R ci el al ea In se fo d rm un at de io r n th A e ct 19 82 . Work on FATCA planning, FATCA registration, Forms W-8EXP, legal opinion to be appended to Form W-8EXP, liaison with Alice Einmahl. Emails; participation in GoToMeeting sessions. Research. FATCA, or the Foreign Account Tax Compliance Act, is a piece of United States federal legislation which imposes obligations on all foreign financial institutions to provide annual reports to the US Internal Revenue Service (IRS) regarding the balance of all US tax residents’ (regardless of other residence) facilities. The obligations extend to all accounts over which a US tax resident can exert control (for example, a trust of which the settlor is a US tax resident). This reporting allows the IRS to levy taxes on all US tax residents throughout the world. New Zealand and Switzerland have both signed agreements with the US to assist with financial institutions providing this information to the IRS. In order to concentrate on those accounts that will provide the best balance between the largest revenue return to the US and reduced administrative burden for the IRS, FATCA contains a number of exemptions. One such exemption is for non-profit entities that are tax-exempt in their country of residence. This exemption means that the IRS will not receive any reporting regarding bank accounts held by tax-exempt entities regardless of their value. s6(c) Throughout the Department , the representatives of the Charities provided information that the ultimate settlor/ultimate beneficial owner (UBO) of the Charities is not a New Zealand tax resident ,however, further information is not available because the Charities’ settlor entities were settled over 10 years ago. It is considered unlikely that, absent a US individual settling the Charities, that the legal advice referred to above would have been provided. O ffi It should be noted that the Charities’ bank, Lombard Odier Darier Hentsch (LODH), states on their website that they will not accept clients from the US. However, the W-8EXP form referred to in s9(2)(a) invoice is a form produced by the IRS for FATCA-exempt organisations to provide to their financial institutions. While it is possible that LODH requires all offshore clients to file this form, it is also possible that the Charities sought to protect themselves from FATCA requirements should LODH find indicators that the Charities have substantial US ownership. The mere fact of a US individual settling three entities that are established in New Zealand but have their banking in Switzerland does not constitute serious wrongdoing. If the settlor declares their control over the Charities as required to FinCEN/the IRS, no wrongdoing will have been facilitated through the registration of the Charities in New Zealand. Appendix Page 87 Given the Charities’ reticence to provide any information regarding the identity or tax residence of the settlor/UBO despite having a FATCA opinion drafted suggests that wrongdoing may be being committed. However, there is currently no conclusive evidence held by the Department to confirm or deny this. 7. Conclusion R ci el al ea In se fo d rm un at de io r n th A e ct 19 82 . Based on the above, it is likely that the Charities are taking advantage of the FATCA exemption provided to tax-exempt non-profits. Establishment in New Zealand may have been chosen based on our reputation as being a favourable tax jurisdiction for foreign trusts. However, without further evidence, the Department is unable to determine whether serious wrongdoing has been committed. Further, because of the jurisdictional issues surrounding the Charities, it is unlikely that the Department will have success on obtaining further evidence without reasonable belief of offences being committed. 8. Recommendations Due to the issues surrounding collection of evidence, it is recommended that this investigation be suspended and referred s6(c) . s6(c) provide relevant information that suggests that the Charities have been/are being used to facilitate criminal offending, this investigation can be reopened. Because of the wider risk to the Charities Register and charitable sector, it is recommended that an in depth case study be prepared regarding the Charities (and similar entities). This study should be s6(c) disseminated to relevant agencies to demonstrate an emerging trend that can present a high risk to the international reputation of New Zealand’s tax and charitable systems. O ffi ***