The Guardian notes:
The offshore entities involved in the ownership of Leeds have emerged in various episodes since 2005. The company which took over the majority ownership of the club from the former regime led by the chairman, Gerald Krasner, was the Forward Sports Fund, then registered in the Cayman Islands, and administered from Switzerland. Bates, himself resident in Monaco, said in May last year that he does not own shares in that company.
The Companies House documents name the entities which now hold the Leeds shares and suggest they have a story to tell, with £2.2m being invested in the club by them in June 2008. More than 70% of the shares are still owned by FSF, whose address is given as 60 Rue du Rhone in Geneva, the office of Ch?¢teau Fiduciare, the company which administers the fund. FSF was formed and registered in the Cayman Islands from January 2005, but on 31 March last year, was struck off the register.
Peter Boatman, of Ch?¢teau Fiduciaire, who was named last May as a director of FSF, confirmed this week that he has passed the League's fit and proper person test, which applies to directors and 30% shareholders of clubs. Asked where FSF is now registered since it was in the Cayman Islands, Boatman replied: "I am not allowed to say."
Asked who the shareholders actually are, Boatman replied: "It is not necessary for you to have that information."
There is another story in here that is really important.
It’s not just we don’t know who FSF is and who owns it. we don’t even know where it is to ask! This is because of the problem of redomiciliation. This is explained here in detail, and summarised as follows:
Redomiciliation is an unfamiliar concept to most people, including many who work in finance. It describes a procedure which allows a company incorporated in one jurisdiction (A) to move its place of incorporation to another jurisdiction (B) after which it is then registered under the laws of that second location (B) whereas it was previously registered in and subject to the regulation of the first jurisdiction (A).
This process is a little like a person, who is a citizen of one country, foregoing their right to that citizenship and acquiring instead the citizenship of another place. They were previously a citizen and subject to the international protection of one place; after the change they are a citizen of another place.
Just as the number of people changing their citizenship is small, it is likely that the number of companies redomiciling is also small — but data on this is hard to secure and therefore difficult to confirm.
The nub of the issue is simple: not only do we now know nothing about FSF — we don’t even know where it is and therefore who to ask about it. We can’t even prove it is a real company as a result. It may, or may not be.
In that case was the Tax Justice Network right to raise this as a key issue in financial secrecy? You bet we were.
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If it was truly redomiciled, then the company should have made a public filing in the Caymans noting where it was going. To say that it was ‘struck off’ suggests that the company was killed, not moved.
I don’t think in itself redomiciliation is a problem. What is required that there is a public registration in the jurisdiction a company leaves of where it has gone to.
Note that the European Union requires its member states to allow for redomiciliations under the freedom of trade principle.
In Jersey a company has to publicly advertise in the JEP its intention to domicile elsewhere and when it does redomicile a certificate stating where it has gone goes onto its company record.
It is frankly much more transparent than the alternative: a sale of a business to another corporate followed by a winding up of the initial business, which would leave no trail at all.
Rather than specifically discuss the Leeds United case, I would like to broaden this discussion to a more general issue of corporate ownership rules.
Surely there is another problem that needs to be considered in relation to financial secrecy – the nesting of companies inside other companies.
When you can have a situation where a holding company (Company A) can own another company (Company B), which can then own another company (Company C), which can then own yet another company (Company D), and so on, then it is no wonder that the paper trail of ownership can be difficult to follow. If any of those companies is then domiciled in a secret tax jurisdiction then the trail will often be virtually impossible to follow. To compound the problem, if any of the hidden subsidiary companies (e.g. B,C,D etc) owns stock in any of their parent companies, then the corporate structure becomes virtually impossible to disentangle. This leads to problems in identifying the true owners of the company and where the debt and capital are actually located.
My question therefore is this. Has anything been done to prevent this type of arrangement from existing since the Enron scandal?
If not then perhaps we need to look at measures aimed at restricting all companies in the UK to one of two types (A or B), with each required to list its parent or its subsidiaries and where they are resident.
Under this proposal, holding companies (type A) domiciled in the UK must list all their subsidiary companies (type B), where those subsidiaries are domiciled, and which other companies or individuals own shares in the subsidiary. UK based holding companies should be barred from owning any part of a subsidiary that itself owns other companies. So all UK owned subsidiaries must be self-contained companies and not themselves holding companies.
Subsidiary companies (type B) domiciled in the UK must list their holding company or co-owners, and where these owners are domiciled, as well as being barred from owning any part of a subsidiary themselves.
An arrangement of this type would make it virtually impossible in my view for any UK domiciled company to disguise the true ownership of either its equity or its assets, or to plead ignorance of the facts in either case.
@Cantab83
Good stuff
Largely agreed
The reality is existing laws are not enforced
See http://www.taxresearch.org.uk/Documents/WoERevisedVersion.pdf for more on this