The recent revelations of the ‘Panama Papers’, some 11.5 million leaked files from the Panamanian law firm Mossak Fonseca, have confirmed in the public eye what those within the superyacht industry have known for sometime. The world’s ultra-high-net-worth individuals use offshore companies as a way of managing their assets.
SuperyachtNews.com spoke exclusively with Tom Becker, the co-founder and principal of Oceanskies, an independent marine and aviation consultancy, about the legitimate necessity of offshore companies to superyacht ownership.
“With everything there are two sides of the coin - especially with tax”, he began. “There are some who are using offshore services because of an aspect of secrecy and avoidance, and there are also those who have a genuine requirement for those services.”
The Panama Papers debacle has shown the means through which the ultra wealthy are able to acquire and hide assets using secretive, and often complex, offshore companies and taxation regimes. To take an example, it came to light in the Panama Papers that the president of the United Arab Emirates, Sheikh Khalifa bin Zayed Al Nahyan anonymously owned more than £1.2 billion of London property. However, the nature of superyachting makes hiding an asset far more complicated.
“Although you may be able to hide the ownership [of a superyacht], the usage is quite controlled, especially in the Mediterranean,” explains Becker. “In every port you visit you will have to provide a manifest, as well as customs coming on board intermittently. You may even get photographed on the yacht.”
The information provided at harbour is available to a number of governmental and criminal authorities, meaning that hiding a superyacht, in terms of it being a personal asset, is somewhat more difficult than a stationary piece of real estate.
“To hide billions of pounds in various bank accounts is probably quite easy,” continues Becker. “But in terms of a superyacht, if you want to enjoy the boat and use it to holiday with friends and family, it is likely that your name is going to end up on an official document of some sort.”
Becker goes on to explain that the use of offshore companies is of particular interest to owners from regions that are unable to obtain flagging from the Red Ensign Group, a flag state collective that are unambiguously the most desirable registries, including the Cayman Islands and British Virgin Islands among others.
“Our consultancy firm, specialising in registries and documentation, is particularly popular with Israeli customers,” says Becker. “No Israeli owner, as a result of political pressures, wants to cruise internationally under the Israeli flag. Therefore, they require a flag of convenience. However, due to the eligibility requirements of the Red Ensign Group, they are not able to obtain such a flag.”
In order to receive convenient flagging, owners from Israel and similar states must set up offshore companies within eligible regions - such as the British Virgin Islands. Within The Panama Papers, around 53 per cent of the unearthed offshore companies were registered in the BVIs for the simple reason that it is renowned as the cheapest and most well respected area to do so.
Owners from Switzerland require a similar process, although their need is driven by the complexity of the manning requirements associated with their domestic flag, rather than political issues.
The documents obtained from the Panama Papers reveal a world of nefarious tax evasion and anonymous asset acquisition, but the real revelations are the sources of the malevolence. Public outrage has largely been focussed at those persons who, as dictated by their titles, have a moral responsibility to conduct themselves in manner that is both fair and honest – as can been seen by the recent resignation of the Icelandic prime minister.
The world of conspicuous wealth will always fascinate the public and the superyacht industry is no exception. However, the fact of the matter is that the vast majority of offshore companies charged with the running of a superyacht have genuine reasons to do so and most will bare the name of the owners who require them. Indeed, the running of a superyacht, in many cases, is akin to the running of a business when you consider the number of employees, contracts, documents, certificates and legal issues at hand, so for some it is simply a practical solution. Superyachts are operated in an era of due diligence and best practice, and should be managed as the corporate assets they are. These issues will be top of the agenda at The Superyacht Owner's Summit, taking place in London from 4-6 May, as part of the London Yacht, Jet and Prestige Car Show.
N.B. This article does not intend to suggest that activity pertaining to offshore company structures equates to malpractice in any way.