Lowy's taxing times

We’re sorry, this feature is currently unavailable. We’re working to restore it. Please try again later.

Advertisement

This was published 15 years ago

Lowy's taxing times

By Michael West

In a day of high drama at the US Senate probe on tax havens, Swiss banking giant UBS caved in and apologised, the elusive whistleblower Heinrich Kieber gave video testimony in disguise from a secret location and Westfield scion Peter Lowy - who could not turn up last night due to a business commitment - was been allotted a hearing day on his own.

But the role of Australian billionaire Frank Lowy remains a central issue.

Here's how chairman of the powerful committee Carl Levin accused Lowy of deliberately hiding funds from the Australian Taxation Office:
''Peter Lowy lives in California. His father, with his sons' help, set up an LGT foundation in 1998, after telling the bank that he did not want Australian tax authorities to know about the assets.

LGT took measures to hide the Lowys' ownership of the assets, including by keeping their name off the formation documents for the new foundation, routing incoming assets through an offshore transfer corporation to prevent a direct link to the new foundation, and using a Delaware corporation headed by Peter Lowy to name the beneficiaries.

In 2001, the Lowys dissolved the foundation and moved to Switzerland assets totalling about $US68 million.''

Peter Lowy, head of Westfield Group's operations in America, is now scheduled to appear on July 25 as the Investigations subcommittee of the US Senate Committee on Homeland Security and Governmental Affairs continues its hearings.

He is being investigated along with wealthy Americans over $US68 million ($70 million) in an account at LGT bank in Liechtenstein which came to light after a former employee Heinrich Kieber stole the records of 1,400 clients in 2002 and sold them.

But it was Kieber and UBS which stole the limelight overnight.

Appearing for UBS, Mark Branson, the bank's head of Wealth Management said the bank would end its offshore banking operations in Switzerland for all US clients. Further, it would close down 19,000 accounts which were subject to investigation.

Branson stopped short of agreeing to turn the UBS clients over to the Internal Revenue Service (IRS) but said the bank would cooperate. The Senate committee has estimated that offshore accounts ``robbed'' the US of $US100 billion annually.

A former UBS banker-turned-whistleblower, Bradley Birkenfeld, had said the bank derived some $US200 million a year in income from providing offshore banking services to US clients. So this is not only a significant financial hit for the bank but also an indication of the power of the Senate probe.

For Frank Lowy, who has denied any wrongdoing on behalf of his family in a statement issued yesterday, this was a case of wrong tax haven, wrong wrong time.

Had it not been for the slippery technician Heinrich Kieber stealing client records from a secretive bank in a tax haven and selling them to German tax authorities who passed them through to Washington, Lowy might have been saved the ordeal of explaining in public why there was nothing wrong with having $US68 million in an account in Prince Hans-Adam's tiny European principality of Liechtenstein.

He did explain with alacrity yesterday. "Frank Lowy totally rejects the assertion made in a report issued by a US Senate subcommittee that he or his family used a US corporation or took other steps to hide ownership of assets from Australian tax authorities for the purpose of avoiding their tax obligations," read a statement issued in the afternoon.

By then, his minders had received a few calls from the media. The story had been all over the US press.

"We are determined to tear down these walls of secrecy and break through these iron rings of deception," said the Senate subcommittee chairman, the crusading Michigan Democrat Carl Levin in relation to the Senate's probe.

There are no accusations of wrongdoing against the Lowy family - it has been caught up in a crackdown on tax havens.

And they are by no means the only Australian billionaires holding assets offshore. Most mega-rich do. You'd be silly to keep it all in one domicile. You would be silly to have it in a high-tax jurisdiction. The point of a tax haven is to minimise tax, or to hide money. This does not mean the shopping centre magnate has done anything illegal. It means he was either minimising tax or hiding money.

The reality is the rich do not pay us much tax as a proportion of their income as the rest of us do. And the legality is that in the event of a dispute with the Tax Office, the hoi polloi write a cheque. The mega-rich - relying on advice from their legal counsel - take their case to the Federal Court or reach a "settlement".

In the early hours in Washington on Wednesday night, the Senate committee (on which sits presidential candidate Barack Obama - although he is not on the investigation subcommittee) began its hearing into bank havens and tax evasion.

This story is begging for a film script. In 2002, Kieber, a technician at LGT bank in Liechtenstein, a bank that specialises in servicing family trust money, stole documents from the bank and sold them to the German authorities for 5 million euros ($A8.13 million).

Kieber had been tied up in a dodgy Spanish land deal a few years before, and was later fined for fraud by a Liechtenstein court in 2001. But when he turned whisteblower he became an instant hero in the blogosphere for outing the 1400 wealthy customers of LGT.

Whether Robin Hood or Arthur Daley, Kieber brought on a crackdown by German tax investigators, who duly handed the documents to the US Government, forcing several wealthy Americans to come forward.

IRS (US Internal Revenue Service) investigators contacted the Lowys last year. According to the Senate report, LGT records showed a Delaware corporation called Beverly park - controlled by the Frank Lowy Family Trust via three other entities - had connections to the Luperla Foundation, which had been created by LGT.

Luperla Foundation held $US68 million in assets in 2001. Its address was the Westfield Group's head office in California.

One of Frank Lowy's three sons, Peter Lowy, heads Westfield's operations in the US. He lives in Beverly Hills, Los Angeles.

According to Frank Lowy's statement: "No attempt was made to save any Australian tax. Nor is it considered that any Australian tax was in fact saved.

"The report claims that the Lowy family were beneficiaries of a Liechtenstein structure. This is not correct. Neither Frank Lowy nor any member of his family ever received any distributions or benefited in any way from the structure.

"The report fails to mention the fact that all of the funds held in the structure in the Liechtenstein bank were distributed for charitable purposes in Israel some years ago."

As part of the Senate committee's investigation, the heat is also on Swiss banking giant UBS, which had about 19,000 US clients controlling accounts worth about $US17.9 billion.

In the case of LGT and UBS, the Senate subcommittee claims the client accounts had never been disclosed to US authorities. Both cases involved whistleblowers. For UBS it was a former banker Bradley Birkenfeld, whose testimony noted that 80 UBS bankers made the pilgrimage to the US four to six times a year to pitch their services to people of high net worth at chic events such as the annual Art Basel fair in Miami.

"It's really, 'Where do the rich people hang out, go and talk to them'," Birkenfeld said.

The perennial battle between US authorities and Swiss oversecretive banking laws has been something of a boon for the likes of Liechtenstein and other tax havens.

Not only are tax havens used by rich people but also by many leading Australian companies. Qantas runs leveraged leasing deals through the US and the Cayman Islands. The financial engineers prefer Bermuda and Luxembourg.

The LGT affair is quite a setback for Lowy. Unlike other property players in the Australian market, the Westfield Group that his family controls had sailed through the subprime mess.

Westfield, as though it had seen it all coming, had put acquisitions on hold and raised cash before the markets turned down last year and is in a brilliant position to benefit from depressed asset prices around the world.

Heinrich Kieber - who was rumoured to have skipped off to Australia when the heat was on two years ago - remains in hiding somewhere.

Loading

mwest@fairfax.com.au

BusinessDay

Most Viewed in Business

Loading