Revealed: Queen's private estate
invested millions of pounds offshore
Paradise Papers leak reveals Duchy of
Lancaster put money into retailer criticised for exploiting poor families
Hilary Osborne
Sunday 5 November 2017 18.00 GMT Last modified on Monday 6
November 2017 01.05 GMT
Millions of pounds from the Queen’s private estate has been
invested in a Cayman Islands fund as part of an offshore portfolio that has
never before been disclosed, according to documents revealed in an
investigation into offshore tax havens.
Files from a substantial leak show for the first time how
the Queen, through the Duchy of Lancaster, has held and still holds investments
via funds that have put money into an array of businesses, including the
off-licence chain Threshers, and the retailer BrightHouse, which has been
criticised for exploiting thousands of poor families and vulnerable people.
The duchy admitted it had no idea about its 12-year
investment in BrightHouse until approached by the Guardian and other partners
in an international project called the Paradise Papers.
Though the duchy characterised its stake in BrightHouse as
negligible, it would not disclose the size of its original 2005 investment,
which coincided with a boom in the company’s value. BrightHouse has since been
accused of overcharging customers, and using hard sell tactics on people with
mental health problems and learning disabilities. Last month, it was ordered to
pay £14.8m in compensation to 249,000 customers.
Critics are likely to ask why the Queen had money in there
in the first place, and the duchy may face awkward questions about whether
there was enough oversight and management of the Queen’s “onward investments”
to ensure they remained ethical.
The duchy has also disclosed investments in “a few overseas
funds”, including one in Ireland, and will be under pressure to give details of
where the money is being held.
Although the estate said it received no tax advantages from
investing offshore, the revelations about the finances of the Queen, one of the
world’s richest women, will likely re-energise campaign groups and some MPs who
have demanded greater scrutiny of royal spending. The disclosures also
highlight the lack of transparency that has been a concern for critics, who
have railed against the moral ambiguities of the offshore sector and demanded
major changes.
The details of the Queen’s offshore dealings come from a
leak of 13.4m files from two offshore service providers and the company
registries of 19 tax havens.
The material was obtained by the German newspaper
Süddeutsche Zeitung and shared by the International Consortium of Investigative
Journalists with partners including the Guardian, the BBC and the New York
Times.
The Duchy of Lancaster is a private estate managed to
generate a return for the reigning monarch. It was set up in 1399 and manages
land and investments held in trust for the Queen, who also holds the title of
the Duke of Lancaster.
The most recent filings by the duchy show it had assets
worth £519m at the end of March. The Paradise Papers offer an unprecedented
glimpse of the way the duchy has invested some of its money, including details
of complex offshore arrangements not set out in the royal household’s annual
statements.
According to the leak, the duchy has used offshore private
equity funds designed to shield UK investors from having to pay US tax on their
holdings.
Investors who do not pay tax in the UK can face a tax bill
if they invest in certain types of funds in the US, although the duchy said it
gained no tax advantage from investing via the Caymans.
The stakes in Threshers and BrightHouse can be traced back
to an investment into one of these schemes by the duchy in 2005. The papers
show it committed £7.5m to Dover Street VI Cayman Fund LP.
The duchy became a limited partner in the scheme at the same
time. Dover Street VI Cayman Fund LP is a “feeder” for another American fund,
which invests in venture capital and private equity funds around the world.
Letters in the Paradise Papers show how the duchy’s money
sluiced through various funds, and where it ended up. Managers from Dover
Street set out what cash they needed and where they had been putting it on
behalf of investors.
In a letter dated September 2007, they explain they have
taken an interest in a private equity vehicle called Vision Capital Partners VI
B LP. The Dover Street fund was one of 27 limited partners making an
investment.
The letter explains that this was “formed by Vision Capital
Partners to acquire a portfolio of two retailers in the United Kingdom”. Two
months earlier, Vision Capital Partners VI B LP had bought BrightHouse and
Threshers.
The investment in Vision Capital Partners by the Dover
Street fund was among several outlined in the managers’ call for funding, to
which the duchy was asked to contribute $450,000 (£344,000) – 6% of its
commitment.
The Dover Street VI fund was set up to run until the end of
December 2014 and since then has been selling off its holdings and returning
funds to investors. It is unclear from the leak what has been returned to the
duchy. The Paradise Papers show only one payout from the fund, a letter from
June 2008 explaining the duchy was entitled to $361,367.
It seems to have received the distribution after paying a
tiny amount of tax – 0.4% ($1,505) – which it appears to have offset against
the next payment into the fund.
BrightHouse, which has more than 270 stores across the UK,
has previously denied claims as to its conduct and accused critics of
misrepresenting the business. But it has been under investigation by the
Financial Conduct Authority, which last month said it was not a responsible
lender.
The company was also forced to change the way it checked
customers’ finances before granting them loans, in order to keep its consumer
credit licence.
BrightHouse has limited its tax bill through a large loan to
a Luxembourg holding company. Between 2007 and 2014, it reported £1.6bn in
revenue and made an operating profit of £191m, but paid less than £6m in
corporation tax, analysis by Private Eye found. The duchy’s chief finance
officer, Chris Adcock, told the Guardian it had been unaware of the indirect
holding in BrightHouse.
“Investors commit to a fund for a given period and are not
party to its ongoing investment decisions,” he said.
The Paradise Papers show that through the same indirect
investment, the Queen’s money was invested in Threshers before it went into
administration in 2009.
When asked what other offshore holdings the duchy has,
Adcock said it “invests in a fund domiciled in Ireland”, but declined to give
details. In a second statement, the duchy admitted it “operates a number of
investments and a few of these are with overseas funds. All of our investments
are fully audited and legitimised”.
The duchy would not give details of the size of the original
stake in 2005, or what had been taken out since then.
“The Dover Street investment was bought in 2005 and forms
only 0.3% of the total value of the duchy. The duchy investment in Brighthouse
is through a third party and equates to £3,208,” it said.
Adcock confirmed that the duchy invested £5m in the Jubilee
Absolute Return Fund, which invests in hedge funds. At the time of the
investment in June 2004, the fund was based in Bermuda. In 2006, it moved to
Guernsey.
At the outset, the fund’s manager, Fauchier Partners, sought
assurance that it would not be taxed in Bermuda on its income or any gains
until 2016. The fund, which has been invested in by a string of charities and
council pension funds, is now run by a different manager and has been renamed
the Permal Absolute Return Fund.
The papers do not make clear what money, if any, the duchy
made from this arrangement. Adcock said the duchy had redeemed its stake in the
fund in 2010, but its investment in the Dover Street fund was expected to last
for another two to three years while the fund was wound up.
“We are not aware of any tax advantages to the duchy in
investing in offshore funds. The duchy’s investment policy is based on advice
and recommendations from our investment consultants and asset allocation,
rather than tax strategy,” he said.
In a statement, BrightHouse said it complies with all
relevant tax regulations and pays tax in full and on time.
“We are appreciated by our customers, because we help those
financially excluded on the basis of low incomes and poor credit histories to
get everyday items they otherwise couldn’t have,” the company said.
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