Billionaire Dmitry Rybolovlev, Russia’s
14th-richest person, and his wife, Elena Rybolovleva, have been brawling for almost five years in at least seven countries over his $9.5 billion fortune.
In a divorce complaint originated in Geneva in 2008, Rybolovleva accused her husband of using a “multitude of third-parties” to create a network of offshore holding companies and trusts to place assets—including about $500 million in art, $36 million in jewelry and an $80 million yacht—beyond her reach.
She has brought legal action against the 48-year-old Rybolovlev in the British Virgin Islands, England, Wales, the U.S., Cyprus, Singapore and Switzerland, and is seeking $6 billion.
The suits provide a window into the offshore structures and secrecy jurisdictions the world’s richest people use to manage, preserve and conceal their assets. According to Tax Justice Network, a U.K.-based organization that campaigns for transparency in the financial system, wealthy individuals were hiding as much as $32 trillion offshore at the end of 2010. Fewer than 100,000 people own $9.8 trillion of offshore assets, according to research compiled by former McKinsey & Co. economist James Henry.
“For a lot of people, it’s not just the objective of not paying taxes,” Philip Marcovici, an independent Hong Kong-based tax lawyer and board member of Vaduz, Liechtenstein-based wealth advisor Kaiser Partner Group, says. “It’s the objective of obtaining the human right to privacy and seeking confidentiality about their financial affairs.”
More than 30% of the world’s 200 richest people, who have a $2.8 trillion collective net worth, according to the Bloomberg Billionaires Index, control part of their personal fortune through an offshore holding company or other domestic entity where the assets are held indirectly. These structures often hide assets from tax authorities or provide legal protection from government seizure and lawsuits.
Rybolovlev, who lives in Monaco, made most of his fortune from the sale of two potash fertilizer companies for a combined $8 billion in 2010 and 2011. He held both companies—OAO Uralkali and OAO Silvinit—through Cyprus-based Madura Holding Ltd. Some of his art—including works by Van Gogh, Monet and Picasso—is now held in Xitrans Finance Ltd., a British Virgin Islands-based company, and stored in Singapore. Rybolovlev bought a New York City apartment for $88 million in 2011 using a trust associated with his daughter, Ekaterina. The penthouse was purchased from the wife of former Citigroup Inc. chairman Sandy Weill, according to divorce documents filed in New York.
In the suit, Rybolovleva said the billionaire moved many of his assets, including jewels, furniture and the yacht, under the control of two trusts, Aries and Virgo, that he established in Cyprus in 2005, a few weeks after she refused to sign a post-nuptial agreement he offered her. Sergey Chernitsyn, a spokesman for Rybolovlev at his Monaco-based family holding company Rigmora Holdings Ltd., said he declined to comment. Marc Bonnant, Rybolovleva’s Geneva-based attorney, also declined to comment.
Since the onset of the global financial crisis in 2008, the laws and treaties that created and sustained the offshore tax-dodging industry and allowed for the kinds of maneuvers used by Rybolovlev have been undergoing a shift toward transparency. Liechtenstein, once fabled for its banking secrecy laws, began in 2009 to require its financial institutions to hold—and release when required—details about the beneficial owners of all accounts held there. Andorra and Switzerland made their own concessions within a day of Liechtenstein.
Singapore, the heart of Asia’s banking and offshore industry, will make laundering of profits from tax evasion a crime under a law scheduled to take effect on July 1. Luxembourg announced on April 10 that it would end its bank secrecy policy in 2015. Cyprus was bailed out of its financial troubles in March by the European Union, which required the nation to impose a tax on bank deposits of more than 100,000 euros. That month, the country lost $2.4 billion in deposits, according to data from the European Central Bank.
The shift toward transparency has led many of the world’s wealthiest to reassess how and where they hold their assets, according to Goran Grosskopf, a Lausanne, Switzerland-based economist who has advised several billionaires, as well as the Russian government.
Li Ka-Shing and Lee Shau Kee, Asia’s two richest men, control parts of their fortunes through offshore structures. Li owns his 43% stake in Hong Kong-based property developer Cheung Kong Holdings Ltd. through namesake trusts and companies in the Cayman and British Virgin Islands, according to regulatory filings. Lee holds his shares in Henderson Land Development Co. through 10 firms set up in the two British island territories and Panama, filings show. Li ranks 15th on the Bloomberg index with a net worth of $27.5 billion, while Lee is No. 18 with a $25.1 billion fortune.
Alisher Usmanov, Russia’s richest man, earlier this year restructured the way he holds his $19.7 billion fortune, moving the majority of his assets—including his two most valuable, Metalloinvest Holding Co. and OAO MegaFon, worth $12.7 billion combined—under the control of British Virgin Islands-based USM Holdings.
He controls at least one asset—a 30% stake in London soccer team Arsenal worth $225 million, which he shares with a partner—through Red & White Securities. The holding company is based on the Channel Island of Jersey, a Crown dependency of the U.K. that has threatened to sever ties with the country after being criticized during 2012 for its tax policies.
U.S. energy billionaire George Kaiser’s $13.5 billion fortune benefits from the $3.4 billion in assets held by his tax-exempt George Kaiser Family Foundation, according to filings with the U.S. Internal Revenue Service. The charity paid $110 million for a liquid natural gas tanker in 2003. It then signed an exclusive agreement that gave control of the ship to Woodlands, Texas-based Excelerate Energy LLC, a for-profit gas delivery operation Kaiser controls with publicly traded German electric utility RWE AG.
Paolo Rocca, an Italian billionaire living in Argentina, is continuing a cat-and-mouse game with the Argentine government that was started by his grandfather in 1949. The family first established its San Faustin SA holding company in Uruguay that year, moving it to Panama in 1959, to Curacao and then to Luxembourg in 2011, using side entities in the British Virgin Islands and the Netherlands from which to control it.
A small part of the $15.3 billion fortune controlled by Texas billionaire Elaine T. Marshall, 70, is based in Liechtenstein, where her late husband, E. Pierce Marshall, started a foundation for their grandchildren, according to his will. The Dallas resident controls almost 15% of Koch Industries Inc., the second-largest closely held company in the U.S., after inheriting the stake in 2006.
Delaware A Tax Haven
Many of today’s wealthy remain focused on finding places to minimize their taxes and avoid double taxation, Grosskopf says. Mario Gassner, chief executive officer of Liechtenstein’s Financial Market Authority, says there are other reasons the wealthy seek discretion.
“If you are married and have a girlfriend in another country, you may have a lot of assets that perhaps you don’t want your wife to know about,” he says. “Or perhaps you are looking for a solution for your children to finance university studies, or you’re not in good relations with them and you don’t know what is going to happen to your fortune in the future.”
Russian billionaires create entities in the British Virgin Islands because they find its legal system, which is based on British law, more attractive than their own, says Valery Tutykhin, an attorney with John Tiner & Partners, a Geneva-based law firm that specializes in wealth management.