Queen’s es­tate in­vested in off­shore funds

Par­adise Papers leak re­veals Duchy of Lan­caster put money through tax haven into con­tro­ver­sial re­tailer crit­i­cised for ex­ploit­ing poor fam­i­lies

The Guardian Weekly - - Front Page - Hi­lary Os­borne Nick Hop­kins

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 fun­nelled money into an ar­ray of busi­nesses, in­clud­ing a chain of UK al­co­holic drinks re­tail­ers, 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. Although the duchy char­ac­terised its in­di­rect stake in BrightHouse as neg­li­gi­ble, it would not dis­close the size of its orig­i­nal 2005 in­vest­ment that 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 ($19.4m) in com­pen­sa­tion to 249,000 cus­tomers.

Crit­ics are likely to ask why the Queen had in­vest­ments in this area in the first place, and the duchy may face awk­ward ques­tions about whether there was enough over­sight and man­age­ment of the monarch’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 be likely to 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 Duchy of Lan­caster is a pri­vate es­tate that gen­er­ates 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.

Re­cent fil­ings by the duchy show that 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 that are 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 the off-li­cence chain 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 – 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 mag­a­zine 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 had, 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 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 com­plied with all rel­e­vant tax reg­u­la­tions and paid 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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