A Korean ‘Start-up Legend’ Found to Have Hidden Money in an Offshore Trust

Nov. 09, 2017, 10:21 PM.

The Paradise Papers data, worth 1.4 TB, included documents that elaborated secretive trust services, which manage assets held by the world’s top wealthy population.

The trust-related documents offer vivid view on why the rich chooses to go to a tax haven and what happens there, like a ‘how-to’ book on the topic of offshore tax haven.

KCIJ-Newstapa was able to capture names of Koreans on these documents, of course.

(By far 232 Koreans were identified in the Paradise Papers, according to KCIJ-Newstapa investigations.)

Coutts, the world’s 7th oldest bank, included Koreans in its client list for the Trust Division.

Established in 1692, British private banking company Coutts & Co is the world’s 7th oldest bank. It is famous for its secretive private banking service for traditional super-rich such as European aristocrats. As the bank has only dealt with the wealthy, it still doesn’t bother accepting average-income customers.

KCIJ-Newstapa visited the bank and asked if we could sign up with the Coutts' private banking service. However, he was rejected of signing up.

“We accept just those clients who deposit a minimum of 3 million pounds in investment for non-U.K. residents, while the minimum amount is set at 1 million pounds for U.K. residents,” a Coutts employee said.

Asset trust, the ‘magic’ of holding on money while not having the ownership

Coutts is specialized in trust administration. A trust is a financial product in which a customer entrusts his or her asset to a bank or a trust company. At this time, the name of ownership is transferred to the bank or trust company. However, the entrusted bank or trust firm has to manage the asset abiding by the settlor’s instruction. The settlor can designate a beneficiary owner for this asset, the de facto owner.

For example, a British aristocrat entrusted a vast amount of asset to a trust company. Then this person sets a condition to distribute the asset by a portion of 4:4:2 to his wife, a child and his cousin, after a year of his death or after 20 years.

Of course, the amount of asset would keep expanding as the trust company continuously manages this money via various investment activities.

Meanwhile, this aristocrat can benefit by not paying tax for this asset, because it is officially owned by the trust company. Also he would be able to grant or inherit the asset to his child because the fact that he entrusted money to a trust company is under secrecy.

Of course, he can select himself as a beneficiary if he wants. In this case, a magic happens in which he can hold on with the money while transferring the official ownership of the asset.

Appleby’s acquisition of Coutts’ trust division … The secret code ‘Project Gold’

KCIJ-Newstapa found a list of Coutts’ trust service clients and the names of their trust companies based in tax havens, while digging in the Paradise Papers documents. Appleby acquired the private banking division of Coutts, which had been owned by Royal Bank of Scotland (RBS) in the past.

As the bank's client list from the past remained in the internal database, and it was leaked via Appleby. Appleby and Coutts named such transactions involving trusts, the Project Gold. We also found a PowerPoint presentation file that explains the project in detail.

The Coutts’ client list with thousands of names included LVMH Chairman Bernard Arnault, the owner of Louis Vuitton brand, and Polish film director Roman Polanski. And we found 2 Koreans in this list.

One is Ahn Sungtae (Steve Ahn), a professor in entrepreneurship at KAIST.

In 2000, Ahn established a company named 'Leadis Technology.' Ahn succeeded in getting the company listed in the NASDAQ market. Since then, he has become a 'legendary' figure in Korean start-up scene. At the time of IPO, Leadis was valued about $840 million, more than 9 million won.

After 2 years of listing in NASDAQ, Ahn sold the company to an American successor in 2006, and started teaching at Korea Advanced Institute of Science and Technology (KAIST) since 2015.

According to the leaked Appleby documents, he incorporated a shell company 'Pazamor Limited' in British Virgin Islands (BVI) on Nov. 24, 2009. After just 15 days, on Dec. 7, he established a trust fund for Pazamor in the Cayman Islands.

KCIJ-Newstapa asked Prof. Ahn about purpose of this trust. Ahn explained that he established it to invest the asset he accumulated while doing a business, after selling off Leadis Technology. When asked if he did so to inherit or grant the asset, he said no.

However, according to the Coutts’ list leaked via Appleby, Ahn has set three people as beneficiaries, himself, his wife and daughter.

When visited him in his office to ask the same question, Ahn said “his trust can’t be considered to have a purpose of inheritance or grant, because he didn't set specific conditions regarding inheritance nor grant when incorporating the trust.”

He also added that he’s recently registered the offshore account to Korean tax authority.

KCIJ-Newstapa requested to show any investment registration forms, but he rejected.

No one can find out if Ahn really established this trust just for investment and has been fully paying taxes, as long as his wealth is kept at an offshore tax haven.

But questions remain if he simply wanted to invest, why did Ahn choose to take an extra step to keep the money by establishing a trust fund at an offshore tax haven, and why did he designate his wife and daughter as beneficiaries, if it wasn't for granting wealth.

Another Korean in the Coutts’ client list is Park Dong-hyun, Chairman of Mezzion, a medicine developer. More detail about him can be found here.

Reporting from U.K. : Jang Junghoon, an independent producer