Winebox: So what was Simon McArley’s role?

The Winebox was the collective term given to a number of transactions involving the Cook Islands tax haven by a company called European Pacific in the late 1980s. The company was owned by Brierley Investments, Fay Richwhite, and the Bank of New Zealand (BNZ). Fay Richwhite and its associated public company, Capital Markets, were behind the deals which were structured to secure either tax credits in the Cook Islands and/or with-holding tax deductions in New Zealand or Japan. Fay Richwhite had links with Japanese banks, which were prepared to invest directly into New Zealand for State-owned corporations with an implicit government guarantee, and this link was behind the various tax schemes.

One of the main schemes involved Redeemable Preference Shares (RPS), and there were a number of deals done between 1988 and 1991 for the BNZ through its subsidiaries. BNZ Investments latched on to the existing situation where Japanese banks had foreign tax credits for investments in New Zealand public corporations, through subsidiaries set up in Caribbean tax havens, known as ‘warehousing’. All the BNZ had to do was put up some money, but not too much to alert the Reserve Bank in New Zealand, and negotiate an indemnity with Capital Markets on the tax treatment if it was investigated. The problem with the RPS deals was that it added to the BNZ’s exposure to the Fay Richwhite group.

A solution to this was found in conjunction with Capital Market’s legal firm in Wellington, Kensington Swan, so that shelf companies would issue the preference shares. Kensington Swan provided a series of shelf companies, based on 100 ordinary $1 shares, with two directors who were legal clerks. The scheme was devised between Simon Tompkins of Capital Markets, and Graham Tubb, a partner at Kensington Swan. The details of the deals involved the BNZ and its legal team, from the Buddle Findlay firm, meeting with Tompkins and Capital Markets’ lawyer.

In an interview with staff of the Commission of Inquiry, Graham Turley, formerly of the BNZ, stated that the “major person” in the RPS deals was Simon McArley of Kensington Swan. It is McArley who appears to be the pivot in preparing the legal documentation, in a procedural sense, even if he was not pivotal in the design of the schemes. McArley claims that he was only involved in the commercial documentation for the deals, all of which were apparently legal at the time. McArley certainly ran the operation, and wrote to the various legal firms involved. But he also set up the schemes to operate for European Pacific in the Cook Islands tax haven; and after the CFC legislation was introduced in 1988, European Pacific was no longer a New Zealand company.

In the archives of the Commission of Inquiry into Cook Islands Taxation, known as the Winebox inquiry, there are a number of boxes of BNZ sourced documentation for the RPS deals. McArley appears many times during 1989 as the shelf companies are provided for European Pacific to utilise, and the documentation sent to their lawyers is extensive. Morevover, as part of the scheme the shelf companies ownership is changed from New Zealand domicile, to the Cook Islands, and the names are changed. So, for example, Eodem Securities, Galverston Securities and Blasco Investments become overseas companies. McArley writes to the Overseas Investment Commission (OIC) to approve the transfer in February 1989. Within a few days approval is granted For Nassau Ltd to takeover Eodem; and for Calypso Ltd to takeover Galverston and Blasco. The OIC thus allows the share transactions to take place uner the new names and in the Cook Islands, and it approves McArley’s request for confidentiality in the decision.

Now, note the names, Nassau and Calypso, how very Caribbean they are. Sound a bit like names that would be used in Caribbean tax havens, perhaps. Well, the RPS deals, and other tax structured transactions, are so complex that two tax havens are involved. But in this case the external client, being the New Zealand public corporation, has the subsidiary in the Caribbean. One has to be in the know, and it seems that Mr McArley must have known how the transactions worked, and the legal position, though he now denies this. He is now the head of the Serious Fraud Office (SFO) in New Zealand, and the SFO never did find any fraud or tax evasion in the Winebox.     

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