Where biz titans, pop stars, royals hide wealth

James H Simons, a reserved mathematician and hedge fund operator from Boston now approaching 80, is a big Democratic donor. Warren A Stephens, a 60-year-old golf enthusiast once called the king of Little Rock, Arkansas, inherited a family investment bank and became a booster of conservative Republicans.

But Simons and Stephens are both billionaires who have used the services of offshore finance, the trusts and shell companies that the world's wealthiest people use to park their money beyond the reach of tax collectors and out of the public eye.

Simons was the main beneficiary of a private trust, never previously described, that was one of the largest in the world. In response to recent questions about the trust, Simons said that he had transferred his share to a Bermuda-registered charitable foundation.

Stephens used an opaque holding company to own an approximately 40% stake in a loan business accused by the federal Consumer Financial Protection Bureau of cheating working-class and poor Americans. While earning millions from the investment, Stephens helped finance a political onslaught against the bureau, never mentioning his personal connection to the fight.

The details of the two men's hidden wealth come from the files of Appleby, founded in Bermuda more than a century ago and considered one of the world's top offshore law firms. A collection of 6.8 million Appleby documents, obtained by the German newspaper Süddeutsche Zeitung and shared with media organisations through the International Consortium of Investigative Journalists, offers an inside look at the firm's services and customers.

Appleby operates in a rarefied universe of ultra-high-net-worth individuals, where yachts and private jets are preferred transport and mansions sit empty because their owner has several others. Some of Appleby's customers are also PEP's (politically exposed persons) for whom avoiding unwanted attention is a crucial goal. What offshore services offer to a diverse international elite is secrecy and discretion, along
with the opportunity to minimise or defer taxes.

Appleby had 31,000 US clients, the most common nationality by far. The firm's files include a who's who of the nation's wealthiest citizens: prominent Democrats like George Soros, the financier and philanthropist, and Penny Pritzker, commerce secretary in the Obama administration; and high-profile Republican supporters of President Donald Trump, including Sheldon Adelson, the casino magnate, and Carl Icahn, the private equity investor.

Queen Elizabeth II, according to Appleby documents, used a Cayman Islands fund to invest in a company that owned a share of a British rent-to-own company widely criticised for financing the sale of household items at interest rates as high as 99.9%. The leaked files reveal Madonna's shares in a medical supplies firm, Bono's investment in a Lithuanian shopping centre and Microsoft co-founder Paul G Allen's yacht and submarines.

Founded in 1898 by a British officer, Major Reginald Appleby - an avowed opponent of taxation - Appleby now has offices in nearly all the world's tax havens: Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Hong Kong, the Isle of Man, Jersey, Mauritius, the Seychelles and Shanghai.

Such locations offer low or zero tax rates, companies consisting only of a postbox, and accountants and lawyers skilled at hiding money.

In a statement, Appleby said the firm had done nothing wrong. "We are an offshore law firm who advises clients on legitimate and lawful
ways to conduct their business," the statement said. "We do not tolerate illegal behaviour."

Simons, the hedge fund billionaire, was a young math professor in 1974 when a Colombian friend established a trust in Bermuda on his behalf using a gift of $1,00,000 to him, his parents and his descendants. US tax authorities would consider the Lord Jim Trust, as it was named, a foreign entity, limiting the visibility of the IRS into its holdings and its ability to tax its funds until it made distributions to the Simons family. (Appleby did not create the trust but later provided legal advice.)

In 1982, Simons founded Renaissance Technologies, a New York-based hedge fund whose secret trading algorithms soon generated rates of return that became storied on Wall Street. Over the next three decades, it became one of the most lucrative hedge funds on the planet, making Simons a billionaire many times over.

Simons, in response to questions, said that when
he and his family received distributions from the Bermuda trust, they were reported to the IRS. But Simons said he and his relatives took out only limited amounts, mainly in the early years
of the trust, whose main investments were Renai-
ssance funds that enjoyed spectacular returns.

In 2014, a Senate committee accused Renaissance and another hedge fund of using a complex accounting manoeuvre to improperly avoid taxes. Renaissance is still fighting the resulting tax bill, estimated at $6.8 billion. If Simons' motive for setting up offshore entities is complex, Stephens' seems more obvious.

Tribal immunity

In late 2011, representatives of Stephens and his business partner, James R Carnes, asked Appleby to incorporate two offshore companies as part of a plan to help Native American tribes set up lending operations, a common business tactic because such ventures can claim tribal immunity against outside legal challenges.

The new venture's parent company, Hayfield Investment Partners, was incorporated in Delaware - considered a tax haven like a half-dozen other US states, underscoring that secrecy and tax advantages are not limited to palm-dotted tropical islands. Hayfield already had a separate subsidiary called Integrity Advance, an online payday loan company whose lending practices were coming into the crosshairs of regulators across the United States.

Documents in Appleby's files show that Stephens and his funds owned 40% of Hayfield, which received additional investments from executives of Stephens Inc., the family investment bank, and acquaintances like golf star Phil Mickelson, who contributed $12,000.

It did not take long for Integrity Advance to generate complaints from borrowers and regulators. People short of cash who took out small loans would later see large withdrawals from their bank accounts for interest and services fees that often far exceeded the amount they originally borrowed.

By November 2012, Integrity Advance had received cease-and-desist letters from state regulators in Connecticut, Kentucky, Illinois, Mississippi and South Carolina.

As complaints mounted, Stephens and Carnes sold part of Integrity Advance to a pawnshop-style loan company, Ezcorp. Eventually, the Consumer Financial Protection Bureau accused Integrity Advance of "false and deceptive" tactics, and last year, an administrative law judge recommended to the head of the bureau that the company and Carnes, its chief executive, pay more than $51 million in fines and restitution to borrowers. Integrity Advance and Carnes are appealing the ruling.

Stephens has recently used his investment bank, Stephens Inc., to start an online video series called "This Is Capitalism" to improve millennials' opinion of free-market economics.

In his introduction, Stephens wrote that he hoped the series would counter the notion that the free market is "a system that enriches a few at the expense of the many."