The Egyptian Initiative for Personal Rights (EIPR) is pleased to learn that in 2013 the British Virgin Islands (BVI) authorities opened an investigation into Pan World Investments, according to documents published yesterday as part of the Panama Papers. The Panama Papers leak includes more than 11 million confidential documents from the Panamanian Mossack Fonseca firm, which establishes shell companies for its clients in tax havens.

Yesterday’s publication of the Panama Papers sparked a broad debate about the properties of the Mubarak family in tax havens, specifically Pan World Investments Inc. The leaks included correspondence between the BVI authorities and Mossack Fonseca, which managed Alaa Mubarak’s company in the BVI. Panama and the BVI are two major destinations for illicit funds or stolen assets because of the confidential transactions they offer.

As part of international civil society’s role in exposing assets stolen and hidden by world leaders in these shelters, and as part of its efforts to combat the concealment of assets through such secret channels, EIPR and the UK-based Corner House attempted to trace the assets of the Mubarak family in tax havens. On April 4, 2013, they contacted the BVI authorities to notify them of the findings of their investigation into the Mubarak family’s illicit assets. The organizations informed the authorities of two companies owned by Mubarak family members, saying they should be immediately frozen pursuant to an order issued against the property of 19 members of the Mubarak family and his political regime on October 17, 2011. Pan World Investments was one of the companies identified by the organizations’ investigation. To see the letter in English, click here.

On May 29, 2013, the BVI authorities responded that the investigations had in fact begun, writing in a letter: “I refer to your email of 4 April 2013 with attachments which was sent to Ms. Dawn Smith. We thank you for the information provided. We are investigating the matters raised in your correspondence, and will take appropriate action once our investigation is completed.”

According to the International Consortium of Investigative Journalists (ICIJ), which published the Panama Papers, Mossack Fonseca was fined $37,500 for its failure to perform adequate due diligence on the assets of Alaa Mubarak, described as “a high risk customer.” The EIPR has still not been able to determine the fate or current status of Mubarak’s company.

In 2013 as well, the EIPR also contacted the European Commission to notify it of three companies on European territory suspected of ties to the Mubarak family. The European Commission responded that it had in fact frozen four bank accounts associated with these companies. The EIPR affirms its ongoing commitment to working with authorities in various countries to examine stolen assets thought have accrued from corruption and ensure their return to their legitimate owners.

After the revolution, several attempts were made to trace the assets of the Mubarak family deposited in these far-flung tax havens. Civil society efforts in Egypt and the UK, including by the EIPR, managed to identify Pan World Investments in 2013. They contacted the Virgin Island authorities and the European Commission to notify them of the need to freeze these companies pending the completion of investigations into these assets, pursuant to asset freeze orders issued against the Mubarak regime in the EU and the BVI. We received a positive response to these inquiries. The European Commission notified the EIPR that it had frozen four accounts in Cyprus in the name of Gamal Mubarak that were linked to the Bullion Company, owned by Pan World Investments. The BVI authorities promised to investigate the issues we raised, and according to the Panama Papers, the authorities did indeed move to freeze the company, ending its 17-year operation as a secret investment fund.

What do we know about Pan World Investments?

According to a document issued by the Illicit Gains Authority, both of Mubarak’s sons are owners of Pan World Investments, established in the mid-1990s. Pan World lies at the heart of a network of private investments owned by the Mubarak sons that starts in the BVI and passes through the Cayman Islands and Cyprus before ending in Egypt. From August 1996 to January 2008, Pan World Investments owned 50 percent of Bullion, registered in Cyprus, which in turn owned 35 percent of EFG Hermes Private Equity, another investment firm registered in the British Virgin Islands. This company owned two subsidiaries: first, EFG Capital Partners, which invested in several Egyptian firms, including Suez Cement, the Egyptian National Bank, the Talaat Mustafa Holding Group, and Alexandria Mineral Oils, and second, Horus Food and Agribusiness, which invested in Idita Food Industries, Wadi Holding Company, Egypt October Food Industries (Masriyeen), and other companies. For more information about Pan World Investments, see this infograph. In addition to EFG Hermes Private Equity, Pan World in 1997 invested in Egypt Fund Partners Inc., registered in the Cayman Islands, another well-known tax shelter. Egypt Fund Partners ran the Horus Private Equity Fund with a stake of $250,000, which in turn invested in 18 Egyptian companies. In February 2008, Pan World Investments withdrew from the Cyprus-based Bullion and moved its shares to another company registered in Cyprus, Nakoda Ltd., which was in turn owned by CP Palema, also registered in Cyprus. The latter is also thought to be owned by the Mubarak sons as it continued to own a share of EFG Hermes Private Equity through the Cypriot company even after the revolution. The Horus Fund was also liquidated in 2010.

What’s wrong with investments in tax havens?

A tax haven is a legal jurisdiction in which income and corporate taxes are low or non-existent and this is used to attract assets to such “countries.” Such havens often offer another benefit—secrecy, which is necessary for persons who wish to avoid paying taxes in their own countries and makes it impossible for the tax authorities to find information about their assets. According to the Tax Justice Network (TJN), there are some 80 tax havens around the world offering low or no income taxes or with laws that provide for confidentiality. Assets and wealth from the around the world flow into these havens.

Tax havens have many benefits and uses. Many companies own subsidiaries in a tax haven to allow them to manipulate their accounts to show profits accruing to the subsidiary registered in the tax haven instead of in the branch registered in the country where they actually operate. This means that giant multinationals may not pay taxes in the place or country in which they make their profits. There are many methods to divert profits. Most commonly, different parts of the same company pay each other in an artificial transaction for goods and services rendered, as part of a profit distribution strategy to reduce their tax bill. These tax havens can also be used to hide investments, when prominent officials and politicians wish to conceal their wealth.

Another common method is the creation of a special purpose entity (SPE), which offers a channel for tax evasion and is typically not accessible by the company’s home country. Another common strategy involves an investor transferring funds to a newly established company in a tax haven, which then invests in stocks and bonds in the company’s home country. Although the profits from these investments accrue to the investor, who is living in his home country and investing in companies also in his country, the profits officially go to the foreign company that is not subject to the tax laws of the investor’s home country. High net worth individuals can also evade estate taxes by registering their financial assets in tax havens and directing their income to these shelters to conceal it from the tax authorities.

All countries, rich and poor alike, suffer from this state of affairs. Recent years have seen several high-profile cases of tax evasion in the UK, most famously the case of Starbucks, which had annual sales of £400, or more than LE4.5 billion, but paid no taxes on profits. The company that owns the café chain diverted some of its profits to a subsidiary in the Netherlands, in the form of royalties, and borrowed from other parts of the company at extremely high interest rates, both of which are typical strategies used to divert profits.