This article first appeared in Forum, The Edge Malaysia Weekly on February 27, 2023 - March 5, 2023

It is not the first time that the subject of former finance minister Tun Daim Zainuddin’s wealth has been thrust into the limelight.

The major difference this time is that the Malaysian Anti-Corruption Commission (MACC) has swung into action by calling in the 84-year-old for questioning in relation to 12 offshore companies linked to him.

Details of the Pandora Papers and the Malaysian names in the report compiled by the International Consortium of Investigative Journalists (ICIJ) have been disclosed since 2021.

It is not only Daim who is mentioned in the documents. The other politicians named are Deputy Prime Minister Datuk Seri Ahmad Zahid Hamidi, International Trade and Industry Minister Datuk Seri Tengku Zafrul Aziz and Selayang member of parliament William Leong.

When the news hit the streets two years ago, Zafrul, Zahid and Leong explained the circumstances under which they were named as directors or owners of the offshore companies, and said they no longer held any interest in them.

With regards to Daim, he told a news website that his holdings in the offshore companies were from the years of doing business outside Malaysia. He said he had paid all taxes that were due in the jurisdiction of the offshore companies.

He said he was already wealthy before contesting in the general elections in 1982, and that he had been buying assets overseas since the 1960s. He added that he was also successful in business and had retired in 1991.

The quantum of Daim’s wealth has always been a mystery. He has never appeared on Forbes’ list of Malaysia’s richest people or any other lists of Malaysian tycoons. His name does not appear on the shareholders’ list of companies; as such no one can get an idea of his wealth.

According to the Pandora Papers, apart from properties in London, Daim’s assets include the ICB Banking Group, which is registered in Switzerland and acquired banks in Africa and Asia, and one bank in Albania.

It had been reported that Daim held 75% interest in the banking group, which once had a market capitalisation of £150 million.

ICB Banking Group was delisted from the AIMS Market in London in December 2012 and subsequently started to wind down by selling its banks located in the various countries.

The Pandora Papers is the third major set of documents that details notable individuals’ holdings in offshore companies in tax havens. These individuals include politicians.

In 2016, ICIJ released the Panama Papers, which were documents from Panama-based legal firm Mossack Fonseca, which set up offshore accounts in the country for companies and individuals to avoid scrutiny and minimise taxes.

One year later, the ICIJ made public the Paradise Papers, which exposed companies and individuals registered in 19 tax havens. It was the result of a leak in documents that originated from a legal firm that had offices in various offshore tax havens.

All three reports detailing offshore companies held by politicians and companies are explosive, and point to several things.

Firstly, it is legal for individuals, politicians and companies to have offshore accounts. Among the account holders are not just politicians from third world countries but also those from the UK and the US. The likes of former British prime minister Tony Blair and former chief executive of Hong Kong Tung Chee Hwa have offshore accounts. Even the late Queen Elizabeth II was implicated when her private funds were traced to an offshore wealth management company in the Cayman Islands.

Secondly, the logical reason for opening offshore accounts is to enjoy a better tax structure. For instance, Blair and his wife saved US$434,000 in stamp duty when they purchased a £6.5 million property in London. By taking over the company in a tax-free jurisdiction, they avoided paying stamp duty.

Thirdly, the act of holding of offshore companies in tax havens and operating of bank accounts there tends to be frowned upon because of the lack of transparency associated with it.

The offshore companies and their accounts are shrouded in secrecy and the ultimate beneficiaries not easily identifiable. Hence, there is a tendency for offshore companies in tax havens to be viewed suspiciously because the perception is that the beneficiaries cannot account for or do not want to disclose the sources of their funds.

For instance, Jho Low and his band of thieves transferred money all over the globe through offshore companies registered in tax havens. It was the modus operandi used to avoid scrutiny.

Finally, there is a precedent for tax authorities to investigate companies and beneficiaries that have been implicated in the reports issued by ICIJ even though the documents were illegally obtained or stolen.

The international mining company Glencore had challenged the right of the Australian Tax Office (ATO) to access the files on the company that were disclosed through the Paradise Papers in 2017. The mining giant lost the case in 2019. The Paradise Papers disclosed details of an offshore company that Glencore had used to undertake a restructuring exercise in 2014.

Prior to the ruling, ATO had issued large tax notices to BHP and another mining company, Rio Tinto, after reviewing their operations, particularly in lower tax jurisdictions. Hence, the ruling against Glencore is seen as setting the precedent for authorities in other jurisdictions to act on the files disclosed by ICIJ.

In reality, offshore companies are normally just shell companies with no permanent office space and that are managed by an offshore legal firm. They are used to maximise tax benefits.

In addition, companies set up offshore shell companies to undertake business transactions to ensure that they have better control over the money flows. For instance, companies doing business in India sometimes set up an entity in the Maldives for easier repatriation of profits.

As for individuals, offshore accounts are not for normal wealthy people, but rather for the few among the super rich who have international businesses.

Nobody bats an eyelid when the likes of Tan Sri Lim Kok Thay of the Genting Group or Westports Holdings Bhd’s Tan Sri G Gnanalingam are revealed to have offshore companies. This is because their wealth and sources of funds are well established from their interest in public listed companies.

But when it comes to individuals, especially politicians, whose path to amassing wealth is not known publicly, it certainly would warrant scrutiny. They have not broken any laws but have a moral obligation to disclose how they made their money to avoid any aspersions being cast on them.

M Shanmugam is a contributing editor at The Edge

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