Paradise Papers -
The Shadowy World of Big Money

Do Not Disturb

On the Isle of Man, cats don't have tails and letterbox firms don't have letterboxes. The island seems to have a unique business model, too: It acts like a tax haven while pretending it's unaware of doing so.

By Mauritius Much and Ralf Wiegand - 15. November 2017

The place where the past crashes into the present like waves on a beach is located behind a heavy swinging door in a basement. The Best Western Palace Hotel & Casino may neither be the best, nor in any way a palace, but at least it has a real casino – the only one on the Isle of Man. It's a Wednesday in late September and four young men are sitting at a roulette table. A second table remains covered. Nearby, an older couple is playing blackjack as a waitress jots down an order from the only customer in the Chinese restaurant. The doorman, who has plopped down on a stool at the reception, is staring at his mobile phone. For the next hour, no additional customers will show up.

Soon, no one may come at all. Outside the casino's heavy doors, half the world is gambling away its money every second of every day, all night long. The gambling industry is booming – on the internet. The brick-and-mortar casino business, however, is shriveling.

Meanwhile, e-gaming accounts for 19 percent of the Isle of Man's economic output. The first company in the sector settled here 16 years ago, offering online poker, roulette, blackjack and betting. Today, the island's most modern buildings belong not to banks or insurance companies, but to e-gaming firms. The companies provide the necessary software and politicians come up with just the right laws. Thanks to the Isle of Man, there is no doorman, or even a door. Anyone can log in to the island's internet casinos, even from places where online gambling is prohibited by law. Dropping by its real-world casinos would be a totally legal alternative, but few bother anymore.

That's not the only contradiction on this island. Ivy creeps up the palm trees here, and a wrestling match is soon to take place at the stately Villa Marina. The professional wrestler Marcus of Man was born on the island, now he's returning to show off his skills. The match is not sold out.

"Does this look like a place where billions are flying around?" asks Andrew Jessopp. A quiet, slender 58-year-old, Jessopp is wearing an outdoor jacket and has his hands thrust deep into his pockets as the wind tousles his curly hair. Jessopp has taken a day off to drive across the island on which he has lived for the past 30 years. But the place is growing stranger to him by the day. The Isle of Man is a tax haven, "there's no other way of describing it," says Jessopp. He belongs to a group that is critical of the island's business dealings and of all the money invisibly flowing into it. It's called Taxwatch, and it has 12 members. Twelve out of a population of 83,000.

The island doesn't make things any easier for him. The quiet Mr. Jessopp also has a quiet electric car, but there are unfortunately only two charging stations. Jessopp believes an island threatened by the sea should be doing more to combat climate change. To that end, he's been trying for some time to establish a Green Party, though he hasn't yet succeeded. He has also run a few times in parliamentary elections, but he has never been elected. And why not? Perhaps because one out of three island residents works in the financial sector. And they probably aren't fond of people who say things like: "It's not the most ethical way of trying to earn a living." That, after all, is what Jessopp says.

And he appears to be right. The Paradise Papers, the trove of data and documents obtained by the Süddeutsche Zeitung and evaluated over the course of several months by the International Consortium of Investigative Journalists (ICIJ), provide clues about all kinds of questionable deals transacted on the island, located between Britain and Ireland in the Irish Sea. It's a place where one can import aircraft into the European Union tax-free and even circumvent other countries' gambling laws.

Those are just two examples of the kinds of deals transacted in tax havens. Globally, corporations shift 600 billion euros each year to such places. Germany alone is cheated out of 17 billion euros in annual tax revenue.

There's a simple reason to explain why the Isle of Man is part of this massive game of tax Monopoly: Because it can be. The British royal family used to rule the isle, but that was a long time ago. As a British crown dependency, the Isle of Man is largely autonomous. It's not its own country, nor is it part of Britain. But it's also not part of the European Union, though it is connected through various agreements. The British provide security for the island and take care of its foreign policy, but otherwise they give it free rein. Like when it comes to establishing its own laws, for example.

Indeed, it's a lot easier to say what the Isle of Man is not, than to say what it is. Except, of course, a tax haven, which it very much is.

The island's parliament is very generous with companies wishing to settle here. The government has stretched its tax regulations and laws so far that most major financial service providers and online casinos have been able to slip though the resulting loopholes. Now they're all there – KPMG, Ernst & Young, Deloitte, Pokerstars, Microgaming, Barclays, Lloyds, corporations, banks, insurance companies and financial brokers. Just an hour away by plane, the logos of those same companies shine from skyscrapers in the City of London. On the Isle of Man, meanwhile, such companies are headquartered in two-story residential homes with pretty bay windows. Small and quaint from the outside, big money on the inside.

When the financial industry came to the island, the lawyers followed, not unlike the seagulls that follow fishing boats, hoping for a few scraps.

Among them were lawyers from Appleby, the law firm from which most of the data in the Paradise Papers originated. Appleby has branches everywhere one could want to store money discreetly – places where palm trees grow and ocean waves crash onto the sand. They're called "offshore" for a reason. The firm has offices on islands like the Caymans, Bermuda, the Seychelles, Mauritius and the British Virgin Islands – places where it sets up shell companies and provides other professional services. "Key Offshore Jurisdictions" is the term the law firm uses. The Isle of Man is one of them.

And that's what the island's residents live from. It is these people – the secretaries, chauffeurs, building managers, IT experts, receptionists, cashiers, delivery men and clerks, the working class of offshore havens – who pay taxes. They are the ones who keep the system of tax exemptions alive. And they are the ones who are forced to pony up.

"Isn't that crazy?" asks Andrew Jessopp, without waiting for an answer. It's as though everyone has resigned themselves to the fact that their island has been sold to Big Capital, he says. "They don't like change." Around 30,000 companies are registered on the island. Even if only the companies that nominally belong to island residents were required to pay a 20 percent tax rate, the treasury would rake in 108 million pounds per year, Taxwatch has calculated.

Jessopp asks whether the island looks like it's crawling with billionaires. No, it doesn't. The streets aren't smoother, the schools no better and the building facades no more immaculate than elsewhere. Kindergartens, hospitals, affordable housing: The Isle of Man has a shortage of such things, too, just like everywhere else. Jessopp zips through the capital, Douglas, in his electric car and up a hill into a new industrial park where a new car dealership is under construction. When finished, it will sell brands like Aston Martin, Rolls Royce and Bentley – rather sizable vehicles for an island that isn't even a third as big as the German city of Hamburg. "Another car dealership isn't exactly what we need," Jessopp says as disgust creeps into his voice.

It really is too bad that such a beautiful place like the Isle of Man is entangled in such shabby business practices. The people are so cheerfully friendly that it's almost impossible to mistake them as English. Everybody says hello to the driver when boarding the bus and the driver greets everyone in return. When the sun is shining, people call out to each other on the streets: "It's a better day than yesterday!" The hills roll gently, the castles are old and wherever fishermen are allowed to throw a line in the water, there is a sign with fish on it.

It is said that islands broaden one's horizons. If you live there, it's not so easy to leave, but your view is unimpeded and your thoughts could be too. Yet the Isle of Man mindlessly sells itself to anyone a couple of pounds in processing fees.

Such fees are settled in the Companies Registry office, which resembles an internet cafe with a service window. The company founder uses a computer to find a name that hasn't been taken yet – a nice "Limited" perhaps, named after one's yacht or a loyal dog – prints out the form, goes to the window and pays the fee. That's it. The new company doesn't even have to have an intended purpose. "The whole thing takes just a couple of minutes," says Jessopp. He seems lost in the room, as though the people around him are speaking a foreign language.

Interestingly, you can register a marriage at the same window. And while nuptials can be expensive here, the corporate tax rate is zero percent.

It's all rather unseemly for an island that is also home to a fairy. On the bus, the same voice recording that announces the stops pipes up again at the Fairy Bridge: "Say hello to the fairy!" Hello fairy.

In part because of such legends, the island earned a decent living from tourism until the end of the 1960s. Douglas is a seaside town on a gently curving bay. Tourists from Manchester and Liverpool used to take the ferry across to the island for summer vacation – one that was often, unfortunately, devoid of summer. The climate here is mild; rain and fog make frequent appearances.

But then, says Jessopp, himself from Birmingham and among the last vacationers to come to the island for a bit of summertime relaxation, "people could suddenly fly to Greece or Spain." And the hoteliers on the Isle of Man neglected to renovate their rooms, so that even 40 years after World War II, many of the buildings still made it look as though the war had just ended. The city's seaside promenade is a mix of 19th century ostentation and sober monotony. During both world wars, locals interned suspected foreign spies in many of the buildings. Even Joseph Hubert Pilates from the German city of Mönchengladbach was held here, giving him the time to invent the yoga variation Pilates.

The Bee Gees were also born on the island, and the famous racecar driver Nigel Mansell lived here for a time before moving to Jersey, another tax haven.

It was, of course, a great idea for the Isle of Man to become a tax haven. It is linked directly to the European Union via a customs union, though Europe doesn't seem particularly bothered by the island's shenanigans. If you import something into the European Union via the Isle of Man, for example, and pay no value added tax (VAT) there because the Isle of Man doesn't require such a thing, then you also won't be asked to pay up in any other European country either.

That isn't a particularly good deal for the EU, but it's great for those interested in importing a private plane, for example. The Isle of Man has become expert at allowing private jets to be registered along with companies that own those jets – only to then free the company from having to pay VAT. Nearly a thousand aircraft have ended up on the Isle of Man's books, and the tax revenue shortfalls in the rest of the EU have been substantial: Several hundred million in potential tax revenue has gone uncollected while the Isle of Man has secured a bit of money by way of processing fees. But it's better than the nothing they otherwise would have received – this, at least, appears to be the logic. The airplane trick is used by the super-rich, including Formula One racecar drivers, business executives and sheikhs.

Ever since it was revealed about two weeks ago that the jet business was part of the leaks of internal data exposing the law firm Appleby and others, everyone on the mainland has been seething. Such a thing shouldn't be allowed, all the politicians in London have been growling, as though this is the first time they have ever heard of the Isle of Man. But the plane registry has been around for 10 years. Apparently no one had ever bothered to ask themselves how it could have grown into the largest registry of its kind in the world.

There are only 35 lawmakers in the Isle of Man's parliament, known as the Tynwald and originally founded by the Vikings in the 10th century. For more than a millennium, decisions here have been made by a small clique, and so it remains today. The government quarter, the offshore industry, the law firms, insurance companies, customs and regulatory authorities – they're all right next to each other. Closing deals is merely a matter of walking up the hill and setting up a lunch date. The chief public prosecutor can be seen waiting at the bus stop; the economics minister often rides past on his bike; and those in government one day can easily get a job at a financial services provider the next. The man who originally came up with the idea of establishing an airplane registry did so while still in government – before moving over to Appleby as head of the firm's airplane division.

But the island is changing, too. The rampantly proliferating gambling industry has begun jamming its boxy glass structures in between older buildings. The software manufacturer Microgaming even connected its two locations with a bridge, while visitors on the ground floor can look into a periscope for a view over the rooftops of Douglas. It has a much more contemporary aesthetic than the horse-drawn streetcar that still rattles down the promenade outside.

Andrew Jessopp thinks the island is too small for the size of its financial sector. "The business is hardly regulated at all. There are too few people on the island to control the financial sector," he says. Just how big is the problem? At one address – coincidentally Appleby's – there are more than 1,100 companies and trusts registered: Athol Street 33-37. Mail can be dropped off at the reception, as letterboxes are a rarity on this island of letterbox companies. Elsewhere, such a thing might seem surprising, but not here. This is a place where many of the cats don't have tails because of a mutation, and the sheep have four horns instead of two. And the letterbox companies have no letterboxes.

People call Athol Street the "street with no sun," because the shadow economy dominates here. It is essentially the island's financial district, though it looks like a normal residential street. The company logos are discreet and the houses well tended – while inside, billions of dollars are shuffled back and forth. It is the pinnacle of discretion.

Invisibility is something tax havens do well, and the Isle of Man is the perfect place for such a thing. According to legend, the Celtic sea deity Manannan mac Lir would defend the Isle of Man from attackers by simply obscuring it behind a veil of fog. A few smugglers are said to have made use of this phenomenon as well.

Fog still appears out of nowhere, often without warning. It's not unheard of for pilots to turn around at the last minute, even if passengers have already glimpsed the lights of Douglas. When that happens, they simply fly back to London, give everyone on board an extra bottle of whiskey and nobody gets upset.

The leader of the island is also fond of parrying criticism with a bit of verbal fog. "We aren't a tax haven, we are tax efficient," says Howard Quayle, the island's chief minister. Aggressive tax evaders aren't welcome, he adds, before promising to look into the system whereby private plane owners avoid paying VAT.

Such inquiries are always the first response to a leak. The United Kingdom, with its overseas territories and crown dependencies, has plenty of experience with this. A year and a half ago, following the Panama Papers revelations, then-Prime Minister David Cameron suddenly found himself with a bit of explaining to do. This time, it is Buckingham Palace itself that has been revealed as an offshore investor by the Paradise Papers. It is always the same places: the Channel Islands, the Cayman Islands, the British Virgin Islands and, this time, the Isle of Man. Yet nobody ever seems to think to close the loopholes.

When everything gets to be too much for him, Andrew Jessopp jumps on his motorcycle. "Driving fast is an expression of freedom for many people on the island," he says. There is no universal speed limit. Since 1911, the world's most dangerous motorcycle race has been held here, with drivers speeding around 200 corners at 200 kilometers per hour. This summer alone, three people died in the race. Jessopp almost became a statistic himself back in 1993, when he hit a bump in the road. He initially thought he had broken his neck. His family forbade him from ever taking part in the race again.

He gave in, just as everyone else on the island seems to have given in as well. There's a saying for people who don't like it here: A boat is coming tomorrow.

Share this story: