Paradise Papers -
The Shadowy World of Big Money

The Big Addle

It’s not always easy to set up a complex offshore structure for your company plane. But as the German clothing retailer New Yorker found, it usually works out in the end.

By Elisabeth Gamperl and Bastian Obermayer - 19. November 2017

Sometimes, even the simplest things can go pear shaped. And really, what could be easier for a successful executive than registering a company airplane in the Cayman Islands? Particularly given that such a thing is actually quite trivial, part of the offshore daily grind, so to speak. But the man occasionally referred to in Germany as the “Trouser Billionaire,” and whose fashion brand is known to 94 percent of Germans, provided they are between the ages of 14 and 29, found out the hard way that it isn’t always as easy as it looks.

In August 2008, a German lawyer contacted the Appleby branch on the Cayman Islands and reported that her client had purchased another plane, a Bombardier Global Express XRS, for $55 million, the equivalent of 35 million euros at the time. The German lawyer said she had come up with a company structure for the use of the jet – one that envisioned an aviation operator in Germany and an offshore company in the Cayman Islands leasing the aircraft to the company of the billionaire in question and to the billionaire himself in a personal capacity. It seemed like just the thing. But Appleby, the law firm tasked with setting it up, wasn’t so sure it was legal.

The result was a grueling episode, one which also shows that even in the offshore world, where everything seems possible, not everything is. At least not right away.

That primarily had to do with two points of contention. For one, the client was interested in a more byzantine solution than even Appleby – itself something of a connoisseur of convoluted configurations – was willing to swallow. And for another, the German lawyer either didn’t want, or wasn’t allowed, to provide much in the way of background information about her client. When Appleby wrote in the draft contract that all companies involved in the airplane deal belonged “to the same group” – since that is the only way such a structure could benefit from the advantages offered by the Cayman Islands – the interested party’s legal representation demurred. “Can we leave it out of the agreement?” she wrote. When Appleby then requested an organigram in an effort to understand what company belonged to whom, the German billionaire’s lawyer replied with a terse missive. The owner of the concern, she wrote, was a “private person.” The owner of the company based on the Cayman Islands was also a “private individual.” End of story.

It’s almost enough to make one feel sorry for Appleby. After all, such obfuscation is usually reserved for those attempting to untangle the kind of convolutions that Appleby itself dreams up.

New Yorker has stores across Germany and around the world

In fact, in all the emails that flew back-and-forth between the law firms in Germany and the Caribbean – about 50 in total – the name of the billionaire in question wasn’t mentioned a single time. Ultimately, though, the various draft contracts, organigrams and other documents which are, in addition to the emails, included in the Paradise Papers, make it clear who the story’s true protagonist is: Friedrich Knapp. He owns the retail clothing chain New Yorker, based in Braunschweig, Germany – and is a man who has been dubbed the “Trouser Billionaire” by his hometown newspaper.

Characters in this farce included not just the clothing store New Yorker, known for its affordable jeans, but also the German airplane operating company Air Nova. Both belong to FGK Vermögensverwaltung, an Austrian holding company owned by Friedrich Georg Knapp, the apparel merchant with stores across Germany and around the world. A clothing store, an airplane company, a billionaire, his Austrian holding company, a company in the Cayman Islands and a leasing business that was supposed to somehow be administered through the Caribbean tax haven: “I am a simple man,” Knapp told the Braunschweiger Zeitung newspaper in a 2015 interview.

But the complexity didn’t stop there. When Appleby and its new potential client again sought to resolve the issue as to the most advantageous contractual set-up, the German lawyer offhandedly mentioned a rather odd regulation: “Due to German tax reasons,” the company responsible for the jet in the Caribbean belongs to a person who “has nothing to do” with the New Yorker Group, she wrote.

The name of this person was mentioned in the draft contracts: Wilfried Horn. And there are plenty of things that could be said about this Mr. Horn, such as the fact that he was once a police officer – he even led the unit responsible for monitoring left-wing extremism and terrorism in Braunschweig. One thing that certainly cannot be said about him, however, is that he has “nothing to do” with the New Yorker Group. Horn has worked for the company since 1994, first as head of security and now as Friedrich Knapp’s personal assistant. In his current capacity, his range of responsibilities is wide indeed.

In fact, the deeper one looks, the more questions arise. Why did the company choose this exact structure? Why does the tax haven-based airplane company have to belong to the boss’ faithful servant? Horn told the Süddeutsche Zeitung that he has been friends with Friedrich Knapp for 40 years. But why, then, was it supposed to look to the outside world as though Horn – a man whose service to New Yorker deserved no less than a gilded plaque – had nothing to do with the company? And why the Cayman Islands, given that the plane was stationed in Braunschweig, located some 8,000 kilometers away?

The Süddeutsche Zeitung sent these questions and many others to New Yorker via a number of different channels. But neither the company’s press office nor its CEO and owner Friedrich Knapp deigned to respond to emails or to numerous phone calls. It’s almost as though they have “nothing to do” with the company.

The only one willing to talk was Wilfried Horn, who was even rather friendly and in the best of moods on the phone. He said that the fleet of aircraft did indeed fall under his responsibility and also admitted that the company in the Cayman Islands was “registered privately” to him, though, he insisted, he does all that “for New Yorker, of course” – “out of loyalty.” He doesn’t know all the details of the contracts, he said, or rather, he didn’t want to talk about them, but there’s nothing to worry about, everything is legit. The company only exists because it is more convenient, he said, adding that New Yorker enjoys no tax advantages whatsoever as a result – and that he, himself, had been audited by the tax authorities. Everything is on the up-and-up, the friendly Mr. Horn said on the phone.

For Appleby, the deal didn’t end up having a satisfactory conclusion. The German lawyer representing New Yorker suddenly, and rather abruptly, put an end to the negotiations in an email sent in early November 2008. She noted in the missive that a different law firm would be taking over the matter and expressly requested that all names and ownership structures be kept secret and that the Cayman Island authorities be kept in the dark as well. The email noted that Appleby was “not to provide any details in relation to the aircraft.”

Internal documents from the law firm indicated that Appleby sent an invoice for $4,900 for their ultimately futile efforts. But a few weeks later, on Dec. 17, 2008, the brand-new New Yorker company plane appeared in the Cayman Islands Aircraft Registry. How it got there is just as obscure as the name of the Cayman Islands company that operates it. Only one thing seems to be clear: It belonged to Mr. Horn, the former policeman and long-time right-hand man of the “Trouser Billionaire.”

Indeed, almost anything is possible in the offshore world. Just not always right away.

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