KPMG and a load of scrap


South African brothers Marshall jnr and Richard Cooper lived the high life in Canada, funded by ‘gifts’ from a Jersey company established by their father – and KPMG.

He was once the uncontested king of scrap. So large was Marshall Cooper snr empire that Chicks Scrap Metal became a household name. As is customary in that trade most of his scrap was sent abroad.  And, as likely, most of the profits were kept abroad too, well away from the predatory eyes of the South African Revenue Service. 

While few will disagree that death and taxes are best avoided as long as possible, it is less widely accepted that both are ultimately inevitable.

Marshall Cooper appears to have succeeded in keeping the South African taxman in the dark to the end; it is the tax authorities in Canada – to which country he and his family emigrated in the early 1990s – who cottoned on to the elaborate offshore “sham trust” setup where Cooper had hidden his vast untaxed fortune.  And those authorities are now demanding their cruel cut.

 Oh brother: Richard Cooper

Right now, there is another reason why South Africans will be interested in the unhappy unravelling of Cooper’s offshore tax-evasion schemes: they were set up and operated for him by KPMG – who now declare themselves “unsure” about the legality of the offshore structure that they, very confidentially, sold to an undisclosed number of “high nett-worth” clients.

The Canadian Revenue Agency have demanded from Marshall Cooper and his two sons the equivalent of R89,502,452 in penalties and back taxes, for hiding at least R276,182,484 in a shady offshore company structure “sold” to the Cooper family by KPMG LLP Canada. Yes, SARS, check the figures and eat your heart out!

Cooper remained blissfully unaware of having been found out: he had developed dementia by the time the Canadian Revenue Agency (CRA) began to hound the family, and died in a British Columbia care home in 2016, aged 86. As far as he was concerned the old cliché of death and taxes was not true; only death was certain. Taxes were optional. 

The matter is before the Tax Court of Canada because the Coopers, who were assessed on their undeclared offshore earnings in 2012 by the CRA,  are appealing the adverse findings, in the process making them public.

So questionable was the offshore structure KPMG devised that the audit firm could not, in its own internal memos, “categorically” declare the scheme legal.

In fact their own records reveal that they had every reason to know that what they were running was a criminal enterprise; they were simply relying on not being found out. And they were just as confident that, even should they at any point be found out, their clients were unlikely to be successfully prosecuted.

Marshall Cooper jnr with friend looking through glasses darkly

In a 2 January 2001 memo, KPMG’s International Tax partner, Barrie Philp, reported to Canadian colleagues on a review of KPMG’s “Offshore Company” tax avoidance scheme that had been done by the audit firm’s General Anti-Avoidance Regulations  (GAAR) committee: “We noted in passing the fact that there may be a timing advantage arising from this analysis, in the sense that it would be difficult for the CRA to criticize the transactions unless they have evidence of the moneys coming back to (or intended to come back to) related Canadian ‘beneficiaries’, and once that evidence becomes a fact (if it were to do so) many taxation years could be statute-barred.”

In other words: In Canada (and South Africa) tax offences lapse after a certain number of years. KPMG were confident that by the time the authorities found out – if they ever did – it would be too late for their clients to be prosecuted.

But if the CRA wins the current case against the Coopers, KPMG could be charged as a party to a criminal conspiracy.  So high are the stakes for KPMG – suspected of having signed up at least another 25 wealthy Canadian clients for the offshore scheme they discreetly marketed for a fat fee – that the audit firm is paying the Coopers’ legal costs and is using its own in-house counsel as their attorney of record – the same man who was instrumental in setting up and selling the structure.

Ultimately, the Coopers’ exposure and potential conviction is a  result of decades of tax evasion, dirty tricks and morally corrupt business decisions. When he died Marshall Cooper’s dad, who had started Chicks, split the company up between his children. Soon thereafter, Marshall and his two sisters got the East London and Port Elizabeth businesses and brother Bill got Cape Town. The latter famously once owned the red Royal Duke yacht, designed by renowned Dutch boat-builder Ricus van der Stadt, that was moored at Hout Bay, Cape Town.

Eventually Marshall bought his siblings out and opened up an additional branch in Durban.

Until the late 1990s Chicks was everywhere and known to everyone. Fishermen went to Chicks to buy lead for making sinkers; in the townships outside Port Elizabeth people spoke of “going to Chicks” with their bounty. The company was responsible for some famous salvage operations, such as breaking up the ill-fated SA Seafarer cargo ship which ran aground at Mouille Point, Cape Town, in 1966. In the 1980s Chicks Volksrust sold two decrepit steam locomotives built in 1938, to luxury train operator Rovos Rail. They have since been restored and are in use (see Rovos Rail’s ads in Noseweek).  

Marshall was a large, boisterous and suspicious man who loved fancy cars, boats and horses. Around 1976 or 1977 he sold his stake in Chicks to another old South African company, McKechnie Brothers. The sale was carefully structured to save on capital gains tax: it was a five-year deal where Cooper  would continue to draw from the business over the period, on a diminishing scale.

The company was later absorbed into JSE-listed Haggie-Rand, who in 1998 sold it on to the Reclamation Group for R75m. “A steal deal,” says Robby McClelland, who was in on it. Himself a player in the scrap metal world for many years, he told Noseweek how simple it was for the likes of Marshall Cooper to siphon large swaths of cash out of South Africa.

“When material scrap was exported the proceeds were under-declared and buyers transferred these undeclared funds into the offshore accounts of your choice. In those days it was common practice, as you could otherwise not get your money out of South Africa. Cooper was a big player in this.  There were no rules – all the metal merchants were shady guys,” said McClelland.

From the late seventies to about 1986 Cooper lived in a palatial three-storey Umhlanga home with fantastic sea views stretching from the lighthouse at Umhlanga to the lighthouse on the Bluff. His wife Irene, better known as Ginger and described as “very English” would take her tea from a silver tea service brought on a carefully-laid tea trolley, in a lounge equipped with what visitors recall as an “epic” sound system.

At the time the apartheid government was offering massive incentives to manufacturers to set up in industrial parks on the periphery of the “Bantustans” in a bid to stop the flow of black labour to the white cities. It was a poorly kept secret that the subsidies offered by the state were almost invariably abused.

Marshall Cooper joined the game in the Isithebe Industrial Estate, on the north coast near Stanger.

In 1986 he sold his Umhlanga house and left for Bloemfontein. There he got involved in yet another “border area” industrial park, Botshabelo, where he had a stake in a plastics recycling plant.

Marshall and Ginger had two sons: Marshall junior, better known as Marsh, and Richard. They also had a daughter, Shelley Youngleson (nee Cooper).

According to court records before the Tax Court of Canada, Cooper began concealing his business affairs and fortune in the 1960s. By 1985 (at the latest) he already had an offshore trust in the tax haven of Liechtenstein, called Largo Trust, and other assets in the South African-based MC Trust.

The grand duchy of Liechtenstein – the last surviving outpost of the Hapsburgs, once Europe’s most powerful royal family – was a favourite cash hiding place for South Africans during apartheid. The government itself used the principality as a front for sanctions busting.

The secretive Cooper ensured that his name rarely featured in property and company records. The only clue to his interest in a company might be its registered address or choice of auditor. It is clear from the records however that early on he already had dealings with KPMG, then known as Aitken and Peat.

Around 1993/94, as South Africa was becoming a non-racial democracy, Cooper and his entire immediate family moved to Portland, Oregon, USA. Their stay in the Beaver State was short, largely for tax reasons: in order to remain in the USA, Cooper would have been required to declare the family’s offshore assets  – and a man who had spent his entire life escaping the taxman wasn’t about to change his habits in his 60s. 

So in 1996 he took his adult sons to British Columbia, Canada, a mere 411 km northwards, leaving daughter and husband behind.

The allure of Canada was obvious – immigrants with offshore trusts were offered a five-year tax holiday. In 1996 while applying for residency, Canadian court papers suggest, Cooper sold off his remaining “South African holdings” (no names, no pack drill), and by November 1996, with the help of Ernst & Young LLP Canada, he had set up an offshore trust structure to “protect their wealth and avoid income tax and foreign reporting”. They created the Ogral Trust in Liechtenstein for him and his wife, and the CFT Trust in Jersey for his children.  Among beneficiaries of the Ogral Trust were the “Imperial Cancer Research, Help the Aged, and the Jewish Blind Society” – a common ruse to make the trust appear philanthropic. The real beneficiaries were described in the vague terms of an afterthought: “...and any other entity deemed appropriate by the trustees in their sole discretion”. 

But with the tax holiday coming to an end on 1 January 2001 and Canada’s tax code affected high-net-worth individuals using trusts and deriving offshore income under review, new plans had to be made to hide their money.

Thankfully KPMG had a plan newly designed for just this contingency, known as the “Offshore Company Structure Plan” or “OCS plan” for short.

Buyers into the scheme weren’t to know that in several internal KPMG LLP Canada memos produced between 1999 and 2001 KPMG’s own officials doubted whether their “plan” was legally prosecution-proof.

The documents were part of submissions made to the Standing Committee for Finance of the Canadian House of Commons that conducted an inquiry into the “Overseas Company Structure Plan” amongst other tax evasion schemes. In October 2016 the standing committee suggested that tax dodgers should be criminally charged.

When marketing the plan, KPMG had vigorously targeted existing offshore trusts that, they believed, could sidestep any “information-reporting requirements”.

“We will market this product (other than where we have our own clients who are affected) indirectly through lawyers and financial institutions who have clients with offshore trusts…” wrote KPMG Canada international tax partner Barrie Philp in September 2000. 

In a “Tax Product Alert” sent to its “Canadian Partners” in November 2000, it punted its new “innovative product” that would allow “investment and accumulation of assets with no tax, protection of assets from wealth, estate and inheritance taxes, and the ability to receive distributions free of tax”.

Clients needed at least CAD $5m to be considered. KPMG’s “suggested” fee: 15% of the annual tax saving, 1% of investment capital and a minimum fee for set-up costs of between CAD $100-125,000.

Contributions to the offshore company by residents of Canada had to have been made before 1 January 2002 – the date the Canadian government would be enforcing new reporting requirements for foreign assets.

In its simplest form the OCS structure required the Canadian client to bequeath their offshore fortune to an Isle of Man company, in which the client had no shareholder interest, which would then benevolently make cash “gifts” to the donor (tax-free in Canada).

The Coopers were introduced to KPMG accountant Derrold Norgaard, who, along with the help of KPMG legal advisor Mark Meredith (now representing them in the tax court), went about setting up what tax authorities would – 15 years later – call a “deceptive sham”.

KPMG set up the Ogral Company Limited in the Isle of Man on 19 December 2001. The Coopers’ two trusts then proceeded to donate their assets to the Ogral Company Limited before being wound up.

Ogral Company Limited had “A and B” shareholders, who could  nominate one director each. The shareholders were two Isle of Man companies – Lochside Ltd and Korderry Ltd. Lochside was controlled by KPMG; Korderry was controlled by Isle of Man law firm Simcocks.

This Isle of Man setup was standard issue for anyone taking up the OCS plan. The only variation was in the selection of the “non-shareholder member”.

KPMG would purchase a company in the British Virgin Islands, which in the case of the Coopers was named Portrush Ltd. The company became the “non-shareholder member”. The nominee was initially Shelley until she became worried about “USA tax concerns”. She was replaced by a trusted family lawyer, Del Elgersma. The “non-shareholder member” held extraordinary voting rights and could demand the liquidation of the OCS, ultimately, giving the family control of the sham board of directors and of when, and to whom, “gifts” could be made.  It was wholly possible for the original “donor” to be a “non-shareholder member” if they so wished.

The entire mechanics of the OCS are explained in a leaked 1999 document titled “Client Planning Letter”, created by KPMG. It has blank spaces for the client’s name, to be filled in and to list who would be the “Eligible Persons” to receive “gifts” from the company. The “Eligible Persons” were in this case Marshall Cooper, Ginger, Marshall jnr. and his spouse, and Richard. Shelley Youngleson and her husband appear to have withdrawn early on over US-tax concerns.

One section of the planning letter reads: “Mr [name here] may choose to write a non-binding letter to the members and directors of [offshore company] to provide guidance to them.” 

The same document states “it is critical that the conduct of all of the parties to this arrangement be such that there is no inference that the shareholders or directors of [offshore company], or [offshore company] itself, are controlled by, acting at the behest of, or acting as agents or nominees for the donor”.

At the end it says: “There is a risk that the Canadian tax authorities will become aware of this structure and legislate to eliminate its advantages. We cannot provide any assurance that this will not occur.”

Canada only developed a tax exchange agreement with the Isle of Man in 2011, but the island has built in enough hurdles to the agreement to frustrate any inquisitive government.

The money placed into the company, as of 2003 totalled CAD $26,278,067. The payments were all made by UBS AG, in Zurich, Switzerland. The money was briefly transferred to another bank, Kleinwort Benson in Guernsey, and then back to UBS AG. Cooper had been a client of UBS AG since 1980. The Canadian tax authority said the two banks knew “the Coopers as the true and actual owners of the funds in the accounts”, adding that despite none of the family having a personal account at Kleinwort Benson, they had contacted the bank several times in respect of Ogral’s accounts. (See shoulder story for why that might have been.)

If payments were made to Marshall Cooper they were made out of what was aptly called the “Jackal Funds” and if any payment was made to the sons it came from the “Skink Funds”. Skinks are harmless lizards which resemble snakes. 

But despite Cooper, Marshall jnr, and Richard stating, in their “Notice of Appeal” papers filed with the tax court in March 2015, that they were aware of the setting up of Ogral Company Limited, had engaged KPMG on the matter and gifted their trust assets to the company, they nonetheless claim to have nothing to do with the company and that they were not the “true owners” as the CRA insists. Similarly they claim they were innocent, ill-informed South Africans with no understanding of Canadian tax law, and thus left it up to the professionals at KPMG.

The sons have also conveniently claimed that their dad, who at the time of filing papers was suffering from dementia and nearing his death, set up the scheme with KPMG, and not them.

But they do state that “father did from time to time make requests of the directors of Ogral Company that Ogral Company make gifts to him or other members of his family”. 

Between 2001 and 2010 the Coopers “requests” from Ogral, which were never turned down, totalled CAD $5,843,693 (roughly R36.5m over that period).

In those eight years Marshall Cooper paid just CAD $319 in Federal and Provincial Tax while Marshall jnr and Richard each paid just over CAD $3,000.

Yet Cooper bought a CAD $4m home (now valued at R42m) at 3380 Beach Drive, Victoria, BC.  Marshall jnr and Richard had in 1998 bought a home each valued at CAD $825,000 and CAD $600,000 respectively, collectively valued today at more than R15m.

So efficient was the tax structure that the Canadian government paid the Coopers’ CAD $20,610 (equivalent to about R127,782 during the same period) in tax credits from 1999-2010, most of it claimed back for home renovations. And they still enjoyed owning boats and nice cars.

Meanwhile KPMG generated exorbitant client fees – about CAD $300,000 (then about R2m) by 2008. 

“The [Coopers’] lifestyle was not supported by the income [they] reported for the years of issue,” the CRA noted in its replying papers to the Coopers’ appeal.

 “KPMG and the Coopers knew … the overall objective was to avoid paying income tax. Ogral was created … to deceive the Canadian tax authorities by creating the appearance that gifts of the money were made to Ogral and that the Coopers had given up control of that money. The Ogral OCS is a sham and was intended to deceive the Minister of Revenue,” said the Canadian Revenue Agency.

According to the media liaison person at the tax court in Ottawa, the Coopers’ appeal is “currently going through pre-trial procedures with a deadline of 28 February 2018”.

Noseweek was unable to contact either of the brothers. However, in previous interviews given to CBC News, they’ve referred all queries to KPMG, who in turn refused to answer questions, citing client confidentiality.  Noseweek’s attempts to contact Shelley via Facebook were unsuccessful.

The South African connection

In one door, out the other: famous for raising funds abroad for poor and destitute Africans, Robin James was all the while quietly partnering with KPMG to help wealthy white South Africans dodge the taxman by hiding their fortunes offshore. A Michaelhouse old boy (he died a trustee of the Michaelhouse UK Trust), James began his career as a portfolio manager and analyst in the financial services industry in Johannesburg (Fergusson Bros., Hall Stewart & Co, Union Acceptances), then moved to London as portfolio manager at Kleinwort Benson, and, finally, to the Isle of Man to become CEO of trust and financial services company Singer & Friedlander.  He died there last year, aged 71.

While heading Singer & Friedlander, James became a player in what “big four” audit company KPMG called its “Overseas Company Structure Plan”. The “plan” was specifically designed to deceive tax authorities around the world. 

Africa Foundation patron Desmond Tutu flanked by Lance Japhet (left), former chairman of Africa Foundation; and Robin James

The basic premise of the plan was that a wealthy person would donate their capital to an Isle of Man company effectively controlled by KPMG. This company would  then “gift” the original donor, known as an “Eligible Person”, money as and when they needed it. In most countries gifts are charged little or no tax. According to evidence unearthed by Canadian investigators, for this service KPMG charged 15% of the tax savings, a setup fee in excess of R1m and 1% of investment capital. 

Robin James helped launch the Africa Foundation after he and some investors created the exclusive Phinda Private Game Reserve in Northern KwaZulu-Natal, around 1992. 

James held the positions of Trustee of the Africa Foundation in South Africa and Chairman of the Africa Foundation UK.

Documents obtained by Noseweek reveal that he was at the same time a “sham” director of Croycam Limited, one of the tax-dodging Isle of Man “limited guarantee” (non-profit) companies set up by KPMG for South African clients. All that’s known of the true owners of the company is that they were resident in South Africa. Croycam Limited opened on 9 January 2002 and was dissolved on 15 December 2008. On dissolution all the assets would have been “gifted” to the “Eligible Person”.

According to Croycam’s Articles of Association, “at no time” were the majority of the directors of the company to be resident in South Africa. They were also not to meet in South Africa.

James was the son of Ted James who was a director of the erstwhile Natal Parks Board (now Ezemvelo KZN Wildlife), and attended the University of Natal in Pietermaritzburg.

The Africa Foundation, of which he was a long-serving trustee, concentrates on projects in education, health care, provision of clean water, small business development and environment and conservation.

After James’s death the foundation created a special award in his honour.  According to the foundation’s website the Robin James Award “aims to recognise people who show the same commitment to empowering people through access to education, health, economic opportunity and conservation”.

Keywords:
Kpmg
KPMG Jersey
KPMG Canada
Marshall Cooper
Richard Cooper
Chicks Scrap Metal
tax evasion
offshore banking
Robin James
Africa Foundation
Croycam Ltd
Isle Of Man
limited guarantee companies
KPMG Overseas Company Structure Plan
Ogral Company Limited
Canadian tax law
Canadian Revenue Authority
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Submitted by : Barry Midgley of DURBAN on 2017-10-03 12:44:16
At the outset let me state that I believe taxing ones labour is immoral and anyone who dreams up a scheme that evades tax deserves the thumbs up. PAYE is a misnomer, in reality it is pay to work and any law based on an immoral code is bound to attract attention. I would support hypothecated tax schemes if they were for inter alia a national health care system and a pension – here you contribute the same amount and get the same service or benefit.
The article above makes you wonder about professional status and no sooner have the accountants been sprung along comes the South African Reserve Bank (a private bank I might add) to the rescue and KPMG are too big to fail. The large corporate organisations must not ditch their Dutch Uncles.
When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time, a legal system that authorizes it and a moral code that glorifies it.” – Economic Sophisms, Frederic Bastiat 1801-1850
What does the Reserve Bank know and what are they attempting to brush under the carpet? Perhaps another quotation might help.
“The few who understand the system, will either be so interested from its profits or so dependent on its favors, that there will be no opposition from that class.” . . . “Let me issue and control a nation’s money and I care not who writes the laws.” – Mayer Amschel Bauer Rothschild, 1744-1812
Does history teach us nothing?

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