Panama Papers: BHP Billiton unaware of ‘high risk’ review

Matthew le Cordeur

Cape Town - BHP Billiton said it was not aware that Panama-based law firm Mossack Fonseca had conducted an internal assessment after the leaked Panama Papers said the firm reviewed two of its British Virgin Islands (BVI) companies it termed “mandatory high risk”.

“Based on a recent review of our historical filings and correspondence, it does not appear that we were aware of this assessment, nor the basis on which the assessment was conducted,” a BHP Billiton spokesperson told Fin24 on Monday.

“Mossack Fonseca was engaged by BHP Billiton in an administrative capacity only,” she said. “Our understanding is that it was provided with information that was necessary to fulfill these activities.”

The historic leak of 11.5 million documents occurred on Sunday after a year-long investigation by more than 100 media groups, including the UK-based Guardian.

It reported on Monday that BHP Billiton was linked to at least 19 companies registered in the BVI with the assistance of Mossack Fonseca.

It said documents revealed that BHP Billiton authorised two of its companies in the BVI to receive large amounts of money, sparking a “high risk” warning at Mossack Fonseca.

“The documents show that two of the BVI companies linked to BHP Billiton – BHP Billiton Finance South Africa Limited and BHP Billiton UK Holdings Li7mited – were assessed as 'mandatory high risk' by Mossack Fonseca.

“The warning formed part of what is known as an ‘enhanced due diligence’ check undertaken by the firm, when it identifies clients who may be undertaking riskier business ventures," the Guardian reported.

According to the report, the risk assessment document for BHP Billiton Finance South Africa Limited states the region where its business takes place is Australia. It said: "Authorised capital is higher than the norm. The company’s activity is not stated.

“The files recommend that Mossack Fonseca ‘request the source of funds and or source of wealth for this company’, information about its beneficial owners and the reason for the high capital. A beneficial owner is the person or entity who ultimately owns the companies,” the Guardian reported.

A BHP Billiton spokesperson told Fin24 that the company does not engage in “aggressive tax planning”.

“Since the establishment of the British Virgin Islands (BVI) companies referred to (being BHP Billiton UK Holdings Limited and BHP Billiton Finance South Africa Limited) each of these companies was, and continues to be, resident in the UK for tax purposes and therefore subject to UK tax on its worldwide income.

“Consequently, any profits made by these companies were taxable in the UK at the normal company tax rate.

“The reasons for establishing these companies in the British Virgin Islands at the time was simplicity in relation to making distributions from a corporations law perspective and choice of functional currency from a reporting perspective.

“As these entities were UK tax resident, these entities have lodged annual company tax returns with the UK tax authorities, HM Revenue & Customs (HMRC). As part of those returns, the assets and income of these entities were fully disclosed to HMRC. BHP Billiton UK Holdings Limited and (prior to the May 2015 demerger) (and) BHP Billiton Finance South Africa Limited were ultimately owned by BHP Billiton – therefore, the Australian Taxation Office does not require additional disclosure of these entities.

"BHP Billiton Holdings UK Limited is an investment company that holds significant assets of the BHP Billiton Group," the spokesperson said.

BHP Billiton Finance South Africa Limited was established to provide financing to the BHP Billiton Group in rands, she said.

“Since formation of the company, the shareholders’ funds (which includes paid-in capital) for this company have not exceeded $300m, which is not material having regard to the size and funding requirements of the BHP Billiton Group. Post the May 2015 demerger, this company is no longer owned by the BHP Billiton Group.”

The spokesperson said BHP Billiton is committed to transparency. “For more than 15 years we have been publicly disclosing our payments of taxes and royalties at a global level, progressively increasing the level of detail.”

The Guardian said BHP Billiton has “faced heavy scrutiny in Australia over its offshore tax arrangements and has been accused of using a complex web of companies to minimise Australian tax it pays”.