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Paradise Papers: Nordea loaned billions to tax haven-based shipping firms

The Nordic's largest bank Nordea loaned billions of euros to shipping companies whose vessels were registered in tax havens, according to one of Yle's first reports on the Paradise Papers - the massive data leak of secret documents shared with journalists around the world.

Maisemakuva Bermudalta.
Image: Hidefumi Nogami

The biggest bank in the Nordic countries, Nordea, loaned billions of euros to shipping companies with vessels in tax havens such as Bermuda, Cyprus, Panama, the British Virgin Island, the Cayman Islands and the Isle of Man, according to an Yle report on the Paradise Papers.

Nordea's loans were granted to the shipping firms particularly by its branches in Finland and Norway or by subsidiary operatives of the bank in London and Singapore, the Yle report says.

The owners of the companies granted loans, however, were based in northern European countries like Norway, according to the documents.

In the Panama Papers data leak in the spring of 2016 Nordea was shown to have helped hundreds of its customers to set up tax-sheltered companies in offshore accounts.

In the new leak, dubbed the Paradise Papers, Nordea was shown to have lent a significant amount of money to customers based in tax havens.

Nordea responds

In response to the new document leak, Nordea bank's communications department told Yle that the bank has adhered to the normal practices of issuing shipping loans.

Nordea said that it provides loans to firms operating in many different industries, including those outside the Nordic region.

"Examples of this are international shipping companies. International shipping and cargo companies operate globally and it is normal industry practice that those firms have corporate operations in offshore areas, with ships registered with internationally-recognised ship registers. The use of tax havens is not illegal as long as the revenue is reported to tax authorities," the bank told Yle.

Shipping loans billion-euro business for Nordea

Dozens of loan agreements and other documents about companies that were created in order to buy shipping vessels were found in the Paradise Paper data dump.

In some cases the documents were missing key information, with some referring only to 'Nordea loans,' and did not contain details about loan amounts or dates when agreements were reached.

Information about loans Nordea granted to tax haven-based shipping companies was also found in the US Securities and Exchange Commission's archive.

The loan deals that Yle reporters have seen shows that Nordea granted loans of at least five billion euros to tax haven-based firms for acquisitions of vessels and, for example, the construction of oil platforms. Those loans were mostly granted during the 2000s.

However, Nordea's communications office told Yle the loan sums are even larger than that.

"Nordea's loan portfolio for shipping and offshore was around 9.9 billion euros during the third quarter of 2017. The same international rules apply to Nordea as for its competitors," Nordea said.

"Nordea should also know its customers. International regulators carefully follow international financial operations — including Nordea's. Officials demand transparency and that all laws, rules and tax claims are followed.

Shipping corporations often create new companies for each vessel purchased. The documents revealed that Nordea itself was listed as owner of such companies in some cases. By owning the shipping companies and effectively taking the ships as collateral, the bank reduces its credit risk. The bank is able sell the vessel in cases when shipping firms fail to repay the loans.

Once the loan is mostly or entirely paid off, Nordea is then able to transfer the tax haven-based firm - and simultaneously the purchased vessel - to their actual owners.

By employing such practices, Nordea is intimately familiar with tax haven arrangements; the bank is aware of them and in some cases also owns tax haven companies itself.

Shipping firms and tax havens

The shipping industry has historically been a forerunner in the use of tax havens.

As early as in the 1920s, American firms began shifting ownership of their vessels to Panama, also widely known as at tax haven. Soon, the practice spread to companies around the world. Nowadays the ownerships of most oil tankers, leisure cruise ships and other shipping vessels are registered in tax havens. The maritime industry even has a term for the practice; 'flags of convenience.'

The president of the Finnish Seamen's Union Simo Zitting said that the practice enables shipping firms to not only avoid taxation but also having to follow laws.

He said there have been several incidents where it was impossible to figure out who the owners of the shipping firms actually were, due to the complex web of ownership data.

Flags of convenience

Zitting said that the practice of shipping firms using flags of convenience is associated with tax evasion, lack of responsibility, avoidance of providing worker benefits and many other problems.

He said the union has sometimes been faced with having to figure out a ship's real owner and says the task is often nearly impossible.

"The chain of ownership can be in several tax havens [at the same time]. There can be double or triple versions of bookkeeping documents and different versions of documents. The owners, for example, can appear in the loan guarantee papers using an entirely different company name than what appears in the official documents," Zitting said.

While investigating ownership cases, the Seamen's Union has drawn on external help from, for example, a British law firm specialised in the field. But despite the assistance, the real owners are not always figured out.

Zitting said that in worst case scenarios the use of tax havens creates the ability to carry out major shenanigans. "Let's take the scenario where an oil spill or other environmental disaster takes place. It can be very difficult to find who is responsible in these situations. Who's responsible for damages if the owner is not known?" Zitting asked rhetorically.

90 percent of world trade done via shipping

Up to 90 percent of the goods transported around the world are moved by ships, a situation which makes the shipping industry a lynchpin which keeps the world economy moving at full steam.

In its very nature the shipping industry is an international one, which enables seafaring freight firms to use tax havens, according to Zitting.

But if a ship is always at sea, which country does it actually belong to?

"In reality [some] ships haven't even necessarily been in the country where they're registered," Zitting said.

A common shipping industry scenario is that a company is owned by European shareholders while the ship sails under a Bermudan flag, the vessel's personnel are Filipino while the ship itself transports freight between Asia and the US.

The use of flags of convenience within the industry has become so commonplace that it has become acceptable practice. Zitting said that the topic is discussed within groups like workers unions and international seafarer organisations which abide by UN regulations.

Zitting says that the main way organisations have tried to fix the problem efforts to ensure the proper payments and benefits reach ship employees, as well as to know who is finally responsible in cases of environmental pollution.

"If a ship worker's wages are paid properly and other benefits are taken care of, it doesn't matter to the worker who owns the ship," Zitting said.

Journalists from Yle’s MOT and A-Studio investigative journalism programmes are the only Finnish media involved in reviewing the data haul, which was first obtained by the German newspaper Süddeutsche Zeitung being co-ordinated by the International Consortium of Investigative Journalists (ICIJ). Yle will publish more stories about Finnish individuals and companies mentioned in the Paradise Papers in the days ahead.

The Finnish language stories stemming from the Paradise Papers are available here.

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