Inside The Bank That Lowy Banked On

The Age

Saturday July 19, 2008

Michael West

A US investigation reveals the complex labyrinth set up to hide the family's ownership of assets.

FRANK Lowy, it seems, was one of the best customers of the secretive LGT bank in Liechtenstein, the bank at the centre of a US Senate probe into tax havens.

LGT even sent a banker to Australia, and later London, to set up a structure for the billionaire businessman as he was not keen on travelling to Liechtenstein, according to a Senate report.

The hearings of the investigations subcommittee of the US Senate Committee on Homeland Security and Governmental Affairs under way in Washington look like turning up a lot more than the Lowys' travel preferences.

Already, the probe is outlining intriguing specifics of LGT's relations with the Lowys dating back more than a decade.

The Lowy link of interest to the subcommittee involves measures LGT took to hide the family's ownership of assets, including by keeping their name off the formation documents for a new foundation, routing incoming assets through an offshore transfer corporation to prevent a direct link to the new entity, and using a Delaware corporation headed by Peter Lowy to name the beneficiaries.

In 2001, the Lowys dissolved the foundation and moved to Switzerland assets totalling about $US68 million ($A70 million), the committee said.

Frank Lowy's office rejects the accusation that it set up secret bank accounts to avoid paying Australian taxes. The subcommittee's failure to offer the Lowy family a chance to challenge the claim before the report's publication amounted to "a denial of natural justice", Mr Lowy said in a statement on Thursday.

The original spark of the probe is Heinrich Kieber. In 2002, Kieber, a technician at LGT bank in Liechtenstein, a bank that specialises in servicing family trust money, stole documents and sold them to German authorities for A5 million ($A8.1 million). The authorities handed them on to US counterparts after launching a probe of their own.

The US Senate report goes into extensive detail on the Lowys and LGT.

According to the subcommittee, a relationship manager with LGT, PeterWidmer, visited Frank Lowy, his son David, longtime family lawyer Joshua Gelbard andWestfield director David Gonski in November 1996.

They discussed setting up a new foundation. The Lowys "expressed their intent to establish a large foundation with conservative investments that would serve as 'insurance' for the Lowy family", the probe claims.

LGT bank was making an exception for Frank Lowy.

Usually, its clients travelled to the tiny mountainous principality in Europe. In Lowy's case, an LGT memo explained: "The Lowys have decided that they never want to travel to Liechtenstein or Switzerland in connection with these companies again."

Subsequent meetings were held in London and the transfer of assets to a foundation called Luperla was discussed."

An LGT memorandum summarising the London meeting was copied to Liechtenstein Prince Philipp."

Further memos following the London meetings noted that Lowy had reached a settlement with the Australian Tax Office and did not want to bring new funds into Australia.He was concerned, said the US Senate report, that if the Australian tax authorities learned he had additional assets, the Government could try to subject them to further claims."

Special caution is to be used, however, since he doesn't believe the Australian tax authorities that the case with the payment of the $25 million is settled for good ... The entire documentation and assembly is to be done in such a manner that (Mr Lowy) and his attorneys can testify before (a) court in Australia without hesitation."

The US Senate investigation found it was "clear that LGT was aware that Mr Lowy and his sons were hiding assets in the new foundation from Australian tax authorities".

LGT and the Lowys took measures to keep Luperla a secret, including writing proposals on "neutral" paper without any reference to any person or corporation in "the Lowy field".

To disguise the transfer of assets from other Lowy-related entities, LGT proposed to transfer the assets through a specialpurpose shell corporation. The Lowys agreed, according to the US Senate report.

A spokesman for Lowy's Westfield Group declined to comment, referring instead to Thursday's statement from Frank Lowy in which he said "all the funds in the structure in the Liechtenstein bank were distributed for charitable purposes in Israel some years ago". Neither Lowy nor any family members had benefited in any way from the structure, the statement said.

The original assets of Luperla were to come from the proceeds of a labyrinthine share transaction, which the US Senate is trying to navigate.

LGT acquired a British Virgin Islands company in early 1997, Sewell Services, to serve as intermediary for the asset transfers into Luperla from other Lowy-related entities.

An account in the name of Sewell was opened at LGT Bank in Liechtenstein and assets destined for the Luperla account were transferred into the Sewell account and then transferred internally, within the bank, from the Sewell account to the Luperla account."

Such intra-bank transfers make it extremely difficult to trace the flow of assets, because no documentation outside of the bank shows that the funds transferred into the bank were destined for or actually deposited into the Luperla account."

LGT internal memorandums were clear, said the report, that Luperla's "financial beneficiaries" are the father and the three sons David, Peter and Stefen (sic). Steven is group general manager ofWestfield, Peter Lowy runsWestfield America and David oversees the family's private wealth."

In keeping with the Lowys' desire for secrecy, however, the Luperla Foundation did not simply name them as beneficiaries in its documentation," the subcommittee report said."

Instead, LGT and the Lowys devised a mechanism that the subcommittee has not seen before, directing aUS corporation to name the beneficiaries of the Liechtenstein foundation."

The Senate report says the Lowys went to further lengths to disguise the new foundation. "At the Lowys' request, for example, LGT agreed that, once the new foundation was established, to remove evidence of old LGT accounts and transactions," the report says.

The US connection to Luperla was via a Delaware corporation owned by another Lowy trust called Beverly Park. Beverly Park would name the beneficiaries of the Luperla Foundation.

Beverly Park is 100% owned by Cordera Holdings, which is owned by FranleyHoldings, which is owned by LGFHoldings, which is owned by the Frank Lowy Family Trust.