Business·Paradise Papers

Queen's estate 'not aware' it held indirect offshore investment in stores accused of exploiting poor

Leaked documents from offshore law firm Appleby show that the Queen — through investments made by the monarch’s private estate, the Duchy of Lancaster — has held stakes in funds that operate in tax-free havens.

Private estate held indirect stake in U.K. chain of 270 stores that sell household goods at low weekly fees

Documents show Queen Elizabeth — through investments made by the monarch’s private estate, the Duchy of Lancaster — has held stakes in funds that operate in tax-free havens. (Facunco Arrizabalaga/EPA)

As the reigning monarch, Queen Elizabeth owns swaths of lucrative London real estate and vast tracts of land all over the United Kingdom.

But within a companion financial portfolio, leaked documents show, she's also held millions in investments offshore, including one with an indirect stake in a rent-to-own company that's been accused of taking advantage of some of Britain's poorest citizens.

It is the first time it's come to light that the Queen — through investments made by the monarch's private estate, the Duchy of Lancaster — has held stakes in funds that operate in tax-free havens.

That isn't illegal. But the specific revelations in this case demonstrate the potential pitfalls of holding offshore investments in tax-free jurisdictions and raise questions about where the money can end up.

The Savoy Hotel is part of the Duchy of Lancaster’s impressive London real estate holdings. (Jared Thomas/CBC)

The documents are part of a massive offshore leak released Sunday dubbed the Paradise Papers — a trove obtained by the German newspaper Sueddeutsche Zeitung and shared with the International Consortium of Investigative Journalists, including the CBC.

They provide a peek into some of the financial transactions used to generate a private income for the Queen in the kind of detail that is rarely if ever made public — certainly not in the Duchy's or royal spending accounts available online.

The documents also made it possible to establish that the Queen, through her Duchy holdings, came to acquire in 2007 an indirect stake in a now-defunct British chain of liquor stores and that rent-to-own company, called BrightHouse.

The Duchy of Lancaster, which has its headquarters in London, manages the monarch’s private estate to generate the Queen’s income. (Jared Thomas/CBC)

One of the funds in question, Dover Street VI Cayman Fund LP, invested in a private equity company that had acquired BrightHouse. The British chain of 270 stores sells household goods at low weekly fees but — over the long term — sky-high interest rates. The ultimate result is that customers end up paying many times more than the original price of a household item.

BrightHouse has long countered criticism of this practice by saying it helps people on low incomes acquire items they couldn't otherwise afford. But just two weeks ago, the British Financial Conduct Authority ruled BrightHouse had not acted as a "responsible lender" and ordered it to pay millions of pounds to thousands of customers.

2 offshore funds

The Queen's connection to Brighthouse was discovered by the Guardian newspaper as part of the investigation into the Paradise Papers.

Though the investment still stands, and according to the Duchy is worth only a few thousand pounds, the initial investment remains undisclosed.

The documents show details of investments made by the Duchy of Lancaster in two offshore funds, initially based in Bermuda and the Cayman Islands.

The Duchy of Lancaster is a 700-year-old entity that manages the sovereign's private portfolio of real estate and land holdings as well as financial investments.

It provides the Queen, who, oddly, is also the Duke of Lancaster, with an income — £19.2 million ($32 million Cdn) in 2016-17.

A document outlining a limited partnership agreement with Dover Street VI Cayman Fund LP naming the Duchy of Lancaster. The document was leaked to a German paper that shared it with the International Consortium of Investigative Journalists (Jared Thomas/CBC)

But she cannot access its capital, which she owns but must pass on to the next monarch.

The Duchy's finances are posted on its website but with little detail on how or where financial investments are made.

According to its website, the Duchy's gross income from its investment portfolio was £2.73 million ($4.6 million Cdn) for the year ending March 2017.

Documents show that in 2005, the Duchy committed to an investment of $7.5 million US ($12.1 million Cdn in today's dollars) in the Dover Street fund, payable over time. The arrangement also appeared to make the Duchy a limited partner in the fund.

New investments

A letter from Dover Street in 2007 informed stakeholders of new investments, including one in Vision Capital Partners VI B LP, a vehicle created by Vision Capital Partners to "acquire a portfolio of two retailers in the United Kingdom."

The two retailers, the Guardian discovered, were BrightHouse and a chain of off-licence liquor stores that has since gone out of business.

A letter in 2007 informed stakeholders of new investments, including one in a vehicle to 'acquire a portfolio of two retailers in the United Kingdom.' One turned out to be BrightHouse, a chain of rent-for-hire stores. (Jared Thomas/CBC)

Yet despite the letter, a spokesperson admitted to the Guardian the Duchy was "not aware" that Dover Street had a stake in BrightHouse until questions came from the ICIJ.

"Investors commit to a fund for a given period and are not party to its ongoing investment decisions," Chris Adcock, the Duchy of Lancaster's chief finance officer, told the Guardian.

CBC News also posed questions to the Duchy, but they went unanswered.

The Duchy says it still holds the Dover Street investment, which is expected to mature in two to three years.

It's not clear how much income the Duchy generated in the years it has held the investment. The Paradise Papers show only one mention in 2008, an entitlement for $361,367 US.

After the news of the investment broke Sunday, Labour MP Margaret Hodge said in an interview with the BBC that she was "furious" with those who advise the queen and are bringing the reputation of the monarchy "into disrepute."

"Our monarchy is one of the most trusted, loved, respected institutions in Britain, and actually, it symbolizes that integrity of Britain in the world," she said. "And to see it sullied, its reputation sullied, by these sort of activities is outrageous.… 

"It's so obvious that if you're looking after the money of the monarchy, you've got to be cleaner than clean."

Any advantage?

The Duchy does not use taxpayer funds, nor does it pay taxes. The Queen is exempt from paying tax but has voluntarily paid tax on her income since 1993.

The Duchy says there are no tax advantages to investing offshore.

The documents show the Duchy also invested £5 million ($8.6 million Cdn) in the Jubilee Absolute Return Fund limited, a hedge fund based in Bermuda and later moved to Guernsey.

The Duchy confirmed to the Guardian it no longer has that stake but said it did have other investments offshore.

The Queen doesn't directly oversee the Duchy's investments, and most of its income, while private, goes toward covering the expenses for her and other royals that aren't covered by public funds through the sovereign grant.

But as part of her personal fortune, the Queen has a whole other separate and sizable investment portfolio. Few details of that are made public.


Nahlah Ayed

Host of CBC Ideas

Nahlah Ayed is the host of the nightly CBC Radio program Ideas. A veteran of foreign reportage, she's spent nearly a decade covering major world events from London, and another decade covering upheaval across the Middle East. Ayed was previously a parliamentary reporter for The Canadian Press.