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Minister Paulo Guedes and President of the Central Bank, Roberto Campos Neto, own offshore


The two most powerful men in the Brazilian economic universe, Paulo Guedes and Roberto Campos Neto, respectively Minister of Economy and President of the Central Bank, appear in the Pandora Papers. Both, according to the investigation by the International Consortium of Investigative Journalists (ICIJ), in which EL PAÍS participates, created companies in tax havens and never informed public opinion about it, despite the relevance of their positions.

Guedes, 72, appears as a shareholder in Dreadnoughts International Group, registered in the British Virgin Islands. It is a shelf company, as they are known in the financial jargon: companies founded in tax havens, but which can remain idle for years waiting for someone to give them a role. The documents show that in 2014 the minister had at least eight million dollars (43.3 million reais, at the current exchange rate) invested in the company, registered in his name and those of his wife, Maria Cristina Bolívar Drummond Guedes, and daughter, Paula Drummond Guedes. That number rose to 9.5 million the following year, according to documents obtained by the investigation, led by the journal Piauí.

Who intermediated the purchase of offshore was Trident Trust, a Swiss company that maintains branches in several tax havens and offers discreet solutions for individuals or organizations that wish to keep their activities hidden, according to financial market sources. It’s a service similar to that provided by Mossack Fonseca, the Panamanian law firm made famous after the International Consortium of Investigative Journalists revealed its documents in 2016.

In Brazil, it is common for partners and senior executives of banks and financial institutions to receive bonuses and dividends in tax havens, places that enjoy privileges – such as reduced taxes or even exemption – and no transparency. Guedes was a partner at Banco Pactual between 1983 and 2006. From that date, he had stakes in several investment companies, until he assumed the position of minister in 2019.

Minister of Economy, Paulo Guedes, during a press conference on April 3, 2020.ADRIANO MACHADO (Reuters)

The president of the Central Bank, in turn, owns four companies. Two of them, Cor Assets and ROCN Limited, are registered in Panama in partnership with his wife, lawyer Adriana Buccolo de Oliveira Campos. The declared objective of the companies is to invest in the financial assets of Santander Private Bank, whose executive board Campos Neto was part of in the past. The other offshores are Peacock Asset Ltd, managed by the Goldman Sachs bank, which was discovered in the investigation of the Bahamas Leaks, 2016. The fourth company is the Darling Group, which according to the Central Bank, is a “real estate management” company.

The possible controversy does not lie so much in owning a company abroad, something that is not illegal – as long as it is declared to the Brazilian Internal Revenue Service –, but in the conflict of interests. Guedes, as well as Campos Neto, have already participated in decision-making that, in some way, influenced their own investments outside Brazil.

The Economy Minister was responsible for sending Congress a tax reform bill that, in its current version (the text left the Chamber for the Senate), benefits those who keep money in tax havens. And Campos Neto signed a resolution that exempts taxpayers from declaring to the Central Bank their assets abroad in amounts below one million dollars. This left nearly 40,000 people off the radar in the bank’s statistics. In a statement, the BC says that people and companies with business abroad are still obliged to declare their accounts to the Revenue, but the measure starts to hide from society a data that was previously public.

Currently, a select group of 20,554 people has 204.2 billion dollars (just over a trillion reais) in accounts declared abroad, according to the Central Bank. But experts estimate that the figure for illegal money is much higher and would be around a trillion dollars.

Guedes and Campos Neto’s lack of transparency with public opinion also clashes with the Code of Conduct of the High Federal Administration, which prohibits “investment in goods whose value or price may be affected by a government decision or policy”, which they themselves would have taken. The prohibition refers to those about which “the public authority has privileged information, due to the position or function.”

Guedes says he declared his companies offshore. In the same vein, the Ministry of Economy, which he directs, informed that the private activity prior to his inauguration in 2019 “has been duly declared to the Federal Revenue and other competent bodies, which includes his equity interest in the company Dreadnoughts International Group”. “Its performance has always respected the applicable legislation and was guided by ethics and responsibility”, he stated in a note sent to the magazine Piauí. The ministry also informs that, since taking office, Guedes has withdrawn from all his activities in the private market, as required by the Public Ethics Commission. “It should be noted that the Federal Supreme Court itself has already attested to the suitability and capacity of Paulo Guedes [para] exercise the position, in the judgment of the action proposed by the PDT against the Minister of Economy”, added the text.

The president of the Central Bank, Roberto Campos Neto, also guarantees that he declared all his money abroad to the Ethics Committee of the Presidency of the Republic, as well as to the Federal Revenue and to the Central Bank itself. In a statement, the assistance of the Central Bank reports that it has built its “patrimony with the revenues obtained in 22 years of operation in the financial market” and that since taking over the presidency of the Central Bank “there has been no remittance of funds to companies”. He also remembers that he related his entire fiscal situation when he presented himself to the Senate to assume the presidency of the Central Bank.

Campos Neto opened his first company abroad, Cor Assets, a joint-stock company, on April 6, 2004, through the Mossack Fonseca office. In April 2018, after the scandal of Panama Papers, he transferred the offshore to another manager, Overseas Management Company (OMC). At that time, he had a capital of one million dollars.

Roberto Campos Neto, President of the Central Bank of Brazil, in image of August 8, 2019.
Roberto Campos Neto, President of the Central Bank of Brazil, in image of August 8, 2019.Amanda Perobelli (Reuters)

The company ROCN Limited, in turn, dates back to January 8, 2007, when Trident Trust opened it. It was listed as inactive in November 2016, which means it kept its status legal, but could not trade its assets. In his note, Campos Neto claims to declare the totality of this property, pay “all the taxes due” and comply with “all legal rules and ethical commands applicable to public agents”.

The business dilemma offshore

The problem of offshore is that, despite being legal, they end up depleting the national tax collection, as many taxpayers with high incomes use them to avoid taxes. So much so that companies offshore, in their ads, offer their potential customers to “avoid paying taxes”. To do this, they act as an intermediary structure between the client’s investments and the income he will receive, whether from stock dividends or property rent, for example. These profits are not deposited in the business owner’s account, but in the offshore, and that is why they are excluded from the Brazilian tax authorities.

The tax lawyer Márcio Calvet Neves explains that, since the mid-1990s, an income tax of up to 34% has been paid in Brazil on the profits of companies abroad when the partner or shareholder is a legal entity. If the owner of the company is an individual, the rate reaches only 27.5%, provided that this profit ends up in Brazil. But here, he explains, there is a legal gap, as it is the individual who decides whether or not to communicate this income to the Revenue. In other words, the money can remain for years in a company abroad, without its owner paying any tax for it. “Brazil has a very complete legislation to tax the benefits of companies abroad. But it is not the same with individuals. All they have to do is have a company abroad and ensure that this company does not distribute dividends to Brazil so that they are never taxed”, says Neves.

In this way, the richest keep their money shielded abroad. They can even enjoy it abroad, even if the resource has been gained in activities or business in Brazil. If it weren’t for the Pandora Papers, it wouldn’t be possible to know that the economy minister and the president of the Central Bank own companies in tax havens. The Brazilian tax agency considers tax havens to be jurisdictions with a tax rate lower than 20%, or whose legislation protects the secrecy of the corporate composition of the companies. More than 60 countries and territories make up this list, including Panama, Hong Kong, the Virgin Islands and Cyprus.

tax reform

In the case of Guedes, there is a great controversy: the tax reform that he is leading does not solve the problem of the income of individuals deposited in companies and funds offshore in tax havens.

The initial project for the reform, prepared by the Federal Revenue and presented by the Ministry of Economy to Congress, intended to end the distinction between individuals and companies. The text provided for taxing both the “profits arising from participation in branches resident or domiciled abroad”, even if the money would not be brought to Brazil. And it closed the door to tax evasion by creating automatic taxation of corporate profits in tax havens owned by Brazilian individuals. It is a measure that the OECD recommends and that has already been adopted by several countries, such as the United States, Japan, China, Argentina and Mexico.

But the Chamber of Deputies excluded the paragraph that eliminated this differentiation, in a decision also negotiated with Paulo Guedes. Instead of improving the collection instrument, the approved text brings a new measure, which determines that individuals residing in Brazil may choose to collect, at a rate of only 6%, all profits, income and assets of lawful origin that are abroad. “In other words, we went from a mandatory taxation of 27.5% to an optional 6% during the process of lobby and splices,” says Calvet. And he adds that, although the text demands a “lawful origin” for the money, “there is a high risk that many people will use the opportunity to wash what also has an illicit origin, paying very little tax”.

In Brazil, the magazine Piauí, Public Agency, metropolises and power360 publish other reports with new characters from this international investigation. In the Brazilian counting participated: Anna Beatriz Anjos, Alice Maciel, Yolanda Pires, Raphaela Ribeiro, Ethel Rudnitzki and Natalia Viana (Public Agency); Guilherme Amado and Lucas Marchesini (metropolises); José Roberto Toledo, Ana Clara Costa, Fernanda da Escóssia and Allan de Abreu (Piauí) and Fernando Rodrigues, Mario Cesar Carvalho, Guilherme Waltenberg, Tiago Mali, Nicolas Iory, Marcelo Damato and Brunno Kono (power360), Marina Rossi, Regiane Oliveira (EL COUNTRY).

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