18th Nov, 2017

EXCLUSIVE: Coventry council faces questions over its mysterious offshore investments amid Paradise Papers tax avoidance scandal

Les Reid 10th Nov, 2017 Updated: 11th Nov, 2017

COVENTRY City Council is facing questions over a potential for offshore tax avoidance amid the Paradise Papers scandal – after senior officers admitted they do not know where its international investments reside, the Observer can exclusively reveal.

As with other councils, reserves of Coventry taxpayers’ money set aside for future projects are placed in banks or other companies to get the best return.

Councils can also borrow from offshore funds abroad to pay for major developments.

It has now emerged Coventry council’s money is invested in ‘banks and other investment vehicles which involve international investments’.

We have learned council officers do not know whether that council money has been invested in companies domiciled offshore.

They are checking with a third party company which advises the council on investing its money, London-based financial consultant Arlingclose.

The revelations follow questions to the council from opposition leader councillor Gary Ridley following the Paradise Papers scandal. It has revealed some councils as well as the super-rich have investment arrangements with offshore companies, including in international tax havens.

Coun Ridley is now calling for the council to come clean with Coventry taxpayers about precisely where their money resides offshore.

He is also asking which of Coventry’s leading Labour councillors, if any, are aware of where any international investments reside, and which of them signed off the council’s investment arrangements.

Coun Ridley says the public will demand a transparent and ethical investments policy at Coventry City Council.

While tax avoidance via offshore funds is not illegal, the Labour Party locally and nationally has consistently opposed it on ethical grounds.

The Coventry Observer has obtained a response received by Coun Ridley this week from a senior council officer.

It reads: “The Council does not hold any direct off-shore accounts of the type referenced in the article (an article in a national newspaper about the Paradise Papers).

“The Council does hold treasury investments in banks and other investment vehicles such as pooled funds which involve international investments.

“It is conceivable that at some point, such funds may hold investments in companies domiciled offshore and we have sought a response on the issue from our treasury advisors Arlingclose.

“Irrespective of whether this is the case, as far as the Council is concerned, this would be purely for investment purposes and has nothing to do with tax implications which has been the focus of recent media attention.

“It is likely that the West Midlands Pension Fund will also hold similar investments and we have also sought a response from them.”

The pension fund is managed on behalf of West Midlands councils including Coventry.

It is unclear what the council officer meant in referring to other “pooled funds”, although some Coventry council funds were to be pooled with the West Midlands Combined Authority for largescale borrowing purposes.

Gary Ridley (Conservative, Woodlands) told us: “The fact that they could not answer my questions straight away is deeply concerning.

“We need to have clarity around these issues as quickly as possible,

“We need to understand what investment polices the council is pursuing.

“We need to know which councillor signed this off.

“I am sure the people of Coventry will want answers to this as quickly as possible.

“We need an ethical investment policy.

“Now the Paradise Papers are shining a light on this issue, we need to look closer to home and know how the council is investing its money.”

We are putting more questions to Coventry City Council.

UPDATE:

Finance cabinet member John Mutton responded: “This, if true, is news to me. When the news broke, I asked finance officers whether there was anything I needed to be aware of and was told that as far as they were concerned we had no off shore investments but of course we did , and still do, use fund managers to invest cash balances for short periods. We are checking with fund managers to ensure that we do not invest in offshore accounts.”

A further response from a senior council officer via Coun Mutton elaborates on the use of pooled funds, the governance of the council’s investments, and provides figures. It states..

The position remains that we do not have any direct investments in off shore companies but we do, as you suggest, make use of pooled funds.  These, however, are purely for investment rather than tax purposes.  To put some further flesh on the bones:

·         Full Council approves its Investment Strategy and Policy every year as part of the Budget Setting Report and sets out the key investment parameters of security, liquidity and yield.

·         The most recent Strategy very clearly sets out that the Council can invest in institutions domiciled in foreign countries and pooled funds which consist of collective investment schemes (longer term investments whereby we give our money to a fund manager and they pool our money with other organisations to make investments on our behalf) and money market funds (shorter term funds whereby the authorities money is managed by an external fund manager with the Council’s investment being pooled with those of other organisations and invested in a number of different counterparties).

·         The Council has c£30m invested in 6 non-property Collective Investment Schemes (CIS). As at 30/06/2017, one such CIS had total net assets of £373m spread across 77 instruments. It would be very challenging to monitor such a large number of investments.

·         These investment types are approved in line with the advice of the Council’s external Treasury Manager Advisors (Arlingclose) who advise a large number of local authorities across the country. The Council’s Strategy will be broadly in line with those of a large proportion of local authorities across the country and it is completely appropriate for the Council to invest in them.

·         Such investment vehicles will be used across the financial sector including by mainstream banks and building societies. It is unfeasible to make investments that are not entwined at some point with wider international financial markets.

·         The Council reports on its Treasury Management activity to Cabinet each quarter and takes periodic reports to Audit and Procurement Committee. The Audit Committee is considering the latest Treasury Management update on Monday 13th November.

·         The Council’s Scrutiny Board 1 considered a paper on Ethical Investment in November 2014. The evidence considered in the paper concluded that an effective Ethical Investment Strategy is not practical to implement for local authority investment purposes. Where organisations currently operate such a Strategy these focus on direct investments with individual companies not the type of treasury management activity focused on financial institutions and money market funds operated by councils.

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