Wednesday 20 October 2021

Dos Pinos, three offshore, cooperative and transnational

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QCOSTARICA (Costa Rica Noticias) Despite the fact that Dos Pinos, one of the largest cooperatives in Costa Rica, paid fines between 2017 and 2018 derived from the irregular tax management linked to an offshore company in Belize, a cross-border journalistic investigation (Pandora Papers) now reveals that by 2019 the dairy cooperative had at least three other offshore in Panama, Barbados and British Virgin Islands whose business line could not be established within the information collected by this journalistic team.

The use of an offshore company in Belize to pay part of the salary to its top Costa Rican executives, between 2014 and 2015, put the Dos Pinos RL Milk Producers Cooperative – one of the largest and most emblematic in Costa Rica – in the spotlight of Taxation, the Caja Costarricense de Seguro Social (CCSS), the Public Ministry and even its own associates.

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As a result of the actions of the authorities, the cooperative ended up paying ¢257.3 million colones to Taxation (about US$420 thousand dollars at the time), in June 2018, and ¢617 million colones to the CCSS (little more than one million dollars) in January 2020, for using that salary scheme and thus evading the payment of income tax and social security contributions.

While facing these Taxation and Caja investigations, the dairy cooperative registered another offshore company, in October 2019, this time in Panama, called International Business Logistics. Its shareholders are First Caribbean Investment Company, registered in the British Virgin Islands, and Transnieve Ltd, in Barbados, both jurisdictions considered as tax havens that can be used for tax avoidance or evasion.

Until the publication of this research (the Pandora Papers), Logística Empresarial Internacional S. A., was not known within the conglomerate of subsidiaries of Dos Pinos for its commercial operation in the region (Guatemala, Panama, Nicaragua and the Dominican Republic). In other words, it is not mentioned on the cooperative’s website and it is not known by several of its associates.

These are some of the findings of the analysis made by Costa Rica Noticias Canal 13 (Costaricamedios.cr) and the Latin American Center for Journalistic Investigation (CLIP) of thousands of internal documents belonging to various law firms specialized in managing offshore companies in Panama, British Virgin Islands, Barbados and others. countries. The revelation is part of the cross-border investigation Pandora Papers led by the International Consortium of Investigative Journalists (ICIJ).

The information comes from a collection of more than 11.9 million documents of confidential financial records of 14 companies that provide offshore services, which create and manage paper companies and trusts in tax havens around the world. ICIJ received them from an anonymous source, in separate batches, over several months.

Baptized as the Pandora Papers, these documents that date from between 1996 and 2020, and are in English, Spanish, Chinese, Greek, Russian, among other languages, reveal connections with companies and businesses in more than 200 countries and territories. The collaboration of 618 journalists made it possible to investigate hundreds of them, simultaneously in 117 countries.

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Costa Rica Noticias and CLIP consulted the cooperative about the reasons why it has created these offshore companies in jurisdictions such as the British Virgin Islands, Barbados and Panama, the director of Corporate Relations and Sustainability, Luis Mastroeni Camacho, responded that he could not reveal many details for being part of the “commercial and business strategy” of the company.

In general, he replied that the reason for creating companies in other countries (without specifying which ones) “is to respond to the business structure of the business group. The companies that are in the countries are independent entities, with their own legal personality. They are created precisely to leverage the expansion strategy of our businesses in other Latin American countries and the Caribbean”.

Mastroeni argued that “it is not viable to operate commercially in those countries under the cooperative model” and assured that in countries where other companies are created, taxes are paid and the legal framework is complied with.

However, the Dos Pinos cooperative does not export or distribute its products in the British Virgin Islands or Barbados, as confirmed by the company itself to this journalistic alliance by email. The Director of Corporate Relations and Sustainability explained that these companies were created “to make the business viable.” However, the official alleged commercial confidentiality to reveal the specific business of this offshore organization.

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Costa Rica does not have a tax information exchange agreement with Barbados, Panama or the British Virgin Islands, which does not allow their tax authorities to supervise these companies.

The Dos Pinos Milk Producers Cooperative has its main dairy plant in El Coyol de Alajuela, Costa Rica. From here it exports to 11 countries.

They relapse with another offshore

The creation of the offshore company Logística Empresarial Internacional is found in internal documents of the firm Overseas Management Company (OMC), known by ICIJ within the journalistic project Pandora Papers.

According to the records of Panama, Logística Empresarial Internacional (LEI) was created in February 2019 by three other companies, all domiciled at the same address of the corporate service provider OMC in Panama City and with directors all associated with this firm, which suggests that OMC could have created it and then offered it to a client who needed it.

However, the leaked documents allow us to see that, in October 2019, OMC managed a change in that company: the shares would become First Caribbean and Transnieve companies, while the final beneficiaries would be “Members of the Cooperativa de Productores de Leche Dos Pinos RL” from Costa Rica and the Panamanian businessman José Benjamín de Dianous González, according to a request form in the WTO file.

De Dianous was a member of the board of directors of the National Bank of Panama between 2017 and 2018, appointed by President Juan Carlos Varela in April 2017. He was also president and legal representative of the Panamanian state company Mercados Nacionales Cadena de Frío SA, a millionaire project of former Panamanian president Ricardo Martinelli that sought to create a network of wholesale and retail markets to improve the marketing of food products, especially perishables.

The businessman made his name especially as a partner of Global Products and Logistics Services (Dicarina), one of the distributors of mass consumer products in his country.

Precisely, in 2014, Dos Pinos had partnered with Dicarina to distribute its dairy products in Panama, according to the judicial file of the case related to the payment of executives using an offshore company in Belize.

According to the International Business Logistics (LEI) registration form, De Dianous was appointed as president; another Panamanian, Joseph Mawad, as vice president and the Costa Rican Digna María Moya González as secretary. The latter has been the financial director of Dos Pinos for a decade. In the document, all three people gave the same date of birth.

LEI was registered with a capital of 10 thousand dollars (one dollar per share) and in order to “invest in preferred shares of an operating company”, the source of income being “investment of own funds”.

Both Mawad and De Dianous appear in the OpenCorporates commercial database as directors of various Panamanian companies; the latter appears as a director of at least ten companies.

To create the LEI company, the financial director of Dos Pinos gave her address that of the cooperative’s plant in Coyol de Alajuela, in Costa Rica.

Two paper companies owning a real one

The corporate connections of Dos Pinos do not end there.

According to the OMC registration form, the majority shareholder of Logística Empresarial Internacional would be the company First Caribbean Investment Company Inc (with 54.1% of shares). This company was registered in the British Virgin Islands on July 20, 2004, with a capital of US$50,000. The registration was made by an agent of the Panamanian law firm Alfaro, Ferrer & Ramírez (BVI) Limited.

First Caribbean, which is not authorized to issue bearer shares, is active, according to the British Virgin Islands (BVI) Corporate Affairs Registry (BVI) certificate.

The form also listed 39.17% of LEI’s shares as the owner of Transnieve Ltd, a Barbados company. The ownership of the remaining 6.73 percent was not identified.

In an Affidavit of Nominative Shares of Nevada Products of November 2019, issued in Costa Rica, which also rests in the archives of OMC, the commercial director of Dos Pinos for more than a decade, Luis Esteban Brenes Villalobos, provided information on final beneficiaries of companies, as required by law.

This document allows you to see the network of offshore companies related to the Dos Pinos cooperative, as shown in this infographic.

The Costa Rican cooperative is the owner of the company Transnieve Ltda, registered in Barbados in December 2012. In turn, Transnieve is a shareholder of several companies: American Industrial Corporation (Barbados), International Business Logistics (Panama), Snow Foods SRL (in unknown jurisdiction ) and Productos Nevada (Panama).

Productos Nevada is a leading company in the dairy sector in Panama, which has invested more than 119 million dollars in dairy production and in setting up its milk distribution chain.

Brenes, who made the statement as president of Productos Nevada, indicated that the final beneficiaries of that company are the associates of the Dos Pinos cooperative.

It at the same time presented a list of 23 persons as beneficiaries of at least 10% of the capital stock of Productos Nevada and representative of the administrative and operational control of the company. There are Carlos Alfaro Moya, a current member of the Dos Pinos Board of Directors; Jaime Harrington Solórzano, a former member of said council, and 21 other people.

The Dos Pinos spokesperson was asked if these people are associates and why they appear as beneficiaries of that 10% of the shares. “By policy, the cooperative cannot give you that information,” was the reply.

Digna Moya González was also on the board of directors of Productos Nevada, as stated in this 2016 document.

This journalistic alliance discovered that Productos Nevada also belongs to the corporation Corporación Industrial Americana Ltd., registered in Barbados, which owns 50 shares. The latter, however, registered an integration process under the Insolvency and Bankruptcy Code (IBC) on November 20, 2013, according to the registry of the Caribbean country.

It is not clear why Dos Pinos set up this complex scheme of paper companies as holders of its dairy company in Panama. Because it is a cooperative, Dos Pinos is exempt from paying income tax on its earnings, because these are distributed as surpluses to its associates, but it is required to withhold income tax from the salary it pays to its employees.

It is also obliged to retain 10% of income on the surpluses delivered to its associates and to contribute with other parafiscal obligations.

In 2018, as part of the discussion on the tax reform in Costa Rica, it was proposed to levy a 30% income tax on the profits generated by large cooperatives, as is charged to the rest of the companies. The idea, promoted by the Ministry of Finance and supported by some legislators, nevertheless ran into strong opposition from the cooperative sector and the majority of deputies in Congress. In the end it was rejected.

Given this, a group of deputies promised to support another initiative to collect rent from cooperatives with surpluses greater than 250 million colones per year (about US$397,700), but also failed before the opposition of the legislative majority and a millionaire lobby promoted by the cooperative sector.

We asked the spokesperson for the Luis Mastroeni cooperative if Dos Pinos does not see any contradiction in maintaining these companies in jurisdictions considered tax havens, where Costa Rican inspection is practically impossible. “We as a cooperative generate these societies, we have these societies abroad, with the sole purpose of being viable and being commercially operative in those places,” he replied.

He added that everything follows the law. “The law is complied with in those places, all the taxes that have to be paid are paid and they are all consolidated in Costa Rica to generate greater benefits for the producers,” he said.

Asked by ICIJ about the Dos Pinos companies, the OMC firm replied in a letter that it cannot answer any of its clients because it is confidential information, but stressed that it complies with all applicable laws in the jurisdictions where it operates. “WTO is committed to compliance and maintains a strong compliance program, including due diligence policies and procedures,” he said.

Associates unaware of offshore

Two associates of Dos Pinos consulted by this journalistic alliance said they were not aware of this network of companies and pointed out that the information shared by their directives regarding the commercial decisions of the company is increasingly limited.

“From ten years ago to here, everything is secretive,” said a milk producer from the Tilarán area, who asked to protect his identity so as not to have conflicts with the cooperative. “We find out about the information from what comes out in the newspaper or through (the mail) of the witches who call. If someone notices something and comments, one finds out, but information from Dos Pinos, directly, very little”.

The concern of this producer, who said he had no idea what an offshore company is, is that the cooperative’s businesses end up generating losses because “in the end we, the associates, assume them, who are the primary [producer].”

He said that a few years ago, a single call was enough to clear up any doubts they had as associates. “Now you have to ask everyone for permission, send a letter requesting it and depending on the information they don’t give it to you,” he explained.

For this same reason, he also does not know if what the cooperative generates as dividends is the amount that really corresponds to him, if it should be more or less. “They just give us a general analysis at the end of the year. As there is no information, I cannot be sure if it is correct or if it is missing ”, he said.

Another associate, but from the San Carlos area, who also agreed to speak for this journalistic investigation anonymously, said that his discomfort and that of other associates is that administrative and financial expenses of other projects abroad were redistributed and warehouses agro-veterinarians had to assume and increase the costs to the producer. “As there is an increase in costs for the producer, profitability is lowered,” he said.

“The associate is given reports of the industry where they present it as solid, but that is not happening on the farms. Farms are weakening because of costs, that’s the point, ”he added.

In relation to the details of the businesses that are shared with the cooperative’s associates, he assured the milkman from San Carlos, that there are very few. He said he does not know about offshore companies and is also unaware that associates have been informed about it.

“There is always data that one would like to know more, some detail of a report that one would like to know more. However, that is not possible and is usually rejected because that is a sensitive matter and cannot be left. There they handle it with the legal advisors and when a humble producer arrives with rubber boots, the graduate or the lawyer comes out, x or y, the matter stops and that is where it goes,” he said.

Can the board of directors or the manager of a cooperative establish what information is confidential even for the cooperative’s associates, arguing that it is part of the commercial strategy of the business or that it cannot be disclosed to the competition?

For Erick Brenes, a member of the Academic Committee of the Institute of Corporate Governance of Costa Rica, “in good theory that can happen, but it has to be justified and supported by the general assembly.”

According to Brenes, in Costa Rica, there is no legal organization more democratic than a cooperative. “Transparency must be total from the board of directors to each of the associates, obviously going through the general assembly. This is regulated in the law and the ultimate duty to ensure accountability and transparency, which are the two characteristics that are sought in any organization, belongs to the board of directors ”, he explained.
An offshore for salaries

Created in 1947 by 25 dairy farmers, Dos Pinos has grown dramatically in recent years to cross national borders.

This internationalization was the central argument for the cooperative to create a Comprehensive Corporate Plan and a new compensation model for its executives in 2014, according to criminal record 18-000120-0621-PE consulted by this journalistic alliance.

Although it does not have a commercial operation in Belize, “for fiscal strategy” the cooperative created in the Caribbean country the company CSC DP Ltd (Holding), which became its parent company, and the company DPSSC Ltd, as in charge of offering corporate services to its affiliates.

In addition, Cooperativa Dos Pinos contributed to CSC DP Ltd the shares of its subsidiaries: Helados de Centroamérica (Guatemala), Atlantic Holdings (Dominican Republic), Congelados (Nicaragua) and Clauds Holding Corp (Panama) at their book value.

In parallel, they created a new model for paying their executives. They fired them, paid them millionaire settlement sums and rehired them the next day, October 1, 2014, with a new model, whereby part of their salaries and benefits would be paid to them in Costa Rica and the other part in Belize, through the company DPSSC Ltd.

Taxation and the Caja Costarricense de Seguro Social (CCSS) determined that on the amount paid abroad they did not report the social charges nor was the due withholding of income tax made. This is what caused the fine of the two entities.

“The Tax Administration, in summary, found that the audited (Dos Pinos) devised a corporate structure that it located in Belize and of which it had control of 100% of its capital and therefore total control of it, to proceed with pay its executives a part of their salary under the figure of professional services, supposedly rendered to affiliated companies abroad. To do this, it created the company DPSSC Ltd located in Belize ”, concluded in their report Maritza Mesén, deputy director of Inspection of Large National Taxpayers, and Patricia Castillo, director of Large National Taxpayers of the Ministry of Finance.

When all this happened, the president of the Board of Directors was Alberto Argüello Rodríguez, who remains in the position. In addition, the manager was Gonzalo Chaves Alvarado, who also still holds the position.

The directors of the dairy cooperative kept the payment of their executives strictly confidential. Even the more than 1,300 associated producers were unaware of what was happening.

It was only until mid-2015, when the Vigilance Committee – the highest supervisory body of the cooperative – requested accounts, worried that they were incurring in possible illegalities with the treasury and social security. As a result of the questions, the directors of Dos Pinos were forced to return to their old salary scheme.

But they didn’t stop there. Gonzalo Chaves, in his capacity as manager and legal representative of the cooperative, filed a criminal complaint for the alleged crime of disclosure of secrets. Although the complaint was not filed against any person, the events related directed the investigation towards the three members of the Vigilance Committee, formed at this time by the president Eduardo Robert Ureña, the secretary Teresa Alfaro Rojas and the member Diego Salas Blanco.

The investigation finally did not find that the members of the Vigilance Committee had committed a crime, so the Prosecutor’s Office presented a request for final dismissal that was accepted by the Criminal Court of Alajuela in December 2019 and that exempted them of guilt.

 

The DPSSC Ltd company created by Dos Pinos in 2014, in Belize, allowed the cooperative to pay part of the salary of its senior executives without rent reductions or social security. Photo: Courtesy of Andrés Bermúdez Liévano.

In 2017, the existence of the company in Belize and the salary scheme were made public by the press. Taxation and the Costa Rican Social Security Fund conducted investigations and determined that Dos Pinos did incur omissions in income tax and social security payments, respectively, for which they sanctioned the cooperative.

The Economic and Tax Crimes Prosecutor’s Office also opened a criminal investigation to see if those same facts constituted a crime. However, in consultation with this journalistic alliance, the entity reported that it requested a dismissal for atypicality, since, based on the evidence collected, it was not possible to prove the crime of fraud against the public treasury.

The Prosecutor’s Office argued that during the investigation all the possibilities to collect the necessary evidence in the process were exhausted since it was intended to obtain evidence that was not possible to incorporate into the file because it did not have the endorsement of a judge.

Asked about the investigation processes and sanctions against the cooperative, the Dos Pinos spokesman, Luis Mastroeni, preferred not to refer to the matter, arguing that there are still pending steps to be resolved.

He was also asked if the cooperative collected from the Board of Directors and the manager the sums of the fines collected by Taxation and Finance. This is due to the fact that the law indicates that in Cooperative Associations “the members of the board of directors and the manager, who execute or allow to execute acts notoriously contrary to the interests of the cooperative, or that violate the law or the statutes, will respond jointly and severally with their assets from the losses that such operations incur in the cooperative ”.

Mastroeni indicated that “being administratively litigating, both in the Treasury and in the Caja, we cannot give any statement.”

This article was originally published in Spanish in Costaricamedios.cr and translated by the Q.

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