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It was supposed to be the Commonwealth Bank's bold foray into profiting from pop stars including Sheryl Crow, John Denver and the Ramones — all channelled through an offshore tax haven.
In 2008 the bank's fund manager launched the First State Media Works Fund with a 25,000-song catalogue, lauded in the financial press as "the world's first dedicated music royalties fund".
But by late 2014 a newly released document shows the Commonwealth Bank's original $US31 million ($40 million) investment had crashed to less than a 10th of its initial value.
The fund, called a limited partnership, was highly financially engineered, with component companies based in the low-tax destinations of Ireland and Jersey, which have 0 per cent tax rates.
The fund was managed through the Jersey office of the global offshore law firm Appleby, which is at the heart of the Paradise Papers leak of 13.4 million documents.
The Commonwealth Bank's expensive adventure into the "world first" investment through the channel island of Jersey has been revealed in the largest leak of documents in history, with the documents examined by Four Corners and other partners of the International Consortium of Investigative Journalists.
The documents were originally obtained by German newspaper Suddeutsche Zeitung.
The revelations that the Commonwealth Bank was prepared to invest in a structure through a tax haven adds to scrutiny of Australian companies' use of low-tax, or no-tax, countries to channel money in and out of Australia.
Music raised funds to tune of $172m
The idea behind the fund was to rely on rights payments from its catalogue of artists being used on radio and in advertisements.
It appeared to be such a good idea that the Commonwealth Bank took up almost a quarter of the $172 million raised for the fund.
The then chief executive of the Commonwealth Bank's fund manager Colonial First State Global Asset Management, Warwick Negus — a former Goldman Sachs colleague of Malcolm Turnbull's — invested in the fund through his family trust.
"Musicians create very long-term cashflows with a degree of predictability," Charlie Metcalfe, then chief executive of the bank's First State Investments, said in 2007.
But, by late 2009, the gloss had come off after the global financial crisis.
A letter from the Jersey management company to the Commonwealth Bank noted: "The partnership has witnessed difficulty in fundraising over the last 12 months given unprecedented market conditions."
Another reason for the fund's lack of success, according to ICIJ partner The Guardian, was because the value in the music rights — including Crow's back catalogue — lost value faster than expected.
The standout performer in the fund's playlist was the Trammp's Disco Inferno; John Denver's Take Me Home Country Road and Leaving on a Jet Plane were also popular.
Other songs in the catalogue included Nirvana's Lithium and the Kingsmen's 1963 hit Louie Louie.
The crashing value of the investments meant that any tax advantages on gains by investors were moot.
However, it was clear the structure had tax benefits in mind.
Bank paid $3.9b in taxes last year
A KPMG document about the fund said the accounting firm assumed investors "would look to retain the current offshore tax structure and, therefore, no tax would be payable on income generated by the catalogue".
The Commonwealth Bank has said it is Australia's largest corporate taxpayer, paying $3.9 billion in taxes to federal, state and local governments in 2016-17.
"The Commonwealth Bank's tax governance policy requires that we act with the highest integrity in complying with all prevailing tax laws and only enter into transactions with clear business value, before taking into account any tax consequences," the Commonwealth Bank told the ABC, in response to the issues raised.
"The bank does not and will not promote any arrangement or transaction entered into or carried out with the sole or dominant purpose of paying less tax or receiving increased tax offsets and has processes to ensure it is not party to schemes that have a sole or dominant purpose to evade or avoid tax."
It appears Colonial First State's role in the investment ended in 2011, but the documents show the bank still had its investment in the fund in 2014 as steps were taken to wind it up.
Topics: fraud-and-corporate-crime, tax, music, music-industry, australia
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