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Panama law firm safeguards murky offshore secrets

Offshore corporations: The secret shell game

Offshore corporations have one main purpose - to create anonymity. Recently leaked documents reveal that some of these shell companies, cloaked in secrecy, provide cover for dictators, politicians and tax evaders.
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Offshore corporations have one main purpose - to create anonymity. Recently leaked documents reveal that some of these shell companies, cloaked in secrecy, provide cover for dictators, politicians and tax evaders.

Mossack Fonseca had a problem in Vegas.

The Panama-headquartered law firm that helps set up hard-to-trace corporate structures for clients worldwide had created 123 companies in Nevada. And prosecutors in Argentina claimed those companies had been used by a crony of Argentina’s former president to steal $65 million from government contracts.

A lawsuit in the U.S. District Court in Nevada, seeking to claw back money that was said to have flowed through the mystery companies, asked the court to order Mossack Fonseca & Co. and its Las Vegas subsidiary to turn over inside information about them.

The law firm tried to protect itself and the confidentiality of its clients by denying that its Las Vegas operations, run by a company called M.F. Corporate Services (Nevada) Limited, were part of the Mossack Fonseca group.

The firm’s Panama-based co-founder, Jurgen Mossack, testified under oath that “MF Nevada and Mossack Fonseca do not have a parent-subsidiary relationship nor does Mossack Fonseca control the internal affairs or daily operations of MF Nevada's business.”

But secret records obtained by the International Consortium of Investigative Journalists, the German newspaper Süddeutsche Zeitung and other media partners, including McClatchy newspapers, raise new doubts over that sworn testimony.

Not only do they show that the Nevada subsidiary was wholly owned by Mossack Fonseca, but also that, behind the scenes, the firm took active steps to wipe potentially incriminating records from phones and computers to hide details of their clients from the U.S. justice system.

An email from 2014, for instance, instructs that links to Mossack Fonseca’s cloud-computing system from Nevada have “to be obscure to the investigators.” Other emails report that tech operatives working remotely from Panama “tried to clean the logs of the PC’s in the Nevada office” and planned to run a “remote session to eliminate the traces of direct access to our CIS” – the firm’s computer information system.

11.5 million Documents obtained by an international team of journalists – emails, bank accounts and client records – showing the offshore holdings of individuals and companies from more than 220 countries and territories. The Mossack Fonseca leak is 46 times larger than the 2010 Wikileaks publication of 251,287 secret U.S. diplomatic cables.

The documents even show that an employee traveled from Panama to Vegas to whisk paper documents out of the country. “When Andrés came to Nevada he cleaned up everything and brought all documents to Panama,” said a Sept. 24, 2014, email.

The 11.5 million documents obtained by the consortium – emails, bank accounts and client records – reveal the inner workings of Mossack Fonseca over nearly forty years, from 1977 to December 2015. They show the offshore holdings of individuals and companies from more than 220 countries and territories.

They recount example after example of ethical and legal wrongdoing and provide stark evidence of a firm happy to act as a gatekeeper to the secrets of its clients – even when those clients turn out to be crooks, members of the Mafia, drug dealers, tax evaders, or involved in child sex crimes, political corruption or terrorism.

A leak of secret records reveal examples of ethical and legal wrongdoing, and show a firm happy to act as a gatekeeper to the secrets of its clients – even when those clients turn out to be crooks, members of the Mafia, drug dealers, tax evaders, or involved in child sex crimes, political corruption or terrorism.

The files show that business has been good.

Today, Mossack Fonseca is considered one of the world’s five biggest wholesalers of offshore secrecy. It has more than 500 employees in more than 40 offices around the world, including two in Switzerland and eight in China, and in 2013 had billings of more than $42 million.

A Mossack Fonseca spokesman, Carlos Sousa, denied that the company has facilitated any illegal activity.

 

“We follow both the letter and spirit of the law. Because we do, we have not once in nearly 40 years of operation been charged with criminal wrongdoing. We’re proud of the work we do, notwithstanding recent and willful attempts by some to mischaracterize it," Sousa said in a statement.

Ramon Fonseca began his small, one-secretary law practice in Panama in 1977, then merged it in 1986 with another local firm headed by Jurgen Mossack, a Panamanian of German origin. Both men had international pedigrees and backgrounds in the worlds of money, power and secrets.

Mossack Fonseca partners Jurgen Mossack and Ramon Fonseca move in the highest circles of Panamanian society

 
 

Fonseca was born in Panama in 1952 and studied law and political science at the University of Panama and the London School of Economics.

Mossack was born in Germany in 1948. He moved to Panama with his family in the early 1960s, according to his law partner.

Mossack’s father had been a member of the Waffen-SS, the notorious armed wing of the Nazi Party during World War II, according to U.S. Army intelligence files obtained by ICIJ.

After earning a law degree in Panama in 1973, the son worked for a time as a lawyer in London before returning to Panama to start the firm that he would later merge to form Mossack Fonseca & Co.

Mossack’s holdings, according to the files obtained by ICIJ, include a teak plantation and other real estate, an executive helicopter, a yacht named Rex Maris and a collection of gold coins.

Today, both partners move in the highest circles of Panamanian society.

As well as being a lawyer, Fonseca leads an equally high profile second life as an award-winning novelist. Among his books is “Mister Politicus,” a political thriller that, his literary website says, “articulates the tangled processes that unscrupulous officials use to gain power and achieve their detestable ambitions.”

In 1987, with Panama under the repressive rule of military dictator Manuel Noriega, Mossack Fonseca made its first big move abroad, establishing a branch in the British Virgin Islands, which a few years before had passed a law that made it easy to set up offshore companies without public disclosure of owners and directors.

Today, the British Virgin Islands are home to about 40 percent of the world’s offshore companies. Of the companies that appear in Mossack Fonseca’s files, 54 percent – about 112,000 – were incorporated in the British Virgin Islands.

Mossack’s holdings, according to the files obtained by ICIJ, include a teak plantation and other real estate, an executive helicopter, a yacht named Rex Maris and a collection of gold coins.

Mossack Fonseca made another significant move in 1994.

It helped the tiny nation of Niue – a South Pacific coral outcrop with a population of fewer than 2,000 – craft legislation that provided for incorporation of offshore companies. The law firm had picked Niue, Mossack later told Agence France-Presse, because it wanted a location in an Asia-Pacific time zone and because it would face no competitors.

“If we had a jurisdiction that was small, and we had it from the beginning, we could offer people a stable environment, a stable price,” Mossack said.

The firm then signed a 20-year-deal with the small atoll’s government for exclusive rights to register offshore companies in Niue. Importantly, Niue offered registration in Chinese or Cyrillic characters, making it attractive to Chinese and Russian customers.

By 2001, Mossack Fonseca was doing so much business out of Niue that it was paying the equivalent of $1.6 million of the Niue government’s projected $2 million annual budget.

But the firm’s cozy relations with the island nation also began attracting unwanted scrutiny. That same year the U.S. State Department questioned the “awkward sharing arrangements” between Niue and Mossack Fonseca and warned that Niue’s offshore industry had been “linked with the laundering of criminal proceeds from Russia and South America.”

Mossack Fonseca at one time was doing so much business out of the tiny atoll of Niue that it was paying the equivalent of $1.6M of the Niue government’s yearly projected $2M budget.

Though Mossack denied that Niue was involved in money laundering, in 2001 the Bank of New York and Chase Manhattan imposed embargoes on transfers of dollars to Niue. In 2003, Niue declined to renew four Mossack Fonseca-incorporated companies, signaling that it would be shutting down the firm’s exclusive franchise.

Losing Niue didn’t slow Mossack Fonseca down. It simply shifted its operations, with the law firm encouraging customers who had companies in Niue to simply re-incorporate in the nearby nation of Samoa.

The switch was part of a pattern that emerges in the documents. When legal crackdowns have hindered Mossack Fonseca’s ability to serve its clients, it has quickly adapted and found other places to work.

In the past five years, for example, Anguilla, a British territory in the Caribbean, has climbed to near the top of the firm’s list of leading jurisdictions for setting up companies.

Mossack Fonseca has also expanded its operations to take care of the additional needs of its customers, including registering private aircraft and yachts, bringing in new revenue from its wealthier clients.

By 2006, according to the files, Mossack Fonseca expanded its business further by handling the finances of some clients or, as the company described it, “discretionary portfolio management.”

An analysis by ICIJ found that Mossack Fonseca has worked with at least 33 companies and individuals blacklisted by U.S. authorities because of their links to terrorism, narcotics trafficking or because they were front companies for rogue regimes such as North Korea or Iran.

According to an analysis of the files by ICIJ, the firm’s in-house asset manager operations – called Mossfon Asset Management S.A., or MAMSA – handled nearly 6,000 transactions and at least $1.2 billion in client money between 2006 and 2015.

MAMSA worked with several banks, including at least two that have been the subjects of money laundering investigations: Banca Privada d’Andorra, accused by the U.S. Treasury Department in a 2015 report of money laundering for powerful criminal gangs, and Deutsche Bank Switzerland, whose parent company is currently being investigated by authorities in the United Kingdom and the United States for possible money laundering for Russian clients. The U.S. treasury withdrew its finding on Banca Privada d’Andorra on Feb. 19, 2016, saying that it “no longer operates in a manner that poses a threat to the U.S. financial system.”

The former non-executive chairmen of the bank, brothers Ramon and Higini Cierco, whose family is the majority shareholder, said they believed that the Treasury action could not withstand a court challenge and that the allegations were based on cases that the Andorran regulator has “been aware of for years.”

The files show that, in addition to Deutsche Bank, the firm works with some of the world’s other biggest financial institutions, such as HSBC Holdings PLC, Société Générale SA, Credit Suisse Group AG, UBS AG, the Royal Bank of Canada and Commerzbank AG, in some cases to help the banks’ clients set up complex structures that make it hard for tax collectors and investigators to track the flow of money from one place to another.

 
 

In Panama, Mossack Fonseca’s products include private foundations, which are not subject to taxes in Panama and operate under a law that does not require the names of the founders or beneficiaries to be revealed.

Other services, according to emails and documents found in the files, include backdating documents for clients, offering to use phony invoices from legitimate British companies to secretly take cash out of the United States and the use of donations to fake charities in Panama to evade authorities in the movement of money.

An analysis by ICIJ found that Mossack Fonseca has worked with at least 33 companies and individuals blacklisted by U.S. authorities because of evidence that they had been involved in wrongdoing such as doing business with Mexican drug lords, terrorist organizations such as Hezbollah’s military wing or rogue nations such as North Korea or Iran.

Nations have begun to take a harder look at Mossack Fonseca’s practices.

In 2012 and 2013 regulators in the British Virgin Islands hit the firm with a series of fines for violating the country’s anti-money-laundering rules – including a $37,500 penalty for failing to properly screen a “high risk” client – Alaa Mubarak, the son of Egypt’s ousted former dictator.

 

Then in February 2015, German authorities launched a series of raids on the Commerzbank office and private homes in Frankfurt. Süddeutsche Zeitung reported at the time that the German authorities were considering legal actions against Mossack Fonseca for possible contributions to tax evasion involving the bank’s offices in nearby Luxembourg.

$37,500 Penalty for failing to properly screen a ‘high risk’ client – Alaa Mubarak, the son of Egypt’s ousted former dictator.

In early 2016 in Brazil, Mossack Fonseca became one of the targets of a bribery and money laundering investigation dubbed “Operation Car Wash,” which is rapidly growing into one of the biggest corruption scandals in Latin American history.

Prosecutors allege that Brazilian businesses cooperated with each other to divide up the bidding for contracts with state-controlled oil conglomerate Petróleo Brasileiro SA, or Petrobras, inflating prices and using the extra money to bribe politicians and oil company officials, and to enrich themselves.

Brazilian prosecutors claim Mossack Fonseca’s office in Brazil helped some of the defendants by creating shell companies that were used to commit crimes. At a news conference in January 2016, they called Mossack Fonseca “a big money launderer” and announced they had filed criminal charges against five employees of Mossack Fonseca’s Brazilian office, involving crimes ranging from money laundering to destroying and hiding documents.

The firm denies any wrongdoing in the case. It said in a statement that the Mossack Fonseca office in Brazil is a franchise, and the Panama law firm, which practices only in Panama, “is being erroneously implicated in issues for which it has no responsibility.”

The argument was similar to the one used in Las Vegas.

This story is part of a larger series, involving McClatchy and other news organizations, working under the umbrella of the nonprofit International Consortium for Investigative Journalists.

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