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Panama Papers 2.0
A new leak of data from the embattled law firm Mossack Fonseca shows it scrambling to contain the crisis triggered by the April 2016 leak of the Panama Papers — struggling to find true owners of mysterious companies, dealing with angry clients trying to quickly transfer their business and cutting a deal to bring in income even as it transferred its U.S. clientele to a Delaware-based company.
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READ THE ORIGINAL SERIES: Massive leak exposes how the wealthy and powerful hide their money
A massive leak of documents has blown open a window on the vast, murky world of shell companies, providing an extraordinary look at how the wealthy and powerful conceal their money.
Twelve current and former world leaders maintain offshore shell companies. Close friends of Russian leader Vladimir Putin have funneled as much as $2 billion through banks and offshore companies.
Those exposed in the leak include the prime ministers of Iceland and Pakistan, an alleged bagman for Syrian President Bashar Assad, a close pal of Mexican President Enrique Peña Nieto and companies linked to the family of Chinese President Xi Jinping.
Add to those the monarchs of Saudi Arabia and Morocco, enough Middle Eastern royalty to fill a palace, honchos in the troubled body known as FIFA that controls international soccer and 29 billionaires featured in Forbes Magazine’s list of the world’s 500 richest people.
Also mentioned are 61 relatives and associates of current country leaders, and another 128 current or former politicians and public officials.
The documents within the leak also expose how secretive offshore companies at times subvert U.S. foreign policy and mock U.S. regulators. When drug traffickers, money launderers or other crooks control companies, they undermine national security, and the trail of dark money flowing through them strips national treasuries everywhere of tax revenues.
The data breach occurred at a little-known but powerful Panamanian law firm, Mossack Fonseca, which has an office in Las Vegas, a representative in Miami and a presence in more than 35 other places around the world.
The firm is one of the world’s top five creators of shell companies, which can have legitimate business uses, but can also be used to dodge taxes and launder money.
More than 11.5 million emails, financial spreadsheets, client records, passports and corporate registries were obtained in the leak, which was delivered to the Süddeutsche Zeitung newspaper in Munich, Germany. In turn, the newspaper shared the data with the Washington-based International Consortium of Investigative Journalists (ICIJ).
Several McClatchy journalists joined more than 370 journalists from 78 countries in the largest media collaboration ever undertaken following a leak.
The document archive is massive at 2.6 terabytes. It would take a desktop computer at least 24 hours to download it at average internet speeds.
As a registered agent, the Mossack Fonseca law firm incorporates companies in tax havens across the globe for a fee. It has avoided close scrutiny from U.S. law enforcement officials.
Mossack Fonseca denies all accusations of illegal activity.
“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,” spokesman Carlos Sousa said.
The law firm’s co-founder, Ramón Fonseca, in an interview last month on Panamanian television, compared the firm to an automaker whose liability ends once the car hits the road. Blaming Mossack Fonseca for what people do with their companies, he said, would be like blaming an automaker “for an accident or if the car was used in a robbery.”
Yet plenty of criminals are in the documents, from drug traffickers to convicted fraudsters.
“The offshore world is the parallel universe of the ultra-rich and ultra-powerful,” said Jack Blum, a white-collar crime attorney and an architect of the Foreign Corrupt Practices Act.
The archive, which dates to the late 1970s and extends through December 2015, reveals that 14,000 intermediaries and middlemen bring business to Mossack Fonseca.
No corner of the globe is untouched – including the United States.
States such as Delaware, Nevada and Wyoming register thousands of corporations annually, often without identifying the true owners. Some of the billions of dollars splashing through the domestic economy come from anonymous foreigners who inflate real estate prices in places like Miami, buying properties outright in cash.
“We know (of) … upwards to $6 to $10 billion a year laundered through the U.S.,” said Patrick Fallon Jr., head of the FBI’s financial crimes section.
The most extraordinary allegations in the archive revolve around Putin’s closest associates, including Sergey Roldugin (pronounced Roll-DOO-gen), a close friend since the late 1970s when Putin was a young KGB agent.
Roldugin is a classical cellist for the St. Petersburg orchestra, yet his name appears as the owner of offshore companies that have rights to loans worth hundreds of millions of dollars. A Russian news service report in 2010 disclosed that he owned at least 3 percent of Bank Rossiya, Russia’s most important bank.
The one-word answer was “no.” Yet, Roldugin is godfather to Putin’s daughter Mariya.
When Mossack Fonseca helped open a bank account in Switzerland on behalf of Roldugin, the application form asked if he had “any relation to PEPs (politically exposed persons) or VIPs.”
“Roldugin is, by his proximity to a serving head of state, clearly an exposed person,” Mark Pieth, a former head of the Swiss justice ministry’s organized crime division, told the ICIJ team.
The documents show how in 2008 a company controlled by Roldugin exerted influence over Russia’s largest truck maker Kamaz, joining with several other offshore companies to help another Putin insider acquire majority control of the company. They wanted foreign investment, and German carmaker Daimler AG later that year bought a 10 percent stake in Kamaz for $250 million.
The offshore company that connects many Putin loyalists is Sandalwood Continental Limited in the British Virgin Islands. Roldugin was a shareholder of a Sandalwood-related entity until 2012. Oleg Gordin, a little-known businessman whom incorporation documents describe as linked to “law enforcement agencies,” was a main shareholder of Sandalwood.
The files also mention a company co-owned by Putin friend Yury Kovalchuk, the largest shareholder✔ of Bank Rossiya. Kovalchuk was among those targeted by U.S. sanctions in 2014 in retribution for Russia’s invasion of Crimea. Another friend, Arkady Rotenberg, Putin’s judo partner and a billionaire construction mogul, openly obtained companies through Mossack Fonseca. The Treasury Department, when sanctioning him in 2014, suggested that the oligarch acted on behalf of “a senior official.”
That was widely believed to mean Putin, whose fingerprints were not on any offshore company.
“When you are the president of Russia, you don’t need a written contract. You are the law,” said Karen Dawisha, an academic, former State Department official and author of the acclaimed 2014 book “Putin’s Kleptocracy: Who Owns Russia?”
The Kremlin declined to answer questions for this story. But on March 28, spokesman Dmitry Peskov attempted to front-run the stories by warning Russian media that ICIJ was publishing a “series of fibs” that amounted to a media “attack” on Putin. Peskov suggested that unknown “organizations and services” were behind the media reports.
The secrets hidden in the offshore documents go far beyond Russian moguls trying to hide money. They raise concerns about how the law firm conducted its background checks.
In a 2015 email exchange, the law firm’s manager in the tiny Indian Ocean archipelago known as the Seychelles voiced concern about pending changes in laws and audits. She asked the head office how many companies it had active there, and whether the law firm knew the true owners.
A top headquarters lawyer said the firm had 14,086 active offshore companies in the Seychelles at the time but complete information on true owners for only 204 of them.
Reporters working together in the collaborative effort analyzed more than 580 official law enforcement requests sent to Mossack Fonseca over a decade by the British Virgin Islands’ Financial Investigation Agency (FIA).
Between 2005 and 2008, the firm was able to supply the name of a company’s owner only five times in more than 110 requests, the documents show. Over time it improved, and in 2015, a name was given in response to all 78 inquiries from the islands’ regulator.
Failing to conduct proper due diligence on customers is no small matter. Mossack Fonseca was forced to write letters in 2010 and 2013 to the Financial Investigation Agency, explaining why the law firm resigned in 2010 as registered agent for two shell companies whose place of business was Pyongyang, North Korea. That is an obvious red flag given U.N. sanctions on the nation over its program to develop nuclear weapons. North Korea today is believed to be perfecting a compact nuclear warhead that can be delivered on a ballistic missile.
The shell companies were DCB Finance Limited, which included North Korean shareholder Kim Chol Sam, and Phoenix Commercial Ventures Limited, whose shareholders included Yong Nam Thae, a man who listed his address as the International House of Culture, where grandiose events are held to commemorate the country’s dictators, past and present.
The North Korean shells were created in June 2006 at a time when the Bush administration tried to isolate the Hermit Kingdom. That was less than four months before North Korea detonated its first publicly acknowledged nuclear device.
“The blacklisting/sanctioning of North Korea dates back to 2004,” Daphne Durand, legal supervisor of Mossack Fonseca & Co. (BVI) Limited, wrote in an internal finger-wagging August 2013 rebuke to Sandra de Cornejo, then the company’s Panama-based head of compliance.
In a follow-up email on the same day, Durand noted that “we had not conducted any proper due diligence and risk assessment … and we only had reason to do so when the FIA issued a letter in 2010 in respect of Phoenix Commercial Ventures.”
Regulators caught the mistake, not Mossack Fonseca.
On June 27, 2013, the Treasury Department put the shell companies and its shareholder on a global blacklist, noting that “DCB Finance Limited, and Kim Chol Sam are responsible for managing millions of dollars of transactions in support of the North Korean regime’s destabilizing activities.”
Documents also show how the law firm wrestled with what to do when it discovered that among its longtime customers was Rami Makhlouf, now targeted with sanctions by both Europe and the United States. He’s a cousin and close associate of Syrian dictator Bashar Assad.
As early as February 2008, the U.S. Treasury Department called Makhlouf a “regime insider” who “improperly benefits from and aids the public corruption of Syrian regime officials.” The agency froze Makhlouf’s U.S. assets and banned U.S. companies or people from working with him.
Later in the year, it blacklisted some of his companies in what was to become escalating global pressure on the Assad regime that led to a civil war in Syria.
Makhlouf had long been a customer of the Panamanian law firm, yet the firm’s emails at the time record no mention of the sanctions. That changed in 2010 when authorities in the British Virgin Islands sought documents from Mossack Fonseca on Drex Technologies S.A., a company owned by Makhlouf and opened a decade earlier.
It was only then, documents show, that law firm employees discovered what had long been circulating on the Internet, details of Makhlouf’s political ties and alleged smuggling profits.
Even after Mossack Fonseca’s head of compliance sought to drop Makhlouf abruptly, one of its partners argued against losing business. Chris Zollinger asserted in an email to colleagues that “there are allegations (rumors), but not any facts or pending investigations or indictments.”
Zollinger lost the internal discussion at the law firm, but not before citing an earlier conversation with officials of the global bank HSBC, which served as Mahklouf’s financial manager. HSBC offices in Geneva and London, he argued, “know about Mr. Makhlouf” and “they are comfortable with him.”
In a recent interview with McClatchy partner Süddeutsche Zeitung, Zollinger said, “In retrospect my comment in the e-mail was wrong, which I regret.”
Mahklouf did not respond to requests for comment, but another prominent Middle Eastern figure in the documents did.
Former Iraqi Interim Prime Minister Ayad Allawi is a longtime holder of shell companies. He established IMF Holdings Inc. in Panama back in 1984, his aide, Ali Mazin, told McClatchy.
That original offshore was established to secretly hold British property after an assassination attempt on Allawi while in exile, Mazin wrote in response to queries. Allawi was a fierce opponent of Iraqi dictator Saddam Hussein and a CIA ally.
Mossack Fonseca documents show that company as still active, as is his most recent shell company, Moonlight Estates Limited, established in the British Virgin Islands in 2009. Mazin confirmed Allawi’s third offshore, called Foxwood Estates Ltd. On all three, he said, Allawi is the sole director and shareholder.
Foxwood Estates was established in June 2005, just months after Allawi’s term as interim president ended in April 2005. All three companies remained active during Allawi’s term as vice president in 2014 and 2015.
“Dr. Allawi’s position is transparent with UK Tax authorities and the Iraqi authorities with which his assets are registered. These companies were lawfully formed by reputable firms and hold no complex corporate trust structures,” Mazin said.
This story contains information gathered by reporters working under the umbrella of the nonprofit International Consortium for Investigative Journalists.
Kevin G. Hall: 202-383-6038; email@example.com; Twitter: @KevinGHall. Marisa Taylor: 202-383-6164; firstname.lastname@example.org; Twitter: @MarisaATaylor. Reporters Hannah Allam and Clarice Silber contributed.