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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.

The massive Panama Papers leak has put the American rich on notice. If you have an offshore, you’d better make sure the IRS knows.

The breach of Mossack Fonseca documents might have the mega-rich rethinking their use of offshores even though many rely on such companies for all sorts of legal purposes, tax experts said.

Among the Americans exposed in the data leak are a Hollywood mogul, a Hyatt hotel heiress, a descendant of the family who created Campbell soup and a former Republican fundraiser.

The revelations, which emerged from the little-known but powerful Panamanian law firm Mossack Fonseca & Co., have cost the Iceland leader his job and shaken other foreign governments. Prominent American politicians are not in the data, but some wealthy Americans are.

Investment banker Jerry W. Slusser, a fundraiser for former Republican presidential candidate Mitt Romney, initially told McClatchy he didn’t recall setting up an offshore company. But when given details of his offshore from the leak of Mossack Fonseca documents, he remembered opening it in the British Virgin Islands. He then called his accountant.

“There’s nothing nefarious about it,” he said hours later. “This was for an investment in a manufacturing company in Hong Kong. I am very comfortable we have filed everything we need to file.”

He declined to provide McClatchy with details about his compliance with U.S. tax laws on what he described as a money-losing investment. He said it was a “private matter” before hanging up.

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).

“I would assume a lot of the ultra rich are having conversations with their tax lawyers about what their exposure is as a result of this leak,” said Richard Pomp, a tax expert and law professor at the University of Connecticut. “They know their names are likely to be revealed to the IRS. The question is ‘How clean are we?’ ”

Determining a precise number of Americans in the data is difficult. There are at least 200 scanned individual U.S. passports. There are about 3,500 shareholders of offshore companies who list U.S. addresses. And almost 3,100 companies are tied to offshore professionals based in Miami, New York and other parts of the United States.

One of the more prominent American names in the data is Sanford Weill, 83, who was the powerful CEO and later chairman of Citigroup from 1998 to 2006. As the Brooklyn-born son of Polish immigrants, Weill rose from humble roots to arguably the highest perch of American finance.

Weill appears as a shareholder in two companies – April Fool Ltd. and Brightao Corp. He’s the sole shareholder in April Fool, a shell company in the British Virgin Islands. An associate of Weill’s who declined to be identified confirmed to McClatchy that the offshore is linked to a 200-foot yacht by the same name.

CNBC reported in 2013 that Dan Loeb, founder of New York-based hedge fund Third Point LLC, purchased the yacht for more than $50 million. Yacht brokers, when listing it at the time, touted its massive master stateroom and a fourth-level sun deck that boasts a cozy Jacuzzi.

Weill has said that he named the boat for the date he met his wife, Joan Mosher, whom he married in 1955. Weill, a major philanthropist, is largely retired from high finance but remains president of the board of trustees of Carnegie Hall in New York.

April Fool Ltd was located in the British Virgin Islands and was active between 2001 to 2005.

The other offshore company tied to Weill is Brightao Corp., which includes a number of prominent U.S. investors and Chinese businessmen. That offshore company in the British Virgin Islands was used as a vehicle through which investors held shares in a Chinese insurance and risk management firm called Mingya Insurance Brokers, confirmed the associate of Weill.

Hollywood music and film mogul David Geffen also appears in the documents. He’s director of a Delaware company called Barham Maritime LLC, which in 2011 sold shares of his Cayman Islands company created to hold title to his yacht called Pelorus. Shipfinder.com shows the yacht Pelorus is anchored in Miami.

The sale price for the yacht was $214 million, and it was sold to a Panama offshore company called Marfleet Limited S.A.

Mossack Fonseca lawyers reviewed the sale documents.

The documents show that Royal Group Companies Management was the true buyer of the yacht. A website describes the company, in the United Arab Emirates, as active in real estate, tourism and international trade and development. Its chairman is Tahnoun vin Mohammed Al Nahyan, who is also a shareholder of Marfleet and is the UAE’s royal family representative for the Eastern Region.

According to Forbes, Geffen has a net worth of $6.8 billion. He is the co-founder of DreamWorks Animation SKG Inc.

Geffen’s lawyer, Bertram Fields, said Geffen has “never used an offshore account for business or commercial purposes or has any kind of tax haven.”

Liesel Pritzker Simmons also appears in the Panama Papers. She’s a former child Hollywood star and heiress to the Hyatt hotels fortune. She’s also related to U.S. Commerce Secretary Penny Pritzker. Forbes magazine estimated her net worth at $600 million in late 2013, and her wealth is combined with that of husband Ian Simmons, himself an heir to a construction and retailing fortune.

In the Panama Papers, the two appear as shareholders of a Panamanian shell company called Blue Valley Agroinvestment. The documents suggest investment in Colombia’s palm oil sector. One of the other shareholders is John Thompson Dorrance IV, a descendant of the family that created the Campbell Soup company.

In a March 2013 email between lawyers in Medellin, Colombia, one notifies the other that Dorrance wants his name replaced with “the name of one of his companies in the Bahamas, LOUP Holdings Inc.” Dorrance did not respond to requests for comment by phone and email.

In a statement to McClatchy, Pritzker Simmons confirmed her stake in the company.

“My husband, Ian Simmons, and I are minority investors in Blue Valley Agroinvestment, a sustainable agriculture project in Colombia,” she said. “Any income we earn is fully taxed. We are proud of the job creation and community development this project brings to an underserved part of Colombia.”

Pritzker Simmons is co-founder and principal of Boston-based Blue Haven Initiative, which describes itself on its website as “an innovative family office that invests for profit and with purpose.”

Former IRS official Daniel Reeves said Americans often start out using offshores as a vehicle for foreign investment.

Under U.S. tax laws, however, when you own a company in a foreign jurisdiction you have to file a form 5471 with the IRS to disclose its ownership. Failure to file the form can lead to penalties.

“You may go offshore for one legitimate purpose,” said Reeves, who helped develop the IRS offshore compliance unit. “But once you’re offshore, very often accountants and financial service providers start explaining there can be other benefits, which they often euphemistically refer to as tax minimization, which really turns out to be tax evasion.

“Once you have the offshore account, you then start thinking to yourself, ‘Who knows who I am? Nobody.’ So maybe then you explore other purposes for it.”

In recent years, Americans found out that Swiss bank accounts did not necessarily provide immunity from prosecution.

Since 2008, the U.S. Justice Department has gone after Americans who hold bank accounts in Switzerland as well as the banks themselves. As a result, some 80 Swiss banks have paid $1.36 billion in penalties and agreed to cooperate with tax authorities.

The leak may change the long-term behavior of wealthy Americans, said Matt Gardner, executive director of The Institute on Taxation and Economic Policy, a Washington-based public policy group. “This certainly puts in neon lights that you can no longer rely on the absolute secrecy that people were used to in the past," he said.

Some offshore owners should be concerned, said Pomp. "I don’t see how the government can resist the pressure to prosecute," he said.

The leak may be making the wealthy sweat – even if they have done nothing illegal. But Reeves said he believed the exposure of the thousands of offshores ultimately will have a positive impact.

“I guarantee you’ll see an uptick in the number of people coming into the IRS to file offshore voluntary disclosures,” he said.

Others disagreed. Edward Mermelstein, a New York lawyer whose firm advises international investors, said many affluent Americans will shrug off the Panama Papers.

"It's tiny compared to the diapers being soiled outside the United States," Mermelstein said.

Kevin G. Hall: 202-383-6038, @KevinGHall.

Marisa Taylor: 202-383-6164, @marisaataylor

National Correspondent Tim Johnson contributed. 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.

CORRECTION: An earlier version of this article misstated the number of the IRS form that is used to declare ownership of a company in a foreign jurisdiction. It is form No. 5471.

An unprecedented look at offshores

A database leak at the Mossack Fonseca law firm in Panama exposes how it hides money for its clients.

THE LEAK: Munich’s Suddeutsche Zeitung newspaper was given the files, which were shared with the International Consortium of Investigative Journalists.

ITS SIZE: 11.5 million emails and client records. It would take 24 hours to download the 2.6 terabytes at normal internet speeds.

THE MEDIA PARTNERS: More than 350 journalists, including a U.S. McClatchy reporting team, in 77 countries examined the data.

WHO WAS FOUND: 12 current and former heads of state and government, 61 relatives and associates of leaders, and 128 other public officials.

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