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New Panama Papers leak shows U.S. oddly inactive

A new Panama Papers leak

The financial secrets of dozens of politicians, criminals and celebrities were revealed in a new wave of documents from the Panama Papers.
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The financial secrets of dozens of politicians, criminals and celebrities were revealed in a new wave of documents from the Panama Papers.

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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.


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 and attempting to field demands for information from authorities in numerous countries — with the glaring exception of the United States.

The publication more than two years ago of more than 11.5 million documents from the law firm trained a spotlight on the practice of hiding fortunes away in secretive offshore companies — a world familiar to corrupt politicians and criminals across the globe but alien to average citizens.

For Panama's Mossack Fonseca, it meant international infamy, and this new leak of another one million-plus documents gives a real-time sense of the fallout. Lawyers and other Mossack Fonseca employees struggled to find true owners of mysterious companies the firm had helped set up, dealt with angry clients trying to quickly transfer their business and cut a deal to earn referral fees even as it offloaded its U.S. clientele to a Delaware-based company.

The firm quit its U.S. operations and eventually imploded globally. It's now winding down its few remaining businesses while under investigation back in Panama.

One May 2016 email sums up the scramble. Daphne Durand, a legal supervisor at the firm, writes colleagues to say that authorities in the British Virgin Islands wanted information on about 60 companies for which Mossack Fonseca provided managers and directors for Russian shareholders. Yet there is nothing about the "ultimate beneficial owner," or true owner.

"We all know that we are under severe scrutiny by the authorities, and to present incomplete information to the [authorities] is bad but it is worse when we are directly involved with the management of the company and we ought to know and have the information and details on the UBO, but that information is lacking," she complained. "It is embarrassing."

And American customer Gregory Wertz, an investor relations manager for private renewable energy firm encap development in Arlington, Mass., asked about his offshore company Flashlyme Limited and voiced his worry two days after the Panama Papers went viral.

"Given the recent massive security breach at your firm, we would also like an update regarding that issue, and what is being done so the. . . documentation we provide is secure," Wertz asks in an April 11, 2016, email. He did not return calls requesting comment.

The new documents were obtained by Germany’s Süddeutsche Zeitung newspaper and shared with collaborating reporters across the globe — including McClatchy's Washington bureau and the Miami Herald — under the umbrella of the International Consortium of Investigative Journalists.

Both the original Panama Papers and the newly leaked documents reveal shell companies created by Mossack Fonseca that were used not only for legitimate purposes but also to conceal illicit proceeds from drug trafficking, help pariah nations skirt U.S. sanctions and hide corruption and bribery by politicians around the world — although no names of prominent American politicians have surfaced in the documents.

But the new material suggests surprising inaction on the part of the U.S. government, given the breadth of the operation used to hide illegal and questionable transfers of funds — the kind of activity that American law enforcement has for years sought to combat.

The new files mainly cover a period between January 2016 and December 2017 and show that subpoenas were sent to regulators in the British Virgin Islands, Seychelles and other offshore tax havens just weeks after publication of the original set.

The governments of France, Germany, Brazil and even Bolivia demanded information from these tiny countries, which are home to tens of thousands of secretive offshore shell companies, used to camouflage legal and illicit transactions alike.

Similar subpoenas from state and federal authorities in the United States about the true owners of shell companies at home or abroad are largely missing, though. If they exist, they are not in Mossack Fonseca’s records. And while Europe has moved to collect more information about owners of shell companies, not so in the United States.

"Even before the release of the Panama Papers, the U.S. was one of the easiest places in the world for criminals, terrorists, and kleptocrats to anonymously hide illicit money with impunity," said Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition, which advocates for transparency. "Now, as the U.K., Europe, and many other countries. . .take steps to end the abuse of anonymous shell companies, the U.S. is becoming an ever more attractive place to launder the proceeds of crime."

What Didn’t Stay in Vegas

On May 23, 2016, Mossack Fonseca quit its operations in Nevada, less than seven weeks after the Panama Papers were published.

But Mossack Fonseca’s Nevada office was already targeted for dissolution before the documents became international news.

The firm had tried to fight off a subpoena from lawyers for NML Capital Ltd., an investment fund holding defaulted Argentine debt. U.S. courts had ruled in NML's favor against the government of Argentina and it was seeking to collect damages.

NML’s lawyers had sued Mossack Fonseca and its Nevada office chief Patricia Amunategui, alleging they helped Argentina hide assets through shell corporations. The newly leaked documents show the Nevada law firm of Woods Erickson advising Mossack Fonseca on how to close its U.S. operations.

That process had begun many months earlier, but accelerated with the publication of the Panama Papers, according to a person with inside knowledge, who demanded anonymity in order to speak freely.

The one-story building where Mossack Fonseca's Nevada affiliate, M.F. Corporate Services, once operated near the Las Vegas strip now stands empty; Amunategui said she had a new job and declined to comment.

Delaware To The Rescue

With the Panamanian law firm closing up its U.S. shop, Delaware-based American Incorporators Ltd. swooped in to take Mossack Fonseca's clients — about 1,000 U.S. shell companies it administered in Wyoming and Nevada.

Emails show that Mossack Fonseca struck a deal with the company, actively trying to salvage some revenue by recommending to its clients that they shift their business there; American Incorporators would give Mossack Fonseca 60 percent of any revenue from the referrals. (Update 6/22/2018: American Incorporators said it did not actually take all 1,000 companies and that it did not pay any referral fees.)

“These agreements include clear provisions that we will not work with any client who knowingly is breaking any U.S. or international law,” said Jeff Tindall, AI's accounts supervisor who was involved in the negotiations. He added that for the past three years “we have run nightly checks of every name in our database — clients, directors, managers etc against the various (watch) lists to make sure there are no matches with known ‘bad actors’.”

But the leaked documents, new and old, show that Mossack Fonseca’s U.S. operations worked with clients who they should have known had run afoul of the law.

Brazil-Nevada nexus

In early 2016 the Nevada office was already in turmoil: Many of the shell companies it administered belonged to Brazilians named in two widening scandals — one involving bribery and international construction giant Odebrecht, the other money laundering and graft by politicians that was the subject of a probe dubbed Operation Car Wash.

An email dated March 30, 2016, when Mossack Fonseca knew the Panama Papers would be published in a matter of days, shows the law firm rushing to quit a number of companies that would soon be identified publicly.

Those included a number of shells whose true owners were from Brazil, and companies tied to the Rotenberg family — longtime friends of Russian leader Vladimir Putin who had been placed under global sanctions. There was also an Iranian believed to be fronting a company for Iran’s former leader Mahmoud Ahmadinejad.

Just a month before that, though, Mossack Fonseca appeared to be intent on managing public perception of the scandals, not on severing ties with all the individuals involved. An internal document from February 2016 shows Mossack Fonseca negotiated a strategic communications deal with New York-based FTI Consulting, a large international business advisory firm.

Together they drafted a short and longer-term plan for influencing specific journalists in Brazil and elsewhere with the goal of swaying their coverage of the mounting scandals.

“The creation of a factual narrative will help to give direction to the conversation with the mediums we decide to contact, and eventually will mitigate the firm’s reputational damage,” said the memo from Mossack Fonseca to FTI and its four-member team.

fti-list.JPG
This screen shot of a memo from Mossack Fonseca to New York-based FTI Consulting lists the names of Latin American reporters the two hoped to influence in their coverage of a widening scandal.

FTI declined to make an executive available for an interview, but said in an email, “Clients in a variety of industries globally engage FTI Consulting to design and execute communications strategies to help manage reputational challenges. As a matter of company policy, we do not comment on specific client engagements.”

When no one is looking

If the Panama Papers snatched off the veil over the secretive world of offshore companies, the new leak provides an up-close look at what happens when secrecy is stripped away.

The documents reveal a firm more cautious about what it put in emails, rightly worried that its communications may no longer be secure and preferring phone calls for sensitive topics.

Once the Panama Papers were public, the firm immediately resigned from a number of companies.

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This screen shot of an March 30, 2016, email between Mossack Fonseca offices lists shell companies created by firms in Miami and across the globe that the company was quitting, just days before publication of the Panama Papers.

Among them was Fairhaven Trading Resources, whose true owners Francisco Javier Rodriquez and Oscar Rodriguez Borgio were accused in Mexico of being part of a ring that made big money from selling stolen gasoline.

Mossack Fonseca filed a Suspicious Activities Report about Fairhaven with the British Virgin Islands the day it resigned from the company, on March 30, days before the Panama Papers became public. It was established through Mossack Fonseca's Miami representative Olga Santini, working with the Coral Gables accounting firm Jordan Ricardo & Co.

A McClatchy reporter was rebuffed at the front desk of Jordan Ricardo's offices. Subsequent phone calls and emails to founder Arturo Jordan were not returned. Santini declined to be interviewed, as she did in 2016.

One email between Santini and a Jordan Ricardo employee, Mayra Fernandez, is instructive. The two were trying to determine what do about Gianluca Pesci, who had been accused in Venezuela in 2007 of being part of a scheme involving selling milk to government entities at inflated prices.

That information is easy to find online but somehow was missed when Pesci’s offshore company, Coastland Services, was set up in 2012 with a super secretive structure — then legal but now banned — that obfuscates the true owners.

PANAMAPAPERS-2.0PHOTO
The Miami accounting firm of Jordan Ricardo & Co., located in this glass tower in Coral Gables, appears in hundreds of files in the new leak of documents from the now-defunct Panamanian law firm Mossack Fonseca. Kevin Hall McClatchy

After publication of the Panama Papers, customers were run through background checks anew, and in August 2017 Mossack Fonseca asked about the accusations.

Pesci tells Fernandez, in an email dated Aug. 4 and forwarded to Santini, that Venezuelan state media had falsely accused him because the government wanted to expropriate his dairy operations.

“I guess ‘fake news’ is Universal nowaways. . .” Santini laments, prompting a sympathetic response from Fernandez, “Indeed. Sad but true.”

Mossack Fonseca did not end the relationship. But a week later, Pesci did: His attorney pressed for Mossack Fonseca employees to resign as directors of Coastland Services and asked, through Jordan Ricardo, that Pesci be named the sole director. Pesci did not respond to an email request for comment.

What has changed?

Soon after publication in 2016, Preet Bharara, then the U.S. attorney for the Southern District of Manhattan, announced that he’d opened an investigation into the Panama Papers. He was fired by President Donald Trump less than a year later in March 2017, and there have been no subsequent public signs of any federal inquiry.

“I’m sorry, but I’ll have to decline to comment,” Dawn Dearden, a spokeswoman for the U.S. attorney’s office, said when asked for the status of the probe.

That doesn’t surprise Jack Blum, a veteran white-collar attorney and former Senate investigator, who has for more than a decade complained that the use of offshore companies to hide illicit gains is rarely prosecuted.

“What do you need, two or three years to sort through this stuff to figure out if a crime has been committed?” he asked sarcastically.

German federal police revealed in July 2017 that they purchased the Panama Papers database from an undisclosed source, and this month told Süddeutsche Zeitung they've shared data for criminal investigations in 19 countries, including the United States.

There has been some action at the state level to tighten regulations. Wyoming now requires the communications contact for a shell company to be a real human being; McClatchy had found that in some instances such contacts were other anonymous shell companies.

“In the spring of 2016, we were informed of the Panama Papers release, we immediately audited MF Corporate Services for cause, and we turned that information over to law enforcement that same day,” said Will Dinneen, spokesman for the Wyoming Secretary of State’s Office. There is no evidence in the leaked documents showing the lead was pursued.

Legislators in Delaware, which leads the United States in registration of anonymous companies, proposed legislation this year to give the state more power to regulate administrators of shell companies, said Douglas Denison, spokesman for the Delaware Department of State.

Among the changes expected to become law, he said, is a stipulation that "all agents must check prospective entities against federal sanctions lists prior to formation," and re-check at least quarterly. This prevents registered agents such as Mossack Fonseca for blaming middlemen.

Nevada now allows its secretary of state to spot-check a company's compliance and perform audits, actions that were not permitted before release of the Panama Papers. Since last October, state officials have been able to examine records as it sees fit.

"We respond when we get complaints and we have not had any of this nature since the new legislation went into effect," said spokeswoman Jennifer Russell. "We have not received any subpoenas from foreign governments."

Mossack Fonseca closed its operations in both Nevada and Wyoming in 2016. Yet more than two years after the Panama Papers exposed the dark world of these mysterious companies, including some in the United States, Congress has failed to enact any legislation to remedy the problem.

At a hearing of the Senate Banking Committee’s national security subcommittee Wednesday, a former senior Treasury Department adviser warned there are so many anonymous shell companies in the U.S. and abroad that it’s hard to even offer meaningful statistics about the threat they pose.

“What we are looking at may not even be statistically relevant,” said Chip Poncy, the first director of the Office of Strategic Policy for Terrorist Financing and Financial Crimes, from 2006 to 2013.

Oregon Sen. Ron Wyden, the top Democrat on the Senate Finance Committee, is pushing a bill to require the Treasury Department to create a standard, bare-bones “ownership disclosure” that could be filed with either state or federal authorities when anonymous companies are formed. It would require disclosure of true owners from the outset, instead of nominees and managers who appear on documents but aren't the owners.

If a state chose not to adopt this new standard, companies would have to register with the Financial Crimes Enforcement Network, or FINCEN, Treasury’s watchdog on illicit finance.

“This isn’t too complicated. We want to know who the true owners are at the get-go,” Wyden said in an interview.

The legislation is also sponsored by Florida Republican Sen. Marco Rubio, who said he was stumped about why no U.S. charges have been filed in the aftermath of the Panama Papers.

“That would be a Department of Justice function and I don't know where they are in the investigations or where they would be in terms of being able to bring evidence,” Rubio said. “They would have to be able to get a conviction so, that's an interesting question.”

Wyden puts the blame on the Trump administration for not addressing the problem of shell companies.

“There is a difference between taking the time needed to be responsible, and letting this stall out,” said Wyden. “The pace they are going at is going to make this the longest running battle since the Trojan War.”

Kevin G. Hall: 202-383-6038; @kevinghall

Nicholas Nehamas of the Miami Herald contributed to this story, as did Ben Wieder and Alex Daugherty in the McClatchy Washington Bureau.

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