CULT DS research

Mossak Fonseca

~~

sources:

COPY / PASTE from 2016-Apr-08 article:

As Panama Papers shine light on offshore world, Luke Harding takes a closer look at company exploiting tropical tax havens

Fri 8 Apr 2016 13.15 BST
Last modified on Sat 13 Oct 2018 01.32 BST

In June 2013, two Swiss lawyers held a private telephone chat. They were annoyed. In London, David Cameron had just given a speech. The prime minister had promised to sweep away decades of offshore “tax secrecy” by introducing a central register. Anybody who owned an offshore company would have to declare it to the authorities.

The G8 summit, to be hosted by Cameron on the shores of Lough Erne, in Northern Ireland, was looming. Top of the agenda: how to stop aggressive tax avoidance.
A world of hidden wealth: why we are shining a light offshore
Read more

For much of the 20th century hiding your money was simple. You got a lawyer, filled in a form and set up a Swiss bank account or offshore “shell company”.

Nobody asked questions. For a couple of thousand dollars a year, it was possible to hide away profits where governments could never find them.

But in the UK crown dependencies and overseas territories where financial services were the main source of jobs and income times were changing. In tropical tax havens such as the British Virgin Islands a chill wind – or at least the threat of one – was blowing.

One of the Swiss lawyers was Sandro Hangartner, the Zurich boss of the Panamanian law firm Mossack Fonseca.

The other man, his disgruntled caller, was Sascha Züger. Züger’s company looked after the assets of some very wealthy South Americans.

In an email to his head office in Panama, Hangartner wrote: “Sascha is not very pleased about the development in BVI [British Virgin Islands].”

He was now looking for “alternatives”, Hangartner added – in other words other secret jurisdictions where a client might park their money.
David Cameron and fellow leaders including Angela Merkel and Vladimir Putin at the G8 in 2013.
David Cameron and fellow leaders including Angela Merkel and Vladimir Putin at the G8 in 2013. Photograph: Yin Gang/Xinhua Press/Corbis

For the network of international lawyers and accountants who serviced the offshore industry, these were troubled times.

Cameron’s speech was merely the latest piece of unwelcome attention. Since 2008, and the global financial crisis, cash-strapped exchequers had been trying to get their hands on billions in potential tax revenue hidden offshore.

How serious these attempts were was a matter for debate.
Guardian Today: the headlines, the analysis, the debate – sent direct to you
Read more

What wasn’t in doubt were the vast sums involved. According to the US economist Gabriel Zucman, 8% of the world’s wealth – a vast $7.6tn (£5.3tn) – was stashed in tax havens.

Zucman estimates the loss in global tax revenues at $200bn per year. That includes $35bn in the US and $78bn in Europe.

Previous attempts to bring about transparency had flopped. But now the world’s leading economies – the G20, G8 and Organisation for Economic Cooperation and Development – were apparently pursuing the theme with zeal.

If Cameron got his way, British overseas territories such as the BVI and Gibraltar would soon have to draw up a register of beneficial owners – the real owners of a company, even though their name may not appear on the shareholder register. The crown dependencies Jersey, Guernsey and the Isle of Man would fall into line, too.

As Hangartner admitted, the reason many clients used offshore structures was to keep their identities confidential. This was for a variety of reasons. Often, one offshore company would own another, and another, like so many Russian dolls.

Now this elaborate system of concealment was under threat.

Hangartner and Züger discussed a solution. If Britain’s colonial islands were about to pull open the curtain of banking secrecy, what about other jurisdictions? Züger’s answer: he would wind up his clients’ offshore businesses in the BVI and re-register them in non-British territories such as the Seychelles or Panama – dodging Cameron’s stated initiative on transparency.

His clients’ names would remain secret and beyond the grasp of even the most dogged tax inspector. Mossack Fonseca would help. For a fee. “He asked us to give him a quote,” Hangartner reported.
The world of Mossack Fonseca

Mossack Fonseca is a law firm based in Panama. Founded in 1977, it is the world’s fourth biggest provider of offshore services. Until the publication this week of the Panama Papers, it was mostly obscure. In fact, it sits at the heart of the global offshore industry, and acts for about 300,000 companies. More than half are registered in British tax havens – as well as in the UK.

Mossfon, as the company styles itself, employs 600 staff in 42 countries. Its offices are located in the world’s leading secrecy jurisdictions – Jersey, Cyprus, Luxembourg, the Swiss canton of Zug, all nodes on the superhighway of global capital.

Its corporate slogan sums up the firm’s mission, to help the rich stay rich: “Wealth management as you deserve it.”

Mossack Fonseca says it complies with international protocols to ensure its companies are not used for money laundering, tax dodging or other illicit purposes.

But the Panama Papers have shone a light on a hidden world the firm says it does not recognise – one that sometimes facilitates crime, launders dirty money and finds ways of busting sanctions. Plus evading tax.

This week’s revelations have focused on politicians, celebrities and the famous: the murky finances of Vladimir Putin’s friends and the offshore tax arrangements made by David Cameron’s late father, Ian. Others who feature in the leaked data include African despots, international arms smugglers, drug dealers and corporate vehicles belonging to outcast states such as North Korea and Syria. Mossack denies it busts sanctions.

The biggest group in the Panama Papers are not household names. They are what you might call the anonymous international rich. It is not, of course, illegal to set up an offshore firm. Many use company structures for legitimate reasons.

According to Mossack Fonseca’s brochure, the law firm specialises in “trust services, investor advisory, offshore/onshore structures, commercial law and asset protection”.

Its main function is as an incorporation agent, licensed by various tax havens to register companies there. The firm operates in 21 territories.

Its biggest jurisdiction is the UK-administered BVI, followed by Panama, the Bahamas, and the Seychelles, and the islands of Samoa and Niue near New Zealand.

If a client wants to set up an offshore firm or trust, Mossack Fonseca will register it and take care of the local paperwork – for a fee, plus an annual charge.

It will set up bank accounts. It will even provide nominee directors to sit on the “board” of your offshore company.

The company’s leaked internal database gives some idea of the massive scale of these international operations, many of them perfectly legal. The 11.5m documents include shareholder registers, bank statements, emails from lawyers and accountants, passport scans and contracts. Much of it legal, if hidden.

But like so many mosaic pieces, they also show how the global financial system plays a leading role in offshore money laundering.

Many British entities are involved, from banks to states such as the BVI. Jeremy Corbyn and other politicians have this week called on the prime minister to clean up UK-administered tax havens. The dilemma for Downing Street is that the UK profits from this black money.

It is not illegal to create or use offshore companies – and the Panama Papers show some banks were doing it on an industrial scale.

HSBC used Mossack Fonseca to create about 2,000 offshore companies. So did Coutts (500 companies) and Barclays (300). Many of these were created in 2005, when the EU savings directive came into force.

The directive was meant to prevent cross-border tax evasion. If you were a UK citizen who got interest from a Swiss bank account, the Swiss government automatically had to inform the UK tax office.

A good idea – except it could be easily dodged. How? By setting up an anonymous offshore company. And that’s exactly what some people did, funnelling even more money through structures set up and registered by firms such as Mossack Fonseca.
Fears of the super-rich

Mossack Fonseca’s leaked emails reveal the extraordinary measures that some of its well-heeled clients took to keep their financial affairs secret. Especially the Europeans and Americans, who have latterly found themselves under scrutiny from their own governments.

One theme that emerges is anxiety. Wealthy individuals with “undeclared” offshore bank accounts are afraid they might get rumbled.
‘The game is rigged by those who write the rules’: British readers on the Panama Papers
Read more

Another theme is victimhood. The super-rich, it appears, feel they are being unfairly picked on – persecuted even.

In one 2014 email, Hangartner recounts a conversation with a contact who worked for Global Trust Advisors, a financial services firm based in Luxembourg.

The contact told him that her Italian clients were going to desperate lengths to avoid being caught: “She cited the reduction in [offshore] business was due to pressure from the Italian government chasing clients. She had heard that the fiscal authorities would look at what car you drive, if you go to Switzerland, etc so clients are scared.” Typically, she added, clients would cover their trail by using a Panama company to buy a Luxembourg company, which would in turn buy an asset in Italy.

Such was the level of mistrust, the rich would “often use nicknames” when calling her office.

To be helpful, Mossack Fonseca offered a “virtual” office service for its spooked customers. For $1,500 a year, the company would set up a fake email account, using the domain @tradedirect.biz. Wealthy clients could correspond using anonymous invented names.

Some in the files leap out at you: Harry Potter, Winnie Pooh and Daniel Radcliffe. Obviously not the real one.

One customer used the name Isaac Asimov – a nod to the master of 20th-century science fiction, whom he admired. (As of 2010, “Mr Asimov” – actually a wealthy lawyer from Barcelona called Gabriel Pretus – had an impressive $21m in six different offshore accounts. He stood trial in Spain for tax crimes but was fully exonerated last year. There is no suggestion he has done anything illegal.)

There were some surreal exchanges. In May 2008, “Harry Potter” was worried about a bank transfer to one of his offshore companies, Winterbotham Trust, located in the Bahamian capital of Nassau. He emailed: “Have you seen money?”
What are the Panama Papers? A guide to history’s biggest data leak
Read more

Later that day Mossack Fonseca asset management – the firm’s investment advisory arm – replied with good news for the boy wizard. Its email read: “Dear Harry, the money was received [$25,000].”

The firm also recommended a “trade direct” account to the Cheshire-based owner of a private Panamanian foundation. In setting up his offshore foundation, the owner insisted on “total anonymity”.

One of Mossack Fonseca’s lawyers described their British client as paranoid, adding that the $1,500 fee to bury his identity “sounds like a lot to me”.

If you wanted to buy a property without anyone knowing, Mossack Fonseca had a way to help. In 2012, the firm emailed a five-page PowerPoint document to a wealthy German explaining how to do it.

There were several steps: turn liquid investments into cash, put the funds in an escrow or third-party account, and then transfer them to an offshore company.

The law firm recommended that the company was then restructured to show Mossack Fonseca as its beneficial owner. That way the bank would not know the German was behind the transaction.

In certain cases the company was willing to provide a further “very sensitive” service. It would hire a “natural person trustee” – someone who would pretend to be the beneficial owner of a company. This person would “sign lots of documents” to convince banks they were the real thing.

The service seemed to make a mockery of Cameron’s proposal to publish a central register of beneficial owners. And it did not come cheap. Mossack Fonseca’s partner Ramses Owens quoted at least $17,500 a year.

He recommended it to a US client, a hedge-fund CEO who was having problems with HSBC. She agreed.

But who might agree to play this tricky role? The firm’s co-founder Ramón Fonseca had the answer – his former father-in-law Edmund Ward.

Owens did not spell out the relationship, describing Ward, then in his early 80s, modestly as a “UK citizen residing in Panama since 50 years ago, engineer, entrepreneur”.

He turns up elsewhere in the files as the nominee director and “beneficiario” of several other companies.

Amid tougher regulation, some rich clients were mistrustful of revealing their identities to anybody. They included Frederic Hottinger, the seventh generation of a venerable Swiss banking family.

The Hottingers had 11 Panamanian companies with Mossack Fonseca and were aghast when the names of these firms and their directors popped up on Google.

An employee working for the Hottinger dynasty, complained. An internal email recorded: “This [the Google search result] was too much.” The employee explained how “paranoid the Europeans are about secrecy and now they do not feel safe with offshore companies because of the level of information required”.

Controversial clients

Mossack Fonseca is entitled to rely on professional intermediaries. They conduct much of the due diligence on their offshore customers. Still, the Panamanian law firm retains some responsibilities. It’s obvious stuff – checking the identity and background of potential and existing clients; asking basic questions such as “what’s the source of your wealth”?

The aim is to prevent money laundering, the financing of terrorism, and other serious crimes. Tax havens such as Panama, Anguilla, and Samoa have all passed anti-money laundering laws; Mossack Fonseca is obliged to follow them, at least on paper.

The Panama files, however, reveal the company’s checks seem frequently flawed.
Files suggest rich individuals with ‘undeclared’ offshore bank accounts are afraid to get rumbled.

Mossack Fonseca has its own compliance department. Typically, though, its investigation into a client’s background is perfunctory, done via Google, the FBI’s website and an online database. If the searches turn up an adverse finding the company is meant to resign as agent. Sometimes this happens, often it does not. Months and even years went by without action after Mossack Fonseca discovered a customer was a villain.

The fear may have been that if you ask too many intrusive questions a client will find a different and more accommodating lawyer.

In 2010, Mossack Fonseca asked to see a copy of the passport of Sheikh Abdulaziz al-Thani, son of Qatar’s billionaire eighth emir.

Not an unreasonable request. But the sheikh’s Jersey-based trust manager Paul Baudet was having none of it. He shot back: “You are not going to get the passport.” He did not have any utility bills, “since all his bills are paid by the government”. Also, his Highness was “hard to get hold of and very private”. In short: get lost.

On another occasion, compliance wanted to see the passport of the notorious Russian oligarch German Khan. Khan did not supply it. (According to US diplomatic cables, the billionaire was a fan of the Godfather and would turn up to business meetings armed with a pistol.) Dieter Buchholz, Mossack Fonseca’s Zurich boss, sent an exasperated note to his colleagues in Panama, writing: “What shall we do, shoot the client? Let’s assume it is the person you are looking for? Shall we inform the police? Awaiting your comments. Kind regards, Dieter.”

One shocking example contained in the papers shows how Mossack Fonseca incorporated three companies for Andrew Mogilyansky, a wealthy Russian-American businessman. In 2014, the firm’s compliance department belatedly found out that Mogilyansky was a convicted paedophile.

Between 2003 and 2004, according to US court papers, he had sex with 13- and 14-year-old girls taken from orphanages and metro stations in St Petersburg. Prosecutors said the expenses from his Moscow trips were booked via his Mossack Fonseca company, IFEX Global Ltd.

Mogilyansky was arrested in 2008 and jailed for eight years in 2009.

Only in 2014 did Mossack Fonseca notice something was amiss. It sent a letter to USA Corporate Services, a New York intermediary used by Mogilyansky, saying it had found adverse information during a check. The firm’s general manager said it had “lost touch” with Mogilyansky.

Amazingly, USA Corporate Services concluded there was nothing much wrong. It wrote that there was no evidence that Mogilyansky had used his company for anything other than the legitimate business purpose.

The firm said in an email: “Aside from the emotionally charged allegations to which the client seems to have confessed, there are no other allegations of wrongdoing related to his companies.” Nevertheless, the firm acknowledged there was a reputational cost to doing business with Mogilyansky and recommended Mossack Fonseca dump him.

By April 2015, however, the firm still had not resigned as the registered agent. Nor, seemingly, had it reported the case to the relevant financial authorities in the US. As of 2016, the company – registered in the BVI with an address in the sleepy Swiss municipality of Meggen – still appears to be active.

Now released from prison, Mogilyansky denies he ever ran a prostitution ring and says that Putin’s spy agencies framed him because of his political opposition to the Kremlin.

USA Corporate Services also denied wrongdoing. It said it discovered Mogilyansky’s conviction in 2014. It added: “The news of [his] activities were a shock to us, and finding out what he did was frankly disgusting. Compliance dept[artment]s rarely are interested in emotional discussions, they just want the facts.”

Mossack Fonseca says it conducts due diligence on all its clients, old and new, and refuses to work with any who refuse to provide the right documents. It also said it had hired an additional 26 people to its compliance department in the last 18 months.

When the authorities did pursue Mossack Fonseca over a client, the firm went into full-blown panic mode.

In 2013, the BVI’s financial services commission discovered that the beneficial owner of Pan World Investments, incorporated by the company, was Alaa Mubarak, the son of Egypt’s ousted president Hosni Mubarak.

Two years earlier the EU had imposed sanctions on father and son, freezing all their assets. Mubarak Jr had given an address in London.

The firm, a family investment fund, had nearly $1bn in assets. Why, the BVI wanted to know, had Mossack Fonseca slumbered through the Arab spring and continued to act for Mubarak?

Mossack’s corporate lawyers swapped frantic emails.

“The reality is that we didn’t identify the BO [beneficial owner] since the beginning [as we should have],” one of its lawyers wrote from Panama.

The firm decided to admit nothing. It blamed Credit Suisse, which had introduced Mubarak in the first place. The bank was at fault, it said. The regulator disagreed, and fined Mossack Fonseca $37,500 for due diligence failings.

The story had a postscript. In 2014, Credit Suisse got in touch. It wanted to reactivate Pan World Investments. Despite reservations, Mossack Fonseca agreed.

The firm points out it has not been sued or accused of wrongdoing by any court in the world and has operated beyond reproach for 40 years.
‘We created a monster’

As Ramón Fonseca tells it, his law firm started from humble beginnings. After graduating from law at Panama University, Fonseca spent six years working for the UN in Geneva. When he returned to Panama City, Fonseca launched his own legal business, with just one secretary, in 1977. He grabbed his suitcase and hit the road. He went to Switzerland – talking to clients and potential clients – and to China. Later the same year, he joined forces with another ambitious German-Panamanian lawyer, Jürgen Mossack.
Putin dismisses Panama Papers as an attempt to destabilise Russia
Read more

At the time, offshore companies were entering a golden age. Growth in global trade, increased international financial transactions and the dissolution of empire all contributed to this giddy boom. Countries signed double taxation treaties with each other: if a company paid tax in one jurisdiction it was unreasonable to expect it to pay again in a second territory. This swiftly led to what is called transfer pricing: with profits booked in low-tax territories and losses shifted to high-tax jurisdictions.

Ultimately, it also led to double non-taxation, with companies shifting all of their profits offshore.

Mossack’s backstory, meanwhile, was striking. In 1939, his father Erhard joined the Hitler youth and later fought with the Waffen-SS. In March 1945, US forces captured him on the western front. He was sent to a PoW camp, escaped and was rearrested in 1946 in Germany, still apparently spouting Nazi views.

Jürgen was born two years later. At the age of 13, he moved with his family to the US and then to Panama where he studied law in Panama City before working in London between 1975-77 and then teaming up with Fonseca.

Their practice, Mossack Fonseca & Co, got bigger. In a 2008 TV interview, Fonseca said: “Together, we created a monster.”

The monster took advantage of Panama’s lax corporate laws. It is entirely legal to create joint stock companies where owners could hide their identities. These offshore structures often involved opaque multiple firms: known in the trade as layering. These structures were perfect for money laundering. When the US invaded Panama in 1989, arresting Manuel Noriega, investor confidence was shaken. Mossack Fonseca adroitly shifted incorporations from Panama to the BVI, which exploded as an offshore centre.

The BVI had another big and legitimate advantage for risk-averse clients: a British legal system, answerable to the high court in London.

Over the years the company built up impeccable connections. From the 1990s, Fonseca was active in politics. By the noughties he was minister counsellor to Panama’s then president Ricardo Martinelli.
Panama’s former president Ricardo Martinelli.

He is close to Panama’s current president, Juan Carlos Varela, and part of his informal kitchen cabinet.

“I communicate a lot with him [the president] through blackberry and WhatsApp,” Fonseca said in a TV interview, adding: “We are friends first and then fellow politicians.” Fonseca drops into weekly cabinet meetings by helicopter. Mossack, meanwhile, advised Varela when the latter was foreign minister.

Tax avoidance might seem, to many, an immoral activity. But the professionals who make it possible enjoy surprising support in Washington from rightwing libertarian lobbyists. One, the Center for Freedom and Prosperity (CF&P), promotes what it calls “tax competition”. Its main enemy is the Paris-based OECD – “a bunch of crazy European socialists”, in the words of the group’s founder Daniel J Mitchell. In 2012, Mitchell’s colleague Andy Quinlan sent an email to Mossack’s daughter Jennifer, who was working at her father’s firm. Quinlan was visiting Panama and wanted to drop by.

Quinlan offered to brief her on “what CF&P is doing in Washington” and “the current legislative climate on offshore tax and information exchange schemes”.

The lobbyist worked with Mossack following the OECD’s bombshell report in 2000. It featured a blacklist of 35 tax havens and threatened measures against jurisdictions that failed to clean up their act. That August, Mossack warmly received Quinlan. “I can coordinate a discussion group with our attorneys,” the reply read.

There were other forums where rich people averse to paying government taxes could meet and exchange views.
Mossack Fonseca’s role in fight over painting stolen by Nazis
Read more

In 2008, Ramses Owens, one of the law firm’s partners took part in a “wealth symposium” at Panama City’s Sheraton hotel.

According to its brochure, the annual event brought together “33 leading investment, tax, privacy and asset protection experts from Europe, Asia and the Americas”. The brochure, aimed at US citizens unsettled by Barack Obama’s recent election to the White House, described Panama as a “489-year-old colonial city and modern, world-class asset haven on the shores of the Caribbean”.

The blurb for Owens’s presentation read: “Secure your wealth with an 82-year-old proven, virtually 100% courtroom-proof structure. This fascinating structure has managed to evade the slickest attorneys’ tricks and protect the wealth of individuals worldwide for the last eight decades.” Other adverts were similarly brazen. A talk by Colin Bowen, an offshore insurance provider based on the Isle of Man, read: “How to stiff contingency lawyers, unscrupulous creditors and greedy ‘exes’ – all with this one savvy vehicle. This off-the-beaten-path structure does all that … and defers taxes. It’s perfect for beating wealth leeches at their own game.”

Ironically, the biggest threat to offshore buccaneers like Mossack Fonseca came not from government “wealth leeches” but from the inside. In 2013, the International Consortium of Investigative Journalists (ICIJ) disclosed details of 130,000 offshore accounts. Its leak included 2.5m secret records. One panicked client emailed Mossack Fonseca to seek reassurance that his private data stored on the island of Samoa was safe? The law firm assured him there was nothing to worry about. The situation was serious, it said, but there was no way his name might get out.

The email added: “Our commitment to our clients’ privacy has always been paramount, and in this regard your confidential information is stored in our state-of-the-art data centre, and any communication with our global network is handled through an encryption algorithm that complies with the highest world-class standards.” It stressed: “Documents in hard copy are filed in our warehouse in Panama which is under 24/7 custody.”

Still, Mossack Fonseca was soon caught up in another embarrassing leak. In February 2015, records from the company’s Luxembourg office were passed to Germany’s Süddeutsche Zeitung, and the German tax authorities got hold of them, too. Investigators raided the offices of Commerzbank as well as private residences, looking for evidence of tax evasion.
How to contact the Guardian securely
Read more

This latest leak, from an unknown source, spans Mossack Fonseca’s entire global database. It has put the firm at the centre of a global scandal. The company insists it has done nothing wrong, and says press reports misinterpret what it typically does.

Clients turn to offshore vehicles for reasons of secrecy; after the journalists it is the tax inspectors who will come knocking. Authorities in the UK, Australia and New Zealand are now investigating. Not all of those who feature in this massive archive are tax cheats. Many are using offshore companies for legitimate reasons. But others are, by any standards, crooks. The blow to the firm’s reputation could hardly be bigger.

Will the lawyers change their ways?

In late 2014, the magazine Vice published a long, unflattering profile of Mossack Fonseca, headlined “the law firm that works with oligarchs, money launderers, and dictators”. One unhappy reader was Fonesca’s niece, Carolina. She posted a comment saying: “I live guilt-free, and I don’t give a shit all you people making fun of my uncle and of Panama. We are a happy country where nobody works because all you fuckers bring YOUR dirty money here. LOL we just spend it. YOUR governments are the ones making crimes. We are just lawyers and we don’t care. Panama is the happiest country in the world.”

Panama Papers reporting team: Juliette Garside, Luke Harding, Holly Watt, David Pegg, Helena Bengtsson, Simon Bowers, Owen Gibson and Nick Hopkins

• This article was amended on 9 May 2016. An earlier version referred to Mossack’s niece commenting on a Vice article.