Posted by Pam Barker and TLB editorial staff
A trove of files obtained by German journalists reveals how a global industry of law firms and large banks sell financial secrecy services to politicians, crooks and drug dealers as well as billionaires, celebrities and sports stars.
by Uri Blau and Daniel Dolev
Panama Papers: Hundreds of Israeli companies, shareholders listed in leaked documents detailing offshore holdings
The Putin connection: Cronies of Russian president used shady companies to funnel $2 billion
Panama Papers: The prime ministers, presidents and kings who benefited from tax shelters
A massive leak of millions of documents has revealed that heads of state, criminals and celebrities conduct and sometimes conceal their business activities in tax havens. The leak exposes holdings in shadowy companies that are owned by 11 past and present heads of state, and reveals how partners of Russian President Vladimir Putin clandestinely transferred no less than $2 billion through banks and companies registered in tax shelters.
The source of the leaked documents is a very powerful yet not very well-known law firm called Mossack Fonseca. This firm has branches in Hong Kong, Miami, Zurich and more than 35 other locations around the world, among them Israel. The documents reveal many Israeli connections and disclose that businesspeople with Israeli citizenship as well as Israeli banks and companies have used the law firm to register companies in tax havens around the world.
The documents expose, among other things, firms controlled by the prime ministers of Iceland and Pakistan, the king of Saudi Arabia and the children of the president of Azerbaijan registered in tax havens. They refer to at least 33 companies and individuals that have been on a United States government blacklist for having connections with Mexican drug lords, terror organizations like Hezbollah and rogue states like North Korea and Iran. One of the companies exposed in the leaked documents provided fuel for the aircraft used by the Syrian government to bomb and kill thousands of its citizens.
Among the revelations are secret manipulations by banks, companies and individuals connected to Vladimir Putin. The documents name companies registered in tax havens that have links to the Russian president and his network, and have carried out money transfers of as much as $200 million at a time. Putin’s associates disguised payments, backdated documents and accumulated influence behind the scenes at media companies and in automobile industries.
Inside the Panama Papers ICIJ
These findings are being disclosed on Sunday and over the next several days with the publication of the results of an investigation conducted by the International Consortium of Investigative Journalists, the German newspaper Süddeutsche Zeitung and more than 100 other media organizations, among them Haaretz. The database of 11.5 million documents and correspondences that has come into the hands of the ICIJ reveals how a global industry of law firms and large banks sell financial secrecy services to politicians, crooks and drug dealers as well as billionaires, celebrities and sports stars.
The investigation began after Süddeutsche Zeitung journalists obtained millions of documents from a secret source and shared them with the ICIJ and other media partners. The media organizations involved in this collaboration have not paid for the documents. For many months journalists working in more than 25 languages cooperated in the biggest journalistic investigation of all time. They delved into the internal operations of Mossack Fonseca and traced its clients’ secret deals worldwide. They shared information with each other and chased down clues with the help of corporate documents, title deeds, financial transactions, court records and interviews with money-laundering experts and top law-enforcement officials.
Forty years of tax havens
Mossack Fonseca is one of the leading firms in the creation of shell companies that often serve to conceal ownership of assets. The firm’s internal documents contain information concerning 214,488 bodies in tax havens, which are connected to persons in more than 200 states and territories. ICIJ will publish a complete list of the companies and the individuals connected to them at the beginning of May. The information includes emails, financial balance sheets and data on companies that reveal the secret owners of bank accounts and companies in 21 tax shelters from Nevada to Singapore to the British Virgin Islands.
The leaked information covers a span of nearly 40 years, from 1977 until the end of 2015. It provides a first look of its kind into the world of tax havens. Innumerable email exchanges, letters and passport photocopies document how day after day, decade after decade, wealth flowed to these companies through the pipelines of the global financial system.
The documents clearly show that large banks are the main impelling force behind the establishment of companies whose ownership is virtually untraceable in the British Virgin Islands, Panama and other tax havens. The materials detail more than 15,300 companies that banks have established for clients wishing to conceal their financial conduct, among them hundreds of companies established by the international giants UBS and HSBC.
Israeli banks, too, appear in the files. It turns out that Bank Hapoalim managed some of its trusteeship activities for trust funds through the law firm. This activity, carried out by means of the subsidiary Poalim Trust Services, closed down in 2011. The documents also contains many correspondences concerning Bank Leumi activity in Jersey in the Channel Islands.
Most of the services provided by the tax haven industry are legal — strictly speaking, according the letter of the law. However, the documents show that banks, law firms and others involved in tax havens have not always been strict about conforming to the legal requirements that aim to ensure that clients are not involved in criminal activity, are not evading tax payments and are not involved in political corruption. In a number of cases, the documents show that intermediaries in the tax havens took measures to protect themselves and their clients by means of concealing suspicious fund transfers or making changes in the records. Sometimes this was done while encouraging crime and evading taxes.
A number of heads of states who have declared war on corruption star in the leaked documents. The investigation found companies registered in tax havens that are connected to the family of Chinese leader Xi Jinping, who swore to combat “the armies of corruption,” as well as to the president of Ukraine, Petro Poroshenko, who sees himself as a reformer in a country that is rife with corruption. The documents also contain new information about transactions in tax shelters carried out by the late father of British Prime Minister David Cameron, a leader in the initiative to tackle the issue of tax havens.
The documents include information about one person convicted of money laundering and organizing illegal election donations of $50,000 which were then used to pay the burglars in the Watergate affair. They also contain the names of 29 of the billionaires on Forbes Magazine’s list of the 500 Richest People in the World, among them the Israeli Idan Ofer. Film star Jackie Chan, who is also on the Forbes list, owns at least six companies managed by the law firm. As is the case for many Mossack Fonseca clients, there is no evidence of illegal actions taken by Chan through these companies.
Owning a company registered in a tax haven is not illegal. Sometimes, for purposes of international financial transactions, this is a reasonable business decision. However, the Mossack Fonseca documents show that among its clients were Ponzi scheme initiators, drug lords, tax evaders and at least one convicted sex offender: An American businessman convicted of traveling to Russia to have sexual relations with orphaned minors signed documents as the director of a company registered in a tax haven while serving his prison sentence in New Jersey.
The documents also reveal new information about publicized scandals, from the largest gold heist in the history of Britain to accusations of corruption connected to FIFA, the international soccer association. The leaked documents show that the Uruguayan law firm of FIFA ethics committee member Juan Pedro Damiani had business ties to three men who have been convicted in the FIFA corruption case: former FIFA vice president Eugenio Figueredo and father and son Hugo and Mariano Jinkis. The latter two were convicted of paying bribes to obtain broadcast rights for soccer matches in South America. Documents show that Damiani’s law firm represented a company registered to Jinkis and seven others registered to Figueredo in a tax haven.
The name of the best soccer player in the world, Lionel Messi, also appears in the documents. A company in Panama called Mega Star Enterprises, Inc., which was established in 2012 by Mossack Fonseca, adds another name to the list of shelf companies connected to Messi that are currently under investigation by the Spanish authorities on suspicion of tax evasion.
The Panama Papers: how to hide a billion dollars – video explainer via The Guardian
Mossack Fonseca aggressively protects the confidentiality of their clients, be they famous or unknown. The files show that in Nevada, the firm tried to protect itself andits clients from the outcome of a legal suit by recruiting computer experts to erase evidence from the telephones and computers of its Las Vegas branch employees.
The leaked files show that the firm submitted backdated documents in order to help its clients profit from their financial transactions. This practice was so common that email exchanges from 2007 show that the firm’s employees discussed preparing a price list — for every month that a document was backdated, clients would pay $8.75.
In reply to ICIJ questions about these methods, Mossack Fonseca replied that backdating of documents “is a well-founded and accepted practice” that is “common in our industry and its aim is not to cover up or hide unlawful acts.” The company noted that it would not be able to answer questions about specific instances because of its obligation to maintain client privacy.
In a recent interview on Panamanian television, Ramon Fonseca, the founder of the law firm, said that his company is not responsible for what clients do in the businesses it helps them register in tax shelters. He compared his firm to “an automobile factory, which is no longer responsible once the car has been produced.” Blaming Mossack Fonseca for what people do with their companies, he said, would be like blaming the manufacturer “if a car it made was used for purposes of robbery.”
Not everyone agrees with him. “The findings show how deeply crime and illegal conduct are entrenched in the world of tax havens,” says economist Gabriel Zucman of the University of California at Berkeley, the author of the book “The Hidden Wealth of Nations: The Scourge of Tax Havens.” Zucman, who participated in the ICIJ investigation, says that the publication of the leaked documents should encourage governments to impose “concrete sanctions” on countries where such firms are registered and on institutions that provide confidentiality for companies using tax havens.
TLB finds other interesting articles at HAARETZ.com
Video explainer via The Guardian
Author contact: Uri Blau