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.
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 U.K. 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 clients might park their money.
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.
What wasn’t in doubt were the vast sums involved. According to the U.S. economist Gabriel Zucman, 8 per cent of the world’s wealth — a vast $7.6 trillion (U.S.) — was stashed in tax havens.
Zucman estimates the loss in global tax revenues at $200 billion per year. That includes $35 billion in the U.S. and $78 billion in Europe.
Previous attempts to bring about transparency had flopped. But now the world’s leading economies — the G20, G8 and Organization for Economic Co-operation and Development — were apparently pursuing the theme with zeal.
If Cameron got his way, British overseas territories such as the B.V.I. and Gibraltar would soon have to draw up a register of beneficial owners — the real owners of a company, even though their name might 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 back the curtain of banking secrecy, what about other jurisdictions? Züger’s answer: He would wind up his clients’ offshore businesses in the B.V.I. and reregister 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.
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.
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 recognize — 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.
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.
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.
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?”
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].”
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; 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 U.S. 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, Ramon 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 “U.K. 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.
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 U.S. diplomatic cables, the billionaire was a fan of The Godfather and would turn up at 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 pedophile.
Between 2003 and 2004, according to U.S. court papers, he had sex with 13- and 14-year-old girls taken from orphanages and subway 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 U.S. As of 2016, the company, registered in the B.V.I. 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.
In 2013, the B.V.I.’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 $1 billion in assets. Why, the B.V.I. 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.
Tax avoidance might seem, to many, an immoral activity. But the professionals who make it possible enjoy surprising support in Washington from right-wing 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.”
There were other forums where rich people averse to paying government taxes could meet and exchange views.
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 U.S. 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.”
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 Mossack’s niece, Carolina. She posted a comment saying: “I live guilt-free, and I don’t give a s--- all you people making fun of my uncle and of Panama. We are a happy country where nobody works because all you f---ers 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.”
Original Article
Source: thestar.com/
Author: Luke Harding
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