ICIJ Panama Report on Offshore Financial and Enabler Skulduggery (4/4/16; 4/5/16)

The International Consortium of Investigative Journalists ("ICIJ"), here, has another blockbuster release titled Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption (4/3/16), here.  The focus this time seems to be on the nontax side of offshore secrecy.  The article mentions some rich, famous and notorious players of the game.  I excerpt certain key parts that caught my attention (without dwelling on the players other than the major Panamanian law firm discussed):

In this story

• Files reveal the offshore holdings of 140 politicians and public officials from around the world 
• Current and former world leaders in the data include prime ministers of Iceland and Pakistan, the president of Ukraine, and the king of Saudi Arabia
• More than 214,000 offshore entities appear in the leak, connected to people in more than 200 countries and territories
• Major banks have driven the creation of hard-to-trace companies in offshore havens

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The cache of 11.5 million records shows how a global industry of law firms and big banks sells financial secrecy to politicians, fraudsters and drug traffickers as well as billionaires, celebrities and sports stars. 

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“These findings show how deeply ingrained harmful practices and criminality are in the offshore world,” said Gabriel Zucman, an economist at the University of California, Berkeley and author of “The Hidden Wealth of Nations: The Scourge of Tax Havens.” Zucman, who was briefed on the media partners’ investigation, said the release of the leaked documents should prompt governments to seek “concrete sanctions” against jurisdictions and institutions that peddle offshore secrecy. 

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Most of the services the offshore industry provides are legal if used by the law abiding. But the documents show that banks, law firms and other offshore players have often failed to follow legal requirements that they make sure their clients are not involved in criminal enterprises, tax dodging or political corruption. In some instances, the files show, offshore middlemen have protected themselves and their clients by concealing suspect transactions or manipulating official records. 

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The documents make it clear that major banks are big drivers behind the creation of hard-to-trace companies in the British Virgin Islands, Panama and other offshore havens. The files list nearly 15,600 paper companies that banks set up for clients who want keep their finances under wraps, including thousands created by international giants UBS and HSBC. 

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The leaked records — which were reviewed by a team of more than 370 journalists from 76 countries — come from a little-known but powerful law firm based in Panama, Mossack Fonseca, that has branches in Hong Kong, Miami, Zurich and more than 35 other places around the globe. 

The firm is one of the world’s top creators of shell companies, corporate structures that can be used to hide ownership of assets. The law firm’s leaked internal files contain information on 214,488 offshore entities connected to people in more than 200 countries and territories. ICIJ will release the full list of companies and people linked to them in early May. 

The data includes emails, financial spreadsheets, passports and corporate records revealing the secret owners of bank accounts and companies in 21 offshore jurisdictions, from Nevada to Singapore to the British Virgin Islands. 

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Whether they’re famous or unknown, Mossack Fonseca works aggressively to protect its clients’ secrets. In Nevada, the records show, the law firm tried to shield itself and its clients from the fallout from a legal action in U.S. District Court by removing paper records from its Las Vegas branch and having its tech gurus wipe electronic records from phones and computers. 

The leaked files show the firm regularly offered to backdate documents to help its clients gain advantage in their financial affairs. It was so common that in 2007 an email exchange shows firm employees talking about establishing a price structure — clients would pay $8.75 for each month farther back in time that a corporate document would be backdated. 

In a written response to questions from ICIJ and its media partners, the firm said it “does not foster or promote illegal acts. Your allegations that we provide shareholders with structures supposedly designed to hide the identity of the real owners are completely unsupported and false.” 

The firm added that the 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.” 

Reporters at Süddeutsche Zeitung obtained millions of records from a confidential source and shared them with ICIJ and other media partners. The news outlets involved in the collaboration did not pay for the documents. 

Before Süddeutsche Zeitung obtained the leak, German tax authorities bought a smaller set of Mossack Fonseca documents from a whistleblower, a move that triggered the raids in Germany in early 2015. This smaller set of files has since been offered to tax authorities in the United Kingdom, the United States and other countries, according to sources with knowledge of the matter. 

The larger set of files obtained by the news organizations offers more than a snapshot of one law firm’s business methods or a catalog of its more unsavory customers. It allows a far-reaching view into an industry that has worked to keep its practices hidden — and offers clues as to why efforts to reform the system have faltered. 

The story of Mossack Fonseca is, in many ways, the story of the offshore system itself. 

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Under national laws and international agreements, firms like Mossack Fonseca that help create companies and bank accounts are supposed to be on the lookout for clients who may be involved in money laundering, tax evasion or other wrongdoing. They are required to pay special attention to “politically exposed persons” — government officials or their family members or associates. If someone is a “PEP,” the middlemen creating their companies are expected to review their activities carefully to make sure they are not engaging in corruption. 

Mossack Fonseca told ICIJ that it has “duly established policies and procedures to identify and handle those cases where individuals” qualify as PEPs. 

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Reforming the secret world 

In 2013, U.K. leader David Cameron urged his country’s overseas territories — including the British Virgin Islands — to work with him to “get our own houses in order” and join the fight against tax evasion and offshore secrecy. 

He could have looked no further than his late father to see how challenging that would be. 

Ian Cameron, a stockbroker and multimillionaire, was a Mossack Fonseca client who used the law firm to shield his investment fund, Blairmore Holdings, Inc., from U.K. taxes. 

The fund’s name came from Blairmore House, his family’s ancestral country estate. Mossack Fonseca registered the investment fund in Panama even though many of its key investors were British. Ian Cameron controlled the fund from its birth in 1982 until his death in 2010. 

A prospectus for investors said the fund “should be managed and conducted so that it does not become resident in the United Kingdom for United Kingdom taxation purposes.” 

The fund did this by using untraceable certificates of ownership known as “bearer shares” and by employing “nominee” company officers based in the Bahamas, the law firm’s leaked records show. 

Ian Cameron’s tax-haven history is an example of how deeply offshore secrecy is woven into the lives of political and financial elites around the world. It’s also an important economic engine for many countries. The weight of that self-interest has made reform difficult. 

In the U.S., for example, states like Delaware and Nevada, which have allowed company owners to remain anonymous, continue to fight against efforts to require greater corporate transparency. 

Mossack Fonseca’s home country, Panama, has refused to embrace a plan for worldwide exchange of information about bank accounts — out of concern that its offshore industry could be left at a competitive disadvantage. Panama officials say they will exchange information, but on a more modest scale. 

The challenge that reformers and law enforcers face is how to find and stop criminal behavior when it’s buried beneath layers of secrecy. The most effective tool for breaking through this secrecy has been leaks of offshore documents that have dragged hidden dealings into the open. 

Document leaks uncovered by ICIJ and its media partners have prompted legislation and official investigations in dozens of countries — and fanned fears among offshore customers who worry their secrets will be revealed. 

In April 2013, after ICIJ released its “Offshore Leaks” stories based on confidential documents from the British Virgin Islands and Singapore, some Mossack Fonseca customers emailed the firm looking for reassurance that their offshore holdings were safe from scrutiny. 

Mossack Fonseca told customers not to worry. It said its commitment to its clients’ privacy “has always been paramount, and in this regard your confidential information is stored in our state-of-the-art data center, and any communication within our global network is handled through an encryption algorithm that complies with the highest world-class standards.” 

 Update 4/4/16 1:47pm:

1. Jane Wardell and Rebecca Howard, UPDATE 2-Australian tax office probes hundreds for possible tax evasion after Panama leak, (Reuters 4/4/16) here.

The Australian Tax Office (ATO) said on Monday it is investigating more than 800 wealthy clients of a Panama law firm for possible tax evasion. 

The probe follows the reported leak of more than 11.5 million documents from the files of law firm Mossack Fonseca, based in the tax haven of Panama, revealing details of hundreds of thousands of clients. 

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"Currently we have identified over 800 individual taxpayers and we have now linked over 120 of them to an associate offshore service provider located in Hong Kong," the Australian tax office said in a statement emailed to Reuters. It did not name the Hong Kong company.

 2. Daniel W. Drezner, Nothing to see here, just the biggest global corruption scandal in history (WAPO 4/4/16), here.  Some excerpts:

1) Will any American politicians or hoteliers be implicated? What’s striking so far about the Panama Papers is that no U.S. politicians or prominent figures have been named yet. That is causing a kind of reverse-WikiLeaks effect on social media, in which it’s assumed that because there are no American names, the whole thing must be a CIA plot or something. 

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2) Will this lead to deeper reforms of the global tax system? While there are a few legitimate reasons to use offshore companies, the primary purpose is tax avoidance if not outright tax evasion. 

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Indeed, one of the paradoxical effects of the Panama Papers could be to force a further squeeze on known offshore financial centers. The chief beneficiary of such a move? The biggest tax haven in the world, which happens to be — wait for it — the United States. 

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The Panama Papers will be an interesting natural experiment. Publics in many of the advanced industrialized democracies are primed to be angry at their political leaders. But they’re primed to be angry in Russia, China, and the authoritarian regimes of the Middle East as well. 

Buckle up.

3.  Julia Edwards and Julia Harte, U.S. Justice Dept reviewing Panama documents  (Reuters 4/4/16), here.

4. Devlin Barrett, Aruna Viswanatha, Matthew Dalton and Stacy Meichtry, U.S., France Probe Panama Documents for Potential Evidence of Crime (Wall Street Journal 4/14/16), here.