Excellent NYT Article on the Panama Papers Law Firm and Some of their U.S. Clients and How the System Worked (6/5/16)

Eric Lipton & Julie Creswell, Panama Papers Reveal How Wealthy Americans Hid Millions Overseas (NYT 6/5/16), here.

The article opens with an explanation of the relationship between a wealthy U.S. person and the Panama law firm, Mossack Fonseca, at the center of the Panama Papers phenomenon.

Thus began a relationship that would last at least through 2015 as Mossack Fonseca managed eight shell companies and a foundation on the family’s behalf, moving at least $134 million through seven banks in six countries — little of which could be traced directly to Mr. Ponsoldt or his children. 

These transactions and others like them for a stable of wealthy clients from the United States are outlined in extraordinary detail in the trove of internal Mossack Fonseca documents known as the Panama Papers. The materials were obtained by the German newspaper Süddeutsche Zeitung and the International Consortium of Investigative Journalists, and have now been shared with The New York Times.

The article has a link to a graphic page titled How Mossack Fonseca Helped Clients Skirt Or Break U.S. Tax Laws With Offshore Accounts (NYT 6/5/16), here, authored by Guilbert Gates.  This page is highly recommended.

The Times’s examination of the files found that Mossack Fonseca also had at least 2,400 United States-based clients over the past decade, and set up at least 2,800 companies on their behalf in the British Virgin Islands, Panama, the Seychelles and other jurisdictions that specialize in helping hide wealth. 

But the documents — confidential emails, copies of passports, ledgers of bank transactions and even the various code names used to refer to clients — show that the firm did much more than simply create offshore shell companies and accounts. For many of its American clients, Mossack Fonseca offered a how-to guide of sorts on skirting or evading United States tax and financial disclosure laws. 

If the compliance department at one foreign bank contacted by Mossack Fonseca on behalf of its clients started to ask too many questions about who owned the account, the firm simply turned to other, less inquisitive banks. 

And even though the law firm said publicly that it would not work with clients convicted of crimes or whose financial activities raised “red flags,” several individuals in the United States with criminal records were able to turn to Mossack Fonseca to open new companies offshore, the documents show. 

* * * * 

Experts in federal tax law, money laundering and offshore accounts — asked by The Times to examine certain documents or at least to identify legal issues raised by the money management techniques that Mossack Fonseca advocated — said the law firm at times had come up with creative, but apparently legal, strategies to save clients money. A common tactic: selling real estate as a shift of corporate assets, instead of as a piece of property subject to transfer taxes. 

While the experts were reluctant to declare that the law firm or its clients had broken any laws given that no charges have been filed, they said they were surprised at how explicitly Mossack Fonseca had offered advice that appeared carefully crafted to help its clients evade United States tax laws.

[JAT Disclaimer: I was not an expert consulted by the authors, but -- read on ...]

“The more correspondence that you have between a U.S. person and a bank or law firm discussing tax issues and efforts at concealment, the stronger the government will see it as a potential case worth prosecuting,” said Kevin M. Downing, the lead Justice Department prosecutor in the UBS offshore banking and tax evasion cases, now at the Washington law firm Miller & Chevalier.

The article then goes on to discuss some of the Mossack Fonseca U.S. clients.  I am sure neither Mossack Fonseca nor the U.S. clients are happy, but suspect that the U.S. clients -- at least the smart ones among them -- have moved quickly to OVDP if they have not done so already.  (I doubt that they would want to risk the certification of nonwillfulness required for Streamlined, but it will be interesting to see whether any of the MF clients attempted Streamlined and will now find that these disclosures cause the IRS or DOJ Tax to look at the nonwillful certification.)