Panama Papers: What you need to know

Panama Papers: What you need to know

Tom Burgis, Financial Times

Here is a guide to what the Panama Papers reveal, or confirm, about the offshore world and the people who make use of the anonymity it sells.

Before the leak of 11.5m documents from Panamanian law firm Mossack Fonseca, a widening chink of sunlight had been shining into the murky world of offshore finance. But the disclosures — led by the International Consortium of Investigative Journalists and said to be the biggest leak of confidential documents ever — suggest there is still plenty of secrecy to go round.

Here is a guide to what the Panama Papers reveal, or confirm, about the offshore world and the people who make use of the anonymity it sells.

Mossack who?

The offshore world offers a wide range of services but the standard job typically involves something like this:

A client wants to hold money, property or some other asset while concealing their ownership. They talk to a bank, which opens an account in the name of an offshore company that it has arranged to have created. That company will be registered in a tax haven: the British Virgin Islands is a favoured spot. To set up the company the bank hires a law firm. That is where the likes of Mossack Fonseca come in.

The lawyers will arrange the paperwork to incorporate the offshore company — and sometimes also set up another offshore company or trust to own the shares of the first one, adding another layer of secrecy. The law firms will also often provide the directors for the offshore vehicles from among their own staff. Nowhere is the identity of the true owner disclosed. Only the lawyers, the registration agent and the bank know the owner’s identity — and sometimes even one or more of them are unaware of it.

Panama is just one node in the offshore network (others include assorted islands in the Caribbean and the English Channel, Switzerland, Luxembourg, Liechtenstein and, some would contend, the US state of Delaware and the City of London). But it is a prime location for specialist offshore lawyers, and one of the most stubborn bulwarks against increasing transparency in offshore finance. Mossack Fonseca was founded in 1977 when Jurgen Mossack, the son of German immigrants, and Ramón Fonseca, from Panama, merged their legal practices.

Creating an offshore vehicle can be perfectly legal, provided its assets are declared to tax authorities and the source of the funds is clean. Mossack Fonseca’s founders argue that it is not the lawyers’ fault if their services are put to nefarious ends. “It’s like if you buy a car and sell it to a dealership and it sells it to a woman who kills someone — the factory isn’t responsible,” Mr Fonsecatold the FT.

But the Panama Papers raise fresh questions about the uses to which offshore secrecy is put. Some of the people named in the unfolding scandal hold great political power. What, their critics ask, do they have to hide?

The Putin ploy

The most prominent name mentioned in the coverage of the Panama Papers is one that does not actually appear in them. Depending on who you believe, that is either because Vladimir Putin is innocent of amassing an illicit fortune (and, according to his spokesman, is being maligned by the CIA’s puppets in the media), or because the Russian president has woven the ultimate cloak of corporate anonymity, one that disguises his interests by ensuring that all the threads end with associates, not the man himself.

A name that does appear repeatedly in the files is that of Sergei Roldugin — musician, matchmaker and, it appears, integral cog in an offshore web with the Russian president at its centre. The cellist, who introduced Mr Putin to his ex-wife, is connected to a network of companies through which at least $2bn obliquely moved, the leaked files reportedly show. The network included Russian banks and businessmen close to the president, as well as companies registered in the British Virgin Islands and Panama.

Heads will roll . . . 

The day after the leak, Icelanders took to the streets in their thousands to protest against the island’s prime minister, Sigmundur David Gunnlaugsson. By the following evening, his premiership was over.

The Mossack Fonseca files revealed that he and his wife, latterly just his wife, owned a company in the British Virgin Islands that held bonds worth millions of dollars. Those bonds were issued by Icelandic banks that collapsed in the financial crisis of 2008. Mr Gunnlaugsson’s government negotiated a deal with the banks’ creditors, leaving him open to allegations that he had a conflict of interest. When journalists working with the ICIJ put details of their findings to him, he walked out of the interview. When Iceland’s president blocked his attempt to cling on, Mr Gunnlaugsson stepped down.

. . . or not

Ukrainians, by contrast, stayed at home, as did the Chinese (although mass protest is risky in both countries). Nonetheless, the Panama leaks are awkward for two rulers who have styled themselves as champions of probity in the face of rife corruption.

Before he won Ukraine’s presidency in June 2014 during the fallout from Russia’s invasion, Petro Poroshenko was known as the “chocolate king”. He had promised to sell most of his business assets if elected. In August that year, with the nation’s economy in freefall, he switched his confectionery business into a new holding company in the British Virgin Islands, the leaked files reportedly reveal.

The disclosure does not look good — Russian media have had fun with it, while ignoring the claims about Mr Putin’s offshore web — but Mr Poroshenko insists he did nothing wrong. The public prosecutor agrees, saying that a preliminary assessment had not suggested any crime had been committed.

Meanwhile, in Beijing, relatives of eight current and former members of the highest body in the land — the standing committee of the politburo of the Communist party — have offshore companies set up by Mossack Fonseca, the leak reportedly reveals. Among them is the brother-in-law of Xi Jinping, whose anti-corruption campaign represents both an attempt to clean the stables of a party grown venal in power and also an assault on Mr Xi’s political enemies.

The revelations add to earlier exposés about the offshore financial holdings linked to top Chinese leaders, including Mr Xi’s predecessor, Hu Jintao, and former premier Wen Jiabao. The government has treated such disclosures with hostility. One of the few reports on the Panama leaks in Chinese state media fulminated against “disinformation” that tended to target “leaders of non-western countries”.

Merchants of death

The documents reportedly show that Mossack Fonseca helped to incorporate and maintain three companies in the Seychelles that the US alleges were involved in supplying fuel to Bashar al-Assad’s military. The Syrian president’s air campaign against his own people would not have been possible otherwise, Washington has claimed.

The ICIJ says the leaked files indicate that the law firm has worked with at least 33 people or companies who are subject to US sanctions. It adds, though, that Mossack Fonseca had stopped working for some of these clients before the US Treasury added them to its sanctions list. Among the reported customers for the law firm’s shell companies were Latin American and eastern European drug bosses; war criminals and funders of terrorism in the Middle East; traders of arms to Africa and of nuclear material in Iran and North Korea.

The inevitable bankers

The leak links some large banks to questionable financial dealings. Among banks that requested the most offshore companies for their clients from Mossack Fonseca are some that are no strangers to controversy over money being placed out of sight of the authorities.

At number six is UBS, which in 2008 became the first weak link in the chain of Swiss financial secrecy when a Senate investigation discovered that it had helped Americans evade tax. It settled with prosecutors the following year and paid a $780m fine, the first of dozens of settlements that blew a hole in Swiss financial secrecy as banks yielded names of their clients to the US taxman.

At numbers five and four, respectively, are the Switzerland and Monaco units of HSBC. The former caused outrage in the UK when a leaked list of clients last year revealed thousands of undeclared accounts. It also emerged that HSBC’s chief, Stuart Gulliver, had set up his own offshore account, using Mossack Fonseca. Mr Gulliver said he set up the offshore company “purely for privacy” and achieved “no tax advantage and no financial advantage whatsoever”.

And at number three, the highest ranked big-name bank in the list, is Credit Suisse, which in 2014 pleaded guilty in the US to helping Americans dodge tax and incurred a whopping $2.6bn fine.

It is not clear from the Panama Papers whether the assets connected to the offshore companies these banks procured from Mossack Fonseca were properly declared. There is no suggestion of wrongdoing by the banks.

All about my mother (and father)

You don’t have to be a president, or even a drug lord, to set up an offshore structure.

Pedro Almodóvar, the Oscar-winning Spanish film director and screenwriter whose hits include Todo Sobre Mi Madre and Hable Con Ella, used Mossack Fonseca to set up a company in the British Virgin Islands in the 1990s, according to a Spanish press report citing the leaked documents. He did so alongside his brother and business manager Agustin Almodóvar, who said following the leak that he closed it in 1994 because “it did not fit with the way we worked”. Jackie Chan has at least six companies managed through the law firm, the ICIJ reported, though it stressed that “as with many of Mossack Fonseca’s clients, there is no evidence that Chan used his companies for improper purposes”.

The Indian press reported on Bollywood stars named in the leak, among them a former Miss World, Aishwarya Rai. Lionel Messi, widely regarded as the best footballer in the world, owned with his father a Panama company called Mega Star Enterprises Inc, the documents reportedly show. The Argentine already faces a tax evasion case in Spain, where he plays for Barcelona. The club has put its resources at the player’s disposal “in order to make his actions and honour clear” in the Panama Papers affair.

Some names in the leak loom from beyond the grave. Ian Cameron, the UK prime minister’s late father, was a director of an offshore fund advised by Mossack Fonseca. Downing Street has said Cameron Snr’s tax affairs are a “private matter”. The left-leaning Daily Mirror disagreed on its front page, asking: “So, do you STILL have family money stashed in a secret offshore tax haven, Prime Minister? (and no, it isn’t a ‘private matter’).” The revelation jars with the prime minister’s attempt to present himself as the scourge of financial secrecy — an image he hopes to bolster at an anti-corruption summit in London in May.

 

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