Russian President Vladimir Putin's inner circle shuffled as much as $US2 billion ($2.7 billion) through shadow companies using a network of law firms and banks that helps billionaires, celebrities, politicians, fraudsters and drug traffickers hide their wealth, confidential documents show.
One of the biggest leaks of confidential financial information in history, obtained in a global investigation by media organisations including The Australian Financial Review, reveals the inside workings of a shadowy financial system that allows the wealthy and powerful to shift capital around the world where governments and tax agencies can't find it.
The 11.5 million files expose offshore companies controlled by the prime ministers of Iceland and Pakistan, the king of Saudi Arabia and the children of the President of Azerbaijan. They include at least 33 people and companies blacklisted by the US government because of evidence that they've done business with Mexican drug lords, terrorist organisations like Hezbollah or rogue nations like North Korea and Iran.
Russian President Vladimir Putin's associates made an appearance in Panama Papers. AP
The leaked records come from an obscure law firm based in Panama, Mossack Fonseca, one of the world's top creators of shell companies, corporate structures that can be used to hide ownership of assets. The documents were investigated by the International Consortium of Investigative Journalists, German newspaper Süddeutsche Zeitung and more than 100 other news organisations, including the Financial Review.
The documents reveal major banks are big drivers behind the creation of hard-to-trace companies in the British Virgin Islands, Panama and other tax havens. The files list more than 15,600 paper companies that banks set up for clients who want to keep their finances under wraps, including thousands created by international banks UBS and HSBC.
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 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.
"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 at Berkeley and author of The Hidden Wealth of Nations: The Scourge of Tax Havens.
Zucman said the release of the leaked documents should prompt governments to seek "concrete sanctions" against countries and institutions that peddle offshore secrecy.
The records reveal a pattern of covert manoeuvres by banks, companies and people tied to the Russian president. The records show offshore companies linked to this network moving money in transactions as large as $US200 million ($260.8 million) at a time. Putin associates disguised payments, backdated documents and gained hidden influence within the country's media and automotive industries, the leaked files show.
The Mossack Fonseca building in Panama.
A Kremlin spokesman did not answer questions for this story, but instead went public March 28 with charges that ICIJ and its media partners were preparing a misleading "information attack" on Putin and people close to him
World leaders who have embraced anti-corruption platforms feature in the leaked documents. The files reveal offshore companies linked to the family of China's top leader, Xi Jinping, who has vowed to fight "armies of corruption", as well as Ukrainian President Petro Poroshenko, who has positioned himself as a reformer in a country shaken by corruption scandals. The files also contain new details of offshore dealings by the late father of British Prime Minister David Cameron, a leader in the push for tax-haven reform.
The leaked data covers nearly 40 years, from 1977 through to the end of 2015. It allows a never-before-seen view inside the offshore world — providing a day-to-day, decade-by-decade look at how dark money flows through the global financial system, breeding crime and stripping national treasuries of tax revenues.
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.
An unprecedented investigation into more than 9 million secret files has exposed the hidden underground of the world economy, a network of banks, law firms and other middlemen that hides extraordinary – and often illegal – wealth. Reuters
In Iceland, the leaked files show how Prime Minister Sigmundur David Gunnlaugsson and his wife secretly owned an offshore firm that held millions of dollars in Icelandic bank bonds during that country's financial crisis.
Criminal connections
The files include a convicted money launderer who claimed he had arranged a $50,000 illegal campaign contribution used to pay the Watergate burglars, 29 billionaires featured in Forbes Magazine's list of the world's 500 richest people, and movie star Jackie Chan, who has at least six companies managed through the law firm.
As with many of Mossack Fonseca's clients, there is no evidence that Chan used his companies for improper purposes. Having an offshore company isn't illegal. For some international business transactions, it's a logical choice.
The Mossack Fonseca documents indicate, however, that the firm's customers have included Ponzi schemers, drug kingpins, tax evaders and at least one jailed sex offender. A US businessman convicted of travelling to Russia to have sex with underage orphans signed papers for an offshore company while he was serving his prison sentence in New Jersey, the records show.
The files contain new details about major scandals ranging from England's most infamous gold heist to the bribery allegations convulsing FIFA, the body that rules international soccer.
The leaked documents reveal that the law firm of Juan Pedro Damiani, a member of FIFA's ethics committee, had business relationships with three men who have been indicted in the FIFA scandal – former FIFA vice-president Eugenio Figueredo and Hugo and Mariano Jinkis, the father-son team accused of paying bribes to win broadcast rights to Latin American soccer events. The records show that Damiani's law firm in Uruguay represented an offshore company linked to the Jinkises and seven companies linked to Figueredo.
In response to the reporting by ICIJ and its media partners, FIFA's ethics panel has launched a preliminary investigation into Damiani's relationship to Figueredo. A spokesman for the committee said Damiani first informed the panel about his business ties to Figueredo on March 18. That was one day after the reporting team sent questions to Damiani about his law firm's work for companies tied to the former FIFA vice president.
The world's top soccer player, Lionel Messi, is named.The records show Messi and his father were owners of a Panama company, Mega Star Enterprises Inc. His offshore dealings are currently the target of a tax evasion case in Spain.
Mossack Fonseca's fingers are in Africa's diamond trade, the international art market and other businesses that thrive on secrecy. The firm has serviced enough Middle East royalty to fill a palace. It's helped two kings, Mohammed VI of Morocco and King Salman of Saudi Arabia, take to the sea on luxury yachts. The law firm's leaked internal files contain information on 214,488 offshore entities connected to people in more than 200 countries and territories.
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 US 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 $US8.75 for each month farther back in time that a corporate document would be backdated.
In a written response to questions, the law 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."
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", it said.
The firm said it couldn't answer questions about specific customers because of its obligation to maintain client confidentiality.
The law firm's co-founder, Ramón Fonseca, told Panamanian television that the firm was like a "car factory" whose liability ends once the car is produced. Blaming Mossack Fonseca for what people do with their companies would be like blaming a car maker "if the car was used in a robbery", he said.
The International Consortium of Investigative Journalists will release the full list of companies and people linked to the firm in early May.
The sleek and non-transparent Mossack Fonseca building in Panama City.
Until recently, Mossack Fonseca has largely operated in the shadows. But it has come under growing scrutiny as governments have obtained partial leaks of the firm's files and authorities in Germany and Brazil began probing its practices.
In February 2015, Süddeutsche Zeitung reported that German law-enforcement agencies had launched a series of raids targeting one of the country's biggest banks, Commerzbank, in a tax-fraud investigation that authorities said could lead to criminal charges against Mossack Fonseca employees.
In Brazil, the law firm has become a target in a bribery and money laundering investigation dubbed "Operation Car Wash" ("Lava Jato," in Portuguese), which has led to criminal charges against leading politicians and an investigation of popular former president Luiz Inacio Lula da Silva. The scandal threatens to unseat current President Dilma Rousseff.
In January, Brazilian prosecutors labelled Mossack Fonseca as a "big money launderer" and announced they had filed criminal charges against five employees of the firm's Brazilian office for their role in the scandal.
Mossack Fonseca denies any wrongdoing in Brazil.
The disclosures found inside the law firm's leaked files dramatically expand on previous leaks of offshore records that ICIJ and its reporting partners have revealed in the past four years.
In the largest media collaboration ever undertaken, journalists working in more than 25 languages dug into Mossack Fonseca's inner workings and traced the secret dealings of the law firm's customers around the world. They shared information and hunted down leads generated by the leaked files using corporate filings, property records, financial disclosures, court documents and interviews with money laundering experts and law-enforcement officials.
Reporters at Süddeutsche Zeitung obtained millions of records from a confidential source and shared them with ICIJ and other media outlets. . 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 organisations 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.
Crime of the Century
Before dawn on Nov. 26, 1983, six robbers slipped into the Brink's-Mat warehouse at London's Heathrow Airport. The thugs tied up the security guards, doused them in gasoline, lit a match and threatened to set them afire unless they opened the warehouse's vault. Inside, the thieves found nearly 7000 gold bars, diamonds and cash.
"Thanks ever so much for your help. Have a nice Christmas," one of the crooks said as they departed.
British media dubbed the heist the "Crime of the Century." Much of the loot – including the cash reaped by melting the gold and selling it – was never recovered.
Where the missing money went is a mystery that continues to fascinate students of England's underworld.
Mossack Fonseca's files reveal that the law firm and its co-founder, Jürgen Mossack, may have helped the conspirators keep the spoils out of the hands of authoritiesby protecting a company tied to Gordon Parry, a London wheeler-dealer who laundered money for the Brink's-Mat plotters.
Sixteen months after the robbery, the records show, Mossack Fonseca set up a Panama shell company called Feberion for Gordon Parry, a London wheeler-dealer who laundered money for the Brink's-Mat plotters. Jürgen Mossack was listed as one the company's three "nominee" directors, a term used in the business for stand-ins who control a company on paper but exercise no real authority over its activities.
An internal memo written by Mossack shows he was aware in 1986 that the company was "apparently involved in the management of money from the famous theft from Brink's-Mat in London. The company itself has not been used illegally, but it could be that the company invested money through bank accounts and properties that was illegitimately sourced".
Mossack Fonseca records from 1987 make it clear that Parry was behind Feberion.
After police obtained the two certificates that controlled the company's ownership, Mossack Fonseca arranged for Feberion to issue 98 new shares, a move that appears to have effectively wrested control away from investigators, the leaked records show.
It was not until 1995 – three years after Parry was sentenced to a decade in prison for his role in the theft – that Mossack Fonseca ended its business relationship with Feberion.
A spokesman for the law firm said any allegations the firm helped shield the proceeds of the Brink's-Mat robbery "are entirely false." The spokesman said Jürgen Mossack "never had any dealings" with Parry and was never contacted by police about the case.
In its efforts to protect Feberion, the shell company linked to the Brink's-Mat gold heist, Mossack Fonseca used the services of a Panama-based firm, Chartered Management Company, run by Gilbert R.J. Straub, an American expatriate who played a cameo role in the Watergate scandal.
In 1987, as UK police were investigating the shell company, Jürgen Mossack and Fiberion's other on-paper directors resigned, with the understanding they would be replaced by new directors appointed by Straub's Chartered Management, the secret files show.
Straub was eventually caught in a US Drug Enforcement Administration sting that was unrelated to the Brink's-Mat case, according to Mazur, the former undercover agent. Mazur built the case that led Straub to plead guilty to money laundering in 1995. During Mazur's deep-cover stint, Mazur said, Straub tried to establish his criminal bona fides by describing how he'd illegally chaneled cash to President Nixon's 1972 re-election campaign.
Protecting clients
Mossack Fonseca's defence of the dodgy company illustrates how far many offshore operatives will go to serve their customers' interests.
The offshore system relies on a sprawling global industry of bankers, lawyers, accountants and other middlemen who work together to protect their clients' secrets. These secrecy experts use anonymous companies, trusts and other paper entities to create complex structures that can be used to disguise the origins of dirty money.
"They are the gasoline that runs the engine," said Robert Mazur, a former US drug agent and author of The Infiltrator: My Secret Life Inside the Dirty Banks Behind Pablo Escobar's Medellín Cartel. "They're an extraordinarily important piece of the formula of success for criminal organisations."
Mossack Fonseca told ICIJ that it follows "both the letter and spirit of the law. Because we do, we have not once in nearly 40 years of operation been charged with criminal wrongdoing."
The men who founded the firm decades ago – and continue today as its main partners – are well-known figures in Panamanian society and politics.
Jürgen Mossack is a German immigrant whose father sought a new life in Panama for his family after serving in Hitler's Waffen-SS during World War II. Ramón Fonseca is an award-winning novelist who has worked in recent years as an adviser to Panama's president. He took a leave of absence as a presidential adviser in March after his firm was implicated in the Brazil scandal and ICIJ and its partners began to ask questions about the firm's practices.
From its base in Panama, one of the world's top financial secrecy zones, Mossack Fonseca seeds anonymous companies in Panama, the British Virgin Islands and other financial havens.
The law firm has worked closely with big banks and big law firms in places like The Netherlands , Mexico, the United States and Switzerland, helping clients move money or slash their tax bills, the secret records show.
An ICIJ analysis of the leaked files found that more than 500 banks, their subsidiaries and branches worked with Mossack Fonseca since the early 1990s to help clients use offshore companies. UBS set up more than 1100 offshore companies through Mossack Fonseca. HSBC and its affiliates created more than 2300.
In all, the files indicate Mossack Fonseca worked with more than 14,000 banks, law firms, company incorporators and other middlemen to set up companies, foundations and trusts for customers, the records show.
Mossack Fonseca says these middlemen are its true clients, not the eventual customers who use offshore companies. The firm says these middlemen provide additional layers of oversight for reviewing new customers. As for its own procedures, Mossack Fonseca says they often exceed "the existing rules and standards to which we and others are bound."
Reforming the secret world
In 2013, British Prime Minister David Cameron urged his country's overseas territories – including the British Virgin Islands – 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, from British 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 US, 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 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 behaviour 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 centre, and any communication within our global network is handled through an encryption algorithm that complies with the highest world-class standards".
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