Mossack Fonseca, a law firm headquartered in Panama City, Panama, has spent the past 40 years helping the world's richest and most powerful citizens hide their money. On Sunday, exactly who they helped — and how — was laid bare thanks to a massive leak of 11.5 million confidential documents dubbed the Panama Papers.
The documents, which were obtained by the German newspaper Suddeutsche Zeitung (SZ) and shared with the International Consortium of Investigative Journalists (ICIJ), have created a global shit storm. So far, 72 current and former heads of state have been linked to offshore shell companies created by Mossack Fonseca. There are many perfectly legitimate reasons for why someone would want to create a shell company, but the arrangement can also be used to skirt economic sanctions, evade taxes, and launder money.
"Today, Mossack Fonseca is considered one of the world's five biggest wholesalers of offshore secrecy," ICIJ wrote. "It has more than 500 employees and collaborators in more than 40 offices around the world, including three in Switzerland and eight in China, and in 2013 had billings of more than $42 million."
Here's how the scheme works: Say you've got a 50-foot yacht parked in St. Tropez, but you don't want anybody to know that it belongs to you, perhaps because you're a corrupt government official who shouldn't be able to afford such a thing. Instead of the yacht being registered under your name, it can be bought and registered under the name of the shell company that Mossack Fonseca has created for you in the offshore tax haven of your choice. Now, if someone wants to find out who owns your yacht, it will be virtually impossible. The same setup could be used to hide your ownership of a private island, $10 million in cash, or any number of other assets or funds.
There are a few factors that make these arrangements possible. First, having a trusted lawyer or agent set up the shell company creates a layer of distance between the true owner and the assets, making it difficult to trace. The existence of tax havens — countries or states where offshore companies are exempt from corporate taxes, income taxes, estate taxes, etc. — is also critical. According ICIJ's analysis of the Panama Papers, the five most popular tax havens used by Mossack Fonseca were the British Virgin Islands, Panama, the Bahamas, Seychelles, and Niue, a tiny island in the South Pacific.
Strict financial privacy laws are the other key component that makes the shell company scheme possible. In Panama, Mossack Fonseca's home turf, it is a crime for banks to disclose information about their clients unless they are mandated to do so as part of a criminal investigation, usually a case involving terrorism or drug trafficking. Tax evasion is specifically excluded from the list of possible reasons for why a Panamanian bank might have to spill the beans on its client.
In December 2014, VICE published a year-long investigation by journalist Ken Silverstein into Mossack Fonseca's shady dealings. "If shell companies are getaway cars for bank robbers," Silverstein wrote, "then Mossack Fonseca may be the world's shadiest car dealership."
'Mossack Fonseca is considered one of the world's five biggest wholesalers of offshore secrecy.'
Ramon Fonseca, the firm's 63-year-old co-founder, actually used a similar comparison in a recent interview with a Panamanian news outlet, though he denied any wrongdoing. According to ICIJ, Fonseca said his firm has no responsibility for what its clients do with their offshore shell companies once they've bought them. He reportedly compared the firm to a "car factory," and said that blaming Mossack Fonseca for what people do with their companies would be like blaming a carmaker "if the car was used in a robbery."
Officially, according to Mossack Fonseca's website, the firm specializes in trust services, legal services, company formation and foundations, and intellectual property. It assures potential clients that it can conduct business "in any country" and "carry out transactions in any chosen currency."
The company was founded in 1977 by Fonseca, a prominent Panamanian businessman, and Jurgen Mossack, a German immigrant whose father, according to the ICIJ, moved the family to Panama after serving in Hitler's Waffen-SS during World War II. The 68-year-old Mossack owns a yacht named Rex Maris, a collection of gold coins, a teak plantation, and a helicopter, among other assets, according to the ICIJ.
Until earlier this month, Fonseca served as a top adviser to Panamanian President Juan Carlos Varela. Fonseca announced that he was taking a leave of absence after Mossack Fonseca's Brazilian office was implicated in an ongoing corruption and money laundering scandal centered around Brazil's state-owned oil company.
Incredibly, Fonseca moonlights as a bestselling novelist. His four books include Dance of the Butterflies, which explores "the close relationship between power and morality, framed in historical situations that have occurred recently in Panama," and Mr. Politicus, which examines "the tangled processes that unscrupulous officials use to settle in power and, from there, satisfy their detestable ambitions."
In 1987, Mossack Fonseca established its first overseas branch, setting up shop in the British Virgin Islands. Since then, about 40 percent of the world's offshore companies — more than 900,00 entities — have been incorporated in the UK's Caribbean territory. ICIJ noted that half of the companies that appear in Mossack Fonseca's files were incorporated in the British Virgin Islands.
'Our firm has never been accused or charged in connection with criminal wrongdoing.'
Mossack Fonseca has offices in 44 countries, including the Bahamas, Cyprus, Hong Kong, Switzerland, Brazil, and even the US, with outposts in Wyoming, Florida, and Nevada. In 1994, Mossack Fonseca helped Niue, an island nation located about 400 miles south of Samoa in the Pacific Ocean, draw up special legislation to facilitate the incorporation of offshore companies. The deal gave Mossack Fonseca exclusive rights to register offshore companies in Niue for the next 20 years.
By 2000, Niue, which is home to fewer than 2,000 people, had 6,000 registered offshore companies, and was making about $500,000 per year from those registrations. The following year, US banks issued a ban on sending money to Niue, and the US State Department began asking questions about the nature of its relationship with Mossack Fonseca. Meanwhile, an intergovernmental initiative tackling offshore banking blacklisted Nieu and other South Pacific states for alleged complicity with money laundering.
By 2003, with Niue struggling under the embargoes of dollars that US banks had imposed, Mossack Fonseca shifted its operations in the South Pacific to nearby Samoa. "The switch was part of a pattern that emerges in the documents," ICIJ noted. "When legal crackdowns have hindered Mossack Fonseca's ability to serve its clients, it has quickly adapted and found other places to work."
The leaked documents show that Mossack Fonseca has worked with ponzi schemers, diamond traders, drug kingpins, Ukrainian oligarchs, Saudi kings, and close associates of Russian President Vladimir Putin. The documents also link Mossack Fonseca to an infamous 1983 gold heist in England, where six thieves tied up security guards, doused them with gasoline, and set them on fire while they plundered a vault containing nearly 7,000 gold bars, diamonds, and cash. According to ICIJ, the Panama Papers allegedly show that Mossack Fonseca's agents were aware that they were managing money connected with the notorious theft.
In response to the leaks, the company said in a statement that it has operated for 40 years "beyond reproach in our home country and in other jurisdictions where we have operations."
"Our firm has never been accused or charged in connection with criminal wrongdoing," the statement said.
The company said it strongly disagreed with allegations "implying that the primary function of the services we provide is to facilitate tax avoidance and/or evasion." The firm also maintained that is has "always complied with international protocols.... to assure as is reasonably possible, that the companies we incorporate are not being used for tax evasion, money laundering, terrorist finance or other illicit purposes."
There was no answer when VICE News repeatedly phoned Mossack Fonseca's headquarters in Panama on Monday seeking comment about the leak.
Follow Tess Owen on Twitter: @misstessowen