Editor’s Note: This report, from Fusion.net, is an exhaustive account of a year long investigation into over 11 million leaks documents from a Panamanian legal firm notorious for helping the super rich and powerful to create shell corporations. Through these corporations, drug dealers, human traffickers, weapons smuggles, government officials, and otherwise illegal interests have been able to freely and anonymously move and launder countless fortunes from the late seventies onward. As seen in the infographic, these shell corporations form a tightly-knit web of interconnectivity; demonstrating how the ultra-rich and powerful tend to move in the same circles, whether it be banking, investing, drug-trafficking, or financing of terrorism.
Mossack and his business partner Ramon Fonseca, a powerful political leader and best-selling author in Panama, are captains in an offshore industry that has had a major impact on the world’s finances since the 1970s. As their business has grown to encompass more than 500 employees and collaborators, they’ve expanded into jurisdictions around the world – including parts of the United States.
OFFSHORE FINANCE IS AN OPAQUE WORLD, GENERALLY HIDDEN TO ALL BUT THOSE WHO PROFIT FROM IT.
But a new trove of secret information is shining unprecedented light on this dark corner of the global economy. Fusion analyzed an archive containing 11.5 million internal documents from Mossack Fonseca’s files, including corporate records, financial filings, emails, and more, extending from the firm’s inception in 1977 to December 2015. The documents were obtained by the German newspaper Süddeutsche Zeitung and shared with Fusion and over 100 other media outlets by the International Consortium of Investigative Journalists (ICIJ) as part of the Panama Papersinvestigation. The massive leak is estimated to be 100 times bigger than Wikileaks. It’s believed to be the largest global investigation in history.
In recent years, government investigations have centered on how major banks are used to move, hide, and launder money by the wealthy. But the new Panama Papers trove shows the role of often-overlooked lawyers and incorporation agents in the process. The results of the yearlong investigation encompass 214,488 corporate entities – among them companies, trusts, and foundations –controlled by everyone from heads of state, politicians, Forbes-listed billionaires, to drug lords, businesses blacklisted by the US government, scammers, and FIFA officials. There’s a common thread between members of Vladimir Putin’s inner circle, the man who laundered money from a record-setting robbery in the U.K., and a drug trafficker convicted of killing a U.S. DEA agent: They have all used companies created by Mossack Fonseca.
If there is a vehicle that is allowing for the criminal to get away now, that vehicle is the shadow financial system and the ability to go to anonymous companies to launder your money
“If there is a vehicle that is allowing for the criminal to get away now, that vehicle is the shadow financial system and the ability to go to anonymous companies to launder your money,” says Porter McConnell, director of the Financial Transparency Coalition, speaking broadly about the role of shell companies in funnelling illicit financial flows from what she calls “the three C’s”: corporate tax avoidance and evasion, government corruption, and criminal activity.
In response to questions from ICIJ and its media partners about its incorporation activities, Mossack Fonseca said that “our company does not foster or promote unlawful acts.” Mossack Fonseca declined to comment to the ICIJ on specific cases, citing obligations to maintain client confidentiality, and did not answer questions about Swiss Group Corporation.
“We regret any misuse of companies that we incorporate or the services we provide and take steps wherever possible to uncover and stop such use,” the firm said. “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 said, adding that there are a number of legitimate purposes served by establishing entities in different jurisdictions, including for estate planning reasons, conducting cross-border mergers and acquisitions, and pooling investment capital from investors residing in different locations and who seek “a neutral legal and tax regime.”
In the case of Swiss Group Corporation, within weeks of receiving emails from worried investors, records indicate that the firm did submit a suspicious activity report about the company to regulatory authorities in the British Virgin Islands that April. By mid-May, a senior employee was putting worried investors in touch with a lawyer who represented the owner of Swiss Group Corporation. “We have taken note of your comments and uncertainty, however, we only offered the service of Registered Agent to Swiss Group Corporation,” a senior compliance staffer wrote to at least 10 investors who’d contacted the firm.
But at the same time, in order to avoid potential regulatory fines, Mossack Fonseca scrambled to compile due diligence documents it did not have on file about Swiss Group, the emails show. On April 10, 2014, that same senior compliance staffer wrote to the Panama City law firm that helped the owner of Swiss Group Corporation register the company, and one other one, with Mossack Fonseca. “[N]ot maintaining such records to date will result in high administrative and legal fines,” she wrote, “so we have to work together in updating the files for these companies.”
In the scramble, firm employees realized that Swiss Group had been subject to previous inquiries from authorities. Mossack Fonseca resigned from serving as registered agent for the company.
To avoid potential regulatory fines, Mossack Fonseca scrambled to compile due diligence documents it did not have on file
Later that same year, in September 2014, the Central Bank of Uruguay canceled the license and ordered the liquidation of an investment firm called OpenWorld Sociedad de Bolsa, citing securities violations in its offering of “Swiss Group” investment products. Multiple sources told FUSION that OpenWorld is facing a criminal investigation in Uruguay; a Uruguayan court approved an arrest warrant for the investment firm’s former majority shareholder, Pedro Orlando Magenties, last year, but he had already left the country, according to Nicolas Pereyra, an attorney for investors who say OpenWorld defrauded them. Court records show Magenties denied the allegations against him.
Numerous attempts by FUSION to contact Swiss Group Corporation’s representatives were not successful.
Pereyra says that losses in Uruguay alone amount to $4 million, and that many investors were middle-class. Attorneys for investors say they have identified multiple shell corporations associated with OpenWorld and Swiss Group, and Pereyra says those shells played an important role in the alleged fraud. “They have an appearance. You trusted Swiss Group. You saw a brand, you saw a logo,” he explains. “They tried to create a trust in investors that did not exist. It did not exist because it was a false corporation. It was nothing. Empty.”