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Panama Papers Hit The Corrupt Where It Hurts



Panama Paper Leaks Brings Light To Law Firm Secrets, see more at:

Panama Paper Leaks Brings Light To Law Firm Secrets (Image: DW)

  • Mossack Fonseca was created in 1986 and would become a powerhouse of secretive offshore banking for the elite.
  • The elite firm was created by two men, Jürgen Mossack and Ramón Fonseca.
  • The leak of information has had far reaching effects around the world and threatens Panama’s already dubious economy.
  • Panama remains under scrutiny as a haven for tax evaders and is not alone. 

MEXICO CITY — The two men came together in an era of political and economic uncertainty in Panama: One a reserved German immigrant whose father served in the armed wing of the Nazi party, the other a gregarious, aspiring novelist whose family opposed Panama’s military dictatorship.

With the nation still under the sway of Gen. Manuel Noriega, the pair merged their small law firms in 1986, creating what would become a powerhouse of secretive offshore banking for the elite. Over the next three decades, Jürgen Mossack and Ramón Fonseca expanded their practice to a staff of 500, with affiliate companies around the world and a client list of the powerful, the famous and, sometimes, the infamous.

In January, a prosecutor investigating the sweeping corruption in Brazil publicly called their law firm “a huge money launderer.”

The partners had become very wealthy, and Mr. Fonseca leveraged the firm’s success to gain an influential role in the upper ranks of politics. He told associates that he wanted to clean up the government, serving as a special adviser to President Juan Carlos Varela until the corruption scandal in Brazil forced Mr. Fonseca to resign this year.

In an interview, he said that entering politics was, in part, a way of giving back. “I believe in sharing the pizza,” he wrote. “At least to give others one slice.”

The firm, Mossack Fonseca, was built on assurances of bulletproof privacy for its clients. But its operations were laid bare this week by a vast leak of millions of documents that have helped expose the proliferation of shell companies and tax havens for the world’s wealthiest people. The revelations have already prompted Iceland’s prime minister to step aside and spurred criminal investigations on at least two continents.

The leak has also brought more scrutiny to Panama’s financial and legal sectors, just as the country’s leadership was trying to shed its longstanding reputation as a haven for the loot of the criminal and corrupt. In February, Panama was removed from a watch list maintained by an international agency that sets standards to combat money laundering and terrorism financing, but it remains under scrutiny as a haven for tax evaders.


Panama’s president has vowed to cooperate with any judicial investigations stemming from the leaked information, which could put him in the awkward position of allowing an inquiry into his former adviser.

Mossack Fonseca has denied that it committed any wrongdoing, and Mr. Fonseca proclaimed his firm’s innocence.

“At the end of this storm the sky will be blue again and people will find that the only crime is the hacking” of the firm’s documents, he said in an hourlong interview conducted over the messaging platform WhatsApp.

But some in Panama who know Mr. Fonseca say the leak’s contents are at odds with how he has tried to portray himself and his role in the country.

Carlos Guevara Mann, a fellow party member, and former government official said he had once asked Mr. Fonseca, already a successful novelist, why he would bother with politics. The lawyer, he recalled, told him that he wanted to set straight the nation’s human rights record.

“When you match that conversation with the fact that the firm was providing services to all of those notorious human rights violators — Qaddafi, Mugabe, Assad, and Putin — it really is repugnant,” Mr. Mann said.

Among the leaked documents was an email exchange obtained by the International Consortium of Investigative Journalists, in which the firm’s top partners realized they had worked for years with clients from Iran who had been listed on a sanctions list published by the United States government and the United Nations.

“This is dangerous!” Mr. Mossack wrote in an email to Mr. Fonseca and others at the firm. “A red flag should have been raised immediately.”

Mr. Mossack placed blame for the oversight on employees in the law firm’s London office who were “not doing their due diligence thoroughly, (or maybe none at all).”

The leaks have roiled Panama’s legal and banking sectors, bedrocks of the country’s economy, and chilled Panama’s business class. The country’s bar association has come to the firm’s defense, saying the leak amounted to an attack on the country’s reputation.

“Terrible damage is being done to them, to all lawyers and their country at large,” José Alberto Alvarez, the association’s president, said in a news conference on Monday.

There is a lot at stake for Panama, a country whose economy heavily relies on the legal and financial services industries.

The rise of Mossack Fonseca coincided with the emergence of Panama as a capital of the worldwide offshore banking industry. The increasing flow of global capital across borders during the 1970s and 1980s fueled a market for lawyers and accountants capable of sheltering the money, and Panama was primed to take advantage of the boom.

Beginning in the early 1900s, its station as a trade and shipping center — at the intersection of two continents and at the convergence of the Pacific Ocean and the Caribbean Sea — made it an obvious candidate for offshore accounting. International ships flew the Panamanian flag to take advantage of its advantageous corporate tax structure, which some experts say was copied almost directly from the state of Delaware.

“Because it has always been at the center of international trade, it was a natural fit for things like offshore finance and international offshore tax planning,” said Victor Fleischer, a professor at the University of San Diego School of Law. “I don’t know if it is justified or not, but people have always thought of Panama as a little bit shady,”

The firm was aggressive and nimble, capable of responding to an evolving regulatory landscape. Its reputation flourished.

But other Panamanian law firms joined the fray, too, including larger and more prominent practices than Mossack Fonseca.

“All the important Panamanian law firms have a division like this,” said Roberto Eisenmann, the founder of the newspaper La Prensa in Panama.

In fact, Mossack Fonseca is just one of countless firms around the globe dedicated to a worldwide industry that harbors trillions of dollars and may deprive nations of as much as $200 billion in tax revenues each year, tax and legal experts say.

Mossack Fonseca’s founding partners bought large homes in exclusive neighborhoods in Panama City as well as luxurious weekend retreats. Growing up, their children borrowed the company plane and took friends on trips.

But despite their parallel ascents in business and society, Mr. Mossack, and Mr. Fonseca apparently kept their social lives separate. Friends and associates describe their personalities as completely distinct.

Mr. Mossack was born in Germany in 1948, and during World War II, his father was a member of the Waffen-SS, according to United States Army intelligence files obtained and provided by the International Consortium of Investigative Journalism. The family moved to Panama in the 1960s where,according to the intelligence files, Mr. Mossack’s father offered to spy for the C.I.A.

Mr. Mossack has maintained a low profile, eschewing the party scene of Panama’s high society while adopting a disciplined approach to his work. Though he is more focused on the day-to-day operations, he has so far declined to comment publicly about the document leak.

Mr. Fonseca, by contrast, has for years been something of a man about town. Born in Panama in 1952, he studied at the London School of Economics and later worked for several years at the United Nations in Geneva — “trying to save the world,” as he described it in the interview.

It was then, he said, that he first began to ponder writing a novel. Decades later, in the 1990s, he became famous as a novelist, twice winning Panama’s highest literary prize.

But he had even greater ambitions: politics. One day, when complaining to his father about the shabby state of Panamanian politics, the elder man snapped at him. “My father told me: It’s not fair to criticize the bullfighter from your seat,” he wrote in the interview. “Enter the ring!”

By the 2000s, he was well ensconced with the Panameñista party and became a close adviser to Mr. Varela. After Mr. Varela became president in 2014, Mr. Fonseca joined his cabinet as an adviser.

Within Mossack Fonseca, both founding partners had swagger. Former employees said the firm had a staff of aides, whose job it was to arrange hotel, car service and entertainment for wealthy clients when they came to town — like tours of the old city or the Panama Canal.

“There were no kings or princes that I remember,” said Tarina Rodríguez, adding that she worked at the firm for three years and served as the “head of hospitality.” The visitors, she said, “were very low-key businessmen, who wanted to keep a low profile.”

Several former employees described a disciplined culture, arguing that the partners appeared to run an ethical business. Mr. Mossack and Mr. Fonseca, they said, were sticklers for compliance, insisting on detailed procedures concerning most business matters at the firm.

“There were so many processes you had to follow,” said Mileidy Castillo, who said she worked at the firm from 2011 to 2013.

Experts say, however, that checking boxes is not the full measure of compliance. Rather, it comes with a law firm’s willingness to push its clients to reveal the true identity of those involved in offshore transactions, and the source of their money.

“Too often, these offshore firms are willing to take on just about any customer and follow their instructions,” said Jack Blum, a former Senate investigator who now specializes in examining money laundering and tax evasion.

As offshore accounts have multiplied during the past several decades, they have increasingly been used to launder money, evade taxes or finance terrorism. Those seeking to break the law have often enjoyed the same secrecy as accounts used for legitimate purposes.

An international transparency movement developed over the past decade, spearheaded by major international agencies. But Panama, long accustomed to following its own path, was far behind in compliance.

“In the last 25 years or so, there have probably been 15 years of almost no regulation,” Mr. Eisenmann said of Panama.

In 2014, the Financial Action Task Force put Panama on its list of countries where transparency and accountability systems were woefully lacking, a major blow to the nation. Mr. Varela quickly pushed through legislation to address the issue, leading to Panama’s removal from the list in February.

But Panama has been more reluctant to follow a transparency initiative started in 2009 by the Organization for Economic Cooperation and Development. While most other international financial centers, like the British Virgin Islands, the Cayman Islands, and Singapore, quickly agreed to the initiative, Panama held back.

“Panama is the last major holdout that continues to allow funds to be hidden offshore from tax and law enforcement authorities,” the group’s secretary-general, Angel Gurría, said in a statement on Monday.

But several tax experts pointed out that Panama, in its refusal to comply with international transparency standards, is in esteemed company: the United States.

Foreign nations have had trouble getting information about accounts their citizens hold in America as well.

“Panama isn’t the real story,” said Matt Gardner, the executive director of the Institute on Taxation and Economic Policy, a research group based in Washington. “This leak is giving a window into a much broader world, but it should be understood as giving a window into how things work in the U.S. as well.”

Since the data leak last weekend, both the firm and Mr. Fonseca have said that they are not responsible for the actions of the shell companies they create.

In the interview on Wednesday, Mr. Fonseca said that the company was careful to vet clients and that it would drop any it discovered with a “bad reputation.” But he was insistent that his clients were lawyers, accountants, and intermediaries — not dictators, for instance.

“We are like a car factory who sells its car to a dealer (a lawyer for example), and he sells it to a lady that hits someone,” he wrote in a message. “The factory is not responsible for what is done with the car.”

Mr. Fonseca said his firm tried to determine “to the best of our knowledge” the actual owner of a shell corporation.

“The industry is becoming more regulated and serious about being used by the bad guys and we welcome this,” he wrote, adding, “But pls remember that 15 years ago the term due diligence was unknown.”

Over the years, courts and government investigators have occasionally managed to puncture Mossack Fonseca’s shield of secrecy.

In Brazil, Mossack Fonseca was linked to a corruption investigation into bribes paid to politicians by companies doing business with the state-run oil company. Investigators began focusing on the firm after finding an array of apartments in the names of relatives of an imprisoned politician.

Recent litigation in the United States uncovered a connection between a shell company set up in Nevada and Mossack Fonseca’s headquarters in Panama. The breakthrough came after almost three years of legal wrangling by the plaintiff, one of the world’s best-financed hedge funds, run by the billionaire Paul Singer.

The hedge fund was trying to track down money that had been siphoned from public coffers in Argentina into illegal shell companies. The hedge fund owned $1.7 billion of Argentine debt dating to the nation’s financial crisis in the early 2000s, and the country was refusing to pay it.

But the hedge fund’s task was not so simple. A shell company known as MF Nevada was claiming that it had no relationship with Mossack Fonseca.

Even the judge found this hard to believe, at one point asking the company’s lawyer what the “MF” in MF Nevada stood for, according to a court transcript.

“I don’t know,” the lawyer responded, eliciting laughter in the courtroom.

During questioning, the person listed on the incorporation documents acknowledged that she took her directions from individuals at Mossack Fonseca. The federal judge in Nevada found that the shell company was essentially an alter ego of Mossack Fonseca, in effect granting the hedge fund access to information ordinarily held behind the law firm’s impenetrable facade in Panama.

“As attorneys we have the duty to provide privacy,” Mr. Fonseca said in the interview.

He feels his firm, in particular, has been robbed of it.

Mr. Fonseca said he was currently working on a novel about an investigative journalist who is “honest and looking for the truth without agendas.” And he has already begun outlining another book.

The working title: “Is privacy a lost human right?”

Source: New York Times

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