The Panama Papers

Breaking the Story of How the Rich and Powerful Hide Their Money

Frederik Obermaier, Bastian Obermayer

• Publisher: Oneworld Publications
• Year: 2017
• eBook ISBN: 9781786071491
• Subtopic: Business Ethics

From the winners of the 2017 Pulitzer Prize for Explanatory Reporting

11.5 million documents sent through encrypted channels. The secret records of 214,000 offshore companies. The largest data leak in history.

In early 2015, an anonymous whistle-blower led investigative journalists Bastian Obermayer and Frederik Obermaier into the shadow economy where the super-rich hide billions of dollars in complex financial networks. Thus began the ground-breaking investigation that saw an international team of 400 journalists work in secret for a year to uncover cases involving heads of state, politicians, businessmen, big banks, the mafia, diamond miners, art dealers and celebrities. A real-life thriller, The Panama Papers is the gripping account of how the story of the century was exposed to the world.

1

Start

The Russian president’s best friend. Businessmen close to the Argentinian president and her late husband and predecessor as head of state. A mysterious German with $500 million? There are worse starting points for an investigation.

Within days of our first contact, it is clear from a discussion with my head of department Hans Leyendecker that this topic will be handled by the same team that has already led a number of similar investigations, meaning the two of us: the ‘Brothers Obermay/ier’ as some of our colleagues have called us ever since our editor-in-chief Kurt Kister coined the phrase at a conference.

Otherwise, we try to keep the circle of those in the know as tight as possible for now. Who knows if the files are genuine, if they’re verifiable and whether they’ll ever produce a good story?

Our plan is to analyse the data closely and then consider how and when we publish our findings. So we read up on Putin’s business interests (by this time we’ve seen his best friend’s name linked to three offshore companies), gather material about the NML hedge fund’s lawsuits against Argentina and carry out research into our mysterious ex-Siemens executive and the $500 million in gold. The only problem is that we keep getting distracted by new firms and possible new stories. That’s because the material has been growing constantly since the night of my first contact with ‘John Doe’, and we repeatedly find new names worth investigating: South American government ministers, German aristocrats, US bankers. Very soon we have over 50 gigabytes of data and several thousand digital folders stored on various USB sticks. Each folder bears a number associated with a particular offshore company. These folders obviously contain files that Mossack Fonseca drew up for the respective firm: certificates, passport copies, lists of shareholders and trustees, invoices, emails. A clear, practical system – for them, and for us.

There are thousands of shell companies. Thousands of people who obviously have a compelling reason for camouflaging their business dealings. Thousands of potential articles. The unique selling point of offshore companies is that they provide anonymity. A nondescript name is presented to the outside world and no one knows who is really behind it.

There are of course many reasons for using an offshore company and of course owning one is not in itself a criminal offence. But the fact is that people often have recourse to an anonymous offshore company because they want to hide something – from the taxman, their ex-wife, their former business partner or the prying eyes of the public. That ‘something’ might be property, bank accounts, paintings, investments, shares or other kinds of securities.

Experience shows that it is usually individuals whose business depends on anonymity who favour the anonymity that shell companies provide. These include gunrunners, people traffickers, drug smugglers and other criminals, as well as investors who do not wish to reveal their true identities and their true intentions, senior politicians who’d like to spirit their wealth abroad (perhaps because they have accumulated it dishonestly) and companies looking to funnel bribes. The list could go on and on.

We are now sitting studying secret data that could potentially bring hundreds of these cases to light, sifting through computer folders no journalist has ever had access to before. We could easily spend weeks floating around in it, not only because we’re always looking for the next big story to break, but also because there’s no such thing as a trivial detail: with every company we examine and every email conversation we read, we learn more about how the Mossack Fonseca law firm operates. There is an incredibly strong temptation to drill down into these secret dealings and thus into the entire mechanism, from the initiation of business to the opening of the account and on to its closure. It’s almost an addiction, and if we didn’t both have families we would probably spend every evening on our laptops, clicking and clicking away. Yet even while keeping halfway regular working hours, it takes us only a few weeks to grasp the basic business model.

This is usually how it works. Contact is made with Mossfon (the common abbreviation for Mossack Fonseca) via an intermediary – for example a bank, a lawyer or an asset manager. These are Mossack Fonseca’s actual ‘clients’: they order the product, they handle communications and they pay the bills. The product is mainly an off-the-peg offshore company. Mossfon offers firms in some twenty jurisdictions, most frequently in the British Virgin Islands and Panama, but also in the Bahamas, Bermuda, Samoa, Uruguay, Hong Kong, the US tax havens of Nevada, Wyoming and Delaware and, more recently, Florida and the Netherlands. The newest name is that of the emirate of Ras Al-Khaimah in the United Arab Emirates. The companies are sold from nearly fifty offices worldwide or from Mossfon’s headquarters in the centre of Panama City, on the top floors of a squat building whose glass façade reflects the emblem of the city, the Revolution Tower.

Mossack Fonseca isn’t the only provider of shell companies headquartered in Panama. Other major players are also based there (although there are hardly any official figures regarding this secretive industry), for instance the law firm Morgan y Morgan, probably Mossfon’s great competitor. It is no coincidence that offshore providers have clustered together in this small Latin American state of all places, squeezed between Costa Rica and Colombia at the point where the Americas meet.

[ ]

Panama has always been an extremely dependent country. Having long been a poor province of Colombia, the country gained its independence in 1903 partly because American bankers and industrialists managed to persuade the then US president Theodore Roosevelt to support Panamanian separatists. US lobbies hoped to make money from the Panama Canal, which was under construction at the time. Roosevelt sent troops to occupy parts of the newly independent state and make it clear to Colombia that it could kiss goodbye to its former province. A nation was created by the grace of the United States and the US flag did indeed fly over the Panama Canal Zone, where big business was to be done. Thousands of American soldiers protected the sovereignty that the Panamanian government granted to the USA in 1903 and which was only returned to Panama in 1999.

The lucrative business with shell companies is based on a law that came into force on 26 February 1927. This law – Law 32 – guarantees the secrecy of estates, money transfers and, most importantly, company owners, and offers so-called ‘sociedades anónimas’ exemption from taxation. This name sounds more mysterious than it actually is, because an ‘anonymous society’ is actually nothing more than a public limited company. The secrecy afforded by Law 32 has changed very little to this day, with the exception of the odd – largely cosmetic – reform driven by efforts to have Panama deleted from a number of black and grey lists of countries that abet money laundering and tax evasion. The favourable environment for the offshore industry has remained more or less unaffected over the years, and the state also benefits, for example from corporation tax from law firms, their employees’ income tax payments, and fees for setting up companies.

Another reason this business is so attractive is because it is as simple as it is lucrative. A standard shell company costs the seller next to nothing and the formalities are quickly dispatched. The buyer has his company in a click of the fingers for only a few hundred US dollars, and can dispose of it again quickly and easily once it has served its purpose. Also, no one will ever find out to whom it belonged, which is ideal for dodgy dealings.

Ideal for Siemens too, we discover. While reading up on Putin, we simultaneously sniff out the trail of Hans-Joachim K., the German with the curious $500 million in an account in the Bahamas. First, we do some research without the data, simply because we don’t have the right software with which to conduct a systematic search of the 50 gigabytes of information. We find K.’s name in an indictment against a past Siemens board. It becomes clear from reading this that K. had for many years run slush funds containing money siphoned off from official Siemens channels so as to be more quickly and easily available, for instance to pay so-called advisers. Hans-Joachim K. names one of these bribery firms, supposedly called Casa Grande. We come across its full name in the transcript of a police interrogation: Casa Grande Development. This is also the title under which it was entered into Panama’s public database of companies, with Mossack Fonseca listed as its ‘registered agent’. Yet the database gives no indication of any connection to Siemens or even K. himself. The company’s directors are given as three women who have almost certainly never done a day’s work for Siemens in their entire lives: Francis Perez, Diva de Donada and Leticia Montoya.1

This is the mechanism for offshore companies: the firms that sell them – offshore providers like Mossack Fonseca – make sure that there’s a protective screen around the real owners. In this case Mossack Fonseca appoints three directors. We would call Francis Perez, Diva de Donada and Leticia Montoya ‘straw men’ – if they weren’t women, that is. They work for Mossack Fonseca. Their job is to sign the documents placed before them. They sign if the real ‘beneficial’ owner wishes to open an account in the name of his or her shell company (as in the case of Casa Grande Development for Siemens) or if the real owner would like to buy something in the company’s name – a flat, a house or a yacht, say. However, they also sign contracts, loans for millions of dollars and other papers. This means that these directors – known in the jargon as ‘nominees’ or ‘nominee directors’ – act as the company’s official representatives, and the real owner hides behind this façade.2

The real owners (or, if they are more cautious, their lawyers) are generally given a power of attorney by the nominee directors to access the bank account or the safe. In most cases, however, no one but the bank, the nominee directors and Mossack Fonseca knows about this power of attorney. It is this secret yet (when seen in isolation) completely legal arrangement that confirms the company’s true purpose – to stay shut away from the prying eyes of inquisitive public prosecutors, tax officials and fraud investigators.

[ ]

In one of the Excel files that we find in the data we come across Casa Grande Development’s folder number, and we actually have this folder. This is a complete stroke of luck: the Excel file lists over 200,000 active and expunged Mossack Fonseca companies, but we currently only have the documents of a few thousand.

In the folder we find a power of attorney for one of Hans-Joachim K.’s former colleagues at Siemens. This ex-colleague is named as the real owner of the company, but neither he, K. nor Siemens was ever mentioned when Casa Grande Development was handing out millions from the slush funds, entering into contracts or conducting business. The nominee directors signed, and from the outside it was impossible to tell who was really controlling matters. The company was an ideal vehicle for kick-starting the business of Siemens’s South American division anonymously and circumventing both the law and internal oversight.

Even if someone had discovered who owned Casa Grande Development’s shares, they would not have been able to prove any link to Siemens. That is because only so-called bearer shares were issued at first. There is usually no record of who owns these shares. It’s very simple: the person who holds all of a company’s bearer shares – physically, that is, as pieces of paper – owns the company. This is an open invitation to indulge in the kind of dealings where you don’t want to leave any traces behind. Money on the table, bearer shares the other way, transaction complete; the company has a new owner.

If there is a need for even more stringent anonymity, then Mossack Fonseca can provide not only nominee directors but also ‘nominee shareholders’. These are individuals or shell companies that hold shares virtually, on trust. Should Mossack Fonseca be forced to name one or more of a company’s shareholders, for example during an investigation, this does not mean that they are the ultimate owners, not in the slightest. The real owners can hide behind this second protective screen.

The company has become a completely impenetrable entity. Tax investigators and the police, creditors and defrauded business partners, even spouses and children have no way of proving that the company with the peculiar made-up name belongs to any tangible human being. From the outside at least, it is a black box.

Not from the inside, though. Inside, in the computer folders we mine day after day (and often night after night), lie thousands of internal email exchanges between Mossack Fonseca employees. These messages are a seam of gold running through this mountain of data, repeatedly turning up vital nuggets of information about the true owners.

Unfortunately, this is not much help in Hans-Joachim K.’s case. We still have no idea of how, and if, he came by the $500 million. So far, we know only that he left Siemens in 2009 at the latest.

We’ll have frequent cause to return to this case, though. Every time new data arrives we look for new Siemens shell companies and for K. It’s like an incurable fever – we just have to solve this puzzle.

2

Vladimir Putin’s mysterious friend

There’s a lot of money at stake. That is about the only thing we realize immediately as we battle our way through the folders of the three offshore companies featuring Sergei Roldugin’s name. The folders contain hundreds of documents, many with page after page of descriptions of share deals it would take us weeks to understand. Yet even in our ignorance we are capable of picking out the sums, and they take our breath away. Here a loan for a few hundred million US dollars, there another one for many billions of rubles. Millions of dollars in ‘advisory fees’ flow from shell company to shell company, and the documents suggest that share packages worth millions change hands twice within twenty-four hours.

We read in the share transaction contracts that some of the deals involve shares in major Russian companies. The fact that these particular companies show up here doesn’t necessarily mean anything, but it may do. Virtually every Russian expert critical of Putin assumes that he’ll leave office as a multi-billionaire – if, that is, he ever does leave office. But where has he stashed his fortune? There is a theory among experts that he gets companies to allocate him shares – companies such as the ones we have just found.

If Putin did indeed own shares in major Russian companies, would he really want people to know about it? Would he hold them under his own name? Certainly not. So then he would need people he could trust. People like Sergei Roldugin?

We know quite a lot about the two men’s relationship, particularly because Roldugin, the virtuoso cellist, is not exactly shy about it. He enjoys talking to journalists and authors about Putin, and of course he gives the president good press. He would be badly advised to do anything else.

The two men have known each other since the 1970s. Roldugin is one of Putin’s circle of friends from his time in St Petersburg – people that Putin later made very, very wealthy. It is therefore conceivable that Roldugin does only represent Roldugin here, for he has owned a small stake in a St Petersburg private bank, Rossiya Bank, since the 1990s. Under Putin’s protection it has grown into o...

Table of contents

• Cover
• The Panama Papers
• Title Page
• Contents
• Foreword
• Prologue
• 1 Start
• 2 Vladimir Putin’s mysterious friend
• 3 The shadow of the past
• 4 Commerzbank and its lies
• 5 Mossack Fonseca’s role in the Syrian war
• 6 From the Waffen-SS to the CIA and Panama
• 7 The football factory
• 8 On fishing, finding and fine art
• 9 A view of the White House
• 10 Sparks fly
• 11 Fear and trepidation
• 12 The Siemens millions
• 13 ‘Regarding my meeting with Harry Potter. . .’
• 14 A secret meeting with Alpine views
• 15 Mossfon Holdings
• 16 Spirit of Panama
• 17 The world is not enough
• 18 The looting machine
• 19 Secret meetings in the Komitèrom
• 20 At the mercy of monsters
• 21 The red nobility
• 22 The Gas Princess and the Chocolate King
• 23 Those German banks
• 24 A raid by the Vikings of finance
• 25 Dead-end trails
• 26 United by marriage, united by money
• 27 Star, star, Mega Star
• 28 The fourth man and FIFA
• 29 The 99 per cent and the future of tax havens
• 30 The cold heart of the offshore world
• Epilogue
• The revolution will be digitized
• Acknowledgements
• Glossary
• Notes
• Imprint Page