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MEANWHILE, THE DEMANDS on Mossfon grew. The trend was clear. Around the world, the countries where it based its companies wanted more information. The firm fielded requests from government regulators while complying with new regulations that further constrained its activities. When Mossfon’s companies ran afoul of the rules, judgment came more swiftly and at a steeper price. The firm’s low-cost business model—provide cheap companies in volume, fast—buckled under the onslaught.
In 2013, some of the last holdouts, Panama and the Seychelles, took action. Panama restricted bearer shares, and the Seychelles outlawed them. Among the few jurisdictions left that offered bearer shares were the Marshall Islands and Liberia, whose public registries operated out of offices in Virginia and New York.
The following year, Hong Kong, one of the first foreign jurisdictions with which the firm did business, changed its company incorporation law. The new statute required that for new companies, at least one director had to be a human being, rather than a trust, a foundation, or another company. Mossfon contacted its clients in an arduous effort to get them to comply with the changing regulations. In the BVI, clients who did not meet due diligence requirements under its new anti-money-laundering law had to be approved personally by the firm’s most senior compliance officer—in Mossfon’s case, Jürgen Mossack.
In May, the BVI Financial Services Commission contacted Mossfon about Pan World Investments Inc., a company for which it had acted as registered agent for almost a decade. The company had come through the Credit Suisse private bank in Geneva and was owned by Alaa Mubarak, the eldest son of former Egyptian president Hosni Mubarak. Two years earlier, the Mubaraks (including another son, Gamal) were arrested on charges that they had taken public money destined for presidential palaces to build their own private residences.
Mossfon had accepted the Mubaraks with little screening, relying on Credit Suisse to vet the end users of the company. “You don’t think when Mubarak walks through the door of a bank they don’t know who he is?” explains Mossack.
After the Arab Spring, when as many as 846 people died in protests against Mubarak’s rule, the BVI issued an order freezing the assets of officials tied to the Egyptian regime, including Alaa Mubarak. Still, Mossfon did not act until it received the letter from the BVI authorities. It then placed the company in a high-risk category.
As the firm discussed what to do about the BVI letter, it made a “most embarrassing” discovery, as one Mossfon lawyer termed it. The firm did not have a signed service provision agreement with Credit Suisse that spelled out vetting expectations for the bank. Without this document, the ultimate responsibility for due diligence could lie with the Panamanians. A Mossfon compliance officer acknowledged in an internal email that “our risk assessment formula is seriously flawed.” This insight was not shared with the BVI. Instead, the firm’s response to the Financial Services Commission’s inquiry put the blame for the companies’ irregularities on Credit Suisse.
For years, the commission had requested information from Mossfon, to little result. Between 2005 and 2008, the BVI asked the firm—in more than one hundred separate requests—for beneficial ownership information on various companies. Mossfon was able to provide the true owner’s name for just five of those requests, according to an analysis by the Guardian. Times had changed. In November 2013, BVI’s financial regulators fined Mossfon $37,500 for “failing to carry out the necessary enhanced customer due diligence measures of a high risk customer.”
Mossfon then tried unsuccessfully to invoice Credit Suisse for the fine.
Sometimes controversy could be handled more quietly. In 2013, a compliance check on Malchus Irvin Boncamper, a Saint Kitts and Nevis–based accountant, with whom Mossfon had worked for more than a decade, revealed disturbing news. Boncamper was serving an eight-year prison sentence for money laundering and other crimes. He had been convicted two years earlier. This was a significant problem because Boncamper was currently serving as a director of about thirty of the firm’s shell companies.
The tale attached to Boncamper had begun on a windless, sunny day in October 2005, when a group of mostly elderly tourists boarded the Ethan Allen, a thirty-eight-foot glass-enclosed fiberglass boat, for an hourlong fall foliage tour around New York’s Lake George. Their average age was seventy-six.
The boat had been modified over the years, reducing its steadiness. The Coast Guard later determined it should have carried no more than fourteen passengers. There were forty-seven aboard.
It was already listing 2.2 degrees to port when it left the dock. Twenty-four minutes later, the captain noticed a two- to three-foot wake approaching the boat. He tried to steer into the wave but it was too late. Within seconds the boat had flipped, trapping passengers as the water flooded in. Twenty people drowned that day.
The survivors’ nightmare was just beginning. It turned out the Ethan Allen’s insurance was worthless. The Quirk family, which owned the boat, thought they were buying legitimate protection. The insurance company was even reinsured by another firm, United Re-Insurance Group Limited, created by Boncamper, but it was all a scam.
The victims and their families settled with the family that owned the vessel for an undisclosed sum in 2008. James Quirk mortgaged his home and other assets to fund the settlement. The following year, Matthew Quirk, who worked with the boats for the family business, took one out onto the lake, tied an anchor to himself, and dove into the water. His body was found the next day.
When Mossfon learned about Boncamper’s troubles, the firm’s head of compliance, Sandra de Cornejo, ordered staffers to remove him as director from multiple companies and backdate the changes so it would appear that the removals had happened prior to his conviction.
* * *
IN THE SUMMER of 2011, the French television journalist Edouard Perrin struck gold. Antoine Deltour, a young auditor at the office of PricewaterhouseCoopers in Luxembourg, provided Perrin with hundreds of secret tax rulings that the accounting firm had obtained on behalf of multinational corporations. The Luxembourg rulings allowed some of the world’s biggest companies legally to avoid paying hundreds of billions of dollars in taxes in the countries where they did business. It was yet another example of how the biggest exploiters of the secrecy world were multinational corporations. Perrin’s only problem was that he couldn’t immediately take advantage of the leak. The documents were so complex, they were all but gibberish to him.
Perrin had made a name for himself in France for covering complex subjects in interesting ways. He gravitated toward tax issues. Perrin believed the topic could be both informative and entertaining. In the wake of the 2008 financial crisis, European governments had imposed budget cuts that were bleeding their citizens. Viewers were anxious to know who was paying their fair share in taxes and who wasn’t.
At a conference in October of that year, Perrin met with John Christensen of the Tax Justice Network and Richard Murphy, an accountant and cofounder of the organization. Perrin described the advice he needed. Christensen and Murphy sent him to Richard Brooks, a former investigator with the British tax revenue authority who was now a journalist. Brooks was skeptical of Perrin at first, especially since the Frenchman would provide few details over the phone. But when Brooks saw the data, he quickly recognized its value.
By December, the two were filming in Luxembourg. One of Perrin’s goals was to capture footage of Marius Kohl. For more than three decades, Kohl had run Sociétés 6, the Luxembourg federal agency in charge of what the Wall Street Journal described as the country’s most valuable export: tax relief. Sporting a beard and a ponytail, Kohl looked more like a biker than a tax official. He was known as “Monsieur Ruling,” for the thousands of corporate tax deals he had sanctioned during his tenure.
There were hundreds of companies whose Luxembourg tax agreements were included in the leak. The agreements themselves were often quite complex, with diagrams in swirls of arrows and boxes that illustrated how money flowed between su
bsidiaries and countries. A tax deal for the Illinois-based pharmaceutical company Abbott Laboratories, for example, had seventy-nine steps to it. In another deal, PepsiCo used its Luxembourg subsidiary to reduce its tax bill on a $1.4 billion purchase of a controlling interest in Russia’s largest juice maker by sending money to Bermuda and back. Luxembourg tax agreements enabled the Australian division of the Swedish furniture giant IKEA to pay little tax on an estimated $1 billion in profits earned in that country. FedEx used two Luxembourg affiliates to move earnings from Mexico, France, and Brazil to a subsidiary in Hong Kong. This allowed the company to significantly reduce its tax burden in the places where it actually earned the profits.
Marius Kohl had approved about 40 percent of the submitted tax agreements—which averaged between twenty and one hundred pages in length—on the very day they were submitted. On April 21, 2010, he had been exceptionally efficient, approving eight agreements that had been submitted that day, along with four that had come in earlier. Some of the submissions were incomplete, but it didn’t matter. Kohl himself did not provide written analysis of the deals; instead, he appended a ten-line form letter okaying each transaction.
What the majority of submissions had in common was that the corporation had no significant presence in Luxembourg. Many of these firms also took advantage of laws Luxembourg had passed to entice companies. For example, the country exempted tax on interest income, which is why many of the companies designed their businesses so that profits earned in other countries flowed into Luxembourg subsidiaries as interest. Luxembourg also exempted from taxation 80 percent of the income earned from intellectual property such as brand names, patents, and distribution rights.
Edouard Perrin never got to see Marius Kohl, but he did film the Sociétés 6 offices. His hourlong report for the program Cash Investigations aired on Friday, May 11, 2012, at 10:30 pm. Despite the late hour on the eve of a weekend, viewership was double the usual. The program incorporated reenactments, cartoons, old movie clips, animations, documents, and interviews. A week later, the BBC program Panorama followed with its own documentary. Brooks and Perrin had shared their data with the BBC journalists. Then a second source in Luxembourg, Raphael Halet, contacted Perrin with more tax agreements, this time featuring company documents from the likes of Amazon and Luxembourg steel manufacturer Arcelor Mittal. These documents provided the basis for a second film, aired a year later in prime time on a Tuesday; it earned record ratings for the program.
In November 2013, ICIJ received a copy of the Luxembourg data. It has never publicly disclosed its origin.
* * *
MEANWHILE, GERARD RYLE continued to pursue Falciani’s HSBC files. He spoke with Le Monde’s editor in chief, Natalie Nougayrède, who listened to Ryle’s pitch but told him Le Monde did not need ICIJ. The newspaper had correspondents all over the world. It would parcel out the specific country data from the files to its own staff; Le Monde reporters themselves could report and write the stories. Ryle returned to Washington dejected, yet again.
It did not take long for Le Monde to realize its plan would not work. Organizing the effort alone would be a logistical nightmare. Its correspondents were busy reporting other stories. They had no experience parsing this kind of data. Nor did they know the players in the different countries well enough to be able to identify who were the truly important people listed in the files. Le Monde contacted Ryle to ask for the collaboration.
In May 2014, Gérard Davet and Fabrice Lhomme, the two Le Monde reporters who had obtained the documents, along with a data specialist from the newspaper, traveled to Washington, DC, to meet with ICIJ. The HSBC files they brought to Washington—encrypted on a laptop—had been reconstructed by the French government from the data confiscated from Falciani. The French, perhaps feeling it was too explosive, had kept a tight hold on the information and selectively distributed smaller subsets. Davet and Lhomme have never revealed their source. Swiss authorities still wanted to prosecute Falciani over the theft. Despite the passage of six years, the mere existence of the HSBC files continued to create a commotion across the continent.
When the French journalists arrived, the ICIJ team gathered in a conference room at the Center for Public Integrity, ICIJ’s parent organization. The meeting with the French was the culmination of a several-day team-building exercise. In the past two years, Ryle had tripled the number of ICIJ staff, including the addition of a three-person data team, and the organization had flown its entire reporting team to Washington to discuss the future and introduce themselves to the people at the CPI.
And now, after more than six months of pursuit by Ryle and Cabra, ICIJ would finally have the elusive HSBC data. Le Monde’s tech guru opened the laptop to decrypt the information. Decryption failed. He tried again. And then again. He couldn’t access the files. It looked as if the three Frenchmen had traveled across the Atlantic for nothing. Then Davet spoke up. “I have the data on my own laptop,” he volunteered. It had gone through U.S. Customs unencrypted. Nonetheless, everyone in the room was deeply relieved.
ICIJ was now working on two projects at the same time. Walker focused on Luxembourg. Ryle took the lead on HSBC. Mindful of the problems of Offshore Leaks, this time ICIJ would control who accessed the data and have a greater say in how the project was run.
The team struggled to turn the leaked Luxembourg tax agreements into a searchable database. At the start, there were roughly one thousand agreements. After review, a third turned out to be duplicates. Each agreement had to be scoured for relevant details such as company and subsidiary names, countries, and amounts. At the time, the main software that performed this kind of entity extraction belonged to the Reuters news agency. ICIJ did not want to send the data to a third party, so the process had to be done manually, one agreement at a time.
Once the data was extracted, it needed to be organized. Matthew Caruana Galizia, who had joined ICIJ from Giannina Segnini’s team in Costa Rica, knew they could do better than the clunky search program that had been employed for Offshore Leaks. He wanted something that was open source so it could be widely available and improved by others. He chose Project Blacklight, an open-source software used by librarians to organize and share data. Rigoberto Carvajal then tweaked software called Oxwall, which operated like Facebook, allowing users to log in to a secure forum where they could post links, share files, and chat in real time. They had the components for a successful collaboration—a searchable database and a way to securely communicate findings. ICIJ would also be able to control access to the information.
A Star Trek fan, Carvajal christened the project “Enterprise.”
In June, about twenty reporters from across the world gathered in a small room at the newspaper Le Soir in Brussels to discuss the Luxembourg data. ICIJ’s deputy director, Marina Walker, had insisted on the group meeting. The data was too complicated. The collaborators needed to meet together or they would never understand it properly. ICIJ hired Richard Brooks to come from London and lecture for two hours on how the tax agreements functioned.
Edouard Perrin, whose early reporting had made the project possible, gave a talk at the outset. He was slightly intimidated by the international crowd of reporters, who appeared less than enthusiastic. After Offshore Leaks and now the beginnings of the HSBC project, the journalists arrayed before him looked tired and skeptical. The Luxembourg tax data was not only ridiculously complicated; it was also ostensibly legal. Where was the story?
Bastian Obermayer of Süddeutsche Zeitung wore a hangdog expression on his face. He was struggling to find a way into the material. The German team saw one angle they knew they could sell to their editors. It seemed likely that Luxembourg’s longtime prime minister, Jean-Claude Juncker, might be elected in the fall to the presidency of the European Commission, which acts as the coordinating body for the European Union. If the journalists could release the information before Juncker’s election, it might be a factor in the vote.
Mar Cabra and the ICIJ team knew there was no
way a project of this complexity could be completed quickly. Walker suggested, with a smile, that the problem was that the Europeans took such long vacations. If the reporters were willing to sacrifice their summer holiday to work on the project, it might be possible to finish it sooner. Longtime Swedish ICIJ collaborator Fredrik Laurin rose to the bait. Europeans had been fighting for their rights as workers for too long, he said indignantly. No American was going to force a concession on this point. For the uninitiated, it was easy to miss the humor beneath the passionate sparring. Walker and Laurin had a long-standing friendship.
The group agreed to publish in early November and not time it to the election.
Still, Juncker’s potential role in the EU focused the attention of the gathered reporters. The European Commission had avoided the issue of Luxembourg’s tax avoidance business for years. The commission’s tax committee, which logically would have handled the issue, was hobbled by a need for unanimity in its decision making. Luxembourg had an effective veto.
Around the same time the reporters gathered in Brussels, the EU’s competition commissioner, Joaquín Alumnia, a Spaniard, decided to investigate Luxembourg’s tax breaks for major companies like Starbucks, Apple, and Fiat Finance and Trade as a competitive violation between states. While the rulings that came out of Marius Kohl’s office were legal, they were also secret. This gave the companies that availed themselves of this service a selective tax advantage against those who did not, Alumnia argued. An obvious point but one that potentially violated EU rules on competition.
Suddenly, Luxembourg’s very success in the secrecy world threatened to be its undoing.
14
TROUBLE AHEAD, TROUBLE BEHIND
While ICIJ and its collaborators chased down leaks from Luxembourg and Switzerland, Mossfon found itself under siege by a new and powerful adversary. The firm became collateral damage in a high-stakes fight between the American hedge fund billionaire Paul Singer and Argentinean president Cristina Fernández de Kirchner. Played out in a federal courtroom in Las Vegas, their struggle would influence the trajectory of Mossfon, the secrecy world, and collaborative journalism.
Secrecy World Page 21
