“I never had any problems with Juncker,” Kohl said.
While largely ignored in the United States, the Lux Leaks revelations, published on November 5, 2014, shook Europe. Thirty partners published at the same time. Europe’s leaders professed to be shocked by what Luxembourg was doing. Süddeutsche Zeitung’s Bastian Obermayer even related an amusing, easy-to-understand story chronicling how he visited business addresses where hundreds, even thousands, of major companies were supposedly located, only to encounter the blank stares of lonely receptionists.
Juncker, just a few months into his EU presidency, went into hiding for a week after the publication of the first round of stories. While he was gone, Luxembourg was widely castigated as a tax parasite, prospering from the depletion of government coffers throughout the world. When Juncker finally emerged, he refused to talk much about his tenure as the head of a tax avoidance factory masquerading as a country. Instead, he promised that he would lead the charge to bring fairness to Europe’s tax systems. Critics, not surprisingly, questioned his sincerity.
Shortly after publication, ICIJ received a semi-cryptic message through the tip form on its website. The writer claimed to have more tax rulings, “at my disposal if you want.” After Walker checked on the source, she and Ryle accepted the offer. The new leak contained agreements from a number of American corporations including the Walt Disney Company and Koch Industries. The leak also showed how other U.S. accounting firms, including Ernst & Young, Deloitte, and KPMG were involved in the same activity as PricewaterhouseCoopers. The information spurred a new round of stories.
A special inquiry committee of the European Parliament was established to investigate Luxembourg’s tax agreements. One of its vice chairs was Eva Joly, the former Elf prosecutor and consultant for Iceland, who had won a seat as a French member of the Green Party. The committee was scathing on the subject of Juncker’s culpability but managed to do little more than embarrass him publicly. He easily beat back a no-confidence vote.
As Juncker defended himself over his activities in Luxembourg, the Mossfon partners were still fighting with Jost and Anabella Dex over the breakup of their business partnership there. The Dexes had fought the firm to a standstill. While Mossfon had won an arbitration case in Panama, the Dexes had blocked it in Luxembourg by filing a criminal case for fraud. Mossfon countersued. Over the next several years, lawsuits flew back and forth in both countries.
In one case in Luxembourg, Mossfon even managed to get a judge to freeze the company bank accounts belonging to the couple and put a lien on their house. The Dexes again offered to settle, this time for a lump-sum payment of €2.5 million. Once more the partners rejected the offer, instructing their lawyer to let the couple know they would get nothing. Fonseca and Mossack had succeeded in treating Jost and Anabella Dex like Mossfon employees who could be kicked to the curb rather than independent operators with equity in their franchise. The couple and the partners had thrived together in the good times. Now, as the firm was besieged on all sides, the acrimonious divorce and custody battle had left behind a pair of implacable foes.
In 2012, while this was going on, Mossfon hired a Panamanian business development company, Mercatrade S.A., to cleanse its online reputation and counter the growing perception that the firm was a conduit for criminal activity. Mercatrade promised to seek out and remove, whenever possible, negative references to Mossfon related to a dozen keywords in English and Spanish that included tax evasion, scandal, money laundering, and arms trafficking.
The service was insufficient for the amount of scrutiny Mossfon was attracting. The following year, the partners contracted with Burson-Marsteller, a U.S. public relations firm with a reputation for representing unsavory clients, including dictators and companies in deep trouble. One of its notable corporate clients was the military security contractor Blackwater, which required image cleansing after its security guards killed seventeen Iraqi civilians in September 2007. (As a result of the incident, Blackwater lost its State Department contract to its competitor Triple Canopy, which had Mossfon companies in the BVI.) Burson-Marsteller provided Mossfon with a crisis management handbook at the cost of $15,000. The Panamanians also agreed to pay Burson-Marsteller $5,500 a month for five months. With Paul Singer pounding away at the firm in Nevada, Mossfon renewed the contract in 2014.
In Luxembourg, the government struck back against the investigation that had exposed its activities. It indicted Antoine Deltour, the young PricewaterhouseCoopers employee who had leaked the tax agreements to Edouard Perrin, as well as the other leaker, Raphael Halet. Luxembourg also charged Perrin, although it took a while for the reporter to be notified of the legal peril he faced. His office in Paris was on the same floor as the weekly satirical newsmagazine Charlie Hebdo, for whom he and his wife had both worked. He was at his desk on January 7, 2015, when two brothers, masked and dressed in black, burst into the magazine office armed with Kalashnikov assault rifles and opened fire, killing twelve and injuring eleven. Perrin was one of the first on the blood-soaked scene after the killers departed. The letter from the Luxembourg judge notifying Perrin of his legal jeopardy was diverted after the massacre along with the mail to Charlie Hebdo; it would be weeks before the news reached him and years before he recovered from both experiences.
* * *
FOR THE QUICKENING HSBC investigation, ICIJ set a worldwide publication date of February 8, 2015. It called the project Swiss Leaks. David Leigh was running the Guardian’s end of the project. The Guardian had approached the account holders mentioned in its stories, who quickly notified HSBC, headquartered in London. The bank sent legal letters to the newspaper, threatening an injunction to prevent publication. Leigh and a Guardian lawyer met with HSBC and informed them that the investigation was being run by ICIJ, not the Guardian, and that some eighty journalists around the world were going to publish stories at the same time. If HSBC suppressed publication in Britain, all it would accomplish would be to make the story bigger elsewhere. The newspaper also promised to withhold the account information of anyone who wasn’t implicated in some kind of wrongdoing. The bank backed off and provided a statement to the newspaper that framed its problems as belonging to a distant age with different standards.
HSBC then caught a lucky break when 60 Minutes opted to focus its report on the colorful Hervé Falciani and his theft of the data rather than the contents of what he had stolen. This angle dovetailed with HSBC’s narrative that it was the true victim of the story. American television audiences thus missed a full explanation of how HSBC had employed Swiss banking secrecy for decades to enable massive tax evasion and criminal activity around the world.
In Switzerland, readers who consumed their news in German received different information than those who read it in French. While Tamedia published the names of account holders mentioned in its stories, Ringier decided in some cases to use only initials. It depended on where you were in the country, for example, whether you learned that Li Xiaolin, the daughter of the butcher of Beijing, had a Swiss bank account with HSBC or simply someone identified as “Y.”
Nonetheless, less than a week after publication, Geneva’s lead prosecutor, Olivier Jornot, along with plainclothes investigators and vans to cart away evidence, paid a call to the Swiss private bank’s headquarters. Switzerland’s federal prosecutor, Michael Lauber, had declined to take action against HSBC. Lauber already had the Falciani files, having received them from the French, but declared that since the material was stolen, he could not act on it. But this didn’t constrain the Geneva prosecutors, who were in the bank for several hours. On a cigarette break during the search, a deal was worked out, but it would take three months to announce the settlement. The bank would pay $43 million to the canton of Geneva to settle allegations of money laundering. While the sum was a mere rounding error for a bank the size of HSBC, it was the largest such fine in Swiss history.
The settlement allowed the bank to put the scandal behind it in Switzerland. Prosecutors did not have t
o undertake the expense and uncertainty of a trial. It was a very Swiss solution. Practical. Efficient. And yet it was also revolutionary for the country. Not only was the fine unprecedented but so was the idea that the government could extract a penalty without proving illegality in court.
For the Swiss reporters, it felt like vindication.
15
FORTUNE FAVORS THE BOLD
On Tuesday, February 24, 2015, German government investigators, headed by financial authorities from the country’s most populous state, North Rhine–Westphalia, launched a series of coordinated raids. They had planned the operation for months. The main target was Frankfurt-based Commerzbank, Germany’s second-largest bank. Prosecutors and investigators also searched the homes of individuals, looking for evidence of a massive tax fraud scheme. Commerzbank insisted that the inquiry dealt with ancient history, old cases at least a decade or more in the past.
The German people read a more detailed version of events the following day, on the front page of Süddeutsche Zeitung. Investigators were pursuing as many as six hundred alleged German tax evaders and their enablers, with the raids focused on Commerzbank’s Luxembourg subsidiary. At least three other major German financial institutions were implicated in the activity, which cycled through Luxembourg and Panama and involved offshore companies as vehicles for tax evasion. The damage to the German treasury could be as big as one billion euros, the paper reported. And contrary to the bank’s assertions, the conduct was not a thing of the past.
“We are talking about a big fish here,” North Rhine–Westphalia’s finance minister, Norbert Walter-Borjans, told the newspaper.
That fish was about to attract the biggest leak in journalism history.
Norbert Walter-Borjans had made a name for himself buying tax data stolen from banks. Bankers from Luxembourg, Switzerland, and Liechtenstein would cross the border into Germany to sell compact discs to the government of North Rhine–Westphalia full of the names and account information of Germans who had stashed money abroad. A single disc could fetch more than a million dollars. The finance minister was adept at leveraging the media to make the most of these purchases. He would appear on television giving just enough information—the country or the bank involved—to strike fear into the hearts of German tax evaders. A stampede of Germans self-reporting to avoid criminal charges would then follow.
This case was no different. Süddeutsche Zeitung reported that the German tax authorities had purchased data that had come from the Luxembourg subsidiary of a Panamanian offshore incorporator named Mossack Fonseca Group, paying $1.14 million for the information. What the Germans had was only a fraction of what was available, the newspaper reported. It knew this because it had acquired a more complete set itself. The newspaper had received more than eighty gigabytes of customer and account data lifted from Mossack Fonseca by an unnamed source.
Süddeutsche Zeitung also reported that Germany was not the only customer for the data. Other European nations and the United States had also either purchased or expressed interest in acquiring information on their countrymen from the Mossack Fonseca Luxembourg data. The seller of the Luxembourg information stood to make millions of dollars peddling the material around the world.
The article acknowledged that the newspaper’s reporters had yet to fully evaluate the material. Unstated was that the reporters had been occupied with the Swiss Leaks investigation, which had concluded only a few weeks earlier. The raid on Commerzbank convinced Süddeutsche Zeitung to publish its story ahead of schedule.
In Washington, ICIJ’s Gerard Ryle was displeased. He knew that Bastian Obermeyer had obtained the data and was hoping that ICIJ might have more time to review the information, to see if it could be used for a future collaboration. Why let the public know you had the data? On the positive side, the actions taken by Walter-Borjans had created a public-interest justification for journalists to publish stories about the information. (Nine months after the raid, Commerzbank paid a €17 million fine over the matter.)
What neither Ryle nor Obermayer knew was that Süddeutsche Zeitung’s timing was fortuitous in the extreme. In the weeks preceding the Commerzbank raid, a consequential conversation between another anonymous source and an investigative reporter from the New York Times had occurred. The source had provided the reporter with a small number of Mossfon documents, some of which related to Paul Singer’s court case in Nevada. The source hoped for a story soon, within a few weeks, and hinted that much more information might be forthcoming. The reporter, who had written previously about shell companies, was skeptical. The Nevada case had already been well covered in the media. The reporter tried unsuccessfully to tease out the source’s identity and his or her motivations. Eventually the reporter told the source that vacation plans made meeting the proposed publishing deadline impossible, but promised the information would be reviewed and discussed with editors.
A few days later, Süddeutsche Zeitung published its scoop on Mossfon’s Luxembourg data. Soon after, the source who contacted the New York Times reached out to Obermayer. The initial approach was like something out of a spy novel.
“Hello. This is John Doe. Interested in data? I’m happy to share.”
Obermayer wrote about what occurred next in a book he coauthored with fellow Süddeutsche reporter Frederik Obermaier (who was not related to him). In the book, the Germans altered details of the communication to protect their source. Obermayer immediately told John Doe that he was interested. The source explained how they would communicate over encrypted channels. The first sample of documents the source delivered was the Argentinean material that had failed to generate much interest at the New York Times. Obermayer quickly recognized that the information before him was extremely valuable and would be quite helpful to the case brought by Paul Singer in Nevada. He also saw that the data had come from Mossfon, a firm with which he was already familiar.
Obermayer inquired whether all the information involved the Argentineans. The answer was no. It was only the beginning.
The next day more documents arrived. These documents included bank transfer information for almost $500 million in gold. The transfers had gone through an offshore company owned by a Siemens executive, Hans-Joachim Kohlsdorf, who had been a subject in a far-reaching corporate bribery investigation. In Germany, Kohlsdorf had received a slap on the wrist. The documents seemed to suggest that the leniency may have been unwarranted. There were also documents relating to secret companies involving the Russian cellist Sergei Roldugin, including loan agreements in the hundreds of millions of dollars. Obermayer did some Internet research and discovered that Roldugin had never before been mentioned in conjunction with offshore companies but he was known as Vladimir Putin’s closest friend.
Obermayer was now in a state of high alert. He asked the source why he was leaking the material. John Doe told him that the information needed to become public. Still, the source was worried. Süddeutsche Zeitung published in German and was not even Germany’s biggest media outlet. The story might not get the exposure it deserved. The source suggested the Germans partner with a publication like the New York Times, even though the Times had been cool to the offer of the documents. Obermayer explained how the ICIJ worked and the worldwide collaborations the organization had accomplished. The promise of an ICIJ collaboration mollified the source’s concerns.
They then discussed how to send larger amounts of material. Obermayer already had a sense of the scale of Mossfon’s activities. In addition to the Luxembourg data, the ICIJ collaborators had encountered the firm’s work in their research into Falciani’s HSBC data for the Swiss Leaks investigation.
Obermayer asked how much information the source had.
“More than anything you have ever seen,” came the reply.
As the data poured in and the Germans found additional cases of interest, Obermayer called Ryle, excitedly offering updates. Finally, the ICIJ director hopped on a plane to Munich to see for himself. He met with the German reporters and their edit
ors over several days. Frederik Obermaier came into the office; he had been on paternity leave. Ryle discussed the idea of a collaboration with Wolfgang Krach, Süddeutsche Zeitung’s editor in chief.
By this point, the source had sent hundreds of thousands of documents. There was no way the Germans would be able to review all the material themselves. Furthermore, the companies and owners found in the data came from all over the world. There were no top German politicians but plenty of leaders from other countries. The source had helpfully flagged a few compelling cases, but only reporters native to the individual countries would be in a position to find all the connections and the most interesting names. A collaboration was the best way to achieve the biggest impact. Obermayer and Obermaier urged Krach to follow Ryle’s lead. After several days of meetings, Krach agreed.
By late April, Ryle told Mar Cabra that he wanted her to meet with the Germans in Munich and figure out next steps. She suggested that Rigoberto Carvajal join her from Costa Rica. The goal of the trip was to make copies of the material and create an action plan.
Cabra realized once again that ICIJ would have to reconstruct connections from a deconstructed database. Still burned out after more than two years of leak investigations, she worried over what was to come. The nonstop high-pressure work had already taken a toll on her health. Soon after the publication of Lux Leaks the previous November, she had to have emergency surgery while on vacation in the Philippines, and in early 2015 she experienced a thyroid problem, another message to slow down.
There were two elements to the data: One comprised lists such as company names, shareholders, and directors. This information had likely been part of some central file. Cabra called this “the structured data.” Unfortunately, since Mossfon had done a poor job tracking the actual beneficial owners of the companies, the identities of those behind the companies were largely absent from the structured data. In a typical company, the shareholders own the company. In the secrecy world revealed by the Mossfon data, many of the shareholders were either “bearer,” which meant they were owned by anonymous bearer shares, or were controlled by a second company, foundation, or trust. The most revealing information—such as who actually owned the company—was buried inside the documents themselves. For example, power-of-attorney agreements often gave the actual owner control of the company. This would be inside a document. Financial transactions were in documents as well.
Secrecy World Page 23
