A few days after the initial release, President Barack Obama gave a press conference on the topic from the White House briefing room. The administration had had advance warning that the stories were coming. Shortly before publication Ryle, along with McClatchy’s Kevin Hall, had met with Treasury Department officials in the hope—ultimately unsuccessful—of getting an on-the-record comment about the Panama Papers.
Now, in the face of the tsunami of interest, Obama took to the podium to make a case for cracking down on corporate inversions, a tactic through which companies moved overseas to avoid taxes while still conducting most of their business in the United States. The scandal, Obama said, was not what was illegal, but what was legal. “Here in the United States, there are loopholes that only wealthy individuals and powerful corporations have access to,” he said. “They have access to offshore accounts, and they are gaming the system. Middle-class families are not in the same position to do this. In fact, a lot of these loopholes come at the expense of middle-class families, because that lost revenue has to be made up somewhere.”
The U.S. government had made some strides at trying to fix the problem. In 2010, Congress passed the Foreign Account Tax Compliance Act, known as FATCA, which, beginning four years later, required foreign financial institutions to report the holdings of U.S. clients upon request. To avoid being shut out of U.S. markets, foreign banks began to ask their American account holders if they were reporting to the IRS.
A month after the publication of the Panama Papers, the U.S. Treasury announced new rules for banks to govern how much information they needed to collect from their customers who used offshore companies to open accounts. The administration’s actions had failed to live up to the president’s lofty rhetoric. The rules had stalled for two years as the banking industry lobbied against them. Advocates charged that what now emerged from the process was a significant step backward.
Previously, U.S. banks had often tried to discover the actual owner of a company because they were worried about adverse consequences if the beneficiary was a terrorist or a criminal. They might not have written down the information but they knew it. Now the Treasury Department gave them permission not to know. Banks had to investigate the individual behind the company only if the person owned more than 25 percent. It also allowed the banks to stop their inquiry at the lawyer or intermediary.
A week after the first raid on Mossfon’s headquarters, Caraballo conducted a similar operation on a warehouse where the firm stored hard copies of its documents. Investigators carried out bags of shredded documents, which the firm’s spokesman described as trash destined for a recycler. After the bags were confiscated, they were piled onto an open flatbed truck. As the truck sped through a neighborhood near the warehouse, several of the bags flew off, bursting open and showering the streets with shredded confidential documents. Later that day, La Prensa reporters went door-to-door in the neighborhood collecting scraps of paper to see what the bags contained. What they found was already in the database.
* * *
BY THE END of the Panama Papers project, Mar Cabra had started meditating, eating properly, and exercising. She felt like she had finally found the right work-life balance. The project’s success had also energized her, and she reconsidered her departure. While Ryle and Walker had gone as far as to interview someone to replace her, when Cabra made no move to leave, they let the matter drop. Ryle secretly hoped she had changed her mind. He opted not to jinx it by raising the matter again.
In the beginning of May, Cabra spoke at the annual Neo4J conference, GraphConnect, in London. Neo4J was the open-source database system that underpinned Linkurious and much of what ICIJ did to make the leaked data accessible to journalists and the public. The conference attracted more than seven hundred techies. Cabra was now a veteran of speaking at journalism conferences, but this was the largest audience before which she had ever appeared. Two-thirds of the way through her presentation, she made a special announcement. ICIJ was going to put a database of all of Mossfon’s companies online later that week. The crowd burst into spontaneous applause. Cabra smiled, thinking to herself, perhaps this is a bit of what it feels like to introduce a new iPhone.
ICIJ had already put the structured data for Offshore Leaks—the company names, shareholders, directors, addresses, and other information—online following that project. Now, they planned to add Mossfon’s material. While in many cases, details on the actual owner of the company were not available, with the addition of the information from the Mossfon files, the database would contain more than 360,000 names of people and companies with links to more than two hundred countries and territories.
It was the largest collection in history of offshore companies and the people behind them. Thanks to Linkurious, users of the interactive database could visually see the connections among the companies, foundations, and trusts and the people involved in them. It allowed one to trace the role of banks, law firms, and accountants in setting up companies for the very wealthy.
For years, governments had debated fruitlessly over how much of this information should be made public. ICIJ had rendered the argument moot. It was making the information available for free. Government investigators, law firms pursuing claims, academics, the interested public—anybody could download the database or search on ICIJ’s app.
Many of the tax havens and company incorporation hot spots had public-facing databases but they often charged for access or were difficult to navigate. In the months to come, ICIJ would receive leaks of the “public” databases of a number of these tax havens. They would throw this information into the database as well, augmenting it by many hundreds of thousands of companies.
For Mossack and Fonseca, this was the gravest betrayal of all. They had promised their customers secrecy, which they preferred to view as “privacy.” Since they had convinced themselves that the vast majority of their customers were using companies legitimately, albeit sometimes to stretch tax laws, the disclosure of information about their activities was a gross violation of what they termed a human right to privacy. Even Rita Vásquez at La Prensa questioned the publication of the database. ICIJ made sure to have prominent disclaimers on its app to underscore that owning an offshore company was not illegal or an indication of criminal activity. Nonetheless, Vásquez feared that everybody found in the database would be tarred by being placed alongside the worst abusers of the system.
Three days before the release of the database, John Doe reemerged. When ICIJ’s Rigoberto Carvajal named the Mossfon project Prometheus, he thought hard about John Doe. Prometheus stole fire from the gods to benefit humanity. As punishment, Zeus chained him to a rock in the Caucasus Mountains where day and night giant eagles tore at his liver. To the gods, he was a criminal and a thief; to humans, a hero. Carvajal worried that John Doe might suffer a similar fate of destruction, one experienced by so many whistle-blowers, for the selfless act of leaking a database that could have been sold for millions of dollars.
“I do not work for any government or intelligence agency, directly or as a contractor, and I never have,” wrote John Doe.
An understanding of the material and the scale of the injustices contained therein is what motivated the leak. Mossfon knowingly and repeatedly violated myriad laws worldwide, John Doe asserted, noting Jürgen Mossack’s misleading declaration in the Nevada court as an example. Mossfon’s “founders, employees and clients should have to answer for their roles in these crimes, only some of which have come to light thus far,” John Doe said.
The worst harm, John Doe seemed to suggest, was that Mossfon and the system within which it operated encouraged the growth of income inequality, “one of the defining issues of our time.” It was a system that had led to “society’s progressively diseased and decaying moral fabric.” The firm had not worked in a vacuum, he observed: “It found allies and clients at major law firms in virtually every nation.”
John Doe expressed willingness to cooperate with law enforcement to the extent pos
sible. Since “whistleblowers and activists in the United States and Europe have had their lives destroyed by the circumstances they find themselves in after shining a light on obvious wrongdoing,” that cooperation might be minimal.
But stopping the criminal behavior would be difficult as long as whistle-blowers were singled out for punishment because they had the guts to reveal what the powerful wanted to keep secret from the public. John Doe mentioned Edward Snowden, UBS’s Bradley Birkenfeld, and the Lux Leaks whistle-blower Antoine Deltour, whom Luxembourg was hell-bent on convicting, along with the journalist Edouard Perrin, no matter how many trials it took.
“Until governments codify legal protections for whistleblowers into law, enforcement agencies will simply have to depend on their own resources or on-going global media coverage for documents,” wrote John Doe.
The borderlines of the secrecy world, the distance between what is hidden and the public’s right to know, was shifting quickly. “We live in a time of inexpensive, limitless digital storage and fast internet connections that transcend national boundaries,” the anonymous leaker wrote. “It doesn’t take much to connect the dots: from start to finish, inception to global media distribution, the next revolution will be digitized.”
18
THE SECRECY WORLD ENTERS THE WHITE HOUSE
The workday was just beginning in Turkey when Mehmet Ali Yalçındağ reached the nation’s president by phone. Yalçındağ was calling from Trump Tower in Midtown Manhattan, where it was past midnight—the end of a long Election Night in November 2016. Yalçındağ had come to the hulking black skyscraper with the oversize gold letters above the entrance to show support for his business partner Donald J. Trump—on a night few but the true believers expected the brash real estate tycoon to emerge as the next president of the United States.
Despite a majority of the electorate viewing him unfavorably, the stars aligned for Trump: Mainstream Republicans, Democrats, and the media stumbled on how to handle an unconventional candidate. Trump faced a flawed and unpopular opponent in Hillary Clinton, who misread the electorate and ran a poor campaign. FBI director James Comey broke with precedent and inserted himself into the election, parceling out negative judgments and suggestive details on what turned out to be a fruitless Clinton email investigation. And Russian president Vladimir Putin launched a massive cyber-attack on the United States in an attempt to influence the outcome.
The Kremlin-backed attack included hacking the email server of the Democratic National Committee, flooding social media with fake news, and attempts to compromise individual state election databases. According to a declassified intelligence assessment, Putin targeted Democrats and the U.S. electoral system in part because he was furious over the Russian revelations contained in the Panama Papers. The details about the illicit cash flows swirling around the Russian leader had filled newspapers and news broadcasts worldwide. Putin blamed the damaging data leak on the Obama administration.
However, Putin’s tilt toward Trump appeared to have been motivated by something deeper than a desire for revenge against Hillary Clinton and the Obama administration. Putin and Trump shared a similar zero-sum worldview and a penchant for operating in the shadows. Each man viewed the idea of a free press with contempt. They both believed that financial interests should be passed down to their children to create family dynasties. For years, Russian money helped keep Trump’s business empire afloat. He and his campaign staffers maintained multiple business connections with Russian oligarchs closely allied to Putin.
Trump and Putin were also both conversant with the secrecy world, practiced hands at using anonymous companies to wall off their activities and keep their business affairs secret. During the campaign, Trump reported that he had 378 individual Delaware companies, but the full extent of his business dealings remained hidden. Trump was the first presidential candidate in forty years not to release his tax returns.
Though Donald Trump did not personally interact with Mossack Fonseca, the Trump Organization engaged in real estate transactions with Panama-based Mossfon companies as early as 1994. Real estate developers, buyers, and sellers have long operated in the secrecy world. Trump and his associates were no different. The Panama Papers reveal at least nine of his foreign business partners had connections to Mossfon. Several of Trump’s business partners who used the secrecy world allegedly mixed legitimate businesses with illegal activities such as prostitution, bribery, and tax evasion. When asked about such allegations, Trump claimed ignorance.
Alexander Shnaider and Eduard Shyfrin, who developed the Trump hotel in Toronto through a Guernsey company, conducted much of their business offshore and are shareholders of at least five companies in the Mossfon files. One company, Midland Resources Holding Limited, sold at least half of its shares in a steel plant to a collection of offshore companies acting as fronts for the Russian state-controlled bank Vnesheconombank, or VEB. The deal occurred as the developers battled cost overruns and delays on the condo-hotel development, which, like so many other Trump projects, ended in lawsuits and recriminations.
In his campaign and administration, Trump surrounded himself with people who were connected to the Panama Papers data. Trump’s son-in-law, Jared Kushner, received financing from the Steinmetz family, who used multiple Mossfon companies and HSBC bank accounts. Kushner also did a $295 million real estate deal with Lev Leviev, an Israeli oligarch known as the “Diamond King,” who had at least three Mossfon companies and a trust. Leviev was a business partner of Russian-owned Prevezon Holdings, which was implicated in the Magnitsky case, an alleged $230 million theft by Russian mobsters. Prevezon’s assets were frozen by U.S. prosecutors while they investigated money laundering in the case. After the firing of U.S. Attorney Preet Bharara, the Trump Department of Justice abruptly settled with Prevezon for $5.9 million.
Trump’s campaign chairman, Paul Manafort, had business relationships with two Russian oligarchs—gas billionaire Dmitry Firtash and metals magnate Oleg Deripaska, a confidant of Vladimir Putin—both of whom had offshore companies with the Panamanians. Sebastian Gorka, former deputy assistant to the president, appears to have written to the law firm in 1992 about a company he was researching for his employer. Mossfon provided Gorka with information on the company and then invoiced him $125. Gorka refused to pay, insisting that the inquiry had been “on a casual basis,” and no fee had been discussed. Mossack did not pursue payment.
At Trump Tower on Election Night, Yalçındağ handed his cell phone to the new president-elect. Turkey’s president, Recep Tayyip Erdoğan, thus became the first world leader to congratulate a still-stunned Donald Trump on his victory. Trump had spent the final hours of the evening glued to the television, in near silence. According to an account of the conversation between Trump and Erdoğan, procured by the Turkish journalist Amberin Zaman, the president-elect referred to Yalçındağ as his “close friend” and told Erdoğan that Yalçındağ was “your great admirer.”
Trump’s support was a fortuitous stroke for Yalçındağ, who was desperate to be in the Turkish president’s good graces. Erdoğan had attacked his family’s company, Doğan Holding, a sprawling financial empire with significant Turkish media and oil interests, several of which had Mossfon connections. Erdoğan’s government had pursued Doğan over allegations of massive tax evasion and critical media coverage, levying billions of dollars in fines against the conglomerate.
Trump had long made a practice of consorting with dodgy characters for financial gain. News organizations reported that in New Jersey and New York he regularly conducted business with people connected to the Mafia. He had leased the site for his first casino from two men with Mob ties. Building unions known to be controlled by the Mob continued to service Trump’s worksites, even when they went on strike elsewhere. Suffering no ill consequences for his sketchy associations, Trump doubled down when he was later forced to transform his business.
By the mid-1990s, Trump’s bankruptcies and penchant for civil lawsuits dried up fundin
g from most U.S. banks. He moved away from developing properties himself, focusing instead on selling his brand and seeking revenue abroad. He now licensed “signature” developments that bore his name and were built to his precise specifications. In the case of hotels, the Trump Organization would often manage the property for a percentage of the revenue. Outside the United States, he became even less picky about the origins of the money that came his way.
Following the 2016 election, Trump’s foreign business entanglements escalated to national security and constitutional concerns. While his business partners hoped to profit in new ways from their relationship with the president of the United States, it became increasingly difficult to determine whether the Trump administration’s actions were in the public interest or in pursuit of personal gain. At the same time, the White House, allied with a Republican Congress, pushed a new policy approach toward the secrecy world that better reflected their shared laissez-faire ideology.
During its eight years in office, the Obama administration had attempted to nudge government policy in the direction of increased transparency and oversight of the offshore system. In addition to signing the Foreign Account Tax Compliance Act in 2010, the administration tried to tamp down on states like Delaware, Nevada, and Wyoming that offered themselves as safe harbors for foreigners bent on tax evasion and criminal activity.
Faced with intense opposition from lawyers, bankers, and state officials, the Obama administration opted for baby steps to combat the problem. It passed a pilot project that forced real estate agents in Miami and New York to report the actual beneficial owners of property purchased with cash by an anonymous company, although the rule required only the names of those who owned 25 percent or more of the equity interest. In 2017, Treasury expanded the program. The Internal Revenue Service also issued a rule that foreign-owned limited liability companies based in the United States needed to obtain an Employee Identification Number (the corporate equivalent of a Social Security number, necessary for tax collection), to keep books and records available for inspection, and to designate a Responsible Person, who had control over the company.
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