Secrecy World

by Jake Bernstein

  Within a few months of publication, the European Parliament set up an inquiry committee into the Panama Papers revelations. For the next year, the committee held hearings probing every aspect of the offshore business. Once again, Eva Joly was a prominent member of the investigation.

  * * *

  GERARD RYLE DID not enjoy the euphoria from leading history’s biggest and most successful journalistic collaboration for very long. The financial difficulties of its parent, the Center for Public Integrity, had leached down to ICIJ. Ryle faced the prospect of serious budget cuts, even layoffs of employees. Then, in the summer of 2016, while on vacation in Australia, he learned there was a plan afoot to fire him.

  Relations between Ryle and CPI’s CEO, Peter Bale, had worsened after the publication of the Panama Papers. Bale had countered ICIJ’s proposal for autonomy with one that offered little in return. It was not long before the two men had taken an active dislike toward each other. Two months after the release of the Panama Papers, the New York Times published a story about the financial woes of the two organizations. The Times noted the irony that despite the recent Panama Papers triumph, ICIJ was forced to part ways with three contract journalists and forgo three other budgeted positions. In the article, Bale accused his predecessor of saddling him with a deficit, which Bill Buzenberg denied.

  By this point, relations between Bale and Ryle had deteriorated to the point where one of them had to go. The board began discussions about firing Ryle. It even interviewed a potential replacement. When Buzenberg and CPI’s founder, Charles Lewis, found out, they were stunned. On August 24, Lewis sent an email to the board, from both him and Buzenberg, with the subject: “Wrong Solution to the Wrong Problem.” It was “unfathomable” and defied “logic and credulity” that the board was “now seriously considering the termination of the immensely respected Director of ICIJ, Gerard Ryle,” they wrote, after Ryle and his staff had “brought global acclaim and accolades to the Center/ICIJ.” The two men warned the board that if it fired Ryle, the story would be huge news around the world. The biggest loser would be CPI “for its significant, suddenly quite public, potentially organization-ending missteps and misjudgments.”

  The ICIJ staff made it clear that they would quit en masse if Ryle was dismissed. Two major international funders to ICIJ, one of which also contributed to the CPI, also weighed in with their disapproval. The board eventually backed down, but the damage was done. From that point on, ICIJ’s independence from CPI was a foregone conclusion. And on October 20, 2016, the two organizations issued a joint press release that CPI would spin off ICIJ.

  Ryle, Marina Walker, and Mar Cabra spent the next several months standing up an entirely new organization, securing a fiscal sponsor and pledges from funders. It would take four more months of legal wrangling over intellectual property and funding before the divorce was finalized. The process sped up considerably after it was announced on November 15 that Bale was leaving CPI. The board’s hand was forced after the CPI staff rebelled in the wake of the separation announcement. A new CEO, John Dunbar, the center’s well-respected deputy director, was appointed to replace Bale.

  On February 27, 2017, ICIJ officially went independent. Less than two months later, the organization’s Panama Papers investigation was awarded the Pulitzer Prize for Explanatory Journalism and was also named a finalist in the International Reporting category.

  * * *

  “WE ARE NOT angels,” Ramón Fonseca said from his emptying office in Panama City, “but we are not devils either.”

  Mossfon’s founders know that the secrecy world that made them wealthy men continues to thrive. Even before the publication of the Panama Papers, company incorporations and secret bank accounts were finding new homes in Dubai and Singapore in reaction to the increased due diligence in the BVI and the loss of bank secrecy in Switzerland. The only difference was that it now cost more.

  In a letter published on the company’s website in April 2017, titled “From the Horse’s Mouth,” Jürgen Mossack noted that company formations worldwide had diminished by about 30 percent in Panama and many other places. “However,” he pointedly observed, in “jurisdictions such as Delaware, Nevada and others located in the United States, where virtually no Due Diligence is required … incorporations are thriving.”

  Jürgen Mossack, the German-Panamanian attorney and cofounder of the Mossack Fonseca law firm. [PHOTO BY MOSSACK FONSECA & CO.]

  Ramón Fonseca Mora: lawyer, author, politician, and cofounder of Mossack Fonseca. [PHOTO BY MOSSACK FONSECA & CO.]

  At its height, the innocuous-looking Akara Building in the British Virgin Islands housed more than 45,000 active Mossack Fonseca companies. [PHOTO BY AUTHOR]

  Ramsés Owens, a talented lawyer at Mossack Fonseca, never made partner but left his mark on the firm. [PHOTO BY OWENS & OWENS]

  Mossack Fonseca partner Christoph Zollinger returned to his native Switzerland in an unsuccessful bid to become an Olympic bobsledder. [GIANCARLO CATTANEO/FOTOSWISS.COM]

  John Gordon was Mossack Fonseca’s exclusive representative in the United States. [PHOTO COURTESY OF JOHN GORDON]

  HSBC Private Bank in Switzerland enjoyed a longstanding relationship with Mossack Fonseca. [PHOTO COURTESY OF TITUS PLATTNER]

  In the 1990s, Mossack Fonseca began to advertise a new product, companies based in Niue, its exclusive tax haven located on a remote island in the South Pacific. [ADVERTISEMENT FOUND IN THE PANAMA PAPERS]

  Sergei Roldugin, a celebrated Russian classical cellist, old friend of Vladimir Putin, and key player in a network of Mossack Fonseca shell companies. [PHOTO FROM THE MINISTRY OF DEFENSE OF THE RUSSIAN FEDERATION]

  The goods tucked away in the drab Geneva Freeport are conservatively valued at more than $100 billion and include some of the world’s great artistic treasures. [STILL FROM THE FILM NATIONAL DISINTEGRATIONS COPYRIGHT © 2017 BRADEN KING.]

  Gerard Ryle, the director of the International Consortium of Investigative Journalists, oversaw multiple challenging investigations of hidden money, culminating in the Panama Papers, for which the organization was awarded the Pulitzer Prize. [PHOTO BY AUTHOR]

  Left to right: Marina Walker Guevara, ICIJ’s deputy director; researcher Emilia Díaz-Struck; and Mar Cabra, the head of data and research. [PHOTO BY AUTHOR]

  Giannina Segnini and Rigoberto Carvajal, the Costa Ricans at the forefront of ICIJ’s data success. [PHOTO BY AUTHOR]

  Edouard Perrin, French documentarian, at the ICIJ-sponsored meeting in Brussels for Lux Leaks. [PHOTO BY MAR CABRA, COURTESY OF ICIJ]

  Süddeutsche Zeitung reporters Bastian Obermayer (left) and Frederik Obermaier. [PHOTO BY AUTHOR]

  Ólafur Hauksson, Iceland’s special prosecutor, investigated the role of Mossack Fonseca companies in his nation’s banking crisis. [PHOTO BY JÓHANNES KR. KRISTJÁNSSON]

  Icelandic journalist Jóhannes Kristjánsson in front of Mossack Fonseca’s building in Panama, December 2016. [PHOTO BY AUTHOR]

  Prime Minister Sigmundur Gunnlaugsson of Iceland refused to answer questions from Jóhannes Kristjánsson and walked off in the middle of an interview. [PHOTO COURTESY OF REYKJAVIK MEDIA/SVT]

  Rita Vásquez and Scott Bronstein, journalists with the Panamanian daily La Prensa. [COURTESY J. SCOTT BRONSTEIN AND RITA VÁSQUEZ]

  Donald and Ivanka Trump at the opening of the Trump International Hotel & Tower Toronto. [CNW GROUP/TRUMP INTERNATIONAL HOTEL & TOWER TORONTO]

  NOTES

  Please note that some of the links referenced throughout this work are no longer active.

  The page numbers for the notes that appeared in the print version of this title are not in your e-book. Please use the search function on your e-reading device to search for the relevant passages documented or discussed.

  PROLOGUE

  the U.S. Treasury issued a report: National Money Laundering Risk Assessment 2015, U.S. Department of the Treasury, June 12, 2015, https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/National%20Money%20La
undering%20Risk%20Assessment%20%E2%80%93%2006-12-2015.pdf.

  In 2015, Delaware alone produced more than 128,000 LLCs: Delaware Division of Corporations Annual Report 2015, https://corp.delaware.gov/Corporations_2015%20Annual%20Report.pdf.

  from $121.8 trillion in 2010 to $166.5 trillion in 2016: Jorge Becerra, Peter Damisch, Bruce Holley, Monish Kumar, Matthias Naumann, Tjun Tang, and Anna Zakrzewski, Global Wealth 2011: Shaping a New Tomorrow, Boston Consulting Group, May 31, 2011, https://www.bcgperspectives.com/content/articles/financial_institutions_pricing_global_wealth_2011_shaping_new_tomorrow/; and “Global Private Wealth to Exceed $200 Trillion as the Rich Get Richer,” Consultancy.uk, July 10, 2017, http://www.consultancy.uk/news/13650/global-private-wealth-exceed-200-trillion-as-the-rich-get-richer.

  One recent study of three Scandinavian nations: Annette Alstadsaeter, Niels Johannesen, and Gabriel Zucman, “Tax Evasion and Inequality,” preliminary draft paper, May 28, 2017, http://gabriel-zucman.eu/files/AJZ2017.pdf.

  An estimated 8 percent of the world’s household financial wealth: Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman, “Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality,” National Bureau of Economic Research, September 2017, http://www.nber.org/papers/w23805.

  the buyers of 58 percent of all property purchases: Ana Swanson, “How Secretive Shell Companies Shape the U.S. Real Estate Market,” Washington Post, April 12, 2016, https://www.washingtonpost.com/news/wonk/wp/2016/04/12/how-secretive-shell-companies-shape-the-u-s-real-estate-market/?utm_term=.b75ad1498e76.

  1: NAZIS AND RADICAL PRIESTS

  an eighteen-minute corporate video: https://www.youtube.com/watch?v=iMtz-OBsSEI.

  Erhard Mossack, a corporal in the Waffen-SS Skull and Crossbones division: Classified FBI document, Special Interrogation Report (CI-SIR No. 23) on Erhard Mossack, December 4, 1946, 105-HQ-9805-1, obtained by the International Consortium of Investigative Journalists, archived by the New York Times, https://www.documentcloud.org/documents/2791187-Erhard-Mossack-NationalArchives.html.

  Erhard married and scraped together a living: Author interview with Jürgen Mossack, January 2017.

  a declassified Central Intelligence Agency report: Cable Re: Contact with and Possible Source from U.S. Military, October 9, 1963. Agency: CIA. Record Series: JFK. File Number: 80T01357A. Released with deletions March 16, 1994.

  His seven-year-old brother was first in his class: Author interview with Jürgen Mossack, January 2017.

  Standard Oil registering its fleet of tankers in Panama in 1919: Armando Jose Garcia Pires, “The Business Model of the British Virgin Islands and Panama,” Institute for Research in Economics and Business Administration, SNF Project No. 6566, Working Paper No. 31/13 (paper published as part of a series by the Norwegian Center for Taxation), September 2013, http://www.snf.no/Files/Filer/Publications/A31_13.pdf.

  “a big teddy bear”: Author interview with Ramón Fonseca, Panama, August 2016.

  not to be a sheep like everyone else: Ramón Fonseca Mora en Gente de Mente PARTE 2, https://www.youtube.com/watch?v=qcIkW_K5GUA.

  a de facto protectorate of the United States: “The 1903 Treaty and Qualified Independence,” in Panama: A Country Study, ed. Sandra W. Meditz and Dennis M. Hanratty, pp. 22–24 (Washington, DC: U.S. Government Publishing Office, 1987), http://countrystudies.us/panama/8.htm; and David McCullough, The Path Between the Seas: The Creation of the Panama Canal, 1870–1914 (New York: Simon & Schuster, 1977), pp. 392–93.

  Fonseca’s maternal grandfather, Ramón Mora: Sofia Izquierdo Valderrama, Acción Comunal saluda a Lindbergh en español: Relatos de aventuras de Ramón E. Mora y sus hermanos de Acción Comunal (Panamá: Editorial Círculo de Lectura de la USMA, 2002).

  Arnulfo Arias: “The War Years,” in Panama: A Country Study, ed. Meditz and Hanratty, p. 32, http://countrystudies.us/panama/12.htm.

  There had been a priest in almost every generation of the Mora family: Izquierdo, Acción Comunal saluda a Lindbergh en español, p. 20.

  50 percent of the children suffered from malnutrition: Eric Mansilla, “El caso Gallego y la extraña respuesta de la Guardia Nacional,” La Estrella, June 14, 2015, http://laestrella.com.pa/panama/nacional/caso-gallego-extrana-respuesta-guardia-nacional/23872804.

  Gallego had survived the fall: Seymour M. Hersh, “Why Democrats Can’t Make an Issue of Noriega,” New York Times, May 4, 1988, http://www.nytimes.com/1988/05/04/opinion/why-democrats-can-t-make-an-issue-of-noriega.html.

  Fonseca kept a box of mixed human remains: Author interview with Ramón Fonseca, Panama, August 2016.

  his body was dumped into a mass grave: Nimay González, “Hermana del Padre Gallego relata su búsqueda por conocer la verdad,” Telemetro video, 28:25, June 6, 2017, http://m.telemetro.com/nacionales/Hermana-Padre-Gallego-busqueda-conocer_0_1033096948.html.

  Upon completion of his law degree in 1976: https://www.martindale.com/panama/panama/ramon-fonseca-m-1254354-a/.

  Panama’s corporation law was based on American corporate legislation: Ricardo A. Durling, La sociedad anónima en Panamá (Panamá: R. A. Durling, 1986).

  At first, Delaware permitted only certain local industries: “Law for Sale: A Study of the Delaware Corporation Law of 1967,” University of Pennsylvania Law Review 117, no. 6 (1969): 861–98, http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=6099&context=penn_law_review.

  For a fee, they guaranteed they could round up enough votes: S. Samuel Arsht, “A History of Delaware Incorporation Law,” Delaware Journal of Corporate Law 1, no. 1 (1976): 1–22.

  Khashoggi embraced the benefits of offshore tax havens: Ronald Kessler, The Richest Man in the World: The Story of Adnan Khashoggi (New York: Warner Books, 1988), 98, 253.

  Donald Trump bought it: John Taylor, “Trump’s Newest Toy,” New York, July 11, 1988.

  at least $450,000 of that found its way into bribes: Michael C. Jensen, “Northrop Bribes of $450,000 for 2 Saudi Generals Reported,” New York Times, June 5, 1975, http://www.nytimes.com/1975/06/05/archives/northrop-bribes-of-450000-for-2-saudi-generals-reported-northrop.html; and Associated Press, “Northrop Must Pay Triad Arms Sale Commissions,” Los Angeles Times, October 20, 1987, http://articles.latimes.com/1987-10-20/business/fi-14604_1_arms-sale.

  quickly maneuvered his way into power: “Torrijos’ Sudden Death,” in Panama: A Country Study, ed. Meditz and Hanratty, pp. 59–64, http://countrystudies.us/panama/21.htm.

  2: TROPICAL PARADISES

  Noriega’s cooperation with drug cartels: Seymour M. Hersh, “Panama Strongman Said to Trade in Drugs, Arms and Illicit Money,” New York Times, June 12, 1986, http://www.nytimes.com/1986/06/12/world/panama-strongman-said-to-trade-in-drugs-arms-and-illicit-money.html.

  International Monetary Fund and World Bank loans: “Cash Crisis Shuts Banks in Panama: Financial Dilemma Blamed on U.S Economic Pressure,” Los Angeles Times, March 6, 1988, http://articles.latimes.com/1988-03-06/news/mn-705_1_national-bank.

  a sizable proportion of its budget: “Delaware State Budget and Finances,” Ballotpedia, https://ballotpedia.org/Delaware_state_budget_and_finances.

  While actual industry practitioners in Delaware are few: Economy at a Glance: Delaware, U.S. Department of Labor, Bureau of Labor Statistics, https://www.bls.gov/eag/eag.de.htm#eag_de.f.p.

  an outsize control over the political process: Nicholas Shaxson, Treasure Islands (New York: St. Martin’s Griffin, 2012).

  According to Catholic legend, Saint Ursula was a princess: Ben Johnson, “Saint Ursula and the 11,000 British Virgins,” Historic UK: The History and Heritage Accommodation Guide, http://www.historic-uk.com/HistoryUK/HistoryofEngland/Saint-Ursula-the-11000-British-Virgins/.

  on display at the Smuggler’s Cove Beach Bar: Sandra Phinney, “Tales from Tortola … Smugglers Cove,” sandraphinney.com, January 5, 2011, http://sandraphinney.com/oddsnsods/tales-from-tortola-smugglers-cove/.

  Paul Butler, a Wall Street tax attorney: Colin Riegels, “The BVI IBC Act and the Buildi
ng of a Nation,” IFC Review, January 3, 2014, http://www.ifcreview.com/restricted.aspx?articleId=7944&areaId=10.

  Under the double tax treaty: Frith Crandall, “The Termination of the United States-Netherlands Antilles Tax Treaty: What Were the Costs of Ending Treaty Shopping,” Northwestern Journal of International Law and Business 9, no. 2 (Fall 1988): 355–81, http://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=1258&context=njilb.

  Tax avoidance … Tax evasion: Craig Elliffe, “The Thickness of a Prison Wall—When Does Tax Avoidance Become a Criminal Offence?” New Zealand Business Law Quarterly 17, no. 4 (2011): 441–66, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1992652.

  a BVI corporation for two wealthy Saudis: Jeff Gerth, “U.S. Is Opening Talks on Tax Haven Treaty,” New York Times, January 15, 1982, http://www.nytimes.com/1982/01/15/business/us-is-opening-talks-on-tax-haven-treaty.html.

  A fledgling tourist trade yielded a bit more than $42 million in 1985: “British Carribean Dependencies Economy—Historical Overview,” http://www.photius.com/countries/british_virgin_islands/economy/economy.html.