Secrecy World Read online

  When Mossfon received the handwritten letter for its directors to sign, the firm should have known it was being asked to do something improper. From the outside, anyone investigating Backslash Distributors would think its new owner, Bahamas Software, was disassociating itself from past problems. In reality, it was a ploy designed to evade responsibility for the activities of Backslash Distributors. Nonetheless, Jürgen Mossack authorized the head of the Bahamas office to sign the letter. However, he instructed her not to use her own name. Instead she was only to write her title, “assistant secretary.”

  “Mr. Mossack do not want your signature in such document,” a lawyer in Panama wrote to the head of the Bahamas office.

  Mossfon also demanded that Gordon approve the letter. After consulting with Singh, he did so.

  A week later, Mossfon sent a fax to Gordon, explaining that Jürgen Mossack had reached his limit. After Mossfon collected its money for signing the misleading letter, the senior partner wanted out. “He instructs us to resign as Directors after the execution of the document, as it seems that it will be little bit dangerous,” wrote a Mossfon lawyer in Panama.

  The firm told Gordon to notify Tuppen and Singh of the resignations and to ask them to appoint their own directors. There the matter stood until a year later, when the massive piracy operation came to the attention of Microsoft and the authorities.

  “The two were idiots,” recalls Gordon. “They put up a billboard in the middle of London advertising their products.”

  The Hampshire fraud squad raided the homes of the two men. The London Sunday Times reported the police seized thousands of copies of pirated Microsoft software and two shrink-wrapping machines.

  Armed with an urgent injunction from the High Court in London, Microsoft’s lawyers went to the Bahamas to try to pierce the secrecy encasing the scheme. At this point, Mossfon discovered its directors hadn’t resigned from the company after all, as neither Gordon nor the firm had followed through with the appropriate resolutions to make it official. Each had believed the other had the responsibility to do so.

  In response to a Microsoft request for information, Gordon sent a panicked fax to Panama. He had lost touch with Tuppen and Singh. Gordon urged Mossfon to tell Microsoft’s lawyers the nominee directors had officially resigned lest they bring “more unwanted and unneeded attention to all of us.” Doing it himself, he feared, would expose him to legal liability. By this point, getting rid of the directors wasn’t going to stop Microsoft’s lawyers. Gordon remembers meeting with them the day he relocated his office from Albany to New York City. Everybody, including Mossfon, had lawyered up. Gordon says he turned over all the company records in his possession.

  What the Microsoft attorneys really wanted were the books and records that Backslash had sent to Mossfon for safekeeping. Tuppen signed a letter authorizing Mossfon to disclose the records. Four days later, the head of Mossfon’s Bahamas office told Microsoft that Tuppen himself had telephoned the firm and told it to destroy the documents. Since the request had been over the phone, there was no written confirmation. Tuppen appears to have denied the conversation occurred. Microsoft’s attorneys were incredulous. “We would have thought that as a Director of Bahamas Software Agency Limited, you were under an obligation to retain these documents,” they wrote to Mossfon. And indeed, they were. Mossfon’s own procedures required it to retain records for six years.

  By the end of 1999, an English civil court ordered Tuppen and Singh to pay £3 million in costs and compensation, which bankrupted the men. Even so, they proclaimed their innocence. Two years later, police dropped criminal charges, for lack of evidence.

  The Microsoft case was an early warning that delegating customer vetting to others was perilous. Whatever distance the firm gained from selling through intermediaries brought with it a lack of control over their activities. At the end of the day, law enforcement and civil litigants approached Mossfon as the registered agent, not the franchisee. But the firm appears to have paid little heed at the time to this danger. Business was booming. In addition to adding franchisees, Mossfon expanded its own network of company offices. It also began to involve itself more directly with its customers.

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  THE PARTNERS PUT Ramsés Owens, a young legal dynamo with a ready smile, in charge of the firm’s trust company, Mossfon Trust. Owens had joined Mossfon straight from the University of Panama law school, where he graduated summa cum laude. Mossack and Fonseca understood that the firm’s customers did not trust trusts, but perhaps their new associate could turn around the division. He dove into the work with undisguised joy. Mossfon Trust became a place for clients “who are in need of more complicated solutions,” as one of Owens’s assistants explained to a customer in the United States.

  Owens mixed and matched company structures and tax haven jurisdictions to create tailor-made offshore solutions that allowed “the highest possible degree of protection of our clients’ interests regarding protection of their patrimony and confidentiality.” These were clients like Juan Eljuri Antón, one of the richest men in Latin America, whose family business had established more than a dozen companies with Mossfon. Owens helped Eljuri structure a reinsurance deal that appears to have legally cut his tax burden from 25 percent to 1 percent for certain assets. Alabama representative Oliver Wesley Long also worked with Mossfon Trust; prior to being elected he asked for help setting up an offshore bank account in Panama that would have no reporting requirements in the United States. He wrote the firm, “The two things this accomplishes is no red flags to the IRS upon us transferring money to you, and a safe haven for money in times of trouble either martially [sic] or in business.” Owens also advised the men behind Fidentia, a South African investment firm, how to hide their financial activities. Fidentia went on to loot a survivors’ fund set aside to pay for school and medicine for tens of thousands of children who had lost their parents in the mines.

  Owens also became the go-to guy for Mossfon matters large and small. The partners asked him to show USA Corporate’s John Gordon around when the American first came to Panama City. Owens took Gordon to General Noriega’s former headquarters and pointed out the pockmarks from the bullets U.S. troops had fired in 1989, when they ousted the strongman. After the trip to the former barracks, Owens brought Gordon to the Panama Canal, where he recited “The Star-Spangled Banner” from memory. The New Yorker was impressed. Owens was the only person Gordon had ever met who knew all the stanzas, not just the verse people sing at sporting events.

  As a student, Owens had participated in the civil society demonstrations against Noriega. He proudly kept the X-rays that show where his wrist was injured by police. For years President Ronald Reagan had countenanced Noriega’s alliances with money launderers and drug traffickers because the dictator was an ally in the fight against the Sandinistas. After the fall of the Berlin Wall, Noriega’s usefulness diminished. The December 1989 invasion ended years of economic and social turmoil in Panama but left the country’s banking secrecy and tax haven status intact.

  A brilliant legal tactician, Owens had a quick wit matched by a puppy’s eagerness to please. An Isle of Man newspaper report of an Owens speech promoting Panamanian shell companies noted that alongside his PowerPoint presentations, the lawyer “likes to break into a little salsa to liven up the proceedings.” He frequently closed his email communications with “un abrazo”—a hug—or “un gran abrazo,” if feeling particularly friendly. Over more than twenty years at Mossfon, he bestowed thousands of electronic hugs on correspondents around the world. His name is associated with 73,010 emails in the Panama Papers and 97,178 documents overall.

  Owens and those who worked for him promised their clients they would make them disappear. “You are an invisible man. A product of our imagination,” wrote one associate to a prospect. “The main purpose of this company is that one. That a third party (us) will be in charge of the company and its assets and you will be completely disconnected from the company. With this scheme, if yo
ur creditors try to get your assets, there will be no connection with you.”

  For Owens, the secrecy world posed a never-ending series of intellectual challenges, a delightful puzzle to solve. But on particularly delicate matters, at least in the beginning, he took his cue from Jürgen Mossack and Ramón Fonseca. After a tax-evasion scandal in Costa Rica implicated a client, Fonseca asked Owens to investigate. In a memo, Owens laid out the facts: Costa Rica gave tax credits to exporters. Unscrupulous companies falsely inflated the amount they exported to get undeserved credits. Some companies claimed to export hundreds of millions of obviously fraudulent items like “shark fins” and “gallstones.” These were “clear tricks,” wrote Owens, in open contempt at the sloppiness of the schemes. Mossfon’s client, on the other hand, had genuine exports of canned tuna, but to reduce its tax burden, the company routed invoices through a Mossfon-created BVI subsidiary, a place where it did no actual business.

  “We must take into account that the re-billing is something ‘legal,’ although it may be interpreted as ‘legally immoral,’” wrote Owens.

  He recommended that the partners continue working with the client, “a very good customer … because 95% of our work is casually to sell vehicles to avoid paying taxes.”

  The firm kept the customer.

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  IN 1995, OWENS and Mossfon received another tool to help clients hide their money. Panama’s national assembly passed a foundation law. The new Panama foundation provided most of the benefits of a trust but without the loss of control that troubled Mossfon’s clients.

  The original inspiration for using foundations to hide money came from Europe. After World War I, the European principality of Liechtenstein found itself in a tight spot. Only twice the size of Manhattan, with a population of less than twelve thousand, it was completely landlocked. A tiny country in a tough neighborhood, Liechtenstein created a safe haven for the private wealth of Europe’s elite—earning their protection—through strict secrecy laws, low taxation, and favorable corporate structures. In 1926, the principality tweaked the legislation of an already existing Swiss family foundation law, creating a financial vehicle that anyone outside of Liechtenstein could use to secretly transfer money.

  The Liechtenstein foundation had similarities to companies and trusts. Like a company, it was a stand-alone legal entity that was registered with the government. Yet unlike a company, it didn’t have members, shares, or technically even owners. As with a trust, the creator, often called a “founder,” moved assets to a separate entity, the foundation. Yet instead of a trustee, there was a foundation council that acted on written guidelines from the founder. For a nonresident of Liechtenstein, there was almost no official record of a foundation’s activities. The identity of the ultimate beneficiary was not publicly recorded. Accounting records were not required. Taxes were minimal. Secrecy was near absolute.

  The Panamanians made their foundations even more flexible, opaque, and cost effective. In Liechtenstein, the foundation council had to have a local professional as a member. If the foundation did commercial business, annual financial audits were required. Panama did away with these requirements. A Panamanian foundation was prohibited from engaging in commercial activities “on a regular basis,” but it could collect dividends, rents, and royalties, and it could hold shares and own properties.

  The government fees for Liechtenstein foundations were based on a proportion of the assets. In Panama, it didn’t matter how much the foundation held in assets; the country charged a flat annual franchise tax of $250. Most important, Panama allowed for a new role, that of a “protector.” According to Mossfon, this person was “usually the client himself or someone he trusts.” The protector essentially oversaw the foundation council, which functioned as the public face of the foundation, and had the power to remove its members. In this way, the founder never relinquished control.

  The Panamanian statute ensured that everybody involved was insulated from liability and shrouded in secrecy. Mossfon told prospective customers that the members of the foundation council, protectors, supervisory bodies, and anyone else connected to a foundation were “required to maintain strict confidentiality, even after its termination.” Failure to do so was a criminal offense that could result in a fine of up to $50,000 or up to six months in prison.

  Owens put Panamanian foundations to work for the unscrupulous gang behind the South African Fidentia fraud. Mossfon created companies in Panama, the BVI, and the Seychelles for Fidentia, each of which was owned by a foundation, with names like “Attila Hun” and “Mitas.” The beneficiary was a limited liability company based in the United Kingdom. The stated purpose was to avoid paying taxes to the South African government.

  With the Fidentia middleman Steven Goodwin, Owens went quite a bit further. Goodwin had bribed a fund manager to obtain investments for the firm while pocketing millions for himself. Owens created a private foundation for Goodwin to hold property in the United Kingdom. When a receiver took over Fidentia after its executives looted the survivors’ fund for the miners’ orphans, Goodwin fled to Australia. Still, he needed Owens to safeguard his cash. He flew the Panamanian lawyer to New York, where the two men met at the Sheraton New York Times Square Hotel, along with an Australian lawyer friend of Goodwin’s. For three hours, they discussed Fidentia’s problems, including by that time the arrests of its top executives. Owens’s self-serving verdict: Goodwin was not involved in any way whatsoever. The real blame for Goodwin’s predicament lay with the South African media, which was exaggerating his role in the Fidentia scandal. Goodwin was clearly a victim of circumstance, contemporaneous notes of the meeting concluded.

  Despite being convinced of Goodwin’s innocence, Owens urged the South African to better protect his assets. They decided to create an addendum to the foundation’s original agreement to pass ownership of Goodwin’s assets to his Australian lawyer friend for safekeeping. Mossfon and Owens would retain $25,000 to do the work. To cement the revised agreement, Goodwin, the lawyer, their wives, and Owens had dinner at a pricey Manhattan steak house known for its Gatsby-era bordello-like decor. Beneath portraits of scantily clad burlesque stars, Owens made a show of paying for the meal. Goodwin insisted on picking up the check.

  Four months after the meeting, South African authorities issued an arrest warrant for Goodwin. The South African press dubbed him the “missing man.” But Mossack Fonseca continued its relationship with the now fugitive until he was apprehended at Los Angeles International Airport by U.S. Customs and Immigration agents on a warrant from Interpol. Goodwin fought extradition for almost a year before accepting return to South Africa, where he signed a plea deal to serve ten years in jail. While never employed directly by Fidentia, Goodwin admitted to laundering approximately $11 million for the firm.

  Sometimes, even a foundation did not provide enough secrecy. In those cases, Owens recommended adding a charity to the mix. Mossfon did not invent this idea. For decades, trust operators used charities as fake beneficiaries to avoid government scrutiny and further hide the identity of actual owners. With Mossfon foundations, the firm suggested the client name the Red Cross or the World Wildlife Fund as a beneficiary. These charities were ideal. They had high profiles and local chapters in nearly every country. Seeing the named beneficiary, tax authorities might give the foundation a pass, believing it to be a charitable enterprise. The nonprofits themselves had no inkling they were beneficiaries. The “protector” of the foundation would then replace the fake beneficiary with another name, sending Mossfon the real instructions in a sealed envelope. The final instructions would be opened only upon the client’s death. At that point, the true beneficiary would be revealed. “In this manner officially and truthfully we know only the name of the first beneficiary,” Owens explained to a client. “Nevertheless, the Protector will always be able to replace such envelope or the name of the substitute.”

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  THE MORE WORK Mossfon performed directly for a beneficial owner, the mo
re risk it ran if the customer turned out to be a criminal. Even if Mossfon did nothing but create a company through an intermediary, there was still no guarantee it could sidestep fallout. The firm learned this unsetting truth when it belatedly discovered its involvement with one of the world’s most bloodthirsty drug traffickers.

  Rafael Caro Quintero, the founder of the Guadalajara cartel, may have been Mexico’s first narcotics billionaire. He owed his fortune to transporting Colombian cocaine and growing marijuana and opiates. In late 1984, Enrique “Kiki” Camarena, a U.S. Drug Enforcement Administration undercover agent, infiltrated Caro Quintero’s thriving marijuana business. He led the DEA to “El Bufalo,” a massive pot plantation in northern Chihuahua, where they found more than a thousand acres of plants. Mexican soldiers destroyed product likely worth several billion dollars. Consumed by fury and paranoia, Caro Quintero lashed out. An American novelist from Minneapolis and a dental student from Fort Worth were among the first to die. In January 1985, the two friends mistakenly walked into the Crazy Lobster, a restaurant Caro Quintero owned in Zapopan, outside Guadalajara. The drug kingpin was having a private party inside. The revelers kidnapped the students, who they may have suspected were DEA agents. They tortured them in the kitchen with knives and ice picks before burying their bodies in a local park. One of them was still alive when they put him in the ground.

  The following month, Caro Quintero’s men grabbed Camarena after he left the American consulate in Guadalajara. They burned the thirty-seven-year-old ex-Marine with cigarettes and beat him with a tire iron for two days in a secret chamber behind one of Caro Quintero’s mansions. A doctor was on call to keep the DEA agent alive during the ordeal. Before Mexican authorities discovered Camarena’s mutilated body, Caro Quintero boarded a Falcon executive jet and left the country.