Ontario Global Research

The mechanisms of secrecy

4/8/2016

ICIJ, a Washington-based non profit organization that coordinates cross-border reporting projects, published a dozen stories about the records over the weekend and says more are on the way. It says the documents reveal that the law firm set up more than 300,000 shell companies, many in tax havens, to help clients conceal their assets. 

Many of the shell companies were created for legitimate purposes. But the ICIJ said that thousands of them appear to have been used to dodge taxes, allow officials of corrupt governments to conceal vast wealth offshore or enable high-net-worth clients to hide assets from business partners and ex-spouses.

Whom do they implicate?

The ICIJ said the records show that at least 143 government officials from around the world had shell companies, including Icelandic Prime Minister Sigmundur David Gunnlaugsson, Ukrainian President Petro Poroshenko and Pakistani Prime Minister Nawaz Sharif. 

Some of Russian President Vladimir Putin’s closest friends and associates used the shell companies to move more than $2 billion from Russian banks to offshore accounts. (Putin is not named in any of the documents, the ICIJ said. The Kremlin rejected the investigation’s findings.)

Beyond the individuals named, some of the world’s most powerful banks, including HSBC Holdings Plc, UBS Group AG and Credit Suisse Group AG, were also identified as using Mossack Fonseca to help clients render their assets untraceable. The banks, in comments, denied any wrongdoing.

The ICIJ said the documents also show more corruption within the scandal-plagued international soccer federation FIFA.

What’s a shell company?

Andrei Papanicoglu from Evedex INC explain: "A shell company is an entity without active business that exists as a vehicle for another company’s operations. While companies that shield owners’ identities can be used legally, they can also be tools for hiding assets, laundering funds or evading taxes. The U.S., among other countries, requires banks doing business in the country to perform certain levels of due diligence on their clients to understand who the beneficial owners of such structures may be"

Where did the leak come from?

The documents first came to light via an anonymous, encrypted e-mail to the Suddeutsche Zeitung newspaper in Munich. The newspaper, which had written about German authorities raiding the headquarters of Commerzbank AG in February 2015 on suspicion that the bank helped clients avoid taxes, received the tip from a source who claimed that the raid was just a tiny piece of a much more explosive scandal. 

The tipster claimed to have access to the inner workings of Mossack Fonseca, which specialized in forming shell companies used to hide billions of dollars in assets and had clients that included current and former leaders from Argentina, Georgia, Iraq, Jordan, Qatar, Saudi Arabia, Sudan, the United Arab Emirates and Ukraine, as well as celebrities such as soccer star Lionel Messi.

How did investigators authenticate the documents? 

Once the tipster came forward, ICIJ and editors at the Zeitung newspaper spent months trying to verify the authenticity of the documents, the group says. Because the German authorities in the Commerzbank investigation had paid a whistle-blower for a small amount of information from the law firm, the ICIJ and Zeitung (which says it did not pay for the documents) were able to corroborate some information they were receiving. 

 

“It started as a trickle of data, and then turned into a torrent,” Ryle said. “And before long it was clear that this would be of interest to a worldwide audience.”

 

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