A massive leak of documents has blown open a window on the vast, murky world of shell companies, providing an extraordinary look at how the wealthy and powerful conceal their money.
Twelve current and former world leaders maintain offshore shell companies. Close friends of Russian leader Vladimir Putin have funneled as much as $2 billion through banks and offshore companies.
Those exposed in the leak include the prime ministers of Iceland and Pakistan, an alleged bagman for Syrian President Bashar al-Assad, a close pal of Mexican President Enrique Peña Nieto and companies linked to the family of Chinese President Xi Jinping.
Add to those the monarchs of Saudi Arabia and Morocco, enough Middle Eastern royalty to fill a palace, honchos in the troubled body known as FIFA that controls international soccer and 29 billionaires featured in Forbes Magazine’s list of the world’s 500 richest people.
Also mentioned are 61 relatives and associates of current country leaders, and another 128 current or former politicians and public officials.
The leak exposes a trail of dark money flowing through the global financial system, stripping national treasuries of tax revenues.
The data breach occurred at a little-known but powerful Panamanian law firm, Mossack Fonseca, which has an office in Las Vegas, a representative in Miami and a presence in more than 35 other places around the world.
The firm is one of the world’s top five creators of shell companies, which can have legitimate business uses, but can also be used to dodge taxes and launder money.
More than 11.5 million emails, financial spreadsheets, client records, passports and corporate registries were obtained in the leak, which was delivered to the Süddeutsche Zeitung newspaper in Munich, Germany. In turn, the newspaper shared the data with the Washington-based International Consortium of Investigative Journalists (ICIJ).
Several McClatchy journalists joined more than 370 journalists from 78 countries in the largest media collaboration ever undertaken following a leak.
The document archive is massive at 2.6 terabytes. It would take a desktop computer at least 24 hours to download it at average Internet speeds.
As a registered agent, the Mossack Fonseca law firm incorporates companies in tax havens across the globe for a fee. It has avoided close scrutiny from U.S. law enforcement officials.
Mossack Fonseca denies all accusations of illegal activity.
“We have not once in nearly 40 years of operation been charged with criminal wrongdoing. We’re proud of the work we do, notwithstanding recent and willful attempts by some to mischaracterize it,” spokesman Carlos Sousa said.
The law firm’s co-founder, Ramón Fonseca, in an interview last month on Panamanian television, compared the firm to an automaker whose liability ends once the car hits the road. Blaming Mossack Fonseca for what people do with their companies, he said, would be like blaming an automaker “for an accident or if the car was used in a robbery.”
Yet plenty of criminals are in the documents, from drug traffickers to convicted fraudsters.
“The offshore world is the parallel universe of the ultra-rich and ultra-powerful,” said Jack Blum, a white-collar crime attorney and an architect of the Foreign Corrupt Practices Act.
The archive, which dates to the late 1970s and extends through December 2015, reveals that 14,000 intermediaries and middlemen bring business to Mossack Fonseca.
No corner of the globe is untouched – including the United States.
States such as Delaware, Nevada and Wyoming register thousands of corporations annually, often without identifying the true owners. Some of the billions of dollars splashing through the domestic economy come from anonymous foreigners who inflate real estate prices in places like Miami, buying properties outright in cash.
“We know [of] … upwards to $6 to $10 billion a year laundered through the U.S.,” said Patrick Fallon Jr., head of the FBI’s financial crimes section.
The most extraordinary allegations in the archive revolve around Putin’s closest associates, including Sergey Roldugin (pronounced Roll-DOO-gen), a close friend since the late 1970s when Putin was a young KGB agent.
Roldugin is a classical cellist for the St. Petersburg orchestra, yet his name appears as the owner of offshore companies that have rights to loans worth hundreds of millions of dollars. A Russian news service report in 2010 disclosed that he owned at least 3 percent of Bank Rossiya, Russia’s most important bank.
When Mossack Fonseca helped open a bank account in Switzerland on behalf of Roldugin, the application form asked if he had “any relation to PEPs [politically exposed persons — who require enhanced due diligence] or VIPs.”
The one-word answer was “no.” Yet, Roldugin is godfather to Putin’s daughter Mariya.
“Roldugin is, by his proximity to a serving head of state, clearly an exposed person,” Mark Pieth, a former head of the Swiss justice ministry’s organized crime division, told the ICIJ team.
The documents show how in 2008 a company controlled by Roldugin exerted influence over Russia’s largest truck maker, Kamaz, joining with several other offshore companies to help another Putin insider acquire majority control of the company. They wanted foreign investment, and German carmaker Daimler AG later that year bought a 10 percent stake in Kamaz for $250 million.
The offshore company that connects many Putin loyalists is Sandalwood Continental Limited in the British Virgin Islands. Roldugin was a shareholder until 2012, as was Oleg Gordin, a little-known businessman whom incorporation documents describe as linked to “law enforcement agencies.”
The files also mention a company co-owned by Putin friend Yury Kovalchuk, the largest shareholder of Bank Rossiya. Kovalchuk was among those targeted by U.S. sanctions in 2014 in retribution for Russia’s invasion of Crimea. Another friend, Arkady Rotenberg, Putin’s judo partner and a billionaire construction mogul, openly obtained companies through Mossack Fonseca. The Treasury Department, when sanctioning him in 2014, suggested that the oligarch acted on behalf of “a senior official.”
That was widely believed to mean Putin, whose fingerprints were not on any offshore company.
“When you are the president of Russia, you don’t need a written contract. You are the law,” said Karen Dawisha, an academic, former State Department official and author of the acclaimed 2014 book Putin’s Kleptocracy: Who Owns Russia?
A Kremlin spokesman, Dmitry Peskov, said last week that ICIJ was publishing a “series of fibs” that amounted to a media “attack” on Putin. Peskov suggested that unknown “organizations and services” were behind the media reports.
This story contains information gathered by reporters working under the umbrella of the nonprofit International Consortium for Investigative Journalists.
Kevin Hall: 202-383-6038; Twitter: @KevinGHall