Offshore corporations: The secret shell game
To set up secret offshore companies, members of Latin America’s elite turn to a condo at a Brickell high-rise once featured on Miami Vice.
Olga Santini, the Miami representative for Panama-based law firm Mossack Fonseca, works out of a two-bedroom unit at the Palace, a waterfront tower on Brickell Avenue.
Mossack Fonseca specializes in setting up offshores for the world’s rich and powerful. The Miami Herald and the International Consortium of Investigative Journalists received a massive leak of files — dubbed the “Panama Papers” — from inside the firm last year.
Hundreds of shell companies — many of them registered in the British Virgin Islands and other jurisdictions that profit by allowing corporate owners to hide their names — can be traced back to Santini’s condo.
The leaked records offer little evidence that Santini and MF questioned the backgrounds or business activities of people who wanted offshore companies — what the industry calls due diligence.
The propensity to look the other way has helped turn South Florida into a hub of the world’s shadow economy. A cottage industry of lawyers and accountants based in Miami helps clients form offshore companies that can mask their activities. Mossack Fonseca is just one firm among many that set up offshores.
Many of the people coming to Santini and her firm were Brazilian politicians, judges and politically connected businessmen. Several had been accused of corruption — but were still able to set up offshores through Mossack Fonseca.
Others who benefited from the firm’s services were later charged with criminal activity, often allegedly carried out through their MF offshores:
▪ Martin Lustgarten, who was acquitted of laundering $100 million of alleged drug money in Miami last year.
▪ Giuseppe Donaldo Nicosia, a fast-living Italian fugitive wanted for a massive tax fraud.
▪ Mauricio Cohen Assor and Leon Cohen-Levy, father-and-son hotel developers sentenced to 10 years in prison for hiding $150 million worth of Miami Beach mansions, luxury cars and bank accounts from the Internal Revenue Service.
(MF set up offshore corporations for Lustgarten and the Cohens, but Santini wasn’t involved, according to the records.)
Owning an offshore company is legal, as long as its assets are declared to tax authorities — something that secrecy laws in offshore havens make it easy to avoid.
Regulators around the world scorn the companies as vehicles for evading taxes and stashing stolen assets. A 2011 World Bank study of 150 major global corruption cases found that nine in 10 perpetrators used legal corporate shell entities, such as offshore companies, to hide their pilfered funds.
“Anonymous owners means a whole lot of dirty money can be laundered through phony companies,” said former U.S. Sen. Carl Levin, a Michigan Democrat who held Capitol Hill hearings on shell companies. “When we allow anonymity to hide the real owners, it plays into the hands of some of the worst people in the world. It might be corruption, drugs. It might be terrorists. It’s unconscionable. … We have law enforcement begging us to act.”
Santini runs Mossack Fonseca’s Miami office from her condo. (Episode 16 of Miami Vice, “Rites of Passage,” featured scenes shot at the Palace high-rise. A pimp played by John Turturro lives in the building, where he is shot dead by the sister of a call girl whose murder he arranged.)
MF has more than 40 offices around the world — and its Brazil branch has been implicated in a corruption investigation threatening to topple President Dilma Rousseff and other key politicians.
The firm acts as a middleman, or “registered agent,” setting up offshore companies for clients referred by lawyers and wheeler-dealers.
Law firms like Mossack Fonseca don’t have to follow the strict “know-your-customer” rules imposed on banks. But they can’t knowingly facilitate money laundering, according to U.S. law and guidelines established by the legal industry.
Santini, whose LinkedIn page says she started working with Mossack Fonseca in Miami in 2004, often seemed unaware of who her customers were, according to the leaked files.
She still made a healthy living from her work.
An invoice from January 2013 shows that Santini helped incorporate more than 200 companies between August and December 2012 in the British Virgin Islands, Samoa and the Seychelles, all offshore havens.
Mossack Fonseca charged its clients between $750 and $1,400 per company, according to the bill. Santini received roughly 30 percent of that fee in commissions.
Her haul for those five months? Nearly $82,000, wired to a Bank of America branch in Coral Gables.
David Schwartz, CEO of the Florida International Bankers Association, said that strict due-diligence requirements on American banks means money launderers may look to peripheral players in the financial industry, such as lawyers and offshore firms.
“They’re always looking for an entry-point into the system,” Schwartz said.
It is my personal policy to fully comply with the letter and spirit of the law in every jurisdiction.
The Miami Herald called Santini and sent her and MF’s headquarters in Panama City a detailed list of questions about their customers.
In a brief email response to the Miami Herald, Santini denied any wrongdoing. “I am an independent service provider to the Mossack Fonseca law firm as well as a number of other law firms. I am not the Miami office of Mossack Fonseca nor am I an employee of that organization. I cannot address any particular client issues except to say that it is my practice to conduct significant due diligence on my clients and it is my personal policy to fully comply with the letter and spirit of the law in every jurisdiction.”
Although Santini said she’s not an MF employee, she used a company email address to correspond with clients. She spoke at an anti-money-laundering conference in Miami in 2009 as a “representative of Mossack Fonseca.” And a post on the firm’s website from 2014 describes her as “Ms. Olga Santini of our Mossack Fonseca Miami Office.”
MF’s headquarters responded with a six-page statement detailing its business practices, defending the quality of its due diligence and saying that it never deliberately facilitates any type of law breaking.
The Brazil pipeline
In 2011, a Miami Beach lawyer named Julio Barbosa asked Santini to create an offshore company for his client, Paulo Octávio Alves Pereira.
A simple Google search would have shown that Octávio, a wealthy developer who later used the offshore to buy an ultra-luxury Bal Harbour condo, had been accused of corruption: Bribe-taking allegations forced him to resign as governor of the Brazilian capital state of Brasília the previous year. He had gotten the job only because the previous governor had been arrested over the same scandal. Police labeled their investigation “Operation Pandora’s Box.”
No red flags were raised at Mossack Fonseca.
It wasn’t until 2013, two years after MF set up Octávio’s offshore, that the firm realized it might have a problem: Octávio’s former government positions (he had also served as a congressman and senator) made him a “politically exposed person” in the parlance of anti-money-laundering regulations, according to emails between MF employees. U.S. rules obliged the firm to run enhanced due-diligence checks on PEP clients and to determine where their money comes from.
Frantic emails from Santini to Octávio’s lawyer went unanswered.
“Julio, please I need your comments. … Please note this is very serious and if we do not have this information we will be forced to resign as Registered Agent for this corporation,” Santini wrote in an email to Barbosa dated March 5, 2013.
Nine days later, she followed up: “Was hoping you would have something for me regarding this. Please note that my last client that failed to comply we resigned as Registered Agent. PLEASE DO NOT LET IT GET TO THAT!”
Finally, on March 18, Barbosa wrote back, claiming that Octávio had not been charged for his role in the scandal. (In fact, the Brazilian attorney general had indicted Octávio and 36 others for bribery, money laundering and corruption the previous year.) Barbosa also said that Octávio’s political party had been targeted because it opposed the governing Workers’ Party.
“[Octávio] is one of the most accomplished entrepreneurs in Brasília, Brazil, and ALL of his money came and comes from his business activities,” Barbosa wrote. “[He] has been lured to politics because there are some people that think that he can contribute to make politics cleaner and less corrupt. … While it’s true that [he] became the vice governor of a corrupt governor, that doesn’t make him corrupt as well.”
Mossack Fonseca stayed on.
Within the next year, Octávio would be arrested after allegedly bribing public-works officials to approve construction permits. He was also ordered to reimburse the government after paying a chauffeur for his private car and yacht from the public purse and prevented by a Brazilian court from selling any of his assets.
Prosecutors continue to pursue a criminal case against him and eight others over the corruption scandal.
Octávio initially did not respond to a request for comment. After the Miami Herald published the first part of its investigative series online on Sunday, Octávio said he declared his offshore company to Brazilian authorities and broke no laws.
“I never took bribes. There were no papers, no video that incriminated me. I am innocent. Everything is wrong. It’s political,” he said. “We made the offshore because the lawyers in America said it was the best way to buy an apartment in Miami. Many friends of mine, they do the same. They buy property with offshores.”
Another wealthy Brazilian who slipped through MF’s due-diligence checks was Helder Rodrigues Zebral.
A sharp businessman, Zebral started his career shining shoes but eventually came to run Porcâo, an upscale churrascaria in Brasília where politicians and executives clapped backs over prime cuts of meat and caipirinhas, the national cocktail. Stories in local newspapers have him driving a Mercedes, dating socialites and befriending important members of the Workers’ Party. He even hosted a fundraiser for Brazil’s then-president, Luiz Inácio Lula da Silva.
But behind the flash, Zebral had a history of embezzlement.
After winning a public contract to computerize prison records, Zebral diverted some of the money to buy 15 apartments in Brasília and three cars, a Brazilian court found in 2003. He was given a four-year sentence. A decade later, he was convicted of avoiding a required public bidding process and banned from bidding for public contracts for five years, the Brazilian news media reported.
In between his two trials, on July 15, 2011, Zebral paid $1.925 million for a four-bedroom unit at Jade Ocean in Sunny Isles Beach. He didn’t use an offshore corporation in the purchase. Instead, he bought the property through a Florida company called Papola, which listed him as a manager.
But before his second trial, Zebral bought an offshore company from Mossack Fonseca and shifted the condo out of his name and into the offshore’s.
Foreign nationals often own U.S. real estate through offshore companies for tax advantages.
But it is also common for those who may face criminal charges to move assets into offshores as a way to hide them, said Carlos Garcia-Pavia, a financial-compliance specialist at LexisNexis Risk Solutions.
Mossack Fonseca checked up on Zebral in 2013, a year after it set up his offshore account. It discovered both convictions, according to the leaked files, but took no action.
Records show the firm’s due-diligence practices weren’t always diligent.
MF didn’t discover until three years after it set up an offshore for Marcelo Carvalho Cordeiro that he had been fired as president of Rio de Janeiro’s pension fund for allegedly circumventing public bidding procedures on a major contract.
It didn’t realize that Joaquim Barbosa was the president of Brazil’s Supreme Court when it set up his offshore. Or that Miguel Jurno Neto had been named by investigators as a “doleiro,” or money launderer, in a case over bribes allegedly paid to Brazilian congress members in 2008 that was eventually dismissed. Or that José Luiz Cintra Junqueira, a Brazilian dentist, had been accused of holding a “ghost” position with the city of Campinas that paid him $2,000 per month for doing no work. (In an email, Junqueira said he had been “unjustifiably accused with no evidence” and that the charge had been dismissed.)
More recently, however, Mossack Fonseca caught a big fish.
In late 2014, Miami law firm Roca Gonzalez asked MF if it would administer a British Virgin Islands company that had been set up by another firm. The purpose of the company, Gold Black Limited, was listed as “real estate investment” in the United States.
Mossack Fonseca accepted — until it ran a due-diligence check on Gold Black’s owner.
Hector Daniel Muñoz served as the personal secretary to former Argentine President Néstor Kirchner, who affectionately called him el gordo (fatty). To get to Kirchner, you had to go through Muñoz. One newspaper profile described him as having more pull than any cabinet minister.
But he was forced to resign in 2009 over embezzlement allegations. Four years later, a former colleague accused Muñoz of flying around the country with bags of laundered money.
When MF found out about its new client’s dirty laundry, the firm’s compliance department recommended dropping him, even though the charges had been dismissed.
In an email, Santini, who runs MF’s Miami office, argued in favor of keeping Muñoz on. She said his lawyer, Antonio Roca, had explained that the charges were merely allegations. “Nothing is concrete,” she wrote.
But Santini was overruled, and Mossack Fonseca resigned.
Muñoz wasn’t out of luck though: Another offshore services provider based in Hong Kong agreed to take his company, the leaked files show.
Lawyers play a key role in helping corrupt money enter the United States, according to a recent 60 Minutes report.
An undercover investigator for an activist group filmed himself asking 16 attorneys at high-profile Manhattan law firms how to launder dirty money through American homes, yachts and cars.
Fifteen of the attorneys offered strategies and advice. (Some said their actions did not violate legal ethics.) Only one said he wouldn’t help because the work is “not for me.”
A web spreads from Panama
To attract clients, firms like Mossack Fonseca rely on the opaque corporate laws of certain offshore havens.
MF registers many of its companies in the British Virgin Islands, an overseas territory of the United Kingdom notorious for its secrecy.
Record keepers there don’t ask for the name of the person who owns a company when it is registered, only for the name of its agent. As a result, the islands have more active offshores (450,000) than people (33,000).
Clients used several of the MF offshore companies to buy Miami real estate.
“There are plenty of legitimate reasons to set up an offshore company,” especially for those interested in purchasing U.S. property, said Jeffrey Rubinger, a Miami-based international tax attorney at the law firm Bilzin Sumberg. “It’s useful for estate-tax benefits, but there are also income-tax benefits,” as well as the advantage of privacy for those who live in countries where kidnappers target the wealthy and governments seize assets, he said.
“The thing that’s not legitimate is if you don’t know where the money’s coming from,” Rubinger explained.
In Brazil, it’s no surprise that Mossack Fonseca helped those linked to corruption buy condos, said Fabiano Angélico, who leads the Brazilian chapter of the global anti-corruption group Transparency International.
Brazilian prosecutors recently accused MF of facilitating graft at the state oil company, issuing arrest warrants for four employees of the firm’s office in Brazil. (The investigation has been labeled Lava Jato, Portuguese for “car wash,” and has even snared former president Lula, who was charged with money laundering in March.)
Wealthy Brazilians are among the top foreign buyers of Miami condos, despite a crippled Brazilian economy that shrank 4 percent in 2015.
“The use of offshore companies for the transfer of bribery is very apparent, but where this money was finally ending up, it’s not the most visible part of the scheme,” Angélico said. “The direct link between corrupt money and Miami has not been known. But the level of interest is growing.”
Lava Jato has become one of the largest corruption investigations in history, with 179 people indicted, 93 people convicted and $800 million seized, according to Brazil’s federal police.
On March 13, at least one million Brazilians nationwide hit the streets to protest government corruption.
Angélico added that Brazilians must report offshore assets to local tax authorities. But he said those accused in recent scandals sometimes claim the rules don’t apply.
“They can argue that it’s not them who owns the apartment in Miami, it’s the offshore, so they don’t have to declare it,” Angélico said. “It’s a lawyer’s excuse.”
Miami Herald contributor Debora Lima contributed research, reporting and translation to this story. Mariel Fitz Patrick, a reporter at Canal 13 Argentina, also contributed from Buenos Aires, as did other journalists from ICIJ.