Americans with legal troubles used Panama law firm

Atlanta Falcons tackle Len Gotshalk (65) blocks during a 31-0 loss to the Los Angeles Rams on September 23, 1973, at the Los Angeles Memorial Coliseum.
Atlanta Falcons tackle Len Gotshalk (65) blocks during a 31-0 loss to the Los Angeles Rams on September 23, 1973, at the Los Angeles Memorial Coliseum. AP

Len Gotshalk, an Atlanta Falcons football player turned Oregon businessman, had a history of legal issues by the time he went looking to buy an offshore company in 2010. Lawsuits and criminal filings had accused the former NFL offensive lineman of fraud and racketeering.

Mossack Fonseca, a Panama-based law firm that specializes in selling offshore companies, initially told Gotshalk it couldn’t do business with him, because of “negative information” that its compliance unit had found. Gotshalk persuaded the firm to reconsider, noting in an email that he’d “held offshore accounts in the past in Europe and Bahamas and Belize” without problems.

Three months later – on May 21, 2010 – federal prosecutors in Philadelphia unsealed an indictment charging that Gotshalk was a key player in a scheme that used kickbacks and other tactics to inflate the prices of tech company stocks.

Three days after that, Mossack Fonseca recorded a $3,055 wire transfer from Gotshalk, the firm’s internal records show. The money paid for a British Virgin Islands company called Irishmyst Consultants Limited.

Gotshalk is among at least 36 Americans with suspect pasts who have used Mossack Fonseca’s services. A review of the law firm’s internal files by McClatchy, the International Consortium of Investigative Journalists and their other media partners identified companies accused of fraud or other serious financial misconduct. ICIJ has made available a searchable database with information on more than 200,000 offshore entities that are part of the so-called Panama Papers investigation.

The database will likely be the largest ever release of secret offshore companies and the people behind them.

The media consortium found the details of Gotshalk’s offshore company – and other companies linked to Americans accused of financial mischief – within the Panama Papers, a trove of leaked documents that expose the business practices of Mossack Fonseca, one of the world’s largest marketers of offshore secrecy.

Some have been convicted of fraud or other crimes. They include Andrew Wiederhorn, an Oregon corporate executive who pleaded guilty to two felonies in a case tied to one of the biggest corporate scandals in Oregon history.

Others have been sued in civil cases launched by securities regulators or private plaintiffs. Among them are six Americans who were accused in a lawsuit in federal court in Washington state of using an offshore company set up through Mossack Fonseca, Dressel Investment Ltd., to run a Ponzi scheme that cost thousands of middle-class Indonesians nearly $100 million.

Gotshalk and his attorney did not reply to requests for comment about his legal problems or his purchase of an offshore company. Wiederhorn said the offshore company linked to him in the Mossack Fonseca files was used for legitimate investments in overseas real estate.

Defendants in the Dressel case have denied wrongdoing, in some cases pointing blame at others they say were behind any fraud. After a U.S. district judge rejected racketeering claims in the case, the investors association behind the litigation shifted its other claims to state court in Alaska. The Alaska litigation is still pending.

High-volume business

The leaked records suggest that Mossack Fonseca’s high-volume business model made it difficult for the firm to keep track of its clients’ backgrounds and activities. From 2005 to 2015, Mossack Fonseca incorporated more than 100,000 offshore entities, such as trusts and shell companies. In many instances, it offloaded responsibility for checking out potential customers to the banks and outside law firms that fed it business. In an earlier response to questions from the consortium, the firm said it was “legally and practically limited in our ability to regulate the use of companies we incorporate.”

In some cases, Mossack Fonseca wasn’t aware that customers were involved in criminal activities until after authorities had brought the crimes to light. For example, the firm learned that one longtime customer – Connecticut financier Martin Frankel – was a suspected fraudster only when authorities approached the firm nearly a year after his case had made headlines. Frankel eventually pleaded guilty to 20 counts of wire fraud as well as counts of securities fraud and racketeering conspiracy.

Mossack Fonseca’s dealings with dozens of Americans tied to financial misconduct raise questions about how well the firm keeps its commitment to follow international standards for preventing money laundering and keeping offshore companies out of the hands of criminal elements.

Experts on Ponzi schemes and other kinds of financial chicanery say offshore entities often play a role in fraudulent enterprises. “Fraudsters like offshore because of the lack of transparency,” said Ellen Zimiles, a former federal prosecutor in New York who now leads Navigant Consulting’s investigations and compliance practice. When offshore structures are put together skillfully, “it takes a lot of time for investigators to get the ultimate beneficiary.”

A Mossack Fonseca spokesperson did not reply to questions for this story. In previous statements, the firm said it had “operated beyond reproach in our home country and in other jurisdictions where we have operations. Our firm has never been accused or charged in connection with criminal wrongdoing.”

The firm said it worked to make sure “that the companies we incorporate are not being used for tax evasion, money-laundering, terrorist finance or other illicit purposes.” It said it turned away clients who had been convicted of crimes or involved in other conduct that raised “red flags.”

“Our due diligence procedures require us to update the information that we have on clients and to periodically verify that no negative results exist in regards to the companies we incorporate and the individuals behind them,” the firm said.

It wouldn’t have taken Mossack Fonseca’s compliance team much Internet surfing to determine that former pro football player Leonard Gotshalk was likely to be a risky client.

The U.S. Securities and Exchange Commission sued Gotshalk in 1994, accusing him and others of providing investors with “false and misleading information” about a company involved in oil and gas investments. In 1995, a federal judge in Washington, D.C., issued a permanent injunction forbidding Gotshalk from violating the anti-fraud provisions of U.S. securities laws.

In 2004, an Oregon court convicted Gotshalk of felony theft and ordered him to pay restitution and serve 20 days in jail in a case involving allegations that he’d taken out large loans with no intention of paying them back. There’s no indication in the Panama Papers that Mossack Fonseca took notice of Gotshalk’s more recent legal issues, which include the securities fraud indictment in Pennsylvania and a new lawsuit filed by the SEC.

A sentencing hearing has been scheduled for Gotshalk in the criminal case for May 19. A judge has ordered a document titled “Plea Document as to Leonard Gotshalk” sealed, but other court records don’t indicate whether he has been convicted in the case. The SEC’s lawsuit has been put on hold until the criminal matter is finished.

An offshore company is one set up outside an individual’s home country. Creating one is not illegal, and they have legitimate uses, such as estate planning or simplifying the sale of foreign property.

But they can also be used to launder illicit gains, evade taxes and hide corruption. Financial crime experts say profit concerns can discourage offshore middlemen from thoroughly vetting their clients, allowing unscrupulous individuals to gain control of offshore companies and use them to open hard-to-trace bank accounts.

An article about banks’ struggles with enforcing anti-money-laundering rules in Navigant Consulting’s Risk & Regulation journal noted that a “widely recurring theme throughout multiple enforcement actions has been the decision of management to place revenue considerations” above money-laundering risks. Once a decision is made to compromise money-laundering controls for the sake of revenue, the article said, “the decision becomes easier to repeat and harder to reverse.”

‘Unofficial’ representative

In an interview with The Associated Press, firm co-founder Ramón Fonseca said that “as a policy we prefer not to have American clients.”

The Panama Papers show that at least some of that hesitation involved fear of U.S. law enforcement authorities.

In 2000, the leaked documents indicate, the FBI contacted Michael B. Edge, a U.S.-based representative for Mossack Fonseca, and threatened to subpoena him in an effort to get information from the law firm about an offshore company that had been involved in “an apparent banking fraud.”

Edge, who has acted as the intermediary for hundreds of companies registered by Mossack Fonseca in the Bahamas and other offshore havens, recalled in a 2008 email that the firm had decided that because of the threat from federal authorities, he should become “an ‘unofficial’ Representative. . . . Since that time, I have scrupulously avoided receipt of client documents, unless absolutely unavoidable, to my U.S. address; especially since the FBI knows of my existence in a ‘negative’ context.”

He said he continued working “exclusively” with Mossack Fonseca but was careful not to leave “any discernible (direct) link to Mossfon.”

In a 2014 email, Edge explained that Mossack Fonseca had relatively few American clients because it wanted to “avoid further attempts by American authorities to attack the Partnership.” He said that with the consent of one of the firm’s managing partners, Jurgen Mossack, “American clients were purged, no more have been sought, no marketing in the U.S. takes place; and I have conducted Mossfon business in my own name.”

The records show, however, that some customers brought to Mossack Fonseca through Edge have been caught up in fraud cases in the United States.

In 2003, U.S. securities regulators accused one of Edge’s customers, Florida-based Mary Patten, of helping to perpetrate a $6 million investment fraud using a company associated with Mossack Fonseca on the Channel island of Jersey.

In 2005, a federal judge ruled that Patten had played a “crucial role” in the scam and ordered her and another defendant to pay more than $5 million in restitution, fines and interest.

Patten could not be reached for comment for this story. Edge did not reply to repeated emails and faxes seeking comment.

After the allegations against Patten came to light, Edge told the law firm he had been “duped into believing” that she needed help because she was the victim of a “malicious lawsuit.”

Jake Bernstein, Ryan Chittum, Will Fitzgibbon and Catherine Dunn of ICIJ, Marisa Taylor and Kevin G. Hall of McClatchy, Matthew Kish of the Portland (Ore.) Business Journal and Alice Brennan, Alcione Gonzalez and Laura Juncadella of Fusion Investigates contributed to this story.