#panamapapers: Questioning the Picture Painted in the WSJ’s Interview With Jürgen Mossack

Unusually for the WSJ, this interview with Jürgen Mossack, co-head of Mossack Fonseca, isn’t behind the paywall. Someone (Mossack?) wants the word to get out as widely as possible. Says the WSJ:

In his first in-depth interview since reports of the leaked documents were published, Jürgen Mossack said his firm did nothing wrong by selling some 240,000 shell companies registered in low- or no-tax territories around the world.

The law firm, he said, works through intermediaries and can’t keep track of how the offshore entities that it sells are used.

That’s one take. A more ambiguous picture emerges from one of the ICIJ’s pieces:

For years, the Swiss banking giant UBS and a Panama law firm named Mossack Fonseca embraced each other in a mutually profitable relationship. UBS had customers who wanted offshore shell companies to keep their finances hidden. And Mossack Fonseca, one of the largest creators of offshore companies in the world, was happy to sell them.

But in 2010, under threat of a U.S. criminal prosecution for tax evasion and money laundering, UBS was scrambling to contain the damage. The bank’s board of directors wanted out of the shell-company business.

Tensions boiled over in a meeting in Zurich on September 28 when UBS asserted that Mossack Fonseca was responsible for identifying the owners of the shell companies behind the secret accounts – not the bank.

Mossack Fonseca employee Dieter Buchholz argued that his firm had no idea who really owned some of the companies created for UBS customers, because the bank had withheld that information. UBS executive Patrick Küng objected, saying Mossack Fonseca was “in violation of the Swiss money laundering code,” and he was “seriously” contemplating reporting the law firm to the authorities, according to emails describing the encounter.

Neither party ever really sorted out where the know-your-client buck stopped, but they reached an uneasy and ugly compromise; my bold:

UBS and Mossack Fonseca eventually worked out a deal in 2010 that benefited them both. The law firm would take over administration of UBS’s shell companies and give “special treatment” to the bank’s customers, who would retain their UBS bank accounts.

Normally Mossack Fonseca required banks to provide “due diligence” information verifying owners’ identity and confirming that they were not involved in overt criminal activity before setting up or managing companies created for banks’ clients.

But it now agreed to accept “DD light” from UBS, requiring much less documentation on the true owners and why they were using shell companies, according to a December 2010 email. As a result, Mossack Fonseca would deal with the customers directly, not through the bank, and UBS would put some distance between itself and the world of shell companies.

“DD Light” was such a wonderful idea that Mossack Fonseca rolled it out to other banks:

Mossack Fonseca made similar arrangements with other major banks so they also could insulate themselves from their customers’ offshore companies, the files show. “It would be ideal that the special treatment of customers ex-UBS is extended to all banks in Geneva,” the law firm’s partners decided. In 2010 and 2011, Mossack Fonseca reached agreements with Credit Suisse and HSBC to give “special treatment” to their customers’ shell companies.

For French multinational Société Générale, that VIP service started as early as 2008 and involved companies that had been set up for customers of the bank using so-called bearer shares. Companies that have bearer shares don’t record an owner’s name. If they’re in your hands, you are the owner. They have long been considered a vehicle for money laundering and other wrongdoing and have been gradually disappearing worldwide under tighter regulation.

When Société Générale refused to tell Mossack Fonseca who really owned the bearer share companies it had purchased in the British Virgin Islands for its customers, Mossack Fonseca went along with it, agreeing to require no due diligence documents from the bank, according to the files obtained by ICIJ.

Back to Mr Mossack in the WSJ in 2016, now scorning the idea of DD light and blaming the banks:

Mr. Mossack said the intermediary banks that his firm works with—and who represent the final recipients of the shell companies—should have been doing better reviews of their clients.

Make your mind up, Mr Mossack.

Next, let’s have a quick look at Mr Mossack’s retouched version of his family background. According to the WSJ, Mossack’s father:

…was a German soldier in World War II and moved to Panama with his family when he was 13.

That’s one way to put it. The Daily Mail is more vivid:

The man behind a Panama ‘tax scam’ that guards the clandestine wealth of the global elite is the son of a Nazi SS officer from a unit known as the ‘Death’s Head division’.

…if he was in the Waffen S.S. it probably meant he served in the Third Waffen S.S. Panzer Division Totenkopf.

Most of the division’s initial enlisted men were recruited from concentration camp guards and others were members of militias that had committed war crimes in Poland.

Due to its insignia, it was sometimes referred to as the ‘Death’s Head Division’. Members of the division committed war crimes – one of them against British soldiers.

Well, the sins of the father, if any were committed by a Corporal in the Waffen-SS Death’s Head Division who bunked off to Panama post war, aren’t necessarily all that relevant to the son. But one can see the airbrush at work.

Here’s a final sighting of the airbrush in action at the WSJ; this time, though, it’s not quite so obvious who’s plying it:

Mr. Mossack said it was only in recent weeks that he was notified of the security breach, after clients began receiving calls from journalists involved in the Panama Papers investigation.

Dear, oh dear. Here’s the Süddeutsche Zeitung telling the whole world about a Mossack Fonseca security breach in February 2015 (my free-ish English):

The Mossack Fonseca Group, of Panama, is one of the largest suppliers of shell companies. The Süddeutsche Zeitung has obtained thousands and thousands of their documents and hundreds of thousands of their emails.

Evaluation of this mountain of data is far from complete, but one thing is already clear: Mossack Fonseca has a problem. This Mossack Fonseca internal data has already been made available to The USA and other states. More countries are also interested in it.

In other words, Mossack Fonseca could have discovered the urgent need for a firm wide security review, more than a year earlier, by reading a major German newspaper. A Google Alert was all they needed.

Mossack Fonseca’s “astonishing” disregard for IT security (gruesome details here) is part of the same lackadaisical picture.

It gets worse: naturally the Süddeutsche Zeitung asked Mossack Fonseca for a statement:

A spokeswoman for Mossack Fonseca stated that the firm “neither condoned nor facilitated” illegal activities.

It’s particularly remarkable that this unidentified spokeswoman seemingly never mentioned that the Süddeutsche Zeitung had been in touch, to anyone further up the food chain; nor did she look out their coverage, herself. Either action would surely have triggered a security review. Perhaps she decided to suppress the story, or perhaps she did tell someone, but they went into denial and got out the airbrush. That does seem to be the house style.

Mossack Fonseca’s clients can’t be too impressed by any of this. Will they stick with Mossack Fonseca after this parade of incompetence? Says Mr Mossack to the WSJ:

“We’re not going to stop the services and go plant bananas or something,”

Perhaps Mossack knows too much about his clients for them to desert him. But one suspects that he should give the banana planting idea some further scrutiny.










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    1. Yves Smith

      Gabriel Zucman of UC Berkeley has estimated based on an exhaustive analysis of bank statistics that between 6% and 8% of global financial wealth is hidden. His analysis also suggests that the US is less dependent on foreign capital than the official stats show.

      1. Jerry

        Yves, what do you mean by “the US is less dependent on foreign capital than the official stats show.”?

  1. ambrit

    Considering the history of “Banana Planting” in Central America; United Fruit, the U.S. Marines as enforcers for, Grace Shipping, et. al., said activity would seem a natural for Mossack Fonesca.
    With a background flowing from the ‘Tottenkopf’ Division, Mossack can be sure of a hearty welcome in certain regions of Bolivia and Paraguay. One of that regions’ major exports is a certain recreational herbal substance. Business opportunities everywhere he looks.

  2. JustOneGirlsOpinion

    Someone really needs to liberate the MERS database. And by liberate I mean complete erase.

  3. Llewelyn Moss

    After reading the Wired article on the security issues with Mossack Fonseca computer system, anyone still doing business with the bank is out of their freakin mind.

    Unencrypted emails (email server not using TLS), insecure SSL v2 protocol, unpatched Outlook Web Access for client login, unpatched client portal (The version of Drupal used by the portal has at least 25 vulnerabilities, including a high-risk SQL injection).

    This thing was (is?) a banquet for hackers. Hahaha.

    And gee, why didn’t we get a similar security assessment from the Feds on Hellery’s email server?

    1. Yves Smith

      It’s not a bank. It’s a law firm that acts as registered agent for offshore companies. Mossack Fonseca uses mainly the British Virgin Islands for these entities. Banks like UBS and HSBC are the banks in this equation.

  4. allan

    … For French multinational Société Générale, that VIP service started as early as 2008 and involved companies that had been set up for customers of the bank using so-called bearer shares. Companies that have bearer shares don’t record an owner’s name. If they’re in your hands, you are the owner. They have long been considered a vehicle for money laundering and other wrongdoing and have been gradually disappearing worldwide under tighter regulation.

    Interesting. An editorial at the Bezos Neoliberal Daily, The Panama Papers prove Mr. Sanders was wrong about a trade pact with Panama, claims this:

    Data culled from the documents by the International Consortium of Investigative Journalists, and presented in several charts on the group’s website, show that the Panama-based law firm Mossack Fonseca, which specialized in setting up offshore accounts and shell companies for wealthy people, has been steadily reducing its activity in Panama for about a decade. As it happens, the decline began about the time the Bush administration and Panama began discussing a free-trade pact — and accelerated after the deal took effect during Mr. Obama’s first term.

    Specifically, the number of offshore incorporations fell from 4,741 in 2005 to 835 in 2015. Most important, as of last year Mossack Fonseca appeared to have nearly completely ceased incorporating the least transparent form of company — known as “bearer shares” — which often don’t need to register an owner’s name.

    So, the WSJ says that the practice was declining world-wide, while Fred Hiatt’s flying monkees claim that the decline at Mossack Fonseca can be attributed to the wonderful trade deal that Bush and Obama negotiated and Obama signed.

    For once, I’ll go with the WSJ.
    How many Pinocchios should Glenn Kessler give his own paper?

    1. sd

      MF is said to have offices in 40 countries. Why do business in Panama if another location is more convenient?

  5. Johannes

    The Panama papers story looks like most other big leaks but there may be more to it than meets the eye…

  6. Fiver

    With the ‘son of an SS officer’ angle, and so many other elements of the tawdry tossed in, the potential for this actually taking down someone big appears to have been reduced to ‘fluke’ – you could almost ask whether the real pros in money laundering etc. concluded this outfit was so amateurish in its operations it was giving their entire industry in the Carib a bad name.

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