Dozens of journalists sifted through
millions of leaked records and thousands of names to produce ICIJ’s
investigation into offshore secrecy
A
cache of 2.5 million files has cracked open the secrets of more than 120,000
offshore companies and trusts, exposing hidden dealings of politicians, con men
and the mega-rich the world over.
They
include American doctors and dentists and middle-class Greek villagers as well
as families and associates of long-time despots, Wall Street swindlers, Eastern
European and Indonesian billionaires, Russian corporate executives,
international arms dealers and a sham-director-fronted company that the
European Union has labeled as a cog in Iran’s nuclear-development program.
The
leaked files provide facts and figures — cash transfers, incorporation dates,
links between companies and individuals — that illustrate how offshore
financial secrecy has spread aggressively around the globe, allowing the
wealthy and the well-connected to dodge taxes and fueling corruption and
economic woes in rich and poor nations alike.
The
records detail the offshore holdings of people and companies in more than 170
countries and territories.
The
hoard of documents represents the biggest stockpile of inside information about
the offshore system ever obtained by a media organization. The total size of
the files, measured in gigabytes, is more than 160 times larger than the leak
of U.S. State Department documents by Wikileaks in 2010.
To
analyze the documents, ICIJ collaborated with reporters from The
Guardian
and the BBC in the U.K., Le Monde in France, Süddeutsche
Zeitung
and Norddeutscher Rundfunk in Germany, The Washington
Post,
the Canadian Broadcasting Corporation (CBC) and 31 other media partners around
the world.
Eighty-six
journalists from 46 countries used high-tech data crunching and shoe-leather
reporting to sift through emails, account ledgers and other files covering
nearly 30 years.
“I’ve
never seen anything like this. This secret world has finally been revealed,”
said Arthur Cockfield, a law professor and tax expert at Queen’s
University in Canada, who reviewed some of the documents during an interview
with the CBC. He said the documents remind him of the scene in the movie
classic The Wizard of Oz in which “they pull back
the curtain and you see the wizard operating this secret machine.”
Mobsters and Oligarchs
The
vast flow of offshore money — legal and illegal, personal and corporate — can
roil economies and pit nations against each other. Europe’s continuing
financial crisis has been fueled by a Greek fiscal disaster exacerbated by
offshore tax cheating and by a banking meltdown in the tiny tax haven of
Cyprus, where local banks’ assets have been inflated by waves of cash from
Russia.
Anti-corruption
campaigners argue that offshore secrecy undermines law and order and forces
average citizens to pay higher taxes to make up for revenues that vanish
offshore. Studies have estimated that cross-border flows of global proceeds of
financial crimes total between $1 trillion and $1.6 trillion a year.
ICIJ’s
15-month investigation found that, alongside perfectly legal transactions, the
secrecy and lax oversight offered by the offshore world allows fraud, tax
dodging and political corruption to thrive.
Offshore patrons identified in the
documents include:
·
Individuals and companies linked to
Russia’s Magnitsky Affair, a tax fraud scandal that has strained U.S.-Russia
relations and led to a ban on Americans adopting Russian orphans.
·
A Venezuelan deal maker accused of using
offshore entities to bankroll a U.S.-based Ponzi scheme and funneling millions
of dollars in bribes to a Venezuelan government official.
·
A corporate mogul who won billions of
dollars in contracts amid Azerbaijani President Ilham Aliyev’s massive
construction boom even as he served as a director of secrecy-shrouded offshore
companies owned by the president’s daughters.
·
Indonesian billionaires with ties to the
late dictator Suharto, who enriched a circle of elites during his decades in
power.
The
documents also provide possible new clues to crimes and money trails that have
gone cold.
After
learning ICIJ had identified the eldest daughter of the late dictator Ferdinand
Marcos, Maria Imelda Marcos Manotoc, as a beneficiary of a British Virgin
Islands (BVI) trust, Philippine officials said they were eager to find out
whether any assets in the trust are part of the estimated $5 billion her father
amassed through corruption.
Manotoc,
a provincial governor in the Philippines, declined to answer a series of
questions about the trust.
Politically connected wealth
 |
Maria Imelda Marcos Manotoc
|
The
files obtained by ICIJ shine a light on the day-to-day tactics that offshore
services firms and their clients use to keep offshore companies, trusts and
their owners under cover.
Tony
Merchant, one of Canada’s top class-action lawyers, took extra steps to
maintain the privacy of a Cook Islands trust that he’d
stocked with more than $1 million in 1998, the documents show.
In
a filing to Canadian tax authorities, Merchant checked “no” when asked if he
had foreign assets of more than $100,000 in 1999, court records show.
Between
2002 and 2009, he often paid his fees to maintain the trust by sending thousands of dollars in
cash and traveler’s checks stuffed into envelopes rather than using
easier-to-trace bank checks or wire transfers, according to documents from the
offshore services firm that oversaw the trust for him.
One
file note warned the firm’s
staffers that Merchant would “have a st[r]oke” if they tried to communicate
with him by fax.
 |
| Tony Merchant |
It
is unclear whether his wife, Pana Merchant, a Canadian senator, declared her
personal interest in the trust on annual financial disclosure forms.
Under
legislative rules, she had to disclose every year to the Senate’s ethics
commissioner that she was a beneficiary of the trust, but the information was
confidential.
The
Merchants declined requests for comment.
Other
high profile names identified in the offshore data include the wife of Russia’s
deputy prime minister, Igor Shuvalov, and two top executives with Gazprom, the
Russian government-owned corporate behemoth that is the world’s largest
extractor of natural gas.
Shuvalov’s
wife and the Gazprom officials had stakes in BVI companies, documents show. All
three declined comment.
In
a neighboring land, the deputy speaker of Mongolia’s Parliament said he was
considering resigning from office after ICIJ questioned him about records
showing he has an offshore company and a secret Swiss bank account.
“I
shouldn’t have opened that account,” Bayartsogt Sangajav, who has also served
as his country’s finance minister, said. “I probably should consider resigning
from my position.”
Bayartsogt
said his Swiss account at one point contained more than $1 million, but most of
the money belonged to what he described as “business friends” he had joined in
investing in international stocks.
He
acknowledged that he hasn’t officially declared his BVI company or the Swiss
account in Mongolia, but he said he didn’t avoid taxes because the investments
didn’t produce income.
“I
should have included the company in my declarations,” he said.
Wealthy Clients
The
documents also show how the mega-rich use complex offshore structures to own
mansions, art and other assets, gaining tax advantages and anonymity not
available to average people.
Baroness Carmen Thyssen-Bornemisza.
Spanish
names include a baroness and famed art patron, Carmen Thyssen-Bornemisza, who
is identified in the documents using a company in the Cook Islands to buy
artwork through auction houses such as Sotheby’s and Christie’s, including Van
Gogh’s Water Mill at Gennep.
Her
attorney acknowledged that she gains tax benefits by holding ownership of her
art offshore, but stressed that she uses tax havens primarily because they give
her “maximum flexibility” when she moves art from country to country.
Among
nearly 4,000 American names is Denise Rich, a Grammy-nominated songwriter whose
ex-husband was at the center of an American pardon scandal that
erupted as President Bill Clinton left office.
A
Congressional investigation found that Rich, who raised millions of dollars for
Democratic politicians, played a key role in the campaign that persuaded
Clinton to pardon her ex-spouse, Marc Rich, an oil trader who had been wanted
in the U.S. on tax evasion and racketeering charges.
 |
| Denise Rich. |
Records
obtained by ICIJ show she had $144 million in April 2006 in a
trust in the Cook Islands, a chain of coral atolls and volcanic outcroppings
nearly 7,000 miles from her home at the time in Manhattan.
The
trust’s holdings included a yacht called the Lady
Joy,
where Rich often entertained celebrities and raised money for charity.
Rich,
who gave up her U.S. citizenship in 2011 and now maintains citizenship in Austria,
did not reply to questions about her offshore trust.
Another
prominent American in the files who gave up his citizenship is a member of the
Mellon dynasty, which started landmark companies such as Gulf Oil and Mellon
Bank. James R. Mellon – an author of books about Abraham Lincoln and his
family’s founding patriarch, Thomas Mellon – used four companies in the BVI and
Lichtenstein to trade securities and transfer
tens of millions of dollars among offshore bank accounts he
controlled.
Like
many offshore players, Mellon appears to have taken steps to distance himself
from his offshore interests, the documents show. He often used third parties’
names as directors and shareholders of his companies rather than his own, a
legal tool that owners of offshore entities often use to preserve anonymity.
 |
| James R. Mellon. |
Reached
in Italy where lives part of the year, Mellon told ICIJ that, in fact, he used
to own “a whole bunch” of offshore companies but has disposed of all of them.
He said he set up the firms for “tax advantage” and liability reasons, as
advised by his lawyer. “But I have never broken the tax law.”
Of
the use of nominees, Mellon said that “that’s the way these firms are set up,”
and added that it’s useful for people like him who travel a lot to have
somebody else in charge of his businesses. “I just heard of a presidential
candidate who had a lot of money in the Cayman Islands,” Mellon, now a British
national, said, alluding to former U.S. presidential candidate Mitt Romney.
“Not
everyone who owns offshores is a crook.”
Offshore growth
The
anonymity of the offshore world makes it difficult to track the flow of money.
A study by James S. Henry, former
chief economist at McKinsey & Company, estimates that wealthy individuals
have $21 trillion to $32 trillion in private financial wealth tucked away in
offshore havens — roughly equivalent to the size of the U.S. and Japanese
economies combined.
Even
as the world economy has stumbled, the offshore world has continued to grow,
said Henry, who is a board member of the Tax Justice Network, an
international research and advocacy group that is critical of offshore havens.
His research shows, for example, that assets managed by the world’s 50 largest
“private banks” — which often use offshore havens to serve their “high net
worth” customers — grew from $5.4 trillion in 2005 to more than $12 trillion in
2010.
Henry
and other critics argue that offshore secrecy has a corrosive effect on
governments and legal systems, allowing crooked officials to loot national
treasuries and providing cover to human smugglers, mobsters, animal poachers
and other exploiters.
Offshore’s
defenders counter that most offshore patrons are engaged in legitimate
transactions. Offshore centers, they say, allow companies and individuals to
diversify their investments, forge commercial alliances across national borders
and do business in entrepreneur-friendly zones that eschew the heavy rules and
red tape of the onshore world.
“Everything
is much more geared toward business,” David Marchant, publisher of OffshoreAlert, an online news journal,
said. “If you’re dishonest you can take advantage of that in a bad way. But if
you’re honest you can take advantage of that in a good way.”
Much
of ICIJ’s reporting focused on the work of two offshore firms, Singapore-based
Portcullis TrustNet and BVI-based Commonwealth Trust Limited (CTL), which have
helped tens of thousands of people set up offshore companies and trusts and
hard-to-trace bank accounts.
Regulators
in the BVI found that CTL repeatedly violated the islands’
anti-money-laundering laws between 2003 and 2008 by failing to verify and
record its clients’ identities and backgrounds. “This particular firm had
systemic money laundering issues within their organization,” an official with
the BVI’s Financial Services Commission said last year.
The
documents show, for example, that CTL set up 31 companies in 2006 and 2007 for
an individual later identified in U.K. court claims as a front man for Mukhtar
Ablyazov, a Kazakh banking tycoon who has been accused of stealing $5 billion
from one of the former Russian republic’s largest banks. Ablyazov denies
wrongdoing.
Thomas
Ward, a Canadian who co-founded CTL in 1994 and continues to work as a
consultant to the firm, said CTL’s client-vetting procedures have been
consistent with industry standards in the BVI, but that no amount of screening
can ensure that firms such as CTL won’t be “duped by dishonest clients” or sign
on “someone who appears, to all historical examination, to be honest” but
“later turns to something dishonest.”
“It
is wrong, though perhaps convenient, to demonize CTL as by far the major
problem area,” Ward said in a written response to questions. “Rather I believe
that CTL’s problems were, by and large, directly proportional to its market
share.”
ICIJ’s
review of TrustNet documents identified 30 American clients accused in lawsuits
or criminal cases of fraud, money laundering or other serious financial
misconduct. They include ex-Wall Street titans Paul Bilzerian, a corporate
raider who was convicted of tax fraud and securities violations in 1989, and
Raj Rajaratnam, a billionaire hedge fund manager who was sent to prison in 2011
in one of the biggest insider trading scandals in U.S. history.
TrustNet
declined to answer a series of questions for this article.
Blacklisted
The
records obtained by ICIJ expose how offshore operatives help their customers
weave elaborate financial structures that span countries, continents and
hemispheres.
A
Thai government official with links to an infamous African dictator used
Singapore-based TrustNet to set up a secret company for herself in the BVI, the
records show.
 |
| Nalinee Taveesin. |
The
Thai official, Nalinee “Joy” Taveesin, is currently Thailand’s international
trade representative. She served as a cabinet minister for Prime Minister Yingluck Shinawatra before
stepping down last year.
Taveesin
acquired her BVI company in August 2008. That was seven months after she’d been
appointed an advisor to Thailand’s commerce minister — and three months before the U.S. Department of
Treasury blacklisted her as a “crony” of Zimbabwean dictator Robert Mugabe.
The
Treasury Department froze her U.S. assets, accusing her of “secretly
supporting the kleptocratic practices of one of Africa’s most corrupt regimes”
through gem trafficking and other deals made on behalf of Mugabe’s wife, Grace,
and other powerful Zimbabweans.
Taveesin
has said her relationship with the Mugabes is “strictly social” and that the
U.S. blacklisting is a case of guilt by association. Through her secretary,
Taveesin flatly denied that she owns the BVI company. ICIJ verified her
ownership using TrustNet records that listed her
and her brother as shareholders of the company and included the main address in
Bangkok for her onshore business ventures.
Records
obtained by ICIJ also reveal a secret company belonging to Muller Conrad
“Billy” Rautenbach, a Zimbabwean businessman who was blacklisted by the U.S.
for his ties to the Mugabe regime at the same time as Taveesin. The Treasury
Department said Rautenbach has helped organize huge mining projects in Zimbabwe
that “benefit a small number of corrupt senior officials.”
When
CTL set Rautenbach up with a BVI company in 2006 he was a
fugitive, fleeing fraud allegations in South Africa. The charges lodged
personally against him were dismissed, but a South African company he
controlled pleaded guilty to criminal charges and paid a fine of roughly $4
million.
Rautenbach
denies U.S. authorities’ allegations, contending that they made “significant
factual and legal errors” in their blacklisting decision, his attorney, Ian
Small Smith, said. Smith said Rautenbach’s BVI company was set up as “special
purpose vehicle for investment in Moscow” and that it complied with all
disclosure regulations. The company is no longer active.
‘One Stop Shop’
Offshore’s
customers are served by a well-paid industry of middlemen, accountants, lawyers
and banks that provide cover, set up financial structures and shuffle assets on
their clients’ behalf.
Documents
obtained by ICIJ show how two top Swiss banks, UBS and Clariden, worked with
TrustNet to provide their customers with secrecy-shielded companies in the BVI
and other offshore centers.
Clariden,
owned by Credit Suisse, sought such high levels of confidentiality for some
clients, the records show, that a TrustNet official described the bank’s request as
“the Holy Grail” of offshore entities — a company so anonymous that police and
regulators would be “met with a blank wall” if they tried to discover the
owners’ identities.
Clariden
declined to answer questions about its relationship with TrustNet.
“Because
of Swiss banking secrecy laws, we are not allowed to provide any information
about existing or supposed accountholders,” the bank said. “As a general rule,
Credit Suisse and its related companies respect all the laws and regulations in
the countries in which they are involved.”
A
spokesperson for UBS said the bank applies “the highest international
standards” to fight money laundering, and that TrustNet “is
one of over 800 service providers globally which UBS clients choose to work
with to provide for their wealth and succession planning needs. These service
providers are also used by clients of other banks.”
TrustNet
describes itself as a “one-stop shop” — its staff
includes lawyers, accountants and other experts who can shape secrecy packages
to fit the needs and net worths of its clients. These packages can be simple
and cheap, such as a company chartered in the BVI. Or they can be sophisticated
structures that weave together multiple layers of trusts, companies,
foundations, insurance products and so-called “nominee” directors and shareholders.
When
they create companies for their clients, offshore services firms often appoint
faux directors and shareholders — proxies who serve as stand-ins when the real
owners of companies don’t want their identities known.
Thanks to the proliferation of proxy directors and shareholders, investigators
tracking money laundering and other crimes often hit dead ends when they try to
uncover who is really behind offshore companies.
 |
Thousands of offshore entities are headquartered on
this building's third floor, which houses TrustNet's
Cook Islands office.
Photo: Alex Shprintsen
|
An analysis by ICIJ, the BBC and The
Guardian
identified a cluster of 28 “sham directors” who served as the on-paper
representatives of more than 21,000 companies between them, with individual
directors representing as many 4,000 companies each.
‘Zone of Impunity’
International
groups have been working for decades to limit tax cheating and corruption in
the offshore world.
In
the 1990s, the Organization for Economic Cooperation and Development began
pushing offshore centers to reduce secrecy and get tougher on money laundering,
but the effort ebbed in the 2000s. Another push against tax havens began when
U.S. authorities took on UBS, forcing the Swiss bank to pay $780 million in
2009 to settle allegations that it had helped Americans dodge taxes. U.S. and
German authorities have pressured banks and governments to share information
about offshore clients and accounts and UK Prime Minister David Cameron has
vowed to use his leadership of the G8, a forum of the world’s richest nations,
to help crack down on tax evasion and money laundering.
Promises
like those have been met with skepticism, given the role played by key G8
members — the U.S., the U.K. and Russia — as sources and destinations of dirty
money. Despite the new efforts, offshore remains a “zone of impunity” for
anyone determined to commit financial crimes, said Jack Blum, a former U.S.
Senate investigator who is now a lawyer specializing in money laundering and
tax fraud cases.
“Periodically,
the stench gets so bad somebody has to get out there and clap the lid on the
garbage can and sit on it for a while,” Blum said. “There’s been some progress,
but there’s a bloody long way to go.”
Contributors to this
story: Mar Cabra, Kimberley Porteous, Frédéric Zalac, Alex Shprintsen, Prangtip Daorueng, Roel Landingin, François Pilet, Emilia Díaz-Struck, Roman Shleynov, Harry Karanikas, Sebastian Mondial and Emily Menkes
