As Panama Papers shine light on offshore world, Luke Harding takes a closer look at company exploiting tropical taxation havens

In June 2013, two Swiss lawyers held a private telephone chat. They were annoyed. In London, David Cameron had just given a speech. The prime minister had promised to sweep away decades of offshore taxation secrecy by introducing a central register. Anybody who owned an offshore company had a duty to declare it to the authorities.

The G8 summit, to be hosted by Cameron along the shores of Lough Erne, in Northern Ireland, was looming. Top of the agenda: how to stop aggressive taxation avoidance.

For much of the 20 th century concealing your money was simple. You got a lawyer, filled in a sort and set up a Swiss bank account or offshore shell company.

Nobody asked questions. For a couple of thousand dollars a year, it was possible to hide away gains where governments could never find them.

But in the UK crown dependencies and overseas territories where financial services were the main source of jobs and income days were changing. In tropical taxation havens such as the British Virgin Islands a cold gust or at least the threat of one was blowing.

One of the Swiss lawyers was Sandro Hangartner, the Zurich boss of the Panamanian law firm Mossack Fonseca.

The other man, his disgruntled caller, was Sascha Zger. Zgers company appeared after the assets of some very wealthy South Americans.

In an email to his head office in Panama, Hangartner wrote: Sascha is not very pleased about the development in BVI[ British Virgin Islands ].

He was now looking for alternatives, Hangartner added in other words other secret jurisdictions where a client might park their money.

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David Cameron and fellow leaders including Angela Merkel and Vladimir Putin at the G8 in 2013. Photo: Yin Gang/ Xinhua Press/ Corbis

For the network of international lawyers and accountants who serviced the offshore industry, these were distressed times.

Camerons speech was simply the latest piece of unwelcome attention. Since 2008, and the global financial crisis, cash-strapped exchequers had been trying to get their hands on billions in potential tax revenue hidden offshore.

How serious these tries were was a matter for debate.

What wasnt in doubt were the vast sums involved. According to the US economist Gabriel Zucman, 8% of the worlds wealth a vast $7.6 tn( 5.3 tn) was stashed in taxation havens.

Zucman estimates the loss in global tax revenues at $200 bn per year. That includes $35 bn in the US and $78 bn in Europe.

Previous attempts to bring about transparency had flopped. But now the worlds leading economies the G20, G8 and Organisation for Economic Cooperation and Development were apparently pursuing the theme with zeal.

If Cameron got his way, British overseas territories such as the BVI and Gibraltar would soon have to draw up a register of beneficial owneds the real owneds of a company, even though their name may not appear on the shareholder register. The crown dependencies Jersey, Guernsey and the Isle of Man would fall into line, too.

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As Hangartner acknowledged, the reason many clients use offshore structures was to keep their identities confidential. This was for a variety of reasons. Often, one offshore company would own another, and the other, like so many Russian dolls.

Now this elaborated system of concealment was under threat.

Hangartner and Zger discussed a answer. If Britains colonial islands were about to pull open the drapery of banking secrecy, what about other jurisdictions? Zgers answer: he would wind up his clients offshore businesses in the BVI and re-register them in non-British territories such as the Seychelles or Panama dodging Camerons stated initiative on transparency.

His clients names would remain secret and beyond the comprehend of even the most dogged taxation inspector. Mossack Fonseca would help. For a fee. He asked us to give him a quote, Hangartner reported.

The world of Mossack Fonseca

Mossack Fonseca is a law firm based in Panama. Founded in 1977, it is the worlds fourth biggest provider of offshore services. Until the publication this week of the Panama Papers, it was mostly obscure. In fact, it sits at the heart of the global offshore industry, and acts for about 300,000 companies. More than half are registered in British taxation havens as well as in the UK.

Mossfon, as the company styles itself, utilizes 600 staff in 42 countries. Its offices are located in the worlds leading secrecy jurisdictions Jersey, Cyprus, Luxembourg, the Swiss canton of Zug, all nodes on the superhighway of global capital.

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A Mossack Fonseca sign near the offices. Photo: Joe Raedle/ Getty Images

Its corporate slogan sums up the firms mission, to assist the rich stay rich: Wealth management as you deserve it.

Mossack Fonseca tells it complies with international protocols to ensure its companies are not used for money laundering, taxation dodging or other illicit purposes.

But the Panama Papers have glistened a light on a hidden world the firm tells it does not recognise one that sometimes facilitates crime, launders dirty money and receives ways of busting sanctions. Plus evading taxation.

This weeks revelations have focused on legislators, celebrities and the famous: the murky finances of Vladimir Putins friends and the offshore tax arrangings make use of David Camerons late parent, Ian. Others who feature in the leaked data include African autocrats, international limbs smugglers, drug dealers and corporate vehicles belonging to outcast countries such as North Korea and Syria. Mossack denies it busts sanctions.

The biggest group in the Panama Papers are not household names. They are what you might call the anonymous international rich. It is not, of course, illegal to set up an offshore firm. Many use company structures for legitimate reasons.

According to Mossack Fonsecas brochure, the law firm specialises in trust services, investor advisory, offshore/ onshore structures, commercial law and asset protection.

Its main function is as an incorporation agent, licensed by various taxation havens to register companies there. The firm operates in 21 territories.

Its biggest jurisdiction is the UK-administered BVI, followed by Panama, the Bahamas, and the Seychelles, and the islands of Samoa and Niue near New Zealand.

If a client wants to set up an offshore firm or trust, Mossack Fonseca will register it and take care of the local paperwork for a fee, plus an annual charge.

It will set up bank accounts. It will even offer nominee directors to sit on the board of your offshore company.

The companys leaked internal database devotes some notion of the massive scale of these international operations, many of them perfectly legal. The 11.5 m documents include shareholder registers, bank statements, emails from lawyers and accountants, passport scans and contracts. Much of it legal, if hidden.

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David Cameron with his mothers Ian and Mary during the 2010 electoral campaign. Photo: Rex/ Shutterstock

But like so many mosaic pieces, they also show how the global financial system plays a leading role in offshore money laundering.

Many British entities are involved, from banks to countries such as the BVI. Jeremy Corbyn and other legislators have this week called on the prime minister to clean up UK-administered tax havens. The dilemma for Downing Street is that the UK gains from this black money.

It is not illegal to generate or use offshore companies and the Panama Papers show some banks were doing it on an industrial scale.