Hosni Mubaraks son Alaa during his 2013 retrial in Cairo. Photo: Khaled Desouki/ AFP/ Getty Images
The firm, a family investment fund, had nearly$ 1bn in assets. Why, the BVI wanted to know, had Mossack Fonseca slumbered through the Arab springtime and continued to act for Mubarak?
Mossacks corporate lawyers swapped frantic emails.
The reality is that we didnt identify the BO[ beneficial owned] since the beginning[ as we should have ], one of its lawyers wrote from Panama.
The firm decided to admit nothing. It blamed Credit Suisse, which had introduced Mubarak in the first place. The bank was at fault, it told. The regulator disagreed, and penalty Mossack Fonseca $37,500 for due diligence failings.
The story had a postscript. In 2014, Credit Suisse get in touch. It wanted to reactivate Pan World Investments. Despite reservations, Mossack Fonseca concurred.
The firm points out it has not been sued or accused of wrongdoing by any tribunal in the world and has operated beyond reproach for 40 years.
We created a monster
As Ramn Fonseca tells it, his law firm started from humble beginnings. After graduating from law at Panama University, Fonseca expended six years working for the UN in Geneva. When he returned to Panama City, Fonseca launched his own legal business, with only one secretary, in 1977. He grabbed his suitcase and reach the road. He went to Switzerland talking to clients and potential our customers and to China. Afterwards the same year, he joined forces-out with another ambitious German-Panamanian lawyer, Jrgen Mossack.
At the time, offshore companies were entering a golden age. Growth in global trade, increased international financial transactions and the dissolution of empire all contributed to this giddy boom. Countries signed double taxation treaties with one another: if a company paid taxation in one jurisdiction it was unreasonable to expect it to pay again in a second territory. This swiftly led to what is called transfer pricing: with gains booked in low-tax territories and losses shifted to high-tax jurisdictions.
Ultimately, it also led to double non-taxation, with companies changing all of their gains offshore.
Mossacks backstory, meanwhile, was striking. In 1939, his father Erhard joined the Hitler youth and later fought with the Waffen-SS. In March 1945, US forces-out captured him on the western front. He was sent to a PoW camp, escaped and was rearrested in 1946 in Germany, still apparently spouting Nazi views.
Jrgen was born two years later. At the age of 13, he moved with his family to the US and then to Panama where he analyzed law in Panama City before working in London between 1975 -7 7 and then teaming up with Fonseca.
Their practice, Mossack Fonseca& Co, get bigger. In a 2008 Tv interview, Fonseca told: Together, we created a monster.
The monster took advantage of Panamas lax corporate laws. It is solely legal to generate joint stock companies where owneds could conceal their identities. These offshore structures often involved opaque multiple firms: known in the trade as layering. These structures were perfect for money laundering. When the US invaded Panama in 1989, arresting Manuel Noriega, investor confidence was shaken. Mossack Fonseca adroitly changed incorporations from Panama to the BVI, which exploded as an offshore centre.
The BVI had another big and legitimate advantage for risk-averse clients: a British legal system, answerable to the high court in London.
Over the years the company built up impeccable connects. From the 1990 s, Fonseca was active in politics. By the noughties he was minister counsellor to Panamas then chairman Ricardo Martinelli.
Panamas former chairman Ricardo Martinelli. Photo: Johan Ordonez/ AFP/ Getty Images
He is close to Panamas current president, Juan Carlos Varela, and part of his informal kitchen cabinet.
I communicate a lot with him[ the president] through blackberry and WhatsApp, Fonseca said in a Tv interview, adding: We are friends first and then fellow legislators. Fonseca falls into weekly cabinet sessions by helicopter. Mossack, meanwhile, advised Varela when the latter was foreign minister.
Tax avoidance might seem, to many, an immoral activity. But the professionals who make it possible enjoy surprising supporting in Washington from rightwing libertarian lobbyists. One, the Center for Freedom and Prosperity( CF& P ), promotes what it calls taxation competition. Its main enemy is the Paris-based OECD a bunch of crazy European socialists, in the words of the groups founder Daniel J Mitchell. In 2012, Mitchells colleague Andy Quinlan sent an email to Mossacks daughter Jennifer, who was working at her parents firm. Quinlan was visiting Panama and wanted to drop by.
Quinlan offered to brief her on what CF& P is doing in Washington and the current legislative climate on offshore taxation and information exchange schemes.
The lobbyist worked with Mossack following the OECDs bombshell report in 2000. It featured a blacklist of 35 taxation havens and threatened measures against jurisdictions that failed to clean up their act. That August, Mossack warmly received Quinlan. I can coordinate a discussion group with our attorneys, the reply read.
There were other forums where rich person averse to paying government taxes could fulfill and exchange views.
In 2008, Ramses Owens, one of the law firms partners took its participation in a wealth symposium at Panama Citys Sheraton hotel.
According to its booklet, the annual event brought together 33 leading investment, taxation, privacy and asset protection experts from Europe, Asia and the Americas. The booklet, aimed at US citizens unsettled by Barack Obamas recent election to the White House, described Panama as a 489 -year-old colonial city and modern, world-class asset haven along the shores of the Caribbean.
The blurb for Owenss presentation read: Procure your wealth with an 82 -year-old proven, virtually 100% courtroom-proof structure. This fascinating structure has managed to evade the slickest attorneys tricks and protect the wealth of individuals worldwide for the last eight decades. Other adverts were similarly brazen. A talk by Colin Bowen, an offshore insurance provider based on the Isle of Man, read: How to stiff contingency lawyers, unscrupulous creditors and greedy exes all with this one savvy vehicle. This off-the-beaten-path structure does all that and defers taxes. Its perfect for beating wealth leeches at their own game.
Ironically, the biggest threat to offshore buccaneers like Mossack Fonseca went not from government wealth leeches but from the inside. In 2013, the International Consortium of Investigative Journalists( ICIJ) disclosed details of 130,000 offshore accounts. Its leak included 2.5 m secret records. One panicked client emailed Mossack Fonseca to seek reassurance that his private data stored on the island of Samoa was safe? The law firm assured him there was nothing to worry about. The situation was serious, it told, but there was no way his name might get out.
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