In accordance with national laws and international agreements, firms such as Mossack Fonseca, which help establish companies and open bank accounts, are supposed to be wary of customers who may be involved in money laundering, tax evasion or other crimes.
They are required to devote special attention to “politically exposed persons” — government officials or their families and business partners.
If someone is a PEP, the agent setting up their companies must carefully look into their activities to make sure they are not linked to any acts of corruption.
Mossack Fonseca informed the International Consortium of Investigative Journalists that it follows a “policy and process legally prepared to identify and handle such cases including people or those close to them identified as politically exposed.”
Sometimes, however, it seems that Mossack Fonseca does not know its clients. An internal examination conducted in 2015 discovered that the firm was only privy to the owner identities of 204 out of 14,086 companies it has registered in the Seychelles, a tax shelter in the Indian Ocean.
The authorities in the British Virgin Islands fined Mossack Fonseca $37,500 for violating laws against money laundering it had registered a company in the name of former Egyptian President Hosni Mubarak’s son, but did not report its relationship to the two even after both father and son were charged with corruption in their country.
An internal examination carried out by a legal company concluded that “our formula for risk assessment is significantly defective.”
In total, the ICIJ probe of Mossack Fonseca’s files identified relationships with 58 relatives and friends of prime ministers, presidents or kings.
The files show that Azerbaijan’s president, Ilham Aliyev, used companies and funds in Panama to hold onto gold mine stocks and London real estate. The offspring of Pakistani Prime Minister Nawaz Sharif own real estate in London via companies established by Mossack Fonseca.
Mossack Fonseca created companies in tax shelters for the families of at least eight permanent members of the Politburo, China’s supreme ruling body. One of them is President Xi Jinping’s son-in-law, who established two companies in the British Virgin Islands in 2009.
Representatives of the leaders of Azerbaijan, Pakistan and China did not respond to requests for comment.
The list of leaders who used the services of Mossack Fonseca to set up companies in tax shelters includes the current president of Argentina, Mauricio Macri, who was director and vice president of a company in the Bahamas managed by Mossak Fonseca while he served as mayor of Buenos Aires.
Macri’s spokesman said that the president never personally held any stock in the company, which was part of his family’s businesses.
The documents show that during the bloodiest period after Russia invaded Ukraine’s Donbass region in 2014, representatives of Ukrainian President Petro Poroshenko, made feverish efforts to find a copy of a domestic services account to complete the paperwork for the establishment of a holding company in the British Virgin Islands.
A spokesman for Poroshenko said that the company’s establishment has nothing to do “with military or political events in Ukraine.”
Poroshenko’s financial advisers said the president didn’t include the BVI company in his 2014 financial report because the holding company and two sister companies set up in Cyprus and the Netherlands do not have any assets. According to the advisers, these companies were part of a reorganization carried out with the aim of helping to sell Poroshenko’s confectionary businesses.
When Sigmundur Davio Gunnlaugsson was elected in 2013 as Iceland’s prime minister, he hid a secret that could have badly hurt his political career: At the time he was elected to parliament in 2009, he and his wife were the owners of a company registered in the British Virgin Islands. In the months afterwards he sold his stock in the company to his wife for the price of $1.
The company held bonds originally worth millions of dollars in the three large banks of Iceland, which collapsed in the world financial crisis of 2008. The event made him one of banks’ debtors when they declared bankruptcy.
Last year, Gunnlaugsson’s government negotiated with the debtors without exposing that his family also had a financial interest in the result.
Gunnlaugsson has denied in recent days that his family’s financial interests influenced his positions. The leaked files do not make clear whether Gunnlaugson’s political positions influenced the value of the bonds that the company held for better or for worse.
In an interview with Reykjavik Media, ICIJ’s media partner in Iceland, Gunnlaugsson denied hiding any assets. When the name of the company linked to him — Wintris Inc. was mentioned, the prime minister said, “I am beginning to feel a little strange about these questions because it appears to me you are accusing me of something.” He immediately ended the interview.
Four days later, his wife published a post on Facebook confirming that the company was hers and not his and that she had paid all its taxes.
Some members of the Icelandic Parliament have questioned why Gunnlaugsson never mentioned the company registered in the tax shelter.
One has even called on him and his government to resign.