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Panama Papers data trove offers glimpse of how the rich hide their money

Published 05/04/2016

Iceland's prime minister Sigmundur David Gunnlaugsson, right, gives a statement over the Panama Papers (AP)
Iceland's prime minister Sigmundur David Gunnlaugsson, right, gives a statement over the Panama Papers (AP)

The leak of 11.5 million documents from a Panama-based law firm offers a glimpse into the shadowy world where the rich and powerful hide their money, raising sharp questions about the use of shell companies that obscure the identities of their true owners.

News organisations working with the Washington-based International Consortium of Investigative Journalists (ICIJ) have been processing legal records from the Mossack Fonseca law firm that were first leaked to the Sueddeutsche Zeitung newspaper based in Munich, Germany.

The document dump that they dubbed the "Panama Papers" shows the hidden offshore assets of politicians, businesses and celebrities, including 12 current or former heads of state.

Among the countries with past or present political figures named in the reports are Iceland, Ukraine, Pakistan, Saudi Arabia, Russia and Argentina.

The law firm said it had observed all laws and international standards covering corporate registrations.

Ramon Fonseca, a co-founder of Mossack Fonseca - one of the world's largest creators of shell companies - confirmed to Panama's Channel 2 that documents investigated by the ICIJ were authentic and had been obtained illegally by hackers.

But he said most people identified in the reports were not his firm's direct clients but were accounts set up by intermediaries.

One of the most prominent subjects of the report is Russian president Vladimir Putin, although his name does not appear in the documents. ICIJ said on its website that the documents show how complex offshore financial deals channelled as much as two billion dollars (£1.4 billion) to a network of people linked to Mr Putin.

One focus was Sergei Roldugin, a professional cellist and childhood friend of Mr Putin. Mr Roldugen was listed as the owner of companies that obtained payments from other companies worth tens of millions of dollars, and of a stake in Bank Rossiya, described by the US Treasury as "designated for providing material support to government officials".

"The evidence in the files suggests Roldugin is acting as a front man for a network of Putin loyalists - and perhaps for Putin himself," the consortium said.

Kremlin spokesman Dmitry Peskov claimed Mr Putin was the "main target" of the investigation, which he suggested was the result of "Putinophobia" and aimed at smearing Russia in a parliamentary election year.

Mr Peskov, who had warned last week of an upcoming "information attack" on the Russian president, said he expected more reports to follow.

The US justice department is reviewing the leak for evidence of possible criminal wrongdoing that might have a link to the States or to its financial system, but could not comment on specific documents, said spokesman Peter Carr. It is not clear how many Americans have been identified in the documents, but thousands of Europeans have been named.

Australia's tax office said it is investigating more than 800 wealthy people for possible tax evasion linked to their alleged dealings with Mossack Fonseca. The agency said it had linked more than 120 of those people to an offshore services provider in Hong Kong, but did not identify the company.

Anti-corruption advocates say legal standards on shell companies have improved in some countries but are not tough enough. The G20 leaders adopted 14 principles in November 2014 at a summit in Brisbane, Australia. The essence of these was that companies should be able to identify to authorities who their real owners are.

Otherwise, that opens the way for money laundering and tax evasion.

Casey Kelso, advocacy director at anti-corruption organisation Transparency International in Berlin, said the reports "should light a fire under governments to take action".

He added: "We hope that it will galvanise political leadership to actually walk the talk... You can now see the names of the people."

The ICIJ said the documents involve 214,488 companies and 14,153 clients of Mossack Fonseca. The non-profit group said it would release the full list of companies and people linked to them next month.

Sueddeutsche Zeitung said it was offered the data more than a year ago through an encrypted channel by an anonymous source. The source sought unspecified security measures but no compensation, said Bastian Obermayer, a reporter for the paper.

The data reaches from 1977 through to 2015, the paper said. The newspaper and its partners verified the data's authenticity by comparing it to public registers, witness testimony and court rulings.

Panama "is the last major holdout that continues to allow funds to be hidden offshore from tax and law enforcement authorities," said Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, an organisation representing mostly rich countries. It has been working with the G20 to restrict the use of shell companies.

Panamanian president Juan Carlos Varela said his government had "zero tolerance" for illicit financial activities and would cooperate "vigorously" with any investigation.

Reports based on the leak said Iceland's prime minister Sigmundur David Gunnlaugsson set up a company called Wintris in the British Virgin Islands in 2007 with his partner at the time, Anna Sigurlaug Palsdottir, who is now his wife.

He reportedly sold his half of the company to Ms Palsdottir for one dollar on December 31 2009, the day before a new Icelandic law took effect that would have required him to declare the ownership of Wintris as a conflict of interest.

Wintris lost money as a result of the 2008 financial crash that crippled Iceland, and is claiming a total of 515 million Icelandic kronur (£2.9 million) from the three failed Icelandic banks: Landsbanki, Glitnir, and Kaupthing.

Mr Gunnlaugsson stands accused by opposition leaders of a serious conflict of interest, because as prime minister he was involved in reaching a deal for the banks' claimants.

He told the Icelandic parliament: "I have not considered quitting because of this matter nor am I going to quit because of this matter."

An estimated 8,000 protesters gathered outside in Reykjavik, demanding that he step down and call new elections.

Meanwhile, the office of Argentine president Mauricio Macri confirmed a report by the newspaper La Nacion that a business group owned by Mr Macri's family had set up Fleg Trading in the Bahamas. But it said Mr Macri himself had no shares in Fleg and had never received income from it.

Sueddeutsche Zeitung said its Tuesday edition will report that 28 German banks had used Mossack Fonseca's services to set up 1,200 shell companies.

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