The Panama Papers dominated global media this week, toppling the Icelandic prime minister and embarrassing the UK’s, infuriating President Putin and prompting China to leap into censorship mode to try to protect its political elite.
They're down to a leak of unprecedented size to a media organisation. More than 11 million documents from the files of the Panama-headquartered law firm Mossack Fonseca were leaked to the German newspaper Süddeutsche Zeitung, which through the International Consortium of Investigative Journalists, in Washington, DC, shared them with The Irish Times and its other media partners around the world.
After a year of preparation the journalists involved began to publish their work at 7pm on Sunday, April 3rd.
Mossack is, or was, among the largest providers of offshore services, giving its clients access to a world of minimum regulation and maximum secrecy.
Given what's on offer, and the low standards revealed, it comes as no surprise that among the names of those seeking access to tax avoidance and almost complete confidentiality, such as the late Ian Cameron, father of Britain's prime minister, David Cameron, were details of the affairs of the world's kleptocrats and sanctions busters, plus associated friends and family.
The Panama Papers shed light on a murky world where the global elite do business alongside the world’s worst. But if you take the leak as a sample of what is going on offshore, then you have to say that the Republic of Ireland emerges as a relatively clean jurisdiction. The domestic revelations were relatively tame. They included the following:
Frank Flannery’s mortgage
Frank Flannery is a former long-time Fine Gael strategist and former long-time boss of one of Ireland's largest charities, Rehab. The files showed that in 1996, when Flannery had moved to England to pursue a number of Rehab ventures there, a company in the British Virgin Islands provided Bank of Ireland Private Banking in the UK capital with security against a loan that Flannery and his wife took out to buy a house in Primrose Hill in London for £615,000.
The company, International Funding Promotions Ltd, gave the bank control over an account with Bank of Ireland in Jersey where £250,000 was on deposit, as part of the loan arrangement.
Flannery, when contacted by The Irish Times, said he had never heard of the British Virgin Islands company, that the Bank of Ireland loan was a 100 per cent mortgage and that he and his wife later paid it off with financing from another bank. There was no third-party involvement with the transaction, he said. Rehab said there was nothing in its files about the transaction or the offshore company, and Flannery said it had nothing to do with Rehab. The house was sold in 2012 for £2.8 million. Flannery has said he is a "complete stranger" to the Jersey aspect of the deal, as documented in the files.
The Anglo emails
Anglo Irish Bank had a branch in Austria that it bought in 1995 and sold in 2008. The Mossack files include email correspondence with clients unhappy about banks wanting to know the real beneficial owners of offshore company accounts.
"A major part of my work revolves around finding banks that have fairly relaxed conditions," Jan Stockhausen, of Mossack, told one disgruntled client in a February 2006 email. Stockhausen said MF had gone through procedures to open accounts with various banks and then listed 17, including Anglo Irish Bank (Austria), Berenberg Bank (Germany), Banque Privée Edmond de Rothschild (Luxembourg), Clariden Bank (Switzerland) and HSBC (Isle of Man, Hong Kong and Panama).
“The only bank where we ever managed to open an account without naming the [ultimate beneficial owner] at all was Ebanka (Czech Republic).”
Numerous other emails show Anglo in Austria featuring in a seven-bank list of recommended private banks that Mossack staff sent to clients. “We have had the best experience with the following banks,” the emails say, before listing Anglo and the others. The files also show that Anglo in Austria often requested Mossack to establish offshore companies on behalf of its clients.
The Quinn family connection
One of the biggest business controversies of recent years concerns the attempt by the family of the former billionaire Seán Quinn to frustrate Anglo Irish Bank and then Irish Bank Resolution Corporation, the State-owned bank that absorbed the collapsed Anglo, in asserting control over a €500 million international property portfolio that had been given as security against loans.
The Mossack files show that it acted for a British Virgin Islands company, Lyndhurst Development Trading, that was part of the scandal insofar as it concerned a shopping mall in central Kiev. The Irish Bank Resolution Corporation, which is now in liquidation, says that the company is part of the “conspiracy” the family put in place. The family admits that it set out to frustrate the bank but says it was double-crossed and lost control of the plan – a position the bank does not accept. A major court hearing on the overall issue is pending in Dublin.
The leaked files also include details about James Stanley. He was part of a controversy in the late 1990s over shares in Bula Resources plc, of which he was chief executive. Shares worth more than €2 million were transferred to a British Virgin Islands company, Mir Oil Development Trading. The shares were supposedly a payment to a Russian entity in exchange for an involvement in a Siberian oil field, but an authorised officer appointed by the government subsequently found that Stanley had at all times controlled the company.
Mir was incorporated by Mossack, which acted as its agent. The leaked files show that the authorised officer, the barrister Lyndon MacCann, was in contact with Mossack during his investigation and that papers linked to a subsequent High Court action were served on Mir at the Mossack address. The files also show that in the late 2000s Mossack set up a number of new offshore companies for Stanley and that a reference was provided by his Dublin solicitor, Giles J Kennedy.
Kennedy told The Irish Times that Stanley had never been restricted in any way from acting as a company director, in this jurisdiction or anywhere else. "That is the criteria I would apply. Jim Stanley is a person of good standing in Ireland."
The Panama Papers show that Mossack acted for an offshore company linked to the developer Ray Grehan, who went bankrupt in the UK in late 2011. Mossack told regulators in the British Virgin Islands in March 2012 that the beneficial owner of the company was Marcelino Alvarez Garcia, with an address in Spain. They added that there was no reason for Grehan "to be connected to our corporation". This was despite the fact that Grehan had already told a court in London that he had an interest in the company.
The papers show that the wealthy businessmen Dermot Desmond and JP McManus, neither of whom is tax resident here, made use of Mossack. The companies with which they are associated in the files include ones that used bearer share certificates. These provide a high degree of confidentiality, as the relevant company share registers show only that the company's shares are owned by the "bearer" of the certificate. Bearer shares are being phased out in most jurisdictions.
The files also show a prominent solicitor, Stanley Watson of Matheson, setting up a tax structure as he moved to take over the running of the firm's London office. The structure involved Watson leaving the firm and acting as a consultant, and his pay going to a structure that included a company in Cyprus.
The files also include details of Irish people, and offshore companies linked to Irish people, across the State, who used Mossack in relation to the ownership of land or their homes. The names in the files include those of a former banker, Seán Manning, who owned the Anchor Bar in Graiguenamanagh, Co Kilkenny, by way of a British Virgin Islands company, Kymar Holdings, supplied by Mossack.
They show how “Paudie”, a man from Co Cavan, found Mossack through Google in 2014 and emailed it to get its advice about a proposed international tax structure for a business he was thinking of setting up, which would involve a company in Hong Kong, and a foundation in the Seychelles. Despite Mossack’s efforts, it appears the potential client slipped away.
It’s all legal
There is nothing illegal about using offshore companies for the confidentiality they provide or for tax planning. But in the wake of the Panama Papers the topic of offshore secrecy has moved up the global political agenda. As President Obama said, responding to the leak, “A lot of it is legal – but that’s exactly the problem.”
From a local point of view, that none of the leaked facts has rocked Irish politics may be a stroke of luck for those whose affairs have been buried via a different offshore law firm – or be an indicator that the Republic of Ireland is a relatively clean jurisdiction.
What is clear from the files, however, is how easily accessible the offshore world is, and not just to the elite. Its tentacles appear to be spreading into the lives of relatively ordinary people. This is not a good development if we want to maintain general participation in the tax system on which our society is based.
The leak is the third International Consortium of Investigative Journalists project that The Irish Times has been involved in, following on from the Luxembourg Leaks and Swiss Leaks of 2015.
The projects show how technology has transformed investigative journalism. A leak such as the Panama Papers simply wasn’t possible a few years ago. Whoever was behind it would have had to have slip the documents out of the Mossack offices by truck before shipping them to Germany.
These days all that’s needed is some cheap technology, an email address and a person with a motive to share the data, and the tax affairs of a billionaire businessmen, or hordes of kleptocrats, are all over the evening news.
Technology now undermines any assurances of confidentiality. As the Irish head of the consortium told RTÉ this week, Mossack Fonseca used to sell secrecy, but “they don’t any more”.
Perhaps the offshore world and its secrecy are being brought to an end not by the OECD or the G20 but by the USB stick.