April 9, 2016

The Shells May Be Cracking

A weekend topic on the Panama Papers, starting with Digital Trends. “If you have been thinking about moving to the Miami area, check your bank account. Miami’s rentals are the most expensive in the country and the skyrocketing cost of real estate (especially luxury condos) knocks most people out of the market for buying a home, according to a story in the Miami Herald. The focus on pricey real estate in southern Florida comes courtesy of revelations from the Panama Papers.”

“News of the 11.5 million documents leaked from Mossack Fonseca, an international law firm headquartered in Panama, was announced simultaneously last Sunday by 100 publications, including the Miami Herald, that had been working with the paperwork trove since late 2014. Mossack Fonseca specializes in setting up shell companies for offshore accounts. It appears the shells may be cracking on multi-layered companies that paid cash for Miami high-rise condos.”

“Cash is still common in Miami transactions, accounting for 90 percent of all new construction purchases in 2015. Miami’s history of money laundering puts in a short list with New York City and Los Angeles for the most suspicious financial activity reports to the U.S. Financial Crimes Enforcement Network (FinCen), a division of the U.S. Treasury.”

The Miami Herald. “Come to Mossack Fonseca, and we’ll create an offshore shell company to help you purchase that dream condo. Shell companies are a great way to hide ownership, and we’ll make up a legitimate-sounding name for yours.”

“[Cut to client testimonial].”

“I’m Leon Cohen-Levy, and the Mossack Fonseca law firm helped me and my father set up 13 different offshore companies! One of them was called BlueOcean Finance, which doesn’t sound anything like the money-laundering scam it was. With Mossack Fonseca’s help, Dad and I were able to buy a mansion on Miami Beach, a condo on Fisher Island, fancy cars and even a helicopter.”

“The IRS eventually busted us for a $49 million tax fraud, and we were sentenced to 10 years in the slammer. But that wasn’t Mossack Fonseca’s fault. We didn’t come right out and tell them we were scumbags. Four years after we were convicted, the law firm was still listed as the registered agent for our shell companies. Now that’s loyalty!”

The Real Deal. “A suspicious condo flip in South Beach has found its way in the ‘Panama Papers,’ according to a published report. In January, a small Miami Beach condo at 2129 Washington Avenue sold for $162,000. Then, in March, an offshore entity entered into a contract to buy the same apartment for 60 percent more – $258,000 – the Miami Herald reported. That sale has not yet closed.”

“That kind of flip could be indicative of money laundering. The sale would be a record for the Domicile, a 17-unit boutique condo that was built in 1948. Last year, a larger unit sold for $220,000.”

“The offshore entities mentioned in the ‘Panama Papers’ were established in the British Virgin Islands, Samoa, Hong Kong, and Panama. At least two billionaires with South Florida homes have so far been identified in the papers. The investigation also identified a Brickell condo where Mossack Fonseca’s Miami representative helped incorporate more than 200 shell companies.”

The Virgin Island Daily News. “Olga Santini, the Miami representative for Panama-based law firm Mossack Fonseca, works out of an 18th-floor unit at the Palace, a waterfront tower on Miami’s Brickell Avenue. Mossack Fonseca specializes in setting up offshores for the world’s rich and powerful. The Miami Herald and the International Consortium of Investigative Journalists received a massive leak of files — dubbed the ‘Panama Papers’ — from inside the firm last year.”

“The propensity to look the other way has helped turn South Florida into a hub of the world’s shadow economy. A cottage industry of lawyers and accountants based in Miami helps clients form offshore companies that can mask their activities. Mossack Fonseca is just one firm among many that set up offshores. In Brazil, it’s no surprise that Mossack Fonseca helped those linked to corruption buy condos, said Fabiano Angélico, who leads the Brazilian chapter of the global anti-corruption group Transparency International.”

“Brazilian prosecutors recently accused Mossack Fonseca of facilitating graft at the state oil company, issuing arrest warrants for four employees of the firm’s office in Brazil. (The investigation has been labeled Lava Jato, Portuguese for ‘car wash,’ and has even snared former president Lula, who was charged with money laundering in March.) Wealthy Brazilians are among the top foreign buyers of Miami condos, despite a crippled Brazilian economy that shrank 4 percent in 2015.”

“‘The use of offshore companies for the transfer of bribery is very apparent, but where this money was finally ending up, it’s not the most visible part of the scheme,’ Angelico said. ‘The direct link between corrupt money and Miami has not been known. But the level of interest is growing.’”

The Financial Post. “The so-called Panama Papers scandal this week couldn’t have come at a worse time as everyone files their tax returns. It’s particularly galling since the tax rate for high-income earners is now a record 54 per cent, and rich Canadians and multinationals can avoid taxation by using offshore tax avoidance schemes. The fact is that making fortunes in Canada, then taking them offshore to never pay taxes again, is a well-worn Canadian tradition. It’s all very legal. But morality is another matter.”

“While it’s hard to imagine, Canada is one of the world’s biggest secrecy and tax havens. Shell companies, offshore entities and proxies own, buy and sell assets here every day. There is massive money laundering through Canadian real estate — or conceal-estate — in Toronto and Vancouver condos. Foreigners use shell companies or proxies to acquire condos in these cities, with the help of Canadian banks, developers and brokers. These players have made housing unaffordable in both cities.”

The New York Times. “For wealthy Americans looking to veil their assets and shield some of their income from taxation, there is no need to go to Panama or any other offshore tax haven. It’s easy to establish a shell corporation right here at home. ‘In Wyoming, Nevada and Delaware, it’s possible to create these shell corporations with virtually no questions asked,’ said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a nonprofit research organization in Washington.”

“Heather A. Lowe, the legal counsel and director of government affairs for Global Financial Integrity, a research and advocacy group in Washington, warned that the problem was much more widespread than just a handful of states. ‘You can create anonymous companies anywhere in the United States,’ Ms. Lowe said. ‘The reason people know about Delaware, Nevada and Wyoming is because these states market themselves internationally.’”

“‘Where is that money going?’ Ms. Lowe asked. ‘Not to Delaware, Nevada and Wyoming, but New York, Miami and Los Angeles banks.’”

From USA Today. “A USA TODAY analysis of more than 1,000 American-based companies registered by Mossack Fonseca, the law firm at the heart of the Panama Papers leak, casts the United States openly into an uncomfortable role: an offshore haven of corporate secrecy for wealthy business operations across the globe. The analysis found that both Nevada and Wyoming have become secretive havens much like Bermuda and Switzerland have long been. And at least 150 companies set up by Mossack Fonseca in those states have ties to major corruption scandals in Brazil and Argentina.”

“The corporate records of 1,000-plus Nevada business entities linked to the Panamanian law firm reveal layers of secretive ownership, with few having humans’ names behind them, and most tracing back to a tiny number of overseas addresses from Bangkok high rises to post offices on tiny island nations. Only 100 of the Nevada-born corporations have officers with addresses in this country: 90 in Nevada, nine in Florida and one in Delaware.”

“The financial records show more than 600 of the companies’ corporate officers are listed at one of just two addresses in the world, one in Panama and the other Seychelles, a small Indian Ocean archipelago. The addresses, in both countries, are the same as Mossack Fonseca’s headquarters. For about 700 of the American shell companies, the corporate officers are business entities rather than people, meaning no individual is linked to the Nevada firm in state records.”

“‘We shouldn’t be thinking about this as a Panamanian problem,’ said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy in Washington, D.C. ‘We should be thinking about this as a very American problem, and a problem that arguably is worse here in the states than it is in Panama.’”

From Quartz. “The US is one of the largest recipients of illicit financial flows from developing countries—money often smuggled out by corrupt politicians, drug dealers, or everyday criminals. The key reason is corporate secrecy. When individuals or companies want to hide their assets, they transfer them to shell companies that hide the true owners behind nominee directors who act as the custodian of the firm. Comparatively few Americans were found in the Mossack Fonseca’s records, and there’s a reason for that: In the US, corporate registration is handled on the state level, and many states offer generous corporate secrecy rules.”

“Just as small countries tend to breed the political culture that allows corporate secrecy, sparsely populated US states have competed in a race to the bottom to attract corporate investment through lax disclosure requirements. The tiny state of Delaware, called an ‘on-shore tax haven’ by critics, garners more than a quarter of its public revenue—just over a $1 billion—from its business registry.”

“This probably factors into the World Bank’s assessment of the US as one of the worst offenders when it comes to corporate secrecy. In fact, a 2012 academic study reports that it is easier to form a shell company in the US than it is in Panama—or indeed, anywhere else but Kenya. At the top of their list? Delaware and Nevada.”

From Agence France-Presse. “As-well as shining a spotlight on the secret financial arrangements of the rich and powerful, the so-called Panama Papers have laid bare London’s role as a vital organ of the world’s tax-haven network. The files leaked from Panama law firm Mossack Fonseca exposed Britain’s link to thousands of firms based in tax havens and how secret money is invested in British assets, particularly London property.”

“The files showed that Britain had the third highest number of Mossack Fonseca’s middlemen operating within its borders, with 32,682 advisers. Around 310,000 tax haven companies own an estimated £170 billion (210 billion euros, $240 billion) of British real estate, 10 percent of which were linked to Mossack Fonseca.”

“Every few years London pretends to ‘clean up its act’, wrote columnist Simon Jenkins in the capital’s Evening Standard newspaper. ‘Most world cities are ruthless against foreigners who arrive with suitcases of cash to buy property or other businesses. Not London,’ he added. ‘It is awash in ‘offshore’ towers overlooking the Thames.”

The Guardian. “World leaders, business people and celebrities are among those whose anonymous ownership of London property has been exposed by the massive leak of the Panama law firm’s data on offshore companies. The president of the United Arab Emirates has secretly built one of the single biggest offshore property empires in Britain, the Panama Papers reveal. Sheikh Khalifa bin Zayed Al Nahyan owns dozens of central London properties worth more than £1.2bn through offshore companies supplied by Mossack Fonseca.”

“More than £170bn of UK property is now held overseas. Much of that is in London, where unprecedented house price inflation has transformed homes into highly profitable investments for asset speculators. Nearly one in 10 of the 31,000 tax haven companies that own British property are linked to Mossack Fonseca.”

“At least 700 properties were owned by companies named in the Panama Papers that were themselves owned through bearer shares – anonymous documents that grant ownership to the person physically holding the certificate. Bearer shares are now in effect banned in many countries, including the UK, due to their attractiveness to criminals.”

“Transparency campaigners have warned the secrecy of such arrangements can enable large sums of black money to be laundered through the property market. A senior National Crime Agency director warned last year that the capital’s housing market had been ’skewed by laundered money.’ The British government recently launched a consultation into whether to force offshore property owners to disclose their identities after David Cameron expressed concern that UK properties ‘are being bought by people overseas through anonymous shell companies, some with plundered or laundered cash.’”