More than 330 politicians from 90 countries, 35 current or former heads of state (14 in Latin America alone), 133 Forbes billionaires whose combined fortunes exceed €500 billion and 46 Russian oligarchs. This is just the tip of the iceberg from an investigation that has been analyzing nearly 12 million documents from a total of 14 offshore service providers in opaque jurisdictions. The Pandora Papers reveal new information and prove that the offshore sector remains in rude health, despite the Great Recession and the toll that the most recent crises have caused to Western welfare states, which have been decimated by a series of law firms that are specialized in taking advantage of the opacity of tax havens the world over.
Their clients could sell shares in a mining company, as the family of Chilean President Sebastián Piñera did, or get paid for consulting work from disreputable companies without paying tax, as is the case of former International Monetary Fund (IMF) director Dominique Strauss-Kahn. Another option was to use the British Virgin Islands to set up a real estate empire on Miami’s Indian Creek Island, aka the “Billionaire Bunker,” as Spanish crooner Julio Iglesias has done, or, try to hide an account in Andorra, like soccer manager Pep Guardiola did.
Over the course of two years, more than 600 reporters from 117 countries have worked on the Pandora Papers, an international journalistic investigation coordinated by the International Consortium of Investigative Journalists (ICIJ), and set up to analyze 11.9 million internal files from 14 offshore service providers, such as Alemán, Cordero, Galindo & Lee (Alcogal), Trident Trust and Asiaciti, all specialized in opening companies in opaque jurisdictions. Prior to the investigation, the names of some of these firms were already under the scrutiny of several national tax authorities for their role in fomenting tax fraud and money laundering schemes around the world. The corporate tangle that, according to the Spanish Treasury, was used by Shakira to avoid paying €14.5 million in taxes, and the companies that are at the root of Real Madrid coach Carlo Ancelotti’s problems with the taxman are among the 29,700 offshore companies exposed by this data leak.
Five decades of records, between the 1970s and 2020, have made it possible to reconstruct the financial dealings of politicians, billionaires, criminals and elite athletes in countries and territories that afford anonymity and low tax rates to foreign capital.
In Spain, a team from EL PAÍS and La Sexta TV network has analyzed the leak to flag up Spaniards in the public eye who have taken advantage of the most opaque jurisdictions in the world. The data throws up 601 people with Spanish nationality and 751 offshore companies linked to either individuals or companies with addresses in Spanish territory. In addition to dozens of public personalities, there are at least 54 linked to ongoing court cases. In most instances, they have used Andorran and Spanish lawyers as intermediaries to create opaque corporate vehicles in the most secretive tax havens in the world, including Belize, the British Virgin Islands, the Bahamas and the Cook Islands.
Using an offshore company is legal, as long as the owner declares it to the tax authorities in the country where they reside. These companies benefit from low taxation, anonymity and the absence of records of the accounts or the real owners in the jurisdictions where they are registered, and have no real activity.
In the eyes of the authorities, the problem is what is being hidden behind them. According to an estimate by the European Commission, EU citizens alone divert the equivalent of 10% of Europe’s gross domestic product (GDP) through these corporate vehicles, amounting to €46 billion a year in lost revenue – that’s eight times the annual budget of the Education Ministry in Spain. The Organization for Economic Cooperation and Development (OECD) estimates that at least €9.7 trillion is stashed offshore worldwide.
As Christoph Trautvetter, a tax expert who has advised both governments and multinationals, explains, “the laws that allow it are not democratically approved laws, but created under the influence of an industry of lawyers and service providers who benefit from the secrecy of countries where they operate and where it is legal.” The actions of that industry are reflected in the Pandora Papers documents. The Alcogal firm helped banks around the world create at least 3,926 offshore companies for their clients in various countries. In the case of financial services giant, Morgan Stanley, it set up another 312. Based in Panama, Alcogal sent more than 5,400 letters to the specific addresses of lawyers around the world containing corporate documents: the country that received the most letters was Andorra which, with 2,245 pieces of correspondence, had more than half the total.
Law firms: the key to accessing the offshore world
The offshore service providers at the center of this investigation represent the main cog in the machinery that moves money outside conventional circuits. According to Spanish tax inspector José María Pealáez, “they are essential intermediaries for tax havens to function: without them and the banks, it would be unthinkable to take money to the Bahamas and the Virgin Islands.” Without them, it would not be so easy to hide assets such as those unearthed in the Pandora Papers: bank accounts, private jets, yachts, mansions and works of art by Picasso or Banksy.
The Alcogal firm is where most references to Spanish and Latin American citizens can be found. Based in Panama, it contains at least 253 companies linked to Spain either because the client themselves or their intermediary is Spanish – that is, the firm that is in contact with Alcogal. Among its top-level clients are the ruler of Jordan, King Abdullah II, and the prime minister of the Czech Republic, Andrej Babiš. In the case of the Jordanian King, the investigation has identified a link between him and more than 30 companies; in the case of the Czech premier, it has revealed a trust he set up to pay $20 million (€17.2 million) for a villa in a French village near Cannes. There are also a number of Spaniards whom EL PAÍS and La Sexta will be putting under the spotlight in the coming days.
Alcogal’s internal files also afford an insight into the lack of control that this kind of firm has over the companies it helps set up. Between 2007 and 2018, its employees filled out 109 Suspicious Activity Reports (SARs). These are reports that law firms have to submit to a country’s authorities when they detect something unusual or something that suggests illegal activity. Seventy-four of these reports were made because the offshore company or its client was involved in a high-profile judicial investigation. Two out of three reports (72) were completed after the 2016 publication of the Panama Papers, a similar leak of documents that shed light on the illicit activities of thousands of companies previously unknown to the public.
Among other cases to be published by EL PAÍS, this new investigation has uncovered the ghost company that the Neapolitan Camorra mafia boss, Raffaele Amato, used to buy land in Spain. It has also revealed details about the network of companies that the Malaysian financier, Jho Low, created with the help of leading US law firm Baker McKenzie for the embezzlement of more than $4.5 billion (€3.89 billion) from a Malaysian economic development fund.
But the entity the Pandora Papers has most information on is Trident Trust, a service provider that opened its first offices in the Channel Islands in 1978. Its name recently became familiar to Spaniards when the Madrid public prosecutor accused Real Madrid soccer club coach, Carlo Ancelotti, of failing to pay just over €1 million in taxes in 2014. The two companies through which the Italian former soccer player’s image rights abroad were paid were part of a structure set up by Trident employees. Trident also created a family trust for Javier Trias, former mayor of Barcelona, as exposed in another ICIJ investigation. These types of trusts are particularly opaque because there is usually no public record of their existence and because they add an additional layer of obscurity that conceals the true owner of the company’s assets.
In Latin America, the king of these offshore service providers is a company based in Panama, called OMC Group, which is less well known in Europe. Chilean President Sebastián Piñera, and Luis Abinader, his counterpart in the Dominican Republic, are among its elite clients. The company was also used by the Colombian singer Shakira to set up at least three of her offshore companies, firms that the Spanish Tax Agency has been tracking for years.
The fallout from the Panama Papers
Based on the 2016 investigation of internal files belonging to the world’s fourth-biggest offshore law firm, Panama-based Mossack Fonseca, the Panama Papers represented an inside look at the system of shell companies in tax havens for the first time. The Pandora Papers are now the box that, when opened, reveals all the evils of that world, as was the case in Greek mythology when Pandora, the first human woman created on the instructions of Zeus, was unable to resist temptation and opened the box entrusted to her. Tax avoidance is no longer about just one rotten apple; it is systemic. In this new leak, the investigation involves more political leaders and public figures than the Panama Papers and provides more than twice as much information on the ownership of offshore companies.
The Panama Papers ended up changing the whole concept of tax havens. As if to confirm this, a partner of a large tax advisory firm in the center of Madrid says they are now the first to avoid suspicious corporate vehicles. “Nowadays, when a client comes to us and says ‘I have a trust, a foundation, a company that is offshore,’ we tell them to regularize that structure before there are problems,” he says.
An a priori refusal such as this used to be far less frequent. When, in 2012, the Finance Ministry obliged taxpayers with income or assets abroad exceeding €50,000 to file an informative declaration, €2 out of every €3 of that first batch of declarations entered the Spanish coffers from territories considered tax havens by Spain or the European Union.
It was after the Panama Papers scandal that Panama agreed to sign the protocols that allow tax authorities in the rest of the world access to its tax and corporate data. “They were singled out at an international level to embrace the automatic exchange of information,” says Alfredo García, an expert in tax law at the University of Valencia. “It had already been clear since the financial crisis that secrecy could not be maintained and a window had to be opened onto the public treasuries.” A study on these financial-data-exchange protocols estimates that they have reduced international deposits in tax havens by 11.5%. The Panamanian government itself has explained that as part of its efforts to reduce tax evasion and money laundering, it has suspended 385,415 of the 762,709 companies that figured on its Public Registry.
In the new files, it can be seen how, in the wake of the Panama Papers, Trident Trust incorporated nearly a hundred clients who opted to transfer their companies from Mossack Fonseca to this new supplier. In a statement, Trident added that “the numbers ultimately accepted by Trident represented less than 5% of the Mossack Fonseca book of registered office and registered agent (’RORA’) business in the BVI.”
A year after the publication of this information, Spain’s financial intelligence unit, Sepblac, was able to access information on 209 Panama companies that had been kept under lock and key until then, including those that allowed the diversion of public funds in the Defex case when the Spanish state-owned firm was hauled up over bribery for arms contracts. The Spanish tax authorities were able to recover at least €140 million after opening inspections on 244 taxpayers; worldwide, at least €1.2 billion was recovered. In all of these cases, companies that were not in fact illegal in principle were used. As former US president Barack Obama noted in 2016 when calling world leaders to action in the wake of the Panama Papers, “That’s the problem – a lot of this stuff is legal.”
The version of the providers
The service providers that have been contacted as part of this investigation all agree on their main message: a commitment to the laws of the country in which they operate. That was the statement from Alcogal, which was very similar to that sent by Trident Trust, which also underlined that "Trident routinely cooperates with any competent authority which requests information".
OMC, meanwhile, points to its “robust” program of compliance with the laws, which includes due diligence policies and procedures. And Asiaciti, which says it has similar processes, admits that there is a margin for error. “No compliance program is foolproof,” the company says. “When we identify a problem, we take the measures necessary for our relationship with the client and we notify the regulatory agencies.”
English version by Heather Galloway.