The Americans are after Rami Machluf, and he senses it. You cannot become the richest man in all of Syria and not be noticed. Especially not when your close cousin is called Bashar al-Assad and is ruling the country.
Before Syria fell into a civil war, Mr. Machluf, head of the Syrian telecommunications giant Syriatel, accumulated a fortune worth an estimated $5 billion. It was accrued with the energetic support of the Assad clan.
Staff at the U.S. Embassy in Damascus described his methods.
“Machluf used government institutions to get rid of competitors, to win contracts and to milk the cows,” they reported in a January 2008 dispatch to Washington. The diplomats advised imposing sanctions on Mr. Machluf.
What they did not know was the Mr. Machluf had long since prepared for this moment.
He owns an offshore company, and he used it to bring a portion of his fortune to safety. It is called Drex Technologies and it is listed in the Register of Companies in the British Virgin Islands. The “registered agent,” the official representative of Drex Technologies, is recorded as Mossack Fonseca, a law firm in Panama.
Mossack Fonseca sets up offshore companies quickly and discreetly. But its discretion is a problem, and not just because of Mr. Machluf.
The British newspaper The Guardian first reported that the head of the scandal-plagued bank HSBC counted among Mossack Fonseca’s clients. Stuart Gulliver, the HSBC chief executive, reportedly invested bonus payments at a firm registered through Mossack in Panama.
Mr. Gulliver said British tax authorities were aware of the income.
A wave of indignation then starting rolling in after the Guardian article, and the German daily Süddeutsche Zeitung reported that Commerzbank, Germany’s second-largest bank, had advised customers to park their money in offshore firms with the assistance of Mossack Fonseca.
German prosecutors are investigating. Commerzbank said the story involved old cases, and pledged to cooperate with investigators.
Journalists belonging to an international research network accessed Mossack’s internal data records, and made other revelations.
The anger against Mossack Fonseca is just starting.
And smack in the middle is a German, the company’s founder and co-CEO, Jürgen Mossack, 66.
Like his business dealings, little is known about Mr. Mossack. He was born in Fürth, in Bavaria, but grew up in Panama.
In 1977, he got together with the attorney Ramon Fonseca and built a global group of 600 employees and 46 subsidiaries. Whether it is in Samoa, Cyprus or the British Virgin Islands – those who want to establish a company can be helped by Mossack’s office.
But did they also help Rami Machluf and other alleged clients, such as the confidants of the late Libyan dictator, Muammar Gaddafi?
These people “never were, are not and never will be clients of Mossack Fonseca,” said the law firm. At issue are “false accusations that lack any basis and are based on self-interest.”
Mossack hired the U.S. public relations agency Burson Marsteller to handle its press inquiries. The firm is known for taking on especially difficult cases, such as Union Carbide after its industrial catastrophe in Bhopal, India.
Other former Burson Marseller clients include Argentina’s military junta.
Mossack Fonseca answered questions posed by Handelsblatt.
The firm said they offer corporate registrations but have nothing to do with the companies themselves, adding their business is an “absolutely lawful activity.”
The clients are responsible for tax questions themselves, according to Mossack Fonseca. They do not offer any kind of tax advice, and cannot prescribe to the clients how they use their companies.
Mossack hired the U.S. public relations agency Burson Marsteller to handle press inquiries. The firm is known for taking on especially difficult cases.
In the end – argues Mossack Fonseca – a car dealer has no influence on how a customer starts a car that it sold. “No one in his senses would call the car dealer an accomplice if the driver does not follow the rules of traffic,” the firm said in its statement.
Seen that way, Mossack did not help Mr. Machluf of Syria manage to spirit his illegally gained riches out of the country. Mossack only made the getaway car. If Mr. Machluf drove it away, well then, be their guest.
The law firm does not feel responsible for the origins of the money its clients invest in their offshore companies.
It is an argument that would hardly hold up in Germany, said criminal lawyer Heiko Ahlbrecht.
“Attorneys would also be liable under the Money Laundering Act here,” he said.
Further investigation must show whether Mossack Fonseca should have been suspicious.
If a German lawyer suspects a client wants to launder income from illegal proceeds, he must report it to the government.
One indication that should make attornies skeptical, according to the German Bar Association, is: “That companies of the clients exhibit the features of a front company (for example, a lack of company equipment and of company personnel.)”
Things are different in a tax paradise such as Panama.
Panamanian private companies are “unique,” according to the website of Mossack Fonseca. “They look like a company but act like a foundation.” The key selling point is that Panamanian company beneficiaries are not publicly known.
“When it comes to money laundering, we still offer the full program,” said the Panamanian lawyer and activist Miguel Antonio Bernal. “Rinsing, washing and drying.”
Law firms in Panama do not just offer to establish offshore companies, they advertise it.
Mossack Fonseca advertises on Twitter with the words: “Protect the ones you love.” Other law firms lure clients with the promise to “protect in the best and more effective way” their clients’ assets.
Mr. Bernal said one can find similar advertisements at “every law firm in the country.”
International agreements so far have been able to do little to change that.
It is true that it is getting a little harder to breathe for tax evaders in Luxemburg or Switzerland. But money can be transferred quickly.
“In the British Virgin Islands or in Panama, there are still many providers of offshore firms, whose business continues to be in demand and which almost always operate in a criminal context,” said the criminal lawyer Mr. Ahlbrecht.
In the British Virgin Islands, offshore firms are a lucrative sector. The tranquil group of islands in the Caribbean is home to 30,000 inhabitants, 177 kilometers of roads and about 400,000 companies.
A company such as Drex Technologies belonging to Rami Machluf (register number 394678) does not attract attention there.
But that could change, because the offshore providers have a problem — they are being ratted on by their own.
The problem costs just a couple of euros, is a few centimeters long and can be inserted into a computer. Those who want to steal insider data and make money do not need to copy thousands of sheets of paper — a USB stick is all they need.
That is how the data leak of the Asian provider Portcullis TrustNet brought about the “Offshore-Leaks” affair in 2013. All of a sudden high-ranking Chinese politicians had to answer for their foreign accounts.
The Süddeutsche Zeitung has now obtained more than 80 gigabytes of data from the records of Mossack Fonseca.
“When it comes to money laundering, we still offer the full program. Rinsing, washing and drying.”
The data is golden for investigators, because it lists the corporate officers.
Shell companies with names such as “Seafire Systems” or “Regency Belle” can be tied to their mysterious owners.
Investigators from an ad hoc commission called “Kanal” set up by German prosecutors have pounced on Commerzbank, and others may soon be targeted. According to media reports, investigators have their sights on people responsible at Mossack Fonseca. There the word is that neither Mossack Fonseca nor its affiliated companies have ever been investigated for illegal activities.
So far, Mossack Fonseca has managed to safely distance itself from scandals. Hardly any newspaper in Panama reports on it, complains Mr. Bernal, the lawyer and activist. He thinks offshore law firms will continue to offer their services.
Panama even signed a “declaration of intent” to observe the tenets of the so-called FACTA Agreement. The pact provides for a data exchange with U.S. tax authorities. But that has changed little so far. A group of 34 countries trying to police international tax fraud, called the Financial Action Task Force, criticized Panama’s unwillingness to get serious.
The task force last October cited “strategic deficits” in Panama’s fight against money-laundering and tax evasion, and may put the country on a “black list” of non-compliant nations. The list could discourage international banks from doing business in Panama.
Video: The bright lights of Panama City.
Mr. Bernal, doesn’t believe his country will be cowed into compliance.
“Because Mossack belongs to the government, and the government will not respect the agreement because the companies have such a strong influence,” Mr. Bernal said.
Jürgen Mossack’s brother, who lives in Germany, is the “honorary consul” for Panama in Germany.
He told Handelsblatt that he learned from “personal acquaintances” of his brother that Panama was looking for a consul in Germany. He said he “has nothing to do with the business” of his brother’s firm. He first learned about the story in a newspaper report, he said.
The firm’s second namesake, Ramon Fonseca, very recently ascended to the upper echelons of power in Panama.
A new president, Juan Carlos Varela, was elected last year, and Mr. Fonseca belongs to his brains trust. The fact that Mr. Fonseca is a prize-winning author counts among the lesser oddities surrounding him. One of his crime novels takes place in a fictitious military dictatorship, which bears striking similarities to Panama.
The story is about power and morality.
Regarding power and morality, those who are wondering what became of Rami Machluf should look to Dubai. The Syrian businessman reportedly left for Dubai in 2011, before the civil war ravaged Syria, and ostensibly with his public fortune sent overseas.
Did that give the employees of Mossack Fonseca food for thought?
Maybe they also believe their own propaganda. On Twitter, between their press releases, the firm puts out all types of uplifting sayings by Winston Churchill, John F. Kennedy and other inspirational leaders. They even quote Mahatma Gandhi: “The weak can never forgive.”
If that is true, then strength is in high demand. A lot of strength.
Michael Brächer is a financial editor of Handelsblatt’s investment team in Frankfurt. Klaus Ehringfeld, a reporter based in Mexico, also contributed to this article. To contact the author: firstname.lastname@example.org