Mossfon and HSBC both strove to be number one in their respective industries, no matter what. A desire to be wealthy and important also animated Jeffrey Tesler, one of their most infamous shared clients. Tesler’s business dealings with Jürgen Mossack began in 1982, when he was a small-time real estate attorney in the two-man London firm of Kaye Tesler & Co. Mossack created a Panamanian company for Tesler with the upmarket name of Cavendish International. The company was short-lived, but the relationship was not.
Through his law practice, Tesler met wealthy Nigerians keen to buy property in the United Kingdom. The clients then asked for additional legal help. Tesler soon gained a reputation as well connected in Nigeria. This caught the attention of Western firms looking to do business in the notoriously corrupt country. Among them was M. W. Kellogg Company, which hired Tesler as an adviser on a fertilizer plant project.
In 1989, Nigeria announced plans to build the Bonny Island Natural Liquefied Gas Project, a massive and costly natural gas facility in the Niger River delta. M. W. Kellogg and several other firms established a joint venture to bid on construction contracts for the project, but they hired the wrong middleman. Their efforts foundered. Then they tried Tesler. He spent two months shuttling between Britain and Nigeria, shepherding discussions between the joint venture and Nigerian government officials to determine the amount in bribes needed to win the first contract. The figure arrived upon was $60 million. It was a down payment. The scheme lasted years.
The Mossfon documents, along with HSBC files acquired by the French newspaper Le Monde, reveal Tesler to have been an adroit manipulator of the secrecy world. In September 1995, six months after Tesler entered into his first agreement with the joint venture, a law office in Jerusalem registered a Bahamas company for Tesler. He eventually moved the company to Mossfon. Ownership was held through bearer shares. It was the first of many such companies.
In 1997, Tesler opened his first accounts with HSBC. The same year, the U.S. multinational firm Halliburton acquired Kellogg and merged it with Brown & Root, a similar company it already owned. Under Halliburton, the Nigerian bribery scheme continued. Former U.S. secretary of defense (and future vice president) Dick Cheney was Halliburton’s CEO at the time. Cheney was no stranger to offshore companies. In the mid-1990s, he and his wife, Lynne, did a series of Wyoming real estate transactions with Jura Nominees S.A., which, according to notarized Teton County documents, was based in the British Virgin Islands.
There is no evidence of the existence of a Jura Nominees S.A. in the British Virgin Islands public registry. Mossfon did create a company called Jura Nominees S.A. in Panama in 1984, but it went inactive five years later. The Cheneys purchased a residential property from Jura Nominees S.A. (BVI) and sold a separate property to the company as well. Wyoming real estate documents identify the director of Jura Nominees S.A. (BVI) as Ian James Ffrench, a Geneva-based attorney and one of Mossfon’s oldest clients.
Jeffrey Tesler disbursed money from the joint venture for the Nigeria project in a variety of ways. Mostly, he wired it from bank accounts in Geneva to Nigerian officials hiding behind their own offshore companies. Sometimes the process was more involved. In one instance in August 2002, Tesler arranged for a million dollars in one-hundred-dollar bills to be delivered in a pilot’s briefcase to a fancy hotel in Abuja, Nigeria. The ruling People’s Democratic Party wanted to spread the loot around in advance of upcoming elections. The following April, $500,000 in Nigerian currency provided by Tesler was left for a party official to fetch from a vehicle in a Nigerian hotel parking lot. That month, the People’s Democratic Party scored an overwhelming victory in the polls in an election marked by violence, vote rigging, and fraud.
In 2003, French prosecutors began to dig into the Nigerian scheme. U.S. prosecutors followed. They concluded that the joint venture had given Tesler more than $130 million to bribe Nigerian government officials. The payments leveraged about $6 billion in engineering and construction work for the Western firms, including the Halliburton subsidiary now known as Kellogg, Brown & Root.
By the time American authorities closed in, Tesler operated at least six offshore companies with Mossfon, some created with HSBC. In addition to the one in the Bahamas, he also had companies in the BVI, Gibraltar, Samoa, the Seychelles, and Panama. When Swiss authorities froze twelve of Tesler’s bank accounts, five of them were with HSBC.
Tesler involved his wife and daughters as bank account owners and company directors. His daughter was part owner of HSBC bank accounts that contained more than $35 million when she was a twenty-one-year-old psychology student in London. Tesler’s activities with HSBC and Mossfon continued despite the investigation and even after U.S. prosecutors indicted him in 2009.
In 2010, Nigeria also indicted Dick Cheney in the multimillion-dollar bribery scheme. Cheney, a notorious micromanager, claimed not to know about the bribery. The charges were dropped after Halliburton paid $35 million in a settlement.
Despite investigations on two continents, HSBC and Mossfon stood by Tesler. Notes in one of his HSBC account files indicate the bank was aware of the legal issues, though Mossfon’s files offer no acknowledgment of the widening scandal.
Tesler’s lawyer tried to argue that norms had changed and that his client’s bribery activities weren’t particularly illegal in the mid-1990s when they first started. But by 1998, both the United States and the United Kingdom had signed a Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Tesler confessed to a judge that he became infatuated with his influential role as paymaster: “I relished the opportunity to talk with prominent government officials and leaders of multinational corporations.” The judge, unmoved, sentenced Tesler to twenty-one months in prison, calling him “a gatekeeper of corruption.”
Two years after Tesler was sentenced to prison, one of his companies canceled his wife and daughter’s shares and issued them to a Mossfon-controlled foundation, also used by a Russian billionaire, Rashid Sardarov, a long-standing client of Mossfon. Sardarov used one of his offshore companies to purchase 108 square miles in Namibia for a hunting reserve.
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HSBC WAS FAR from the only bank doing business with Mossfon. More than five hundred banks registered nearly 15,600 shell companies with the firm over its lifetime.
In the early days, Mossfon held to the self-serving belief that the banks screened their customers. “If a bank asked you for a company, you assumed there couldn’t be anything wrong with it,” said Jürgen Mossack.
In fact, in the case of HSBC, the bank conducted little if any review. Its risk management was ineffectual and marginalized. If a relationship manager brought in a client whom the bank’s risk management found objectionable, the conflict was submitted to a due diligence committee. This committee was dominated by members of the various desks and almost always decided in favor of keeping the client.
F. David Ford, the head of compliance for Republic in Switzerland, Luxembourg, Monaco, Paris, Guernsey, and Gibraltar, also sat on the due diligence committee. He advised senior management on anti-money-laundering matters. Broad-faced and boyish-looking, Ford had been a U.S. Navy officer in the Judge Advocate General’s Corps before joining the Department of Justice. For six years, as senior legal adviser for the criminal division of the Office of International Affairs, he worked with European partners on extraditions and legal assistance requests, maintaining friendly relations with the Geneva prosecutor’s office. After HSBC bought Republic, the new owner kept Ford on staff and expanded his role to include full responsibility for anti-money-laundering controls. While Ford worked for HSBC, his wife was employed by the U.S. Justice Department, in the International Affairs Office, a fact he says was properly disclosed.
Ford’s efforts were ineffective at best. To his colleagues, Ford’s actual job, which did not seem to involve much compliance work, was a matter of speculation. “Nobody seemed to know what he did but everyone was afraid of him,” said one former HSBC superviso
r, who requested anonymity because he still worked in the industry.
Many of Ford’s colleagues believed he was back-channeling information on Republic and HSBC’s customers to U.S. intelligence, although Ford denies the allegation. The rumor even surfaced in a Swiss newspaper. The CIA refuses to provide documents on Edmond Safra because the information is classified. Nonetheless, if the CIA was involved with HSBC somehow, it would not come as a surprise. Both the CIA and the KGB were early purveyors of the secrecy afforded by Swiss banks and tax havens.
Somewhere in Geneva was a covert CIA listening post where a young Edward Snowden once worked as a National Security Agency contractor. Snowden told the Guardian how CIA operatives worked to compromise Swiss bankers to gain information. As with Fonseca’s experience in Geneva, Snowden’s time in Switzerland left him disillusioned. It was during his stint in Geneva that he first thought about exposing government secrets, Snowden said.
The CIA discovered its own need for secret bank accounts early in its existence. A secret account offered the answer to a simple problem: How to pay its covert operatives? In 1952, the agency’s disbursements had grown to such an extent that it became unwieldy to hand-carry the amounts of cash required. It needed a bank account that could be kept hidden. In long bureaucratic meetings with the monetary branch of the finance division, CIA officials debated what to do. By the end of 1953, they had devised a plan.
The agency enlisted a banker at Washington, DC–based Riggs Bank who was already in its confidence. The inside man ensured that everything proceeded smoothly. An operative using a fake identity opened an account. In case that person died unexpectedly, the agency created “Twin Declarations of Trust,” according to a declassified secret CIA document detailing the arrangements. The first declaration, establishing CIA ownership of the account, was the most important. It was legally binding but politically toxic.
“In the event of decease or extreme mismanagement this document could be used by the Agency to establish government control over the funds,” reads a memorandum on the project from December 1953, “although of course this would blow the account and that particular situation could conceivably be so embarrassing that the Agency would not want to disclose its ownership.”
The second Declaration of Trust did not mention the CIA or the United States government. The name of the true owner was left blank. “This document is designed for obtainment of control without disclosing United States Government interest,” the memo explained. “Supposedly a pseudo could be inserted as the true ‘owner’ and the account transferred.” The pseudonymous account holder would sign a separate side agreement with the agency admitting he did not actually own the money in the account.
By the mid-1980s, the CIA’s involvement had expanded into tax havens, as David Fischer, the U.S. ambassador to the Seychelles, discovered. Located in the Indian Ocean off the coast of Somalia, the Seychelles served as a stop on the slave trade and a listening post during the Cold War, but its biggest impact on the global economy has been as a tax haven. The island’s ruler, France-Albert René, seized power in a coup in 1977 and held it for thirty years. He turned the country into a hub for offshore banking and money laundering. The Gambino crime family in New York and gunrunners in Libya, among others, washed cash in the Seychelles. In an oral history taken by the Association for Diplomatic Studies and Training, Ambassador Fischer related how police fished the body of a Mafia soldier out of the swamps of New Jersey in 1984. Among the dead man’s possessions was an address book that contained President René’s private telephone number.
Ambassador Fischer was once a CIA officer in Africa himself, and on a trip home he met with his former chief of station in Tanzania. After lunch at the agency’s Langley headquarters, his colleague walked him to the parking lot. The man stopped and looked around to ensure nobody was listening. He then told Fischer that all the diplomatic cables the ambassador sent from the Seychelles were “blue streaked,” which meant they had been marked for the attention of the CIA director, William Casey, as being highest priority. His former colleague had no idea why.
Later, as Ambassador Fischer and his staff dug deeper into the criminal activities flowing through the Seychelles, including Mafia and Middle Eastern use of the island’s banks for money laundering, the local CIA station chief showed him a strange message Langley sent. It was for the station chief’s eyes only, from Director Casey, and read: “You are hereby instructed never to report, never to use any assets or any resources to pursue anything regarding international fraudulent banking operations in the Seychelles.”
In 1998, Mossfon began registering companies in the Seychelles. It would become one of the firm’s more popular jurisdictions, eventually accounting for more than fifteen thousand companies.
5
HOW TO BEAT THE GAME
Thousands of people jammed London’s Business Design Centre for Shorex 1997, billed as “the Premier Offshore Exhibition and Conference.” Targeted at financial intermediaries, offshore professionals, and high-net-worth individuals, eighty exhibitors advertised their services, including Mossack Fonseca, USA Corporate Services, the Central Bank of Cyprus, and the BVI Financial Services agency. For offshore professionals, it was a “must be there” event.
There was nothing covert about the sales pitch for secrecy in London that year. More than half the world’s wealth was controlled offshore, noted Philippe Gelin, the managing director of Shorex. This was a “forum in which professionals in the offshore industry can openly market their services,” he proclaimed.
More than fifty countries were represented, but a small group of Americans stood out. Whispers followed them as they scrutinized the display booths. The United States Internal Revenue Service had come to Shorex.
Agent Joe West had convinced his IRS bosses to send him and three others to learn about the industry. A gathering of offshore providers—where intermediaries brazenly marketed tax evasion—it didn’t get any better, thought West.
“I was a kid in a candy store,” he recalls.
The reactions of attendees to the agents ran from fear to befuddlement. As word of their presence spread, some conference goers gave them a wide berth. West watched as a presenter at one seminar, after being told the IRS was in the audience, altered his presentation on the fly. A Cyprus exhibitor explained to the agents how he could help them hide their money—even after they held up their conference badges identifying themselves as IRS agents. He was so excited to be at Shorex for the first time that he didn’t care.
The government men hit every exhibitor table, collecting bundles of materials to bring back to headquarters. They would use the information in one of the most far-reaching and innovative investigations in IRS history. West’s story reveals both the possibilities and the limitations of the government’s fight against offshore tax evasion. It also helps explain why the U.S. government ignored Mossfon’s activities for so many years.
The progeny of a mixed marriage between an African American airman stationed in Japan during the Korean War and a Japanese secretary at the military installation, Joseph C. West was born in 1953. He had the typical upbringing of a military brat, attending six different high schools and living everywhere from New Jersey to Guam. After two years of active service in the navy, West attended a public university in New Jersey on the GI Bill. In 1978, his uncle, an IRS agent, convinced him to join the agency to get some training while he finished his MBA and certified public accounting degrees. Excellent grades landed him in the IRS’s highly coveted international section, focusing on multinational companies. At the age of twenty-five, West had stumbled into a calling.
Tall and handsome, with a broad face and a deep brown complexion, West had long encountered resistance because of his looks. From an early age, adults counseled him that despite his keen intellect, he needed to temper his expectations. A black man could only go so far, his father told him. A guidance counselor suggested technical school. When he proved adept at finding audit violations, IRS superiors as
ked for his informant, unable to accept that he’d discovered the problems on his own. West stubbornly pushed himself to excel and reacted impatiently to opposition, trampling bureaucratic niceties and arguing with authority figures with whom he disagreed.
West recalls a fellow agent telling him once that the best way to survive in the IRS was not to take any initiative. You would only get in trouble if you stuck your head out. No one was ever fired for lackluster performance. West was horrified. The words haunt him still. He would discover that the agency’s struggles to curb offshore tax evasion had as much to do with self-sabotage and lack of will as anything else.
In 1972, six years before West joined the agency, an IRS investigation into offshore abuses had ended in disaster. The investigation, known as Operation Tradewinds, employed a confidential informant, Norman Casper, to probe the Bahamas-based Castle Bank and Trust Company. Casper lured a Castle Bank manager to Miami on the pretext of a tryst. The banker was unaware that his date was a former policewoman participating in a sting operation. While the two were out on the town, Casper rifled the banker’s briefcase and found a list of 306 offshore account holders. The names included Hugh Hefner, Tony Curtis, members of the band Creedence Clearwater Revival, and the Pritzker family, who owned the Hyatt Hotel chain. Casper also uncovered links to President Richard Nixon and his Key Biscayne pal Bebe Rebozo.
The dog had finally caught the car, which promptly ran over it. The brass criticized the evidence collection. Few prosecutions resulted. Nixon’s IRS commissioner quashed the investigation. Those in the IRS who participated in Operation Tradewinds had their careers sidelined. By 1976, IRS officials labeled the whole investigation a bust. For years, any agent who dared to look into the offshore world risked professional suicide. Future grand jury investigations were discouraged. It would be more than a decade before the IRS focused on offshore tax abuse again.
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