Mossfon had yet to adopt these standards. Some months earlier, the firm received an inkling of its exposure to PEPs, when one of its companies requested an official signature from the firm to complete the purchase of a $13 million yacht for a BVI-based company, Mondeo Industries, that Mossfon had created at the behest of the Luxembourg office of the French bank Crédit Lyonnais.
Crédit Lyonnais had made a special request. Their customer didn’t just want nominee directors for Mondeo, he also wanted a fake shareholder. Mossfon itself would appear to own the company but would actually be a trustee for a second anonymous company, SVG Investments, which was the beneficiary of the trust and the owner of Mondeo. Behind SVG sat the real owner, three layers removed from his yacht. While this violated the central idea of a trust, which required the owner to relinquish control of the assets, Mossfon had readily agreed to serve as the company’s fake owner.
The ultimate beneficial owner’s London-based attorney contacted Mossfon Luxembourg. He needed Mossfon, as Mondeo’s on-paper owner, to sign off on financing for the yacht—right away. The attorney asked if one of the lawyers at Mossfon’s London franchisee could provide the signature. But the franchisee’s lawyers immediately recognized the risk. If there was something unsavory about the transaction and it landed in court, the signatory could be blacklisted or even prosecuted. This was not a low-level employee in Panama signing the documents as a director, this was a lawyer in London with a lot more to lose, who would be falsely claiming ownership of a company.
The London franchisee then did something Mossfon had failed to do: It investigated who was behind Mondeo. The internal paperwork indicated that the ultimate beneficial owner was Sergey Generalov. It didn’t take long on the Internet to find Generalov. He was Russian, a red flag in and of itself, as the country was a cesspool of corruption. But it got worse. Generalov was, as they say in Russian, ne nichtozhestvo, “not a nobody.” He had been vice president of the Russian oil giant Yukos, and subsequently he led the Fuel and Energy Ministry. He then won a seat in the Duma, the Russian parliament, and another on the National Council on Corporate Governance. In other words, Generalov was the epitome of a PEP.
“Think of the potential scandal,” wrote the head of Mossfon’s exclusive London franchisee to the partners in Panama. “Since 2003 [Generalov] has been dealing with corporate governance in Russia!!!”
Emails flew between London, Panama, Luxembourg, and the BVI. A Mossfon lawyer in Panama sheepishly admitted he didn’t know about Yukos and wasn’t really up on matters of Russian politics. Mossfon decided not to sign the document. The next month, Generalov dumped the firm as its registered agent.
Ana Escobar and Sandra de Cornejo urged the partners to improve Mossfon’s due diligence practices. “I’d like to take advantage [of the Mondeo situation] to note again suggestions I have made in the past but for one reason or another have not crystallized (I don’t remember if someone said that it would be too complex),” Escobar wrote to the partners.
Mossfon subscribed to a Google-like paid search service called World-Check to help identify PEPs and criminals. It also, not for the first time, sent a letter to its professional clients requesting that they conduct a customer review. There was little follow-up. It was a question of incentives. When scandals sporadically came to light, they always seemed to resolve themselves without undue harm to the firm. Meanwhile, business was booming. In 2005, the firm tripled the number of shell companies it created on behalf of banks. By the end of the year, Mossfon had more than seventy thousand active companies. To do the necessary due diligence on all of them would have been prohibitively expensive, and sometimes impossible. In a business predicated on secrecy, no one wanted to produce the information.
“In many cases, existing customers would just ignore our requests,” says John Gordon of USA Corporate. “Since we were not the registered agent [which was Mossfon] there was not much we could do to them as a credible threat.”
Around this time Mossfon discovered another challenge its accelerated growth presented. Vianca Scott, age thirty-six, mother, wife, Mossfon employee, and devoted member of the firm’s baseball team, died in a car accident late on the night of September 2, 2005. The firm’s “special projects department” employed Scott to act as a nominee director for Mossfon companies. At the time of her death, she was an officer in nearly eight thousand companies. Despite Scott’s never leaving her Panama City office, her financial activities spanned the globe, from the BVI to the Seychelles to Hong Kong.
The company-wide memo announcing her death voiced what many must have wondered. “For those who this will concern,” it concluded, “we are at this moment considering how to make the changes of directors in the companies where Vianca appears as director.”
The Geneva office led the discussion. Of all the Mossfon offices, it used nominee directors the most. Everybody concerned wanted to ensure that replacements existed for Scott, to avoid a business slowdown. Mossfon Panama suggested three possibilities from among its staff. Their last names were Allen, Wilson, and Wong. Each was young but also offered another important selling point. As Zollinger pointed out, they had names that sounded good internationally, their very blandness another layer of anonymity that could be commoditized.
Mossfon prepared forms authorizing Scott’s replacement with another director, which they placed in the files of the active companies. When it was time for the nominee directors to perform an official act for the company—open a bank account or approve a contract, for example—the newly appointed director performed the act. Nonetheless, ten years after her fatal car crash, Scott still remained the director for many Mossfon companies—those that had not required their director to perform an official act. A life tragically cut short lived on as an instrument of secrecy.
* * *
EVEN THOUGH MOSSFON proved adept at avoiding serious harm to itself over the activities of its companies, others were less fortunate. Toward the end of 2005, the firm began to receive emails from panicked investors in Argentina. They had placed their money in a sure-fire fund run by Eugenio Curatola, a charismatic former insurance agent. For years, they had received returns of up to 45 percent, withdrawing money without difficulty.
Curatola had told his customers that he had invested their savings in the foreign exchange market through a Panamanian company called Forexvan, which kept a bank account in Bermuda. A password allowed investors to access Forexvan’s website and follow the upward march of their account value. At some point in 2004, Curatola froze the accounts. Phone numbers for Forexvan didn’t work. Investors received emails saying Forexvan was under audit. When reached, Curatola insisted he had no control over Forexvan, he just did business with it. Still, on Forexvan’s Web page, the value of the accounts continued to climb.
Vanderbelt Management Group Limited, a BVI company, owned Forexvan, according to the website. Investors contacted the financial services commission of the BVI to find out what was happening. BVI officials directed them to Vanderbelt’s registered agent, Mossack Fonseca.
Mossfon’s research revealed that despite Curatola’s public denials, USA Corporate Services had sold Vanderbelt to him. In the process, it had provided the tools for the biggest Ponzi scheme in Argentinian history. Collectively more than four hundred people lost $90 million. The local media dubbed Curatola “the Argentinian Madoff.”
Escobar wrote to New York, asking USA Corporate, which had created the company, for its due diligence. This was the first that USA Corporate had heard of the Ponzi scheme. Mossfon resigned as registered agent, grateful that Curatola hadn’t requested the firm’s nominee directors for his company. Argentinian authorities sentenced Curatola to five years in prison but paroled him after two.
While the firm disentangled itself from Curatola, Mossfon’s Luxembourg office posed a question to the firm’s lawyers that indicated just how far Mossfon would go—for the right price. In March 2006, a company created by an Icelandic bank asked to backdate a loan agreement for £500,000. The n
ew date was December 2004, fifteen months earlier, a change that would yield a gain in dollars of about $92,000. Backdating official loan documents to play with currency changes could facilitate money laundering or serve as a vehicle for shady payments.
This was not the first time Mossfon had backdated official documents for clients. In fact, the practice was starting to occur with such regularity that the firm wanted to charge for it, particularly because its nominee directors were going to sign the agreement on behalf of the company. “Retroactively signatures are not within the ‘free of charge’ policy applied to our representative offices,” an assistant to the partners emailed the Luxembourg office.
Emboldened by the profits pouring in, the partners took more risks by agreeing to handle money rather than simply create companies for others. They joined with two former Dresdner Bank executives to create an asset management business. Ramsés Owens also started an escrow fund, creating a holding account to allow for the clandestine movement of cash. At first he tried to get HSBC interested in hosting the fund. He explained to the bank in an email that Panama’s reputation as a tax haven made it difficult for clients to send money to the country. “Penalties/fines are charged in many countries for outgoing money sent to tax heavens [sic],” Owens wrote. “If the money can be sent to Switzerland in Escrow, we can re-deliver the money to Panama afterwards.”
HSBC declined to participate. Owens eventually found a home for his escrow account with Winterbotham Trust, a bank in the Bahamas.
On December 31, 2006, Niue officially shut down Mossfon’s public registry. In anticipation of that event, Zollinger returned to Samoa and negotiated a deal with its government to waive the transfer fee for the first one thousand Mossfon companies that moved from Niue. The following month, Mossfon agreed to reactivate three Niue companies via the magic of backdating so that they could be transferred to another locale. A few months after that, the Luxembourg office devised a fee schedule for backdating loan documents. Each loan agreement backdated six months or earlier cost $105. Anything backdated beyond six months was an additional $8.75 per month. If the loan had a value in excess of $10 million, the firm tacked on an extra $20 charge per each additional million above that amount.
If there was any doubt that during this period Mossfon did not look closely at who bought its companies, a British customer named John Knight dispelled it. Knight purchased BVI-based Endeavour Resources Limited in 2005. It’s not clear if Mossfon initially knew that Knight was the end user. At some point, Knight provided the Cyprus firm creating the company an empty bank account statement from 2002 and a passport scan as part of his due diligence. Unmentioned, apparently, went his decades-long business as an arms dealer.
The year before Knight incorporated his company in the BVI, Amnesty International included Endeavour Resources, then based in the UK, in a report on the weapons trade. Knight had tried to sell a huge cache of Soviet-era weapons to the Sudanese government, while it was in the midst of slaughtering hundreds of thousands of civilians in Darfur. The deal, financed by Iranians and Russians, included battle tanks, rocket launchers, cruise missiles, and five thousand semiautomatic pistols. When the United Kingdom forbade its citizens from trafficking in certain military equipment, Knight settled for providing Sudan “nonmilitary” equipment such as “crop-spraying airplanes” that the government retrofitted for carpet bombing.
A reporter for the Scotsman newspaper asked Knight why he had agreed to sell weapons to a regime as disreputable as Sudan. In his response, the arms dealer made a case for profit-seeking amorality. As long as there was a need, someone would fill it, no matter how distasteful the regime. Knight even mentioned Hitler as an example: “People were supplying him with stuff. He was the biggest tyrant of the lot. Saddam Hussein was being supplied by the British government and he was killing his own people.”
In 2006, the BVI Endeavour Resources asked for a license from the British government to sell German-made machine guns to the Kuwaiti Interior Ministry. British authorities suspected Kuwait was not the final destination for the guns and declined to license the transaction. Knight then created a fake paper trail to make it appear as if he had canceled the deal himself. Instead, he bought similar machine guns from Iran. When they arrived in Kuwait, customs officials intercepted them and tipped off the British.
British government investigators descended on Knight’s $3 million country estate in Kent, alarming the neighbors, who were unaware that an arms dealer lived among them. But all they found was a pile of shredded documents. Over the ensuing months they painstakingly pieced the shredded pages back together. In 2007, Knight was sentenced to four years in prison for arms trafficking.
7
THE NORTH STAR
Vladimir Putin haunts the Mossfon files. The Russian leader manages to be both present and invisible at the same time. No documents exist with his signature. No company form carries his name. He is not officially the director or owner of anything. Nevertheless, he is the North Star in a vast constellation of offshore companies.
Putin’s authoritarian regime exists to enrich a minority at the expense of the majority. Russia has some of the highest income inequality in the world, with the top 10 percent of wealth holders owning 85 percent of all household wealth. Oil revenue, media monopolies, rigged courts, baton-carrying policemen, high-profile assassinations, and nationalism keep Putin’s ship of state afloat. Charting its course toward illicit riches for the chosen few requires the secrecy world.
Putin’s pals used structures built by Mossfon to covertly move billions of dollars, often from state-run banks or enterprises, into private pockets. These deals, from simple payouts to intricately planned takeovers of major industries, could have thrived only with Putin’s approval. His cronies did not need a piece of paper signed by Putin to spell out his involvement. In Russia, Putin is the law. Businessmen covet his protection. What Putin receives in return is understood by the parties involved, a written contract superfluous.
The Russian leader has long been rumored to be one of the planet’s wealthiest people. The income he declares, about $110,000 a year, is not an accurate representation of his wealth, according to U.S. government officials. If Putin indeed sits atop a fortune of tens of billions of dollars, as many claim, much of his treasure has passed through the secrecy world first, where intermediaries have transformed it into company shares, palaces, and yachts under straw men owners. But what belongs to Putin directly, and what is at his disposal, may in the end be a distinction without a difference.
How to manipulate the offshore system is second nature to Putin and the men around him, many of whom have intelligence backgrounds. Like the United States, the Soviet Union used tax havens and bank secrecy to fund covert activities during the Cold War, with the KGB maintaining the Politburo’s secret foreign bank accounts. Whether funneling money to Communist parties in Europe, providing guns to third world insurgencies, or running spy rings, senior KGB officials learned to manipulate offshore banks and companies as part of their tradecraft.
As a youth, Putin’s ambition was to be a member of the KGB. He achieved his goal in 1975, when he joined Russia’s spy agency in his early twenties. During the next fifteen years, he rose in the ranks from lieutenant to major to colonel. At each step, his training grew in sophistication. A final stint at the Red Banner Institute, the KGB’s most elite foreign intelligence instruction facility, was a graduate school of sorts. From there, the KGB posted him to East Germany, where as a lieutenant colonel Putin watched the Soviet empire crumble before him. He returned to Leningrad and took a job with the municipal administration, becoming head of a committee to promote investment in the city rechristened Saint Petersburg.
The friendships Putin formed in his younger days are key to understanding the movements that swirl around him in the Mossfon files. Autocrats who squirrel away hidden fortunes face a common thieves’ dilemma, times ten. Millions of people desire their downfall. Whom can they trust? Only their nearest and dearest. Fear may be
an effective motivator, but it is not as durable as love. Putin’s relatives and oldest friends revealed their worth to him over decades. They demonstrated their loyalty long before power and riches entered the equation.
The Mossfon files contain the names of Putin’s friends like Sergei Roldugin, a classical cellist who was like a brother to the budding intelligence agent. In their twenties, the two cruised the streets of nighttime Leningrad in Roldugin’s boxy Lada, talking, drinking, and occasionally getting into fights. Roldugin orchestrated the double date where Putin met his future wife and served as the godfather of the couple’s first child. He was also the owner of multiple Mossfon companies. The Rotenberg brothers, Arkady and Boris, also used Mossfon. They sparred with their childhood friend Putin in the same martial arts club. State contracts, including construction projects for the Sochi Olympic Games, made the brothers billionaires. Their Mossfon companies funneled millions of dollars in secret payouts.
From his time in Germany and as a government official in Saint Petersburg, Putin collected additional collaborators. Mossfon was not their only offshore provider. Dmitry Medvedev, Putin’s prime minister and successor as president, worked alongside the future Russian leader in the same municipal office in Saint Petersburg in the 1990s. Medvedev has different offshore providers and his own network of school chums who serve as apparent proxy owners of foundations and anonymous companies. These confidants and their structures in turn hold palaces, yachts, and vineyards allegedly on Medvedev’s behalf.
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