Photograph Source: Theregan, From Wikimedia Commons – CC BY-SA 4.0
It is my cheerful duty to announce the acquisition of around 85 gigabytes of leaked emails, phone calls, faxes, and other documents originating from the London-based tax shelter firm Formations House, best known to the public for the assortment of often colorful scandals involving such figures as former Ukranian president Viktor Yanukovych, and best known to the global kleptocracy as a cheap and discreet option by which to avoid taxes or steal them altogether. These materials, which cover fifteen years from the company’s founding in 2001, were recently obtained by Distributed Denial of Secrets, the transparency organization founded by longtime researcher, activist, and Freedom of Information Act request record-holder Emma Best to facilitate and host leaks from state and corporate actors. My own non-profit Pursuance, meanwhile, has partnered with DDOS to help oversee early access by reporters, and thereafter to implement experimental crowd-sourced research protocols by which networks of volunteers will sift through this immense field of data to better ensure that critical stories are discovered and made public over the coming months and years.
Formations is among the considerable number of firms that have proliferated in recent decades to provide a focused array of financial services to clients around the globe. We must hasten to add that the majority of these are not engaged in any significant wrongdoing, while the list of services includes all manner of perfectly mundane business functions such as accounting, VAT registration, and domain hosting. The most widely utilized of its more undignified practices – providing customers with a suitably handsome ersatz physical address in one of London’s most respectable and thus expensive neighborhoods – is neither criminal nor even terribly shameful, and no more fundamentally deceptive than anything else in 2019.
But thanks to a series of successful prosecutions as well as several years of keen journalism – most notably on the part of The Guardian’s Oliver Bullough – it’s gradually become clear that a key segment of its clientele has used Formations for a range of considerably more illicit purposes, often involving “shelf” companies – pre-made corporations built on a template, including a ready-made board of directors and other forms of what amounts to a sort of institutional camouflage by which to skirt revenue collectors and regulators. But in some cases, the scam has gone well beyond the millennia-old tendency of wealthy citizens to avoid paying their share for the very infrastructure, diplomatic apparatus, and international security arrangements that benefit them the most, or in some cases exclusively. At least one of the known convictions involving Formations involves high-stakes confidence tricks employing the classic “Spanish prisoner” advance payment hustle – by one of Formations’ own directors. At least one of his partners is still on the run.
But the most important stories that will gradually be yielded from these materials will concern the looting of public resources, which institutions across the West have continued to facilitate despite the incalculable damage that results to entire populations. In 2016 Bullough summarized the Yanukovych affair – and much else – as follows: “If it was difficult for a Brit to discover that a registered address at 29 Harley Street was meaningless, it was even harder for a Ukrainian… investigative journalists in Kiev could see that a piece of state-owned land in a forest outside the capital had been illegally privatised, but they did not know who by.”
What makes this story unique is that the millions of pounds in assets pilfered with the help of a London “financial services” firm were ultimately recovered. If even one of the “400,000 companies, partnerships, and trusts” Formations notes having set up for its clients since the turn of the century are discovered to serve a similar function, and the stolen funds returned to the developing the nation that can scarce afford to have lost them, this project will have served its purpose.
As it happens, we can expect more. In the 48 hours since we began recruiting press for early access, we’ve brought on journalists from outlets like ProPublica, CNN, The Daily Beast, and the Columbia Review of Journalism, with further partnerships arranged in principle with CounterPunch and Investigative Journal. Over time, we’ll be expanding access to the entire cache on the part of both traditional outlets and experiment research collectives of the sort Emma Best and I have been overseeing in similar contexts for nearly a decade, along with many of our volunteers. To ensure the greatest yield and accommodate the widest possible access, we’ll also be allowing journalists and anti-corruption officials who may be precluded from engaging with such leaks directly to instead submit names and other keywords to be searched by our team, with any responsive documents to be securely relayed back to the inquirer.
Other special requests, along with press inquiries/requests for access and questions about volunteering for this and similar projects, should reach out to Distributed Denial of Secrets via their contact page.
To ensure the safety of those involved, the circumstances under which this cache was acquired and made available to DDOS will remain private for the time being.
The estimated 85 gigabytes are roughly divided along the following lines:
20GB – Mailboxes of specific employees of interest
50GB – SQL table containing every email received by the firm
7 GB – Misc. docs, faxes, phone calls
8 GB – Misc. databases
Moderately Amusing Excerpts from the “Terms and Conditions” page at Formation House’s website:
We reserve the right to refuse to offer any service or process any order or part of an order even if the order has been placed and accepted on our system, if in the light of further investigation if we feel that processing the order would damage our reputation.
Our email service is limited to 100mb of storage, any further use of storage and your emails will be deleted.
Barrett Brown is a journalist, activist, and founder of the crowd-sourced research outfit Project PM, which was listed in a search warrant executed by the FBI in 2012 along with HBGary and Endgame Systems, two firms linked to the U.S. intelligence community that the group had investigated along with Palantir, Booz Allen Hamilton, and others. After finishing a four-year stint in federal prison over controversial charges involving the “global analysis” firm Stratfor, which was hacked with the involvement of the FBI, Brown created Pursuance, a non-profit intent on building a universal software framework for mass civic collaboration while encouraging the development of crowd-sourcing. In 2015, Brown won the National Magazine Award in the category of columns and commentary for his monthly prison column for The Intercept, “The Barrett Brown Review of Arts and Letters and Prison”, along with other journalism awards. His third book, “My Glorious Defeats”, is forthcoming from Farrar, Straus, and Giroux.
Up in the Commonwealth—God save it!—we have this attorney general named Maura Healey. She isn’t the biggest person, but she’s a former Boston College point guard who can still play. And she is not someone whose attention you want to draw, especially if you happen to be someone working scams that end up killing people and starting nationwide epidemics.
The Sackler family, which got rich developing and marketing Oxycontin, has drawn Healey’s attention. From WBUR:
“I promise you that we will hold opioid makers accountable for the role they played in creating this crisis…we will do whatever it takes to hold this company accountable and get the justice our families so deserve,” she said Wednesday during her inauguration — and she’s making good on that promise.
In a complaint filed against the company that makes the opioid painkiller OxyContin, Healey alleges Purdue and its owners deceived Massachusetts doctors and patients in an effort to get more people to use its drugs — even though they knew the drugs are addictive and deadly. The complaint is the first to name individuals of the Sackler family, and alleges that they and Purdue executives directed misleading sales and marketing practices that influenced doctors to prescribe more opioids to vulnerable patients.
Getty ImagesPortland Press Herald
On January 15, Healey’s office filed a massive amount of documents in support of its lawsuit. In those documents are statements and corporate communications pried out of Purdue Pharmaceuticals that clearly indicated that Richard Sackler, the company’s former president, aggressively marketed the opioid, consequences be damned.
A new “secret” police study has found that Chinese crime networks could have laundered over $1B through Vancouver homes in 2016 alone, and that a surge in the city’s home prices are simultaneously tied to a surge in opioid deaths.
The report examined over 1,200 luxury real estate purchases in British Columbia’s Lower Mainland during that year, and concluded that over 10% were tied to buyers with criminal records. Crucially 95% of those transactions could be definitively traced by police intelligence back to Chinese crime networks.
While the study only looked at property purchases in 2016, an analysis by Global News suggests the same extended crime network may have laundered about $5-billion in Vancouver-area homes since 2012. — Fentanyl: Making a Killing
Since 2016 we’ve chronicled the “dark side” behind the Vancouver real estate bubble, which it turns out has long been a bubbling melange of criminal Chinese oligarch “hot money”, desperate to get parked offshore in any piece of real estate, but mostly in British Columbia regardless of price.
A number of investigations have since uncovered extensive links – including money laundering and underground banking – between China’s criminal underworld and British Columbia drug and casino cash and VIPs, as well as their connections to China, Macau and the notorious triads. These investigations have found much of the B.C. real estate bubble can be explained as nothing more than the “layering” and “integration” aspect of a giant money laundering scheme involving billions of dollars of Chinese hot money and the criminals behind it.
On Monday the new bombshell study revealed just how extensive and growing this Chinese underworld racket remains and how it continues to impact average citizens and regular home buyers, as well as fueling the continuing opioid crisis across the US and Canada, which has claimed tens of thousands of lives across North America, including nearly 4,000 Canadians in 2017 alone. The figures are so stunning that what is “known” years after the story first came to light could merely be the tip of the iceberg.
The study published by Canada’s Global News begins by painting a disturbing scenario that suggests some of Vancouver’s priciest homes are nothing more than a new “Swiss bank account” of sorts providing the promise of an anonymous store of value and retaining the cash equivalent value of the original capital outflow from initial criminal transactions overseen for Chinese crime syndicates — all the while fueling Metro Vancouver’s housing affordability crisis.
The ultimate end result of the sophisticated and massive money laundering scheme is that middle-class families have been priced out of the city, per the report:
The stately $17-million mansion owned by a suspected fentanyl importer is at the end of a gated driveway on one of the priciest streets in Shaughnessy, Vancouver’s most exclusive neighbourhood.
A block away is a $22-million gabled manor that police have linked to a high-stakes gambler and property developer with suspected ties to the Chinese police services.
Both mansions appear on a list of more than $1-billion worth of Vancouver-area property transactions in 2016 that a confidential police intelligence study has linked to Chinese organized crime.
The Coming Bankruptcy Of The American Empire
Better to bring the troops home on our terms than wait for a debt crisis to do it for us…
Previous investigations had quoted concerned residents describing that: “Vancouver seems to be evolving from a residential city into almost like a lockbox for money…but I have to live among the empty houses. I’m a resident, not just an investor.”
The snapshot that the new police study provides is based on analysis of a sample of about 1,200 high-end sales in 2016. Investigators cross-referenced databases of criminal records and confidential police intelligence with those high-end property records, which revealed the shocking 10% organized crime ties figure.
But the implications for prior years going all the way back to the early 2000’s and even into the 1990’s, when Canadian police believe the current kingpins of fentanyl — which is the powerful and extremely addictive narcotic added to heroin to increase its potency (said to be 100 times more potent than morphine) — began to dominate Canada’s heroin markets, are equally as startling.
For starters, the report finds, fentanyl-related money laundering which funnels illicit funds through the luxury housing market has been so pervasive that researchers “didn’t have the time or resources to study the over 20,000 transactions”. During the course of these some 20,000 transactions home prices in Vancouver have tripled since 2005.
From the new “Fentanyl: Making a Killing” extensive report
And further illustrating just how extensive the whole scheme remains, there is this bombshell section from the report:
While the study only looked at property purchases in 2016, an analysis by Global News suggests the same extended crime network may have laundered about $5-billion in Vancouver-area homes since 2012.
At the centre of the money laundering ring is a powerful China-based gang called the Big Circle Boys. Its top level “kingpins” are the international drug traffickers who are profiting most from Canada’s deadly fentanyl crisis.
The crime network, according to police intelligence sources, is a fluid coalition of hundreds of wealthy criminals in Metro Vancouver, including gangsters, industrialists, financial fugitives and corrupt officials from China.
The report is so full of specific examples of multi-tens of million dollar homes that are actually money laundering conduits for fentanyl drug kingpins that it puts President Trump’s recent accusations against China for fueling the opioid crisis into fresh perspective.
At that time Trump attempted to lay out the case that Chinese suppliers had been fueling America’s opioid crisis, saying in part “It is outrageous that Poisonous Synthetic Heroin Fentanyl comes pouring into the U.S. Postal System from China.”
However judging by breadth and depth of figures merely from one major North American city (some American cities have been named in other investigations), it appears that Trump’s words actually understated the role of China and Chinese organized crime, of which it appears Beijing authorities have long been only too happy to look the other way while it takes deep roots on the American continent.
After all we can’t imagine China’s all-pervasive advanced surveillance systems and powerful domestic intelligence apparatus could miss this: “Police say that almost every drug seizure they now make in Vancouver turns up some form of synthetic opioid produced at factories in China,” according to the report.
Operation Car Wash began in March 2014 at a petrol and car wash complex in Brasilia, Brazil’s capital, and it was initially thought to be routine.
The Federal Police team had the location under surveillance believing that it was the centre of a money -laundering operation run by Alberto Youseff, a former convicted criminal known as the “doleiro de doleiros” – the money launderer of money launderers.
When it was discovered in one of Youssef’s intercepted emails that he was paying for a Land Rover for an executive of Petrobras, Brazil’s national oil company, it immediately raised suspicions.
The executive turned out to be Paulo Roberto Costa, the man in charge of refining and supply. Costa became the main target in the first phase of the Car Wash investigation and was arrested.
Deltan Dallagnol, the lead Federal Prosecutor for the case, says that investigators uncovered “evidence of money laundering” totalling some 26 million Brazilian reals ($8m). Criminal charges were brought against Costa, who negotiated a plea bargain with authorities.
“That allowed for an exponential expansion of the investigation,” Dallagnol says. “It was the big bang of the Car Wash Operation.”
Never before did Brazil export corruption like it did in the Car Wash case.
Costa admitted that the Land Rover was just one of many bribes he received to issue contracts to construction companies, and told law enforcement officials participating in a task force set up to pursue the case that the bribing scheme was much larger than anything they imagined.
Corruption in the supply division he oversaw, Costa said, “was the tip of the iceberg”.
Bruno Brandao, the head of Transparency International in Brazil, says, “Never before did Brazil export corruption like it did in the Car Wash case.”
He adds that the problem of corruption in Brazil is systemic, and that in the Car Wash scandal, “the mechanism of corruption was traditional – overcharging of contracts and the setup of company cartels. What is new is the scale, the amounts of money and number of people involved – officials and companies. The dimensions of this case are what makes it extraordinary.”
Federal police inspector Felipe Hayashi, who heads the Financial Crimes Unit of the Car Wash taskforce, says the investigation “reached people of the highest rank and level of responsibility. That’s something that has never happened before.”
Investigators learned that there was a cartel of companies that dealt with Petrobras. According to a secret agreement that existed for more than 10 years, the cartel would nominate one of its members to be awarded each Petrobras contract – for refineries, oil rigs, and other multimillion-dollar projects.
“We secured documents that laid out the operation of the cartel in terms of championship rules for different sports,” says Dallagnol. “There were 16 championship players and their objective was to ‘maximise’ prizes in national and international markets alike. Obviously, these companies would never openly admit cartel arrangements in a clear way, so they tried to disguise them as championship rules for different sports.”
The cartel rules resulted in steep overpayments for the work done. Petrobras executives were bribed to go along, and the cost of the bribe built into the contract. In fact, the scheme stretched far beyond Petrobras to contracts for stadiums for the 2014 World Cup, the 2016 Rio Olympics and other major infrastructure projects throughout the country.
Brazil’s Car Wash scandal turned into the largest corruption case in Latin America’s history, involving some of the region’s most prominent public figures. [Getty Images]
The Odebrecht bribery machine
On June 19, 2015, the taskforce moved against the cartel players.
“It was time to take a step which had never been taken before in history; when big businessmen were finally reached, people who had been considered princes of enterprises in Brazil,” says Dallagnol.
Twelve top-level executives were arrested, among them Marcelo Odebrecht, CEO of the company that bears his name. Odebrecht is the largest construction company in Latin America. Its bribing operation typified that of cartel members and was the most extensive in the region.
Marcel Odebrecht was held without bail, and less than a year after his detention he was sentenced to 19 years in prison for corruption, money laundering and criminal association.
For decades and decades, in Brazil, you had to apply grease for everything. If a citizen wanted to obtain an ID, he certainly would have to pay something to a public agent to expedite the process.
Sergio Foguel, member of the Odebrecht Board of Directors
We headed to Salvador in northeast Brazil to get the Odebrecht Company’s response to the scandal.
The business was founded in 1944 by Marcelo Odebrecht’s grandfather, and the city is still its headquarters. Sergio Foguel, a long-time member of the Odebrecht Board of Directors, agreed to talk to us.
Despite the conviction of its CEO, the company still operates in more than 20 countries around the world and had revenues of about $26bn last year.
“There is no excuse to justify those acts of misconduct,” Foguel says. “But for decades and decades, in Brazil, you had to apply grease for everything. If a citizen wanted to obtain an ID, he certainly would have to pay something to a public agent to expedite the process”.
Our reporter, Gustavo Gorriti, wanted to know why the company had consistently denied any wrongdoing for months and months during the investigation.
“Despite all our strength as a company, we carried out acts within our organisation that today would be completely inadmissible,” Foguel says. “There was a collective blindness. Initially, corruption was tolerated and later, it expanded in an incredible way.”
A plea bargain by Odebrecht employees in the Lava Jato (Car Wash) corruption scandal led to testimony ensnaring nine ministers in President Michel Temer’s cabinet under investigation [Mario Tama/Getty]
‘Plug and play. It was serial corruption’
According to authorities, Odebrecht had a division of “Structured Operations” that ran an intricate off-the-books accounting system and a bank to bribe not only company executives, but also politicians.
This started to become clear when Marcelo Odebrecht began talking in hopes of reducing his 19-year sentence.
In testimony to prosecutors captured on audiotape, Odebrecht admitted that his company bribed politicians from all the major Brazilian parties in exchange for appointing Petrobras executives at the public company. Dozens of congressmen, senators and ministers have so far been implicated in the scandal.
Odebrecht’s testimony dealt a body blow to the Workers’ Party of former President Luiz Inacio Lula da Silva, and his successor Dilma Rousseff.
Amid a deep political crisis, Dilma Rousseff was impeached in August 2016. Two weeks later, Lula was formally charged with corruption in connection with the Car Wash scandal.
While Brazil’s elites were being held to account, investigators were also making steady progress on the international front with the help of the US Department of Justice. The country is one of the world’s main destinies for financial transactions.
“This provides the United States jurisdiction over a good deal of money laundering crimes that happen around the world,” Dallagnol says. “The US acted in a very efficient way, identifying accounts kept in their country to launder money and delivering documents very quickly.
In December 2016, Odebrecht pleaded guilty to American charges that it provided almost $800m in bribes for more than 100 projects in 12 countries. It agreed to pay a $3.5bn fine and disclose details of its corrupt activities in Latin America and Africa.
According to Brandao, “Odebrecht, at least in the 12 countries it operated, had the same system, the same mechanism – plug and play. It was serial corruption.”
From Brazil to Panama: Fake companies and big deals
Odebrecht’s guilty plea in the US set off investigations throughout Latin America. Key to those efforts was deciphering how the money flowed from the company to corrupt officials through countries like Panama that specialise in offshore banking.
Rolando Rodriguez, who heads the investigative unit of the Panamanian newspaper La Prensa, says that “From Panama, money went out to officials from Brazil, officials from Peru and other parts of the world.”
Panama’s police investigators uncovered a Panamanian company tied to Odebrecht called Contructora Internacional del Sur.
“It was a fake company that received money from Odebrecht and sent it out to accounts in different countries, especially Switzerland,” Rodriquez says. “So, the laundering structure was set up using companies, most of them from Panama, as well as bank accounts, most of them from abroad.”
Many of the shell companies used by members of the Brazilian construction cartel to dispense bribes were set up by Mossack Fonseca, the law firm at the centre of the Panama Papers leak, which exposed the financial dealings of some of the most powerful and wealthy people in the world.
“Mossack Fonseca is one of the oldest firms that work on setting up shell corporations,” Rodriguez says. “So, by arriving here in Panama you resolve the problem of having to travel to 10 different countries to get 100 corporations.”
Panama was not only a good transit point for corrupt payments. It was also a place to land large construction projects at inflated prices. With projects of some $9bn, Odebrecht is the most important construction company in Panama. Between 2010 and 2014, according to the US Department of Justice, Odebrecht paid tens of millions of dollars in bribes to secure public works contracts. One of the most profitable was building the Coast Highway.
I do harm to a country for $2 or $3bn. I agree to pay $300m, $500m or a billion and, after some time, I walk away free. What a business.
Jose Antonio Dominguez, legislator
“Panama ended up paying a great deal for a project that should have cost much less,” says Jose Antonio Dominguez, a legislator with the country’s governing Panamenista party who has been questioning the pricing of the project for years. “That project, without any change, suddenly was awarded for $189.5m instead of $133.5m. Why that $60m difference? For what?”
In July 2017, Odebrecht reached an agreement with the Panama authorities to pay $220m in fines and provide information about public corruption to settle bribery charges in the country.
“I do harm to a country for $2 or $3bn. I agree to pay $300m, $500m or a billion and, after some time, I walk away free. What a business,” says Dominguez.
A vast web of political and corporate corruption in Peru
Tensions over the way Odebrecht conducted its business are growing throughout Latin America. The latest flashpoint is Peru, where the country’s ruling establishment is reeling from its connections to the company.
Attorney Walter Alban served as the public ombudsman in Peru from 2000 to 2005 during the presidency of Alejandro Toledo, now accused of receiving bribes from Odebrecht.
“It’s been demonstrated that there were transfers through offshore companies and close friends of the former president,” he says.
Odebrecht wanted the lion’s share of a multibillion-dollar highway project connecting the Peruvian coast to Brazil and they got it. Toledo has been charged with accepting a $20m bribe to steer them the business.
Jorge Barata, the head of Odebrecht in Peru, confessed in 2016 that he struck the deal in a meeting at a Copa Cabana hotel in Brazil that Toledo attended. Peruvian prosecutors are trying to extradite Toledo from the US to face bribery charges, which he denies.
Alban says Odebrecht didn’t just pay off individual politicians. The company promoted its interests by gaining influence over the political system itself.
“The scheme Odebrecht had was not only related to bribes to get contracts,” Alban says. “There was also this practice of promoting candidates and financing political parties, and not just one but all that might have a chance of winning.”
In a videotaped confession to prosecutors obtained by Peruvian investigative journalism organisation IDL-Reporteros, Barata admitted to giving $3m to the Nationalist Party to help finance the 2011 presidential campaign of Ollanta Humala. Humala won and served as president from 2011 to 2016.
Corruption is not an issue of right or left, or ideology. But of a confluence of interests.
Walter Alban, lawyer
Barata also claimed his company supported the left-wing Humala not only to promote Odebrecht´s interests in Peru, but to curry favour with Lula’s Workers’ Party in Brazil. “The Workers Party had an interest that all South American presidents share the same political and economic line as the Workers Party. Humala had those characteristics,” Barata says.
According to Alban, Odebrecht had strong links with ex-president Lula’s party in Brazil. It is described as a “geopolitical strategy” he says, indicating that “corruption is not an issue of right or left, or ideology. But of a confluence of interests.”
Both Humala and his wife, Nadine Heredia who was general secretary of the Nationalist Party, are now in prison awaiting trial.
Keiko Fujimori and her Popular Force party are also under investigation for taking money from Odebrecht to fund her 2011 presidential bid. Fujimori says the accusation is false but Marcelo Odebrecht has testified that his company helped finance her campaign.
On February 28, Barata met Peruvian prosecutors and confirmed that the company gave money to support Fujimori in the presidential race – $1.2m.
“There aren’t political parties any more” says Alban, “There are groups that define themselves as political, but strictly speaking, they are supported in all cases by illegal funds”.
Demonstrators protest for the impeachment of President Dilma Rousseff and also against corruption being investigated involving resource diversion and money laundering in Petrobras scandal of corruption on March 16, 2016, in Sao Paulo, Brazil [Victor Moriyama/Getty]
A new attitude towards corruption in Latin America
Last December, the Car Wash scandal arrived at the doorstep of Peru’s current president, Pedro Pablo Kuczynski. Peru’s congress launched impeachment proceedings against him, alleging his companies received almost $800,000 from Odebrecht while he was serving as a public official.
Kuzcinsky vehemently denies all wrongdoing and narrowly avoided impeachment but prosecutors continue their investigations. In his February meeting with prosecutors, Barata said Odebrecht also contributed to Kuzcinsky’s 2011 presidential campaign.
Peru’s Attorney General Pablo Sanchez is overseeing the investigation of Peru’s high-level officials for dealings with Odebrecht. “We are talking about corruption and a series of very complex crimes that involve several different governments, not just one but at least three,” he says.
When asked why the corruption connected to the Car Wash case went so far in Peru, he says: “Our country is not prepared to face cases of this nature or prevent crime,” Sanchez says. “Our country has trusted too much in the behaviour of state officials and the politicians in our country. So in that way, we haven’t advanced at all, or just very little. What we do now, proper investigations, proper convictions, will help prevent this from happening again in the future.”
Car Wash in Brazil today is no longer just an investigation, nor a process. Lavo Jato today in Brazil is an attitude, an expectation that impunity will start to fade away.
Bruno Brandao, head of Transparency International
Every week seems to bring new developments around the world in connection with the Car Wash scandal.
Governments from Ecuador to Angola are dealing with the repercussions of the case. Meanwhile, back in Brazil, the Supreme Court is considering former President Lula’s appeal of a 12-year sentence he received for corruption. His plans to run for president this October are in danger of being derailed.
“Car Wash in Brazil today is no longer just an investigation, nor a process. Lava Jato today in Brazil is an attitude, an expectation that impunity will start to fade away,” Brandao says.
Alban agrees that a new attitude towards corruption is arising in Latin America. “Democratic societies in which we can say that the problem of corruption is at least controlled,” are those in which the public watches over how public resources are spent and demands “that public authorities be held to account. Because of the Car Wash case that is something that I believe is beginning to happen.”
By Valérie Ouellet, Dave Seglins, Rachel Houlihan,
Posted: Nov 06, 2017
Montreal Canadiens and Loblaw among Canadian entities found in massive international offshore leak
The names of more than 3,000 Canadian companies, trusts, foundations and individuals appear in the Paradise Papers, a leak of millions of records from offshore law firm Appleby and the corporate registries of 19 tax havens. (Gary Hershorn/Reuters)
A supermarket giant, an NHL hockey team, several billionaires and a yacht captain.
These are just a few of the roughly 3,300 Canadian companies, trusts, foundations and individuals whose names appear in the Paradise Papers, a leak of millions of records from offshore law firm Appleby and the corporate registries of 19 tax havens.
The leak, revealed Sunday by CBC/Radio Canada and the Toronto Star, in partnership with the International Consortium of Investigative Journalists (ICIJ), is the largest ever involving Canadians who keep money in tax havens. It contains more than five times more Canadian companies and individuals than the 625 found in last year’s Panama Papers leak.
The records also show that Canada is one of Appleby’s biggest markets for offshore financial services clients, behind the U.S., the U.K. and China.
Leaked data from the law firm shines a light on hundreds of well-known companies and wealthy Canadians who benefit from offshore trusts and corporations set up in countries where they pay little or no taxes, as a way to legally avoid — or potentially evade — paying taxes at home.
The Paradise Papers name hundreds of Canadian contacts working as accountants, attorneys or consultants for clients of Appleby. Also named are companies, individuals and 306 organizers and beneficiaries of trust funds incorporated in Bermuda or the Cayman Islands.
When news of the leak broke Sunday, John Power, a spokesperson for the minister of national revenue, said “the CRA is reviewing links to Canadian entities and will take appropriate action.”
Canadian offshore clients
The Montreal Canadiens, an Appleby client since 1980, set up two trusts in Bermuda, including an employee benefit fund that was shut down in 2010. In a statement to CBC News, the organization says its offshore business was “in full compliance with the existing Canadian tax legislation.”
The Montreal Canadiens set up two trusts in Bermuda with Appleby’s help. In a statement to CBC News, the organization says its offshore business was ‘in full compliance with the existing Canadian tax legislation.’ (Graham Hughes/Canadian Press)
Canadian supermarket giant Loblaw says it paid all appropriate taxes on the two subsidiaries it set up with Appleby’s help in Barbados and Bermuda in 2005. They were used to invest tens of millions collected from users of its President’s Choice Financial MasterCard, according to leaked documents.
In a statement, Loblaw writes: “the CRA is aware of all of our international income. Our activities […] are legal and transparent.”
The late Carl M. Dare asked for Appleby’s help to administer a trust set up in 1975. According to leaked documents, the patriarch of Canada’s Dare Foods cookie and candy empire, who died in 2014, incorporated his $5-million fund in the Cayman Islands “for members of [his] family.”
The Appleby files also name lesser-known Canadians, including several doctors, engineers, geologists, housewives, a police officer, a retired admiral of the Canadian navy, a speech pathologist, students, teachers, two writers and a scientist living in the Yukon, most of them acting as officers for corporations or benefiting from trusts.
Dennis Howlett of Canadians For Tax Fairness says the leak reveals a bigger problem that goes beyond wealthy individuals.
“It’s big corporations taking advantage of subsidiaries in tax havens to shift their profits and pay a lot lower taxes,” he said.
Howlett said the Canadian government facilitates this practice by signing tax agreements with tax havens. “This is legal, and it should not be legal. That’s the point.”
Drinks at the Ritz
Appleby repeatedly targeted Canada between 2011 and 2013 to look for new clients, especially in the mining industry. The firm’s strategy included networking trips to Vancouver, Calgary and the annual convention of the Prospectors & Developers Association of Canada in Toronto.
Records suggest all the wining and dining — at Toronto’s Ritz-Carlton, the Fairmont Royal York and top-ranked restaurant Canoe — may have paid off, as the firm secured 127 new Canadian accounts in 2012 alone.
The Paradise Papers reveal Appleby’s clients in 2014 included at least 17 Canada-based resource companies.
Appleby billed Canadian clients and law firms at least $12 million between 2009 and 2013, including $8.2 million through its Bermuda office.
In a 2013 email exchange, a pair of partners and a senior analyst discussed ramping up marketing efforts in Canada, including targeting national accounting and law firms.
“There has been significant law firm consolidation over the years especially on the national level so perhaps well worth us looking again.”
Appleby was clearly enthusiastic about signing up Canadians as offshore clients, but it was also interested in setting up its own shop here.
As last year’s Panama Papers investigation revealed, Canada is fast becoming a tax haven because of the combination of its sterling reputation and registry rules that allow the true owners of companies to hide their identities.
In 2007, Appleby launched “Project Kerry,” a plan to open a headquarters in a new jurisdiction. The firm’s short list of potential sites included the European island of Jersey; Mauritius, an island nation in the Indian Ocean; the British Isle of Man; and Halifax.
A memo to managing partners says Halifax is a logical long-term choice, with direct flights to the firm’s Bermuda and London offices, “very reasonable operating costs” and “very significant payroll tax rebates.”
While weighing pros and cons, Appleby worried that its clients who had incorporated in a tax-free jurisdiction may now have to pay taxes if they did business in Canada.
The firm also wondered if Canadian law enforcement could obtain warrants to access sensitive documents on offshore shell companies stored in Halifax.
In a memorandum prepared in August 2007, Appleby partner Michael Burns says he asked a local Halifax lawyer to evaluate whether keeping a server outside Canada “would constitute a complete and lawfully appropriate foil to the normal warrant search and seizure processes which generally apply to Canadian businesses.”
Burns says the initial informal advice from the lawyer “suggests there may be considerable cause for optimism in the outcome.”
CBC partners reached out to Burns, but he declined to comment.
In 2009, Appleby instead chose the Isle of Man for its new office, noting in an email that Halifax was a “very close second.”
The city has been trying to transform itself into a destination for offshore service providers for a few years now, according to Howlett.
“Even it is not illegal, it is definitely unethical,” he said of the strategy.
Howlett said he hopes the Paradise Papers leak acts as a wake up call for federal and provincial governments as well as average Canadians.
In a statement published online shortly after being contacted by the ICIJ, Appleby says it investigated allegations made by the consortium and was “satisfied that there is no evidence of any wrongdoing, either on the part of ourselves or our clients.”
Appleby goes on to say it doesn’t tolerate illegal behaviour and provides advice to clients on “legitimate and lawful ways to conduct their business.” The firm says it’s “not infallible,” and when mistakes have happened, it notified the relevant authorities.
CBC’s conclusions rely on a 2014 copy of Appleby’s Master Client Database, authenticated by the ICIJ. CBC/Radio Canada and the Toronto Star analyzed thousands of addresses and names contained in that data to match offshore entities with their parent company using a unique address code assigned by Appleby. CBC’s definition of a “Canadian” found in this leak relies on finding at least one of the following within the data: a mailing, residential or business address in Canada; a Canadian passport number; or Appleby’s direct reference to a Canadian birthplace or nationality. The ICIJ excluded incomplete, pending and duplicate accounts.
Ready to gag? “The new study discovered that, in total, America’s most profitable corporations in 2016 had $2.6 trillion stashed overseas in over 9,000 subsidiaries in various locations, including notorious tax havens like Bermuda and the Cayman Islands.”
“As Congress considers proposals to institute a near zero percent tax rate on profits booked offshore by multinational corporations, the findings in this report should give policymakers pause.”
“Congress created the loopholes in our tax code that allow offshore tax avoidance and force ordinary Americans to make up the difference,” the new study observes. (Photo: Michael Fleshman/Flickr/cc)
As President Donald Trump and the Republican-controlled Congress intensify their push for massive corporate tax cuts that critics have said would encourage businesses to offshore profits and jobs, a new report published Tuesday by U.S. PIRG and the Institute on Taxation and Economic Policy (ITEP) found that 73 percent of companies on the Fortune 500 list are already taking advantage of overseas tax havens—costing the United States $752 billion in federal tax revenue last year alone.
“Lawmakers shouldn’t be discussing how to sweeten the pot and give corporations a huge tax break that amounts to a huge financial reward for engaging in bad corporate behavior.” —Richard Phillips, Institute on Taxation and Economic Policy
The new study discovered that, in total, America’s most profitable corporations in 2016 had $2.6 trillion stashed overseas in over 9,000 subsidiaries in various locations, including notorious tax havens like Bermuda and the Cayman Islands.
Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition, cautioned in a statement on Tuesday that the Trump-GOP tax proposals would, if passed, make this bad situation even worse.
“As Congress considers proposals to institute a near zero percent tax rate on profits booked offshore by multinational corporations, the findings in this report should give policymakers pause,” Gascoigne said. “The study shows that today’s flawed tax system allows for gaming on a grand scale.”
The PIRG-ITEP analysis makes clear that corporate tax avoidance is both an unnecessary problem—”Congress created the loopholes in our tax code that allow offshore tax avoidance and force ordinary Americans to make up the difference”—and a pervasive one.
At least 366 of the 500 companies on Fortune’s list “operate one or more subsidiaries in tax haven countries.” Furthermore, “30 companies with the most money officially booked offshore for tax purposes collectively operate 2,213 tax haven subsidiaries.”
But the report also highlights the fact that there are several “particularly egregious examples”:
Apple, which “holds at least $246 billion offshore, a sum greater than any other company’s offshore cash pile,” would owe $76.7 billion in U.S. taxes if this profit was not overseas;
Citigroup, which stashes $47 billion overseas, would owe $13.1 billion in U.S taxes; and
Nike, which holds $12.2 billion offshore, would owe $4.1 billion in U.S. taxes.
Richard Phillips, a senior policy analyst at ITEP, argued that in the face of these numbers, Congress should be looking to close loopholes that allow businesses to offshore profits on an enormous scale, not open them even further, as Trump and the GOP have proposed.
“Lawmakers shouldn’t be discussing how to sweeten the pot and give corporations a huge tax break that amounts to a huge financial reward for engaging in bad corporate behavior,” Phillips said.
The PIRG-ITEP analysis outlined several steps that could be undertaken by lawmakers in the place of their attempts to slash taxes, gut the safety net, and further incentivize offshoring.
“To end tax haven abuse, Congress should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement, and increase transparency,” the study concluded.
The research was based on a variety of data, including ICIJ’s Swiss Leaks and Panama Papers investigations, and prove for interesting reading. Here are seven highlights from the reports.
The ultra-rich avoid the most tax
The ultra-rich, people whose net worth is more than $45 million, are ten times more likely to evade taxes than the average citizen, according to the research.
That means the ultra-rich have worked out how to avoid paying about 30 percent of their personal income and wealth taxes.
And it probably doesn’t stop there, with the authors suggesting that “evasion among the wealthy may be even higher” because their research was based on Scandinavian countries where social trust is high, corruption low and respect for the rule of law strong.
The research also found that offshore wealth increases the “top 0.1 percent wealth share from 8 percent to 10 percent” when looking at Norway specifically. And for top 0.01 percent “taking tax evasion into account increases their wealth by a third.”
The ultra-rich are more likely to use offshore accounts
The likelihood of Scandinavians in the bottom 99 per cent of wealth share hiding their assets in HSBC accounts was “negligible,” according to research based on ICIJ’s Swiss Leaks.
But the probability rises to 1 percent among the richest 0.01 percent.
This chart shows the probability of owning an unreported HSBC account by wealth groups. (The first group [P90-P95] represents households worth less than $900,000 and the last the top 0.01 percent who are worth $44.5 million.)
“The gradient is notable too: top 0.01 percent households are 13 times more likely to hide assets at HSBC than households in the bottom half of the top 1 percent,” they wrote.
Hardly anyone except the ultra-rich use offshore accounts
The use of offshore accounts “steeply rises with wealth,” according to research based on ICIJ’s Panama Papers.
This charts shows the probability of owning a Mossack Fonseca offshore shell company significantly increased for the top 0.01 percent of Norway and Sweden’s population.
“The use of tax havens appears more concentrated in the Panama Papers than in the HSBC leak,” the authors wrote.
The researchers also suggested one reason very few households outside the 0.01 percent in the Panama Papers used shell companies to conceal wealth is because it is a “more sophisticated” strategy than owning offshore bank accounts.
“Both techniques are often combined, but the wealthiest tax evaders might be more likely to combine offshore accounts with shell companies, when less wealthy tax evaders may be relatively more likely to own offshore accounts directly in their own names.”
Tax havens hold 10 percent of global GDP
In the second study, the authors analyzed the global amount of wealth in tax havens.
“We find that while about 10 percent of world GDP is held in tax havens globally, this average masks a great deal of heterogeneity.”
For example, Russia (60 percent), Europe (15 percent) and other nations hold a significant chunk of their GDP offshore, whereas Scandinavian countries own just a few percent of GDP.
Offshore wealth is shifting from Switzerland to Asia
The research found the size of this wealth was “not easily explained by tax or institutional factors” but instead correlated more closely with a country’s proximity to Switzerland, the presence of natural resources and political/economic instability.
However, the times might be changing, with the research also discovering wealth was growing in tax havens based in Asia – and mainly in Hong Kong – with offshore accounts held in Switzerland declining since the 2008 financial crisis.
The authors predicted offshore assets in Hong Kong have grown six-fold between 2007 and 2015 with the country now ranked second behind Switzerland for tax havens.
Countries with more offshore wealth also use more tax havens
The next chart shows the number of unique owners of shell companies created by Mossack Fonseca in each country before 2006 and active in 2007, using Panama Papers data.
“There are strong similarities between the amount of offshore wealth we estimate and the use of tax havens as revealed by the Panama Papers,” the authors said.
Russia is one such country with a total of 2071 unique shells. The authors also highlighted that China is over-represented in the data given estimates of how much Chinese wealth is offshore. They suggest this could be because estimates of China’s offshore wealth are low, or that Chinese use shell companies for purposes other than concealing wealth.
Offshore wealth can substantially increase inequality
So what does that all mean for equality?
Including offshore assets generally increased the 0.01 percent’s wealth share substantially (even in the law abiding Scandinavian countries).
The effect in some countries is much worse than others. In the United Kingdom, Spain and France offshores assets accounted for between 30 to 40 percent of the 0.01 percent’s wealth. In Scandinavia, however, their share of wealth only increases by about 1 percent.
“Our citizens should know the urgent facts…but they don’t because our media serves imperial, not popular interests. They lie, deceive, connive and suppress what everyone needs to know, substituting managed news misinformation and rubbish for hard truths…”—Oliver Stone