An activist clutching a suitcase stuffed with fake money demands greater transparency in new legislation following the ongoing Panama Papers affair on April 13 in Berlin, Germany. (Photo by Sean Gallup/Getty Images)
When I first caught wind of the Panama Papers a couple weeks back, I immediately recalled a conversation I had about six years ago with Bernard Madoff, ponzi schemer extraordinaire. We were walking the track at the Federal Correctional Institution (FCI) 1 in Butner, North Carolina, and he told me, “Anyone who is anyone has a good accountant who sets him up a shell corporation and stashes his money in an offshore account. And why shouldn’t they? It’s perfectly legal.”
The leaked documents known as the Panama Papers came to light after internal records at Mossack Fonseca, a Panamanian law firm, were hacked and disclosed to the world. In a nutshell, the unprecedented release—one fugitive Edward Snowden called “the biggest document leak in the history of data journalism”—exposes how the firm helped establish secret shell companies and offshore accounts for global power players, including alleged associates of Russian President Vladimir Putin, politicians from dozens of countries, and hundreds of wealthy Americans, some of whom have been accused or even convicted by US authorities of financial crimes.
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One wealthy American named in the Panama Papers is Benjamin Wey, a Wall Street financier who was charged in September with securities fraud, wire fraud, conspiracy, and money laundering.
“I met Ben,” federal inmate Russell Wasendorf told me the other day. “We met in New York and discussed corporate restructuring of my company’s operation in China, but that’s as far as our conversation went.” Because Wey is under federal indictment, Wasendorf feels it would be inappropriate to further comment.
The former CEO of Peregrine Financial Group, Wasendorf pleaded guilty in 2012 to a host of federal crimes involving white-collar offenses and received a 50-year sentence. We’re both housed at the medium-security federal prison in Terre Haute, Indiana, and spoke about the Panama Papers on a recent Sunday morning inside the prison’s leisure library.
According to Wasendorf, what’s most noteworthy about the Panama Papers—at least so far—is how much of this stuff is legal. “While there may be some unseemly characters involved, and certainly more high-profile names are to come, the practice of setting up shell corporations to conceal peoples’ identities is not, per se, illegal.”
He explained how every country has its own unique corporate laws and regulations, as does each state in the US. “The vast majority of people who incorporate in this country do so in Delaware, Nevada, and Wyoming,” he said. “If, for example. you are hoping to start a Fortune 500 company, then Delaware is your place. You obviously aren’t worried about revealing your identity, the tax rate is fairly low, and corporate laws are favorable and well established.”
If, of the other hand, you’re looking to incorporate on the low, he continued, “Nevada and Wyoming are where people generally turn.”
Art Schlichter also knows a thing or two about offshore corporations, but for another reason entirely. A former pro NFL quarterback, the man had a promising future until a gambling addiction turned him into a habitual white-collar criminal. Now serving a 127-month federal prison sentence for wire fraud, bank fraud, and filing false income tax returns, Schlichter said the ideal corporate structure for illegal gambling is to set up a shell corporation in Ireland, where you can register as a “consultant” for your corporation.
“That way if you win, you can turn your winnings into legitimate income by receiving a ‘consultant fee’ from your corporation that you can pay taxes on. I’ll bet you’ll see plenty of Irish corporations and ‘consultants’ listed in the Panama Papers,” he added.
Indeed, several Irish “consulting” firms have been listed in the documents.
Wasendorf isn’t surprised gamblers might use Ireland to clean money, as they have a low corporate tax rate, and the laws are very relaxed there. “But there’s a much better place to form corporations for all of these reasons, and it’s even better than Panama,” he said.
In Cyprus, Wasendorf explained, you can set up a corporation where the shareholders are simply nominees of the real beneficiaries of the account. So any individual or group of people can incorporate in Cyprus, put whoever they want in their place, and instruct them according to their (the beneficiary’s) best interest.
“When it comes down to it,” he said, “the practice of forming tax-reduction or tax-avoidance corporations are far more pervasive in Europe than in the US because of the idiosyncrasies of the VAT [value-added] taxes across Europe.
“Socialism may sound great politically,” he added, “but often the wealthiest guys who advocate the loudest for it are the first ones who find loopholes to hide their money. They set up tax shelters in places like Panama.”
“Maliki” Harris is another white-collar convict serving time at Terre Haute. Educated in finance and serving as a student-teacher in the prison, he told me that the Panama Papers will ultimately change nothing because countries around the world would have to unite and establish regulations across the board, and that simply won’t happen.
“What I find most interesting is how the media is focusing on a law firm in Panama rather than accounting firms right here in the US,” he told me. “Most tax evasion or avoidance schemes begin in accounting firms right here at home, and if the media was truly interested in informing citizens rather than cozying up with corruption to make their lives more comfortable, they’d start digging into US accounting firms.”
Suddenly Bernie Madoff’s comment about offshoring six years ago is starting to make a lot of sense.
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