Tales following offshore money trails

‘Like a forensic accountant trying to solve a corporate fraud, following the trail of money around the circle is a good way to understand what actually happens as capitalism unfolds.’ — Jim Stanford (Economist)

‘Money's a horrid thing to follow, but a charming thing to meet.’ Henry James

‘Laws are made for inside states. Money flows across borders. For international criminals, impunity is assured.’ Eva Joly

Tax havens have an abject history of laundering money for corrupt politicians, terrorists, and criminals with particular damage being inflicted by havens upon poorer developing nations and continents such as Africa. There are sixty tax havens and all are as full of horror stories as each other, but lets focus on the biggest and most famous – the United States, the United Kingdom and Panama, as well as the regions of Eurasia, Latin America and Africa where corruption is most evidently rife. Stories are always much more compelling than numbers, so here are some story's from those countries (the Benny Steinmetz saga is particularly mind-boggling!).

Panama

The panama papers leak from Mossack Fonseca, just one offshore law firm, show the scale of the global issue of corruption currently prevalent amongst world leaders and in offshore law firms. ‘The Panama Papers identified five then-heads of state or government leaders from Argentina, Iceland, Saudi Arabia, Ukraine, and the United Arab Emirates as well as government officials, close relatives, and close associates of various heads of government of more than forty other countries.’

Obermayer and Obermaier described in their book how they manage to ensemble several anonymous offshore companies that all could be linked to Sergei Roldugin, a professional cellist and the godfather of Putin’s daughter Maria. ‘Over the years around $2 billion was channeled via this network with the aid of several banks, including some in the West, and quite a number of shell companies in Panama and the British Virgin Islands’ . A sum of almost $500 million in gold was paid into an account of account which Roldugin had control over, yet he told the New York Times at the time he didn’t ‘have millions to his name'. Putin claimed to subsist on his salary of 135,000 as president but Swedish economist, Anders Aslund, has claimed that Putin ‘has amassed a net worth between $100 billion and $160 billion’ , which has been hidden offshore in the UK and US.

The authors also reveal in their book that the Mossack Fonseca looked after undisclosed assets of a child rapist who ran a child prostitution ring and kept him as a client for the time when he would be free again. Worse still, they show how the offshore firm played a ‘role in the Syrian War’ as they kept as a clients Rami Makhlouf, the richest man in Syria and Assad’s most important financier, and Makhlou’s influential brothers. All these individuals were facing sanctions from the US (Rami from the EU as well.)

Mossack fonseca also created offshore shell companies for Guatemalan druglord, Marllory Dadiana Chacón Rossell, also known as ‘Queen of the South’’; an alleged major financial backer of Hezbollah; close friends and allies of Mugabi, and many more dubious criminals.

The authors conclude that ‘the Makhlouf case also demonstrates why the existence of anonymous shell companies poses an existential threat to millions of people. Because they can help dictators to circumvent sanctions imposed by the international community.’

United Kingdom

Britain’s Euromarkets were the great escalator for tax haven corruption and were what helped Mexico’s corrupt president Miguel de la Madrid to accumulate alone ‘$162 million in 1983’ in foreign bank accounts. It has been ‘estimated that more than half the money borrowed by Mexico, Venezuela and Argentina in the late 1970s and early 1980s effectively flowed right back out the door, often the same year or even month it flowed in. In Venezuela it was nearly dollar-for-dollar. In the Euromarkets there was nobody to stop it.’ . The people who paid the price of the greed of the Euromarkets and these foreign politician’s actions, were the South and Latin American people who footed their bill.

Post the financial crisis, business is as usual. In 2012, US authorities decided against prosecuting HSBC for money laundering despite evidence that the bank enabled Mexican drug cartels to move money through its American subsidiaries, in violation of basic anti-money laundering regulations. No top officials faced any charges and ‘instead, the bank was fined $1.92 billion, which pales in comparison to HSBC’s pretax profits of $22.6 billion in 2013’ . UK officials, including Chancellor George Osbourne, pressurised the US to drop its charges and avoid ‘market turmoil’ demonstrating how even today governments are protecting banks at all cost, actively preventing any form of justice for all those who have suffered as a result of drug cartels in Mexico. In May 2016, Roberto Saviano, Italy’s most celebrated anti-Mafia journalist, called Britain ‘the most corrupt place on earth’ due to the money laundering that happens in London.

United States of America

An article online by Robert Burrows shows how the US tax system has three tiers, the third tier being the overseas US satellites. He states ‘At the federal level, the US government offers a range of tax exemptions, secrecy provisions and laws designed to attract foreign money. This means, for example, that US banks can legally accept proceeds from a range of crimes as long as the crimes are committed overseas. The second tier involves individual US states such as Florida (where Central/South American elites do their banking and the countries adversely impacted are prevented by US secrecy provisions from accessing relevant data, and where much Mob and drugs money is hidden too), Delaware, Nevada and Wyoming, where even terrorist money is protected by secrecy provisions.’

In illustration of the above, it has been found that the arms trafficker Viktor Bout, known as Merchant of Death, used ‘at least a dozen shell companies incorporated in Delaware, Texas and Florida to cover up his weapons trafficking operation’ . This man is believed to have supplied Russian arms to the Taliban, and he would have kept his profits safe in America.

It is clear from looking at the clients of American Banks that America is a favourite destination for the worst dictators in the world to store their wealth. Citibank (founded in 1812 as the City Bank of New York) had the family of former Nigerian dictator Sani Abacha and Omar Bongo, the President of Gabon for fourty-two years and Africa’s most influential leader, as it’s clients. The UK Sunday Times reported in 2008 that ‘a mansion worth £15m in one of Paris's most elegant districts has become the latest of 33 luxury properties bought in France by President Omar Bongo Ondimba of Gabon ... a French judicial investigation has discovered that Bongo, 72, and his relatives also bought a fleet of limousines, including a £308,823 Maybach for his wife.’ Oil-rich Gabon to this day remains with a high child-mortality rate, plagued with severe poverty and huge debts. In the 1970s when Gabon enjoyed an oil boom and its best spell of economic growth, Omar Bongo gave tens of millions of dollars to Citibank, who in turn ‘set up shell corporations for him in Bahrain, Jersey, London, Luxembourg, new York, Paris, Switzerland and the Bahamas, sending payment orders not through the bank’s regular credit channels but only through certain senior bank staff’ . Like magic, ‘funds totalling 8.5% of Gabon’s budget’ came in from nowhere.

Citibank also had clients such as the brother of former Mexican president Carlos Salina, who later left Mexico out of fear of being arrested for murder. They created shell companies in the Cayman Islands and elsewhere for Salinas, who was referred to ’internally as ‘Confidential Client Number 2’, or ‘CC-2’ , down to him being ‘extremely sensitive about the use of his name and does not want it circulated within the bank... By mid-1994, the accounts contained $67 million, and they earned Citibank more than $2 million in fees over four years.’

In a memo from the historic American Bank, Riggs, a reference was made to Chilean torturer-in-chief and former dictator Augusto Pinochet as a “retired professional” . In addition, Equatorial Guinea was Rigg’s largest customer with balances of around ‘£750 million’ when it opened its first account in 1995, whereby ‘Riggs set up 60 accounts and certificates of deposit for Equatorial Guinea’s dictator Obiang and his family, and for Equatorial Guinean officials and companies’ . In 2001, IMF reports outlined how missing oil revenues in 2001 equalled ten percent of Equatorial Guinea’s GDP and in 2004, Parade magazine put Obiang Nguema just below Saddam Hussein on a list of the world’s ten worst dictators but it still took till 2005 for the US Department of Justice to charge Riggs just $16 million for failing to prevent money laundering during the ten years they had Obiang as their client.

Developing countries

Offshore tax havens have a much greater impact on poorer nations and continents than on developing nations. Whilst ‘Gabriel Zucman estimates the percentage of household wealth held offshore ‘to be just 4 per cent for the United States, around 10 per cent for Western Europe… For Russia, however, 52 per cent of household wealth is offshore, outside the reach of the government. In Africa (taken as a whole), the total is 30 per cent. In the Gulf countries, it is an astonishing 57 per cent.’

My research has led me to conclude that it is clear tax havens operate in a way that encourages bribery and theft. More to the point, tax havens have been shown to protect the individuals who exploit the world’s poorest nations for their own personal gain. According to Global Financial Integrity Estimates, developing countries lost a staggering $1.2 trillion in illicit financial flows in 2008—losses that had been growing at 18 percent per year since 2000.

Offshore tax havens breeds corruption in poorer nations because they offer individuals in powerful positions a place to protect any money looted from treasuries, foreign investments, or international aid, and they do not co-operate with transparency seekers or law enforcers. In this section, I will explain two scandals that have exposed the true nature of tax havens and their true cost. Here are two examples of the injustices being caused by tax haven's in Africa of many -

The Elf Affair

Eva Joly, a French Magistrate, uncovered a huge political scandal when she found that ‘Elf Gabon, had been funneling cash through Switzerland and Luxembourg to the industrialist Maurice Bidermann, to pay for a divorce settlement for the Head of Elf, one of Bidermann’s friends’ . This led to the Elf affair, a corruption scandal that took years to partially bring to light.

Eva tried following offshore money trails and began receiving death threats. She was stonewalled by ‘Liechstenstien, the Isle of Man, Gilbratar, the Cayman Islands, Bahrain, London and so on’ during her investigations, but helped in Switzerland by a friendly Magistrate. Britain, being stereotypically evasive, even took three years to respond to an international arrest warrant issued by French magistrates in 2000 for billionaire Nadhmi Auchi, a big shareholder at the time in the BNP-Paribas bank, whom they wanted to question in connection with the Elf affair.

The Elf scandal centered upon the French International Bank of Africa (FIBA) which was set up by a governor of France in 1975 and was overseen by Andre Tarallo. Its partners ’included Elf, Bongo, his children and senior Gabonese officials as shareholders’ .

FIBA whirled Elf’s cash through tax havens resulting in African leaders receiving ‘20 to 60 cents of each barrel that Elf produced in their countries; other flows went to the inteliligence services for covert operations’ . ‘Fiba’s president said in court that financial flows were conceived so that the Africans were only aware of the official lending, but were ignorant of the whole system – which Elf rendered deliberately opaque…. Bribes flowed through Fiba and Elf Gabon, as Elf dealt with politicians in Nigeria, Angola, Congo, Venezuela, Germany, and so on -not just for Elf, but also in pursuit of broader French diplomatic, commercial, and military goals… Elf won contracts across the globe, infuriating the Americans, among others. Elfs cash paid for luxury apartments in Paris… mansions in Corsica, buying the silence of French and Foreign Politicians… Elf channeled up to $120 million each year in official “commissions” (or bribes) for Elf’s “normal” international businesses and about the same again in “occult” payments, plenty of which flowed to French Parties’

This truly demonstrates the levels of corruption that is enabled by offshore, secretive and non-cooperative tax havens, which has in turn drained away Africans wealth all over the continent. In November 2003, after eight years of investigation, Loik Le Froch-Prigent (former head of Elf), Alfred Sirven, Nadhmi Auchi and Andre Tarrello were found guilty, but Joly’s investigation ‘could not tackle the wholesale bribery of African politicians, or armed rebel movements’ . During her investigation, when dealing with tax havens, Joly remarked that - ‘Laws are made for inside states. Money flows across borders. For international criminals, impunity is assured.’

Benny Steinmetz Group Resources (BSGR)’ Guinea Bribes

Israeli billionaire businessman, Beny Steinmetz, and his company BSGR won two mining concessions as a result of a $165m (£98.5m) investment in the exploration of the area of Simandou, in Guniea. A year after Beny Steinmetz acquired the mining rights, his company BSGR sold half of the business empire to the Brazilian mining company Vale for $2.5 billion. By comparison, the annual budget of the Guinean government at that time was $1.2 billion.

In 2012, after Guniea held it’s first ever democratic election, ‘the Guinean authorities discovered contracts that an offshore company called Pentler Holdings and BSGR had apparently concluded with Mamadie Touré, one of (the previous) dictator Lansana Conté’s four wives. In one of these contracts, a company called Matinda, owned by Mamadie Touré, agrees ‘to do everything necessary in order to obtain the signature from the authorities for the mining area in question for the company BSG Resources Guinea’.

Another document refers to ‘$2.4 million that Matinda is to receive due to a ‘cooperation contract’ with Pentler Holdings. And then there’s another contract terminating the cooperation of Touré, that is to say Matinda, with Pentler, and pledging Matinda a sum of $3.1 million for its share in the activities in Guinea. Mamadie Touré’s brother was suddenly the vice president of BSGR Guinea, and BSGR was awarded the Simandou contract.’

However, BSGR claimed ‘to have nothing to do with Pentler’. Daniel Balint-Kurti, representing Global Witness had ‘aimed to prove that Beny Steinmetz ended up with the Simandou concession as a result of bribery’ but in 2013 BSGR initiated proceedings against Global Witness and the case had to be dropped. Balint-Kurti lamented how ‘the Simandou case is just one of many. Time and time again, Global Witness’s investigations into corruption end with an individual shell company, or even a whole network.’

This would have been a stereotypical victory for tax-havens and criminals who exploit the most poor but unpredictably, the Panama Paper Leaks revealed how the Pentler Holdings file ‘was founded under the authority of Onyx Financial Advisors Ltd, whose headquarters are in Switzerland. The director of Onyx is one of the directors of BSGR. Furthermore, a Mossfon employee met an Onyx employee in Geneva in June 2009. In the discussion, the Mossfon employee learns that the owners of the company are a ‘French-Israeli family, operating in the trade of diamonds, oil and artworks’ . Beny Steinmetz was born in Israel, but also holds a French passport.

In the end, in 2019 Beny Steinmetz settled his dispute with Guinea by agreeing ‘to walk away from Simandou project’ , after secret negotiations took place with Guniea’s government, involving former French President Nicholas Sarkozy. Why on earth an individual like Sarkozy got involved in the affairs of a master-criminal like Steinmetz really tells how shady modern politicians are and how involved they are with tax haven robbery.

Conclusion

I started this blog with three quotes: ‘Like a forensic accountant trying to solve a corporate fraud, following the trail of money around the circle is a good way to understand what actually happens as capitalism unfolds.’ — Jim Stanford; ‘Money's a horrid thing to follow, but a charming thing to meet.’ Henry James; ‘Laws are made for inside states. Money flows across borders. For international criminals, impunity is assured.’ I believe all three to have been exactly proven by the last century and the history of tax havens.

References

(1) The Finance Curse: How global finance is making us all poorer, Nicholas Shaxson, 2018

(2) Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, Nicholas Shaxson, 2011

(3) The Hidden Wealth of Nations – The Scourge of Tax Havens, Gabriel Zucman, 2015

(4) Moneyland: Why Thieves And Crooks Now Rule The World And How To Take It Back - Oliver Bullough, 2018