Over the years, William R. Ponsoldt had earned tens of millions of dollars building a string of successful companies. He had renovated apartment buildings in the New York City area. Bred Arabian horses. Run a yacht club in the Bahamas, a rock quarry in Michigan, an auto-parts company in Canada, even a multibillion-dollar hedge fund.
Now, as he neared retirement, Mr. Ponsoldt, of Jensen Beach, Fla., had a special request for Mossack Fonseca, a Panama-based law firm well placed in the world of offshore finance: How could he confidentially shift his money into overseas bank accounts and use them to buy real estate and move funds to his children?
“He is the manager of one of the richest hedge funds in the world,” a lawyer at Mossack Fonseca wrote when the firm was introduced to Mr. Ponsoldt in 2004. “Primary objective is to maintain the utmost confidentiality and ideally to open bank accounts without disclosing his name as a private person.”
In summary, the firm explained: “He needs asset protection schemes, which we are trying to sell him.”
Thus began a relationship that would last at least through 2015 as Mossack Fonseca managed eight shell companies and a foundation on the family’s behalf, moving at least $134 million through seven banks in six countries–little of which could be traced directly to Mr. Ponsoldt or his children.
These transactions and others like them for a stable of wealthy clients from the United States are outlined in extraordinary detail in the trove of internal Mossack Fonseca documents known as the Panama Papers. The materials were obtained by the German newspaper Süddeutsche Zeitung and the International Consortium of Investigative Journalists, and have now been shared with The New York Times.
In recent weeks, the papers’ revelations about Mossack Fonseca’s international clientele have shaken the financial world. The Times’s examination of the files found that Mossack Fonseca also had at least 2,400 United States-based clients over the past decade, and set up at least 2,800 companies on their behalf in the British Virgin Islands, Panama, the Seychelles and other jurisdictions that specialize in helping hide wealth.
Many of these transactions were legal; there are legitimate reasons to create offshore accounts, particularly when setting up a business overseas or buying real estate in a foreign country.
But the documents–confidential emails, copies of passports, ledgers of bank transactions and even the various code names used to refer to clients–show that the firm did much more than simply create offshore shell companies and accounts. For many of its American clients, Mossack Fonseca offered a how-to guide of sorts on skirting or evading United States tax and financial disclosure laws.
These included locating an individual from a “tax-convenient” jurisdiction to be the straw man owner of an offshore account, concealing the true American owner, or encouraging one client it knew was a United States resident to use his foreign passports to open accounts offshore, again to avoid scrutiny from regulators, the documents show.
If the compliance department at one foreign bank contacted by Mossack Fonseca on behalf of its clients started to ask too many questions about who owned the account, the firm simply turned to other, less inquisitive banks.
And even though the law firm said publicly that it would not work with clients convicted of crimes or whose financial activities raised “red flags,” several individuals in the United States with criminal records were able to turn to Mossack Fonseca to open new companies offshore, the documents show.
Federal law allows United States citizens to transfer money overseas, but these foreign holdings must be declared to the Treasury Department, and any taxes on capital gains, interest or dividends must be paid–just as if the money had been invested domestically. Federal officials estimate that the government loses between $40 billion and $70 billion a year in unpaid taxes on offshore holdings.
Experts in federal tax law, money laundering and offshore accounts–asked by The Times to examine certain documents or at least to identify legal issues raised by the money management techniques that Mossack Fonseca advocated–said the law firm at times had come up with creative, but apparently legal, strategies to save clients money. A common tactic: selling real estate as a shift of corporate assets, instead of as a piece of property subject to transfer taxes.
While the experts were reluctant to declare that the law firm or its clients had broken any laws given that no charges have been filed, they said they were surprised at how explicitly Mossack Fonseca had offered advice that appeared carefully crafted to help its clients evade United States tax laws.
“The more correspondence that you have between a U.S. person and a bank or law firm discussing tax issues and efforts at concealment, the stronger the government will see it as a potential case worth prosecuting,” said Kevin M. Downing, the lead Justice Department prosecutor in the UBS offshore banking and tax evasion cases, now at the Washington law firm Miller & Chevalier.
Mossack Fonseca has said repeatedly in recent weeks that its lawyers and staff members have honored international tax and banking laws, and that it is the victim in this case of an illegal hacking attack.
But presented with summaries of several cases by The Times, Mossack Fonseca did not try to explain its actions. It simply said that its standards had improved in recent years, as rules internationally had tightened.
The firm’s American client list does not appear to include the sort of high-profile political figures who have emerged from reporting on the Panama Papers in many other countries around the world.
But the services offered by Mossack Fonseca, with 500 employees in more than 30 offices worldwide, were in high demand by the rich and famous in the United States.
For its best customers, like the Ponsoldts, who declined repeated requests to discuss their work with Mossack Fonseca, the firm’s ministrations went far beyond legal services and banking. It acted as a concierge for “all details regarding your properties and worldwide business affairs,” for example, helping the family confidentially purchase (and dispose of) luxury condominiums at resort destinations and even arranging repairs for a car stored at a vacation home and hiring a contractor to fix broken poolside tiles, the documents show.
The firm’s American clients often expressed disbelief at how much they could lighten their tax burden by using the techniques advocated by Mossack Fonseca.
“At hearing that he can make nearly $8 million per year just on tax savings,” a client from Pennsylvania “was now wide awaken,” a Mossack Fonseca staff member wrote. “I could even detect sweats coming down from his forehead and his cheeks were beginning to blush with crimson excitement. Noticing his interest, I went in for the kill.”
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