{"id":4502,"date":"2016-05-09T00:00:00","date_gmt":"2016-05-09T00:00:00","guid":{"rendered":"https:\/\/amabhungane.org\/amabhungane\/stories\/panama-papers-include-dozens-of-americans-tied-to-fraud-and-other-financial-misconduct\/"},"modified":"2016-05-09T00:00:00","modified_gmt":"2016-05-09T00:00:00","slug":"panama-papers-include-dozens-of-americans-tied-to-fraud-and-other-financial-misconduct","status":"publish","type":"post","link":"https:\/\/further.co.za\/amabwp\/panama-papers-include-dozens-of-americans-tied-to-fraud-and-other-financial-misconduct\/","title":{"rendered":"Panama Papers include dozens of Americans tied to fraud and other financial misconduct"},"content":{"rendered":"

By Michael Hudson, Jake Bernstein, Ryan Chittum, Will Fitzgibbon and Catherine Dunn
\nPicture: ICIJ<\/em><\/p>\n

Len Gotshalk, an Atlanta Falcons football player turned Oregon businessman, had a history of legal issues by the time he went looking to buy an offshore company in 2010. Lawsuits and criminal filings had accused the former NFL offensive lineman of fraud and racketeering.<\/p>\n

Mossack Fonseca, a Panama-based law firm that specializes in selling offshore companies, initially told Gotshalk it couldn\u2019t do business with him, because of \u201cnegative information\u201d that its compliance unit had found. Gotshalk persuaded the law firm to reconsider, noting in an email that he\u2019d \u201cheld offshore accounts in the past in Europe and Bahamas and Belize\u201d without problems.<\/p>\n

Three months later \u2013 on May 21, 2010 \u2013 federal prosecutors in Philadelphia unsealed an indictment charging that Gotshalk was a key player in a scheme that used kickbacks and other tactics to inflate the prices of tech company stocks.<\/p>\n

Three days later \u2013 on May 24 \u2013 Mossack Fonseca recorded a $3,055 wire transfer from Gotshalk, the firm\u2019s internal records show. The money paid for a British Virgin Islands company called Irishmyst Consultants Limited.<\/p>\n

Gotshalk isn\u2019t the only American with a suspect past who has used Mossack Fonseca\u2019s services. A review of the law firm\u2019s internal files by the International Consortium of Investigative Journalists and other media partners has identified companies tied to at least 36 Americans accused of fraud or other serious financial misconduct.<\/p>\n

ICIJ and its media partners found the details of Gotshalk\u2019s offshore company \u2013 and other companies linked to Americans accused of financial mischief \u2013 within the Panama Papers, a trove of leaked documents that expose the business practices of Mossack Fonseca, one of the world\u2019s largest marketers of offshore secrecy.<\/p>\n

Some have been convicted of fraud or other crimes. They include Lance Lockard, who pleaded guilty to 64 counts in the largest mortgage fraud case in Alaska history, and Andrew Wiederhorn, an Oregon corporate executive who pleaded guilty to two felonies in a case tied to one of the biggest corporate scandals in Oregon history.<\/p>\n

Others have been sued in civil cases launched by securities regulators or private plaintiffs. Among them are six Americans accused in a lawsuit in federal court in Washington state of using an offshore company set up through Mossack Fonseca, Dressel Investment Ltd., to run a $150 million Ponzi scheme that ripped off thousands of middle-class Indonesians.<\/p>\n

The lawsuit claims two of the players in the Dressel scheme pitched themselves to investors as financial experts but were in fact \u201ca former appliance salesman for Sears\u201d and \u201ca disbarred attorney who had been reduced to driving a bus for people in Utah to gamble at casinos located on the Nevada border.\u201d<\/p>\n

Experts on Ponzi schemes and other kinds of financial chicanery say offshore entities often play a role in fraudulent enterprises. \u201cFraudsters like offshore because of the the lack of transparency,\u201d said Ellen Zimiles, a former federal prosecutor in New York who now leads Navigant Consulting\u2019s investigations and compliance practice. When offshore structures are put together skillfully, \u201cit takes a lot of time for investigators to get the ultimate beneficiary.\u201d<\/p>\n

Mossack Fonseca\u2019s working relationships with dozens of Americans tied to financial misconduct raises questions about how well the firm keeps its commitment to following international standards for preventing money laundering and keeping offshore companies out of the hands of criminal elements.<\/p>\n

A Mossack Fonseca spokesperson did not reply to questions for this story. In previous statements, the firm said it has \u201coperated beyond reproach in our home country and in other jurisdictions where we have operations. Our firm has never been accused or charged in connection with criminal wrongdoing.\u201d<\/p>\n

The firm said that it works to make sure \u201cthat the companies we incorporate are not being used for tax evasion, money-laundering, terrorist finance or other illicit purposes.\u201d It said it turns away clients who have been convicted of crimes or involved in other conduct that raises \u201cred flags.\u201d<\/p>\n

\u201cOur due diligence procedures require us to update the information that we have on clients and to periodically verify that no negative results exist in regards to the companies we incorporate and the individuals behind them,\u201d the firm said.<\/p>\n

High volume<\/em><\/strong><\/p>\n

It wouldn\u2019t have taken Mossack Fonseca\u2019s compliance team much Internet surfing to determine that former pro football player Leonard Gotshalk was likely to be a risky client.<\/p>\n

The U.S. Securities and Exchange Commission sued Gotshalk in 1994, accusing him and others of providing investors with \u201cfalse and misleading information\u201d about a company involved in oil and gas investments. In 1995, a federal judge in Washington, D.C., issued a permanent injunction forbidding Gotshalk from violating the antifraud provisions of U.S. securities laws.<\/p>\n

In 2004, an Oregon court convicted Gotshalk of felony theft and ordered him to pay restitution and serve 20 days in jail in a case involving allegations he took out large loans with no intention of paying them back. Information about the conviction was available on the Internet in a story posted by the Medford, Oregon, Mail Tribune, which quoted a police detective who said he\u2019d interviewed a dozen people in multiple states who claimed Gotshalk defrauded them.<\/p>\n

There\u2019s no indication in the Panama Papers that Mossack Fonseca took notice of Gotshalk\u2019s more recent legal issues, which include the securities fraud indictment in Pennsylvania and a lawsuit filed by the SEC.<\/p>\n

Gotshalk and his attorney did not reply to requests for comment about his legal problems or his purchase of an offshore company through\u00a0Mossack Fonseca.<\/p>\n

It is not illegal to own an offshore company. But financial crime experts say that profit concerns can discourage offshore middlemen from thoroughly checking out their clients, allowing unscrupulous individuals to gain control of offshore companies and use them to open hard-to-trace bank accounts.<\/p>\n

An article about banks\u2019 struggles with enforcing anti-money-laundering rules in Navigant Consulting\u2019s Risk & Regulation journal noted that a \u201cwidely recurring theme throughout multiple enforcement actions has been the decision of management to place revenue considerations\u201d above money-laundering risks. Once a decision is made to compromise money laundering controls for the sake of revenue, the article said, \u201cthe decision becomes easier to repeat and harder to reverse.\u201d<\/p>\n

The leaked records suggest that Mossack Fonseca\u2019s high-volume business model made it difficult for it to keep track of its clients\u2019 backgrounds and activities. Between 2005 and 2015, Mossack Fonseca incorporated more than 100,000 offshore entities, such as trusts and shell companies. In many instances, the firm offloaded responsibility for checking out potential customers to the banks and outside law firms that fed it business. In its earlier response to questions from ICIJ and other media partners, the firm said it was \u201clegally and practically limited in our ability to regulate the use of companies we incorporate.\u201d<\/p>\n

In some cases, Mossack Fonseca wasn\u2019t aware customers were involved in criminal activities until after the crimes were brought to light by authorities. For example, the firm learned that one longtime customer \u2013 Connecticut financier Martin Frankel \u2013 was a notorious fraudster only when authorities approached the firm nearly a year after his case had made headlines.<\/p>\n

\u2018Unofficial\u2019 representative<\/em><\/strong><\/p>\n

In an interview with the Associated Press, firm co-founder Ram\u00f3n\u00a0Fonseca said that \u201cas a policy we prefer not to have American clients.\u201d<\/p>\n

The Panama Papers show that at least some of that hesitation involved fear of U.S. law enforcement authorities.<\/p>\n

In 2000, the leaked documents indicate, the Federal Bureau of Investigation contacted Michael B. Edge, a U.S.-based representative for the law firm, and threatened to subpoena him in an effort to get information from Mossack Fonseca about an offshore company that had been involved in \u201can apparent banking fraud.\u201d<\/p>\n

Edge, who has acted as the intermediary for hundreds of companies registered by Mossack Fonseca in the Bahamas and other offshore havens, recalled in a 2008 email that the firm decided that due to the threat from the Feds, he should become \u201can \u2018unofficial\u2019 Representative. . . . Since that time, I have scrupulously avoided receipt of client documents, unless absolutely unavoidable, to my U.S. address; especially since the FBI knows of my existence in a \u2018negative\u2019 context.\u201d<\/p>\n

He said he continued working \u201cexclusively\u201d with Mossack Fonseca but was careful not to leave \u201cany discernable (direct) link to Mossfon.\u201d<\/p>\n

In a 2014 email, Edge explained that Mossack Fonseca had relatively few American clients because it wanted to \u201cavoid further attempts by American authorities to attack the Partnership.\u201d He said that with the consent of one of the firm\u2019s managing partners, J\u00fcrgen Mossack, \u201cAmerican clients were purged, no more have been sought, no marketing in the U.S. takes place;\u00a0and I have conducted Mossfon business in my own name.\u201d<\/p>\n

The records show, however, that some customers brought to Mossack Fonseca through Edge have been caught up in fraud cases in the United States.<\/p>\n

In 2003, U.S. securities regulators accused one of Edge\u2019s customers, Florida-based Mary Patten, of helping perpetrate a $6-million investment fraud using a company incorporated through Mossack Fonseca on the island of Jersey. After the allegations against her came to light, Edge told the law firm he had been \u201cduped into believing\u201d that Patten needed help because she was the victim of a \u201cmalicious lawsuit.\u201d<\/p>\n

In 2005, a federal judge ruled that she\u2019d played a \u201ccrucial role\u201d in the scam and ordered her and another defendant to pay nearly more than $5 million in restitution, fines and interest.<\/p>\n

Another Edge client was Harvey Milam, a Mississippi businessman and the son of the late J.W. Milam, one of the killers of Emmett Till , whose grisly murder helped spark America\u2019s modern Civil Rights movement. Creditors of a failed insurance company based in the Caribbean island\u00a0 of Nevis claimed that Harvey Milam and other defendants cheated investors by fraudulently transferring the insurer\u2019s assets to other companies. Milam and other defendants settled the case in 2012 without admitting any wrongdoing.<\/p>\n

Patten and Milam could not be reached for comment for this story. Edge did not reply to an email asking for comment on this story.<\/p>\n

\u2018She lost everything\u2019<\/strong><\/em><\/p>\n

Everything seemed in order when Rebel Holiday and her husband, Charles Jackson Wheeler, showed up at Mossack Fonseca\u2019s Panama headquarters in May 2009.<\/p>\n

The pair lived in Virginia and presented themselves as successful entrepreneurs with a plan to sell \u201ccollectibles\u201d containing small amounts of gold. The company they wanted to register in Panama would be \u201ccommitted to the democratization of gold and precious metals that have only been available to the affluent in recent years,\u201d according to a business plan found in the law firm\u2019s files.<\/p>\n

Mossack Fonseca later claimed it had done an Internet search on the couple and found nothing negative. The firm\u2019s staffers registered the company, Mises Technologies, and took the couple to Tower Bank in Panama City to open three accounts.<\/p>\n

At the same time, back in Virginia, the state securities regulators were pursuing action against Holiday and multiple companies she had created, accusing her and the companies of misleading investors and selling unlicensed securities. The state\u2019s allegations mostly focused on a company Holiday created to sell fashion consultations over the Internet.<\/p>\n

One of the investors who testified against her in the state\u2019s administrative hearings was Amanda Susan Piola. She was 26 and just starting out in the fashion world when she first met Holiday. Piola testified that Holiday complimented her on being more advanced than others her age working in the industry, and offered to let her invest in one of Holiday\u2019s ventures.<\/p>\n

Piola testified that she gave Holiday her life savings of $10,000 and that Holiday promised that the money would be returned a year later if needed. Holiday never gave her a stock certificate and never gave her the money back, Piola said.<\/p>\n

\u201cI told her that I felt like she stole $10,000 from me,\u201d Piola told a hearing officer. In response, Piola said, Holiday \u201cgave me a sob story about how she lost everything\u201d and that \u201cI needed to feel bad for her.\u201d<\/p>\n

Holiday disputes that account. She said everyone received a stock certificate. The money Piola invested came from her father, who was a sophisticated investor, Holiday claimed.<\/p>\n

\u201cThe business died,\u201d Holiday told ICIJ. \u201cNobody got their money back, including me.\u201d<\/p>\n

Almost a year after Mossack Fonseca registered the Panama-based company, Tower Bank notified the law firm it was closing the accounts for Mises Technologies. It had discovered a website dedicated to collecting fraud complaints that had singled out Holiday\u2019s business practices. Mossack Fonseca did a new search and discovered some of the legal filings in the Virginia securities case.<\/p>\n

Mises Technologies was \u201cstruck off\u201d the register of Panamanian companies in July 2013. Holiday said the collectibles business didn\u2019t work out and she let the company lapse.<\/p>\n

In November 2013, the State Corporation Commission of Virginia fined Holiday $110,000 and banned her from selling securities in the state.<\/p>\n

Holiday insists that she was innocent and that the state railroaded her. \u201cIt was like the Red Queen\u2019s Court in Alice in Wonderland,\u201d she said.<\/p>\n

Desperately waiting<\/em><\/strong><\/p>\n

Other legal cases targeting Mossack Fonseca\u2019s U.S. clients have accused them of defrauding hundreds or even thousands of investors. Two of these cases involved links between Indonesia and the Pacific Northwest.<\/p>\n

A lawsuit filed in 2009 in U.S. District Court in Washington state\u00a0 claimed that Dressel Investments Ltd., a company incorporated in the British Virgin Islands by Mossack Fonseca, fleeced\u00a0 more than 3,400 Indonesian investors who put their money into what turned out to be, the suit alleged, \u201ca classic Ponzi scheme.\u201d The men and women who exercised control over Dressel Investments or related companies included six Americans living in Utah and Alaska, according to the lawsuit.<\/p>\n

After the collapse of Dressel in early 2007, victims pleaded directly with Mossack Fonseca for help in getting their money back. One investor\u2019s email was titled: \u201cstill confused and sad about our saving.\u201d Another investor wrote: \u201cWe are still desperately waiting.\u201d<\/p>\n

One investor forwarded Mossack Fonseca a letter from the British Virgin Island\u2019s financial investigation agency that said: \u201cIt is clear that this is and always was an investment scam.\u201d<\/p>\n

Mossack Fonseca resigned as Dressel\u2019s registered agent after getting hit with the initial wave of complaints. While it did not reply to many of the missives from Dressel investors, the firm did recommend to some that they find lawyers, and provided others with contact information for Dressel management.<\/p>\n

In the case of another alleged Ponzi scheme with ties to Indonesia, Mossack Fonseca set up two offshore companies for Robert Miracle, the fraud\u2019s architect. Miracle was a Seattle businessman who told investors he\u2019d worked at NASA and Disney and that his companies were already producing oil and gas in Indonesia. He eventually pleaded guilty to tax evasion and mail fraud in the case in exchange for a 13-year prison sentence.<\/p>\n

The Panama Papers show that Mossack Fonseca registered MCube Petroleum Ltd. for Miracle in March 2007\u2014three months after the State of Washington accused him of violating securities laws.<\/p>\n

MCube Petroleum and associated companies were part of an enterprise that fleeced hundreds of American investors, federal authorities found.<\/p>\n

In late 2007, federal agents served search warrants on Miracle\u2019s home and on MCube Petroleum\u2019s Seattle offices, seizing computers and 80 boxes of documents. The Seattle Times reported that court records indicated Miracle was being investigated for conspiracy, mail fraud, wire fraud, money laundering, securities fraud and tax evasion.<\/p>\n

In July 2008 \u2013 months after media reports revealed the investigation into Miracle\u2019s shell games \u2013 Mossack Fonseca registered a company called Fivex Trading Ltd. in the British Virgin Islands. Two of the shareholders were listed as Mukhtar Bin Syed Kechik and Fahimi Bin Faisal, two Malaysian fugitives alleged by the FBI to have been Miracle\u2019s partners in the Ponzi scheme.<\/p>\n

Another Fivex shareholder listed in Mossack Fonseca\u2019s files is Veronica Naomi Miracle, Robert Miracle\u2019s daughter. She had just graduated high school when she was named as a shareholder in the company.<\/p>\n

Veronica Miracle did not reply to requests for comment. Robert Miracle, who is serving his sentence in a federal prison in Oregon, declined a request for an interview.<\/p>\n

The Panama Papers show that Mossack Fonseca didn\u2019t learn about Robert Miracle\u2019s crimes until 2012, when a database search turned up a record of his conviction. By then, the trail in the hunt for Miracle\u2019s assets had gone cold. Court filings indicated that investors\u2019 losses were likely to top $20 million.<\/p>\n

Marisa Taylor and Kevin G. Hall of McClatchy Newspapers, Matthew Kish of the Portland Business Journal and Alice Brennan, Alcione Gonzalez\u00a0and Laura Juncadella of Fusion Investigates contributed reporting to this story.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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