Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite

Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite

by Jake Bernstein

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Overview

Secrecy World: Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite by Jake Bernstein

A two-time Pulitzer Prize-winning journalist takes us inside the world revealed by the Panama Papers, a landscape of illicit money, political corruption, and fraud on a global scale.

A hidden circulatory system flows beneath the surface of global finance, carrying trillions of dollars from drug trafficking, tax evasion, bribery, and other illegal enterprises. This network masks the identities of the individuals who benefit from these activities, aided by bankers, lawyers, and auditors who get paid to look the other way.

In Secrecy World, the Pulitzer Prize winning investigative reporter Jake Bernstein explores this shadow economy and how it evolved, drawing on millions of leaked documents from the files of the Panamanian law firm Mossack Fonseca—a trove now known as the Panama Papers—as well as other journalistic and government investigations. Bernstein shows how shell companies operate, how they allow the superwealthy and celebrities to escape taxes, and how they provide cover for illicit activities on a massive scale by crime bosses and corrupt politicians across the globe.

Bernstein traveled to the Caribbean, Latin America, Europe, and within the United States to uncover how these strands fit together—who is involved, how they operate, and the real-world impact. He recounts how Mossack Fonseca was exposed and what lies ahead for the corporations, banks, law firms, individuals, and governments that are implicated.

Secrecy World offers a disturbing and sobering view of how the world really works and raises critical questions about financial and legal institutions we may once have trusted.

Product Details

ISBN-13: 9781250126689
Publisher: Holt, Henry & Company, Inc.
Publication date: 11/21/2017
Pages: 352
Sales rank: 365,999
Product dimensions: 6.10(w) x 9.30(h) x 1.30(d)

About the Author

Jake Bernstein was a senior reporter on the International Consortium of Investigative Journalists team that broke the Panama Papers story. In 2017, the project won the Pulitzer Prize for Explanatory Reporting. Bernstein earned his first Pulitzer Prize in 2011 for National Reporting, for coverage of the financial crisis. He has written for The Washington Post, Bloomberg, The Guardian, ProPublica,and Vice, and has appeared on the BBC, NBC, CNN, PBS, and NPR. He was the editor of The Texas Observer and is the coauthor of Vice: Dick Cheney and the Hijacking of the American Presidency.

Read an Excerpt

CHAPTER 1

NAZIS AND RADICAL PRIESTS

Against the backdrop of a brilliant blue sky, a disembodied voice, vaguely recognizable from the world of advertising, declares: "All our dreams can come true, if we have the courage to pursue them."

The quotation launches an eighteen-minute corporate video to celebrate the thirty-fifth anniversary of the Panamanian law firm Mossack Fonseca. Filmed in 2012, the video tells the sanitized origin story of a pair of visionaries who built a global empire selling secrecy.

The firm started as two people and grew to almost six hundred employees with forty-two offices around the world. Its Panama headquarters operated twenty-four hours a day, churning out anonymous companies, a product as versatile as it was desirable. Each company was an empty corporate shell waiting to be filled. It could do practically anything: hold a bank account, own a mansion, enter into complex business transactions. Best of all, it was near impossible to discover who owned it.

The video doesn't dwell much on this wonder product. Instead it's a paean to the law firm's ambition and cutting-edge technical achievements.

"One thing is for sure," states the narrator, "we are the leaders when it comes to utilizing technology in order not only to meet but to anticipate our clients' needs."

Jürgen Mossack, the firm's senior partner, is the star — the man, the video's narrator states, "who has been in the forefront of making technology a priority attending to our clients." The video recounts how for Mossack's forty-ninth birthday in 1997 the firm retired its original IBM computer system —"state of the art at the time"— and replaced it with a customized Oracle software database.

Mossack delivers a curt opening statement from a formless brown easy chair as bland as its occupant's demeanor. The senior partner's smooth brow highlights close-set eyes and a tight mouth that relaxes into a frown. What the video does not reveal is a quiet reserve, a protective layer like the anonymity of the companies he sells, which serves as a way to keep his feelings hidden.

"My vision is that our company and its various different divisions become an organization that is really, really, not only well respected but that which is an organization similar to perhaps, Microsoft," Mossack says, before adding, "in a much smaller scale, of course."

The video forecasts a limitless horizon. "I believe this group will endure and we will still be here as a sound and strong firm in thirty, sixty, or ninety more years," says the firm's cofounder, Ramón Fonseca.

The usually gregarious and charming Fonseca appears stilted and uncomfortable while delivering his short statement. Hair streaked gray and slicked back, his skin a colorless office pallor, he peers at the camera as if suspicious of its intentions.

His performance, like the video itself, is slightly off-kilter — a mimic of what big companies do — like a boy wearing his father's suit. In another scene, the IT director, who joined the firm while still a university student in Panama, looks into the camera and remembers the joy of experiencing snow and air travel for the first time.

Yet the accomplishment to which the video testifies is undeniable: Mossack and Fonseca built a factory that flooded the planet with more than 210,000 anonymous companies, trusts, and foundations. Rather than Microsoft, they became the McDonald's of secrecy, selling cheap products that offered limited economic nourishment while clogging the world's financial arteries with tax evasion and sometimes even criminality.

*
THE MOSSACK FONSECA story begins in war-torn Germany, in the ashes of Hitler's Third Reich.

In March 1945, two months before Germany's unconditional surrender, U.S. forces captured Erhard Mossack, a corporal in the Waffen-SS Skull and Crossbones division. Only twenty-one years old, Erhard had already lived a full life. He joined the Hitler Youth at fifteen and enlisted in the SS three years later. He saw action in Russia and was wounded in Czechoslovakia. While the Waffen-SS had a gruesome reputation for massacres, no evidence has emerged that Erhard took part.

Nine months after his capture, Erhard and seven other POWs stole a truck and escaped from a prison camp near Le Havre, France. They had almost made it to the German border when a French sentry surprised them. Erhard and two comrades fled. At Cologne, they separated, melting into the population. Germany was a battered and contested land, with the Soviets and the Americans actively recruiting former Nazis to repurpose them as agents in the coming Cold War. Former SS officers such as Erhard, when not choosing sides, secretly banded together for mutual aid.

These comrades helped Erhard locate a physician skillful at removing the telltale tattoo of his blood group, stenciled under the left arm of most Waffen-SS. The tattoo was a dangerous giveaway to occupiers hunting for former Nazis. The small scar the doctor left behind was one of the few successful actions Erhard took in the year after his prison break. Almost everything that followed, as detailed in a report by the Federal Bureau of Investigation stamped "secret," reads like a clandestine comedy of errors.

Erhard found work as a farmhand. That spring, a former Nazi propaganda official attempted to enlist him in the German Communist Party. Erhard rejected the offer. Two months later, a man who claimed to be a former high official in the Nazi Party came to the farm. He told the gullible Erhard that he toured Germany as a traveling salesman, all the while quietly building a network of secret agents. He offered the former corporal a choice: join a covert organization for the Soviets or one to restore fascist rule to Europe. Erhard pledged his support for the latter option.

Why did ex-Nazis peddling dreams of future glory find Erhard such a promising mark? A U.S. Army intelligence assessment provides a clue: "[Erhard] has had a very extensive, but superficial political education and is thoroughly indoctrinated with Nazi ideology. A typical [Hitler Youth] leader, he still lives in his world of Nazi slogans and is a striking example of German youth under HITLER."

In late May 1946, Erhard fell in with another former SS officer bent on reconstituting the Reich. Erhard explained he'd already committed to one underground organization. Nonetheless, he accompanied the man home to obtain forged papers. Late that night, U.S. Army intelligence roused Erhard and took him into custody. His new friend had betrayed him.

After first refusing to talk, Erhard told his army interrogator the convoluted tale of his life on the lam, characterizing his apparent willingness to join German underground organizations as a ruse. He was gathering information, he said, to barter with army intelligence to escape punishment for the Le Havre prison break.

The interrogator was skeptical.

"His alleged motive in doing this — to win the good graces of the US Authorities by acting as an informant for [us] — is open to question and may well simply constitute a shrewd attempt to get out of an awkward situation," states the interrogation report.

After his release, Erhard married and scraped together a living as a small-time journalist and author. In March 1948, his first child, Jürgen, was born. Three more children followed over the next decade. Soon after the birth of the last one, Erhard uprooted his family and moved to Panama.

In the early 1960s, there was much to recommend Panama to a former Nazi ideologue. It was a country with a mercantile bent, controlled by a white oligarchy and stratified along class, racial, and geographic lines. Located on the isthmus connecting North and South America, it never produced much itself. Yet its strategic value as a crossroads, with less than forty miles between the Atlantic Ocean on one coast and the Pacific on the other, gave rise to a merchant class that grew rich off the despoiling of the Americas. Along with the descendants of the Spanish colonial elite, Germans and their institutions also had deep roots in Latin America, making it a beacon for former Nazis following Germany's defeat.

According to a declassified Central Intelligence Agency report, Erhard contacted the agency in 1963, offering to peddle information about Communist Cuba, but the files don't detail what relationship, if any, he maintained with American intelligence. Erhard found employment with Lufthansa and dabbled in different jobs. Jürgen, thirteen years old at the time of the family's arrival, spoke neither Spanish nor English at first. Only able to communicate among themselves, the family stuck together. Self-conscious about the language barrier and naturally shy, Jürgen found it hard to make friends. "It was kind of difficult," he recalls with typical understatement. Still, the Mossacks had an immigrant's zeal to succeed. His seven-year-old brother was first in his class within six months, Jürgen proudly notes.

Jürgen Mossack's upbringing, isolated by language and his father's Nazi past, taught him to keep secrets, instilling a wariness he carried his entire life. People mistook his shyness for callousness, which he didn't discourage, as he discovered that a little intimidation could be useful. "He'd look at you with cold eyes like you were nothing," says a subordinate of their initial encounters. However, the same employee quickly learned that if there was a problem that needed solving, Mossack, rather than his partner, Fonseca, was the one to approach.

At one of the law firm's occasional company retreats, another employee recalls a facilitator conducting a trust-building exercise. Unaware that she had chosen the leader of the firm, the facilitator blindfolded Mossack, who was then led around by a junior employee. Upon the conclusion of the exercise, the facilitator asked Mossack how he had felt. Did he trust his guide? Mossack replied he didn't like the exercise at all. "I don't trust anybody," he reportedly said.

Mossack studied to become a lawyer at a small private Catholic university in Panama. In his practice, he became an expert in maritime law. By the early twentieth century, Panama began to offer itself as a place to register foreign ships. With the Panamanian flag on their vessels, shipowners could avoid taxation and circumvent regulations such as labor protections and boat safety standards that their native countries demanded. The extractive industries (petroleum, minerals, precious metals) were first to discover these benefits, with Standard Oil registering its fleet of tankers in Panama in 1919.

After graduating law school in 1973, Mossack went to work for one of Panama's top firms, Arosemena, Noriega & Castro, helping to establish its London office. After only a couple of years, he quit, frustrated with the firm's refusal to recognize his contributions and pay him accordingly. Mossack returned to Panama in 1977 and gambled on his own ambition, opening a law office as a sole practitioner. "It was a real nail-biting time," Mossack recalls. "I never knew if I would make enough to provide for my family."

In those early days, Ramón Fonseca, a recent law graduate himself, stopped by to wish him luck.

To this day, Fonseca idolizes Mossack for his vision, toughness, and organizational ability. He admits that his older partner, who stands six foot three and sports a perpetually dour expression, looks forbidding, but he insists Mossack is really just "a big teddy bear." Others who know Mossack echo the sentiment, saying that under the gruff exterior beats "a heart of gold."

When they first met, the two men didn't immediately recognize how much they shared in common. Both were outsiders, yet close enough to Panama's small circle of wealth and power to feel the distance that much more acutely. Each felt he was smarter than those he envied. Each harbored a similar drive to make his mark. Years later, Fonseca would explain in an interview that his greatest desire when starting out was not to be a sheep like everyone else. The sheep are not happy, he said, they never travel the world.

Fonseca always dreamed expansively, pursuing overlapping careers as a businessman, fiction writer, and politician. Born in 1952, Ramón Enrique Fonseca Mora, known to childhood friends as "Yike" (pronounced YEE-kay, short for Enrique), is the grandson of Costa Rica's first ambassador to Panama on his father's side and a dentist-turned-insurrectionist on his mother's. He proudly claims a family history of passionate political activism, often directed at the United States, with which Panama has a long and complicated history. It dates back to the country's separation from Colombia in 1903, in a "revolution" instigated by the United States, which was eager to secure favorable terms for building a canal across the isthmus. The resulting treaty turned the new Panamanian republic into a de facto protectorate of the United States, giving America absolute control over the future canal and the right to intervene in Panama's domestic affairs, while paying a pittance for the privilege. This arrangement became a focal point for Panamanian grievances: Non-Americans couldn't travel freely inside the Canal Zone. Local workers received lower pay. Outside the Canal Zone, Americans held top positions in the Panamanian government and English encroached on Spanish as the favored language.

Fonseca's maternal grandfather, Ramón Mora, was among those who rebelled against this second-class status in their own country. Mora had attended Swarthmore College and then studied dentistry at the University of Pennsylvania. His 1921 graduation photo shows a bespectacled youth, head framed by jug ears, thickset lips pursed and unsmiling as he gazes solemnly into the camera. Back in Panama, still in his early twenties, Mora helped found an anticorruption, anti-Yankee organization called Community Action. When not at his dentistry, he also ran an opposition newspaper and built a successful rum distillery.

In 1931, Mora, revolver in hand, was among a small group of young men who staged a successful coup against the Panamanian government of Florencio Arosemena. To keep the peace, the United States made minor concessions. Mora became agricultural and public works secretary. He lasted nine months before Community Action's pick for the presidency, Harmodio Arias Madrid, removed him. The dentist watched from the sidelines as Arias, and then his brother Arnulfo, both of whom had participated in the coup, assumed control. They pursued a populist agenda: Women received the vote, a social security system was created, antiforeigner rhetoric escalated. In 1940, Arnulfo Arias, who openly sympathized with the Nazis and Mussolini, won the presidency. A year after his election, the National Police (under the approving eye of the United States) deposed him.

The pattern repeated itself over the next forty years, with Arias winning three presidential elections, only to see the armed forces depose him each time. After a victory in 1968, he and his Panamañista Party served only eleven days before the National Guard stepped in. The coup gave rise to General Omar Torrijos, a charismatic populist who espoused a "dictatorship with a heart."

At the time of the coup, the sixteen-year-old Fonseca was a budding activist who later entertained thoughts of becoming a priest and "saving the world." There had been a priest in almost every generation of the Mora family going back centuries. Fonseca dropped out of university after a year, attracted by the reformist zeal of the Jesuits. The priests were secretly running workshops where university students could connect with other members of civil society interested in social reform. Through the Jesuits, Fonseca met Father Héctor Gallego, a charismatic thirty-year-old Catholic cleric from Colombia. Gallego practiced liberation theology, which taught that the Church's responsibility to the poor included helping them to improve their economic and political situation.

Gallego worked in an isolated rural parish called Santa Fé in the Panamanian province of Veraguas. Today, it can be reached from Panama City by road in about four and half hours. In the early seventies, it was an all-day bone-jarring journey on a jeep donated by the Americans. The isolated farmers in Santa Félived in feudal conditions, toiling for large landowners. Most of the population had no clean water, and the Catholic Church estimated that 50 percent of the children suffered from malnutrition. At Gallego's invitation, Fonseca moved to Santa Fé, where the priest put him to work on several projects, including burying the babies who had died from hunger and poor sanitation.

Relations between the local landowners and the radical priest soured after Gallego helped the farmers form a cooperative. The landowners and the military launched a campaign of harassment, which culminated at about midnight on June 9, 1971, when two soldiers from the local army base kidnapped Gallego.

The story of what happened next took on the power of myth. Soldiers hustled Gallego onto a helicopter. Hovering above the jungle over the island of Coiba, sixteen miles off Panama's Pacific coast, they pushed him out. The gentle priest fell from the sky and vanished into the dense canopy, martyred for helping the poor.

(Continues…)



Excerpted from "Secrecy World"
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Excerpted by permission of Henry Holt and Company.
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Table of Contents

Introduction

1. White and Peaceful Wings
2. There May Be an Explosion
3. The Great Day of My Life
4. Islands or Canned Goods
5. If They Resist, What Shall We Do?
6. Stinkpot
7. I Turn Green in Bed at Midnight
8. What a Choice for a Patriotic American!
9. The Constitution Does Not Apply
10. You Will Get Used to It
11. The Deep Hurt

Notes
Bibliography
Acknowledgments
Illustration Credits
Index

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