Intrigue, offshore connections to Sacramento in ‘Panama Papers’ leak

Housed in a gray-and-blue office building six blocks south of the Capitol, First Corporate Solutions Inc. operates in the unglamorous trenches of the business world, performing lien searches, filing articles of incorporation for new companies and accepting delivery of lawsuits.

Its client roster, though, is anything but dull.

The Seattle Seahawks’ holding company is a customer. So is late-night comedian Stephen Colbert’s New York production company. A private equity firm in San Francisco is tied to this address, as is a liberal think tank in Washington, D.C., Center For American Progress.

And then there are the clients who show up in the “Panama Papers” – linking this nondescript office building in Sacramento’s urban core to an explosive set of documents described as the world’s biggest breach of confidential data.

For the past two months, the Panama Papers have become an international sensation as journalists around the globe mine the 11.5 million electronic records leaked from a law firm based in Panama. The firm, Mossack Fonseca & Co., specializes in setting up difficult-to-trace shell companies for clients who want to keep their activities private.

The cache of documents and emails reveals an international web of shell companies used by the rich and powerful in some cases to conceal assets, evade taxes and launder money. The revelations have led to the resignation of Iceland’s prime minister and have implicated friends of Russian leader Vladimir Putin and other dignitaries in schemes to move billions of dollars around the globe without being noticed. Mossack Fonseca’s headquarters in Panama City were raided by Panama’s national police in mid-April.

The convoluted electronic trails lead from Panama City to exotic and expected locales: the Cayman Islands, for instance, and other known tax havens such as the British Virgin Islands, Bermuda and the tiny Republic of Seychelles in the Indian Ocean. These remote locations are home to thousands of shell companies, entities that have no physical operations and act solely as vessels to move money.

Mossack Fonseca’s internal records also lead to unexpected places – including 914 S St. in Sacramento, where David Silverburg operates his nearly 30-year-old company, First Corporate Solutions.

Silverburg’s company or its S Street address turn up 38 times in the Panama Papers. Six current or former First Corporate clients are mentioned in the documents.

In many ways, the appearance of a small fish such as First Corporate underscores the stunning, almost universal reach of the Panama Papers. Critics say it’s also an indictment of fundamental shortcomings in U.S. laws, which allow companies to incorporate without disclosing their owners’ identities.

Silverburg said he wasn’t aware of his firm’s presence in the Panama Papers until contacted by The Sacramento Bee. He said that he is an ethical businessman who personally favors transparency and that the revelations make him uneasy about the potential impact on his firm’s reputation.

“We work very hard to make sure our clients know we’re working with integrity,” he said. While he spent two hours talking to The Bee, he declined to be photographed.

Among First Corporate Solutions’ connections to the Panama Papers:

▪ One client is a shell company implicated in a scheme to launder $65 million allegedly embezzled from the government of Argentina.

▪ That same shell company lists as its co-managers two so-called “zombie directors” – individuals who have lent their names to hundreds of companies around the world but appear to have no operational control, acting as fronts for the actual owners.

▪ Another client, until a few months ago, was a company controlled by the four daughters of Ecuador’s former president, the late Leon Febres Cordero, who amassed a fortune in the salt business.

So how did a midsized Sacramento company wind up in the Panama Papers, whose tentacles reach into the highest echelons of world power?

“I had no idea,” said Silverburg, First Corporate’s president and chief executive.

Silverburg, 54, said he is unaware of any wrongdoing and would drop any client found to have engaged in illegal activities. He said he had never heard of Mossack Fonseca, the Panamanian law firm, until news reports about the leak began appearing in early April.

Although First Corporate’s name turns up in the Panama Papers in connection with California regulatory filings, the records show no signs of contact between Silverburg’s company and Mossack Fonseca.

The archive of sensitive electronic documents was snatched by a still unidentified source and leaked about a year ago to German newspaper Süddeutsche Zeitung. The paper shared the documents with the International Consortium of Investigative Journalists, a Washington, D.C., nonprofit dedicated to large-scale investigative reporting projects. McClatchy Newspapers, The Bee’s owner, was the only U.S. newspaper company involved in the collaborative worldwide examination of the leaked records.

In early May, some of the information became publicly available online as a searchable database.

Being named in the Panama Papers isn’t in itself an indication of illegal or shady activity. It is not against the law to create a shell company or store assets overseas, and legal and financial experts say there are valid reasons to do so: buying foreign real estate, for instance, or operating a business in another country. Some individuals or companies are seeking legal tax shelters or to protect proprietary research.

But if you’re looking to do something illicit, such as laundering money or hiding a criminal enterprise, a shell company is the perfect vehicle.

The office on S Street is one of approximately 270 addresses in California that show up in the Panama Papers database, including a concentration of 125 in Southern California and 100 in the Bay Area. Besides First Corporate, eight other addresses in greater Sacramento show up in the database.

Some California addresses, like Silverburg’s, belong to corporation service companies. Others are law firms. Still others appear to be private residences. What they have in common is linking California to companies in such far-flung locales as Singapore, the Isle of Man and Malaysia.

Why most of the California addresses appear in the Panama Papers isn’t readily apparent. Even with the extensive document leak, the identities of the true owners of many of the companies remain shrouded.

What is clear, however, is that some shell companies have deliberately sought California as the place to plant their flag.

Vernon Group Assets, the Sacramento shell company owned by the daughters of the former Ecuadorean president, is an intriguing example.

In February 2013, a Mossack Fonseca employee in Panama emailed American Incorporators, a Delaware company that provides many of the same services as Silverburg. She asked to have Vernon Group moved from Nevada to either California or Washington state.

The Delaware agent, Jeff Tindall, suggested his home state, but the Mossack Fonseca employee rejected that. “Our client has informed us that Nevada, Wyoming and Delaware are in the black list in Ecuador,” she wrote, suggesting Vernon Group’s owners wanted to avoid states known as hot spots for shell companies.

Tindall wound up moving Vernon Group to California, where it became a First Corporate client in Sacramento.

‘A very lucrative business’

Silverburg is affable and unpretentious, seemingly at ease in the leafy neighborhood where his office sits amid small restaurants, state office buildings and bungalow rentals. He walks to work from his nearby home and met reporters from The Bee last month at Old Ironsides, a neighborhood bar and grill where he is a regular. Dressed in blue jeans and a button-down shirt, Silverburg spoke extensively about First Corporate and its operations, ending the meeting with a quick tour of his offices a block from the landmark restaurant.

He said he got his start working for title companies and retrieving court records in San Mateo County. He founded First Corporate Solutions in 1987 and moved to Sacramento in 1996. He employs 45 workers at the company’s offices in Sacramento, Southern California and Delaware. In the last two years, he has set up his company to operate in all 50 states.

Hundreds of business service companies such as Silverburg’s operate in California. Their role includes filing articles of incorporation for new companies. They also comb through court files, real estate records and other public documents on behalf of clients who are involved in property deals, lending or other financial transactions.

For many of these service companies, one part of the job is to act as “registered agents,” where their main responsibility is to be the legal point of contact if a client gets sued. If a company wants to do business in a particular state, it has to hire a registered agent there. The agents accept physical delivery of a lawsuit and forward the paperwork to the client’s law firm or other representative.

It is in its role as registered agent that Silverburg’s firm has come into contact with companies named in the Panama Papers.

Silverburg said being a registered agent is a small but growing part of First Corporate’s operation. It doesn’t pay a lot, about $60 to $300 a year per client, but it’s relatively easy money. There’s little work involved until a client gets sued. Registered agents have to be licensed with the secretary of state and pay a $30 filing fee, but they don’t have to be lawyers or undertake any particular training.

“It’s a very lucrative business,” Silverburg said.

But being a registered agent can be akin to flying blind, as Silverburg and others have discovered in recent weeks.

In California and every other state, many business service companies don’t know the identities of the true owners of the companies they serve. State laws don’t require them to find out. Federal law doesn’t, either, although some members of Congress have tried in recent years to pass laws that would force owners to identify themselves.

Companies generally have to list at least one officer or director, but that individual isn’t necessarily the owner. If a company doesn’t want to disclose the names of its owners, “there’s nothing we can do,” said Matt Marzucco, head of a Sacramento business service company called Parasec and president of a trade group called the National Public Records Research Association. Silverburg also is a member and former board member.

Secretaries of state across the country haven’t been eager to chase down the names of company owners, saying it’s too burdensome. Lizette Mata of the California secretary of state’s office said it would take a “big red flag” for her agency to investigate a company’s background and ownership pedigree.

“We’re adhering to what’s required of us by law,” said Mata, deputy director of special projects. The attorney general and county district attorneys “are the main people for investigating wrongdoing by businesses,” she said.

In the state’s massive database of registered businesses, Silverburg’s company is no stranger to international waters. First Corporate is the registered agent for approximately 90 active companies with a foreign mailing address or whose officers or directors list a foreign address. That’s approximately one out of every five companies First Corporate serves, a considerably higher ratio than the statewide average. Silverburg’s firm also has served as registered agent for an additional 45 inactive companies with foreign ties.

Silverburg said he doesn’t go out of his way to find international clients but wasn’t surprised by the numbers. He said he suspected most were referred by domestic law firms or service agencies with whom he has long-standing relationships.

The way he sees it, First Corporate and other business service companies essentially are at the mercy of a system that allows shell companies to operate around the world, including the United States, without having to disclose the identities of their true “beneficial” owners.

“I wonder about this myself,” Silverburg said. “We don’t know if everything is aboveboard. You don’t know if somebody’s doing something wrong. We search public records. That’s what we do.”

Silverburg said his company routinely runs the names of company officers through a U.S. Treasury Department database of known terrorists, drug dealers and other undesirables. He said he also assumes the clients have been vetted by the referring law firms or agencies.

After combing through his own files at The Bee’s request, Silverburg said he could confirm that six companies mentioned in the Panama Papers are current or former clients: Vernon Group Assets, Flexpro, Metrocorp International, Newton Services, American Cocoa Production, and American Trade & Packing.

He said he had no information on who actually owns the companies or what they do.

At least one has been tied to a major political scandal in South America.

The company is American Trade & Packing. It surfaces in the Panama Papers as one of 123 shell companies accused in a lawsuit of laundering $65 million embezzled from Argentina’s government several years ago.

For years, prosecutors and South American journalists have been investigating allegations that Argentine construction tycoon Lazaro Baez, working in cahoots with former President Cristina Fernandez de Kirchner and her late husband and predecessor, Nestor Kirchner, embezzled millions, spiriting the funds to locales including Switzerland and Belize.

In 2014, a hedge fund called NML Capital Ltd. filed a lawsuit against the Argentine government in U.S. District Court in Las Vegas, charging that Baez had deployed American Trade and 122 other shell companies to move the embezzled funds around the globe. NML was trying to collect on a $1.7 billion judgment against the Argentine government over a debt default.

The lawsuit said the shells were set up by Mossack Fonseca and overseen by its Las Vegas affiliate, MF Corporate Services. A federal magistrate agreed with NML Capital’s contention that the shells were used to move ill-gotten gains out of Argentina.

There was “a substantial showing that Baez’s money-laundering activities involved the 123 Nevada corporations,” U.S. Magistrate Judge Cam Ferenbach ruled in August 2014. He ordered Mossack Fonseca’s Las Vegas office to turn over documents on the shell companies.

The ruling set off alarm bells in Panama. The law firm’s co-founder Jurgen Mossack filed a written declaration saying Mossack Fonseca didn’t have a “parent-subsidiary relationship” with the Las Vegas office. According to one of the emails uncovered in the Panama Papers, an information-technology specialist at Mossack Fonseca said he would erase evidence of links between the computer systems in Las Vegas and Panama City.

After months of wrangling, Mossack’s Las Vegas office finally released evidence on the shell companies, including 65 pages of public records documenting American Trade’s incorporation in Nevada. Those documents shed no light on whether American Trade helped launder money.

In a statement posted on its website earlier this year, Mossack Fonseca said it doesn’t know Baez, the man accused of laundering money. It also has denied erasing any evidence.

As for Baez, he was arrested and detained for questioning by Argentine law enforcement authorities in early April. He and five others since have been indicted on money-laundering charges.

American Trade, meanwhile, opted for a change of scenery.

In July 2013, while prosecutors in Argentina were pursuing their money-laundering probe and lawyers for the NML hedge fund were about to subpoena the Nevada shell companies, American Trade & Packing relocated to California. Emails in the Panama Papers show employees at Mossack Fonseca contacted American Incorporators, the business services firm in Delaware, and directed it to facilitate the move. No explanation was given.

Documents filed with the California secretary of state show that the Delaware firm designated Silverburg’s company, First Corporate Solutions, as the registered agent for the newly relocated American Trade & Packing.

Silverburg said it was a fairly typical transaction. American Incorporators has been referring business to First Corporate Solutions for years. In some cases, he said, First Corporate won’t know it’s been hired as a registered agent until after the fact.

A bewildering maze and ‘zombie directors’

For its part, American Incorporators also said it knows little about the companies it serves.

Tindall, American Incorporators’ international accounts supervisor, is mentioned 1,630 times in the Panama Papers, but he says he’s been kept in the dark by Mossack Fonseca about what the companies do and who really owns them.

“We’re a service company; we prepare paperwork,” Tindall said in an interview from Delaware. “We don’t get involved in what the companies are actually doing, or why they’re being set up.”

Tindall’s company referred at least one other Panama Papers company to First Corporate in Sacramento: Vernon Group Assets LLC.

The leaked documents reveal that Vernon Group is controlled by the four daughters of the late Leon Febres Cordero, a gun-toting, pro-U.S. Ecuadorean president during the 1980s who earned a fortune in the salt business years before entering politics. Flexpro, another Silverburg client mentioned in the Panama Papers, is partly controlled by the eldest of the daughters, Maria Eugenia Febres Cordero Cordovez of Guayaquil, Ecuador.

Reached at her home, the eldest daughter declined comment. A family attorney, Andres Suarez Trujillo, asked a reporter to leave the daughters out of the story, saying, “You can rest assured that there is nothing shady here. These are private parties.”

First Corporate resigned as Vernon Group’s registered agent last fall. Silverburg said he was instructed to resign by Tindall, the executive in Delaware. First Corporate is still Flexpro’s registered agent.

Although the Panama Papers reveal the true owners behind companies such as Vernon Group and Flexpro, in some cases ownership is spread across a bewildering maze. One example is Newton Services Corp., another First Corporate Solutions client.

Initially incorporated in Panama in 2002, it didn’t register in California until January 2016. Its home address is one of Mossack Fonseca’s main offices, in Guayaquil, Ecuador. Clicking on its link in the Panama Papers public database yields a perplexing web of 16 individuals, a separate company and an intermediary firm involved in establishing the ownership structure. Newton’s purpose is unknown, as is its reason for incorporating in California.

Throughout the Panama Papers, some names pop out – a lot. These are the so-called “zombie directors,” men and women from around the world who lend their names and addresses as cover.

The people listed as co-managers of American Trade & Packing, the company linked to the scandal in Argentina, are Francis E. Perez and Leticia Montoya. Their names appear more than 200,000 times each in the Panama Papers and are identified as directors or managers of hundreds of companies.

Montoya, for instance, has served as director of a Panamanian company called International Art Center. It’s being sued in an extraordinary court battle over control of a $35 million painting. The painting is the work of renowned Italian artist Amedeo Modigliani and may have been stolen during World War II by the Nazis.

Transparency advocates say the proliferation of shell companies in the United States shows that American laws are just as lax about secrecy as those in such notorious tax havens as the British Virgin Islands.

“In many places in the U.S., you have to provide more information about yourself to get a library card than you do to set up a shell company,” said Mark Hays of Global Witness, a London-based nonprofit that tracks shell companies and international corruption.

Hays’ organization has pressed for more transparency and is supporting a bill co-sponsored by U.S. Sen. Dianne Feinstein of California that would force states to insist on disclosure of companies’ beneficial owners.

Silverburg says that some of his colleagues may disagree but that he personally wouldn’t mind more openness.

“The whole idea of beneficial ownership being transparent,” he said, “how bad could that be?”

This story was originally published June 5, 2016 at 6:00 AM with the headline "Intrigue, offshore connections to Sacramento in ‘Panama Papers’ leak."