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US scolds others about offshores, but looks other way at home

The Wyoming State Capitol building framed by downtown Cheyenne, Wyo. on March 8, 2016. Wyoming is the least populous and the second least densely populated of the 50 United States but a very popular location for the formation of offshore corporations because one can set up a LLC in Wyoming without one's name having to be in the State Register.
The Wyoming State Capitol building framed by downtown Cheyenne, Wyo. on March 8, 2016. Wyoming is the least populous and the second least densely populated of the 50 United States but a very popular location for the formation of offshore corporations because one can set up a LLC in Wyoming without one's name having to be in the State Register. McClatchy

The U.S. government has publicly and privately pressured countries that act as offshore havens for hiding money, while this barren, sparsely populated state offers the same secrecy.

The Cowboy State isn’t as notorious as the Cayman Islands for cloaking millions. But, like Nevada and Delaware, this unlikely haven offers the same anonymity the federal government has been trying to end abroad. America and Americans are part of the offshore problem.

A massive leak of documents from the global law firm Mossack Fonseca & Co., which has offices in Wyoming and Nevada, exposes how two Western U.S. states are tied to foreign scandals, and how middlemen in far-flung places are taking advantage of the anonymity they provide.

Through this law firm, Wyoming, a state that has twice as many head of cattle as it has people, and Nevada, a state known to embrace a gamble, are tied to a scandal that threatens the government in Brazil, and to Russian middlemen who establish paper-thin companies called shells for the wealthy.

Wyoming?

Wyoming had 128,000 active business entities at the end of 2015. That’s roughly one entity per every 4.5 residents in a state of about 586,000.

U.S. law allows foreigners to create shell companies that have no revenue or actual business activity in the United States. It’s akin to what foreign offshore tax havens offer Americans, some of whom use them as a tax dodge, or worse.

McClatchy reporter Kevin G. Hall interviews registered agents in rugged Wyoming where the state requires virtually no ownership information for companies incorporated there. A leak of documents shows foreign nationals are using the state for the a

"There is no question that the United States serves as one of the biggest tax havens in the world for people outside the United States," said Daniel Reeves, now a consultant after retiring three years ago from the Internal Revenue Service, where he helped create its offshore compliance program.

Wyoming and its competitors do not distinguish between foreigners and Americans who open businesses. Anonymity is a selling point.

State officials prefer the word “privacy,” and say they do insist that a living, breathing contact is required for every entity created.

Because of that, said Deputy Secretary of State Karen Wheeler, Wyoming statutes “don’t ask for information such as, ‘Are you from a foreign country?’ ” She adds, “we wouldn’t have any way of knowing.”

Such anonymity means regulators are essentially in the dark.

“What those companies enable people to do is put their wealth outside the reach of the legal system of the country they’re in,” said Jack Blum, a former Senate investigator and a lawyer specializing in white-collar crime.

Nevada shell company Murray Holdings LLC is a good example. It existed without notice until it became a centerpiece in Brazil’s political crisis, which threatens to overshadow this summer’s Olympic Games. Prosecutors there allege the Nevada firm had no assets or business in the United States, yet was used to hide embezzled funds from Brazil’s state oil company, which was then funneled into luxury real estate.

Murray Holdings is found in a trove of Mossack Fonseca documents analyzed by McClatchy that shows how foreign nationals establish U.S. shell companies to camouflage assets or money abroad.

Known by the initials MF, for Panamanian founders Jurgen Mossack and Ramón Fonseca, the law firm is a world leader in creating business entities. For a fee, the firm offers customers everything from simple preparation of incorporation documents almost anywhere in the world to supplying – on paper at least – managers, shareholders and corporate directors for shell companies.

For an added price, the firm will create a website, a virtual office and even run a call center to sustain the appearance of a brick-and-mortar company.

What emerges from the 11.5 million secret emails, PDFs, spreadsheets and other electronic records are actors of every imaginable profession using shells to hide money and assets. Some of the firm’s clients have criminal records; some are known to have accumulated spoils from corruption. This has long been suspected but now there are documents – lots of them – to confirm it.

Offshore corporations have one main purpose - to create anonymity. Recently leaked documents reveal that some of these shell companies, cloaked in secrecy, provide cover for dictators, politicians and tax evaders.

There’s nothing inherently illegal with forming a limited liability company most anywhere – and Wyoming now has about 70,000 of them. Often called an LLC or Ltd, the designation limits the owners’ liability to what they have invested in their company. Similar entities abound abroad.

When Americans open an LLC in the United States, they provide a Social Security or taxpayer ID number. It’s a murkier picture when foreigners open U.S. shells.

Having tax haven states seems at odds with the U.S. multi-year crackdown on Swiss banks that hide American money. It also stands out against “name and shame” efforts by the State Department, which publishes an annual narcotics-control report that includes sections on money laundering. It designates countries like the Cayman Islands as Jurisdictions of Primary Concern.

“There remains a lack of penalties for failing to report ownership and identity information (on trust companies),” the 2015 report said of the Cayman Islands.

During an address about the U.S. economy and tax inversions, President Obama said the leak of 11.5 million documents from a Panama-based law firm that shed light on wealthy people shelter their wealth from tax authorities is a reminder that "tax a

 

Open Doors, Dirty Floors

Consider how Nevada and Wyoming are tied to scandal in Brazil. Former President Luiz Inácio Lula da Silva was hauled in for questioning by that country’s Federal Police on March 4 as part of an investigation into money stolen from state-owned oil giant Petróleo Brasileiro SA, or Petrobras.

Prosecutors told judges that stolen money first flowed through shell companies in Nevada and was then used to buy seaside real estate in Guaruja, a resort town in the state of São Paulo. The shells hid the names of the true property owners.

Murray Holdings LLC opened in Nevada in 2005, and Brazilian prosecutors said they are aware of 10 properties it owns in Brazil. The “owner” of the shell was a humble Brazilian woman Eliana Freitas, who police said “opened” a Nevada shell even though her most recent valid passport expired in 1991. She said she just signed documents on behalf of friend Nelci Warken, a publicist, who like Freitas, seemed unlikely to have the income for multiple luxury properties.

The tie to the former president, a longtime union activist from humble roots, is that his new seaside condo was next door to the one owned, at least on paper, by Warken.

Brazilian law enforcement raided Mossack Fonseca’s office in Sao Paulo earlier this year, and prosecutor Carlos Fernando dos Santos Lima called the law firm a “money-laundering machine.”

In response to the leak, Mossack Fonseca has described itself as merely an agent that files paperwork for clients. It also said in a statement earlier this year that its Brazil office “operates with its own administration, resources, and staff that are independent of our group.”

The Panama Papers, as the leak has come to be known, shed a different light, however. They show how closely Mossack Fonseca’s Brazil office worked with headquarters and MF Nevada to accommodate a little-known middleman named Ademir Auada. Records show he traveled to Panama frequently to meet Mossack Fonseca executives and was wined and dined. He opened at least 19 offshore companies with the law firm, including Murray Holdings, and was arrested by Brazilian police in January and questioned for five days.

 

Murray Holdings was registered in 2009 by MF Corporate Services (Nevada) Ltd. on behalf of Auada (pronounced Ah-WAH-da), who as a client of the Panamanian law firm was acting on behalf of others. But the structures Auada established in his U.S. shell companies for Brazilians then served as a model when Mossack Fonseca’s Nevada operation expanded into Wyoming in 2012, the documents show.

Dozens of shell companies tied to Brazil’s broad corruption probe are in the Panama Papers, including a U.S. shell company belonging to Carlos Queiroz Galvao, who was also questioned by police in Brazil. He turned to the law firm to establish a Delaware offshore on July 1, 2014, called Recife Coral Arts Ltd., and opened a similarly named offshore in the Caribbean island of Anguilla. That year Mossack Fonseca also worked to create a family trust in the British Virgin Islands which would allow his children to take the reins of the family empire. The family company, Queiroz Galvao Engineering, had already been named in Brazilian investigations of secret Swiss bank accounts and the blossoming corruption probe.

 

Hiding in Plain View

Just as in Murray Holdings, the true purpose of shell companies is not obvious from the outside. McClatchy contacted several South Americans who appeared in the documents tied to shell companies with the law firm in Wyoming and Nevada. Their names don’t show on incorporation documents, and their stories changed when presented with leaked evidence.

“We don’t have any companies abroad. This is a small accounting office,” Edgardo Branca declared in a telephone interview from Buenos Aires. “This sounds like a bad joke.”

Documents show that Branca and partner Claudio Picasso in mid-2013 established Num Trading Ltd. and Sokar Trading Ltd. in Nevada. They directed Mossack Fonseca officials along the way, originally asking the firm to provide its own directors residing in Hong Kong.

A day after McClatchy’s call, Branca forwarded an email he’d just received from Mossack Fonseca headquarters confirming he indeed had companies in Nevada. He’d told the law firm that a reporter was asking questions. Lawyer Alexandra Kourany advised him, “For now I’d suggest not answering.”

But Branca did answer, insisting a day later that: “I have nothing to hide.”

 

The shell company in his name is not his, he said, but actually belongs to an Argentine who appears nowhere in the documents. The man, an acquaintance, works for a Spanish company with offices in Argentina. The shell was never actually used, he said, and has probably lapsed.

Nevada records show that Num Trading’s incorporated status was reinstated on Sept. 29, 2015. Sokar Trading’s has been revoked by the state. Using the Auada model, these companies had shareholders listed in Anguilla, a British territory in the Caribbean. The “shareholders” were actually another shell.

Why would an Argentine subsidiary of a Spanish food exporter establish a shell company in Nevada if it had no business or revenue in the United States? Branca said he didn’t know, but offered that perhaps it was to pay commissions, forbidden in Argentina, with one salesman rewarding another for steering business.

Brazilian Flavio Sami Gebara had an evolving storyline about the Wyoming shell company Worldwide Assest (sic) LLC. The Sao Paulo owner of a plastics business, he first said he’d established it on the advice of his lawyer, whom he declined to name. That lawyer, Gebara acknowledged, had introduced him to the middleman Auada. The documents show Auada brought Gebara’s business to Mossack Fonseca, but Gebara denied knowing him personally.

Gebara said he’d intended to purchase a company in Brazil, and for reasons he declined to explain, needed a partner. He was trying to create the appearance that he had a partner, Gebara said, by opening a Wyoming shell.

In a follow-up call, he admitted his plastics company faced financial problems and he wanted to shield assets from his creditors.

 

Who Knows What?

Since the Sept. 11, 2001, terror attacks, banks have faced increasingly strict know-your-customer requirements. Not so for lawyers, Realtors or registered agents. It means that in Wyoming and most U.S. states, Brazilian, Russian, Chinese or other foreign nationals legally fly under the cover of paperwork.

“I never deal with any of the people,” said Greg Goddard, a partner in the law firm Goddard & Vogel in the northern Wyoming town of Buffalo, population 4,585.

His address is listed on a document for A Street Solutions, a Russian company that creates shells in Wyoming for Russian customers. It’s run by Vladimir Koltoun, and on paper he occupies Suite 100 at Goddard’s small-town law office.

There is no such suite. It’s a mail drop.

 

Wyoming forbids registered agents from listing P.O. boxes as their place of business. However, pseudo-suites in the office of a registered agent are OK.

“We get a paid a small amount of money. We sort the junk mail – anything that looks important we send off,” Goddard said.

A Street Solutions lists, in the Panama Papers, a home address in Moscow and another in the Russian banking haven of Cyprus. It also lists Wyoming addresses in Cheyenne and Buffalo. Its newest address is in the small city of Sheridan, near the Montana border, with registered agent Wyoming Corporate Office, in an empty building under repair, housing two solitary desks.

The manager there spoke on condition that her name not be used, and confirmed she has no idea who the Russians’ end-customers are.

“We don’t know. We don’t verify that,” she said.

Who does?

“Perhaps the Better Business Bureau, or Dun & Bradstreet?” she responded with a shrug.

Reached by phone in Moscow, Vladimir Koltoun said in broken English that “international businessmen” are owners of the U.S. shell companies he creates.

Why Wyoming?

“We search all states and one of the states with privileged conditions for business was Wyoming, and Delaware,” he said.

 

Layers of the Onion

Mossack Fonseca’s office in Wyoming lists a Cheyenne address, but you won’t find its name on any building. The address actually belongs to AAA Corporate Services, another registered agent. Manager Linda Grayson said she incorporates businesses on behalf of M.F. Corporate Services Wyoming LLC, collecting a small fee for registering a competitor’s business.

“It’s money, so who cares,” she shrugs.

Because neither federal nor state law requires it, registered agents don’t much care about the ultimate owners of a company. It’s not their job.

“Who actually owns the company? I have no idea,” admits Angelica Espinosa of WyomingRegisteredAgent.com.

She added, “They can even order it online. So sometimes we’re not involved at all. You go to the website and order, and all we do is file paperwork and give it back to them.”

One of the few work requirements for a registered agent in Wyoming is to be physically in the office during working hours in case a court order is served. It costs about $100 to file for incorporation as a limited liability company in Wyoming, another $50 for a required annual report.

“Anybody can say they are anybody, and submit an order and get it processed,” said Jason Lars Debraal, manager of Registered Business Center LLC in Cheyenne, a registered agent who favors stricter rules. “I think the state needs to change a little bit to validate that people are themselves.”

That idea doesn’t sit well with the director of the Delaware Division of Corporations, who says it’s the federal government’s job to handle any verification of identity.

“I mean, I know what the Delaware driver’s license looks like, but I frankly don’t know what the other 49 (state) driver’s licenses look like,” said Richard Geisenberger, who is also Delaware’s chief deputy secretary of state. “I don’t even know what a passport from Nigeria looks like.”

In response to criticism during 2006 Senate hearings, Wyoming and Delaware tightened their laws to require that registered agents keep records of a contact person for the companies.

But both Branca and Gebara had shell companies with shareholders in Anguilla, a small island east of Puerto Rico. Who was the contact person, should the Wyoming Secretary of State’s office, with 32 full-time employees, have decided to reach out? That’s unclear; those shareholders were actually another shell company. If the registered agent lacks real contacts, the maximum penalty is $1,500.

The U.S. Treasury Department in 2005, in its first-ever National Money Laundering Threat Assessment, devoted a chapter to shell companies and decried the lack of information globally that’s collected about true owners.

A decade later in 2015, the Treasury Department noted in its second assessment report that the problem of anonymity remained because there are “ample case examples of individuals who own or control a legal entity hiding behind nominees who serve as officers and directors, and as signatories for bank accounts.”

It’s why the Obama administration, in its most recent budget proposal, calls for imposing on registered agents the requirement of knowing an ultimate owner.

But the administration has failed to pursue legislation, complained Carl Levin, a longtime Democratic senator from Michigan who retired in 2014. Levin led the 2006 hearings that spotlighted the issue and tried unsuccessfully for years to pass legislation requiring true ownership disclosure.

What we don't know can hurt us, warns Carl Levin, a former U.S. senator from Michigan. The veteran Democrat pushed unsuccessfully to pass legislation requiring information be collected about the true owners of offshore shell companies, including t

“And what you need is a secretary of the Treasury who’s going to come to the Hill with the FBI arm in arm … and say, ‘Folks, quitting dragging your feet on this,’ ” said Levin, interviewed in Detroit.

Officials in Delaware and Wyoming are fine with making it easier to see tax IDs, but oppose having to seek and keep information on beneficial ownership.

“And as far as finding a commonality of a definition of beneficial ownership, there hasn’t been one. And I have been at this for 12 years, and there hasn’t been one,” said Wheeler, Wyoming’s deputy secretary of state.

Levin doesn’t buy it.

“I assume that states that make a lot of money out of these corporations being formed, that allow people to hide their identity, are going to continue to oppose it,” he said.

The world’s largest document leak went public on April 3, quickly dubbed the “Panama Papers.” These documents detailed the offshore bank accounts of many of the world’s richest people. Steve “Buzz” Thomma and McClatchy D.C. reporter Kevin Hall exp

This story is part of a larger series, involving McClatchy and other news organizations, working under the umbrella of the nonprofit International Consortium for Investigative Journalists.

Marisa Taylor: 202-383-6164; @marisaataylor; mtaylor@mcclatchydc.com

Kevin G. Hall: 202-383-6038; @kevinghall; khall@mcclatchydc.com

Clarice Silber in Washington contributed.

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