Panama Papers include dozens of Americans tied to fraud and financial misconduct

Introduction

Leonard 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.

Mossack Fonseca, a Panama-based law firm that specializes in selling offshore companies, initially told Gotshalk it couldn’t do business with him, because of “negative information” that its compliance unit had found. Gotshalk persuaded the law firm to reconsider, noting in an email that he’d “held offshore accounts in the past in Europe and Bahamas and Belize” without problems.

Three months later – on May 21, 2010 – 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.

Three days later – on May 24 – Mossack Fonseca recorded a $3,055 wire transfer from Gotshalk, the firm’s internal records show. The money paid for a British Virgin Islands company called Irishmyst Consultants Limited.

Gotshalk isn’t the only American with a suspect past who has used Mossack Fonseca’s services. A review of the law firm’s 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.

ICIJ and its media partners found the details of Gotshalk’s offshore company – and other companies linked to Americans accused of financial mischief – within the Panama Papers, a trove of leaked documents that expose the business practices of Mossack Fonseca, one of the world’s largest marketers of offshore secrecy.

Some have been convicted of fraud or other crimes. They include Martin Frankel, a Connecticut financier who pleaded guilty in 2002 to 20 counts of wire fraud as well as counts of securities fraud and racketeering conspiracy, 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.

Others have been sued in civil cases launched by securities regulators or private plaintiffs. Among them are six Americans who were 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 Ponzi scheme that cost thousands of middle-class Indonesians nearly $100 million.

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

Experts on Ponzi schemes and other kinds of financial chicanery say offshore entities often play a role in fraudulent enterprises. “Fraudsters like offshore because of the the lack of transparency,” said Ellen Zimiles, a former federal prosecutor in New York who now leads Navigant Consulting’s investigations and compliance practice. When offshore structures are put together skillfully, “it takes a lot of time for investigators to get the ultimate beneficiary.”

Mossack Fonseca’s 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.

A Mossack Fonseca spokesperson did not reply to questions for this story. In previous statements, the firm said it has “operated 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.”

The firm said that it works to make sure “that the companies we incorporate are not being used for tax evasion, money-laundering, terrorist finance or other illicit purposes.” It said it turns away clients who have been convicted of crimes or involved in other conduct that raises “red flags.”

“Our 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,” the firm said.

Gotshalk and Frankel could not be reached for comment. Wiederhorn, the Oregon corporate executive, said the offshore company linked to him in Mossack Fonseca’s files was used for routine real estate transactions in the United Kingdom.

High volume

It wouldn’t have taken Mossack Fonseca’s compliance team much Internet surfing to determine that former pro football player Leonard Gotshalk was likely to be a risky client.

The U.S. Securities and Exchange Commission sued Gotshalk in 1994, accusing him and others of providing investors with “false and misleading information” 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.

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’d interviewed a dozen people in multiple states who claimed Gotshalk defrauded them.

There’s no indication in the Panama Papers that Mossack Fonseca took notice of Gotshalk’s more recent legal issues, which include the securities fraud indictment in Pennsylvania and a new lawsuit filed by the SEC.

A sentencing hearing has been scheduled for Gotshalk in the criminal case for May 19. A judge has ordered a document titled “Plea Document as to Leonard Gotshalk” sealed, but other court records don’t indicate whether he has been convicted in the case. The SEC’s lawsuit has been put on hold until the criminal matter is finished.

Gotshalk’s attorney did not reply to requests for comment about his client’s legal problems or Gotshalk’s purchase of an offshore company through Mossack Fonseca.

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.

An article about banks’ struggles with enforcing anti-money-laundering rules in Navigant Consulting’s Risk & Regulation journal noted that a “widely recurring theme throughout multiple enforcement actions has been the decision of management to place revenue considerations” above money-laundering risks. Once a decision is made to compromise money laundering controls for the sake of revenue, the article said, “the decision becomes easier to repeat and harder to reverse.”

The leaked records in the Panama Papers suggest that Mossack Fonseca’s high-volume business model made it difficult for it to keep track of its clients’ 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 “legally and practically limited in our ability to regulate the use of companies we incorporate.”

‘Unofficial’ representative

In an interview with the Associated Press, firm co-founder Ramón

Fonseca said that “as a policy we prefer not to have American clients.”

The Panama Papers show that at least some of that hesitation involved fear of U.S. law enforcement authorities.

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 “an apparent banking fraud.”

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 “an ‘unofficial’ 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 ‘negative’ context.”

He said he continued working “exclusively” with Mossack Fonseca but was careful not to leave “any discernable (direct) link to Mossfon.”

In a 2014 email, Edge explained that Mossack Fonseca had relatively few American clients because it wanted to “avoid further attempts by American authorities to attack the Partnership.” He said that with the consent of one of the firm’s managing partners, Jürgen Mossack, “American clients were purged, no more have been sought, no marketing in the U.S. takes place; and I have conducted Mossfon business in my own name.”

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

In 2003, U.S. securities regulators accused one of Edge’s 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 “duped into believing” that Patten needed help because she was the victim of a “malicious lawsuit.”

In 2005, a federal judge ruled that she’d played a “crucial role” in the scam and ordered her and another defendant to pay more than $5 million in restitution, fines and interest.

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’s modern Civil Rights movement. Creditors of a failed insurance company based in the Caribbean island of Nevis claimed that Harvey Milam and other defendants cheated investors by fraudulently transferring the insurer’s assets to other companies. Milam and other defendants settled the case in 2012 without admitting any wrongdoing.

Patten and Milam could not be reached for comment for this story. Milam’s attorney declined comment. Edge did not reply to repeated emails and faxes seeking comment.

‘She lost everything’

Everything seemed in order when Rebel Holiday showed up at Mossack Fonseca’s Panama headquarters in May 2009.

She lived in Virginia and presented herself as a successful entrepreneur with a plan to sell “collectibles” containing small amounts of gold. The company she wanted to register in Panama would be “committed to the democratization of gold and precious metals that have only been available to the affluent in recent years,” according to a business plan found in the law firm’s files.

Mossack Fonseca later claimed it had done an Internet search on Holiday and found nothing negative. The firm’s staffers registered the company, Mises Technologies, and took her to Tower Bank in Panama City to open three accounts.

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’s allegations mostly focused on a company Holiday created to sell fashion consultations over the Internet.

One of the investors who testified against her in the state’s 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’s ventures.

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 Piola needed it back. Holiday never gave her a stock certificate and never gave her the money back, Piola said.

“I told her that I felt like she stole $10,000 from me,” Piola told a hearing officer. In response, Piola said, Holiday “gave me a sob story about how she lost everything” and that “I needed to feel bad for her.”

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.

“The business died,” Holiday told ICIJ. “Nobody got their money back, including me.”

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’s business practices. Mossack Fonseca did a new search and discovered some of the legal filings in the Virginia securities case.

Mises Technologies was “struck off” the register of Panamanian companies in July 2013. It is unclear from Mossack Fonseca’s internal files whether the law firm dropped Holiday and her company because of the Virginia allegations. Holiday said the collectibles business didn’t work out and she herself let the company lapse.

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

Holiday insists that she was innocent and that the state railroaded her. “It was like the Red Queen’s Court in Alice in Wonderland,” she said.

Desperately waiting

Other legal cases targeting Mossack Fonseca’s 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.

A lawsuit filed in 2009 in U.S. District Court in Washington state claimed that Dressel Investments Ltd., a company incorporated in the British Virgin Islands by Mossack Fonseca, fleeced more than 3,400 Indonesian investors who put their money into what turned out to be, the suit alleged, “a classic Ponzi scheme.” 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.

The suit was eventually thrown out of federal court when a judge ruled the allegations couldn’t sustain a federal racketeering claim. An investors group representing the alleged victims is now pursuing their claims in state court in Alaska.

Some defendants in the case have settled under undisclosed terms. Others have fought on, denying wrongdoing and in some cases pointing blame at others they said were responsible for any fraud. Some defendants weren’t included in the Alaska case as the litigation moved from federal to state court.

After the collapse of Dressel in early 2007, investors in Indonesia pleaded directly with Mossack Fonseca for help in getting their money back. One investor’s email was titled: “still confused and sad about our saving.” Another investor wrote: “We are still desperately waiting.”

One investor forwarded Mossack Fonseca a letter from the British Virgin Island’s financial investigation agency that said: “It is clear that this is and always was an investment scam.”

Mossack Fonseca resigned as Dressel’s 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.

In the case of another alleged Ponzi scheme with ties to Indonesia, Mossack Fonseca set up two offshore companies linked to Robert Miracle, one of the fraud’s architects. Miracle was a Seattle businessman who told investors he’d 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.

The Panama Papers show that Mossack Fonseca registered MCube Petroleum Ltd. for Miracle in March 2007 — three months after the State of Washington accused him and a similarly named company registered in Washington state, MCube Petroleum Inc., of violating securities laws.

MCube Petroleum Inc. and associated companies were part of an enterprise that defrauded hundreds of American investors, federal authorities found.

In late 2007, federal agents served search warrants on Miracle’s home and on MCube Petroleum Inc.’s 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.

In July 2008 – months after media reports revealed the investigation into Miracle’s shell games – 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’s partners in the Ponzi scheme.

Another Fivex shareholder listed in Mossack Fonseca’s files is Veronica Naomi Miracle, Robert Miracle’s daughter. She had just graduated high school when she was named as a shareholder in the company.

Veronica Miracle and Robert Miracle declined to comment.

The Panama Papers show that Mossack Fonseca didn’t learn about Robert Miracle’s crimes until 2012, when a database search turned up a record of his conviction. By then, the trail in the hunt for Miracle’s assets had gone cold. Court filings indicated that investors’ losses were likely to top $20 million.

Contributors to this story: Marisa Taylor and Kevin G. Hall of McClatchy Newspapers, Matthew Kish of the Portland Business Journal and Alice Brennan, Alcione Gonzalez and Laura Juncadella of Fusion Investigates