Panama Papers: How the world's rich hide their money

Russian President Vladimir Putin. Data reveals the existence of a money laundering ring involving the Russian leader's closest associates. Photo / AP

An international collection of journalists published a report on the financial activities of a dozen current and former world leaders that said associates of Russian President Vladimir Putin have moved as much as US$2 billion through offshore accounts.

The report is based on a data leak of 11.5 million records for 214,488 entities connected to people in more than 200 countries or territories. The leak includes emails, financial spreadsheets, passport information and corporate records. It spans nearly 40 years, from 1977 through the end of 2015.

SCROLL DOWN: Q&A - What are the Panama Papers?

The records came from a Panamanian law firm, Mossack Fonseca & Co. The firm specializes in setting up companies that allow businesses and individuals to move money offshore and has offices in 35 cities around the world, including in Hong Kong, Miami and Zurich.

The International Consortium of Investigative Journalists produced the report along with the German newspaper Süddeutsche Zeitung and more than 100 other news organizations.

"In the largest media collaboration ever undertaken, journalists working in more than 25 languages dug into Mossack Fonseca's inner workings and traced the secret dealings of the law firm's customers around the world," the report said. "They shared information and hunted down leads generated by the leaked files using corporate filings, property records, financial disclosures, court documents and interviews with money laundering experts and law-enforcement officials."

The consortium said it will release the full list of companies and individuals identified in the data in early May.

Many people use the offshore world for legitimate purposes, to set up legal tax shelters or clear the way for international business deals. U.S. citizens are allowed to move money offshore, but they must report the account information to the Internal Revenue Service. Disclosure laws vary around the world.

The consortium's report stressed that "most of the services of the offshore industry are legal if used by the law abiding. But the documents show that banks, law firms and other offshore players have often failed to follow legal requirements that they make sure their clients are not involved in criminal enterprises, tax dodging or political corruption."

Mossack Fonseca did not respond to requests seeking comment from The Washington Post. In a statement to the consortium, Mossack Fonseca said it "does not foster or promote illegal acts." The firm said "allegations that we provide shareholders with structures supposedly designed to hide the identity of the real owners are completely unsupported and false."

Mossack Fonseca also said it follows "both the letter and spirit of the law. Because we do, we have not once in nearly 40 years of operation been charged with criminal wrongdoing."

The firm declined to discuss individual cases "to maintain client confidentiality."

The report said an analysis of the leaked documents found that more than 500 banks and their affiliates have worked with Mossack Fonseca since the 1970s to help clients manage offshore companies.

'Uncomfortably close to Putin'

The consortium has been examining offshore accounts based on separate leaks of data for four years, publishing with media partners that have included The Washington Post, the New York Times and "60 Minutes."

The group said the Mossack Fonseca data "dramatically expand on previous leaks of offshore records." For the latest disclosures, reporters at Süddeutsche Zeitung in February 2015 "obtained millions of records from a confidential source," sharing them with the consortium and its media partners.

The report said the documents uncovered a money trail that "came uncomfortably close to Putin."

In February 2011, a firm in the British Virgin Islands loaned $200 million to a firm in Cyprus, according to the report. The British Virgin Island firm assigned the rights to collect payments on the loan to another British Virgin Islands company. That firm then reassigned the rights to a Panamanian company.

The report said the first British Virgin Islands firm was established by a bank in St. Petersburg whose majority owner and chairman is close to Putin. The Panamanian company involved in the transactions was controlled by one of Putin's oldest friends, the report said.

"The $200 million loan was one of dozens of transactions totaling at least $2 billion found in the Mossack Fonseca files involving people or companies linked to Putin," the report said.

The Kremlin did not answer questions posed by the consortium, but on March 28, it publicly accused the group of preparing a misleading "information attack" on Putin and people close to him.

Putin spokesman Dmitry Peskov said last week that the government would not respond to "honey-worded queries" from the consortium or its partners because the questions "have been asked hundreds of times and answered hundreds times," the report said.

The consortium also said it uncovered documents that showed the prime minister of Iceland, Sigmundur David Gunnlaugsson, and his wife shared ownership in an offshore company in the British Virgin Islands four years before he took office. The report said that the company held bonds worth millions of dollars in three Icelandic banks that failed in 2008. Gunnlaugsson was then a member of Parliament while Iceland was in recession. He became prime minister in 2013.

Gunnlaugsson's wife said in a Facebook post that the account was hers and that she had paid taxes on it; she also denied any wrongdoing. Her husband said in a recent radio interview that "it is not a tax haven if all assets were declared in the home country, as my wife has done."

The documents also reveal the late father of David Cameron was involved in offshore dealings.

The report also shed new light on a British gold heist that has been dubbed the "Crime of the Century."

On Nov. 26, 1983, robbers stole nearly 7,000 gold bars from the Brink's-Mat warehouse at London's Heathrow Airport, along with cash and diamonds. The gold was smelted and sold; much of the money was never recovered.

The consortium report cited an internal Mossack Fonseca memo that said one of the principals of a Panamanian company set up by Mossack Fonseca 16 months after the robbery was "apparently involved in the management of the money from the famous theft from Brink's-Mat in London. The company itself has not been used illegally, but it could be that the company invested money through the bank accounts and properties that was illegitimately sourced."

A spokesman for Mossack Fonseca said that any allegations that the firm helped conceal money from the Brink's-Mat heist are "entirely false".

Q&A: What are the Panama Papers?

What are the papers about?
A huge leak of 11.5 million documents from a Panama law firm reveals how the world's rich, including Russian President Vladimir Putin and other political leaders, hide their money.

Where does the leak come from?
Panama-based Mossack Fonseca, one of the world's most secretive offshore law firms. The firm said it had never been charged for criminal wrongdoing in its efforts to help clients launder money, dodge tax and circumvent financial sanctions.

Who gained the papers?
The documents, dubbed the Panama Papers, were obtained by Sueddeutsche Zeitung, a daily newspaper headquartered in Munich. Sueddeutsche shared the Panama Papers with the Washington-based International Consortium of Investigative Journalists (ICIJ) and other news outlets, including the BBC and the Guardian. Sueddeutsche said an employee at the law firm had leaked the data, telling the newspaper he risked his life in doing so. The employee was not identified in the report. Some 370 journalists in 78 countries were involved in evaluating the data dump. Sueddeutsche tweeted: "2.6 terabytes of data, 11.5 millions documents, and 214,000 shell companies: The Panama Papers are the largest data leak journalists have ever worked with".

What do they show?
The documents link at least 12 current and former heads of state and 128 other politicians to illicit financial transactions. Those implicated include longtime Egyptian autocrat Hosni Mubarak and Syrian President Bashar al-Assad.

What are the key revelations?
The most widely circulated revelations shed light on the financial transactions that have contributed to the wealth of members of Putin's inner circle. The BBC reported that the data reveals the existence of a money laundering ring involving the Russian leader's closest associates and Bank Rossiya, a financial institution subjected to EU and US sanctions in the wake of Moscow's annexation of Crimea.

What was the role of Putin's best friend?
The Guardian says US$2 billion money trail of deals and loans goes back to Putin through his close circle. It says "his friends have earned millions from deals that seemingly could not have been secured without his patronage. The documents suggest Putin's family has benefited from this money - his friends' fortunes appear his to spend." Sergei Roldugin, a musician, has been placed in control of a series of assets worth at least US$100 million, the Guardian reports. Roldugin is Putin's best friend and godfather to Putin's older daughter, Maria. He owns 3.2 per cent of Bank Rossiya and has a 12.5% stake in Russia's biggest TV advertising agency, Video International.