Panama Papers: US Department of Justice begins inquiry into offshore dealings scandal

US authorities have announced the first steps in an inquiry into the revelations about hidden offshore dealings in the Panama Papers in a move which is likely to have widespread repercussions for those involved in the secretive network which drew in the rich and powerful from around the world.

The US Justice Department has announced that it is carefully reviewing the information which has emerged from the leaked documents, adding that it “takes very seriously all credible allegations of high-level, foreign corruption that might have a link to the United States or the US financial system.”

A number of other countries have also started investigations. But the scope and reach of American law agencies in such situations was illustrated by the devastating results of the FBI’s investigating into alleged widespread corruption in Fifa which saw 14 senior officials facing charges and effectively ended the careers of the two most powerful men in world football, Sepp Blatter and Michel Platini. In the aftermath, Loretta Lynch, the US Attorney-General declared “Our action makes clear that this Department of Justice intends to end any such corrupt practices, to root out misconduct and to bring wrongdoers to justice. And we look forward to continuing to work with other countries in this effort.”

Senior US sources have told The Independent that there is “desire and determination” to pursue any wrongdoings which can be traced from the 11.5 million documents leaked from the legal firm Mossack Fonseca. One official said: “The Justice Department has quite wide ranging authority to take action against even foreign nationals abroad, this has been used a lot in cases of terrorism. All one needs are connections to the US, like the banking system, ISPs, or the use of intermediaries. All this can be brought into play on this if necessary.”

The official pointed out that the appearance of the Panama Papers coincided with moves being taken by the US authorities to clamp down on commercial maneuvers to cut tax bills. The US Treasury and the IRS ( Internal Revenue Service) announced on Monday rules placing curbs on an American company buying a foreign concern and then basing abroad to pay lower taxes. “It shows that these kinds of things are a matter of focus at the moment; if you look at the [American] domestic political scene, the popular mood is very much against wealthy corporations and wealthy individuals manipulating the system to make even more money, especially if some of the money is made using illicit means.”

The French authorities have said they were opening a preliminary investigation into “aggravated tax fraud” with the prosecutor’s office stressing that there are matters “likely to concern French taxpayers”. President Francois Hollande has maintained that the revelations about tax evasions will lead to legal proceedings. Panama, Spain and Australia have also said they are considering criminal proceedings.

Looking at the American connection, US investigators are examining the 617 intermediaries which Mossack Fonseca has worked with in the US. According to officials these could include banks, law firms, shell companies and foundations and trusts for customers seeking to move money offshore.

Around 33 individuals and companies sanctioned by the US Treasury are mentioned in the Panama Papers.

DCB Finance, set up in 2006, have according to the documents, owners and executives based in the North Korean capital Pyongyang. It was blacklisted by the US in 2013, but American authorities say illegal activities took place since 2006 including allegedly fundraising for the North Korean government and links to a bank which allegedly helped finance the regime’s nuclear programme.

One of the owners of the company is a North Korean official while the other, allegedly, is Nigel Cowie, a British banker who was previously CEO of North Korea’s Daedong Credit Bank, the parent company of DCB Finance, which has also faced international sanctions. Mr Cowie had promoted investment in North Korea in media interviews in the past. However, he has strongly denied any knowledge of illegal activities. Mossack Fonseca said it has dropped DCB Finance as a client in 2010 after finding out it was based in North Korea.

Pangates International Corp Ltd was sanctioned by the US for allegedly providing aviation fuel to Syrian President Bashar al-Assad’s air force. According to the documents, Pangates is a subsidiary of the Abdulkarim Group, a Syrian company based in Damascus and which has links to two other Mossack Fonseca clients which are sanctioned by Washington: Maxima Middle East Trading Co and Morgan Additives Manufacturing Co. Morgan Additives Manufacturing Co, however, said the link, which was that Wael Abdulkarim was a director, is now "historic" and ended at the end of 2014.

The US Treasury issued sanctions against Pangates in June 2014, charging the company with providing the Assad regime with 1,000 metric tons of aviation fuel.

Morgan Additives was designated by the OFAC on 3 August 2015 for "being owned or controlled by US and EU-designated Abdulkarim" - Abdulkarim was the director of Morgan Additives Manufacturing Co. However, this link is now historic and Morgan Additives is challenging the OFAC designation.

Mossack Fonseca continued to represent Pangates until August 2015, ten months after the US sanctions. The firm told the International Consortium of Investigative Journalists (ICIJ), which had analysed the leaked documents that the primary task of to carry out checks on companies was for intermediaries such as banks. Pangates told Reuters news agency in 2013 that it was selling oil to “non-Syrian firms… We don’t know who exactly is finally using the fuel, but according to our information it is for civil humanitarian use.”

Drex Technologies, according to the documents, has links with President Assad’s cousin Rami Makhlouf. He was sanctioned by the US Treasury in 2008 – three years before the start of Syria’s civil war – for allegedly “ manipulating the Syrian judicial system and using Syrian intelligence officials to intimidate his business rivals.”

Mossack Fonseca incorporated Drex Trechnologies ten years earlier. The law continued to represent Mr Makhlouf until September 2011. The Swiss branch of HSBC, which had provided him with financial services told the legal firm in 2010, two years after the sanctions were imposed, that Drex Technologies was a company of “ good standing”. According to the leaked documents, a Mossack Fonseca email in February 2011 said “ We have contacted HSBC who stated that they were very aware of the fact that Mr Makhlouf is the cousin of the President of Syria. The HSBC compliance department of the bank not only in Geneva but also in their headquarters in London…confirm that they are comfortable with him.”

Petropars Ltd, the oil and gas conglomerate run by the Iranian government was incorporated by Mossack Fonseca in 1998. It was put on the US sanctions list on 2010 and dropped by the legal firm the same year after the company’s co-founder. In 2001 Iranian authorities charged a number of board members over “ irregularities” in gas contracts.

Mossack Fonseca continued to represent Petropars for another nine years until Jurgen Mossack, one of the firm’s founders, learned that his company’s British Virgin Islands post office box has been listed as Petropars’ address in the US Treasury blacklist. Decision was taken to sever links with the Iranian company. One Mossack Fonseca executive wrote at the time: “ it is a decision may be 12 years too late, bur one that must be taken under the circumstances.”Mr Mossack blamed his London office for inadequate scrutiny on Iran based clients, he said, in an email “ It would appear Mossack Fonseca UK are not doing their Due Dilligance thoroughly ( or maybe none at all).” Following the deal with Iran over its nuclear programme, the US Treasury has removed Petropars and other Iranian owned oil companies from the sanctions list.

John Bredenkamp, a Zimbabwean businessman, was on Mossack Fonseca’s books since 1987. In 2002 the UN experts' panel had described him as “ experienced in setting up clandestine companies and sanctions-busting operations”. In 2008 he was sanctioned by the US Treasury for allegedly being a “ crony” of the country’s leader, Robert Mugabe, and a well known “ Mugabe insider”. Mossack Fonseca cut its links with Mr Bredenkamp in 2009.Mr Bredenkamp has repeatedly denied allegations about his companies and also denied being a supporter of Mr Mugabe.

A spokesman for Mossack Fonseca has insisted that it has “ never knowingly allowed the use of our companies by individuals having any relationship with North Korea, Zimbabwe, Syria and other countries that have been listed as sanctioned”. If it did discover it had unknowingly represented a company that has been used for unlawful purposes, he said, the firm would take “ any measures that are reasonably available to us” to rectify the situation.

Note: This article was edited on April 8 at the request of Morgan Additives to clarify the historic link with Mr Abdulkarim.