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Latin America

Panama offshore firm dropped Cuba business after scandal

Mossack Fonseca cut ties with state-owned Cuban firms after stepping up due diligence effort after the Panama Papers revelations in 2016.
20 Jun 2018 – 02:55 PM EDT
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For decades, the Panama lawfirm Mossack Fonseca created a string of companies in offshore financial havens that allowed the Cuban government to sidestep a long-standing U.S. economic embargo.

That change after the Panama Papers revelations in April 2016 which blew the lid off Mossack Fonseca’s offshore dealings, exposing a global network of clients, from allies of Russian president Vladimir Putin to the prime minister of Iceland, who used the company to hide their fortunes from public scrutiny and tax authorities.

Over the next few months, newly leaked documents show Mossack Fonseca conducted a sweeping review of all its business operations, focusing on what are known as “politically exposed persons” or ‘PEPs’, who might be a legal liability for the firm. As a result, the law firm dumped its Cuba clients.

The Panama Papers, documents leaked to the International Consortium of Investigative Journalists (ICIJ) and shared with Univision News among other media partners, contain hundreds of thousands of pages from the files of Mossack Fonseca, a Panama law firm with offices in 33 other countries. The company's partners, Jürgen Mossack and Ramón Fonseca, were briefly jailed in Panama and in March they announced the firm was shutting down.

After the scandal broke, Mossack Fonseca employees frantically emailed bankers, accountants and lawyers – the professionals who had hired the firm to set up shell companies for wealthy clients who wanted to remain anonymous – in an attempt to close the gaps in its recordkeeping. Those intermediaries responded with panic and fury.

In Cuba’s case, the company’s concerns were political rather than criminal, and documents examined by Univision do not indicate any issues of corruption such as money laundering or tax evasion.

Most of Mossack Fonseca’s clients were looking to create offshore structures to reduce their tax exposure, sometimes by illegal means. But the anonymous offshore corporations also helped some countries, and certain targeted individuals, evade international sanctions. In Cuba’s case, it was seeking ways to hide its business dealings from officials at the U.S. Treasury Department tasked with enforcing the strict embargo which bans most commercial activity with Cuban government entities, except for some food and agricultural items and medical goods.

Although it maintained relations with Cuban clients for many years, Mossack Fonseca decided to change its policy on Cuba, apparently because of fears of Treasury Department sanctions. The Treasury Department’s Office of Foreign Assets Control (OFAC) has been increasingly aggressive in punishing violators, imposing hefty fines. In fact, Mossack Fonseca had already in 2015 adopted a policy to start distancing itself from companies linked to countries under U.S. sanctions.

The Panama Papers leak identified at least 25 companies linked to Cuba that were set up or represented by the Panamanian lawfirm in the British Virgin Islands, Panama and the Bahamas. The database compiled by the ICIJ contained 18 individuals linked to Cuba’s communist government and 13 companies, including some of the island’s top military-run corporations.

Soon after the scandal broke, Mossack Fonseca’s compliance office wrote to officials at one of Cuba’s best known pharmaceutical companies, Labiofam, asking for a series of due diligence documents regarding one of its subsidiaries, Labiofam Asia Ltd, to show who owned the company, including bank accounts and passports. Mossack Fonseca had been seeking the documentation since at least September 2015 to meet Bahamas's anti-money laundering regulations, such as ID and passport of the true owner - legally referred to as the 'Ultimate Beneficial Owner' - of Labiofam Asia, according to email correspondence contained in the database.

“We have contacted several times requesting the documentation required to complete our file, however, we have not received any response from you,” one email stated. On May 30, 2016 the compliance department gave internal instructions to “proceed with resigning as registered agent” of Labiofam. It gave as the reason: “failure to comply with due diligence requirements.”

A week later the law firm wrote to Labiofam with a formal notice. “Please be advised that we, Mossack Fonseca & Co. (Bahamas) Limited, have resigned as the Registered Agent/Office of the above referenced company and relinquish all obligations thereto, effective immediately.”

'Blind eye to Cuba Sanctions'

On Dec 8, 2016, a Mossack Fonseca compliance officer, Saran Persaud, wrote an email to a colleague with the subject title: “CUBA related companies,” alerting her to a June 8 newspaper article published by the Miami Herald, which said the lawfirm had “turned a blind eye to Cuba Sanctions.” She went on to request “your permission to resign from all or instructions on how you wish me to proceed.”

The mail noted: “there are certain companies mentioned therein that are still on our books,” before listing some of the companies, including some linked to another major Cuban military holding company, CIMEX.
Three offshore companies created by the Cuban government had a director named Porfirio Medero Paiva linked to a Spanish company that Persaud said was “on the list of blocked persons and ‘specially designated nationals’ kept by the Treasury Department's Office of Foreign Assets Control (OFAC).”

The director of two other companies, Curtdale Investments Ltd and Ardpoint Company Inc, was also identified as a member of Cuba’s National Assembly, Hernán Aguilar Parra, designating him as a ‘PEP’.

The true owner of Curtdale and Ardpoint was also identified in the documents as a PEP; Inocente Osvaldo Encarnacion, director of Tabacuba, the state-run Cuban Tobacco company, according to Mossack Fonseca.
Univision contacted Cuban authorities seeking comment for this article but received no immediate response.

Documents show that Curtdale and Ardpoint were created by Albert-Louis Dupont Willemin, a lawyer in Switzerland who is also the honorary consul of Guatemala in the Swiss capital, Geneva.

Persaud wrote to Dupont Willemin on Dec 17, 2016 saying that Mossack Fonseca had made its decision to resign as registered agent “after concluding a risk analysis due to the high risk associated with the director of the companies, who is known to be a Politically Exposed Person (PEP) in Cuba, Hernán Aguilar Parra.

Three days later, Dupont Willemin wrote “we do not understand this decision,” pointing out that Aguilar Parra had ceased to be director of the companies on May 12, 2016.

A spokesperson for Dupont Willemin told Univision that he had since retired and was unable to comment due to health problems.

Mossack Fonseca’s sudden concern for due diligence even warned of the risk of representing companies with legitimate business interests in Cuba. In the case of one frozen fish company, Vima World and Vima Caribe,
an internal email exchange concluded with instructions “to offset the risks that come with providing services to a client who has a relationship with Cuba, because these services are not covered by our policy.”

A review by the Mossack Fonseca compliance department recommended ending all services to Spanish businessman Victor Moro Suarez, who headed Vima World Ltd. and other offshore companies. The review concluded that their activities in Cuba could put Mossack Fonseca at risk of U.S. punishment.

The compliance department wrote an email to Vima Caribe informing it of the law firm's intention to resign as registered agent for an offshore shell in the British Virgin Islands (BVI) linked to the company. Even though the offshore entity had been inactive for 10 years and did not appear to be in violation of the embargo, Mossack Fonseca said it was making its decision following a “profound risk analysis,” according to the Oct 19, 2016 email.

A Cuban company official wrote back expressing his “surprise”, adding that the company was active and was being kept active for “possible future purpose.” He concluded by saying Vima Caribe would begin looking for another registered agent.

But the head of the Mossack Fonseca office in Geneva, Adrian H. Simon, interceded on behalf of Moro Suarez, arguing that the client had always been “totally clear and transparent.”

But Mossack Fonseca's compliance department was not convinced. “This administrative decision was made because the company did not fulfill BVI Law and our Due Diligence requirements.” It added that a risk analysis concluded there was a "high risk associated with the country of activity, Cuba and the director and beneficial owner of the companies, Victor Moro Suarez.”

On December 19, Simon wrote: “the Management Team of the Vima Group are not believing that after providing our services for almost 25 years we can take such a decision suddenly.”

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