The trail of the Panama Papers: from Guatemala to South Florida
In the fall of 2016, Harald von der Goltz, a wealthy Guatemalan living in South Florida became aware that he was under investigation by federal prosecutors for possible tax evasion.
To cover his tracks, prosecutors say the 82-year-old, German-born aristocrat told the IRS that a recent transfer he received of $430,000 from a Swiss bank account was a non-taxable "gift" from his 100-year-old mother in Guatemala.
In fact, the money came from a highly secretive family foundation he controlled that was deliberately set up to "evade" tax authorities, according to an indictment unveiled last week in New York.
The 66-page indictment outlines in detail the extraordinary and ingenious lengths that von der Goltz, his Boston accountant and two offshore account managers, allegedly went to hide his family’s offshore wealth from U.S. tax authorities, all the while being able to access the cash to fund a luxury lifestyle in the United States.
The case sheds light on what financial experts say is a common practice of super rich families who for one reason or another move to the United States and then seek to transfer their offshore wealth into the country, often over the course of decades, without paying tax on it, including the hefty 50% death tax.
Von der Goltz maintained bank accounts in the United States and abroad at various financial institutions which he used “for his personal benefit without properly reporting the assets to the IRS or paying the appropriate income taxes on income generated by the assets as he was legally obligated to do,” according to the indictment.
Panama Papers
The von der Goltz case first came to light after the 2016 publication of a massive leak of secret offshore shell-company documents known as the Panama Papers, which exposed the inner dealings of the now defunct Panamanian offshore financial services firm, Mossack Fonseca.
At that time, von der Goltz’s agreed to meet with Univision and strongly denied any wrongdoing, stating that he never personally benefited from the foundation which was set up for his children, adding that it was in complete compliance with U.S. tax laws. When contacted this week his lawyer reiterated that his cient was being "unfairly prosecuted" but declined to comment further.
The New York indictment represents the first criminal charges to be brought in the United States as a result of the Panama Papers. The leak involved 11.5 million documents which were examined by global teams of reporters led by the International Consortium of Investigative Journalists (ICIJ), in which Univision participated.
The indictment accuses von der Goltz of conspiring with his accountant and Mossack Fonseca to set up a sham offshore foundation dating back to the 1980s that allowed the family to disguise transfers of money into the United States to pay its bills. That included tuition at a private girls Catholic school in Miami, as well as grouse shooting trips to Scotland and other expenses, such as art, house purchases, mortgage payments, and cash disbursements.
From Guatemala to Key Biscayne
The descendant of a prosperous German banking family, von der Goltz told Univision that he arrived in Guatemala at a young age where his father became involved in the coffee business. He moved to the United States in 1984 with his wife and three children to escape a bloody civil war, leaving behind his elderly parents who were estranged.
He settled with his American wife, Belle, who describes herself on social media as a former news anchor and country and western singer, in a $2.5 million beachfront condo in Key Biscayne, a wealthy island off Miami connected to the mainland by a seven-mile causeway.
Von der Goltz created a venture capital fund in Boston that he managed together with his son Alex, who now runs his own small private equity fund, CoreCo in Miami, focused on Central America. Another son, Andreas, has a clothing company, ArkWear, selling animal-themed polo shirts, and is married to Elizabeth von der Goltz, a top executive at the London-based luxury fashion website, Net-a-Porter.
Harald von der Goltz is the only member of the von der Goltz family charged in the New York indictment, which makes no acusations against his wife and children.
Von der Goltz told Univision that the family turned to Mossack Fonseca to create a private offshore family trust in part to protect their fortune from the Rebel Armed Forces, a left wing Guatemalan guerrilla group, which threatened the family with extortion and kidnapping, accusing them of being linked to right wing “traitors”.
At the time, Panama was considered one of the top tax havens in the world. However, its bank secrecy earned it a reputation for tax evasion and money laundering, especially in the 1980s when it fell under the rule of a military dictator, General Manuel Antonio Noriega, who was eventually overthrown by a U.S. invasion in late 1989.
‘High-net-worth individuals’
Though not a U.S. citizen, von der Goltz was a U.S. resident subject to U.S. tax laws requiring him to report and pay income tax on his worldwide income. According to the indictment, he “evaded these requirements” by setting up a family trust and later a non-profit foundation, Revack Holdings Foundation, which was managed through a series of shell companies and bank accounts.
Family trusts and Offshore Private Interest Foundations (OPIFs) are common practice in the private management of what are known in the banking industry as ‘high-net-worth individuals,’ deemed to have fortunes in the tens of millions of dollars. They are legal in the United States, as long as the true, so-called ‘beneficial owner’, of the funds is honest about who controls the money.
While similar in nature, trusts are more established legal structures, dating back centuries. U.S. officials are less famiiar with the legal structure of private family foundations, which tend to be based overseas for tax purposes, experts say. In theory, they allow a foreign-based foundation owner to make “donations” to family members in the U.S. without having to pay taxes. While many tax lawyers defend their legality, some warn they lack a legal framework in U.S. law and offshore secrecy make them vulnerable to fraud.
“Generally, high net worth individuals want to reduce their financial obligations, whether to tax authorities or others, and protect their assets from lawsuits and other forms of disputes,” said David Marchant, publisher of Offshore Alert, an independent industry watchdog.
“It's true also that many high-net-worth individuals want to have their cake and eat it too by living in major countries like the USA the UK and enjoying the high standard of living that they offer while shielding much of their wealth elsewhere via offshore trusts, foundations and/or other legal structures,” he added.
Prosecutors allege that von der Golzt improperly used the Revack foundation to hide his assets from the IRS by falsely claiming that the money belonged to his elderly mother in Guatemala.
The foundation structure, revealed in the Panama Papers “makes clear that von der Goltz was, at all relevant times, a beneficial owner” of the foundation, with his wife and his three children as secondary beneficiaries, according to the indictment. The foundation’s regulations made no mention of von der Goltz's mother, naming him as “the sole founder”, prosecutors noted.
“Zero” tolerance for immorality
The foundation had some unusual rules. Up to 20% of the proceeds of the foundation were to be dedicated to charitable causes such as rainforest conservation, protecting coral reefs and healthcare for the poor.
There were strict rules of morality too. For example: "any family member engaging in reprehensible conducts, or marrying an unacceptable trouble making or golddigging spouse, can be either partially or totally eliminated from receiving any benefits from the Foundation." While the foundation pledged to pay for the education of von der Goltz’s grandchildren and great grandchildren, adopted children were excluded. He also reserved the right to cut off his children “if any of them engage in illicit and immoral activities of any kind. The founder’s tolerance on that front is ZERO.”
According to the indictment, the foundation made investments totaling $35 million. Mossack Fonseca estimated the foundation and corporations were worth as much as $70 million.
A balance sheets for Revack listed various investments in private equity companies, real estate investment companies, and a watch company founded by von der Goltz. To hide von der Goltz’s identity, a senior Mossack Fonseca employee, Ramses Owens, and von der Goltz’s Boston accountant, Richard Gaffey, acted as the authorized signatories on accounts at banks in Boston, Massachusetts and New York, the indictment stated.
Unreported bank accounts
“Gaffey and Owens did not identify von der Goltz as such when they opened these accounts at the U.S. -based banks,” prosecutors say. Instead, Gaffey and Owens signed documents “falsely certifying to the banks that the accounts were not subject to U.S. income tax withholding,” because the accounts were owned by a foreign entity.
“As a result, although these accounts made investments that generated- income, no U.S. income tax was reported or paid on the gains generated,” the indictment alleged.
Von der Goltz also opened bank accounts in Panama that held millions of dollars in assets which prosecutors say he never reported to the IRS, despite a legal requirement to report all foreign bank account deposits larger than $10,000.
In one case, Owens told Gaffey that several U.S. companies had requested the "real and final beneficial owner" of one fund, noting “we cannot disclose" von der Goltz’s name. For the purposes of the offshore foundation Mossack Fonseca registered von der Goltz as a Guatemalan client even though they knew he lived in the United States, saying it was for tax purposes.
Under investigation
After the release of the Panama Papers, von der Goltz became aware that he was under investigation by the U.S. Justice Department. He contacted officials regarding the $430,000 bank transfer hoping to clear the matter up, explaining through his lawyer that after the death of his father, in 1990, his mother, Erika, became the beneficial owner of the family foundation and accounts.
Prosecutors don't guy that. “This transfer was not a non-taxable gift from a foreign person, but rather a transfer of von der Goltz’s own money to one of his personal domestic bank accounts,” according to the indictment, adding that the money was the proceeds of the sale of shares in precious metals.
A week later, von der Goltz was interviewed by an Assistant United States Attorney for the Southern District of New York, and Special Agents from the IRS. During the interview, prosecutors say von der Goltz continued to insist, “that the Revack Entities were beneficially owned by the Mother.”
Von der Goltz apparently became disillusioned with the way the case was going. He sold his Key Biscayne apartment for $100 to the children’s trust, according to property records, and left the country. He was arrested in London last week.
Gaffey, 74, was arrested last week in Boston and his lawyers issued a statement saying the charges were “without merit.”
Owens was arrested Thursday in Panama where he also faces other charges related to money laundering in Brazil, according to Panamanian media reports.
Global fallout
The arrests, more than 30 months after the initial publication of the Panama Papers, were hailed as long overdue by anti-corruption advocates. While other countries across the globe have thrown out politicians, put tax evaders in jail and reformed laws, the United States had done little, critics say.
Last month, for instance, German police raided Deutsche Bank offices in the financial capital of Frankfurt based on suspicion raised by the Panama Papers that the bank may have helped customers create offshore companies in tax havens around the world.
In the aftermath of the Panama Papers scandal, the Treasury Department’s Financial Crimes Enforcement Network (FINCEN) has tightened reporting requirements for foreign cash buyers of expensive homes in South Florida, Manhattan and other cities. The leaked documents have also identified several allegedly corrupt former high level Venezuelan government officials to U.S. authorities.
Florida Senator Marco Rubio has pushed a bill that would require corporations to disclose their true owners to law enforcement.
"The U.S. has been particularly active in clamping down on offshore tax evasion,” since well before the Panama Papers, said Marchant.
But it was “undeniable,” he added, that the publication of Panama Papers had “contributed to international law enforcement efforts and, more widely, significantly raised public awareness in the areas of fraud, corruption, and money laundering. The ICIJ appears to have replaced the IRS as public enemy number one in the offshore world."