When members of Fusion’s investigative staff joined an April 6 live chat on Digg about their Panama Papers reporting, they expected some tough questions. But they didn’t expect to meet a former insider whose name they’d come across in the leaked files.
John P. Gordon, a Columbia Business School grad and entrepreneur whose name shows up in more than 1,400 search results in the Panama Papers and who helped clients form companies through Mossack Fonseca, waded into Digg’s chat to set the story straight as he saw it. In a series of follow-up emails with Fusion investigative producer Alice Brennan, he offered unique insights into the American activities — and what he perceived as due diligence failures — of Mossack Fonseca, the Panamanian law firm whose leaked documents formed the basis of the global Panama Papers investigation, and whose headquarters were raided Tuesday evening by Panamanian authorities.
“For a few years in the 1990s, I owned and ran the U.S. office of Mossack Fonseca,” Gordon told Fusion, a claim corroborated by the Panama Papers. Some of the earliest references to Gordon in the files, dating back to 1994 and 1995, show him requesting to incorporate offshores in the Bahamas through Mossack Fonseca. “Because of this I can answer at least some of the questions your viewers and readers were asking with more than just guesswork.” (Fusion reached out to Mossack Fonseca for a response to Gordon’s claims; a spokesman for the firm did not respond to a request for comment.)
Such far-flung offices were the lifeblood of Mossack Fonseca’s profit model, Gordon said. “Mossack Fonseca is not really a law firm in the usual sense of taking on clients, advising them on what they should do based on the facts of their individual situation,” he said. “They are more like the LegalZoom of the offshore world, providing company formation in a limited number of jurisdictions.” In that model, offices across the globe would drum up regional business with lawyers, accountants and trusts whose clients wanted anonymous shell companies. Gordon estimated that Mossack could process about 10,000 new companies a year this way, while sending out renewals for existing customers. (The Panama Papers encompass Mossack Fonseca data from 1977 through 2015, and shed light on more than 214,000 offshore entities.)
One of the persistent questions among readers — and journalists investigating the Panama Papers — was how so few Americans turned up in the documents. “The main reasons are actually kind of mundane,” Gordon said. “Offshore companies are very inconvenient and expensive for Americans. Fraudsters can get away with using a U.S. company from most any state. Rich tax evaders and avoiders would more likely use a complex structure of which an offshore company might be a very small part.”
More important, he said, “[T]here are very few Americans in the MF files because MF didn’t target the US market. The partners preferred to avoid the U.S., being especially leery of attracting the attention of the IRS.”
With the Mossack Fonseca headquarters located in Panama, Gordon added, “in order to get to the outside world — to Europe or Asia — they need to transit through Miami. Having problems with the U.S. government could mean delays or arrest while travelling.”
Mossack’s U.S. office was short-lived, Gordon said. “Most lawyers in the US didn’t want to use a US office to order a company, since they could just as easily directly contact one of the offshore jurisdictions and thereby not have client information inside the US.,” he said.
The possibility of a US paper trail discouraged clients who feared being branded as tax cheats. “This worked well for us in the long-term,” Gordon said, “as we had no interest in working with tax-evaders, scammers and other criminals.”
As for the reasons customers gave for wanting to form an offshore in the first place, Gordon said, “Some people just wanted to have some of their money in a safe haven, in case their country fell apart, some wanted to invest internationally, and there were some that just thought that an offshore company was a glamorous thing.”
Gordon believes that the high-volume, low-margin business model was at the root of the Panama Papers scandal.
“The problem for the ‘offices’ is that at most they sell a few companies per day, without a large profit on each one,” he said. “There is a cost to doing proper due diligence, so offices have to make do with the least possible, and rely on their customers to do a proper screening.”
Even so, internal Mossack Fonseca documents show time after time that neither they nor their customers sufficiently vetted clients who requested companies. “Among the Panama Papers was an internal email decrying how none of the offices passed their audit of due diligence procedures,” Gordon said. “Unfortunately for them, there was no follow-up discussion among the Mossfon Group about how to how to improve their processes in an effective but low-cost way, so the problem festered.”
But Gordon — who continues to offer incorporation services to Americans and non-Americans alike, out of an office just across the street from the Empire State Building — suggested that it was wrong to vilify incorporation firms likes Mossack Fonseca for the sins their clients might commit.
“Ramon Fonseca recently compared MF to a car manufacturer, who sells to car dealerships, and therefore doesn’t know who the customers are and who will use them for getaway cars or drug smuggling,” Gordon told Fusion.
“I agree and use the same analogy.”