Paper Trail: How the Panama Papers financial data leak tracks back to Idaho

By Zach Hagadone
For the Boise Weekly

No one was supposed to know the financial details held by Panamanian law firm Mossack Fonseca. Run by two lawyers—one the son of a Waffen-SS soldier, the other a novelist-turned financial expert—the firm has long been known for its discretion, drawing hundreds of clients from world leaders to arms dealers, drug kingpins, high-flown financiers, and at least three dozen individuals or businesses with Idaho addresses. More than 500 banks, including subsidiaries and branches, have funneled business through Mossack Fonseca over the past 40 years—many of them taking advantage of lax regulations to push their clients’ money, tax-free, through a labyrinth of offshore trusts and shell companies spanning the globe.

That changed on April 3, when the International Consortium of International Journalists went public with more than 11 million files leaked in 2015 to the German newspaper Suddeutsche Zeitung. For the past year, hundreds of journalists from the around the world collaborated to comb through the files—now known as the “Panama Papers”—and published a series of bombshell revelations, among them: Russian President Vladimir Putin is connected with a $2 billion money laundering scheme, a stream of hidden funds have been propping up the regime of Syrian President Bashar al-Assad and Iceland’s Prime Minister Sigmundur Gunnlaugsson has been stashing money in offshore accounts for years. Gunnlaugsson stepped down amid the controversy on April 5.

As details from the largest data leak in history continue to come out, attention is turning to smaller players and, so far, relatively few United States individuals or businesses have been found buried in the files. According to McClatchy, parent corporation of the Idaho Statesman and the only U.S. newspaper company to participate in the ICIJ project, at least 200 U.S. passports appear in the files and 3,500 offshore shareholders are attached to U.S. addresses.

Meanwhile, the way the joint venture was structured provides a glimpse into the complexity of offshore holdings.

A search in the database shows Idaho interests ranging from individuals—many from eastern Idaho—to businesses and organizations including Ketchum-based Mar Vista Capital Ltd. and Yellowstone Trust, which lists its address as Idaho Falls.

By far the biggest name in the files belongs to Boise-based agriculture giant Simplot Company.

According to the records, Simplot International Inc. is listed as an owner/shareholder of Simkar Ltd., an offshore entity with a Cayman Islands address. Also an owner/shareholder of Simkar is West Side Ltd.—another offshore entity with the same address as Simkar.

The master client of both Simkar and West Side is PT Simplot Agritama, a company with a Jakarta, Indonesia-area address.

Ken Dey, a Boise-based spokesman for Simplot, said PT Simplot Agritama was formed in 1997 as a joint venture between Simplot and WestSide Corp., the latter a Brisbane, Australia-based gas producer founded by businessman Angus Nelson Karoll, who is also named as a director of Simkar and beneficial owner of West Side Ltd.

According to Dey, PT Simplot Agritama operated as a vendor of frozen potatoes and other vegetables to independent distributors in Indonesia. West Side, meanwhile, had expertise in distribution. Simplot sold off its share of the venture in 2003, Dey said, because “it didn’t live up to what we had hoped for in sales growth.”

“How it was structured or why it was structured in this way is hard to determine given that this is nearly 20 years old and the executives who were involved with this have since retired,” Dey wrote in an email. “Bottom line, this was a legitimate business structure and we are no longer involved with this.”

Among the other parties involved with the Simkar-West Side servicing of PT Simplot Agritama were fellow offshore entities CTC Corporation Ltd. and CSS Corporation Ltd., both of which shared Simkar and West Side’s Cayman Islands address and served as director and assistant secretary, respectively. A search of CTC and CSS’ other offshore connections yields another web of almost 40 entities with addresses ranging from the Cayman Islands to Hong Kong and including industries from land development to semiconductors, energy interests and food production.

Karoll served as director of Simkar and owner/shareholder of West Side while William Keunen, global director of Citco Fund Services—again with the same Cayman Islands address—served as a shareholder in both entities.

The only Boise addresses connected to the Simplot joint venture, aside from Simplot International Inc., were attached to Simkar shareholders James T. Hungelmann and James R. Munyon, both former executives in Simplot’s food group division (Hungelmann was a Simplot lawyer while Munyon is a past Simplot president).

Rounding out the parties were WestSide Corp. Director Trent Karoll, who served as a director of Simkar, and British Virgin Islands-based Founders Services, Inc., which is listed as a director of West Side Ltd.

John Miller, a University of Idaho law professor with a specialty in business entities taxation, said the data revealed in the Panama Papers raise a number of questions for businesses and individuals mentioned in the files.

“For government officials, such as the Icelandic head of state, it may raise the question of whether their purpose was to conceal a conflicts of interest. For example, a politician might secretly hold bank stock while engaging in official activities that favor banks. For private citizens it raises the question of whether they have concealed the money from the tax authorities. In short, have they used the entities to commit tax fraud?” he said.

One of the primary takeaways from the flood of reporting on the leak has been that the structures described are quite often intended to create anonymity and avoid paying taxes.

“Basically the foreign income of a foreign subsidiary corporation of a U.S. corporation is not currently taxable in the U.S.,” Miller said. “Almost all U.S. companies that operate abroad have foreign subsidiaries. There is nothing nefarious about this in and of itself.”

However, he added, “there may be nothing wrong with having assets held in a trust or LLC abroad unless that entity is used to hide income from the U.S. government and thereby evade income or other taxes.”

Online news outlet The Intercept reported April 5 on how much offshore asset holdings and shell companies cost the global economy in both tax evasion (illegal) and tax avoidance (“technically legal,” according to The Intercept). Quoting from The Hidden Wealth of Nations, by University of California, Berkeley economist Gabriel Zucman, tax evasion costs world governments upwards of $200 billion a year, while tax avoidance—from U.S. companies alone—tacks on another $130 billion a year.

In a regional breakdown of offshore wealth and tax evasion, U.S. companies and individuals in 2014 were shown to have socked away a full $1.2 billion, or 4 percent of total national financial wealth, in offshore funds—amounting to a tax revenue loss of $35 billion.

The dual outcomes of tax evasion and avoidance fall more heavily on certain communities. Writing for The Intercept, reporter Jon Schwarz noted more wealth from some regions is held overseas than others. A full 10 percent of European wealth resides on different shores and that number rises to 22 percent in Latin America, 30 percent in Africa and 52 percent in Russia.

Meanwhile, the fallout from the Panama Papers has landed much closer to home.

Wyoming Secretary of State Ed Murray has opened a probe into Cheyenne-based M.F. Corporate Services Wyoming LLC, which records reveal “serves as a registered agent for Mossack Fonseca,” according to the Wyoming Tribune Eagle.

Following an audit by the Wyoming secretary of state’s office, it was reported April 7 that 24 entities named in the Panama Papers could be traced to M.F. Corporate Services.

“For years, Wyoming has been considered a haven for shell companies because of the state’s relatively lenient requirements and extra privacy protections,” the Tribune Eagle reported. “And even though legislative changes have been put in place since 2009 to strengthen the state’s laws, Wyoming remains one of the most attractive locations in the country for these groups.”

Miller underscored that are legitimate reasons for using offshore entities, typically for asset protection. Given the murky nature of how and why a business or individual would do business in such a way, Miller added that the full significance of the Panama Papers leak has not yet been revealed.

“What has been revealed however, is billions of dollars have been salted away in a secretive manner and people would like to know why this was done and where the money came from,” he said.

Zach Hagadone is Editor of the Boise Weekly, where this story was first published.

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