What Is a Company Formation Agent?
Hidden assets, money laundering, tax dodging, and the firms that help make it all possible. Here’s how formation agents can facilitate abuse of the global financial system.
Money laundering and tax evasion appear to be two reasons Czech citizens establish companies in offshore destinations.
According to a World Bank study, about US$ 1 trillion flows through offshore jurisdictions every year. Of that stream, large chunks of the money is illegal and the people who benefit from it include politicians, fraudsters and drug traffickers as well as billionaires, celebrities and sports stars from many countries.
Moving the money around requires a special set of tools: lawyers, other offshore companies, fake company directors and shareholders, often called proxies; banks willing to look the other way and “formation agents” who do the paperwork. The offshore business specializes in looking the other way and pushing right up to the edge of international law, sometimes beyond, so there is not much public information on how the system works.
New insight has been provided by the Panama Papers, 11.5 million internal records from one of the world’s busiest offshore registration companies, a formation agent called Mossack Fonseca.
The records were received by the German publication Süddeutsche Zeitung and shared with colleagues from the International Consortium of Investigative Journalists (ICIJ), the Organized Crime and Corruption Reporting Project (OCCRP) and 110 others, including the Czech Center for Investigative Journalism.
The small Czech Republic looms large on the global scale of offshore business schemes. More than a quarter-million documents in the Mossack Fonseca trove have a Czech connection, while nearly 300 Czech clients and shareholders appear in the Panama Papers.
Among them are people prosecuted and sentenced for financial crimes, lobbyists, diamond traders or people linked to the biggest privatization and corruption scandals of the past two decades.
Money laundering requires a cooperative bank. Agents at Mossack Fonseca liked using a Czech bank called eBanka, now closed, on its list of banks who do not take the anti-money laundering resolutions too seriously. Such banks are willing to be flexible about rules and open bank accounts for murky companies from notorious tax-haven destinations such as the Pacific islands of Niue or Vanuatu. The list includes not only small regional or obscure banks, but also big international and respected banking houses.
In this respect, eBanka was one of the least discerning banks in the country. In one Mossack Fonseca email, an agent spelled it all out:
“Please understand that there is practically no bank in the World anymore, which still opens bank accounts in the name of offshore companies without the knowledge about the real ‘ultimate beneficial owner’ (UBO). Not even Panamanian banks do this, let alone Hong Kong. A major part of my work revolves around finding banks which have fairly relaxed conditions, but I have only come across one bank in the Czech Republic which opens accounts without info regarding the UBO (…) The only bank where we ever managed to open an account without naming the UBO at all was eBanka (Czech Republic).”
The bank no longer exists as an independent institution. In 2006 it was bought by Raiffeisen International P3. Prior to that, it was managed by a subsidiary of PPF, a Netherlands based financial company founded in the Czech Republic. Between the years 2000 and 2006 held a majority share in eBanka.
In the Czech language, “proxies” are called “bílý kůň” (“a white horse”), and Mossack Fonseca and its Czech branch, Mossack Fonseca CZ, had enough of them to fill whole stables. Among the best-known in the Czech Republic are resident of Panama Irena Braxator or resident of New Zeland Ian Taylor, who serve as proxy directors for hundreds of companies all around the world. He is associated with the infamous Taylor network OCCRP has written about.
But sometimes the formation agents can pick a bad proxy. Mossack Fonseca CZ hired a St. Kitts accountant named Malchus Irvin Boncamper as a proxy director. This became a major issue after Boncamper was sentenced to eight years in a US prison in August 2012 after admitting to conspiring to launder the proceeds of a scheme selling fake insurance policies.
The fraud ran for 10 years before being exposed under tragic circumstances. A tour boat operator running boat trips on scenic Lake George in upstate New York discovered its insurance policy was fake after one of its boats sank on Oct. 2, 2005, killing 20 elderly tourists.
Mossack Fonseca became aware of the affair in May 2013, when it realized that Boncamper was a director of 46 of its companies, 15 of them still active.
“Change from Boncamper as director. The changes will be backdated, check with Compliance for the date,” said an email from Aug. 14, 2013.
Mossack Fonseca’s Czech branch provided a list of 18 companies for which Boncamper had signed the documents. The data show that for at least three of these companies, Garton, Faros and Westmore, the Czech branch then supplied backdated resolutions naming a replacement director. The resolution for Faros Corp. is dated October 2003 – a full decade before Boncamper was in fact replaced as a director.
Of the more than 250,000 Czech-related documents in the Mossack Fonseca database, some are official legal documents such as share certificates or company incorporation records. Others are emails or comments on various contracts.
Of the 283 Czech-related shareholders listed, 40 utilize “bearer shares,” which experts say offers the highest possible level of anonymity because no names are attached to the certificates. The owner is literally the “bearer” or the person who possesses the certificates at a given time.
However, shareholders’ addresses are stated, which leads to interesting results, such as bearer shares registered at the Czech address of a Tajik business attaché, or at an address of a woman linked to a few former members of the Civic Democratic Party (ODS), one of the most powerful political parties of the last decade.
The favorite destination for hiding a company was the Seychelles, a group of islands in the Indian Ocean off Africa, where more than 800 companies were registered by Mossack Fonseca for Czech clients.
Next in popularity after the Seychelles came the British Virgin Islands (BVI), Bahamas, Niue and Panama. The furthest-flung from Prague was Samoa, in the Pacific Ocean between Australia and Mexico, about 16,000 kilometres from the Czech Republic.
Economist Petr Jansky says one common term for offshores—tax havens–is misleading. “Tax havens are deceiving in their name. It’s not a haven, and it is often unrelated to taxes, but rather financial secrets,” he said.
“In many Czech corruption cases we see that rather than tax havens, those are corruption hells obscuring the real owners of companies or helping to launder money,” says Jansky, an expert on tax havens working on a project for the Tax Justice Network.
Solar power plant fraud was a Czech specialty of the last decade, what is why every name on the Panama Papers list linked to solar energy drew attention, although it does not necessarily mean they were directly involved in the solar power plant fraud.
The fraud scheme was based on the country’s economic support system for renewable sources of energy introduced in 2005. Between 2009 and 2010, the subsidies led to a sharp rise in the number of solar power plants which soared from 1,500 to nearly 13,000. The numbers rose rapidly again in 2012 and 2013, and stagnated since due to the fact that the government cut back its subsidy support. Nevertheless, there are now more than 28,000 solar power plants in the Czech Republic.
The push for solar stalled, in part because the transmission network was not updated quickly enough, and partly because the state overspent on subsidies in 2010, so the Parliament cut back the support system for solar plants. Now only solar plants that were finished before the end of 2011 qualify for full subsidies.
An audit commissioned by the Czech Energy Regulatory Office (ERU) found that some ERU employees inflated the guaranteed price for purchasing solar energy or awarded certificates to unfinished solar plants to guarantee the subsidies.
It has been claimed that the state has lost hundreds of millions of euros on the solar subsidy program. The former boss of the ERU was recently prosecuted.
“Solar barons” with offshore companies in the Mossack Fonseca data include:
Petr Skopal is the executive director of solar power plants with more than 6 megawatts output. One of the plants is co-owned by the best Czech tennis player, Tomáš Berdych. He and his business partner Petr Slaby and Petr Verosta are shareholders of Lafleur Enterprises, a company based in the Bahamas.
Petr Lukovics is executive director of the Sun Ship power plants based near the city of Uherske Hradiste with an output of about 7 megawatts.
David Trešl and Zdeněk Vančura are shareholders in a Seychelles-based company, Newsun Ltd., and also run a network of more than 20 companies dealing with engineering work, resale of goods and solar power plants.
Radovan Krejcir is probably the Czech Republic’s most notorious criminal, currently in jail in South Africa serving 35 years for kidnapping and attempted murder. In the Panama Papers database, an email exchange refers to a financial scheme from 1998, when Krejcir siphoned off money from his company Corado Holding and sent it to his offshore company in the BVI, Ducane Finance. Police and prosecutors investigated but the Supreme Court did not find any wrongdoing.
Diamond trader Premysl Synek, Krejcir´s business partner, was convicted with Krejcir in 2011 for financial fraud involving a company called Technology Leasing. According to prosecutors, Synek signed fake contracts with two companies to transfer money from a multimillion loan provided to Technology Leasing. Krejcir was sentenced in absentia to eight years; Synek to five.
In the Panama Papers, Synek and his diamond business partner, Lubos Riha, are shareholders of two companies related to their investment diamonds trade: S.Y.S. Jewellery Ltd. and Jakubella Ltd., both registered in the BVI.
Filip Rybin and Petros Michopulos were partners in the public relations agency Previa. They have been working closely with Social Democrats on election campaigns, providing singers who were pop superstars in Communist times. They are also known for their lobbying work for arms dealers, including allegedly advising undercover British journalists on bribery practices in the Gripen case – one of the biggest corruption scandals in the Czech Republic. They have co-owned a BVI company called Couva Holdings S.A. since 2006.
Most of the foreigners appearing on the Czech-related Panama Papers list are coming from countries once part of the former Soviet Union. The majority have moved into the real estate business or operate investment funds in the Czech Republic.
Russians Grigoriy Shekula and Ivan Fomychanko, apart from sharing an offshore company, Shelf Universal, incorporated by Mossack Fonseca in the BVI, also managed a Czech company called RIUP s.r.o. Financial reports indicate RIUP s.r.o. is now dormant and had an annual turnover of US$ 10,000.
A group of businessmen from Minsk, Belarus, headed by Nikolay Belonogov and Mikhail Belanohau, deal in petrol derivatives. They also co-own a BVI company called Anabelle Trading.
Alisher Aripkhodzhaev from Omsk and Ellina Balakireva from Moscow are listed with companies in Seychelles and British Virgin Islands. The addresses their have provided for the shares are in Prague.
In the Panama Papers, there are a large number of very rich businessmen, whose wealth is based on privatization of state companies in the 1990s. Some are hiding from public view, some are being prosecuted for tax evasion, and some are often listed in different Forbes charts.
A group of people surrounds Czech businessman Petr Speychal. He owns an ice hockey club Sparta Praha and heavy machinery factory, ČKD. Speychal has been investigated recently for tax fraud. In 2014, his office, together with many others, was raided by the police who confiscated thousands of documents.
Investigators say Speychal and Petr Gregor are allegedly involved in a big financial scheme, in which their companies transferred money between different accounts in a manner that drew the attention of the Financial Analytical Unit of the Ministry of Finance (FAU). The investigation is complex and ongoing, involving around 70 people, gigabytes of data and multiple companies.
Speychal, Gregor and Jan Kutis know each other from various CZK multi-million business deals. Gregor and Kutis represent a company called Investment Consulting Ltd., which is being investigated together with Speychal in an alleged tax fraud case. All three of them own at least one offshore company: Speychal and Kutis hold shares in Branson Ventures, incorporated in the Seychelles; while Gregor and Speychal are co-owners of Bahamas-based Woodward & Bradley Corporation.
Another tycoon with huge investments in media and energy is Daniel Kretinsky. He is one of the youngest Czech billionaires who owns the Slavia Football Club; EPH (Energetic and Industrial Holding) (a Central European energy group operating mainly in the Czech Republic, Slovakia, Germany, Italy, Great Britain, Poland and Hungary); and he is a co-owner of the Czech News Center media house, which produces two of the biggest Czech tabloids, Blesk and Aha! According to the Panama Papers, Kretinsky also owns a company called Wonderful Yacht Holdings based in the BVI.
For a long time, Kretinsky’s business partner was the slightly mysterious multibillionaire and richest man in the Czech Republic, Petr Kellner. He is estimated to have a net worth of US$ 10.9 billion according to Forbes latest annual list of billionaires published in March 2016, making him the 106th richest person in the world as of 2014. He is the majority shareholder of the most powerful financial group: PPF Group.
Also listed is Radek Mensik, the business partner of Martin Roman, one of the former most powerful Czech businessmen and the former director of the energy-focused CEZ Group. Recently, Mensik invested heavily in real estate development projects in Prague, together with Roman’s former wife, Lenka Romanova. According to Panama Papers database, Radek Mensik is sole shareholder of Seychelles based company Investdevelop Ltd.
Tomas Nebesky built a business empire on privatization. His company Wotan Invest has a portfolio ranging from gambling to a security agency and ammunition company, Sellier & Bellot.
Nebesky is the sole shareholder of a Seychelles company, H&T, Ltd. The company was incorporated in 2010 with value of US$ 1. No more information about the company was available.
Tomas Quis owns a company Czech Small Arms, s.r.o. producing small firearms and providing certified destruction of arms. He also holds various patents related to firearms. His Panama-based company is called General Trading & Consulting Corp. Nothing further is known about it.