LONDON — On Thursday, President Barack Obama will meet with the kings and emirs of the Gulf Cooperation Council in Saudi Arabia. And of the many things they may talk about (Iran, Syria, Yemen, al Qaeda, and ISIS, not to mention oil prices and the efforts by U.S. lawyers and politicians to blame the 9/11 attacks on the Riyadh royals), it’s doubtful they will do much talking about the Panama Papers. But they certainly should.
It’s been more than a year since an anonymous source contacted journalist Bastian Obermayer at the German newspaper Süddeutsche Zeitung asking a simple yet devastating question, “Want data?”
“How much?” Obermayer asked.
“More than anything you have ever seen,” came the reply: 11.5 million leaked confidential documents exposing more than 214,000 offshore companies set up through the Panamanian firm of Mossack Fonseca, with connections that include 12 current or former heads of state.
Significantly, leaders from Saudi Arabia, the United Arab Emirates, and Qatar were among them. But why would these Arab sheikhs go to the trouble of hiding their money in offshore accounts? To all intents and purposes they already own their countries, and they certainly pay no taxes.
The answer points to a growing insecurity these rulers and their families may have about how long they have left in power. Most of the last few remaining absolute monarchies in the world belong to this region.
But as global connectivity, education levels, and social mobility rise, their citizens are demanding greater rights, greater autonomy, and greater control. Grotesquely wealthy, precarious, family-run fiefdoms cannot stand forever, and the fact their owners seek to funnel money abroad via secret offshore companies points to that.
Let’s take a look at some specifics:
King Salman of Saudi Arabia, who will be hosting Obama, is linked to two British Virgin Islands companies that took out mortgages for more than $34 million to purchase expensive property in London. His nephew, Crown Prince Muhammad bin Nayef, has apparently sought the services of Swiss bank UBS in order to buy Panamanian companies from Mossack Fonseca for the opening of bank accounts.
Not to be outdone, UAE President Khalifa bin Zayed Al Nahyan used Mossack Fonseca to establish at least 30 companies in the British Virgin Islands that owned and operated $1.7 billion worth of commercial and residential assets in up-market areas of the United Kingdom.
The former emir of Qatar, Hamad bin Khalifa al Thani, who ruled from 1995 to 2013 before handing over power to his son, is also named. In September 2013, al Thani was listed as the majority shareholder of two companies; each had a 25 percent stake that went to another family member, Sheikh Hamad bin Jassim Al Thani, who was Qatar’s former prime minister and foreign minister.
Now, let me reiterate: That Arab royalty from the Gulf and beyond found it necessary to hide their money is a curiosity. The Gulf is known for its low taxes and its rulers are absolute monarchs, meaning they legally own their respective countries and all their assets.
But these days this is a very nervous absolutism, and what happened to the leaders of nearby Arab republics after the Arab uprisings that began in 2011 must have lent a sense of considerable urgency to their personal financial planning.
Over in war-torn Syria, Mossack Fonseca ran six businesses for Rami Makhlouf, cousin of Syrian President Bashar al-Assad, despite U.S. sanctions against him.
It is said that Rami and his brother Hafez Makhlouf made a fortune through exploiting their relation to the Syrian leader. A money trail in the documents ended at the Syrian president himself, without explicitly naming him. It has long been known, and the leaks reconfirm, that any foreign company seeking to do business in Syria had to be cleared by Rami, and sure enough, Rami had a 63 percent stake in a Syrian telecoms company Syriatel through his British Virgin Islands company Drex Technologies SA.
When financial investigators contacted Mossack Fonseca in 2011 about an anti-money-laundering investigation into Rami’s shell Drex, Mossack Fonseca cut ties with the Makhlouf businesses. The Syrian uprising has proved just how precarious the position of Arab rulers can be in this day and age, and suggests why they may be feathering their nests in the Caribbean and beyond.
Egypt, too, very likely provided the Gulf sheikhs with a reminder of their precarity. Former President Mubarak’s sons Alaa and Gamal were detained in April 2011, two months after Hosni Mubarak resigned in the face of a popular uprising. The Panama Papers reveal that Alaa owned the British Virgin Islands firm Pan World Investments Inc.
In 2013, after regime change in Egypt, Mossack Fonseca was fined $37,500 for failing to properly check Alaa as “a high-risk customer.” Despite having admitted internally that its procedures were “seriously flawed,” these leaks demonstrate how Mossack Fonseca carried on business as usual afterward.
Lessons are perhaps to be learned from the Sharifs of Pakistan, too. When Nawaz Sharif was deposed in a military coup in 1999, he fled to Saudi Arabia and managed not only to survive, but bounced back as prime minister in 2013. One suspects that part of the way he survived this difficult exile was to draw down accounts in foreign shell companies. In any case, Mossack Fonseca records tie Sharif’s daughter Maryam Nawaz and her brothers Hussein and Hassan to four offshore companies, Nescoll Ltd., Nielson Holdings Ltd., Coomber Group Inc., and the perhaps appropriately named Hangon Property Holdings Ltd. The companies are reported to have acquired luxury properties in London during 2006-2007 through mortgages of £7 million from Deutsche Bank (Suisse) SA, including four flats on Park Lane as well as one flat at 1 Hyde Park Place, London.
Beyond serving as a rainy day fund for a Nawaz-Sharif-style quick escape, secret accounts have also been used by Gulf rulers to fund activities which, for various reasons, they wish not to be associated with.
Qatar’s post-Arab Spring financing of Islamist factions in Egypt, Libya, and now Turkey has been an open secret that has played its part in further destabilizing an already volatile region.
Meanwhile, Iran stands accused in the leaks of creating 33 names and companies, many of which are linked to the pro-Assad terrorist militia Hizbollah. This Iran-Hezbollah axis, by some accounts, involves engaging in the drug trade in Mexico.
While the Arab press has been accused of cherry-picking only those named in the papers who are the enemies of their respective host countries, the International Consortium of Investigative Journalists (ICIJ) managed this unprecedented cache of data by coordinating among 400 reporters worldwide, who in turn kept the Panama Papers secret for over a year. That is some feat.
Obermayer, the journalist who first received the Panama Papers, commented recently about what motivated his still anonymous, financially unremunerated source: “The source thinks that this law firm in Panama is doing real harm to the world, and the source wants to end that.”
Only when some of the world’s most unacceptable regimes begin to act with such moral fortitude will the funds that flow to serve illegal drug wars, terrorism and money laundering diminish. Online transparency may just usher in accountability for some of the world’s most opaque regimes.
In the meantime, this week President Obama will be shaking hands with many of them.