The Parade of the blacklisted: Funding Syria’s war and bloodshed

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As the smoke lifted, Asfur reached for Abu Yassin. “I looked at my friend when I recovered my vision and saw his body in shreds,” Asfur remembers.

The attack was one of hundreds of airstrikes that Syrian President Bashar al-Assad’s regime has carried out during the country’s six-year civil war, killing thousands of its own people. The deadly air campaign would not have been possible, US authorities have charged, without a network of companies that dodged international embargoes by supplying the oil and gas that kept the military aircraft in sky.

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The law firm continued doing work for at least one of these closely-linked companies after the three of them were blacklisted by the US government for supporting Syria’s war machine — joining dozens of other Mossack Fonseca (MF) customers sanctioned by the US Treasury Department’s Office of Foreign Assets Control (OFAC).

MF has worked with at least 334 individuals or companies that have landed on the Treasury Department’s OFAC list.

For years, the records show, Mossack Fonseca has earned money creating shell companies that have been used by suspected financiers of terrorists and war criminals in the Middle East; drug kings and queens from Mexico, Guatemala and Eastern Europe; nuclear weapons proliferators in Iran and North Korea, and arms dealers in southern Africa.

A Mossack Fonseca spokesman told ICIJ that the firm relies on intermediaries such as banks and other law firms to review the backgrounds of the customers that they refer to Mossack Fonseca.

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These middlemen are supposed to notify the firm “as soon as they have knowledge of a client of theirs having been either convicted or listed by a sanctioning body,” the spokesman said.

Fuel for war

OFAC, the US Treasury Department’s blacklist enforcement unit, announced a series of sanctions in 2014 barring US citizens from dealing with individuals and companies suspected of supporting the Syrian regime.

One of the companies was Pangates International Corporation Ltd, a petroleum products specialist headquartered in the UAE that had been a Mossack Fonseca customer for more than a decade. OFAC put Pangates on its blacklist in July 2014, charging that Pangates had supplied the Syrian government with 1,000 metric tons of “avgas” – aviation fuel necessary to operate military aircraft.

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Pangates is part of the Abdulkarim Group, a sizeable Syrian company with offices in Damascus. OFAC also sanctioned two other Mossack Fonseca clients with alleged ties to the Abdulkarim Group or its directors – Maxima Middle East Trading Co. and Morgan Additives Manufacturing Co.

In addition, it sanctioned two Syrian citizens linked to the companies.

OFAC identified Ahmad Barqawi as general manager of Maxima Middle East Trading and Wael Abdulkarim as Pangates’ managing director. It said Wael Abdulkarim had “worked to arrange numerous shipments of base oils and aviation gasoline to Syria.”

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A representative of Morgan Additives told ICIJ that the basis of its blacklisting by OFAC was “in error.” None of the other companies or individuals sanctioned in connection with the Syrian air war responded.

Assad’s cousin

The files show that Mossack Fonseca also worked with Rami Makhlouf, a cousin of Assad. As early as 2008, US Treasury officials imposed sanctions on Makhlouf and flagged him as a “regime insider” who “improperly benefits from and aids the public corruption of Syrian regime officials.”

In 2010, British Virgin Island authorities demanded information on Drex Technologies SA, a company owned by Makhlouf that MF had incorporated ten years earlier.

Mossack Fonseca employees looked for — and quickly found — information that had circulated widely for years, including details of Makhlouf’s political ties and smuggling.

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At this point, the files reveal, Mossack Fonseca’s head of compliance wanted to drop Makhlouf immediately. But one of Mossack Fonseca’s partners resisted, hoping the firm would not lose the business.

That partner, Chris Zollinger, noted a colleague’s earlier notes from a conversation between MF and HSBC in which the bank assured the law firm that HSBC’s Geneva and London offices “know about Mr Makhlouf and that they are comfortable with him.” However, he ultimately agreed with dropping the firm. Zollinger recently told Süddeutsche Zeitung: “In retrospect my comment in the e-mail was wrong, which I regret.”

Makhlouf refused to issue comments.

‘This is dangerous!’

Mossack Fonseca took a more aggressive attitude toward Petropars Ltd, a company controlled by the Iranian government that was sanctioned by the US in June 2010. The relationship between Petropars and MF began in 1998, nearly 20 years after the Iranian revolution, when Mossack Fonseca incorporated Petropars in the British Virgin Islands.

Petropars was known to watchers of Iranian politics as an intermediary between foreign companies and Iran’s oil ministry. Three years before Mossack Fonseca began work for Petropars, then US President Bill Clinton banned US involvement with Iranian oil. Not bound by the US prohibition, MF helped Petropars to issue shares in a Tehran-based oil investment company in 1998.

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Petropars remained a customer of Mossack Fonseca until 2010, when Jurgen Mossack, one of the firm’s founders, learned that his company’s British Virgin Islands post office box had been listed as Petropars’ address in OFAC’s blacklist entry for the company.

The companies they keep

In 2009, the firm admitted in internal communications that it had incomplete records on a company later sanctioned for “managing millions of dollars of transactions in support of the North Korean regime’s destabilising activities.”

Also in 2009, Mossack Fonseca ended its relationship with Zimbabwean businessman John Bredenkamp. Bredenkamp, on the firm’s books since 1997, had been described in 2002 by a UN expert panel as “experienced in setting up clandestine companies and sanctions-busting operations.” In 2008, Bredenkamp was sanctioned by OFAC for being a “crony” of Zimbabwe dictator Robert Mugabe. Bredenkamp did not respond on this report.

The files also show that in April 2011, Mossack Fonseca learned that OFAC had accused financiers of Hezbollah of using a MF shell company.

The company was reportedly part of a “network linked to terrorism,” the law firm’s compliance chief, Sandra de Cornejo, wrote. It had taken Mossack Fonseca months to notice OFAC’s listing. It cut ties with the company, Ovlas Trading SA, in May 2011.

In a 2015 memo, citing “recent changes in our organisation” and “regulatory matters,” Mossack Fonseca announced it would drop 35 potentially risky companies “as soon as possible.” They included businesses purportedly dealing in oil in Belarus and Russia, mobile phones, juice, tomato paste and cheese in the Middle East, investment companies in Uganda and Guinea, shipping in West Africa and real estate in Lebanon and Zimbabwe.

Several offshore experts said that sanctions enforcers in the US and elsewhere haven’t paid enough attention to offshore middlemen like Mossack Fonseca.

This is partly because of limited resources available to pursue cases, experts say, according to Daniel Reeves, former lead investigator for the Internal Revenue Service’s offshore compliance initiatives.