Panama law firm turned a blind eye to U.S. embargo on Cuba

Panama law firm turned a blind eye to U.S. embargo on Cuba

Cuban companies created by Mossack Fonseca were linked to firms on U.S.
sanctions list
U.S. company sold products to Cuba through Panama company
MF kept ties to companies doing business in Cuba, even after directive
barring that
NORA GÁMEZ TORRES
ngameztorres@elnuevoherald.com

The Panama law firm of Mossack Fonseca provided services to companies
that may have broken the U.S. embargo on Cuba or were linked to
companies specifically blocked by the U.S. Treasury Department,
according to the Panama Papers.

Some of the secret Cuban companies the firm helped to incorporate had
ties to names on the list of people and entities the U.S. government has
banned from U.S. business deals because of economic sanctions or their
ties to terrorism or drug trafficking.

Three companies created by the Cuban government in offshore tax havens —
Miramar Investment Corporation Ltd., Mercaria Trading S.A. and Caribbean
Sugar Traders — shared a director named Porfirio Medero Paiva, who had
the same Madrid address as CRYMSA Import Export. The Spanish company is
on the list of blocked persons and "specially designated nationals" kept
by Treasury's Office of Foreign Assets Control (OFAC).

What's more, Acepex Management S.A., registered in the British Virgin
Islands and active in seafood exports, had links to the Cuban Company
for Fish and Shellfish, known by its Spanish initials CARIBEX. It is
also on the list of entities sanctioned by OFAC.

Acepex director René Besteiro Bauta was deputy head of the Fishing
Industry Ministry. CARIBEX, which succeeded Acepex, still uses the email
address acepex@ceniai.inf.cu.

The Cuban government has been far from transparent on the offshore
companies it owns. Its Official Gazette reported in December of 2004
that the government had authorized "the British Virgin Islands company
Acepex Management S.A." to renew its place in "the National Registry of
Branches and Agents of Foreign Companies maintained by the Cuban Chamber
of Commerce."

POSSIBLE EMBARGO VIOLATIONS

A number of foreigners who were doing business with Cuba also used
offshore companies to carry out surreptitious deals with the island that
might have earned them stiff fines from the U.S. government.

Jose Luis Fuchs, a Peruvian-Spanish businessman based in Costa Rica,
owned several companies that distributed medical products sold by
Orthofix, an international company based in Texas.

Fuchs also was Orthofix vice president for Latin America in 2006 when he
used M.I.S. Technologies S.A., a company registered in Panama and
administered by Mossack Fonseca, to carry out a deal with the Cuban
government's CIMEX S.A. business conglomerate for orthopedic nails and
screws. The deal was worth about 3.7 million euros—roughly $4.5 million
at the time.

"Orthofix cannot sell directly to Cuba because it has business in the
USA. Therefore M.I.S. serves as intermediary and distributor. The
merchandise has been sent to M.I.S. in Panama by Orthofix from various
production sites and are stored in a warehouse in the Colon Free Zone,"
said a Mossack Fonseca memorandum.

CIMEX S.A. is also on the OFAC list of sanctioned entities. Founded by
the Cuban Ministry of the Interior, it is currently run by the armed
forces and has offices in Havana, Panama, Spain and Mexico.

Payment for the deal was sent by the government-owned Banco Financiero
Internacional de Cuba to the BBVA branch in Panama. The money was then
to be transferred to an account managed by Mossack Fonseca. "Once the
funds have been transferred from BBVA to this new account, about USD 2.1
million will be transferred to Orthofix and about USD 600,000 to other
intermediaries," the memorandum adds. It did not identify the other
intermediaries.

The contract was signed by Eduardo Bencomo Zurdos and Raúl Fuentes
González, at the time the president and the general manager of CIMEX.
Mossack Fonseca employees listed as directors of M.I.S. Technologies
signed for the Panama company.

Mossack Fonseca memorandum explaining one company's circumvention of the
embargo

Peter Quinter, an expert on U.S. embargo laws and former head of the
International Law section of the Florida Bar Association, said a
transaction in which a U.S. company uses an offshore company to sell
products to a Cuban company on the OFAC list could be investigated by
the U.S. Department of Justice as a violation of the embargo.

Even after President Barack Obama started to ease U.S. sanctions on
Cuba, "companies and individuals under U.S. jurisdictions cannot do
business, directly or indirectly, with Cuban companies or people
identified by OFAC on its list of blocked persons or 'specially
designated nationals.' " said Quinter, now head of the Customs and
International Trade Law Group at the GrayRobinson law firm in Miami.

Offshore companies owned or controlled by U.S. companies also are barred
from doing business with Cuba, he said.

If the Cuban entity is blocked by OFAC, Quinter added, "the U.S. company
and those persons or companies that conspire with it to do business may
be the subject of a criminal investigation for a violation of the embargo."

A State Department spokesperson confirmed to El Nuevo Herald that if a
U.S. company's deal with Cuba is not approved "by a general or specific
license, then it is equally forbidden for the company to take part in
the deal … through an intermediary."

Orthofix could have asked for a U.S. license to sells its products
directly to Cuba. "Those products are still regulated by the U.S.
government, but obtaining licenses to export them to Cuba is not a
problem," Quinter said.

Orthofix did not respond to El Nuevo Herald requests for comment on this
story. Fuchs could not be located for comment.

The U.S. Treasury does not comment on the number of special licenses
issued for exports to Cuba. A spokesperson said the time it takes to
process requests depends on the complexity of the deal, the need to
coordinate with other U.S. agencies and the volume of other requests on
hand.

Licenses for exporting medical products to Cuba, which are issued by the
Department of Commerce's Bureau of Industry and Security, normally take
30 to 40 days to process and are generally approved, although each case
is reviewed to make sure it meets the requirements.

John Kavulich, president of the U.S.-Cuba Trade and Economic Council,
which monitors U.S. exports to Cuba, said export licenses "became easier
to obtain under the Cuban Democracy Act of 1992," which re-authorized
the direct export of medical equipment and instruments, medicines and
pharmaceutical products to Cuba with certain restrictions. They included
cash payment in advance and a verification that their destination is
not, for example, an institution linked to the Cuban military.

Kavulich added that the U.S. companies must keep records of the
verifications of the final destinations, "and there's never been a
report of a misuse of any export, that it was sold for one purpose and
used for another."

Data gathered by his organization show that in 2006, when the Fuchs
contract was signed, the U.S. government licensed medical exports to
Cuba valued at $814,866. The following year, when the Orthofix deal for
$4.5 million was concluded, exports worth $436,773 received U.S. licenses.

Kavulich cautioned, however, that his numbers may not be totally
precise. A Treasury Department official declined to comment on the
number of license petitions processed each year.

MOSSACK FONSECA'S RISKS

Mossack Fonseca also acted as the registered agent for the majority of
the companies that operated in Cuba or listed administrators or members
of boards of directors who were officials or lawyers of government
entities in Cuba — even though the island was under a broad regime of
U.S. sanctions.

The Panama Papers, documents leaked to the International Consortium of
Investigative Journalists and shared with the McClatchy Washington
Bureau, Miami Herald and El Nuevo Herald, among others, contain hundreds
of thousands of pages from the files of Mossack Fonseca, which has
offices in 33 other countries.

The firm's archives show its employees sporadically checked the names of
some of the Cuban companies' directors, but never found any of Cuba's
better-known officials. The people who appear as directors of the
offshore Cuban companies are generally employees or lawyers of state
enterprises, and rarely top officials.

Mossack Fonseca recently started to pay more attention to some of the
companies linked to Cuba. A check in February of 2015 on Curtdale
Investments Ltd. and Ardpoint Company Inc. showed one of their directors
was Hernán Aguilar Parra, a member of Cuba's legislative National Assembly.

The company also checked in 2011 on Corporación Panamericana, but not on
its listed director, José L. Fernández de Cossío Domínguez, who was
Cuba's ambassador to Japan from 2008 until 2012.

Although it maintained relations with Cuban clients for many years
without asking too many questions, Mossack Fonseca decided recently to
change its policy on Cuba, apparently because of fears of OFAC, which
enforces U.S. sanctions on Cuba and all several other countries.

OFAC has been increasingly aggressive in punishing violators, especially
banks, and on July 1, 2015, the French bank BNP Paribas agreed to pay a
fine of $8.83 billion to settle charges that it had violated U.S.
sanctions on Cuba, Iran and Sudan.

Mossack Fonseca directors reacted quickly, and eight days later the law
firm issued a new policy to start distancing itself from companies
linked to countries under U.S. sanctions, especially if a Mossack
Fonseca member appeared as a director or registered agent of the company.

An email sent by a Mossack Fonseca attorney told company employees on
July 13, 2015, that the law firm had decided "to resign our directors
from the 35 societies [companies] identified in the system as active in
countries listed by OFAC." Among them were three identified as doing
business in Cuba.

The email also ordered the sale or change of companies that listed
Mossack Fonseca directors "if they are to carry out activities in
countries listed by OFAC, regardless of the sanctions program applied."

It also warned that the law firm should not "provide the service of
acting as registered agent for companies that will be active in OFAC
countries under full sanctions," such as Cuba, Sudan and Iran.

Mossack Fonseca did not cut off its links with some of the companies,
however, encouraged by the warming U.S.-Cuba relations and the hope that
the U.S. embargo would soon be eliminated. The U.S. State Department
removed Cuba from its list of state sponsors of terrorism in 2015,
opening the way for the reestablishment of diplomatic relations between
the two countries.

A review by the Mossack Fonseca department in charge of compliance
initially recommended ending all services to Spanish businessman Victor
Moro Suarez, who headed Vima World Ltd. and other offshore companies
like Mundicompras S.A., Restaurantes del Caribe S.A. and Vima Caribe
S.A. The review concluded that their activities in Cuba could put
Mossack Fonseca at risk of U.S. punishment.

But the head of the Mossack Fonseca office in Geneva, Adrian H. Simon,
interceded on behalf of the Spaniard, because the law firm had served as
a registered agent for the businessman for 21 years.

"The company [Vilma World Ltd.] is totally transparent. The clients
could not establish a Cuban company at that time because it was not
allowed," Simon wrote. "It is not something illegal or fraudulent. They
supply internationally known hotel chains in Cuba, Dominican Republic
and Spain."

"We all know that Cuba is going to come out of the embargo, and we all
know the steps that have been taken in that direction, that the United
States again has an embassy in Cuba. They are in the process," he added.

The exchange of emails concludes with a decision in favor of continuing
services to Moro, "taking into account the current situation of the Cuba
embargo and the type of activity carried out, as well as the length of
our relationship with him."

Mossack Fonseca executive Josette Roquebert nevertheless made reference
to instructions to follow "to offset the risks that come with providing
services to a client who has a relationship with Cuba, because these
services are not covered by our policy."

Vima is still registered to do business in Cuba, with Moro as its
representative.

Mossack Fonseca did not reply to several questions sent by El Nuevo
Herald about its services to companies linked to Cuba.

In a statement after the Panama Papers were leaked, the law firm
insisted that it "routinely withdraws from agreements with clients when
due diligence and/or updates of sanctions lists show that one part of a
company that we service has been convicted or shows up on a sanctions list."

Follow Nora Gámez Torres:@ngameztorres

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