Defendants acquitted in Panama Papers money-laundering trial

MEXICO CITY – In a striking verdict for a money-laundering case associated with the Panama Papers scandal, a Panamanian judge on Friday acquitted all 28 defendants, among them former employees of the law firm Mossack Fonseca, the source of the leaked documents that set off a worldwide furor in 2016.

The verdict came eight years after a partnership of media outlets published an explosive investigation into 11.5 million documents leaked from the Panama-based firm. The leak exposed the offshore banking industry, prompted international tax investigations and brought down heads of state.

Among the original 29 defendants were the shuttered firm’s co-founders, Jürgen Mossack, 76, and Ramón Fonseca, who died in May at age 71 while awaiting the verdict. In her 339-page ruling, the judge, Baloísa Marquínez, said the case against Fonseca was dropped because of his death.

Prosecutors had alleged that Mossack Fonseca had created shell companies with the purpose of hiding money earned in illicit activities, and that the firm failed to act with due diligence and take the necessary care when reviewing its clients.

In a written statement published Friday evening, Panama’s judicial branch said the judge had found that electronic evidence presented by prosecutors did not meet chain of custody protocols and had suffered from authentication issues.

It also said the judge had not found sufficient evidence to hold the accused responsible.

The ruling was a major development for Panama, whose reputation was damaged by the leak and has overhauled its laws in recent years to strengthen efforts to fight money laundering.

“These were years and years of signaling the innocence of our representatives,” said Guillermina McDonald, a lawyer from a firm that represented many of the defendants. “We showed in an unfailing way that there was no money laundering, that those that I represented did not commit any crime.”

A representative of the prosecutor’s office said that it was analyzing the verdict, which can be appealed.

Juan Carlos Araúz, a lawyer specializing in corporate litigation in Panama City, said the ruling reflected how prosecutors were unable to show that the founders of the firm knew that the shell companies it managed were being used for illicit activities.

“What the judge is saying is that ‘no, it wasn’t proven that the firm knew that there was behavior aimed to that end,’” he said.

During the livestreamed Panama Papers trial, which began April 8 and lasted 10 days, all the defendants pleaded not guilty. The defense argued that prosecutors had failed to show that the firm had been managing money that came from illicit activities and that banks had not raised alerts about suspicious transactions.

Keeping money in an offshore bank account is not inherently illegal. But prosecutors alleged that the firm managed shell companies with the aim of moving off-the-books money from German electronics company Siemens that was tied to illegal payments.

Prosecutors sought to build their case by pointing to past accusations of wrongful conduct by Siemens and its employees. In 2008, Siemens agreed to pay $1.6 billion to U.S. and European authorities to settle charges of using bribes and slush funds to obtain public works contracts.

Millions of dollars passed through the shell companies. Court records referenced journalism investigations that described how Mossack Fonseca adopted a high level of secrecy to protect its clients, using abbreviations to refer to Siemens employees.

Prosecutors also accused the firm of being involved in illicit activity connected to Argentina. They alleged that the firm managed companies that were used to purchase properties tied to a person convicted in 2023 of a large fraud scheme in Argentina.

Marquínez had merged the Panama Papers case with a separate money laundering trial that had implicated Mossack Fonseca as well, and ruled on both together. The other case was linked to Brazil’s Operation Car Wash, or “Lava Jato,” scandal, a bribery scheme involving the state-controlled oil company Petrobras.

In the Lava Jato trial, which took place last summer, prosecutors had alleged that Mossack Fonseca had been used to open offshore companies that moved money stemming from corruption. Marquínez on Friday acquitted 31 defendants in the Lava Jato case. (Some defendants overlapped with the Panama Papers trial.)

Panama, a trade hub, has historically been a center for the creation of shell companies because it shared little banking information with foreign countries and had lax rules, which have since been strengthened, about a law firm’s responsibility to identify the final beneficiaries of funds, said Gabriel Zucman, an economist at the University of California, Berkeley.

The Panama Papers investigation began with a message from an anonymous whistleblower to Süddeutsche Zeitung, a German newspaper, asking if it was interested in data. The outlet decided to share the huge leak with the International Consortium of Investigative Journalists in Washington, which put together a team of hundreds of reporters from more than 100 news organizations worldwide.

The leaked files covered nearly 215,000 offshore entities and more than 14,000 banks, law firms and middlemen that worked with Mossack Fonseca. The articles by the journalism partnership began rolling out in April 2016. Among their effects was to prompt the prime ministers of Iceland and Pakistan to step down.

In 2017, Mossack and Fonseca were arrested in Panama on money-laundering charges related to the Lava Jato scandal. They were freed on bail after several months. Their firm, which at one point had more than 600 employees, closed in 2018, insisting that it had not broken the law.

In an interview shortly after the Panama Papers exposé broke, Fonseca said the firm had carefully vetted its clients, but that it was similar to a car factory in that it “is not responsible for what is done with the car” after it is sold.

More than $1.36 billion has been collected by governments in fines and back taxes stemming from the 2016 investigation. Subsequent journalism collaborations investigating huge data leaks, known as the Paradise Papers and Pandora Papers, have also revealed the workings of offshore tax havens.

In the leak’s aftermath, Panama enacted a series of laws aimed at preventing money laundering by strengthening requirements for firms to know the final beneficiaries of shell companies they create for their clients and establishing a registry of these beneficiaries, said Carlos Barsallo, a lawyer and an expert on money laundering.

“The firms can’t have the mentality that I’ll sell the shell company and it’s not my problem who does what with that,” said Olga de Obaldía, executive director of the Fundación para el Desarrollo de la Libertad Ciudadana, the Panama chapter of Transparency International.

It is hard to know how many people worldwide have been convicted because of the Panama Papers. But Frederik Obermaier, a journalist who investigated the leak at the Süddeutsche Zeitung, said references to the Panama Papers in television series and pop songs showed how the investigation profoundly resonated with the public.

“It has learned about the price we all pay due to tax evasion and corruption,” he said. “It is not something abstract. It means we don’t have enough money for hospitals and universities.”

This article originally appeared in The New York Times.