Panama Papers: How Fidentia fraudster stashed cash abroad

By admin
04 April 2016

Fidentia’s convicted accountant Graham Maddock paid Panama-based law firm Mossack Fonseca $59 000 in 2005 and 2006 (R1 million in 2016) to create two sets of offshore companies, secret documents leaked on Sunday revealed.

According to MeasuringWorth, $59 000 in 2005 would have a relative value of $71 600 (R1 million) in 2016.

The leak by the International Consortium of Investigative Journalists (ICIJ) includes over 11.5 million documents from the files of Mossack Fonseca, and exposed the secret details of hundreds of thousands of clients globally.

Read more: Panama Papers: what they are and why you should care

The Fidentia scandal saw its mastermind, J Arthur Brown, lavishly spend the savings of 47 000 widows and orphans, wasting over R500m of their money. He was eventually sentenced to 15 years in jail on December 1 2014. He was first arrested in 2007 in one of South Africa’s biggest financial scandals, in which Brown ran a pyramid scheme and used investors' funds for his own personal gain.

Mossack Fonseca’s leaked documents show that two convicted Fidentia members, accountant Maddock and ex-broker Steven Goodwin, used the law firm to create offshore companies when Fidentia's Ponzi scheme was exposed.

“Mossack Fonseca was willing to help one of the fraudsters protect his money even after authorities publicly linked him to the scandal,” ICIJ reported.

Maddock, who told the FSB that he “did what Brown instructed him” to, was given “VIP service” by Mossack Fonseca, the law firm’s records say.

“Mossack Fonseca’s records show that one of the men later jailed in South Africa for his role in the fraud, Graham Maddock, paid Mossack Fonseca $59 000 in 2005 and 2006 to create two sets of offshore companies, including one called Fidentia North America,” ICIJ revealed.

Maddock already served time in prison after entering into a plea bargain with the state. He was sentenced to an effective seven years in 2008 for his role in the Fidentia matter, but served only two years.

Read more: J Arthur Brown to appeal sentence

Explaining the link between Brown, Maddock and Goodwin, BizNews publisher Alec Hogg wrote in 2014: "To keep what the FSB (Financial Services Board) describes as the pyramid scheme going, Brown offered massive commissions to asset gatherers, giving them 1% of everything brought in. Or simply bribed cohorts like BEE bigwig Danisa Baloyi and Fidentia’s crooked accountant Graham Maddock with non-repayable loans and big bonuses. And when the authorities came knocking, Fidentia’s staff were simply instructed to fabricate documents to cover up the lies.”

Mossack Fonseca convinced Goodwin to protect Fidentia assets - papers

The leaked papers show that Mossack Fonseca also created offshore structures for Goodwin. “As the scandal broke in 2007, Goodwin flew to Australia, then to the US, where a Mossack Fonseca lawyer met with him at a luxury hotel in Manhattan to discuss his offshore holdings, the firm’s internal records show,” ICIJ reported.

“The firm official later wrote that he and Goodwin ‘spoke deeply’ about the Fidentia scandal and that he had ‘convinced Goodwin to better protect’ his offshore company’s assets by passing them to a third party.”

Goodwin was sentenced to 10 years in prison in South Africa after the FBI arrested him in Los Angeles and deported him to South Africa. He testified in court in 2013 that it was Brown's idea to use a company's own funds to buy itself out. "In passing discourse with Arthur, he mentioned it as a side issue. He said 'We'll just pay them with their own money'," Goodwin said.

The documents show that Mossack Fonseca came up with a plan to frustrate South African prosecutors digging into assets linked to Goodwin’s offshore company, Hamlyn Property, which had been set up to buy real estate in South Africa.

“The employee proposed having an accountant ‘prepare’ audits for 2006 and 2007 ‘to try to prevent the prosecutor from taking actions against the entities behind Hamlyn’. He set off ‘prepare’ in quote marks in his email,” ICIJ said. “It’s unclear whether the proposal was adopted.”

Mossack Fonseca did not answer questions from ICIJ about its relationship with Goodwin, while a representative for Goodwin said he “had nothing whatsoever” to do with Fidentia’s collapse “or anything directly or indirectly to do with the 46 000 widows and orphans”.

“The Mossack Fonseca documents indicate that the firm’s customers have included Ponzi schemers, drug kingpins, tax evaders and at least one jailed sex offender,” ICIJ explained. “Mossack Fonseca’s fingers are in Africa’s diamond trade, the international art market and other businesses that thrive on secrecy.

“Ponzi schemers and other fraudsters who bilk large numbers of victims often use offshore structures to pull off their schemes or hide the proceeds.”

Brown was convicted on two fraud charges relating to his handling of investments for the Transport Education and Training Authority and the Mantadia Asset Trust Company between 2002 and 2006.

He was sentenced to 15 years' imprisonment on each of two fraud charges in the SCA in December 2014. The sentences are to run concurrently.

Fin24

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