Norway’s biggest bank, DNB, was being publicly shamed on Monday after revelations that its “private banking” services in Luxembourg helped set up accounts for customers that could hide their balances from tax authorities. Now DNB’s own board is demanding an explanation, as are some top state officials, while DNB executives express their regrets.
“We shouldn’t have done this for Norwegian taxpayers,” Tom Rathke, one of DNB’s senior executives, told newspaper Aftenposten on Monday. “I know that was done from 2006 to 2010. It’s embarrassing. We accept criticism for it.”
DNB’s assistance in providing the means for wealthy customers to avoid taxes is especially serious since the bank itself was bailed out by the Norwegian government and taxpayers in the early 1990s. The state has continued to hold a 34 percent ownership stake in the bank, while carrying out an ongoing battle against the use of tax havens abroad. At the same time, however, DNB executives reportedly allowed their subsidiary in Luxembourg to place customers’ money in so-called “postbox companies” in the Seychelles, the island group in the Indian Ocean known for being a high-end tourist destination with low tax rates.
DNB’s practice of organizing the creation of the companies has emerged after millions of documents were leaked from the Mossack Fonseca law firm in Panama, first to the German newspaper Süddeutsche Zeitung. When it needed help verifying and examining the documents’ contents, a global probe was launched through the International Consortium of Investigative Journalists (ICIJ), and Oslo newspaper Aftenposten got involved along with around 100 other media outlets.
Aftenposten and the other media outlets reported how the Mossack Fonseca law firm has specialized for years in setting up complex networks of companies that mostly have no operations and exist in name only, in various tax havens around the world. DNB’s Luxembourg unit did business with Mossack Fonseca on behalf of the bank’s customers.
Based on information in the documents leaked from Mossack Fonseca, its own Luxembourg office would sell companies registered in the Seychelles to DNB, which in turn would be taken over by DNB customers, the vast majority of whom were Norwegian. They are not registered by name, however, in the Seychelles. Aftenposten reported that it knows the identities of the owners of the companies but refrained from revealing them, at least so far. With documents showing DNB Luxembourg as “administrator” for 36 companies registered for 46 Norwegians, they now have all reason to be nervous while DNB officials are clearly embarrassed and apologetic.
Shame and disappointment
“It’s a shame to see that DNB, of all banks, has used so much energy to allow customers to actively use tax havens,” Hans Olav Syversen of the Christian Democrats party, who leads the finance committee in the Norwegian Parliament, told news bureau NTB on Monday after Aftenposten launched the first in a series of articles on the leaked documents dubbed the Panama Papers. “The goal of such companies is secrecy and to avoid taxation.”
Marianne Marthinsen, finance policy spokesperson for the Labour Party, said she was also disappointed in DNB, the current management of which has strong ties to Labour. DNB’s CEO, Rune Bjerke, is a former Labour Party politician and later businessman himself who was appointed to the top DNB post in 2007 when Labour led the former left-center government, and he’s an old personal friend of former Prime Minister Jens Stoltenberg.
Bjerke had his management colleague Tom Rathke fend off the initial round of questions from Aftenposten, but has since issued a press release claiming that the bank has launched its own investigation “of all sides of this case.” DNB’s board has asked for an explanation and Bjerke promised the board would get it when the investigation is complete.
He also regretted how DNB, aided by the Panama-based law firm, helped around 40 customers set up companies in the Seychelles between 2006 and 2010. “We shouldn’t have done that,” Bjerke wrote. “Under today’s internal regulations it wouldn’t have happened.”
There are no indications that DNB broke any laws itself, and Bjerke stressed that it is the responsibility of its customers to report their income and assets to tax authorities. “We nonetheless should not have contributed towards establishing these companies,” Bjerke wrote, “not because the customers have done anything wrong, but because the structures can be misused to avoid taxes.”
Not only were the companies established on behalf of DNB customers, the Mossack Fonseca law firm reportedly lent out its own employees based in Panama to be listed as board members of the companies, so-called “strawmen” used to hide the identities of the company’s real owners. Mossack Fonseca billed DNB Luxembourg for its services, while the actual owners paid DNB to administer the companies, which had accounts at DNB Luxembourg.
Many others involved, too
More disclosures are expected, with Aftenposten reporting Monday that the documents leaked from the Panama law firm involve more than 200 people living in Norway and more than 150 companies set up by Norwegians. The leaks also implicate people all over the world, from top politicians to royalty, athletes, film stars and others feeling a need to hide their assets from tax collectors. The documents have revealed offshore assets in tax havens held by the prime minister of Iceland, the late father of British Prime Minister David Cameron, a secret network of tax evasion carried out by people close to Russian President Vladimir Putin and the families of Chinese leader Xi Jingpin and Ukraine’s President Petro Porosjenko.
It’s all unfolding as one of the biggest document leaks ever, which offers insight into how such labyrinths of companies are set up to shield assets and who is actually behind them. Such information can be valuable at a time of corruption and bribery scandals that have involved such Norwegian companies as Telenor and Norsk Hydro. Aftenposten reported that at least 33 people and companies blacklisted by the US have also had help from Mossack Fonseca to hide assets, and the leaked documents may provide insight into terror financing, weapons smuggling and support to regimes in North Korea and Iran.
Law firm’s email security problem
Mossack Fonseca, itself dubbed as an “offshore service provider” with 500 employees working in 40 offices around the world, sent an email to its clients last week in which it warned of a security breach on its mail server. Aftenposten reported that it has access to the email. The law firm also wrote that it had hired in consultants to determine the scope of the security breach and was taking legal steps regarding what it called “theft.” The law firm tried to reassure its clients that the security and confidentiality around their information had “the highest priority.”
It conceded, though, that information had landed in the hands of journalists who could take it “out of context” and reach the “wrong” conclusions “about our services.” Aftenposten reported that the law firm has defended itself by claiming that it has never been charged or indicted for any ties to criminal activity and noted how one of its founders, Ramon Fonseca, has said that a carmaker can’t be held responsible if one of its cars is used in a bank robbery.
Aftenposten spread its stories over 21 pages of its Monday edition, with more stories to come. Nordic bank Nordea, which also has extensive operations in Norway, has been revealed as having been involved in the establishment of 370 companies through Mossack Fonseca on behalf of its customers, with at least one of them listed as having a board member who’d been dead for eight years. Nordea admitted to Danmarks Radio Sunday night that it was also “unacceptable” that documents showed how a Nordea employee asked Mossack Fonseca to back-date a power-of-attorney document by nearly two years. A bank spokesman insisted, however, that “we don’t help our customers avoid tax.” DNB Luxembourg’s website, meanwhile, claims that “We can assist you in your tax planning. Contact your advisor and we can discuss your aim for the future.”