The offshore world makes it hard for prosecutors pursuing complex financial crimes to follow the money, because many offshore jurisdictions refuse to recognize U.S. subpoenas and account information is hidden under layers of corporate shells.
“People were trying to hide their money from the IRS, or they were trying to hide their money from law enforcement, or they were trying to hide their money from regulators,” said Paul E. Pelletier, the principal deputy chief of the Justice Department’s fraud section who prosecuted Stanford before entering private practice in 2011. “As a prosecutor, it was very difficult pursuing these people.”
The records reviewed by The Post and ICIJ include tax filings, internal memoranda and e-mails kept by CTL and TrustNet.
The CTL records contain information on at least 23 companies linked to an alleged $230 million tax fraud in Russia, a case that was being investigated by a Moscow-based lawyer named Sergei Magnitsky, who died in prison under suspicious circumstances. One of the companies was used to set up Swiss bank accounts into which the husband of a Russian tax official deposited millions in cash, according to legal filings in Switzerland.
The Magnitsky Affair has created tensions between the United States and Russia. Russia last year blocked hundreds of foreign adoptions after Congress passed the Sergei Magnitsky Act, barring Russian officials believed to be involved in the lawyer’s death from entering the United States or using its banking system.
There’s no evidence that CTL participated in fraud or other crimes. Internal records suggest, however, that the firm often did little to screen its clients to make sure they weren’t involved in illicit activities.
CTL co-founder Thomas Ward blamed many of the firm’s problems on “the law of large numbers.” Anytime you form thousands of companies for thousands of people, he said, it’s likely that a few of them are going to be up to no good.
“I regard myself as an ethical person. I don’t think I intentionally did anything wrong,” said Ward, an entrepreneur from Canada who has worked as a consultant for CTL since selling it to new owners in 2009. “I certainly didn’t aid and abet anybody doing anything illegal.”
In late 2005, CTL’s general manager, Sandy Holburn, warned about the firm’s Russian clients: “There’s obviously a lot going on that we don’t really know or understand concerning the users of the companies we form for these clients.”
Ward agreed that such clients might “cause some difficulty,” but told Holburn there was “little we can do about that unless we wish to stop growing,” according to an e-mail exchange at the time.
Ward said he does not recall Holburn’s warning and added that the firm’s client-screening procedures were consistent with standard practices in the offshore industry. He said the firm often relied for its vetting on intermediaries in other countries who usually employed lawyers and accountants and did a good job of collecting information about would-be clients.