Appleby, the offshore law firm with a record of compliance failures

When Robert Woods, an ex-cop from Liverpool took a job in early 2006 as a compliance manager for Appleby, the global offshore law firm, he joined an organisation that had problems.

Appleby’s Cayman Islands office, where he worked, for example, had more than 600 clients on its books whose records were labeled “non-compliant” – meaning that the offshore firm had no current IDs, contact information or other details that helped the firm make sure it wasn’t setting up shell companies and other structures for criminals or corrupt politicians.

Five years later, Woods had moved up in the firm, taking over as its director of compliance. But things hadn’t improved much – at least according to a PowerPoint presentation he appears to have put together sometime near the end of 2011.

The 44-page training slideshow, which featured images from the HBO mafia drama The Sopranos, recalled lowlights of Appleby’s recent history. Under a slide titled “Terrorist Financing Offences,” the notes read: “We have a current case where we are sitting on about 400K that is definitely tainted and it is not easy to deal with.”

In another case, Woods’ notes indicated, Appleby set up a trust for a client to buy property in London and accepted money on his behalf “without question.”

Appleby later learned, the presentation acknowledged, that the trust was owned by a former Pakistani official who had been charged with embezzling public money and had “infiltrated allegedly corrupt funds into our business.”

“Some of the crap we accept is amazing totally amazing,” the presentation’s notes said beneath a slide listing the information Appleby employees needed to know about its clients.

A leak of 6.8 million confidential records reveals how Appleby has sometimes failed to keep out questionable clients – before Woods’s 2011 PowerPoint and since then. The documents expose the secret offshore lives of politicians and fraudsters and elaborate tax avoidance strategies pursued by Apple, Nike and other corporate giants.

The emails, client records, bank applications, court papers and other files were obtained by the German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and other media organizations. They represent the inner workings of Appleby from the 1950s until 2016.

Appleby did not provide ICIJ with answers to detailed questions. Instead, it released a media statement online that said Appleby is committed to high standards. Following a thorough and vigorous investigation, Appleby said, it refutes any allegations of wrongdoing by the company and its clients.

Appleby said: “We are an offshore law firm who advises clients on legitimate and lawful ways to conduct their business. We do not tolerate illegal behaviour. It is true that we are not infallible. Where we find that mistakes have happened we act quickly to put things right and we make the necessary notifications to the relevant authorities.”

Appleby, which is headquartered in Bermuda, is one of the world’s most prestigious offshore law firms. Although Appleby is not a tax adviser, the 119-year-old firm is a leading member of the global network of lawyers, accountants, bankers and other operatives who set up and manage offshore companies and bank accounts for clients who want to avoid taxes or keep their finances under wraps.

Along with helping to set up shell companies, trusts and other offshore entities, the firm has various subsidiaries, affiliates and business units that draft wills, litigate for clients involved in workplace accidents and divorce and advise corporations. North Americans represent Appleby’s biggest workload; the firm has worked for residents of all 50 US states.

Appleby sees itself as an industry leader, proving to the world that the offshore industry can operate cleanly and professionally. “We provide innovative, timely and ethical advice,” the firm advertises in its eight-page brochure.

Over cocktails, dinners and conference tables, it meets major clients, many of whom are leading banks and accounting firms such as KPMG, Ernst & Young and PWC. In the Cayman Islands, half of Appleby’s top 20 clients in 2014 were major banks and investment firms, including Citigroup, Bank of America, HSBC, Credit Suisse and Wells Fargo.

When ICIJ and its media partners including The Irish Times began publishing the Panama Papers investigation in April 2016, offshore promoters downplayed its significance. They said Mossack Fonseca, the Panama-headquartered law firm at the center of the scandal, was an outlier.

“Mossack Fonseca represents one of the last bastions of a shadowy international financial system that is rapidly ceasing to exist,” the trade magazine Wealth Management reported.

Appleby’s internal files show, however, that that even when offshore law firms invest large amounts of money and effort to stay reputable, the secrecy and the lure of financial gain at the heart of the shadow economy make it difficult for offshore operatives to avoid doing business with criminals, corrupt politicians and other questionable clients.

“MONEY LAUNDERING IS A DIRTY CRIME,” screamed the notes to Woods’ 2011 PowerPoint presentation, appearing in all caps for emphasis. “THERE IS USUALLY ALWAYS A VICTIM AT THE BOTTOM OF THE PILE AND A RICH PERSON AT THE TOP.”

Woods, who is still Appleby’s director of compliance, declined to comment when ICIJ asked him whether, in his view, the firm had improved its client-screening practices since 2011.

The presentation is one of at least four PowerPoint offerings drafted by Appleby’s compliance team between 2007 and 2015 that raised questions about how well the firm checked out its clients. It is unclear whether these presentations were ultimately made before Appleby employees. But in each of them, speaker’s notes at the bottom of each slide provide unguarded comments from insiders about Appleby’s compliance fumbles.

“Eighty per cent of the battle is won or lost at the gate,” a slide used repeatedly in Appleby compliance presentations read. “If we let in the wrong clients, we set ourselves up for a fall.”

Magic Circle

Appleby was born in 1898 in the British colony of Bermuda as the private practice of Maj Reginald Woodifield Appleby, a tea-drinking, cricket-playing, rifle-shooting magistrate who became a member of the island’s parliament and was knighted “for public services in Bermuda.” Such was his status that when Major Appleby sailed for a vacation in England in 1924, The Royal Gazette & Colonist Daily predicted a rise in crime during his absence.

When Bermuda’s legislature met in July 1940 to debate the island’s first income tax, Major Appleby spoke out, aligning himself with “those who look on all income tax as man’s last refinement of torture, to be resisted at all costs,” reported The Royal Gazette. Bermuda has never looked back; it continues to entice locals and foreigners with a zero tax rate.

Since expanding outside Bermuda in 1979, Appleby has transformed itself into a global institution with more than 700 employees across nearly every major tax haven from the Cayman Islands in the Caribbean, to the Isle of Man in Europe, Mauritius in Africa and Hong Kong in Asia. “You seem like a monster – which is a good thing!” one Appleby client responded in a 2013 satisfaction survey.

Appleby collects “Offshore Law Firm of the Year” awards and is cited as part of what insiders call the “Offshore Magic Circle,” an informal collection of the world’s biggest offshore law firms that jostle for the same business. Former employees serve as members of parliament, judges and government officials and at least one low-tax jurisdiction, the Cook Islands, used Appleby’s expertise to draw up its own offshore laws.

Publicly, the firm has burnished its image by sponsoring the America’s Cup, 5K family runs and cake sales. In advertising material, Appleby vaunts its benevolent undertakings, including working to help recover money from the family of former Nigerian dictator Sani Abacha and administering a multimillion dollar fund to support nurses treating the Ebola virus in West Africa.