Chess and the Panama Papers

by Priyadarshan Banjan
5/12/2016 – You have probably heard of Panama Papers scandal, of which a new set of data was released this week. The 11 million leaked documents (2.6 terabyte) from the Panamanian law firm Mossack Fonseca lists more than 200,000 offshore account. Two British newpapers have discovered a chess trail – but one that probably contains spurious leads – including Bobby Fischer. Here's what has been reported and denied.

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Chess and the Panama Papers Scandal

By Priyadarshan Banjan

Two companies, with close connections to FIDE, and two former World Champions, have found to be linked with the latest release in the Panama Papers scandal that has hit the world in recent months.

What exactly is the issue with the Panama Papers? Well, the scandal emerged out of these 11.5 million leaked documents (2.6 terabytes) that detail financial and attorney–client information for more than 214,488 offshore entities. The leaked documents were created by Panamanian law firm and corporate service provider Mossack Fonseca; some dated back to the 1970s.

The records were obtained from an anonymous source by the German newspaper Süddeutsche Zeitung, which shared them with the International Consortium of Investigative Journalists (ICIJ).

Before we proceed any further, a basic crash course for our readers on what exactly 'having money stashed in offshore companies' really means. There is nothing unlawful about the use of offshore companies. However, the disclosures raise questions about the ways in which the system can be used – and abused. The media often gives out an impression that such a thing is negative and unethical. We are not here to sermonise about the rights and wrongs, but simply point out the truth.

Let us say you have €100,000 and you want to invest it for profit so that you can grow your money. What you could do is invest this money in a company in a tax haven like the British Virgin Island or Panama, where your investment is further diversified into assets such as land, machinery, etc. in the name of the company. The company's net revenue (profits) will not be taxable, because these countries, known as tax havens, do not tax its people (legally speaking, a company is a separate legal entity, like a person). Your world income, which of course includes your share of the profit you generate out of the said company, will be taxable in your country. This particular law, though, varies from country to country. All this is actually legal and perfectly fine.

This particular system becomes problematic when people use it to con the governments and tax law enforcers. How does that happen? Imagine you are an actor and for a particular assignment, you are being paid €100,000. You could actually manipulate the accounting entries and show that you earned €50,000 on paper and quietly transfer the remaining €50,000 you made to a tax haven. How? By making your friend invest €50,000 in a company registered in a tax haven in his (the friend's) name! All your friend had to do is lend his signature and name and paper presence in the company board meetings that are often fabricated to comply with the law. The company could grow or simply remain dormant, keeping your money safe, with full control over the company, while your name is not even related to it because, legally speaking, on paper your friend has invested in it. Of course, it could be anybody – your friend, butler, driver, etc., who can simply hide this fact from the law enforcers who will not suspect them anyway. Because, for example, how could a driver own a company in the British Virgin Island!? Imagine this system being used to evade taxes, or worse, to fund illegal or terror activities in various countries.

Therefore, such findings are not all negative or illegal by nature. One has to truly understand what is going on to know the reality. The following revelations have been scooped from the exclusive reports by the Guardian and the Telegraph, who have found this special connection between chess and the scandal.

First in the list is the father of modern chess and the man who almost single-handedly put chess in the sports world map – Bobby Fischer. The American chess grandmaster was granted power of attorney over a company called Kettering Consultants Inc in October 2007. It gave him the ability to control the Panama-based company, which was managed by Landsbanki Luxembourg SA. The Guardian further reported that 'the company was “owned” by four bearer shareholders (representative mediums, like Bobby, had the power of attorney), which gave it an extra degree of secrecy. The company was shut down in 2012.'

The Fischer trail in the searchable Offshore Leaks Database of Mossack Fonseca companies

Of course, Fischer was just an on-paper medium used by someone to invest in the said company. Fischer had been granted the citizenship of Iceland in 2005. Interestingly, Bobby died in January 2008, three months after being granted the power of attorney in this company.

Speaking of Iceland, coincidentally, Iceland’s embattled prime minister, Sigmundur Davíð Gunnlaugsson, became the first major casualty of the Panama Papers scandal, stepping aside from his office amid mounting public outrage that his family had sheltered money offshore. Just watch his reaction when he is first confronted with this question in an interview in this small video clip.

Anatoly Karpov!

Anatoly Karpov, the legendary world champion who reigned from 1975 to 1985, was listed in the leaked files of secret offshore companies as a director of a Cyprus-based company called Indiforth Ltd. The Telegraph reports that there is no suggestion of illegality and Karpov himself has previously said that he had nothing to do with business in the offshore zones and called the allegations a mistake.

After retiring from the game, Karpov was elected a state deputy in Russia's parliament, the Duma, for Putin's party, United Russia, in 2011. He is also famous for being a keen philatelist with a stamp collection worth at least £10 million. Tolya, as he is fondly known, was the first chess player to become a millionaire with his chess earnings alone. According to various media sources, such as this one, Karpov for a short while, at least, was the sole registered owner of a privately held Russian firm Petromir which found a gas field in Russia that was valued at $1 billion back in 2007.

David Kaplan is not a chessplayer

In a press release of the 2009 Presidential Board Meeting for the second quarter, FIDE says: "The PB acknowledged and discussed the proposal of David Kaplan, FIDE Development CEO, about the establishment of a new Internet portal centered around chess activities and the creation of a Chess News Agency. In relation to these developments, FIDE will enter into negotiation with Chess Lane company."

Two British Virgin Islands-based companies linked to the FIDE, Chess News Corporation, and Chess Lane S.A., are also mentioned in the files. The Telegraph, in its findings, revealed that Chess Lane was a small marketing business funded by the brothers Ziyavudine and Mohammed Magomedov from Dagestan, a federal republic (subject) of Russia, and fronted by the Israeli businessman and FIDE's CEO of Development, of course, Mr. David Kaplan. In 2009, an agreement was drafted to grant it exclusive rights to FIDE's commercial activities following a presentation by Mr. Kaplan. Read the exclusive ChessBase interview with David Kaplan from our archives here.

Interestingly, David Kaplan is also listed in the Panama Papers to a steering committee meeting in Tromso, Norway. A chess marketing company funded by two brothers from Dagestan and fronted by the then 'Development CEO' of FIDE, and all of them named in the Panama Paper leaks raises some questions. Why was the Chess Lane company founded in the British Virgin Islands only, and not in Russia, where Kaplan headed the Russian office branch of FIDE? The investment in the company, the officials, and its operation and business – was it really done in good faith for the development of chess, or was it just a channel to divert the money for some other purposes?

Although it was known that the Magomedov brothers were funding and Mr. Kaplan was fronting the Chess Lane company, this ICIJ link-map list shows that the Charitable and Goodwill Foundation, Orion Global Commodities Corp., Bikler Ltd., and Lintrade Finance Ltd., were the shareholders of the Chess Lane company. The Charitable and Goodwill Foundation is linked to Panama, and all other companies are linked to British Virgin Island – both the countries are tax havens. In other words, an offshore company being funded by four offshore companies.

Moving on, FIDE and Chess Lane then set up Chess Network Company, the other company named in the Panama Papers Leak, as a joint venture to attract sponsorship. The Telegraph, however, adds that 'there is no suggestion of illegal dealings and Mr. Kaplan and FIDE have not commented on the leak'.

The Telegraph further reports that 'Andrey Filatov, a billionaire oligarch and key ally of Russian president Vladimir Putin, has issued a denial after a name matching his was listed as a director and shareholder of Telecom Express Ltd, an offshore company with links to the British Virgin Islands'. A spokeswoman told The Telegraph the name listed does not refer Mr. Filatov and he has had no relationship with the company.

We too received the following press release by the Russian Chess Federation:

Press Release

RUSSIAN CHESS FEDERATION OFFICIAL STATEMENT

Moscow, 10 May 2016. The Russian Chess Federation expresses its concern about publication in The Telegraph and a number of other media of misleading information about the activities of the President of the Russian Chess Federation.

The aforementioned misleading information has been published in mass media with reference to the Mossack Fonseca archive, which in reality does not contain any information on the activities of the President of the Russian Chess Federation, or the companies he controls. While publishing the misleading information, representatives of the media in question have not taken any action to verify the published misleading information.

The Russian Chess Federation has contacted an international law firm whose experts are currently reviewing the situation and considering legal action to hold disseminators of the misleading information liable.

The Russian Chess Federation President Mr. Filatov intends to use all legal actions available to him to defend his rights, interests and business reputation. The Russian Chess Federation warns that any attempt at further dissemination of the above misleading information will have legal consequences.

It would seem, just as in Fischer's and Karpov's case, Filatov too found his name being used as an intermediary in the dealings of these offshore companies.

Addendum

On May 16 we received the following press release:

Press Release

QUINN EMANUEL TO REPRESENT THE RCF

Moscow, 16 May 2016 – The international law firm Quinn Emanuel will represent the interests of the Russian Chess Federation (the – “RCF”) in connection with publication of the false information about the RCF President Andrey Filatov. The engagement agreement has been signed today.

On May 10, The Telegraph and a number of other media published articles containing false information about activities of the RCF President (e.g., Telegraph article under the title “Chess Drawn into Panama Papers Scandal”). The false information referring to the Mossack Fonseca database has been published in the media without proper verification of its accuracy.

«I am grateful to Quinn Emanuel for the prompt response to our request and consider it necessary to establish this legal precedent, - says the RCF President Andrey Filatov. - As subjects of law, mass media are responsible for the accuracy of their publications, and are not entitled to infringe on anyone's rights or business reputation. The media should act in strict accordance with the law and refrain from informational arbitrariness. Any information that goes to press requires fact checking and a legal sign-off, even that being published in pursuit of the voguish Panamagate sensationalism.»

Quinn Emanuel has begun to examine the matter with a view to taking legal actions against disseminators of the misleading information.

The Russian Chess Federation President Mr. Filatov intends to use all legal means available to him to defend his rights, interests and business reputation. The Russian Chess Federation warns that any attempt to further disseminate the above misleading information will have legal consequences.

For additional information: Kirill Zangalis. Tel: (968) 732 0080; e-mail: zangalis@mail.ru.

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Priyadarshan Banjan is a 23-year-old club player from India. He works as an editor for ChessBase News and ChessBase India. He is a chess fanatic and an avid fan of Vishy Anand. He also maintains a blog on a variety of topics.
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Chessspawnvt Chessspawnvt 5/17/2016 05:15
Those of us in the legal community refer to Tony's successful defense as "The Stupidity Defense." The IRS regs are so complex that even a lawyer can't really understand them.
JohnTVian JohnTVian 5/16/2016 02:56
Thank you Maatalkko for this information. If I'm wrong then I will have to admit it. One would think that if the IRS was acting legally, they would be more specific about the law. It still smells like Al Capone with his extortionist ways. I have found the information and am checking it out. Concerning conspiracy theories, I do my homework before biting the bait. This is what a friendly dialogue does, it produces results.
yesenadam yesenadam 5/16/2016 03:57
(I know nothing of US tax law, but..) I believe Thoreau consistently refused to pay taxes, because he objected to what they were used for. (I think his friends paid it for him, against his will.) Does anyone take this line of argument these days? It seems more ..solid than those "I don't have to because of obscure technicality X" arguments. Well, especially now such a large fraction of US taxes, one could argue, is going towards killing people around the world and finding new ways to do so, refusing to pay that fraction seems reasonable to me. Objecting to giving money for anything - schools, roads etc seems a whole other thing.
Maatalkko Maatalkko 5/15/2016 10:20
Another key consideration is that the anti-tax arguments are no longer new or novel, so even the hope of delaying for years is no longer likely to be realized. A couple of years ago, a co-worker of mine interned with the IRS in law school. When people would present anti-tax theories, the Collections agent would say "Wow, you've really done your homework...I think we can skip [internal] appeals and just issue you a court date." At trial, judges don't even listen to tax protestor or sovereign citizen arguments. They will simply issue a judgment, citing extensive precedent.
Maatalkko Maatalkko 5/15/2016 09:54
As a CPA who also enjoys a conspiracy theories, I have read anti-tax theories for personal enjoyment. The three main proponents of anti-tax arguments are Irwin Schiff, Tommy Cryer, and Joe Bannister. Schiff is more credible than Bannister; in fact, he refutes the 861 argument on his website. His materials are quite dense, and I don't have the time or inclination to read them all. However, since Schiff died in prison for tax evasion, I don't think he discovered a magic bullet in his 40+ years of anti-tax activism.

Tommy Cryer was a lawyer who claimed he beat the IRS in court, which is sort of true; he avoided jail time by convincing a jury that he did not commit "fraud" because he sincerely believed his positions were correct. However, when he died at age 62 he had a $1.7 million tax adjustment hanging over his head. I have no doubt the IRS would have taken it all given a few more years to litigate.

So, regardless of whether the anti-tax guys are "right" in some metaphysical sense, their legal and procedural ingenuity has not met with much practical success. The IRS is a slow-moving beast, and you can delay the tax for years with protestations, but unless you are doing everything in cash (old-school, blue-collar criminal tax evasion) the IRS will get you eventually, and it will cost you quite a lot. That's been the universal result.
Maatalkko Maatalkko 5/15/2016 09:06
Title 26, Section 1 does apply to U.S. citizens. I can't be certain, but I believe you are making what's called the "861 Argument", so I will address this briefly. Section 861 is part of Subchapter N. Tax practitioners call it the "sourcing rules" because it defines what income is U.S. source and what is foreign source. This is important to U.S. persons because it affects the amount of their foreign tax credit. It is even more important to foreign persons doing business in the U.S., because they are only taxed on their U.S. source income, a.k.a. "effectively connected income" or ECI.

You are absolutely correct that the tax on ECI imposed by §861 and other Sections within Subchapter N only applies to non-U.S. persons. However, the definitions in Subchapter N do NOT affect Section 1, which is in Subchapter A. Section 1 begins "Tax is imposed"...it doesn't get any clearer than that! There are many places in the Internal Revenue Code where something is defined, but that definition only relates to a specific subset of the Code and not to the Code as a whole. All mainstream tax practitioners and judges read Section 861 this way.

The Section 861 argument has been presented in court many times and has lost each time. (If it had succeeded, Treasury and/or Congress would have immediately patched the problem.) The Section 861 argument is officially defined as a "frivolous position", meaning that will pay tax, interest, penalties, and a frivolous positions penalty of up to $25,000 if you try it in court. An ex-IRS and ex-CPA (disbarred) agent named Joe Bannister, who is convinced the Section 861 argument is correct, recently lost a huge judgment, and that only covered years up to 2006. He will go bankrupt if he persists. Check out Tax Court Memo 2015-10. Unfortunately, Joe Bannister is still considered an anti-tax authority by sources that don't mention his epic losses.

So please make sure your anti-tax theory is not based on the Section 861 argument! The court system has very little patience for this line of reasoning!
JohnTVian JohnTVian 5/15/2016 02:53
I have stated my case about the Federal Income Tax with a clear conscience. There is no law that enforces me to pay this tax unless you want to consider the thugs (IRS) as the law. This is not how our judicial system was built. I was given US Code, Title 26, section 1 as an example but this doesn’t pertain to U.S. citizens. There has actually been a $50,000 reward for anyone proving that the Federal Income Tax is legal, by law. It has never been proven nor can it be because there really isn’t any law. Show me the law...
yesenadam yesenadam 5/15/2016 09:10
Thank you JohnTVian and Maatalkko for the impressively civil discussion! I guess neither of you felt your position at all threatened. :-) It was a pleasure to read, if rather one-sided. It reads like conspiracy theorist vs experience and common sense.

John, your first sentence "There is nothing criminal about refusing to pay taxes." already seems at least paradoxical - there sure seems <something> criminal about it! - you will be locked up. Ah, but you mean I suppose, "there's nothing criminal, in theory", using the word as in "it's true in theory" i.e. but not in practice. But then it's not much of a theory is it, as Maatalkko points out. Thanks again guys for the way you handled this; it's quite rare to read an exchange featuring such a complete disagreement online without feeling degraded by it! :-)
Chessspawnvt Chessspawnvt 5/13/2016 10:11
There are people in Federal prisons as we dialogue here who are there for income tax fraud. That said, one of my law professors years ago said that she always considered her Federal income tax filing an offer which the government could accept or not accept.
JohnTVian JohnTVian 5/13/2016 06:49
Maatalkko, First of all, I'd like to thank you for your dialog with a friendly manner. I can respect that and I do. It all started in 1913 when the Federal Reserve started printing our money and charging Congress interest on the dollar. There is nothing Federal about the Federal Reserve. It's private bankers who are making all the money by creating money out of nothing. Thomas Jefferson once said "I sincerely believe... that banking establishments are more dangerous than standing armies." President Jefferson also said "If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." Andrew Jackson said, "It is to be regretted that the rich and powerful too often bend the acts of government to their own selfish purposes."

We are witnessing this today as there are an increasing amount of homeless people in America then there ever has been throughout our history. I don't feel one bit obligated in giving my hard earned money to rich men who have no interest in our own well being and our liberties.
Maatalkko Maatalkko 5/13/2016 05:55
John, the income tax is absolutely essential to the functioning of the US. You refer to printing money; however, if the Fed printed our entire budget, hyperinflation would set in almost immediately. The law is a social contract necessary to run society. A person cannot exempt himself from the law, to his own benefit, because of some pretended philosophical disagreement with basic things that society agreed on centuries ago. It does not make sense in theory or in practice.

As to the specific legal arguments, I've never seen an impressive one. Sections 1, 61, 7701, 7703 and related regulations are clear enough to an unbiased reader. The tax protestor arguments I've seen tend to be based on strained readings, sometimes from very marginal sources such as Black's Law Dictionary, or even totally inadmissible sources such as the Internal Revenue Manual. Moreover, the courts have rejected them as frivolous numerous times. The law is not a choose your own adventure game. There is not "1 Weird Trick" to defeat the income tax. Irwin Schiff created most of the tax protestor arguments. Bright guy, but obsessive and drawn to irrelevant details. Look what happened to him, if you don't know already....
JohnTVian JohnTVian 5/13/2016 05:02
@ Maatalkko, I thank you for your friendly warning; however, US Code, Title 26, section 1 is pertaining to foreign aliens and military personnel, not to the U.S. citizens. I'm aware of all of the technicalities the IRS will use to coerce "We the People" into paying the Federal Income Tax. I can assure you that it's the biggest fraud ever perpetrated on the American people. If there were ever a time for a tax revolt, today is the day. If America really wanted to be a great nation again, we the people need to get back to the principles of liberty that has made us a free people. Thomas Payne even admits in his pamphlet, "Common Sense," that a country ruled by the laws of men is not a free country. Thus was the reason for Blackstone Law. We have abandoned Blackstone Law for Case Law which nothing more than a soft flavor of tyranny...
Maatalkko Maatalkko 5/13/2016 09:36
Some people fail to understand that laws are entirely man-made. They do not exist except in the context of how reasonable people (judges, lawyers, and juries) interpret and enforce them. This is why judicial precedent is so critically important. Therefore, if some guy has a pet legal theory he believes to be "correct", but nobody agrees with him, he is wrong BY DEFINITION. Anyone with legal training understands this principle.

However, the armchair philosopher will rarely accept this, instead claiming unjust persecution. And, if he evades a large enough amount of taxes and leaves a paper trail, he will eventually be taken to court for it. Then the persecution complex becomes a self-fulfilling prophecy. The sad case of Irwin Schiff is a good example of this.
Maatalkko Maatalkko 5/13/2016 09:08
JohnTVian, that is not accurate. US Code, Title 26, section 1 imposes Federal Income Tax. Therefore, there absolutely is a law imposing tax. The 16th Amendment, which was adopted by the States, does not directly establish an income tax. However, it eliminated the earlier reason that the tax was unconstitutional. The Constitutionality of the income tax was settled by the find and capable legal minds of the U.S. 100 years ago.

Today, there is a cottage industry of people who claim obscure legal "proofs" against the income tax. However, Law is not mathematics; there are no "proofs". If the Supreme Court, and the Congress, and every credentialed lawyer and accountant in the U.S., agree that there is an income tax, no clever argument can change that. It would be like dredging up a medieval document that "proves" knights "really" move diagonally.

Besides, if you try this you will end up in jail. Just a friendly warning from an actual tax professional!
JohnTVian JohnTVian 5/12/2016 09:45
There is nothing criminal about refusing to pay taxes. Even the IRS code book states that Federal Income Tax is voluntary. I have refused to volunteer any of my own money to these rich bankers who print this monopoly money. It's just being a responsible citizen. The 16th Amendment was never ratified, so basically, there is no law to enforce the Federal Income Tax on me. Aaron Russo did a documentary about this subject. Here it is:

https://www.youtube.com/watch?v=uNNeVu8wUak
MagicLieske MagicLieske 5/12/2016 06:37
Je suis Panama
http://www.tagesspiegel.de/images/charlie-panama/13409196/2-format43.png
Chessspawnvt Chessspawnvt 5/12/2016 03:21
A case of mistaken identity is what Filatov is apparently claiming. This is like the old What's My Line TV show from the 1950's. "Will the real Andrey Filatov please stand up."

Head of the RCF Andrey Filatov affirms that he is not the same Andrey Filatov mentioned in the 'Panamagate' files. http://chess-news.ru/node/21430
KevinC KevinC 5/12/2016 01:20
Bobby chose to ignore the law, so anything that happened to him was on...him. That is not the same as trying to "destroy" him. Love him as a chess player, but he was still a wanted man.
Chessspawnvt Chessspawnvt 5/12/2016 04:56
This is just the tip of the Iceberg for Kirsan & Co.(s) I can't imagine who in their right mind would have any dealings with any of them in NYC. I doubt that all of this has gone unnoticed by the NYC Mayor, the NYC Corporation Counsel and the US Dept. of the Treasury.

Perhaps if all of these corporate entities agreed to open all of their financial records to the public, we could all get on with playing chess. ;-)
koko48 koko48 5/12/2016 03:32
In "Endgame" (Frank Brady's biography of Fischer) it is mentioned that his winnings from the 1992 Yugoslavia match were deposited to Union Bank of Switzerland. The money was then transferred to an Icelandic Bank after Fischer relocated there in 2005, but Fischer did not want to keep his money in an Icelandic bank and wanted to transfer it to a bank he considered safer.

The US government was also threatening to take all his winnings as punishment for breaking the sanctions, so it certainly makes sense if he wanted to stash it offshore
dysanfel dysanfel 5/12/2016 01:58
Can't blame Bobby for hiding his money. Unlike others, he had people actively trying to destroy him rather than just not paying taxes.
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