Daddy Yankee’s Name Included in #PanamaPapers: Questions Arise About Income

Roberto ferló

Daddy Yankee in concert (Roberto Ferló via Visualhunt)

By Omaya Sosa Pascual

Since jumping from Villa Kennedy to stardom in 2004, the Big Boss and King of Reggaeton, Daddy Yankee, has sold over 20 million records, and has performed in hundreds of concerts around the world. In addition, he has launched two record labels, and lines of clothing, perfume, watches and shoes. He has also starred in a film, and been featured in international advertising campaigns. However, during this successful path, Daddy Yankee’s companies, El Cartel Records and Los Cangris Inc., have mostly reported an annual income of less than a million dollars or even losses.

Only his concerts leave huge amounts of money after overhead expenses—profits fluctuating, but exceeding $200,000 for each one of them, according to documents reviewed by the Centro de Periodismo Investigativo (Center for Investigative Journalism), the CPI. In addition to profits from concerts, there are music royalties, sponsorship from brands such as Pepsi and Reebok, appearances in radio and television programs, and sales of the artist’s merchandising, among other commercial products created by his family business empire.

The financial picture these two companies have painted before the public treasury during a decade of commercial successes and world tours for King Daddy, contrasts the artist’s lifestyle. By 2015, the singer, whose real name is Ramón Luis Ayala, and his wife Mireddys González Castellanos had a total of eight properties in Puerto Rico, including his residence at Vista Mar Marina and her “El Cartel” estate in Luquillo’s Hacienda Carabalí, and two properties in Florida, according to the singer under federal questioning. Also, Ayala often rents the 100-foot yacht Now We Are Here from Fajardo’s Puerto del Rey marina for pleasure rides, which has an estimated weekly cost of $30,000, two sources said on condition of anonymity.

Daddy Yankee’s name has emerged as part of a long list of the world’s richest power players and criminals linked to the Panamanian law firm Mossack Fonseca (MF) in the Panama Papers from the International Consortium of Investigative Journalists (ICIJ). The journalistic organization obtained 11.5 million internal documents of Mossack Fonseca (MF) —including corporate and banking records, e-mails, databases, and documents of identity— which were analyzed for a year by 376 journalists from 109 media partners around the world, which include the CPI in Puerto Rico. MF is a multinational firm that specializes in creating anonymous corporations and offshore bank accounts for customers, protecting one’s identity.

Ayala arises within the research as the core of a complexly assembled corporate scheme to allegedly give rights to one of his concerts in Peru in exchange for the transfer of $350,000 to a bank account abroad. The network of companies includes a company called Arion Investments LLC, incorporated in Nevada in 2006 by MF staff as a shelf company.

A shelf company is a pre-registered company usually formed by a law firm. The shelf company is not in operation, but remains ready for sale to a customer who wants to use it. These corporations can be acquired and used for legitimate and trustworthy purposes, or can be used as a front for tax evasion, money laundering or other illicit activities. When the latter happens, then it’s a shell or phantom company, whose sole purpose is to hide assets. The same applies to corporate entities and offshore accounts.

These so-called offshore companies are companies that are characterized by a country tax haven which do not perform any economic or commercial activity. They are only registered for tax advantages and privacy, thus hindering the identification of the money flow.

Arion acquired the rights of the aforementioned concert by $250,000 from the then representative of Ayala (Cardenas Marketing Network) and two days later resold them to a Peruvian company, Expectar Productions SRL, for $350,000. The Arion Investments company was incorporated at the request of a “customer,” according to email exchanges of MF employees, who are never identified by name but by a number.

The $350,000 would be transferred by the producer, according to the contract now in the hands of the CPI, “72 hours after the presentation of the show” by Daddy Yankee to an account to be informed “promptly” by Arion. The document stipulates that Expectar also would pay $70,000 directly to the artist, as well as the negotiation of additional compensation not stipulated, and other conditions as the payment of transfers and diets of the artist and his team, plus the production costs. The concert was finally held on June 10, 2006 at the stadium of the University of San Marcos in Lima, and the monies was transferred in payments to Arion on January 19, September 5, 12 and 25, and on December 29, 2006 for $226,753, and on January 10, 16 and March 20, 2007 for $123,247, according to details of the Peruvian public prosecutor documents related to a back tax case against the producer.

The mentioned contract establishes that the artist had an additional contract with Arion, but this document does not appear in the MF records obtained by the CPI.

When looking for the owner(s) and officer(s) of Arion’s corporate entity to find out about the money’s final destination, it ends up being with two other corporations. These two Panamanian corporations (Hillard Enterprises S.A. and Fergus International S.A.) are also recorded by MF staff. As a result, it is not possible to find the last beneficiary of earnings from the contract by the Puerto Rican Reggaeton concert. The three companies were created by MF for unspecified purposes, and none conducts known business. The official signatories in three corporations are the same people: employees of MF who have participated in the creation of tens of thousands of other corporations registered by the firm, according to the ICIJ investigation.

daddy-yankee-esquema-corporativo

Former Assistant Secretaries for tax evasion of Hacienda (Puerto Rico’s Treasury) and experts on the subject, attorneys Eduardo Martínez Echeverría and Miguel Eliza Rivera, explained that one of the methods that individuals and corporations use for evasion is the creation of structures with many layers of corporate entities, so it makes it difficult to identify the origin and the final destination of the money. They also pointed out that one of the methods that researchers use to detect evasion is the comparison of the lifestyle and level of expenditure of the person with the declared income.

Arion Investments was acquired by an unidentified client, for whom MF and its staff carries out all business. This includes mailing letters to the Curaçao Exprinter Bank, which has a branch in Nevada, for the creation of a bank account a month after the Daddy Yankee concert, according to the internal correspondence from MF.

The contract between Arion and Expectar, which the CPI also has, was amended to include additional artist presentations in Peru at least until 2009, but it is unknown if funds transfers were performed via Arion for other concerts.

Through his public relations representative, Helga García, Ayala declined to grant an interview to the CPI to answer questions on the subject of corporate finances and clarify his relationship with these companies. García also supplied information requested on his concerts in the past 10 years. She added that the request of the CPI was “complicated” and that Daddy Yankee was out of the country participating in the La Voz Kids. García requested the specific allegations that the singer’s advisers, including his attorney Edwin Prado, could assess and respond to. The CPI immediately sent these allegations in writing, but they were not answered. In the past, Prado represented another of his clients from the world of Reggaeton, Raphy Pina of Pina Records, who was federally convicted for fraud and money laundering.

After the contract with the Peruvian producer Expectar, in 2010 Daddy Yankee hired a new production company, Argentina Five Live Entertainment, to create a 10-concert tour for $1.3 million, Again, the amount only corresponded to rights from the sale of the concerts, since the producer is committed in the contract to assume all costs of the events, including promotion, rentals, transportation, equipment and accommodation. On this occasion, the company Icaro Services, Inc., incorporated in Florida in 2008 by the Colombian Edgar Baldiri Martínez, represented the artist.

Monies were transferred to a Citibank account in Florida, corroborated by the CPI in a multimillion-dollar federal lawsuit that the artist lost in 2013 due to the cancellation of concerts, defamation and misappropriation of $800,000 of the money prepaid to the artist by Argentina Five. The jury determined that Daddy Yankee, El Cartel Records and his agent Icaro Services had to pay $6 million. The court later reduced that judgment to $2.2 million, which has not yet been paid. The case is on appeal, but the court is in the process of seizing accounts to ensure the payment of the judgment.

Both the information about the transfers of the Peru concert payment, as well as the failed tour Argentina tour reveal the magnitude of the fees each country’s producers pay just for the rights of the concerts. In the aforementioned federal lawsuit, Daddy Yankee declared under oath, that payments for his performances vary, but are around $100,000 for each concert and other $100,000 to El Cartel Records, as stated by the company’s comptroller and Daddy Yankee’s sister-in-law, Ayeicha González.

Since 2004, the singer has visited over a dozen countries annually and in most of them, has performed in several concerts. That level of commercial activity, coupled with the albums and products launched into the market every year, contrasts with the financial reports established annually by their corporations in the State Department of Puerto Rico. These reports also present numerical inconsistencies and irregularities.

In 2004, Ayala released his best-selling album to date, Barrio Fino, but El Cartel, newly formed, reported no capital and his company Los Cangris only reported $57,000. The following year, when his biggest hit to date broke out, “Gasolina,” Paramount Pictures made a film of his autobiography, and Pepsi Co. hired Daddy Yankee to star in their national advertising campaign, but his companies reported having income of $326,113 and $549,035. In 2014, Barrio Fino established itself as the biggest-selling album of the decade according to Billboard, with more than 10 million copies sold and 15 million downloads. However, Cartel reported income of $793,182 and Cangris reported losses of $1.3 million.

The exception to this pattern was in 2010, when Cartel reported $5.4 million, but the following year filed a report where it reported $0 income. The year after that, it reported losses of $506,000.

Los Cangris was incorporated in 2001 by Ramón Luis Ayala Rodríguez himself. He was still living in the public housing cooperative of Santurce’s Villa Kennedy, where he grew up and began to make music in the 1990’s. Cartel Records was registered by his brother, Nomar Ayala Rodríguez, in December 2003. For more than a decade, the two companies have been chaired by the Big Boss’ wife, Mireddys González Castellanos, and the corporate officer posts have been kept in the hands of her sister, Ayeicha, who is listed as treasurer and secretary, in said documents. Both corporations are 100% owned by the couple who said their wedding vows when the singer was 17 years old.

There’s also a contrast to the royalties revenue that Cartel has reported. Ayeicha González said under oath in court that the estimated revenue for royalties for that company alone exceeded $12 million for the past 10 years. This figure would include added revenues from sponsorship, concerts and other products and services offered by the artist’s empire through Cartel, Cangri and two other companies: DY Marketing and DY Broadcasting.

Treasury Department Could Investigate

Companies domiciled in Puerto Rico must inform the Treasury Department of all revenues, including those generated by sales or services outside of the island, said the Secretary of the Treasury, Juan Zaragoza, to questions from the CPI about tax laws that apply generally to companies doing business abroad. He also indicated that these corporations have to keep their books and have them available for inspection by the agency.

Juan Zaragoza, Treasury Secretary (Photo by Alberto Bartolomei)

When asked how the Treasury Department is selecting the evasion investigations being made under his tenure, which have generated 17 referrals to the Department of Justice, Zaragoza indicated that mostly by tips or as a result of the information arising in their regular audits process, but that they started two special projects to investigate people who have not filed returns for several consecutive years, and companies that are not sending the IVU (sales and consumption tax). When CPI asked if during his tenure Zaragoza has researched any company or personality in the music industry with operations or offshore accounts, he said he had not.

However, Zaragoza said that Treasury has the ability to conduct this type of research and also has a collaboration agreement with the Internal Revenue Service should they receive information about any case.

MF Reacts to the Release of the Panama Papers

Mossack Fonseca, incorporated in 1986, with 35 branches around the world, has been under fire for different cases and in recent weeks for its role in the scandal of the “Lava Jato” in Brazil, a case of extortion and money laundering that has hounded former president Luiz Inácio Lula da Silva and president Dilma Rousseff. In Puerto Rico, the firm has served companies and customers directly or through intermediaries. It has also sought to do business with some lawyers from the island’s largest law firms.

In written statements to the ICIJ about the operations of the firm to create corporations and offshore accounts, allegations that facilitate tax evasion and money laundering, and having clients with criminal records, the company said that “it does not promote illegal acts.”

“The allegations that we provide shareholders with structures that are supposedly designed to hide the identity of the real owners are not supported and are false,” said MF.

Ramón Fonseca Mora, co-founder of the firm and as recently as last month an active adviser to the president of Panama, Juan Carlos Varela, asked as for an indefinite license to defend his firm’s honor. In a recent interview with the Panama’s TVN News, Fonseca Mora said that his law firm builds partnerships or corporations, “just like a car factory builds a car.” His responsibility ends once the vehicle is sold, Fonseca Mora added.

“A corporation is a vehicle, a legal vehicle to buy apartments, make transactions, to have bank accounts. We lawyers create corporations. We build them like a factory builds a truck and then we sell them. We are not responsible for what is done with that corporation. It’s like you are accusing a car factory for a car accident or for a robbery that used that car,” said Fonseca.

“We are a factory of corporations, which is a legitimate business that is best for many of us who live in this country. And many Panamanians benefit directly and indirectly from it,” he added.

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