On the Anniversary of the Panama Papers, What Have We Learned?

Today marks one year since a leak of millions of documents from the Panamanian law firm Mossack Fonseca gave a preview into the world of anonymous companies used to hide money both here at home and abroad.

Today marks one year since a leak of millions of documents from the Panamanian law firm Mossack Fonseca offered a look into the world of anonymous companies used to hide money both here at home and abroad. The shock waves from this massive database of documents echoed around the globe, resulting in resignations and firings and criminal charges. Stock values plummeted. Fuel was added to already burning international fires. Emma Watson was brought into the mix somehow. But all the drama of these document leaks shouldn’t conceal what the information within really means: anonymous shell corporations are a prolific problem, but the solution—revealing the real owners of these companies—can be easily achieved, would be infinitely valuable, and are supported by people across the political spectrum.

Since their release, the Panama Papers have shown that scam artists, tax evaders, fraudsters, terrorists, narco-traffickers, arms dealers, corrupt foreign officials, other criminals easily and regularly set up shell companies—all without providing any information about who owns or controls such companies. The Panama Papers focused largely on shell corporations set up by non-Americans in foreign countries, but the implications of what a shady character could do with an anonymous company were shocking enough to capture the attention of many Americans

Far from being a problem reserved for foreigners in other countries, anonymous corporations are an issue here at home. In the U.S., it’s often even easier to set up a corporation with no real owner attached than it is in the countries highlighted in the Panama Papers. Unlike most other countries, the U.S. has no laws limiting the formation of anonymous shell companies and no way to limit their use as fronts for tax purposes or money laundering.

At a recent “Post-Panama” Brookings Institute panel event, Senator Sheldon Whitehouse said, “The Panama Papers show that a criminal no longer needs a Swiss bank account or to book a trip to the Cayman Islands to hide illicit funds. It’s easy enough to form an anonymous shell company right here in the United States.” 

The criminality of anonymous shell corporations hides behind the banal jargon of incorporation law. Under U.S. law today, a business can incorporate without needing to list the real “beneficial owner”, or person who manages and benefits from the operations of the business, on any documents. Instead, new corporations can be tied to “nominees”, people chosen to represent the company. This can be anyone from a lawyer, protected by attorney-client privilege, or just about anyone else, protected by their own ignorance or disconnect from the crimes being facilitated by the shell company.

The wrongdoing facilitated by our lax incorporation laws ranges from credit card fraud, government contracting fraud, and even anonymous financing of SuperPACs — to other issues that PIRG doesn’t specifically address, but are nonetheless concerning, such as money laundering for drug cartels, doing business with sanctioned countries, and funding human trafficking operations.

For example:

  • The Federal Trade commission sued a man for using at least 18 different fraudulent shell firms to sell credit cards that people never received.
  • One indictment showed that an Armenian organized crime ring was using 118 different shell firms in 25 states to rip off Medicare for over $100 million.
  • In Delaware it’s so easy to set up a shell company that there are currently more corporations in the state than people. One of these Delaware companies was found to have purchased tax liens in a number of states, forcing homeowners into foreclosure.
  • Another anonymous company was caught selling knock off parts to the Defense Department in exchange for tens of thousands in federal contracts.

Even the most diligent investigators can hit a dead end at an anonymous corporation, their cases stymied by shell companies owned by shell companies owned by some distantly related “nominee”. That’s why efforts to pass commonsense incorporation transparency laws have been supported by the Fraternal Order of Police, and by lawmakers concerned with issues like drug trafficking.

The Panama Papers, in the past year, have become more than just another data dump ripe for scandal. They have been a tool by which people who have long worked on issues of corporate transparency have been able to bring the stories of anonymous shell company abuse to the public and to lawmakers. Just last year, Congress introduced several pieces of legislation to address anonymous shell companies. This year, we’re continuing to mobilize the groups that are most invested in putting an end to shell corporations—law enforcement officials, consumers who have been defrauded, faith communities concerned about drugs and human trafficking. 

The Panama Papers have brought the issue of anonymous shell corporations into the public conversation, but it’s taken the work of dedicated advocates and experts to show that the problems presented have solutions—and those solutions are available, enforceable, and broadly supported by people across the political spectrum.