Panama of the North

About a month ago, the Panama Papers scandal broke onto the international news scene, shining sunlight on the vast numbers of shell companies the Panamanian law firm, Mossack Fonseca, used to hide assets for wealthy individuals and companies.

The leaker (hacker?) behind the Panama Papers revelations , dubbed John Doe , dumped a tsunami of data on German journalists, who then enlisted the assistance of the International Consortium of Investigative Journalists (ICIJ) to wade through the 11.5 million documents. Because of the vast amount of data, the ICIJ is now turning to crowd-sourcing analysis by publishing a searchable database to allow the public to access the trove of information on secret treasures hidden within shell companies.

Careers are already ending as the exposé shines a light on the dirty little secrets public figures have camouflaged through the use of anonymous shell companies. The Prime Minister of Iceland was forced to step down when his name was associated with the Panama Papers files. The surge of stories has yet to ebb and will likely continue to flood us with information as citizen sleuths uncover additional instances of the rich and famous using Mossack Fonseca’s services to arrange the harboring of their assets from tax authorities, journalists, and other probing eyes.

Many of the world’s elite stash their riches offshore in lush tropical locales like the Bahamas or the British Virgin Islands, but a large number are also buried in companies formed in the deserts of Nevada. The state ranks on the list of top 10 places used by the Panamanian law firm to create shell companies for their clients.

Though flush with famous foreigners’ names like Emma Watson, the actress that played Harry Potter’s Hermione Granger, Americans are conspicuously underrepresented in the 14,000 plus names on Mossack Fonseca client list. That shouldn’t be surprising, though, since the U.S. is already well-established as a tax haven.

Because most states require less information to start a company than to get a library card or a drivers license, anonymous companies can be used to disguise true ownership and allow people to keep assets secret —allowing tax avoidance as well as illegal activities of all sorts, including money laundering for diverse crimes, from arms trades to human trafficking. The corporate anonymity can be compounded by hiding shell companies within shell companies, like Russian nesting dolls, allowing criminals to send law enforcement from dead end to dead end, never closing in on the true criminals.

The solution to this problem of secret money stashed in shell companies is easy: require the true owners of businesses to be listed at the time that they are incorporated. The Incorporation Transparency and Law Enforcement Assistance Act (S 2489/HR 4450) is a bipartisan bill to require collection of beneficial ownership information at the time that corporations are formed. It is a strong proposal with real teeth to wipe out anonymous shell corporations that can be used to hide any number of illegal and/or immoral activities. That’s why such a large array of law enforcement organizations have endorsed the bill, including the head of the FBI’s financial crime’s unit.

The outcry from the Panama Papers revelations is causing a global push for governments to take swift action to address the problem of shell companies. President Obama’s administration recently attempted to take a step in the right direction when it finalized rules to combat money laundering by requiring banks and other financial institutions to research (also called performing “due diligence” checks) regarding who owns accounts. However, tax experts like the venerable Ret. Senator Carl Levin called the efforts a step backward, and argued the new rule created loopholes that would swallow its main intent. For example, the Administration’s mushy definition of a beneficial owner in the rule—requiring listing only of individuals with “significant responsibility” and not true ownership of the company—clearly will be far too open to gamesmanship. The White House announcement also previewed additional actions in response to the Panama Papers that would include drafting legislation in Congress to require beneficial ownership information—but details have not yet been released. Not only is it disappointing that the Administration didn’t take the opportunity to use a strong definition of a beneficial owner in the anti-money laundering rule, but the White House should not be focused on writing new legislation, but rather on increasing the pressure to pass the Incorporation Transparency and Law Enforcement Assistance Act—which is much stronger.

Leading a lobbying team as part of the Financial Accountability and Corporate Transparency (FACT) Coalition, I joined with three reverends who were making the “faith case” for why we need incorporation transparency: promoting tax fairness, stopping illicit money flows and unmasking criminals. Small businesspersons also joined FACT Coalition advocacy teams to explain how incorporation transparency is rigging the system against them by allowing multinational corporations to dodge taxes and obscuring information about competitors. Though our groups gained traction with offices on both sides of the aisle, there’s still a long way to go to convince Congress to pass the legislation.

That’s where you come in. It’s not just criminals that use shell companies to stash cash out of view; they’re also a main part of corporations’ tax avoidance strategies. Given how deep and wide the flow of corporate campaign cash has become, Congress is literally between the devil and the deep blue sea on this. If we want them to stand up to their corporate benefactors, we need an ever rising tide of educated and engaged citizens like YOU to make their voice heard.

As the Panama Paper leaker, John Doe, stated in his manifesto, “Income inequality is one of the defining issues of our time.”

You can help carry the water on getting this bill passed to make sure that wealthy individuals are no longer able to play by another set of rules and stash their wealth in shell companies by taking action to urge Congress to pass the Incorporation Transparency and Law Enforcement Assistance Act.

And, after you take action, please tweet using the hashtag #PanamaPapers to push others following the issue on social media to urge their members of Congress to support requiring real beneficial ownership information when corporations are formed.

Frauds, criminals and tax dodgers take note: we’re not falling for your shell games anymore.

Susan Harley is the deputy director of Public Citizen’s Congress Watch division.