The Mossack Fonseca document release on April 3, commonly known as the “Panama Papers,” caused a global outcry about the ease with which wealthy (and sometimes corrupt and criminal) individuals shield their assets from public view. A lot of press focus has been on the illegal or at least illegitimate activity contained within the Panama Papers. But as President Obama pointed out, the biggest problem is that “[a] lot of this is legal.”
Indeed, The Atlantic notes that it is “child’s play” to set up shell companies like those outed by the leak. And there is no need to go to Panama: The United States itself is a desirable location for wealthy individuals looking to hide some funds. The Tax Justice Network named the U.S. the third-most secretive jurisdiction in the world, largely due to “race to the bottom” policies in states like Nevada, Delaware, and Wyoming. Nevada alone was the 8th most popular tax haven in the Panama Papers leak. And a USA Today investigation found that of 1,000 Nevada-registered companies linked to Mossack Fonseca, all 1,000 shared the same registered corporate agent in a non-descript small office. Even before the Panama Papers leak, a Bloomberg Businessweek cover proclaimed Reno “The Biggest Little Tax Haven in the World.”
Countries are now claiming that they will examine their policies regarding shell companies, corporate tax dodges, and secretive company ownership structures. Britain, Norway, and Denmark have declared plans to require the disclosure of a corporation’s “ultimate ownership.” President Obama has used the Panama Papers revelations to call for the closing of tax loopholes and as support for the new rules closing corporate inversions, whereby companies move headquarters overseas to lower their U.S. tax burden. These new rules have already shut down the merger of U.S.-based Pfizer and Ireland-based Allergan. Addressing the issue on a federal level will only go so far. It is the state laws that mean “it can be more difficult to get a fishing license than to register a shell company” or that require “more information to get a library card than to form a U.S. corporation.” Real reform will need state and federal changes. So far at least, states have been slow to jump on the reform bandwagon.
What do you think? Will the Panama Papers revelations motivate increased regulation of shell companies in the U.S.?
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