United States of Anonymity After Panama Papers, U.S. Emerges as Haven for Opaque Businesses

By Aishvarya Kavi

The United States has stepped up its fight against terrorism since President Donald Trump took office, more than doubling the number of drone strikes and putting boots on the ground in Iraq. Yet on the home front, lax financial regulation allows terrorists and international criminal organizations to launder and stash money that fuels illicit activity worldwide, according to a panel of experts on corporate transparency.

Whitehouse spoke at a forum at the Brookings Institution, reviewing the state of corporate transparency a year after release of the Panama Papers. That investigation, spearheaded by the International Consortium of Investigative Journalists, exposed scores of politicians, corporate leaders and celebrities who held billions of dollars in secret accounts and anonymous shell companies. The revelations propelled the European Union to beef up global tax disclosure standards and launch investigations into money laundering and tax evasion. The UK, Spain, Germany, Italy and France have also enacted new transparency legislation.

Meanwhile, the U.S. has become the “leading tax and secrecy haven for rich foreigners,” according to a European Union report published March 7.

Every state in the U.S. currently allows beneficial owners of shell companies to remain completely anonymous. The U.S. “provides a wide array of secrecy and tax-free facilities for non-residents” on the federal and state levels, according the European Union report

Delaware, Nevada and Wyoming have exceptionally minimal requirements for incorporating a company, potentially shielding kleptocrats, tax-cheats, criminals, and terrorists from authorities.

“The light of corporate transparency is about to shine on criminal assets hidden in European shell companies,” Whitehouse said, “which means that a lot of money will be looking for new dark homes.”

In recent years the U.S. had become one of those homes.

Read the 2012 study here.

The Trump administration’s position on transparency and the threat from anonymous shell companies is not clear, although the president’s statements and actions suggest he is unlikely to seek curbs on anonymous ownership. Trump signed legislation to repeal a corporate transparency rule under Dodd-Frank, a 2010 financial reform law, which would have helped combat global corruption. He has also signed an executive order calling for a wholesale review of Dodd-Frank.

The impact of anonymous beneficial ownership on the U.S. can range from a decrease in tax revenue to inflation in high-end housing markets. Delaware is a “favored” place for incorporation among people looking to keep property assets anonymous, according the EU report.

Of about 1,406 properties rented by the U.S. government for high-security facilities, around one-third are owned anonymously, leaving the beneficiaries of those federal funds equally anonymous, the U.S. Government Accountability Office said in a report earlier this year. About 20 of those properties have foreign owners.

Anonymous properties can simply be vacant real estate. Whitehouse described vacant properties in U.S. neighborhoods such as Malibu and Lennox Hill in New York as likely “glorified anonymous safe-deposit boxes.”

The Iranian government anonymously owned an entire skyscraper on 5th Avenue in New York City that was later seized by the U.S. government in what prosecutors called the largest-ever terrorism-related forfeiture. In 2013, a judge ruled that the U.S. could sell the property, worth $800 million to $1 billion, and award profits to victims of Iranian-sponsored terrorism, but the decision was thrown out in 2016.

Mexican drug cartels, Serbian drug lords and a Moldovan human trafficking circle are believed to have profited from anonymous ownership of U.S property.

In the Panama Papers investigation, Kevin Hall, a correspondent with McClatchy newspapers, found that officials in Wyoming, Nevada and Delaware could rarely identify true owners of shell companies. Information required to create a company was so minimal across the board that only Wyoming asked for contact information. That data often just led to another shell company.

“The answer to the problem is simple,” Whitehouse said. “Have each state actually track who owns shell companies that they charter and make that information available to federal, state and local law enforcement agencies.”

Yet even in the EU, where transparency standards have progressed, totally uncovering anonymous beneficial ownership is no easy task. In Europe, the definition of “beneficial ownership” remains vague.

Some experts argue for a cautious approach, citing legitimate reasons for anonymity, such as privacy. But most experts agree that failure to tighten the current lax regulations could harm U.S. interests.

Whitehouse plans to push the Incorporation Transparency and Law Enforcement Assistance bill, a bipartisan effort to mandate increased corporate transparency at state and federal levels.

Top photo: A 36-story tower at 650 Fifth Avenue in New York, whose beneficial owners included the government of Iran, which was under economic sanctions until last year.