Last week, several news media outlets published a series of articles based on 11.5 million leaked confidential documents from a Panama law firm that helped some of the world’s most powerful people set up anonymous “shell companies” to hide their wealth. The investigative journalism organization publishing the papers claimed the documents exposed the offshore accounts of at least 140 politicians and public officials, including a dozen current and former world leaders. This scandal, known as the “Panama Papers,” confirms the common suspicion that wealthy and powerful people hide significant amounts of their wealth outside of their country — an action that can legitimately provide privacy but also enables tax evasion, money laundering and even corruption. The scandal has not only shed a light towards the ethical dilemma and immoral nature of powerful individuals holding offshore accounts, but it has also highlighted the need for the international community to crack down on the misuse of shell companies.
The scope of the scandal is truly perplexing: the leaked documents include information on thousands of law firms, corporate incorporators and other middlemen from more than 100 countries. This becomes even more worrying when one takes into account that this is only a small part of a worldwide industry which harbors trillions of dollars. The effects of such a large-scale operation are not only unjust, but also detrimental to the global economy by taking away revenues that could otherwise be used for education, infrastructure and healthcare.
This sacrifice of the greater good for the financial benefits of the few is the inherent result of harboring assets to offshore accounts. By allowing a powerful minority to engage in the misuse of shell companies as a way to harbor assets abroad, the international community is depriving the majority of a better lifestyle. Focusing efforts to combat this type of financial secrecy and obscurity should therefore be of great importance.
One way the international community can directly combat the misuse of shell companies in places like the British Virgin Islands, Panama and the Cayman Islands would be through the imposition of concrete sanctions such as trade tariffs. Such sanctions would eliminate the incentives of these havens and reduce asset harboring through shell companies. Sanctions should only be lifted when these territories have correctly identified the owners who benefit from the company, thus preventing the possible misuse of such institutions.
The U.S. government should also lead efforts to crack down on the misuse of shell companies because the U.S. is home to a large part of the wealth of the world’s shell companies through New York real estate and U.S. equities and bonds. One of the ways the U.S. government could do this is through the improvement of registries that record the beneficial owners of U.S. real estate and financial securities. Through this, the real owners of the wealth would be easily identified and would result in increased transparency. Cracking down on shell companies should be an effort promoted both at home and abroad.
I am not promoting or calling for the elimination of shell companies; these companies do serve legitimate purposes in many cases. In many countries, financial transparency can pose threats of kidnapping, blackmail and extortion for the super wealthy. Thus, they rightly seek privacy. Instead, I am calling for the end of the abuse of shell companies and the correct identification of the one who owns the wealth in those companies, while also aiming to protect those who use these institutions properly.
It is important to recognize that the “Panama Papers” scandal is not only limited to Panama. Although the scandal unfairly contains the name of the country, it is largely in part because the large trove of leaked documents belonged to a firm based in Panama. The “Panama Papers” scandal doesn’t reveal a local Panamanian problem, but rather a global one. Thus, the international community must tackle this problem collectively and with urgency, with the proper consideration for privacy and the assurance of the proper use of these companies.
Carlos Lopez is an Opinion columnist for The Cavalier Daily. He may be reached at c.lopez@cavalierdaily.com.
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