Our Most Valuable Lessons From The Pandora Papers

What may be the most inter­est­ing aspect of last week’s release of the Pandora Papers — an epic leak of infor­ma­tion out­ing hid­den wealth and the role of off­shore finan­cial cen­ters in pro­vid­ing havens for avoid­ing tax­es and laun­der­ing illic­it funds — is that it actu­al­ly tells us lit­tle that we didn’t already know. 


The sto­ries are cer­tain­ly Helpful hints new, and spec­tac­u­lar. A Catholic order, dis­graced by an inter­na­tion­al pedophil­ia scan­dal, secret­ly held near­ly $300 mil­lion in U.S. real estate and oth­er assets through a net­work of trusts and an invest­ment com­pa­ny. The funds were amassed at the same time vic­tims of the sex­u­al abuse were seek­ing com­pen­sa­tion for the harm. 

All told, the inves­ti­ga­tion found 206 U.S.-based trusts with links to 41 coun­tries. According to the inves­ti­ga­tors, “Nearly 30 of the trusts held assets con­nect­ed to peo­ple or com­pa­nies accused of fraud, bribery or human rights abus­es in some of the world’s most vul­ner­a­ble com­mu­ni­ties.” We have, in dra­mat­ic fash­ion, been remind­ed that the litany of harms caused by these prac­tices is real and large. 

The lessons, how­ev­er, are not all that new. We already knew that off­shore finan­cial cen­ters har­bor more mon­ey than most peo­ple can imag­ine — at least 84 mil­lion accounts hold­ing $11 tril­lion in assets in 2019. Anonymous cor­po­rate struc­tures are the pri­ma­ry vehi­cles for mov­ing this mon­ey across bor­ders to safe havens. Real estate in prized mar­kets are mag­nets for secret cash and mon­ey laun­der­ing. Developing coun­tries are hard­est hit by the rev­enue loss and, most impor­tant­ly, the U.S. and oth­er advanced economies are con­sis­tent, cen­tral play­ers in these tax avoid­ance and mon­ey laun­der­ing schemes. 

This last point, the U.S. as facil­i­ta­tor, while not rev­e­la­to­ry, is an impor­tant focus of this lat­est tranche of infor­ma­tion. Unlike pre­vi­ous leaks, the Pandora Papers explain the explo­sive growth of the dynasty trust indus­try in South Dakota and oth­er states. The sto­ries detail the facil­i­tat­ing role of all types of U.S. cor­po­rate ser­vice providers and the man­ner in which they help clients hide funds. 

In a recent inter­view with a reporter from Swiss pub­lic radio, I was asked if these sto­ries reveal a cer­tain hypocrisy when U.S. offi­cials and bankers lec­ture the Swiss about finan­cial secre­cy. The Biden admin­is­tra­tion, the U.S. Congress and the entire U.S. finan­cial ser­vices indus­try should be embar­rassed that such a ques­tion can even be plau­si­bly asked. 

For years, the Financial Action Task Force, a mul­ti­lat­er­al body that sets glob­al stan­dards for fight­ing mon­ey laun­der­ing, has called out the U.S. over the sig­nif­i­cant gaps in our finan­cial rules. Specifically, it has not­ed the lack of trans­paren­cy and over­sight of agents that assist in form­ing U.S. cor­po­ra­tions, and of our real estate and pri­vate invest­ment markets. 

The good news is that, ear­li­er this year, Congress passed a bipar­ti­san law called the Corporate Transparency Act to crack down on the abuse of anony­mous shell com­pa­nies. That’s a mean­ing­ful and nec­es­sary first step. In draft­ing the rules to imple­ment the law, the Biden admin­is­tra­tion must take par­tic­u­lar care to address the exam­ples in the numer­ous sto­ries of abus­es of trusts high­light­ed by the Pandora Papers, as best they can with­in the con­fines of the law. 

The admin­is­tra­tion should also take this oppor­tu­ni­ty to announce plans to expand and make per­ma­nent a tar­get­ed pilot pro­gram that will bring account­abil­i­ty to the real estate sec­tor and help fer­ret out dirty mon­ey laun­dered through U.S. real estate. They should also final­ize anti-mon­ey laun­der­ing rules for the pri­vate invest­ment sec­tor, includ­ing for pri­vate equi­ty, hedge funds and ven­ture cap­i­tal firms, which remains a key avenue for dirty mon­ey to enter the U.S. finan­cial system. 

The com­plex­i­ty cre­at­ed over many years by clever lawyers and oth­er “gate­keep­ers” to our finan­cial sys­tem will take addi­tion­al laws to ful­ly unrav­el. Closing the loop­holes exploit­ed by these pro­fes­sion­al enablers of mon­ey laun­der­ing and cor­rup­tion will take time and bipar­ti­san sup­port. In the mean­time, the Biden admin­is­tra­tion already has the author­i­ty to take the above actions. They sim­ply need to do what the Pandora Papers has remind­ed us is imper­a­tive if the U.S. hopes to rein in cor­rupt finan­cial practices. 

With the Pandora Papers, a con­sor­tium of jour­nal­ists from dozens of coun­tries have giv­en us an even clear­er pic­ture of the archi­tec­ture that props up a secre­tive and destruc­tive finan­cial sys­tem. The U.S. must act on this lat­est scan­dal to build on progress and put an end to the exploita­tion of off­shore finan­cial centers. 

Gary Kalman is the direc­tor of the U.S. Office of Transparency International, the largest glob­al coali­tion fight­ing corruption.