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 revealing hidden riches and the role of offshore financial centers in providing havens to avoid taxes and launder illicit funds – is that it tells us little that we did not already know.

The stories are certainly new and spectacular. Catholic order, dishonored by an international pedophilia scandal, secretly held nearly $ 300 million in real estate and other assets in the United States through a network of trusts and an investment firm. The funds were raised just as victims of sexual abuse sought compensation for the harm suffered.

All in all, the investigation find 206 US-based trusts with links to 41 countries. According to investigators, “Almost 30 of the trusts held assets related to people or companies accused of fraud, corruption or human rights violations in some of the world’s most vulnerable communities. We have been dramatically reminded that the litany of damage caused by these practices is real and important.

The lessons, however, are not that new. We already knew that offshore financial centers are home to more money than most people can imagine – at least 84 million accounts holding 11 trillion dollars in assets in 2019. Anonymous corporate structures are the primary vehicles for moving this money across borders to safe havens. Real estate in popular markets is a magnet for secret money and money laundering. Developing countries are hit hardest by the loss of income and, more importantly, the United States and other advanced economies are constant central players in these tax evasion and money laundering schemes.

This last point, the United States as facilitator, while not revealing, is an important part of this final installment 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 US business service providers and how they help clients hide funds.

In a recent interview with a journalist from Swiss public radio, I was asked if these stories revealed some hypocrisy when American officials and bankers lectured the Swiss about financial secrecy. The Biden administration, the US Congress, and the entire US financial services industry should be embarrassed that such a question could even plausibly be asked.

For years the Financial action group, a multilateral body that sets global anti-money laundering standards, has denounced the United States over significant flaws in our financial rules. Specifically, he noted the lack of transparency and oversight over the agents who help form US companies, and our real estate and private investment markets.

The good news is that earlier this year Congress passed a bipartisan law called the Business transparency law to crack down on the abuses of anonymous front companies. This is a significant and necessary first step. In drafting the rules for implementing the law, the Biden administration must take special care to address the examples of the many stories of breach of trust highlighted by the Pandora Papers, to the best of their ability within limits. of the law.

The administration should also take this opportunity to announce plans to expand and make permanent a targeted pilot program that will hold the real estate industry accountable and help flush out dirty money laundered through US real estate. They are also expected to finalize anti-money laundering rules for the private investment sector, including private equity, hedge funds and venture capital firms, which remains a key vehicle for the industry. dirty money going into the American financial system.

The complexity created over the years by smart lawyers and other “gatekeepers” of our financial system will require additional laws to completely collapse. It will take time and bipartisan support to close the loopholes exploited by these professional money laundering and corruption facilitators. In the meantime, the Biden administration already has the power to take the above actions. They just need to do what the Pandora Papers reminded us is imperative if the United States is to curb corrupt financial practices.

With the Pandora Papers, a consortium of journalists from dozens of countries has given us an even clearer picture of the architecture that sustains a secretive and destructive financial system. The United States must act on this latest scandal to capitalize on the progress and end the exploitation of offshore financial centers.

Gary Kalman is the director of the US Office of Transparency International, the world’s largest anti-corruption coalition.



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