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Auditing Pandora’s Papers: Addressing Money Laundering at Home and Abroad

By Alfred DiLissio


If you’ve been following the news lately you’ve likely seen the latest installment of the whiplash-inducing tax evasion paradigm. Recent events revealed the extent to which countries like the U.S. become complicit in the schemes of kleptocrats as they funnel their money into protective assets. If genuine progress is to be made on preventing the wealthy and powerful from hiding financial dealings, the Biden administration will need to galvanize financial regulation at home and pursue more action through the Organization for Economic Cooperation and Development, which has been recently empowered by international agreements on global corporate tax rates.

The International Consortium of Investigative Journalists (ICIJ) released its report into what has been dubbed the “Pandora Papers,” exposing the financial dealing of celebrities, billionaires, and politicians who shuffle their money into tax shelters with the help of offshore firms. Though the over 11.9 million financial records obtained and analyzed make this the largest tax haven leak in history, the findings themselves don’t reveal anything new about the techniques used to hide assets and ownership as much as they reaffirm the infection of shadowy practices across the global financial system. More specifically they point to the growing complicity of the U.S. and the West in general in providing a safe space for ill-gotten gains.

The concern about this issue originated with the release of the Panama Papers by the ICJI in 2016. The investigation exposed the underlying mechanisms of wealth available to those seeking to avoid scrutiny. Purchases of mansions, luxury cars and stocks made under the name of various shell companies allowed their real owners to hide behind a P.O. box in Belize and a company logo.

It’s worth noting that these are the same techniques used by some of America’s largest corporations. These firms transfer their intellectual property to subsidiaries without any employees headquartered in low-tax countries like Ireland. In fact, it’s useful to see the issues as two sides of the same coin. Whether it’s an Ecuadorian president squirreling away assets in South Dakota, or Nike transferring its Swoosh trademark to a subsidiary in Bermuda, the reasoning and the result are the same, money is kept in their pockets and out of the public’s.

It’s this duality of the issue that recasts it from a scandal into a chronic ill of a financial system bereft of any meaningful oversight. The United States’ position of moral superiority rings hollow when a Russian oligarch under American sanctions finds it surprisingly easy to have his shell company park money in art bought and paid for in an American auction house, not to mention the role one of America’s biggest law firms plays in these schemes. Failing to clamp down on money laundering domestically makes the U.S. commitment to a global corporate tax rate seem like a hypocritical bid一putting American issues ahead of the globe’s. Tackling the issues highlighted in the Pandora Papers entails putting an end to the schemes used by American companies to avoid paying their fair share in taxes (which costs the U.S. some $90 billion each year), there’s no reason they can’t be addressed together.

Seizing the moment to make a meaningful change means advancing the gains made in international talks on a global minimum corporate tax earlier this year. In July, the OECD announced that 130 countries representing 90% of the world’s GDP had signed an agreement to implement a minimum corporate income tax rate of at least 15%. That is not an insignificant achievement, especially considering the agreements’ membership counts notable tax havens like Bermuda and the British Virgin Islands among them. Finalizing the deal will take place this month, (holdouts like Ireland and Estonia recently signed on as well) and the success of this negotiation should embolden the U.S. to further the dialogue by broaching the issue of greater international oversight into the shadow economy. Introducing the “Enablers Act” to Congress, which will require firms to perform background checks and report suspicious funds, is a starting point domestically. Still, there’s no reason the Biden administration can’t take the issue internationally in time for the upcoming “Summit for Democracy” expected to be held in December. Creating public registries of business, and requiring compliance/background checks are essential measures of a crackdown on money laundering which has spread throughout the globalized financial system. At the minimum, using the same forum of the OECD to propose an agreement on these measures would represent a new commitment to the issues that affect everyone across the globe.

Solving the problems posed by corporate profit shifting, shell companies, and money laundering can’t be done separately, and a commitment to one means stamping out them all.


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