The scandal thrust financial secrecy into the spotlight. Why is dirty money still such a big problem?
The scandal thrust financial secrecy into the spotlight. Why is dirty money still such a big problem?
T oday marks a decade since the release of the Panama Papers — 11.5 million documents showing how criminals, terrorists, politicians, and celebrities used a worldwide system of financial secrecy loopholes to hide, launder, and deploy staggering amounts of wealth, evading sanctions, taxes, and law enforcement. In the wake of the document release and ensuing scandal, there was massive outrage but few meaningful reforms. Our complacency has had costs: A failure to act has contributed to the growth of terror financing, sanctions evasion, and money laundering, supporting criminal cartels that equal the armies of small nations and corrupt nations run as criminal cartels.
On April 3, 2016, an anonymous source leaked a trove of documents from the Panamanian law firm Mossack Fonseca, lifting the lid on a secrecy factory that manufactured legal façades for shady transactions. The firm incorporated hundreds of thousands of shell companies, funneled cash through offshore accounts, and drafted the laws of tiny cash-strapped islands to better shield dirty money.
Lost in the media’s obsession with revelations about star clients such as Simon Cowell and Jackie Chan, or heads of state such as U.K. Prime Minister David Cameron and Russian President Vladimir Putin, were the scandal’s bloodiest details.
Mossack Fonseca was a key cog in a money-laundering machine that funded genocide, terrorism, and war. Their client list was a literal murderers’ row. The Syrian regime of Bashar al-Assad used a Mossack Fonseca–established shell company to buy jet fuel to bomb its own citizens, with a resulting death toll of more than 200,000. The North Korean regime under Kim Jong-un used a Mossack Fonseca–established shell company to funnel millions of dollars into its nuclear weapons program. A British arms trafficker used a Mossack Fonseca–established shell company to sell tanks, Soviet aircraft, and rocket launchers to Sudanese fighters in Darfur, supporting an ethnic cleansing that killed 300,000.
Over the last ten years, politicians around the world have talked tough on dirty money, but their legislatures have passed more loopholes than laws. As a result, shockingly little has changed. Recent reports from the U.S. Treasury Department show that exactly the same Mossack Fonseca techniques — opaque shell companies, secrecy jurisdictions, shady intermediaries — are suspected of being used by adversarial countries today: $9 billion laundered for the Iranian regime; $312 billion laundered by Chinese money-laundering networks, much of it on behalf of Latin American drug cartels; $1.4 billion relating to fentanyl trafficking.
The financial secrecy that we enable continues to fund criminals and terrorists. A Mexican drug lord kidnapped, tortured, and murdered a DEA special agent to protect a network of cartel front companies. The Houthi terror attacks on shipping vessels in the Red Sea were funded through U.K. shell companies that moved billions in cryptocurrency, while Iran used the same pathways to fund the Islamic Revolutionary Guard Corps’ killing of over 20,000 civilian protesters. Mexico’s most notorious gang, the Jalisco New Generation Cartel, used Mexican shell companies to launder $8 million in extortion fees and to facilitate stolen crude oil, contributing to the $3.8 billion Mexican oil-theft crisis that has led to a surge in cartel violence.
Adversarial foreign governments are taking advantage of exactly the same strategies. The Chinese Communist Party used a vast network of shell companies to hide its financing of the mass detention of millions of Uyghurs and Kazakhs in Xinjiang — the largest concentration camp system since World War II. North Korea continues to rely on shell companies to launder $2.5 billion to support its ballistic missile and nuclear weapons program, while Iran appears to have used Hong Kong and UAE shell companies to evade sanctions for oil sales of roughly $4 billion.
When the Panama Papers initially thrust shell companies and financial secrecy into the spotlight, world leaders promised solutions. Efforts to outlaw anonymous shell companies — the favorite tool of criminals and the corrupt — should have been a national security and law enforcement slam dunk.
But dirty money must be an effective lobbyist. And to date, reforms have not been backed up by enforcement, making accountability a pipedream.
Enacted in 2024, the Corporate Transparency Act required all U.S. companies to be associated with identifiable human owners. Then, regulators exempted 99 percent of all applicable companies.
The European Union mandated that its member states create public beneficial ownership registries to prevent criminals from hiding their ownership of a company. It was struck down by the courts. Three years later, the EU has replaced transparency with a “legitimate interest” system, rife with delays, paperwork, high fees, and outright rejections.
The United Kingdom — a longstanding secrecy destination for the corrupt oligarch looking for expensive real estate — has implemented substantial reforms by requiring that companies identify their owners. But the system is still easy enough to circumvent that the new Supreme Leader of Iran, Mojtaba Khamenei, was able to use Isle of Man shell companies to buy hundreds of millions of dollars of luxury property in London as part of the $3 billion in assets that the new ayatollah has hidden overseas.
The U.K.’s overseas territories and dependencies, such as the Cayman Islands and the British Virgin Islands, had accounted for roughly half of all offshore shell companies identified in the Panama Papers. Despite superficial reforms and token beneficial ownership registries, those jurisdictions remain hopelessly opaque. In the British Virgin Islands, for instance, companies are tipped off whenever their ownership information is requested. For journalists and civil society advocates, that tip-off could be a death sentence: A car bomb killed the reporter who led the Panama Papers investigation into corrupt politicians in Malta.
This patchwork of international legislation filled with loopholes has clearly failed to address threats to the global financial system. It is time for a more aggressive approach. If the United States has the fortitude for real leadership in the fight against transnational crime and adversarial evasion, we should target the financial secrecy system that funds America’s enemies without waiting patiently for global consensus to fix this.
Access to our economy is a coveted privilege. We ought to attach meaningful conditions to that access: Any company — foreign or domestic — that wants to do business in the U.S. or with an American person must be traceable to a real, verifiable human being. Privacy-enhanced digital identification should be central to this effort. If there is no verified beneficial owner on record, there will be no U.S. bank account, no real estate purchase, no interstate commerce, and no entry into U.S. markets. Congress must then empower CFIUS, FinCEN, and similar agencies with the funding, authority, and interagency coordination to crack down on anonymous ownership.
For offshore secrecy jurisdictions in Hong Kong, Dubai, and the Cayman Islands, economic sanctions and statecraft must impose drastic penalties until loopholes are closed and banking compliance is strengthened. The PATRIOT Act already provides tools to designate jurisdictions as areas of “primary money laundering concern,” with substantial consequences. We must use that power against the offshore havens washing cash for drug cartels and corrupt “supreme leaders.”
And, of course, America must get its own house in order — closing off the anonymous companies, opaque foundations, and unrecorded trusts that have made the U.S. the world’s leading enabler of financial secrecy.
Finally, America must close the “enablers” loophole that exempts a wide range of financial and business professionals from the most basic anti-money laundering, due diligence, and reporting requirements. The Panama Papers didn’t just expose one law firm — it exposed an entire industry of lawyers, accountants, formation agents, lobbyists, and real estate brokers whose business model is built on secrecy. Routine “know-your-customer” checks and verification of funds should apply to everyone involved in the transactions that move money and hide wealth.
The era of the Panama Papers can seem almost innocent in retrospect. In the ten years since the leak, illicit finance risks have not only remained in place, they have accelerated — driven by underregulated cryptocurrencies and dangerous new alliances between global non-state threat actors. As we enter a world of financial transactions associated with AI agents, deepfakes, and synthetic identities, this may be our last real chance to identify the humans behind the crime.
It is time to act. We don’t have another decade to waste.
Elaine Dezenski is the senior director and head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies, where Josh Birenbaum is the deputy director.