With the recent release of the “Pandora Papers,” renewed attention is focused on corporate ownership transparency. Earlier this year, Congress passed the Corporate Transparency Act (“CTA”). The CTA was enacted to combat the use of shell corporations in money laundering, financial fraud, and other illicit or corrupt activities. The Financial Crimes Enforcement Network (“FinCEN”), the enforcement arm of the U.S. Treasury, is working away to release associated regulations by a December 31, 2021 mandated deadline. This update is intended to provide a brief summary of the Pandora Papers in the context of the CTA.
On October 3, 2021, a report released by the International Consortium of Investigative Journalists (the “ICIJ”), involving 600 journalists in 117 countries, detailed the hidden financial affairs of over 30 current and former world leaders and over 300 other public officials through offshore and shell companies. The report, labeled the “Pandora Papers,” analyzes millions of leaked documents obtained from 14 offshore service firms, with records spanning from 1970 to 2020. The Pandora Papers serve as a sequel to the similar “Panama Papers” documents disclosure of 2016, which was also compiled and released by the ICIJ. Both sets of Papers dig into similar types of shell companies and structures to which the CTA legislation aims to bring greater transparency for United States formed entities.
While many of the accounts investigated by the ICIJ in the Pandora Papers originated in offshore tax havens, some accounts were also attributed to the United States. For instance, one of Guatemala’s most powerful families purportedly “hid” $13 million in a “secrecy-shaded trust” in the Great Plains, while the king of Jordan purportedly purchased three beachfront mansions in Malibu through three offshore companies for $68 million. And the list goes on. The Pandora Papers specifically point to certain United States jurisdictions, which they allege “shelter billions of dollars in wealth, some linked to individuals and companies accused of financial crimes or serious wrongdoing,” as reported by The Guardian, an ICIJ partner.
Interestingly, during a recent NPR panel discussion on the topic, Lilian Faulhaber, a Georgetown University Law School professor, noted that the ultra-wealthy in the United States were not using the hidden accounts disclosed in the Pandora Papers. She attributes this absence to changes in U.S. laws over the last 15 years designed to curb secrecy and taxpayers’ hidden accounts. Such secrecy and hidden accounts are the exact conduct the CTA is designed to curtail.
Given the present administration’s emphasis on financial transparency, both domestically and internationally, the Pandora Papers are likely to act as a catalyst for the US’s implementation and enforcement of the CTA. The Pandora Papers are also likely to add urgency and attention to the Department of Treasury’s rollout of the CTA regulations. FinCEN previously indicated that “timely and effective” implementation of the new CTA rules is a top FinCEN priority – the current media attention can only amplify the pressure.
The Pandora Papers have further whetted the public’s appetite for the release of the imminently forthcoming regulations under the CTA and the associated balancing between transparency and privacy. While the CTA does look to promote transparency in corporate beneficial ownership for international actors, the reach of the CTA is far greater and deeper, and effects everyday businesses, both large and small, as well as the ultra-wealthy. It will be crucial for FinCEN to promulgate regulations that are both efficient in their compliance regime and not overly-burdensome on legitimate business owners and their reasonable expectation to an appropriate level of privacy with respect to their financial information.