A year after the publication of the Panama Papers, which ripped back the veil from the secretive world of offshore companies, two U.S. states are addressing shortcomings but a bellwether prosecution is only inching forward.
The Panama Papers involved the leak of 11.5 million private documents from the Panamanian law firm Mossack Fonseca, which had set up offshore companies for clients since the 1980s.
In the United States, these leaked documents showed how foreigners used companies established in Wyoming, Nevada and other states to mask ownership of assets in Russia, Brazil and other faraway places. U.S. states were being used by foreigners much like wealthy Americans use the Bahamas or the Cayman Islands.
Working together in secret for more than a year, at least 370 journalists from media outlets across the globe published a series of stories beginning on April 3, 2016, that shook the halls of power and rocked the financial world.
The stories revealed that close associates of Russian leader Vladimir Putin, including his lifelong friend Sergei Roldugin, godfather to one of his daughters, were moving huge sums through secretive offshore companies. They also exposed how drug cartels relied on the offshore world.
The initial reports caused the government of Iceland to fall and hastened the exit of British Prime Minister David Cameron, and reporting about Brazil burst open a bribery scandal that helped topple the president and legislative leaders. That scandal has now spread to Colombia, Peru and Panama.
More than 150 inquiries or investigations have since been launched in at least 70 countries. The law firm’s founders, Jurgen Mossack and Ramon Fonseca, have been detained in Panama since Feb. 9 on money laundering charges. Panamanian leaders have kept a low profile as the anniversary approached.
The International Consortium of Investigative Journalists led the global effort, and McClatchy, with the Miami Herald, was the sole U.S. newspaper partner. Its ground-level reports from these states triggered local legislative changes for incorporation in Wyoming and Nevada.
The reporting by McClatchy showed how noncitizens who did no U.S. business used Mossack Fonseca offices in Wyoming and Nevada to hide assets abroad.
Mossack Fonseca flouted rules for providing contacts for “offshore” companies in these states. The required contacts were often other offshore companies in faraway places such as the Seychelles in the Indian Ocean, where the leaked trove of documents showed Mossack Fonseca often had no record of true owners.
As a result, Wyoming Gov. Matt Mead signed changes into law weeks ago, on March 6, designed to require a legitimate, verifiable point of contact should law enforcement need information about companies established there. The changes take effect July 1.
In Nevada, where Mossack Fonseca had centered its U.S. operations, the regulatory weaknesses were even more glaring. Nevada did no auditing for compliance on registered agents, who help clients set up corporations in the state.
In fact, the only way the state could examine a registered agent such as Mossack Fonseca is if it received a subpoena from a law enforcement agency. The state deliberately sought to know as little as possible.
Secretary of State Barbara Cegavske pre-filed legislation with Nevada’s Senate late last year, asking her legislature for powers to audit registered agents on an as-needed basis as determined by the office.
The measure passed the Nevada Senate Judiciary Committee in March but must still pass the full state Senate and then go through the same process in the Assembly, Nevada’s lower legislative chamber.
The current legislative session ends June 5, but state legislative officials privately are confident that Cegavske’s request will be met by then.
On the national front, bills introduced in the House of Representatives and the Senate last year to require greater disclosure of the true owners of companies have languished, and the Internal Revenue Service has said little about the Panama Papers and tax evasion.
“The release of the Panama Papers exposed the secrecy afforded corrupt public officials, criminal cartels, individual tax cheats and others,” said Gary Kalman, executive director of the Financial Accountability and Corporate Transparency Coalition, which advocates for more reporting requirements for true owners.
The Treasury Department began a pilot project last year requiring pricey real-estate transactions involving shell companies and sales valued at $1 million and above to report the true owners of the shell companies. Title insurance companies have to report the names of buyers to Treasury. It began with New York and South Florida, and later in the year was continued and expanded to Southern California.
Meanwhile, the only known U.S. litigation that involves the Panama Papers is advancing, albeit slowly. India-born investment company owner Chetan Kapur has been jailed in New York since July 2015 on contempt charges for failing to make restitution to his victims.
Kapur entered into a settlement with the Securities and Exchange Commission to repay investors in a failed fund run by his ThinkStrategy Capital Management. But the Panama Papers showed he had several offshore companies, and victims’ lawyers and the SEC identified at least $4.3 million tied to three Swiss bank accounts.
In a dramatic turn of events, SEC lawyers in March submitted evidence of offshores created by another law firm, separate from those with Mossack Fonseca. Earlier in the year they had submitted numerous emails Kapur sent his family in India while jailed. The emails, government lawyers allege, show that “Kapur is driving his families’ actions” to keep offshore bank accounts out of reach.
Defense attorney Eric Creizman late last month postponed the ongoing proceedings until April 13. Kapur, he explained to the judge, had filed a federal appeal to his nearly two-year detention without notifying his lawyers.
CORRECTION: An earlier version of this article wrongly said that McClatchy was the sole U.S. media partner. It was the only U.S. newspaper partner.