The Panama Papers leak is showing how the global elite use more than 200,000 shell companies to hide their finances, and it's already taken down one head of state.
Because shell companies hide the identity of the person who actually owns whatever assets are held by a company, they can anonymously hold wealth, preventing law enforcement and the public from being able to follow the money, and enabling human rights abuses, environmental destruction, and other tragedies.
Over a trillion dollars is transferred out of the developing world through shell companies annually, and reports indicate that nearly all grand corruption cases — where stolen assets exceed $1 million — involve anonymous corporate vehicles like shell companies.
If you're a warlord or a corrupt politician, you like shell companies because they provide an anonymous way to take ill-gotten money and move it into the legitimate financial system — good for buying yachts or brownstones.
The best way is to take away that anonymity with what's called a "public registry of beneficial ownership," or a database of the people actually deriving benefit from a company, rather than the person who happened to incorporate it, like a lawyer or accountant.
"Public registries of beneficial ownership combat the abuse of shell companies by making sure those companies can't be used anonymously — hiding the identity of the person or persons behind them," says Christine Clough, program manager for the think tank Global Financial Integrity.
A public registry would "prevent illicit actors from using the legitimate financial system," she says. "No longer would a corrupt official be able to use stolen money to buy property without raising alarm, for example."
In 2013, the United Kingdom became the first country to commit to such a registry, and it's in the process of being implemented. By 2017, the European Union will have its Fourth Anti-Money Laundering Directive in place, which requires local governments to create beneficial ownership registries (but allows each country to decide whether its public or not). Bills for public registries are in the legislative process in the US, but are yet to become law.
"Registries shine a light on the true owners of a company," Eryn Schornick, a policy advisor for the watchdog nonprofit Global Witness, tells Tech Insider. "Take away the anonymous element and the shell company becomes much less attractive."
Schornick says that since beneficial ownership information has never been collected in the US, there's isn't any data to say whether it's effective. But since it's slowly being rolled out in the UK, we'll have data soon enough.
