It took a massive leak of secret records from a Panama City law firm to reveal the global scope of tax evasion, profit offshoring and money laundering.
The scandal from the “Panama Papers” has already brought down a head of state, sparked numerous investigations and ensnared sports figures, ruling families and politicians from democratic and autocratic states alike.
The investigation led by the International Consortium of Investigative Journalists has also focused attention on shell corporations. These are companies with no employees or business activities that can help hide the true origin and destination of money.
Such is a peril of allowing business too much privacy.
Panama, the Cayman Islands and other offshore tax shelters have their American counterparts in such states as Nevada, Delaware and Wyoming. There, the shell company of choice is typically the limited liability company, or LLC.
An LLC is easy to register and depending on the state, requires little information about its true owners. In 2006, the U.S. Treasury Department warned that LLCs can be exploited to launder ill-gotten money or finance terrorism, and it faulted states for failing to ensure these LLCs aren’t used for illicit purposes.
In New York, LLCs have come under criticism for allowing foreigners to buy luxury Manhattan properties while avoiding taxes. In Iowa, the Quad-City Times newspaper published an editorial April 7 headlined: “Who needs Panama: Iowa, Illinois cater to shell companies.”
The editorial noted that Iowa asks only four questions on its LLC registration form, none of which identifies an actual person who will own or run the business.
Minnesota requires a bit more information than Iowa when an LLC is formed. The Minnesota secretary of state requires “the names and addresses of the organizers/incorporators, the registered office of the entity, and the registered office and the registered agent if they have designated one,” according to Ryan Furlong, a spokesman for the office.
Every year companies have to renew their registration, and on those they have to list their CEO, Furlong said in an e-mail. But “Minnesota law does not require that companies disclose who owns or operates the company either at the time of filing or later.”
Since 2005, more than 265,000 LLCs have been registered in Minnesota. The public can get very basic information on these companies online and can pay a fee to see the articles of incorporation and other records.