Fallout from Pandora Papers

Fallout from the Pandora Papers continues as the President of Ecuador is under investigation and European leaders are criticizing the U.S. for its lack of money laundering controls.

Investigation in Ecuador

Ecuadoran President Guillermo Lasso is under investigation in his country for tax fraud. Documents in the Pandora Papers linked Lasso to two private foundations that created South Dakota trusts. Opponents say that Lasso used the trusts to provide monthly payments to Lasso's wife, children and brother in the event of his death.

Ecuadoran law prohibits politicians from holding investments in "tax havens." South Dakota trusts are entirely private and often serve to insulate their beneficial owners from scrutiny. Lasso's political opponents assert that his establishment of the trusts violated Ecuadoran law.

However, the law governing tax havens like South Dakota may change with the implementation of the Corporate Transparency Act. Through the Corporate Transparency Act, the U.S. Financial Crimes Enforcement Network - FinCEN - will be empowered to build a database of beneficial ownership records.

Pandora Papers Portray U.S. as Tax Haven

Few Americans may think of their country as a "tax haven" but foreign investors often see it that way.

Nevertheless, most European countries have anti-money laundering laws that require corporations to publish their beneficial ownership with regulators. Regulators use that information to pair tax returns with companies to prevent the non-reporting of illicit income.

In the U.S., in comparison, companies are owned anonymously. The public information available for nearly all corporations, partnerships and limited liability companies rarely disclose the beneficial owners of those entities.

This will change when FinCEN implements the Corporate Transparency Act.

The Act requires that, by December 31, 2021, FinCEN must implement rules to require immediately reporting of newly-formed corporations, partnerships and limited liability companies. Companies formed prior to the deadline will have two years to file their first beneficial ownership report.

About The Author

Jonathan Wilson is the co-founder of FinCEN Report Company with 31 years of experience in corporate, M&A and securities matters. He is the author of The Corporate Transparency Act Compliance Guide (to be published by Lexis Nexis in the summer of 2023) and the Lexis Practical Guidance Practice Note on the Corporate Transparency Act.

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