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Shell companies are hijacking our democracy

By Jeremy Flood
Tax & Budget Digital Campaigner

One of the most incredible disclosures in the Panama papers leaks is the sheer quantity and variety of companies formed with the explicit purposes of undermining the law. There are many legitimate reasons an individual might seek to place one’s assets in a shell firm — perhaps you live under a despotic regime, or maybe you own beachfront real estate in Mexico, and local law requires it. But for many of the companies created by Mossack Fonseca, they owe their existence to the need for privacy, whether to exploit tax loopholes, or hide illegal activity. It is crucial for law enforcement and tax authorities to be able to subpoena for the identities of the owners of a company, and there is currently bipartisan legislation in congress to do just that. But according to Robert Palmer, a representative of PIRG’s coalition partner, Global Witness, this information is in the public interest as well. 

In our report on money in the 2012 election cycle we found that 17% of funds going into Super PACs came from anonymous shell companies. This is all “dark money,” money that can’t be sourced, and whose intentions can’t be discerned. Yet, it is being used to fundamentally alter democratic outcomes. When the infamous Citizens United decision determined that corporations were people and money was speech, it only intended to extend that speech to American entities. However, any entity — a shady corporation, NGO, or even a foreign nation — can funnel money through a series of shell firms and then deposit those funds directly into Super PACs.

 Big political spending has a massive impact on the outcome of our elections. In the 2012 election cycle, our report shows that 83.9% of House candidates and 66.7% of Senate candidates who outspent their general election opponents won their elections. So far in 2016, primary candidates in Idaho, Kentucky, and Oregon have won 82.9% of the time when they outraised their opponents. That kind of politics means that qualified candidates who don’t have the support of dark money groups or super PACs are often shut out of the process.

 In addition to shutting qualified candidates out, super PAC and dark money spending refocuses candidate campaigns on fundraising from wealthy interests instead of interacting with regular voters.  Our democracy should be about big ideas, not big checks, but with millions pouring into candidate campaigns from shell companies and dark money groups, candidates are forced to spend their time fundraising with anonymous donors in order to compete. If anonymous donations constitute a sixth of the election funds being utilized through PACs, the public has a right to know whose interests our candidates are catering to.

Patrick Fallon Jr., the head of the FBI financial crimes unit recently said that forcing companies to list their true owners in a public registry is the most simplistic way to solve the problems anonymous shell companies cause. The UK and Australia are also moving forward with plans to list the true owners of shell companies in their own public registries. The United States needs to follow suit if it wants to keep up with international norms. Disclosure of the owners of incorporated entities is not only vital to the transparency and accountability of our financial system, it is vital to the integrity of our democratic system as well. If we allow dark money to proliferate in our elections through the proxy of anonymous shells, we are giving up our civic autonomy and sharing our republic with forces we can’t even identify.

 

 

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