(Johannes Eisele/AFP/Getty Images)

The release of over 11 million documents related to the activities of Panamanian law firm Mossack Fonseca was unprecedented in both its scale and scope. Never before has so much information about the offshore financial world been released into the roiling media pool at one time. The establishment of over 214,000 anonymous corporations was revealed with an associated client list of more than 14,000. A dozen current and former heads of government are implicated in the massive whistleblower operation and over 200 countries and territories are tied to the data. The media frenzy is such that the oxygen-eating U.S. presidential campaign has temporarily taken a back seat to the arcane world of beneficial owners, nominee directors and shell corporations.

And with good reason. The fact that corrupt dictators and nefarious individuals avail themselves of the opaque global financial system is not new. Indeed, infamous kleptocrats Muammar Qaddafi, Sani Abacha and Ferdinand Marcos elicit a knowing nod among even the most cursory of news followers. And fans of "The Wire" or "Breaking Bad" have a basic knowledge that loads of cash can be hidden away fairly easily. What is different about this latest ignominy is not what these people did, but how. To understand the mechanism by which funds can be moved from bank to bank or from country to country effortlessly and with little ability to trace them back to their owner is to comprehend the insidious nature of the shadow financial system.

It begins with an anonymous shell corporation. The key word being 'anonymous,' since what law firm Mossack Fonseca provides is a shield between the activities of the company and the flesh-and-blood owner. This concealment of the owner is a critical precursor to simplifying the tax evasion and money-laundering processes because opacity equals impunity. Once personal identity is separated from the corporation the owner can operate with little regard for law or propriety. The anonymity provided by the shell company is akin to an invisibility cloak for the owner. And like Harry Potter rambling through Hogwarts, the owners of anonymous corporations can deposit funds, launder money and evade taxes undetected.

As bad as this sounds, anonymous (also known as 'ghost') companies pose an even greater risk to U.S. interests around the globe and, potentially, to national security. The Panama Papers reveal that beyond hiding the funds of corrupt government officials, over 30 of Mossack Fonseca's clients were under U.S. Treasury Department sanctions, including firms or individuals based in North Korea and Zimbabwe. But even this use of anonymous shell companies is not unknown to U.S. law enforcement. A recent and notorious case involved the National Bank of Iran, which used a shell company registered in the island of Jersey to gain ownership of a 36-floor office building in the heart of Manhattan. Still another example of the misuse of shell companies involves infamous arms dealer Viktor Bout who used a dozen such vehicles, registered in Florida, Delaware and Texas, to launder proceeds from weapons dealing. The most alarming thing is that incorporation agents such as Mossack Fonseca do not know who their clients are or their intentions. Given the number of countries where financial regulations are weak, a terrorist cell controlling an anonymous shell company is a very real possibility.

The unfortunate reality is that creating an anonymous shell corporation ('shell' refers to the fact that the company does not actually exist to create a product or perform a service but only for the purpose of opening a bank account) is perfectly legal. Indeed, the U.S. is one of the easiest places in the world to form an anonymous shell corporation and no state (where incorporations occur) requires the ultimate owner to be identified. This has been the case for decades but it must change if tax authorities and law enforcement are to operate on a level playing field with tax evaders and money launderers. It is often the case that criminal or tax investigations are stalled due to the dearth of information on the true or "beneficial" owners of a shell company. Investigators are literally unable to follow the money.

The answer to this problem is incorporation transparency. Simply put, all those who are registering a new company would be required to provide the name of the beneficial owner or owners of the firm. It would be an easy process that will not slow registration time in any appreciable way and would not compromise privacy. No proprietary corporate or banking information would be required. By so doing, law enforcement and tax agencies will be able to more easily trace the movements of illicit and suspect money and identify those orchestrating those movements.

The Panama Papers demonstrate that the problem of opaque corporations is a global one and a worldwide solution is required. But the remedy is no different than what Congress should require here. The G-20 countries are a logical starting place for such an effort but other rule-making bodies need to be included. It will take considerable political will to change the way business has been done for decades.

Since the 2008 financial crisis, much progress has been made in bank transparency and the exchange of tax information among cooperating governments, so there is cause for cautious optimism. What is needed now is for governments to recognize the Panama Papers for the crisis they clearly reveal.