U.S. incorporation is coming under scrutiny in the wake of the Panama Papers leaks, which drew attention to the risks of money laundering through shell companies and other lightly regulated vehicles.

It is fairly easy and inexpensive to incorporate in the United States and the industry faces little oversight, exposing a hole in U.S. financial regulation. Lawmakers are now seeking to plug that hole in a bid to prevent illicit money from making its way in the American financial system. The issue of secrecy in the incorporation process came to light by the leak of a Panamanian law firm’s data in a scandal known as the Panama Papers. The firm, Mossack Fonseca, helped create thousands of offshore entities, some of which helped clients from across the world evade local taxes or launder money. Corporate services firms are subject to criminal aspects of the law.

According to Peter Hardy, a partner in Ballard Spahr’s White Collar Defense/Internal Investigations Group, the federal money laundering statute says that knowingly assisting in a transaction that involves unlawful proceeds is a crime, which could put corporate services firms in the hot seat.

“You should know better is not a crime, but it might get you involved in an investigation, and knowing and looking the other way can be a crime,” Mr. Hardy said.