The controversy generated this year by the Panama Papers may have left many Americans with a negative impression of Panama. The real story of fugitive capital is found not in Panama, but in Iceland, Russia, or any of dozens of other nations.

The Papers data covered four decades, and recent years already showed a dramatic decline in shadowy legal business as Panama strengthened its laws and regulations. Some foreign critics predicted there would be a run on Panama’s banks, as panicked ne’er-do-wells pulled their money, and...