Earlier this week, we blogged about how the United States recently declared the Philippines to be a “major money laundering country.” On the same day of our post, March 7, the European Parliament (EP) issued a Report which describes the United States as a growing haven for tax evasion and money laundering. Specifically, the Report concludes that the United States “is seen as an emerging leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, it provides an array of secrecy and tax-free facilities for non-residents at federal and state levels, notably in Nevada, Delaware, Wyoming, and South Dakota.”
This precise topic has been simmering for some time, and has been highlighted by the Panama Papers scandal. As we previously have observed, the Panama Papers scandal motivated the U.S. government to act in 2016 on regulatory reform that had been in the works for years to address the alleged attempts by non-U.S. individuals to launder their proceeds of illegal activities through U.S. financial transactions. A key focus of this regulatory campaign has been on identifying the true beneficial owners involved in financial transactions. FinCEN also has focused on the purchase of high-end real estate, which is perceived as a potential vehicle for foreigners to launder money through the United States. Further, a bill, entitled the Incorporation Transparency and Law Enforcement Assistance Act, was introduced in February 2016 to the U.S. House and Senate; if passed, it would require the collection and updating of beneficial ownership information regarding legal entities for law enforcement purposes.
According to the EP Report: although “[t]he USA has set up mechanisms for information exchange with EU Member States, has signed tax treaties with almost all EU Member States, and has developed a robust legal framework to address money laundering and combat terrorism financing . . . . challenges remain on questions of beneficial ownership, cross-border exchange of information, privacy issues, and designated nonfinancial businesses and professions.” In addition to alleging that United States tolerates within its own borders “highly secretive anonymous shell companies,” the Report also criticizes the United States for not adopting the Common Reporting Standard issued by the Organization for Economic Cooperation and Development, under which countries may trade taxpayer information from financial institutions, and which “virtually all the developed countries in the world” have adopted. The Report further criticizes what it perceives to be the “minimal” amount AML regulations applicable to certain U.S. businesses, including lawyers, investment advisers, accountants, real estate agents, and trust and service providers. In this regard, the Report states in part that most U.S. non-financial businesses and professions are not subject to any requirement to report the receipt of over $10,000 in cash; the Report apparently did not consider the fact that any business in the U.S. – including a law practice – is required to file a Form 8300 when it receives over $10,000 in cash in the course of its trade or business, even if it is not also subject to the requirement of filing a Currency Transaction Report under the BSA.
Many of the above critiques echo the findings of the Financial Action Task Force in its December 2016 Mutual Evaluation Report on the Unites States’ Measures to Combat Money Laundering and Terrorist Financing that a continued lack of timely access to adequate, accurate, and current information on the beneficial owners of entities represented a “fundamental gap” in the U.S. AML regulatory regime.
The EP Report states that it was issued to provide background for a mission, scheduled for March 20 to 24, 2017, to Washington, D.C. and Delaware by a delegation of the EP’s Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion. The delegation should have an interesting trip to Washington; the Report expresses concern about the willingness of the U.S. government to implement desired reforms, even though “tax inequality was a prominent issue in the latest US presidential campaign,” during which the newly-elected President “was accused of dodging federal income tax, as do many wealthy Americans.”
If you would like to read an article published in July 2016 which discusses in more detail some of these same issues, please go here.