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Why Does the American Bar Association Oppose Beneficial Ownership Transparency Reform?

Compared to the more aggressive beneficial ownership transparency reforms touted by anticorruption/AML advocates, and adopted in some other countries, the proposed U.S. legislation is fairly mild—but it is still, as prior commentators on this blog have emphasized (here and here), a welcome step in the right direction. After all, while the U.S. record on fighting global corruption and international money laundering is good in some respects (Foreign Corrupt Practices Act enforcement and the Kleptocracy Asset Recovery Initiative come to mind), when it comes to addressing the facilitators of corruption, such as corporate secrecy, the U.S. is a laggard (as illustrated by poor U.S. score on the Tax Justice Network’s 2018 “Financial Secrecy Index,” released last month). So it’s indeed encouraging that the TITLE Act, and its counterpart in the U.S House of Representatives (the less-cleverly-named “Counter Terrorism and Illicit Finance Act”) have received both bipartisan support and the endorsement of a wide range of interest groups—including not just anti-corruption, AML, and tax justice advocacy groups, but also representatives of law enforcement, the finance industry and other business interests (here and here). Many are cautiously optimistic that some version of these bills might actually become law this year.

But some opposition remains. The sources of that opposition are, in some cases, predictable: the Chamber of Commerce, for example, opposes these reforms, as does FreedomWorks, the lobbying group sponsored by the libertarian billionaire Koch brothers. One of the major opponents of the legislation, though, was more surprising, at least to me: the American Bar Association (ABA), which represents the U.S. legal profession. The ABA has come out strongly against this legislation, sending letters to the responsible committees in both the House and Senate expressing strong opposition to even these relatively mild reforms.

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U.S. Senate Hearing Cues Another Shift Towards Ending Corporate Anonymity

In just the first two months of this year, we have seen anonymous shell companies become a major priority for Washington lawmakers.

Last week, the U.S. Senate Judiciary Committee convened to discuss legislation that would put a stop to the creation of these faceless companies. The hearing, Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency, marks the third Congressional hearing on this topic in 2018 alone. And, it is the first time that the Senate Judiciary Committee has heard such legislation. This occasion, along with other recent developments, suggests that momentum towards tackling the problems posed by anonymous companies continues to grow.

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How the U.S. Became a Top Secrecy Jurisdiction

Sometimes, ranking near No. 1 in the world is not a badge of pride. According to the Financial Secrecy Index released by the Tax Justice Network (TJN), the United States is the second largest contributor to financial secrecy in the world, placing it in the company of infamous tax havens such as Switzerland (ranked No. 1) and the Cayman Islands (ranked No. 3). Financial secrecy is enabling people to hide income from the authorities to evade taxes or financial regulation, launder profits from crime, finance terrorism, or otherwise break the law.

As the new TJN report explains, the United States contributes more to financial secrecy in the world than any country other than Switzerland for two reasons. First, this country has the largest share (22.3 percent) of the global market for offshore financial services. Second, several U.S. states promote financial secrecy by allowing individuals to form corporations without providing any real identifying information. In some states, people who want a library card must provide more identifying information than those who want to incorporate. The result is a huge amount of money held in shell companies in the United States that cannot be traced to any individual anywhere in the world.

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2018: The Year Anonymous Companies End

2018 is shaping up to be the year that the abuse of Anonymous shell companies is finally put to an end in the United States.  Last week, the Senate Banking Committee held their second hearing of the month, and, just like the first hearing, the witnesses urged members to take action on anonymous companies.  One of the witnesses, Acting Deputy Assistant Attorney General M. Kendall Day, repeatedly called on lawmakers to tackle beneficial ownership requirements, adding that it would allow them to “bring more cases, more quickly, with more impact if we had a better system in place to make that information available to law enforcement.” Pressed by Sen. John Kennedy (R-LA) the second witness, Treasury Under Secretary for Terrorism and Financial Crimes Sigal Mandelker, responded that they were studying the issue carefully and hoped to have recommendations within 6-months.

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U.S. Tax Plan’s Spiraling Consequences for Human Rights and Poverty – At Home and Abroad

As the United States Congress considers drastically altering its tax code, my organization — the Center for Economic and Social Rights (CESR) — has brought the spiraling human rights costs of the proposed U.S. tax cuts to the attention of a leading UN human rights official visiting the U.S. to look into poverty in the country.

On Dec. 1 – the morning before the U.S. Senate rushed through a lopsided and dysfunctional tax plan to unfairly benefit the top tiers of the economy while costing ordinary people within and outside the U.S. dearly — the UN Special Rapporteur on Extreme Poverty and Human Rights Philip Alston launched his official visit to the US to investigate the links between the growing phenomenon of poverty and human rights deprivations there.

In advance of his visit, we made a formal submission entitled Fiscal Impoverishment in the United States, warning that the Republican-backed tax plans would only deepen poverty and inequality within the U.S., while also enabling transnational tax abuse and undermining the ability of countries around the world to invest in human rights.

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