FACT, Allies Release New Report Detailing $2.6 Billion Laundered Through Commercial Real Estate: Just the FACTs 5/9/24

“Just the FACTs” is a round-up of news stories and information regarding efforts to combat corrupt financial practices, including offshore tax haven abuses, corporate secrecy, and money laundering through the financial system.

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Here is the State of Play

FACT, Allies Release New Report Detailing At Least $2.6 Billion Laundered Through Commercial Real Estate

A new report by FACT, the Anti-Corruption Data Collective (ACDC), and Global Financial Integrity (GFI) identifies and analyzes 25 cases in which $2.6 billion in illicit funds were funneled into commercial real estate properties throughout 22 U.S. states. The sum, identified through public reporting and U.S. government cases, is likely just the tip of the iceberg. The report further expands a burgeoning evidence base that points to systemic money laundering risk in the colossal U.S. commercial real estate market.

Real estate transactions have broadly been exempt from basic anti-money laundering reporting standards due to a long-running “temporary exemption” since 2002. Though certain residential real estate transactions have faced additional scrutiny in recent years through limited, temporary measures known as Geographic Targeting Orders (GTOs), lack of comprehensive coverage for the $50 trillion U.S. real estate sector remains perhaps the most glaring vulnerability in the U.S. anti-money laundering framework.

In just one of the 25 cases analyzed in the report, a cross border money laundering operation used a Florida-registered LLC to invest illicit funds in at least eight properties across the U.S., including a $34 million apartment complex in Georgia, a $62 million hotel in Tysons Corner, Virginia, and $13 million in desirable Miami office space.

In February, Treasury issued a Notice of Proposed Rulemaking (NPRM) outlining new reporting obligations for residential real estate transactions, but that draft rule does not cover commercial real estate purchases or transfers. The administration has announced that it intends to issue a separate NPRM to address commercial real estate risks this fall. The report makes a number of recommendations for that future rulemaking, including:

  • The application of cascading reporting requirements (in line with the February NPRM) that account for evasion tactics used by money launderers. 
  • Coverage for non-sale transfers of ownership. 
  • Coverage for transactions by trusts and other classes of legal entities and legal arrangements.

Congressional Hearings Spotlight Treasury Actions on Beneficial Ownership Transparency, International Tax Reform

Gary Kalman, executive director of FACT-member Transparency International U.S., appeared before the House Small Business Committee on April 30 to defend the critical role of the Corporate Transparency Act (CTA) – which has been characterized as the single greatest anti-money laundering achievement in a generation – in identifying and addressing the flow of dirty money into the U.S.

In addition to noting the vital national and economic security purpose of the CTA, Kalman specifically addressed criticisms surrounding compliance burdens for small businesses, saying that “A post roll-out poll found that among those small businesses that had filed, 68 percent reported it being somewhat or very easy to comply. Only 6% found it very difficult.”

The basic nature of the information required to be reported under the CTA also ensures that small businesses with simple structures should not incur substantial compliance costs. “It seems improbable for a business to have the resources to pay for the creation of a complex structure but not be able to name who sits at the top of the corporate food chain,” Kalman noted. Nearly two million businesses have already filed beneficial ownership information under the law, according to recent statements by Treasury.

At the same time as the Small Business Committee hearing, Treasury Secretary Janet Yellen appeared before the House Ways and Means Committee to present and answer questions on revenue raising provisions in the Biden Administration’s budget request for FY2025, including a number of major international tax changes core to FACT’s tax agenda.

In particular, Secretary Yellen noted the role of proposed revisions to the U.S. global minimum tax for multinational companies in raising much needed revenues and complying with international standards. While the U.S. was the first country to introduce a global minimum tax in 2017 – the so-called Global Intangible Low-Taxed Income (GILTI) regime – Yellen noted that international developments have rendered certain elements of that regime outdated. Specifically, GILTI applies on a globally-aggregated, rather than per-country basis, and at a lower rate than the international standard of 15 percent, both of which would be addressed by the Administration’s budget proposal and by the No Tax Breaks for Outsourcing Act, supported by FACT and 60 other organizations.

With regard to competitiveness concerns, Yellen argued that American multinationals did “just fine” when the U.S. was the only country imposing a minimum tax on foreign operations, and that the Administration’s proposed 21 percent minimum tax rate is closer to the current global standard than the 10.5 percent rate imposed by GILTI was when it was introduced in 2017.

Regardless of U.S. action on a revised GILTI rate, U.S. multinationals operating in jurisdictions with an effective tax rate of less than 15 percent may be subject to foreign top-up taxes in the coming years, further incentivizing Congress to address these unclaimed revenues.

Latest from FACT

Blog: The Corporate Transparency Act is Constitutional, Government and “Friend of the Court” Briefs Make Clear

Read the latest blog from FACT government affairs director Erica Hanichak and policy director Zorka Milin, which breaks down three recent briefs submitted by diverse stakeholders arguing for the constitutionality of the landmark Corporate Transparency Act.

“Taken together, the three briefs clearly demonstrate that the CTA is constitutional as an exercise of three Congressional powers: interstate commerce, foreign affairs, and taxing powers. Ultimately, the Court need only support one justification to rule that the CTA as constitutional and overturn the lower court’s decision… allow(ing) this long overdue U.S. financial reform to continue to be fully implemented. If not, the Court will give a free pass to fentanyl traffickers, tax evaders, and U.S. adversaries to abuse the opacity of the U.S. financial system.”

Statement: FACT Submits Statement on CTA for House Small Business Hearing

Read FACT’s official statement for the record submitted ahead of last week’s House Small Business Committee hearing on Treasury’s rollout of the Corporate Transparency Act.

From the statement: “For most honest small businesses, these filings will be simple and affordable. This means that – after nearly twenty years of deliberation – Congress struck the right balance when passing this bipartisan law to keep our country and our region safe, while also keeping costs to business low.”

FACT in the News

Real-Estate Agents, Investment Advisers Chafe at New Anti-Money-Laundering Rules

FACT’s official comments in support of new proposed anti-money laundering rules for real estate transactions and investment advisers were cited in coverage by the Wall Street journal’s Dylan Tokar.

For more information, see FACT’s recent press release and full comments on Treasury’s proposed real estate and investment adviser rules.

How the US Financial System Helps Shelter Profits from Environmental Organized Crime

In recent coverage by The Hill, FACT program director for environmental crime Julia Yansura outlined linkages between the U.S. financial secrecy system and nature crimes like illegal mining in the Amazon region.

“For all the U.S. is doing to help combat environmental crimes overseas, that’s a bit counterproductive if we’re not cleaning up our own side of the equation and making sure that these proceeds aren’t being laundered and used in the U.S. financial system,” said Yansura.

Corporate Transparency Act Case Wrongly Decided, Say Lawmakers

FACT policy director Zorka Milin was quoted in coverage by Thomson Reuters’ Maureen Leddy of the recent round of amicus briefs filed in support of the Corporate Transparency Act, which included a brief submitted by a bicameral group of high-ranking federal lawmakers.

“We applaud the lawmakers for making a strong stand for Congress’ constitutional powers to protect the US financial system from terrorists, drug traffickers, tax cheats and other criminals who routinely use anonymous shell companies,” said Milin. “The district court’s second-guessing of Congress was out of line, and we expect the lower court decision to be reversed on appeal.”

Recent and Upcoming Event

May 7: House Committee on Appropriations Hearing: Fiscal Year 2025 Request for the Internal Revenue Service

Watch IRS Commissioner Danny Werfel’s testimony before the House Appropriations Committee, which outlines the bureau’s ongoing efforts to improve tax enforcement for large corporations and wealthy individuals.

Per Commissioner Werfel: “The IRS anticipates increasing audits on the wealthiest taxpayers, largest corporations, and large and complex partnerships by sizable percentages for tax year ’26. For example, the IRS will nearly triple audit rates on large corporations with assets over $250 million, increase audit rates by nearly tenfold on large, complex partnerships with assets over $10 million, and increase audit rates by more than 50 percent on wealthy individual taxpayers with total positive income over $10 million. That’s where our focus will be.” 

June 18-21: International Anti-Corruption Conference 2024

The 2024 International Anti-Corruption Conference (IACC) – the premier global conference bringing together heads of state, community activists, non-profits, high-level policymakers, businesses, policy experts, and academics to address the complex challenges posed by corruption – will be held from June 18-21 in Vilnius, Lithuania.

FACT will host a workshop during the conference alongside the Nature Crime Alliance, the United Nations Office on Drugs and Crime (UNODC), Wildlife Justice Commission, and the Global Initiative Against Transnational Organized Crime titled “Transnational Corruption: Shedding Light on the Networks That Enable Environmental Crimes.” Keep an eye on the official IACC website for more information in the coming weeks.

About the FACT Coalition

The Financial Accountability and Corporate Transparency (FACT) Coalition is a non-partisan coalition of more than 100 state, national, and international organizations working toward a fair and honest tax system that addresses the challenges of a global economy and promotes policies to combat the harmful impacts of corrupt financial practices.
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