Just the FACTs: August 5, 2016

Welcome to our “Just the FACTs” newsletter, which aims to highlight pertinent news stories and information related to our goals of curtailing offshore tax haven abuses, increasing the transparency of company ownership, and curbing the laundering of illicit money through the financial system.

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State of Play

It’s no secret, secret shell companies are dangerous.  A report by FACT member Global Witness in early July showed us how these companies are being used to defraud the federal government and put our armed forces at risk.  This week, a new report from another FACT member, Fair Share Education Fund, exposed connections to shell companies and the opioid epidemic.  The report, “Anonymity Overdose”, explains how ending the use of anonymous shell companies could make it significantly harder to keep drug profits hidden from law enforcement.

Likewise, shell companies are often used to launder illicit money through real estate.  A geographic targeting order from the Treasury Department began collecting information on high risk purchases in two of the biggest U.S. housing markets back in March.  According to an article in The New York Times, more than a quarter of the all-cash luxury home purchases made using shell companies in Manhattan and Miami were flagged as suspicious.  The Treasury Department will now expand the program to other major housing markets across the country.

Over the past few weeks, the FACT Coalition coordinated an effort to submit comments to the U.S. Securities and Exchange Commission (SEC) to push them to revise their disclosure requirements to include information on potential tax liabilities on a country-by-country basis. Several members and allies helped in the effort to push the SEC including Main Street Alliance, Citizens for Tax Justice, Oxfam America, Fair Share, ASBC, Global Financial Integrity, Elise Bean, Americans for Tax Fairness, AFL-CIO, SEIU, EPI, AFSCME, Eurodad, and a bicameral letter sent from Capitol Hill.  In addition to their own submission and a sign-on letter, Americans for Tax Fairness were able to generate over 16,000 individual comments to the SEC.  Public Citizen generated nearly 10,000 comments.  In a blog, Citizen for Tax Justice highlighted why current SEC disclosure rules should be a concern to investors—citing one study that found that many large companies, including General Electric and Xerox, could face tax liabilities representing 10 percent or more of their total market capitalization.

Investors in Facebook are seeing, first hand, how companies can inflate shareholder value through high risk tax avoidance schemes.   According to an article in Bloomberg, Facebook could face as much as a $5 billion tax bill, plus interests and penalties, based on an IRS audit.  Facebook admitted that the liability “could have a material adverse impact” on its finances, results, or cash flows, and added that “there are many transactions where the ultimate tax determination is uncertain.”  This is merely one example of how uncertain tax liabilities can have significant consequences for investors.


From the FACT Coalition and Its Partners

Incorporation Transparency

New Fair Share Report Highlights 10 Cases that Connect Opioid Trafficking and Related Money Laundering to Anonymous Companies

FACT, August 1st, 2016

“Opioid-related deaths have quadrupled over the past 15 years—ravaging our families and communities—but we are failing to tackle the money behind the crisis. The Office of National Drug Control Policy estimates that less than 2% of illegal drug proceeds are seized by federal law enforcement each year. This is in large part because anonymous shell companies make it easy for criminals to launder their money with impunity.

“Drug traffickers regularly set up anonymous shell companies. In fact, the U.S. is one of the easiest places in the world to do so. Congress should immediately pass bipartisan legislation to end thesecrecy and give cops and prosecutors the tools they need to go after drug cartels and others who threaten the safety and security of our communities.”

-Gary Kalman, Executive director of the FACT Coalition

Read the statement from FACT here
Read Fair Share’s press release here
Read the full report PDF here


New Report: Anonymity Overdose – How Our Opioid Crisis and Shell Companies Are Linked

Fair Share, August 1st, 2016

A new report released today by Fair Share Education Fund—a member of the FACT Coalition—highlights the role of anonymous shell companies in facilitating the money laundering, which drives the drug traffickers behind the crisis. Titled “Anonymity Overdose,” the report highlights 10 cases that connect opioid trafficking and related money laundering to anonymous shell companies.

“Anonymity Overdose” shows how ending the use of anonymous shell companies could make it significantly harder to keep drug profits safe from law enforcement. There is currently bipartisan legislation, the Incorporation Transparency and Law Enforcement Assistance Act, in both the House and Senate which would require the collection of information about the true owner of a company, and make sure law enforcement has access to that information.

“Shell companies that can be formed in the shadows with little transparency have been used to promote drug trafficking, money laundering, and fraud against the United States government.  This makes it difficult for law enforcement to determine the real person behind a company and its illegal activity.  The Incorporation Transparency and Law Enforcement Act would require companies to provide information on their beneficial owners, for use by law enforcement as they build a case against these bad actors.  The bill would help ensure that criminals cannot hide behind shell companies to conduct illegal activities.  So, this is yet another way to attack crises like the opioid epidemic that is taking root in communities across our country.”

-Senator Chuck Grassley (R-Iowa), a cosponsor of the bill and Chairman of the Senate Judiciary Committee and Co-Chairman of the Senate Drug Caucus.

Read Fair Share’s press release here
Read the full report PDF here
Read the statement from FACT here

Africa Losing Billions Due to Offshore Deals

Oxfam America, UNCTAD, July 25th, 2016.

“This latest scandal focuses on the billions Africa is losing out on due to the wide use of shell companies, as exposed by the great work of the ICIJ. Tax havens are inflicting huge damage on some of the world’s poorest people. Wealthy individuals and companies are using tax havens to cheat Africa out of billions of dollars in revenues every year and it simply has got to stop.

-Winnie Byanyima, Executive Director of Oxfam International

Read the full press release here
United Nations Conference on Trade and Development press release
UNCTAD: Trade Misinvoicing report


What You Should Know About The Newest Panama Papers Stories

Financial Transparency Coalition, July 29th, 2016

By Christian Freymeyer

Earlier this week, the International Consortium of Investigative Journalists (ICIJ), along with their partners at the African Network of Centers for Investigative Reporting (ANCIR) and 18 media outlets around the continent, released a new batch of Panama Papers stories with a specific focus on African nations.

ICIJ and its media partners worked to deliver a “Panama Papers 2.0”, with a coordinated launch of the new revelations across the continent, from Niger to Namibia.

Read the full article here
Visit ICIJ’s blog here

Tax

In Comment Letters, Reform Groups Push for Disclosure Rules on Foreign Taxes

Reuters (FACT, CTJ, US PIRG, AFSCME, ADA) August 2nd, 2016

The Financial Accountability and Corporate Transparency (FACT) Coalition, a group of more than 100 organizations, asked the SEC to revise other provisions in Reg S-K so that companies would have to explain a tax rate significantly lower than the statutory rate in the countries in which they do business; to use a weighted average statutory rate based on their geographic revenue mix instead of their home country’s statutory rate in the tax rate reconciliation schedule; to explain an increasing unrecognized tax benefit balance; to disclose intracompany debt transactions; to explain the tax incentives in a foreign jurisdiction; and to disclose legal proceedings by foreign governments related to taxes regardless of whether the matter is material to the company’s financial position.

Read Reuters article here
FACT’s letter to the Securities and Exchange Commission
Read all comments to the SEC on the concept release here

Tax Fairness Advocates Pressure SEC to Improve Disclosure of U.S. Corporations’ Foreign Subsidiaries

FACT Coalition, July 22, 2016

FACT Coalition coordinated an effort to submit comments to the U.S. Securities and Exchange Commission (SEC) to push them to revise their disclosure requirements to include information on potential tax liabilities on a country-by-country basis. Several members and allies helped in the effort to push the SEC including Main Street Alliance, Citizens for Tax Justice, Oxfam America, Fair Share, ASBC, Global Financial Integrity, Elise Bean, Americans for Tax Fairness, AFL-CIO, SEIU, EPI, AFSCME, Eurodad, and a bicameral letter sent from Capitol Hill.  The bicameral letter was signed by four Senators and nine Congressmen. FACT member, Public Citizen generated over 10,000 individual comments.

In addition to ATF’s official comment, 21 organizations signed a letter urging increased disclosure of corporate offshore subsidiaries and the use of tax havens, and ATF submitted public comments signed by 16,302 ATF members and supporters.

Read the full article here
Read FACT Coalition comment letter here
Read the  bicameral letter
Read the blog from CTJ
Read ATF comment letter here
Read the SEC requested public comments here

UN Summit Reaches Debt, Tax, and Trade Agreements

Jubilee USA, July 22, 2016

Nairobi Kenya –  Member countries of the United Nations Conference on Trade and Development (UNCTAD) renewed a mandate for the UN agency on economic issues such as what some called “controversial” policies around tax, debt and trade issues. The agreement will guide UNCTAD’s work for the next four years.

“These were very difficult negotiations” stated Jubilee USA’s executive director Eric LeCompte, who addressed the delegates and participated in high-level ministerial events and negotiations. “Perhaps the greatest achievement was a renewed partnership between developed and developing countries to address financial crisis and debt policies.”

Read the Jubilee USA press release here
Read more about the UN Conference on Trade and Development here
Read UNCTAD’s Economic Development in Africa Report 2016 here

Issues in the News

Incorporation Transparency

Shell Company Allowed a Secret Group to Buy Ingredients for a Dirty Bomb — Here in the U.S.

Washington Post, August 4, 2016

By Patrick Malone

The clandestine group’s goal was clear: Obtain the building blocks of a radioactive “dirty bomb” — capable of poisoning a major city for a year or more — by openly purchasing the raw ingredients from authorized sellers inside the United States.

Read the full article here


U.S. to Expand Tracking of Home Purchases by Shell Companies

The New York Times, July 27th, 2016

By Louise Story

More than a quarter of the all-cash luxury home purchases made using shell companies in Manhattan and Miami were flagged as suspicious in a new effort to unearth money laundering in real estate, the Treasury Department said Wednesday. As a result, officials said they would expand the program to other areas across the country.

Read the full article here
The New York Times series: Towers of Secrecy

Expecting Rules to Tighten Around Shell Companies After Panama Papers? Not Likely

McClatchy Newspapers, August 1st, 2016

By Tim Johnson

Will Capitol Hill tighten the laws around shell company practices? Don’t bet on it.

Neither state nor federal lawmakers seem eager to pursue proposed changes, shuttling back and forth the onus on who should act. Some Nevada politicians look to Washington to take action, while those on Capitol Hill often say it is up to the states to monitor and regulate corporations.

Read the full article here


U.S. Says Florida Network Defrauded Medicare and Medicaid of Over $1 Billion

The New York Times, July 22nd, 2016.

By Eric Lichtblau

In the biggest healthcare fraud case the Justice Department has ever brought, prosecutors charged on Friday that the owner of a network of Florida nursing facilities orchestrated an elaborate scheme to defraud Medicare and Medicaid of more than $1 billion over the last 14 years.

The case, featuring allegations of bribes to Miami doctors, hush money to witnesses, and laundering of huge profits through shell companies, shone a light on a lucrative Medicare black market that has surfaced in the last decade.

Read the full article here


Tax

Facebook Tax Bill Over Ireland Move Could Cost $5 Billion

Bloomberg, July 28th, 2016

By Kartikay Mehrotra

Facebook Inc.’s future cash flows and results could suffer a major blow if it loses a battle over new U.S. tax liabilities related to the transfer of its global operations to Ireland in 2010.
The Internal Revenue Service delivered a notice of deficiency to the social media giant Wednesday for $3 billion to $5 billion, plus interest and penalties, based on the agency’s audit of Facebook’s transfer pricing, the company said in a regulatory filing Thursday.

Read the full article here


Why Tax Havens Are Political and Economic Disasters

The Atlantic, July 28th, 2016

By Brooke Harrington

Becoming a tax haven has unexpected costs. Precipitous economic, political, and social declines have occurred so often in such states that observers have coined a new term for it: “the finance curse.” When the “finance curse” strikes a country, there is a recurrent pattern: While its democracy, economy, and culture remain formally intact, they are increasingly oriented to and co-opted by international elites.

In other words, such countries gradually become organized around the interests of people who don’t even live there, to the detriment of those who do. The services produced by these countries protect cosmopolitans’ wealth, but the riches never flow to the the local producers, undermining their capacity for self-governance and social cohesion, as well as the development of infrastructure and institutions.

Read the full article here
Tax Justice Network Report: The Finance Curse

Swiss to Pass Information on HSBC Accounts to U.S. Tax Agency

Reuters, July 26th, 2016

By John Miller

Switzerland said it plans to give information to U.S. tax authorities about accounts at HSBC Holdings Plc’s (HSBA.L) Swiss private bank, as part of a U.S. investigation into tax evasion.

The Swiss government said it made the announcement about its plans on Tuesday to alert HSBC account holders whom it has been unable to locate, and to give them the chance to lodge a legal appeal if they object to having their information sent to the U.S. Internal Revenue Service (IRS).

Read the full article here