“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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Save the Date! October 26: Report Launch: “Dirty Money and the Destruction of the Amazon: Uncovering the U.S. Role in Illicit Financial Flows from Environmental Crimes in Peru and Colombia” – Registration details will be available in the next edition of the Newsletter.
Here is the State of Play
U.S. Beneficial Ownership Transparency Law Inches Closer to Full Implementation
On Monday, the Financial Crimes Enforcement Network (FinCEN) released guidance for small businesses surrounding compliance with beneficial ownership reporting requirements set to enter into force next year under the Corporate Transparency Act (CTA).
This guidance follows the release of an official notice by the bureau of the establishment of a new system of records – the beneficial ownership database being established to house data collected under the CTA – as well as an accompanying draft rule exempting the database from certain provisions of the Privacy Act.
These steps, when combined, draw FinCEN closer to full implementation of the CTA, touted by FACT and other anti-corruption advocates as perhaps the most consequential federal anti-money laundering measure in a generation. A final rule governing access to data collected under the CTA, previously expected to be released this month, remains the only major hurdle left for the bureau to clear before reporting begins on January 1, 2024. As FACT has previously argued, the content of the final access rule will prove crucial: if authorized users, including state, local, tribal, and trusted foreign-partner law enforcement officials are not able to easily access FinCEN’s beneficial ownership database, the ultimate efficacy of the CTA as an anti-money laundering tool will be severely curtailed.
An additional rulemaking harmonizing existing customer due diligence rules with the statute of the CTA is expected to be released in 2024.
FinCEN’s new compliance guide for small businesses comes at a particularly important time. With the reporting deadline for pre-existing entities of January 1, 2025 fast approaching, awareness among affected entities of their new requirements will be vital to the early effectiveness of the CTA. The compliance guide also notably includes the requirement for entities formed on or after January 1, 2024 to report their beneficial ownership information within 30 days of formation, despite recent indications that FinCEN is seeking to extend this reporting window back.
IRS Announces Tax Enforcement Improvements Utilizing New Funds
The IRS announced last week that it will dramatically ramp up enforcement efforts by hiring 3,700 new revenue agents to focus on large corporations, complex partnerships and high-income and high-wealth individuals. At the same time, the IRS recently announced it will change certain racially discriminatory aspects of how it conducts audits of low-income taxpayers who receive tax credits, who tend to be disproportionately Black.
According to the IRS Commissioner Danny Werfel, the agency is “making broad efforts to overhaul compliance efforts in a manner that robustly advances our commitment to fair, equitable, and effective tax administration.”
Latest from FACT
FACT policy fellow Seamus Love analyzes the influence of the Wagner Group in Africa, and argues that the mercenary outfit provides a potent cautionary tale for policy makers seeking to plug gaps in the U.S. anti-money laundering framework.
“As renewed media attention shines a light on how far Prigozhin’s operational and financial networks have reached, it is time for the U.S.—the world’s premiere supplier of financial secrecy—to be proactive in ensuring it has no role in facilitating the activities of groups like Wagner around the globe.”
FACT policy fellow Gabriel Aliu writes that public country-by-country reporting (CbCR) requirements could help African countries overcome existing barriers to effective tax enforcement, even if such requirements were only implemented in major market jurisdictions outside of the continent.
“African nations passing and implementing their own public CbCR laws would be a daunting challenge, however, even though the benefits would be considerable. Africa could still reap benefits, though, if public CbCR regimes are enacted in major market jurisdictions such as Australia and the United States.”
FACT in the News
FACT government affair director Erica Hanichak is quoted in ICIJ coverage of the LLC Transparency Act, expected to be signed by New York Governor Kathy Hochul later this year.
“This move by the New York legislature is an important sign that the United States no longer wants to be a home to the world’s dirty cash,” says Hanichak. “Particularly in a market as important as New York, it is vital that there be better corporate transparency to deny fraudsters, oligarchs and terrorists access to our financial system to move dirty cash.”
FACT’s comments on the Financial Accounting Standards Board’s (FASB) enhanced tax transparency standard were quoted in coverage by CFO. FASB’s revised standard, which has been in the works since 2016, was unanimously approved by the Board last month.
“Investors need information on the tax practices of companies within their portfolios — particularly on multinational companies — to assess various tax enforcement, reform, and other risks.”
Recent and Upcoming Events
Watch last week’s Wilson Center event on the intersection between financial and environmental crimes, with appearances and comments from State Department Anti-Corruption Coordinator Richard Nephew, FinCEN Director Andrea Gacki, and former FinCEN Acting Director Himamauli Das, among others.
Former Acting Director Das, in particular, highlighted the commonality between the tools used by criminals to launder the proceeds of environmental crime, such as shell companies, and those used in other illicit finance schemes. “Law enforcement tools are generally common across a range of different crimes,” said Das. “When you look at FinCEN, the analysts involved in tracking shell companies and illicit actors linked to the trafficking of fentanyl precursors are the same analysts who are doing illegal wildlife trafficking and nature crimes more generally, because it is fundamentally the shell companies and the channels through which illicit financial flows are moving.”
On Wednesday, the UN General Assembly convened the second High Level Dialogue on Financing for Development focused on achieving the Sustainable Development Goals outlined in the Addis Ababa Action Agenda. High on the agenda were ongoing negotiations surrounding strengthening the United Nations’ role in international tax cooperation, including through the possible establishment of a binding UN framework convention on international tax cooperation.
October 3: The UNCAC Coalition’s 9th Regional Meeting for Europe, U.S. and Canada
This online event for civil society organizations will provide an opportunity for civil society actors to share knowledge and experiences on the expectations and challenges of engaging the private sector in anti-corruption efforts ahead of the 10th UNCAC Conference of the States Parties (CoSP10).
Speakers will include Tom Cardamone, President and CEO of FACT Coalition member Global Financial Integrity, Luca Mak, Executive Director of Transparency International Austria, and Alban Hashani, Executive Director of Riinvest Institute. If you are from a civil society organization and are interested in attending, please contact Corinna Gilfillan of the UNCAC Coalition for more information at firstname.lastname@example.org.
October 26: Report Launch: “Dirty Money and the Destruction of the Amazon: Uncovering the U.S. Role in Illicit Financial Flows from Environmental Crimes in Peru and Colombia”
Save the date for the launch of FACT’s new report analyzing the linkages between U.S. financial secrecy and environmental crimes in the Amazon region. Keep an eye on the Just the FACTs newsletter for more information on the report, as well as registration details for the launch event.
The report launch will be held both virtually and in-person at the Open Gov Hub in Washington, D.C. from 12:00–2:00pm EDT. Live translation between English and Spanish will be available.
We hope to see you there!
About the FACT Coalition