News & Events

Just the FACTs: August 19, 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

In May, the Treasury Department released a final rule that was meant to increase scrutiny on banks to know the customers with which they do business.  Despite the fact that we believe the Treasury rule should have been much stronger, banks are on the front-line of the battle against terror financing and criminal money laundering and do have real anti-money laundering obligations.  But, there’s just one problem.  Banks are having a tough time verifying who their customers are because incorporating a company in the U.S. doesn’t require owners to disclose their real names.  Banks are now asking that the federal government change that.

The Clearing House Association, which represents the largest commercial banks, sent a letter to congressional lawmakers in support of the bipartisan Incorporation Transparency and Law Enforcement Assistance Act (H.R.4450, S.2489). The Clearing House includes major banks like Bank of America, Citibank, and JPMorgan Chase, and Wells Fargo. As FACT member  Global Witness explains, “without a way to ensure there’s comprehensive collection of beneficial ownership information for U.S. companies, it will be hard for banks to comply with new regulations that require them to find out who are the beneficial owners of their corporate clients.”

In fact, it might actually be easier for these criminals to hide their identities in the U.S. than in a secrecy jurisdiction like Panama, where leaks can expose their “chicanery”.  In a recent article, FACT Executive Director Gary Kalman explained that due to the amount of digital data available, the biggest concern for criminals in these secrecy jurisdictions is a massive leak.  Unfortunately, the solution for them is simple, come to the U.S. where the information will never be recorded at all.  In other words, “‘you’re safer in Delaware’ than a criminal would be in a place with very tight secrecy that still requires some record of ownership, such as the Cayman Islands, Ireland or Luxembourg.”

Transparency, promised in the wake of the Panama Papers, seems to be taking a holiday. In April, shortly after the documents were leaked, the Panamanian Government set up a seven-member independent commission to study Panama’s financial system and promised to issue a report of its findings. However, the recent resignation of Joseph Stiglitz, a former co-chair of the committee along with Swiss anti-corruption expert Mark Piet, has put the Government of Panama in the spotlight again. Stiglitz explained his resignation was due to Panama’s failed commitment to make the final report public.

From the FACT Coalition and Its Partners

Incorporation Transparency

World’s Largest Banks Endorse Ending Anonymous Shell Companies

FACT Coalition, August 9th, 2016

The Clearing House Association—representing the world’s largest commercial banks—sent a letter to Congressional lawmakers supporting strong measures to crack down on the abuse of anonymous companies.  The group, which counts among its owners Bank of America, Citibank, JPMorgan Chase, and Wells Fargo, explicitly endorses the bipartisan Incorporation Transparency and Law Enforcement Assistance Act (H.R.4450, S.2489).

Read FACT’s full news release
Download the Clearing House letter
H.R.4450 – Incorporation Transparency and Law Enforcement Assistance Act
S.2489 – Incorporation Transparency and Law Enforcement Assistance Act
Global Witness’s blog
The Hill news article
The Wall Street Journal article
American Banker article
Politico article
Law 360 article
Common Dreams article
Morning Consult article
La Presse article
Les Echos article
Financieele Dagblad article

In Their Own Words: Experts Give Quick Takes on Trends Tied to Corporate Transparency, Corruption

ACFCS (FACT Coalition), August 11, 2016

By Brian Monroe

With such a powerful banking group throwing their support behind the transparency initiative, have we reached a tipping point in the U.S. where Congress will act on corporate transparency?

From Clark Gascoigne, deputy executive director, of the Financial Accountability and Corporate Transparency (FACT) Coalition:

“There is no question that momentum is building to end the abuse of anonymous shell companies.  The recent Panama Papers disclosures helped elevate the visibility of the problem: more Americans now understand that it is easier to incorporate anonymous companies in the U.S. to launder money with impunity than it is in almost any other country in the world.

“At the same time, policymakers, law enforcement officials, and business leaders understand that these companies are being misused to finance terrorism, human trafficking, and drug dealing—in addition to enabling waste, fraud and abuse of taxpayer dollars.

“And business leaders from large and small companies alike are coalescing around commonsense transparency measures to ensure that the real human beings who own and/or control companies are disclosed to authorities at the time of incorporation and kept up-to-date.

“Ending the abuse of anonymous companies is pro-business, pro-law enforcement, and pro-taxpayer.  That is why the legislation enjoys bicameral, bipartisan support.  It’s only a matter of time before Congress gets its act together to protect the American people from the harms associated with anonymous shell companies.”

Read the full article

A Call to End Anonymous Shell Companies

Who. What. Why. (FACT Coalition), August 15th, 2016

By Celia Wexler

In the United States of America you can hire an attorney to form a corporation under any name you’d like — Mickey Mouse or Batman will do — and then use the corporation for business transactions, such as purchasing real estate, without ever having to disclose your true identity.

You can’t get away with this in the European Union, but in most US states, you are asked to provide less information about yourself to form a shell company than to open a bank account. But that may be changing.

With so much scrutiny of shell companies in the media, it appears that Congress may be on the verge of closing this loophole.

Read the full article

US Officials Went Looking Into High End Real Estate, They Found A Lot of Question Marks

Financial Transparency Coalition, August 8th, 2016

By Christian Freymeyer

“FinCEN remains concerned that all-cash purchases (i.e., those without bank financing) may be conducted by individuals attempting to hide their assets and identity by purchasing residential properties through limited liability companies or other opaque structures. To better understand this vulnerability, FinCEN issued similar GTOs earlier this year covering transactions in Manhattan and Miami-Dade County, Florida. The GTOs announced today will expand upon the valuable information received from the initial GTOs.

In particular, a significant portion of covered transactions have indicated possible criminal activity associated with the individuals reported to be the beneficial owners behind shell company purchasers. This corroborates FinCEN’s concerns that the transactions covered by the GTOs (i.e., all-cash luxury purchases of residential property by a legal entity) are highly vulnerable to abuse for money laundering.”


FTC’s blog
FinCEN press release
Department of Treasury: Estate, Gift, and Generation-skipping Transfer Taxes; Restrictions on Liquidation of an Interest
New York Times: Towers of Secrecy
New York Times: U.S. to Expand Tracking of Home Purchases by Shell Companies


Puerto Rico and Section 936: A Taxing Lesson From History

Citizens for Tax Justice, August 9th, 2016

Also known as the Possession Tax Credit, Section 936 was a provision in our tax code enacted in 1976 ostensibly to encourage business investment in Puerto Rico and other U.S. possessions.

Section 936 worked by exempting from federal income tax profits earned by U.S. companies in Puerto Rico and other possessions (under certain conditions). Corporations were quick to set up subsidiaries in Puerto Rico, and massive tax-dodging and profit shifting soon followed.

Over the 30 year lifespan of Section 936, companies shifted billions in corporate income to their Puerto Rican subsidiaries to receive partial or full exemption from federal taxes. In the 80s, corporations had an estimated total of $8.5 billion in tax savings and, in 1987 alone, these profit shifting activities are estimated to have cost the Treasury Department $2.33 billion in revenues. In 1998, during the phase-out period of the credit and when corporations were significantly disinvesting in Puerto Rico, six companies had a total of $912 million in tax breaks thanks to Section 936.

Read CTJ’s blog
CTJ’s report: Buy now, save later- Campaign contributions and corporate taxation
Puerto Rico and possession tax credit: 26 U.S. Code § 936

ATF Urges Treasury and IRS to Act Against Gilead Science’s Massive Offshore Tax Dodging

American for Tax Fairness, August 11, 2016

In a letter to Treasury Secretary Jack Lew and Internal Revenue Service Commissioner John Koskinen, ATF’s executive director Frank Clemente wrote:

“The facts about Gilead are detailed in a recent ATF report. Gilead, the world’s sixth most valuable pharmaceutical corporation, has become notorious for the exorbitant pricing of its hepatitis C (HCV) medications, which went on the market in 2013. ATF’s report found that Gilead’s sales, overall profits and untaxed offshore profits have soared since then.”

Read full article here  
Read ATJ’s full report on Gilead here
Read ATJ’s letter here
Read The Hill news release here

Issues in the News

Incorporation Transparency

Some Shell Companies Sidestep New UK Transparency Rules

Reuters, August 14th, 2016

By Tom Bergin

Some UK shell companies under offshore control may be skirting new rules which were designed to clamp down on corruption and tax evasion by forcing businesses to reveal their true owners, a Reuters analysis of corporate filings shows.

Read the full article

DoJ’s Kleptocracy Unit Faces 1MDB Test

Financial times, August 9th, 2016
By David J Lynch
When Malaysia set up a government-owned investment fund in 2009, the idea was to raise money for energy, real estate and tourism projects that would produce jobs for Malaysians. Instead, insiders siphoned off billions of dollars and treated themselves to penthouse apartments in New York, a luxury hotel in Beverly Hills and paintings by Monet and Van Gogh.Read the full article
Financial Times: 1MDB Scandal

Transparency Takes A Holiday in Panama

Forbes, August 10th, 2016.

By Stuart Gibson

In perhaps the country’s most trumpeted confidence-building measure, Panamanian President Juan Carlos Varela announced the creation of a seven-member independent commission to review the country’s financial and legal practices and issue a report of its findings. Claiming that Panama was committed to “transparency and international cooperation,” Varela appointed Nobel-Prize-winning economist Joseph Stiglitz and Swiss secrecy expert Mark Pieth to the commission.

At the commission’s first meeting in early June, Stiglitz, Pieth, and their five colleagues asked the Panamanian government to make just one commitment: make the independent commission’s final report public. Panama recently said no. Decrying Panama’s failure to commit to transparency, Stieglitz and Pieth resigned in response.

Read full Forbes article

Panama Papers Commission ‘Will Have No Credibility,’ Former Chair Joseph Stiglitz Says

ABC News, August 9th, 2016.

By Paul Blake

Just days after resigning from a committee setup to study Panama’s finance system in the wake of the Panama Papers scandal, the largest leak of private financial data to the public in history, economist Joseph Stiglitz, a Nobel laureate, told ABC News the remaining panel “will have no credibility within the international community” — unless they make tough recommendations, which he believes is unlikely.

Stiglitz said that the report would have to make extraordinary recommendations to be taken seriously. Two issues that the report would need to be taken seriously, he said, include the creation of a public registry of beneficial owners of corporations and closer scrutiny of tax-free zones in Panama.

Read the full article


Senator Ron Wyden (D-OR) Calls for an End to Deferral

Real Clear Politics, August 17th, 2016

“Over the last few weeks Americans have heard lots of talk that the economic system is rigged and corporations don’t pay their fair share when it comes to taxes. At the heart of this mess is the big dog of tax rip-offs – tax deferral.

This is the rule that encourages American multinational corporations to keep their profits overseas instead of investing them here at home, and it does so by granting them $80 billion a year in tax breaks. This policy is as foolish as it is unfair. It simply defies common sense.”

-Senator Ron Wyden (D-OR)

Read the full op-ed here

Britain Targets Financial Advisers With New Tax-Avoidance Fines

Reuters, August 17th, 2016

By William James and Huw Jones

Britain set out plans on Wednesday to punish financial advisers who tell their clients how to bend the law to avoid paying tax, including hefty fines designed to target what it called the “supply chain of tax avoidance”.

The plans are the first action by new Prime Minister Theresa May after a promise to clamp down on corporations and wealthy individuals who illegally evade taxes or use legal tax avoidance schemes to exploit loopholes and reduce their bills.

Read the full article here

More Transparency and Oversight Needed on Corporate Handouts

The Commercial Appeal, August 7th, 2016

By Mark Cunningham and Greg Leroy

For too many years, corporate tax breaks and other handouts have created an unequal playing field for small businesses, while taking away money from other vital government services.

In the name of “economic development,” these handouts have become so unfair and so harmful to education and other services that they deserve public scrutiny.

Read the full article here

OECD BEPS Plan Failing to Combat Tax Avoidance, MPs Warn

Economia, August 4th, 2016

By Sinead MooreA report by the All Party Parliamentary Group (APPG) on Responsible Tax said that the OECD’s BEPS proposals will not be successful in tackling global tax avoidance until full transparency is introduced into the tax system.

“The OECD has done well to build consensus but the proposals are likely to fail to meet the challenge of tackling global tax avoidance.”

-Margaret Hodge, chair of the APPG on Responsible Tax

Read the full article
Read All Party Parliamentary Group report