Welcome to our “Just the FACTs” newsletter, a round up of news stories and information on combating corrupt financial practices covering offshore tax haven abuses, corporate secrecy, and curbing the laundering of illicit money through the financial system.
Send feedback or items for future newsletters to Jacob Wills at jwills@thefactcoalition.org.
State of Play
As August recess wraps up, the prospect for action on beneficial ownership is becoming more likely. In June the Corporate Transparency Act (H.R. 2513) passed out of the House Financial Services Committee by a bipartisan vote of 43-16. It’s sister bill (S.1978) was introduced in the Senate. Two beneficial ownership transparency bills, the TITLE Act (S.1889) and a discussion draft of the ILLICIT CASH Act, have been the subject of hearings. FACT’s Executive Director Gary Kalman testified before the Senate Banking Committee in June to address, among other issues, the impact of legislation on small business. He noted that “more than three quarters of small business owners felt the tradeoff — reporting burden vs. the prevention of unfair competition from anonymous shell companies — was worth it.”
The ICIJ’s report on the Mauritius Leaks, North Korea’s ongoing use of shell companies, the Treasury Department’s disruption of a Venezuelan shell company network, and more stories of the U.S. military being defrauded by anonymous companies provides fresh evidence of the harm.
There continues to be encouraging signs of progress globally. Who would have thought, even a few years ago, that that British crown dependencies — the British Virgin Isles, Guernsey, and the Isle of Man — would adopt beneficial ownership registries.
On tax haven abuse, the No Tax Breaks for Outsourcing Act is nearing 100 cosponsors in the House.
The House Financial Services Committee held a hearing on Environmental, Social and Governance issues. In addition to increased reporting on profit shifting and international tax, the hearing covered disclosure to shareholders of corporate political spending, climate change impacts and human rights issues, The panel consisted of Tim Mohin, CEO of Global Reporting Initiative (GRI), James Andrus of CalPERS, Paul S. Atkins of Patomak Global Partners, A. Wright of Decatur Capital Management, and Mindy S. Lubber of Ceres. FACT submitted comments for the record outlining the importance of tax transparency.
Internationally, support for tax disclosures is gaining traction. In recent months both the United Arab Emirates and Qatar have announced commitments to adopt country-by-country reporting standards. Adoption of the OECD’s Common Reporting Standards, which call upon member nations to require multinationals to report certain income and tax information country-by-country to tax authorities, is growing. Recent reports found that transparency has led to the collection of trillions of tax dollars that would otherwise be hidden. Growing interest among investors in the private sector signals that tax transparency is becoming an expectation as policy makers work on new requirements.
From the FACT Coalition and Its Partners
Incorporation Transparency
How North Korea Abuses Anonymous Companies to Illicitly Procure Mercedes – and Weapons
FACT Coalition, July 26, 2019
The images of Chinese President Xi Jinping and Kim Jong-un waving from atop a Mercedes Benz limo have made the rounds on the internet over the past few days in the wake of a new study published by the Center for Advanced Defense Studies (C4ADS) and covered by the New York Times and CNN, among others. C4ADS research details how North Korea has evaded sanctions to secure luxury goods — and other more nefarious items — through its illicit finance operations.
Read the full blog here.
Egypt: Potential Revenue Losses Associated with Trade Misinvoicing
Global Financial Integrity, June 26, 2019
In a comprehensive study on the level of trade misinvoicing in Egypt in 2016, GFI found that the estimated potential tax revenue losses to the Egyptian government that year is approximately US$1.6 billion, equivalent to 4.1 percent of the value of Egypt’s total government revenue collections in 2016. Trade misinvoicing is a method for moving money illicitly across borders which involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction and constitutes the largest component of illicit financial flows as measured by GFI.
Using a trade gap analysis, GFI was able to estimate potential revenue losses to the misinvoicing of Egypt’s imports and exports across all trading partners. GFI estimates that the value of the trade gap for misinvoiced goods equals US$8.5 billion, or 10.5 percent of the country’s total trade of US$80.6 billion in 2016.
Read the full report here.
Senate Bill Tackles Tax Evasion, Secrecy and Money Laundering
Jubilee USA, July 3, 2019
Last Wednesday, Senators Ron Wyden (D-OR), Marco Rubio (R-FL) and Sheldon Whitehouse (D-RI) introduced the Corporate Transparency Act of 2019, which would reveal the secret owners of shell corporations to law enforcement.
“This legislation is critical to stop crime, tax evasion and corruption,” stated United Nations finance expert and Jubilee USA Executive Director, Eric LeCompte. “Shell companies facilitate human trafficking, tax evasion and the stealing of relief monies in the developing world.”
Read the Press release here.
Senators Introduce Bipartisan Bill as Leak of Odebrecht’s “Bribery Division” Underscores Need to End Anonymous Companies
FACT Coalition, June 26, 2019
Bipartisan momentum to end the incorporation of anonymous companies in the United States escalated on Wednesday following the publication of an international exposé on the scandal-plagued Odebrecht’s “Bribery Division,” as Senators Ron Wyden (D-OR), Marco Rubio (R-FL), and Sheldon Whitehouse (D-RI) introduced legislation that would require companies to disclose their true owner(s) when they incorporate and keep their ownership information up to-do-date.
Read The report here.
FACT Submitted Comments for the Record to the Senate Judiciary Committee
FACT Coalition, June 25, 2019
The Financial Accountability and Corporate Transparency Coalition (FACT Coalition) submitted comments for the record to the Senate Committee on the Judiciary on their recent hearing titled, “Combating Kleptocracy: Beneficial Ownership, Money Laundering, and Other Reforms.”
Read the letter here.
Indonesia: Potential Revenue Losses Associated with Trade Misinvoicing
Global Financial Integrity, June 23, 2019
In a comprehensive study on the level of trade misinvoicing in Indonesia in 2016, GFI found that the estimated potential tax revenue losses to the Indonesian government that year is approximately US$6.5 billion, equivalent to 6.0 percent of the value of Indonesia’s total government revenue collections in 2016. Trade misinvoicing is a method for moving money illicitly across borders which involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction and constitutes the largest component of illicit financial flows as measured by GFI.
Using a trade gap analysis, GFI was able to estimate potential revenue losses to the misinvoicing of Indonesia’s imports and exports across all trading partners. GFI estimates that the value of the trade gap for misinvoiced goods equals US$38.5 billion, or 13.7 percent of the country’s total trade of US$280.2 billion in 2016.
Read the full letter here.
Testimony to Senate Banking Committee on Beneficial Ownership Information
FACT Coalition, June 20, 2019
Gary Kalman, the executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition, testified in front of the U.S. Senate Committee on Banking, Housing, and Urban Affairs on Thursday, June 20, 2019 at a hearing titled “Outside Perspectives on the Collection of Beneficial Ownership Information.”
Read the full testimony here.
Watch the video of the hearing here.
Statement of Gary Kalman, Executive Director of the FACT Coalition to the UNODC
FACT Coalition, June 13, 2019
Gary Kalman, the executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition, spoke on a panel for the United Nations Office on Drugs and Crime on Thursday June 13, 2019. The topic of the panel was innovative methods for ending large-scale financial corruption.
Read the full speech here.
House Committee Advances Bipartisan Bill to End Abuse of Anonymous Companies
FACT Coalition, June 13, 2019
The House Committee on Financial Services voted 43-16 on Wednesday to advance a bipartisan measure to end the incorporation of anonymous companies that can be used for money laundering, terror financing, corruption and tax evasion.
Read the press release here.
Read the press release from Rep. Maloney here.
Tax
GFI President Tom Cardamone’s Letter to the Editor on Corporate Tax Transparency
Global Financial Integrity, Financial Times, July 26, 2019
By Tom Cardamone, President of Global Financial Integrity
The July 24 Opinion piece “Multi-firm audits can break the Big Four’s oligopoly” by Joseph Smith rightly points out that effective and independent auditors are essential to the health of capital markets and public trust in corporations.
The stranglehold the Big Four have on the corporate tax planning market also threatens to undermine that trust. Unfortunately, public trust has already been steadily eroded, following news that major corporations such as Amazon have been found to pay zero dollars in taxes on $11bn in profits.
Read the full story here.
GFI President Tom Cardamone’s Letter to the Editor on Corporate Tax Transparency
Global Financial Integrity, Financial Times, July 26, 2019
By Tom Cardamone, President of Global Financial Integrity
The July 24 Opinion piece “Multi-firm audits can break the Big Four’s oligopoly” by Joseph Smith rightly points out that effective and independent auditors are essential to the health of capital markets and public trust in corporations.
The stranglehold the Big Four have on the corporate tax planning market also threatens to undermine that trust. Unfortunately, public trust has already been steadily eroded, following news that major corporations such as Amazon have been found to pay zero dollars in taxes on $11bn in profits.
Read the full story here.
FACT Submitted Comments for the Record to the House Subcommittee on Investor Protection
FACT Coalition, July 9, 2019
The FACT Coalition filed comments for the record to the House Subcommittee on Investor Protection, Entrepreneurship and Capital Markets. The subcommittee held the hearing “Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social and Governance Disclosures,” on July 10th, 2019.
Read the full letter here.
Anti-Money Laundering
Letter to Congress in Support of Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019
FACT Coalition, July 12, 2019
The Financial Accountability and Corporate Transparency Coalition (FACT Coalition) sent a letter to the Senate Committee on the Judiciary in support of the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019.
Read the full letter here.
Issues in the News
Incorporation Transparency
Letter to the Editor: Beneficial Ownership Data Needn’t Oppress
WSJ, July 21, 2019
By Clay R. Fuller
Your assertion that mom-and-pop shops would need lawyers to figure out who controls their enterprise carries a whiff of arrogance, implying that average business owners are too stupid to figure out who controls their company. Beneficial ownership isn’t a tax. It is basic information. Supporters of the bill don’t think it would stop criminals and terrorists from lying. Lawbreakers break laws. They also lie, cheat and steal.
However, I applaud the editors for expressing concern over privacy and access to beneficial ownership registries that should be treated in the same manner as any other personal banking information.
Read the full letter to the editor here.
Beneficial Ownership Transparency in Corporate Formation, Shell Companies, Real Estate, and Financial Transactions
Congressional Research Service, July 8, 2019
The Congressional Research Service published a new report on Beneficial Ownership Transparency and how it affects various economic sectors across the American economy. The report closes with a discussion of the Corporate Transparency Act and TITLE Act.
Read the full report here.
America Must Combat Illicit Finance
The Hill, June 13, 2019
By Kenneth Weinstein and Nate Sibley
The Trump administration is engaged in bold initiatives to tackle some of the most urgent challenges facing the United States, from Chinese stealth economic piracy to the opioid crisis. One way to advance this agenda would be to defund the kleptocrats, terrorists, drug cartels, and other criminals who threaten the security of the United States and our allies. By addressing weaknesses within the American financial system, the United States could also make the moral argument for democratic capitalism in the face of rising authoritarianism and economic corruption worldwide.
Read the full letter here.
Tax
Both investors, companies unhappy with FASB’s tax disclosure proposal
Compliance Week, August 9, 2019
By Tammy Whitehouse
Accounting rulemakers have their work cut out for them trying to determine how to meet investors’ needs for information about corporate tax risks without breaking preparers’ backs.
The Financial Accounting Standards Board is sifting through dozens of comment letters providing feedback to a proposed update to accounting standards as part of its comprehensive effort to improve disclosures. In this particular proposal, the board is looking to increase disclosures under Accounting Standards Codification Topic 740 that would give a sense of how an entity’s tax obligations are spread across federal, state, and foreign jurisdictions. Companies would also have to explain how they have used valuation allowances related to tax positions at federal, state, and global levels.
Read the full story here.
A US multinational avoided South African taxes worth twice Johannesburg’s social housing budget
Quartz, July 25, 2019
By Max de Haldevang & Justin Rohrlich
Without knowing it, you’ve probably flown on an airplane owned by Aircastle Limited.
The US-based company, which trades on the New York Stock Exchange and is valued at $1.6 billion, leases aircraft to the likes of United, American Airlines, British Airways, easyJet, and KLM.
A surprisingly hefty chunk of Aircastle’s business comes from a deal with South African Airways. Between 2011 and 2014, it made $53 million from leasing planes to the state-owned company. Aircastle also legally avoided paying taxes to the South African government by routing that cash to the tax haven of Mauritius, according to confidential financial statements reviewed by Quartz. Aircastle paid just $1.5 million in tax, at an effective rate of 2.87%, to the tiny island nation in the Indian Ocean, situated about 2,000 miles from Johannesburg and 9,200 miles from Aircastle’s Stamford, Connecticut, headquarters.
Read the full story here.
The Trade-offs of Tax Transparency Measures
Tax Foundation, July 25, 2019
By Daniel Bunn
As countries around the world have been working to address challenges of taxing multinational companies, one theme has been the implementation of tax transparency measures. In theory, requiring businesses to disclose the details about where they do business around the world and where they pay taxes and book their profits will allow governments more leverage in auditing business activities that are designed to shift or hide taxable profits.
Tax enforcement certainly becomes a challenge when businesses and individuals around the world can store assets and wealth in certain jurisdictions with privacy laws that assist them in minimizing their tax burden in their home countries. However, it is important for policymakers to evaluate how choices they make on transparency can impact business behavior.
Read the full story here.
A New Tax Strategy For Multinationals: Shunning Tax Havens
Law 360, June 14, 2019
By Vidya Kauri
Nearly a decade ago, Vodafone Group PLC was forced to temporarily close multiple stores across Britain to turn away protesters who chanted that the company was not paying its fair share of taxes. Today, the mobile phone giant is held out as a paragon of responsible and transparent tax behavior.
The 2010 protests were sparked by a cost-saving deal the company reached with the U.K. tax agency in an investigation into profits allegedly routed through a tax haven. Faced with a public outcry,Vodafone decided to adopt a long-term practice of explaining to the public its tax strategies, policies and economic contributions to jurisdictions where it operates.
Read the full story here.
Anti-Corruption
Treasury Disrupts Corruption Network Stealing From Venezuela’s Food Distribution Program, CLAP
U.S. Department of Treasury, July 25, 2019
Today, U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Colombian national Alex Nain Saab Moran (Saab), a profiteer orchestrating a vast corruption network that has enabled former President Nicolás Maduro (Maduro) and his regime to significantly profit from food imports and distribution in Venezuela. Saab has personally profited from overvalued contracts, including the Government’s food subsidy program titled the Local Committees for Supply and Production, or Los Comités Locales de Abastecimiento y Producción, commonly known as CLAP. Through a sophisticated network of shell companies, business partners, and family members, Saab laundered hundreds of millions of dollars in corruption proceeds around the world. Also targeted today are Maduro’s three stepsons, Walter, Yosser, and Yoswal, to whom Saab funneled money in exchange for access to contracts with the Government of Venezuela, including its food subsidy program.
Read the full story here.
Treasure Island: Leak Reveals How Mauritius Siphons Tax From Poor Nations To Benefit Elites
ICIJ, July 23, 2019
By Will Fitzgibbon
Mauritius Leaks, a new investigation by the International Consortium of Investigative Journalists and 54 journalists from 18 countries, provides an inside look at how the former French colony has transformed itself into a thriving financial center, at least partly at the expense of its African neighbors and other less-developed countries. In Uganda, more than 40% of the population lives on less than $2 a day.
Read the full story here.
New Report: Illicit Trade and the UN Sustainable Development Goals (SDGs)
TRACIT, July 18, 2019
From smuggling, counterfeiting and tax evasion, to the illegal sale or possession of goods, services, humans and wildlife, illicit trade is compromising the attainment of the UN SDGs in significant ways, crowding out legitimate economic activity, depriving governments of revenues for investment in vital public services, dislocating millions of legitimate jobs and causing irreversible damage to ecosystems and human lives.
Read the full report here.
Anti-Money Laundering
Is There a Better Way to Fight Money Laundering?
American Banker, July 30, 2019
By Victoria Finkle
Collectibles Club — a membership association for sports memorabilia fans and other hobbyists — sounded innocuous enough when it was launched in 2013.
But as law enforcement agencies subsequently discovered, the company was actually a front for Coin.mx, a bitcoin exchange responsible for laundering more than $10 million over the span of two years.
The plot involved some twists fit for Hollywood — investigators found that those behind the scheme went so far as to bribe the head of a New Jersey credit union so they could take control of the institution and further evade the government’s scrutiny.
The Financial Crimes Enforcement Network, or Fincen, a bureau of the Treasury Department, recently held up the case as a triumph for the Bank Secrecy Act — and the work banks undertake to help stop money laundering — as part of an annual awards program. Fincen noted in a May press release that “a high volume of sensitive financial information was instrumental” in shutting down the operation.
Read the full article here.
Lloyds Freezes Thousands of Jersey Accounts in Compliance Crackdown: Report
RiskScreen, June 25, 2019
Lloyds Banking Group has frozen the Jersey-based accounts of approximately 8,000 offshore clients after they failed to submit identifying documents for three years, the Financial Times reported Sunday.
The move was prompted by repeated requests for certified copies of identification records and other documentation that went unanswered for several years, rather than by suspicious transactional activity identified by Lloyds staff, the news outlet said.
“Over the last three years, we have made multiple attempts to contact these customers, asking that they provide us with the necessary information,” a Lloyds spokesperson told the FT.
Read the full article here.