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 [email protected].
State of Play
This past week, FACT Coalition member Global Financial Integrity released a report with a comprehensive state-by-state comparison of what information is required to set up a company versus obtain a library card. Astonishingly, in every state, far more personal information was needed to set up a library card than a company. This is especially startling when you realize the extent to which a company—without an accountable individual attached—could be used to commit crimes with impunity.
This report came just a week after the House Financial Services Committee’s subcommittee that covers national security issues held a hearing on corporate transparency and efforts to fight money laundering. In the lead up to the hearing Representative Carolyn Maloney (D-NY) released a discussion draft of the Corporate Transparency Act of 2019, which would require the collection of beneficial ownership information. All the witnesses at the hearing supported the collection of beneficial ownership information as an important anti-corruption, anti-money-laundering tool. In fact, all but one witness who testified at hearings in this and the previous Congress in which corporate transparency was discussed have said that beneficial ownership disclosure was an important anti-money-laundering measure. In a blog discussing this month’s hearing, FACT’s Gary Kalman encouraged lawmakers to this time listen to what the witnesses have to say. Anti-human trafficking, faith, and law enforcement organizations also encouraged the committee to take action on anonymous companies.
Back in December, The Global Reporting Initiative at the Global Sustainability Standards Board issued an exposure draft on increasing disclosure on “Tax and Payments to Governments.” The 90 day comment period ended this past week with FACT submitting its own letter of support. NGOs, lawmakers and more than two dozen institutional investors also sent letters in support of the disclosures.
To reverse incentives in the Tax Cuts and Jobs Act (TCJA) for companies to offshore operations and profits, Rep. Lloyd Doggett (D-TX) and Sen. Sheldon Whitehouse (D-RI) reintroduced legislation, the No Tax Breaks for Outsourcing Act, that would eliminate the discounts companies receive when moving money and operations overseas. FACT, along with 57 other organizations, sent a letter urging members of Congress to co-sponsor the legislation. ITEP released a blog explaining how the bill would address the new loopholes in our international tax code that the TCJA created.
From the FACT Coalition and Its Partners
Will They Listen to What They Hear?
FACT Coalition, March 12, 2019
This Wednesday, March 13th, the House Financial Services Committee’s subcommittee that covers national security issues will hold a hearing on corporate transparency and efforts to fight money laundering. They will once again discuss a proposal to collect the ownership information (a.k.a. beneficial ownership) of companies when they are formed in the United States. Currently, no state collects this information, and the anonymity has opened the door to a vast array of bad actors that endanger our communities and threaten our national security. More on that later.
The Committee is to be applauded for raising these important issues. Let’s only hope that, this time, they listen to what they hear.
Read the full blog on the hearing here.
Watch the full hearing here.
Read the FACT Coalition’s letter to congress in support of the Kleptocracy Asset Recovery Rewards Act (H.R. 389)
Read the letter from anti-human trafficking faith group, Street Grace.
Read the letter from Jubilee USA.
Read the letter from the Fraternal Order of Police.
£100BN of Property in England and Wales is Secretly Owned, Estimates Show
Global Witness, March 17, 2019
New Global Witness analysis reveals that over 87,000 properties in England and Wales are owned by anonymous companies registered in tax havens. The value of these properties is at least £56 billion according to Land Registry data – and likely to be in excess of £100 billion when accounting for inflation and missing price data.
Tomorrow, 18 March, anti-corruption NGO Global Witness is giving evidence to a parliamentary committee, as it considers proposals to introduce a register of the real owners of UK properties and hears evidence on the impact of property ownership by anonymous companies. The Government committed to introduce a register of UK property owners at the Anti-Corruption Summit in 2016, but progress has been slow.
ACAMS US Capital Chapter March Learning Event: Panel Discussion on Beneficial Ownership and Corporate Transparency
FACT Coalition, ACAMS, Global Financial Integrity, Transparency International, March 22, 2019
The ACAMS US Capital Chapter is pleased to partner with Global Financial Integrity, the FACT Coalition, and Transparency International for a morning panel with our experts as they discuss the importance of beneficial ownership transparency as a tool to combat money laundering, crime and corruption, as well as the broader domestic and international contexts. They will provide updates on newly introduced federal legislation that would require U.S. companies to disclose their beneficial owners, and share insights into the political landscape surrounding the prospects for this legislation.
See the event page here.
Will 2019 Be the Year the US Finally Passes Anonymous Company Reform? Not If the ABA Gets Its Way
FACT Coalition, January 17, 2019
It’s a new year, a new US Congress, and a new opportunity for the United States to take action to close some of the most glaring loopholes in its anticorruption and anti-money laundering (AML) framework. So far, Washington has been consumed with the government shutdown fight, along with early chatter about who might seek the Democratic nomination to challenge Trump for the presidency in 2020, such that there hasn’t yet been much coverage of what new legislation we might see emerging from this new Congress over the next two years. And to the extent there has been such discussion, it has tended to focus on initiatives—such as the Democrat-sponsored “anticorruption” bills that focus on lobbying, voting rights, and conflict-of-interest law reform—that, whatever their usefulness in shaping the debate and setting an agenda for the future, have virtually no chance of passing in the current Congress, given Republican control of the Senate and the White House. Indeed, many commenters assume that on a wide range of issues, political gridlock and polarization means that the new Congress is unlikely to accomplish much in the way of new legislation.
Read the blog here.
New Bill Removes Tax Incentives to Shift Profits and Operations Offshore
FACT Coalition, March 14, 2019
“No Tax Breaks for Outsourcing Act” Endorsed by 57 National Organizations, Sponsored by 80 Members of Congress
Eighty lawmakers introduced legislation Wednesday that would equalize the tax rates for domestic businesses and multinational corporations — reducing the tax incentive to shift profits and operations overseas that were enacted under the recent tax overhaul, according to the Financial Accountability and Corporate Transparency (FACT) Coalition.
Sponsored by House Ways & Means Committee Member Lloyd Doggett (D-TX), and Senate Finance Committee Member Sheldon Whitehouse (D-RI), the No Tax Breaks for Outsourcing Act (H.R.1711 / S.780) would equalize the tax rates for profits booked at home and abroad, repeal the tax deduction on profits earned from investments overseas, eliminate the tax break for foreign oil and gas extraction income, and institute a number of provisions aimed at combating corporate inversions.
Letter to GRI in Support of Exposure Draft on “Tax and Payments to Governments”
FACT Coalition, March 15, 2019
We write to offer our support on behalf of the Financial Accountability and Corporate Transparency (FACT) Coalition for the Exposure Draft of GRI topic-specific Standard for Tax and Payments to Governments. Stakeholders – investors, public officials, workers and others – need to understand how corporations approach tax and payments to government to assess risk and plan for community needs.
The proposed reforms would help these efforts and substantially aid progress toward the United Nations Sustainable Developments Goals.
Amazon in Its Prime: Doubles Profits, Pays $0 in Federal Income Taxes
ITEP, February 15, 2019
By Matt Gardner
Amazon, the ubiquitous purveyor of two-day delivery of just about everything, nearly doubled its profits to $11.2 billion in 2018 from $5.6 billion the previous year and, once again, didn’t pay a single cent of federal income taxes.
The company’s newest corporate filing reveals that, far from paying the statutory 21 percent income tax rate on its U.S. income in 2018, Amazon reported a federal income tax rebate of $129 million. For those who don’t have a pocket calculator handy, that works out to a tax rate of negative 1 percent. The fine print of Amazon’s income tax disclosure shows that this achievement is partly due to various unspecified “tax credits” as well as a tax break for executive stock options.
This isn’t the first year that the cyber-retailing giant has avoided federal taxes. Last year, the company paid no federal corporate income taxes on $5.6 billion in U.S. income.
Read the blog here.
Netflix Posted Biggest-Ever Profit in 2018 and Paid $0 in Taxes
ITEP, February 8, 2019
By Matt Gardner
Hugely profitable tech company provides first look at how corporations are faring under new tax law
The popular video streaming service Netflix posted its largest-ever U.S. profit in 2018—$845 million—on which it didn’t pay a dime in federal or state income taxes. In fact, the company reported a $22 million federal tax rebate.
After a year of speculation and spin, the public is getting its first hard look at how corporate tax law changes under the Tax Cuts and Jobs Act affected the tax-paying habits of corporations. The law sharply reduced the federal corporate rate, expanded some tax breaks and curtailed others. The new tax law took effect at the beginning of 2018, which means that companies are just now closing the books on their first full year under the new rules.
If Netflix’s earnings report is any indication, not much has changed. Many corporations are still able to exploit loopholes and avoid paying the statutory tax rate—only now, that rate is substantially lower.
Read the blog here.
The EU should blacklist the US as a tax haven
Oxfam, March 12, 2019
By Didier Jacobs
Tax avoidance and evasion will only grow if Europe doesn’t have the guts to confront the world’s second largest offender.
The European Union released today its updated blacklist of tax havens. The welcome initiative attempts to crack down on actions that rob countries of critical public resources to improve the lives of their people.
But it’s a half-hearted one, due to one glaring omission: the US.
The US ranks second after Switzerland on the Tax Justice Network’s Financial Secrecy Index. And a new Oxfam report sheds light on why the EU has given the world’s most powerful country exactly what it wants.
Read the blog here.
Fiscal Futures: Can we Turn Tax Competition into Tax Cooperation?
Oxfam, March 6, 2019
By Didier Jacobs
Governments are engaged in a race to the bottom on corporate taxation. Tax rates are falling and tax incentives are multiplying. This is bad news when it comes to financing development. Citizens must demand transparency and accountability regarding tax incentives, and regional and global cooperation to set a floor under corporate tax rates.
Read the full blog here.
Rep. Stephen Lynch Introduces the Kleptocracy Asset Recovery Rewards Act (H.R. 389)
FACT Coalition, March 13, 2019
H.R. 389 would establish a rewards program for whistleblowers — encouraging individuals to inform the U.S. government about assets in the U.S. financial system that are connected to foreign corruption, enabling authorities to reclaim and return the money and deter foreign corruption moving forward.
Foreign corruption is a major economic and national security threat to the United States. Corruption undermines the rule of law, provides the lifeblood of authoritarian regimes and enables transnational organized crime to flourish. It diverts precious resources away from those who most need them, and fosters disillusionment with government — sometimes leading to the rise of terrorist networks.
Global Corruption is a Threat to U.S. National Security
Publish What you Pay, Global Witness, March 7, 2019
The massive corruption, especially in oil and other natural resources, in many developing countries has created, in effect, “kleptocratic states,” who threaten U.S. national security directly by breeding terrorism, and indirectly by prompting mass migrations of people and undermining democracy worldwide.
Those were some of the main conclusions from a panel of national security and corruption experts at a Capitol Hill briefing Thursday. The briefing for Congressional and state department staff and NGO members was organized by two leading anti-corruption groups, the Publish What You Pay Coalition and Global Witness. “This systematic kleptocratic behavior has bled dry many of these countries,” said Simon Taylor, a co-founder of Global Witness.
Read the full wrap up blog on the event here.
Issues in the News
Financial transparency is not only about rule of law, but also national security
American Enterprise Institute, March 12, 2019
Transparency is fundamental to protecting the rule of law at home. But too often today, we lose sight of the fact that financial transparency issues carry important geostrategic implications. As former US Army general David Petraeus stated in a recent op-ed in the Washington Post, “corruption is not only one of the most potent weapons wielded by America’s authoritarian rivals, it is also, in many cases, what sustains these regimes in power and is their Achilles’ heel.” The sooner we realize this, the better prepared we will be to confront the threats posed by corrupt authoritarians and terrorist groups alike.
Read the full blog here.
Opinion: More could be done in Delaware to prevent abuse of LLCs
Delaware Coalition for Open Government, March 7, 2019
News media, locally and nationally, have reported that numerous legal entities, including several Delaware limited liability companies, have been misused as fronts to commit crimes. Their stories about child sex trafficking and prostitution by Backpage.com LLC, international narcotics trafficking by 200G PSA Holdings LLC, embezzlement from a Malaysian sovereign wealth fund, bribery of labor union officials by a South American airline, and securities investment fraud via a Ponzi scheme cannot be ignored. A handful of bad actors tarnish the reputations of legitimate Delaware LLCs.
Many of these crimes were committed by secret, foreign beneficial owners of Delaware LLCs, who also laundered money – perhaps the most pervasive crime enabled by the anonymity of the Delaware Limited Liability Company Act – to facilitate criminal activities.
Read the full op-ed here.
Putin and Other Authoritarians’ Corruption is a Weapon — and a Weakness
Washington Post, March 12, 2019
By Retired General David Patraeus, Sen. Sheldon Whitehouse
Alarmingly, while Washington has grown ambivalent in recent years about the extent to which America should encourage the spread of democracy and human rights abroad, authoritarian regimes have become increasingly aggressive and creative in attempting to export their own values against the United States and its allies. Russian President Vladimir Putin and other authoritarian rulers have worked assiduously to weaponize corruption as an instrument of foreign policy, using money in opaque and illicit ways to gain influence over other countries, subvert the rule of law and otherwise remake foreign governments in their own kleptocratic image.
In this respect, the fight against corruption is more than a legal and moral issue; it has become a strategic one — and a battleground in a great power competition.
Yet corruption is not only one of the most potent weapons wielded by America’s authoritarian rivals, it is also, in many cases, what sustains these regimes in power and is their Achilles’ heel.
Read the full op-ed here.
Companies’ Tax Aggressiveness Sows Investor Confusion About Basics of Firms’ Finances and Operations, Study Finds
American Accounting Association, January 14, 2019
A year ago a paper in the American Accounting Association journal The Accounting Review featured a surprising finding on the perennially contentious issue of corporate taxation: CEOs, it revealed, are at increased risk of losing their jobs not only if their companies pay much more than their peers in taxes but also if they pay much less. The authors credited legislative, regulatory, and judicial initiatives with raising public sensitivity to companies’ tax-aggressiveness, and surmised that the sharply reduced corporate-tax rates of the newly enacted Tax Cuts and Jobs Act would likely inhibit aggressive tax planning further.
Now a study in the current issue of the journal may very well reinforce that inhibition. The research finds that the complicated ploys that often characterize aggressive tax-planning sow uncertainty and even confusion not just about companies’ taxes but about the basics of their operations and finances, with resultant negative outcomes.
Read the press release here.