“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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Here is the State of Play
Need for Additional FinCEN Funding Front and Center During Congressional Hearing
Under Secretary of the Treasury for Terrorism and Financial Intelligence (TFI) Brian Nelson and Acting Director of the Financial Crimes Enforcement Network (FinCEN) Himamauli “Him” Das appeared before the House Financial Services Committee last week to provide updates on recent and upcoming initiatives by Treasury – including key FACT priorities such as the implementation of the Corporate Transparency Act – to curb the influence of dirty money in the U.S. The hearing was part of a statutory mandate of FinCEN oversight, as required by the Corporate Transparency Act/Anti-Money Laundering Act of 2020.
Das and Nelson provided statements and answered questions from congressional leaders on many of the top national security and domestic crises facing the nation, including Russia’s invasion of Ukraine, China’s facilitation of the fentanyl epidemic, and the growing use of digital assets to launder illicit funds. The scope and scale of the challenges facing FinCEN, in particular, only serve to strengthen the case for additional funding for the bureau.
Das Highlights Budgetary, Other Concerns on Beneficial Ownership Verification
Acting Director Das confirmed his support for, and understanding of, the importance of verifying information collected under the Corporate Transparency Act (CTA), which will require anonymous entities operating in the United States to report information on their true owners. However, Das cited legal, logistical, and budgetary concerns as potential hurdles on the road to implementation of effective verification measures.
These budgetary concerns, in particular, are within Congress’ power to address in upcoming appropriations negotiations. Though FinCEN has received moderate funding increases in recent years, the bureau remains chronically underfunded and understaffed, delaying the rollout of new regulations, including those necessary to fully implement the Corporate Transparency Act. It remains unclear whether the $229 million requested for FinCEN in the President’s discretionary budget for FY2024 would be sufficient to both increase the pace of much-needed regulatory rulemakings, and to fund adequate verification systems for CTA data.
If FinCEN does not have adequate funding to ensure verification of data collected under the CTA, the law’s ultimate effectiveness would be seriously compromised, potentially crippling a once-in-a-generation anti-money laundering achievement.
Nelson Outlines Upcoming Measures to Close Anti-Money Laundering Gaps, But Details Remain Sparse
During questioning, Under Secretary Nelson noted three particular areas in which Treasury is working to ameliorate existing gaps in the U.S. anti-money laundering framework: implementation of the new beneficial ownership transparency regime established by the CTA; addressing opacity in private investment markets; and tackling money laundering through real estate.
Nelson did not provide any new updates with regards to the timing of new regulations on real estate transactions or private investment markets. Though a recent regulatory agenda indicated that FinCEN would release a notice of proposed rulemaking (NPRM) on real estate in April, a draft rule has not yet materialized.
Private investment, meanwhile, has been a priority of the Administration since 2021, when the lack of AML responsibilities for investment advisors was recognized as a prominent money laundering risk in the first-ever Strategy on Countering Corruption. No timeline has yet been established by Treasury for any future actions addressing private investment markets.
FinCEN Takes First Enforcement Action Against Trust Company
Just days before the hearing, FinCEN took its first-ever enforcement action against a trust company, fining the South Dakota-chartered Kingdom Trust Company $1.5 million for “willful violations” of anti-money laundering regulations. Trusts have long been a favorite vehicle for tax avoidance and money laundering schemes – particularly in jurisdictions like South Dakota, where trust opacity is codified in law – due to their status as an under-regulated and stable entity class.
In a statement, Actin Director Das claimed that Kingdom Trust “had virtually no process to identify and report suspicious transactions, resulting in it processing over $4 billion in international wires with essentially no controls.”
Latest from FACT
Press Release: FACT Supports Australian Government’s Groundbreaking Tax Transparency Draft Legislation
FACT submitted comments to the Australian government on April 28 supporting draft legislation to mandate public country-by-country reporting (PCbCR) of tax and other data by large multinationals. The Australian legislation represents the first complete PCbCR regime advanced by any major jurisdiction, and has the potential to capture a number of U.S.-headquartered multinationals in its reporting requirements.
In a statement, FACT executive director Ian Gary said: “The Australian government can seize the opportunity to lead a transformation in global tax policy by swiftly advancing this draft legislation…The wide-reaching, durable framework introduced by this draft legislation will serve as a model for other jurisdictions considering their own tax transparency proposals, and hopefully spur action on new tax transparency requirements in the U.S. and abroad.”
Press Statement: Top Treasury Officials Outline Actions to Take On Financial Crime in Congressional Testimony
Following Thursday’s testimony by Acting Director Das and Under Secretary Nelson, FACT and Transparency International U.S. (TI-US) released a statement calling for Congress to allocate increased funding for FinCEN in the coming appropriations cycle.
“Today Republicans and Democrats identified a throughline behind two of the most pressing crises of our time—Russia’s illegal invasion of Ukraine and China’s facilitation of the American fentanyl epidemic—and that throughline is the ability of foreign, dirty money to penetrate the U.S. financial system,” said Scott Greytak, director of advocacy at TI-US.
“In response, Congress must ensure that the Treasury Department, and the Financial Crimes Enforcement Network in particular, have the resources, authorities, and political support needed for them to maximize their responses to these emergencies, and that begins with Congress meeting their funding needs in full.”
FACT in the News
Quoted In: Business Groups Urge Australia To Limit Global Tax Reporting
FACT’s comments on Australia’s proposed PCbCR legislation were quoted in coverage by Law360’s Kevin Pinner of pushback from lobbying groups representing large U.S.-based multinationals, a number of which urged the Australian government to scale back the scope of its tax transparency proposal.
From FACT’s comments: “By capturing large foreign-parented [multinational enterprises] in sufficiently fulsome PCbCR requirements, the government has an opportunity to lead a sea-change in global tax transparency, establishing a strong standard by which subsequent regimes may be measured and incentivizing other jurisdictions to take complementary actions.”
Recent and Upcoming Events
Watch: Oversight of the Financial Crimes Enforcement Network (FinCEN) and the Office of Terrorism and Financial Intelligence (TFI)
Watch a full recording of Thursday’s hearing before the House Financial Services Committee, with full remarks by Acting Director Das and Under Secretary Nelson.
May 8 – May 12: 25th Annual Tax Conference – Nigeria of the Future, Achieving Sustainable Development Through Taxation
FACT executive director Ian Gary will be presenting on public country-by-country reporting at the 25th Annual Nigerian Tax Conference at 7:30am EST, May 9. Register for this week-long, hybrid in-person and virtual event through the link above.
About the FACT Coalition