Statement by the FACT Coalition on Treasury’s Decision to Renew Geographic Targeting Orders to Identify Buyers in Luxury Real Estate
WASHINGTON, D.C. – The Financial Crimes Enforcement Network (FinCEN), a branch of the U.S. Treasury Department, announced that it was renewing its temporary orders seeking to uncover illicit activity in the luxury real estate sector.
Representative Carolyn Maloney (D-NY) introduces an amendment to add the issue of anonymous companies to the docket of the Terrorism and Illicit Finance Subcommittee of the Financial Services Committee. Representative Jeb Hensarling (R-TX), Chair of the House Financial Services Committee, and Representative Stevan Pearce (R-NM), Chair of the Terrorism and Illicit Finance Subcommittee, endorse the amendment and call for action on anonymous companies. The committee approves the amendment.
For more than a decade we have seen a steep climb in the amount of money kept offshore by multinational companies. This has resulted in $2.5 Trillion to remain untaxed—at an estimated cost of $700 billion to the US Treasury. Throughout the 2016 election, both presidential candidates pledged to close loopholes that allow corporations to dodge taxes and stop companies from booking their profits overseas. Though the follow-through has yet to be seen. Many have even argued that Donald Trump’s victory was the result of a frustrated middle class that increasingly feels over-burdened, while they see the wealthy and corporations—following their own set of rules—shifting their responsibilities onto them.
A new report from U.S. PIRG Education Fund finds that multinational companies dodge an estimated $147 billion in federal and state taxes annually through offshore tax haven loopholes, shifting that burden instead onto small businesses and individual taxpayers. Titled “Picking Up the Tab 2016: Small Businesses Bear the Burden for Offshore Tax Havens,” the study estimates that each small business, on average, owes $5,186 more on its annual tax bill to collectively make up for the federal and state corporate tax revenue lost to offshore tax havens.
Increasingly the issues of tax avoidance and financial secrecy are drawing the attention of a broader audience. Both issues were repeatedly mentioned throughout the presidential election by both candidates. Donald Trump’s original tax plan even went as far as to end deferral, though updates to the plan in September omitted any position on it. With the results of the election in, FACT and our members are analyzing what they mean for reform here at home. More on that in the weeks to come.
The EU commission’s decision in August to force Apple to pay back $14 billion in dodged taxes to Ireland served as a wake-up call to many investors—tax avoidance is a serious risk. A recent article in the Financial Times, explained how several major funds and investment groups are deeply concerned with companies’ increasing reliance on tax avoidance schemes. One such fund, Nordea Asset Management—has written to a number of companies—including Alphabet and Apple. In the letter, they ask that companies lay out their tax risks and that—if they don’t comply by January—they “will rally other investors and propose shareholder resolutions in 2017.” Four other fund houses in the UK—representing almost £1tn of assets—have also written to the board of Alphabet to raise concerns about its tax arrangements.
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.”
It’s no secret, secret shell companies are dangerous. A report by FACT member Global Witness in early July showed us how these companies are being used to defraud the federal government and put our armed forces at risk. This week, a new report from another FACT member, Fair Share Education Fund, exposed connections to shell companies and the opioid epidemic. The report, “Anonymity Overdose”, explains how ending the use of anonymous shell companies could make it significantly harder to keep drug profits hidden from law enforcement.
Likewise, shell companies are often used to launder illicit money through real estate. A geographic targeting order from the Treasury Department began collecting information on high risk purchases in two of the biggest U.S. housing markets back in March. According to an article in The New York Times, more than a quarter of the all-cash luxury home purchases made using shell companies in Manhattan and Miami were flagged as suspicious. The Treasury Department will now expand the program to other major housing markets across the country.
