U.S. Ranked Most Secretive Financial Jurisdiction in the World

FACT Coalition Calls for Urgent Action on Financial and Tax Transparency Reforms

WASHINGTON, DC – Today, the United States was ranked the most secretive financial jurisdiction in the world, according to the 2022 Financial Secrecy Index (FSI), a comprehensive study from the Tax Justice Network. The undesirable U.S. ranking is deteriorating from prior Financial Secrecy Indices, in part due to unaddressed loopholes and lax rules in U.S. anti-money laundering and tax laws.

“At a time when the world is being confronted by the very real and tragic consequences of enabling global corruption, these findings point the finger at U.S. secrecy and should be a rallying cry for financial transparency,” said Ian Gary, Executive Director of the FACT Coalition. “The Biden Administration has already committed to making a number of necessary anti-corruption reforms to make sanctions more effective and to close the U.S. financial system to corrupt and criminal actors whose actions are destabilizing global markets and democratic institutions. The real work now falls to the Administration and to Congress to implement and fund them.”

The U.S. was identified as the second most secretive jurisdiction in the world in the 2020 FSI. Since then, Congress passed the Corporate Transparency Act (CTA) on a bipartisan basis. Once implemented, the CTA will effectively end the abuse of anonymous shell entities by requiring corporations, limited liability companies, and similar entities to report their true, beneficial owners to a central directory maintained by the Financial Crimes Enforcement Network (FinCEN) at the Treasury Department. The CTA required rules implementing the statute be promulgated by January 1, 2022; however, due to funding and capacity constraints FinCEN has been delayed in implementing the CTA, having only issued one of the three expected proposed rulemakings to implement the rule.

“The U.S. simply cannot afford to slide backwards in the fight for financial transparency,” said Congresswoman Carolyn B. Maloney, the co-author of the CTA. “To fight corruption, we need to implement the Corporate Transparency Act, and to implement the Corporate Transparency Act, we need to fully fund FinCEN now.”

Financial secrecy undermines national security, democracy and the rule of law globally, while enabling tax avoidance and evasion which robs governments of resources they need to fight inequality and address the climate crisis.

“This ranking underscores that while the U.S. is joining with global governments to locate and freeze Russian oligarch assets, kleptocrats and criminals are still able to hide and grow their financial assets with relative ease in the U.S.,” said Gary. “Enforcing sanctions is difficult when we don’t have the tools necessary to know how and where oligarchs are invested in the United States.”

The 2022 FSI highlights other reforms that are necessary to assist with sanctions enforcement and to reduce the U.S. role as a haven to hide and grow ill-gotten or other illicit financial gains. These include, among others:

(i) Bringing greater transparency to the $50 trillion U.S. real estate market;

(ii) Engaging in more reciprocal automatic information exchange of financial account information for tax purposes and sharing the very information that the U.S. has required from foreign financial institutions since 2014;

(iii) Introducing consistent anti-money laundering due diligence and reporting requirements to the $11 trillion dollar U.S. private investment fund industry; and

(iv) Regulating certain financial gatekeeper professions in line with international best practices, such as certain lawyers, trust and company service providers, and formation agents.

The Biden Administration has already committed to advancing a number of these reforms as part of the U.S. Strategy on Countering Corruption, announced in December upon Secretary Yellen’s own recognition that, “… right now, the best place to hide and launder ill-gotten gains is actually the United States.” In light of U.S. Russia sanctions, the Administration’s ban last week preventing U.S. corporate and trust service providers from working with individuals in Russia is telling of the inadvertent role U.S. secrecy plays in undermining its own national security footing.

At the same, the U.S. Treasury Department has committed only to finalizing rules implementing the Corporate Transparency Act by 2024, as noted in the “National Strategy for Combating Terrorist and Other Illicit Financing” released Friday. These structural reforms will empower law enforcement and national security officials to forgo the sanctions “whack-a-mole” in favor of efforts to understand the nature of U.S. entity ownership and to counter large-scale sanctions evasion. The FACT Coalition has cautioned against delays in implementing the CTA, calling for final rules implementing the law by the 2022 International Anti-Corruption Conference to be held in Washington, D.C. this December, with an effective date of no later than January 1, 2024.

“With surging political momentum and popular support for change, Congress, the Biden Administration and Treasury cannot miss this moment to enact and implement the reforms necessary to close the U.S. financial system to the world’s worst actors,” Gary said.

Notes to the Editor:

The 2022 Financial Secrecy Index (FSI) is here. The FACT Coalition is hosting a launch event today, May 17, 2022, at 11:00AM to discuss the report and its findings (Register now).
The FACT discussion of the 2022 FSI results will feature Congresswoman Carolyn Maloney, one of the principal authors of the CTA. Expert analysis from Alex Cobham regarding the 2022 FSI results, as well as Lakshmi Kumar from Global Financial Integrity and Ryan Gurule on the domestic reforms necessary to correct the U.S. role as a singular financial secrecy jurisdiction, will also be featured. Q&A will be available.
Comprehensive FACT comments regarding the first set of proposed rules implementing the CTA can be found here, and FACT comments urging data best practices and timely advancement of the second proposed CTA rulemaking and final CTA directory effectiveness are here.
FinCEN recently solicited comments on implementing a nationwide real estate beneficial ownership diligence and reporting regime for certain residential and commercial real estate transactions. Related FACT and GFI comments can be found here.
In December, the White House released a first-ever anti-corruption strategy, identifying the need for implementation of the CTA and greater transparency in the U.S. and private investment fund markets and well-tailored regulation of financial gatekeeper professions. Treasury recently released its 2022 National Strategy for Combating Terrorist and Other Illicit Financing, generally highlighting the same priorities and creating a timeline for advancing these reforms.
The President also requested more reciprocal automatic information exchange under the Foreign Account Tax Compliance Act (FATCA) in connection with the 2023 green book. The FACT Coalition has advocated for these or similar reforms.
FACT Sheet for Congress on Emergency Treasury Funding Needs re: Ukraine Crisis.

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