Treasury Notes

 Targeting Tax and Sanctions Evasion, Money Laundering, and Other Illicit Activities

By: Josh Drobnyk

The concerns over tax and sanctions evasion raised by last week’s release of the so-called Panama Papers underscore the importance of a much broader set of issues that Treasury has been working to address for many years – both on our own and alongside international partners.
A Top Administration Priority: Enhancing Financial Transparency
We estimate that more than $300 billion dollars of illicit proceeds are generated in the United States annually, with criminals using companies here and abroad to launder funds – a vulnerability that we identified in our 2015 National Money Laundering Risk Assessment. 
On the domestic side, Treasury is finalizing a Customer Due Diligence (CDD) rule and we are committed to working with Congress to pass meaningful Beneficial Ownership legislation, both essential pieces to combat the misuse of companies to engage in illicit activities.  Together, these initiatives target two different points of access to the international financial system – when accounts are opened in financial institutions, and when companies are formed or when company ownership is transferred.  To be effective, legislation must require that all companies know and disclose adequate and accurate beneficial ownership information at the time of creation, regularly update this information upon any change, and face penalties for failure to comply.  The misuse of legal entities to obscure beneficial ownership is a significant weakness in an otherwise strong and resilient U.S. financial system, and it can only be resolved with meaningful congressional action.
As we work toward the passage of beneficial ownership legislation, Treasury’s Financial Crimes Enforcement Network (FinCEN) has also identified specific types of company transactions that are of particularly high risk for abuse, such as cash purchases of real estate.  To address this concern, FinCEN has issued geographic targeting orders to obtain additional information on the beneficial owners of the purchasers certain luxury real estate in Manhattan and Miami.
Internationally, we work on these issues through the Financial Action Task Force (FATF).  The FATF is an inter-governmental body that establishes standards for anti-money laundering/countering the financing of terrorism (AML/CFT) efforts, and 180 countries around the world have agreed to abide by its standards.  The United States is working to facilitate global implementation of FATF standards, including on corporate formation and customer due diligence, to better protect the international financial system from abuse.  
Treasury for the past several years has consistently encouraged Panama to strengthen its legal and regulatory framework to combat money laundering and terrorist financing.  We will continue to work with Panama, both bilaterally and through the FATF, to press for robust implementation of its AML/CFT regime, particularly in the area of supervision of its financial and non-financial sectors.
Addressing Tax Evasion
The United States has led the charge in combating tax evasion using offshore financial accounts and has a network of tax treaties and tax information exchange agreements (TIEAs) with other countries.  TIEAs, like tax treaties, give the IRS the ability to receive information from other countries either automatically or on request, in connection with U.S. audits, which discourages bad actors from cheating U.S. tax laws. 
In 2010, the Administration also secured a critical tool to learn about U.S. persons with financial accounts abroad: the Foreign Account Tax Compliance Act (FATCA).  FATCA requires countries to automatically report on U.S. citizens and residents with foreign financial accounts, which helps target tax evasion by U.S. taxpayers who use offshore accounts to hide their assets.  The global reach of FATCA is clear: 112 jurisdictions are treated as having a FATCA agreement in effect with the United States, and nearly 200,000 financial institutions have registered with the IRS to comply.
In addition, Treasury is acting more broadly to combat the use of domestic entities to hide assets by persons outside the United States.  We expect to soon propose regulations that will require foreign-owned Limited Liability Companies (LLCs) to obtain a tax identification number, which will disclose their beneficial owner.  This additional measure of transparency will strengthen the IRS’s ability to prevent foreign entities from facilitating U.S. tax avoidance. It will also build on the success of other efforts to curb the use of foreign entities and accounts to evade U.S. tax, including civil and criminal enforcement actions against tax cheats and those who assist them, as well as the Offshore Voluntary Disclosure Program for taxpayers who come forward voluntarily to report previously undisclosed foreign accounts and assets.
For more on recent speeches and comments by Treasury officials about AML/CFT and anti-tax evasion efforts, see remarks by FINCEN Director Jennifer Shasky Calvery here, by Treasury Deputy Assistant Secretary for Terrorist Financing Jennifer Fowler here, and by Treasury Assistant Secretary for Tax Policy Mark Mazur here.
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