March 18, 2010
Monique Perry Danziger, +1 202 293 0740 ext. 222
Washington, DC – The Senate’s passage Wednesday of legislation requiring increased reporting and withholding by offshore financial centers marks a significant step forward in efforts to combat US tax evasion and banking secrecy, said Global Financial Integrity. The measures, part of the Foreign Account Tax Compliance Act (FATCA) subtitle of the Hiring Incentives to Restore Employment (HIRE) Act—which went to the President for his signature yesterday—are also predicted to generate $8.7 billion over 10 years.
“We applaud Congress for moving forward on FATCA,” said Global Financial Integrity (GFI) director Raymond Baker. “We hope that the majority of non-US financial institutions choose to report instead of withhold in order to comply with FATCA because if they do, the bill can go a long way toward creating transparency and accountability in the offshore financial market, which is crucial to curtailing tax evasion and other illicit financial practices. While this bill only covers information regarding US taxpayers, it sets a precedent for other countries to join the fight by imposing similar measures to combat the kind of banking secrecy that allows illicit funds to be hidden from law enforcement around the world.”
Mr. Baker regretted Congress’ decision to create a second, lesser standard than already exists in US law, for determining whether a US person is the beneficial owner of an account at a foreign financial institution. Currently, US banks determine beneficial ownership weighing both amount of ownership against less easily determined factors that indicate who has control of the account or the company that owns the account.
“The FATCA definition leaves out the element of ‘control’ of a company, which in many cases is critical in building a case or investigating a crime by way of tracing transactions, assets and holdings to a criminal,” explained Mr. Baker. “We welcome the news that Congress has taken this important step in combating tax evasion and banking secrecy, but we will continue to push for the beneficial ownership issue to be addressed.”
“Determining beneficial ownership is critical to enforcement efforts,” said Mr. Baker. “Holding foreign financial institutions to a lesser standard than US institutions undermines the importance of the due diligence work carried out by US institutions.”
Other key legislation on the issue of beneficial ownership is the Incorporation Transparency and Law Enforcement Act, S. 569, which was the subject of hearings last year and is currently awaiting formal proposals for amendment from Treasury, as requested by the Administration.