May 23, 2024

"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's the State of Play:
FACT Releases Multinational Corporate Tax Policy Platform for 2025

FACT released a new policy platform to guide congressional deliberations surrounding the upcoming expiration of the 2017 Tax Cuts and Jobs Act (TCJA), which provides an opportunity to improve U.S. tax laws, including with respect to how the U.S. taxes multinational corporations.

For decades, large U.S. multinational corporations have underpaid hundreds of billions of dollars in taxes on their overseas profits through complex arrangements that defy both common sense and tax enforcement efforts. While the TCJA took some steps in the right direction on multinational taxation, including through the introduction of a minimum tax on certain overseas profits, it also provided new incentives for U.S. companies to offshore investments and jobs.

FACT's policy platform for multinational corporate tax reform consists of five key elements:

* Ending preferential tax treatment of offshore income and profits derived from exports (as proposed in the No Tax Breaks for Outsourcing Act);
* Aligning the U.S. with international standards for taxing multinational corporations;
* Introducing true tax transparency for multinational corporations through public country-by-country reporting (CbCR) requirements;
* Improving how the U.S. exchanges tax-related financial information with partner countries; and
* Adequately funding the Internal Revenue Service (IRS) to better enforce new and existing provisions against multinational tax cheats.

Public country-by-country reporting - a long-held FACT priority - and general improvements to existing U.S. information exchange systems would complement other reforms by giving lawmakers and tax authorities much-needed tools to address emerging tax-avoidance schemes. The IRS, meanwhile, needs new funding to revitalize audit and enforcement efforts against major multinationals, which often require specific expertise and take years to complete.

This new policy platform is a complement to efforts by partner organizations and an outgrowth of engagement with member organizations and allies during last week's Coalition-wide strategy retreat. This week the Groundwork Collaborative also released its 2025 tax platform, which focuses primarily on domestic tax reform and is endorsed by more than 100 national organizations. FACT provided input on multinational tax reform priorities during the drafting process.

Treasury, SEC Release Joint Draft Rule Advancing Anti-Money Laundering Safeguards for $130 Trillion Investment Advisor Industry

On May 13, the U.S. Securities and Exchange Commission (SEC) and Treasury Department's Financial Crimes Enforcement Network (FinCEN) released a joint proposal to require certain investment advisers to establish a basic anti-money laundering protocol, called a customer identification (CIP) program. The proposal - a substantial and long-overdue upgrade to the U.S. anti-money laundering framework - is related to the implementation of a broader FinCEN draft rule on investment advisers released in February.

"In issuing this rule, the SEC and FinCEN have taken an important step toward addressing a major money laundering vulnerability in our financial system," said Erica Hanichak, FACT's government affairs director, in an official statement. "Cartels, corrupt officials, and U.S. adversaries have leveraged the opacity of U.S. private funds to hide and grow their illicit proceeds. In just one case, Mexican cartels allegedly moved as much as $1 million a week through U.S. hedge funds, putting U.S. national security and public health interests at risk.

The U.S. cannot delay in addressing these loopholes. FinCEN and Treasury must move swiftly to finalize these safeguards, and take further steps to ensure that U.S. investment advisers truly understand who is behind the entities they work with."

The proposal requires covered investment advisers to identify their customer, whether an individual or a business, on the most basic level. Where the proposal stops short, however, is on requiring these advisers to "know their customer" - that is, to collect certain information on their customers that provides valuable insights into their money laundering risk. This includes, particularly for legal entities, information on the true, "beneficial" owner behind the entity; source of funds; relationship to politically exposed persons (PEPs); and other details crucial to law enforcement investigations. FinCEN can and should ensure that investment advisers know their customers and conduct customer due diligence (CDD) in a later rulemaking.

For decades, most investment advisers have been excluded from federal anti-money laundering programs. We now have ample evidence that the $130 trillion private fund sector remains vulnerable to abuse by bad actors. A 2015 proposal that would have introduced limited anti-money laundering safeguards and responsibilities for certain registered investment advisers managing large portfolios was never finalized, mirroring the fate of earlier proposals put forward in 2002 and 2003.

FACT in the News

Battle Against the Corporate Transparency Act Continues

FACT policy director Zorka Milin was quoted in coverage of the ongoing legal case surrounding the landmark Corporate Transparency Act (CTA).

"The circuit court must reverse the lower court decision," said Milin. "Congress was clearly within its powers to enact this vital financial safeguard, as was made clear in briefs from Congress and from subject matter experts. Legitimate small businesses often publish this information because they want their customers to know where to find them and how to work with them. Information filed under the CTA is routine, easy for the business owners to obtain, and hardly incriminatory."

Report Shows How the US Enables Environmental Crimes in the Amazon

FACT program director for environmental crime and illicit finance Julia Yansura was quoted in coverage of FACT's recent report, Dirty Money and the Destruction of the Amazon, by Colombian newspaper El Espectador.

"The United States must understand that environmental crimes are not only a problem for other countries, and recognize that it has a leading role, that it has been part of the problem, so it must be part of the solution," said Yansura.

Recent and Upcoming Events

May 10: Taking on Tax: A Conversation with National Economic Advisor Lael Brainard

National Economic Advisor Lael Brainard spoke at the Brookings Institution earlier this month on the Biden Administration's tax reform agenda, including the need for greater alignment of the U.S. overseas corporate minimum tax with international standards.

"The historic multilateral agreement signed by 130 nations will finally address the race to the bottom on corporate taxes, while enabling businesses to compete and allocate capital based on market factors, not tax planning factors. Many of the world's largest economies are already implementing this transformational agreement. We need to join them next year."

May 21: Anti-Corruption and Forest Governance Program

FACT program director for environmental crime and illicit finance Julia Yansura recently spoke at the Anti-Corruption and Forest Governance Program, a multi-day capacity building event organized by Proetica - the Peruvian chapter of Transparency International - for indigenous leaders and community environmental defenders. Yansura's session, which focused on illicit financial flows, corruption and deforestation in the Amazon also featured speakers from Igarape Institute and Transparency International Colombia.

June 18-21: International Anti-Corruption Conference 2024

The 2024 International Anti-Corruption Conference (IACC) - the premier global conference bringing together heads of state, community activists, non-profits, high-level policymakers, businesses, policy experts, and academics to address the complex challenges posed by corruption - will be held from June 18-21 in Vilnius, Lithuania.

FACT will speak at a workshop during the conference alongside the Nature Crime Alliance, the United Nations Office on Drugs and Crime (UNODC), Wildlife Justice Commission, and the Global Initiative Against Transnational Organized Crime titled "Transnational Corruption: Shedding Light on the Networks That Enable Environmental Crimes."

Keep an eye on the official IACC website for more information in the coming weeks.

About the FACT Coalition

The Financial Accountability and Corporate Transparency (FACT) Coalition is a non-partisan coalition of more than 100 state, national, and international organizations working toward a fair and honest tax system that addresses the challenges of a global economy and promotes policies to combat the harmful impacts of corrupt financial practices.

For more information, visit www.thefactcoalition.org

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