December 3, 2021
“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 the laundering of money through the financial system.
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Here’s the State of Play:
Fighting Illicit Financial Flows
Report Launch: “Private Investment Public Harms”
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A new report – “Private Investments, Public Harm: How the Opacity of the Massive U.S. Private Investment Industry Fuels Corruption and Threatens National Security” from the FACT Coalition, Global Financial Integrity, and Transparency International- U.S. Office reveals a gaping hole in the U.S. anti-money laundering framework that undermines U.S. national security, jeopardizes the world’s democracies, and touches the lives of ordinary Americans.
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The FACT Coalition hosted a report launch event to discuss the factors that make the United States private investment industry an attractive place to hide illicit funds, showcasing case studies uncovered in the leaked 2020 FBI memo that highlight how this sector is abused. Panelists, including Gary Kalman, Director, Transparency International-U.S. Office, Lakshmi Kumar, Policy Director, Global Financial Integrity, David Szakonyi, Co-Founder, Anti-Corruption Data Collective, and John Keenan, Corporate Governance Analyst, American Federation of State, County, and Municipal Employees (AFSCME), discussed what the United States government can do to mitigate the U.S. financial role in fueling corruption and undermining international democracy.
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“American Kleptocracy” - Book Launch and Conversation with Casey Michel and Experts
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The Pandora Papers have, once again, awakened Americans to the central role that the United States plays in supporting a world of "offshore" criminal financial activity. At a recent FACT Coalition event, author of the new book “American Kleptocracy”, Casey Michel, makes the argument that the U.S. has transformed into a “global center of offshoring, financial secrecy, and kleptocracy.” Policy experts from FACT member organizations charted the reform path ahead, including strong implementation of the Corporate Transparency Act.
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President Biden designated anti-corruption as a core national security objective of the United States on June 3 and made a G7 commitment to counter money laundering through real estate as part of this initiative. Despite these high hopes and ambitions, U.S. initiatives are falling short. Heading into the “Summit for Democracy” hosted by the White House next month, FACT has repeatedly advocated for the administration to implement meaningful policy steps to ensure the United States is not the go-to destination for kleptocratic actors. These include strong implementation of the Corporate Transparency ACT that incorporates certain trusts, a rulemaking to make permanent anti money safeguards on U.S. real estate, and bringing enablers under the Bank Secrecy Act.
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Tax Loopholes and Tax Transparency
International Tax Reform in Build Back Better Act is a Promising Start
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The passage of the Build Back Better Act (BBBA) through the House is a promising first step toward substantially reducing tax-haven misuse, protecting American employment, and meeting the Biden Administration's challenge to halt the international race to the bottom in corporate tax collections.
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FACT has provided an analysis of BBBA international tax reforms, which act to:
- Strengthen the US global intangible low-taxed income (GILTI) tax on the profits that multinational corporations earn abroad to 15%, and apply it on a country-by-country basis, in line with the minimum global tax requirements in the global OECD tax deal.
- Fortify the base-erosion and anti-abuse tax (BEAT) – which penalizes corporate profit shifting – by increasing the applicable rate with respect to base-eroding payments or deductions in incremental increases over the next three years.
- End an inappropriate exemption to the GILTI for foreign oil and gas extractive income, in line with OECD minimum requirements. The Act also reduces the ability of international oil and gas companies to improperly categorize payments to foreign governments in exchange for a direct economic benefit to lower their U.S. tax bills.
- Stop the abusive practice of taking excessive interest deductions against U.S. taxable income in light of taxpayer favorable expense allocation rules in Build Back Better and to ensure foreign-parented entities not subject to the GILTI or BEAT cannot erode the U.S. tax base.
- For more information, see this FACT sheet.
As the legislation now heads to the Senate, FACT and its allies Americans for Tax Fairness and the Institute on Taxation and Economic Policy have all reaffirmed that the bill offers a rare opportunity for Congress to end the era of multinational corporate tax avoidance with the passage of the Act.
A $5 Trillion Problem: The Need for Global Tax Transparency in Addition to Minimum Taxes
This month, FACT hosted a conversation between Senator Chris Van Hollen (D-MD), Alex Cobham (CEO of the Tax Justice Network), Tove Maria-Ryding (Eurodad) , and FACT’s own Policy Director Ryan Gurule in connection with the launch of the 2021 “State of Tax Justice” Report. The report, a collaboration between the Tax Justice Network, the Global Alliance for Tax Justice, and Public Services International, shows that tax avoidance by multinationals and wealthy individuals could result in governments around the world losing nearly five trillion dollars over the next decade.
Coming hot on the heels of the Pandora Papers, which revealed anew ways that the global elite and criminals hide from taxes and public accountability through intertwined "offshore" financial markets, the Report demonstrates the need for greater tax transparency measures--in addition to global minimum taxes--to fight the scourge of tax dodging. During his remarks at FACT’s panel, Senator Van Hollen (D-MD) advocated for two pieces of legislation he has co-sponsored that would, respectively, increase transparency for opaque entities, such as trusts, and require public country-by-country tax reporting for large multinational corporations. These reforms are consistent with the: “ABC’s” of tax transparency advocated for by Tax Justice Network and FACT—that is, requiring the automatic exchange of information among competent authorities; beneficial ownership registration for legal entities; and public country-by-country reporting by multinational corporations.
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Latest From FACT
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REPORT: Private Investments, Public Harm
December 2: FACT’s latest report – “Private Investments, Public Harm: How the Opacity of the Massive U.S. Private Investment Industry Fuels Corruption and Threatens National Security” – reveals a gaping hole in the U.S. anti-money laundering framework that undermines U.S. national security, jeopardizes the world’s democracies, and touches the lives of ordinary Americans.
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BLOG SERIES: Connecting FACT’s Tax Justice and Anti-corruption Work to the Climate Crisis
In a recently published four part blog series, FACT policy fellow Chris Boose illustrates the intersection of climate-destructive practices, tax evasion, corruption, and illicit financial flows. Readers can find all four parts here:
- Part 1: Climate and Tax
- Part 2: Climate and Tax Transparency
- Part 3: Climate and Beneficial Ownership
- Part 4: Climate and Professional Enablers
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FACT Sheet: The Case for Ending U.S. Base Erosion through Excess Interest Deductions via 163(n)
December 2: FACT provides an overview of section 163(n), a key provision of the Build Back Better Act (H.R. 5376).
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FACT in the News
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QUOTED IN: PBS FRONTLINE
November 29: PBS Frontline quotes FACT’s Government Affairs Director Erica Hanichak on the explotation of the U.S. financial system by kleptocrats, criminals, drug traffickers and terrorist to hide illicit flows.
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QUOTED IN: Wall Street Journal
December 3: The Wall Street Journal provides details on the “Private Investments, Public Harm” report, including the launch event organized around the report.
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Recent and Upcoming Events
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(RECENT) REPORT LAUNCH: “Private Investments, Public Harm”
December 2: The FACT Coalition, Global Financial Integrity, and Transparency International-U.S. Office launched their new joint report revealing how the opacity of the massive U.S. private investment industry fuels corruption and threatens U.S. national security.
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November 17: The Financial Accountability and Corporate Transparency (FACT) Coalition hosted “American Kleptocracy,” a conversation with Casey Michel and policy experts discussing steps the Biden Administration and Congress must take to turn off the gushing spigot of dirty money coming into the U.S.
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Social Media Shoutouts
@SenWhitehouse, Private investment funds—including private equity & hedge funds—manage over $10 trillion, yet have no anti-money laundering requirements. It’s time for Treasury to tackle the serious national security risks that poses.
https://thefactcoalition.org/wp-content/uplo
@ChrisVanHollen, BREAKING: The House just took one BIG step forward in making our #BuildBackBetterAct law. Now it’s time for the Senate to get this historic bill over the finish line to deliver expanded job opportunities and daily cost savings straight to MDers & the American people.
@RepLloydDoggett, Joined @FACTCoalition in a press briefing to discuss our work pressing multinationals to pay their fair share. We focused on the recent agreement to end the global race to the bottom on corporate taxes reached by @POTUS + @SecYellen at the @OECD #G20 meeting.
@SenWhitehouse, Pleased to see that Biden’s global corporate minimum tax rate draws on my legislation with @RepLloydDoggett to end tax breaks for companies that send jobs & profit overseas. America should lead the world when it comes to reforms, rather than waiting on others to dictate terms.
@eWarren, At least 70 public corporations made over $1 billion in global profits in 2020 while paying less than 15% of those profits in taxes. My plan for a Corporate Minimum Tax—which the House just passed as part of #BuildBackBetter—will get these giants to pitch in a fair share.
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.
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