March 21, 2022

"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.



Send feedback or items for future newsletters to Santiago O'Neil at [email protected]



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Here's the State of Play:

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The Russian Invasion of Ukraine

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Countries around the world have coordinated in impressive fashion to condemn Russia's illegal invasion of the democratic and independent nation of Ukraine. Tragically, many of the same governments that have condemned Russia – including the U.S. – have, for years, enriched and empowered that regime by failing to close financial secrecy loopholes at home, handing Vladimir Putin and his cronies a backdoor to evade the bite of earlier sanctions and to continue their corrupt and criminal behavior.


In response to the Russian invasion, the U.S. and its allies are unleashing unprecedented sanctions against the Russian Federation. A key component of these sanctions are meant to target Putin and the oligarchs surrounding him. Secrecy afforded under U.S. law might undermine effective implementation of these targeted sanctions, including those being advanced by the White House and a "transatlantic task force."


Reforms [ [link removed] ] advocated for by FACT, including those pertaining to beneficial ownership of anonymous shell entities, removing opacity from the U.S. real estate [ [link removed] ], private investment, and other luxury goods markets, and promoting greater tax transparency can bring the economic weight of new sanctions to bear. The U.S. must work expediently with its allies to permanently close financial gateways for Russia's political elite to hide and grow their illicit wealth. The below updates since our last newsletter highlight a few key reforms advancing right now:


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FACT Fights for Implementing Beneficial Ownership Transparency via Corporate Transparency Act Comments




By definition, it is difficult to know the scope of oligarch infiltration of U.S. markets via anonymous shell entities. But plentiful examples abound. In 2016, Russian billionaire Igor Makarov [ [link removed] ] created an anonymous, unregulated private trust company and trust in the state of Wyoming to park, control and grow his fortune–via a so-called "Cowboy Cocktail." No U.S. law required the identification of Makarov in connection with his forming these entities.

With the closing of FinCEN's comment period on the first rule-making on the Corporate Transparency Act (CTA), the United States is one step closer to ending anonymous shell entities in the U.S. FACT [ [link removed] ] weighed in on the strong proposed rulemaking in detail, including to support FinCEN's robust definitions of beneficial owner and "substantial control"; its faithful statutory interpretation of which entities are covered; and the narrow lens it took to exemptions which have rendered much past actual toothless. Beyond praise for the draft, FACT offered its insights to strengthen the rule by clarifying the use cases for FinCEN identifiers, clarifying the nature of the law's "subsidiary exemption," and urging an emphasis on the verification mechanisms in the proposed beneficial ownership registry. Ultimately, FACT Executive Director Ian Gary urged a "deliberate but timely" implementation of the final rule, which aims to combat illicit financial practices that "undermine democracy and economic equality around the world."


FACT was not alone in its support for FinCEN – there were additional comments of support from Congress – from the law's authors, as well as from the House and Senate – law enforcement associations, small business groups, a coalition of human rights groups, anti-human trafficking organizations, and the financial services industry. FACT's comment was also endorsed by the international extractives enterprise BHP Billiton. FACT allies also weighed in, including Transparency International [ [link removed] ] and a broad coalition that included the Sentry [ [link removed] ], among others.


FACT – along with its allies – are discussing productive next steps to advance any remaining rulemakings under the CTA, as well as to explore any potential loopholes that may exist under the CTA.


Advancing Much-Needed Anti-Money Laundering Safeguards in the U.S. Real Estate Industry


The U.S. real estate sector is another sandbox Russian oligarchs get to play in, often via anonymous shell entities. For example, Oleg Deripaska, who has invested heavily in an aluminum mill supporting a Kentucky town [ [link removed] ], also owns a D.C. mansion, via an anonymous Delaware entity.


Not coincidentally, the U.S. has just closed the comment period for its advanced notice of proposed rulemaking, to solicit public input on ways to bring the US real estate industry under more comprehensive U.S. anti-money laundering regulation.



While real estate professionals have been considered since 2002 as a financial institution under the Bank Secrecy Act, they have had a 20 year long "temporary exemption" from fulfilling any AML obligations–making tracking and preventing money laundering through real estate by Russian oligarchs and other kleptocrats and criminals extremely difficult. The process signals FinCEN's intention to close this loophole and protect the integrity of the U.S. real estate market. FACT member Global Financial Integrity submitted a comment (link to GFI or FinCEN comment bc site is still down) supporting comprehensive, nationwide AML due diligence in both residential and commercial real estate, with no monetary thresholds. These rules would be well tailored to account for nuances in both residential and commercial real estate.


Other supportive comments include but are not limited to those submitted by Jubilee USA, the National District Attorney's Association, and the American Stable Business Network, demonstrating again the broad coalition supporting greater transparency in U.S. markets. FACT continues to help coordinate efforts to finalize this rulemaking.


Separately FACT is working to encourage FinCEN and the Securities and Exchange Commission (SEC) to advance greater transparency in the private investment market [ [link removed] ], as well as for FinCEN to advance transparency in art [ [link removed] ], luxury goods and digital assets. Each of these markets is subject to abuse by Russian oligarchs, and the time is now to make critical systemic reforms necessary to end the U.S. role in global corruption. Key to each of these reforms is properly funding FinCEN [ [link removed] ]. FACT continues to make the case for this; while the 2023 omnibus budget saw an increase in FinCEN's budget, it remained $30 million short of the White House request in April 2021. Every penny of $191 million is necessary to implement these reforms.


Tax Loopholes and Tax Transparency

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Addressing Tax Loopholes


The EU and other tax jurisdictions are advancing efforts to implement, in part, the historic OECD minimum tax agreement achieved by the Biden Administration, by Jan. 1, 2023. Under the deal, multinational corporations will pay at least 15% tax in every country where they operate. The only question is to whom. In the U.S., the failure to pass international tax reforms included in the Build Back Better Act, could result in the U.S. failing to implement changes necessary to ensure that the U.S. tax system works to advance the OECD deal and to make sure that the negotiated-for revenue benefits of the OECD deal accrue to U.S. communities. FACT is continuing to work with allies on the Hill and in Treasury to advance international tax reform that deters profit-shifting and tax-dodging at the expense of America's working families.


Improving Tax Transparency


The momentum for public country-by-country tax reporting (PCbCR) continues to grow. Global Reporting Initiative (GRI) CEO Eelco van der Enden recently laid out the case for why large multinationals are voluntarily reporting increased tax information to the benefit of investors, other stakeholders and the public writ large. Van der Enden [ [link removed] ] puts it rather simply: because GRI's reporting standards provide "a platform to provide comparable data", investors and the public alike are able to compare likes for like, which is beneficial to everyone involved.


Meanwhile, shareholders at Amazon [ [link removed] ] recently submitted a proposal calling for the tech behemoth to issue a tax transparency report to shareholders compliant with GRI's PCbCR standards. Amazon requested a no-action letter from the SEC to drop the proposal, but it is difficult to argue that more fulsome tax disclosure is not material in light of calls by investors with near $3.6 trillion [ [link removed] ] in assets under management for similar disclosure.


Ultimately, FACT is working to ensure that PCbCR is implemented in a manner that affords investors and other stakeholders readily comparable PCbCR data, which could be implemented by advancing the Disclosure of Tax Havens and Offshoring Act in Congress, via FASB reform, or through the SEC's authority under the Securities and Exchange Act.


Latest From FACT




PRESS RELEASE: FACT Welcomes Treasury Department Action to Counter Money Laundering through U.S. Real Estate [ [link removed] ]

February 22: FACT comment letter urges FinCEN to address dangerous vulnerability allowing kleptocrats and criminals to stash wealth in U.S. by recommending a "permanent and nationwide reporting regime" be added to FinCENs real estate framework.



BLOG: Following Illicit Financial Flows from Africa to the U.S. [ [link removed] ]

February 18: Atlas Corps Research and Advocacy Fellow Patricia Ainembabazi discusses the interconnectivity between African development and democracy, and "the U.S. role in facilitating the illicit financial flows from Africa", urging a renewed commitment to stemming this corruption.



PRESS RELEASE: Corporate Transparency Act's Draft Rule Applauded by FACT Coalition [ [link removed] ]

February 8: The FACT Coalition submitted detailed comments to the Treasury Department on a draft rule to implement the Corporate Transparency Act, and applauded Treasury Department for showing the "U.S. is serious in addressing its role in global money laundering and corruption."


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FACT in the News




QUOTED IN: US Could Lose Tax Revenue If It Neglects [ [link removed] ]

OECD's Pillar 2 [ [link removed] ]

March 18: Law360 quotes FACT's Ryan Gurule in discussing the deleterious consequences for U.S. revenues of failing to pass international tax reform



QUOTED IN: Privacy laws make it difficult to know if South Dakota trusts harbor Russian assets [ [link removed] ]

March 7: South Dakota Public Broadcasting quotes FACT's Ryan Gurule on the dangers of anonymous shell companies in the South Dakotan trust industry. Gurule advocates for a state-wide requirement that any "trust formed in South Dakota to disclose the beneficiaries of that trust to the Secretary of State", as a means to have it fall under the Corporate Transparency Act's purview.



QUOTED IN: NYC faces challenges in exposing oligarchs' property purchases [ [link removed] ]

March 1: Spectrum News- New York 1 quotes FACT's Ian Gary in explaining that neither New York's new beneficial ownership law nor the Treasury's disclosure rules require corporate transparency in the disclosing ownership of large real estate assets.



MENTIONED IN: WHITEHOUSE, GRASSLEY, COLLEAGUES INTRODUCE BIPARTISAN BILL TO STRENGTHEN THE U.S. CRIMINAL CODE AGAINST MONEY LAUNDERING [ [link removed] ]

February 17: In an office press release, Senators Sheldon Whitehouse (D-RI), Chuck Grassley (R-IA), John Cornyn (R-TX), Amy Klobuchar (D-MN), and Dianne Feinstein (D-CA) introduced the Combatting Money Laundering, Terrorist Finance and Counterfeiting Act of 2022, advertising the FACT Coalition's support for the legislation.



QUOTED IN: Family Offices Say Disclosure Plan Invites Theft, Kidnapping [ [link removed] ]

February 9: Bloomberg Market quotes FACT's Policy Director Ryan Gurule on the importance of mandating the disclosure of beneficial owners, in the face of privacy issues raised by the Private Investor Coalition.



QUOTED IN: FACT Coalition Submits Detailed Input on Draft Corporate Transparency Act Rule, Beneficial Ownership [ [link removed] ]

February 21: CU Today quotes FACT's Ian Gary underscoring the importance of tackling global corruption and illicit financial flows by example, "cleaning our own house" to cap the damage that can be done to both domestic economies and international markets.


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Recent and Upcoming Events




(RECENT) Global Alliance for Tax Justice Global Day of Action 2022: Tax Justice and Women's Rights [ [link removed] ]

March 14: In an event hosted by the Global Alliance for Tax Justice, a coalition centered on, among other critical endeavors, "transparent, inclusive and representative global tax governance internationally", FACT Executive Director Ian Gary spoke at the launch of the Global Day of Action seminar, centering this year on how equitable taxation can promote clean economic recovery through an intersectional feminist lens, and how such fair tax systems can help progress gender equality and women's rights.


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Social Media Shoutouts

@SenWhitehouse [ [link removed] ], Kleptocrats & criminals launder illicit gains through anonymous real estate transactions in rule-of-law countries. @USTreasury should bolster anti–money laundering safeguards in the U.S. property market to plug the holes through which corrupt cash flows.*
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@Zoe_Reiter [ [link removed] ], We will never win the battle against democratic backsliding and instability around the world without tackling financial secrecy in US and Europe.*
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@TransparencyUSA [ [link removed] ], We think the world is in need of a new, fit-for-purpose global standard on beneficial ownership transparency. Do you agree? Ask @FATFNews & its members to close this door to corruption. #followthemoney
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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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