Trending: United States tax secrecy and the Weekly Roundup

Trending: United States tax secrecy and the Weekly Roundup

The United States of Tax Secrecy

Last week, Global RADAR’s weekly roundup examined Canada’s emergence as a tax haven for powerful international figures that have capitalized off of the country’s lack of AML legislation to create and hide behind shell companies to help facilitate the individual’s tax evasion. An article written by writer Joe Kirwin of Bloomberg’s Bureau of National Affairs titled “U.S. Emerging as ‘Leading’ Tax, Secrecy Haven, EU Report Says” says it all in its heading. The article, cited in BSA News Now on Thursday, March 9th, 2017, discusses a report published by European Parliament that has found that “the U.S. is emerging as a ‘leading tax and secrecy haven for rich foreigners’ because of its resistance to global tax disclosure standards and the array of tax-free facilities available for non-residents” (Kirwin, 2017).

States such as Delaware, Nevada, South Dakota and Wyoming were specifically mentioned in the report due to their attractiveness to international figures around the world. Delaware in particular was highlighted as an attractive area for global investors due to their advanced business statuses. With current laws permitting beneficial owners of companies to remain anonymous, an influx of illicit international money has hit several markets within the U.S., especially the real estate market. The report accentuates the fact that, unlike many other developed countries around the world, the U.S. has yet to agree to “implement the Organization for Economic Cooperation and Development’s (OECD) common reporting standard for the automatic exchange of bank and tax data between tax authorities” (Kirwin, 2017). The report was published following concerns raised by members of the European Union about the Trump administration likely not implementing the OECD’s recommended alterations to global tax rules that have affected the competitive balance between the United States and the United Kingdom.

The European Parliament’s Panama Papers investigative committee is set to visit the United States in late March to reportedly discuss future cooperation in promoting the transatlantic battle against illicit financial activity such as money laundering and tax evasion, as well as the major issue at hand: tax and beneficial ownership transparency within the U.S. As was discussed last week, the measures that are currently in place governing unknown buyers potentially using shell companies to hide their identities when making real estate purchases with illicit funds in high profile U.S. markets are simply investigative at this point. While the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) did recently choose to extend both the timeframe, as well as the reach of the investigatory program to multiple high-profile municipalities, the terms of identifying the beneficial owner only apply when making real estate purchases in excess of the thresholds set for that specific city or county. These thresholds are set based off of the current average market values for real estate in these respective areas. For example, the threshold in New York City is $3 million USD. In the California counties named in the program, the threshold is $2 million USD, and in Florida, the threshold is $1 million USD.

The EU Anti-Money Laundering Directive is likely to be revised soon, with the most significant change proposed being the implementation of “standards that would require identification of anyone with 10 percent or more of a company or trust to be posted on a public registry” which the European Parliament has called for. However, another issue that was mentioned in the report is in regard to the U.S. Foreign Tax Compliance Tax Act. In this act, EU governments are required to provide the United States with tax/income data about all U.S. citizens living in Europe. The issue is that this reporting is one-sided, as the U.S. does not provide information to the EU about European citizens living within the United States. Clearly there is a growing rift between the EU and the U.S. in regards to FATCA and current AML regulation in place, however these differences are likely to be resolved with greater cooperation and communication between the two world powers over revisions to these guidelines in the coming weeks.

Weekly Roundup

Key Components to Effective Compliance

An article published in Compliance Week magazine this week highlighted five key elements that contribute to the creation and maintenance of an efficient AML program. The article notes that risk appetite and assessment are two of the most important factors for setting the proper foundation for an effective AML program, as risk appetite is important for an organization to understand the level of risk they are comfortable being exposed to, and risk assessment leads to a company adopting a risk-based approach and following through on mitigating said risk.

The next key element is the implementation of internal policies and procedures proportionate to the risk. The most common controls found today are know your customer (KYC) and enhanced due diligence (EDD) requirements, which are required by law. Independent review is the next major component noted, as this is essential for ensuring the controls that are put in place are effective. The ability to perform trial runs and tests on the set controls can determine if they will work smoothly, or if they will encounter any issues following implementation. The final piece of the AML program puzzle is proper training and creation of a compliance culture, as employees are essential for recognizing red flags of money laundering. The culture of compliance is a must because “employees who truly understand and value the importance of the controls are more likely to adhere to requirements” (Jones, 2017).

Former British Petroleum Exec. On Trial

Clarence Chang Peng Hong, the former eastern regional director for marine fuels of BP-Singapore faces 47 charges of taking bribes in excess of $4 million USD ($5.7 million Singapore) “from a businessman to advance the business interest of the latter’s company with the oil and gas company” (Chong, 2017). The aforementioned businessman, Koh Seng Lee, was the executive director of Pacific Prime Trading (PPT) Company. Hong also faces 10 charges of “converting property amounting to $3.97 million which were direct or indirect benefits of corrupt proceeds, to acquire three houses” (Chong, 2017). If found guilty, Hong faces up to seven years in prison on each charge, as well as a fine of up to $500,000 USD for breaches of the Corruption, Drug Trafficking and Other Serious Crimes Act.

Lack of AML Measures Hurting Iran

Earlier this week, The Tower magazine cited an article written by The Wall Street Journal which found that banks in the United Kingdom “are refraining from doing business with Iranian counterparts despite the lifting of legal limits on such deals because the Iranian banks ‘aren’t up to the same anti-money-laundering and financial fraud standards’” (The Tower, 2017). With sanctions being lifted for over one year, Iranian-owned Bank Sepah International PLC, the bank that the article focuses on, has yet to process a single commercial transaction. This is due in large part to U.K. bank’s hesitance to deal with the risks involved in dealing with Iranian banks.
Although the Obama administration, as well as former U.S. Secretary of State John Kerry, assured European banks that it was safe to do business with Iran, many in the U.K. financial services sector believe that it is still too risky. This is mostly because the “underlying facts” remain that Iran has ties to terrorism funding and money laundering as well.



Chong, Elena. “Ex-BP Executive Charged with Taking $5.7m in
Bribes.” The Straits Times. 08 Mar. 2017. Web.

Jones, Simone. “5 Key Strategies for Your AML Program.”
Compliance Week. 7 Mar. 2017. Web.

Kirwin, Joe. “U.S. Emerging as ‘Leading’ Tax, Secrecy Haven, EU
Report Says.” Bloomberg BNA. Bloomberg, L.P., 8 Mar. 2017. Web. Staff. “UK Banks Afraid of Doing Business with
Iran Due to Lack of Anti-Fraud Measures.” The Tower. 9 Mar. 2017. Web.

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