Information can be powerful. In the aftermath of the Panama Papers, governments and treasury departments around the world are working to gather, store and analyze information to achieve the power to stop illicit financial activity and, in the process, receive their legal entitlement to tax payments to help boost Treasury coffers and the economic purse.
The U.S. Treasury is the latest major department to produce new anti-money laundering and terrorist financing legislation and regulations. This is being done in the hope that less money will go untaxed so that fewer terrorists will receive funding from these sources.
The new regulations have have been four years in the making. They are not a simple, knee-jerk response to Mossack Fonesca’s leaked files. However, the Panama Papers – and the mountain of information regarding illicit financial transactions that it unearthed – has no doubt pushed the fast-forward button on U.S. Treasury action.
Among the new regulations all companies will now be subject to is the Customer Due Diligence (CDD) Final Rule. This means that all companies who register or are already registered in the U.S. will be required to provide information identifying the real people funding and/or benefiting from that company, business or entity.
U.S. law enforcement agencies will also be able to find out information about who is behind a company. This rule intends to close a current loophole in regulations, ostensibly making it much harder for shell companies to register in the U.S. and for money to then be moved around and taxed at the wrong rate.
As well as tackling overseas investors who register businesses in the U.S., the Treasury is also taking steps to ensure American businesses are more transparent with their details and financial trail when reporting to overseas governments and treasuries. This will help place all the countries involved in the Fair and Accurate Credit Transactions Act (FACTA) on a level footing, as well as making it harder to find somewhere to hide important information.
If and when U.S. Congress enacts this part of the proposed legislation, U.S. Treasury Secretary Jacob J. Lew says it will help strengthen the fight against illicit financial behavior. “Reciprocity with other jurisdictions is a key component of any successful strategy for combating international tax evasion,” Treasury Secretary Lew wrote in a letter to Congress.
Of course, these new policies and announcements from the U.S. Treasury are undoubtedly good news for the tax office and public finances – much as the U.K.’s recently introduced anti-money laundering and counter-terrorism finance policy and multi-agency task force to follow up the Panama Papers claims are for their U.K. equivalents.
They are also good news for businesses and investors who operate legitimately within the law – although they might not agree with that assessment initially, as they go through the process of complying with these new regulations. Ultimately, however, a tougher and more transparent due diligence and reporting process will mean that fully compliant entities will gain a better reputation, which will provide rich long-term benefits. Most investors, firms and high-net-worth individuals know this and will act accordingly.
And then we come to those who will definitely view these new regulations as bad news. The “bad actors” whom Mr Lew states “deliberately use U.S. companies to hide money laundering, tax evasion and other illicit financial activities.” These are the people and companies who have worked hard to find and exploit loopholes for financial gain. Some of the strategies aim to provide the recipient with more money by avoiding paying the right level of tax, while others are working to fund terrorism and other forms of illegal and destructive activities.
The hope is that the increasingly global response to the many ways in which finances can be moved and hidden will make it much more difficult for financial criminals to find ways of continuing to launder money or to avoid paying the right level of taxes. It’s not something that can be done overnight – that’s clear by just how long it’s taken the U.S. Treasury and other governments to create the right wording and regulations that really will tackle, limit and prohibit illicit financial behavior.
That fact is also something that will become clearer still for corporate treasurers when they are faced with the task of ensuring that their due diligence is sound and that the business they work for is paying the correct taxes and registered with the right systems. Even companies who are doing everything right will face additional work from these changes.
But with so much at stake, it’s essential that these changes are welcomed and acted upon as quickly as possible. Only by doing that can the U.S. and other countries working to stop financial crime make it significantly more difficult for money launderers and terrorist financiers to exploit global financial systems.
Source: Letter from Treasury Secretary Lew to Congress
Adrian Ford is the founder and CEO of 
