EDITORIAL COMMENT: US Talks The Talk, But Doesn't Walk The Walk On Transparency

Chris Hamblin Editor Offshore Red Compliance Matters 20 June 2016


The country that has arguably done more than any other to push for financial transparency from other jurisdictions has been slow to get its own house in order, the author of this article argues.

The worldwide system of tax used by the US, and the rollout in recent years of the US FATCA Act, along with the adoption by some countries (but not the US) of the Common Reporting Standard approach to information sharing, have created rumbles of discontent in parts of the world’s wealth management industry. Switzerland’s bank secrecy is waning, and many so-called offshore centres have been under intense pressure to open up their affairs, with Uncle Sam often leading the way in calling for change. So it is particularly controversial if the US is not willing to be as transparent and co-operative as it wants other nations to be. That, anyway, is the accusation.

In this article, Chris Hamblin, the editor of Offshore Red and Compliance Matters, sister news services to this one, looks at the behaviour of the US and likely future developments.

In recent weeks the world has heard, after many months of suspecting, that US authorities have been failing to send account information about high net worth taxpayers to the finance ministries in countries with which they have signed reciprocal FATCA “inter-governmental agreements”. Even though information has started flowing to the US Internal Revenue Service from many countries, the flow of “FATCA reporting” only goes one way. Indeed, the administration of Barack Obama has admitted that US law does not permit such reciprocity, belatedly raising the vague possibility of asking Congress to pass something.

This means that when the Americans signed all their 110-odd IGAs with other countries, they did so in bad faith with their fingers crossed behind their backs, in the full knowledge that they would not be honouring their promises at the agreed time or (if the new legislation does not go through) at all.

Betrayal 2.0
The US has been imposing more and more draconian anti-money-laundering controls on the rest of the world ever since the enactment of the USA PATRIOT Act 2001, if not before. It is, however, the world’s foremost “country of money-laundering concern” alongside the UK, according to year after year of International Narcotics Control Strategy Reports (INCSR) published by its State Department.

Its main stumbling block in this area is Delaware, a state where corporations are so opaque in their beneficial ownership that even its law enforcers cannot demand to see the records. This is one reason why most US companies – and 60 per cent of the world’s Fortune 500 companies – are incorporated there. America’s refusal to change this, coupled with its insistence on all other countries doing so, has caused resentment all over the offshore world.

It was in the wake of the Loch Erne meeting of the “Group of Eight” industrialised nations in 2013 that the world’s great powers began to insist on all countries making registries of beneficial owners available to their police forces and regulators. The offshore world erupted, with all UK Overseas Territories resolving not to comply until the US did. The Americans, of course, refused to make Delaware even slightly less opaque and seem to have no intention of doing so. 

The same goes for other states that have trodden the path of secrecy for their corporations’ beneficial owners, notably Nevada (in the county where Las Vegas is) and Wyoming. Such is the discrepancy between the endless disclosures that companies in other countries have to make to the authorities and the "free pass" awarded to Delaware and the other US states that money is now leaving the offshore world for the US at a rapid rate. This is, no doubt, intentional.

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