President Obama is calling for greater transparency and more regulations to prevent the use of shell corporations, like those highlighted in the Panama Papers, in order to limit the ability of individuals and companies to evade paying taxes. He also proposed changing the U.S. tax rules to prevent foreigners from hiding behind anonymous shell companies formed in the United States.
Tracking Financial Flows
In his briefing, President Obama emphasized, “Tracking financial flows and making sure people are paying the taxes they owe rather than using shell corporations and offshore accounts.”
Calling on Congress
Additionally, the President called on Congress to:
- Pass legislation requiring all companies formed within the U.S. to report information about their real owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN);
- Provide the Justice Department with additional tools to investigate corruption and money launderers; and
- For the Senate to stop blocking implementation of tax treaties that have been pending for years that will improve law enforcements’ ability to crackdown on offshore tax evasion.
The Panama Papers are 11.5 million files from the world’s fourth largest offshore law firm detailing how secretive offshore tax regimes have been used to hide wealth. The accounts include high-profile, wealthy individuals and families, including Russian President Vladimir Putin. The files were anonymously leaked to a German newspaper.
FATCA and Efforts to Combat Offshore Tax Evasion
Cracking down on secret offshore financial accounts and tax evaders has been a focus of the U.S. government for several years. The Foreign Account Tax Compliance Act (FATCA) was enacted by Congress in 2010 as a way to target U.S. taxpayers using offshore bank accounts to avoid paying taxes. FATCA requires foreign financial institutions (FFIs), including banks, hedge funds and other financial institutions to report on the holdings of U.S. citizens and dual citizens to the IRS. Failure to do so can mean stiff penalties for the banks. Swiss bank accounts have been the primary target but the U.S. now has agreements with more than 80 countries under the Foreign Account Tax Compliance Act (FATCA). 80,000 banks and financial institutions from all over the world, including the Cayman Islands, Hong Kong, Singapore, Panama, Liechtenstein, Colombia, New Zealand, South Africa and Kuwait are now sharing account information with the U.S. government.
Treasury Department Press Release: Treasury Announces Key Regulations and Legislation to Counter Money Laundering and Corruption, Combat Tax Evasion
Department of Justice Press Release: Justice Department Proposes Legislation to Advance Anti-Corruption Efforts
Boston Tax Attorney Blog Offshore Tax Evasion Resource Page