The topic of international tax havens has become quite popular of late amongst the general public and policy makers across the globe. The subject has also garnered a substantial amount of interest from financial criminals and international politicians seeking a way to keep their income, and the sources of said income, concealed while simultaneously expanding their asset base(s). As a result, this growing attention has also caught the eye of individuals operating in the financial services sector, specifically within the compliance departments of financial institutions of all shapes and sizes; the arch nemeses of financial criminals and the organizations that they often represent. Global RADAR recently reported on the trend of two prominent North American countries, the United States and Canada, evolving into what some would consider “tax havens” for a variety of reasons. The common denominators in the creation of these respective distinctions were the lack of appropriate legislation in place to combat the use of shell companies for the facilitation of tax evasion, the resistance to global tax disclosure standards, and the wide array of tax-free facilities available for non-residents. The negatives involved with the development of tax havens – countries that typically offer favorable tax rates for foreign investors – are seemingly endless. The increase in poverty and crime rates, as well as hardy international tax competitions arising from this trend have been well documented over the past several years. Yet despite the growing sense of global awareness on this phenomenon, the trend has continued, casting a negative light over new countries and regions around the world.
The Bloomberg article “Could Puerto Rico Be the Next Hot Tax Haven?” cited in BSA News Now on Wednesday, August 23, 2017, discusses one of these aforementioned areas that has seen a large influx of International Financial Entities (aka offshore banks) over the last five years. Writer Tom Metcalf describes a loophole in the structure of International Financial Institutions (IFE’s) that has allowed non-U.S. account holders to anonymously place funds in Puerto Rico in order to avoid taxes in their home countries, while benefiting from the stability of the United States (as Puerto Rico is a U.S. territory). Metcalf writes that this has made Puerto Rico “increasingly attractive because of a new global financial-disclosure system taking effect in September. Under the Common Reporting Standard (CRS), more than 100 countries have agreed to automatically provide to one another annual reports about accounts belonging to people subject to taxes in each member nation” (Metcalf, 2017). This novel reporting system was created with the intent of combatting tax evasion through offshore financial accounts, and is a deviation from previous methods that made it rather difficult to identify suspicious accounts and activity due to the general lack of cross-border collaboration.
Although Puerto Rico must still report suspicious financial activity to the U.S. government, and cooperate with IRS investigations, the fact that the country will not be subjected to the CRS process means a considerable amount of confidentiality is still permitted to foreign investors. Metcalf notes that “IFE’s do not collect information about non-U.S. individuals with accounts if their assets are held through offshore companies or trusts”, meaning that beneficial ownership information does not need to be revealed or reported so long as these don’t have U.S. shareholders of U.S. income (Metcalf, 2017). Another huge benefit for potential investors is that investments made by foreigners are not subject to tax in Puerto Rico, as only the IFE’s holding these funds are charged small percentages of their profits. This in turn means that a fair amount of investors will likely move their funds held in foreign jurisdictions affected by the increase in information-sharing stemming from the implementation of the Common Reporting Standard to Puerto Rico. Although there are often complications involved in establishing correspondent banking relationships with other FI’s, the results thus far speak for themselves – since 2012, 44 IFE’s have invaded Puerto Rico, with 18 of those opening in 2017 alone. Many foresee the eventual expansion from the current European market that has invested heavily into Puerto Rican IFE’s to possibly the Latin Americas and Asia in the near future. This means the aforementioned figures for IFE openings could skyrocket in a matter of months, depending on when these new markets catch wind of the potential for profit through investment in Puerto Rico. These developments will likely have a colossal impact on the future of a country already marred in recent political and economic turmoil, making this emerging “tax haven” an area to keep our eyes on in the next few years.
Will U.S. Geographic Targeting Orders Ever Become Permanent?
With the U.S. Treasury Department announcing yet another extension of their Geographic Targeting Order (GTO) program created with the intent to combat money laundering through shell companies headed by foreigners making high-profile real estate purchases in the U.S., many have begun to wonder when these extensions will become permanent pieces of legislation. The program, initially created in early 2016 and extended three times since then, has grown to include several new cities and counties since its inception. The greater Honolulu area is the latest to join the group, becoming the seventh major metro area required to report all-cash real estate deals above a specified U.S. dollar threshold to the Financial Crimes Enforcement Network (FinCEN). The GTO’s reportedly require “disclosure of the actual owners of a shell company, in transactions that are cash purchases, meaning they don’t involve a mortgage. As of Tuesday, the order includes wire transfers” (Hall, 2017).
The program demonstrated significant findings following its last extension in May, where it was discovered that “Banks and other financial institutions had filed suspicious activities reports against 30 percent of the actual owners of the shell companies that purchased properties in the targeted markets it had studied” (Hall, 2017). These discoveries led many in the financial sector to call for the permanent incorporation of GTO measures in these respective jurisdictions, specifically when considering the emphasis being placed on increasing financial security and anti-money laundering safeguards, while decreasing risk for banks and other financial entities. The Financial Accountability and Corporate Transparency (FACT) Coalition has lobbied for Congress to enact laws that require greater ownership disclosure in order to crack down on financial criminals and international politicians taking advantage of the U.S. real estate market, though subsequent action remains to be seen. On the bright side, the FACT Coalition has supported legislation recently proposed by multiple U.S. Senators, including former Presidential hopeful Marco Rubio, that would require the Treasury department to issue rules for disclosure of true ownership to be filed either with state or federal authorities. It would also impose penalties for the submission of false or fraudulent ownership information” (Hall, 2017). Global RADAR will provide an update on these developments in a later segment.
Corrupt Politician Set to Visit the White House
Najib Razak, the notorious Prime minister of Malaysia who is currently one of the key figures involved in a multi-billion dollar corruption scandal, was granted a Presidential invitation to visit the White House in September earlier this week. The request to attend was a move initiated by President Trump to “strengthen and broaden our bilateral relationship and expand regional cooperation with one of America’s closest partners in Southeast Asia” (Harris, 2017). The move secondarily acts as a way to downplay rumors that have run rampant in Malaysia which have speculated that Najib could face potential arrest upon entering U.S. territory due to the severity of the allegations against him. After tracking a money trail leading to multiple Malaysian bank accounts, Najib was identified by the United States Justice Department earlier this summer as one of multiple Malaysian officials who received substantial amounts of money – in his case $731 million– illicitly from a government fund.
Najib has denied the claims on multiple occasions, stating that these funds were a gift from a Saudi donor that has yet to be identified. Nonetheless, Najib’s credibility has since been tarnished on both the domestic and international scale, thus the invitation to the White House is a major positive development for him personally. This invitation has been greeted with mixed reviews however; as some have stated that this decision “demonstrates that the Trump administration places concerns about corruption well behind other issues” (Harris, 2017). Najib is up for re-election in 2018, and although critics have called for his resignation, it seems his close relationship with President Trump will only add even more fuel to his seemingly unshakeable campaign’s fire.
Toronto Receives First Bitcoin ATM’s
Earlier this week, Ontario-based bitcoin & ATM manufacturer LocalCoinATM installed its initial group of Ethereum ATM’s in several convenience stores located throughout Toronto, Brampton, and Etobicoke of Canada. In a statement released by the company following the ATM installments, a spokesperson acknowledged that Ethereum has revolutionized the budding cryptocurrency industry thus far, and hopes that these ATM’s will lead to less-complicated purchases and sales of the currency in the near future. The ATM’s function through the “display of an Ether deposit address for sellers and require buyers to enter the addresses of their Ethereum wallet to purchase the cryptocurrency with Canadian dollars” (Young, 2017).
These ATM’s are intended to cater to traders and investors delving into this market for the first time, who are often attempting to purchase small amounts of Ethereum without having to navigate through oft-complicated cyber exchanges. ATM’s simplify the process immensely for novice users, and allow for anti-money laundering (AML) and Know Your Customer (KYC) safeguards to be bypassed due to the transactions being of such little value. Bitcoin ATM’s have already become quite popular in other regions of the world, such as multiple countries throughout Asia. Given the rise of the cryptocurrency market as a whole in recent years, many analysts believe that these crypto-ATM’s are likely to become more and more prevalent in response to the general rise in value of coins, as well as the increase in investors attempting to ride the wave of cyber currency.
Hall, Kevin G. “Why Isn’t Treasury’s Crackdown on Real Estate Money Permanent?” The News & Observer. 22 Aug. 2017. Web.
Harris, Gardiner. “Malaysian Leader in Billion-Dollar Scandal Is Invited to White House.” The New York Times. The New York Times, 23 Aug. 2017. Web.
Metcalf, Tom. “Could Puerto Rico Be the Next Hot Tax Haven?” Bloomberg.com. Bloomberg, 22 Aug. 2017. Web.
Young, Joseph. “Toronto Receives Its First Ethereum ATMs, Targeting Mainstream Adoption.” Cointelegraph. 20 Aug. 2017. Web.