Swiss banking giant Credit Suisse is defending its business practices after a recent journalistic investigation revealed the bank held billions of dollars for corrupt politicians, criminals, spies and other questionable figures over the past two decades. The problem is that much of this money was illicit and should not have been allowed in the bank, according to a February 20, 2022 report from the Overseas Crime and Corruption Reporting Project and the German newspaper Süddeutsche Zeitung, which published the story. Their investigation, called ‘Swiss Secrets” is the latest bad press from Credit Suisse, which over the years has been accused of holding dirty money and enabling tax evasion by foreign clients. In response, the bank promised to remove the illicit funds from its system, but Swiss Secrets leaks indicate that the process is not yet complete. The data leak also demonstrates that governments, which have made great strides in the fight against corruption and money laundering, still have some way to go to clean up the global financial system and catch corrupt activities.
In the United States, the Biden administration recently embarked on an ambitious anti-corruption project: the first ever United States Anti-Corruption Strategy. This strategy is made up of five different pillars to fight against illicit financing, modernize the government’s anti-corruption tools and strengthen diplomatic relations, among other objectives. The Swiss Secrets report comes at a good time for the Biden administration, which is gradually building national and international goodwill for this anti-corruption campaign. A key part of the campaign is to ensure that corrupt actors face the consequences of their actions and that governmental and non-governmental actors can investigate and expose corrupt activities. This includes journalistic data leaks like the Swiss Secrets. This article, which is the third in a four-part series, will examine the third pillar of US anti-corruption strategy: holding corrupt actors accountable. Here, the Biden administration has a few enforcement plans that will expand the government’s ability to obtain domestic and foreign financial account information, which could impact taxpayers unaware of their financial account reporting obligations.
The five stages of accountability
The Biden administration has five main initiatives to hold bad actors accountable:
· Expand the country’s cooperation with foreign countries and maximize the use of current anti-corruption laws;
· Create new legislation and other tools to fight corruption, including plans to criminalize the demand side of corruption by public officials;
· Coordinate and cooperate on the application of taxes, sanctions, visa restrictions, with national and foreign partners;
· Provide support to America’s foreign partners to reform their anti-corruption regimes and fully participate in international partnerships and transnational initiatives; and
· Support civil society, media and private sector actors to expose corruption and demand accountability.
Application tools are getting an overhaul
Several of the five accountability initiatives could have an impact on domestic and foreign taxpayers. First, the Biden administration plans to strengthen enforcement of criminal and civil anti-money laundering laws, and will use new investigative and prosecutorial tools to do so. Notably, the Department of Justice and its investigative partners like the Financial Crimes Enforcement Network (FinCEN) recently obtained expanded subpoena power under the Anti-Money Laundering Act of 2020 for certain financial documents kept abroad. This means that taxpayers with foreign financial records must plan that their data may be obtained by the US government in the course of investigations. Taxpayers whose accounts are not disclosed could violate the US Foreign Accounts Tax Compliance Act and also face penalties. For more information on FATCA, please see our article: FATCA Reporting: What U.S. Citizens Need to Know About Foreign Asset Reporting.
FinCEN will also administer the new beneficial ownership information disclosure requirements as permitted by the Transparency of Enterprise Act. For more information on the CTA, please see our previous article: International taxation in 2022: the year of disclosure and investment.
Second, the government plans to focus on how cryptocurrency enables corruption, and it enlists a new National Cryptocurrency Enforcement Team to do the job. This group will work on complex investigations and prosecutions of criminal cryptocurrency activities. A particular focus will be on crimes committed by virtual currency exchanges, mixing and tumbling services and money laundering infrastructure actors.
The opaque nature of cryptocurrency makes it difficult for tax authorities to determine whether or not taxpayers have taxable crypto gains. In recent years, the Internal Revenue Service has served summonses on John Doe on cryptocurrency exchanges for information about their customers. Since the IRS is actively seeking cryptocurrency-related data on taxpayers, it is reasonable to expect that information collected by this new National Cryptocurrency Enforcement Team may be shared with the public. ‘IRS for Tax Law Enforcement Purposes.
Third, the government will take a closer look at how citizenship-by-investment programs promote corruption, money laundering and tax evasion. Citizenship-by-investment programs allow foreign investors to receive a residency visa or even citizenship in a foreign country in exchange for a minimum level of investment. In addition to citizenship, investors often enjoy tax benefits, such as reduced personal income tax rates. The Biden administration fears the programs could also undermine anti-money laundering laws by making it easy for corrupt actors to move illicit funds and making it difficult to track that movement. Meanwhile, ineffective legal and regulatory oversight has also enabled criminal actors, sanctions evaders and corrupt officials to engage in illicit activities, the White House said. In response, the US government plans to work with foreign governments to close the vulnerabilities created by these programs. This likely won’t impact U.S. taxpayers since they are subject to U.S. tax on their worldwide income, but there could be ripple effects for foreign nationals who rely on these programs.
New tools, new rules
The third pillar of the US anti-corruption strategy demonstrates that the United States is serious about fighting money laundering and tax evasion and that it has the tools to do so. All major initiatives related to this pillar are already underway and will likely intensify in the months and years to come. This means that taxpayers should anticipate that their financial accounts and activities may be swept up in larger government investigations, and should hire a seasoned international tax professional to ensure that their accounts comply with US laws.