(Bloomberg Opinion) -- President Joe Biden’s administration has a message for the world: After many years of inaction, the U.S. is finally ready to do its part in the global fight against tax evasion, money laundering and terrorist financing.
The sentiment is welcome, but a lot more action is needed.
Once upon a time, the U.S. spearheaded an international crackdown on the financial secrecy that helps the corrupt and the dangerous hide their assets. Since then, much has been achieved. Many advanced nations have established beneficial-ownership registers — often publicly accessible — to reveal the people behind shell companies. They have started to require real-estate professionals, including attorneys and notaries, to report questionable transactions. More than 100 jurisdictions have joined the Common Reporting Standard, which entails automatic sharing of information on the foreign bank accounts of each other’s taxpayers.
Yet in a spectacular display of hypocrisy, the U.S. has avoided the transparency that it has demanded from the rest of the world. As the Pandora Papers investigation demonstrated, opaque trusts offered by states such as Nevada and South Dakota have attracted hundreds of billions of dollars from people seeking extreme financial privacy, outcompeting the likes of Switzerland and the Cayman Islands. Lax controls have made penthouses in Miami and mansions in Beverly Hills into ideal vehicles for laundering criminal proceeds, including from Iranian sanctions-busting and Malaysian embezzlement. The U.S. remains the only major nation that hasn’t joined the CRS, undermining other governments’ efforts to make people pay the taxes they owe.
It’s thus encouraging that Biden wants to set things straight. As part of a broader anti-corruption campaign surrounding the State Department’s Summit for Democracy, his administration has announced some important steps in the right direction. The Treasury Department is moving quickly to set up a beneficial-ownership register, as mandated in the Corporate Transparency Act that Congress passed late last year. And it may require a potentially wide range of real-estate professionals to flag suspicious activity and conduct due diligence on their clients.
Unfortunately, even if the U.S. follows through on these measures, many dark corners will remain. The ownership database won’t cover those South Dakota trusts, lacks a verification mechanism, and limits access to certain categories of financial institutions (subject to the client’s consent), barring even a modicum of public scrutiny. Key anti-money-laundering rules still probably won’t apply to known facilitators such as trust service providers and investment-fund managers. And the Treasury still won’t have the authority to provide other governments with the same bank-account information on their taxpayers that it regularly receives from other countries. As a result, the U.S. risks adding to its regulatory burden without deriving much benefit: As before, a corrupt Russian or Chinese official will be able to park assets legally, without the relevant authorities in his home country or the U.S. knowing about it.
To some extent, rectifying these shortcomings will require further acts of Congress — for example, to shed light on trusts and allow intergovernmental information sharing. In other areas, such as expanding anti-money-laundering reporting to more types of financial professionals, Treasury has the authority to act on its own. In any case, the U.S. needs to do better. Without its full participation, the global fight against dirty money cannot succeed.
Editorials are written by the Bloomberg Opinion editorial board.
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