(Bloomberg Opinion) -- For all its unilateral tendencies, the U.S. typically isn’t known as a rogue state. But in one area it has come close: By failing to share information with other countries, it has thwarted global efforts to track down tax cheats, money launderers and terrorists — efforts that it once led.
Congress has just taken a step in the right direction by supporting provisions attached to the 2021 National Defense Authorization Act that would require certain U.S. companies to report their beneficial owners to Treasury. (President Donald Trump has threatened to veto the bill for unrelated reasons, but the measure seems to command veto-proof support.) This effort is welcome, but there’s a lot more to do.
Once upon a time, people seeking to hide money looked to Switzerland or to havens such as Panama. That started to change after the 2008 financial crisis, when the leaders of the Group of 20 developed and developing nations decided to crack down on the secrecy that was costing them much-needed tax revenue.
In 2010, the U.S. adopted the Foreign Account Tax Compliance Act, which presented other countries with a deal they couldn’t refuse: Provide regular reports on the accounts of U.S. taxpayers, or lose access to the U.S. financial system. Since then, more than 100 countries have agreed to exchange even more information on each other’s tax residents automatically, through a separate mechanism known as the Common Reporting Standard. The goal is to leave no quarter for dirty money.
To be sure, these efforts haven’t been without problems. Automatic reporting is a multi-step process: Authorities must first gather the necessary data — including on bank accounts and the people behind the shell companies that often control them — then figure out how to organize and share it. The information they exchange remains far from complete, and they’re still struggling to make sense of what they do receive.
That isn’t all. The rules that the U.S. imposes through FATCA are so onerous and duplicative that many banks have stopped doing business with U.S. taxpayers living abroad. Addressing these glitches — for example, by harmonizing FATCA and the CRS, or even eliminating the former in favor of the latter — will be a challenge.
The most glaring problem, though, has been the recalcitrance of one major nation: the U.S. Despite the demands it has placed on other countries, it failed to reciprocate or even collect the data required to do so. Congress has rejected multiple requests to empower the Treasury to gather information on the true owners of legal entities, or on the balances of accounts at U.S. banks. As things stand, an international criminal can park assets in a South Dakota trust, and neither the U.S. tax authorities nor his home-country government will have a clue. No wonder some have called the U.S. the “new Switzerland.” It has been stealing the business of the offshore havens that it has worked to shut down.
The new rules on beneficial ownership will help. Granted, they’ll prove a burden for some, though they allow exemptions designed to spare legitimate businesses, and the added transparency might help financial institutions fulfill their know-your-customer requirements. Given that much of the developed world — including the U.K., France and India — already registers beneficial ownership, it’s hard to argue that the U.S. should be any different.
Even with the new measure on the books, the U.S. should do more to meet the transparency standards it demands of the rest of the world — for example, by empowering the Treasury to get all the necessary information from banks, by insisting that all relevant legal entities, including trusts, disclose their true owners, and ultimately by joining the Common Reporting Standard. Thwarting global criminals requires global cooperation. It won’t succeed if the U.S. keeps going rogue.
Editorials are written by the Bloomberg Opinion editorial board.
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