The United States is the top destination for illegally stashing money, according to a new report from a tax advocacy group.
This year marks the first time the US has ranked first in the FACT Coalition’s financial secrecy index, the DC-based organization said Tuesday. The United States ranked above the traditional tax havens of Singapore, Switzerland and Luxembourg, which rounded out the top four nations. The Cayman Islands, which many Americans associate with offshore bank accounts, ranks 14th on the group’s list.
“America often says ‘We’re No. 1,’ but this is something we don’t want to be No. 1 on,” said Ian Gary, executive director of the FACT Coalition.
The findings come as the United States cracks down on Russian oligarchs’ wealth following Russia’s invasion of Ukraine. the United States has imposedon some Russian oligarchs, including billionaires Alisher Usmanov and Igor Shuvalov. However, the sanctions could not reach all of the oligarchs’ wealth because some of it is hidden within an intricate web of real estate assets, private investment accounts and anonymous shell companies, Quartz reported.
The Justice Department has created a new KleptoCapture task force specifically aimed at finding hidden Russian wealth.
The FACT coalition examined the financial rules of some 100 countries, looking specifically at laws that make it easier for criminals to hide and launder money. Each nation was then given a score out of 100. While the US scored 67, lower than other nations, it still tops the list due to its impact on the global economy.
The main reason the US jumped to the top of the FACT list is due to a lack of funding for the Treasury Department to enforce a new anti-money laundering law, experts said Tuesday.
In December 2020, Congress approved the Business Transparency Law, which requires anyone starting a shell company in the US to include the name of the owner. Under the law, the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, is in charge of enforcing the rules.
But experts said FinCEN will need additional staff, funding and technology infrastructure to take on this new task and investigate who is illegally hiding money. Biden administration officials are asking Congress to send $210.3 million to FinCEN under the proposed 2023 US budget, which represents an increase of about 30% from its current funding.
Stricter laws are needed
The FACT report concluded that almost all developed nations should pass stronger financial laws, particularly when it comes to ownership of shell companies. Failing to do so allows terrorist groups to secretly finance their operations and oligarchs to evade taxes, coalition officials said.
It’s unclear how much money is illegally stashed within US borders, anti-money laundering experts say. The US Treasury Department generally estimates the figure to be 2% of the nation’s GDP, which today would amount to $480 billion.
But even before the Russia-Ukraine war, US officials were aware of the growing problem of money laundering within the US. In December, Treasury Secretary Janet Yellen said “the best place to hide and laundering ill-gotten gains is actually the United States.”
It takes less effort to set up a shell corporation in the US than it does to get a library card, said Lakshmi Kumar, a terrorist financing expert at the Washington think tank Global Financial Integrity. That’s because an applicant must verify her ID to use the library, but that’s not the case with a shell corporation, Kumar said.