The US government spends a great deal of time bullying smaller countries into becoming more financially transparent, in order to reduce tax evasion and money laundering. According to a recent Freakonomics podcast, however, the US has a double standard:
The world’s foremost anti-money-laundering organization is called the Financial Action Task Force. It has 39 members, including the U.S. Its mission is to “[set] international standards to ensure national authorities can effectively go after illicit funds linked to … serious crimes.”
NIELSON: These are the Financial Action Task Force recommendations. They’re not laws. They’re what we call in international relations “soft law.” So there’s no enforcement mechanism, right? It’s not like there’s some global police that can bust you and put you in handcuffs and take you away to global jail — that doesn’t happen. But what they do have is the ability to set expectations. And there’s lots of international standards — they’re voluminous. One of the main ones we focus on is that you need to know who controls the companies that move that money. Who is ultimately in charge of that company and that bank account? This is called the beneficial owner. And in order to make sure you can track that person, international standards require that you get photo I.D. of the beneficial owner. And so we just started with that. Just, like, to what degree is this practice being followed?
Nielsen, along with fellow researchers Michael Findley and Jason Sharman, conducted a massive experiment to learn where this recommendation was and was not being followed.
NIELSON: We thought it best way to learn is just to ask directly. We just created a bunch of false names from all around the world asking for shell companies, saying that confidentiality is important. I think it was, like, 7,500 emails that we sent. We kind of gave them a hint — if we can get away with something here, we want to. We said, “What’s required? What documents do you need from us?” And then they told us whether or not they required photo I.D.
Nielsen and his co-authors compiled their findings in a 2014 book called Global Shell Games.
NIELSON: We reported that the United States was the easiest place in the world to get an anonymous shell company, and the easiest place in the United States was Delaware.
They replicated the experiment in 2019, and the results suggest it’s still pretty easy to get a shell company in the U.S. Nielsen is not the only researcher to find a result like this. In 2022, the U.K.-based Tax Justice Network released a financial secrecy index, which ranked the U.S. no. 1 in the world, as, quote, “[the] most complicit in helping individuals to hide their finances from the rule of law.”
Note: The non-italicized statements are by Stephen Dubner. The italicized portion is Daniel Nielson. The podcast focuses on Delaware, which allows people to create corporations with no verifiable information on ownership. Most of America’s Fortune 500 companies are incorporated in this tiny state. The entire podcast is worth reading (or listening to).
And it’s not just Delaware; the US also has a double standard in banking:
In essence, FATCA turns foreign banks and other financial institutions into enforcement arms of America’s Internal Revenue Service (IRS). They must choose between turning over information on clients who are “US persons” or handing 30% of all payments they receive from America to Uncle Sam. . . .
As more countries are pushed to share tax information systematically, the focus will turn to America’s willingness (or lack of it) to reciprocate. Latin Americans, for instance, are big users of banks in Florida, but America remains choosy about which governments it will share data with, and how much.
I don’t have any great objection to the Delaware system, rather I wish the US government would allow other countries to behave as we do.
(0 COMMENTS)