On May 5, 2016, the Obama administration announced a series of proposals that will be sent to Congress designed to combat the disguising of international financial dealings through the use of anonymous financial corporations in the United States. The proposals are a signal to both domestic and foreign persons operating offshore that the government is aggressively targeting abusive behavior. The targets of the proposals include, in addition to those using anonymous financial corporations, financial institutions, funds, banks and companies who focus on significant offshore activity. The proposed regulations come in the face of increased efforts to combat tax evasion, money laundering and financial crime following the release of more than 11 million leaked documents that revealed the use of anonymous offshore companies for illegitimate purposes, including money laundering and tax evasion.
The proposed actions will include Department of the Treasury and Internal Revenue Service rules and regulations that will require financial institutions to obtain and record the owners of companies that use their services. These rules and regulations also will attempt to close loopholes that allowed foreign nationals to use anonymous United States companies to hide assets and financial activity. New legislative proposals and law enforcement initiatives include expanding prosecutorial jurisdiction to pursue foreign money laundering actions, allowing for the use of high-speed administrative subpoenas in money laundering cases, permitting the use of foreign business records in certain circumstances in civil asset recovery cases, increasing access to United States bank records abroad and expanding admissibility rules for the use of these records.
According to the White House, “These efforts are critical to preventing criminals from using the global financial system to launder proceeds from corruption or other illegal activities, finance criminal activity or even terrorism, evade international sanctions regimes, or evade taxes.” The impact of these actions will likely be felt worldwide, but it remains an open question as to how financial institutions and privacy advocates will respond. We can anticipate a flood of legal challenges in the weeks and months ahead.