TBr #06 Jaargang/Annee 2 - September/Septembre 2018 RrP 032 Kathryn Keneally 1 PARTNER OF JONES DAY'S TAX PRACTICE Sergio Alvarez-Mena ' PARTNER IN JONES DAY'S FINANCIAL INSTITUTIONS PRACTICE Francis Muracca II ' PARTNER OF JONES DAY'S TAX PRACTICE Michael J. Scarduzio ' ASSOCIATE OF JONES DAY'S TAX PRACTICE THE U.S. ADDRESSES ITS ROLE AS A TAX HAVEN For many reasons, investors are choos­ 20 percent of the world's offshore fi­ ing the United States. The nation is nancial assets are kept in the United the world's largest economy, home to States.' Along with traditional inves­ the most stable currency and finan­ tors, however, there are also those who cial system. Even in challenging politi­ bring their assets into the U.S. to avoid cal environments, the U.S. government paying taxes in their home countries or is based on a system of checks-and­ to avoid making required financial dis­ balances with a history of free elections closures to their local tax jurisdiction. and peaceful transfers of power. This In this regard, the U.S. lags behind its is likely why, as of 2018, an estimated European peers in collecting and shar­ ing information necessary to identify this type of tax evasion. 1 Kathryn Keneally is a partner of Jones Day in New York. From 2012 to 2014, she served as the Assistant Attorney General for the Tax Division of the U.S. Department of Justice. Since 2005, the European Union has 2 Sergio Alvarez-Mena is a partner of Jones Day in Miami. had regulations on collecting informa­ Prior to joining Jones Day, Sergio served as director of Credit Suisse Scecurities (USA) in the legal and compliance tion on those natural persons who con­ department, where he was responsible for CSSU's international cross-border private banking business trol or own assets using legal entities and advised CSSU North America private banking on which, when opaque, may be used as securities and banking and lending matters. 3 Francis Muracca's practice centers on advising family vehicles to engage in unlawful acts.' In offices and middle market businesses and privately held business owners on a range of entity structure, transaction, and tax issues, including liquidity initiatives. He has been recognized by Best Lawyers In America and a member of 5 Tax Justice Network, Fin•ncial Secrecy Index (2018), the national board of advisors for BNA Tax Management. available at https://www.financialsecrecyindex.com/: Mr. Muracca is a director of The Pittsburgh Penguins Tax Justice Network, Narrative Report on USA (2018), Foundation, The Hockey Sticks Together Foundation, and available at https://www.financialsecrecyindex.com/ PDF/ Pittsburgh Mighty Penguins Organization, a USA Hockey USA.pd!. organization dedicated to children with special needs and 6 See Directive 2005/60/EC of the European Parliament a 2017 Jefferson Awards Foundation recipient. and of the Council on the prevention of the use of the 4 Michael J. Scardu:zio is an associate of Jones Day in New financial system for the purpose of money laundering York. and terrorist financing , 2005 O.J. L 309/15. KnopsPublishing Ghent LEGAL DOCTRINE Kathryn Kenea lly. Se rg;o A lvarez- M ena, Francis Mura cca II & Michael J. Sca rdu zio "Until recently, the United States in such information. Member states 033 has not collected ... information were given two years to implement this on legal entities' beneficial Directive with corresponding national owners, and it is generally legislation (though many missed this prevented by existing laws deadline).' Until recently, the United from sharing such information States has not collected such informa· with others. Consequently, the lion on legal entities' beneficial owners, U.S. continues to attract those and it is generally prevented by exist· who seek a haven for their ing laws from sharing such informa· assets outside less stable, and tion with others. 1° Consequently, the occasionally less inquiring, home U.S. continues to attract those who seek a haven for their assets outside less countries." stable, and occasionally less inquiring, home countries. 2015, the EU significantly strengthened Recently, the U.S. federal government those regulations through its Fourth has taken several steps to improve its Anti-Money Laundering Directive.' disclosure and tax enforcement regime, Under that Directive, member states Specifically, the United States has: agreed to track legal entities' beneficial owners - generally those who owned , Increased the use of Geographic greater than 25-percent of an entity, or Targeting Orders to gather informa­ who exercised management or control tion on the beneficial owner of a le· over it - and to store that information gal entity purchasing high-end real in centralized databases.• These data· estate in certain areas; bases are accessible both to govern· ment authorities and to anyone, such , Added new customer due diligence as banks, law firms, and journalists, rules that require financial instituti· who can identify a "legitimate interest" ons to identify customers that own accounts through legal entities; and 7 See Directive 2015/849 of the European Parliament and of the Councile of May 20, 2015, L 1•1/73. 8 Laura Glynn, USO in Focus: FinCEN Fin;,/ Rufe vs 4th 9 Trulioo, 4AMLD Review - lmplement•tion and RKent EU Money Laundering Dirtttive, Fenergo (Oct. 2016), News (Oct. 26, 2017), available at https://www.trulioo.com/ available at https://www.fenergo.com/reSources/ blogs/ blog/•amld-review/. ubo-in•focus-fincen-final-rule-vs-4th-eu-money­ 10 Su 26 U.S.C. f 6103; see a/so Michael Volkov, May 2018: laundering-directive.html; Directive 2015/S.9/EC of D-0.y for FinCEN Customer Due Diligence and EU's the European Parliament and of the Council on the General Data Privacy Regulations, Volkov Law (Dec. 13, prevention of the use of the financial system for the 2017) , available at https://blog.volkovlaw.com/2017/12/ purposes of money laundering or terrorist financing. may-2018-d-day-fincen-customer-due-diligence-eus­ 201s O.J. L 141/73. general-data-privacy•rl!!gu lations/. KnopsPublishing G hent T BF #06 Jaargang/Annee 2 - September/Septembre 2018 RFP 034 "Recently, the U.S. federal government has taken several steps to improve its disclosure and tax enforcement regime ... In addition, the U.S. Department of Justice is primed to focus investigations of alleged evaders of foreign tax laws who commit acts in the U.S ... Together, these new measures are intended to better assist the United States in enforcing its own laws, and they may also make it easier for foreign tax jurisdictions to identify tax evaders that use the U.S. as a haven." Promulgated new disclosure requi­ are issued by the Financial Crimes En­ rements on certain foreign-owned forcement Network (FinCEN) within U.S. companies. the U.S. Treasury Department. FinCEN has the responsibility to safeguard "the In addition, the U.S. Department of Jus­ fmancial system from illicit use and tice is primed to fo cus investigations of combat money laundering and pro­ alleged evaders of foreign tax laws who mote national security through the col­ commit acts in the U.S. lection, analysis, and dissemination of fmancial intelligence and strategic Together, these new measures are in­ use of fmancial authorities." 11 To ful­ tended to better assist the United fill this obligation, FinCEN was given States in enforcing its own laws, and the authority to impose additional data they may also make it easier for foreign collection and reporting requirements, tax jurisdictions to identify tax evaders through GTOs, on financial institu­ that use the U.S. as a haven. tions and other trade or business activ­ ity for geographic areas. 12 By the terms 1 GEOGRAPHIC TARGETING of the authorizing statutes, GTOs can ORDERS IDENTIFY SUSPICIOUS INVESTMENTS 11 U.S. Dep't. of Treas., FinCEN , What We Do, Mission, IN THE U.S. REAL ESTATE https://www.fincen.gov/abouLfincen/wwd/mission; see MARKET also Treasury Order 105~08, Establishment of the Financial Crimes Enforcement Network, (Apr. 25, 1990). Among other responsibilities, FinCEN is the agency that collects The United States is increasingly using and analyzes the data from currency transaction reports (CTRs) filed at banks, reports collected from international Geographic Targeting Orders (GTOs) travelers who carry cash in excess of $10,000 (CM IRs), to identify the natural people behind suspicious actN'ity reports (SARs) filed by financial institutions, and similar information reporting mechanisms. holding companies used to pay for lux­ 12 See 31 U.S.C. § 5326(a); 31 CFR § 1010.370; Treasury Order 180-01, Federal Crimes Enforcement Network ury residential real estate. These GTOs (Sept. 26, 2002). KnopsPublishing Ghent LEGAL DOCTRIN E Kathryn Kenea ll y. Sergio Alva rez-Mena, Francis Muracca 11 & Mi chael J. Scarduzio be effective for only up to 180 days at a Retain copies of each beneficial own­ 035 time, but may be renewed without limi­ er's identification documentation; tation." For the purchasers that are limited In 2016, FinCEN issued two GTOs re­ liability companies, provide for each quiring U.S. title insurance compa­ member of that company his or her nies to identify the so-called "benefi­ name, address, and taxpayer identi­ cial owners" of legal entities used in fication; and all-cash, luxury real estate transactions in Manhattan, a borough of New York Provide details about the transac­ City, and Miami-Dade County in the tion, including the property's ad­ state of Florida.,. Beneficial owners are dress, purchase price, and date of defined as the natural people, whether closing. 15 foreign or domestic, who own a 25-percent or more interest in the le­ A violation of these GTOs could sub­ gal entity used to purchase real estate.