Embargoed for May 5th at 9 p.m.

 

DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SECRETARY OF THE TREASURY

May 5, 2016

The Honorable Paul D. Ryan
Speaker 

US. House of Representatives
Washington, DC 20515

Dear Mr. Speaker:

The United States leads the world in countering money laundering and has led the world to
establish more effective tools to crack down on tax evasion. This has been an area of signi?cant
focus for the Department of the Treasury and throughout this Administration. We have worked
closely with Congress to counter these threats, and I write today to provide both an update on a
number of actions taken, including important new rules ?nalized today, and to urge that
Congress act on important new authorities that would strengthen our efforts.

The Bank Secrecy Act, which Congress passed in 1970, placed the United States on the leading
edge of combatting ?nancial crimes, including money-laundering, terrorist ?nancing, and the
?nancing of weapons of mass destruction. More recently in 2010, this Administration worked
with Congress to enact a critical tool in the ?ght against tax evasion: the Foreign Account Tax
Compliance Act (F ATCA). FATCA allows us to gain insight into the accounts of US. citizens
abroad, limiting the ability of tax evaders to hide assets in overseas accounts. The United States
is partnering with more than 110 governments around the world in this effort, and nearly 200,000
?nancial institutions have registered with the IRS to comply. international success has
led to the creation of the Common Reporting Standard, a global template for information sharing
endorsed by the (3-20 countries.

Yet gaps remain in our laws that allow bad actors to deliberately use US. companies to hide
money laundering, tax evasion, and other illicit ?nancial activities. To address these 
vulnerabilities, today Treasury announced several signi?cant actions using existing authorities to
increase transparency and disclosure requirements and empower law enforcement.

First, Treasury ?nalized customer due diligence regulations to further strengthen the Bank
Secrecy Act and improve ?nancial transparency. These regulations implement a common-sense
requirement so that ?nancial institutions know who actually owns the companies that make use
of their services (the ?bene?cial owner?). This is the result of four years of work and is a critical
step in our effort to prevent criminals from using companies to hide their identity and launder
criminal proceeds.

Second, Treasury issued proposed rules to close a current loophole in our system that allows
foreign persons to hide assets in US. accounts. Our federal tax system has strong information
reporting requirements for most types of entities formed in the United States. But there is a
narrow class of foreign-owned U.S. entities?typically, single-member limited liability
companies?that have no obligation to obtain a tax identi?cation number or to report
information to the IRS. This loophole can be used to shield the foreign owners of non-US.
assets or non-US. bank accounts. Under these new regulations, these entities must report
ownership and transaction information to the IRS, helping to further the ?ght against tax evasion.

Despite these efforts, bad actors will continue to seek new ways to exploit the system. We must
continue to take thoughtful and decisive action to address these threats. Existing authorities do
not provide all the tools we need for the Administration to do this alone. The Administration has
proposed legislation that will help keep the United States at the forefront of the ?ght against
?nancial crime, and it is important that Congress take action.

First, Congress should swiftly pass meaningful bene?cial ownership legislation. This legislation
would build on Treasury?s action by requiring companies to know and disclose the real person
behind a company at the time of its creation. Criminals are currently able to misuse companies
to hide this bene?cial owner, signi?cantly weakening our ability to ?ght ?nancial crime. This
problem can only be resolved with congressional action.

In addition, the Senate should approve pending tax treaties. Bilateral tax treaties are a critical
tool for the United States to ensure full and fair enforcement of our tax laws. The government
has negotiated eight different treaties and it is the Senate?s constitutional responsibility to advise
and consent. In the past, the Senate approved these treaties as a matter of course, but many of
the current treaties have been awaiting ?oor consideration for ?ve years or more. The tax treaty
with Switzerland has been pending since January 2011, and a tax treaty with Luxembourg since
November 2010. Failure to consent to these treaties limits our ability to enforce US. tax laws.

Finally, we must ensure that the United States can live up to its end of the bargain on foreign tax
reporting. While the United States led the world by enacting FATCA, currently, the United
States does not provide its FATCA partners with the same information about US. ?nancial
institutions that foreign ?nancial institutions must provide the IRS. This is because legislation is
needed to require US. ?nancial institutions to provide this additional level of detail. Reciprocity
with other jurisdictions is a key component of any successful strategy for combatting
international tax evasion and ensuring future collaboration with our partners overseas. The
President has proposed providing full reciprocity under ATCA in his last three budgets.
Congress should enact this proposal as soon as possible.

Illicit ?nancial activity is a critical concern for the United States and our partners around the
world, and the Administration is committed to taking all available steps on this important issue.
Additional statutory authority is necessary to put the United States in the strongest position to
combat bad actors who seek to hide their ?nancial dealings and evade their tax responsibilities.
That is why I am urging swift legislative action on these important issues. We look forward to

working With Congress in a bipartisan manner to increase ?nancial transparency in the United
States and protect the integrity of the US. and global ?nancial systems.

Sincerely,

 

Jacob J. Lew

Identical letter sent to:

CO:

The Honorable Nancy Pelosi, House Democratic Leader
The Honorable Mitch McConnell, Senate Majority Leader
The Honorable Harry Reid, Senate Democratic Leader

The Honorable Richard Shelby, Chairman, Senate Committee on Banking, Housing, and
Urban Affairs

The Honorable Sherrod Brown, Ranking Member, Senate Committee on Banking,
Housing, and Urban Affairs

The Honorable Orrin G. Hatch, Chairman, Senate Committee on Finance

The Honorable Ron Wyden, Ranking Member, Senate Committee on Finance

The Honorable Kevin Brady, Chairman, House Committee on Ways and Means
The Honorable Sander M. Levin, Ranking Member, House Committee on Ways and
Means

The Honorable eb Hensarling, Chairman, House Committee on Financial Services
The Honorable Maxine Waters, Ranking Member, House Committee on Financial
Services