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Congress has chance to axe illicit financing that harms Americans

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It is time to weed out illicit financing and unfair competition from criminals and bad actors. These schemers distort markets and aid those who seek to harm Americans and American interests. Passing the House Financial Services Committee’s Counter Terrorism and Illicit Finance Act should be a priority for the 115th Congress.

Critics of the draft bill have no objections to its pragmatic updates of suspicious activity reports and currency transaction reports. Opponents are also correct in asserting that the proposed “look-through” rules, used to examine cases where a business owns another business, desperately need clarification and detail. However, they are wrong to complain that the “beneficial ownership reporting regime targets small businesses and religious congregations.” It should target them, and the draft bill is correct in doing so.

{mosads}The IRS confirms that most of the riveting cases involve one or a few individuals using limited liability corporations, or small businesses, to commit food stamp fraud, drug smuggling, Ponzi schemes, insurance scams and sex trafficking. Furthermore, terrorists frequently disguise funds for violent jihadists as religious giving. For religious groups, it is squarely within their own interests to verify that they are legitimately exempt from beneficial ownership reporting rules.

Some critics now claim that beneficial ownership reporting laws will create “as many as one million inadvertent felons,” a “large compliance burden,” and will be “easily and lawfully avoided.” A million accidental felons, frankly, seems like a bit of a stretch, and if the language surrounding the penalty or the penalty itself needs to be changed to prevent this, that should be done. The idea of a large compliance burden honestly does not comport with the forms I have seen. Think about any health insurance form, or “multifactor authentication” systems for email and Facebook, or try setting up a grocery store coupon card. They all take more time to complete.

More detailed rules for “look-through” cases, where a business owns another business, could partially address the “easily and lawfully avoided” criticism. Not to quibble, but “lawfully avoided?” Sadly yes, because the entire U.S. anti-money laundering regime is a dangerously outdated patchwork. Easily? Yes, any criminal law is easily avoided by the savvy. But is that a good reason to place a moratorium on criminal law or stop going after terrorists?

Some maintain that a simple solution is to require the IRS to compile beneficial ownership data from a number of existing forms and share it with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department. If workable, this may be the most cost-effective approach, and Congress should consult with FinCen and the IRS and determine if it is.

But let’s make sure we fully understand the aims of this legislation before saddling the IRS with more things to do. The IRS’s mission is to help Americans “understand and meet their tax responsibilities,” which in other words, means economic regulations. The IRS is generally not allowed to share data and not well-equipped to sniff out international crime.

The mission statement of FinCEN is “to safeguard the financial system from illicit use, combat money laundering, and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.” In other words, criminal law enforcement.

In a globalized economy, the missions of the IRS and FinCEN overlap. But in the current threat environment — think sanctions evasion, international terrorism, transnational organized crime and kleptocrats — beneficial ownership legislation is far more of a national security matter than any sort of economic regulation or a tax.

Dictators, terrorists and criminals have been freeriding on the prosperity and liberty of the American economy for too long. Officials at FinCEN are sure that beneficial ownership legislation will exponentially increase conviction rates. We should give law enforcement what they need to do their jobs.

Completing the draft bill and passing it in the 115th Congress is a priority of the powerful House Financial Services Committee. Those working on the legislation should consult with the IRS and FinCEN about data sharing, and then revise the draft with better language on “look-through” provisions and explicit individual privacy protections. Ushering this bill out of the House, through the Senate, and onto the president’s desk will offer Americans some protection from the individuals who warp our economy and threaten our security with illegal economic activity.

Clay R. Fuller is a Jeane Kirkpatrick research fellow at the American Enterprise Institute. You can follow him on Twitter @ClayRFuller.

Tags Business Congress economy Finance Government Terrorism Treasury

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