ICC Commercial Crime Service

Will Increased Regulation in U.S. Curb Tax Evasion?

With an economic recovery that has seemingly left behind middle-class Americans, high-profile fraud and corruption cases, news reports about wealthy individuals and corporations avoiding taxes, and the release of the “Panama Papers,” President Barack Obama and Congress have come under increased pressure to pass legislation to combat tax evasion and corruption.

President Obama, with advice from the U.S. Department of Treasury, recently proposed regulations that would require companies to disclose their owners to the Internal Revenue Service and allow law enforcement agencies to access that information. This rule is called the customer due diligence rule. A second rule would close a loophole that currently allows a narrow class of foreign-owned companies to avoid reporting to the IRS. These proposed regulations have been met with resistance in Congress, much to the chagrin of industry experts.

The President has encouraged Congress to fix the problems. Recently, he addressed his concerns at a press conference, stating “Only Congress can fully close the loopholes that wealthy individuals and powerful corporations all too often take advantage of, often at the expense of the middle-class families. If they’re getting out of paying their fair share of taxes, that means the rest of us have to shoulder that burden.”

To be sure, Obama’s proposed regulations are an important first step in addressing the tax evasion that occurs both domestically and abroad. But, whenever you attempt to curtail the advantages of exceedingly wealthy individuals and large corporations, progress will always move slowly.

Indeed, the proposed legislation is not without its critics. Many industry experts on corruption and tax evasion have stated that the proposed regulations are “watered down” or “quite weak.” And when the head of the American Bankers Association, a lobbying group, speaks favorably of the proposed rules, it does call into question whether the new regulations have taken a big enough first step.

But President Obama and the Treasury Department have also urged the Senate to ratify eight tax treaties that would improve law enforcement’s ability to pursue tax dodgers hiding assets abroad by enabling cooperation with foreign governments. As one might expect, these proposals have also been met with resistance.

Laws and regulations addressing tax evasion and the disclosure of beneficial owners of corporations are of critical importance from a tax revenue and law enforcement standpoint, but they are also important from an optics standpoint. These are high-profile issues that fuel the fears of middle-class workers, who suspect that corporations and wealthy individuals are taking advantage of the system to the detriment of most others.

It’s an issue that we in asset tracing and asset recovery see every day. Individuals and corporations are evading taxes and sheltering their assets with the justification that the actions being taken are not illegal.

Recently, at the “Offshore Alert Conference” in Miami, a lawyer from Switzerland, who represents companies who take advantage of the current U.S. and foreign law to shelter assets and evade taxes, made an exceedingly simple yet cogent comment in response to the outcry against them, “If you don’t like what is going on, change the law!”

Perhaps Congress can finally agree to do just that.

Joseph J. Wielebinski, a shareholder at Munsch Hardt Kopf & Harr, P.C., in Dallas, is part of the firm’s Fraud and Asset Recovery group and Executive Director Emeritus of ICC-FraudNet. He has represented numerous victims in matters involving complex financial fraud, cybersecurity and offshore asset recovery. Joe has served as a Federal District Court receiver at the request of the SEC in cases involving national and cross-border fraud schemes.





ICC FraudNet is an international network of independent lawyers who are leading civil asset recovery specialists in each country. Recognized by Chambers Global as the world’s leading asset recovery legal network, our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit.