U.S. ranked as the top nation for illegally hiding money

Published: May 19, 2022 7:31 AM EDT
Law enforcement officer looking through confiscated money. Credit: CBS

The U.S. is the top destination for stashing money illegally, according to a new report from a pro-tax advocacy group.

This year marks the first time the U.S. placed No. 1 on FACT Coalition’s Financial Secrecy Index, said the D.C.-based organization Tuesday. The U.S. ranked above traditional tax havens Singapore, Switzerland and Luxembourg, which rounded out the top four nations. The Cayman Islands, which many Americans associate with offshore bank accounts, ranks No. 14 on the group’s list.

“The U.S. often says ‘We’re No. 1’ but this is one thing we don’t want to be No.1 in,” said Ian Gary, FACT Coalition’s executive director.

The findings come as the U.S. cracks down on Russian oligarch wealth following Russia’s invasion of Ukraine. The U.S. has imposed financial sanctions on some oligarchs, including billionaires Alisher Usmanov and Igor Shuvalov, but that task has been made more difficult by the fact that much of that wealth is hidden within an intricate web of real estate assets, private investment accounts and anonymous shell companies, Quartz reported.

The Department of Justice has created a new KleptoCapture task force aimed specifically at finding the hidden Russian wealth.

The FACT coalition examined financial rules from about 100 countries, including laws that make it easier for criminals to hide and launder money. The main reason the U.S. jumped to the top of the list, according to experts: a lack of funding for the Treasury Department to enforce a new anti-money laundering law.

In December 2020, Congress passed the Corporate Transparency Act, which requires anyone who forms a shell company in the U.S. to list an owner’s name. Under the act, the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, is in charge of enforcing the rules.

But experts said FinCEN needs additional funding, staff and technology to take on this new task and investigate who’s illegally stashing money. Biden administration officials are asking Congress to send $210 million to FinCEN under the U.S. government’s proposed 2023 budget, which marks a roughly 30% increase from its current funding.

Stricter laws needed

FACT concluded that nearly every developed nation should pass stricter financial laws, particularly around the ownership of shell companies. Not doing so allows terrorism groups to secretly fund their operations and oligarchs to evade taxation, coalition officials said.

It’s unclear how much money is illegally stashed within U.S. borders, experts in anti-money laundering say. But the U.S. Treasury Department has previously pegged the figure around 2% of the nation’s GDP, which today would amount to $480 billion.

U.S. officials have long been aware of money laundering activities within the U.S. More recently, Treasury Secretary Janet Yellen said in December that “the best place to hide and launder ill-gotten gains is actually the United States.”

It takes less effort to set up a shell corporation in the U.S. than it does to get a library card, said Lakshmi Kumar, a terrorist-financing expert at Washington think tank Global Financial Integrity. That’s because an applicant must verify their identification to use the library, but that’s not the case for a shell corporation, he said.