The Task Force on Financial Integrity and Economic Development is the leading group calling for addressing tax evasion and money-laundering problems. It represents a coalition of over 60 governments and the top transparency NGOs dedicated to curbing illicit money flows in order to have more resources for poor-country development. They advocate five simple reforms that countries should adopt to address these issues. These could be adopted in the body of the FTA text, or as a side letter. Here is a slightly adapted version of their best practices list:
1. BENEFICIAL OWNERSHIP: Require that Panama and the United States ensure that the beneficial ownership, control and accounts of companies, trusts, foundations and securities are readily available on public record to facilitate effective due diligence. Task Force experts like Raymond Baker say that lack of information on beneficial ownership is a major problem in Panama. Moreover, the OECD reports that Panama allows the issuance of bearer shares, which disguises the ownership of these securities. Banning the issuance and possession of these shares would deal a major blow to illicit money flows.
2. AUTOMATIC EXCHANGE OF TAX INFORMATION: Require Panama to collect from financial institutions data on income, gains, and property paid to non-resident individuals, corporations, and trusts. Mandate that data collected automatically be provided to the U.S. government when U.S. persons are involved. This goes a step beyond the double taxation treaty, which places the onus on the individual tax filer to disclose their income and its sources. Under an automatic exchange regime, if a U.S. taxpayer earned interest income on a Panamanian bank account, Panamanian tax authorities would forward this information on directly to U.S. authorities.
3. MULTINATIONAL REPORTING: Require that all multi-national corporations report sales, profits, and taxes paid in Panama (and all jurisdictions) in their audited annual reports and tax returns.
4. IMPROVED ACCESS TO INFORMATION RELATED TO POSSIBLE MONEY LAUNDERING: Require that predicate offenses for a money laundering charge are harmonized upward at the most restrictive level and codified. In other words, financial institutions in the United States and Panama should be prohibited from accepting deposits derived from tax evasion, handling stolen property, customs crimes, counterfeiting, trafficking in stolen property, sex and arms trafficking, racketeering and other crimes – regardless of whether they take place in the U.S., Panama, or elsewhere. If financial institutions believe that a depositor may have derived income from these sources, they should be required to file bi-nationally a suspicious activity report – and governments should be able to use these reports as a way to pursue further legal action.
5. CORRECT TRADE PRICING: Require that the parties conducting a sale of goods or services in a cross-border transaction between Panama and the United States sign a statement in the commercial invoice certifying that no trade mispricing in an attempt to avoid duties or taxes has taken place and that the transaction is priced using the OECD arms-length principle.
A full description of the Task Force’s recommendations are available online at www.gfip.org.
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