Financial Transparency Coalition

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With his inauguration only a few minutes behind him, President Obama officially submitted his initial round of Cabinet nominations to the Senate on Monday. Among them is Jacob “Jack” Lew, the current White House Chief of Staff and Obama’s pick to replace Timothy Geithner as the next Secretary of the Treasury. Before getting the post, though, Mr. Lew will face a tough round of questioning from the Senate Finance Committee, which is in charge of vetting his nomination.

The next Secretary of the Treasury will have enormous influence nationally, and globally, on issues important to the Task Force, including the combating of terrorist financing, offshore tax haven abuse, and money laundering. Below, I outline four questions I would ask Mr. Lew at his confirmation hearing, if I could. Below each, I describe why it’s important and what I’d like to hear in Mr. Lew’s response.

1. Can you describe your approach to preventing Iran from avoiding international financial sanctions as part of its larger objective to obtain a nuclear weapon?

The U.S. Department of the Treasury plays an integral role in enforcing U.S. (and the world’s) financial sanctions against Iran by sharing information with key financial actors globally and investigating offshore front companies.

For example, in 2010 Treasury found 37 front companies based in Germany, Malta, and Cyprus which were acting for or on behalf of the Islamic Republic of Iran Shipping Lines (IRISL) and its affiliates. Iran uses IRISL, its national maritime carrier, and its complex network of shipping and holding companies to advance its nuclear weapon program and to carry military cargoes. Other Treasury actions have included an investigation into Great Britain’s Lloyd’s Bank, which agreed to a fine of $350 million for its illegal handling of financial transactions for Iran and the determination that a large office building on Fifth Avenue was held by a firm that served as a front for an Iranian bank barred from business with the United States.

In this answer, I’d watch for whether or not Mr. Lew expresses a commitment to enforcing U.S. sanctions against Iran by investigating front companies and financial transactions, both offshore and domestically, that might serve to aid Iran in obtaining a nuclear weapon. He’d get bonus points for mentioning transparency in the international system as part of his strategy.

2. Are you committed to using bilateral automatic exchange of tax information as part of the implementation of the Foreign Account Tax Compliance Act (FATCA)?

Congress enacted FATCA in 2010 to target non-compliance by U.S. taxpayers using foreign accounts. Under this law, the IRS and Treasury require U.S. taxpayers holding financial assets on foreign soil to report those assets. FATCA also requires foreign financial institutions to report certain information about U.S. taxpayers directly to the IRS. Originally, Treasury planned to work with financial institutions to implement FATCA, but has since modified its approach.

Under FATCA now, Treasury will work directly with governments, establishing bilateral agreements that will allow for automatic exchange of tax information. Ideally, these would require both the U.S. and partner governments to collect data from their own financial institutions on income, gains, and property paid to non-resident individuals, corporations, and trusts and then automatically provide that data to the partner country.

Treasury has signed bilateral agreements with some jurisdictions and is engaging with many others, but the work is far from finished. I’d like to see Mr. Lew express commitment to both continuing this important work and to the ideal of a global system of automatic exchange of tax information.

3. Will you commit time and effort to closely examine the Stop Tax Haven Abuse Act and support the Senate’s efforts to pass and effectively implement the legislation?

The Stop Tax Haven Abuse Act, introduced by Senator Carl Levin (D-MI), is an important part of a strategy to raise revenue and increasing transparency and accountability for multinational businesses abroad. The bill would raise approximately $100 billion in new revenue by permanently closing offshore tax loopholes and requiring annual country-by-country reporting by SEC-registered corporations related to their employees, sales, purchases, sales, financing arrangements, and taxes.

The incoming Treasury Secretary will be uniquely placed to both support the legislation and implement it; the first section authorizes the Treasury Secretary to take special measures against foreign jurisdictions or financial institutions that impede U.S. tax enforcement. It’s important Mr. Lew is supportive of his potential role in the implementation of this legislation, and broader efforts by the United States to raise revenue by combating offshore tax haven abuse.

4. Describe your commitment to the mission of the Office of Terrorism and Financial Intelligence (TFI). Under your leadership, would you make sure the Department requests sufficient resources to execute this function? Also, please describe your commitment to using international financial transparency as a systematic initiative for enhancing TFI’s mission.

Treasury’s Office of Terrorism and Financial Intelligence plays a vital role in combating terrorist financing and money laundering. In particular, TFI aims to safeguard the financial system against illicit use and combat “rogue nations, terrorist facilitators, weapons of mass destruction proliferators, money launderers, drug kingpins, and other national security threats.”

TFI’s actions are both proactive and reactive. Its reactive strategies include threat-specific strategies that target illicit financial transactions and other related investigations. Proactively, TFI enhances and promotes transparency in the international financial system, often alongside the Financial Action Task Force. TFI also oversees financial services providers who are required to collect, maintain and report information in support of law enforcement investigations and deterrence of terrorist financing and other illicit activities.

In this answer, I’d like Mr. Lew to express his support of a fully functioning and funded TFI and, in particular, to show he is committed to the strategy of transparency as a preventative strategy in combating terrorist financing both domestically and abroad.

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