FATCA: Are Transnational Criminal Networks Influencing US Policy?

There is a fundamental difference between the privacy of banking accounts and hiding beneficial ownership in order to commit crimes. The benefits of tracking organized crime, terrorism financing and tax evasion far outweigh the risks to privacy and secrecy of accounts, which is already adequately protected by rule of law nations.
11/18/2014 04:44 pm ET Updated Jan 18, 2015

The New York Times' report on prominent American think tanks receiving some $92 million from a minimum of 63 governments since 2011, prompted Rep. Frank Wolf (R-Va.) to ask Attorney General Eric Holder, a long overdue question: "Should think tanks be allowed to take undisclosed donations from foreign governments?"

According to the Foreign Agents Registration Act (FARA) of 1938, "The purpose of FARA is to insure that the U.S. Government and the people of the United States are informed of the source of information (propaganda) and the identity of persons attempting to influence U.S. public opinion, policy, and laws."

It is not just foreign governments that are trying to influence U.S. public opinion, policy and laws but the whole entourage of foreign dictators, corrupt officials and their political parties, the gambling industry, organized crime and banks. In a specific concerted effort, corrupt networks are joining forces with think tanks to whitewash corruption scandals in Eastern Europe and money laundering facilitated by Austria and Liechtenstein's corporate and banking entities. This became obvious through the FATCA (Foreign Account Tax Compliance Act) outcry in the US.

FATCA requires foreign financial institutions to report on financial accounts held by US taxpayers to the IRS. FATCA is making Liechtenstein's business model of attracting US tax cheats impossible. Ideally, FATCA could lead to a wider effort to track and confiscate illicit financial outflows that hemorrhage nation state budgets especially in nascent democracies receiving US aid.

Among the most vocal opponents of FATCA among US think tanks were Institute for Global Economic Growth's Richard Rahn; Freedom Works' Matt Kibbe and Center for Freedom and Prosperity's Daniel Mitchell. These think tanks and advocacy groups have been working closely with Prince Michael von Liechtenstein and partnered with Austria's based Hayek Institute/Austria Economic Center (AEC) in hosting events in the Balkans, Ukraine, EU and Eastern Europe. The events were sponsored by world's largest gambling company, Austria-based Novomatic and Hypo Alpe Adria Bank (HAAB).

According to Bloomberg, "Casinos in Paraguay, Peru and South Africa, countries where Novomatic operates, were tagged by the U.S. as money-laundering conduits for criminal bosses and drug barons."

HAAB is embroiled in the largest European financial scandal costing Austria and German taxpayers $11.93 billion so far and undisclosed amount of stolen taxpayers money from the Balkans. Public records show that a company controlled by Prince Michael von Liechtenstein took over a majority share in HAAB Liechtenstein's branch in 2007 at the time of Hypo Group's sale to German BayernLB, thus sheltering accounts of corrupt officials.

The cross-directorships of board members of Austria's Hayek Institute/AEC have included Prince Michael von Liechtenstein, Franz Wohlfahrt, CEO of Novomatic, Meinhard Platzer, CEO of Austria's branch of LGT Bank, and US based groups -Freedom Work's Matt Kibbe, Competitive Enterprise Institute's Terry Kibbe, Liberty Fund's Chris Talley, Center for Freedom and Prosperity's Daniel Mitchell, etc.

The FATCA debate should have focused on comprehensive tax reform including the elimination of double taxation for US taxpayers' world-wide-earned income, and presenting the benefits of combating tax evasion, money laundering and the fight against organized crime.

Instead, FATCA opponents chose to promote financial privacy and secrecy of the accounts under the self-proclaimed banner of liberty, and most conspicuously in the countries that have hemorrhaged significant illicit financial outflows via crime, corruption and tax evasion. According to Global Financial Integrity, the Balkans lost over $111.6 billion via crime, corruption and tax evasion (2001-2010). From the late 1990s to 2008, over $100 billion of Western taxpayer aid were sent to support Balkan states.

Most of those illicit outflows were illicit financial inflows to Austria's and Liechtenstein's banks, primarily HAAB via shell companies registered in Liechtenstein. Balkan Cocaine King Darko Saric, who kept close ties with Montenegro's government officials, laundered $100 million between 2007-2009 through HAAB and mostly through the Hypo accounts in Liechtenstein, coinciding with Prince Michael von Liechtenstein company's control of the bank.

Why should American taxpayers care?

While honest Americans pay taxes, tax cheats use off-shore companies and hide beneficial ownership of the accounts to evade taxes. In the case of the LGT bank, which is owned and financially benefits Liechtenstein's royal family, the US Senate Permanent Subcommittee on Investigations revealed in 2008: "LGT practices contributed to a culture of secrecy and deception that enabled LGT clients to use the bank's services to evade U.S. taxes, dodge creditors, and ignore court orders."

Significant illicit financial outflows that have benefited Liechtenstein's banking industry have traditionally come from corrupt political elites who continue to thwart the rule of law and perpetuate rogue and failed states. These same countries very often get bailed out through billions of US taxpayer funded aid. Healthcare system deficiencies in Western Africa struggling to contain the Ebola virus accentuate the interdependency and our interest to address corruption and strengthen the rule of law.

Off-shore structures and secret bank accounts, both of which hide beneficial ownerships allow organized crime and terrorism financing to flourish. The Balkan Route's heroin, arms, human and organ trafficking merges with cocaine trafficking from Latin America. Reports indicate that Balkan heroin trafficking brings in more than $20 billion annually, providing financing for Al Qaeda and Hezbollah. ISIS and terrorist networks in the Middle East have cost lives of US and European soldiers and journalists with billions in taxpayer funds expended through military engagement.

America's citizens and legislators ought to hold a serious debate on tax reform which addresses double taxation, government spending and aims at balancing the US budget. The principled debate needs to answer the question whether FATCA is the right solution for Americans, and if not, what is an alternative to capture tax evasion at home, illicit financial outflows by authoritarian regimes abroad and terrorism financing.

There is a fundamental difference between the privacy of banking accounts and hiding beneficial ownership in order to commit crimes. The benefits of tracking organized crime, terrorism financing and tax evasion far outweigh the risks to privacy and secrecy of accounts, which is already adequately protected by rule of law nations.

Congressman Frank Wolf's question is timely. The American public has the right to know whether US think tanks have received donations (US or abroad) from Liechtenstein and Austria's banking and corporate entities and government officials which facilitated and were involved in money laundering in Eastern Europe - primarily the unstable Balkans, Ukraine and Russia.

Promoting the secrecy and privacy of bank accounts in order to benefit from money stolen out of nations run by authoritarian regimes, corrupt post-communist nations and dirty money generated by organized crime, misleads the American public. Regardless of ignorance or complicity, such think tanks and advocacy groups cannot be involved in any serious debate affecting the safety, security, privacy and prosperity of US citizens and taxpayers.