US Ponders The Future For FATF, OECD Campaigns

by Mike Godfrey, Tax-News.com, New York

01 June 2001

After US Treasury Secretary Paul O'Neill publicly distanced the US from the OECD's 'harmful tax competition' initiative, the Treasury Department is understood to be reviewing the whole subject of US support for anti-money laundering legislation.

Even under the Clinton administration, Congress was no push-over for such legislation, rejecting both an attempt to instal 'know your customer' rules for US banks, and an administration request for additional funding to be used for tightening up on international money-laundering.

The right-wing activists who have a strong influence on the new administration are fighting from a 'privacy' and individualist platform which has much support in the administration itself and of course from the strong banking lobby in Congress.

The rules currently in operation in US banks require them to report any cash deposits over $10,000, and flag any unusual pattern of transactions in reports filed to the government. Paul O'Neill, Treasury secretary, said earlier this month that the $10,000 threshold for reporting "imposes a significant cost on society". Mr O'Neill also questioned whether the $700m the government spends annually to fight money laundering is well spent.

The pressure on the administration is coming from a loose coalition that has brought together small bankers, privacy advocates and libertarians. Dina Ellis, who was previously a senior lawyer on the Senate banking committee under Phil Gramm, a Texas Republican who staunchly opposes tougher financial regulations, is heading the Treasury review.

It's ironic of course that while the US won't accept KYC at home, the IRS's Qualified Intermediary programme has the effect of imposing it on wide swathes of the rest of the world in the interests of collecting withholding tax on US source income.

There has to be an outcome soon. Both the OECD and the FATF are due to pronounce in June on the future for their lists of miscreant offshore jurisdictions, and if the US won't support the use of sanctions against those countries remaining on the list then the two campaigns will be largely toothless. The US itself has delayed the annual issue of its money-laundering strategy for several months while the process of navel-gazing goes on; so, expect fireworks in June!

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