The Stop Tax Haven Abuse Act

On March 2, 2009, Senator Carl Levin introduced Senate Bill 506, the “Stop Tax Haven Abuse Act” to the floor of the senate. The 80-plus page bill is supported by the Obama administration and an identical bill has been submitted to the House of Representatives (HR 1265). This bill is specifically aimed to eliminate loop holes that allow U.S. citizens to use offshore banks to hide money and evade paying taxes.

Buried in the bill, in Section 203, “Anti-Money Laundering Requirements for Formation Agents,” is a definition of what “formation agent” are: “persons involved in forming a new corporations, limited liability companies, partnerships, trusts and other legal entities.”

The bill then goes on to state that no later than 90 days after enactment of the bill, the IRS, the Securities and Exchange Commission and Secretary of Treasury will confer and publish a proposed rule requiring formation agents “to establish anti-money laundering programs.”

There is no hint as to what might be required under these programs, but it’s a good bet that screening of clients against watch lists, maintaining data records and reporting of suspicious activities or matches with a watch list will be among the requirements.

This bill is very vague and therefore is of great concern because we will have little knowledge of and input into the process of developing the programs which will ultimately be imposed on us.