Center for Freedom and Prosperity Foundation

For Immediate Release
Friday, July 11, 2003
202-285-0244
 www.freedomandprosperity.org

Study Explains How the IRS Interest-Reporting Regulation Will Hinder the Fight Against Money Laundering

July 11, 2003 (Washington, DC) – The Center for Freedom and Prosperity Foundation today released a study showing that the proposed IRS interest-reporting regulation (REG-133254-02) will make it harder to investigate and prosecute financial crime. The report, entitled "How the IRS Interest-Reporting Regulation Will Undermine the Fight Against Dirty Money," explains that the new regulation will encourage many foreigners to withdraw their money from American banks – and therefore make it almost impossible for U.S. law enforcement officials to ascertain if those funds are being used for illicit purposes. Heritage Foundation tax expert Daniel J. Mitchell, author of the study, commented, "The IRS regulation will hurt financial markets, undermine the competitiveness of U.S. banks, and hamper law enforcement. Secretary Snow should permanently withdraw this Clinton-era scheme."

Andrew F. Quinlan, President of the Center for Freedom and Prosperity, remarked, "Ironically, certain Treasury Department official in the Office of Tax Policy have argued that the regulation will help fight money laundering. What's next? Will they claim that high taxes will boost the economy by encouraging people to work harder?"

The IRS interest-reporting regulation initially was proposed during the final days of the Clinton Administration, and was cosmetically modified and reintroduced in July 2002. More than 100 individuals and institutions have denounced the proposed IRS regulation, including 18 Senators, 58 Congressmen and 35 of the nations largest and most prestigious public policy organizations.

Executive Summary of the Analysis

On January 17, 2001, as part of a blizzard of rulemaking during the final days of the Clinton Administration, the IRS proposed a regulation to compel U.S. financial institutions to report bank deposit interest paid to nonresident aliens – even though this information is not needed to enforce U.S. law. The Bush Administration withdrew most of the controversial "midnight regulations" proposed by the previous Administration, but officials in the Office of Tax Policy at the Treasury Department inexplicably have fought to keep the IRS's interest-reporting regulation alive. The latest argument used by these officials is that the regulation will help the fight against dirty money. Like every other assertion made by Treasury Department personnel, this claim is demonstrably false. Indeed, the regulation will make it harder for U.S. law enforcement officials to investigate and prosecute criminals and terrorists by driving funds to foreign banks. Treasury Secretary Snow should withdraw the regulation and fire department employees who put the interests of foreign governments before the interests of the U.S. economy.

Copies of the Study can be found on CFP Foundation's web page at:
http://www.freedomandprosperity.org/Papers/irsreg-dm/irsreg-dm.shtml

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, quinlan@freedomandprosperity.org
Dan Mitchell can be reached at 202-608-6224, dan.mitchell@heritage.org

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The Center for Freedom and Prosperity Foundation is a nonprofit, nonpartisan public policy, research, and educational organization operating under Section 501(C)(3). The CFP Foundation is the research and educational affiliate of the Center for Freedom and Prosperity (CF&P) and can be reached by calling 202-285-0244 or visiting our web site at www.freedomandprosperity.org

Center for Freedom and Prosperity Foundation
P.O. Box 10882
Alexandria, Virginia 22310
Phone: 202-285-0244
www.freedomandprosperity.org
cfpf@freedomandprosperity.org

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