Are Tax Evasion Offences Predicate Offences for Money‐Laundering Offences?

Publication Date01 Feb 2001
Pages350-359
DOIhttps://doi.org/10.1108/eb027286
AuthorPeter Alldridge
subjectMatterAccounting & finance
Journal of Money Laundering Control Vol. 4 No. 4
Are Tax Evasion Offences Predicate Offences for
Money-Laundering Offences?
Peter Alldridge
The G7 finance ministers, at a meeting in London on
8th May, 1998, called for international action to
enhance the capacity of anti-money-laundering
systems to deal effectively with tax-related crimes,
with a view to achieving the following objectives:
the extension of suspicious transaction reporting to
money laundering related to tax offences; the permis-
sion to money-laundering authorities to the greatest
extent possible to pass information to their tax autho-
rities to support the investigation of tax-related
crimes; and the communication of such information
to other jurisdictions in ways which would allow its
use by tax
authorities.1
A Financial Action Task Force Directive, issued on
2nd July, 1999 in the form of an 'interpretative note'
to its 40 Recommendations on Money Laundering,2
proclaims that 'suspicious transactions should be
reported by financial institutions regardless of
whether they are also thought to involve tax matters'.
It warns governments that 'to deter financial insti-
tutions from reporting a suspicious transaction,
money launderers may seek to state, inter alia, that
their transactions relate to tax matters'.
Late in 1999, the Tampere European Council
meeting3 placed enormous emphasis upon money
laundering, calling in particular for an increase in
consistency in the definition of predicate offences,
the adoption of the draft revised Directive and the
greater availability of all relevant information for
the purposes of exchange, irrespective of arguments
of banking secrecy. At the IMF meeting in
Washington, DC in April 2000, the Chancellor of
the Exchequer, Gordon Brown, told world economic
leaders that he wants Britain to spearhead a major
international crackdown on offshore tax havens,
money laundering and financial crime.4 Questions
of taxation and money laundering have come to be
linked.5
If
a
person has evaded a direct tax (such as income
tax or corporation tax) or an indirect tax (VAT or
excise duty), he or she will have more money or
other property than he or she would otherwise
have.
Is that a reason why subsequent dealings by
the tax evader or others with his/her own property
should be regarded as dealings in the proceeds of
crime, or 'money laundering'? Much turns upon
the answer to this question. If tax evasion is a predi-
cate offence6 to money laundering, any firm enga-
ging in 'relevant financial business' for the purposes
of the Money Laundering Regulations 1993 will
come under the regulatory framework which gov-
erns money laundering, generating an obligation to
establish and to operate reporting procedures to
deal with cases of clients in this situation. Bankers
or accountants who do not operate such procedures,
or who fail to report knowledge or suspicion that
clients are committing the laundering offences, are
themselves liable to criminal
penalties.7
Of course, almost everything involving money
laundering has an international dimension, and fear,
never far from the surface in discussions of laundering
the proceeds of tax evasion, relates to the large sums
of money which, it is suspected, are laundered
through the City of London, and the valuable busi-
ness which they bring. It is the Money Laundering
Regulations 1993 that supply the regulatory frame-
work for the conduct of 'relevant financial business'
the requirements of knowing the customer,
reporting suspicious transactions and the responsi-
bilities of the money laundering reporting officer.
The defence claim that might provoke most concern
in the context of the 1993 Regulations is 'We [the
firm conducting relevant financial business] did not
think that the money that we were handling was
the proceeds of drug dealing: we only thought that
it was the proceeds of tax evasion.' If this is a good
defence then the regulatory framework will be less
effective, but the costs to the professions of the
additional monitoring and reporting of suspected
tax evasion will be very substantial.
Definitive answers are required to the question
whether and when tax evasion offences are predicate
offences to money laundering. In a supplementary
note8 to evidence given to the Treasury Select Com-
mittee, the Financial Secretary (Melanie Johnson) set
out the UK government's position:
Journal of Money Laundering Control
Vol.
4,
No.
4,
2001,
pp.
350-359
© Henry Stewart Publications
ISSN 1368-5201
Page 350

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