Taxation and Money Laundering: A Personal View
| Pages | 323-324 |
| Date | 01 April 2002 |
| Published date | 01 April 2002 |
| DOI | https://doi.org/10.1108/eb027313 |
| Author | Howard Flight |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 5 No. 4
Taxation and Money Laundering: A Personal View
Howard Flight
Four years ago, a partner of one of the City's most
eminent law firms expressed to me their concerns at
the relatively new interpretation of the 1995 UK
money laundering legislation, rendering a criminal
offence, the failure by a professional, such as a
lawyer, to report a suspicion of overseas tax evasion
with a potential penalty of three years' imprison-
ment. Subsequent legislation in the Channel Islands
and other UK dependent territories contain similar
provisions. The point was made to me that British
law firms should, therefore, be careful in acting for
Continental European businesses in London, as
corporate tax evasion by such has, historically, been
widespread — or should report automatically a
suspicion when acting for any such businesses.
I have read the Channel Island All Crimes legis-
lation, which makes it clear that the law addresses a
general suspicion, not a suspicion relevant to the
transaction in hand or any connivance in overseas
tax evasion — both of which are quite different in
kind, and where the obligation to report is essentially
justifiable.
The law as cast could be unfair on employees, and
for lawyers, and invasive of the privacy of their
commercial relationship. The obligation moreover,
applies to all employees of banks and other financial
services businesses as well as professionals. The bank-
ing establishment has generally been nervous of put-
ting its head above the parapet on this issue, for fear of
implied guilt by implication.
The relevant authorities have, however, made it
clear that they have only sought these powers to
use in blatant cases and as a deterrent. I have, there-
fore,
argued that as with money laundering, there
should be an accepted 'code' of what employees
should look for, to warrant reporting; without this,
the question is begged as to what is 'suspicion'.
I also note that Switzerland, which has obtained
OECD clearance in these matters, has made it clear
in its regulations that it is active involvement in over-
seas tax fraud that constitutes a criminal offence. In the
UK dependent territories, the regulations accompa-
nying the All Crimes Law leave the position unclear.
The main arguments employed in extending
money laundering legislation to include the suspicion
of overseas tax evasion have been that tax evasion is
invariably connected with other crime and in particu-
lar drug crime, and therefore is all part of the same
territory. This, however, ignores the problem with
those based in venal regimes — for example, in
today's world, Zimbabwe, Iraq or Afghanistan; or,
for example, of the Bank of England handling the
accounts of central banks in countries with different
standards.
In summary, while it is understandable that the
governments and tax authorities in developed coun-
tries should seek powers to protect their tax revenues
against tax evasion, I believe it is necessary to promul-
gate a code of what constitutes suspicion of overseas
tax evasion to be reported, if employees are to be
treated fairly.
TAX EVASION AND TAX AVOIDANCE
There is a dangerous and increasing extension of
initiatives in the area of combating tax evasion to
include tax avoidance and some deliberate muddling
of the two.
It has been one of the virtues of Anglo-Saxon law
to seek to define, as precisely as possible, that which is
within the law and that which is without the law; to
confuse them is dangerous. One of the reasons for
widespread tax evasion in Continental Europe has
been the absence of clear legal distinctions between
evasion and avoidance, rendering evasion socially
acceptable. I remember discussing with German
bankers a Deutschemark money fund, which had
been structured so that interest received was legally
free of German income tax — to be advised that
while the structure was legally correct, there would
be little interest in the product, as German citizens,
typically, did not declare bank interest for tax
purposes! It was substantially for this reason that the
German authorities were keen to promote a
European-wide withholding tax, which would have
damaged the position of London as the world's
leading financial capital.
HARMFUL TAX COMPETITION
It is also unfortunate that the OECD should have
sought to develop its own agenda in imposing on
Journal of Money Laundering Control
Vol.
5,
No.
4,
2002,
pp.
323-324
© Henry Stewart Publications
ISSN 1368-5201
Page 323
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