Taxing the Proceeds of Crime
| DOI | https://doi.org/10.1108/eb025976 |
| Published date | 01 April 2000 |
| Date | 01 April 2000 |
| Pages | 136-144 |
| Author | R.E. Bell |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 8 No. 2 — Analysis
Taxing the Proceeds of Crime
R. E. Bell
INTRODUCTION
Organised crime groups, in particular drug
traf-
fickers, generate considerable amounts of money
from their criminal activities. Over the last two
decades jurisdictions around the world have therefore
put in place confiscation and forfeiture legislation
designed to remove such criminal gains.1 The Per-
formance and Innovation Unit of the Cabinet
Office, in its report entitled 'Recovering the Proceeds
of Crime',2 has now recommended that a national
confiscation agency (NCA) for England and Wales
be established, the functions of which will include
the institution of civil forfeiture proceedings and
the application of the taxation legislation to the
proceeds of criminal activity. If enacted, this will
essentially provide a threefold strategy3 designed to
remove criminal gains. First, where the evidence
permits, the individual may be prosecuted for
criminal offences and, upon conviction, a confiscation
order may be sought against him. Secondly, if the
evidence is not sufficient for criminal prosecution,
the individual may have civil forfeiture proceedings
instituted against him to deprive him of the ill-
gotten gains, seeking to prove on the balance of
probabilities that the property in his possession is,
directly or indirectly, the proceeds of crime. Thirdly,
if an individual can be shown to have received
income during a particular period which the
authorities suspect, but have insufficient evidence to
prove, is the proceeds of crime, then they may
apply the tax legislation to that income and raise a
tax assessment against him.
As Levi and Osofsky's 1995 research indicated, it is
difficult to estimate the total national proceeds of
crime.4 The PIU report states that the organisations
involved in drugs, prostitution, selling stolen goods
and illegal gambling in the UK are estimated to
have generated between £6.5bn and £ 1l.lbn in
1996.
Further indicators of criminal revenues given
in the report arc £16m from armed robbery in
1997,
a possible £480m from organised illegal
immigration in 1998 and cross-Channel tax evasion
on excise duties estimated at £2.5bn.
Those who have earned income from criminal
enterprises generally do not declare that income to
the Inland Revenue. This is perhaps because they
have a fear (which, as we will see, is overestimated)
that the Inland Revenue will pass that information
to the police and that it will be used to prosecute
them for the underlying offences that gave rise to
the income. Therefore they generally fail to pay the
appropriate tax and not only is the tax due, but the
criminal is also liable for interest and penalties in
respect of the previous non-payment.
ARGUMENTS FOR TAXING THE
PROCEEDS OF CRIME
There are a number of substantive reasons why the
tax legislation should be applied to the proceeds of
crime.
First, fairness demands that taxation should be
universal. The ordinary citizen has cause for com-
plaint if the authorities do not demand tax from
those who should be paying it, not least because it
increases the tax burden on the rest of society's tax-
payers whose businesses arc lawful. The PIU
report notes that the application of Inland Revenue
powers against individuals who arc otherwise
perceived to be above the law would send out a
strong message that the UK taxation system is
indeed fairly applied across all sections of society.5
Secondly, Levi and Osofsky suggested that the
confiscation regime had not been successful against
many 'Mr Bigs' of crime. Criminal enterprises
which are untouchable by normal law enforcement
methods may be capable of being disrupted by the
application of the taxation legislation. Thus there is
a potential for the Inland Revenue to assist in the
achievement of broader law enforcement objectives.
Thirdly, there may be cases where the application
of taxation legislation may in fact be a more efficient
method of recovery than the use of civil forfeiture or
criminal confiscation. In particular, it would be
desirable to have this option available where the
proceeds of crime have been mingled with the
proceeds of a legitimate business (which is of course
a frequent money-laundering technique) and it is
consequently unclear which moneys are derived
from legal business and which from illegal business.
Taxation of the proceeds of crime is therefore likely
to increase substantially the amount of money that
Journal of Financial Crime
Vol 8. No 2.2000 pp 136-144
©Henry Stewart Publications
ISSN 0969-6458
Page 136
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