Last year saw a record-breaking number of prosecutions and fines by regulators and tax authorities across the world. This is part of a global trend of zero tolerance towards tax evasion and avoidance.
The UK has in recent times entered into various multilateral agreements with other countries to help catch and deter tax evaders as well as provide a template for wider multilateral automatic tax information exchange. One only has to look at the numbers to understand why so much is being done in this area in these hard economic times. For example, the UK Treasury estimates it lost £4 billion pounds through tax evasion in the 2010-2011 fiscal year and Van Rompuy, the President of the European Council, said earlier this month that around one trillion euros was lost in EU member states each year because of tax avoidance and evasion.
Ahead of the EU summit on tax evasion, David Cameron wrote to Van Rompuy calling on the European Union to use the impetus of the G8 summit starting today 17 June 2013 to tackle staggering levels of tax evasion and to organise “radical” international action to crack down on tax evasion and avoidance. In the letter Mr Cameron wrote: "There is now, ahead of the G8 Summit in June, a timely opportunity for the G8 and EU to inject the political will required to raise international efforts to a new level and take radical, rather than incremental, action".
Alongside these developments, in April 2013 the UK announced an agreement with France, Germany, Italy and Spain to develop a pilot project for cross-border tax information exchange - something currently hampered in some countries by bank secrecy and corporate confidentiality. Similar agreements have previously been concluded with the USA and separately with the Channel Islands and the Isle of Man.
Nationally the issues are also on the agenda with Parliament’s spending watchdog warning that the Treasury is “unhealthily cosy” with the elite accounting firms that advise companies and Britain’s wealthy individuals how to avoid tax. In addition, there has been a 53% rise in the number of prosecutions relating to tax fraud begun by HMRC last year; up from 157 in the tax year ending March 2011 to 240 in the tax year ending March 2012. There has also been a slight increases both in the number of arrests made by HMRC and the number of individuals convicted of tax fraud and connected offences such a money laundering.
Tax evasion is often linked to money laundering as it is an offence to make arrangements to facilitate the use, acquisition or retention of criminal property on behalf of another person. In certain circumstances, all that is needed for money laundering offence to apply is the acquisition, use or even possession of criminal property. This means that the mere possession of the proceeds of tax evasion may be sufficient for money laundering to have taken place. The definition has over the years been extended some way beyond traditional views of what money laundering is like.
Thus as money laundering can be used to disguise the nature of profits generated from tax evasion, the current international political focus on catching and deterring tax evaders is bound to also lead to an increase in money laundering related prosecutions. Additionally, a recent government estimate suggested that annually around £25 billion of criminal money might be available for money laundering in the UK. Again, the numbers speak for themselves vis-à-vis the incentive for the Revenue to recover funds by cracking down on tax evasion and related offences.
Whilst tax crimes have long been predicate offences in the UK, this has not been the case in many other jurisdictions. In February this year, the European Commission released its proposals for a fourth money laundering directive on the prevention of the use of the financial system for the purpose of money laundering. The Directive recognises that money laundering and terrorism financing create a high risk to the integrity, proper functioning, reputation and stability of the financial system, with potentially devastating consequences for the broader society. Thus, the proposals add tax evasion and other serious fiscal offences to the list of predicate offences. This is coherent with EU policies in other areas and specifically with the approach for fighting tax fraud and tax evasion followed at international level as the Directive refers to tax crimes within the serious crimes which can be considered as predicate offences to money laundering. Arguably, the enhancement of the customer due diligence procedures for anti money laundering purposes will also assist the fight against tax fraud and tax evasion. Changes to the law in the UK as a result of the Directive are likely to occur later in 2014.
It is clear that tax evasion is high on the international agenda and that the extensive crackdown on tax evasion, not just in this country but globally, is here to stay. The record-breaking number of fines issued by regulators worldwide last year looks set to continue in 2013. This serves as a timely reminder to companies of the need to have sufficient oversight and to establish appropriate risk sensitive policies and procedures to prevent money laundering and undertake appropriate checks of their clients.
Stine DulongSolicitor, Business Crime & Regulation Slater & Gordon (UK) LLP