(Original Post)
December 21, 2011, 5:13 PM ET
By Christopher Matthews
New plans by the Financial Action Task Force to add tax evasion to the list of crimes covered by money laundering laws are likely to be accepted at the influential group’s plenary sessions early next year, a move that could have large consequences.
The Paris-based anti-money laundering group has been pushing to add tax evasion as a predicate crime for money laundering for more than two years, and appears to be nearing the finishing line, according to two people familiar with the process.
Earlier this month, the FATF completed a consultation with the private sector about changes to its global anti-money laundering and counter-terrorism financing standards, and is in the process of finalizing the text that will be submitted to the group’s formal plenary meetings in January and February. The tax offense predicate will be in the text and is likely to be accepted at next years’ meetings, the people said.
“The writing is on the wall for tax havens,” one person said.
Momentum for adding a tax evasion predicate has picked up over the past two years, as developed nations have found themselves cash-starved in the wake of the financial crisis. Large economies, including the U.S., are eyeing tax havens for additional revenue and have exerted greater pressure on tax shelters to open their books to regulators.
Adding tax evasion as a predicate crime could have wide-ranging effects. FATF’s standards carry a lot of weight in the international community. More than 180 countries — including China and Russia — have committed to meet the group’s standards and subject themselves to evaluations by their peers. Being placed on the FATF’s blacklist of non-cooperative countries can have profound economic consequences.
If countries create a tax crime predicate, financial institutions and multinational corporations will be affected, said Thomas Bogle, a partner at Dechert LLP.
“Banks and companies would have to take a hard look at what is actually legitimate tax planning and what is tax evasion for reporting purposes,” Bogle said.
So far, financial institutions have expressed concerns about the addition. In letters sent to the FATF earlier this year, a number of banking associations warned that if the tax evasion predicate were defined too broadly, it could be onerous.
“The inclusion of tax crimes as a predicate offence for money laundering should be designed with care,” the Association of Foreign Banks in Germany wrote in January. “While it seems appropriate to include heavy tax crimes – in particular tax offences conducted in a commercial manner or by a criminal organisation, ‘ordinary’ tax evasion should not become a predicate offence since, especially in smaller institutions, AML departments usually do not have the capacity to monitor such such offences.”
Good governance groups, which have long advocated for a tax offense predicate, have pushed for a more open-ended definition of tax evasion. Rebecca Wilkins, senior counsel at Citizens for Tax Justice, said tax evasion is often facilitated by funneling money through secrecy jurisdictions.
“Tax evasion — whether committed by individuals or corporations — is a crime and its victims are honest taxpaying citizens all over the world,” Wilkins said in an email. “The proceeds of those crimes are the funds that should have been paid to the government and are badly needed to fund critical services, especially in these difficult times.”
One person familiar with the negotiations said the predicate is not likely to encompass low-level or misdemeanor tax crimes, but would be focused on larger-scale tax evasion. Striking a balance will be paramount, according to Bogle.
“The devil is in the details,” Bogle said.