FATF makes big step on tax evasion, must do more

Update, Feb 17: The FT reports on this here.

The Financial Action Task Force has taken a very important step. It has recommended that tax evasion be a 'predicate offence' for money laundering. This means that where tax evasion is found to have occurred, those involved in the crime may now be charged with money laundering as well as tax offences. As the FATF notes, specifically, that the changes are:

"Expanding the scope of money laundering predicate offences by including tax crimes."

This is something we have been pushing hard for, for a long time, and this is potentially a very significant step forwards for everyone. Dr David McNair, Christian Aid’s Principal Adviser on Economic Justice, said:

"This is a very welcome move against tax dodging, which deprives poor countries alone of some $160 billion a year and undermines their ability to provide public services on which people’s lives depend."

Now see this release from the Task Force on Financial Integrity and Development, of which TJN is a member:

Campaigners welcome moves to tackle tax evasion, but highlight ongoing loopholes in global controls against dirty money

Washington DC/ London, February 16, 2012: The Task Force on Financial Integrity and Economic Development (TF) welcomes moves to tackle tax dodging announced by the global body charged with fighting financial crime (announced at a Press Conference in Paris 11:00 CE).

Under revised standards from the Financial Action Task Force (FATF), tax evasion will be an offence that can lead to a money laundering charge and banks will obliged to be on the look out for suspected tax evasion by their clients. The new recommendation will provide authorities with a powerful tool to help prosecute individuals and corporations attempting to dodge financial obligations, hide ill-gotten gains or fund illegal activities.

Although they carry no legal weight, FATF recommendations are considered the basis for national and international legislation to prevent the money laundering that allows tax evaders, financiers of terrorism, drug and human traffickers, corrupt politicians and other criminals to spend the profits from their crimes

Yet despite this progress the TF fears that FATF has failed to tackle one of the biggest problems with the current international financial system: the difficulty of accessing information about the real persons who have ultimate control over a company. These “anonymous companies” are a key part of the structure that enables criminals to set up the bank accounts they use to stash their funds. This represents a failure of political will by FATF member states, leaving a significant loophole that undermines progress elsewhere.

“FATF is probably the most influential international body you’ve never heard of and its recommendations have been adopted into law by many governments,” said Robert Palmer of Global Witness and a Task Force member. ‘But without an effective way of determining who ultimately owns a company, a tax evader, corrupt politician, terrorist or organised crime syndicate can still hide their identity and their money behind anonymous shell companies”.

The Task Force is calling on FATF to require all countries to have a public register of the ultimate person with control over a company, known as the beneficial owner. This could easily be integrated into the process of forming a company in any given country, and existing companies could be required to file beneficial ownership information with their next regular certification.

The Task Force is also calling on FATF to ensure that the anti-money laundering laws it has pressured countries to adopt are actually enforced in practice.

“Thanks to FATF, laws are now in place in most countries requiring banks to ‘know their customers' and be on the look out for suspicious transactions,” said Heather Lowe of Global Financial Integrity, also a TF member. “But without review of whether the banks are carrying out these checks and prohibitive fines when they’re caught harboring dictators’ stolen money or other illegal funds, banks often see little incentive to do more than tick the ‘we’ve checked our customer’ box and actually turn the money down. Look at how easy it was for Ben Ali, Mubarak and Gaddafi to stash billions of dollars in western banks.”

FATF has said that it intends to focus on enforcement in the future. This welcome commitment should be accompanied by naming and shaming countries that don't do enough, including its own members.

Contact: Robert Palmer (London) +44 (0)20 7492 5860; +44 (0)7545 645 406; rpalmer@globalwitness.org
Heather Lowe (Washington DC): +1 202-293-0740; hlowe@gfintegrity.org
Note to editors:
1) FATF’s 40 Recommendations, as well as its reviews of member countries’ compliance with them, can be seen at www.fatf-gafi.org.
2) The Task Force on Financial Integrity and Economic Development, a consortium of governments and research and advocacy organizations, focuses on achieving greater transparency in the global financial system for the benefit of developing countries.

Read the Tax Research analysis here. See more on this broad subject on our intermediaries page. For more details on the FATF and an explanation of money laundering, read this.