Securing fair taxation through effective AML

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When national emergencies strike, individuals and organisations turn to public systems for support. The Covid-19 pandemic presented the latest example of this tendency, as businesses, workers, students, and families across the world expected their governments to provide a lifeline and a sense of certainty.

Besides the urgent cash handouts and other funding measures launched by various countries, communities also found safety in long-established public structures, primarily national health systems, as well as other state services such as public transport, enforcement, and education.

In less precarious times, citizens hardly give a second thought to these systems which have come to form the basic infrastructure of modern social life. One reason may be that most services are provided free of charge to everyone. And yet, public provisions require generous and continuous investment by governments – funds collected mainly through taxes.

The common good is maintained by the careful management of people’s taxes, collected from money legitimately circulating through the economy. This gives people the liberty to pursue a better life for themselves and their families, and the portion used for key social benefits such as allowances and subsidies widens equality among members of society and improves the living standards of everyone.

The other side of the coin is that money originating outside the legal economy, including undeclared profits, even from legitimate business activities, bypasses the tax mechanism altogether. The direct consequence of the laundering of money circulating in the black or shadow economy is that it impoverishes quality of life and increases inequality.

Money laundering is the specific process of funnelling funds obtained through illicit means into the regular economy, mixing them with legally generated cash until they cannot be traced back to their illegal origins. The complex operation requires the complicity of professionals who know how to bypass the system of checks and balances as well as other individuals who are willing to do the legwork. The most sophisticated movements of dirty money may also take advantage of professionals who unwittingly facilitate the crime, particularly in cross-border schemes.

Although some money launderers are happy to pay a little tax on illicit funds which they blend with apparent legitimate income to make their operation look legal, the primary purpose of money laundering is to hide illegal earnings. Persons engaged in criminal activities have an obvious reason to conceal the source of their wealth, with the added bonus that they can enjoy it without having to answer to the taxman unlike the law-abiding citizens whose income is declared and taxed.

More significant is the money laundering that occurs when legitimately earned money is not declared and taxes are evaded. The money unpaid in tax becomes, by nature, dirty money and its use and enjoyment effectively constitutes money laundering, whether it is being spent or hidden away. Tax evasion therefore leads to money laundering, irrespective of the legal nature of the source of income. Effectively fighting the laundering of money resulting from tax evasion will lead to a fairer collection of tax.

By evading taxes and laundering the money, tax evaders deny communities of investments that would otherwise go for essential services and systems, from roads and parks to broadband and waste management.

Often, governments have to stretch their budgets to cover all the social priorities and it is clear that the needs are always greater than the available money. Taxes dodged one way or another are, ultimately, projects and funds withheld from law-abiding citizens. Not only does the laundering of evaded tax deprive communities of money and resources, but it creates new difficulties and suffering while the perpetrators enjoy their riches with minimal reductions.

Money laundering is not a victimless crime or an activity that affects only some pockets of society. When it involves money that should have been contributed to the public purse it causes hardship to vulnerable families. In the longer term, unchecked money laundering damages a jurisdiction’s reputation and discourages investment. Money laundering makes everyone poorer, except criminals and tax evaders.

The Financial Intelligence Analysis Unit was set up precisely to counter money laundering. In 2020 alone, the Unit received no less than 5,000 reports of suspicions of money laundering, including a significant amount where tax evasion was the suspected underlying crime.

The work of the FIAU to fight the laundering of illegal earnings is also a fight against crime and against tax evasion. The team of professionals at the Unit largely operating out of public view are committed to doing their utmost to hinder the enjoyment of criminal proceeds and money denied to the Country and its citizens by criminals and tax evaders alike.