Anti Money Laundering Blog

The new legislation, entitled the Stop Tax Haven Abuse Act, has been introduced by Carl Levin, the Democrat Chairman of the US Senate Permanent Subcommittee on Investigations. The Act is aimed to fight so-called offshore tax loopholes.

When introducing the legislation, Levin stated that the United States cannot afford offshore tax abuses that are robbing the Treasury of USD 100 billion in lost revenue yearly and increasing the tax burden on Americans. It should be noted that this is the 5th Congress in which Levin has introduced a comprehensive bill to fight offshore and tax shelter abuses.

A number of provisions from past bills have made it into law. Levin’s efforts also helped spur enactment of the Foreign Account Tax Compliance Act (FATCA) that is designed to obtain information on overseas investments by US residents. It is worth noting that, when Levin was a member of the Senate, he co-sponsored Levin’s offshore tax bills in 2005 and 2007.

A provision of the bill would close an existing tax loophole that allows credit default swap payments to escape taxation if sent from the US to persons offshore, such as an offshore hedge fund or foreign bank. The bill would treat credit default swap (CDS) payments sent offshore from the US as taxable US-source income.

In accordance with police statistics, a 30% increase in the number of cases of money laundering was reported in Sweden for 2010. Such result is the reason to establish a new agency with a view to combat money laundering in this country.

The figures that were released by the financial crimes police (Finanspolisen) reveal that the number of reported money laundering cases in Sweden increased by 3 000 to a total of 12 000 reported cases in 2010.

Sweden has been criticised for not doing enough to fight the problem. Now, the Swedish National Council for Crime Prevention considers the possibility to set up a national financial intelligence centre to be shared by Swedish Police, Customs, Tax agency and Economic Crime Authority. Daniel Vesterhav, researcher at the crime prevention council, said that this way it would be possible to free up resources, make use of each of the authorities’ expertise and increase the quality of operative intelligence.

According to the report, out of the 14,500 companies in Sweden obliged to report possible money laundering crimes within their own organisation, 90% of reports come from banks, foreign exchange companies and other money handling businesses.

It should be noted that no single tax adviser out of Sweden’s 159 obliged to report potential money laundering crimes to police filed any report in 2010.

New penalties for offshore non-compliance have been announced by UK’s HM Revenue & Customs (HMRC). The new penalties come into effect on April 6, 2011 and apply to Income Tax and Capital Gains Tax.

The first Self-Assessment returns affected will be for the 2011-2012 tax year, with paper returns due to be filed by October 31, 2012, and electronic returns by January 31, 2013.

The new legislation can be found in Schedule 10 of Finance Act 2010. Under the new rule, the penalties will be linked to the tax transparency of the jurisdiction in which the income or gain arises. Penalties for failing to declare income or gains arising in another country will be higher where it is harder for HMRC to get information from that jurisdiction.

Three new levels of penalty will be introduced:
-    where the income or gain arises in a territory in ‘Category 1′, the penalty rate will be the same as under existing legislation;
-    where the income or gain arises in a territory in ‘Category 2′, the penalty rate will be 1.5 times that in existing legislation – up to 150% of tax;
-    where the income or gain arises in a territory in ‘Category 3′, the penalty rate will be double that in existing legislation – up to 200% of tax.

In an interview with Cayman’s local television news channel, the chair of Cayman Finance Anthony Travers has called Nicholas Shaxson, the author of a new book on tax havens, an imbecile.

Travers criticized the book called Treasure Islands: Tax Havens and the Men Who Stole the World as well as its author. Shaxson says that his work demonstrates no more than an 11-year-old’s understanding of offshore finance, while Travers suggested that Shaxson’s position came from the politics of envy. He added: “Now the politics of envy are exacerbated by imbeciles who don’t actually understand what’s going on in the Cayman Islands”.

Travers said the opinion that Cayman is a tax haven or a magnet for illicit transactions is no more than fiction. There are places where money laundering or tax evasion are easier, but the Cayman Islands is not such a jurisdiction. He noted: “There are simply jurisdictions where it would be more sensible to perpetuate your fraud or money laundering than the Cayman Islands”.

To respond, Shaxson said that Travers had refused to talk to him when he came to the Cayman Islands and challenged Travers to explain in detail what he does not like about the book.

It was widely discussed in 2006 that a famous Australian actor Paul Hogan had been under investigation for money laundering.

The Australian Crime Commission became suspicious that the star of one of the most successful Australian movies ever was using offshore tax havens in order to conceal his wealth. As a result, the actor was subjected to a 5-year tax investigation which was dropped in November 2010.

Recently, it has been announced that the world-famous Crocodile Dundee is planning to sue the Australian government for more than GBP 50 million (up to USD 80 million) for damaging his reputation in this tax probe.

According to Hogan’s lawyer Andrew Robinson, his client is to sue the Australian government for loss of earnings as ‘his earning potential and reputation has been decimated in the international community and it has had that level of effect on his position”.

An Australian businessman has been sentenced to 8 years and 6 months in jail in the New South Wales Supreme Court. This decision was made after the businessman was convicted of money laundering and tax fraud.

After a 5-week trial which followed investigations into the use of offshore tax structures under Project Wickenby, Michael Milne was found guilty on November 19. He was found guilty of offences related to money laundering and tax evasion. The crime involved the use of an offshore tax haven structure.

The offshore tax haven structure hid assets and income in a complicated series of transactions that involved Swiss and Dutch entities. So, it allowed evading tax payable on a capital gain of more than AUD 7.5 million.

According to Tax Commissioner Michael D’Ascenzo, tax evasion through the use of illegal offshore tax haven schemes is unfair to businessmen and the community who do the right thing. So, the sentencing showed the seriousness of tax evasion. He said that “this result serves as a clear warning to people who use offshore structures to defraud the tax system that they face significant consequences for their actions”.

Mr D’Ascenzo said: “Every defrauded tax dollar means less funding for community services including health, education and other government funded programs. This result serves as a clear warning to participants and promoters of illegal offshore schemes that they face significant and very serious consequences for their actions.”

Project Wickenby is a cooperative partnership between the ATO, Australian Federal Police, Australian Crime Commission, Australian Securities and Investments Commission and the Commonwealth Director of Public Prosecutions, with support from the Australian Transaction Reports and Analysis Centre, the Australian Government Solicitor and the Attorney-General’s Department.

President of Mexico Felipe Calderon proposed new legislation aimed at fighting money laundering and cash smuggling and at preventing Mexican cartels from using billions in U.S. drug profits to finance their criminal organizations. Legislation introduced by  the Mexican president administration and named “unprecedented” by Calderon includes the following measures:

- It would be illegal to purchase real estate in cash;
- The purchase of vehicles, boats, airplanes and luxury goods would be limited to 100,000 pesos (about US$7,700) in cash. Violation of this rule would lead to being sentenced in prison up to 15 years.

If passed, new anti-money laundering law by Calderon would counter the common practice in Mexico, when even in legitimate transactions people prefer cash to avoid being taxed.

Senior Mexican official who investigates financial crimes, states that criminals in this country are increasingly using cash transactions to launder their vast profits. This official, as well as his U.S.  counterparts say that the criminals use billions of dollars in cash to buy airplanes, ranches and businesses to circumvent new Mexican laws that require banks to report large cash movements.

According to the National Drug Intelligence Center, each year Mexican drug cartels and their suppliers from Colombia generate, launder and remove from the U.S. US$18 billion to US$39 billion, largest part of it is transported in cash. It is stated in the recent report by Douglas Farah, a consultant for the Woodrow Wilson International Center for Scholars, that “very little is effectively being done to either impede the movement of drug money into the formal economy or significantly reduce the flow of bulk cash across the U.S.-Mexico border.” No more than 1 percent of this cash is seized by U.S. and Mexican agents.

With a view to renegotiate anti-abuse provisions, India is revising its double taxation avoidance treaties, especially those concluded before 2004.

Also, the latest Finance Act will allow new double tax treaties to be negotiated with non-sovereign territories.

A particular India’s concern regards the double tax treaty with Mauritius as it provides for exemption of capital gains tax on sales of shares. Amendments to this treaty were planned in order to “prevent its misuse for avoiding taxes and enhance exchange of information, including banking information.”

The government of India believes that other treaties that came into force before 2004 are also weak in their anti-abuse provisions. These include treaties with the US, Cyprus, the Netherlands, and Australia. It was noted in the parliamentary written answer that 60% of Indian foreign investments in 2008 involved countries listed as “tax havens”, the main ones mentioned there were Cyprus, Singapore, and Mauritius.

Foreign direct investment (FDI) into India is largely routed through jurisdictions such as Mauritius and Bermuda, and the reasons for this is attributed to tax optimisation. Bermuda is one of the non-sovereign jurisdictions for which double tax treaty was impossible until the present Finance Act. The main aim of the new treaties will be to provide tax information exchange. The new treaties are to include the Cayman Islands, Hong Kong, and Macau.

Multibillion dollar drugs trade in Afghanistan is not a secret to anyone. According to the UN, in 2006 Afghanistan supplies about 92% of the world’s supply of opium, which is used to make heroin. Some estimates are provided in The Spoils of War: Afghanistan’s Multibillion Dollar Heroin Trade by Michel Chossudovsky. According to The Independent, in 2003 drug trafficking was the 3rd biggest global commodity in cash terms after oil and the arms trade. The IMF estimated global money laundering to be between USD 590 billion and 1.5 trillion a year, which represents 2-5% of global GDP. And it is worth remembering that a large share of global money laundering is related to the drugs trade.

However, tt appeared lately that there have been no convictions in Afghanistan against those who make hundreds of millions of USD at the top of Afghanistan’s drugs pyramid. According to Western counter-drugs officials, even in Western countries building such cases takes years. In Afghanistan, drugs industry is estimated at USD 3.4 billion, but it is suposed to have a corrupting influence on the government, therefore fighting drugs in Afghanistan is much harder. For example, President Karzai of Afghanistan recently pardoned 5 persons sentenced to 16-18 years for moving 120kg of heroin, and one of the released men was the nephew of the campaign manager to Mr Karzai’s election campaign. So, the Afghan drug mafia benefits from political protection. It is also suported by Afghanistan’s lawlessness and lack of infrastructure.

The drug-money trail is difficult to discover because of the hawala system of local money changers widely used by the drug mafia in preference to Western electronic banking. This system is based on trust. In this system, the only evidence of money transfer may be a phone call between 2 hawala dealers in different cities/countries who agree to settle the money transfer. This system is widely used across the Middle East.

Counter-drugs officials tried to arrest the 3 biggest hawala dealers in the province of Nangarhar 2 years ago, which brought the economy of the province to a halt and, as a result, the 3 criminals had to be released.

Currently, a construction boom may be seen in the capital, Kabul, which is the evidence of money laundering – laundering of drug billions into legitimate business.

The government of Liechtenstein has agreed a tax deal with UK. This treaty will help London uncover untaxed fortunes hidden away in Liechtenstein by British taxpayers.

According to Britain’s taxman, there are up to 5 000 British investors with an estimated GBP 2-3 billion in secret Liechtenstein accounts.

Dave Hartnett, a permanent secretary at Revenue and Customs, said that those who have been evading Britain’s tax on assets held in Liechtenstein banks must now settle with us. In accordance with the agreement, from September 1, 2009 to March 31, 2015 Britons will declare their assets in Liechtenstein and they will receive favorable treatment in paying the taxes they owe.

On August 11, Liechtenstein’s government said in a statement that the tax treaty provided special conditions between 2010 and 2015 in order to encourage clients with British tax arrears to declare themselves. The new agreemtn applies not only to existing clients but also to new clients. Klaus Tschuetscher, the prime minister of Liechtenstein, said that with this tax deal a stable and reliable regulatory framework is created and the client now has the possibility to make use of an attractive option.

It should be noted  that lately Liechtenstein has come under heavy pressure as regards revealing which foreign nationals have bank accounts and anonymous trusts in the jurisdiction. Earlier this year the government of Liechtenstein agreed to cooperate with other countries in tax matters. Since then, it has signed tax deals with the US and Germany.

It also is worth reminding that the OECD removed Liechtenstein from its blacklist earlier this year.