There is a perception amongst all of us which proposes the laundering of the proceeds of some crimes is more important, more serious than others. Yes, our governments have legislated some acquisitive crimes are more serious than others. In the U.K. the law states the offence of burglary is punishable by up to 14 years in prison. Where as the offence of burglary with violence or a weapon, known as aggravated burglary is punishable by a term of life imprisonment (Theft Act 1968). Theft, fraud, robbery, drug dealing, tax evasion and human trafficking are all punishable by different terms of imprisonment.
Significantly, the anti money laundering laws do not differentiate between types of acquisitive crimes and different criminal proceeds. This makes it simple, money laundering is money laundering. So why do some members of the AML community determine some forms of money laundering are more serious or present a higher risk than others? Note this brief discussion document is all about all money laundering, not terrorist financing. We all know the difference.
So back to money laundering, the cleaning, moving, hiding and/or retaining of the proceeds of crime, any acquisitive crime. Previously, the Financial Conduct Authority (FCA) have identified firms failing to provide adequate training in relation to terrorist financing and tax evasion. Both crimes in the same sentence and yes, one is more serious than the other. Without tax governments cannot fund the fight against terrorists; they can’t pay for the discovery of intelligence which prevents terrorist attacks; they cannot fund hospitals which treat the victims of terrorist attacks; they can’t pay for an education system which seeks to prevent people becoming terrorists, and so on and so on.
Notwithstanding all of the above, the filing of a counter terrorist financing (CTF) suspicious activity report (SAR) may be singularly the most important thing we ever do. Which somewhat contradicts the laundering of the proceeds of tax crimes paragraph. Commonly, a significant CTF SAR can have an immediate life saving impact. In contrast, a SAR related to tax evasion can have a longer term, life saving impact.
Now, all being well, some members of our global AML community are being exercised by the provocative thinking presented here. This is a good thing and we welcome debate, we encourage disagreement, because this promotes learning and new ideas.
Retiring to the laundering of the proceeds of tax crimes. Please keep that sentence upper most in your minds, your training and communication with senior managers. We are confronting money laundering, not the predicate, acquisitive crimes. The AML laws do not differentiate and neither should we.
Regardless, many banks and firms do not see the laundering of the proceeds of tax crimes as a priority. Be assured, it is a priority to our governments. I have said it before, but I will repeat it, tax is the blood which flows through and sustains the life in the body of a democracy. It is even necessary within dictatorships and absent to tax, anarchy will follow, total terror will rule.
Presently, I am training colleagues to see tax evasion as under paid doctors on strike, schools falling apart and the size as well as the number of dangerous, pot holes in roads increasing.
Added to which I offer my own tax advise in these words. If you see the laundering of the proceeds of tax crimes as tolerable and give customers the benefit of your tolerance, you are also giving them some of your hard earned (AML is hard work, I assume we are all working hard) money. You are depriving doctors of the increased wages their hard work deserves, you are tolerating the poor conditions in which your children are educated and when you damage your car in a pot hole, you are partly to blame.
Now, I hear, it’s not easy, we don’t know, we can’t be sure, tax is complicated. To which I reply, it can be easy, it often is. You don’t need to know or be sure, after all, AML is suspicion based, where knowledge is welcome, but not necessary and we are not required to be sure. Yes, it can be complicated, but there are times when it is not.
I train with the numbers, the percentages and a lot of common sense. I do encounter some challenges which ordinarily start with, “What if…..”. As always I say, “Focus upon what is, what is happening, what is presented in the account statements, the transactions, the KYC and what is required of you?” Don’t over complicate or over think it.
Pursuant to this, let me share some numbers with you. Value added tax (VAT) is charged at 20% of the value of goods or services sold (in the U.K.) when a business (Ltd. company, partnership or sole trader) reaches a sales threshold of £90,000 (changed from £85,000 in 1 April 2024). Beware of new customers expediently receiving payments from HIs Majesty’s Revenue & Customs (HMRC) and ask yourself how and why could this happen? If you suppose the customer may have another account with another firm or bank where sales activity justifies such a HMRC payment, suppose again. Ask yourself why would a business person do this? Does such a transaction appear to be unusual? Could such a transaction be blocked or even returned to HMRC? If the answer is yes and be assured, it should be, ask yourself again, why would a business person take such risks. Now you may not be sure about what is taking place, remember, you don’t need to be. You could consider posing questions to the customer, you could ask yourself, “Are there reasonable grounds to suspect the laundering of the proceeds of tax evasion?” HMRC have issued guidance which states a payment from HMRC far a VAT (Value added tax) rebate should correlate with and be justified by prior account activity.
VAT is charged at 20% of the value of goods or services sold (in the U.K.) when a business (Ltd. company, partnership or sole trader) reaches a sales threshold of £90,000 (changed from £85,000 in 1 April 2024). Thus, a HMRC VAT payment should be assessed as being at a minimum 20% of the total value of an account’s prior credit turnover.
In the event you are assessing post transaction monitoring, ask yourself, where did the money go and how quickly? Did some go to cash, did some go to crypto, did some go overseas, did some stay in the account?
Remember, this is your money, your health, your children’s education and funds needed to fight terrorism.
Now let’s look at income tax and National Insurance, you pay yours and your employer also pays National Insurance (NI) contributions to fund public services, including hospitals. So others, including other employers, businesses should pay theirs. Employees earning more than £224 each week, before tax will pay 8% National Insurance for all earnings above £224. In contrast employers, your business customers pay £13.8% on all wages paid in excess of £175/week for each employee. Note, National Insurance is paid when the wage/salary is paid, it is not deferred, it is not paid annually.
It is not necessarily complicated. Please think about the bigger picture, tax evasion generates more criminal proceeds than any other crime. The criminal losses have a severe negative impact upon our communities and the laundering the proceeds of tax evasion is the same as laundering the proceeds of fraud. The law says so.
Take this thinking to work with you today. If you are driving, look out for the pot holes and remember what we do makes a difference.