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Center for Freedom & Prosperity Foundation

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FATF Plan to Add Tax Evasion as a Predicate
Offense for Money Laundering

    Ever since the ascendancy of international organizations, such as the Organization for Economics Cooperation and Development's (OECD) Financial Action Task Force (FATF), international pressure has been building to make "tax evasion" a "predicate" offense to the crime of money laundering. At its Pittsburgh summit, the G-20 urged FATF's International Cooperation Review Group (ICRG) to consider adding tax crimes as a predicate offense to money laundering statutes.  To nobody's surprise, ICRG dutifully suggested to FATF's plenary in February 2010 that FATF "recommendations" are revised to add tax evasion as a predicate offense to money laundering. 

Capitulating to the OECD and dismantling bank secrecy would be a big mistake. Should U.S. authorities adopt the desired anti-competitive policies of international bureaucracies, it would expose not only banks, but all financial agents to the risk of criminal prosecution even if they had no knowledge of criminal activity. Policies designed to undermine tax competition and limit the free movement of capital not only threaten fiscal sovereignty but also harm the world economy.

Greater Legal Risk for Financial Institutions: Passage of the recommendation would expose financial institutions to greater legal risks.  However innocent or unaware foreign banks, hedge funds, lawyers and other financial agents might be of the source of the funds, the statute could expose them to greater risks of civil and criminal liability, especially for forfeiture and money laundering statutes, information exchange, evidentiary proceedings, treaties and even extradition agreements.

Conflating Tax Avoidance with Tax Evasion: Although tax avoidance simply means structuring one's affairs to lawfully pay fewer taxes, the various non-governmental organization's (NGOs) draw little distinction between tax evasion and tax avoidance, which is perfectly legal in all jurisdictions.

Concern for Compliance Costs is Lacking: There appears to be little concern expressed in any official documents or by the NGOs about the proposed rules' compliance costs, or even the ability of financial institutions to comply with the proposed new rules.

Curious Lack of Priorities: Under current U.S. law, it is technically legal for American banks to accept the proceeds resulting from handling stolen property, customs crimes, counterfeiting, and trafficking in stolen property when those crimes occur outside U.S. borders. American banks are also permitted to accept deposits that are derived from sex and arms trafficking, racketeering and dozens of other crimes that, if they were committed in the U.S., would be predicate crimes for a money laundering offense. There is a long list of serious offenses which should come before financial crimes.

Recommended Protections: Procedural protections should prevent the release of information before indictment or subpoena. Clear safe harbor language should be added so that good faith efforts are not unfairly criminalized, while administrative rules must define who arbitrates government requests for information, and what mechanisms allow foreign financial institutions to object to its release.

For more information:

February 2010, CF&P Video. "Making Banks Spy on Their Customers is Not Effective Crime Fight: The Failure of Anti-Money Laundering Laws," narrated by Dan Mitchell. http://www.freedomandprosperity.org/videos/aml/aml.shtml

May 2007, CF&P Foundation Prosperitas, "Tax Havens: Myth Versus Reality," by Dan Mitchell

January 2002, CF&P Foundation Prosperitas, "U.S. Government Agencies Confirm That Low-Tax Jurisdictions Are Not Money Laundering Havens," by Dan Mitchell



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