## Annex I. List of selected AML measures relevant to tax compliance (wpiea2023083) ## Source details **Canonical URL:** [Annex I. List of selected AML measures relevant to tax compliance (wpiea2023083)](https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023083.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2023/english/wpiea2023083.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2023/english/wpiea2023083.pdf.json) --- ### Context and objective - Objective: - (i) substantiate that money laundering and tax crimes are closely intertwined; - (ii) identify specific AML measures that could aid tax compliance. - Annex I provides an overview of AML measures that can be leveraged to improve taxpayer transparency, detect tax evasion, and support enforcement and deterrence (see section IV). ### Key AML–tax synergies and operational implications - Taxpayer transparency - Customer due diligence (CDD) helps identify taxpayers, their taxable income, wealth, and assets. - CDD procedures: identification and verification of account holders and their beneficial owners, information on the nature of business, and, where necessary, the source of funds and wealth. - Ongoing monitoring and recordkeeping by obliged entities compile data relevant to both AML and tax authorities. - Detection of tax evasion - Reporting of suspicious activities and transactions by financial institutions and other obliged entities (lawyers, accountants, TSCPs, VASPs) to AML authorities (typically FIUs) supports detection of tax crimes. - FIUs compile, analyze, and disseminate financial intelligence to other authorities, including tax authorities, in line with domestic legal frameworks. - Inter-agency cooperation and information sharing help assess risks, better target tax audits, and contribute to taxpayer risk profiling. - Enforcement and deterrence - AML enforcement mechanisms: civil and criminal accountability for service providers; broad investigative powers; freezing orders; confiscation; measures to tackle corruption of PEPs; wide international cooperation including asset recovery. - Deploying AML measures raises probability of detection and strength of sanctions, thereby deterring potential tax crimes. - Role of professional enablers - Legal, accounting, tax advisers, TCSPs, and VASPs both facilitate concealment and generate AML-relevant records; extending AML obligations to these providers is important for tax compliance. - Overlap of techniques - Money laundering phases (placement, layering, integration) often overlap with techniques used to evade tax; proceeds from legal activities may be recharacterized to avoid taxation. ### Legal and standard-setting developments - FATF timeline and tax crimes as predicate offenses: - FATF created in 1989; first Recommendations 1990. - 2003 revisions introduced beneficial ownership and a non-exhaustive list of predicate offenses including crimes related to tax (e.g., “smuggling”, “fraud”). - 2012 revision introduced a dedicated predicate offense category of “tax crimes” (direct and indirect taxes) and clarified smuggling includes evasion of customs and excise duties; “tax crime” remains undefined in FATF Recommendations. - Implications of designation of tax crimes as predicate offenses: - Enables parallel money laundering and tax crime charges; legal basis for closer inter-agency cooperation; addresses “tax excuse” for non-reporting by obliged entities. - Lack of FATF guidance on scope may affect effectiveness of cross-border cooperation reliant on “dual criminalization”. - International instruments and guidance referenced: - IMF policy positions (2012, 2019a), FATF studies (2022), FATF Recommendations (2012–2023), FATF Recommendation 3, Recommendation 36, FATF General Glossary (21 predicate offenses). - OECD Ten Global Principles (second edition, end of 2021; status as of June 2022: OECD Council Recommendation) recommending, inter alia, criminalization of tax offenses and recognition of tax crimes as predicate offenses (Principles 1 and 7) and stressing inter-agency and international cooperation (Principles 3–5, 8–9). ### FIU access, reporting modalities, and empirical links to tax yields - Access by tax authorities to FIU information (Box 3 statistics): - Survey: 51 countries surveyed; 37 countries (i.e., approximately 75% of those surveyed) allow access to FIU information by tax authorities for tax administration purposes. - Access modalities observed: direct access (5 countries), spontaneous sharing as an obligation (10 countries), spontaneous sharing voluntarily (16 countries), sharing on request (6 countries), no ability to share information (14 countries). - For investigations of tax offenses: 48 out of 51 surveyed countries (i.e., approximately 94% of those surveyed) allow access. - Five out of the 51 surveyed countries allow direct access to FIU information by tax authorities for tax administration purposes. - FIU reporting inputs: - Core inputs: Suspicious Transaction Reports (STRs), Suspicious Activity Reports (SARs), cash transaction reports, wire transfer reports, declarations on foreign financial accounts. - FATF Recommendation 32 requires declaration system for physical cross-border transport of currency or bearer negotiable instruments exceeding USD/EUR 15,000. - FIU dissemination: - Modalities: spontaneous and upon request; Interpretive Note to FATF Recommendation 29, paragraph 4 allows dissemination to tax and customs authorities. - Some countries provide more direct access (shared databases, direct reporting of STRs to tax authorities). - Empirical evidence: - Greater access to FIU information may translate to higher tax yields (example cited: Korea). ### Enforcement tools and empirical outcomes (Box 4 highlights) - AML enforcement complements tax investigations: - Extends investigative reach and liability to enablers, relatives, associates, advisers. - Special investigative techniques: undercover operations, intercepting communications, accessing computer systems, controlled delivery. - Freezing, seizing, and confiscation: criminal confiscation, confiscation of instrumentalities, value-based confiscation, non-conviction-based confiscation, compensation/restitution, tax levies. - EDD for PEPs (FATF Recommendation 12) includes source of wealth/funds checks and reporting to FIUs. - Empirical findings and magnitudes: - Progress on transparency and exchange of information helped identify about EUR 114 billion in additional revenue (tax, interest, penalties) through VTCs and offshore investigations; in 2019–2021: - almost EUR 2.6 billion identified due to the EOIR Standard, - almost EUR 2.4 billion pursuant to increased transparency enabled by the AEOI Standard, - over EUR 2.5 billion from VTCs and other offshore initiatives. - Increased international tax transparency led to a decline of about 24% (or USD 410 billion) between 2008 and 2019 in offshore bank deposits by foreign residents in offshore financial centers. - Global undisclosed offshore wealth estimated at USD 7 trillion and thought to correlate to about 8 percent of global household wealth or 9.3 percent of global Gross Domestic Product. - FATF listing and peer-review countermeasures: out of the over 80 countries publicly identified, 60 made necessary changes to address identified shortcomings. - Costs and deterrence trade-offs: - Grey-listing associated with average capital inflows decline of 7.6 percent of GDP; FDI inflows decline on average by 3.0 percent of GDP; portfolio inflows by 2.9 percent of GDP; other investment inflows by 3.6 percent of GDP. ### Operational, legal, and capacity challenges - Conceptual and business-culture barriers - Historical “tax excuse” discouraged reporting of tax-related suspicious transactions; FATF 2012 recognition of tax crimes as predicate offenses changed this dynamic but implementation varies across countries. - Remedies: mapping mandates; issuing guidance, MoUs, Service-Level Agreements; joint investigative teams; awareness-raising, training, and periodic implementation reviews. - Supervision of intermediaries and vested interests - Intermediaries (lawyers, notaries, accountants, tax advisors, TCSPs) can both enable wrongdoing and are obliged entities; effective supervision is crucial. - FATF effectiveness findings: - FATF reports merely 10% of countries reviewed by FATF/FSRBs achieved satisfactory levels of effectiveness in AML supervisory arrangements (FATF, 2022). - FATF study of 59 mutual evaluations found only 17% of financial institutions’ supervisors and 3% of non-financial intermediaries’ supervisors had successfully implemented the risk-based approach to supervision (FATF, 2022). - Recommendation: step up supervisory frameworks and control activities for both financial and non-financial intermediaries; consider explicitly adding tax advisors to FATF lists of obliged entities (EU precedent). - Confidentiality, professional secrecy, and safeguards - Confidentiality and professional secrecy constraints limit information sharing; FATF Recommendation 9 states financial institution secrecy laws must not inhibit FATF implementation. - National laws should include enabling provisions, exemptions, robust safeguards, clear limitations, and checks and balances (e.g., judicial review); detailed MoUs or streamlined procedures can address confidentiality concerns. - Capacity constraints and technical assistance - Pre-conditions for leveraging AML tools for tax compliance: legal, procedural, operational linkages and sufficiently skilled and staffed AML supervisors. - Technical assistance available from IMF, World Bank, OECD; capacity gaps affect both developing and developed countries. ### Policy recommendations and practical measures - Use AML measures to enhance tax compliance and revenue mobilization without raising tax rates: - Leverage CDD, STRs/SARs, beneficial ownership registries, bank account registries, FIU analysis, and international cooperation to detect non-compliance, target audits, and support prosecutions. - Improve FIU–tax authority cooperation: - Facilitate formal agreements (MoUs), liaison officers/secondments, regular coordination meetings, and training to improve quality and usefulness of information exchanges. - Consider providing direct or conditional access to FIU databases for tax authorities with appropriate safeguards. - Strengthen supervision and controls over professional enablers: - Enhance oversight of DNFBPs, expand supervisory capacity, implement risk-based supervision, and consider designating tax advisors as obliged entities where appropriate. - Preserve safeguards in voluntary tax compliance programs: - Maintain AML controls to verify source of declared/repatriated funds; do not grant immunity from investigation for suspected money laundering; mitigate operational risks from large inflows of declarations. - Enhance beneficial ownership and entity transparency: - Establish beneficial ownership registries or equivalent mechanisms; ensure registries include identifying data and are accessible to competent authorities for AML and tax purposes. - Address international legal obstacles: - Work toward agreed minimum and non-exhaustive lists of tax-related conduct for which international assistance would not be denied irrespective of dual criminality; draw inspiration from EU Sixth AML Directive non-exhaustive lists. ### Annex I — Selected AML measures mapped to tax-relevant objectives (selected items) - Formalization - 1. CDD measures: identification and verification of customers, proxies, beneficial owners; understanding nature of business, ownership/control; ongoing monitoring. - 2. Record keeping obligations under CDD. - 3. Beneficial ownership registries and other national entity-transparency measures. - 4. Country-wide bank account registries. - ✓ Identifying taxpayers; extending visibility over potentially taxable income, assets, and businesses; monitoring integrity and compliance of businesses and professions. - Detection - 5. CDD measures relating to identification and filing of suspicious transactions and activity reports. - 6. Reporting of large cash transactions, cross-border movements of currency, and wire transfers. - 7. Identification and analysis of assets, capital flows, and financial transactions by FIUs. - ✓ Helping detect tax offenses; targeting tax audits; assessing risks for taxpayer profiling. - Enforcement - 8. Extended investigative and accountability frameworks covering facilitators and accomplices. - 9. Special investigative techniques. - 10. Legal measures enabling freezing and seizure of laundered property and instrumentalities. - 11. EDD measures to tackle corruption of PEPs, including tax officials. - 12. Extended statute of limitations. - 13. Formal and informal international cooperation measures. - ✓ Broadening investigative powers; securing tax collection via freezing/seizing; tackling tax-administration corruption; accessing international instruments for tax recovery. - Deterrence - 14. Increased transparency of financial transactions and supervision of obliged entities. - 15. Sanctions, including possible imprisonment. - 16. Civil and criminal sanctions for facilitating money laundering related to illegal tax savings. - 17. Confiscation of laundered assets, funds, and instrumentalities. - ✓ Increasing costs and risks of accessing formal economy and professional services; deterring offenders and intermediaries; recouping unpaid taxes through confiscation. *Source: IMF Working Paper — Leveraging anti-money laundering measures to improve tax compliance and help mobilize domestic revenues, Working Paper No. WP/2023/083 (wpiea2023083)* ### Annex I. List of selected AML measures relevant to tax compliance ...................................................... ### Annex I. List of selected AML measures relevant to tax compliance ### Context and objective - Annex I is referenced as providing an overview of the relevant AML measures that can be leveraged to improve taxpayer transparency, detect tax evasion, and support enforcement and deterrence (see section IV). - The broader paper’s objective is twofold: (i) to substantiate the claim that money laundering and tax crimes are closely intertwined, and (ii) to identify specific AML measures that could aid tax compliance. ### Key AML–tax synergies emphasized in the source - Taxpayer transparency - Customer due diligence (CDD) under the AML framework can help identify taxpayers, their taxable income, wealth, and assets. - CDD procedures include identification and verification of account holders and their beneficial owners, information on the nature of business, and where necessary, the source of funds and wealth. - Ongoing monitoring and recordkeeping by obliged entities compile data relevant to both AML and tax authorities. - Detection of tax evasion - Reporting of suspicious activities and transactions by financial institutions and other obliged entities (e.g., lawyers, accountants, Trust and Company Service Providers (TSCPs), Virtual Asset Service Providers (VASPs)) to AML authorities (typically FIUs) can support detection of tax crimes. - FIUs compile, analyze, and disseminate financial intelligence to other authorities, including tax authorities, in line with the applicable domestic legal framework. - Close inter-agency cooperation and information sharing by AML authorities with tax authorities can help assess risks, better target tax audits, and contribute to taxpayer risk profiling. - Enforcement - The AML framework provides enforcement mechanisms that can reinforce tax investigations: civil and criminal accountability extending to service providers that facilitate tax crimes; broad investigative powers; freezing orders; confiscation; measures to tackle corruption of prominent public officials (i.e., Politically Exposed Persons (PEPs)); and wide international cooperation including asset recovery. - Deterrence - Deploying AML measures for tax compliance increases the probability of detection and the strength of sanctions, thereby deterring potential tax crimes. - The AML framework emphasizes prevention, increased transparency, and a strong sanctions mechanism, including possible imprisonment. ### Legal and standard-setting references cited - IMF policy paper (2012) conclusion: “An effective use of the AML framework should enhance compliance with tax laws by increasing the probability of detection of tax evaders and by imposing deterring sanctions and increasing revenues” (IMF, 2012). - IMF financial integrity strategy recognizes AML measures’ value in tackling tax crimes and improving tax compliance (IMF, 2019a). - FATF: a 2022 study identifies tax crimes, along with drug trafficking, corruption, and fraud, as major predicate offenses posing money laundering risks (FATF, 2022). - International conventions referenced: 1988 Vienna Convention and 2000 Palermo Convention as endorsed by the FATF; FATF Recommendations (2012–2023), Recommendation 3 and its Interpretive Note; FATF Recommendation 36. - The FATF Recommendations’ General Glossary prescribes a list of 21 predicate offenses to money laundering, including tax crimes. ### Conceptual definitions and distinctions relevant to AML measures and tax compliance - Tax crime: conduct violating national tax laws subject to criminal procedures; often involves willfulness or gross negligence; in international AML standards, tax crimes are treated as predicate offenses to money laundering. - Administrative tax offense: civil law non-compliance (procedural omissions, lower-magnitude failures to pay); generally not treated as predicate offenses to money laundering. - Tax evasion / tax fraud: typically illegal arrangements hiding liability to tax; can be criminal or civil depending on jurisdiction and severity. - Tax avoidance: legal arrangements to reduce tax liability that may contradict the intent of the law; often difficult to distinguish from tax evasion in practice. - Note: The source stresses there is no single international definition for these concepts and country approaches vary. ### Operational implications highlighted - AML measures compile and maintain information (CDD, ongoing monitoring, suspicious activity reports) that, if appropriately shared under domestic legal frameworks, can directly support tax authorities’ detection and enforcement activities. - Professional enablers (legal, accounting, tax advisers, TSCPs, VASPs) play a central role in both facilitating concealment and generating AML-relevant records; AML obligations that extend to these providers are therefore important for tax compliance. - Money laundering and tax crimes often involve overlapping techniques (placement, layering, integration) and may concern proceeds from legal activities recharacterized to avoid taxation. *Source: IMF Working Paper (excerpts from "Leveraging AML measures to improve tax compliance")* ### section III.B below). ### Tax crimes as predicate offenses to money laundering ### Historical development and recognition - The FATF was created in 1989 and produced its first version of the FATF Recommendations a year later (1990). - The original FATF Forty Recommendations were drawn up in 1990 to combat the misuse of financial systems by persons laundering drug money. - Early 1990s FATF Recommendations left it to countries' discretion which “serious crimes” should be underlying offenses to money laundering. - The 2003 revisions to the FATF Recommendations: - introduced the concept of beneficial ownership; - added a non-exhaustive list of predicate offenses that included crimes with close connotations to tax crimes (for example, “smuggling” and “fraud”). - The 2008 financial crisis helped create political momentum for further change. - The 2012 revision of the FATF Recommendations: - introduced a dedicated predicate offense category of “tax crimes”, extending to both direct and indirect taxes; - clarified that “smuggling” expressly includes proceeds arising from evasion of customs and excise duties. - The term “tax crime” remains undefined in the FATF Recommendations. ### Legal and operational implications - Designation of tax crimes as predicate offenses to money laundering: - creates legal avenues to pursue parallel money laundering and tax crime charges; - provides a legal basis for closer inter-agency cooperation between AML and tax authorities; - helps address the “tax excuse” where obliged entities fail to report suspicious transactions by characterizing them as tax-related only. - The FATF Recommendations and related material do not provide further guidance on the scope and coverage of tax crimes, which may affect: - effectiveness of cross-border cooperation that relies on “dual criminalization”; - clarity about which tax offenses fall within predicate offense scope. - Tax advisors are not explicitly recognized under the FATF Recommendations as obliged entities subject to AML obligations and monitoring (contrast with the EU’s Fifth AML Directive). ### Country practice and notable exceptions - Some national AML regimes originated with tax evasion concerns (example given: Australia’s 1988 AML law with principal purpose to “facilitate the administration and enforcement of taxation laws”). - The US is a notable FATF member country where tax crimes are currently not designated as predicate offenses to money laundering. - Despite this, the IRS can investigate both money laundering and tax crimes and prosecutions are often recommended together. - Prosecutors have used mail and wire fraud offenses as an indirect route to charge money laundering arising out of a tax crime. ### Interaction with AML concepts and cross-cutting issues - Beneficial ownership: - introduced into international instruments earlier (OECD Model Tax Convention 1977) and emphasized in the 2003 FATF revisions; - is central to both AML and tax frameworks and features prominently in CDD and entity transparency measures under FATF Recommendations. - The FATF definition of beneficial ownership has been cross-referred and embedded in international tax transparency standards. - Revisions in 2022 and 2023 to FATF Recommendations 24 and 25 recognize that AML authorities may turn to registries maintained by tax authorities for beneficial ownership information. - Practical enforcement: - The initial omission of tax crimes from early FATF work reflected prioritization of the war on drugs and sensitivity of tax sovereignty at the time. - The recognition of tax crimes as predicate offenses was a breakthrough enabling the leveraging of AML measures for tax compliance purposes. - Lack of definition and guidance on “tax crimes” under FATF may create ambiguity in cross-border cooperation and operationalization. ### International instruments encouraging leveraging AML for tax purposes - The Ten Global Principles for Fighting Tax Crimes (OECD Task Force on Tax Crimes and Other Crimes), second edition released end of 2021: - as of June 2022 have the status of an OECD Council Recommendation; - recommend criminalization of tax offenses and recognition of tax crimes as predicate offenses to money laundering (Principles 1 and 7); - draw from AML mechanisms for investigative powers, freezing orders, confiscation, and organizational structures (Principles 3 to 5); - stress close inter-agency cooperation between tax and AML authorities (Principle 8); - recognize the importance of international cooperation for tax and financial crimes (Principle 9). *IMF Working Papers — section III.B (as provided).* ### Box 2. OECD “Ten Global Principles” for Fighting Tax Crimes ### Box 2. OECD “Ten Global Principles” for Fighting Tax Crimes ### The Ten Principles - Principle 1: Ensure tax offenses are criminalized — Countries should have the legal framework in place to ensure that violations of tax law are included as a criminal offense, and that effective sanctions apply in practice. - Principle 2: Devise an effective strategy for addressing tax crimes — Countries should have a strategy for addressing tax crimes to ensure effectiveness in practice. The strategy should be regularly reviewed and monitored. - Principle 3: Have adequate investigative powers — Countries should have appropriate investigative powers to successfully investigate tax crimes. - Principle 4: Have effective powers to freeze, seize, and confiscate assets — Countries should have the ability to freeze and seize assets in the course of a tax crime investigation, and the ability to confiscate assets. - Principle 5: Put in place an organizational structure with defined responsibilities — Countries should have organizational models with defined responsibilities for fighting tax crime and other financial crime. - Principle 6: Provide adequate resources for tax crime investigation — Countries should allocate adequate resources to tax crime investigation agencies. - Principle 7: Make tax crimes a predicate offense to money laundering — Countries should designate tax crimes as one of the predicate offenses to money laundering. - Principle 8: Have an effective framework for domestic inter-agency cooperation — Countries should have an effective legal and administrative framework to facilitate collaboration between tax authorities and other domestic law enforcement and intelligence agencies. - Principle 9: Ensure international cooperation mechanisms are available — Countries should ensure that tax crime investigation agencies have access to criminal legal instruments and an adequate operational framework for effective international cooperation in the investigation and prosecution of tax crimes. - Principle 10: Protect suspect’s rights — Countries should ensure that taxpayers suspected or accused of committing a tax crime are able to rely on basic procedural and fundamental rights. ### Role of international tax transparency standards - The international tax transparency standards leverage information collected pursuant to established AML procedures to support tax compliance. - The Global Forum reviews the Exchange of Information on Request (EOIR) and Automatic Exchange of Financial Account Information (AEOI) standards. - EOIR seeks to give effect to information requests under tax treaties and the OECD Multilateral Convention on Administrative Assistance in Tax Matters. - AEOI provides for automatic exchange of a pre-determined set of financial account information, including beneficial ownership information, and is inspired by the US Foreign Account Tax Compliance Act (FATCA). ### AML information leveraged under the AEOI and EOIR Standards - AEOI Standard: information collected by financial institutions under AML CDD procedures and utilized for cross-border tax exchange includes: - Identification data of the account holder and its beneficial owner(s) (including name, address, date and place of birth in case of an individual); - Tax identification number (or functional equivalent), if in the records or required to be collected; - Account number (or functional equivalent in the absence of an account number); - Name and identifying number (if any) of the financial institution maintaining the account; - Account value or balance; and - Various data on financial transactions such as the total gross amount of interest, dividends, proceeds from the sale or redemption of financial assets. - EOIR Standard: information that must be available and accessible to domestic authorities, whether through the AML framework or otherwise, includes: - Ownership and identity information, including information on legal and beneficial owners, for all relevant entities and arrangements; - Accounting records for all relevant entities and arrangements; and - Banking information including all records pertaining to the accounts as well as related financial and transactional information, including information regarding the legal and beneficial owners of bank accounts. ### Crypto-assets and the Crypto-Asset Reporting Framework (CARF) - Crypto-assets are expected to be subject to an emerging international tax exchange framework referred to as the Crypto-Asset Reporting Framework (CARF) released by the OECD in October 2022. - CARF, similar to the AEOI Standard, provides for reporting of tax information on transactions in crypto-assets in a standardized manner with a view to automatically and annually exchanging such information with taxpayers’ residence countries. - CARF relies on information obtained pursuant to CDD procedures under AML frameworks, reflecting amendments to national AML frameworks to implement the 2018 and 2019 revisions to FATF Recommendation 15 and its Interpretive Note regarding crypto-assets (virtual assets). ### Cooperation between AML and tax authorities - Domestic AML and tax authorities increasingly draw on interlinkages across the two frameworks. - The Egmont Group published best practices on AML and tax cooperation in July 2020 emphasizing: - Facilitating effective cooperation between FIUs and tax authorities; - Establishing national strategies to enhance the fight against money laundering of serious tax crimes; - Ensuring international cooperation between FIUs to fight money laundering of serious tax crimes. - Best practices include close working relationships, Memoranda of Understanding (MoU), technical trainings, secondments of tax officers to the FIU, employment of staff with tax backgrounds at FIUs, liaison officers, joint meetings, and cross-sharing of information domestically and internationally. ### Voluntary tax compliance programs (VTCs) and safeguards - VTCs and tax amnesties are typical instances requiring close tax and AML cooperation; they are used in times of economic crises or before broader tax reforms to incentivize taxpayers to declare previously unreported income and wealth. - Design safeguards required: - Do not waive applicable AML controls to verify the source of declared or repatriated funds or other assets; - Do not provide immunity from investigation or prosecution in case of suspicion of money laundering; - Mitigate operational risks such as complacency of obliged entities, capacity constraints to review large volumes of transactions over short periods, and limited visibility regarding legitimacy of repatriated funds and assets from abroad. ### Beneficial ownership registries and entity transparency - FATF 2022 revisions to Recommendation 24 require countries to establish beneficial ownership registry(ies) (or alternative mechanisms considered equally effective) for legal persons. - FATF 2023 revisions to Recommendation 25 envisage the possibility of beneficial ownership registers on legal arrangements. - EU Fourth and Fifth AML Directives require Member States to establish beneficial ownership registries for legal persons and arrangements; the CJEU judgement of November 22, 2022 (Joined Cases C-37/20 and C-601/20) curtailed unrestricted public access to EU beneficial ownership registers but did not question access by competent authorities as required by FATF Recommendations. - Benefits of registries for AML and tax compliance include: - Making information more readily accessible to competent authorities; - Enabling cross-checking of information obtained by obliged entities under CDD; - Promoting accountability through access by press, Civil Society Organizations (CSOs), and possibly members of the public with legitimate interest; - Facilitating international exchange of beneficial ownership information under international tax transparency standards. - Central registries or central data retrieval systems of bank accounts and safe-deposit boxes (as required under the EU Fifth AML Directive) should include identifying data on account holders, proxy holders, and beneficial owners to improve AML investigations, asset recovery, and tax compliance. ### FIUs, reporting, and detection of tax evasion - FIUs are central hubs for financial intelligence: receipt, analysis, and dissemination of intelligence to relevant agencies, including tax authorities; they prepare typology reports, guidance notes, and contribute to National Risk Assessments. - FATF Recommendations require FIUs to have access to the widest range of financial, administrative, and law enforcement information to perform analytical functions. - Core reporting inputs to FIUs: - Suspicious Transaction Reports (STRs) filed by obliged entities when transactions raise suspicions of money laundering or any of its predicate offenses; - Suspicious Activity Reports (SARs) and mandatory non-suspicious reporting obligations such as cash transaction reports, wire transfer reports, and declarations on foreign financial accounts. - FATF Recommendation 32 requires a declaration system for physical cross-border transportation of currency or bearer negotiable instruments exceeding USD/EUR 15,000. - FIU dissemination modalities (spontaneous and upon request) include tax and customs authorities per the Interpretive Note to FATF Recommendation 29, paragraph 4; some countries provide more direct access such as shared databases or direct reporting of STRs to tax authorities. - Empirical evidence: greater access to FIU information may directly translate into higher tax yields (example cited: Korea). *Source: wpiea2023083 - Box 2. OECD “Ten Global Principles” for Fighting Tax Crimes* ### Box 3 ### Box 3. Access by tax authorities to the FIU information for tax administration purposes ### Overview and key statistics - From a total of in 51 countries surveyed, 37 countries (i.e., approximately 75% of those surveyed) allow for access to the FIU information by tax authorities for the purposes of administering taxes. - The range of access modalities observed in the study ranged from: - direct access (5 countries), - sharing of information spontaneously, either as an obligation (10 countries) or voluntarily (16 countries), - sharing of information on request (6 countries), - to no ability to share information (14 countries). - Even a higher proportion of countries allows for access to FIU information by tax authorities in relation to investigations of tax offenses, i.e., 48 out of 51 surveyed countries (i.e., approximately 94% of those surveyed). - Five out of the 51 surveyed countries allow for direct access to FIU information by tax authorities for tax administration purposes. ### Direct access modalities — country examples - Australia: - The Australian Tax Office (ATO) has direct access via a secure online connection to the Australian Transaction Reports and Analysis Centre (AUSTRAC) information, Australia’s FIU, including direct access to all STRs. - AUSTRAC provides the ATO with complete data sets of financial transactions, including STR information, which the ATO uses in its automated data matching and data mining programs. - Restrictions on the use of FIU information by the ATO include STRs being able to be used for intelligence but not for evidentiary purposes. - Ireland: - The Revenue Commissioners receive copies of all STRs directly from financial institutions and other regulated businesses. - This means the Irish tax authorities directly and independently receive information that in most other countries must be obtained from the FIU. - Specialists within the tax authority and FIU meet regularly to discuss their analyses of reports and coordinate investigations where evidence of tax and non-tax offenses exists, to ensure there is no duplication in investigations. - Malaysia: - A restricted number of officials of the Inland Revenue Board, including some officials within the Investigations Department, have direct access to the STRs database maintained by the Financial Intelligence and Enforcement Department (FIED), Malaysia’s FIU. - UK: - The Criminal Intelligence Directorate of His Majesty’s Revenue and Customs (HRMC) has direct access to the STRs held by the FIU through a secure online facility, Moneyweb. - The information obtained can be utilized for tax assessments. - Safeguards in place include: - (i) accessing the information for a valid business reasons relating to investigation or intelligence purposes, - (ii) limiting access to officers with appropriate security clearance and training, - (iii) requiring specific request to access very sensitive STRs, and - (iv) subsequent on-sharing of STRs with unauthorized staff subject to sanitization of sensitive information. - US: - The Criminal Investigation Division (CID) of the IRS has direct and immediate access to the Financial Crimes Enforcement Network (FinCEN) databases for criminal investigation, including STRs, and has a liaison officer posted in the FinCEN to handle the large volume of usage of the data by CID. - Civil tax auditors may not access STRs, which are considered law enforcement sensitive. ### International sharing and legal framework - Given the cross-border nature of many money laundering and tax crimes, adequate sharing of information arrangements at the international level is important. - Broadly speaking, the FATF Recommendations, the OECD Model Tax Convention, and the OECD Multilateral Convention envisage the possibility for information obtained from abroad to be cross-shared between the AML and tax authorities, provided that such sharing and use is authorized by the supplying country and possible under its laws. - The FATF Recommendations specifically note that mutual legal assistance in relation to money laundering and associated predicate offenses investigations, prosecutions, and related proceedings should not be refused on the sole ground that the offense is also considered to involve fiscal matters. - It is important to ensure that relevant information is shared by tax authorities for AML purposes, subject to applicable safeguards regarding confidentiality of taxpayer information. - Example: A new pilot project was signed between Argentina, Costa Rica, and Paraguay, which is open to other interested countries, that provides for the use of information exchanged under tax agreements to be used to counteract non-tax illicit practices, such as money laundering or corruption. ### Enhanced enforcement capabilities to pursue tax crimes - Tax compliance can be significantly bolstered if the AML enforcement legal framework is utilized in tax crime investigations and prosecutions. - Given that tax crimes are predicate offenses to money laundering, the AML enforcement measures used to pursue money laundering charges can be utilized for the investigation and prosecution of the underlying tax crimes, for example, by means of parallel financial investigations. - Pursuing parallel investigations and prosecutions could preserve a path to criminal conviction where the evidence required to prove either money laundering or tax crimes is insufficient, since money laundering convictions do not require proving the underlying predicate offense such as a tax crime. - The investigative reach, powers, expertise, and resources otherwise available to the AML law enforcement authorities could complement those available to authorities responsible for investigations and prosecutions of tax crimes. - In many countries the findings of law enforcement in money laundering investigations could be shared with tax authorities for purposes of tax audits. - The benefits of relying on the AML framework to support tax crime investigations and prosecutions are summarized elsewhere in the source document. *IMF Working Paper — Box 3. Access by tax authorities to the FIU information for tax administration purposes* ### Box 4. AML enforcement measures relevant to pursue tax crimes ### Box 4. AML enforcement measures relevant to pursue tax crimes ### Complementarity of AML enforcement with tax and criminal authorities - AML investigative reach and accountability extend beyond taxpayers to service providers, financial intermediaries, relatives, associates, and advisers that might have assisted in laundering proceeds of tax crimes; these third parties may be charged with money laundering irrespective of whether they committed the underlying tax crime. - Obliged entities are subject to AML supervision and may be held liable for non-compliance with AML controls prescribed under the AML framework. - Expanding investigations and prosecutions to cover enablers can induce cooperation by those defendants and help deter professionals from facilitating financial crimes. ### Special investigative techniques, freezing/seizing, and confiscation - Special investigative techniques available in money laundering investigations include undercover operations, intercepting communications, accessing computer systems, and controlled delivery. - FATF Recommendations envisage wide freezing and seizing orders, including in a transnational context, to temporarily prevent movement of assets pending the outcome of a case; freezing is used, for example, in Greece most commonly to secure collection of tax evasion proceeds. - Confiscation under the AML framework allows for “the permanent deprivation of property” and can complement tax-framework confiscation to recoup proceeds and instrumentalities of crime; confiscation tools applied nationally include: - criminal confiscation, - confiscation of instrumentalities of crime, - value-based confiscation, - non-conviction-based confiscation, - compensation / restitution, - tax levies. - The extended civil and criminal liability under AML, and generally higher penalties (including longer imprisonment) for money laundering offenses, can send a “strong and powerful signal” and strengthen deterrence. ### Corruption, PEPs, and extended liability - The AML framework can help investigate corruption in tax administrations that inhibit pursuit of tax crimes and result in revenue leakage. - FATF Recommendation 12 provides for Enhanced Due Diligence (EDD) with respect to PEPs, including senior public officials of the tax administration; EDD entails establishing source of wealth and source of funds of PEPs, family members, and close associates, and any suspicions must be reported to the local FIU. - Where the statute of limitations differs, money laundering charges can have longer limitation periods than tax crimes (example: France — statute of limitations for money laundering commences from the moment facts are uncovered). ### International cooperation and information exchange - AML authorities have access to a wide range of bilateral, regional, and global treaties and arrangements for mutual legal assistance, international cooperation, and international asset recovery; FATF Recommendations mandate “the widest range” of mutual legal assistance and international cooperation for money laundering and its predicate offenses, including tax crimes. - Informal cooperation avenues include exchange of AML-related knowledge between FIUs, financial supervisors, and law enforcement authorities (example: Egmont Group exchanges), which can provide cross-border insights relevant for tax compliance. ### Deterrence effects and empirical evidence - Increased transparency and supervision under AML measures (CDD obligations and filing of STRs, together with supervision of obliged entities) impose higher risks and additional costs on offenders and their accomplices, producing a deterrent effect. - Progress on transparency and exchange of information helped to identify about EUR 114 billion in additional revenue (tax, interest, penalties) through a mix of VTCs and offshore investigations. In the period 2019 to 2021: - almost EUR 2.6 billion was identified due to the EOIR Standard, - almost EUR 2.4 billion pursuant to increased transparency enabled by the AEOI Standard, - over EUR 2.5 billion from VTCs and other offshore initiatives. - Increased international tax transparency led to a decline of about 24% (or USD 410 billion) between 2008 and 2019 in offshore bank deposits by foreign residents in offshore financial centers. - Global undisclosed offshore wealth is estimated at USD 7 trillion and is thought to correlate to about 8 percent of global household wealth or 9.3 percent of global Gross Domestic Product. - FATF listing and peer-review countermeasures have led to remediation: out of the over 80 countries publicly identified, 60 made the necessary changes to address identified shortcomings. ### Political and economic challenges to leveraging AML for tax compliance - International financial centers (IFCs) and interest groups benefit from opacity, tax breaks, and strict privacy rules; large-scale leveraging of AML measures, transparency, and international cooperation could impose economic costs on such jurisdictions. - Grey-listing and blacklisting (FATF, EU) produce economic and reputational consequences, including countermeasures that generally require obliged entities to apply EDD, increasing compliance costs and possibly prompting banks and intermediaries to limit exposure; empirical estimates indicate grey-listing is associated with average capital inflows decline of 7.6 percent of GDP, with FDI inflows declining on average by 3.0 percent of GDP, portfolio inflows by 2.9 percent of GDP, and other investment inflows by 3.6 percent of GDP. - Overcoming resistance by IFCs requires international resolve, consistent peer reviews, and objective, consistently applied criteria. ### Vested interests, corruption, and governance responses - Powerful professional groups (bankers, lawyers, notaries, accountants, trust and company service providers) may resist stronger tax compliance measures due to economic incentives from facilitating money laundering and tax evasion. - Addressing vested interests and corruption requires broader governance and institutional reforms: public transparency and accountability, regulation of political financing, creation of anti-corruption agencies, asset declaration regimes, conflict of interest and anti-bribery rules, and transparency of beneficial ownership information (including in public procurement). - Active civil society and CSOs can expose problems and build public pressure for reforms; where domestic rule of law is weak, international community pressure is critical. ### Legal challenges: confidentiality, professional secrecy, and safeguards - Confidentiality and professional secrecy constraints commonly limit information sharing; however, respect for private life and protection of personal data are not absolute and may be restricted where provided by law and pursuing legitimate aims such as prevention of crime. - FATF Recommendation 9 states that financial institution secrecy laws must not inhibit implementation of the FATF Recommendations. EU DAC 5 provides tax authorities access rights to information obtained by financial institutions pursuant to AML laws and relevant for determination of beneficial ownership. - National laws should include explicit enabling provisions and exemptions, robust safeguards, clear limitations, and appropriate checks and balances (such as judicial review) to balance protection of private life with public interest in tackling tax crimes. - Detailed MoUs or streamlined procedures can alleviate concerns regarding handling of confidential information. *Source: Box 4, IMF Working Papers — Leveraging AML measures to improve tax compliance* ### annex 2). ### annex 2) ### ii. Differences in legal objectives between AML and tax authorities - AML framework pursues the criminal objective of tackling money laundering; information sharing arrangements are ultimately to build a criminal case with inherent protections (Mathias and Esposito 2015). - Tax framework pursues the administrative objective of ensuring revenue collection; information collected by tax authorities under tax reporting regimes and tax audits is administrative rather than criminal in nature. - Information in the hands of AML and tax authorities is therefore typically collected, treated, and disseminated for different purposes; tax frameworks may also pursue criminal objectives in some cases. - Revenue collection objectives may include a criminal component where tax optimization schemes and undeclared income and wealth violate domestic tax laws and constitute crimes under criminal codes: - Example: Italy’s Guardia di Finanza has a mandate extending to investigations of both tax evasion and other financial crimes. - Example: Mexico’s Servicio de Administración Tributaria (SAT) was designated as the AML supervisor for a vast range of businesses and professions. - FIU-held information (e.g., STRs) concerns suspicions of a criminal offense but this does not typically constitute an obstacle to sharing with tax authorities for criminal and administrative purposes; confidentiality concerns can be alleviated by MoUs and similar procedural arrangements. - Current default FIU dissemination modalities (spontaneous or upon request) are not optimal: - Spontaneous dissemination introduces discretion and selectivity; FIU may lack resources, tax expertise, or sensitivities to sift relevant tax information (Brun and others, 2022). - Excessive reporting under STR/SAR requirements risks overwhelming the FIU (Levi and Reuter, 2006). - FIU may prioritize money laundering analyses and overlook tax issues; FIU may lack knowledge of what to match against tax authority information (OECD, 2015a). - For dissemination upon request, tax authorities may lack lead evidence or proactiveness; FIU may refuse requests (FATF Recommendations (2012 – 2023), Interpretive Note to Recommendation 29, paragraph 4). - Operational alleviations suggested: - Place tax liaison officers in the FIU or provide other direct forms of access to FIU information, subject to confidentiality and data protection safeguards. - Introduce clear procedures to act upon received or accessible FIU information and provide training to tax-relevant authorities on using financial intelligence (IMF review of practices in Greece). - Sharing of information has some deterrence effect even if not used substantively. ### iii. No internationally agreed definition of “tax crimes” - There is no internationally agreed definition of “tax crimes”; national laws differ widely in terminology and scope. - Mismatches: conduct considered tax avoidance or non-criminal in one country may be a tax crime in another; thresholds and definitions differ. - EU context: recital to the EU’s Fifth AML Directive notes FIUs reported difficulties exchanging information due to differences in national definitions of certain predicate offences, such as tax crimes. - Dual criminality principle implications: - Dual criminality requires same types of crimes to be criminalized in both countries as a pre-requisite for international assistance. - FATF Recommendations (2012 – 2023), Recommendation 37, emphasize focusing on underlying conduct rather than labelling; exclude “form over substance” differences. - Not a universal approach; mutual evaluation reports (Saint Lucia, Liechtenstein) identified strict dual criminality application and narrow domestic definitions as obstacles to cooperation. - Recommendation: - International community should endeavor to agree on a minimum and non-exhaustive list of violations of national tax frameworks for which international assistance would not be denied irrespective of dual criminality and domestic definitions. - EU’s Sixth AML Directive and its non-exhaustive list of conduct qualifying as money laundering offense across Member States could serve as inspiration. ### C. Operational challenges and proposed solutions - Key operational issues include conceptual and business culture differences, capacity and prioritization issues. i. Conceptual barriers and business culture - Many national AML regimes did not initially include tax crimes; original FATF focus was on drug-related proceeds. - 2012 revisions to FATF Recommendations motivated countries to bring tax crimes into AML scope; implementation took time (example: Switzerland recognized tax crimes as predicate offenses via 2014 amendments effective January 1, 2016). - Treating tax crimes as predicate offenses is a novelty or paradigm shift for many countries; entrenched conceptual barriers and doubts on mandates can hinder collaboration. - Historical practices such as the “tax excuse” discouraged reporting of suspicious transactions involving tax matters; FATF’s 1999 STR Interpretive Note warned institutions to report suspicious transactions regardless of claimed tax matters. The 2012 recognition of tax crimes as predicate offenses rendered that warning obsolete. - Proposed remedies: - Agencies should map mandates, overlaps, and interdependencies. - Issue guidance, MoUs, Service-Level Agreements, joint investigative teams, joint task forces. - Follow substantive legal changes with awareness-raising campaigns, dedicated trainings, publication of guidelines, and periodic implementation reviews. ii. Inherent conflict of interest - AML compliance relies heavily on third-party intermediaries (lawyers, notaries, accountants, tax advisors, TCSPs), who can both enable schemes and are obliged entities in AML regimes. - Leaks (Panama Papers, Pandora Papers, FinCEN Files) show intermediaries can be complicit; intermediaries profit from clients but may need to forgo profit to comply. - Effective supervision of private sector intermediaries is cornerstone of well-functioning AML regime. - Effectiveness of AML supervision is poor: - FATF reports merely 10% of countries reviewed by FATF/FSRBs achieved satisfactory levels of effectiveness in AML supervisory arrangements (FATF, 2022). - FATF study of 59 mutual evaluations found only 17% of financial institutions’ supervisors and 3% of non-financial intermediaries’ supervisors had successfully implemented the risk-based approach to supervision (FATF, 2022). - Largest gaps relate to supervision and compliance of non-financial intermediaries; supervisors historically focused on financial sector. - FATF Recommendations generally subject DNFBPs to less stringent oversight (Recommendations 22, 23, 26, 28); recent October 2021 revisions addressed DNFBP group requirements. - Recommendation: step up supervisory frameworks and actual control activities for both financial and non-financial intermediaries; consider explicitly adding tax advisors to FATF lists of obliged entities (EU-level precedent). - Complementary “checks and balances”: - Allocate greater role to public authorities for AML compliance beyond supervision. - Establish beneficial ownership registries administered by public authorities (example: US Corporate Transparency Act 2021; FinCEN reporting requirement; central beneficial ownership register under 2021 National Defense Authorization Act). iii. Capacity constraints - Use of AML tools for improving tax compliance requires pre-conditions: legal, procedural, operational fundamentals linking frameworks, and sufficiently skilled and staffed AML supervisors (Mathias and Esposito, 2015). - Technical assistance is offered by IMF, World Bank, OECD, among others; such assistance should recognize synergies between AML and tax frameworks. - Capacity constraints affect both developing and developed countries; some developed countries do not prioritize or allocate sufficient resources to tackle money laundering and/or tax crimes due to limited risk understanding or to protect economic interests by attracting foreign wealth via lax standards. ### VI. Conclusions - Money laundering and tax crimes are intrinsically linked; they often concern the same criminal conduct and involve the same criminals. - The 2012 revisions to the FATF Recommendations recognized tax crimes as predicate offenses to money laundering; legal bridge exists and should produce tangible effects in practice. - Countries should capitalize on commonalities and synergies between money laundering and tax crimes to enhance tax compliance. - AML measures can be utilized to improve tax compliance, facilitate formalization of the economy, detect tax non-compliance, and complement existing enforcement and deterrence mechanisms (summarized in annex I). - Challenges to closer integration should be evaluated and balanced against public interests; proposed practical solutions address political, legal, and operational obstacles, including limits on national economic self-interests, vested interests, strict confidentiality rules, and lack of international cooperation. - International standards, peer reviews, listing processes, active civil society, and private sector initiatives (e.g., ESG) play important roles in transparency and accountability. - Current economic slowdown may provide political impetus to leverage AML measures for tax purposes; countries should reassess interactions between AML and tax frameworks to improve tax compliance, mobilize domestic revenues without raising taxes, avoid redundancies, and strengthen overall integrity. - Ensuring financial integrity is an important component of financial and monetary stability and thus is macro-critical. *IMF Working Paper — annex 2).* ### Annex I. List of selected AML measures relevant ### Annex I. List of selected AML measures relevant to tax compliance ### Annex Table — Selected AML measures and relevancy to tax framework - Formalization - 1. CDD measures relating to identification and verification of customers, their proxies, and beneficial owners, including understanding of the nature of business, its ownership and control structure, as well as ongoing monitoring of transactions and the business relationship - 2. Record keeping obligations under CDD - 3. Beneficial ownership registries and other national measures aimed at ensuring entity transparency - 4. Country-wide bank account registries - ✓ Identifying taxpayers - ✓ Extending visibility over potentially taxable income, assets, and businesses - ✓ Monitoring integrity, activities, and compliance of a wide range of businesses and professions that have tax obligations and can be a source of relevant tax information regarding their customers - Detection - 5. CDD measures relating to identification and filing of suspicious transactions and activity reports - 6. Reporting of large cash transactions, cross-border movements of currency, and wire transfers - 7. Identification and analysis of assets, capital flows, and financial transactions carried out by the FIUs - ✓ Helping detect tax offenses - ✓ Targeting tax audits - ✓ Assessing risks and feeding into taxpayer risk profiles and pending tax investigations - Enforcement - 8. Extended investigative and accountability framework covering not just the tax criminals but also the facilitating services of obliged entities, and other accomplices such as relatives, associates, and advisers - 9. Special investigative techniques - 10. Legal measurers enabling freezing and seizure of laundered property and its instrumentalities - 11. EDD measures to help tackle corruption of PEPs, including tax administration officials - 12. Extended statute of limitations - 13. Formal and informal international measures facilitating wide international cooperation - ✓ Broadening the investigative powers and collecting additional information (e.g., the ability to questions and hold accountable a wide range of persons and availability of special investigative techniques, where not otherwise available) - ✓ Securing collection of taxes through freezing and seizing orders - ✓ Tackling of corruption at the tax administration (e.g., source of wealth verification) - ✓ Accessing a wide range of international cooperation instruments and measures, including in the area of tax recovery - Deterrence - 14. Increased transparency over financial transactions and professional services, including supervision of compliance with AML controls by obliged entities - 15. Sanctions, including possible imprisonment - 16. Civil and criminal sanctions for facilitating money laundering related to illegal tax savings - 17. Confiscation of the laundered assets, funds, and instrumentalities - ✓ Increasing costs and risks relating to access to the formal economy and professional services through greater transparency and supervision of the implementation of AML controls by obliged entities - ✓ Dissuading potential offenders, facilitating intermediaries, and other accomplices through the prospect of high sanctions, including possible imprisonment - ✓ Recouping unpaid taxes through confiscation measures *IMF WORKING PAPERS — Annex I. List of selected AML measures relevant to tax compliance* --- ### Annex II. Egmont Group best practices on AML and tax cooperation ### Overview - The below best practices were published by the Egmont Group in July 2020 and provide a list of non-exhaustive recommended practices on enhancing FIU’s detection capacities of money laundering of illicit tax savings and fostering information exchange with tax authorities (Egmont Group, 2020). ### 1. Facilitate effective cooperation between FIUs and tax authorities at the national level - Improve the relationship between tax authorities and the FIU at national level: - Establish formal or informal agreement(s) between the FIU and tax authorities (e.g., Memorandum of Understanding). - Promote public-public and public-private agreements at the national level. - Facilitate the presence of a liaison officer or secondments both in the FIU and in the tax authority. - Provide access to information (including tax declaration, immovable property, etc.): - Indirect access to tax administration’s data without restriction is an important first step. - Direct access to tax data is more beneficial to all parties. - Improve understanding and exploitation of tax information through: - The secondment of tax officers to the FIU or employment of officers with a background in tax-related matters at the FIU. - Arrangement of regular meetings between the FIU and the tax authorities. - Provision of technical training for FIU officials in tax affairs from tax practitioners and/other professionals working in related areas. - Train tax authority and FIU officers to better detect ML and to share quality information via: - Regular joint meetings between tax authorities and FIU personnel to build operational understanding of the subject matter. - Attendance at formal training sessions offered in-house or by other organizations. - Secondments / other operational activities to enable cross-skilling and active, direct, and intense exchange of knowledge in real time while fostering professional networks. - Adopt a strategy to improve the quality of the information exchanges through: - Annual meetings between the head of FIU and the head of the tax authority, or high-level officers from both entities to define an annual strategy and shared priorities. - The implementation of a feedback process to improve the quality of information exchanged. ### 2. Establish national strategies to enhance the fight against ML of serious tax crimes - Legislative framework: - Tax authorities should be able to send information to the national FIU, and the FIU should be able to send relevant information to the national tax authorities to detect tax fraud. - The FIU can play an active role, in coordination with tax authorities, in advising the government on legislative modifications that would limit the opportunities to launder proceeds of tax crimes. - Enabling FIUs to access to new data, such as: - A register of beneficial owners. - A register of domestic bank accounts (BO). - 127 This register does not include bank statements. It only includes information on the nature of the account, the holder, the number, the bank, etc. - The automatic exchange of information. - Cooperation between multiple public actors: - FIU engagement with LEAs and Justice Department/Prosecutor’s Office to encourage parallel financial investigations on ML of serious tax crimes. - Formally notifying the FIU when the tax authority reports the alleged commission of a crime that falls within the FIU’s mandate to the judiciary. - Implementation of disruption strategies concerning shell/front companies through advanced typologies and the use of a BO register. - Fostering public-public cooperation agreements between one or more competent authorities. - Participation of FIUs, with other national competent authorities, to adopt and implement recommendations of national risk assessments. - FIU engagement with private sector to increase the quality and quantity of STR/SAR reporting: - Training courses organized by competent authorities for reporting entities. - Effective feedback (including red flag indicators) and typologies should be provided on a regular basis by the FIU to the regulated private sector. - Promoting awareness, within financial institutions, about the use of international money transfers for the purpose of ML of proceeds of serious tax crimes. - Building trust with relevant actors of the Designated Non-Financial Businesses and Professionals (DNFBP) sector (tax advisors, auditors, accountants) which have access to particularly relevant information on tax matters. - Fostering Public-Private Cooperation agreements. - Close cooperation with academic partners to gain better academic knowledge of tax crime and seek new ways to enhance capabilities to fight against it. - Employing the latest technologies and software products to analyze data more effectively and efficiently to enhance detection capacities of FIUs: - Utilize high quality technologies for FIU analysis, including data collection, data processing and case management, etc. - Analysis based on machine learning using existing identified data sets and typologies. ### 3. International cooperation between FIUs is essential to fight ML of serious tax crimes - The ability to access tax related data on behalf of another FIU, even in the absence of previously submitted STR, and transmitting analyzed information to the requesting FIU is crucial. - FIUs are encouraged to conduct multilateral sharing of information. - FIUs could develop mechanisms to exchange their own experiences both at national and international level. - FIUs should consider making spontaneous disseminations to foreign FIU counterparts. - Improving diagonal cooperation in international ML-related cases can enable competent authorities to support existing cases more efficiently. For information exchange between non-FIU counterparts, it is recommended the request for information from a non-FIU authority to the FIU of another Egmont Group (EG) member is sent first to the national FIU which will then forward it to the intended recipient jurisdiction. - Implementation of standardized feedback forms for all FIUs can enhance cooperation and provide an assessment of the usefulness of the information provided. - Improving international cooperation between the EG, other multilateral bodies and academia fosters knowledge sharing and leverages common resources. - FIUs, particularly in low or no-tax jurisdictions, should consider engaging both with their national (i.e., tax authorities) and international partners (i.e., FIUs) to implement tailored strategies to disrupt ML of serious tax crimes: - At the international level: - (i) systematic and proactive engagement in exchanging relevant information with other FIUs is strongly required to ensure individuals and companies involved in such criminal schemes are adequately investigated, and - (ii) conducting joint financial investigations between FIUs on cross-border typologies is particularly relevant in such scenarios. - At the national level: - (i) FIUs of such jurisdictions should proactively engage in the development of strategic analyses related to ML of serious tax crimes, starting with a national risk assessment that adequately considers such threats, and - (ii) these FIUs could play an active role to support their tax authority to enhance their capacity to fight ML of this type of crime. *IMF WORKING PAPERS — Annex II. Egmont Group best practices on AML and tax cooperation* ### References ### References ### Trade-Based Money Laundering and Trade-Related Typologies - Asia/Pacific Group on Money Laundering (APG), 2012, APG Typology Report on Trade Based Money Laundering (Sydney: APG), https://www.fatf-gafi.org/media/fatf/documents/reports/Trade_Based_ML_APGReport.pdf. - Financial Action Task Force (FATF), 2006, Trade-Based Money Laundering (Paris: FATF), https://www.fatf-gafi.org/media/fatf/documents/reports/Trade%20Based%20Money%20Laundering.pdf. - FATF, 2008, Best Practices on Trade Based Money Laundering (Paris: FATF), https://www.fatf-gafi.org/media/fatf/documents/recommendations/BPP%20Trade%20Based%20Money%20Laundering%202012%20COVER.pdf. - FATF – Egmont Group (2018), Concealment of Beneficial Ownership (Paris: FATF), www.fatf-gafi.org/publications/methodandtrends/documents/concealment-beneficial-ownership.html. - FATF – Egmont Group, 2020, Trade-based Money Laundering: Trends and Developments (Paris: FATF), www.fatf-gafi.org/publications/methodandtrends/documents/trade-based-money-laundering-trends-and-developments.html. - Delston, S. Ross, Stephen C. Walls, 2009, Reaching Beyond Banks: How to Target Trade-Based Money Laundering and Terrorist Financing Outside the Financial Sector, Case Western Reserve Journal of International Law, 41:1, 85-118. - Delston, S. Ross, Stephen C. Walls, 2012, Strengthening our Security: A New International Standard on Trade-Based Money Laundering Is Needed Now, Case Western Reserve Journal of International Law, 44:3, 737-745. ### Beneficial Ownership, Transparency, and Professional Enablers - Berkhout, Richard, Francisca Fernando, 2022, Unmasking Control: A Guide to Beneficial Ownership Transparency Taxing Crime (Washington D.C.: International Monetary Fund Publishing). - FATF, 2014, Guidance on Transparency and Beneficial Ownership (Paris: FATF), https://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-transparency-beneficial-ownership.pdf. - FATF, 2019, Best Practices on Beneficial Ownership for Legal Persons (Paris: FATF), https://www.fatf-gafi.org/media/fatf/documents/Best-Practices-Beneficial-Ownership-Legal-Persons.pdf. - FATF (2023), Guidance on Beneficial Ownership for Legal Persons (Paris: FATF), http://www.fatf-gafi.org/publications/FATFrecommendations/guidance-beneficial-ownership-legalpersons.html. - OECD, 2019b, A Beneficial Ownership Implementation Toolkit (Paris: OECD Publishing), https://www.oecd.org/tax/transparency/beneficial-ownership-toolkit.pdf. - OECD, 2021a, Building Effective Beneficial Ownership Frameworks A joint Global Forum and IDB Toolkit (Paris: OECD Publishing), https://www.oecd.org/tax/transparency/documents/effective-beneficial-ownership-frameworks-toolkit_en.pdf. - Tax Justice Network (TJN), 2022a, Complex Ownership Structures: Addressing the Risks for Beneficial Ownership Transparency, https://taxjustice.net/wp-content/uploads/2022/02/Complex-ownership-chains-Reduced-Andres-Knobel-MB-AK.pdf. - Tax Justice Network (TJN), 2022b, Beneficial Ownership Registration around the World 2022, https://taxjustice.net/wp-content/uploads/2022/12/State-of-Play-of-Beneficial-Ownership-2022-Tax-Justice-Network.pdf. - Wardzynski, Adrian, 2015, The 2014 Update to the OECD Commentary: A Targeted Hybrid Approach to Beneficial Ownership, Intertax, 43(2): 179 – 191. ### AML/CFT International Standards, FATF Guidance, and Assessment Methodologies - FATF, 2012-2023, International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation (updated February 2023) (Paris: FATF), https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html. - FATF, 2013-2021, Methodology for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems (updated October 2021) (Paris: FATF) http://www.fatf-gafi.org/publications/mutualevaluations/documents/fatf-methodology.html. - FATF, 2018, Professional Money Laundering (Paris: FATF), FATF, www.fatf-gafi.org/publications/methodandtrends/documents/professional-money-laundering.html. - FATF, 2022, Report on the State of Effectiveness and Compliance with the FATF Standards (Paris: FATF), https://www.fatf-gafi.org/media/fatf/documents/recommendations/Report-on-the-State-of-Effectiveness-Compliance-with-FATF-Standards.pdf. - MONEYVAL (Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism), 2022, Annual Report for 2021 (Strasbourg: Council of Europe), https://rm.coe.int/moneyval-annual-report-2021-eng-docx/1680a662b1. ### AML, Tax Crime, and Inter-Agency Cooperation - Brun, Jean-Pierre, Ana Cebreiro Gomez, Rita Julien, Joy Waruguru Ndubai, Jeffrey Owens, Rao Siddhesh, Yara Esquivel Soto, 2022, Taxing Crime: A Whole-of-Government Approach to Fighting Corruption, Money Laundering, and Tax Crimes (Washington, D.C.: World Bank Group). - OECD, 2015a, Improving Co-operation between Tax and Anti-Money Laundering Authorities: Access by tax administrations to information held by financial intelligence units for criminal and civil purpose, https://www.oecd.org/tax/crime/improving-cooperation-between-tax-and-anti-money-laundering-authorities.htm. - OECD, 2017, Effective Inter-Agency Co-operation in Fighting Tax Crimes and Other Financial Crimes - Third Edition (Paris: OECD Publishing), http://www.oecd.org/tax/crime/effective-inter-agency-co-operation-in-fighting-tax-crimes-andother-financial-crimes.htm. - Egmont Group, 2020, Money Laundering of Serious Tax Crimes: Enhancing Financial Intelligence Units’ Detection Capacities and Fostering Information Exchange (Public Bulletin, July 2020), https://egmontgroup.org/wp-content/uploads/2021/09/2020_Public_Bulletin_Money_Laundering_of_Serious_Tax_Crimes.pdf. - OECD, 2019c, Money Laundering and Terrorist Financing Awareness Handbook for Tax Examiners and Tax Auditors (Paris: OECD Publishing), https://www.oecd.org/ctp/exchange-of-tax-information/money-laundering-awareness-handbook.htm. - Benedek, Dora, Martin Grote, Grace Jackson, Maksym Markevych, Lydia Sofrona, and Christophe Waerzeggers, 2022, Voluntary Disclosure Programs— Design, Principles, and Implementation Considerations (Washington D.C.: International Monetary Fund Publishing), Technical Notes and Manuals No. 22/2. - Benedek, Dora, E. Crivelli, S. Gupta, and P. Muthoora, 2012, Foreign Aid and Revenue: Still a Crowding Out Effect? (Washington D.C.: International Monetary Fund Publishing), Working Paper No. 12/186. - Beer, Sebastian, and Ruud de Mooij, 2023, Coming Clean on Your Taxes, (Washington D.C.: International Monetary Fund Publishing), Working Paper No. 23/6. ### Tax Transparency, Exchange of Information, and Digital/Virtual Assets - OECD, 2001, Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes (Paris: OECD Publishing), https://www.oecd.org/daf/ca/behindthecorporateveilusingcorporateentitiesforillicitpurposes.htm. - OECD, 2014, Standard for Automatic Exchange of Financial Account Information in Tax Matters (Paris: OECD Publishing), https://www.oecd-ilibrary.org/docserver/9789264216525-en.pdf?expires=1648226655&id=id&accname=ocid195787&checksum=1E41CDC243E5C60408287FA53503BCE5. - OECD, 2018a, Standard for Automatic Exchange of Financial Information in Tax Matters - Implementation Handbook (Paris: OECD Publishing), Second Edition, https://www.oecd.org/tax/exchange-of-tax-information/implementation-handbook-standard-for-automatic-exchange-of-financial-information-in-tax-matters.pdf. - OECD, 2022a, Public consultation document: Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard (22 March – 29 April 2022), https://www.oecd.org/tax/exchange-of-tax-information/public-consultation-document-crypto-asset-reporting-framework-and-amendments-to-the-common-reporting-standard.pdf. - OECD, 2022b, Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard (Paris: OECD Publishing), https://www.oecd.org/tax/exchange-of-tax-information/crypto-asset-reporting-framework-and-amendments-to-the-common-reporting-standard.htm. - FATF, 2021, Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (Paris: FATF), www.fatf-gafi.org/publications/fatfrecommendations/documents/Updated-Guidance-RBA-VA-VASP.html. - Haksar, Vikram, Yan Carrière-Swallow, Andrew Giddings, Emran Islam, Kathleen Kao, Emanuel Kopp, and Gabriel Quirós-Romero, 2021, Toward a Global Approach to Data in the Digital Age, IMF Staff Discussion Note 2021/005 (Washington D.C.: International Monetary Fund Publishing), https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2021/10/06/Towards-a-Global-Approach-to-Data-in-the-Digital-Age-466264. ### Empirical Studies on Tax Evasion, Wealth in Tax Havens, and Compliance - Alstadsæter, Annette, Niels Johannesen, and Gabriel Zucman, 2018, Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality, Journal of Public Economics, 162 (C), 89–100. - ———. 2019, Tax Evasion and Inequality, American Economic Review, 109 (6), 2073–103. - Zucman, Gabriel., 2013, The Missing Wealth of Nations: Are Europe and the US Net Debtors or Net Creditors?, The Quarterly Journal of Economics, 128(3): 1321-1364. - Dubin, Jeffrey, 2007, Criminal Investigation Enforcement Activities and Taxpayer Noncompliance, Public Finance Review, 35:4, 500-529. - Storm, Ansia, 2013, Establishing the Link between Money Laundering and Tax Evasion, International Business and Economics Research Journal, 12:11, 1437-1449. - O’Reilly, Pierce, Kevin Parra Ramirez, and Michael A. Stemmer, 2019, “Exchange of Information and Bank Deposits in International Financial Centres”, OECD Taxation Working Papers, https://www.oecd.org/tax/oecd-taxation-working-paper-46-exchange-of-information-and-bank-deposits-in-international-financial-centres.pdf. - Kida, Mizuho, Simon Paetzold, 2021, The Impact of Gray-Listing on Capital Flows: An Analysis Using Machine Learning (Washington D.C.: International Monetary Fund Publishing), 21/153. - Knobel, Andres, 2020, Transparency of Asset and Beneficial Ownership Information, https://ssrn.com/abstract=3734400 or http://dx.doi.org/10.2139/ssrn.3734400. ### Policy Reviews, Guidance, and Technical Notes (IMF and OECD) - International Monetary Fund, 2001, Financial System Abuse, Financial Crime and Money Laundering—Background Paper, https://www.imf.org/external/np/ml/2001/eng/021201.pdf. - International Monetary Fund, 2012, Revisions to the Financial Action Task Force (FATF) Standard—Information Note to the Executive Board, https://www.imf.org/external/np/pp/eng/2012/071712a.pdf. - International Monetary Fund, 2019a, Review of the Fund’s Strategy on Anti-Money Laundering and Combating the Financing of Terrorism, https://www.imf.org/en/Publications/Policy-Papers/Issues/2019/02/04/pp101718-2018-review-of-the-funds-aml-strategy. - International Monetary Fund, 2019b, “Curbing Corruption”, Fiscal Monitor, https://www.imf.org/en/Publications/FM/Issues/2019/03/18/fiscal-monitor-april-2019. - International Monetary Fund, 2022, “Coordinating Taxation Across Borders”, Fiscal Monitor, https://www.imf.org/-/media/Files/Publications/fiscal-monitor/2022/April/English/ch2.ashx. - Hillier, Cory, and Christophe J. Waerzeggers, 2016, Introducing a general anti-avoidance rule (GAAR)—Ensuring that a GAAR achieves its purpose, Tax Law IMF Technical Note 2016/1 (Washington, D.C.: International Monetary Fund Publishing), https://www.imf.org/en/Publications/Tax-Law-Technical-Note/Issues/2016/12/31/Introducing-a-General-Anti-Avoidance-Rule-GAAR-Ensuring-That-a-GAAR-Achieves-Its-Purpose-43662. - Benedek, Dora, Martin Grote, Grace Jackson, Maksym Markevych, Lydia Sofrona, and Christophe Waerzeggers, 2022, Voluntary Disclosure Programs— Design, Principles, and Implementation Considerations (Washington D.C.: International Monetary Fund Publishing), Technical Notes and Manuals No. 22/2. ### Other Relevant Publications and Book-Length Treatments - Chaikin, David, and J.C. Sharmanon, 2009, Corruption and Money Laundering: A Symbiotic Relationship (New York: Palgrave Macmillan). - Gilmore, William, 2011, Dirty Money: The Evolution of International Measures to Counter Money Laundering and the Financing of Terrorism (Strasbourg: Council of Europe), 4th ed. - Riccardi, Michele, 2022, Money Laundering Blacklists (Oxfordshire: Routledge Publishing), https://www.routledge.com/Money-Laundering-Blacklists/Riccardi/p/book/9781032080871#. - Tucker, Ola M., 2022, The Flow of Illicit Funds: A Case Study Approach to Anti-Money Laundering Compliance (Washington D.C.: Georgetown University Press). - Mathias Emmanuel, and Esposito, Gianluca, Using Anti-Money Laundering Measures to Improve Tax Compliance, Tax Design Issues Worldwide, ed. by Geerten M.M. Michielse, and Victor Thuronyi (The Netherlands: Kluwer Law International BV). - Wardzynski, Adrian, 2014, The Limitation on Benefits Article in the OECD Model: Closing Abusive (Undesired) Conduit Gateways, Bulletin for International Taxation, 68(9): 471 – 479. - Riccardi, Michele, 2022, Money Laundering Blacklists (Oxfordshire: Routledge Publishing), https://www.routledge.com/Money-Laundering-Blacklists/Riccardi/p/book/9781032080871#. *Leveraging anti-money laundering measures to improve tax compliance and help mobilize domestic revenues, Working Paper No. WP/2023/083* --- _Source: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023083.pdf_