The Increasing Interaction between International Tax Enforcement & Anti-Money Laundering Enforcement Co-operation by Bruce Zagaris
I. A NEW COALESCENCE OF COOPERATION ON MONEY LAUNDERING AND TAX CRIMES
A concern for revenue and law enforcement authorities has been the incidence and coalescence of capital flight, money laundering, tax crimes, and the new international financial architecture. Various international organizations, including the International Monetary Fund and the World Bank, the Organization of Economic Cooperation and Development, and the United Nations have recently addressed these issues. The most important development here is the emergence in the late 1980s of the criminalization of money laundering and its continuing maturation and expansion. In many cases conduct that constitutes capital flight may simultaneously violate money laundering and tax evasion laws. Indeed the new recommendations in the Financial Action Task Force for criminalization of money laundering, which the IMF uses for its Financial Sector Assessments, embraces most tax felonies
Another extremely important new requirement is the imposition of anti-money laundering (AML) due diligence on a variety of professionals, such as tax, business, and estate planners, company and entity formation professionals, real estate, merger and acquisition professionals, and various types of investment advisors. The AML due diligence includes requirements to verify the identity of the client and other Òknow your clientÓ responsibilities, enhanced due diligence in certain circumstances, such as politically exposed persons (PEPs), correspondent bank accounts, private banking relationships, transactions with jurisdictions designated as falling below the international AML standards, and cyberaccounts. Perhaps, most importantly they require professionals to identify and make Òsuspicious activity reportsÓ (SAR) and not to Òtip offÓ (or disclose to) the client their filing of SARs.
While many of these regulatory and enforcement trends are new or recent and still in some cases in the implementation phase, globalization, free trade, and economic liberalization mean that the incidence of encountering these international and national requirements will increase, even though the United States Government has not yet adopted many of these requirements for gatekeepers
This discussion of capital flight, money laundering, tax crimes, and financial regulatory problems falling under the rubric of the new international financial architecture describes recent events with respect to the interaction of various criminal and financial regulatory enforcement regimes. Together, in some cases they have tended to override the longstanding position of common law countries that, in the absence of specific treaty provisions, national governments do not enforce the revenue claims of a requesting state. Indeed, the developments among international organizations and national governments both are quite dynamic. This short article will review only selected examples of the sweeping changes: the revised FATF Forty Recommendations; the EU anti-money laundering amendments in the context of the EU revised anti-money laundering; the application of AML laws in England; and the current and potential application of AML laws in the U.S., including the USA PATRIOT Act.
II. THE FINANCIAL ACTION TASK FORCE
The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing. The Task Force is a Òpolicy-making bodyÓ which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit that was held in Paris in 1989. In April 1990, less than one year after its creation, the FATF issued a report containing a set of Forty Recommendations, which provide a comprehensive plan of action needed to fight against money laundering. FATF has 28 member countries.