Money Laundering Tax Evasion Capital Flight Tax Havens

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If the change from a rule based to a risk based approach has drawbacks if tax evasion. cannot be clearly combined with money laundering if it is difficult to prove the degree of. tax competition why not opt for an even simpler approach Instead of having to prove. flows of criminal money and cumbersomely separate them from less criminal flows and. if almost all short term fluctuations are harmful why not include money laundering tax. evasion and harmful short term speculation and introduce a Tobin tax a small percentage. of tax on all international short term transactions Why not putting a grain of sand into the. machinery of international financial flows The Tobin tax would reduce the problem of. having to identify tax havens and countries that harmfully compete for taxes by making. transactions less attractive It would make crime and harmful speculation pay less It. would not solve the problem at the national level but reduce it at the international level. where the big flows of criminal money have to be expected But there the problem might. be to get the majority of the 192 UN member countries UN members as of July 2006 to. sign such a treaty Because consensus on hard law UN Conventions EU Conventions. and EU Directives is difficult to reach one should also consider soft law solutions as a. first step, 0 From the old to the new European anti money laundering. Implementation of the EU Third Money Laundering Directive. The Directive 2005 60 EC of the European Parliament and of the Council formally. adopted on 20 September 2005 on the prevention of the use of the financial system for. the purpose of money laundering and terrorist financing the Third EU Money. Laundering Directive was published in the Official Journal L 309 of 25 November. 2005 Member States have two years to adopt and bring into force appropriate. implementing measures the implementation deadline is 15 December 2007 for some. countries like Austria it is extended to the end of 2008 The aims of the Third Directive. are to consolidate the First and Second Directives and to make appropriate amendments to. take into account the revision of the Financial Action Task Force FATF 40. Recommendations The FATF amended the 40 Recommendations in June 2004 and. introduced a number of substantial changes For the text of the Directive see. http www anti moneylaundering org Third EU Money Laundering Directive pdf. By December 2007 member states must introduce plans to implement ongoing customer. due diligence CDD identify non domestic politically exposed persons PEPs ascertain. beneficial ownership of offshore accounts and create policies to ensure a risk based. approach to money laundering risks How is this accomplished There is widespread. confusion about the proper implementation steps reporting businesses should take The. Netherlands Ireland the United Kingdom and other EU nations have already taken steps. to implement the Directive Especially in the new member states of the European Union. there are impediments to the efficient and effective implementation of the mandates of the. new Directive, http www ibanet org legalpractice IBA Money Laundering Directive Implementation. It goes without saying that the obligations laid down in the directive are binding on. Member States As the guardian of the Treaties the Commission oversees the proper. implementation of the EU directive In the case of failure or delay in implementation the. Commission will start infringement proceedings in accordance with Article 226 EC. which eventually results in proceedings before the ECJ For example the Greek state s. failure to adequately transpose the First EC Money Laundering Directive resulted in the. Commission starting infringement procedures against Greece before the ECJ for failure to. transpose Greece quickly passed Law 2331 95 thus fully implementing the EU law. provisions in question Similarly the Commission also started infringement proceedings. for failure to implement the Second Anti Money Laundering Directive 2001 97 EC by. issuing its reasoned opinion against six Member States France Portugal Greece. Sweden Luxembourg and Italy IP 04 180 Busuioc 2007 in Unger 2007 Chapter 2. With regards to the incrimination of money laundering a veritable quantum leap this. direction was made in 1990 with the Council of Europe Convention on Laundering. Search Seizure and Confiscation of the Proceeds of Crime hereafter the Strasbourg. Convention which entered into force in 1993 The Convention has been signed and. ratified not only by all the Member States of the Council of Europe but also by non. Member States such as Australia and Montenegro The US and Canada have failed to. either sign or ratify the Convention 1 Busuioc 2007 in Unger 2007 Chapter 2. Due to substantial amendments a new Council of Europe Convention on Laundering. Search Seizure and Confiscation of the Proceeds from Crime and on the Financing of. Terrorism was opened for signing in May 2005 The Convention has been signed by 27. States including the Netherlands and Austria but so far there have been only two. ratifications one by Albania and one by Romania2 Given that 6 ratifications are. necessary for entry into force the 2005 Council of Europe Convention has not entered. into force yet, Reasons for making these changes in European anti money laundering policy were. manifold With regard to the third AML Directive first adjustments and adoptions to. changes in the international AML regime of the FATF were necessary Second. assessments of both the AML and the reporting system did not shed a very positive light. on the efforts done so far Money laundering and also tax evasion are difficult to assess. Section 1 The confusion that arises around the Directive is not only restricted to finding. the proper implementation steps It is also a confusion about concepts Money laundering. tax evasion capital flight tax havens pop up as simultaneous and overlapping problems to. the actors who in practice cannot simply refer to a precise legal framework As the paper. will show there is confusion with regard to definitions and concepts Section 2 In order. to make the new European AML regime manageable actors have started to interpret it in. their own ways Section 3 This will eventually lead to a new rule based approach. For additional information concerning signatures and ratifications see. http conventions coe int Treaty Commun ChercheSig asp NT 141 CM 11 DF 7 10 2006 CL ENG. For additional information concerning signatures and ratifications see. http conventions coe int Treaty Commun ChercheSig asp NT 198 CM 11 DF 7 10 2006 CL ENG. where the new rules will be set by case law and the courts This convergence process is. time consuming and costly In order to tackle the problem of money laundering tax. evasion and capital flight one should not leave the problem to the actors and to the. eventual outcome of their joint action but one should focus on new rule making and new. instruments Section 4,1 Difficulties to assess, 1 1 Assessment of money laundering and AML policies. To assess AML policy is difficult for several reasons Does one assess the instruments. the efforts of policy makers and implementers to fight it or the outcome. Reporting It seems that outputs rather than outcomes are evaluated what countries do. with suspicious transaction report data remains in its infancy Levi 2005 as quoted in TNI. 2007 The Dutch have a very high reporting rate of unusual transactions a modest rate of. further procedures as suspicious transaction and a low amount of final prosecution and. conviction But the Netherlands certainly have a better analysis and documentation of the. reporting data than most other countries, Total numbers of unusual and suspicious transactions in the Netherlands in 2005.
Unusual Suspicious,Money Transfer Offices 130992 29573. Traditional Reporters Banks Money Change,Offices Casino s Credit Card Companies 36165 7511. of which Banks 28700 4036,Traders with goods of high value 3767 1086. Government custom tax authorities supvervising,authority 472 185. Free professions lawyers real estate agents 227 126. Total 181623 38481, Source Annual Report of the MOT Melding Ongebruikelijke Transacties the Dutch FIU.
http www justitie nl images MOT 20Jaarverslag 202005 tcm34 11105 pdf. How many of these suspicious transactions lead to conviction is not documented at least. not publicly Also with regard to financial fraud there is a lack of data When a deputy of. parliament Douma from the PvdA asked the ministers of justice and of finance how. many cases of money laundering and financial crime have been convicted the answer was. that there are 337 cases of financial and economic fraud which are further prosecuted by. the public prosecutor in 2006 but that the minister does not know how many cases finally. reach the judge The minister also acknowledged that there was no clear definition of. financial fraud Parliamentary Request about financial fraud 13 6 2006 Kamervragen. over de vervolging van financi le fraude http www justitie nl images. Since January 1st 2005 the Dutch have a new indicator list for unusual transactions. which puts more emphasis on subjective criteria and raised the objective criteria from. 10 000 to 15 000 Euro for banks As a consequence reporting by banks went down and. administration costs of banks are supposed to fall by about 20 by 8 million Euros. From a more detailed analysis of reporting it follows that 6 of the suspicious. transactions by banks have been reported because of objective criteria and 94 due to. subjective criteria of which the most important indicator is B232 the behavior of the. client and the type of transaction Only 6 are due to the suspicion of laundering B211. MOT Annual Report 2005, Blacklisting and its end Another way of assessing overall risk is by blacklisting. countries with more or less eager anti money laundering policies It has seriously to be. doubted whether the FATF blacklisting of non cooperative countries is still a way of. identifying money laundering countries As the following table shows between 1999 and. 2006 less and less countries seem to launder In June 2006 only Myanmar seemed to. launder As of 13th October 2006 there are no non cooperative countries and territories. according to the FATF http www fatf gafi org document Countries seem to be eager. to disappear from the black list Is this compliance or only declared compliance. compliance in the books Is there no more laundering worldwide See Table 2 for the. development of the blacklisted countries, The history of blacklisting shows that the international community is very sensitive to this. issue Furthermore Rawlings 2007 and Rawlings and Sharman 2006 showed that. blacklisting might have had reverse effects Some states have experienced loss of. business but other OFC have prospered Through complying with the FATF some OFC. like Cayman Islands Bermuda Jersey Guernsey and the Isle of Man have increased their. reputation, Table 2 Source Unger and Rawlings 2005 plus update. FATF NCCTs Oct 2006,FATF NCCTs June 2006,OECD Tax Havens 2000. from www fatf gafi org,FATF NCCTs 2000,FATF NCCTs 2001.
FATF NCCTs 2002,FATF NCCTs 2005,IMF List 1999,Seychelles. Asia and Pacific,Cook Islands x,Federal States of Micronesia. Myanmar Burma x x,Marshall Islands x,Philippines x. Guernsey Sark Alderney,Isle of Man,Liechtenstein x. OECD Tax Havens,FATF NCCTs 2000,FATF NCCTs 2001,FATF NCCTs 2002.
FATF NCCTs 2005,IMF List 1999,Netherlands,Switzerland. United Kingdom,Middle East,Antigua Barbuda,British Virgin Islands. Cayman Islands x,Costa Rica,Dominica x,Montserrat,Netherlands Antilles. St Kitts and Nevis x,Puerto Rico,St Vincent the Grenadines x. Turks Caicos Islands,United States, Assessment of the Threat for Endangered Groups Professions and Sectors.
Another way of assessing is to assess the potential threat of specific groups and sectors. For the Netherlands I identified the professions and sectors most likely to suffer from. money laundering This was done by means of interviews case studies and by looking at. the transaction volume of these groups and sectors For example the casinos in the. Netherlands are very unlikely to be a centre of money laundering since there total. turnover accounts for about three percent of the amount being laundered For the. Netherlands I identified trust companies trustkantoren and real estate as two highly. endangered domains see Unger 2007, In the US the Money Laundering Threat Assessment 2005 identifies as endangered. groups mainly financial entities such as banks money services business money. transmitters money orders and stored value cards, The threat of money laundering seems easier to assess than its actual outcome. Assessment of compliance with the 40 FATF recommendations by recommendation. and country, Arnone and Padoan 2006 try to give an assessment of the Anti Money Laundering and. Combating Financing of Terrorism program introduced at the end of 2001 by the IMF and. the World Bank in conjunction with the FATF They analyze the assessments of the. compliance of countries with regard to the 40 plus nine AML and anti terrorist. Recommendations They criticize that the available country assessments show highly. variable quality and vary widely across countries owing to different assessor institutions. Money Laundering Tax Evasion Capital Flight Tax Havens the Rule based and the Risk Based Approach Keep it Simple by Brigitte Unger Utrecht School of Economics Janskerkhof 12 3512BL Utrecht The Netherlands B Unger econ uu nl Paper prepared for the Transnational Institute Seminar on Money Laundering Tax Evasion and Financial Regulation 12 th and 13 th June 2007 Amsterdam organized by

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