February 16, 2012
Clark Gascoigne,+1 202 293 0740 x222
EJ Fagan,+1 202 293 0740 x227

WASHINGTON, DC – Global Financial Integrity (GFI) praised moves by the international anti-money laundering authority to crackdown on tax evasion and smuggling in new standards announced today, but expressed disappointment in the body’s failure to address anonymous corporate vehicles as a facilitator of financial crime.

Tackling Tax Evasion

The Financial Action Task Force’s (FATF) revised standards, announced this morning at a press conference in Paris, add tax evasion and smuggling to the list of crimes that can result in charges for money laundering—something that GFI has long advocated as a tool to turn the tide against tax dodging.  The organization notes that the recommendations go so far as to cover both indirect and direct tax crimes and smuggling in relation to customs and excise duties and taxes.

“We are very pleased that FATF’s revisions include tax evasion and smuggling as predicate offenses for money laundering,” said Heather Lowe, legal counsel and director of government affairs at Global Financial Integrity.  “This sends a strong message to people who set up schemes and structures to enable others to evade taxes that they aren’t just unnamed facilitators, they are actually money launderers.”

Failure to Address Shell Companies

However, the organization’s praise for FATF’s actions on tax evasion does not diminish GFI’s disappointment with the international body’s inaction regarding anonymous corporate vehicles.

The new standards do not require the disclosure of the true “beneficial owners” of corporate entities when they are formed but make that an optional approach, thereby leaving intact one of the major loopholes used by financial criminals to anonymously launder their money.

“Criminals, kleptocrats, and tax evaders from around the world take advantage of this loophole to hide and launder illicit money,” said Ms. Lowe. “This financial opacity puts law enforcement at a major disadvantage. Too often cases are dropped, or investigations are closed, due to a lack of evidence connecting the illicit funds held in accounts owned by anonymous corporations to the criminal owners of those companies.  The governments of the countries that are Members of FATF  are refusing to take responsibility for their role in this problem and putting all the responsibility for determining who owns and controls companies on the financial sector.  It is neither effective nor appropriate.”

GFI notes that The Economist recently published an editorial highlighting the scale of this problem and advocating legal reforms.  “Anyone registering a limited company should have to declare the names of the real people who ultimately own it, wherever they are, and report any changes. Lying about this should be a crime” wrote the influential magazine.

Although not legally binding, FATF recommendations are considered the foundation for national and international legislation aimed at preventing money laundering, terrorist financing, and other financial crimes.

Positive Steps

The organization highlighted some specific, praiseworthy elements of the new recommendations:

• Smuggling (including in relation to customs and excise duties and taxes) and tax crimes (related to both direct and indirect tax) were added as predicate offenses for money laundering. [Rec 3]
• While completing due diligence, Financial Institutions (FI) are asked to examine the background and purpose of all large, unusual, complex transactions and any patterns of unusual transactions which have no apparent economic or lawful purpose. Moreover, FIs are required to obtain both the address of their customer’s registered office and their customer’s principal place of business. [Rec 10]
• Financial Institutions are now required to take reasonable measures to determine whether a beneficial owner of an entity is a domestic Politically Exposed Person (PEP) and, if the domestic PEP poses a higher money laundering risk, the FI must carry out enhanced due diligence measures similar to those for all foreign PEPs.  This update is in line with the UN Convention Against Corruption (UNCAC). [Rec 12]
• Countries are required to ensure that there is adequate, accurate and timely information on express trusts, and that information on the settlor, trustee and beneficiaries be held by the trustee. [Rec 25]

Disappointments

The organization also highlighted some specific areas of disappoint in the new recommendations:

• With regard to wire transfers, FATF has defined “beneficiary” for the purposes of this recommendation as “the natural or legal person or legal arrangement,” which means that a shell company could easily be the beneficiary of a wire transfer and no additional diligence would be done. [Rec 16]
• The new standards do not require the disclosure of the true “beneficial owners” of corporate entities. [Rec 24]
• Bearer shares are still permitted. [Rec 24]

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Notes to Editors:

1. Although not legally binding, FATF recommendations are considered the basis for national and international legislation to prevent money laundering, terrorist financing, and other financial crimes.
2. The full, updated FATF recommendations can be found at www.fatf-gafi.org/recommendations.
3. The FATF press release on the recommendations can be found here.
4. The Econmist editorial, “Corporate anonymity: Light and wrong,” can be found here.
5. For more information on beneficial ownership, visit http://www.financialtaskforce.org/issues/beneficial-ownership/
   
6. To read the statement from the Task Force on Financial Integrity and Economic Development’s statement on the FATF recommendations, click here.

Contact:

Clark Gascoigne
+1 202 293 0740 ext. 222
cgascoigne@gfintegrity.org

EJ Fagan
+1 202 293 0740 ext.227
efagan@gfintegrity.org

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Global Financial Integrity (GFI) is a Washington, DC-based research and advocacy organization which promotes transparency in the international financial system.

For additional information please visit www.gfintegrity.org. 

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