Cracking down on tax, financial crime enablers

Lawyers, accountants, and financial institutions will have to face the consequences for enabling tax and financial crimes as regulators now have the means to not only detect wrongdoing, but also hold them to account for their illegal actions.

The Organisation for Economic Co-operation and Development (OECD), an international organisation that promotes “better policies for better lives”, published a comprehensive report on Thursday, titled Ending the Shell Game: Cracking Down on the Professionals Who Enable Tax and White Collar Crimes.

It is a toolkit for governments, explaining the role of professional enablers, how to identify them, the tools of their trade, and the recommended legal and regulatory frameworks necessary to disrupt and deter them.

Leaks such as the Panama and Paradise Papers, and exposés such as the Namibian “fishrot” scandal, have highlighted the essential roles played by the enablers, without whom these crimes would not be possible.

These are those lawyers, accountants, financial institutions, and other professionals who help “engineer the legal and financial structures seen in complex tax evasion and financial crimes”.

These so-called enablers are experts in international tax and company law, knowledge that is key to setting up complex opaque structures, creating bearer shares, and providing nominee or dummy directors and trustees.

The Covid-19 pandemic offered yet another opportunity for professional enablers to assist clients in getting fraudulent access to pandemic support funding.

A professional enabler would include someone who is “wilfully blind” or should have been reasonably expected to know that their services were facilitating an illegal act.

Examples of illegal services include hiding income or disguising the character and source of profits, obscuring beneficial ownership of assets to avoid scrutiny, and offering advice on how to evade tax obligations.

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Companies, trusts and other business structures provide a veil of legitimacy and can be used for nefarious activities.

Jurisdictions that enable quick, low-cost and easy incorporation (such as Delaware in the US) facilitate the setting up of structures through which illegal activities can take place.

Professional enablers’ services can include setting up shell companies and bank accounts in the name of fronts, storing incriminating data on behalf of clients, hiding the proceeds of crimes, and working in cahoots with counterpart service providers.

Disrupting enablers Australia, France, and the United Kingdom have significant civil penalty provisions that target professional enablers and promoters of tax evasion schemes.

The report suggests the lifting of professional privilege regarding privileged evidence of professional enablers when investigated for the commission of a tax or economic crime.

Regulatory and professional bodies should be part of the strategy for addressing the behaviour of professional enablers. These bodies can impose sanctions.

Corruption in SA is rife, but the country does have the necessary legal framework and the regulatory bodies. The action of disrupting the professional enablers of corruption has, however, not gotten off the ground.

This article first appeared on Moneyweb and was republished with permission.

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