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Daily Briefing: New ranking of global tax havens, Estonia shuts down payments firm on AML, and more

Wednesday, May 29, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
May 29, 2019

Quote of the Day: “Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws.” – Plato

In today’s ACFCS Fincrime Briefing, watchdog ranks world’s largest tax havens, Estonian regulator pulls license of firm will lax compliance, capital history, Fatca enforcement uptick, and more.

Please enjoy this unlocked story, part of the many benefits of being an ACFCS member.

Want to talk about industry trends, story ideas or get published? Feel free to reach out to ACFCS Vice President of Content Brian Monroe at the email address above. Now, on to more sweet sweet content!

Tax evasion

New ranking reveals havens behind broken global corporate tax system: $18 trillion being booked in just 10 countries

Forty per cent of today’s cross-border direct investments reported by the International Monetary Fund – $18 trillion in value – are being booked in just 10 countries offering corporate tax rates of three per cent or less, the result of decades of tax wars among the world’s richest countries unravelling the century-old global corporate tax system, new research finds.

The Corporate Tax Haven Index, published Tuesday by the Tax Justice (TJN) , has identified the United Kingdom (UK) and a handful of Organization for Economic Cooperation and Development (OECD) countries as the jurisdictions most responsible for the breakdown of the global corporate tax system.  

The UK, according to the ranking, bears the lion’s share of responsibility through its controlled network of satellite jurisdictions. These countries have aggressively undermined the ability of governments across the world to meaningfully tax multinational corporations.

An estimated $500 billion in corporate tax is dodged each year globally by multinational corporations – enough to pay the United Nations’ under-funded humanitarian aid budget 20 times over every year.

The data also reveals an aggressive annexation of low-income countries’ tax rights by the UK and OECD countries including France and Sweden.

The top 10 most corrosive corporate tax havens in the world

The first ever study of its size and scope, the Corporate Tax Haven Index3 ranks countries by their complicity in global corporate tax havenry. The greater the share of global corporate activity jeopardized by the country’s tax system, the higher it ranks on the index.

The top 10 countries that have done the most to proliferate corporate tax avoidance and break down the global corporate tax system are:

1. British Virgin Islands (British territory)
2. Bermuda (British territory)
3. Cayman Islands (British territory)
4. Netherlands
5. Switzerland
6. Luxembourg
7. Jersey (British dependency)
8. Singapore
9. Bahamas
10. Hong Kong

These 10 jurisdictions alone are responsible for over half (52 per cent) of the world’s corporate tax avoidance risks as measured by the Corporate Tax Haven Index. Over two fifths of global foreign direct investment reported by the International Monetary Fund is booked in these 10 countries, where the lowest available corporate tax rates averaged 0.54 per cent.

The top three ranked jurisdictions are part of the British-controlled network of satellite jurisdictions to which the UK has outsourced some of its corporate tax havenry.

The top 10 jurisdictions have dealt the global corporate tax system a devastating double blow. First, the colossal scale at which the jurisdictions have enabled corporate tax avoidance risks to woo multinational corporations has made countries’ statutory corporate tax rates meaningless.

Second, the jurisdictions have triggered a “race to the bottom” across the globe that will further deplete tax revenues as countries desperate to claw back foreign investment engage in the false economy of “tax competitiveness” and increase their complicity in corporate tax havenry.

The corporate tax avoidance risks and corrosive lose-lose outcomes documented by the new index illustrate that what is often referred to as “tax competition” is more aptly described as “tax war,” (via TJN).

Monroe’s Musings:

This is an interesting development and ranking that will put more pressure on the U.K. and its related territories to clean up on tax issues and stop being such a stumbling block.

As a point of context, these are many of the same jurisdictions fighting tooth and nail to results U.K. and international efforts to capture and publish beneficial ownership information on corporates.

The U.K. has a problem on its hands dealing with its unruly extended family – or it will be done for them by foreign jurisdictions and watchdog groups.


Europol, Dutch, Luxembourg authorities take down crypto laundering site in first-ever such action

European authorities have taken down what they are calling one of the world’s largest cryptocurrency mixing services, a virtual money laundering machine used to muddy the trail of transactions to make it harder for investigators to track criminally-tinged digital assets – a historic move sending a message to dark web denizens everywhere.

Europol, the Dutch Fiscal Information and Investigation Service (FIOD) and authorities in Luxembourg last week attacked in the real and online worlds after a nearly year-long investigation, seizing six servers in the Netherlands and Luxembourg and taking the site itself offline.

Europol describes Bestmixer as “one of the world’s leading cryptocurrency mixing services,” one of the three largest mixing services for cryptocurrencies and offered services for mixing the cryptocurrencies bitcoins, bitcoin cash and litecoins.

The takedown of the mixing site occurs after the U.S. and international authorities in recent years have teamed up to identify and crush many of the dark web’s largest darknet marketplaces and related virtual currency exchanges – operations that in many instances had little to no anti-money laundering (AML) compliance procedures in place.

In tandem, the announcement occurs just weeks after the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued guidance on crypto transactions and arrangements that trip AML rules, essentially stating that if you – as a person or company, including P2P transactions – take, move and morph crypto value to fiat currencies for others as a business, you are a money transmitter and must have a compliance program.

The action also occurs across a broader contextual and still-shifting template where multiple authorities in different jurisdictions around the globe continue to debate what crypto currencies truly are – money, securities or pipe dream – in anticipation of statements on the technology from the Paris-based Financial Action Task Force (FATF) expected next month.

“Today’s Bestmixer seizure shows an increase in law enforcement activities on pure crypto-to-crypto services,” Dave Jevans, CipherTrace CEO, told CoinDesk.

“This follows on the heels of European AMLD5 regulations and the views expressed by US FinCEN that crypto-to-crypto services are considered to be money services businesses and must comply with those regulations. This is the first public seizure of a bitcoin mixing service, and shows that not only are dark marketplaces subject to criminal enforcement, but other services are as well.”

The service started in May 2018 and achieved a turnover of at least $200 million, roughly 27,000 bitcoins, in a year’s time and “guaranteed that the customers would remain anonymous,” according to investigators.

A cryptocurrency “tumbler or cryptocurrency mixing service is a service offered to mix potentially identifiable or ‘tainted’ cryptocurrency funds with others, so as to obscure the trail back to the fund's original source,” according to Europol, adding that users pay fees for the service, which they then receive as funds from a seemingly new, clean address.  

Such a feature is a boon to criminals, fraudsters and scammers trying to force victims to pay ransoms in crypto coins while attempting to stymie law enforcement efforts to uncover their nefarious ties to the physical world through typically transparent blockchains.

Investigators knew they had to take down Bestmixer as many roads lead to information roadblocks at the site.

“Many of the mixed cryptocurrencies on had a criminal origin or destination,” Europol said. “In these cases, the mixer was probably used to conceal and launder criminal flows of money.”

The FIOD started the investigation in June 2018 with the support of the internet security company McAfee, noting that there could be more tendrils of the criminal enterprise to crush.

The Dutch FIOD stated it has “gathered information on all the interactions on this platform in the past year,” including IP-addresses, transaction details, bitcoin addresses and chat messages. “This information will now be analyzed by the FIOD in cooperation with Europol and intelligence packages will be shared with other countries,” (via Europol).

Monroe’s Musings:

This is a powerful, unprecedented move by EU authorities that are, like the U.S. and U.K., actively looking for money laundering mega hubs in the real and virtual worlds. One high-profile target: a crypto company actively and blatantly offering services to essentially launder and cleanse digital value.

This is something criminals, scammers and crypto brigands of all stripes should take note.

Not only are global investigators targeting these illicit washing portals, they are aggressively capturing the data on users and other shifty sites, and sharing those details with law enforcement partners, to connections to larger illicit networks – and take them down.


Estonian regulator revokes license of payment services firm for AML failures, weak customer details, monitoring, capital  

Estonia’s financial regulator Tuesday continued its increased aggressiveness against operations with consistently lax financial crime compliance programs, yanking the license of a payment services company that had repeatedly flouted federal requirements – even after paying multiple penalties.

Finantsinspektsioon levied the action against Tallinn-based GFC Good Finance Company (GFC) due to “seriously” breaching anti-money laundering (AML) laws, including know-your-customer (KYC) and customer due diligence (CDD) requirements, for an extended period, several regulatory exams and a plethora of penalties.

Examiners also cited GFC for not having the required capital to operate.

“There have been wide-ranging problems in the operations of the payment institution in its anti-money laundering activities and its implementation of know-your-client procedures,” according to the action.

“At the same time the own funds held by the payment institution have not been of the legally required minimum amount for a long time despite repeated warnings from Finantsinspektsioon,” according to the regulator, more than a year, adding that it has “several times applied penalty payments, but GFC did not comply with the injunctions of the financial supervisor.”

In October 2017 an on-site inspection by Finantsinspektsioon, examiners identified “serious violations and shortcomings in all the areas inspected, and an injunction was issued for these to be rectified.”

Finantsinspektsioon again “found wide-ranging violations of the law in an on-site inspection in summer 2018,” leading to the current action. The firm has been in operation since 2013.

“A regulated payments market cannot tolerate a payment institution that ignores its important obligations under anti-money laundering law to this extent, showing as it does so contempt or incompetence towards the law, or an outright desire to break the law,” Finantsinspektsioon Management Board Chair Kilvar Kessler said in a statement.

The company “lost the trust of a financial supervisor that acts in the public interest,” he said “All parties in the financial sector must abide by the applicable legislation and meet even higher standards for due diligence where needed.”

Estonia has been under enormous pressure to improve the AML compliance in its banks and restore confidence in its regulatory and investigative agencies in light of the Danske Bank scandal, which saw an estimated $230 billion move through the operation’s Estonian branch tied to a Russian money laundering scandal.

Early in the year, the regulator essentially kicked Danske Bank out of Estonia, forcing the closure of the branch.

As well, the agency has stated the Danske bank problems may just be the tip of a larger problem, adding that risky foreign clients and their potentially tainted assets are still a major issue in the regional banking system. One result: certain banks with current or historical ties to risky regions, like Russia, will be getting more examiner attention, (via FI).

Monroe’s Musings:

Estonian regulators and investigators have been embarrassed, badly and globally, by the Danske Bank scandal.

Top government officials and legislators have said it hasn’t just hurt the country’s perception for financial crime compliance, but it’s overall reputation as a safe and sound place to put your money.

So look for this and other regulators to go after compliance scofflaws that are low-hanging fruit, ones that with multiple enforcement failures that can’t put up much of a fight when an agency brings down the hammer in a high-profile action.

The real question, however: Does Estonia have the regulatory and investigative resources to take on large, complex investigations that reveal broad compliance failures or actual money laundering at financial institutions more broadly?

Only time will tell, but one thing is clear: the pressure to improve AML across Estonia is being felt across the country and regulators are attempting to set a new tone and perception by enforcement, including formal actions, more and larger penalties and even shutting a business down – a move that will no doubt get the financial sector’s attention as statement-making and dissuasive.

Tax evasion  

U.S. to begin FATCA crackdown, with focus on correspondent exposure points, scrutiny, compliance

After years of deliberation and debate spanning two administrations the Foreign Account Tax Compliance (FATCA) Act could start barring its teeth as federal investigators start reviewing massive data stores on what global financial institutions are rigorously reviewing customers for a U.S. nexus – one that could reveal failures to report taxable revenue.

FATCA is a US law that requires financial institutions around the world to report the financial accounts and assets of US citizens, especially non-resident citizens, to the US Internal Revenue Service (IRS) for the purpose of tax collection – in effect, the law is an attempt to clamp down on tax evasion via foreign accounts.

Not only does the law affect US citizens with foreign assets, it applies to US citizens living abroad, as well as any financial accounts that may be shared or have a US citizen as a signatory.

As such, even non-US institutions and can be reported to the US tax authorities. Most FATCA enaction requires a change in reporting country legislation to allow sharing the information, usually though inter-government agreements.

Countries that do not comply to the FATCA requirements could face blacklisting from US authorities, including loss of correspondent banking and de-risking.

The IRS is finally moving to enforce FATCA — exactly what the program has needed for some time.

In a report that confirmed what we already knew, on July 5, 2018, the US Treasury Inspector General for Tax Administration (TIGTA) issued a scathing report: the US Treasury’s/US Internal Revenue Service’s FATCA program enforcement to date has been weak to non-existent. Enforcement is changing and no financial institution should risk being made the example for non-compliance.

If we first consider the derisive review of the lack of results to date, the Inspector General’s report on the IRS’ FATCA efforts begins with a succinct and damning summary by stating:

“TIGTA determined that, despite spending nearly $380 million, the IRS has taken limited or no action on a majority of the planned activities outlined in the FATCA Compliance Roadmap,” according to the report.

Some banks are anecdotally reporting that examiners and authorities are asking about FATCA compliance through direct and correspondent relationships, a preview of potential enforcement to come, (via T&T NewsDay).

Monroe’s Musings:

This tracks with comments made by top IRS Criminal Investigation officials I heard at a conference a few weeks ago. They noted that after many years of preparation, agreements and data gathering – and while not mentioned, cognizant of several U.S. watchdogs criticizing enforcement efforts thus far – review and enforcement are at hand. 

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