Brigitte Unger TNI 2007 1
Money Laundering, Tax Evasion, Capital Flight, Tax Havens,
the Rule based and the Risk Based Approach:
Keep it Simple
by Brigitte Unger
Paper prepared for the TNI Seminar on Money Laundering, Tax Evasion and Financial Regulation,
12th and 13th June 2007, Amsterdam, organized by Tom Blickman
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Overview: From the old to the new AML regime in Europe
1. Assessment of money laundering and tax policy
a. Reporting, blacklisting, endangered groups, compliance to FATF recommendations, crime and proceeds,
b. tax evasion c. tax havens
d. Assessment and the change from the rule based to the risk based approach
2. Conceptual confusion about money laundering and tax evasion
3. Differen interpretations of actors to fill the gap
4. Possible solutions
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Amazon.com
110$ new
222$ second hand
CAIMAN.com
Amazon.co.uk
59,9 £ new
137 £ second hand
Amazon.de
92 € new
194 € second hand
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Total numbers of unusual and suspicious transactions in the Netherlands in 2005
Unusual Suspicous
Money Transfer Offices 130.992 29573
Traditional Reporters (Banks, Money Change Offices, Casino's, Credit Card Companies) 36.165 7511
of which Banks 28700 4036
Traders with goods of high value 3.767 1086
Government (custom, tax authorities, supervising authority) 472 185
Free professions (lawyers, real estate agents..) 227 126
Total 181.623 38.481
1. a. Assessment of AML through reporting
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1. b. Blacklisting
IMF list 1999
OECD Tax Havens 2000
FATF
2001
FATF 2002
FATF 2005
FATF 2006
72
US, CH
EU-15:
Lux
A, Ire,NL, UK
37
Lux
23
Hungary
Russia Ukraine
10
Only European country:
Ukraine
3 Nigeria
Myanmar Nauru
0
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1.c. Assessment through compliance
Source: Arnone and Paoan (2006)
53
77 92
62,5 61,556 64
0
20
40
60
80
100
Percentage of Compliance to AML/CFT Recommendations
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1.d. Another way of measuring complianceFerwerda and Bosma 2006
51,5
82 7987 86,5
72,56464,5
80
6655
78,5
0
20
40
60
80
100
Percentage of Compliance Based on Assessors' Recommended Action
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1.e. Index of Attractiveness
02468
101214
Most Attractive European Countries for Launderers
top 13 mentioned in both Walker 1995 and Unger 2007
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1.e.Assessment of tax evasion
Tax fraud and Financial Fraud Discovered
The Netherlands 2003
698 million Euros
FIOD-ECD 2003
Fiscal fraud, tax evasion
The Netherlands 2003
20-70 billion Euros or
6%-15% of GDP
CBS, de Kam 2004
Value Added Tax Fraud
EU wide 10-15% of VAT tax revenues
EU Memo 2006
Tax Fraud EU wide 2 to 2.5% of GDP 200-250 billion Euros
EU Memo 2006
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1.f.Assessment of tax havens
Number of double tax treaties (greater leverage effect)
NL: 80-100, Belgium has 66, Denmark has 78 and the UK has 110.
withholding tax on dividends, royalties and interest
Tax exemptions
Effective corporate tax and income tax rates
Micro and macro calculations
Problem of effective tax rates:
Netherlands statutory corporate tax from 34% to 31% planned to go down to 25%
Netherlands effective corporate tax rage:
1,7 % (SOMO) – 7% (Sinn) – 20% (de Mooij) – 30% (Report Dutch Min.F.)
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Special Purpose Entities gross transactions in billion Euro
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Assessment problems will increase when switching from a rule based to a risk based approach
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Type of Crime
US
Penal Code
Germany
Austria Switzer
land
Nether
lands
Tax evasion
x if US taxes on crime
if from mix criminal non criminal
Only business and criminal org.
no no no, misdemeanor,only if fraud
Fraud x Only business and criminal org.
Only business and criminal org
x x
2. Conceptual Confusion
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2. Conceptual Confusion
1. With regard to money laundering and tax evasion
2. Third EU AML Directive effort to harmonize ML definition. But not for tax evasion
‘national souvereignty’
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3. Different interpretations to fill the gap
Naylor: don’t question the background of the money. More difficulties to assess AML due to risk based approach is accompanied by simplification trends in implementation and enforcement. More freedom, more efficiency but more arbitrariness and less fairnessIncreased role of the courts instead of politicsVan Waarden’s lawyocracy Eventually risk based approach will become again a rule based approach
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4. Possible solutions• Should tax evasion be part of money laundering
or of corruption?• Keep it simple: A Tobin tax instead • For Europe EU law is stronger than UN
Convention(enforcement by Commission, Council, Court)
• UN Convention: problem of finding enough support by member countries
New Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism of 2005 signed by 27 countries, ratified so far only by Romania and Albania.
• Soft law as a first step?
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Prof. Dr. Brigitte UngerUtrecht School of EconomicsJanskerkhof 123512BL UtrechtThe Netherlands+31-(0)[email protected]
THANK YOU !