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Sars’s role in combatting tax evasion and money laundering

The tax agency should be cracking down on financial crimes more robustly.

The South African Revenue Service should be playing a leading role in the war against financial crimes. It may be unfair to bring up the recent past, but how solid is Sars’s stance now?

Financial crimes include tax evasion, tax fraud, money laundering, drug trafficking, human trafficking, theft, investment fraud, extortion, corruption, embezzlement, and terrorist financing. These crimes cost the economy and the fiscus dearly, and pose a threat to national security.

These crimes can often be detected by identifying the money, and then retracing the steps to the origin. And of course acting on the information and taking it further.

The identification of a sophisticated financial crime is generally reliant on a whistleblower or specialised skills and/or tools. Challenging the crime requires a further set of skills, including legal knowledge. Not all schemes are similar, and the investigator is required to trace all the steps and follow the money in order to draw up a watertight case. A financial crime matter may necessitate professional witnesses, the requisite evidence, and expert legal counsel to take the matter to court.

Any risk engine is dependent on what it requests, what is fed into it and, of course, its timeline (the fiscal year).

Sars should also be sharing knowledge of the types of financial crimes it has detected with other crime-fighting units, as well as engaging in cross-governmental co-operation under its various exchange of information agreements.

Tax auditors are privy to very confidential information, and are in the position where they can compare the tax records against the financial information. They have extensive powers to access information. It is easier to pick up anomalies in the financial affairs of a company or individual when you also have sight of the tax records.

Tax auditors need to be able to distinguish between tax avoidance, tax evasion, illicit financial flows, and criminal activities.

Different skill sets are required to detect these different categories of crimes.

Money laundering

Sophisticated criminals don’t rely on storing cash in garbage bags, and will find a way to convert the criminal proceeds into assets such as vehicles, yachts, virtual assets and Krugerrands.

Cash can be used to pay certain businesses that deal in large sums of cash. A contractor that pays its labourers this way, for example, can in turn be paid partly in cash for building/enhancing a home.

Is there is a greater risk of ‘bartering’ transactions between individuals (for example, the estate agent and the seller of a house)? Commissions can be paid in Krugerrands, stored in a safe, and used to pay someone else.

Cryptocurrencies are ideal for paying bonuses

If it is not possible to recycle large amounts of cash, the criminal will have to feed the cash into the financial system.

Feeding large amounts of cash into an ATM will create a trail and should trigger an alert, but feeding cash into a loss-making business won’t.

Has Sars ever targeted commission earners? Checked the income filed against a lifestyle audit (which would include expensive clothes, apparel, overseas holidays and children at private schools)?

Has Sars ever targeted ATM withdrawals? Checked large cash withdrawals against the origin of the cash? Checked whether the cash is withdrawn by ‘residents’ and not tourists? Yes, there are ways to do this, and Sars should have the means to do it.

Unusual transactions/anomalies that Sars should detect

Below are examples of transactions that should trigger an investigation:

  • Many unusual transactions or anomalies between supposed income earned and lifestyle can be identified through lifestyle audits, and being alert (spotting that expensive car with no registration plate, extensive home improvements).
  • An unexplained increase in income and assets (renovating a house using cash).
  • Unexplained inheritance.
  • A person with low income owning an expensive asset.
  • A person living beyond their means.
  • Obtaining a loan from unidentified parties.

Not that easy to detect – but does Sars have a plan?

Can Sars detect the following?

  • Use of cryptocurrencies to hide income and pay for services/assets.
  • Funnel accounts, where illegal funds are deposited at one geographic location, and can be withdrawn from another. The drawer will have power of attorney over the bank account as the bank account will not be in their name.
  • Offshore bank accounts that are held by foreign legal entities (such as a blind or charitable trust), which conceal the beneficial owner.
  • Professional enablers and intermediaries, who can play a significant role.

The Organisation for Economic Cooperation and Development recently published a guide titled Money Laundering and Terrorist Financing Awareness Handbook for Tax Examiners and Tax Auditors, with the purpose of raising the awareness level of tax auditors in regard to money laundering and terrorist financing.

This handbook clearly sets out how tax authorities can contribute in the fight against serious crimes.

It is freely available, and in our present climate of fiscal and economic crime, we more than ever expect Sars to step up to the plate.

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A question: SARS gets information once a year about investments of bank clients – Nedbank, Standard, FNB and Absa – for tax purposes. What happens with clients with Gold Save accounts of millions at TymeBank?

For what possible reason would they be exempt? Because they are online?

Because I know of one such client who gets NO paper trail from TymeBank for his lucrative GoldSave. Without that paper trail, he is NOT ABLE to provide his Metro (CT local government) with proof of this investment (unlike Bankhis other two investments) when he completes his application for (wait for it..) an INDIGENT property tax rate. He therefore qualifies for the lower (subsidised) rate.
The city’s application form has not (yet) been changed to ask about investments in digital banks like TymeBank. So I just wondered how this effects income tax – the taxpayer also can’t provide SARS with any paper trail about their investments in digital-only banks. Maybe these banks send the info directly to SARS, but then they need a tax number which TymeBank does not ask for when one signs up.

Barbara, when you ask all these questions I think someone at SARS is probably saying:”Mam can you please give me protection from yourself?”…

Funny how the Gupta’s got all the money out anyway. They just bribe officials.

In the absence of a functioning NPA SARS should just do their work and stop trying to do the cop’s work.

Without a functioning NPA it’s just a waste of time.

Talking about cash into ATMs, the second In charge at SARS itself was filmed doing it. What happened to him? There are rules for the connected that are different from the rules for the rest of us.

SARS can also do a better job of recovering donations tax. For example, if Cyril’s Nasrec campaign cost half a billion, that’s an easy R100 million right there.

Will they? I doubt it. We will much more likely see an increase in personal taxes to fund looting, grandiose schemes and subsidised state employment.

What about income tax on the amounts received to swing the vote = for services rendered or to be rendered = gross income = taxable income (gross income definition para (c)). Another couple of R 100 million there.

There is huge scope for investigation. How did Duduzani get so rich so quickly and was all tax paid? He would be a prime candidate for a lifestyle audit. His siblings as well.

Barabara Curson, I agree with you, but one item mentioned make us ALL a suspect to trigger an investigation:

“A person living beyond their means.”

Question to these tax ‘experts’
1. If you donate millions to a political party, must you declare that and pay taxes over a certain amount?
2. If you receive bulk amounts of cash in bribes, should this not be declared and pay tax?
3. If you answered yes to any of these, how many “cadres” = useless apparachniks have you prosecuted and jailed?

I will answer on their behalf:

1. Yes, it is the right thing to do.
2. Depends. Some types of income is non-taxable. Most cadres also call these bribes loans, people like Vincent Smith and Jacob Zuma. So no tax.
3. Zero

Sadly one of the biggest organised financial crime rings is SARS itself.

Apart from the theft of statemoney for frivolous “rogue unites” and “Spy vs Spy” internal faction games, SARS has implemented (going back to Pravin Gordhan as Commissioner days) a policy of “ANConnected so Protected”, allowing the cadres and nomenklatura to get away with trillions (e.g. the Gupta, Zuma, Ramaphosa and Mabuza families and their trusts and families — with Malema on this list of shame until he was forced into the “cold outside the ANC”).

The best antidote to money-laundering, fraud, tax evasion, forex contraventions and other financial crimes is a culture of honesty (prevention rather than detection). Alas, as more and more insight into the CR2017 campaign seep out, coupled with Ramaphosa’s evasions of accountability in Parliament, we are far from this.

The irony is that it is the poor, whose “dirty votes” keep the ANC in the plunderseats, who suffer the most.

SARS ignores its own rulings and the Income Tax, Tax Administration, Promotion of Administrative Justice Acts and tramples on the “Batho Pele” principles in its efforts to over-collect what is “due to Caesar”. Apart from outright illegality, it puts all manner of bureaucratic obstacles in the path of people trying to create wealth and jobs. At best, it sorely lacks the skills Ms Curson assumes it to have. Under the new Commissioner, little has changed, except for more eye-candy on its eFiling website.

Decades ago the Receiver of Revenue applied intelligence when auditing taxpayers. I remember the case of a “winner of the year” of Roodepoort’s Chamber of Commerce who was audited and found to have under-declared income, the prize and the tax history did not go hand in hand.

Then the case of an advert in the local rag showing a Merc being delivered to a happy client … who was audited by the RoR. When this taxpayer went with the documentation required to the local tax office, she was shocked to find a newspaper clipping on her file.

Then the experience of the tax auditor who could not reconcile the profit of a fast food joint with the volume of feet in and out he witnessed over a period of a day. He sat in his car and “clicked” the number of packages moving out … this auditor had quite a reputation in town.

Unfortunately today with electronic filing of tax returns this ability to spot anomalies is gone and will require a different set of auditing skills. SARS uses intimidation to achieve compliance and it is not working.

Oh please, I know of two businesses in my area that have not been Vat registered for over 10 years, they even charge their customers “Vat” and pocket the money, which is blatant theft and tax evasion. And here this article talks of sophisticated criminals pulling the wool over SARSs eyes to avoid paying tax and here sits two businesses in the wide open stealing money from the government in broad daylight for the last decade.

SARS goes mostly after the large corporates because they have to be tax compliant. Many businesses are registered for VAT, but do not pay it over. They too seem to be exempt like your examples.

It’s one thing to be registered and not pay it over, it’s a whole new thing to not be registered and still charge vat and just pocket the money. There is zero accountability in this country.

@Tyran….and, your point being ???

“Stealing money from government”

Mmm, as the famous saying goes:

Dont steal…the government hates competition !

To be honest, would you rather have a business employing ppl,servicing the community,and functioning as a whole in your neighbourhood…or,

Empty buildings being invaded by squatters/increased crime/unemployment etc instead, because businesses cant survive anymore due to the UNTOLD stupidity of government and their slow suffocation of society as a whole via an increasing plethora of laws/regulations and punishing taxes which go straight into the ruling powers pockets

??????????????

Tyran what is keeping you from doing any of the following?
You can report a suspected non-compliance activity by:
1)Calling the SARS Contact Centre on 0800 00 7277; or
2)Visiting your nearest SARS branch; or
3) Accessing the RSN01 form from the SARS website, completing it and submitting it to SARS.You have the option to remain anonymous when making the report. Just log on to the SARS website http://www.sars.gov.za
Click on:

Click on

Oh,an article about that bullying entity known as SARS ?

Right, so the article goes on about so called ‘tax evasion’ by businesses/individuals, who, lets face it:

a] Are most likely struggling to stay afloat as it is, given the current dismal state of the economy

b] At least are taking care of themselves and their families

c] No burden on society

Simplistic analogy, but generally speaking do you think we really care if someone pays their plumber in cash and he doesnt pay tax ?

Yet the likes of Zuma….Gupta’s….any members of Govt…..cadre’s….BEE and their nepotistic backhanders etc etc who are nothing but parasitic by nature:

a] Do not CREATE business, but DESTROY it
b] Are in fact a BURDEN on society
c] And evade taxes even more so……,

Can still after all these decades steal/plunder and LOOT literally BILLIONS and go unpunished

Huh ?

????

While the little guy on the street slowly suffocates under increasing tariffs/regulations and gets burdened by yet more and more punishing taxes introduced almost on a monthly basis now !?

In fact, I would go so far as to say that there is a fundamental shift coming in society, where ‘tax evasion’ will be regarded as heroic

As depriving these looting politicians of our hard earned money will be seen as ‘the right thing to do’

Amen.

Hi, this can only work if people are vetted correctly and specialized skills people are employed. Political involvement must be removed. More functions added to Tax Practitioners efiling. Give them more assistance rather than passing the buck everytime. A specialized unit must be setup for this, who has knowledge of fraud and the various schemes. Get the right people involved. The main thing is have uncorruptable people in this task force and say to the public nobody is above the law. Make these thieves and state capture people pay. Employ only the best advocates who have the brass b to see through each case. That is the only way. They report to the commissioner, but no specifics until the cases go to court. Like the have a customs unit the need a unit to pounce on these bad guys.

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