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Cracking down on the professionals who enable financial crimes

Regulatory and professional bodies should play their part.
Companies, trusts and other business structures provide a veil of legitimacy and can be used for nefarious activities. Image: Shutterstock

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 (February 25) 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.

Expertise and opportunities

Leaks such as the Panama and Paradise Papers, and exposés such as the Namibian ‘fishrot’ scandal, have highlighted the essential roles played by the professional enablers, without whom these tax and financial 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. 

Tax avoidance versus tax evasion

The report only focuses on tax and financial crimes.

Tax avoidance, though very tax aggressive, can be dealt with under the laws already in existence. For example, South Africa has transfer pricing legislation, tax avoidance legislation, and mandatory early disclosure of tax schemes, has entered into many bilateral agreements for the exchange of information, and is a signatory to the common reporting standard and the OECD/G20 Inclusive Framework on base erosion and profit shifting (Beps).

Professional enablers and their tools

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.

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. Frequently these structures span multiple jurisdictions. Interposing a partnership or a trust in an international chain of ownership makes it almost impossible to identify the ultimate beneficiaries, or owner of the ‘illicit’ assets.

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 crime in other jurisdictions, and working in cahoots with counterpart service providers in other jurisdictions.

Examples of criminal activities are outlined below.

Offshore structure targeted in a sting operation

US undercover agents contacted an offshore boutique investment company to invest “sensitive” money arising from a bank fraud scheme. The investment advisors introduced the undercover agents to an offshore foundation that facilitated the acceptance of the illicit funds from the scheme. It was a successful sting, and resulted in arrests.

Offshore pre-paid bank cards

An offshore service provider was “observed” providing package services to its clients, which included anonymous offshore-prepaid cards (from offshore bank accounts).

Such bank account accounts would normally be held by anonymous companies (shell companies) located in another jurisdiction. The client would have a power of attorney over the bank account, and nothing would link the client to the company.

Communication was via encrypted email. Various methods were used to top up the pre-paid cards. “The offshore service provider held bank accounts with several different banks, which were frequently changed to avoid detection by law enforcement authorities.”

Enabling financial crime through crypto assets

The crypto assets referred to in this report are virtual assets (such as Bitcoin, Ethereum and Litecoin) that are convertible to fiat currencies like the US dollar or the euro. “However, the role of professional enablers in crypto-asset-enabled financial criminality is not currently well documented and continues to evolve.”

Crypto asset traders who exchange crypto face-to-face for fiat currency are potentially professional enablers facilitating money laundering.

Stolen crypto assets must first be laundered before they can be withdrawn from the system; in other words, converted to other crypto assets or fiat currency. Professional enablers can also “facilitate the laundering of proceeds of crime through the use of a crypto-asset mixing service”. 

Disrupting the professional 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 in regard to 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 or suspend and remove the right to practice as, for example, a chartered accountant.

“Most countries reported having some form of disqualification process for directors of companies suspected of enabling crime.”

Corruption in South Africa 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.

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COMMENTS   9

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So all our banks can be expected to appear in court very soon to explain FICA and KYC to us mere mortals who have to constantly send ID’s and etc etc ?

Had to send ID’s, proof of residential address and fancy lengthy form 3 times. Also endless phone calls to one dept after the other and e mail to personal banker. Still no confirmation of receipt despite us insisting on this. No KYC at all !

It does not work.
The professionals take the money and live rich ever after, nothing happens to them.

Just talk talk, look a Mr. Zuma, he was and is still the best professional.
He even tells the courts that he won’t attend.

This is all fine and dandy, but what still bothers me is the question: who are the instigators of financial crime? Is it the professional, or (as I suspect) is it the champions of industry and political elite (lets call them the wealthy)? It should make no difference to the law, because the enabler should be as guilty as the instigator, but to me it seems the professionals are targeted. What has happened to the many individuals who were named in the Panama scandal? Absolutely nothing. We have names, we have amounts and in most cases we know how it was done. As far as I know not a single Messi or King of Saudi was charged. The guys who ran the Panama scheme though, they are in jail. It is unbelievable that we allow the wealthy to get away with their deeds, handing them impunity on a platter, but at the same time we doggedly hunt the suckers who enabled them. There is something really messed up in our world when only some are held accountable.

I would be happy to add my comments when Marcus Jooste and co are serving actual jail time. Until then it sounds like more talking.

Ditto

I’ll add mine after yours once the Zondo Commission starts acting and talking less..

Soon this charade will cost us the tax payer a billion Rand

This smells like another clever way of siphoning funds, and who knows, perhaps Zuma is in on it?

Drag it out for as long as possible and Government will fund it like they do all the useless bankrupt State Run Enterprises

Since enough money brings power, which includes the ability to harness and contral political power, then the term ‘professional’ relates to the servile class. Power over media enables the control of the narrative and the dialogue and the creation of diversions and obfuscation. Corporate and industrial power has traditional sought and enjoyed fascist relationships with political chums. The judiciary is also a member of the servile class, important but nontheless easily corrupted by political and money power.
So enjoy beating up on the servile class but try to make sure you don’t upset their masters. Of course, if you think you can compete with the established upper level dynasties of power and control involved then all you need is a fleet of modern battlestar gallacticas to take on their nuclear capabilities. Then you might make a dent.

corporates involved big time from your IT company to big street law firm..dont be fooled the biggest tax haven is in the USA

I have little faith in the South African criminal justice system.

When you look at the extent to which KPMG as an auditing firm has been involved in theft and corruption and yet nobody has gone to jail, you realise that money talks under the table.

Their excuse now is that the blame lies with their consulting division and are now spinning it off.

Now, I understand that as a business, KPMG will do anything to survive, and they would not be the only large corporate involved in corruption. SAP and McKinsey come to mind as well. I’m sure that there are several others.

But when I look back at the Enron and Worldcom scandals and how Arthur Andersen was killed off for being complicit, I wonder how KPMG still exists.

Consider that KPMG has been complicit in national corruption. Arthur Andersen was just involved in a company.

Interestingly, KPMG were auditors for Worldcom as well which was the biggest accounting fraud in US history at $3.8 billion. This still pales in comparison to the ongoing extensive corruption in various SOEs in SA.

Bell Pottinger was involved in enabling destructive political narratives in SA and were destroyed.

Why does KPMG still exist?

End of comments.

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