Corruption, Tax Evasion, and Money Laundering: The Overlapping Threats

It has come to light that corruption, tax evasion, and money laundering are interconnected threats that pose a significant risk to the financial system. While traditionally, the focus of the Financial Action Task Force (FATF) recommendations has been on combating money laundering and terrorist financing, they also include specific measures that recognize corruption risks.

Tax Evasion: A Growing Concern

Tax evasion is a serious offense where individuals intentionally avoid paying their true tax liability through illegal or fraudulent means. This often involves the same routes and players as money laundering, making it challenging to detect and prevent. The mechanisms by which tax evasion operates can include:

• Mechanisms of anonymity consistent with those used by traditional organized crime
• Other forms of financial misconduct

Reporting Institutions: Key Players in Combating Corruption

Reporting institutions play a crucial role in combating corruption, tax evasion, and money laundering. These organizations are required to take action to mitigate the risks posed by:

• Politically Exposed Persons (PEPs)
• High-risk customers

In addition, they must implement internal policies, procedures, and controls to detect financial misconduct and manage the risk of it occurring.

Compliance and Risk Assessments: A Must for Reporting Institutions

Reporting institutions are required to have a compliance program in place that includes:

• Internal policies, procedures, and controls to detect financial misconduct
• Adequate and effective internal controls to manage risk

The Money Laundering Reporting Officer (MLRO) is responsible for managing the compliance program.

Regular Review and Testing: Ensuring Compliance

Under section 15 of the Act, reporting institutions are required to review and test their compliance program on a periodic basis to ensure it remains up-to-date, identify any deficiencies, and make changes to address them. This should be done:

• Every two years or more frequently if circumstances change
• Undertaken by a person with experience in anti-money laundering or countering the financing of terrorism

Conclusion

In light of these findings, it is clear that corruption, tax evasion, and money laundering are interconnected threats that require a coordinated approach to combat. Reporting institutions have a critical role to play in combating these threats and must ensure they comply with their obligations under the Act and Regulations.