In the money laundering process, criminals go to extremes to cover their tracks and maximise their harvest takeaway whilst remaining undetectable. Criminals utilise complicated ownership structures and various evasion tactics to achieve this. One of the most effective methods for this is via tax havens.
Tax havens by definition, offer a lower or null tax liability compared to the country of origin, which is highly desirable for anyone dealing with large sums of money – this can range from established criminals or criminal groups, to completely legitimate businesses or individuals. A great example of this in the real world is through Malta, located in the Mediterranean Sea south of Italy with a population of roughly 450,000. Malta’s local businesses pay 35% tax on their profits, whereas a foreign corporation paying Maltese taxes would only be taxed 5% on their profits. Dependent on the group or individual’s original jurisdiction’s laws and regulations, this has potential to net these groups or individuals major amounts of money by massively reducing their tax overheads on their (legitimate/cleaned) profits, which can now be reinvested into other proceeds.
These extremely attractive deals offered are typical of tax havens. Tax Haven countries will offer major advantages to foreign businesses in order to support and maintain their economy. This is a key selling point for people who engage in this activity. This is because if the tax haven in question heavily relies on these foreign engagements, this provides a security to people engaging, as it leaves the tax haven with no option but to continue with these activities and sometimes even encourage the dealings (this is dependent upon the level of corruption within the tax haven.)
Another aspect that potential engagers commonly look at is linked to the stability of the powers in control. Ongoing dealings with these typically corrupt jurisdictions are often protected by just this, corruption. Meaning the tax havens simply do not cooperate with authorities which could reveal their “partners’” ownership structures. The reason for this occurring is due to the heavy reliability placed on these “partners” to maintain and support their economies. If new power is appointed, it can be expected that attempts of corruption will arise to ensure no changes are made. This again links to security for the engagers, as if new leaders come into power this can result in new regulations being employed, where these dealings are no longer relevant and can lead to serious consequences if cooperation is reinstated with investigative authorities.
As touched on above, concealment of ownership has an extremely high importance in tax havens that is typically protected by the tax haven itself as a means of a beneficial relationship for both parties. Examples of this concealment can include via shell companies, where a long ownership trial is formed through many-layered companies and transactions or, in some tax havens such as the British Virgin Islands, simply possessing paper documents with no name required determines who the beneficial owner is. Both methods leave limited avenues to explore when investigating who has beneficial ownership, which is very desirable as a means to avoid any repercussions from law enforcement.
To prevent and avoid these activities it is essential to employ a high level of due diligence at a KYC (Know Your Customer) level. A good KYC program will provide a high level of understanding and detail of every customer. By doing so this will establish a comprehensive profile that will be built as a result and allow for transparency of a multitude of aspects relating to each customer.
For assistance in understanding your customers and their activities. For more information, please contact us.
