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Tightening OECD requirements in the fight against tax and financial crimes. Bringing professional assistants to justice

At the end of February, the OECD published a Report on the fight against individuals involved in tax crimes, named «Ending the Shell Game: Cracking down on the Professionals who enable Tax and White-Collar Crimes». These persons can be lawyers, accountants, financial institutions, trustees and other professionals who provide assistance in development of legal and financial structures related to tax evasion and financial crimes.

This Report aims to support countries and their law enforcement bodies in combating actions of lawyers, tax consultants, notaries, financial institutions and others intermediaries seeking to facilitate the commission of offences on the part of their clients.

In this document, such persons are referred to as «professional enablers» — professional assistants, who make it easier for taxpayers to cheat government authorities, especially tax authorities, and evade tax obligations, for example, by offering opaque structures and schemes to hide the identity of those behind illegal structures and schemes.

This Report describes actions that can be taken by States in order to solve the problem with professional assistants in five key areas:

  1. Understanding the role of professional assistants
  2. Methods for identifying professional assistants
  3. Regulatory framework that hinders the work of professional assistants
  4. Strategies to contain professional assistants
  5. Domestic and international multilateral efforts to attract professional assistants

Professional assistant is usually a natural or legal person, with professional experience to perform special services for the provision of assisting a client in committing a tax offense or other financial crimes. The group of such persons may include: tax specialists, lawyers and legal advisers, accountants, financial advisors, banks and financial institutions, agents company registration, registered agents, notaries, commercial trustees, trust and corporate service providers and other participants in evasion schemes payment of taxes.

General characteristics are presented below

  • Professional qualifications or training
  • Expertise in tax, legal or financial processes
  • Experience in creating tax structures or structures with cross-border elements
  • Experience in creating non-transparent structures to avoid investigations and audits clients from tax and other services

Difference between legal assistance (counseling) and crime facilitation is the nature of the service and whether its service leads to illegal activities client.

Examples of services provided

  • Concealment of income and / or source of profit for the purpose of tax evasion
  • Concealment of beneficial ownership of assets, often through complex legal structures involving multiple jurisdictions, in order to avoid thorough investigation
  • Advising on tax evasion using falsified transactions, documents
  • The creation of companies, trusts and other business structures that create the appearance of legitimacy and provide an opportunity to hide the identity of the beneficial owner
  • Assistance in opening shell companies by registering in the name of other legal entities
  • Assistance in opening bank accounts in names that hide ownership, both in national and foreign banks
  • Reliable storage of compromising data
  • Managing or assisting in the investment of unrecorded funds obtained from crime abroad
  • Referral services to other service providers, for example from an offshore jurisdiction in order to create a cross-border structure
  • Support of insolvency, bankruptcy and liquidation with the use of various types of abuse in order to evade inspections, payment of taxes and other debts
  • Facilitating tax fraud using tax waiver agreements through tax optimization, known as dividend stripping or cum-cum, which involves transferring shares to a foreign entity to avoid paying dividend tax and then reselling them to the original owner
  • Facilitating financial crime with crypto assets

Sample indicators to use in identifying the involvement of a professional assistant

  • Company was not found in the declared premises
  • Addresses of organizations or directors that are not tracked
  • Several shell companies with one address
  • Several companies with common directors
  • Address of the company with a mailbox related to illegal activities
  • Professionals with a high turnover of activities related to the liquidation of small companies
  • Professionals promoting tax schemes based on premium or contingent fees, or contractual protections that guarantee coverage of any financial liabilities arising from the implementation of a tax strategy
  • One person is appointed as a director in several companies, which significantly hinders the provision of quality management services
  • Tax intermediaries with a poor track record of tax compliance and filing
  • Persons associated with known professional assistants
  • Persons associated with known tax evasion structures
  • Persons associated with other persons with knowledge of offshore structures that hide beneficial ownership

Proposed Sanctions for Professional Assistants

Professional assistants are a special type of secondary offenders, whose activities can be defined as a criminal offense because it is defined as aiding, abetting, aiding or abetting the commission of a tax offense. In addition to the imposition of criminal sanctions, fines, injunctions, deprivation of the right of lawyer status through professional supervisory and regulatory bodies can be provided.

Preliminary conclusions on possible consequences

  1. Professional intermediaries in the field of registration and administration of companies during the coming year will begin to restructure their activities as follows:
    1. The director will be really involved in the process of the company’s activities, as far as possible based on specific activities, which, in turn, it will significantly increase the cost of company administration services.
    2. The use of offshore companies (or, for example, the use of the jurisdiction of Cyprus) in itself has already been not associated, in our opinion, with the optimization of taxation. We think this report will further complicate the interaction between the client and the registrant / director / auditor. Thus, many clients have already faced a lack of dialogue.
  2. It is not clear how banks in the Private Banking sector will react to this report. In general, within the framework of VIP-services, banks (for example, in Switzerland) continue to open and maintain customer accounts formally opened for classic offshore companies (BVI, etc.). In these jurisdictions, the service is provided in such a way that, by definition, it is impossible to create a unique address. It can be expected that nothing will change significantly in this service sector in the medium term, since banks will expect the introduction of appropriate local changes in the legislation of a particular country or of a direct directive from their regulator to tighten compliance procedures.
  3. The report lays down a completely new approach to tax control: the sequence is not started from the taxpayer to the tax offense. An attempt is made to go first from the professional intermediary to his clients. In this sense, it can be expected that professional intermediaries with the following characteristics of activity will be at the highest risk:
    1. The professional intermediary is registered and has a bank account in the EU, which makes it easy to find all the payers of this intermediary, and
    2. The professional intermediary has predominantly clients (receives payments from clients) who are taxpayers in the same EU country in which the professional intermediary is registered (first of all, Cyprus, Latvia, Lithuania, Estonia fall under this criterion).
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