Money Laundering and Tax Evasion

Blog / Money Laundering and Tax Evasion

What is Tax Evasion?

Tax evasion is the deliberate failure of a person or corporation to pay its tax liability. This is an illegal activity. Those caught dealing with tax evasion are often subject to criminal charges. Failure to pay taxes on purpose is a federal offense under the IRS tax code.

Tax evasion, no payment, or underpayment may occur. Tax evasion is determined by the IRS at the institution, regardless of tax forms. To determine tax evasion, the official must prove that the taxpayer has not intentionally paid.

What is the Difference Between Tax Evasion and Tax Avoidance

Tax evasion and tax avoidance are different things with different definitions and consequences. Tax avoidance is simply the use of legal methods to reduce taxable income or tax owed. Tax avoidance is minimizing taxes, but tax evasion is not paying taxes. Tax evasion is an illegal activity, and tax avoidance is legal. Tax evasion is done after the tax liability, but tax avoidance is done before the tax liability.

Recent History of Tax Evasion

There has been a lot of development in tax evasion laws in recent years. After September 11, governments worldwide began to undermine the financial side of organized crime and terrorism severely. Especially in laundering money from criminal activities. After the United States' financial crisis in 2007 and Europe in 2010, there has been a greater level of political scrutiny aimed at tax evasion schemes and aggressive tax evasion. This not only resulted in many illegal acts of justice, such as the release of the Panama documents and the Paradise documents. Besides, many laws have been enacted. Recently, regulations regarding tax evasion and money laundering have become interlinked.

Money Laundering and Tax Evasion

Taxes are significant to ensure social equality. Payment of taxes is essential when it comes to the order of public services and social justice issues in the country. Failure to comply with tax obligations is a revolt against basic principles such as equality and democracy. Tax evasion, tax avoidance, or money laundering issues on obliged institutions are not implemented thoughtfully. Moreover, cooperation between law enforcement and anti-money institutions is not fruitful. This leads to a vulnerability in the system.

Money laundering is the best example of avoiding taxes by hiding the origin and quantity of income. Money laundering is an attempt to disguise illegal income from organized crime as legitimate income or to erase evidence of income altogether. Money laundering channels function as communication tools through which money can flow from one area to another, and therefore only a holistic approach to combating money laundering can be practical. Money laundering is a criminal offense aiming to legitimately present some of the wealth illegally acquired or concealed from the scope of tax and other authorities by using methods that hide the final beneficiary's identity. The money laundering process can occur in various ways, such as complex, intertwined privacy judgments and/or clever use of a network of tax havens, manipulating the concept of legal entities, and legal regulations to make upfront companies.

Tax evasion is facilitated by land and sea tax havens and judicial privacy authorities in non-EU countries.

European Authorities recommend the following in preventing tax evasion;

  • Confidentiality is a critical element in money laundering and tax evasion. In the future, this problem can be avoided with laws that guarantee transparency and international coordination.
  • More transparency obligations can be created. Many information needs to be disclosed, including public registries of beneficiaries, public country reports, public reporting on tax rules, and registries of assets.
  • There is no problem in applying the rules that already exist. If the European legislation is fully implemented, many problems currently encountered will disappear.
  • Empower institutions for law enforcement and prosecution. We must ensure that the records in which the information is stored are linked together, encouraging more cross-border work opportunities. Also, we must abolish laws that prevent further cooperation.
  • Taxes must be paid where profits are created. Currently, corporations can send profits earned in one country to their subsidiary in another country with lower taxes.
  • Public administrations should be prohibited from purchasing services from companies that have offices registered in tax havens. Ethical businesses should be rewarded to ensure transparency in public procurement.

How Does Sanction Scanner Help?

As Sanction Scanner, it fights anti-money laundering crimes caused by tax evasion. With our AML solutions, organizations can perform AML compliance processes determined by regulators.

Companies can easily integrate our software to provide strong API support to their systems and start using it. You can scan your customers with real-time data with the Sanction and PEP lists updated every 15 minutes. With AML Transaction Monitoring software, you can instantly check your customers' transactions. You can create your own company rules, or you can use ready-made rules in the system. Complying with regulations has never been easier! Contact us now, listen to our solutions first hand.

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