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.