Are Offshore Banking Havens Still A Safe Bet?

Tax evasion is one of the key tenets of our business. The challenge is to establish for our clients how little or how much should have been disclosed to the Revenue during or following a criminal investigation. Much of the forensic accounting work we carry out is establishing a mitigating framework of tax planning that would lead to a sensible level of taxes being paid. Our view is that aggressive tax avoidance runs the risk of inviting association with criminal evasion and money laundering.

When investigating cases involving international money transfers through conventional banks and also Hawala and Other Similar Service Providers, we note how the authorities are very quick to grasp the opportunity to instigate money-laundering proceedings. Jurisdictions with a robust preventative framework such as the UK’s Proceeds of Crime Act and Anti Money Laundering Regulations ensure that the onus is on the taxpayer to prove the legitimate source of any funds.

It is clear why the authorities would rather pursue money laundering allegations than challenge an aggressive tax planning scheme. According to the Public Accounts Committee findings for 2014/15, HMRC have successfully prosecuted only 11 cases of international offshore tax avoidance over a five-year period resulting in total prison sentences of 15 years. Our firm alone has dealt with many more assignments than this where international money laundering indictments have been the focus of attention in matters clearly encompassing tax avoidance. It seems there is a much greater risk of facing criminal sanctions when attempting to shelter money than a dispute over the legality of a tax-planning scheme.

There is no doubt that tax regulation is complex, with statute and regulation in the UK alone running to many tens of thousand pages. The money laundering framework on the other hand, running to hundreds of pages, which transfers the burden of proof to the taxpayer and provides much harsher penalties, seems to be a better avenue for the authorities to pursue.

Many of the allegations of underpaid tax that we investigate involve transfers into typical offshore jurisdictions or movements through financial centres offering some opacity to the authorities in the UK, USA and other areas of initial wealth generation. Our first task is to establish the relative commercial benefits of the financial activity as opposed to any fiscal advantage. This is because the apparent commercial motive is the first line of defence to any challenge made by the HMRC. Understanding this motive is more important than tracing and explaining the precise source or level of taxable income that is being assessed. A scheme that solely reduces tax and provides no other reason for its existence is most likely to fall at the first hurdle.

Our forensic accounting expertise focuses on fraud, and therefore we understand the division between profitable business and crime. This is important when looking at the effectiveness of tax sheltering arrangements where the division can be somewhat blurred. If legislation allows profits to be recognized in a country demanding little or no corporation tax, then any tax advantage scheme moving income away from the source of the underlying business stands a greater chance of success than any arrangement that effectively circulates tax concessions using spurious loans

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About Mark Jenner

Mark Jenner is an experienced forensic accountant specialising in fraud and white collar criminal matters. He provides independent financial investigation and expert accounting witness services to police forces, fraud regulators and criminal defence lawyers, also providing assistance and solutions to organisations embroiled in financial disputes.

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