Money Laundering Awareness … and the Tax Examiner

‘It’s easy to miss something you’re not looking for’ Recognition of front line role Tax Examiners and Auditors have in detecting money laundering Awareness to detect ‘invisible’: - Relevant fiscal facts; - Possible criminal activities; - Money laundering methods;Critical thinking - Asset realisation. 1:50 Awareness

What somebody sees depends on their knowledge and experience... Elements of your role will already give you a good base to start spotting potential money laundering Linking potential criminality, including tax crimes, with opportunities for money laundering Rudyard Kipling (British writer and poet) – Six Honest Serving Men: What, Why, When, How, Where and Who! Awareness

Entrepreneur Chinese restaurant Loan: interest / instalments ‘ Family in China ’ What they tell you …. … Flexing that critical mindset... But what they don ’ t tell you … suppressed sales use of illegal workforce flow of criminal money Awareness

However limitations exist: Authority to investigate. Need that hook to start delving deeper Having access to all the relevant details Legal frameworks both for investigation and potential prosecution Awareness

offence proceeds placement layering justification spending xtc production pounds farmhouse exchange sale shop deposits Time Country transport NetherlandsGreat Britain NetherlandsLuxembourg Antill. NV loan car But what you can see mortgagelease What you don ’ t see... xtc production IItransport … is unusual ! Awareness & tax administration Low / regular income

The Role of the Tax Examiner Table discussion

Awareness … Key money laundering indicators

Unusual / Suspicious transactions - characteristics: Origin of the funds,Identity of the parties involved, Transaction does not fit background / income, No economical or logical explanation Can then use these characteristics to determine specific indicators: ML indicators, tax return & pre-audit indicators, audit indicators, specific indicators for: cash, property, international trade, loans, professional service providers Spotting those key indicators...

Unusual income – evaluate theoretical cost of leaving against appeared cost of living – anamolies Unusual rise in net worth – suspicious explanations such as inheritance or winnings Unusual possession or use of assets – overseas assets, high net worth assets Unusual debts – high value mortgage vs. low income, loans from unidentified third parties Unusual transactions – elements of above factors ML indicators

Example: Individuals

Unusual off-balance items – non-transparent ownership, suspicious international structuring, use of foreign company service providers Unusual balance sheet items – excessively large cash holdings or other high value capital assets Unusual profit and loss items – high rise in turnover/sales, high rise in profit margins, anything suspicious about industry outside of norm Tax & pre-audit indicators

Example: Tax Return Examination and Pre-Audit

Unusual transactions and parties – lack of business knowledge, lack of supporting documentation, lack of any / robust KYC Unusual money flows – involvement of unrelated third parties, inappriopriate use of company bank account, engagement with offshore structures Unusual turnover/sales – increase in cash turnover, lack of relevant supporting documentation, abuse of invoicing and other sales apparatus Audit indicators

Audit Trail

Example: Audit

Property – financing methods, purchasing methods, ownership transparency, offshore corporations Cash – origin of cash, spending patterns, loans (individual and corporate), non-registered deposits International (TBML) – under or over invoicing / valuing for imports or exports, false declarations / descriptions, supplier/buyer, logistics used Loans – ‘friendly’ loan back arrangements, unrealistic repayment or interest terms, third party trust accounts Specific indicators

Example: Cash

Example: Property

Example: International Trade

Example: Loans

Professional service providers – sometimes known as professional enablers: legal, accountancy, TCSPs Service provided – realistic? Appropriate? Payment details – Cash? Suspicious invoicing? How payment was made? Professional enabler – Asset base? Location? Customer base? Attitude to KYC / KYB Specific indicators(2)

Example: Professional Service Providers