Tax Evasion and the Law

Sam Bourton is a senior lecturer in law at the University of the West of England and a steering board member of the South West Fraud Forum. Sam’s research interests lie in the law of financial crime, particularly the law relating to fraud, tax evasion, and money laundering. Sam has published her research in several leading law journals, including the Criminal Law Review and Journal of Business Law.

• Acknowledgements xi1 Introduction 11.1 Introduction 11.2 Introducing Tax Evasion 21.3 Tax Evasion in the UK and US 41.4 Tax Evasion in Academic Literature 81.5 Research Aim and Questions 121.6 Methodology and Methods 131.7 Why the UK and US? 161.8 Structure of the Book 182 Combatting Offshore Tax Evasion 192.1 The Importance of International Cooperation in Tax Matters 192.1.1 Introduction 192.1.2 Definitions 212.1.3 Bank Confidentiality 242.1.4 Bank Secrecy 272.1.5 Bank Secrecy Law 272.1.6 Complex Structures, Structural Bank Forms, and Practical Impediments 292.1.7 Secrecy Jurisdictions and Tax Evasion 322.2 Traditional Measures Used to Obtain Evidence and Assistance From Abroad and Their Application in Tax Cases 362.2.1 Introduction 362.2.2 Voluntary Provision of Information 372.2.3 Letters of Request or Letters Rogatory 372.2.4 The Revenue Rule 382.2.5 Civil Matters – The Service of Documents and Taking of Evidence 422.2.5.1 The Hague Conventions 422.2.5.2 European Union Agreements 45vi Contents 2.2.6 Criminal Matters – Extradition and Mutual Legal Assistance 462.2.6.1 Extradition 472.2.6.2 Mutual Legal Assistance 522.2.6.2.1 Bilateral MLATs 522.2.6.2.2 Multilateral MLATs 542.2.6.2.3 Domestic Legislation 572.3 Conclusion 583 International Cooperation in Tax Matters 603.1 Introduction 603.2 The Work of the OECD and the Global Forum 613.2.1 Background – The League of Nations 613.2.2 The OECD Model Double Taxation Convention 623.2.2.1 Exchange of Information 623.2.2.2 Assistance in the Recovery of Tax Claims 663.2.3 OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters 703.2.4 The OECD’s Initiative on Harmful Tax Competition 753.2.5 Tax Information Exchange Agreements 793.2.6 The Impact of the Financial Crisis 823.3 US Domestic Attempts to Obtain Information 863.3.1 The Caribbean Basin Economic Recovery Act 863.3.2 The Qualified Intermediary (QI) Scheme 873.3.3 Foreign Account Tax Compliance Act 893.3.3.1 Introduction 893.3.3.2 Implementing FATCA 913.3.3.3 The Impact of FATCA 943.3.3.4 Is FATCA Effective in Combatting Tax Evasion? 963.3.3.5 Improving FATCA 983.3.3.6 Conclusion 1003.4 The Automatic Exchange of Information 1013.4.1 The Common Reporting Standard 1013.4.1.1 Introduction 1013.4.1.2 The Common Reporting Standard 1023.4.1.3 Implementation of the CRS 1043.4.1.4 Is the CRS Effective in Combatting Tax Evasion? 1053.4.1.5 Improving the CRS 1063.4.1.6 Conclusion 1093.4.2 Risks of the Automatic Exchange of Information 1103.4.3 Implementation in the European Union 1123.5 UK and US Comparison 1163.6 Conclusion 1184 The Anti-Money Laundering Legal Framework and Its Application to Tax Evasion Offences 1194.1 Introduction 1194.2 The Relationship Between Money Laundering and Tax Evasion 1194.3 The International AML Framework 1214.3.1 The United Nations 1214.3.2 The Financial Action Task Force 1224.3.3 The FATF Recommendations 1244.3.4 The European Union 1284.3.5 The OECD 1364.3.6 Conclusion 1374.4 The UK AML Framework 1384.4.1 Introduction 1384.4.2 Money Laundering 1394.4.2.1 Background 1394.4.2.2 The AML Framework 1414.4.3 Tax Evasion as a Predicate Offence 1444.4.3.1 The Primary Money Laundering Offences 1444.4.3.2 The Reporting Obligation 1474.4.4 Recovering the Proceeds of Crime 1504.4.4.1 Confiscation 1504.4.4.2 Civil Recovery 1554.4.4.3 Application to Tax Offences 1574.4.4.4 Taxation of the Proceeds of Crime 1604.4.4.5 Forfeiture 1614.4.4.6 Unexplained Wealth Orders 1644.4.5 Recovering the Proceeds of Tax Crimes 1664.4.6 Beneficial Ownership 1694.4.6.1 Introduction 1694.4.6.2 Companies 1704.4.6.3 Trusts 1734.4.6.4 The UK’s Overseas Territories (OTs) and Crown Dependencies (CDs) 1774.4.6.5 Bank Accounts 1804.4.7 Conclusion 1814.5 The US AML Framework 1814.5.1 Introduction 1814.5.2 Money Laundering 1824.5.2.1 Background 1824.5.2.2 The AML Framework 1854.5.3 Tax Evasion as a Predicate Offence 1904.5.3.1 The Primary Money Laundering Offences 1904.5.3.2 Reporting Obligations 1954.5.4 Forfeiture of the Proceeds of Crime 1994.5.4.1 Introduction 1994.5.4.2 Criminal Forfeiture 2004.5.4.3 Civil Forfeiture 2044.5.4.4 Forfeiture of the Proceeds of Tax Offences 2084.5.4.5 Administrative Forfeiture 2114.5.4.6 Taxation 2124.5.4.7 Unexplained Wealth Orders 2144.5.5 Forfeiture of the Proceeds of Tax Crime 2154.5.6 Beneficial Ownership 2164.5.6.1 Companies 2174.5.6.2 Trusts 2214.5.6.3 US Overseas Territories 2224.5.6.4 Bank Accounts 2234.6 Comparison of the UK and US AML Frameworks 2234.7 Conclusion 2245 Tax Evasion Legislation in the UK and US 2255.1 Introduction 2255.2 The Legal Framework Pertaining to Tax Evasion in the UK 2255.2.1 Introduction 2255.2.2 Tax Evasion Offences 2255.2.2.1 Cheating the Public Revenue 2255.2.2.2 Conspiracy to Defraud 2275.2.2.3 Fraud 2305.2.2.4 False Accounting 2315.2.2.5 Value-Added Tax (VAT) 2335.2.2.6 Evasion of Duty 2355.2.2.7 Income Tax 2375.2.2.8 Strict Liability Offence for Offshore Tax Evaders 2395.2.2.9 Additional Statutory Offences 2425.2.2.10 Dishonesty 2435.2.2.11 Reform 2505.2.3 Corporate Liability 2515.2.3.1 Introduction 2515.2.3.2 The Identification Doctrine 2535.2.3.3 Failure to Prevent 2545.3 The Legal Framework Pertaining to Tax Evasion in the US 2585.3.1 Introduction 2585.3.2 Tax Evasion Offences 2595.3.2.1 26 U.S.C. § 7201 – Attempt to Evade or Defeat Tax 2595.3.2.2 26 U.S.C. § 7206(1) – Fraud and False Statements 2615.3.2.3 26 U.S.C. § 7206(2) Aiding and Assisting Tax Fraud 2635.3.2.4 26 U.S.C. § 7212(a) – Attempting to Interfere With the Administration of Internal Revenue Laws 2655.3.2.5 26 U.S.C. § 7212(b) – Forcible Rescue of Property 2695.3.2.6 26 U.S.C. § 7203 – Four Misdemeanor Offences 2695.3.2.7 26 U.S.C. § 7207 – Fraudulent Returns, Statements, or Other Documents 2705.3.2.8 Willfulness 2715.3.2.9 Related Offences 2745.3.2.10 18 U.S.C. § 1001 False Statements and 18 U.S.C. § 287 False Claims 2745.3.2.11 18 U.S.C. § 2(a)&(b) Aiding and Abetting, and Causing, a Federal Offense 2765.3.2.12 18 U.S.C. § 371 Conspiracy 2785.3.2.13 18 U.S.C. §§ 1341 and 1343 Mail and Wire Fraud 2815.3.3 Corporate Liability 2835.3.3.1 Introduction 2835.3.3.2 Specific Offences 2845.3.3.3 Respondeat Superior Doctrine 2845.3.3.4 Evaluation 2865.4 Comparison of the Legal Frameworks in the UK and US 2905.5 Conclusion 2916 The Enforcement of Tax Evasion Legislation in the UK and US 2926.1 Introduction 2926.2 The UK 2926.2.1 Introduction 2926.2.2 The Prosecution of Tax Evaders 2936.2.3 Number and Types of Prosecutions 2956.2.4 Criminal Investigation 2996.2.5 Conviction and Sentencing 3016.2.6 Civil Investigation 3026.2.7 Code of Practice 9 3046.2.8 Civil Penalties Regime 3066.2.9 Amnesties 3116.3 The US 3156.3.1 Introduction 3156.3.2 The Prosecution of Tax Evaders 3156.3.3 Number and Types of Prosecutions 3176.3.4 Criminal Investigation 3226.3.5 Conviction and Sentencing 3236.3.6 Civil Investigation 3246.3.7 Voluntary Disclosure 3256.3.8 Civil Penalties Regime 3266.3.9 Amnesties 3296.4 Comparison 3326.5 Evaluation 3336.6 Conclusion 3387 Conclusion 3407.1 Introduction 3407.2 The International Anti-Tax Evasion Framework 3407.3 The Domestic Anti-Tax Evasion Frameworks 3447.4 Enforcement Policies and Approaches 3457.5 Summary of Recommendations 3467.6 Further Research 3477.7 Conclusion 349Index 350