Money Laundering and Offshore Havens

Introduction

Money laundering in the UK has achieved significant proportions as depicted in the Panama Papers Scandal, with most such cases having an international link as shown by a study involving interviews in the UK, which was found that out of 60 cases related to money laundering being prosecuted, 36 had an international dimension (Brown & Gillespie, 2015). The introduction will show the significance of money laundering and its link with tax evasion through the use of offshore havens to create the background of the problem in the UK.

Research questions

The overarching research question in this study is related to the legal responses to offshore tax havens and money laundering. The question is formulated as follows:

How effectively does the UK law respond to the issue of money laundering through offshore tax havens?

Money laundering: The nature of the problem and the legal responses in the UK

The UK has established the Serious Fraud Office to respond to the issue of money laundering, which is the principal prosecutor for money laundering, and in which the powers of investigation of financial crimes has been consolidated (MacNeil, 2011). Apart from this body, the Financial Conduct Authority is established under the Financial Services Act 2012, as the principal regulatory body for financial crimes (Kirk, 2018).

Offshore tax havens as tools for money laundering: Legal responses

The Finance Act 2016 is the principal legislation that is concerned with the funnelling of money to offshore tax havens like the British Virgin Islands. Under the Finance Act 2016, large companies, groups and partnerships are statutorily required to publish an annual tax strategy in respect of activities relevant to UK taxation. Offshore tax evasion forms part of the offences under the Finance Act 2016, which makes it an offence to knowingly enable offshore tax evasion. Penalties are up to 100 per cent of the amount of tax at stake. Companies in the UK are also required to publish tax strategy and country-by-country (CbC) reporting. Similar obligations apply to entities with a non-UK parent where the company will still have to submit a report for the UK sub-group.

Important new changes in the UK regulatory structure to counter tax evasions through offshore locations have been made since 2015. Under the Criminal Finances Act 2017, a Corporate Criminal Offence for corporate bodies and partnerships has been created for their failure to prevent their representatives from facilitating tax evasion (HM Treasury, 2019). The Finance Act 2017 makes it a requirement to correct past offshore tax non-compliance or face penalties up to 200% of the tax owed and at a minimum of 100% (HM Treasury, 2019). With respect to the British Virgin Islands, the government has signed automatic tax information exchange agreement.

Bibliography

Brown, R. & Gillespie, S., 2015. Overseas financial investigation of organised crime: Examining the barriers to effective implementation. Journal of Money Laundering Control, 18(3), pp. 371-381.

HM Treasury, 2019. Tackling tax avoidance, evasion, and other forms of non- compliance, London: HM Treasury.

Kirk, D. N., 2018. Challenges in Countering Fraud and Money Laundering, London: McGuire Woods.

MacNeil, I., 2011. The Trajectory of Regulatory Reform in the UK in the Wake of the Financial Crisis. EBOR, Volume 11, pp. 483-523.