CrimProf Blog

Editor: Kevin Cole
Univ. of San Diego School of Law

Wednesday, November 25, 2020

Kemsley et al. on Tax Evasion and Money Laundering

Deen KemsleySean Kemsley and Frank T. Morgan (Tulane University - Accounting & Taxation, BVA Group LLC and affiliation not provided to SSRN) have posted Tax Evasion and Money Laundering: A Complete Framework (Journal of Financial Crime, Forthcoming) on SSRN. Here is the abstract:
Purpose: Our objective is to define the fundamental nexus between income tax evasion and money laundering. The G7 Financial Action Task Force (FATF) designates tax evasion as a predicate offense for money laundering. We determine whether this designation is complete from a conceptual standpoint, or whether there is a stronger connection between tax evasion and money laundering.

Approach: We apply the FATF definition for money laundering – as well as generally accepted definitions for tax evasion and for a standard predicate offense – to identify the necessary conditions for each crime. We then use these conditions to test opposing hypotheses regarding the nexus between tax evasion and money laundering.

Findings: We demonstrate that tax evasion does not meet the conditions for a standard predicate offense, and treating it as if it were a standard predicate could be problematic in practice. Instead, we conclude that the FATF’s predicate label for tax evasion, together with tax evasion methods and objectives, imply that all tax evasion constitutes money laundering. In a single process, tax evasion both generates criminal tax savings and launders those criminal proceeds by concealing or disguising their unlawful origin.

Originality: Our analysis demonstrates that tax evasion completely incorporates money laundering as currently defined by the FATF.

Practical Application: The FATF could strengthen its framework by explicitly defining all tax evasion as money laundering. This would enable regulatory agencies to draw upon the full combined resources dedicated to either offense.

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