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Implementation of voluntary tax compliance programmes and AML/CFT requirements by States and Territories evaluated by MONEYVAL

Procedures

A voluntary tax compliance (VTC) programme refers to any programme that is designed to facilitate legalisation of a taxpayer’s situation vis-à-vis funds or other assets that were previously unreported or incorrectly reported. Countries may introduce VTC programmes for a variety of purposes including: raising tax revenue; increasing tax honesty and compliance; and/or facilitating asset repatriation for the purpose of economic policies, especially when the country is in an economic crisis. Such programmes come in a variety of forms and may involve voluntary disclosure mechanisms, tax amnesty incentives and/or asset repatriation. In many cases, VTC programmes are introduced by a highly political decision reacting to the immediate economic or fiscal situation of the country. In such circumstances, the programme may be introduced at short notice (e.g. in response to a serious financial crisis).

Already in 2007, MONEYVAL has taken action in situations where a VTC programme adopted by a MONEYVAL member raised serious concerns as regards the effective application of AML/CFT measures, through the application of Compliance Enhancing Procedures.

The Financial Action Task Force (FATF) has recognised the potential for VTC programmes to be abused by criminals for the purpose of moving funds. The level of potential money laundering (ML) and terrorist financing (FT) risk varies greatly, depending on the characteristics of the particular VTC programme being implemented. In general, a programme that is being used solely for the purpose of allowing taxpayers to voluntarily correct tax reporting information would not seem to carry a significant ML/FT risk. However, the ML /FT risk is greater when the programme fully or partially incorporates elements of tax amnesty or asset repatriation. An issue of particular concern is that some VTC programmes, explicitly or in practice, exempt full or partial application of AML/CFT measures. For example, some programmes exempt financial institutions from the requirements to conduct full customer due diligence (CDD) on taxpayers and verify that the funds or other assets being declared or repatriated come from a legitimate source, or may grant the taxpayer immunity from investigation or prosecution for money laundering in relation to declared or repatriated funds or other assets.

In June 2010, the FATF has agreed four basic principles which underscore the importance of ensuring that countries address and mitigate the ML/FT risks of VTC programmes, and are able to effectively investigate and prosecute their abuse:

Principle 1: Effective Application of AML/CFT Preventative Measures
The effective application of AML/CFT preventative measures is a prerequisite for addressing and mitigating the money laundering and terrorist financing risks associated with implementing any type of voluntary tax compliance programme.

Principle 2: Prohibition of Exemptions from AML/CFT Requirements
The FATF Recommendations do not allow for full or partial exemptions from AML/CFT requirements in the context of implementing a voluntary tax compliance programme. Therefore, when implementing a voluntary tax compliance programme, national authorities should ensure that its terms do not allow, in law or in practice, for full or partial exemptions from AML/CFT requirements as set out in the FATF Recommendations. Voluntary tax compliance programmes which do so are in breach of the FATF Recommendations.

Principle 3: Domestic Co-ordination and Co-operation
When implementing a voluntary tax compliance programme, it should be ensured that all relevant domestic competent authorities be able to co-ordinate and co-operate, and exchange information, as appropriate, with a view to detecting, investigating and prosecuting any ML/FT abuse of the programme.

Principle 4: International Co-operation
The widest possible range of mutual legal assistance and exchange of information in ML/FT investigations, prosecutions and related proceedings relating to the abuse of voluntary tax compliance programmes, including asset recovery investigations and proceedings, should be provided.

The FATF also published in October 2012 a revised paper on Best practices in managing the AML/CFT policy implications in VTC programmes.

The current rules of procedure enable the Committee to take action in a flexible manner and at any time in respect of situations of concern which may arise in the context of implementation of VTC programmes. However, considering the developments at the global level and the principles and related guidance adopted, MONEVAL has adopted in December 2013 a specific procedure applicable to such situations.