Taxes: The End of The Don’t Ask, Don’t Tell Policy


Banks - along with financial companies, real estate agencies, exchanges and, possibly, even lawyers - will keep an eye on how you pay your taxes. The Financial Action Task Force (FATF), the world’s main anti-money-laundering body, has revamped its list of recommendations to include tax evasion in predicate offences, crimes that precede money laundering. The FATF's press release states that, ‘This will bring the proceeds of tax crimes within the scope of the powers and authorities used to investigate money laundering’.

The FATF’s recommendations are mandatory for its member states; Russia has been a member of this organisation since 2003.

Anti money laundering methods will now apply to tax offenders, as well as those suspected of tax evasion, all of whom will automatically be scrutinised for involvement in money laundering and terrorist financing.

Organizations dealing with money or property will be required to report transactions that may indicate tax evasion. This is a dramatic shift in policy. At present these organisations follow a kind of ‘if they don’t ask, we don’t tell’ policy in tax matters: they inform authorities about their clients’ affairs only when they are asked.

In Russia, money laundering is a more serious crime than tax crimes. The maximum prison term for tax evasion is just three years or, if corporate taxes are involved, six years (articles 198 and 199 of Russia’s Criminal Code). The maximum sentence for money laundering is seven years (articles 174 and 174.1).

The scale of money laundering is impressive. According to First Vice-Prime Minister Viktor Zubkov, the head of the task force combating financial crimes, about $70 billion or 4% of GDP was laundered last year. Whether these figures are accurate - most likely they are about right - is a moot question. What they show, at the very least, is the scope of the problem in the eyes of the Kremlin.

The special group aiming to combat financial crimes includes representatives of the Government, the Central Bank and all law enforcement agencies: the Interior Ministry, the Federal Tax Service, the Federal Financial Markets Service, the General Prosecutor's Office, the Federal Financial Monitoring Service and the Federal Security Service. They will soon be joined by credit and financial institutions, exchanges and real estate agencies.

Russia will have to amend its anti-money-laundering legislation, first of all the Federal Law #115-FZ. Companies will also need to develop systems to monitor the operations of their customers. This will take time and money. The FATF recommendations will most likely become operational in a year or two.


photo: © caraman -


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