Thursday, April 2, 2015

The Criminalisation of Foreign Tax Offences in Singapore

Singapore has made great strides in outlawing foreign tax offences. Three years after clear indications were given that assets involved in tax evasion are not welcome in Singapore, financial institutions in Singapore have increasingly been required to actively counter all assets involved in foreign tax offences.

Developments for Firmer Prosecution of Foreign Tax Offences in the Past Years


In September 2011, the Monetary Authority of Singapore (“MAS”) called on financial institutions to “guard against the use of their operations to facilitate any illegitimate activity”. The financial institutions were reminded to continuously assess the legal, regulatory and reputational risks with a special prompt to be alert to agreements between countries to resolve tax issues and undertake a more critical review of any asset transfers into Singapore from such countries. In case they have reason to suspect that assets are illegitimate, the financial institutions should file Suspicious Transaction Reports and where appropriate, discontinue the business relationship. (Guidelines for Financial Institutions to Safeguard the Integrity of Singapore Financial System dated 6 September 2011)

On 1 July 2013, tax evasion and serious tax evasion under the Income Tax Act as well as fraud etc. and improperly obtaining a refund under the Goods and Services Tax Act were declared predicate offences to money laundering. (Sec. 44(1) and 47 CDSA read in conjunction with sec. 2(1) CDSA and Part XII of the Second Schedule of the CDSA) As indicated in MAS’ “Response to Feedback Received – Consultation Paper to Designate Tax Crimes as Money Laundering Predicate Offences in Singapore”, (Response to Feedback Received – Consultation Paper to Designate Tax Crimes as Money Laundering Predicate Offences in Singapore (“Response to Feedback”)) the principle of dual criminality however applied for the purposes of mutual legal assistance and the filing of Suspicious Transaction Reports to tax crimes designated as money laundering predicate offences. (Para. 3.3 Response to Feedback) At the same time, MAS however reminded financial institutions in Singapore that they must comply with MAS’ Notices on anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) and observe the supervisory expectations of MAS and thus apply their risk assessment and mitigation controls to detect and deter the proceeds from serious foreign tax offences, even if the foreign offence is in relation to a type of tax for which an equivalent obligation does not exist in Singapore. (Para. 3.2 s. Response to Feedback) Furthermore, MAS ensured the implementation of the expansion on AML/CFT measures to serious tax crimes by requiring financial intermediaries to conduct and report reviews regarding tax risk; on high tax risk clients by the end of June 2013 and on all other clients by the end of June 2014. (Para. 7.3 Response to Feedback)

Current Criminalisation of Foreign Serious Tax Offences as Predicate Offences to Money Laundering


Finally, the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act ("CDSA") was amended with effect on 1 September 2014 to introduce and expand the definition of a "foreign serious tax offence". (Sec. 2 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) (Amendment) Act 2014)

In Singapore, money laundering offences originate from specified predicate offences: drug dealing or criminal conduct. (Sec. 43, 44, 46 and 47 CDSA) Similarly, the duty to disclose knowledge or suspicion applies to property representing the proceeds of, being used in connection with or intended to be used in connection with drug dealing or criminal conduct. (Sec. 39 CDSA) Whereas drug dealing is not of concern with regards to tax offences, ""criminal conduct" means doing or being concerned in, whether in Singapore or elsewhere, any act constituting a serious offence or a foreign serious offence". (Sec. 2(1) CDSA) A "foreign serious offence" (a) means an offence […] against the law of a foreign country or part thereof that consists of or includes conduct which, if the conduct had occurred in Singapore, would have constituted a serious offence; and (b) includes a foreign serious tax offence." (Sec. 2(1) CDSA) Although this definition may leave some doubts, if foreign serious tax offences are included in the general offences and thus require dual criminality – acts that consist of or include "conduct which, if the conduct had occurred in Singapore, would have constituted a serious offence" – the definition of a serious tax offence itself eliminates such doubts. A ""foreign serious tax offence” means an offence against the national law of a foreign country that consists of the doing of any of the following (however described) wilfully with intent to evade, or to assist any other person to evade, any tax of that country:
(a) omitting from, or understating or overstating in, a return made for the purposes of that tax any information which should be included in the return;
(b) making any false statement or entry in any return, claim or application made, or any document or information required to be given, for the purposes of that tax;
(c) giving any false answer, whether verbally or in writing, to any question or request for information asked or made for the purposes of that tax;
(d) failing to inform the authority responsible for the collection of that tax, in the required manner, of any incorrect information appearing in any assessment made by that authority, when required to do so;
(e) preparing or maintaining, or authorising the preparation or maintenance, of any false books of account or other records, or falsifying or authorising the falsification of any books of account or records;
(f) making use of any fraud, art or contrivance, or authorising the use of any such fraud, art or contrivance". (Sec. 2(1) CDSA)

A foreign serious tax offence only needs to be "an offence against the national law of a foreign country". Any reference to dual criminality is absent. Moreover, the offence can regard "any tax of that country". Contrary to the earlier regulations, (Para. 3.5 ss. Response to Feedback) the tax affected does thus not need to be of a type which Singapore also imposes. The only limitation that remains is that the offence must be committed "wilfully with the intent to evade, or to assist any other person to evade," the foreign tax. As a result, essentially all wilful foreign tax offences constitute predicate offences to money laundering in Singapore.

Conclusion


By essentially declaring all wilful foreign tax offences predicate offences to money laundering, Singapore sets a high standard for the criminalisation of foreign tax crimes. This wide ranging criminalisation of foreign tax evasion must not only be considered to fully meet the updated recommendations by the Financial Action Task Force ("FATF") that call for including tax crimes among predicate offences to money laundering (International Standards on Combatting Money Laundering and the Financing of Terrorism & Proliferation, The FATF Recommendations, February 2012, p. 112) with respect to foreign tax crimes, but it reinforces Singapore’s clear stance that it is not willing to harbour any assets connected to foreign tax evasion.

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