A process by which criminals seek to disguise the true source of their illegally obtained funds of proceeds of crime. It involves three different, and sometimes ovelapping stages:
1) Placement - Physically placing criminal proceeds into the financial system
2) Layering - Separating the proceeds of criminal activity from their origins through layers of financial transactions
3) Integration - Moving the proceeds of crime into a "final" form that provides an apparently legitimate explanation for the illegally obtained funds.
Adding together multiple transactions that an MSB knows have been conducted by or on behalf of the same person on the same day, for BSA recording and recordkeeping purposes. For example, the MSB must file a CTR if it knows a customer's aggregate cash-in or cash-out transactions during one day totals more that $10,000.
A term used in reference to any conduct engaged in to evade a reporting or recordkeeping threshold and the corresponding BSA reporting or recordkeeping requirement (e.g. $1,000 or currency exchange and $3,000 for funds transfer records or more than $10,000 in currency for filing CTR's). Structuring is a federal crime.
1) One person breaks a large transaction into two or smaller transactions
A customer wishes to conduct a $10,500 cash transaction on one day. However, knowing that the threshold for filing a CTR (more than $10,000 cash transaction) would be met, he conducts two $5,250 cash transactions, thereby trying to evade the CTR reporting requirement/threshold.
2) A large transaction is broken into two or more smaller transactions conducted by two or more persons
A customer wishes to send $10,000 to a friend in London. The customer and three others each purchase a $2,500 money transfer to London, thereby evading the Funds Transfer Rule recordkeeping requirements/threshold of $3,000.
A tax haven is a place where certain taxes are levied at a low rate or not at all. Among tax havens, different jurisdictions tend to be havens for different types of taxes, and for different categories of people and/or companies.
One way a person or company takes advantage of a tax haven is by moving to, and becoming resident for tax purposes in, the tax haven (USA citizens see below). Another way for an individual or a company to take advantage of a tax haven is to establish a separate or subsidiary legal entity (a company or a common law trust) in the tax haven. Assets are transferred to the new company or trust so that gains may be realised, or income earned, which otherwise would be realised or earned by the beneficial owner.
Whether all this is tax avoidance or tax evasion is not always entirely clear and depends upon the legislation of the countries involved and the particular circumstances of the companies or individuals.
Many countries (particularly OECD countries) have laws that make it difficult for their residents to own a company (or have an investment) in a tax haven without paying tax either in the tax haven or where they are resident. For example, income or gains arising to the offshore company or investment may attributed for tax purposes to the owner or investor under CFC or other laws. Although many countries also have bilateral double taxation treaties to prevent their residents from paying tax twice (although, typically, the higher rate of tax charged in the two countries is due), few countries have tax treaties with tax havens.
- The UK is a tax haven for people of foreign domicile, even if they are UK resident (residence and domicile being separate legal concepts in the UK), in that they pay no tax on foreign income not remitted to the UK. Similar arrangements are to be found in a few other countries including Ireland.
- Switzerland is a tax haven for foreigners who become resident after negotiating the amount of their income subject to taxation with the canton in which they intend to live. Typically taxable income is assumed to be five times the accommodation rental paid.
- Monaco does not levy a personal income tax and neither does Andorra. The Bahamas levies neither personal income nor capital gains tax, nor are there inheritance taxes.
- In the various Channel Islands, and in the Isle of Man, no tax is paid by corporations or individuals on foreign income and gains. Non-residents are not taxed on local income. Local taxation is at a fixed rate of 20.0%.
- In Gibraltar, tax exempt companies, which must not trade or conduct any business locally, are taxed at a flat rate of £100 a year.
- Vanuatu, an island archipelago state in the Micronesian Pacific, is a tax haven that does not release account information to other governments and law enforcement agencies. In Vanuatu, there is no income tax, no withholding tax, no capital gains tax, no inheritance taxes, and no exchange controls. Vanuatu reputedly has become a mechanism for international transfers of cash in CIA operations. Vanuatu related businesses and bank accounts surfaced in the relations to 2004 Presidential vote fraud in the United States, according to investigative journalist Wayne Marsden
A tax is an involuntary fee paid by individuals or businesses to a government. Taxes may be paid in cash or kind (although payments in kind may not always be allowed or classified as taxes in all systems). The means of taxation, and the uses to which the funds raised through taxation should be put, are a matter of hot dispute in politics and economics, so discussions of taxation are frequently tendentious. The field of economics that deals with taxation is public finance.
Tax evasion is the general term for efforts by individuals, firms, trusts and other entities to evade the payment of taxes by breaking the law. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability, and includes, in particular, dishonest tax reporting (such as underdeclaring income, profits or gains; or overstating deductions).
By contrast tax avoidance is the legal exploitation of the tax regime to one's own advantage, to attempt to reduce the amount of tax that is payable by means that are within the law whilst making a full disclosure of the material information to the tax authorities.
Tax avoidance may be considered as either the amoral dodging of one's duties to society or the right of every citizen to find all the legal ways to avoid paying too much tax. Tax evasion, on the other hand, is a crime in almost all countries and subjects the guilty party to fines or even imprisonment. Switzerland is one notable exception: Tax fraud (forging documents, for example) is considered a crime, tax evasion (like underdeclaring assets) is not.
Tax treaties exist between many countries on a bilateral basis to prevent double taxation (taxes levied twice on the same income, profit, capital gain, inheritance or other item).
Tax treaties tend not to exist between most countries and some countries regarded as tax havens, for obvious reasons. There are a number of model tax treaties published by various national and international bodies, such as the United Nations and the OECD.
International double taxation, narrowly defined, occurs when two different states impose a comparable tax on the same taxable person with respect to the same item of profit, income, gain, etc. The concept has been defined more broadly, but with less precision, as the result of overlapping tax claims of two or more states. For example, an individual who is resident for tax purposes in France and who makes an interest-bearing deposit with a bank in the UK is potentially exposed to income tax on the interest in the UK and in France.
The concept of international double taxation that bilateral tax treaties seek to remove is broader than the narrow definition. It includes some types of economic double taxation—that is, taxation that has the effect of imposing multiple burdens with respect to the same item whether or not the income item is formally subject to multiple levels of taxation. For example, many tax treaties operate to provide tax relief to a corporate group when a state has imposed a corporate income tax on profits earned by a subsidiary corporation and another state otherwise would impose a corporate income tax on its parent corporation when those profits are distributed as a dividend.
In general, tax treaties attempt to eliminate most forms of international double taxation, narrowly defined, and various other forms of international double taxation when a failure to do so would have a demonstrably harmful impact on international trade and investment.
A major goal of bilateral tax treaties is to remove impediments to international trade and investment by reducing the threat of double taxation that can occur when both contracting states impose tax on the same income. This goal is advanced in four distinct ways.
• First, a bilateral tax treaty generally increases the extent to which exporters residing in one contracting state can engage in trading activity in the other Contracting State without attracting tax liability in that latter state. The second state can usually only impose tax on the business profits of a person who is resident in the other state if they operate in the second state through a permanent establishment there.
• Second, when a resident of a contracting state does engage in a sufficient activity in the other contracting state for that state to have the right to tax, the treaty establishes certain guidelines on how that income is to be taxed; that is, in general, which profits are attributable to the permanent establishment in the second state. For example, those guidelines may assign to one contracting state or the other the primary right of taxation with respect to particular categories of income. They may, in certain cases, provide for the allowance of deductions in measuring the amount of income subject to tax. They may require a reduction in the withholding taxes otherwise imposed by a contracting state on payments made to a resident of the other contracting state.
• Third, a bilateral tax treaty provides a dispute resolution mechanism that the contracting states may invoke to relieve double taxation in particular circumstances not dealt with explicitly under the treaty.
• Fourth, where income or gains remain in principle taxable in both contracting states, the state of residence of the taxpayer will relieve the double taxation that results either by allowing a credit for the tax paid in the other state or by exempting the income or gain from its own tax in practice.