New legislation to prevent money laundering activities and the financial support of terrorism is in its way to the Spanish Parliament. The draft published by the Dirección General del Tesoro y Política Financiera in April involves an expanded definition of Tax evasion, which may affect accepted international standards.
Let’s start with some definitions of Money Laundering accepted globally.
The UNODC defines money laundering as “…a process which disguises illegal profits without compromising the criminals who wish to benefit from the proceeds. It is a dynamic three-stage process that requires: first, moving the funds from direct association with the crime; second, disguising the trail to foil pursuit; and third, making the money available to the criminal once again with the occupational and geographic origins hidden from view”. The 2005 UNODC and IMF Model-Legislation on money-laundering and financing of terrorism has been reviewed and finalized by an informal group of international civil law experts.
The HM Revenue & Customs in the UK defines Money laundering as exchanging criminally obtained money or other assets for ‘clean’ money or other assets with no obvious link to their criminal origins. It also covers money, however come by, which is used to fund terrorism.
The Spanish proposal incorporates all the requirements included in the Directive 2005/60/EC of the European Parliament of 26th October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing.
However, there is an interesting element to be included in the definition of Money Laundering activities, which includes in this crime type any tax evasion activity done in Spain or abroad. The concept is described in article 1.2 of that legislative proposal.
If this is finally approved, Spain will be able to prosecute tax evasion anywhere.
Is this the right approach from a Criminal Law point of view?
Is this in accordance with International Public Law principles?
Is this approach protecting basic Constitutional Rights?
Let’s offer our Tax Precision perspective on this topic, which is hotly debated in the Academia.
We believe that Tax evasion and Money Laundering should be kept as separate categories, although they may concur on some criminal activities. We do not need new legislation to support this provision, which is well established in the Spanish Criminal Law system.
Any Criminal Law expert knows the importance of keeping extremely clear definitions of any single crime typology in the Criminal Law Acts. This is fundamental to maintain the integrity of the Criminal Law system and to protect citizen’s rights.
The problem of creating a catch-it-all category, as it is intended under the proposed money laundering definition, is that many other economic crimes, including tax evasion, may be emptied of its original content, and engulfed by this new category.
Being that the case, the original intention of the legislator when addressing Tax evasion, the potential “educational” function of this very crime, as well as the well developed case law developed around tax evasion, will be nullified.
This imprecise approach to unify two very well differentiated crime types, which may not be so much of an issue in the United Kingdom, is particularly dangerous in Spain. The reason is that in Spain there is not distinction between tax evasion and tax avoidance, and by definition any tax scheme or method of tax optimization may be considered Tax evasion.
“In most Common Law countries Tax avoidance is the legal utilization of the tax regime to one’s own advantage, to reduce the amount of tax that is payable by means that are within the law. By contrast tax evasion is the general term for efforts to not pay taxes by illegal means. According to the former British Chancellor of the Exchequer Denis Healey, the difference between tax avoidance and tax evasion is the thickness of a prison wall”
The other issue is related to the worldwide prosecution intended by the Spanish legislator, as they have done with many other crimes.
This universal prosecution is draining the resources of the Spanish judicial system, which is well know by its inefficiencies, apart from encouraging the enthronization of some Spanish Judges as the new Quijotes of this world, as it happened with the prosecution by the Spanish Courts of criminal activities in Chile, Argentina, United States, Israel, Tibet…
Should the Spanish Parliament passes this legislation, Spanish Courts may become a sort of worldwide inquisition tribunal, without considering the fact that tax offenses are defined in many different ways around the world, and they may even not be considered a criminal activity in some jurisdictions. Furthermore, this approach will conflict with a well developed International Public Law order which does not allow a country to enforce the tax laws of other countries, except on Federal systems and the European Union, with clear exemptions.
We genuinely believe that the Spanish Parliament will not pass this legislation in its current formal and will lend an ear to the Academia. Please keep watching this space.
Tags: Criminal Law, money laundering, Spain, tax evasion, UK