On 21 April 2023 the IMF published a working paper with the title Leveraging Anti-money Laundering Measures to Improve Tax Compliance and Help Mobilize Domestic Revenues. The paper points out that anti-money laundering (AML) measures could be used to help enhance tax compliance and combat tax crimes. Some highly publicised data leaks in recent years have shown that tax crimes and money laundering are closely linked, and that AML measures are therefore relevant to the fight against tax crime.

As governments are now looking for more ways to mobilise domestic resources following the pandemic, there can be political support for a wider use of AML legislation to deal with tax avoidance and evasion. This can help to improve public finances to help governments face the challenges caused by the difficult global economic position and the elevated levels of inflation.

Money laundering and tax crimes both have the objective of concealing the source of funds, and they use similar techniques such as making use of the lack of clarity on beneficial ownership of entities in some jurisdictions. Where money laundering is carried out, the underlying proceeds often arise from another separate crime that is referred to as a “predicate offense”. The most common predicate offenses that lead to money laundering include drug trafficking, corruption, and fraud but they may also be tax crimes.

There are synergies between the AML and tax compliance frameworks that could be developed further. At the international level, the progress made by bodies such as the OECD in combating harmful tax competition and increasing tax transparency are linked to the efforts to combat money laundering. The concept of beneficial ownership and the efforts to obtain more transparency in this area are common to tax compliance and AML.

AML measures that are relevant to tax compliance include formalisation of the economy and taxpayer transparency; the sharing of financial intelligence and detection of tax evasion; greater enforcement powers that could be used to pursue tax crimes; and the deterrence effect of AML activities on the commission of tax crimes.

There are legal challenges to the greater use of AML measures to combat tax crimes, including legal challenges around confidentiality and professional secrecy. There are also differences in legal objectives, as the AML measures aim to build a criminal case whereas the tax framework is concerned primarily with the administrative objective of revenue collection. However, the information collected by tax authorities may also give rise to criminal proceedings in connection with tax avoidance schemes or concealment of income or wealth. Also, in many countries the financial intelligence unit can share its information with the tax administration for administrative purposes.

Another potential obstacle is that there is no agreed definition of a tax crime. National laws use different terminology to define tax crimes and the type of actions that are within the definition. This could be a problem in framing provisions for legal assistance or other international cooperation using AML frameworks. It would therefore be beneficial for increased cooperation if countries can reach an international consensus on the types of misconduct that could be investigated through cross-border cooperation in tax matters.