The financial sector would have welcomed the release of AUSTRAC’s four new banking sector risk assessments on 6 September 2021; reporting entities rely heavily on AUSTRAC publications to assist them in complying with their reporting obligations.
It is unfortunate, however, to see these important guidance documents indiscriminately refer to “tax evasion” as a predicate offence in its own right or even a category of similar (as opposed to related) offences.
“Tax evasion” is an administrative and general term
“Tax Evasion” is cited throughout the AUSTRAC assessments as a significant if not paramount “predicate offence” (ie a criminal offence that generates proceeds of crime, or other related crimes) in relation to money laundering and its prevention.
Unlike some countries (such as the US – see § 7201 of the Internal Revenue Code), Australia’s legislative references to tax “evasion” do not refer to a criminal offence or even a category of criminal offences.
In fact, “evasion” explicitly refers to the Commissioner of Taxation’s administrative power to amend an assessment for a tax-related liability at any time (see Item 5, s 170(1) Income Tax Assessment Act 1936 (Cth) (ITAA36)). Blameworthy acts or omissions enliven this administrative power: Denver Chemical Manufacturing Co v DCT (NSW) (1979) 79 CLR 296. It is also used informally, collectively, to refer to tax-related acts or omissions that are illegal by reference to various other categories of offences.
Because “tax evasion”, although illegal, is not an offence in its own right (or even a category of similar offences), managing any money laundering risks by reference to that indiscriminate term, it is suggested, is hazardous.
Like economic definitions of “tax evasion” (Allingham MG and Sandmo A, “Income Tax Evasion: A Theoretical Analysis” (1972) 1 Journal of Public Economics 323–338), lawfulness is the cornerstone of that noun as legally defined. In R v Meares (1997) 37 ATR 321, at 323 Gleeson CJ said “Tax evasion involves using unlawful means to escape payment of tax. Tax avoidance is lawful and tax evasion is unlawful.”
What tax-related prohibitions might be predicate offences?
But where and how is “tax evasion” prohibited? Again, the reference to “evasion” in the (ITAA36) is in relation to the administrative process of amending an assessment because of “fraud or evasion” it does not create any offences in respect thereof.
Tax-related crimes (and possible predicate offences for money laundering purposes) include offences of strict and absolute liability under the Taxation Administration Act 1953 (Cth) (for example, failing to lodge an income tax return under 8C), Financial Transactions Reports Act 1988 (Cth) (FTRA) and the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) (conducting transactions so as to avoid reporting requirements (smurfing)).
It also includes liability created by general fraud offences under the Sch to the Criminal Code Act 1995 (Cth) (Criminal Code) such as “General dishonesty” (s 135.1) (unlike strict and absolute liability offences the cornerstone of which is dishonesty: Spies v The Queen (2000) 201 CLR 603; 74 ALJR 1263;  HCA 43; Peters v The Queen (1998) 192 CLR 493; 72 ALJR 517;  HCA 7 at 529 (CLR)).
Finally, it also includes the offence in Div 400 Criminal Code, “Dealing with property reasonably suspected of being proceeds of crime etc” (s 400.9).
Although rarely used, there are also prohibitions against dishonest phoenix activity using corporations in the Crimes (Taxation Offences) Act 1980 (Cth).
It is suggested that it is not enough to identify that “tax evasion” involves many different methodologies. “Tax evasion” also involves very different offences, which may give rise to proceeds of crime in different ways. All of these offences have very different elements, and it is submitted they can only be grouped together by their being potentially related to taxation rather than them being similar in terms of their elements.
“Tax-related crimes include offences of strict and absolute liability (ie no fault elements for some of the physical elements) under tax and anti-money laundering legislation as well as general fraud offences under the Criminal Code.”– Dr Mathew Leighton-Daly
Money laundering risks will be materially different between persons dealing with proceeds of crime, which arose from inadvertently omitting to lodge a tax return and a person dishonestly misrepresenting their taxable income. The relevance of an express deception is paramount here and relevant to a customer’s modus operandi.
“Tax evasion” risks associated with smurfing activity under the FTRA and/or AML/CTF Act are different again. In terms of proceeds, misrepresenting taxable income gives rise to the proceeds of crime in relation to the income the subject of the misrepresentation, whereas the latter creates the proceeds of crime upon entering into the transactions (whether or not they were previously in fact the proceeds of crime).
Finally, like smurfing offences, the broad criminality created by s 400.9 Criminal Code is done so via an objective fault element (concluded and suspected respectively). Dealing with property reasonably suspected of being proceeds of crime etc would potentially give rise to proceeds of crime differently to smurfing offences.
Some of the other general categories referred to by AUSTRAC in its guides (for example – classically – drug trafficking) may be contrasted here as having different methodologies but common or similar elements.
“It is indiscriminate to treat “tax evasion” as a predicate offence in Australia. It is also inaccurate to refer to it as a category of similar offences for money laundering and anti-money laundering purposes.”– Dr Mathew Leighton-Daly
Terms such as tax crime (it is noted that the term “tax crime” appears to be preferred by the ATO in its publications) or tax-related crime might be preferable but only on the express understanding that it relates to a number of different offences with significantly different elements (including fault elements).
Both the regulator and the entities reporting to it must understand what tax-related conduct is in fact prohibited and how and when it may give rise to proceeds of crime before they can look to controlling it.