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IRD releases factsheet on tax evasion, tax fraud and money laundering

14 November 2019

The Inland Revenue Department has released a factsheet, Tax evasion, tax fraud and money laundering.

The factsheet aims to give AML/CFT reporting entities an understanding of the relationship between tax evasion and tax fraud, and money laundering.

IRD says tax evasion and tax fraud are predicate offences for money laundering under the AML/CFT Act.

"Tax evasion, tax fraud and money laundering often go hand-in-hand given that for criminals to benefit from their crime, they will need to launder the proceeds. This relationship can be described as complex given New Zealand's tax system encompasses different tax types (eg, PAYE, GST), different rules, and that New Zealand tax residents are required to pay tax on any income they earn worldwide. Income that is earned from illegal activities also needs to have tax paid on it."

IRD says it can be difficult for reporting entities to form a suspicion that tax evasion or tax fraud may have occurred when they have limited visibility or understanding of a customer's tax affairs.

The factsheet says that generally, transactions that are conducted to launder the proceeds of tax evasion and tax fraud will be consistent with conventional money laundering typologies and will include transactional activity such as wire transfers to 'low tax' or 'no tax' jurisdictions; the involvement of cash in large deposits or withdrawals; or where transactions are conducted outside of a customer expected behaviour or financial profile.

"However, there are also tax specific red flags which may provide reporting entities further opportunities to detect and deter money laundering, tax evasion and tax fraud, enhance their AML/CFT risk assessments and compliance programmes."

Last updated on the 14th November 2019