The Italian parliament has just endorsed the latest 'voluntary disclosure programme' aimed at HNW private individuals.

The Italian parliament has just endorsed the latest in a long line of 'voluntary disclosure programmes' that will allow tax-evaders to declare wealth that they hold outside their home country. This echoes the fairly successful razzia that Silvio Berlusconi's government made through Swiss bank accounts in 2001-2. It is aimed at private individuals, partnerships and 'non-commercial entities' who have Italian fiscal residency and is especially aimed at their offshore holdings.

The implications for money-laundering controls are profound, as foreign tax-evasion is a predicate crime in the UK and its colonies and in Singapore, through which some of the targeted money is likely to pass. It is not yet a predicate offence in Italy although the European Union's forthcoming fourth money-laundering directive will one day force it to become so. In Switzerland, the location of so many of the monies that Italian authorities are targeting, neither tax evasion nor tax fraud qualify as crimes according to the penal law, so they cannot be predicate offences to money laundering. This means that a financial intermediary may accept and manage funds generated by tax evasion or tax fraud without rendering himself liable to prosecution for money laundering.

Swiss legislation in a state of flux

A Swiss federal bill to make foreign tax evasion a predicate crime is, by all reports, still on the stocks. When it comes into force it is scheduled to be called the Federal Act for Implementing the Revised Financial Action Task Force Recommendations. The Swiss law firm of Bär & Karrer says of it: “In the area of direct taxes, it is proposed to examine incorporating the predicate offence to money laundering in the Criminal Code rather than in the criminal law relating to tax offences. In this way, account is taken of the opinion of most consultation participants, who believe the implementation of tax offences as predicate offences should not interfere with the revision of criminal law relating to tax offences. The proposal of 27 February [presumably to use the criminal tax law] is maintained for indirect taxes, however.

“In the area of direct taxes, the draft bill therefore sought to introduce an aggravated form of tax fraud into Swiss tax law. It specified that tax fraud (i.e. evasion of taxes using forged documents or through deliberate and malicious deception of the tax authorities) should no longer constitute a mere misdemeanour, but a felony – provided that the taxable element (e.g. income) concealed from the tax authorities is at least Sfr600,000 [about €500,000]. The government was of the view that by making aggravated tax fraud a felony, it would automatically qualify as a predicate offence to money laundering.”

The eternal trade-off

Tax authorities in both developed and developing countries have been staging tax amnesties throughout the modern age, with varying degrees of success. There is a trade-off between the revenue that each amnesty undoubtedly brings in and the bad example that it sets to unscrupulous taxpayers (or non-payers) who might cheat in the short term while waiting for the next amnesty. Although amnesties in Italy are formally classified as 'extraordinary' instruments, they are in fact a constant factor in the Italian tax system.

Italy probably holds the world record for the frequency of its tax amnesties, having staged 27 in a period of roughly 20 years, with 1982, 1984 and especially 2002 as notable years for good revenue collection, although others were disappointing. The Philippines had about 15 in a 12-year period in the 1980s and 1990s. In recent decades Australia, Bolivia, Chile, Ecuador, India for several years, Peru, Mexico, and Switzerland have all had tax amnesties. Turkey is having one this year.

The scale of the proceeds of crime

The tax world believes that the six-month Italian 'Scudo Fiscale' amnesty of 2001-2 that targeted offshore investment tax evasion was quite successful, as the government claimed to have repatriated an enormous amount of offshore capital - €56 billion – and actually generated additional tax revenues of €1.4 billion, much of it from Switzerland, because the total was taxed at 2½%. This amounted to about 0.4 % of total tax revenues. However, the Italian government promised that its initiative would improve the tax base permanently and promote economic progress, and this did not really come to pass.

International trends

In the United States, the federal government has reportedly promulgated three programmes of voluntary disclosure between 2009 and 2012, while the states themselves offered 78 between the years 1980 and 2004 – a policy they never followed before and have never followed again. The number of state tax amnesties tended to go up in years when a Republican president was in office for some reason, peaking at 12 in the year 2002, with 10 being launched the following year. The gross revenue from all of them was $6.6 billion. It is rare for such exercises to bring in as much as the Argentine one of 1995 ($3.9 billion in the currency of the time), the Indian one of 1997 ($2½ billion) or the Irish one of 1988 ($700 million). The following table lists some well-known examples that might be of interest to money-laundering reporting officers who encounter historic payments on 'source of wealth' statements.

Austria 1982, 1993

Belgium 1984

Finland 1982, 1984

France 1982, 1996

Greece 2010

Ireland 1988, 1993

Italy 1982, 1984, 2002

New Zealand 1988

Portugal 1981, 1982, 1986, 1988

Spain 1977

Jonathan Fisher QC, a London barrister and expert on fiscal money-laundering, has often berated the UK's HM Revenue & Customs for its policy, begun in 2007, of mini-amnesties. He told Barry Ryder's annual Cambridge AML symposium in 2011: “Since 2007 HMRC has offered taxpayers a variety of different disclosure opportunities to encourage the voluntary disclosure of taxable income on hidden assets in return for beneficial tax treatment. The opportunity presented to money launderers to legitimatise the monies from their illegal activities and bring them into the financial system is colossal.”

Fisher was especially critical of an Anglo-Swiss deal of that year to target the holdings of British high-net-worth individuals at Swiss banks because it shielded tax-evaders from being 'named and shamed'. The Italian amnesty will not shield anyone from exposure to publicity, but the fact remains that it will de-criminalise many tax crimes and make them immune from suspicious transaction reporting.