Tax Evasion and Money Laundering: A Complete Framework

Journal of Financial Crime, Forthcoming

24 Pages Posted: 17 Nov 2020

See all articles by Deen Kemsley

Deen Kemsley

Tulane University - Accounting & Taxation; Tulane University - A.B. Freeman School of Business

Sean Kemsley

BVA Group LLC

Frank T. Morgan

affiliation not provided to SSRN

Date Written: September 20, 2020

Abstract

Purpose: Our objective is to define the fundamental nexus between income tax evasion and money laundering. The G7 Financial Action Task Force (FATF) designates tax evasion as a predicate offense for money laundering. We determine whether this designation is complete from a conceptual standpoint, or whether there is a stronger connection between tax evasion and money laundering.

Approach: We apply the FATF definition for money laundering – as well as generally accepted definitions for tax evasion and for a standard predicate offense – to identify the necessary conditions for each crime. We then use these conditions to test opposing hypotheses regarding the nexus between tax evasion and money laundering.

Findings: We demonstrate that tax evasion does not meet the conditions for a standard predicate offense, and treating it as if it were a standard predicate could be problematic in practice. Instead, we conclude that the FATF’s predicate label for tax evasion, together with tax evasion methods and objectives, imply that all tax evasion constitutes money laundering. In a single process, tax evasion both generates criminal tax savings and launders those criminal proceeds by concealing or disguising their unlawful origin.

Originality: Our analysis demonstrates that tax evasion completely incorporates money laundering as currently defined by the FATF.

Practical Application: The FATF could strengthen its framework by explicitly defining all tax evasion as money laundering. This would enable regulatory agencies to draw upon the full combined resources dedicated to either offense.

Keywords: Taxation, Tax Evasion, Money Laundering

JEL Classification: H24, H26, H30, K42

Suggested Citation

Kemsley, Deen and Kemsley, Sean and Morgan, Frank T., Tax Evasion and Money Laundering: A Complete Framework (September 20, 2020). Journal of Financial Crime, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3701758 or http://dx.doi.org/10.2139/ssrn.3701758

Deen Kemsley (Contact Author)

Tulane University - Accounting & Taxation ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Sean Kemsley

BVA Group LLC ( email )

7250 Dallas Parkway
Suite 200
Dallas, TX 75024
United States
9723770300 (Phone)

Frank T. Morgan

affiliation not provided to SSRN

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