For rather obvious reasons, there has been a lot of hand-wringing in the media recently over what to do with tax evaders. (I have my own rather Cromwellian ideas, but I shall keep them to myself.) There seem to be two main options: prosecute them through the criminal justice system, or penalise them as a civil matter. Those in favour of the former cite the deterrent and punitive effect, while those who support the latter point out that on average you get more money back in the end. (You may be a little confused as to why there is a choice at all, when according to UK legislation tax evasion is a criminal offence, but much as the Crown Prosecution Service can decide not to proceed with a prosecution that it deems not to be in the public interest, so HMRC can decide that a civil attack will bear more fruit than a criminal one.) As for current appetite, in a BBC story about the HSBC case, we learn that “Lin Homer, the chief executive of HMRC, has told MPs why there had been only one prosecution of someone whose hidden accounts in Switzerland had been revealed… Most of the information leaked in 2010, which involved about 3,600 UK individuals, was incomplete or ‘dirty’ data. 3,200 individuals had been traced and, of the 1,100 most serious cases – which HMRC had chosen to pursue – only 130 were now outstanding. From the rest of those cases, £135 million had been recovered. Two-thirds of the total group of UK-based HSBC account holders ‘were found to be compliant’ with UK tax rules, in some cases because they had non-dom status.”
What no-one seems to mention is the significance of the money laundering offence. Simply put, if you have an acquisitive criminal offence, you can slap a money laundering offence on top of it – partly (if convicted) to increase the penalty, but also to (a) indicate that money laundering has indeed taken place, and (b) enable financial investigators to get in there and find the money and those who have handled it. In other words, adding a money laundering offence is a Good and Worthy Thing. But you can’t add it to a civil investigation. So for all of those tax evaders with whom HMRC has made peace, there is no way for investigators to drill down into their assets to look for further criminality or for links with other dodgy people. Nor can the investigators find out which institutions were involved in the money laundering (for money laundering will certainly have taken place) – which means that crooked individuals in the regulated sector cannot be rooted out. And crucially, nor can the investigators gather evidence on regulated institutions that are failing to meet their AML obligations and allowing their clients to get up to all manner of fiscal naughtiness. The benefits of the criminal prosecution of tax evaders are indeed much more widespread than it might first appear.