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March 11, 2021
2021-0540

OECD releases guidance on combatting professional enablers in tax and other financial crimes

Executive summary

On 25 February 2021, the Organisation for Economic Co-operation and Development (OECD) published a report titled Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar Crimes that addresses tax and financial crime issues posed by professional enablers and provides guidance to countries on combating the use of professional enablers.

To foster a better understanding of the issue of professional enablers, the report first describes the role of professional enablers in tax and financial crimes. The report then outlines actions that governments can take to address the issue of professional enablers in five key areas. The report concludes with recommendations of counter-strategies for governments to consider in addressing the use of professional enablers.

Detailed discussion

Background

According to the report, sophisticated financial crimes often are facilitated by professionals such as lawyers, accountants and financial institutions. The report makes clear that the majority of professionals are law-abiding and play an important role in supporting compliance and the smooth functioning of the financial system, but states that such fraudulent activities by a small segment of professionals undermine the public confidence in the profession and the legal and financial systems. Tackling the non-compliant behavior of these professional enablers is expected to reduce tax fraud and financial crimes at the source.

Understanding the role of professional enablers

The report describes professional enablers generally as skilled professionals who use their knowledge for facilitating the commission of tax and economic crimes by others, usually in large scale and through sophisticated means. It stresses that there is a clear difference between legitimate legal counsel or professional advice and the participation in the commission of a crime, which involves the type of advice offered and whether illegal activities derive from it.

The report sets out examples illustrating the most common services provided by professional enablers, but notes that several of these services are both legal and an essential part of the global financial system so that provision of these services alone is not indicative of a professional enabler:

  1. Setting up companies, trusts and other business structures — exploiting legal arrangements to shield the identity of beneficial owners, create an impediment to recovering assets, or disguise criminal origins of funds.
  2. Setting up offshore structures to hide beneficial ownership and income — establishing offshore structures or use of offshore service providers to conceal the proceeds of crime or evade tax reporting obligations.
  3. Providing false documentation — preparing false paperwork to allow clients to evade their tax responsibility or to provide legitimacy to criminals to deceive other stakeholders.
  4. Assisting in insolvency, bankruptcy and liquidation — abusing a "phoenix company" arrangement by transferring assets of a failing company at below their market value to a newly set-up company thus reducing the funds available for the creditors of the failing company.
  5. Enabling tax fraud through "cum-ex" arrangements — using "cum-ex" arrangements to obtain a refund of taxes that were not paid.
  6. Enabling financial crime through crypto-assets — facilitating laundering of the proceeds of crime.

Identifying professional enablers

The report states that it is important for tax authorities to have processes in place for identifying and collecting information about professional enablers. The report describes the process as including development of its own parameters of the definition of professional enabler; measurement of the potential threats and risks; development of professional enabler indicators; and use of data sources for identifying non-compliance activities by professional enablers. The report includes examples of existing international and country practices as guidance for countries in developing their own processes.

Disrupting and deterring professional enablers

The report discusses various legal frameworks for addressing and punishing professional enablers that participate and facilitate in tax and other financial crimes. It also discusses prevention and disclosure measures for deterring professional enablers from fraudulent activities.

The report suggests that countries consider the use of a range of sanctions tailored to the range of potential offenses, including criminal sanctions and civil penalties. The report also notes the role of professional bodies in suspending members for misconduct. The report further notes that public register listing of disqualified company directors can help prevent professional enablers from operating in their area of expertise again in other countries.

In addition, the report states that it is more efficient to prevent a professional from abusing vulnerabilities in the system than to investigate a professional enabler when tax and other financial crimes occur. Therefore, the report suggests that governments consider pre-emptive communication strategies, including communicating the parameters of tax rules and legal consequences of non-compliance through multiple channels and with industry representative bodies as well as promoting corporate responsibility and good governance. The report also suggests that governments consider voluntary disclosure programs and an anonymous reporting mechanism to help identify professional enablers.

Finally, the report discusses whole-of-government approaches for cooperation through joint investigations, inter-agency centers of intelligence and information sharing within a government, as well as mechanisms for international cooperation, to address the issue of professional enablers.

Implications

This focus on combatting professional enablers is another step in global efforts to fight tax and financial fraud. The objective of the report is to help countries adopt a strategy or strengthen their existing strategy for addressing the issue of professional enablers.

The increased attention on combatting professional enablers may lead to stronger penalties, stricter regulatory requirements and additional reporting requirements. Therefore, tax executives should be aware of the type of problematic services provided by professional enablers engaging in fraudulent activities and should monitor global developments in addressing these areas of concern.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young LLP (United States), Washington, DC

 

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