Tax Havens Pull Up Socks

In: Other Topics

Submitted By kabirhanda46
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Tax Havens pull up socks in ‘transparency’ era

The great ‘subprime’ crisis has had its share of fallouts over past 24 months; yet there is a silver lining emerging from under the dark clouds which has the world order gearing up for a brand new era of financial discipline and enhanced regulation. Ironically, one of the positives borne out of the recent economic upheaval has been staggering focus on ensuring robust transparency standards in tax matters.

Before delving further into how tax transparency and information exchange are critical for sorting financial disorder across economies, let me try and explain the concept of ‘money laundering’ and how the absence of strict standards in tax discipline have abated this menace. This also helps putting in perspective the role that the international tax policy, in tandem with other non-tax measures, plays in combating tax evasion, whether with or without aid of money laundering.

What’s the color of money!!

Money laundering is loosely used to describe ‘washing’ of unaccounted or illicitly sourced money through a cobweb of complex financial transactions, usually involving more than one jurisdiction. The objective of the process deployed to ‘clean’ the money is to hide either the ownership or the destination of such funds. A typical ‘laundering’ scheme could see three stages:

a) Placement stage – at this stage, the objective of stakeholders is to move the illicit funds away from source location; sources of such funds can be traced to ‘cash intensive’ illegal business (such as drug trafficking, smuggling, etc)

b) Layering stage – this is most crucial stage in the process, as money virtually changes its color through this stage. the objective is to conceal the ownership and mitigate audit trail by employing funds in complex financial dealings (in stocks, commodity and future brokers). Often the sheer volume of…...

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