Banks fear move to broaden role into tax fraud detection

Date: 26/02/1998

By Chris Johnstone

EUROPE's banks have vowed to fight any move to widen existing EU rules which would force them to denounce suspected tax evasion by customers.

The European Banking Federation claims Union officials are contemplating broadening the scope of an existing directive which compels banks to alert national authorities to evidence of the laundering of proceeds from drug dealing, to cover suspected fiscal fraud by customers.

Its members' hostility to the idea stems from their belief that it would not work in practice, and would merely serve to damage their relationship with customers.

A spokeswoman for Internal Market Commissioner Mario Monti confirmed this week that a report due out next month on the workings of the current directive was likely to suggest extending the obligation to declare suspicious transactions to other professions, such as lawyers.

She added that there was "big pressure" from member states and the European Parliament to extend the scope of the directive to bring in other crimes, but stressed that the Commission had not taken any decision.

Pressure for a European initiative follows tentative national moves to use banks to clamp down on fiscal fraud.

The UK government has already broadened its national money-laundering laws to cover the proceeds from all indictable offences, although the British Banking Federation (BBF) has been fighting a rearguard action to counter this wide interpretation being applied to tax evasion.

France, too, has proposed legislation to widen the scope of its existing money-laundering sanctions to include fiscal fraud.

An expert from the BBF said that a widening of the existing EU directive to cover the laundering of proceeds from all crime was on the cards. She added, however, that it would still be up to individual member states to spell out which criminal gains banks should be looking out for.

"There will be an extension to all crimes. However, I do not see how the Commission could come up with a list of individual crimes because there are no international definitions apart from drug dealing. Individual countries would have to decide to include fiscal fraud," she said.

The main argument put forward by the banks to justify their opposition to any widening of the directive is that it would be impossible for them to identify possible cases of tax evasion.

"Banks have no way of knowing if fiscal fraud is taking place when a sum is deposited. The offence of evasion only takes place when the sum is not declared to the authorities," said a banking source.

They also argue that such an approach would probably not net any big criminals because they would keep their accounts in order - unlike the late Al Capone - to avoid drawing attention to themselves.

Worries about moves to widen the money-laundering directive come against a backdrop of concern over whether national authorities are making full use of the information they already receive from the banking sector.

Bankers say they have the impression that scant attention is given to the suspect transactions they are signalling under the current rules and are calling for more feedback about the action taken as a result of their tip-offs.

The overall impression, however, is that the existing rules are pushing the laundering of dirty money away from bank counters and into telephone banking, or through intermediaries such as lawyers, estate agents and casinos.

Industry sources also suggest that governments have wildly exaggerated claims about the size of the sums being laundered.

"We see estimates of the amount of money laundering of up to 1.5 trillion ecu. Where is all this money?" asked one bank official.

Europe's banks have vowed to fight any move to widen existing EU rules which would force them to denounce suspected tax evasion by customers.