The evolution of the AML framework

The term ‘money laundering’ refers to the ‘process whereby criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities.’^[1] Since the late 1980s, money laundering has been the subject of extensive international efforts at eradicating this practice,^[2] with the idea that an effective preventive framework will make it harder for criminals to launder the proceeds of their crimes and thereby enjoy their profits, removing the motivation for committing the predicate offence.^[3] These international initiatives include several United Nations (UN) conventions,^[4] the recommendations proffered by the FATE^[5] and several European Union (EU) directives.^[6]

At the inception of the international AML framework, AML initiatives were aimed solely at countering the laundering of proceeds derived from drug trafficking offences, and it was not envisaged that such a framework would apply to tax evasion.^[7] Gradually, the AML framework expanded to cover the laundering of the proceeds of serious or organised crime^[8] and, controversially, the financing of terrorism.^[9] One of the first signs of the expansion towards fiscal offences occurred in 1998 as part of a G7 Initiative on Harmful Tax Competition, whereby the G7 agreed to take action against tax offences by utilising and sharing information generated by the AML regime.^[10] Soon after, the FATF called on states to ensure that suspicious transactions were reported, regardless of whether they also concerned tax offences.^[11] However, the FATF Recommendations did not explicitly require tax evasion to be a predicate offence for AML purposes until the 2012 revision of the recommendations. Following this inclusion, the Fourth EU AML Directive mandated that tax offences were to be included as predicate offences to laundering.^[12]

In the United Kingdom, tax offences were included as predicate offences to money laundering long before that obligation was imposed at an international level. This development was secured by the Criminal Justice Act 1993, which extended the money laundering offence to the proceeds of any offence in England and Wales or conduct which would otherwise be an offence if it had occurred there.^[13] Although there was initial ambiguity over whether the AML framework applied to tax offences, and institutional reluctance to use the framework for such cases,^[14] it soon became clear that tax offences were included as predicate offences for the purposes of the United Kingdom’s AML framework.^[15]

• [1] Ryder, N., ‘The financial services authority and money laundering: A game of cat and mouse’ (2008) 67 Cambridge Law Journal 635.
• [2] UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988 (1582 UNTS 95) (Vienna Convention).
• [3] Harvey, J., ‘An evaluation of money laundering policies’ (2005) 8 Journal of Money Laundering Control 339.
• [4] Vienna Convention (fn 13); UN Convention against Transnational Organized Crime 2000 (2225 UNTS 209) (Palermo Convention).
• [5] FATF (fn 7).
• [6] See especially Council Directive 2015/849 on the pret ention of the use of the financial system for the purposes of money laundering or terrorist financing (Fourth AML Directive).
• [7] Vienna Convention (fn 13).
• [8] Palermo Convention (fn 15).
• [9] See for instance, Roberge, I., ‘Misguided policies in the war on terror? The case for disentangling terrorist financing from money laundering’ (2007) 27 Politics 196; King, C. and Walker, C., ‘Counter terrorism financing: A redundant fragmentation?’ (2015) 6 New Journal of European Criminal Law 372-, Compin, F., ‘Terrorism financing and money laundering: Two sides of the same coin?’ (2018) 25 Journal of Financial Crime 962.
• [10] G7 Initiative on Harmful Tax Competition (Birmingham Summit 15-17 May 1998); text available from the University of Toronto’s G8 Information Centre ().
• [11] Interpretive Note to Recommendation 13 of the FATF Recommendations (2003 version).
• [12] Dir. 2015/849, art.3(4)(f).
• [13] Criminal Justice Act 1988, s.93A(7) (as amended by Criminal Justice Act 1993, ss.29-31 ).
• [14] A UK treasury official and the British Banker’s Association initially gave assurances that the framework did not encompass tax offences. Bridges, M., ‘Tax evasion: A crime in itself: The relationship with money laundering’ (1996)4 Journal of Financial Crime 161, 164.
• [15] Ibid.