Tax Evasion & Money Laundering: The Connection
Criminal money laundering and tax evasion use the same methods and exhibit similar characteristics to casinos and other financial institutions.
Tax evasion is a crime. Yet to the average, every-day citizen, it can be easy to be sympathetic. Nobody likes having big chunks of their hard-earned money taken, and from that perspective, tax evasion can be understandable. However, most tax evasion occurs among the wealthy, and at the end of the day, it is still a crime–a crime required to be reported by casinos and other financial institutions under BSA regulations.
Tax evasion…what does that look like? To evade income tax, the gross income itself must be hidden from government eyes (and this includes casino winnings). To do that, a person can have the same goals and use the same processes by which money is laundered. (see previous Crime Control articles’ Money Laundering table) In fact, once these actions are taken, it essentially is money laundering – for the purposes of tax evasion. Someone engaging in tax evasion (from a legal source) would use these same techniques and present the same characteristics of suspicious activity as a criminal laundering “dirty” money. Structuring, transactions without an apparent purpose, and currency transactions below $10,000 are all methods commonly used to evade taxes, and to launder illicit proceeds.
Having said that, not all funds that evade taxes go through the traditional money laundering process. Some funds may be part of an informal economy and remain outside of the banking system. For example, a housecleaner is paid for services in cash, and then uses the cash to purchase groceries, gas, or other things. Sure, that example describes a relatively small amount but the same can happen on a much larger scale. Money spent at a casino could easily be tax evaded funds, although that would be difficult to detect.
An estimated 85% of all laundered funds are related to tax evasion1. It should be noted that tax evasion can be legally earned funds (not criminal) as well as funds generated by illegal means. So, tax evaders aren’t always hardened criminals…they can be normal, likable people. Yet once they consciously take action to avoid taxes or hide income, they’ve committed a reportable suspicious activity.
The common goals and processes of money laundering often occur when evading taxes. This is one reason why casino associates are trained and encouraged to identify the characteristics of suspicious activity and report them. For example, if a guest is structuring, switching seats on jackpots, or presenting false ID, they may be attempting to conceal their identity, distance themselves from transactions or avoiding reporting for the purpose of tax evasion. Though the purpose may remain unknown, the characteristics of suspicious activity are likely recognized by casino staff and reported.
Casinos and other financial institutions are not required to investigate or determine the underlying crime (or purpose) of a given suspicious activity. That is the responsibility of law enforcement. Casinos and their associates should, to the best of their ability, identify the characteristics of suspicious activity.Associates report suspicious activity by completing a CIR (Compliance Incident Report), but interestingly, an actual SAR form (completed by Compliance) has 96 different categories of suspicious activity, half of which are not linked to any specific crime. In 2019, about 3.8 million or 69% of SAR categories indicated were in the unspecified crime group. Examples include:
- Transaction(s) Below BSA Recordkeeping Thresholds
- Transaction with No Apparent Economic, Business, or Lawful Purpose
- Multiple Individuals with Same or Similar Identities
- Refused or Avoided Request for Documentation
- Unknown Source of (casino) Chips
Law enforcement has been extremely successful in using BSA data, even from the unspecified crime group, to investigate and prosecute criminals, protect the U.S. financial system, and keep our communities safe.
As a casino associate, you have an obligation to report suspicious activity and are at risk of liability if you “look the other way” and fail to do so. As you go through yearly BSA training, pay attention, and know the red flags of suspicious activity. By identifying and reporting the characteristics of suspicious activity, even if the purpose or underlying crime isn’t known, you’re fulfilling your obligation and protecting yourself, the casino, and the Choctaw Nation of Oklahoma.
Tax Evasion: The Largest Source of Laundered Funds, Alison Jimenez, Dynamic Securities Analytics, Inc., May 12, 2020, LinkedIn