Distinct from tax avoidance, which concerns the reduction of tax liability through legal means, tax evasion is an illegal practice that involves deceitful actions through which taxpayers avoid paying taxes. Above certain amounts and by type of tax, tax evasion is considered a criminal offence under Greek tax law.
An open secret in the business world, tax evasion is used to increase corporate and individual income. Financial and other entities often misuse the advice given by experienced tax consultants and invent ways to minimize their tax obligations. Common tax evasion techniques include concealing income, using false documents, filing and submitting incorrect tax reports, manipulating financial records, and misusing retirement accounts, while transfer pricing, shell companies, and offshore trusts have also emerged as common ways to evade taxes.
Tax evasion and money laundering: Understanding the connection
Money laundering occurs when illicit funds or assets are repatriated into the respective financial system as legally gained and mixed with legitimate revenues and are subsequently circulated to obscure their illegal origins. In some cases, financial offenders may attempt to conceal funds or assets through tax evasion, while in other cases, governmental tax amnesty incentives and asset return initiatives may encourage taxpayers to declare previously undeclared funds and assets and invest them into the financial system.
It is important to note that tax evasion does not always involve illicit financial activities and also that criminal offences under Article 79 of Law 5104/2024 are considered money laundering offences under Law 4557/2018, either connected with illicit money or not.
KYC and risk assessment: The regulatory frameworks to promote tax transparency
Know Your Customer (KYC) procedures involve customer onboarding due diligence for addressing tax evasion and money laundering risks. KYC is a set of identification processes which validate vital information such as a customer’s identity, status, and address.
Capturing and evaluating customer information helps organizations build a client’s risk profile, choose the appropriate risk mitigation measures, and perform adequate ongoing monitoring. KYC procedures should involve adverse media, sanctions lists, and PEP scans to support and control AML/CFT (anti-money laundering and combating the financing of terrorism) compliance. Adverse media screening and sanctions screening tools scan news and European or international lists and reveal negative news and sanctioned persons or entities, so that organizations can decide how to address the assessed risks.
Risk assessment procedures identify organizations’ exposure to business risk and highlight tax evasion and AML risk factors prior to the commencement of the business relationship. Strong KYC practices ensure that organizations remain compliant with national AML/CFT requirements and protect their reputations, assuring employees that they work in an environment that promotes transparency and accountability, inspiring confidence in clients, and discouraging potential perpetrators from any possible misuse of the organization.
The use of appropriate measures requires organizations to invest in human and technological resources and choose to employ experienced AML/CFT service providers and consultants to ensure the accuracy and completeness of their AML/CFT corporate policy and monitor the adequacy of internal audit and AML/CFT compliance systems. The effective integration of KYC and AML/CFT risk assessment processes can help in the fight against money laundering and tax evasion as a part of it.
