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Laundering from Tax Offences

The proprietorship accounts of IK and SA were opened in a tax exempted region and transactions in their accounts were conducted online in order to evade withholding tax on cash withdrawals. Furthermore, from the transactional activity and the region where the accounts were maintained, it was likely that IK and SA were  involved in hawala/smuggling/trade-based money laundering.

Two proprietorship accounts maintained by IK and SA were reported. The accounts were maintained at XYZ Bank’s branch located in tax exempted area. The accounts were reported by the bank due to large turnover and inconsistent patterns of transactions – transactions were conducted with unrelated counterparties and the transactions in the accounts were conducted online from different regions.

Upon analysis, the accounts of IK and SA were found to be linked due to common office contact number provided in the account opening forms. Further, it was revealed that the accounts were operated by a third party under a mandate, which raised concerns regarding the beneficial ownership of the accounts. Besides large turnover reported in the accounts, many transactions in cash mode were conducted in the accounts and a majority of the transactions in the accounts were conducted online from XYZ Bank’s branch located in tax exempted area.

Many CTRs were reported on IK and SA and from these reports various other banking relationships maintained by IK and SA in different banks were identified. For an account maintained by IK, an STR was reported when he tried to remit USD 900,000, however, the request to transfer the funds was declined by the bank. The said activity was also conducted in ABC Bank’s branch located in tax exempted area.

It was apparent from the transactional activities that the accounts of IK and SA were maintained in tax exempted area to evade withholding tax on cash withdrawals. Due to large turnover in the accounts being maintained in the tax exempted area with the intention to misuse the tax exemption regime, carry out transactions potentially linked to smuggling and trade-based money laundering, the financial intelligence was shared with the relevant LEAs for investigation. Furthermore, the matter was also referred to the regulator to look in to the matter to discourage such practices.


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