On 21 and 22 November 2016, Jonathan Fisher QC, Lead Counsel, and Anita Clifford, Senior Associate, of The White Collar Crime Centre collaborated with the International Senior Lawyers’ Project (“ISLP”) to offer consultancy and training on tax evasion and money laundering issues to judges and prosecutors at the Albanian Magistrates School. During the course of a two-day workshop, insights were shared about tackling tax evasion in the context of Albania’s black economy.

Under a bright blue sky in downtown Tirana, a growing cluster of octogenarians stand patiently by the entrance to a former bunker. Some know each other, others don’t. All of them are there for a purpose. Opened on 19 November 2016, they are waiting to enter a museum focusing on a dark period of Albanian history that has occurred within their lifetime. It was only in 1992 that Albania emerged from 50 years of Communist dictatorship under which thousands were wrongfully imprisoned, tortured and executed and the entire population subjected to an invasive policing regime. Since then, Albania, with a population of 2.9 million and its eye on EU-entry negotiations, has transitioned into a democracy and market-oriented economy. However, with corruption (labelled locally as ‘clientalism’), tax evasion and money laundering frequently headlining the Albanian Daily News, legal, political, and financial sector reform is a high priority.

Against this background, The White Collar Crime Centre, in collaboration with the International Senior Lawyers’ Project (“ISLP”), travelled to Tirana to deliver a two-day training workshop pro bono on 21-22 November 2016 at the Albanian Magistrates School on the intersection of tax evasion and money laundering to Albanian judges and prosecutors grappling with these issues every day.

In London, with policymakers racing ahead with implementing the European Union’s 4th Anti-Money Laundering Directive (“4MLD”) in time for the new year and practitioners excitedly debating the Criminal Finances Bill 2016, it is easy to lose sight of how the fight against financial crime is being waged in nearby transitioning countries. Comprehensive laws tackling money laundering and tax evasion are mandatory for Council of Europe Member States. Since 2011, this has resulted in Albania’s steady overhaul of its Criminal Code to include a host of money laundering and tax evasion offences, and the introduction of a tighter confiscation and money laundering reporting regime. Progress has been substantial and in March 2015 the Council removed Albania from its watchlist of Member States requiring ongoing money laundering monitoring.[1] Yet, in a country which is tied with Indonesia in the latest corruption index,[2] has a large cash-based black economy, public distrust of government and the judiciary and until the early 1990s no personal income tax system,[3] widespread acceptance of these laws and enforcement is another matter.

The term “black economy” covers all economic activities carried out by persons or entities which aim to avoid tax or operate contrary to law. The underlying economic activity may not be illegal. In addition to income generated through organised drug crime and corrupt payments to public officials, major participants in the Albanian black economy include those engaging in lawful activities such as street vendors, professional service providers and tradespersons who work abroad in Greece or Italy and send undeclared money home. Official statistics put Albania’s black economy at 33% of GDP[4] but its true size is difficult to discern. The high volume of cash transactions in Albania further means that identifying the tax evader is notoriously difficult.

Over lunch on the first day of the workshop, a delegate spoke of how for some Albanians who clearly remember Communist rule and post-1992 high rates of poverty and unemployment, there is a strong resistance to taxation. In a sense, therefore, new criminal laws and processes which comply with European Union requirements directed at combatting tax evasion and money laundering has arguably had the perverse effect of further stimulating Albania’s black economy.[5]

It follows that although the laws might now be tougher, tax evasion in Albania is widespread and, by extension, holding the money launderer to account is far from easy. Another delegate described it as like “the Leonardo DiCaprio movie, Catch Me if You Can.” The observation reflected two main sentiments that continued to be expressed over the two-day workshop. In a country where, it was said, everyone knows someone working “in the black” and resources are scarce, how can tax evasion and anti money-laundering laws properly be enforced against all of those who act contrary to them? And if they are not enforced, how can they be respected?

These are important questions facing judges, prosecutors and lawmakers in Albania. On paper, the nexus between tax evasion and money laundering is clear. 4MLD establishes that tax evasion is a predicate offence to money laundering. Undeclared profit or income however generated is illicit and the use, transfer, or concealment of the money amounts to money laundering. Individuals, including professional advisers, who assist in using, transferring, or concealing illicit profit are also exposed to criminal liability. But in a country struggling with under-declaration of income and where public resources are limited, how to change social attitudes to taxation, draw awareness to the link between tax evasion and money laundering, and identify the types of people or assets deserving of investigation and prosecution are live issues.

Against this background, the benefits of knowledge sharing are clear. The UK, after all, is continually exploring new ways to tackle money laundering and tax evasion. At first glance, the spotlight that Phillip Hammond, Chancellor of the Exchequer, placed last week on London employees salary sacrificing for health club memberships seems different to a question that was raised at the workshop about how to deal with the lowly-paid hospital worker who registers for work at several different institutions to enjoy tax breaks. But is it really? Stripped back, they centre on the same issue. Where is the line between tax efficiency and tax avoidance? And when does tax avoidance become tax evasion? The goalposts in the UK are continually shifting if the Revenue’s enhanced prosecution efforts in 2015/16 are anything to go by.[6] Similarly, whether it is raised in the context of the Revenue’s voluntary tax avoidance disclosure regime or the long distrust of the authorities in a transitioning country, a critical question arises about how best to incentivise the individual to accurately disclose all of their income.

There is, accordingly, much common ground to be traversed and more insights to be shared between jurisdictions. In the fight against financial crime, the next significant step is billed as being the transposition of 4MLD into the law of Member States. However, for tax evasion and money laundering to be effectively targeted throughout Europe the starting point must be to recognise the distinct challenges faced by transitioning countries in respect of these issues and open a dialogue about ways to address them.