Dozens of nations use tax amnesties, sometimes called voluntary disclosure facilities, that plug leaks from their revenues. By a strange irony, embattled Turkey has become one of the latest countries to come up with such a scheme.

Despite the immunities it is offering to induce recalcitrant non-taxpayers to 'come clean,' it may find that they are not very willing to confess their tax-evasion to a government that was almost toppled by a military coup at the weekend and which has in any case been marching down a draconian path towards dictatorship for many years.

On 24 June, the Turkish government submitted a draft bill, called the "Law Amending Certain Laws to Improve the Investment Climate", to the Turkish Parliament. Turkey has accelerated the efforts it has been making to exchange account information with the tax authorities of other countries in preparation for the world common reporting standard or CRS. According to the international law firm of Baker & McKenzie: “with this increasing transparency, a tax amnesty for undeclared assets abroad owned by individuals resident in Turkey has long been expected”.

Turkey's Government is proposing to oblige legal entities and real persons resident in Turkey to notify a bank or intermediary institution in Turkey of their money, gold, foreign currency, securities and other capital market instruments kept abroad before 31st December. Legal entities and real persons will, if the proposal becomes law, also declare these assets to the relevant authorities on behalf and on account of third parties. To benefit from this tax amnesty, taxpayers must move their assets to Turkey within one month after notification, but in any event by 31st December. The bill also proposes to allow taxpayers to bring their assets located abroad to Turkey tax-free. Indonesia, Malaysia, Brazil - along with other other poor countries that have had their share of political turmoil, periods of military rule and uneven reform - have also declared tax amnesties in recent years.

Information at risk

When any country seeks data about its citizens’ offshore accounts, it is likely to be an unreliable custodian of such information. In 2010, the Society of Trust and Estate Practitioners, or STEP, voiced this concern in a policy paper. STEP said that it was concerned about a 'major flaw' in the tax information exchange agreements as framed by the Organisation for Economic Co-operation and Development, stating: “Without fresh safeguards, the result could be detailed data on individuals being provided to countries with poor records in areas such as respect for human rights or protecting personal data from abuse. This reflects a major flaw in the current OECD peer review process for TIEAs – the review process only examines a country’s ability to deliver tax information.”

Last August, the OECD issued a paper that analysed 47 jurisdictions’ voluntary disclosure schemes. Although it spotted certain similarities between them, it also found 'striking' differences between the penalties on offer, although its reasons for caring about this remain obscure. In some countries, monetary penalties are well below half of the unpaid tax while in a large number of countries the maximum penalty can be as high as (or even above) double the amount of undeclared income. Another noteworthy fact from the OECD study is that 19 out of 47 countries cut the monetary penalties to nil whenever taxpayers made voluntary disclosures.

Money-laundering concerns at an all-time high

Another question that attends this development is whether previously laundered money will make its way to Turkish shores as part of the tax amnesty. Money-launderers love to pay their taxes, as nothing is further beyond reproach in the eyes of a 'know your customer' team at a bank than a letter from the Tax Office. At the beginning of this century money-launderers in their droves overpaid their taxes to the Inland Revenue in the just expectation that the taxman would refund the surplus, thereby giving it the sheen of legitimacy. When this author rang the Revenue up to ask what it was doing to stop this, it refused to answer. Such tactics are probably still in use in the UK and are certainly in use in Turkey. The recent political turmoil, and Turkey's obvious need for tax revenue, is likely to weaken any KYC controls that the Turkish Revenue Administration might have in place. Over the sea from Turkey lies the 33-year-old Turkish Republic of Northern Cyprus, a fly-by-night regime recognised by nobody but the Turkish Government and a hotbed of money-laundering into the bargain, albeit on a small scale. It is unknown how much money will flow through its 22 banks and other conduits into the onshore Turkish taxman's hands and out again into the legitimate financial sector because of the tax amnesty.

Turkey does not have a currency transaction reporting regime, i.e. a regime that commands all financial institutions to report large transactions. It does not have arrangements for sharing assets with other countries in the way that, for example, the Swiss Government shares the assets of American criminals impounded in Switerland with the US Government. It does, however, have a modern AML regime, at least on paper. No government or international organization such as the United Nations or Financial Action Task Force, has imposed sanctions or penalties against it in respect of money-laundering. It does, however, have all the other paraphernalia of international AML compliance. It has criminalised money-laundering for the proceeds of illegal drug sales and beyond, it has 'know your customer' provisions in its law, it forces firms to report suspicious transactions and maintain records over time, it has 'safe harbour' protection for firms that disclose information about accounts, it has criminalised 'tipping off,' it has a financial intelligence unit, it has an international law enforcement co-operation policy, it has a system for identifying and/or forfeiting assets, it has criminalised terrorist finance, its authorities have the legal power to freeze terrorists' assets without delay, and it has signed various agreements that are dear to American hearts, such as the 1988 UN Drug Convention, the Terror Finance Convention, the United Nations Convention against Transnational Organized Crime and the United Nations Convention against Corruption.

As far as predicate crimes for money-laundering are concerned, Turkey is a major transit route for South-West Asian opiates moving into Europe. Its criminals also launder the money they make from smuggling, invoice fraud, tax evasion, counterfeiting, forgery, highway robbery and kidnapping. Terrorist finance is prevalent, especially over the southern border with Syria.