1 in 5 APAC Banks Say Tax Evasion Will More than Double in 2017 Despite New Regulation

One in five banks in Asia Pacific say that they expect tax evasion to increase 100 to 500 percent over last year’s levels, according to a recent poll by FICO. This is despite new reporting regulations being introduced this year to arrest the problem.

A further one in five senior fraud managers surveyed said they expect the increase to be up to double last year’s levels. While only 22 percent of respondents felt tax evasion would decrease this year.

This outlook comes at a significant point in time, with only five months to go until a new international standard is rolled out that governs how tax authorities in participating countries exchange data relating to the bank accounts of taxpayers.

“The goal is to make offshore tax evasion impossible,” said Dan McConaghy, president for FICO Asia-Pacific. “More than 100 jurisdictions have already signed up to the automatic exchange of information (AEOI) as part of a common reporting standard (CRS). Its introduction this year will see the initial wave of Asian countries start to share tax information on individuals from September.”

India and Korea will be the first countries to commence reporting in 2017, with Australia, New Zealand, China, Japan, Indonesia, Malaysia, Brunei, Macao, Hong Kong and Singapore due to start in September 2018.

The AEOI requirement will see bank account information reported by the banks to the domestic tax authorities, who will then exchange the data with tax authorities in partner countries.

“Tax evasion was thrust into the spotlight following the Panama Papers scandal last year,” said McConaghy. “Closer to home we have also seen high-profile tax evasion stories in Korea and India. In order to facilitate the exchange of information required, many financial institutions will need to enhance their tax compliance methods. By adopting an automated compliance process, banks will be able to implement the various identification, classification and reporting requirements in a way that is future-proof.”

Currently, banks are a long way from this goal, with 68 percent of respondents in the survey saying they do not currently have the resources or solutions to identify and report the accounts of private persons and companies to other jurisdictions.

Strong link between tax evasion and money laundering

Respondents to the survey also highlighted the strong link between tax evasion and money laundering, with 81 percent saying it is critical to import new data sources like the 'Panama Papers' into anti money laundering (AML) solutions.

FICO TONBELLER’s Siron solutions address money laundering, tax evasion, know-your-customer and other compliance requirements. The data from the Panama Papers was integrated into the software last year and the AEOI requirements are also incorporated.

Interestingly, while new technological resources are being allocated to combat cybercrime and credit card fraud, only 22 percent of respondents have applied behavioral analytics to help fight financial crime. Overall, 73 percent of banks in APAC are still using rules-based systems, including all Chinese banks surveyed.

“Financial crimes such as money laundering and tax evasion are escalating in priority for governments across the globe,” said McConaghy. “As we head towards a new era of data collection and sharing in a global environment to prevent tax evasion, banks will need systems that are fast and accurate to comply.”

The survey was conducted at the annual FICO Asia Pacific Fraud Forum held in Cebu, the Philippines. A total of 37 executives from financial institutions across the region participated in the survey.

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