Tax evasion funds illicit economies and global terror more widely than e-commerce

Income tax evasion and money laundering are both widespread and costly. Feige and Cebula (2011) estimate that tax evasion costs the US Treasury approximately US$500bn in lost revenue per year. Murphy (2012) and Schneider et al. (2015) estimate the cost approaches US$1tn per year in the European Union alone. This lost tax revenue strangles services, swells budget deficits, places an unfair burden on honest taxpayers and hurts the general welfare by distorting economic competition. In regard to money laundering, the United Nations Office on Drugs and Crime (2011) estimates that approximately US$1.6tn in criminal gains were laundered in 2009, equal to 2.7% of global gross domestic product (GDP). These illicit funds distort resource allocation by crowding out licit sectors, while successful money laundering foments more criminal enterprise.

Policymakers have long recognized that an overlap exists between tax evasion and money laundering. Both crimes are often concurrently committed and both crimes often rely upon similar techniques. Corporate shell companies and fraudulent business records/ accounting journal entries are often the tools of both offenses. Further, both tax evasion and money laundering commonly use opaque offshore tax havens where offenders hide assets, estimated at 10% of global GDP (Alstadsaeter et al., 2018). Given the interrelated nature of tax evasion and money laundering, prosecutors in many nations frequently initiate legal action by levying both charges (as well as fraud) for a single offense. To some degree, this array of charges reflects the ill-defined judicial boundaries between tax evasion and money laundering, which is at least partly because of an uncertain understanding of the fundamental nexus between the two crimes.