Tax evasion is more than just tax avoidance gone too far. It is a serious offence that drains economies of an estimated half a trillion dollars each year, fuelled by individuals and businesses exploiting loopholes to disguise taxable profits.
While tax evasion is already a criminal act, the practice often intersects with broader financial crimes. Identities and payments are deliberately hidden, allowing organised networks to operate under the radar and businesses to shield themselves from reputational damage, claims RelyComply.
South Africa has been at the forefront of tackling these risks. Auditors step up scrutiny during tax filing periods, but financial institutions are also expected to play their part. By strengthening anti-money laundering (AML) protocols, they are better positioned to identify red flags such as complex holding structures, offshore accounts, and concealed beneficiary control that enable tax crimes to flourish.
Regulators are increasingly focusing less on the individual taxpayer and more on systemic flaws that allow crimes to slip through compliance gaps. The responsibility now lies heavily on financial institutions to implement stronger monitoring and reporting processes as evasion tactics become more sophisticated.
Historically, tax crime and money laundering were viewed separately. This changed after the Financial Action Task Force (FATF) declared tax evasion a predicate offence in 2012, obliging financial institutions to report suspicious activity. Techniques that straddle both areas include layering company structures, disguising asset origins, manipulating valuations, and using intermediaries or offshore havens to escape domestic AML laws. These overlaps mean that AML compliance has become central to combating tax evasion.
Yet, the interpretation of what qualifies as tax crime still varies by jurisdiction, leading to inconsistencies in due diligence and monitoring across borders. This disparity, coupled with outdated AML frameworks, has created opportunities for evasion to persist and adapt with the rise of new technologies.
One of the biggest blind spots is ultimate beneficial ownership (UBO) transparency. FATF has encouraged stronger know your customer and business (KYC/B) processes, but in practice, UBO structures remain opaque. The South African Companies and Intellectual Property Commission (CIPC) revised its Companies Act in 2023, defining a UBO as anyone with at least 5% beneficial control. Despite this, nominee directors, shell companies, complex trust structures, and misaligned jurisdictional filings still enable hidden ownership and tax evasion.
Different jurisdictions have adopted different strategies. The US introduced disclosure rules through the Corporate Transparency Act, while the UK maintains three registers. The UAE enforces UBO disclosure, but the EU retreated from plans for public registries after a European Court of Justice ruling. In South Africa, the CIPC has opted for a centralised, non-public registry accessible to regulators and enforcement bodies.
Global regulators are pushing for a more unified approach. FATF and the OECD have revised guidance on beneficial ownership and called for closer collaboration between tax authorities and AML agencies. Financial institutions are expected to go beyond surface-level compliance checks, using advanced tools to verify UBO declarations, expose shell companies, and flag activity in known tax havens.
Technology is now a critical part of this fight. Authorities like the IRS in the US and HMRC in the UK deploy AI-powered tools to detect anomalies in tax filings, such as mismatches between reported income and lifestyle indicators. South Africa’s Revenue Service has used machine learning since 2016, recovering R91bn and identifying thousands of unregistered taxpayers, but still faces an estimated R800bn in uncollected revenue.
For institutions, tax evasion is no longer a matter of weak compliance. Under South Africa’s FIC Act, tax evasion is explicitly a predicate offence, requiring firms to meet strict suspicious transaction reporting obligations. RegTech solutions are helping close these gaps, offering automated monitoring, customisable thresholds, and integrations with domestic and global registries to expose risks in real time.
Tax crime undermines both economic stability and AML systems worldwide. As regulators demand more transparency, institutions cannot afford to let UBOs remain hidden. Greater collaboration, stronger data-sharing frameworks, and AI-driven detection may be the only way to stem the tide of this pervasive financial crime.
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