Report on Abuse of Charities for Money-Laundering and Tax Evasion

Many countries recognize the important and significant role the voluntary sector plays in building a strong, caring and well-functioning society as well as in contributing to employment, welfare and economic growth. The vast majority of charities are legitimate, but some may be targeted by criminals to launder the proceeds of tax crimes and other serious offences.

Tax evasion and tax fraud through the abuse of charities is a serious and increasing risk in many countries, although its impact is variable. Some countries have not identified any abuse, while others estimate that the abuse of charities costs their treasury many hundreds of millions of dollars and is becoming more prevalent.

The report summarizes the status attached to charities in 19 countries surveyed and compiles the common methods of the abuse of charities and the sectors at risk. It sets out the detection strategies that countries have adopted. It also provides the red flag indicators that will help tax staff in processing tax returns and carrying out audits. The report gives examples of information resources and describes the detection and investigation approaches adopted by a number of the countries.

The abuse of charities is becoming more organised and more sophisticated. Most countries surveyed that have identified problems with the abuse of charities find it difficult to detect all cases of abuse. The report gives illustrative case studies to aid comprehension and to raise the awareness of tax authorities about the potential abuse of charities in their countries.