FinTech for Consumers and Retail Investors: Opportunities and Risks of Digital Payment and Investment Services

Is the United States losing its position as the world's leading capital market? Recent statistics suggest that U.S. stock exchanges have been losing ground to foreign stock exchanges. The share of equity raised in global public markets represented by the New York Stock Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX) combined dropped from 28.8% in 2002 to 23.0% in 2009.1 1Comm. on Capital Markets Regulation, The Competitive Position of the U.S. Public Equity Market 7 (Dec. 4, 2007), available athttp://www.capmktsreg.org/pdfs/The_Competitive_Position_of_the_US_Public_Equity_Market.pdf; World Fed'n of Exch., 2009 Annual Report and Statistics 118, available athttp://www.world-exchanges.org/files/statistics/excel/WFE09%20final.pdf. Foreign delistings from the NYSE rose from 3.9% of all listed foreign companies in 1997 to 8.7% in 2009.2 2Comm. on Capital Markets Regulation, supra note 1, at 21; World Fed'n of Exch., supra note 1, at 104–05. The U.S. market capitalization decreased from 47.8% of the total global market capitalization in 1999 to 31.6% in 2009.3 3 Brown, Elizabeth F., The Tyranny of the Multitude Is a Multiplied Tyranny: Is the United States Financial Regulatory Structure Undermining U.S. Competitiveness?, 2 Brook. J. Corp. Fin. & Com. L. 369, 393– 94 (2008); World Fed'n of Exch., supra note 1, at 102. Market capitalization is as measured by the World Federation of Exchanges. Although in 2000, nine of the top ten initial public offerings (IPOs) in the world took place on U.S. exchanges, by 2005, only one of the twenty-five largest IPOs took place on a U.S. exchange.4 4Eric Pan, Why the World No Longer Puts Its Stock in Us 2–3 (Dec. 13, 2006) (Benjamin N. Cardozo Sch. of Law Jacob Burns Inst. for Advanced Legal Stud. Working Paper No. 176), available athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=951705. In the first half of 2010, Asian exchanges dominated equity IPOs, with $22.6 billion raised on the Shenzhen Stock Exchange and US$8.9 billion raised on the Shanghai Stock Exchange as opposed to $6.7 billion on the NYSE.5 5World Fed'n of Exch., Market Highlights For First Half-Year 2010, 8, available athttp://www.world-exchanges.org/files/file/stats%20and%20charts/July%202010%20WFE%20Market%Highlights.pdf. Commentators argue that one reason for the declining importance of the U.S. stock markets is the high level of regulation in the United States, especially after the passage of the Sarbanes-Oxley Act in 2002.6 6Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat 745 (codified in scattered sections of 11, 15, 18, 28, and 29 U.S.C.) [hereinafter SOX]. Proponents of regulatory competition argue that the U.S. securities regulatory regime is too onerous and that companies should, instead, be allowed to choose which jurisdiction's securities law should apply to them. See, e.g., Choi, Stephen, Regulating Investors Not Issuers: A Market-Based Proposal, 88 Cal. L. Rev. 279 (2000); Choi, Stephen J. & Guzman, Andrew T., Portable Reciprocity: Rethinking the International Reach of Securities Regulation, 71 S. Cal. L. Rev. 903 (1998); Coffee, John C., Racing Towards the Top?: The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance, 102 Colum. L. Rev. 1757 (2002); Palmiter, Alan R., Toward Disclosure Choice in Securities Offerings, 1999 Colum. Bus. L. Rev. 1; Romano, Roberta, Empowering Investors: A Market Approach to Securities Regulation, 107 Yale L.J. 2359 (1998). But there is also a concern that regulatory competition will lead to a race to the bottom. See Cox, James D., Choice of Law Rules for International Securities Transactions?, 66 U. Cin. L. Rev. 1179, 1186 (1998) (arguing the parties should not be able to avoid U.S. securities regulation in private securities transactions partly because there is a "need to protect investors from themselves"). For more on the regulatory competition debate, see Jackson, Howell E. & Pan, Eric J., Regulatory Competition in International Securities Markets: Evidence from Europe in 1999—Part I, 56 Bus. Law. 653, 658 (2001). In response to comment letters from many foreign private issuers requesting exemptions from some of the requirements of SOX, the Securities and Exchange Commission (SEC) did grant certain accommodations. In addition, in 2007, the SEC adopted a rule that allowed certain foreign private issuers to deregister and no longer be subject to U.S. securities regulation (the "deregistration rule"). With the recent global financial crisis, however, there have been renewed calls for more stringent U.S. regulation to prevent future financial crises.7 7 See, e.g., Coffee, John C. & Sale, Hillary A., Redesigning the SEC: Does the Treasury Have a Better Idea?, 95 Va. L. Rev. 707 (2009); Cunningham, Lawrence A. & Zaring, David, The Three or Four Approaches to Financial Regulation: A Cautionary Analysis Against Exuberance in Crisis Response, 78 Geo. Wash. L. Rev. 39 (2009). The current crisis has rattled world markets, resulting in, among other events, the bankruptcy of Lehman Brothers and some foreign governments needing International Monetary Fund packages.8 8 See, e.g., Davidoff, Steven M. & Zaring, David, Regulation by Deal: The Government's Response to the Financial Crisis, 61 Admin. L. Rev. 463 (2009); Okamoto, Karl S., After the Bailout: Regulating Systemic Moral Hazard, 57 UCLA L. Rev. 183 (2009). In a November 17, 2009 speech, SEC Commissioner Kathleen Casey stated that one of the lessons of the current financial crisis is that financial stability depends on investor confidence, which in turn depends on the transparency of financial statements.9 9Kathleen L. Casey, Comm'r, SEC, Lessons from the Financial Crisis for Financial Reporting, Standard Setting and Rule Making (Nov. 17, 2009), available athttp://www.sec.gov/news/speech/2009/spch111709klc.htm. As Congress had directed the SEC to review and study fair value accounting standards, the SEC delivered a report that included several recommendations on changes to fair value accounting standards to Congress which may result in new securities regulations.10 10 Id. In an increasingly global market, it is important for the United States to understand—before undertaking further reforms—the effects of increased securities regulation on the competitiveness of its stock markets. While U.S. securities laws should be reformed to decrease the risk of, and mitigate the effects of, future financial crises, absent a global harmonized regulatory regime, the United States should be careful to minimize the costs imposed by U.S. securities regulation on foreign private issuers.11 11"Foreign private issuer" is defined in Rule 405 promulgated under the Securities Act of 1933 and Rule 3b-4 promulgated under the Securities Exchange Act of 1934. 17 C.F.R. §§ 230.405, 240.3b-4 (2010). The United States benefits from foreign private issuers listing on domestic exchanges. And, U.S. investors find it easier to invest in shares of foreign companies if they are listed in the United States. In addition, foreign private issuers listed in the United States are subject to U.S. securities law, which provides better investor protection than many comparable foreign laws.12 12 See infra Part I.A. The experience of foreign private issuers accessing the U.S. market in the 2000s, especially after SOX and the deregistration rule, provides useful guidance regarding the effect of strengthened U.S. securities law on the attractiveness of U.S. markets for foreign private issuers. In this article, I examine the impact of post-SOX strengthening of U.S. securities law on the conduct of foreign private issuers. Part I provides some general background about foreign private issuers listing in the United States. It starts by discussing the benefits to the United States of having foreign private issuers list on U.S. exchanges. Part I also explores the costs and benefits of listing in the United States for foreign private issuers, especially in light of potential flowback13 13"Flowback" refers to American investors choosing to convert their American Depository Receipts (ADRs) into ordinary shares that are traded on non-U.S. stock markets. problems and the increasing availability of foreign exchanges as alternatives to the U.S. exchanges. Next, in Part II, I discuss the legal regime facing foreign private issuers, looking at the SEC's pre-SOX attempts to make the U.S. markets more attractive to them, at the controversy over the application of SOX to foreign private issuers, and at the SEC's post-SOX accommodations for foreign private issuers. Part II also reviews prior studies on SOX's effects on foreign private issuers. Part III then describes my three studies of foreign private issuers' behavior after SOX. The first study looks to see if, in a given region, the median relative U.S. trading volume14 14"Relative U.S. trading volume" refers to the trading volume the issuer obtains in the United States over the trading volume the issuer obtains in its home market. "Trading volume" is the number of shares of a security traded in a given market during a given day. For details on the calculation for relative U.S. trading volume, see infra Part III.A.1. of issuers that delist tends to be lower than the median relative U.S. trading volume of issuers that do not and to see which region's issuers are likely to find the United States to be a less important market. For each of the six regions15 15The six regions are East Asia, Europe, Latin America, Japan, Israel, and Australia. See infra Part III.A.1. I studied, issuers who remain listed on the U.S. exchanges as of January 31, 2010 tend to have lower relative U.S. trading volumes than those who voluntarily delisted16 16Issuers who voluntarily delisted are those who exited the U.S. market other than (i) those who were delisted by a U.S. exchange or (ii) those who were merged into another company. before January 31, 2010. Issuers from developed countries tend to have lower relative U.S. trading volumes. My second study finds that more issuers from regions with lower relative U.S. trading volume voluntarily delisted from the United States after the passage of SOX. My third study reviews SEC filings, cataloging the reasons foreign private issuers give for delisting. Many of the delisting issuers stated in press releases filed with the SEC that their low trading volumes in the United States did not justify the costs of being listed in the United States, especially after the additional regulatory burden imposed by SOX. Finally, I conclude by looking at the implications of the finding that issuers from developed regions with low relative U.S. trading volumes are more likely to delist as a result of increased securities regulation imposed by SOX. Because issuers from more developed countries are better investment prospects for U.S. investors, the SEC should consider granting these foreign issuers exemptions from any new U.S. securities regulations, to encourage them to continue listing in the United States. This part provides some general background, discussing the reasons the United States wants to encourage foreign private issuers to list on its exchanges. To maintain these benefits, the United States must ensure that a U.S. listing provides foreign private issuers with more benefits than costs, especially as foreign private issuers may face flowback problems, and foreign securities exchanges are increasingly becoming viable alternatives to U.S. exchanges. This part discusses the benefits and costs for foreign private issuers listing in the United States. Understanding both the benefits to the United States of having foreign issuers list on U.S. exchanges and what foreign private issuers perceive to be the benefits and costs of listing in the United States then assists in a determination of which foreign private issuers should be encouraged to list in the United States and how the U.S. securities regulations might be used to encourage these issuers to list. U.S. retail investors and the overall U.S. capital markets benefit from foreign private issuers listing in the United States. Investing in foreign companies provides investors with diversification, allowing them to select the optimal trade-off between risk and return.17 17U.S. Chamber of Commerce Comm'n on the Regulation of U.S. Capital Markets in the 21st Century, Report and Recommendations 39 (Mar. 2007), available athttp://library.uschamber.com/sites/default/files/reports/0703capmarkets_full.pdf [hereinafter U.S. Chamber of Commerce Comm'n Report]; Jackson, Howell E., A System of Selective Substitute Compliance, 48 Harv. Int'l L.J. 105, 111 (2007); Tafara, Ethiopis & Peterson, Robert J., A Blueprint for Cross-Border Access to U.S. Investors: A New International Framework, 48 Harv. Int'l L.J. 31, 41 (2007). Further, foreign companies are attractive to U.S. retail investors because many of the fastest-growing companies are foreign companies.18 18U.S. Chamber of Commerce Comm'n Report, supra note 17, at 39; Davidoff, Steven M., Regulating Listings in a Global Market, 86 N.C. L. Rev. 89, 115– 16 (2007); Jackson, supra note 17, at 111; Tafara & Peterson, supra note 17, at 48. U.S. retail investors can invest abroad but they face certain barriers. First, there are risks associated with investing in a foreign market.19 19Jackson, supra note 17, at 112; Tafara & Peterson, supra note 17, at 41–42. U.S. retail investors investing abroad may be unaware that they are investing in securities not subject to SEC oversight.20 20Jackson, supra note 17, at 112; Tafara & Peterson, supra note 17, at 42. Foreign countries may not have an effective legal enforcement regime.21 21Tafara & Peterson, supra note 17, at 42. It is easier and less risky for U.S. retail investors to invest in foreign companies if they are listed in the United States.22 22U.S. Chamber of Commerce Comm'n Report, supra note 17, at 39; Tafara & Peterson, supra note 17, at 41. Listing in the United States subjects the foreign private issuer to U.S. securities law, which gives better investor protection than comparable law in many foreign jurisdictions.23 23Tafara & Peterson, supra note 17, at 42; Doidge, Craig G. et al., Why Are Foreign Firms Listed in the U.S. Worth More?, 71 J. Fin. Econ. 205, 209 (2004). Second, there are transactional costs associated with investing abroad. To invest abroad, U.S. investors often either have to trade on a foreign exchange through a U.S.-registered broker, thereby having to go through two layers of intermediaries, or have to open an account with a foreign broker.24 24Jackson, supra note 17, at 111; Tafara & Peterson, supra note 17, at 47–48. U.S. retail investors may also lack adequate information about these foreign companies because foreign private issuers and foreign financial broker-dealers that do not comply with SEC registration and compliance requirements are not able to directly solicit U.S. retail investors.25 25U.S. Chamber of Commerce Comm'n Report, supra note 17, at 39; Jackson, supra note 17, at 111; Tafara & Peterson, supra note 17, at 48. Maintaining an environment friendly to foreign private issuers is important to the United States remaining the global financial center. Foreign private issuers constitute a significant portion of the IPOs and listings in the United States.26 26Brown, supra note 3, at 395. U.S. exchanges benefit from being able to obtain listing and trading fees, one of their major sources of revenue, from foreign private issuers that list on them.27 27Davidoff, supra note 18, at 127–28. For the schedule of fees paid to NYSE, see http://www.nyse.com/regulation/nyse/1147474807417.html (last visited Oct. 15, 2010). Regarding NASDAQ's fees, see NASDAQ, Listing Standards and Fees ( July 2010), available athttp://www.nasdaq.com/about/nasdaq_listing_req_fees.pdf. Keeping the U.S. markets attractive to foreign private issuers is important for maintaining the dominance of U.S. financial services sector, an important sector for the United States. One out of every nineteen Americans works in financial services and the industry represents eight percent of the U.S. gross domestic product.28 28Michael R. Bloomberg & Charles E. Schumer, Sustaining New York's and the US' Global Financial Services Leadership 10 ( Jan. 2007), available athttp://www.nyc.gov/html/om/pdf/ny_report_final.pdf. The financial services industry is also one of the fastest-growing sectors in the U.S. economy.29 29 Id. Continued growth in this industry provides the United States with jobs and tax revenues.30 30 Id. at 9–10. To obtain such benefits, the United States needs to make sure that the benefits of listing in the United States for desirable foreign companies outweigh the costs. Foreign private issuers typically list in the United States for financial considerations such as increased liquidity, potentially lower cost of equity capital, a desire to increase their U.S. shareholder base, and ability to raise money from equity.31 31 See G. Andrew Karolyi, What Happens to Stocks That List Shares Abroad? A Survey of the Evidence and Its Managerial Implications 34–35 (Sept. 1996) (NYSE Working Paper No. 96-04), available athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1612; Bancel, Franck & Mittoo, Usha R., European Managerial Perceptions of the Net Benefits of Foreign Stock Listings, 7 Eur. Fin. Mgmt. 213, 224– 25 (2001) (surveying European managers); Fanto, James A. & Karmel, Roberta S., A Report on the Attitudes of Foreign Companies Regarding a U.S. Listing, 3 Stan. J.L. Bus. & Fin. 51, 63– 66 (1997); Mittoo, Usha R., Managerial Perceptions of the Net Benefits of Foreign Listing: Canadian Evidence, 4 J. Int'l Fin. Mgmt & Acct. 40, 58 (1992) (surveying managers of Canadian companies cross-listed in the United States and the United Kingdom); Pagano, Marco et al., The Geography of Equity Listing: Why Do Companies List Abroad?, 57 J. Fin. 2651, 2685– 87 (2002) (looking at companies listed on ten major European exchanges and seeing who listed in the United States rather than in Europe). Listing in the United States also provides foreign private issuers with acquisition currency, prestige, and publicity.32 32 See Bancel & Mittoo, supra note 31, at 224–25; Fanto & Karmel, supra note 31, at 63–66. Some foreign private issuers list because all the companies in the relevant industry list in the United States.33 33 See Fanto & Karmel, supra note 31, at 52, 63–66. Another potential reason to list in the United States is that U.S. investors may be better able to identify which of the new, innovative firms are likely to succeed.34 34 See Asher Blass & Yishay Yafeh, Vagabond Shoes Longing to Stray: Why Foreign Firms List in the United States 16 (unpublished manuscript, on file with author), available athttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=248948. Previous studies have found that foreign private issuers' perceptions of the benefits of listing in the United States have a basis in reality. Studies have found that cross-listing in the United States leads to increased liquidity,35 35 See Foerster, Stephen R. & Karolyi, G. Andrew, International Listings of Stocks: The Case of Canada and the US, 24 J. Int'l Bus. Stud. 763, 773– 79 (1993) (looking at fifty-three Toronto Stock Exchange–listed stocks that listed on U.S. exchanges from 1981 to 1990); Karolyi, supra note 31, at decreased to domestic market See Foerster, Stephen R. & Karolyi, G. Andrew, The of Market and on Evidence from Foreign Stock Listing in the United States, J. Fin. (looking at firms from countries that listed in the United States between and Karolyi, supra note 31, at But see et al., of to Markets and Its on J. Int'l from between and that total risk decreased for firms but not for firms after the of the and increased See et al., International Cross-Listings and J. Fin. & Analysis (2002) from a study of a one before and one after a listed in the NYSE or Stock Exchange and from the number of a is in the and the Financial during the in that and increase after listing on the for foreign private issuers. to the cost of capital and increase share for foreign private issuers, both the and the of these effects are See & The Impact of an NYSE Listing on the Global of Stocks 2–3 (NYSE Working Paper No. foreign stocks listed on the NYSE between and and that stocks from developed markets on increase in home market value of trading after stocks from markets experience only a increase in home market et al., The Market Impact of The Case of 2 (1998) (looking at eight stocks listed in the United States or traded on markets between and and finding no of listing R. & Market and the of Capital in International Equity 35 J. Fin. & Analysis from foreign stocks that their first between and that cross-listing the cost of capital for foreign & Karolyi, supra note at that foreign stocks a significant during the before listing and also during the listing but that shares on during the after Karolyi, supra note 31, at 35 that share increased in the first after listing but that during the after listing The Market to International Evidence from J. Fin. Econ. from foreign stocks that their first between and that the of a listing were for firms that list on major U.S. & E., of Foreign Listings on U.S. J. Int'l Bus. Stud. effect from equity of foreign firms listed on the NYSE and the between and But see & J., Are to Rev. Fin. Stud. there an increase in there a for to several after listing and there of a effect on for firms While private for foreign private issuers tend to their home market on major U.S. public exchanges tend to the relevant et al., supra note at Foerster, Stephen R. & Karolyi, G. Andrew, The of Global Equity Offerings, 35 J. Fin. & Analysis Foreign private issuers obtain more of a if they from markets with lower accounting standards or lower of investor et al., supra note at & Karolyi, supra note at The increased may be because investors see a to list on an exchange with a environment as a of about its future 41 See C. & Disclosure and Listing on Foreign Stock J. & Fin. Listing in the United States may also increase the value of the shares because it the ability of a shareholder to private benefits from the See Doidge, Craig U.S. Cross-Listings and the Benefits of Evidence from J. Fin. Econ. that foreign firms that list in the United States and are subject to U.S. securities regulation tend to have lower than firms that do especially if these foreign firms are from countries with shareholder et al., supra note See also & Benefits of International J. Fin. (2004). and because it in non-U.S. firms and increased et al., and Does Listing in the United States a and Market 41 J. Acct. Foreign private issuers that list in the United States tend to their equity to and to into than do foreign companies not listed in the United Evidence from of U.S. The of Stock as an (Sept. (unpublished manuscript, on file with author), available & Cross-Listings and Evidence, 34 Fin. Mgmt. Firms from regions list in the United States for For European issuers, the reason to list in the United States is better by and the desire to obtain acquisition See Jackson, Howell E. & Pan, Eric J., Regulatory Competition in International Securities Markets: Evidence from Europe in 1999—Part II, 3 Va. L. & Bus. Rev. 224– 25 (2008); see also et al., supra note 31, at that of listing in the United States are the of and investors, than in Europe, and a The reasons firms list in the United States on their firms list to they can comply with the U.S. securities law requirements and to and is a less important because the market is M. Regulation of Issuers U.S. Public Equity Markets (2002) (unpublished manuscript, on file with on the other list to of increased and relative See at For issuers from other Asian the reason to U.S. markets is better from the liquidity, by 48 See Regulatory Competition in International Securities Markets: Evidence from in and (2002) (unpublished manuscript, on file with Regulatory Competition in International Capital Markets: Evidence from in 3 J.L. & Bus. 61 Asian issuers have found that they to go to the U.S. market for transactions over See at 13, Some Asian and firms list in the United States because they their home listing supra note at In addition, the has encouraged some to list in the United States to to the of their for to comply with U.S. securities listed must effective Id. at 21; supra note at Finally, listing in the United States firms to convert their to U.S. allowing them to obtain acquisition supra note at firms list in the United States to be subject to lower if they are listed on a U.S.

Buenos Aires, Argentina—Traces of explosives, sharp metal objects, and seemingly innocent liquid containers are checked daily for every passenger trying to board a plane in the United States. A CIA document obtained by Wikileaks describes even more subtle screenings performed by undercover agents in foreign airports looking for signs of nervousness. Customs officers are trained to detect lies, inconsistencies, or unusual behavior. Still, it took years before UBS banker Bradly Birkenfeld's secret for shiny teeth was discovered. He was smuggling diamonds in toothpaste tubes on behalf of American tax evaders.But those days are over. The United States already knows of Credit Suisse bankers deceiving American immigration officers about the real purpose of their visits. Espionage-like code names to conceal clients' identities and encrypted computers are also as old as time, or at least the online universe. With all these tricks now in the open, some have been led to believe that the magic of invisible money is over. They could not be more wrong.Efforts and plots to escape a country's laws and taxes have been going on for as long as there have been taxes and their collectors. One option is to live sailing all year round in a luxury apartment of a cruise ship, effectively becoming a resident of the sea rather than any single nation. Recently, a man in Florida revived the idea of such a large vessel, officially called "Freedom Ship," while others christened it a floating tax haven. Yet more ambitious are "seasteads"—floating cities designed to experiment with innovative political systems. But none of these fantastic schemes pose any real threat to sneaky, land-based tax havens. After all, there are easier and cheaper ways to achieve the same results, without needing to leave the mainland.In order to be successful it is important to remain under the radar. One option is to approach this literally by hiding your identity. Apart from bitcoins and other virtual currencies, today the Internet offers all but limitless options to create a new profile, where imagination has an equal weight with reality, including fake photos, names, Facebook accounts, and LinkedIn work experience. Once this appears in a Google search, an identity is as real as it gets. For amateurs, it's as easy as creating a false e-mail or bogus address when registering at a webpage. For the sophisticated, changing an IP address, simulating GPS location, even using TOR ("the onion router") anonymity software could be equally effective. But black money is not like deep secrets no one should ever unearth. While it is similarly important to keep its location (and origin) hidden, black money is supposed to be used eventually. And the more liberty to spend it, the better.A superior alternative is thus to be less secretive about who you are, but smarter about where you choose to be so as to look legitimate—ideally holding a bank account or creating a company or a trust in a well-respected place. Indeed, many Western first-world countries are being strategically chosen by tax dodgers and money launderers precisely because of their law-abiding history, foreigner-friendly rules, and first-rate financial services that no one would ever (manage to) question. These are the great unknowns of the future in the hidden worlds of subterranean finance—the first real major challengers to the remote offshore islands in the Caribbean and South Pacific that have for so long been the principal stereotypes of tax havens.However contradictory it may sound, ill-gotten money has a lot to do with legality. Just as the Nazis first embarked on their economic actions against Jews within the scope of their racial laws, so trillions of dollars are held offshore under the auspices of tax havens' rules and regulations. Provisions like "no foreign country's inheritance laws may ever be invoked to invalidate a Trust created here" may appear perfectly legal, not because any honest person would ever agree with them, but because they were formally enacted and remain unchallenged. This legal framework that enables the discrete generational transfer, deposit, and enjoyment of illicit financial flows has not happened by chance, but is the result of deliberate and careful policies undertaken by major financial centers.Nevertheless, it's not only written statutes but also tacit social norms that keep the system running. Chatham House researcher Nick Shaxson describes the global community of offshore banking as "a peculiar mixture of characters [who] populate this world: castle-owning members of old continental European aristocracies, fanatical supporters of the American libertarian writer Ayn Rand, members of the world's intelligence services, global criminal networks, assorted lords and ladies, and bankers galore."But as Shaxson explains, silence is guaranteed by accomplices and dissenters alike. For active contributors (such as bankers, lawyers, accountants, and other service providers), it's either a complete indifference to the consequences that corruption and tax evasion may have in places like Africa and Latin America, or directly believing that they are doing the right thing by helping foreigners protect their money from political risk or unstable currencies. In some cases, it's blatantly justified as "poor people in Africa are poor because they don't work hard enough." Sadly, many of the system's foes have also learned neither to criticize nor to ask questions, otherwise they will pay the price of ostracism—losing any chance to get promoted, being socially isolated, attacked by the media, legal persecution (instead of protection for denouncing a wrong-doing), becoming a traitor, or designated as the enemy. As whistleblowers Rudolf Elmer and Antoine Deltour painfully discovered, these are not attributes specific to sparsely populated islands, but are also available in prominent countries in the heart of Europe—Switzerland and Luxembourg in particular.After the financial crisis of 2008 and recent tax scandals by major companies (and countries), a clampdown against tax havens is underway, leaving a trail of bewilderment over which will prevail or what new ones might replace them. With global household wealth calculated at $263 trillion by Credit Suisse and 11 percent of that, or $30 trillion estimated to be held offshore, stakes are high for candidates to attract these funds. Growing inequality will create even more millionaires, certainly billionaires, trying to avoid scrutiny, evade taxes, or both. It's unlikely that one country alone will be able to serve the whole offshore world. After all, most investors—legal and illegal alike—believe in the importance of diversifying. Just as in the international division of labor, tax havens have also learned to cater to specific industries or nationalities. Still, there are clues to the next illicit hotspot.Tax havens can be classified into two large groups. First are those that always come to mind—palm-filled islands scattered across the Pacific Ocean and the Caribbean, and pariah states, which neither sign treaties nor attend international conferences. Nauru in the South Pacific, for example, will still appeal to some erratic criminals, smugglers, and tax evaders. However, no big fish would dare to be (openly) related to it. In other words, it is unlikely that Nauru will be joining the major leagues of tax havens chosen by Fortune 500 companies or Forbes' list of billionaires.The second group comprises the big pretenders. A rule of thumb applied by tax havens suggests that the best way to disguise inaction is by pretending to do something. Otherwise, unwarranted attention will be drawn. Simulating cooperation may be achieved by joining multilateral conventions against corruption, transnational organized crime, or financing of terrorism, but then making subtle reservations to either limit its applications or ring-fence specific territories and colonies. A more popular strategy is to sign a treaty about exchange of bank account information while knowing ratification will never happen or not until a distant future, blaming domestic political rifts for the delay. An equivalent tactic is to run national consultations about new transparency platforms so as to democratically decide that nothing will change.An even more sophisticated ruse is not only to be part of the herd, but to become the shepherd. By ensuring that international rules will be designed and imposed by organizations that include only rich countries as their members (such as the G20 or the OECD), tax havens guarantee that 'global standards' will be consistent with their own interests. An example of this is the OECD Model Treaty to avoid double taxation, which favors capital-exporting countries (instead of developing ones) when it comes to levying taxes. This model agreement also allows big companies to avoid paying any tax at all in the countries where they operate as long as they structure their businesses carefully. This is exacerbated by the OECD Guidelines on Transfer Pricing, which are easily exploited by multinational companies that, through intra-group transactions, shift profits to low-tax jurisdictions and thus avoid paying taxes again. Some of these issues are currently being addressed by a process called BEPS, which stands for Base Erosion and Profit Shifting, but big surprise, it is also run by the OECD.It is already well known that major Internet companies and other well-known retailers make use of the so-called double Irish-Dutch sandwich strategy to avoid paying taxes "legally." It combines U.S. check-the-box rules (to choose how to classify foreign subsidiaries), setting up two companies in Ireland (one to invoice services performed somewhere else, like the United Kingdom, and the other one to "exploit" Irish tax-residency rules), a Dutch company to avoid withholding taxes when transferring profits among the two Irish companies, and finally a company in a zero-tax jurisdiction like Bermuda where profits will finally be transferred. Less understood, however, is what was (not) done to appease the outrage against big companies not paying their fair share of taxes. In an attempt to calm any sense of outrage, the end of the double-Irish was proclaimed, although surprisingly, Ireland was portrayed as the naïve innocent, while big companies and small islands were to take all the blame. The small print, however, reveals a different story.The significant change is that the end of the double Irish will only affect new companies, which had failed to take advantage of the popular scheme. Clever ones, in contrast, will have a transition period through 2020. As if this were not enough, Ireland's prime minister announced the development of a "patent box" regime, which is nothing but the option to "strategically" register patents or trademarks in a place with low taxes, even if no research and development actually took place there. This allows companies to transfer royalties wherever they want to make sure that little to no tax will be paid. No wonder big companies have little to fear from Dublin.Facts are undeniable—like American companies undertaking inversion deals to relocate to Britain as a way to avoid U.S. taxes; London's high-priced real estate sector overheated by foreigner money launderers; British Virgin Islands' surprise ranking as the world's fourth largest recipient of foreign direct investment (receiving more funds than India and Brazil combined, despite its tourist economy and 20,000 inhabitants); Cayman Islands' Ugland House, which alone serves as the residence of 18,000 companies; or Jersey's financial brochure aimed at Russian oligarchs trying to avoid both taxes and Russian inheritance laws.With all this on his plate, Prime Minister David Cameron is passionate about targeting aggressive tax avoidance. He even sent a letter—yes, a paper letter—to British Overseas Territories and Crown Dependencies regarding beneficial ownership registration (politely requesting that they identified the real individuals who own companies regardless of nominees or corporate layers). As a consequence, these tax havens collectively did not hesitate to consult on this new push to establish a truly transparent system. And in an unexpected challenge to the Empire, the Overseas Territories decided to reject the request. Striking back, Cameron decided to impose the central registries of beneficial ownership in the U.K., for whatever marginal use that will likely be in the future, though a tiny—actually giant—loophole was left. Only some trusts would have to register, but even in such a case, their information would not be accessible to the public, leaving a most opportune choice for tax dodgers and money launderers trying to avoid scrutiny.Even without any awareness of Luxleaks, the disclosure of secret tax arrangements between Luxembourg's authorities and some of the world's most important companies, allowing them to reduce their global effective tax rate to about 1 percent, the OECD's Global Forum on Exchange of Information had already highlighted the Grand Duchy in red as "non-compliant with international transparency standards." Furthermore, in an attempt to compete with Singapore, last September Luxembourg proudly inaugurated "Le Freeport," a state-of-the-art free port next to the airport. Interestingly, free ports and special economic zones are supposed to be territories with special rules—no VAT or custom duties, few controls, if any at all—because they are not considered regular parts of a country's territory, but rather logistical hubs where goods in transit are waiting to be delivered to their final destinations.Somehow inconsistent with these transit purposes, Luxembourg's free port offers no-time-limit storage of valuable goods "such as works of art, fine wines, precious metals, jewels and diamonds, vintage cars, etc." Coincidentally, Le Freeport will come in handy to all those trying to escape reporting to the tax authorities that (some) banks will need to start doing about their account holders. The safest option against these new disclosure requirements will be to keep wealth in the form of gold, art, or jewels. No place will be better suited for this than such a locale as Le Freeport. To avoid any doubt as to the real reason behind this venue, Pierre Gramegna, Minister of Finance of Luxembourg, stressed during its inauguration, "I am convinced that this project will add a new branch of excellence to our financial sector and enhance its wealth management capabilities." Expectations seem little related to the handling of goods in transit.Unbeaten at the top of Tax Justice Network's Financial Secrecy Index—a ranking of tax havens according to their secretive legal framework and their market share of financial services for foreigners—Switzerland is by far the most successful case of whitewashing. Swiss statutory banking secrecy originated with a tax evasion scandal involving Swiss banks and members of French high-society. However, it is usually—and wrongly—associated with helping German Jews during World War II. Contrary to this 'Good-Samaritan' myth, the very same Swiss Bergier Commission acknowledged that Switzerland was involved in suggesting Germany identify Jewish German passport holders with a "J," which in many cases prevented them from entering Switzerland and other countries, when trying to escape from the Nazis.In addition, Swiss banks showed concern about "Aryanization" of Jewish assets only when Jews were debtors, and the banks' credits were at stake. The Bergier Commission describes consistent attitudes even after the war. Some Swiss banks deliberately decided not to report unclaimed assets of Holocaust survivors and not to contact heirs, waiting 10 years to destroy all evidence of client relationship. Estelle Sapir's case offers a good example of this. Being a Holocaust survivor, she was easily able to recover her family's bank deposits all over Europe, except in Geneva, where the bank requested her father's death certificate and records of his deposits. The fact that he had been killed in Majdanek Concentration Camp and that she had barely managed to escape made very little difference to the bank. Rules are rules after all.At some point, however, it seemed as if international pressure had started to crack banking After the United States UBS and Credit Suisse schemes to in taxes, it made Switzerland sign a Tax agreement to get information about account holders with Swiss bank Information would thus start to to the But the Swiss would affect only those account holders who to have their information Switzerland decided to exchange information with European countries, very not to market This when French agents their in of Swiss like the and all who and in an to identify French to the wealth the of tax to other countries, developing countries their funds in Swiss Switzerland decided to impose some the agreement where information only to the United the Swiss from other countries would be chosen only if they were and to Switzerland and if they were for the Swiss financial countries to by Swiss for protection of tax dodgers would be to their In of this Switzerland will likely with that it information with other It be if it up that all this was done to and Latin American countries you a big and keep it, people will come to believe Switzerland behind and the United States is this is where the future may be in tax and banking to the the United States is to become the top tax in the world. about all that and about money of terrorism, and tax They are still long as they only to who the United States the a single As The portrayed it, of long between and the of is to percent of the U.S. But more than of the companies are including percent of the Fortune 500 One serves as the address of more than Ugland House in the Cayman This is more than the of Cayman American companies are at for their aggressive tax in Ireland and the United States to be those very same companies against the OECD's which to tax and evasion by multinational this there is some to it. The United States only about American companies paying taxes to the American It has little in helping other countries achieve the same banking the United States is even more with its double enacted rules to foreign banks to the information about holding bank It also imposed a percent withholding tax against any financial in the which failed to or with reporting It had little concern for all the and domestic legal every other country had to to its banks to this information to the United States. But when other countries, such as showed in information about their own with in American the United States only and The United States would report information about of accounts, of and most there would be no to identify individuals trying to avoid reporting by hiding behind some company or In some the United States did to equal of but to a for such Some countries, in were only the choice of all requested information to the United States or being to the withholding then the OECD's own on of financial account called the or which was an of though no their many were led to believe that the United States would also to the so that all countries applied only one To make the even more the special in of American this despite Swiss bank an it to It decided and to This while all countries would have to exchange information with other to the and information to the United States under the United States need not to This way it could foreigners the option to in American banks as a way to limit the disclosure of information to their own It was a tax but only available in the United States. not with an of it would appear that by the United States is to becoming the next big barely international tax a on As if corporate registration process and U.S. banking secrecy enough, such American territories as or the U.S. Virgin an tax free most tax havens and financial far islands, but some of the most important countries of the world. And because they are hiding in they are likely to remain the next big unknowns on the of global either through special or using their related to ring-fence foreign individuals and companies to them from other taxes, laws, and regulations. While the in a tax or of a bank account there not any or illegal it is in fact people who live and work in one place holding bank in countries of The same to multinational companies that create companies in countries with no to the while no nor any but still somewhere or are involved in the international of between to fair market that and tax havens with other in These of tax and to who offers the of taxes, less information and designed to attract trillions of regardless of their or illegal But if all countries the same way to attract money from this would become a where every country would end up levying taxes (and would be The is to be the only one of the very this. This is and under the of and international rich countries rules for others to But when they impose their own like the United always a final up their Irish tax rules, Swiss banking or Luxembourg's secret tax other words, while and may be as tax more consequences may be to ever more innovative and by the world's most important the real and no need to live on the sea or in The top tax havens of the future are to than and so to be and international transparency by of online to or through exchange of information among is the only way to the secrecy and anonymity of tax which tax corruption, and money to Global and in case of are if they some of the world's countries and their financial including the the OECD and its against tax the Global Forum on Exchange of or the Financial against are trying to address these However, they to be by rich countries, so their are with or under political pressure that any real change in the alone against the is it is important to and those that are the most countries), by allowing the United to a more central World Tax and on for in may be some first in the right organizations and have to be real of companies, and countries on the hidden tricks and involving tax and thus to push for real The more information that is to the public, the more the the will be tax and corruption that in the and in the of

Consumer finance is increasingly impacted by EU financial markets legislation.Both consumers and retail investors are subject to similar weaknessessuch as behavioural biases and information asymmetries.Arguably, these vulnerabilities arise independently of the type of service being used, be it a consumer loan, a mortgage, a payment or investment service.Nonetheless, the EU's regulatory approach in these sectors remains highly fragmented.Rules aimed at protecting the users of financial services against market failures and misconduct are often sector-specific.EU law harmonizes different aspects of private law for each type of consumer or retail investment contract, while the remaining matters are left to national private law.This raises several questions.For instance, to what extent should national judges be guided by the EU's objective of consumer protection when interpreting national private law?More broadly, what private law remedies are available to consumers when neither EU nor national legislation provides clear guidance?The book 'Financial Services Contracts in EU law' by Dr Federico Della Negra offers essential insights into these central questions.The volume examines critically how the European Court of Justice (CJEU) interprets classic private law rules in consumer financial transactions: the scope of precontractual information duties, the type of remedy for breach of those duties, the conditions for the validity of contract terms, the effects of invalidation of those terms.These issues are examined chiefly with respect to the Directive on unfair contract terms, 1 the Directive on consumer credit, 2 as well as the PSD II 3 and MIFID II. 4 The discussion thus covers consumer and mortgage loans, as well as payment and investment services contracts.Structurally, the book is composed of three parts.The first part deals with EU rule-making and illustrates the principles and legal tools with which the EU legislator 1 Dir 1993/13/EEC on unfair contract terms. 2 Dir 2008/48/EC on consumer credit.

The object of research is global investment processes in the financial services sector. The problem is the gaps in the development of analytical tools for assessing and forecasting the volume of global investments in the financial services sector when the role of financial institutions changes in the digital transformation of the financial ecosystem. Correlation-regression analysis methods serve as the methodological basis of this research, implemented on the basis of Oxford Economics statistical data. A theoretical analysis of scientific approaches has been conducted to identify potential key factors influencing investments in financial services. A sample of statistical data on the dynamics of the international capital market has been formulated, characterizing changes in indicators of the financial services sector for the period 2004–2024. A correlation analysis has been conducted to identify multicollinearity of the identified factors and the resulting indicator – investments in financial services to assess their density and direction of the relationship. As a result of modeling, a regression equation with high reliability has been obtained. The model showed that gross output (X1) acts as a dominant positive driver of investment activity. In turn, the most significant result is the detection of a statistically significant negative impact of the share of the financial sector in GDP (X4) on total investment in the sector. The main forecast scenarios of the dynamics of global investments in financial services are formulated. The multidirectional impact on the dynamics of investment processes is determined – scale and structural balance within the integrated model. The practical result of its implementation is the application of the proposed toolkit for making investment and regulatory decisions in the medium term by investment funds, fintech companies and financial market regulators.

This article provides an introduction to money laundering (ML) and outlines the problems that banks face in detecting and assessing for risk. The article provides a brief history of earlier ML techniques such as cash deposits and the traditional model of placing, layering and integrating illegally acquired cash, before focusing on the modern-day problems. The banks are now having to deal with the progression and the increased levels of sophistication of ML techniques. Historically banks have addressed ML through national regulation systems, which have arisen from the state’s focus on preventing the drug market expanding. However as other criminal activities are now funded through ML, the state regulation system has also expanded and there is now the added social obligation on banks to support the state in detecting and combatting ML activity across all criminal activities. The article considers some of the difficulties that banks face when trying to detect ML activity. A number of case studies are included, from recent reports from the Australian financial intelligence unit (FIU), to illustrate the modern level of complexity involved in each scheme. Finally, the article refers to recent research soon to be published that explores a number of suggestions made by industry experts from across the global banking, financial services, technology, audit, training and risk assessment sectors. The biggest challenge the article concludes is to be able to quickly and effectively bridge the knowledge gap between what money launderers know about using financial services and what the banks are aware of. The article proposes a new risk assessment tool that can be applied simply within the sector, which has been developed from the research material. This is a article that will be of great interest to anyone working in the financial regulation, banking or financial services sector, as well as law enforcement and FIUs across the globe.

Cryptocurrency is gaining popularity worldwide, with some countries already starting to regulate and accept cryptocurrency in their financial services. Malaysia’s Securities Commission (SC) announced in October 2021 that over MYR 16 billion (USD 3.85 billion) involving digital assets and cryptocurrencies were traded between August 2020 and September 2021. Since cryptocurrencies are issued by private corporations and are technically beyond the federal government’s control, criminals may use them for illegal reasons such as money laundering and terrorist funding. Consequently, it is vital to examine why investors are engaged in cryptocurrency in the first place. This study aims to provide insight into Malaysian investors’ perceptions by evaluating the influence of perceived risk and perceived value on their cryptocurrency adoption decision. The retail investors’ demographic characteristics (gender, age, education, income, and investment experience) were analyzed as control variables. Data were gathered using purposive sampling, and responses from 211 respondents from various cities in Malaysia were used in the final analysis. Data were examined using Smart PLS Structural Equation Modelling (PLS-SEM). Based on the finding’s, perceived value was found to have a significant influence on cryptocurrency adoption. Meanwhile, perceived risk had no significant influence on the adoption of cryptocurrency among the Malaysian investors.

Tax Evasion and Money Laundering: A Complete Framework

This paper presents a comprehensive review of the evolving role of Human Resources (HR) in the financial services industry amidst the rapid digital transformation and the burgeoning influence of Financial Technology (FinTech). The primary objective is to explore how HR strategies and practices are adapting to the unique challenges and opportunities presented by these technological advancements. The study delves into the impact of digital and Fin Tech innovations on talent acquisition, development, and retention strategies, emphasizing the need for HR to foster organizational agility and a digitally adept workforce. Key findings indicate that digital transformation and FinTech innovations are not only reshaping the financial services landscape but also compelling HR to redefine its traditional roles. This involves a shift towards more strategic functions such as fostering a culture of continuous learning, promoting digital literacy, and facilitating agile organizational structures. The paper highlights the growing importance of data-driven decision-making in HR processes and the need for up skilling HR professionals to manage the intersection of technology and human capital effectively. The review concludes that the transformation of HR in the financial services sector is pivotal for organizations to remain competitive in this digital era. It underscores that HR must proactively embrace these changes, leveraging technology to enhance employee experience, drive operational efficiency, and align HR strategies with the overall business objectives in the context of a rapidly evolving digital and Fin Tech ecosystem. This transformation is not just a functional change but a strategic imperative that requires a holistic approach to managing human capital in the digital age.

Despite the fact that a substantial body of European Community (EC) law already exists to protect retail investors, the markets in retail investment services and products in the EU remain fragmented. Moreover, the recent financial crisis has undermined investor confidence in financial markets more generally, and “packaged” retail investment products (PRIP), such as investment funds or life insurance policies, in particular. To rebuild retail investor confidence in PRIP by empowering retail investors to make active use of their rights, in 2009 the European Commission proposed to extend the provisions of the 2004 Markets in Financial Instruments Directive (MiFID) to PRIP. Is the MiFID, however, fit for the purpose which the Commission has in mind? This contribution explores to what extent the MiFID actually confers rights on retail investors and empowers them to make use of these rights. The author concludes that investor rights and remedies should be taken more seriously when making European financial services law. The current overhaul of the EC legal framework for the provision of investment services provides a good opportunity to do so.

Almost four years following Brexit, in December 2023, the United Kingdom and Switzerland signed a mutual recognition agreement in the financial services sector. The ‘Berne Financial Services Agreement’ covers areas such as asset management, banking, investment services, and insurance. This paper provides the first analytical review of the Agreement by placing it within the broader theoretical framework of ‘regulatory divergence’ and ‘mutual recognition’. This paper starts with a basic taxonomy of regulatory ‘deference’, including institutional frameworks used to achieve regulatory and prudential objectives in the financial services sector. It then highlights the sensitivities at play and analyses the modalities and mechanisms of divergence and deference. The paper reviews negotiated examples, including the UK-Switzerland mutual recognition agreement, before identifying the path forward in the UK-European Union relationship in the financial services sector.

The role of the internet in information technology has been used to develop the financial industry through modification and efficiency of financial services, known as Financial Technology or Fintech. Fintech has many types, including payment startups, lending, personal finance, retail investment, crowdfunding, remittances, financial research and others. Fintech, a type of technology-based lending and borrowing money or peer to peer lending (P2P-lending), is a type of Fintech that is growing rapidly in Indonesia, problems that must be resolved regarding the Implementation of Justice Value For Consumer Protection (Study of The Financial Services Authority Regulation Number: 1/POJK.07/2013 concerning Consumer Protection in the Financial Services Sector). This research used normative juridical research method, which is focused on studying the implementation of the rules or norms in positive law, the conclusion of the Financial Services Authority Regulation Number 1/POJK.07/2013 concerning Consumer Protection of the Financial Services Sector in terms of its objective to provide protection to consumers is still not optimal, because the Financial Services Authority does not regulate the time frame for responding to complaints that have been submitted by the Consumers in the regulation

In the rapidly evolving landscape of digital marketing, Virtual Reality (VR) and Augmented Reality (AR) have emerged as transformative tools, reshaping strategies and consumer experiences. This critical review delves into the integration and impact of VR and AR technologies in modern marketing practices, with a specific focus on the financial services sector and its intersection with Human Resources (HR) and FinTech innovations. The paper begins by outlining the technological advancements in VR and AR, emphasizing their potential to create immersive and interactive marketing experiences. It then explores how these technologies are being leveraged in the financial services sector to enhance customer engagement, product demonstration, and brand loyalty. The review highlights several case studies where VR and AR have successfully augmented traditional marketing approaches, leading to increased customer satisfaction and retention. A significant portion of the paper is dedicated to examining the role of HR in facilitating the adoption of these technologies. It underscores the importance of skill development and training in VR and AR, enabling employees to effectively utilize these tools for marketing and customer service. The paper also discusses the challenges faced by HR in managing the technological transition, including issues related to cost, scalability, and employee adaptability. The review concludes by emphasizing the transformative impact of VR and AR on marketing strategies in the financial services sector. It suggests that the integration of these technologies, supported by HR and FinTech innovations, is not only enhancing the marketing landscape but also setting a new standard for customer engagement and experience. The paper calls for continued research and investment in these technologies to fully harness their potential in modern marketing.
 Keywords: Digital Transformation, Financial Services Sector, Human Resources (HR), FinTech Innovations, Talent Management, Regulatory Compliance, HR Technology Integration

Purpose The purpose of this paper is to investigate the relationship between tax evasion and money laundering and test whether the strength of auditing and reporting standards (SARS) and judicial independence moderate this relationship. Design/methodology/approach The sample contains 684 country-year observations from 2012 to 2017. The authors collect data on money laundering by using Basel Anti-Money Laundering Reports from 2012, 2013, 2014, 2015, 2016 and 2017. According to Medina and Schneider (2019), tax evasion is measured as a percentage of gross domestic product (GDP) by the shadow economy. The SARS, judicial independence and the remaining variables are derived from Global Competitiveness reports for the same years. Findings The findings show that tax evasion is positively associated with money laundering. This positive association is mitigated for countries with high SARS and weakened for countries characterized by high judicial independence. By contrast, the positive association between tax evasion and money laundering is maintained with the same significance level for countries characterized by low SARS and low judicial independence. Practical implications From a managerial standpoint, tax evasion may represent a signal of unethical management behaviour through money laundering. This may cause severe government penalties and heavy reputational costs in case of detection leading to both management and firm failures. Originality/value The findings have policy implications for countries and governments seeking to combat both tax evasion and money laundering. The findings also emphasize the important role played by SARS and judicial independence to mitigate and weaken the positive effect of tax evasion on money laundering.

PurposeThis paper aims to define the fundamental nexus between income tax evasion and money laundering. The G7 Financial Action Task Force (FATF) designates tax evasion as a predicate offense for money laundering. We determine whether this designation is complete from a conceptual standpoint, or whether there is a stronger connection between tax evasion and money laundering.Design/methodology/approachThis paper applies the FATF definition for money laundering – as well as generally accepted definitions for tax evasion and for a standard predicate offense – to identify the necessary conditions for each crime. This paper then uses these conditions to test opposing hypotheses regarding the nexus between tax evasion and money laundering.FindingsThis paper demonstrates that tax evasion does not meet the conditions for a standard predicate offense, and treating it as if it were a standard predicate could be problematic in practice. Instead, it is concluded that the FATF’s predicate label for tax evasion, together with tax evasion methods and objectives, imply that all tax evasion constitutes money laundering. In a single process, tax evasion generates both criminal tax savings and launders those criminal proceeds by concealing or disguising their unlawful origin.Practical implicationsThe FATF could strengthen its framework by explicitly defining all tax evasion as money laundering. This would enable regulatory agencies to draw upon the full combined resources dedicated to either offense.Originality/valueThe analysis demonstrates that tax evasion completely incorporates money laundering as currently defined by the FATF.

Financial technology represents a significant innovation in Indonesia’s financial sector, encompassing regulation, practice, and oversight. While fintech has expanded rapidly, the surge in users has led to more complex products. This complexity increases the susceptibility of fintech to abuses, heightening risks of fraud, money laundering, and predatory lending. To mitigate these risks, the implementation of financial technology must be rigorously regulated and supervised, supported by advancements in regulatory and supervisory technology. This study aims to conduct a juridical analysis of regulatory and supervisory technology in the financial technology industry, exploring how these technologies are applied to enhance compliance and oversight. This study uses empirical methods with a qualitative-descriptive analysis approach and a socio-legal approach. The study results found that regulatory technology and supervisory technology are regulated in Articles 19 and 22 of the Financial Services Authority Regulation Number 13/POJK.02/2018 concerning Digital Financial Innovation in the Financial Services Sector. Financial technology operators carry out regulatory technology implementation with five basic regulatory technology implementation programs, namely e-KYC, e-reporting, fraud detection, regulatory compliance, and risk management, as well as the application of supervisory technology carried out by regulators with five basic programs for implementing supervisory technology, namely in the form of data analytics, e-reporting, tax reporting mining, customer support technology, and e-licensing.