Money laundering as an alternative to criminal proceedings for tax offenses

Tax offenses are considered serious offenses in the Israeli legal system due to their direct impact on the economy and public trust. These offenses include tax evasion, false reporting, use of fictitious invoices, and more. In some cases, the criminal proceeding can be converted to a ransom payment, which allows the proceedings to be concluded without a criminal conviction. This article will address the legal aspects of converting a criminal charge of paying a ransom into a tax offense. What is a ransom ?
A ransom is a one-time payment made by a suspect in a tax offense to the Tax Authority, in exchange for which the criminal proceedings against him are terminated. The payment of the ransom does not exempt the taxpayer/dealer from paying the tax itself or from removing the omissions he has committed. This mechanism is intended to end the criminal case quickly and efficiently, while preserving the public interest and tax collection.

The legal basis for submitting a request to convert criminal proceedings into money laundering

The Tax Authority’s authority to convert criminal proceedings into ransom payments is enshrined in various tax laws:

1. Section 221 of the Income Tax Ordinance [New Version], 5721-1961: Grants authority to convert offenses into ransom payments, when the offenses involved are such as failure to report income, false reporting, or assisting in tax evasion.
2. Section 121 of the Value Added Tax Law, 5736-1975: Allows criminal offenses related to non-payment of VAT or false reports to be converted into a ransom payment.
3. Section 101 of the Real Estate Taxation Law (Appreciation, Sale and Purchase), 5723-1963: Refers to offenses related to appreciation or purchase tax, and allows for their conversion into expiation in appropriate cases.
4. Section 231 of the Customs Ordinance [New Version]: Regulates the possibility of converting customs offenses, such as smuggling goods or presenting false documents, into the payment of a ransom.
5. Section 25 of the Purchase Tax (Goods and Services) Law, 5712-1952: Allows for the conversion of criminal offenses related to the evasion of purchase tax into a ransom.
6. Section 29 of the Fuel Excise Law, 5718-1958: Allows for the conversion of offenses related to the evasion of fuel excise tax into the payment of a ransom. The process for submitting a request to convert criminal proceedings into the payment of a ransom The ransom request process includes several key steps:
   1. Filing the application: The taxpayer or his lawyer submits an application to the Tax Authority’s investigating unit. The application must include reasons for relief, relevant documents, and evidence to eliminate the omissions.
   2. Examination of the request by the investigative unit: The investigative unit examines the request and forwards its recommendation to the Ransom Committee.
   3. Discussion in the Ransom Committee: The Ransom Committee discusses the request while taking into account the severity of the offense, its circumstances, the taxpayer’s criminal history and the extent of his cooperation with the authorities.
   4. Determining the ransom amount: If the committee approves the request, it determines the ransom amount based on the severity of the offense, its scope, and other parameters.
   5. Payment of the ransom and closure of the case: After the ransom is paid, the criminal case against the taxpayer is closed.
      Ransom Committee Considerations – The committee considers several key criteria:
      • Severity of the offense: The more serious the offense, the less likely it is to be converted into an infidel.
      • Duration of the offense: Offenses that have lasted over time are considered more serious.
      • Previous convictions: The absence of previous criminal convictions may make the decision easier.
      • Removing the defaults: Regulating tax debts and correcting reports are key conditions for approving the application.
      • Personal and family situation: Medical, mental conditions, and family dependencies may make things easier for the committee.
      • Public interest: The committee examines the balance between the need for deterrence and the effectiveness of terminating the proceedings.

       

      The amount of the ransom is not fixed and is determined according to the scope and severity of the offense:

      • In income tax offenses: the ransom is calculated as a percentage of the unreported turnover amount.
      • In VAT offenses: the ransom is calculated as a percentage of the unpaid tax amount.

       

      Typically, the ransom amount ranges from 15% to 30% of the unpaid tax, but it may be higher in serious offenses.
      

      Advantages and disadvantages of the ransom mechanism

      Advantages:

      1. Prevention of criminal conviction: The taxpayer avoids the consequences of a criminal record on his personal and professional life.
      2. Saving resources: The procedure saves time and money for the taxpayer and the authorities.
      3. Quick termination: Paying the ransom allows the taxpayer to quickly terminate the case.

       

      Disadvantages:

      1. High cost: The ransom payment may add up to a significant amount, in addition to the tax payment.
      2. Public publication: The names of the taxpayers and the ransom amounts are published on the Tax Authority website.
      3. Failure to erase the offense: Paying the ransom does not erase the registration of the offense in the Tax Authority system. Publication of Ransom Committee Decisions The Tax Authority publishes the decisions of the Ransom Committee twice a year, including the names of the taxpayers and the ransom amounts. This publication is intended to increase transparency and strengthen public deterrence.Summary

         The ransom payment mechanism is a unique alternative to conducting criminal proceedings for tax offenses. However, it requires the taxpayer to have a thorough understanding of the law and professional procedures with the Tax Authority. To ensure the chances of success, it is recommended to use a lawyer who specializes in tax law. Our office offers professional and comprehensive support in ransom proceedings with the Tax Authority, while personalizing each case. Contact us for professional advice and legal representation at the highest level.