Boudou combats FX tax evaders

Since the turn of the century, Argentine officials have increasingly modified foreign exchange controls to allow the nation greater management of how its currency is traded in the world market. In October of this year, a new round of restrictions were put in place, with the explanation that the measures will make it easier for the government to reduce the potential for tax evasion and also minimise the risk of criminals engaging in money laundering.

These two aims were clearly set out by finance minister, Amado Boudou, in a published statement soon after the imposition of the new restrictions. “This is an important measure to combat tax evasion and money laundering,” he said. “Those who have their accounts in order should remain calm, while those who engage in shady manoeuvres should be very nervous”.

The restrictions require banks and other financial institutions to verify financial information about clients before moving forward with any efforts of those clients to engage in any type of foreign exchange activity. Doing so makes it easier to ascertain if there are any indications of illegal laundering taking place or even if there is some attempt to shelter assets in a manner that would make it easier to avoid paying taxes on some of the client’s income. With the foreign exchange market in Argentina more or less unregulated, the ability to engage in what has been termed as ‘capital flight’ has some concerned about how
much money is flowing out of the country and what the flow is doing to undermine what is otherwise one of the most healthy economies in South America.

The legislation also has to do with the impact of illegal activities and capital flight on the reserves of Argentina’s central bank. With the resources of the bank decreasing, the
restrictions are seen as ways to help reverse the trend before that decline has a severe and  lasting effect on the economy. Felipe Hernandez, an analyst for RBS Securities, noted in a report released shortly after the latest round of restrictions were put in place that, “The administrative measures announced in the last two days show the government is  increasingly worried about decreasing central bank reserves,” indicating that the measures are seen as a way to both reduce criminal activity and benefit the central bank at the same time.

The restrictions have caused some alarm, in particular concerns about how they will impact the rank and file bank customer who simply wants to engage in foreign exchange in preparation for a trip or even as an investment opportunity. Miguel Pesce, vice president of the nation’s central bank, feels that the restrictions will have little to no effect on law abiding citizens. In an interview broadcast on Argentina’s Radio El Mundo, Pesce stated, “If the money that a person is changing has a legitimate origin, there’s nothing for them to worry about…There is a global fight against money laundering and Argentina is part of that.”