In 2013, Jerome Cahuzac, then budget minister of France, and a crusader against the use of overseas tax havens by the wealthy, had to explain why he held secret bank accounts with 3.5 million euros in Switzerland and the Isle of Man. Cahuzac was investigated, convicted and jailed in 2016 for money laundering, more precisely the laundering of the proceeds of tax evasion (moving nearly 3.5 million euros offshore). Prosecutors managed to prove the case by sending mutual legal assistance requests to Switzerland and Singapore. Informed by law enforcement authorities, the French tax administration directly recovered from the defendant 2.3 million euros of unpaid taxes and penalties in this case. The tax recovery greatly benefited from evidence and information collected by criminal investigators.
In the context of the Coronavirus crisis, tax evasion matters. Stimulus plans are emptying government coffers, while a decrease in economic activity is leading to a substantial decline in tax revenue. Governments all over the world will need to mobilize all available resources. Recovering some of the proceeds of tax evasion may help: in his book “the Hidden Wealth of Nations”, Professor Gabriel Zucman estimates that 8 percent of the world’s wealth, 7.6 trillion, is held in so called tax havens offering no or low taxation and reinforced secrecy to foreign investors. At least a part of these assets is the results of tax fraud or criminal offenses.
To better identify, investigate and recover proceeds of tax evasion, it is necessary to improve domestic and international cooperation and exchange of information between tax agencies and criminal prosecutors. The French case mentioned above, and the Manafort case, in which tax evasion by a U.S lobbyist was brought to light because of a criminal investigation regarding business dealings with foreign jurisdictions, are two examples of how this increased cooperation can yield results.
In Ghana, a case also started with a Suspicious Transactions Report from a bank on an account receiving unusually large amounts of money and led to transactions that were intended to circumvent tax and customs duties by unduly using a free zone as a base for operations. In the Brazilian Petrobras investigation, tax auditors supported the transnational corruption investigation by analyzing suspects’ tax and customs data. They shared this with the police and public prosecutor as permitted by law. With that information, officials were able to uncover evidence of money laundering, tax evasion and hidden assets. The investigation has, so far, resulted in criminal fines, tax penalties and recovered assets amounting to US$ 15 billion.
Tax audits often provide access to information on assets and financial transactions (for example fictitious or overbilled invoices) that can be used by law enforcement authorities to launch criminal investigations on tax fraud, corruption, bribery, embezzlement, or money laundering. On the other hand, corruption or money laundering investigations often provide opportunities to uncover tax fraud or tax evasion. If fighting these criminal activities and stopping tax evasion is a priority for the concerned jurisdiction, organizing a framework authorizing, encouraging, or mandating the sharing of information gained during tax audits with law enforcement authorities and vice versa, allowing access to law enforcement information for tax authorities is essential.
StAR is currently preparing a new publication that will highlight how tax authorities can usefully contribute to law enforcement and anti-corruption investigations and vice versa, and how to put safeguards in place to ensure that confidentiality provisions are respected when sharing information. These policies require creating or changing incentives for the relevant government agencies. An expert group is currently reviewing the paper drafted in close coordination with the Global Tax Policy Center in Vienna, and which we hope to publish later this summer. Corruption, money laundering, and tax evasion are global and interactive problems. To address them effectively, governments need to mobilize along all fronts. Fighting tax evasion is an essential part of this mobilization.
