International Cooperation in Global Tax Crime and Corruption Cases

Corruption and tax crime are closely linked. Conduct that violates anti-corruption laws, such as embezzlement or bribery, also violates tax laws when the income is not reported to revenue authorities or bribe payments are deducted as business expenses. Similarly, tax evasion may be enabled through the bribery of tax officials.

A recent joint report issued by the OECD and The World Bank highlights some of the key findings relating to the links between tax crime and corruption.

One major focus of the report is the need for effective cooperation between tax and corruption authorities in effectively combating these offences. The benefits of inter-agency cooperation include better intelligence and lead generation, a broader set of investigative powers, and the ability to leverage other agencies’ investigative work, potentially resulting in greater efficiency and better results.

 

How do authorities work together?

Tax and anti-corruption authorities can further each other’s work by helping to detect potential threats, referring matters to the relevant authority for investigation, sharing information and collaborating to strengthen investigations and enforcement outcomes, as well as assisting in policy development and ensuring institutional integrity.

 

Threat assessment

A joint assessment of threats can help focus enforcement resources. Threat assessments can demonstrate links between apparently separate cases, inform law enforcement and regulatory strategy, enhance detection, and help to set priorities.

Example: a tax authority may identify trends or large groups of individuals within an organisation that are red-flag indicators for corruption.

 

Detection

With proper training, tax examiners and auditors may detect indicators of possible corruption, whilst corruption investigators and prosecutors may detect tax crime.

Example: an anti-corruption authority may detect indicators of tax crime such as assets or income that an individual or company has attempted to conceal or a corruption scheme involving officials of a customs or tax authority.

 

Referral

Either authority may refer suspicions of either tax crime or corruption to the appropriate investigative authorities or public prosecutor.

Additionally, an authority may refer suspicions that the proceeds of corruption or tax crime have been laundered to the national Financial Intelligence Unit (FIU) or appropriate law enforcement authority.

 

Information sharing

Tax authorities often hold information that may assist a corruption investigation and vice versa.

Information held by tax authorities may include: personal and company information such as income, assets, financial transactions and banking information.

Information held by anti-corruption authorities may include: suspicions of tax crime or other intelligence or evidence gleaned from investigations, including from suspect interviews, witnesses, surveillance, searches and subpoenas.

Prosecution, police, and anti-corruption authorities may also be able to leverage mutual legal assistance agreements to obtain information or other assistance from foreign countries in multi-jurisdictional cases.

 

Joint investigations and sharing capability

Tax authorities can bolster a corruption investigation by applying specialised tools and skills common to tax examiners and auditors, such as undertaking net worth analyses of suspects or conducting analysis to make sense of complex financial transactions.

Anti-corruption authorities may have special enforcement powers not available to the tax authorities, such as powers of arrest and the power to lay more serious criminal charges.

 

Institutional integrity

Tax and customs officials are sometimes bribed to facilitate tax evasion. By enforcing anti-corruption laws strictly and working with tax authorities to strengthen internal integrity measures, anti-corruption authorities help to deter corruption and promote a culture of integrity within the tax authority.

 

Policy development

Both authorities may be involved in developing or shaping economic crime policy, relating to matters such as sentencing reform, case settlement procedures or setting priorities for regulatory or law enforcement activities.

 

Overcoming challenges to effective cooperation

 

What are the challenges?

The report discusses common challenges that can hinder effective collaboration between tax authorities and anti-corruption authorities.  These are classified into three broad groups: legal (the lack of a legal basis for co-operation), operational (the absence of an effective operational framework for co-operation), and cultural/political (the lack of culture that supports co-operation and inadequate high-level encouragement for co-operation).

 

Legal basis

The report posits that the lack of a legal basis for cooperation, or legal restrictions on cooperation which prevent an agency obtaining access to relevant information held by another agency, present a fundamental challenge.  These issues may arise in circumstances where:

  • The law prohibits information sharing from one authority to another. The report found that such prohibitions were rare in practice.
  • The law provides a legal basis for sharing, but it is insufficient. For example, only information relating to a narrow set of corruption offences may be allowed to be shared.
  • The legal basis for information sharing is difficult to apply in practice. For example, there may be undue restrictions on the use of information obtained, or there may be time consuming and costly processes.
  • The law only allows information sharing on request or provides no legal obligation to share. For example, if an anti-corruption or tax authority detects information of interest to the other, it can only be shared if the other authority actively seeks it out. As a result, there is less chance that the information will reach the other authority. A separate issue arises where there is no legal obligation to share and officials have the discretion to pick and choose when they share information.

 

Operational framework

Operational framework refers to the practical and structural context in which co-operation takes place, including procedures for requesting information. The report suggests that the lack of an operational framework for co-operation is detrimental to effective collaboration between authorities. The key considerations outlined include:

  • Complex or lengthy procedures can make information stale and less useful. This challenge may be caused or exacerbated by a lack of resources, authorities being too slow or inflexible in responding to requests for assistance, or from the existence of legal requirements that impede the information sharing process.
  • Cooperation assumes awareness of available information and mechanisms for collaboration. A lack of understanding among tax and corruption investigators about the types of offences that each other investigate and the types of information each other have also undermines the operational framework for co-operation.
  • Lack of training on using channels for cooperation hinders their adoption. This may include training on information sharing gateways as well as enhanced forms of co-operation through joint operations and taskforces.
  • Inadequate resources will hamper cooperation. Agencies that are insufficiently staffed or face other budget constraints may be less able to dedicate their time and resources to assisting another agency with an investigation and to receive assistance in turn.
  • A written co-operation agreement, such as a memorandum of understanding (MOU), between tax authorities and anti-corruption authorities is a simple yet effective tool for facilitating a working relationship. In general, MOUs provide an administrative framework for co-operation that is consistent with the mandates, operational policies, and legislation governing the parties.

 

Culture and political support

The report outlines how the lack of a culture and political and senior level support for anti-corruption authorities and tax authorities to co-operate with each other is a key challenge to successful collaboration. Key indicators of a lack of cooperation culture include:

  • Distrust. This may occur as a result of not having previously experienced the benefits of collaboration, or from previous bad experiences.
  • Unsupportive leadership. Lack of support for stronger co-operation from the senior leadership of the authority or the political figures who oversee it.
  • Narrow view of an authority’s mandate. If an individual authority’s priorities and objectives are not aligned with a broader common goal towards combating financial crime through collective efforts, it will be less likely to see value in co-operation.
  • Lack of independence. In countries where either authority cannot, objectively, be viewed as independent from political influence, officials may not be able to ensure the confidentiality and legitimate use of information shared.

Nyman Gibson Miralis provide expert defence in multi-jurisdictional cases that involve tax crimes, bribery and corruption offences and money laundering. These cases are highly complex and are typically investigated by multiple law enforcement agencies. Contact us if you require assistance.