Tax authorities in the UK, the USA, Canada, Australia and the Netherlands have joined forces to launch the Joint Chiefs of Global Tax Enforcement, or “J5” alliance against transnational tax crime and money laundering.
The coalition, formed in response to a call to action from the Organisation for Economic Cooperation and Development (OECD) for countries to do more to tackle the enablers of tax crime, will pool intelligence, expertise and resources, as well as conducting joint investigations and programmes.
The J5 has stated its initial priorities as tackling professional enablers facilitating offshore tax crime, cybercrime and the threat of cryptocurrencies to tax administrations. It has also identified offshore structures and financial instruments as potential tools of tax crime and money laundering, and therefore as topics of particular interest for the alliance.
THE J5 ALLIANCE
Last week in Montreal, officials from the J5, comprising HM Revenue and Customs (HMRC), the Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Information and Investigation Service (FIOD), and the USA’s Internal Revenue Service Criminal Investigation (IRS-CI), met for the first time to develop plans and identify opportunities to pursue the alliance’s stated aims of tackling cyber-crime and hunting down enablers of international tax crime.
The organisation has identified three key steps in its strategy:
Developing shared strategies to gather information and intelligence that will strengthen operational cooperation in matters of mutual interest, and target those who seek to commit transnational tax crime, cybercrime and launder the proceeds of crime
Driving strategies and procedures to conduct joint investigations and disrupt the activity of those who commit transnational tax crime, cybercrime, and also those who enable and assist money laundering
Collaborate on effective communications that reinforce that J5 is working together to tackle transnational tax crime, cybercrime and money laundering.
The J5 believes that this approach will have a number of outcomes, including enhancing existing investigation and intelligence programmes, identifying targets for new investigations, improving tactical intelligence, leading the wider community, and raising international awareness of the J5’s actions. Specific plans have not yet been released, but the alliance expects to reveal updates on J5 initiatives later in 2018.
“We cannot continue to operate in the same ways we have in the past, siloing our information from the rest of the world while organized criminals and tax cheats manipulate the system and exploit vulnerabilities for their personal gain,” said Dan Fort, the head of IRS-CI. “The J5 aims to break down those walls, build upon individual best practices, and become an operational group that is forward-thinking and can pressurize the global criminal community in ways we could not achieve on our own.”
The creation of J5 comes only months after the European parliament’s launch of an enquiry dubbed Taxe 3. Initiated in response to the revelations of LuxLeaks, the Panama Papers and the Paradise Papers, the Special Committee will focus on financial crimes and tax evasion. The Committee is due to submit findings and recommendations in February 2019 for fighting tax crimes, tax evasion and tax avoidance in the EU, as well as how to manage tax competition among EU member states.
The creation of both bodies could be seen as part of a growing trend for “safety in numbers” among governments, who have learned that more can be achieved when intelligence, expertise and resources are shared – especially in the ever-more-connected world in which the businesses they are regulating operate.
THE THREAT OF CRYPTOCURRENCIES
The J5’s announcement that one of its key priorities is the growing cryptocurrency market will come as little surprise; regulators more broadly are applying increasing scrutiny in this area. Cryptocurrencies enable parties to transfer value without using banks or other traditional intermediaries. This makes it more challenging for regulators and tax authorities to detect transactions and may also mean that parties escape paying taxes which would usually be levied at source. Indeed, estimates place cryptocurrency-related tax liabilities for the 2017 tax year at US$25 billion in the USA alone. In addition, the anonymity associated with cryptocurrencies makes them a prime forum for those seeking to launder money and engage in contraband transactions.
As details of the J5’s enforcement strategy have not yet been released, the precise impact of the coalition’s activities on the cryptocurrency markets remains unclear. However, in light of the booming popularity and particular risks of their use for illicit purposes, it is likely that the trend towards closer scrutiny from a tax enforcement perspective is set to continue.
The J5’s focus on “professional enablers” of tax crime highlights that tax authorities and regulators are ever more willing to shine a spotlight on third party involvement in tax evasion. Successive leaks have underlined the potential reputational damage for businesses of being associated with or facilitating tax evasion. As highlighted by the J5 in its launch statement, complex corporate structures, offshore entities and financial instruments as vehicles for tax evasion will receive increased scrutiny by member tax authorities. It is therefore important for corporates and professional services firms to carefully manage their exposure to higher risk clients and business activity.