What the joint global tax force ‘J5’ means for international criminal tax enforcement

May 2020 | SPOTLIGHT | CORPORATE TAX

Financier Worldwide Magazine

May 2020 Issue

On 8 November 2017, during closing arguments for the Organisation for Economic Co-operation and Development (OECD), a five-point action plan was announced. Point one of that action plan called for a focus on targeted responses to professional enablers of international tax evasion.

Recognising that professional advisers and intermediaries can play an important role in helping the financial system run smoothly, recent Big Data leak stories, such as the ‘Panama Papers’, reflected that a number of professionals were enabling some of the most complex and global forms of tax crime. As a matter of priority, the OECD pledged to increase efforts in the area of international criminal tax enforcement.

In June 2018, a global joint operational group was formed in response to the OECD’s call for action by countries to do more to tackle the enablers of tax crime. That group is the Joint Chiefs of Global Enforcement (J5). The J5 is comprised of tax enforcement authorities from Australia, Canada, the Netherlands, the UK and the US.

As the J5 approaches its second anniversary, there are a few things that taxpayers, tax practitioners and others involved in international tax matters may want to know.

J5 – the first year

The J5 was created as a platform for the five countries to work together to gather information, share intelligence, conduct operations and build the capacity of tax crime enforcement officials. The ultimate and greater goal, however, is for the J5 to share their successes, new approaches and findings from their joint efforts with the broader international tax enforcement community.

To increase the potential for more immediate success, as well as, arguably, to send a clear message that the J5 countries are invested in this venture, the participation of each J5 country is being spearheaded by their respective top criminal tax leaders: the heads of tax crime and senior officials from the Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Intelligence and Investigation Service (FIOD), Her Majesty’s Revenue & Customs (HMRC), and Internal Revenue Service Criminal Investigation (IRS-CI).

On 5 June 2019, the one-year anniversary of the formation of the J5, these respective criminal tax leaders met in Washington, DC. After just one year working together, it was publicly noted that they were all better equipped to conduct joint operations in the fight against those who commit, promote and enable international tax crimes and money laundering. The J5 also announced the following collaborative results: (i) collective work on more than 50 investigations involving sophisticated international enablers of tax evasion, including a global financial institution and its intermediaries who facilitate taxpayers to hide their income and assets; (ii) cooperation on cases covering crimes from money laundering and the smuggling of illicit commodities to personal tax frauds and evasion; and (iii) hundreds of data exchanges between J5 partner agencies with more data being exchanged in the past year than the previous 10 years combined.

The first year of the J5 clearly signalled that the emphasis on working together to leverage each country’s different capabilities and access to information, within existing treaties and laws, so as to enhance the overall effectiveness and success with one goal in mind, combatting cross-border financial tax crimes, was working.

Globalisation of our economies requires the globalisation of tax enforcement

Financial crime occurs on a global scale with the proceeds of crime transferred between jurisdictions. Stated another way, tax crime crosses international borders.

In a relatively short space of time, the J5 leaders have been able to facilitate their respective countries’ abilities to not only share information and open new cases, but more rapidly develop existing cases. Working to reduce the time it takes to do one’s job is good business. Facilitating international law enforcement’s ability to avoid duplication of efforts and share information in real time to more efficiently and timely disrupt crime on a global level is better business.

To achieve this goal, the J5 have focused on building on the domestic skillset of like-minded international tax administrations and law enforcement agency partners to collectively develop strategies to combat global tax cheats. The J5 has focused on platforms that enable each country to both share information and to do so in a more organised manner. FCInet is one such platform that each country has invested in to further that goal.

FCInet is a decentralised virtual computer network that enables agencies to compare, analyse and exchange data anonymously. It helps users to obtain the right information in real-time and enables agencies from different jurisdictions to work together while respecting each other’s local autonomy. Organisations can jointly connect information, without needing to surrender data or control to a central database. FCInet does not collect data, it connects data.

The J5 group made it clear it would focus on shared areas of concern and cross-national tax crime threats, including cyber crime and cryptocurrency, as well as enablers of global tax evasion, while working to share intelligence and data in near real time.

International tax evaders and enablers beware: the web is not all that dark

As criminals continue to find new methods to commit tax fraud and launder illegal proceeds, the J5 has also committed to keep pace with investigating these egregious financial crimes. Tax fraud on any level, including international, is not a new crime. The sophistication with which criminals commit tax fraud has significantly increased through cyber-related activities in recent years. Data breaches, intrusions, takeovers and compromises are the new tools that criminals use to commit tax crimes.

True to its word, on 8 November 2019, the J5 publicly turned its focus to cryptocurrency, as experts from each country gathered in Los Angeles, California, with the mission of optimising data from a variety of sources available to each country, to identify and hold accountable tax cheats and other criminals who attempt to use the dark web and cryptocurrency to commit financial crimes.

Specific training was provided on virtual currency, blockchain and the dark web, as well as advanced trainings on cryptocurrency tracing and open source intelligence. Using various analytical tools, members of each country were put into teams and tasked with generating leads and finding tax offenders using cryptocurrency based on the new data available to them to make connections which would take individual efforts years, if ever, to replicate.

Cutting through red tape and using the J5 as a force multiplier, this J5 gathering facilitated real investigators, using real data, finding real criminals through leads, trends, methodologies and investigations that touched all of the J5 countries to further current and future investigations under the J5 umbrella.

J5 – year two

On 23 January 2020, and to mark the first coordinated set of enforcement actions undertaken by the J5 on a global scale, the group announced that it had carried out a ‘day of action’ targeting an unnamed Central American financial institution suspected of facilitating money laundering and tax evasion for customers ‘across the globe’. The group collectively executed search warrants, interviews and subpoenas that are expected to result in further criminal, civil and regulatory actions begin taken by law enforcement in each country.

The investigation began with information obtained by the Netherlands. The coordinated enforcement action garnered leads on hundreds of Australians being identified as clients of the bank and estimates that the amount of tax evasion and money laundering involving the institution’s clients at more than £200m in the UK alone.

Offshore evasion is an international issue that calls for joint international solutions. In just two years, the collective actions of the J5 appear to be a significant and effective step in that direction.

Sandra Brown and Steven Toscher are principals at Hochman Salkin Toscher Perez P.C. Ms Brown can be contacted on +1 (310) 281 3200 or by email: brown@taxlitigator.com. Mr Toscher can be contacted on +1 (310) 281 3200 or by email: toscher@taxlitigator.com.

Sandra Brown and Steven Toscher

Hochman Salkin Toscher Perez P.C.