OECD – IMPROVING CO-OPERATION BETWEEN TAX AUTHORITIES AND ANTI-CORRUPTION AUTHORITIES IN COMBATING TAX CRIME AND CORRUPTION
OECD – IMPROVING CO-OPERATION BETWEEN TAX AUTHORITIES AND ANTI-CORRUPTION AUTHORITIES IN COMBATING TAX CRIME AND CORRUPTION. This report was prepared jointly by the World Bank Group’s Governance Global Practice and the OECD Centre for Tax Policy and Administration, and was developed within the OECD Task Force on Tax Crimes and Other Crimes. This report has been prepared by Graeme Gunn and Emma Scott, under the guidance of Anders Hjorth Agerskov, Melissa Dejong, and Mark Johnson. Introduction 1. Countries around the globe are facing a common threat posed by increasingly complex and innovative forms of financial crime. By exploiting modern technology and weaknesses in local legislation, criminals can now covertly move substantial sums between multiple jurisdictions with relative ease and great speed. As a consequence, criminal activity such as tax evasion, bribery and other forms of corruption are becoming ever more sophisticated. Meanwhile, law enforcement structures have, in many cases, not evolved at the same speed and the international community has struggled to keep up with this threat. 2. While viewed as distinct crimes, tax crime and corruption are often intrinsically linked, as criminals fail to report income derived from corrupt activities for tax purposes, or over-report in an attempt to launder the proceeds of corruption. A World Bank study of 25 000 firms in 57 countries found that firms that pay more bribes also evade more taxes. 1 More broadly, where corruption is prevalent in society, this can foster tax evasion. A recent IFC Enterprise Survey found that 13.3% of businesses globally report that “firms are expected to give gifts in meetings with tax officials”, with the frequency of this ranging across countries from nil to 62.6%. 2 3. The links between tax crime and corruption mean that tax authorities and law enforcement authorities can benefit greatly from more effective co-operation and sharing of information. Tax authorities hold a wealth of personal and company information such as income, assets, financial transactions and banking information, that can be a valuable source of intelligence to anti-corruption investigators. Similarly, anticorruption authorities can provide tax administrations with important information about ongoing and completed corruption investigations that could assist a decision to reopen a tax assessment, initiate a tax crime investigation, or more generally promote integrity among tax officials. The investigation into Brazilian majority-state-owned oil company, Petrobras, initiated in 2014, is a prime example of this. Civil tax auditors played a critical role in this transnational corruption investigation by analysing suspects’ tax and customs data and sharing this with the police and public prosecutor as permitted by law. As a result, officials were able to uncover evidence of money laundering, tax evasion, and hidden assets, and to track financial flows. While criminal investigations and prosecutions are still ongoing, as of August 2018, the operation has resulted in dozens of charges against high profile public officials and politicians and billions of dollars in criminal fines, tax penalties, and recovered assets. 4. However, there remains significant room for improvement in co-operation between tax authorities and anti-corruption authorities. Despite success stories, anecdotal evidence provided by many jurisdictions involved in this report suggests that reporting and information sharing between authorities often occurs on ad-hoc basis rather than systematically. This is reinforced by the OECD’s 2017 study on the Detection of Foreign Bribery, which provides that only 2% of concluded foreign bribery cases between 1999 and 2017 were detected by tax authorities.3 5. These issues are at the heart of the current global agenda. In 2015, the United Nations agreed 17 Sustainable Development Goals, including a specific target of substantially reducing corruption in all of its forms. 4 The World Bank and OECD strongly support these goals and recognise the importance of dealing with corruption and tax evasion at a policy and technical level. In this context, for many years, international organisations including the OECD and World Bank have been active in supporting countries to strengthen their legal and institutional frameworks for the prevention, detection, investigation, and prosecution of tax crime and corruption, and the recovery of the proceeds of these crimes. In 2012, the Financial Action Task Force (FATF) recognised these links by including corruption, bribery, and tax crimes in the list of designated predicate offences for money laundering purposes in its International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation. 5 6. In 20096 and 20107 , the OECD issued two Council Recommendations calling for greater co-operation and better information sharing between different government agencies involved in combating financial crimes. These are supported by the Oslo Dialogue, an initiative which encourages a whole of government approach to tackling all forms of financial crime. 8 As part of this initiative, in 2017, the OECD published its third edition of Effective Inter-Agency Co-operation in Fighting Tax Crimes and Other Financial Crimes (the Rome Report) which analyses the legal gateways and mechanisms for inter-agency co-operation between authorities responsible for investigating tax and other financial crimes. At the same time, the OECD published Ten Global Principles for Fighting Tax Crime, the first report of its kind which allows countries to benchmark their legal and operational frameworks for tackling tax crime, and identify areas where improvements can be made. 7. The OECD continues to advance practical tools and training to combat tax crime and corruption. OECD Handbooks on Money Laundering Awareness and Bribery and Corruption Awareness provide practical guidance to help tax officials identify indicators of possible criminal activity in the course of their work. In 2013, the OECD International Academy for Tax Crime Investigation was launched in co-operation with Italy’s Guardia di Finanza to strengthen developing countries’ capacity to tackle illicit financial flows. In 2017, a sister Academy was piloted in Kenya and will be formally launched in Nairobi, in late 2018. In July 2018, OECD and Argentina’s Federal Administration of Public Revenue (AFIP) signed a MoU to establish a Latin American centre of the OECD Academy in Buenos Aires, Argentina, with the first programme planned for late 2018. 8. The World Bank is also helping strengthen developing countries’ capacity to stem tax evasion. In 2015, the World Bank and the International Monetary Fund (IMF) launched the Joint Initiative to Support Developing Countries in Strengthening Tax Systems to give greater voice to developing countries in the global debate on tax issues. 9 Through this joint initiative, the World Bank and the IMF are assembling a set of tools and guidance aimed at addressing developing economy needs. As part of this work, the World Bank has also partnered with the governments of Norway and Denmark to launch the Tax Evasion Initiative to enable enforcement agencies in developing countries to more effectively combat tax crimes and other financial crimes. Under the Tax Evasion Initiative, the World Bank is developing a set of tools, including a handbook on tax evasion schemes and red flags for tax investigators and auditors, as well as a methodology for assessing the performance of criminal tax investigation units which is currently being piloted. 9. In researching, developing, and publishing this joint report on the legal, strategic, and operational aspects of co-operation between tax authorities and anti-corruption authorities, the World Bank and OECD aim to complement their existing work and advance the shared objective of improving the capacity of all countries to effectively combat financial crime. Published: 22 October 2018.