Tag Archives: tax fraud

A Low-Cost, No-Tech Solution to Petty Corruption: Stickers

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On a recent trip to Myanmar, I was surprised to find that all of my dining receipts came with government stickers on them. It turns out that these stickers are a solution to a tax fraud problem. Restaurants are supposed to charge sales tax, but the government has limited capacity to ensure that the tax collected from patrons actually reaches the government. So the government sells stickers to restaurants that say the price the restaurant paid, and restaurants post these stickers on each receipt for the amount of the tax. Compliance is secured through a combination of direct enforcement and public pressure. This low-cost, low-tech solution ensures the flow of money to the government instead of the pockets of unscrupulous business owners.

The same innovation could be applied to combat petty corruption, helping to ensure that the money from various charges paid by citizens—from license fees to road tolls to other government service charges—flows to official coffers rather than bureaucrats’ pockets. In any situation where an individual has to pay the government – from garbage collection to healthcare to speeding tickets – demanding a stickered receipt could ensure that the government agent doesn’t pocket some (or all) of the payment. Moreover, using these stickers would have a more subtle secondary benefit: fixing the price of government services. Consider a citizen who applies for a driver’s license and has to pay a cash fee. The bureaucrat in charge of processing the application not only has an incentive to not only pocket the cash, but also to exaggerate the size of the license fee in order to have more to steal. The stickers help ameliorate this problem, because a citizen who demands proof of payment in the form of stickers diminishes the incentives of the bureaucrat to inflate the price.

Of course, while the sticker system helps address petty embezzlement, it does not (directly) address the problem of petty bribery. A bureaucrat could demand an additional bribe on top of the official price for a service. Or a government agent could offer to not impose some charge or fine in exchange for a bribe paid directly to the official. The classic example here would be a police officer offering to look the other way on a traffic offense in exchange for a payment. Nonetheless, the sticker system may also help to curb these sorts of petty bribery, for a few reasons: Continue reading →

WAGs: What’s the Harm?

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GAB is pleased to publish this Guest Post by Maya Forstater, well-known analyst on business and sustainable development, on a topic of continuing concern to scholars and activists working on corruption and development matters.

Are unreliable guesstimates  and made-up statistics mildly irritating, indispensably powerful  or potentially dangerous in the public debates on corruption? The topic comes up so often on the Global Anti-Corruption Blog that it has been given its own own three-letter acronym: WAGs (or Wild Ass Guesses).

Those at the sharp end of advocacy maintain, with some justification, that in the battle for attention, an arrestingly big number makes all the difference. But as Rick has argued, overinflated figures can also cause harm.

Something similar happens on the related topic of tax and illicit flows. One example of this is the widespread belief that ‘developing countries lose three times more to the tax avoidance by multinational companies than they receive in aid’. This much quoted WAG gives the impression of huge potential gains for the poorest countries, but is based on a chain of misunderstandings .  In practice the magnitudes of revenues at stake are likely to be several times smaller than aid  for the countries where that comparison matters.

Similarly, broad estimates of illicit flows or the scale of the black economy (“trillions”) are often presented in ways that suggest that the sums to be gained from tackling corporate tax avoidance are larger than any serious analysis supports.

I have written about these big numbers previously in a paper published by the Centre for Global Development here (or here  for the short version).

But what harm do such numbers do, compared to their power at getting people talking about the issues? Is it really worth pointing out misunderstandings and myths in pursuit of a more rigorous and careful approach to evidence? (Or as I have been asked‘ Do you ever wonder how much you help the tax abusers?’)

I see four key dangers from inflated perceptions of the numbers:  Continue reading →

The Internal Revenue Service’s (Potential) Role in Combating Foreign Bribery

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The uptick in FCPA investigations in recent years is well-known. The two agencies responsible for FCPA enforcement—the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC)—now have special units focused on FCPA cases. Both have been aggressively pursuing cases against corporations and (increasingly) individuals. But there is a third U.S. agency that can and should be more involved in the fight against transnational bribery: the Internal Revenue Service (IRS).

The IRS already has some role in FCPA cases, though the extent of that involvement is not entirely clear. Recently, its joint investigative role has been mentioned in a few high-profile matters. Notably, criminal FCPA charges against Vicente Eduardo Garcia (an SAP regional director who in August pled guilty to an FCPA violation involving bribery for Panamanian government contracts) were investigated cooperatively by the FBI and IRS, a fact that some commentators cautioned signaled a need for companies to increase FCPA compliance efforts through additional channels. IRS Criminal Investigation was also involved in the case against Hewlett-Packard Russia, which last year pled guilty to violating the FCPA, and even the (non-FCPA but bribery-related) investigation of FIFA started with the IRS. Beyond investigation, the IRS can bring separate tax charges related to incidents of bribery or other inappropriate payments. A 2014 settlement included a multi-million-dollar forfeiture to the IRS, apparently the first such forfeiture in an FCPA settlement, though the exact reason for the forfeiture was not revealed.

Several observers have speculated that the last decade’s increase in FCPA actions could lead to an increase in tax-related actions. Up until now it has been relatively rare for FCPA actions to include associated tax charges, but the 2014 settlement might be one indication that the relative scarcity of tax involvement could change. The IRS can further develop its responsibility in FCPA investigations with an expanded formal cooperative role, if indeed it does not have one already, in DOJ or SEC prosecutions. This would be a positive step, since there are two major advantages to FCPA investigations assisted, or tax charges brought, by the IRS:

Continue reading →

Illicit Financial Flows: Tax Fraud, Evasion, Avoidance, Abuse, Mitigation, and Planning

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Thanks to high profile reports by Global Integrity, Eurodad, the OECD, and the African High Level Panel spotlighting losses developing countries suffer from the manipulation of tax laws and other forms of illicit financial flows, questions about “tax fraud,” “tax evasion,” “tax avoidance,” and “tax abuse” are now on the development policy agenda.  These terms and their equivalents in other languages are, with the exception of “tax fraud,” ambiguous — sometimes used to mean actions that are unlawful and sometimes used to refer to legal ones.  Before the debate on how to ensure developing countries receive the tax revenues they are due goes any farther, it may be helpful to explain how the ambiguity arises. Continue reading →