On the 21st of July 2021, it was held the VIRTEU International Symposium “The Professionals: Dealing with the Enablers of Economic Crime“. VIRTEU (Vat fraud: Interdisciplinary Research on Tax crimes in the European Union – Grant Agreement no: 878619) is a high profile legal research project funded by the European Union, which aims at exploring the interconnections between tax crimes and corruption to unravel the relationships between fraud and corrupt practices in the area of taxation.
The event has been organized by VIRTEU Special Adviser Prof. Diane Ring, who is Interim Dean and Professor of Law, Boston College Law School at Boston College Law School, the project Principal Investigator, Dr. Costantino Grasso, who is Associate Professor of Law at Manchester Law School and Editor-in-Chief of this Blog, and the Co-Investigator, Dr. Lorenzo Pasculli, who is Associate Head for Research at Coventry Law School.
The three-part Symposium was held with a range of international experts with three principal objectives:
- To explore the phenomenon of professionals as facilitators and gate keepers to tax crime
- To identify the impacts and influence of these professional enablers
- To identify a range of possible solutions to address the illegal and unethical behaviours, and what improvements or reforms could be made to existing systems.
The symposium benefited from the attendance of various subject experts and stakeholders, drawn from a diverse range of fields, backgrounds, experiences, and nationalities, including law enforcement, whistleblowers, lawyers, academics, investigative journalists, international NGO’s, tax experts, ethics specialists, and regulators, amongst others.
VIDEO RECORDING OF SESSION ONE – THE PHENOMENON
- Opening Remarks (Dr. Costantino Grasso)
- Poster Presentantion (Engin Erken and Stephen Holden)
- Panel 1 – Topic 1: Panel Introduction (Prof. Diane Ring)
- Panel 1 – Topic 2: Case Analysis – VAT Fraud Case on Amazon and eBay (Simon Bowers)
- Panel 1 – Topic 3: Case Analysis – Tax Fraud via Shell Company in Jersey (John Christensen)
- Panel 1 – Topic 4: Case Analysis – Luxembourg Leaks (Antoine Deltour)
- Panel 1 – Topic 5: Case Analysis – Role of Accountants in Corruption Cases (Richard Brooks)
- Panel 1 – Topic 6: Case Analysis – Hedge Fund – Sandell Tax Fraud Case (Joshua B. Dugan)
- Panel 1 – Topic 7: Case Analysis – Weakness of Enforcement Strategies (Jesse Eisinger)
- Panel 1 – Topic 8: Case Analysis – Amjad Rihan and EY Case (Mary Inman)
- Panel 1 – Topic 9: Case Analysis – Transnational VAT Carousel Fraud Case (Marco Letizi)
- Panel 1 – Topic 10: Case Analysis – Walmart Tax Fraud Case (Charles Middleton)
- Panel 1 – Topic 11: Quantitative and Qualitative Analysys of Economic Crime Enabling
- Panel 1 – Topic 12: Relevance of Formal Membership in the Professions
- Panel 1 – Topic 13: Professionals as Enablers of Economic Crime: Bad Apples or Bad Orchards?
- Panel 1 – Topic 14: Institutional Corruption and Undue Influence on Political-Decision Making
- Panel 1 – Topic 15: Knowledge Gap between Public and Private Sector, and Revolving Door
- Panel 1 – Topic 16: Whistleblowing in the Area of Taxation
- Panel 1 – Topic 17: Cultural Differences by Region or Profession in Professionals Enabling
Summary of the works of the first panel (The Phenomenon)
Before the first session, the project Principal Investigator, Dr. Costantino Grasso, introduced the event offering opening remarks. On the one hand, he highlighted the crucial role that professionals play in our society mentioning the inspiring actions of Giorgio Ambrosoli, Amjad Rihan, and Steven Donziger; on the other, he emphasized some reasons why there is widespread agreement that professionals play also a key role as facilitators or enablers of economic crime.
After the opening remarks, the discussion was contextualized during a brief poster presentation by Ph.D. candidates and research associates Engin Erken and Stephen Holden, who outlined how tax professionals may act to design, facilitate, or otherwise enable the commission of tax crimes.
The work of the first panel – chaired by Prof. Diane M. Ring – enjoyed contributions from:
- Simon Bowers, Investigations Editor at Finance Uncovered;
- Richard Brooks, Investigative Journalist and Former Tax-Inspector;
- John Christensen, Founder and Chair of the Board of Tax Justice Network;
- Antoine Deltour, Whistleblower and former Auditor at PricewaterhouseCoopers;
- Joshua B. Dugan, Assistant Attorney General, Taxpayer Protection Bureau, NYOAG;
- Jesse Eisinger, Senior Reporter & Editor, ProPublica;
- Mary Inman, Lawyer and Partner, Constantine Cannon LLP;
- Marco Letizi, Lieutenant Colonel of the Italian Guardia di Finanza (Tax Police); and
- Charles Middleton, International Tax Lawyer, and Whistleblower.
From a phenomenological perspective, the first panel explored the role of professionals who enable tax crimes, as well as the various ways the professionals, including lawyers, accountants, and auditors, may enable or facilitate tax crimes.
The panel first considered the question of who specifically the professional enablers of tax crimes are, and who are the biggest beneficiaries of such practices. Following the identification of the broad roles of accountants, lawyers, and auditors in designing, facilitating, enabling, and empowering tax crimes, it was highlighted that large multi-national organizations stand to gain the most from systematic vulnerabilities that allow the exploitation of tax systems, while the facilitators of tax crimes benefited from the repeated interactions and close working relationships with these organizations, generating repeated profits over the years and guaranteeing future business.
Within the context of legal professionals, senior lawyers may facilitate tax crimes by providing legal opinions to underpin questionable schemes which are used to legitimize the conduct. These legal opinions are rarely challenged in court and may be extremely profitable with little associated risk or disincentive.
The panel considered the importance of membership of accredited regulated industry bodies highlighting the importance of professional credibility that comes from membership, especially within the context of providing assurance to the legitimacy of the guidance and advice provided.
Reflective of the jigsaw nature of professionals who provide tax advice and services, while it may be suggested that industry and professional bodies could regulate professional conduct, the desegregation of responsibility results in there being no one clear party to take overall liability for designing and facilitating schemes that may be understood as tax crimes. This diffusion of responsibility contributes to the limits of professional bodies in regulating the conduct of their members. As such, it may be understood that the reputational benefits to professional body membership outweigh any possible regulatory enforcement mechanism that arises through that membership.
The panel broadly agreed the work of lawyers, accountants, and auditors had become increasingly morally questionable over the years, with some identifying it as fostering a ‘criminogenic’ environment, driven by weak enforcement, voluntary regulation, and self-reporting mechanisms, that have facilitated a culture of impunity, allowing the ‘guard rails to come off’.
Simply, the operation and perpetration of tax offenses or questionable moral conduct are much more profitable than not engaging in these types of behaviors. When coupled with the very low risks of being caught or enforcement, professionals may feel safe operating in this manner, whereby they are provided increased incentives to offer escalating forms of legally and morally questionable advice.
The panel considered matters of corruption that extended beyond simply instances of bribery and embezzlement, but extended to aggressive lobbying that allows corruption to flourish, by example increasing complexity in taxation systems, weakening regulations, or reducing resources available to enforcement bodies. This may lead to a ‘race to the bottom’ within states vulnerable to regulatory and judicial capture, and has led to a degradation in standards that underpin regulations internationally. The reduction in regulatory enforcement, enhanced secrecy provisions, and lack of international cooperation has become a particular feature of the tax systems of smaller jurisdictions that battle to attract the business of large corporations.
Considering the question of a knowledge gap between regulatory and law enforcement agencies, and the private sector, the panel identified instances where individuals acquire the fundamental industry knowledge from public sector positions before moving to work in private enterprise, resulting in what may be considered a brain drain. This was understood to be for a host of reasons, including limited progression prospects, lower rates of pay, and fewer opportunities to diversify experience.
This is compounded by the ‘revolving door’ of the industry where regulators, investigators, and decision-makers may view their interactions as dealing with perspective future employers, providing a complex set of incentives to provide prosecution agreements that do not disproportionately disbenefit the wrongdoers. Notwithstanding, it was highlighted these influences are not pervasive through all regulatory or enforcement bodies. There exists an outstanding range of dedicated and extremely knowledgeable professionals in the public sector who remain uninfluenced and undertake their role with diligence and integrity in representing the public interest.
The panel discussed the benefits of ‘demystifying’ the rhetoric and concepts that are pervasive throughout tax crimes as the language that has been allowed to develop may lead to prosecutors believing there is little chance of a successful prosecution, reflective of the difficulty in persuading jurors that what has occurred is, in fact, a crime. Finally, the panel considered the role of whistleblowers in combatting tax crimes, and how best to support and empower these disclosures. The panel identified conduct may not be clearly illegal or criminal, often falling into a ‘grey area’, while there exists a risk of prosecution of the whistleblower through complicity. As such, there exists a variety of significant barriers to whistleblowing within the area of tax crimes, yet these barriers may be overcome through the use of non-prosecution agreements in return for testimony, effective use of anonymity provisions, and financial incentives to break the culture of silence.
VIDEO RECORDING OF SESSION TWO – THE CAUSES
- Panel 2 – Topic 1: Panel Introduction (Prof. Andrew Francis)
- Panel 2 – Topic 2: Introductory Reflections (Dr. Aleksandra Jordanoska)
- Panel 2 – Topic 3: Introductory Reflections (Prof. Daniel Ostas)
- Panel 2 – Topic 4: Introductory Reflections (Prof. Kelly Richmond Pope)
- Panel 2 – Topic 5: Professionals as Enablers of Economic Crime: Key Drivers
- Panel 2 – Topic 6: Regulation, Hierarchy of Moral Values, and Moral Salience
- Panel 2 – Topic 7: Relevance of Subjectivity in Accounting Mechanisms
- Panel 2 – Topic 8: Balancing Different/Competing Interests
- Panel 2 – Topic 9: Whistleblowers in the Area of Taxation
- Panel 2 – Topic 10: Ethical Decision Making and Toolkit Available to Professionals
- Panel 2 – Topic 11: Summing-up (Prof. Andrew Francis)
Summary of the works of the second panel (The Causes)
The second panel examined the relevant legal, regulatory, and moral dimensions of professional involvement in questionable tax practices, and what are the causes for such involvements. The panel was chaired by Prof. Andrew Francis, Professor of Law, Deputy Pro-Vice-Chancellor and Head of Manchester Law School, and enjoyed contributions from:
- Dr. Aleksandra Jordanoska, Lecturer in Corporate Law, King’s College London;
- Prof. Daniel T. Ostas, Professor of Business Ethics and Legal Studies at the University of Oklahoma; and
- Prof. Kelly Richmond Pope, Professor in Accountancy at DePaul University.
Each panelist provided initial reflections on the subject matter, highlighting issues including the concept of responsibilization of advice and guidance given by tax professionals, the importance of the remoteness of the victim as a means of providing justification for participating in tax crimes, and the prominence of legal and regulatory frameworks that promote a culture of ‘creative compliance’ to the letter of the law, as opposed to compliance with the spirit of the law.
Further issues included the rationalization of harmful behaviors resultant of a failure to adequately consider the personal and corporate responsibility to ethical societal constraints and the political health of the jurisdiction, in addition to a lack of broader moral and ethical self-reflection.
Considering the primary causes and driving factors of intermediaries to engage in tax crimes, the panel identified the complex factors that result in these behaviors, including enhanced access to people, organizations, and structures that perpetrate tax crimes often closed to those not sharing the intermediary status, and therefore providing opportunities for exploitation.
Organizational culture was also identified as playing a significant role, often resulting in instances of groupthink, fostering environments that disregard social norms, and placing the values and goals of the organization itself above those of society or personal ethics. To combat this, corporations may be encouraged to foster more socially ethical organizational cultures through greater adoption of ‘failure to prevent’ regulations, which place responsibility at the feet of the organization for allowing their employees or agents to operate in a manner that facilitates and enables tax crimes.
Further driving factors to engage in conduct that facilitates tax crimes may be the lower perception of tax crimes on the hierarchy of moral saliency resultant of the remoteness of direct harm, especially when contrasted with other areas of regulation, for instance, health and safety.
Critically, judicial and enforcement bodies may interpret tax laws and regulations more literally, with less willingness to seek out the purpose of the law, as opposed to other areas of regulation, for example, environmental protection. Armed with the understanding of the prevalence of this judicial approach, this may encourage tax professionals to exploit loopholes or vulnerabilities within existing regulations.
Within the context of accountancy, there is an added level of subjectiveness to professional decision-making resultant of the ‘generally accepted accounting principles’. This places a greater emphasis on the requirement for ethical considerations, and as such, professional training would benefit from enhanced levels of ethical and moral training, including the indirect consequences of professional actions, and facilitating aggressive tax planning.
Considering the challenges in balancing the appropriate obligations towards interested parties and stakeholders, including but not limited to clients, professional bodies, shareholders, wider societal interests, and the organization they represent, the panel agreed that the starting point should be the exercise of moral duties in the generation of profit, as opposed to ethical considerations being a secondary concern to income.
If most parties within an industry are engaged in similar conduct, and a reduction in ethical considerations is pervasive throughout the sector, then attempting to implement higher ethical reasoning can result in competitive disadvantages, in effect disincentivizing increases in moral fortitude and decision making.
Considering how to address these problems, the panel agreed one such method was to empower whistleblowers in drawing attention to socially undesirable actions. This could be done through the effective implementation of whistleblower protections, the use of financial rewards, and an end to the vilification of those who uncover institutional wrongdoing and crimes. Discussing whistleblower motivations, the panel agreed it was necessary to focus on the content of the disclosure, as opposed to the identity of the whistleblower. Any overt focus on motivation may shift the attention from the wrongdoing, limiting the effectiveness of accountability mechanisms.
VIDEO RECORDING OF SESSION THREE – THE SOLUTIONS
- Panel 3 – Topic 1: Panel Introduction (Prof. Diane Ring)
- Panel 3 – Topic 2: Introductory Reflections (Prof. Linda Galler)
- Panel 3 – Topic 3: Introductory Reflections (Jonathan Goldsmith)
- Panel 3 – Topic 4: Introductory Reflections (Henry J. Grzes)
- Panel 3 – Topic 5: Introductory Reflections (Paul D. Scott)
- Panel 3 – Topic 6: Introductory Reflections (Frederica Wilson)
- Panel 3 – Topic 7: Introductory Reflections (Simone Zancani)
- Panel 3 – Topic 8: The Role of Professional Organizations and Their Own Ethical Standards
- Panel 3 – Topic 9: The Issue of Revolving Door
- Panel 3 – Topic 10: How to Enhance Whistleblowing to Tackle Economic Crime
- Panel 3 – Topic 11: Reflections on Lawyers’ Involvement in Economic Crime
- Panel 3 – Topic 12: Whistleblowing in the Area of Taxation: Best Practices (Mary Inman)
- Panel 3 – Topic 13: Ethical Behavior: Drawing the Line (Prof. Daniel Ostas)
- Panel 3 – Topic 14: Summing-up (Prof. Diane Ring)
Summary of the works of the third panel (The Solutions)
The final panel built upon the identified issues in the previous discussions and considered the measures currently in place to address forms of illegal and unethical behaviors, assessing their strengths and weaknesses, and identified reforms and improvements to prevent the facilitation and enabling of tax crimes.
The panel was chaired by Prof. Diane M. Ring, Interim Dean and Professor of Law at Boston College Law School, and enjoyed contributions from:
- Prof. Linda Galler, Professor of Law at the Maurice A. Deane School of Law;
- Jonathan Goldsmith, Solicitor and Member of the Council of the Law Society;
- Henry J. Grzes, CPA Lead Manager, Tax Practice & Ethics – Public Accounting;
- Paul D. Scott, Attorney and Founder of Law Offices of Paul D. Scott;
- Frederica Wilson, Executive Director and Deputy CEO Federation of Law Societies of Canada; and
- Simone Zancani, Lawyer and Vice-President of the Criminal Law Association of Venice.
Panel members provided personal reflections upon driving factors for participation in tax offenses, and the possible available remedies. This highlighted the requirement for effective enforcement measures targeting the exploitation of systematic vulnerabilities in tax regulations and enforcing the spirit of the law as opposed to a simple binary understanding of legality, however, any such regulations would benefit from a targeted evidenced-based approach in order to sufficiently target nefarious actors, and avoid adding ineffective and burdensome regulation on professionals who are not engaged in these types of conduct.
One identified problem was striking the balance between effective client confidentiality, enabling legal and tax advisors to provide frank and honest advice, while also enabling methods for reporting planned criminality.
Currently, the international taxation regime suffers from a lack of universality from both accepted terminology and base standards that underpin actions. Conflating terminology within different jurisdictions leads to inconsistencies of acceptable conduct, while no effective and recognized underpinning of acceptable conduct may embolden intermediaries in undertaking questionable conduct that they reasonably understand facilitates tax crimes.
A discussion focused on how to adjust the underlying arithmetic when deciding to facilitate tax crimes or advise on systematic exploitation. This requires not only that punitive actions negate any possible benefit, but also increasing the likelihood of being caught and successful prosecutorial action. The panel considered the inherent weaknesses within organizational regulatory systems, identifying vulnerabilities including overgeneralization, a lack of specificity, and conflicting duties and responsibilities. Accordingly, whistleblowing has the potential to make significant contributions to the detection of tax crimes and subsequent enforcement through piercing the veil of secrecy.
A further identified vulnerability is the subjective nature of matters of ethics and morality. Some jurisdictions require certain industry professionals, for instance, lawyers and accountants, to undertake ethics modules as a means of attaining accreditation, with others requiring annual or regular top-up courses on professional ethics. However, the overall focus of these ethical duties remains closely on duties to the client, and to not undertake specific crimes, as opposed to ethical operation and not circumventing the spirit and intention of the law to the detriment of the broader society. Further, there remains a lack of substantive guidance available to professionals should they be faced with instructions that they disagree with from an ethical standpoint.
The panel discussed the problem of the revolving door phenomenon, and the effect on regulatory enforcement, recognizing the problems of complex competing interests when investigating or prosecuting potential future employers. Means of reducing conflicting interests include increasing resources available to investigative and enforcement bodies, increase overall career opportunities and diversification, enhanced promotion prospects into senior leadership roles, and less discrepancy in financial remuneration between the public and private sectors.
Whistleblowers would benefit from effective systems of protection in practice, as opposed to ineffective statutory provisions that are inconsistent in their application, with employers engaging in behaviors such as reason shopping or otherwise subverting protections available to disclosing individuals.