Tackling corruption through taxation: The power of co-operation

OECD Observer

Operator, did you say co-Operate? ©Mack Sennett Studios

Why is it so important–and urgent–to strengthen co-operation between tax and anti-corruption authorities? 

"Every dollar that a corrupt official or a corrupt business person puts in their pocket is a dollar stolen from a pregnant woman who needs healthcare, a girl or a boy who deserves an education, and communities that need water, roads, and schools." (Jim Yong Kim, President of the World Bank Group)

Every year, bribes eat up an estimated US$1,500 to 2,000 billion, the equivalent of 2% of global GDP. And this is just a tiny fraction of the corruption that weighs on local businesses, fuels terrorism, complicates the refugee crisis and slows down progress on climate change reform. Corruption destroys trust, distorts competition and squanders people's skills. It is a drag on development.

The fight against corruption and bribery is built into the UN’s Sustainable Development Goals. But it will not be won without deploying our strongest weapon: co-operation. Tax inspectors are ideally placed to spot suspicious transactions. And law enforcement officials are ready to investigate and prosecute cases that they single out for irregularities.Yet how many international bribery cases did tax authorities uncover between 1999 and 2017 that went to court? The answer, thunders Drago Kos, Chair of the OECD Working Group on Bribery, is… 1%. Only five countries sent cases to court that had been flagged by their tax authorities.

So, we have investigators and prosecutors pursuing corruption cases. And we have tax inspectors who have all the information. But despite the obvious synergies, the two teams rarely co-operate. Meanwhile, in the criminal economy, the bad guys do, and business is booming.

Drago Kos used to be a football referee. Now he wants to blow the whistle on bribery. He says it starts with an appropriate legal and institutional framework. But here’s where it gets interesting. While tax authorities are legally required to report suspicious transactions to corruption investigators in many countries, it is optional and even, prohibited, in some countries on the grounds that the relevant information is confidential. Mr Kos says that countries need to authorise co-operation on corruption investigations and prod tax authorities and law enforcement officials to work together.

Evidence shows that when different departments work together, they get results. The 2015 FIFA case is a well-known example. What many people forget is that the corruption scandal over the world governing body of football’s awarding of the 2018 and 2022 World Cups began as a tax investigation in 2011. Don Fort, chief of criminal investigation at the US Internal Revenue Service (IRS), recalls that the IRS and the FBI worked the case together from the beginning and shared all the information they had. The result was a textbook example of how to conduct an investigation and a lesson in co-operation.

Don Fort has seen too many cases fail because of the lack of co-operation, and the stakes are high: "Bitcoins in digital portfolios escaping into offshore trusts can run into the billions, yes, billions with a ‘b’,” he says. “The sums are staggering!” The corruptible, corrupted and corrupting elements of society move fast. They are more creative than us: they seize the initiative with a dishonest, but nevertheless very real sense of entrepreneurship. They lurk where we least expect them. In a few minutes, billions can leave one country for another under a veil of secrecy. If our side takes weeks or months to mobilise in response, it will be like the Keystone Cops chasing after the bad guys, and never catching up. Co-operation needs to be fiscal and financial, investigative and punitive. It needs to be creative, innovative, brilliant and preventive.

Richard Findl, senior prosecutor at the Public Prosecutor's Office in Munich, used to be a tax inspector, so he’s familiar with both sides. Among the big cases he has worked are the 2008 case involving the engineering group Siemens and the 2009 case involving truck manufacturer MAN. Both Munich-based companies were found guilty of bribery in order to win substantial contracts. Mr Findl looks back with humility over the progress Germany has made on corruption. In the 80s, bribes were commonplace and even tax deductible. Things started to change in the 90s with the signing of the OECD's Anti-Bribery Convention, an instrument which now has 43 signatories.

For progress on corruption to continue in Germany and elsewhere, Mr Findl says, five things are key: a robust legal framework so that barriers preventing tax inspectors from working with investigators and prosecutors can be lifted; regular meetings to help all parties share information and develop mutual understanding and trust; close co-operation in every investigation from beginning to end; and regular training to show tax inspectors exactly what evidence to look for.

Last but not least: go for it! Don’t wait for the perfect case to get started. Criminals won't wait for us any more than will technological change.

Grace Perez-Navarro, Deputy Director of the OECD Centre for Tax Policy and Administration, calls for greater co-operation between tax authorities and criminal investigators and prosecutors. The OECD continues to present case studies that help member countries detect corruption, and is investigating new technologies to help in the fight such as blockchain.

As Jorge Luis Borges once said, "Don't talk unless you can improve the silence." National and international tax and law enforcement agencies need to talk to each other if they want to beat back the silent menace of corruption.


OECD 2018 Global Anti-Corruption and Integrity Forum  

OECD (2017), The Detection of Foreign Bribery, OECD, Paris, http://www.oecd.org/corruption/anti-bribery/The-Detection-of-Foreign-Bribery.pdf

OECD (2017), Effective Inter-Agency Co-operation in Fighting Tax Crimes and Other Financial Crimes - Third Edition, OECD, Paris, http://www.oecd.org/tax/crime/effective-inter-agency-co-operation-in-fighting-tax-crimes-andother-financial-crimes.htm

©OECD Observer April 2018

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

OECD Observer Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Subscribe now

<b>Subscribe now!</b>

To order your own paper editions,email Observer@OECD.org

Online edition
Previous editions

Don't miss

  • MCM logo
  • The following communiqué and Chair’s statement were issued at the close of the OECD Council Meeting at Ministerial level, this year presided by the Slovak Republic.
  • Food production will suffer some of the most immediate and brutal effects of climate change, with some regions of the world suffering far more than others. Only through unhindered global trade can we ensure that high-quality, nutritious food reaches those who need it most, Angel Gurría, Secretary-General of the OECD, and José Graziano da Silva, Director-General of the United Nations Food and Agriculture Organization, write in their latest Project Syndicate article. Read the article here.
  • Globalisation will continue and get stronger, and how to harness it is the great challenge, says OECD Secretary-General Gurría on Bloomberg TV. Watch the interview here.
  • OECD Secretary-General Angel Gurría with UN Secretary-General António Guterres at the 73rd Session of the UN General Assembly, in New York City.
  • The new OECD Observer Crossword, with Myles Mellor. Try it online!
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2019