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Joint Chiefs of Global Tax Enforcement: have the J5 met their objectives for collaboration and enforcement?

Posted on 28 July 2022

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The Joint Chiefs of Global Tax Enforcement (the "J5") is comprised of senior officers from the tax authorities of Australia, Canada, the Netherlands, USA and the UK, and aims to combat transnational tax crime and money laundering through strategic collaboration. Four years after the group's formation its investigations and prosecutions appear to be gathering pace.

The J5's objectives

The alliance was formed in June 2018 in response to a call to action from the Organisation for Economic Co-operation and Development ("OECD") for countries to do more to tackle the enablers of tax crime. At its inception, the aims of the J5 were to gather information, share intelligence, conduct coordinated operations and build the capacity of tax crime enforcement agencies in recognition of increasingly globalised and sophisticated tax crime risks.

Enforcement

On its one-year anniversary the J5 released a statement confirming it was involved in over 50 investigations, one of which involved a global financial institution.  Despite limited information about what and who these investigations involved, and whether they led to any prosecutions, it appeared that the coalition had had a strong start. In the years that followed, the J5 continued to emphasise the strong collaboration between its members, however evidence of prosecutions, or any enforcement action taken as a result of that collaboration has been scarce.

At the start of 2020 however, the J5 held an International Day of Action which engaged all five member states in tackling suspected money laundering and tax evasion by an unnamed international financial institution located in Central America. The coordinated activity by the international partners involved executing search warrants, conducting interviews and issuing summons.

Despite the global pandemic which slowed the efforts of many law enforcement agencies around the world, regular arrests and prosecutions continued to result from intelligence gathered and assessed under the umbrella of the J5 throughout 2020 and 2021. This included a CEO and associate of a Canadian communications and service provider being indicted for criminal enterprise relating to the drugs trade, and the former principal of a financial services firm pleading guilty to securities fraud and tax evasion, and indictments against 10 individuals in New York which led to the arrest of individuals in the UK, Cyprus, Spain and Romania.

The J5's coordinated efforts are showing no signs of slowing. In June 2022, the Office of the Commissioner of Financial Institutions of Puerto Rico issued a cease-and-desist order against Euro Pacific Bank and prevented the bank from carrying out further business by deregistering the bank. This action was the result of a two-year investigation undertaken by the J5 into the bank's involvement in global tax evasion and money laundering.

Additionally, HMRC's Chief Investigation Officer and Director announced that HMRC would be launching a series of tax enquiries, full criminal investigations and intelligence operations related to the action taken by Puerto Rico in the Euro Pacific Bank Probe, as it had reason to believe that hundreds of individuals in the UK have used the products and services of Euro Pacific Bank. The case, like many others brought under the J5 umbrella, highlights the transnational reach of these types of offences as intelligence from the alliance has repeatedly led to action in member and non-member countries.

Collaboration

The approach of the J5 is to carry out a period of coordinated information gathering followed by separate enforcement and prosecution measures being taken by an individual member, or indeed non-member, state. The collaboration stage can involve a literal bringing together of experts as leading data scientists, technologists and investigators from all member states gather in a host country to participate in a J5 "Challenge". First attempted in 2018 in Utrecht, the experts launch a coordinated push to track down individuals perpetrating tax crimes around the world. The challenges are designed to ensure greater operational collaboration between members. During these challenges different tools, platforms and techniques are identified between its experts and deployed to find leads. 

As confirmed in response to a Freedom of Information Act ("FOIA") request made to HMRC by this firm, the J5 do not have collective enforcement powers, but members use conventions under various Mutual Legal Assistance ("MLA") and Mutual Administrative Assistance to engage in MLA with member and non-member nations.

When it was launched in 2018 it was claimed that having a low number of members would allow the group to be more agile and flexible. In response to our FOIA request, HMRC also confirmed that there are no plans to expand the membership of the J5 at present, but so far as possible, where information and intelligence are collected by members, this can be shared with tax authorities that are not members of the J5.

The common reporting standard ("CRS") was brought in a year before the formation of J5, and resulted in HMRC becoming party to an automatic exchange of information with over 100 jurisdictions. In comparison with this collaboration, the J5 membership could appear paltry. However, cracks have appeared in the CRS as it appears the data provided by this network has prioritised quantity over quality as it has been widely reported that data has been found to be inaccurate or faulty. As a group of select parties with developed tax enforcement agencies and a majority shared common language, the size of the J5 is perhaps an asset as it may be more effective at facilitating reliable and focused collaboration between the international agencies. 

Some may wonder at the absence of other states with strong pedigrees in tax enforcement such as Germany or Ireland, or states which have made public announcements about their commitment to developing strong anti-tax crime and money laundering regimes such as Egypt, but the fact of being a non-member state doesn't appear to prevent effective collaboration with the J5.

What's ahead for the J5

As reaffirmed at the J5's 2022 summit in London, the J5's ambition also stretches to reducing the growing threat posed by cryptocurrencies and cybercrime. As part of its 10-year vision, HMRC has sought to become a "tax authority for the future". To this end, the agency has invested millions of pounds in new technology and data analytics software to enable it to make effective use of the vast amounts of data available to it and to keep up with technological advancements, such as cryptocurrency, which are vulnerable to criminal exploitation. So far, we are yet to see this investment translate into prosecutions by HMRC.

Conversely, the J5 have been carrying out arrests and prosecutions for cyber related tax crime since early 2020. The first guilty plea entered in a case brought about following collaboration between J5 members was entered in February 2020 in relation to a cryptocurrency mining scheme worth at least $722 million. The case, bought by the German prosecutors against a Romanian man and was the result of work led by the Netherlands following a J5 "challenge" hosted in the US. If HMRC is able to harness the skills and tools which made these prosecutions successful under the J5 we may expect to see more prosecutions in the UK in this space as well as more generally as the UK continues to benefit from its membership of this international partnership. 

The J5 continues to work towards increased collaboration between members and has announced that it intends to focus more on the professional enablers of tax crime and to work with the financial services industry to this end. From their latest statements and successes, such as in the case of Euro Pacific Bank, it appears that the J5's objectives for collaboration and enforcement are being met and these objectives are becoming increasingly ambitious and wide-reaching.

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