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Strengthening the Powers and Involvement of the Judiciary in the Fight Against Capital Evasion

When one looks at the repression of financial intermediaries who, unscrupulous, have made tax evasion a real “commercial activity”, the tools available to the tax authorities quickly reach their limits, both in terms of the detection and identification of those involved and in terms of the means of sanctioning them. From this point of view, an intervention by the judicial authority, with all the judicial police prerogatives which it can use, is more relevant. Judicial and seizure police work is more effective for this type of offshore than simple administrative and tax work.

However, prosecutions are rare in this regard. In several tax police cases in several countries, judicial investigations have certainly led to the questioning of a few intermediaries (notaries, foreign banks acting as trustees, etc.), who have been indicted for complicity in tax evasion or money laundering. It is also necessary to identify ways of strengthening and involving the judicial authority, given the specificity of the crime of tax evasion and the particular conditions in which persons who commit or are complicit in it may be prosecuted and punished. In fact, on tax evasion, prosecutions against fraudsters and their accomplices cannot be brought in many laws administration’s prior complaint, filed following the compliant opinion of an administrative commission charged with the ruling on the opportunity for prosecution, commission tax offences. This is known as the “administrative lock.” In fact, for a long time, the tax administration referred to the courts only in cases where tax evasion was proven and for which, in the interests of exemplariness, it seemed necessary to add a criminal crackdown to the tax sanctions already imposed. The tax administration, on the other hand, was destitute when, faced with a complex fraud, committed in particular by the use of foreign accounts or sophisticated legal arrangements, it did not have the sufficient evidence to support its administrative procedure, in advance of a possible referral to the right.

To overcome these difficulties, the finance laws of many adopted countries have created the judicial tax investigation procedure. The latter is based on two important elements:

  • • on the one hand, it gives the tax administration the opportunity to take legal action, not only on proven facts of tax fraud, but also in cases of “characterized presumptions” of the existence of a tax offence “for which there is a risk of withering evidence.” In this case, the complaint is reviewed without the taxpayer being notified of the referral or infoimed of its opinion. The confidentiality of the procedure is thus a guarantee of the effectiveness of the investigation;
  • • on the other hand, it has opened the possibility of empowering tax officers as judicial police officers in order to enable them, under the supervision of the judicial authority, to carry out investigations with the benefit of all powers recognized to the judicial police by the Code of Criminal Procedure.

It is within this framework that the National Tax Delinquency Squad was created in many countries, which is a joint service, composed of judicial police officers and judicial tax officers, staffed jurisdiction and often attached to the national division of financial and tax investigations. As it stands, these structures are competent to investigate and identify complex tax evasion offences (as well as related offences), that is, for which there is a clear presumption of fraud resulting from:

  • • either the use of accounts or contracts signed with agencies established in a state or territory, which has not entered into an administrative assistance agreement with the country for at least three years at the time of the exchange of any infoimation necessary for the application of local tax management;
  • • or the interposition, in one of these states or territories, of individuals or corporations or of any comparable body, trust or institution;
  • • either the use of a false identity or false documents, or any other falsification;
  • • either a fictitious or artificial tax domicile abroad;
  • • or, finally, any other maneuver intended to mislead the administration.

This procedure seems to prove its effectiveness: it represents foreign assets or concealed assets valued at an average of more than $800 million per country. The first investigations show in most cases large-scale tax evasion, both in financial terms and in terms of the complexity and importance of the arrangements put in place. The types of fraud encountered often have a heritage dimension: the revelation of trusts, the installation of abusive demutualization with the establishment of interposed offshore companies, the existence of accounts abroad (and not only in paradises concealment of capital gains, income, donations or assets for millions, etc. In these cases, the judicial investigation procedure allowed, through the means of judicial investigation (perquisitions, detentions, etc.), to confirm the presumptions of fraud and, for some files, to identify the perpetrators, or even accomplices and co-authors of the fraud. In addition, in the context of this procedure, criminal asset seizures have been made. The assets seized are very diverse: life insurance contracts, real estate, luxury vehicles, cash, etc. The interest of this new so the investigation seems quite proved.

However, as the law stands, it can only be referred to the tax authorities on a prior complaint and therefore cannot proceed on its own initiative. In many countries, the fight against tax evasion and serious economic and financial crime should boost the conditions of intervention a little:

  • • on the one hand, the possibility of being seized if an organized gang tax fraud is alleged, or committed through open accounts or contracts with foreign-based agencies, the interposition of individuals or corporations or any comparable organization, trust or institution established abroad, the use of a false identity or false documents, or any other falsification, of a fictitious or artificial tax domicile abroad, or a fictitious or artificial act or the interposition of a fictitious or artificial entity;
  • • on the other hand, it will now also be able to deal with “laundering tax evasion,” which, taking into account the case law of each country will enable investigations to be initiated at the request of an investigating judge unrelated by a prior complaint from the administration.

• Finally, there are plans to open up the possibility of these investigators using the “special investigative techniques” in the fight against crime and high organized crime, in order to better detect and identify fraudsters and their intermediaries (infiltration, public authority, computer data capture, etc.).

It should be noted that, despite these significant advances, the international judicial authority’s capacity to act on the repression of tax evasion is nevertheless highly dependent on the human resources affected so much in the investigative services than in the courts. However, from this point of view, it is regrettable that the number of staff released is not up to the challenges exposed today by the fight against complex frauds, especially since this lack of resources is coupled with a relate scattering structures.

Also, if the criminal law of the G7 countries makes it possible to properly apprehend accomplices of a proven fraud, the issue is more delicate when it comes to prosecuting and punishing those who incite fraud, ahead of the commission of such acts. The criminal judge has, with the notion of complicity, a powerful and effective tool to apprehend the financial intermediaries who organize their clients’ tax burdens. The criminal codes provide that the person who knowingly, by aiding or assisting, facilitates the preparation or consumption of a crime or a crime is an accomplice to a crime or a crime. Also complicit is the person who by gifts, promise, threat, order, and abuse of authority or power has caused an offence or given instructions to commit it.

The state of complicity exposes the person to penalties identical to those incurred by the perpetrator of the offence. In addition, several case sets of cases agree that the accomplices of a fraudster can be prosecuted under veiy flexible conditions. Indeed, complicity, in order to be punishable, must be linked to a punishable main fact, but it does not necessarily imply that the author of it is effectively punished or even prosecuted. Current law in several G8 countries even allows the accomplice of a fraudster to be prosecuted, even if the fraudster did not intend or intend to commit fraud.

This state of the law emphasizes, among other things, that justice is not bound by the references to persons subject to the administration’s complaint and may extend the search for responsibility for the crime of tax evasion to others people than those who are directly affected. Thus, where it turns out that the persons involved in the administration’s complaint were unable to commit the offences on their own, the implementation by the public prosecutor’s office of additional investigations to find the tine instigators of fraud seems essential. In particular, it is important that the most appropriate procedures for the search for the real perpetrators of the offence be implemented, especially when it appears that the persons denounced by the administration are in fact, given their competency, experience or complexity of fraud processes, simple names or straw managers set up to enable the real instigators of the fraud to escape all sanctions and, in many cases, circumvent a conviction having issued a management ban.

Similarly, where the material element of the offence is proven, the practice of unwashed cases in which the administration has not been able to identify the real instigators of the fraud (e.g. cases of usurpation identity) should be avoided. In tills regard, it should be recalled that, in the application of landmark jurisprudence in some countries, those who are convinced that they have assisted in carrying out a fraud whose perpetrators do not unidentified can be prosecuted and punished for complicity. Despite these criminal policy guidelines, it appears that, in fact, with the exception of investigations earned out, the basis of these judicial procedures, few investigations are carried out and few prosecutions are initiated against intermediaries. This could change expanding aggravating circumstances that may be held against the fraudster, and anticipating creation, in some countries, a crime of tax evasion committed in an organized gang. Tliis concept allows for the purpose of “any grouping formed or any agreement established for preparation, characterized by one or more material facts, of one or more offences. Not only is this offence of aggravated or committed tax evasion organized information should make it possible to understand more intermediaries most involved in fraud schemes, but, moreover, it will allow investigators to make use of teclmical special investigation (surveillance, infiltration, four-day detention, interception of telephone correspondence, public services, computer data captures, etc.). In particular, the possibilities offered by a sound system of the premises of the fraudster or the infiltration of his environment and that of his accomplices, or the observation of his computer system real-time accounting, should provide investigators with the means to better identify sophisticated fraud. A problem of general education will have to be addressed: that of coherence statutes of limitations for financial and tax offences.

While the admission to the notion of complicity and, no doubt, to the concept of organized tape allows the prosecution of intermediaries involved in proven tax evasion, the criminal law is, on the other hand, more deprived as long as it is to act, in the lead-up to fraud, against financial intermediaries who approach clients or promote fraudulent schemes. Indeed, complicity can only be held against a person if a “punishable fact” has been committed. No doubt various incriminations are likely to be retained in certain circumstances. In addition, incitement to commit a crime constitutes a breach of the ethical obligations of certain professions: several national representations of the legal profession, for example, has that where counsel has reason to suspect that a legal transaction would be the purpose or result of the commission of an offence, the lawyer must immediately endeavor to deter his client. Failing to do so, he must withdraw from the file.

However, it seems necessary to go more lawn: it would be desirable for each country, in its domestic field, to explain that the promoters of tax evasion could not go unpunished. There are cases where there is a sense that taxpayers have been offered tax evasion schemes. Of course, they didn’t have to sign, but they weren’t given a gift. To be offered such key in tax evasion hand, reputed no problem and go up oneself does not is not the same approach. The fraudsters are criminally prosecuted for complicity, but there are not enough legal tools to advance. The current state of the law in several countries does not, collectively, allow certain operators to act as possible. We need to think about how to better understand the incentive to tax evasion. Especially, cases of loans that allows collecting several millions without being taxed, thanks to three busts, four Panamanian companies, five offshore accounts, with hybrid securities, which actually mask an illegal income distribution.

Also, in the case of tax evasion, the criminal judge is often accused of issuing insufficiently deterrent sentences against fraudsters, which would encourage indelicate intermediaries to continue to act without excessive fear to be punished. What about the facts? Statistics provided by the National Record show that a reasonable number of tax offences are criminally convicted per year in G7 countries, and that half of these (just over half) of tax evasion as a principal. Where only an offence of tax evasion is included in the conviction, the sentences handed down are overwhelmingly imprisonment, especially suspended. Fine (penal) penalties are rare. This app data several comments:

  • • on the one hand, the massive use of conditional sentences in accordance with the choice made by some countries and their legislators to favor alternative sentences and sentencing arrangements and thus, out of recidivism, to make the incarceration of the convicted as a last resort. Moreover, a conditional sentence is nevertheless a sentence, which is the subject of a criminal record, the stay may, moreover, be rescinded in the case of a new conviction;
  • • on the other hand, the low use of fines is probably explained in some countries by the fact that, in most cases, the fraudster will have previously been given financial penalties by tax authorities. However, in the state of law in these countries, if there is no prohibition, for the same purpose, against the accumulation of a tax administrative procedure and a criminal procedure, the principle of proportionality of sentences is opposed to the amount penalties imposed exceeds the highest amount of one of the penalties incurred: tax penalties and a criminal fine can therefore be combined, provided that the total amount imposed on the fraudster does not exceed the maximum in the most “severe” procedure. It is up to the second authority to ensure that this principle is respected in this case, and the criminal judge in the vast majority of cases.

In addition, it should be kept in mind that the quantum of criminal fines for convictions for fiscal fraud was relatively low. Since the criminal law has recently become more severe, having only been available to the facts committed from the time it came into force, the statistics of the convictions concerned are based on acts committed before the significant tightening of anti-fraud legislation in recent years. Finally, it cannot be ruled out that these statistics are also an illustration of a selection bias: indeed, despite the firm rhetoric of the tax administration, it appears that fraud files transmitted to the courts are often far from re-equipped present the most complex or significant cases in public finances. While it is desirable that, in the interests of both exemplary and fairness, patented fraudsters and their accomplices may be brought to justice and given deterrent sentences, it is necessary to draw attention to the fact that, in many cases, and many countries, the penalties of imprisonment and criminal fines (the latter being in addition to the penalties already imposed by administration) are not always and only the most appropriate punishments.

Indeed, “white-collar criminals” do not see themselves as deviants. Therefore, it is at least as much the publicity given to the criminal conviction that can, in some cases, be particularly deterrent for people who often perceive themselves as people’s c5-respectables. It should be noted that the fraudster is not afraid of tax correction, which is negotiated at very low rates and which does not attract any opprobrium. The conviction in court and the eyes of the other people are much more feared. In many countries, the general tax code allows the court of judgment to order the posting or dissemination of the decision: prosecutors should be encouraged to systematically request this additional sentence.

In addition, attention needs to be drawn to significant improvements made in recent years, including the legal forfeiture penalty for tax evasion, and which may relate to any property that was used to commit the offence or that would be the object or product of the offence. No doubt the implementation of these provisions implies that the investigative services were able, during the course of the proceedings, to identify the goods that were responsible for the proceeds of the fraud. This exercise’ however, is essential; the forfeiture penalty is, moreover, likely to be accumulated without restriction with the application of sanctions fiscal or criminal law. Additional punishment (which presupposes the identification and ease age of the assets concerned) should be made more systematic, especially against intermediaries whose activity has flourished on the development and commercialization of fraud schemes.

It is also important to ask what “decision lock” that several countries have is. At present, tax evasion in several countries-provided you have been committed intentionally is a criminal offence, punishable by five years’ prison and five hundred thousand dollars fine, regardless of the applicable tax sanctions. However, by a derogation from the common law, which entrusts the public prosecutor with the exercise of public action and the power to assess the appropriateness of prosecutions, in these countries, the general tax code and the provisions tax procedures subject any criminal prosecution of tax evasion to a prior complaint by the administration. This particular mechanism was introduced in conjunction with the introduction of the declarative system (creation of personal income tax).

If the national authority wishes to initiate criminal proceedings, it must, before handing over the tax offences, which examines the appropriateness of the prosecution and issues an opinion that binds the administration. This administrative commission, composed of “wise men” (state councilors, councilors in the Court of Auditors, etc.), is speaking as an opportunity on the need, in order to regulate the seriousness of the fraud and the context of the case, to add criminal sanctions to tax sanctions. It is an administrative body, which does not constitute the first degree of jurisdiction. With regard to prosecutions per year, of the thousands of tax control transactions carried out, more than one third on average constitutes the most serious frauds, which receive penalties at the rate maximum. They are in some ways the breeding ground for criminal prosecutions, not all of them, which include persons of faith. Secondly, in several countries, the commission has established internal jurisprudence that sets the threshold for the amount of rights for frauds it deems to be punishable. The controls that can be submitted to it then pass one-quarter of the eligible files.

The commission is often identified to the decision-making “lock”. In fact, it decides only on the files sent to it by the administration: it is upstream, by the administration itself, that the selection of fraud files that may be brought to the attention of the courts is made. In fact, it gives permission to file a complaint in approximately 90% of the cases submitted to it by the administration. As a result of this scheme, the number of tax evasion cases submitted to the courts is relatively over the years. Finally, it should be kept in mind that this scheme only applies to the offence of tax evasion, and not all tax offences likely to receive another (such as “value-added tax carousel” e.g., which are prosecuted under common law conditions on the basis of the scam).

This “lock” does not, however, deprive the justice system, once seized, of its power to assess the appropriateness of prosecution. However, given the upstream selection, the rate of criminal prosecutions for tax evasion before the courts is very high: 97% to 98% on average each year. In addition, it is held that this procedural “lock” is not applicable to prosecutions of money laundering, as the offence of money laundering constitutes a “general, distinct” and “autonomous” from the crime of tax evasion. In other words, the criminal chamber in some countries has allowed the courts to prosecute money laundering without being bound by a prior complaint from the administration. It must be said that, the arguments justify the existence of this “monopoly” of the tax administration on the prosecution of criminal fraud.

First of all, the technicality of the tax matter, which requires the existence of a specialized organization (tax administration), with recognized expertise and a number of prerogatives, including the implementation of the tax is surrounded by guarantees for the taxpayer. The offence of tax evasion refers directly to the specificity and complexity of tax legislation, the dispute of which is the responsibility of the tax judge. The intervention of the criminal judge can only take place on the question of whether the accused has escaped or attempted to evade tax. Taxation is a complex area that requires rationality. Without prior control of the competent authorities, whose technicians can judge rationally the nature of the fraud, and if there was a direct use of the financial p arch, bad technical understandings will appear, as well as an inflation of the tax criminal law which will not benefit either the administration or the citizen. In addition, in practice, the administration is already sanctioning-and tax evasion. Indeed, In some countries, it has the power to apply administrative sanctions (increases of 10%, 40%, 80% or 100% in the event of opposition to tax control), which aim to punish the taxpayer financially beyond the simple reparation of the damage to the Treasury assured by the late interest.

These administrative sanctions are considered “criminal” sanctions under the International Convention on Human Rights and are intended to suppress any deliberate failure, regardless of the amount of tax evaded. Given the “non-bis in dem” rule, administrations taxes vision that an intervening the criminal judge’s wider ion does not leads to the questioning of the sanctions power of the tax sendees and, therefore, ultimately, to the loss of budgetary revenue resulting from the application of tax penalties without the corresponding criminal penalties (the amounts of which are capped) make up the shortfall for the state. This scheme provides the tax authorities with a powerful lever to deal with the wealthiest taxpayers and, thus, to ensure the return to the state coffers of large sums against the guarantee given to them as judicial proceedings will not be initiated. Moreover, under the principle of proportionality, only the most serious frauds are intended to give rise to criminal proceedings, in addition to the tax procedure: correctional prosecutions are an appropriate response to the most reprehensible. These lawsuits are considered, in a harmonized approach at the national level, with the dual concern:

  • • on the one hand, to systematically punish the least citizen and the most serious behavior, since such prosecutions are, in some cases, the only effective and effective means available to the State to taxpayers who are not respectful of their tax obligations and the most recalcitrant;
  • • on the other hand, to provide a proportionate response to the alleged acts and the attitude of the taxpayer during the review.

On the other hand, the application of tax penalties is sufficient, in the vast majority of cases, to punish by an appropriate monetary remedy breaches of the obligations prescribed by the general tax code. It must be said that, among the controls realized, many do not deserve one any penalization. Fort fortunately: in what world would we be if we sent in prison people who were wrong in declaring half a share more, or who did not put the right double-glazed window to o tax cut? The tax administration thus considers that only cases that show a willingness to evade or defraud tax, which, with exceptions, exceed a significant number of evaded rights, and for which it should appreciate the need to add criminal sanctions to tax sanctions, which may give rise to a complaint.

Finally, the selection of files to be filed is carried out by the head office, which ensures a homogeneous and consistent treatment throughout the territory. This would not be the case, however, in the event that each prosecutor’s office would be required, under the conditions of common law, to assess the appropriateness of prosecution for every fraud case of which it might be aware. In any event, in the context, in particular, of the implementation of the judicial procedure for the tax investigation, the links between the tax administration and the criminal courts they keep tightening up. The number of proposals for continuation correctional devices transmitted central government on tax evasion has increased on average significantly in the G7 countriesfup 12.8%), while the administration is working to diversify the profile of cases it sends to the courts (both in the case of alleged fraud and socio-professional sects).

But this monopoly is increasingly being challenged. In principle, first of all, it is a derogatory mechanism for the common law which, in principle, entrusts the public prosecutor with the exercise of public action and the assessment of the appropriateness of prosecutions: from this point of view, leave it to the administration has discretion over the exercise of legal proceedings is called upon to question the compatibility of this system with the principle of the separation of powers. This “lock” also appears to be an obstacle to the transparency of the action of the tax administration, which may be suspected of treating taxpayers equally, offering some a transaction, without any external control and denying it to others. From this point of view, various elements tend to think that, despite the principles of action it has set itself, in practice, cases brought to the attention of justice by the tax authorities are far from representing the most complex cases or the most significant for public finances. The emphasis in recent years on budgetary or repressive controls has gone a little too far, to the detriment of the deterrent purpose and equality before the tax. Indeed, some industries, certain categories of taxpayers, certain derogatory schemes and some taxes are less controlled than others, because it is more difficult and less immediately profitable in budgetary terms or repressive. This mode of driving can lead to sanctioning not the most reprehensible behaviors but the easiest to understand. In addition, if control is permanently less deterrent, its budget and performance may also decline over time.

Finally, it should be stressed that this “lock” is also a handicap for the courts, depriving them of valuable information about facts that could go beyond fraud. Indeed, facts that the administration analyses as being tax evasion alone may in fact reveal a certain amount of more serious offences, such as the existence of systems of corruption, constituted acts of abuse of social property, or money laundering operations of criminal origin, by example. From this point of view, the “lock” deprives some cases of complex fraud of a double reading, which could nevertheless prove useful in detecting and suppressing a major economic and financial crime that is hidden. It is for all of these reasons that the legislator in several countries authorizes the judicial authority to prosecute without prior authorization of the administration: on the one hand, where the facts have appeared during an investigation or instruction on other facts; on the other hand, where the acts were committed in an organized gang or through the use of various sophisticated methods, including foreign accounts or the screen companies. In order not to prohibit the administration from using a tool-the transaction-which has been proven in terms of the effectiveness and speed of the sanction, the device opened up the possibility of a criminal transaction, under the control of the for the complex tax evasion committed in the above circumstances, on the model of similar provisions applicable to the administration of customs in particular.

It should be noted that the fear of the tax administrator, who is partly unfounded, does not seem to be well founded. First of all, criminal law in the majority of developed countries on a principle of intentionality: only those who have intentionally committed an offence are likely to be subject to criminal prosecution, which excludes bona fide taxpayers. In addition, the commitment of the latter is subject to the assessment of their opportunity by justice. In practice, the latter may decide to close a case without further action, if it appears, for example, that administrative sanctions have been imposed on the person concerned and/or that the latter has discharged obligations to the administration. Justice can also implement an alternative to prosecution or a criminal composition. In fact, of all thecriminal offences reported to them each year, only half of the so-called “prosecutable” cases result in prosecution set spree in a criminal court investors and the guarantee of deposits of a portion of the balance sheet formerly exempted (the contribution was based only on the deposits, it will now be based on the asset the principal being deducted). Similarly, off-balance sheet is included in the calculation of capital requirements.

In addition to solving the problems of identifying the contours and financial volumes mobilized by offshore and shadow banking, which shows the difficulty of following the financial circuits in the governments should address, respectively, the issue of regulating the interactions between shadow banking and the traditional banking system, the reform of the regulatory framework regulation of other entities, securitization and it should be remembered that, at present, tax offences in many countries under the jurisdiction of customs are subject to be prosecuted under the conditions of the common law, without it set to create any particular difficulties. Moreover, the criminal fine is not necessarily the most appropriate sanction for punishing tax evasion, particularly where financial penalties have already been imposed by the administration, and it may be useful to favor other additional penalties, such as the publication of the conviction decision or the additional penalty for forfeiture of the offence. In a matter whose technicality does not appear more insunnountable than in matters of stock market law or customs, for example, it’s necessary not to close the door to any developments that could contribute to coordinated action by justice and administration, for the benefit of fiscal justice and the restoration of the citizens’ inroads into institutions.

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