Tech is center stage in global IRS tax crime partnership

The IRS announced a global partnership with four other nations that will focus on information and technology sharing, cooperation on criminal and financial investigations, cybercrime and the rising use of cryptocurrencies.

The partnership between the U.S., U.K., Canada, Australia and the Netherlands, was announced as representatives from each country's tax agency met this week in Montreal to discuss ways to improve coordination on tax fraud, evasion and money laundering in an environment where criminal groups and professionals assisting in tax evasion increasingly operate in a more global, decentralized manner.

According to Don Fort, chief of the IRS criminal investigation division, the group will explore ways to share data on financial crimes as well as technologies to better track global criminal financial and tax schemes and assist in specific criminal investigations.

"One of the primary focuses was tackling the professional enablers, which was a common theme and threat to each of our countries," said Fort in a June 28 conference call with reporters. "Continuing the fight, combatting global offshore tax evasion … we are interested in all aspects of that chain, speaking from a U.S. perspective, from the account holders up and through the professionals that really enable these crimes to be committed."

The group is still working through how best to share and protect that information. In response to a question about the problem from FCW, Fort noted that each country in the partnership has "incredibly rich datasets" to offer but also legal and logistical barriers to sort through.

The question is more than academic, as taxpayer data has become one of the most sought-after types of information by hacking groups. Additionally, the IRS has received criticism in Congress and by the Treasury inspector general in the past for not doing enough to protect sensitive taxpayer information. An annual IG report has listed security over taxpayer data as the top management and performance concern challenge for the IRS the past two years following the 2016 Get Transcript data breach. Fort acknowledged the topic was a key area of discussion during the group's initial meetings.

"That is one of the challenges that we face," he said. "Obviously, some of the sources of data – and I can't be real specific – but open sources of information and data present less challenges for us. [However] each of us have obviously our own legal requirements, disclosure requirements in terms of our data and our datasets."

According to a press release sent out alongside the announcement, the countries will have updates on the partnership and progress on specific goals at the end of 2018.

The group will also collaborate on how best to grapple with the rising use of cryptocurrencies in financial and tax crimes. Law enforcement and financial agencies have complained that because virtual currencies like Bitcoin and Etherium provide no banks that can be compelled to turn over information about a crime linked to their product, there are few if any ways to freeze those assets.

Congress has held a number of hearings on cryptocurrencies as well as blockchain, the underlying technology that powers them. Europol Director Rob Wainwright said in February that three to four percent of the 100 billion-pound market for illicit products in Europe is now laundered through virtual currencies and "growing quite quickly." Earlier this year, Acting IRS Commissioner David Kautter told Congress that the IRS was going to revisit guidance around cryptocurrencies as indications of their use in tax evasion schemes has increased.

"Obviously there's the potential for untaxed gains, specifically in the U.S.," Fort said. "Then I think the use of cryptocurrencies at various levels of business: paying employees in cryptocurrency, buying and selling goods and services with cryptocurrencies. The challenge that we face as financial investigators [it] decreases our visibility into financial transactions based on the varying levels of anonymity that they provide."

Simon York, director of fraud investigation for the UK's tax agency, said the group also hoped to focus on criminal use of the dark web and the ability of criminals to fragment their activities across the globe.

"Some of the most capable criminal groups. Some of the wealthiest, well-resourced individuals thinks that gives them some sort of advantage," said York. "What we're trying to do here is turn the tables on those people, turn that into a vulnerability because we can attack them from wherever they're operating in the world."