How can you help save $600 billion a year from cybercrime?

A 2016 report from the United States Internal Revenue Service (IRS) found that between 2008 and 2010, the US faced a tax gap of $406 billion1. In other words, the US Treasury had $406 billion less than they expected to have been collected in tax. In the UK, the tax gap is around 5.7%2 of expected tax revenues, or £71 billion; in Italy it's as much as 34.2%3 – amounting to some €108 billion a year.

This means tax evasion isn't just an abstract, 'white collar' financial crime: it's one that has a direct impact on the world around you, and the ability for governments to do their job. Because every penny of tax income not collected means less money to fund things like schools, hospitals and other public services.

What's the big deal?

Individuals or entities can use a range of techniques and strategies to both legally and illegally hide their taxable income from authorities. These include:

  • Failing to properly file tax returns
  • Under-reporting taxable assets
  • Engaging in other forms of financial crime, like money laundering
  • Conducting less traceable forms of business, like "cash-in-hand" work
  • Moving assets to lower tax jurisdictions

It's important to note the difference between tax evasion and tax avoidance. The latter refers to the use of legal means to reduce the amount of tax you have to pay. Tax evasion is explicitly criminal.

Nevertheless, a combination of avoidance and evasion costs the global economy massive sums every year. Tax havens alone are estimated to hide around 10% of global wealth4.

What can you do?

With tax evasion often crossing international boundaries, responses to it primarily need to be top-down and multilateral – coming from governments rather than businesses or individuals. For example, it could mean countries working together to implement better tax and financial reporting standards, consolidate money-laundering laws, or harmonise tax policies.

This can also affect how you bank. Particularly if you're a business customer, it will mean clarifying your beneficial ownership5 (that is, who has practical use rights over an asset like a business, as opposed to who has legal rights) to ensure that you're being properly taxed.

Individuals can also run the risk of accidentally committing tax evasion – which can lead to heavy fines. You can take several steps to prevent this. This includes:

  • Filing returns correctly
  • Refraining from engaging in transactions that could look suspicious without proper documents and record-keeping
  • Reporting instances where you suspect someone may be evading tax or trying to solicit your help in doing so

1 IRS, 2016
2 UK Government, 2018
3 Tax News, 2018
4 National Bureau of Economic research, 2017
5 Financial Crimes Enforcement Network, 2018

Frequently asked questions

Answers to common questions about financial crime.