Let’s fight global tax evaders with cutting edge data science

The use of digital technology to go after global tax evaders and other corrupt financial actors has been a much-discussed topic in the past month. International Anti-Corruption Conference– The largest and most influential grouping of its kind for nearly 40 years. Incredible complexity and opacity characterize much of the “scheming” that some multinational corporations, billionaires, and global criminals have used in recent years to hide $50 trillion worth of wealth from government authorities and Evading or avoiding $480 billion in taxes every year.

The leaders distilled the key findings of the conference into 11 points.”Washington DeclarationWhich included this conclusion: “Governments should strengthen digital governance and regulatory mechanisms based on principles of transparency, accountability, and integrity, including artificial intelligence, blockchain technology, distributed ledgers, and big data.” “

The challenge is clear. The public sector and civil society must either quickly capitalize on transformative digital technology or cede the fight against corruption to a few bad actors in the private sector who take trillions of dollars off the world’s population.

To reduce global tax evasion, evasion, and other illicit financial flows, governments must develop and deploy cutting-edge technology tools. It is essential that they attract collaboration from leading technologists in academia and the private sector.

Tech for transparency

A group of leading data scientists and anti-corruption activists at the IACC workshop analyzed the potential for marriage between science and activism in combating global financial corruption. The group, called the Tech for Transparency Initiative, released its findings in a report, “In pursuit of the hidden economy. “

The report suggested that the ability of government (and civil society) to determine ultimate beneficial ownership of legal entities and principal assets — often referred to as beneficial ownership — is central to any effort to combat tax evasion and other illicit financial activities. She applauded the activist community’s (significant but still limited) achievements over the past decade in increasing political will to build beneficial ownership transparency, or BOT, systems. It also indicated a related increase in investor interest in the environmental, social and governance aspects of corporate activity. After all, anti-corruption must be understood as a central aspect of good corporate governance – the “G” in ESG.

The report said practical problems plague even the most expansive BOT approaches and limit activists’ efforts to curb financial corruption. Fortunately, there has been an explosion of growth in digital science in the same period with Web3, blockchain (decentralized and tamper-proof records of financial information), artificial intelligence, machine learning, pattern recognition, zero proofs, and more.

The anti-corruption community’s vision includes uncovering $50 trillion in hidden wealth and recovering nearly half a trillion dollars each year in evaded taxes. As an example of how cutting-edge digital science—when married with BOT activism—can achieve this vision, Tech for Transparency’s report goes through six stages in a typical “data journey,” pointing to significant practical hurdles along with potential scientific solutions.

One example: The data collection phase is often accomplished through “know your customer” and “client due diligence” rules. But the next stage – ensuring data quality – has internal problems. If investigators suspect that Mickey Mouse is not in fact an ultimate beneficial owner of Shell, for example, AI/ML can triangulate data collected by the government with big data and other sources to provide an identification that regulators can have a higher level of confidence.

Another example is the radically greater efficiency in the data sharing phase. The data analysis stage is perhaps the most extraordinary; Sophisticated pattern recognition can enable law enforcement authorities to bypass the carefully crafted complexity and obfuscation of tax evaders or evaders with exceptional speed and accuracy. The list of obstacles and their solutions continues.

Circa 1955: A transparent globe made by the Farquhar Company of Philadelphia.

Photographer: Three Lions/Getty Images

Blockchain in every outlet…and other ideas

Specific suggestions for early action are included in the report, which issues “calls to action” to spur large-scale decentralized collaboration between the data science and anti-corruption communities.

Criminal manipulation of global trade, centered on the global shipping industry, is easy for bad actors, because silos of historical data cannot prevent the falsification of the identity and value of goods from port to port. This $800 billion a year problem enables trade-based money laundering and fraud, including the evasion of customs duties, value-added tax, and other taxes. The report proposes a simple solution – implementing a blockchain at every port so no one can lie about what’s on board a ship – and seeks to incentivize collaborative scientific and political action to get it done.

The urgent need for decentralized cooperation

Today, there is an exciting convergence of breakthroughs in technology and activism that creates an extraordinary opportunity to overcome the antisocial infrastructure built by the tax avoidance community and its enablers. Transparency technology is just one of several efforts highlighted at the recent IACC conference.

I focus on this initiative only because I know it well. The idea for this initiative came to me while I was participating in a seminar held in June 2022 sponsored by Cooperative prosperity That focused on MIT Professor Sandy Pentland’s book, Building the New Economy: Data as Capital. After the symposium, together with new co-workers, we assembled a working group, developed the report, and presented our findings to the IACC.

It is necessary that many people respond to this opportunity in their own way, because the problem is much greater than tax evasion. Intellectual infrastructure variants of tax evasion also serve criminal tax evaders, extractive dictators, global drug criminals, arms dealers, money launderers, terrorist financiers, and other bad actors engaged in an array of illicit financial flows. It’s time for engaged citizens of the world – members of the scientific and activist communities – to come together to end this scourge.

This is a regular column from public interest tax policy analyst Don Griswold, who’s also a senior fellow at Digital Economist. Find and follow Griswold’s column on Bloomberg Tax on linkedin.

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