REVEALING WEALTH: USING BIG DATA TO FIGHT TAX EVASION – MARTYN JONES

If anything, taxes for the lower and middle class and maybe even the upper-middle class should even probably be cut further. But I think that people at the high end – people like myself – should be paying a lot more in taxes. We have it better than we’ve ever had it.

Warren Buffett

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To begin at the beginning – the challenge

Tax evasion is fraudulent, and there is a lot of it about. This is not good for society, healthy for the economies or fair for the citizens. So, either we seriously address this criminal deception, or we are nearly all going to suffer significantly from not doing so.

This significant challenge and its attendant problems could be pursued by a pragmatic strategy that takes full advantage of a global data-integration and data-supply-framework.

This strategy would mean that we would be able to leverage a wealth of data, approaches, architectures and technologies. Which will necessarily include big data, data warehousing and AI. And will leverage statistics and advanced analytics, data fabric, and, data discovery and data collaboration tools. Will run on modern compute and storage platforms. And, will rely on political will, sufficient funding, global and regional coordination, and, good sense.

This strategy would also come with additional beneficial side-effects for countries, regions and individual businesses involved in building and maintaining the development, infrastructure and services for such an initiative.

The global financial crisis of 2008 brought with it a markedly increased interest in addressing very high-value tax evasion. The COVID-19 pandemic will be far worse in terms of financial damage. The fat is that we are facing global economic depression and not just an important global recession. Because of this I suspect there will be a renewed interest in uncovering the hidden wealth of nations. Andof finding new ways of recovering lost wealth and making financial transactions and wealth ownership much more transparent. Because simply stated, we will need all of the assets that we can legitimately claim. So, to this end, a coordinated approach is needed to tackle high-wealth tax evasion and legal yet illegitimate corporate tax avoidance. If we do this right it could mean:

That there are significant additional funds for health, education, business development and infrastructure improvements.
We can identify unintended loopholes that allow for large-scale corporate tax avoidance.
That money laundering will become much harder to get away with.
That the financing of terrorism will become much more difficult.
Large corporations will not be able to hide where they really make bank and would be compelled to reveal where they should be paying their taxes.

There is a lot of polemic about the size of high-value tax evasion. On the one hand, you have people who claim that it doesn’t exist. On the other hand, you have people who claim that there is so much of it, that all the world’s ills could be solved if that wealth was revealed, taxed and redistributed. The academic research into tax evasion indicates that the level of tax-fraud is probably somewhere near the equator of those two poles.

So what this article is arguing for is a global register of wealth and the ownership of land and real estate that would be continually provided with data from national wealth and land registries. This would allow for tax authorities to have far more insight into fraudulent activities related to the movement of wealth. It would also inform the law enforcement authorities of suspicious fund transfers that might indicate money laundering or the financing of terrorism.

The background and the hints

Today approximately 8 trillion USD of assets are held offshore in tax havens. It is estimated that at least 200 billion USD of personal-wealth tax is not paid (less conservative sources put this figure well over 600 billion USD). It is also estimated that at least 240 billion USD in corporate tax goes unpaid. So, how do we know?

First, there is a statistical anomaly in global accounting. Typically accounting liabilities should equal assets. However, if you look at the overall global financial-balance-sheet, you will see that liabilities do not match assets and that this gap is big. Liabilities being significantly higher than assets. And, as French economist Gabriel Zucman put it, it’s like as if part of our planet was owned by another planet who had invested significantly in planet earth.

Secondly, most offshore wealth is held in secrecy jurisdictions, also known as tax havens. How do we know? Primarily because of database leaks. We can see the names and nationalities of those exposed by database leaks. For example, there have been two famous leaks called the Swiss Leaks and the Panama Papers.

According to Wikipedia “Swiss Leaks is the name of a journalistic investigation, released in February 2015, of a giant tax evasion scheme allegedly operated with the knowledge and encouragement of the British multinational bank HSBC via its Swiss subsidiary, HSBC Private Bank (Suisse). This came to light thanks to leaked information from French computer analyst Hervé Falciani. The leak included data on accounts held by over 100,000 clients and 20,000 offshore companies with HSBC in Geneva. The disclosed information has been called “the biggest leak in Swiss banking history.”

The Panama Papers leak included around 11.5 million encrypted confidential documents that were the property of Panama-based law firm Mossack Fonseca. The year-long deciphering of these documents by Süddeutsche Zeitung and the Consortium of Investigative Journalists exposed a network of more than 214,000 tax havens involving people and entities from two hundred different nations. The documents were published on 3^rd April 2016.

Additional data leaks have revealed the organised anonymisation and obfuscation of the ownership of wealth. Especially using shell companies and tax havens. These examples include the Paradise Papers, the Offshore Leaks and the Luxembourg Leaks.

Thirdly, additional data has come from tax jurisdictions that provided tax amnesty programmes. This allowed people who evaded taxes to disclose their tax-evading activities to the tax authorities. In return, the governments promised to be lenient with those who voluntarily owned up to tax evasion. This data, which is in various forms, illustrates the financial profiles of people who have actively committed tax evasion. From this data, we can see, for example, that the most concentrated tax evasion is amongst the highest one per cent of financially wealthy individuals.

Fourthly, instruments such as US Foreign Account Tax Compliance Act requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their US account holders or are subject to withholding on withholdable payments. This US initiative will be generalised to the world. It will therefore open up yet another set of sources of valuable and insightful data.

Fifthly, national central banks and the banks themselves keep a paper trail of all financial transaction for at least seven years. This should also be made available for a World Asset Registry.

So, the data is there, and it is relevant. And with political will and international agreement, it can be opened up to a world asset register for the benefit of national tax authorities and central banks.

The data flow

The following high-level diagram shows the World Asset Registry in the context of data producers, data integration, data supply and data consumption.

ENLARGE DIAGRAM

The data providers would typically be clearing houses, securities depositories, central banks and tax authorities. They would transfer the required data, through one of a large number of possible technological options. Under “Other sources” would be included the data and information that comes from database and documentation leaks.

Data integration would be an essential element in populating and refreshing data in the World Asset Register data warehouse. This could also accommodate analytics data store, data lake technologies and approaches, and AI and statistical processing of data and the write-back of enriching data to the warehouse.

WAR Data Marts would be the specialisation of data to meet the needs of the data consumer.

The interface to data consumers would ensure that they could connect to the specialisation layer in any way. This interface would be aligned to the technologies and tools used to select, analyse, contrast and present asset and asset ownership data.

The data consumers are those who will be able to use the provided data to understand the dimensions of tax evasion and avoidance. And they could have access to data that could drive strategic, tactical and operational activities. Data consumers are, for example, tax authorities, central banks (including the European Central Bank) and ministries and regional authorities responsible for taxation.

The required infrastructure and process

We have a massive range of cost-effective storage, compute, movement and integration technologies and products at our disposal these days. Which means that the notion of building a World Asset Register (including a World Financial Register) is no longer a pipe dream.

Technology limitations and cost is no longer an excuse not to do it. And, with a pending economic depression on our doorsteps, we should treat it as a significant global challenge requiring major global strategies. This is serious!

So what would be some of the critical technologies that could be deployed in delivering, maintaining and expanding the World Asset Register?

For traditional extract, transformation and load tasks, there are products such as Talend which provides connectors to an extensive range of sources and targets.

Distributed streaming is supported by excellent platforms such as Kafka, with its producer, stream processor, and consumer architecture, as well as its message delivery guarantees.

Besides, patterns such as the US’s International Data Exchange Service (part of FATCA) is an electronic delivery point where Financial Institutions and Host Country Tax Authorities can transmit and exchange FATCA data with the United States. This type of secure and cost-effective approach could also be used by the World Asset Register.

On another tack, Apache Spark provides a solid compute framework for any big data analysis requirements. Such as the more in-depth analysis of large volumes of leaked documents.

Cost-effective commodity clusters and very high-performance SSD clusters also offer a great opportunity. As they can be used to create a high-performance and high-throughput storage and compute that could support an enormous user-base footprint.

Other technologies such as data fabric, data exploration and discovery, data collaboration could be deployed. In addition to a plethora of cost-effective reporting and visualisation tools would mean that the data divide would be continually reduced and at a rapid pace.

Not only that, but we can also leverage tools, products and technologies, together with our knowledge and experience, to deliver this initiative. We have a wealth of knowledge and expertise in massive and complex systems integration, data integration projects, data architecture and data management approaches that worked. Which should not also stop us being creative when imagining how to source, integrate and provide data.

This is just the tip of the iceberg. We have never had so many data tools at our disposal. We have never had so much knowledge and expertise in how to use them. And many of them can be used in some of the smallest and the largest of projects. It’s a great time to be a solutions architect or a data architect.

That’s all folks!

I firmly believe that the European Union should play a significant role in the foundation of a World Assets Register (including a World Financial Register). And that the EU would drive this initiative not only for self-interest but also to encourage the participation of the EU’s significant partners and allies. In this respect, I think that the EU would be wise to commission a proof-of-concept architecture and working prototype for a phase-0 World Asset Register. A POC that would focus first on a handful of EU member states.

I also believe that the World Asset Register would be something that is built up over time. And will provide a massive range of perspectives on wealth ownership, disclosure and location. And which would drive enormous benefits from all those that support the initiative.

We also need to debate this approach in the world. We need to engage with all legitimate parties, national governments, social agents, business, transnational organisations and agencies, in developing this strategy.

We have every technology element covered. So, what’s stopping us from doing it?

Sure, where there’s a will, there is a means. Let’s do it!

Many thanks for reading.

Martyn