Illustration of a suitcase with money falling out of it, handcuffs on the handle and flag stickers on the front.

The Joint Chiefs of Global Tax Enforcement, or J5, is made up of tax enforcement officials from five countries whose goal is to share information and resources in order to search out and prosecute some of the biggest tax evaders and money launderers on the planet. (Illustration by Shout)

Features | From Pivot Magazine

Tax me if you can

A new international task force is cracking down on tax evasion

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For countries around the world, it remains a vexing question: how do you deter, detect and prosecute tax evasion in an increasingly borderless and complex financial world? In June, five nations came together to find the answer. The Joint Chiefs of Global Tax Enforcement, or J5, is made up of tax enforcement officials from Canada, Australia, the Netherlands, the United States and the United Kingdom, whose goal is to share information and resources in order to search out and prosecute some of the biggest tax evaders and money launderers on the planet. As director general of the Canada Revenue Agency’s Criminal Investigations Directorate, Johanne Charbonneau is overseeing Canada’s participation in the effort. A 30-year veteran of the CRA, and a CPA, Charbonneau spoke to Pivot magazine about the group, its mandate and the unique challenges of catching cryptocurrency-based tax fraud. 

Tell me about the formation of the J5. 
JC: Every few years, the Organisation for Economic Co-operation and Development (OECD) holds a forum on tax and crime. It brings law enforcement, financial intelligence units and tax administrations together to talk about tax evasion and what’s going on. Following that, there is a meeting of chiefs of criminal tax investigation units from around the world. In November 2017, this group met and we talked about how to address the facilitators of these sophisticated transnational tax crimes. And chiefs from these five countries realized that we had some common ground, common structures, common threats. We felt it was more efficient to keep the group small and collaborate together to learn, to grow and then to share our experiences with other countries. 

Canada already has a large network of tax treaties and information-sharing agreements with a multitude of countries. How is the J5 different? 
JC: Treaty requests and the like are how we exchange information. J5 is about operational criminal tax investigations. It’s about sharing information about common targets to really detect, deter and investigate those that are disobeying the law in two or more of these countries. The J5 countries met in June in Montreal, and we’ve already identified common targets that we had no clue we had. I don’t want to disclose that because we’re still building our intelligence and data, but the five countries are actually discussing our next steps. 

We’re talking about Canada, Australia, the Netherlands, the U.S., the U.K. What are the common structures and threats?
JC: We are very much similar in nature. First off, we all conduct tax investigations internally and have criminal and technical investigators on staff, unlike many other countries who do this from outside the tax administration. We all have similar legislative frameworks and similar privacy issues as well. We all have sophisticated training for our folks, while some of the developing countries aren’t there yet. 

There are many developed countries in the world. Why partner just with these four and not, say, France or Germany?
JC: Because we share so much in common. Some of the other OECD member countries operate differently from the J5 countries when it comes to tax investigations. These five countries are very similar in terms of how we operate. It made it easier. In each of our careers, we’ve seen cases involving two countries: I would have seen cases with the U.S., I would have seen cases with the U.K. Each of us partnered one on one, but never as a group of five. This is what we are doing now.  

If I were a tax evader at this point, I’d avoid going offshore to these countries. There are a lot of fish in the sea. 
JC: But a lot of times those tax evaders will use the conduits of these countries to legitimize the money. If you put your money in country X that isn’t as well-known or doesn’t have a well-established international reputation, when you try to get your money out you may be taking a risk. When you put your money in a solid country like one of these five, it adds some credibility to the transaction.  

There’s a parallel between what you do and tracking international terrorism, in the sense that you’re better off by not keeping information in silos.
JC: That’s the point. Even though we have all the tools, there are still struggles in terms of how we can get the information to other countries quickly. The legislation within each country is similar but different. Even language is a challenge. We’re trying to work around these challenges to build a platform to share data amongst the five members. 

Aside from allegedly breaking the law, have you discovered any commonalities among the cases that you might not have found had you not formed the J5?
JC: The J5’s focus is on professional enablers, the facilitators of these sophisticated schemes. The five teams that we’ve put together to look at this, we said look at your countries and identify one, two or three enablers that may touch between two and five of these countries. And each group came back with one to three files and that’s how we identified the common ground amongst them all: promoters of sophisticated tax schemes whose only reason to exist is to hide from the taxman. 

Is it individuals who are availing themselves of these services, or is it corporations? 
JC: You’ve got to remember that individuals drive the corporations. We prosecute corporations, but there’s always a guilty individual behind them. The entities are just the conduit they use to mask what they’re trying to do. These complex structures are masked in several corporations in several countries to flow the money and hide the trail from us. 

One Canada Revenue Agency report put Canada’s international tax gap at upwards of $3 billion. It said more than half of the CRA’s international audits between 2014 and 2017 netted significant income changes and reassessments. Why is it that people still seem to think they can get away with this sort of thing? 
JC: Honestly, with my experience of more than 30 years of investigations, I’d say that the majority of taxpayers are honest. But you will always have this pocket of taxpayers that do not want to pay taxes. They know how we work, they know some of the challenges we have, and they are always trying to stay ahead of the game. That’s why we have to step up, be five countries instead of one, and at least be on the same level as these people. 

Is there a target of how much money you hope to recoup under the J5? 
JC: We’re really about making sure those egregious tax evaders know that there are consequences to their actions. Mind you, we have to be careful with our resources, as they come from taxpayer dollars, so we are very select about the files we take. It’s why we focus on the more significant cases. 

Define “significant case.” 
JC: An attack on the tax system that has a significant impact on the Canadian tax economy. The promoters who have brought in a lot of victims, if you can call them that, into their schemes. For the J5, a significant case is not the plumber who earns $20,000 a year and isn’t reporting his $10,000 plumbing job. The criminal courts aren’t interested in these small cases. We are talking about a person or a business who is evading paying millions of dollars in tax. 

Describe how a basic tax evasion scheme works. 
JC:You’d have one or several shareholders with a corporation in Canada and in various countries, usually a numbered company so that the beneficial ownership isn’t known. They may pay people that really don’t have much to their name to be the owner of these corporations and place their money there, out of our reach. Or they make false transactions or false documentation saying they are doing business with a certain country, when their only purpose is to funnel their money offshore, out of Canada.   

What is the biggest stumbling block to catching tax evasion?
JC: It’s the ability to use technology to hide, or to move money quickly. And our job is to follow the trail of money. The same with cryptocurrency. The secrecy behind who owns that cryptocurrency wallet is what makes it challenging. That’s why we’re always looking for legislative changes to help us find who is behind these corporate veils. 

Why are so few caught? 
JC: Because cases are more and more complex. To follow trails of money across the world takes time. To interview witnesses who may know about the offence takes time. And not only do we have to prove it beyond a reasonable doubt, we have to prove the intent to deceive the agency, and not just an error. 

Correct me if I’m wrong, but we’re dealing with fairly wealthy individuals, correct? 
JC: You do get the odd person that isn’t wealthy, but still uses the services of an enabler just because they don’t want to pay taxes. But generally, yes, they are wealthier than the general public and have the means to hire the right professionals to help them. 

In your experience, how is the person running these schemes paid? 
JC: It’s often a percentage. If you place $10 million in an offshore account, I’ll charge you 10 per cent of the taxes we’ve saved. But that’s very generalized. It varies on the sophistication of the scheme.  

There is a big focus on cryptocurrency within the J5 mandate. What is the divide between schemes using money and cryptocurrency as a vehicle for tax evasion? 
JC: It’s a new threat, and we recognize it as such. It’s like following cash, but we’re following cryptocurrency. The challenge is that the cryptocurrency wallet can stay anonymous, and generally the way we can get that wallet identification is through the exchanges. The U.S. is ahead of the game, because they got tons of data from Coinbase, one of the biggest exchanges in the U.S. And with J5, that is the kind of stuff we are now sharing.  

Is the problem with cryptocurrency itself, or that we just don’t have the tools to investigate it like “real” money?
JC: It’s a bit of both, to be honest. Cryptocurrency is used as money but it’s anonymized—it’s difficult to find out who’s behind it. We’re getting there, but we need to learn how criminals are using cryptocurrency to hide money from law enforcement in general. 

All politicians talk about cracking down on tax evasion. To what extent has the political will to catch these people waxed and waned over your career?  
JC: We’ve seen a great increase in the will, if only because offshore tax evasion is happening so much more. When I first started, you didn’t hear about offshore as much. Today, it’s just so easy, so it is more prominent. And when you see countries having real financial difficulties, I think there is a strong political will to address it. You see it in the OECD countries. You see it in the G7 and the G20. It’s top of mind. Taxes run the country. It’s what gives you roads, public services and safety. The countries that are struggling are those that don’t have a solid tax system.