Tax Evasion / Tax Fraud

As a prosecuted crime it starts with Al Capone in Chicago in 1931, when the US government, unable to prove his violence, jailed him for 11 years for evading tax on his bootlegging income; income tax itself dates from Britain in 1799 and the US in 1913.

Hiding income from the tax collector is as old as taxation, but the modern crime took shape with income tax: Britain's from 1799 and the United States' from 1913. The first notorious conviction was Al Capone's in Chicago in 1931, when prosecutors unable to prove his murders and bootlegging jailed him for 11 years for evading tax on his income. Offshore secrecy became the main tool after the Second World War as Swiss banks, then Caribbean and Channel Island centres, offered anonymous accounts; UBS's 2009 admission that it helped Americans hide about $20 billion led to the US FATCA law and the OECD's automatic exchange of bank information. In Europe, 'cum-ex' dividend-arbitrage trades from about 2001 to 2012 let banks and funds claim refunds of withholding tax that had been paid only once or not at all. The Panama (2016) and Pandora (2021) Papers showed how widely offshore structures were still used.

Individuals under-report cash income, invent deductions or park money in offshore accounts and trusts held through nominees; businesses keep two sets of books or route profits through low-tax jurisdictions. Organised versions include VAT 'carousel' fraud, where goods are traded in circles across EU borders to claim refunds of tax never paid, and cum-ex, where shares were traded rapidly around dividend dates so several parties could each reclaim the same withholding tax. Enablers include lawyers, bankers and formation agents; enforcement relies on whistleblowers, leaks and, since 2017, automatic exchange of account data between more than 100 countries.

It is the default crime of the wealthy because the victim is a bureaucracy that audits a small fraction of returns, the money was legally earned, and offshore structures cost little relative to the tax saved. It works at enormous scale: the IRS projects $696 billion a year goes unpaid in the US, with 85% voluntary compliance, and cum-ex trades extracted an estimated EUR 150 billion from European treasuries before courts ruled them criminal. Prosecution is slow and rare because cases turn on intent and expert-heavy accounting; Germany took a decade to convict Hanno Berger and Robert Brockman died before trial.

The IRS puts the US gross tax gap at $696 billion for 2022 alone, and CORRECTIV estimated cum-ex and related trades cost 12 countries EUR 150 billion over 2000-2020. The largest individual case is Brockman's alleged $2 billion in hidden income; the largest cum-ex conviction is Sanjay Shah's $1.3 billion fraud on Denmark. Lost revenue means underfunded services, and the burden shifts to compliant taxpayers.