The tax departments of multinational corporations have the skills to effect money launderers, terrorist finance organizations and human traffickers seeking to infiltrate businesses to fund their illicit enterprises.
Liam Neeson pretty much set the standard for swagger in dealing with terrorist finance in the movie Taken when he unleashed his famous monologue: “I don’t know who you are. I don’t know what you want. If you are looking for ransom, I can tell you I don’t have money, but what I do have are a very particular set of skills. Skills I have acquired over a very long career. Skills that make me a nightmare for people like you. …”
The tax departments of multinational corporations may not have the same cinematic flair, but they do have the skills to effect a very similar fate on the money launderers, terrorist finance organizations and human traffickers seeking to infiltrate businesses to fund their illicit enterprises.
The fact is, no one has more detailed data on the performance of each component of a corporation than the tax and accounting departments. The only thing that’s been stopping companies from tapping all of that intelligence to power their anti-money laundering (AML), anti-fraud and risk operations has been the entrenched view of tax and accounting as solely a backward-looking function.
It doesn’t have to be that way. With today’s technology, that retrospective view of tax is rapidly morphing. Tax departments now have the capacity to start analyzing tax data for all manner of forward-looking projections, thanks to the last several years of enterprise resource planning software integration, increased demand from global tax authorities to provide more granular, timely tax information and the adoption of artificial-intelligence-powered tax analytics.
While most of these projections to date have focused on what-if scenario analysis to chart the potential impacts of different regulatory reforms or business decisions on company financials, they can also be used to spot anomalies and red flags that are consistent with money laundering and other crimes.
Take, for example, trade-based money laundering, whereby criminals disguise proceeds of crime through elaborate transactions in the global supply chain. Though the process can vary significantly from case to case, it typically involves the misrepresentation of price, quantity or quality of imports or exports. A simple example would be a drug cartel creating a third-party “business” to export goods at an invoice price that is much lower than the actual value of the goods being sold. The importer receiving those goods then sells them at the correct price and the differential between the two now becomes the laundered proceeds of crime.
According to a March 2017 study by Global Financial Integrity, this type of money-laundering scheme helps to launder roughly USD$2.2 trillion a year, often through legitimate businesses who are unaware that this activity is even occurring.
Tax departments are uniquely situated in the corporate structure to spot the evidence of this type of crime. Tax, accounting and global trade professionals are routinely operating at the flashpoint for financial crimes because they are responsible for reconciling invoice totals with taxes, tariffs and port duties paid on the underlying goods. However, because they have only looked backward at old documents that may have already been falsified by criminal elements, the tax folks have not historically been tapped for this type of insight.
That perception is about to change. New reporting requirements such as Brazil’s Nota Fiscal Eletronica, which requires companies to submit electronic invoices to the government to receive clearance before goods are shipped, are empowering the tax and accounting departments to access global trade data as it happens. Likewise, new technologies developed to analyze this data are giving them the insights they need to spot anomalies as they are taking shape.
Armed with these types of real-time analytics and a mandate to look for the red flags of financial crime, the tax and accounting department could become the tip of the sword in the corporate effort to root out financial crime. The key is shifting the focus of the tax department from backward- to forward-looking. The tools are there; it’s up to us to start leveraging them to change centuries-old perceptions and start unlocking our inner Liam Neesons.
A version of this article originally appeared on CFO.com.