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Leading up to the International Colloquium entitled “Tax Evasion, Corruption and the Distortion of Justice,” which will be held on Zoom on May 19th, 2023, we are releasing a synopsis of the article “Developing a Working Model to Fight Fiscal Corruption: The Nexus at Which Tax Crimes and Corruption Meet,” recently published in the Duke University Law School’s Journal of Law and Contemporary Problems.
Join on Zoom what promises to be a fascinating discussion using the following link (free registration): https://mmu-ac-uk.zoom.us/webinar/register/WN_nBM4DatiRAarKkbShqoSeQ
The event is aimed at disseminating the publications included in the Special Issue “Tax Evasion, Corruption and the Distortion of Justice,” which has been edited by Prof. Diane Ring, Dr. Costantino Grasso, and Dr. Lorenzo Pasculli, and has been recently published in the Duke University Law School’s Journal of Law and Contemporary Problems. The articles included in the Special Issue will be discussed with top-level experts and relevant stakeholders to establish a fruitful knowledge-exchange process.
The article is authored by Dr. Pietro Sorbello, Colonel of Guardia di Finanza, an Adjunct Professor in Criminal Law at Teramo University and a member of the International Association of Penal Law (AIDP), and Stephen Holden, a Ph.D. Candidate and Associate Lecturer at Manchester Law School. The article will be discussed by Giovanni Tartaglia Polcini, Legal Counsel for the Italian Ministry of Foreign Affairs and International Cooperation.
Recognizing that taxation is the lifeblood of any economy and enables the state to fulfill the most basic duties of government, “Developing a Working Model to Fight Fiscal Corruption: The Nexus at Which Tax Crimes and Corruption Meet” examines the nebulous and much-overlooked area of fiscal corruption, and explores the detrimental impact this has on the state to meet its fundamental responsibilities.
Introducing the Main Concepts
The article commences by providing a concise yet comprehensive introduction to the central concepts under discussion: tax avoidance, tax evasion, and corruption. As the article progresses, it will be contended that the interplay between these phenomena forms the essence of fiscal corruption. The initial section of the article illustrates that throughout history, efforts to combat these phenomena have predominantly focused on addressing their individual components, rather than perceiving them as an interconnected pattern of behavior.
From the perspective of tax avoidance, the article recognizes that such practices exist on a continuum, ranging from tax planning all the way to the boundaries of tax evasion and seeking to exploit systemic vulnerabilities in the tax laws. At this point, the behaviors may be considered to abide by the letter of the law, but in many cases, not the spirit of the law.
Tax evasion, however, captures the deliberate and illegal reduction of tax liabilities, whereby a taxpayer undertakes a course of action to cheat tax authorities through fraudulent behavior marked by deception or misrepresentation, for example, by deliberately not declaring taxable income. Evasion is often viewed differently from a national and international perspective. Still, regardless, the impact of tax evasion has a significant corrosive effect, impairing the ability of national governments to meet the basic needs of society and to finance collective goods.
As regards corruption, while there is no internationally recognized definition, with nebulous conceptualizations over the years, it is broadly understood as “the misuse of public office for private gains”, or some variant of the same. However, the article recognizes the manifestations of the problem itself vary significantly according to cultural, legal, and other factors. The practices may range from grand corruption (the misuse of public power by high-level public officials, such as ministers or senior staff, for personal gain) to petty corruption (the extortion of small payments by low-level public officials in everyday interactions designed to smooth transactions). It can occur as political corruption, police corruption, or judicial corruption. Specific corruption activities include bribery, embezzlement, theft, fraud, extortion, blackmail, collusion, and abuse of discretion.
The Intersections of Tax Crimes and Corruption and the Notion of Fiscal Corruption
By examining a Venn diagram illustrating the intersection of two phenomena and their mutual reinforcement, the article prompts readers to reflect upon the independent existence, distinct dimensions, and applicability of tax crimes and corrupt practices. It highlights how these two phenomena interact and coexist, with each practice fueling the perpetuation of the other.
It is within this overlapping space that we arrive at the notion of fiscal corruption. As with the basic term corruption, there is no formal and universally agreed upon definition of fiscal corruption; however, it is commonly understood to refer to corrupt practices to derive an illicit benefit from the tax administration. This may include tax officials who abuse their authority for self-enrichment or otherwise benefit from corrupt behaviors such as bribery in return for reducing tax bills, not testing the legality of aggressive tax practices, or removing the risk of tax assessments and audits. The inverse may also be true, whereby tax crimes become instrumental to acts of corruption: hidden and undeclared income allows for the creation of a secret budget that may be used for bribery of public officials, further perpetuating the cycle.
The Milan Model
By examining the development and application of the Milan Model, as a response to fiscal corruption, the second part of the article considers the use and potential impact of regulatory cooperation and analyses the impact of the Milan Model on the public purse through its successful prosecutions and recovery provisions, demonstrating that tackling fiscal corruption is profitable to the state. Thus, tackling fiscal corruption is not simply a demand grounded in justice, but also an economic imperative.
Understanding the origins of the Milan Model is somewhat resultant of the particular geographic and socio-economic factors associated with the area. At the heart of the Milan Model is the cooperative approach to the management of tax crimes among the departments of the Milan Public Prosecutor’s Office, the Economic and Financial Police Nucleus of the Guardia di Finanza, the Revenue Agency, and the Customs Agency.
This approach offers a major departure from other enforcement models by virtue of its enhanced intra-government cooperation. Instead of each body acting independently and deploying a fractured and piecemeal approach that fails to account for the complex interconnectivity of tax crimes and corruption, they act in concert and are therefore empowered to address forms of fiscal corruption as a unique and distinct violation.
By conducting an empirical analysis of the Model's new methods of tackling fiscal corruption as a unified form of conduct, it becomes possible to gauge their effectiveness. This is done through an examination of the Social Responsibility Reports (SSR) published annually by the Milan Prosecutors office.
The SRRs present a unique opportunity within the Italian framework to shed light on the effects that high levels of legal complexity, as well as inconsistent legislative approaches marked by frequent changes, may produce on tax recoveries and taxpayers’ decisions to observe tax laws. Specifically, the SRRs reveal how frequent and discordant amendments to tax legal frameworks—which inevitably generate uncertainty—may weaken tax compliance and thwart anti-tax crime efforts.
After a critical review of the differing and at times inconsistent approaches through the years in strategies undertaken to address fiscal corruption, through an analysis of the model's impact, it is possible to trace its successes in combatting corruption offenses, and the fiscal corruption nexus at which they meet. The Milan Model has not only enabled the recovery of more than €5 billion to the Italian state but also allowed for a more comprehensive understanding of the consequences of undertaking specific strategies as a means of tackling fiscal corruption. It provides an effective demonstration of forms of administrative action, including the inter-institutional collaboration between judicial authorities (the Guardia di Finanza, and the Revenue Agency), which can be replicated throughout the national territory and provide a basis for implementation in other states globally.
Finally, building upon the successes of the Milan model, the article makes a number of sensible and workable recommendations that may be adopted by other states as a means to tackle fiscal corruption as a unified concept, as opposed to piecemeal attempts to address the constituent features. Through enhanced intra-agency cooperation, an appropriate threshold for the criminalization of tax offenses as opposed to administrative ones, provisions for post-crime cooperation, and the use of "cooperative compliance" as a means of detecting and deterring corruption and tax offenses, it is possible to establish a justice framework that disincentivizes tax offenses, supports effective detection and recovery of tax losses, and facilitates a culture that views tax not simply as a financial burden, but rather, as a vehicle by which the state is able to meet the basic needs of those in society.
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