Effective tax collection is a key enabler of well-funded public services. How can tax authorities find and prosecute criminals who are shirking their obligations or defrauding the public?
This leading tax authority in Europe uses IBM Security solutions to reveal the criminal networks behind apparently legitimate transactions—providing the all-important evidence needed to bring prosecutions.
Enablesmore cases to be investigated each year
Uncoversaccomplices who would otherwise have remained hidden
Helpsbring more criminals to justice and protect public funds
Business challenge story
Protecting the public
Effective taxation is an important part of delivering healthy, well-run public services—but criminals are always looking for ways to exploit the system for personal gain. For tax authorities, the challenge is to identify the fraudsters’ methods, and build air-tight cases to bring them to justice.
A spokesperson for a tax authority in one European country explains: “Criminals are always thinking of new ways to defraud the honest, taxpaying public—and our economic fraud prevention department aims to stay one step ahead of them. Achieving that goal is a tough challenge, because criminals are getting smarter and more nimble all the time, which makes their methods very difficult to detect.
“In Europe, countries use a type of sales tax called value-added tax [VAT]—the difference between the price that sellers pay for taxable goods and services, and the price at which they are resold. Only the end consumer pays VAT, and the tax authority is responsible for refunding the difference to sellers.
“We identified a situation where an unknown individual was creating false identities and starting up dummy corporations, and then using them to carry out economic fraud. The dummy corporations were sending false bills to other companies, and then filing bogus VAT claims to defraud money from the state. At the beginning of the investigation, we were aware of six dummy corporations and false identities—but we were sure that there were more.
“To move our investigation forward, we needed to identify the entire illicit network of dummy corporations behind the fraud, and associate them with the real identities of the perpetrators. Because there are massive amounts of data to analyze, we do not have sufficient time and resources to find the best leads to investigate using manual processes. Instead, we rely on technology to accelerate the discovery process.”
Detecting criminal networks at lightning speed
To solve the challenge, the agency uses IBM® i2® Analyst’s Notebook® and IBM i2 iBase to discover networks, patterns and trends across increasing volumes of structured and unstructured data, and share its insights securely between internal departments and government agencies.
“Our first step was to ask the companies registration office to send us all the information about the dummy corporations we were aware of, and the associated false identities used to set them up,” recalls the spokesperson. “We wanted all the information we could get, including the phone numbers and email addresses used to register the companies, as well as metadata such as the times at which the applications were filed and the emails were sent.”
The spokesperson continues: “All of the information we needed was in spreadsheet format, which was an excellent start. By importing the information into IBM i2 Analyst’s Notebook, we were immediately able to collate all of the data we had and start mining it for patterns.”
The agency uses multi-modal analysis to uncover affinities between apparently unrelated data—suggesting new directions for the fraud investigation.
“Sometimes we query our data and find exactly what we were expecting, but the real breaks in the case come when we get a puzzling result,” says the spokesperson. “For example, after performing a social network analysis of capital flows, we switched into a view of the same underlying data by activity—giving us a completely different perspective, and showing us that more than one person was involved in the crime. By switching between modes of analysis in this way, we quickly began to build up a detailed picture of the full extent of the criminal activity.”
Proving that crime doesn’t pay
With IBM i2 Analyst’s Notebook at the heart of its economic fraud detection strategy, this European tax authority is succeeding in bringing more criminals to justice—faster.
“Using IBM Security solutions was extremely valuable in cracking the case,” comments the spokesperson. “We found out a great deal of information that we just didn’t know when we started the investigation—and we actually discovered that some of the assumptions we had at the outset were incorrect.”
He continues: “When we began our analysis, we were confident that there was too much work involved in the fraud for just one person, and from an early point we had a suspect for the criminal’s accomplice. However, the patterns of activity we discovered using IBM i2 Analyst’s Notebook took us in a completely different direction, and we quickly realized who the real accomplice was—something that would not have been possible to prove if we were using spreadsheet-based tools.”
With lightning-speed big data analytics, the authority can crunch large data sets in minutes, slashing the time it needs to conduct in-depth investigations.
“Working with spreadsheets doesn’t just make it difficult to identify hidden patterns, it also takes time and resources that we simply do not have,” adds the spokesperson. “We estimate that using IBM i2 Analyst’s Notebook with IBM i2 iBase to drive our investigations saves us several person-days every month, which helps us to complete more investigations over the course of the year.”
The IBM solutions are already helping the authority to bring criminals to justice, and protect public funds from fraud.
“IBM i2 Analyst’s Notebook revealed a lead at a crucial point of the investigation—and without that turning point, it’s likely that the perpetrator’s accomplice would have escaped from justice,” says the spokesperson. “Better still, we are re-directing the time and money we save on manual, repetitive spreadsheet work into activities that make our investigative techniques more efficient, and help us prevent taxpayers’ money from ending up in the wrong hands.”
Based on the success of its IBM Security solutions, the tax authority is now planning for the future.
“We are now identifying crimes that fall outside of our remit, and thanks to our IBM solutions we can package up our findings and send them to the appropriate agency for further investigation,” comments the spokesperson. “Currently, our task is to analyze historical data to uncover fraud, but looking to the future, our aim is to use predictive analytics to clamp down on offenders before they have a chance to put their plans into action.”
The spokesperson continues: “We are currently designing a platform that will automatically flag potential indicators of fraud directly to us—for example, reports from concerned citizens or early investigations from other government agencies. This will help us to start our investigation orders of magnitude faster, and hand over cases to the prosecutor before the criminals succeed in extracting moneys from the system.”
The spokesperson concludes: “Criminals’ methods are always evolving, and to protect the public we have to keep up with them. Thanks to our IBM Security solutions, we can better understand what criminals are doing and what their next steps will be—helping us put more fraudsters behind bars.”
About Tax authority in Europe
This tax authority in Europe is responsible for tax collection for companies and private individuals. To ensure that public services have the funds they need to operate effectively, the authority carries out collection, compliance and enforcement activities to minimize the risk of tax avoidance and evasion.
- Govt: Finance and Taxation
- i2 Intelligence Analysis
- i2 Intelligence Analysis
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