Tax, Wealth, and Risk Management Graduate Program Blog

Tuesday 25th August, Plenary Session 5: Taxing Criminals, Jesus College, Cambridge University

Professor William Byrnes, Texas A&M University School of Law
Co-author, Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide

Howdy again! to the distinguished ministers, judges, prosecutors, revenue commissioners, bankers, compliance professionals, colleagues, and friends who each year traverse the globe to join together here at Jesus College, by Barry’s invitation.

It is an honor to participate in this symposium dedicated to a simple but profoundly important proposition: crime should not pay.

That proposition is at the heart of asset recovery, forfeiture, anti-money laundering regulation, sanctions enforcement, and international cooperation.

Yet today I would like to discuss a tool that often receives less attention than confiscation or criminal prosecution. I want to talk about taxation.

The idea of taxing criminals sounds counterintuitive. Albeit not to former tax authority counsel on our panel today, like Caroline and James.

Why would governments seek tax revenue from drug traffickers, corrupt officials, organized crime groups, cybercriminals, fraudsters, sanctions evaders, or money launderers?

The answer is straightforward. Because criminals make money. And governments tax income. The fundamental principle is not that tax legitimizes crime. Rather, the principle is that illegal income is still income. Criminals should not enjoy better tax treatment than law-abiding citizens.

And throughout history, tax law has succeeded where other enforcement tools have failed.

We all know the most famous example. Al Capone evaded murder convictions, extortion charges, and racketeering allegations. Yet he ultimately went to prison for tax evasion. The lesson has echoed through nearly a century of enforcement practice. Sometimes the tax authority can establish financial wrongdoing when criminal investigators cannot establish the predicate offence beyond a reasonable doubt.

This principle remains relevant today.

In many cases involving corruption, cybercrime, human trafficking, narcotics trafficking, illegal gambling, sanctions evasion, or sophisticated money laundering networks, criminal prosecution may be delayed by jurisdictional disputes, evidentiary challenges, political interference, or international barriers.

Yet the financial footprint frequently remains visible.

• Criminals may hide their identity.
• They may hide their assets.
• They may hide their transactions.

But they cannot hide their wealth as easily.

The tax system follows wealth. It follows expenditure. It follows unexplained increases in net worth. It follows luxury consumption. It follows discrepancies between declared income and observed economic reality.

Taxation therefore provides governments with a distinct enforcement advantage.

Indeed, it creates what I call a triple threat framework.

1. First, tax authorities can assess previously undeclared income.
2. Second, tax authorities can impose penalties and interest that, in the US context of FBAR, for example, may total more than 100% of the underlying asset value.
3. Third, tax authorities can provide intelligence and evidence that supports broader criminal investigations.

In effect, taxation becomes both a recovery mechanism and an investigative gateway.

However, we should not think of taxing criminals merely as an additional revenue source. Revenue recovery is welcome. But deterrence is the larger objective.

Organized crime functions as a commercial enterprise. Criminal organizations invest capital, assess risk, diversify activity, and seek return on investment. Their decision-making is fundamentally economic. If we want to change behavior, we must change economics.

• When criminals face the prospect of confiscation alone, they may perceive a manageable risk.
• When they face imprisonment alone, they may perceive a manageable risk.
• But when they face imprisonment, confiscation, civil recovery, tax assessments, penalties, interest, and continuing financial scrutiny, the economic calculation changes dramatically.

The expected return falls. The risk-adjusted reward collapses. The business model becomes less attractive. This is why coordination among government agencies matters.

Historically, many countries have maintained artificial boundaries between tax authorities, customs agencies, financial intelligence units, anti-corruption agencies, prosecutors, and police. Criminals do not respect those boundaries.

Why should governments?

The future belongs to integrated financial crime strategies.

Tax authorities possess extraordinary analytical capabilities. Revenue services often maintain the most comprehensive financial datasets available within government. Increasingly, they possess advanced data analytics, artificial intelligence systems, network analysis tools, and cross-border information-sharing mechanisms.

In many respects, tax administrations have become some of the most sophisticated financial intelligence organizations in the world. The challenge is not information. The challenge is integration.

• Revenue agencies see indicators.
• Banks see transactions.
• FIUs see suspicious reporting.
• Customs authorities see trade anomalies.
• Law enforcement sees criminal networks.

Only by combining these perspectives do we see the full picture.

This brings me to the role of the private sector.

Many of the leaders present today represent banks and other financial institutions. You are not merely reporters of suspicious transactions. You are strategic partners in protecting the integrity of the global financial system.

• The same transactional information that supports anti-money laundering monitoring frequently supports tax enforcement.
• The same beneficial ownership information that identifies money laundering risk frequently identifies tax evasion risk.
• The same analytical tools used to detect sanctions evasion frequently reveal concealed criminal profits.

Financial institutions therefore stand at the intersection of tax compliance, AML compliance, fraud prevention, sanctions enforcement, and asset recovery.

The future requires breaking down silos not only within governments but also between governments and the private sector.

Technology now gives us opportunities that previous generations of investigators could scarcely imagine.

• Artificial intelligence can identify behavioral anomalies across vast datasets.
• Blockchain analytics can trace cryptocurrency transactions that criminals once believed were anonymous.
• Network analysis can reveal beneficial ownership structures spread across multiple jurisdictions.
• Data matching can expose discrepancies between reported income and actual economic activity.

BUT technology has increased criminal opportunity. Yet, technology has also increased governmental capability. The question is whether we will employ these tools collaboratively and intelligently.

There is, however, an important caution. In our enthusiasm to target criminal wealth, we must never lose sight of the rule of law.

• Tax investigations should not become substitutes for due process.
• Asset recovery should not become punishment without adequate safeguards.
• Information sharing should not ignore privacy and legal protections.

The rule of law is not an obstacle to effective enforcement. It is the source of its legitimacy.

History teaches us that governments may recover assets quickly through extraordinary powers, yet ultimately lose public trust if fairness is sacrificed.

The objective is not simply to seize assets. The objective is justice. And justice requires transparency, accountability, proportionality, and respect for legal rights.

As we consider the future, I suggest four priorities.

1. First, strengthen cooperation between tax authorities and criminal enforcement agencies.
2. Second, expand analytical capabilities through advanced technology and data integration.
3. Third, improve international information-sharing and mutual assistance.
4. Fourth, ensure that all enforcement measures remain anchored firmly within the rule of law.

If we accomplish those four objectives, taxation can become one of the most effective and underappreciated tools in the global fight against economic crime.

Let me conclude where I began. This symposium challenges us to move from rhetoric to results.

The criminal seeks profit. The state seeks justice. Between those two goals lies a financial battlefield.

• Asset recovery is one weapon.
• Confiscation is another.
• Criminal prosecution is another.
• But taxation remains among the oldest, most flexible, and most effective tools available to governments.

The lesson from Al Capone remains true today.

• When criminals generate income, they create vulnerability.
• When they create wealth, they create exposure.
• And when governments follow the money intelligently, collaboratively, legally, and relentlessly, crime becomes less profitable.
• And when crime becomes less profitable, society becomes more secure.

Thank you.