Tax Crime – Investigations

The subjects of these crimes, as a rule, are the heads or owners (co-owners) of organizations, chief (senior) accountants, other persons responsible for accounting and reporting and entitled to sign financial, banking and reporting documents.

For the “head-accountant” system, which, as a rule, appears as the main element of the forensic characteristics of the crimes in question, the distinguishing features are:

– sufficiently high social status;

– persistent attitude to achieve the goal;

– extensive social and business ties in various fields (commercial, banking, management, criminal);

– a clear distribution of role functions (everyone knows the range of their criminal duties and is responsible for their actions).

A feature of the mechanism for committing tax crimes is that the way they are committed and the way the traces of such a thing as a tax crime are covered up, as a rule, coincide. The essence of both methods is the transfer of false information to the tax authorities.

Signs of what is called a tax crime are obvious, quite obvious, but they can also be implicit, not standing out against the general background of lawful activity.

Obvious signs:

– complete discrepancy between real economic activity and its documentary reflection;

– inconsistency of entries in accounting documents: primary-accounting, accounting-reporting;

– the presence of material forgeries in documents (additions, corrections, erasures, page replacement, etc.);

– destruction of accounting documents (primary, accounting, reporting);

– staging an accident (fire, flood) or bankruptcy.

Implicit signs – all kinds of violations that can be interpreted as a lack of professionalism, negligence, but may also be signs of what we consider a tax crime. These include violations:

– rules of accounting and reporting;

– rules for conducting cash transactions;

– rules for writing off inventory items;

– document flow rules;

– technological discipline.

Sources of primary information about the tax crime:

– sellers,not participating in a tax crime, but aware of the fact of its commission;

– eyewitnesses of any criminal or financial transactions who are not aware of their essence (secretaries, drivers, security workers, etc.);

– persons involved in the commission of what is called a tax crime: contractors, accomplices, suppliers and consumers.

Often such information comes from inspectors, auditors, members of the inventory commissions, members of the public and voluntary assistants to the bodies of inquiry.

Practice shows that the most common reasons for initiating criminal cases on tax crimes are: the detection of such crimes directly by the tax police, the service for combating economic crimes (BEP), reports of tax inspectors.

There are two typical situations for the verification stage:

The first one is that the primary information was obtained behind the scenes; the second is primary data on the signs of such things as a tax crime obtained from open and official sources (documents of tax inspections, conclusions of audit services, KRU acts, from the media).

For the first situation, a verification carried out covertly is natural. This can be covert monitoring of the movement and sale of inventory items, raw materials, products, technological processes of production; study of document flow, inspection of premises, transport, conversations with employees, possible witnesses. At the same stage, requests are made to forensic records and data banks (about personalities, about similar methods of committing crimes, etc.).

For the second situation – when obtaining information about tax crimes from official sources – verification actions are of a combined nature. The main attention is paid to open (vowel) actions. However, what cannot be revealed in this way, they try to establish behind the scenes.

Public actions on the things in question, such as a tax crime, carried out before a criminal case is initiated, are:

audits, audits on the instructions of the tax inspectorate, the tax police, the BEP service;

inquiries and inspections of the tax inspectorate; inspections of premises and documents by tax police officers or security officers of the BEP service;

obtaining samples of raw materials, semi-finished products and finished products through “test purchases”;

obtaining explanations from official and financial responsibilitiespersons.

A significant role in the course of performing both public and covert verification actions is assigned to specialists: accountants, auditors, auditors. They can conduct a preliminary study, provide advice on the following issues:

– determination of the type of document and its relevance to the investigation of what we call a tax crime;

– the establishment of one of the officials who could be involved in the preparation of a specific document;

– analysis of the collected information (how it can be interpreted; what were the deviations (and which ones) from the existing rules, etc.).

If an audit is carried out as a verification action, then typical questions are:

– what is the value of the hidden part of taxable profit;

– what is the amount of tax that has not been paid;

– how taxable income was concealed;

– what is the duration of the identified tax offenses;

– that contributed to the commission of offenses.

During any of the verification activities listed above, steps must be taken to ensure:

– the safety of documents, especially those that are to be subsequently withdrawn;

– selection of free samples (primarily signatures of officials);

– search for all kinds of draft records;

– neutralization of opposition to the investigation (verification).

Counteraction can be carried out in various forms and include:

– destruction of documents and physical evidence,

– staging accidents in relation to property or people;

– concealment of partners in illegal business;

– direct threats to witnesses, specialists, inspectors, policemen.

The information collected during the verification activities is evaluated from several positions:

a) the relevance of information to the goals and objectives of the investigation;

b) the admissibility and expediency of using information (as evidence or as an orientation);

c) the sufficiency of the data obtained for initiating a criminal case and making procedural decisions;

d) the prospects for the investigation, taking into account the information collected.

When investigating the facts of entering distorted data into the income declaration or concealment of income (profit) or other objects of taxation, typical circumstances that require identification are:

• establishment of the legal status of the subject of the taxo crimes: an individual, an individual entrepreneur without forming a legal entity, a legal
  person (enterprise, organization) – whether it has passed state registration;
• whether an individual or an enterprise (organization) is required to pay taxes;
• what types of taxes and other obligatory payments a person (individual, legal entity) is obliged to pay;
• whether a person (natural, legal) is entitled to tax benefits;
• what is the procedure for accounting and reporting in the enterprise;
• from what moment and what financial and economic activity was carried out by the taxpayer;
• for how long was the introduction of distorted data into accounting and reporting documents;
• who managed the enterprise and was responsible for accounting during the period of distortion of information in accounting and reporting;
• who is directly involved in the commission of a tax crime, who initiated it;
• who, when and under what circumstances were identified
  facts of hiding objects from taxation;
• what laws and regulations were violated by the taxpayer;
• what objects of taxation were hidden and in what amount;
• what is the amount of taxes not paid from hidden objects of taxation; what is the total amount of unpaid taxes;
• what measures should be taken to compensate for the damage;
• what method was used to hide objects of taxation;
• what circumstances contributed to the commission of what we call a tax crime.

Typical versions used to build general and private, in a specific case in the investigation of tax crimes:

• the concealment of objects of taxation was carried out for
  account of understatement of revenue (income) in accounting and reporting documents;
• The concealment of taxable income was carried out by overstating material costs and illegal write-offs of equipment and inventories;
• Concealment of taxable income was carried out by fictitious increase in debts, transfer of funds to an enterprise that enjoys benefits on a legal basis;
• there has been a write-off of tax debts to a third party in the expectation of its bankruptcy (planned or already occurred).

Taking into account the forensic characteristics, considerof crimes and the above typical versions in the development of each of them, both general and private versions based on specific data collected in the case can be put forward.

So, for example, according to the version of concealing taxable profit by understating revenue (income), private versions concerning the methods of committing such a thing as a tax crime and its subjects will be as follows:

• Underestimation of revenue was carried out by entering distorted information into the accounting and reporting documentation;
• it is most likely that the subjects of these actions were the head of the enterprise, the chief (senior) accountant;
• misrepresentation of information about revenue was carried out by underestimating the number of purchased goods, understating the sale price of goods (services); by paying for goods (barter);
• were opened and there are unrecorded outlets;
• are included in primary, accounting and reporting documents
  fictitious records, there are signs of both intellectual and material forgery.

If such actions have taken place, then the documentary sources of information will be: waybills, waybills, register of the movement of inventory items of the contract, payment orders, bank statements, general ledger, balance sheet financial results. Information reflecting financial and economic activities can be reflected in draft records to be found. When these documents are found and seized, expert examinations may be appointed: technical and forensic examination – to establish signs of material forgery; judicial and economic – to establish facts of distortion of information, type and size of a hidden taxable object, etc.

Along with versions relating mainly to work with documents, versions can also be put forward for studying the personal qualities of the subjects of a tax crime, their actions, connections, etc. Such versions may relate to the circumstances of the establishment of the enterprise, its structure and status, the head of this enterprise, the chief accountant, their financial condition, living conditions, their social ties (including criminal ones), relationships with auditors, auditors, tax inspectors and tax police. The versions should reflect: when and by whom the last documentary check was carried out; what are its results; how stakeholders explain the concealment of profits.

After buildinggeneral and private versions, a plan can be drawn up with a definition of the circumstances that require the establishment, nature and sequence of actions performed for this.

Planned actions can be organizational, operational-search, investigative.

• Among the organizational actions that require a long time for their implementation and therefore, as a rule, are appointed for this category of cases immediately after the initiation of a criminal case, include: documentary audit, inventory, requests to higher organizations, requests to information centers and records, requests to tax inspections, requests to KRU.

• Operational-search actions using covert forces and means – aimed at identifying the persons involved in the crime and the circumstances of its commission.

• Initial investigative actions: seizure of documents and their examination, search, investigative examination, interrogation of employees, manager, accountant, appointment and conduct of examinations, confrontations.

• Notch. Documents of various kinds play a significant role in the investigation of tax crimes. Despite the secrecy of these crimes, certain actions, including those related to criminal activity, are inevitably reflected in the documents. Therefore, at the initial stage of the investigation, it is extremely important to take urgent measures to locate and seize certain documents.

Seizure of documents is carried out in organizations, enterprises, institutions, when there is reliable information about the availability of the required documents. Timely seizure of documents can prevent criminals from hiding traces of a tax crime. When investigating tax crimes, the required documents are confiscated in secretariats, accounting departments, archives, from managers, etc. Accounting documents for transactions on settlement accounts are withdrawn from the relevant banks and other financial institutions. Some types of documents can be seized from counterparties (contracts, audit reports), from the parent organization, transport agencies, audit firms, etc.

Purposeful and complete withdrawal of accounting documents is a rather complicated action. The investigator is only able to roughly determine which of the documents should be seized. The following list can serve as a guideline:

• registration documents of the organization memorandum of association;
• minutes of the general meeting, certificate of registration, articles of association;
• accounting documentsaccounting and reporting (accounting books, registers, reports and balance sheets);
• orders, directives, official correspondence, contracts, a book of accounting for the issuance of powers of attorney;
• accounting documents for transactions on settlement accounts (payment requests and instructions, a card with sample signatures of persons entitled to sign money
  documents, and an imprint of the seal of the organization, bank statements);
• primary cash documents (cash orders, cash book);
• transport and acceptance documents (waybills, invoices);
• warehouse accounting documents.

Documents are examined according to the rules of the investigative examination. Particular attention is paid to identifying signs indicating a forged document:

• the method of making a blank document;
• signs of a change in the original content of the document text (erasures, additions, reprints, corrections);
• signs of etching, washing off;
• signs of fake clichés, seals and stamps, technical copying of official signatures, etc.

When analyzing the semantic content of documents, attention is paid to the correspondence (inconsistency) of various displays of the same business transactions. For example, the discrepancy between the total mass of the entire product and the mass of one piece (package), taking into account the number of pieces; between mass

total goods and the number of places; between the volume of cargo, expressed in cubic meters, and its mass or area of ​​the place of its storage, transportation; between the mass of the cargo and the carrying capacity of the vehicle used for its transportation, as follows from the consignment note and waybill.

In all related documents, total records are compared, for example, between records in accounting documents and in reporting registers (the so-called counter and mutual verification).

If the rules provide for the production of a document (primary, accounting) in several copies, then all copies of such a document are checked and compared. They also examine documents (graphics) performed by control devices (graphic, digital material).

They make copies of files of computer programs for office work, warehouse, trade, accounting and reporting. The information stored in the computer may contain information about the financial and economic activities of the enterprise, concluded contracts, sales prices, accounting datacouple, financial results, etc. The texts of contracts, business correspondence, orders, orders, and other documents related to the event under investigation can be stored in the computer memory. The investigator carries out an inspection with the subsequent study of graphs and computer information with the help of a specialist.

It should be borne in mind that with the help of recesses it is not always possible to seize all the necessary documents. Suspected persons, knowing the content of the act of documentary verification, seek to take measures aimed at concealing documents, up to their destruction.

• Search. At the initial stage of the investigation, a search is carried out to detect and seize concealed official documents, as well as rough notes, all kinds of notes, phone numbers and names of persons with whom the suspects are connected in their activities, and other documents. The element of surprise in tax crime searches is negligible. Hence, the results of this investigative action are not always positive. At the same time, searches should be carried out, since important documents may be found and seized during them.

The places of the search may be the same premises where the seizure was carried out. At the same time, as practice shows, searches at the place of residence (of a manager, accountant), in their garages, at dachas, in utility rooms, in cars, etc. turn out to be the most effective.

During the search, draft notes, unofficial accounting documentation, documents containing unspecified corrections, erasures, reprints, etc. are seized. Often, such unofficial accounting documents make it possible to establish the true value and volume of a particular economic and financial transaction. These documents make it possible to compare informal accounting data with accounting data. Identified deviations may indicate the concealment of a taxable object, tax evasion.

When planning a search and starting it, it must be borne in mind that unofficial accounting is a ubiquitous phenomenon, an action carried out by materially responsible persons on their own initiative for self-control and control. Unofficial accounting documents are entries in notebooks, on sheets of paper, in notebooks, desk calendars, etc.

Unofficial accounting documents may contain information about transactions, operations that are not reflected in official accounting documents, the provision of services, the receipt of goods at the warehouse, the sale of goods, etc.With the help of seized and systematized unofficial accounting documents reflecting the financial and economic operations of a certain period, a true picture of the financial and economic activities of the organization can be obtained even if official documents are “lost” or accounting was not kept at all. The main thing when an investigator works with unofficial documents is to first determine their admissibility and relevance.

Unofficial documents do not have details, are not registered anywhere, are not signed by the person who compiled them, etc. All this gives grounds for the executors of such documents to assert that the document is nothing more than an unrealized project; proposed but not completed transaction; the document contains approximate or erroneous calculations, etc. Such claims can be refuted by comparing information,

contained in the document, with the records of other persons, with data recorded in official documents.

Investigative inspection. In cases involving a tax crime, most often an investigative inspection is carried out in relation to documents that reflect financial and business transactions. It is advisable to involve a specialist in the inspection of documents, taking into account their specifics.

During the inspection of the document establish:

• document type (agreement, waybill, invoice, etc.);
• by whom and when issued, made;
• signs of appearance (paper, dyes, method of applying text);
• content (what facts and circumstances relevant to the investigation are reflected in the document);
• signs of changes in text, attributes, external influences.

When studying the appearance, pay attention to the conformity of the form of the document generally accepted for such documents. When examining documents of urgent reporting, pay attention to the numbers and dates of issue, whether the document is registered in the appropriate log book (for example, in the log book of issued powers of attorney). In this case, it is advisable to check the correctness of the calculations in the documents and their compliance with the requirements.

Warehouse areas, production areas, transport and utility rooms, offices of the head, accountant are also subject to investigative inspection.

The subject of inspection may be: unaccounted for raw materials, unaccounted for goods, finished products, their traces; equipment, transport, not on the balance sheet of the enterprise. It is important to establish during the investigative inspection of the areaadi shop, warehouse; quantity and quality of stored raw materials; finished products; other goods.

Interrogation. In cases involving a tax crime, it is advisable to start the interrogation with the persons who have identified violations, who have carried out an audit of the taxpayer’s activities. These may be employees of tax authorities, auditors, auditors. The interrogation of these persons makes it possible to establish the circumstances of the discovery of a tax crime, to clarify the essence of the violation of tax legislation. The interrogation of these persons is not particularly difficult, since they are not interested in the outcome of the case and give truthful testimony. Given the professional training of the interrogated, it is advisable for the investigator to use contact with these people in order to better understand the violations committed by the taxpayer and establish a causal relationship between these violations and tax evasion actions.

The next category of interrogated persons should be accountants involved in direct accounting of economic activities and reporting: cashiers, storekeepers, freight forwarders who draw up various primary documents, sellers and the like.

At the same time, they find out the procedure for maintaining accounting records in the organization, reporting; order, receipt, storage, sale of inventory items; the procedure for the delivery of cash proceeds to the cashier; possible locations of unofficial documents.

Usually, most of these witnesses are not interested in concealing the truth and give truthful testimony. However, some of them may distort individual facts, succumbing to the persuasion of interested parties or due to the prescription of what happened.

Important data can also be obtained from other employees of the organization who are direct participants in economic (production) activities or are involved in it. These are secretaries, drivers, loaders, security workers, production workers and other persons. With their help, the true circumstances of conducting business transactions (the amount of goods sold, the circumstances of its loading, transportation, unloading) can be established; the true state of affairs in the organization, possible storage locations for unreceived goods, raw materials, etc.

This category of witnesses may be subject to pressure from interested parties. Therefore, it is advisable to interrogate them at an early stage of the investigation.

Valuable testimony may be obtained from witnesses, which includeor other enterprises or partner organizations of the taxpayer organization. These witnesses provide information about concluded contracts, purchases, sales, transportation, settlements, etc. Commercial directors, freight forwarders and other persons may act as witnesses.

When interrogating any witness from the above categories, one can use such a tactic as presenting a document. The fact is that the interrogation about the financial and economic operations carried out is carried out in cases of tax crimes, a considerable time after the implementation of these operations. Therefore, many witnesses only approximately remember the circumstances of these operations and can hardly recall the details of interest to the investigator. There may be other reasons for the “forgetfulness” of the witness.

Presenting a document, giving the witness the opportunity to familiarize himself with it, allows you to get quite specific testimony from him, helps the witness revive his memory, recall other relevant events that accompanied the conduct of business transactions.

Such a procedure can also be recommended for the interrogation of suspected (accused) persons, who most often appear as heads (their deputies) of organizations, chief accountants. It is advisable to interrogate these persons after the results of audits and audits are received, and the previously mentioned witnesses are interrogated.

The suspects (accused) in cases involving a tax crime are, as a rule, people with a high level of education (economic, legal, technical), having a sufficiently high social status, able to correctly assess the probative value of the evidence presented to them.

The interrogation of these persons must be preceded by careful preparation. It is necessary to study not only the materials of the case, but also the tax legislation; determine the facts on which it is necessary to obtain testimony; questions to ask; consider the tactics of presenting evidence. Usually this presentation is “increasingly” – first they present evidence related to secondary circumstances, and then to the main ones. Documents should be presented after the interrogated person has testified on all the circumstances related to the presented document.

Great assistance in the interrogation of these persons is able to provide the investigator with a specialist involved in the interrogation. These may be accounting professionalslogoization.

If the testimonies of witnesses and suspects (accused) contain significant contradictions, confrontations may be held to eliminate them.

Face-to-face rates. Conducting face-to-face confrontations in cases of tax crimes requires special attention. The fact is that the revealed significant contradictions in the testimony of persons are not usually the result of forgetfulness. This is the conscious desire of one person to put the blame on another person. We are talking about contradictions in the testimony of the head and the chief accountant, the head and subordinates, the head and representatives of other organizations with which commercial transactions were carried out.

Considering that the basis of the contradictions in the testimony is the false testimony of one of the interrogated, the issue of the appropriateness of a confrontation should be decided taking into account whether it is possible to obtain reliable data about the circumstances from other sources, what evidence confirms the truthful testimony, how they can behave at a confrontation interrogated.

When investigating tax crimes, the main examinations are: forensic and forensic-economic, related to the study of documents. The task of technical and forensic examination of documents includes:

• establishing the method of making a document, whether a genuine or fake form was used for its manufacture, whether the prints of the seal and stamp were applied with genuine or fake clichés;
• what was applied before: text, signature, seal imprint;
• whether corrections were made to the original text, what is the nature of these corrections;
• how the modified text was originally read.

In the presence of handwritten documents, a forensic handwriting examination can be carried out. Handwriting samples of the verified person (free, experimental-free, experimental) should be sent along with the document being examined. The following questions may be asked for the expert’s permission:

• whether the text of the document (resolution, signature) is written by the person whose handwriting samples are attached;
• which of the verified persons executed the document;
• whether the examined documents were made by one person;
• whether different fragments of the same document were made by the same person or by different persons.

Of particular importance in the investigation of tax crimes are forensic economic examinations. Forensic economic examinations onBased on the study of economic accounting documents, it is possible to establish actual data on financial and economic transactions, economic indicators, the presence or absence of economic funds. The information obtained at the same time allows the experts to answer the cardinal question of the investigation about what is the amount of tax not paid to the budget.

Of the economic expertise, the most frequently assigned in the investigation of tax crimes are forensic accounting and financial and economic expertise.

The subject of forensic accounting expertise are accounting operations. Forensic accounting expertise allows you to establish:

• whether financial and business transactions are correctly reflected in accounting documents;
• as to which operations are misrepresented;
• as a result of what violations there was an underestimation of the amount of tax payable to the budget;
• what amount of tax was not transferred to the budget as a result;
• whether the conclusion of the act of documentary verification is confirmed;
• who is responsible for the accounting and reporting procedures.

The given model is optimal, but, unfortunately, it is far from always being implemented in the investigation of tax crimes. The fact is that in fact, when these crimes are committed, accounting, as a rule, is either completely absent or does not reflect financial and economic activities in full. Both are carried out by the taxpayer as a means of committing a tax crime and as a way of concealing it. A similar situation with accounting creates serious and sometimes insurmountable obstacles to the production of forensic accounting expertise, since restoration of accounting is not within their competence.

At the same time, even under these conditions, it would be wrong to completely abandon the production of forensic accounting expertise. A number of circumstances related, ultimately, to the subject of proof, to its element relating to the event of a tax crime, can be established within the framework of forensic accounting expertise. To do this, the following questions can be asked for permission of the examination:

• what is the state of accounting in the organization (at the enterprise);
• what violations of the accounting procedure took place;
• whether the entries in the accounting documents on production costs matchprimary documentation data;
• what business transactions are associated with misstatements in accounting;
• whether the data reflected in the financial statements of the organization (enterprise) for a certain period correspond to accounting data;
• whether material assets have been fully credited;
• What period do the identified discrepancies in accounting data on the receipt (expenditure) of material assets belong to?
• who is responsible for the accounting and reporting procedures.

In cases where the possibilities of forensic accounting expertise are limited, a forensic financial and economic expertise should be appointed when investigating tax crimes. This expertise makes it possible to establish in the new business conditions ways of distorting accounting reports (falsification of balance sheets) and the negative consequences of violations of civil and tax laws. Financial and economic expertise examines the balance sheet relationships of accounting data in connection with the specific circumstances of violation of tax laws. These relationships are established by being reflected in order journals, statements and other registers where information is accumulated, in the general ledger for registering business transactions, as well as in the balance sheet of the enterprise and appendices to the balance sheet, including the statement of financial results and their use.

The following questions may be raised before the judicial financial and economic examination:

– what is the actual cost of goods sold;

– whether the amount received from a certain business transaction is subject to taxation;

– as a result of what violations the taxable base was underestimated;

– what amount of taxes is not paid to the budget as a result
committed violation;

– whether the enterprise has timely and fully transferred tax payments to the state budget.

To resolve these issues, the forensic expert must be provided with: original financial statements signed by persons responsible for their reliability and submitted to the tax authority; accounting system. If there are no accumulative accounting documents, then it seems necessary to submit primary documents.

Speaking about the use of special knowledge in the investigation of tax crimes, one cannot fail to mention audits. Audit check allows you to establish the reliabilityfinancial statements of the enterprise and the compliance of its financial or business transactions with the current legislation. It can be carried out on the basis of documents seized by the investigator in the manner prescribed by law.

At its core, audits are an independent examination that analyzes the public financial statements of an economic entity in order to establish their reliability, completeness, compliance with applicable law and accounting procedures, preparation of financial statements and other types of control work.

The disadvantage of the audit is that in the course of its implementation, traditional methods of documentary audit and actual control are used (as in the case of an inventory). In a similar way, it is not possible to identify methods and ways of falsifying balance sheets. The auditor checks the documentary confirmation of the entry in accounting with its release on the balance sheet and on the report. In other words, he checks the availability of primary documents that record information about the business transaction and its subsequent reflection. In cases where false information is entered into the documents, the auditor, unlike the forensic expert, cannot determine the unreliability of the primary documents, and therefore, establish the falsification of the balance sheet.