Tackling Tax Fraud with Data and AI: Podcast Ep. 166

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In this episode,  Jim Lee (Global Head of Capacity Building, Chainalysis) sits down with Richard Las (Chief Investigation Officer, Director Fraud Investigation Service, HM Revenue & Customs) to discuss cutting-edge developments in tax fraud investigations and how the use of intelligence-led investigations is showcasing how data and private sector partnerships augment HMRC’s efforts.

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Public Key Episode 166: Criminal Investigations Uncovered: HMRC’s Approach to Crypto Assets

In this episode, Jim Lee (Global Head of Capacity Building, Chainalysis) sits down with Richard Las (Chief Investigation Officer, Director Fraud Investigation Service, HM Revenue & Customs) to discuss cutting-edge developments in tax fraud investigations.

Richard shares his experience in managing a multi-faceted team and emphasizes the importance of international collaborations in combating financial crime, while sharing HMRC’s approach to tax compliance, the impact of technological advancements in investigation and the role of public-private partnerships in reinforcing global financial security.

The episode highlights the use of intelligence-led investigations, showcasing how data and private sector partnerships augment HMRC’s efforts and how strategic data analysis aids in the fight against tax evasion, particularly with regard to burgeoning areas like crypto assets.

Quote of the episode

”We haven’t seen crypto being used to launder money in the same way that cash would be for bricks and mortar property. What we’ve done is through the work with our partners, including Chainalysis, we focus very much more about people having a gain and not being aware of their obligations or not declaring that capital gain.” – Richard Las (Chief Investigation Officer, Director Fraud Investigation Service, HM Revenue & Customs) 

Minute-by-minute episode breakdown

2 | Richard Las’ background and his role at HMRC

4 | HMRC’s fraud investigation service and capabilities

7 | Tax obligations for crypto holders in the UK

10 | Civil vs criminal tax offenses in undisclosed crypto gains

12 | International cooperation against tax evasion

15 | Public Private Partnerships and leveraging crypto service providers

Related resources

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Speakers on today’s episode

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Transcript 

Jim

All right, Mr. Richard Las, Welcome to the chainalysis office. It’s great having you here. I’ve known you for a couple of years. I appreciate you coming, you know, to talk all things about HMRC. But before we get into this podcast for our audience that might not be familiar with HMRC, can you just tell them a little bit about HMRC and yourself and how you came to be the Director of FIS,

Richard

okay, I’ll start with HMRC. So His Majesty’s Revenue and Customs, we are the UK’s tax authority, so responsible for all things tax in the UK, my part of the business is fraud investigation service. And the fraud investigation service deals with serious fraud and investigates Serious Fraud tax crimes, and has special powers to do that. We have criminal investigation powers. We have civil investigational powers. It’s about a 5000 strong team. It has a range of specialists in the organization. You know, we have forensic accountants, we have digital investigators, we have data analysts, as well as all the other people you’d expect in that kind of organization in terms of its investigative kind of capability. I mean, me personally, been in HMRC about 30 years. A variety of roles. Started as an operational tax auditor, working mainly on VAT but I’ve worked my way through a range of interesting roles, mainly last 20 years or so, working on law enforcement, and that’s kind of I was heading a region, operational region, delivering criminal investigations. And I’m now in charge of organization, which is

Jim

quite fun, and that’s a great introduction for those that might not be familiar with His Majesty’s Revenue and Customs, one follow up question on that you don’t just work tax investigations. You work a variety of statutes. You have a variety of statutes that you’re responsible

Richard

we do. I mean, principally, HMRC is about tax, but we’re a supervisor for anti money laundering in relation to example, two money service bureau, we investigate sanctions breaches in terms of trade and goods. So yeah, we’ll conduct a wide range of investigations. And as you well know from your experience, when you turn over a stone, you don’t always know what’s underneath it. So we’ll kind of follow the evidence, we’ll follow the money, and we’ll investigate what we

Jim

see. I always thought from my time at IRS criminal investigation that your division is who we work the closest with out of a lot of international law enforcement agencies from the IRS, you know, side and always appreciated the partnership in relation

Richard

and Well, that’s very much reciprocal. Yeah,

Jim

Richard, how does HMRC use data and intelligence to generate case work for the fraud investigation service. So

Richard

FIS is how we call ourselves in HMRC. I mean, we are very much an intelligence led investigation sort of function, and that’s across both of our criminal and our civil work, and whether that’s asset recovery or anti money laundering compliance work, typically, we might receive intelligence development packages from colleagues within HMRC. But ultimately, every one of our investigations, I would say, routinely, collects additional data and intelligence. You know, we have data analysts that will try to make the most out out of that kind of asset, and we play whatever we kind of learn from that back into the system, back into our sort of Central Intelligence function. And to be honest, if you’re running an investigation, if you don’t take the opportunity to use as many relevant data sources as possible and that analysis, then you don’t have as strong an investigation as you would otherwise. You know, when I look at our investigations now and talk to the teams, the power of data is unbelievable. People often talk about this as a as a vulnerability for us in HMRC, or, you know, law enforcement agencies. But actually, I look at it as an opportunity, really, because it’s immense what we can do with data from different sources, triangulate it. You know, as long as you’ve got the right tools, it’s a fantastic kind of way forward. Yeah,

Jim

your comment about the right tools makes a lot of sense. Big Data just makes things easier for investigators, as long as you’re using it the right way and have the tools to actually manipulate the data. So you must work extensively with private sector data capability providers to augment your internal intelligence investigation

Richard

resources. Yeah, no, absolutely. You know, don’t get me wrong. HMRC is a huge kind of data pool. We have data from across the United Kingdom and lots of different providers, and we’re already able to use that. But actually the trick is, how do we supplement that? How do we use more data? And that’s where the partnerships with the private sector in particular, come to the fore. I’ll give you an example. HMRC has got direct access to Companies House information. So it’s UK company register, so we know about company, corporations, about changes, and we get a direct feed to that that we can examine and we can analyze. But actually almost all of our investigations involve some sort of international inquiries of some sort or another. So we often looking at companies in overseas jurisdictions, and so there we will, quite often, we then partner up with private sector data and service providers who are able to kind of aggregate that information, provide us information about beneficial ownership, and that gives us a whole added utility to our investigations. I guess the question is, there, could we do that ourselves? And I guess probably yes, we could. But actually, you know, if you think about that, that means an awful lot of bilateral negotiations, the huge and potato cleansing and integration, and actually it wouldn’t be at the scale and accessibility once. That’s where the working with the private sector, using their expertise would really add it to the value. For investigations. From

Jim

my law enforcement experience, I often think about, you know, all the data that the private sector brings the table, whether it’s, you know, companies like reg tech, companies like chainalysis, or even bank data, and the data that the fi use whole, I mean, it all reverts back to what type of data is available to help us solve the investigations the most efficient way past, yeah,

Richard

just on that. I think you know, it is one of the barriers to effective investigation. I think you know data, if you think about all the older systems that different organizations, and the difficulties in bringing that all together, this is where I think the big change has happened. Over the last few years. We’re able to access that information, put it in a bucket, and you’ve got very clever people have been able to analyze it for you. I mean, you know, where does the future end there? I do think at some point we have to find a way of harnessing all the private sector and public sector data for the best good, you know, for the investigations, in a way that still, now there are some barriers to that.

Jim

Let’s talk a little bit about tax. And what are the key tax obligations for UK, individuals and businesses holding our trading crypto and where do you see the most non compliance?

Richard

I guess I have to give a plug to the HMRC online service. So the.gov.uk website’s got a we have a crypto assets manual people can have a look at and read through their obligations. I guess, to summarize for this podcast, the headline obligations, I guess, are the disposal of crypto assets can actually generate a capital gain, so a liability, the capital gains tax, other sort of transactions, might create income tax or National Insurance liabilities. And I guess the bit that often is forgotten is the crypto assets are also property for the purposes of inheritance tax, and there are issues about the location, so it’s quite technical, but ultimately they’re the main ones, I think for personal liabilities, for businesses, equally, there could be capital gains, there could be income tax, there could be VAT I guess, in terms of non compliance, I think it’s probably individuals holding crypto assets as a investment opportunity that gives rise to the biggest kind of tax liability, and potentially the most common form of compliance. You know, especially if people are not making returns with self assessment that can compound the issues that would be the area that gives us the biggest form of non compliance

Jim

currently. And one extra thought there, Bitcoin has seen a historic rise over the past several months. I mean, it does fluctuate, as you know, but I’m curious for folks in the UK with Bitcoin seeing such historic rise, what do you think UK taxpayers running big should consider,

Richard

well, probably, education, education, education. If you’ve got large holdings of Bitcoin or any other currency, obviously, firstly, consult or manual that I’ve plugged already. But you know, if what you’re doing is particularly complicated, which it might be, then I would suggest you take specialist, professional advice so you understand what your obligations are and make sure that you’re declaring at the right time and in the right way. And I think it’s not just to those winning big in the crypto market. I think in very broad terms, if kind of there is a transfer or a good or a service, there’s probably very likely a taxable kind of consequence somewhere in that chain. So having that advice in some of these more complicated areas is vital to getting it right. So

Jim

following that, at what point does a failure to report crypto earnings shift from a civil tax issue to a criminal offense? As

Richard

you’re kind of alluding with your question, the vast majority of these kind of instances will be dealt with through our civil powers. We would look at the liability and we’d raise a charge of some sort and recover any tax due. There are no hard and fast rules as to when something passes from a civil investigation to a criminal investigation. But you know, there are a number of factors that we would take into account. The first probably one is, well, what is the nature of the offense? You know, how serious or significant is it? And that’s both in terms of its value and in terms of the kind of behavior that’s gone on. Has someone gone to great lengths in order to try to hide their transaction chain. And obviously we look at someone’s history. So I guess generally speaking, if you’re going to be subjected to a criminal investigation in the UK, it will be because some of those factors have been triggered, and we’d be taking it as a much more serious issue, very

Jim

similar to how IRS looked at it from a criminal standpoint. From a criminal standpoint, we weren’t interested in individuals that made a mistake. We are mainly interested in people that willfully attempted to evade very similar How is HMRC adapting its enforcement strategies to ensure resilience in any growth of criminal exploitation of crypto assets.

Richard

A few years ago, we set up a dedicated technology enabled money laundering team, their remit was very much looking at the risks of exploitation of crypto assets, amongst other things. And I think initially we were looking at from how does this enable, maybe global money laundering? Is it a big feature? And I think obviously that risk is there. But I think with experience, what we’ve actually seen is we haven’t seen crypto being used to launder money in the same way that cash would be or bricks and mortar property would be in other kind of areas. So I think what we’ve done is, through the work with our partners, including chainalysis, we focus very much more, you know the earlier tax risks that I mentioned, it’s about people having a gain and not being aware of their obligation. And we’re not declaring that capital gain, and this is where you know that analysis of the blockchain can tell us about potential volumes, and we could match up our own data to reach kind of conclusions as to where we should investigate or not. So I think that’s where we are. Now. We’ve had some new legislation. We’ve had the economic crime and corporate Transparency Act passed in 2023 what that’s done is that’s allowed us to seize crypto in a way that we weren’t previously. So it kind of replicates the powers we had in relation to physical cash or money in bank accounts. And so we can use those powers in a much quicker way, a much more responsive way. I mean, it has judicial oversight, as you’d expect, but it means we can respond to intelligence, for example, that we get from private sector partners, you know, in real time.

Jim

Yeah, the seizure powers and seizure authority, I know, is something that all law enforcement agencies are interested in. And really, when you take away assets from a criminal standpoint, it really stops the criminal organizations in the tracks when you have the ability

Richard

to do that. Yeah. I mean, you know, that money, the assets, that flow of cash or value, that’s the oxygen for Office fraud,

Jim

given the global nature of crypto transactions, how does HMRC work with multilateral bodies like the OECD or bad of to disrupt cross border tax evasion?

Richard

Because what I probably want to say is that HMRC, for as long as I’ve been involved in it, and certainly before, we’ve always focused on cultivating kind of international relationships. You know, we talked earlier about the strong relationship with between the UK and the US, and we’ve got those relationships around the world, whether that’s by country by country, or through bodies like you mentioned, like the OECD or fat F. We’ve got liaison officers in over 40 jurisdictions. They have relationships with more than 100 countries, as well as kind of international law enforcement institutions like Europol, and they’re effectively our eyes and ears on the ground. So we can work with partners to develop intelligence and work collaboratively on investigations. I mean, I think at a strategic level, the Financial Action Task Force and the acknowledgement of tax crime as a predicate to money laundering is a real lever that we can now use when engaging internationally with jurisdictions that maybe don’t have the same tax framework that we do. So that’s been a real help, and it kind of opened up possibilities for mutual legal assistance, either in terms of extraditing criminals or recovering assets. And I guess I just finally mentioned the OECD, specifically, the tax force on tax crime, a vital international forum which we support, the IRS CI colleagues who are currently leading that. And there’s a particular project, for example, on trying to understand exploitation of crypto assets, both from a money laundering and tax compliance kind of perspective. So that’s where we pool our information together. You

Jim

mentioned extradition, and I saw an article recently where there was an extradition HMRC fugit was one of her money lawyers, Joe, I think, was extradited from the Netherlands just recently, it was an older case. I believe he fled in 2018 and was extradited from the Netherlands and jailed for five and a half years. So perfect example, absolutely.

Richard

And those sort of cases. I mean, it’s surprising how frequently we have those kind of opportunities, it’s kind of we never forget. We are constantly I mean, we’ll put flags on systems internationally. We’ll have markers. So if somebody moves some, you know, or suddenly uses a credit card that they don’t use for five years, we’ll find that out, and we’ll work with agencies to get them back in the country, get them to serve the sentences. I

Jim

think law enforcement ends up catching up with you and doesn’t forget. I think it’s a great reminder for folks along the lines of public private partnerships. You said you’ve mentioned a little bit of this already, but thinking at both the strategic and operational level, how does FIS collaborate with other law enforcement agencies and financial institutions like through public private partnerships to disrupt tax evasion and associated money laundering or charges or violations. So

Richard

maybe I’ll start on the international kind of level. On that you’ll be aware from the work that we’ve jointly done in recent years, where we’ve been working with something called the Global Financial Institutions partnership, gfip, for short. So that’s a kind of a ppi, which is been commenced by Joint Chiefs of global tax enforcement. And that’s a lots of acronyms and bodies here, but just for those listening to that, that’s a group of five chiefs of investigation, which includes HMRC. It includes the IRS CI in the US field, from the Netherlands, Canadian Revenue Authority, and the Australian Tax Office. And essentially, we’re working together there, with the private sector, the financial sector to look at tax crime issues, look at associated money laundering and see how we might work together on trying to either make the system more resilient or find ways that we can identify tax fraud that we can work on jointly. I mean, a good example of that recently is a piece of work that we’ve been doing with the field in Netherlands and the Dutch customs on trade based money laundering, where we’re using kind of data across a number of sectors to work together. One other kind of piece of work, I might mention from that international collaboration is every year we have a multi agency, multi partnership, crypto challenge, and that will include, more recently, we’ve been extending the invitation not just to those key agencies, but to. Private sector partners like chainalysis or the financial intelligence units for each of our countries, and what we’re doing there each year will be pooling insight and intelligence and looking at a specific subject and trying to work through data and intelligence to identify leads, ultimately, that we can investigate. And that’s been very successful, I think, on a domestic level, 2025 is actually the 10 year anniversary of our joint money laundering intelligence Task Force, gimlet in the UK, which is our domestic public private partnership, and we’ve got a dedicated tax crime and evasion Working Group, which kind of gives us a direct line into many UK based financial institutions, allows us to share intelligence and helps banks to increase their resilience to suspicious activity and actually give us better targeted suspicious activity reports as a consequence. So very productive relationship. And I guess what we want to do, our ambition is to get that international partnership on the same kind of level as some of those domestic arrangements. Yeah, and

Jim

you mentioned something that was near and dear to my heart too, with the j5 challenge, and now seeing the public private partnership on both the public side and now the private side of chainalysis, I know the j5 crypto initiative to develop those investigative leads where crypto is involved. I know from the private sector side, chainalysis really obsesses about law enforcement missions, and it’s just great to see that collaboration come together, because it just makes us all more efficient. I

Richard

personally don’t really see a conflict of interest in terms of our missions on this, you know, I say this many times at those international groups and also domestically, yeah, of course, law enforcement, we’re after, you know, integrity of the tax system we’re after kind of make people can’t commit fraud. But actually the financial sector, it kind of absolutely depends on its integrity, on its reputation. So really, we’re really aligned there. We want the system to work for those honest actors, and we want to be able to make sure we can identify people that are looking to undermine that. So it’s one of those sweet spots when we work together here, it can be really

Jim

strong. Finally, are there any projects or initiatives that HMRC is going to be focused on going into this year. So,

Richard

I mean, we just got a new government in the UK. They’ve invested very heavily in HMRC, and specifically in the fraud investigation service. They want us to tackle tax crime. They want us to increase prosecutions. So we’re very busy kind of developing those plans to make sure that we get the people in the training, infrastructure, etc, etc. We’re also, I guess investing in our overall technical capability ultimately to respond to the growth in tech enabled kind of financial crime, absolutely looking at the use of artificial intelligence and how that might help us come more effective and efficient. You know, there are issues there that we’ll have to work through, the legal ones and kind of ones about consistency and security, but I don’t think there are challenges that we won’t be able to overcome. And I guess, you know, if I think about how quickly the fintech sectors evolved over the last few years, and how tax fraud has become increasingly international and increasingly kind of immediate and literally, the way we investigate has transformed, I guess I’m thinking the next few years it’s going to be pretty exciting as that develops further. So, yeah, lots, lots to do. You

Jim

know, when you talk about AI and data and efficiency, it all comes together. And at the end of the day, it’s about law enforcement being more efficient for the for the citizens that we protect, you know, and law enforcement and a lot of those tools I know are going to play a big role. They’re playing a

Richard

big role. Now. Do I expect my teams to be at the cutting edge of all the technology? I think probably not. I don’t think we’ve probably got the skills and capabilities to do that, which is where these partnerships become so important. Because I want to be just behind the cutting edge. I want to be working with partners in the private sector who are the ones that are there, and then we can kind of help and work with the with the established technologies, and that we understand what the risks are going

Jim

forward. And I led IRS criminal investigation, thought very much the same way. I thought, you know, let the investigators do what they’re good at, investigate and use their authority to investigate and put people in jail, you know, and let the let the vendors in the private sector be really good at what they’re doing at this cutting edge technology. It’s just the way I kind of thought of it too. Sounds very similar. Absolutely. I appreciate you coming over and doing that.

The post Tackling Tax Fraud with Data and AI: Podcast Ep. 166 appeared first on Chainalysis.

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