Let's say someone takes a NIS 10 million loan from the bank and somehow manages to forge the loan agreement, removing a zero from the figure so he only needs to repay NIS 1 million and hold onto the rest, which, of course, will need to be laundered before he can use it. Most Israelis would have no problem calling him a thief who should be charged for fraud.
But what if a businessman removes a zero from his earnings report to the tax authority? Should this man also be considered a swindler, and stand trial for fraud and money laundering? In this case, most Israelis would actually say he shouldn't – tax evasion isn’t money laundering, and tax evaders shouldn't be judged according to the same law usually reserved for drug smugglers or human traffickers.
The two scenarios are nearly identical, but our judgment is completely different. Fraud against the bank is considered morally unacceptable here. On the other hand, deceiving the state falls within the realms of an "unpleasant but not awful" act. Fraud against the state is seen as an almost normative act that everyone is guilty of here, and therefore one that shouldn't be harshly dealt with – the equivalent of running a red light.
"There is cultural forgiveness of white collar crime in general, and tax offenses in particular," said Deputy State Attorney Yehuda Shaffer during a recent conference at Bar-Ilan University. Shaffer, who is head of financial enforcement at the State Attorney's Office, noted that Israel is a worldwide exception in this sense. In the United States, for example, tax offenders are punished more severely than regular thieves. The reason is that thieves usually steal from the rich. Tax evaders, however, steal from the poor because they plunder the country's resources, effectively robbing the National Insurance Institute, the healthcare system or the state education system. These are support systems most needed by the state’s more vulnerable populations.
The severity with which America views tax offenders has become a worldwide trend over the past few years, partly as a result of the global financial crisis that put heavy pressure on a country's sources of income. The international tax havens, ignored for decades, now find themselves under international attack. Additionally, the global financial system – itself a tax haven in practice due to bankers' lack of legal accountability – is losing the right to remain silent. American legislation, and consequently international legislation, requires banks to report on suspicions of tax evasion activities and money laundering. Israeli banks, which for years served as a convenient conduit for world Jewry to transfer money, are not escaping this scrutiny.
Half a year ago, within the framework of the global financial crisis, the international body dealing with money laundering decided that the serious crimes of tax evasion would count as money laundering offenses. The fact that this laundered money comes from company sales rather than, say, drug money, doesn't matter. If it's blatant tax evasion, the crime is considered serious enough to justify the harsh treatment meted out for money laundering crimes – such as a severe prison sentence, the seizure of assets, the exchange of information between the money laundering authorities and tax authorities, and the international exchange of information.
Israel, a place where, culturally, tax offenses by legitimate businesses are more forgivable, will not be able to escape these changes. In fact, the government has already approved a proposal to equate serious tax offenses with money laundering offenses – meaning that the money laundering authority, which receives regular updates from banks about irregular financial deposits, will transfer information regarding these offenders to the tax authorities. The state expects these steps to be enough to drastically increase the exposure of tax evasion offenses, and hopes to enjoy additional revenues of NIS 2 billion in 2013 as a result of its increased focus on the collection and disclosure of undeclared capital in Israel.
The tax authority and money laundering authority stress that they do not intend to act against the little guys, and that their goal is not to increase state revenues but rather to focus on dealing with severe tax evaders. The apologetic stance taken by these two agencies, along with their attempts to alleviate fears are, once again, part of the same culture that sees tax evaders as regular folks who shouldn't be punished in the same way as those engaging in organized crime. It looks like it will take a long time until this forgiving attitude toward tax evasion will be eradicated, even within the enforcement authorities.
In any case, there is no doubt that the fight against tax evasion in Israel is about to step up a level. And given that Israel seems to be one of the global leaders in tax evasion – according to an assessment by the Taub Center for Social Policy Studies in Israel, the rate of tax evasion is about 23 percent of GDP, or about NIS 200 billion a year – it wouldn't hurt to take a hard line with tax offenders, whether “severe” ones or not.