Criminal prosecution within responsive regulatory practice

Abstract

In his article, Levi (2010, this issue) makes an argument for why serious tax fraud and noncompliance should be addressed through criminal as opposed to noncriminal proceedings. But will it deter the noncompliant? Context, as he acknowledges, is a central determinant in how sanctions affect subsequent tax noncompliance. Context includes the norms and attitudes of the community to tax evasion. It is also the case, as Levi notes, that a more “criminalizing” orientation has implications for “staffing levels and expertise of tax agencies, prosecution depart ments, and the already heavily occupied criminal and civil courts.” Such factors are bound to intervene between a more aggressive policy that applies criminal sanctions in response to serious tax evasion and the ultimate goal of deterring tax fraud and delivering to the taxpaying public just outcomes in response to serious tax noncompliance. That is not to say that Levi’s appeal should fall on deaf ears, just that it needs to be interspersed with a suite of other sanctioning mechanisms that have political support and that are embedded in the public’s understanding of how justice can be delivered in the domain of tax noncompliance. Levi (2010) suggests that an analysis of cases—in particular, analogous cases—is the appropriate methodology for gathering evidence on causes and consequences. In the absence of such data, the policy question is how to progress the argument, begin a systematic scrutiny of cases, and maintain scope for correcting the strategy as evidence accumulates. Research supports Levi’s position that serious tax noncompliance needs to be a more costly exercise for taxpayers who intentionally engage in fraud, who drift into such activity through poor business acumen or financial desperation, or who act as opinion leaders and experts, convincingly discounting the risks of prosecution as they market financial products to an unsuspecting public. This policy essay considers how tax authorities might increase the costs of serious tax noncompliance through a