Tax crime risk assessment methodology

Tax crime risk assessment methodology


Major international institutions concerned with tax and financial flows are developing national and regional risk assessment frameworks, but no such risk assessment framework exists at an EU level yet. The PROTAX risk assessment methodology (PRORAM) addresses this gap by providing a tool that is specifically designed for countering tax crimes. It aims to provide practitioners with a model of how to self-assess suspicious behaviours and warning signs that characterise tax crimes. It also entails a practical model for tax authorities, policymakers and other stakeholders to assess the risks and controlling tax crimes in their jurisdictions, and across the EU.

PRORAM is designed to offer practical support for policymakers and experts as well as to serve as a training tool for enablers and professionals with reporting duties. It can also be used as a tool to build knowledge of threats, vulnerabilities and risks across the EU tax crime law enforcement ecosystem by bringing stakeholders together to work through the risks inherent to that environment.

In effect, the ambition of PRORAM is to develop and offer a process to coherently identify and analyse the uncertainties that are produced by threats and vulnerabilities in the tax crime ecosystem and law enforcement environment in the EU, by modelling these as risks. PRORAM assesses risks that are defined as the possibilities of threats to materialise and consequent harm.  Risk assessment details the process of assessing the likelihood that tax crime threats materialise by assessing the extent to which vulnerabilities in anti-tax crime systems or controls can be exploited by a threat. Whereas threats are a function of capability and harmful intent, vulnerabilities are the weaknesses that increase the capability of the threat. The risk assessment model allows the user to identify risks, define priorities and self-assess practical steps and appropriate actions to mitigate the risk identified.

PRORAM uses the Failure Modes Effects Analysis (FMEA) to evaluate and treat risks. ‘Failure modes’ in FMEA are the ways in which something might fail. This document details the PROTAX risk assessment approach, justifies and explains the use of the risk assessment methodology, provides examples of its working, outlines use cases to understand how it can add value within and across the EU, and finally, in the annexes, presents a series of risk tables to actually conduct risk assessments.

Key Findings

  • This risk assessment methodology provides a framework in which stakeholders can prioritise risks related to the lack of harmonisation across the EU and co-discover ways to resolve them.
  • This risk methodology can be used in training events or knowledge building exercises by bringing together stakeholders across jurisdictions to identify potential alignment of operational, institutional, cultural and policy responses to tax crime that could minimise the risks inherent in the tax crime eco-system.
  • Vulnerabilities on tax crimes can occur in many contexts including the definitions, thresholds and sanctions of tax crimes; international cooperation on criminal matters; information sharing architecture; whistle-blower protection among others.
  • PRORAM can be used in a number of different scenarios to increase value for tax crime law enforcement stakeholders, including these use cases: Training for enablers, Knowledge building at Member State and EU level, and Policymaking
  • Due to the national and international nature of tax crime, its cross-border flows and its jurisdictional interoperability the best approach to assess risks in the tax crime ecosystem is one used commonly in risk assessments of systems and processes, often found in sectors like global supply chains or product development – the failure modes effects analysis (FMEA) which designs out failures from systems.

Please note that the law cited were valid and correct at the time of the reports publication.