Tobin in the Tropics: “Death of the Anti-Money Laundering Tax”

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UNESCO Courier, February 2002. Trying to understand the issue of the Brazilian financial transaction tax without understanding the history of the debate on the “Tobin tax” is a bit like the legendary “headless mule” who “shoots fire from his nostrils.” Get it? How can the fearsome ghost mule shoot fire from his nostrils if he has no head? As Ricardo Kaufmann says, the Brazilian press tends to prevent opinion divorced from fact.

Some lawyers, who asked that their names not be used, believe that a good part of the insurgency by the business sector against the CPMF stems from this instrumental character of the tax, its use to detect fraud.

Brasília em Tempo Real passes along a report from Valor: “Judge says death of the CPMF hinders money-laundering enforcement.”

The government recently failed in its bid to renew a provisional, Tobin-style “check tax” in the Congress, where a two-third majority was required.

The Brazilian news media has apparently never heard of the Tobin tax proposal — even thought it was proposed by a Nobel Prize winner — or the successes or failures, or mixed results, of attempts to actually implement some form of a Tobin tax abroad.

A Web site commentator on an Estado de S. Paulo story on the issue promoted a common talking point, for example

Se a CPMF fosse um imposto inteligente existiria em países civilizados na Ámérica do Norte e na Europa.

If the CPMF was an intelligent proposal it would exist in civilized country in North America and Europe.

Yes, but Tobin, or Tobinoid, taxes have been tried in Europe and the United States. Such experiments have being going on for more than a decade. Brazil’s CPMF represented something of a jumping on the Tobin bandwagon, on a experimental basis. Some are still in force. And with what result?

If you do not admit the existence of that debate, of course, or the existence of practical trials of the measure, you never perceive the need to measure results, or frame the debate in terms of global best-practices based on the performance of practical experiments in the policy you are considering accepting, rejecting, or modifying for your own needs.

The Brazilian news media tends to perpetuate the planeta Brasil effect: The outside world does not exist, except to the extent that the United States is the Shining City on the Hill alongside which Brazil is the lowest circle of hell. See, for example,

The domestic politics of this issue are pretty much beyond me, I have to confess, but one of the standard talking points of its defenders was: “They want this tax ended because it is the only tax that cannot be evaded.”

I personally think proponents should have hit harder on another argument: “The tax burden cannot be reduced without distributing it more equitably. And that means stamping out massive tax evasion schemes.”

Which is, in fact, a notable priority of the federal police and tax authorities these days, and the focus of their anti-mafia efforts as well. Al Capone was a convicted tax evader, remember? Very similar deal here.

And a corollary: “People cannot be coaxed out of the informal economy until they perceive the tax system as equitable and not unduly burdensome.”

See also

One which point a federal judge is interviewed:

“Perde-se um importante instrumento de investigação”, diz o juiz federal Sergio Fernando Moro, sobre a extinção da CPMF a partir de janeiro. Moro atuou em vários casos envolvendo lavagem de dinheiro, como o Banestado e Operação Farol da Colina.

“An important investigation tool has been lost,” said federal judge Moro on the extinction of the CPMF starting in January. Moro tried various money-laundering cases, such as the Banestado case and Operation Hilltop Beacon.

“A CPMF, paradoxalmente, vinha se mostrando um tributo bastante justo, por ser difícil escapar a sua cobrança. Assim, mesmo aqueles assistidos por caras consultorias tributárias, acabavam tendo que pagar CPMF, diferentemente do que ocorre com tributos mais suscetíveis a manobras fiscais e contábeis. Além disso, as informações quanto à movimentação financeira providenciadas pela CPMF e pelo seu antecessor, o IPMF, foram largamente utilizadas pelos agentes públicos para investigação de variados crimes, financeiros, de lavagem, corrupção”, diz Moro.

Paradoxically, the CPMF has proven itself a substantially fair tax, because it is difficult to evade. Even those people who get high-paid tax advice wind up having to pay it — unlike those taxes more susceptible to fiscal and accounting maneuvers. Furthermore, the information on financial transactions provided by the CPMF and its predecessor, the IPMF, were widely used by public agents to investigate various crimes, financial crimes, money laundering, corruption,” said Moro.

“Tal expediente, pouco invasivo à privacidade individual, permitia que as autoridades públicas, autorizadas judicialmente, tivessem conhecimento de eventuais disparidades entre renda declarada e movimentação financeira, o que é um indício de sonegação fiscal e mesmo um indício clássico de crime de lavagem de dinheiro”, conclui o juiz.

“This measure, which is hardly invasive of individual privacy, let law enforcement, with judicial authorization, learn about disparties between declared income and the volume of financial movements, which is an indicator of tax evasion and also a classic indicator of money laundering,” the judge concludes.

“Foi pela movimentação financeira acusada pela CPMF que se chegou aos laranjas das contas CC5”, diz o procurador da República João Marques Brandão Neto, de Santa Catarina. “A Receita detecta a movimentação financeira de alguém pela CPMF. Assim, são muitíssimo comuns casos de pessoas movimentarem no banco dez vezes mais do que declaram à Receita”, afirma o procurador.

“It was from financial movements detected by the CPMF that the front-men in the CC5 accounts were detected,” said federal prosecutor Brandão, from Santa Catarina. “The tax authority detected a pattern of financial transactions by one of them through the CPMF. It is extremely commmon for people to move ten times their declared income through the bank,” he says..

Brandão Neto diz que, em Blumenau, todos os casos de lavagem detectados partiram da discrepância entre movimentação financeira acusada pela CPMF e os rendimentos. “O laranja movimenta milhões de reais no banco, paga bastante CPMF e ganha uma ninharia”.

Brandão said that in Blumenau, all of the money-laundering cases detected arose from discrepancies between financial transaction volume, as recorded by CPMF records, and declared income. “The front-man moves millions through his bank account, pays a ton of CPMF, but declares peanuts in income.”

“Realmente, pode ser que percamos uma fonte de investigação”, diz a procuradora da República Luiza Cristina Frischeisen. Mas, segundo ela, ainda permanece um mecanismo importante, pois as movimentações financeiras muito grandes devem ser comunicadas pelos bancos ao COAF.

“Really, we may be losing a source of investigations,” said federal prosecutor Frischeisen. But she says there remains another important mechanism, since large financial movements must be communicated by banks to COAF [the Tupi FinCEN].

Leading to the rise of the smurf, as we gringos know.

Smurfing refers to an individual (or smurf) who is used to deposit cash in different banks, bank branches and/or deposit institutions in amounts that will not alert attention (CISC, Canada)

Which was what the CPMF mechanism measures: Not the size of individual transactions, but the volume over time.

Alguns advogados, que pedem para não ter seus nomes mencionados, acreditam que boa parte da insurgência de empresários contra a CPMF decorre dessa natureza instrumental da CPMF, de detectar fraudes. Em 2000, num congresso de procuradores da República, em Maceió, o ex-titular da Receita Federal, Everardo Maciel, anunciou a montagem de uma espécie de banco de dados para o confronto entre arrecadação de CPMF e rendimentos declarados por pessoas físicas e jurídicas. Naquela época, os bancos manifestavam resistência para informar ao Fisco o valor arrecadado de cada contribuinte, queriam informar apenas o montante global.

Some lawyers, who asked that their names not be used, believe that a good part of the insurgency by the business sector against the CPMF stems from this instrumental character of the tax, its use to detect fraud. In 2000, at a congress of federal prosecutors in Maceió, former tax authority director Everardo Maciel announced the creation of a database for comparing CPMF collection to the declared income of individuals and firms. At the time, the banks resisted informing the tax man of the amount collected from individuals. They wanted to report only the lump sums.

Especialistas consultados pelo jornal “Valor Econômico”, em sua edição de hoje, entendem que “a CPMF é um dos instrumentos mais eficientes de fiscalização utilizados pela Receita Federal no acompanhamento das contas dos contribuintes. Mas sua ausência não comprometerá a sistemática de fiscalização desenvolvida pelo Fisco nos últimos anos. Eles acreditam que o governo poderá criar alguma declaração para os bancos que terá o mesmo papel da CPMF em relação ao cruzamento de informações.

Specialists consulted by Valor today said that [“?]the CPMF is one of the most efficient oversight tools the federal tax authority has to check up on taxpayer accounts. But its absnce will not compromise the oversight mechanisms developed in recent years. They believe the government will be able to create a declaration that banks will be required to make that will serve the same function with respect to data mining.

Then there is the other side of the Tobin argument: The dampening effect on speculative transactions. How has that worked out, in Brazil and elsewhere? As predicted? Remember the crisis of the plummeting real? Observed the relative stability of the currency and inflation since then? Has the CPMF contributed to that favorable outcome in any sense?

But that for another time. Economics makes my head hurt. I majored in poetry. So I have to take it small doses.

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