Whistleblowers must report tax fraud judiciously but also be protected

In presenting their evidence, the informant must clearly identify themselves, and should any legal proceedings commence, the informant will remain unnamed. Getty Images

You cannot get into business without accepting that you have entered a competitive space. Therefore, it is reasonable to expect that all players operate within the law.

Legally mandated periodic regulatory reporting and the knowledge that an external audit by an empowered body can occur at any time should be enough to ensure that no one cheats. Unfortunately, cheating happens. Even the clearly communicated punishments for doing so never seem to be sufficient to deter bad behaviour.

Legally, you must fail two tests. They are, and to reinforce how dim a view is taken of this, I am using the legal Latin terms, mens rea and actus reus (meaning: guilty mind and guilty act). You need to think about committing an offence and then act on that thought.

So far, we are talking about malfeasance being uncovered by a non-trading external body. Today, in the light of a recently issued Federal Tax Authority (FTA) guide, I wish to address the mechanism in place for all other actors that might likewise reveal potential illegal activity. I say potential because tax law is very complex in parts, and it is not impossible that someone might misunderstand a situation or treatment they have witnessed, and then innocently report it.

Issued in December 2024, a whistleblower programme for tax violations and evasion represents the first detailed approach to the issue.

I addressed this topic in a more general way in an article published by The National on April 29, 2017, as VAT was being launched. There was no formal programme then to protect whistleblowers but their impact could be imagined.

Particularly worrying was the potential for aggrieved personnel who were returning to their home countries unleashing a litany of allegations to the relevant authorities. Trying to sift through that reported in anger would be a challenge.

Also, now abroad, a person might assume that there would be no consequences to their actions. Understand that this new regime does not just relate to people, but to any juridical entity.

I might have used a different word than informant, which represents the reporting party. While the word is absolutely accurate, language changes over time based on its usage and television has not been kind to the general perception of what an informant is and what often happens to them.

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The guidance lists two categories of information they are interested in.

Firstly, there is suspected tax evasion, which includes anything from registering with false information to submitting returns that are manipulated to reduce or mitigate any payable tax.

Secondly, there is non-compliance – from falsifying invoices, be it with incorrect amounts or use of a different currency, to trading under the counter for cash and keeping such transactions off the business’s financial accounts.

This is clearly identifiable fraudulent activity. An approach may be rebuffed if it is considered insufficient to prosecute. However, this does not prevent further approaches if additional and more substantial evidence is collected and presented.

In presenting their evidence, the informant must clearly identify themselves. This will naturally remain confidential. Importantly, should any legal proceedings commence, the informant will remain unnamed.

Two interesting things follow. One is whether the prosecuted party is made aware that their actions were uncovered and reported by a person or a juridical entity. Clarity on this element would be useful.

Second is the matter of a monetary reward. A non-disclosure agreement is signed as part of this process.

Any reward would be paid subsequent to a successful prosecution and collection of monies due. There are specifics worth reviewing, although it might be hoped that any reports made would be from a desire to see fairness than the prospect of a monetary windfall.

The informant’s involvement ends as action is being taken. No updates are provided on the nature of the continuing case, which would seem to be a sensible protocol.

For someone to step forward and provide information about the actions of another creates on them a burden, which must be co-shouldered. Hence, the receiving party provides for protections where it’s accurate and in good faith.

The submission is made using the FTA portal and the process is well documented.

I finish by highlighting this because the FTA document is, and I quote, “not a legally binding document and is not intended to provide comprehensive details associated with taxes and is not intended for legal reference”.

Either protection exists or it does not. I am not a solicitor, but for someone to agree to fall backwards, they must be certain that they are falling into the arms of safety.