A fair playing field
Philip Cox works as a principal investigation officer in the Department of Social Protection. Along with his team, he investigates fraudulent activities within the shadow economy that are having a major impact economically on sectors that are trying to legitimately trade.
5 December 2013
Illicit trade is the classic case of a cash business. Individuals dealing in cash on the black market will inevitably not be paying taxes. Invariably, they won’t be paying social insurance. Their employees could also possibly be claiming job seekers allowance. The duplicitous behaviours of a few result in an overarching obstruction for retailers. The result is an unfair playing field. Retailers, who pay PRSI, duty tax, excise tax and ensure they are complying with legislation, are being put out of business by black market traders. As Philip Cox outlines: "It has huge implications for industry. That is the importance of it; that is the context of it, that is where it fits in and that is why it needs to be policed."
How is it policed?
Social protection works closely with other agencies involved in illicit trade. The most important and pivotal relationship is with the Revenue Commissioners. Using the combined resources of both the Department of Social Protection and the Revenue Commissioners, shadow economy activity is looked at in terms of social welfare fraud and and its effects.
"If an individual is working in the black economy, they are not on the books and they are not being recorded, which has Revenue implications and social protection implications. Revenue and social welfare pool resources and we act as a joint inspectorate. We have years of experience in dealing with different sectors and know where the problems lie."
Another source of information is from good citizen reports – as long as they are credible. Given the downturn in recent years, Irish society is much less tolerant about tax and social welfare non-compliance.
"Quite frequently we receive excellent, good citizen reports from members of the public and from industry. It gives us very clear intelligence and information about people and businesses that are working in the black market or shadow economy." That’s an important source of information and intelligence – a trigger for investigation. "We will look at social protection and Revenue history files and decide what action we must take on certain cases. It is very much a combined effort and it is very effective having a joint inspectorate as we’re not looking at the issue in isolation, we’re looking at it collaboratively."
There is legislative provision under the Social Welfare Act for the provision of sharing information between the Department of Social Protection and Revenue. This provision is a very effective and efficient way of dealing with fraud and these powers are a very important element in regard to prosecutions.
"The Department of Social Protection does take a number of prosecutions on an annual basis. We have legislation under the Social Welfare Act which makes social welfare fraud a criminal matter. We take cases in the district court and they are prosecuted under criminal legislation. There have been a number of successes in different sectors, particularly related to cash businesses. There have been certain successes with individuals whose lifestyle and assets were not in line with someone claiming social welfare. These people tend to trade in the black economy in sectors such as renovations, gardening or plumbing."
"What our minister has done in recent times is accelerated the rate of recovery. If somebody is on social welfare and they owe us money because they have engaged in fraudulent activities we will take that money back. The rate that we recover is now at 15% of their entitlement. Prior to that, it was much less but the minister has introduced quite considerable powers."
Another measure the minister included in the Social Welfare Act 2013 was powers for notice of attachment. If a person has assets in a bank or is employed, money can be recovered through notice of attachment proceedings. This has been a significant development in terms of recovering money that was overpaid as a result of fraud.
"Considerable legislative powers have been taken to improve that situation so that increases the deterrent effect."
The Department of Social Protection seem to be moving forward and making efforts to ensure improvements are made. The structure put in place with Revenue is important. It allows for collaborating, sharing intelligence, investigating, sharing data and getting smarter.
"The way we share data now is being enhanced. Data from Revenue can give us far better intelligence and much better information about the people that may be trading illicitly and vice versa." The Department also co-operates with the National Employment Rights Authority, An Garda Síochána and with local authorities. Equally important is the process of engaging with industry. The Hidden Economy Monitoring Group (HEMG) engages with industry on a quarterly or bi-annual basis to discuss trends that are emerging. This mechanism allows for the passing on of information should any business feel they are being competed out of business by fraudulent trading.
"The one thing that I think is very important is the regional hidden economy groups. If you are in an industry, or a representative for an industry, a member of a Chamber of Commerce or a particular business organisation then the regional Hidden Economy Monitoring Group gives you a contact point. It provides a contact to pass on information if you are being competed out of business. Black economies move very quickly and you get a lot of emerging trends. As soon as you close down one loop hole certain individuals will act opportunistically and open another. The dialogue is around what are the sectors, what are the problems, what are the issues."