Typically they will just lie about sales right, so couldnt tax authorities just monitor the number of people going in and out of businesses where they can track easily sales from the outside?(for example barber shop) Then they could just shut down the operation easily by proving fraud? I might be stupid here but it doesn’t make sense to me
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> couldnt tax authorities just monitor monitor the number of people going in and out of businesses where they can track easily sales from the outside?
First, I don’t know where you think all these “tax authorities” get all that manpower to sit outside businesses and count people going in and out. That’s not the way the world works, bub.
Second, “number of people” doesn’t directly correlate to sales for almost any business. One couple goes into a restaurant and spends $40 on a few drinks and another couple spends $350 on a three-course meal. 100 people might go into a clothing store, but maybe only 60 buy anything. Of those 60, 55 spend less than $100 and 5 spends more than $1000. **_You can’t tell anything about sales by monitoring people going in and out of a business._** Entering a building is not an indicator of a transaction.
> Then they could just shut down the operation easily by proving fraud
You can’t prove fraud by counting customers. The only way to prove fraud is to follow the money, which means getting access to the business’s accounting — their sales records, their bank accounts, etc.
But for law enforcement to view a business’s accounting, they can’t just waltz in and demand it. They need to have a search warrant. And to get a court to issue a search warrant, they need to have probable cause — some indicator that a crime is taking place. (“I counted the people going in and out of the barber shop” is almost certainly *not* probable cause.)
But let’s say your imaginary authorities have probable cause, get a warrant, and get access to the business’s accounting. That likely doesn’t tell you anything, because accounting records can be forged.
That’s why law enforcement agencies have people with the title of “forensic accountants.” Like other forensic scientists, their job is to review evidence (in this case, the accounting records obtained through search warrants) to uncover clues indicating a crime occurred or who committed the crime. Frequently forensic accountants are looking for inconsistencies like “the burger joint claims to have sold 10,000 burgers last month, but they only bought enough beef for 3,000 burgers” or something. Of course if the criminal enterprise has its own really good money-laundering accountant, he’ll have covered up those inconsistencies, e.g. they might have fake invoices from the beef supplier for those extra 7,000 burgers worth of beef.
And *then* the law enforcement agency has to get access to the beef suppliers’ accounting (either through their cooperation or — more likely — *another* warrant) to see if the invoices recorded as sent to the burger joint by the beef supplier line up with the invoices supposedly paid by the burger joint and thus with the sales. And so on and so forth and so on and so forth. The more businesses involved, the more complex proving the money laundering case becomes.
A big, effective money laundering scheme can take law enforcement *years* to untangle.
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