Science and Technology Law Commons^™

After Ftx: Can The Original Bitcoin Use Case Be Saved?, Mark Burge

Faculty Scholarship

Bitcoin and the other cryptocurrencies spawned by the innovation of blockchain programming have exploded in prominence, both in gains of massive market value and in dramatic market losses, the latter most notably seen in connection with the failure of the FTX cryptocurrency exchange in November 2022. After years of investment and speculation, however, something crucial has faded: the original use case for Bitcoin as a system of payment. Can cryptocurrency-as-a-payment-system be saved, or are day traders and speculators the actual cryptocurrency future? This article suggests that cryptocurrency has been hobbled by a lack of foundational commercial and consumer-protection law that …

The Failure Of Market Efficiency, William Magnuson

Faculty Scholarship

Recent years have witnessed the near total triumph of market efficiency as a regulatory goal. Policymakers regularly proclaim their devotion to ensuring efficient capital markets. Courts use market efficiency as a guiding light for crafting legal doctrine. And scholars have explored in great depth the mechanisms of market efficiency and the role of law in promoting it. There is strong evidence that, at least on some metrics, our capital markets are indeed more efficient than they have ever been. But the pursuit of efficiency has come at a cost. By focusing our attention narrowly on economic efficiency concerns—such as competition, …

Fedaccounts: Digital Dollars, John Crawford, Lev Menand, Morgan Ricks

Faculty Scholarship

We are entering a new monetary era. Central banks around the world – spurred by the development of privately controlled digital currencies as well as competition from other central banks – have been studying, building, and, in some cases, issuing central bank digital currency (“CBDC”).

Although digital fiat currency is one of the hottest topics in macroeconomics and central banking today, the discussion has largely overlooked the most straightforward and appealing strategy for implementing a U.S. dollar-based CBDC: expanding access to bank accounts that the Federal Reserve already offers to a small, favored set of clients. These accounts consist of …

Taxing & Zapping Marijuana: Blockchain Compliance In The Trump Administration Part 3, Richard Thompson Ainsworth, Brendan Magauran

Faculty Scholarship

This is the third of a five-part series dealing with the rescission by U.S. Attorney General Jeff Sessions of the Obama-era policy that discouraged federal prosecutors from bringing charges in all but the most serious marijuana cases.

This article focuses on cyber-attacks on the main commercial chain, and the use of a private blockchain using HyperLedger Fabric as a platform.

This fraud is a direct, criminal attack; an attack designed to destroy/corrupt records of marijuana inventory and plant tags throughout the supply chain. The attack allows legalized marijuana to escape the system and be sold on the black market. A …

Regulating Fintech, William Magnuson

Faculty Scholarship

The financial crisis of 2008 has led to dramatic changes in the way that finance is regulated: the Dodd-Frank Act imposed broad and systemic regulation on the industry on a level not seen since the New Deal. But the financial regulatory reforms enacted since the crisis have been premised on an outdated idea of what financial services look like and how they are provided. Regulation has failed to take into account the rise of financial technology (or “fintech”) firms and the fundamental changes they have ushered in on a variety of fronts, from the way that banking works, to the …

Reliable Perfection Of Security Interests In Crypto-Currency, Ronald J. Mann

Faculty Scholarship

As you all know, the organizers of this event chose a topic of burning interest when they selected crypto-currency as the focus of this year’s panel. Fortunately, unlike most of the similar events at which the author has been asked to speak, we have not been asked to talk about Bitcoin as the currency of the future; my doubts about the ability of Bitcoin to succeed as a currency of routine use – as opposed to a speculative investment vehicle – dampen my interest in talking repeatedly about that subject. The task they have set for the speakers is one …

The Wealth Gap And The Racial Disparities In The Startup Ecosystem, Lynnise E. Pantin

Faculty Scholarship

Although much attention has been given to structural inequality as it manifests in the criminal justice context, little has been said about economic inequality as it relates to the startup ecosystem. This Article details how the historic creation of the wealth gap affects entrepreneurship, highlighting how the wealth gap adversely impacts entrepreneurs of color. Entrepreneurship is a compelling solution to wealth inequality, but wealth inequality can be an impediment to success in entrepreneurship. This Article explains how the United States’ history of bolstering wealth creation for some, while inhibiting wealth creation for people of color, matters for understanding the startup …

Irs's Cp-2000 E-Mail Scams - Never In Dubai - Common In Canada & The Uk, Richard Thompson Ainsworth

Faculty Scholarship

On September 22, 2016 the Internal Revenue Service (IRS) and its Security Summit partners issued an alert to taxpayers and tax professionals to be on guard against fake e-mails purporting to contain a tax bill related to the Affordable Care Act. Surprisingly, this e-mail scam works. It really should not.

Modern technology is facilitating many contemporary tax scams. In recent years the US has seen false (refund) return scams, phone scammers impersonation IRS agents, and now e-mail scams with fraudulent CP-2000 notices attached to a demand for payment. The same phone and e-mail frauds have appeared in both Canada and …

Blockchain, Bitcoin, And Vat In The Gcc: The Missing Trader Example, Richard Thompson Ainsworth, Musaad Alwohaibi

Faculty Scholarship

Blockchain is coming to tax administration and will cause fundamental change. This article considers the potential for blockchain technology as it applies to the introduction of a value added tax in the Gulf Cooperation Council.

Blockchain technology disrupts centralized ledgers. Blockchain improves efficiency, security and transparency. Perhaps no centralized ledger system presents more challenges than that of the modern tax administration. The central data storage system of a modern tax authority contains all return, payment, and audit activity for all taxpayers arranged tax-by-tax for three years or longer periods of time.

It is likely that blockchain will come first to …

Sales Suppression: The International Dimension, Richard Thompson Ainsworth

Faculty Scholarship

Sales transaction taxes are highly susceptible to technology fraud, which is an inevitable result of today’s widespread reliance on technology to document taxed transactions. Technology can be (and is) manipulated to defeat the collection of these taxes. Both the U.S. retail sales tax (RST) and the European value added tax (VAT) are vulnerable to technology-based fraud. This Article concerns sales suppression — intentionally not recording sales — in the RST, and at the final stage of the VAT, the retail stage, when tax is collected from final consumers.

The modern electronic cash register (ECR)/point of sale (POS) system is vulnerable …

Vatcoin: The Gcc's Cryptotaxcurrency, Richard Thompson Ainsworth, Musaad Alwohaibi, Mike Cheetham

Faculty Scholarship

Bitcoin is the world’s first peer-to-peer cryptocurrency. VATCoin is similar, but it is used in tax compliance. Both Bitcoin and VATCoin are distributive ledger applications built upon blockchain technology. Bitcoin’s ledger is public; VATCoin’s is private. If adopted, VATCoin could well become the world’s first government-mandated cryptotaxcurrency. Unlike Bitcoin, VATCoin will not be a speculative currency. It is always fixed to the home currency.

This paper proposes that the Gulf Cooperation Council (GCC) adopt VATCoin in its VAT Framework. The GCC is expected to have multiple 5% VATs in place by January 1, 2018. There is an ample amount of …

Vat In The Gcc - Missing Trader Frauds, Richard Thompson Ainsworth, Musaad Alwohaibi

Faculty Scholarship

All VATs are susceptible to missing trader (MT) fraud. VATs adopted in an economic community are particularly more susceptible. The EU, for example, loses in excess of €100b annually to this fraud. Given the anticipated adoption of a European-style credit-invoice VAT in the GCC by January 1, 2018, this paper offers a technology-based solution involving the real-time tracking of taxable transactions with centrally collected (securely encrypted) data flows that are risk-analyzed by artificial intelligence (AI).

Vat -- East African Community: The Tradable Services Problem World-Class Solution, Richard Thompson Ainsworth, Goran Todorov

Faculty Scholarship

The value added taxes (VATs) of the East African Community (EAC) are open to manipulation and are leaking revenue from tradable services transactions. The EAC’s response has been to adopt a unique Reverse VAT mechanism. Something more is needed – a Digital Invoice Customs Exchange. Together these adjustments will provide a world-class solution to a world-wide problem. The EAC appears to be moving in this direction.

The vulnerability of the EAC VATs to tradable services is not surprising. The EAC borrowed VAT designs from the major VAT models, the EU VAT and the New Zealand Goods and Services Tax (NZ …

Stopping Mtic -- With A 3rd Invoicing Directive, Richard Thompson Ainsworth

Faculty Scholarship

A Third Invoicing Directive for the EU VAT seems to be a foregone conclusion. Corrections are needed in the Second Invoicing Directive. The hallmark of the next Directive will be its application of digital invoice technology. The Commission’s proposals will include adoption of tax-technology advances in invoice-control that are currently in use outside the EU. The next Invoicing Directive will require comprehensive e-invoicing, invoices that are digitally signed, and invoices that are fed into a system of relational databases that match transaction data across the Single Market. There will be real-time EU sales/purchases lists, and remote/real-time audit functionality.

This will …

E-Verify Can Stop Refund Fraud, Richard Thompson Ainsworth, Andrew Shact

Faculty Scholarship

Two issues in the current Washington debates need to be linked. E-Verify, the Internet-based database that allows employers to verify an employee’s work eligibility that is at the center of the immigration debate, is the ideal tool for stopping tax refund fraud. All that is needed is a digital signature of the E-Verify result, and the mandatory inscription of this signature on tax documents to make them self-authenticating.

The central features of this proposal have been made before. The technology it requires is tried and proven. The processes and procedure it advocates are in place and effectively deployed in foreign …

Zappers & Employment Tax Fraud, Richard Thompson Ainsworth

Faculty Scholarship

Beyond the grey area of worker misclassifications and general employment tax irregularities there are darker employment relationships where workers are intentionally paid in cash “off-the-books” or “under-the-table.” Grey employment relationships present civil enforcement issues that may become criminal; darker-relationships are criminal from the beginning. Zappers are found on the dark side.

Zappers are fraud-technologies that automatically (and remotely) skim cash from electronic cash registers (ECRs) or back room point of sales (POS) systems. Globally, tax auditors are finding that Zappers frequently provide the cash that is used to compensate “under-the-table” workers. In fact, a Zapper appears to be at the …

An American Look At Zappers: A Paper For The Physikalisch-Technische Bundesanstalt, Revisionssicheres System Zur Aufzeichnung Von Kassenvorgängen Und Messinformationenthe, Richard Thompson Ainsworth

Faculty Scholarship

The common observation in the U.S. is that enforcement against technology-facilitated sales suppression has fallen through an intra-jurisdictional crack. Neither federal nor state auditors systemically target this area. But this is changing, and the change is coming from the state side.

This paper has two main parts. First, it summarizes the current state of sales suppression enforcement in the U.S. Secondly, it reviews the international solutions that are attracting the most U.S. attention. A conclusion indicates likely directions for U.S. enforcement.

Georgia is the first state to take action. On May 3, 2011 Georgia added code section 16-9-62 to Georgia …

Refund Fraud? Real-Time Solution!, Richard Thompson Ainsworth

Faculty Scholarship

When seven million dependents vanished from the tax rolls in 1986 the IRS recovered three billion dollars in revenue. A simple enforcement measure was applied. Taxpayers were required to list the social security number (SSN) for any dependent they claimed on their tax return. Costing next to nothing to implement, the benefits of this enforcement action continue to this day.

A similar enforcement measure could be employed against refund fraud. Even though the solution is not as simple as that adopted in 1986, it is similar. The effort is worth making. The revenue loss is much larger. As before, the …

Transfer Pricing: Data Dumps And Comparability - Us, Uk, Canadian, And Australian Case Studies, Richard Thompson Ainsworth, Andrew Shact

Faculty Scholarship

Comparability is the heart of transfer pricing. The OECD, U.K., Canadian, Australian, and U.S. transfer pricing rules all echo one another on how critically important the comparability analysis is. Performing this analysis and proving comparability, however, is a demanding exercise.

What makes proving comparability so difficult is that the analysis is two sided. Both controlled and uncontrolled transactions must be thoroughly analyzed. Just as much effort needs to be applied to determine the functions, contract terms, risks and the economic conditions for the unrelated party comparables as is spent on analyzing the related parties (taxpayers).

But there is more to …

Pennsylvania's Sales And Use Tax: Has Nearly $1 Billion Been 'Zapped' Away In Fraud?, Richard Thompson Ainsworth

Faculty Scholarship

The Sales and Use Tax is an essential part of Pennsylvania’s revenue profile. Not only is it the State’s second largest revenue source, it has historically played a critical role in reducing the volatility of Pennsylvania’s overall tax collections. The sales tax is also critical to the city of Philadelphia, and Allegheny County. During the current economic downturn both the revenue and structural attributes of this levy should be pushing it to the front of the tax policy line.

The two topics that should rest atop Pennsylvania’s tax policy agenda should be: (1) joining the Streamlined Sales Tax initiative and …

Vat Fraud - Technological Solutions, Richard Thompson Ainsworth

Faculty Scholarship

Every VAT/GST allows missing trader fraud. The fraud is simple, and can be simply prevented (with technology). The fraud arises when a business makes a purchase without paying VAT, collects VAT on an onward sale, and then “disappears” without remitting the tax. Missing trader fraud is common in high-value/low-volume goods sold across borders – computer chips and cell phones are the classic examples. But the fraud easily migrates when pursued. It operates well with goods as wide ranging as xenon bulbs, automobiles, and earth moving equipment.

The recent appearance of MTIC fraud in tradable CO2 permits and VoIP is a …

Mtic (Vat Fraud) In Voip - Market Size $3.3b, Richard Thompson Ainsworth

Faculty Scholarship

In the beginning, the VAT fraud known as missing trader intra-community (MTIC) fraud appeared to be a UK problem concentrated in the cell phone and computer chip markets. MTIC has mutated (to other commodities) and migrated (to other Member States). This paper describes how this fraud operates in the VoIP market, and how in this mutation it is no longer confined to the EU, but can infiltrate any VAT/GST anywhere.

Canada, Botswana, Japan, Iceland and Jamaica (to mention a few jurisdictions) have consumption taxes that are just as vulnerable as is the EU VAT to VoIP missing trader fraud. It …

Zappers - Retail Vat Fraud, Richard Thompson Ainsworth

Faculty Scholarship

Zappers skim cash sales at retail. Zappers are add-on programs used by merchants with electronic cash registers (ECRs) or point-of-sale (POS) systems. Zappers are smart and selective. They do not skim all sales, and they never skim credit card transactions.

Although they are present in every jurisdiction, Zappers appear to be most widely used in developed economies that combine high levels of cash sales with high rates of consumption tax. Sweden, for example, has a cash-intensive economy, one of the world’s highest VAT rates (25%), and also reports that 70% of the ECRs in the country are either “… constructed …

Co2 Mtic Fraud -- Technologically Exploiting The Eu Vat (Again), Richard Thompson Ainsworth

Faculty Scholarship

On February 1, 2010 Algirdas Šemeta is expected to be confirmed as the next European commissioner for taxation, customs union, audit and anti-fraud. If his nomination passes a confirmation hearing at the European Parliament he will succeed László Kovács. At the top of Mr. Šemeta’s list of things requiring attention should be MTIC fraud in tradable CO2 permits. Political and fiscal realities make CO2 MTIC fraud a top priority.

CO2 MTIC is a technology-driven fraud that takes advantage of the same weaknesses in the EU VAT that have become well known in the cell phone and computer chip trade. The …

Quebec's Sales Recording Module (Srm): Fighting The Zapper, Phantomware, And Tax Fraud With Technology, Richard Thompson Ainsworth

Faculty Scholarship

No abstract provided.

Tax Fraud In The Sales Tax: Zappers -- What Are They? How Can Puerto Rico Block Them?, Richard Thompson Ainsworth

Faculty Scholarship

The Sales and Use Tax is an essential part of Puerto Rico’s revenue profile. Effective only recently (November 15, 2006) the Impuesto a las Ventas y Uso (IVU) was expected to raise between $2.3 and $1.05 billion annually, and has already become the Commonwealth’s fourth largest revenue source. Actual revenue results for 2007-2008 came in at $1.1 billion, which admittedly is closer to the low end than the high end of what is possible, but now that the tax is in place the next pressing question is how can its performance be improved?

This paper generally proposes that Puerto Rico …

The Morphing Of Mtic Fraud: Vat Fraud Infects Tradable Co2 Permits, Richard Thompson Ainsworth

Faculty Scholarship

Missing trader intra-community (MTIC) fraud has been slowly morphing from cell phones and computer chips to other commodities. In the last few months however MTIC made a dramatic appearance in tradable CO2 permits. It closed exchanges and prompted France and the Netherlands to unilaterally change their tax treatment of CO2 trades. The UK has followed the French treatment in large measure. On Monday June 8, 2009 rumors of MTIC fraud in carbon emission permits closed the main European exchange for spot trading of European Union carbon emissions permits and Kyoto offsets. When BlueNext began trading permits again on Wednesday, June …

Massachusetts Zappers - Collecting The Sales Tax That Has Already Been Paid, Richard Thompson Ainsworth

Faculty Scholarship

No other New England state is as vulnerable to Zappers as is the State of Massachusetts. Zappers and related software programming, Phantom-ware, facilitate an old tax fraud – skimming cash receipts. In this instance skimming is performed with modern electronic cash registers (ECRs).

Zappers are a global revenue problem, but to the best of this author’s knowledge they have not been uncovered in Massachusetts. A global perspective says: it is highly unlikely that Zappers are not in the Commonwealth – we just need to find them. In fact, using a Quebec template, tax losses from Zappers and related frauds in …

Use And Enjoyment Of Intangible Services: The German, Austrian, Danish And Estonian Vat Derogations, Richard Thompson Ainsworth

Faculty Scholarship

When the Czech Republic elected (effective January 1, 2009) to derogate from the standard rules for determining the place of supply for intangible services, pursuant to Article 58 of the Recast VAT Directive (RVD), it was following the lead of ten other Member States. This paper considers four of those other jurisdictions - Germany, Austria, Estonia, and Denmark - and compares their derogations with that of the Czech Republic.

In each instance a use and enjoyment standard determines the place of supply for certain intangible services. The affected transactions are (potentially) wide ranging. In each instance non-EU countries are on …

Use And Enjoyment Of Intangible Services: The Czech Republic's Vat Derogation, Richard Thompson Ainsworth

Faculty Scholarship

On January 1, 2009 a minor change in the Czech Republic VAT became effective. A use and enjoyment standard was added to modify the sourcing of certain service transactions. Traditional proxy-based rules, derived from Articles 43 and 56(1) of the Recast VAT Directive (RVD), are set aside by this modification when the customer receiving the services has a permanent establishment (PE) in the Czech Republic. The modification is authorized by RVD 58.

This change is a limited adoption of RVD 58(b), and functions like a full force of attraction principle in direct taxation. If caught by these rules, transactions that …