TIBCO Spotfire Helps Eastport Analytics and the Internal Revenue Service Combat Tax Evasion Schemes

TIBCO Spotfire enterprise analytics platform is a key

component of Eastport’s innovative analytical process to

identify potential tax evasion activity associated with

offshore credit cards for the IRS.

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Challenges:

• 12millionoffshorecreditcardrecordstoanalyze.

• Previousmethodologiestookweekstocomplete.

• IRSsometimeslackeddatatouseasevidenceinbuildingasolidcase.

EastportAnalytics,Inc.isananalyticalsolutionscompanyprovidingservicesand

consultingtoorganizationsdealingwithextremelycomplexknowledgemanagement

challenges.BasedinArlington,Virginia,thecompanywasfoundedtoenhancetheimpact

ofanalysisandanalyticaltechnologyonthedecision-makingprocess.Eastport’sclients

areprimarilyinvolvedintheintelligencelawenforcementandcivilcompliancesectors.

TheInternalRevenueService(IRS)regularlyconductsprogramstoidentifynoncompliant

taxpayers.Aspartoftheseefforts,theIRSdevelopedtheOffshoreCreditCardProgram

(OCCP)toenforcetherequirementthatU.S.citizenspaytaxontheirworldwideincome,

notjustincomeearnedintheUnitedStates.Creditcardsprovideeasyaccesstooffshore

fundsandaccountsintaxhavencountries,suchasBermudaandtheCaymanIslands,

whichallowincometobehidden.

Whileit’snotillegaltohaveanoffshorecreditcard–somemightbedrivenbybusiness

interests–there’srarelyalegitimateeconomicreasonfortheaveragepersontohaveone

andit’snoteasytoobtainone.Giventhat,theIRSdeterminedthatthereisareasonable

basisforbelievingthatsomepeopleareusingoffshorecreditcardstoevadepayingU.S.

taxesanditdevelopedtheOCCPtoinvestigatetheseaccounts.ThedivisionoftheIRS

thatisfocusedontaxcomplianceandevasionactivityturnedtoEastportAnalyticsto

developananalyticalprocessforcreatingapoolofthemostlikelyoffenders.

ChallengesTaxevadersgotogreatlengthstofindwaystoavoidpayingtaxeswithoutgetting

discoveredand,oncetheirmethodsaredetected,tofindnewwaystocontinuetheir

practices.U.S.Congressionalactionshaveimposedmanylegislativeandregulatory

standardstohelpdeterthedisguisingandconcealingoftheflowofsuchillicitmoney

tomakeitappearlegitimate.Someoftheseacts,suchastheUSAPatriotAct,establish

regulationsrequiringthatfinancialinstitutionskeeprecordsandfilereportsoncertain

financialtransactions,makingitmoredifficulttocommitfinancialcrimes.Atthesame

time,thereisalotmoreinformationtoprocessandanalyze.Eastportistaskedwith

helpingtheIRSputavoluminousamountofdataintocontexttodetermineifillegal

activityisoccurring.

Thedatasetofoffshorecreditcardinformationcomprises12millionrecordsthathave

beenobtainedthroughasummonsissuedbytheIRStovariousbanks.Thisisapartofan

Solutions:

• Visual,interactiveanalyticsprovideanalystwithquickinsight.

• Spotfireguidesenableflexibleabilitytonarrowdownpotentialoffenders.

• Integrationintodigitalworkflowfacilitatesseamlessdynamicanalyticalprocess.

Results:

• EastportmetitsgoalofprovidingIRSwith1,000qualifiedaccounts.

• IRShasstrongercasetoprosecutebecauseofqualityofdata.

• Processthatwouldtake2–3weekspayinganengineertakes3–5dayswithSpotfiresoftware.

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ongoingsetofactivities–oncetheIRSidentifiescasesthatuseanewmethodofpotential

illegalnoncompliantactivity,itusestheinformationtoconductavoluntarycompliance

effort,encouragingtaxevaderstocomecleanwithnopenalty.Butsomeindividuals

choosenotto,sotheIRShasaprocessinplaceforprosecutingthesecases.

EastporthasbeenworkingwiththeIRSontheOCCPforanumberofyears,tryingtofind

thebestmethodologywithwhichtoanalyzeadatasetofthismagnitude.Thechallenge

wastofindthemosteffectivewaytodevelopaqualifiedpoolofpotentialtaxevaders

andprovidetheIRSwithsolidgroundsonwhichtoprosecuteacase,withdatatobackit

up.Eastportdeterminedthatitwasessentialforananalysttobeintheloop,sothefirm

soughtouttoolsthatwouldenablethemtodefineanefficientmethodologyandatthe

sametimegiveananalysttheopportunitytoguidetheprocess.

Thereareanynumberofredflagsthatcouldindicateillegalactivity,suchas

nonresidentialaddressesthathavemultipleaccountsattachedtothem(asignofa

potentiallyillegalfinancialpromotionscheme);anextraordinarilyhightransactionvolume;

orthepaymentofanannualfeebutextremelylowtransactionvolume.“Theanalytical

challengeforuswasdevelopingaprocessthatwastransparent,repeatableandcapable

ofbeingcommunicatedwithinalegalframework,”saysJonathanAdams,Principalof

EastportAnalytics.“Inessence,theanalysisbecomesevidencethatcanbeusedto

substantiateacase.”

SolutionsEastportmaintainsalab–theInsightFusionLab–withmanydifferentanalysistools

thatareusedonanongoingbasisforitsclientprojects.Whilethelabhasmanytools

thatwillchangeastheprojectschange,thefirmhasasetofworkhorseproductsthat

canbeflexiblyappliedtomanychallenges.TotackletheIRSprojectmoreeffectively

andefficiently,EastportselectedTIBCOSpotfireenterpriseanalytics.“Oncewesawits

capabilities,Spotfirequicklyjoinedourstableoflabtools,”remarksAdams.“It’saflexible

tool,easytoimplementanditallowsouranalyststoquicklyrollaroundinthedata.”When

askedtodefine“rollaroundinthedata,”Adamselaborates:“Wedeliverinsight,whichis

acombinationofdata(underlyingsetofobservations),missioncontext(lookingatdataas

itrelatestoaspecificsetofobjectives)anddomainknowledge.Whenwe’retalkingabout

rollingaroundinthedata,wehaveanexploratoryphasewherewe’retryingtodetermine

therightcombinationofthosethreeelementsforanygivenproblem.Itcanbeaquitea

challengeandthat’swhatSpotfireenablesustodo.”

“Once we saw its capabilities,

Spotfire quickly joined

our stable of lab tools.

It’s a flexible tool, easy to

implement, and it allows our

analysts to quickly roll around

in the data.”

JonathanAdamsPrincipalEastportAnalytics,Inc.

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Figure 1. This TIBCO Spotfire DecisionSite® scatter plot is focusing on the relationship between various account-related observations and the level of ATM activity.

Eastportcraftedaninnovativeanalyticalprocessthatextractshighqualityaudit-worthy

accountsfromthecreditcardtransactiondata.Aspartoftheprocess,Spotfiresoftwareis

usedtolookatthequantitativecharacteristicsofaccountstoidentifypatternsofsuspect

behaviorinordertocreateapredictivemodelofpotentialillegalactivity.

Todevelopthequalifiedpoolofpotentialtaxevaders,Eastportcreatedaworkflow

processthatorganizesanddeliversthefindingsandtheassociatedevidenceindigital

casefolders.Spotfireenterpriseanalyticsintegratedeasilyintotheprocess,enabling

theanalysttoliterallycutandpasteasubsetofaccountsheisinterestedinfromSpotfire

softwareintothefolder.Thefolderrecognizestheaccountnumbersandassociatesthem

withaugmentinginformationfromotherdatabases.

AtthatpointtheanalystisinapositiontogiveanIRSlegaladvisortheinformationthat

wouldformthebasisofexplicitgroundsforpursuingacasefurther.Thelegaladvisortakes

theanalysisandcomparesitagainstIRSinternaldatatodetermineiftheyshouldmove

aheadornot.Ifnoncomplianceisstillsuspected,thelegaladvisorwouldbeabletojustify

thereasonsanaccountwaspulledoutofover250,000accounts–reasonsthataredefined

inSpotfireguides.

“Because the data changes

with each new set, without

Spotfire we would need to pay

an engineer to write queries in

SQL code to extract the data

we’re looking for.”

JonathanAdamsPrincipal,

EastportAnalytics,Inc.

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TIBCOSpotfireguidesareusedtoreducethelargevolumeofcreditcardaccountsdown

toareasonablenumberinordertobetterfocusresources.Eastportcreatedabout40

differentguidesinSpotfiresoftwaretocapturetheanalyticalknowledgeoftheanalyst.

Theguideslookforspecifickindsofbehavior–suchashighlevelsofcertainkinds

ofactivity,largepurchasesandhighcreditlimits–thatwillshowupasoutliersinthe

software’svisualinterface.Theguidesenabletheanalysttomakevariouschangesbased

onhisintuitionandexperiencetobestfocusinonnoncompliantaccounts.Ifafterrunning

theguides,thenumberofaccountsisstilltoolarge,theanalystcaneasilytightenoneor

moreofthevariablesmanagedbytheguides,e.g.,adjustingthecreditlimittoadifferent

level.

TwotothreetimesayearEastportgetsnewdatasetsfromtheIRS.Sinceithasalready

createdtheSpotfireguides,Eastporthaseliminatedtheneedtocreatenewtemplatesand

codeeachtime,facilitatingquickanalysis.“Becausethedatachangeswitheachnewset,

withoutSpotfirewewouldneedtopayanengineertowritequeriesinSQLcodetoextract

thedatawe’relookingfor,”Adamsnotes.

SpotfireenterpriseanalyticshasenabledEastporttoharvesttheappropriateinformation

andbringtogetherthecasefolderallinoneplace,sothattheanalystcandynamically

workwithit,makecommentsanddeliveradigitalextracttothenextphaseofthework

processfortheIRS.

Figure 2. This TIBCO Spotfire DecisionSite® Posters chart is showing key variables related to noncompliance and how each account in the dataset is related to others. The goal is to look across the entire dataset and understand how particular combinations of observations are related.

© 2007 All Rights Reserved. TIBCO, TIBCO Software, The Power of Now, the TIBCO and Spotfire logos, Spotfire, Spotfire DecisionSite and Spotfire DecisionSite Posters are trademarks or registered trademarks of TIBCO Software Inc. in the United States and/or other countries. All other product and company names are marks mentioned in this document are the property of their respective owners and are mentioned for identification purposes only.

ResultsEastport’sgoalwastoprovidetheIRSwithatargetedpoolof1,000accountswith

whichtomoveaheadbasedonunderlyingcharacteristicsandotherinformation.

“They’veneverhadapoolofauditcandidatesdevelopedwithsuchstructuredanalysis

before,”observesAdams.“Thedata,becauseofthetargetedprocesswithwhichitis

selected,isveryvaluabletothemandmorelikelytoprovidethemwithasolidcase.”

Thetimesavingsfortheanalyticalportionoftheworkflowisdramatic.UsingSpotfire

enterpriseanalytics,ittakes3-5daystoanalyzeallofthedataoncethecodingto

createandintegratethefoldersystemiscompleted.WithoutSpotfiresoftware,it

wouldhavetaken2-3weeks,withtheneedtocompensateanengineertorunSQL

code.EastportindicatesthattheIRSappreciatesthefirm’sabilitytodothework

quicklyandmorecost-effectively.“WeaskedtheIRSwhytheycontinuetoworkwith

ustotackletheseprojects,”saysAdams.“TheytellustraditionaldataITcompanies

alwayscomebacktothemwithyetanotherdatabase,whilewearefocusedonsolving

theiranalysisproblems.”

TheIRSisintentononlymovingforwardonacaseifitisdefensibleandinthepast

didn’talwayshavethedatatosupportit.WithEastport’sinnovativeanalyticalprocess

featuringSpotfireenterpriseanalytics,theIRSisabletoprovethatitbuiltitscasein

alogicalandtransparentmanner,withthesupportingdataasevidence.Today,the

useofoffshorecreditcardstoevadetaxesisbecominglessprevalentlargelybecause

oftheIRS’OffshoreCreditCardProgram.Infact,theIRShasalreadyidentified

thousandsofsuspiciouscardholders,manyofwhichhaveresultedinprosecutable

cases.

Inadditiontooffshoretransactionandcorporatetransactioncomplianceprojects

withtheIRS,EastporthasusedSpotfireenterpriseanalyticsonaprojectwiththe

DepartmentofDefenseandhasidentifiedotherupcomingprojectsthatwillrequire

Spotfiresoftware’scapabilities.

Spotfire,

A Division of TIBCO Software Inc.

212 Elm Street

Somerville, MA 02144

Tel: +1 617 702 1600

Toll Free: +1 800 245 4211

Fax: +1 617 702 1700

http://spotfire.tibco.com