Logicaisse is alleged to have enabled tax evasion with “zapper”
Submitted by Koos on 12 August 2009 - 3:14pm
By Martin C. Barry
Logicaisse, a Laval-based business that is one of the province’s leading distributors of electronic cash registers (ECRs), is in deep trouble with Revenue Quebec, which alleges the company enabled users of its systems to evade sales tax. The Logicaisse logo is a familiar fixture in the check-out line at many retail stores and fast food restaurants.
Mostly restaurants
In a statement issued last month by the provincial tax department, Revenue Quebec says it has “reasonable grounds to believe that the company in question designed and distributed” a device for concealing sales, commonly known as a “zapper,” principally in restaurants. Revenue Quebec claims Logicaisse allowed restaurant owners to use the zapper.
On July 14, Revenue Quebec conducted two raids at Logicaisse’s headquarters on Autoroute 440 in Laval seeking evidence. A ban of “zapper” software came into force in Quebec three years ago. The government’s claim against Logicaisse is based on a provincial law that makes it illegal to make, install, sell or rent out to anyone “a function within a computer program or an electronic component the use of which is not allowed.”
Also raided last year
It is not the first time Revenue Quebec targets the company. In early 2008, the ministry raided Logicaisse’s offices searching for evidence in conjunction with a specific piece of software, RMS-Touch, for which Logicaisse has exclusive distribution rights in Quebec and which the government believed played a key role in the use of zappers.
While Revenue Quebec’s claims against Logicaisse may seem unusual, Richard Thompson Ainsworth, a tax evasion expert at the Boston University School of Law, writing last year in his essay, Zappers & Phantom-Ware: A Global Demand for Tax Fraud Technology, maintained “there is a demand-market for technology that facilitates tax fraud.
‘A growth industry’
“By all accounts the providers in this market are working in a growth industry.” According to Ainsworth, “zappers and phantom-ware are in common use because they are difficult to detect, generate huge returns on minimal investment, and are widely available. They are widely available because very few jurisdictions restrict their manufacture, sale or distribution.
He makes a distinction between zappers, whose sole purpose is “to facilitate cash skimming at the point-of-sale” (POS) and which are concealed in the system, and phantom-ware, which is “transparent” and may have legitimate, although somewhat obscure purposes, but whose full functions are not completely documented in operating instructions given by a manufacturer or dealer to the system’s user.
Phantom-ware
Regarding phantom-ware, he cites a case in the Netherlands against a chain of cafés that was suspected of using it to evade paying taxes. A Dutch company was supplying the point-of-sale (POS) cash registers. Court testimony revealed that a managing director with the cash register company told the café’s manager that an undocumented “hidden delete” option existed in the supplied cash registers. The Dutch court ended up finding criminal tax fraud liability not only on the part of the restaurant owners, but also with the suppliers of the cash registers.
Comparing phantom-ware and zappers, he writes, “Because phantom-ware is embedded in the same ECR/POS system that is the subject of the tax audit, there is always a risk that a careful till interrogation will uncover how the fraud is accomplished. Zappers minimize the risk. Zappers are physically kept apart from the ECR/POS system they manipulate. Zappers are kept on cassettes, CDs, or memory sticks. They are inserted temporarily in the ECR/POS system to perform sales manipulations. When the procedure is completed, the zapper is removed.”
Culpability in question
Regarding the culpability of suppliers who are caught and charged with furnishing businesses with tax-evasion systems, Ainsworth quotes a lawyer who pleaded that his client didn’t benefit from the fraud financially. “In his module, he had built in a functionality that could be used to commit fraud,” the lawyer said. “He did not do this with criminal intent. He was bound by two large suppliers he could not refuse. When he found out three years ago that it was extensively abused, he stopped the supplies. He did not earn a penny with it, either. He was simply naïve.”