Al Capone’s Tax Law Legacy 

FROM: NOV-DEC 2008 ISSUE | BY VERN KRISHNA

Even in death, Al Capone’s legacy in tax law thrives in Canada. Scarface Al was a legendary gangster. His brief stint in organized crime supported Hollywood, which recounted his exploits – bootlegging, gambling, and prostitution – and made icons of some of Canada’s most famous families. The television series – The Untouchables – and the classic movie – The St. Valentine’s Day Massacre – would not have been possible without Scarface Al’s larger than life exploits in Chicago.

The enactment of Prohibition propelled Capone’s life as a vice overlord. Despite all his notoriety and power, Capone’s criminal reign was relatively short: his reign as vice overlord began in 1924 and continued up to the time of his conviction for income tax evasion on October 17, 1931.

Capone was shrewd. He did not trust banks and never had a bank account. He endorsed only one cheque in his entire life. He conducted all of his financial transactions in cash – a lesson that led to today’s money laundering laws in Canada.

Capone’s propensity for secrecy and lack of documentation became an insurmountable hurdle for federal agents investigating his crimes. The agents analysed bank accounts, interviewed witnesses, and secured every scrap of evidence, all with the objective of eventually prosecuting him. The government made raids, tapped telephone wires, and interviewed hundreds of witnesses to sustain a criminal prosecution against Mr. Capone. They never succeeded.

The income tax prosecution of Capone was remarkable. Absent any paper trail, it was difficult to secure the evidence to convict Capone and his colleagues of income tax evasion. People with knowledge of the group’s financial transactions were reluctant witnesses because of fear of the potential consequences. Even so, Capone was eventually sentenced to 10 years for income tax evasion, and his conviction had important consequences for the tax system. His conviction inspired colleagues to engage in “voluntary disclosure” of undeclared income. They paid hundreds of thousands of dollars – in cash of course – to avoid similar prosecution. And so we see Capone’s legacy in Canada’s current voluntary disclosure program.

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