6 ms·

Using Foursquare to Detect Tax Evasion / Money Laundering

27 points by dbuthay 14y ago

alecdibble 14y ago
The difficulty is in the details. Normalizing would have to account for a variety of different variables such as location, average age/customer base, average revenue per customer, etc. Furthermore, you would need all of that data many different businesses to even be able to build your normalization. Sure, you could do a subpar job with the normalization but then that will increase your false positives and decrease confidence in the method.
arscan 14y ago
Perhaps a slightly more realistic usage would be for financial analysts to use the data as a (weak) signal as to whether or not companies are on track to meet their earnings expectations. I believe that they have gone as far as to buy satellite pictures of parking lots (empty/full) to try to gauge how well big retailers are doing...
- deleted 14y ago
  [deleted]
staunch 14y ago
Related question. Am I wrong in assuming virtually every business that has a "cash only" policy does so to facilitate tax fraud? I know there are legit exceptions, but isn't this the main reason they do it?
- sulife 14y ago
  Avoid CC fees.
- grgbrn 14y ago
  I always assumed it was to avoid card swipe fees. Margins at small restaurants can be incredibly thin, so a percent or two off each transaction could make a big difference.
- ChuckMcM 14y ago
  You would be wrong in that assumption. Some businesses don't like paying the additional fees charged by banks when you use a credit card, they can be up to 8.5% according to a friend of mine that runs a locksmith. He would rather give 8.5% more service to the folks who come in the door. He has an ATM on site that will let you get a cash advance on your credit card if all you brought was plastic. It has a $3 transaction fee (plus what ever your bank charges). When people complain he says, "you can pay it or you can pay it." Then explains that he (like everyone else) would simply raise his price making that fee 'invisible' to you and let the banks get away with it. This way you have a choice (of sorts).
  - larrys 14y ago
    Fees are nowhere 8.5% I've never heard that and have had a merchant account since the 80's at several businesses. Not taking credit cards will cost you business in a retail location.
    - learc83 14y ago
      The actual fee charged could be close to 8.5% if you are charging mostly small transactions b/c they usually charge a percent plus a flat $0.30 fee. Say you charge the customer $5: 2% + $0.30 is $0.40--8% of the total.
    - jonknee 14y ago
      It depends on your transaction amount, the fees can easily exceed 8.5%. When I had no change the other day and paid 45 cents at a parking station with a credit card I can guarantee the fees were more than 8.5%.
      - larrys 14y ago
        We're talking about merchant fees here. Not what a credit card user pays etc.
        jonknee 14y ago
- fleitz 14y ago
  Cash can be spent immediately, CC receipts not so much. In the case of CC you'll get a payment 30 days later, so in VISA vs. cash, you're not getting the interest on the money, if you need to use the money you'll have to pay your bank interest, and you'll pay a processing fee on top of it. About the only advantage CC has is that it's difficult for employees to steal from the register, so instead they steal the magstrips.
  - larrys 14y ago
    "In the case of VISA you'll get a payment 30 days later, so in VISA vs. cash, you're not getting the interest on the money," Wha? I get my Visa money within a day or two.
    - jtbigwoo 14y ago
      Amex and Diner's Club were the bad ones in my experience--regularly taking 30+ days to pay.
- rmc 14y ago
  Credit card fees cost money and credit card companies don't let retailers charge a higher price for credit card transactions, so the retailer has to get the hit. However if your plumber or tradesperson gives a lower price for cash, then that's probably tax evasion.
bluetidepro 14y ago
I highly doubt the government would trust a service like that for such problems or even waste their valuable time. I'm sure they have much more efficient ways of detecting this then trying to sift through that junk. It's also very easy to manipulate check-in's (Foursquare specifically), in respect to checking into locations when you don't actually have to be there, physically. And as far as Facebook goes, you can check others into a location, which could easily spike false information.
- diego 14y ago
  I guess the more general point I was thinking about is that there are tons of new signals that governments or private groups could use to assess all sorts of activities. For example the government has easy access to cellphone density data from carriers, which would be harder to game. Foursquare check-ins could be a cheap way to decide which places to look into first.
- mc32 14y ago
  I've heard, no first-person knowledge here, that upon suspecting a business, taxation agencies are not unknown to send out a person with a clicker to tally patronage during spcific time periods and see if that lines up with their expectations and what the business reports. As others have said, this could be one of many signals to use in determining who to follow up on.
  - rmc 14y ago
    I've heard of tax inspectors counting the cars parked outside small businesses to get an idea of number of customers.
IndianGuy79 14y ago
A good exercise, but nothing beyond that. Too many factors based on assumption. Also repeat visitors tend to skip continued the check-ins after the novelty of it wears down (unless there are extremely good reward offers associated with number of check-ins).
- diego 14y ago
  As long as the "repeat visitors" pattern is the same across business categories, it wouldn't add noise. There are always first-time visitors.
csense 14y ago
The effect is probably real, but the problem is the correlation coefficient probably varies over space and time. E.g. you probably have a lot more Foursquare users in Silicon Valley than in Smalltown, USA. Also, Foursquare probably has its popularity change over time. Right now it's still a little new and shiny, but its popularity might change over time. If it was the only information available, it would be better than nothing. But your proposed method would be extremely noisy and unreliable.
- diego 14y ago
  The good thing is that it's not the only information available, just one more signal. And what's wrong with trying it out only in the Bay Area and New York, for example?
  - mark242 14y ago
    "Hey everyone! The IRS is using your check-in data to police the places that you frequent!" I'm sure nothing bad at all would happen upon people reading that headline.
    - diego 14y ago
      Well, perhaps it's already happening. After all, you're voluntarily publishing your location in real-time to the world when you check into Foursquare. I find it interesting that we do this naturally and without thinking twice about it. Ten years ago the idea might have seemed preposterous.
mark242 14y ago
The example to date is the Eiffel Tower, with 36429 checkins over the 3 years of Foursquare's existence. Approximately 6.8 million people visit the Eiffel Tower each year. It doesn't take a math major to realize that this is a laughable idea.
- diego 14y ago
  Probably the majority of those check-ins happened in the past year. Also, look at a Starbucks near where I live: https://developer.foursquare.com/docs/explore#req=venues/49fa1dc1f964a520c16d1fe3 https://developer.foursquare.com/docs/explore#req=venues/49f... Over 10k check-ins, and I doubt it has 2 million visitors per year. Please elaborate on why you believe this is a laughable idea just from a numerical standpoint.
  - mark242 14y ago
    OMFG Starbucks reported $3B in revenue this past quarter, but this store only has 10k checkins! Send in the G-Men, they must be laundering money! Come on, seriously.
    - diego 14y ago
      That's nonsense. There are 20k Starbucks in the world, this is one. http://en.wikipedia.org/wiki/Starbucks http://en.wikipedia.org/wiki/Starbucks
      - mark242 14y ago
        Congratulations on completely missing my point. You say that this could be yet another datapoint for the IRS to collect taxes with. The example you use has the number of Foursquare (and I'm sure Facebook) checkins within the statistical amount of noise for the actual number of people who visit the venue. The example you give in this thread is a corporation who undoubtably has a team of dozens if not hundreds of tax attorneys on staff to ensure that the company pays exactly the amount of tax they owe, at the federal state and local levels, and not one cent more or less. But let's take it a step further, and say that Joe's Ajax Factory in East Blogentry, California is skimming off the register. Okay-- so now you need some city clerk in East Blogentry to run this magical data analysis software which says Joe isn't putting enough into the city coffers? Again-- this is a laughable idea. Even if the software were completely accurate (which is impossible) and admissible for a local tax audit (which it wouldn't be), and the amount of local taxes that you recouped were more than the TCO of this software (which it wouldn't be), you're assuming that the unscrupulous store owner (undoubtably laundering money a la Office Space) would just sit back and take it?
DanielBMarkham 14y ago
You can slice this the other way also: using check-ins for a particular person to track where they visit. If their reported income is low, yet they check-in regularly at expensive restaurants and travel the globe, you've probably got a tax cheat in there somewhere or another. Seriously, I have no idea why we discuss some of this stuff. It only serves to give ammo for other people to monitor and control us in ways they never have before.
- heretohelp 14y ago
  I had the same reaction, this stuff makes me queasy. I don't like tax cheats, but a tax cheat isn't going to imprison me for having the wrong opinions.
  - DanielBMarkham 14y ago
    We have to remember that our set of laws was designed with a huge amount of slack. You can have a speed limit that nobody follows because hardly anybody gets caught. Once you start catching everybody, you've changed the social dynamic just by following the rules more strictly. This kind of thing is a huge deal. For decades politicians have spit-balled new laws that, even though passed, don't amount to squat because nobody can figure them out or enforce them. The more we automate this stuff the more miserable all of our lives will be. This kind of thing is not good at all. Can emphasize enough how these technological developments are a terrible evil (and I love technology)
    - rdtsc 14y ago
      There is a differentiation here that needs to be made. There is a problem if laws are so complicated and so strict and everyone ends up breaking them, the problem becomes a serious problem once the government has the ability to collect and record all times someone broke the law and then decide, later, for some possibly unrelated reason, to selectively enforce it. Then a history of law breakage can be use for blackmail, threats, for silencing for coercing. You are caught at an Occupy event and booked in. You are taken to the station and they pull up the fact that a speed camera caught you going 20 mph over speed limit. "5 years ago, it looks like IRS detected a tax discrepancy in your reporting, it would be a shame if they started an audit...maybe you should stop being involved in this movement", stuff like that. I would almost more surprised if it won't happen sometime in the near future than if it does happen.
fleitz 14y ago
Statistically it's horrible, however, it's probably good enough that some politician will make the IRS do this and now businesses will concern themselves with ensuring they have the right number of checkins. Luckily it should be a great business to ensure that local businesses get the right number of checkins.
danso 14y ago
I'm all for unique uses of programmatic data collection, but this is a huge, huge stretch, with no practical implementation details.
xmmx 14y ago
tldr: just because lots of people use foursquare there should be a direct correlation between check-in's and revenue; this method should be used by the IRS when collecting taxes. Are you serious? This is no way front page HN worthy. This is the worst thing I've read since that "wake up at 5am and eat a slice of ham to start my metabolism" trash.
rmc 14y ago
Conversely if you have a grudge against a neighbouring business, make lots of fake accounts, check in there on foursquare to make the tax collectors think something is up.
bigfrakkinghero 14y ago
This seems to me like it would be an interesting hypothesis for a an experiment, but a bad idea to suggest/encourage in any "real" (IRS) capacity. Academically the idea is interesting, but the thought of this being actually implemented is a little scary. ... but you could say the same thing about a lot of other areas of research, too. Face detection at Facebook's scale, for example: really cool academically and potentially really scary in application.
wangarific 14y ago
If you've ever seen the code behind what the IRS uses today, you'd realize that it couldn't possible integrate with anything, let alone it's own systems. Plus this doesn't work for so many reasons, many of which people have outlined here.

27 points by dbuthay 14y ago

The difficulty is in the details. Normalizing would have to account for a variety of different variables such as location, average age/customer base, average revenue per customer, etc. Furthermore, you would need all of that data many different businesses to even be able to build your normalization. Sure, you could do a subpar job with the normalization but then that will increase your false positives and decrease confidence in the method.

arscan 14y ago

Perhaps a slightly more realistic usage would be for financial analysts to use the data as a (weak) signal as to whether or not companies are on track to meet their earnings expectations. I believe that they have gone as far as to buy satellite pictures of parking lots (empty/full) to try to gauge how well big retailers are doing...

deleted 14y ago
[deleted]

staunch 14y ago

Related question. Am I wrong in assuming virtually every business that has a "cash only" policy does so to facilitate tax fraud? I know there are legit exceptions, but isn't this the main reason they do it?

sulife 14y ago
Avoid CC fees.
grgbrn 14y ago
I always assumed it was to avoid card swipe fees. Margins at small restaurants can be incredibly thin, so a percent or two off each transaction could make a big difference.
ChuckMcM 14y ago
You would be wrong in that assumption. Some businesses don't like paying the additional fees charged by banks when you use a credit card, they can be up to 8.5% according to a friend of mine that runs a locksmith. He would rather give 8.5% more service to the folks who come in the door. He has an ATM on site that will let you get a cash advance on your credit card if all you brought was plastic. It has a $3 transaction fee (plus what ever your bank charges). When people complain he says, "you can pay it or you can pay it." Then explains that he (like everyone else) would simply raise his price making that fee 'invisible' to you and let the banks get away with it. This way you have a choice (of sorts).
- larrys 14y ago
  Fees are nowhere 8.5% I've never heard that and have had a merchant account since the 80's at several businesses. Not taking credit cards will cost you business in a retail location.
  - learc83 14y ago
    The actual fee charged could be close to 8.5% if you are charging mostly small transactions b/c they usually charge a percent plus a flat $0.30 fee. Say you charge the customer $5: 2% + $0.30 is $0.40--8% of the total.
  - jonknee 14y ago
    It depends on your transaction amount, the fees can easily exceed 8.5%. When I had no change the other day and paid 45 cents at a parking station with a credit card I can guarantee the fees were more than 8.5%.
    - larrys 14y ago
      We're talking about merchant fees here. Not what a credit card user pays etc.
      - jonknee 14y ago
fleitz 14y ago
Cash can be spent immediately, CC receipts not so much. In the case of CC you'll get a payment 30 days later, so in VISA vs. cash, you're not getting the interest on the money, if you need to use the money you'll have to pay your bank interest, and you'll pay a processing fee on top of it. About the only advantage CC has is that it's difficult for employees to steal from the register, so instead they steal the magstrips.
- larrys 14y ago
  "In the case of VISA you'll get a payment 30 days later, so in VISA vs. cash, you're not getting the interest on the money," Wha? I get my Visa money within a day or two.
  - jtbigwoo 14y ago
    Amex and Diner's Club were the bad ones in my experience--regularly taking 30+ days to pay.
rmc 14y ago
Credit card fees cost money and credit card companies don't let retailers charge a higher price for credit card transactions, so the retailer has to get the hit. However if your plumber or tradesperson gives a lower price for cash, then that's probably tax evasion.

bluetidepro 14y ago

I highly doubt the government would trust a service like that for such problems or even waste their valuable time. I'm sure they have much more efficient ways of detecting this then trying to sift through that junk. It's also very easy to manipulate check-in's (Foursquare specifically), in respect to checking into locations when you don't actually have to be there, physically. And as far as Facebook goes, you can check others into a location, which could easily spike false information.

diego 14y ago
I guess the more general point I was thinking about is that there are tons of new signals that governments or private groups could use to assess all sorts of activities. For example the government has easy access to cellphone density data from carriers, which would be harder to game. Foursquare check-ins could be a cheap way to decide which places to look into first.
mc32 14y ago
I've heard, no first-person knowledge here, that upon suspecting a business, taxation agencies are not unknown to send out a person with a clicker to tally patronage during spcific time periods and see if that lines up with their expectations and what the business reports. As others have said, this could be one of many signals to use in determining who to follow up on.
- rmc 14y ago
  I've heard of tax inspectors counting the cars parked outside small businesses to get an idea of number of customers.

IndianGuy79 14y ago

A good exercise, but nothing beyond that. Too many factors based on assumption. Also repeat visitors tend to skip continued the check-ins after the novelty of it wears down (unless there are extremely good reward offers associated with number of check-ins).

diego 14y ago
As long as the "repeat visitors" pattern is the same across business categories, it wouldn't add noise. There are always first-time visitors.

csense 14y ago

The effect is probably real, but the problem is the correlation coefficient probably varies over space and time. E.g. you probably have a lot more Foursquare users in Silicon Valley than in Smalltown, USA. Also, Foursquare probably has its popularity change over time. Right now it's still a little new and shiny, but its popularity might change over time. If it was the only information available, it would be better than nothing. But your proposed method would be extremely noisy and unreliable.

diego 14y ago
The good thing is that it's not the only information available, just one more signal. And what's wrong with trying it out only in the Bay Area and New York, for example?
- mark242 14y ago
  "Hey everyone! The IRS is using your check-in data to police the places that you frequent!" I'm sure nothing bad at all would happen upon people reading that headline.
  - diego 14y ago
    Well, perhaps it's already happening. After all, you're voluntarily publishing your location in real-time to the world when you check into Foursquare. I find it interesting that we do this naturally and without thinking twice about it. Ten years ago the idea might have seemed preposterous.

mark242 14y ago

The example to date is the Eiffel Tower, with 36429 checkins over the 3 years of Foursquare's existence. Approximately 6.8 million people visit the Eiffel Tower each year. It doesn't take a math major to realize that this is a laughable idea.

diego 14y ago
Probably the majority of those check-ins happened in the past year. Also, look at a Starbucks near where I live: https://developer.foursquare.com/docs/explore#req=venues/49fa1dc1f964a520c16d1fe3 https://developer.foursquare.com/docs/explore#req=venues/49f... Over 10k check-ins, and I doubt it has 2 million visitors per year. Please elaborate on why you believe this is a laughable idea just from a numerical standpoint.
- mark242 14y ago
  OMFG Starbucks reported $3B in revenue this past quarter, but this store only has 10k checkins! Send in the G-Men, they must be laundering money! Come on, seriously.
  - diego 14y ago
    That's nonsense. There are 20k Starbucks in the world, this is one. http://en.wikipedia.org/wiki/Starbucks http://en.wikipedia.org/wiki/Starbucks
    - mark242 14y ago
      Congratulations on completely missing my point. You say that this could be yet another datapoint for the IRS to collect taxes with. The example you use has the number of Foursquare (and I'm sure Facebook) checkins within the statistical amount of noise for the actual number of people who visit the venue. The example you give in this thread is a corporation who undoubtably has a team of dozens if not hundreds of tax attorneys on staff to ensure that the company pays exactly the amount of tax they owe, at the federal state and local levels, and not one cent more or less. But let's take it a step further, and say that Joe's Ajax Factory in East Blogentry, California is skimming off the register. Okay-- so now you need some city clerk in East Blogentry to run this magical data analysis software which says Joe isn't putting enough into the city coffers? Again-- this is a laughable idea. Even if the software were completely accurate (which is impossible) and admissible for a local tax audit (which it wouldn't be), and the amount of local taxes that you recouped were more than the TCO of this software (which it wouldn't be), you're assuming that the unscrupulous store owner (undoubtably laundering money a la Office Space) would just sit back and take it?

DanielBMarkham 14y ago

You can slice this the other way also: using check-ins for a particular person to track where they visit. If their reported income is low, yet they check-in regularly at expensive restaurants and travel the globe, you've probably got a tax cheat in there somewhere or another. Seriously, I have no idea why we discuss some of this stuff. It only serves to give ammo for other people to monitor and control us in ways they never have before.

heretohelp 14y ago
I had the same reaction, this stuff makes me queasy. I don't like tax cheats, but a tax cheat isn't going to imprison me for having the wrong opinions.
- DanielBMarkham 14y ago
  We have to remember that our set of laws was designed with a huge amount of slack. You can have a speed limit that nobody follows because hardly anybody gets caught. Once you start catching everybody, you've changed the social dynamic just by following the rules more strictly. This kind of thing is a huge deal. For decades politicians have spit-balled new laws that, even though passed, don't amount to squat because nobody can figure them out or enforce them. The more we automate this stuff the more miserable all of our lives will be. This kind of thing is not good at all. Can emphasize enough how these technological developments are a terrible evil (and I love technology)
  - rdtsc 14y ago
    There is a differentiation here that needs to be made. There is a problem if laws are so complicated and so strict and everyone ends up breaking them, the problem becomes a serious problem once the government has the ability to collect and record all times someone broke the law and then decide, later, for some possibly unrelated reason, to selectively enforce it. Then a history of law breakage can be use for blackmail, threats, for silencing for coercing. You are caught at an Occupy event and booked in. You are taken to the station and they pull up the fact that a speed camera caught you going 20 mph over speed limit. "5 years ago, it looks like IRS detected a tax discrepancy in your reporting, it would be a shame if they started an audit...maybe you should stop being involved in this movement", stuff like that. I would almost more surprised if it won't happen sometime in the near future than if it does happen.

fleitz 14y ago

Statistically it's horrible, however, it's probably good enough that some politician will make the IRS do this and now businesses will concern themselves with ensuring they have the right number of checkins. Luckily it should be a great business to ensure that local businesses get the right number of checkins.

danso 14y ago

I'm all for unique uses of programmatic data collection, but this is a huge, huge stretch, with no practical implementation details.

xmmx 14y ago

tldr: just because lots of people use foursquare there should be a direct correlation between check-in's and revenue; this method should be used by the IRS when collecting taxes. Are you serious? This is no way front page HN worthy. This is the worst thing I've read since that "wake up at 5am and eat a slice of ham to start my metabolism" trash.

rmc 14y ago

Conversely if you have a grudge against a neighbouring business, make lots of fake accounts, check in there on foursquare to make the tax collectors think something is up.

bigfrakkinghero 14y ago

This seems to me like it would be an interesting hypothesis for a an experiment, but a bad idea to suggest/encourage in any "real" (IRS) capacity. Academically the idea is interesting, but the thought of this being actually implemented is a little scary. ... but you could say the same thing about a lot of other areas of research, too. Face detection at Facebook's scale, for example: really cool academically and potentially really scary in application.

wangarific 14y ago

If you've ever seen the code behind what the IRS uses today, you'd realize that it couldn't possible integrate with anything, let alone it's own systems. Plus this doesn't work for so many reasons, many of which people have outlined here.