When Microsoft launched ACTS, our Anti-Corruption Technology and Solutions initiative in December 2020, we knew we could not do this alone. We were counting on a great network of partners to help us take bold steps against corruption.
One such partner is HMX.ai, formerly SmartCloud. Founded in 2009, HMX.ai delivers industrial-strength AI tools that help its customers manage utility grids, manufacturing plants, oil and gas infrastructure, and much more.
Every year, countries around the world lose billions of dollars to tax avoidance and tax fraud. In some countries, tax fraud can amount to as much as seven percent of its GDP. This means much less money for education, health care, or infrastructure.
Not the usual “black box”
HMX.ai’s innovative approach to detecting fraud goes beyond the usual pattern detection and analytics that take place in a “black box,” in which no one really knows how the model reached a conclusion. With its Tax Intelligence System (TIS), HMX.ai finds potentially noncompliant vendors or other taxpaying entities and provides a rationale for its findings in the user’s language. That gives government officials better context to understanding how tax fraud may be occurring.
As Valentina Ion, Director Business Strategy for Tax, Revenue, and Public Finance at Microsoft notes, the COVID-19 pandemic has created opportunities for fraud and corruption of all types. “There’s always a lot of scrutiny on the public finance sector,” Ion says. “But even more so now, because more than $19 trillion has been spent on economic stimulus packages to help rebuild economies. Clearly, fraudsters will always take advantage of crisis moments.”
For instance, a company may reduce or inflate the value of items bought or sold to reduce the tax (usually a value added tax, or VAT) owed on goods or services. That can be hard to catch, given the large sums now being spent by public agencies.
In Brazil, for instance, HMX.ai built an AI tool with Microsoft Azure that allows tax collectors in one of the large Brazilian states to monitor tax transactions.
“We’re monitoring real-time transactions to make sure they comply with VAT regulations,” says Michael Barnett, Executive Vice President for cognitive engineering at HMX.ai. “We took manual processes and applied AI and machine learning to help the tax authorities flag situations that show the potential for fraud. The tool finds real examples of fraud, not things like a person making a mistake.”
First released in 2019, HMX.ai’s TIS is now in its third iteration. Because of its easy scalability and powerful analytics, it has the potential to adapt to a wide range of anti-corruption measures.
“HMX.ai could be a key partner for ACTS,” Ion says. “They’re able to develop machine learning and AI models that help define who is compliant (with tax or other regulations) and who is not.”
Pictured above: Michael Barnett uses HMX.ai’s Tax Intelligence System built on Microsoft technology to help customers discover potentially noncompliant activities.
Microsoft Azure creates power and flexibility
HMX.ai developed its AI platform on Microsoft technology. It used Microsoft’s F# functional programming language for its core cognitive reasoning engine and Power BI for delivery of its recommendations. A big part of the power for HMX.ai’s solution comes from its construction as a Microsoft Azure–native product. That gives it the flexibility to scale up and down as needed and the power to run the most sophisticated AI applications.
“Azure also helps us build a hybrid, public-private cloud,” Barnett says. “That’s beneficial to customers who are more sensitive to keeping their data on-site. Moreover, Microsoft keeps adding capabilities to Azure that let us add value to our solution.”
In the first year of its deployment in Brazil, HMX.ai’s TIS recovered $20 million that went back into the provincial budget. That was about a seven percent increase in revenue collection, versus about one percent for other Brazilian states. Moreover, tax authorities say their audit efficiency has increased by some 80 percent.
In HMX.ai, Ion says Microsoft has found a partner that understands fraud problems and has the technological skills to build powerful tools to challenge tax fraud. Microsoft Azure also gives companies such as HMX.ai the ability to deploy big, powerful solutions rapidly. “You don’t have to spend time acquiring hardware and software,” Ion says. “It even allows a company like HMX.ai to run their solution where there is no internet connectivity, which is relevant for remote areas or countries that lack a strong internet.”
Here at Microsoft ACTS, we’re thrilled by the potential HMX.ai’s TIS has shown. We believe it’s a powerful tool that can be deployed globally to reduce tax fraud and give governments more resources to devote to their citizens’ needs.