Investing in IVIX, the First Tech Platform to Combat the Shadow Economy

Tax evasion has long bedeviled governments around the world, and today the annual loss of some $6T in tax revenues hinders national recovery efforts in the wake of the COVID pandemic. The problem is driven in great part by the “shadow economy,” the $20T sector of “off-the-books” work that encompasses underreported business profits, unreported cash-based transactions, and what the International Monetary Fund (IMF) calls “activities, both legal and illegal, that add up to trillions of dollars a year [and] take place…out of the gaze of taxmen and government statisticians.” In the United States alone, the federal tax gap relating to the shadow economy is $1T per year.

While tax authorities have access to immense amounts of internal data, they often lack both the resources and the publicly available data sources to use it to its fullest extent. The US Internal Revenue Service (IRS) forms an excellent case study: understaffed and reliant on cumbersome, often manual processes, the agency reviewed only 0.5% of tax audit cases in 2018—an all-time low—and collects, on average, less than 0.1% of its annual tax gap every year. This creates a massive opportunity to help close this gap by making it easier for tax authorities to discover and collect from tax evaders.

Given Citi’s long history of supporting governments around the world, we were intrigued to learn about the anti-tax evasion startup IVIX. Headquartered in New York, IVIX was co-founded by Matan Fattal—an experienced entrepreneur and mathematician who co-founded the Citi Ventures portfolio company Silverfort in 2016 and is now IVIX’s CEO—and Doron Passov, IVIX’s Chief Product Officer. Both are former members of elite intelligence units of the Israeli Defense Force, which once honored Matan for his work as a cybersecurity and big data researcher. In addition to this strong tech talent, the company has recruited a number of former IRS executives to its advisory board, including two former IRS commissioner and a recently retired head of criminal investigations.

The result is the first technology platform purpose-built to combat the shadow economy. IVIX taps publicly available data and applies a deterministic and AI-driven algorithm to create an accurate picture of an entity’s annual earnings and cross-reference it against the files that tax collection officials maintain on each taxpayer. When a gap is detected between the reported income and IVIX’s findings, IVIX’s platform triggers a flag for the tax authority—including a full picture of business activity—enabling the tax authority to handle the case efficiently as they see fit.

Now emerging from stealth mode, IVIX has powerfully demonstrated its accuracy, scalability, and transformative ability to deter tax evasion and increase compliance. Already deployed in the tax authorities of several Organisation for Economic Co-operation and Development (OECD) countries, IVIX has helped them quickly identify numerous tax infringements with 93.5% accuracy. Importantly, the technology also satisfies stringent global fiscal standards regarding security, confidentiality, and privacy.

As frequent partners and solution providers to the public sector, Citi Treasury & Trade Solutions (TTS) is well aware of governments’ need to digitize key processes and leverage technology to achieve their desired outcomes. As Citi Ventures noted in a recent Business Insider article, we also understand that countries' debt is at an all-time high after a year and a half of providing COVID-related economic aid—and reducing the tax gap is a way to refill national coffers without raising taxes. In IVIX, we see a platform that will enable governments to generate the maximum tangible benefit for their citizens with minimal political cost.

To that end, Citi Ventures has now joined with Team8, Cardumen Capital, and private investors in a $13MM seed funding round for IVIX. We congratulate Matan, Doron and the entire IVIX team on their groundbreaking new technology, and we’re proud to join them in their entry into this promising and critically important new market.

For more information, contact Luis Valdich at luis.valdich@citi.com, Ornit Shinar at ornit.shinar@citi.com or Avi Arnon at avi.arnon@citi.com.