Zappers & Phantom-Ware: A Global Demand for Tax Fraud Technology

27 Pages Posted: 2 Jun 2008 Last revised: 3 Dec 2019

See all articles by Richard Thompson Ainsworth

Richard Thompson Ainsworth

NYU - Graduate Tax Program; Boston University - School of Law

Date Written: June 2, 2008


There is a demand-market for technology that facilitates tax fraud. By all accounts the providers in this market are working in a growth industry.

In the short term this is bad news for those concerned with tax policy and information privacy. In the long term however, the fight against technology-assisted fraud is stimulating the development of a more robust technology base within tax administrations, and this is good news for those who believe that a sophisticated technological infrastructure is needed to resolve difficult questions of tax design.

This paper focuses on two technology-accelerants of SME tax fraud - zappers and phantom-ware. Zappers and phantom-ware are programs that are added-on (zappers) or factory installed (phantom-ware) to modern ECRs or point-of-sale (POS) systems. Some programs (zappers) have no legitimate purpose other than to facilitate cash skimming at the point-of-sale. Others programs (phantom-ware) may have legitimate (non-fraud) purposes, although these purposes are somewhat obscure (remote from normal business uses). Phantom-ware programs are frequently hidden (in the sense of not being disclosed in user manuals), making their use and even their existence difficult to detect on audit. With training a fraudster can skim cash receipts with phantom-ware as effectively as with a zapper.

The range of technology-regulation being considered by governments in response to these frauds stretches from the development of a centralized data-base to collect and retain all records of all retail sales in a jurisdiction; to mandatory government certification of each and every ECR in use in a jurisdiction; to direct encryption by the government of the raw transactional data passing through an ECR or POS system - without regard for the background system that generates it - a solution that has seen both market-segment and a whole-market permutations; to voluntary third-party encryption and third-party certification of ECRs. There are of course advocates for minimal regulation and traditional audit-enforcement, admittedly with significant enhanced technology training. The audit approach is most effective when there is authority to perform comprehensive audits - a simultaneous examination of all relevant taxes (income, consumption, and welfare levies).

One of the anomalies of this research is that there are very few reported cases of phantom-ware and zappers used in American to skim cash sales. What accounts for this omission?

There are two places to look for the answer: (1) relative tax rates - maybe the American tax rates are significantly different from those in the EU and Canada, and as a result there is no incentive to skim cash sales in America; or (2) enforcement efforts - maybe the American tax enforcement efforts are significantly different, and as a result we do not pick-up on all the technology-assisted fraud that is going on.

This paper suggests the problem is in the American enforcement regime.

Keywords: Zapper, phantom-ware, cash register, skimming, tax fraud, ECR, POS system

JEL Classification: H20, H26, H71, H00, K34, K42, O23, O33

Suggested Citation

Ainsworth, Richard Thompson, Zappers & Phantom-Ware: A Global Demand for Tax Fraud Technology (June 2, 2008). 50 Tax Notes International 1017 (June 23, 2008), Boston Univ. School of Law Working Paper No. 08-20, Available at SSRN: or

Richard Thompson Ainsworth (Contact Author)

NYU - Graduate Tax Program ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics