Tax Investigations

There has always been a significant use of tax legislation in the fight against serious and organised crime.  Al Capone was a raketeer, an extortionist and a murderer, yet was put behind bars for tax evasion.  Since the Proceeds of Crime Act 2002 this has become a common place theme and many criminals large and small who think they are in for an easy option by pleading to the seemingly lesser charges of tax fraud may be in for a a rude awakening when confiscation proceedings kick in.

So long as the tax authorities pursue a civil route with their investigations, a tax “avoider” or “evader” may look forward to paying the tax and penalties but escape the wrath of the criminal courts.  Once the criminal route is taken all bets are off!

I was involved in a case a couple of years ago involving a Hawala banker being investigated by NCIS in association with HMRC – such collaborative investigations are commonplace especially these days.  NCIS were investigating a gang of suspected drug traffickers and HMRC were looking at the unpaid tax by those suspected of laundering the money.

This Hawala banker had 40 bank accounts through which some £40,000,000 of funds were transferred over a four year period. Yet his tax returns showed that he was earning next to nothing!  HMRC decided to calculate his likely profits by considering two different ways in which the Hawalador might be making a profit:

  • The difference between income and expenditure – thus giving an overall profit or margin
  • As a % of money taken in for onward transmission

Both are very valid ways of roughly estimating levels of profit – on their own – only HMRC decided to add the results of both methods together and claim double the tax was owed!

That was one big clanger – then my examination of their workings showed that even in their actual calculations they had made 70 different and material arithmetical errors.

HMRC originally suggested that £1,000,000 was owed in tax.  I said it was likely to be around £30,000 to £100,000, at least £30,000 of which had already been paid by the Hawalador (i.e. it was possible that nothing was owed).  HMRC promptly dropped the claim within the criminal proceedings.

The Hawalador pleaded guilty to money laundering on the basis that subsequent confiscation proceedings would be limited to the meagre assets that he currently owned.  NCIS accepted this and the defendant went to prison for a short while.

Meanwhile HMRC passed the files to another of their departments who promptly put in a claim for the top level figure I had calculated (£100,000) in the full knowledge that the defendant had already had all his available assets confiscated.  The only outcome that could be obtained would be a judgement for the debt resulting in bankruptcy.

Now the defendant had been jailed and had lost everything – a good thing too – in a proportionate outcome as an unwitting and unexcusable negligent participant in crime.  What purpose was served in bankrupting him after the fact is not easily answered and the overall cost to the public purse should have been considered.

Two main lessons can be taken from this case that I was involved in:

1. It pays to examine and investigate any tax assessment raised by HMRC if they are using estimated means

2. HMRC can be quite tennacious in pursuing a result – it may pay to argue with them but please ensure that you are polite, reasonable, timely and measured in all your responses!

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About Mark Jenner

Mark Jenner is an experienced forensic accountant specialising in fraud and white collar criminal matters. He provides independent financial investigation and expert accounting witness services to police forces, fraud regulators and criminal defence lawyers, also providing assistance and solutions to organisations embroiled in financial disputes.

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