[PDF] - What is a tax crime? England and Wales Fraud (s1 Fraud Act 2006) PDF Document

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Tax Crimes – Times are changing?

Comsure Breakfast Briefing 11th June 2015 Pomme D’Or Hotel

Simon Thomas Advocate

What is a “tax crime”?

England and Wales

Fraud (s1 Fraud Act 2006)
False Accounting (s17 Theft Act 1968)
Fraudulent evasion of VAT (s72(1) VATA

1994)

Fraudulent evasion of Income Tax (s144 FA

2000)

Cheating the revenue – common law
Each requires mental element

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Jersey

Income Tax (Jersey) Law 1961, art 137
False Accounting
“Foster” fraud

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Elsewhere

Criminality requires intention, e.g. in US

– Attempting to evade or defeat tax – Wilful failure to collect or pay over tax – Fraud and false statements – Conspiracy to commit an offence or defraud the United States

Local legislation elsewhere

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How could finance industry become involved in tax crime?

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Potential impact on finance industry

Money Laundering
Failed tax avoidance schemes
Aiding & abetting another’s tax evasion

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Money Laundering

Proceeds of Crime (Jersey) Law, 1999

– Assisting another to retain the benefit of criminal conduct – Acquiring, possessing or using the proceeds of criminal conduct – Concealing or transferring the proceeds of criminal conduct

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What is “criminal conduct”

POC(J)L art 1(1)

“criminal conduct” means conduct that – (a) constitutes an offence specified in Schedule 1; or (b) if it occurs outside Jersey, would have constituted such an offence if it had occurred in Jersey;

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What is “criminal conduct”

POC(J)L, Schedule 1

“any offence for which a person is liable on conviction to imprisonment for a term of one

r more years…”

– Article 137 Income Tax (Jersey) Law 1961 – Offence committed fraudulently (up to 15 years) – Offence committed negligently (fine)

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Suspicion and requirement to report

POC(J)L article 32A

IF

A person suspects that another is

engaged in money laundering AND

The information on which suspicion is

based came to his/her attention in the course of trade, business or employment

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Suspicion and requirement to report

MUST

Disclose suspicion and information upon

which is it based to a police officer

In good faith
As soon as practicable after information

came to attention PENALTY

Up to 5 years imprisonment

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Failed Tax Avoidance

Scheme to avoid tax
Failed as a matter of technical tax law
Requires prosecution to prove dishonesty
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– The taxpayer and/or – The adviser/individual who devised scheme

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Aiding and abetting another’s tax evasion

Jurisdictional issues around prosecution
Is there some conduct sufficiently proximate to

the UK for the jurisdiction of its criminal Courts to be triggered?

E.g. Accountant based in Jersey instructs UK

bank, either by telephone or fax, to transfer client monies to foreign account

Might amount to aiding and abetting another’s

fraud

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The reality of prosecution

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Jersey

Money Laundering
Aiding & abetting
Regulatory offences

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England and Wales Traditionally

Distinction between evasion & avoidance
“Every man is entitled if he can to order his affairs so that

the tax attracted under the appropriate Act is less than it

therwise would be. If he succeeds in ordering them so

as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.” Per Lord Tomlin in IRC v. Duke of Westminster (1936)

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England and Wales Traditionally

HMRC preference for civil penalty over

criminal prosecution

– Guaranteed favourable financial outcome – Prosecution relies on jury – Criminal trials lengthy and expensive – Reserved for most egregious cases?

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England and Wales The changing position

“Since 2010 HMRC has changed its approach to tackling criminal tax evasion with a fivefold increase in criminal prosecutions for mass market or “volume crimes” (investigations across trade sectors) intended to produce deterrent prosecutions” “Tackling tax evasion and avoidance”. Chief Secretary to the Treasury March 2015

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England and Wales The changing position

“it is unfair that those who can afford to use expensive offshore banks and complex financial structures can evade their responsibility to pay the taxes which fund vital public services” David Gauke – Financial Secretary to Treasury – August 2014

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England and Wales The changing position

“Tax evasion has to be dealt with robustly all the time. But in a recession, when ordinary law-abiding tax payers are suffering real hardship, the need to deter, detect and prosecute those who evade tax is greater than ever.”

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England and Wales The changing position

“The criminals who perpetuate tax fraud may be our neighbours, our friends, the people we talk to on the bus, or even seemingly esteemed professionals, but their gain is our

loss. And at the heart of any complex fraud

is one simple notion and something that any jury member can understand – dishonesty…”

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England and Wales The changing position

“ The criminal justice response to this dishonesty has to be clear and firm. So let me be clear and firm: a scheme may be devised by an experienced – but corrupt – tax profession. It may be clever and

complex. And it may seem to offer easy
wins. But no scheme is too clever or

complex to be detected, to be put before a jury and to be found to be illegal.”

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England and Wales The changing position

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Number of prosecutions

2012 – 2103:

617 Prosecutions

2013 – 2014:

795 Prosecutions

2014 – 2015:
c. 1165 Prosecutions
Prosecution of “low hanging fruit” to meet

targets?

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Failed Tax Avoidance Schemes

“… The distinction between lawful tax avoidance and

illegal tax evasion is well-known. Tax-saving schemes that involve transactions having little or no commercial benefit apart from the scheme are a common feature of commercial life. In the absence of statutory criminal prohibitions, the transactions involved in the scheme and the scheme itself are lawful. Whether the scheme is effective depends on the provisions of the tax legislation in question. Tax-saving crosses the border from lawful to criminal when it involves the deliberate and dishonest making of false statements to the revenue…” R v. Commissioners of Inland Revenue and Kingston Crown Court ex parte John [2001] EWHC Admin 581

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Political messages

David Cameron, June 2012
“… some of these schemes we have seen are

quite frankly morally wrong. People work hard, they pay their taxes, they save up to go to one of his shows. They buy the tickets. He is taking the money from those tickets and he, as far as I can see, is putting all of that into some very dodgy tax avoiding schemes.”

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Political messages

Ed Milliband, February 2015
What we are seeing is the growth of hugely

complex and aggressive tax avoidance schemes,

ften based offshore.
Tax avoidance has left the United Kingdom a £34

billion hole in our nation’s finances. That’s twice the total of all the tax paid by hard working families and businesses in Wales. And it is a deeply divisive injustice for the vast majority of British people and British businesses who pay their taxes

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Moral fluidity?

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What if public perception has changed

between date of implementation and date

f investigation?
What about..

– Artificiality? – Shoddy implementation?

Tax Evasion prosecution

Prosecution for failed tax avoidance

scheme

Taxpayer and/or adviser in the dock
Prosecution to prove:

i) Scheme unsuccessful as matter of technical tax law; AND ii) Defendant was dishonest

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Tax Evasion Prosecution

Taxpayer/Tax adviser says he was not

acting in a way that the reasonable man would consider dishonest

OR if he was he did not think he was

dishonest

Conviction?

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The subjective test

Jury to ask itself…. “Did the defendant himself realise that what he did was dishonest? It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if he asserts or genuinely believes that he is morally justified in acting as he did.”

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The reality

Prosecutors want hard evidence
Documents (e.g. false invoices)
Artificial/complex structures
Proof of knowledge
Evidence of collusion (e.g. between advisor

& tax payer)

Not merely failure on technical grounds

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When HMRC will prosecute

Individuals holding a position of trust and responsibility
Materially false statements
Materially false documents provided in course of civil

investigation

In avoidance scheme, reliance placed on false/altered

documents or material facts misrepresented to enhance credibility of scheme

Deliberate concealment, deception, corruption or

conspiracy suspected

Money laundering, especially if professionals have

assisted

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New tax crimes?

HMRC Consultation 2014

“offshore tax evasion has been a blight for too long, and it is time that those who exploit

ffshore arrangements to avoid paying their

fair share face the consequence of their

action. Our message is clear: if you are

hiding undeclared income offshore HMRC is closing in on you. So come forward now before they come to you.”

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Strict liability criminal offence

Failing to declare taxable income and gains
ffshore
Prosecution has to prove failure, not intention.
Very few strict liability offences in tax law hitherto

(concurrence of civil penalties?)

Sentence?

– Unlimited financial penalty? – Maximum penalty of twice evaded tax? – Custodial sentences?

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Strict liability?

Importance of intent (mental element) in

criminal law

What if person has acted on erroneous

advice?

Predicate offence?
Aiding and abetting?

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New corporate tax offence?

Corporate failure to prevent tax evasion
r facilitation of tax evasion
“to compliment the offences available for

individuals”

Change of emphasis
Passive instead of active criminality

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Overseas cases

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US Approach

Gather information on tax payers

– Clear cases for prosecution – Mine data and make links to give rise to further prosecutions – Real and present risk for offshore providers

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Information sources

“Offshore voluntary compliance initiative”
“Offshore voluntary disclosure programme”
Use of “John Doe” summonses
“Joint International Tax Shelter Information”
FATCA
TIEAs

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Swiss Bank Programme

Path for Swiss banks to resolve potential

criminal liability in the US

Banks required to advise by end of 2013 if

believed had committed tax-related criminal offences in connection with undeclared US related accounts.

Did not apply to those banks already being

investigated by the US authorities

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Swiss Bank Programme

Requirements

– Complete disclosure of cross-border activities – Detailed information on account by account basis where US taxpayers have interest – Provide information as to other banks that transferred or accepted funds – Pay penalties – Eligible for non-prosecution agreement

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“Whistleblowers”

Tax Relief and Health Care Act of 2006
“IRS Whistleblower rewards programme”
Incentive to identify persons or entities

underpaying their taxes in any way

Reward mandatory
Can be up to 30% of tax ultimately

collected

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Bradley Birkenfield

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Whistleblowers

Implications of large awards
Credibility issues
China said to be most prolific source of

whistleblowers after US

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Herve Falciani

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Banks pleading guilty

Credit Suisse – 2014
US AG: “extensive and wide ranging conspiracy

to hide taxes from the IRS and the bank’s involvement in it” – subverting disclosure requirements – Destruction of bank records – Offshore credit cards to repatriate funds to US – Accounts held in names of sham entities and foundations

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Banks pleading guilty

Co-operating witnesses

– Bankers pleading guilty and assisting prosecutors – Implication of other bankers – Lifting veil on institution

Fine of $1.13bn
$670m restitution

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US v. Raoul Weill

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Lessons for future?

Unlikely to dampen enthusiasm for

prosecution of bankers

Focus on those with client contact
Defendants lower down the pecking order
IRS intend to focus on foreign service

providers as well as bankers

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Protecting your business

Understand AML/KYC rules
Ensure proper disclosure under FATCA/SAR regimes etc.
Identify your vulnerabilities, the integrity of your AML

systems

Ensure your employees understand risks
Train employees to communicate effectively
Carry out a “wellness” check
Remedy any historic procedural problems
Review historic “problem” cases

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If in the spotlight

Better to be a witness than a subject
Investigators/Regulators more impressed if you’ve

identified problems before they call

Piece together records – how have employees interacted

with taxpayers?

Emails crucial
What, if anything are you missing?
Assess what investigators have
Can you control flow of information?
Importance of expert advice

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