Tax Fraud in Financial Services

Transcription

1 Tax Fraud in Financial Services Innocent Until Proven Careless? Nick Skerrett Stephen Gentle 30 September 2014

2 Contents Where are financial institutions exposed to fraud? Civil enforcement Statutory tax evasion offences What is fraud? Who polices the system? What are the consequences? HMRC information powers Legal professional privilege How do you deal with it? How do you prevent it? 1 / L_LIVE_EMEA1: v1

3 When does tax avoidance become tax evasion? No single Tax Evasion offence The illegal non-payment or underpayment of tax Schemes / filing positions with no meaningful prospect of success? Various statutory and common law criminal offences All require element of dishonesty Forced interpretation of legislation? Has HMRC blurred this distinction? Would the defendant be regarded as dishonest according to the standards of reasonable and honest people? (R v Ghosh [1982] 3WLR 110) 2 / L_LIVE_EMEA1: v1

4 Civil enforcement In most cases, HMRC will pursue civil enforcement channels. However, blurred lines. COP 8: covers both deliberate evasion and avoidance COP 9/Contractual Disclosure Facility pre stage to prosecution. New strict liability offence of hiding taxable income, gains or assets offshore. Intermediaries/banks can be facilitators or handling proceeds of crime. Beware civil HMRC investigation where wider criminal investigations multiple standards, e.g. MTIC 3 / L_LIVE_EMEA1: v1

5 Tax evasion offences: Statutory: Fraud (section 1, Fraud Act 2006) False accounting (section 17, Theft Act 1968) Fraudulent evasion of VAT (section 72(1), Value Added Tax Act 1994 (VATA 1994)) False statement for VAT purposes (section 72(3), VATA 1994) Conduct amounting to an offence (section 72(8), VATA 1994) Fraudulent evasion of income tax (section 106A Taxes Management Act 1970 section) Improper importation of goods (section 50(1)(a) and (2), CEMA 1979) Common law: Cheating the public revenue 4 / L_LIVE_EMEA1: v1

6 Specific offences Fraud Fraud Act broad definition Abuse of position Misleading investors securities fraud Investment fraud Rogue traders MTIC fraud Common law conspiracy to defraud Money laundering 5 / L_LIVE_EMEA1: v1

7 Investment fraud: some common examples Carbon credit schemes Land banking schemes Ponzi schemes Unlawful tax shelters / disguised investments 6 / L_LIVE_EMEA1: v1

8 Other examples Rogue traders: tax consequences Misstated transactions Artificiality in planning / transactional documentation MTIC Bribery / corruption Non-disclosure / concealment 7 / L_LIVE_EMEA1: v1

9 MTIC fraud Initially in mobile phones but then precious metals, carbon credits, power and gas! HMRC pursue fraudsters but also deny input tax repayments to those who knew, or should have known that the transactions were fraudulent (Kittel) Acquisition fraud / Carousel fraud / Contra trading Budget 2014: reverse charge for gas and wholesale electricity (1 July 2014) HMRC on notice letters Taxpayers policing the system? 8 / L_LIVE_EMEA1: v1

10 Vicarious liability Can corporate entities be held responsible for the acts of employees? Directing mind and will of the corporate entity must be guilty 9 / L_LIVE_EMEA1: v1

11 Who polices the system? HMRC FCA SFO NCA 10 / L_LIVE_EMEA1: v1

12 What are the consequences? Investigation Arrest Search warrants / production orders Civil settlement Prosecution 11 / L_LIVE_EMEA1: v1

13 How do you deal with it? What procedures should you have in place? How do you deal with arrests, dawn raids, information requests and overlaps with other areas of the investigation? Maintaining privilege Managing disclosure 12 / L_LIVE_EMEA1: v1

14 HMRC information powers Soft enquiries vs formal demands handle with care! Taxpayers general duty to assist HMRC enquiries, statutory information requirements, no compulsion but risk of inflaming situation. Taxpayer and third party notices under Schedule 36 FA 2008 Right of appeal against information notice unless approved by Tribunal prior to service. Extra requirements for third party notice approvals. Areas of challenge reasonably required, possession or power. NB also "relevant foreign tax" 13 / L_LIVE_EMEA1: v1

15 Legal professional privilege There are two types of legal professional privilege: Legal advice privilege - lawyer/client communications in context of seeking or giving legal advice; and Litigation privilege lawyer/client/third party communications for the dominant purpose of being used in connection with actual or pending litigation. Difficult areas, e.g. the status of internal s, repetition of advice by nonlawyers, wider distribution, accountants advice. No legal advice privilege for accountants or tax advisers, even if giving advice on legal matters: R (Prudential plc and another) v Special Commissioner of Income Tax and another [2013] UKSC 1 Beware accountants claiming litigation privilege. 14 / L_LIVE_EMEA1: v1

16 How do you prevent it? Internal controls Senior Accounting Officer sign-off. Internal risk review processes / improvements / re-test outputs / sustain Tax / legal liaison Know your client FCA FSMA Governance Risk assessment Detecting perpetrators Automated monitoring Industry intelligence Staff awareness Banking Enforced minimum holiday periods! 15 / L_LIVE_EMEA1: v1

17 How do you avoid tax evasion? Tax efficiency in business planning has three phases: 1. Conception Low risk if rationale for planning is for genuine commercial reasons 2. Implementation Ensure tax arrangement reflects underlying commercial substance 3. Operation Know your client controls Anti-bribery and corruption policies and procedures Internal controls / testing / challenge 16 / L_LIVE_EMEA1: v1

18 Our international network 17 / L_LIVE_EMEA1: v1

19 Tax Fraud in Financial Services simmons-simmons.com elexica.com This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name Simmons & Simmons or one or more of those practices as the context requires. The word partner refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP s affiliated practices. For further information on the international entities and practices, refer to simmonssimmons.com/legalresp. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address. 18 / L_LIVE_EMEA1: v1