The Hindu Business Line : Officers told the court what they thought it should know, and not the truth

IN A REPORT dated January 19, AccountingWeb reports, `Investigation launched into HMRC VAT trial fiasco'. The abbreviation, apart from the one about value-added tax, is of HM Revenue & Customs, "formed on the 18 April 2005, following the merger of Inland Revenue and HM Customs and Excise Departments," as www.hmrc.gov.uk informs.

Story is that the taxman's employees are to be investigated "after a trial into a £100 million VAT fraud collapsed leaving the judge criticising the prosecution case as muddled and incompetent." The trial of R vs Uddin, or more popularly `Operation Venison', was `one of HMRC's costliest prosecutions' and it was held at Southwark Crown Court, London, in June 2005; only, the case fell apart after 35 days.

A case that is "likely to outstrip the £60m cost of the recent Jubilee Line extension trial," wrote Robert Verkaik on www.fti.org.uk. "The judge's decision to halt proceedings three years after charges were first brought against the Manchester-based businessmen casts serious doubt on the ability of criminal justice agencies to prosecute complex fraud in this country," he said.

"In his judgment, Mr Justice Crane was highly critical of the manner and process by which unused material had been disclosed by Customs and raised serious concerns about the evidence given by staff, saying that some had withheld evidence from their own barrister which showed they could not be relied on to tell the truth," reads a snatch from www.accountingweb.co.uk.

It is significant that, rather than ignore the criticism, John Healey, the Financial Secretary to the Treasury, issued a `Ministerial Statement' (www.publications.parliament.uk) on July 5, 2005. He said that the Independent Police Complaints Commission (IPCC) would oversee an investigation into the criticism of the Judge. He also announced `a full programme of inspection' by HM Inspectorate of Constabulary (HMIC), and affirmed that the Government took the criticisms `very seriously'.

A slew of changes were introduced in law, to establish an independent Revenue and Customs Prosecution Office (RCPO), accountable directly to the Attorney General; and extend the remit of the IPCC to allow investigation of serious complaints and allegations against HMRC staff. "The IPCC-led investigation and the HMIC inspection that I am announcing today are the first use of this comprehensive, independent scrutiny framework," he asserted.

`Independent Police Complaints Commission starts first Revenue and Customs inquiry,' reads a January 17 press release on www.ipcc.gov.uk, the site of IPCC. "Until April the IPCC's powers are limited to the referral by HMRC of Operation Venison. After April 1, the Commission will be able to investigate serious public complaints against HMRC staff." IPCC Commissioners are `the public face' and the one who will oversee the Operation Venison inquiry will be Amerdeep Somal.

The site informs, "The Commissioners are responsible for the governance of the IPCC as a whole, guardianship of the complaints system, as well as the strategic direction and final determination of individual cases." Somal is "a lawyer and her last appointment was Acting Head of the Criminal Justice Unit at Crown Prosecution Service Nottingham". The communiqué names as senior investigator, Malcolm Niblo. "A special team based in the IPCC's Central region will carry out the inquiry from a secure incident room in the east Midlands," it adds.

Amerdeep Somal is quoted thus: "The IPCC has set out in the terms of reference that the inquiry we carry out must be fair and proportionate. The first phase of the inquiry will be to read the documentation in the case, all 412 boxes of it, before we can begin to interview witnesses. The aim of the inquiry will be to find out exactly what did happen to cause Mr Justice Crane to stay the trial. The aim is to learn lessons for the future and also to find out how Customs and Excise staff carried out their functions."

Wishing Somal and her team good luck, one can go into what the case was all about. To help, there is a quick response dated January 25, from Richard Offer, Head of Media, IPCC, in the form of useful links about the tax tussle, to make our job easier than getting lost in the hundreds of boxes.

The charge against five defendants, `Arif Chandoo, Amjad Baig, Sandeep Golechha, Aqeel Ali and Mohamed Kamal Ali' was that they had allegedly siphoned off £120 million of tax through the importation of mobile phones VAT- free, but selling them with the VAT added, and disappearing without paying the tax, as Verkaik's article explains.

"The fraud is commonly known as Missing Trader Intra-Community (MTIC) fraud and exploits the fact that the system of VAT requires transactions between traders located in different EU (European Union) Member States to be carried out, effectively, free of VAT," educates The Tax Journal, in a 3-page article titled `Another Abuse of Process', by Jason Collins and Ben Cooper, McGrigors. "Having acquired VAT-free goods from a trader in another EU Member State, the fraudster then sells the goods in the UK, where he is required to charge VAT. Instead of accounting to the Commissioners for the VAT, the fraudster disappears with the money and becomes a `missing trader'."

Not too different from our vanishing companies! A particular strain of the fraud, is `carousel fraud', which occurs "where the goods are subsequently traded between a number of other parties in the UK (who are typically unaware that a fraud has taken place) until they are exported back out of the UK with the intention of returning them to their original EU owner," as Collins and Cooper explain. Taxman alleged that the defendants in this case conspired to create such carousels in 2000-2001, depriving the exchequer of due VAT.

The case reads like a thriller. Brian Turner, Senior Investigating Officer, and Andrew Biker, the prosecuting solicitor chased the case, and the prosecution relied on papers obtained from Hawk Precision Logistics Ltd, the company which had handled the phone cargo in question. Key witnesses from Hawk were found to be unreliable by the Department; but the fact was not informed to Turner and Biker. "If prosecuting counsel were to be kept in the dark, there must have been a preparedness to keep the defence, the judge and ultimately the jury in the dark," said Justice Crane.

The judge was aghast at what he called a `gaping hole' in the evidence. "It led him to conclude that senior officers knew more than they were prepared to tell the Court — that the officers told the Court what they thought the Court should know, and not the truth," as Collins and Cooper summarise. Read also about how, in June 2003, the German authorities were doing telephone surveillance of a German trader, Mobile World, and about a corresponding UK operation, codenamed Operation Toppling... Well, that sounds like a political operation involving horse-trading!

Before wrapping up, here's more: `Successful action to recover £3 million legal aid costs,' announces www.pannone.com, the site of Pannone & Partners, solicitors, in a press release dated December 7, 2005, about the failed case. The firm had represented the defendant, who was `left with substantial legal costs which were paid for by the Legal Services Commission'. Therefore, the firm argued that HMRC should `take responsibility for these costs as their improper behaviour caused severe delays and unnecessary work for all'.

And Justice Crane ordered the Department to pay `75 per cent of the defence team's legal costs'. Anthony Barnfather, Partner and Business Crime specialist at Pannone & Partners is cited in the press release thus: "Mr Justice Crane's decision is to be welcomed. It should be remembered that the public purse is not simply one great void and it's important for the public to know that any costs incurred unnecessarily are borne by the party responsible for these costs."

By paying the costs, however, the purse only gets further void, doesn't it? An important lesson for the Department is the rap it got for its infamous culture of `seeking to get a result, whatever the cost and whatever the means used,' as Collins and Cooper opine. And that may apply to the tactics adopted closer home too.

AccountSpeak@TheHindu.co.in

D. Murali

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