Fraud: Tax Evasion & Money Laundering June 2010

In this short article we consider the law on tax evasion and money laundering - two separate types of offences which are often to be found on the same indictment.

The Fraud Act 2006 abolished all the deception offences in the Theft Acts of 1968 and 1978 and created, by s1(1), one new offence of 'fraud' which could be committed in three different ways. However, the Act did not repeal any of the offences which can be described as offences against the revenue; e.g. s72 of the Value Added Tax Act 1974 on VAT frauds. Tax evasion cases are still generally prosecuted under the 'old law'.

Tax Fraud

The common law offence of cheating the public revenue is perhaps the easiest route for the Crown to take as all the prosecution have to prove is that the defendant made a false statement with intent to defraud the revenue. This common-law offence is a very versatile tool in the prosecutor's armoury. In fact in R v Mavji, 84 Cr. App. R 34 the Court of Appeal held that an actual act of deception is not necessary - the offender in that case did not complete a VAT return or pay his VAT bill - that was enough as he was found to have (not) done so with the necessary dishonest intent.

Alternatively, in respect to specifically Income Tax, Customs have the option of the statutory offence under s144 of the Finance Act 2000 for those 'knowingly concerned' in the 'fraudulent evasion' of income tax. Where deliberately incorrect accounts are submitted the Crown may also charge false accounting under s17 of the Theft Act 1968. Various governments over the years have made sure the gun-cupboard is full when it comes to attacking those alleged to have committed frauds against the public purse.

In the end whether the offence you are charged with one of the statutory offences or the common law offence of cheating the revenue, the ultimate question will be whether there was any intent to defraud - i.e. was the defendant acting honestly or not?

Typically, in any fraud case, there will be the highlights; that is key 'facts' that the Crown concentrate on, i.e. particular invoices, particular dates and the answers given in interview. Obviously the defence team has to identify the prosecution 'highlights' and know them well at an early stage but often the answer will lie in drawing the jury's attention to other aspects of the case and laying the groundwork for that well - aspects like the defendant's character or business practices, or more technical aspects such as patterns in the invoices that tend to show a leaning towards late payment rather than non-payment, or material which shows that the suspect has declared monies that might have been missed, or not claimed against valid receipts etc etc, all going towards demonstrating a lack of dishonest intent.

The crux of the defence may lie in showing documents to the jury which tend to support the defence case - documents which perhaps the defendant didn't even know existed. In R v O [2007] EWCA Crim 3483 a Crown Court Judge was so exasperated by H.M. Custom's failure to properly respond to the defence's proper applications for disclosure he stayed the case as an abuse of process. The prosecution appealed and the Court of Appeal upheld the decision. The case was a VAT carousel fraud allegation where O was simply asking for business documents held by customs after they had searched his premises; this comprised of around 8,000 pages most of which was not disclosed to the defence, despite the material belonging to the defendant in the first place. Customs had been taking the line that most of the material neither assisted the defence or undermined the prosecution case and was therefore not disclosable and refused to even let the defence have sight of the documents. The defence were adamant that the business documents could show a line of legitimate trading and therefore support the defence's case. The Judge was swayed by the obstructive nature of Customs, he did not even make a decision on the merits of the material in question but was pushed in the end to saying that Customs had relied too heavily on the precise rule of law on disclosure, to the extent that they were inflexible and obstructive. His Honour said "if the prosecution approach the case without concession then they can expect none" and with that he stayed the indictment.

Money-Laundering

There are three main offences created by POCA which carry penalties of up to 14 years imprisonment. They are s327 - concealing, disguising, converting or transferring criminal property, or removing it from the jurisdiction. This is one offence which can be committed in the five different ways listed. Section 328; is entering into, or becoming concerned in an arrangement to facilitate the acquisition, retention, use or control by, or on behalf of another person, of criminal property knowing or suspecting that the property is criminal property. That offence can cover a wide range of evils but it can be seen how it would be used in cases where the launderer is not said to be the principal offender in the criminal conduct. Section 329 is the offence of acquiring, using or having possession of criminal property. Again, this can cover a whole range of situations but will often be used to prosecute an 'end user'; i.e. the person who buys a car, a house etc from a criminal.

'Criminal Property'

The lynchpin of the 3 offences is the notion of 'criminal property'. The prosecution have to prove that the property, whether it is cash, a house, a car or whatever it is, is 'criminal property'. This is defined at s340(3) as property which represents a benefit from criminal conduct, either directly or indirectly, in whole or in part, so long as the launderer 'knows or suspects' that the property represents such a benefit. The Crown has to show that the alleged launderer committed the relevant act (i.e. transfer, concealing etc) knowing or suspecting that the property derived from criminal conduct.

The prosecution will normally attempt to prove that a defendant 'knew' or 'suspected' either by prosecuting the principal offence - drug trafficking etc on the same indictment or rely on circumstantial evidence to try and prove that the money was criminal property. In R v Da Silva [2006] EWCA Crim 1654, 11/7/06 the Court of Appeal considered that 'suspicion' meant that "there is a possibility, which is more than fanciful that the relevant facts exist. A vague feeling of unease would not suffice."

Of course the circumstantial evidence which the prosecution may bring to Court can be quite damming at first sight, e.g. large sums of cash, lies in interview or a lack of commercial sense in some transactions - linked possibly with connections to anyone accused or convicted of a principal offence. Thus re-butting inferences can be a very significant part of the job of defending. It may lead to the instruction of an expert, for example an auditor with knowledge of the particular business area in question. The expert may be able to help rebuttal by comparing the business with other like businesses in the area and/or show the existence of a reasonable audit trail to try and make the Crown's case look like no more than mere speculation. A Judge may then be persuaded that your case is suitable for the 'circumstantial evidence' direction to the jury whereby he or she will remind them that before they can convict on circumstantial evidence alone they have to consider whether that evidence reveals any other explanations 'which are or may be of sufficient reliability and strength to weaken or destroy the prosecution case' - so if there is another plausible explanation that direction will strongly point towards an acquittal.

The case of R v Anwoir [2008] 2 Cr. App. R 36 is the leading authority on what the Crown has to prove in money laundering allegations - is it enough to rely on lots of cash with no apparent legitimate income? The Court of Appeal found in favour of the prosecution and ruled that the Crown had two ways of proving that the money in question derived from crime. Firstly, by showing that it derives from a specific kind or kinds of crime or, secondly, that from the circumstances the 'irresistible inference' can be drawn that it can only have derived from crime. Thus there is no requirement for any kind or kinds of offence to be pleaded or proven providing, if no type of crime is alleged, that the evidence overwhelmingly points to the conclusion that the money can only be derived from some criminal activity.

Tax Evasion as Money Laundering.

In R v IK [2007] EWCA Crim 491, 8/3/07 the question for the Court was whether the proceeds of cheating the revenue could be 'criminal property'. In a nutshell a legitimate trader had earned legitimate money undertaking a legitimate business (a shop). However, the allegation was that not all the income was declared - thus cheating the revenue. The Crown prosecuted a money laundering offence but the trial Judge ruled that there was no 'criminal property' - the money did not come from an actual crime. Following a prosecution appeal the Court of Appeal found that the undeclared income could in part 'represent' the proceeds of crime, as that undeclared amount would be representative of the 'benefit' of tax evasion.

In conclusion, there can be no doubt that the State will always maintain as many possible offences as possible when it comes to offences against the revenue, the plans to scrap jury trials in certain fraud cases must be fought tooth and nail as the bottom line is always the question of the honesty and integrity of the Defendant and who better placed to decide that question than a properly directed jury?

Authors

Jonathan Lennon is a Barrister specialising in serious and complex criminal defence cases at 23 Essex Street Chambers in London.

Aziz Rahman is a partner at Rahman Ravelli Solicitors specialising in human rights, large scale conspiracy allegations and serious crime.

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