Defending Tax Fraud and Money Laundering Allegations

In 2016, the Mossack Fonseca scandal placed tax evasion and money laundering back in the headlines. These two offences often appear together on an indictment but the defence tactics can often vary widely. It is important to make sure your defence employs the correct tactics.

The Fraud Act 2006 abolished deception offences that had been in the Theft Acts of 1968 and 1978 and created one new offence of fraud. However, the Act did not repeal any of the offences of tax fraud - which can be described as offences against the revenue – so tax evasion cases are still usually prosecuted under law that predates the 2006 Fraud Act.

What is Tax Fraud?

When it comes to tax fraud, the common law offence of cheating the public revenue is the easiest route for the Crown. All the prosecution must prove is that the defendant made a false statement with intent to defraud the revenue. In R v Mavji, 84 Cr. App. R 34, the Court of Appeal held that an actual act of deception was not even necessary: the offender had not completed a VAT return or paid a VAT bill and this was deemed enough for a conviction.

With income tax, HM Revenue and Customs (HMRC) has the offence of being “knowingly concerned’’ in the “fraudulent evasion’’ of income tax under s144 of the Finance Act 2000 – and where deliberately incorrect accounts are submitted a charge of false accounting can be brought under s17 of the Theft Act 1968.

As the authorities have such legislation at their disposal, it is important that any defence team acts shrewdly in countering prosecution allegations.

The Issue of Honesty in Fraud Cases

While there are a number of tax evasion options at the prosecution’s disposal, the key issue will always be honesty: did the defendant intend to defraud?

The Crown will always put the worst possible interpretation on evidence to try and establish dishonesty. For a defence team, this presents a challenge. But it is a challenge that can be met successfully.

If we consider the Mossack Fonseca situation, it was clear that those who raided the Panamanian offices believed they had found documents that would be incriminating evidence. Yet defence teams can use other aspects of a case to paint a picture that clearly contradicts – and undermines – the prosecution allegations.

The defendant’s years of unblemished character, his established and legal business practices and his record of tax payment can all be cited as clear evidence of a commitment to acting legally. There may also be documents that the prosecution has overlooked or considered of little use, which can show that the defendant has been paying tax and has not been playing the system. All these factors can be assets for a smart defence solicitor.

The Defence’s use of Disclosure

The defence team’s skill regarding documents can extend to using documents that the client did not even know existed. In R v O [2007] EWCA Crim 3483, a Crown Court Judge was so exasperated by HMRC’s inadequate response to the defence's applications for disclosure that he stayed the case as an abuse of process. The prosecution appealed and the Court of Appeal upheld the decision.

O, who was facing VAT fraud charges, was asking for 8,000 pages of business documents held by HMRC after a raid that had not been disclosed to the defence. HMRC argued that the documents were not disclosable because they did not help the defence or undermine the prosecution. The defence argued that the business documents showed legitimate trading and could, therefore, support its case. The Judge did not even make a decision on the value to the case of the documents; he simply stated that HMRC had been obstructive by relying too heavily on the precise rule of law on disclosure.

No two tax fraud cases will be identical. But what R V O shows is that prosecution claims and assumptions can be questioned and challenged long before a case ever comes to trial. Careful analysis of evidence used by the prosecution, material discarded by it and documentation that prosecutors have not even considered can provide the building blocks of a strong defence that can dismantle and disprove HMRC allegations and assumptions.

Money Laundering - The Definition

The Proceeds of Crime Act 2002 (POCA) creates three main money laundering offences that carry penalties of up to 14 years imprisonment:

• Section 327 - concealing, disguising, converting or transferring criminal property, or removing it from the jurisdiction.
• Section 328 - 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.
• Section 329 – acquiring, using or having possession of criminal property.

In all three money laundering offences, the prosecution must prove that the assets in question represent, as under S340(3) of POCA, a benefit from criminal conduct, either directly or indirectly, in whole or in part. It must also show that the launderer 'knows or suspects' that this is the case and that they committed the relevant act. A suspicion, in R V Da Silva (2006) EWCA Crim 1654, 11/7/06, was deemed by the Court of Appeal to be "a possibility, which is more than fanciful that the relevant facts exist. A vague feeling of unease would not suffice.’’

The difference between someone thinking there is a real possibility of money laundering and someone feeling vaguely about a situation is large. As a firm that has a depth of experience in such cases, we can say that tactical use of the evidence can go a long way to establishing that a defendant’s state of mind was the former rather than the latter. Using such evidence to make such distinctions can be the crucial difference between a successful defence and a defeat.

Challenging Circumstantial Evidence

Circumstantial evidence can initially appear damning. But a defence should always challenge the assumptions that prosecutors make. Expert witnesses can testify to the value of business practices employed by the defendant, can identify and explain audit trails and compare the activities to those used by other legitimate organisations.

If such an approach can show that prosecution claims amount to little more than speculation, a Judge could then decide the case is suitable for the 'circumstantial evidence' direction to the jury. This involves the jury being reminded that before they convict on circumstantial evidence alone they must consider if that evidence reveals any other explanations 'which are or may be of sufficient reliability and strength to weaken or destroy the prosecution case'.

It is another example of how robust and shrewd defence can force a prosecution to retreat when it comes to tax evasion or money laundering allegations.