The low down

HM Income & Customs is certainly one of a choose band of authorities capable of conduct felony investigations. That energy stands behind its mission to ship the ‘highest stage of compliance with the legislation and laws governing direct and oblique taxes’. However previously two years it has leant extra closely on highly effective civil treatments, the place the burden of proof is much less onerous. Whereas headline successes embrace the forfeiture of gold bars seized from a person’s lunchbox, account freezing orders can be utilized in circumstances the place small sums are at stake. Sure, HMRC ‘recoveries’ are up, however are such civil powers hitting poorly suggested companies and folks whose solely mistake is imperfect record-keeping?

In 2019 HM Income & Customs was reprimanded by a decide for fining a homeless man £1,600 over a late tax return. In the identical yr, the company revealed it was pursuing ‘5 or fewer’ felony investigations into failure to forestall the facilitation of UK tax evasion, a brand new offence launched in 2018 following the Panama Papers scandal.

However the days of fraudsters and tax dodgers with the ability to relaxation simple within the perception that they’re extra more likely to be struck by lightning than have hassle with HMRC could also be coming to an finish.

Prior to now two years the division’s ‘blended strategy’, which makes use of a mixture of civil and felony motion to sort out evasion and cash laundering, has resulted within the restoration of just about £360m. Specifically, it’s making rising use of civil powers that had been launched similtaneously the ‘failure to forestall’ company crime offence, however with much less fanfare.

Final month noticed the outcomes of an utility of those civil powers, which HMRC had used to use for the forfeiture of eight gold bars. Seized from the lunchbox of a person travelling by Manchester Airport and estimated to be price £750,000, the ingots had been bought at public sale. The  man, who was from Manchester and on his solution to Dubai, was not prosecuted.

Forfeiture orders (FOs) had been launched by the Prison Funds Act 2017 and permit property seized by legislation enforcement businesses underneath the Proceeds of Crime Act 2002 (POCA) to be topic to forfeiture with out the necessity for a prosecution. The identical powers already utilized to money deemed to be proceeds of crime.

HMRC Fraud Investigation Service assistant director Gill Hilton mentioned the gold bar case ‘ought to act as a deterrent to criminals trying to commerce property reminiscent of valuable metals’.

Alongside FOs, the Prison Funds Act additionally launched new account freezing orders (AFOs). For a lot of legal professionals – and their shoppers – the influence of those, mixed with the FOs, has been much more vital.

AFOs apply to non-public and enterprise accounts containing as little as £1,000. They’re issued by the magistrates’ courtroom the place there may be affordable grounds to suspect that the account accommodates ‘recoverable property’ (that’s, property obtained by way of illegal conduct) or is meant to be used in future illegal conduct.

Having obtained an AFO, HMRC can then concern a forfeiture discover, which won’t essentially specify why the funds are thought of to be recoverable property. If respondents don’t object inside the timeframe on the forfeiture discover, funds are mechanically forfeit. As soon as respondents have registered an objection, they’ve 30 days to enchantment. 

Screenshot 2020-10-22 at 16.17.39

HMRC statistics on the usage of account freezing and forfeiture powers present the division issued 167 orders to freeze accounts in 2019/20, up 178% from the earlier yr’s 60. As well as, the entire quantity forfeited and the variety of forfeiture purposes elevated fourfold from the earlier yr. In complete HMRC has frozen greater than £30m and subjected £5.9m to forfeit. The common sum frozen was £134,000 and the common sum forfeited greater than £72,000.

Kevin Newe, illicit finance technique lead at HMRC, tells the Gazette that earlier than the introduction of the brand new powers, the division was hampered in its response to intelligence on suspicious transactions coming from banks and different monetary establishments. ‘To safe the cash usually meant participating with prosecuting authorities to think about beginning a felony investigation and, if that went forward, the imposition of a restraint order,’ he observes.  

All of it took too lengthy – usually, by the point HMRC was prepared to maneuver, the suspicious funds had lengthy since left the account. The method was additionally comparatively costly, which means it was not cost-effective for sums of lower than £50,000.

‘That wasn’t a sustainable or sensible strategy to tackling the abuse of the monetary system,’ Newe says.

The introduction of AFOs gave HMRC (and different legislation enforcement businesses) the latitude to behave on referrals far more rapidly and to focus on comparatively small quantities, making it simpler to focus on the proceeds of avenue crimes, illicit alcohol smuggling or fraudulent VAT compensation, all of which have a tendency to finish up in UK financial institution accounts sooner or later. AFOs additionally permit for a extra nuanced response, significantly in relation to cash laundering. ‘For instance, a UK checking account may be managed by somebody based mostly abroad, stymieing the seemingly success of a felony investigation,’ Newe says. As an alternative, the AFO secures the illicit funds, whereas the financial institution might think about closing the account. Each interventions trigger most disruption to the illicit monetary circulation.

Boutique company crime, fraud and civil investigation defence agency Richardson Lissack has seen a pointy enhance in AFOs being utilized for by HMRC in relation to allegations of lacking dealer intra-community (MTIC) and carousel VAT fraud in opposition to companies. HMRC has modified its strategy to investigating such a crime, preferring to undertake a quasi-civil/ felony investigation, which now often begins with an AFO, notes Ben Richardson, a founding associate of the agency.

‘You’ll be able to think about the devastating impact on an organization of not with the ability to commerce as a result of its accounts have been frozen,’ Richardson says. However he concedes that AFOs, which include a two-year restrict, could also be preferable to lengthy, drawn-out felony investigations. ‘I’ve a shopper who has been underneath felony investigation for ten years,’ he says. ‘To have your life on maintain for that size of time is appalling.’

Unexplained Wealth Orders

The primary restoration of property topic to an unexplained wealth order (UWO) was made in October by the Nationwide Crime Company fairly than HMRC. Like account freezing orders (AFOs), UWOs are comparatively new civil powers and had been launched by the Prison Funds Act 2017.

Nonetheless not like AFOs, says Nicola Sharp of enterprise crime and fraud defence agency Rahman Ravelli, a UWO should be utilized for on the Excessive Court docket. ‘The related authority should fulfill the courtroom that there’s affordable trigger to consider that the person holds property of greater than £50,000.’ The decide should even be happy that there are affordable grounds to suspect the individual’s lawful revenue couldn’t clarify the possession of the property and that the individual has been concerned in critical crime or that they’re a non-EEA politically uncovered individual.


Mansoor Hussain

Lots of the considerations about AFOs additionally apply to UWOs. Final yr the NCA obtained a UWO in opposition to eight properties belonging to Mansoor Mahmood Hussain (pictured) on the premise they suspected him of cash laundering for organised crime syndicates. In explaining the supply of the funds used to acquire the properties, Hussain submitted 127 lever arch folders and a 76-page assertion. He represented himself all through. The data offered by Hussain through the course of the method enabled the NCA to establish additional probably recoverable properties. In August 2020, a settlement was agreed between the NCA and Hussain to forfeit properties to the worth of £9,802,828.



HMRC tells the Gazette UWOs are used to focus on a unique subset of illicit finance danger, in contrast with AFOs. Whereas AFOs are used to safe funds at quick danger of being moved out of financial institution accounts, UWOs are ‘a particularly highly effective investigation order’ to probe bigger and extra sophisticated circumstances, it says. If profitable, the investigation will end result within the courtroom granting a civil restoration order, which is a separate energy contained within the Proceeds of Crime Act. HMRC at the moment has round six circumstances by which it’s contemplating making use of for UWOs.

The powers work to the civil normal of proof – the stability of chances. The onus is now on the corporate to show it has not accomplished something mistaken. HMRC officers are nonetheless required to make their case to the courts, Newe says. ‘Even when the listening to will not be contested the courtroom will ask questions and probe HMRC’s reasoning for taking ahead restoration motion.’

Nonetheless Natalie Sherborn, associate and white-collar crime specialist at Pinsent Masons, says the shift within the burden of proof had raised questions concerning the truthful therapy and rights of people for whom the edge for prosecution has not been met. She concedes that there’s frustration amongst legislation enforcement and prosecution businesses on the ineffectiveness of the post-conviction confiscation regime underneath POCA.

The Legislation Fee is at the moment consulting on proposals to handle points with the legislation on confiscation, together with its complexity; the frequent imposition of unrealistic confiscation orders; the ineffectiveness of incentives and sanctions of the confiscation regime; and the sufficiency of magistrates’ and Crown courtroom enforcement powers. The session closes in December 2020.

However Sherborn provides: ‘With my defence hat on, each time there’s a reducing of the edge it’s a priority. There’s a robust public coverage argument for testing allegations to the felony threshold.’ She factors to the higher protections when it comes to illustration and course of within the felony system.

There may be additionally the chance that failures to prosecute really encourage criminals, although legislation enforcement businesses have argued that confiscation orders generally is a simpler deterrent than jail, with some criminals viewing jail phrases as an occupational hazard.

‘There’s a separate concern in respect of potential conflicts of curiosity,’ Sherborn provides. Beneath the Residence Workplace Asset Restoration Incentivisation Scheme (additionally at the moment topic to assessment), legislation enforcement businesses might retain a big proportion of the recovered settlement quantity. In different phrases, HMRC has a direct monetary curiosity within the final result of proceedings, Sherborn factors out.

And with the widening of HMRC’s powers, it’s inevitable that some harmless events get caught within the internet. ‘We had an order discharged lately the place record-keeping was the true concern,’ Richardson says. ‘They didn’t have correct information reflecting what that they had really accomplished.’

‘Each time there’s a reducing of the edge it’s a priority. There’s a robust public coverage argument for testing allegations to the felony threshold’

Natalie Sherborn, Pinsent Masons

HMRC has promised to research all those that have been concerned in furlough claims and is probably going to make use of its new powers to get well incorrectly claimed cash. This presents a danger for companies struggling to come back to grips with the ramifications of the pandemic which will have put inadequate controls in place to cease staff working, together with answering emails, whereas on furlough. These corporations might not have the assets to make use of legal professionals to argue their case in opposition to HMRC.

Pinsent Masons associate Andrew Sackey, a former HMRC deputy director, says the division had been clear it had little interest in penalising harmless errors.

‘HMRC’s categorical messaging within the 3,000 nudge letters they ship out every week is that “we perceive that errors occur”,’ he says. Employers got till 20 October (or later in some circumstances) to tell HMRC of errors in furlough claims. ‘The truth that they’ve put an amnesty out tells me that they need corporations to undertake their very own inner due diligence and put issues proper.’

Closed sign

Michelle Sloane, a associate at Reynolds Porter Chamberlain (RPC) agrees, however nonetheless has considerations that HMRC’s new powers might have tipped the stability too far in favour of the division.

HMRC tells the Gazette that the majority circumstances had been uncontested. This may very well be as a result of the proof is so compelling, however Sloane says some respondents really feel it’s not price contesting the forfeiture – maybe as a result of the quantities involved are so small – or are usually not conscious that they’ll put up a defence.

The magistrates’ courtroom is an open courtroom, elevating the potential for media reporting on the grounds for the applying, the opposition to the applying and probably additionally the underlying paperwork, she factors out.

‘In Might the media requested to get the papers for an AFO, they usually had been solely refused by the district decide on the premise that reporters weren’t current on the authentic listening to,’ Sloane says. ‘That’s a reasonably vital consideration that must be taken under consideration when deciding whether or not or not it’s price really opposing any order.’

HMRC doesn’t at all times meet the strict compliance obligations on the company when processing these purposes, she provides: ‘They don’t at all times comply with the appropriate course of they usually get the mistaken finish of the stick – we’ve even discovered HMRC has the mistaken firm, actually primary stuff. In different circumstances it’s simply that there’s one thing lacking which they need to have put within the utility.’

‘AFOs are a a lot simpler route for HMRC to freeze accounts, with a lot much less scrutiny’

Michelle Sloane, Reynolds Porter Chamberlain

With out specialist authorized recommendation, folks might not realise they’ve a defence, she says: ‘As a lay individual you simply wouldn’t know, and there’s a very quick time to answer a forfeiture discover.’

AFOs are handled by lay folks within the magistrates’ courtroom whose authorized advisers will even lack expertise with purposes of this type, Sloane provides. One other concern is that the definition of ‘recoverable property’ underneath the act is ‘extremely broad’ and requires folks topic to them to show a adverse. ‘How does an individual show that they weren’t intending to make use of the property for future illegal conduct?’ she asks.

The system is totally completely different from the freezing injunctions usually related to increased courtroom proceedings, she says. ‘These have a critical diploma of scrutiny. AFOs are a a lot simpler route for HMRC to freeze accounts, with a lot much less scrutiny.’

Sloane can also be nervous that data offered a couple of checking account in defending an AFO could also be utilized in subsequent felony proceedings. In purposes for unexplained wealth orders (UWOs) – one other new civil order launched by the Prison Funds Act – protections are in-built to forestall data offered in defence of a UWO getting used in opposition to that individual in a later felony trial.

HMRC does must specify why it needs the AFO, and if it turns into clear its officers really had a unique function in thoughts – reminiscent of acquiring data to be used in a felony investigation – that will be thought of an abuse of energy.

That mentioned, as Sackey explains, in observe any act might serve a dominant and an incidental function: ‘A dominant function can change with the realisation of recent data.’ Somebody might, for instance, say that they’ve little interest in a particular firm however a witness comes ahead to state that they do. ‘In that case a civil or felony investigation might properly change monitor if the circumstances present for it.’

Seeking to the longer term, it’s seemingly criminals will adapt to evade HMRC’s new ‘tooth’, maybe by adopting new strategies of fee. HMRC might equally search to increase the powers, maybe by requesting an extended period for AFOs or permitting accounts to be watched for a interval to see the actions of cash out and in.


Melanie Newman is a contract journalist


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