Intellectual Elite try to pull off the Biggest Tax Con in History

In HMRC’s ongoing battle against tax evasion, Pinsent Masons have revealed that £16bn was lost through tax fraud in 2016. The international law firm stated that in spite of HMRC collecting an additional £5bn in revenue via its new Fraud Investigation Service (FIS), the £16bn lost represents almost half of HMRC’s tax gap, which currently stands at £34bn. The tax gap is the difference between taxes owed to the government versus the amount it actually receives.

Of the £5bn collected over the past year, £2.2bn came from HMRC’s criminal investigations and £2.7bn came from its civil investigations. The authority has a target to increase the number of prosecutions of wealthy individuals and corporations made each year to 100 by 2020 to remove the public perception that the rich can get away with tax fraud. HMRC stated that its prosecutions last year led to more than 800 years of prison sentences and a further 200 years of suspended sentences.

Notable Fraud Investigations of 2017

The FIS, which contains HMRC’s specialist tax and criminal justice experts, was set up in 2015 after politicians called for tougher action to combat tax fraud. FIS recently had its investment in staff increased by 10% from £186m in 2015/2016 to £204m in 2016/2017. HMRC’s cash injection suggests that larger and more complex investigations into corporates could be underway.

A spokesperson for Pinsent Masons commented: “The FIS has been successful in collecting additional revenue, but tax fraud remains very damaging to the Treasury. HMRC’s internal restructuring and the creation of the FIS demonstrates the government’s determination to stamp out tax fraud especially in the aftermath of the Panama Papers.

The Panama Papers

In April 2016, one of the biggest data leaks in history revealed how national leaders, political figures and the global elite had their money squirrelled away in offshore tax havens. The scandal revolved around Panamanian law firm Mossack Fonseca when more than 11m of the firm’s documents were leaked to German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists or ICIJ, which collaborated with 370 journalists across 76 countries to review the data.

The documents allegedly show how the law firm advised its clients to evade tax and launder billions in cash during the period from 1977 to 2015. The leak contains the offshore holdings of 140 politicians, including Vladimir Putin who instructed Mossack Fonseca to hide $2bn through banks and shadow companies.

The ICIJ together with the German Newspaper conducted a year-long investigation into the Panamanian legal services firm,  commenting that the complex offshore system “depends on an industry of bankers, lawyers and accountants to hide their clients’ tax secrets”.

The Paradise |Papers

In a similar vein to the Panama Papers, in November 2017, Süddeutsche Zeitung obtained 13.4m leaked files, equivalent to 1,400GB of data, from an anonymous source, which contained documents from a combination of offshore professional service providers as well as from company registries from 19 tax havens, which, for the most part, are located in the Caribbean. Again, the German newspaper shared the data with the ICIJ, reviewing its contents with 380 journalists worldwide.  

The Paradise Papers were named after the idyllic locations of many of the offshore jurisdictions involved and their contents are very different to the Panama Papers as this second leak exposed the myriad ways in which companies and individuals could avoid paying tax legally, using artificial structures. At the centre of the Paradise Papers is the world’s largest offshore law firm, Appleby, which had its servers hacked, exposing 6.8m files that span five decades from a number of offices

The schemes are mostly, if not totally legal, according to Pascal Saint-Amans, Director at the OECD’s Centre for Tax Policy and Administration.“Some are not even questionable from a legitimacy point of view,” he added. Although these schemes are legal when operated correctly, politicians around the world are questioning whether they should be banned.

Britain’s Biggest Tax Fraud

The UK’s biggest ever tax fraud took place last November when Jonathan Anwyl was jailed for taking part in a scheme, which led to celebrities being swindled out of more than £100m. In spite of his pedigree, Anwyl is an old Etonian and the son of a judge, the defendant was convicted for five-and-a-half years on his 44th birthday.

From 2004 to 2010, Anwyl was part of a group who ran an investment scheme and used their professional reputations to convince hundreds of high-net-worth-individuals to cut their tax bills by investing in environmental projects in Brazil and China. The investment scheme was led by a scientist, Michael Richards who has two masters degrees from Cambridge and was used by high profile celebrities, such as comedians and sports personalities as well as the relatives of politicians.

Mossack Fonseca registered these offshore companies Carbon Positive Trading Ltd and Carbon Capital Ltd, which carried out scientific research contracts worth millions of pounds in the British Virgin Isles. Alongside Anwyl, barrister Rodney Whiston-Dew, Robert Gold and Eudoros Demetriou persuaded investors that if they invested in the scheme, they would be eligible for tax relief, and encouraged them to make claims to HMRC for £108m.

The investment was a sham and members of the group, including Anwyr, had syphoned off large sums to their own bank accounts in Switzerland and Holland, where the stolen cash was used to buy houses, make investments and maintain luxurious lifestyles. Whiston-Dew, Gold and Demetriou were also convicted of the same charge as Anwyl.

Mr Charles Miskin QC said it was marketed as an “attractive, ethical, green commercial enterprise with tax benefits to those who invested”, adding, “that this was an investment scheme devised by very clever if not brilliant professional men who used their reputations to promote and advance it”.

“There was a hidden structure behind it, which they deliberately and fraudulently concealed [from HMRC].”

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