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August - September 2008
Open the box and take the money
In a modern and slightly adjusted version of “Take Your Pick” (which will test the memories of many readers) HM Revenue & Customs have hit the jackpot by “opening the box” and “taking the money”, many millions of pounds if reports are to be believed.
I have written previously on groundbreaking legal decisions which enabled HMRC to mount a concerted assault on offshore bank accounts. A year ago, this led to their Offshore Disclosure facility which recently ended with the final agreement of HMRC to most of the disclosures made under that socalled amnesty. The department count this exercise as a major success, and there is a followup operation in progress where they are directly challenging individuals who failed to take advantage of the opportunity to disclose evaded liabilities linked to offshore bank accounts. I will be writing separately on this issue, but the purpose of this article is to focus on another, radical, new method of attack which has surfaced, to widespread publicity. Money laundering law has been used to obtain search warrants enabling the Police to open some seven thousand safety deposit boxes in West and Central London. Money and other items found in the boxes has been impounded, with box owners invited to apply for the return of box contents felt to have an innocent origin.
Whilst the ownership of many boxes has been established, in a large number it apparently has not, and a substantial sum has not been claimed or, of course, returned to anyone. Although the supposedly antiterrorism law was used, it is clear that the owners of many boxes are alleged to have been involved in a wide variety of crime, by way of theft of money and assets, drug trafficking or tax evasion. My concern is the final category, where there are likely to be many people who wonder whether the raids on the strongbox offices are soon going to lead to criminal action against them, with loss of substantial funds.
In advising such individuals, the recommended course of action is likely in general to be similar to that adopted with the Offshore Disclosure brigade. That is, to come clean and disclose full details of any tax irregularities which have given rise to money locked away in strong boxes, well away from the prying eyes of HMRC.
But there are important contrasts with the Offshore Disclosure regime cases, and some vital aspects to be addressed.
First and foremost, there is no amnesty on offer. Any tax due will be subject to penalties at a much higher rate than the 10% offered last year, and since it is likely that some of the raided boxes contain evidence of fraud which is clearcut and detailed, kept on the assumption that this damning information would never see the light of day, we can expect some possibly highprofile prosecutions.
Second, there is a very definite element of “guilty until proved innocent”. This is because the Proceeds of Crime Act basically requires that anyone claiming back money, financial instruments and other valuable assets impounded will have to prove that the items were legitimately acquired. That may not be easy. It may be impossible. In the case of anyone in business, there is an obvious added factor – HMRC will presume that such funds represent diverted receipts of the business and will wish to investigate the personal and business finances of the box holder, his/her businesses and associates to establish the full extent of undisclosed income and gains. In serious cases this might lead to prosecution, but in any event it is likely to result in a financial settlement with HMRC which will make a serious hole in the funds.
Third, HMRC will also expect that profit or income understatements will extend beyond anything in the box. In some cases, there will no doubt be offshore bank statements and other documents revealing additional funds and assets held elsewhere, and there is inevitably the question of what further amounts of extracted funds were spent supporting an extravagant lifestyle. HMRC will rightly point to their experience that investigations initially based on known amounts banked, or perhaps introduced to support a business, usually throw up significant additional taxable profits and gains which can multiply the yield for the department. This is a sound reason for expert representation in dealing with such a case.
The message is clear. For those caught in the strongbox net, it is critical that an early approach is made to HMRC with a view to securing an agreement that the case will be dealt with as a money settlement. This requires a properly thought out strategy tailored to the particular circumstances of the case, and skilful and imaginative professional representation can make the difference between an effective damagelimitation exercise and complete financial disaster. Again, this is a situation where the department seem to hold all the aces, but that does not necessarily mean that the punter has to lose his shirt!
Noshir J Avari is principal of Avari and Associates, Tax Investigation Consultants. He served the Inland Revenue for 20 years before setting up Avari and Associates. For more information: www.avariandassociates.co.uk