In the last ten years, HMRC appear to have woken up and adapted to this situation. They now have specialist teams in this area, resulting in conviction rates which are higher than the average for general criminal cases. Defendants in these case range from business people and their associates innocently caught in the firing line of an investigation, to defendants who may have a criminal past but may be innocent of the charges.
This is not ‘run of the mill' criminal law, and clients should actively seek a specialist in this area. That means understanding the European and domestic Value Added Tax system, the workings of the alleged fraud, and the law which applies, none of which are everyday aspects of every criminal solicitor's work.
At Mary Monson Solicitors, we have been acting in fraud cases for 25 years. Our specialist fraud team defends in multi million pound fraud cases on a regular basis. Accused people come to us because we are known as fraud specialists, as fighters for our clients, and as non-judgmental and understanding in our approach.
Missing Trader fraud occurs where someone buys goods from an EU member state VAT free (as goods are generally sold on import) and then sells them, charging VAT and then disappearing with the VAT without paying it to the Revenue. This simplest form of Missing Trader Fraud is also called ‘acquisition fraud'.
Carousel fraud is the more sophisticated form of missing trader or MTIC fraud. This type of case is the VAT fraud case which the UK authorities devote most time to.
As with a basic intra-community VAT fraud, the initial UK seller of the goods goes missing without paying the VAT it has collected from the first buyer. The goods are then usually passed through a number of traders (who are sometimes part of the plan), who may make small VAT payments to HMRC in accordance with their net VAT liability, thus providing some legitimate cover for the original (fraudulent) trader. The final seller, also claiming back its VAT, will then export the goods back to another EU state (sometimes but not always the country of origin) VAT free. The goods can then be purchased again from the EU seller to re-enter the UK in another fraud in which the first trader goes missing having claimed the VAT.
This type of transaction can obviously result in huge gains for the offender. However, innocent traders can be caught in the criminal case, and sometimes legitimate company directors can be targeted unfairly by HMRC in criminal and civil proceedings.
The Law on MTIC Fraud Explained
The legal basis for a prosecution in most MTIC frauds is the offence of Cheating the Public Revenue. The offence will be charged as a conspiracy in most cases, as this activity is usually planned and carried out by a number of people. The prosecution could also be brought under the catch-all common law offence of Conspiracy to Defraud.
Cheating the public revenue has been defined by the courts as:‘any form of fraudulent conduct which results in diverting money from the Revenue and in depriving the Revenue of the money to which it is entitled.'
The definition is in fact fairly similar to a typical definition of a fraud upon the state. Therefore it is unsurprising that these offences are sometimes brought instead as conspiracy to defraud cases.
As with all fraud cases, the prosecution have to prove the case against the defendant beyond reasonable doubt. This means that the jury must be sure that the defendant was acting to obtain money due to HMRC dishonestly. In respect of conspiracy, they must also be sure that the defendant was acting in the context of a plan with at least one other person to do this. See our separate page on conspiracy to defraud here.
How do specialist VAT fraud solicitors defend a carousel fraud prosecution?
Every criminal investigation and prosecution is different. There is no single approach that will work in every case. But there are certain aspects of strategy that apply to most missing trader and carousel fraud cases.
Terminology in MTIC cases
The absolute basics in a carousel fraud defence involve knowing the principles and mechanics of the fraud. This starts with the language a VAT fraud solicitor should be familiar with the basic terminology of an MTIC fraud. Where words such as broker, buffer, exporter, or EU supplier, or MS supplier are unfamiliar to the defence solicitor or barrister, a client might well have doubts about the level of experience his/her lawyers have in this area.
The courts also use different definitions of roles in sentencing: Shippers, launderers, architects, front liners, organisers all get treated differently by the judge on sentence. These are concepts experienced VAT fraud solicitors will be familiar with.
Management of the evidence
Information management is particularly important in MTIC defence preparation because the number of transactions is usually very high, and the quantity of goods can be in the tens of thousands. The sheer volume of information that makes up the prosecution case is massive, and this requires a logical and organised approach. How should the information be catalogued and summarised? Should it be cross referenced between companies, defendants and time periods?
These are the types of questions that a competent criminal or fraud defence solicitor may well ask when planning the preparation of the client's defence. The information may involve thousands of pages of invoices, documentation relating to the import or export of goods, and/or documents relating to the structure and business of companies. All have their place in the case, and all must be examined critically; and, of course, in the right context.
Any lawyer can take hundreds of thousands of pages of exhibits and employ 15 paralegals to go through the documents, reading and summarising them. That may result in fees for the lawyer, but it does not necessarily help the client unless it is focused on advancing the client's case, and not just on ‘getting the hours in'.
This highlights a major potential conflict of interest between lawyer and client. The lawyer is paid per hour of work, but not necessarily according to how useful the work is. The client, on the other hand is only concerned with whether the work assists in his or her defence. A client must be vigilant and be satisfied that his or her defence lawyer's approach is firmly rooted in the outcome of the case, not just in the process.
The same approach is applicable to the analysis of the ‘unused material', i.e. statements and evidence which are not relevant to the prosecution case, but may assist the defence. Documents which may help the defence case have to be identified and used appropriately, not just ‘processed' by a defence team who don't realise their importance. This requires a meticulous approach from the VAT fraud solicitors, even when the number of documents is in the tens of thousands or higher.
Roles of companies and individuals in companies remember to focus on conspiracy points etc.
In any case which involves conspiracy, as missing trader intra community fraud cases usually do, the level of knowledge and participation on the part of the defendant are relevant. Some companies could be operating in the passage of goods without realising.
Even where a company is operating dishonestly, not all staff or even all directors might know that they are involved in a fraud. It is important for a good fraud defence solicitor to spend time with the client and any other witnesses who were involved in the business to get a clear idea of each person's responsibilities, and how this story is to be told convincingly at court.
As far as the roles of different companies are concerned, it may also be important to look closely at evidence which the prosecution says links a bogus company and the client's company, taking the client's first hand account of how links were innocent, and examining how this can be supported by any other evidence available.
Time with the client less lucrative to your lawyer but as important as going through papers in the office.
As mentioned above, understanding the roles different individuals play in a set of allegations is very important, and must be done by spending time with the most useful witness the defence team have access to the client. The value of time spent with the client cannot be underestimated. It is key to the defence. Problems in the evidence need to be checked and considered with the client before the trial if this preparation isn't done in time, the cross-examination of the defendant by the prosecution barrister may prove fatal to the defence case.
Choice of barrister(s)
The choice of barrister in a carousel fraud case is of course important to get right. Barristers must not just be charismatic and eloquent. Fraud work requires attention to detail, and a grasp of complex factual situations and financial arrangements. The barrister must know the evidence properly and cannot rely on being spoon-fed by VAT fraud solicitors in the preparation of the case.
Wherever possible, the barrister should have previous experience of similar cases, and moreover, have been successful in defending prosecutions for MTIC fraud in the past. All the experience in the world is not worth much if it is experience of failure. The solicitor chooses the barrister or barristers for the defence, and this means that the barrister must deliver in the run up to the case, or know that the solicitor will have no patience with a lack of input. The solicitor is under no duty to keep a barrister involved in the case if the client's interests are not being served.
In complex cases the barrister may be assisted by a second junior barrister. A junior barrister is simply a term used to describe a barrister who is not a QC (Queens Counsel), and many juniors are very highly experienced. To put things in perspective, the great Michael Mansfield defended in his IRA bombing cases and Miners' Strike cases while he was still a junior barrister.
The job of the second junior is largely in respect of assisting the ‘leading' junior barrister with considering papers in the case. This will sometimes be a barrister who is self employed, like the leading junior, or employed directly as an ‘in house' advocate.
Sentencing and POCA (Proceeds of Crime)
Sentences in carousel fraud cases can typically range from 9 months for the less serious money laundering offences associated with the fraud up to 10 years for the major players in the case. In sentencing, much depends on the role of the different defendants. Just because a defendant has to plead guilty does not always guarantee a prison sentence. Sentences can in some cases be suspended, and a good fraud lawyer can sometimes minimise the role his or her client played through negotiation with the prosecution and persuasion of the judge.
One thing a that Vat fraud solicitors with the requisite background in financial offences should be aware of from the beginning of the case is that MTIC fraud cases are often followed by Proceeds of Crime Act recovery proceedings. This means that a defendant could face his or her assets being taken away (possibly even if they are not connected with the fraud) if he or she is convicted. This is particularly draconian law and the strategy that the defence lawyers run in the case should be focused not just on avoiding a conviction and a prison sentence, but also on preserving the client's position in respect of his or her assets so that a lifetime of legitimately earned wealth is not forfeited to the state. For more information, see the sections on the Proceeds of Crime Act (POCA).