Examination of Witnesses

Criminal Finances Bill – in a Public Bill Committee at 9:29 am on 15th November 2016.

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Simon York, Mark Thompson and Nick Price gave evidence.

We will now hear evidence from HMRC, the Serious Fraud Office and the Crown Prosecution Service. Gentlemen, please present yourselves and give a brief background to why you are here.

Simon York:

Good morning. My name is Simon York. I am the director of Her Majesty’s Revenue and Customs fraud investigation service. We deal with criminal attacks and the most serious tax fraud against the tax system. I am here because we use a range of proceeds of crime powers alongside tax powers. We also have a specific provision in the Bill on the corporate offence of failing to prevent the facilitation of tax evasion, among a number of important provisions for us.

Nick Price:

I am Nick Price. I am head of the Crown Prosecution Service proceeds of crime service. Why am I here? We have been working closely with the Home Office and partner agencies in bringing the Bill together.

Mark Thompson:

I am the chief operating officer of the Serious Fraud Office. I was appointed only in September and before that I was head of the proceeds of crime division in the SFO for the previous four years. That is why I am here.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Q Thank you for coming in. I guess to the layperson there are many bodies involved in these issues—the police, who we have just heard from, the CPS, HM Courts and Tribunals Service and the Serious Fraud Office. The natural thinking is that there should be more co-operation between different bodies. I notice that the report from the Home Affairs Committee says that one person should take the overall lead. Where do you stand on being more joined-up and having a more overall person? It said for the recovery of criminal assets it should be the National Crime Agency that co-ordinates and oversees the various different agencies operating at local levels, with the proviso of adequate resources and tools. Where do you stand on the point about an overarching person and who that should be, if we did have one?

Simon York:

We all work closely across law enforcement on a whole range of issues tackling criminality including the proceeds of crime, and that co-operation is really important. What we find particularly useful in HMRC, though, is the ability to use tax powers, proceeds of crime powers and criminal investigation powers in concert. That is what we find works best. We will use whatever combination of powers gets us the right result that allows us to confiscate, recover and prevent the losses. It is important to us that we have the ability to do that in the range of other things.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Q And you are happy with how it is at the moment with you all working in concert. Does anyone think there should be overall supervision?

Nick Price:

We all work very closely together. It is worth the Committee being aware that the CPS has lawyers embedded with HMRC, the NCA and the regional organised crime units where the regional asset recovery teams work. We work very closely with the SFO. So, we already work very closely.

In terms of overall supervision, the Committee will be aware that there is a Criminal Finance Board that is ministerially chaired. Sitting beneath that are a number of sub-groups. There is a criminal finance improvement plan. Those things draw together the agencies with real strategic oversight as well.

Mark Thompson:

The only thing I would add to that would be the need for integration between those tackling proceeds of crime and those who are in a criminal investigation. I actually think one lead agency would make things worse, not better. The reason these things are successful is that I have proceeds of crime people working in the Serious Fraud Office alongside our criminal investigators, and that is the best way to tackle these crimes.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Q Part 3 of the Bill introduces the controversial criminal offence of failing to prevent the facilitation of tax evasion. Some people who have given evidence to the HMRC consultation have argued against the new corporate offence. How do you rate the risk posed to the Exchequer from illegal tax evasion, compared with tax avoidance and other activities that contribute to the tax gap? There are some really scary figures; the most shocking one I saw was that over the last 26 years, the Government have collected 26p of every £100 generated by criminal activity. What do you think of the new offence? Nobody here has a crystal ball, but could you comment on the scale of offshore tax evasion?

Simon York:

We estimate the tax gap in relation to tax evasion as a whole as around £5 billion a year. That includes a range of different types of evasion, such as what is colloquially known as offshore evasion. This is certainly an important issue. Corporates can be significant facilitators of tax evasion, as we have seen on a number of occasions. There is a real public and, I think, political appetite to tackle it. We find a difficulty in attributing criminal liability to these sorts of corporate entities. We think this is an important proposal in improving corporate behaviour in this area—deterring bad behaviour and improving good behaviour. This is by no means the only provision or capability that we need to tackle tax evasion, which is a very broad issue, but it is an important one in tackling a very specific area.

Nick Price:

I cannot really add a great deal to what Simon said on that topic.

Mark Thompson:

Me neither. Tax is HMRC’s primary responsibility.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Q This is modelled on section 7 of the Bribery Act 2010. Am I right in thinking that so far under that Act there have been zero prosecutions—[Interruption]—or a very low level of prosecutions, shall we say?

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

That is only from 2010, so it is not an old Act, and again, nobody here is Mystic Meg, but do you have the tools in this legislation to bring about successful prosecutions or are there too many obstacles, such as that the SFO is involved and that behavioural change would be needed, as you said? Do you foresee there being a low or high level of prosecutions when the Bill is enacted?

Simon York:

A good result would be that corporates change their behaviour and that there is less facilitation of tax evasion, and consequently, less tax evasion. We certainly have the tools, through a combination of this proposed legislation and our existing capability—HMRC is a very competent and successful law enforcement agency and criminally investigates many people and convicts them successfully every year, so I think we have that capability. Do I think we will have a lot of prosecutions in this area? I hope not, but I think we will be looking for a number to act as part of this deterrent to show that the legislation has teeth and to show that we mean business.

Nick Price:

I would just make a quick general observation: all prosecutions are difficult and we operate an adversarial system, which of course we are well used to. This is a really useful piece of potential legislation, with some really useful elements to it. Are we going to see a phalanx of extra prosecutions coming over the horizon? Perhaps not, but there are some really useful aspects of the Bill that we will no doubt deal with shortly.

Mark Thompson:

In my experience, it is not inherently a numbers game, in terms of numbers of prosecutions. We have found that the section 7 offence of the Bribery Act is a useful tool for us as prosecutors. It focuses the corporate mind and there has been a large response from the private sector in complying with that. I would be surprised if the tax evasion offence did not have the same implications.

Thank you. May I point out that we have got 30 minutes left, and eight other Members of Parliament want to ask questions? I remind both witnesses and Members that it is your time, and that witnesses are here today to answer as many questions as possible.

Photo of Mike Wood Mike Wood Conservative, Dudley South

This question is directed in particular to MrQ Thompson. Could you tell us more about the challenges faced by the Serious Fraud Office in investigating a suspected criminal financial activity, and how the specific measures in the Bill will help you to do that more effectively? In particular, I would like to know more about how unexplained wealth orders might be expected to help in pursuing foreign officials suspected of grand corruption.

Mark Thompson:

Members of the SFO and I have been involved in consulting with the Home Office as this process has developed. Unexplained wealth orders provide an avenue for us to start civil recovery investigations effectively in a way that we cannot do at a moment. Where information is held abroad, or is in jurisdictions where co-operation is unlikely, this tool provides us with a way of kicking the process off and taking action against property in the UK that we suspect to be derived from crime. As things currently stand, the thresholds for pursuing civil recovery are, in many cases, high enough to make this difficult. That is how I would see our using the legislation in the first instance.

Photo of Nicholas Dakin Nicholas Dakin Opposition Whip (Commons)

Q The new corporate offence relates only to tax evasion, which makes sense. But is there a case for extending it to dissuade companies from facilitating quite aggressive tax avoidance?

Simon York:

At the moment this is a criminal offence, and tax avoidance is not a crime, which is why that would be difficult. We are currently consulting on additional legislation that would penalise the enablers of tax avoidance, so we are seeking legislation in that area too.

Photo of Victoria Atkins Victoria Atkins Conservative, Louth and Horncastle

Thank you, and it is a pleasure to serve under your chairmanship, Sir Alan. I want to pick up on the point about avoidance and evasion. Mr York, you said that these powers are directed at tax evasion, which is a crime. To give us an idea of the complexity of veering into the world of tax avoidance and tax efficiency, is it not right that a person simply investing in a pension can be described as being tax efficient because that prevents them from paying as much tax as they would otherwise pay?Q

Simon York:

Certainly it can be tax efficient. We tend to use the phrase “tax planning”, so a pension or an ISA or something like that would fall into that category. Tax avoidance is typically where people are using schemes—which are often quite contrived and artificial—to do something that Parliament never intended. They are not lying to us, or being fraudulent, or misrepresenting something, but it is all artificial. We will criminally investigate the kind of situation in which people step over that line—which sometimes they do—and when they are part of something that might appear to be an avoidance scheme that actually becomes fraudulent, or where they are deliberately going out to defraud and disguise it as an avoidance scheme. We have had some significant wins over the past 12 months on big complex frauds disguised as avoidance. When it crosses that line, we will come right down on that. But if it is avoidance in the theoretical, pure sense, we will tackle that through civil litigation and take those cases to court.

On the subject of tax avoidance, the Government have done lots of work on tax avoidance over the last five or six years, and 40 loopholes have been closed down. In particular, we have brought in the accelerated payments legislation which completely changes the economics of tax avoidance, and makes people pay upfront while we wait for tribunal results. There are some really striking figures. The flow of new schemes is now down 99%. In 2006, there were 600 new schemes a year; last year there were seven. A couple of years ago, there were 2,300 new users of avoidance schemes; last year there were 410. We are really taking the bottom out of the individual market of avoidance schemes. The proposed legislation is to tackle another intractable problem, which is evasion, which is a criminal offence.

Photo of Victoria Atkins Victoria Atkins Conservative, Louth and Horncastle

Q On behalf of all the lawyers in the room, only one person may be convicted, but that conviction may mean that many hundreds of millions of pounds has been stolen from the Exchequer. With one conviction, you have solved that crime. Is that correct? In other words, one conviction does not necessarily reflect the extent of the damage that that particular defendant has inflicted on the UK economy.

Simon York:

Not necessarily, no. We will use whichever approach we think is the most effective. Sometimes—for example, in relation to organised crime or groups of wealthy individuals—we will use a mixture of our civil tax powers and criminal investigation powers quite deliberately to get the biggest impact. My team recovers or protects about £5 billion a year through a combination of civil and criminal activity.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

Q I have two short questions. First, what types of business formations are most susceptible to use by criminals?

Simon York:

I think most sorts of business formations can be susceptible. Companies, partnerships, limited liability partnerships, Scottish limited partnerships and trusts are all used most widely for completely legitimate purposes but all, in the wrong hands, can be used to attempt to obscure ownership or value, or to launder profits of crime. They can all be used in different ways.

Nick Price:

I am not sure that there is a specific type that lends itself to criminal activity any more than any other.

Photo of Roger Mullin Roger Mullin Shadow SNP Spokesperson (Treasury)

Q Perhaps this is for HMRC again then. How effective are we at supervising for anti-money laundering purposes all trust or company service providers that register UK companies?

Simon York:

HMRC is the supervisor—TCSPs are not regulated in any other area. Our strategy is that we have teams that conduct anti-money laundering supervision, try to support that industry, particularly those that are susceptible or vulnerable to money laundering, and help them. My teams tend to get involved when we clearly suspect some of those organisations of facilitating crime, money laundering, tax fraud or whatever. Our strategy is to, again, use a combination of the money laundering supervisory regulatory powers and our tax powers. We have some really quite significant projects—I cannot go into too much detail—on the go at the moment in relation to TCSPs in particular.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q I want to come back, Mr York, to attributing criminal liability to corporates. You felt that that would prompt good behaviour. For example, there have been some well publicised cases of licence payments where profit will be taken out of the UK because of some form of licensing agreement or other device that removes profits from the UK. How do you see the new advisory part 3 capability in tackling that? That is tax avoidance, rather than tax evasion, is it not?

Simon York:

It could only be used to tackle that sort of behaviour if that, in itself, was a criminal offence. I think what you are describing is typically the sort of tax planning or avoidance that multinationals might engage in. If that was fully presented to us and it was completely upfront, this would not be the appropriate response to that. If, however, anything was misrepresented to us and it effectively became a fraud and a criminal offence, and that was being facilitated by someone else, it could. But this is not really aimed at that at all.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q Can I perhaps take it to the other extreme, where, for example, single parents are trying to claim support from non-resident parents who are not declaring their income appropriately? That would be tax evasion. Would you see this offence as dealing with those people’s accountants and advisers? In other words, if professional accounts have been filed and there is then a tribunal finding that there has been an inappropriate amount declared for income tax, would you get involved?

Simon York:

Our interest is in tax and tax evasion, so if we see tax evasion in whatever form, we will tackle it. We certainly could tackle scenarios like that. It is already a criminal offence for individuals to evade tax and for others to directly facilitate that evasion of tax. What is new here is that the Bill deals with a corporate body failing to take reasonable steps to prevent its representatives from facilitating the evasion of tax by someone else. It is that third stage; it is when you get to the corporate, which under current English law it is really quite difficult to attribute criminal liability to. That is what this offence is designed to address, so I do not think it would directly affect that sort of situation, but we would tackle that in other ways.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q Could it, for example, affect a high street accountant that was providing advice on something that may be on one or the other side of the line?

Simon York:

It could if that accountant was a corporate body and its representatives or employees were facilitating or enabling tax fraud. Yes, it could help there.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q Mr Price, will unexplained wealth orders help the CPS make greater use of its existing civil recovery powers?

Nick Price:

Unexplained wealth orders are interesting. We welcome that provision, and we have worked closely with partners in bringing it forward. The CPS is not an investigatory body, as you know. We think that these orders are likely to be used more by our partner agencies. Will it mean that we do more by way of civil recovery? As you know, the NCA already has its own capability to do that; it is likely that HMRC will get its own capability to do that as well—there are provisions in the Bill that would enable that—and the SFO likewise. We are likely to do a small additional amount of civil recovery work, and unexplained wealth orders may well be part of that, but I think the vast majority of that work is going to be done by the other agencies.

Photo of Antoinette Sandbach Antoinette Sandbach Conservative, Eddisbury

Q Will extending the moratorium period on SARs assist you in getting the material that you need to get cases to a point where you can charge?

Nick Price:

This is a very significant and welcome change for us. There are cases that we have not been able to take forward for early restraint simply because the moratorium period was far too short and the investigation simply could not be completed in the time that we had. Why is early restraint important? It is, I suppose, a trite observation in this field, but if you are unable to restrain assets at an early stage in proceedings, the likelihood of them being available later on is pretty remote. The extension of the moratorium period is critically important to us. There is considerable judicial oversight of that provision—you will have seen that in the Bill—so we very much support that.

Photo of Peter Dowd Peter Dowd Shadow Financial Secretary (Treasury)

Q The Chartered Institute of Taxation has expressed some concern that the new corporate offence of failure to prevent the criminal facilitation of tax evasion may lead to a string of prosecutions in relatively small cases where current civil penalties already provide enough punishment. What is your view about that?

Simon York:

That is probably unfounded. Our approach here, like it is with all our criminal investigation work, would be to focus on where the behaviour is at its worst and most fraudulent, and therefore on where it is having the most impact, particularly where a corporate is having a very wide impact on a wide group of taxpayers and where the amounts involved are large. That is typically our approach. We would be equally selective with this power.

Photo of Peter Dowd Peter Dowd Shadow Financial Secretary (Treasury)

Q Some people suggest that HMRC has got form for not going after the big organisations—the Googles—for tax avoidance. What confidence can you give us that you will not just avoid the big ones because they are in the “too difficult to do” box?

Simon York:

Our track record on this side is that, last year, we charged around 1,200 people with criminal offences, and about 12% of those were for frauds involving more than £0.5 million. You will probably have seen reported in the press some extremely big, valuable and complex frauds that have been in criminal court for over a year—that sort of thing—and that we have won. We are increasingly targeting that sort of behaviour. We have had extra investment from the Government, particularly to build our capability to tackle wealthy individuals, corporates and offshore evasion, and we are busy doing that at the moment. We have a significantly stronger pipeline of that sort of work currently.

Photo of Peter Dowd Peter Dowd Shadow Financial Secretary (Treasury)

Q Which brings me nicely to my last question, which is about your confidence in whether you as enforcement agencies have sufficient resources under the new provisions to do your job properly.

Simon York:

In my part of HMRC, I have 4,500 people carrying out investigations into serious fraud, both criminal and civil investigations. Within that, and relevant to what we are talking about here today, I have a team of over 400 who deal with proceeds of crime in the widest sense—financial investigators, criminal taxes teams, insolvency practitioners and so on. It is something we treat as very important. We have had increasing investment over the years from Government, so the size of my team has increased quite significantly over recent years.

Nick Price:

The CPS set up a proceeds of crime service just over two years ago. Operating on a national basis obviously means that we can be as efficient as we possibly can be, and we can meet the peaks and troughs in demand in terms of the various casework we are dealing with. We deal with work from the very top end at my end of the scale, down to the other end of work. As I say, that is on a national basis.

We are sufficiently resourced, and we also benefit from additional resource from the top-slice arrangements in relation to the asset recovery incentivisation scheme, or ARIS. That money is financing a specific project: we are working in conjunction with the police asset confiscation enforcement or ACE teams in the RARTs and ROCUs—regional asset recovery teams and regional organised crime units. That work is focused around section 22 revisits. You will of course be aware that there are some really important provisions in this Bill that enhance our ability to deal with revisits. I will add very quickly that we have seen a 150% increase in the number of revisit cases we are dealing with, so the provisions in the Bill are critically important to our work.

Mark Thompson:

From our point of view, the proceeds of crime division has roughly doubled in size in the last two to three years. It remains a high priority for the SFO, and our funding model allows us access to additional funding from the reserve if we have cases that exceed a certain size. I make no complaint about resources at the moment.

Order. We have 11 minutes left and I will stop this at 11.30 am, so help yourselves: please give yourselves more time for each other.

Photo of Flick Drummond Flick Drummond Conservative, Portsmouth South

Q I will be quick because you have touched on a lot of the stuff about which I was going to ask, particularly about the overseas corporate offence and how that works in practice. Mr York, will this actually pick up companies that operate mainly out of the overseas territories and the Crown dependencies?

Simon York:

Yes if they are facilitating tax evasion in the UK or if their representatives carry out their business in the UK and are facilitating tax evasion that happens somewhere else. It catches Crown dependencies and overseas territories in the same way it catches other jurisdictions.

Photo of Flick Drummond Flick Drummond Conservative, Portsmouth South

Even though they have headquarters over there?Q

Simon York:

Yes. That is precisely one of the targets of the legislation. If a company is facilitating tax evasion that is occurring in the UK—someone evading UK taxes—it would absolutely catch that. Equally, if that organisation is based overseas but its representatives are doing business in London to help someone in London to evade taxes in France, it would catch that as well.

Photo of Richard Arkless Richard Arkless Scottish National Party, Dumfries and Galloway

Q First, to Mr York, the UK tax code has a reputation for being unnecessarily complicated. I am sure you are acutely aware of those allegations. To what extent does that complication play a role in criminality? Does it make it more susceptible to criminality? Do any specific examples arise out of the complication that would encourage, facilitate or make criminality easier?

Simon York:

I am not sure that it does. Criminality is always pretty straightforward at its core. It is people lying, misrepresenting things and forging things. Sometimes that is disguised within the complexity of the tax system. I mentioned some times when people disguise a fraud as avoidance. We also get quite a lot of criminal attacks over the years that revolve around the VAT system, particularly the cross-border European stuff, known colloquially as MTIC—missing trader intra-community—fraud or carousel fraud. That can appear quite complicated but it is typically the criminal who is creating the complication to try to disguise the activity.

Photo of Richard Arkless Richard Arkless Scottish National Party, Dumfries and Galloway

I am acutely aware of time. Mark and Nick, do you think that the threshold of £100,000 for unexplained wealth orders is at a fair level? Should it be lower or higher? International standards would dictate that it should be a little bit lower. What are your views?Q

Nick Price:

From my perspective, it is a reasonable level at which to set the threshold. If you look at the two gateways into an unexplained wealth order—politically exposed persons or people suspected of involvement in serious criminality—you see that the likelihood in those cases is that the overall values will be far more than £100,000. For me, that is broadly where it needs to be.

Mark Thompson:

I would agree with that. To make the criminality serious enough, I would have thought that it needs to be at a level that marks that sort of criminality. I think it is about right.

Photo of Richard Arkless Richard Arkless Scottish National Party, Dumfries and Galloway

Many properties in my constituency are valued at less than £100,000 but more than £50,000, so I hope we are not basing that on London property prices.Q

Mr Thompson, on corporate economic crime, it is clear that the provisions in the Bill extend to employees facilitating tax evasion, and it does not go beyond that. Do you think there is a case for going beyond that? It strikes me that there is nothing in the Bill that gets at what the public understand as being the problem with corporate criminality. There is nothing that could catch the riggers of the LIBOR market, for example. There is nothing that could catch swathes of unscrupulous mortgage advisers giving 120% mortgages to dogs in kennels, which many people would argue has caused a great deal of the suffering that we are still all trying to recover from. Is there is a case for that?

Mark Thompson:

There is a case for it. The SFO has made that case previously. The Attorney General has also called for consultation. My understanding is that there has not been a consultation yet on that measure, and that the Government may consider one. We have made the point before that it is inequitable that bribery and tax evasion attract these sort of corporate penalties, but that money laundering does not—it is a crime that attracts 14 years in jail. It also seems unreasonable that it is easier under the current law to prosecute small and medium-sized enterprises and not big corporates because of the way they operate. We have made that point before, but my understanding is that it was never going to be in this Bill anyway. It is a wider matter.

Photo of Scott Mann Scott Mann Conservative, North Cornwall

There are information and data-sharing initiatives as part of the Bill. How would you interact with those measures and with the joint money laundering intelligence taskforce?Q

Mark Thompson:

We do already interact with the joint money laundering intelligence taskforce, and we have a representative who attends it. We have access to that through the National Crime Agency. The data-sharing provisions are mainly for the NCA, and we would benefit from those arrangements. We entirely support them and think they would be advantageous.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Are there any other changes to the existing proceeds of crime regime that you would like to see in the Bill? I was thinking of some sort of parallel enhanced supervision of the property market. Is there anything else on your wish list that you would have liked to see?Q

Nick Price:

From a CPS perspective, we are content with the provisions in the Bill for now. It is too early at this stage to know how those will play out and the impact they will have. Inevitably, we will assess the use of these provisions as we go forward.

Mark Thompson:

These are the second changes to the Proceeds of Crime Act 2002 in relatively recent succession. We still need to work out exactly how we use all these powers effectively. Like the CPS, I am content with where we are.

Simon York:

We are content and very supportive.

Photo of Rupa Huq Rupa Huq Shadow Minister (Home Office) (Crime and Prevention)

Finally, I would like to ask a question that I asked the other selection of witnesses. The Public Accounts Committee’s report on confiscation orders said that sometimes there is a bit of tension between whether the point of those orders is to disrupt crime or to recover the proceeds and collect criminal assets. What would you say to that statement?Q

Nick Price:

From a CPS perspective, as I said earlier we deal with cases at the low end of the spectrum, and we deal with cases that are very much at the high end of the spectrum. In all those cases, there are victims. In many of those cases, there are people worthy of compensation. I do not believe there necessarily is, and I would not see it as, a tension. We deal with the full range of cases, and it is important we do that.

Mark Thompson:

From our perspective, we only deal with the top end of fraud and corruption cases. Inevitably, there is a financial element, and it behoves us to consider confiscation and compensation of victims in all those cases, which is what we do.

Simon York:

Our aim is to take the profit out of crime, whichever way we do that. Whether it is disrupting criminals or recovering proceeds afterwards, it is all part of that overall picture.

I thank the witnesses for appearing in front of us. We are grateful for the concise and informative way in which you have helped us today. We will now move on to the next panel.