Back in mid February, at the height of public concern around the lack of criminal prosecutions of HSBC tax evaders, HMRC released a ‘Statement by HMRC on Tax Evasion and the HSBC Suisse Data Leak’ and it said:
However, as I revealed here many of those convictions were obtained in benefit fraud cases. HMRC were defending their record of prosecuting wealthy offshore tax evaders by pointing to their vigorous prosecution of those who had overclaimed benefits.
Late last week, after the Budget, HMRC released a further document entitled Tackling Tax Evasion and Avoidance. That further document was widely (mis)reported – including by the BBC – as amounting to a corporate tax evasion “crackdown.” But in fact it just announced a series of consultation exercises. There were no new measures to tackle evasion.
On the subject of criminal prosecutions the mistake of the February press release was not repeated. The 19 March document stated:
No explicit claims were made – or implied – about the number of prosecutions for offshore tax evasion. What we do know is that the 3,600 cases investigated by HMRC in consequence of the Falciani disclosures have led to but one single prosecution.
You might have wondered why this is.
In 2009, we agreed the so-called Liechtenstein Disclosure Facility. But let’s call it what it is: an amnesty for offshore evaders. If you made a disclosure to HMRC under the terms of that amnesty then, however egregious your criminality, you would escape criminal charges. Not just criminal charges: the penalties other evaders faced – of up to 200% of the tax evaded – would be reduced to a maximum of 10% of the tax evaded. And there was other favourable treatment too.
You might have thought from the fact that the amnesty was called the Liechtenstein Disclosure Facility that the evasion offences had to have some some connection to Liechtenstein. Not so. The income you had criminally failed to declare could have come from assets anywhere in the world. But if you moved those assets – and income – to Liechtenstein you could take advantage of the amnesty. This is what the Second Joint Declaration says:
The key word to focus on is “new”. You could bring “new” property into Liechtenstein specifically to participate in the amnesty.
Now this was quite a sweet deal for the bankers in Liechtenstein. Moving your money to this tax haven became the only way to guarantee you would not face criminal prosecution for offshore tax evasion in the UK. That secretive tax haven would then benefit from the fact it had your money to manage it in the future. Why the UK authorities might have wanted to prefer bankers facilitating tax evasion in Liechtenstein to bankers facilitating tax evasion anywhere else is a question I’m afraid I can’t help you with.
But I digress.
The consequence of not needing a pre-existing connection with Liechtenstein was that anyone, anywhere in the world, who had been evading their taxes could move their property to Liechtenstein and escape prosecution. Indeed, about 500 of those whose evasion in Switzerland had been revealed to HMRC by the Falciani data were actively encouraged by HMRC to move their property to Liechtenstein to take advantage of the amnesty. You don’t need to take my word for that. Just read what Lin Homer, Chief Executive of HMRC, said at Q123 here.
We think about another 500 went in as a result of us encouraging them to do so.
So. You’ve got this worldwide amnesty for offshore tax cheats. Presumably it’s a short thing, right? To give people a one-off chance to put their affairs in order or face the full force of the law?
Nope.
We entered into the Liechtenstein amnesty in August 2009. It was going to run for five years (i.e. until August 2014: see paragraph A of the Preamble). But on 11 June 2012, we extended the amnesty until 5th April 2016.
In last week’s Budget, the Government resiled from that extension. It announced that the amnesty would close four months early at the end of 2015. But it would be replaced by a new amnesty (see para 1.242) which would run from 2016 until mid 2017 with penalties of 30% (instead of the usual 200%) and immunity only “in appropriate circumstances” (whatever that means).
So. Take a big step back. From 2009 until mid 2017, anyone committing offshore tax evasion offences anywhere in the world would have known (1) that they could escape criminal prosecution by making a voluntary disclosure and (2) that they had years to decide whether to do so.
Go back to the title. Why so few prosecutions of offshore tax evaders? Any ideas?
Postscript: this is not a party political story. Neither the Coalition nor the predecessor Government emerges with particular credit from its telling. What matters is that we get it right going forward.
Waiting for Godot 
Perhaps Margaret Hodge and the PAC would seize the final opportunity offered by tomorrow’s session to get Dave Hartnett to throw more light on these murky deals.
It’s a plea bargain. If you go into LDF you undertake to disclose everything to HMRC, and the quid pro quo is that HMRC undertake not to prosecute you – though they reserve the right to do so if they feel like it.
The tax(non)payer gets an easier ride, but then so do HMRC as most of their investigative work is done for them.
The LDF should be an alternative to HMRC actively pursuing people throwing the book at them. I suspect however that HMRC don’t have the resources to do this enough, so rather than the LDF being an alternative it has become the default.
Page 68 of MRC’s most recent annual report (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/330670/HMRC-annual-report-2013-14.pdf ) says that 421people were detained after arrest but no one was charged. HMRC statistics are suspect.
I think the footnote says of those people that they were “arrested for a customs or revenue offence, who went through the legal process or were released without charge” (my emphasis) and I think they were for all evasion offences (i.e not just offshore).
Jolyon
Who are ‘we’ and what form is this ‘going forward’ going to take? Will this be through Judge made law or will it come through Parliament?
Who is going to kick any changes off?
I fully agree that both political incumbents at the time are equally collusive with tax evaders. But surely it will be the politicos ensuring that this sort of thing persists? Unless of course you think that a bunch of lawyers, barristers and judges will just emerge from nowhere to get things moving?
What also bothers me as a voter and a tax payer is that the Governments involved have not sought my permission to do this yet they still expect me and others to pay our taxes.
I am afraid I think the mechanic for change is the usual one. Raising the issue up the agenda and making it more politically important. It is very much with that view in mind that I write what I write. In their ways, I think both parties tacitly or explicitly acknowledge the need for change. But change profound enough? And fast enough? Of that I am less sure.
Well, you could take the principled view that all tax evaders should be prosecuted in all circumstances, but that kind of “zero tolerance” approach is one that is rarely taken by prosecuting authorities. I doubt there are sufficient resources available to prosecute more than a few dozen tax evasion cases each year.
Stepping back, what is the purpose of prosecuting of tax evaders? Surely not just to punish the evader, but also to recover the amount evaded, and to encourage compliance by everyone else. Perhaps HMRC focuses to much on the second point, to the detriment of the first and the third. That said, if you think you might never catch tax evaders otherwise, it might make perfect sense to offer them the opportunity to confess their wrong, pay the back taxes, and face a lighter penalty than might otherwise apply if they were caught.
How should we encourage malefactors (or their heirs) to voluntarily regularise their position?
The questions here, surely, are whether (a) these particular individuals might have been caught by HMRC anyway (personally, I don’t see why people already being investigated as a result of information received by HMRC from Switzerland should be able to claim the benefit of the LDF) and (b) whether the deal is too generous (yes, the LDF is very generous).
They reserve the right to prosecute under the ldf if they feel like it? Is that correct?
It is not correct. They promise that they won’t.
I think the Harry Redknapp case demonstrates how difficult it is to get a successful criminal prosecution in an evasion case.
Sorry, loose wording. They say they won’t prosecute unless they consider that you’ve not fulfilled your side of the bargain. An example might be where they decide that you’ve made an incomplete disclosure rather than providing all the relevant information.
You can only be sure you’re immune from prosecution if you’re sure that HMRC won’t suspect that you’ve hidden something. Even if you have disclosed everything, you have to be sure that HMRC will a) believe you and b) not get misled in any way, make any mistakes or errors in judgement, or head up any garden paths.
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