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HSBC Suisse data leak

By admin
01 Feb 2015
Tax Investigation

Last week’s article took some dangerous steps and commented on HSBC Suisse data leak, politics and HMRC’s powers. Who would have thought that more material would be forthcoming allowing us a little more insight into HMRC’s functionality? Who would have thought that we remember Redknapp and his wealthy dog?

On 14 February, HMRC published a statement on tax evasion and the HSBC Suisse data leak. The chosen format of the statement is interesting: it starts with telling the reader statistics on HMRC’s achievement before addressing the HSBC list. It ends with a short paragraph aligning HMRC’s performance with that of other tax authorities (in contrast to claims made in the media).

The headline performance statistics, which originate from HMRC Fast Facts published in May 2014, are from April 2010 and as follows:

  • secured £100 billion of compliance revenues

  • secured £31 billion from large business compliance work

  • brought in £2 billion of revenues from offshore tax evasion through international agreements and disclosure facilities

  • collected £135 million in tax, interest and penalties from people on the HSBC Suisse list

  • secured £852 million from the UK’s 6,000 richest people

  • made 42 changes to tax laws

  • won more than 80% of cases in tax tribunals

  • five-fold increase in criminal prosecutions for tax crimes

  • prosecuted more than 2,650 individuals for tax crimes

  • secured 2,718 years of prison sentences

So at the outset the facts look and are impressive. Psychologically, the reader is impressed with the performance and moves on to read about Operation Solace. Stop. What is it that the public want to know? Is it really a list of facts on HMRC’s performance or how they managed the data list? Or is it what we suggested last week? Those who read last week’s article will recall that we felt the serious issues were:

  • If the public consider that those with the power and influence over government are corrupt, they will have little regard for tax system

  • Does HMRC have a fair policy or is it politically influenced?

  • Is it morally correct for politicians to implement tax planning structures and if so, is it not equally correct for the wider public (our thoughts are with all those with employee benefit trusts etc.)?

  • If certain politicians have legitimate structures, surely they could assist with the simplification of the tax system and educate both HMRC and the public on what is tax avoidance, evasion and acceptable tax structuring

The statement from HMRC sets out some additional points of interest:

  • Operation Solace at its peak had around 300 tax specialists systematically examining the HSBC Suisse data leak to identify tax evasion

  • The HSBC list has 6,800 entities, which after removing duplications reduced to 3,600 entities

  • More than 1,000 account holders have been the subject of an investigation or disclosure

  • A number of disclosures were made under the Liechtenstein Disclosure Facility, which gave an exemption from criminal prosecution subject to full disclosure

  • 150 cases were investigated with a view for criminal prosecution

  • 3 cases were submitted to the Crown Prosecution Service (CPS) and the CPS considered only one to be suitable for prosecution

  • In around 2,000 cases HMRC found no evidence of evasion (apparently the account holders are the subject of ongoing monitoring)

  • 100 cases are still in progress

  • 400 cases were untraceable

Criminal Intent

HMRC rightly pointed out that they need to demonstrate criminal intent to successfully prosecute. At present, HMRC have to demonstrate intent to evade tax although a consultation ran from 19 August 2014 to 31 October 2014 which introduced a new strict liability criminal offence of failing to declare taxable offshore income and gains. In that consultation HMRC stated:

“We know some of these people will have tax to pay. That is why HMRC is offering time-limited disclosure facilities allowing people to come forward and settle their bills as quickly and easily as possible.

If taxpayers do not come forward to clear up their past non-compliance, or if they continue to fail to comply with their obligations in this new era of transparency, then they must face tough consequences. One of these consequences should be the realistic threat of a criminal conviction”.

Proving intent requires establishing state of mind (Mens Rea) and this may be quite difficult. However, it should also be considered that ignorance of the law is generally not a reasonable defence.

It seems that proving intent to evade tax may be more likely where income is received offshore in a low tax jurisdiction as opposed to the UK. Although it will require evidence of that intent, for example:

  • Creating fictitious invoices to remove money from the UK tax net to a low or no tax net

  • Arranging to receive sale proceeds outside of the UK in respect of disposal of an asset, say a property or business

A few problems proving intent to evade tax can arise where:

  • Tax advice (maybe even Queen’s Counsel’s opinion) was obtained that the transaction was legitimate

  • There is no element of falsified records which would otherwise demonstrate the person was knowingly undertaking the transaction in a particular way

  • There are potential commercial reasons for the manner the transactions were done that could arguably prevent anti avoidance legislation applying

  • Sufficient time has passed that the identification of what really occurred is problematic or out of time (i.e. over 20 years ago)

It is evidently difficult in many situations to prove intent. Thankfully the courts have seen through the use of a dog’s name to hold a bank account which gifts completely unconnected to a transaction that could be associated with trading. Which reminds me Harry Redknapp was found innocent of cheating the public revenue and nothing here should be interpreted to the contrary.

The case concerned Redknapp and Milan Mandaric: A significant sum was paid by Mandaric (Chairman of Redknapp’s employer) into an offshore bank account in the name of Redknapp’s dog. The case did not argue the facts and was instead concerned with establishing Mandaric’s motive for making the payment.

HMRC contended the payments were remuneration in respect of Redknapp’s employment on the basis that Mandaric financially supported the employer and that Redknapp had stated to a reporter that the payment was in effect a bonus. Problem being that both defendants claimed that the payment was not a bonus and was instead seed money for an investment, which had later been topped up because the investments had performed badly. No significant details of the investment and losses appear to have been provided as evidence.

Redknapp also argued that he was not aware of any liability to tax, and that he was not financially astute enough to have attempted to evade it. Worrying that a football manager paid a relatively good salary for a long career responsible for budgeting does not consider himself to be financially astute. He was fortunately clever enough not to open a normal bank account in his own name or that related to the so called investment (astute enough to be trusted with an investment but not to evade tax).

Redknapp was either found innocent or not proven guilty. Let’s for illustrative purposes only (and in no way to be interpreted as denying Redknapp his innocence) assume that HMRC failed to prove guilt because they could not evidence say a motive to remunerate and an intent for Redknapp to receive earnings in a hidden account. The case would have been an epic fail for HMRC and could be seen as demonstrating the difficulty to prove Mens Rea.


The current media has focused on and alleged that HMRC has not pursued enough prosecutions. It is annoying that certain politicians may know how to legitimately plan their affairs better than most of the public. Those with tax irregularities should not be falsely comforted by the media. HMRC have a string of success stories and statistics. They are also going to have more powers, better information sources and they are going to take a more penal approach to those who “hide their money offshore”.

There are a number of offshore disclosure facilities and automatic exchanges of information are going live in just over a year. If by the time exchanges of information flow to the UK a new strict criminal offence or penalty regime is in place, the proof of intent may be obsolete: RIP Rosie the Dog.

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