#carousel fraud

The UK Tax Tribunal found VAT fraud due to links with Mr Shafqat Dad who had a history of being connected to similar VAT conduct in a string of other companies where many millions had been defrauded from HMRC (European Telecom Plc; Goldex Services Limited, Goldex International Limited, Cellular Consultants Limited) by mobile phone carousel fraud. Mr Shafqat Dad was a beneficial owner of the…

#ACAMSEurope SPEAKER BLOG

By way of background there are approximately 160 countries in the world operating either the VAT or GST systems and none are immune from the risk of VAT carousel fraud. This type of fraud is also known as Missing Trader Intra Community (MTIC) fraud, or simply referred to as cross border VAT fraud. Rod Stone OBE, a panelist in the “Leveraging AML Controls to safeguard your institution against fraudulent transactions” session outlines the challenges of combating VAT carousel fraud.

Although referred to as ‘missing trader’ fraud, the so called missing trader is not actually the primary beneficiary to the fraud but rather the device by which the fraud is perpetrated. The actual beneficiaries are the other participants in the transactions and those who orchestrate the fraud. Europol estimates that VAT fraud costs EU Member States approximately €60 billion annually.

Many types of fraud, and particularly revenue frauds, exploit exemptions and reliefs that are available to facilitate business. However, in return, business is now expected to ensure that organised criminal groups (OCGs) do not abuse the entitlements that business has been given. If they fail to do so, and it can be demonstrated that a business knew or should have known that they were participants in a fraud, they can lose their right to claim their entitlement.  As a result the right to VAT input tax deduction, VAT exemptions such as zero rating or entitlement to the reverse charge procedure, can be reversed leaving a significant and enforceable VAT debt.

To protect their clients from the application of the abuse of right principle, some advisers emphasise the need for their clients to undertake due diligence before entering into transactions. However they do so without understanding what is actually required. Consequently for many businesses due diligence is limited to confirming the identity and credit worthiness of prospective counterparties.   Confirming a person’s identity and creditworthiness does not mean they are not participants in a fraud.

The UK Court of Appeal, in the matter of Mobilx, said that VAT Tribunals (Lower Court) should not unduly focus on the question of whether a trader has acted with due diligence. Even if a trader has asked appropriate questions, he is not entitled to ignore the circumstances in which his transactions take place if the only reasonable explanation for them is that his transactions have been, or will be connected to fraud.

The danger in focusing on the question of due diligence is that it may deflect a VAT Tribunal from asking the essential question posed in Kittel, namely, whether the trader should have known that by his purchase he was taking part in a transaction connected with fraudulent evasion of VAT. The circumstances may well establish that he was.

VAT carousel fraud and the associated money laundering go hand in hand. The VAT stolen from this type of fraud is handed down the supply chain and dissipated off shore. Subsequently it enters the legitimate financial system and is used to maintain lifestyle.  VAT carousel fraud is also used to launder the money from other forms of criminality. Consequently, financial institutions may identify potential VAT carousel frauds during commodity trading, during client account review or because of the characteristics of financial transactions. Other parties may identify suspicious activity during audits or when criminal money enters the financial system or during the purchase of assets.

In order to minimise their potential liability, a business needs to understand the risks and to have in place the appropriate risk systems to adequately review prospective counter parties and to measure the integrity of the supply or financial transactions. The extent to which they delve will depend on the level of perceived risk.

Rod Stone OBE is a panellist in the “Leveraging AML Controls to safeguard your institution against fraudulent transactions” session taking place on Thursday 28th May.

 About the author

Rod Stone OBE was formerly an Assistant Director of HM Revenue and Customs (HMRC) Organised Crime National Coordination Unit and had oversight of VAT carousel fraud. During his tenure he was a member of the EU Eurofisc and Europol groups on VAT carousel fraud. Eurofisc consider administrative solutions, whilst Europol consider criminal solutions to VAT carousel fraud.

During 2005, Mr Stone OBE was responsible for the development and implementation of the abuse of right principle to address VAT fraud and particularly VAT carousel fraud.  The European Court of Justice subsequently confirmed the use of this principle by tax administrations in its July 2006 judgement in the matter of Axel Kittel. The application of the abuse of right principle in the UK contributed to the recovery of more than £3.2bn and a decline in the level of tax losses in the UK generated by this type of fraud.

Mr Stone OBE has been recognised by the Court of Appeal as an expert in his field. Since leaving HMRC he has continued to lecture at the European Police College (CEPOL) and advise law enforcement agencies and tax administrations about revenue frauds. He has been engaged by 4 Eyes Ltd, a London based firm of specialist fraud and compliance advisors, to provide support to litigators and businesses and to provide expertise on supply chain integrity.

ACAMS is delighted to announce that Rod Stone OBE, the former Assistant Director of the Organised Crime National Co-ordination Unit at HMRC will be speaking at the forthcoming European conference in London.

An HMRC (HM Revenue & Customs) Indirect Tax Compliance Officer and Senior Policy Advisor for over 40 years, Mr. Stone was recognised as one of their foremost investigators and VAT compliance experts. He is now an independent indirect tax expert and the founder of Part Five Ltd, a management consultancy specialising in providing indirect tax solutions to corporate entities, litigators and law firms regulated by SRA. Rod Stone is also an internationally acknowledged authority on VAT / GST compliance, cross border VAT / GST fraud (Missing Trader Intra Community (MTIC) fraud, other forms of complex VAT / GST fraud and associated money laundering and the development of administrative compliance solutions and interventions.

Rod Stone OBE is recognised as an expert in his field and has taken the podium at the OECD’s Global VAT Forum, and events hosted by US Department of Justice, the Institute of Advanced Legal Studies, the EU Commission and the World Customs Organisation. He has extensive experience of court procedures and given evidence in more than two hundred criminal prosecutions and appeals to the First Tier Tribunal.

In 2012, Mr. Stone was awarded the OBE in recognition of his contribution and expertise.

Rod Stone will be joining the panel discussion “Leveraging AML Controls to Safeguard your Institution against Fraudulent Transactions” together with Alexon Bell, Compliance Solution Director EMEA & AP SAS.  The session will be moderated by Peter Hazlewood, Global Head of AML Compliance at HSBC.

Key topics being discussed will include:

Detecting and deterring criminal transactions originating from VAT carousel fraud

Utilising your institution’s financial intelligence data to spot and stop illicit activities using e-money

Understanding new triggers that may indicate fraudulent activity by criminal organisations.

MTIC Fraud: VAT Fraudster Ordered to Pay £14 million #VAT #tax #taxdisputes #hmrc

Nasir Khan, who was convicted in 2011 for his role in a Value Added Tax (VAT) fraud, has now been ordered by the Crown Court to pay back £14 million within nine months or face extended jail time.  Mr Khan was once shortlisted for the Bank of England’s…