High Court Clears Financial Traders of Carousel Fraud Collusion

If the tax authorities are left holding the baby as a consequence of so-called carousel fraud, they leave no stone unturned in tracking down perpetrators. However, with the benefit of a dedicated legal team, a City stockbroker, a successful businessman and the businessman’s daughter fought off claims that they were implicated in one such fraud.

HMRC2The VAT fraud involved an intricate chain of English and overseas businesses that traded in electricity generated in Germany. Conspirators succeeded in disposing of an English company’s assets, thereby cheating the company and its creditors. HM Revenue and Customs (HMRC) was the principal victim of the fraud, suffering a multi-million-pound loss, and appointed a liquidator after the company was wound up.

Proceedings were brought by the liquidator against the main conspirators and judgments for substantial sums were obtained against them and others who had aided them. However, the liquidator also took action against the stockbroker, the businessman and his daughter on the basis that they had dishonestly assisted the primary fraudsters. The first two were members of an English financial trading partnership that was said to have formed a link in the fraudulent chain, and the daughter held a senior position there.

HMRC lawyers did not suggest that the trio were practised or professional fraudsters and accepted that there was no direct evidence of communications suggesting a conspiracy between them and the primary fraudsters. However, following an in-depth investigation, it was alleged that they were content to continue trading in a manner which they must have known facilitated the fraud.

In exonerating the trio, however, the High Court found that HMRC had failed to discharge the burden of proving that any of them had acted dishonestly. In the case of the daughter, the Court positively found that she had not been dishonest. The price at which the partnership had bought electricity was not such as to give rise to suspicions on the trio’s part, nor was it indicative of collusion between them and the principal fraudsters.