Carousel fraud could be costing the country £39bn a year. Michael Taylor reports on how it is being combated and where the bad guys have been hiding in the North West
Amer Munir was living the dream. A fast car, a large expensive house in the leafy suburb of Hale and a luxurious apartment in Manchester's most prestigious city centre development, Number One Deansgate. By trading over £340m worth of mobile telephones through his Salford-based business, Talkland Telecom, he was doing extremely well for himself. Just one problem: he was making all his money from a complex carousel fraud that is costing the UK treasury as much as £39bn a year.
Just before Christmas 2006 at Manchester Crown Court the brake was finally applied on Munir's carousel. In sentencing Munir to seven years in jail following his conviction for money laundering and for cheating the revenue, Judge Anthony Gee launched into a blistering assault not only on the guilty man, but on the scale of the crime he was involved in.
"Any offence of cheating the Revenue is not only an offence against the Exchequer but against every law-abiding taxpayer. To cheat the revenue is a premeditated serious crime involving planning and organisation involving an enormous tax loss... you deliberately destroyed or concealed your books of accounts and hoped that the fraud would not come to light. You nearly succeeded other than for the dedication of the HM Revenue & Customs (HMRC) investigators who painstakingly investigated your company over a period of many months, causing further expenditure to the revenue to bring you to justice," he said.
"The tax loss was enormous and all for your personal gain as you transformed yourself into a multi millionaire overnight funded by the proceeds. It is apparent from the evidence, that the money you defrauded allowed you to live a lavish lifestyle, including expensive motor cars. After committing the fraud you continued to attempt to hide the proceeds using overseas bank accounts and the client accounts of solicitors, all designed to allow you to retain the proceeds of your illegal acts.
"Due to the gravity of this case and as a deterrent to others you must receive a substantial custodial sentence. I, as have the jury, have assessed you whilst you gave evidence over a considerable period of time. I am satisfied that you are a thoroughly dishonest, deceitful and manipulative young man."
Munir is just the latest in a long and growing line of fraudsters that the authorities are catching up with. In the last year over 475 staff have been redeployed and 48 new investigators have been recruited.
And as in the war on terror the government has fought a battle on many fronts. The terror enemy is unseen and so the weapons and tactics transcend the traditional theatre of war. The enemy is fought with intelligence, surveillance, financial instruments and extraordinary new legal powers.
There is another war the government is fighting that is employing similar tactics - the fight against sustained VAT fraud. Often known as carousel fraud, or missing trader fraud, a number of key government agencies are now operating on several fronts to put a stop to the billions being plundered from the public purse.
This is being tackled by stopping the payments of VAT, blocking registrations and squeezing the money supply in alliance with banks.
Carousel fraud works by playing the VAT system. It is a process that every business will be familiar with. VAT is paid on goods purchased, claimed back when the goods are sold on. The books are meant to balance. But businesses have claimed millions in VAT refunds on goods that either never existed, or where the VAT was never paid in a complex series of trades.
Missing Trader Intra-Community or missing trader fraud, as it is more commonly known, exposes a weakness in the system when goods cross national borders. It's not a casual playing of the system either, but a highly sophisticated Europe-wide scam and an organised criminal attack on the UK VAT system.
This is how it works: criminals import high value goods such as mobile phones and computer chips, free of VAT, from other countries in the European Union (EU). These goods are then sold in the UK with VAT attached, but the criminals disappear with the tax they have collected instead of handing it over to HMRC.
From May this year, the authorities have changed the way payments will be made for mobile phones and computer chips, high volume, high value, but low density goods, but the fraudsters have also mooved on and are trading all manner of commodities and making bogus VAT claims.
A more abusive form of the fraud - usually known as carousel fraud - involves the same goods being traded around contrived supply chains within and beyond the EU, re-entering the UK on a number of occasions with the VAT being stolen each time. The organised criminal networks behind these frauds are well resourced, innovative, resilient and some are known to be involved in wider criminality.
Another case where the carousel came through the North West saw an extensive six-year investigation by HMRC and two criminal trials, which saw the man behind a £354m VAT fraud getting jailed for 15 years, the longest sentence ever handed down by a British court for this type of crime.
Emmanuel Hening, a trader with dual Belgian/French nationality, was found guilty on three counts of missing trader fraud at Worcester Crown Court, following his extradition from France in December 2005. He was described by Judge McCreath as "the guiding hand" behind the multimillion-pound missing trader VAT fraud, which has seen an eight-strong crime gang given sentences totalling 38.5 years.
Hening was sentenced alongside two accomplices, one from the West Midlands and one from Wales, in December 2006. But two further members of the gang from Blackburn were sentenced at an earlier trial, although reporting restrictions prevented publication of any details of their conviction. Until now.
The court heard the multimillion-pound fraud centred on the mobile phone industry. Investigations by HMRC began in 2000 and involved breaking the audit trail of businesses based in the UK, Luxembourg and France through a company called Handycom SA operated by Hening.
Hening claimed on invoices for importing large numbers of European-specification mobile phones, with two-pin plugs, into the UK. The numbers he claimed to be importing far exceeded any legitimate commercial demand.
The phones were purportedly imported into the UK VAT-free by various companies set up by Hening. He then sold the phones on paper, charging VAT that was never paid over to HMRC.
These companies then supposedly went missing. The phones were "sold' down the line to various "buffer' traders before they were exported back to Hening. Each company made an agreed profit margin on the phones. One of these was Bridge GSM run by Gerard McAllister, who lived on the upmarket gated community of Brockhall village on the edge of Blackburn and Brian Meehan, who lived nearby.
The next stage is for the Customs authorities to get back the VAT they claim was stolen. According to the accounts of Bridge GSM: "HM Customs and Excise have issued two assessments against Bridge GSM totalling £317.9m." The directors state they are contesting this. Proceedings are ongoing to recover assets through the courts.
These cases were successfully prosecuted by the Revenue & Customs Prosecutions Office, an independent prosecuting authority that reports to the Attorney General, and is responsible for the prosecution of all HMRC cases in England and Wales.
This is a battle that the customs are starting to win. They have received setbacks but they are putting spokes in the right wheels. But the fraudsters are clever and have changed their tactics too.
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