Finance Bill

I do not intend to discuss the other amendments in the group, I simply wish to talk about amendment 3. I suggest that Her Majesty's Revenue and Customs charter needs to be expanded to make it clear how HMRC will deal with circumstances in which a prosecution is possible or intended. I note and am perfectly content with the fact that prosecution policy as such is already tackled. Revenue and Customs prosecutors are statutorily bound to the code of conduct for prosecutors, and the circumstances in which they undertake a prosecution are already spelled out in some detail and are largely analogous to those that apply to other prosecuting authorities in the criminal law. However, I am concerned that Revenue and Customs prosecutors are almost an afterthought. Many cases in which there is a suspicion of abuse of the tax system or even criminal behaviour are tackled in a non-judicial way—by direct recovery of funds, plea bargaining before passing papers to the prosecuting authorities, or a variety of civil actions, which HMRC increasingly takes as a substitute for criminal sanction. That gives us pause for thought. There is currently no clear policy for applying those sanctions, many are much more serious penalties than those in criminal law, and they are applied without due process—without being put before a court. I therefore contend that people who interact with HMRC in that way need to know that the rules are applied equitably and fairly across the piece, how HMRC will interpret its extensive powers, and what they can expect from HMRC. I want to illustrate that with a particular case of a company in my constituency, which involves the vexed question of carousel fraud. I do not want to spend time explaining the intricacies of carousel fraud, which is a complex form of VAT fraud, working across international boundaries. We could spend much time discussing the details of that. That is not my purpose; rather, my purpose is to address the way in which HMRC chooses to deal with companies that it suspects of having been involved in carousel fraud. The company with which I have had dealings in this respect is Third Dimension Ltd in Milborne Port. It deals in a commodity in which, in HMRC's view, companies involved in carousel fraud trade—namely, mobile phones—and provides a platform for the international market via the internet, enabling traders to trade across international boundaries in the mobile phone market. I have no truck with fraudsters. I want those involved in fraud to be interdicted and prosecuted. I certainly do not believe that fraud—either against the individual or, in the case of VAT, against the state—is a victimless crime. It is not, and I have always argued in this House that we should take it extremely seriously and impose appropriate sanctions. My constituents feel exactly the same way and they have expressed that view to me. They certainly do not want people getting away with VAT fraud. I also ought to say that I am neither a forensic accountant nor a VAT expert. If anyone asks me difficult questions, I will probably not know the answers, because we are dealing with a complex area. However, I have dealt with the criminal justice system over many years in this House and my gut feeling is that there is something inherently wrong with the system that seems to have developed, in that everybody who has any connection with a particular area of trading is treated as though they were guilty and has sanctions applied to them irrespective of any evidence of guilt. Indeed, one difficultly has already arisen in the courts in respect of how HMRC has interpreted its brief. The Financial Secretary will know of the Livewire judgment before the High Court chancery division, which has fundamentally undermined HMRC's assumption that every trader in that area is tainted by fraud, not least because of the observations of Mr. Justice Lewison. He looked at the previous case that was relevant—the Kittel case, with which I am sure the Minister is also familiar. In particular, he looked carefully at the translation from French to English, which is a pretty rudimentary matter. His observation was that HMRC's incorrect translation changed the emphasis to""the transaction was connected with a fraud"" from the original, which said:""the transactions were directly involved in a fraud"." HMRC misinterpreted the Kittel case, assuming that anybody with a passing connection with the trade was necessarily up for involvement, rather than applying the higher burden of proof implied in the original French of the Kittel judgment, which requires evidence of direct involvement. That case is now being challenged in the European Court of Justice and we may have a ruling in due course. Irrespective of that judgment, however, surely we do not allow collective punishment in British law for the crimes of a person or persons unknown, yet that appears to be how HMRC currently operates. Since early 2006, HMRC has adopted what is described as an extended verification process for every trader involved in the industry, which means that it has effectively ceased paying VAT input tax refunds. A substantial amount of money is being withheld and we are now in the third year of withholding it. This has been done by a deliberately extended process, in my view. First, there is a delay in responding to requests for refunds. At the very point at which that matter reaches judicial review—sometimes only a matter of hours beforehand—there is a denial, which results in a further delay before a tribunal can consider the matter. That is followed by an HMRC appeal. That is a deliberate policy to withhold funds that are legally in the ownership of the companies, without judicial process. When such cases have got as far as the tribunal or the High Court in chancery, there have been mixed results for the companies appealing. In some cases, the appeal has been upheld by both; in others, there has been a mixed result from the tribunal and the High Court; or the company has lost in both cases. I would be interested to know how much is currently withheld in relation to VAT reclaims, and how much is earmarked for eventual refund when the appeals are successful. My suspicion is that a very large amount is involved. The second method that HMRC has chosen to use as a means of reprisal against assumed fraud is illustrated in its dealings with overseas banks. HMRC uses its undoubted muscle to affect the way in which overseas banks are used. My constituent's company had funds held by the First Curaçao International Bank. The bank has effectively been closed down by HMRC, and the administrators have been told that they must not allow any funds to be given to those who have funds invested in the bank. No charges have been brought against the bank, under British jurisdiction or any other; this is simply a case of pressure being put on it. A list has apparently been provided to the bank's administrators of the people to whom funds may not be made available, and of anyone having dealings with those people. That is a pretty extraordinary state of affairs. Those people have not been brought before any court. They have not been found guilty of any crime, yet they have had their funds frozen on suspicion and, in the case of the First Curaçao International Bank, in a foreign jurisdiction. I am led to believe that, in this context, we are talking about billions of pounds in funds held by companies, many of which must be innocent of any fraud. The third instance of intervention is the pressure that has been applied to UK high street banks. Again, companies engaged in this area of trade have had their accounts closed on the recommendation of HMRC. They, too, are companies against which no evidence has been adduced, no prosecution brought and no conviction obtained. I would be interested to know how many companies have been closed in that way and, against that figure, how many have actually been prosecuted. I suspect that what is happening is a substitution of a criminal legal process by a civil legal process that is entirely within the hands of HMRC, and I do not believe that the House has ever sanctioned such a process. Extra-judicial action by HMRC in the absence of any evidence is not something that we would normally countenance. If we were to do so, we would certainly place limits on the sanctions that could be applied—just as we place limits on the sanctions to be applied in criminal cases—rather than simply giving HMRC a free hand. What we have here is an arbitrary exercise of power by HMRC without any due process. It is an exercise of guilt by association that is foreign to British law in any respect, either historically or currently. It involves the substitution of the opinion of HMRC for a judgment, and the testing of that judgment by probative means, in court. I have to say that HMRC opinion is not unquestionable and it is not by definition correct. If it were, these companies that are so strongly suspected of being involved in VAT fraud would not have been given VAT registration in the first place. The amendment is designed to make transparent a process that seems to have developed. If it is believed right and proper for HMRC to use civil process in this way to deal with unquestionably serious matters of fraud, these issues should be put before Parliament and agreed here. We should apply proper tests of evidence, proper judicial process and appropriate sanctions in the case of the felony, for that is what it would be if the case were proven. Instead, we have seen an incremental approach by HMRC, which I do not believe is satisfactory. To conclude, I have no evidence whether the company in my constituency or any of the other companies have been involved in fraud. How could I possibly know? What I am saying is that while I want HMRC to be rigorous in its approach, I also want it to be transparent and lawful. I do not believe that the actions currently taken by HMRC are, frankly, lawful. We have due process in this country and it should be transparent. I invite the Minister to answer my points if he can, as I would be grateful to know the answers, but I would also like to hear him accept the principle that such processes should be open, transparent and agreed by Parliament, rather than somebody in the recesses of HMRC deciding that they have a means by which they can exercise their powers without judicial process.