The Paradise Papers – Defending Tax Evasion Allegations

Aziz Rahman considers how anyone under investigation
following the Paradise Papers leaks can mount the strongest possible defence.

The Paradise Papers has put the issue of tax avoidance firmly
back in the headlines.

The documents, which originated from the law firm Appleby, lay
bare the financial affairs of more than 120,000 people and companies. Prince Charles, Queen Elizabeth II, the
President of Colombia Juan Manuel Santos and U.S. Secretary of Commerce Wilbur
Ross, not to mention some celebrities, oligarchs and multinational companies,
are among those whose offshore financial activities are now public knowledge
thanks to the 13.4 million documents that were leaked.

Last year’s Panama Papers leaks led to investigations and
the fall from grace of a number of high-profile politicians. While the fall-out
from the Paradise Papers is still to be assessed, there is little doubt that it
reveals much about complex, offshore dealings that are used to avoid paying

It is a situation that will leave many with awkward legal
questions to answer: both those who gained from the tax avoidance schemes that
were created and the financial advisors, accountants, lawyers and associated
experts who devised and implemented them. Having
represented clients in national and international tax cases, ranging from major
conservation-related tax avoidance prosecutions through to the largest and most
complex MTIC VAT frauds, we believe a swift response to any hint of an
investigation is vital.

Anyone investigated will need
advice from solicitors familiar with this area of law and adept at dealing with
HM Revenue and Customs (HMRC) and any other authorities that may take an
interest in anyone’s leaked financial affairs. Only by doing this will there be
any chance of formulating an appropriate response to investigating authorities’
questions and challenging their allegations.

Criminal Finances Act

If this seems alarmist, it may be worth considering the
Criminal Finances Act; which only came into effect on September 30.

The Act makes companies and partnerships criminally liable
if they fail to prevent tax evasion by any of their staff or external agents;
even if they were unaware it was happening. They can face unlimited penalties.

Tax evasion was an offence before the Act came into effect.
But the Act makes it possible for the authorities to hold the firms criminally
liable for matters relating to UK taxes or overseas taxes where there is a UK

A prosecution can be brought against a firm if there is:

* Criminal tax evasion by an individual or company under
existing law.

* Criminal facilitation of the offence by a representative
of that firm.

* A failure by the firm to prevent its representative from
committing the criminal act.


A business can avoid criminal liability if it can show it
had implemented reasonable prevention procedures or that it would have been
unreasonable to expect it to have such procedures in place.

All firms involved in tax work must review their practices
and procedures to minimise risks. They are the watchdogs who, under the Act,
are now responsible for preventing their staff and representatives committing
tax evasion.

If they are serious about preventing tax evasion, they must:

*Introduce comprehensive training to ensure staff are aware
of the law regarding financial crime.

* Have procedures in place for monitoring staff workplace
activity and behaviour.

* Carry out risk assessments on all aspects of their
business activity.

* Devise an appropriate whistle-blowing procedure so
concerns can be raised.

*Introduce, monitor and revise (if necessary) workplace
crime prevention procedures.


So far, we have concentrated on those who are accused of
facilitating tax evasion. But what of those who invest in such schemes?

Investors in such schemes who are questioned may enter into
a Code of Practice 9 (COP9) agreement with HM Revenue and Customs (HMRC). Under
a COP9, that person can either accept they have committed serious tax fraud and
cooperate with investigators or deny the allegations and refuse to cooperate.

It is a situation
that requires shrewd judgement and attention to detail; especially as the
option of denying the allegations but agreeing to cooperate is no longer
available. To minimise the potential damage requires a solicitor with expertise
in this area and experience of dealing with HMRC.

Investors have to examine the course of action they chose
regarding their tax affairs. This involves looking at the reasons why they
followed a particular course of action:

* What financial advice was given to them?

* Who gave it to them?

* Did the scheme make commercial sense?

* What assurances were they given about the scheme being legal?

The Paradise Papers will see many schemes come under
scrutiny. Prosecutors will be looking to prove that all or many of those involved
knew, or believed, that what was being done was fraudulent and an attempt to
deceive HMRC.


Mounting a defence to such allegations involves ensuring you
have access to all relevant documents. Such evidence is vital to any attempt to
prove that your tax affairs are legal. But
any defence is about more than replying to any questions that investigators may
ask. It is about using evidence and legal argument to challenge assumptions and
claims made by the prosecution; which is why the right legal expertise is

A switched-on defence team will need all available material
if they are to provide reasons for certain activities being carried out and
explanations for transactions that, at first glance, may appear complicated and
devised with an illegal ulterior motive.

A defence can use experts to analyse the available evidence.
Such experts can  even act as witnesses and
help tackle investigators or prosecutors who put forward the worst possible
interpretation of events; either pre-trial or in court. Such experts, if used
appropriately, can demolish prosecution claims and boost the credibility of a
defence team’s arguments regarding the honesty of their client.

Many may soon be needing such an approach in the wake of the
Paradise Papers.

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