Colette Kelly Partner, Criminal and Regulatory Solicitor
HMRC in ‘pole position’ following Bernie Ecclestone charge – a new ‘direction’ for fraud cases?
Bernie Ecclestone, former chief executive of Formula 1, is set to face trial before Southwark Crown Court in October 2023 on a charge of fraud by false representation.
The charge followed a “complex and worldwide” investigation by HMRC and relates to a Singapore Trust, which Ecclestone allegedly failed to declare for tax purposes, holding assets of an estimated £400m+. This is understood to be a substantial proportion of his net wealth, which is said to include real estate in various jurisdictions, a yacht and private planes.
This case highlights HMRC’s ability to pull together significant detail from different jurisdictions in order to build a case in relation to a trust structure and its non-UK assets and the importance of ensuring trusts and assets are fully compliant, with both domestic and international regimes.
What is the regulatory framework?
In recent years, the UK and other international governments have introduced measures designed to help them obtain information to combat tax evasion. These measures are aimed at instilling confidence in the tax system, so that everyone is perceived as paying their fair share, and at raising revenue to fund public services against an often-difficult financial backdrop.
What regimes are currently in place in the UK?
In recent years, the UK government has introduced a series of reporting regimes, including the Proceeds of Crime Act (POCA) 2002 and the Money Laundering Regulations (MLRs) 2017.
The Criminal Finances Act 2017 ("the Act"), which came into force on 30 September 2017, gave the UK government enhanced powers to tackle tax evasion, money laundering and terrorist financing, and to recover the proceeds of crime. The aim of the Act was to "make the UK a more hostile place for those seeking to move, hide or use the proceeds of crime and corruption".
The Act introduced Account Freezing Orders ("AFOs") through the introduction of amendments to POCA, to allow a court to order the freezing of funds in a bank account where there are reasonable grounds for suspecting that the funds are "recoverable property" or are intended for use in unlawful conduct. These orders are increasingly being used by HMRC.
The Act introduced Unexplained Wealth Orders (“UWO”) as an additional tool to tackle criminal wealth in the UK and to seize assets believed to either represent or have been acquired through crime. UWOs require individuals to explain their interest in specific assets and the source of wealth to fund them.
The Act also introduced two new offences for the failure to prevent the facilitation of tax evasion.
The introduction of The Economic Crime (Transparency and Enforcement) Act 2022 saw the expansion of the UK government’s sanctions regime, supervised and enforced by both the Office of Financial Sanctions Implementation (“OFSI”) and HMRC.
Furthermore, the Trust Registration Service (introduced as part of the implementation of the Fourth Money Laundering Directive and subsequently extended), which requires trustees to maintain and provide to HMRC information about trusts that they act on and the beneficiaries of those trusts.
The register of Persons with Significant Control requires disclosure at Companies House of those deemed to be in “control” of a company.
Finally, the recent introduction of the Register of Overseas Entities under Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 requires overseas incorporated legal entities, that own or seek to acquire land or property in the UK, to register and provide information on their beneficial owners or managing officers. On this basis, the scope of the ROE is retrospective, as overseas entities who seek to buy, sell or transfer property or land in the UK, as well as those who already own or lease land or property, are required to register and have their information verified.
The Economic Crime (Transparency and Enforcement) Act 2022 also saw the expansion of the UK government’s sanctions regime, supervised and enforced by both the Office of Financial Sanctions Implementation (“OFSI”) and HMRC.
Each regime has its own penalty procedure.
What other regimes are in place internationally?
From a global perspective, the implementation of the Common Reporting Standard, and similar information exchange regimes such as FATCA, have provided tax authorities with a wealth of detail enabling them to investigate suspected tax evasion.
How does HMRC work with their international counterparts?
Financial institutions are obliged to share information on their clients with the relevant tax authorities. Then they will share these internationally, so that tax authorities can check whether someone that is resident or domiciled in their jurisdiction may own or have an interest in undeclared foreign assets.
This framework has led to increased co-operation between international tax authorities. As a result, HMRC are now in a position to match this information with tax disclosures made under the other reporting regimes (such tax returns and filings on the trust register).
Therefore, HMRC are now receiving a substantial amount of information from a range of different sources to enable them to investigate suspected non-compliance.
In particular, the interaction between the different UK disclosure regimes should mean that HMRC have a wealth of information on a wide range of trust structures with UK connections (via the trust register) and details about how UK property is ultimately owned and controlled (via the Land Registry, Companies House and the overseas entities register).
Where there are doubts on the source of wealth, HMRC may seek a UWO. There are likely to be many more cases where HMRC believes it has sufficient information to bring proceedings. Therefore, there may be many more high-profile cases to come.
How does the HMRC approach cases like this?
Now, HMRC is expected to take a hard line on such cases. In 2018, HMRC introduced the Requirement to Correct (RTC) legislation, which gave a window to regularise the position where there had been historic non-compliance in relation to offshore income and assets.
The deadline was 30 September 2018 and failure to disclose now means that HMRC may apply strict penalties due to the failure to correct (on the basis that those affected have been given an opportunity to make disclosures on favorable terms).
The 2018 deadline conveniently coincided with HMRC starting to receive information under the disclosure regimes mentioned, to allow it to bring cases against those that failed to comply.
The levied sanctions may include a penalty of 200% of the tax owed, an “asset-based penalty” of up to 10% of the asset in question and/or additional penalty of 50%, if HMRC prove that the taxpayer has moved assets to avoid reporting. This may result in penalties in excess of the income or assets in question.
Therefore, it is more likely that many cases similar to that against Bernie Ecclestone will be investigated and actioned in the near future.
The authorities are receiving a wide range of information and are putting resources into investigating possible non-compliance. HMRC have struggled in recent years to bring successful cases under the UWO legislation. However, the increased use of AFOs by HMRC and the funds forfeited as a result means that they are significantly better resourced.
In the context of the allegations against Ecclestone, HMRC has stated “Our message is clear – no one is beyond our reach”.
If the case against Ecclestone is successful, this would be a high-profile “win”. In this outcome, the penalties available will be severe (potentially acting as a future deterrent), on the basis that this was not dealt with voluntarily, and HMRC and the CPS were required to investigate and bring a charge.
It will be interesting to see how this case develops and whether it is the first in a series of similar prosecutions.
How can we help?
The UK regulatory, compliance and tax rules are becoming more and more complex. It is essential to take legal advice at the earliest opportunity to ensure compliance.
Our expert teams will be able to help you ensure that you meet your obligations. We can also help with understanding the steps that should be taken where there may have been non-compliance. The HMRC penalty regime will often apply on a reduced basis where positive steps are taken to correct any errors and we can advise in detail on the steps that you should take where there is the possibility of financial and/or criminal penalties.
Please contact one of the authors, or your usual contact at Ince, if you would like to discuss any of these matters further.