HMRC0020
Written evidence submitted by the All-Part Parliamentary Group on Investment Fraud
INTRODUCTION
The Investment Fraud APPG welcomes the opportunity to submit evidence to this important inquiry. In this submission, we would like to focus on the progress HMRC is making on tackling fraud and its treatment of victims of pension and investment fraud.
We are currently holding an Inquiry into the tax treatment of investment and pension fraud victims. This is being chaired by Caroline Nokes MP and Alex Sobel together with Sir Stephen Timms (former Treasury Minister) and Baron John Mann (former Treasury Select Committee Chair).
During this Inquiry we have heard from a number of victims of investment and pension fraud who have reported they are receiving an inappropriate level of service and are encountering problems at all levels after reporting crimes committed against them. One of the prime issues being reported to us is that HMRC are levying tax charges against investment and pension fraud victims - rather than the perpetrators of the crimes. This is leading to severe welfare and financial issues for victims and we are particularly concerned by reports presented to us by clinical psychologists and hearing directly from victims that these charges and HMRC’s treatment of these victims is creating an acute risk of suicide, loss of homes and bankruptcies amongst victims.
Our overall conclusion is that the plight of investment and pension fraud victims is now so serious and so unjust that it needs to be acknowledged and addressed as priority by coordinated government action across a range of departments including the Treasury and the Home Office. Most concerning of all, victims have reported to us that it is our system (and specifically HMRC’s treatment of them), and not the crimes, that ultimately is causing the most trauma and financial loss for these particular victims. We submit that this is unacceptable and must be addressed.
SUMMARY ISSUES
Background
Our response summarises evidence submitted to our inquiry from a range of investment and pension fraud victims, advisors, former police officers, clinicians and practitioners (lawyers, tax specialists and financial advisors) who are dealing with HMRC on a regular basis. A cross-section of victims who are victims of different investment and pension frauds and from all different walks of life and different geographical locations provided oral and written evidence to our inquiry.
The victims are historic victims of pension and investment frauds. Example schemes included pension liberation and film schemes, in relation to which law enforcement agencies are either actively investigating or have determined that a fraud has occurred.
The suspected frauds are complex frauds, often committed by regulated advisors and/or professional advisors and tended to involve false or misleading advice and often were part of a broader suspected conspiracy to defraud. These are historic suspected crimes that took place in an era of liberalisation of schemes - often over 10 years ago. Victims reported being issued with tax charges, penalties and significant interest demands by HMRC, in many cases decades after the primary frauds took place.
Key Issues Reported
Lack of Policy / Codes of Practice
HMRC reportedly have no policy in place for dealing with victims of pension and investment fraud. Advisors reported that this means that HMRC operates in an inconsistent and opaque manner and without accountability and without a clear route available to victims to challenge liabilities being levied against them.
HMRC are reportedly not signatories to the Victims Code of Practice.
We have received concerning reports of inappropriate behaviours by HMRC officers towards vulnerable victims of crime and urge that a clear policy and codes of practice are required at HMRC to ensure victims are safeguarded and treated appropriately.
Severe Impact
Victims are reporting significant life challenges due to “unfair tax charges” and “HMRC’s actions”. The APPG has received evidence from victims and clinical psychologists reporting acute risk to life amongst victims, hospitalisations, nervous breakdowns, loss of homes, insolvencies, marital breakdowns and suicide attempts directly as a result of HMRC’s actions and tax charges.
Significant secondary victimisation of the victims by HMRC was reported - with many victims describing the tax charges and HMRC’s treatment of them as “like criminals themselves” and having a “worse impact than the crimes themselves”.
Clinical psychologists called for an immediate suspension of action, an inquiry and new safeguards to prevent foreseeable loss of life in these cases.
Victim Blaming
Victims reported significant victim blaming by HMRC and inappropriate language and a sense that their welfare is being completely overlooked. Victims reported a general lack of appreciation within HMRC of the damaging impact of investment and pension fraud and the losses they had sustained meaning that they were ridiculed and blamed when reporting their cases in the media and in person.
Lack of Accountability
Victims reported a culture of stakeholder agencies including HMRC and various other bodies “marking their own homework” upon receiving complaints and “rewarding themselves with top marks” in review processes described by victims as “opaque” and “lacking accountability and transparency”.
Lack of Continuity
Victims reported significant issues with continuity and a frequent change of personnel with poor handovers and different approaches between officers within policing and HMRC as well as repeated victimisation, as victims are forced to report their circumstances and the crimes committed against them repeatedly.
Lack of Fraud Expertise and Appropriate Training
Victims and lawyers and investigators representing victims reported a serious lack of expertise or understanding of complex fraud at HMRC whom they stated appear to be prioritising recovery from victims.
They called for the formation of specialist panels with appropriate expertise and widespread fraud training to be implemented throughout HMRC.
Failure to Tackle Fraud at Source
Victims reported being denied justice and that in the rare cases of a successful conviction, sentences for fraudsters were minimal. Victims reported significant frustration and disillusionment at HMRC Investigations Departments, who they described as “ineffective” and “failing victims”.
Investigators reported frustrations seeing members of the same organised crime groups outside of the UK receiving convictions whereas they reported that architects of the crimes in the UK were evading justice.
Former police officers reported that HMRC are not utilising their significant powers as a law enforcement body to investigate perpetrators of the crimes, promoters of schemes, enablers and facilitators and instead prioritising their attention and resource solely onto victims of crime. They have pointed to HMRC refusing to investigate clear cases of suspected fraud and described their lack of interest in investigating and prosecuting clear tax offences and investment and pension frauds in favour of focusing on victims as “decriminalising investment and pension fraud”. They highlighted with great concern not only the impact this is having on victims but also the risk of repeat offending by suspected fraudsters who they allege are “acting with impunity” in the current system.
Lack of Co-ordination with Law Enforcement and Regulators
Victims reported a complete lack of co-ordination between agencies and that HMRC were often at odds with Policing and unwilling to accept determinations by other law enforcement bodies or to investigate themselves in cases of suspected tax offences.
Investigators raised frustrations that single agency investigations were being used by police forces and failing when a cross-jurisdictional and multi-agency approach jointly initiated with HMRC could have yielded greater prospects of a successful prosecution.
Failure to recover proceeds of crime & enforcement of liabilities against insolvent victims
Financial advisors reported that HMRC’s focus on victims of crime for recovery (who often were subjected to significant financial losses and with little ability to pay the charges being levied against them and whom they reported had often not benefited from the schemes) is depriving the tax paying public of proceeds of crime since the victims are often unable to pay and having to declare bankruptcy - leaving shortfalls unrecovered by the Treasury.
Impact on Police Investigations and Prosecutions
Former senior police officers reported that police investigations are being hampered by HMRC’s actions against victims and that it presents disclosure risks. They reported that victims are becoming so traumatised by HMRC’s actions that they are unable to give evidence or focus on supporting criminal investigations, as these two government agencies work in complete contradiction to each other - one (The Police) treating the individuals as victims and the other (HMRC) treating the victims as the apparently guilty party.
Egregious Actions of Individual Officers & “Nudge Units”
Although victims did not want to tarnish all officers with the same brush, they reported some concerning incidents of egregious behaviours including aggressive threats to bankrupt traumatised victims of crime, who were already struggling to deal with the impact of the crimes committed against them.
We heard with concern that victims felt like they were being “persecuted” and “psychologically broken” by HMRC’s methods to prompt settlement. One victim reported being so traumatised that he had stress induced seizures at the mention of HMRC. Other victims had attempted to take their own lives under the stress and strain.
Representatives raised with concern the reported use by HMRC of behavioural science to provoke settlement. We urge that the settlement techniques being utilised by HMRC are immediately reviewed.
Victims reported an uptick of enforcement activity at Christmas and at times when they were most vulnerable and unable to receive specialist support. Lawyers and investigators reported that HMRC were “unrelenting and uncompromising” in their pursuit of victims.
We recommend an urgent inquiry into the tactics and methods being used to enforce settlement against victims.
Lack of Solution
Currently there appears to be a stalemate between victims and HMRC without a fair and balanced solution.
One particular advisor reported in an isolated case that when HMRC suggested they will look realistically at the evidence and relieve the victim of these charges if they are able to satisfy a two-stage evidential test, HMRC had rejected the evidence provided, did not appear to understand the Fraud Act and were at odds with Police Force determinations of the evidence. They stated that there appears to be no obvious means to challenge HMRC’s determinations and that it is unclear who at HMRC is assessing the evidence of fraud presented and what their expertise and experience in criminal law is.
Large amounts of time and money are being spent by pension and investment fraud victims trying to navigate challenges in the system – these are not included currently in any rate or cost statistics. None of the victims who gave evidence have been able to financially recover or be compensated adequately and are being severely and detrimentally impacted by the significant expense of navigating the current system. Despite the serious impact of these crimes, victims reported that they are not eligible for criminal injuries compensation. Victims reported that their losses dwarfed any compensation available to them via the Financial Ombudsman scheme and that civil litigation was proving to be challenging, due to both limitation issues (with HMRC seeking to recover monies in some cases 10 years after the crime, denying victims compensation actions due to limitation issues) and a sense from victims that any recovery they make will go straight to HMRC.
Unwillingness to look at the full circumstances
Tax advisors reported that HMRC have become disconnected and that they are simply looking back through the transaction chain and stopping at the point a tax charge arrives. They described how HMRC will then stop, not considering the events leading to it, or even if there is a benefit arising. This has been described as “an approach in a vacuum from a department that has become insulated from the real world and now solely sees its job as to collect as much money it can, wherever it can, regardless of the law and the facts.”
Unacceptable Time Frames
Many victims felt anger at the time it had taken HMRC to take action against them (in many cases over 6 years after the suspected fraudulent transaction). This meant not only additional interest and penalties but also an inability to recover bank accounts from banking institutions who only maintain records for 6 years. Victims reported that they were unable to take action to recover lost money in civil cases due to limitation issues as HMRC had taken action against them outside the limitation period.
Lack of Responsibility for Regulatory Failures
Victims also expressed frustration that HMRC and various regulators and government bodies were bearing no responsibility whatsoever for their role in the facilitation in the fraudulent schemes in the first place and highlighting that HMRC’s approval of these schemes, which they said were later exploited by rogue advisors, was a key factor in their involvement in these schemes in the first place and contributed to them being scammed. They called for greater due diligence by HMRC.
Comparison to other jurisdictions
Victims compared the tax treatment of victims in the US who receive support and tax reliefs following crimes and where fraudsters are given harsh penalties. The infamous case of Bernie Madoff who received a sentence of over 100 years in prison has been frequently cited. The language used by the IRS was stated to be more supportive and significantly more balanced than HMRC’s treatment of victims. Victims drew comparison with the harsher penalties for fraudsters in the US and the regulatory and tax reforms that occurred in the post-Madoff era.
Recommendations
Individual losses for pension and investment fraud typologies are reportedly the highest individual loss typologies for individuals of all categories of fraud and the inability to recover is having life-changing impact on victims.
These crimes have brought significant financial and emotional costs to millions of victims across the UK from all walks of life. The upshot appears to be that HMRC are currently failing victims of complex investment and pension fraud who are being adversely impacted by unfair tax charges, being unfairly blamed for crimes committed against them, denied justice and receiving little to no support in a system which lacks clear policies and processes. HMRC also appear to be failing to make progress in tackling complex and serious investment fraud and instead focusing all their resources and priority on recovery from victims.
We are deeply concerned about the risk to life and irreversible harm that will occur to victims if HMRC continue to pursue their current strategy. We are deeply concerned that this is a costly and unjust use of public funds and that it is failing to tackle some of the most serious, damaging and costly fraud typologies.
We have raised our concerns with HMRC officials and have put forward proposals for reform in this area. Whilst the government are making attempts to tackle fraud in its new strategy, this particular issue now needs urgent attention.
The Government’s New Fraud Strategy launched in May this year (2023), a new Fraud Strategy : Stopping Scams and Protecting the Public aims to stop fraud at source and to pursue those responsible, wherever they are in the world. However, it appears that this strategy focuses on high volume, low value internet enabled fraud and entirely misses any reference to serious fraud crime such as investment, tax and pension fraud, where high losses and life destroying impact occurs. It also fails to address one of the prime issues impacting investment and pension fraud victims currently - that HMRC are levying tax charges against investment and pension fraud victims - rather than the perpetrators of the crimes. We submit that this needs urgent review.
From victim evidence presented to our APPG it appears that for many victims/survivors who report significant financial loss and crimes being committed against them, the system they are experiencing is not a system of protection and support but a system of harm that is compounding the trauma and creating a double victimisation as they are subjected to re-traumatisation and further losses by HM Revenue & Customs.
We recommend therefore :
Recommendation A : Independent Review
An urgent independent review into this issue and these cases.
Recommendation B : Moratorium
A suspension of enforcement action, interest and penalties for victims pending the outcome of this review to avoid foreseeable and preventable loss of life and further harm to victims to enable this issue.
Recommendation C : Engagement
That HMRC and The Treasury start to engage with us and other stakeholder parties including the Work and Pensions Select Committee to consider appropriate reform to the current system.
Recommendation D : New Policy
New victim-centric policies for dealing appropriately with tax liabilities arising from crime and greater focus on investigating and prosecuting fraudsters, enablers and facilitators of crimes, whilst relieving victims of any unfair tax burdens.
Recommendation E : Formation of Specialist Panel
A new specialist panel to include tax and fraud experts to hear these cases and strike a fairer balance in determining settlements.
BACKGROUND TO THE INVESTMENT FRAUD APPG
The Investment Fraud All-Party Parliamentary Group (APPG) was established on 17th November 2021 to support investment fraud victims in the UK and campaign for reform.
MPs and members of the House of Lords from all parties supporting this APPG include:
Caroline Nokes (Chair), MP for Romsey & Southampton North, Conservative Party
Alex Sobel (Chair), MP for Leeds North West, Labour Party
Barbara Keeley, MP for Worsley & Eccles South, Labour Party
Alison McGovern, MP for Wirral South, Labour Party
Toby Perkins, MP for Chesterfield, Labour Party
Sir Stephen Timms, MP for East Ham, Labour Party
Lord Mann of Holbeck Moor
Keller Postman UK Ltd (Solicitors) currently act as the secretariat to the APPG.
The current APPG Advisory Panel comprise:
Carly Barnes (Chair)- Phoenix Sport and Media Group
Adam Richardson - Barrister, 1 Essex Court
Sue Flood - Victim Representative.
Andy Agathangelou - Transparency Taskforce
Margaret Snowdon OBE- The Pensions Scams Industry Group
Rick Muir - The Police Foundation
APPG Supporters include :
The Police Foundation
Tiger Law
1 Essex Court
The Pensions Scams Industry Group
The Transparency Taskforce
St Paul’s Chambers
POC Management.
Since the formation of the APPG, the APPG has held regular meetings at which we have had the benefit of hearing from and questioning a wide range of investment and pension fraud experts. These have included leading lawyers, former detectives and tax officials, academics, researchers and policy advisers, professional and specialist bodies as well as tax and financial advisors, clinical psychologists, counsellors and police and tax officers.
November 2023