Written evidence from HM Revenue & Customs
Background
The Justice Committee has launched a new inquiry to investigate the criminal justice system’s approach to combatting fraud.
The terms of reference for the inquiry can be found here:
Whilst the terms of reference point towards the inquiry being focussed on fraud offences in general and the priority now being given to tackling fraud by the Government, in responding to the Ministry of Justice’s call for evidence, HMRC is seeking to highlight our unique role in tacking fiscal fraud and also the common issues that arise when seeking to combat complex fraud.
Area for input arising from the Terms of Reference
- How the Justice System conducts fraud investigations and prosecutions
HMRC is the UK’s Tax and Customs Authority and we are responsible for safeguarding the flow of money to the Exchequer through our collection, compliance and enforcement activities. This include the prevention, detection and investigation of fraud offences committed against the functions of the Commissioners of HMRC.
Our approach to this activity, has recently been highlighted in an HMRC Issue Briefing: HMRC’s approach to tax fraud.
HMRC issue briefing: HMRC’s approach to tax fraud - GOV.UK (www.gov.uk)
At the heart of HMRC’s approach is our aim to promote compliance to tax and customs obligations through education and design out and prevent fraud by ensuring our online systems make fraud hard to commit or readily identifiable. However, HMRC is subject to a wide range of fraud, ranging from individual tax payers under declaring their income, to large scale frauds committed by organised crime groups. When tax fraud does happen, we have a range of powers and specialist investigation capabilities that enable us to uncover even the most complex and determined frauds and bring the perpetrators to account.
Most of our work to tackle tax fraud makes use of our civil powers. These allow us to get hold of the information we need to identify and collect unpaid tax, while imposing financial penalties on those responsible (up to 200 percent of the tax due in some cases).
In some serious cases of tax fraud, we can use the approach set out in our Code of Practice 9: in exchange for individuals admitting their dishonesty, paying all their tax and significant financial penalties, they won’t face a criminal investigation, which otherwise could be the case.
While we reserve complete discretion to conduct a criminal investigation in any case, our approach is to use our criminal and specialist investigation capabilities in certain circumstances.
Firstly, when a fraud is particularly serious. For example, those involving large losses or where the conduct or individuals involved merit a strong response, such as our work to tackle organised crime groups.
Secondly, when we want to send a strong deterrent message that reassures the honest majority there is a level playing field. That could be tackling a particular type of fraud or targeting specific business sectors or customer groups where we know tax fraud is prevalent. Our work to tackle promoters of fraudulent tax schemes and those professionals who carry out or enable tax fraud is evidence of this. We are clear that the tax rules apply the same to everyone, regardless of wealth, profession or resources.
And thirdly, when our civil powers aren’t enough to uncover the truth or recover the tax that is at stake. This includes the use of our covert capabilities to unmask the workings of organised criminals or our more coercive powers, such as searches and arrests.
These are significant powers and are rightly subject to rigorous external oversight and safeguards, like other law enforcement agencies.
Criminal cases can be expensive and time consuming, so it’s only right that we use them selectively to ensure they deliver both value for money for the taxpayer and the maximum impact on tax fraud. In recent years, we have deliberately focussed them on the most harmful, complex and sophisticated frauds.
Further information on HMRC’s Criminal Investigation Powers and Safeguards can be found here:
HMRC's criminal investigation powers and safeguards - GOV.UK (www.gov.uk)
HMRC’s Criminal Investigation Policy can be found here:
HMRC's criminal investigation policy - GOV.UK (www.gov.uk)
HMRC is a partner in the Government Counter-Fraud Profession.
- The roles of the Crown Prosecution Service and the Serious Fraud Office in the prosecution of fraud
HMRC criminal investigations are referred for consideration under the Code for Crown Prosecutors by the Crown Prosecution Service (and by equivalent prosecutors in Scotland and Northern Ireland). The majority of HMRC criminal investigation cases are prosecuted by the CPS’s Specialist Fraud Division, which enables specialist skills to be brought to bear on often complex fraud cases involving corporate structures, an international dimension or organised crime.
In addition, having access to specialist prosecutors assists in the management of the key challenges in complex fraud cases, including the effective handling of large volumes of evidence and significant disclosure requirements. In additional, early engagement with specialist prosecutors, at the outset of an investigation, can greatly help shape an effective investigation strategy.
HMRC also benefits from access to its own specialist criminal advisory lawyers, who can advise on the use of HMRC’s powers, disclosure planning and investigative options.
- The experience of the impact and prosecution of fraud among those working in the legal system and victims of fraud
Attempts to defraud the Exchequer account for a significant portion of the UK’s tax gap (how HMRC measures the difference between what is owed in taxes and duties against what is collected). The most recently published tax gap estimates that criminal behaviour and evasion account for c.£10bn of the tax gap (approximately 30%). This is money that supports the vital UK public services and help our citizens most in need.
- Plans to tackle rising instances of fraud, particularly the rise of fraud facilitated online
HMRC takes a proactive approach to protect the UK public from HMRC branded scams. Our tactics have pushed HMRC from the third-most-abused brand globally in 2015 to well outside of the top 100 now. HMRC works with the telecoms industry and OfCom to block thousands of malicious phone numbers annually. HMRC’s Cyber Security Operations identifies and closes-down scams 24/7 and HMRC has pioneered the use in government of technical controls to stop our helpline numbers being spoofed, so that fraudsters can no longer make it appear that they are calling from an HMRC number.
HMRC also:
- automatically identifies more than 50% of HMRC-branded scam websites before members of the public have even reported them to us
- deploys innovative technologies to prevent misleading and malicious communications ever reaching our citizens
- warns the public by sharing details and examples of genuine and scam communications on GOV.UK
- maintains channels through which people can report suspicious contact
- tackles misleading websites designed to make customers pay for services that should be free or low-cost, often charging customers for connection to HMRC phone helplines.
HMRC is primarily a digital tax authority, and many types of tax fraud involve our digital services. HMRC is targeted by online fraudsters, often using identities that have been stolen or provided complicity for a share of the proceeds. Fraudsters often seek to recruit others for their identities and bank accounts via social media, which are used to try to defraud HMRC.
HMRC investigative resources focus on the most serious, significant crimes, which means numerous, apparently unconnected, low-value frauds may not justify the expensive investment involved in criminal cases. These technology-enabled, lower-value cases typically require specific skills and tools to access and exploit the digital evidence from online activity. Data in these cases tends to be voluminous and complex. HMRC continues to develop the digital skills and experience across our investigation teams, but it is not yet comprehensive, and is often reserved for our higher priority investigations. HMRC invests more effort instead into a system-level approach to restrict the opportunities for fraud, continuously strengthening controls to make it harder for fraudsters to succeed in the first place.
Criminals operating online typically do not exclusively focus on HMRC, they will target various websites using the same stolen information. Many criminals conducting this method of tax fraud are also likely to be engaged in fraud that is the wider focus of the inquiry. HMRC continues to work with law enforcement partners, which has resulted in the prosecution of scammers exploiting a range of well-known brands.
- The prosecution of frauds that are not of sufficient scale to be investigated by the Serious Fraud Office
Non-fiscal fraud is outside the remit of HMRC, so we do not make any comment here.
- Problems with evidence and disclosure in the prosecution of fraud cases
Like all other law enforcement agencies, HMRC is having to rapidly adapt to changes in technology and the increasing digital nature of many criminal investigations. Evidence now needs to be gathered from numerous digital sources, such as mobile devices and cloud-based servers that are in differing jurisdictions, and there is a need to ensure the effective management of huge volumes of digital evidential material.
This requires well developed digital forensic capabilities with the skills and capacity to support both high volume and complex investigation cases and the ability to deal with common challenges such as wide assertions that material is subject to legal professional privilege. Much of the legislation that provides law enforcement with criminal investigation powers originates from a time when evidence gathering would be focussed on physical evidence and the law could be usefully updated to address the new environment. The Law Commission has highlighted the potential need for modernised powers and the need to be able to search for and seize remotely held electronic data.
Disclosure under the Criminal Procedure and Investigation Act 1996, which rightly supports the ensuring of a fair trial, is also impacted by such high volumes of digital material and the ability to effectively review the material and reveal disclosable material to the prosecutor, especially in very large and complex cases.
- What can be done to make it easier to investigate frauds conducted on the UK public from abroad
In the context of tax and customs offences committed from abroad, we like all law enforcement agencies, are reliant on mutual legal assistance provisions and inter-country co-operation to gather evidence abroad. The obtaining of evidence via mutual assistance provision can cause delays to investigations and maximising international co-operations is vital.
As described at point 4, effective risking and prevention is the best defence to prevent all fraud, whether committed domestically or from abroad. The current initiative to seek to enhance the transparency of beneficial ownership overseas is also welcome.
However, HMRC benefits from highly developed international relationships with a wide range of national tax, customs and policing agencies, generally facilitated via our Fiscal Crime Liaison Network, who are often embedded in UK Embassies and facilitate the sharing of information and joint investigations with host country agencies.
- Progress in relation to the Government’s Fraud Strategy and the Crown Prosecution Service’s Economic Crime Strategy
HMRC is a committed partner to the UK Government’s Economic Crime Plan (ECP) and our commitments are focussed on enhancing our supervision and self-assessing against standards used to assess professional body supervisors by the Office for Professional Body Supervision (OPBAS).
Beyond our role as a supervisor under the Money Laundering Regulations we also support UK Economic Crime objectives through:
- Investigating money laundering offences where the predicate offence is tax and/or where the money laundering is linked to a business we supervise
- Recovering the proceeds of crime
- Directly supporting cross government economic crime priorities, including acting as a founding partner of the National Economic Crime Centre and providing cross-government leadership of the response to key Money Laundering Threats – including Money Service Businesses, Trade Based Money Laundering and Cash-In-Freight.
Additionally, HMRC:
- Works with partners internationally to tackle money laundering and is part of the new UK-UAE Partnership to Tackle Illicit Finance that was announced by the Home Secretary in September 2021.
- Works with its partners in the National Economic Crime Centre to enhance the cross-government response to fraud against individuals and businesses, particularly through Phishing and the exploitation of HMRC branding.
