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  • January 29th, 2015

Birmingham Pension Fraud Case – Acquittal

gavelCLIENT FOUND NOT GUILTY ON ALL COUNTS:
Our client and his eight co – accused were faced with a rather complicated case. There were three separate charges against him, namely Conspiracy to Defraud, which is a common law offence, Conspiracy to Cheat, and Conspiracy to launder money contrary to section 1 of the Criminal Law Act 1977.

He was arrested in June 2009, charged, and finally acquitted in December 2014.

What was it about and what are SIPPs?

The case concerned Self Invested Pension Plans (SIPPs), which are a specialised type of pension scheme. A SIPP operates in a similar way to a normal pension fund. It is designed to give a SIPP holder and their Financial Advisors the power to invest the SIPP fund as they see fit, subject to certain restrictions.

With a SIPP, the SIPP holder may invest in a broad range of investments, including purchasing shares in unquoted companies (Companies not quoted on the stock exchange) buying and selling these when they choose.

Successive Governments have encouraged pension plans and there are specific tax benefits for SIPP holders. A SIPP holder is entitled to claim tax relief at source (RAS) which, at the time of the case, meant that the Government directly contributed 20% of all sums invested by basic rate tax payers, and 40% of sums invested by higher rate tax payers.

How did the scheme work?

The scheme took place in a circular manner. The initial contribution, usually 20% of the client’s annual salary was taken out by way of a loan. These loans were taken out from offshore companies, which were controlled by the principal defendants. The loan monies were then paid into the SIPP and this then became the SIPP holder’s contribution. Relief at Source (RAS) was then claimed from HMRC and paid into the SIPP. The Financial Advisor, who was authorised to act on the client’s behalf, directed that the money in the SIPP should be used to purchase shares in various unquoted companies which were controlled by him and they then lent the money they had generated by selling those shares to the offshore companies that had originally provided the loans to the SIPP holders. This effectively completed the circle and provided the scheme with further funds to ‘lend’. This extra money that entered the scheme however was solely the RAS that was claimed from HMRC.

So what was wrong with that?

The Prosecution submitted that this was not a legal pension scheme as defined by section 150 Finance Act 2004. They said that this was a fraud from the outset and that there was never any intention to provide any benefit to the SIPP holder in any of the circumstances prescribed under the Act. If that contention was right, then the SIPP holders were not entitled to claim RAS which would then mean that this was claimed fraudulently from HMRC. They also submitted that the SIPP holders were misled as to the nature of the scheme and that the scheme could never have generated enough money to pay the loan and interest and have enough left over to provide a pension.

The Prosecution submitted that count 2 was indicted because the scheme was not a pension scheme within the provisions of section 150 Finance Act 2004 and so would be a fraud on the Revenue.

What was our client’s role?

Our client was alleged to be involved in the recruitment of investors and was the director of the unquoted and offshore companies that were loaning the money and being invested in.

What did we MJP solicitors?

The trial, after numerous adjournments, started in September 2014, but it emerged that not all documents had been disclosed to the defence. Because of this, counsel for the defence submitted an Abuse of Process argument. After various submissions for the defendants and cross-examination of disclosing officers, the judge ruled that the trial should continue.

The Prosecution opened its case calling various experts, HMRC officers and SIPP clients, the majority of which were cross examined by the defence. After the Prosecution closed their case, which lasted approximately three months, the defence for all defendants submitted an argument for no case to answer.

What is ‘no case to answer’?

No case to answer is a submission in front of the Judge and without the presence of a jury that the case should be dismissed and the defendants acquitted without having to present any evidence for their defence. A submission like this is usually made when there isn’t enough reliable evidence to go before a jury and so the defence shouldn’t have to present their case.

What were the submissions and what was the result?

Conspiracy to Cheat:

The submissions were based on the factor that the claiming of the RAS was lawful as at the time the pension schemes were registered in accordance with section 150(2) and Chapter 2 Finance Act 2004. When registered, each SIPP holder entered into an arrangement or agreement therefore becoming an active member of a pension scheme. As a result, each SIPP was entitled to tax relief pursuant to section 188(1). As this was intended to happen, and was what did happen, then RAS would have been lawfully obtained from HMRC. Accordingly, there would be no evidence to support the Prosecution’s allegation that these defendants had conspired to cheat HMRC.

Although the Prosecution made submissions in response, the Judge ruled that the claiming of RAS was lawful and so there was no case to answer for all defendants with regards to this charge.

Conspiracy to Defraud:

The Prosecution submitted that the defendants agreed to defraud HMRC as well as the SIPP clients, and that the defendants used the RAS to their own use. They submitted that after RAS is paid out, HMRC still retains an economic interest in it.

The defence submitted that neither HMRC nor the SIPP clients could have been defrauded, and so there would be no case to answer. Our submissions were that once the RAS had been paid, HMRC ceased to have any proprietary or economic interest in it. Thus conspiracy to divert RAS from the pension is not one to defraud HMRC.

The Defence won in submissions and the Judge ruled that there was no case to answer for all defendants on this charge.

Conspiracy to launder money:

Because of the results for the counts above, it was ruled that there was no criminal property to be laundered, and so there was no case to answer here.

Conclusion

After a long process spanning over approximately 5 years, our work finally paid off and we gained the best result for us but more importantly our client. Through hard work and determination we ‘Made Justice Possible…’

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Written by: Sarah Nawrocki


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