Fruits of cheating Revenue can be money laundering

Court of Appeal - Criminal Division

Published March 28, 2007

Regina v K

Before Lord Justice Dyson, Mr Justice Crane and Judge Radford

Judgment March 8, 2007

Where there was a prima facie case that a defendant had cheated the Revenue, the unpaid tax could be “criminal property” for money-laundering purposes, even where the trade whose profits or turnover were taxable was a legitimate trade.

The Court of Appeal, Criminal Division, so held when allowing an appeal by the Revenue and Customs Prosecutions Office, under section 58 of the Criminal Justice Act 2003, against rulings made by Judge Elwen at Southwark Crown Court on February 23 and 26, 2007 at the start of the trial of the defendant, IK, and others on charges of money laundering, contrary to section 328(1) of the Proceeds of Crime Act 2002, and false accounting.

Counts 1 and 2 charged SK and IK with money laundering. Count 11 charged MR with cheating the Revenue. Count 12, charged SK and MR with money laundering £200,000 cash of which MR was alleged to have cheated the Revenue. Judge Elwen ruled that there was no case to answer on count 12 and consequently there was no case to answer on counts 1 and 2.

Mr Martin Evans and Mr Denis Barry for the prosecution; Mr Louis French and Mr Simon Stirling for the defendant.

LORD JUSTICE DYSON, giving the reserved judgment of the court, said that the prosecution alleged that between April and December 2003, IK assisted his father, SK, in running a money exchange business which arranged transfers of money from the United Kingdom to Pakistan, and that they dishonestly concealed £5.9 million of cash transactions and manufactured false documents purporting to be true records of the money transfers.

It was also alleged that MR had systematically cheated the Revenue of income tax and VAT by underdeclaring the takings of his legitimate grocery business and transferring for transmission to Pakistan sums of money which had not been declared.

The judge had acceded to an argument advanced on behalf of SK and MR in relation to count 12 that the £200,000 cash was the proceeds of legitimate trading and was not criminal property within the meaning of section 340(3) of the 2002 Act.

He considered that he was bound by R v Gabriel ([2006] Crim LR 854 paragraoh 20) where Lord Justice Gage had said: “We do not agree ... that profits made from trading in legitimate goods, without declaring the profits to the Inland Revenue ... could in any circumstances convert the profits into criminal property”.

In their Lordships’ judgment, a person who cheated the Revenue obtained a pecuniary advantage as a result of criminal conduct within the meaning of section 340(2). Accordingly, MR was to be taken to have obtained a sum equal to the value of the amount of which the Revenue had been cheated, and that sum was a benefit by reason of section 340(5).

The question was whether the undeclared takings constituted a person’s benefit from criminal conduct or it represented such a benefit, in whole or part and whether directly or indirectly: see section 340(3)(a).

The prosecution submitted that it was open to the jury to infer that part of the £200,000 represented the fruits of cheating which had already taken place.

In their Lordships’ judgment, it could not have been intended that the money-laundering provisions of the 2002 Act, particularly those relating to the obtaining of benefit in the form of a pecuniary advantage, should not extend to the fruits of cheating the Revenue. The judge was not bound by Gabriel so to hold.

The profits were not of themselves illegal or criminal property: they were the product of a business carrying on a lawful trade but their Lordships did not consider that Gabriel went as far as Judge Elwen thought.

The difference between Gabriel and the present case was that in the present case, as was not disputed, the prosecution had made out a prima facie case of cheat.

Accordingly, the judge was wrong to withdraw count 12 from the jury. Therefore, the basis on which he ruled on counts 1 and 2 had also to fall away. The prosecution appeal against the judge’s ruling in relation to counts 1 and 2 was allowed in so far as it affected IK.

Solicitors: Revenue and Customs Prosecutions Office; Grove Tompkins Bosworth, Birmingham.

http://business.timesonline.co.uk/tol/business/law/reports/article1576910.ece