An update on Operation Rize the use of The Proceeds of Crime Act and possible tax implications

Introduction

On 24 March 2009, the Metropolitan Police Service (MPS) issued a further news release about ‘Operation Rize’. Mark Taylor of Vantis has been closely monitoring developments and provides his insight into this unparalleled use of the Proceeds of Crime Act 2002 (POCA) powers by the MPS. [For further background on 'Operation Rize', see the previous article Tax Take on the Rize by Stephen Besford and Jacqui Fleming of BDO Stoy Hayward - Ed.]

Background

Operation Rize is a highly publicised operation led by the MPS Economic and Specialist Crime Command. On 2-3 June 2008, three individuals were arrested in conjunction with POCA 2002 s 352 ‘Search & Seizure’ Warrants being executed on three safe depositories in London. At the time, it was widely reported that over £53 million in cash was removed and seized by the MPS under POCA 2002 s 294, on the basis that there were reasonable grounds for suspecting that it was derived from, or to be used in, unlawful conduct.

Proportionate use of POCA

Criminals appear to have been using the safe depositories to hide their ill-gotten gains. To date, 11 people have been charged in relation to Operation Rize and a number of arrests and criminal proceedings are pending. The MPS has made arrests in relation to money laundering, paedophilia, concealing criminal property, benefit fraud, burglary, drug supply, possession of firearms, fraud and the illegal importation of elephant tusks.

However, concerns have been continually expressed about the MPS being able to obtain warrants allowing them to search each and every safety deposit box. In the latest news release, the MPS confirmed the seized contents of 2,457 boxes have now been restored to their owners, meaning the MPS must have been satisfied that these boxes have been used for legitimate purposes. This represents almost 70% of the total number of boxes concerned. With the MPS confirming 1,068 active ‘spin-off’ investigations, it will be interesting to see how its enquiries develop, but arguments as to whether the seizure was a proportionate use of the POCA legislation will undoubtedly continue.

Success or Abuse?

It is still early days, but the MPS is already heralding Operation Rize as a success.

Around the time of the seizures, the MPS stated that “Officers have recovered in excess of £50 million so far.” However, the recent news release reports on only £33 million of the seized money, namely that:

• £15.5 million remains detained under the POCA legislation pending investigation of its origin;
• £300,000 has been confiscated;
• £1.5 million has been forfeited by the courts; and
• £15 million has been paid ‘by request’ to Her Majesty's Revenue and Customs (HMRC).

The question therefore arises - has the remainder of the cash initially seized, potentially £20 million, been returned to box holders?

The MPS has confirmed that there are 1,068 active ‘spin-off’ investigations ongoing in respect of the 1,097 ‘suspect’ boxes not yet returned. However, what is unclear is whether the 700 box holders reportedly in the process of being referred to HMRC are still included in the number of active ‘spin-off’ investigations. Presumably, they must be which could mean that the real winner from Operation Rize is HMRC.

Referrals to HMRC

The MPS has confirmed that information protocols have been agreed with HMRC to identify people who can be referred to HMRC for further investigation. To date, 700 box holders are in the process of being referred to HMRC for suspected tax evasion with sums involved thought to exceed £15 million. This is understood to include people who have never previously paid any tax!

In what circumstances might a box holder be suitable for referral to HMRC?

Our direct involvement with the Operation Rize cases suggests that the MPS is leading the investigation with the full assistance of HMRC, with HMRC appearing to have supplied the MPS with information regarding declarations of income made by box holders. HMRC seems content to wait in the background, taking the opportunity to review its own tax compliance records to establish if the box holders have previously been the subject of a tax investigation and, if so, whether the contents of the box were disclosed on any certified statements of assets or tax returns. Where the MPS investigation identifies no wider criminality other than tax related issues, then the matter appears to be being passed to HMRC to investigate. However, convincing the MPS that only tax issues are at issue is not an easy task and expert specialist advice is invaluable.

If you have had cash seized do you need to ask for the monies to be paid to HMRC on account of unpaid tax?

The recent MPS news release suggests that box holders with tax related issues have requested that cash seized in Operation Rize be paid directly to HMRC to cover unpaid tax. This isn’t perhaps the whole story! Whilst we agree that the MPS is not typically making cash forfeiture applications under POCA 2002 s 298, it is actually asking box holders concerned to sign a mandate authorising the transfer of seized cash to HMRC. The mandate also includes a statement to confirm that the box holder will not pursue any litigation against the MPS in respect of the cash seized. Our view is that box holders should take specialist advice before agreeing any such requests.

What lies in store after a referral to HMRC?

Box holders will be understandably concerned that their referral to HMRC will be a case of ‘out of the frying pan, into the fire’. Historically, HMRC’s prosecution policy has been to consider each case on its individual merits, which would mean that there is no guarantee of immunity from prosecution for Operation Rize cases, even though the MPS has effectively decided not to proceed criminally.

However, in response to recent criticism about the lack of HMRC prosecutions on the unlawful use of tax havens, an HMRC spokesman was reported to have said “What we can say is that we want to ensure we prosecute wherever that is appropriate and wherever it represents value for customers.” He added that HMRC preferred to deal with tax fraud through civil action.

Operation Rize referrals to HMRC are being centrally managed by a multi-functional unit that has a remit to use a wide range of powers, both civil and criminal. We at Vantis have established a working dialogue with that unit and strongly urge any Operation Rize box holders or anyone else with tax issues related to a safety deposit box to contact us. A well-handled approach to HMRC will help minimise the risk of potential prosecution and mitigate any financial penalties for any tax offences that might have been committed.

Mark is an Associate Director in Vantis' Investigations & Enquiries team.  He was previously a fully trained Inspector of Taxes, Criminal Investigator and Accredited Financial Investigator with HM Revenue & Customs dealing with both civil and criminal cases involving suspected fraud.

About Vantis

Vantis is a fast growing, entrepreneurial business advisory, tax and accountancy group. We specialise in helping quoted companies, owner-managed businesses and private individuals
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Our services are provided locally and nationwide by experienced professionals and specialist industry teams who offer comprehensive sector knowledge and product expertise. Our aim is to provide all of our clients with successful, bespoke solutions to help generate and preserve their wealth. 

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The Vantis group now has over 1000 staff operating from 17 locations throughout England. For more information about Vantis, visit: www.vantisplc.com

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