Two wrongs do not make a right – criminal convictions and stolen data

On Friday 5 July 2012 HMRC announced that a wealthy property developer, who had failed to disclose a Swiss bank account to HMRC during a civil inquiry, had pleaded guilty to the serious charge of cheating the public revenue

It was the first prosecution based on data stolen by a former HSBC employee and subsequently obtained by HMRC under the terms of a tax treaty with France. The stolen disk was reported to list some 7,000 British taxpayers with undisclosed HSBC accounts in Geneva.

Lawful or unlawful?

In his article in Tax Journal (Tax Journal 6 July 2012), Jonathan Fisher QC explained the considerable uncertainty in English law regarding HMRC’s ability to use criminally obtained evidence when pursuing taxpayers in respect of their concealed offshore income. This article was written shortly before HMRC announced its successful prosecution.

In his article Mr Fisher said:

“Whilst the acquisition of information by HMRC from informants is hardly new, the provenance of the material … raises novel issues, for … the information had been stolen by an employee from his employer, disseminated in breach of the duty of confidence owed by an employee to his employer and notwithstanding its status as stolen property the information was purchased by a State revenue authority for money.”

HMRC’s reaction to the successful prosecution

HMRC appear to have had no difficulties grappling with the complex issues referred to by Mr Fisher. Their view is set out in their press release of 17 July 2012 which reads as follows:

“Chris Martin, Assistant Director, HMRC Criminal Investigation, said:

Mr Shanly – like others – took advantage of his offshore account to hide money and evade tax that was owed to the public purse … He thought it was out of reach of HMRC and hoped we would never find it. However we discovered it, and he will pay a heavy penalty.

HMRC is continually receiving information from various sources and working together with partner agencies here and abroad. Those attempting to hide offshore accounts must be aware that HMRC is closing in on offshore assets.”

What if the case had been contested?

It is noteworthy, however, that Mr Shanly pleaded guilty before any criminal trial had taken place. Had the trial proceeded, it would have been open to Mr Shanly to argue that the reliance by the Crown on stolen material was unfair and should be excluded. This follows from section 78 Police and Criminal Evidence Act 1984 (‘PACE’) which provides:

“78-(1) In any proceedings the Court may refuse to allow evidence on which the prosecution proposes to rely to be given if it appears to the Court that, having regard to all the circumstances, including the circumstances in which the evidence was obtained, the admission of the evidence would have such an adverse effect on the fairness of the proceedings that the Court ought not to admit it.”

Section 78 is an important provision and plays a fundamental role in the consideration of the admissibility of evidence at a criminal trial. It provides the trial judge with a wide discretion and has been used in a number of areas, for example in the field of confessions given by a defendant to the prosecuting authorities which have subsequently been held to have been unfairly obtained. In applying section 78 the Courts have held that each case must be decided on its own facts and the trial judge will approach this important issue on a case by case basis — see R v Parris, 89 Cr. App. R.68.

Comment

Whilst tax evasion is against the law and cannot be condoned, there must be considerable doubt as to whether a trial judge would be comfortable with the Crown relying upon stolen material in order to support a prosecution for a serious criminal offence. It is also debatable as to whether the Crown should be relying on stolen material to found a prosecution in the first place – it is of course a criminal offence for a person to handle stolen property. At a time when certain politicians and HMRC frequently refer to the morality, or otherwise, of the behavior of those taxpayers who choose to arrange their affairs with the intention of paying less tax than HMRC would otherwise have them pay, it is incumbent upon HMRC to demonstrate the highest possible moral standards in its own conduct. These issues appear not to have been addressed in Mr Shanly’s prosecution but will, no doubt, have to be addressed by HMRC and the courts in other cases that are yet to be determined.