Fraud by false representation – learnings from Bernie

HMRC opened a Code of Practice 8 (COP8) investigation into Mr Ecclestone’s tax affairs in 2012, a civil process where tax fraud is not necessarily suspected however the tax affairs are complex and may include some aspect of suspected tax avoidance.

This investigation was converted into a Code of Practice 9 (COP9) in July 2013 following information obtained by HMRC during the COP8 process which led it to suspect tax fraud.  Although in response Mr Ecclestone made a disclosure of tax fraud, this was limited to an interest in a single property.  He then confirmed that there were no further tax errors to disclose. On that basis he was accepted into the Contractual Disclosure Facility (CDF) whereby HMRC agreed to continue the investigation through a civil process, provided he continued to co-operate with the COP9 Code.

During a settlement meeting in July 2015, in response to a question concerning whether or not he had any links to additional offshore trusts than those already disclosed, Mr Ecclestone responded “no”. Subsequent investigations into his offshore affairs established he was connected to two Singaporean trusts. A company linked to one of the trusts held a bank account in Singapore which transacted foreign exchange transactions running into tens of millions of US dollars. A transfer of £416m had been made in 2010 by the company from a bank account in Switzerland to Singapore.

In May 2016 Mr Ecclestone made an offer to HMRC of £70m for 2 tax years which had been the subject of a previous HMRC fraud investigation. HMRC bosses accepted the offer in principle subject to Mr Ecclestone signing a certificate of full disclosure. Mr Ecclestone failed to provide any information in relation to the Singaporean trust and the company linked to it.

The CDF offered to Mr Ecclestone was subsequently withdrawn in August 2016 and led to him being charged under the Fraud Act.

Mr Ecclestone’s defence was that he was not aware of the position relating to this trust at the time the question was raised. His response had been provided in haste as an attempt to close his COP9 investigation and minimise professional adviser costs.

Me Ecclestone reached a civil settlement with HMRC to pay £652.6m, which included a 200% ‘failure to correct’ penalty, and was therefore not subject to a confiscation order.

The Code for COP9 investigations has been refreshed a couple of times, the most recent version being effective from 14 June 2023.

At the outset of a COP9 investigation, HMRC gives the taxpayer an opportunity to make a full disclosure of the deliberate and non-deliberate tax irregularities. An honest account of the tax irregularities should allow acceptance into the CDF, which protects the taxpayer against a criminal prosecution.

The Code states that during the COP9 investigation, should the taxpayer make materially false or misleading statements, or provide materially false documents, HMRC reserves the right to start a criminal investigation into that conduct as a separate criminal offence.

The latest reiteration of the Code contains much the same sentiments, although the wording around attendance at meetings and regular payments on accounts is more robust, as it states HMRC considers taxpayers’ attendance at these meetings as a sign of co-operation.

With reference to meetings, the Code advises that HMRC may use what is said, or the information given, as evidence in any legal proceedings or disclose the information to other organisations where appropriate and lawful.  

This is not the first time a person with a public profile has fallen foul of the Code that underpins a COP9 investigation.

Tax dispute professionals often refer to the infamous case involving the late Lester Piggott, who was sentenced after providing false documents to HMRC as part of his own COP9 investigation.

These documents were a ‘Statement of Assets and Liabilities’ form, which must capture all your worldwide assets on a particular date, and a ’Certificate of Full Disclosure’, which confirms all details provided to HMRC are correct. In Mr Piggott’s case he omitted a bank account from his forms and subsequently paid the settlement with a cheque from an omitted bank account. This criminal act resulted in three years imprisonment.

Appointing a specialist COP9 tax adviser is critical to help navigate through an HMRC investigation, a position strongly supported by HMRC.

An adviser will help HMRC to establish the facts, based on discussions with the taxpayer and analysis of contemporary documentation. Once a loss of tax has been established, HMRC will consider penalties and again this will depend on the behaviour underpinning the actions taken.

An adviser can also help guide a taxpayer through an HMRC meeting and explain the ramifications of any dishonest conduct. Given the risk that the information shared with HMRC can be used in legal proceedings, should a question arise, and the taxpayer is uncertain on the correct answer, this should be relayed to HMRC and checked post the meeting before a formal response is made.

In Mr Ecclestone’s case, the sentencing remarks reference that he wanted to draw a line under his HMRC investigation given the significant adviser costs being spent. By the time of the meeting in July 2015, HMRC’s investigation into his tax affairs had been going on for three years. An investigation of this length is not uncommon as it will depend on the complexity of the individual’s affairs. Provided HMRC operates within the statutory timeframes and has tangible evidence to support a suspicion that revenue is owed to the public purse, HMRC can continue its investigations to recover this revenue.

As part of his plea, Mr Ecclestone expressed deep remorse for his actions. For tax dispute professionals, the critical learnings arising from this case will no doubt be used to help reinforce the potential ramifications of breaching the terms of the Code. Namely, this can result in:

• A criminal record and possible imprisonment.
• A longer HMRC investigation into your tax affairs, which will progress alongside a criminal investigation.
• Considerable legal costs for defending a criminal prosecution. These costs often outweigh professional adviser costs for working the civil investigation. Some individuals are even ordered to pay the prosecution costs, which in Mr Ecclestone’s case amounted to a not insignificant amount of £74,000.

If you do have an ongoing COP9 investigation and would like to have a confidential chat, please do get in touch.

Code of Practice 9 HM Revenue & Customs investigation where we suspect tax fraud (publishing.service.gov.uk)

Code of Practice 9 (publishing.service.gov.uk)

*R -v- Ecclestone sentencing (judiciary.uk)