HMRC has, along with other agencies such as the National Crime Agency (NCA), now got some serious new toys to play with ‘Unexplained Wealth Orders’ and limited freezing orders.
If ever we needed to be reminded how seriously the Government is taking tax evasion and the proceeds of crime, we only need to look at these new powers.
As from 31st January 2018, if organisations such as HMRC and the NCA have reasonable grounds to suspect any person as being involved in, or connected to a person involved in serious crime, it can obtain, from the High Court an order demanding they explain the nature and extent of their interest in specific property.
So, what’s the problem?
All professionals dealing with UHNW families are reminded continuously that if they see anything suspicious it needs to be reported to the person nominated in the firm to make a ‘Suspicious Transaction Report to the NCA. These nominees are trained in determining, whether a transaction adds up commercially or looks unusual for that type of business.
We are familiar with this legislation; it has been with us since 2004. We accept that, as professionals acting for UHNW families we are expected to look after the best interests of our clients but only if they are tax paying, law-abiding citizens, and if not, we are expected to ‘shop them’! Our duty is to our fellow citizens first.
Why then, given that all professionals dealing with UHNW families, are on the look-out for fishy transactions, does the Government need to take this extra step and give HMRC and the NCA the right to go to the High Court for a highly aggressive ‘Unexplained Wealth Order”?
Don’t get me wrong, I am very much in favour of catching traffickers of drugs, humans, arms, and prostitution, but I fear a number of innocent people will suffer as a result of these new provisions. Remember, that as from September 2018, HMRC will have all the information about the offshore assets held by its tax payers under the automatic exchange of information or CRS. And if they unexpectedly see substantial sums of money offshore they can enquire where it came from; the ‘Unexplained Wealth Order’. However, they are unlikely to do so, unless there is UK taxation in question – but this will not stop it passing the information on to the NCA which will then take action.
For anyone who is a member of the European Economic Area, they have some protection in that HMRC can only apply to the High Court, if it has reason to suspect serious criminality. However, this suspicion is not required for a person who is not from the European Economic Area and is a politically exposed person.
One of my clients who I will call Tom, has a family who is resident in the UK; his children are in school here and his wife Ali lives in the UK, with them, during term time. Tom is not a UK resident, he needs to be in Africa, where his business is based and he has close connections to the Government in his native country. He is therefore a politically exposed person. However, before we took him on as a client we did extensive due diligence and were satisfied that his trust fund did not come from criminal activity. If we did so suspect, we would have made a Suspicious Transaction Report, or refused to take on Tom as a client.
Tom’s trust is in Cayman, and is administered in Switzerland, set up about fifteen years ago.
Under CRS, the Trustees of his trust offshore will report under the automatic exchange of information the details of the trust, to the UK HMRC, because Ali and his children are residents of the UK. Ali owns a big house in North London, which houses her art collection and she has several bank accounts in both London and Switzerland which are funded by the trust. She has a leading accountant looking after the tax affairs of her and the family and is satisfied that she is fully tax compliant in meeting the financial needs of herself and her children in the UK. It is unlikely that HMRC will come up with serious tax revenue by pursuing Ali, but if the amount in trust is substantial it will not stop HMRC from giving the information to the NCA to apply for an Unexplained Wealth Order to ask Ali where the monies came from?
Under the new powers, it could freeze for up to five years, Ali’s house, her art and bank accounts, and continue for five years until it has answers.
I have seen authorities freeze personal assets, purely, because they think the amount is too much for someone to amass without some form of criminal activity. In cases in Australia and the middle east, as part of this exercise, I have seen authorities restrict freedom of movement, to increase the inconvenience to the individual under investigation, by removing passports.
I have no problem with HMRC using its extensive powers and even draconian powers to catch criminals and others seeking to evade tax. My concern is when these powers are used capriciously or without reasonable grounds, Citizens of non- European Economic Area, should be allowed to live here in peace if they are not suspected of any criminal activity?
This may be a moot point so I would welcome your comments.
Contact me on 020 3740 7422 or email me on firstname.lastname@example.org.
I will be on holiday for a few weeks, so my next note will be on 11th September – on Orwell and all that!
Wishing you all a very happy Summer and a relaxing and refreshing break.