Failure of VAT fraud case to cost £100m

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The Independent Online

The bill for one of Britain's costliest prosecution failures is set to reach £100m after a judge exposed a flawed Customs investigation into VAT fraud.

The bill for one of Britain's costliest prosecution failures is set to reach £100m after a judge exposed a flawed Customs investigation into VAT fraud.

Five Manchester-based businessmen accused of a complex tax scam in the cross-border trading of mobile phones were exonerated yesterday after Mr Justice Crane ruled that Customs had lied to the court and failed to disclose vital evidence to the defence.

His ruling is likely to affect 18 other cases being prosecuted by Customs, now called HM Revenue & Customs, in what is known "missing trader" or "carousel" fraud.

Central to the case, said the judge, were potential prosecution witnesses from an international freight forwarding business called Hawk Logistics. Customs had hoped to rely on their evidence to show how the five men had been involved in a VAT scam being investigated in an operation code-named Venison.

But when Customs discovered that this company was also facing allegations of VAT fraud, the officers and their in-house lawyers failed or delayed to disclose this fact to the independent prosecution team, the defence and the court.

Mr Justice Crane said: "I have been driven to the conclusion that the court has not been told the truth."

Operation Venison was finally halted on 28 May when the judge said there had been abuse of process.

Missing trader fraud, estimated to have cost the tax payer £2bn, involves importing goods VAT-free, selling them on with the VAT added and disappearing without paying the tax.

During the case it emerged that another expensive investigation, known as Operation Entrée, had been closed down because of similar concerns about Hawk's activities and their relationship with Customs.

Yesterday Customs said it would study the judgment before deciding what action to take in other cases.

The costs in this case and other related failed prosecutions, including one that collapsed last month, are estimated to be around £65m. But that figure will rise if Customs decides to halt further cases. The bill for legal aid for the defence teams is already £6m, while prosecution legal fees will also run into many millions.

Yesterday, Mr Justice Crane said he had not been told the truth by some of the Customs investigators when they tried to explain the non-disclosure. The court had been told "what witnesses think the court should know, not frankly what is actually the truth".

He did not accept there was an "active conspiracy" to protect Hawk Logistics as a source of information in other inquiries.

Alistair Webster QC, from Lincoln House Chambers in Manchester, representing one of the five men, said afterwards: "The judge's critique of the behaviour of the customs officers ... was devastating. They knowingly kept their own counsel in the dark and they had allowed the court to be misled."

HM Revenue & Customs said after the judgement that it "will carefully consider this ruling and ensure that any lessons for the future are learnt and swiftly acted upon".