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UK deterrence failure: High value dealers in ‘showpiece’ assets avoid prosecution

Luxury goods retailers selling high-end cars, boats, private jets, art, antiques and jewellery are being used by the corrupt to hide the illegal proceeds of crime — and to escape detection, Transparency International said.

But using high-value, luxury goods to launder criminal proceeds is nothing new. It is common knowledge that criminals are prepared to take a significant hit on their ill-gotten gains in order to gain access to clean money.

High-Value-Dealers are defined in the UK by Her Majesty’s Revenue and Customs (HMRC) as any business that accepts cash payments of 15,000 ($22,700) or greater in exchange for goods. Immediately we have a problem.

If cash payments are lower than this figure — even 14,900 — then a High-Value-Dealer may argue that it has no responsibility to register with HMRC.

HMRC can be its own worst enemy when it comes to policing such matters: it is possibly the worst-kept secret in business that VAT scams have to reach a certain figure (I know what the figure is but for obvious reasons will not mention it here), before it will even look at investigating the matter.

In fairness to HMRC, it too has been badly hit by ever-deepening austerity cuts. But this only serves to strengthen my argument that High-Value-Dealers are aware of the HMRC depleted staffing issues, and therefore feel safe in pushing the illicit cash envelope further when debating whether to register or report such transactions.

Further, HMRC is mainly about collecting revenue for the state — another of its worst-kept secrets is that if you are caught red-handedly fiddling your VAT, in the majority of cases you can agree a repayment and everybody is happy again. Predominantly this is because it is a cheaper, easier and more effective means of swelling the coffers of the Treasury than prosecution.

Transparency International has said the luxury goods sector has major compliance issues” with poorly understood regulations, compounded by a low threat of prosecution. I disagree.

The rules are understood. Those committing the violations know that what they are doing is wrong, but High-Value-Dealers also understand that HMRC will only prosecute where the matter is severe.

As TI’s Nick Maxwell told the Financial Times, HMRC heavily protects information and confidentiality. Historically, this has seen HMRC locking horns with UK police forces, who often struggle to access information on criminals held by their HMRC counterparts. Better information sharing will certainly improve matters.

TI is correct that the system is flawed. But the High-Value-Dealers “get out of jail card” is simply to generate a Suspicious Activity Report, safe in the knowledge that they have declared the transaction, building their defense (that there was “no dishonesty”), knowing in all probability they won’t hear anything further.

I have concerns about over-regulation stifling business recovery. More prosecutions and heavier sentences, allied with post-conviction confiscation of assets, is in my view the most sensible way forward.

You can regulate, applying layer upon layer of rules, but until you prosecute offenders there is no real deterrent. When HMRC agrees to repayment plans with tax evaders, it guarantees they will have no fear of being caught for ignoring compliance requirements already in place.


Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice focused on multi-jurisdictional fraud cases |@MKSolicitors.

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1 Comment

  1. Oh how I pegged this one. I could have written it out before it came to light, just as it happens! Nothing new under the sun. Onward fellow soldiers, trying to right a wrong, add as much intestinal fortitude to the Global Economy as we can! It's a fight on every side. There's a win on just as many sides if we fight.

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