Aziz Rahman considers how anyone under investigation

following the Paradise Papers leaks can mount the strongest possible defence.

The Paradise Papers has put the issue of tax avoidance firmly

back in the headlines.

The documents, which originated from the law firm Appleby, lay

bare the financial affairs of more than 120,000 people and companies. Prince Charles, Queen Elizabeth II, the

President of Colombia Juan Manuel Santos and U.S. Secretary of Commerce Wilbur

Ross, not to mention some celebrities, oligarchs and multinational companies,

are among those whose offshore financial activities are now public knowledge

thanks to the 13.4 million documents that were leaked.

Last year’s Panama Papers leaks led to investigations and

the fall from grace of a number of high-profile politicians. While the fall-out

from the Paradise Papers is still to be assessed, there is little doubt that it

reveals much about complex, offshore dealings that are used to avoid paying

tax.

It is a situation that will leave many with awkward legal

questions to answer: both those who gained from the tax avoidance schemes that

were created and the financial advisors, accountants, lawyers and associated

experts who devised and implemented them. Having

represented clients in national and international tax cases, ranging from major

conservation-related tax avoidance prosecutions through to the largest and most

complex MTIC VAT frauds, we believe a swift response to any hint of an

investigation is vital.

Anyone investigated will need

advice from solicitors familiar with this area of law and adept at dealing with

HM Revenue and Customs (HMRC) and any other authorities that may take an

interest in anyone’s leaked financial affairs. Only by doing this will there be

any chance of formulating an appropriate response to investigating authorities’

questions and challenging their allegations.

Criminal Finances Act

If this seems alarmist, it may be worth considering the

Criminal Finances Act; which only came into effect on September 30.

The Act makes companies and partnerships criminally liable

if they fail to prevent tax evasion by any of their staff or external agents;

even if they were unaware it was happening. They can face unlimited penalties.

Tax evasion was an offence before the Act came into effect.

But the Act makes it possible for the authorities to hold the firms criminally

liable for matters relating to UK taxes or overseas taxes where there is a UK

connection.

A prosecution can be brought against a firm if there is:

* Criminal tax evasion by an individual or company under

existing law.

* Criminal facilitation of the offence by a representative

of that firm.

* A failure by the firm to prevent its representative from

committing the criminal act.

Prevention

A business can avoid criminal liability if it can show it

had implemented reasonable prevention procedures or that it would have been

unreasonable to expect it to have such procedures in place.

All firms involved in tax work must review their practices

and procedures to minimise risks. They are the watchdogs who, under the Act,

are now responsible for preventing their staff and representatives committing

tax evasion.

If they are serious about preventing tax evasion, they must:

*Introduce comprehensive training to ensure staff are aware

of the law regarding financial crime.

* Have procedures in place for monitoring staff workplace

activity and behaviour.

* Carry out risk assessments on all aspects of their

business activity.

* Devise an appropriate whistle-blowing procedure so

concerns can be raised.

*Introduce, monitor and revise (if necessary) workplace

crime prevention procedures.

Investors

So far, we have concentrated on those who are accused of

facilitating tax evasion. But what of those who invest in such schemes?

Investors in such schemes who are questioned may enter into

a Code of Practice 9 (COP9) agreement with HM Revenue and Customs (HMRC). Under

a COP9, that person can either accept they have committed serious tax fraud and

cooperate with investigators or deny the allegations and refuse to cooperate.

It is a situation

that requires shrewd judgement and attention to detail; especially as the

option of denying the allegations but agreeing to cooperate is no longer

available. To minimise the potential damage requires a solicitor with expertise

in this area and experience of dealing with HMRC.

Investors have to examine the course of action they chose

regarding their tax affairs. This involves looking at the reasons why they

followed a particular course of action:

* What financial advice was given to them?

* Who gave it to them?

* Did the scheme make commercial sense?

* What assurances were they given about the scheme being legal?

The Paradise Papers will see many schemes come under

scrutiny. Prosecutors will be looking to prove that all or many of those involved

knew, or believed, that what was being done was fraudulent and an attempt to

deceive HMRC.

Defence

Mounting a defence to such allegations involves ensuring you

have access to all relevant documents. Such evidence is vital to any attempt to

prove that your tax affairs are legal. But

any defence is about more than replying to any questions that investigators may

ask. It is about using evidence and legal argument to challenge assumptions and

claims made by the prosecution; which is why the right legal expertise is

necessary.

A switched-on defence team will need all available material

if they are to provide reasons for certain activities being carried out and

explanations for transactions that, at first glance, may appear complicated and

devised with an illegal ulterior motive.

A defence can use experts to analyse the available evidence.

Such experts can  even act as witnesses and

help tackle investigators or prosecutors who put forward the worst possible

interpretation of events; either pre-trial or in court. Such experts, if used

appropriately, can demolish prosecution claims and boost the credibility of a

defence team’s arguments regarding the honesty of their client.

Many may soon be needing such an approach in the wake of the

Paradise Papers.