Friday, 20 September 2013


UPDATE 30 SEP 2013 - Messi heads for prison? "The greatest footballer in the world", Lionel Messi, who is paid $16 million a year by Barcelona and much more by his advertising sponsors, has ripped off his largely unemployed fans (60% of young Spaniards can't get jobs - general unemployment is 26%) by defrauding the treasury. He used false accounting and offshore companies in Belize and Uruguay to fiddle $4.2 million in 2009 tax. Despite paying $8.4 million to repatriate that money plus current due taxes - Messi still faces prison. So far, the 323 goals that Messi has scored for Barcelona have made him so popular that the courts hesitate to jail him. The lesson is that tax fraudsters, such as the recently published 130,000 British Virgin Island account holders, should rapidly learn to score goals. He is trying to do a deal to pay $20 million and avoid (or evade?) prison. 


As several influential global groups press for the $32 trillion buried in tax-havens by "clever" business persons and cunning accountants and lawyers to be repatriated - I decided to check what the culprits are risking in law. It transpires to be a very large risk; including massive fines and prison.

Having had a career as an auditor and tax-accountant, the boldness of today's advisers in telling their clients to simply keep two sets of books and to make up false (tax deductible) invoices has astonished me. The schemes to siphon profits and capital to tax-havens are so obviously fraudulent and simplistic that I started to assume that most OECD countries had scrapped all their false-accounting and fraud laws. 

But they have not. The clients and advisers are just taking chances with their wealth and freedom. Severe penalties are still applied and numbers of tax-evaders have recently been convicted. 

Would you take such risks -even for the vast amounts of cash involved? I remain astonished at the courage of the clients and professionals. I wonder which of them are foolish and heroic enough to append their signatures to the false tax-returns?

US - Tax fraud penalties  Wikipedia [edit source | editbeta]

Intentional filing of materially false tax returns is considered tax fraud, and is a criminal offence. Any person convicted of committing tax fraud, or aiding and abetting another in committing tax fraud, may be subject to forfeiture of property [28] and/or jail time.[29] Conviction and sentencing is through the court system. Responsibility for prosecution falls to the U.S. Department of Justice not the Internal Revenue Service.
Penalties may be assessed against tax protesters who raise arguments that income tax laws are not valid or for filing frivolous returns or court petitions.[30]

Tax adviser penalties[edit source | editbeta]

Penalties also apply to persons who promote tax shelters[31] or who fail to maintain and disclose lists of reportable transactions their customers or clients for those transactions.[32] These monetary penalties can be severe.

e.g. US Case Study - Beanie Babies billionaire: 
The creator of Beanie Babies stuffed animals has agreed to pay a $53 million penalty after being accused of federal tax evasion for failing to report millions in income that he earned through a secret offshore bank account, his attorney and prosecutors said.
As prosecutors in Chicago announced the charge against H. Ty Warner, his defense lawyer issued a statement Wednesday saying the 69-year-old billionaire intended to plead guilty and pay the massive penalty.
“We encourage taxpayers to think of the serious consequences, including possible criminal penalties, for willfully presenting false information on their federal tax returns,” James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago, said in a news release. “All taxpayers must honor their obligation to report all of their income and pay all of the taxes they owe.”
Warner, who lives in suburban Chicago and is the sole owner of TY Inc., still faces the prospect of time behind bars. A conviction on a federal tax evasion charge carries a maximum five-year prison sentence.

Relevant sentencing Guidelines - UK

False Accounting

R v CLARK [1998] 2 Cr. App. R. (S.) 95
Guideline Breach of Trust Case
Save in very exceptional circumstances, where a person in a position of trust, for example an accountant, a solicitor, a bank employee or a postman has used his trusted and privileged position to defraud his partners, clients employers or the general public of sizeable sums of money immediate imprisonment is inevitable unless there are exceptional circumstances or the amount of money involved is very small. The amount defrauded is an important factor and the following guidelines apply where the sums involved are:
  • Less than £17,500 up to 21 months imprisonment
  • £17,500 to £100,000 - 2-3 years
  • £100,000 to £250,000 - 3-4 years
  • £250,000 to £1 million - 5-9 years
  • £1 million or more - 10 years +
R v KEFFORD (MARK JAMES) [2002] 2 Cr. App. R. (S.) 106
For economic crimes, alternative sentences to imprisonment could be appropriate punishment.

Cheating The Public Revenue (Common Law)

Date produced: 5 July 2011
Title: Financial crime
Offence: Cheating the public revenue
Legislation: Common Law
Commencement date: N/A
Mode of Trial: Indictable Only
Statutory Limitations & Maximum Penalty: Unlimited custody or fine

Evading Liability by Deception

Date produced: 5 July 2011
Title: Financial crime
Offence: Evading Liability by Deception
Legislation: s.2 Theft Act 1978
Commencement date: This section is repealed as from 15.1.2007 by the FRAUD ACT 2006, however under transitional provisions this section is still applicable to offences where the offence was partly committed before 15th January 2007 - see section14(2) and schedule 2 of the Fraud Act for detailed provisions.
Mode of Trial: Either Way
Statutory Limitations & Maximum Penalty: 5 years

Fraud by Failing to Disclose Information

Date Produced: 5 July 2011
Title: Financial crime
Offence: Fraud by Failing to Disclose Information
Legislation: S3 Fraud Act 2006
Commencement Date: 15/1/07
Mode of Trial: Either Way
Statutory Limitations & Maximum Penalty: 10 years imprisonment
Sentencing Range: New offence - likely to be variable - see s1 Theft Act and obtaining offences.

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