Financial Cryptography

Bowles case is more evidence: Britain takes another step to a hollowed-out state

In the very sad story of the Justice System as we know it, a British courts has ruled the beginning of the end.

He went to jail this week, protesting his innocence. Speaking to The Times, he said: "There are no missing millions, there's no villa in the Virgin Islands, there has been no fraud. I am not allowed to earn any money, my assets were restrained so I couldn't use them to defend myself - it's a relentless, never-ending, vicious, cruel and wicked system.

Of course, all mobsters say that. So what was the crime?

Bowles was convicted by a jury in June of cheating the Revenue of £1.2 million in VAT but sentencing had been adjourned on three previous occasions. He had been found guilty of failing to pay VAT on a BIG land sale and diverting money due to the taxman to prop up Airfreight Express, his ailing air-freight company.

Now we have come full circle, and the evidence is presented: the Anti-money-laundering project of the OECD (known as the Financial Action Task Force, a Paris-based body) is basically and fundamentally inspired by the desire to raise tax. Hence, we will see a steady progression of government-revenue cases, occasionally interspersed with Mr Big cases. This is exactly what the OECD wanted. Not the mobsters, murderers, drug barons and terrorists pick up, but:

Bowles is a divorced, middle-aged company director from Maidenhead who has been transformed from successful entrepreneur to convicted fraudster.

A businessman, from the very heartland of English countryside. Not a dangerous criminal at all, but someone doing business. Not "them" but us. POCA or Proceeds of Crime Act is now an important revenue-raising tool:

It was not suggested that Bowles, who has no criminal record, had used the money to fund a luxury lifestyle. Nevertheless, when the Revenue began a criminal investigation into his affairs in 2006 all his assets were frozen under the powers of the Proceeds of Crime Act.

Bowles was required to live on an allowance and rely on legal aid for his defence rather than pay out of his own resources. Defence lawyers claimed that preparation of Bowles's defence case was hampered further because his companies' financial records were in the hands of administrators.

The accounts were not disclosed until a court hearing in February this year, at which point Bowles sought permission to have a forensic accountant examine them to determine the VAT position. He was refused a relaxation of the restraint order to pay for a forensic accountants' report. The Legal Services Commission also declined to fund such a report from legal aid.

After the court was told that the records "could be considered by counsel with a calculator" the trial went ahead. Bowles was cleared of two charges but found guilty of a third.

It works this way. First the money is identified. Then, the crime is constructed, the assets are frozen, legal-aid is denied, and the businessman goes to jail. By the time he gets out of that, he probably cannot mount a defence anyway, and rights are just so much confetti. This stripping of rights is a well-known technique in law, as only 1 in 100 can then mount a recovery of rights action, it is often done when the job of the prosecutor is more important than rights.

Let's be realistic here and assume that Bowles was guilty of tax fraud. His local paper certainly thinks he was guilty:

A tax cheat from Maidenhead who dodged paying £1.3m in VAT has been jailed for three-and-a-half years. ... The court heard between October 2001 and July 2006 Bowles failed to submit VAT returns to HM Customs and Excise (HMCE) and then HM Revenue & Customs (HMRC). The VAT related to the sale of land for commercial development in Cardiff worth £7.5m.

Following an HMRC criminal investigation Bowles, from Sandisplatt Road, was charged on three counts of 'cheating the revenue'. Peter Avery, assistant director, HMRC Criminal Investigations, said: "This sentence will serve as a deterrent to anyone who thinks that tax fraud is a risk worth taking."

Firstly, this is quite common, and secondly, tax is the most complicated thing in existence, so complicated that most ordinary lawyers don't recognise it as law by principle. It's the tax code, it's special. It's actually very hard not to be guilty of it, when you have a fair-sized business (whoever heard of a value-added-tax on a land sale?)

But even assuming that the guy was guilty, there was rather stunning evidence to the contrary, which underscores the point that this was revenue raising, not the bringing down of a Mr Big:

A financial report has since been prepared, free of charge, by a firm of chartered accountants. A draft copy was presented to the judge two months ago and a full version handed to him this week. Its analysis concludes that rather than owing tax, Bowles's companies had actually overpaid their taxes.

The report stated: "In our opinion, none of the evidence points to Philip Bowles fraudulently evading or concealing VAT due to HMRC ... It would have been reasonable to conclude that no fraud has taken place."

Lawyers for Bowles claimed in court that matters were compounded by a failure to explain VAT law properly. They alleged the jury were wrongly informed that companies in the same group could not assign tax liabilities and credits between each other.

When a firm of *chartered accountants* utters _an opinion_ over finances, this is a legally imposing evidence. It is given a special status in court, in that the court may rely on it, and so might all others; this special status is awarded for the purposes of public companies that need to impress others such as creditors and shareholders that the company is sound. This form of reliance is not available outside the accounting profession, and only available in an accounting context (e.g., when a firm of accountants audits a certification authority, we do not get a special right to rely on it without further ado).

When a firm of chartered accountants does this for free, this is beyond surprising, this is a shock. The natural order of things is now upset. When the accountants are working for free, this might mean that the professions are mounting a last-ditch effort to preserve the Justice System in Britain, as I predicted:

It took 20 years to hollow out Mexico, we have a bit longer in other countries, because the institutions are staffed by stiffer, better educated people.

Those stiffer, better educated institutions realise that we all are poorer when the justice system is used to raise revenue. Or perhaps they realise their turn is next?

Posted by iang at December 9, 2009 08:26 AM | TrackBack