REVENUE AND CUSTOMS

ENFORCEMENT - FRAUD

P.J. KRAUSE
Revenue and Customs Enforcement - Fraud
__________

P.J KRAUSE
Revenue and Customs Enforcement - Fraud

Copyright © 2018 P.J. Krause

All rights reserved

ISBN: 978-1-5272-2360-8

This manual has been written for general guidance on matters of interest only, and does not
constitute professional advice. The reader should not act upon the information contained
herein without obtaining the appropriate professional advice. No representation or warranty
(express or implied) is given as to the accuracy or completeness of the information contained
in this manual. To the extent permitted by law, the writer does not accept or assume any
liability, responsibility or duty of care for any consequences of the reader or any other person
acting, or refraining to act, in reliance on the information contained in this manual or for any
decision based on it. The author makes no claim to any of the works referred to, or quotations
taken from the works of other authors.
PREFACE
It should perhaps from the outset be explained what this manual is and what it is not. This
manual was written with the view to be a general guidance aimed at those wishing to gain a
basic understanding of the operational side of revenue enforcement and the investigation of
revenue and customs frauds. This manual was not written with the view to be a blue-print of
the law and practice surrounding criminal investigations in any one particular jurisdiction, but
was written with the view to point out what is common practice in most English-speaking
jurisdictions. Against this background, everything in this manual may not necessarily conform
to the laws and working procedures at this time prevalent in any one given jurisdiction, but
most of the content of this manual does mirror current practice in most English-speaking
countries with strong historic ties to England in terms of systems of government, taxation and
law. As such this manual may be helpful to junior compliance personnel, generalists,
investigators from other branches of law enforcement not familiar with revenue fraud, and the
more internationally mobile accounting or tax professional who might be more interested in a
general point of reference.

This manual is very much a work in progress. Time permitting it will be updated and refined
over time. Readers are free to direct any suggestions, or information relating to any changes in
the legal frameworks or practice of their home jurisdictions (and insofar as touched on in this
manual) to the writer at: peterkrause@outlook.com

PETER KRAUSE
London.
01 May 2018
i TABLE OF CONTENTS

INTRODUCTION ................................................................................................................................... 1

PART I - ADMINISTRATION AND ENFORCEMENT ...................................................................... 9

1.1 Taxes and tax legislation ................................................................................................................... 9
1.1.1 Duties and Taxes ....................................................................................................................... 9
1.1.2 Tax legislation ......................................................................................................................... 13
1.1.3 Statutory interpretation ............................................................................................................ 15
1.1.3.1 General ............................................................................................................................. 15
1.1.3.2 Rules of interpretation...................................................................................................... 17
1.1.3.2.1 'Traditional' approaches ............................................................................................ 18
1.1.3.2.2 The purposive approach ........................................................................................... 20
1.1.3.3 Aids and presumptions ..................................................................................................... 24
1.1.3.4 In criminal prosecutions ................................................................................................... 25
1.2 The Commissioners ......................................................................................................................... 26
1.3 Duties of taxpayer ........................................................................................................................... 27
1.3.1 General..................................................................................................................................... 27
1.3.2 Keeping of records and books of account ................................................................................ 28
1.3.3 Self-assessment ........................................................................................................................ 29
1.4 Tax morale....................................................................................................................................... 30
1.5 ‘Tax avoidance’ and ‘tax evasion’ .................................................................................................. 36
1.5.1 ‘Tax avoidance’ ....................................................................................................................... 36
1.5.1.1 Defining ‘tax avoidance’.................................................................................................. 37
1.5.1.2 Impact .............................................................................................................................. 39
1.5.1.3 Non-fraudulent conduct ................................................................................................... 40
1.5.1.4 State response................................................................................................................... 41
1.5.1.4.1 Substance over form ................................................................................................. 42
1.5.1.4.2 General Anti-Avoidance Rules ................................................................................ 43
1.5.1.4.3 Statutory disclosure provisions ................................................................................ 44
1.5.1.5 Common pitfalls............................................................................................................... 44
1.5.1.5.1 ‘Artificial’ transactions or arrangements .................................................................. 44
1.5.1.5.2 Confusing legality of avoidance with subsequent conduct ...................................... 46
1.5.1.5.3 Tax evasion dealt with as avoidance ........................................................................ 47
1.5.2 ‘Tax evasion’ ........................................................................................................................... 48
1.5.2.1 Definition ......................................................................................................................... 48
1.5.2.2 Fraudulent conduct........................................................................................................... 50
1.5.2.3 White-collar crime ........................................................................................................... 51
1.5.2.4 Crime of dishonesty ......................................................................................................... 52
1.5.3 Motivating factors.................................................................................................................... 53
1.5.3.1 Pressure ............................................................................................................................ 54
1.5.3.2 Opportunity ...................................................................................................................... 58
1.5.3.2.1 General ..................................................................................................................... 58
1.5.3.2.2 Low detection rates .................................................................................................. 59
1.5.3.2.3 Lacking international cooperation ............................................................................ 62
1.5.3.2.4 Apathetic and evasion-tolerant society..................................................................... 63
1.5.3.2.5 Lacking revenue enforcement capacity .................................................................... 64
1.5.3.2.6 Lack of inter-agency cooperation ............................................................................. 65
1.5.3.2.7 Failure to enforce broader regulatory frameworks ................................................... 66
1.5.3.2.8 High levels of crime and a failing criminal justice system ...................................... 67
1.5.3.2.9 Failure to conduct pre-implementation risk-assessments ......................................... 68
1.5.3.2.10 The failure to anticipate and plan - Intelligence failure ......................................... 68
1.5.3.2.11 Accommodating infrastructure, lack of commitment, and duplicity ...................... 69
1.5.3.3 Rationalization ................................................................................................................. 70
1.5.4 Impact ...................................................................................................................................... 71
1.5.4.1 Losses in state revenue..................................................................................................... 71
1.5.4.2 Subversion of state policies ............................................................................................. 72
1.5.4.3 Distortion of statistics ...................................................................................................... 73
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1.5.4.4 Undermines fair competition ........................................................................................... 73

1.5.4.5 Fuels corruption ............................................................................................................... 74
1.5.4.6 Increased complexity of legislation ................................................................................. 74
1.5.4.7 Compliance and Enforcement cost .................................................................................. 75
1.5.4.8 Consequences for the offender ......................................................................................... 75
1.5.4.9 Victims other that the Revenue ........................................................................................ 76
1.5.4.10 Undermines equality and tax morale ............................................................................. 77
1.5.5 Crime Statistics ........................................................................................................................ 77
1.5.5.1 General ............................................................................................................................. 77
1.5.5.2 The dark figure................................................................................................................. 77
1.5.5.2.1 Non-detection and non-recognition .......................................................................... 78
1.5.5.2.2 Non-reporting ........................................................................................................... 78
1.5.5.2.3 Non-recording .......................................................................................................... 79
1.5.6 The ‘tax gap’ ............................................................................................................................ 79
1.5.7 The underground economy ...................................................................................................... 81
1.5.8 Tax havens ............................................................................................................................... 82
1.5.9 Capital flight ............................................................................................................................ 85
1.5.10 Taxing the proceeds of crime ................................................................................................ 85
1.6 Revenue enforcement ...................................................................................................................... 87
1.6.1 General..................................................................................................................................... 87
1.6.2 Revenue Powers ...................................................................................................................... 88
1.6.3 Reducing the levels of evasion ................................................................................................ 90
1.6.4 Counter fraud strategies and measures .................................................................................... 91
1.6.5 Deterrence of non-compliance ................................................................................................. 96
1.6.6 Audits and inspections ............................................................................................................. 97
1.6.7 Recovery of lost revenue ....................................................................................................... 102
1.6.7.1 Quantification ................................................................................................................ 104
1.6.7.2 Assessment..................................................................................................................... 108
1.6.7.3 Tracing of funds ............................................................................................................. 109
1.6.8 Voluntary disclosure of non-compliance ............................................................................... 110

PART II - INVESTIGATION AND PROSECUTION ....................................................................... 111

2.1 Introduction ................................................................................................................................... 111
2.2 Complexity of cases ...................................................................................................................... 114
2.2.1 General................................................................................................................................... 114
2.2.2 Spectrum of criminal activity, depth and scope ..................................................................... 115
2.2.3 Demands placed on resources ................................................................................................ 117
2.2.4 Legal complexity ................................................................................................................... 118
2.2.5 Identification of offenders ..................................................................................................... 121
2.2.6 Multiple taxes and statutes..................................................................................................... 123
2.2.7 Variation, evolvement and change......................................................................................... 124
2.2.8 Technological advances ......................................................................................................... 124
2.2.9 Transnational dimension ........................................................................................................ 125
2.3 Selective referral for criminal investigation .................................................................................. 126
2.4 Secrecy Provisions ........................................................................................................................ 130
2.5 Constitutional protections.............................................................................................................. 132
2.6 Investigative capacity and inter-agency cooperation..................................................................... 136
2.7 Intelligence .................................................................................................................................... 138
2.7.1 General................................................................................................................................... 138
2.7.2 Information and Intelligence - Distinction............................................................................. 140
2.7.3 Intelligence - Utility and Use ................................................................................................. 140
2.7.4 Intelligence requirements....................................................................................................... 145
2.7.5 The intelligence cycle ............................................................................................................ 146
2.7.6 Intelligence failure ................................................................................................................. 152
2.7.7 Information gathering ............................................................................................................ 153
2.7.8 Raising awareness and mobilizing front-line and public engagement................................... 161
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2.7.9 Legislative frameworks and accountability ........................................................................... 162

2.7.10 Intelligence and evidence .................................................................................................... 166
2.7.11 Non-pursuit in spite of positive information or intelligence ................................................ 167
2.7.12 Maintaining focus ................................................................................................................ 167
2.8 Investigation .................................................................................................................................. 168
2.8.1 General................................................................................................................................... 168
2.8.2 Investigation outcomes .......................................................................................................... 172
2.8.3 Financial and non-financial ................................................................................................... 172
2.8.4 Investigation docket ............................................................................................................... 175
2.8.5 Narrowing down of potential charges.................................................................................... 175
2.8.6 Identification of suspects ....................................................................................................... 175
2.8.7 Crime scenes .......................................................................................................................... 176
2.8.8 Production orders ................................................................................................................... 178
2.8.9 Search warrants...................................................................................................................... 180
2.8.10 Arrest ................................................................................................................................... 185
2.8.11 Interviews and cautions ....................................................................................................... 190
2.8.12 Objectivity ........................................................................................................................... 195
2.8.13 Control ................................................................................................................................. 196
2.9 Evidence ........................................................................................................................................ 197
2.9.1 General................................................................................................................................... 197
2.9.2 Types of evidence .................................................................................................................. 200
2.9.3 Direct and circumstantial evidence ........................................................................................ 200
2.9.4 Evidence proving material elements ...................................................................................... 201
2.9.5 Information gathered by the Revenue.................................................................................... 203
2.9.6 Compliance audit or criminal investigation ........................................................................... 204
2.9.7 Witness testimony.................................................................................................................. 207
2.9.8 Documentary and electronic evidence ................................................................................... 213
2.9.9 Chain of custody .................................................................................................................... 215
2.9.10 Admissibility and exclusion ................................................................................................ 215
2.10 Prosecution .................................................................................................................................. 220
2.10.1 General................................................................................................................................. 220
2.10.2 Public perceptions and criticism .......................................................................................... 224
2.10.3 Prosecuting Authorities ....................................................................................................... 226
2.10.4 Private prosecution .............................................................................................................. 227
2.10.5 Indictments .......................................................................................................................... 228
2.10.6 Bail....................................................................................................................................... 230
2.10.7 Prosecution docket ............................................................................................................... 234
2.10.8 Disclosure of prosecution material ...................................................................................... 235
2.10.9 Jurisdiction and venue ......................................................................................................... 236
2.10.10 Criminal Trial .................................................................................................................... 239
2.10.10.1 Jury or bench trial ...................................................................................................... 239
2.10.10.2 Trial flow ................................................................................................................... 240
2.10.11 Criminal liability in other jurisdictions .............................................................................. 242
2.11 Statutory Offences ....................................................................................................................... 244
2.11.1 General................................................................................................................................. 244
2.11.2 Serious’ and ‘less serious’ offences ..................................................................................... 246
2.11.3 Elements of offences............................................................................................................ 248
2.11.3.1 Unlawful conduct ......................................................................................................... 249
2.11.3.2 Mens rea ....................................................................................................................... 252
2.11.4 Strict interpretation .............................................................................................................. 257
2.11.5 Burden of proof ................................................................................................................... 258
2.11.6 Penalties and sentences ........................................................................................................ 260
2.11.7 Overlapping and risk of duplication .................................................................................... 260
2.11.8 Time limits and statutory limitations ................................................................................... 261
2.12 The non-prosecution of fraud and evasion .................................................................................. 263
2.12.1 Matter dealt with administratively ....................................................................................... 263
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2.12.2 Prosecuting Authority’s decision not to prosecute .............................................................. 265

2.12.3 Amnesties ............................................................................................................................ 265

PART III - DEFRAUDING THE REVENUE .................................................................................... 267

3.1 Defining 'fraud' .............................................................................................................................. 267
3.1.1 History, language and framing .............................................................................................. 267
3.1.2 Common law fraud offences .................................................................................................. 269
3.1.3 Statutory 'fraud' offences ....................................................................................................... 270
3.1.4 Statutory 'evasion' offences ................................................................................................... 273
3.2 Misrepresentation .......................................................................................................................... 275
3.2.1 Overview ............................................................................................................................... 275
3.2.2 Misrepresentation of the truth ................................................................................................ 276
3.2.3 Objective truth and falsity ..................................................................................................... 277
3.2.4 Words or conduct................................................................................................................... 277
3.2.5 Materiality ............................................................................................................................. 278
3.2.6 Commissio and omissio ......................................................................................................... 279
3.2.7 Misrepresentation by omission .............................................................................................. 279
3.2.7.1 Failure to act .................................................................................................................. 280
3.2.7.2 Duty to disclose.............................................................................................................. 281
3.2.8 Multiple misrepresentations................................................................................................... 282
3.2.9 Overlapping with the actus reus of other offences ................................................................ 282
3.2.10 Commonly employed misrepresentations ............................................................................ 283
3.2.10.1 False verbal statements ................................................................................................ 283
3.2.10.2 Fraudulent documentation............................................................................................ 284
3.2.10.2.1 Fraudulent registration documentation ................................................................. 286
3.2.10.2.2 Fraudulent tax returns and claim forms ................................................................ 286
3.2.10.2.3 Fraudulent Bills of Entry ...................................................................................... 286
3.2.10.2.4 Fraudulent commercial documentation ................................................................ 287
3.2.10.2.5 False books of account ......................................................................................... 288
3.2.10.2.6 Fraudulent financial statements ............................................................................ 289
3.2.10.3 Giving something out as something other than what it in fact is ................................. 291
3.2.10.4 Electronic capturing, submission or programming ...................................................... 292
3.2.10.5 Manipulation of equipment .......................................................................................... 293
3.2.10.6 Physical concealment ................................................................................................... 293
3.2.11 Deception post-detection ..................................................................................................... 293
3.2.12 Misrepresentations through the use of another .................................................................... 294
3.3 Mens rea ........................................................................................................................................ 296
3.3.1 Motive and intent ................................................................................................................... 296
3.3.2 Intent to defraud..................................................................................................................... 297
3.3.3 Dishonesty ............................................................................................................................. 300
3.3.4 Knowledge of unlawfulness .................................................................................................. 301
3.3.5 Inferring intent or the absence thereof ................................................................................... 307
3.3.6 Lacking Capacity ................................................................................................................... 309
3.4 Prejudice or loss ............................................................................................................................ 309
3.4.1 Prejudice or loss as material element..................................................................................... 309
3.4.2 Potential prejudice sufficient ................................................................................................. 310
3.4.3 Unlawful deferment ............................................................................................................... 310
3.4.4 Patrimonial and non-patrimonial prejudice ........................................................................... 311
3.4.5 Parties prejudiced .................................................................................................................. 312
3.5 Fraud by omission ......................................................................................................................... 312
3.6 Participation .................................................................................................................................. 313
3.6.1 General................................................................................................................................... 313
3.6.2 Accessory liability ................................................................................................................. 317
3.6.3 The advisors ........................................................................................................................... 322
3.6.4 Corporate criminal responsibility .......................................................................................... 324
3.7 Selected Defences.......................................................................................................................... 329
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3.7.1 No legal basis for liability...................................................................................................... 330

3.7.2 Tax unconstitutional or unlawful ........................................................................................... 331
3.7.3 Disclosures were accurate and complete ............................................................................... 333
3.7.4 Ignorance and Mistake........................................................................................................... 334
3.7.4.1 Mistake........................................................................................................................... 334
3.7.4.2 Ignorance of law ............................................................................................................ 337
3.7.5 Good faith reliance on others ................................................................................................. 337
3.7.5.1 Good faith reliance on advice, work, or instructions of others ...................................... 337
3.7.5.2 Reliance on incorrect Revenue information................................................................... 339
3.7.6 Other selected defences ......................................................................................................... 340
3.7.6.1 Lacking capacity ............................................................................................................ 340
3.7.6.2 Duress ............................................................................................................................ 341
3.7.6.3 Entrapment ..................................................................................................................... 342
3.7.6.4 No prejudice suffered ..................................................................................................... 344
3.8 Specific Problem areas .................................................................................................................. 344
3.8.1 Intentional failure to register for and declare tax ................................................................... 345
3.8.2 Fraudulent returns .................................................................................................................. 347
3.8.2.1 Filing of returns.............................................................................................................. 347
3.8.2.2 Misrepresentation........................................................................................................... 348
3.8.2.2.1 False statements and unlawful omissions in the return .......................................... 349
3.8.2.2.2 Misrepresentations in support of the return form ................................................... 350
3.8.2.3 Proving the return to be fraudulent ................................................................................ 351
3.8.2.4 Under-declaration of income ......................................................................................... 352
3.8.2.5 Claiming deductions or expenses not entitled to ........................................................... 355
3.8.2.6 Fraudulent schemes ........................................................................................................ 355
3.8.2.7 Concealment of tax avoidance arrangements................................................................. 358
3.8.2.8 Failure to disclose a change in circumstances ............................................................... 359
3.8.2.9 Post-filing failure to amend an incorrect return ............................................................. 361
3.8.3 Collection but the failure to pay over .................................................................................... 363
3.8.4 Failure to account for payments made to others .................................................................... 365
3.8.5 Post-assessment evasion of payment ..................................................................................... 365
3.8.6 Criminal attacks against the tax system ................................................................................. 367

PART IV - CUSTOMS FRAUD ......................................................................................................... 371

4.1 Background ................................................................................................................................... 371
4.2 Customs enforcement .................................................................................................................... 372
4.2.1 The Customs division ............................................................................................................ 373
4.2.2 Enforcement failures .............................................................................................................. 376
4.2.2.1 The failure to adapt to change ........................................................................................ 377
4.2.2.2 Limitations on resources ................................................................................................ 379
4.2.2.3 Low levels of detection / interdiction ............................................................................ 379
4.2.2.4 Insufficient levels of deterrence ..................................................................................... 381
4.2.2.5 Lenient sentencing and over-reliance on administrative penalties................................. 382
4.3 The Customs legislation ................................................................................................................ 384
4.3.1 General................................................................................................................................... 384
4.3.2 Importation and Exportation .................................................................................................. 386
4.4 The duties and taxes ...................................................................................................................... 387
4.4.1 Customs and excise duty ....................................................................................................... 387
4.4.2 Value Added Tax ................................................................................................................... 388
4.5 Customs fraud ............................................................................................................................... 389
4.5.1 'Customs fraud' and ‘Smuggling’ .......................................................................................... 389
4.5.2 Continuing Nature of Evasion ............................................................................................... 396
4.5.3 Potential Indicators ................................................................................................................ 397
4.5.4 Taxation and regulation as contributing factors .................................................................... 401
4.5.4.1 Evasion of taxation ........................................................................................................ 401
4.5.4.2 Evasion of restrictions.................................................................................................... 403
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4.5.5 'Commercial' smuggling ........................................................................................................ 405

4.5.6 Organised crime ..................................................................................................................... 406
4.5.7 The illicit supply chain .......................................................................................................... 410
4.5.8 Market.................................................................................................................................... 412
4.5.9 Classes of goods dealt with.................................................................................................... 413
4.5.9.1 The illicit trade ............................................................................................................... 413
4.5.9.2 Prohibited and restricted goods ...................................................................................... 415
4.5.9.3 Counterfeit goods ........................................................................................................... 416
4.5.10 The Offender........................................................................................................................ 418
4.5.11 Impact .................................................................................................................................. 421
4.5.11.1 Growth in the underground economy .......................................................................... 422
4.5.11.2 Loss of revenue ............................................................................................................ 422
4.5.11.3 Safety and Security ...................................................................................................... 423
4.5.11.3.1 Hazards to the public ............................................................................................ 423
4.5.11.3.2 Security ................................................................................................................ 423
4.5.11.4 Undermines the effectiveness of other regulatory frameworks ................................... 425
4.5.11.5 Undermines fair competition and trade........................................................................ 425
4.5.11.6 Distortion of trade statistics ......................................................................................... 426
4.5.11.7 Undermine fiscal policies and initiatives ..................................................................... 426
4.5.11.8 Erosion of international standing ................................................................................. 426
4.6 The penal framework - Transplantation from England ................................................................. 426
4.7 Statutory offences .......................................................................................................................... 427
4.7.1 ‘Serious’ and ‘less serious’ offences ..................................................................................... 427
4.7.2 Offences provided for ............................................................................................................ 428
4.8 Fraudulent conduct ........................................................................................................................ 433
4.8.1 Misrepresentation .................................................................................................................. 433
4.8.2 Fraudulent intent .................................................................................................................... 434
4.9 Fraud regardless the nature of goods smuggled ............................................................................ 436
4.10 Selected Problem Areas............................................................................................................... 436
4.10.1 Fraudulent Customs Entry ................................................................................................... 437
4.10.1.1 General ......................................................................................................................... 437
4.10.1.2 Fraudulent valuation .................................................................................................... 439
4.10.1.3 Fraudulent classification .............................................................................................. 440
4.10.1.4 Misrepresentation as to origin ...................................................................................... 441
4.10.1.5 Honest mistake or misinterpretation ............................................................................ 441
4.10.2 Bypassing the Customs and Concealment ........................................................................... 442
4.10.2.1 General ......................................................................................................................... 442
4.10.2.2 Bypassing the Customs ................................................................................................ 442
4.10.2.3 Smuggling goods through the Customs point .............................................................. 444
4.10.2.3.1 General ................................................................................................................. 444
4.10.2.3.2 Failure to truthfully declare .................................................................................. 445
4.10.2.3.3 Misrepresentation / Deception ............................................................................. 446
4.10.3 Unlawful diversion .............................................................................................................. 449
4.10.4 Possession, carrying, harbouring and dealing ...................................................................... 454
4.10.4.1 General ......................................................................................................................... 454
4.10.4.2 The Smuggling chain ................................................................................................... 455
4.10.4.3 Possession .................................................................................................................... 458
4.10.4.4 The illicit goods ........................................................................................................... 459
4.10.4.5 Fraudulent evasion ....................................................................................................... 460
4.10.5 Fraudulent refund claims ..................................................................................................... 462
4.10.6 Undue Rebates ..................................................................................................................... 464
4.10.7 Outward smuggling ............................................................................................................. 465
4.10.8 Failure to disclose a change of circumstances ..................................................................... 469
4.11 Foiled attempts ............................................................................................................................ 470
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PART V - COMMONLY EMPLOYED OFFENCES ........................................................................ 472

5.1 Introduction ................................................................................................................................... 472
5.2 Revenue specific offences ............................................................................................................. 473
5.2.1 UK: 'Cheating' under common law ........................................................................................ 473
5.2.1.1 Introduction .................................................................................................................... 473
5.2.1.2 Elements......................................................................................................................... 474
5.2.1 3. Alternative Charges ...................................................................................................... 476
5.2.1.4 Sentencing ...................................................................................................................... 476
5.2.2 UK: Evasion - Sec 106A Taxes Management Act 1970 ....................................................... 477
5.2.3 UK: Fraudulent Evasion - Sec 170 - Customs and Excise Management Act 1979 ............... 479
5.2.3.1. General Background ..................................................................................................... 479
5.2.3.2 Section 170(1) ................................................................................................................ 482
5.2.3.3 Section 170(2) ................................................................................................................ 485
5.2.3.4 Section 170B .................................................................................................................. 487
5.2.3.5 Knowledge ..................................................................................................................... 487
5.2.3.6 General conclusions ....................................................................................................... 488
5.2.4 UK: Improper importation - Sec 50 CEMA 1979 ................................................................. 489
5.2.5 US: Offences under Title 26 - U.S.C ..................................................................................... 494
5.2.5.1 General ........................................................................................................................... 494
5.2.5.2 26 U.S.C. § 7201 - Attempt to evade or defeat .............................................................. 495
5.2.5.3 26 U.S.C. § 7202 - Wilful failure to collect or pay over ................................................ 497
5.2.5.4 26 U.S.C. § 7206 - Perjury, Aiding and Assisting ......................................................... 498
5.2.6 Canada: Section 239 of the Income Tax Act ......................................................................... 500
5.2.7 South Africa: Section 235 - Tax Administration Act ............................................................ 502
5.3 Fraud and evasion offences ........................................................................................................... 506
5.3.1 UK: 'Fraud' contrary to the Fraud Act 2006 .......................................................................... 506
5.3.1.1 Introduction .................................................................................................................... 506
5.3.1.2 The Fraud Offence ......................................................................................................... 507
5.3.1.2.1 Fraud under section 1 ............................................................................................. 507
5.3.1.2.2 Sec 2 - Fraud by false representation ..................................................................... 507
5.3.1.2.3 Sec 3 - Fraud by failing to disclose ........................................................................ 509
5.3.1.2.4 Sec 4 - Fraud by abuse of position ......................................................................... 510
5.3.1.3 Other offences ................................................................................................................ 511
5.3.1.4 Liability of company officers (Section 12) .................................................................... 511
5.3.1.5 Conclusions .................................................................................................................... 512
5.3.2 UK: Fraudulent Trading ........................................................................................................ 514
5.3.3 Canada: Section 380 of the Criminal Code ........................................................................... 516
5.3.4 Australia - Offences under the Commonwealth Criminal Code 1995 ................................... 517
5.3.5 US: 18 U.S.C. § 287 - False, fictitious, or fraudulent claims ................................................ 518
5.4 Conspiracy offences ...................................................................................................................... 519
5.4.1 UK: Conspiracy to defraud under common law .................................................................... 520
5.4.2 UK: Conspiracy under the Criminal Law Act 1977 .............................................................. 522
5.4.3 US: 18 U.S.C. § 371 - Conspiracy to defraud the United States ........................................... 523
5.4.4 US: 18 U.S.C § 286 - Conspiracy to defraud - claims ........................................................... 525
5.4.5 Australia: Section 135.4 - Conspiracy to defraud a Commonwealth entity .......................... 525
5.5 Organised crime and money laundering ........................................................................................ 528
5.5.1 Organised crime ..................................................................................................................... 528
5.5.2 Racketeering Offences ........................................................................................................... 531
5.5.3 Money Laundering................................................................................................................. 532
5.5.4 UK Legislation - Proceeds of Crime Act 2002 ...................................................................... 534
5.5.4.1 Overview ........................................................................................................................ 534
5.5.4.1.1 ‘Money Laundering’ .............................................................................................. 536
5.5.4.1.2 Criminal Property ................................................................................................... 536
5.5.4.1.3 Criminal Conduct ................................................................................................... 537
5.5.4.1.4 Benefited from Criminal Conduct .......................................................................... 538
5.5.4.2 Laundering Offences - Sec 327 - 329 ............................................................................ 538
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5.5.4.3 Reporting and Tipping Off Offences - Sec 330 - 333 .................................................... 540
5.5.4.4 Confiscation and Civil Recovery ................................................................................... 543
5.5.4.5 Taxation ......................................................................................................................... 545
5.6 Other offences ............................................................................................................................... 546
5.6.1 False Accounting ................................................................................................................... 548
5.6.2 Corruption.............................................................................................................................. 549
5.6.2.1 General ........................................................................................................................... 549
5.6.2.2 The Bribery Act 2010 .................................................................................................... 554
5.6.2.3 Extra-territorial application ............................................................................................ 555
5.6.2.4 Overlapping with fraud .................................................................................................. 556
5.6.3 Breaches of Exchange Control Regulations .......................................................................... 556
5.6.4 Insolvency Offences .............................................................................................................. 557
5.6.5 Theft....................................................................................................................................... 558
5.6.6 Forgery and uttering .............................................................................................................. 559
5.6.7 False declarations and Perjury ............................................................................................... 560
5.6.8 Attempt .................................................................................................................................. 562
5.6.9 Incitement .............................................................................................................................. 563

PART VI - PENALTIES AND PUNISHMENT................................................................................. 565

6.1 Administrative penalties ................................................................................................................ 565
6.1.1 General................................................................................................................................... 565
6.1.2 ‘Civil’ and ‘Criminal’ fraud................................................................................................... 567
6.1.3 Both administrative penalties and criminal prosecution ........................................................ 568
6.1.4 Administrative penalties of criminal nature........................................................................... 569
6.2 Forfeiture ....................................................................................................................................... 570
6.2.1 General................................................................................................................................... 570
6.2.2 Legal framework.................................................................................................................... 572
6.3 Punishment upon conviction ......................................................................................................... 575
6.3.1 General................................................................................................................................... 575
6.3.2 Punishment ............................................................................................................................ 576
6.3.2.1 Justification and objectives with punishment ................................................................ 576
6.3.2.2 Certainty of punishment ................................................................................................. 578
6.3.2.3 Punishment must fit the crime ....................................................................................... 578
6.3.3 Deterrence .............................................................................................................................. 580
6.3.4 Sentences upon conviction .................................................................................................... 583
6.3.4.1 Fines ............................................................................................................................... 583
6.3.4.2 Imprisonment ................................................................................................................. 584
6.3.4.3 Community based and suspended sentences .................................................................. 586
6.3.5 Factors in considering appropriate sentence .......................................................................... 588
6.3.5.1 Nature of the offence and aggravating circumstances ................................................... 590
6.3.5.1.1 Serious nature of the offence .................................................................................. 590
6.3.5.1.2 The offender ........................................................................................................... 593
6.3.5.2 Mitigating circumstances ............................................................................................... 595
6.3.6 Confiscation and Compensation orders ................................................................................. 601
6.3.6.1 Confiscation orders ........................................................................................................ 601
6.3.6.2 Compensation ................................................................................................................ 602
6.3.7 Sentencing Tariffs and Guidelines......................................................................................... 603
6.3.8 Publication of names of offenders ......................................................................................... 604

BIBLIOGRAPHY ............................................................................................................................... 606

LIST OF REFERENCES ................................................................................................................ 606
STATUTES .................................................................................................................................... 621
TABLE OF CASES ........................................................................................................................ 624
1 INTRODUCTION

INTRODUCTION

It will be safe to say, there is no sentiment as commonly shared by all men, regardless race,
ethnicity, nationality, religion, ideology or social standing, as the hate of taxation. It will
probably also not be wrong to say that revenue administrations and the officers in their
employ must be one of the most unpopular categories of organization and people. In biblical
times, tax collectors were socially equated with the lowest characters in the society of the
time. We can find numerous references in the Christian Bible where ‘tax collectors’ were
socially equated or associated with “sinners”1 “pagans”2 and “prostitutes”.3 It will not be
wrong to say that many a taxpayer will harbour similar sentiments for as long as there is
taxation and thus tax collectors.

History has shown tax fraud to be a crime committed by all categories of people from all
classes of society. Al Capone landed himself on Alcatraz for his tax evasion,4 and all
indications are William Shakespeare did not die a wealthy man for his writings.5 It is criminal
conduct engaged in by the employed or unemployed, wealthy or poor, educated or
uneducated, culturally refined or otherwise, those least empowered to the most powerful, and
the most trusted to the least trustworthy. The darkest place is said to be right under the lamp,
and this often holds true with tax fraud. Amongst the offenders will often be those in a
position of trust, or those tasked with ensuring and monitoring compliance. The same auditor
or revenue officer entrusted with uncovering irregularities may be the planner of the fraud,
and the Member of Parliament known for being outspoken against fraud may himself be
defrauding each and every most poverty-stricken citizen in his constituency.6 Regardless
profile or status, what all these offenders share is dishonesty.

The reality of taxation has been with us for millennia. Systems of taxation were to be found in
ancient Egypt, Mesopotamia, in the Greek and Roman empires.7 The truth is that the only
societies capable of creating and maintaining prosperity, stability, and security are those with
the capacity to effectively garner, unify, direct and utilize resources in such a way as to
achieve collective objectives. Those societies are however all complex societies. The more
complex a society becomes, the more costly it becomes to maintain. More resources need be
set aside to deal with increased complexity.8 The burden of taxation is thus the price we as

1
Matthew 9:10 – 11, Mark 2:16
2
Matthew 18:17
3
Matthew 21:32
4
Trial reported as Alfonso Capone v United States (2 USTC 786). Mobster Johnny Torrio, Capone's former boss
and reportedly the brain behind the establishment of the 'National Crime Syndicate', the latter a loosely
structured national confederation of different criminal groups was also imprisoned for tax evasion just a few
years later. See The New York Times. "Torrio and 2 aides admit tax frauds", 11 April 1939
5
The Telegraph. 'Shakespeare was a tax-evading food hoarder, study claims', 31 March 2013
6
See e.g. Mote v R [2007] EWCA Crim 3131. Ashley Mote, the author and European Parliament Member, in the
past known as an outspoken critic against fraud, was himself eventually convicted of benefit fraud, convictions
for which he was subsequently imprisoned.
7
Adams CW. Fight, Flight and Fraud - The Story of Taxation, Euro-Dutch Publishers, 1982. In the Christian
bible (The Holy Bible - New International Version) and at Romans 13:5-7 it is inter alia stated: “5.Therefore, it
is necessary to submit to the authorities, not only because of possible punishment but also because of conscience.
6. This is also why you pay taxes, for the authorities are God’s servants, who give their full time to governing. 7.
Give everyone what you owe him: If you owe taxes, pay taxes; if revenue, then revenue.”
8
See Tainter, JA. (1988) The Collapse of Complex Societies (New studies in archaeology). Cambridge
University Press, Cambridge where at .91-92 it is inter alia explained: "More complex societies are more costly
to maintain than simpler ones, requiring greater support levels per capita. As societies increase in complexity,
more networks are created among individuals, more hierarchical controls are created to regulate these networks,
2 INTRODUCTION

taxpayers pay for living in an organized society.9 All societies with systems of taxation are
not successful modern societies, but no modern successful society is to be found absent a
system of taxation.10 Taxation is a condition sine quo non for modern societies to function.
Governments require revenue to rule, build, organize, administer, wage war, 11 educate,
provide welfare etc. Lymer and Oats12 has the following to say about taxation in modern
Britain:

“Ever since people began to gather together in groups and share resources as communities,
taxes have had to be raised to pay for services that can be used by the community as a whole,
rather than just to the benefit of specific individuals and groups. This included, for example,
provision of defence for the group. In the early part of the 21st century taxes are now used to
achieve a number of government objectives as well as to raise revenue to fund its public
spending. In modern Britain taxation has become completely embedded in our society.
Without taxation the country would cease to operate. Whilst few people would say they like to
pay taxes, its presence provides the foundation for an orderly, well managed, country.”

The government objectives referred to in this passage inter alia includes: (a) Managing the
economy which includes the management of inter alia employment levels, business activities,
levels of inflation, the balance of payments, and the relationships with overseas trading

more information is processed, there is more centralization of information flow, there is increasing need to
support specialists not directly involved in resource production, and the like. All of this complexity is dependent
upon energy flow at a scale vastly greater than that characterizing small groups of self-sufficient foragers or
agriculturalists. The result is that as a society evolves toward greater complexity, the support costs levied on each
individual will also rise, so that the population as a whole must allocate increasing portions of its energy budget
to maintaining organizational institutions. This is an immutable fact of societal evolution ... ". And then at .115:
"Control and specialization are the very essence of a complex society. The reasons why investment in
complexity yields a declining marginal return are: (a) increasing size of bureaucracies; (b) increasing
specialization of bureaucracies; (c) the cumulative nature of organizational solutions; (d) increasing taxation; (e)
increasing costs of legitimizing activities; and (f) increasing costs of internal control and external defense."
9
As per President Franklin Roosevelt who was quoted as having stated that: "Taxes, after all, are the dues that
we pay for the privileges of membership in an organised society". (Franklin Roosevelt, Address at Worcester,
Mass, 21 October 1936). See the introduction in Sabine, A Short History of Taxation, where the following is said
on the history and nature of taxation: “Taxation is part of the price of civilisation: for while it is possible to have
government without taxation it is not possible to have taxation without government. It was, therefore, a
comparatively late arrival on the scene of social development: for man the hunter, man the farmer and man the
villager remained for the most part in happy ignorance of any form of taxation. So taxation, when it began,
usually as a tribute to the priest for interpreting the terror and mysteries of nature, would have a common origin:
and the solutions applied for the raising of revenue would not greatly vary. The crisis of solvency is probably the
most consistent administrative crisis in history".
10
See Adam Smith in his An Inquiry into the Nature and Causes of the Wealth of Nations where at 8-9 the writer
inter alia noted: "Among the savage nations of hunters and fishers, every individual who is able to work is more
or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and
conveniencies of life, for himself, and such of his family or tribe as are either too old, or too young, or too
infirm, to go a- hunting and fishing. Such nations, however, are so miserably poor, that, from mere want, they
are frequently reduced, or at least think themselves reduced, to the necessity sometimes of directly destroying,
and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish
with hunger, or to be devoured by wild beasts. Among civilized and thriving nations, on the contrary, though a
great number of people do not labour at all, many of whom consume the produce of ten times, frequently of a
hundred times, more labour than the greater part of those who work; yet the produce of the whole labour of the
society is so great, that all are often abundantly supplied; and a workman, even of the lowest and poorest order, if
he is frugal and industrious, may enjoy a greater share of the necessaries and conveniencies of life than it is
possible for any savage to acquire."
11
There is a long history of taxation for the financing of war, or in some instances war was in fact the driving
force behind the creation of new taxes. See e.g. Sabine, A Short History of Taxation at 131-147. In the United
States, the introduction of income tax came in 1862 following the enactment of the Revenue Act of 1862, a move
which was in fact intended to pay for the American Civil War.
12
Taxation: Policy and Practice, 15th ed at 1
3 INTRODUCTION

partners; (b) Regulation, e.g. the protection of inter alia the environment, the public generally,
or specific groups within society; (c) Development, e.g. the provision of social welfare and
health systems for broader society; and (d) The provision of public goods. This will typically
be the provision of services required to be organised by Government as it is unlikely to be
adequately provided for by the market, e.g. education and defence. 13 Taxation will remain
unpopular with most taxpayers for as long as there is organised society and thus taxation. That
being said, the greater majority of taxpayers do accept taxation to be an inescapable necessity.

In democratic societies the government really is an agent appointed by the people to

administer, organise, and defend the interests of the nation. Government acts within that
mandate as provided by the electorate. By implication, political leadership do not have carte
blanche to act and squander as they wish. They are and remain servants of all including the
lowest of the low, and they are under a duty to justify every penny spent. The interests of the
State as representative of the collective body of taxpayers will obviously not necessarily
always correspond with that of individual taxpayers.14 That will really be an unrealistic
expectation. That being said, when it comes to taxation policy, the wider public pulse is
something most wise policymakers tend to monitor closely. Tax policy has always been just
as much a matter of political survival as it was one of finances and necessity. For a politician
or political party, the content of tax policy can mean the difference between lobby-support
and donations or no campaign support, the difference between political victory or defeat, and
the support or resentment of the electorate.15

Many taxpayer grievances against a particular government, a particular tax, or a particular

basis of taxation are not always without merit. There are glaring cases of gross tax inequality
and tax injustice, governments do often squander and waste, governments are often unjust or
corrupt, governments often do not act in accordance with the wishes of the electorate, and
excessive government expenditure and bad tax policies can have a detrimental effect on

13
Lymer & Oats, Taxation: Policy and Practice, 15th ed at 2.
14
The Tax Law Review Committee in its paper 'Tax Avoidance' (The Institute for Fiscal Studies, 1997) and at 1-
2 commented as follows on the relationship between the State and the taxpayer: “Taxation is central to the
organization of any modern state. But raising taxes involves the State trespassing upon another aspect of a
modern civilised society, namely the respect for, and protection of, private property. The individual’s interests
may differ significantly from those of the State, which represents taxpayers as a body. The individual naturally
looks to what he has to pay. The State, in representing the interests of taxpayers as a body, is more concerned
with the issues of equity and administration, as well as with the wider social and economic effects of taxation.”
15
This basic truth was seemingly already recognised by Shakespeare. See Evans (2009) 'Shakespeare’s Guide to
Tax Policy: ‘Know You of This Taxation?’, Tax Notes at 798: "Tax policy mattered to Shakespeare. In writing
his English history plays, he was working with a vast amount of material, from Holinshed and other sources,
which he condensed into a series of sharp historical narratives that are in large part about political leadership. In
doing so, he selected, and embellished, the details of two tax controversies, showing how Richard II diminished
his authority by handling tax policy badly and how Henry VIII enhanced his authority by handling tax policy
well. It may seem unremarkable, today, to say that it is important for a political leader to handle tax policy well,
but the situation was quite different in Shakespeare’s time, an age when people believed in the divine right of
kings, with the official homily of the Anglican Church declaring that "Kings and Princes, as well the evil as the
good, do reign by God’s ordinance, and that subjects are bounden to obey them." In contrast to this official
doctrine, Shakespeare presents a complex and modern view, in which political authority depends not on titles
and trappings but on the constant and vigorous exercise of practical political leadership. In Richard II and Henry
VIII, Shakespeare shows that the effective management of tax policy is one of the core aspects of wise political
leadership.". Jean-Baptiste Colbert, King Louis XIV's Minister of Finance between the years 1665-1683 once
reportedly expressed the view that: "The art of taxation consists in so plucking the goose as to procure the largest
quantity of feathers with the least possible amount of hissing." See Evans Ibid at .798. Also quoted in
McKechnie, WS. (1896) The State & the Individual - An Introduction to Political Science, with special reference
to Socialistic and Individualistic Theories at 77. If this was indeed ever said by Colbert is not sure (there seems
to be uncertainty as to the origin of this quote), but true or not, there is little doubt many a politician and finance
minister past and present must have shared that same sentiment.
4 INTRODUCTION

economic growth.16 This being said, despite the merits of any argument any person may level
against taxation, there is none that provide a workable alternative to taxation if a state is to
create and maintain an ordered and modern society. There can be no ordered and functioning
industrialized society without government providing the necessary structures, services,
regulation, rule of law, legal protection, and monetary frameworks. This is not possible absent
taxation. Some may argue taxation as being contrary to the laws of nature, and it certainly is,
but so are laws prohibiting revenge or the taking of the law into your own hands, or laws
providing for compulsory schooling, conscription, the protection of children and many other
interests.17 Most people, as much as they hate taxation, do appreciate its necessity.18

There will always be a part of the taxpayer-base that will not comply with the revenue laws in
the absence of credible enforcement and deterrence. Revenue frauds may range from large-
scale corporate frauds showing great complexity, to conduct as simple as the small-scale
unlawful distilling and sale of liquor by an individual in his garage. It is a crime that will
never be rooted out and will be with us for as long as there is taxation. It is however a real
threat the incidence and impact of which must be contained within acceptable levels. The loss
of revenue through fraud cannot be but prejudicial to the State’s interests. The State has a
legal right to the tax due under the tax legislation. The failure to pay that which is due is to
deprive the State of its right to the tax. Tax fraud is anything but a victimless crime.19 It
benefits the offender at the cost of the fiscus. It is a crime not only against the State, but also
against the broader community.20 It is only to be expected for the evaded tax burden to be
shifted onto the rest of the citizenry. Targeting tax evaders and narrowing the tax gap may in
turn allow for the tax-rates to be lowered. Even though the primary function of revenue
administrations is the collection of revenue, taxation also serves another less appreciated
function namely that of regulation. Taxation has become a means for policymakers to shape,
regulate and steer trade and social policies. It serves as an important tool in protecting local

16
See e.g. Gwartney J, Lawson R, Holcombe R. (1998), 'The Size and functions of Government and Economic'
Growth, Joint Economic Committee
17
Adam Smith supra at 740 inter alia noted that: "..... the smuggler ... a person who, though no doubt highly
blame-able for violating the laws of his country, is frequently incapable of violating those of natural justice, and
would have been, in every respect, an excellent citizen, had not the laws of his country made that a crime which
nature never meant to be so."
18
See Freedman J, 'Defining taxpayer responsibility: in support of a general anti-avoidance principle', British
Tax Review, 2004, 332-357 at .334 where the writer inter alia commented: "The duty of the taxpayer It is
inevitable that there will be fundamental tensions between the essential need of governments to raise revenue
and the lack of desire of taxpayers to pay for this. Quite apart from differences about the size and role of the
state, which are obviously to be decided in the ballot box in a democratic society, each taxpayer will consider
that he should pay only his “fair share”. What is his fair share may be a matter for argument, but what is clear is
that the taxpayer himself is “not the proper person to decide what it should be” Such evidence as there is
suggests that whilst individual citizens do not like taxes, the majority do accept that they are both necessary and
inevitable. This does not prevent even that majority from wishing to minimise their tax in legal ways and
politicians frequently attempt to utilise the tax system to manage behaviour, providing tax incentives to operate
in one way or another, thus exploiting this rational desire."
19
See the English case of R v Leaf [2007] EWCA Crim 802 where the trial judge in the court a quo, in referring
to the fraudulent trading of the appellant as a result of which the Revenue was defrauded out of large sums in
corporation taxes, inter alia commented: "Moreover, your crimes are not victimless. Quite the contrary, every
law-abiding citizen of this country is a victim of your crimes, in that you have denied the country substantial
resources which can only mean one of two things, or perhaps a combination of the two: either the burden must
be increased on the law-abiding or the resources available for proper use must be reduced."
20
This is a view commonly expressed in sentencing courts. See e.g. the Australian case of Putland v R [2004]
HCA 8 and the English case of R v Hudson [1956] 1 All ER. The British courts commonly, and also quite
appropriately, refer to tax frauds as 'frauds on the public'.
5 INTRODUCTION

markets, promoting trade or investment, and inhibiting or discouraging certain practices or

behaviour.21

Revenue administrations, customs administrations, and law enforcement agencies constantly

have to adapt to an evolving landscape. Change is a fact of life. This we can see in the gradual
but nevertheless constant evolvement of inter alia: political, social, and economic systems;
constitutional and legal frameworks; societal standards, morals and norms; systems of
taxation; systems of administration and enforcement; national and international practices,
procedures and standards; technology; enforcement culture; and investigative methodologies.
Adapting to that change is something all revenue and customs administrations, enforcement
personnel, investigators, and prosecutors, regardless jurisdiction, must navigate. Revenue
administrations and law enforcement agencies have over recent decades weathered
considerable challenges as they were forced to adapt to rapid change brought about by
advances in technology, increased levels of trade, the information revolution, more efficient
and complex international financial systems, and the rapid increase in the movement of
people and goods. These developments have broken down many historical barriers and
frontiers, sped up many processes, and resulted in a significant increase in the international
traffic of goods, people, and funds, to levels incomprehensible just a few decades earlier. Not
only honest businessmen but also criminals and tax evaders recognised the opportunities these
advances had to offer. Many governments also introduced various new taxes, duties and
levies, and revenue administrations are also increasingly burdened with the enforcement of
regulatory regimes unrelated to taxation per se. For revenue administrations this obviously
means an increase in the volumes of legislation to be administered and enforced.

Revenue agencies already have a difficult enough task as it is to administer the tax affairs of
millions of taxpayers, but this is a task not made any easier with taxpayers now being more
mobile than ever before. Different jurisdictions have in place their own legal systems and own
systems of taxation. National revenue agencies are expected to fulfil their mandates within the
legal frameworks and boundaries of their national legislation. International information
exchange and cooperation can however only be relied upon where specifically provided for
under international treaties. The fraudulent schemes employed to defraud Revenue agencies
have grown more daring, sophisticated, and international than ever before. These
developments coupled with limited resources already strained as it is, constant evolvement
and change in the methods used to defraud the Revenue, difficulties experienced in the
detection of complex frauds, and difficulties associated with the investigation of transnational
frauds, have all contributed to making revenue related frauds increasingly more difficult to
detect and counter. For those jurisdictions where structural capacity is lacking, overcoming
these challenges may prove particularly difficult. Many of these states already struggle with
political, economic and social instability. These states can hardly afford a significant portion
of its tax being ciphered away. They find it increasingly difficult, and often impossible, to
enforce their revenue laws, protect their tax base, and to investigate tax-crime.

Budgets for revenue and customs enforcement are limited. Expenditure need be justified and
deliverables will be judged. As revenue administrations are primarily concerned with
administering the public revenue, efficiency is, as can only be expected, measured as a set-off
between administration and enforcement costs on the one hand versus revenue yield on the
other. The primary enforcement objective of most revenue administrations today, and this is
certainly the case with HMRC, is to secure the highest possible levels of voluntary

21
See e.g. The Financial Times, July 21/22 2007, “UK joins France in green tax campaign”, where it was inter
alia reported that Britain and France was to spearhead a campaign to cut VAT rates on less environmentally
damaging products.
6 INTRODUCTION

compliance. The investigation and prosecution of revenue-related crime is considered a key

component of any successful revenue-enforcement strategy, but for most revenue
administrations, convictions and prison sentences are no more but a means to an end. Its main
value is viewed to be its weight as general deterrent.

When looking at criminal investigations within the revenue and customs context, we are
dealing with what is a very narrow but specialized area of operations, in practice often
awkwardly sandwiched in between the realities and demands of revenue and customs
administration on the one hand, and the practical difficulties associated with criminal
investigations and prosecution in the criminal courts on the other. Whereas with other
categories of crime the default position tends to be criminal prosecution with the view to
secure convictions, the criminal investigation and prosecution of revenue crime is the
exception. In most jurisdictions one will find that tax evasion is seldom prosecuted, with
administrative pecuniary penalties more often than not the standard response in dealing with
offenders. Most revenue administrations and notably those in the United States, the United
Kingdom, Canada, Australia, New Zealand, and Ireland, opt for selective prosecution. The
chances of a taxpayer finding himself charged and convicted for a tax fraud is slim.
Imprisonment is even more improbable and suggests extremely bad luck indeed.22 A high
proportion of frauds escape detection, of those cases that are indeed identified the greater
number is dealt with administratively whilst only a small number of cases are in fact selected
for criminal investigation. Of those cases referred for criminal investigation, not all will be
referred for prosecution. Not all those cases referred for prosecution will deliver a conviction.
Revenue agencies, for obvious reasons, place at a high premium press coverage reporting on
successful convictions and prison sentences. This however is for no other reason but to leave
the general public with the impression of there being a real risk of detection, prosecution,
conviction and prison.

Criminal liability is attached to unlawful conduct in violation of the law. The numerous tax
statutes administered by the Commissioners not only place numerous duties on the taxpayer,
but also prohibits a wide range of unlawful acts and omissions. Unlawful breaches of the tax
laws may thus result in criminal liability for the offender. This work will inter alia
concentrate on a number of those breaches that will usually have as consequence the fiscus
being defrauded out of the duty and taxes to which it is entitled, the laws intended to deal with
those frauds, and the criminal liability of the offender. Despite the international trend of
codifying common-law offences, there are jurisdictions which retained some of those
common-law crimes that have proven its worth and have stood the test of time. The English
crime of ‘cheating' contrary to common law can be singled out as an offence falling within
this category.23 In Britain, there are no crimes indictable as ‘tax fraud’, ‘customs fraud’, ‘tax
evasion’ or ‘smuggling’.

22
In June 2015 the Financial Times ("More UK tax evaders going to jail but prison terms are falling", June 01,
2015) inter alia reported: "The total number of tax evaders jailed has risen by 29 percent, from 171 in 2011, to
220 last year. The average time served fell 57 per cent, from 41.3 months in 2011 to 17.7 months in 2014,
according to figures released by HM Revenue & Customs in response to a freedom of information request."
Considering that the UK has around 30 million taxpayers, and considering that at least a few hundred thousand
of them are evading tax, a mere 220 prison sentences suggest the risk of imprisonment for a tax fraud to be
almost negligible. That equates to roughly 0.000007 % of taxpayers per annum imprisoned for tax fraud.
Prosecution and imprisonment may be highly likely in the case of certain categories of fraudsters i.e.
professional smugglers or those who operate VAT scams (assuming it is detected), but as far as the greater
majority of other taxpayers is concerned, the overall risk of criminal prosecution and imprisonment is highly
improbable.
23
The English common-law offence of 'cheating' was abolished by the Theft Act 1968 except insofar as offences
against the Revenue is concerned. See section 32(1) of the Theft Act 1968.
7 INTRODUCTION

In English law is not really to be found one uniform and generally accepted definition of
'fraud'. The closest to such a definition is to be found in the Fraud Act 2006. The term ‘tax
fraud’ is no more but a term of common usage frequently encountered in law reports and the
media in referring to unlawful conduct which has as consequence the defrauding of the
Revenue, and irrespective of the nature of the tax evaded or the misrepresentations used. ‘Tax
fraud’ can thus at best be described as a generic term of common usage in referring to tax
related fraudulent conduct. The terms ‘VAT fraud’ and ‘customs fraud’ are also no more but
descriptive terms commonly used in referring to instances where the fiscus is defrauded out of
Value Added Tax, or frauds committed against the Customs and Excise. It will be safe to say
that it will be highly unlikely that references to ‘tax evasion’, ‘smuggling’, ‘tax fraud’,
‘customs fraud’ or ‘VAT fraud’ will be encountered in any indictment alleging the
commission of any so-called ‘evasion’ or ‘smuggling’ offence. Unlawful conduct commonly
referred to as ‘tax evasion’, ‘smuggling’, ‘tax fraud’, ‘customs fraud’ or ‘VAT fraud’, will
typically be charged under common law offences such as 'cheating' or 'conspiracy to defraud',
or with a contravention of some or other statutory offence e.g. 'a contravention of section
170(1) (a) of the Customs and Excise Management Act 1979' or 'a contravention of section 1
of the Fraud Act 2006'. The framing of statutory offences differs from provision to provision,
statute to statute, and from jurisdiction to jurisdiction. The material elements of one statutory
offence will usually not correspond with the material elements of another statutory or
common law offence, although overlapping in a particular factual setting is not uncommon.
Unlawful conduct criminalized in a statutory ‘evasion’ provision will thus not necessarily be
indictable as common-law 'cheating' and vice versa.

Legal frameworks and enforcement practices differ between jurisdictions, and they change
and differ between points in time in the same jurisdiction. There are marked differences in the
approaches followed by different jurisdictions in the way they deal with crime in general and
with certain categories of crime going by labels such as 'financial crime', 'revenue crime',
'money laundering', 'organised crime' etc. Any appreciation of the revenue and customs
enforcement landscape in any given jurisdiction at a given point in time must involve a basic
awareness of: (a) the social, economic and political life of that jurisdiction; (b) the challenges
of revenue enforcement in that jurisdiction; (c) the challenges faced by the policy-makers of
that jurisdiction; (d) the legal frameworks in place in that jurisdiction; (e) what the legislature
of that jurisdiction intended to achieve with a given body of legislation; (f) the enforcement
culture in that jurisdiction; and (g) the enforcement capacity of that jurisdiction. Differences
between legal frameworks, prosecution policies, and enforcement philosophies and strategies,
can provide for sharp contrasts between what is and is not unlawful, investigation and
prosecution practices, the likelihood of prosecution, burdens of proof, and the nature and
severity of punishment. This all being said, despite the many differences between the legal
frameworks and enforcement practices prevalent in different jurisdictions, insofar as revenue
and customs administration and enforcement is concerned, most jurisdictions tend to have
much more in common than what meets the eye. This then is especially so in the case of those
jurisdictions with a long pedigree of association with or membership of the British
Commonwealth. The British footprint, although growing fainter with the winds of change and
the passing of time, is still detectable in the legislation, language used, procedures in place,
and practices in use in many of those jurisdictions today. Even though the British Empire has
come and gone, many States still retain strong ties with Britain, still borrow from her legal
systems, and do still incorporate into their own systems and legislation many practices and
principles loaned from Britain.

Every investigation and prosecution must be approached as one with its very own and unique
facts, circumstances, and challenges. For this reason then, neither this manual nor any other
8 INTRODUCTION

manual on this topic can ever be considered a substitute for the appropriate case-specific
analysis and legal research. Throughout the drafting of this manual, writer attempted to
explain and illustrate various topics and principles in a fluid manner without the need to keep
on referring back and forth to other sections of this manual. For this reason then, minor
duplications can be expected when reading the manual in its entirety. Duplications where they
do arise were thus intended not to frustrate but to assist.
9 ADMINISTRATION AND ENFORCEMENT

PART I - ADMINISTRATION AND ENFORCEMENT

1.1 Taxes and tax legislation

The laws of taxation and the systems for its administration and enforcement can at best be described
as complex. It will not be wrong to say that only a small percentage of any given jurisdiction's
population has even an elementary understanding of the tax legislation and the systems of taxation.
This being said, even amongst those with exposure to the operation of the tax legislation, those
active within the field of taxation, and those tasked with the administration and policing of the
revenue legislation, few can show a real understanding of how tax frauds are committed,
investigated, prosecuted, or punished. Many tax frauds prove just as sophisticated as is complex the
legislation that it breaches.

The rules of taxation are law, and it is a body of law which show frequent and often significant
change. Whereas it may be important for taxpayers and their advisors or for tax and customs
inspectors to keep abreast with any planned or recent changes in the legislation, this is less so with
criminal investigators. Criminal investigations deal with historic fact. Whereas the tax rules change
all the time, the fact that a fraud has been committed does not. Once a fraudulent misrepresentation
has been made, it has been made. It is an historic fact unaffected by subsequent changes in the
framing of the underlying taxing provisions in relation to which that fraudulent misrepresentation
was made. Once the crime is completed it is completed. The crime will often only be detected many
years after it was committed. The underlying taxing provisions that were contravened may well
have changed many times before any investigation is initiated, and fraudulent schemes once
employed may well have fallen out of season. Whereas the tax planner will often familiarize
himself with planned or recent changes in the legislation, the criminal investigator will often be
found researching the law as it was in the past. The criminal investigator is very much the historian.

The alleged conduct of the offender at the time of the alleged fraud must be evaluated against the
law as it was at the time of the alleged offence. This always involves a backward glance at the state
of the law as it was at the time of the alleged contravention, which may be one, five, or even twenty
years past. With frauds that persisted over a long period of time, the law may well have changed a
number of times over that period. This obviously means the conduct of the suspected offender over
the period of time in question need be evaluated against the law throughout that time and after each
change in the law. This all underlines one important skill the criminal investigator must possess: the
ability to interpret and apply complex legislation. It is not critical for the criminal investigator to be
familiar with the current rules applicable in relation to each of the many duties and taxes
administered by the Commissioners, but what is critical is the skill to interpret, form an in-depth
understanding of, and apply the rules that were in force at the time of the alleged offence. Then, and
only then, will he be in a position to correctly identify the material elements of the offence and the
types of evidence that will be required to prove those elements.

1.1.1 Duties and Taxes

In most jurisdictions are to be found a wide range of duties, levies, and taxes. The most important of
these tend to be imposed and administered at the national level. In the UK this will typically be
those duties, taxes and levies imposed by Parliament and as administered by HMRC. In the US and
Australia this will be those federal duties, taxes and levies administered by the IRS and the ATO
respectively. Many of these may however also be levied and administered at the state or provincial
level.

A tax is a compulsory levy imposed by government, levied on income, expenditure, or capital

assets, but for which the taxpayer receives nothing specific in return. Not all payments to a
government can however be classed as taxes. Levies paid to the government by a taxpayer to cover
10 ADMINISTRATION AND ENFORCEMENT

the cost of something specific received by that taxpayer will generally not be considered a tax.1
Taxes can be categorized into what is generally referred to as direct and indirect taxes. Direct taxes
have in the past been defined as taxes “demanded from the very persons who, it is intended or
desired should pay it” and “which are assessed upon the property, person, business, income, etc., of
those who are to pay them.” Indirect taxes on the other hand have been defined as those which are
demanded from one person in the expectation and intention that he shall indemnify himself at the
expense of another.2

In the UK, Her Majesty's Revenue and Customs (HMRC) administers a wide range of duties and
taxes. These include corporation tax, income tax, PAYE, VAT, customs duty, excise duty, national
insurance, capital gains tax, inheritance tax, insurance premium tax, landfill tax, climate change
levy, aggregates levy, insurance premium tax and air passenger duty. Some of these taxes or levies
may sound unfamiliar to the ears of many foreign taxpayers, but it is not uncommon to find these
same duties or taxes to be charged in other jurisdictions but often just going under different names.
Of these, income tax, corporation tax, and value added tax can be considered the major taxes.

(a) Income and Corporation Taxes

As far as history goes, the income tax system as we know it today is a relatively recent feature in
the world of tax, only introduced in Britain in the late 18th century. Income Tax is in essence a
direct tax on income and profits. It is calculated as a percentage of taxable income. A taxpayer's
taxable income is calculated by deducting allowable deductions and expenses from his total income.
What will be considered 'income' or what will be considered allowable deductions or expenses is
however a matter of law and jurisdiction-specific. What and whom will or will not be caught under
any given jurisdiction's 'income tax', and the rates of taxation that will apply, is thus a matter of
legal definition, and this will also change over time in the same jurisdiction. In some jurisdictions
'income tax' may be levied on the income, capital gains and profits of all individuals, corporations
and other entities. In other jurisdictions it may well only be levied on the income of individuals,
with corporation taxes levied on the income and capital gains of corporations and certain other legal
entities.3 Income Tax, when viewed in a wider sense as that broad cluster of direct taxes levied on
the income, capital gains, and profits of individuals, corporations, and other entities, is the main
source of government income in the developed world.

In the UK, income tax can be defined as an annual tax charged on all income originating in the
United Kingdom and on all income arising abroad of persons residing in the UK. It is imposed for
the year of assessment beginning in April and is based on the following schedules (see I.C.T.A.
1988, ss 15-20): A (rents, rent charges, other receipts from land ownership); B (occupation of
commercial woodlands); C (profits from public revenue dividends); D (trade, professional profits or
gains); E (salaries, wages, annuities, etc.); and F (company dividends, etc.).4 In short, the taxpayer’s

1
See Lymer & Oats, Taxation: Policy and Practice, 15th ed at 3. Black’s Law Dictionary (6th ed and at .1457) provides
for the following definition of a ‘tax’: “Tax. A charge by the government on the income of an individual, corporation, or
trust, as well as the value of an estate or gift. The objective in assessing the tax is to generate revenue to be used for the
needs of the public. A pecuniary burden laid upon individuals or property to support the government, and is a payment
exacted by legislative authority... Essential characteristics of a tax are that it is not a voluntary payment or donation, but
an enforced contribution, exacted pursuant to legislative authority... In a general sense, any contribution imposed by
government upon individuals, for the use and service of the state, whether under the name of toll, tribute, tallage, gabel,
impost, duty, custom, excise, subsidy, aid, supply, or other name.”
2
Black, A Law Dictionary, 2nd ed at 1137. Also see the Privy Council decision of Bank of Toronto v Lambe, 12 App
Cas 575
3
Capital gains tax is levied on certain capital gains. These are often charged, depending on a particular jurisdiction's
legal framework, as either 'income tax' or 'corporation tax'.
4
As defined in Richards PH. The Longman Dictionary of Law, 8th ed at .236. Black’s Law Dictionary (6th ed at .764 -
765) provides for the following definition of 'income tax' (as defined within the US context): “A tax on the annual
profits arising from property, business pursuits, professions, trades, or offices. A tax on a person’s income, wages,
11 ADMINISTRATION AND ENFORCEMENT

liability to income tax is calculated upon a determination of his taxable income. The basis for this
calculation is set out in the tax legislation. This in essence involves the deduction of all exempt
income from the taxpayer’s total income followed by a deduction of allowable deductions. In the
UK, 'corporation taxes' are those taxes levied on the profits of companies and unincorporated
associations but not partnerships.5 What will or will not be viewed as a corporation for tax purposes
is jurisdiction-specific depending on definition and interpretation. In the UK, corporation tax is also
levied on certain unincorporated associations. The taxes levied on the profits of the 'corporation' are
the liability of the 'corporation'. In the UK, where dividends are also subject to taxation, that tax
liability will be the shareholder's liability.

In some jurisdictions, Britain and the United States being examples in point, income generated in
the underground economy, and this includes income generated from crime, is also considered
'income' and is viewed and treated as taxable income. This in essence means that taxes are payable
on income generated from: (a) legal income-generating activities performed in the 'legal' white
economy; (b) legal income-generating activities performed in the underground economy; and (c)
crime. This it must be noted is not the universally accepted position.

What will or will not in any given instance be viewed as 'income', 'profit' or 'capital gains' is a
matter of legal definition and calls for a careful interpretation of the tax legislation as it is drafted at
a given time. These definitions are not cast in stone. The same applies to all those other lines of
enquiry relevant in the determination of a taxpayer's tax liability i.e.: whether or not a particular
person or entity is subject to income or corporation tax; the legal basis for the liability thereto; when
the liability to a particular tax will arise; the applicable residency rules; what is or is not 'exempted'
from that tax; the applicable tax rates; and the allowable deductions the taxpayer may be entitled to.
These are all matters of law calling for careful and precise legal interpretation.

(b) Value Added Tax (VAT) and Goods and Services Tax (GST)
Value Added Tax, in common with customs and excise duties, can be classed as an indirect tax. It is
furthermore also a tax on consumption. In brief and with due allowance for certain exceptions, the
system may be explained as follows: The trader is obliged to charge VAT on all goods and services
(that are at any given time subject to VAT) rendered in the course of his business. The VAT so
collected must be paid over to the Revenue. He is also under certain circumstances entitled to claim
as input the VAT he paid to his suppliers.6 This is done by means of a VAT return submitted to the
Revenue. All registered traders are obliged to submit a return for each tax period. The end result is a
set-off between the ‘output tax’ and ‘input tax’. If the amount of output tax exceeds the amount of
input tax, the trader has to pay the difference over to the Revenue. If, however, the reverse occurs,
then he is entitled to claim a refund of the difference from the Revenue. Value Added Tax is
basically a tax on added value. It is imposed at each step along the chain of manufacture and
distribution of goods or services supplied in the course of business. VAT is also charged or certain
goods imported into the European Union. It is calculated on the value of each step as the goods
move along the commercial production and distribution chain from the original source to the
ultimate user.

In terms of basic operation the Goods and Services Tax (GST) system is very similar to VAT. To
compare, the following explanation by the court in the Australian case of De Hollander v The
Queen [2012] WASCA 127 will suffice: A trader: "…lodge a Business Activity Statement with the
ATO on a quarterly basis. A Business Activity Statement accounts for 'taxable supplies' and

salary, commissions, emoluments, profits, and the like, or the excess thereof over a certain amount. Tax levied by the
U.S. Government, and by some state governments on an individual, corporation, or other taxable unit’s income.”
5
Blackpool Marton Rotary Club v Martin [1990] STC 1
6
Generally referred to as the 'Input VAT' - the VAT levied on the goods and services acquired by a registered trader.
12 ADMINISTRATION AND ENFORCEMENT

'creditable acquisitions'. Taxable supplies relate to goods or services supplied by the business to
consumers. Creditable acquisitions relate to goods or services acquired by the business to enable it
to operate. An entity registered under the Goods and Services Tax Scheme must remit to the ATO
the goods and services tax it receives from consumers of the goods or services it supplies, as set out
in the entity's Business Activity Statement. The entity may reclaim from the ATO, as input tax
credits, the goods and services tax it pays on creditable acquisitions, as set out in the Business
Activity Statement. The ATO uses a self-assessment system under the Goods and Services Tax
Scheme. The taxpayer is responsible for calculating any goods and services tax liability or refund.
The taxpayer is obliged to ensure that all goods and services tax payable by it is included in the
Business Activity Statement, and to claim only the input tax credits to which it is entitled." There
does seem to be slight differences between the VAT and GST systems as they are applied in
different jurisdictions, but the OECD seemingly views the GST system as no more but a variation
of VAT.7

(c) Customs and excise duties

Customs duty is an indirect tax levied on imported or exported goods and has been imposed on
imports and exports for many centuries. In England, duties on goods landed at the port of London
have been levied since the eighth century. The first centralized system for the collection of customs
duty in England can be traced back to the thirteenth century.8 The categories of imported goods
subject to import duty and the rate of duty payable is determined by the legislature and as with all
matters related to the Revenue is subject to frequent change. In Britain no duties are currently being
levied on export goods although the customs legislation does contain provisions for the
administration thereof.9 The legislation of most jurisdictions also provide for the charging of anti-
dumping duties, countervailing duties, and safeguard duties. Duties are not however only intended
as a source of revenue, but are also used extensively as a protective measure, fulfilling an important
fiscal function. These protective duties take two forms, namely: (a) anti-dumping duties, which are
used to counteract dumping;10 and (b) countervailing duties, which are levied on subsidized
imports.11 Both anti-dumping and countervailing duties are extensively used to protect a state’s
local trade and industry against the harmful consequences of uncontrolled imports. A clear
distinction need be drawn between 'imported' and 'community' goods. Goods made in the European
Community enjoy free circulation within the European Community (under Article 23 of the EC
Treaty). Imported goods however can only be released into free circulation after payment of the
import duties to which they are liable.

Excise tax was introduced in England in 1643 to help pay for Cromwell’s army during the Civil
War.12 It was the first tax to be levied on home-produced goods like beer, cider, meat, leather and
clothes, and provoked widespread riots amongst the population.13 Excise duty is in effect a retail tax
targeted at specific commodities such as alcohol, tobacco and fuel. 14 Excise duty is calculated on

7
See OECD. International VAT/GST Guidelines, November 2015 at .9 where it is said: "For ease of reading, the terms
"value added tax" and "VAT" are used to refer to any national tax that embodies the basic features of a value added tax
as described in Chapter 1, by whatever name or acronym it is known (e.g. 'Goods and Services Tax' ("GST")"
8
McFarlane, McFarlane’s Customs Law Handbook 1989-90 at 1
9
Export duties are generally viewed as detrimental to exports. Very few jurisdictions thus levy these duties. There are
however some jurisdictions where these are still levied on certain commodities. The South African Diamond Export
Levy (Administration) Act 14 of 2007 e.g. levy a duty on diamonds exported from that country. Export duties can
however be evaded where it is indeed levied.
10
Dumping occurs where products from one state are introduced into another state at less than the normal value of the
particular commodity, and where the dumping constitutes a threat to local industry.
11
These duties have the effect of cancelling out the export subsidy from the exporting state.
12
Gillman, The Duty Men – The Inside Story of the Customs at 78.
13
Gillman supra 78
14
The Concise Oxford Dictionary of Current English at 336, defines “excise” as: “duty or tax levied on goods and
commodities produced or sold within the country, and on various licences etc”
13 ADMINISTRATION AND ENFORCEMENT

the quantity or volume of the product. Customs duty equal to the excise duty payable on a particular
category of excisable goods will usually be levied on the imported counterpart of the locally
manufactured product. Ad Valorem excise duty is also levied on selected categories of locally
manufactured goods, with a corresponding ad valorem customs duty levied on imported goods of
the corresponding class. Both customs and excise duties, as are the case with Value Added Tax, can
be classed as ‘indirect taxes’. As a source of revenue, customs and excise duties no longer make a
significant contribution to the fiscus. Income Tax and Value Added Tax account for almost all the
government’s income. The remainder is made up of all the other categories of taxes, duties and
levies. The real importance of customs and excise duties lies in its value and contribution as a
protective and regulating measure.

1.1.2 Tax legislation

The categories of persons liable to taxation and the activities and income subject to it are prescribed
by law. The laws dealing with taxation are certainly amongst the most extensive and complex
legislation to be found in most jurisdictions. It is only at closer inspection and comparison between
the statutory law of England’s former colonies, notably in the fields of corporate law, customs and
tax law, criminal law, the law of evidence, and criminal procedure, that one may start to appreciate
the extent of the influence and impact of the English language and legal system in all those far-
flung parts of the world that once used to be part of the British empire. The further one goes back in
time, the more the legislation of those former colonies and that of England resemble each other in
the framing and content of provisions, in the procedural practices prevalent at the time, and in the
language used.

The right to impose a tax is that of Parliament, and the government’s entitlement to the tax so
imposed is a legal one underpinned by law. One of the defining characteristics of the concept of
democracy is the right of the electorate to elect the legislature and thus those in whom they place
their confidence to enact the laws their society is to be governed by. Those laws include that body
of laws relating to customs and taxation. This participation in the democratic process may, or may
partly at least, explain the generally high levels of voluntary compliance to be found in most
democratic jurisdictions.15 Assuming a given society to be such a democratic society, a society
where the integrity of the democratic process and constitutional framework is such as to give effect
to the will of the majority, then the wilful refusal of individuals or groups to abide by the laws as
enacted by the representatives of the broader electorate cannot be seen as anything else but a refusal
to abide by that democratic process.

15
Walden, in his article 'Render unto Uncle Sam that which is Uncle Sam's: The IRS and Tax Protest Evangelism' (61
Neb. L. Rev. (1982) 681-742), at .681 expressed the following view, a view many may view as somewhat romantic, but
nevertheless one which may not be that far from the truth: "April 15 is a day of triumph for the American system. It is
the day each year by which the vast majority of United States taxpayers will have discharged their common duty to
finance their government, reaffirming Alexis de Tocqueville's observation that every American feels a personal interest
in obeying the law. April 15 is the day the system works; it is the day when Americans voluntarily assess their own
income, calculate their tax liability, and send in what they owe. Such a Pollyannish view is supported by much
evidence. For example, in 1979 Americans reported about 93 per cent of their reportable legal income, and paid some
$251.5 billion in individual income taxes. This was despite the fact that the Internal Revenue Service (IRS) was able to
audit only about two percent of the 92,630,0007 individuals and fiduciary income tax returns filed that year." The writer
then proceeded to quote the following observation by de Tocqueville (at .681 footnote 2): "A. DE TOCQUEVHLE,
DEMOCRACY INAMERICA 247-48 (F. Bowen trans. 2d ed. 1946). In the United States everyone is personally
interested in enforcing the obedience of the whole community to the law; for as the minority may shortly rally the
majority to its principles, it is interested in professing that respect for the decrees of the legislator which it may soon
have occasion to claim for its own. However irksome an enactment may be, the citizen of the United States complies
with it, not only because it is the work of the majority, but because it is his own, and he regards it as a contract to which
he himself is a party."
14 ADMINISTRATION AND ENFORCEMENT

A person cannot be held liable for taxation in the absence of a taxing statute setting out his
liability.16 The principle that taxes may not be imposed unless authorised by Parliament was already
cemented into the English legal system with the declaration of rights in the English Bill of Rights of
1689. A tax is by definition not a voluntary contribution and the taxpayer is under no obligation,
legal or otherwise, to pay any tax not payable under law. To pay such an amount will amount to a
voluntary contribution and will thus technically speaking not be a tax. The burden of proving such a
tax to be due rests on Revenue.17

In most jurisdictions one will find a wide range of taxes, duties and levies charged or levied on a
wide range of activities, goods or services, and charged or levied under numerous revenue statutes.
These are generally administered by a particular jurisdiction’s revenue admiration but some of them
may also be administered by other departments or agencies. The primary Act dealing with Income
Tax in the United Kingdom is the Income Tax Act 2007.18 In the case of Value Added Tax it is the
Value Added Tax Act 1994,19 whereas the primary statute insofar as customs and excise is
concerned it is the Customs and Excise Management Act 1979.20 The Taxes Management Act 1970
in turn consolidates certain enactments relating to income tax, capital gains tax and corporation tax.
There are however a range of other statutes dealing with the imposition, administration and
enforcement of a range of other duties, taxes, levies, and benefits, some of them administered by
departments or agencies other than the Revenue.

Most revenue statutes generally provide for a wide range of provisions that may or may not but
usually will be dedicated to matters such as but not limited to: (a) definitions and interpretation; (b)
powers, duties and functions of the Commissioners and his officer; (c) secrecy provisions; (d)
taxing provisions setting out the basis, rates of and liability to taxation; (e) provisions dealing with
the keeping of, requirements relating to, and production of various categories of documents,
certificates, returns etc; (f) duties and responsibilities of taxpayers and other persons; (g) provisions
relating to assessments, claims, refunds, reliefs etc; (h) basis for liability to or imposition of interest
and penalties; (i) regulatory controls and procedures; (j) collection and recovery; (k) appeals and
court proceedings; (l) enforcement powers and procedures; and (m) administrative penalties; (n)
offences; (o) various other miscellaneous and supplemental matters; (p) and accompanying rules
and schedules relating to matters dealt with in the statute.

Taxation and tax administrations is not left unaffected by technological advances, the information
revolution, changes in trading processes, political instability, and constitutional change. These are
all matters that impact on revenue practices and procedures and on the framing of revenue
legislation. For revenue legislation to remain relevant and fit for purpose, it must change in tandem
with changes in society, technology and current practices. For this reason then, tax legislation and
the underlying body of definitions, provisions, rules, and procedures see frequent change. This is
not of little importance. Constant change, and indeed often radical change, especially in relation to a

16
See the oft cited case of Vestey v IRC [1979] 3 WLR 915 at .925 where Lord Wilberforce inter alia said: “Taxes are
imposed upon subjects by Parliament. A citizen cannot be taxed unless he is designated in clear terms by a taxing Act as
a taxpayer, and the amount of his liability is clearly defined.” Also see R v Inland Revenue Commissioners, ex p M.F.K
Underwriting Agents Ltd [1990] 1 WLR 1545 where Bingham LJ inter alia said: "The taxpayers' only legitimate
expectation is, prima facie, that he will be taxed according to statute, not concession or a wrong view of the law".
17
See the following useful definition of 'taxing statute': "taxing statute An Act of Parliament that impose tax. Where
there is any dispute about the application of a taxing statute, the onus of proof lies with the person who is seeking to
apply it. Thus, where there is a dispute as to the levying of a tax, it is the Revenue authority that has the onus of proving
the charge applied to the transaction." Law, J. (2015) A Dictionary of Law (Oxford Quick Reference), (8 th ed), Oxford
University Press, Oxford
18
Royal Assent on 20 March 2007
19
Royal Assent on 5 July 1994
20
Royal Assent on 22 February 1979
15 ADMINISTRATION AND ENFORCEMENT

wide and technical subject-field such as taxation, limits what one can reasonably expect from
people to know, knew, or should have known in any given instance.

Revenue administrations, just like many taxpayers, are not immune to errors in its interpretation of
the law. Accepting this fact, one must recognise the taxpayer's right to challenge the Revenue's
interpretation of a provision as not only a very basic right but also an important one. A successful
challenge must rather be seen as a reaffirmation of due process, an independent judiciary, and the
protection of the rights of the subject. To successfully challenge the Revenue's interpretation of a
particular provision, does however call for the taxpayer, or his advisors at least, to possess the
required skill of interpreting complex legislation.

1.1.3 Statutory interpretation

1.1.3.1 General
Statutory interpretation is certainly one of the staple activities of lawyers, tax accountants,
regulators, and the courts. A correct and proper application of a statutory provision calls for a
correct interpretation of that provision within the context in which it is used. It will not be incorrect
to say that a high proportion, if not the majority, of all appeals to the higher courts can directly or
indirectly be attributed to poorly drafted or outdated legislation, or due to an incorrect interpretation
of law.

An incorrect interpretation of a statutory provision by an advisor or taxpayer will more often than
not result in some or other legal breach or prejudice. That prejudice it must be added will not
necessarily always be for the Revenue but may just as well be for the taxpayer. The taxpayer may
for example fail to take advantage of some or other benefit, scheme, or claim as a result of the
incorrect advice received from his advisor, the latter who may well have offered that advice on the
basis of his own incorrect interpretation of a particular statute.

There can be no realistic expectation of the correct and proper application of a taxing provision by
the Revenue where the provision in question is so unclear as to make impossible a clear and proper
interpretation of what the law requires. There can also be no realistic expectation of certainty in the
mind of the taxpayer as to his own compliance with a taxing provision where the law is so unclear
as to preclude certainty as to the rules he is to comply with. Lord Simon of Glaisdale once correctly
stated: “It is important to remember why our statutes should be framed in such a way as to be
clearly comprehensible to those affected by them. It is an aspect of the Rule of Law. People who
live under the Rule of Law are entitled to claim that the law should be intelligible. A society whose
regulations are incomprehensible lives with the Rule of Lottery, not the Rule of Law"21 This
underlines the importance of tax legislation drafted in a clear, precise, and unambiguous manner.

Uncertainty as to the precise content and operation of a particular provision may be attributed to the
provision being badly drafted or unclear, lack of skill or understanding on the side of the interpreter,
or a combination thereof. The statutory interpretation of any provision, whether it be a penal
provision or otherwise, is not just an academic exercise. It is after all the framing and language of a
statute that gives it its own unique character, that determines its nature, operation, scope,
limitations, the extent to which it applies and impacts on persons and activities, and the extent to
which it impacts on the relationships, duties, responsibilities and rights between persons, public and
private, natural and legal. Statutory interpretation and the result of any such exercise of construction
would be harmless and of no effect if it wasn't for the fact of application. In the real world an
incorrect interpretation will end with an incorrect application of law. Differences in interpretation
may mean the difference between a finding of an activity being classifiable as belonging to one

21
Lord Simon of Glaisdale, The Renton Report-Ten Years On, 1985, Stat. Law Rev. 133
16 ADMINISTRATION AND ENFORCEMENT

class or another, being of a class prohibited or otherwise, as being taxable or non-taxable, or as

being reportable or otherwise, etc. It may likewise also make the difference between a finding of a
penal provision being one that captures a particular course of conduct or otherwise, whether or not a
particular fact or circumstance is required to be present as material element of an offence for
conviction or otherwise, or whether or not the burden of proof as to a particular fact rests on the one
party or the other.

The importance of the correct interpretation of statutes should thus be obvious. Not only will an
incorrect interpretation not give effect to the intent of the legislature, but absent correct
interpretation, and consistently so, there can be no reasonable expectation of those subject to those
laws understanding their duties and responsibilities, and above all no legal certainty. It should come
as no surprise that many a tax dispute revolve around matters of construction. This then is often the
case with tax avoidance cases where much of the dispute may revolve around the definition and
interpretation of words, context, and purpose. This then is also the case when considering whether
any given arrangement meets the description of any particular taxing provision.

Most taxpayers and their advisors may have access to many secondary sources and authorities
setting out and explaining the tax rules, but secondary sources remain secondary sources. The most
reliable source is and remains the law that prescribe them. Ascertaining the meaning of any
particular statutory provision, calls for an interpretation of the statutory language used, with the
objective of the interpreter being that of ascertaining Parliament's intent.22 Where both the language
and legislative intent is clear, then there is no need for a process of interpretation. 23 Many cases do
however arise where the language used may be so unclear as to make it difficult to interpret what
the words actually convey. The same word may have more than one meaning, or may well have
different meanings depending on the context within which it is used.24 In other cases the use of
certain words may be inappropriate or redundant considering the context within which they are
used, or the legislature may have failed to insert words which he at the time of drafting might have
thought necessarily implied, or there might have been errors in drafting or printing. In other
instances the language used may well be clear but there may be ambiguity in the same provision or
between different provisions. Whether or not there is such ambiguity must be determined on a case
by case basis.25

22
As to what will be the intention of Parliament, see Driedger, E. The Construction of Statues, 2nd Ed, 1983 where (at
p.106) the writer provided for the following helpful explanation: “It may be convenient to regard ‘intention of
Parliament’ as composed of four elements, namely: 1. The expressed intention - the intention expressed by the enacted
words; 2. The implied intention - the intention that may legitimately be implied from the enacted words; 3. The
presumed intention - the intention that the courts will in the absence of an indication to the contrary impute to
Parliament; 4. The declared intention - the intention that Parliament itself has said may be or must be or must not be
imputed to it.”
23
See the Canadian Supreme Court case of Will-Kare Paving & Contracting Ltd. v. Canada, [2000] 1 S.C.R. 915 where
the Court inter alia said: "The primary rule of statutory interpretation is to ascertain the intention of Parliament. Where
the meaning of the words used is plain and no ambiguity arises from context, then the words offer the best indicator of
Parliament’s intent." This is the current approach followed in England, Canada, Australia, and New Zealand.
24
See e.g. the case of Spies v United States, 317 U.S. 492 (1943) where Jackson J inter alia said: "...willful, as we have
said, is a word of many meanings, its construction often being influenced by its context."
25
As to what will be an 'ambiguity', see the Canadian Supreme Court case of Bell ExpressVu Limited Partnership v Rex
[2002] 2 SCR. 559 where it was inter alia explained: "What, then, in law is an ambiguity ? To answer, an ambiguity
must be “real” (Marcotte supra, at p. 115). The words of the provision must be “reasonably capable of more than one
meaning” (Westminster Bank Ltd. v. Zang, [1966] A.C. 182 (H.L.), at p. 222, per Lord Reid). By necessity, however,
one must consider the “entire context” of a provision before one can determine if it is reasonably capable of multiple
interpretations. In this regard, Major J.’s statement in Canadian Oxy Chemicals Ltd. v. Canada (Attorney General),
[1999] 1 S.C.R. 743, at para. 14, is apposite: “It is only when genuine ambiguity arises between two or more plausible
readings, each equally in accordance with the intentions of the statute, that the courts need to resort to external
interpretive aids” … to which I would add, “including other principles of interpretation. … For this reason, ambiguity
cannot reside in the mere fact that several courts - or, for that matter, several doctrinal writers - have come to differing
17 ADMINISTRATION AND ENFORCEMENT

Most jurisdictions increasingly move towards codified systems and throughout the English speaking
world there has been a steady and significant increase in statutory law. The importance of legal
interpretation can only be expected to grow as many jurisdictions increasingly move away from the
common law towards codified systems. Statutes are in effect an expression of the legislature's
intent. Ascertaining that intent calls for a clear understanding of what those statutes actually convey.
There is a clear distinction between the authority and functions of the legislative and judicial
branches of state. It is not for the courts to usurp the functions of Parliament.26 It is for the courts to
ascertain and give effect to the intention of Parliament. This being said, in many parts of the world,
and this is the case in most liberal democracies, the drafting, interpretation and application of
legislation must conform to the constitutions of those jurisdictions.27 In many jurisdictions any
enactment, interpretation of a statute, or application of any law contrary to those constitutions will
or may be unconstitutional or invalid.

The legislatures of most common law countries do generally, to varying degrees, provide for
various aids to assist with the interpretation of statutes. Examples of these are 'definition sections' in
statutes defining certain words and phrases as used in those statutes; provisions incorporated into
statutes and intended to the assist with the interpretation and application of other provisions in those
statutes, often sections or subsections clarifying the meaning and application of afore-going sections
or subsections; and then of course interpretation statutes.28 For obvious reasons no draftsman can, at
the time when a statute is drafted, foresee and cater for every situation where uncertainty or
potential duplicity may potentially arise. Not surprisingly, the rules and methods of statutory
interpretation have historically been the product of development by the courts.

1.1.3.2 Rules of interpretation

The importance of statutory interpretation is obvious. Not surprisingly, the legal systems in most
countries have over time adopted and/or developed various approaches, rules, and presumption to
statutory interpretation. As with most subjects of law, the rules of statutory interpretation are
jurisdiction specific. In most jurisdictions one will find they are constantly being refined so as to
deal with new situations, often unforeseen and often exceptional.

Despite the differences in how interpretation is approached in common law jurisdictions like
England, Australia, Canada, and New Zealand, the current approaches followed in all those
jurisdictions more often than not tend to share some common features, examples of which are: (a)
any process of statutory interpretation always starts with the text; (b) where the meaning of the

conclusions on the interpretation of a given provision. Just as it would be improper for one to engage in a preliminary
tallying of the number of decisions supporting competing interpretations and then apply that which receives the “higher
score”, it is not appropriate to take as one’s starting point the premise that differing interpretations reveal an ambiguity.
It is necessary, in every case, for the court charged with interpreting a provision to undertake the contextual and
purposive approach set out by Driedger, and thereafter to determine if “the words are ambiguous enough to induce two
people to spend good money in backing two opposing views as to their meaning”
26
See Duport Steels Ltd v SIRS (1980) HL where Lord Scarman inter alia said: "In the field of statute law the judge
must be obedient to the will of Parliament … the judge's duty is to interpret and to apply the law, not to change it to
meet the judge's idea of what justice requires."
27
Examples of these are the Commonwealth of Australia Constitution Act 1900; the Constitution of the Republic of
South Africa 1996; the Convention for the Protection of Human Rights and Fundamental Freedoms; and the Human
rights Act 1998. See e.g. section 15A of the Australian Acts Interpretation Act 1901 which explicitly states:
"Construction of Acts to be subject to Constitution - Every Act shall be read and construed subject to the Constitution,
and so as not to exceed the legislative power of the Commonwealth, to the intent that where any enactment thereof
would, but for this section, have been construed as being in excess of that power, it shall nevertheless be a valid
enactment to the extent to which it is not in excess of that power."
28
In Australia e.g. the Acts Interpretation Act 1901, In England the Interpretation Act 1978, and in Ireland the
Interpretation Act 2005.
18 ADMINISTRATION AND ENFORCEMENT

words used is clear and no ambiguity arises, then the words are generally viewed as offering the
best indication of the legislature's intent; (c) no word in a statute is taken for granted, and no word is
lightly ignored; (d) Words and provisions are read in their entire context and in their grammatical
and ordinary sense; (e) Provisions and statutes are no longer read in isolation but are interpreted
taking into account its objective, purpose, and place in the overall scheme of things; and (f) The
overall objective of statutory interpretation now tend to focus on giving effect to the intention of the
legislature.

The English courts, and also the courts of many other common law jurisdictions where English law
had a significant influence, have for a long time applied three basic rules of interpretation. These are
the 'literal rule', 'golden rule' and 'mischief rule'. They will for the purposes of this discussion be
referred to as the 'traditional' rules or approaches to interpretation.

1.1.3.2.1 'Traditional' approaches

(a) The Literal Rule
Under the literal rule, also often referred to as the 'plain meaning rule', the court is to afford the
words of a statute their plain ordinary meaning with the intent of the legislator assumed to be in the
wording and language as framed.29 The words alone are considered to best declare the intention of
the legislature.30 Under this approach it is not for the court to read into the language used any other
meaning outside the literal meaning of the wording used or to concern itself with the consequences
of such an interpretation.31 The inflexibility in this approach is obvious, inflexibility which became
quite evident where the courts of EU member states were called upon to interpret European Union
law.32

Whereas literal interpretation does offer a great level of certainty and precision, reliance on literal
interpretation as the be all and end all of statutory interpretation presupposes a level of
parliamentary foresight and draftsmanship which is simply unrealistic. In its 1969 report on The
Interpretation of Statutes the Law Commission inter alia noted:33

"In our view, the ultimate function of a court in the interpretative process is not simply to decide
whether it is bound to follow a literal interpretation on the one hand or to adopt on the other an
interpretation reached in the light of the golden or mischief rules. It is rather to decide the meaning
of the provision, taking into account, among other matters, the light which the actual language used,
and the broader aspects of legislative policy arrived at by the golden and mischief rules, throw on
that meaning. To place undue emphasis on the literal meaning of the words of a provision is to

29
In Vuchet & Sons Ltd v London Society of Compositors [I913] AC 107 Lord Atkinson inter alia said: “If the language
of a statute be plain, admitting of only one meaning, the Legislature must be taken to have meant and intended what it
has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should lead to absurd or
mischievous results. If the language of this sub-section be not controlled by some of the other pro- visions of the statute,
it must, since its language is plain and unambiguous, be enforced, and your Lordships’ House sitting judicially is not
concerned with the question whether the policy it embodies is wise or unwise, or whether it leads to consequences just
or unjust, beneficial or mischievous".
30
Sussex Peerage Case (1844) 11 CI&Fin 85
31
In the oft cited English case of R v The Judge of the City of London Court [1892] 1 QB 273 (CA) it was inter alia said
(per Lord Esher): "If the words of an Act are clear, you must follow them, even though they lead to a manifest
absurdity. The Court has nothing to do with the question whether the Legislature has committed an absurdity.”
32
See Environmental Protection Agency v Harte Peat Ltd & Anor [2014] IEHC 308 (High Court of Ireland) where
Barrett J inter alia said: "… what must be remembered is that when it comes to measures that derive from European
Union law, the literal rule always operates hand in glove with the European Union law principle of harmonious
interpretation, with the latter enjoying primacy. In the context of such measures, if ‘the ordinary and natural meaning of
words and sentences’ yields a result that is contrary to European Union law then the courts must seek to find a meaning
that conforms with European Union law."
33
The Law Commission and The Scottish Law Commission, The Interpretation of Statutes, (Law Com No. 21), 9th
June 1969 at 17
19 ADMINISTRATION AND ENFORCEMENT

assume an unattainable perfection in draftsmanship; it presupposes that the draftsmen can always
choose words to describe the situations intended to be covered by the provision which will leave no
room for a difference of opinion as to their meaning. Such an approach ignores the limitations of
language, which is not infrequently demonstrated even at the level of the House of Lords when Law
Lords differ as to the so-called “plain meaning” of words."

Strict adherence to this approach to interpretation long held sway in England and other parts of the
Commonwealth and this then is also evident in the reported tax cases of the time.34 Tax legislation
did not escape strict adherence to literal interpretation and was interpreted strictly. This approach
was it must be said not always prejudicial to taxpayers, and especially so for those engaged in tax
avoidance. Where there was ambiguity or doubt, on that literal interpretation, as to the application
of a particular taxing provision, the matter was more often than not decided in favour of the
taxpayer. As long as an arrangement conformed to the language of a provision the Commissioners
faced a steep climb in challenging that arrangement.

(b) The Golden Rule

The Golden Rule in essence allows the court to: (a) take into consideration the consequences of a
strict interpretation; and (b) to depart from that interpretation (thus the literal rule) where the giving
effect to that literal interpretation will result in an obviously absurd result. The content of the rule
was explained in River Wear Commissioners v Adamson35 where Lord Blackburn inter alia said:

“I believe that it is not disputed that what Lord Wensleydale used to call the golden rule is right, viz.,
that we are to take the whole statute together, and construe it all together, giving the words their
ordinary signification, unless when so applied they produce an inconsistency, or an absurdity or
inconvenience so great as to convince the Court that the intention could not have been to use them in
their ordinary signification, and to justify the Court in putting on them some other signification,
which, though less proper, is one which the court thinks the words will bear"

The circumstances under which a court will depart from the plain words of the statute were
explained in Stock v Frank Jones (Tipton) Ltd36 where Lord Simon of Glaisdale inter alia said:

"A court would only be justified in departing from the plain words of the statute were it satisfied
that: (1) there is clear and gross balance of anomaly; (2) Parliament, the legislative promoters and the
draftsman could not have envisaged such an anomaly, could not have been prepared to accept it in
the interests of a supervening legislative objective; (3) the anomaly can be obviated without
detriment to the legislative objective; (4) the language of the statute is susceptible of the
modification required to obviate the anomaly."

34
See for example the House of Lords decision of Inland Revenue Commissioners v Duke of Westminster [1936] AC 1
HL where it was inter alia held that: (a) a transaction is to be judged by its legal form as opposed to economic
substance; and (b) the interpretation of legislation calls for a strict interpretation.
35
(1877) 2 App. Cas. 743. Also see Farrell v Alexander [1976] UKHL 5 where Lord Simon of Glaisdale said: "If a
court of construction places itself in the position of the draftsman, acquires his knowledge, recognizes his statutory
objectives, tunes in to his linguistic register, and then ascertains the primary and natural meaning in their context of the
words he has used, that will generally be an end of the task of construction. But occasionally something will go wrong.
It may become apparent that the primary and natural meaning cannot he what Parliament intended: it produces injustice,
absurdity, anomaly or contradiction, or it stultifies or runs counter to the statutory objective. Or sometimes the words
have no primary meaning in their context; they are fairly capable in all the circumstances of being taken in two senses:
there is, in other words, an ambiguity. There are a number of secondary canons of construction available to resolve
ambiguity: which of them is most helpful will vary from case to case…. The "golden" rule is to ascertain the primary
and natural sense of the statutory words in their context, since it is to be presumed that it is in this sense that the
draftsman is using the words in order to convey what it is that Parliament meant to say. They will only be read in some
other sense if that is necessary to obviate injustice, absurdity, anomaly or contradiction, or to prevent impediment of the
statutory objective. It follows that where the draftsman uses the same word or phrase in similar contexts, he must be
presumed to intend it in each place to bear the same meaning…"
36
[1978] 1 W.L.R. 231 at 237
20 ADMINISTRATION AND ENFORCEMENT

In the same case Lord Scarman also said: "If the words used by Parliament are plain, there is no
room for the "anomalies" test, unless the consequences are so absurd that, without going outside the
statute, one can see that Parliament must have made a drafting mistake."37

(c) The Mischief Rule

The third traditional rule of interpretation is the 'mischief rule' which has its origin in Heydon’s
Case38. In Heydon it was inter alia said:

"And it was resolved by them, that for the sure and true interpretation of all statutes in general (be
they penal or beneficial, restrictive or enlarging of the Common Law), four things are to be discerned
and considered: 1st. What was the Common Law before the making of the Act, 2nd. What was the
mischief and defect for which the Common Law did not provide, 3rd. What remedy the Parliament
hath resolved and appointed to cure the disease of the commonwealth, And, 4th. The true reason of
the remedy; and then the office of all the Judges is always to make such construction as shall
suppress the mischief, and advance the remedy, and to suppress subtle inventions and evasions for
continuance of the mischief, and pro privato commodo, and to add force and life to the cure and
remedy, according to the true intent of the makers of the Act, pro bono public". And Coke himself
later referred to the same approach in his Institutes: “Equity is a construction made by the judges, that
cases out of the letter of a statute, yet being within the same mischief, or cause of the making of the
same, shall be within the same remedy that the statute provideth; and the reason hereof is, for that the
lawmakers could not possibly set down all cases in express terms"

Application of the rule in essence involves: (a) a determination by the court of the purpose for the
passing of the statute. It involves asking what 'mischief' the legislature intended to address when it
enacted the statute; and (b) the court applying that interpretation which best advances that purpose
in correcting the mischief. This rule often finds application in resolving any ambiguity which may
exist, but it is only one of the canons available to a court in resolving any uncertainty.39

Historically the literal rule tended to operate in combination with the 'golden rule’ and ‘mischief
rule'. The latter two rules tended to come into play in allaying absurdities that might result from
strict application of the literal rule. Many common law jurisdictions have now embraced a more
purposive approach to construction, an approach that will be briefly dealt with in the following
discussion. It must be noted that none of the traditional approaches discussed above have been
rejected. The purposive approach is an additional approach available to judges where the traditional
approaches deliver an absurd or unsatisfactory result.

1.1.3.2.2 The purposive approach

Under the purposive approach the court is to approach the task of interpreting a statute with the
view to resolve any ambiguities by reference to the overall purpose for its enactment. This approach
is in essence an extension of the Mischief Rule. In determining the overall purpose of the statute,

37
At 239
38
Heydon’s Case (1584) 3 Co.Rep. 7a
39
See Maunsell v Olins [1975] AC 373 where Lord Simon of Glaisdale inter alia said: "The rule in Heydon's Case, 3
Co.Rep. 7a itself is sometimes stated as a primary canon of construction, sometimes as secondary (i.e., available in the
case of an ambiguity)...... We think that the explanation of this is that the rule is available at two stages. The first task of
a court of construction is to put itself in the shoes of the draftsman? to consider what knowledge he had and,
importantly, what statutory objective he had? if only as a guide to the linguistic register. Here is the first consideration
of the 'mischief.' Being thus placed in the shoes of the draftsman, the court proceeds to ascertain the meaning of the
statutory language. In this task 'the first and most elementary rule of construction' is to consider the plain and primary
meaning, in their appropriate register, of the words used. If there is no such plain meaning (i.e., if there is an
ambiguity), a number of secondary canons are available to resolve it. Of these one of the most important is the rule in
Heydon's Case"
21 ADMINISTRATION AND ENFORCEMENT

the court's enquiry extends to the broader context,40 going beyond the language of the statute, and
may involve an investigation of extraneous material including that pre-dating the enactment of the
statute. This may include material such as white papers, committee reports, Hansard, etc. that may
aid in the interpretation.

Whereas purposive interpretation has long been part of continental Europe's legal tradition, general
acceptance of this approach in England is a relatively recent development. The English courts,
despite much criticism, until relatively recently continued to place heavy reliance on the literal
approach supplemented by the golden and mischief rules. There was particular heavy reliance on
the literal rule, and no more so than in the area of tax law.41 Questions as to interpretation frequently
arise in tax cases, especially in matters related to the setting aside of tax avoidance arrangements.
For reasons unknown, British courts for decades stood steadfast behind the Duke of Westminster
doctrine and the literal approach on which that doctrine was founded. The problem this created was
well summed up in Commissioners of Inland Revenue v McGuckian42where Lord Steyn inter alia
said:

"It matters how a court should approach the construction and application of a tax statute, notably in
respect of the impact of the legislation on schemes for tax avoidance. … In his excellent speech
counsel for the taxpayer referred to the often quoted observations of Lord Tomlin in Inland Revenue
Commissioners v. Duke of Westminster [1936] A.C. 1, 19. Lord Tomlin said that every man is
entitled if he can to order his affairs so that the tax under a tax statute is less than it would otherwise
be. The case was authority for the proposition that whatever the substance of the arrangements may
have been, their fiscal effect had to be in accordance with the legal rights and obligations they
created. … During the last 30 years there has been a shift away from literalist to purposive methods
of construction. Where there is no obvious meaning of a statutory provision the modern emphasis is
on a contextual approach designed to identify the purpose of a statute and to give effect to it. But
under the influence of the narrow Duke of Westminster doctrine tax law remained remarkably
resistant to the new non formalist methods of interpretation. It was said that the taxpayer was entitled
to stand on a literal construction of the words used regardless of the purpose of the statute … Tax law
was by and large left behind as some island of literal interpretation. The second problem was that in
regard to tax avoidance schemes the courts regarded themselves as compelled to adopt a step by step
analysis of such schemes, treating each step as a distinct transaction producing its own tax
consequences. It was thought that if the steps were genuine, i.e. not sham or simulated documents or
arrangements, the court was not entitled to go behind the form of the individual transactions. In
combination those two features - literal interpretation of tax statutes and the formalistic insistence on
examining steps in a composite scheme separately - allowed tax avoidance schemes to flourish to the
detriment of the general body of taxpayers. The result was that the court appeared to be relegated to
the role of a spectator concentrating on the individual moves in a highly skilled game: the court was
mesmerised by the moves in the game and paid no regard to the strategy of the participants or the end
result. The courts became habituated to this narrow view of their role. On both fronts the intellectual
breakthrough came in 1981 in Ramsay …"

40
As to context, see Bell ExpressVu Limited Partnership v Rex [2002] 2 SCR 559 (Supreme Court of Canada) where
the court inter alia said: "The preferred approach recognizes the important role that context must inevitably play when a
court construes the written words of a statute: as Professor John Willis incisively noted in his seminal article “Statute
Interpretation in a Nutshell” (1938), 16 Can. Bar Rev. 1, at p. 6, “words, like people, take their color from their
surroundings”. This being the case, where the provision under consideration is found in an Act that is itself a
component of a larger statutory scheme, the surroundings that color the words and the scheme of the Act are more
expansive. In such an instance, the application of Driedger’s principle gives rise to what was described in R v Ulybel
Enterprises Ltd [2001] 2 SCR 867, 2001 SCC 56 at para 52, as “the principle of interpretation that presumes a harmony,
coherence, and consistency between statutes dealing with the same subject matter”.
41
See for example the House of Lords decision (a tax case) of Inland Revenue Commissioners v Duke of Westminster
[1936] AC 1 HL where it was inter alia held that: (a) a transaction is to be judged by its legal form as opposed to
economic substance; and (b) the interpretation of legislation calls for a strict interpretation.
42
[1997] 1 WLR 991
22 ADMINISTRATION AND ENFORCEMENT

In Britain, the breakthrough as Lord Steyn said came with the case of Ramsey43, a landmark
decision which marked the move away from strict adherence to the literal approach. In Barclays
Mercantile Business Finance Limited (Respondents) v Mawson (Her Majesty's Inspector of Taxes44
the House of Lords inter alia had the following to say about the significance of this decision:

"The Ramsay case [1982] AC 300 liberated the construction of revenue statutes from being both
literal and blinkered. It is worth quoting two passages from the influential speech of Lord
Wilberforce. First, (at p 323) on the general approach to construction:

"What are 'clear words' is to be ascertained upon normal principles: these do not confine the
courts to literal interpretation. There may, indeed should, be considered the context and scheme
of the relevant Act as a whole, and its purpose may, indeed should, be regarded."

Secondly (at pp 323-324), on the application of a statutory provision so construed to a composite

transaction:

"It is the task of the court to ascertain the legal nature of any transaction to which it is sought to
attach a tax or a tax consequence and if that emerges from a series or combination of transactions,
intended to operate as such, it is that series or combination which may be regarded."

The essence of the new approach was to give the statutory provision a purposive construction in
order to determine the nature of the transaction to which it was intended to apply and then to decide
whether the actual transaction (which might involve considering the overall effect of a number of
elements intended to operate together) answered to the statutory description"

The purposive approach is now fully entrenched in English law.45 This approach has also been
embraced, albeit in varying degrees and in many instances as part of a hybrid system, in a number
of other common law jurisdictions i.e. New Zealand,46 Canada,47 and Australia.48 This is for

43
Ramsay v I.R.C [1982] AC 300
44
[2004] UKHL 51
45
See e.g. Commissioners of Inland Revenue v McGuckian [1997] 1 WLR 991; MacNiven v Westmoreland Investments
[2001] STC 237 HL and Barclays Mercantile Business Finance Ltd v Mawson [2005] STC 1. Also see Pepper
(Inspector of Taxes) v Hart [1992] UKHL 3 where the House of Lords per Griffiths L inter alia said: " The days have
long passed when the courts adopted a strict constructionist view of interpretation which required them to adopt the
literal meaning of the language. The courts now adopt a purposive approach which seeks to give effect to the true
purpose of legislation and are prepared to look at much extraneous material that bears upon the background against
which the legislation was enacted."
46
In New Zealand section 5(1) of the Interpretation Act 1999 explicitly states that enactments are to be interpreted in
light of its purpose. Section 5 reads as follows: "5 Ascertaining meaning of legislation (1) The meaning of an enactment
must be ascertained from its text and in the light of its purpose. (2) The matters that may be considered in ascertaining
the meaning of an enactment include the indications provided in the enactment. (3) Examples of those indications are
preambles, the analysis, a table of contents, headings to Parts and sections, marginal notes, diagrams, graphics,
examples and explanatory material, and the organisation and format of the enactment.
47
The purposive approach to statutory interpretation and in particular Driedger’s formulation of this 'modern approach'
has now been firmly entrenched as the preferred approach to statutory interpretation in Canada. In his The Construction
of Statues he inter alia explained that: "Today there is only one principle or approach, namely, the words of an Act are
to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act,
the object of the Act, and the intention of Parliament" (Driedger, E. The Construction of Statues, 2nd Ed, 1983 at 87).
The Canadian Supreme Court has now repeatedly approved of this formulation as the preferred approach to statutory
interpretation in Canada. See e.g. Rizzo & Rizzo Shoes Ltd (Re) [1998] 1 S.C.R. 27; R v Sharpe [2001] 1 S.C.R. 45; Bell
ExpressVu Limited Partnership v Rex [2002] 2 S.C.R. 559; Will-Kare Paving & Contracting Ltd. v. Canada, [2000] 1
S.C.R. 915
48
In Australia section 15AA of the Acts Interpretation Act 1901 explicitly states that the provisions of an Act are to be
interpreted in light of the purpose or object of the Act. Section 15AA reads as follows: "Section 15AA - Interpretation
best achieving Act's purpose or object - In interpreting a provision of an Act, the interpretation that would best achieve
23 ADMINISTRATION AND ENFORCEMENT

example quite evident when looking at current practice in the approach to statutory interpretation in
Australia. Kirby in the Melbourne University Law Review offered the following analysis of the
Australian approach:49

"During the past decade or so, the High Court of Australia has unanimously endorsed other principles
as necessary to the accurate reading of legislation. Amongst the most important of these principles
have been:

▪ that where the applicable law is expressed in legislation the correct starting point for analysis
is the text of the legislation and not judicial statements of the common law or even judicial
elaborations of the statute;
▪ that the overall objective of statutory construction is to give effect to the purpose of
Parliament as expressed in the text of the statutory provisions; and
▪ that in deriving meaning from the text, so as to fulfill the purpose of Parliament, it is a
mistake to consider statutory words in isolation. The proper approach demands the derivation
of the meaning of words from the legislative context in which those words appear.
Specifically, it requires the interpreter to examine at the very least the sentence, often the
paragraph, and preferably the immediately surrounding provisions (if not a wider review of
the entire statutory context) to identify the meaning of the words in the context in which they
are used.

These and other explanations of the contemporary understanding of statutory interpretation have
increasingly taken courts in Australia away from the previous ‘literal’, or so-called ‘objective’ or
‘plain meaning’, approach to interpretation. The notion that a word of the English language has a
single, objective and scientific meaning that has only to be discovered has gradually given way to a
more candid recognition of the choices that face those who interpret the written law and the way in
which values and policy considerations can influence the making of those choices. That realization
presents the third element in contemporary statutory interpretation in Australia. Today, that task
requires a combined exercise involving analysis of the text, context and purpose (or policy) of the
statute in question."

The fact that a more purposive approach to construction is gaining wider acceptance does not imply
a rejection of the more traditional rules of construction. The interpretation of any statute will always
start with a literal reading and analysis of the text of the legislation.50 The acceptance of the
purposive approach did not invalidate or replace the use of the traditional approaches to
interpretation but supplements them. It is simply an additional tool to interpretation which a court
may invoke where the use of the traditional approaches delivers an unsatisfactory or absurd result.
Willis's statement of almost a century back is just as valid today as it was then. When interpreting
statutes the courts tend to invoke "whichever of the rules produces a result that satisfies its sense of
justice in the case before it".51

the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to
each other interpretation."
49
Kirby M, Statutory Interpretation: The Meaning of Meaning, Melbourne University Law Review (2011) Volume
35(1), 113 at 116
50
See Environmental Protection Agency v Harte Peat Ltd & Anor [2014] IEHC 308 (Ireland High Court) where the
Court per Barrett J said: "One still finds the literal approach to statutory interpretation hallowed in case-law as the
primary principle of statutory interpretation and in one sense it is: the courts cannot but read legislation literally in the
first instance. Thus, for example, in Cork County Council v. Whillock [1993] 1 I.R. 231 at 237, Flaherty J. states that:
“[I]t is clear to me that the first rule of construction requires that a literal construction must be applied. If there is
nothing to modify, alter or qualify the language which the statute contains, it must be construed in the ordinary and
natural meaning of the words and sentences…”
51
Willis, J. 'Statutory Interpretation in a Nutshell', (1938), 16 Can Bar Rev 1, 6 where the writer inter alia said: "… a
court invokes whichever of the rules produces a result that satisfies its sense of justice in the case before it. Although
the literal rule is the one most frequently referred to in express terms, the courts treat all three as valid and refer to them
as occasion demands, but, naturally enough, do not assign any reason for choosing one rather than another."
24 ADMINISTRATION AND ENFORCEMENT

1.1.3.3 Aids and presumptions

(a) Aids to interpretation
In addition to the rules of interpretation as discussed above, the courts have over time adopted the
use of other secondary ways to interpretation. Courts may consider a wide range of internal and
external materials or aids in determining the meaning of words and in clarifying any ambiguity that
may exist. What may or may not be used as aids to interpretation, and the weight which will in any
given instance be attached to those materials, differs from jurisdiction to jurisdiction and may,
depending on a given jurisdiction's legal framework, show varying degrees of codification.52

(i) Internal aids

Any process of statutory interpretation obviously always starts with the words used in the provision
under consideration. Where the words used are clear and in the absence of any ambiguity, then there
should not be any need to rely on any other aids or materials in interpreting that provision. Where
however the meaning of certain words are unclear or where there is uncertainty or ambiguity, then
the next obvious logical step should be to clarify that uncertainty by looking first at the rest of the
same statute, reading the provision in its context and reading the statute as a whole. The rest of the
statute may hopefully offer clarification as to the meaning of that particular provision. In doing so
the court may consult various internal aids to interpretation. These are in essence aids derived from
within the statute and may include things like the title, long title, short title, preamble, the enacting
words of the act, headings, side-notes, and punctuation. These may typically assist in ascertaining
the meaning of words within the context they were used, in identifying and clarifying absurdity, in
ascertaining the objectives the legislature intended to achieve with the statute in question, and how
the provision under consideration was intended to serve that statute in the furtherance of that
objective.

(ii) External aids

External aids to statute interpretation are just that, aids that are external to the statute in question.
These may typically, depending on a particular jurisdiction's legal framework, include things like
parliamentary materials (such as Hansard), government publications and reports, treaties and
conventions, the history behind a statute and its past interpretation, Law Commission reports,
authoritive textbooks, dictionaries etc. Not surprisingly, the external aids that may be used has
historically been restricted.

(b) Presumptions
In addition to the rules of and aids to interpretation, the courts in most common law jurisdictions
have over time also adopted various presumptions relating to the interpretation of statutes. Although
these differ from jurisdiction to jurisdiction, there are some which tend to be common to most, some
important ones of which are: the presumption against the retrospective operation of new legislation;
the presumption against law in breach of international law; the presumption against change of
common law; the presumption that penal provisions are to be strictly interpreted in favour of the
citizen; and the presumption that mens rea is a prerequisite for statutory offences. Presumptions of
this nature may not necessarily always be found in a statute, and they are all rebuttable, but they are
not waived or departed from that lightly. It is especially where the rights of the subject in his
relationship to the State are in issue, notably in the area of criminal justice, where the courts do not
lightly depart from these presumptions.

52
See for example section 13 of the Australian Acts Interpretation Act 1901 which explicitly states what is considered
to be part of an Act. Section 15AB of the same Act then continues to lay down a short but fairly concise general
framework as to the use of extrinsic material in the interpretation of statutes.
25 ADMINISTRATION AND ENFORCEMENT

1.1.3.4 In criminal prosecutions

Disputes as to the correct interpretation and intended operation of statutory provisions do not only
surface in the civil courts. Questions of interpretation may also arise in the criminal courts where
disputes as to interpretation may relate to both the underlying taxing provisions and the penal
provisions. Questions as to statutory construction may in fact raise its head at every stage of the
prosecution time-line and may impact on the outcome of a prosecution at every stage of the process.
Statutory interpretation may be placed in dispute relating to a wide range of matters such as: (a)
jurisdiction or the authority to prosecute; (b) whether or not a particular offence can be charged in
relation to a particular class of person; (c) whether or not a particular penal provision provided for
under common law or under one statute can find application in relation to breaches of another
statute; (d) whether or not an activity could be classed as belonging to one class or another, being of
a class prohibited or otherwise, as being taxable or non-taxable, or as being reportable or otherwise,
etc; (e) whether or not the burden of proof as to a particular fact rests on the one party or the other;
(f) constitutional rights and limitations; (g) procedure that should have been followed; or (g) the
material elements of an offence i.e. whether or not a penal provision captures a particular course of
conduct or otherwise, or the mens rea required to be present for conviction. These are just a few
examples but there are many others.

Consider the following example. Taxing provision A states that transactions matching the
description of transactions R, S, T and V must be disclosed in the tax return. The prosecution alleges
that taxpayer XYZ fraudulently failed to disclose to the Revenue the fact that he engaged in
transactions matching the description of transactions S. The burden will be on the prosecution to
prove, beyond reasonable doubt:

(a) the taxpayer's conduct;

(b) that the taxpayer's conduct amounted to an unlawful contravention; and
(c) the taxpayer's knowledge (at the time of the alleged contravention) of his conduct being in
contravention of the law.

The taxpayer may well start his defence by arguing that he did engage in the transactions referred
to, and that he admittedly did not disclose those transactions, but:

(a) that those transactions did not in fact match the description of transactions R, S, T or V; and
(b) were thus not transactions the disclosure of which were called for; and
(c) that there was therefore no unlawful non-disclosure.

It will be for the court to consider the arguments for and against those transactions indeed matching
the description of transactions S as alleged by the prosecution. This will usually call for a process of
statutory interpretation of the relevant taxing provisions allegedly breached as they were framed at
the time of the alleged contravention. Assuming the taxpayer's defence to be successful, then there
will be no actus reus, the prosecution will fail, and the taxpayer must be acquitted.

But even assuming in the example given above, the trial court holds that the transactions taxpayer
XYZ engaged in were indeed of a class falling within the description of transactions S, were to be
disclosed, were not disclosed, and that the non-disclosure of those transactions were unlawful, then
fraud has still not been proven, not even by a long stretch. The actus reus may well be proven, but it
may well bring the prosecution no closer to proving the taxpayer's guilty mind as at the time of the
actus reus. Proving unlawfulness is an exercise intended to prove an objective state of affairs, an
exercise considerably easier and more straight-forward as compared to proving a man's subjective
state of mind as at the time of that breach. The prosecution's failure to prove, beyond reasonable
doubt, the taxpayer's subjective knowledge of unlawfulness, will be fatal for any fraud prosecution.
A bona fide mistaken interpretation of the law will exclude knowledge of unlawfulness and thus
26 ADMINISTRATION AND ENFORCEMENT

criminal intent in most common law jurisdictions. Taxpayer XYZ will most likely fall back on his
secondary line of defence: that he did not disclose the transactions as he honestly believed those
transactions not to fall within one of the categories the disclosure of which was called for. This is a
defence a jury may quite well accept, especially where the provisions and transactions in question
were of a very technical and complex nature. Where the interpretation, meaning, and operation of
the underlying taxing provisions are in dispute, proving beyond reasonable doubt a taxpayer's guilty
mind will often prove a bridge too far.

1.2 The Commissioners

The efficient collection of duties and taxes is of primary importance for any State to function
properly. It is the mandate of national revenue administrations to identify and collect all revenues
legally due, and to ensure optimum compliance with the legislation administered by the Revenue.
The Commissioners amongst other things, but by no means limited thereto, inter alia:

(a) consult with policymakers and assist the legislature with various issues such as but not
limited to: the drafting and amendment of tax legislation; devising strategies for revenue
optimization; the formulation of general tax policy and procedure;
(b) interpret, implement and supervise those rules, policies and procedures provided for the
administration of the revenue laws;
(c) collect all those duties and taxes levied under the revenue legislation;
(d) educate and train taxpayers and revenue staff;
(e) measure the tax burden, tax gap, and efficacy of tax policies and procedures;
(f) organize the operations of the various revenue functions, and ensure the efficiency and
professionalism of those functions and its staff;
(g) carry out and supervise a wide range of regulatory and border-control functions;
(h) monitor and enforce the provisions of the tax legislation;
(i) carry out research on issues affecting revenue collection and administration;
(j) carry out all those responsibilities placed on it under the various international tax treaties /
ensuring compliance with those treaties; and
(k) international liaison, assistance, and information exchange; and

The Commissioners in most jurisdictions have broad powers which they may delegate to the
officers in their employ. In the United Kingdom, officers of Her Majesty's Revenue and Customs
(HMRC) may, subject to certain exceptions, exercise any function of the Commissioners.53 The
Commissioners may also under certain circumstances delegate certain functions to various people
who may be revenue or non-revenue staff.54 The day to day administration of the revenue
legislation amongst other things, but not limited thereto, inter alia entails:

(a) obtaining information relating to matters that may affect a given tax liability;
(b) ascertaining the correctness of any return, financial statement, document, declaration of facts
or valuation;
(c) determination of the liability of any person for any tax, duty or levy and any interest or
penalty in relation thereto;
(d) the collection of any liability for any tax, duty or levy and any interest or penalty in relation
thereto;
(e) ascertaining whether a taxpayer has complied with the provisions of the tax legislation;
(f) ascertaining whether any offences under the tax laws have been committed;

53
Section 13(1) of the Commissioners for Revenue and Customs Act 2005
54
Section 14 of the Commissioners for Revenue and Customs Act 2005
27 ADMINISTRATION AND ENFORCEMENT

(g) the enforcement of any of the Commissioner’s remedies under the tax laws to ensure that
any obligations imposed upon any particular taxpayer under any particular tax law has been
complied with; and
(h) the performance of any other administrative functions necessary for the carrying out of the
provisions of the tax legislation.

In most common law and European jurisdictions, the Commissioner's actions are subject to various
levels of oversight, usually, and this is the case in the UK, US, Canada, Australia and many others,
by the relevant ministerial departments and the judiciary. In the UK, Her Majesty's Revenue and
Customs (HMRC) reports to the Exchequer, and all revenue action is subject to and must comply
with the European Convention for the Protection of Human Rights and Fundamental Freedoms.55

1.3 Duties of taxpayer

1.3.1 General
The categories of persons liable to taxation is a matter of law. A ‘taxpayer’ has in the past been
defined as: “A person chargeable with a tax; one from whom government demands a pecuniary
contribution towards its support.”56 What is expected from the taxpayer, whether he be a natural or
legal person, is to comply with the provisions of the tax legislation. Generally speaking, the
taxpayer’s obligations are:

(a) to register as a taxpayer as and when such registration is called for;

(b) to keep those records and accounts the law requires him to keep;
(c) to timeously submit full and accurate information;
(d) honesty; and
(e) to pay all the taxes due as and when same becomes payable.

A 2004 report issued by the OECD57 had the following to say in referring to the obligations that rest
on a taxpayer:

“While the exact obligations placed on a taxpayer are going to vary from one taxation role to another and
from one jurisdiction to the next, four broad categories of obligation are likely to exist for almost all
taxpayers, irrespective of jurisdiction. ‘Compliance’ will essentially relate to the extent to which a
taxpayer meets these obligations. These broad categories of taxpayer obligation are:

- Registration in the system;

- Timely filing or lodgement of requisite taxation information;
- Reporting of complete and accurate information (incorporating good record keeping); and
- Payment of taxation obligations on time.

If a taxpayer fails to meet any of the above obligations then they may be considered to be non-
compliant.”

'Non-compliance' captures many different categories of acts and failures, most of them involving no
more but careless or negligent failures to comply with any one or more of a wide range of duties or
procedures, whereas others involve more serious conduct e.g. the unlawful interference with
revenue and customs administration and fraud. When dealing with honest failures and mistakes, the
revenue administrations in jurisdictions like Britain, Australia, and Canada, generally follow a 'soft'
approach focussing on correction, education, and monitoring rather than punishment. Penalties may

55
Ratified 1950. Incorporated into UK law under the Human Rights Act 1998
56
Black, A Law Dictionary, 2nd ed at 1138
57
Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development (OECD),
Guidance Note, Compliance Risk Management: Managing and Improving Tax Compliance, 2004 at 7
28 ADMINISTRATION AND ENFORCEMENT

be imposed, but these tend to be administrative in nature and are intended as a deterrent to prevent
'relapse' rather than punishment. This then is also the correct approach. Malicious and/or dishonest
conduct (e.g. evasion, fraud, smuggling, attempts to bribe officers, the theft of information, or the
intimidation of officers) on the other hand, is viewed and dealt with as serious offences.

The accurate assessment of a tax liability is not possible in the absence of accurate record-keeping
and full and honest disclosure by the taxpayer of his financial affairs and tax liability. It is for the
taxpayer to ensure such full and honest disclosure as and when called for. The failure to do so will
in most jurisdictions amount to a contravention of law. Doing so with the intent to evade will in
most jurisdictions, and certainly so in Britain, be viewed as fraudulent conduct. This being said, no
breach of a legal duty, no matter how repetitive, incompetent, or serious, will amount to evasion or
fraud where the breach occurred, even assuming the actus reus of an evasion or fraud offence has
been proven, absent the required intent. There must be subjective knowledge. Tax evasion or fraud
cannot be committed inadvertently. The taxpayer who crossed the line will know once he did so.
'Inadvertently evading' a tax liability is as impossible as is the 'inadvertent murder' of another
person. By far the greater majority of revenue and customs related offences committed on a daily
basis do not involve evasion. The majority of those offences tend to be less serious in nature,
usually offences making punishable the failure to comply with administrative procedures, negligent
failures, and carelessness

1.3.2 Keeping of records and books of account

The revenue and customs legislation of most jurisdictions contain provisions placing a duty on
certain categories of taxpayers and traders to keep certain records, documents, and books of
account.58 Those provisions will typically list the types of records and documents to be maintained,
the categories of persons required to maintain such records, and the periods for which such records
are to be retained. Not surprisingly, in most jurisdictions the failure to keep records and books of
account is a criminal offence.

There are many users, not only the Commissioners, whom rely on the completeness and accuracy of
the taxpayer's records and books of account. It can be safely said that no bank, creditor, investor, or
the Revenue for that matter, is safe in the absence of complete and accurate accounting. Different
users do not however attach the same value to the same financial information. Different users have
different needs. The taxpayer's banker may well be satisfied with financial statements and a balance
sheet representing the taxpayer to be a solvent and profitable company, but the Commissioner's
require more than that. The law requires every transaction to be accounted for, and same is to be
accounted for accurately and truthfully. A single false entry misrepresenting the true nature of a
single transaction may potentially result in the Commissioners being defrauded. Where that entry
was entered falsely with the view to evade, defraud, or cause loss, then it will be a clear case of
false accounting and will be nothing less but fraudulent.59 Not surprisingly, it is a common feature

58
See Black, A Law Dictionary, 2nd ed at 144 where “books of account” is defined as: “The books in which merchants,
traders, and business men generally keep their accounts.”
59
In the UK, section 17 of the Theft Act 1968 provides for the offence of 'false accounting' which reads as follows:
“17 False accounting (1) Where a person dishonestly, with a view to gain for himself or another or with intent to cause
loss to another, -
(a) destroys, defaces, conceals or falsifies any account or any record or document made or required for any accounting
purpose; or
(b) in furnishing information for any purpose produces or makes use of any account, or any such record or document as
aforesaid, which to his knowledge is or may be misleading, false or deceptive in a material particular;
he shall, on conviction on indictment, be liable to imprisonment for a term not exceeding seven years.
(2) For purposes of this section a person who makes or concurs in making in an account or other document an entry
which is or may be misleading, false or deceptive in a material particular, or who omits or concurs in omitting a
material particular from an account or other document, is to be treated as falsifying the account or document.”
29 ADMINISTRATION AND ENFORCEMENT

of many revenue and customs frauds to find a total or partial absence of some or all the business
records and accounts legally required to be kept.60 It is not uncommon to come across case-law
where the revenue or customs were unable to obtain any records from the taxpayer or trader. In
most of those instances those records and books of account will in fact exist, but the taxpayer rather
opts to conceal it. Traders, even criminal gangs, all keep some or other records and 'books of
account', even if limited to just basic entries in a school exercise book. They may conceal it in the
hope or belief that doing so may deny the revenue incriminating evidence and thus undermine an
investigation, or for fear of it disclosing offences other than the revenue offences under
investigation i.e. money laundering, other types of fraud, or corruption, or for fear of the content
incriminating other parties.

The failure to keep proper records undermines the Revenue’s ability to perform its functions. The
more incomplete the taxpayer's records and books of account: (a) the more difficult verification and
audit of the taxpayer's economic activity and the more difficult verification of the accuracy of the
taxpayer’s returns; (b) the more difficult the calculation and recovery of evaded taxes; (c) the more
difficult it may be to investigate certain offences in certain cases; and (d) the less can be expected in
terms of information gleaned relating to the activities of suppliers, clients, or others the taxpayer
may have dealt with or traded with. In short, the failure to keep accurate and complete records and
books of account impedes administration and the monitoring of compliance, information gathering,
and the investigation of irregularities.

It is to be noted that the duty to prepare and maintain certain records and books of account may also
arise in relation to certain categories of persons under legislation other than revenue or customs law.
In England and Wales for example, section 386 of the Companies Act 2006 requires companies to
maintain and keep accounting records relating to all transactions entered into by the company, all
company receipts and expenditures, and all company assets and liabilities. Those records and
accounts must be sufficient to disclose the financial position of the company as at any given time.
These are to be kept for 6 years in the case of public companies and 3 years in the case of private
companies. The failure to do so is also an offence.

1.3.3 Self-assessment
A cornerstone of the taxation process is ‘assessment’.61 The basis and extent of every taxpayer’s tax
liability may be a matter of law, but somewhere along the line a determination need be made of that
liability, judged that is against the relevant tax rules. Today, many western jurisdictions, the United
Kingdom, Canada, Australia, and New Zealand being notable examples, follow what is generally
referred to as a self-assessment system of taxation. Self-assessment is very much a self-regulatory
system. ‘Self-assessment’ and ‘self-regulatory’ does not however imply it being voluntary. It is
anything but voluntary. Self-assessment is generally viewed as more efficient compared to the

60
With revenue frauds one will find that financial information and business activity are either: (a) truthfully accounted
for but falsely reported; or (b) falsely accounted for (in the books of account made available to the Revenue) and falsely
reported; or (c) not accounted for at all, thus the non-keeping of financial information, and the failure to declare or the
failure to truthfully declare.
61
Black, A Law Dictionary, 2nd ed at 94 provides for the following definitions of “assess” and “assessment”: “Assess...
2. To adjust or fix the proportion of a tax which each person, of several liable to it, has to pay; to apportion a tax among
several, to distribute taxation in a proportion founded on the proportion of burden and benefit”, and “Assessment .....In
taxation. The listing and valuation of property for the purpose of apportioning a tax upon it, either according to value
alone or in proportion to benefit received. Also determining the share of a tax to be paid by each of many persons; or
apportioning the entire tax to be levied among the different taxable persons, establishing the proportion due from
each....Assessment is also popularly used as a synonym for taxation in general, - the authoritative imposition of a rate or
duty to be paid”. The Concise “Standard” Dictionary of the English Language supra at 35 defines “assess” as “To tax;
estimate or value for taxation... – assessment, an assessing, or the amount assessed”. The same dictionary at 491 defines
“taxation” as: “The act of taxing; also, the amount assessed as a tax.”
30 ADMINISTRATION AND ENFORCEMENT

earlier system where every return had to be checked for accuracy. Self-regulation it is also argued,
builds trust between the State and the taxpayer, improving voluntary compliance.

With self-assessment the taxpayer's liability is primarily assessed on the information as provided by
the taxpayer. The taxpayer carries the responsibility of calculating his tax liability, declaring same
to the Revenue, and paying over to the Revenue the taxes due. He declares his tax liability in the tax
returns as submitted to the Revenue. Returns may, depending on the current practice in a given
jurisdiction, be filed in paper or electronic format. Those returns may be audited and assessments
will be raised where any under-declaration is detected. It need not be said that the Revenue place
considerable trust in the taxpayer’s honesty. The information as furnished by the taxpayer is
generally accepted at face value. His honesty is assumed until such time as the evidence proves
otherwise. The integrity of any self-assessment system can obviously only be ensured to the extent
that non-compliance is kept within acceptable levels. Regardless the system of taxation, there will
always be those who will attempt to evade their liabilities. Fraud will thus always be a problem.
There thus need be effective systems in place for the detection and deterrence of non-compliance.

1.4 Tax morale

Over recent decades, a wealth of research has been carried out on various aspects of tax morality,
taxpayer motivation, and the deterrence of tax non-compliance. The theories and models developed
since then have had a strong influence on tax policy, tax administrations, and the shaping of some
of the current strategies geared towards promoting tax morale and achieving higher levels of
voluntary compliance. The answer to the question as to why taxpayers pay or evade tax is of
obviously of considerable importance for purposes of tax administration. There are many who
suggest high levels of compliance to be largely dependent on vigilant and aggressive deterrence.
According to those who support this school of thought, the taxpayer pays his taxes out of fear of
being caught out and punished. Tax compliance is thus seen as something to be enforced with
penalties and punishment. According to Allingham and Sandmo’s62 formulation, the extent of tax
evasion should directly correlate with the probability of detection and the severity of punishment.

Deterrence certainly plays an important role in ensuring tax compliance, but there are many
scholars who argue compliance not to be motivated solely by fear of detection and punishment, but
also by taxpayer ethics and the general levels of tax morality.63 There is in fact a considerable
amount of research the findings of which suggest a strong correlation between the levels of tax
morale and non-compliance.64 Revenue administrations now place a much higher premium on
measures and initiatives intended to strengthen tax morale and voluntary tax compliance compared
to just a few decades earlier. Strengthening tax morale within the broader population is increasingly

62
Refer to the paper by Allingham & Sandmo, “Income Tax Evasion - A Theoretical Analysis” (1972) Journal of
Public Economics (1): 323 – 338
63
See e.g. Torgler and Murphy, Tax Morale in Australia: What Shapes it and has it Changed Over Time ? (2004)
Working Paper No 2004-04 Centre for Research in Economics, Management and the Arts (CREMA), where it was inter
alia said: “The problem with the deterrence view, however, is that many empirical and experimental findings show that
these deterrence models predict too little tax evasion …..In fact, in many countries the level of deterrence is too low to
explain the high degree of tax compliance… international research has also shown that there is a big gap between the
amount of risk aversion that is required to guarantee such high compliance rates and the actual reported degree of risk
aversion in the community, which has been found to be much lower…..Some researchers have argued that tax morale –
the intrinsic motivation one has to pay their tax – can help to explain the high degree of tax compliance observed in
many countries”
64
See e.g. Torgler, B & Schneider, F. The impact of tax morale and institutional quality on the shadow economy.
Journal of Economic Psychology, 30, 2009, 228-45; Torgler, B. Tax morale and compliance: review of evidence and
case studies for Europe. Washington DC: Policy Research Working Paper 5922, World Bank, 2011; Alm J, Martinez-
Vazquez J, & Torgler, B. Russian attitudes towards paying taxes: before, during and after the transition. International
Journal of Social Economics, 33(12), 2006, 832-57; and Alm, J and Togler, B. (2006). Culture differences in tax morale
in the United States and in Europe. Journal of Economic Psychology, 27(2), at 224–246.
31 ADMINISTRATION AND ENFORCEMENT

viewed as the key to promoting tax compliance. The levels of tax morale as prevalent in any
particular population at any given time should reflect in the extent to which tax evasion is
stigmatized. Tax morale can after all only be said to be satisfactory where the general population
views tax evasion as unacceptable. Real concern is more than justified where the population at large
increasingly start to view tax evasion as acceptable.65 In those populations revenue administrations
will face the hurdle of building (or rebuilding) a culture of compliance, a process which is costly
and may take many years or even generations. In many instances those efforts may also prove
unsuccessful in the absence of real efforts at the national level to address the issues, political,
economic, and social, which so often undermined the tax morale to start with.

There does not seem to be any agreement as to the factors which may impact on tax morale. The
factors that may impact on tax morale in one jurisdiction will also not necessarily have a
corresponding impact in another jurisdiction. Cultures, social norms, systems, and circumstances,
often differ greatly from jurisdiction to jurisdiction, and sometimes within the same jurisdiction.
The tax morale of any given tax-base may change in response to a range of factors and
circumstances. Demographic changes, culture, the economic climate, trust in the authorities, the
treatment taxpayers receive from the authorities, and various other circumstances may all impact
positively or negatively on a society’s tax morale. Facts, circumstances, or perceptions, some of
which overlap or are interconnected, which have been suggested as factors that may potentially
impact on tax morale and/or which may potentially be used by offenders in rationalizing their
evasion may be:

(a) Everybody evades and the rich does not pay enough
A growing perception amongst the public of rampant tax evasion, especially by corporations,
businessmen and the rich, is more likely to break down tax morale and drive non-compliance.66
A perception of tax evasion being ‘acceptable’ or no more but part of astute business-practice
may also contribute to low tax morality.67 The perception of evasion being widespread and
commonplace may also strengthen a belief of detection, penalties, and prosecution being
unlikely. Rampant tax avoidance and tax avoidance by the powerful and rich, is certainly also an
important factor that may impact on the average citizen’s decision to comply. A general
perception amongst the citizenry of large-scale avoidance, especially by corporations and the
wealthy, strengthens a perception of unfairness and double standards.

(b) The state does not satisfy taxpayer expectations68

It is only natural for taxpayers to expect a commensurate benefit in return for the taxes they pay.
Many taxpayers do however perceive taxation to be the taking of their wealth but without

65
See e.g. Compin, F. (2015) "Tax Fraud: a socially acceptable financial crime in France ?" Journal of Financial
Crime, Vol 22 ISS: 4, p. 432-446. Also see Ott, “Economic Policy and the Underground Economy in Transition” (1999)
in Feige & Ott (Ed) in Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and
organized crime 29-41 at 36 where the authors correctly said: “The attitude that law avoidance is considered smart and
not a criminal activity, and that tax evasion elevates the social status of the perpetrator is highly disturbing. This seems
to indicate that exposure of tax evaders is unlikely to cause many stigmas. Perhaps some results might be achieved by
appropriate exposure of the really biggest offenders from the very top political circles. This might be the only means of
restoring confidence in institutions.”
66
Torgler and Murphy, Tax Morale in Australia: What Shapes it and has it Changed Over Time ? (2004) Working
Paper No 2004-04 Centre for Research in Economics, Management and the Arts (CREMA). Also see Albrecht, Fraud
Examination at 48.
67
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No
199 1-6, at 3 where it was inter alia said: “One of these weak restraints is the perception that everyone engages in this
behaviour as part of astute business/financial practice. In this way, practices such as tax fraud, insurance fraud and
padding expense accounts becomes normal behaviour and those individuals that do not participate are seen as naive.”
68
Albrecht, Fraud Examination at 48
32 ADMINISTRATION AND ENFORCEMENT

receiving back a commensurate benefit.69 This may affect their willingness to pay.70 Statehood,
good government and state administration, and public services, do provide for safety, a stable
environment, and security, but that is not necessarily how taxpayers at the individual level
experience or perceive this enforced contribution.

(c) Trust in the institutions of state

The levels of trust in the institutions of state, may impact on the levels of compliance with state
regulation and the law in general. It may also impact on tax morale and the taxpayer’s
willingness to comply with the tax laws.71 Estrangement between state and subject, may
contribute to an unwillingness to pay and higher levels of non-compliance. This may typically
be fuelled by perceptions of the government being unjust, corrupt, 72 inefficient, incompetent,
irresponsible, as a system favouring certain elites, of political abuse of the tax system, and/or of
the political system or order being unrepresentative. In many parts of the world governments
over-spend. The more they do, the more they tax, and the more they tax the more they spend. In
the absence of sufficient pressure from the electorate this can be a never-ending cycle with the
public serving the government as opposed to the other way around. The electorate may still be
accepting where the money was spent in the furtherance of good policy, but once they recognise
the government squandering their wealth on bad policy or ill-though-out foreign wars, the trust

69
See Ott, “Economic Policy and the Underground Economy in Transition” (1999) in Feige & Ott (Ed) in Underground
Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 29-41, where at 34 it is
correctly said that: “Theoretically, it seems plausible that citizens will support a taxation system that amasses the
financial resources required to satisfy the citizen’s demand for public services. People are willing to make a fair deal.
They will assume tax obligations in exchange for the benefit of receiving public services. The unknown element arises
from the ever-present free-rider problem, which is exacerbated when some citizens feel that they do not receive fair
value for the taxes they pay. This is most likely to occur when the government is responsible for poor legislation,
cumbersome administration, incompetence, and inefficiency of public workers, is insensitive to social circumstances, or
engages in corrupt practices.”
70
Walter in his book The Secret Money Market: Inside the Dark World of Tax Evasion, Financial Fraud, Insider
Trading, Money Laundering and Capital Flight and at 16 correctly commented that: “Expectations of what the
government will do with tax receipts also affect the incentive to pay willingly: wasteful government expenditure,
consumption and social insurance schemes from which the taxpayer is unlikely ever to benefit broadly in proportion to
his or her contribution all sap the incentive to pay taxes”. Also see Bonger, “Criminality and Economic Conditions”
(1996) in Criminological Perspectives at 40 where it is said: “A society based upon exchange isolates the individuals by
weakening the bond that unites them. When it is a question of exchange the two parties interested think only of their
own advantage even to the detriment of the other party”.
71
See Štulhofer, “Between Opportunism and Distrust: Socia-Cultural Aspects of the Underground Economy in Croatia”
(1999) in Feige & Ott (Ed) Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and
organized crime 43-63 at 48 where it is inter alia said that: “Distrust for legal institutions and government is negatively
connected with respect for regulations, including economic rules. From an analytic point of view, this distrust can be
viewed from two sides. On the one hand, people may believe that tose employed in high government institutions do not
have moral credibility and that because of that, they, too, need not obey rules. A widespread perception that ‘those on
the top’ use the rules of the game to their own advantage will lead to the acceptance of behaviour in which actors
attempt to avoid the situation when only they remain honest but impoverished. On the other hand, distrust for the legal
system can also be a reflection of the conviction that legal protection is ineffective (or unjust), or of perception that the
costs of breaking the rules are low. In both cases, but for different reasons, such distrust stimulates involvement in the
underground economy.” For further background reading on the impact of distrust on tax-morale, also see Murphy,
“Who me ? I didn’t do anything wrong: Trust, resistance and compliance among tax scheme investors” (2003) MIMEO;
Feld & Frey, “Deterrence and Tax Morale: How Tax Administrations and Taxpayers Interact” (2002). Paper presented
at the 2nd International Conference on Taxation organized by the Australian National University, Canberra, December
2001; Feld & Frey, “Tax compliance as the result of a psychological tax contract: The role of incentives and responsive
regulation” (2005) Working Paper 76: Centre for Tax System Integrity; Feld & Frey, “Tax Evasion in Switzerland: The
Roles of Deterrence and Tax Morale” (2006) Working Paper No. 284: Institute for Empirical Research in Economics
72
Over two centuries ago, Adam Smith in his An Inquiry into the Nature and Causes of the Wealth of Nations (1776)
and at .740 inter alia noted that: "In those corrupted governments, where there is at least a general suspicion of much
unnecessary expense, and great misapplication of the public revenue, the laws which guard it are little respected." Also
see e.g. Bowles, “Tax Policy, Tax Evasion and Corruption in Economies in Transition” (1999) in Feige & Ott (Ed)
Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 67-86 at 67
33 ADMINISTRATION AND ENFORCEMENT

will soon start to founder. This underlines the importance of a vigilant public. Protest is the most
basic form of expression in any democracy. The more complacent the public the more
complacent one can expect their government to be.

(d) Fairness
Taxpayers are more likely to be willing to comply where they view the tax system as fair and
just.73 Unfair treatment by the Revenue or treatment which is perceived to be unfair can also
negatively impact on tax morale. Disrespectful treatment it is argued ‘crowds out’ the intrinsic
motivation to act as an honourable taxpayer, breaks down the psychological tax contract, and
undermines tax morality.74 Inconsistency in the way offenders are dealt with may strengthen
perceptions of unfairness. A system cannot be said to be fair where a ‘working man’ who
commits a less serious theft or fraud, quite often under severe financial strain, is imprisoned, but
where the corporate director who, driven by greed, defrauded the fiscus out of millions, walks
out of court with a suspended sentence. Like cases must be treated alike if a sense of fairness is
to be fostered. The gravity of the offence must be the main focus when considering the sanctions
to be imposed, or in the case of a prosecution, the sentencing decision.

But the matter of 'fairness' goes further than this. It has been said that a lack of trust in the
institutions of state may impact on a population's willingness to be compliant. Where there is
unfairness, especially in the treatment of the working classes and the poor versus the rich and
powerful, one can also expect a breakdown of trust in the institutions of state. This in turn brings
us back to the systemic duplicity in the treatment of 'white-collar criminals' versus ‘common
criminals’. The disparities between the punishments handed down for white-collar criminals on
the one hand, and other offenders convicted for ‘common’ crimes on the other, has long been
noted and has been debated for decades.75 This 'discrimination' between 'white-collar' crime and
'common' crime is seemingly not a recent trend. Nicholls76 in his discussion on smuggling in
England during the 18th and 19th centuries, inter alia commented:

“And below decks in those hulks would have been hundreds of petty thieves, poachers and
whores, awaiting their passage to the West India plantations for a seven-year sentence of
transportation. A shillings-worth of cloth stolen was a felony; but a thousand pounds of revenue
stolen – that was ‘free trade’"

People no longer face “transportation to the colonies”, but certain categories of criminals are all
too often still being treated with a white glove. All too often the major criminals are not being
prosecuted, but where they are and the convictions are secured, the car thief is still more likely
to go to jail than the fraudster. As long as the shareholders, directors, and the rich are allowed to
walk out of court with a suspended sentence, then there is very little prospect of fostering a
sense of fairness amongst the common man. The aggressive prosecution and sentencing of white

73
See Torgler, B. (2002). Speaking to theorists and searching for facts: Tax morale and tax compliance in experiments.
Journal of Economic Surveys, 16 (5) at 657–683
74
See Feld & Frey, “Deterrence and Tax Morale: How Tax Administrations and Taxpayers Interact” (2002). Paper
presented at the 2nd International Conference on Taxation organized by the Australian National University Canberra,
December 2001 where it was inter alia said: “The tax authority takes into account that the way it treats the taxpayers
systematically affects the latter’s tax morale, and therefore their willingness to pay taxes, which in turn affects the costs
of raising taxes. When the auditors detect incorrectly reported income in the tax declaration, they can immediately be
suspicious of an intention to cheat, and impose legal sanctions. Alternatively, the auditors may give the taxpayers the
benefit of the doubt and inquire into the reason for the mistake. If the taxpayer in question did not intend to cheat but
simply made a mistake, he or she will most likely be offended by the disrespectful treatment of the tax authority. The
feeling of being controlled in a negative way, and being suspected of tax cheating, tends to crowd out the intrinsic
motivation to act as an honourable taxpayer and, as a consequence, tax morale will fall.”
75
See Burke, An Introduction to Criminological Theory at 176-177
76
Nicholls, Honest Thieves, The violent Heyday of English Smuggling at 34-35
34 ADMINISTRATION AND ENFORCEMENT

collar criminals sends out a message.77 But so does non-prosecution or lenient sentencing. It
effectively sends out the message, to offenders and the public at large, of white-collar crime
somehow being less serious than 'common' crime.78 It furthermore foster's the perception of the
wealthy and powerful being judged by different rules.

(e) There is no alternative but to evade

Traders who evade taxation can undercut their honest competitors. The honest trader thus finds
himself at a disadvantage, often leaving him unable to compete. This can in turn drive honest
traders towards evasion. It is also not uncommon for businessmen struggling to keep a business
afloat, to divert tax-money to cover what may be viewed as more pressing and immediate
financial priorities. In many instances he might do so with the intention to pay it over at a later
stage, often intending the diversion as a mere temporary measure to carry the business through
immediate short-term difficulties. The taxes may typically be diverted in an attempt to keep on
trading, to avoid the scaling down of operations, or to avoid making employees redundant.
Rationalization comes easy for a man who finds himself pressed in a corner.

(f) The regulation or law serves no purpose and/or commands no backing from the
population
Senseless state regulation perceived as unfair, or as serving no purpose, can do a lot to convince
citizens of their conduct not being 'wrong' or 'unlawful'. Where those regulations or policies lack
the support of the population, they are sure to be flaunted.79 A good example in point is
prohibition in the United States during the 1920’s and 30’s. What started out as nothing but an
attempt at social engineering soon ended in a thriving black market. That same black market
catered for the needs of a large part of the US population. Tax policies intended to force down
social objectives but lacking the support of the general population can have the same effect. The
flaunting thereof is easy to rationalize and they create willing markets.

(g) Inequity in tax burdens

Inequity in tax burdens can negatively impact on tax morale and the willingness to pay.80 Such
inequity may be the result of inequities in the basis of taxation and/or rampant avoidance and
evasion. According to Feld and Frey,81 the psychological tax contract between the Revenue and

77
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No
199 1-6 at 6 where it is inter alia said: “The prosecution and sentencing of fraud offenders provide further opportunities
to reaffirm society’s condemnation of intentionally deceptive practices. Aggressive prosecution and severe sentencing
may help send a message that makes it difficult for potential fraudsters to rationalise or excuse their intended acts. It has
been suggested that white-collar criminals are particularly influenced by punishment policies because they have much
more to lose through publicity and imprisonment than common street offenders (Braithwaite 1985).
78
See Duffield & Grabosky supra (at .3) where it is inter alia said: “Stotland goes on to point out that the moral
ambiguity surrounding some types of fraud is exacerbated by the characteristically short sentences meted out to
offenders. In particularly high profile cases, the leniency of punishment communicates to society that these people are
somehow different from the common criminal. Again, this tends to “decriminalise” fraud in the eyes of the public"
79
See Woetzel, R.K. (1963) "An Overview of Organised Crime: Mores versus Morality", The Annals of the American
Academy of Political and Social Science, Vol 347, 1-11 at 1 where the writer correctly commented that: " … personal
morality can not be legislated or enforced by the authorities. The laws and moral standards of a society are as good as
the people who make them."
80
See Walter, The Secret Money Market: Inside the Dark World of Tax Evasion, Financial Fraud, Insider Trading,
Money Laundering and Capital Flight at 16 where the author correctly commented that: “Poor tax administration and
inequities in tax burdens may likewise demoralize taxpayers and increase the incentive to escape into the underground
economy and create black markets for labour, goods and services, and wealth.”
81
Feld & Frey, “Deterrence and Tax Morale: How Tax Administrations and Taxpayers Interact” (2002). Paper
presented at the 2nd International Conference on Taxation organized by the Australian National University, Canberra,
December 2001. Also see the subsequent papers by the same authors: Feld & Frey, “Tax compliance as the result of a
psychological tax contract: The role of incentives and responsive regulation” (2005) Working Paper 76: Centre for Tax
35 ADMINISTRATION AND ENFORCEMENT

the taxpayer can only be kept up by ensuring honest taxpayers remain confident of them not
being exploited by dishonest taxpayers. Tax evasion not only has as consequence the unfair
distribution of the tax burden, but also makes it difficult for honest traders to compete against
those competitors who do evade.

(h) Profile of the taxpayer

The most moral of men do fall from grace, do make mistakes, and do commit crime. Then again,
a man may well be morally corrupt, but he may as far as the law is concerned nevertheless be
deemed a good citizen. A morally depraved psychopath may well go through life always
complying with his civic duties and without ever committing a crime. The taxpayer’s sense of
moral duty and moral responsibility may nevertheless be a factor that may influence tax
morale.82 There are numerous other factors specific to the person of a taxpayer that may
potentially impact on his decision not to comply. Age,83 gender, ethnicity and culture,84 and
psychological profile are just a few examples. Gender is and has always been a major correlate
to criminality in general.85 This then is also the case insofar as is concerned white-collar crime.86
In fact, in almost all, if not all the reported cases quoted in this work, the convicted offenders
were male. With the increasing professional mobility and empowerment of women, and with
more women in positions where they, historically, were poorly represented, one can expect to
see an increase in the numbers of female offenders. This being said, statistics and trends of
crime in general suggest the greater majority of offenders will always be male.

A single criminal act or moment of weakness does not always define the character of a man.
Offenders, crimes and circumstances differ. What is however safe to say is that a great
proportion tax evaders, smugglers, and fraudsters have characters that are opportunistic,
dishonest, deceptive, and manipulative. A person’s character and psychological profile may play
a major role in his decision to commit fraud.87 Those with 'anti-social personality disorder' for
example (in general usage commonly referred to as the psychopath) feature particularly
prominently amongst fraudsters.88 Not all fraudsters are psychopaths, but many psychopaths or
borderline-case individuals are fraudsters. Fraud fits them like a glove, which is not surprising
considering some of the character traits so dominant amongst this group of people. It is difficult
to foster 'tax morale' amongst a group of people who cares little about the boni mores of society.
Deterring them is equally difficult. Taxpayers are of course not only natural persons. Low tax
morale is also to be found amongst corporate taxpayers. It is not at all uncommon to find

System Integrity; and Feld & Frey, “Tax Evasion in Switzerland: The Roles of Deterrence and Tax Morale” (2006)
Working Paper No. 284: Institute for Empirical Research in Economics.
82
In general see Torgler, “What do we know about tax morale and tax compliance?” (2001) International Review of
Economics and Business (RISEC): 395-419; Torgler, “Speaking to theorists and searching for facts: Tax morale and tax
compliance in experiments” (2002) Journal of Economic Surveys, 657
83
See e.g. Štulhofer, “Between Opportunism and Distrust: Socia-Cultural Aspects of the Underground Economy in
Croatia” (1999) in Feige & Ott (Ed) Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption
and organized crime 43-63 at 53 where age was indicated as a factor that may impact on low levels of compliance.
Levels of non-compliance was inter alia found to be lower amongst younger people
84
See e.g. Rothengatter, M. (2005). "'Sticks, carrots or sermons?' - Improving voluntary tax-compliance among migrant
small-business entrepreneurs of a multi-cultural nation". Working paper 82 - Centre for Tax System Integrity, Research
School of Social Sciences, Australian National University. Canberra.
85
See Burke, An Introduction to Criminological Theory at 213
86
Refer some of the statistics quoted in Levi, M. (1994) 'Masculinities and white-collar crime' at .234-246 in Newburn,
T and Stanco E. (Eds) Just Boys Doing Business ? : Men, Masculinities and Crime, London and New York: Routledge
87
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No
199 1-6 at 4 where narcissistic personality traits is also suggested as a factor that may increase the risk of fraud and thus
tax evasion.
88
For probably the most authoritive definition of 'antisocial personality disorder', refer to the Diagnostic and Statistical
Manual of Mental Disorders, code 301.7, 4 th Ed, Text Rivision (DSM-IV), American Psychiatric Association.
36 ADMINISTRATION AND ENFORCEMENT

corporations where the corporation's culture is one of non-compliance or even systemic

criminality.

Of the aforementioned factors, the most serious threats undermining tax morale and the willingness
to pay, is large-scale tax avoidance and evasion, perceptions of political corruption, and even more
serious, perceptions of a corrupt political elite being engaged in tax avoidance or assisting others to
evade or avoid. This latter situation can be the Titanic's iceberg. Tax avoidance as it has been stated
is not only detrimental in terms of revenue lost, but it also results in an unfair distribution of the tax
burden. The contributions avoided are shifted onto the shoulders of those who do make their fair
contribution, thus carrying an even heavier burden. In many jurisdictions, a disproportionate part of
the tax burden is now being carried by the broader base of citizens with most of the avoidance being
engaged in by the wealthy. Tax avoidance today, for the most part, favours the rich and powerful.
For the average citizen the opportunities to avoid paying his fair share are extremely limited. The
reality is that many governments have done nothing to deal with large-scale avoidance, for the most
part by the wealthy. This is not going unnoticed. Populations seemingly growing evermore hostile
towards the political and financial elites are also growing increasingly distrustful of their
governments which they increasingly perceive as being complicit. In many jurisdictions, large parts
of the electorates increasingly suspect the political elites and their governments to be no more but
political frontmen out to empower and enrich themselves and those economic elites whom they
secretly or overtly, directly or indirectly represent. In many instances those suspicious may be well-
founded and true. But in the world of tax compliance perceptions do matter. Perceptions and
suspicion amongst the electorate of the government being no more but a vehicle hijacked by self-
serving political and economic elites, will as sure as night follows day, not only undermine trust in
the institutions of State, at every level, but will also have a severe impact on the willingness to pay
tax.

1.5 ‘Tax avoidance’ and ‘tax evasion’

Any discussion on a subject such as tax fraud must start with a discussion on the distinction
between what is generally referred to as ‘tax avoidance’ and ‘tax evasion’. There is a clear legal
distinction between these two concepts. Tax avoidance, although many may argue the ethics
thereof, is not unlawful, whereas tax evasion is viewed as a serious dishonesty offence. Drawing a
clear distinction between the two is of critical importance from an enforcement perspective.

1.5.1 ‘Tax avoidance’

Tax avoidance refers to the situation where the taxpayer in a lawful manner arranges his affairs in
such a way as to reduce his tax liability. Tax avoidance is by no means something new with many
century-old examples to be found.89 The tax avoidance strategies utilised may differ greatly in terms
of the operation and complexity of arrangements, effort and cost for those taxpayers operating those
schemes, and the benefits and risks associated with the operation of any given scheme. Legally
speaking, taxpayers may organize their affairs so as to pay the minimum amount of tax permissible
under the law, a principle widely accepted in most courts far and wide afield. Tax avoidance may
not be unlawful, but it is nevertheless a serious problem seriously undermining revenue yield, fair
and efficient revenue collection, and tax morale. It is viewed as a serious problem with a serious
negative impact on societies. Attitudes towards tax avoidance and tax evasion differ from
jurisdiction to jurisdiction and may also change over time. Those attitudes may over time be shaped
by factors such as inter alia: greater levels of anti-avoidance activism; shifting mores in societies
and 'drift' in the public's view as to what is considered acceptable or otherwise; the business ethics

89
See e.g. Lymer & Oats, Taxation: Policy and Practice, 15th ed at 10, where the example is given of a “hearth tax”
introduced in England in 1662. It is said that Parliament believed that the number of fireplaces in a house served as an
indication of the taxpayer’s wealth. The tax was in turn avoided by blocking up the fireplaces. Similarly a “window tax”
was introduced in 1696. This tax was then avoided by blocking up the windows.
37 ADMINISTRATION AND ENFORCEMENT

prevalent in a given jurisdiction; socio-political and economic circumstances; whether or not the
society in question is a generally compliant one; and government initiatives and responses. A
noticeable trend in recent times has been for tax avoidance to be drawn into the court of public
opinion, usually with well-publicised 'revelations' as to the real or perceived lack of civic
responsibility of some or other high-profile individual or corporation in regards to their tax
planning. Fuelling public outrage may potentially push some governments into action, but it may
also undermine the willingness of that same public to remain compliant, a result that may ultimately
prove counter-productive. Taxation is and remains a matter of law. The primary forum for
addressing the circumvention of the operation of that law, whether in a legal or illegal manner,
should be with Parliament as representative of the wider electorate.90

1.5.1.1 Defining ‘tax avoidance’

Every taxpayer is free to make full use of every tax planning opportunity available in arranging his
affairs in such a manner as to limit his tax liability to no more but the minimum liability imposed on
him by law.91 The legal consequences of any particular tax-saving strategy depends on the law as it
is framed at the relevant time and as applied on the facts of the case. Certain tax-saving strategies
may be in contravention of the law and may attract criminal liability. Other arrangements may be
lawful but may be viewed and be treated as tax avoidance. Black’s Law Dictionary92 defines ‘tax
avoidance’ as:

“Tax avoidance. The minimization of one’s tax liability by taking advantage of legally available tax
planning opportunities. Tax avoidance may be contrasted with tax evasion which entails the
reduction of tax liability by using illegal means.”

Probably the most useful definition of ‘tax avoidance’ to be found is that provided for in a report of
the Royal Commission on the Taxation of Profits and Incomes,93 wherein it was defined in the
following terms:

“By tax avoidance....is understood some act by which a person so arranges his affairs that he is liable
to pay less tax than he would have paid but for the arrangement. Thus the situation which he brings
about is one in which he is legally in the right, except so far as some special rule may be introduced
that puts him in the wrong"

The key to tax avoidance is not the gaining of a tax advantage. A tax advantage can after all be
secured through (a) tax evasion, (b) tax avoidance, and (c) tax mitigation. The key to tax avoidance
lies in the lawful circumvention of Parliament's intent in the pursuit of a tax advantage unburdened
with the "economic consequences that Parliament intended to be suffered by any taxpayer
qualifying for such reduction in his tax liability". Cases may well arise where it was in fact
Parliament's intent for certain taxpayers to be afforded the opportunity to gain a certain tax
advantage if they chose to make use of it, but then it would not be tax avoidance but tax mitigation.
In IRC v Willoughby94 the House of Lords, per Lord Nolan (with whom Lords Mustill, Hoffmann,
Clyde and Hutton all agreed) provided for the following helpful distinction between 'tax avoidance'
and 'tax mitigation':

90
See Freedman J, 'Defining taxpayer responsibility: in support of a general anti-avoidance principle', British Tax
Review, 2004, 332-357 at .333 where it was correctly stated that: " ….. although individual tax payers and their advisers
may not relish criticism in the press for entering into tax avoidance schemes, the media should not be relied upon to set
the boundaries of behaviour: these boundaries should be supplied by the legislature."
91
Duke of Westminster v Commissioners of Inland Revenue 19 TC 490, 520.
92
Black’s Law Dictionary, 6th ed, 1460 -1461.
93
Royal Commission on the Taxation of Profits and Incomes, Taxation of profits and income: final report, Final Report
1955, Cmd 9474, chaired by Lord Radcliffe
94
[1997] 1 WLR 1071
38 ADMINISTRATION AND ENFORCEMENT

"In order to understand the line thus drawn ...it was essential to understand what was meant by "tax
avoidance" for the purposes of section 741. Tax avoidance was to be distinguished from tax mitigation.
The hall mark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the
economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such
reduction in his tax liability. The hall mark of tax mitigation, on the other hand, is that the taxpayer takes
advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the
economic consequences that Parliament intended to be suffered by those taking advantage of the option.
Where the tax payer's chosen course is seen upon examination to involve tax avoidance (as opposed to
tax mitigation), it follows that tax avoidance must be at least one of the taxpayer's purposes in adopting
that course, whether or not the taxpayer has formed the subjective motive of avoiding tax. My Lords, I
am content for my part to adopt these propositions as a generally helpful approach to the elusive concept
of "tax avoidance." One of the traditional functions of the tax system is to promote socially desirable
objectives by providing a favourable tax regime for those who pursue them. Individuals who make
provision for their retirement or for greater financial security are a familiar example of those who have
received such fiscal encouragement in various forms over the years. This, no doubt, is why the holders of
qualifying policies, even those issued by non-resident companies, were granted exemption from tax on
the benefits received. In a broad colloquial sense tax avoidance might be said to have been one of the
main purposes of those who took out such policies, because plainly freedom from tax was one of the
main attractions. But it would be absurd in the context of section 741 to describe as tax avoidance the
acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance
within the meaning of section 741 is a course of action designed to conflict with or defeat the evident
intention of Parliament."

In following with the above definitions, we can thus define tax avoidance as:

a) A course of conduct designed with the purpose of deferring or reducing a tax liability; and
b) Where that course of conduct and the revenue consequences thereof conflicts with or defeats
the intent of the legislature; and
c) Where that course of conduct whereby the tax liability is deferred or reduced does not meet
the material elements of an offence.

Judging whether or not a particular arrangement can be classed as avoidance, calls for an
interpretation of the law as it was framed at the time of the alleged avoidance, and an application of
the relevant statutory provisions on the facts of the case.95 Such an interpretation must give effect to

95
See Macniven v Westmoreland Investments Limited [2001] UKHL 6 where Lord Hoffmann inter alia said: "Tax
mitigation and tax avoidance. 62. My Lords, it has occasionally been said that the boundary of the Ramsay principle
can be defined by asking whether the taxpayer's actions constituted (acceptable) tax mitigation or (unacceptable) tax
avoidance. In Inland Revenue Commissioners v Willoughby [1997] AC 1071, 1079 Lord Nolan described the concept
of tax avoidance as "elusive". In that case, the House had to grapple with what it meant, or at any rate what its
"hallmark" was, because the statute expressly provided that certain provisions should not apply if the taxpayer could
show that he had not acted with "the purpose of avoiding liability to taxation". The same question arises on the
interpretation of the anti-avoidance provisions to which Lord Cooke of Thorndon referred in Inland Revenue
Commissioners v McGuckian [1997] 1 WLR 991, 1005. But when the statutory provisions do not contain words like
"avoidance" or "mitigation", I do not think that it helps to introduce them. The fact that steps taken for the avoidance of
tax are acceptable or unacceptable is the conclusion at which one arrives by applying the statutory language to the facts
of the case. It is not a test for deciding whether it applies or not. If I may be allowed to repeat what I said in Norglen Ltd
v Reeds Rains Prudential Ltd [1999] 2 AC 1, 13-14: "If the question is whether a given transaction is such as to attract a
statutory benefit, such as a grant or assistance like legal aid, or a statutory burden, such as income tax, I do not think
that it promotes clarity of thought to use terms like stratagem or device. The question is simply whether upon its true
construction, the statute applies to the transaction. Tax avoidance schemes are perhaps the best example. They either
work (Inland Revenue Commissioners v Duke of Westminster [1936] AC 1) or they do not (Furniss v Dawson [1984]
AC 474) If they do not work, the reason, as my noble and learned friend, Lord Steyn, pointed out in Inland Revenue
Commissioners v McGuckian [1997] 1 WLR 991, 1000, is simply that upon the true construction of the statute, the
39 ADMINISTRATION AND ENFORCEMENT

the intention of Parliament.96 Judging what that intention may be is not however always that a
straightforward task.

1.5.1.2 Impact
The tax gap can in essence be attributed to fraud, tax avoidance, and error. Although not criminal
conduct, tax avoidance does constitute a serious problem. It is contrary to the public interest and
undermines social and economic policies.97 It is in particular in the developing world where the
impact of tax avoidance and tax evasion is the most severe. In those jurisdictions, already lacking in
capacity, struggling as they often do with economic and political instability, lacking controls, and
capital flight, rampant avoidance and evasion can very fast sabotage any attempts at enhancing
capacity and creating prosperity.

For governments and revenue administrations, it is avoidance at the corporate level, and in
particular the avoidance strategies of multinational corporations, that has thus far proved the most
challenging. Whereas tax legislation is jurisdiction specific, business and international trade is not.
It is global with very few jurisdictional limitations. The international nature of trade provides
taxpayers with a degree of initiative, choice, and mobility that may place them in a position beyond
the reach of national laws and governments. Hardly a week goes by without reports in the public
media of 'aggressive' tax avoidance by certain multinational corporations. It is especially the use of
aggressive transfer-pricing practices by multinational corporations that has drawn considerable
criticism.

Tax avoidance is a major contributing factor to the ‘tax gap’, and the failure to effectively deal with
it is a contributing factor to low tax morale. It does contribute to an unfair distribution of the tax
burden.98 As is the case with tax evasion, tax avoidance does have a significant negative impact on

transaction which was designed to avoid the charge to tax actually comes within it. It is not that the statute has a
penumbral spirit which strikes down devices or stratagems designed to avoid its terms or exploit its loopholes.""
96
See e.g. Westmoreland Investments Ltd v MacNiven (HMIT) [2001] BTC 44 at paragraph 29
97
See e.g. Tax Law Review Committee, Tax Avoidance, The Institute for Fiscal Studies, 1997 at 4; In Elmiger v CIR
(1966) NZLR, the court per Woodhouse J inter alia remarked: “there has been a growing awareness by the legislative
and the courts alike that ingenious legal devices contrived to enable individual taxpayers to minimize or avoid their tax
liabilities …have social consequences which are contrary to general public interest”. Also see the Oxfam Briefing
Paper, Tax havens: Releasing the hidden billions for poverty eradication (2000), where it was inter alia said: “Tax
havens and harmful tax practices provide big business and wealthy individuals with opportunities to escape their tax
obligations. This limits the capacity of countries to raise revenue through taxation, both on their own residents and on
foreign-owned capital. This can seriously undermine the ability of governments of poor countries to make the vital
investments in social services and economic infrastructure upon which human welfare and sustainable economic
development depends.” In the New Zealand Court of Appeal case of Commissioner of Inland Revenue v BNZ
Investments Limited [2001] NZCA 184, Richardson J inter alia had the following to say about the impact of tax
avoidance: “A commentator has succinctly summarized the respects in which tax avoidance is harmful to the public
interest...First, as the government seeks to collect taxes to achieve its national welfare objectives, tax avoidance
undermines that purpose. Secondly, tax avoidance is characterized by an excessive degree of tax influence in decision-
making, which magnifies the dead-weight loss of the tax system. Thirdly, equity considerations tell against tax
avoidance. It results in an unfair redistribution of the tax burden. Excessive tax avoidance also undermines public
confidence in the tax system, and affects some people's willingness to comply with tax laws and procedures. Voluntary
compliance with tax laws is a critical element in New Zealand's taxation regime. It substantially reduces transaction
costs. But voluntary compliance is affected by perceptions of fairness and the destruction of confidence in the tax
system as a result of tax avoidance necessarily impairs this compliance.”
98
See e.g. Tax Law Review Committee Tax Avoidance The Institute for Fiscal Studies 1997 at 4, where it was inter alia
said that: “…we recognize that tax avoidance represents a particular acute distortion in taxpayers’ behavior and one that
may shift the burden of taxation between taxpayers in ways that were not intended and may be regarded as unfair.
Avoidance has an effect on the overall tax system…..Tax avoidance narrows the chosen tax base and shifts the relative
tax burden between taxpayers. It is likely to detract from the overall fairness of the tax system.” Tax avoidance abuse by
large corporations has been pointed out as a factor having a particularly serious impact on taxpayer confidence. See The
40 ADMINISTRATION AND ENFORCEMENT

the tax base as it does have as consequence a loss of a revenue for the State, contribute to income
disparities between taxpayers, increase income disparities between states, and have as consequence
an increase in the administrative cost of revenue collection and enforcement. It also contributes to
the increased complexity of tax legislation. Increased complexity of the legislation in turn leaves in
its wake increased uncertainty and added compliance costs for the taxpayer.99

As is the case with tax evasion, tax avoidance does also have a negative impact on fair competition.
Those who engage in it do gain a competitive advantage over their competitors. This advantage is
often such as to make it difficult for compliant competitors to compete. Where the 'avoiding'
enterprise is a large corporation, the small and medium sized company is left vulnerable with little
prospect of competing for a fair market-share. This may well be a contributing factor to the latter
category of taxpayers going under or starting to shun their responsibilities. Perceived unfairness can
in itself be a contributory driver motivating a taxpayer’s decision to not only avoid taxation but to
evade it. Appropriate measures against avoidance are thus critical for the protection of the existing
tax base.

Identification by the Revenue of an arrangement as a tax avoidance arrangement will be followed

by Revenue action and assessment. The success of many tax avoidance arrangements rely on the
taxpayer maintaining secrecy. In many instances there may rest on the taxpayer a legal duty to
disclose certain information relating to certain arrangements. Fear of detection and assessment may
and often do drive non-disclosure or the furnishing of false information.100

1.5.1.3 Non-fraudulent conduct

The taxpayer’s right to arrange his tax affairs in the most efficient manner, and to arrange it in such
a way as to legally escape the operation of a particular taxing provision has long been recognised.101
The following extract from the judgement of Lord Clyde in Ayrshire Pullman Motor Services &
Ritchie v Commissioners of Inland Revenue,102 has often been quoted by the courts, both in Britain
and in other parts of the Commonwealth:

“No man in this country is under the smallest obligation, moral or other, so to arrange his legal
relations to his business or to his property as to enable the Inland Revenue to put the largest possible
shovel into his stores…The Inland Revenue is not slow - and quite rightly – to take every advantage
which is open to it under the taxing statutes for the purpose of depleting the taxpayer's pocket. And
the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the
depletion of his means by the Revenue”

Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives used by
CATA Member Countries at 9
99
See Tax Law Review Committee, Tax Avoidance, The Institute for Fiscal Studies, 1997 at 4-5.
100
See Tax Law Review Committee Tax Avoidance The Institute for Fiscal Studies 1997 at 6, where it was correctly
stated that: “Avoidance can also promote concealment and the withholding of information by taxpayers. It encourages
the taxpayer not to draw attention to particular transactions that might be considered an avoidance transaction. It
discourages the candid explanation of the reasons for a transaction and can even induce the taxpayer to be economical
with the relevant facts (so that at the extreme the margin between legal tax avoidance and illegal tax evasion can be
tenuous).”
101
See Duke of Westminster v Commissioners of Inland Revenue 19 TC 490 at 520 where Lord Tomlin inter alia
remarked: “Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less
than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the
Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an
increased tax” Also see the U.S. Supreme Court case of Gregory v Helvering 293 U.S. 465 (1935) where permissible
tax avoidance was defined as steps to "reduce, avoid, minimize, or alleviate taxes through wholly legitimate means".
The same court then also continued to state: "...the legal right of a taxpayer to decrease the amount of what otherwise
would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted”.
102
14 TC 754 at 764-765.
41 ADMINISTRATION AND ENFORCEMENT

In a working paper released by the Informal Economy Research Centre,103 and referring to the
above extract from Lord Clyde’s judgment, it was correctly stated that:

“The inclusion of the words, “so far as he honestly can” bridges the 65 years between this judgment
and the Charlton case at a stroke. Clearly, from the outset, honesty was considered by the Courts to
be the determinative factor in considering tax avoidance and evasion, and the determination of
whether there has been a lack of honesty is, and has always been, a matter for the jury to decide.”

Tax avoidance is not tax evasion and vice versa. It is either this side or that side. Any course of
conduct intended to avoid taxation cannot be evasion absent those critical ingredients necessary for
evasion to be evasion, namely: (i) an actus reus matching that of an evasion or fraud offence; and
(ii) the prerequisite mens rea.104 Once those elements are present that course of conduct is no longer
'tax avoidance' but 'tax evasion'. Conduct contrary to the spirit of the legislation but not in
contravention of same can never make out the actus reus of evasion or fraud. Neither can the
subjective intent to lawfully escape the net of a taxing provision ever satisfy the mens rea required
to be proven for evasion or fraud. The mental element of 'evasion' involves more than that of
'avoidance'. There can be no 'evasion' absent subjective knowledge of his/her conduct being
unlawful.

A man's acts or failures, acts or failures which may well make out the actus reus of one or more
offences, may be the result of him inadvertently or in error crossing the line from lawful to
unlawful, but he can never inadvertently or in error possess the criminal intent to evade or defraud.
Cases may well arise where a taxpayer may honestly believe himself to be engaged in a legal tax
avoidance arrangement, but where the arrangement in question may subsequently turn out to be an
unlawful breach of the law. His honest belief will not necessarily make the conduct in question any
less unlawful, but his honest belief in the legality of the arrangement, where a court should find that
such an honest belief did in fact exist, will not support a charge of evasion or fraud.

1.5.1.4 State response

The fact that tax avoidance is not unlawful does not mean it is not to be investigated.105 It is after all
a significant threat to the tax system. It may well not be unlawful, but it is still a costly

103
Bridges et al, “Criminalising Artificial Tax Avoidance” at 18.
104
See the Canadian case of R v Klundert 2004 CanLII 21268 (ONCA) where the following distinction was drawn
between the state of mind of the 'avoider' versus the 'evader': “Fault rests in the state of mind that accompanies the
doing of the prohibited conduct. It is the culpable state of mind that distinguishes the legitimate tax planner from the
dishonest tax evader. Both may engage in the same course of conduct that can aptly be described as a deliberate attempt
to avoid payment of tax. The difference lies in their respective states of mind. Unlike the tax evader, the tax planner
does not intend to avoid the payment of a tax that he or she knows is owed under the Act, but rather intends to avoid
owing tax under the Act.”. Also see the Canadian case of R v Sauer and Rhodes 2003 BCPC 541 where Rounthwaite J
inter alia remarked (at para 25): “It is legal for a taxpayer to structure transactions so as to avoid taxes. There must
therefore be some evidence the defendants had the guilty intent to evade, rather than avoid, customs duties. I accept the
Crown submissions that depriving the government of customs revenue by failing to disclose important facts would
constitute evasion. I also accept the Crown’s statement of the necessary mental element, by analogy to fraud cases, as
knowingly under-reporting value” Also see Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW)
[1949] HCA 25, where Dixon J inter alia remarked: “To apply these principles it is necessary to consider what relevant
conduct amounts to evasion ... I think it is unwise to attempt to define the word “evasion.” ... it means more than avoid
and also more than a mere withholding of information or the mere furnishing of misleading information. ... some
blameworthy act or omission ... is contemplated. An intention to withhold information lest the commissioner should
consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is
to avoid tax would justify finding evasion"
105
See Al Fayed & Ors v Advocate General for Scotland [2004] ScotCS 112, where Lord Reed correctly observed:
“Since attempts may be made in a variety of ways to sidestep the basic tax provisions, investigation has to extend to any
debatable area where an attempt has been made to avoid or reduce liability. As in respect of tax evasion, effective
investigation of tax avoidance is essential in the public interest and to ensure fairness as between taxpayers.”
42 ADMINISTRATION AND ENFORCEMENT

circumvention of Parliament's intent. The identification of avoidance schemes has over recent
decades become a primary focus of most tax administrations. Once a scheme is identified,
amendments to the legislation, appropriate counter-measures, and sometimes also stiffer penalties
will often follow soon after. The strategies intended to deal with tax avoidance has however always
been very unclear, incoherent and fragmented. This state of affairs can in large part be attributed to
the historic failure of legislatures to provide for clear and effective legislative frameworks.

Initiatives intended to contain tax avoidance are varied and multi-layered. These may typically
involve efforts and initiatives targeted at: (a) overall capacity building; (b) better risk profiling; (c)
taxpayer education and initiatives aimed at promoting tax morality; (d) legislative monitoring and
reform; (e) dealing with tax avoidance schemes as and when identified and closing loopholes; (f)
initiatives aimed at enhancing information exchange and integration; (g) greater levels of
international cooperation and broadening the base of inter-governmental agreements and treaties
facilitating information exchange and mutual cooperation; and (h) decreasing incentives and
opportunities to avoid. The battle against tax avoidance, as is the case with tax evasion, is a
continuing one and it will be so for as long as we carry the burden of taxation. It is a problem
lawmakers, revenue administrations and the courts will always grapple with. What also makes it so
difficult to deal with is the fact that it is a global problem, as is also the case with tax evasion. It is
difficult to deal with tax avoidance at the national level where you compete on an international
playing-field which offers opportunity, mobility and anonymity and where the national team is
always on the defence.

Whereas General Anti-Avoidance Rules (GAAR's) have now become the preferred response to tax
avoidance in many jurisdictions, the authorities in the United Kingdom have until recently for the
most part relied on the courts in dealing with tax avoidance.

1.5.1.4.1 Substance over form

British courts until relatively recently tended to follow a literal approach to statutory interpretation
and this also showed in tax cases. This very much played in the hands of those who were out to
avoid taxation as avoidance schemes were difficult to successfully challenge as long as they were
defendable as being of 'legal substance'. Many tax avoidance schemes may consist of various sub-
arrangements or transactions. Looking at each of those transactions or arrangements in isolation, the
conclusions drawn may be that each of those transactions or arrangements is permissible.106 A very
different conclusion may however be arrived at where the nature and consequences of all those
transactions or arrangements are considered as it comes together, in its totality. Viewed together
they may well be recognized as no more but building blocks of the same scheme, a scheme the
objectives of which is to circumvent Parliament's intent.

It was only with the Ramsey107 case that the British courts made a clear departure from the old
formalistic approach to a position of substance over form. It signalled a new era where the
substance of transactions or a serious of transactions was being looked at in its totality.108 There was
a departure from the formalistic approach to the purposive approach of interpretation. The House of

106
See Inland Revenue Commissioners v McGuckian [1997] 1 WLR 991 where Lord Steyn inter alia said: "… those two
features - literal interpretation of tax statutes and the formalistic insistence on examining steps in a composite scheme
separately ….allowed tax avoidance schemes to flourish."
107
Ramsay v I.R.C [1982] AC 300
108
See the House of Lords decision of Barclays Mercantile Business Finance Limited (Respondents) v Mawson (Her
Majesty's Inspector of Taxes [2004] UKHL 51 where the House of Lords also offered detailed clarification on the
Ramsey case.
43 ADMINISTRATION AND ENFORCEMENT

Lords in Barclays Mercantile Business Finance Limited (Respondents) v Mawson (Her Majesty's
Inspector of Taxes109 had the following to say about this new approach:

"The essence of the new approach was to give the statutory provision a purposive construction in
order to determine the nature of the transaction to which it was intended to apply and then to decide
whether the actual transaction (which might involve considering the overall effect of a number of
elements intended to operate together) answered to the statutory description."

Where a transaction or arrangement is found to be void of real substance and as being no more but a
transaction or arrangement structured to avoid tax by circumventing Parliament's intent, the
transaction or arrangement will be treated for what it in fact is as opposed to what it purports to be.
It may thus be disregarded. This being said, the mere fact that a transaction or arrangement has no
commercial purpose does not mean it must be disregarded. The courts will give effect to the
intention of the legislature and will not disregard a transaction unless contrary to the legislature's
intent.110

Reliance on judicial principles and doctrines in ascertaining the true character of an arrangement is
not limited to the UK. This is common practice in a number of other jurisdictions. The doctrine of
economic substance for example has long been accepted and applied in a number of jurisdictions,
notably in the United States.111

1.5.1.4.2 General Anti-Avoidance Rules

General anti-avoidance provisions or General Anti-Avoidance Rules (GAAR's) are now to be found
in numerous jurisdictions, notable examples being Canada,112 the United Kingdom,113 South
Africa,114 Australia,115 and New Zealand.116 Whereas some jurisdictions like New Zealand and

109
[2004] UKHL 51
110
See e.g. Barclays Mercantile Business Finance Limited (Respondents) v Mawson (Her Majesty's Inspector of Taxes
[2004] UKHL 51 where the House of Lords inter alia said: "Cases such as these gave rise to a view that, in the
application of any taxing statute, transactions or elements of transactions which had no commercial purpose were to be
disregarded. But that is going too far. It elides the two steps which are necessary in the application of any statutory
provision: first, to decide, on a purposive construction, exactly what transaction will answer to the statutory description
and secondly, to decide whether the transaction in question does so. As Ribeiro PJ said in Collector of Stamp Revenue v
Arrowtown Assets Ltd [2003] HKCFA 46, para 35:…"[T]he driving principle in the Ramsay line of cases continues to
involve a general rule of statutory construction and an unblinkered approach to the analysis of the facts. The ultimate
question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction,
viewed realistically."… The need to avoid sweeping generalisations about disregarding transactions undertaken for the
purpose of tax avoidance was shown by MacNiven v Westmoreland Investments Ltd [2003] 1 AC 311 in which the
question was whether a payment of interest by a debtor who had borrowed the money for that purpose from the creditor
himself and which had been made solely to reduce liability to tax, was a "payment" of interest within the meaning of the
statute which entitled him to a deduction or repayment of tax. The House decided that the purpose of requiring the
interest to have been "paid" was to produce symmetry by giving a right of deduction in respect of any payment which
gave rise to a liability to tax in the hands of the recipient (or would have given rise to such a liability if the recipient had
been a taxable entity.) As the payment was accepted to have had this effect, it answered the statutory description
notwithstanding the circular nature of the payment and its tax avoidance purpose."
111
The 'substance over form' and 'business purpose' doctrines were already cemented into US law almost a century past
in Gregory v Helvering 293 U.S 465 (1935). Also see CSARS v NWK Ltd 2011 (2) SA 67 (SCA) (South Africa)
112
See e.g. section 245 of the Income Tax Act (R.S.C. 1985). Section 245(3) defines an 'avoidance transaction' as: "245
(3) An avoidance transaction means any transaction - (a) that, but for this section, would result, directly or indirectly, in
a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for
bona fide purposes other than to obtain the tax benefit; or (b) that is part of a series of transactions, which series, but for
this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to
have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit.
113
See Part 5 and Schedule 43 of the Finance Act 2013
114
See e.g. sections 80A-80L of the Income Tax Act 58 of 1962
115
See e.g. Part IVA of the Income Tax Assessment Act 1936
116
See e.g. sections BG1 and GA1 of the Income Tax Act 2007
44 ADMINISTRATION AND ENFORCEMENT

South Africa have had GAARs for many decades now, the introduction of GAARs into UK law is a
relatively recent development. These provisions specifically target those transactions or
arrangements structured in such a way as to have the effect of defeating the intention of the
legislature.117 Although judicial doctrines may be more flexible than GAAR's, they do not offer the
degree of legal certainty so important for both revenue administrators and taxpayers. This is not to
say that GAAR's do not pose their own unique challenges. The framing of GAARs and how they
are interpreted and applied is all-important as the framing of a given General Anti-Avoidance Rule
may be such as to cover transactions or arrangements that were not in fact intended to be so
covered.118 Despite the best efforts of legislatures to draft and word these types of provisions in a
clear and unambiguous manner, differences of opinion as to the correct interpretation of those
provisions can be counted on to arise. There will always be a certain degree of uncertainty.

1.5.1.4.3 Statutory disclosure provisions

The legislatures of a number of jurisdictions have in recent times increasingly turned towards the
enactment of provisions specially tailored to assist in the early identification of avoidance schemes.
These provisions may typically provide frameworks: (a) setting out when certain arrangements will
be deemed to be reportable arrangements; (b) placing duties on certain categories of persons to
disclose certain reportable arrangements; (c) setting out the types of information required to be
submitted in the event of an arrangement being a reportable arrangement; (d) and the penalties that
may be levied in the event of failure to disclose such arrangements and/or information as and when
called for.119 Although these penalties are administrative in nature, they are intended as a measure
to deter non-disclosure. These disclosure regimes are intended as a measure to place the Revenue in
a position to identify avoidance and to take appropriate action.

1.5.1.5 Common pitfalls

1.5.1.5.1 ‘Artificial’ transactions or arrangements
Many tax avoidance schemes show a considerable degree of planning, and are often planned and
implemented by the most creative and gifted of lawyers and accountants the professions have to
offer. Many of the arrangements and schemes so set up, may be partly or wholly void of any real
economic substance, often no more but an artificial arrangement intended to escape the tax net. The
fact that such a scheme, arrangement, or transaction lacks commercial substance, does not however
necessarily translate into an absence of legal substance. Such an arrangement may still squarely fall
within the letter of the law. The question is often asked as to when it can be said that a transaction
or scheme will be so artificial as to be fraudulent. Probably the shortest route to answering that
question is to be found by way of a backward glance into the distant past, looking back at the basics
of 'fraud' as it developed from Roman times. All frauds, regardless species of fraud, involve some or
other form of misrepresentation, either in the form of commissio or ommissio.

An arrangement being 'artificial' does not equate to it amounting to a misrepresentation of the truth.
'Artificial' may mean different things depending on context. The fact that an act or failure is
'artificial' does not say much as to its legality, and it says even less as to the state of mind of the

117
See the New Zealand case of Commissioner of Inland Revenue v Auckland Harbour Board [2001] 3 NZLR 289
where Lord Hoffman inter alia explained GAARs as being aimed "... at transactions which in commercial terms fall
within the charge to tax but have been, intentionally or otherwise, structured in such a way that on a purely juristic
analysis they do not. This is what is meant by defeating the intention and application of the statute."
118
See the New Zealand case of CIR v Gerard [1974] NZLR 280 where the Court of Appeal per McCarthy J inter alia
had the following to say about General Anti-Avoidance Rules: "It cannot be given a literal interpretation, for that
would, the Commissioner has always agreed, result in the avoidance of transactions which were obviously not aimed at
by the section. So the Courts have had to place glosses on the statutory language in order that the bounds might be held
reasonably fairly between the Inland Revenue authorities and taxpayers."
119
This is now also the case in the UK where the Finance Act 2004 and the Finance Act 2006 introduced rules relating
to the disclosure of certain tax avoidance schemes by the users and promoters of those schemes.
45 ADMINISTRATION AND ENFORCEMENT

actor as at the time when he so acted or failed to act. 'Fraudulent' involves more than just an
unlawful act or failure. It implies the presence of both a conduct and mental element. For conduct to
be fraudulent, that conduct must be tainted with dishonesty. The prerequisite mens rea must co-exist
with the actus reus. Legally speaking, that which makes out evasion or fraud is a matter of legal
interpretation and application of law on the facts of the case. Any investigation into the true
character of any 'artificial' arrangement should really involve finding answers to the following
questions:

(a) Does any of the acts or failures employed in the furtherance of that arrangement, either
when viewed in isolation and/or when viewed together in any combination, make out the
actus reus of any crime - under statute or common law ?
(b) Assuming the answer to the previous question is in the affirmative, are any one or more of
those crimes evasion or fraud offences ?
(c) Assuming the answer to the last question is in the affirmative, then the next question is
whether or not the actors as at the time of the actus reus had the prerequisite mens rea
required to be present for conviction under those fraud or evasion offences.

An 'artificial' scheme, arrangement, or transaction cannot be said to be 'evasion' or to be 'fraudulent'

unless the arrangement or parts thereof match the actus reus of an evasion or fraud offence, under
statute or common law, and unless the prerequisite mens rea was present as at the time of the actus
reus. Unlawful misrepresentation, either in the form of commissio or ommissio will in most
common law jurisdictions make out the actus reus of some or other fraud or evasion offence. Where
that person making that misrepresentation, at the time when he makes that misrepresentation,
appreciates his conduct to be geared towards the creation of a "facade of reality quite different from
the truth",120 then he is well past the point of honest conduct. In most common law countries, as is
the case in England, any arrangement which, judged on the facts of the case: (a) has the effect of
misrepresenting the truth; and (b) where that misrepresentation is unlawful; and (c) where that
unlawful misrepresentation results in the evasion of taxes; and (d) where that unlawful
misrepresentation is accompanied with the intent to evade or to defraud, will amount to evasion or
fraud. In most common law jurisdictions are to be found statutory and/or common law offences
making such conduct punishable as evasion or fraud.121 Under some of those offences actual
prejudice is not a material element. Some of those offences will be discussed in subsequent
chapters.

There are many taxpayers out there engaging in schemes that are on the facts of the case in fact
fraudulent, but all too often revenue inspectors fail to recognise those fraudulent schemes for what
they in fact are, in error often identifying and handling those arrangements as if no more but tax
avoidance. A sizeable chunk of the cases dealt with as 'tax avoidance' schemes are in fact fraudulent
but are never escalated for criminal investigation. This is particularly common in the area of transfer
pricing. The reality is that many American, British, Swiss, Belgian, Dutch, Swedish, and French
multinational corporations have been stripping Africa, Latin America and certain parts of the former
Soviet Union of its wealth for decades. Much of this has been going on through the use of abusive
transfer pricing structuring and pricing manipulation. In many of those cases the structuring
practices and methods of manipulation employed amounts to nothing less but false
misrepresentation and shams. Many of those arrangements can and should be the subject of
aggressive investigation and prosecution. The reality however is that prosecutions are far and
between. Even where there may be clear and compelling evidence sufficiently strong enough to

120
Borrowed from the Canadian case of R v Q.I.X. Facilities Corp 91 DTC 5440 (B.C. Prov. Ct.) where Craig J inter
alia said that strategies to minimize taxes payable " … would not equate to a wilful attempt to evade tax unless the
element of deceit is present in the creation of a facade of reality quite different from the truth."
121
E.g. in Britain the offences of 'cheating' and fraudulent evasion under section 106A of the Taxes Management Act
46 ADMINISTRATION AND ENFORCEMENT

convince a prosecutor of there being a prima facie case of evasion or fraudulent misrepresentation,
Revenue audit functions seldom if ever seem capable of recognising those arrangements to be
fraudulent and they seldom if ever refer those cases for criminal investigation. They tend to deal
with those cases as tax avoidance and raise assessments. Even on that front they are not always
successful considering the often complex nature of those matters.

In the world of evasion or fraud the line between 'artificial but legal' and 'artificial and fraudulent' is
not one that can be overstepped unawares or in error, but it often is a small step for an over-
confident man taking a gamble. He may well always appreciate the fact of him crossing the line
from the lawful to the criminal, but all too often he will underestimate the likelihood of detection
and/or the potential consequences of his actions. There are however also cases where offenders
often do not embark on a journey with the view to defraud the Revenue, but rather lose their bearing
somewhere along that journey. This then is often the case with conspiracies where individual actors
in the conspiracy, usually the weaker or subservient ones, find themselves pulled along,
appreciating or suspecting as they do that they are venturing into the devil's playground, but for any
number of reasons (e.g. fear, misplaced loyalty, not wanting to come over as 'cowardly' etc)
nevertheless going along with it. There may also be situations where certain practices or the
anatomy of certain schemes commonly employed, may on a strict interpretation and application of
legal theory on the facts of the case, be clearly fraudulent, but the employment of those practices or
schemes may be so endemic and the response from the authorities often so non-existent and/or
inconsistent, as to leave those practicing those schemes with little concern as to the likelihood of
detection or criminal prosecution. Then there are also those cases where the offenders did not
initially set out on implementing and operating a fraudulent operation, but rather by chance
stumbled across the opportunity. They may quite well even have overstepped the line unawares and
innocently. Once, however, they do appreciate an arrangement to be one that is unlawful, then it
should be ceased and the appropriate corrective action should follow. The innocence is lost from
that point where they wilfully continue the operation with knowledge of the operation being an
unlawful one. For the outside observer this may seem an easy and straightforward enough choice,
but in practice it is anything but. One must remember that such a scheme might have been in
operation for years and 'corrective action' will usually translate into assessments and large tax-bills,
to be paid from money the taxpayer may quite well not have available. Shareholders may demand
answers and where mistakes were made reputations and employment may be at stake. These are
strong incentives for a taxpayer and/or advisors whom erred to just do nothing and allow the
operation to continue.

This all being said, a tax avoidance scheme can be as 'aggressive' and 'artificial' as they come, but
absent an actus reus matching that of a recognised fraud or evasion offence, there is no legal basis
for those operating that scheme to be challenged with a charge of evasion or fraud. The scheme may
rightly or wrongly be viewed as contrary to the legislature's intent, as immoral, or as unethical, but
immoral or unethical does not equate to unlawful. A scheme being 'unethical by the standard of
ordinary and decent people' does not equate to it being 'fraudulent by the standard of ordinary and
decent people'.

1.5.1.5.2 Confusing legality of avoidance with subsequent conduct

It is not uncommon to find articles in the media from commentators accusing Parliament and the
Revenue of 'criminalizing tax avoidance'. It is true to say that initiatives intended to deal with tax
avoidance, and the manner in which those initiatives are communicated through to taxpayers and
their advisors are not always as clear as it should be, but there are also many instances where these
views can be attributed to misunderstandings and sometimes lacking appreciation of certain
distinctions and/or differences in very different factual settings. Two situations that do come to
mind are:
47 ADMINISTRATION AND ENFORCEMENT

(a) those instances where a taxpayer may operate a scheme that may be coloured in as a tax
avoidance scheme but where the scheme is in fact structured, intended, and operated as an
unlawful operation or scheme used as a vehicle to defraud; and

(b) those instances where the taxpayer operates a lawful tax avoidance scheme but then: (i)
fraudulently fails to disclose the arrangement where disclosure is called for; and/or (ii)
where he makes false representations in an attempt to conceal its existence or nature.

As for the first situation: It is tax evasion and should rightly be dealt with as such. All too often
however statements by representatives of revenue administrations and/or the prosecuting authorities
may not be clear enough, and/or may be incorrectly quoted. Before long statements referring to 'tax
evasion' is quoted as 'tax avoidance'. Reporters will often rely on statements from and on the
version of events as communicated through by the taxpayer and/or his legal representatives (who do
often attempt to sow uncertainty - particularly common in those jurisdictions where you have trial
by jury). A press report does not reflect the charges on an indictment and is not representative of the
weight of evidence in a prosecution docket. In short, much of the criticism out there is based on
reports and statements not reflective of the factual realities.

What we have in the second situation is the failure to recognise or appreciate context. It was earlier
explained that legislatures increasingly enact disclosure provisions specially tailored to assist in the
early detection of certain tax avoidance schemes. Where those provisions call for disclosure, there
must be disclosure, by law. Those provisions serve a clear and important purpose: they are intended
as a measure to place the Revenue in a position to identify avoidance and to take appropriate action.
Planning, implementing, and operating a legal tax avoidance arrangement may be lawful, as it has
always been, but to unlawfully and intentionally conceal such an arrangement in contravention of a
legal duty to disclose is a very different matter altogether. In England and Wales, the United States,
Australia, and quite a few other jurisdictions, to intentionally withhold information contrary to law
and where that unlawful withholding is accompanied with the intent to evade or defraud, is no less
but fraudulent. It may be common revenue practice in many jurisdictions to limit sanctions for such
non-disclosures to no more but administrative penalties, but doing so is no more but an expedient
practice. It is and remains a fraudulent non-disclosure and as such can be prosecuted under various
common law and/or statutory fraud or evasion offences. The taxpayer and/or advisor intent on
concealing certain reportable arrangements, in the face of a legal duty to do so, is tempting fate at
his own peril. Where he finds his name on a warrant for his arrest, then it is not a case of 'tax
avoidance having been criminalized'. It is the fraudulent non-disclosure relating to that (legal)
reportable arrangement that is dealt with as a criminal matter, which it is.

1.5.1.5.3 Tax evasion dealt with as avoidance

There are many anti-avoidance provisions provided for in the legislation of many jurisdictions
which are framed sufficiently wide to cover a wide spectrum of schemes and/or arrangements that
may have the effect of avoiding tax, but without drawing a distinction between legal tax avoidance
and avoidance by means that are in fact fraudulent. This means that arrangements or schemes that
are in fact fraudulent may in practice be dealt with under an anti-avoidance provision in a manner
that may be no different from a legal tax avoidance scheme. This does not in any way mean the
fraudulent scheme or arrangement was never or is no longer fraudulent. Fraud is fraud and the
crime is committed once all the prerequisite material elements of the relevant fraud or evasion
offence are satisfied. Most revenue officers have a relatively limited knowledge of criminal law.
Where a tax evasion scheme is indeed detected, the officers handling the matter may mistakenly
view and treat it as no more but tax avoidance not realizing that what they have unearthed is in fact
a fraud. Where diamond company YBX fraudulently grade their high-grade diamonds as low-grade
diamonds, with subsequent under-invoicing and under-declaration, then the fact that the officers
who handled the matter viewed and handled the matter as a transfer pricing avoidance scheme with
48 ADMINISTRATION AND ENFORCEMENT

no more but an adjustment of the consideration, by no means make the fraudulent grading and
under-declaration anything less but fraudulent. It will be a mistake for taxpayers to interpret the use
of avoidance provisions and civil process in addressing arrangements which are in essence
fraudulent, as a confirmation of the scheme, arrangement, or transaction being mere avoidance as
opposed to fraudulent conduct. The fact that Revenue inspectors responsible for earlier audits or
inspections in error described and treated a case of tax evasion as tax avoidance does not change its
true character and is of no help to the tax evader should the authorities subsequently decide to
proceed with prosecution.

1.5.2 ‘Tax evasion’

Tax avoidance may be contrary to the intention of the legislature, but circumventing legislative
intent certainly does not in itself, and thankfully so, equate to criminal conduct. Tax avoidance is
not criminal, tax evasion is. It either falls on this side or that side of the line.122 The notion of 'grey
areas' between 'tax avoidance' and 'tax evasion' is really a misnomer. It will be correct to say that in
practice there may indeed sometimes be 'grey areas' between lawful and unlawful acts or lawful and
unlawful failures, but there can be no grey area between tax avoidance and tax evasion. There are
key differences between the two concepts which make them more readily distinguishable from one
another than say murder and a lawful killing or a rape and consensual sex. For a finding of 'tax
evasion', there must be proof, beyond reasonable doubt, that the taxpayer's conduct, his acts and/or
failures, was unlawful in that it matched the unlawful conduct element (the actus reus) of an
evasion or fraud offence. Additionally, for a finding of 'tax evasion', there must be proof, again
beyond reasonable doubt, that the taxpayer's actus reus was accompanied with the prerequisite
mental element, the mens rea. With tax avoidance there is no criminal act or criminal failure and
there is no criminal intent.

What is expected from the taxpayer is to comply with the letter of the law. Any arrangement,
scheme, or taxpayer behaviour can only be classed as criminal where it satisfies all the material
elements of a criminal offence, under statute or common law. The tax legislation of most
jurisdictions makes punishable as offences a wide range of acts or failures. Most of those offences
do not however amount to evasion. Most of those offences are intended to ensure general
compliance and to protect the revenue administration. Offences making punishable conduct as 'tax
evasion' tend to be a very select cluster of dishonesty offences and are generally viewed as the most
serious provided for in the tax legislation.

1.5.2.1 Definition
Most will recognise the word 'evade', regardless the context within which it is used, to be a
reference to deliberate conduct. Just like a downed aviator cannot unknowingly evade capture, or a
smuggler cannot unknowingly evade an import restriction, a taxpayer cannot unknowingly attempt
to evade paying less than that what the law requires. There is a mental element, a mental state of
mind which in the case of tax evasion, as is the case with other crimes of intent such as murder,
rape, robbery or theft, must coexist with the prohibited actus reus. The Concise “Standard”
Dictionary Of the English Language123 defines 'evade' as: “To avoid by artifice; elude”. The word
‘evade’ as used within the context of the revenue laws, has long been held to be a reference to the
intentional and unlawful evasion of taxation. Black’s Law Dictionary124 defines ‘tax evasion’ as
follows: “Tax evasion. Illegally paying less in taxes than the law permits; committing fraud in filing

122
As per Justice Oliver Wendell Holmes in the US case of Bullen v Wisconsin 240 U.S. 625, 630-631(1916) where he
inter alia said: " … when the law draws a line, the case is on one side of it, or the other .... When an act is condemned
as an evasion, what is meant is that it is on the wrong side of the line indicated by the policy if not by the mere letter of
the law."
123
Fernald, The Concise “Standard” Dictionary Of the English Language at 189
124
Black’s Law Dictionary, 6th ed, 1460 -1461
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or paying taxes. An example includes reporting less income than actually received or deducting
fictitious expenses. Such act is a crime….”

What will or will not at any given point in time constitute tax evasion is a matter of law depending
on statutory framing. Definitions of 'tax evasion' are jurisdiction-specific. What may be 'evasion' in
one jurisdiction may not be 'evasion' in another. What may be 'evasion' under one statute may not be
'evasion' under another. Conduct that may be covered under one evasion offence will not
necessarily always be covered under another evasion offence. The evasion offence provided for in
one statute may be considerably wider or narrower than that provided for in another statute.
Different statutory offences may require proof of different material elements. What may make out
evasion in one jurisdiction one year may not be evasion in that same jurisdiction one or ten years
later and vice versa. The same taxpayer behaviour that may be permissible one year may as a result
of changes in underlying taxing provisions be unlawful just the year after. When looking at the
framing of tax evasion offences found in the statutes of England, Australia, New Zealand, and
Canada, we can identify the following common requirements required to be present for conviction
under the prominent evasion offences found in those jurisdictions:125

(a) an act or failure in breach of the tax laws as they were framed at the time when the act was
committed or as at the time when the taxpayer failed to act. This is the physical element
(actus reus); and

(b) at the time when the taxpayer so acted or failed to act, he did so with an appreciation of that
act or failure being unlawful; and

(c) at the time when the taxpayer so unlawfully acted or failed to act, he did so with the intent to
evade, or with an appreciation of the evasion of taxes being a possible consequence of that
unlawful act or failure;

The taxpayer's blameworthy conduct, his actus reus, can consist of either acts, failures, or a
combination thereof. In practice, 'tax evasion' can consist of escaping the tax net in an unlawful
manner (e.g. trading in the underground economy and failing to register for and declare tax), or the
unlawful reduction of taxation (e.g. filing false returns with income falsely understated), or the
unlawful deferral of tax. In proving unlawfulness it is for the prosecution to prove, beyond
reasonable doubt, that the acts or failures of the defendant was in contravention of the law, and that
there was no legal justification for his/her conduct. Needless to say, proving conduct to have been in
contravention of the law, calls for proof, beyond reasonable doubt, of the state of the law as it was
at the time of the alleged offence. Criminal liability on charges of evasion however relies on more
than just an unlawful act or failure.126 An unlawful act or failure in itself absent the prerequisite
mens rea does not make out tax evasion. There cannot be tax evasion in the absence of knowledge

125
In the United States the evasion offence as provided for under 26 U.S.C. § 7201 share the same characteristics with
the exception that the prosecution always need prove some or other affirmative act.
126
See Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296 where Dixon J
inter alia said: "To apply these principles it is necessary to consider what relevant conduct amounts to evasion and
whether the Board correctly applied their minds to the question of evasion. I think it is unwise to attempt to define the
word “evasion.” The context of s. 210 (2) shows that it means more than avoid and also more than a mere withholding
of information or the mere furnishing of misleading information. It is probably safe to say that some blameworthy act or
omission on the part of the taxpayer or those for whom he is responsible is contemplated. An intention to withhold
information lest the commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to
concede, is conduct which if the result is to avoid tax would justify finding evasion. In the present case the Board
concluded that the appellant intentionally omitted the income from the return and that there was no credible explanation
before them why he did so. They thought that the conduct of the taxpayer answered the description of an avoidance of
tax by evasion."
50 ADMINISTRATION AND ENFORCEMENT

of unlawfulness. This is a subjective state of mind. A taxpayer, who unlawfully but unwittingly
escapes a tax liability will escape criminal liability on any charge alleging fraud or evasion. Not one
of the true evasion offences in use in the UK, USA, Australia, Canada or New Zealand makes
punishable as evasion: (a) involuntary involvement in the prohibited course of conduct; or (b)
involvement in the prohibited course of conduct absent mens rea in the form of at least 'knowledge'
or a finding of 'wilful blindness'. With most offences however the mens rea required to be proven is
that of 'intent'. This all being said, the intent to evade but absent unlawful conduct will not make out
tax evasion either. The unlawful conduct and the prerequisite mens rea must co-exist.

1.5.2.2 Fraudulent conduct

Tax evasion offences are targeted against one and only one category of offender, namely those who
unlawfully and wilfully embark on a course of conduct intended to evade paying that which the
government is entitled to, or intended to unlawfully obtain public funds he/she is not legally entitled
to, or those who assist them in doing so. The consequences of any successful attempt at evading
such a liability, or the consequences of any successful attempt to obtain such public funds he/she is
not legally entitled to, can never be anything other but the Revenue being defrauded. Evasion
offences, whether revenue or customs related, are then targeted also only against those who act
wilfully with knowledge of the illegality of the conduct they engage in. The difference between the
making of a false statement and the making of a truthful statement is one of choice. So is the
difference between the filing of a fraudulent return and the filing of what the taxpayer believes to be
a truthful return. It is not something that occurs unnoticed, by accident, or by being careless.
Fraudulent misrepresentation, which is what it is, is a course of choice as is lying to your spouse or
putting down a suffering pet. Throughout the common law world, the courts consistently view tax
evasion as fraudulent conduct. The interchangeable use of ‘tax evasion’, ‘fraud’ and ‘tax fraud’ is
common. Tax evasion is for all practical purposes a species of fraud.127 In Britain, the common law
crime of 'cheating', an old fraud offence in its purest of forms, was in fact reserved for tax evasion
and tax evasion only. What all tax evasion and all fraud offences share is the dishonest intent, the
intent to defraud.

'Cheating' under common law

In English law is still to be found the old common-law crime of ‘cheating’. 'Cheating' is basically
common law fraud. Hawkins in his A Treatise of the Pleas of the Crown provided the following
definition of 'cheating': “… deceitful practices, in defrauding or endeavouring to defraud another of

127
The Fraud Advisory Panel (UK) in its guidance Fraud Bill: Guidance for Industry, April 2006, at .4 correctly noted:
"Incidences of tax evasion, whilst generally and properly regarded as a species of fraud, are prosecuted as offences
outside what might be called the mainstream fraud offences examined by the Law Commission." This also seems to be
the view held by the Canadian courts. See the Canadian case of R v Cardoso (1999) 139 CCC (3d) 430 (Quebec Court
of Appeal) where it was inter alia said: “The gist of the offence of tax evasion is the intentional commission of a fraud
upon the public purse. That fraud need not involve artifice or cunning, although the presence of artifice or cunning will
make it easier for a court to draw in inference of guilty intent.” See the Australian case of Lyons v Smart [1908] HCA
34, where Isaacs J quoted the following from the oft-quoted English case of Attorney-General v Radloff [1854] EngR
636: “In Attorney-General v Radloff ... I cannot distinguish, either in morals or law, between cheating the State and
cheating a private individual. I cannot distinguish between endeavouring by concealment and fraud to prevent that from
being paid which is necessary for the public service, and by similar concealment and fraud depriving one of her
Majesty's subjects of that which is his lawful right and due.” See Balter, Tax Fraud and Evasion, 5th ed at 2-3 where it
is inter alia said: “So we, too, shall consider fraud and evasion as synonymous concepts …both terms connote … (2)
An accompanying state of mind which is variously described as being “evil”, “in bad faith”, “deliberate and not
accidental”, or “wilful.” See Stanfield v Minister of Correctional Services and Others [2003] ZAWCHC 46 where Van
Zyl J stated: “The applicant … was convicted of fraud, in the form of tax evasion”. Also see S v Van der Walt 1989 (2)
SA 212 (W), National Director of Public Prosecutions v RO Cook Properties (Pty) Ltd [2004] ZASCA 36; S v Van
Rooyen 2000 (1) SACR 372 (NC). In South Africa the common law crime of fraud, an offence very similar to the
English crime of 'cheating', is commonly used in prosecuting instances of tax evasion. As is the case with 'cheating', the
offence is framed widely and it is difficult to contemplate a factual setting involving the evasion of taxation which will
not be covered by the crime of fraud.
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his own right by means of some artful device, contrary to the plain rules of common honesty”.128
The following explanation from R v Less129 probably provides for a more useful definition:

“Cheating can include any form of fraudulent conduct which results in diverting money from the
Revenue and in depriving the Revenue of the money to which it is entitled. It has, of course, to be
fraudulent conduct. That is to say, deliberate conduct by the defendant to prejudice, or take the risk of
prejudicing, the Revenue’s right to the tax in question, knowing that he has no right to do so"

The offence of cheating is today reserved for exclusive use in dealing with frauds committed
against the public revenue.130 Despite being the subject of much criticism from many lawyers and
scholars, Parliament has for decades opted to retain the offence, an offence which has proven to be
effective and robust. In Britain, offences intended to deal with tax evasion are consistently framed
in such a way as to leave little doubt as to the nature of the conduct targeted. They are consistently
targeted against fraudulent conduct. A recent addition to those offences is that of 'fraudulent evasion
of income tax' as provided for under section 106A of the Taxes Management Act 1970.131 The
section reads as follows:

"106A Offence of fraudulent evasion of income tax

(1) A person commits an offence if that person is knowingly concerned in the fraudulent evasion of
income tax by that or any other person.
(2) A person guilty of an offence under this section is liable - (a) on summary conviction, to
imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or
both, or (b) on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine,
or both"

From a close reading of and comparison between these two offences ('cheating the public revenue'
and 'fraudulent evasion' under section 106A) it should be clear that these offences cannot, not even
on the widest possible interpretation or application, cover conduct that can be classed as non-
fraudulent.

1.5.2.3 White-collar crime

It is almost six decades since Sutherland first conned the term 'white collar crime'.132 Despite some
criticism of this term, and it must be added some of Sutherland's observations and theories, many of
Sutherland's observations are just as relevant and valid today as they were then. The term ‘white-
collar crime’ has grown synonymous with what is today more generally referred to as 'financial
crime'. Much criticism can be found on how white-collar crime and white-collar criminals are dealt
with, and much of it with considerable merit. The reality is that financial crime is a cancer in society

128
Hawkins W, A Treatise of the Pleas of the Crown, Vol 1, 8th ed (1795) by J Curwood, 1 PC 318
129
R v Less [1993] (Times: 30 March 1993 CA). As quoted in Arlidge & Parry, Arlidge & Parry on Fraud, 2nd ed at
352 and HM Revenue & Customs 2010-11 Accounts: tax disputes, Sixty-first Report of Session 2010-12, House of
Commons Committee of Public Accounts at 91
130
See section 32(1) of the Theft Act 1968 in terms of which the common-law offence of ‘cheating’ was abolished (as
from the commencement of the Act), “except as regards offences relating to the public revenue.”
131
Section 106A started life as section 144 of the Finance Act 2000 but was subsequently transferred to the Taxes
Management Act 1970 as section 106A.
132
See Coleman & Moynihan, Understanding crime data, Haunted by the dark figure at .9: “Sutherland though he saw
a dark figure which was very different from previously recorded sightings. The figure wore a white collar, and was to
be seen from time to time in the offices and workplaces of the nation, including the buildings of the most respected
corporations. Sutherland was drawing attention to the white-collar criminal and to white collar crime: ‘crimes
committed by persons of respectability and high social status in the course of their occupations’ (Sutherland and
Cressey, 1960:40). He claimed that not only were these very widespread, but a measure of them is not to be found in
police recorded data … Sutherland, however, clearly believed that these white-collar criminal were the most damaging
of all in terms of their effects. He substantiated his assertions by study of law violations of 70 of the largest corporations
in the USA, concluding that 90 per cent of these were ‘habitual white-collar criminals’.”
52 ADMINISTRATION AND ENFORCEMENT

the impact of which by far surpasses that of most ‘common’ crimes like robbery or theft.133 Morally
speaking the white-collar criminal is also no better than the common thief or bank-robber. Whether
you rob a man with a gun or a fountain pen - it is all the same. Despite its corrosive and damaging
impact, white-collar crime and those who commit it have historically been treated with considerable
leniency. Tax fraud as a species of fraud is also a class of ‘white-collar crime’ or ‘financial crime’.
It will however be wrong to assume that it is only the ‘white-collar’ worker who commits a tax
fraud. History has shown tax frauds to be committed by all categories of people from all classes of
society. In the case of tax frauds, the actual or potential prejudice suffered will always relate to
some or other duties, levies or taxes. Not all frauds committed against the Revenue will necessarily
be ‘tax frauds’. A good example in point will be frauds committed with the view to prevent customs
from carrying out certain regulatory functions and controls.134

1.5.2.4 Crime of dishonesty

In English law, fraud has long been viewed as dishonest conduct.135 Tax fraud and smuggling, being
the species of fraud that they are, are in essence crimes of dishonesty often referred to as such by
the courts.136 In English law there does not seem to be any clear distinction between 'dishonestly'
and 'fraudulently'.137 What is clear however is that fraudulent conduct can never be but dishonest.
'Fraudulent' conduct is by implication dishonest conduct.138 In the New Zealand case of The Queen
v Flyger139 (a case where the matter under consideration involved a tax fraud), the court (per
Goddard J quoting from the judgment of Rea J in the court a quo), inter alia explained 'dishonesty'
in the following terms:

133
See Burke, An Introduction to Criminological Theory at 177 where it is inter alia said: “In short, critical
criminologists argue that working-class crime is insignificant when compared to the ‘crimes of the powerful’ that
largely go unpunished. Price-fixing, tax evasion, white-collar crime, environmental pollution ... they contend, cost
society far more than, for example, youth offending, a regular source of societal condemnation. Moreover, the powerful
perpetrators of these offences stand to gain far more material advantage from their misdemeanours. Nevertheless, fewer
resources are used to combat white-collar crime and some questionable activities not even criminalised, but are instead
portrayed as examples of wealth-creation and enterprise. In addition, offenders in this category can hire accountants and
lawyers to protect them and have powerful friends to lobby on their behalf.”
134
See the English case of Welham v DPP [1961] AC 103 where it was said that a fraud can also be committed by
deceiving a public officer into failing to perform his/her duty.
135
See e.g. Scott v Metropolitan Police Commissioner [1975] AC 819 where Viscount Dilhorne explained "to defraud"
as: "'to defraud' ordinarily means … to deprive a person dishonestly of something which is his or of something to which
he is or would or might but for the perpetration of the fraud be entitled.". Also see Smith & Hogan - Criminal Law at
127-128 where it was inter alia said: “…It seems that D has an intent to defraud if (i) he intends to do acts which, in the
circumstances known to him, would, if carried out, defraud P and (ii) he knows that ordinary people would regard what
he proposes to do as dishonest.”
136
See e.g R v Warren [1996] EWCA Crim 1791 where the advantage secured by smuggling was described by the court
as a “dishonest” one. In R v Mann [1998] EWCA Crim 317, the court had the following to say about the appellant’s
smuggling: “dishonesty was at the root of the defendant’s conduct”. Also see the New Zealand case of The Queen v
Flyger [2001] NZCA 361 and the South African cases of S v Van der Walt 1989 (2) SA 212 (W) and Estate Agency
Affairs Board v Mclaggan and Another [2005] ZASCA 34. In Estate Agency Affairs Board v Mclaggan and Another the
Court per Lewis J inter alia said: “However, to try to put a gloss on an old and familiar English word which is in
everyday use is often likely to complicate rather than to clarify. ‘Dishonest’ is normally used to describe an act where
there has been some intent to deceive or cheat … Were the offences under the Income Tax Act and the VAT Act
intrinsically dishonest ? In my view they were … The company deducted tax from salaries for the purpose of paying the
fiscus. It used the money for entirely different purposes. That entails deception of employees …. And it is dishonest in
so far as the fiscus is concerned. If an employer deducts tax from employees, and uses it for any purpose other than
paying the fiscus, that is dishonest. It is deliberate misuse of funds. It is conduct that would be regarded by the public in
general as lacking in probity. Equally, the levying and receipt of VAT for any other purpose other than paying it to the
fiscus in accordance with the statute is inherently dishonest. I consider therefore that dishonesty is also an element of
the offences in respect of which Mclaggan was convicted under the VAT Act.”
137
See Welham v DPP [161] AC 103
138
See Smith & Hogan - Criminal Law at 127-128 where it is inter alia said: “The word “fraudulently” and the phrase
“with intent to defraud” both imply dishonesty .. "
139
The Queen v Flyger [2001] NZCA 361
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“You act dishonestly if you act in breach of your legal obligations and if you act without an honest
belief that you are entitled to act in that way.”

In England the 'Ghosh-test'140 has now long been entrenched as the standard for assessing
dishonesty. This then is also the test to be applied in assessing dishonesty in prosecutions under the
Theft Act 1968, the fraud offence as provided for under section 1 of the Fraud Act 2006, and the
crime of 'cheating'. The test in essence involves a determination whether: (i) according to the
“ordinary standards of reasonable and honest people what was done was dishonest”; and (ii)
whether the defendant “realised that what he was doing was by those standards dishonest”. The first
part of the test is an objective test whereas the second part involves an assessment as to the
defendant’s subjective state of mind.141

Where used in a penal provision in a statute, the words 'dishonest' or 'dishonestly' will usually, in
the absence of anything suggesting otherwise, strongly suggest the mens rea of the offender to
involve what most lawyers in most jurisdictions today will recognise as criminal intent.

1.5.3 Motivating factors

As with other types of fraud, opportunity and motivation stands central in explaining why the crime
is committed.142 Any investigation into the motive of the offender must have as its starting point the
fact of regulation in itself. Research has shown that new regulation may contribute to fraud,
corruption and the illegal trade. A 2003 report to the EU Crime Proofing Steering Group143
identified the following risk factors:

(a) Regulation that introduces any new fee or obligation may produce behaviour by those
regulated intended to avoid or reduce the obligation;144

(b) Regulation that introduces a concession on a tax or on any other fee or obligation may
produce deceptive or other behaviour for the purposes of meeting the criteria for the
concession;

140
R v Ghosh [1982] QB 1053. The relevant part of this judgement which has since been applied as what we today refer
to as the 'Ghosh test' is to be found in the following remarks (per Lord Lane): "In determining whether the prosecution
has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary
standards of reasonable and honest people what was done was dishonest. If it was not dishonest by those standards, that
is the end of the matter and the prosecution fails. .. If it was dishonest by those standards, then the jury must consider
whether the defendant himself must have realized that what he was doing was by those standards dishonest."
141
See the New Zealand case of Hayes v The Queen [2008] 2 NZLR 321 where it was correctly noted that: "What is
normally in issue at trial is whether the mind of the particular accused was dishonest. That is conventionally assessed
subjectively by reference to what the accused knew or believed the circumstances to be."
142
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No
199 1-6 at 2 where it is inter alia said: “Like other crime, fraud can best be explained by three factors: a supply of
motivated offenders, the availability of suitable targets and the absence of capable guardians (Cohen & Felson 1979;
Krambia-Kapardis 2001). The three are inextricably linked. As Nettler (1974) observes: The intensity of desire and the
perception of opportunity are personality variables. The balance between desire and opportunity moves. Temptation to
steal fluctuates with individual temperament and situation. (p. 75) Motivation is therefore a combination of an
individual’s personality and the situation in which they find themselves. Conversely, psychological factors will
influence the way a person interprets the situation they are in and this, in turn, will influence the action they choose to
take.” These observations are equally valid in explaining tax fraud.
143
See Government Regulation and their Unintended Consequences for Crime: a Project to Develop Risk Indicators –
Final Report to the EU Crime Proofing Steering Group (September 2003) Jill Dando Institute of Crime Science
144
Adam Smith now almost three centuries back already noted high rates of taxation and prohibition as being drivers of
smuggling. See Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations at 724-726.
54 ADMINISTRATION AND ENFORCEMENT

(c) Any regulation that introduces a grant, subsidy, or compensation scheme or any other
scheme that provides a benefit may produce deceptive or other behaviour for purposes of
meeting the criteria for the benefit;

(d) Regulation that introduces or increases the tax on legal goods or in any other way increases
the costs of legal goods may produce smuggling of goods from lower-tax or lower-cost
jurisdictions;145 and

(e) Prohibition or restriction of a product or service may produce illegitimate trade in the
product or service;

The profiles of those who commit tax fraud and their motivations for doing so are varied. This then
is very much the case with fraud in general.146 There are however numerous factors and
circumstances, both situational and specific to the person of the offender, that may increase the risk
of fraud. In his discussion on the reasons why people commit fraud, Albrecht147 identifies three
elements common to all frauds. These elements make up what he refers to as the ‘fraud triangle’,
explaining it as follows:

“Although there are thousands of ways to perpetrate fraud, Dennis Greer’s fraud in the chapter
opening vignette illustrates three key elements common to all of them. His fraud includes: (1) a
perceived pressure, (2) a perceived opportunity, and (3) some way to rationalize the fraud as
acceptable. These three elements make up what we call the fraud triangle…Perceived pressure,
perceived opportunity, and rationalization are common to every fraud…As with the elements in the
fire triangle, the three elements in the fraud triangle are also interactive…With fraud, the greater the
perceived opportunity or the more intense the pressure, the less rationalization it takes to motivate
someone to commit fraud. Likewise, the more dishonest a perpetrator is, the less opportunity and/or
pressure it takes to motivate fraud.”

1.5.3.1 Pressure
Tax fraud is a species of fraud committed against the Revenue. It is a financial crime and in
common with most financial crimes it is usually, not always but usually, motivated for financial
reasons.148 Many taxpayers who defraud the fiscus may indeed be driven by a lack of money.149 A
'lack of money' is however very relative. For one taxpayer 'lack of money' means not having the
money to pay for the large house and comfortable lifestyle, for the other it may mean not having the
money to put food on the table. Objectively evaluated there will often not be a 'lack of money', or
where the offender does indeed find himself in financial difficulties, those difficulties will usually
be due to lifestyle choices. The subjective state of mind of offenders, and that what motivates them,
is however not objective and is not always rational. It is a subjective state of mind often built on no

145
It is a popular held view that there exists a direct correlation between the rates of taxation and the prevalence of
evasion. See e.g. National Center for Policy Analysis, The Underground Economy (1998) Brief Analysis No 273,
released July 1998, where it was inter alia said: “As tax rates rise, hiding income becomes more profitable. Conversely,
lower tax rates ... reduce evasion because the cost of reporting one’s true income is lower”.
146
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No
199 1-6 at 2 where it is inter alia said: “To date, behavioural scientists have been unable to identify a psychological
characteristic that serves as a valid and reliable marker of the propensity of an individual to commit fraud”, and then at
5: “Identification of fraud risk is still in its infancy. Few categories of offences suffer from the same dearth of
psychological profiles of offenders as fraud and white-collar crime in general. More research is required before
conclusively defining which personality traits or disorders make up characteristic predispositions toward fraud.”
147
Albrecht, Fraud Examination at 27- 29.
148
The fact that a crime is in nature a financial crime does not mean the commission thereof was motivated for financial
reasons. Some financial crimes may be motivated by the need to conceal other crimes, facilitate other crimes, or may
quite well be no more but part and parcel of a government sponsored clandestine operation.
149
See the paper by Carroll, “A Cognitive Process Analysis of Taxpayer Compliance” (1989) in Taxpayer Compliance,
Social Science Perspectives Vol 2
55 ADMINISTRATION AND ENFORCEMENT

more but perceptions, emotions, and often basic instinct. With fraud in general, the offender will
usually face some or other perceived pressure.150 He will often believe there to be a need to commit
the fraud.151 Objectively evaluated the pressure may be no more but imaginary. The perceived
pressure will almost always be of a financial nature, although non-financial pressures may also
motivate the fraud.152

Tax fraud is one of those crimes where not a considerable amount of pressure is required to edge a
taxpayer over the line from lawful to fraudulent. Even though the prerequisite intent will always be
a material element for evasion or fraud, which involves a wilful decision to evade or defraud, tax
frauds can be perpetrated by intentionally failing to act positively, by failing to do something
positive where the law requires action, namely the failure to declare in breach of a legal duty to do
so. This is the case in many jurisdictions, England and Wales being examples in point. The type of
pressure that may push a taxpayer to just remain quiet and not declare may quite well not be
sufficient to push him over to committing the types of acts associated with cashing stolen cheques
or setting up an investment fraud. Examples of common pressures often associated with tax fraud
are: (a) greed; (b) fear of non-tax related governmental restrictions, regulation, monitoring, or
action; (c) lifestyle choices and vices such as gambling or drug dependency; (d) pressure to meet
targets or to satisfy the return expectations of investors; (e) the need to remain competitive; and (f)
poverty and financial difficulties.

(a) Greed153
With most crimes the motive will usually be the old familiar ones i.e. hate, revenge, rage, fear,
jealousy, lust or greed. As far as motive is concerned, greed really operates at the most basic of
levels. It is a motive that has driven offenders to crime since the dawn of time, regardless their
levels of education, cultural refinement, religion, political orientation, wealth, or status. It can be
argued that the political extremist committing acts of terrorism to advance a political agenda, or
robbing banks or taking hostages to finance that cause, or even committing fraud and theft to
finance their operations, operate at a much higher level than the most sophisticated of corporate
executives committing a greed-motivated fraud (insofar as motive is concerned). Greed is
fortunately not a crime, and most greedy people may never commit fraud, but greed is certainly a
main driver of fraud.

Tax fraud, in common with most white-collar crimes, is more often than not driven by greed.154 The
offender often lives beyond his means and defrauds the State out of taxes in an attempt to maintain
a lifestyle.155 Many of the things that we today consider as essentials of daily life are in fact

150
Albrecht, Fraud Examination at 28
151
Albrecht, Fraud Examination at 51
152
Albrecht, Fraud Examination at 28–34. Also see Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends
and Issues in Crime and Criminal Justice No 199 1-6 at 2 where it was inter alia said: “Explanations based on financial
strain feature in almost every type of fraudulent activity. This may arise from imprudence, misfortune or a combination
of the two.
153
See Albrecht, Fraud Examination at 30
154
See the Australian case of R v Elvin [1997] ACTSC 1 where Higgins J inter alia remarked: “ ... tax fraud is not to be
regarded as less serious than social security fraud. Indeed, it may, generally, involve greater culpability being more
likely to be the result of greed rather than need.”
155
Albrecht, Fraud Examination at 30. The fact that many of these offenders are often financially secure or even
wealthy individuals has long been noted. More than a century ago, William H Theobald made no attempt to conceal his
contempt for those defrauding the US government: “It is no easy matter to hazard a guess why so many wealthy people
smuggle. That it is a love of gain is no more certain than is the belief that these same daughters or sons of wealth
defraud the Government because they just cannot help stealing. And smuggling, to my mind, is a low form of theft.
Deprived of their riches, some of these cheats of a great Government would be classed as common culprits, and
doubtless many of them would end their days in some State’s prison for pocket-picking, sneak thievery or some equally
low-blooded crime. Money alone keeps many of them from committing these inferior offences.” See Theobald,
56 ADMINISTRATION AND ENFORCEMENT

luxuries. The taxes evaded or undue refunds claimed are usually used to fund properties, to start up
a business, or to pay for things like holidays, cars, hobbies, luxury goods and the like.156 When the
choice has to be made between these perceived 'essentials’ or paying the taxes that must be paid,
many choose the first and evade the latter. Greed it must be noted may present itself in various
shades and forms, examples of which are: (i) personally gaining a direct financial advantage; (ii) an
indirect advantage such as a promotion or performance bonuses; or (iii) attempts to secure a greater
market share for his/her business.

(b) Fear of non-tax related governmental restrictions, regulation, monitoring, or action

Tax frauds do not necessarily always have as objective the evasion of taxation, but may also be
driven by fear of the consequences of other forms of regulatory monitoring, state interference or
governmental control. There may be a range of reasons why people may wish to keep their wealth
and/or activities secret. This may range from attempts to keep secret an illegal activity such as
breaches of exchange control, the inward smuggling of restricted goods, or the laundering of the
proceeds of crime, to a spouse attempting to hide his/her wealth beyond the reach of a partner filing
for divorce. Conviction on charges of fraud or evasion will be possible as long as the required intent
is present and regardless the offender’s motivation for committing the fraud.

(c) Lifestyle choices and vices such as gambling, drug dependency, etc157
The destructive effect of compulsive vices such as gambling and drug dependency on the life of the
dependent person has long been recognized. The inability to control the dependency is often
associated with diminished mental resistance. Dependencies such as drug dependency and gambling
addiction can be very expensive, and it is thus not surprising to find that many of these individuals
turn to theft from their employers, theft from trust-funds, tax evasion et cetera.158

(d) Pressure to meet targets or to satisfy the return expectations of investors

Corporate frauds committed in an attempt to meet targets or to satisfy investor expectations are not
uncommon.159 Senior corporate employees and those in the tax and accounting sections, often find
themselves under considerable pressure to plan, implement, or execute aggressive tax planning
strategies on behalf of their employers or clients. In many instances those individuals may
recognize the illegality of a proposed strategy, or may have reservations as to the legality thereof,
but may nevertheless assist in carrying it through. They are often driven by fear of the consequences
of refusal, go along with it as willing participants in the hope of reward, may be apathetic as to the
nature or consequences of their conduct, or may well be in self-denial as to their own culpability. In
many of these cases there may already have been a culture of aggressive tax planning, evasion,
and/or poor internal controls and oversight.

Defrauding the Government - True Tales of Smuggling, from the Note-book of a Confidential Agent of the United States
Treasury, Preface page V.
156
See e.g. Beard v The Queen [2003] WASCA 262 where the defendant used the funds to finance properties, to start
up a business, for holidays and to finance a racing team. In Thompson v The Queen [2005] WASCA 223 the defendant
used the funds to buy properties and two oil paintings.
157
Albrecht, Fraud Examination at 31-32
158
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No
199, 1-6 at 2 where it is inter alia said: “Other sources of financial stress may result from lifestyle choices, the most
prominent of which is compulsive gambling. In contemporary society the cost and addictive properties of illicit drugs
may also contribute to financial stress on the part of those individuals who indulge in them. Relationship breakdowns
can also cause acute stress, both financial and emotional. ... This constellation of factors reflects the old-time detectives’
explanation of what turns a person to fraud – sexual relationships, substance abuse and risk-taking or gambling.”
159
See e.g. The Financial Times, March 16 2005, “Ebbers guilty of $11 bn fraud” where, reporting on the greatest
bankruptcy fraud in American legal history, it was reported: “Scott Sullivan, WorldCom’s former chief financial officer
and the government’s star witness, recounted that he began to manipulate the company’s accounts in late 2000 to hide
mounting network expenses and satisfy Wall Street’s earnings expectations.”
57 ADMINISTRATION AND ENFORCEMENT

(e) The need to remain competitive

With a growing underground economy, it becomes more difficult for compliant traders to compete
against those who evade their taxes.160 Those traders who evade their tax liability have a distinct
advantage over those who do comply with their tax obligations. Many tax-compliant traders will in
many instances simply fail to attract custom and go under. Compliant traders joining the ranks of
the non-compliant may thus often follow for no other reason but self-preservation in the face of
hard realities.

(f) Poverty and financial difficulties

The low levels of tax compliance, high levels of evasion, and rampant smuggling we witness in
many parts of the developing world and in those states facing serious economic hardship or collapse
should come as no surprise to anybody. As the economy starts to stumble businesses close down,
jobs are lost, the taxbase shrinks, the tax burden on that shrinking tax-base gets more acute, those
who do have an income is under pressure to carry a growing number of relatives without an income,
and all are out to get whatever they need at the cheapest possible price. Lack of employment
opportunities and poverty forces many into the informal sector, home-based trading, and crime. A
growing portion of generated income goes untaxed. It is a vicious cycle but one driven by the most
basic of human instincts - survival. Survival will always trump tax morality. The simple reality is
that paying taxes is not a priority for a man who struggles to make a daily living.161

But even in those jurisdictions with flourishing economies, and even in the most affluent segments
of society, many taxpayers may evade or defraud on the back of financial pressures, real or
imaginary. The businessman struggling to keep his creditors from his doorstep may be more likely
to divert tax-money for use to cover what he at that moment in time may consider to be more
pressing immediate needs. He may typically face unexpected financial emergencies, face imminent
legal action by creditors, or experience serious cash-flow problems. In these cases it is not at all
uncommon to find businessmen turning to the most readily available source of funds - PAYE
deducted from employees or the VAT charged from clients (instead of paying it over to the
Revenue). Many of these cases may be typical examples of 'robbing Peter to pay Paul'.162 The fear
of loss of material wealth, power, or status, may also serve as a strong motivator.163 In many
instances the pressure may be no more but a perceived pressure, void of any objective substance.164
In many instances the evaded revenue is simply used to set off debts brought about by the
offender’s own history of living beyond his means. In other instances, the pressure may be real and

160
See The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives
used by CATA Member Countries at 13-14
161
See The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives
used by CATA Member Countries at 13
162
See e.g. the Australian case of Thompson v The Queen [2005] WASCA 223, the appellant, an accountant and tax
agent by profession, defrauded the Australian Tax Office by the filing of false tax claims on behalf of his client. This he
did without the knowledge of his clients. The fraud started out as a scheme motivated by pressure on the appellant to
pay off a $100 000 debt. Also see Estate Agency Affairs Board v Mclaggan and Another [2005] ZASCA 34
163
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No
199 1-6, at 2 where it was inter alia said: “Financial strain may also arise from the threat of loss of something currently
owned. For example, high-flying entrepreneurs may encounter adverse business conditions that place them in a position
of acute financial vulnerability and threaten the empire that they have built for themselves. The threat of loss here is not
only of material wealth but also of power, status and pride. To some, fraud may be seen as a short-term solution to this
problem.” This observation is particularly true for tax fraud.
164
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No
199 1-6, at 2 where it was correctly stated: “Of course, financial strain is a very subjective thing. Even those of above-
average affluence may feel economically deprived in comparison to what they perceive to be their relevant standard. ...
Simply put, this comes down to the desire to possess what one cannot afford, even when true financial deprivation may
not exist.”
58 ADMINISTRATION AND ENFORCEMENT

truly compelling.165 The courts do generally take into account for purposes of sentencing all those
factors that may have affected the judgement or may have impacted on the mental resistance of the
offender.

1.5.3.2 Opportunity
1.5.3.2.1 General
The perceived opportunity to commit fraud, to avoid detection, and to avoid punishment, is
considered to be the second element in the fraud triangle.166 A perceived opportunity is ultimately a
perception or belief formed on the strength of a subjective cost-benefit calculus.167 The perceived
opportunity presents itself where the offender believes that there exists a favourable or promising
combination of circumstances to commit the fraud and escape detection and/or punishment. The
greater the perception that the evasion will not be detected, and/or will not be dealt with
appropriately, the greater will be the perceived opportunity.168 Both real and perceived opportunities
to evade tax, and/or to escape detection, and/or to avoid the consequences of detection, may
influence the taxpayer’s decision to commit the fraud.

Real or perceived opportunities to commit crime do often present itself by mere coincidence, but
may just as often be identified through a combination of premeditation, research and planning.
Many tax fraudsters do research, identify weaknesses in revenue law, systems, and procedures, and
meticulously identify and plan possible avenues of attack.169 The opportunity to get away with a
crime, to escape prosecution and conviction, obviously do not mirror the opportunity to commit that
crime. Many crimes may be easy to commit, but getting away with it may prove difficult. It is only
the more sophisticated and disciplined who make their decision to proceed with the commission
thereof based on a thorough and realistic appreciation and assessment of the real probabilities of
successful commission and escape.

Certain categories of taxpayers have greater opportunities to evade tax than others. The self-
employed for example have more opportunities to evade their taxes than say the taxpayer who earns
a salary with PAYE being deducted.170 Higher levels of evasion have also long been noted amongst

165
See e.g. R v James [1997] EWCA Crim 624 where the appellant defrauded the Revenue out of £65 000. The fraud
was initially initiated in order to pay for his daughter’s medical treatment. The first £20000 was used for that purpose
but the fraud then continued for financial gain.
166
Albrecht, Fraud Examination at 34. Also see Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and
Issues in Crime and Criminal Justice No 199 1-6 at 2.
167
See Štulhofer, “Between Opportunism and Distrust: Socia-Cultural Aspects of the Underground Economy in
Croatia” (1999) in Feige & Ott (Ed) Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption
and organized crime 43-63 at 47-48 where, referring to opportunism within the context of underground economic
activity, it is inter alia said: “By definition, opportunism is an attitude, and conduct governed by it, which views
respect for regulations exclusively as a question of cost-benifitcalculus. The public good, co-operative ethics and
commitment do not exist in an opportunist’s vocabulary. Opportunistic attitudes in the population indicate the
inclination of actors to break all rules that do not involve high risk of punishment.”
168
Albrecht, Fraud Examination at 51. In general and of particular relevance within the context of taxation, also see the
papers by Allingham & Sandmo, “Income Tax Evasion - A Theoretical Analysis” (1972) Journal of Public Economics
(1): 323-338 and Paulus & Simpson, “Opportunity, Benefit, and Subjective Disposition: Determinants of Non-
proffessional Smuggling” (1981) Pacific Sociological Review 24(3) 299-327
169
For a good example, see The Telegraph, 19 November 19, 2014. "Heroin dealer masterminded VAT fraud after
studying tax law in prison"
170
See e.g. Roth et al, Taxpayer Compliance Volume 1: An Agenda for Research 1989 at 137, where it is argued that
taxpayers falling in the middle-income groups have less opportunity to evade taxes as it is easier for the authorities to
match the income with the available information. Also see Blumenthal et al, “Do Normative Appeals Affect Tax
Compliance ? - Evidence From a Controlled Experiment in Minnesota” (2001) National Tax Journal 54 (1): 125-137
59 ADMINISTRATION AND ENFORCEMENT

those taxpayers operating cash businesses.171 The opportunities to defraud may be lower or higher
in certain industries depending on factors and circumstances such as: (i) the nature of the industry;
(ii) trading practices prevalent in the particular industry; (iii) the nature and profile of the work-
force employed; (iv) the commodities being traded with, nature of the service being supplied, or the
product being manufactured; and (v) the levels of regulation and the adequacy of controls in the
particular industry.

Examples of factors or circumstances that may increase the opportunity for tax fraud may be: (a)
low detection rates; (b) limitations on international information exchange and mutual cooperation;
(c) apathetic and evasion-tolerant society; (d) lacking revenue enforcement capacity; (e) lack of
inter-agency cooperation; (f) failure to enforce broader financial, regulatory and compliance
frameworks; (g) high levels of crime and a failing criminal justice system; (h) high levels of
corruption; (i) a growing underground economy; (j) lacking internal controls and oversight; and (k)
the failure to conduct pre-implementation risk-assessments of new regulation and practice; and (l)
the failure to foresee, and/or plan for, and/or to react with an appropriate response to changes that
may impact on or pose a threat to revenue administration and enforcement.172

1.5.3.2.2 Low detection rates

For the taxpayer out to avoid taxation, the safest way to go about it will always be tax mitigation or
lawful avoidance rather than evasion. It will not be wrong to say that for the taxpayer who has made
the decision to evade, maintaining secrecy will always be the most effective protection against
detection and thus assessment and penalties and/or prosecution. Maintaining secrecy may well not
only offer the offender protection against detection, but may potentially also have a limiting effect
on the quality and quantity of evidence available in the event of detection and investigation. The
prospects of keeping anything secret are obviously significantly enhanced by not raising suspicions.
Many frauds are detected absent prior suspicion, but prior suspicion significantly increases the risk
of enquiries and detection. The evading taxpayer will however need maintain that secrecy for years,
and in some jurisdictions quite well for decades. Once detected, the taxpayer's position becomes a
very uncertain one with the initiative passing over to the authorities. In many jurisdictions are to be
found statutes of limitations which may vary from offence to offence. These may range from just a
few years to decades. In some jurisdictions there may be no statute of limitations. Prosecutions may
well follow where the evasion may have started out decades earlier.173 A taxpayer out to defraud the
revenue will thus need keep his dishonesty under the lid for as long as prosecution is a possibility.

Detection and punishment are essential prerequisites for effectively deterring crime. The probability
of detection and the severity of punishment have long been suggested as factors that may have a
positive impact on the levels of honesty.174 The most robust of enforcement systems and the best
thought-out enforcement strategies will prove impotent absent effective detection. The perfect crime

171
Refer Morse, S, Karlinsky, S. and Bankman, J. (2009). "Cash businesses and tax evasion". Stanford Law and Policy
Review 20(1): 37-68. Joulfaian, D and Rider, M. (1998). "Differential taxation and tax evasion by small business".
National Tax Journal, 51(4): 675-687
172
See e.g. the report of the House of Commons, Treasury Committee, Excise Duty Fraud, 15 March 2005 at .28 where
the Committee inter alia concluded that: "Excise duty fraud grew significantly during the 1990s partly as a result of the
opportunities provided to criminals by the introduction of the single market and of the large increases in international
trade and passenger movements. We note Customs’ acknowledgement that they did not initially react with sufficient
speed to these developments. We are concerned that Customs failed to recognise and react to the effect that these
events, which were predictable, would have on the level of smuggling and fraud."
173
See e.g. R v McCorry [2005] NICA 57 where the evasion persisted for over 16 years. In R v Small & Anor [2010]
NICC 6 (another case from Northern Ireland) the evasion continued for over 17 years and in R v Andrus 2013 BCPC
0160 (a Canadian case) for 15 years.
174
Allingham, M & Sandmo, A. (1972). Income tax evasion: A theoretical analysis. Journal of Public Economics, 1 (3-
4), 323-338
60 ADMINISTRATION AND ENFORCEMENT

is after all the crime that is not detected. Tax evaders more often than not share the belief or hope of
their frauds going undetected. In many instances they may also be confident that even if the fraud is
indeed detected, the likelihood of prosecution is slim and the risk thus one worth taking.

Low levels of detection is indeed a problematic reality. Revenue administrations place heavy
reliance on audits, inspections and information gathering. Revenue audits, inspections, and
investigations do unearth many instances of fraud, but those cases indeed identified will often
represent only a fraction of the true figure. This is not surprising considering the nature of revenue
frauds, limitations on resources, and the sheer size of the underground economy. The tax evader’s
prospects of evading detection very much depends on factors such as, but not limited to:

(a) his/her technical skill;

(b) the degree to which he/she can maintain secrecy;
(c) the nature and scale of the evasion;
(d) frequency and duration of misrepresentations and other unlawful acts;
(e) the frequency and standard of audits and inspections carried out by the authorities;
(f) auditor independence;
(g) the efficacy of a jurisdiction's broader financial regulatory frameworks; and
(h) the levels of corruption in the society in question, to list but a few.

Detection is not only a prerequisite for correcting errors, recovery, and forcing the non-compliant to
regularize their tax affairs, but is also essential for the purposes of punishment and the deterrence
benefits that may be derived therefrom. Low detection rates necessarily represent an increased
opportunity to evade and escape investigation, prosecution, and conviction.

The Revenue inspector will seldom be in the position of the fraud branch police detective where a
complainant will typically approach the police with a complaint to the effect that "I believe I was
defrauded. This and this is what happened and this is what the offender did." The Revenue will
often detect transactions or arrangements that may appear suspicious, but often without any clarity
as to what crime (if any) was indeed committed. This will often leave the Revenue first having to
launch preliminary investigations in an attempt to uncover what actually happened. When looking
at many revenue and customs frauds, one will often find that the success of the fraud relied not on
just one unlawful act or failure, but rather on a combination of acts and/or failures planned,
coordinated and executed in such a combination, manner, and sequence as to make viable the
success of the unlawful scheme. Although certain acts or failures will often point to a specific type
of fraud or scheme being afoot, one can only reach a point of certainty as to what you are really
dealing with once the complete web of unlawful acts and failures are identified and after the inter-
relationship between all those acts and failures is ascertained and mapped out.175 With many of the

175
Consider the following example: Inspector A scrutinizing the affairs of trader Z identifies a number of transactions
where he finds what appears to be a number of irregularities. He inter alia finds that in relation to a number of export
transactions: (a) exports by Z to importer Q in Country T were over-invoiced; and (b) in relation to some of the
transactions, the goods declared for export were in fact never exported to country T. Prima facie this conduct strongly
suggests some or other type of crime involving fraudulent misrepresentation. The question however is …. what crime
and committed by whom ?. There are a number of possibilities. Trader Z may be engaged in a VAT scam or drawback
fraud, or trader Z may be assisting importer Q with a scheme to launder the proceeds of crime, or he may be assisting
importer Q with a scheme to circumvent exchange control regulations in country T, or importer Q may be 'hollowing'
out the company in the import country with the view to commit a bankruptcy fraud in that country. These are just a few
possibilities. One must keep in mind that in this scenario you are dealing with two different parties situated and acting
in two different jurisdictions. The one is seemingly assisting the other, but one cannot assume trader Z to be the guiding
hand, or even assume the operation to be one targeted against and/or to be one that will have as consequence actual
prejudice for the local Revenue. The criminal operation in question may well be managed by importer Q dictating to
trader Z, and may well be a scheme set up to facilitate a crime in import country T. Certainty as to the true nature of the
operation, the crimes that were committed, where those crimes were committed, and the precise operation of the
61 ADMINISTRATION AND ENFORCEMENT

fraudulent schemes out there, the construction and operation of a particular scheme may be
recognised for what it is with relative ease when all is known and when its operation is viewed and
assessed in its totality. Recognizing that scheme for what it in fact is will however often prove
difficult or even impossible in the absence of all the constituent pieces known and correctly fitted
together. 'Detection' within the revenue context, even where it may be clear that some or other type
of crime is being committed, is thus not always that straightforward.

Lifting detection rates calls for effort and investment. The revenue system as a whole and the
broader compliance framework need work effectively. This calls for measures and initiatives
directed towards:

(a) ensuring high levels of general compliance;

(b) investment in training, infrastructure, and intelligence capacity;
(c) in-depth systems integration and coordination;
(d) a culture of awareness, vigilance, escalation, and unity of effort imbedded into all areas of
revenue administration amongst all officers and employees at all levels;
(e) low levels of revenue corruption;
(f) the promotion, development, implementation and enforcement of regulatory and industry
compliance and reporting frameworks;
(g) enhanced risk profiling;
(h) the identification of new trends, schemes, and modus operandi;
(i) measures and systems must be reformed and developed in line with advances in technology,
changes in society, and changing legal and commercial landscapes;
(j) anticipating and planning for future threats and challenges; and
(k) raising awareness amongst the public;176

The profile and character of an offender certainly is an important factor insofar as is concerned the
probability of detection and conviction. It is after all our intelligence, psychological makeup,
training and experience which makes us into the careful or risk-taking individuals we are, which
guides us in what we do and how we do it. The more sophisticated the offender, the more
sophisticated may be the crime. The more sophisticated the crime, the lower the probability of
detection. Not always, but measured by the law of averages this will often be the case. The more
intelligent, skilled and careful the offender, and the more meticulous the planning, implementation,
and execution of a crime, the more likely are the chances of it escaping detection, investigation, and
prosecution. In the case of fraud, the more sophisticated the misrepresentations employed, the more
difficult they may be to detect. This is in itself problematic as the less sophisticated frauds are more
likely to be detected with the less sophisticated offender more likely to be prosecuted, whereas
those offenders who cause the most damage, the more sophisticated offenders, will all too often go
unchallenged. The latter category of offender, more often than not to be found amongst corporate
executives and dishonest high wealth individuals, has access to resources and professional expertise
and they often are internationally mobile. They are more likely to commit those frauds which so

scheme, calls for in-depth investigation which will, on these facts, involve finding answers to questions such as (but not
limited to): did the export goods in fact exist; the true nature, value and history of the good; what quantities and values
were declared in the entries for export as opposed to the entries for import; what was in fact exported; what happened
with the goods that were not exported; what happened with export goods after 'exportation'; did trader Z receive
payments for the 'exports' and if so was it from importer Q; were the payments real or just simulated; when and how did
the operation commence and how did it evolve; how was this all accounted for in books of account and stocks. These
are just a few lines of enquiry. Every aspect of the operation need be identified and mapped out if one is to understand
what you are dealing with.
176
Higher rates of reporting by members of the public will increase rates of detection. Raising awareness is thus
important for two reasons: (a) impressing upon the populace the importance of reporting fraud; and (b) to enable the
broader public to recognise fraud when they see it.
62 ADMINISTRATION AND ENFORCEMENT

often prove that much more difficult to detect, investigate, prosecute and prove i.e. the use of well-
planned fraudulent schemes coloured in as clever tax avoidance.

1.5.3.2.3 Lacking international cooperation

Tax evasion and customs fraud are not issues that can be untied from national and international
historic, political, economic, and social realities. Revenue and customs crime, and revenue and
customs enforcement, can also not be untied from what has over decades evolved as an extensive
and sophisticated tax avoidance and tax evasion industry, the financial centres that service it, capital
flight, and criminality related to organised crime, smuggling, corruption, counterfeiting, and money
laundering. These issues, however, are global issues calling for international dialogue and
commitment, information exchange, and international cooperation.

All jurisdictions do not have the same capacity, the same compliance regimes, the same levels of
control over their frontiers, or the same standards of policing. There are many jurisdictions where
there is no control or where the controls that do exist are ineffective. It is not uncommon for a
particular jurisdiction, often a failed State, to be used as a safe-haven or springboard for crime
committed in another State, often but not necessarily a neighbouring State. Jurisdictions with poor
policing, failing criminal justice systems, and high levels of corruption tend to be obvious choices
for criminals. There will often be strenuous diplomatic relations between the Governments of
neighbouring States and more often than not an absence of treaties for mutual cooperation and
extradition. Many of those states will often have very little interaction or involvement with
structures such as the OECD and WCO, bodies which have over recent decades proved key in
facilitating international cooperation. This all can make effective enforcement extremely difficult
for the target-jurisdictions.

Just for a moment consider something like smuggling. The policing of domestic legislation, the
interdiction of smuggled goods, and the prosecution of offenders, at every level of the smuggling
chain from the importer down to the ultimate possessor of the illicit goods, are critical for any
comprehensive enforcement strategy to be effective. This being said, no amount of resources
committed and no amount of enforcement at the national level can in the long run be expected to be
effective absent cooperation and enforcement at the international level. No amount of resources
dedicated to countering smuggling in one jurisdiction is going to stem the flow of contraband and
dirty money between that jurisdiction and the neighbouring failed State with which it shares a
mountainous thousand-mile border. Just for a moment consider the heroin trade. Most of the
product ending on Europe's streets originates from Afghanistan. Arresting heroin-dealers on the
streets of London may be important, but equally so is the disruption of opium production in
Afghanistan and the neutralization of the supply routes through Pakistan, a number of CIS
countries, Turkey and the Balkans. That however is not possible absent the commitment,
cooperation, and enforcement capacity of the governments of those producing and corridor-states.
Or let us consider the trade in counterfeit goods. Seizing counterfeit cigarettes offered for sale in a
corner-shop is important, but more so is the closing down of the manufacturers, more often than not
in foreign jurisdictions. The most effective strategy is disruption at source.

The obvious, and usually also the most effective approach in dealing with these threats is the
normalization and strengthening of diplomatic ties and mutual cooperation between States. It calls
for the building of partnerships at the international level. This then also applies to tax evasion.
Many tax evaders commit their crimes over national boundaries. Offshore tax havens, banking
secrecy, the absence of treaties for information exchange between States, and secrecy provisions
barring information exchange between agencies, have always posed a major hurdle for revenue
63 ADMINISTRATION AND ENFORCEMENT

administrations.177 The prosecution of the benefit cheat, or the small-scale trader who
misappropriates his VAT or who fiddles his expenses may be important, but more so is the
prosecution of those engaged in large scale frauds, often international in nature. This includes the
aggressive prosecution of the accomplice bankers, accountants, and advisors, often foreign
residents. The investigation of these 'international frauds' and the prosecution of those offenders
have however always proved challenging.

Effective revenue and customs enforcement calls for the building of partnerships at the diplomatic
level, international treaties providing for information exchange,178 treaties for mutual cooperation to
facilitate the investigation of crime, and treaties providing for the extradition of offenders. This
however is easier said than done. It requires the building of trust, good faith, and reciprocity. This
however is very difficult to achieve on a global stage, already difficult enough as it is to navigate,
crowded as it is with different governments all pursuing their own, often very conflicting interests
and agendas. There simply cannot be good faith and trust where there is duplicity. The same
government flouting the same old rhetoric on the evils of tax evasion, organised crime, and money
laundering, often enacting one statute after another against all those ills, will often be the same
government maintaining its own little 'constitutionally independent' little offshore centre laundering
the proceeds of every foreign drug lord, tax evader, foreign dictator, and criminal. No government
should expect, and is entitled to expect, other States to commit to information exchange and
cooperation where that same government makes itself guilty of predatory behaviour, of
destabilizing foreign jurisdictions, or turns a blind eye to, tolerates, or quite well promotes, the use
of its territory (and dependant territories) as safe havens eagerly accepting the proceeds of crime
and the proceeds from taxes evaded in foreign jurisdictions.

1.5.3.2.4 Apathetic and evasion-tolerant society

It is the moral duty of the responsible citizen to refrain from buying smuggled goods and to report
those suspected of tax evasion and fraud. The reality however is that such an expectation can only
be a realistic one where a given society is one where there are high levels of tax morality and little
tolerance for evasion. The greater the tolerance for evasion amongst the citizenry, the safer it is for
the tax evader, smuggler, and other criminals to defraud, escape detection, and escape
punishment.179 The greater the levels of tolerance to evasion and fraud in a given society, the less
likely it will be for members of the public to:

(a) comply with the tax laws themselves where everybody evades and view it as acceptable;
(b) refrain from trading in illicit goods;
(c) provide information on suspected instances of fraud or evasion and/or to be prepared to
testify against offenders; and

177
The historical barriers posed by banking secrecy are however gradually being broken down. See e.g. The Financial
Times, November 17 2009, “US tax amnesty reaps billions for Treasury”, where it was inter alia reported: “Hundreds of
wealthy Americans with offshore UBS accounts to be handed over by the Swiss government to the US authorities are
alleged to have used false documents, sham entities and other fraudulent methods to evade paying tax.”
178
It must be said that treaties allowing for information exchange between governments are very fast becoming the
norm, even between many countries that not that long ago were politically hostile. Most of those jurisdictions that over
many decades cemented a reputation as very safe tax havens increasingly also comply with requests for information.
Processes for that information exchange are also growing more efficient with a steady move towards automatic
disclosure between contracting States. See e.g. The Financial Times, July 5 2017, “UK tax evasion investigations
increasingly going global”
179
See The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives
used by CATA Member Countries, at 14 where it is inter alia said: “In many CATA countries, tax morality is low and
there is a strong culture to avoid paying tax. In other words, there is no social disapproval or reprimand for ... evasion of
taxes. Often, this is exacerbated by the evasive actions of friends, relatives, co-workers and business colleagues. In
some countries, the perception of tax evasion ... as a crime is also low. This is not the view of only general taxpayers
but also includes members of the judiciary who are inclined to pass lenient fines and sentences.”
64 ADMINISTRATION AND ENFORCEMENT

(d) have confidence in the authorities;

For the authorities, there will be a direct correlation between the extent of that tolerance amongst
the public at large and: (a) the difficulties to be expected in terms of prevention and enforcement;
and (b) the challenges faced by the authorities in terms of re-education, strengthening tax morale,
and promoting general compliance. Tolerance of smuggling and tax evasion provides for fertile
ground for a growing underground economy. A growing underground economy and the gradual loss
of control and regulation over trade and commerce may gradually displace regulated commercial
activity into the unregulated black market. The greater the underground economy, the more difficult
it becomes to police. This does offer increased opportunity to defraud and escape detection.

Higher levels of apathy and tolerance of evasion can only be but expected in jurisdictions marked
by high levels of 'common' crime such as murder, robbery, rape, theft etc. Not only can these
'common' crimes be counted on to distract and overburden enforcement agencies and the criminal
justice system, but they are considerably more visible and concerning for the public at large. This in
turn poses the risk of a populace quickly becoming desensitized insofar as tax crime is concerned.
Most members of the public do not have a real appreciation of the impact of tax fraud on the
broader community and its impact on the State’s ability to deliver. Most will generally fail to
appreciate the long-term impact of a compromised tax system and tax base on service delivery,
policing standards, and the operation of the criminal justice system. In a society where evasion is
the norm, the possibility of prosecution may well seem quite absurd. The comment of the fictional
'Captain Willard' in the cult film 'Apocalypse Now', "… charging a man with murder in this place
was like handing out speeding tickets in the Indy 500" comes to mind. Evasion being prosecuted
may become so remote an expectation in the public's mind, as to leave would-be offenders totally
undeterred.

1.5.3.2.5 Lacking revenue enforcement capacity

The failure to enforce the tax legislation obviously provides opportunity for fraud. In common with
other crimes, revenue and customs fraud can only grow in scale and impact if left unchallenged.
Enforcement failures may be the result of any number of factors or circumstances, individually or in
combination, e.g. a lack of political will to address problem areas, and/or lacking capacity, and/or a
flawed enforcement philosophy to list but a few. The Revenue may fail to effectively enforce the
revenue laws for no other reason but lacking capacity. Lacking capacity may not only impact on the
general standards of tax administration, but also on the capacity to prevent, detect, investigate and
prosecute tax crime. Enforcement budgets will often be insufficient, or in some jurisdictions, and
this is notably so in the developing world and with many failed states, enforcement operations may
quite well not even be budgeted for.

Those jurisdictions lacking the capacity to effectively enforce their tax legislation, often also fail in
many other areas of state-administration and service delivery. In most failed States are to be found
failing state administrations, compromised criminal justice systems, high levels of corruption and
crime, and poor standards of revenue administration. The State may simply lack the required
resources, or may fail to dedicate sufficient resources. The fact that a budget is sufficient does not
however mean same will be optimally utilised. Within any given revenue or customs
administration, enforcement capacity may also be compromised by failures in: leadership, planning,
prioritization, organisation, cooperation and coordination, intelligence failures, the inefficient
deployment of available resources, the failure to invest in infrastructure, and failures in training and
65 ADMINISTRATION AND ENFORCEMENT

staffing to list but a few. Understaffing seems to be a pressing problem in most jurisdictions,
including many developed countries.180

In most jurisdictions, police forces, revenue administrations, customs administrations, and other law
enforcement agencies and regulators, simply do not have the required resources to deal with white
collar crime in general. It calls for dedicated resources. One of the most critical shortcomings tends
to be a lack of experienced investigators. Investigators specialising in financial crime, many of
those crimes falling within various specialised areas, are thinly spread. Most of the individual
expertise is built up over many years of formal education, training, and many years of experience.
Specialist units tend to be small, too small to deal with even a fraction of serious cases, and much of
their time is spent in assisting other specialist branches (e.g. those specialising in areas such as
murder, robbery, sexual crimes, security, intelligence, counter-terrorism, and organised crime). As
many of those financial investigators are more mobile in terms of careers, retention may also be
problematic. Most revenue and customs administrations are severely lacking in terms of
experienced criminal investigators with many of those investigators eventually leaving the service
for greener pastures.

1.5.3.2.6 Lack of inter-agency cooperation

Effectively engaging tax criminality calls for effective coordination and cooperation between
different agencies of state. The old way of doing things where police agencies, revenue agencies,
customs authorities, intelligence agencies, and other regulators, operated in complete isolation from
one another absent inter-agency liaison, information exchange and cooperation is over. Tax
criminality, especially evasion within the underground economy, smuggling, and organised revenue
crime, can only be effectively countered with effective liaison, cooperation, coordination,
information exchange, systems integration, and partnering between those various agencies. The
same holds true for other types of criminality such as money laundering and corruption. The
benefits of such cooperation, coordination and integration should be obvious. Irregularities are more
likely to be detected earlier on and are more likely to be referred to the appropriate enforcement
agencies. Information exchange and the pooling of information may provide for more accurate in-
time information and cut out the unnecessary duplication of work. Different agencies have different
strengths and weaknesses and the pooling of resources and effort may assist with evidence
gathering and may increase efficiency. Coordination between different agencies may also serve an
important role for the purposes of preventing duplication of investigations and in ensuring all those
matters calling for investigation are indeed so investigated. Certain forms of criminality may be
indictable under different statutes enforced by different agencies. Or different agencies may well
have the mandate to investigate offences under the same statute. Just like two different agencies
may show a keen interest in dealing with the same matter, possibly even fighting amongst each
other over jurisdiction over the matter, the same matter may also fail to attract any interest from
either. A lack of coordination between various agencies may thus quite well result in no agency
taking ownership over a matter under circumstances where the matter calls for investigation and
prosecution. This need for greater levels of inter-agency cooperation and integration has been
recognised by a number of jurisdictions i.e. Canada, the UK, US, Australia and Sweden, where
there has for some time been a drive towards a more integrated 'whole-of-government approach'.181

180
See e.g. The Times, June 20 2006, “Borders left wide open with posts unmanned” where it was reported that in
Britain, generally considered a wealthy developed state, border-posts went unmanned due to a lack of sufficient
numbers in dedicated personnel.
181
A useful definition of the 'whole-of-government approach' can be found in a 2006 OECD report (Organisation for
Economic Co-operation and Development. Whole of Government Approaches to Fragile States. 2006 at .14) where the
following definition is quoted: "For the purposes of this study, a whole-of-government approach is defined as "one
where a government actively uses formal and/or informal networks across the different agencies within that government
to coordinate the design and implementation of the range of interventions that the government's agencies will be making
in order to increase the effectiveness of those interventions in achieving the desired objectives."
66 ADMINISTRATION AND ENFORCEMENT

1.5.3.2.7 Failure to enforce broader regulatory frameworks

Efficient revenue and customs administration calls for more than just efficiency in the enforcement
of the revenue and customs legislation. Revenue and Customs administration may be a critical
government function, but it is and remains but a small part of the business of government. One can
just consider the many departments dealing with all those matters we may take for granted, but all
critically important functions of government. Those departments may, depending on
country/jurisdiction, be structured differently, go under different names, and may have different
mandates, but in all developed countries there will be departments responsible for the
administration and regulation of things such as but not limited to: births, deaths, emigration,
immigration; insolvency and estates; justice and the judiciary; policing; trade and industry; banking;
the licencing of various types of activities or things; import and export licencing; social welfare;
health; safety and security; agriculture; education, public works; and defence. The administration
and regulation of all those matters is a matter of law. In relation to each of those matters one will
usually find statutes or statutory frameworks delegating responsibilities, and placing duties and
responsibilities on citizens, administrators, and regulators. Those statutes or statutory frameworks
will often be interconnected and mutually supporting. The failure to effectively enforce one area of
law will often compromise enforcement in other areas. Efficient revenue and customs
administration and enforcement is simply not possible where these broader regulatory frameworks
are not being enforced.

Also of relevance and not to be overlooked is the contribution of various compliance regimes and
industry-specific standards, usually best practice developed over time by various international
intergovernmental and non-governmental bodies,182 professional associations, and industry-specific
bodies, in promoting better levels of standardization and control. Professional bodies in areas such
as accounting, taxation and law will typically set certain standards of practice with adherence to
those standards usually a membership requirement. Those professional or industry-specific bodies
will usually incorporate into or as part of their own standards certain international standards.183
Lawmakers will often recognise the value of the standards set and/or recommendations made by
those bodies and incorporate parts of it into law.184 These regimes do not only serve an important
role in benchmarking standards, but they also force those subject to them to familiarise themselves
with the subject-areas covered and the standards they are required to uphold. It promotes awareness
within organizations as to potential risk.

Compliance with these standards and regimes, both statutory and professional, will often call for the
gathering, recording, verification, and reporting of large amounts of information relating to persons,
activities, processes or operations which would not have been gathered, recorded, or reported had it
not been for the compliance regime in question. The monitoring, and/or verification, and/or
recording, and/or taking of corrective action, and/or reporting required to be done under a given
regime may be such that on the facts of the case certain irregularities should have been detected or
should at least have raised suspicions were all those compliance duties carried out as required.
Compliance with those regimes will often call for positive action such as the reporting of certain
incidents, suspicions, or activities, but even where there is no such reporting requirement, there will
usually be requirements and procedures for the internal processing, recording, and reporting of
suspected irregularities or suspicions, thus leaving a helpful audit trail. The work product flowing

182
E.g. the Financial Action Task Force (FATF), World Customs Organization (WCO), Organization for Economic
Cooperation and Development (OECD), International Organization for Standardization (ISO), and International
Accounting Standards Board (IASB)
183
E.g. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS)
184
A relatively recent example is the heavy reliance on the FATF's recommendations for the prevention of money
laundering in the drafting of national anti-money laundering legislation.
67 ADMINISTRATION AND ENFORCEMENT

from these compliance activities do greatly assist the authorities in the detection of crimes and the
gathering of valuable information and evidence. The information retained, and/or reported, and/or
the testimony of those involved in or who carried out certain acts or functions in relation to any of
those activities, may assist in proving or disproving certain facts, either as direct or circumstantial
evidence.185

For those out to commit fraud, the steps and countermeasures they must now take so as to not raise
suspicion, not being detected, not leaving audit trails, and not leaving incriminating evidence, are
considerably more elaborate compared to fifty years ago. This can to a large degree be attributed to
the growing web of compliance and monitoring regimes growing more elaborate and integrated
with the passing of time. The enforcement of these broader financial, regulatory, and compliance
frameworks provides for a general degree of control and oversight which leaves criminals,
including tax fraudsters, with less breathing space to manoeuvre and operate. The more the record-
keeping, monitoring, data retention, data analysis, information integration, traceability, and
reporting duties, the more difficult it gets to keep the truth as to one's doings under the lid. This all
being said, the most elaborate and fit-for-purpose regulation, regime, or measure, is of no use unless
adequately monitored, enforced and exploited. Weak control structures and systems, inadequate
internal controls, and poor levels of oversight, are major contributing factors of poor compliance,
the non-deterrence of financial crime, and the non-detection of irregularities and fraud. Lacking
disclosure, inadequate control measures, the absence of adequate oversight, and lacking auditor
independence, all increase the opportunity for evasion, fraud, money laundering, and other types of
financial crime.

1.5.3.2.8 High levels of crime and a failing criminal justice system

Connected with the failure to enforce broader regulatory frameworks, is a general deterioration of
law and order or the existence of a state of general lawlessness. This then is a particular problem in
many parts of the developing world and in those regions suffering social, economic and political
instability. An upward spiral of crime in general and a failing criminal justice system may in itself
offer increased opportunity to defraud and escape punishment. Governments and the agencies
tasked with the policing and prosecution of crime, may increasingly shift their efforts and resources
away from financial crime towards those crimes viewed as ‘more serious’ i.e. murder, robbery, rape
etc. ‘Common' crimes tend to be more visible and as the greater majority of the population are more
likely to be concerned about and to demand action in dealing with those more visible threats,
Governments keen on gaining votes may shift resources away from tax enforcement towards
conventional policing.

Some forms of criminality may facilitate, ease the commission of, and drive other forms of
criminality. The failure to clamp down on counterfeiting, smuggling, money laundering, corruption,

185
Assume worker X in the employ of company Z filed a number of suspicious activity reports under the local AML
regulations relating to various suspicious transactions engaged in by client Q. Further assuming she recorded and
reported same to the authorities as she is required to do under domestic legislation and also reported it to her director R.
Further assuming R is subsequently arrested for his part in a fraud committed with Q and further assuming the fraud
was related to the suspicious transactions reported by X. R may well come up with the story that he bona fide entered
into the fraudulent scheme with Q, unsuspecting as to the fraudulent nature thereof, … but the question is .. will a jury
believe him once X is called to testify that she as R's junior repeatedly warned R of Q's suspicious transactions… It is
unlikely. In the absence of the relevant reporting regime: (a) X may well not have reported the matter and the fraud may
well have escaped detection by the authorities; and (b) she might well not have recorded the matter in which case there
might well not have been any records of her observations and reports, evidence which may prove useful at a subsequent
prosecution. Her own records and reports can also have the effect of deterring her from being less than cooperative
and/or honest during an investigation and a subsequent trial. There are many honest employees out there who rather opt
to deny any knowledge of wrongdoing by others where they fear for their employment. Doing so is an easy option
where there is no evidence pointing to themselves as witnesses.
68 ADMINISTRATION AND ENFORCEMENT

illegal immigration and other forms of criminality, facilitates the existence and growth of the
underground economy, which in itself directly threatens revenue administration and the tax base.
The manufacture and trade in counterfeit and smuggled goods promotes growth in the underground
economy. High levels of illegal immigration will often be mirrored by high levels of employment in
the underground economy. Not only is the proceeds of tax frauds laundered out of the Revenue's
reach, but money laundering structures also facilitate tax fraud, other forms of criminality, and a
healthy underground economy. Corruption amongst revenue officers can drive fraud and corruption
amongst taxpayers and vice versa. Corruption amongst revenue officials not only undermines
efficient tax administration, but also has a subversive effect on tax enforcement, the investigation of
tax crime and the prosecution of offenders. Perceptions amongst taxpayers of a corrupt government
and/or a perception that the officers tasked with enforcing the tax legislation are corrupt or
corruptible, may in itself impact on taxpayer’s respect for authority, their willingness to co-operate,
the willingness to pay, and the willingness to evade. The more endemic crime in general and the
more compromised the integrity of the criminal justice system is general, the greater the opportunity
to commit revenue and customs frauds, the greater the opportunity to escape detection, and the
greater the opportunity to escape sanctions, both administrative and criminal.

1.5.3.2.9 Failure to conduct pre-implementation risk-assessments

New legislation need be tested for the risk of abuse before implementation. Not only can careful
consideration in the drafting of legislation reduce the risk of abuse, but it can in the long run also
save the Revenue from having to divert valuable resources to enforce flawed regulations or
procedures.186 This proactive approach extends beyond the development of legislative and
regulatory frameworks, but is also relevant when assessing administrative and operational
procedures. Possible weaknesses in administrative procedure need be identified before
implementation. Not only may this make possible the development of effective countermeasures,
but it may also allow for the opportunity to roll out adequate awareness training for the personnel
tasked with its administration. In Britain, the European Union, and South Africa, numerous types of
VAT scams reared its head shortly after the introduction of VAT in those jurisdictions. Similarly
the tax credit system in Britain also became the target of fraud shortly after the introduction of that
system in 2003. For the most part, the opportunities for fraud were not anticipated or were under-
estimated. In all these cases it took the authorities time to develop an understanding of the threat
and the extent of the threat, and it took them even longer to develop the capacity to control or
mitigate those threats.

1.5.3.2.10 The failure to anticipate and plan - Intelligence failure

The incidence and trends of offending, not only revenue-related crimes but crimes in general, is not
something that ever remains static. It is something that is always in flux - rising, falling, changing
and evolving as population demographics, governments, social norms, education, socio-economic
pressures, technology, economies, legal systems and laws, practices, etc. develop, evolve, or

186
See Jill Dando Institute of Crime Science, “Government Regulation and their Unintended Consequences for Crime: a
Project to Develop Risk Indicators - Final Report to the EU Crime Proofing Steering Group”, September 2003 at .3
where it was correctly noted: “The case studies, when considered collectively, also suggest what needs to be done for
crime risk assessment in the law-development process to be most effective. Firstly, they suggest that crime risks need to
be considered from the early stages of policy formation. This is because early decisions regarding the structure and
design of new regulation will impact upon the configuration of incentives and the extent to which compliance can be
monitored. Secondly, the studies indicate that new regulation needs to be understood at the level of those regulated.
This is because understanding the incentives for behaviour assists in anticipating unintended consequences.
Consequently, it seems that regulators need to be involved in crime risk assessment because, in most cases, they have
the best understanding of the new regulation and the wider regulatory environment. Finally, the studies suggest that the
monitoring of the impact of new regulations should be a complementary strategy to preliminary crime risk assessment.
This is because political constraints and the difficulty in predicting the extent of unintended consequences mean that
action cannot always be justified at a preliminary stage.”
69 ADMINISTRATION AND ENFORCEMENT

change. The faster the pace of change in the world around us, the faster we can expect to be the
change in offending trends and how crimes are committed. That it turn increase the pressure on
governments, law enforcement, the intelligence services, regulators, and administrators to better
predict emerging and future threats and to devise strategies to counter those threats. Fail to predict
future threats, in the short, medium, and long term, and governments, law enforcement, regulators,
and administrators, always find themselves reactively responding to challenges for which they were
ill prepared, usually inadequately organised, poorly informed, and inadequately resourced and
trained. There simply cannot be adequate prediction absent the appropriate research and analysis.
There are however very few revenue and customs administrations with research and/or intelligence
units dedicated to that standard of analysis, or where they do exist, they seldom have the required
capacity. In many jurisdictions much if not most of the data and research required for such analysis
is readily available, usually gathered or conducted by universities and other governmental and non-
governmental agencies, but revenue and customs administrations do not possess the capacity to
gather and process same for their own intelligence needs. The end-result is revenue and customs
administrations always dealing with threats reactively.

1.5.3.2.11 Accommodating infrastructure, lack of commitment, and duplicity

A point not often raised is the historic role of many governments, primarily those of a number of
Western nations, in maintaining, protecting, or at least tolerating legal and financial infrastructure,
structures, and systems known to facilitate widespread international tax avoidance, tax evasion, and
money laundering. For many decades the attitudes and behaviour of many Western governments
have varied from disinterested to duplicitous. For decades, most Western governments have
expressed concern about, and/or legislated against, and/or implemented measures targeted against
terrorism, organised crime, corruption, money laundering, various types of smuggling, tax evasion,
and a host of other issues. There may indeed be some of those governments where there was or now
is a genuine commitment to effectively challenge and counter some of those issues, but as for many
of them the evidence suggest an historic and deeply ingrained culture of selective commitment,
selective transparency, and selective enforcement. Where there is genuine commitment and action,
it is more often than not limited to controlling domestic evasion, corruption, and money laundering,
and to limiting the domestic impact of those issues, whilst at the same time turning a blind eye to or
facilitating those types of behaviour on the international stage, tolerated or deemed acceptable as
long as doing so favours short and medium term domestic financial, economic, security, and
political interests.

For decades many Western governments have turned a blind eye to domestically incorporated and
listed corporations and champions of industry bribing foreign officials to sell arms or to secure
mining concessions, and for decades they turned a blind eye to many of those corporations
orchestrating or fuelling wars in the developing world. This has been the common theme in more
than one African conflict. The wealth so gained invariably ended up in the West without questions
asked. For decades many of those corporations have used blatantly fraudulent invoicing practices
between related parties to shift profits offshore, usually from the developing world, notably Africa,
Latin America, and former Soviet states, to the West. No questions asked. Funds to facilitate
sanctions busting, the money from warlords and drug cartels, funding for insurgent groups or
'liberation armies', the income from oil financing foreign wars, and then of course the wealth of
many a drug lord, tax evader, foreign dictator, and criminal, have for decades been flowing in and
through the financial streams of many a Western 'liberal democracy'. For many decades, criminal
proceeds equal to the GDP of many nations annually made its way through and into tax havens and
financial capitals in the West. The same government not tolerating any evasion, smuggling, money
laundering, or crime in general in its own jurisdiction / domestically, will all too often be very
tolerant of or even welcome the proceeds of tax evasion and other crime from abroad.
70 ADMINISTRATION AND ENFORCEMENT

These attitudes and patterns of behaviour are still with us. It is deeply ingrained in the fabric of
quite a few European jurisdictions. This, however, is a double-edged sword. It fuels an industry
servicing all tax offenders and all other offenders regardless the jurisdiction(s) where they trade or
where they are domiciled. It maintains a global environment where some States, directly or by
proxy, effectively provide a refuge for the proceeds and wealth of criminals and criminal regimes.
They are effectively global facilitators. This then leaves us in a position where many a government
is just not prepared to kill what is perceived to be its own goose laying the golden eggs for as long
as there are other global facilitators. They remain unwilling to truly commit themselves to or to
consistently follow through on commitments to make their own jurisdictions hostile to all those who
do attempt to transfer proceeds and/or tainted investments into their own financial streams, and thus
thereby denying their own home jurisdiction the wealth and/or investment those individuals or
corporations may be bringing with them. We see the same problems with tax avoidance. In the same
jurisdiction there will often be stark contradictions and duplicity in how the same policymakers may
view and deal with the problem. All too often they will condemn tax avoidance in their home
jurisdiction whilst at the same time facilitating avoidance on the international stage. This is one of
the core issues that have historically undermined effective international cooperation. The problems
with this state of affairs should be obvious. Firstly, it undermines any efforts at building
international consensus and bringing about truly effective international cooperation, standards, and
rules of behaviour. Secondly, it ensures the persistent presence of a global non-transparent industry
facilitating tax evasion, crime, and the plundering of nations.

1.5.3.3 Rationalization
Many people who commit dishonesty offences such as theft, fraud or tax evasion, rationalize the
nature of their conduct, and/or their own reasons for committing the offence. 187 The offender’s
rationalization can be described as his self-satisfying but incorrect reasons for the commission of
the offence.188 Rationalization is not however limited to an offender's rationalization of the social
and legal acceptability of his/her conduct, or the seriousness and impact of his/her crime, but may
also relate to his/her own perceptions as to the risks to himself.

Rationalization by offenders of their own unlawful conduct is something one can only expect.
Particularly problematic however, a threat very particular within the revenue context, is a rise in the
rationalization of such behaviour amongst the non-offenders, the broader base of citizens. The more
widespread the rationalization and condonation of evasion, the more likely the probability of
assistance and facilitation, the less likely the probability of reporting, and the safer the environment
within which offenders can safely evade. High levels of rationalization and condonation are
common in jurisdictions where governments and the institutions of state face crisis of legitimacy, or
where there are widespread perceptions of unfairness in the distribution of the tax burden and/or in
revenue administration.

187
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No
199 1-6, at 3 where it is correctly stated: “Another general psychological aspect of fraud is the process of rationalisation
which reduces the offender’s inhibition. Such attempts at prospective excuse have been termed “techniques of
neutralisation (Sykes & Matza 1957). ... Motivation is what drives the act of fraud, while neutralisation paves the way
by nullifying internal moral objections. Regardless of the type of fraud, most offenders seem to seek to justify or
rationalise their activity. Techniques of neutralisation will vary with the type of fraud (Benson 1985). For example,
frauds against large companies or government departments are often rationalised with the excuse “they can afford it”.
Other examples of neutralisations include viewing the victim as culpable in some respect or, alternatively, trivialising
the offence so that it becomes a “victimless crime” or so that there is no significant harm done. Those frauds that
involve a victim entering willingly and knowingly into an illegal act (such as money laundering or tax evasion) are
amongst the easiest for the fraud offender to rationalise”
188
Albrecht, Fraud Examination, 51
71 ADMINISTRATION AND ENFORCEMENT

1.5.4 Impact
Revenue frauds, measured in terms of sheer scale and impact, surpass all other categories of fraud.
In Britain, tax fraud represents three quarters of all public sector frauds. Judging the indirect impact
will be close to impossible. Criminal activity such as fraud is generally associated with secrecy,
with the prevention of detection a prime consideration in the mind of the offender. Low detection
rates and under-reporting, the difficulties associated with estimating consumption and the size of the
underground economy, and difficulties in estimating the extent of a fraud where it is indeed
detected, all contribute to this uncertainty.

It is not only states characterized by lacking capacity and insecurity that are plagued by high levels
of tax fraud. High levels of tax evasion are also to be found in many developed countries e.g. the
United States and the United Kingdom. It is not a victimless crime. Tax fraud benefits the offender
at the cost of the fiscus. Tax fraud is a crime not only against the State, but also against the broader
community.189 Policymakers do take into account the tax gap and levels of evasion when
identifying potential sources of revenue. It is only to be expected for the evaded tax burden to be
shifted onto the law-abiding citizen in an attempt to secure the revenue required to govern and
deliver. The failure to react to a serious problem or threat can often be attributed to a lack of
awareness. Revenue frauds will fail to attract the appropriate response where revenue administrators
and governments fail to recognise the levels of fraud being unacceptably high. Accepting that
estimating the extent of revenue frauds may be difficult, assessments of the extent of the problem is
critical, even if those assessments provide for only generally accurate estimates.

An awareness of the negative consequences of revenue fraud is not only of importance for policy
makers, economists and social scientists. An awareness of its impact may also assist prosecutors at
the sentencing stage. It is not at all uncommon for prosecutors to vigorously argue the prosecution’s
case up to the point where the court’s verdict is read out, but to then stand back when it comes to
arguing sentencing. It is for the prosecutor to place before the sentencing court evidence as to the
serious nature of the offence, the offender’s motivations and objectives, the impact of the crime on
society, other parties that may have been affected by the offender’s fraud etc. Doing so necessarily
calls for a basic awareness of the crime and its impact.

1.5.4.1 Losses in state revenue

An obvious consequence of tax fraud is the loss in state revenue. Although numerous mathematical
models do exist and are often used in estimating the extent of tax escaping the tax net,
quantification may prove exceptionally difficult. One need however only follow press-reports to
gain an understanding of the true extent.190 The sheer scale of many of these frauds is truly breath-
taking. The case of former Yukos head and Russian oil tycoon Mikhail Khodorkovsky serves as a
good example in point. Khodorkovsky once was believed to be the 16th richest man in the world. In
May 2005 he was convicted on charges of tax evasion and fraud, and sentenced to 9 years in a
Siberian prison. Yukos was also forced to pay back $27.5 billion in taxes.191 In many of these cases

189
See e.g. Putland v R [2004] HCA 8; R v Hudson [1956] 1 All E.R. The British courts often, and also quite
appropriately, refer to tax frauds as “frauds on the public”.
190
In the UK, revenue losses due to fraud for the 2009/10 tax year was estimated to be made up of £4 billion
attributable to evasion, £4 billion to evasion/fraud within the hidden economy, and £6 billion attributable to criminal
attacks against the tax system. Around 40% of the total tax gap for the 2009/2010 tax year was thus estimated as being
attributable to evasion / fraud. See Annual Fraud Indicator, National Fraud Authority, March 2012, at 49
191
The Independent, May 31 2005, “Khodorkovsky sentenced to nine years”; City AM, July 13 2006, “The rise and fall
of Mikail Khodorkovsky”. There has since Khodorkovsky's prosecution and conviction been persistent claims and
speculation to the effect that the prosecution was a politically motivated move intended to neutralize him as a political
opponent of President Vladimir Putin. Even assuming it was, it does not change the fact that Khodorkovsky, like many
other Russian oligarths on both sides of the Russian political divide, and with the active assistance of many Western
businessmen and bankers, were defrauding the Russian fiscus on a massive scale. Khodorkovsky subsequently turned
72 ADMINISTRATION AND ENFORCEMENT

a few conspirators may manage to commit frauds which in scale overshadow the GDP of many
developing countries.

It is especially in the developing world where the impact of evasion is most visible. With
administrative, enforcement, and legal systems that are often severely lacking and compromised,
coupled with high levels of corruption, there will often be no effective revenue enforcement. In
those States most of the tax due may well escape collection. Many of those States lose a substantial
part of their wealth through the unreported sale and outward smuggling of its natural resources,
fraudulent transfer pricing practices, and large-scale international tax evasion. Those managing
these criminal operations, tend to be well aware of the fact that these jurisdictions usually lack the
capacity to monitor, investigate, and act against these abuses, and/or to act against those who plan
and manage it, the latter parties more often than not being based in offshore jurisdictions. Much of
this has been happening for decades, the offenders mostly Western corporations, and the stripped
wealth generally ending in Western financial capitals and tax havens. In terms of impact, the main
culprits tend to be multinational corporations, many of them household brands. Defrauding those
jurisdictions is seen as low-risk opportunities. Over the past century, multinational enterprises have
grown larger, more complex, more powerful, and can in many jurisdictions even exert significant
influence on economic and other policies. Many of these corporations have long viewed and
exploited the jurisdictional limitations of national laws as an opportunity to maximize profits, to the
detriment of States already severely limited in their capacity. Acting against this large-scale
unlawful exploitation, may prove even more difficult for those affected States where much of the
economy, industry, and many jobs in those States, often depend on the continued presence and
operation of those same predatory corporations.

1.5.4.2 Subversion of state policies

The revenue legislation may have as its main aim the imposition of taxation and facilitating revenue
collection, but it also plays an important role in protecting the country’s economic interests and
integrity, protecting the local trade and the public, and to further various social, political, and
economic policies. Fraud can have a severely negative impact on the implementation and efficacy
of these policies. A good example in point is the levying of high rates of duties and tax on goods
such as alcohol and tobacco in an attempt to regulate consumption of those goods in support of
social reform and health campaigns.192 The growth of a black market in those goods will necessarily
have the effect of subverting the intended social objective.193 Certain types of fraud may prove so

towards the European Court of Human Rights. The Court held that there were failures in due process and recognized the
possibility that certain state authorities or officials may well have acted with a "hidden agenda", but rejected claims of
Khodorkovsky's conviction as amounting to a "travesty of justice". In its final assessment the Court inter alia held (at
para 906) (cited as Case of Khodorkovskiy and Lebedev v Russia, (Applications nos 11082/06 and 13772/05), European
Court of Human Rights, Strasbourg, 25 July 2013): "The Court does not exclude that in limiting some of the applicant's
rights throughout the proceedings some of the authorities or State officials might have had a "hidden agenda". On the
other hand, the Court cannot agree with the applicant's sweeping claim that their whole case was a travesty of justice. In
the final reckoning, none of the accusations against them concerned their political activities stricto sensu, even
remotely… The acts imputed to them were not related to their participation in the political life, real or imaginary - they
were prosecuted for common criminal offences, such as tax evasion, fraud, etc." Also see The Guardian, May 31 2011,
"Russia's trial of oil magnate Khodorkovsky not political, court rules"
192
See e.g. the “Minutes of evidence taken before the Treasury Subcommittee, Session 1998-99”, November 03 1999
(Treasury, House of Commons, United Kingdom)
193
The use of the tax system to achieve social objectives, although common, draws considerable criticism. Not only is
this practice indicated as a factor that may potentially fuel or drive evasion, but also as a factor that may contribute to
increased complexity of tax legislation. See e.g. The Tax Law Review Committee, Making Tax Law, TLRC Discussion
Paper No.3, March 2003
73 ADMINISTRATION AND ENFORCEMENT

serious, as to prompt a change in or even termination of certain policies, or may force the
authorities to adopt more stringent measures and procedures in an attempt to prevent the abuse.194

1.5.4.3 Distortion of statistics

Government statistics on the balance of trade is in large part compiled from the data on imports into
and exports from States. This data is usually collected and retained by customs administrations,
taken from the import and export declarations as filed by importers and exporters. Simulated import
and export transactions, the under-declaration of imports or exports, smuggling, and unrecorded
economic activity in the underground economy, has the effect of distorting the trade statistics States
rely on for its economic policies.195

1.5.4.4 Undermines fair competition

Tax fraud can also have an adverse impact on the integrity of the trade in general. It undermines
tax-compliant traders, displaces fair competition, and drives honest traders out of business.196 Those
traders whom fail to meet their tax obligations, or fraudulently obtain refunds they are not legally
entitled to, or trade in smuggled goods, gain an unfair advantage over their law-abiding competitors.
The dishonest trader can deliver goods or services at lower prices than the law-abiding trader who
can often not compete, and may in many instances have no choice but to either stop trading or

194
See The Financial Times, May 29 2006, “EU plans crackdown on €60 bn VAT fraud”, where the tax commissioner
for the European Union was reported as having made recommendations wherein he supported legislative changes of EU
law relating to the charging and paying of VAT on transactions conducted across borders between member states. These
recommended changes were motivated solely as a measure against rampant inter-state VAT fraud.
195
This is in fact not a recent problem. Adam Smith now almost three centuries past inter alia noted: "Heavy duties
being imposed upon almost all goods imported, our merchant importers smuggle as much, and make entry of as little as
they can. Our merchant exporters, on the contrary, make entry of more than they export; sometimes out of vanity, and to
pass for great dealers in goods which pay no duty gain a bounty back. Our exports, in consequence of these different
frauds, appear upon the custom-house books greatly to overbalance our imports, to the unspeakable comfort of those
politicians, who measure the national prosperity by what they call the balance of trade." (Adam Smith. An Inquiry into
the Nature and Causes of the Wealth of Nations at 726). Also see Ramsey, “Overseas Trade in the Reign of Henry VII:
The Evidence of Customs Accounts” (1953) The Economic History Review, 6(2) 173-182 where at 173 and referring to
the high levels of smuggling prevalent in England during the sixteenth century, it was inter alia said: “Recent research
has drawn attention to the smuggling and evasion of customs prevalent in the latter half of the sixteenth century, which,
it is suggested reached such proportions that the customs accounts cannot be trusted to give a true picture of the actual
volume of trade.”
196
See R v Mann [1998] EWCA Crim 317; R v Dosanjh [1998] EWCA Crim 1450; R v Warren [1996] EWCA Crim
1791; L. Vogel & Son Pty. Ltd v Anderson [1967] HCA 46 (also cited (1968) 120 CLR 157). See e.g. R v Hammond
[1997] EWCA 2027 where Kay J said: “The court has to be mindful in a case of this kind of the consequence for those
traders, who honestly comply with their VAT responsibilities and in consequence find it difficult to compete with those
who have acted fraudulently whatever their motive for so doing.” Also see R v Wells [1998] EWCA 3446 where the
court per Jowitt J inter alia said: “It is said that the appellant made no profit from his fraud because the prices he
charged to his customers were the somewhat lower prices which was appropriate for a business which was not
registered for Value Added Tax but, of course, had to pay that tax on the supplies it received….In our view this is to
overstate the position in the appellant’s favour. By charging lower prices than his competitors who were registered for
Value Added Tax he was the more readily able to attract custom and, of course, was competing with them on unequal
terms to his advantage since they were obeying the law and he was not” This is by no means a new problem. See
Nicholls, Honest Thieves, The violent Heyday of English Smuggling at 28, where the writer, referring to the large-scale
smuggling prevalent in 18th and 19th century England inter alia said: “Their taxes had made smuggling
profitable,...many respectable 'fair' traders were forced by the smugglers' low prices to adulterate their legitimate goods;
many others were driven by the level of the taxes to give up their normal wholesale channels and purchase from the
smugglers. And every time this happened, of course, the free traders' empire and profits increased a little; more men
were drawn into the shipping and running of the goods; and grocer and his customers were added to the thousands who
already openly and tacitly supported, or at least condoned, the smuggler.” During the 18 th and 19th centuries, customs
and excise duties were the most important taxes in England in terms of contribution to the fiscus.
74 ADMINISTRATION AND ENFORCEMENT

himself start evading if he is to keep trading.197 Either way, the trade in general and the compliant
tax base is eroded with a lower tax yield for the fiscus.

1.5.4.5 Fuels corruption

Corruption is viewed as a serious crime undermining the rule of law. It is seen as a threat to good
governance, transparency, and constitutional order. It is also viewed as a major obstacle to
economic growth and poverty alleviation.198 It may also fuel the underground economy and tax
fraud.199 Smuggling and fraud may however also drive corruption. Escaping detection or the
consequences of detection may be a strong incentive for taxpayers and smugglers to attempt to
bribe officers and other officials.200 Criminal activity with a high profit-yield may drive more
attractive bribes. The more endemic the levels of smuggling and fraud, the more likely the risk of
exposure of officers and officials to individuals who may offer inducements, the greater the
frequency of such exposure, and the more the opportunities to accept bribes. This may in turn result
in increased levels of corruption amongst the Revenue rank and file.

1.5.4.6 Increased complexity of legislation

The increasing complexity of revenue legislation is not only problematic for tax administrators
entrusted with the administration of that body of law, but is equally problematic for the taxpayer.
Tax legislation need be detailed, but nevertheless unambiguous and easily interpretable. 201 The
common response to abuse is the enacting of new legislation or the amending of existing legislation.
This often translates into even more complex tax legislation, more sophisticated tax evasion, and
increased compliance costs for the taxpayer.202 Not surprisingly, taxpayers generally experience tax
compliance efforts as costly, burdensome, and stressful.203 Both tax fraud and tax avoidance can

197
See The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives
used by CATA Member Countries at 13-14
198
International Finance Corporation, Reforming the Regulatory Procedures for Import and Export: Guide for
Practitioners, June 2006 at 24.
199
See Ott, “Economic Policy and the Underground Economy in Transition” (1999) in Feige & Ott (Ed) in
Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 29-41 at 34
and 36; Bowles, “Tax Policy, Tax Evasion and Corruption in Economies in Transition” (1999) in Feige & Ott (Ed)
Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 67-86 at 67
200
Bowles, “Tax Policy, Tax Evasion and Corruption in Economies in Transition” (1999) in Feige & Ott (Ed)
Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 67-86 at 73
201
In Halifax plc, Leeds Permanent Development Services Ltd, County Wide Property Investments Ltd v Commissioner
of Customs & Excise, a VAT case heard by the European Court of Justice (Case C-255/02, judgement handed down on
21 February 2006, unreported) it was inter alia said: “However, as the Court has held on numerous occasions,
Community legislation must be certain and its application foreseeable by those subject to it (see, in particular, Case C-
301/9/ Netherlands v Council [2001] ECR I-8853, paragraph 43). That requirement of legal certainty must be observed
all the more strictly in the case of rules liable to entail financial consequences, in order that those concerned may know
precisely the extent of the obligations which they impose on them”
202
See Ott, “Economic Policy and the Underground Economy in Transition” (1999) in Feige & Ott (Ed) in
Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 29-41 where
at 34 it is inter alia said: “Taxpayers have a hard time trying to understand the taxation system and tax administrators
have a hard time in implementing it. All this results in increasingly complex and sophisticated tax evasion, more
expensive collection of tax revenue for the state and more expensive tax compliance for the taxpayers. On the other
hand, the increasingly sophisticated tax evasion backfires by causing taxation systems to become even more complex
because more detailed legislation is needed to fill the loopholes in existing laws.”
203
See Administrative Burdens: HMRC Measurement Project, KPMG, 20 March 2006 at 6 where the report highlighted
that: (i) businesses interviewed expressed the view that the tax system is complex, having to comply with huge amounts
of complex legislation. The complexity of the legislation is blamed for both increased compliance costs and uncertainty;
and (ii) constant change is viewed as a major cause of uncertainty and high compliance burdens. The introduction of
new legislation and constant changes to existing provisions is blamed as some of the main contributory factors. The
same report then continues with the following observation (Annexure C, at 5): “Lack of certainty .... is a major theme. If
things continually change, or HMRC’s interpretation on the ground continually changes, it becomes very difficult and
expensive to achieve certainty…The potential for penalties adds to the fear of getting it wrong. New businesses, for
example, are concerned that they may not know all the things they have to do.”
75 ADMINISTRATION AND ENFORCEMENT

thus be pointed out as major contributing factors of the increased complexity of tax legislation.204
The net result is a continuous cycle of ever-greater complexity.

1.5.4.7 Compliance and Enforcement cost

A rise in non-compliance can be counted on to reflect in a rise in enforcement costs. The revenue
and customs administrations of most States are strained in terms of resources, but they are
nevertheless expected to achieve maximum impact at minimum cost. Considerable time and
resources is spent on continues audit and verification, investigation, revision of procedures,
investment in infrastructure, implementation of counter-measures, litigation etc. Not only the tax
administration’s efficiency but also that of honest taxpayers is negatively affected. Enforcement
action diverts resources and slows down vital processes.205

Increasing compliance-demands from the authorities invariably translates into an increased

compliance-burden for the taxpayer. Business administrators are required to spend more time and
resources complying with regulatory requirements than ever before. They are required to spend
more time overseeing and ensuring compliance with various regulatory issues ranging from health
and safety, to taxation, money laundering compliance, employment law, industry-specific
compliance regimes and a legio other matters.206 Most businessmen, professionals, and self-
employed individuals, are not accountants, lawyers, or tax advisors by profession, and many do not
have the knowledge, experience, or time, to deal with an ever-increasing tax-compliance burden.
These taxpayers will usually have no choice but to make use of, and spend more money on
accountants, tax consultants, lawyers, or new staff so as to carry out some or most of these
compliance functions. Ultimately, both the cost of being compliant and enforcing compliance is
carried by the law-abiding citizen.

1.5.4.8 Consequences for the offender

For those who find themselves standing accused of a tax fraud, the consequences can be serious.
Arrest, dismissal from employment, tarnished reputations, financial ruin, emotional trauma for the
defendant and his family, and the risk of imprisonment all come to mind. Conviction on charges
relating to tax evasion or fraud may also have a severe impact on the future careers of practitioners
facing disbarment from professional bodies.207 Many statutes providing for the disqualification of
offenders from certain professions, acting as company directors, access to certain immigration
routes, etc, often simply refer to the disqualifying offences in generic terms such as 'fraud',
'dishonesty offences', 'aggravated felonies' etc. More often than not fraud or evasion relating to
taxation will be viewed as a disqualifying offence.208

204
See Tax Law Review Committee Tax Avoidance The Institute for Fiscal Studies 1997 at 4-5
205
Good examples of this are the negative impact of increased customs enforcement on the normal flow of international
trade and the longer delays in the refund of VAT-claims. See e.g. The Mail on Sunday, December 10 2006, “300 Firms
hit by war on fraud”.
206
See e.g. Glaser, “Policing the tax system” (February 2005) Tax Adviser 17-19 at 17 where it is inter alia argued that
businesses and their advisors, in addition to being responsible for assessing their own tax liabilities, are increasingly
being required to act as “unpaid policemen on top of being unpaid tax collectors”.
207
See e.g. R v Litanzios [1998] EWCA Crim 2514
208
In the US for example, tax evasion contrary to 26 U.S.C. § 7201 is classed as an aggravated felony under 8 U.S.C. §
1101(a)(43)(M)(i) warranting deportation of non-citizens. Also see Kawashima v. Holder 615 F.3d 1043 (9th Cir.
2010) and Kawashima v. Holder (10-577) where convictions for filing, and aiding and abetting in filing, a false
statement on a tax return in violation of 26 U.S.C. §§ 7206(1) and (2) were held to be aggravated felonies involving
fraud and deceit, and as such warranting deportation. The petitioners in the Kawashima case had been permanent
residents in the US since 1984.
76 ADMINISTRATION AND ENFORCEMENT

1.5.4.9 Victims other that the Revenue

It is not at all uncommon for one person to defraud not only the Revenue but also other taxpayers.
Consider the example of a taxpayer orchestrating a fraudulent bankruptcy with all the assets
ciphered away. The Revenue will often be the only creditor, but where there are others, as is often
the case, they will usually also be defrauded in the process. Another example that comes to mind is
that of a trader falsely giving himself out to be registered for VAT, defrauding the Revenue out of
the VAT charged from his unsuspecting clients. The honest trader who traded with him on the
strength of those false representations may also be a victim where the Revenue refuses to refund his
claim for a VAT refund (on the basis of it never being paid over to the Revenue - a current and past
Revenue practice in a number of jurisdictions). In Britain these cases are rightly viewed and
prosecuted as revenue frauds.

Cases may arise where the Revenue is not the target of a fraud, but rather 'utilized' as part of the
machinery to defraud others. An example that comes to mind is that of the crooked accountant or
customs broker defrauding unsuspecting clients out of money by duping the latter into believing
same is for the payment of duties, taxes, or penalties where no such duties, taxes, or penalties are in
fact payable. A similar situation is that of scammers extracting payments from unsuspecting
taxpayers by fraudulently giving themselves out to be the Revenue (e.g. by sending out
‘assessments’ with accompanying bank-details for the payment of a 'tax debt', or by setting up a
fake website purporting to be that of the Revenue). The consequences of these types of frauds may
vary from jurisdiction to jurisdiction. In most jurisdictions the unsuspecting taxpayer remains liable
for taxes where they were legally due. In some jurisdictions this type of fraud may be prosecuted as
an offence against the Revenue, in others it may be viewed as no more but a fraud perpetrated by
one individual against another, whereas in other jurisdictions it may be viewed and prosecuted as a
fraud against both the Revenue and the unsuspecting taxpayer. It all depends on the penal
framework of a given jurisdiction and the facts of the case. This type of situation is an extremely
serious one. The smooth operation of the revenue system relies on the taxpayer's confidence and
trust in the Revenue. Insuring honest taxpayers are not being exploited in any context even remotely
connected with the Revenue is thus critical.

The consequences for a corporation where implicated in a revenue fraud can be severe. A
corporation can in most common law jurisdictions be convicted of a crime, including crimes
involving evasion or fraud. The negative consequences that may follow from a conviction and/or
negative publicity can be extremely damaging not only for the corporation, but also for its
employees, and shareholders. This may range from the recovery by the Revenue of large amounts in
evaded taxes (something usually not planned for), to financial losses in the form of penalties and
fines, criminal prosecution and conviction, resources wasted on litigation, reputational damage, and
the loss of investor confidence.209 A criminal conviction may also, depending on the legal
framework of a given jurisdiction, result in a listed company being de-listed from the stock
exchange. The possibility of a company having to close down with employees becoming
unemployed cannot be counted out either.

209
See Neubig & Sangha, “Tax Risk and Strong Corporate Governance” (2004) The Tax Executive 56 (2) at 114 where
it was inter alia said: “In today’s business environment tax risk is one of the more challenging business risks presenting
both monetary and reputation consequences for corporations. By its complicated and technical nature, tax risk may not
be adequately understood and appreciated by corporate boards and senior management and may expose the company to
unexpected outcomes” and then at 119: “In sum, corporate boards and senior management need to meet the new
corporate governance expectations with respect to all risks, including tax risk. Tax risk has generally not been fully
understood or transparent to all stakeholders. Nevertheless, the monetary and reputation consequences of not
acknowledging the implications of tax risk may be severe and, therefore, cannot be ignored in a strong corporate
governance process…..The reputational risk emanating from tax risk could be many times more severe and punishing
than the monetary tax loss, since it may challenge the basic presumption of strong corporate governance – that is to say,
how the board and senior management determine, direct and manage business risks.”
77 ADMINISTRATION AND ENFORCEMENT

1.5.4.10 Undermines equality and tax morale

Tax fraud has as consequence the shifting or transfer of a greater tax burden onto the law-abiding
taxpayer who has to fit the bill for the tax-crook’s greed. This in turn undermines the law-abiding
taxpayer’s tax morale and willingness to pay.210 This is an important point to recognise. The direct
impact of an offender's evasion may be the loss of that offender's contribution, but there may be
long-term non-quantifiable losses resulting from a deterioration of the existing compliant tax-base.

Tax evasion as we pointed out drives inequality in the distribution of the tax burden. That unfair
distribution of the tax burden in turn distorts the distribution of wealth. That which is hidden goes
untaxed or is not properly taxed as it should be. Governments will however collect the revenue they
need wherever they can find it. That is just the reality of the situation. The reality however is that it
is not the middle and working classes, or the impoverished, who are ciphering away into tax havens
trillions of pounds sterling in untaxed income. It is the rich. The less the rich are taxed, the
wealthier they become. The more the poor are taxed, the more impoverished they end up. This then
is one of the reasons for the widening gap between rich and poor.

1.5.5 Crime Statistics

1.5.5.1 General
Maintaining accurate crime statistics relies on a high rate of detection coupled with accurate
recording. Coleman and Moyinan211 referred to the crime of fraud as the “bashful of the world of
criminal statistics”.212 They inter alia argue the prevalence and extend of this category of crime to
be dwarfed by at least three factors, all of which apply equally to tax fraud. These are:

(a) The counting rules used, as many are of a continuous series type with their relative
contribution effectively being ‘downsized’;
(b) Many of those that do not come to light are dealt with administratively by other agencies;
and
(c) The figures do not take into account the size of the sums involved.

This represents what is generally referred to as the ‘dark figure’, that is to say the figure for
unrecorded crime or undetected offenders. It represents those crimes not included in the official
statistics.

1.5.5.2 The dark figure

Coleman and Moyinan distinguish between four stages in the production of crime-statistics. These
are: (a) discovery; (b) reporting; (c) recording; and (d) the clearing up and identification of
offenders.213 Compared to other serious crimes, tax fraud is rife in most jurisdictions. Even in those
jurisdictions with generally high levels of tax morality and voluntary compliance, i.e. Britain,
Canada, the United States and Australia, those defrauding the Revenue constitute a sizeable
minority of taxpayers. A large percentage of those frauds go undetected. Of those that are indeed

210
See Walter, The Secret Money Market: Inside the Dark World of Tax Evasion, Financial Fraud, Insider Trading,
Money Laundering and Capital Flight at 304 where the writer inter alia remarks: “Regardless of the level or structure
of taxation, what is not paid by some must be paid by others, so that tax evasion always redistributes the burden of
financing the public sector. The fact that some people are getting away without shouldering a ‘fair’ share of the tax
burden – with ‘fairness’ defined politically – clearly undermines the willingness of others to go along with a system
regarded as grossly inequitable, and can result in a wholesale erosion of tax morality. Once tax evasion becomes a
national sport….., it is extraordinarily difficult to rebuild tax compliance, as a number of countries have found out to
their great dismay.”
211
Coleman & Moynihan, Understanding crime data, Haunted by the dark figure
212
At 42
213
Coleman & Moynihan 32 -39
78 ADMINISTRATION AND ENFORCEMENT

detected, most are dealt with administratively with those cases never finding its way into the official
crime statistics.

1.5.5.2.1 Non-detection and non-recognition

Even though financial crime in general is widespread and endemic, most of it is invisible. There is
no body sprawled out on the floor with a knife in the victim's chest. There is no robber pointing a
gun at a fearful shopkeeper. Financial crime is notoriously difficult to detect. Tax fraud as a class of
financial crime is no exception. Most people tend to keep their financial affairs close to their hearts,
but this is even more so where dealing with tax offenders. Within the context of taxation, the
identification of conduct as criminal conduct can in itself be difficult, and the non-recognition of
conduct as fraudulent is a major contributing factor to the non-detection of tax fraud. Taxation is a
complex and technical subject-field, the operation and rules of which are beyond the knowledge and
understanding of a sizeable part of the population.

Recognizing unlawful conduct as unlawful, whether it be fraudulent or otherwise, calls for the skill
to interpret what may be complex legislation, and the ability to apply the relevant law to the facts of
the case. Any analysis intended to identify possible contraventions and to identify the offences that
may find application, involves a systematic process with the investigator moving from secure base
to secure base. Such a process will usually involve:

(a) An analysis of the taxpayer's profile and circumstances over a particular period in time i.e.
domicile, trading activities, income and expenses etc;
(b) A determination of the taxpayer's liability to taxation, based on the legislation and tax rules
that were in force at the relevant times;
(c) Against the findings in (a) and (b) above, identify all the duties and responsibilities that
rested on the taxpayer;
(d) Identify all breaches and failures contrary to the duties and responsibilities as identified in
(c) above;
(e) Identify all those breaches and failures (amongst those identified in (d)), where those
breaches or failures can be attributed to the conduct (acts or failures) of the taxpayer;
(f) Determine if those breaches or failures to comply, and where they can be attributed to the
conduct (acts or failures) of the taxpayer, make out the actus reus of any offences;
(g) Where the answer to (f) is in the affirmative:
(i) identify all the material elements of all those offences that may find application; and
(ii) correlate all available evidence to the material elements of those offences identified.

1.5.5.2.2 Non-reporting
Many citizens may know or may have reason to believe that someone they know or someone they
may have dealt with may be defrauding the Revenue. A significant percentage of these cases will
nevertheless not be reported. There may be many reasons for the non-reporting of tax fraud, but the
most prominent of these tend to be rationalization and apathy, loyalty towards the offender, and
fear.

(a) Rationalization and apathy

Of the many different categories of financial crime, tax fraud may well be one of the categories
where rationalization can be expected to be the most widespread and acute. Taxation is generally
hated by most subject to it, and fiddling the taxes is often viewed as something 'which everybody
will do if they can' or as something ‘which all businessmen do’.214 Levels of reporting will

214
See e.g. Ponsaers, “What is so organized about financial-economic crime ? The Belgian case” (2002) Crime Law and
Social Change 37(3): 191 at 191 where it was inter alia said: “The archetype that’s associated with financial and
economic crime is that of the respectable businessman who cuts corners every now and then.”
79 ADMINISTRATION AND ENFORCEMENT

obviously be influenced by public perceptions as to what is and what is not criminal conduct or
what is or is not socially acceptable. The national laws of any given State do not necessarily always
reflect the views of the general population. What may in law be defined as criminal behaviour may
well be viewed, by certain segments of society at least, as quite acceptable. Conduct viewed as
criminal behaviour within one part of society, may well be viewed as wholly acceptable or
excusable in another. Even where conduct is indeed recognized as unlawful, many citizens may and
do have the attitude of ‘it does not affect me’ or ‘it is not my business’, or they may simply wish not
to get drawn into the enforcement and/or judicial process. Lack of trust in the Revenue, the belief
that nothing will transpire from such a report, is also a possibility which cannot be excluded.

(b) Loyalty towards the offender

The failure to report suspected or known tax fraud, may also spring from loyalty towards the
offender. Wives, children, friends, and others close to the offender, may and often do suspect or
may be aware of the offender’s unlawful activities, but as is the case with many other crimes, the
relationship between the person concerned and the offender will more often than not prove stronger
than the moral duty to blow the whistle on him/her.

(c) Fear
The non-reporting of tax fraud may also be driven by fear. Fear not only comes in many shapes and
forms, but it is also very personal and subjective. In many instances there may be a fear of reprisals
and/or victimization. This may typically include the fear of physical violence. This is not at all
uncommon when dealing with those engaged in smuggling operations or other organized criminal
enterprises. Professional advisors such as accountants, lawyers, and tax advisors, may often refrain
from reporting suspected tax fraud out of fear of losing valued clients or of being labelled as an
informant reporting on clients.215 Family members may fear the impact of Revenue action on a
family's financial security, employees may fear the closing down of the business or of placing at
risk their relationship with their employers, or company officers may fear the negative publicity
should a fraud within the company become public.

1.5.5.2.3 Non-recording
The fact that a crime is reported does not mean it will be recorded as such.216 The reality is that only
a small percentage of tax frauds indeed detected or reported will ever be recorded in official crime
statistics. The greater number of revenue frauds are dealt with administratively, landing the
offending taxpayer with no more but an assessment and possibly a hefty penalty, but with the fraud
not being recorded as a crime and with the offender not being prosecuted.217

1.5.6 The ‘tax gap’

The 'tax gap' can be defined as the difference between the taxes that the law seeks to collect, and the
taxes indeed collected. This difference can be attributed to lawful and unlawful conduct, both

215
See M Kapardis & A Kapardis, “Co-regulation of fraud – detection and reporting by auditors in Australia:
criminology’s lesson in non-compliance” (1995) Australian and New Zealand Journal of Criminology 28 (2): 206
216
See the discussion by Coleman & Moynihan at 34
217
See Coleman & Moynihan at 31-32 where it is inter alia said: “There are also those kinds of offences which tend to
be dealt with by agencies other than the police and the orthodox criminal justice system. Mike Maguire (1994: 248)
points to tax and benefit fraud, some of which is dealt with by the Inland Revenue, Customs and Excise, and the
Department of Social Security. While these agencies may keep their own records of cases dealt with, they do not keep
figures of the number of offences (many of them repetitive). This, of course, leads us back to the discussion of white
collar crime in Chapter 1, which drew attention to the idea that some misdeeds and their perpetrators have relative
immunity from the processes of orthodox criminal justice and the record they produce.”
80 ADMINISTRATION AND ENFORCEMENT

intentional and non-intentional.218 Tax avoidance for example also contributes to the 'tax gap', but
tax avoidance is not criminal. In short, tax escaping the tax net due to fraud will always make out
part of the tax gap, but only part of the tax gap can be attributed to fraud. The tax gap is particularly
problematic in developing countries and states in transition.219 Although numerous mathematical
models do exist and are often used in estimating the extent of tax escaping the tax net,
quantification may prove difficult. This is not surprising considering the difficulties associated with
the detection and quantification of both tax avoidance and tax evasion.

In Britain, HMRC do publish estimates of the tax gap. Although just estimates these figures do
confirm tax fraud as clearly accounting for a sizeable part of the tax gap. What is more, in terms of
monetary amounts, tax fraud represents three quarters of all public sector frauds. The following
government estimates provide for a useful breakdown of the relative extent of: (a) the tax gap; (b)
tax fraud; and (c) public sector fraud.

2009-2010 2010-2011
TAX GAP £ 35 Bn220 £ 32 Bn 221

TAX FRAUD £ 14 billion222 £ 14 billion223

Made up:
'Evasion' £ 4 Bn (12 %)224 £ 4 Bn (14 %)225
'Hidden Economy' £ 4 Bn (12 %)226 £ 5 Bn (16 %)227
'Criminal attacks' £ 6 Bn (16 %)228 £ 5 Bn (16 %)229

AFI 2011230 AFI 2012231 AFI 2013232

Public Sector Fraud £ 21.2 Bn £ 20.3 Bn £ 20.6 Bn

Made up:
Tax fraud £ 15 Bn £ 14 Bn £ 14 Bn
Local Government £ 2.1 Mil £ 2.2 Mil £ 2.1 Mil
Central Government £ 2.6 Mil £ 2.5 Mil £ 2.6 Mil
Benefits and Tax credits £1.5 Bn £1.6 Bn £1.9 Bn

Revenue enforcement efforts tend to be directed at reducing the tax gap irrespective of how it
arises. From the Revenue’s point of view, the investigation and prosecution of tax fraud is no more

218
See Annual Fraud Indicator, January 2010, issued by the National Fraud Authority, United Kingdom, at 14 where it
is said: “The tax gap is driven by a wide range of behaviours, from simple error and failure to take reasonable care to
evasion and criminal attacks.”
219
See Sandford, “Policies Dealing with Tax Evasion” in Feige & Ott (Ed) Underground Economies in Transition:
Unrecorded ativity, tax evasion, corruption and organized crime 87-100 at 87
220
HM Revenue and Customs. (September 2011) 'Measuring Tax Gaps 2011'
221
HM Revenue and Customs. (October 2012) 'Measuring Tax Gaps 2012'
222
National Fraud Authority. (March 2012) Annual Fraud Indicator 2012 at 7
223
National Fraud Authority. (June 2013) Annual Fraud Indicator 2013 at 13
224
Annual Fraud Indicator 2012 at 49
225
Annual Fraud Indicator 2012 at 49
226
Annual Fraud Indicator 2012 at 49
227
Annual Fraud Indicator 2013 at 53
228
Annual Fraud Indicator 2013 at 54
229
Annual Fraud Indicator 2013 at 54
230
National Fraud Authority. (January 2011) Annual Fraud Indicator, 2011 at 7
231
Annual Fraud Indicator, 2012 at 7
232
Annual Fraud Indicator, 2013 at 13
81 ADMINISTRATION AND ENFORCEMENT

but part of a broader enforcement philosophy the main objective of which is achieving higher levels
of general compliance and the reduction of the tax gap.

1.5.7 The underground economy

The ‘underground economy’ is in essence a parallel economy where commerce and trade goes
unrecorded. It is what most people will generally refer to as the 'black market'. It is also economic
activity that tends to escape governmental control and regulation. The economic figures as reflected
in the national accounts of affected States will thus seldom provide for an accurate picture of ‘real’
economic activity. The underground economy grows on activities associated with illegal
immigration, counterfeiting, smuggling, tax evasion, crime, and the circumvention of state
regulation. Underground economic activity can be found in all States. It is activity that cannot be
eliminated but must nevertheless be controlled. Numerous economic, political, cultural, social,
administrative, and regulatory factors may contribute to its growth. Examples of drivers or
contributing factors that have in the past been cited are: 233

(a) lack of formal employment opportunities;

(b) poverty and poor economic development;
(c) the need to be competitive against those operating in the underground economy and/or who
evade taxation;
(d) the nature of production;
(e) generous unemployment benefits;
(f) low tax morality or negative attitudes towards taxation;
(g) a negative attitude towards the government and/or the tax administration;
(h) low levels of literacy and education;
(i) high marginal tax rates;
(j) complexity of the tax law and tax system;
(k) limited capacity of tax administrations;
(l) government regulation and prohibition;
(m) technological developments; and
(n) lacking infrastructure

Underground economic activity is particularly problematic for states in transition and/or those states
lacking capacity. It may cover a wide range of activities involving the supply of goods and/or
services. Estimating the true size thereof may prove exceptionally difficult considering that much of
the activity is conducted in secret. A willing market and the demand for cheaper goods or services,
or the demand for goods or services not available in the regulated trade, also fuels the existence and
growth of the underground economy. The goods so supplied can be distinguished as falling into one
of two categories, the first being unrestricted goods dealt with and traded in a manner intended to
evade duties or taxes, and secondly, prohibited or restricted goods dealt with and traded in
contravention of certain prohibitions and/or restrictions. The first category of goods will generally
be traded cheaper compared to the equivalent available in the controlled market, with the market
often being the broader population in search of cheap goods. Smuggled consumer-goods such as
alcohol and cigarettes are good examples in point. The second category of goods may typically
involve strictly regulated or prohibited goods such as certain medicines, narcotics and weaponry.
The trade in those commodities is driven into the underground economy for the fact of the trade
therein being illegal and considering the limited availability thereof. The same applies to services.
These may typically be legal services rendered but kept under wraps with the intent to evade
taxation, or it may be prohibited or restricted e.g. illegal prostitution, illegal abortions, cheap but

233
The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives
used by CATA Member Countries at 13-17.
82 ADMINISTRATION AND ENFORCEMENT

illegal labour using illegal workers, or medical practitioners secretly offering medical services to
criminals on the run. Payment for these goods and services may be in the form of money, in the
form of bartered goods, or some or other form of consideration other than money.

Regulation means interference, and where there is interference in matters affecting commerce and
trade, there will always be those who will attempt to evade that regulation. The 'free' trader may
trade as he does out of choice and with the view to avoid regulation or State interference, or he may
well so trade as a consequence of it. Take for example the case of medical practitioner disbarred
from practice as a result of malpractice. Not being able to ply his profession legally, and often with
no other marketable skill, he may start to offer his services in the underground economy. Another
good example is that of prostitution in those jurisdictions where still illegal.

As the underground economy operates in disregard of regulation and restrictions, it can rightly be
described as less restricted and more 'free' compared to the regulated economy. A growing
underground economy, and the gradual loss of control over commerce and trade, may gradually
displace regulated commercial activity into the unregulated black market. The greater the
underground economy, the more difficult it becomes to police. This in turn offers increased
opportunity to defraud and escape detection. Secrecy, trading without the Revenue's knowledge, not
being registered for tax, smuggling and other forms of criminality, and a flagrant disregard of
Revenue controls is characteristic of this parallel economy. The relationship between the
underground economy and taxation is a peculiar one with both potentially impacting on the other.
Taxation and tax enforcement may in itself be a driver or contributing factor that may prompt many
to escape into the underground economy. A growing underground economy in turn leaves in its
wake higher levels of tax evasion. As the untaxed sectors of the underground economy wins
market-share over those traders that do comply with their tax obligations, the tax-contribution of the
compliant taxpayers as a share of the tax base may diminish.

The more pervasive the underground economy, the greater will be its impact on economic policy.
The non-recording of economic activity may have the effect of distorting statistical information
critical for policy and fiscal planning. If left unchecked, the underground economy may grow
beyond the point of being a mere ‘hidden economy’, increasingly displacing regulated economic
activity. In many states the underground economy may constitute a significant part of the
economy.234 Although unregulated and untaxed, it may nevertheless provide for millions of jobs
and may be the sole livelihood of a significant part of the population. Underground economic
activity may often be the only alternative for marginalized parts of the population forced into
informal economic activity for their survival. Policymakers will thus often have no choice but to opt
for long-term programmes aimed at education, strengthening tax morale, increasing general
compliance, and gradual interception into the tax net.

1.5.8 Tax havens

Tax havens have earned a reputation as jurisdictions extensively used in facilitating large-scale tax
avoidance, tax evasion, corruption, transnational crime, and money laundering. This is well
documented and reported. Any attempt at estimating the full extent of the untaxed wealth transiting

234
See e.g. the Daily Monitor, July 30, 2005, “Smuggling costs govts multi-billion tax losses” wherein, referring to a
study conducted on the illicit cross-border trade between Kenya and Uganda, it was reported that an estimated 60
percent of all cross-border trade between those states was in illicit goods. In some instances, a serious state response
may practically wipe out local economies. See e.g. The New York Times, March 6 2000, “China’s Fierce War on
Smuggling Uproots a Vast Hidden Economy”, where it was reported that the extent of illicit trade in certain parts of
China only became evident following strong action by the Chinese authorities. In certain areas, the state’s crack-down
practically wiped out the local economies. See Ott supra at 29 referring to research which estimated Croatia’s
underground economy as amounting to 25 percent of GDP.
83 ADMINISTRATION AND ENFORCEMENT

through or hidden away in those jurisdictions will be no more but a guess, or at best a very rough
estimate. It can however be safely said that a considerable chunk of the world's evaded tax revenues
have over many decades found safe passage to and disappeared in or via many of those
jurisdictions, places like Switzerland, the Cayman Islands, Panama, Bermuda, Guernsey, Jersey,
Singapore, the Dutch Antilles, and Luxembourg being notable old favorites.

There is no reliable precise definition of what exactly makes a jurisdiction a 'tax haven'. Definitions
there are, and many of those definitions do capture some common characteristics deemed to be
characteristic of 'tax havens', but real consensus there certainly is not. One of the characteristics
consistently found in all those definitions is: the imposition of little or no tax.235 There is however
nothing sinister or new about imposing little or no tax. Most countries place a high premium on
providing for an investor-friendly environment, and low tax rates have been a key strategy to lure
businessmen since the dawn of time. The 'tax haven' has for centuries been a feature of international
trade and international tax planning.236 Characteristics pointed out as often found to apply in
relation to tax havens are: the jurisdiction imposes little or no tax in relation to certain taxes; some
degree of secrecy underpinned by the laws of the jurisdiction in question; banking is often an
important or key economic sector; professional expertise; lack of exchange controls; political
stability; good lines of communication; accessibility and good location; and self-promotion as tax
havens.237 As to why people use tax havens, the 'Gordon report' provided for the following possible
reasons: (a) low tax rates; (b) confidentiality; (c) freedom from exchange controls; (d) freedom from
banking controls; and (e) more favourable interest rates.238 Although the Gordon report dates from
1981, these reasons still hold true today. All tax havens will not however necessarily offer all these
advantages. The fact that a taxpayer or trader invest in, trade in, manufacture in, or bank in a 'tax
haven' does not however justify an inference of tax avoidance and even less so tax evasion. It also
does not justify an inference of involvement in any type of criminality.

Jurisdictions with low or no taxes obviously place at a disadvantage other jurisdictions with higher
tax rates, but no tax jurisdiction is legally or morally under the slightest obligation to introduce
certain taxes, raise certain tax rates, or to maintain higher tax rates so as to please other tax
jurisdictions or to protect the tax base of those other jurisdictions. Favourable tax rates or not
levying tax on certain transactions with the view of attracting business or investment is perfectly
legitimate. What is of legitimate concern is non-transparent jurisdictions or centres facilitating

235
See Black’s Law Dictionary, 6th ed at .1461 where ‘tax haven’ is defined as: “A country that imposes little or no tax
on the profits from the transactions carried on from that country.”
236
See the 'Gordon report' where at .21 the writers provided for the following historical background: "People have been
looking for ways to avoid taxes for many years. Likewise, governments have been using tax incentives to attract or
maintain business for many years. For example, the ancient city of Athens imposed a tax on merchants of two percent
of the value of exports and imports. Merchants would detour twenty miles to avoid these duties. The small neighboring
islands became safe havens in which to hide merchandise to be smuggled into the country at a later date. In the middle
ages, the City of London (as well as other jurisdictions) exempted Hanseatic traders resident in London from all taxes...
In the fifteenth century, Flanders (now Belgium) was a thriving international commercial center. Its government
imposed few restrictions on domestic or foreign exchange and freed much trade from duties. English Merchants
supplied the needed raw materials, preferring to sell wool to Belgium rather than to England where they would incur
numerous duties. Holland (which some consider a tax haven today) was a tax haven during the sixteenth, seventeenth,
and eighteenth centuries, applying a minimum of restrictions and duties. The commerce attracted made its ports
important. International tax avoidance is not new to the US. In 1721, the American colonies shifted their trade to Latin
America, in order to avoid paying duties imposed by England." Commissioner of Internal Revenue. "Tax havens and
their use by United States taxpayers: and overview : a report to the Commissioner of Internal Revenue, the Assistant
Attorney General (Tax Division) and the Assistant Secretary of the Treasury (Tax Policy)", Submitted by Richard A
Gordon, January 12, 1981, Publication 1150 (4-81) at .21
237
Commissioner of Internal Revenue. "Tax havens and their use by United States taxpayers: and overview : a report to
the Commissioner of Internal Revenue, the Assistant Attorney General (Tax Division) and the Assistant Secretary of the
Treasury (Tax Policy)", Submitted by Richard A Gordon, January 12, 1981, Publication 1150 (4-81)
238
See the 'Gordon report' where at .23
84 ADMINISTRATION AND ENFORCEMENT

and/or promoting the subversion of the rule of law in other responsible jurisdictions or making it
impossible for other responsible jurisdictions to enforce their laws. It is not 'tax havens' as per the
old classic definition (jurisdictions with little or no tax) that is the problem, but non-transparent
rogue financial centres which all tax havens are not.

The same financial and corporate structures, banking systems, offshore financial centres, tax
havens, legal persona, and business practices used for the facilitation of international business, are
just as effectively used to facilitate tax frauds, other categories of crime, and the laundering of the
proceeds of crime. The same tax haven, body corporate, charity, or trust, can be used for both
lawful and unlawful purposes, quite well by the same person. A taxpayer may well use the same
shell company in the same offshore jurisdiction to structure both unlawful tax evasion schemes and
legitimate business transactions. Many of the evasion and avoidance schemes employed make
extensive use of offshore vehicles such as foreign registered front-companies and trusts. Those
vehicles will often be integral parts in the structuring of the evasion or avoidance schemes
employed, and/or for the holding of the funds and assets, and/or in ensuring non-identification of
the beneficiaries and/or the funds, and/or to keep wealth out of sight and out of reach. It will often
prove difficult or impossible to determine the identities of the true beneficiaries. Many of these
vehicles are set up and maintained for no other purpose but to facilitate tax evasion or some or other
form of criminality.239

What many of these places have on offer, a commodity in high demand, is secrecy. It is the
guarantee of secrecy that encourages abuse. Many of them have historically provided a considerable
degree of protection and have for many decades served as a secure base for the wealth of many a
tax evader, fraudster, terrorist, drug trafficker, corrupt politician and many others. The tainted funds
finding its way to these jurisdictions will often include: (a) the proceeds from criminal activity; (b)
the income from legal activity but not declared for tax purposes; and (c) flight capital illegally
moved offshore. Requests for the release of information will often be met with stiff resistance, and
attempts by revenue administrations to secure such information have historically proved difficult or
unsuccessful.240 Domestic courts do not have the jurisdiction to force third parties in foreign
jurisdictions into disclosing information on their customers. Even where information is provided, it
will often not be admissible as evidence in domestic courts. Treaties allowing for information
exchange are always a good starting-point, but adequacy obviously depends on the commitment of
the contracting parties, the legal force of those treaties in the foreign / haven jurisdiction, and the
efficiency of the systems in place.

Governments do adopt policies and legislation intended to counter or mitigate abuse, typically
through treaties and the enactment of transfer pricing, anti-avoidance, controlled foreign companies,
and exchange control legislation. The problem however is this, successfully dealing with matters
such as aggressive tax avoidance, 'hostile' tax havens, tax evasion, crime, corruption, and money

239
See e.g. the Australian case of R v Sakovits [2013] NSWSC 464 where the Australia-based appellants' accountant
introduced them to and assisted them with setting up a tax fraud which involved: (a) the setting up of a company in
Vanuatu; (b) the raising of false invoices purportedly raised by the Vanuatu company and intended to give the
appearance of legitimate business transactions and thus legitimate expenses incurred by the Australian company; (c) the
transfer of monies from the Australian company to the Vanuatu company disguised as legitimate payments by the
former to the latter; and (d) the false expenses were then incorporated into the Australian company's income tax returns,
thereby reducing the company's taxable income. The key to the challenge posed by tax havens is to be found in the
following passage: "… by using the tax haven of Vanuatu as the place for IPPI's incorporation … they were able to
conceal their involvement in IPPI. The use of nominee directors and shareholders and the establishment of
confidentiality agreements all meant that the offenders employed a degree of sophistication to conceal their involvement
and which greatly reduced the possibility that the tax evasion would be discovered …"
240
See e.g. China Daily, November 25 2004, “Evasion a taxing problem”. Also see The Financial Times, May 03 2006,
“Revenue wins offshore battle”
85 ADMINISTRATION AND ENFORCEMENT

laundering, calls for an international approach with sufficient critical mass in terms of coverage and
cooperation. Countries do however have to compete in the global arena, and a competitive one at
that. It is an easy task for any government to take an aggressive posture in dealing with issues such
as international tax avoidance and evasion, or international corruption engaged in by major
corporations, but doing so can very fast place it at a competitive disadvantage. The key to dealing
with these problems is thus the fostering of an international understanding of what is acceptable or
otherwise and a shared commitment not to tolerate and neutralise unacceptable behaviour. That
includes initiatives intended to isolate non-cooperative abusive tax havens.

1.5.9 Capital flight

The negative impact of capital flight on the well-being of states has long been recognised. Capital
flight has historically been a major problem for those jurisdictions in transition and/or those states
suffering socio-political instability. Capital flight often follows in response to real or perceived
political, economic, or financial insecurity, and is thus often driven by the perceived need to
mitigate risk. Capital flight may however also exasperate financial instability. The capital being
moved may have been generated from legal or illegal activities. The methods by which the capital is
taken out may also be legal or illegal. Flight capital tainted with illegality will seldom be returned to
the country of origin considering that the capital was generated, retained or moved illegally. More
often than not, the capital and the possible earnings thereon tend to stay in the foreign jurisdiction.

Identifying the true nature or character of the funds, and/or the identities of the beneficiaries will
often prove difficult. The individuals or entities moving the capital will often attempt to keep their
activities secret as best they can. The methods used to transact or move the capital are legio and
often resemble those so often used in tax evasion and money laundering operations. These may
range from the over-invoicing of imports, to smuggling, or the setting up of sham transactions, to
list but a few. Tax evasion, contraventions of exchange control regulations, money laundering, and
capital flight, often go hand in hand. Transactions, arrangements, or schemes set up or used to
facilitate the outward movement may in many instances also be used as a means to evade taxation
and/or to move the proceeds of a tax fraud. Schemes used to facilitate capital flight may in many
instances also be used for the evasion of taxation, and schemes used for the evasion of taxation may
just as often be used to facilitate capital flight.

1.5.10 Taxing the proceeds of crime

Income tainted with illegality may, depending on jurisdiction, also be subject to taxation. The
definition of 'income' as it appears in the legislation of many jurisdictions makes no distinction
between lawful or unlawful income. The principle that all people should pay tax on all income,
whether that income was derived from legal activity or otherwise, has long been affirmed in the
United Kingdom,241 New Zealand,242 South Africa,243 and the United States.244 This then is also the

241
See R v Goodwin & Unstead [1996] EWCA 1639 where the court held income generated from the illegal trade in
imitation perfume to be taxable. Both appellants were found guilty of fraud for their failure to register for and to declare
VAT. In R v Citrone [1999] BTC 5050 the illegal supply of anabolic steroids was held to be taxable. In Customs and
Excise v Oliver [1980] 1 All ER 353 the supply of stolen cars was held to be a supply for VAT purposes. In C & E v
Polok and Another [2002] EWHC 156 (CH) it was held that an escort agency had to account for VAT. The court held
that only exceptional circumstances could justify the giving of a tax advantage to those who generate money from
crime.
242
See Allen & Anor v The Commissioner of Inland Revenue [2004] NZCA 184 (Court of Appeal of New Zealand) at
paragraph 90, where Young J inter alia remarked: “On the material advanced by the Commissioner there was a solid
evidential foundation for the view that Messrs Allen and Palmer were in-substance partners engaged in the business of
promoting a fraudulent investment scheme ... Such a partnership of course is not recognisable as a matter of law ...
Profits made pursuant to a partnership that is illegal may nonetheless be taxable.”
243
See MP Finance Group CC (in liquidation) v Commissioner for the South African Revenue Service (2007) SCA 71
(RSA) (Supreme Court of Appeal of South Africa)
86 ADMINISTRATION AND ENFORCEMENT

correct approach. There is no justification for law abiding taxpayers to be taxed for what criminals
refuse to contribute.245 Taxing the proceeds of crime not only makes crime less profitable, but it
also contributes to closing the tax gap.

In those jurisdictions where the proceeds of crime is taxable, the failure to declare the income
generated from criminal activities may thus also give rise to evasion or fraud charges. The first well
documented and probably most publicized case where a prominent member of an organised
criminal group landed himself in jail following a criminal tax investigation was that of American
gangster Alphonso Capone. After years of fruitless investigations and attempts to secure a
conviction against this individual who openly taunted the authorities, the IRS eventually proved that
he failed to pay tax on $165,000 income. He was convicted and sentenced to eleven years in prison,
a sentence he served on Alcatraz, with an additional $80,000 fine. This route has since been widely
used to neutralize certain criminal elements.246 In many of those instances where the taxpayer's
income originated from illegal activities, investigators will have no choice but to fall back on
indirect methods of proving the non-declaration of income. The prosecution's case may in these
cases rely solely on circumstantial evidence.247 Proving the State's case may be difficult, but it is by
no means impossible.

Proving funds to be the proceeds of crime may in many instances prove difficult or even
impossible. In many of these cases the subject of an investigation may allege the funds to be
legitimate income. Tax evasion charges may in many of these cases prove to be their Achilles heel
where the ‘income’ was not declared for tax purposes. Just like all a taxpayer's 'income' will not
always be 'taxable income', so will all ‘income’ tainted with illegality not necessarily be 'taxable
income'. The 'income' that will indeed be taxable is a matter of law. The possibility of those being
taxed on the proceeds of their criminal activity also being entitled to claim as deductions certain
expenditures and losses incurred in the process of generating that income cannot be excluded.248

244
See James v United States 366 U.S. 213 (1961) at 218 where Chief Justice Warren inter alia stated: “It had been a
well-established principle, long before either Rutkin or Wilcox, that unlawful, as well as lawful, gains are
comprehended within the term “gross income”. Section II B of the Income Tax Act of 1913 provided that "the net
income of a taxable person shall include gains, profits, and income ... from ... the transaction of any lawful business
carried on for gain or profit, or gains or profits and income derived from any source whatever ... “ (Emphasis supplied.)
38 Stat 167. When the statute was amended in 1916, the one word “lawful” was omitted. This revealed, we think, the
obvious intent of that Congress to tax income derived from both legal and illegal sources, to remove the incongruity of
having the gains of the honest labourer taxed and the gains of the dishonest immune.” Also see Bell, “Taxing the
proceeds of crime” (2000) Journal of Financial Crime 8 (2): 136-144
245
See Balter, Tax Fraud and Evasion, 5th ed at 1-6 where the writer inter alia said: “The cryptic comment of Mr
Justice Holmes, “Of course, Congress may tax what it also forbids”, is still as good a basis as any for the unflinching
rule that gains or profits from illegal activities or unlawful enterprises constitute taxable income insofar as the federal
government is concerned. The sociological basis for the rule is, of course, that the failure to tax this illegally acquired
income would be shifting the tax burden to the law-abiding taxpayer. This rule has been applied to income from the
following sampling of illegal sources: illegal sale of liquor, illegal gambling, ransom funds, usurious interest, railroad
overcharges, bribery, graft money, and kickbacks, unlawful insurance policies, extralegal exactions of corporate
officers, sale of stolen goods and extortion.”
246
See Lyman & Potter, Organised crime 2nd ed at 110
247
See e.g. the US case of United States v Marinson 832 F2d 1465 (7th Cir 1987) where the prosecution relied on cash
expenditure analysis in proving that there must have been substantial additional income in each of the relevant tax
years.
248
See e.g. the Indian case of Dr. T. A. Quereshi v. Commissioner of Income Tax, Bhopal [2006] INSC 914 (Supreme
Court of India) where a medical practitioner engaged in the manufacture of heroin claimed as a tax deduction certain
raw material seized by the authorities. The High Court found in favour of the Revenue who argued that the loss was not
deductible considering the heinous nature of the business activities the taxpayer was engaged in. The Supreme Court
overturned the High Court’s decision holding that: “In our opinion, the High Court has adopted an emotional and moral
approach rather than a legal approach. We fully agree with the High Court that the assessee was committing a highly
immoral act in illegally manufacturing and selling heroin. However, cases are to be decided by Court on legal principles
87 ADMINISTRATION AND ENFORCEMENT

1.6 Revenue enforcement

1.6.1 General
In this discussion we will briefly deal with revenue enforcement. We should perhaps from the outset
state that revenue and customs enforcement is but just a narrow area of wider revenue and customs
administration. We must also acknowledge that enforcement operations can only contribute so
much to the overall success of revenue and customs administrations and no more. In fact, even
revenue and customs administrations, regardless how well thought out their strategic planning and
policies, no matter how high their standards of administration and enforcement, and no matter how
effective their education, compliance and enforcement programs and operations may be, can only
achieve so much. Taxation and customs we must remember cannot be untied from economic, social,
and political realities. Revenue and customs administration is but a very small ship on seas the
currents and waves of which is driven by economic, social, and political challenges and
pressures. All indications are that our future is one that may grow increasingly more complex and
loaded with potential instability and risk. Just a few issues that come to mind, some of many, are:
(a) growing risk and unpredictability in global financial systems; (b) growing environmental
pressures; (c) an unsustainable population-growth outstripping future, and in many countries and
regions current, capacity; (d) growing food, water, and energy demands and insecurity; (e) shifts in
regional and global economic, military and political power; and (f) growing national and regional
political instability in many parts of the world. Needless to say, the pressures on future governments
and their efforts at state administration and service delivery can only be expected to increase. Their
ability or failure to deliver will directly impact on their legitimacy. The legitimacy of revenue and
customs administrations is however very much reliant on the legitimacy of government. In many
countries and regions, the environment within which revenue and customs administrations are
expected / will be expected to operate can thus be expected to grow increasingly more challenging.

The imposition and collection of taxation is backed up by a complex system of law. Compliance
with those laws is essential as no State can function or deliver without the financial resources to do
so. The failure to secure state-revenue compromises the state’s capacity to govern and deliver. Tax
compliance cannot be ensured by reliance on tax morality alone. It is something which calls for
continues and vigilant enforcement. The Keith Committee report249 had the following to say
regarding the importance of tax enforcement:

“Expenditure by the state, on matters intended to be for the benefit of the population as a whole, is
financed principally out of taxation. Most of the population accept that this is desirable, and
appreciate the benefits derived from it, though opinions differ about its appropriate scale. While the
majority of taxpayers meet their obligations with fairly good grace, some do not. It is therefore
necessary for the revenue gathering Departments to have an adequately equipped armoury of
coercive powers to deal with the recalcitrant minority. There are two further reasons for this. The
first is simply to secure that the revenue of the state is maintained at the level which Parliament has
considered appropriate and has budgeted for. The second, and no less important, reason is to secure
that the burden of taxation is evenly spread. If it is not, and some people are perceived to be escaping
their obligations, great dissatisfaction is likely to be aroused among the majority of conscientious
taxpayers. Further, more and more of them will be inclined to become less conscientious, and to join
the ranks of the evaders. Thus the tax base yield will become progressively eroded. Enforcement
powers are therefore necessary not only to coerce the dishonest and the neglectful, but to encourage
the honest and conscientious”

and not on one's own moral views. Law is different from morality, as the positivist jurists Bentham and Austin pointed
out”
249
Keith Committee, Report on Enforcement of Revenue Powers, Cmnd 8822, 1983 at paragraph 1.1.1
88 ADMINISTRATION AND ENFORCEMENT

If a high level of voluntary compliance is on the one end of the spectrum, then endemic non-
compliance must be on the other end. Clamping down on endemic levels of tax evasion and
smuggling and keeping same within acceptable levels can however prove a difficult challenge for
any State. Regaining control will more often than not require both strong enforcement and the re-
education of the population as a whole for whom tax evasion and the illicit trade may have grown
acceptable. Taxpayers are furthermore more likely to comply and remain compliant if they believe
compliance to be the acceptable norm.250 Accepting that our society cannot function as it does
without taxation, and accepting tax compliance not to be possible absent enforcement, one cannot
but arrive at the conclusion that tax enforcement is a condition sine quo non for a working and well
organized modern society.

Compliance with any regulatory framework, taxation or otherwise, is wholly dependent on the
capacity of the State to monitor and enforce compliance with that framework, to investigate
breaches thereof, to prosecute contraventions thereof, and to deal effectively with offenders. The
primary objective with tax enforcement is the protection of the integrity of the tax base and ensuring
the efficient operation of the tax system. This calls for effective detection, correction, and
deterrence, none of which is possible in the absence of effective enforcement. Effective
enforcement do however call for sufficient dedicated resources, continues investment, planning, risk
assessments, monitoring, and the introduction of new measures and procedures. It involves a
constant investment in recruitment, training and retraining of personnel. Strategies, policies and
procedures intended to enhance overall capacity in terms of prevention, detection, and investigation,
must be fit for purpose and must remain effective. This calls for continues monitoring and analysis
of the performance of the systems and measures in place. The identification of any failures or
weaknesses in those systems should be followed by the implementation of appropriate controls and
countermeasures.

In the UK, responsibility for the enforcement of the national revenue legislation rests on Her
Majesty's Revenue and Customs (HMRC). Within the Revenue's enforcement divisions are to be
found various functions tasked with inter alia audits, inspections, collections, and investigations.
The revenue laws administered by the Commissioners provide the Revenue with strong powers of
information gathering, inspection and investigation, powers which are absolutely essential in
enabling the Revenue to effectively enforce those laws.

1.6.2 Revenue Powers

Universally, but throughout the English-speaking world at least, revenue legislation provide the
Commissioners and their officers with extensive powers for the enforcement of the revenue laws.
Although primarily a revenue agency responsible for the administration of the UK's revenue
legislation, Her Majesty's Revenue and Customs (HMRC) also carries responsibility for certain
enforcement functions falling within wider law enforcement. As agency, HMRC's mandate is a
broad one, backed up as it is with an extensive body of robust legislation and extensive powers.
Many of these powers could be found in English statutes dating from the 16th and 17th century, a
time when revenue enforcement could be draconian to say the least, a time in fact when certain
revenue offences carried the death penalty.

The powers that may be available to the revenue authorities in any given jurisdiction depends on a
number of factors such as but not limited to: that jurisdiction's constitutional framework; the history
and culture of revenue collection and enforcement in that jurisdiction; the legislative framework
within which that jurisdiction's national revenue is required to carry out its mandate; the extent of

250
See e.g. Tyran & Feld, “Why People Obey the Law - Experimental Evidence from the Provision of Public Goods”
(2001) Discussion Paper no 2001-14, where an experimental model used indicated taxpayers to be more compliant if
they believed others to be compliant.
89 ADMINISTRATION AND ENFORCEMENT

parliamentary and judicial oversight; and whether or not that jurisdiction's national revenue is also
required to fulfil the functions of a national law enforcement agency. These powers will usually
include, but will usually not be limited to:

(a) the power to require from certain persons the disclosure of certain information;
(b) the power to require access to or require the furnishing of records and documents;
(c) the verification of the accuracy of returns, bills of entries, the legitimacy and accuracy of
claims, or other information as provided by various categories of persons;
(d) the authority to carry out audits and inspections;
(e) the raising of assessments for outstanding duties, taxes, and levies;
(f) the imposition of administrative penalties;
(g) the payment and disposal of fines and penalties, and the remission or mitigation of penalties
and forfeiture;
(h) ascertaining whether any provisions of any relevant legislation have been contravened and
the prevention and detection of offences;
(i) securing evidence of the commission of offences;
(j) under certain circumstances the authority to search for and seize goods or things and to enter
premises;

These powers are very much representative of that to be found in the legislation of most
jurisdictions. The manner and circumstances under which these powers may be exercised is a matter
of law and will obviously differ from jurisdiction to jurisdiction. Revenue administrations require
strong powers if they are to effectively enforce the revenue laws. This much is common cause. The
challenge however will always be a matter of framing legislation and formalizing protocols and
procedures in such a way as to ensure a balance between the use of those powers and safeguarding
the rights of the citizen. Every power, looked at individually, need be considered and exercised with
due consideration to its efficacy, consistency, proportionality and fairness.

Revenue authorities today are under considerable public scrutiny and subject to frequent legal
challenge. Not surprisingly, many of those challenges relate to the merits of certain revenue powers
and/or how those powers are exercised. The 'old' way of doing things just a few decades past is
over. Even though the powers available to the HMRC may be wide, effective controls and
oversight, not only administrative but also parliamentary and judicial, do generally provide for
sufficient checks and balances to ensure they are exercised with care.

In most western nations today, all state-sanctioned action must conform to those laws relating to the
protection of human rights and fair administrative action. Today, Britain's revenue legislation,
revenue administration, tax enforcement, the powers available to HMRC, and the manner in which
those powers are exercised, have to conform to all those legal frameworks as embraced by the UK.
This includes adherence to those legal frameworks embraced by the UK as member of the European
Union (EU).251 This holds equally true for the UK prosecuting authorities and how it conducts itself
in the prosecution of offenders.252

251
Notably the European Convention of Human Rights (ECHR) and the Human Rights Act 1998
252
Decisions taken by Parliament, both the UK and European Parliaments, are also subject to judicial review. Even
decisions of the European Parliament can be challenged and are subject to review by the Court of First Instance of the
European Communities under Articles 230 and 231 of the EC Treaty which inter alia reads as follows: “230. The Court
of Justice shall review the legality…of acts of the European Parliament… Any natural…person may…institute
proceedings against a decision addressed to that person or against a decision which …is of direct and individual concern
to…him. … 231. If the action is well founded, the Court of Justice shall declare the act concerned to be void.”
90 ADMINISTRATION AND ENFORCEMENT

1.6.3 Reducing the levels of evasion

Revenue administrations like many other governmental and private institutions go to great lengths
to protect themselves against fraud. This however is a considerably more difficult challenge for
Revenue administrations compared to most other types of organizations, governmental or
otherwise. Looking at fraud prevention within the revenue-context, it is not difficult to appreciate
the challenges associated with 'preventing revenue fraud'. To start with, self-assessment systems of
taxation are built on trust. The responsibility is placed on the taxpayer to truthfully declare.
Revenue administrations do not only need to guard against those who commit overt criminal acts,
but measures and systems must also be geared towards detecting and dealing with those who fail to
act where they are under a legal duty to act positively. Hardening any organization against fraud is
also significantly more difficult where your 'customers' are not just a small select sample of the
population, but the population at large where you do not have the luxury of only selecting as
'clients' those posing the least risk. The Revenue must by law deal with all those falling within the
net of the legislation, both low and high risk taxpayers, the latter including known or suspected
criminals and those already defrauding the Revenue. The wide range of revenue and customs
statutes administered by the Commissioners also covers a very wide spectrum of activities,
economic or otherwise, with many of those activities of great complexity. This, coupled with the
constant evolution of societal and economic practices, complex legislation, and frequent changes in
law, makes the enforcement of the revenue laws a formidable task.

Many taxpayers know the likelihood of prosecution for tax evasion, when compared to most other
crimes, to be highly unlikely. Shoplifting, car-theft, defrauding investors, or cheque fraud, is just a
more unpredictable and risky affair compared to evading taxes in much larger amounts. The
shoplifter or cheque fraudster may well get himself arrested before he exits the shop or bank and he
may shortly after find himself rubbing shoulders with the best of hardened criminals the prison
system has to offer. Statistically speaking, very few tax evaders will ever see the inside of a
criminal court. Not surprisingly, many view the Revenue as an easy and soft target. The more
widespread and deep-seated that perception, the more widespread evasion can be expected to be.
Needless to say, perception-management is critical for purposes of fraud-prevention.

Many of the Revenue's 'customers' may have a better appreciation of the Revenue's strengths and
weaknesses than the Commissioners. Revenue authorities are expected to operate within legal
frameworks which, compared to that of many other organizations, are exceptionally transparent.
Furthermore, the procedures to be followed in administering those laws are very much public and
open, generally well communicated through to taxpayers. Most members of the broader public can
with relative ease familiarize themselves, if they chose to do so, with the legal framework within
which a particular revenue administration is expected to operate, how revenue officers are expected
to conduct themselves, current investigation and prosecution policies, and the current systems and
practices in operation. They will often have grown familiar with audits and inspections, often
possessing a detailed knowledge of how those audits and inspections are conducted and what the
inspectors look for. They will often have a good understanding of revenue behavior and may often
anticipate how the revenue can be expected to respond in certain situations. This may all paint a
very detailed picture of Revenue strengths and weaknesses, and perceived opportunities to defraud.

Revenue administrations increasingly follow a risk-based approach in theirs enforcement efforts

with enforcement operations increasingly being directed towards high-risk taxpayers, high-risk
sectors and high-risk activities.253 There can however not be any real 'risk-based' approach absent

253
Higher levels of evasion have long been noted in certain areas of the trade. See e.g. the following quoted from a
paper issued by the Quebec (Canadian) government where it was inter alia reported: “The economic sectors showing
the largest tax loss are construction and renovation, alcoholic beverages, restaurants and tobacco products. Some other
sectors such as personal services show lower tax losses, given their small size. They still, however, present significant
91 ADMINISTRATION AND ENFORCEMENT

analysis and intelligence. When we look at revenue and customs enforcement, then a number of
groups can be distinguished. These are: (a) those willing to do the right thing; (b) those whom may
try to do the right thing but don’t always succeed; (c) those who don't want to comply; and (d) those
who have decided not to comply.254 An additional category, a group the members of which may or
may not be 'taxpayers' can also be added to this list. They then also represent the most difficult
group to deal with. This is (e) criminals targeting the Revenue with the view to extract money from
the Government. Each of these groups pose different levels of risk. The risk assessments for each of
those groups will look different, and so may the strategies in dealing with those different groups.

1.6.4 Counter fraud strategies and measures

For any organization to develop strategies intended to deal with, counter, or mitigate current and
future threats, those threats must first be identified or anticipated. The larger the organization, the
wider its area of operations, the more complex the range of that organization's operational activities,
and the more 'hostile' the area of operations, the more difficult it becomes to identify those threats.
Thorough threat assessments are therefore critical in identifying and understanding current and
future threats. They guide the development of the most appropriate counter-fraud strategies and
counter-measures.

Taxpayers, tax planners, and criminal groups are fast to identify weaknesses in revenue and customs
systems and to exploit them. Different areas of the revenue system may also face different threats
and the severity of those threats may also vary. Criminal groups are fast to move their operations
from one area to another, attacking those parts of the system where the controls are perceived to be
the weakest. Those weak areas and shortcomings in the controls applied in relation to each of those
areas therefore need be identified and shortcomings need be addressed. Where weaknesses in one
area are addressed, the impact of any newly introduced measures on the rest of the system
obviously need be considered. Those doing the mending therefore need from time to time take a
step back, test and assess. They need consider the impact of those measures on the operation of
broader processes and the system as a whole. All measures and efforts employed over all areas also
need be coordinated and integrated if counter-fraud strategies intended to protect the system as a
whole is to be effective.

Where there are failures in effectively countering threats, those failures can often be attributed to
the failure to correctly identify and anticipate threats, or where the threats were correctly identified,
the organization often lacks the capacity to effectively deal with all those threats simultaneously. In
practice, the available resources will often be spread inadequately thin to start with. This then
usually leaves revenue and customs administrations with no choice but to distribute and commit
resources between those 'priorities' and 'threats' deemed to be the most critical at a given point in
time. This often results in the stripping and diverting of critical resources away from one area quite
possibly already under threat to another area considered to be a more pressing priority.

There is no set 'counter-fraud strategy' to deal with all manner and type of fraud, and a 'counter-
fraud strategy' that may be quite effective today may be wholly ineffective two decades later. The

tax evasion rates. The combined GDP of all sectors showing a tax evasion rate of 10% or more comes to just over 20%
of the total GDP for the sectors analysed, but they are responsible for 85% of all tax losses…..Table 4 shows that some
sectors, the services sector in particular, are more susceptible to tax evasion than others. It also shows that large
businesses are proportionally less likely to conceal income than small ones are. Large firms present a risk indicator (22)
that is nearly five times lower than average. Conversely, small businesses present an overall risk of 318, which is just
over three times higher than average.” Finances Quebec – Economic, Fiscal and Budget Studies, “Tax Evasion in
Quebec – Its Sources and Extent”, Volume 1, Number 1, April 22, 2005
254
This distinction has in the past been used by the Australian Taxation Office (ATO) in the targeting of its prevention
and enforcement efforts. See Australian National Audit Office. (2009) The Australian Taxation Office's Management of
Serious Non-Compliance, Audit Report No. 34 2008-09 at .18
92 ADMINISTRATION AND ENFORCEMENT

counter-fraud strategy one may expect to find in the banking environment will be quite different
from that which one may expect to find in say the insurance industry. Likewise, the counter-fraud
strategies intended to deal with revenue and customs frauds will also be very different from those
intended to deal with many other species of fraud. For any counter-fraud strategy to be effective, the
objectives to be achieved need be clearly defined, and the methods used in achieving those
objectives need be effective.

As far as revenue fraud is concerned, the evasion of duties and taxes is certainly the most
widespread and problematic for most revenue administrations. Strategies targeted at reducing the
levels of evasion tend to focus on: (a) minimizing evasion opportunities; (b) reducing the benefits to
be derived from evasion; and (c) the fostering of voluntary compliance.255

(a) Minimizing evasion opportunities

The opportunities to evade tax can be minimized through the implementation of measures and
strategies targeted at shaping and engineering the legislative framework, administrative
structures and systems, operational processes, and collection processes in such a way as to make
evasion more difficult. Examples of these measures may typically include: the deduction of tax
at source;256 the simplification of the tax system;257 honest tax administration;258 and the
implementation of other control-measures.

(b) Reducing the advantages of tax evasion

Evasion can be reduced by increasing the risk/gain ratio of evasion in such a way as to reduce
the net-advantages of evasion.259 Doing so involves a consideration of the following elements:
(a) income levels and the tax rates on income-bands; (b) the probability of being caught out; and
(c) the penalties if caught out.260 It is generally argued that the higher the income, the more the
gain from evasion, and the lower the tax rate the less the gain.261 The risk of being caught out
may be increased by more frequent and effective audit activity,262 better systems-integration,
better risk-profiling, and better intelligence.

(c) Fostering voluntary compliance

This involves the fostering of a positive attitude towards the paying of taxes and the
authorities.263 This inter alia involves strengthening the relationship between taxpayers and the
revenue authorities, strengthening taxpayer’s commitment to obey the law, assuring taxpayers of
the integrity of Government, and assuring taxpayers of the efficiency and equity of government
expenditure and taxation.264

Evasion is just one of the threats revenue administrations have to guard against. Revenue
administrations also face a wide spectrum of other threats ranging from numerous tax scams
targeted against the Revenue, scams targeted against other taxpayers, information theft, a range of
customs frauds, the theft of bonded and seized goods, money laundering, and corruption to list but a
few. The totality of measures employed to promote compliance and reduce fraud can best be

255
Sandford, “Policies Dealing with Tax Evasion” in Feige & Ott (Ed) Underground Economies in Transition:
Unrecorded ativity, tax evasion, corruption and organized crime 87-100 at 93
256
Sandford supra 93
257
Sandford supra 94
258
Sandford supra 94
259
Sandford supra 94
260
Sandford supra 94
261
Sandford supra 94
262
Sandford supra 94
263
Sandford supra 96
264
Sandford supra 96-99
93 ADMINISTRATION AND ENFORCEMENT

described as a never-ending counter-fraud campaign fought in-depth and at every level. This calls
for the use of all available measures and means capable of advancing tax morale, voluntary
compliance, prevention, rates of detection, early detection, the recovery of revenue, and the clearing
of offences i.e.:

(a) creating fraud-intolerant societies where the general boni mores is hostile to fraud;
(b) campaigns targeted at taxpayer education and the boosting of tax morale;
(c) the testing, evaluation, and assessment of systems and system-performance so as to identify
any weaknesses;
(d) better targeted audit and inspection activity and increasing audit and inspection frequency;
(e) promoting a 'whole-of-government' approach with better inter-agency integration and
cooperation;
(f) ensuring the integrity of staff by improving pre-employment vetting and post-employment
monitoring;
(g) the development of risk-profiling platforms and systems and the integration of those systems
into all aspects of operations;
(h) the introduction and strengthening of identification and verification systems;
(i) developing and maintaining an efficient intelligence and investigative capacity;
(j) identify new fraud trends and the implementation of appropriate countermeasures and best
practice;
(k) denial of access to resources (goods and services) facilitating corruption, fraud and money
laundering;
(l) making fraud less profitable through recovery and penalties; and
(m) criminal investigation and prosecution;

Within the context of Revenue administration, the primary objective of the counter-fraud strategies
of most developed nations is that of assuring high levels of tax morale and voluntary compliance. If
all taxpayers voluntary complied with their tax obligations there would not be any tax evasion. A
high premium is however also placed on deterrence, both individual and general. A fraud is
prevented every time a taxpayer contemplating defrauding the Revenue is deterred from doing so.

Counter-fraud measures
There is no defence that will always be completely effective in preventing every skilled and
determined would-be offender from breaking into or successfully circumventing a system. The
more skilled and innovative he is, and the more familiar he is with the systems and their
vulnerabilities, the more likely it is he will succeed. Innovation in the fields of fraud prevention and
security in general, is very much driven by the creativity and sophistication of crime. Weaknesses in
control-systems provide for opportunity, and once same is identified, whether by chance or
otherwise, it is just a matter of time before those weaknesses will be exploited. The review of
procedures and countermeasures, and innovation to counter those 'new' threats usually only follow
after the identification of the breach.

Although the material elements of a given 'fraud' or 'evasion' offence, as it may be defined in a
given jurisdiction at a particular point in time, may remain fixed over a long period of time, the
modus operandi employed in committing that crime may change over time as tax rules, technology,
practices and procedures evolve. Counter-fraud measures intended to counter fraud and evasion
therefore need evolve in tandem with changes in the way fraud is committed or taxes are evaded.
This however is easier said than done in rapidly changing and ever-more complex environments.
The world of financial crime has changed in tandem with globalization and technological advances.
Global satellite-, internet-, and cell phone-technology have brought us, and those intent on
94 ADMINISTRATION AND ENFORCEMENT

committing crime: (a) real-time access to worldwide markets; (b) a global pool of easily accessible
information and knowledge;265 (c) bulk information collection, bulk information sharing and bulk
data analysis; (d) new methods of access to targets, and access to targets beyond the geographical
limits of legal jurisdiction; (e) greater speed and levels of coordination in relation to operational
planning and execution; (f) a high degree of anonymity; and (g) ease of access to funds, goods and
services. In many instances these types of technology changed not only the modus operandi
employed in the commission of many crimes, but also the countermeasures employed to prevent
detection, identification, and evidence collection.

Protecting any organization against criminal attack, whether by fraud or otherwise, calls for a
continuous process of testing, evaluation, assessment, and hardening of the target. In many
instances the introduction of new measures or the redesign of systems may be called for. The
introduction of new countermeasures and procedures, and ensuring same is seamlessly integrated
with the least possible disruption for internal and external stakeholders, does not however go
without the associated effort, cost, and quite often disruption.

Within the context of revenue administration, measures intended to counteract a particular threat
may range from something as elementary as a change in the wording of a return-form, to the more
difficult, disruptive, or costly i.e. the introduction of a new software-system, the redeployment of
resources, the creation of a specialist unit or function, or legislative intervention. Legislative
intervention may in turn involve something as simple as a change of a procedural requirement laid
down in a statute, to the complete scrapping of a particular scheme found to be undesirable due to it
being too much of an incentive for fraud. In assessing the viability of any proposed countermeasure,
decision-makers will usually give due consideration and take into account:

(a) the nature and potential impact of the threat;

(b) the potential impact of the proposed countermeasure on internal and external stakeholders;
(c) the likely efficacy of the proposed countermeasure in neutralizing that threat; and
(d) the direct and indirect costs associated with the introduction of that countermeasure.

In large organizations like revenue administrations, administering such a wide range of statutes and
taxes as they do, servicing as many customers and different types of customers as they do, and
facing as many different threats as they do, many of those threats of great complexity, fraud
prevention strategies can only be expected to be elaborate and complex. The countermeasures
intended to support fraud prevention objectives also tend to be elaborate and diverse. Many may be
seamlessly integrated without any noticeable impact on internal and external customers, whereas
others may require continuous management and effort with varying degrees of interference and
disruption. Many of those countermeasures, notably various types of checks, inspections and audits,
wholly or partly rely on human input and application.

The value of checks, audits and verification exercises goes beyond just increasing the probability of
detection. They also assist with building up an intelligence picture and may prove valuable for the
purposes of risk-profiling. There are low-risk and high-risk taxpayers. The identification of low-risk
taxpayers aids in narrowing down the pool of high-risk taxpayers. The operation and timing of
checks, the procedures to be followed with the execution of any given check, the objectives to be
achieved with any such check, and the parameters of each check must be clearly defined. Checks
that are unclear, or impossible to execute under the circumstances, or are incompatible with other
critical processes, or are expected to be executed in the face of conflicting requirements, may

265
This includes information relating to the operation of systems, new schemes, techniques, and modus operandi
employed by others elsewhere.
95 ADMINISTRATION AND ENFORCEMENT

potentially be disregarded or where they are executed may prove ineffective. Where the failure of a
primary check renders ineffective a secondary check, then the purpose and design of the 'secondary
check' clearly need be re-assessed. Verification and checks come at a premium. They may be costly,
disruptive, and delay processes. This may obviously be exasperated by duplication. Within the
revenue context, the pressure to maintain the momentum of operational processes and service
standards is significant. There is a balance to be struck and there simply is no room for senseless
duplication.

At the operational level, detection is probably the most critical part of the enforcement process.
Recovery, investigation, litigation and prosecution are dependent on detection. All these aspects of
enforcement in turn complement the objective of deterrence. No person will be deterred absent the
risk of recovery, investigation, litigation and prosecution. The more checks there are at every stage
of administration (registration, processing of returns, audits and inspections, assessment, processing
of refunds, recovery, and litigation), the better the coverage and the higher the probability of
detection. The greater the integrity of each check, the higher the probability of detection. The better
the layering of those checks, thus multiple lines of verification and primary checks backed up by
other secondary checks further down the line, the higher the probability of detection somewhere
along the line.

There is no sense in implementing countermeasures which will not be applied or adhered to. The
countermeasures that are implemented must be engineered, coordinated, and synchronized in such a
manner as to ensure they fit in with operational frameworks and systems if they are to be adhered to
and if they are to be effective. This applies to countermeasures introduced at the operational and
strategic levels. Assume the legislature amends the customs legislation making it obligatory for
customs to physically inspect every shipment imported into or exported from the country. In the
developed world today, unless the available resources are increased many times over, international
trade will plainly grind to a standstill. Needless to say, introducing such a legal requirement will be
an exercise in futility in lieu of an appropriate increase in capacity. Countermeasures furthermore
need be coordinated and synchronized in line with operational processes, and they need be
coordinated between different functions and assets. Assume a procedure is put in place for the
verification of certain facts before certain refunds may be paid out. Further assume those two
processes (the verification of the facts on the one hand and effecting the payment of the refunds on
the other) are executed by different sections within the Revenue. Unless the systems and processes
are integrated and synchronized in such a manner as to halt authorization and payment of the
relevant refunds until such time as the verification results have been processed, the section
responsible for the payment of those refunds may well proceed with the transfers in spite of non-
verification.

The more in-depth, integrated, layered and mutually supporting countermeasures are, the higher the
probability of those measures, viewed in their totality, being effective in achieving the overall
objectives. It is very much like a military defensive line. The more robust and intimidating a
particular defended area, the more likely for would-be attackers to be deterred or to find another
approach. The more observation there is, the higher the likelihood of detecting any enemy
movement. Leave dead-ground unguarded or fail to monitor all avenues of approach and you are
vulnerable. The more integrated and mutually supporting the minefields, prepared positions and
fire-support, the higher the probability of preventing any penetration. The more in-depth that
defensive line, backed up with secondary lines of defence and reserves, the higher the probability of
neutralizing any potential penetration.
96 ADMINISTRATION AND ENFORCEMENT

1.6.5 Deterrence of non-compliance

Theory holds that the risks associated with committing crime, should outweigh the benefits derived
from it, so as to deter people from committing crime.266 Deterrence, of both the offending taxpayer
and general deterrence, is an important objective of revenue enforcement. Successful deterrence
relies upon a general perception of there being a real risk of detection, and a real risk of punishment
in the event of detection. For some taxpayers, the mere thought of a tax audit and possible detection,
may in itself be a deterrent. Other taxpayers on the other hand are not deterred by the risk of
criminal prosecution. This may, partly at least, be attributed to perceptions of:

(a) there being a low risk of detection; and/or

(b) the matter, even if detected, being likely to be dealt with administratively, and as being
unlikely to be referred for criminal investigation; and/or
(c) a criminal investigation, even if it follows, being unlikely to yield sufficient evidence to
secure a conviction; and/or
(d) a custodial sentence upon possible conviction being unlikely; and/or
(e) custodial sentences, if indeed handed down, likely to be lenient.

The question arises as to the content, role, shape and form of deterrence within the context of tax
crime. There are subtle differences between not necessarily all, but many tax frauds, and other
‘common crimes’. When one looks at crimes such as murder, theft, or the confidence trickster who
convinces senior citizens to invest in some bogus scheme, then one can easily enough recognize the
criminal behavior as not only consisting of an intentional and positive act, but also as being of a
particular heinous nature most people can immediately recognize as in conflict with the boni mores
of the greater majority of people in most societies. It offends most people, and most people will in
all likelihood demand a strong message to be sent out to other would-be-offenders. But let us for a
moment consider tax fraud. Many tax frauds, if not most, are in fact committed by the intentional
failure to comply with certain duties and responsibilities. Thus the typical evasion scenario. There
are sizeable minorities in most western jurisdictions who simply do not view tax evasion in the
same light as they do auto-theft or cheque fraud. There are many who do not even view tax evasion
as criminal conduct. The reasons for this are complex, but whatever the reasons may be, the fact
remains that there are sizeable parts of the taxpayer-base who view and experience deterrent
measures and penalties as they find application within the context of tax enforcement, in a very
different way compared to how they would view it if applied to say cheque fraud.

Deterring tax offenders effectively means coercing or forcing them to act positively, in compliance
with specific statutory duties placed on them. Within the Revenue context, acting positively may
also entail more than the mere filing of a return. It will usually also entail the keeping of records
and/or books of account, employing accountants, making reports, making payments, and often a
host of other underlying or associated duties and responsibilities. For any State to force down
positive action by making punishable inaction, can only be expected to be a more difficult challenge
compared to deterring positive acts of criminality.

Revenue administrations do however find themselves in a difficult position as there is always a fine
balance to be struck. Enforcement operations must be sufficiently robust so as to provide for
sufficient levels of deterrence, but may nevertheless not be pursued in a manner that may ultimately
prove detrimental to or undermine the psychological tax contract. There must be consistent
proportionality and fairness. Revenue enforcement, the manner in which suspected irregularities are
investigated and dealt with, and the penalties intended to deter non-compliance, therefore also need

266
Cavadino & Dignan, The Penal System, An Introduction, 2nd ed where at 33 it is said that: “...deterrence is the simple
idea that the incidence of crime is reduced because of people’s fear or apprehension of the punishment they mey receive
if they offend”.
97 ADMINISTRATION AND ENFORCEMENT

cater for a very wide range of offenders engaging in a very wide spectrum of serious and non-
serious breaches and offences.

The same compliance model and enforcement approach will not always work for different societies
and all taxpayers. The nature of the relationship between one taxpayer and the Revenue will not
always correspond with that which may exist between the Revenue and another taxpayer. The same
approach applied to those different taxpayers may have very different results. Whereas a robust and
authoritarian approach may be successfully applied in one setting, a friendly, helpful, and
cooperative approach may be more helpful in another.267 Modern revenue and customs enforcement
frameworks generally tend to provide for considerable flexibility built into those systems, often
with considerable choice in terms of available courses of action in dealing with different categories
of taxpayers in different settings. That flexibility provides for a considerably more tailored,
taxpayer-oriented approach to enforcement and deterrence.

1.6.6 Audits and inspections

Most of the compliance work carried out by the Revenue involves verification, inspections, desk-
audits and field-audits. Any tax return submitted by a taxpayer can be looked at to ensure its
accuracy. The primary purpose of revenue audits is the verification of the information as submitted
by the taxpayer. They fulfil an important role in the administration and enforcement of any self-
assessment system of taxation. Assessments will follow upon discovery of any under-payment.
Such an assessment may also include penalties and interest. Audits may vary from simple desk-
audits carried out by individual inspectors, to drawn-out in-depth field audits carried out by large
teams. The fact that a taxpayer is selected for an audit or inspection should not be seen as an
indication of the taxpayer being suspected of non-compliance. The greater majority of tax audits are
carried out as no more but a routine compliance measure intended to ensure general compliance.
These audits and inspections contribute to the enforcement effort in a number of ways. The
following comes to mind:

(a) It offers the Revenue the opportunity to assist and educate taxpayers;
(b) Audits and inspections fulfil an important role in the detection of fraud.268
(c) They provide for an opportunity to improve relations between the Revenue and the taxpayer
if conducted professionally and tactfully;
(d) It serves an important role in collecting information, not only in relation to the matter under
consideration but also in relation to the taxpayer/trader and his operations. It assists in
building up a taxpayer’s profile and history;
(e) The identification of instances of underpayment, irrespective whether the underpayment was
due to honest error or fraud,269 and the recovery of those unpaid taxes; and

267
See Kirchler, E. (2007). The economic psychology of tax behaviour. Cambridge University Press at xvi where the
writer inter alia stated: "Trust depends on cooperation and favours cooperation. A cooperative climate is based on and
favours compliance, which is derived from commitment as a motivational posture and from high tax morale in the
society. Rather than guaranteeing compliance, audits and fines may have opposite effects in a trustful climate and thus
corrupt voluntary compliance. Trust can spiral downwards to reduced levels when authorities respond to low levels of
cooperation with control and punishment. Audits and fines may be highly effective in a completely distrustful climate
with high social distance between authorities and taxpayers. In such a climate with no voluntary compliance,
compliance can be enforced by the power of the authorities. However, audits and fines as the ‘tools’ to command and
control taxpayers will not be suitable to create a cooperative tax atmosphere."
268
See e.g. the Australian cases of R v Brown [2001] QCA 553 and R v Barnes [2003] QCA 126
269
As to what will constitute 'error' see Re: Microsoft Pty Limited And: Collector of Customs No. N91/755 AAT No.
8165 Customs (Administrative Appeals Tribunal, Australia) where it was inter alia said: “An error is something
incorrectly done through ignorance or inadvertence. An error of fact is a mistake in the recounting of a tangible
actuality. In the context of the regulation, it usually takes the form of a written account of a fact which is inaccurate.”
98 ADMINISTRATION AND ENFORCEMENT

(f) The mere possibility of an audit by the Revenue can in itself serve as a deterrent for many
taxpayers who in the absence thereof may underreport their taxes.

Fraud, in common with all crime, can only be investigated if indeed detected, and many instances of
fraud are indeed detected during these inspections.270 Most modern Revenue agencies make use of
computerized risk profiling software for the selection of taxpayers for audit or inspection. Many
taxpayers and/or returns are selected for further examination based on various factors considered to
be risk indicators. There are however various factors or circumstances that may increase an evading
taxpayer's risk of drawing the Revenue's attention, being selected for audit or inspection, or of being
drawn into an investigation. Just some of the examples that come to mind are:

▪ the taxpayer's wealth or lifestyle cannot be explained or cannot be reconciled with his
reported income; the nature, operation, duration and scale of the evasion is such as to make
more likely suspicion or detection;
▪ the taxpayer has crossed swords with other law enforcement agencies or regulators whom
may pass on to the Revenue information at their disposal;
▪ the taxpayer's conduct and behaviour or that of his agents in their dealings with the Revenue
raises suspicion;
▪ there is a history of past non-compliance;
▪ the number of people with knowledge of his activities, which in turn increases the risk of
being compromised; or
▪ the people he trades, deals with or consorts with are the subject of an enquiry or
investigation.

An enquiry into a taxpayer's affairs will follow where the Commissioners have reason to believe
that the information as reported by the taxpayer does not reflect the taxpayer’s true tax position.
This will often be triggered either as a result of inconsistencies found during the execution of a
routine audit, or as a result of information received from an informant, or as a result of information
gleaned or irregularities detected during the course of an audit or investigation of another taxpayer.
There are many factors, circumstances, factual settings, or patterns of behaviour which may be
indicative of fraud or other irregularities, or that may on its own or together with other factors or
circumstances point to a greater risk of irregularities or fraud. There are many factors or
circumstances the presence of which will not necessarily arouse suspicion, but may nevertheless
prompt the vigilant inspector to make further enquiries into and verify the accuracy of a particular
return, and/or the accuracy or truth of certain statements and documents. Examples of conduct,
facts, or circumstances that may potentially draw an inspector's attention are:

▪ Understating income;
▪ Over-claiming expenses;
▪ Refusal to produce information or records;
▪ Missing records or documents;
▪ Books of accounts not balancing;
▪ No proper audit trails;
▪ Unrecorded transactions;
▪ Suppliers or clients not recorded;
▪ Attempts to destroy records or documents;
▪ Attempts to deceive accountants;

270
See e.g. R v Elvin [1997] ACTSC 1. Also see Albrecht, Fraud Examination at 96, where the writer distinguish four
steps in fraud auditing, namely: (a) identifying risk exposures; (b) identifying the fraud symptoms for each exposure; (c)
Building audit programmes that proactively look for symptoms and exposures; and (d) Investigating identified
symptoms.
99 ADMINISTRATION AND ENFORCEMENT

▪ Attempts to deceive regulators;

▪ Overcharging or undercharging;
▪ Sham debts or the writing off of recoverable debts;271
▪ Income such as receipts from cash transactions not banked and/or recorded;272
▪ The failure to deposit receipts into business bank accounts;
▪ The use of bank accounts held in fictitious names;273
▪ Concealment/non-disclosure of investments, bank accounts, assets etc;
▪ Salaries to fictitious employees;
▪ Cash payments to employees or contractors;274
▪ Invoices out of chronological order in a genuine invoice book;275
▪ Lying about the source of income;
▪ Unable to explain or refusing to disclose sources of income;
▪ Vendors, suppliers and/or client companies do not exist;276
▪ Lying about the nature of funds received e.g. declaring income as loans;
▪ Transactions lacking commercial reality;277
▪ Showing losses year after year but nevertheless continue trading, but taxpayer unable to
offer an explanation as to funding;
▪ Repeated bankruptcy’s where the Revenue is a creditor, or bankruptcy where the Revenue is
the only creditor;
▪ Failure to register for tax or to file tax returns;278
▪ Suddenly filing an amended tax return after the taxpayer got word of a pending audit or
inquiry;
▪ Destruction, refusal to make available, or disappearance of documentation, financial records,
minutes of meetings and books of account;279
▪ Fabrication, falsification or making of false entries in records, documentation, books of
account etc;280
▪ Property of the taxpayer falsely being held out to be the property of another;281
▪ Invoices issued from a pad which was exclusively used for the creation of false invoices;282
▪ The transfer of assets or funds shortly before bankruptcy or assessment;
▪ Attempts to influence the outcome of an audit, investigation or prosecution through
corruption, intimidation, etc.

271
See e.g. R v Anthony James Dickson [2015] NSWSC 268
272
See e.g. R v Elvin [1997] ACTSC 1; R v Tacey [1994] QCA 15; De Hollander v The Queen [2012] WASCA 127
273
See e.g. BBC News. Friday July 30, 2004. “Bank facing huge ‘tax scam’ bill”
274
See e.g. R v Elvin [1997] ACTSC 1
275
See e.g. R v Collier [1997] EWCA Crim 825
276
See e.g. R v Collier [1997] EWCA Crim 825; DPP (C'th) v Rowson [2007] VSCA 176; R v Bromley [2010] VSC
345
277
The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives
used by CATA Member Countries, 10. R v Anthony James Dickson [2015] NSWSC 268
278
The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives
used by CATA Member Countries, 5-6
279
See e.g. S v Botha [2005] ZAGPHC 257. The Companies legislation of most common law jurisdictions require the
officers of a company to keep minutes of all company meetings. If accurately kept, the content thereof can do a lot to
prove the actions and intentions of those involved in the management of the company. In the majority of cases where
fraud or tax evasion is present, minutes of meetings were either not kept or even if so, all discussions relating to the
unlawful activity were either simply not recorded or took place on a more personal forum. It is inter alia also one of the
responsibilities of the external auditors to verify that minutes are indeed being kept. Failure to keep minutes of meetings
constitutes an offence in terms of the Companies Act.
280
See e.g. R v Anthony James Dickson [2015] NSWSC 268; S v Botha [2005] ZAGPHC 257
281
Such a misrepresentation may be made for any of a number of reasons such as the subversion of Revenue attempts at
determining the taxpayer’s true income or accrual of wealth over a period of time, attempts at preventing the attachment
of property for satisfying a tax liability etc;
282
See e.g. R v Collier [1997] EWCA Crim 825
100 ADMINISTRATION AND ENFORCEMENT

▪ The submission of false documentation;283

▪ The unlawful use of another taxpayer’s information (addresses, reference numbers etc) or
the use of false names;284
▪ Amounts or totals reflected in the tax returns do not correspond with that in the books of
account;
▪ False statements to revenue officials;
▪ Failure to answer certain questions in tax returns especially where the failure to do so is
repetitive;
▪ More than one set of books of account;285
▪ Breaches of exchange control regulations;
▪ Attempts to cover up irregularities;
▪ Income is understated or expenditures are overstated;
▪ Corrupt relationship between taxpayer and auditor;
▪ Unauthorised circumvention of or deviation from controls or procedures;
▪ The failure to investigate breaches of internal procedures or to report contraventions of law;
▪ Preventing information from reaching those in compliance roles;
▪ Personnel in supervisory or oversight roles being bypassed;
▪ Conflicting interests of those in positions of oversight;
▪ Relationships with suppliers or customers which suggest collusion;
▪ Funds, inventory or property that cannot be accounted for;
▪ Undisclosed interests in other business interests;
▪ Serious breaches in accounting practices;
▪ Non-existent employees or employees on payroll no longer employed;
▪ Unexplained wealth and/or living beyond means;
▪ Secret accounts or cash;
▪ Personal problems or personal history posing risk e.g. drug abuse, gambling addiction, etc;
▪ Suppliers or contractors paid for work not done or goods not delivered;
▪ Suspicious related party transactions;
▪ Suspicious transactions facilitated through offshore companies controlled by the taxpayer;286
▪ Fictitious exports;287
▪ Conflicting duplicate commercial documents or books of account;
▪ Theft of company assets;
▪ Using company assets for private purposes;
▪ Falsification of invoices, sales or inventory records, documents, authorizations etc;
▪ False claims or other indications of dishonesty;
▪ Money laundering or attempts to do so;288
▪ Transactions which may relate to bribes;
▪ The non-disclosure of certain transactions or arrangements the disclosure of which was
called for;
▪ Personal expenses indicated as business expenses;

283
The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives
used by CATA Member Countries, 10. See e.g. R v Bromley [2010] VSC 345; S v Botha [2005] ZAGPHC 257
284
See e.g. R v Neale [1998] EWCA 2532. Also see the Mail & Guardian, February 28 2006, “Tax man eyes R183m
from Kebble estate” where it was reported that the Revenue was about to file a complaint of fraud against the late Mr
Kebble for allegedly using the VAT number of another registered taxpayer to claim back false VAT claims even though
not registered for VAT. The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance –
Strategies and Initiatives used by CATA Member Countries at, 10.
285
The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and Initiatives
used by CATA Member Countries at 6
286
See e.g. R v Anthony James Dickson [2015] NSWSC 268
287
See e.g. R v Bromley [2010] VSC 345
288
See e.g. R v Anthony James Dickson [2015] NSWSC 268
101 ADMINISTRATION AND ENFORCEMENT

▪ Falsified or forged documents, stamps, signatures etc;289

▪ Funds flowing in circular transactions but starting off and ending up with the taxpayer or
entities controlled by the taxpayer;
▪ Funds being funneled to bank accounts held in the names of fronts controlled by the
taxpayer.

The presence of many of these factors, individually or in combination, may be indicative of an

increased fraud-risk. It is to be noted that evidence proving many of these facts or circumstances,
taken individually or in combination, may in many instances also be used as part of the 'mosaic of
evidence' in proving the taxpayer’s complicity in a fraud. The totality of the evidence when viewed
together, even where each individual piece of evidence when evaluated on its own may well be of
limited circumstantial value, may well be so strong as to displace any reasonable doubt or may
leave the defendant with no choice but to offer an explanation.

Audits are also conducted with the view to gather evidence of fraud. It goes without saying that
where audits are conducted for the purpose of gathering evidence with the view to criminal
prosecution, they need be conducted within the legal and constitutional frameworks provided for.
To conduct audits of this nature under the guise of routine or administrative inspections as opposed
to audits conducted with the view to gather incriminating evidence as part of a criminal enquiry,
will in the European Union and in most common law jurisdictions, certainly be viewed as a serious
breach of the taxpayer's rights. Although the admissibility of certain items of evidence obtained
during day-to-day revenue administration and audits may rightly be placed in dispute, most of the
evidence so obtained will usually be admissible at subsequent criminal proceedings. Evidence
obtained after facts came to light which implicates the taxpayer as a suspect in a fraud, can be held
as inadmissible where the use thereof in support of the prosecution’s case may potentially infringe
on the taxpayer’s constitutional rights.

It is not uncommon to find instances where the same taxpayer may have been defrauding the
Revenue, undetected, for many years. In is also not uncommon to find that the fraud may have been
in progress before, during, and after numerous revenue audits. This cannot in itself be interpreted as
suggesting professional failure or negligence on the part of the inspectors who conducted those
audits. This then is for a number of reasons. Inspectors tasked with routine audits and inspections
more often than not are limited in the amount of time they can spend on a particular taxpayer's
inspection. Most of those inspections will involve relatively elementary audits conducted within
very limited timeframes. Sampling will usually also be very limited. Inspections are more often than
not conducted by different inspectors, often over many years. Individual inspectors thus seldom
have the benefit of getting to know the taxpayer or noticing patterns of behaviour at odds with the
taxpayer's profile or operations. Facts or circumstances that may with hindsight suggest a pattern of
fraud may well not have seemed that relevant or important to the inspector at the time when he
conducted his audit. Those facts or circumstances will therefore not always be recorded in the audit-
reports, audit-files, or the taxpayer's file, or where they were recorded, the entries may not be as
detailed as one may wish them to be. The revenue inspector, as representative of the
Commissioners, is just as much a victim of the taxpayer's fraud. One must bear in mind the nature
of fraud. The essence of fraud is wilful misrepresentation. A fraud must remain undetected or
hidden to be successful. This can only be achieved by concealing it from sight or by camouflaging it
as something other than what it in fact is. The artifice, tricks or devices employed, are intended to
mislead, and the revenue inspector is a primary target. The cunning evader will make attempts to
manipulate, fabricate, and design the documents, records, paper-trails, his answers, and books of
account, in such a manner as to not raise any suspicions of non-disclosure or falsity. The entries in

289
See e.g. S v Botha [2005] ZAGPHC 257
102 ADMINISTRATION AND ENFORCEMENT

his books of account must be seen for what they are: they are no more but representations,
representations which may truthful or false.

Most inspections are intended to ensure general compliance and are not approached or structured
with the primary view to identify fraud. Inspectors approach those inspections with the view to
detect any and all forms of error and non-compliance. During the course of countless inspections
carried out in relation to many taxpayers, inspectors can be counted on to find many irregularities,
but most of those can usually be attributed to honest error or oversight. Not to be lost sight off is the
fact that much of the tax inspector's work involves service delivery, taxpayer education, and
fostering relationships with taxpayers. The nature of his role is such that he will often rely on the
honesty of the taxpayer and his advisors. This stands in strong contrast against the role and mind-set
of the criminal investigator. The criminal investigator's involvement in a matter will more often
than not only start following detection and usually after the mechanics of the fraud has already been
unravelled. There is thus the benefit of hindsight. Whereas most revenue personnel engaged in
routine administration i.e. routine audits and inspections, the processing of returns, the processing
of refunds etc., place reliance on the taxpayer's honesty, the criminal investigator is more likely to
follow the ABC rule: 'assume nothing, believe nobody, and check everything'. The latter is schooled
to approach everything with a degree of scepticism or some may say suspicion. This however is not
the mind-set of most revenue line-personnel.

1.6.7 Recovery of lost revenue

In most jurisdictions one will find that the Commissioners have strong powers for the recovery of
outstanding duties and taxes. The Commissioner's powers to assess, recover and institute action for
the recovery of outstanding taxes, penalties, and interest, place them in a strong position not only to
prevent potential losses but also to deter non-compliance. The range of powers that may be
available in any given administration's armoury may differ from jurisdiction to jurisdiction. In some
jurisdictions the revenue authorities may have powers which many may view as draconian. This
may typically include the power to freeze bank accounts and assets, the taking of money directly
from accounts, the seizure and sale of property, and the sequestration of taxpayers. The levels of
administrative oversight and judicial protection a taxpayer debtor can rely on in any given instance
differ from jurisdiction to jurisdiction. In jurisdictions such as Britain, the United States, Australia,
Canada and New Zealand, the recovery of outstanding taxes do take place within strict legal
frameworks providing for robust administrative oversight and access to the courts. A key
characteristic of modern liberal democracies such as Britain, Canada, Australia, New Zealand and
the United States, is an independent judiciary and the rule of law. There is a separation of powers
between the judiciary and the executive. The judiciary is not only empowered but also expected to
protect citizens against unlawful action by the executive. The taxpayer has the right to challenge
Revenue action in the courts.

In the greater majority of cases, outstanding is recovered by civil process. In the United Kingdom,
the general process for the recovery of outstanding taxes always involves demands for payment
followed by any or a combination of: (a) agreements between the Revenue and the taxpayer; (b)
distraint; (c) civil recovery through the courts; and (d) bankruptcy proceedings. Due taxes are
viewed as a debt to the Crown. Where amounts in tax are outstanding, the Revenue's first response
will be demands for payment.290 In the absence of payment the taxpayer may be charged additional
interest, penalties and surcharges. Where demands for payment are not met, the Revenue will
proceed with civil enforcement action. Some revenue authorities may also make use of private debt
collection agencies in pursuing the recovery of tax debts. This then is also the practice in the UK.
This may seem foreign to some, but the civil recovery of tax debts is and remains a civil process,

290
See e.g. section 60 of the Taxes Management Act 1979 (Income Tax and Corporation tax)
103 ADMINISTRATION AND ENFORCEMENT

adjudicated in the civil courts involving the recovery of a debt by the Revenue as creditor. In the
UK, the Revenue may negotiate with taxpayers and may accept offers for the down-payment of tax
debts where such an arrangement is acceptable to the Commissioners. In this respect HMRC is
considerably more flexible compared to the revenue administrations of many other jurisdictions
where the Commissioners do not have the authority to agree to those kinds of arrangements.

HMRC may, where demands for payment has not been met, take possession of the debtor taxpayer's
possessions for sale at public auction.291 The more common practice is to sue for recovery in the
Courts (in England and Wales these are the Magistrates Courts, County Courts, and High Court).292
The Revenue's claims can be contested. Where the taxpayer fails to contest, or where he does so
unsuccessfully, the court will make an order for the payment of the outstanding amounts and costs.
HMRC may, where it believes the taxpayer to be insolvent, petition for the taxpayer's bankruptcy or
the winding up of the taxpayer company. The Revenue will often proceed with bankruptcy or
winding up where the taxpayer failed to pay in accordance with an earlier order or where there is
the risk of property being ciphered away.

Even though the Commissioners in most jurisdictions do have the authority to defer the payment of
outstanding taxes, doing so and leaving funds or property, even temporarily, in the hands of
someone who prima facie defrauded the State, will, viewed by most honest taxpayers, be gravely
irresponsible. In those cases where tax evasion is suspected, the Commissioners will usually opt for
the immediate recovery of the assessed amounts. Of considerable risk for any revenue authority is
the risk of property being ciphered away in an attempt to evade a tax debt. 293 This is especially so
where there are indications of evasion.294 The legislation of most jurisdictions thus provide for the
securing of funds and property where there is such a risk. In most common law jurisdictions the fact
that a taxpayer is defending himself on criminal charges will not exclude the Revenue from
proceeding with action intended to recover outstanding amounts in tax. Administrative recovery
may prove extremely disruptive for a taxpayer where the recovery process coincides with a criminal
prosecution. In those cases, the taxpayer may find himself in quite a precarious position, often
simultaneously engaged in civil litigation with the Revenue and fighting criminal charges. Many an
accused taxpayer may soon find himself no longer having the funds or security to finance expensive
legal counsel of his choosing. This being said, it is common practice for civil litigation between the
Commissioners and the taxpayer to be placed on ice until such time as the criminal prosecution is
concluded.

What many if not most evaders fail to recognise is the reality that tax evasion can work like a
savings-plan turned upside-down. It is effectively a 'debt-plan'. Over time relatively small amounts
can accumulate to a significant debt. Just like small amounts in savings deposited and invested over
a long period of time, accruing interest as it does, over a matter of years and decades can
accumulate to an attractive pension-pot, so can the evasion of what may seem negligible amounts of
money evaded over a prolonged period of time accumulate to a tax debt which may lead to total
financial ruin. Many who do evade will get away with it, but many do not. Once the evasion is
detected the piper will call, and when he does, many of those who did evade will not have the
money or even assets to pay that debt.

291
See e.g. section 61 of the Taxes Management Act 1979
292
In relation to the recovery of Income Tax and Corporation Tax refer to sections 65-68 of the Taxes Management Act
1979
293
See the English case of R v Dimsey & Anor [1999] EWCA Crim 2261 where it was correctly stated that a tax debt
owed to the State, is a debt which can also be evaded.
294
It is not uncommon to find taxpayers attempting to cipher away or to conceal funds and property so as to prevent the
Revenue from securing same. The fact that this is done after assessment or even during sequestration proceedings by no
means excludes a charge of evasion or fraud where the ciphering away or concealment involves the making of
misrepresentations with the intention to evade a tax liability. See e.g. 26 U.S.C. § 7201 (United States).
104 ADMINISTRATION AND ENFORCEMENT

Those who do have the assets to satisfy the debt, penalties, and interest, may be at a distinct
advantage as compared to those who do not. In many jurisdictions an offer of cooperation, full
repayment of the tax debt, and payment of administrative penalties, may influence the Revenue's
decision as to whether the matter is to be referred for criminal investigation. In some jurisdictions
the payment of reparation, penalties and fines may influence sentencing upon conviction. The fact
that evaded taxes was recovered, as well as the fact that penalties were paid, are both factors which
the courts tend to take into consideration when sentencing the offender at a subsequent criminal
trial.

The Commissioners may raise assessments and recover outstanding amounts despite the fact that a
taxpayer has already been convicted and sentenced on charges of fraud or evasion, and despite the
fact that the charges on which the taxpayer was convicted relate to the amounts so assessed and
recovered. The fact that civil recovery of evaded taxes may have prevented actual prejudice for the
fiscus will in most jurisdictions not exclude criminal liability. In most jurisdictions the fact that the
evader's evasion was detected and thwarted before the Revenue suffered actual prejudice will also
not exclude criminal liability. In the UK, criminal liability can follow regardless the fact that no
actual loss was suffered and regardless successful recovery where losses were suffered.

In the UK, both civil and criminal remedies are available for the recovery of evaded taxes and
money unlawfully taken from the Revenue.295 The range of tools now available to the UK
authorities, vested in both the Revenue and the courts, for the recovery of lost revenue, is
considerably wider compared to a few decades earlier. It would have been unthinkable just a few
decades past to imagine the existence in the UK of a body like the National Crime Agency (NCA)
exercising revenue powers for the confiscation of the proceeds of tax evasion. Evaded revenue can
now be recovered not only by the Revenue under revenue legislation and with civil collection
through the civil courts, but can now also be recovered through the criminal courts by way of
confiscation orders under the Proceeds of Crime Act 2002, or by way of compensation orders under
section 130 of the Powers of Criminal Court (Sentencing) Act 2000. The courts may and usually do
order imprisonment in the event of failure to pay those amounts within the time limits specified.
With recovery now possible, under civil and criminal process, and under various statutes via
different avenues, there is the risk of the same sum effectively being recovered twice. Making say a
confiscation order where the evaded taxes have already been recovered along another avenue will
effectively result in double recovery which will not only be viewed as unfair but will also be
contrary to the principles of the European Convention on Human Rights.296

1.6.7.1 Quantification
The quantification of losses suffered by the fiscus is not always possible or may prove difficult.
This may be for any number of reasons such as the failure to keep records or books of account or
the destruction or concealment thereof, the use of unidentified fronts and secret bank accounts, the
nature of the taxpayer’s operations, changing market conditions and price fluctuations, etc.297
Estimating the true extend of an offender’s fraud will often prove a difficult or quite impossible
task. This is especially so where they operated an illegal operation or where they operated in the

295
See R v Edwards [2004] EWCA Crim 2923 where it was inter alia said: “Customs and Excise authorities do not, as a
matter of practice, seek recovery of the unpaid duty by way of civil proceedings. That both civil and criminal remedies
are available is not in doubt”
296
See R v Benjafield [2003] 1 AC 1099; R v Edwards [2004] EWCA Crim 2923
297
See e.g. R v Elvin [1997] ACTSC 1 where the court accepted that the failure to keep accurate records and books of
account contributed to the difficulties experienced by the Revenue at quantification of the taxes evaded.
105 ADMINISTRATION AND ENFORCEMENT

underground economy. Estimating and proving the income-generating activities of many of those
individuals call for investigative support beyond the capacity of most revenue administrations.298

There will usually be a considerable dark figure not reflected in the Revenue’s calculations and
estimates. It is not uncommon to find that the offender’s activities may have involved multiple
frauds perpetrated over a long period of time. The reality is that many offenders escape detection
many times over before they are caught out. 299 Although precise quantification of financial
prejudice is not a material element for purposes of securing a conviction on fraud or any of the other
statutory evasion offences, it will need be proven, beyond reasonable doubt, that the taxpayer’s
declared tax position did not correspond with his true tax position.300 Quantification may however
prove important for a number of reasons, examples of which are:

(a) it is important for proving the extent of the prejudice suffered, proof of which may impact
on sentencing;301
(b) it is important for the calculation of the amounts in tax evaded, proof of which is necessary
for the raising of assessments and the recovery of evaded taxes, penalties and interest;302
(c) the monetary amounts involved may impact on the Revenue’s decisions as to the resources
to be expended on enforcement and investigation; and
(d) quantification may prove important in matters relating to the granting of restraining,
compensation and confiscation orders. 303

298
Facts or circumstances that may typically, usually when viewed together in its totality, and often circumstantial in
nature, suggest a person to be engaged in income-generating activities are: (a) the nature of the commodities or goods
dealt with is more consistent with commercial dealings; (b) the operation of premises in a manner consistent with that of
being used for manufacturing operations or as a business premises; (c) the marketing of goods or services - formally or
informally e.g. through acquaintances, the placing of advertisements, the operation of a website, etc; (d) unexplained
cash-flow or high frequency of funds received and payments made; (e) found in possession of quantities of stock more
consistent with trade than personal consumption; (f)large quantities of goods received, dispatched or delivered; (g)
number and frequency of transactions; (h) the negotiation of contracts; (i) recruitment or employment of people; (k) an
unexplained growth in new worth; (l) concealment or deception in relation to any of the aforementioned.
299
See e.g. R v Warren [1996] EWCA Crim 1791 where the accused who was arrested for smuggling alcohol and
tobacco into the UK admitted 18 smuggling trips in total. In R v Rodwell [1999] EWCA Crim 879 the court accepted
that there might have been a total of 15 smuggling trips. In R v Dosanjh [1998] EWCA Crim 1450 the appellant over a
10 month period smuggled goods into Britain on 82 occasions, evading duties to the amount of £164 000. He had no
previous convictions for the evasion of duties or taxes despite the fact that he was stopped for smuggling on two
previous occasions. In both instances the goods was forfeited to British Customs but he was never prosecuted.
300
See e.g. the Canadian case of R v Sauer and Rhodes 2003 BCPC 541 (Provincial Court of British Columbia) where
the importers faced 35 charges of “falsely declaring the value of goods” imported from Korea to Canada. All the
charges were dismissed as the prosecution failed to prove beyond reasonable doubt an undervaluation and thus that the
values declared were false.
301
See e.g. R v Elvin [1997] ACTSC 1 (Australia). Also see R v Czyzewski [2003] EWCA Crim 2139 (United Kingdom)
where guidelines were laid down as to sentences to be handed down for duty frauds falling within certain amounts. In
South Africa minimum sentences off 15 years imprisonment (under section 51 of the Criminal Law Amendment Act 105
of 1997) can be handed down in relation to frauds over certain amounts. This however requires proof by the prosecution
of the minimum amounts stipulated. In the United States there are statutory tariffs stipulating appropriate sentences.
Quantification may also be important in assisting courts where those courts may consider alternatives to incarceration
i.e. suspended sentences. A court may for example be of the opinion that the facts of the case warrant the passing of a
sentence suspended on condition of repayment of the evaded tax. In the absence of evidence providing at least a
reasonable estimate of the amounts in tax actually evaded, it will be unlikely that the court will consider this option, or
may potentially hand down a suspended sentence without stipulating repayment of the evaded taxes as a condition of
suspension.
302
The taxpayer cannot be held liable, and the courts will not allow the recovery, of more tax than what was in fact
legally due. Penalties and interest are in turn levied on the amounts in tax evaded
303
See e.g. National Director of Public Prosecutions v Rautenbach and another [2005] 1All SA 412 (SCA), where
Erasmus AJA in considering the granting of a restraining order under the Prevention of Organised Crime Act, and
reflecting on the applicant’s failure to quantify the benefit allegedly received by the respondent from an alleged customs
fraud, at 430 inter alia remarked: “With all this information and expertise, the appellant should have been able to
106 ADMINISTRATION AND ENFORCEMENT

Considering the above, the prosecution should make real efforts at quantification of both the actual
and potential losses suffered. Considering the technical nature of taxation, this necessarily calls for
specialists experienced in taxation, accounting, and auditing. The fact that the precise extent of the
evasion cannot be proven, or the fact that the amounts in tax actually evaded cannot be accurately
quantified, should not however discourage prosecution where at least part of the total so evaded can
indeed be proven.

Indirect methods of quantification

The failure to keep or retain records or books of account is common amongst non-filers. In many
instances those records and books of account may have been kept but are being concealed or were
destroyed. Not surprisingly, those who generate income through crime, or those trading in the
underground economy frequently do not keep any financial records or accounts. Where these are
kept or retained, they often prove to be so incomplete or deceptive as to leave them wholly
unreliable. The question then is this, where does this all leave the Commissioners whose duty it is to
determine the taxpayer's tax liability. The tax legislation of most jurisdictions allow for the raising
of estimated assessments. This obviously calls for some or other exercise making possible an
estimation of the taxpayer's taxable income. In the absence of any direct methods to quantify
income, the Commissioners will have no choice but to rely on indirect methods of quantification.
Notable ones used, not only for the purposes of assessment but also in proving under-declaration in
criminal prosecutions, and albeit not always going under the same labels in different jurisdictions,
are: (a) the 'net worth method'; (b) the 'expenditure method'; (c) the 'bank deposits method'; and (d)
the 'cash method'. The U.S. Department of Justice's Criminal Tax Manual provides for the
following brief explanations of what these methods entail:304

"The net worth method of proof is an indirect method of proof that measures increases in the wealth
of the taxpayer and compares the results with reported income. A variation of the net worth method is
the expenditures method of proof, which reflects the expenditures made by a taxpayer. The
expenditures method is particularly appropriate in the case of a taxpayer who does not purchase
durable assets, such as stocks and real estate, but spends monies for consumable items, such as
vacations, entertainment, food, drink, and the like. Another indirect method of proof is the bank
deposits method, which is essentially a reconstruction of income by an analysis of bank deposits by a
taxpayer who is in an income-producing business and makes regular and periodic deposits to bank
accounts. The Seventh Circuit and the District of Columbia Circuit have approved a variation of the
expenditures method, which is called the cash method of proof … When using this method, the
government is required to present evidence relating to the taxpayer's cash expenditures... In this
method of proof, the government compares the defendant's cash expenditures with her or his known
cash sources, including cash on hand, for each tax period… If such expenditures exceed sources, the
excess is presumed to be unreported income."

Technically speaking none of these methods are particularly complex and all experienced
accountants will be familiar with the mechanics of these quantification exercises. In the United
States all these methods have now received wide general acceptance in the courts, both civil and
criminal.305 These methods are more often than not used in conjunction with one another. Where

advance some acceptable quantification of the benefits derived by Rautenbach from the customs fraud. The court should
be careful to ensure that the appellant’s failure to do so does not impact unfairly on the respondent’s. …The court in
issuing a restraint order is required to strike a balance between the (conflicting) interests of State and the defendant. It
could be unfair to society to dismiss the application simply because the applicant – due to the defendant’s actions or for
some other good reason – is unable to quantify the benefits of the offences.”
304
U.S. Department of Justice, Tax Division, Criminal Tax Manual, 2012 at section 8.07[6]. These methods are also
discussed in detail in chapters 30 - 33 of the same manual.
305
A helpful decision, and it must also be said a landmark decision in the United States, on indirect methods of
quantification, and in particular the 'net worth' method, is that of Holland v United States 348 US 121 (1954). On the
107 ADMINISTRATION AND ENFORCEMENT

they are and where the findings of those different exercises support the same conclusion, then that
body of evidence, circumstantial or otherwise, may be compelling. This is especially so where
dealing with a criminal matter where the prosecution may be more concerned with proving
'unreported income' as opposed to proving the precise amounts that went undeclared. Writer was
unable to find a single reported criminal case from the United States, Canada, Britain, Australia,
New Zealand or Ireland where the use of any of these methods of proof was (as a matter of
principle) held to be unsound. Al these methods can be safely employed and the findings of those
exercises can be safely tendered as evidence in strengthening a prosecution case. The weight a trial
court may attach to that evidence will however depend on the facts of the case.

Net-worth method
In some jurisdictions, Canada being a notable example, the tax legislation explicitly empowers the
Commissioners to use the net worth method in estimating an individual's income where returns had
not been filed, or where the returns filed are considered inaccurate, or where there was inadequate
recordkeeping of the taxpayer's income.306 A person's 'net worth' is in essence the difference
between that person's assets and liabilities as balanced out against each other. That 'net worth' can
obviously increase or decrease over time. Any exercise intended to determine any increase in a
taxpayer's 'net worth', obviously calls for a determination of the taxpayer's 'net worth' at the
beginning and end of any particular period under investigation. The basis of the net worth
calculation method was explained in the following terms in the Canadian case of Bigayan v The
Queen307 where the court inter alia said:

"It is based on an assumption that if one subtracts a taxpayer's net worth at the beginning of a year
from that at the end, adds the taxpayer's expenditures in the year, deletes non-taxable receipts and
accretions to value of existing assets, the net result, less any amount declared by the taxpayer, must
be attributable to unreported income earned in the year, unless the taxpayer can demonstrate
otherwise"

In doing the net worth calculations, the auditors can rely on the analysis of whatever financial
information they can secure, from the taxpayer or other third parties. This may include things like
bank statements and deposits, mortgage statements, hire-purchase agreements, credit card
statements, and pensions and investments to list but a few. The net worth method has long been
accepted and used in the United States and Canada as an indirect method to quantify a taxpayer's
unreported taxable income.308 There are numerous reported cases in those jurisdictions where the
results of such net-worth exercises proved critical in securing convictions on charges of tax evasion.
The use of this method to calculate a taxpayer's income it must be noted is generally viewed as a
last resort.309 It has in the past been described as “… a blunt instrument, accurate within a range of
indeterminate magnitude".310

This method is typically used where the taxpayer has no records, or where his records are so
incomplete or false as to make it totally unreliable.311 In many instances the taxpayer may well have

'expenditure method' see e.g United States v Johnson 319 US 503 (1943). On the 'bank deposits method' see e.g United
States v Khanu 662 F3d 1226 (DC Cir 2011). On the 'cash expenditure' method see e.g. United States v Marrinson 832
F2d 1465 (7th Cir 1987); United States v Hogan 886 F2d 1497 (7th Cir 1989).
306
See section 152 (7) of the Canadian Income Tax Act
307
2000 D.T.C. 1619
308
See e.g. the now well-known case of gangster Al Capone, reported as Capone v United States 51 F.2d 609 (1931),
and the Canadian cases of Ramey v The Queen 93 D.T.C. 791; R v Hunter [2008] O.J. No. 467; Dao v The Queen 2010
TCC 84 (CanLII). Also see United States v Burdick 214 F2d 768 (3d Cir) (1954)
309
Bigayan v The Queen 2000 D.T.C. 1619; Ramey v The Queen 93 D.T.C. 791; Hsu v The Queen 2001 D.T.C. 5459
310
Bigayan v The Queen supra
311
See e.g. Ramey v The Queen 93 D.T.C. 791; Dao v The Queen 2010 TCC 84 (CanLII)
108 ADMINISTRATION AND ENFORCEMENT

filed returns, but he may well not have kept any records with the figures in the return being wholly
fictional.312 The method is particular useful in those cases where there is a clear but significant
unexplained accumulation of wealth. This being said, the findings of such a net worth exercise is no
more but circumstantial evidence of an increase in the subject-taxpayer's net worth. An increase in
net worth does not equate to proof of tax evasion. Proving a charge of tax evasion calls for proof,
beyond reasonable doubt, of all the material elements of the offence charged, in particular the actus
reus and mens rea elements. The prosecution carries the burden of proving (i) undeclared income,
and (ii) that the under-declaration / non-declaration was accompanied with the prerequisite mens
rea. This being said, once the prosecution has built a strong case proving an unexplained increase in
the taxpayer's net worth, then the taxpayer will be left with no choice but to offer some or other
explanation for that increase.313 He cannot simply sit on his hands and be a passive spectator. This
is especially so where he failed to keep the records and books of account he was supposed to keep,
where he can explain that increase with relative ease should he choose to do so, and where he is the
only one who can shed light on that increase.314

The government need not prove the exact amount of the taxes owing. It is sufficient to prove
beyond reasonable doubt that there was an intentional evasion or attempted evasion of taxes. This
then is the current position in Britain, the United States, Canada, and no doubt in many other
jurisdictions. The net worth method it must be noted will seldom be relied on as the sole method of
proving an under-declaration of income, but it will often be used as additional circumstantial
evidence to corroborate other evidence. It can also be used in making estimates as to the possible
financial benefits a person may have derived from illegal activities.

1.6.7.2 Assessment
It is the duty of the Commissioners to assess and collect all those taxes, duties, levies, charges and
other amounts in accordance with the laws as enacted by the legislature and not to forgo any such
taxes, duties, levies, charges or other amounts chargeable and payable. The raising of assessments
and the subsequent collection process is of a purely administrative and thus civil nature. The tax
legislation of most English-speaking jurisdictions provide the Commissioners with extensive
powers authorising the charging of penalties and interest in the event of failure to pay those

312
See e.g. Avrams v The Queen 2012 TCC 247 (CanLII)
313
See e.g. R v Hunter [2008] O.J. No. 467 where the taxpayer was charged with tax evasion under subsection 239(1) of
the Canadian Income Tax Act. The prosecution tendered evidence which proved an increase in the taxpayer's net worth.
The taxpayer made no attempts to offer any explanation. The Ontario Court of Appeal overturned the earlier acquittal
and convicted the taxpayer.
314
As to the burden of proof in net-worth cases in Canada, see the following from Dao v The Queen 2010 TCC 84
(CanLII) where it was inter alia said: "… the method, by its very nature, will result in an inaccurate approximation of a
taxpayer’s income. While this may produce unsatisfactory results, it is based on the premise that, in a self-assessing
system, a taxpayer is in the best position to know the exact amount of income earned over a period of time. If proper
records are kept, then it should be an easy task for a taxpayer to factually point out the errors in the Minister’s
assessment and properly support the proposed changes to the assessment with the appropriate documentation or other
evidence. … In Hsu v. The Queen, 2001 D.T.C. 5459, the Court made it clear that the Minister must only show that the
net worth of a taxpayer has increased between two points in time but the Minister does not have to prove a taxable
source of income. At paragraph 29 the Court stated: [29] Net worth assessments are a method of last resort, commonly
utilized in cases where the taxpayer refuses to file a tax return, has filed a return which is grossly inaccurate or refuses
to furnish documentation which would enable Revenue Canada to verify the return … The net worth method is
premised on the assumption that an appreciation of a taxpayer's wealth over a period of time can be imputed as income
for that period unless the taxpayer demonstrates otherwise (Bigayan, supra, at 1619). Its purpose is to relieve the
Minister of his ordinary burden of proving a taxable source of income. The Minister is only required to show that the
taxpayer's net worth has increased between two points in time. In other words, a net worth assessment is not concerned
with identifying the source or nature of the taxpayer's appreciation in wealth. Once an increase is demonstrated, the
onus lay entirely with the taxpayer to separate his or her taxable income from gains resulting from non-taxable sources
(Gentile v. The Queen, [1988] 1 C.T.C. 253 at 256 (F.C.T.D.))."
109 ADMINISTRATION AND ENFORCEMENT

assessments as and when due. Assessments may also be raised for any outstanding amounts in
penalties and interest.

The Commissioners also have the power to issue estimated assessments in those cases where no
returns were filed, or where they were filed but found to be incorrect. As irregularities are usually
detected during or following audits, inspections, or investigations, assessments for shortfalls can
generally be expected soon after. In most jurisdictions, but notably so in the United States, the
United Kingdom, and Australia, assessments for penalties must be raised within the prescribed
limitations periods as set out in the tax legislation.315 In those jurisdictions, and in many others, no
assessments for penalties may, as a general rule, be raised after that period has expired. In many
jurisdictions, and this is the case in the United Kingdom, the tax legislation do provide for longer
periods for the raising of assessments where there was evasion.

The raising of assessments being part of an administrative process, aggrieved taxpayers are entitled
to all those rights generally associated with fair administrative action i.e. the right to request reasons
for the assessment, objection, review and appeal. An issue some taxpayers seem to struggle to get to
grips with is the fact that civil recovery is a distinct and separate process from criminal prosecution.
The one is a civil process with the Revenue as litigant and intended to recover outstanding amounts,
the other is part of criminal process intended to prosecute contraventions of the law. In most
jurisdictions these processes can run parallel to one another, with one in the civil courts and the
other in the criminal courts.

1.6.7.3 Tracing of funds

Many taxpayers employ various strategies to divert or conceal evaded funds in an attempt to keep
same out of the Revenue's reach. The identification, tracing, and recovery of the evaded taxes may
thus prove a difficult task. The identification and tracing of funds is important for a number of
reasons, the most important of which are:

(a) It may be necessary in proving the origin and nature of those funds;
(b) It makes possible the collection and seizure of funds and property so as to ensure the
recovery of evaded taxes;
(c) Following the flow of funds will often prove critical in unravelling the ‘mechanics’ of the
fraud, and in identifying those who planned, participated in, or assisted with the fraud; and
(d) Evidence of the flow of those funds, and evidence gathered as a result of information
uncovered during such a forensic investigation, will usually assist with or may prove critical
in proving the identities of those involved, and proving the criminal liability of those
offenders;

The methods and techniques used to launder the proceeds of many tax frauds will often resemble or
mirror those employed by other categories of criminals. Common techniques used may include all
those so often associated with the 'placement', 'layering' and 'integration' of laundered proceeds i.e.:
cash deposits; currency conversion; cash smuggling; cash withdrawals; transfers between accounts;
the conversion of funds into other property; funds moved and/or placed under plausible cover
transactions; the transfer of property or funds to other connected parties; sham loans, contracts,
deeds, etc.

In some instances the laundered funds may be the proceeds of crimes unrelated to taxation, but
there may well be an evasion of taxation on those proceeds. Some tax frauds will involve the
evasion of taxation on the proceeds of illegal activities, in which case the tax offender may well be

315
Also refer the discussion at 2.11.8
110 ADMINISTRATION AND ENFORCEMENT

a criminal attempting to disguise the illegal origin of the proceeds. The commission of the offence
will thus often be followed by a process of 'placement', 'layering' and 'integration', planned and
executed in an attempt to 'clean' the tainted funds. The evasion of taxation may thus well not be the
offender's main objective but rather a natural consequence of the criminal enterprise. The Revenue
may in those instances have no choice but to unravel the laundering in an attempt to prove: (a) the
fact that there was income; (b) the fact that there was an evasion of taxation; and (c) the extent of
that evasion.

Many tax fraud investigations may show considerable parallels with or overlap with money
laundering investigations. In many instances a thorough tax fraud investigation may well,
depending on the facts of the case, deliver sufficient evidence proving money laundering and vice
versa. In common with money laundering investigations, investigators are not only concerned with
the question as to where funds eventually ended up, but also where and how the funds originated. In
the case of money laundering investigations, proof of the source of the funds is critical in proving
the funds to be the proceeds of crime. In tax fraud investigations on the other hand, proof of source
will usually prove critical in proving taxable income and/or taxable supplies.

1.6.8 Voluntary disclosure of non-compliance

A strong state-response and a perceived increase in risk exposure may trigger non-compliant
taxpayers who otherwise would not have made voluntary disclosure, and/or who otherwise would
not have cooperated with the authorities, to make voluntary disclosure and/or to cooperate in an
attempt to limit their risk and regularize their affairs.316 Cooperation and voluntary disclosure by
taxpayers need be taken into account by the courts and the Revenue alike, if such cooperation
and/or voluntary disclosure are to be encouraged. In many cases, early co-operation and full
disclosure by the taxpayer may convince the Revenue to handle the matter administratively, with no
more but stiff administrative penalties being imposed but with the taxpayer possibly escaping
criminal prosecution. In most jurisdictions however, voluntary disclosure does not preclude the
option of criminal prosecution where the authorities should choose to prosecute.317

316
See e.g. the Business Report, November 21 2005, “Fraud sentencing guidelines prove to be a minefield” where (in
referring to heavier sentences handed down for fraud in the United States), it was inter alia reported that: “Streetwise
advisors are counselling their clients, corporate and individual, to avoid criminal prosecution by co-operating with
investigators and prosecutors. As an example, early notification of wrongdoing ... are encouraged.”
317
See R v Gill & Anor [2003] EWCA Crim 2256 where Lord Justice Clark, referring to a statement by the Chancellor
of the Exchequer, inter alia said: “The statement of the Chancellor of the Exchequer made in Parliament on 18 October
1990 makes it quite clear that, while in cases of tax fraud the Revenue will be influenced by a full confession in
deciding to accept a money settlement (including presumably an appropriate penalty), it gives no undertaking to do so
or from instituting criminal proceedings.”
111 INVESTIGATION AND PROSECUTION

PART II - INVESTIGATION AND PROSECUTION

2.1 Introduction
As can only be expected there will always be differences of opinion and differences in legal
definition as to what exactly makes an investigation a 'criminal investigation'. There will
likewise also be differences of opinion, and differences in jurisdiction-specific legal
frameworks, as to the point in time at which one can confidently say an investigation has
crossed the rubicon from an administrative or civil enquiry to a criminal enquiry. For the
purposes of this manual we will consider a criminal investigation to be an investigation
conducted with the view to ascertain (a) whether a person should be charged with a criminal
offence, or (b) whether a person charged with such a criminal offence is guilty of committing
that offence.1

Statistically speaking, very few revenue-related crimes are referred for criminal investigation.
By far the greater majority of revenue frauds are dealt with administratively. Criminal
investigations generally tend to be reserved for the more serious cases. A matter may typically
be viewed as serious where any combination of the following circumstances are present or
apply:

(a) organised criminal attacks against the tax system;

(b) large-scale smuggling operations;
(c) attempts to cipher or launder money out of the Revenue's reach;
(d) frauds involving falsification or the use of forged documents;
(e) attempts to bribe officers;
(f) threatening or endangering of officers;
(g) attempts to subvert the course of justice;
(h) where the fraud is connected with serious criminality or organised criminal networks;
(i) where the fraud was part of a wider conspiracy, especially where some of the co-
conspirators were corrupt revenue officials or advisors such as lawyers and
accountants;
(j) where the fraud involved a serious breach of trust;
(k) attempts at further deceit during the course of an enquiry or civil litigation;
(l) where the fraud was committed despite previous civil fraud penalties or previous
convictions; or
(m) attempts to interfere with or threaten potential witnesses.

It should be said that the fact that a matter does not fall into a category viewed as ‘serious’,
does not exclude the possibility of criminal investigation and prosecution. The criminal
investigation and prosecution of ‘less serious’ offences is not uncommon where prosecution is
believed to be justified solely for its deterrent effect, thus to send out a strong message to
other would-be offenders.

There are few enforcement areas as contentious as revenue-related criminal enquiries and
prosecutions. In most jurisdictions one will probability find generally high levels of approval

1
This definition is in following with the useful definition of "criminal investigation" as provided for under
section 22 (1) of the Criminal Procedure and Investigations Act 1996 (an Act in force in England and Wales)
which defines a "criminal investigation" as follows: "22…(1) For the purposes of this Part a criminal
investigation is an investigation conducted by police officers with a view to it being ascertained - (a) whether a
person should be charged with an offence, or (b) whether a person charged with an offence is guilty of it."
112 INVESTIGATION AND PROSECUTION

amongst the general populace where arrests and convictions relate to smuggling gangs or
criminal syndicates targeting the Revenue. In most jurisdictions the majority of citizens will
view those groups as criminals out to enrich themselves at the cost of the public at large. Less
visible however will be that level of approval where the alleged offenders are the struggling
farmer not declaring all his income or the struggling small trader using collected VAT to keep
creditors off his back. What we are dealing with here is taxpayer perceptions and psychology.
For most citizens taxation is very much a matter of the government taking from them what
they generated on the back of their own labour. For most citizens, not paying a portion of
your hard-earned income, a contribution that is not voluntary but enforced, just does not
evoke the same level of disapproval or aversion as does the theft of what was already inside
the public purse. Alleged evasion by the struggling worker or the poor is also just less likely
to evoke the same levels of anger amongst the general public as say the alleged evasion of
millions by the greedy rich. The levels of public hostility or support revenue administrations
can expect to receive from the public at large cannot be untied from public perceptions of
equality, proportionality and fairness.

On a case-by-case basis, the type of response the authorities can expect from the taxpayer
obviously varies from taxpayer to taxpayer. It will be unrealistic to expect all taxpayers
finding themselves on the wrong side of a criminal enquiry to respond in the same manner,
even where the facts of the case may be the same. All taxpayers are not the same. They do not
all share the same past backgrounds, circumstances, levels of experience, professional
advisors, confidence, or attitudes. A taxpayer’s attitude and posturing obviously also depends
on how he is treated or dealt with by the authorities and the situation in which he finds
himself in at any given point in time.

It must be said that the relationship between the Revenue and the taxpayer is quite unique in
that the Revenue's position in relation to a given taxpayer may very quickly change from
administrator to enforcer. In the case of revenue-related criminal enquiries, the Revenue is not
only the 'complainant' in the matter, but is also the agency tasked with the responsibility to
investigate it. It furthermore also falls within the Commissioner's discretion to decide whether
or not a matter is to be escalated to a criminal enquiry and whether or not that matter is to be
referred to the prosecuting authorities for consideration as a matter to be prosecuted. For the
taxpayer, this can come with considerable uncertainty, uncertainty as to how discretions will
be applied, uncertainty as to the Revenue's objectives, uncertainty as to how a matter will be
viewed or dealt with, and uncertainty as to the possible consequences. This problem does not
really arise when looking at say the relationship between members of the public and the
police. Assume X defrauds his local bank, and further assuming the bank files a complaint
with the police, then there will likely not be any doubt in X's mind, or that of the public at
large, as to what the police's objectives will be, what direction the matter can be expected to
take in the event of prosecution, or the possible consequences in the event of conviction. The
default position is one of criminal enquiries with the objective to prosecute whenever and
wherever it is believed a case proving the commission of a crime can be made out. This is not
however, in most jurisdictions in any case, the position where complaints relate to revenue or
customs-related fraud. In most jurisdictions, the greater majority of revenue frauds are not
escalated to criminal enquiries. Those who do find themselves the subject of such an enquiry
will thus usually question as to why they were 'singled out'.

In most western jurisdictions today, revenue and customs administrations carry sole or at least
primary responsibility for the investigation of revenue and customs related offences. There are
however many jurisdictions where certain categories of revenue- or customs-related offences
may be investigated by agencies outside the Revenue, e.g. the national police. In England and
Wales for example the Police, Serious Fraud Office (SFO) and the National Crime Agency
113 INVESTIGATION AND PROSECUTION

(NCA) can and do investigate revenue- and customs-related offences, usually but not
necessarily incidental to or connected with other suspected offences, whilst certain categories
of offences, notably those relating to National Insurance and Tax Credits, are also investigated
by the Department of Works and Pensions (DWP). In most jurisdictions however, one will
generally find that agencies other than revenue or customs administrations will more often
than not just refer suspected revenue- or customs-related offences to the relevant revenue or
customs administrations rather than investigate it themselves, even where those agencies may
have the legal authority to investigate those categories of offences. In the UK, Her Majesty's
Revenue and Customs (HMRC) carry prime responsibility for the investigation of revenue
and customs-related fraud. Although HMRC’s criminal investigative function operates on
autonomous lines reporting to the Commissioners, there is still close cooperation with other
enforcement agencies and the national prosecuting authority (in England and Wales the
Crown Prosecution Service). That cooperation may cover the complete spectrum of
investigative-related matters or activities e.g. intelligence, assistance with the execution of
searches and arrests, international cooperation and extradition requests, processing and
holding of suspects, forensic support, and the recovery of the proceeds of crime, to list but a
few.

In England and Wales, not that long ago, the then Inland Revenue and the then HM Customs
and Excise (then still different departments before its amalgamation into what is now Her
Majesty's Revenue and Customs) conducted their own prosecutions. This it must be noted was
a common practice in many jurisdictions and although still the practice in some, it is one that
has fallen out of favor in most. The main point of contention, as one can only but expect, was
prosecutorial independence. In Britain this situation changed from 2005 onwards. Since 2010,
revenue and customs related prosecutions in England and Wales are dealt with by the Crown
Prosecution Service (CPS). In most common law countries, as is the case in England and
Wales, the decision whether or not a matter is to be referred for criminal investigation will be
that of the Commissioners. In jurisdictions like England and Australia, the national
prosecuting authorities (in Australia the Commonwealth Director of Public Prosecutions)
relies on referring agencies to investigate alleged crimes, to gather the evidence supporting
those allegations, and to refer those cases for prosecution. The decision to investigate is that
of the referring agency. The decision to prosecute however is that of the relevant prosecuting
authority.

In most cases, enquiries into suspected irregularities is something that would have
commenced quite some time before the decision was reached to refer a matter to the
prosecuting authorities for consideration. The referral decision is one that is not taken lightly
and will almost always only be arrived at after considerable investigation and review. This
will usually include review and opinions by legal counsel and other specialists. The quality
and integrity of an investigation and the strength of the available evidence are not the only
criteria taken into consideration when considering referral for prosecution. The overall
enforcement value such a prosecution is expected to yield also carries considerable weight in
that decision. As was stated earlier in this manual, Revenue and Customs administrations are
not primarily concerned with the investigation of crime. They are for the most part concerned
with optimizing revenue collection and fostering compliance. They are also not under a legal
duty to launch a criminal enquiry whenever an offence is suspected, or under a legal duty to
refer for prosecution all suspected offences. This can and often does work to the taxpayer’s
advantage should he choose to cooperate with the Revenue. Early and full disclosure,
payment of outstanding taxes and penalties, and cooperation with tax inspectors, especially
where a criminal enquiry has not yet been launched, and/or where the outcome of a
114 INVESTIGATION AND PROSECUTION

prosecution may be very unsure, will often move the Revenue to handle the matter as a civil
rather than criminal matter.2

2.2 Complexity of cases

2.2.1 General
There is a general view of tax frauds being technical and complex crimes.3 This may be true
when compared to most crimes out there, but within the context of financial crime, the greater
majority of tax frauds tend to be relatively straight-forward and unsophisticated in nature. The
tricks or devices employed to mislead the Revenue can in most instances be identified and
proven to be fraudulent with relative ease. Many tax frauds may however prove complex and
difficult by any standard. Difficulties may be encountered in terms of detection, information
gathering, and investigation, the identification of suspects, proving fraud, and proving the
criminal liability of the suspects. Prosecutions can be demanding for both investigators and
prosecutors. Many tax fraud prosecutions may show any number of the following
characteristics:

(a) The fraud will often involve breaches of law that is technically complex;
(b) The fraud is often well planned and sophisticated;
(c) Frauds will often be structured around front entities and conduits, i.e. front
corporations and trusts, often domiciled abroad;
(d) Frauds will often involve conspiracies with numerous participants and/or accomplices;
(e) Those charged may include both natural and legal persona with corporate taxpayers
and their servants often charged together;
(f) Many if not most frauds are only detected years after they were committed or
implemented;
(g) Investigations and prosecutions often tend to be time consuming;
(h) Investigations and prosecutions may be costly in terms of resources;
(i) The defendant will often have the financial resources to employ experienced and
senior legal counsel;
(j) The fraud is often committed over a long period of time with the defendant more often
than not facing multiple charges;4
(k) Investigations often prove document intensive;
(l) Proving the material elements of the crimes charged may prove difficult, especially so
the mens rea element;
(m) International mutual cooperation and investigation will often be called for but may
often prove difficult or be lacking;
(n) Heavy reliance on specialist expertise i.e. auditors, accountants, tax professionals,
lawyers, forensics etc;
(o) The investigation will always involve but not necessarily be limited to a financial
investigation.

2
In the UK, the Revenue is entitled to handle the matter as a civil investigation under Code of Practice 9 (COP
9). See Code of Practice 9 - HM Revenue & Customs investigations where we suspect tax fraud, June 2014 (COP
9). COP 9 is a civil fraud investigation procedure It is however the Commissioner's prerogative to decide if the
matter will be dealt with under COP 9 with the most important deciding factor being full disclosure by the
taxpayer. Where a taxpayer receives a COP 9 notice, he can safely assume the Revenue suspects him of evasion
in which case cooperation and honest full disclosure is certainly the wise decision (assuming he did in fact evade
taxes).
3
An observation often underlined by the courts. See e.g. Inland Revenue Commissioners and another v
Rossminster Ltd and related appeals [1980] 1 All ER 80 at 87 where Viscount Dilhorne noted: “tax frauds more
often than not are of great complexity..”
4
See e.g. R v Elvin [1997] ACTSC 1
115 INVESTIGATION AND PROSECUTION

Many of these investigations may be of great legal complexity. Access to, and the guidance
and input of experienced prosecutors during the course of an investigation will often be
invaluable.5 Many of these investigations calls for multi-disciplined teams consisting of
specialists from various fields, and/or for the support from specialists from various fields such
as accountancy, taxation, law, the natural sciences, intelligence etc. These investigations can
be document intensive, laborious and lengthy and it is not uncommon for a single ‘case-
docket’ to cover shelves or even rooms filled with exhibits.6 The larger in scale and the more
complex the investigation, the more costly it will be in terms of resources and the more
challenging it will be to manage. Commensurate with scale and complexity is the demands in
terms of case preparation and preparation for trial. Good case management and control is thus
paramount.

With many a criminal enquiry, investigators and prosecutors will find a pressure increase
commensurate to complexity and scale. The more complex the fraud, and/or the more
extensive in scale it is, the longer, the more complex, and the more costly the investigation
tends to be. More often than not those frauds will also involve more sophisticated suspects,
suspects with more resources, suspects with reputations and influence, and suspects with more
to lose. Where the suspect is one with a brand name or reputation, resources, and with some
influence, the investigators and prosecutors may often find themselves in a difficult position
burdened with a complex enquiry but nevertheless under tremendous pressure to bring the
matter to conclusion.

2.2.2 Spectrum of criminal activity, depth and scope

Many tax frauds may see implementation years before they are uncovered. The lies, deceit,
cover-ups, and corruption may often continue over years, often passing undetected through a
number of subsequent tax audits, and often continuing well into the enquiries, insolvency
proceedings, investigations, and even trial. An investigation into one taxpayer's tax affairs
may cover many tax years. In those jurisdictions where there is no absolute statute of
limitations it may go back decades.7 The further back in time you go, the more time it takes,
and the more document intensive it becomes. Time is also the investigator's enemy. Witnesses
die and disappear, memories fade, records and documents may quite possibly no longer be
available, and evidence may grow thinner and may be more difficult to find the further back
you go.

Fraud investigations are document intensive, and may be technically complex, even when
looking at the affairs of relatively small traders. The larger the trader, the greater will be the
extent of his business operations. Investigating the tax affairs of a single trader for just one tax
year may, depending on the scale of his operations, the nature of the fraud, and the facts of the

5
Not only may it mitigate unnecessary errors and assist with the early identification of shortcomings and
problem areas, but it also serves to keep the prosecutor informed of case-content and progress.
6
Whereas most revenue and customs investigations tend to be document intensive, many smuggling cases may
involve very little in terms of documentary evidence. Consider for a moment the situation where a foreign truck
laden with say foreign manufactured cigarettes is interdicted at let us assume Dover. The vehicle and its cargo
will be seized and Customs will make its enquiries. There is a strong likelihood of all enquiries intended to
ascertain the scope of the criminal operation, the identities and activities of the those behind the operation, the
suppliers, the fences, and past activities and contraventions, all leading to dead-ends, quite well leaving the
investigators with no more but a very sterile truck laden with illicit cigarettes, supplier unknown, and a driver
refusing to cooperate. Further assume the matter is referred for prosecution. There will be very little in terms of
documentary evidence.
7
See e.g. R v McCorry [2005] NICA 57 where the evasion persisted for over 16 years. In R v Small & Anor
[2010] NICC 6 (another case from Northern Ireland) the evasion continued for over 17 years and in R v Andrus
2013 BCPC 0160 (a Canadian case) for 15 years.
116 INVESTIGATION AND PROSECUTION

case, involve a large-scale investigation tying valuable resources up for many years. These
frauds may involve any number of false representations, and false representations may be
made to any number of individuals or entities. The same fraud may also prejudice various
other individuals and/or entities and not necessarily only the Revenue.8 Even though an
investigation may start out as an investigation into suspected irregularities in regards to one
category of tax, such as say for example VAT, the enquiry may often be broadened into an
investigation of all the taxpayer’s tax affairs. The same applies to the number of tax years
under investigation. An investigation may have started out as an investigation of a taxpayer's
affairs for a particular tax year, but as the investigation progresses it may become evident that
the fraud went back much further, in which case the enquiry will usually be broadened to
previous tax years. An investigation that may at the initiation-stage have appeared relatively
limited and straight-forward may thus well fan out into a drawn-out and complex matter
within a relatively short period of time. Any broadening of the scope of an enquiry obviously
translates into a greater investment in terms of time and resources.

An investigation into the affairs of one trader will often uncover evidence of irregularities in
the affairs of other traders. This is especially common where facilitators such as money
launderers, crooked customs agents, corrupt revenue and customs officers, or crooked tax
agents and accountants start to spill the beans, often in an attempt to save their own skins. An
investigation which might well have started out as a limited investigation into the activities of
one trader or taxpayer may thus fast fan out into various parallel investigations or into a
project involving many secondary investigations.

The interconnection between many types of crime is common cause. Some types of crime
may facilitate the commission of other types of crime, or may provide for a breeding ground
where various types of criminality can flourish. Corruption, money laundering and smuggling
are good examples in point. Many revenue frauds rely on the success off, or may be layered
on top of other crimes. The same fraud may involve a wide spectrum of criminal activities.
The setting up of structures and systems intended to further one criminal objective will often
involve the commission of various other criminal acts, with those criminal acts often very
different from one another in character, and often committed by or with the assistance of
different actors. Many of those crimes committed with the view to facilitate or further such a
fraud may be deception offences in their own right. This may involve things like falsification
and counterfeiting, corruption, fraud and theft.9 Some frauds may also rely on, may be
interconnected with, or may follow as a consequence of various other types of 'common' or

8
See e.g. R v Elvin [1997] ACTSC 1 where Higgins J obiter inter alia remarked that the failure to account for
payments by a company to its employees also posed risk to those same employees, even where they were
complicit in the non-declaration, in that they may be prejudiced in terms of social benefits or in the event of an
accident at work. Another good example is that of bankruptcy frauds. The Revenue may well not be the only
prejudiced creditor.
9
Some frauds may for example rely on conduits and bank accounts set up, opened, or operated in a fraudulent
manner, or on a misleading cover for the flow of certain funds flowing from one conduit to another. Others may
rely on misrepresentations as to the true nature or details of vehicles, crafts and goods crossing national or
customs frontiers. (Goods may typically be falsely described as something other than what it in fact is, or stamps
and seals used on the goods, vehicles or documentation may be falsified. Vehicle registration numbers, VIN
numbers and vehicle registration documentation may be false. Aviation and maritime authorities may be
deceived in regards to things like flight-plans and the movement of craft. Regulators responsible for the issue of
import and export permits may be deceived as to the true nature or destination of certain goods or things.) Some
of those instrumental to the commission of these crimes may well be travelling under cover of stolen or false
identity documents, or may falsely give themselves out to be revenue or customs officers.
117 INVESTIGATION AND PROSECUTION

even violent crimes i.e. robbery, theft, or arson. This is particularly common within the
customs context.10

Many revenue and customs frauds may involve the setting up of structures and systems
intended to conceal income generating activities, or to conceal the trade in certain things, or to
facilitate the circular flow of funds (typically the same money being circulated around so as to
represent payments made or received), or intended to facilitate the laundering of the proceeds.
Two of the primary objectives of most revenue investigations are: (a) ascertaining the nature
and extent of income generating activities and trade; and (b) the recovery of all duties and
taxes diverted away from the Revenue. Many revenue investigations will thus involve much
of the legwork one will generally do in the course of a money laundering investigation. In
those jurisdictions where the proceeds of crime is also viewed as taxable income, a money
laundering investigation may of course also involve a secondary revenue investigation.

Dissecting the operation of and proving beyond reasonable doubt the mechanics of the
revenue or customs fraud will thus often call for the unravelling and proof of other crimes
which had as consequence the revenue or customs fraud, or were committed in the furtherance
of that revenue or customs fraud. Investigators may thus find themselves having to prove a
long chain of events, often covering various layers of crimes, in proving what they set out to
prove … the revenue or customs fraud.

2.2.3 Demands placed on resources

Financial crime related investigations and prosecutions more often than not tend to be time
consuming and expensive. Tax fraud investigations are no exception. These investigations
tend to be document intensive, especially so in the case of corporate tax frauds. They often
prove to be highly technical in nature, legally complex, and may prove a significant drain on
expertise and resources. A single investigation may potentially call for the assistance of many
tax inspectors, investigators, accountants, lawyers, and other specialists. A single
investigation may potentially divert them from other tasks and investigations for a few years,
and generally with no guarantee of the matter being successfully concluded. The investigators
tasked with the investigation will often have no choice but to narrow the investigation down
to certain individuals, entities, tax years, transactions etc. The failure to do so may potentially
result in the investigation growing too wide and unmanageable. The efficient use of available
resources and achieving the greatest possible impact with the resources available, thus calls
for the prioritization of available investigative resources and often for very selective
prosecution.

The complex nature of revenue frauds calls for skilled and experienced investigators and
prosecutors. There are a number of subject fields calling for a strong technical knowledge,
notably criminal law, law of evidence, criminal procedure and constitutional law. These fields
often overlap, interact, and can impact on one another, and lapses in any of those areas can
impact on the outcome of a criminal enquiry. Even assuming criminal investigators do have

10
Consider the following examples: (a) criminals break into a bonded facility and steal bonded goods which they
then divert it into home consumption; or (b) criminals hijacking trucks carrying bonded goods which they then
divert it into home consumption; or (c) criminals dressed in Customs uniforms under cover of false identity cards
'seizing' bonded goods and then diverting it into home consumption. In all these instances we are not only
dealing with some serious crimes, but the ultimate diversion of the bonded goods will also result in the Customs
being defrauded of the duties due on the diverted goods. Another example is the operation of illegal
manufacturing operations where the product is manufactured and distributed in the black market without
accounting for the goods or income. Those operations will often involve other criminal activity such as the use of
illegal workers, the use of restricted or banned substances and materials, or the manufacture of illicit or
counterfeit goods.
118 INVESTIGATION AND PROSECUTION

the benefit of the assistance of experienced revenue or customs inspectors and/or experts in
those fields, they personally should nevertheless possess a good working knowledge or at
least awareness off subjects like taxation, customs, accounting, and administrative law. The
recruitment, training and retention of a pool of personnel with these skills and experience do
however come at a price.

Personnel however is just one expense. Setting up and maintaining investigative branches,
and the administrative, intelligence, technical, legal and logistical support that goes with
criminal investigations weighs heavily on often limited enforcement budgets. As a result of
limited internal capacity, those investigative branches will often be heavily reliant on other
agencies to assist with training, legal support, technical and forensic support, intelligence
support, and other assistance that may be called for. Not to be lost sight of is the disruptive
impact of criminal enquiries on the day-to-day functions of operational line-personnel and
managers often being diverted to assist with enquiries, typically with audits, assisting with
requests for information, interviews, the taking down of statements, and court appearances.

2.2.4 Legal complexity

The criminal investigation and prosecution of revenue frauds can be legally complex.
Revenue and customs legislation is a technical and complex body of law covering as it does
technical and complex subject-fields. Those tasked with investigating contraventions of that
body of law will find it difficult to do so unless they can make sense of the legislation and its
operation. They do not necessarily need come from a revenue or customs background and/or
be skilled in those subject fields as they can always count on assistance from revenue or
customs specialists experienced in those fields, but they must have the ability to interpret it
and understand the operation thereof. Insofar as criminal investigations are concerned, there
are however also other areas of complexity calling for awareness and care. Investigators need
correctly identify the offences committed and the material elements of each of those offences.
They furthermore need appreciate the types of evidence required to prove each of those
material elements, where it is to be found, and how same is to be collected and presented.
Criminal investigations then also need be conducted in a manner that is lawful, with evidence
gathered in a manner that will not affect its admissibility.

In most jurisdictions with relatively advanced legal and judicial frameworks, the rules
governing the authority to authorise and conduct criminal investigations, the scope and
parameters of such criminal investigations, and the rules and procedures relating to the
conduct of such investigations, will be a matter of law. That body of law dealing with
criminal investigations, from the point of authority and initiation to the point of committal and
trial, will however seldom be found in just one statute. It will usually be found in a complex
cluster of statutes, rules and codes of practice covering numerous aspects from different areas
of law i.e. criminal procedure, evidence, constitutional law and human rights. To illustrate this
point, consider something like a search and seizure, just one basic element of many a criminal
investigation. In England and Wales a revenue investigator conducting a criminal
investigation may conduct a search under section 8 of the Police and Criminal Evidence Act
1984. That power however, was granted under the Police and Criminal Evidence Act 1984
(Application to Revenue and Customs) Order 2007 (SI 2007/3175). The Treasury's authority
to grant that power is however to be found in the Finance Act 2007. The rules relating to
disclosure, which also covers material seized during such a search, are however to be found in
the Criminal Procedure and Investigations Act 1996 and its Codes of Practice. The basis for
such a search, its execution, the material taken, and how that material is subsequently dealt
with and disclosed need however comply with the principles as enshrined in the Human
Rights Act 1998 and the European Convention on Human Rights (ECHR). The investigator
conducting the search need at all times be (or should at least be) cognisant of this legal
119 INVESTIGATION AND PROSECUTION

framework and the legal requirements to be met. Searches and seizures however, as
mentioned, is just one aspect of a criminal investigation. The integrity of any criminal
investigation can only be assured to the extent that the legal framework relevant to every part,
phase, or aspect of such a criminal investigation, from the point of initiation to the point of
trial is properly considered, taken into account, and respected.

Conduct often referred to as 'tax evasion', 'smuggling', 'tax fraud' and 'customs fraud' will
usually be punishable under different penal provisions provided for in different statutes. The
application of any given penal provision will often be limited to very specific contraventions
of a particular statute or statutes. In short, there may be many different 'evasion', 'smuggling'
and 'fraud' offences in the same jurisdiction, and the material elements of those offences will
often not correspond. The investigator therefore need have a clear understanding of the
broader legislative framework, the different duties and taxes, and the nature, purpose, ambit,
and content of those different 'evasion', 'smuggling', and 'fraud' offences.

The onus rests on the prosecution to prove beyond reasonable doubt each of the material
elements of the crime charged. The failure to prove any of those material elements will result
in an acquittal in relation to that offence.11 This is a burden weighting heavily on the
investigators tasked with building up a case sufficiently strong enough to carry a conviction.
The prosecution's case is after all just as strong as the evidence placed before the court. Just
proving an act, failure, or scheme to be unlawful, and proving so beyond reasonable doubt,
may in itself prove challenging for even the most experienced of investigators and
prosecutors. When looking at tax evasion, the actual or potential loss of revenue is no more
but a consequence of the unlawful circumvention of the underlying taxing provisions. From
the unlawful circumvention of the underlying taxing provision follows the consequences. The
fact that a taxpayer was not subject to the operation of a taxing provision, and thus had no
liability to taxation under that provision, obviously implies that he cannot be said to have
evaded (his own) tax contrary to those provisions. A tax is by definition not a voluntary
contribution. A person cannot be held liable for taxation in the absence of a taxing statute
setting out his liability.12 He may well assist another to evade that other person's taxation, but
he cannot evade a liability of his own where there is none. Absent liability to taxation it
cannot be said that there was an unlawful failure to comply with a legal duty to pay. This
effectively means there was no actus reus (assuming the actus reus alleged involves the
evasion of his own liability) and therefore no tax evasion.13

11
This is a basic principle under common law. In the US, it has also been incorporated into the Model Penal
Code. See § 1.12(1) which inter alia reads: "(1) No person may be convicted of an offense unless each element
of such offense is proved beyond a reasonable doubt. In the absence of such proof, the innocence of the
defendant is assumed." §1.13(9) of the same Code then continues to define "element of an offence" as: "(9)
"element of an offense" means (i) such conduct or (ii) such attendant circumstances or (iii) such a result of
conduct as (a) is included in the description of the forbidden conduct in the definition of the offense; or (b)
establishes the required kind of culpability …".
12
See the oft cited case of Vestey v IRC [1979] 3 WLR 915 at 925 where Lord Wilberforce inter alia said:
“Taxes are imposed upon subjects by Parliament. A citizen cannot be taxed unless he is designated in clear terms
by a taxing Act as a taxpayer, and the amount of his liability is clearly defined.” Also see R v Inland Revenue
Commissioners, ex p M.F.K Underwriting Agents Ltd [1990] 1 WLR 1545 where Bingham LJ said: "The
taxpayers' only legitimate expectation is, prima facie, that he will be taxed according to statute, not concession or
a wrong view of the law".
13
See the Canadian case of The Queen v Redpath Industries 84 DTC 6349 (QCCS Crim Div) where it was
correctly stated that: “A criminal court is not the forum to determine income taxability... In a tax evasion charge,
it must appear prima facie from the evidence that the taxability is clear-cut, obvious, indisputable,
unquestionable from lack of reporting, before entering the examination of...whether undisputable
taxability...leads to the conclusion beyond a reasonable doubt that it was wilfully omitted by a taxpayer in his tax
returns.”
120 INVESTIGATION AND PROSECUTION

The mechanics of the fraudulent schemes, tricks, and devices employed to evade taxation or
to misrepresent the taxpayer’s true tax position are moulded and shaped around the
framework of the tax legislation, and tend to change in tandem with the taxing provisions
imposing the tax liability. Evasion is after all intended to evade or circumvent the operation of
those provisions imposing the liability or regulation. The law does not however remain static
either. It sees frequent change. Conduct which in the past might have been lawful may no
longer be so and vice versa.14 Every case thus need be analysed and considered on the facts of
the case, and more precisely on the facts, circumstances, and law as they were / it was at the
time of the alleged offence.

The prosecution carries the burden of proving beyond reasonable doubt the unlawfulness of
the taxpayer’s conduct. Those who allege a contravention of the tax laws carry the burden of
convincing the court as to the correct interpretation and operation of those laws as they were
at the time of the alleged contravention. Failing to do so and the prosecution will fail in
making out its case. Many a businessman and advisor spend considerable time devising
methods to circumvent the tax-net. In many instances they may manage to do so legally, but
all too often fraudulent schemes are coloured in as one of the many tax avoidance schemes
out there. Distinguishing between tax avoidance and tax evasion, and proving the difference
in a court of law, beyond reasonable doubt, can be challenging. Countless reported cases are
to be found from the civil courts where the matter in dispute was the setting aside of
transactions which the Revenue authorities viewed to be simulated or void of substance and to
be disregarded under some or other anti-avoidance provisions, but where the Revenue
administrations failed to prove, and that on a mere balance of probabilities in the civil tax
courts, that the taxpayer’s tax mitigation schemes amounted to tax avoidance. In many of
these cases the Revenue’s failure to prove its case followed as a direct consequence of the
Revenue’s failure to convince the court of the Revenue’s interpretation of the tax statutes
being the legally correct one. In the event of a criminal prosecution where a finding as to the
legality or otherwise of the taxpayer’s conduct may be squarely reliant on the trial court
accepting the prosecution’s interpretation of those laws and rejecting that of the taxpayer,
mere reasonable doubt as to the prosecutions interpretation of the legal position may well
prove fatal for the prosecution’s case. In short, in proving the unlawfulness of the taxpayer’s
conduct, the prosecution’s case may leave no reasonable doubt as to the correct interpretation
of the laws allegedly contravened. This then may partly explain why many if not most of the
more complex tax evasion schemes coloured in as legal tax avoidance, are more often than
not dealt with civilly rather than criminally. In civil cases the Revenue only has to prove its
case on a balance of probabilities.

To conclude, proving the taxpayer's acts or failures as at the time of the alleged contravention
to be unlawful, requires proof, beyond reasonable doubt: (i) of the framing of the taxing
provisions allegedly contravened as they were framed at the time of the alleged contravention;
and (ii) the acts or failures of the defendant as at the time when the offence was allegedly
committed; and (iii) that the acts or failures of the defendant as at the time of the alleged
offence amounted to a breach of the underlying taxing provisions as they were framed at the
time when the offence was allegedly committed. Proving all this, just to prove the actus reus
of the crime, may prove challenging. But even assuming the prosecution does manage to
prove all this, proving the accompanying mens rea will often prove an even steeper hurdle to
overcome.

14
See e.g. the English case of R v Leaf EWCA [2007] Crim 802 where the fraud alleged involved a serious of
aggressive tax avoidance schemes which a few years earlier were still viewed lawful.
121 INVESTIGATION AND PROSECUTION

2.2.5 Identification of offenders

A key milestone in any criminal investigation is the identification of all those suspected to
have committed or to have assisted in the commission of the crime. As for the investigators,
such identification is driven by, aided with, and tested against information obtained and
evidence gathered during the course of the investigation. In a trial court however, information,
no matter how accurate, is of no value. Neither is inadmissible evidence. Only admissible
evidence capable of proving beyond reasonable doubt the guilt of those charged will
ultimately prove who were, as far as the criminal justice system is concerned, in fact
offenders.

Generally speaking, the closer an offender is to those areas or settings where he may be
identified, the more likely it is that he will employ measures to conceal the crime and/or to
conceal his own identity. The likelihood of a burglar concealing the fact of there having been
a burglary is very slim. It will almost always be detected at some point in time. This he also
knows and therefore he will usually ensure he leaves no prints, cannot be identified on CCTV
or by witnesses, and do not leave other incriminating evidence behind. Knowing that the
crime will be detected he is gambling on non-identification and as a fall-back position to that,
the hope that in the event of identification and arrest, the investigating officers will be left
with insufficient evidence against him for a court to convict. For most tax offenders on the
other hand, there is little to no opportunity to conceal their own identities as offenders. This
being their reality, most tax offenders gamble on non-detection and will therefore usually
employ measures intended to keep the fact of the fraud hidden. This will usually entail things
like cash-in-hand dealings, the falsification of records, and the use of false books of account.

With most criminal tax investigations there will be little doubt as to the identity of the
offender. Assume for a moment the Revenue detects a clear case of evasion by a dental
practice operated by a sole self-employed dentist. As far as means, motive and opportunity is
concerned he (the dentist) will from the start be the primary suspect. In the majority of
criminal tax enquiries the investigation starts with the taxpayer and radiates outwards with the
investigators dissecting and scrutinizing the taxpayer's activities, actions and failures. This
stands in contrast to many other crimes where the identification of the offender may prove
difficult or even impossible. Consider the example of a detective called out to the scene of a
burglary. All he has got is a crime scene. In the absence of information or evidence at the
scene of the crime pointing towards the identity of the offender, the suspect may be anybody.
A great deal of investigative work may follow with no guarantee of ever identifying the
offender.

This is not to say that cases where identification may prove difficult do not present in the
revenue and customs context. There are indeed many cases where the identification of
suspects may prove more problematic. This often proves to be the case with smuggling
operations, VAT scams and other refund scams where those frauds are usually planned and
executed with secrecy, non-identification and deniability being primary considerations. In
these cases the investigators will usually start the investigation by unravelling the mechanics
of the crime. Developing an understanding of how a crime was committed, the likely motives,
the modus operandi employed, and who might have had the opportunity and means to commit
it, will often assist with the identification of possible suspects. In these cases, investigators
will usually have to fall back on the more traditional investigative techniques such as
fingerprinting, implement markings, handwriting analysis, eyewitness descriptions,
intelligence gathering, physical and technical surveillance etc. But even in those instances
where some or all of the actors are identified, separating the wolves from the sheep may prove
difficult. There may be individuals who may have been innocently pulled into a fraud by
122 INVESTIGATION AND PROSECUTION

others absent any knowledge of a fraudulent scheme being afoot. The fact that illicit goods
were stored in a warehouse does not mean the warehouse-keeper was complicit. Every
unlawful act or failure also does not constitute a fraud. An unlawful act or failure in breach of
the tax laws or customs law does not in itself make a person a 'tax evader', 'fraudster' or
'smuggler'. There must be the prerequisite mens rea, a state of mind which must co-exist with
the actus reus.

Just as important as is the identification of those who committed and assisted with the
commission of the crime, is ascertaining the role of each of the individuals implicated.
Ascertaining each individual suspect's position and involvement is not only necessary in
building up a picture as to how the crime was conceived, implemented, executed, and
managed, but also place investigators in a better position to plan the future conduct of the
investigation. This being said, distinguishing between the planners, lieutenants and foot
soldiers, those who masterminded, managed and followed is not always that easy. With many
large scale corporate frauds, refund frauds, and smuggling operations, there may be countless
conspirators and accomplices, and their positions, involvement, motivations, and knowledge
may vary. Primary planners or key figures in a criminal operation may have built in sufficient
distance between themselves and the operation of the criminal scheme so as to ensure
deniability or to make themselves invisible. Many of those involved may have played a
pivotal role in the operation of a criminal scheme but may nevertheless lack any real
knowledge of the precise scale or nature of the operation. This may typically be the banker or
accountant facilitating the laundering of the proceeds, or the warehouse-keeper making
warehouses available for the keeping and distribution of smuggled goods. They may know
that they are part of a criminal operation, but may lack knowledge as to how the proceeds are
generated or how the illicit goods made its way to his warehouse. The motivations of co-
conspirators and accomplices may be very different. Some may be driven by direct financial
gain, others by ambition, others by misplaced loyalty, whereas others may go along for no
other reason but fear of losing their jobs or physical harm.

Corporate frauds
Many corporate tax frauds may prove complex as evidence may point to the involvement of
many different persons at different levels and with different levels of skill. Many of those
individuals may have acted or may have failed to act at different times and in different
capacities, often not sharing the same knowledge, often not sharing the same consensus as to
what is lawful or unlawful, often attempting to push the blame onto others, and often claiming
absence of any knowledge of wrongdoing. Apart from the denials and blame-shifting inside
the company, there may also be accusations and counter-accusations between the company
and external advisors and accountants. Many of these frauds may have been in operation for
years, often planned and initiated by people years earlier and quite possibly with those who
planned or implemented the fraud no longer with the company. It is quite possible for a fraud
to be committed without those in fact behind the fraud ever putting their hands on paper.
Their names may well not feature on a single Companies House record, company resolution,
or in any other official document. They will often build into the fraudulent scheme a certain
degree of distance between themselves and those executing the fraud.

Insofar as evasion or fraud offences are concerned, and this is especially so in the case of
many corporate frauds, one of the major challenges will always be the proving of the
prerequisite criminal intent. Evasion, fraud, and smuggling offences are after all committed
not by the innocent or careless. A person cannot 'unknowingly' be a co-conspirator or
accomplice. Distinguishing between those who acted knowingly and unknowingly may
however prove difficult. With many corporate frauds there may be numerous individuals
whose actions or failures may have furthered or facilitated the fraud and many of them may
123 INVESTIGATION AND PROSECUTION

initially appear to be willing co-conspirators or accomplices. There is however always the

possibility of one or more of those individuals in fact being wholly innocent. Some of them
may have been misled by colleagues or senior executives, or may have acted in good faith
reliance on false information or the corrupted work-product of others. Others may have lacked
the required experience or skill, whilst others may simply have been careless. The fact that a
return signed by X subsequently proves to be a fraudulent return, does not mean X was
complicit in the fraud. He may well have signed the return with an honest belief in the
accuracy of that return as prepared by his crooked partner.

There may also be those who may have had knowledge of what was afoot but who did not
conspire with the other offenders, did not commit any unlawful acts, and were not subject to
any legal duty to act otherwise than how they did. They cannot be pooled with the other
offenders simply for their knowledge. Consider the example of a wife who may possess
detailed knowledge of the fraud, simply because her offending husband told her all about it.
She may have detailed knowledge of the fraud, she may even have approved of it, but where
she is not part of the conspiracy, or in the absence of any participation or assistance, she is not
an offender. In many jurisdictions she cannot even be forced to testify against him. As for
those who knowingly participated or assisted, it may not always be that easy to distinguish
between those who planned the fraud, those who managed the implementation and execution
thereof, and those who conspired with or assisted with the commission thereof.

Building a clear picture as to whom was involved, the role played by each of the individuals
implicated, and the knowledge of each of those individuals, will usually only grow clearer as
the investigation progresses, as the body of evidence grows, as the investigators build a more
detailed picture of the taxpayer's operations, organization, and business affairs, and as the
mechanics of the fraud is unravelled. In building a complete picture the investigators will rely
on various different types of direct and circumstantial evidence gathered from a wide range of
sources such as but not limited to: (a) records held by the Revenue; (b) books of account and
financial records; (c) notes in audit and client files; (d) personal notes; (e) electronic data; (f)
banking records; (g) minutes of meetings; (h) internal memoranda; (i) internal and external
reports; (j) testimony from current and past company employees; (k) testimony from co-
conspirators inside and outside the company; (l) testimony from the taxpayer's suppliers and
clients; (m) internal and external correspondence; (n) documents or things found in various
person's possession i.e. certain stamps, currency, documents etc; (o) court transcripts; and (p)
company marketing material and website data.

2.2.6 Multiple taxes and statutes

It is not uncommon to find the evasion of more than one category of tax by the same taxpayer
in the course of committing the same fraud.15 Consider the following example: Trader X is
engaged in the inward smuggling of consumer goods which he then also sells on from local
outlets controlled by himself through family members. The goods so traded are illicit goods.
He charges VAT on the sales, none of which is recorded or declared. Not only will X be
defrauding the Revenue out of customs and/or excise duties when the goods are smuggled in,
but he will also be defrauding the Revenue out of the VAT collected from his customers. As
those sales are not recorded and declared, the income generated from those unrecorded sales
is also not declared for income tax purposes. The Revenue is thus also being defrauded out of
income taxes payable on those unrecorded sales. What might thus be a single fraudulent
scheme, may well involve the Revenue being defrauded out of various categories of duties

15
See e.g. the Australian case of Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC
537 where the filing of fraudulent customs entries resulted in the evasion of both customs duty and GST.
124 INVESTIGATION AND PROSECUTION

and tax levied under different revenue and customs statutes. This also means multiple
contraventions of different revenue and customs statutes. The successful prosecution of many
of these cases call for the input and testimony of numerous Revenue employees specializing
in different areas of taxation, often employed in different Revenue and Customs sections.

2.2.7 Variation, evolvement and change

The laws of taxation are subject to frequent change. Whoever is considered to be a person
liable to taxation today may not be so considered the year after. What may be lawful today
may well be unlawful the following year, and vice versa. The range of fraudulent schemes
employed to defraud the Revenue are also legio. The schemes, tricks, and devices employed
to evade are often moulded and shaped around the legislative framework, and will therefore
often change and evolve in tandem with that framework. The evolvement of schemes and
changes in modus operandi may also be driven by advances in technology.

New tax regimes, schemes, and procedures, often implemented with underlying weaknesses
and threats unforeseen, will often be targeted or circumvented soon after implementation. A
good example in point is the emergence of a number of VAT scams shortly after the
introduction of Value Added Tax in South Africa in the early 1990’s. The same scams
however reared its head in Britain shortly after implementation of the VAT regime in Britain
just more than a decade earlier. It will often take the revenue and customs authorities many
years to detect, understand, and gain control over the abuse, usually through a combination of
investigative feedback, legislative amendment, changes in procedure, and the introduction of
various countermeasures.

Legislative amendment and/or the introduction of certain counter-measures may in many

instances have the desired effect of reducing certain threats and types of fraud, but those
intent or bypassing them will often be quick to identify other possible loopholes and/or to
change their modus operandi. The subsequent practices and scams adopted may in many
instances show greater technical complexity and sophistication compared to their forerunners.
Many of the evasion schemes employed will often be no more but variations of the theme,
whilst others may be constructions of originality not encountered before. Variation and
evolvement may, partly at least, explain the difficulties so often encountered in the detection
and investigation of many of these frauds.

2.2.8 Technological advances

Globalisation and advances in technology have brought with it many challenges for law
enforcement agencies and tax administrations. This then is especially so in relation to the way
people communicate, information is exchanged, money is being transferred,16 transactions are
being effected, products are being marketed, goods are being moved, and returns and customs
declarations are being filed. These developments have brought with it greater sophistication in
the way tax is evaded and crime is committed.17 These technological advances, the increasing
sophistication of crime, the efficiency with which people, assets, funds, and goods can be
moved around, and the difficulties associated with international investigations, make the

16
See Schneider, “Measuring Capital Flight: Estimates and Interpretations” where at 3 it is inter alia said:
“Capital today is internationally mobile and responds to increasing opportunities created by increasing
integration of world financial markets and the development of new financial instruments, transport and
communications. Foreign trade has also increased in volume and importance.”
17
See e.g The Guardian, May 09 2006, “Revealed: the ₤5bn-a-year tax fraud, Customs scam hits UK trade
balance” where it was reported that certain organised criminal gangs engaged in the operation of various VAT
scams “are known to have developed software that allows them to create “virtual carousels” in which no goods
change hands, but which generate bills of sale that are used to claim VAT refunds worth hundreds of thousands
of pounds with each bogus trade sequence”.
125 INVESTIGATION AND PROSECUTION

investigation and prosecution of revenue and customs crime, and crime in general,
increasingly more challenging.18

2.2.9 Transnational dimension

Few States are left unaffected by trans-national crime. Money laundering, corruption, tax
evasion, and smuggling, all feature prominently in the list of ‘international crimes’ plaguing
many countries. These then are also key activities of international organised crime. Many
revenue and customs frauds are also trans-national in nature. The offenders may range from
individual taxpayers, to importers, exporters, criminal groups, and large multinational
corporations. Successfully investigating and prosecuting these types of crimes will often, and
often do to a large degree, rely on foreign cooperation and assistance. The capacity of revenue
and customs administrations to investigate revenue and customs irregularities over national
borders, are obviously limited by jurisdictional and other legal barriers. The offender, whether
he be the individual taxpayer, internationally mobile trader, smuggler, or career criminal,
faces no such constraints. International cooperation will almost always rely on good
diplomatic relations and treaties between the requesting State and the jurisdiction from which
cooperation is sought. However, even where treaties are in place, those treaties may allow for
information exchange but not necessarily for any investigative collaboration and assistance.
Dealing with transnational offences and offenders or groups operating internationally can
pose many problems for investigators and prosecutors, some from an investigative point of
view, others from a prosecution perspective. International investigations and the prosecution
of internationally mobile offenders and their accomplices may prove taxing to say the least.
This is not surprising considering:

(a) the potential limitations on information-gathering, information-exchange, and the

building of an accurate intelligence picture;
(b) the difficulties associated with cross-border investigations;
(c) the heavy reliance placed on foreign cooperation which will often be lacking or non-
existent;
(d) foreign assistance usually involves considerable burocracy, often only possible
through diplomatic channels - with the associated delays and cost;
(e) difficulties associated with maintaining security of information and preventing leaks;
(f) differences in legal systems and procedures;
(g) differences in the way offences, especially revenue offences, are classified in different
jurisdictions and the associated difficulties this may pose in terms of requests for
extradition;
(h) legal and practical difficulties associated with the recovery of evaded taxes and the
proceeds of crime;
(i) the costs associated with international investigations;
(j) the admissibility of evidence obtained from abroad and obtaining the testimony of
foreign-based witnesses;19 and
(k) effecting the arrest and extradition of suspects (where possible);

18
See Commissioner of Customs and Excise v Tayob and Others 2002 (6) SA 86 (TPD) where Van der
Westhuizen J inter alia remarked: “The world in which we live is complex, but technologically advanced.
Transactions between people in different countries, with different languages, procedures, and legal systems take
place all the time. ….Numerous differences between the different countries, and systems of law and
administration, complicate matters.”
19
In most common law jurisdictions provision is made for the request and admission of evidence from abroad.
The evidence that can be so admitted and the rules as to its acceptance into evidence do however vary greatly
between jurisdictions. In England requests for assistance in obtaining evidence from abroad may be made under
section 7 of the Crime (International Co-operation) Act 2003. Section 9 of that Act deals with its use as evidence
in domestic courts.
126 INVESTIGATION AND PROSECUTION

There are certainly much higher levels of international liaison, cooperation, and coordination
on issues such as harmful tax practices, banking secrecy, smuggling, organised crime,
terrorism, and money laundering, to list but a few areas, compared to just a few decades ago.
Individual jurisdictions are also increasingly under pressure to comply with what can best be
described as a fledging ‘international boni mores’. The failure to comply with international
expectations, protocols, initiatives, standards of governance, and international treaties and
conventions, increasingly receive the attention and condemnation of members of the
international community and international forums and bodies such as the OECD, United
Nations, World Bank, IMF and FATF.20 Living up to those expectations and the enforcement
of national legislation and regulatory frameworks, are increasingly being recognized as
essential for States in maintaining good relations with other nations, and for instilling
confidence amongst international trading partners and potential investors. International
perceptions of a State being rife with corruption, of being used as a safe haven for
international tax evasion, smuggling, organised crime, money-laundering, and the
infringement of intellectual property rights, is increasingly being recognised by most States as
a threat to their international reputation, trading prospects and economic interests, and
prospects of receiving loans and international aid. Although a slow and not always painless
process, we do see more jurisdictions ratifying conventions and entering into treaties opening
the door to closer cooperation.

2.3 Selective referral for criminal investigation

Every person, whether registered as a taxpayer or otherwise, who makes himself guilty of
conduct constituting an offence, may potentially find himself the subject of a criminal
enquiry. Very few jurisdictions do however have the capacity to investigate every tax offence
or every instance of fraud indeed detected. There are millions of registered taxpayers and
investigating every tax offence with the view to prosecute will be an impossible task. Apart
from the fact that the prosecution of all instances of evasion will be very costly in terms of
resources and effort, following such an approach will also mean that many taxpayers who
may well be deterred from re-offending by the imposition of financial penalties, will instead
enter the criminal justice system. This can in itself have serious social and financial
implications. Most offending taxpayers, offenders as they may be, are economically active,
support their families, and employ people. Such an offender's imprisonment has the practical
implication that any reparation and future contribution he might have made is substituted with
imprisonment and the social and financial costs that entails for the State and broader society.
This all being said, these same arguments apply equally to the medical doctor submitting false
claims, the freight forwarder who agrees to assist a client with the importation of a shipment
of narcotics, or the businessman who bribes a foreign official. But whatever the differences
and similarities between revenue crime and other categories of crime may be, in practice the
statistical likelihood of a taxpayer finding himself the subject of a criminal enquiry, arrest,
prosecution and imprisonment is highly unlikely. This is not only the case in Britain. The
same applies to the United States, Canada, Australia, New Zealand and probably most other
jurisdictions.

Unlike many civil wrongs that are not crimes, and unlike some crimes that are not civil
wrongs,21 all tax frauds and all customs frauds involving the evasion of duty or tax can be

20
See e.g. The Financial Times, October 8 2007, “Caracas ‘allowing gem smuggling’”
21
See Ormerod, D. (2008) Smith and Hogan - Criminal Law, 12 th Ed, Oxford University Press at 15: "The
problem then becomes one of distinguishing criminal proceedings from civil proceedings. Any attempt to
distinguish between crimes and torts comes up against the same kind of difficulty encountered in defining crimes
generally: that most torts are crimes as well, though some torts are not crimes and some crimes are not torts."
127 INVESTIGATION AND PROSECUTION

dealt with as civil or criminal matters as they are both crimes and civil wrongs. In most
jurisdictions, the greater majority of revenue and customs frauds tend to be dealt with as civil
matters. The fact that they are so dealt with does not however make the conduct anything less
but fraudulent and criminal. By far the greater majority of revenue frauds in Britain are dealt
with administratively, thus under civil procedure. This then has also long been Her Majesty's
Revenue and Customs (HMRC) stated policy.22 The fact also remains that Revenue
administrations are primarily concerned with the collection of revenue and the Revenue
opting for more cost effective alternatives instead of long drawn-out criminal prosecutions is
understandable. This however is not to say that criminal prosecution is not viewed as an
indispensable part of the Revenue's overall enforcement strategy. It is in fact viewed as an
essential part of it, but criminal prosecution tend to be reserved for serious cases, or for those
cases where successful prosecution will have a particular deterrent value. Revenue
administrations tend to be quite selective in deciding on the cases to be investigated with the
view to criminal prosecution. Various factors, criteria, and circumstances tend to be taken into
consideration in reaching a decision as to whether or not a suspected breach is to be referred
for criminal investigation and possible prosecution. Examples of these are:

(a) the serious nature of the offence;23

(b) the likely resources that will be expended on the matter;
(c) the taxpayer’s profile;
(d) the taxpayer’s compliance history;24
(e) the burden of proof;
(f) the admissibility and weight of the evidence available;
(g) the potential deterrent value of a successful prosecution;25
(h) the prospects of securing a conviction;
(i) the potential recovery of evaded revenue;
(j) the cooperation received from the taxpayer; and
(k) the threat posed by, and importance attached to the neutralization of, a particular
syndicate;26

In most modern revenue administrations today, the old way of doing things 1950's -style
where revenue inspectors would just initiate their own criminal investigations, or where an
inspector with an audit-file tucked under his arm would just walk over to his counterpart at

22
See e.g. the report of the Keith Committee (Report on Enforcement of Revenue Powers, Cmnd 8822 (1983)
23
Examples of factors or circumstances the Commissioners may take into consideration in distinguishing
between serious and less serious contraventions are: (a) the scale and extent of the unlawful conduct; (b) whether
or not the offender’s conduct was an isolated incident or repetitive; (c) the prevalence of the offence and the
impact thereof on the tax system; (d) whether or not the offender’s conduct was intentional as opposed to a mere
failure; (e) whether or not the offence was intended to defraud; and (f) actual or potential losses suffered and the
extent thereof.
24
This will especially be the case where there is a history of dishonesty and/or where there is repetitive non-
compliance.
25
HMRC, as is the case with the revenue administrations of most other common-law countries place a high
premium on general deterrence. They also tend to ensure wide publicity of those convictions indeed secured.
This is especially so where heavy sentences were handed down and/or where the convicted person is a high
profile taxpayer. This also explains the incorporation into the tax legislation of provisions providing for the
publication of the names of offenders.
26
Neutralization within the context of tax crime comes to the fore when dealing with syndicates such as those
operating fraudulent VAT scams and smuggling rings. The Revenue not only suffers losses in the form of
evaded duties and taxes, but is also targeted by criminal syndicates using fraudulent scams to claim undue
refunds from the fiscus. This latter category of fraud is of a particular serious nature. These syndicates can be
classed as nothing less but organised criminal gangs. These frauds are often characterised by the use elaborate
networks of conspirators, paper-companies or fronts, and fictitious transactions.
128 INVESTIGATION AND PROSECUTION

the criminal investigation section with a request to investigate the subject taxpayer is over.
The revenue administrations of jurisdictions such as the United States, Britain, Canada,
Australia, and no doubt many others, all now have in place case management systems with
procedural frameworks providing for the internal recording, reporting, escalation, analysis,
risk-assessment, and investigation of suspected instances of fraud. In all those jurisdictions
are also to be found systems providing for the reporting of all suspected instances of fraud or
other suspected instances of criminality i.e. money laundering, smuggling, bankruptcy fraud,
corruption etc. Once a suspected irregularity is detected (or information pointing to such an
irregularity is received), the detecting officer or his manager will usually be required to file a
Suspicious Activity Report (SAR). These find their way to intelligence and risk profiling
sections for analysis, intelligence development and target-selection.

Decisions as to whether or not a matter is to be investigated with the view to criminal

prosecution is not taken at the sharp end of operations. Inspectors, investigators and auditors
at grassroots carry out their functions, report their findings and observations, report on any
irregularities detected, and will usually also make recommendations as to further action to be
taken, which may well be recommendations for criminal investigation. The decision to
proceed with a criminal investigation will usually only follow after the conclusion of a
preliminary investigation. Preliminary investigations will often be the first step in the
consolidation, integration, and analysis of all available information, reports and evidence
relating to a suspected irregularity. The decision as to whether or not any given matter is to be
investigated with the view to criminal prosecution will as a general rule be taken (depending
on the legal framework of a given jurisdiction) by senior management or by senior officers
delegated by the commissioners to make those decisions. The decision to launch a criminal
enquiry is not taken lightly and will usually only be taken after review of audit-results, the
results of preliminary investigations, and after careful consideration of recommendations
made. In many instances, especially where the subject matter is a complex one, lawyers and
other specialists may be consulted in considering the viability of a criminal prosecution.

The reasons for such a centralized approach to case selection and the management of criminal
enquiries are obvious. The negative impact of unfounded, failed or malicious investigations or
prosecutions can have a severe impact on the image and reputation of a tax administration.
There is no margin for error in the manner in which cases are selected for criminal
investigation or in the manner in which those enquiries are conducted. Criminal
investigations, prosecutions, and litigation are costly and time-consuming. This coupled with
the need to achieve the maximum impact with the resources available, demands available
resources and effort to be directed at those cases with prospect of the greatest yield in
advancing the Revenue's overall objectives. Strict control over those matters selected for
criminal investigation and those tasked with those investigations also ensures coordination,
reduces the risk of different sections or departments unknowingly investigating the same
scheme or taxpayer, and also mitigates the risk of civil litigation negatively impacting on
criminal prosecutions and vice versa.

The reality is that few suspected instances of fraud, even those where audit-results or
preliminary investigations clearly point to fraud, will eventually end up as the subject of a
criminal enquiry. The majority of those cases will remain with the general line functions for
audit, assessment, the imposition of administrative penalties, and recovery. Many cases
initially selected for criminal investigation may also end up being referred back to the audit
and line functions for administrative action and recovery. This will often be the case where
preliminary investigations indicated the matter as one not worthwhile pursuing criminally or
where the prosecuting authorities refused to proceed with prosecution, typically for a lack of
sufficient evidence.
129 INVESTIGATION AND PROSECUTION

The Revenue does not target just one area of non-compliance or just certain categories of
taxpayers. They have to spread enforcement activities out across the complete spectrum of
duties, taxes, and classes of taxpayers, and examples have to be made across the complete
spectrum of duties, taxes, and classes of taxpayers. There is thus no other alternative but the
selective prosecution of different classes of offenders, both big and small. This practice does
however deliver outcomes which may, from the taxpayer’s point of view, come over as
grossly unfair or disproportionate. An example in point will be the levying of pecuniary
penalties against one taxpayer for what might well have been a fraud on a grand scale,
whereas another may receive a custodial sentence for a conviction on charges of evasion or
fraud relating to evasion that may well have been ‘small’ compared to the evasion of the
former. Although questions and criticism as to these inconsistencies are quite understandable,
‘less serious’ instances of fraud also call for prosecution. The failure to do so will only foster
a perception of ‘less serious’ instances of fraud being less culpable and less likely of being
prosecuted. For this reason then the authorities may choose to prosecute a less serious fraud
where the prosecution is viewed as one that may have some deterrent value. It is however to
be noted that the non-prosecution of serious instances of fraud will often be for no other
reason but the fact that the evidence available might have been deemed insufficient to carry a
conviction. In those cases the matter will usually be dealt with administratively. With civil
evasion penalties the burden of proof is on a 'balance of probabilities' and not 'beyond
reasonable doubt' as is the case in criminal prosecutions for tax evasion or fraud.

There are many who may frown upon the selective investigation and prosecution of tax crime,
and/or the manner in which cases are selected for criminal investigation and prosecution. It is
not at all uncommon for those who find themselves the subject of a criminal investigation to
level allegations of being unfairly ‘targeted’ or ‘victimized’ by the authorities. Those
allegations usually prove to be without merit. As long as the processes of case selection,
investigation, and prosecution is transparent and fair, those who find themselves the subject of
such an enquiry have no grounds for crying injustice. Defrauding the Revenue, overstepping
the line from lawful to fraudulent, or rather taking the leap from lawful to fraudulent, is like
buying a lottery ticket. Many millions of participants buy their tickets knowing there being a
very minuscule possibility of them winning the main prize. They all know the chances are one
out of millions, but regardless those odds, and regardless their motive for entering the
competition, almost all of them know there is the chance of their ticket being drawn. Those
who have been so fortunate to hold winning tickets were undoubtedly all surprised, and all
elated. There is however also no doubt that none of them refused to take the winnings on the
basis of a belief of having been unfairly targeted. His ticket did not guarantee his success, but
his success was completely dependent on him holding a valid ticket. The British, US,
Canadian, and Australian authorities make no secret of the fact that they reserve the right to
escalate any matter for criminal investigation and prosecution, and that their practice is to do
so selectively. So much is in the public domain, well publicized as official policy. Those who
take their chances do just that. Selective investigation and prosecution is critical for achieving
maximum impact with the limited resources available, and it is a practice that will remain.
There is no other realistic alternative. A decision to refer a case for criminal investigation will
be lawful as long as it is made with no other ulterior motive but the enforcement of the tax
laws and as long as it is made in a fair and impartial manner.27

27
See Saunders & Antczak, Tolley’s Corporation Tax 2003-04 at 33.4 where it was inter alia said: “The
Revenue policy of selective prosecution for criminal offences in connection with tax evasion does not render a
decision in a particular case unlawful or ultra vires, provided that the case is considered on its merits fairly and
dispassionately to see whether the criteria for prosecution were satisfied, and that the decision to prosecute is
130 INVESTIGATION AND PROSECUTION

2.4 Secrecy Provisions

A high premium is placed on maintaining the confidentiality of taxpayer information. The
Commissioners in most jurisdictions have historically been under a legal duty to ensure the
confidentiality thereof.28 For this reason then secrecy provisions have been provided for in the
national revenue legislation of most jurisdictions. These provisions have historically been
motivated as a measure to ensure the voluntary and full disclosure by taxpayers of their
financial affairs for the purposes of taxation. Many do however mistakenly construe these
provisions as also barring the Commissioners from passing information to or filing complaints
with other law enforcement agencies. This may still be the case in many jurisdictions, but the
legislation of many others, that of Britain and the United States being prime examples, do
allow for certain information to be released to certain agencies in certain circumstances. The
circumstances under which information relating to a taxpayer or his affairs may be disclosed
to any other person or agency is set out in law and strictly governed. Taxpayer information
may only be released to the extent, in the manner, and under the circumstances permitted.

In the Britain, every person appointed as a Commissioner or officer of Revenue and Customs
is required to make a declaration acknowledging his obligation of confidentiality.29 To
unlawfully breach that obligation is a criminal offence. These secrecy provisions may in
certain cases also apply to categories of persons other than Revenue staff. In the UK for
example, the 'Director' and his staff (as contemplated in the Proceeds of Crime Act 2002) may
under certain circumstances exercise certain revenue functions. Where they do exercise those
powers, they are expected to make a similar declaration.30 The default position is one of
confidentiality and the non-release of taxpayer information, but there are exceptions where
disclosure is permitted. The most important exceptions are those listed under section 18 of the
Commissioners for Revenue and Customs Act 2005 read with sections 20, 21, 27 and 28.
Section 18 reads as follows:

"18 Confidentiality
(1) Revenue and Customs officials may not disclose information which is held by the Revenue
and Customs in connection with a function of the Revenue and Customs.
(2) But subsection (1) does not apply to a disclosure -
(a) which - (i) is made for the purposes of a function of the Revenue and Customs, and (ii)
does not contravene any restriction imposed by the Commissioners,
(b) which is made in accordance with section 20 or 21,
(c) which is made for the purposes of civil proceedings (whether or not within the United
Kingdom) relating to a matter in respect of which the Revenue and Customs have functions,
(d) which is made for the purposes of a criminal investigation or criminal proceedings31
(whether or not within the United Kingdom) relating to a matter in respect of which the
Revenue and Customs have functions,

then taken in good faith for the purpose of collecting taxes and not for some ulterior, extraneous or improper
purpose (R v CIR (ex p Mead and Cook) QB 1992, 65 TC 1).”
28
See e.g. section 6103 of the Internal Revenue Code (United States) and section 3 and 18 of the Commissioners
for Revenue and Customs Act 2005 (Britain)
29
See section 3 of the Commissioners for Revenue and Customs Act 2005 which reads as follows: "3.
Declaration of confidentiality (1) Each person who is appointed under this Act as a Commissioner or officer of
Revenue and Customs shall make a declaration acknowledging his obligation of confidentiality under section
18…. (2) A declaration under subsection (1) shall be made - (a) as soon as is reasonably practicable following
the person’s appointment, and (b) in such form, and before such a person, as the Commissioners may direct. (3)
For the purposes of this section, the renewal of a fixed term appointment shall not be treated as an appointment."
30
Section 325 of the Proceeds of Crime Act 2002
31
In England and Wales, and this is also common in many other common law countries, criminal proceedings
are generally considered as initiated once a defendant is charged or summoned.
131 INVESTIGATION AND PROSECUTION

(e) which is made in pursuance of an order of a court,

(f) which is made to Her Majesty’s Inspectors of Constabulary, the Scottish inspectors or the
Northern Ireland inspectors for the purpose of an inspection by virtue of section 27,
(g) which is made to the Independent Police Complaints Commission, or a person acting on its
behalf, for the purpose of the exercise of a function by virtue of section 28, or
(h) which is made with the consent of each person to whom the information relates
(3) Subsection (1) is subject to any other enactment permitting disclosure."

In most jurisdictions it is the national prosecuting authority that has the mandate for the
prosecution of revenue and customs crimes. This then is also the case in Britain. In England
and Wales, revenue crimes are prosecuted by the Crown Prosecution Service. Any taxpayer
finding himself charged with a revenue crime will thus be prosecuted by the CPS, which
means the taxpayer's information will also be made available to the CPS. In Britain, this
disclosure is provided for under section 21 of the Commissioners for Revenue and Customs
Act 2005. Section 21 reads as follows:

"21 Disclosure to prosecuting authority (1) Disclosure is in accordance with this section (as
mentioned in section 18(2)(b)) if made - (a) to a prosecuting authority, and (b) for the purpose
of enabling the authority - (i) to consider whether to institute criminal proceedings in respect
of a matter considered in the course of an investigation conducted by or on behalf of Her
Majesty’s Revenue and Customs, or (ii) to give advice in connection with a criminal
investigation (within the meaning of section 35(5)(b)) or criminal proceedings.
(2) In subsection (1) “prosecuting authority” means - (a) the Director of Revenue and Customs
Prosecutions, (b) in Scotland, the Lord Advocate or a procurator fiscal, and (c) in Northern
Ireland, the Director of Public Prosecutions for Northern Ireland.
(3) Information disclosed to a prosecuting authority in accordance with this section may not be
further disclosed except - (a) for a purpose connected with the exercise of the prosecuting
authority’s functions, or (b) with the consent of the Commissioners (which may be general or
specific).
(4) A person commits an offence if he contravenes subsection (3).
(5) It is a defence for a person charged with an offence under this section to prove that he
reasonably believed - (a) that the disclosure was lawful, or (b) that the information had already
and lawfully been made available to the public.
(6) A person guilty of an offence under this section shall be liable - (a) on conviction on
indictment, to imprisonment for a term not exceeding two years, to a fine or to both, or (b) on
summary conviction, to imprisonment for a term not exceeding 12 months, to a fine not
exceeding the statutory maximum or to both.
(7) A prosecution for an offence under this section may be instituted in England and Wales
only - (a) by the Director of Revenue and Customs Prosecutions, or
(b) with the consent of the Director of Public Prosecutions.
(8) A prosecution for an offence under this section may be instituted in Northern Ireland only -
(a) by the Commissioners, or (b) with the consent of the Director of Public Prosecutions for
Northern Ireland.
(9) In the application of this section to Scotland or Northern Ireland the reference in
subsection (6)(b) to 12 months shall be taken as a reference to six months."

It is not difficult to think of circumstances where the Revenue or Customs may come in
possession of information, the release of which to other law enforcement agencies may avert
serious risk for the public at large. The extent to which any given revenue and/or customs
administration is allowed to release any taxpayer information is obviously a matter of law and
those rules are jurisdiction-specific. The key questions to be answered are: (a) is the given
revenue or customs administration authorised to release information to other agencies and if
so: (i) what information; (ii) to which agencies; and (iii) for what use; (b) what formalities and
procedures must be complied with in terms of request; and (c) whom in the revenue or
customs administration in question may authorise the release, and the procedures for such
132 INVESTIGATION AND PROSECUTION

release. It must be said that historic barriers to the exchange of information between revenue,
customs, immigration, law enforcement, and intelligence services are very fast falling away,
and also rightly so.

In Britain, the Commissioners have the authority, under section 20 of the Commissioners for
Revenue and Customs Act 2005, to release taxpayer information where the public interest
calls for same. Section 20 inter alia allows for the disclosure of taxpayer information to the
police, National Criminal Intelligence Service and other agencies and bodies where the
disclosure is made for the purposes of inter alia complying with an obligation of the United
Kingdom, or Her Majesty’s Government, under an international or other agreement, or where
such release is in the interest of national security, public safety, public health, or the
prevention or detection of crime.32

2.5 Constitutional protections

There may have been a time when the prosecution of offenders guilty of certain categories of
crime was deemed to be an overarching interest which justified any means fair or foul. This
may still be the case in relation to some criminal threats in many jurisdictions, notably in
relation to those categories of crime viewed as posing a serious security threat, but in regions
and jurisdictions such as the United States, Canada, the European Union and Australia, there
has now long been firmly entrenched frameworks for the protection of a number of
fundamental human rights. Within the context of intelligence operations, criminal
investigations and criminal prosecutions, the most important of these fundamental rights are
those relating to freedom, privacy and a fair trial.

The fundamental rights of the suspect and the interpretation of the content of those rights in
the courts, have in recent decades assumed an importance which cannot be understated. These
right have a profound impact on the way information and evidence can be collected and used,
the admissibility thereof in judicial proceedings, and the conduct of criminal prosecutions. In
most jurisdictions, even in the most liberal of States, some of these protections and rights may
under certain circumstances be limited and may under certain circumstances be lawfully
breached where such a breach is, on the facts of the case, deemed to be necessary,
proportionate and legally permissible, but as a general rule the argument for such a breach to
be so necessary, proportionate and legally permissible need be compelling before such a
limitation will be viewed as justified.

Within the context of criminal prosecutions, for revenue related offences just like any other
category of crime, respecting the defendant's human rights is of critical importance both
before and during trial. There can be no effective protection of human rights absent the right
to a fair trial, an enshrined right in the US, Canada, the European Union, Australia and many
other jurisdictions. It is in fact the most basic foundation of the rule of law. In all these
jurisdictions a criminal prosecution where the trial is found to have been unfair will,
depending on the legal framework of the jurisdiction in question and the facts of the case,
either result in a retrial or the convictions being squashed. It cannot be said that a trial was fair
and justice was fairly administered where the essential rights underpinning fairness was

32
In the United States, the Internal Revenue Code also provides for circumstances where taxpayer information
may be released. Those circumstances closely correspond with that provided for under the British legislation. In
the United States taxpayer information may for example be released: (a) to other agencies responsible for tax
administration (under IRC 6103 (d)); (b) to law enforcement agencies (but pursuant to a court order) for the
investigation of non-tax related crime (under IRC 6103(i)(1)); (c) limited disclosures to third parties in the
course of tax investigations where necessary to obtain information (under IRC 6103(k)(6)); and (d) to the Social
Security Administration (under IRC 6103 (l)(1)).
133 INVESTIGATION AND PROSECUTION

circumvented. What will or will not be viewed as essential for a trial to be deemed a 'fair trial'
varies from legal jurisdiction to legal jurisdiction. A trial viewed as fair in one jurisdiction
may thus be viewed as unfair and flawed in another and vice versa. This then is due to the fact
that what is viewed as 'fair' depends on the combination of rights recognized in any particular
jurisdiction as underpinning 'fairness' and as essential for a trial to be 'fair'.

There is considerable overlapping and correspondence between the rights and protections
afforded to those suspected or charged with criminal offences under the Canadian Charter of
Rights and Freedoms,33 the United States Constitution, and the European Convention on
Human Rights (ECHR).34 The latter was incorporated into UK law under the Human Rights
Act 1998. Under all these statutory instruments, the taxpayer who finds himself charged with
any revenue-related crime is, just like any other defendant in any other criminal prosecution,
entitled to a number of basic rights that must be respected, the most important of these being:

(a) the right to life, liberty, and security of the person;

(b) the right to freedom from unreasonable search and seizure;
(c) the right against self-incrimination;
(d) the right to freedom from arbitrary detention or imprisonment;
(e) the right to be informed of the offences charged with;
(f) the guarantee of habeas corpus;
(g) the right to equality and equal treatment before the law;
(h) the right to have adequate time and facilities for the preparation of an effective
defence;
(i) the right to a fair and public hearing by an impartial tribunal;
(j) the right to examine witnesses against him and to obtain the attendance of witnesses
on his behalf;
(k) the right to be presumed innocent until proven guilty;
(l) the right not to be punished for an act that was not a criminal offence at the time of its
commission;
(m) the right to a speedy trial;
(n) the right not to be punished more than once for the same crime; and
(o) the right not to be subject to cruel and unusual punishment;

In the European Union, the most important of these rights are enshrined in articles 5, 6 and 8
of the European Convention on Human Rights (ECHR) which reads as follows:

Article 5 – Right to liberty and security

1. Everyone has the right to liberty and security of person. No one shall be deprived of his liberty
save in the following cases and in accordance with a procedure prescribed by law:
(a) the lawful detention of a person after conviction by a competent court;
(b) the lawful arrest or detention of a person for non-compliance with the lawful order of a
court or in order to secure the fulfilment of any obligation prescribed by law;
(c) the lawful arrest or detention of a person effected for the purpose of bringing him before
the competent legal authority on reasonable suspicion of having committed an offence or
when it is reasonably considered necessary to prevent his committing an offence or fleeing
after having done so;
(d) the detention of a minor by lawful order for the purpose of educational supervision or his
lawful detention for the purpose of bringing him before the competent legal authority;
(e) the lawful detention of persons for the prevention of the spreading of infectious diseases,
of persons of unsound mind, alcoholics or drug addicts or vagrants;

33
Constitution Act, 1982
34
Convention for the Protection of Human Rights and Fundamental Freedoms, ratified 1950
134 INVESTIGATION AND PROSECUTION

(f) the lawful arrest or detention of a person to prevent his effecting an unauthorised entry into
the country or of a person against whom action is being taken with a view to deportation or
extradition.
2. Everyone who is arrested shall be informed promptly, in a language which he understands, of
the reasons for his arrest and of any charge against him.
3. Everyone arrested or detained in accordance with the provisions of paragraph 1.c of this article
shall be brought promptly before a judge or other officer authorised by law to exercise judicial
power and shall be entitled to trial within a reasonable time or to release pending trial. Release
may be conditioned by guarantees to appear for trial.
4. Everyone who is deprived of his liberty by arrest or detention shall be entitled to take
proceedings by which the lawfulness of his detention shall be decided speedily by a court and his
release ordered if the detention is not lawful.
5. Everyone who has been the victim of arrest or detention in contravention of the provisions of
this article shall have an enforceable right to compensation.

Article 6 – Right to a fair trial

1. In the determination of his civil rights and obligations or of any criminal charge against him,
everyone is entitled to a fair and public hearing within a reasonable time by an independent
and impartial tribunal established by law. Judgment shall be pronounced publicly but the press
and public may be excluded from all or part of the trial in the interests of morals, public order
or national security in a democratic society, where the interests of juveniles or the protection
of the private life of the parties so require, or to the extent strictly necessary in the opinion of
the court in special circumstances where publicity would prejudice the interests of justice.
2. Everyone charged with a criminal offence shall be presumed innocent until proved guilty
according to law.
3. Everyone charged with a criminal offence has the following minimum rights:
1. to be informed promptly, in a language which he understands and in detail, of the nature
and cause of the accusation against him;
2. to have adequate time and facilities for the preparation of his defence;
3. to defend himself in person or through legal assistance of his own choosing or, if he has
not sufficient means to pay for legal assistance, to be given it free when the interests of
justice so require;
4. to examine or have examined witnesses against him and to obtain the attendance and
examination of witnesses on his behalf under the same conditions as witnesses against
him;
5. to have the free assistance of an interpreter if he cannot understand or speak the language
used in court.

Article 8 – Right to respect for private and family life

1. Everyone has the right to respect for his private and family life, his home and his
correspondence.
2. There shall be no interference by a public authority with the exercise of this right except such
as is in accordance with the law and is necessary in a democratic society in the interests of
national security, public safety or the economic well-being of the country, for the prevention
of disorder or crime, for the protection of health or morals, or for the protection of the rights
and freedoms of others.

Most of the European territories subject to the ECHR have over the past two decades made
considerable efforts to ensure domestic legislation is in conformity with the ECHR. In most
EU jurisdictions today, compliance by investigators with current domestic legislation,
procedures, and best practice, should be in compliance with the ECHR. In the United States
and Canada the most important of these rights are to be found in the fourth, fifth and sixth
amendments of the United States Constitution and sections 7-11, 13 and 15 of the Canadian
Charter of Rights and Freedoms. The fourth, fifth and sixth amendments read as follows:
135 INVESTIGATION AND PROSECUTION

Fourth Amendment
"The right of the people to be secure in their persons, houses, papers, and effects, against
unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon
probable cause, supported by Oath or affirmation, and particularly describing the place to be
searched, and the persons or things to be seized "

Fifth Amendment
"No person shall be held to answer for a capital, or otherwise infamous crime, unless on a
presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in
the Militia, when in actual service in time of War or public danger; nor shall any person be subject
for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any
criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without
due process of law; nor shall private property be taken for public use, without just compensation."

Sixth Amendment
"In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an
impartial jury of the State and district wherein the crime shall have been committed, which district
shall have been previously ascertained by law, and to be informed of the nature and cause of the
accusation; to be confronted with the witnesses against him; to have compulsory process for
obtaining witnesses in his favor, and to have the Assistance of Counsel for his defence."

Canadian Charter of Rights and Freedoms

Sections 7-11, 13 and 15 of the Canadian Charter read as follows:

"7. Everyone has the right to life, liberty and security of the person and the right not to be deprived
thereof except in accordance with the principles of fundamental justice.
8. Everyone has the right to be secure against unreasonable search or seizure.
9. Everyone has the right not to be arbitrarily detained or imprisoned.
10. Everyone has the right on arrest or detention
(a) to be informed promptly of the reasons therefor;
(b) to retain and instruct counsel without delay and to be informed of that right; and
(c) to have the validity of the detention determined by way of habeas corpus and to be released if
the detention is not lawful.
11. Any person charged with an offence has the right
(a) to be informed without unreasonable delay of the specific offence;
(b) to be tried within a reasonable time;
(c) not to be compelled to be a witness in proceedings against that person in respect of the offence;
(d) to be presumed innocent until proven guilty according to law in a fair and public hearing by an
independent and impartial tribunal;
(e) not to be denied reasonable bail without just cause;
(f) except in the case of an offence under military law tried before a military tribunal, to the benefit
of trial by jury where the maximum punishment for the offence is imprisonment for five years or a
more severe punishment;
(g) not to be found guilty on account of any act or omission unless, at the time of the act or
omission, it constituted an offence under Canadian or international law or was criminal according
to the general principles of law recognized by the community of nations;
(h) if finally acquitted of the offence, not to be tried for it again and, if finally found guilty and
punished for the offence, not to be tried or punished for it again; and
(i) if found guilty of the offence and if the punishment for the offence has been varied between the
time of commission and the time of sentencing, to the benefit of the lesser punishment. …
13. A witness who testifies in any proceedings has the right not to have any incriminating evidence
so given used to incriminate that witness in any other proceedings, except in a prosecution for
perjury or for the giving of contradictory evidence. ….
15. (1) Every individual is equal before and under the law and has the right to the equal protection
and equal benefit of the law without discrimination and, in particular, without discrimination based
on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability…"
136 INVESTIGATION AND PROSECUTION

From the investigator's perspective, the human rights legislation as set out above may seem to
have a serious limiting impact on his freedom of action, especially so in relation to
intelligence gathering and evidence collection. Evidence collected in the course of any
criminal investigation is as has been stated of no use in criminal proceedings unless relevant
and admissible as evidence in a court of law. Key to ensuring the integrity of the evidence so
collected is full adherence to the constitutional and legislative framework including the
fundamental rights of suspects. The outcome of any particular enquiry will not always end
with the investigator, but it surely depends on how he conducted himself during the course of
any such enquiry. His conduct of the enquiry will eventually be questioned, placed under the
magnifying glass, and tested, against a constitutional framework which is not only onerous
but also non-negotiable. This then is also rightly so considering the protected interests at
stake. He must now, more than ever before, maintain a constant awareness of the how, why,
from where and when he gathers information and evidence, how same is retained, used, and
released, when a person is deemed to be a suspect and is to be warned, 35 and when an arrest is
justified.

The constitutional protections to be found in constitutions such as the ECHR and the US
Constitution are principled-driven. Any breach thereof will be a breach regardless how the
breach came about i.e. negligence, wilful misconduct, badly written or outdated statutes, or
outdated procedures. Adherence to procedure, whether it be departmental procedures and
practice or laws of procedure, does not equate to adherence with constitutional principles. A
policeman or revenue inspector's conduct may be in full adherence of the statutory framework
within which he carries out his mandate, but that framework may well breach constitutional
principles and infringe on constitutional protections. It is to be noted that not all breaches of
any one or more of the above rights, before or during trial, will always be held as so serious as
to make the proceedings unfair or convictions unsafe. This being said, any criminal
investigation tainted with serious disregard for those rights, in particular where malicious
and/or where it may seriously prejudice the defendant, will more often than not place at
jeopardy any trial where reliance is placed on the product of such an investigation.

2.6 Investigative capacity and inter-agency cooperation

Most revenue and customs administrations possess some or other investigative capacity with
operational unit(s) tasked with the investigation of contraventions of those laws administered
by those agencies. The legal authority, functions, powers, and capacity of any such
investigative function varies from jurisdiction to jurisdiction and mirrors the expectations of
the administration and government. Most revenue related crimes are in essence financial
crimes involving various species of fraud i.e. tax fraud, bankruptcy fraud, fraudulent trading,
corruption, theft, and money laundering. For this reason the primary needs of most revenue
administrations tend to be limited to investigative functions capable of investigating financial
crime. There are nevertheless many 'common' crimes, both serious and less so, that may be
committed in the furtherance or execution of a revenue related crime, or which may follow
the commission of such a crime. This is especially so in relation to customs related frauds.
Consider the following examples:

(a) The taxpayer commits a fraud and in attempt to destroy evidence he sets the offices
alight. What started out as a tax fraud and possibly charges relating to money
laundering now escalated to arson. Further assuming a worker on site died in the fire,
then the case has escalated to what may be a homicide investigation;

35
In the UK under the Police and Criminal Evidence Act. 'Miranda' rights in the US
137 INVESTIGATION AND PROSECUTION

(b) The taxpayer in an attempt to further a fraud or to subvert an investigation attempts to

bribe, intimidate or frame an investigating officer;
(c) Smugglers A, B, and C runs an operation involving the theft of bonded goods from
warehouses and trains and the hijacking of trucks carrying transit goods. This may
involve breaking and entering, theft, assault, possession of firearms, armed robbery,
and many of those other 'old-style' crimes so often associated with the 1920's mafia
gang.

The criminal investigation of these types of crime calls for: (a) legal authority under a
framework of empowering legislation; and (b) specialized intelligence gathering,
investigative, and technical assets which very few if any revenue administrations possess.
Crimes like arson, murder, armed robbery and the like are crimes the prevention, investigation
and prosecution of which are beyond the realm of revenue and customs administration and
beyond the authority and capabilities of revenue and customs administrations. Certain
intelligence and investigative techniques, procedures, and capabilities, such as the
management of informants, surveillance operations, controlled deliveries, and undercover
operations, is not something most revenue and customs administrations are geared for, some
yes - but many not, and in most jurisdictions do not have the authority to engage in. In those
jurisdictions where revenue and customs administrations are empowered to conduct criminal
investigations into suspected breaches of the revenue and customs legislation, the jurisdiction
of those agencies will generally be limited to breaches of the revenue and customs legislation.
Those investigations will however often also provide evidence of other offences e.g. breaches
of insolvency, company and money laundering legislation. Where the evidence prove such
other offences, the prosecutor will usually also charge those other offences. What will or will
not fall within a revenue or customs administration's mandate is a matter of law and will differ
from jurisdiction to jurisdiction.

The extent to which information exchange and collaboration between revenue, customs,
police, and intelligence services are permissible is a matter of law. What may be permissible
in one jurisdiction may not be so in another. Anything is possible, but not everything is
always permissible. The release and making available of information by one agency to
another agency will, subject to any controls that may apply, only be authorised where allowed
for under statute. Those provisions authorising the release will usually set out the
circumstances and scope of release and the protocols to be followed for such release.36
Revenue and customs administrations generally rely heavily on police forces for intelligence
and forensic support, to assist with searches and seizures, and to assist with arrests and
detention. That inter-agency cooperation will not always be a one-way street with assistance
only flowing from the police and intelligence services into revenue and customs enforcement
operations. From time to time there may also be cases where law enforcement or the
intelligence services may request the assistance of their counterparts at Revenue and Customs.
This may typically range from requests for technical expertise or audit-support to assist with
wider police investigations where there may be a revenue or customs component, or to assist
with money laundering investigations, or requests for information in the possession of
Revenue or Customs relating to a given taxpayer or trader where same may assist in the
investigation of other crimes, or a request from the police for their customs counterparts to
allow a container of contraband to pass through or to search the luggage of a traveller or to
detain a traveller (as part of a wider intelligence or policing operation).

36
In Britain is to be found a number of statutes allowing for information exchange between various agencies.
See e.g. section 20 of the Commissioners for Revenue and Customs Act 2005, Proceeds of Crime Act 2002; and
The Serious Crime Act 2007
138 INVESTIGATION AND PROSECUTION

Tax criminality can only be effectively engaged to the extent that broader regulatory
frameworks operate effectively and are effectively enforced. It also calls for greater levels of
coordination and cooperation between different agencies of state. The old way of doing things
where police agencies, revenue agencies, customs authorities, intelligence agencies, and other
regulators, operated in complete isolation from one another absent inter-agency liaison,
information exchange, and cooperation is over. Tax criminality, especially evasion within the
underground economy, smuggling, and organised revenue crime, can only be effectively
countered with effective liaison, cooperation, coordination, information exchange, systems
integration, and partnering between those various agencies. The same holds true for other
types of criminality such as money laundering, organised crime generally, corruption, and
terrorism. At the international level, there also need be treaties in place facilitating greater
levels of information exchange and cooperation between agencies. This need for greater levels
of inter-agency cooperation and integration has been recognised by a number of jurisdictions
i.e. Canada, Britain, the United States, Australia and Sweden, where there has for some time
been a drive towards a more integrated 'whole-of-government approach'.37 As recently as two
or three decades ago, there was very little inter-agency liaison, cooperation and integration in
most jurisdictions. Recent times have however seen developments which point to a change in
direction. Law enforcement and intelligence agencies increasingly pass information to
revenue and customs administrations. The secondment of officers from one agency to another
as part of inter-agency task-forces is now common. Just a few decades ago secrecy provisions
in the revenue and customs legislation of many jurisdictions did not allow for the release of
taxpayer information to the police under any circumstances. In Britain, the United States and
Australia that is now something of the past.38 Just a few decades ago it would have been
unthinkable for another agency to be empowered to investigate a taxpayer's tax affairs or to
raise assessments for evaded taxes.39

2.7 Intelligence
2.7.1 General
‘Intelligence’ is probably as old as humanity itself. Wherever information can offer a
competitive advantage, or wherever it may assist in averting or mitigating a threat, people can
be expected to search out information and knowledge capable of gaining that advantage or
mitigating that threat. As long back as the 5th century BC, Sun Tzu (in his treatise ‘The Art of
War’) already stressed the importance of ‘spies’ ‘foreknowledge’ and the ‘inhumanity’ of
remaining ‘in ignorance of the enemy's condition’. Some readers may, quite understandably,
question the relevance of 'intelligence' within the revenue and customs context. For most
traders, taxpayers and tax advisors, 'intelligence' is invisible. Most people for the most part do
not have any real understanding of what 'intelligence' really entails. For most people, the term
'intelligence' is one generally associated with intelligence agencies and the military, with
spies, and with clandestine and covert operations. It is not something most people will
associate with corporate business, revenue and customs administration, water and food
security, academics engaged in technical analysis or applying complex modelling techniques,

37
A useful definition of the 'whole-of-government approach' can be found in a 2006 OECD report (Organisation
for Economic Co-operation and Development (OECD). Whole of Government Approaches to Fragile States.
2006 at .14) where the following definition is quoted: "For the purposes of this study, a whole-of-government
approach is defined as "one where a government actively uses formal and/or informal networks across the
different agencies within that government to coordinate the design and implementation of the range of
interventions that the government's agencies will be making in order to increase the effectiveness of those
interventions in achieving the desired objectives."
38
Refer to the discussion under section 2.4 (secrecy provisions)
39
In the UK for example (under Part 6 of the Proceeds of Crime Act) the Director of the National Crime Agency
is empowered to exercise certain Revenue functions i.e. the right to investigate the tax affairs of any person, to
raise tax assessments, to issue penalties and to enforce any tax debts.
139 INVESTIGATION AND PROSECUTION

or with intelligence assessments covering subjects such as economics or science. In the

following discussion we will briefly look at ‘intelligence’, both as process and as product, and
its relevance within the revenue and customs context.

The 'whole-of-government' approach is increasingly becoming a reality in many jurisdictions.

We can see increasing levels of cooperation, integration and information sharing between
different agencies of State. 'Intelligence' is gaining ground in importance and application at
every level of government, international, national and local, and also in every enforcement
context, including revenue and customs enforcement. The authorities do not however have a
monopoly over information gathering and intelligence production. Business intelligence and
industrial espionage is alive and well, and many criminal groups, as part and parcel of their
day-to-day operations, also engage in activities squarely falling under the intelligence and
counter-intelligence domains i.e.: (a) they often go to great lengths to identify and gather
information on potential targets; (b) they gather information on their competitors; (c) they
practice security and counter-intelligence, often at a an excellent standard; (d) they make use
of deception and disinformation; (e) they gather information on law enforcement personnel,
capabilities, intelligence gathering operations, and law enforcement operations i.e. working
procedures, planning and intentions, movements and dispositions, communications, etc; and
(f) they often exploit every available source and means to gather information from and/or
penetrate targets, including government and law enforcement (i.e. theft, corruption, blackmail,
and intimidation).

Broader enforcement operations and the intelligence process are very much dependent on one
another. The intelligence process generates intelligence in support of operations, but
operations also feed information back into the intelligence process. The intelligence and
investigative efforts will often overlap and may, depending on the facts of the case, quite well
be indistinguishable. Most intelligence personnel do not have a background in criminal
investigations, but they nevertheless require much of the criminal investigator's investigative
aptitude. This is for the simple reason that the intelligence cycle may involve a considerable
amount of investigative work. Likewise, much of a criminal investigator's work may also
involve the collection, following up, and analysis of information. Intelligence production and
criminal investigations both involve the generation of knowledge. The criminal investigator's
main focus however goes a bit further as he is mainly concerned with the gathering of
admissible evidence capable of proving the crimes under investigation.

In common with criminal investigations, intelligence operations are not engaged in in a

vacuum void of legal rules and limits. The scope and permissible limits of any given
operation is a matter of jurisdiction-specific legal and constitutional frameworks and factual
context. The boundaries set under those legal frameworks will seldom extend to the point
where it covers the full spectrum of operational capabilities that are indeed physically
possible. There may at the operational level be various means to gather information, to gather
evidence, to force cooperation of witnesses and suspects, and to obtain confessions, but those
means may not be lawfully available - as deemed unacceptable conduct in a given
jurisdiction. In all liberal democracies today, the parameters of what are considered
acceptable intelligence methods and practices or otherwise is a matter of law. Those
parameters may however also shift over time depending on changing threats, circumstances,
and socio-political change. Societies change, perceived threats change, and broader society's
views as to what should be permissible in countering those threats may over time drift
towards a more or less restrictive intelligence oversight regime.

There are it must be said few organizations subject to so much public and legal scrutiny as
revenue and customs administrations. Within the revenue and customs context, the keyword
140 INVESTIGATION AND PROSECUTION

in relation to every action undertaken, both in the administrative and enforcement context, is
'legality'. Intelligence activities, especially where it involves domestic collection operations
targeted at local citizens, criminal or otherwise, already attract considerable attention from the
press, the courts, and civil rights groups. Where those intelligence activities take place within
the context of revenue enforcement, those levels of scrutiny multiply exponentially. The
importance of revenue and customs officers adhering to the letter of the law in the execution
of every task or function they undertake, including information gathering and the use and
dissemination of information cannot be stressed enough. Their conduct must at all times be
beyond reproach. No perceived operational advantage gained by a wilful legal breach,
especially within the context of criminal investigations, can ever make up for the reputational
damage and loss of public trust in the event of that breach becoming public knowledge.

2.7.2 Information and Intelligence - Distinction

'Information' is basically raw data. 'Intelligence' however is a product developed from
'information'. For purposes of this discussion the following definition of 'intelligence' will
suffice:40

“Intelligence - the product resulting from the collection, evaluation, analysis, integration, and
interpretation of all available information which concerns one or more aspects of foreign
nations or of areas of operation and which is immediately or potentially significant to
planning.”

Information is "knowledge in raw form". Intelligence is "information that is capable of being

understood; information with added value; information that has been evaluated in context to
its source and reliability".41 A large quantity of raw information is of little to no use for many
decision-makers, especially those operating at the strategic level. What is useful for any given
decision-maker is an intelligence product capable of assisting him/her to better make
informed decisions at his level and for his/her purposes. This calls for proper intelligence
production with those doing the production and analysis catering for the specific needs of that
user. ‘Intelligence’ is it must be noted not necessarily ‘better’ or ‘superior’ to ‘information’. A
single piece of critical and accurate information received by the right person at a critical time
may and often do prove extremely valuable.

2.7.3 Intelligence - Utility and Use

It is impossible for any decision-maker at any level to make informed decisions without
sufficient relevant information as and when he needs it. Intelligence assists in identifying
threats and opportunities, and in reducing risk, in the short, medium, and long term. At the
strategic, operational and tactical levels, intelligence provides users with a better insight as to
the possible solution-options that may be available, and it provides for a better appreciation of
the likely outcomes in relation to each of those available options. The more complete the
intelligence-picture, the better the general levels of environmental and situational awareness,
at all levels of decision-making. Crime intelligence is concerned with criminality. Its main
purpose is to enhance crime prevention and the investigation of crime. It may typically assist
with:

(a) correlating patterns and trends in non-compliance and crime with the changing social,
economic and political landscape;

40
Dictionary of United States Military Terms for Joint Usage, Revision of February 1957
41
United Nations. 'Criminal Intelligence - Manual for Analysts', United Nations Office on Drugs and Crime,
2011 at p. 1.
141 INVESTIGATION AND PROSECUTION

(b) identifying vulnerable areas of operations and monitoring changing patterns and trends
in relation to those areas;
(c) explaining and predicting increases and decreases in particular patterns of behaviour;
(d) explaining failures - at the tactical, operational and strategic levels;
(e) the identification of past, current and future threats;
(f) the better prioritization and deployment of resources at the operational and strategic
levels;
(g) identifying and explaining patterns and trends in criminal behaviour and the prediction
of criminal behaviour;
(h) the identification of possible solutions to tactical, operational and strategic challenges
and threats;42
(i) assessing the efficacy of and shortcomings in past and current policies, strategies,
procedures, and tactics;
(j) monitoring the growth and evolvement of criminal groups;
(k) the identification of new crimes and identifying variations and evolvement of known
fraudulent schemes;
(l) developing an understanding of modus operandi employed by offenders;43
(m) the broadening of the existing knowledge-base and building on past experience;
(n) the identification of weaknesses and shortcomings in own training, procedures,
systems, and policies; and
(o) supporting live investigations;
(p) the better coordination of enforcement operations and preventative strategies

Every single point just listed is also relevant within the Revenue and Customs context. In the
revenue and customs enforcement context intelligence it is now an absolute necessity. It is
growing increasingly invaluable in supporting operational functions, mitigating risk, and
targeting areas of risk at every level and at a wider front. In all major jurisdictions one can
expect many thousands of infringements, some innocent, many malicious, both big and small.

42
This includes, as a preventative measure, the 'designing' out of vulnerabilities to fraud. In a 2011 Cabinet
Office report it was inter alia concluded that: "Prevention, not detection or punishment, is the most efficient way
to reduce fraud loss and when vulnerabilities are detected they need to be designed out. Prevention requires
embracing the power of data analytics and deploying them ..". See Cabinet Office. (2011) Eliminating Public
Sector Fraud: The Counter Fraud Taskforce Interim Report, Counter Fraud Taskforce, National Fraud Authority
at .11
43
That in turn can assist in the identification of criminal operations, offences, offenders, and the apprehension of
offenders, and it assists in keeping staff informed and keeping training up to date. Let us just for a moment
consider the following examples (in this case from the customs context). Those involved in smuggling
operations will often employ one individual or crew to bring in the vessel, aircraft, container, or vehicle carrying
the contraband, with another crew planned for the recovery of the goods. Those crews will often have no contact
and will often not know the identities of the other crew's members. The recovery crew will often not recover the
content straight away, rather taking the measure to first monitor the vessel, aircraft, container, or vehicle for a
few days (after landing or docking in the target jurisdiction) so as to ensure there is no police or customs
surveillance over same. Customs or police officers not familiar with this practice may execute a raid straight
away, or they may after just a day or two grow impatient or prematurely assume the operation to be
compromised and proceed with the raid. They may indeed interdict the goods, but that (premature) response will
often ruin any chances of making arrests. They will often not appreciate that they are in fact the ones that are
being monitored. Smugglers will also often first carry out dry runs (e.g. 'smuggle' in a harmless lawful substance
secreted in between say cargo carried on an aircraft), often executing a number such dry runs to first test a route
and to test the working practices and responses of the authorities before they do the first genuine run. Assume
customs officers do find the concealment, and further assuming they recognise the concealment to be no more
than a dry run, then they will, assuming they are experienced and know this practice to be a commonly employed
tactic, replace /leave in place the concealment so as to not alert the smugglers. In the case of both these
examples, how those customs or police officers will respond depends on the circumstances and their knowledge.
That knowledge can however only come from experience, training, or intelligence. Training however is very
much guided by intelligence product.
142 INVESTIGATION AND PROSECUTION

These may range from minor administrative matters to serious criminal attacks. Those
responsible for those infringements or attacks may typically fit any of the following profiles
e.g:

(a) the honest but careless taxpayer or trader;

(b) the registered taxpayer or trader wilfully and dishonestly defrauding the revenue -
motivated by gain or driven by financial pressure;
(c) criminal groups attacking the revenue as organization - motivated by financial gain;
(d) criminal groups attacking taxpayers under the cover of being / purporting to be the
revenue;
(e) individuals, traders or corporations engaged in smuggling - either with the view to
evade duties or with the view to circumvent import or export restrictions;
(f) domestic manufacturers engaged in the manufacture and distribution of illicit goods /
unrecorded produce;
(g) activists and protesters;
(h) foreign corporations with control over domestic corporations and 'forcing' the latter to
fraudulently shift profits off-shore;
(i) a wide range of actors stealing information from the revenue and customs - usually
relating to other taxpayers or enforcement operations;
(j) corrupt revenue and customs officers abusing their positions, either for personal gain
or on behalf of other actors; and
(k) foreign powers or actors directly or indirectly supporting the subversion of another
nation-state's industry, economy and/or security.44

Some of these individuals or actors are more powerful, and/or aggressive, and/or motivated,
and/or sophisticated, and/or dangerous for the system than others. Considering the wide
spectrum of threats, the large numbers of infringements and attacks, and this wide spectrum of
offender-profiles, there is no alternative but to prioritize the finite resources there where the
greatest impact can be achieved. Effectively countering or mitigating these threats demands
effective long-term strategies which in turn rely on policymakers being kept informed of
current and emerging threats, capacity, and performance. This is not possible absent relevant
and useful intelligence.

Absent a clear picture of current and potential threats, there can be no properly informed risk-
management and prioritization. Countering any threat demands an understanding of that
threat. This implies an understanding of: (a) what drives it; (b) its nature and operation; (c) its
real and potential impact; and (d) solutions in neutralizing that threat. It is critical to develop
an understanding of how systems are being penetrated, circumvented, or otherwise defeated.
The counter-side to a lacking understanding of how criminals defeat the system is the failure
to properly evaluate and test systems and the failure to adapt to and counter threats. There
simply can be no clear direction and focus in terms of prevention in the absence of an accurate
intelligence picture. The less the awareness as to current weaknesses, modus operandi,
patterns and trends: (a) the less likely the recognition of conduct as suspicious; (b) the more
limited is the understanding of how systems are being defeated; (c) the more difficult is the
development of effective counter-measures; and (d) the less the understanding of how
criminal operations are to be investigated and dealt with. Lessons cannot be learned absent
identification and analysis of non-compliance and criminal attacks. Awareness- and training-
programs, and the development of best-practice methodologies cannot be expected to satisfy

44
E.g. through large-scale dumping, or through the inward smuggling and distribution (into the target state) of
counterfeit currency, dangerous components or substances, or weaponry.
143 INVESTIGATION AND PROSECUTION

expectations where they are structured around an inaccurate and out-of-date intelligence
picture.

Absent intelligence there may also be no effective means of measurement and clarity of scale,
notably scale of particular problem areas i.e. VAT fraud, income tax evasion, organised
criminal attacks, smuggling, the underground economy etc. Absent proper measurement of
problem-areas there can be no reliable method of: (a) prioritizing threats; (b) measuring
success; and (c) providing reliable feedback to policy makers and the public.

Intelligence development makes possible the making of better informed decisions as to

priorities. It makes possible a more risk-based approach in terms of the persons, activities or
industries to be targeted. There are areas of revenue and customs administration where there
are no realistic alternative but intelligence-led operations. This is especially so in the customs
context. In most jurisdictions customs administrations are the primary agency responsible for
the policing of cross-border movement of goods and people. Absent effective intelligence,
considering the finite resources and the sheer scale of international movement of people and
goods, there simply cannot be effective prioritization and targeting. It makes possible the
more efficient selection and use of the resources available in achieving the best overall short-
term and long-term results. This all enhances enforcement impact, ensures the most efficient
use of resources, and limits interference with legitimate trading activity to less than what it
would otherwise be.

Investigations in itself are resource intensive, and are intensive in terms of time and effort.
Intelligence and the quantity of cases generated will often overwhelm investigative capacity.
Achieving maximum impact with the investigative resources available thus demands careful
case-selection. Finite resources must be focussed there where the greatest impact can be
achieved and on those offenders and criminal operations posing the greatest threat. In some
jurisdictions and agencies it may be the practice for suspected offences and criminal
operations to be selected as priorities for investigation within separate departments or sections
of the same agency, often with perceived priority evaluated in isolation on a case-by-case
basis. Needless to say, this leaves case selection uncoordinated absent any meaningful
prioritization. Suspected offences and criminal operations should, bar certain exceptions such
as internal corruption investigations, ideally be selected by a centrally based section or
function following objective assessment and selection from the agency's total pool of potential
priorities. Investigations into the activities of the same or related taxpayers or traders will
often also be fragmented lacking coordination. Taxpayers and traders who are non-compliant
in relation to one tax will often also be non-compliant in relation to other taxes. Where the
same individuals control the activities of different entities, the detection of tax evasion, fraud,
money laundering or other crimes in one of those entities should raise a red flag in relation to
the activities of all the entities controlled by those individuals. Where the same individual(s)
is indeed defrauding the Revenue or Customs in relation to multiple taxes or through different
entities, integrated audits and investigations will achieve the greatest possible impact with
different offences cleared in the course of the same enquiry and prosecuted in the course of
the same prosecution.

Many criminal investigations, regardless the agency investigating the crime, requires varying
levels of intelligence support. Many of the crimes investigated by revenue and customs
administrations are identical to and often more complex compared to most of those
investigated by the police. The same criminal group may in fact be under investigation by
both agencies, quite well for similar offences. Many sophisticated criminal groups make it
their business to corrupt revenue and customs officers and to gather information on revenue
and customs systems, procedures, weaknesses and operations, and they do so with no other
144 INVESTIGATION AND PROSECUTION

motive but to exploit. They often are sophisticated and they have the initiative. The crimes
they commit will more often than not call for the full suite of intelligence and investigative
support normally associated with the investigation of organised crime. Examples that come to
mind are truck hijackings, break-ins and thefts from bonded facilities, corruption, clandestine
manufacturing and processing operations, a wide spectrum of smuggling activities, computer
hacking and cyber-crime,45 and large scale refund scams. Probably the most serious threat for
any revenue or customs administration is internal corruption. It is particularly difficult to
detect and investigate. It is once again an area of investigations which is very much
intelligence-led. To conclude, credible intelligence is no less important for the customs
investigator or the investigator tasked with the investigation of a smuggling operation or VAT
scam as it is for the police detective investigating a criminal group's racketeering activities.

Intelligence operations often prove critical in supporting live investigations. Live

investigations may either be enquiries into crimes that have already been committed, or may
be targeted at ongoing criminal operations. Intelligence may typically assist investigators with
or in:

(a) the detection of criminal operations planned but as yet not executed;
(b) the identification of completed but as yet undetected offences;
(c) the identification of suspects, those who enable them, corrupt officers etc;
(d) mapping the structures and operations of smuggling, distribution, and criminal
networks;
(e) tracking down and/or the monitoring of suspects and illicit goods;
(f) the identification, tracking down and recovery of the proceeds of crime;46
(g) explaining how crimes were committed and developing time-lines of events;
(h) the identification, gathering and preservation of evidence;
(i) the profiling of suspects;
(j) the identification of potential witnesses;
(k) corroborating and testing other information and witness testimony;
(l) anticipating suspect behaviour e.g. likelihood of resisting arrest, intimidation of
witnesses or officers, destruction of evidence, or fleeing arrest;
(m) mitigation of risk for own personnel and assets; and
(n) the prioritization and coordination of resources.

This type of support will often be required at short notice and subject to very tight deadlines.
Such support may also be deployed to provide real-time assistance during the course of an
operation.

Intelligence, as important as it may be, is a supporting function. The extent to which a body of
good intelligence will translate into operational successes very much depends on institutional
and operational capacity. The best intelligence in the world has a limited shelf-life and the
window of utility will often be very limited in space and time. Much of the potential gains to
be made from good intelligence product and all the efforts in generating same often goes to
waste due to the intended users lacking the capacity to: (a) launch intelligence-driven

45
See e.g The Daily Mail. February 07, 2016. "Cyber criminals are hijacking people’s online tax returns to claim
bogus refunds: HMRC admits fraudsters made 17,000 attempts to steal more than £96 million"
46
Not only do revenue and customs administrations regulate areas often used to facilitate the laundering of the
proceeds of crime, thus placing them in an ideal position to identify and trace same, but in some jurisdictions, the
United Kingdom being a prime example, the proceeds of crime is considered taxable. This then demands the
capacity to identify the proceeds of crime, or to at least have access to such information where collected by other
agencies.
145 INVESTIGATION AND PROSECUTION

investigations or operations as and when doing so holds the most promise; (b) to develop
counter-measures as and when it becomes critical; and (c) to make their risk-appreciations and
formulate strategic policies based on the most current and accurate intelligence assessments.

2.7.4 Intelligence requirements

Intelligence development is done in line with the intelligence requirements of the intended
user. Those intelligence requirements may include standing requirements or requirements
relating to specific circumstances or threats. Those requirements may also cover any subject-
matter in relation to which there may be an expressed intelligence need i.e. crime, law,
politics, science, trade, economics, etc. Those requirements may involve interpretations of
current and past events, or the identification of new developments and emerging threats. They
may relate to short-term and/or long-term situations, patterns, trends, opportunities or threats.
They may also relate to individuals, groups, organizations, nation states or regions.

The same product may be of little use to other users who may have very different intelligence
requirements. What the intelligence requirements are of any given agency all depends on the
mandate and goals of that agency and the nature of the operations that agency engage in. The
national head of a given jurisdiction's revenue and/or customs administration has his own
intelligence needs just as does the head of say the national police. Their needs may for the
most part be very different although there may well be overlapping in certain areas. The same
intelligence assessments on matters such as organised crime, a growing black market,
smuggling, issues surrounding border-control, or an increase in the levels of illegal
immigration are relevant for both and should be disseminated to both. In many instances their
intelligence needs may be different but nonetheless quite similar. Both have an interest in
being kept informed of matters such as but not limited to: internal corruption within their
respective agencies; public distrust; national trends in terms of non-compliance; emerging
threats; and the efficiency of current enforcement models and efforts.

Different users within the same agency will also have different intelligence needs. The
intelligence needs of any given user will depend on that user's level of decision-making
(strategic, operational or tactical), and depending on his/her function. Although used within
the context of military intelligence, the following distinctions between 'strategic', 'operational',
and 'tactical' intelligence can be applied in most intelligence environments: 47

"a. Strategic Intelligence. Strategic intelligence is defined as intelligence required for the
formation of policy, military planning and the provision of indications and warning, at the
national and/or international levels. Gathered in response to government requirements, it
focuses on national threats and supra-national issues. ..
b. Operational Intelligence. Operational intelligence is defined as intelligence required for the
planning and conduct of campaigns at the operational level. Its primary users are operational
level commanders and decision-makers with a specific area of responsibility.
c. Tactical Intelligence. Tactical intelligence is defined as intelligence required for the
planning and execution of operations at the tactical level…"

Generally speaking, the higher the level of decision-making, the more long-term and complex
one can expect the user's intelligence needs to be. Meeting the intelligence requirements of
the strategic decision-maker may involve the input of many highly specialised individuals or
even institutions, often the best a nation has to offer. The input required to meet those
requirements may be highly complex, may require highly scientific and complex methods of

47
Ministry of Defence. Understanding and Intelligence Support to Joint Operations. (3 rd Ed). Joint Doctrine
Publication 2-00, August 2011 at 2-6
146 INVESTIGATION AND PROSECUTION

collection, evaluation, reasoning and analysis, and may involve close collaboration between
multiple agencies and specialised institutions. Those doing the collection, evaluation,
collation and analysis at this level operate at a very different level and usually within very
different time constraints compared to say an intelligence section of a customs administration
or police force where the needs of most of their users (operational personnel) will often be
short term or even immediate. We are talking about very different intelligence requirements
depending on the levels of decision-making and planning. Let us just for a moment consider
the different needs of say a criminal investigator investigating the activities of a drug
smuggling ring versus that of the national head of a given jurisdiction's customs
administration. Whereas the criminal investigator's needs relate to that which will assist him
with interdiction, identification, arrest, evidence gathering, and building a case for the
purposes of prosecution, typically details relating to things like dates, times, identities,
locations, objects, physical movements, financial flows, communications, modus operandi,
etc, the needs of the head of customs are very different. What he requires is assessments
capable of placing him in a better position to make better informed decisions at his level of
decision-making. Those assessments may relate to a wide range of subjects i.e. economics,
taxation, customs administration, law enforcement, international relations, and law. He need
be in a position to make long-term strategic decisions based on assessments of national,
regional, and international patterns, trends, opportunities and threats.

The importance of relevance, even at the lowest of tactical levels can be illustrated with this
simple example: Information to the effect that a shipment of cocaine is going to be landed by
boat at midnight tonight on a patch of beach on the Sussex coast is of little value to Income
Tax inspector B. The information will hopefully be passed on to his customs colleagues or the
police, but for him personally it is of no use. For the customs or police officer though, that
piece of information may prove exceptionally valuable if accurate. It short, different
operational functions will have very different intelligent needs. Whereas intelligence is
critically important from a customs and policing perspective where much of the enforcement
activities is intelligence led, this is hardly the case for most line function administrators and
tax inspectors. The fact that certain information or intelligence is of no immediate use to
Income Tax inspector B does not mean he will not eventually carry out work and carry out
income tax related enquiries as a result of the work carried out by Customs, or as a by-product
of intelligence work carried out on behalf of Customs, or as the by-product of intelligence
passed on to the Revenue by another agency.48 A tasking that may typically have been driven
by the need to develop intelligence as to the activities of a particular smuggling gang may for
example produce intelligence to the effect that members A, P, and Q of smuggling ring YBX
did not declare the proceeds of their crimes for tax purposes. All the Revenue functions may
thus potentially end up being users of intelligence product generated in the course of taskings
that were wholly unrelated to their respective areas of operations.

2.7.5 The intelligence cycle

The 'intelligence cycle' is the intelligence process. It is a systematic, methodical process
allowing for the development of intelligence from raw information. Probably one of the best
explanations of what the intelligence cycle entails is to be found in the following passage:49

48
A common trend in many jurisdictions is the amalgamation of what used to be different tax, customs and
excise departments into one service. In Britain for example the then 'Inland Revenue' and 'HM Customs and
Excise' was amalgamated into what is today's HMRC (Her Majesty's Revenue and Customs). The benefits of
such a system, from an intelligence point of view, should be obvious.
49
Horowitz, R. (1995), ‘A Framework for Understanding Intelligence’, International Journal of Intelligence and
Counterintelligence, Volume 8, Issue 4, 389 – 409 at 391 - 392
147 INVESTIGATION AND PROSECUTION

“The "intelligence process" was depicted in a very concise manner … by a Senate committee
formed to study United States intelligence… the Church Committee Report outlined the
process as follows:

• Those who use intelligence, the 'consumers,' indicate the kind of information needed.
• These needs are translated into concrete 'requirements' by senior intelligence managers.
• The requirements are used to allocate resources to 'collectors' and serve to guide their efforts.
• The collectors obtain the required information or 'raw intelligence.'
• The 'raw intelligence' is collated and turned into 'finished intelligence' by the 'analysts.'
• The finished intelligence is distributed to the consumer and the intelligence managers who
state new needs, define new requirements, and make necessary adjustments in the intelligence
programs to improve effectiveness and efficiency.”

In practical terms this explanation covers the following stages: (a) planning and direction; (b)
collection; (c) processing; (d) analysis; and (e) dissemination. In textbooks and in the field
manuals of the different agencies of different jurisdictions, the breakdown of this process may
differ slightly depending on agency and the type of intelligence specialization (i.e. crime
intelligence, military intelligence, foreign intelligence etc.). The different intelligence
specializations operate in different environments. The criminal intelligence /policing
intelligence landscape are very different from the military intelligence, national intelligence or
foreign intelligence environment. Generally speaking and bar some exceptions and
overlapping, those agencies serve different users, have very different roles, support different
types of operations, and act within different legal frameworks. Likewise, intelligence within
the Revenue and Customs context is also unique. It covers not only threats in the conventional
sense, but also covers areas of the revenue and customs landscape not directly connected with
crime i.e. tax avoidance, the tax gap, tax morale etc. This all being said, as far as criminality is
concerned, intelligence within the Revenue and Customs environment very much resembles
criminal/police intelligence, albeit more limited in terms of mandate, scope of operations, and
capabilities. When comparing the breakdown of the 'intelligence cycle' as in use by different
agencies, including agencies operating within the same intelligence specialization, one will
usually find the processes to be essentially similar but with different stages of the process
'sandwiched together' (under the same or different headings). The process is as explained a
logical and methodical one and regardless the headings and labels as used in different
illustrations of the 'intelligence cycle', in practical terms the complete process will involve
planning and direction, collection, processing, analysis, and dissemination.

(a) Direction and Planning

Intelligence is client-driven. Who that client may be obviously depends on his level and role.
The intelligence effort is then also individualised so as to meet the intelligence requirements
of that particular user. The intelligence process, from the point of tasking to the point of
dissemination need be planned and managed. This may typically involve appreciations of
and/or planning on a range of matters such as but not limited to:

(a) intelligence requirements, parameters and scope;

(b) collection needs;
(c) collection options available and the practicality of the various options available;
(d) collection priorities;
(e) time scales;
(f) available assets and resources;
(g) capabilities and limitations of available resources;
(h) internal and external support available;
(i) the tasking of resources;
(j) coordination between agencies / resources;
148 INVESTIGATION AND PROSECUTION

(k) communication and handling of new and modified requirements;

(l) security requirements, security constraints, and security plan;
(m) relevant legislation, policies, and procedures, and legal limitations on the use of
certain collection methods, information sharing, and dissemination;
(n) command and control;
(o) monitoring of progress - ensuring requirements and time scales are met;
(p) requirement feedback and reporting mechanisms;
(q) liaison, cooperation, and information sharing; and
(r) the dissemination of intelligence.

For the agency or department receiving the tasking it is obviously critical to have clarity as to
what precisely is required and the time limits for the completion of the task. This requires
close collaboration between those tasked and the user.

(b) Collection
Collection is in essence the exploitation of available sources of information for relevant
information from which useful intelligence can be generated. The sources of information that
will be available (and the methods for the collection thereof) depend on the nature of the
information that is being sought. This in turn depends on the intelligence requirements. The
intelligence requirements are thus always the point of reference. The information collected
may cover a wide range of materials ranging from electronic data to hard-copy documents,
maps, aerial and satellite imagery, photographs, any conceivable object or thing, statements
and testimony, or the full spectrum of materials to be found in the public domain i.e. research
material, press reports, and public records. That material may also relate to matters connected
with any conceivable human endeavour or field of science i.e. natural, economic, law,
political, social etc. The material so collected is in essence raw data that may originate from a
wide range of sources, and can be collected overtly and/or covertly. The methods of collection
are varied and may range from interviews, searches, various forms of surveillance, and agents,
to highly complex technically based methods of collection (i.e. signals, measurement,
signature, or imagery). Sources of information may be: (a) open source; (b) closed sources; or
(c) classified sources. For purposes of this discussion the following distinctions will suffice:50
"Open source (OSINT) is information that is publicly available…51 … Closed source is
information collected for a specific purpose with limited access and availability to the general
public…52 … Classified is information collected by specifically tasked covert means
including use of human and technical (image and signals intelligence) resources."

For both intelligence personnel and investigators, it is critical to know: (a) what it is that they
are looking for; and (b) how to identify that which they are looking for. This is critical at every

50
United Nations. 'Criminal Intelligence - Manual for Analysts', United Nations Office on Drugs and Crime,
2011 at p. 12
51
Open source information is gathered from overt sources (as opposed to closed or clandestine) such as, but not
limited to: (a) professional, academic, or industry research papers, books, reports, conference transcripts, training
manuals, technical reports etc; (b) records, material and data submitted and held by government departments
such as the Departments of Trade and Industry, or Justice, e.g corporate records and accounts, wills and estates,
court transcripts etc; (c) corporate and promotional material and tenders, CV's submitted to open source
professional data banks etc; (d) media e.g. television, newspapers, the internet; (e) forums and platforms where
information is voluntarily and freely contributed and shared e.g. social networking platforms, forums, and blogs;
(f) government records, data, reports, press releases, or records of parliamentary debates, committee hearings,
commissions of enquiry etc;
52
Typical closed sources may be information and data such as but not limited to: vehicle registration details;
criminal records; transactions reported under money laundering investigations; past arrests and current and past
complaints against an individual; taxpayer information; weapon licenses etc.
149 INVESTIGATION AND PROSECUTION

stage of the intelligence cycle. Meeting the collection requirements demand the collection of
relevant information. Absent a clear appreciation of what is relevant, much or all of that
which is to be collected may not be collected, and that which is indeed collected may be
wholly or partly irrelevant. Absent the knowledge, experience, or an appreciation of how to
identify that which is being sought, intelligence personnel and investigators may not recognise
what they are searching for even if it is right in front of them. But even assuming critical
information is collected, where same is overlooked or in error 'sifted out' at the collation
and/or evaluation stages, then the quality of the analysis is compromised.

Expending limited resources on collection activity which will amount to a breach of due
process, or is of no value in meeting the intelligence requirements is counter-productive to say
the least. Within the investigative environment, whenever considering whether or not a
particular course of action is to be pursued with the view to collect a particular piece or body
of information, the following should always be taken into consideration: (a) the importance
and priority of the information in question; (b) own and other available resources and
capabilities; (c) the legal authority to proceed with that course of conduct; (d) the legal
limitations on the use of that information; and (e) time scales/constrains. This applies for both
intelligence personnel and investigators. Another key consideration when considering the
most effective collection strategy and when assessing the viability of the collection methods
available, will always be a thorough consideration of the risk of compromise of other sources
or assets, and the risk of alerting the target (in those instances where secrecy and/or surprise
may be critical).

The agency doing the collection will not always be the same agency as the one doing the
analysis. This may typically be because the requesting agency lacks the legal authority or
capacity to conduct certain information gathering activities, or the requesting agency may not
have assets with access to the target whereas the other agency may already have those assets
in place.

(c) Processing
A particular problem faced by today's intelligence agencies and practitioners, is not so much a
lack of information from which useful intelligence can be generated, but rather too much
information which can often not be processed fast enough so as to generate the intelligence
product required by the users as and when they most need it. Analysis is a slow and intensive
process. Analysts cannot be expected to produce useful analyses against the deadlines set
where they get buried under piles of raw information, especially where much of it cannot be
analysed absent processing or where it can be analysed but is wholly irrelevant. They cannot
be expected to perform and deliver at the expected level and standard where they constantly
find themselves having to sift through, summarise, and convert large amounts of raw
information, work that should have been done before the information was forwarded to them
for analysis. The information as generated during the collection process, which may consist of
a wide spectrum of records, statements, data, imagery, recordings etc, first need be sifted
through, decrypted, summarized, decoded, transcribed, translated, interpreted, reduced and
converted in such a way and into such user-friendly formats as to be ready for (and easing the
process of) analysis. These tasks will often call for sophisticated equipment and specialist
personnel specializing in those different fields. Already at this stage inaccurate and irrelevant
information should be sifted out, a process which continues during data integration and
interpretation (the analysis stage). This is necessary but does require care, for obvious
reasons. In error sifting out just a single piece of critical evidence can seriously impact on the
validity of the analysis. Those doing the processing therefore need have a clear understanding
of the information requirements and the significance of information.
150 INVESTIGATION AND PROSECUTION

It may at this point be appropriate to point out a matter often overlooked but nevertheless
critically important from an investigation and prosecution point of view. Much of the
information collected during the course of revenue and customs operations, and this includes
information gathered in the course of information gathering operations and investigations,
may be information required to be disclosed in the event of prosecution. The rules relating to
disclosure differ from jurisdiction to jurisdiction, often strict with very little room for failure
in some jurisdictions i.e. in England and Wales. The proper assessment and inventorying of
information during the processing stage may not only ensure better exploitation of
information, but may also greatly assist in ensuring compliance with disclosure requirements.
This once again underlines the importance of quality management at every level of
administration, enforcement, intelligence and investigation. Failures in one area of operations
can be severely prejudicial to the proper functioning of and/or success in other areas of
operations.

(d) Analysis
Analysis is a key stage in the intelligence cycle, involving as it does the integration,
evaluation, and interpretation of processed information. The following useful extract quoted
from Walsh will suffice in explaining what 'analysis' entails:53

"Clark has defined it as 'the stage in the intelligence cycle, where information is subjected to
systematic examination in order to identify meaning and derive conclusions' … In the policing
analysis context, Cope has defined analysis: in terms of its techniques and the sort of
intelligence products generated from it at different levels of decision-making. At the tactical
level analysis aims to maximise the impact of enforcement by reviewing current crime
problems and prolific offenders to inform investigations and operations. At the strategic level,
analysis identifies longer-term crime problems and future trends to provide management with
an understanding of the scope and dimension of criminal activity in order to assist with local
policy development and planning. .. In my view, analysis is both a cognitive and
methodological approach to processing and evaluating information - some of which is
privileged - in order to produce an assessment for a decision-maker .. "

Analysis is really a two-step process involving: firstly - the integration of information; and
secondly - interpretation.54 The integration-phase involves the integration of processed
information in such a way as to ease interpretation and inference development. Those
inferences may be in the form of conclusions, hypothesis, predictions, or estimates. The
following distinctions will suffice:55

"There are four types of inferences:

Hypothesis - a tentative explanation, a theory that requires additional information for
confirmation or rejection.
Prediction - an inference about something that will happen in the future.
Estimation - an inference made about the whole from a sample, typically quantitative in
nature.
Conclusion - an explanation that is well supported."

53
Walsh, P.F. (2011) Intelligence and Intelligence Analysis, Routledge, London and New York at .236. Also see
'Criminal Intelligence - Manual for Analysts', United Nations Office on Drugs and Crime, 2011 at p. 1 where
'analysis' is explained as involving: "The resolving or separating of a thing into its component parts;
Ascertainment of those parts; The tracing of things to their source to discover the general principles behind them;
A table or statement of the results of this process"
54
United Nations. 'Criminal Intelligence - Manual for Analysts', United Nations Office on Drugs and Crime,
2011 at p. 14-15
55
United Nations. 'Criminal Intelligence - Manual for Analysts', United Nations Office on Drugs and Crime,
2011 at p. 15
151 INVESTIGATION AND PROSECUTION

Different types of data may vary in terms of nature and complexity. The more voluminous
and complex that data, the greater the input one can expect as required to process and analyse
that data. Specialized data calls for analysis by specialists whose areas of expertise may cover
a wide spectrum of fields (i.e politics, economics, the human sciences, the natural sciences,
the military, policing, etc) and many sub-specializations within those fields. This obviously
means information need be directed to the appropriate specialists, people with the knowledge
and expertise to derive meaning from that information. Those doing the analysis or parts
thereof may, depending on subject matter and jurisdiction, also involve third parties such as
universities and research centres.

Much of the material analysed may consist of previous intelligence assessments and
intelligence product received from other agencies or even other governments. This can be
expected to become an increasingly common feature in those jurisdictions where different
agencies increasingly share and pool intelligence.

In larger organizations such as national intelligence services and the military, organizations
with access to extensive intelligence resources and capabilities, the processes of collection,
processing, and analysis, is usually compartmentalized, performed by different dedicated
sections, each section often consisting of large numbers of specialists. In smaller
organizations, or larger organizations with a very limited intelligence capacity, some or all of
those functions may well be performed by a small team consisting of just a few people. In this
situation the same individuals may be required to perform all those functions. This obviously
limits such a group's capacity in terms of what they can collect, the quantity of what they can
process, and their capacity in terms of analysis.

It is to be noted that in many instances the intelligence requirements may be for no more but
certain information the nature of which may be such as to not require or demand anything
more but collection and processing. Many intelligence tasks will thus never progress through
the 'analysis' stage.

The value of any information obviously depends on reliability, accuracy and relevance.
Where an intelligence product is based on misleading and false information, the product itself
may be flawed, partly or wholly. Reliability and accuracy can therefore never be assumed -
underlining the need for evaluation. Reliability and accuracy/validity are two separate criteria.
Both require to be graded. The information may be accurate despite the source being
unreliable. The opposite is also true. Even assuming information is obtained from a reliable
source, his reliability is no guarantee of accuracy. He might well, unbeknown to himself, have
been fed false information. Many criminal groups, and this include fraudsters and smugglers,
practice secrecy and deception in the course of their day-to-day operations. Much of the
information collected may originate from these groups, groups whose operations are planned
and executed in such a way as to mislead and confuse. Much of the information landing on
the analyst's desk may thus be contradictory.

Information should ideally be evaluated before it is acted upon, but his may prove difficult or
even impossible, especially so at the operational levels where operations may be dynamic,
often executed within very narrow time-frames. Police and customs officers will often have
no choice but to act on: (a) raw information without same being subjected to any evaluation;
or (b) information subjected to evaluation but the accuracy of which could not be confirmed
within the time available. They often have to act within severe time constraints, often under
circumstances where a prompt or even immediate response is called for. Consider the customs
officer receiving a phone call from an informant telling him of a large shipment of contraband
152 INVESTIGATION AND PROSECUTION

on a flight due to land in the next two hours … He will undoubtedly attempt to get as much
information as he can from the informant and attempt to do a quick assessment and evaluation
within the time available, but in the end he may have no choice but to act immediately on
what may be no more but raw information.

The last step in this phase is the preparation or production of the intelligence product for
dissemination. Needless to say, reliance on a flawed intelligence product may have severe
consequences. The final product should thus be tested and reviewed before dissemination.
The quality of intelligence product relies on maintaining clear direction, the quantity and
quality of the information that goes into the system, and then the efficiency of the system in
terms of processing and intelligence development.

(e) Dissemination
Dissemination is the final stage in the cycle and involves the timely distribution or making
available of the intelligence product to those who need it when they need it. What the finished
product will look like, frequency of dissemination, presentation format, and distribution
depends on the user's requirements. This will usually be in the form of written reports,
documented research findings, and/or oral briefings. The latter may include aids such as
electronic displays, charts, and overlays. Those briefings may either be specially convened
intelligence briefings with selected liaison officers or customer representatives, or may be
delivered during operational briefings with investigators and/or other operational personnel as
and when requested or as deemed appropriate. This all depends on the user, the user's
requirements, and nature of the product. Situations may arise where the requirements as per
the initial tasking cannot be met with what is available as at the time when the intelligence
product is required. This may be for a number of reasons i.e. the timing schedule was for
some or other reason moved forward, or there simply was not sufficient time to start with,
mission-creep, a flawed collection plan, or simply due to difficulties in gathering sufficient
information. In those situations, that which is available may nevertheless be made available so
as to assist the user to the extent possible.

2.7.6 Intelligence failure

Within the Revenue and Customs context, many of those failures often attributed to 'flawed
policy', 'poor management decisions', 'lacking operational capacity', 'inadequate risk-
profiling', 'low detection rates', 'inadequate training', 'poor prioritization' etc, can partly,
directly or indirectly, be attributed to intelligence failure. Intelligence failure can typically be
attributed to any combination of the following factors or circumstances:

(a) no clear intelligence direction;

(b) the failure to correctly identify intelligence and collection requirements;
(c) often no clear formalised relationships with other agencies on matters such as
information sharing and collaboration on investigations, even where such information-
sharing and collaboration is provided for under law;
(d) intelligence and investigative functions operating in isolation within the same agency,
often also isolated from one another;
(e) intelligence and investigative functions operating absent clear ownership, lines of
responsibility and accountability;
(f) poor coordination between intelligence, investigative and other functions;
(g) intelligence operations and investigations often not adequately evaluated and
prioritized;
(h) the failure to mobilize the information-gathering capacity of front-line personnel;
(i) lack of investment in intelligence and risk-profiling infrastructure and/or the failure to
utilize it to its full potential;
153 INVESTIGATION AND PROSECUTION

(j) different information flows not sufficiently recorded, integrated, and processed;
(k) processing and analyses functions lacking the required capacity;
(l) the failure to ensure compliance with regulatory frameworks relating to the collection,
retention, or use of information;
(m) insufficient research and analysis into current and potential future threats and trends;
(n) the failure to investigate how systems are being defeated and the failure to identify
appropriate counter-measures;
(o) measurement failures;
(p) the failure to monitor the evolution of criminal groups and criminal operations;
(q) the failure to develop operational and tactical best practice and the failure to
disseminate same;
(r) the failure to recognise and provide for the intelligence needs of operational personnel,
especially in terms of effective intelligence support during live investigations;
(s) the failure to provide operational personnel with accessible specialist expertise or
advisors; or
(t) the failure to train and raise awareness amongst operational personnel;

This lack in capacity and/or failures can usually be attributed, partly or wholly, to the failure
of policy-makers and senior management to appreciate the critical role and potential value of
intelligence within the revenue and customs context, a failure which usually translates into the
failure to develop an adequate intelligence capacity. Intelligence systems intended to be
capable of supporting organizations such as the Police, Revenue administrations, and
Customs administrations, demands investment in terms of infrastructure, recruitment,
training, management, monitoring, and maintenance.

2.7.7 Information gathering

Revenue authorities collect, gather, and retain a wealth of information on or relating to
taxpayers and traders. This includes the information taxpayers and others are required to file
and supply, information gathered by the Revenue, information received from other agencies
of State, and information volunteered by both taxpayers and non-taxpayers. In many
jurisdictions the information so acquired may be used in connection with any revenue
function, even where acquired in connection with the activities of another revenue function.56
Where information is for example made available to the VAT office, then that information
may also be used in relation to say Income Tax.

It will be the revenue staff tasked with the day-to-day administration of the revenue
legislation that will in most instances be the first to detect irregularities. Once they do, they
will usually gather more relevant information in an attempt to clarify and explain those
inconsistencies and irregularities. These will typically be detected during revenue audits and
inspections, either carried out on a routine basis, or conducted as risk-based audits or
inspections, or conducted in response to credible information received.

The Revenue authorities in some jurisdictions, the US and UK authorities being examples in
point, require from their inspectors to file 'Suspicious Activity Reports' (SAR's) relating to
any activity detected or information received that may be indicative of non-compliance. This
is forwarded to central units tasked with processing and risk-profiling.

56
See e.g. section 17 of the Commissioners for Revenue and Customs Act 2005 which inter alia reads: "17. (1)
Information acquired by the Revenue and Customs in connection with a function may be used by them in
connection with any other function. (2) Subsection (1) is subject to any provision which restricts or prohibits the
use of information and which is contained in - (a) this Act, (b) any other enactment, or (c) an international or
other agreement to which the United Kingdom or Her Majesty’s Government is party."
154 INVESTIGATION AND PROSECUTION

Whereas most revenue and/or customs administrations today do have some or other internal
intelligence and risk-profiling capacity, the capacity of those sections may vary considerably,
even between different revenue and customs functions. The capacity of any given revenue or
customs agency to engage in certain intelligence gathering activities, is a matter of (a) internal
resources available; (b) the legal authority to collect certain information; (c) the legal
authority to conduct certain types of collection operations; and (d) the legal authority to liaise
with, cooperate with, and share information with other agencies. Revenue and customs
enforcement culture in a given jurisdiction is also an important factor, both at the national and
organizational level. In Britain, Her Majesty's Revenue and Customs (HMRC) have
historically and still do engage in a range of collection activities including data mining,57 the
use of agents and informants, covert surveillance,58 buying from traders and monitoring if the
sales are recorded,59 controlled deliveries,60 and even acquiring information known to be
stolen.

Over recent decades there has been a steady widening of the intelligence gathering capacity.
More information is being collected, retained, shared, and used by and between more users,
from more agencies, and between more jurisdictions. This is a trend which will continue
thanks to initiatives, measures or mechanisms such as but not limited to:

(a) the enactment of more statutes strengthening intelligence gathering capacity and
powers of investigation;
(b) the introduction of reporting requirements and the collection and collation of data
under reporting regimes such as that introduced under the money laundering
legislation;
(c) the enhancement of mechanisms better facilitating greater levels of inter-agency
cooperation;
(d) technological innovation and the wider use of computerised systems with a rapidly
expanding capacity to gather, store, share, and analyse high volumes of data;
(e) more international treaties allowing for greater levels of international information
exchange and cooperation on a wide range of matters;
(f) the steady but gradual corrosion and/or justifiable limitation of civil liberties such as
the right to privacy - justified as it is by governments recognising the practical realities
and challenges of law enforcement in a more complex world, and often held to be so
justified by the judiciary; and
(g) better standards of intelligence and law enforcement education.

Within the revenue and customs environment, sources of information and/or potential
evidence are legio, and may come from or may be gathered from a range of open and closed
sources, examples of which are: (a) data and information provided by and collected from

57
In the UK for example the revenue has access to the data as held by internet trading platforms such as EBay
and PayPal. This includes data such as seller details, transactions, payment details, bank account details etc.
They also have access to other data as held by banks and governments agencies such as land and vehicle
registries. This data is then integrated into analytical platforms. See e.g. The Daily Mail. January 10, 2017. "How
the taxman spies on everything you buy and sell online... thanks to a new law hardly anyone has noticed"
58
See e.g. R v Pomfrett [2009] EWCA Crim 1939; The Guardian. February 01, 2011. "Benefit fraud: spies in the
welfare war"; The Daily Mail. May 16, 2016. "Father and son conmen who used charity Gift Aid scam to steal
£5million from HMRC by claiming tax breaks on non-existent donations are jailed for total of 15 years"; The
Irish News. April 10, 2014. "Trainor helped keep criminal cash from eyes of authorities"; The Guardian. June
16, 2005. "Customs man was Mr Big of cocaine gang"
59
See e.g. The Financial Times. May 19, 2011. "Are restaurants ‘cooking the books’?"
60
See e.g. Vernett-Showers & Ors v The Crown [2007] EWCA Crim 1767
155 INVESTIGATION AND PROSECUTION

taxpayers and their advisors; (b) the general public; (c) informants; (d) lobby-groups and/or
representative groups such as industry-specific representative bodies; (e) participants or
accomplices within a criminal group; (f) open sources such as the open media; (g) broad-
based data mining; (h) other departments or agencies of state; (i) the authorities of foreign
jurisdictions; (j) as product from other related or unrelated investigations; and (k)
surveillance.

(a) The taxpayer and his advisors

Considerable amounts of information can be obtained from the returns and supporting
documentation as filed by the taxpayer, the taxpayer's records and books of account, and
answers and information as provided during audits, inspections and interviews. A wealth of
information and evidence can often also be obtained from those acting on the taxpayer's
behalf. These may typically include accountants, tax agents, and clearing agents. They may or
may not be accomplices. Where they are, then the credibility of the information they provide
obviously need be evaluated.

(b) General Public

Many irregularities are identified as a direct result of information volunteered by individuals
divulging the information for any number of reasons. In many instances the information will
originate from individuals who may have had some or other previous personal or professional
connection with the taxpayer i.e. a former friend, client, family member, colleague or
employee. It is not at all uncommon to find the same businessman defrauding the public, to be
the first to dismiss an employee for a petty infringement, or more ironically for lying or
committing a petty-theft. Aggrieved former employees passing information is common. The
person divulging the information will often be motivated by personal reasons such as
jealousy, or in an attempt to subvert a competitor, or just for the sake of 'doing the right thing',
or out of revenge. Every person, he be a competitor, business partner, employee, friend, or
family member, who suspects a taxpayer of playing with his taxes is a liability for that
evading taxpayer. People being people, they talk, they share information, they speculate, and
they gossip. Loose talk, even from those lacking any motive to cause the taxpayer any
misfortune, can easily land on the wrong ears or start rumours, and with it comes the
increased risk of more questions, observation and scrutiny. Those we think we know, or those
we trust, may not be as trustworthy as we like to believe. They may also know considerably
more about our lives and activities than what we would like to believe. They may easily turn
and inform. The revenue authorities of most jurisdictions now have facilities for the filing of
reports by members of the public. As a general rule these reports can be filed anonymously
and online via the Revenue’s official website. Some revenue administrations may offer
rewards for information received but most revenue administrations have long since moved
away from this practice. HMRC do however still offer rewards.

(c) Informants
Despite the great leaps in terms of technical surveillance, the oldest form of information
gathering - human intelligence, often still proves the most critical. Sophisticated individuals
or groups, whether they be terror groups or criminals, do not necessarily plan, communicate,
and coordinate by means of sophisticated technology. Many of them are in fact very much
schooled in or aware of the government's collection capabilities and plan and execute their
operations with that in mind. There are many instances where only a human presence at the
right place and right time can provide for credible and critical information at the right time.
The best non-human intelligence sources will often not be effective at explaining a state of
mind, at understanding intent, and at knowing what is being planned. In the investigations
context where the main focus goes beyond mere intelligence, those individuals will often also
prove invaluable in the gathering of evidence. They will often be the people who can place
156 INVESTIGATION AND PROSECUTION

things in context, who can point out items, and who knows when, where, why, and how
decisions were made, instructions were communicated, operations were executed, etc.

Informants may become informants for very different reasons. A sense of social responsibility
or patriotism, professional or financial reward or gain, undermining or pushing out
competition, revenge, fear, or quite possibly the hope of deflecting away government
investigations into his own criminal activities all come to mind. It is especially in tightly-knit
criminal groups, often crime families with strong family and ethnic loyalties, or within the
corporate environment, and even within government agencies such as the revenue, customs,
police, immigration, and justice, where informants may be worth their weight in gold. In
larger organizations, including in government, there will always be the loyal and ethical
and/or ambitious employees or colleagues. They will often be the first to notice incidents or
patterns of behaviour suggesting corruption or fraud.61

Criminal gangs, especially those operating in areas such as narcotics, arms trafficking, or
dealing in diamonds and gold, often inform on one another in an attempt to undermine
competitors. The possibility of an informant himself being a criminal, quite possibly even a
senior player, is a real possibility. Needless to say, the information and 'assistance' they
provide always calls for evaluation. Not to be lost sight of is the fact that much of the
information as provided by many informants might have been bought from other third parties,
might have been obtained by coercion, may be hearsay, and/or may be disinformation. This
once again underlines the importance of evaluation.

A prime consideration for most informants is their own safety and security. That security
may, depending on individual profiles and circumstances, also involve employment and
financial security. There are many out there, employees, family members, business partners,
and even criminals whom would inform, for any of the reasons mentioned, were it not for fear
- fear of physical harm, fear for loss of employment, fear for financial hardship for their
families etc. Recruiting them or pressuring them into informing is likewise also considerably
less likely to succeed where they are not confident as to their own anonymity and/or security.
That security may involve not only physical security for the duration of an operation, or often
long after the operation has been rolled up, but may also involve legal protection for offences
he may have been party to or might have committed in maintaining his cover. In many
jurisdictions none of these protections can be guaranteed. In jurisdictions like the UK and US,
legal protection can only be pre-authorised and only in relation to certain categories of
offences.

In some jurisdictions, the UK being a notable example, the authorities may and often do
reward informants for information.62 There are recorded instances where revenue
administrations bought stolen information with full knowledge of same being tainted. This
underlines the cold reality that in many jurisdictions the revenue and customs authorities may
pursue information regardless how it was obtained, including through theft. The British,
German and Australian authorities for example have in the past relied on such information.63

61
See e.g The Guardian. June 16, 2005. "Customs man was Mr Big of cocaine gang"
62
See e.g. The Guardian. June 15, 2015. "UK tax authorities pay record £605,000 to informants"; The Daily
Mail. October 29, 2012. "Divorcees and disgruntled business partners are paid by HMRC for tip-offs on tax
evasion".
63
See e.g. The New York Times. February 04, 2010. "German Finance Minister Puts Pressure on Tax Evaders";
The Guardian. September 07, 2016. "Switzerland prosecutes UBS banker for helping Germany chase tax
dodgers"; The Daily Telegraph. November 22, 2011. "HMRC launches unit to catch overseas tax dodgers". The
German authorities, reportedly with the knowledge of the German Chancellor, knowingly paid a former Swiss
bank employee for data known to be stolen from UBS. HMRC reportedly also acquired and used the same data.
157 INVESTIGATION AND PROSECUTION

(d) Co-perpetrators, accomplices, other offenders

All criminal endeavours involving conspiracy, and all criminal investigations involving multi-
man investigation teams, are team efforts. Any failure, error, breach, or betrayal by one
member of the group translates into a team failure. This may typically be the corrupt officer
leaking information or sabotaging an investigation from within, or the member of a criminal
group leaking information to the authorities or assisting the police with the gathering of
evidence incriminating the other members of the group. Where one member of a criminal
group in error or carelessly leave behind an incriminating piece of evidence, the entire group
may potentially be at risk, or where one member of an investigation team miss a critical piece
of evidence or breach procedure, the integrity of the investigation as a whole may be
compromised. It is truly a case of the chain only being as strong as the weakest link. The
overall impact of that error, failure, or breach, obviously depends on its nature, the
circumstances of the case, the extent to which such a possibility is foreseen and planned for,
and the measures employed with the view to mitigate the impact of such an eventuality. For
the criminal group, the most serious threat is that of betrayal from within. For this reason then
they will often also operate on a need-to-know basis, employ cell-structures, often only
involve those they believe to be trustworthy, and will often be ruthless with those suspected of
being informants. For law enforcement on the other hand, there is no such opportunity as
penetrating a criminal group, especially where the source has access to/is close to the planners
and decision-makers.

Those who defraud the Revenue often do so as part of a conspiracy. This is especially so with
corporate frauds, smuggling operations, and VAT scams. In many instances criminal groups
or dishonest traders will trade amongst each other, or cooperate on certain matters. In many
instances there will be people who knowingly render assistance in facilitating criminal
operations. This will often be professional advisors and agents such as lawyers, accountants,
customs brokers and tax practitioners, and/or service-providers such as transporters and pilots,
warehouse-operators, or bankers, and/or corrupt revenue and customs officers. In these cases
one or more of those involved will often, usually once apprehended, decide in favor of
cooperation with the authorities. Needless to say, they can be a valuable source of
information. Apart from their information value, they can also make valuable witnesses for
the prosecution. As crooked taxpayers often deal with other crooked taxpayers, investigators
will often also uncover the dishonest business dealings of crooked related parties, suppliers,
and customers. What may thus start out as one investigation into the affairs of one taxpayer
may rapidly fan out into clusters of other investigations and enquiries. This may place both
the investigative and intelligence functions under pressure considering the sudden increase in
demands in terms of manpower and resources. In these instances a loss of focus and mission-
creep can pose a problem in the absence of proper management and control.

(e) Other regulators and agencies

Revenue and Customs administrations pursuing taxpayers or traders on the back of
information received from the police, other law enforcement agencies, or other regulators is
not uncommon.64 In most jurisdictions one will find legislation and memorandums of

See the Australian decision of Denlay v FCT [2011] FCAFC 63 (Full Federal Court). In that matter the
Commissioner of Taxation came into possession of information pertaining to the appellant's taxable income from
a banker in Liechtenstein who unlawfully made same available to the ATO. The assessments raised were
challenged as tainted. The challenge and subsequent appeal failed.
64
See e.g. the Canadian case of R v Ross [1998] 3 CTC 159 where the Police informed the Revenue of the
respondent's earlier conviction on charges relating to the smuggling of cigarettes. Acting on this information, the
Revenue initiated an investigation into the respondent's tax affairs.
158 INVESTIGATION AND PROSECUTION

understanding between various regulators, law enforcement agencies, and other government
agencies providing for the release or exchange of information between different agencies.
This will typically be between revenue and customs administrations, police forces,
intelligence services, immigration departments, justice departments, and departments of trade
and industry. Greater levels of integration and collaboration between agencies, especially on
matters of security and crime prevention, is a key objective of the 'whole of government'
approach, the latter increasingly becoming a reality in jurisdictions like Britain and
Australia.65

In some jurisdictions are to be found agencies specially set up, structured, and organised as
national agencies with the primary purpose of managing and/or coordinating certain law
enforcement operations at the national and international level. In some instances much of
those agencies' collective capacity may be made up by the pooling together of staff, resources,
and information drawn from different agencies such as the police, customs, asset recovery,
immigration, the revenue, intelligence services, and other regulators. In the UK the National
Crime Agency is a prime example. The advantages of such pooling should be obvious. The
age-old problems so often encountered with different agencies operating 'blind' in relation the
operations of other agencies can be avoided i.e. the duplication of intelligence operations
and/or investigations, and one agency compromising the agents or operations of another. In
comparison to other government agencies, revenue and customs administrations have at their
disposal accounting and auditing expertise none of the other agencies can match. This is a
resource invaluable in areas such a money laundering control, asset forfeiture, and financial
crime investigation. The identification and investigation of many crimes, and this is especially
so with many financial crimes, calls for subject-specific expertise often lacking in individual
agencies. With such pooling there is also a broader base of information to be pooled together
with better dissemination of intelligence product and assessments to the appropriate agencies
and departments. It also provides for better prioritization when dealing with organised crime
and criminal groups operating at the national and international level. This type of inter-agency
collaboration and pooling may become an increasingly common feature in other parts of the
world as more governments move towards a 'whole of government' approach.

It is to be noted that in most jurisdictions, revenue and customs administrations are subject to
stringent secrecy rules governing the circumstances under which taxpayer information may be
released to third parties, including other agencies. Revenue and customs officers, even where
they collaborate with other agencies on certain matters, or even where seconded to other
agencies, thus do not have carte blanche in terms of the information they are allowed to
divulge. What may be shared and the circumstances under which same may be shared is a
matter of law. Instances may thus arise where one agency or the personnel of that agency may

65
The need for this level of 'cross-government collaboration' in dealing with 'public sector fraud' was well
expressed in the following extract quoted from a 2011 Cabinet Office report: ".. the Taskforce has agreed four
priorities for tackling public sector fraud: • Collaboration - silos must be removed; all parts of the public sector
must work together by: sharing intelligence on fraudsters; developing cross‐cutting capabilities; initiating joint
projects using data analytics; and ensuring we jointly procure data analytics to drive down costs. • Assessment of
risk and measurement of losses - fraud risk must be assessed before projects and programmes are under way.
Losses should also be recorded and reported via the quarterly data summary. • Prevention - investment and
resource should go into prevention, not just detection and punishment. When vulnerabilities are detected as part
of risk assessment, they should be designed out. • Zero tolerance - there is no acceptable level of fraud. Taken
together, these priorities will enable the Government not only to prevent fraud but also to detect, deter, correct
and punish offenders. In this way the Government’s response can mirror the nature of the challenge: fraudsters
attack the public sector across the board and exploit government processes at their weakest points; to combat this
threat will require unprecedented cross‐government collaboration." See Cabinet Office. (2011) Eliminating
Public Sector Fraud: The Counter Fraud Taskforce Interim Report, Counter Fraud Taskforce, National Fraud
Authority at .4
159 INVESTIGATION AND PROSECUTION

share information or intelligence product with the revenue or customs but without getting any
information in return.

(f) International treaties and agreements

Most jurisdictions are signatories or parties to various international treaties and agreements
providing for varying levels of information exchange and mutual cooperation. Some of the
information as obtained by or from a domestic agency may thus well have its origin in a
foreign jurisdiction. Domestic agencies may, where circumstances dictate and to the extent
provided for under those treaties or agreements, request information from a foreign
jurisdiction, usually a counter-part agency in that foreign jurisdiction. Information is not
evidence and the information as received from those foreign agencies may not necessarily be
admissible as evidence in domestic courts. The circumstances under which such information
will be admissible as evidence in the criminal courts are a matter of law.

Tax treaties are basically international agreements entered into between different jurisdictions
with the view to agree on how certain matters relating to taxation will be handled and
resolved between those jurisdictions. The most common of these are treaties dealing with
double taxation.66 These may be bilateral or multilateral and may cover a spectrum of
different taxes. In many instances those treaties do not only cover measures intended to
mitigate specific problems i.e. double taxation, but may also provide for measures intended to
prevent evasion. It is thus not at all uncommon for those treaties to allow for information
sharing and collaboration on enforcement. The treaties that may be in place between any two
given jurisdictions and the scope of each of those treaties are case specific. Every treaty is a
unique legal instrument to be interpreted as such. As is the case with taxes, governments also
enter into international agreements intended to resolve issues surrounding customs and to
facilitate customs administration. Many of those agreements are facilitated through the World
Customs Organization, a worldwide intergovernmental organization the main mission of
which is enhancing the efficiency of Customs administrations.67 Globally the WCO plays a
key role in areas such as customs harmonization, the formulation of customs compliance
strategies, the benchmarking of international standards relating to customs, and the
development and promotion of international legal instruments. Today the WCO is very much
a central point of reference for the customs administrations of most jurisdictions. Over the
years most customs administrations have adopted WCO conventions, agreements, and
recommendations facilitating the harmonization of customs procedures, mutual administrative
assistance in customs matters, and mutual administrative assistance for the prevention,
investigation and repression of various types of offences.

There are also other organizations such as the United Nations, Council of Europe, World
Health Organization and the World Conservation Union which have historically and/or still
do play a leading role in the development and introduction of international legal instruments
intended to promote human rights, security, health and safety etc.68 Many of these treaties are

66
In most countries those treaties will usually follow (or be based on) model conventions such as the OECD
Model Convention with respect to Income and on Capital (OECD, 2014) and the United Nations Model Double
Taxation Convention between Developed and Developing Countries (United Nations, New York, 2011)
67
See e.g. the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES)
(1973); the International Convention on mutual administrative assistance in Customs matters (2003); the
International Convention on Mutual Administrative Assistance for the Prevention, Investigation and Repression
of Customs Offences (1977); and the Recommendation of the World Customs Organization concerning
transnational organised crime (1997).
68
See e.g. the Protocol to prevent, suppress and punish trafficking in persons, especially women and children,
supplementing the United Nations convention against transnational organized crime (United Nations, 2000); the
United Nations Convention against Transnational Organized Crime (United Nations, 2000, Res 55/25); the
160 INVESTIGATION AND PROSECUTION

of particular interest to the police and customs authorities of signatory nations. These treaties
will often also allow for information sharing and collaboration on enforcement.

(g) Financial records and data

The financial records and accounts, commercial documents, and financial data, as recorded,
obtained, and kept by taxpayers, traders, various government departments, and financial
institutions, is an extremely valuable source of information, not only on the activities of those
recording, obtaining, or keeping them, but also on some of the activities of those they
associate, trade or deal with. Those records and data may prove invaluable in investigations
covering a wide spectrum of criminal activities ranging from 'sanctions busting' and terrorism
to tax evasion and murder. Those records and data may often in itself prove or otherwise
corroborate certain facts. It may also yield valuable information which, either on its own or
taken in conjunction with other corroborating information, may support inferences as to a
wide range of facts or circumstances such as but not limited to: (a) business structures and
organizations; (b) the structuring of criminal enterprises; (c) decision-making and the
identities of decision-makers; (d) the nature, scale, and reach of activities engaged in; (e) the
mechanics of criminal schemes or arrangements; (f) supply routes and laundering channels;
(g) the solvency of individuals, traders or corporations; (h) creditors and debtors; (i) income
and outgoings; (j) assets, liabilities and business interests; (k) trading patterns, lawful or
otherwise; (l) the lifestyle, spending patterns, vices and temptations of individuals; (m)
financial pressures; (n) electronic and audit trails; (o) time-lines of key events; (p) certain
events which if followed up can provide further evidence; (q) the identities and activities of
suppliers and contractors, clients, professional advisors, family connections and others with
whom the subject may associate with or deal with; or (r) utilities and expenses (which if
followed up may provide valuable information as to things such as phone numbers,
residences, travelling and movements etc).

How much reliance any investigator or analyst can place on the information as contained in
such records or data is a matter of reliability and accuracy. Some of those records and data
may come with a very high degree of reliability and accuracy as to everything contained
therein, whereas some of it may come with a high degree of reliability and accuracy as to
some of the information reflected therein but may be wholly inaccurate as to certain other
facts. Some of those records and data may come from a source which may be wholly
unreliable but may nevertheless be very accurate as to some or all the information reflected
therein. The opposite is also true. Records and data obtained from a very reliable source may
be inaccurate or false. Records or data may be inaccurate due to oversight or error, or may
have been recorded with the view to deceive. Such deception may in turn be achieved by
recording false data, the non-recording or non-entry of data, or both.

(h) Information technology

There have been great advances in information technology, not only in terms of storage and
retrieval capacity, but also in terms of the sophistication of collation and analytical software
intended to assist users with the management of risk, including fraud risk. Much of the
collation today is done with the aid of information technology. This is no longer a choice but
an absolute necessity as without it, recording, collation and integration will be a near to
impossible task in our modern complex societies. The revenue and customs administrations of
many western nations are now utilizing analytical and risk profiling software capable of
integrating and analysing billions of data items from multiple data sources. Much of the risk

Protocol to Eliminate Illicit Trade in Tobacco Products (World Health Organization, 2012); and the Council of
Europe Convention on the Counterfeiting of Medical Products and Similar Crimes Involving Threats to Public
Health (Council of Europe, 2010).
161 INVESTIGATION AND PROSECUTION

profiling is now automated through the automated integration and analysis of a broad base of
data which is constantly updated and refined. The reliability and value of these systems
obviously relies not only on the data streams integrated and analysed, but also on the risk
criteria programmed into those systems. Identifying facts or circumstances suggesting greater
risk is however once again a matter of analysis and learning.

2.7.8 Raising awareness and mobilizing front-line and public engagement

(a) Front-line awareness and engagement
Just like young police officers, through a mixture of formal training and experience, grow into
the operations and culture of policing, so do revenue and customs officers grow into the
operations and culture of revenue and customs administration. Where the general culture is
one of non-awareness of criminality and non-awareness of how suspected criminality is to be
recorded, reported, and dealt with, then those who enter the system cannot be expected to
grow or act outside that mould. Most revenue and customs officers are 'raised' in a customer-
facing and customer focussed environment. For many if not most front-line personnel,
primary targets are yield driven. Their mind-set is one of detecting 'error' and 'correction', not
that of fighting fraud.

Both 'Intelligence' and 'Investigations' as processes are specialized areas of enforcement, no

less specialized than any of the Revenue and Customs functions. It will be just as unrealistic
to expect from revenue and customs inspectors specializing in the various sub-specializations
within direct or indirect taxation, to show a clear understanding of 'fraud', 'evasion', or 'money
laundering', as it would be to expect from a fraud branch detective to calculate a corporation's
tax liability. Those revenue and customs inspectors for the most part have no formal
education, training, or exposure even closely related to 'intelligence' or 'investigations', and
they face their own challenges on a daily basis, getting through their workload and meeting
targets. This is not to say they do not play an important role in identifying and gathering
information on suspected criminality.

Raising organizational awareness of fraud at every level and within every function, effectively
getting every employee at every level engaged in proactively preventing and detecting fraud,
and having in place clear and uniform processes and procedures throughout the organization
for the recording and reporting of suspicious activities, can and does make possible the
gathering of information at a wider front and in a more targeted manner.

Suspicious Activity Reports (SARs)

The filing of Suspicious Activity Reports (SARs) by officers and employees of agencies such
as Revenue, Customs, Police, Intelligence and Financial Intelligence Centres is now a
common feature in many jurisdictions. Many may question the value of SARs. The answer to
this should be obvious. The inspector on the ground is for revenue and customs administration
what the 'bobby' is to the police. He is the eyes and ears of the organization. He is the person
closest to the taxpayer or trader. He is often the only person with direct human interaction
with the taxpayer or trader. Collectively they represent a significant part of the Revenue and
Customs collective knowledge of taxpayers, traders, business operations, practices,
shortcomings and failures. Just for a moment consider activities like audits and inspections.
They do not only provide for the opportunity to verify the accuracy of information as supplied
by taxpayers and traders, and/or to educate taxpayers and traders, and/or to deter fraud, but
they also provide for the opportunity to gather information. Not only information in relation
to the matter under consideration, but also in relation to the taxpayer/trader, his operations,
and that of others he/she traded or dealt with. They also provide for the opportunity to test the
credibility of other information on hand. The front-line personnel conducting those audits and
inspections will usually also be the pool of employees with the most intimate understanding
162 INVESTIGATION AND PROSECUTION

of current methods used by offenders to defeat the system. Where fraud is detected and
prosecuted, they may also be the ones that will be called as witnesses. They are also the future
leaders and policymakers within those organizations. Their knowledge and experience is
indispensable, not only within the context of administration, but also for the purposes of
intelligence. That knowledge and experience is nevertheless all too often underestimated and
underutilized.

Filing a report on a taxpayer raising a suspicion of fraud is, for most front-line personnel not
yet familiar with the process, unchartered waters very far removed from raising an assessment
based on his/her findings in an environment with which he/she will be familiar with. Even
where he/she escalates the matter to his/her supervisors, the latter will usually share the same
background as the inspector concerned and will feel just as uncomfortable with it. Assurances
of and the knowledge of those SARs being no more but the reporting of a suspicion, and of
him/her not running the risk of reprimand, ridicule, or prejudice in the event of that suspicion
being unfounded, may assist in the gathering of information which an officer would not
normally be comfortable with noting in an audit report or tax-file. The effectiveness of this
system depends on: (a) the skill of operational personnel in identifying suspicious activity
suggesting deception, misrepresentation, fraud or other criminality; (b) an understanding of
how those reports are to be completed and the types of information that should be included in
same; (c) proper processing; and (d) quality management. What may be 'suspicious' can be
subjective for many, but most revenue and customs inspectors tend to apply their judgement
on the side of care and tend to have a healthy sense of what is 'normal' or 'suspicious'. A good
standard of awareness coupled with dedicated points of expertise (e.g. an in-house fraud
investigator or lawyer), capable processing sections, and proper quality control, can provide
for a wealth of quality information critical for intelligence production and case generation.

(b) Public awareness and engagement

A key activity of intelligence operations, not only within the policing, national security, and
military intelligence context, but also within the revenue and customs context is, or if it isn’t
should be, the engagement of public support. Psychological and communication operations
intended to gain that support is critical. Whether we are talking about crime prevention,
counter-insurgency, terrorism, or revenue and customs enforcement, the principle is the same.
The greater the gains in winning public support: (a) the greater the spread and depth of trust;
(b) the greater the levels of cooperation; (c) the fewer the sympathizers; (d) the more the
informants; and (e) the more insecure those posing the threat. In the Revenue and Customs
context, gaining that support is critical at every level. Not only does it ensure greater levels of
voluntary compliance, but it directly supports the intelligence and enforcement functions. The
success of strategies intended to gain that support involves the commitment of every officer at
every level involving as it does inter alia: (a) educating the public as to the importance and
benefits of compliance; (b) keeping the public informed and high standards of customer
service; (c) facilitating trade and not impeding it; (d) transparency and being accountable to
the public; (e) being respectful and fair; (f) clear and effective deterrence; (g) consistency in
dealing with the public; (h) dealing appropriately with the non-compliant; (i) not tolerating
corruption; (j) setting the example with strict adherence to the law; and (k) communicating
successes through to the public

2.7.9 Legislative frameworks and accountability

In most liberal democracies, legislation and state-powers perceived as infringing on or
threatening civil liberties will always solicit passionate disagreement, debate, constitutional
challenge, and sometimes a loss of trust amongst some segments of the electorate. No citizen
should ever find himself in a position where he feels himself forced to defend his civil
liberties against unlawful infringement by any department of State, and this includes Revenue,
163 INVESTIGATION AND PROSECUTION

law enforcement and intelligence agencies. In western liberal democracies those agencies and
every employee of those agencies are after all sworn to uphold the constitutions and laws of
their respective nations. The lawful exercise of powers - that is to say within the limits of
what is lawful under the constitutions and laws of their respective nations, accountability of
those agencies, and vigilance in guarding against any infringements of our civil liberties, are
all critically important in any free and open society.

The manner in which any intelligence operation or criminal investigation is conducted is

obviously guided by the legal knowledge of those conducting those operations and the legal
opinions they rely upon. That obviously underlines the critical importance of intelligence
personnel, criminal investigators, their senior managers, and prosecution lawyers possessing a
sound knowledge of the legal frameworks within which they are required to operate. We have
stated that: (a) the law is fluid - it changes and develops over time; and (b) correctly
interpreting the law as it stand at any given time and correctly applying it to often complex
factual settings can be difficult. An incorrect interpretation of the law, or inadequate legal
reasoning, can have as result a flawed legal opinion, which in turn may have serious
consequences in terms of the very legality of an operation, the legality of the possession and
use of information, the admissibility of evidence, and the outcome of a prosecution.

From a legal perspective, hardly any aspect of information collection, retention, and use by
Revenue and Customs administrations can be discounted as legally irrelevant. In most liberal
democracies today, almost every facet of the collection, retention, use, and sharing of
information by Revenue and Customs administrations is directly or indirectly tempered,
governed, regulated, and monitored under bills of rights, statutes, oversight by the courts,
oversight committees, and departmental policies and procedures. Those frameworks may
typically prescribe, guide, or impact on:

(a) the types of information that may be demanded from taxpayers, traders, other
agencies, or other third parties, and how same may be used, retained and shared;
(b) the types of information that may be seized with or without warrant from taxpayers,
traders, or other third parties, the circumstances under which such seizures will be
lawful, and how such information may be used, retained, shared, or tendered as
evidence;
(c) when certain information can be tendered as evidence of certain facts and the
procedures for doing so;
(d) periods of retention, security of information, and destruction of information;
(e) the circumstances under which information obtained for one purpose may be used for
another purpose and the circumstances under which information obtained by Revenue
or Customs may be released to another agency of State;
(f) legal recourse for taxpayers and traders on whom information is being collected to
prevent such collection or demand the disclosure or return of information.

Similarly, the activities and operations of intelligence and law enforcement agencies are also
strictly regulated and are subject to varying levels of internal and external oversight. Apart
from managerial authorization and oversight at various levels within a given agency, there
will usually also be monitoring and oversight by independent inspectorates and committees,
including at parliamentary level. In most of those jurisdictions are also to be found legal
frameworks intended to ensure law enforcement and intelligence agencies conduct their work
164 INVESTIGATION AND PROSECUTION

in a reasonable, lawful, and proportionate manner.69 Those legal frameworks may typically
deal with a wide range of matters such as but not limited to:

(a) the organizations and persons authorised to conduct certain types of intelligence
gathering and other intelligence related operations;
(b) the powers to conduct physical searches with and without warrants;
(c) the powers to conduct various forms of technical and intrusive surveillance;70
(d) the use of covert human intelligence sources;
(e) the conducting of covert / under-cover investigations;
(f) monitoring and searches with or without warrants;
(g) the issue of warrants and authorizations;
(h) the authority to compel others to furnish / make available certain information, records,
documents etc;
(i) the use and retention of information;
(j) information exchange and disclosure of information;
(k) powers of detention, arrest and interrogation;
(l) the authorization of certain types of operations;
(m) rights of citizens to demand disclosure of information held;
(n) what information may be held secret and the circumstances when doing so will be
permissible;
(o) procedures for the release of information; and
(p) oversight mechanisms and measures71

Constitutions, Conventions and charters such as the Human Rights Act 1998 (UK), European
Convention on Human Rights (ECHR), the Canadian Charter of Rights and Freedoms
(Constitution Act, 1982), and the United States Constitution, furthermore also provide for a
range of protected rights and freedoms, the infringement of which is only permissible, and
only permissible to the extent as allowed for under those constitutions and charters. 72 In all
those jurisdictions, all legislation providing for investigative and intelligence gathering
powers must be compatible with those legal instruments. Any contravention of these legal
frameworks is a serious matter. Contraventions, where they do occur, can usually be
attributed to any of a number of reasons. In every organization there will always be criminal
elements, or those with little care for ethics and accountability, and then of course the reckless
and negligent. We do after all find them at every level of decision-making. One can just
consider the long list of presidents and prime ministers, present and past, quite a few of them

69
In the UK for example the activities of British law enforcement and intelligence agencies and their freedom of
action insofar as is concerned intelligence gathering operations and the collection of various forms of
information, are governed and/or are limited under numerous statutes. These include but are not limited to: the
Regulation of Investigatory Powers Act 2000; the Security Service Act 1989; the Intelligence Services Act 1994;
the Police Act 1997; the Data Protection Act 1998; the Bribery Act 2010 and the Human Rights Act 1998
(incorporating the convention rights as guaranteed under the ECHR (Convention for the Protection of Human
Rights and Fundamental Freedoms, ratified 1950).
70
E.g. traffic analysis, data mining, the interception of internet- and telephone-based telecommunication, and
'bugging'
71
E.g. the creation of and powers of oversight committees and inspectorates, the jurisdiction of such oversight
bodies, and the procedures for the investigation of complaints.
72
In the European Union, Britain, Canada and the United States, one of the key rights protected under the
constitutions of those jurisdictions is the right to privacy - a right of particular interest within the context of law
enforcement and intelligence. In the European Union and Britain, interference with that right is only permissible
where "… in accordance with the law and is necessary in a democratic society in the interests of national
security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the
protection of health or morals, or for the protection of the rights and freedoms of others." See Article 8 of the
European Convention on Human Rights (ECHR))
165 INVESTIGATION AND PROSECUTION

former heads of western liberal democracies, who have proven themselves utterly reckless or
corrupt. Then there is also the reality of existing legal frameworks often not meeting the
demands of dealing with the practical realities and challenges of intelligence and law
enforcement operations. In these cases there will often be the temptation to proceed with that
which is at that time and in those circumstances viewed to be the most practical or necessary
course of action, even if that course of action will amount to a serious legal breach.
Contraventions cannot necessarily always be attributed to wilful disregard of the law.
Wherever we deal with legislation, there will always be the risk of failures in interpretation,
failures or oversight due to a lacking understanding of the legislation, or the failure to adapt
existing policies and procedures so as to conform to new legislation or amendments of
existing legislation.

The importance of the restrictions and safeguards found in these legal frameworks is
undeniable, but so is the ability of intelligence and law enforcement agencies to proactively
identify and respond to threats. There is thus a balance to be struck. In doing so due
consideration need be given to:

(a) the legal frameworks in place;

(b) how intrusive the activity is and the direct and indirect impact on those immediately
affected;
(c) the interests of the State and the public at large;
(d) the intended objectives pursued with the collection, processing, measure, or use; and
(e) the importance and value of the information, process, or measure in achieving those
objectives and the availability of other less intrusive or damaging measures or means
in achieving same.

The demands and practical realities of maintaining safety and security, protecting economic
interests, and protecting the tax base in a world rapidly growing much more complex is very
fast growing much more difficult to meet. This is the reality, and as unpalatable as it may be
for many, the reality is that the world is fast changing into an environment of continuous
monitoring of all aspects of our lives. The days of information gathering operations being
primarily target driven is over. Bulk information gathering and mass surveillance has arrived
and it is here to stay. Much of that information, and much of it open information, will
undoubtedly increasingly, directly and indirectly, find its way to revenue and customs
administrations. There are indeed indications of some revenue administrations increasingly
making use of bulk data collected by third parties.73 Needless to say, many taxpayers view the
gathering of information by revenue administrations as intrusive, and criticism alleging
revenue infringement of the taxpayer’s right to privacy is not uncommon.

Illegally obtained information is not something any ethical and experienced investigator will
attempt to rely on as evidence at criminal proceedings. Even assuming he can somehow
rationalise the legality and ethics of doing so, experience would have taught him that such
'evidence' is highly unlikely to stand up to any thorough scrutiny in a court of law. Where
illegally obtained information may however well be used, is to assist in identifying
opportunities to develop probable cause. Illegally obtained information such as client-
privileged information illegally obtained from lawyers or information obtained from wire-
tapping without a warrant may potentially place an officer or investigator in a position to
develop an opportunity, often through the use of an intermediary such as a revenue inspector,

73
See e.g. the Daily Express, February 20 2007, “Tax Spies to Invade Your Life”; See e.g. The Daily Mail.
January 10, 2017. "How the taxman spies on everything you buy and sell online... thanks to a new law hardly
anyone has noticed"
166 INVESTIGATION AND PROSECUTION

customs officer, immigration officer, or police officer to search for and seize evidence. The
end-result may thus well be that illegally obtained information is used to gather evidence that
will stand up in court and to develop a case against the defendant - often with a very faint or
non-detectable trail to the initial information, the tainted nature of which is effectively
shielded from judicial scrutiny. In most jurisdictions this type of conduct will obviously be
viewed as highly irregular. Those irregularities will not however always translate to automatic
exclusion of the later evidence. In some jurisdictions the later evidence obtained will likely be
excluded, in other jurisdictions not necessarily.74

2.7.10 Intelligence and evidence

A clear distinction need be drawn between 'intelligence' and 'evidence'. Both intelligence
practitioners and criminal investigators are in the business of gathering information. That
information may originate from a wide spectrum of sources and the circumstances of
collection may vary greatly. For the investigator though, information, even the most accurate
intelligence reports, is no more but a means to an end - that of explaining the crime and
gathering admissible evidence capable of proving all the material elements of the crime. This
demands skill and care in distinguishing between that which is no more but information on
the one hand and evidence on the other.

Intelligence reports do not prove crimes in courts of law. Neither raw information, nor
intelligence product is evidence unless capable of being tendered as such. This is not to say
that the same information may not be found or be relied on in both the intelligence officer's
information or intelligence report and the criminal investigator's case file. This is in fact
common. The difference however is this: the intelligence officer is free to rely on and
incorporate all evidence from an investigator's case file into his own base of information or
intelligence product should he choose to do so, but the investigator cannot incorporate as
exhibits (evidence) into his case file information or intelligence, no matter how accurate or
relevant, unless that information can in law be admitted as evidence. That which is
inadmissible may be valuable as information, but may be of no value as evidence. Grounds
for inadmissibility or exclusion are jurisdiction-specific and may thus vary from jurisdiction
to jurisdiction. Typical situations that may arise are: (a) the information originated from
another agency, often not a law enforcement agency, or it originated from a foreign source,
under circumstances where the manner or form in which it was obtained makes it, on the facts
of the case, inadmissible as evidence in domestic courts; (b) at the time when the information
was collected, the collecting agency or officers did not anticipate the future potential value
thereof as evidence and proceeded to collect the information in a manner or form making it,
on the facts of the case, inadmissible as evidence ; or (c) admissibility of the information as
evidence may call for the testimony of the source, but same may be non-available, or the
collecting agency may have an interest in keeping secret the identity of that source.

Where the intelligence and investigative work is both conducted by the same law enforcement
agency i.e. the police, the fact that those in the intelligence sections are usually also police
officers with a better understanding of the user's requirements and applicable legal
frameworks, the greater levels of cooperation and coordination between their intelligence
function and the operational functions, and greater levels of control over the intelligence
effort, usually does much to facilitate the collection and processing of information in a
manner and form capable of being tendered as evidence.

74
Refer to the discussion dealing with the exclusion of evidence at 2.9.10
167 INVESTIGATION AND PROSECUTION

2.7.11 Non-pursuit in spite of positive information or intelligence

The fact that a crime is not promptly investigated or prosecuted, or is quite possibly never
referred for investigation, does not imply that it has not been detected or that the authorities
do not have detailed knowledge of same. The authorities, or certain agencies in any case, may
quite well and often do have very credible information or evidence relating to certain crimes
or operations, but may for various reasons opt not to promptly pursue the matter, or not to
pursue it at all (as a criminal investigation).75 Earlier in this work it was explained that
whereas with other categories of crime the default position tends to be criminal prosecution
with the view to secure convictions, the criminal investigation and prosecution of revenue and
customs crimes is the exception. In most jurisdictions most revenue and customs frauds are
not referred for criminal investigation. More often than not the response will be no more but
administrative pecuniary penalties and/or forfeiture. Most revenue and customs
administrations, notably those in the United States, the United Kingdom, Canada, Australia,
New Zealand, and Ireland, opt for selective prosecution. The chances of a taxpayer finding
himself charged and convicted for a revenue or customs fraud is slim. This is not however to
be interpreted as meaning that revenue and customs administrations are not making full use of
intelligence. They usually do but they utilize it differently. The fact that a revenue or customs
offence is not pursued criminally does not mean the offender escapes all challenge. Those
offences are challenged but more often than not administratively within the revenue and
customs enforcement frameworks, for the reasons as discussed in other parts of this manual.
Where revenue or customs offences are pursued criminally, intelligence support may be
required and is used no different as it would be for a police investigation. For both revenue
and customs administrations, intelligence is and remains critically important in supporting and
guiding strategic and operational decision-making

2.7.12 Maintaining focus

Revenue investigations can be lengthy and resource intensive. Maintaining focus and limiting
scope can be difficult, but doing so is critical. In many instances even the enquiries as
originally initiated may prove beyond the available capacity, necessitating the scope of those
enquiries to be narrowed down even further - often to fever individuals, entities, tax years, or
transactions. Those managing enquiries must therefore maintain proper control ensuring focus
and momentum is maintained without mission-creep setting in. This however is not only a

75
Consider the following example. At most major airports and seaports are to be found informants and/or agents
working for any number of national and/or foreign intelligence and/or enforcement agencies. Most intelligence
agencies in fact have desks dedicated to ports. These agencies gather and retain considerable amounts of
information and evidence gathered at those ports, much of it human and technical. Some of those agencies,
national and international, share information and also cooperate on certain matters. Irregularities detected but not
being shared with local enforcement agencies is common, often as a measure not to compromise assets and
sources and/or so as not to compromise certain operations. The information or evidence may at some stage be
handed over to local law enforcement but usually only at a stage and on terms considered prudent by the agency
holding that information. Against this background, assume Kenyan based freight forwarder MC, pressed for time
to get his freight on board a cargo plane headed for London, bribes the X-ray scanner at the airport to allow the
freight through without scanning same. A serious matter indeed considering Kenya being a country bordered
with rogue States and a major transit route for terrorists, and considering the safety of the jet and its passengers
having being compromised flying back to London as they do with freight in the cargo-hold which went un-
scanned. Agency A may be in possession of statements and evidence capable of carrying a conviction should
same be tendered at a criminal trial, but they may well refrain from sharing same with any other agency or law
enforcement agency considering the risk of their source being compromised. For many, agency A not passing the
information and evidence over to local law enforcement may appear questionable, but the circumstances may be
so compelling as to make agency A's interest in maintaining the cover of its source considerably more
compelling than convicting a corrupt freight forwarder. There will often be a trade-off. This is not to say that
they will not hand the information over at some later stage when doing so will no longer pose a threat to the
security of their operation. Needless to say, these types of situations can cause considerable strain between
agencies.
168 INVESTIGATION AND PROSECUTION

problem within the investigation context. The same applies within the intelligence process.
During the course of the intelligence process and/or an investigation, information or evidence
collected will often generate many new lines of enquiry which may or may not be connected,
directly or indirectly, with the initial tasking/investigation. How this additional information or
evidence is handled or acted upon is once again something that must be properly managed.

2.8 Investigation
2.8.1 General
Any investigation, whether it be a medical negligence enquiry, accident investigation, or
criminal investigation, is in essence a fact finding exercise. A criminal investigation in
essence involves: (a) a determination whether or not a crime has in fact been committed; (b)
identification and apprehension of the offender(s); and (c) the gathering of evidence capable
of proving, in a court of law, the material elements of the offence(s) charged.76 The facts and
circumstances of any given case will determine how an investigation is to be approached.
There is no precise template or blue print fitting for all situations. There may be many
investigative guidelines and procedures, laws, and principles of law laying down guidelines,
best practice, and rules relating to matters such as the gathering of information, the execution
of warrants, the conduct of searches and seizures, the processing of crime scenes, interviews
and interrogations, arrest, etc, but the precise flow of an enquiry is not always predictable and
is not something that can always be forced to conform to a particular template. Criminal
enquiries are multi-disciplinary and they often involve the gathering of scientific facts or the
gathering of facts by scientific means. Skill at investigation is not however a precise science,
or just a process that can be taught. It has in the past, and correctly so, been described as more
of an art than a science.77 It calls for a combination of training, knowledge, experience, and
intuition. Criminal enquiries by their very nature are fluid and calls for flexibility, initiative,
and innovation in the way they are investigated and managed. Factual settings differ, there are
many variables, and changing circumstances will often call for prompt follow-up, re-
evaluation, adaptation, and improvisation.

Experienced financial investigators, and prosecutors experienced in the prosecution of

financial crime, are critical for successful investigation and prosecution. Investigators must
know their subject field, have strong analytical skills, must be flexible, have good common
sense, must be able to improvise, have an eye for detail, be patient but persistent, have a good
knowledge of people, and must be cautious, meticulous, and systematic. Qualities they also
need possess are integrity and the ability to remain objective at all times.78 Criminal
investigators, regardless their branches or areas of specialisation, whether it be homicide,
robbery, narcotics, sexual offences, security, customs, taxation, various types of financial
crime etc, may all share skill-sets and experience that may be generic or interchangeable
between the respective areas of specialisation, but brain surgery calls for the skills and
experience of a brain surgeon, as does heart-surgery for that of a heart-surgeon. Complex
areas of specialisation call for specialised skills. In the world of financial crime, and even

76
Bennett & Hess (2007), 8 th Ed (at .6) defines a 'criminal investigation' as: "… a reconstructive process that
uses deductive reasoning, a logical process in which a conclusion follows from specific facts. Based on specific
pieces of evidence, investigators establish proof that a suspect is guilty of an offense."
77
See O'Hara, C.E & O'Hara G.L. (1980) where the writers (at .5) inter alia said: "A criminal investigator is a
person who collects facts to accomplish a threefold aim: to identify and locate the guilty party and to provide
evidence of his guilt. Investigation is an art and not a science, hence it must be discussed in terms of precepts and
advice rather than laws and rigid theories"
78
The United Nation's Office on Drugs and Crime in its 2006 report 'Policing - Crime Investigation' (at .1)
correctly states: ".... there is a universal value that must be preserved in any criminal justice system: the premise
that suspects are innocent until proven guilty. Investigators need to be certain that their suspicions are based on
an objective evaluation of the facts and that they have not twisted the facts to suit their suspicions."
169 INVESTIGATION AND PROSECUTION

more so tax fraud, the traditional skills associated with the classical Sherlock Holmes-era
detective are still required but no longer sufficient. Investigators need possess investigative
expertise, a sound knowledge of the relevant legal frameworks, the ability to interpret and
understand complex revenue and customs legislation, skill in applying those legal principles
in dealing with those cases under their charge, and they must have a basic understanding of
business and accounting principles. This is not the skills-set of the average accountant,
auditor, tax practitioner, lawyer, or homicide detective. This being said, revenue and customs
crime covers a wide range of illegal activities. Most of those crimes may indeed be financial
crimes in the true sense of the word, but many cases do arise, especially so within the customs
context, where the expertise of investigators more seasoned in the investigation of crimes like
robbery, theft, arson, and narcotics trafficking is called for rather than a background in
financial crime.79

Technology may have changed the way our societies operate, and many may think that the
technologically high level at which we function today may have relegated to the past the
skills-set of the 'pre-tech' investigator. This is not the case at all. The legal frameworks within
which the 1950's criminal investigator operated may have been considerably less difficult to
navigate, and the technology of the time may have been more limited and elementary, but the
skills he possessed and employed in gathering and testing information, in identifying
inconsistencies and irregularities, in following paper-trails, in interpreting the law, in
identifying suspects, and in proving offences are just as relevant today as they were then.
Back in the 1950's he may well have called upon the personnel of the Revenue's postal section
to testify as to when and where a certain taxpayer's tax return was received, today he may also
have to seek the testimony of network administrators and IT experts as to the internet provider
(IP) addresses and electronic signatures used, verification protocols, and time and place of
electronic submission and receipt of electronic returns. In the 1950's, audits entailed sifting
through hard-copy books of account, whereas today most of it is electronic. His searches for
incriminating evidence may have been limited to drawers, books, cupboards, safes, and trash-
bins, whereas today it will include computers, hard drives, mobile phones, network servers
and electronic accounts. Methods of communication may have evolved, but the quest to
determine and prove what was communicated between whom is still there. Encryption
methods may have changed, but the need to decode same so as to access critical information
or evidence has not. Money may be moved around faster and in different ways, but
investigators still follow the 'paper-trail' as they always did. The 1950's smuggler might have
employed flashlights to signal a landing spot to be clear and safe, whereas the smuggler of
today will use the full spectrum of electronic navigation and communication aids available.
The investigator of today, better trained as he may be, better equipped as he may be in terms
of knowledge of science and technology and the application and use thereof, and generally
more constrained as he may be in terms of the legal frameworks within which he is expected
to operate, still finds himself immersed in the same duties and activities as those of his 1960's
counterpart, i.e:

(a) Taking down and evaluating complaints;

(b) The identification of offences;
(c) Investigation planning;
(d) The identification of suspects where as yet unidentified;

79
Examples that come to mind are: (a) bonded warehouses burned down with subsequent insurance claims but
with the 'destroyed' bonded goods in fact diverted into home consumption; (b) the hijacking of vehicles carrying
bonded goods; (c) the theft of bonded goods from warehouses, trains, vehicles etc.; (d) the clandestine smuggling
of illicit goods and contraband, either as concealed goods passed through the customs point, or by clandestinely
bypassing the customs (by sea, land or air); and (e) the clandestine manufacture of illicit goods.
170 INVESTIGATION AND PROSECUTION

(e) The identification and interviewing of witnesses and the taking down of witness
statements;
(f) Information gathering, the testing of information, and the following up of leads;
(g) Surveillance for purposes of intelligence and/or evidence gathering;
(h) Searches, seizures, the processing of crime scenes, and the securing of evidence;
(i) Tasking of expert witnesses and reviewing expert reports and opinions;
(j) Evidence management;
(k) Docket preparation and maintenance;
(l) Keeping of the investigation diary;
(m) Report writing and liaison with management;
(n) Monitoring the activities of possible accomplices and co-conspirators;
(o) The monitoring of the movements of suspects pre-arrest and post-bail;
(p) Identification of other possible criminal activities or contraventions by the suspect(s);
(q) Identification of attempts to launder criminal proceeds and assisting with the recovery
thereof;
(r) Interrogation of suspects;
(s) Execution of arrests;
(t) Monitoring and ensuring security and mitigating interference with the investigation
and witnesses;
(u) Liaison with prosecutors and other agencies;
(v) Assist with case/trial preparation; and
(w) Testifying during trial;

Revenue investigations can be complex and document intensive with investigations often
spanning years. Those enquiries can be a test of determination and patience even for seasoned
investigators. Many of those investigations may come with considerable pressure, especially
where the suspects are brand-name corporations or high-profile individuals. Many fraudulent
arrangements or schemes are not unique, often just variations of the theme. The mechanics of
many of those frauds will often correspond. Investigators will often look back and recognise
many of their earlier cases to be very similar in how those crimes were committed, in factual
context, and how those investigations were conducted. That however is a luxury of hindsight.
Every fraud has to be investigated, prosecuted and proven on its own facts. Every
investigation must therefore be approached as a unique enquiry.

Identifying conduct as unlawful obviously calls for an understanding as to what the legal
position is to start with. A young police constable walking down the street need not have a
law degree to recognise the sight of two men mugging an old lady and making off with her
handbag to be a robbery in progress. This however is not always that straightforward where
dealing with many of the more complex revenue frauds. Recognizing some of those frauds for
what they are, quite possibly even understanding the operation thereof where explained to
him, may be a very different matter. Absent an understanding of the underlying revenue laws,
and absent knowledge as to the application of criminal law in the event of contravention of
those revenue laws, the investigation team will show little success in correctly ascertaining or
identifying: (a) whether an offence was in fact committed; (b) the revenue provisions evaded
or contravened; (c) the penal provisions that may find application in relation to those
contraventions; and (d) the material elements required to be proven.

Committing a fraud and not making any mistakes and not leaving behind incriminating
evidence, especially where it is a fraud or a fraudulent scheme involving multiple acts
committed over years, calls for an individual functioning at a very high level, suggesting
exceptionally high levels of planning, forethought, care, and discipline. This obviously makes
more difficult for investigators the task of investigation and the collection of evidence capable
171 INVESTIGATION AND PROSECUTION

of proving the suspect's criminal liability. The investigators do however in some ways hold
the high ground. They know what they have in hand in terms of information and evidence,
they can plan and investigate, and they know what will follow next. The suspect on the other
hand will be waiting blind. He will be waiting and reacting but usually not knowing what to
expect next. He will usually wonder but never be sure as to what the investigators in fact
know or suspect, who may turn or who may be passing information on to the investigation
team, what sources of information they may have, what assets they may have at their disposal
and how that may be deployed, or what evidence they may have against him. The
investigators will also have the benefit of experience. For most suspected offenders however,
the investigation into his or her affairs will in most instances be the first time he or she is the
subject of a criminal enquiry. In the world of criminal investigations and the criminal justice
system he will in most instances be a novice.

Many fraudulent schemes are detected whilst still in operation. From an investigator's point of
view this is ideal considering: (a) the potential for building an intelligence picture in real-time,
and real-time evidence collection, identification, surveillance, interdiction, and apprehension;
(b) evidence is still fresh and more likely to be available, witnesses are more likely to be
identifiable, traceable, and available, and memories are still vivid; and (c) loss can be limited
and greater opportunity to recover the proceeds. Many frauds, however, are only detected
years after already rolled up by the offenders. Records, books of account, bank statements,
and other financial records may no longer be available. In many instances traders have
stopped trading, witnesses may have died, emigrated, or cannot be traced, memories fade etc.
The prospects of collecting sufficient evidence to secure a conviction thus tend to diminish
with the passing of time.

The importance of evidence relating to an offender's conduct subsequent to the completion of

the offence often goes unrecognised. This may typically be evidence proving the making of
incriminating or conflicting false statements, evidence proving the destruction of evidence
and/or attempts at the intimidation of witnesses and/or attempts to otherwise conceal the
crime or to subvert the course of justice, or money laundering. Information and evidence of an
offender's conduct post-commission may be valuable for a number of reasons e.g: (a) it may
assist in proving the offender's state of mind prior to and during the commission of the crime,
which may assist in proving the offender's criminal intent and guilt; (b) it may underline facts
or circumstances that may be aggravating and that may impact on sentencing; (c) it may alert
investigators to threats to the investigation and prosecution e.g. risk to witnesses, information
leaks and internal security threats, or flight risk; and (d) it may assist in tracing the proceeds
of the crime and for purposes of obtaining restraining and confiscation orders.

The nature, complexity, and extend of a matter, coupled with the expectations from an
investigation, will dictate the composition of the teams assigned to the investigation thereof
and the assets that may be called upon. The more in-depth, technical, and wider the
investigation, the more demanding it will be in terms of resource. An investigation into the
under-declaration of income by the local corner-shop owner will, in terms of resources,
seldom require more than a single tax inspector and an investigator. If, however, the objective
happens to be the neutralization, arrest and conviction of multiple members of a sophisticated
transnational gang of narcotics smugglers, then the resources will need mirror the demands of
such an investigation in terms of budgets, personnel, intelligence capacity, technical assets
and support, security, and logistics. Two income tax inspectors armed with calculators and
paperclips will not be the right choice. The support of intelligence agencies, the police,
forensic laboratories, and experts in areas such as taxation, customs, other areas of law,
international trade practices, accounting, and other areas of science will often prove critical
for purposes of investigation and prosecution.
172 INVESTIGATION AND PROSECUTION

2.8.2 Investigation outcomes

The primary objectives with a criminal investigation is the uncovering of all those facts
capable of explaining the operation or mechanics of alleged offences, the identification of
offenders, and the collection of evidence capable of proving the guilt of offenders. This then
is also valid for criminal investigations within the revenue and customs context. The
immediate result of a successful investigation and prosecution may be conviction and the
passing of sentence, but the conviction of offenders and the sentences handed down are not
only intended to punish offenders but also to advance other wider objectives i.e. prevention,
reformation and deterrence. Revenue administrations tend to care little for retribution. Of
considerably greater importance for revenue administrations is the objective of deterrence,
and in particular general deterrence. This then is why convictions for revenue related crime
usually enjoy such wide publicity. For revenue administrations the objective of deterrence,
individual and general, is viewed as the primary deliverable of successful prosecutions. There
will of course be no convictions absent criminal investigation. For revenue administrations,
criminal investigations are no more but a means to an end. From a revenue and customs
perspective, criminal investigations do however also contribute in other ways.

(a) It makes more likely the recovery of lost revenue, either through the identification and
seizure of the proceeds, or where awarded by the courts as restitution;
(b) It can have a disruptive effect on the activities of criminal networks;
(c) The intelligence and evidence generated during the execution of one investigation can
generate leads, intelligence, evidence and witnesses against other individuals or
groups, thus opening an entry point to engage other offenders or syndicates;
(d) The intelligence and evidence generated during investigations provides for a greater
level of revenue awareness as to past and current weaknesses in revenue procedures,
systems, and legislation, and do therefore contribute towards target hardening, the
development and introduction of appropriate countermeasures, and in driving the
enactment or amendment of legislation.

Revenue administrations do not view criminal investigations as a hammer to be used on

anything resembling a nail. For revenue administrations, the worst possible outcome of any
criminal enquiry is the negative publicity following unlawful arrest and abuse of process.
Within the revenue context, the irresponsible use of criminal investigations may severely
prejudice the entire revenue enforcement effort and may well seriously damage the revenue's
public standing and taxpayer morale. Even the frequency and extent of use of criminal
investigations is managed, limited, and tempered in such a manner as not to upset the
revenue-taxpayer relationship. If every taxpayer who has ever committed a tax offence,
serious or minor, is to be prosecuted, then a sizeable proportion of the population will transit
through the criminal justice system at some time or another. Killing the goose laying the
golden eggs serves no objective.

2.8.3 Financial and non-financial

The greater majority of revenue fraud investigations tend to be purely financial in nature.
Many cases do however call for investigators to fall back on the more traditional techniques
of investigation more commonly associated with non-financial investigations. This is
especially so with many criminal operations involving smuggling, VAT scams, and MTIC
frauds. In these cases investigators will often have no option but to rely on the full spectrum
of intelligence gathering and investigative techniques available e.g. fingerprint comparisons,
173 INVESTIGATION AND PROSECUTION

ESDA analysis,80 DNA analysis,81 human and technical surveillance,82 handwriting

analysis,83 et cetera.84 In some instances international cooperation will be called for.85

Many of these criminal operations involve the commission of a wide range of offences calling
for different types of investigative input. Just consider the following basic example: Criminal
X is the shadow director of two electronic outlets but is also in the business of sourcing and
supplying stolen and smuggled high-end consumer electronics. Criminal X fosters corrupt
relationships with workers A and B employed in airside bonded shed YBX. Upon learning of
a flaw in the shed's CCTV coverage and outloading security measures, X convinces A and B
to assist with outloading skids laden with expensive mobile phones on accomplice freight
agent Z's driver whenever the latter presents himself for the collection of other freight from
said shed. This they do by outloading the freight themselves on a loading bay not properly
covered by the CCTV. The freight so stolen is sold on through X's outlets, VAT is charged on

80
See e.g. Hansford v R [2006] EWCA Crim 1225, where disputed documentation was subjected to ESDA
analysis.
81
See e.g. R v Owens and Anor [2006] EWCA Crim 2206, where the appellants were convicted of evading
excise taxes involving the smuggling of diesel fuels. The prosecution inter alia relied on DNA evidence and the
analysis of diesel fuel found in the appellant’s vehicle.
82
The authorities in some jurisdictions, notably so in the United Kingdom and the United States, make extensive
use of surveillance evidence. Surveillance may include human observation, the placing of cameras and listening
devices, the interception of telephonic conversations, and agents or informants recording conversations as part of
a covert investigation. Surveillance evidence is extensively used in the investigation of bribery, smuggling
operations, and VAT scams. See e.g. United States of America v Robert Powell, United States District Court for
the Middle District of Pennsylvania (Docket No 09 : CR-189) (2009) (unreported) where two senior judges
between 2003-2007 accepted over $2.8 million in bribes from the defendant, the latter himself an attorney. The
judges for reasons that are quite understandable then filed fraudulent tax returns (they failed to declare the bribes
received). As part of the investigation the defendant recorded highly incriminating conversations between
himself and the judges concerned. Also see R v Mann [1998] EWCA Crim 317 where customs investigators
testified how they carried out observation on the appellant. They inter alia observed how hired vans were driven
to France where cash purchases of alcohol were made. The alcohol was then smuggled back into the UK where it
was subsequently sold in public houses. The investigators testified how they observed the appellant's personal
involvement in the transportation, acceptance, packaging, storage, and dispatch of the smuggled goods. See
Hansford v R [2006] EWCA Crim 1225 where the court admitted evidence secured through both physical
observation and technical surveillance. Customs investigators witnessed how bonded goods were removed from
a bonded warehouse following the imposition of a ban on the removal of goods from that warehouse. A listening
devise was also fitted into the suspect’s business premises making possible the recording of conversations
between suspects. In R v Collier [1997] EWCA Crim 825 the Court admitted in evidence the observation
evidence from revenue investigators. Over a four-week period, investigators noted down every delivery made to
a VAT vendor who defrauded HM Revenue and Customs. The taxpayer was observed receiving deliveries for
which there were no invoices, and conversely found invoices in relation to which there were no deliveries. In the
Australian case of Agius v R [2015] NSWCCA 200 incriminating evidence relating to a tax evasion scheme was
gathered through the interception of telephone conversations between the appellants and other co-conspirators.
In Manjit Singh and Jaswinder Singh v Her Majesty’s Advocate [2001] ScotHC 20, UK Customs over a period
of time maintained surveillance over two restaurants in an attempt to build up a picture as to the trading activity.
Also see The Scottish Ministers v Stirton [2012] ScotCS CSOH 15 where British customs and police carried out
surveillance in France monitoring the movement of narcotics to the UK.
83
See e.g. Agrawal Trading Corporation & Ors v Collector of Customs & Ors [1972] INSC 14 (Supreme Court
of India), where the appellant smuggled currency clandestinely hidden in a wooden case. Handwriting on the
consignment note was linked to the appellant as was the typewriter used for typing on the consignment note.
Also see the Australian case of Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC
537 where a typewriter found during a search of the residence of one of the conspirators, was found to have been
the typewriter used for the typing of fraudulent commercial documentation.
84
It need not be said that defence counsel may also lead evidence of experts to counter this type of evidence. See
e.g. The Queen v Butler [2003] NZCA 21 where the defence led evidence from a document examiner who
testified that the appellant did not complete a false tax return.
85
See R v Flook [2009] EWCA Crim 682 where HMRC, the London Metropolitan Police and the South African
Police cooperated in a narcotics trafficking investigation involving covert surveillance in both the UK and South
Africa.
174 INVESTIGATION AND PROSECUTION

the sales, but neither the VAT collected nor the income generated on those sales are declared
to the Revenue. The proceeds from those sales are laundered through other accounts held by
family members of X. Although this example may to most appear to be no more but a
relatively straight-forward case of theft, it is in fact a very hybrid matter involving the
commission of numerous different offences. To start with, the goods so stolen were bonded
goods. Not only did the rightful owner (or party with legal right in it) suffer loss of the goods
due to the theft, but the goods were never cleared for home consumption and the duties were
never accounted for. The agreement between A, B, X and freight agent Z was a conspiracy to
commit theft. The Revenue was subsequently defrauded out of VAT and income tax, and the
laundering of the proceeds also amounted to money laundering. The investigation of this
matter will also be hybrid, both financial and non-financial in nature.

Not infrequently, evidence collected in the course of a criminal revenue or customs enquiry,
will also point to other suspected contraventions that may be related or unrelated to revenue
and customs. Criminal operations involving frauds on the Revenue or Customs may and often
do also involve the commission of other non-revenue and non-customs related offences, the
latter often of a non-financial nature. The possibility of an enquiry being widened to include
the investigation of other additional suspected offences, with the latter to be investigated by
the revenue and/or another agency, and the taxpayer potentially facing a range of other
additional and/or alternative charges can thus not be excluded. The nature of those other
suspected offences, and the facts of the case, will obviously dictate how those different lines
of enquiry will be dealt with, the agencies that may assist or take charge of those other
matters, the expertise and assets that may be required, and the investigative methodologies
that may apply.

Earlier we stated that revenue and customs investigators may from time to time, where the
circumstances dictate, fall back on the more traditional techniques of investigation more
commonly associated with non-financial crime. The reverse also applies. Criminal
investigators of all specializations increasingly find themselves conducting financial
enquiries, albeit usually of a basic and limited nature, as part of wider non-financial
investigations. Advances in technology and increased complexity in the way our societies
operate, provides criminal elements with opportunities to commit crimes, old and new, in new
or different ways, and also drive changes in criminal behaviour. This in turn has the effect of
lifting the bar in terms of the investigatory capabilities and skills required to investigate crime
in general. Today, criminal investigations demand investigating officers to be well rounded-
off generalists with a keen awareness of how things work. They need not necessarily be
experts in any of the many fields of law, science, or forensics, or be experts in computing,
telecommunications, banking, accounting, intelligence, and many other specialised fields, but
they must have a good general knowledge of how systems work, how crimes can be
committed, and how those crimes can be cleared. The ability to carry out basic financial
investigations is no longer just a required skill for revenue and customs, or fraud branch
investigators, but is increasingly becoming an important skill for intelligence analysis and the
investigation of a broad range of crimes. It will often be financial investigations that will
provide useful information in relation to, and/or provide evidence capable of proving certain
incriminating facts against many different types of offenders, from fraudsters and murderers,
to corrupt officials, smugglers, terrorists, and money launderers. They may make possible the
detection of crimes, financial and non-financial. They may assist with identifying an
offender's motive for the commission of a crime which may be financial or non-financial in
nature, and they may assist with the identification of offenders and their accomplices,
financiers, and victims. They may assist with the identification of funding intended for the
commission of a crime or acts of terrorism. They will often provide some or all of the
evidence required to prove the guilt of offenders in crimes which may be financial or non-
175 INVESTIGATION AND PROSECUTION

financial in nature. Money often motivates crime, and often facilitates and funds crime. Even
where the crime is not a financial crime, the offender and/or his associates will often engage
in acts that will leave electronic foot-prints and paper-trails, often in the form of financial
data.

2.8.4 Investigation docket

The investigation docket is what most people will think of as the 'case file'. It can more
appropriately be described as a record or the complaint (reported crime), the conduct of the
investigation into that complaint, the findings of that investigation, and the evidence collected
in the course of that enquiry. It usually contains statements of witnesses, expert reports,
documentary and other evidence, the investigator’s notebooks, the investigation diary, and
internal memoranda and communication. In many major fraud cases the case docket will not
be the typical dossier consisting of just one or just a number of files. In some cases the docket
may in fact consist of hundreds or even thousands of files and hundreds of thousands of
documents. It is not at all uncommon to find the prosecution relying on thousands of exhibits
in support of indictments often alleging hundreds of contraventions. In most common law
jurisdictions, as is the case in England, a defendant will normally have the right to be
provided with copies of the evidence and content of the docket as is relevant in order to
enable him to prepare for his defence. This is considered an important right in ensuring a
defendant receive a fair trial.

2.8.5 Narrowing down of potential charges

In many instances the taxpayer’s unlawful activities may be so extensive, widespread and
repetitive as to make the investigation and prosecution of every suspected breach impractical.
This then is especially so when dealing with corporate tax frauds. To investigate and
prosecute every suspected breach may potentially result in the matter growing unmanageable
for both investigators and prosecutors, with the charge sheet potentially alleging the
commission of hundreds if not thousands of offences. This may potentially result in many
years of investigation and litigation. It can then also result in long drawn-out trials lasting
weeks or even months. This, coupled with the fact that the courts generally tend to read
similar convictions together for purposes of sentencing, usually makes it a more sensible
option to be selective in the nature and number of contraventions to be investigated and
charged. This may not only save valuable resources, but may hopefully also allow for the
matter to be concluded faster than would otherwise be the case.

2.8.6 Identification of suspects

All criminal investigations, regardless the nature of the crimes investigated, obviously calls
for the identification of the offenders. The identification of offenders, as critical a step as it
may, is nevertheless just a small step on the long road to prosecution. No amount of
information, accurate or otherwise, is of any evidential value unless capable of being entered
as evidence. In revenue-fraud prosecutions, the evidence so entered must prove, beyond
reasonable doubt, the identity of the offender and his guilt. Whereas one of the main hurdles
of the police detective tasked with the investigation of crimes like murder, robbery, burglary,
'kite-flying' etc, will often be the identification of the offenders, this is seldom the case with
revenue investigations. With many 'common crimes' the investigator will often find himself
starting out with no more but a crime scene. There will often be no physical description or any
other evidence pointing to any likely suspect e.g. a print. But even assuming eye-witness X
provides detective Y with an accurate physical description or identification … then the
offender's identity may still be unknown. The next step will be connecting a name to the face.
In the revenue and customs context this situation tends to be the exception. The revenue
investigator will seldom if ever need concern himself with questions as to whom may have
had the motive, ability, and opportunity to commit the crime. In by far the majority of cases
176 INVESTIGATION AND PROSECUTION

the offender will be the taxpayer. Many of those concerns the police detective may harbour,
even if quietly so, as to whether or not the person arrested or charged is indeed the
perpetrator, will thus seldom arise in the revenue context.

This is not to say problems with identification do not arise, within the revenue and customs
context that is. Problems with identification are common where dealing with cases involving
criminal attacks against the revenue, smuggling cases, thefts from bonded warehouses etc. In
those cases investigators will face the same difficulties in identifying and apprehending the
offenders as would a detective in the typical robbery, burglary or drug trafficking
investigation. Consider the scenario where the authorities, acting on information received,
raid a non-bonded storage warehouse where they find the warehouse filled with smuggled
pharmaceuticals. During the raid nobody was present, no arrests were made. The obvious
starting point will be the making of enquiries so as to ascertain the identities of those who
own and used the facility. Now assume the rental agreement is found to have been completed
and signed by and the rent payments made by frontmen, identities unknown. The investigators
now find themselves with a warehouse filled with illicit goods absent any clear indication as
to the identity of those who dealt with and harboured the goods in question. Insofar as
suspects are concerned, the investigators now find themselves in a position no different from
that of a detective attending the scene of a bank robbery. In identifying suspects, they will
have to work their way outwards, first processing the warehouse and its content as primary
crime scene, then fanning outwards. In processing the warehouse (as primary crime scene),
investigators will use the same investigative techniques as would the police at any other crime
scene i.e. witnesses, CCTV, DNA, implements used, footprints and trackmarks, fingerprints,
handwriting analysis, materials analysis, etc. The circumstances surrounding the rent of the
facility will be another primary line of enquiry. They will typically want to interview current
and former owners and letting agents, utility providers, refuse removal and maintenance
contractors, transport operators, other contractors, workers, or customers that may in some
way or another be connected with the facility and whom might be in a position to provide
some information, no matter how insignificant it may seem, that may assist in the
identification of the suspects. It may be a cheque or receipt with a fingerprint on it, a person
description, a phone number, or CCTV from the gas station around the corner where they
used to fill their truck. The trail of the seized goods, its origins, how it ended up where it was
found, and the tracking down of distributions that may have been made will be another line of
enquiry. A fence or trader caught in possession of product matching that found in the
warehouse might be able to point the suspects or someone who might be in a position to do
so. In these types of cases the investigation may involve the full spectrum of investigative
techniques and methodologies, old and new. The suspects will often only be identified at a
time when the investigation may be at an advanced stage. This is all very different from a
dentist being investigated for under-declaring his income.

2.8.7 Crime scenes

Most criminal investigations into crimes which we will for the purposes of this discussion just
refer to as 'common crimes', crimes such as murder, rape, robbery, burglary or an act of
terrorism, will usually commence at a crime scene. Many of those 'common' crimes may only
be detected months or years after its commission, but in by far the majority of instances the
crime will be reported or will be detected immediately or within days of its commission.
Assuming it was committed in a jurisdiction where there is the required capacity and
reasonable standards of policing, then the crime scene(s) will be the most important and
critical starting point for the investigators. Their response times and the procedures followed
to isolate and preserve the crime scene, the nature and quality of the evidence recovered from
that crime scene, and the procedures followed in the recovery, preservation, analysis and
safeguarding of that evidence, can make all the difference between success or failure in
177 INVESTIGATION AND PROSECUTION

understanding how the crime was committed, identifying the offenders, and successful
prosecution. With many of those 'common crimes' the investigation will usually start at that
crime scene upon arrival of the police at that scene, usually immediately after the commission
of the crime.

But now let us consider financial crimes like corruption, fraud, tax evasion, and money
laundering. With many fraud cases the victim may realise he was defrauded shortly after it
happened, or some instances of bribery, smuggling, or money laundering may indeed be
detected when committed or shortly after, but more often than not, in by far the majority of
instances, those crimes will only be detected months or years after their commission. In these
cases, in common with other non-financial crimes, there will also be one or more crime-
scenes.86 The false documents were after all generated at some or other location(s), the false
books of account was made up and kept at some or other location(s), the misrepresentations
were submitted or transmitted at or from some or other location(s), the bank accounts were
opened under false names at some or other location(s), and the goods were shipped from,
unshipped at, and distributed from and to some or other location(s).87 Valuable evidence
capable of proving certain facts may be found at any or all of those and other locations, just
like at any other crime scene.

Most revenue-related investigations do not start out at a crime scene. This is not to say that it
does not happen. There are indeed many cases where investigations do start out at a crime
scene. These cases will usually arise within the customs and excise context. Examples that
come to mind are: (a) the gang breaking into a Queen's Warehouse and driving away detained
goods; (b) the theft of a boat seized by customs; (c) the police in a random search uncovering
the manufacture of illicit goods; or (d) a gang of smugglers arrested as they are unshipping a
shipment of illicit goods. In these instances the securing, collection and recording of all
available types and classes of evidence will be called for just as it would be at any crime
scenes associated with say a burglary, theft or murder. The evidence searched for and
collected may range from documents,88 to electronic data,89 impressions;90 implements and
tool-marks,91 trace evidence,92 and biological evidence.93 The procedures followed in the

86
Crime scenes are not only those locations where a crime took place or where the crime is considered to be
completed, but also include other locations or objects associated with the commission of the crime and where
evidence can be found. In a smuggling case the office and home of the businessman who financed the operation
will be crime scenes, the office of the accountant who maintained the false books of account and laundered the
proceeds will be a crime scene, the boat carrying the contraband will be a crime scene, and the warehouse used
to store the goods will be a crime scene.
87
Some tax evasion investigations may however provide for 'crime scenes' and evidence with somewhat of a
twist. With some tax investigations there may quite well be 'crime scenes' where incriminating evidence can be
found, but with not a single shred or piece of evidence found at those locations necessarily proving anything but
lawful income generating activity. Consider the example of a trader trading in the underground economy. Further
assuming all the activities he is engaged in involves honest lawful trade. Where he unlawfully, wilfully and
intentionally failed to register for and declare tax, and where he did so with the intent to evade, he will clearly be
a tax evader. In England, he will be guilty of tax evasion in spite of never committing an unlawful overt act, by
false representation or otherwise. Investigators may quite well execute search warrants at the trader's business
premises and other locations associated with his trading activities, not necessarily expecting evidence of any
activities other than legitimate trade, but with the view to gather evidence of the fact that the trader unlawfully
failed to register, declare, and pay, and with the view to prove the extent of that evasion.
88
E.g. fraudulent invoices, identity documentation, books of accounts, labels, import or export licences,
inventory registers etc.
89
E.g. computers, mobile and satellite phones, email, CCTV footage
90
E.g. Fingerprints, footprints, false stamps and dies
91
E.g. breaking equipment
92
E.g. element particles, paint, residues, fibres
93
E.g. hair or blood
178 INVESTIGATION AND PROSECUTION

identification, recording, and collection of that evidence must conform to domestic best
practice, procedures and law. In these cases, investigations will often uncover much wider,
more elaborate criminal networks. What may have started out as a very limited investigation
or lines of enquiry will often very fast fan out into a large-scale investigative operation. The
larger in scale the operation and the more numerous the lines of enquiry, the more numerous
one can expect to be the number of sites to be raided and searched. A growing number of sites
to be searched in turn calls for more extensive logistics and specialist support. What may have
started out as an arrest of a truck driver caught in the act of conveying a truck-load laden with
uncustomed prescription medication may quite well end with the execution of raids at
multiple manufacturing, storage, distribution, and office locations. Criminals being the
opportunists that they are, the authorities may quite well find various other forms of
contraband and/or uncover other illegal operations during the executions of those searches.

Searches and seizures are conducted with the view to secure evidence. In the case of revenue
investigations most of this will usually be documentary and electronic in nature. Most of this
will usually be seized at the taxpayer's home or place of business. Those searches are
conducted wherever evidence is likely to be found, regardless whether that locality was used
in the furtherance of the crime or not. Whereas for example the false accounting and fraud
may have been committed on the taxpayer's business premises, the relevant evidence sought
may quite well be kept on another site. In many instances, and this is common in the case of
many corporate and other large-scale frauds, the suspects and 'crime scenes' will often be in
multiple locations or even in multiple jurisdictions. Multiple searches will thus often be
conducted at multiple sites, often simultaneously.

With most revenue investigations, searches of likely 'crime scenes' will more often than not
only be conducted after some preliminary investigations, or often only at a time when the
investigation has already reached an advanced stage. In many instances there will be no
'crime-scene attendance' and in many instances investigations may be concluded without any
searches and seizures ever conducted. With many revenue frauds, the nature and mechanics of
those frauds, coupled with a often lengthy lapse of time between the time of commission (the
precise date and time of which may quite well be uncertain) and the commencement of the
investigation, will often make impossible, unrealistic, impractical, or quite well senseless any
attempts at identifying, isolating and combing those crime scenes. This may be for various
reasons e.g: (a) with the majority of revenue cases the identity of the offenders are seldom in
question or disputed; (b) the taxpayer will often not dispute any of the alleged acts or failures
but will often dispute the alleged illegality of his conduct or more often his knowledge and
mens rea; (c) with most revenue crimes there are paper-trails, and in many instances much of,
most of, or all of the evidence required to prove the crime can be gathered from what the
revenue and customs already had, and from third parties such as suppliers, customers, former
associates, banks etc; (d) records and documentation only need be retained for specified
periods of time and data kept by many organizations is often only retained for limited periods
of time; (e) businesses premises are moved, and businesses close down or are taken over; and
(f) the taxpayer, the offenders, and crime scenes will often be in foreign jurisdictions.

2.8.8 Production orders

In most countries are to be found legislation containing provisions under which various
categories of persons can be compelled to produce various types of documents and
materials.94 These are common in revenue, customs, insolvency, banking, money laundering,

94
In some jurisdictions certain agencies may also have the power to compel interviews. In Britain for example,
the Serious Fraud Office (SFO) may issue a notice under section 2 of the Criminal Justice Act 1987 requiring the
persons specified therein to produce certain records and documents believed to be relevant to a matter under
179 INVESTIGATION AND PROSECUTION

and police legislation. In some instances a senior functionary in a given agency may authorise
the demand, e.g. a commissioner of the national revenue or a delegated person, whereas in
other instances the demand will require judicial permission, thus a court order. The
circumstances under which these demands or orders may be applied for, the legislation under
which such demand or order will be authorized or applied for, the procedure for authorization,
those whom may be compelled to provide material, the types of material that may be covered
under such a demand or production order, the time-period and manner of production, the
consequences for those who fail to comply, and the limitations of use of the material so
produced, obviously depends on the legal framework of a given jurisdiction and the framing
of the legislation under which it is made. Most revenue and customs administrations, in the
course of both civil and criminal enquiries, place heavy reliance on demands for production
and production orders in securing material from taxpayers and other third parties such as
banks, accountants and tax practitioners. Provisions providing for the compulsion of
production, by the taxpayer and other third parties, are common in revenue and customs
legislation.95 The extent to which material can be demanded under those provisions as part of
a criminal enquiry will depend on a jurisdiction's legal framework.

In Britain, production orders sought with the view to secure 'special procedure material' in the
course of a criminal enquiry, will generally be obtained under Schedule 1 of the Police and
Criminal Evidence Act 1984. Under the Police and Criminal Evidence Act, application can be
made to a circuit judge for an order requiring a person with access to or in custody of certain
special procedure material to produce such material.96 There must be reasonable grounds for
believing that an indictable offence has been committed and that the material sought may be
required as evidence. The material sought will differ depending on the facts of the case: the
activities of the taxpayer, the nature of the suspected offences, and the nature of the operations
of the third parties the material is sought from. It will usually include things like bank
statements, opening mandates, client files, working papers related to that client, and
correspondence.

A production order may not be as intrusive and disruptive as a search, but it is still an order
authorizing the exercise of a very strong power. An application for such an order therefore
need be properly motivated and need be honest and complete. A judge will not grant such an
order unless satisfied that all the conditions for the granting thereof have been met. Such a

investigation. This may also involve interviews. The unreasonable failure to comply is an offence. Bar a number
of exceptions, the contents of such an interview will in most cases not be admissible as evidence against that
person at any subsequent criminal trial. Also see sections 5(5) and 38 of the Serious Crime Act 2007. Material
obtained under any process or arrangement whereunder a suspect is effectively being compelled to incriminate
himself will usually, in most liberal democracies, be excluded as evidence at a later criminal trial (relating to
those same activities in relation to which the incriminating statements were made). The inappropriate transfer or
use of such information is generally viewed as highly irregular and can have serious consequences for a
prosecution. See the Australian case of R v Seller and McCarthy [2012] NSWSC 934 where the appellants were
charged with conspiracy to influence the Commissioners of Taxation contrary to section 135.4(7) of the
Criminal Code 1995. The proceedings were however stayed after it came to light that: (a) an Australian Taxation
Office investigator involved in the later criminal enquiry also attended the earlier compulsory examinations
(examinations pursuant to section 28 of the Australian Crime Commission Act 2002) and read the transcripts of
those examinations whilst previously seconded to the Australian Crime Commission; and (b) there was indirect
and derivative use of compulsorily obtained material which would have been caught by the appellants' privilege
against self-incrimination.
95
For examples in the British legislation, see e.g. section 20 of the Taxes Management Act 1970 and paragraph 7
of Schedule 11 of the Value Added Tax Act 1994
96
Where such an order will be applied for under the Police and Criminal Evidence Act 1984, then the parties
from whom production will be sought will in advance be informed of the application. It is open to those parties
to attend and oppose the granting of such an order. In practice however this is something that seldom happens.
180 INVESTIGATION AND PROSECUTION

production order must specify the material to be produced. Needless to say, these orders are
anything but popular with those on whom they are served. On the latter there will often rest a
professional duty of client confidentiality, e.g. the confidentiality agreements that may exist
between bank and customer or tax advisor and taxpayer-client. Many may feel less than happy
with releasing the information sought, but they do not have a choice in the matter. Only
material falling within the scope of the order is to be provided. Those who provide material
outside the scope of that order may do so in breach of their duty of confidentiality (owed to
their client). Tipping the customer off of the fact that release of the information was ordered
will then usually also constitute an offence. Many may also experience irritation with the
disruptive effect of complying. Even where the material sought is accurately identified and
adequately narrowed down, deciding what falls within or outside the scope of the order may
be difficult. Tracing the material in question and getting it all together can be a slow laborious
process. The material sought will often cover financial and other information spanning many
years, often relating to individuals or entities whom may no longer be clients. There will then
also be deadlines for the production thereof. This can all be time-consuming and is generally
experienced by most as a disruptive and costly distraction.

Production orders obviously pose a degree of risk compared to searches as one or more of
those third parties from whom the information is sought may potentially: (a) alert the
suspects; and/or (b) destroy or remove the material or parts of the material. This is certainly a
risk where that third party was himself a participant or accomplice to the offences under
investigation, or where he may fear the detection of other offences related thereto and in the
commission of which he may have participated e.g. bribery or money laundering. Where an
application for a production order will pose serious risk for an investigation, the authorities
will usually opt for a search warrant.97 Word of subpoenas or productions orders having been
served will very often reach the suspects before the ink has dried. It is a very overt step in any
enquiry and the loss of surprise must be assumed from that point onwards. Applying for and
serving same must thus be seen as a key step in any investigation, to be thoroughly planned
for and taken into account in the intelligence and investigation plans.

2.8.9 Search warrants

Revenue enquiries into a taxpayer’s affairs may be a drawn-out affair often involving in-depth
financial audits, inspections, and the verification of information obtained from the taxpayer’s
clients, suppliers, banks, agents, accountants etc. It can thus only be expected for many a
dishonest taxpayer, fearing the possibility of being caught out and/or facing criminal
prosecution, to attempt to remove and/or destroy records and books of account in an attempt
to subvert an investigation. It is common for Revenue inspectors to find irregularities, often
suspected instances of fraud, but with the taxpayer unable to make available his financial
records and books off account. In many instances it may well be a case of the taxpayer never
having kept same to start with. This is quite common. There are however many instances
where these are removed and concealed, or otherwise destroyed with the view to subvert the
course of an enquiry. Common excuses offered are e.g. that the records were destroyed in a
fire or of it being in his vehicle at the time when the vehicle was stolen. 98 Needless to say, the
destruction or removal of evidence can seriously compromise an enquiry. Revenue
administrations thus place considerable reliance on searches and seizures as a means to secure
evidence that may assist in determining the taxpayer’s tax liability.

97
Under Schedule 1 of the Police and Criminal Evidence Act 1984
98
See e.g. the Canadian case of R v Ross [1998] 3 CTC 159 where the taxpayer’s records were allegedly
destroyed in a fire. Arson committed in an attempt to destroy evidence or the filing of false complaints with the
Police is not at all uncommon. Actions of this nature will in itself constitute criminal conduct that may be
charged as other common-law or statutory offences.
181 INVESTIGATION AND PROSECUTION

The Commissioners in most jurisdictions have powers of search and seizure that can be
described as extensive. Those searches may be conducted with the view to secure evidence
that may assist in determining the taxpayer’s tax liability, to secure illicit goods dealt with
contrary to the customs legislation, or with the view to secure evidence of criminal activity.
Although evidence secured during Revenue searches and seizures, executed under the
provisions of domestic revenue and customs legislation, may (depending on a given
jurisdiction's legal framework and depending on the facts of the case) be admitted as evidence
at a criminal trial, searches and seizures carried out with the objective of securing evidence
with the view to criminal prosecution, more often than not tend to be executed under general
statutes dealing with criminal procedure and evidence. These will usually be executed under
cover of search warrants. A search warrant is in essence a court order authorizing the search
of persons, vehicles, boats, aircraft, or premises.

In England and Wales, HM Revenue and Customs has strong powers of search and seizure
under section 20C of the Taxes Management Act 1970, section 10 of Schedule II of the Value
Added Tax Act 1994, and section 118C of the Customs and Excise Management Act 1979.
Most searches executed with the view to criminal prosecution are however conducted under
section 8 and Schedule 1 of the Police and Criminal Evidence Act 1984.99 The Police and
Criminal Evidence Act (PACE) deals with a wide range of matters such as but not limited to:
the authorization and execution of search warrants,100 entry and search without warrants,101
seizures;102 arrest;103 bail;104 search of persons;105 detention;106 questioning and treatment of
persons by the police;107 and various aspects relating to confessions and evidence.108 Section 8
of the Act allows for a search warrant to be issued by a magistrate for evidence of the
commission of a serious arrestable offence. The warrant so issued in essence authorise the
officers therein identified, to enter the premises as identified in that warrant and to search for
evidence or material relating to the facilitation of the offences under investigation. This may
typically include things like: accounting, financial, and banking records; telephone records
and records of other electronic communication; diaries; compliance records; reports; business
records and commercial documents, correspondence; mobile phones, computers, satellite
navigation devices, electronic storage devices, camera and CCTV recordings; and any other
material or items which may appear relevant in relation to the offences under investigation.109

99
The Treasury has the authority (under the Finance Act 2007) to make orders relating to the application of the
Police and Criminal Evidence Act 1984 (or parts thereof) to investigations conducted by HM Revenue and
Customs. In 2007, the powers to conduct searches under section 8 of the Police and Criminal Evidence Act 1984
was extended to all the HMRC functions (under the Police and Criminal Evidence Act 1984 (Application to
Revenue and Customs) Order 2007 (SI 2007/3175))
100
Sections 8-16
101
Sections 17-18
102
Sections 19-22
103
Section 24 and 24A
104
Sections 30A-30D, 37C-37D, 47
105
Section 32, 54
106
Sections 34-52
107
Part V
108
Part VII and VII
109
It is however to be noted that cases may arise where items not related to the offences under investigation may
well be found and seized, items which may well become the subject of other investigations and additional
charges. Consider the following example: A warrant (applied for with the view to search for and seize evidence
relating to a fraud), is executed at a trader's residence. The investigators are accompanied by police officers.
During the search the investigators find a suitcase filled with cocaine and an illegal firearm in the trader's safe. In
most jurisdictions, and this is certainly the case in England, those items will be seized and the trader will also be
charged with the possession of those items. Or it may quite well happen that the trader's computer (seized during
the raid), is during subsequent forensic analysis at the police forensic laboratory found to contain a large amount
182 INVESTIGATION AND PROSECUTION

The requirements which have to be met for the issue of a search warrant under PACE are
numerous and onerous. Applications for search warrants under PACE are done ex parte. The
application must be supported by a written 'information'.110 The latter must set out the basis of
the application. A record of the proceedings is to be kept. Any breach of those rules will result
in the warrant being legally defective. Any search carried out under cover of a legally void
warrant will be unlawful. The bona fides of the officers executing the warrant and the
professionalism with which the search is carried out does nothing to rectify or correct what
was legally flawed from the start. The search will be unlawful.

Search warrants are viewed as a draconian power and as a serious interference with a subject's
right to a private life.111 The courts have in the past underlined the following basic but
nevertheless important principles relating to the application and granting of search
warrants:112

of child-pornography. The fact that these items were coincidentally found during a search conducted in the
course of another enquiry, by no means suggest the police is to turn a blind eye.
110
Section 15(3) of the Police and Criminal Evidence Act 1984
111
See R (Faisaltex) v Chief Constable of Lancashire Constabulary [2008] EWHC 2832 (Admin). Also see
Williams v Summerfield [1972] 1 QB 512 where Lord Widgery CJ inter alia said: " … the issue of a search
warrant is a very serious interference with the liberty of the subject, and a step which would only be taken after
the most mature careful consideration of all the facts of the case.”
112
See R (on the application of Mills & Anor) v Sussex Police & Anor [2014] EWHC 2523 (Admin) where Lord
Justice Elias inter alia said: "The legal principles relating to the grant of warrants are not disputed and, insofar as
they are material to this application, they can be summarised as follows: i) The courts have frequently
emphasised that search warrants confer a "draconian power" … ii) Given that the warrant permits the
interference with private property and is obtained ex parte, it is incumbent on the applicant to make full and
frank disclosure to the court and to ensure in particular that any material which is potentially adverse to the
application is brought to the attention of the judge … iii) This obligation of full and frank disclosure necessarily
includes a duty not to mislead the judge in any material way … iv) The power to grant the warrant is conferred
on a judge. He or she must bring a "rigorous and critical analysis" to the application and satisfy himself or
herself that the material provided justifies the grant of the warrant … v) The judge ought to give reasons for his
decision. They need not be elaborate but they ought to be sufficient to enable the subject of the warrant to
understand why the judge was satisfied that the evidence justified issuing it … vi) The application must be made
in good faith and it must be for a purpose for which the power is granted." Also see Gittins v Central Criminal
Court [2011] EWHC 131 (Admin) where Lord Justice Gross inter alia said: "It is unnecessary to trawl through
the authorities to make the following observations: 1) A search warrant is intrusive and capable of causing grave
reputational and other damage. As has been said, it must never be regarded as routine … In this regard it may be
said that there are some similarities between a search warrant and Mareva, Anton Piller and Restraint Orders. 2)
When an application for judicial review is launched seeking to quash the grant of a search warrant, it is, again, in
some respects, akin to the "return date" for Mareva's, Anthony Piller's and Restraint Order's. Ordinarily, the
expectation will be that the party challenging the grant of the warrant must be entitled to know the basis upon
which the warrant was obtained. 3) By their nature, criminal investigations are such that there will be occasions
when, for good reason, HMRC (or other authorities as the case may be) will not be able to divulge the full
information or the full contents of the discussion before the judge who granted the warrant. There is an important
public interest in combating economic crime, and HMRC's proper efforts to do so should not be undermined. 4)
But, as it seems to me, HMRC should be in a position to justify that stance by reference to the facts of the
individual case. No general policy would, in my judgment, suffice to do so unless such "non-disclosure" is
warranted by the facts of the individual case. The norm should not be that while a criminal investigation is
continuing HMRC will not disclose the basis upon which the warrant was granted. In saying this, I do not see
any conflict with the observations of this court in Whiston-Dew, unreported [2009] EWHC 3761 (Admin),
which, to my mind, goes no further than emphasising the need for a fact sensitive consideration of the
circumstances of the individual case. If Whiston-Dew goes further than that, then I would respectfully be
unwilling to follow it. I repeat, if there is to be non-disclosure of the basis upon which the warrant was obtained,
it must be justified by the facts of the individual case. 5) Where full disclosure cannot be given (and there will be
cases where it cannot be), HMRC should, if at all possible, and again unless there is good reason for not doing
so, make available, and in a timely fashion, a redacted copy or at least a note or summary of the information and
the hearing before the judge, where appropriate, backed by an affidavit."
183 INVESTIGATION AND PROSECUTION

(a) applications for warrants must be made in good faith;

(b) warrants must be for a purpose for which it was applied for and granted;
(c) the applicant must make full and frank disclosure when applying for the warrant,
including disclosure of material which may be potentially adverse to the
application;113
(d) warrants are only to be granted where the granting thereof is justified;
(e) the reasons for the granting of a warrants must be sufficient so as to enable the subject
of the warrant to understand why the judge was satisfied that the evidence justified
issuing of same.

All evidence-gathering operations, and this includes searches and the seizures of material,
must be executed in a manner which is consistent with those fundamental rights and
protections relating to privacy as entrenched under the European Convention on Human
Rights (ECHR), the Human Rights Act 1998, the Canadian Charter of Rights and Freedoms,
and the US Constitution. In Europe, breaches of Article 8 of the ECHR are not only viewed in
a serious light, but may also seriously prejudice the outcome of an enquiry. Serious breaches
in how search warrants were applied for, granted, or executed can, depending on the facts of
the case and the legal framework of the jurisdiction in question, leave the evidence obtained
under those warrants, or parts thereof, so tainted as to leave it inadmissible at subsequent
criminal proceedings.

Warrants authorizing access to and the gathering of information and evidence can cover more
than just buildings and places. Evidence is no longer only stored, kept, or hidden away, as
documents or other things, in offices, safe-houses, secret compartments in vehicles, or safes,
but are now also to be found in electronic format, sometimes hidden, sometimes encrypted.
No longer is a dead-letter drop just a secret location where there is to be found an envelope
with sensitive information or codes. Communication between co-conspirators can be by
various mediums and they can employ a wide range of countermeasures in an attempt to
prevent access to, or thwart the tracing or monitoring of that communication. In short, the
gathering and collection of information and evidence in the modern world, calls for
intelligence and investigative trade-craft more sophisticated than just rummaging through
closets, attics, and boats. Intelligence gathering and criminal investigations in the modern era,
calls for the gaining of access to, the securing of, and/or the monitoring of data and
information that may well be held on an electronic device, a remote server, or by a service
provider such as a telecoms company or internet provider.

Searches will usually be conducted simultaneously at all those locations linked with the
taxpayer and where evidence is likely to be found. This may typically be the taxpayer's
residence, offices, warehouses or the offices of his accountants. Each premises targeted for a
search need be covered by a valid warrant. Neither the search, nor the material seized during
such a search, may go beyond what is covered under the warrant. 114 Searches are usually

113
R (Energy Financing Team) v Bow Street Magistrates’ Court [2006] 1 WLR 1317
114
Not seizing material falling outside the scope of the warrant may seem straightforward, but for those
executing the warrant at that time and place when executed this may not always be that simple or
straightforward. The main problem lies in the problem of identification. With many investigations, at the time
when the warrants are executed, many facts or circumstances may still be unknown or uncertain e.g. the
extend and precise nature of the criminal activity, related activities that facilitated the crimes, activities
associated with the laundering of the proceeds, the identities of all those who participated in or assisted with the
commission of the offences, the identities of all those resident and/or operating from the targeted premises, and
the nature and extent of all the activities engaged in at the target-premises. In many instances it may well be
184 INVESTIGATION AND PROSECUTION

executed simultaneously so as maintain the element of surprise and to prevent the risk of
removal and/or destruction of evidence. Different search-teams dedicated to the different sites
will thus usually be in place to move in once the signal is given. The success of any search
very much depends on in-time accurate intelligence. Getting it wrong can seriously prejudice
an investigation. Not only will a search at a premises other than the one (s) where the
evidence is in fact to be found deliver little or no evidence, but may quite well also alert
suspects and offer them the opportunity to remove and/or destroy whatever evidence is to be
found from wherever same is to be found.

Searches are usually conducted by teams of investigators searching all those premises,
vessels, and aircraft as listed on the search warrants. As a general rule they would have been
briefed in advance as to the nature and reasons for the search, the premises covered by the
warrants, the role and responsibilities of every member of the search team in relation to the
search, the items and evidence being sought, and the items covered by the warrants. The
search itself involves the securing of the premises, vessel, or aircraft, searching for and the
sealing of evidence, the placing thereof on inventory, recording of the scene and the things
seized, and doing so ensuring the chain of custody and integrity of the evidence is maintained.

During the course of an investigation, investigators will often gather evidence pointing to
other locations where evidence may be found. It is quite common for investigators to find
such evidence pointing them to such other locations during the execution of a search. In other
instances search warrants executed in relation to one suspect or one particular offence, may
unearth evidence of a wider network of criminality. What may thus well have started out as
one limited investigation in regards to the activities of one individual may very rapidly fan out
into numerous other investigations into the activities of numerous other individuals. This then
is often the case where the person under investigation is a key figure in a criminal network, a
crooked tax planner or advisor conspiring with numerous crooked clients, or a corrupt
revenue officer in whose possession is found records pertaining to his corrupt dealings with
numerous other corrupt individuals. The execution of one search will thus often be followed
with applications for more search warrants relating to other activities, and/or other
individuals, and/or other locations.

Raids of premises, aircraft, and vessels are of course not always only executed with the view
to secure evidence. It may, depending on the facts of the case, well be the only or main
reason, but they may also be executed with the view to identify and arrest offenders, and/or
with the view to seize material and goods posing a public safety or security risk. This is
especially so where dealing with smuggling operations, VAT scams, and missing trader
frauds where the identities of offenders may be unknown and with illegal operations often
carried out or managed from premises held under false names or in the names of persons
unknown. The nature of the criminal operations in question and the profiles and modus
operandi of the offenders in question will often demand them being tracked down and their
immediate arrest and detention. Many of these gangs operate as organised criminal networks
with a high probability of firearms, narcotics, restricted chemicals and other hazardous
materials being manufactured, held, or distributed from those premises. With many of these
crimes the identification and arrest of the ringleaders may be difficult. Customs and police
officers do often interdict prohibited, restricted and counterfeit goods, but often without any
success in identifying those behind the manufacture or importation thereof.

impossible, within the limited time available and under the circumstances, to identify the nature, ownership, or
significance of certain documents or things.
185 INVESTIGATION AND PROSECUTION

A defendant taxpayer has the right to defend himself against any civil claims or criminal
charges brought against him. In most cases he or his legal counsel will request the return,
access to, or copies of documentation or data seized. The return thereof being out of the
question where those same documents may be relied on as exhibits for the prosecution, the
standard response will usually be the making available for inspection of the items seized and
the making available of copies of the documentation and data seized.

This discussion just dealt with searches under cover of a warrant. There are however
circumstances, allowed for under the legal frameworks of most jurisdictions, where premises
may also be entered and searches may also be executed without a warrant. In England for
example, the Police and Evidence Criminal Evidence Act 1984 provides for strong powers
allowing for the entry and search of premises connected with an arrested person.115 This is
also relevant within the revenue and customs context. Assume for a moment a member of the
London Metropolitan Police arrest a person for drunk driving. Further assume the officer
searches his vehicle and in it he discovers a large quantity of imported steroids and cash. That
in itself is sufficient probable cause to believe the individual concerned to be dealing in
contraband and to be handling the proceeds of crime. A search executed at his residence may
then well result in the discovery of more material and things relevant for the revenue and
customs e.g. large quantities of uncustomed dutiable goods and more cash. The proceeds of
crime we must remember is also taxable in Britain.

2.8.10 Arrest
Many a taxpayer who finds himself the subject of a criminal enquiry will get pre-warning of
the revenue 'snooping around', usually from those who had been approached or questioned by
the investigators in the course of their enquiry, or from those whom have been served with
production orders.116 This will usually be those who may have information or evidence
relating to the taxpayer's activities or affairs i.e. customers, suppliers, banks, accountants,
employees, family etc. Many an offending taxpayer will also early on in an enquiry appreciate
that his affairs may be heading towards prosecution. This will usually be where he receives a
visit from revenue or customs inspectors introducing themselves as criminal investigators, or
from police or 'tax police' in those jurisdictions where revenue and customs fraud also falls
under police jurisdiction. It is however not at all uncommon for the subject of a criminal
enquiry to be wholly oblivious of the fact that he is being investigated until the day of his
arrest, or when first informed of that fact at an interview under caution, or when abruptly
woken up during a 'dawn raid'. In most instances however, it will be a visit by criminal
investigators and the seizure of evidence that will alert most of them to a criminal enquiry.
Criminal investigators do not visit, question, or make enquiries in relation to matters of
general compliance or enforcement. Their presence strongly suggests someone to be
suspected of fraud, if not the taxpayer, then someone with whom the taxpayer had some
previous connection or dealings.117 Their visits and enquiries can be assumed to be for no
other purpose but to gather information and evidence. Most taxpayers however will not be
able to distinguish between the line revenue officer and the revenue criminal investigator in
the absence of verification of credentials or the investigator introducing him as such. In terms

115
Refer sections 17, 18, 19 and 32 of the Police and Criminal Evidence Act 1984
116
In most jurisdictions those subject to such a production order will commit an offence where they alert or warn
the suspects.
117
Criminal investigators spend a significant part of their time gathering information, verifying facts, testing
information, identifying potential witnesses, and taking down witness statements. This obviously means they
will often approach past and current suppliers, customers, employers, business associates, etc. Most of those
people are however also taxpayers. It is not uncommon for many of those individuals to get nervous or even to
panic when approached and questioned by criminal investigators - believing themselves to be under suspicion.
186 INVESTIGATION AND PROSECUTION

of appearance there is nothing to distinguish the line revenue officer from the revenue
criminal investigator.

In the United States, Canada, Australia and Britain, not even a fraction of evading taxpayers
will ever find themselves the subject of a criminal investigation. This being said, the
conviction rates are high. For most tax evaders, a revenue officer or police officer arriving at
his office with a warrant for his arrest should thus spell serious problems indeed.118 Firstly,
and most importantly, the warrant places it beyond doubt that the authorities have decided to
engage him in the criminal courts. He is no longer just a taxpayer. He is now also a suspect in
a criminal matter.119 Furthermore, there is a very good probability of the State's case being a
strong one. Whereas with many crimes an arrest will often signal the start of an investigation,
with most tax frauds, and many other commercial crimes for that matter, an arrest will more
often than not follow at a time when the investigation is quite advanced or near completion.
An arrest will often signal the presence of a strong government case that may well have been
ongoing for a very long time. Contrast this against many of the arrests executed during or
immediately after many of the incidents police officers respond to on a daily basis i.e. assault,
robbery, possession of prohibited items, theft etc. The investigation, the identification of
witnesses, the taking down of statements, forensic analysis, the recovery of CCTV etc. will
often only follow after the arrest. This is not to say that many revenue-related cases may not
also start with an early arrest. There may be instances where the prompt taking into custody of
suspected offenders will be the appropriate course of action. This then will often be the case
in smuggling cases, or cases involving organised crime networks. The identities of those
offenders may be unknown, they may pose a serious flight risk, there may be a serious risk of
them destroying evidence, or there may be a risk of them committing other crimes if not
apprehended. This is in fact quite common within the customs context. Consider the scenario
where police officers X and Y patrolling their local rural area notice freight being transferred
from a truck onto a van late at night in an area where such activity seems wholly out of place.
Upon inspection they discover the truck's cargo to be described as vegetables moved in bond
from country A to country B, covered by a transit document stating the same, but the truck in
fact being laden with alcohol originating in country A but some of it now being transferred
onto a another vehicle in country C. Suspecting a diversion of uncustomed goods to be afoot
they detain the drivers and their vehicles. After searching the vehicle they discover a set of
duplicate seals the numbers of which mirror the ones that were on the trailer but which had
been cut. The goods have been misdescribed, the trailer's seals had been cut before reaching
the point of discharge, the transit document was not duly discharged, and the dutiable goods is
unlawfully being transferred onto another vehicle in country C as opposed to country B. With
more than sufficient probable cause they arrest the drivers. In this scenario the investigation
and the building of the State's case will also only start following the arrest.

In law the deprivation of a person's liberty is no trivial matter. In Britain and the European
Union the right to liberty is a fundamental right protected under Article 5 of the European
Convention on Human Rights (ECHR) and the Human Right Act 1998. Article 5 of the ECHR
reads as follows:

“Article 5 – Right to liberty and security

118
In most Western jurisdictions today, where there is an arrest in a revenue-related matter, it will almost always
be executed under authority of a warrant. In the customs context however the majority of arrests are executed as
and when smugglers and their cargo are interdicted.
119
The taxpayer's entering of the criminal justice system does not however in any way absolve him from his
duties and responsibilities as taxpayer, and from honouring his tax liabilities, past, present or future.
187 INVESTIGATION AND PROSECUTION

1. Everyone has the right to liberty and security of person. No one shall be deprived of his liberty
save in the following cases and in accordance with a procedure prescribed by law:
(a) the lawful detention of a person after conviction by a competent court;
(b) the lawful arrest or detention of a person for non-compliance with the lawful order of a court
or in order to secure the fulfilment of any obligation prescribed by law;
(c) the lawful arrest or detention of a person effected for the purpose of bringing him before the
competent legal authority on reasonable suspicion of having committed an offence or when it
is reasonably considered necessary to prevent his committing an offence or fleeing after
having done so;
(d) the detention of a minor by lawful order for the purpose of educational supervision or his
lawful detention for the purpose of bringing him before the competent legal authority;
(e) the lawful detention of persons for the prevention of the spreading of infectious diseases, of
persons of unsound mind, alcoholics or drug addicts or vagrants;
(f) the lawful arrest or detention of a person to prevent his effecting an unauthorised entry into the
country or of a person against whom action is being taken with a view to deportation or
extradition.
2. Everyone who is arrested shall be informed promptly, in a language which he understands, of
the reasons for his arrest and of any charge against him.
3. Everyone arrested or detained in accordance with the provisions of paragraph 1.c of this article
shall be brought promptly before a judge or other officer authorised by law to exercise judicial
power and shall be entitled to trial within a reasonable time or to release pending trial. Release
may be conditioned by guarantees to appear for trial.
4. Everyone who is deprived of his liberty by arrest or detention shall be entitled to take
proceedings by which the lawfulness of his detention shall be decided speedily by a court and his
release ordered if the detention is not lawful.
5. Everyone who has been the victim of arrest or detention in contravention of the provisions of
this article shall have an enforceable right to compensation.”

In most parts of the common law world, and in the European Union, unlawful arrest has long
been viewed as a serious breach of any citizen's most basic rights.120 Habeas Corpus121 has
been a cornerstone of English law for centuries, a principle later carried over to the colonies.
The right to liberty is however not absolute and may be limited where the interests of society
call for limitation. The lawful arrest of a person for the purpose of bringing him before a court
on reasonable suspicion of having committed an offence is considered to be such a fair
limitation.122 An arrest is in essence the act of depriving a person, by lawful authority, of
his/her liberty with the view to prevent the commission of a crime, or with the view to ensure

120
Also see Article 9 of the Universal Declaration of Human Rights (UDHR) (United Nations General
Assembly, 1948) which states: "Article 9 - No one shall be subjected to arbitrary arrest, detention or exile."
121
Black. A Law Dictionary 2nd ed. at 554 provides for the following basic definition of habeas corpus:
"HABEAS CORPUS.Lat. (You have the body.) The name given to a variety of writs, (of which these were
anciently the emphatic words,) having for their object to bring a party before a court or judge. In common usage,
and whenever these words are used alone, they are understood to mean the habeas corpus ad subjiciendum … -
Habeas corpus act. The English state of 31 Car. II. C. 2, is the original and prominent habeas corpus act. It was
amended and supplemented by St. 56 Geo. III. C. 100… This act is justly regarded as the great constitutional
guaranty of personal liberty. … Habeas corpus ad subjiciendum. A writ directed to the person detaining another,
and commanding him to produce the body of the prisoner, (or person detained) with the day and cause of his
caption and detention, ad faciendum, subjiciendum et recipiendum, to do, submit to, and receive whatsoever the
judge or court awarding the writ shall consider in that behalf ... This is the well-known remedy for the
deliverance from illegal confinement, called by Sir William Blackstone the most celebrated writ in the English
law, and the great an efficacious writ in all manner of illegal confinement."
122
See article 5.1 of the European Convention on Human Rights and Fundamental Freedoms (and as enacted in
the UK under the Human rights Act 1998) which inter alia reads: "Everyone has the right to liberty and security
of person. No one shall be deprived of his liberty save in the following cases and in accordance with a procedure
prescribed by law... (c) the lawful arrest or detention of a person effected for the purpose of bringing him before
the competent legal authority on reasonable suspicion of having committed an offence or when it is reasonably
considered necessary to prevent his committing an offence or fleeing after having done so..."
188 INVESTIGATION AND PROSECUTION

a person suspected of or charged with an offence is brought before a court.123 Arrest may
however also prove valuable to law enforcement for other reasons. The arresting of suspects
has historically been used as a means to secure the attendance of suspects for interrogation.
With an arrest may sometimes, depending on the legal framework of the jurisdiction in
question, also come strong powers allowing for the entry and search of premises connected
with the arrested person.124 There must be lawful authority for the execution of an arrest. The
person making the arrest must have the power to do so and the arrest must be in accordance
with the law. There must be reasonable grounds justifying the arrest. The legal frameworks of
most common law jurisdictions, England and Wales, Canada, the United States, and Australia
being examples in point, provide for arrest with or without a warrant. 125 Where an arrest is
authorised by warrant, such a warrant must clearly specify the person to be arrested and the
offence for which he is to be arrested.126 The right to be informed of the reason for the arrest
also applies to arrests without a warrant.127 In most jurisdictions the police are generally
permitted to enter private premises in order to make arrests,128 and to use such force as is
reasonable in the circumstances.

Revenue and customs officer's powers of arrest and detention are a matter of law and vary
from jurisdiction to jurisdiction. In some jurisdictions certain categories of officers do have
those powers, whereas others do not. This is the case in Britain where only certain officers
over certain grades and from certain sections have those powers. In some jurisdictions
revenue officers have no powers of arrest with all arrests conducted by the police. In some
jurisdictions certain officers may have powers of arrest but no powers to charge or release on

123
More than a century past, Black. A Law Dictionary 2nd ed. at .88 defined arrest as: "Arrest. In criminal
practice. The stopping, seizing, or apprehending a person by lawful authority … the restraining of the liberty of a
man's person in order to compel obedience to the order of a court of justice, or to prevent the commission of a
crime, or to insure that a person charged or suspected of a crime may be forthcoming to answer it. French v.
Bancroft, 1 Metc. (Mass.) 502; Emery v. Chesley, 18 N. H.201"
124
In England and Wales for example, sections 17, 18, 19 and 32 of the Police and Criminal Evidence Act 1984
makes available a wide range of powers allowing for the entry and search of various premises, without a warrant,
connected with suspects arrested of indictable offences. The search of premises connected with an arrested
suspect is common in the Customs context. Assume Customs or the Police search a vehicle and find it to be
laden with a large quantity of illicit goods, then a prompt search of premises associated with that person and the
vehicle will be justified and will usually be executed. This situation however seldom presents in most tax fraud
cases where arrest will almost always only follow subsequent to searches under warrant, often at a much later
stage in the investigation. With most tax fraud investigations there will usually be sufficient evidence and time to
justify, obtain and execute search warrants.
125
In England and Wales section 24 of the Police and Criminal Evidence Act 1984 provides for arrest without
warrant for arrestable offences. Section 24(2)(a) explicitly provides for "(a) offences for which a person may be
arrested under the customs and excise Acts, as defined in section 1(1) of the Customs and Excise Management
Act 1979" to be such arrestable offences. It is to be noted that in many countries, various revenue statutes also
confer powers of arrest on various categories of persons allowing for the arrest without warrant of persons
suspected of certain offences. In Britain for example, see section 138 of the Customs and Excise Management
Act 1979, section 72(9) of the Value Added Tax Act 1994, and section 33 of the Commissioners for Revenue and
Customs Act 2005
126
In England and Wales warrants of arrest are issued under section 1 of the Magistrates Courts Act 1980.
127
See Christie and another v Leachinsky and another [1947] AC 573 where Lord Simonds inter alia said: "...
the law requires that, where arrest proceeds upon a warrant, the warrant should state the charge upon which the
arrest is made. I can see no valid reason why this safeguard for the subject should not equally be his when the
arrest is made without a warrant. The exigency of the situation, which justifies or demands arrest without a
warrant, cannot as it appears to me, justify or demand either a refusal to state the reason of arrest or a
misstatement of the reason. Arrested with or without a warrant the subject is entitled to know why he is deprived
of his freedom, if only in order that he may, without a moment's delay, take such steps as will enable him to
regain it." In England and Wales section 28 of the Police and Criminal Evidence Act 1984 explicitly states the
requirement of an arrested person being informed (a) of the fact that he is under arrest (as soon as is practicable
after the arrest); and (b) the grounds for the arrest (at the time of or as soon as is practicable after the arrest). .
128
In England and Wales under section 17 of the Police and Criminal Evidence Act 1984.
189 INVESTIGATION AND PROSECUTION

bail.129 In those jurisdictions where revenue or customs officers do have powers of arrest, the
taxpayer will usually be handed over to the police to process, charge, detain and bail the
arrested person.130 This tends to be the common practice in the United States, Britain, Canada
and Australia. Most revenue and customs administrations do not have the authority, and/or
capacity, and/or desire to deal with the processing, care of, remand, and bailing of suspects.
Where revenue or customs officers do have arresting powers, those powers always tend to be
limited to revenue and customs offences. They do not have the general powers of arrest of
police officers. This then is also the case in Britain. The legal frameworks of most common
law countries also provide for 'citizen's arrest' allowing for a member of the public to arrest
another person in certain situations.131 This situation however is highly unlikely to present
itself in the revenue context.

Revenue administrations tend to be very much averse to negative publicity suggesting things
like revenue corruption, malicious prosecutions, or unlawful arrests. The fact that a person
was unlawfully arrested does not mean he was not arrested.132 The fact that he was unlawfully
deprived of his liberty is one which cannot be undone. An unlawful arrest may not only reflect
negatively on those who executed the arrest, but may, depending on the facts of the case and
the legal framework of the jurisdiction in question, also be a cause of action against those who
executed that unlawful arrest.133 For many taxpayers, the deprivation of liberty will often be
just one of the consequences of arrest. For many taxpayers, notably many businessmen and
professionals like accountants and lawyers, the negative press coverage can be severely
prejudicial in terms of reputation.134 It may be years before an arrested taxpayer is cleared of
wrongdoing, often without his acquittal receiving the same press coverage as compared to his
arrest. In the court of public opinion, the stain of his arrest may follow him for years. Most
modern revenue administrations go to great lengths to build a favourable image and to foster
rapport with the media, professional bodies, the business community and taxpayers. Ten
successful prosecutions with the publicity benefit to be derived from those convictions cannot
undo the potential negative impact of one widely reported case of unlawful arrest. Revenue
matters referred for consideration for prosecution, and the issue of warrants for the arrest of
suspected tax offenders tend to be considered and reconsidered with care.

129
In Britain, Revenue and Customs officers do have powers to conduct searches and powers of arrest under the
Police and Criminal Evidence Act 1984 (granted under the Police and Criminal Evidence Act 1984 (Application
to Revenue and Customs) Order 2007), but not the powers to charge or bail suspects.
130
Such a person will be considered to be in 'Revenue and Customs detention' for as long as he is detained in the
charge of a Revenue or Customs officer. See section 2 of the Police and Criminal Evidence Act 1984
(Application to Revenue and Customs) Order 2015: "(2) A person is in Revenue and Customs detention for the
purpose of this Order if - (a) he has been taken to an office of Revenue and Customs after being arrested for an
offence; or (b) he is arrested at an office of Revenue and Customs after attending voluntarily at the office or
accompanying an officer of Revenue and Customs to it, and is detained there or detained elsewhere in the charge
of an officer of Revenue and Customs." Revenue and Customs will owe that person a duty of care for as long as
he is in their charge.
131
In England and Wales this is provided for under section 24 of the Police and Criminal Evidence Act 1984.
132
See Spicer v Holt [1977] AC 987 where Lord Dilhorn inter alia said: "Whether or not a person has been
arrested depends not on the legality of the arrest but on whether he has been deprived of his liberty to go where
he pleases"
133
Apart from damages for unlawful arrest, an unlawful arrest may potentially also taint the integrity of
confessions or evidence which followed from that arrest.
134
It is to be noted that media coverage of arrests and trials may often also have another, often overlooked,
consequence for defendants: members of the public, known or unknown to the defendant, contacting the
Revenue and volunteering information. Many defendants have crossed swords with family members, former
spouses, former employees or partners, or former customers. Press coverage may potentially wake sleeping dogs.
The information so volunteered may relate to the complaints under investigation, or may quite well relate to
other matters the Revenue may not be aware of. Some of those individuals may well also end up testifying
against the defendant.
190 INVESTIGATION AND PROSECUTION

The legal frameworks of most jurisdictions provide for detention without arrest, detention
after arrest but before charge, and detention after charge. The circumstances under which a
person may be detained, the duration of such detention, and the rights of the person so
detained differs from jurisdiction to jurisdiction. The purpose of such detention may also
differ. In some instances it may be to prevent a person from harming himself or others, or it
may be to provide the authorities with the time to investigate a matter and to formulate
charges, or it may be intended to assist law enforcement to verify certain facts, or to assist
with the gathering of information and evidence.135 In most liberal democracies today,
detention without arrest is limited to very specific circumstances but seldom feature in
revenue cases. Such detention is however quite common in the customs environment.
Consider the following example: A traveller lands at an airport and after passing through the
green channel is stopped and questioned by a customs officer. Swab tests indicate strong
markers of cocaine on the traveller's luggage. This coupled with erratic behaviour and
inconsistencies in the traveller's answers raise suspicions of the traveller possibly carrying
narcotics. In most jurisdictions, in those circumstances, the passenger will be detained for
more meticulous searching, body searches, x-rays, and verification. The outcome of those
checks may be positive or negative. Assume the passenger is found to have swallowed a
number of bags of cocaine which he attempted to smuggle in, then he will be arrested.
Assume he is found to be 'clean', then he will be free to go. This type of detention is no more
but a measure necessary to enable the officers to carry out those checks they are expected to
carry out so as to effectively enforce the law. The intention behind his detention is also no
more but to hold him pending the outcome of those checks.

2.8.11 Interviews and cautions

In Britain an arrested person will be cautioned once arrested or as soon as is practically
possible under the circumstances. This then is also the general position in the United States,
Canada and Australia. A caution may, depending on the legal framework of the jurisdiction in
question, also be administered before arrest. In England and Wales the caution can be
administered where there are reasonable grounds for suspecting that a criminal offence has
been committed. In the revenue context in particular (in Britain), arrest without prior
interview and caution tends to be the exception. For most British tax offenders the road to
being arrested and formally charged usually starts with an interview under caution. The
caution includes informing the person in question of his right to remain silent. The current
caution as used in England and Wales reads:136

"You do not have to say anything, but it may harm your defence if you do not mention when
questioned something which you later rely on in court. Anything you do say may be given in
evidence."

It should be noted that under this caution, the arrested person's right to silence is in fact
qualified. A court may in certain instances draw an adverse inference from the arrested
person's silence. This stands in contrast to the 'Miranda' caution commonly used in the United
States which reads:137

135
In most liberal democracies today there are strict limitations on the period a person many be held for post-
arrest before he must be charged or released. In England and Wales for example this period is 24 hours. That
period can however be extended (on application by the police) to up to 36 hours, 96 hours and 2 weeks in the
case of certain serious crimes.
136
As prescribed in paragraph 10.5 of Code C of the codes of practice made under the Police and Criminal
Evidence Act 1984 and as amended in line with the Criminal Justice and Public Order Act 1994
137
This warning was introduced following the US Supreme Court decision of Miranda v Arizona 348 US 436.
The Miranda decision dealt with statements made by individuals whilst in custody or whilst under arrest. In
191 INVESTIGATION AND PROSECUTION

"You have the right to remain silent and refuse to answer questions. Anything you say may be
used against you in a court of law. You have the right to consult an attorney before speaking
to the police and to have an attorney present during questioning now or in the future. If you
cannot afford an attorney, one will be appointed for you before any questioning if you wish. If
you decide to answer questions now without an attorney present, you will still have the right
to stop answering at any time until you talk to an attorney. Knowing and understanding your
rights as I have explained them to you, are you willing to answer my questions without an
attorney present ?"

Every legal system has its own rules as to the admissibility as evidence of statements
made during pre-custody interviews and during interviews whilst in custody. Information
obtained from the interrogation of an arrested person absent prior caution, and it must also be
said adequate caution, will in most liberal democracies generally be held to be inadmissible as
evidence at a subsequent criminal trial. This however is not cast in stone. Different
jurisdictions follow different approaches to exclusion.138 In England and the United States
deviation from the precise wording of these cautions will generally be acceptable as long as
all the required information is conveyed to the arrested person in language he/she can
understand.

In recent times, in some countries at least, voluntary attendance and interview has gained
wider general acceptance. In England and Wales for example, a suspect may be interviewed
whilst under arrest, or he/she may agree to a voluntary interview. These latter voluntary
interviews are often attended by appointment, same is recorded, is conducted with the suspect
under caution, and with the suspect assisted by his/her legal representative should he/she
choose same to be present. The reaction to be expected from any such suspect when invited to
attend such an interview under caution obviously depends on various factors and
circumstances such as but not limited to:

(a) his/her knowledge as to the nature and progress of the enquiry;

(b) whether or not he/she believes himself/herself to be a suspect in the matter;
(c) his/her expectations from such an interview;
(d) his/her knowledge and past experience in relation to criminal enquiries;
(e) his/her knowledge and perceptions as to the strength of the investigator's case;
(f) whether or not he/she has engaged legal counsel and the advice of his legal
representatives;

practice, in the United States those suspected of defrauding the revenue will more often than not be read their
Miranda rights at interview before actually taken into custody or placed under arrest.
138
In England the breach of a code does not per se result in automatic exclusion. The English courts consider
exclusion on all the facts of the case and on a case-by-case basis. See R v Gill and Anor [2003] EWCA Crim
2256 at para. 77: "It does not follow from the conclusion that Code C applied and that no caution was
administered or tape recording made in breach of paragraph 10.1 that evidence of everything said by the
appellants at the meeting must be excluded. The principles are stated in this way in paragraph 15-15 of
Archbold 2003, by reference to R v Absolam 88 Cr App Rep 332 and R v Delaney 88 Cr App Rep 338: “They
are as follows: (a) a breach of a code does nor lead automatically to exclusion (Delaney); (b) where there is a
breach, the judge has a discretion to exclude the evidence (Absolam/Delaney); (c) the breach must be significant
and substantial, and the more so, the more likely the judge is to exclude the evidence (Absolam); (d) bad
faith/flagrant disregard of the codes’ provisions will make exclusion more likely (Delaney); (e) the test to be
applied is the section 78 test (R v Grannell 90 Cr App Rep 149); (f) in applying the test, the judge should have
regard to the rationale of the provisions of the code … and the extent to which the breach is likely to defeat the
rationale (Delaney); (g) if there is a breach but the judge admits the evidence, he should give reasons for doing
so: R v Allen [1995] Crim LR 643, (an identification case); (h) if the evidence is allowed in despite the breach,
the judge should explain the significance of the breach to the jury, as it may go to the weight they attach to the
evidence (see R v Graham [1994] Crim LR 212 and R v Quinn …” [1995] 1 Cr App Rep 480."
192 INVESTIGATION AND PROSECUTION

(g) whether or not the offences were committed as part of a conspiracy and if indeed so,
the influence his co-conspirators may have over him, and the unity and trust between
those various co-conspirators;
(h) his/her personality and confidence;139 and
(i) how he/she is approached by the investigators.

During such an interview the investigating officers may at first not level any accusations but
rather ask the taxpayer for clarification as to certain matters. In the course of his explanations
he will often contradict himself, or contradict other evidence in the Revenue's possession, or
contradict the answers provided by another person, often another suspect, associated with the
taxpayer and the arrangements under investigation. In other instances, or often in subsequent
interviews under caution, the taxpayer may from the start be informed that he is the subject of
a criminal enquiry and be confronted with evidence. A taxpayer need not at that stage be
informed of all the information or evidence in the investigator's possession.140

A person so invited to attend such a voluntary interview may refuse to attend. Attendance is
voluntary. Such a person may also, where he does so attend, at any time refuse any further
cooperation and leave should he choose to do so.141 Assuming the person in question refuse to
attend or decide to cut the interview short, then there is a high probability of prompt arrest
should the investigating officers believe there to be sufficient cause justifying such an arrest.
The fact that these interviews are 'voluntary' and the fact that the person so interviewed is free
to go should he choose to do so does not in practical terms make them anything less but an
interrogation. It is just more subtle.

An interrogation is in essence the "questioning of suspects by the police".142 They are

designed to: (a) extract information; (b) obtain confessions; (c) eliminate suspects; (d) identify
potential witnesses, including accomplices who may be turned; and (e) it can be decisive in
sowing distrust amongst and creating rifts between co-conspirators.143 In purely practical

139
Certain offenders may approach any interview as an opportunity to manipulate or convince, to gather
information as to the progress of an enquiry, or even to intimidate. In this context the psychopathic offender, a
personality type recognised for their inflated self-confidence and lack of fear, can often be counted on to see any
interview as no more but an opportunity to deceive, 'explain away', manipulate and/or to intimidate.
140
See R v Gill and Anor [2003] EWCA Crim 2256 where counsel for the two defendant taxpayers (who made a
number of incriminating statements during the course of a (then) 'Hansard' interview) submitted that it was
unfair to admit those answers as evidence seeing that the "Revenue did not inform the appellants of all the
information in their possession before the interview began." The court answered to these submissions as follows:
"He relies both on information available at the trial and on information which has been disclosed for the
purposes of this appeal. It is correct that the documents show that the Revenue did not disclose the detailed
nature of its suspicions before the interview but, in our judgment, it was not bound to do so and there was
nothing unfair in its not doing so. A defendant in a criminal trial is of course entitled to know what case he has
to meet so that he has an opportunity to meet it but, it does not follow that an investigator is bound to reveal all
the facts known to him at each stage, provided that he does not mislead the interviewee in any material way. We
are not persuaded that the Revenue misled the appellants at the interview and we can see no reason why the
Revenue should not have asked the questions it in fact asked without disclosing more than they in fact did."
141
See e.g. section 29 of the Police and Criminal Evidence Act 1984 (England and Wales) which reads:
"Voluntary attendance at police station etc. - Where for the purpose of assisting with an investigation a person
attends voluntarily at a police station or at any other place where a constable is present or accompanies a
constable to a police station or any such other place without having been arrested - (a) He shall be entitled to
leave at will unless he is placed under arrest; (b) He shall be informed at once that he is under arrest if a decision
is taken by a constable to prevent him from leaving at will."
142
Richards & Curzon, The Longman Dictionary of Law, 8th ed. at .252
143
They are designed to place the subject of the interrogation under pressure, to get him to respond and explain,
to get him to contradict himself or to contradict the information or evidence in his interrogator's possession, to
get him to make concessions and to admit to inconsistencies. The isolating of the subject, architecture of
interview rooms, structuring of interrogation teams, interrogation planning, playing on the subject's weaknesses,
193 INVESTIGATION AND PROSECUTION

terms, the conduct and flow of an interrogation, and the interrogation techniques that
investigators may apply, may typically be guided by circumstances such as: (a) the nature of
the crime or matter under investigation; (b) voluntary attendance or otherwise; (c) time
allowed and available; (d) objectives with the interrogation; (e) the profile of the suspect in
terms of character and past experience; (f) the presence of legal representatives; (g) the
suspect's demeanour and responses; (h) the information and evidence already in the
possession of the those conducting the interrogation; (i) service branch conducting the
interrogation, service-specific methodology, and the culture of that service; and (j)
jurisdiction-specific legal frameworks and policies. In most common law countries, insofar as
domestic law enforcement operations are concerned, there are strict laws, case law, and
policies on what is permissible and non-permissible.

Suspects, at the individual level, may respond differently to different interview approaches.
With some suspects it may be easier to gain their trust and cooperation compared to others.
Whereas a confrontational approach may work with one suspect, it may fail with another.
Investigators may thus follow different approaches with different suspects and may also
change lines of approach in relation to the same suspect. How any given suspect may respond
to any given interview approach, may depend on a number of factors such as:

(a) his intelligence, background and education;

(b) his personality and character traits i.e. ability to withstand pressure, courage,
aggression, self-restraint, introverted or extroverted, whether or not psychopathic etc;
(c) whether or not he adheres to some or other moral code (s);
(d) loyalty towards co-offenders;
(e) what he stands to gain or lose with cooperation;
(f) the personality and skill of the interviewer;
(g) how he is approached and how the interview is conducted;
(h) the weight of the evidence against him (where the interviewers confront him with
same);
(i) his emotional state and state of mind during the interview;
(j) his understanding of the law and police practice;
(k) whether or not he has legal representation; and
(l) his past experience in dealing with interviews and the authorities.

Where one deals with a number of offenders who participated in or assisted with the
commission of a crime, there is always a strong possibility of one turning against the others.
Getting one or more of those offenders to turn and cooperate will then also be a prime
objective of the investigating officers. Those conducting the interrogations will therefore pay
particular attention to the identification of potential weaknesses and insecurities in individual
suspects. Those weaknesses can in turn be exploited in an attempt to identify the weakest link,
the weakest link being the suspect(s) most likely to turn over. They are usually to be found
amongst those who have the most to lose and/or the most to gain, those who may feel they
were dragged into the crime, those who believe they were betrayed or left in the cold, or those
who’s participation or assistance was motivated out of fear. Playing on those sentiments,
insecurities, fears, and weaknesses will often have the desired effect. Needless to say, where
all the evidence points to a conspiracy but one individual agrees to confess to all that has been
done, then there is the possibility of his confession being no more but part of a ploy intended
to protect others who were involved in the crime, quite possibly the kingpins. That individual

confronting of the subject with information or evidence, and confronting him with inconsistencies in his account,
are all designed to achieve this.
194 INVESTIGATION AND PROSECUTION

may well have played only a minor role in the commission of the crime. This is not at all
uncommon, especially where one deals with conspiracies involving family members, or
conspiracies involving organised criminal syndicates. It is for the investigators to consider
this possibility, and to do so carefully taking into account the complete picture as painted by
all the evidence at hand.

With most criminal tax enquiries there will seldom be any difficulty in identifying the
suspect(s). This however is not always the case, as per earlier discussions. With some of the
more complex cases, and this will often be the case with corporate frauds, smuggling
operations, and conspiracies involving attacks against the tax system, investigators will often
end up interviewing many different people over many months or even years. These may be
former or current colleagues, employees, clients, suppliers, and agents to list but a few.
During this process and as the investigation progresses, the investigators will identify
potential witnesses and suspects and eliminate individuals as suspects. Some of those
interviewed may from the start be approached and interviewed as suspects with the
investigators knowing or suspecting him/her being a participant, co-conspirator or
accomplice. In these instances the need to caution is clear. Many of those individuals that are
approached and interviewed will however be 'unknown quantities', their status uncertain.
They will often be interviewed as part of the fact-finding exercise, to gather information, and
with the view to identify potential witnesses. It is quite possible for investigators to conduct
an interview with a person initially viewed as no more but an innocent witness to the offences
under investigation, for the interviewee to agree to or to volunteer to make statements relating
to the offences under investigation, but in the course of that interview / the making of those
statements, the investigators realise that the interviewee was in fact also a co-offender and is
in fact incriminating himself/herself in relation to his/her involvement in relation to the
commission of certain offences. Needless to say, in these circumstances the investigators
should promptly caution, even where the offences in relation to which that person is so
incriminating himself / herself may at that time seem wholly unrelated to the offences under
investigation. There are some serious offences (i.e. certain money laundering offences) where
criminal liability may follow, depending on the legal framework of the jurisdiction in
question, in the event of mere reckless or negligent as opposed to wilful unlawful conduct. It
is thus quite possible for someone who may have been party to the commission of such an
offence to incriminate himself / herself in relation to the commission thereof but absent any
real appreciation on his/her part that he/she did in fact committed an offence and is in fact
incriminating himself /herself in relation to that offence. Some accomplices may also fail to
recognise or may rationalise their own involvement in or contribution towards the
commission of certain offences. This is common amongst those who may have played a lesser
role in the fraud, and/or who may have acted under instructions from seniors and/or acted
under a certain degree of duress, and/or those who received no financial advantage from the
fraud. Once again, in these circumstances the investigators should caution.

Interviews in the course of routine revenue administration

Interviews under caution must be distinguished from questioning during interviews conducted
by revenue inspectors in the course of day-to-day revenue or customs administration. There
are fundamental differences in terms of character and purpose. Tax agents, accountants and
many taxpayers, mostly traders and businessmen, will be no strangers to revenue inspections
and subsequent follow-up interviews, usually at the taxpayer's office, place of work, at home,
or at the revenue offices. In many instances those inspections may involve interviews between
the inspectors and the taxpayer, but these will more often than not be relatively informal,
usually in the form of questions and answers relating to the taxpayer's business activities and
operations, specific arrangements and transactions, and accounting.
195 INVESTIGATION AND PROSECUTION

Circumstances may arise where a taxpayer may be questioned about irregularities but he may
be wholly unsure as to the intended purpose of the line of questioning and/or what his status
may be at that given time. This is quite understandable as most taxpayers are not legally
trained, but even assuming they are, many do not have an intimate knowledge of how the
revenue operates and how matters are escalated from routine administration to enquiries. The
fact that a taxpayer is placed on the spot and questioned about irregularities, during an audit or
inspection conducted as part of such routine tax administration, does not mean he is a suspect.
Revenue inspectors do this on a daily basis as part of the fact-finding process and they
generally do so with no other objective in mind but to find explanations with the view of
clarifying the taxpayer's tax position. Statements made, documents furnished, and
misrepresentations made during such audits, inspections, and interviews, where conducted as
part of routine revenue administration and where conducted with no other motive but to
determine or verify tax liability and tax compliance, will in most jurisdictions be admissible
as evidence at a subsequent criminal trial. In Britain, Canada, Australia and the United States,
attempts to get such evidence excluded as inadmissible will seldom prove successful. It will
however be a very different matter altogether, and a very serious one at that, where the
taxpayer is a suspect in a criminal matter and where an administrative audit or interview is
used as a smokescreen to gather evidence for the purposes of a criminal prosecution.

It is quite common for some tax offenders to be evasive and to avoid direct contact with
revenue inspectors. There will often be one excuse after another, they may make excuses not
to attend interviews, excuse themselves from pre-arranged meetings, and messages left will
often not be responded to. They will often prefer to nominate or instruct employees or agents
to attend appointments and to deal with the revenue. There will often be a total absence of
cooperation. It is thus not at all uncommon for a matter to escalate from routine
administration to arrest absent any prior face-to-face contact between the taxpayer and the
revenue inspectors or investigators.

2.8.12 Objectivity
A cornerstone of any criminal enquiry and criminal prosecution is complete objectivity. The
foundations of that cornerstone must be sound from the start of any criminal enquiry.
Criminal investigators and prosecutors are only human and will during the course of an
enquiry form their own subjective views as to the guilt or innocence of certain individuals, but
they may under no circumstances give primacy to their own theories and objectives at the cost
of the truth. Some innocent people do end up in jail, and many offenders to escape justice.
The latter often happening for the fact that the wrong man was convicted. The investigator's
role demands complete integrity at all times. He must at all times be objective in the
development of intelligence, the following up of leads, the gathering of evidence, and the
interpretation of that evidence. He cannot allow himself to fall into the trap of failing to
follow up information or failing to gather evidence not supporting the prosecution's case or a
particular theory. The evidence gathered must also be interpreted with complete objectivity as
to the facts it supports. He can also under no circumstances allow the integrity of an
investigation to drift under pressure exerted by others or in satisfying the expectations of
others. He must have the courage to stand up to any such pressure when and wherever it is
applied. He must also have the integrity and courage to come forward and admit when
mistakes were made. Information which may lead to the uncovering of evidence which may
exonerate suspects must be followed up with the same enthusiasm as that which may
incriminate him. Such evidence where found must be gathered, preserved, and considered
with complete objectivity. The failure to follow up such leads, or the failure to gather such
evidence, or the suppression of such evidence, for it is viewed as unlikely to support, or does
not support the investigator or prosecutor's theory will at best be grossly unprofessional and
unethical and may quite well be held to be irregular.
196 INVESTIGATION AND PROSECUTION

2.8.13 Control
All criminal investigations should involve strict control over information gathered, evidence
collected, and the conduct of the investigation. This is necessary for ensuring confidentiality,
maintaining the integrity of the investigation, and for general security. Investigations must be
conducted in accordance with all applicable law and relevant departmental rules and
procedures. With revenue investigations there is also the added duty not to unlawfully divulge
taxpayer information. Investigators are therefore expected to act objectively, lawfully, and to
maintain confidentiality. In most jurisdictions, revenue investigations usually involve
continues review, at first by Revenue line managers but once the matter has passed over to the
prosecuting authorities also by the assigned prosecutors. This allows for a good level of
oversight, making possible the early detection of flaws in procedure and shortcomings in the
investigation and in the evidence. It furthermore also ensures the investigation remains
manageable and retains its focus and direction. Docket inspections, progress reports from
assigned investigators, and departmental and inter-agency liaison meetings thus tend to be
continues and frequent.

The prosecution's file will seldom be a true reflection of the actual work invested in the
investigation of a particular matter. A docket will seldom account for all the efforts invested
in the gathering of information and the following up of leads, the many fruitless enquiries and
interviews, searches and seizures executed, sifting through thousands of documents and
exhibits, evidence management and case administration, etc. Great quantities of accurate
information might well have been generated during an investigation, but information is not
evidence. Much of the evidence collected during an investigation may, for various reasons,
also never see the inside of a court-room. The evidence presented at trial will often only
represent part of the evidence in fact collected. The prosecution may, for a number of reasons,
decide against charging certain offences, or decide against relying on certain evidence.
Investigative effort expended on the gathering of evidence eventually discarded as redundant
obviously amounts to a nil-return on the efforts invested in gathering same. This may, not
always but sometimes, be as a result of investigators following up leads and gathering
evidence but without clear direction as to what the objectives are or as to the evidence that is
called for in achieving those objectives.

Earlier in this work it was said that the intelligence requirements dictate the information
which should be sought. Information gathering operations need be correlated and aligned with
those intelligence requirements. This is an absolute requirement for ensuring intelligence
needs are met. But apart from ensuring the relevance and quality of the information and
intelligence product, unnecessarily diverting precious resources to gather non-critical
information, often at the expense of that information which is in fact required, will often
amount to a needless waste of valuable resources which could, at that time, have been better
deployed in support of the real priorities. As with the intelligence effort, investigations are
also costly in terms of time, effort, and resources. Investigative efforts must be continuously
correlated and aligned with the objectives of the investigation. Unnecessarily diverting time
and resources to gather irrelevant evidence, often at the expense of the types of evidence
which is in fact required may not only end with a failed prosecution, but will amount to
valuable resources needlessly wasted, often for nothing in return. Many if not most
investigations may be relatively limited in scope, often limited to only a few or possibly just
one offender, often limited to only a number of offences, and often not of a complex nature.
In many instances those tasked with the investigation may well have the resources and time to
gather all the information they can find, pursue all available leads, and to collect all the
evidence they can find, with the luxury of prosecutors subsequently sifting through all the
information and evidence collected, using only that which is useful as evidence in support of
197 INVESTIGATION AND PROSECUTION

the prosecution's case, and leaving redundant that which was collected but not relied upon.
There are however many investigations, especially so in the case of large scale corporate
crimes and investigations into the activities of organised criminal networks, often involving
the commission of hundreds or even thousands of offences, often committed over many years,
often involving many potential offenders who may have participated at various times and at
varying levels, where investigation teams will often have no choice but to meticulously plan,
evaluate what is achievable and deliverable considering the available resources, and to limit
lines of enquiry to specific individuals and/or offences.144 It will in many cases be a matter of
achieving the maximum impact with the limited resources available. This demands clearly
identified objectives and good case management

What the priorities will be in the investigation of any particular matter will obviously depend
on the facts of the case. Those priorities do not remain static either and may change over time.
This then calls for frequent assessments of the progress of the investigation, the evidence
collected, aspects of the enquiry calling for further investigation, and assessing critical
shortcomings in the State's case. Assume investigators X, Y and Z is tasked with the
investigation of a large-scale fraud. It is of little use if after a lengthy investigation, which
may well have been in progress for a number of years, they end up with a storage room filled
with exhibits proving the commission of a fraud and how it was committed, but with no
evidence proving the suspects were in fact the people who committed same, and/or with no
evidence proving beyond reasonable doubt the mens rea of those suspects. They may well
have files filled with accurate information identifying the suspects as the people responsible,
but information is not evidence. No experienced prosecutor will even consider taking the
matter to trial as the prosecution's case will be flawed. The first priority in these
circumstances will be the gathering of admissible evidence capable of proving, beyond
reasonable doubt, the involvement of the offenders, and their knowledge of what they were
engaged in. Much or even all of that evidence may be circumstantial in nature, but viewed
together it need be of sufficient weight to prove beyond reasonable doubt the prosecution's
case.

Investigative efforts must be planned, monitored and managed in such a way as to further the
objectives identified. The less focussed it is, the more likely it is for flaws to creep into the
prosecution's case, and for resources to be expended on the gathering of redundant evidence
wholly irrelevant to the matter, and/or evidence which may quite well contribute nothing
towards proving the material elements of the offences charged. In most jurisdictions,
prosecutors and the line-managers of case-officers will usually conduct regular docket
inspections and require regular updates and briefings, not only to monitor the progress of an
investigation, to identify shortcomings, and to ensure the investigation maintains its focus, but
also to guide case-officers on the way forward.

2.9 Evidence
2.9.1 General
When looking at history as a subject-field of the social sciences, it is in essence a discipline of
hindsight. The historian reconstructs past events on the basis of present evidence.145 History

144
Also refer the discussion on the 'narrowing down of potential charges' at 2.8.4
145
See Johnson, P. (2013) Collingwood's The Idea of History: A Reader's Guide. Bloomsbury Publishing at .21-
22 where the following is said as to Collingwood's approach to history: "The past itself is dead and cannot be
brought back to life. What lives is present evidence and what gives life to present evidence is interpretation, the
use that historians make of it. No historian can go further than the evidence permits, but a gap remains between
the past … and the evidence of it … There can be no history of stabbings independently of context, since it is
context that allows us to distinguish between murders, acts of assassination, personal betrayals … and, say,
198 INVESTIGATION AND PROSECUTION

as subject field involves an objective search for historical fact. The same can be said of a
criminal trial, but a criminal trial goes further than that. At a criminal trial, such an enquiry is
part of a process geared towards (i) apportioning blame; (ii) punishment; and (iii) deterrence.
There are also fundamental differences between the way in which criminal courts and social
scientists consider, evaluate, and accept evidence. What is more, at a criminal trial there is a
burden of proof to be met and evidence, tendered by both prosecution and defence, is
evaluated and tested in court. Evidence is subjected to judicial scrutiny. In the case of a
criminal trial, the facts to be proven obviously depend on the facts of the case and the material
elements of the offences charged. In the case of crimes of intent such as tax evasion and fraud,
the prosecution must prove, beyond reasonable doubt, not only what the defendant did or
didn't do, but also the defendant's state of mind as at the time of the offence. The offender's
state of mind at the time of the offence, a material element of crimes like evasion or fraud, is
just as much historical fact as is his actus reus. Proving those material elements, including the
defendant's state of mind, calls for evidence. Without admissible evidence of sufficient weight
to prove the allegations, and the prosecution falls through, assuming a matter even progressed
to trial. In England and Wales, in common with the position in most other common law
countries, a prosecutor will only decide in favour of prosecution where satisfied that the
evidence against a defendant is sufficiently strong enough to provide for a 'realistic prospect
of conviction'.

Mere knowledge of an offender's activities is not evidence. Neither is accurate information

incapable of being tendered as evidence. There are fundamental differences between
‘intelligence’ and ‘evidence’. Information and intelligence is vital for the purposes of
investigation. It is an invaluable aid in: identifying crime scenes; collecting evidence; tracing
witnesses and suspects; generating leads; following the movements of goods, money and
people; anticipating criminal conduct; operational planning and decision-making; planning the
conduct of investigations; anticipating counter-action by a defendant or opponent; and
anticipating and planning for operational difficulties and potential threats. Within the context
of crime prevention, intelligence on its own may make a significant contribution insofar as it
can give direction to proactive crime-prevention operations. It serves as a significant force-
multiplier in directing critical assets where it matters and when it matters. Within the context
of criminal prosecution however, intelligence, no matter how accurate, is of little value for
purposes of prosecution unless it delivers product admissible as evidence at trial. Knowledge
of a taxpayer’s unlawful activities absent a body of relevant admissible evidence sufficiently
strong enough to prove beyond reasonable doubt the allegations in a court of law, is of little
use to a prosecutor. Evidence has in the past been defined as:

“ ... any species of proof, or probative matter, legally presented at the trial of an issue, by the act of
the parties and through the medium of witnesses, records, documents, concrete objects, etc., for the
purpose of inducing belief in the minds of the court or jury as to their contention ..... The word
“evidence,” in legal acceptation, includes all the means by which any alleged matter of fact, the
truth of which is submitted to investigation, is established or disproved.”146

Every jurisdiction has its own peculiar legal rules and doctrines the operation of which may
impact on the admissibility and value of evidence at criminal proceedings. Those rules may be
laid down in statute, and/or may be underpinned by legal doctrines formulated by the courts.

unintended deaths. … Collingwood likens the historian to a detective because it is by relating object to context
and action to intention on the basis of evidence that the historian proceeds. … what historians do is to understand
past thought by present re-enactment. The past is … encased in the present in the form of evidence. Historians
proceed by inferential reasoning to reconstruct the past on the basis of present evidence."
146
Black, A Law Dictionary 2nd ed at 446
199 INVESTIGATION AND PROSECUTION

In jurisdictions like Australia, New Zealand, Canada, Ireland, and South Africa, the rules on
evidence to this day show a strong English lineage with a considerable degree of
correspondence. That being said, every jurisdiction's legal system and the rules that apply in
that jurisdiction must be approached as unique. Rules that may apply in one jurisdiction may
not apply in another. The same rule may be found in different jurisdictions but may not
always cover the same factual settings. In one jurisdiction there may be certain exceptions
allowing for otherwise inadmissible evidence to be admissible in certain factual settings,
whereas those exceptions may not apply in another jurisdiction. Whereas evidence illegally
obtained may generally be admissible at criminal proceedings in one jurisdiction, same may
well (subject to certain jurisdiction-specific exceptions that may apply) be inadmissible in
another jurisdiction.147

In the majority of prosecutions, disputes tend to revolve around fact. The prosecution and
defence will typically argue about who did what when, where, how and why. In a sizeable
minority of cases there may also be disputes about law. Where this is the case, it will usually
revolve around application and interpretation of statutes. We have already discussed the
importance of statutory interpretation in the first chapter of this manual, but suffice to say that
skill at statutory interpretation is a critical skill for any criminal defence lawyer and tax
lawyer. No lawyer can expect to correctly correlate fact with law and to apply the law to the
facts absent a clear understanding of the content of that law. This being said, skill at
interpreting and applying law is also of little use where there is a failure in the collection,
interpretation, and correct analysis of all the relevant facts. No matter how good a person may
be at using a protractor and compass, if he can't properly read a topographical map, orientate
it, identify and visualize the features on it, and correlate it with the layout of the land and the
observable features around him, then he will mostly stumble around on a bearing with
progress and destination uncertain. Facts must be proven. This calls for evidence. Be selective
in the evidence collected, due to failure or manipulation, and the result may be proof of only
certain facts. Fail to disclose facts or circumstances that may impact on the admissibility of
the evidence at hand, and the result may be reliance on inadmissible evidence - potentially
resulting in not proving certain material facts. This may all produce an incomplete and flawed
map, the same map the prosecutor will rely on. This underlines the importance of
investigations being thorough and objective.

An investigator's duty is to search for and collect all relevant evidence explaining the crime,
not the selective gathering and picking of only that evidence supporting his theories and
conclusions. The prosecutor must be placed in a position where he/she can objectively assess
the relevance, admissibility and weight of all evidence that may impact on the prospect of
securing a conviction. That includes all evidence implicating and exonerating the suspect. If
there is any evidence of facts that may exonerate a defendant or make flawed the charges on
the indictment, then he/she must be made aware of same. It is also the investigator's duty to
disclose to the prosecutor all facts or circumstances that may impact on the admissibility of
evidence.

As many compliance inspections, intelligence efforts, and criminal investigations go, there
will often be an element of luck. This is no less so within the revenue and customs context.
Inspectors and investigators will often stumble on suspicious circumstances, information, or
evidence by chance, often when and where they least expect to find it. Whereas revenue-

147
In the United States appropriately referred to as the 'fruit of the poisonous tree'. See Silverthorne Lumber Co v
United States 251 US 385 (1920) (a US Supreme court case where the Court was required to decide on the
admissibility of evidence obtained in the course of a tax investigation) and Nardone v United States 308 US 338
(1939)
200 INVESTIGATION AND PROSECUTION

related crime squarely falls under what we know as 'financial' or 'white-collar' crime, this is
not the case with all customs offences. In the greater majority of cases involving the evasion
of duties and taxes, whether revenue or customs related, documentary evidence will usually
feature prominently in those enquiries. With some of those investigations, documentary
evidence, often covering years of business activity and often covering complex data, may fill
cabinets, rooms, and even floors. Finding the information and evidence sought can call for
long hard work and considerable patience. We must also keep in mind that tax evasion,
smuggling, and fraud involves deception, dishonest circumvention, and concealment. With
those crimes there will usually be some degree of planning and care to prevent detection
and/or to deny evidence that may potentially tie up the offenders. In many instances some of
the suspects may also attempt to destroy or manipulate evidence, which may result in
information gaps and lost evidence.

2.9.2 Types of evidence

Judicial evidence can be divided into various categories depending on the form in which it is
presented in court, its content, the purpose for which it is presented, and the rules of
admissibility applicable thereto.148 Judicial evidence can be in the form of oral evidence,
documentary evidence, and real evidence.149 The evidence led may be documentary or oral,
direct or circumstantial in nature, and may relate to events, circumstances, and conduct, prior
to, at the time of, and subsequent to the commission of the crime. Depending on the form in
which it is presented in court, its content, and the purpose for which it is presented, the
following distinctions can also be drawn:

(a) Oral testimony - oral statements of witnesses made under oath in open court / at court
proceedings;
(b) Witness statements - written statements by witnesses produced as evidence at court
proceedings. This also includes expert reports;
(c) Real evidence - physical or material objects e.g. seized items of contraband, a truck, a
weapon, cash etc. This may also include documents, audio and visual recordings;
(d) Documentary evidence - paper and electronic documents e.g. books of account, tax
returns, customs entries, commercial documents, manifests, maps, graphs etc.; and
(e) Hearsay evidence - out of court statement by any person tendered as evidence of the
truth of its content.

Case presentation is just as crucial to the outcome of a prosecution as is the evidence

collected. It is said that a picture is worth a thousand words. Illustrative aids such as, or
otherwise incorporating things like timelines, comparisons, charts, graphs, maps, photos,
videos, and audio, can greatly assist in ensuring the value of evidence is fully exploited, in
maintaining the attention of and keeping the interest of jurors, in assisting jurors in
developing an understanding of complex problems and distinctions, and in assisting jurors
with recognising the importance of certain evidence. These illustrative aids it must be noted
are not real evidence. They are merely aids intended to explain, compare, distinguish, point
out, provide timelines, to illustrate, and to provide context.

2.9.3 Direct and circumstantial evidence

Direct evidence is evidence which in itself may prove the existence of certain facts in issue.
Circumstantial evidence on the other hand is evidence of facts which may by logical

148
Keane, The Modern Law of Evidence 4th ed at 8
149
Referred to by Keane, The Modern Law of Evidence 4th ed at 8-9 as “oral evidence”, “documentary evidence”
and “things”.
201 INVESTIGATION AND PROSECUTION

reasoning justify an inference of the existence of a particular fact. 150 Although much of the
evidence relied on in tax fraud prosecutions may be of a direct nature, the importance of
circumstantial evidence in tax fraud prosecutions is not to be underestimated. It is a body of
evidence from which inferences can be drawn as to the facts in dispute, and this is especially
so in regards to mens rea. Each of those pieces of circumstantial evidence when viewed in
isolation may not prove anything in particular, but when all those individual fragments of
evidence are viewed and considered together in its totality, it may be so convincing as to leave
the court with no other option but to be persuaded as to the existence of a particular fact. As
Best stated:151

"A number of circumstances, each individually very slight, may so tally with and confirm each
other, as to leave no room for doubt of the fact which they tend to establish ... (b) Not to speak of
greater numbers, even two articles of circumstantial evidence, - though each taken by itself weigh
but as a feather, - join them together, you will find them pressing on a delinquent with the weight
of a mill-stone ... It is, however, of the utmost importance to bear in mind, first, that if all the
circumstances proved arise from one source, they are not independent of each other ; and that an
increase in .the number of the circumstances, will not in such a case increase the probability of the
hypothesis; (c) secondly, that where a number of independent circumstances point to the same
conclusion, the probability of the justness of that conclusion is, not the sum of the simple
probabilities of those circumstances, but the compound result of them"

Contrary to what many may believe, a prosecution may be carried through and convictions
may follow on circumstantial evidence alone. It is especially in drawing inferences as to the
defendant’s state of mind at the time when the fraud was committed, where the value of
circumstantial evidence comes to the fore.152 Pieces of circumstantial evidence that may not
be that significant when viewed in isolation may well make out such a strong body of
evidence when all is viewed together, as to allow for no other conclusion but that the
defendant were knowingly operating a fraud on the Revenue or Customs.

2.9.4 Evidence proving material elements

Evasion or fraud will only be charged where the evidence collected during the course of an
investigation is sufficiently strong enough as to convince the prosecutor of there being a
realistic prospect of securing a conviction. That evidence will after all be the evidence he will
have to rely on in proving, beyond reasonable doubt, the offences as charged in the
indictment.153 A realistic prospect of securing a conviction translates into a realistic prospect

150
See Dennis, I.H. (2010) The Law of Evidence, 4 th Ed at .9 where the following distinction is drawn: "Direct
evidence is testimony given by a witness of the witness's perception by his own senses … of one or more of the
facts in issue. It can also include the presentation of documents or things in issue to the tribunal of fact, when the
tribunal may be asked to act on its own perception of the nature or quality of the document or thing. Direct
evidence of facts in issue may give rise to questions concerning the credibility and reliability of the testifying
witness, but does not normally present problems of relevance. Circumstantial evidence is often used as a
compendious term to describe any evidence of facts relevant to the issue. There are a great may types of
circumstantial evidence.
151
Best. The Principles of the Law of Evidence - The Examination and Cross-Examination of Witnesses, Vol II,
Cockcroft & Co, 1878, Chapter II, at 540-547
152
See the United States Court of Appeals case of United States v Jewell 532 F.2d 697 (9th Cir. 1976) where it
was inter alia said: “As with all states of mind, knowledge must normally be proven by circumstantial
evidence.”
153
For the form of indictments (in England), see Wilson v R [2013] EWCA Crim 1780 per Lord Justice Gross:
"As explained by the opening words of Archbold 2013 (at para. 1-1), a bill of indictment contains the "…written
or printed accusation of crime made at the suit of the Crown against one or more persons." S.3 of The
Indictments Act 1915 ("the 1915 Act") provides as follows: "3. General provisions as to indictments: (1) Every
indictment shall contain, and shall be sufficient if it contains, a statement of the specific offence or offences with
which the accused person is charged, together with such particulars as may be necessary for giving reasonable
202 INVESTIGATION AND PROSECUTION

of proving the offences charged. The prosecutor charged with making that decision obviously
need be knowledgeable and skilled at evaluating and assessing the value of evidence. The
value of any given piece of evidence can only be assessed after a careful evaluation of its
relevance, admissibility, and weight. This however calls for a detailed knowledge of what
must be proven. That which must be proven depends on an offence's architecture,
interpretation and application.

Although almost all of the revenue and customs offences as provided for in most jurisdictions
are statutory offences, there are still jurisdictions where revenue or customs frauds are still
punishable under common law.154 All offences however, both statutory and under common
law, can be broken down into various constituent elements, all of which must be proven
beyond reasonable doubt for the offence to be considered proven. Let us just for the moment
compare against each other two typical evasion offences, the one from the United States (the
offence provided for under 26 U.S.C. § 7201) and the other British (the offence provided for
under section 106A of the Taxes Management Act 1970).

26 U.S.C. § 7201 Sec 106A Taxes Management Act 1970

Offence “I.R.C. § 7201 - Attempt to evade or defeat
106A Offence of fraudulent evasion of
as tax income tax
framed Any person who wilfully attempts in any (1) A person commits an offence if that
manner to evade or defeat any tax imposedperson is knowingly concerned in the
by this title or the payment thereof shall, in
fraudulent evasion of income tax by that
addition to other penalties provided by law,
or any other person. (2) A person guilty
be guilty of a felony and, upon conviction
thereof, shall be fined not more than of an offence under this section is
$100,000 ($500,000 in the case of a liable- (a) on summary conviction, to
imprisonment for a term not exceeding
corporation), or imprisoned not more than 5
12 months or a fine not exceeding the
years, or both, together with the costs of
prosecution.” statutory maximum, or both, or (b) on
conviction on indictment, to
imprisonment for a term not exceeding
7 years or a fine, or both."
Material (a) attempts in any manner: (a) knowingly;
elements (i) to evade or defeat any tax (b) in any way concerned;
imposed, or (c) in the evasion:
(ii) to evade or defeat the payment (i) of his own income tax; or
of tax;
(ii) the income tax of another;
(b) the existence of a substantial tax
deficiency;
(d) with the intent to defraud;
(c) wilfulness (which in US law translates
into the attempted evasion being both
voluntary and intentional); and
(d) an affirmative act made with the intent
to evade tax.

information as to the nature of the charge. (2) Notwithstanding any rule of law or practice, an indictment shall,
subject to the provisions of this Act, not be open to objection in respect of its form or contents if it is framed in
accordance with the rules under this Act." In turn, rule 14.2(1) of the Criminal Procedure Rules 2012 ("the
CPR") is in these terms: "Form and content of indictment 14.2 (1) An indictment must be in one of the forms set
out in the Practice Direction and must contain, in a paragraph called a 'count' - (a) a statement of the offence
charged that - (i) describes the offence in ordinary language, and (ii) identifies any legislation that creates it; and
(b) such particulars of the conduct constituting the commission of the offence as to make clear what the
prosecutor alleges against the defendant."
154
The crime of 'cheating' in England being a notable example
203 INVESTIGATION AND PROSECUTION

These two offences are in fact not that dissimilar, but there are differences. The British
offence provided for under section 106A do not for example require proof of an 'affirmative
act' as is the case with the offence under § 7201, although there will almost always be such
'affirmative acts'. The offence provided for under section 106A is a wide offence and can
potentially catch cases not covered under § 7201. Differences between these offences are also
not limited to framing and language, but also arise from differences in how they are
interpreted and applied in the different jurisdictions. These two offences will be discussed in
greater detail in the following chapters. For the purposes of this discussion it will suffice to
say that every offence must be approached as unique. What may be required in terms of proof
may and usually do differ from offence to offence. The actus reus required to be present
under one offence may typically be wider than that required to be present under another, or
the mens rea required under one offence may be a more specific intent than that required
under another, or the one offence may require proof of actual prejudice whereas the other may
have no prejudice requirement. The one may be a conduct offence whereas the other may be a
consequence crime.

The anatomy of any given offence can only be appreciated after thoroughly dissecting it into
all its constituent elements. Only with an intimate understanding of how an offence is
structured and how it is interpreted and applied in the domestic courts, can an assessment be
made of what must be proven - and thus the type of evidence that will be required. Fail to
correctly identify and recognise what is required to be proven, and the chances increase
exponentially of investigators and/or prosecutors: (a) charging taxpayers or traders with
offences where there never was a realistic prospect of proving those offences; (b) pursuing
and relying on evidence that may be irrelevant or of limited or no value; and (c) going to trial
without identifying serious evidence-gaps in the prosecution case.

Evidence irrelevant to a given offence charged, is of no value in proving that offence.

Evidence that may assist in proving one or more of the material elements of an offence may
be of little or no value in proving one or more of the other material elements of that same
offence. Evidence that may assist in proving one of the material elements of one of the
offences a defendant is charged with may be of no value in proving the same material element
of another offence the same defendant may be charged with. The relevance, admissibility, and
weight of each potential exhibit and the testimony of each potential witness, must be carefully
considered in assessing its likely contribution (on its own or together with other evidence) in
proving a particular fact. It must be objectively assessed for its value in proving one or more
of the material elements of the crime charged. To conclude, a realistic assessment of the
strength of a case is not possible absent a clear and correct identification of all the material
elements of an offence, and correctly correlating individual pieces of evidence with those
material elements.

2.9.5 Information gathered by the Revenue

Revenue authorities collect vast amounts of information from taxpayers. This will usually be
in the form of documentation, returns, and financial records obtained from, or filed by the
taxpayer during routine day-to-day revenue administration, often collected under threat of
sanction in the event of not producing same. How the use of this information and material as
evidence in a criminal prosecution will be viewed by the courts, whether or not it will be
admissible as evidence, and the weight courts will attach to it as evidence, depends from
jurisdiction to jurisdiction. In most jurisdictions, the use thereof as evidence during a later
criminal prosecution, is generally viewed as not infringing on the taxpayer's right to a fair trial
and will usually be held to be admissible. Whether it is or is not so admissible however
depends on the facts of the case and the legal framework of the jurisdiction in question. In
204 INVESTIGATION AND PROSECUTION

some jurisdictions the lawmakers may attempt to ensure its admissibility by enacting
provisions to that effect.155 Regardless how the Revenue or legislature of any particular
territory may view such evidence, it will in most liberal democracies be held as inadmissible
where the admission thereof as evidence will undermine the accused taxpayer’s right to a fair
trial.156 This situation may typically arise where revenue officers proceed to gather
incriminating evidence against a taxpayer with the view to build up a case for a criminal
prosecution but with the taxpayer being misled into believing the exercise to be no more but a
routine inspection or otherwise civil enquiry.

By far the greater majority of revenue and customs personnel are primarily concerned with
revenue and customs administration. They generally view those they deal with as customers,
do not generally approach infringements or breaches as potential crimes, they do not approach
customers as suspects, and do not generally gather material, incriminating or otherwise, with
the view to support a criminal investigation. They are furthermore not trained or experienced
in subjects such as criminal law, criminal procedure, law of evidence, intelligence,
interviewing, the investigation of crime, the management of crime scenes etc. They generally
do not ask questions, answer questions, record answers or events, collect and keep material, or
approach potential crime scenes in the same way a criminal investigator would do. Records of
audits, inspections and events from a few years prior may thus be sketchy and incomplete, and
material collected by the Revenue or customs may have moved from one desk to another and
one section to another for years before a criminal enquiry is initiated. There is thus not the
level of control one will find with a criminal enquiry. The day-to-day activities of line
revenue and customs officers during their day-to-day administration of the revenue and
customs legislation may thus potentially place at risk the availability, admissibility, and value
of what may in different circumstances well have been valuable admissible evidence.
Needless to say, their enquiries and work, conducted in the course of their day-to-day
activities, will often also provide offenders with ample warning of detection or the risk of
being caught out. This may place them in a better position to take measures which may
potentially influence or steer the revenue or customs administration’s decision as to
escalation, or which may potentially frustrate enquiries and evidence collection in the future.

2.9.6 Compliance audit or criminal investigation

In the revenue context, the taxpayer's status can very swiftly change from being just a
taxpayer to being both a taxpayer and a suspect in a criminal matter. Where he does become
the subject of a criminal enquiry, then the fact that he is a suspect, and possibly a defendant at
a later criminal trial does not replace his status as a taxpayer. His relationship with the
Revenue persists for as long as he is in law deemed a taxpayer. Before that unwelcome
change in status, that taxpayer is no more but one of the millions of taxpayer's dealt with by
the Revenue's administrative machinery, subject to all the rules and procedures provided for
under that system. It is a system which relies on the information and documents as furnished
by the taxpayer. The taxpayer is then also under a legal duty to furnish such information and
documents.

When we look at the typical revenue administration, then we must appreciate it to be an

organization effectively wearing two hats. It is not only administrator but also enforcer, both
complainant and policeman wrapped in one. Now contrast this against say a bank. Assume a
bank believes itself to have been defrauded and further assuming the bank files a complaint
with the police. The bank is the complainant with the police being the law enforcement

155
See e.g. section 105 of the Taxes Management Act 1970
156
As guaranteed under Article 6 of the European Convention for the Protection of Human Rights
205 INVESTIGATION AND PROSECUTION

agency tasked with investigating the complaint. Whenever and wherever the investigating
officers make their enquiries, there will be no doubt in any person's mind that the officers in
question are engaged in a criminal investigation. This however is not so in the case of the
taxpayer-revenue relationship.

With most tax fraud prosecutions the prosecution will, partly at least, rely on evidence
furnished by or obtained from the taxpayer prior to his becoming the subject of a criminal
enquiry. Not to be lost sight of is the fact that at the time when the documents or statements so
relied on was furnished, even though as part of an administrative process, same was furnished
under circumstances which cannot be described as voluntary. The taxpayer was under a legal
duty to furnish same. There is nothing untoward or irregular about admitting into evidence
documents or statements obtained as part of a transparent administrative process geared
towards establishing the taxpayer's tax liability and his compliance with the tax legislation.
The duty to provide those documents and statements is a fair one applying to all, and one that
is justified considering the interest served. What is required from all is honesty. The dishonest
taxpayer can hardly express grievances about his dishonesty being evidenced with the same
material he provided. Problems can however arise where reliance is placed on evidence
obtained from the taxpayer after the rubicon had been crossed from the administrative to the
criminal. Once a taxpayer's status changes to that of being a suspect in a criminal enquiry, he
will be entitled to all those legal rights and protections normally associated with being the
subject of a criminal enquiry, a notable one being the right against self-incrimination. The
boundary between general audit and compliance activities on the one hand and criminal
investigations on the other, is thus of particular importance insofar as evidence is concerned.

An important question that thus arises is this: at what point in time can it be said that the
taxpayer is no longer just a taxpayer being interacted with as part of an administrative
process, but rather as a suspect in a criminal matter ?. At what point in time is the questioning
of a taxpayer and the gathering of documents no longer just part of a fact-finding exercise
with the view to determining tax liability and tax-compliance, but rather one of gathering
evidence against the taxpayer with the view to prosecute, thus an adversarial one. This can be
a difficult question to answer considering the very nature of revenue enforcement operations.
Probably one of the most helpful authorities where this was considered is to be found in the
Canadian case of R v Jarvis157, subsequently also followed in R v DiGiuseppe.158 In Jarvis the
court provided some sound and useful guidance on the boundaries between compliance audits
and criminal investigations. The key-points made in Jarvis were subsequently summed up as
follows in R v DiGiuseppe159 (per Tetley J):

"The distinction between Revenue Canada’s audit and investigative functions was reviewed in
detail by the Supreme Court of Canada in the case of Regina v. Jarvis … In Jarvis the court
endeavoured to delineate the bounds between a compliance audit and an investigation where the
predominant purpose of the inquiry is the determination of penal liability … When exercising their
audit function revenue officials are lawfully entitled to use the inspection and requirement powers
under section 231.1(1) and section 231.2 (1). In circumstances where the “predominant purpose of
a particular inquiry is the determination of penal liability” these powers must be relinquished. ..
Factors indicated as bearing on the determination of the nature of the inquiry and whether the
predominant purpose of the inquiry is the determination of the taxpayer's penal liability include but
are not limited to the following:
(a) the presence of reasonable grounds to lay charges and/or confirmation of a decision to proceed
with a criminal investigation;

157
2002 SCC 73 , (2002), 169 C.C.C. (3d) 1 (S.C.C.)
158
2008 ONCJ 126 (Ontario Court of Justice)
159
2008 ONCJ 126 (Ontario Court of Justice)
206 INVESTIGATION AND PROSECUTION

(b) general conduct of the tax authorities consistent with the pursuit of a criminal investigation;
(c) transfer of files from the auditor to the investigator;
(d) conduct consistent with the auditor performing an agency role for the investigation;
(e) evidence to support a finding that the investigators were using the auditors as their agents for
the purpose of collecting evidence;
(f) the nature of the information being sought from the tax payers and its relevance to taxpayer
liability generally (the audit function) on the taxpayer’s intention or mens rea (a consideration that
is only of importance in an inquiry relating to the taxpayer’s penal liability);
(g) the presence of any other factors, or consideration of the totality of the evidence, that could
lead to the conclusion that a compliance audit had become a criminal investigation. (para 94).

Factors that are not necessarily determinative of the existence of an investigation are also
canvassed in Jarvis (para’s 89-92). In summary form these non-determinative considerations
include:
(a) the “mere existence of reasonable grounds that an offence has occurred” (para 89) Even when
there are reasonable grounds to believe an offence has occurred “the courts must guard against
creating procedural shackles on regulating officials” by restricting or removing the possibility of a
lesser regulatory sanction in circumstances where culpable conduct might reasonably be believed
to exist;
(b) The “mere suspicion that an offence has occurred” is similarly an insufficient basis to
distinguish an audit from an investigation. Mere suspicion of taxpayer wrong doing by an auditor
during an audit is an insufficient reason to “freeze auditorial fact finding”. (para 90). As indicated
in Jarvis supra at para 30:
(c) Whether a matter has been sent to the investigations section is another factor that is not
determinative of whether an adversarial relationship exists between the taxpayer and the tax
department. As the possibility exists the file may be returned to the auditor and may not be
accepted for criminal prosecution a referral for investigation is, by itself, not determinative of the
audit/investigation issue. (para 92)
(d) All relevant factors must be considered on the totality of circumstances, and considered in
context, in order to determine whether the inquiry in issue “engages the adversarial relationship
between the state and the individual”. (para 93)"

In Jarvis and DiGiuseppe the view was expressed that not (a) “.. reasonable grounds to
believe an offence has occurred”; nor (b) “… mere suspicion that an offence has occurred”;
nor (c) the fact that “… a matter has been sent to the investigations section” is in itself
“…necessarily determinative of the existence of an investigation”, but are factors or
circumstances that a court will consider in judging whether the adversarial relationship has
been triggered. The court underlined that any consideration of whether or not an inquiry
“engages the adversarial relationship between the state and the individual" calls for a
consideration of all relevant factors on the totality of circumstances and considered in
context.

The criminal investigation and prosecution of tax offenders we must remember is the
exception. Criminal investigations within the revenue and customs context also represents but
only a small part of the complete spectrum of revenue and customs operations. The greater
majority of cases where fraud is suspected, or even where there is clear evidence of fraud, is
cleared administratively with no more but civil penalties. There is hardly a revenue inspector
who do not from time to time come across what is clearly fraudulent conduct, but many may
serve in that role for many years without one of those cases ever being escalated to a criminal
enquiry. The efficiency of revenue administrations rely on the efficiency with which
taxpayers are registered, returns are processed, information is verified, inspections and audits
are completed, revenue is collected, errors are rectified, and disputes are cleared. To “freeze
auditorial fact finding” or to create “procedural shackles” whenever there is just a suspicion or
even reasonable grounds to believe that an offence has been committed, can have a serious
207 INVESTIGATION AND PROSECUTION

detrimental impact on the overall efficiency of revenue administration in general. Doing so

will furthermore, as correctly stated in Jarvis, have the effect of “… restricting or removing
the possibility of a lesser regulatory sanction in circumstances where culpable conduct might
reasonably be believed to exist”. This is just the reality of that environment. This however
does not absolve the Revenue and its investigating sections, other enforcement agencies
investigating revenue-related crime, and prosecutors, from ensuring the integrity and fairness
of the investigative process and any prosecutions that may flow from it.

In Britain, Canada, Australia, the United States, and most other common law countries for
that matter, evidence deemed to place at risk the taxpayer’s right to a fair trial will be
excluded. This will be the case regardless the manner in which that evidence was secured.
Where evidence was secured in the course of or as a result of a serious breach, especially
where there was mala fides or bad faith, then a court may well justify exclusion under the
integrity, disciplinary, or rights-based principles, even where admission of that evidence will
not necessarily place at risk a fair trial. This is a common approach in the United States. A
good example in point will be the gathering of incriminating evidence with the view to a
criminal prosecution, but doing so under the guise of routine compliance work. In most liberal
democracies such conduct will certainly be considered as grossly irregular and the evidence
so obtained will most likely be excluded. The general expectation is that all action undertaken
in relation to a taxpayer's affairs, both administrative and criminal, must be transparent, must
conform with the legal frameworks provided for, and must conform with the broader
community's sense of fair play.

2.9.7 Witness testimony

Witnesses may be called by either the prosecution or defence. In most jurisdictions in criminal
proceedings, the general requirement is that their testimony must be sworn, thus under oath or
on affirmation. In the revenue and customs context those witnesses may typically be: (a)
revenue and/or customs staff serving in various capacities; (b) employees from other agencies
of state e.g. immigration and border control, police, trade and industry, or the insolvency
service; (c) bank officials; (d) experts specializing in various fields e.g. taxation, security,
computer forensics, handwriting analysis, the natural sciences, and accounting to list but a
few; (e) professional advisors such as accountants, tax practitioners, and customs brokers; (f)
former and current employees, colleagues, and employers; (g) suppliers and service providers;
(h) former or current customers/clients; (i) former and current spouses and/or family and/or
other personal acquaintances; (j) other third-party victims of the defendant's crimes;160 (k)
former accomplices turned Queen’s evidence; and (l) other eye witnesses. The witnesses that
will be called to testify largely depend on the prosecution and defence. It is all a question of
what the respective parties wish to prove or disprove and the evidence they wish to adduce.
The trial judge may however order the calling of witnesses with or without the prosecution
and/or defence’s request or consent should he consider such testimony to be necessary in
ensuring a fair trial or to be in the interests of justice.

Those who may or may not be competent witnesses, or who may or may not be compelled to
testify is a matter of law. In most common law countries the starting position tends to be that
all persons are generally considered to be competent with a few possible exceptions. Those
exceptions will usually relate to children, those with mental disability or disorders, and the
defendant as witness for the prosecution. Some witnesses may be competent but may not be
compellable. Most common law countries recognize legal professional privilege and spousal

160
There are circumstances where the same fraud may prejudice other third parties other than the Revenue or
Customs
208 INVESTIGATION AND PROSECUTION

privilege, but this is not universal and even in those jurisdictions where those privileges are
recognized, the rules that apply may differ.161 The witnesses that may be called to testify may
testify voluntarily or non-voluntarily. Some of them may be cooperative whereas others may
be less so or hostile. Some of them may be third parties far removed from the defendant
personally whereas others may well have participated with or assisted the defendant in the
commission of the crime. Their motives for testifying may obviously also vary.162

A defendant at a criminal trial has the right to examine witnesses against him and to obtain the
attendance of witnesses on his behalf. This is necessary for a defendant to have a fair trial.163
That examination involves the questioning of witnesses during the course of 'examination-in-
chief', 'cross-examination' and 're-examination'. Every prosecution witness called will first be
examined by the prosecution. The defence is then entitled to cross-examine that witness.
Following that cross-examination, the prosecution may again re-examine the witness, usually
in an attempt to remedy or mitigate any damage that may have resulted from the cross-
examination. This process can potentially repeat itself (should the defence choose to cross-
examine every prosecution witness and should the prosecution choose to re-examine every
time after cross-examination) in relation to every prosecution witness called. Every defence
witness called by the defence will first be questioned by the defence. Those defence witnesses
may then again be cross-examined by the prosecution followed by re-examination by the
defence. Testimony must be relevant and admissible as evidence to be accepted into evidence.
Not all a witness's testimony will thus necessarily be accepted into evidence.

The nature of the crime has a strong bearing on the nature and quantities of certain types of
evidence one can expect to be available. In some cases there may be heavy reliance on
documentary evidence, in others less so. In some cases there may be heavy reliance on eye
witness testimony and/or expert testimony, in others less so or not at all. With many tax fraud
prosecutions there will not be a single eyewitness. This however is not at all surprising
considering how most tax frauds are committed. In smuggling cases on the other hand, there
will often be eye witnesses and their testimony will often be important evidence. This may
typically be the testimony of drivers, boat-crews, warehouse-personnel, shop-owners, customs

161
These privileges may be that of the defendant or the witness. Legal professional privilege is that of the
defendant and is recognized in most jurisdictions, including in the United States, England, and Australia. With
legal professional privilege a distinction must be drawn between advice privilege and litigation privilege.
Communications and material between taxpayer or trader and lawyer in the context of the taxpayer or trader
seeking legal advice (e.g. a legal opinion) will in most jurisdictions enjoy legal privilege. This will usually also
be so insofar as is concerned communications and material between taxpayer or trader and lawyer in the course
of litigation (litigation privilege). Taxpayers and lawyers will however often approach other third parties, usually
tax experts, accountants, or other specialists to assist with the view to or during the course of litigation.
Communications and material between the taxpayer and those third parties will often not be viewed as
privileged. Jurisdiction-specific rules relating to litigation privilege must therefore receive particular attention.
The circumstances under which spouses or civil partners will be competent or compellable to give evidence for
the prosecution vary from jurisdiction to jurisdiction. In England, spouses and civil partners of a defendant is
generally competent to provide evidence against that defendant on behalf of the prosecution. Such a spouse or
civil partner can generally speaking not be compelled to testify against the defendant bar in a number of
circumstances (mainly involving violent or sexual offences between spouses or relating to children). In England
this privilege falls away where divorced before he/she gives evidence. See section 80 of the Police and Criminal
Evidence Act 1984
162
Those who pass information to the authorities, and/or who declare themselves available to testify against a
defendant will often have their own very personal, often selfish, reasons for doing so. Hoping to benefit from the
defendant’s downfall is one example. This may typically be a business competitor or an ambitious colleague.
Then there is also revenge. This may typically be the disgruntled current or former employee, or the vengeful ex-
spouse.
163
In the United States a right under the Sixth Amendment of the United States Constitution. In Europe a right
under Article 6 of the ECHR
209 INVESTIGATION AND PROSECUTION

and police officers, naval patrol crews, etc. This is also not surprising considering the nature
of most smuggling operations and considering how most of those crimes are detected.

The true value of any witness testimony will never really be sure until such time as it has been
put up to scrutiny and tested in court. Evidence that may appear reliable and valuable at the
investigation and trial-preparation stages may ultimately prove useless or even prejudicial to
the prosecution's case once tested under cross-examination. Some witnesses may be truthful,
reliable and trustworthy, but their evidence may be of little weight or help, whereas the
testimony of other witnesses may be critical to the outcome of the matter, but the court may
well choose to reject all or parts of their testimony. A witness's credibility may obviously
impact on the weight a trial-court will attach to his testimony. Poor memory, testimony
contradicting earlier testimony, or being evasive or untruthful, may typically impact on
credibility. The credibility of prosecution witnesses is obviously something that need be
investigated and assessed well before trial. Already during the course of an investigation,
investigators should maintain an awareness of all factors that may impact on the credibility of
individual prosecution witnesses and their testimony, positively or negatively, and of all other
evidence capable of corroborating the testimony of those witnesses.

The Revenue staff called to testify may be from various administrative, line, and enforcement
functions. These witnesses may typically include those employees and officers who processed
taxpayer registrations, entries or returns, conducted the audits or inspections, authorized
refunds or payments, made certain enforcement-related decisions, carried out the searches and
seizures, or conducted the investigation. Their evidence will usually cover matters such as: (a)
the taxpayer’s liability to taxation and the duties and responsibilities that rested on the
taxpayer; (b) the taxpayer’s registration or non-registration as taxpayer; (c) Revenue policy,
practice, and internal procedures; (d) the receipt and processing of returns or the non-filing of
returns; (e) income declared and/or deductions claimed; (f) assessments raised; (g) tax
payments received and/or refunds paid out; (h) amounts in tax lost / prejudice suffered; (i) the
findings of inspections and audits; (j) the taxpayer’s history with the Revenue; (k) case-file
management and control; (l) representations and submissions made by the taxpayer and/or his
representatives; (m) agreements reached between the taxpayer and revenue; (n) the capturing,
receipt, retention and handling of documentation and data in the Revenue’s possession; (o)
correspondence between the Revenue and the taxpayer; (p) the circumstances surrounding the
detection of the fraud and the filing of the complaint; (q) the conduct of the criminal
investigation; (r) the manner in which evidence was secured, recorded and retained; and (s)
investigation findings and observations.

Tax fraud prosecutions may often, depending on the complexities of the underlying subject-
matter, call for the use of experts from various specialist subject-fields such as but not limited
to accounting, economics, taxation, and forensics. Their testimony may be valuable and often
indispensable in proving one or more of the facts in dispute. The rules relating to expert
opinion evidence may differ from jurisdiction to jurisdiction. In most common law countries
they do however show a high degree of correspondence. In England, expert opinion evidence
is admissible in criminal proceedings at common law if: "(i) it is relevant to a matter in issue
in the proceedings; (ii) it is needed to provide the court with information likely to be outside
the court's own knowledge and experience; and (iii) the witness is competent to give that
opinion."164

164
Criminal Practice Directions - October 2015 as amended November 2016 & April 2017, Ministry of Justice,
at .14
210 INVESTIGATION AND PROSECUTION

Co-offenders
Being the subject of a criminal enquiry is something most people have no experience of. For
many it may signal a period of great uncertainty, isolation, doubt, and fear. This is so not only
for participants or accomplices already aware of them being the subject of a criminal
investigation, or already arrested or charged, but also for those waiting, fearful of detection,
implication, arrest, and prosecution. Many simply do not have the mental disposition for
dealing with that kind of uncertainty and strain, especially once aware that an enquiry is
underway and that he/she is a suspect. Many an offender may start to ask questions like: (a)
have the offences he participated in or assisted with been detected and if not - are there any
suspicions; (b) what incriminating evidence is discoverable e.g. data, documents,
correspondence, recorded conversations etc; (c) whom may have personal knowledge of the
offences (e.g. employees, colleagues, family members, competitors, ex-spouses etc.) and what
is the extent of that knowledge; (d) are there any individuals whom may have made available
or shared, or may have a strong incentive to make available or to share, any information or
evidence with the authorities, and if so - (i) what (e.g. data, documents, correspondence etc.);
(ii) with which agencies; and (iii) for what purpose; (e) are there any enforcement agencies
that have developed an interest in him or in his activities, or are in possession of any
information or evidence relating to his activities; (f) are there any enforcement agencies that
have developing an interest in any of his co-offenders or in the activities of a co-offender, or
are in possession of any information or evidence implicating such a co-offender; and (g) are
there any agencies with an interest in any activities unrelated to those he was involved in, but
the unravelling of which may lead to the detection of those activities he participated in or with
which he rendered assistance.

With many of the more elaborate frauds we will often find that there were many different
individuals who were directly or indirectly involved in facilitating those frauds. This is
common with many of the corporate frauds and then of course organised crime. There will
often be a long list of enablers. This will typically be the corrupt officers, the crooked
professional advisors, those who provide the means or logistics support, those setting up the
conduits or fronts, those who fence the illicit goods, and those who launder the proceeds, to
list but a few. By the law of averages, the more offenders there are, the more likely the
probability of one or more of them approaching the authorities with an offer of disclosure and
cooperation, or of agreeing to cooperate. Many of those offenders may then also be acutely
aware of that possibility and risk. It will often not be long before one or more of them may
start to question, doubt, and suspect. As can only be expected, it doesn't take long before the
suspicions, paranoia, and distrust starts to grow. Most offenders can be counted on to tell their
accomplices they will never turn and will stand their ground. Those promises and assurances
will however often prove feather-light once the pressure mounts. For those facing a long
prison sentence, often with the possibility of losing everything they hold dear, staying out of
prison or getting a significant reduction on a prison sentence is a strong incentive to turn over
and cooperate with the authorities. This may quite well be at an early stage, quite often
keeping up appearances but behind closed doors cooperating with the authorities and
informing on co-offenders. Self-preservation is a strong instinct and will often outweigh any
notions of friendship or loyalty to the group. There is simply no certainty as to how different
offenders will react once the pressure is on. The choices any given offender will make
obviously depend on a host of factors and circumstances such as but not limited to: (a) the
character and background of the offender; (b) the circumstances surrounding his involvement
e.g. motive, role he played, extent of his involvement; (c) the nature of the relationship or
bond that may exist between the offenders; (d) the advantages and disadvantages of
cooperation for him and his family; (e) whether there is true remorse for the part he played; (f)
how he was or is being treated by his co-offenders; (g) the strength of the evidence against
him; (h) how he is treated and dealt with by the investigators and the extent to which they can
211 INVESTIGATION AND PROSECUTION

gain his trust; and (i) the advice and counsel he receives from family, friends, and his defence
team.

The same taxpayer will often also be engaged in the same evasion scam or fraudulent
arrangement for many consecutive tax years, often involving the participation of multiple
offenders at different times over the course of its operation. This is quite common in the
corporate environment where personnel turnover is a fact of life. Over time officers and
employees die, retire, resign or they get transferred or promoted into other roles. It is not at all
uncommon to find individuals moving into a new position or taking over a particular function
or additional work-load, but then effectively ‘inheriting’ a fraudulent scheme or arrangement
planned, and/or implemented, and/or executed, and/or assisted with, and/or concealed by
his/her predecessors. That scheme or arrangement may still be alive, or may well have been
terminated but may still demand disclosure. To knowingly continue or to assist with the
continuation of a fraud, regardless when or by whom it was implemented, will in most
jurisdictions result in criminal liability. Some of those individuals may also be under a legal
duty of disclosure once they become aware of it and to knowingly refrain from disclosing may
also be an offence. Coming across fraudulent schemes planned, implemented, continued,
concealed, and even perfected over many years, often by a long list of directors, accountants,
and other employees, is not uncommon. Those who are babysitting the fraud at the time of
detection may well not even know how or when exactly it came into being, or who started it,
but where they knowingly participate in or assist with its operation over any period of its
operation, knowing it to be a fraudulent one, then they can also incur criminal liability. In
practice however, the involvement of many of these individuals may be very limited, often
just involvement on the fringes of the criminal activity. They will often not have been the
planners or the guiding hand behind it. Many or even most of these individuals, even though
technically offenders, will often end up as prosecution witnesses. They will usually be the
ones who can testify as to how the processes worked, and the individuals who implemented,
knew about, and managed those processes. It is especially where we deal with long-running
corporate frauds where the testimony of some of these individuals may be key evidence in
proving the involvement, knowledge, and guilt of those who actually planned and managed
the criminal operation.

Where a taxpayer's books of account are proven to be fraudulent, then the accounting officer
obviously finds himself in a precarious position. Where he in good faith relied on the
information as provided by the taxpayer, the latter usually a current or past client or employer,
then he has been deceived just as much as those who relied on the product of his work. In
these cases he will usually find himself a prosecution witness testifying against his current or
former client or employer. It is however not that uncommon to find that the accounting officer
knowingly conspired with or assisted the taxpayer with a fraud. In some cases he may opt to
fight the charges on the same grounds as that put forward by the taxpayer, often as a unified
defence e.g. that the taxpayer's conduct did not in law or in fact amount to an offence, or in
the event of a finding that it did indeed amount to an offence, that there was not the
prerequisite mens rea. He may however also accept that the evidence does suggest a fraud, but
then deny any wrongdoing, usually arguing honest reliance on the information as provided by
the taxpayer. He will however also often turn over, enter into a plea bargain, cooperate with
the authorities, and end up testifying against his former client or employer.

Co-conspirators and those who assisted with the commission of a crime often did not share
the same motives, often did not share the same knowledge, often did not make the same
investment in furtherance of the criminal scheme, often did not share the same expectations,
and often did not derive the same benefit from the crime. Some may have more to lose than
others in the event of conviction. They often are not friends and there is not always loyalty or
212 INVESTIGATION AND PROSECUTION

respect amongst them. In many instances they may well have cooperated or assisted for no
other reason but pressure from seniors, fear, or for lack of courage to resist a culture of
criminality within a business or organisation. Good examples of the latter situation will be the
in-house accountant knowingly making a false entry in the books of account or knowingly
completing a fraudulent tax return, or an imports clerk knowingly entering a false commodity
code in a customs entry, and where they do so on instruction of their autocratic and corrupt
seniors. These employees may well disapprove of it, but will often rather do as they are told
than risk their jobs or sour the relationship with their employers. Very little pressure can move
these employees, or often former employees, to opt in favour of testifying against former
seniors and employers. They will then usually also prove valuable prosecution witnesses.

There will often be a long time-lapse between the time when the crime was committed and the
time when first detected. This will often be many years. The period of time between detection
and prosecution will often also be lengthy, sometimes also stretching out over a number of
years. It is not uncommon to find reported cases where offenders were prosecuted for frauds
committed ten or fifteen years prior to detection. In that time those individual offenders may
long since have left the company, outgrown old loyalties, or long since broken contact with
the other offenders. In some instances old friendships may have grown sour. In that time the
offender may well have grown and changed as person. He may possibly be more mature,
more responsible and risk-averse, or maybe he found some religious or other moral code. He
may well have grown from an irresponsible reckless singleton without dependants into a
middle-aged responsible parent with children. His views, loyalties, and priorities may have
shifted over that time. His loyalties and choices at 45 with a wife and two small children may
be very different from what it would have been when he was a 30 year old singleton and risk-
taker.

Offenders whom may have been party to or may have assisted in the commission of the same
crime may be, and often are, represented by different defence council. Different offenders will
thus often, in following with the counsel they receive from their lawyers, pursue very
different lines of defence. Whereas some may fight the charges tooth and nail, others will
often opt to enter into a plea bargain – which will usually end up in them testifying for the
prosecution. Their reasons for doing so may vary. Some of them may do so out of a genuine
sense of remorse, others driven by anger towards and/or getting back at co-offenders, but
more often than not it will be for no other reason but self-preservation - with the view to
immunity or a lesser sentence. They will often arrive at that decision in following with the
recommendations of their defence council. In most common law countries, what one will
usually find is that prosecutors, or certain senior prosecutors, will have the authority to enter
into agreements with offenders allowing for immunity and/or reduced sentences in return for
their cooperation with the authorities, and/or testimony against co-offenders. In the case of
immunity they will typically testify and walk out of court free men, whereas in the case of
plea bargains they will typically plead, be convicted, and then receive a more lenient sentence
in return for their cooperation and testimony. The classes of offenders and crimes, those with
the authority to enter into such agreements, the procedures that may apply, and control
measures to ensure proper oversight, varies considerably from jurisdiction to jurisdiction.
Throughout the common law world, the practice of granting immunity and plea bargaining is
generally subject to strict oversight, usually only possible after authorisation by senior
officials within the national prosecuting authority. The reasons for this should be obvious. In
England, immunity is generally reserved for application in serious cases only and then
generally also only in exceptional cases. In most cases all offenders, including those who will
be used as witnesses, will be prosecuted and convicted with their cooperation taken into
213 INVESTIGATION AND PROSECUTION

account for purposes of sentencing.165 Not only may these witnesses prove valuable in
assisting investigators with the investigation of the matter, but their testimony may often be
worth its weight in gold in collaborating the prosecution’s other evidence. Their testimony
will however generally be approached with greater care and will usually also be followed with
a care warning from the presiding judge.

The decision of one offender to cooperate with the authorities may obviously spell serious
problems for his co-offenders. His knowledge may also, depending on his position and
involvement, and depending on the facts of the case, be of considerable intelligence value and
may prove valuable in assisting investigators with the investigation of the matter. Such an
offender may typically provide investigators with intimate and valuable information relating
to:

(a) the operation of the criminal scheme under investigation;

(b) the timelines of events, those involved, and the roles of those involved;
(c) where evidence is to be found;
(d) the viability of certain information or evidence collection strategies;
(e) potential witnesses;
(f) laundering methods and where the proceeds is to be found;
(g) movements, routine, and practices of suspects;166
(h) contingency planning and escape routes that may have been put in place;
(i) the activities of other criminal groups and crooked advisors;
(j) corrupt revenue and customs officials;
(k) other crimes the authorities may not be aware of; and
(l) vulnerabilities in legislation, systems and procedures.

In a very short space of time a group of offenders whom once may have thought themselves a
very solid, secure, and tight knit group, may find themselves in a situation where the
investigators may know everything they need to know, where investigators are in possession
of more evidence they could possibly have hoped for, and with one of their own a potential
witness against them.

2.9.8 Documentary and electronic evidence

Documentary evidence is evidence in written rather than oral form. Documentation and
electronic data can provide for an historical account and timeline of events that may prove
invaluable as evidence of the commission of a crime. Documentary evidence has always
featured prominently in financial investigations. This is probably the key characteristic of
most financial investigations - they are document intensive. There was a time not that long
ago when all evidence 'in written form' was still paper-based in the form of paper documents,
maps, photographs, ledgers, books etc. Technological advances have however brought us
computers, satellite technology, and the internet. This has changed the way in which we
generate, store, and communicate information. Much of the material that just a few decades
back would have been generated, stored, and kept as hard-copy documents is now generated,
stored, and kept in electronic format e.g. planning documents, books of account, financial
statements, commercial documents, correspondence, diaries etc. This coupled with the

165
Immunity is provided for under section 71 (full immunity) and 72 (restricted use undertaking) of the Serious
Organised Crime and Police Act 2005. Plea-agreements and reduction in sentence is provided for under section
73 of the same Act.
166
Intelligence and evidence collection, especially where dealing with smuggling gangs and other criminal
groups, will often be reliant on information as to movements, meetings, communication methods, phone
numbers, etc. This type of information may also be critical for purposes of surveillance, interdiction, and arrest.
214 INVESTIGATION AND PROSECUTION

operation of the internet obviously also changed current practices in terms of how and where
that information is being stored, moved, circulated, and accessed. Not surprisingly, much of
today's intelligence efforts and evidence gathering activities are focussed on the exploitation
of electronic and internet-based data.

There are few crimes where the importance and weight of documentary evidence is as evident
as is the case with revenue fraud. Documentation and data may be obtained, secured, or seized
from a wide range of agencies, entities or individuals such as but not limited to revenue and
customs offices, other agencies of state, the taxpayer and his agents, the taxpayer’s clients and
suppliers, and third-parties such as banks, contractors, acquaintances, co-conspirators et
cetera. That documentation and data might have been gathered or received from many
different sources and at various stages during the historical timeline, both before and after the
decision has been reached to proceed with a criminal enquiry. This may include
documentation and data received, collected, and retained by the Revenue in the course of its
day-to-day administration of the tax legislation. This will typically include returns and
supporting documentation, correspondence between the taxpayer and the Revenue, Revenue
working papers and the taxpayer’s audit-history. The fact that returns, entries, and information
is increasingly being filed, furnished, or retained, in electronic format, necessarily implies
increased reliance on electronically stored data.

Much of the evidence relied upon in tax fraud prosecutions, documentary and otherwise, is
secured during the execution of ‘searches’ and ‘seizures’. In most jurisdictions these are
provided for under the revenue and customs legislation, but in many jurisdictions they are
commonly executed under non-revenue legislation, typically under statutes dealing with
policing and criminal procedure in general.167 Although these statutes do provide for searches
without warrant, searches without warrant in tax fraud investigations is highly exceptional.
They are almost always executed under warrant. Searches without warrant will only be
executed as a last resort where legally justifiable on the facts of the case. Much of the
evidence seized today, and this applies to crime in general, consists of electronic data
generated, transmitted and stored on the full range of electronic devices out there. That
includes data that may well be stored off-site. That electronic data may typically include: (a)
documents, records, and books of account generated, stored and shared electronically; (b)
electronic communication typically in the form of email and cellular messages; (c) internet
search history (e.g. research on how to commit or conceal certain crimes); (d) internet based
transactions, communications, uploading and downloading of documents and information,
comments and contributions made on on-line forums etc. Needless to say, the admission of
such data into evidence demands strict adherence to collection protocols and ensuring same is
retrieved, processed and stored in a manner not undermining its integrity.

In most common law jurisdictions today, and this is also the case in England and Wales, there
is a legal duty on prosecutors to disclose to an accused person any prosecution material which
has not previously been disclosed and which might reasonably be considered capable of
undermining the case for the prosecution against the accused or of assisting the case for the
accused.168 The failure to make proper disclosure may potentially result in a wrongful
conviction, a finding of abuse of process, or may result in a successful appeal with the
conviction set aside. The most diligent of prosecutors will not however be in a position to
make full disclosure where he/she is not aware of the existence of material requiring
disclosure. With many fraud investigations and this is notably so with revenue fraud cases, the

167
E.g. in Britain under the Police and Criminal Evidence Act 1984
168
In England and Wales under the Criminal Procedure and Investigations Act 1996
215 INVESTIGATION AND PROSECUTION

amounts of material held by the investigation team will often be so extensive as to make it an
impossible task for a prosecutor to sift through it all, especially against what may be pressing
deadlines. In these cases prosecutors place considerable reliance on the investigators to keep
proper records of the nature and significance of material actually on hand. The classification,
marking, and recording of material must be a continuous process simultaneously executed as
and when material is gathered and processed. This applies to all material regardless nature,
origin, significance or form. This is not only of importance for disclosure purposes but is also
a critical part of the intelligence cycle.

2.9.9 Chain of custody

Of particular importance in criminal investigations, and prosecutions, is the integrity of the
chain of custody. This in short is an audit trail accounting for the handling of evidence from
the time of its seizure or collection to its use as evidence in court. The recorded chain of
custody must withstand any allegation of the thing in question being planted, tampered with,
contaminated post-collection, or being unrelated to the unlawful conduct charged. It is thus
for investigators to ensure that the whereabouts, security, and those in control of the thing in
question can be accounted for at every point of its keeping, analysis, or transfer from one
officer to another, one location to another, or one agency to another. This is to be recorded
and documented until such time as the matter is concluded and the evidence returned or
destroyed.

2.9.10 Admissibility and exclusion

Admissibility
Every jurisdiction has its own laws, rules, doctrines, and presumptions as to the relevance,
admissibility, and value of evidence as evidence at criminal proceedings. Common to most
jurisdictions are the rule that evidence which is irrelevant to the matter under consideration
will be considered inadmissible. For evidence to be admissible it must be relevant.169 Whether
or not evidence is relevant obviously calls for a determination of the issues under
consideration. At any criminal trial the issues to be considered and decided obviously depends
on the elements of the offence the defendant is charged with. That offence and the elements of
that offence guide what is relevant or otherwise. This then underlines the importance of
investigators having a clear understanding of: (a) the offences and the elements of the
offences they investigate; and (b) how those elements can be proven and the types of evidence
that may be useful in doing so.

For evidence to be relevant, it must assist in proving or disproving: (a) the facts in issue; or
(b) relevant facts; or (c) collateral facts, or (d) those facts that relate to the admissibility of
evidence. The 'facts in issue' are the material facts, the factum probandum. These are the facts
a party to proceedings are required to prove if he is to succeed in proving his case. Relevant
facts, also referred to as 'evidentiary facts', are those facts relevant to the facts in issue. These
are facts which may indirectly, by inference, prove the facts in issue. Collateral facts are facts
relating to the credibility of witnesses who testify about the facts in issue or facts relevant to
the issue.

169
See R v Randall [2004] UKHL 69 where Lord Steyn inter alia explained the "relevance" of evidence as
follows: "A judge ruling on a point of admissibility involving an issue of relevance has to decide whether the
evidence is capable of increasing or diminishing the probability of the existence of a fact in issue." Also see
Director of Public Prosecutions v Kilbourne [1973] AC 729 where it was inter alia said: "Evidence is relevant if
it is logically probative or disprobative of some matter which requires proof … relevant evidence is evidence
which makes the matter which requires proof more or less probable"
216 INVESTIGATION AND PROSECUTION

The fact that evidence is relevant does not per se make it admissible. In every jurisdiction is
also to be found a host of rules governing the admissibility of evidence. These may typically
relate to matters such as but not limited to privilege, hearsay, admissions and confessions,
judicial notice, opinions, and similar facts. Evidence that may seem logically relevant, and
even relevant evidence that may logically prove certain relevant facts, may be held
inadmissible. Evidence must be both relevant and admissible for it to be accepted into
evidence.

Most of the things (evidence other than oral testimony) produced with the view to get it
admitted as evidence e.g. documents, recordings, written statements, or other physical objects,
will almost always (subject to exceptions that may apply) require the testimony of a witness
before it will become receivable in evidence. Even assuming it is allowed to be taken in as
evidence absent such testimony, its value may, depending on the nature thereof and the facts
of the case, be diminished to little or no value absent that accompanying testimony. Such a
witness may typically be important in identifying an object, or in explaining the connection or
relevance thereof in relation to certain facts, or in explaining the circumstances surrounding
its production, use, discovery, recovery, or keeping. That witness may typically be the tax
inspector testifying as to the set of fraudulent documents handed to him by the taxpayer, or
the investigator who discovered the false invoices in the taxpayer's office, the tax practitioner
testifying as to the books of account provided to him by the taxpayer and the authenticity of
certain documents completed or drafted on behalf of his client, or the customs officer who
detected the false seal on the container and seized and processed the smuggled goods. These
are the types of witnesses who can provide time-lines and context, whose testimony can
explain the relevance and significance of certain pieces of evidence, and whose testimony
may shed light on procedural integrity and the integrity or credibility of certain evidence.

From a prosecution perspective, the how, why, when, where and by whom evidence is sought,
identified, secured, recorded, and kept, is critically important. In the revenue and customs
context, questions as to the admissibility of evidence, and this often revolves around the
admissibility as evidence of documentation provided by and admissions made by the
taxpayer, and/or how and when documents or things were seized from a taxpayer, frequently
seems to pivot around the question as to when the point was crossed from the matter being a
mere civil matter to a criminal enquiry.170 Once that line is crossed, the taxpayer is entitled to
all those constitutional rights and legal safeguards a suspect in any criminal matter will
generally be entitled to in law. Evidence gathered from a taxpayer as part of a civil process
but after that point has already been reached, especially so in the face of a failure to
administer the appropriate warnings,171 runs the real risk, depending on the facts of the case
and the legal framework of the jurisdiction in question, of being excluded as evidence.172

170
Within the revenue and customs prosecution context, litigation surrounding the admission or exclusion of
evidence is common. This may typically revolve around documentation, material, or statements: (a) provided to
or made to officers of the Revenue or Customs by taxpayers or traders prior to or during the course of revenue or
customs enforcement operations - alleged to have been obtained in a manner or under circumstances where
reliance thereon will be in breach of the taxpayer or trader's right against self-incrimination; (b) secured during
the course of searches conducted by revenue or customs officials - but alleged to have been executed and secured
in an unlawful manner; (c) obtained by or provided to the Revenue or Customs but alleged to be privileged
material; (d) unlawfully obtained by other law enforcement agencies or other third parties and then made
available to a given revenue or customs administration; (e) lawfully obtained by or provided to other law
enforcement agencies or third parties, but it is argued was unlawfully made available to and relied upon by a
revenue or customs administration.
171
As provided for under the Police and Criminal Evidence Act (in the UK) or 'Miranda' rights in the US
172
It is at this point perhaps the right time to mention that not all admissions made after that point has been
reached will necessarily always be viewed as confessions or be excluded as evidence. Certain admissions made
by a taxpayer after that point has been reached may, even absent the appropriate PACE warning, still be
217 INVESTIGATION AND PROSECUTION

The professionalism and capacity of investigative agencies directly impacts on how evidence
is identified, collected, recorded, assessed, interpreted, and retained. Where investigators,
enforcement agencies, and prosecutors fail, the evidence, or some of it, will also fail. Ensuring
the integrity of evidence, especially within more complex environments like taxation and
customs, calls for a high standard of professionalism, adequate operational capacity, and well
managed systems for ensuring the integrity and quality of all criminal enforcement activities.
Within the revenue and customs context that also means clear segregation between the
activities of civil and criminal enforcement functions. Attaining those standards and building
up that capacity takes many years, depending as it does on things like the quality of
investigators and legal support, training standards, the efficiency of systems, operational
practice and procedure, case management, organizational culture and ethics, sound
organization, good management, good quality control, and good oversight.

The exclusion of improperly obtained evidence

The taxpayer or trader facing revenue or customs related criminal charges has the same right
to a fair trial as would any other person who finds himself a defendant in a criminal court.
Controlling mechanisms to ensure the integrity and reliability of testimony and material
accepted into evidence is critically important in ensuring a defendant receive a fair trial. In
England, Canada, Australia, the United States, and most other common law countries, the
bench (judges) is the gate-keeper controlling the evidence placed before the jury. In all those
jurisdictions, evidence that was unlawfully or improperly obtained may be excluded through
the operation of various exclusionary rules and discretions.173 The circumstances under which
exclusion will be justified will depend on a jurisdiction’s legal framework.

admissible as evidence, not as taxpayer-confessions but as evidence of a continuing pattern of deceit. See
Doncaster v R [2008] EWCA Crim 5 where Lord Justice Rix inter alia said: "... an enquiry by a local tax
inspector is a civil procedure designed to identify and settle a taxpayer's proper tax liabilities, in the course of
which penalties and interest may be imposed but not by way of criminal as distinct from civil sanction. It became
important therefore for a local inspector to refer an enquiry to the SCO, for the very purpose that that Office
could administer a caution and give warnings about legal advice before carrying the investigation any further…
see in this context R v. Gill [2003] EWCA Crim 2256 … where there was a breach of the Code by the SCO
because of failure to administer a caution, but the evidence was nevertheless admitted ... and the prosecution
wanted to adduce the answers as evidence of deliberate lies rather than as confessions … We therefore agree
with the judge that Messrs Davies and Paton were not persons charged with the duty of investigating offences
who were required to have regard to the PACE Codes. We accept, however, that in certain circumstances, for
instance where an enquiry is close to the point where it is referred to the SCO, or even past the point where it
ought to have been referred, there may well be the possibility of unfairness if evidence then obtained were to be
admitted at a future trial. It is perhaps in this sense that the judge spoke or intended to speak of a "borderline". It
seems to us, however, that that would not turn the local tax inspectors into persons charged with a duty of
investigating offences, but might nevertheless require evidence to be excluded under section 76 or section 78 in
appropriate circumstances; sections which remain available in any event to deal with particular problems of
possible unfairness. In the present case, however, there was never any admission of any offence charged. At
most the admissions referred to by the appellant are part of a general admission of past non-disclosure, and even
then they are in truth to be regarded as part and parcel of further lies. Even if … it could be said that the
appellant's admissions might otherwise have constituted a confession obtained by threats or inducement
amounting to oppression, the significance of the admissions was that they were part and parcel of a continuing
process of lies and deception whereby the appellant only conceded what he thought the inspectors knew or
would inevitably discover, and continued falsely to assert that he was being entirely co-operative in relation to
full disclosure. It was only for this purpose that this part of the evidence of the earlier enquiries was used. It is
well established that section 76 does not protect lies as though they were confessions: R v. Allen [2001] UKHL
45, reported together with R v. Dimsey [2001] UKHL 46"
173
In Canada for example, section 24 (2) of the Canadian Charter of Rights and Freedoms provides for the
exclusion of evidence obtained in violation of a defendant’s charter rights. The English courts have both a
common law and statutory discretion (under section 78 of the Police and Criminal Evidence Act 1984) to
exclude evidence.
218 INVESTIGATION AND PROSECUTION

The courts in some jurisdictions, notably those in the United States, tend to follow a very
robust approach when dealing with evidence that was obtained in a manner viewed as
unlawful or improper. This will typically be where the evidence was obtained in breach of a
defendant's right to privacy,174 or in breach of his right against self-incrimination.175 In the
United States evidence that was illegally obtained is very likely to be excluded as evidence at
criminal proceedings. Evidence subsequently gained or secured as a consequence or result of
that evidence, in the United States appropriately referred to as 'the fruit of the poisonous tree',
will usually also be excluded.176 The US approach is basically one where the starting point
leans toward exclusion. The US courts, or many at least, view the exclusion of improperly
obtained evidence as a legitimate and important deterrent to protect the individual against
infringements of his/her civil liberties. A high premium is placed on due process and the
accountability of the State.177

The English courts on the other hand generally follow a more inclusionary approach with all
relevant evidence generally considered admissible. The breach of a code does not per se result
in automatic exclusion.178 This is the starting position. The exclusion of evidence is

174
See e.g. the case of Weeks v United States 232 US 383 (1914). In this matter, documents seized from a
defendant's room without a warrant was held to be in violation of the fourth amendment of the United States
Constitution and was held to be inadmissible as evidence against the defendant. The fourth amendment reads as
follows: "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable
searches and seizures, shall not be violated, and no warrants shall be issued, but upon probable cause, supported
by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be
seized". In the European Union that right is protected under Article 8 (right to respect for private and family life)
of the Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR). (Also incorporated
into British law under the Human Rights Act 1998).
175
This privilege has long been recognised in English law. See the English case of Blunt v Park Lane Hotel Ltd
[1942] 2 KB 253 where the common law privilege against self-incrimination was explained as: "... the rule is
that no-one is bound to answer any question if the answer thereto would, in the opinion of the judge, have a
tendency to expose the deponent to any criminal charge, or penalty, or forfeiture which the judge regards as
reasonably likely to be referred or sued for and further that the rule applies to oral evidence, interrogatories and
the discovery of documents". In the European Union, the privilege against self-incrimination is protected under
Article 6 of the (ECHR) (the right to a fair trial.) (Also incorporated into British law under the Human Rights Act
1998). See Murray v UK [1996] ECHR 3 where it was inter alia said: "… the right to remain silent under police
questioning and the privilege against self-incrimination are generally recognised international standards which
lie at the heart of the notion of a fair procedure under Article 6." In many jurisdictions are to be found legislative
provisions, often provided for under companies, insolvency, and other legislation (in some jurisdictions also in
revenue and customs legislation), providing for the calling and compulsory attendance of certain persons to
submit to certain fact-finding interviews. The refusal to answer questions at such interviews may then also
(depending on the legislative framework) constitute an offence. The use of the transcripts of such interviews
against a defendant at a subsequent criminal trial will be excluded. Admission thereof will be in breach of the
defendant's right to a fair trial as guaranteed under Article 6 of the ECHR and the Human Right Act 1998. See
the European Court of Human Rights decision of Saunders v The United Kingdom [1996] ECHR 65. In this
matter the prosecution relied on highly incriminating answers provided by the appellant (under compulsion)
during the course of interviews conducted under section 434 of the Companies Act 1985. The admission thereof
was held to be in breach of Article 6.
176
For the 'fruit of the poisonous tree' doctrine refer Silverthorne Lumber Co v United States 251 US 385 (1920)
(a US Supreme court case where the Court was required to decide on the admissibility of evidence obtained in
the course of a tax investigation) and Nardone v United States 308 US 338 (1939)
177
See the US case of Mapp v Ohio 367 US 643 (1961) where the court inter alia said: "Nothing can destroy a
government more quickly than its failure to observe its own laws, or worse, its disregard of the charter of its own
existence. If the Government becomes a lawbreaker, it breeds contempt of law"
178
See R v Gill and Anor [2003] EWCA Crim 2256 at para. 77: "It does not follow from the conclusion that
Code C applied and that no caution was administered or tape recording made in breach of paragraph 10.1 that
evidence of everything said by the appellants at the meeting must be excluded. The principles are stated in this
way in paragraph 15-15 of Archbold 2003, by reference to R v Absolam 88 Cr App Rep 332 and R v Delaney 88
Cr App Rep 338: “They are as follows: (a) a breach of a code does nor lead automatically to exclusion
219 INVESTIGATION AND PROSECUTION

considered and applied on a case by case basis with the primary considerations being the
finding of the truth and ensuring a fair trial. Exclusion is also more intended as a measure to
ensure a fair trial than as a measure to discipline or punish regulators and law enforcement
agencies for their breaches of the law.179 It is the duty of the English courts to ensure a fair
trial as guaranteed under Article 6 of the Human Rights Act 1998.180 Where the admission of
evidence will place at jeopardy a fair trial, the English courts will and do not waiver to
exclude it. The English courts have both a statutory discretion (under section 78 of the Police
and Criminal Evidence Act 1984),181 and a common law discretion to exclude evidence.182 In
England, exclusion may be justified on a number of grounds, briefly explained in the
following passage:183

“There are four principles that may be used to justify the exclusion of evidence obtained illegally
or unfairly. The first is the reliability principle … under which evidence should be excluded where
its reliability has been impaired, or the accused’s ability to test its reliability has been impaired, by
reason of the way in which it was obtained. The second is the integrity principle, under which the
court excludes evidence to disassociate itself from the way in which it was obtained and to
maintain the integrity of the criminal justice process. The third is the disciplinary principle, under
which the court excludes evidence obtained illegally or improperly to ‘discipline’ the police and
discourage them from obtaining evidence in such a way. The fourth is the ‘rights-based’ or
‘protective’ principle, under which the court excludes evidence obtained in breach of the rights
that suspects have been granted. This principle is probably no different, except in name, from the
remedial principle, under which evidence is excluded as a ‘remedy’ for breach of the rights of the
suspect. These four principles overlap in their operation, so that to use one may well be to give
effect to another.”

(Delaney); (b) where there is a breach, the judge has a discretion to exclude the evidence (Absolam/Delaney); (c)
the breach must be significant and substantial, and the more so, the more likely the judge is to exclude the
evidence (Absolam); (d) bad faith/flagrant disregard of the codes’ provisions will make exclusion more likely
(Delaney); (e) the test to be applied is the section 78 test (R v Grannell 90 Cr App Rep 149); (f) in applying the
test, the judge should have regard to the rationale of the provisions of the code … and the extent to which the
breach is likely to defeat the rationale (Delaney); (g) if there is a breach but the judge admits the evidence, he
should give reasons for doing so: R v Allen [1995] Crim LR 643, (an identification case); (h) if the evidence is
allowed in despite the breach, the judge should explain the significance of the breach to the jury, as it may go to
the weight they attach to the evidence (see R v Graham [1994] Crim LR 212 and R v Quinn …” [1995] 1 Cr App
Rep 480."
179
See R v Mason [1988] 86 Cr App R 349 where it was inter alia said: "This is not the place to discipline the
police … we are concerned with the application of the proper law… a trial judge has a discretion to be
exercised, of course, upon right principles to reject admissible evidence in the interests of a defendant having a
fair trial." Also see R v Hughes [1994] 1 WLR 876 where it was said: "… the object of a judge in considering the
application of section 78 is not to discipline or punish police officers or customs officers for breaches of the
code. There are other procedures for doing that."
180
Which corresponds with Article 6 of the Convention for the Protection of Human Rights and Fundamental
Freedoms (ECHR). The Human Rights Act 1998 was enacted into British law as an Act to “give further effect to
rights and freedoms guaranteed under the European Convention on Human Rights; to make provision with
respect to holders of certain judicial offices who become judges of the European Court of Human Rights; and for
connected purposes.” (Quoted from the introductory text).
181
Section 78 reads as follows: “78 Exclusion of unfair evidence (1) In any proceedings the court may refuse to
allow evidence on which the prosecution proposes to rely to be given if it appears to the court that, having regard
to all the circumstances, including the circumstances in which the evidence was obtained, the admission of the
evidence would have such an adverse effect on the fairness of the proceedings that the court ought not to admit
it. (2) Nothing in this section shall prejudice any rule of law requiring a court to exclude evidence." Also see
section 137 of the Australian Evidence Act 1995 which provides that in criminal proceedings, the Court must
refuse to admit evidence adduced by the prosecution if the probative value of that evidence is outweighed by the
danger of unfair prejudice to the defendant.
182
See R v Sang [1980] AC 402 where it was inter alia said (per Lord Diplock): "A trial judge in a criminal trial
has always a discretion to refuse to admit evidence if in his opinion its prejudicial effect outweighs its probative
value."
183
Keane, A & McKeown, P. (2014) The Modern Law of Evidence at 56-57
220 INVESTIGATION AND PROSECUTION

The importance of adherence to policy and procedure, professionalism, and transparency in

the manner in which evidence is sought, recovered, recorded, and dealt with cannot be
overstated. An abuse of process may have serious consequences on the outcome of a
prosecution. Not only may exclusion of evidence result in the prosecution not meeting its
burden, and thus ending in an acquittal, but serious breaches may, depending on the facts of
the case, result in the stay of proceedings as an abuse of process.184

2.10 Prosecution
2.10.1 General
The starting-point for any discussion on the topic of revenue prosecutions must be a clear
understanding of the basis for prosecution. Offenders are prosecuted for their offending, for
the fact that they unlawfully, without legal justification, breached the laws of Parliament.
Parliament enacts the laws with the Revenue and Customs, law enforcement, and the criminal
justice system being responsible for administration, enforcement, investigation and
prosecution. Conduct making out tax evasion, smuggling, or fraud, is and remains fraudulent
conduct to be investigated and prosecuted as the crimes that they are for as long as it is the
intention of Parliament for it to be so. Conduct is not criminal for being immoral or unethical.
Conduct that may, judged by the standards of most people, be viewed as utterly immoral, may
well not be criminal. The contrary is also true. Conduct not generally viewed as immoral may
quite well be unlawful. If you knowingly and without legal justification break the law, you
may find yourself the subject of a criminal prosecution regardless motive or moral
justification.

Revenue enforcement cannot be effective unless the State is prepared to show its willingness
to prosecute revenue crime. This being said, few revenue-related offences are referred for
criminal investigation, and even fewer are referred for prosecution.185 The greater majority of
tax offenders will generally face no more but pecuniary penalties imposed as part of a civil
process. In short, administrative sanctions are the norm with criminal prosecution the
exception. The fact that most tax offences are not prosecuted makes the conduct no less
criminal. The taxpayer who opts to defraud the public runs the risk of being investigated and
prosecuted. Revenue related prosecutions are not however only targeted against offending
taxpayers, but also against promoters, advisors, and others who assist taxpayers in defrauding
the Revenue.

The key objective with prosecutions is general deterrence. Examples are made and successes
are well publicized. They are intended to send out a message. Prosecution does however also
serve another important purpose. Maintaining the trust and continued cooperation of honest
taxpayers rely on them being confident of fair, equal, and impartial treatment by the State.
The dishonest taxpayer effectively transfers his tax burden over onto the shoulders of the
honest taxpayer. Honest taxpayers must be assured of the authorities making real efforts to

184
See R v Norman [2016] EWCA Crim 1564 where it was said: "It is well established that the court has the
power to stay proceedings in two categories of case, namely (i) where it will be impossible to give the accused a
fair trial, and (ii) where it offends the court's sense of justice and propriety to be asked to try the accused in the
particular circumstances of the case (R v Maxwell [2011] 1 WLR 1837 per Lord Dyson". Also see R v Latif
[1996] 1 All ER 353 and R v Maxwell [2011] 1 WLR 1837.
185
See e.g. House of Commons Committee of Public Accounts. “Tackling fraud against the Inland Revenue”
First Report of Session 2003–04, Report, together with formal minutes, oral and written evidence HC 62
Incorporating HC 767-i, Session 2002–03, January 13 2004, where at 5 it was inter alia stated: “To those
involved in or contemplating fraud the chances of getting caught could appear minimal, since the Revenue only
carry out 400 serious fraud investigations and 60 prosecutions a year on a customer base of more than 30
million.”
221 INVESTIGATION AND PROSECUTION

ensure they are not being taken advantage of. The prosecution of dishonest taxpayers is thus
just as much intended to assure those honest taxpayers of the State's commitment to ensuring
everybody pays their fair share, as it is intended to punish and deter.

In jurisdictions like Britain and Canada where criminal prosecutions relating to breaches of
the revenue legislation are initiated and conducted not by the Revenue but by the prosecuting
authorities, the offending taxpayer’s fate is out of the hands of the Commissioners once he
enters the criminal justice system. The decision to proceed with a criminal prosecution will
usually only be arrived at after careful consideration of the merits of the allegations made,
usually at multiple levels of decision-making. Evidence is also assessed with care. Those
decision-makers will usually be both experienced prosecutors and managers not eager to
tarnish their own reputations by authorizing prosecutions where the charges carry no merit,
where the evidence is unlikely to carry convictions, or where there has been abuse of process.
In short, in revenue matters the decision to proceed with criminal prosecution is seldom taken
lightly. Where the decision is reached to proceed with a criminal prosecution, civil litigation
will usually be stayed pending finalization of the criminal matter. This then is the case in most
English speaking jurisdictions, and certainly so in the United States, Australia, and England.

The consequences for the tax offender entering the criminal justice system may be severe.
Once he enters the criminal justice system, he will be dealt with as will be any other
defendant charged with the commission of any other class of fraud. Arrest, trial, public
humiliation and reputational damage, conviction, and imprisonment, are all real risks. The
outcome of a prosecution may depend on numerous variables such as but not limited to: (a)
the nature and complexity of the matter; (b) the experience and confidence of the investigators
tasked with the investigation and the resources at their disposal; (c) the experience and
confidence of the prosecutors tasked with the prosecution; (d) the standard of the investigation
conducted; (e) the complexities associated with proving the material elements of the offences
charged; and (f) the quantity, nature and weight of the admissible evidence available.

In jurisdictions like England and Australia, the conviction rates insofar as revenue frauds are
concerned tend to be high when compared to most other types of financial crime. There may
be a number of reasons for this. The investigators and prosecutors conducting those
investigations and prosecutions generally tend to be experienced specialists. Investigations are
also often subject to close monitoring and control, and decisions as to the future handling of a
matter are often made at senior managerial level. Cases will often pass through multiple
reviews, often by senior managers and Revenue lawyers, before they are referred for a
prosecution decision. A high percentage of convictions also involve guilty pleas. The
evidence against the taxpayer will often be so overwhelming in terms of quantities and weight
as to leave the defendant taxpayer with very little prospect of escaping conviction should the
matter go to trial. The most important explanation however is likely to be found in the very
selective approach followed in the way cases are selected for investigation and prosecution.
As per earlier discussions, revenue administrations do not have the capacity to investigate all
frauds with the view to prosecute. Criminal prosecution is very selective indeed and primarily
engaged in for its general deterrence value. Revenue administrations are also acutely aware of
and sensitive about the negative publicity that may flow from an acquittal. The few cases that
are indeed referred for prosecution (a very small percentage of all those instances of evasion
that are detected), are selected from what is a very large pool of potential cases. Not
surprisingly, when it comes to case selection, the decision to refer for prosecution will usually
lean towards those cases showing the most promise for successful prosecution. This has the
effect of the prosecution usually ending up with a pool of prosecution cases which from the
outset showed considerable promise of successful prosecution.
222 INVESTIGATION AND PROSECUTION

In many a tax fraud prosecution, the allegations against the defendant will be supported with a
significant body of evidence. That body of evidence will usually represent years of work by
investigators and prosecutors who painstakingly gathered, evaluated, ordered, recorded, and
assessed thousands of documents, reports, statements, and other exhibits, often from many
witnesses. Testimony may typically be from revenue officials, suppliers, customers,
employers, employees, former colleagues, bank officials, accountants and auditors,
investigators, various expert witnesses, co-conspirators, other regulators, a scorned ex-wife, or
other individuals with whom the defendant may have had a past personal or professional
relationship. In most revenue cases most of that evidence will usually be documentary in
nature, typically consisting of things like invoices, notes, books of account, bank statements,
ledgers, internal communication, contracts and agreements, import and export documentation
etc. These will often provide detailed 'paper-trails' of the defendant's private life, business
dealings, and sometimes even his criminal activities. This evidence, especially where it
consists of layer upon layer of incriminating evidence filling in all the gaps, and often
corroborating other evidence, will often be so damming as to leave the taxpayer with very
little room to manoeuvre. Assuming the matter does go to trial, then he will often have no
choice but to enter the fray, actively participate, make real efforts to rebut the prosecution's
evidence, and to testify. It may at this point be appropriate to raise an important point often
overlooked or misunderstood. This relates to a defendant's right to remain silent. It is true to
say that in most parts of the English-speaking world today, a defendant in a criminal
prosecution's right to silence is a constitutionally entrenched right.186 This is the case in the
United States, Canada, Britain (and in the European Union), Australia, and many other
jurisdictions. It is also a right long since recognised under common law. This being said, in
the face of a strong prosecution case, a defendant's failure to rebut evidence and to create
reasonable doubt, especially under circumstances where the prosecution's evidence can be
easily rebutted should the defendant choose to do so, can severely prejudice his position to put
it mildly. In some cases the prosecution case may be so strong as to leave the defendant with
no other realistic alternative but to testify. The failure to testify may, depending on the facts of
the case and the legal framework of the jurisdiction in question, justify the drawing of
inferences.187

186
Indirectly guaranteed under article 6 (right to a fair trial) of the ECHR and the Human Rights Act 1998. See
Murray v UK [1996] ECHR 3 where it was inter alia said: "… the privilege against self-incrimination are
generally recognised international standards which lie at the heart of the notion of a fair procedure under Article
6."
187
See e.g. subsection 35(2) of the Criminal Justice and Public Order Act 1994 (England and Wales). Section 35
reads as follows:
"35. Effect of accused’s silence at trial (1) At the trial of any person for an offence, subsections (2) and (3) below
apply unless - (a) the accused’s guilt is not in issue; or (b) it appears to the court that the physical or mental
condition of the accused makes it undesirable for him to give evidence; but subsection (2) below does not apply
if, at the conclusion of the evidence for the prosecution, his legal representative informs the court that the
accused will give evidence or, where he is unrepresented, the court ascertains from him that he will give
evidence.
(2) Where this subsection applies, the court shall, at the conclusion of the evidence for the prosecution, satisfy
itself (in the case of proceedings on indictment, in the presence of the jury) that the accused is aware that the
stage has been reached at which evidence can be given for the defence and that he can, if he wishes, give
evidence and that, if he chooses not to give evidence, or having been sworn, without good cause refuses to
answer any question, it will be permissible for the court or jury to draw such inferences as appear proper from
his failure to give evidence or his refusal, without good cause, to answer any question.
(3) Where this subsection applies, the court or jury, in determining whether the accused is guilty of the offence
charged, may draw such inferences as appear proper from the failure of the accused to give evidence or his
refusal, without good cause, to answer any question."
Also see S v Thebus and Another 2003 (6) SA 505 (CC) (South African Constitutional Court) where Richard
Goldstone J, a senior judge and the former Chief Prosecutor of the United Nations International Criminal
Tribunal for the former Yugoslavia and Rwanda inter alia said: “This Court has held that an adversarial system
223 INVESTIGATION AND PROSECUTION

With many of these prosecutions, the evidence against the defendant may be so overwhelming
as to exclude any realistic prospect of escaping conviction. In these cases, it will be the
professional and ethical duty of a legal advisor to provide his client with an honest and
objective opinion as to his client’s prospects of a successful defence. In many instances the
defendant's case will be so hopeless as to leave him with no real other alternative but to
cooperate with the authorities, make reparation, and attempt to settle for the most favourable
plea bargain in those jurisdictions where plea bargaining is provided for, or to work towards
securing the most lenient sentence he can hope for under the circumstances. This does
however also underline a point of particular importance. The defendant taxpayer finding
himself a suspect in a criminal enquiry need give very careful consideration as to his choice of
legal counsel. A ‘tax attorney’ may render valuable assistance in an advisory role, but the
taxpayer’s defence will ultimately be best served with the expertise of counsel with proven
experience in dealing with financial crime related defence work. This all being said, offending
taxpayer's must be realistic as to their own expectations of what a defence lawyer can actually
do for them. What many offenders seemingly fail to grasp is that half of the lawyers entering

of criminal procedure necessarily forces hard choices on an accused, not by the operation of an unfair rule of
law, but by the fundamental nature of the adversarial process itself. This Court has held that such choices which
flow from the character of the adversarial system do not constitute an infringement of the right to silence. Once
the prosecution has produced evidence sufficient to establish a prima facie case against the accused, the accused
faces the choice of staying silent, in which event he or she may be convicted, or seeking to lead evidence which
may or may not be incriminatory. This hard choice faced by the accused is the consequence not of an unfair rule
of law, but of the operation of the adversarial system coupled with the absence of a valid defence. In an
adversarial system there can be no immunity from facing such choices and having to make such a choice cannot
offend the right to silence as entrenched in our Constitution….. Another explanation commonly given for the
rule against adverse inferences is the principle that the state bears the onus of proving every element of an
offence without the assistance of the accused. It is clear from our Constitution that the presumption of innocence
implies that an accused person may only be convicted if it is established beyond a reasonable doubt that he or
she is guilty of the offence. That, in turn, requires the proof of each element of the offence. However, our
Constitution does not stipulate that only the state’s evidence may be used in determining whether the accused
person has been proved guilty. Indeed, our law has always recognized that the question of whether the accused
has been proven guilty or not is one to be determined on a conspectus of all the admissible evidence, whatever its
provenance”
Also see Article 4 of the Criminal Evidence (Northern Ireland) Order 1988. See R v Davison & Ors [2008]
NICC 28 where Gillen J, referring to R v Cowan (1996) QB 373 and R v McLernon (1992) NI 168 explained the
principles governing the approach to Article 4 of the Criminal Evidence (Northern Ireland) Order 1988 as
follows: "Adverse Inference from Failure to Testify … Article 4 of the Criminal Evidence (Northern Ireland)
Order 1988 … In this case each of the accused declined to give evidence on his own behalf after being informed
by the court that it might draw inferences as appeared proper in accordance with Article 4 of the Criminal
Evidence (Northern Ireland) Order 1988 ("the 1988 Order"). I issued the appropriate warning to each of them
and counsel on behalf of the accused each confirmed to the court that their respective client had received the
appropriate advice on the matter. In R v Cowan (1996) QB 373 the Court of Appeal laid down a number of
principles which have governed my approach to Article 4: (i) The right to silence is still preserved. (ii) The
burden still remains on the prosecution to prove the case beyond all reasonable doubt. (iii) A court is prohibited
from convicting solely because of an inference drawn from the defendant's silence. I must not assume that any of
the accused is guilty simply because he has not given evidence. (iv) I might regard the inference from a
defendant's failure to testify, in effect, as a further evidential factor in support of the prosecution's case. (v) I
should not hold against the defendant his silence at trial unless the only sensible explanation was that he had no
answer to the case against him which could have stood up to cross-examination. (vi) It will be open to court to
decline to draw an adverse inference from silence at trial and for a judge to direct or advise a jury against
drawing such inference if the circumstances of the case justifies such a course. But there would need either to be
some evidential basis for doing so or some exceptional factors in the case making that a fair course to take. The
inferences permitted by the article are only such as appear proper… In R v McLernon (1992) NI 168 Lord Hutton
borrowed the words of a distinguished Australian Judge, Dixon J who said: "It is proper that a court should
regard the failure of the plaintiff to give evidence as a matter calling for close scrutiny of the facts upon which he
relies and as confirmatory of any inferences which may be drawn against him. But it does not authorise the court
to substitute suspicion for inference or to reverse the burden of proof or to use intuition instead of ratiocination."
224 INVESTIGATION AND PROSECUTION

a trial court walk out victorious and the other half walk out defeated. That does not however
equate to offending taxpayers facing up to 50/50 odds of conviction or acquittal. A
defendant's odds of walking out of court a free man are not something that can be generalised.
The facts of every case are different, and the dynamics of the courtroom is also we must
remember not a laboratory where results can be imitated with scientific certainty. What
offending taxpayers must however consider is that as far as revenue prosecutions go, the
conviction rates are high with most defendants in most instances walking out of court the
humbled party. In most instances, that end-result is also not something that can be blamed on
the taxpayer's defence team. As unpopular as they may be in the public mind, the majority of
criminal defence lawyers out there are competent and professional. Most of them will usually
also recognise the facts for what they are, correctly apply the law to those facts, and offer their
clients an objective opinion as to their prospects. There will obviously be the incompetent
and/or unethical ones as one will find in all professions, but those are generally the exception.
The simple truth is that some of the most competent lawyers may well loose most of the cases
they argue. It is very much a matter of the types of clients they represent and the types of
cases they are willing to take up. The best lawyer in the land can usually do very little for a
guilty and stubborn offender intent on fighting a rock-solid prosecution case.

2.10.2 Public perceptions and criticism

Revenue administrations generally do not let pass any opportunity to publish prosecution
successes. This they usually do on their own websites and through the wider media. This is so
in the United States, Britain, Australia, Canada, and most other jurisdictions in the English
speaking world. The objective with doing so is completely legitimate and necessary. The main
prize from any conviction is the deterrent effect and that is, and rightly so, fully exploited.
Criminal prosecutions and prosecution successes furthermore also play an important role in
bolstering public confidence in the tax system. Wide publicity of just one successful
prosecution, especially where carefully synchronized with a particular enforcement campaign,
may potentially outweigh the added value of a thousand unreported convictions. This being
said, publicity can be a double-edged sword. The overall value of any publicity is a matter of
context and content. It is not uncommon for enquiries into a certain taxpayer(s) affairs, and
the manner in which that enquiry was or is being dealt with to be accompanied with or to be
followed with considerable negative publicity initiated and fueled by defendant taxpayers,
industry bodies, or individual journalists. The bad publicity that may accompany and follow
any finding of bad faith abuse of process, or even a failed prosecution, may leave in its wake
serious damage that may take many years to mend.

Accusations of ‘unwarranted’ investigations, arrests, or prosecutions, often with expressed or

implied accusations of excesses or abuse of process is not uncommon. A torrent of criticism
from taxpayers, advisors, industry representatives, and other commentators will often follow
shortly after arrest and during trial, often as commentary and reports in the printed media. The
greater majority of those reports will usually prove to be unfounded. Criticism will often be
no more but views, statements, and arguments lacking any relevance to the real facts and/or
be void of any merit, and opinions will all too often be no more but speculation based on
limited information, bad research, or a lacking understanding of relevant legal principles. The
successful conviction of that taxpayer will often not be reported with the same vigour. This
then is also quite understandable. It is easy to be vocal in attacking the Revenue's position. To
question the integrity of a criminal trial where a taxpayer was judged guilty beyond
reasonable doubt, and was so judged upon thorough consideration of what was admissible
evidence as opposed to untested information and opinions, is a very different matter. A key
characteristic of modern liberal democracies such as Britain, Canada, Australia, New Zealand
and the United States, is an independent judiciary and the rule of law. There is a separation of
powers between the executive and the judiciary. The judiciary is not only empowered but also
225 INVESTIGATION AND PROSECUTION

expected to protect citizens against unlawful action by the executive. In those jurisdictions
blessed with fair and well-functioning legal systems, the accused person is entitled to and will
usually also receive a fair trial in front of a jury of his peers, with all the legal protections
intended to ensure he receives such a fair trial. Assuming he does receive such a fair hearing
in an impartial court, but is nevertheless found guilty by an impartial jury made up of his
peers, then there is little room for continuing to cry injustice. To then continue to show
solidarity with the offender and to continue to challenge the Revenue's position calls for a
reputational investment most of those commentators are not prepared to make.

Criticism does not however equate to hostility. Criticism relating to the handling of a
particular criminal investigation and/or prosecution may well be valid, and concerns voiced in
relation to enforcement policy and practice may be no more but part of healthy discourse. It is
all a matter of content and context. Revenue administrations, customs administrations, and
prosecuting authorities must administer the law in a fair and lawful manner. Vigilance in
acting against any unfair administrative action or breaches of due process is thus critically
important, not only for the citizen in question, but also for the Revenue. Criticism will not
always be without merit. Revenue and Customs administrations, the police, and prosecuting
authorities, are large organizations and mishandling of matters do occur. Where they do, or
where criticism is valid, then prompt and appropriate action in line with the law is in the
Revenue's own interest. It assures taxpayers of the Revenue's commitment to fairness and the
rule of law. Criticism or concerns voiced in relation to certain areas of enforcement policy and
practice is not always void of merit either. Some of those concerns may indeed be valid and
may indeed be common cause, but may simply not be viewed, by policy-makers, as primary
concerns in a world where policy formulation usually go hand-in-hand with a balancing act or
trade-off. A good example in point is the oft-voiced view that strict enforcement drives away
local companies and push away potential investors188. There may indeed be many a taxpayer
who in the face of a very heavy tax burden and strict enforcement may decide to shift their
operations abroad, or refrain from investing. It will also be true to say that the overzealous
prosecution of certain categories of tax offenders may indeed fuel growing resentment
towards the Revenue. The tax legislation provides for many offences, many of which require
no more but carelessness or honest error for criminal liability to follow. Taxpayers may thus
incur criminal liability for what may be no more but an honest mistake. The prosecution and
punishment of these categories of tax offenders must therefore be undertaken with care and
not in such a way as to bring about or cause resentment towards the Revenue.

There are offending taxpayers who, no matter how guilty they are and no matter how strong
the evidence against them may be, will still cry abuse and injustice and they will often be very
vocal and public about it. Whatever their reasons may be for doing so, it is to be expected. As
for those not the subject of a criminal enquiry and prosecution, other taxpayers in general,
their attitudes towards revenue and customs administrations may vary from good, to
ambivalent, to outright hostile. The greater the levels of hostility, the greater can be expected
the levels of resistance, non-compliance, subversion, and yes criticism. Hostility where it does
exist can often be attributed to past unfair treatment by the Revenue, misunderstanding, or a
lack of trust. Varying levels of distrust, hostility, and criticism there will always be. It is just
something that needs be proactively anticipated, managed, and mitigated. Treating taxpayers
and traders respectfully and fairly, ensuring transparency, taxpayer education, and keeping
taxpayer's informed, can greatly assist in fostering a healthy Revenue-taxpayer relationship

188
See e.g. The Financial Times, December 06 2005, “Employers’ chief warns over drive against tax dodging”
where it was reported: “The chancellor’s drive against tax dodging by corporate Britain is in danger of becoming
an “inquisition” that will deter large companies from investing in the UK, the CBI warned as part of a muted
business response to the pre-Budget report.”
226 INVESTIGATION AND PROSECUTION

and avoiding or neutralizing much of that hostility. Of primary importance however is

avoiding valid criticism by ensuring strict adherence to the law by revenue-, law enforcement-
, and prosecution-personnel. It is difficult to foster taxpayer confidence where revenue
administrations and prosecuting authorities commit to one prosecution blunder after another.
The handling and integrity of every investigation and prosecution must be beyond reproach.
Strict adherence to the rule of law at every stage and level of the administrative, intelligence,
investigative, and prosecution processes, good case management, and care in assessing and
selecting cases for prosecution is thus critical.

Taxpayer education and communication is critical. The public at large for the most part rely
on and often accept as gospel the information and opinions published in the media. None of
those readers are privy to the evidence in the case docket, but even assuming they do have
such access, much of it will fall outside the experience and understanding of most of them.
Their perceptions are shaped by whatever they are exposed to in the media. Few readers
however question the objectivity of the writer, the accuracy and completeness of the
information, or the validity of assumptions and assessments. Communication with the public
and ensuring the dissemination of the correct, accurate, and relevant information is important.
Proactive communication can do much to ensure the public is informed with the true facts.

Criticism relating to a particular criminal investigation and/or prosecution can often be

attributed to ignorance of the law and/or an incomplete picture of all the relevant and true
facts of the case. Most taxpayers have no real knowledge or understanding of the revenue and
customs legislation and the framing and operation of the criminal offences that may find
application where there were breaches. Their advisors will often also have a very limited
knowledge of the penal provisions and criminal law. Many taxpayers, advisors and
commentators will often also find it difficult to relate the role of a particular individual in a
particular operation to the offences alleged. Few taxpayers or even advisors have any real
understanding of concepts such as 'common purpose' or 'conspiracy'. There are many
taxpayers, advisors, and commentators out there who will not always fully appreciate how
wide many of those offences in fact are, and how easily a person may overstep the line from
just being a taxpayer, partner, employee, or advisor, to that of being a participant, co-
conspirator or accomplice. Taxpayers, advisors and commentators will often react and lash
out where the authorities in a given instance respond in a manner falling outside the norm,
where the authorities act differently to that what they are used to. Criticism can thus often be
expected where investigators venture into areas of abuse not previously challenged, where the
Revenue attack fraudulent schemes not previously prosecuted in the criminal courts. The fact
that the authorities historically never escalated a particular type of fraud or fraudulent scheme
to the point of taking it before the criminal courts does not in any way provide any person
with the right to expect not to be the first to be prosecuted for doing the same. Wherever and
whenever an example is to made there will always be a first one. Opinions by some
commentators will however sometimes reflect judgements based on past experience rather
than conclusions arrived at based on an interpretation of law.

2.10.3 Prosecuting Authorities

There was a time when revenue-related crimes were for the most part prosecuted by revenue
and customs administrations. In most jurisdictions today, and this is the case in the United
States, Britain, Ireland, Australia, Canada, and many other jurisdictions, responsibility for the
criminal prosecution of revenue and customs related crimes now exclusively or at least
primarily rest with the relevant national prosecuting authorities e.g. the Public Prosecution
Service of Canada, the Commonwealth Department of Public Prosecutions in Australia, and
227 INVESTIGATION AND PROSECUTION

the Crown Prosecution Service in England and Wales. This then is certainly best practice,
doing much to neutralise potential difficulties relating to impartiality.189 Not only did this
move promote a more healthy separation of powers and a greater degree of impartiality, but it
has also served as a catalyst for the implementation of more uniform processes within the
context of revenue-related enforcement and prosecution. All revenue-related criminal
prosecutions in the Britain are now conducted by the Crown Prosecution Service (CPS) in
England and Wales, the Crown Office and Procurator Fiscal Service (COPFS) in Scotland,
and the Public Prosecution Service in Northern Ireland (PPSNI).

Conduct alleged to constitute a criminal offence is referred to the relevant prosecuting

authority for consideration. The decision to charge any person with the commission of any
offence, including any revenue or customs related crime, is that of the relevant prosecuting
authority. The relevant prosecuting authority also has the power to withdraw a charge or to
stop a prosecution. If the prosecuting authority is of the view that there is a reasonable
prospect of securing a conviction, prosecution will most likely follow. Criminal charges, once
considered by the prosecuting authority to be sufficiently strong enough for prosecution, are
dealt with and have to be answered in the criminal courts. The taxpayer now finds himself in
the position of an accused dealt with in the criminal courts. The shift from civil tax
enforcement to prosecution in the criminal courts is a significant event for the taxpayer. Not
only does his fate no longer lie with the Revenue, but his status changes from being a mere
taxpayer to being an accused. From that point onwards no degree of influence or pressure that
he may attempt to exert on the Commissioners can undo that reality. The prosecution carries
the burden of proving beyond reasonable doubt its case against the accused. Conviction of the
taxpayer will change his status to being a convicted criminal placed at the mercy of a
sentencing court.

2.10.4 Private prosecution

There are a number of jurisdictions, notably England and Wales and some former British
colonies where English law once held sway, where the right to undertake private prosecutions
still exist. A private prosecution is a criminal prosecution initiated by a private person or
entity as opposed to the State. It is a right still preserved, albeit often limited, in jurisdictions
such as England and Wales,190 Ireland,191 South Africa, and New Zealand. In England and
Wales, the law allows for the Director of Public Prosecutions to take over the conduct of a
private prosecution, or to stop it where justified. In reaching that decision, the public interest
will always be a prime consideration. A private prosecution will typically be taken over and
stopped where the prosecution was brought in bad faith or based upon evidence which does
not provide a realistic prospect of conviction.192 Private prosecutions, even in those
jurisdictions where they are allowed for, tend to be a rarity. In the developed world, the need
to initiate them has basically disappeared as the law enforcement and the criminal justice
system machinery grew and took charge of dispensing justice. In England and Wales, the

189
This separation of powers and authority has over recent decades become the rule rather than the exception. In
some jurisdictions, Australia being a notable example, the Commissioners do still ‘prosecute’ ‘prescribed
taxation offences’ (provided for under the Taxation Administration Act 1953). These are summary offences used
in dealing with contraventions of a less serious nature. In Australia, as is the current practice in most common
law countries today, serious revenue frauds are prosecuted as commonwealth offences under any of the cluster of
offences provided for in Chapter 7 of the Criminal Code (Criminal Code Act 1995). Those prosecutions are then
also conducted by the Commonwealth Director of Public Prosecutions.
190
See e.g. Gujra, R (on the application of) v Crown Prosecution Service [2011] EWHC 472 (Admin); Gouriet v
Union of Post Office Workers [1978] AC 435
191
See e.g. Kelly & Anor v District Judge Ann Ryan [2013] IEHC 321
192
Tchenguiz & Anor v Director of the Serious Fraud Office [2014] EWHC 1315 (Comm)
228 INVESTIGATION AND PROSECUTION

right to initiate a private prosecution is nevertheless viewed as "a valuable constitutional

safeguard against inertia or partiality on the part of authority".193

In the context of Revenue and Customs fraud, the likelihood of any individual or private
entity ever opting to proceed with a private prosecution is remote at best. Considering the
pressure and potential cost implications, only those with a solid motivation and strong resolve
to initiate such a prosecution will do so. Where the person initiating the private prosecution is
an individual, there will usually be a personal grievance. It is something one can expect from
say parents initiating a private prosecution against the driver who caused the death of their
child, or the victim of something like an assault, fraud, or rape.194 The majority of revenue or
customs frauds do not have a direct impact on any particular individual. Very few individuals
or even groups of individuals will ever experience a burning desire to bring to justice
someone believed to have evaded taxes. This is not to say that a private prosecution in relation
to a revenue or customs matter (in those jurisdictions where they are catered for) can be
totally discounted as a possibility. There may be revenue or customs frauds where an
individual or entity may indeed be directly prejudiced in the course of an offender's criminal
operation. Consider the following example: In the course of a customs enquiry into the
activities of smuggler Y, Customs trace a shipment identified as being counterfeit goods to
trader X where they seize same. Smuggler Y, unbeknown to trader X, supplied trader X with
counterfeit goods and on top of that made off with the VAT charged from X. Trader X,
himself defrauded by Y may thus well have valid grounds for opting for a private prosecution
where the authorities, in spite of there being a strong case, fail to do so. In an age of growing
public discontent with large scale evasion by some multinational corporations and the
wealthy, we may well also one day see a group of activists getting together and bringing a
private prosecution against an alleged offender.

2.10.5 Indictments
In Britain, all those serious evasion or fraud offences a person may find himself charged with
(within the context of customs and taxation) i.e. fraud under section 1 of the Fraud Act 2006,
cheating contrary to common law, fraudulent evasion under section 170 of the Customs and
Excise Management Act, fraudulent evasion under section 106A of the Taxes Management
Act etc., are indictable offences. In common with felony offences in the United States i.e. tax
evasion under 26 U.S.C. § 7201, prosecution is upon indictment. In most common law
jurisdictions, and notably so in Britain, the United States, Canada, Australia, Ireland and New
Zealand, are to be found legislation setting out the rules and procedures that apply to
indictments i.e. the issue and service thereof, content and form, amendment etc. The main
purpose of an indictment is to inform the accused of the allegations against him with the
offences as alleged set out in sufficient detail so as to place him in a position to plead and to
prepare for his defence. In England and Wales for example, section 3 of the Indictments Act
1915 inter alia provides:195

193
See Gouriet v Union of Post Office Workers [1978] AC 435 where Lord Wilberforce inter alia said: "This
historical right which goes right back to the earliest days of our legal system, though rarely exercised in relation
to indictable offences, and though ultimately liable to be controlled by the Attorney General (by taking over the
prosecution and, if he thinks fit, entering a nolle prosequi) remains a valuable constitutional safeguard against
inertia or partiality on the part of authority."
194
See the High Court of Ireland decision of Kelly & Anor v District Judge Ann Ryan [2013] IEHC 321 where
Hogan J inter alia said: "The mere fact that the private prosecutor, Mr. Halpin, seeks to assuage a private
grievance regarding the conduct of IBRC does not in and of itself render abusive this private prosecution, since
the vindication of private grievances is nearly always a motivation for the private prosecutor."
195
In the United States, Rule 7(c) of the Federal Rules of Criminal Procedure inter alia states that an indictment
“must be a plain, concise and definite written statement of the essential facts constituting the offense charged.”
See United States v Resendiz-Ponce 425 F. 3d 729 (2007) where Stevens J inter alia said: "In Hamling, we
229 INVESTIGATION AND PROSECUTION

"(1) Every indictment shall contain, and shall be sufficient if it contains, a statement of the
specific offence or offences with which the accused person is charged, together with such
particulars as may be necessary for giving reasonable information as to the nature of the charge.
(2) Notwithstanding any rule of law or practice, an indictment shall, subject to the provisions of
this Act, not be open to objection in respect of its form or contents if it is framed in accordance
with the rules under this Act."

The current rules under the Indictments Act 1915 which apply are those set out in the
Criminal Procedure Rules 2014.196 Rule 14.2 deals with form and content and inter alia
reads:

"Form and content of indictment

14.2. - (1) An indictment must be in one of the forms set out in the Practice Direction and must
contain, in a paragraph called a ‘count’ -
(a) a statement of the offence charged that -
(i) describes the offence in ordinary language, and (ii) identifies any legislation that creates it; and
(b) such particulars of the conduct constituting the commission of the offence as to make clear
what the prosecutor alleges against the defendant."

The indictment is in essence a statement setting out the offences charged and in relation to
each of those counts where, when, and how the accused is allegedly to have committed the
offence. The information as set out in the indictment it must be added is not only for the
benefit of the accused but also for the court which must after all consider the accusations
levelled against the accused. The facts of the case, the nature of the offences charged, and the
number of counts, obviously determines what the indictment will look like. The complexity of
many commercial crimes, fraud and evasion being examples in point, is such that the counts
listed will often contain allegations and information which may appear overly detailed and
exhaustive, by comparison that is to indictments for many 'common' crimes such as murder or
rape, but may nevertheless be required if the indictment is to be sufficient.

In many instances the same course of conduct engaged in over a long period of time may well
result in multiple counts. Assuming taxpayer X over the tax years 2000 -2009 defrauded
government Y by under-declaring his income in his annual tax returns filed for each of those
ten consecutive tax years, then each fraudulent return will usually be charged as a separate
count. He may thus well face ten counts for what was for all practical purposes a continuous
state of affairs. Legislatures frequently repeal statutes or replace one penal provision with
another. One penal provision may thus well have been replaced by another during taxpayer
X's ten-year fraud, with the result that he may well be charged with different offences for
different tax years. Those offences allegedly committed whilst the repealed provision was in
force will be charged under that provision, whereas those offences allegedly committed after
the new penal provision came into force will be charged under the latter provision.

It is not uncommon for a defendant to be charged with the commission of one offence or in
the alternative with another. It is also not uncommon for taxpayers to commit other non-tax
related offences in the course of, or in the furtherance of what may primarily be or what may
have started out as a tax fraud. Money laundering offences, insolvency offences, the making
of false statements, and bribery offences for example are quite common. In those instances

identified two constitutional requirements for an indictment: “first, [that it] contains the elements of the offense
charged and fairly informs a defendant of the charge against which he must defend, and, second, [that it] enables
him to plead an acquittal or conviction in bar of future prosecutions for the same offense."
196
In force as from 6th October 2014
230 INVESTIGATION AND PROSECUTION

one can often expect to find other additional counts on the indictment relating to those other
offences. Considering this all, it should thus come as no surprise to find reported cases with
indictments listing hundreds of counts over hundreds of pages, alleging offences that may be
revenue and non-revenue related.

An indictment may be so badly drafted as to fail to disclose a known offence, which will
leave it a flawed indictment. The fact that certain particulars may be incomplete does not
necessarily mean that an indictment does not disclose a known offence. In most common law
jurisdictions today, an indictment will not be held to be totally flawed solely due to minor
errors or deficiencies of form where those defects will not result in a miscarriage of justice or
prejudice for the accused.197 In some jurisdictions, the courts do in certain instances have the
authority to amend defective indictments.198

2.10.6 Bail
It is unlikely that there will ever be a universal definition of ‘bail’, not as a legal definition or
otherwise. This is for the simple reason that the operation of ‘bail’, which is a matter of law,
varies significantly from jurisdiction to jurisdiction. What is common to ‘bail’ in most
jurisdictions is that a person in some or other form of custody is released on condition that he
should again surrender to custody or appear for trial at a certain appointed place and time. The
basis upon which bail is granted, the procedural framework within which it is granted, the
conditions to be met for the granting and duration thereof, the security to be provided for bail
(if any), and the consequences in the event of breach, depends on the legal framework of a
given jurisdiction. In England and Wales, ‘bail’ can be defined as: “the release by the police,
magistrates’ court, or Crown Court of a person held in legal custody while awaiting trial or
appealing against a criminal conviction.”199

In some jurisdictions bail is a right only limited in very specific cases, in other jurisdictions it
is not so. In most jurisdictions most offences will usually be bailable, but in most jurisdictions

197
See R v McVitie (1960) 44 Cr. App. R 201. Also see R v Miller and Hanoman Ltd (1959) Crim. L.R. 50
where the statement of offence inter alia read: "being knowingly concerned in attempting to evade a prohibition
on the export of goods contrary to section 56 (2) of the Customs and Excise Act 1952". The particulars of
offence omitted the wording "with intent to evade the prohibition". The offence was nevertheless held to have
been accurately described in the Particulars of Offence absent any miscarriage of justice or prejudice for the
defendant. In Russell v United States 369 U.S. 749 (1962), Stewart J inter alia provided the following historical
background (within the US context): "For many years the federal courts were guided in their judgments
concerning the construction and sufficiency of grand jury indictments by the common law alone. Not until 1872
did Congress enact general legislation touching upon the subject. In that year a statute was enacted which
reflected the drift of the law away from the rules of technical and formalized pleading which had characterized
an earlier era. The 1872 statute provided that "no indictment found and presented by a grand jury in any district
or circuit or other court of the United States shall be deemed insufficient, nor shall the trial, judgment, or other
proceeding thereon be affected by reason of any defect or imperfection in matter of form only, which shall not
tend to the prejudice of the defendant." 17 Stat.198. This legislation has now been repealed, but its substance is
preserved in the more generalized provision of Rule 52 (a) of the Federal Rules of Criminal Procedure, which
states that "Any error, defect, irregularity or variance which does not affect substantial rights shall be
disregarded." There was apparently no other legislation dealing with the subject of indictments generally until
the promulgation of Rule 7 (c), Fed. Rules Crim. Proc., in 1946.... As we have elsewhere noted, "This Court has,
in recent years, upheld many convictions in the face of questions concerning the sufficiency of the charging
papers. Convictions are no longer reversed because of minor and technical deficiencies which did not prejudice
the accused. This has been a salutary development in the criminal law."
198
In Britain, section 5 of the Indictments Act 1915 confers on the courts the power to amend defective
indictments. Section 5(1) reads as follows: "(1) Where, before trial, or at any stage of a trial, it appears to the
court that the indictment is defective, the court shall make such order for the amendment of the indictment as the
court thinks necessary to meet the circumstances of the case, unless having regard to the merits of the case, the
required amendments cannot be made without injustice..."
199
Richards PH & Curzon LB. (2011) The Longman Dictionary of Law, (8th ed), Pearson at .40
231 INVESTIGATION AND PROSECUTION

there will also usually be some serious offences where bail may not be granted, or may only
be granted where there are compelling reasons for doing so. In many jurisdictions provision is
made for different types of bail often differing considerably in terms of operation and
procedure. In some jurisdictions only the courts or certain courts may grant bail, in others
(e.g. England and Wales) both the courts and the police may grant bail. In most jurisdictions
various conditions may be attached to the granting thereof. These may differ from jurisdiction
to jurisdiction. In most jurisdictions bail will only be granted where the courts are satisfied
that the accused will again surrender to custody or appear for trial when the time comes, will
not interfere with witnesses or tamper with evidence, or will not be at risk to himself or
endanger others.

Britain and the EU

In all liberal democracies today, the right to liberty is considered a fundamental right. In
Britain and the European Union for example, this right is guaranteed under Article 5 of the
European Convention on Human Rights (ECHR) and the Human Rights Act 1998. Article 5 of
the ECHR is of particular importance in relation to bail. Article 5(3) of the ECHR states that:

"3. Everyone arrested or detained in accordance with the provisions of paragraph 1.c of this
article shall be brought promptly before a judge or other officer authorised by law to exercise
judicial power and shall be entitled to trial within a reasonable time or to release pending trial.
Release may be conditioned by guarantees to appear for trial."200

"Trial within a reasonable time or release pending trial" is a right limited only where
justifiable under the ECHR, and also rightly so.201 One is not to lose sight of the fact that there
is a presumption of innocence.202 Punishment before conviction is irreconcilable with this
principle. It is common cause that some innocent people may and do get arrested and charged
with crimes they did not commit, a problem often encountered with joint enterprise and
conspiracy offences. Consider the scenario of customs officers raiding a transit shed used for
the trafficking of illicit goods. During the time of the raid they may well arrest a large number
of individuals found in the warehouse and all in some or other way found to be somehow
engaged in the handling of the goods. Or consider the example of a corporate tax fraud where
all the fraudulent documentation was prepared by a number of individuals. In these types of
cases one will often find numerous individuals, all of whom may have acted in the same way,
but all of them may not necessarily have acted with the same knowledge and state of mind.
Where the difference between offenders and non-offenders is no more but a state of mind,
there is always the possibility of the innocent actor finding himself on the wrong side of a
charge. In the absence of a mechanism like bail, our prisons will be overflowing with people,
many of whom may in fact be innocent. What a 'reasonable time' will be is something that is
determined on a case-by-case basis.203 What is reasonable or otherwise is considered looking

200
Article 5(1)(c) reads as follows: “(c) the lawful arrest or detention of a person effected for the purpose of
bringing him before the competent legal authority on reasonable suspicion of having committed an offence or
when it is reasonably considered necessary to prevent his committing an offence or fleeing after having done so”
201
Also see Article 6 of the European Convention on Human Rights (ECHR)
202
In Europe and Britain a right protected under Article 6 of the European Convention on Human Rights
(ECHR) and the Human Rights Act 1998
203
See the Law Commission’s report ‘Bail and the Human Rights Act’ (Law Commission. Law
Commission (2001) Bail and the Human Rights Act 1998, No. 269. London: HMSO) where at .18 it was inter
alia said: "2.23 … the Court had already remarked in Stögmüller v Austria that the concept of a “reasonable
time” could not be translated into “a fixed number of days, weeks, months or years, or into various periods
depending upon the seriousness of the offence”…. "The case law in fact states that the reasonable time cannot be
assessed in abstracto. As the Court has already found in the Wemhoff v Germany judgment …, the
reasonableness of an accused person’s continued detention must be assessed in each case according to its special
features". On the facts, the Court found that W’s detention for four years did not violate the guarantee of trial
232 INVESTIGATION AND PROSECUTION

at not only the conduct of or handling of the matter by the authorities, but also the complexity
of the matter. What is ‘reasonable’ can, depending on the facts of the case, still be a very long
period of time depending on the facts of the case. Fraud cases are renowned for often being
long drawn-out affairs. In the absence of mechanisms like ‘bail’, many suspects finding
themselves on the wrong side of a charge may find themselves caught up in the prison system
for years before they are actually convicted or acquitted. This not only impacts on those in
custody, their families and careers, but also puts strain on budgets with large numbers of
awaiting-trial prisoners. As long as bail is granted and managed responsibly it is just as much
to the advantage of the State as it is to those caught up in the criminal justice system.

In Britain and the EU, the refusal of bail must be justifiable under the European Convention
on Human Rights and the Human Rights Act 1998. Bail may only be refused where there are
good reasons for doing so and the court should give reasons for its decision. What such good
reasons will be was probably best explained in the Law Commission’s report ‘Bail and the
Human Rights Act’ where it was inter alia explained that:204

“2.28 Detention will be found to be justified only if it was necessary in pursuit of a legitimate
purpose (or ground). The Court has recognised a number of purposes which are capable of
justifying detention. They all relate to feared events for the prevention of which detention may be
necessary, such as the defendant absconding. Detention will be considered necessary only if there
is a real risk that the feared event will take place if the defendant is granted bail.

2.29 The ECtHR has recognised that pre-trial detention may be compatible with the defendant’s
right to release under Article 5(3) where it is for the purpose of avoiding a real risk that, were the
defendant released,

(1) he or she would

(a) fail to attend trial;
(b) interfere with evidence or witnesses, or otherwise obstruct the course of justice;
(c) commit an offence while on bail; or
(d) be at risk of harm against which he or she would be inadequately protected; or
(2) a disturbance to public order would result.

2.30 Although these grounds are capable of justifying pre-trial detention, the ECtHR will only
accept that detention is necessary for one of those grounds if that conclusion is supported by
adequate reasons put forward by the national court which are clearly addressed to the facts of the
case.”

This all translates into a defendant having the right to be granted bail unless the refusal of bail
is necessary to prevent a real risk of him failing to attend trial, or of him interfering with
evidence or witnesses, or of him otherwise obstructing the course of justice, or of him
committing an offence whilst on bail, or of him being at risk of harm and where he cannot be
adequately protected whilst out on bail. In considering whether bail should be refused for any
of these reasons, the courts will consider factors such as, but not necessarily limited to: the

within a reasonable time. …. 2.24 In assessing the reasonableness of the length of time taken to bring the
detained person to trial, account must be taken of the continuing interference with the liberty of a person who has
a right to be presumed innocent until proved guilty. As the Court stated in the early case of Neumeister v
Austria: "The reasonableness of the time spent by the accused person in detention … must be assessed in relation
to the very fact of his detention. Until conviction, he must be presumed innocent and the purpose of [Article
5(1)(c)] … is essentially to require his provisional release once his continuing detention ceases to be
reasonable.""
204
Law Commission. Law Commission (2001) Bail and the Human Rights Act 1998, No. 269. London: HMSO
at 20 - 21
233 INVESTIGATION AND PROSECUTION

seriousness of the offence the person is charged with; the weight of the evidence against him;
the defendant's ties with the community; the personal circumstances of the defendant; and
past breaches of trust, such as past failures to comply with bail conditions,

It is to be said that in England and Wales, measures to prevent accused persons from being
held in custody for unreasonable or excessive periods of time have been a feature of English
law before the introduction of the ECHR and the HRA 1998. In England and Wales there
have long been 'Custody Time Limits' which effectively limits the time accused persons can
be held in custody. These are primarily dealt with under the Prosecution of Offences Act 1985
(the Act) and its regulations (in the Prosecution of Offences (Custody Time Limits)
Regulations 1987 as amended). These time limits also apply to those who for some or other
reason did not get bail. These time limits can be extended on application of the prosecution.
The prosecution carries the burden of proving such an extension to be justified.

In England and Wales bail is primarily dealt with under the Police and Criminal Evidence Act
1984 and the Bail Act 1976. In Britain, revenue and customs officers do not have any powers
to grant bail. Suspects arrested by revenue or customs officers are bailed by the courts and the
police. Bail may be granted at any time following arrest. It may be granted by the police or
the courts, pre-charge and post-charge. Here we can distinguish between three categories of
bail, these being: (a) the suspect is released on bail without being charged, but must surrender
to the police at a later date; (b) the suspect is charged and released on bail until his first
appearance at court; and (c) bail is granted by the court pending further investigation or
continuation of trial. Pre-charge bail will be granted by the police where there is insufficient
evidence to charge and the person is released pending further investigation, or where the
police may consider the evidence to be sufficient to charge but awaits a charging decision
from the prosecuting authorities. Bail conditions may be imposed for the purposes of ensuring
the suspect do surrender to custody, or do attend trial, or do not interfere with witnesses or
evidence, or do not pose a threat or commit another offence whilst out on bail. These
conditions may typically involve the surrendering of travel documents, or the requirement to
report at a police station every day, or the requirement not to leave a particular area, or the
requirement not to make contact with certain people. In the event of failure to comply with
those bail conditions, or in the event of failure to attend court, bail will usually be revoked and
the person will usually be arrested and/or be taken to court. In England and Wales, as is the
case in most other jurisdictions, the failure to appear at court is in itself also a criminal
offence.

In by far the greater majority of revenue fraud cases, detention is very much the exception,
both before and after charge. Compared with many other classes of offenders, very few
revenue offenders really present a flight risk. Almost all of them, the typical taxpayer filing
false tax returns, or the importer filing false customs declarations, are known and very few of
them are going to get on a plane and flee the country. The greater majority of them will attend
their trials, for any one or combination of reasons i.e.: the fact that they know that they are
known; and/or they may possibly be confident the State will back down and/or not make out
its case; and/or not being the types to severe ties with the lives they know. Where an offender
is convicted on charges of tax evasion or fraud, the sentence handed down will in most cases
in most jurisdictions be no more but a few years in prison. Many are fortunate to walk away
with a suspended sentence. The severity of the consequences is not as dramatic as to push the
average taxpayer over into becoming a fugitive and saying farewell to the life he knows. The
greater majority have families, and/or financial and other business interests, and the majority
do not fit the profile of the type of criminal who will intimidate witnesses or flee to hide in
exile. Where a tax offender does abscond, then his flight will in many instances be in response
to pressure from other non-revenue related criminal enquiries.
234 INVESTIGATION AND PROSECUTION

In by far the greater majority of tax fraud cases, the suspect is unlikely to spend any time in
custody pending trial. He will almost always be released on bail. Where however he does
present a serious flight risk, or where his life may well be in danger from other co-
conspirators, or where there are reasons to suggest he may interfere with or threaten
witnesses, bail will usually be refused. This then is quite common when dealing with some
categories of smugglers and members of organised criminal networks. Many of them will not
refrain from intimidation or even murder. Many of these offenders are also foreign citizens
and from ethnic minorities with strong ties abroad. Many of these people transfer and keep
some of their ill-gotten gains abroad. Many of them are well-positioned and prepared to
abscond once a lengthy prison sentence becomes a real possibility.

2.10.7 Prosecution docket

It is the responsibility of the investigator to record and retain all material collected by him
during the course of an enquiry. This is all recorded in the investigator's case file, depending
on jurisdictions also often referred to as the 'docket' or 'dossier'. With most enquiries the
police deal with on a daily basis, the types of material one will typically find in the
investigator's case file will be things like the complaint, victim's statement, the case summary,
statements of witnesses, forensic results, expert reports and statements, the investigation
diary, an inventory of exhibits, warrants and court-orders.

Where a matter is referred for prosecution, the investigator's case file will eventually be
incorporated into the prosecution's case file. The case docket can best be described as a
working progress, growing as enquiries progress, as more evidence is gathered, and as the
prosecution machinery starts to gain momentum. With many tax fraud cases the docket will
not be the typical police docket consisting of just one or a few files. In many cases the docket
may consist of hundreds or even thousands of files and hundreds of thousands of documents
and other items. It is not at all uncommon to find the prosecution relying on thousands of
exhibits in support of indictments often alleging hundreds of contraventions. What one may
expect to find in such a docket very much depends on jurisdiction-specific legal frameworks
and case-management systems, and then of course the complexity of the matter, and may
depending on jurisdiction-specific practice, include or cover things like:

(a) the complaint (in revenue and customs cases usually founded on the testimony of
revenue or customs officers);
(b) records of the defendant's past compliance record and past correspondence with or
sanctions imposed against the defendant;
(c) the case summary;
(d) statements of witnesses (revenue or customs officers and other third parties);
(e) notes and recordings of defendant interviews;
(f) notes and recordings taken during witness interviews;
(g) communication with witnesses;
(h) forensic results and expert testimony;
(i) video recordings and audio-recordings collected in the course of covert investigations;
(j) the entire body of evidence (including non-documentary exhibits held in evidence
rooms);
(k) warrants and court-orders;
(l) records and notes kept by prosecutors as to decisions made and actions taken;
(m) communication between the prosecuting authorities, the Revenue and other
complainants;
(n) communication between the prosecuting authorities and counsel appointed by the
prosecuting authorities;
235 INVESTIGATION AND PROSECUTION

(o) minutes of meetings between prosecutors, investigators, complainants and witnesses;

(p) communication between the prosecuting authorities and the authorities in foreign
jurisdictions;
(q) extradition requests and requests for foreign assistance;
(r) legal opinions;
(s) progress reports submitted by investigators and prosecutors;
(t) motivations for warrants and summonses;
(u) records of warrants executed;
(v) schedules of unused material not yet been disclosed to the defence;
(w) schedules of disclosures made;
(x) the investigation diary; and
(y) an inventory of exhibits.

With the more complex fraud cases, often large in scale and document intensive as they
usually are, those who will usually be most familiar with the content of the docket will be the
investigators. These larger, more complex enquiries are usually conducted by experienced
senior investigators, quite often more knowledgeable and experienced in the investigation and
prosecution of commercial crime than the prosecutor allocated to conduct the prosecution.
They will be the individuals who investigated the matter and built up the case. They have the
most intimate knowledge of who did or obtained what, where, when and how. They will also
be the ones most familiar with the individual pieces of evidence, and they will usually also be
the individuals who maintained and organised the docket. In some instances, depending on
their background and experience, they may also do much of the case preparation and drafting
of indictments. They will then usually also maintain a close working relationship with the
allocated prosecutor. There may be jurisdictions where an experienced prosecutor may be
dedicated to just a few, or even just one case, but this will usually be the exception. They will
more often than not be burdened with a too heavy caseload to make realistic any expectation
of them familiarizing themselves in real-time with all aspects of an investigation. It is thus
critical for the investigators to ensure a high standard of case-management and administration,
to maintain accurate diaries and inventories, to ensure completeness and accuracy, to ensure
the docket is organised in such a way as to clearly segregate offences / charges and with the
evidence incorporated in a coherent manner proving the material elements of each of those
offences / charges, to maintain complete and accurate schedules of disclosed and undisclosed
material, and to keep the prosecutor informed. Success in these larger more complex cases is
completely dependent on cooperation between investigators and prosecutors, an awareness
amongst investigators of what is required from a prosecution perspective, and an awareness of
the prosecutor's needs.

2.10.8 Disclosure of prosecution material

In most common law countries have long been in place various common law rules relating to
disclosure by the prosecution to the defence of certain material in the prosecution's
possession. In many jurisdictions these have over time been broadened or replaced with
statutory enactments. These rules, and thus the extent of disclosure (of material in the
prosecution's possession to which a defendant may be entitled to), do however differ from
jurisdiction to jurisdiction and may also change over time. Needless to say, disclosure is of
great importance for an accused. Disclosure is seen as important for a criminal justice system
to be fair. In Britain and in Europe, disclosure is considered to be a cornerstone of the right to
a fair trial as guaranteed under article 6 of the Human Rights Act 1998 and article 6 of the
European Convention on Human Rights (ECHR).

In England and Wales, the Criminal Procedure and Investigations Act 1996 places a duty on
prosecutors to disclose to the accused person any prosecution material which has not
236 INVESTIGATION AND PROSECUTION

previously been disclosed and which might reasonably be considered capable of undermining
the case for the prosecution against the accused or of assisting the case for the accused.205
Where there is no such material the prosecutor must give to the accused a written statement
that there is no such material.206 This duty to disclose continues to apply after such initial
disclosures but before the accused is acquitted or convicted or before the prosecutor decides
not to proceed with the case concerned.207 The prosecutor must keep under review the
question whether at any given time there is prosecution material which - (a) might reasonably
be considered capable of undermining the case for the prosecution against the accused or of
assisting the case for the accused, and (b) has not been disclosed to the accused. 208 Where he
does find there to be such material, then he must disclose same to the accused as soon as is
reasonably practicable.209 "Prosecution material" is material "(a) which is in the prosecutor’s
possession, and came into his possession in connection with the case for the prosecution
against the accused, or (b) which, in pursuance of a code operative under Part II, he has
inspected in connection with the case for the prosecution against the accused."210

In England and Wales investigators are required to keep record of unused material collected,
and are required to inform prosecutors of unused material capable of undermining the case for
the prosecution or of assisting the case for the accused. This includes material that may
mitigate the seriousness of an offence. Needless to say, prosecutors cannot be blamed for not
disclosing material where they, despite reasonable care on their side, were not informed of the
material's existence. The failure to make proper disclosure may potentially result in a
wrongful conviction, a finding of abuse of process, or may result in a successful appeal with
the conviction set aside. The failure to make proper disclosure may thus have serious
consequences. Investigators and prosecutors therefore need be objective, careful, and fair at
all times.

2.10.9 Jurisdiction and venue

It will be safe to say that very few offenders at the time when they commit an offence or carry
out any constituent act in the commission of that offence, really give serious thought to the
question as to the States or courts that may have jurisdiction in the event of his arrest and
prosecution, or the extent to which the answer to that question may impact on his future.
Jurisdiction is of considerable importance within the context of tax prosecutions. On the one
hand there is the power of governments to tax, but then there is also criminal jurisdiction in
relation to those who commit revenue crimes. The power to tax is a key attribute of
sovereignty with the State having the authority to tax all those subjects, property, or activities
falling under the jurisdiction of that State. No State has the power to tax those persons,
property or activities over which it holds no jurisdiction. Likewise, no State has the power to
prosecute absent the jurisdiction to do so. Criminal jurisdiction refers to the authority of a
court to hear a case, and to exercise power over the person charged. 211 Whether or not a

205
Section 3(1)(a)
206
Section 3(1)(b)
207
Section 7A(1)(b)
208
Section 7A(2)
209
Section 7A(3)
210
Sections 3(2) and 7A(1)(6)
211
See Black’s Law Dictionary, 2 nd Ed at .43 providing for the following definitions of ‘jurisdiction’:
“JURISDICTION The power and authority constitutionally conferred upon (or constitutionally recognized as
existing in) a court or judge to pronounce the sentence of the law, or to award the remedies provided by law,
upon a state of facts, proved or admitted, referred to the tribunal for decision, and authorized by law to be the
subject of investigation or action by that tribunal, and in favor of or against persons (or a res) who present
themselves, or who are brought, before the court in some manner sanctioned by the law as proper and sufficient
….. Jurisdiction is a power constitutionally conferred upon a judge or magistrate to take cognizance of and
237 INVESTIGATION AND PROSECUTION

particular court does indeed have jurisdiction over a particular person or subject-matter is a
question of law. In most States the classification of courts and the types of cases they are
authorised to adjudicate upon is usually set out in that State’s constitutional framework and/or
in those statutes dealing with criminal procedure. In federations like the United States and
Australia, taxes are imposed at the federal and state level. The legal frameworks of those
jurisdictions also provide for federal and state crimes. In both those countries, frauds in
relation to federal taxes are federal crimes and are prosecuted as such. Tax frauds can
however also be committed in relation to state taxes in which case the matter will be
prosecuted as a state crime.

Sovereign states exercise jurisdiction over its territory and citizens and can enact laws and
create offences as they wish. There is nothing to prevent a State from making punishable
certain conduct by its subjects in other States. A good example in point is the Bribery Act of
2010 (United Kingdom) which makes it an offence for a British subject to engage in bribery
in other States, conduct for which they can be prosecuted and sentenced in the UK. There has
in recent times been a noticeable rise in the enactment of legislation providing for extra-
territorial jurisdiction in relation to certain offences.212 Needless to say, legislation with extra-
territorial application can place those who committed any of the offences provided for in that
legislation it quite a precarious position. Once the orchestra starts, they may quite well find
themselves fighting off the hounds on multiple fronts. Consider the following example:

The Kenyan branch of MC, a subsidiary of a group of companies trading as freight

forwarders with offices in inter alia the UK, South Africa and Kenya, applied for the
renewal of their Customs license. The application for renewal was however met with a
refusal as the application was not accompanied with a valid Tax Compliance Certificate.
Said Tax Compliance Certificate could however only be issued after payment of charges
on a number of shipments which turned out not to be properly customs cleared. In need of
a valid customs licence, and in an attempt to expedite the issue of same, various members
of the Group's management and accountants, based in the UK, South Africa and Kenya,
conspired with Kenyan contractor B and Kenyan employees CJ and R to bribe a Kenya
Revenue Agency official to obtain the required tax compliance certificate. UK based
director H, South African based directors S and G, and Kenya based director J, all of
whom are also shareholders in the Group, at all times had full knowledge of the nature and
operation of the criminal endeavour, were kept abreast of its progress, went along with it,
and sanctioned the payments. The same holds true for UK based accountants A and C
whom knowingly effected the payments. Successful in their endeavours, Kenyan
contractor B, accountant CJ, and worker R secured the issue of the Tax Compliance
Certificate. The corruptly obtained certificate was subsequently used, with the knowledge
of all concerned, in support of the application for the renewal of the company’s customs
licence.213

determine causes according to the law, and to carry his sentence into execution …. Jurisdiction is the power to
hear and determine the subject-matter in controversy between parties to the suit; to adjudicate or exercise any
judicial power over them ….. Criminal jurisdiction. That which exists for the trial and punishment of criminal
offences; the authority by which judicial officers take cognizance of and decide criminal cases….”
212
Also see the Fraud Act 2006, and the Terrorism Act 2006 which provides for extra-territorial jurisdiction in
England and Wales. Also see the Prevention and Combating of Corrupt Activities Act 12 of 2004 (South Africa)
213
Knowingly making use of a licence that was corruptly obtained will usually be considered fraudulent.
Assuming this to be the case, and further assuming the Customs Licence was subsequently given out to and
relied upon by other interested parties, such as the Customs authorities, or carriers, then there may well be
additional fraud charges.
238 INVESTIGATION AND PROSECUTION

On these facts, the criminal liability of Kenyan contractor B and the two Kenyan workers (CJ
and R), will likely be limited to Kenya, their home jurisdiction, where the offences were
committed. All the other individuals who entered the conspiracy, those based in the UK and
South Africa can also be prosecuted in Kenya. As far as the British and South Africa based
directors and accountants are concerned, they can all be charged in any of at least two but
possibly even all three jurisdictions. Both the Bribery Act 2010 (UK) and the Prevention and
Combating of Corrupt Activities Act 12 of 2004 (South Africa) are extra-territorial in its
application. The UK director and accountants can also be charged under section 6 of the
Bribery Act 2010, whereas the South Africa based directors can also be charged under section
5 of the Prevention and Combating of Corrupt Activities Act 12 of 2004. The UK and South
African statutory frameworks provide for general conspiracy offences capable of covering any
person entering a conspiracy to commit a crime regardless the nationality or domicile of that
person at the time when he so entered the conspiracy to commit that crime. This may thus
well open the door to the possibility of the UK and South African directors facing charges in
any of those three jurisdictions.

Cross-border cases where more than one State may have jurisdiction are growing more
common, with the only to be expected difficulties in ascertaining which State(s) will have
jurisdiction over the subject matter (s) and the individuals concerned. In some instances a
criminal operation may for example involve the commission of various criminal acts by a
number of individuals or groups located in multiple jurisdictions. A good example will be an
extended smuggling ring made up of a number of individuals or groups located in different
States, transferring goods, committing fraud, and laundering money through a number of
jurisdictions. Whether or not a particular person will in a particular factual setting be subject
to the jurisdiction of a particular State is a matter of law. This includes relevant international
law, treaties and conventions that may be in force.

Legal frameworks and systems are not only jurisdiction-specific, but they just do not develop
in real-time with the often complex challenges brought about by rapid change in the way
societies function. The flexibility of legal systems are therefore often thoroughly tested by the
many challenges brought about by technological innovation, the complexities associated with
modern financial systems and communication methods, changing business practices, the ever
faster movement of growing volumes in money, goods and people, the extent to which
activities in one jurisdiction can now be authorized or executed from another jurisdiction,
business integration which grow ever-more seamless at the international level, and crime
growing more international than ever, to list but a few. Not surprisingly, these changes in how
our societies operate also provides for many, often unforeseen, complexities surrounding
jurisdiction.

Where any person is to be charged with any offence, a question that will always require
answering is the question as to venue. Venue refers to the area or location where a prosecution
is brought for trial. In most jurisdictions and in the majority of cases, the basis for determining
venue more often than not tend to be the location where the crime was committed or the
location of the underlying acts of the offences in question. This then generally also tend to be
the case where there are no clear laws, provisions, or guidelines stipulating the most
appropriate venue. In most jurisdictions are to be found offences which make punishable the
making of false returns, attempts to do so, subscribing to a false return, aiding or abetting in
the making of a false return, and/or conspiring to commit any such act. Those offences may
go under different names and under different statutes, the constituent elements required to be
proven may differ, and the place and time when the respective offences are considered to have
been completed may differ. The offences a person is charged with and the constituent
239 INVESTIGATION AND PROSECUTION

elements of those offences may, depending on the constitutional and legal framework of the
jurisdiction in question, determine where the appropriate venue may be.

The possibility of more than one choice in venue cannot be excluded. Assume the laws in
jurisdiction Q stipulates venue to be anywhere where any act in the furtherance of a crime was
executed. Now further assume accountant X prepared a fraudulent return on behalf of
taxpayer Y in one district, then took it to taxpayer Y's office in another district for same to be
signed by Y, and then drove to the taxpayer's Revenue office situated in yet another district
where he filed same of behalf of Y, then the matter may well be heard in any of those
districts. Or consider the situation where a number of conspirators enter into a conspiracy and
plan a fraud in one district, but execute the fraud in another district. Venue may, depending on
the legal framework of the jurisdiction in issue, be in either one district or the other, or there
may be a choice between the two. Where the appropriate venue will be in any given instance
is a matter of law to be researched on a case by case basis. In most jurisdictions one will
usually find detailed rules and procedures relating to proof, waiver, and change of venue.
Although usually set out in a given jurisdiction's laws dealing with criminal procedure, the
rules or principles pertaining to venue may also be laid down in other legislation or as is the
case in the United States, in a Constitution.214

2.10.10 Criminal Trial

In all developed countries, there will be a body of law, for the most part codified in one or
more statutes, setting out the rules and procedures governing matters such as but not limited
to preliminary proceedings and prepatory hearings, custody, bail, trial, disclosure, evidence,
sentencing, appeals, and confiscation proceedings. Criminal procedure varies from country to
country and those rules and procedures are also subject to frequent change. The process-flow
as from a defendant's arraignment to his sentencing may thus vary between jurisdictions,
between different types of courts in the same jurisdiction, and in many instances even
between different types of cases. In most common law countries in the typical tax fraud
prosecution there will be an arraignment hearing where the charges are put to the defendant
and where the defendant formally enters his plea. In the event of a non-guilty plea or refusal
to enter a plea the matter will go to trial. In some jurisdictions e.g. in England and Wales, the
prosecuting authorities must, before trial, make disclosure (serving on the defendant all the
evidence on which the prosecution intends to rely). The defendant in turn may also be
required, within a specified time after disclosure, to serve a defence case statement on the
prosecuting authorities (as is the case in England and Wales).

2.10.10.1 Jury or bench trial

Whether or not a defendant in a revenue or customs fraud prosecution will be tried before a
judge or jury depends on the legal system of the country where he is prosecuted. In some
jurisdictions all criminal trials for the more serious offences, generally 'indictable offences' or

214
In the United States, Article III of the US Constitution stipulates that crimes are to be tried in the State where
the crime was committed. (refer U.S. Const. ART III. § 2). 18 U.S.C. § 3237(a) also provides for prosecutions to
be brought in any district where any offense was begun, continued, or completed. In the case of 26 U.S.C. §
7201 prosecutions (attempt to evade or defeat tax), venue can be where a fraudulent return was made, subscribed
to, filed, or where any act was implemented, continued, or completed. In 26 U.S.C. § 7203 prosecutions (failure
to file a return, to supply information, or to pay tax), venue will usually lie where the offender was required to
file his returns. In 26 U.S.C. § 7205 prosecutions (fraudulent withholding exemption or failure to supply
information) venue will be where the false certification or statement was made. In the case of 26 U.S.C. § 7206
prosecutions (fraud and false statements), venue will usually be where the fraudulent return was filed, where the
false statement was signed, where the aiding and assisting took place, or where the act of concealment took
place. In the case of 26 U.S.C. § 7207 prosecutions (fraudulent returns, statements, or other documents), venue
will usually be where the fraudulent document was disclosed to the Revenue.
240 INVESTIGATION AND PROSECUTION

'felonies', are conducted in front of juries. In other jurisdictions all criminal trials are bench
trials. Some jurisdictions may have hybrid systems with panels consisting of a mix of judges
and jurors, whereas in others the defendant may have a right to choose between a jury or
bench trial. The rules as to the role, composition, and selection of juries, jury verdicts, and
procedure in the case of 'hung' juries, can and do differ significantly from legal system to
legal system. In most jurisdictions, including those where trial by jury is the standard practice,
less serious offences tend to be dealt with in the lower courts and in front of judges. In
England and Wales for example, less serious summary offences dealt with in the Magistrates'
Courts are tried as bench trials, but indictable offences dealt with in the Crown Courts are
conducted with juries.215 It is for the jury to resolve issues of fact for the purposes of arriving
at a verdict.216 In some jurisdictions the jury plays no role in relation to sentencing, whereas in
other jurisdictions the jury may well also play a role at the sentencing stage. In some
jurisdictions the selection of jurors may follow a formal and stringent selection process
whereas in others jurors may be randomly selected from a pool of jurors without any real
input from the prosecution or defence. In some jurisdictions the jury must be unanimous in its
verdict, whereas in others this is not the case.217 In Britain, the United States, Canada,
Australia, Ireland, Scotland, New Zealand and most of Britain's former colonies really,
prosecutions for more serious offences such as tax evasion, fraud, money laundering,
corruption and the like, will usually be dealt with as jury trials. There are however notable
examples such as India, South Africa and Singapore where those offences will be tried as
bench trials.

It must be mentioned that the use of juries in complex fraud trials has long been a point of
debate, and often open criticism.218 When looking at prosecutions involving serious financial
crime, then there is the real problem of complexity. Most tax fraud cases are relatively
straightforward, but many are not. Taxation in itself is a complex subject-field, very much
intertwined as it is with other specialist areas of law, business, economics, accounting, etc.
The mechanics of many of the frauds employed, often structured around the architecture of
the legislation it was intended to circumvent, can often be equally complex. Then there is also
the equally real problem of trial duration. Fraud trials lasting weeks or even months are not
unheard of. This places strain on all concerned, including jurors.219

2.10.10.2 Trial flow

The typical criminal trial will usually consist of a number of phases. The general flow of this
process tends to be very similar in countries like England and Wales, Ireland, Scotland, the
United States, Canada, and Australia. This trial process provides for a structure within which
both prosecution and defence has the opportunity to present evidence, challenge evidence, and
refute the other side's case. This process typically consists of:

(a) Opening statements by prosecution and defence;

215
It is to be noted that in England and Wales the prosecution may (under section 44 of the Criminal Justice Act
2003) apply for a trial to be conducted without a jury where there is a danger of 'jury tampering'.
216
See O'Brian v Chief Constable of South Wales Police [2005] UKHL 26 where Lord Phillips had the following
to say about the judge-jury relationship: "Under English common law, in both criminal and civil proceedings ..
the functions of the trial used to be shared between judge and jury. The judge was responsible for resolving
issues of law, the jury issues of fact. The division of functions enabled the judge to control the evidence that was
placed before the jury."
217
In England and Wales, as at the time of writing, a unanimous verdict is not required. In England and Wales a
10-2 majority is sufficient (in the case of a 12 person jury).
218
See e.g. The Independent. September 25, 1996. "End jury trials for fraud, says SFO chief"
219
See e.g R v Simmonds [1969] 1 QB 685 (a fraud case where the appellants were charged with conspiracy to
cheat the Revenue), where the trial dragged on for almost three months.
241 INVESTIGATION AND PROSECUTION

(b) Prosecution and defence case-in-chief;

(c) Closing arguments;
(d) Judge summing up and jury instructions (where a jury trial);
(e) Jury deliberations and verdict (where a jury trial); and
(f) Sentencing

It is to be noted that the majority of revenue and customs fraud prosecutions will never
progress through this process for the simple reason that the majority of defendants tend to opt
for guilty pleas and plea bargains.

(a) Opening statements by prosecution and defence

The presentation by the prosecution and defence of their opening statements, first by the
prosecution, then followed by the defence, can be viewed as the first volleys of fire signalling
the start of the court-room campaign. The prosecutor will in his opening statement usually
provide a broad background of the crimes committed, underline the defendant's part in the
commission of those crimes, and provide an outline of what the prosecution intends to prove.
The defence need not provide an opening statement at this stage, but whether it is given
immediately after the prosecution's opening statement or only later at the beginning of the
defence case-in-chief, the defence's opening statement will basically be no more but a broad
outline of what the defence intends to rebut and prove.

(b) Prosecution and defence case-in-chief

The prosecution case-in-chief and the defence case-in-chief mark the start of the leading and
rebuttal of evidence. First the prosecution presents its case by calling and examining those
prosecution witnesses and placing before the court that evidence which the prosecution relies
on in proving, beyond reasonable doubt, all the material elements of the crimes charged. After
examination of a prosecution witness by the prosecution, the defence is entitled to cross-
examine that witness. Following that cross-examination, the prosecution may again re-
examine the witness, usually in an attempt to remedy or mitigate any damage that may have
resulted from the cross-examination. This process can potentially repeat itself (should the
defence choose to cross-examine every prosecution witness and should the prosecution
choose to re-examine every time after cross-examination) in relation to every prosecution
witness called. After conclusion of the prosecution's case, the defence can make a submission
of 'no case to answer'. Where they do so successfully the jury will be directed to return a not
guilty verdict. Where unsuccessful, the defence will proceed to present the defendant's case.
The defence will then have the opportunity to call defence witnesses and introduce evidence.
Those defence witnesses may in turn also be cross-examined by the prosecution followed by
re-examination by the defence. Conclusion of the prosecution and defence case-in-chief is
followed by closing arguments.

(c) Closing arguments

Closing arguments, by the prosecution and defence, is the final opportunity to address the
court before deliberations. The prosecution will use the opportunity to summarize the
prosecution's case and the evidence and will underline why the prosecution is of the view the
defendant should be found guilty. The defence will in turn provide an overview of the
defence's arguments and why the defence is of the view that the prosecution failed to
discharge the burden of proof.

(d) Judge summing up and jury instructions

Following closing arguments, the presiding judge will sum up the case and the issues to be
decided and provide those instructions appropriate for the jury to execute its duties. This will
include instructions as to the legal rules relevant to the matter under consideration. The
242 INVESTIGATION AND PROSECUTION

content of those instructions obviously depends on the crimes charged and the evidence
placed before the court.

(e) Jury deliberations and verdict

Jury deliberations basically involves those discussions between the jurors of a jury where they
attempt to reach agreement as to whether or not the defendant is guilty of the crimes he is
charged with. In reaching its decision the jury applies the law, as per the judge's instructions,
to the facts of the case. As earlier stated, the composition and selection of juries may differ
between jurisdictions. So may the rules as to when a jury is considered to have reached a
guilty verdict or is considered to be a 'hung' jury. In most jurisdictions the requirement is for
all the jurors to be in agreement with the verdict, thus a unanimous decision, but there may be
jurisdictions where the agreement of only a certain number of jurors may be sufficient. The
verdict returned may either be one of: (a) 'guilty'; or (b) 'not guilty'; or (c) 'not guilty' of those
offences but guilty of other less serious offences where those lessor offences were proven. A
guilty verdict can only follow where the prosecution has discharged the burden of proof. The
defendant must be acquitted in relation to all those offences where all the material elements
have not been proven.

(f) Sentencing
In most evasion and fraud cases, a guilty verdict will usually be followed by an adjournment
with a later date set for sentencing. At the sentencing stage both the prosecution and defence
will be afforded the opportunity to place before the court evidence of aggravating or
mitigating factors which may assist the court in arriving at an appropriate sentence.

2.10.11 Criminal liability in other jurisdictions

Any taxpayer intent on defrauding the Revenue can be assured that any fraudulent course of
conduct he may plan or be engaged in, regardless how ingenious, subtle, or elaborate, will in
all probability be covered by some or other statutory and/or common law fraud or evasion
offence. This is not only the case in the UK but also happens to be the case in the US, Canada,
Australia, and New Zealand. In all these jurisdictions offences are to be found which are
framed so wide as to make punishable most if not every conceivable instance of fraudulent
evasion that may likely present itself.

In some jurisdictions a single offence may cover almost every conceivable variation of
fraudulent conduct, in other jurisdictions certain categories of fraudulent conduct may be
penalized under different offences provided for in different statutes, provided for under
common law, or in any combination. Any one particular offence looked at in isolation, may
well only find application in relation to particular categories of conduct, may well only cover
contraventions relating to certain categories of duty or tax, and / or its application may well be
limited to contraventions of certain statutes. The framing of these offences invariably differ
from jurisdiction to jurisdiction, the material elements required to be proven may differ, in
some jurisdictions there may be certain presumptions intended to assist the prosecution,
offences may be referred to by other names, and different offences may attract different
penalties, but the existence of some or other fraud- or evasion-type offence that does cover
any attempted fraud or evasion, regardless its form or operation, can be safely assumed.

What is permissible or non-permissible may well differ from jurisdiction to jurisdiction. For
this reason then a particular course of conduct lawful in one jurisdiction may on the same
facts be unlawful in another. The same factual setting will thus not always attract criminal
liability in different jurisdictions. What does however consistently attract criminal liability in
just about every jurisdiction, regardless the differences that may exist between the tax- or
customs-rules that may be in force in those different jurisdictions, is the dishonest or
243 INVESTIGATION AND PROSECUTION

fraudulent evasion of any particular jurisdiction’s tax- or customs-rules as they may be framed
at the time when they are so fraudulently evaded. Conduct may be punishable as offences
under the law of another State even where those who commit the unlawful conduct are not
citizens of that State, resident in that State, or were even physically present in the territory of
that State.220 Extradition to, and prosecution in that jurisdiction, cannot be excluded.221 In
most jurisdictions 'dual criminality' will usually be a requirement for extradition. The
unlawful conduct alleged and for which extradition is requested is generally required to be of
such a nature that had it been committed in the State from which extradition is requested, it
would also constitute a crime under the law of that State.222

The same fraudulent scheme may in some instances involve breaches of law or the making of
false representations in more than one jurisdiction. Many frauds perpetrated against the
Revenue tend to be transnational in character. Even though a taxpayer’s main objective may
be limited to the defrauding of one jurisdiction, such as his home jurisdiction, the possibility
of more than one jurisdiction being defrauded in the execution of the same fraud cannot be
counted out.223 These situations do in fact often arise in many corporate tax frauds and some
of the many customs frauds. Another good example in point is that of the situation where a
taxpayer may potentially face money laundering charges in one jurisdiction for the laundering
of tax evaded in another jurisdiction. A number of jurisdictions such as the United Kingdom
and the United States view the proceeds from tax evasion to be the proceeds of crime. A
person, who launders the proceeds of a tax fraud (committed in another jurisdiction) to the
United Kingdom, may thus potentially face prosecution in the UK for contraventions under
the Proceeds of Crime Act 2002.

220
See e.g. section 15.4 of the Australian Criminal Code Act 1995 (Cth) which extends the geographical
jurisdiction which applies to the various fraud and conspiracy offences provided for in Part 7.3 of the Criminal
Code Act 1995. Section 15.4 reads as follows: "15.4 Extended geographical jurisdiction - category D If a law of
the Commonwealth provides that this section applies to a particular offence, the offence applies: (a) whether or
not the conduct constituting the alleged offence occurs in Australia; and (b) whether or not a result of the
conduct constituting the alleged offence occurs in Australia."
221
See e.g. the Jersey case of De Figueiredo v Commonwealth of Australia [2010] JRC 146 where the matter
under consideration was a request by the Commonwealth of Australia for the appellant's extradition to Australia
for a tax fraud against the Australian Commonwealth. It was held that (a) the conduct as alleged against the
Appellant and as averred in the extradition-request took place in Australia and was punishable in Australia even
though the appellant was not an Australian resident, citizen or had ever been in Australia.
222
See R (Al-Fawwaz) v Governor of Brixton Prison and Another [2002] 1 AC 556 (also relied on in De
Figueiredo v Commonwealth of Australia [2010] JRC 146) where Lord Millett inter alia had the following to
say as to the reasons for this requirement: “It is a precondition of extradition that the offence for which
extradition may be ordered should be within the criminal jurisdiction of both the requesting and the requested
state. In considering this question it is important to bear the objects of the dual criminality rule in mind, for its
two requirements serve different purposes. There is no point in extraditing a person for an offence for which the
requesting state cannot try him. That the offence should also be within our own criminal jurisdiction, serves to
protect the accused from the exercise of an exorbitant foreign jurisdiction.”
223
See e.g. the South African case of National Director of Public Prosecutions v Rautenbach and another [2005]
1 All SA 412 (SCA) where the respondents allegedly committed a customs fraud on the South African Revenue
in that the value of vehicles imported into the Common Customs Area was allegedly understated. The
respondent’s alleged fraud also constituted the making of misrepresentations to the Botswana customs
authorities. As the customs authorities of one jurisdiction often compare and verify the declared customs values
for import purposes against the values as declared for export purposes and as declared to the customs authorities
in the country of export, it is not uncommon to find that the export values in the country of export are also being
under-declared so as to correspond with the values declared for import purposes. Also consider the following
example: Diamond dealer X export diamonds from South Africa importing same into the UK. The South African
Diamond Export Levy (Administration) Act 14 of 2007 charges export levy on diamonds exported from South
Africa. X export the diamonds under-declaring the true value to both the South African Revenue when he takes
them out and HMRC when he enters it into the UK. If caught out, X may thus incur criminal liability both in the
UK and South Africa. (In South Africa he may be charged under various statutory offences or alternatively with
the South African common law crime of fraud.
244 INVESTIGATION AND PROSECUTION

Internationally mobile taxpayers facing exposure in multiple jurisdictions will be making a

grave mistake to just assume a foreign jurisdiction's legal system being compatible with that
of his home jurisdiction. There are numerous subjects of law such as but not limited to
revenue law, administrative law, criminal law, constitutional law, and procedural law, which
are of considerable importance for the taxpayer. Each of those subjects of law is made up of
its own body of legislation and case law. This body of law and the interpretation thereof in
turn differs from jurisdiction to jurisdiction. No jurisdiction's tax laws and the penal
provisions provided for therein exist in isolation. Many other laws, legal instruments, penal
provisions, practices, and subjects of law, supplement and provide a system or framework for
the operation of inter alia the tax system. The tax laws of a State hardly reflect the operation
of that jurisdiction's legal system as a system.

Once the taxpayer enters the criminal justice system of any particular jurisdiction, there are
many variables such as but not limited to: the agencies that may be tasked with the
investigation and prosecution; the offences he may be charged with; how evidence may be
collected; the rules that may apply as to its admissibility; the criminal procedures applicable
in that jurisdiction; burdens of proof; the nature of the punishment an offender can expect in
the event of conviction; and the constitutional rights a defendant may be entitled to, which
will depend on the legal and constitutional framework of that jurisdiction. Those intent on
committing a crime contrary to the laws of a foreign State, must appreciate that they will be
dealt with under the laws of that State.

2.11 Statutory Offences

2.11.1 General
The English legal system has had a profound and lasting impact on the legal systems of all
those jurisdictions falling in what is today the common law and for the most part English
speaking world.224 This is especially so when looking at statutory law and the penal
provisions provided for under those statutes. Offences not transplanted over to her former
colonies were then also often copied in those jurisdictions. This influence is especially strong
in respect to tax and customs legislation. It is thus not surprising to find that many of the
statutory offences provided for in the revenue and customs legislation of jurisdictions such as
the US, Australia, New Zeeland, Singapore, South Africa, Canada, India and many others
often show a strong resemblance in framing and the language used. Over the past century we
have witnessed not only the mass proliferation of new statutory offences, but also the
extensive codification of common-law. Common law offences will undoubtedly over time
completely disappear, even so in England.

Only a person who is guilty of committing an offence can incur criminally liability. In
England, as is the case with most other common law jurisdictions, an 'offence' is generally
understood to refer to a criminal offence.225 It is a legal wrong punishable by the State.226

224
In many instances those legal systems were founded and built on English law, that of the US, Canada,
Australia, New Zealand and many others being good examples in point. In other jurisdictions it was assimilated
with the existing legal system so as to leave a hybrid system with a strong English character, South Africa being
a good example in point. South Africa's common law is for the most part still Roman-Dutch in character with
statutory law being primarily English.
225
See Customs & Excise v Anglo Overseas Ltd [2004] EWHC 2198 (Ch) where Justice Lewison said: “To an
English lawyer, the word “offence” connotes a criminal offence”.
226
See Cross, & Jones, An Introduction To Criminal Law, 3rd ed at 3: “A crime is a legal wrong the remedy for
which is the punishment of the offender at the instance of the state... Legal wrongs may be civil or criminal, and
this distinction depends upon that between civil and criminal law. The former is primarily concerned with the
rights and duties of individuals inter se, whereas the latter defines the duties which a person owes to society.”
245 INVESTIGATION AND PROSECUTION

Offences are obviously not just enacted and offenders are not just punished for the sake of
conviction and punishment. They serve an important function in protecting the interests of
individuals and the public at large. A brief but helpful explanation of the purpose of offences
and sentencing is to be found in the US Model Penal Code227 under section 1.02 where it is
said:

"Section 1.02. Purposes; Principles of Construction

(1) The general purposes of the provisions governing the definition of offenses are:
(a) to forbid and prevent conduct that unjustifiably and inexcusably inflicts or threatens substantial
harm to individual or public interests;
(b) to subject to public control persons whose conduct indicates that they are disposed to commit
crimes;
(c) to safeguard conduct that is without fault from condemnation as criminal;
(d) to give fair warning of the nature of the conduct declared to constitute an offense;
(e) to differentiate on reasonable grounds between serious and minor offenses.

(2) The general purposes of the provisions governing the sentencing and treatment of offenders
are:
(a) to prevent the commission of offenses;
(b) to promote the correction and rehabilitation of offenders;
(c) to safeguard offenders against excessive, disproportionate or arbitrary punishment;
(d) to give fair warning of the nature of the sentences that may be imposed on conviction of an
offense;
(e) to differentiate among offenders with a view to a just individualization in their treatment;
(f) to define, coordinate and harmonize the powers, duties and functions of the courts and of
administrative officers and agencies responsible for dealing with offenders;
(g) to advance the use of generally accepted scientific methods and knowledge in the sentencing
and treatment of offenders;
(h) to integrate responsibility for the administration of the correctional system in a State
Department of Correction [or other single department or agency]."

Statutory offences being creations of a particular jurisdiction’s legislature, it is only

understandable that the framing of those statutory offences, the elements of a particular
offence required to be proven for a conviction on that offence, and the interpretation that a
court in a particular jurisdiction may give to a particular penal provision may differ between
jurisdictions. The offences provided for may differ in terms of: (a) the nature of the conduct
criminalized; (b) the standard of fault required to be present; (c) the objectives they are
intended to achieve; (d) the interests intended to be protected; (e) the categories of offenders
targeted; (f) the sentences provided for in the event of contravention; and (g) burden of proof
and the presence or absence of certain presumptions. The fact that two penal provisions from
two different jurisdictions correspond or even mirror each other does not imply they will be
construed the same by the courts of those different jurisdictions. It is the duty of any given
court to interpret and apply any domestic penal provision in accordance with domestic legal
authority and practice.

The adequacy of the law in dealing with revenue and customs-related contraventions
obviously depends on the adequacy of the penal provisions intended to deal with those
contraventions. The fact that a statutory provision was effective when first enacted does not
guarantee it being fit for purpose a few decades later. Penal provisions that may have been
adequate at the time when first enacted can very fast grow obsolete. Penal frameworks must

227
The Model Penal Code (MPC) (1962), American Law Institute, 1962
246 INVESTIGATION AND PROSECUTION

therefore keep pace with changing times and new developments if they are to remain
adequate.

2.11.2 Serious’ and ‘less serious’ offences

A distinction has always been drawn between what we will categorize as 'serious' and 'less
serious' offences. This has historically been the case not only in England and many of her
former colonies, but also in continental European. The distinction between these two groups
mainly pivoted around the mental element, with intentional breaches, and especially those
involving dishonesty or deception, historically viewed as of a serious nature. Breaches
resulting from negligence or carelessness were historically viewed as less serious.228 This
distinction is still valid today, clearly evidenced by the differences in classification of
offences and the differences in the severity of the penalties provided for in the event of
contravention.229 Of those offences involving deception, smuggling and fraud always feature
prominently as the most serious calling for the most severe of punishments. Within the
revenue and customs context, and for the purposes of this discussion, we can distinguish
between three broad clusters of offences. These are: (a) those offences involving non-wilful
conduct, considered to be of a less serious nature, and the result of no more but lack of skill,
carelessness, or negligence; (b) those offences involving deliberate wilful conduct viewed as
serious but not involving evasion or smuggling; and (c) those offences making punishable the
evasion of taxes and smuggling.

(a) Those offences involving non-wilful conduct, considered to be of a less serious nature, and
the result of no more but lack of skill, carelessness, or negligence. These offences will usually
involve 'general compliance' type breaches, usually as a result of no more but negligent
failures such as the careless or negligent failure to:

(a) furnish, file or submit certain information, returns, documents, declarations, permits,
certificates, authority, or other things as and when required;
(b) answer questions from the Commissioners as and when required;
(c) collect or pay over certain duties, taxes, or levies on time;
(d) comply with provisions, rules or regulations provided for in a particular statute as or
when required;
(e) keep certain documents, records or books of accounts;
(f) supply accurate or complete information as and when called for;
(g) account for certain documents, records or certificates;
(h) apply for various categories of registration;
(i) issue or use of certain documents that does not meet the set requirements;
(j) notify the Revenue of certain facts, circumstances, or changes where such notification
is required;

228
In Roman-Dutch law for example, a clear distinction was drawn between tax fraud and contraventions
involving mere negligence. See Simon van Leeuwen, Simon van Leeuwen’s Commentaries on Roman-Dutch
Law (Vol II) at .576 where it was inter alia said: “Fraud properly denotes a deceitful withholding of what is due
to the Government of the Country, for Contravention really consists in negligence in carrying out the law.
Consequently there is a great difference between the two, which causes the imputability of these acts to differ
also.”
229
The prescribed penalties may differ both in nature and severity. Whereas certain contraventions may be
punishable with imprisonment, others may be punishable by fines only. The maximum periods of imprisonment
or amounts of those fines will usually also differ from offence to offence. In the United States the offences
provided for in the Internal Revenue Code (under Title 26, United States Code), distinguish offences as either
‘felonies’ or ‘misdemeanours’. In Britain and Australia, as is the case in many other common law jurisdictions,
some offences are ‘indictable’ offences whereas others are ‘summary’ offences.
247 INVESTIGATION AND PROSECUTION

These offences are primarily intended as a measure to ensure general compliance, are viewed
as more preventative in nature, will usually be 'misdemeanour' or 'summary' offences, and
punishment will usually consist of fines, primarily intended to prevent recurrence of the
breach. In most jurisdictions most of the above acts or failures, where committed wilfully or
intentionally as opposed to merely carelessly or negligently, will be viewed in a more serious
light and may indeed be punishable as a more 'serious offence' (depending on the offences
provided for in a given jurisdiction's legal framework). In many jurisdictions the same penal
provisions may allow for some flexibility in that the same conduct may often be dealt with as
either felony/indictable or misdemeanour/summary offences.

(b) Those offences involving deliberate wilful conduct viewed as serious but not involving
evasion or smuggling. This is that cluster of offences involving deliberate wilful conduct,
viewed as serious in nature, and often also dishonest, but not involving the evasion of taxation
or smuggling. Examples of these are:

(a) falsely holding oneself out to be an officer of the Revenue or Customs;

(b) the making of false statements;
(c) the manipulation of measuring equipment;
(d) fraudulently obtaining certain authorizations, registrations, or approvals;
(e) the obstruction, interference, threatening, or hindrance of revenue or customs officers
in the execution of their duties or the obstruction of revenue administration;230
(f) the falsification of certain documents, stamps, seals, marks, records or things;

The conduct so criminalised may or may not involve deceit or fraud, and will often be used by
dishonest taxpayers, dishonest traders, and/or their accomplices, as part of the mechanics used
in defrauding the Revenue or Customs. In many instances those acts or failures may well
make out the actus reus of some or other fraud offence (under revenue or non-revenue
legislation). These offences are viewed as serious and will usually be 'felonies' or 'indictable
offences'.

(c) Those offences making punishable the evasion of taxes and smuggling. Probably in all
jurisdictions, evasion and smuggling offences (as well as the bribing of officers) are
consistently viewed as of the most serious nature. These offences always involve some or
other form of wilful deception, fraudulent misrepresentation or dishonesty, if not by
commissio, then by omissio. Just a few examples of these are those making punishable:

(a) being knowingly concerned in the fraudulent evasion of income tax or the income tax
of any other person;231
(b) being knowingly concerned in, or in the taking of steps with a view to, the fraudulent
evasion of VAT by the taxpayer or any other person;232
(c) being knowingly concerned in any fraudulent activity undertaken with a view to
obtaining payments of a tax credit;233

230
In Britain, the Commissioners for Revenue and Customs Act 2005 makes it an offence to impersonate a
revenue officer (section 30), obstruct a revenue officer in the execution of his duties (section 31), or to assault
officers (section 32). Section 33 of the same Act provides for authorised Revenue and Customs officers (or in
Scotland a constable) to arrest (without warrant) any person reasonably suspected of: (a) having committed an
offence under section 30, 31 or 32; or (b) committing an offence under any of those sections; or (c) about to
commit an offence under any of those sections.
231
Section 106A of the Taxes Management Act 1970 (UK)
232
Section 72(1) of the Value Added Tax Act 1994 (UK)
233
See e.g. section 35(1) of the Tax Credits Act 2002 (UK)
248 INVESTIGATION AND PROSECUTION

(d) the wilful attempt to evade or defeat the assessment of tax or the wilful attempt to
evade or defeat the payment of tax where additional tax is due and owing;234
(e) the willful evasion or attempted evasion of payment of taxes;235
(f) the fraudulent evasion of, or being concerned in the fraudulent evasion of any
prohibition or restriction;236

These offences will be discussed in greater detail in the following chapters. Suffice to say that
every evasion, smuggling, and fraud offence must be approached and treated as unique. They
often differ considerably in terms of: (a) framing and language used; (b) context within which
they may find application; (c) duties and taxes in relation to which they may find application;
(d) the elements required to be proven; and (e) width of application. This being said, any
taxpayer or trader intent on defrauding the Revenue or Customs can be certain there will in all
probability be one or more offences in his jurisdiction’s legal armoury sufficiently wide
enough to be capable of catching any artifice, trick, or device he may contemplate employing
in committing that evasion or fraud.

2.11.3 Elements of offences

A taxpayer will only be guilty of a criminal offence where the prosecution can prove all the
constituent elements of the offence charged. The elements required to be proven may differ
from offence to offence. All offences in essence consist of: (a) the 'physical' elements; and (b)
the 'mental' or mens rea element (assuming there is a mens rea requirement for the offence in
question). The physical elements encompass or involve all those elements other than the mens
rea element. It includes the acts and/or failures, may include consequences resulting from
those acts or failures, and the circumstances within which those acts or failures take place
and/or within which those consequences ensue.237 Guilt calls for proof, beyond reasonable
doubt, of those physical elements and the prerequisite mens rea.238

Successfully making out a case against a defendant taxpayer obviously depends on

investigators and the prosecution correctly identifying the elements of the crime to be proven.
It is also for the prosecution to identify the type of evidence to be adduced in proving each of
the constituent elements of the offence charged. To charge a taxpayer with an offence absent

234
26 U.S.C. § 7201
235
Section 239(1)(d) of the Income Tax Act (Canada)
236
Section 170 of the Customs and Excise Management Act 1979
237
See the Australian Criminal Code Act 1995 wherein (under Part 2.2, division 3) 'elements' are defined as: "3.1
Elements (1) An offence consists of physical elements and fault elements. (2) However, the law that creates the
offence may provide that there is no fault element for one or more physical elements. (3) The law that creates the
offence may provide different fault elements for different physical elements." The same Act then defines
'physical element' as follows (under division 4): "4.1 Physical elements (1) A physical element of an offence
may be: (a) conduct; or (b) a result of conduct; or (c) a circumstance in which conduct, or a result of conduct,
occurs." Compare against that the following definitions of 'elements' and 'material elements' as provided for
under the Model Penal Code 1962 (under §1.13 -General Definitions): "(9) "element of an offense" means (i)
such conduct or (ii) such attendant circumstances or (iii) such a result of conduct as (a) is included in the
description of the forbidden conduct in the definition of the offense; or (b) establishes the required kind of
culpability; or (c) negatives an excuse or justification for such conduct; (d) negatives a defense under the statute
of limitations; or (e) establishes jurisdiction or venue; (10) "material element of an offense" means an element
that does not relate exclusively to the statute of limitations, jurisdiction, venue or to any other matter similarly
unconnected with (i) the harm or evil, incident to conduct, sought to be prevented by the law defining the
offense, or (ii) the existence of a justification or excuse for such conduct"
238
See e.g. section 3.2 of the Australian Criminal Code Act 1995 (under Part 2.2, division 3) which reads as
follows: "3.2 Establishing guilt in respect of offences In order for a person to be found guilty of committing an
offence the following must be proved: (a) the existence of such physical elements as are, under the law creating
the offence, relevant to establishing guilt; (b) in respect of each such physical element for which a fault element
is required, one of the fault elements for the physical element."
249 INVESTIGATION AND PROSECUTION

certainty as to: (a) the precise content of the language used in that penal provision and the
elements to be proven for that offence to be considered proven; and (b) the reliability and
weight of the available evidence that can be relied upon in proving those elements; is a sure
way of committing to a prosecution with evidential gaps and/or a flawed indictment. This
obviously calls for a very careful interpretation of the wording of the provision under
consideration as it was framed at the time of the alleged wrongdoing. No word or fragment in
any penal provision can be taken for granted. The wording as used in any penal provision
serves as an expression of the legislature’s intention, and it must be assumed that the wording
as used in any such provision was carefully chosen and written into that provision by the
legislature for a reason.239

2.11.3.1 Unlawful conduct

The 'morality' or 'immorality' of conduct might have been a relatively reliable test of
unlawfulness until a few centuries ago, but this is certainly no longer the case. 240 In our
modern world, conduct perceived by many as 'immoral' may quite well be lawful, whereas
conduct perceived by many to be 'moral' may well constitute an offence. The perceived
‘morality’ or 'immorality' of conduct thus no longer serves as a reliable measure or test of
criminality. The law must deal with certainty. ‘Morality’ is neither objective nor certain.
Much of the law today and this is no more so than in the area of taxation, consist of abstract
rules subject to frequent change and considerable variation between different jurisdictions.
Compliance ultimately depends on adherence by taxpayers to the letter of the law - for no
other reason but it being the law.

A state of mind cannot in itself make out a crime. Conduct can also not be unlawful "simply
because a participant believes that it is, or might be criminal".241 It must be unlawful in law.
This however also implies that no person should be punished for any act which was not
punishable as an offence when the act was done. A taxpayer can only be convicted of a
criminal offence where his conduct and state of mind meets the elements of the crime
charged. His conduct may consist of acts, omissions, or any combination thereof.242 This
conduct, the physical acts or failures, will often be explained to be, or be referred to as the
actus reus of the offence, but this is not necessarily correct. All the physical elements
collectively make out the actus reus. The actus reus can really consist of a combination of

239
The Queen v Bishop of Oxford [1879] a QB 245
240
See Ormerod, D. (2008) Smith and Hogan - Criminal Law, 12 Th Ed at 12-13 where it is inter alia said: "…
the traditional attitude of the common law has been that crimes are essentially immoral acts deserving of
punishment. Centuries ago, when the number of crimes was relatively few and only the most outrageous acts
were prohibited - murder, robbery, rape, etc - this was, no doubt, true. But experience suggests that morality and
the criminal law are not co-extensive, and a review of the current vast range of criminal offences in England,
demonstrates that this proposition is undoubtedly true. Many acts are now prohibited on the grounds of social
expediency and not because of their immoral nature. … Moreover, many acts which are generally regarded as
immoral - for example, adultery - are not crimes in England. The test of immorality is not a very helpful one.
There is a further difficulty which arises in classifying action as criminal on the basis of its purported immorality
- whose morality should form the benchmark for criminalization ?"
241
See R v Evans & Ors [2014] EW Misc 5 (CrownC) per Justice Hickinbottom
242
See the Australian Criminal Code Act 1995 wherein 'conduct' and 'omissions' are defined as (under division
4): "4.1 Physical elements … (2) In this Code: conduct means an act, an omission to perform an act or a state of
affairs. engage in conduct means: (a) do an act; or (b) omit to perform an act. … 4.3 Omissions An omission to
perform an act can only be a physical element if: (a) the law creating the offence makes it so; or (b) the law
creating the offence impliedly provides that the offence is committed by an omission to perform an act that by
law there is a duty to perform." The Model Penal Code 1962 under §1.13 (General Definitions) defines 'conduct'
as: "(5) "conduct" means an action or omission and its accompanying state of mind, or, where relevant, a series
of acts and omissions;"
250 INVESTIGATION AND PROSECUTION

acts, failures, consequences and circumstances.243 Let us just for a moment consider the
offence provider for under 18 U.S.C. § 287 (False, fictitious or fraudulent claims). In the
United States this is an offence often employed in dealing with fraudulent claims. Section 287
reads as follows:

Ҥ 287. False, fictitious or fraudulent claims Whoever makes or presents to any person or
officer in the civil, military, or naval service of the United States, or to any department or
agency thereof, any claim upon or against the United States, or any department or agency
thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more
than five years and shall be subject to a fine in the amount provided in this title.”

On a close reading of this provision we will see that the physical elements that must be
proven (those being all the elements other than the mens rea) are:

(a) the person made or presented a claim; and

(b) the claim so made or presented was in fact, thus objectively assessed, a false,
fictitious, or fraudulent claim; and
(c) that false, fictitious, or fraudulent claim was made or presented to any person or
officer in the civil, military, or naval service of the United States, or to any department
or agency thereof; and
(d) that false, fictitious, or fraudulent claim was made or presented upon or against the
United States, or any department or agency thereof,

This is the actus reus. What we see here is that although the offender's physical act may be
limited to the making or presentation of a claim, what is required to be proven in proving the
actus reus really involves much more that. What is also called for is proof, also beyond
reasonable doubt, of all those other circumstances. A close reading of this provision also
underlines another important point. The framing and language of a penal provision will not
always lend itself to neatly separating words or fragments as either describing the actus reus
or the mens rea elements. Making a determination of what will make out the actus reus and
mens rea elements will usually call for an analysis of the provision in its entirety.

Some of the words so commonly encountered in the penal provisions provided for in revenue
and customs legislation will often have a dual character. They often do not only form part of
the language describing the actus reus, but often also point to or imply a mental element and
vice versa. Examples that come to mind are 'evasion', 'smuggling', 'possession' and
'clandestinely import’. The same fragment or combination of words in a penal provision will
often describe or assist in identifying the precise content of both the actus reus and mens rea.
Again referring to the example provided above (18 U.S.C. § 287), in that provision the
wording “knowing such claim to be false, fictitious, or fraudulent” describes not only the
mens rea but also the actus reus. Not only does it tell us something about the offender’s
knowledge (and thus the mental element), it is also the only expression in the provision
pointing to the claim as being one that must be proven to be factually “false, fictitious, or
fraudulent”.

Listing or identifying every act, failure, circumstance, or combination thereof that may make
out any one or more of the elements of the actus reus of a crime is impossible. We can just
have a look at the wide range of very different offences provided for in legislation dealing

243
There may indeed be offences where the actus reus may consist of no more but an act or failure, or just a
'state of affairs', but within the revenue and customs context this is the exception. With the greater majority of
revenue and customs offences the actus reus will consist of a combination of physical elements.
251 INVESTIGATION AND PROSECUTION

with topics such as taxation, customs, security and policing, healthcare, banking, sexual
offences, immigration, insolvency, trade, and traffic management, to list but a few areas, to
appreciate that in any given jurisdiction we are talking about thousands of different offences.
Those offences cover breaches of every conceivable type committed in every possible
context, and in every area of human endeavour. Just in the Customs and Excise Management
Act 1979, just one of many statutes administered by HMRC, we can find at least 60 offences
of which around 20 involve some or other form of dishonesty. Every offence need be
carefully approached and interpreted in making a determination as to the actus reus of that
offence.

Frequent legislative intervention and change means that conduct which in the past might have
been lawful may no longer be so and vice versa. A taxpayer may in theory be prosecuted
today for something he did two years back, even where the same conduct may now be lawful.
A taxpayer or trader cannot however be convicted in a criminal court for his/her conduct that
was lawful at the time when he/she committed the act and where that conduct was only
subsequently made an offence. This is the case in the European Union and in most common
law countries where ex post facto criminal law is generally prohibited.244 Even in those
jurisdictions where ex post facto criminal law is not expressly forbidden, there will usually be
a presumption against retroactive application.

The world around us constantly evolve in terms of legal practices, manufacturing processes,
accounting methods and administration, logistics, communication, trading practices, banking
and finance, and policing and enforcement practices to list but a few areas. Legislation also
changes all the time. There is probably no body of legislation where change may be as
frequent and often as drastic as is the case with revenue and customs legislation. Non-
compliance and how offences are committed then also evolve in step with that change. There
may however be instances where offences and crime may drive certain changes. Offences
intended to protect and reinforce the revenue and customs laws therefore need be framed and
maintained in such a way as to remain relevant and effective despite changes in how our
world functions and despite changes in the underlying taxing and regulatory provisions. In the
legislation of 30, 50, or 100 years ago, offences were not drafted with current technology and
many modern practices in mind. Entries and returns were not submitted electronically but in
paper. Just over a century ago it was inconceivable that smuggling by air could ever be a
common reality. The idea of every individual with access to a computer having the capability
to remotely transfer large amounts of money electronically from one continent to another in
minutes was inconceivable. So was the idea of it being possible to enter into a binding
contract over the internet in a matter of seconds. Some of the customs procedures in use today
were not in use a few decades ago. In many jurisdictions many of the offences that were in
use a few decades ago is just as effective today as they were then thanks to wide framing, the
language used in those provisions, and judicial interpretation and adaptation by the courts, but
many offences in many jurisdictions had to be replaced or amended so as to cover modern
practices and modern ways of committing crime.

244
In Canada under section 11(g) of the Canadian Charter of Rights and Freedoms, in the United States under
Article 1 of the Constitution of the United States, in South Africa under section 35(3)(l) of the Bill of Rights in
the Constitution of the Republic of South Africa 1996, and in the European Union under Article 7 of the
European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) (1950). Article 7
of the ECHR reads as follows: "Article 7 – No punishment without law 1. No one shall be held guilty of any
criminal offence on account of any act or omission which did not constitute a criminal offence under national or
international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that
was applicable at the time the criminal offence was committed. 2. This article shall not prejudice the trial and
punishment of any person for any act or omission which, at the time when it was committed, was criminal
according to the general principles of law recognised by civilised nations."
252 INVESTIGATION AND PROSECUTION

2.11.3.2 Mens rea

The standard of fault required to be proven for conviction under any given penal provision,
depends on the framing of that provision as it was framed at the time of the alleged
contravention. Many statutory offences do not expressly state the standard of fault required to
be present. There is however a general presumption of mens rea being intended as a
prerequisite element of an offence.245 The Latin maxim of “actus non facit reum nisi mens sit
rea” has long been a fundamental principle in most common-law jurisdictions.246 The phrase
roughly translates as meaning “… an act does not make a man guilty of a crime, unless his
mind be also guilty.”247 The courts of most common law countries will generally not interpret
a statutory penal provision as one not requiring mens rea unless there are clear indications to
the effect that that was indeed the legislature's intention.248

Without exception we will find that with all serious revenue and customs offences there will
always be a mens rea requirement. The unlawful conduct of the defendant taxpayer or trader
must be proven to have been accompanied with a 'guilty mind' or mens rea. In England and
most other common law countries, that 'guilty mind' or mens rea may consist of either
'intention', 'knowledge', 'recklessness' or 'negligence'.249 It must be said that the content of

245
See the oft quoted English case of Sherras v. de Rutzen [1895] 1 QB 918 where at 921, Wright J inter alia
said: “There is a presumption that mens rea, an evil intention, or a knowledge of the wrongfulness of the act, is
an essential ingredient in every offence; but that presumption is liable to be displaced either by the words of the
statute creating the offence or by the subject matter with which it deals, and both must be considered” Also see S
v Coetzee and Others 1997 (3) SA 527 where it was inter alia said: “The imposition of criminal liability in the
absence of a criminal intention has for some hundreds of years at least been regarded as an abhorrent concept
both in South African law and in the Anglo-American common law”.
246
See the English cases of The Queen v Tolson (1889) 23 Q.B.D. 168; Harding v Price [1948] 1 KB 695;
Houghton v Smith [1975] AC 476; Regina v G & Anor [2003] UKHL 50. Also see Morissette v United States
342 US 246 (1952) (United States); S v Coetzee and Others 1997 (1) SACR 379 (CC); S v Arenstein 1967 (3)
SA 366 (A (South Africa)
247
Per Lord Hailshom in Houghton v Smith [1975] AC 476, 491. Also see Regina v G & Anor [2003] UKHL 50.
248
See Sweet v Parsley [1970] AC 132 where Lord Reid at 148-149 inter alia said: "… there has for centuries
been a presumption that Parliament did not intend to make criminals of persons who were in no way
blameworthy in what they did. That means that whenever a section is silent as to mens rea there is a presumption
that, in order to give effect to the will of Parliament, we must read in words appropriate to require mens rea …..
it is firmly established by a host of authorities that mens rea is an essential ingredient of every offence unless
some reason can be found for holding that that is not necessary". Also see the US case of Williams v State 1977
OK CR 119, 565 P. 2d 46 (Oklahoma Court of Criminal Appeals) where it was inter alia said: “While the
general rule at common-law was that the scienter was a necessary element in the indictment and proof of every
crime, and this was followed in regard to statutory crimes, even where the statutory definition did not in terms
include it ... there has been a modification of this view in respect to prosecutions under statutes the purpose of
which would be obstructed by such a requirement. It is a question of legislative intent, to be construed by the
court". In the South African case of S v Arenstein 1967 (3) SA 366 (A) and at 381, Van Winsen J inter alia said:
“In view of such general maxims as nulla poena sine culpa and actus non facit reum nisi mens sit rea, the
Legislature, in the absence of clear and convincing indications to the contrary in the enactment in question, is
presumed to have intended that violations of statutory prohibitions would not be punishable in the absence of
mens rea in some degree or other.”
249
See the Australian Criminal Code Act 1995 (under Part 2.2, Division 5) wherein "Fault element" is defined as
follows: "5.1 Fault elements: (1) A fault element for a particular physical element may be intention, knowledge,
recklessness or negligence. (2) Subsection (1) does not prevent a law that creates a particular offence from
specifying other fault elements for a physical element of that offence." Also see section 2.02 of the Model Penal
Code 1962 which reads as follows: "2.02 General Requirements of Culpability. (1) Minimum Requirements of
Culpability. Except as provided in Section 2.05, a person is not guilty of an offense unless he acted purposely,
knowingly, recklessly or negligently, as the law may require, with respect to each material element of the
offense." Under §1.13 of the Code (General Definitions), "intentionally" and "purposely" is defined as: "(11)
"purposely" has the meaning specified in Section 2.02 and equivalent terms such as "with purpose," "designed"
or "with design" have the same meaning; (12) "intentionally" or "with intent" means purposely". Under section 2
of Part 1 of the 1989 'draft' 'Criminal Code for England and Wales', the “fault element” was defined as meaning
253 INVESTIGATION AND PROSECUTION

these fault elements may differ from jurisdiction to jurisdiction and may mean different things
for different lawyers in different jurisdictions. The content of those terms may also change
over time in the same jurisdiction, or may quite well differ between provisions in the same
jurisdiction - depending on the context with which they are used. Generally speaking
however, the definitions attached to those terms in different common law countries continue
to have more in common than what they differ. Let us for a moment compare the definitions
of those terms as provided for under three separate penal codes - the Australian Criminal
Code Act 1995,250 the Model Penal Code 1962251, and the draft Criminal Code for England
and Wales as proposed by the Law Commission in 1989.252

Criminal Code Act 1995 The Model Penal Code (MPC) Draft Criminal Code -
(Australia) (Under division 5) (1962) (United States) (Under (1989) Law Com No 177
section 2.02)
5.2 Intention. (1) A person has
intention with respect to conduct if
he or she means to engage in that
conduct.
(2) A person has intention with
respect to a circumstance if he or
she believes that it exists or will
exist.
(3) A person has intention with
respect to a result if he or she
means to bring it about or is aware
that it will occur in the ordinary
course of events.
5.3 Knowledge. A person has
knowledge of a circumstance or a
result if he or she is aware that it
exists or will exist in the ordinary
course of events.
(Under section 18)
(a) Purposely. A person acts (b) “intentionally” with
purposely with respect to a respect to –
material element of an offense (i) a circumstance when he
when: hopes or knows that it
(i) if the element involves the
exists or will exist;
nature of his conduct or a result
thereof, it is his conscious
(ii) a result when he acts
object to engage in conduct of either in order to bring it
that nature or to cause such a about or being aware that it
result; and will occur in the ordinary
(ii) if the element involves the course of events;
attendant circumstances, he is
aware of the existence of such
circumstances or he believes or
hopes that they exist.
(b) Knowingly. A person acts (a) “knowingly” with
knowingly with respect to a respect to a circumstance
material element of an offense not only when he is aware
when: that it exists or will exist,
(i) if the element involves the but also when he avoids
nature of his conduct or the
attendant circumstances, he is
taking steps that might
aware that his conduct is of that confirm his belief that it
nature or that such exists or will exist
circumstances exist; and
(ii) if the element involves a
result of his conduct, he is
aware that it is practically

“.. an element of an offence consisting - (a) of a state of mind with which a person acts; or (b) of a failure to
comply with a standard of conduct; or (c) partly of such a state of mind and partly of such a failure".
250
Act No 12 of 1995 as amended. The Criminal Code 1995 is Commonwealth law in Australia.
251
The Model Penal Code (MPC) (1962) is the product of the American Law Institute introduced in 1962 and
has since then had some influence on the shaping of the criminal codes of many US states. In the United States
the different States have their own criminal codes. In addition there is also the federal criminal code making
punishable those crimes intended to protect federal interests.
252
Whereas the United States, Australia, and Canada have long since introduced 'Criminal Codes', both at the
Federal and State-level, England and Wales have been less successful at implementing same. The Law
Commission has however been working on codification for decades. A draft Code was in fact published in 1989
(See Law Commission. (1989) Criminal Law: A Criminal Code for England and Wales, Law Com No 177,
HMSO, London). Although no more but an early draft, it does serve as a strong pointer of the Law Commission's
position or views, and likely that of many English lawyers, as to the content of many offences and criminal
liability in general.
254 INVESTIGATION AND PROSECUTION

certain that his conduct will

5.4 Recklessness. (1) A person is
reckless with respect to a
circumstance if:
(a) he or she is aware of a
substantial risk that the
circumstance exists or will exist;
and
(b) having regard to the
circumstances known to him or
her, it is unjustifiable to take the
risk.
(2) A person is reckless with
respect to a result if:
(a) he or she is aware of a
substantial risk that the result will
occur; and
(b) having regard to the
circumstances known to him or
her, it is unjustifiable to take the
risk.
(3) The question whether taking a
risk is unjustifiable is one of fact.
(4) If recklessness is a fault
element for a physical element of
an offence, proof of intention,
knowledge or recklessness will
satisfy that fault element.
5.5 Negligence. A person is
negligent with respect to a
physical element of an offence if
his or her conduct involves:
(a) such a great falling short of the
standard of care that a reasonable
person would exercise in the
circumstances; and
(b) such a high risk that the
physical element exists or will
exist;
that the conduct merits criminal
punishment for the offence.
cause such a result.
(c) Recklessly. A person acts (c) “recklessly” with
recklessly with respect to a respect to –
material element of an offense (i) a circumstance when he
when he consciously disregards is aware of a risk that it
a substantial and unjustifiable
exists or will exist;
risk that the material element
exists or will result from his
(ii) a result when he is
conduct. The risk must be of aware of a risk that it will
such a nature and degree that, occur;
considering the nature and and it is, in the
purpose of the actor's conduct circumstances known to
and the circumstances known to him, unreasonable to take
him, its disregard involves a the risk;
gross deviation from the
standard of conduct that a law-
abiding person would observe
in the actor's situation.
(d) Negligently. A person acts
negligently with respect to a
material element of an offense
when he should be aware of a
substantial and unjustifiable risk
that the material element exists
or will result from his conduct.
The risk must be of such a
nature and degree that the
actor's failure to perceive it,
considering the nature and
purpose of his conduct and the
circumstances known to him,
involves a gross deviation from
the standard of care that a
reasonable person would
observe in the actor's situation.

We must keep in mind that words such as 'recklessly', ‘intentionally’ and ‘knowingly’ are also
words of general usage.253 The layman and a judge in his official capacity may attach very

253
Black, A Law Dictionary, 2nd ed at 689 defines “knowingly” as: “With knowledge; consciously; intelligently.
The use of this word in an indictment is equivalent to an averment that the defendant knew what he was about to
do, and, with such knowledge, proceeded to do the act charged.” Also see the Australian case of Chief Executive
Officer of Customs v Amron [2001] VSC 373 where McDonald J inter alia remarked: “Knowingly" engaging in
conduct proscribed by statute imports mens rea, and it is an element of the offence that must be established
255 INVESTIGATION AND PROSECUTION

different meanings to those words, even where used in the same context. What the layman
may view and describe as 'reckless conduct' may in law well be 'intentional' and vice versa.
What the precise fault element of any given penal provision will be is a matter of statutory
interpretation. The prerequisite mens rea can only be ascertained by reading and interpreting a
penal provision in its entirety, affording that provision in its entirety that interpretation as
intended by the legislature. It is not a task that can be safely undertaken by reading individual
words or expressions in isolation. Generally speaking, most of the true tax evasion and
smuggling offences to be found in most parts of the common law world require proof, beyond
reasonable doubt, of intent. ‘Intent’ involves a "conscious decision to bring about a prohibited
consequence”.254 The use of words such 'intentionally’, ‘wilfully’, ‘fraudulently’, 'evade',
‘attempt’ and ‘dishonestly’ will usually be strong indications of intention being the
prerequisite mens rea. The fact that the word ‘intent’ or ‘intention’ is not expressly mentioned
in a penal provision, even where other words such as ‘knowingly’ may well appear in that
provision, does not necessarily suggest the offence to be an offence other than a crime of
intent. A provision that makes it punishable for a person to ‘knowingly evade’, or to
‘knowingly smuggle goods in’ clearly implies intent, even though ‘intent’ is not expressly
mentioned. Even when reading through court transcripts we need be careful to interpret all
references to 'intention', 'knowledge', and 'recklessly' within the context within which they
were used and with due regard to all the background facts of the matter. In reported case law
we will often find judgements where the taxpayer was convicted for what might have been
described (in the judgement) as him having been ‘knowingly engaged in the evasion’, or for
‘filing the false returns with knowledge of the risk it posed for the Revenue’, or for
‘knowingly smuggled the goods in’. In these instances the usage of the word ‘knowingly’
must be read and interpreted in the context within which it was used. In all evasion,
smuggling, and fraud cases, the defendant's knowledge is obviously a critical leg of any
enquiry as to whether or not he acted with intent. When looking at the facts of the case, the
offences the defendant was charged with, and the judgement in its totality, we will usually
find that those references to 'knowingly' were seldom intended to be a reference to
‘knowingly’ as ‘one of the forms of fault’. In context one will almost always find that the
fault that was required to be proven, and that was on the facts of the case also held to be
present, was intent.

‘Strict liability’ and ‘absolute liability' offences

At the beginning of this discussion we said that the physical elements must be proven to have
been accompanied with a 'guilty mind' or mens rea. This rule however only applies where an
offence does indeed have a fault element. It is open to the legislature to enact statutory
offences making punishable certain conduct in the absence of mens rea. There are many
offences out there, mainly regulatory public welfare offences, where a person may incur
criminal liability despite the absence of any of the above-listed forms of fault. These offences
fall under those categories known as ‘strict liability’ and ‘absolute liability' offences. These
types of offences are also common in revenue and customs legislation especially in the
latter.255 Useful descriptions of ‘strict liability’ and ‘absolute liability’ (definitions that will
resonate with most lawyers in most common law jurisdictions), are to be found in the
Australian Criminal Code Act 1995 (under Part 2.2, Division 6) which reads as follows:

before it can be determined that a person has committed the offence of “knowingly” engaging in the proscribed
conduct.”
254
See the English case of R v Mohan (1975) 2 All ER 193
255
See e.g. the following strict liability offences: section 50(6) of the Customs and Excise Management Act 1979
(improper description of imported goods); section 78 of the Customs and Excise Management Act 1979 (failure
to declare by any person entering or leaving the UK); section 167(3) of the Customs and Excise Management Act
1979 (untrue declarations)
256 INVESTIGATION AND PROSECUTION

"Division 6—Cases where fault elements are not required

6.1 Strict liability
(1) If a law that creates an offence provides that the offence is an offence of strict liability:
(a) there are no fault elements for any of the physical elements of the offence; and
(b) the defence of mistake of fact under section 9.2 is available.
(2) If a law that creates an offence provides that strict liability applies to a particular physical
element of the offence:
(a) there are no fault elements for that physical element; and
(b) the defence of mistake of fact under section 9.2 is available in relation to that physical
element.
(3) The existence of strict liability does not make any other defence unavailable.

6.2 Absolute liability

(1) If a law that creates an offence provides that the offence is an offence of absolute liability:
(a) there are no fault elements for any of the physical elements of the offence; and
(b) the defence of mistake of fact under section 9.2 is unavailable.
(2) If a law that creates an offence provides that absolute liability applies to a particular
physical element of the offence:
(a) there are no fault elements for that physical element; and
(b) the defence of mistake of fact under section 9.2 is unavailable in relation to that physical
element.
(3) The existence of absolute liability does not make any other defence unavailable."

The main difference between ‘strict liability’ and ‘absolute liability' offences lies in the
availability of the 'mistake of fact' defence. Other than that they are basically similar.
Offences making punishable the mere failure to do something or the mere failure to act in a
particular manner are common in the revenue and customs legislation of most jurisdictions
and often involve ‘strict liability’ or ‘absolute liability'. These offences do however tend to be
less serious offences generally concerned with ensuring general compliance. ‘Strict liability’
and ‘absolute liability' offences are generally frowned upon by most, but the dislike for those
offences is no more acute than in the context of taxation where notions of fairness, the
fostering of tax morale, and voluntary compliance are placed at a high premium. These types
of offences will however continue to see enactment and use, albeit generally more tempered
in its severity and application compared to say fifty years ago. They are justified as being
necessary evils, the purpose of which is to ensure compliance with regulatory norms
necessary to be complied with in the public interest. In the Canadian case of R v Sault Ste.
Marie256 the court explained the main arguments commonly advanced in justification of
absolute liability. These arguments can also be viewed as valid for strict liability offences.
The court inter alia explained:

“… absolute liability entails conviction on proof merely that the defendant committed the
prohibited act constituting the actus reus of the offence. There is no relevant mental element. It
is no defence that the accused was entirely without fault. He may be morally innocent in every
sense, yet be branded as a malefactor and punished as such. Public welfare offences obviously
lie in a field of conflicting values. …Various arguments are advanced in justification of
absolute liability in public welfare offences. Two predominate. Firstly, it is argued that the
protection of social interests requires a high standard of care and attention on the part of those
who follow certain pursuits and such persons are more likely to be stimulated to maintain
those standards if they know that ignorance or mistake will not excuse them. The removal of
any possible loophole acts, it is said, as an incentive to take precautionary measures beyond
what would otherwise be taken, in order that mistakes and mishaps be avoided. The second

256
[1978] 2 SCR 1299
257 INVESTIGATION AND PROSECUTION

main argument is one based on administrative efficiency. Having regard to both the difficulty
of proving mental culpability and the number of petty cases which daily come before the
Courts, proof of fault is just too great a burden in time and money to place upon the
prosecution. To require proof of each person’s individual intent would allow almost every
violator to escape. This, together with the glut of work entailed in proving mens rea in every
case would clutter the docket and impede adequate enforcement as virtually to nullify the
regulatory statutes. In short, absolute liability, it is contended, is the most efficient and
effective way of ensuring compliance with minor regulatory legislation and the social ends to
be achieved are of such importance as to override the unfortunate by-product of punishing
those who may be free of moral turpitude. In further justification, it is urged that slight
penalties are usually imposed and that conviction for breach of a public welfare offence does
not carry the stigma associated with conviction for a criminal offence."

A ‘failure’ to comply with certain provisions may also be due to negligence. Revenue and
customs offences requiring proof of no more but carelessness is common in revenue and
customs legislation. Negligence, as is the case with ‘strict liability’ and ‘absolute liability'
offences, will also only be considered sufficient for conviction where the court is convinced
that it was indeed the legislature’s intention to criminalize negligent conduct. Contrary to the
expectations of many, the enactment of more statutory offences criminalizing negligent
conduct will continue.257

Those revenue and customs offences where intention or knowledge is a material element of
the offence, will more often than not prescribe more severe penalties compared to those
offences with a lessor fault element. Those offences are targeted against the “purposeful tax
violator” rather than the “mass of taxpayers” who find themselves in breach of the tax laws
due to mere lack of care or failure.258 Distinguishing between non-intentional and intentional
violations is critical from an enforcement perspective. On the one hand such a distinction
assists in distinguishing between serious and less-serious offences. On the other hand it assists
in distinguishing between the different categories of offenders. The offender who wilfully
breaches the law is generally viewed as more blameworthy and posing more of a threat to the
integrity of the system. Punishment and deterrence is thus placed at a higher premium.

2.11.4 Strict interpretation

Criminal statutes and penal provisions are the product of the legislative process. Where in a
criminal prosecution the offences allegedly committed involved the alleged contravention of
some or other statute, the courts are obviously called upon to interpret those laws and
provisions allegedly contravened. Revenue- and customs-related prosecutions also call for an
interpretation of the underlying revenue or customs legislation, a body of law subject to
frequent change. We must remember that although the offences charged may be dedicated
revenue- or customs-related offences provided for in the same body of legislation that was
allegedly contravened, this may not necessarily always be the case. In many instances the
offences charged may well be offences of general application provided for in other non-

257
A good example in point is some of the highly punitive ‘money laundering’ offences provided for in the
Proceeds of Crime Act 2002.
258
See United States v Bishop 412 U.S. 346 (1973) where Blackmun J fittingly remarked: “This longstanding
interpretation of the purpose of the recurring word “wilfully” promotes coherence in the group of tax crimes. In
our complex tax system, uncertainty often arises even among taxpayers who earnestly wish to follow the law.
The Court has said, “It is not the purpose of the law to penalize frank difference of opinion or innocent errors
made despite the ... exercise of reasonable care.” Spies 317 U.S. at 496 ... The Court’s consistent interpretation
of the word “wilfully” to require an element of mens rea implements the pervasive intent of Congress to
construct penalties that separate the purposeful tax violator from the well-meaning, but easily confused, mass of
taxpayers.”
258 INVESTIGATION AND PROSECUTION

revenue or customs-related legislation. Either way, interpretation of both the underlying

revenue legislation allegedly contravened and the offences charged will always be called for.

Rules of statutory construction and interpretation are found in all modern legal systems. Penal
statutes are as a general rule construed strictly. The conduct charged to be a contravention of a
particular penal provision must clearly fall within the plain meaning of the words used in that
penal provision. The reach of a penal provision may not be extended beyond those cases
intended by the legislature. The legislature may e.g. have drafted a particular penal provision
as one intended to punish only unlawful acts or failures of a particular class or nature, or to
punish only certain classes of persons, or only unlawful acts or failures resulting in certain
consequences, or only unlawful acts or failures accompanied with a very specific state of
mind. To construe a penal provision wider than that intended by the lawmaker can have the
effect of making punishable acts or failures of a class or nature the legislature never intended
to be so punishable, and/or to extend criminal liability to persons whom the legislature never
intended to be so held liable. Where the intention of the legislature is not clear, the defendant
must be afforded the benefit.

2.11.5 Burden of proof

We have already said that the material elements of statutory offences differ from offence to
offence, and the elements required to be proven in proving any one particular offence depends
on its framing as at the time of the alleged commission of that offence. The defendant
taxpayer will only be convicted upon proof, beyond reasonable doubt, of all the elements of
the offence charged. The onus of proving each of those elements rests on the prosecution.
Presumptions and reverse burden of proof provisions are common throughout the common
law world. These provisions are it must be said very much frowned upon, often viewed and
challenged as amounting to a breach of the fundamental rights relating to the right to be
presumed innocent and the right to a fair trial. From the authorities however there seems to be
a general consensus that within the European and English context, presumptions, both of law
and fact, are not per se incompatible with the fundamental rights as enshrined under Article 6
of the ECHR259 as long as they are reasonable, proportional, and not undermining a
defendant's right to rebut those presumptions or such a defendant's right to a fair trial. In
Sheldrake v Director of Public Prosecutions260 Lord Bingham, after referring to a number of
other authorities, inter alia explained:261

259
European Convention for the Protection of Human Rights and Fundamental Freedoms
260
[2004] UKHL 43
261
Earlier in his judgement and quoting from the landmark decision of Salabiaku v France (1988) 13 EHRR
379, Lord Bingham also said: "The Court's decision in Salabiaku is important less perhaps for what it decided
than for the indications it gives of the correct approach in principle. First of all, it is recognised that member
states may, generally speaking, attach criminal consequences to defined facts: "27. As the Government and the
Commission have pointed out, in principle the Contracting States remain free to apply the criminal law to an act
where it is not carried out in the normal exercise of one of the rights protected under the Convention and,
accordingly, to define the constituent elements of the resulting offence. In particular, and again in principle, the
Contracting States may, under certain conditions, penalise a simple or objective fact as such, irrespective of
whether it results from criminal intent or from negligence. Examples of such offences may be found in the laws
of the Contracting States." … It also sanctions, but in a qualified way, the application of factual and legal
presumptions: "28 Presumptions of fact or of law operate in every legal system. Clearly, the Convention does not
prohibit such presumptions in principle. It does, however, require the Contracting States to remain within certain
limits in this respect as regards criminal law. If, as the Commission would appear to consider, paragraph 2 of
article 6 merely laid down a guarantee to be respected by the courts in the conduct of legal proceedings, its
requirements would in practice overlap with the duty of impartiality imposed in paragraph 1. Above all, the
national legislature would be free to strip the trial court of any genuine power of assessment and deprive the
presumption of innocence of its substance, if the words 'according to law' were construed exclusively with
reference of domestic law. Such a situation could not be reconciled with the object and purpose of article 6,
which, by protecting the right to a fair trial and in particular the right to be presumed innocent, is intended to
259 INVESTIGATION AND PROSECUTION

"From this body of authority certain principles may be derived. The overriding concern is that a
trial should be fair, and the presumption of innocence is a fundamental right directed to that end.
The Convention does not outlaw presumptions of fact or law but requires that these should be kept
within reasonable limits and should not be arbitrary. It is open to states to define the constituent
elements of a criminal offence, excluding the requirement of mens rea. But the substance and
effect of any presumption adverse to a defendant must be examined, and must be reasonable.
Relevant to any judgment on reasonableness or proportionality will be the opportunity given to the
defendant to rebut the presumption, maintenance of the rights of the defence, flexibility in
application of the presumption, retention by the court of a power to assess the evidence, the
importance of what is at stake and the difficulty which a prosecutor may face in the absence of a
presumption. Security concerns do not absolve member states from their duty to observe basic
standards of fairness. The justifiability of any infringement of the presumption of innocence
cannot be resolved by any rule of thumb, but on examination of all the facts and circumstances of
the particular provision as applied in the particular case."

It must be said that the primary, most commonly employed statutory evasion offences
provided for in Britain, Canada, Australia and the United States, do not place any reliance on
any presumptions and reverse onus provisions. With the primary statutory evasion offences
provided for in all those jurisdictions, the burden squarely rests on the prosecution / Crown to
prove beyond a reasonable doubt: (i) that the defendant committed the actus reus charged;
and (ii) that the defendant had the prerequisite mens rea to commit the offences with which
he/she is charged. Reasonable doubt as to any one or more of the elements of the crime
charged will spell failure for the prosecution case and must be followed by an acquittal.
‘Reasonable doubt’ is not however to be equated with ‘beyond all doubt’. It must also be said
that the fact that the burden of proof is on the prosecution does not mean the defendant
taxpayer can always afford to sit on his hands and become a mere spectator. Where the
prosecution evidence is sufficient to raise a prima facie case, conviction may follow should
the defendant choose not to counteract the effect of that evidence. 262 Whether or not the
prosecution will succeed in proving the charges against the defendant obviously depends on
the weight of the evidence placed before the court. In considering the matter, the court will
consider all the evidence placed before it in its totality.263 This also includes circumstantial
evidence, a body of evidence which may on its own carry a conviction. Individual items of
evidence may not when viewed in isolation prove a particular fact or element in dispute, but
circumstantial evidence when viewed together as a body of evidence may leave the court with
no other conclusion but that all the material elements of the crime, and thus the crime itself,
has been proven.

enshrine the fundamental principle of the rule of law. Article 6(2) does not therefore regard presumptions of fact
or of law provided for in the criminal law with indifference. It requires States to confine them within reasonable
limits which take into account the importance of what is at stake and maintain the rights of the defence." .. Thus
the question in any case must be whether, on the facts, the reasonable limits to which a presumption must be
subject have been exceeded."
262
See the Canadian case of Ciglen v R [1970] S.C.R. 804 where the court quoted the following remarks of the
trial judge in the court a quo: "That the burden of proof rests and remains upon the Crown and never shifts is
trite law yet if the Crown produces evidence which, if unanswered, and believed, is sufficient to raise a prima
facie case, the Crown has discharged its burden and the accused may be convicted unless he counteracts the
effect of that evidence, and the presumption of innocence cannot be displaced by evidence which merely tends or
inclines in the direction of guilt. The making out of a prima facie case against the accused does cast a burden
upon him to the extent that, if no further evidence is given, the jury will be entitled to convict him but the extent
of that burden is not to prove his innocence but merely to raise a reasonable doubt in the minds of the jury."
263
See R v Sauer and Rhodes 2003 BCPC 541
260 INVESTIGATION AND PROSECUTION

2.11.6 Penalties and sentences

The penal provisions provided for in the revenue and customs legislation will usually provide
for punishment in the form of fines, or imprisonment or both. This provides the courts with a
wide sentencing discretion allowing considerable freedom in deciding upon the most
appropriate punishment. The severity of the punishment provided for any particular
contravention usually also serves as a good indication of the seriousness with which the
contravention in question is viewed. In the United States, Britain, and Australia for example,
the less serious general compliance type offences will usually be punishable as
‘misdemeanours' or ‘summary’ offences, usually punished with fines. Serious offences though
will usually be covered and dealt with as ‘felonies’ or ‘indictable’ offences punishable with
fines, or imprisonment, or both. One should however take note that the penalties as provided
for in any given provision as at the time of enactment are not something that will necessarily
remain fixed or static over time. The provisions themselves may subsequently be amended or
subsequent enactments in other legislation may impact on the penalties that may apply.
Minimum and maximum periods of imprisonment can also be amended in future amendments
or enactments. Penalties and punishment will be discussed in greater detail in Part 6 of this
manual.

2.11.7 Overlapping and risk of duplication

Many of the statutory revenue offences share common elements. This is also the case with
many of the customs offences. Many of those statutory revenue and customs offences in turn
share common elements with many non-revenue related offences. There are many revenue
and non-revenue offences where the actus reus for example involves the making, keeping, use
or production of certain documents or things. There are many where the actus reus involves
the making of misrepresentations, the possession of certain things, the making of false
statements or declarations et cetera. Considerable overlapping can also be found between
some of the revenue and non-revenue related statutory and common law evasion and fraud
offences. In England, those offences provided for under section 1 of the Fraud Act 2006,
section 106A of the Taxes Management Act 1970, fraudulent trading under section 9 of the
Fraud Act 2006, section 993 of the Companies Act 2006, and the common law crime of
'cheating' are good examples in point. This obviously calls for a careful analysis when
considering the penal provisions that may find application in a given factual setting and care
in the selection of offences when charging suspects if the duplication of charges is to be
avoided.

Not to be lost sight of is the possibility of revenue and non-revenue related offences or lines
of enquiry relating to the same individual landing on the same prosecutor's desk and being
dealt with in the course of the same prosecution. The fact that an investigation that might have
started out as an enquiry into suspected contraventions of the tax legislation, does not bar the
taxpayer from being charged with the commission of other offences unrelated to taxation.
Evidence collected in the course of a criminal enquiry into a taxpayer's tax affairs may well
also prove the commission of other offences e.g. money laundering, bribery, bankruptcy
fraud, or various other offences under statutory or common law. The same body of evidence
relied upon to prove the tax-related contraventions, may well also carry convictions on those
other offences. This in essence means that a taxpayer may, depending on the facts of the case,
incur criminal liability under various revenue and non-revenue statutory and/or common-law
offences.

For a prosecutor dealing with a complex enquiry involving breaches of various different
statutes, often involving many different offences of different types and classifications, and
often investigated by different agencies, marrying the different penal provisions up with the
many different acts or failures, especially where many of those acts were committed in the
261 INVESTIGATION AND PROSECUTION

course of a wider or large-scale criminal operation, is not always that straightforward. The
unlawful acts and omissions alleged must be properly correlated to the offences deemed
appropriate and charged, and individual pieces of evidence must be separated and correlated
in relation to those respective offences. To convict a taxpayer under two or more of those
offences for what was in fact the same unlawful act will amount to duplication - which will
not only be grossly unjust, but also in breach of the European Convention on Human Rights
and the Human Rights Act 1998.264

2.11.8 Time limits and statutory limitations

Prescription periods or statutes of limitations are to be found in many jurisdictions. There are
obvious reasons for limitations periods. There may be good reasons for not limiting those
periods in the case of crimes such as say murder, rape, treason etc. but with most matters, civil
or criminal, the justice system need close the door on past matters some time. Most matters
are not of such gravity as to justify administrators, enforcement agencies and the justice
system to struggle with past matters indefinitely. Proving cases also grow increasingly
difficult with time as memories fade, witnesses disappear and die and as evidence over time
disappear.265 If the government has grounds to prosecute, then it should prosecute. The
limitations period prescribed effectively ensures civil action or prosecution is pursued within
what the legislature of the jurisdiction in question views to be a reasonable and/or practical
period of time.

In civil cases the Revenue in essence has to start the proceedings within the limitations
periods specified. Proceeding with the action after this period has run out will generally not be
possible. In the UK, the general time limit for the bringing of civil claims (civil claims in
general), as laid down in the Limitations Act 1980, is 6 years.266 HMRC however is not
subject to this time limit.267 There are however revenue statutes administered by HMRC
containing provisions that do limit the time for the raising of assessments. The limitations
periods for civil action will usually not correspond with those set down for criminal
prosecutions. The limitations period for a civil action may for example be 3 years but in the
event of a criminal prosecution it may well be 5 or 6 years, depending on jurisdiction. In
many jurisdictions the limitations period for criminal prosecution may be considerably longer

264
Or in the United States contrary to the US Constitution. Also note section 18 of the Interpretation Act 1978
(Britain) which reads as follows: "Where an act or omission constitutes an offence under two or more Acts, or
both under an Act and at Common law, the offender shall, unless the contrary intention appears, be liable to be
prosecuted and punished under either or any of those Acts or at common law, but shall not be liable to be
punished more than once for the same offence."
265
One must not lose sight of the fact that in most jurisdictions traders and taxpayers are generally only required
to retain financial records for specified periods of time. Considering the importance of financial records for the
prosecution, and also for defendants who may wish to rely on same in proving their innocence (or more correctly
create reasonable doubt in the prosecution case), a prosecution 10 years after the alleged offence but where the
taxpayer, lawfully, already destroyed the records covering the period in question, may well leave the prosecution
and/or defence without much or even any evidence to make out a prosecution case or defence.
266
See section 9(1) which reads: "9 Time limit for actions for sums recoverable by statute. - (1) An action to
recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years
from the date on which the cause of action accrued."
267
As per section 37 of the Limitations Act 1980 which reads as follows:
"37 Application to the Crown and the Duke of Cornwall.
(1) Except as otherwise expressly provided in this Act, and without prejudice to section 39, this Act shall apply
to proceedings by or against the Crown in like manner as it applies to proceedings between subjects.
(2) Notwithstanding subsection (1) above, this Act shall not apply to -
(a) any proceedings by the Crown for the recovery of any tax or duty or interest on any tax or duty;
(b) any forfeiture proceedings under the customs and excise Acts (within the meaning of the Customs and Excise
Management Act 1979); or
(c) any proceedings in respect of the forfeiture of a ship."
262 INVESTIGATION AND PROSECUTION

or there may be none at all. Even when looking at civil tax claims, one may find differences in
the prescription periods depending on certain factors or circumstances being present. It is not
at all uncommon to find tax legislation laying down a general prescription period of say 3
years for a civil action but subject to a caveat like “except in those instances where the
Commissioners have grounds to suspect evasion of a tax liability”. In the United States there
is no time limit in the event of fraud. The IRS can raise assessments going back to the Garden
of Eden. In the UK, and as at the time of writing, the ordinary time limit for an assessment to
income tax and corporation tax may be made at any time not later than six years after the end
of the chargeable period,268 but in the event of "fraud or wilful default" in relation to those
taxes, assessments in relation to any tax losses attributable to that fraud and "for the purpose
of making good to the Crown" may be raised "at any time".269

Criminal prosecution
In most jurisdictions the limitations periods for offences and criminal prosecution will usually
be set out in one or more statutes specifying the limitations periods for different categories of
offences.270 The prosecution has to file for prosecution within the time limits specified.
Generally speaking it will not be possible to do so after the applicable limitations period has
run out. The time when the limitations period starts to run may vary from offence to offence.
It may typically be at the time when committed, or at the time when first discovered. This
period may typically start to run from the date when false information was provided; the date
when a document or return was signed or filed; the date when the false information or return
came to the Revenue's knowledge; the due date when a return should have been filed; or the
date when a person was found to be in possession of something. In the United States for
example the statute of limitations for the offence provided for under section 7201 (wilfully
attempting in any manner to evade or defeat any tax or the payment thereof) is six years.271 As
a general rule the six year period starts to run from the latter of either (a) the due date of the
return; or (b) the last affirmative act in the attempt to evade.272 Subsequent acts committed as
part of or in furtherance of the same fraudulent scheme, may also, depending on the legal
framework of the jurisdiction in question, have the effect of the limitations period being
restarted or renewed with subsequent acts committed later down the line.273 In the US for
example the limitations period in the case of conspiracies to defraud the Revenue is 6 years.274
This limitations period starts to run from the last overt act in furtherance of the conspiracy.275

It is to be noted that these periods differ greatly between various categories of offences, and
between jurisdictions.276 In some jurisdictions there may be offences where the limitations
periods for offences like fraud may be as long as 20 years or where there may be none at

268
See section 34(1) of the Taxes Management Act 1970 which reads as follows: "34. Ordinary time limit of six
years - (1) Subject to the following provisions of this Act, and to any other provisions of the Taxes Acts allowing
a longer period in any particular class of case, an assessment to tax may be made at any time not later than six
years after the end of the chargeable period to which the assessment relates."
269
See section 36 of the Taxes Management Act 1970 which reads as follows: "36. Fraud or wilful default - ...
where any form of fraud or wilful default has been committed by or on behalf of any person in connection with
or in relation to tax, assessments on that person to tax may, for the purpose of making good to the Crown any
loss of tax attributable to the fraud or wilful default, be made at any time."
270
In the United States, the statutory limitations periods for most of the tax evasion offences are to be found in
the Internal Revenue Code (notably I.R.C. § 6531).
271
26 U.S.C. § 6531(2)
272
United States v Williams 928 F.2d 145 (5th Cir. 1991)
273
See e.g. the facts of the case in the US case of United States v Kelley 864 F.2d 569 (7th Cir)
274
See § 6531(1) and § 6531(8) of the Code.
275
See e.g. Grunewald v. United States 353 U.S. 391(1957)
276
As an example in point, the limitations period for prosecutions under 26 U.S.C. § 7201, 7202, 7206(1), and
7206(2) is 6 years, whereas that period in the case of prosecutions under 7206(4) and 7206(5) is 3 years.
263 INVESTIGATION AND PROSECUTION

all.277 Detailed rules are to be found in most jurisdictions setting out limitations periods for
different offences (if any), the commencement of those limitations periods, circumstances
under which limitations period can be interrupted, certain exclusions that may apply, and the
prosecution of continuing offences where criminal acts committed at the commencement of
the continuing offence may strictly speaking fall outside the limitations period. The
limitations periods that may apply in any particular case, the time when it started to run, and
the time when the limitations period ran out are critical for the offender. Needless to say,
these should be primary lines of enquiry for any defence team worth its salt. Successfully
arguing the offence charged to be an offence subject to a shorter limitations period or
successfully arguing the commencement-time when the limitations period started to run to be
at an earlier date may in certain cases potentially save the offender from prosecution. These
limitations periods seldom include the proceedings itself but this depends on the legal system
of the jurisdiction in question. Statutes of limitations are not to be confused with the right to
trial within a reasonable time, the latter being a right in the European Union and a number of
other jurisdictions.278

As has been stated, limitation periods differ from offence to offence and from jurisdiction to
jurisdiction. Taxpayer X may well escape prosecution for a tax fraud committed in the United
States just 6 years earlier (or less in the case of certain offences), but the outcome may be very
different where he is charged with a similar offence in another country. Few offenders at the
time when they commit an offence appreciate the impact of a prosecution 10 or 15 years after
that offence was committed. Assume taxpayer X evades his taxes when a young single man
without children at age 28. Further assuming by age 40 he is married with small children, has
since changed his ways paying his taxes and for all practical purposes living the life of a law-
abiding citizen. He may well have all but forgotten about the unlawful conduct of his past.
But assuming the unlawful conduct in question was in breach of the laws of a jurisdiction
where the limitations period is say 20 years, then an unexpected arrest and conviction for
offences committed 12 years earlier will have a crushing impact not only on his life but also
on that of his young family. In short, offenders live under the sword of prosecution spanning
the limitations periods set down for the offences they committed.

2.12 The non-prosecution of fraud and evasion

The failure to prosecute fraud can be attributed to factors and circumstances such as, but not
limited to: (a) detection failures; (b) the lack of sufficient and/or dedicated resources; (c)
lacking cooperation and coordination between different agencies of State; (d) the Prosecuting
Authority’s decision not to prosecute for fraud or evasion; (e) tax amnesties; and (f) the fact
that the greater majority of cases are dealt with civilly as opposed to criminally. Even though
evasion, both tax evasion and fraudulent evasion within the customs context, is fraudulent
conduct, few instances of evasion indeed detected are eventually selected for criminal
investigation and eventual prosecution.

2.12.1 Matter dealt with administratively

With limited and often decreasing budgets, the revenue administrations of even the most
prosperous of nations will not always have the resources to police all areas of its operations as
rigorously as they may wish. Limited resources must out of necessity be prioritized to support
those areas of operations where there is promise of achieving maximum impact with the
investments made. Different organizations or departments of State will obviously measure

277
In South Africa e.g. the "prescription" period for the crime of fraud is 20 years (as stipulated in the Criminal
Procedure Act 1977).
278
See e.g. Article 6.1 of the European Convention for the Protection of Human Rights and Freedoms which
inter alia states that "everyone is entitled to a fair and public hearing within a reasonable time".
264 INVESTIGATION AND PROSECUTION

'success' with reference to their respective missions and mandates. Revenue authorities do not
measure their overall success against its contribution in crime prevention or the number of
convictions secured. For revenue administrations success is measured with reference to
revenue collected, increased levels of compliance achieved, and a shrinking tax gap. The
prosecution of offenders is nevertheless viewed as an important tool in the enforcement-
toolbox, primarily used as and when its use will further the overall objective of promoting
compliance and deterring non-compliance. Nevertheless, statistically speaking criminal
enquiries tend to be an exceptional response. The authorities in most jurisdictions tend to
follow a selective approach in deciding on those cases to be pursued with the view to
prosecute. Whether or not a particular matter will be referred for criminal investigation, may
depend on various factors and circumstances such as but not limited to:

(a) the nature and complexity of the suspected contravention;

(b) the serious nature and impact of the suspected contravention;
(c) the quantum of the tax involved;
(d) whether or not the contravention is repeated and persistent;
(e) the profile and history of the taxpayer and a history of non-compliance or criminality;
(f) the likely deterrence value a prosecution may have, especially in the case of high-
profile taxpayers;
(g) the taxpayer’s co-operation or lack thereof;
(h) the prospects of recovery and/or successful prosecution;
(i) the need to neutralize a particular syndicate such as say a smuggling gang;
(j) demands and limitations on resources;
(k) the prospects of a successful prosecution,
(l) complexity and cost to be anticipated in terms of litigation, et cetera.

The reality is that few suspected instances of fraud, even those where audit-results or
preliminary investigations clearly point to fraud, will eventually end up as the subject of a
criminal enquiry. The majority of those cases will remain with the general line functions for
audit, assessment, the imposition of administrative penalties, and recovery. This is not to say
matters not initially selected for criminal investigation may not subsequently be selected for
investigation. This may typically arise where inspectors or audit-teams subsequently uncover
other serious irregularities warranting criminal investigation, or where they subsequently
uncover new evidence offering greater promise of carrying a conviction, or where the
taxpayer persistently continues with his offending. Many cases initially selected for criminal
investigation may also end up being referred back to the audit and line functions for
administrative action and recovery. This will often be the case where initial investigations
indicated a matter as one not worthwhile pursuing criminally or where the prosecuting
authorities refused to proceed with prosecution, typically for a lack of sufficient evidence.

It is worthwhile mentioning another often overlooked shortcoming of administrative

penalties. Administrative penalties offer no incentive for offenders to assist the authorities in
dealing with other offenders. Apprehended offenders facing criminal prosecution will often
turn over, cooperate, provide valuable information, and/or testify against others who
conspired with, participated in, or assisted with the offence for which he/she was arrested,
and/or other offences. ‘Small-time’ offenders do not however grass and testify against
‘serious offenders’ in the absence of sufficient pressure. There is no denying that, from a
policing perspective that is, the criminal investigation and prosecution of all serious offences,
irrespective of the scale and extent of the offender’s criminal activities or operations, can
265 INVESTIGATION AND PROSECUTION

provide for that pressure.279 The shop-keeper who knowingly trades in counterfeit cigarettes
from his corner-shop does not pick them up on the beach. He will have a supplier. For him, as
for the warehouse-keeper who knowingly stores smuggled goods on behalf of a client, or as
for the accountant who falsely accounts for a transaction in his client’s books of account,
administrative penalties hardly provides for the desired pressure sufficient to force him to
make a choice between cooperating with the authorities or falling with those he keeps his
company.

2.12.2 Prosecuting Authority’s decision not to prosecute

In most English speaking jurisdictions, and this is notably so in Britain, Ireland, the United
States, Canada, Australia, and New Zealand, the ultimate decision as to whether or not the
government will prosecute is that of the national prosecuting authorities. In England and
Wales this will be the Crown Prosecution Service (CPS). The decision as to the charges that
will be brought against a defendant also lies with the prosecuting authorities. The decision as
to whether or not to proceed with prosecution and the choice of offences to be charged
depends on the nature and weight of the supporting evidence. In England and Wales, in
common with the position in most other common law countries, a prosecutor will only decide
in favour of prosecution where satisfied that the evidence against a defendant is sufficiently
strong enough to provide for a 'realistic prospect of conviction'. An assessment of the value,
credibility, and admissibility of every piece of evidence is thus called for.

Any case is only as strong as is the weight of the supporting evidence. Situations may arise
where the prosecuting authority may indeed decide to proceed with prosecution, but may not
necessarily charge the evading taxpayer with a fraud or evasion offence. The taxpayer may
well be charged but with other ‘less serious’ statutory offences. This in fact is quite common.
There tend to be two common reasons for this. Firstly, the available evidence may not appear
to be of sufficient weight to carry a charge of evasion or fraud, but may well be sufficient to
carry a conviction on 'less serious' charges. Secondly, it is a common practice in some
jurisdictions, e.g. the United States, to enter into plea bargain agreements with certain
offenders. Pleas on lessor charges will often be accepted so as to avoid prolonged litigation
and/or where the prosecution is less than confident of securing a conviction on evasion or
fraud charges.

2.12.3 Amnesties
Governments do from time to time call out tax amnesties offering taxpayers the opportunity to
‘come clean’ and disclose past tax evasion or other forms of non-compliance. The calling out
of tax amnesties is a common international practice, the granting of which may have as
consequence, depending on the framing of the relevant legislation, the non-prosecution of
many tax offenders for what would normally be indictable tax-related offences. Not all frauds
perpetrated on the Revenue will necessarily be covered by such an amnesty. The granting
thereof will generally be made conditional on certain criteria being met, and may typically be
limited to particular categories of duties or taxes, to certain categories of taxpayers only, to
certain categories of non-compliance, or to certain tax-years only. There will usually also be
clearly specified time limits for the submission of any such amnesty-applications. Tax
amnesties have as one of its main objectives the broadening of the tax base in that many

279
Many offences are serious offences regardless scale, consequences, or prejudice suffered. Examples of these
are the making of false statements, the making of false customs declarations, the destruction of evidence, the
falsification of documents, the making of a false entry in books of account etc. Most offenders committing these
offences will nevertheless not be prosecuted, and this is the common theme in most jurisdictions. Within the
Revenue and Customs context, administrative penalties tend to be the more common response with criminal
prosecution the exception.
266 INVESTIGATION AND PROSECUTION

taxpayers who are not in the tax net can be pulled into the system. There are also many
taxpayers who may wish to regularise their tax affairs, but fail to come forward for fear of the
potential consequences. The opportunity to regularise their tax affairs without the risk of
prosecution may prompt many to make full disclosure. Disclosure not only makes possible the
collection of hidden revenue, but also affords the revenue authorities the opportunity to close
many cases and lines of enquiry, allowing the authorities more time and resources to
investigate those who stubbornly refuse to comply. Threats of a crackdown on those who do
not come forward tend to be a common theme with most of these amnesties. The legislatures
of most jurisdictions tend to follow the proverbial carrot and stick approach in prompting the
non-compliant to come forward.280 There are strong arguments in favour of and against tax
amnesties, but there does not seem to be general agreement as to the efficacy or impact of tax
amnesties on tax compliance.281

280
See e.g. The Financial Times, June 05 2007, “The evader’s guide to tax amnesties”, where it was inter alia
reported: “Many countries, including Germany, Italy, South Africa and Ireland, have offered amnesties. The
most successful relied on a finely calibrated mixture of threats and concessions…Drawing lessons from other
amnesties, Revenue & Customs has been aware it must make it worthwhile for evaders to come forward, while
offering little hope of lenient treatment if they do not.”
281
Refer Hasseldine, “Tax Amnesties: An International Review” (1988) Bulletin for International Fiscal
Documentation 52(7) 303. Also see the article by Sawyer, “Industry Partnerships and Targeted Amnesties at
Ingrained Evasion- A New Approach to an Old Tax Problem ?” (2006) Revenue Law Journal 16(1)
267 DEFRAUDING THE REVENUE

PART III - DEFRAUDING THE REVENUE

3.1 Defining 'fraud'

3.1.1 History, language and framing
The appetite for power and greed may be the underlying drivers of most of the evils in our
world, but misrepresentation, whether it be misrepresentation by commissio or omissio, has
for millennia been one of the most important tools in the toolbox of the wicked. Deception
saturates our lives. It surrounds us and is interwoven in the fabric of all parts of our daily
lives. Distortions of the truth, the omission of facts which should be disclosed, and
concealment, is the stuff that builds legends and villains, bankrupts, drives the enraged to
murder, gets people to choose one product over another, writes alternative versions of history,
disappoints loved ones, generates work for lawyers, beats the drums to war, drives many
social engineering campaigns, lands the innocent in jail, leaves the guilty unpunished, and
gets politicians re-elected. Men practice deception to conceal failures, to instil fear, to avoid
embarrassment, to boost reputation, to escape responsibility, to break down others, to calm
and prevent panic, to defraud, to win cliental or to retain business, to defeat enemies, to
conceal infidelity, or to promote certain social, economic and political policies and agendas to
list but a few. It is difficult to imagine what our world would be like in the absence of
misrepresentation and deceit.

All misrepresentations may not be crimes, but all frauds involve misrepresentation. The actus
reus of all fraud offences involves some or other form of deceit, if not by comissio then by
omissio.1 Crimes involving misrepresentation have been punishable since Roman times. A
number of the most prominent species of fraud recognized in common-law can be traced back
to the lex Cornelia de falsis. Fraud, perjury, forgery, counterfeiting, and uttering, are all in
essence species of fraud that were punishable or can trace its roots back to the crimen falsi.2
These same crimes, and the essence of those offences in their most basic form,
misrepresentation accompanied with dishonesty, became firmly entrenched in the Roman-
Dutch and English legal systems.

The obvious starting point for any enquiry into any unlawful conduct going by names and
labels such as 'fraud', 'tax fraud', and 'tax evasion', must obviously be a brief discussion on
what those words actually mean. As familiar as those words may be in the English vocabulary
of general usage, and despite those words reverberating in courts near and far afield on a daily
basis, more often than not those words will not have a precise legal definition or content. The
reasons for this are obvious. There is no universal legal definition of 'fraud'. In fact, even in
the same jurisdiction, the fraud offences provided for may be repealed to be replaced with
others, or may be redefined. What is or is not 'fraud', in a legal sense, is thus not necessarily
static and may change over time in the same jurisdiction. Offences many may recognise as
offences making punishable some or other form of fraudulent conduct may well not even

1
Deception also features prominently in the planning, commission, and concealment of many other 'non-fraud'
related types of crime. How many murderers, rapists, thieves, robbers and abductors use deception to reconnoitre
targets or lure victims, to win confidence, to gain access, to distract, to make their escape, to cover up their
crimes, to lie their way through police interviews and trials, or to build new lives under cover of stolen identities
? Or just think of espionage. It is built on deception.
2
See Black. A Law Dictionary, 2 nd Ed at 482 where "falsus" is defined as "Falsus. Lat. False; fraudulent;
erroneous. Deceitful: mistaken." Also see at 481 where "Falsi Crimen" is defined as: "Falsi Crimen. Fraudulent
subornation or concealment, with design to darken or hide the truth, and make things appear otherwise than they
are. It is committed (1) by words, as when a witness swears falsely; (2) by writing, as when a person antedates a
contract; (3) by deed, as selling by false weights and measures."
268 DEFRAUDING THE REVENUE

mention the word 'fraud' in the defining provision. The material elements of a crime, that is to
say the constituent elements which in combination makes out the crime, are a question of
legal definition. It is however a basic but often overlooked fact that the general public's
understanding of what constitutes crimes like 'fraud', 'bribery', or 'rape', will more often than
not, not correspond with how those crimes are in fact defined in the statutes of their particular
jurisdiction at that relevant time, but rather with the definitions one can expect to find in say
the Oxford English Dictionary, thus non-legal definitions of general usage.

Words and definitions which may have a long-settled meaning in the English language, may
very well mean very different things in different jurisdictions, and the same words may mean
very different things depending on context, even in the same jurisdiction.3 This also
underlines an important point in regards to the meaning to be attached to words and language
such as 'fraud', 'bribery', 'perjury', 'fraudulently' or 'evasion' in the case law of other
jurisdictions. The use of those words and references need be interpreted and understood
against the particular judicial history and legal framework of that particular jurisdiction.
Where the courts in a particular jurisdiction for example refer to conduct as 'fraud' or
'evasion', then those references may very well be very specific references to 'fraud' or 'evasion'
as defined and understood in that jurisdiction. Offences intended to punish the same mischief,
often going under similar or closely corresponding names will more often than not be
differently defined in another jurisdiction. Differences in legal definition will usually make
for offences with different material elements, which technically make those offences different
crimes. They may however go under the same name i.e. 'fraud', 'bribery' or 'tax evasion'. But
even assuming the legislation of two different jurisdictions provide for the same identically
drafted offence,4 then differences in judicial interpretation may quite well provide for very
different outcomes. Consider the following example: In both jurisdictions A and B is to be
found an offence of 'fraud' drafted in the exact same terms reading as follows:

"Section 123 - Fraud : Any person who by any fraudulent means, whether by act or failure,
intentionally misrepresents the truth to the prejudice of another, is guilty of fraud."

Now assume the courts in both jurisdictions A and B have historically, in all respects,
interpreted and applied the provision in the same manner ... bar the precise content of the
words ".. to the prejudice of another .. ". Assume the courts in jurisdiction A have consistently
held the provision as capturing actual prejudice only, whereas the courts in jurisdiction B have
consistently held the provision as to capture not only actual prejudice, but also potential
prejudice. The offence may well show the same drafting ... but in practice the judicial
interpretation and application of that offence is much wider in jurisdiction B as compared to

3
Let us for a moment consider the word 'evade’. That word will not always attract the same interpretation.
Content is a matter of context. Evade as used in a revenue statute making punishable ‘tax evasion’ will usually
be interpreted as also implying the presence of an intent to evade, a dishonest state of mind. To ‘evade the
prohibition or restriction’ as used in a penal provision in the Customs legislation may however well be
interpreted very differently. There is indeed English authority pointing to different interpretations of ‘evade’
(depending on the legislation and context). See e.g. R v Coghlan [1997] EWCA Crim J0512-28 (Monday 12th
May 1997) where the matter under consideration turned on the interpretation of “being knowingly concerned in a
fraudulent evasion of a prohibition on the importation of goods contrary to section 170(2) of the Customs and
Excise Management Act 1979”. In that case Otton LJ inter alia said (Referring to Archbold and R v Hurford-
Jones & Others (1977) 65 Cr App R 263): “There has always been a distinction between evasion and
importation. In Archbold at chapter 25–410 it is stated: “By ‘evade’ Parliament meant no more than there must
be an intention on the part of the accused to ‘get around’ the prohibition or restriction. ‘Evade’ in this context
does not carry the connotation of fraud or dishonesty as it does in revenue laws: see Hurford-Jones 65 Cr App R
263 , CA ...”
4
A situation not at all uncommon where the one jurisdiction borrowed the given provision from another, or
where the one jurisdiction inherited the provision from what may have been a former colonial master.
269 DEFRAUDING THE REVENUE

jurisdiction A. Now further assuming a court in jurisdiction A, after a lengthy trial, arrives at
the conclusion that X did indeed by fraudulent means and intentionally misrepresented the
truth, a misrepresentation as a result of which there was a real risk of prejudice, but no actual
prejudice. A material element of that offence, the prejudice requirement, as per the judicial
interpretation of that provision in that particular jurisdiction, thus went unproven. As the
crime has not been proven there must be an acquittal. The result for X would however have
been very different had the same facts been proven in relation to a similar count in a court in
jurisdiction B. References to "fraud" in the courts of those respective jurisdictions may thus
well, depending on the context within which they were used, be limited to the confines of
their very jurisdiction-specific interpretation of that offence. These principles also apply to
statutory evasion offences.

The offences available in any given jurisdiction in dealing with various species of fraud may
be old common law offences, or may be statutory in nature, the material elements of those
offences may differ from offence to offence, and the definition and judicial interpretation of
the words and language used may show considerable variance. How it is defined and
interpreted is also not cast in stone but change in tandem with the legislative process and
judicial interpretation. In many instances the word 'fraud' may well not even appear in the
provision's title or wording, but may well arise in subsequent case-law dealing with the
offence or provision, quite often as a result of the court's recognition of the offence as one
which effectively penalises fraudulent conduct.

In this chapter, the writer attempted to offer a broad and general overview of 'fraud' within the
revenue context. This however is a difficult task where the views of taxpayers and lawyers
from different jurisdictions as to what constitutes 'fraud' or 'evasion' will not correspond, the
main reasons being: (a) different 'fraud' and 'evasion' offences vary in terms of application,
scope, and elements, even in the same jurisdiction; (b) offences are frequently replaced or
amended; and (c) offences in different and often in the same jurisdictions often receive
different and sometimes inconsistent interpretations. This chapter must therefore not be
viewed as a discussion of the current legal landscape in any one particular jurisdiction, but
must rather be viewed as a guide intended to highlight what will be common in most cases in
most common law jurisdictions.

3.1.2 Common law fraud offences

There has long been an international trend to replace and codify common law criminal
offences with statutory penal provisions. Despite this trend, a number of common law
dishonesty offences are still to be found in a number of common law jurisdictions. In English
law we can for example still find the crimes of 'cheating' and 'conspiracy to defraud'. These
offences may well be 'old', but 'old' does not always equate to ineffective. 'Old' as they may
be, these offences do not exist in a time vacuum. They have over time seen considerable
judicial and legislative consideration, interpretation, scrutiny and approval.

'Cheating'
Hawkins in his A Treatise of the Pleas of the Crown provided for the following definition of
'cheating':“....deceitful practices, in defrauding or endeavouring to defraud another of his own
right by means of some artful device, contrary to the plain rules of common honesty.” 5 In R v
Less, 6 the offence was explained in the following terms: “Cheating can include any form of

5
Hawkins W, A Treatise of the Pleas of the Crown, Vol 1, 8th ed (1795) by J Curwood, 1 PC 318
6
Definition as per R v Less [1993] (Times: 30 March 1993 CA). As quoted in Arlidge & Parry, Arlidge & Parry
on Fraud, 2nd ed at 352 and HM Revenue & Customs 2010-11 Accounts: tax disputes, Sixty-first Report of
Session 2010-12, House of Commons Committee of Public Accounts at 91
270 DEFRAUDING THE REVENUE

fraudulent conduct which results in diverting money from the Revenue and in depriving the
Revenue of the money to which it is entitled. It has, of course, to be fraudulent conduct. That
is to say, deliberate conduct by the defendant to prejudice, or take the risk of prejudicing, the
Revenue’s right to the tax in question, knowing that he has no right to do so".

The offence of cheating is now reserved for exclusive use in dealing with frauds committed
against the public revenue.7 The offence may no longer apply in relation to ‘frauds affecting
the public at large’ but it is still commonly used in ‘frauds affecting the Crown’. 8 It is an
offence that continues to enjoy wide use in revenue-related prosecutions. The fact that it is
defined in such broad terms makes it an effective and practical alternative to the statutory
evasion offences provided for in the tax legislation. It is an offence defined so wide as to be
capable of dealing with any likely tax fraud or dishonest evasion that may present itself. This
is possible not because the offence of cheating goes beyond that which can be properly
described as fraudulent, but for the fact that any dishonest evasion amounts to nothing less but
fraud.

Very similar to the crime of cheating is the South African common law crime of fraud. A
dishonesty offence like cheating, this offence has a long history and has proved particularly
effective in dealing with any type, class, and manner of fraud. Milton9 provides for the
following definition: “Fraud consists in unlawfully making, with intent to defraud, a
misrepresentation which causes actual prejudice or which is potentially prejudicial to
another.”10 The material elements of the crime are: (a) misrepresentation; (b) unlawfulness;
(c) prejudice; (d) causation; and (e) the intent to defraud.11 As is the case in England, South
African law continues to provide for the option of charging tax offenders under common-law.

At this time the crime of 'cheating' can be viewed as the only intact bridge linking the now
with the distant past. It is an offence that represents both non-recent history and current law.
Despite the criticism so often levelled against it, in a way it provides for a reliable benchmark
as to the real essence of fraud as it was historically viewed i.e: (a) there must be fraudulent
conduct which may consist of any fraudulent acts, failures, or combinations thereof; and (b)
that fraudulent conduct must be accompanied with an intent to defraud.

3.1.3 Statutory 'fraud' offences

In every jurisdiction is to be found numerous statutory offences, provided for as they are in a
wide range of statutes, making punishable as they do a wide range of fraudulent acts or
failures in relation to matters as diverse as competition law, customs and taxation, bankruptcy
law, the administration of justice, banking, and intellectual property to list but a few. Some of
those offences may be general in nature e.g. the fraud offences provided for in section 1 of the
Fraud Act 2006 and section 380(1) of the Canadian Criminal Code,12 whereas others are very

7
See section 32(1) of the Theft Act 1968 in terms of which the common-law offence of ‘cheating’ was abolished
(as from the commencement of the Act), “except as regards offences relating to the public revenue.”
8
For a more detailed discussion on 'cheating', refer to the discussion in Part V of this manual
9
South African Criminal Law and Procedure, 2nd ed, Revised Reprint, Vol II at 755
10
Also see R v Davies 1928 AD 165, 170 where Stratford JA inter alia said: “The essential elements of the
crimen falsi are a wilful perversion of the truth made with the intent to defraud and to the actual or potential
prejudice of another.”
11
Milton, South African Criminal Law and Procedure, 2nd ed, Vol II at 755. Also see S v Campbell 1991 (1)
SACR 503 (NM); S v Huijzers 1988 (2) SA 503 (AA); R v Davies 1928 AD 165; S v Haslam [2007] SCA 33
(RSA)
12
Section 380(1) of the Criminal Code of Canada reads as follows: "380. (1) Every one who, by deceit,
falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds
the public or any person, whether ascertained or not, of any property, money or valuable security or any service,
271 DEFRAUDING THE REVENUE

specific, usually intended to deal with breaches of specific statutes, or to protect the integrity
of very specific processes or interests, or to deal with specific species of fraud.

In the United Kingdom, the penal armoury has in recent times been augmented with the
addition of the Fraud Act 2006.13 Section 1 of the Act provides for the offence of ‘fraud’
which can be committed in three ways, namely: (a) fraud by false representation;14 (b) fraud
by failing to disclose information;15 and (c) fraud by abuse of position.16 Apart from the
statutory fraud offence created in section 1, the Act amongst others also provide for the
offence of 'fraudulent trading'.17 Sections 1-4 read as follows:

"1 Fraud
(1) A person is guilty of fraud if he is in breach of any of the sections listed in subsection (2)
(which provide for different ways of committing the offence).
(2) The sections are -
(a) section 2 (fraud by false representation),
(b) section 3 (fraud by failing to disclose information), and
(c) section 4 (fraud by abuse of position).
(3) A person who is guilty of fraud is liable - (a) on summary conviction, to imprisonment for
a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both);
(b) on conviction on indictment, to imprisonment for a term not exceeding 10 years or to a
fine (or to both).
(4) Subsection (3)(a) applies in relation to Northern Ireland as if the reference to 12 months
were a reference to 6 months.

2 Fraud by false representation

(1) A person is in breach of this section if he -
(a) dishonestly makes a false representation, and
(b) intends, by making the representation -
(i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss.
(2) A representation is false if -
(a) it is untrue or misleading, and (b) the person making it knows that it is, or might be, untrue
or misleading.
(3) “Representation” means any representation as to fact or law, including a representation as
to the state of mind of -
(a) the person making the representation, or
(b) any other person.
(4) A representation may be express or implied.
(5) For the purposes of this section a representation may be regarded as made if it (or anything
implying it) is submitted in any form to any system or device designed to receive, convey or
respond to communications (with or without human intervention).

3 Fraud by failing to disclose information A person is in breach of this section if he -

(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding fourteen years, where
the subject-matter of the offence is a testamentary instrument or the value of the subject-matter of the offence
exceeds five thousand dollars; or (b) is guilty - (i) of an indictable offence and is liable to imprisonment for a
term not exceeding two years, or (ii) of an offence punishable on summary conviction, where the value of the
subject-matter of the offence does not exceed five thousand dollars."
13
Received Royal Assent on 08 November 2006
14
Section 2
15
Section 3
16
Section 4
17
Section 9. This offence is additional to the offence of fraudulent trading as provided for in section 993 (Part
29) of the Companies Act 2006.
272 DEFRAUDING THE REVENUE

(a) dishonestly fails to disclose to another person information which he is under a legal duty to
disclose, and
(b) intends, by failing to disclose the information - (i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss.

4 Fraud by abuse of position

(1) A person is in breach of this section if he -
(a) occupies a position in which he is expected to safeguard, or not to act against, the financial
interests of another person,
(b) dishonestly abuses that position, and
(c) intends, by means of the abuse of that position - (i) to make a gain for himself or another,
or (ii) to cause loss to another or to expose another to a risk of loss. (2) A person may be
regarded as having abused his position even though his conduct consisted of an omission
rather than an act."

It will be difficult to find any statutory offence making punishable some or other form of
fraudulent conduct, which do not contain references to the prohibited conduct as being
committed 'wilfully', 'intentionally' or 'knowingly'. The content of those words do however
depend on the framing of the penal provisions in which they appear and the context in which
they are used.18 The mens rea required to be present for one crime of intent does not always
correspond with the mens rea required to be present for another. The mental element required
to be present for a conviction on one statutory fraud offence will thus not always correspond
with that required to be present for conviction on another. The fraud offences as provided for
in the Fraud Act 2006 and the crime of 'cheating', thus fraud offences old and new, from
common law and statute, are both offences where the mental element required to be present
for conviction is nothing less but fraudulent intent. These offences share some important
common characteristics. These are:

a) They are widely defined and capable of covering most if not all unlawful
misrepresentations that may present itself;
b) conviction on all those offences may follow regardless whether the actus reus
involved a commissio or omissio;
c) these offences all require proof of a fraudulent intent as essential element of the
offence;19 and

18
In the US cases of Spies v United States 317 US 492 (1943) and Bryan v United States 524 US 184 (1998) (in
following Spies) the word "wilfully" was correctly said to be a word the construction of which is often
dependent on the context in which it is used.
19
The "intent to defraud" in essence implies knowingly and dishonestly acting with the intent to prejudice or
deprive. See Smith & Hogan - Criminal Law at 127-128 where it is inter alia said: “The word “fraudulently” and
the phrase “with intent to defraud” both imply dishonesty and the test is the same in commercial dealings as in
other matters. It seems that D has an intent to defraud if (i) he intends to do acts which, in the circumstances
known to him, would, if carried out, defraud P and (ii) he knows that ordinary people would regard what he
proposes to do as dishonest.” In Scott v Metropolitan Police Commissioner [1975] AC 819 Viscount Dilhorne
explained "to defraud" as follows: "'to defraud' ordinarily means … to deprive a person dishonestly of something
which is his or of something to which he is or would or might but for the perpetration of the fraud be entitled." In
Welham v DPP [1961] AC 103 at 133, Lord Denning inter alia said: "… 'with intent to defraud' means 'with
intent to practise a fraud' on someone .... If anyone may be prejudiced in any way by the fraud that is enough." In
Re London and Globe Finance Corporation Ltd (1903) 1 Ch 728 (at 732), "to defraud" was explained in the
following terms: "To deceive is, I apprehend, to induce a man to believe that a thing is true which is false, and
which the person practising the deceit knows or believes to be false. To defraud is to deprive by deceit: it is by
deceit to induce a man to act to his injury. More tersely it may be put, that to deceive is by falsehood to induce a
state of mind; to defraud is by deceit to induce a course of action." See the Canadian case of R v Olan et al
[1978] 2 SCR 1175 (Supreme Court of Canada) where it was inter alia held that: "While the courts have been
loath to attempt an exhaustive definition of "defraud" one can say that two elements are essential, "dishonesty"
and "deprivation"."
273 DEFRAUDING THE REVENUE

d) no actual prejudice or loss is required for conviction.

The offence provided for under section 1 (read with sections 2-4) of the Fraud Act 2006 can
for all purposes be considered to be the most current and definitive definition of what is today
viewed as constituting 'fraud' in the United Kingdom. The offence as framed is wide and may
well also cover any fraudulent conduct that may otherwise be covered by the crime of
cheating.

3.1.4 Statutory 'evasion' offences

All revenue frauds, whether they be 'tax frauds', 'customs frauds', 'benefit frauds' or otherwise,
involve unlawful breaches of the revenue laws by offenders who knowingly contravene those
statutes. The penal provisions provided for obviously need be framed sufficiently wide so as
to cover, firstly, the unlawful conduct it was intended to criminalize and deter, and secondly,
to hold liable the categories of offenders against whom the provisions are targeted. Statutory
penal provisions intended to criminalize conduct such as tax evasion therefore need be
worded widely if it is to criminalize and cover the wide spectrum of unlawful acts so
commonly employed in defrauding the Revenue. This is a critical requirement if it is to be
effective. This being said, it must nevertheless be worded in such a way as to limit its
operation to cover only the unlawful conduct it was intended to cover, and to punish only
those categories of offenders the legislature intended to punish.

The application and ambit of a statutory fraud or evasion offence can only be intentionally
limited to specific categories of cases or specific factual settings by drafting it in very specific
terms. The nature, character and context of the conduct the legislature intended to counter
with a newly drafted offence, will usually guide the boundaries of the new offence, the
material elements required to be proven for the crime to be completed, and the language used
in its framing. This then is also the case with statutory evasion offences. The end-result is
usually the enactment of very specific offences, usually fitting hand-in-glove as they do
within the frameworks of the particular statutes they are intended to serve, and more often
than not being identified or labelled with reference to the specific body of law it is associated
with. It will usually not be long before conduct criminalised under an evasion offence
provided for under a VAT act will be referred to as 'VAT fraud', or for conduct criminalised
under a fraud offence provided for in a statute dealing with social benefits to be referred to as
'benefit fraud'. The 'tax evasion', 'tax fraud', 'customs fraud', 'VAT fraud' or 'benefit fraud'
offences out there do however differ from statute to statute, from jurisdiction to jurisdiction,
and also change over time. The same statute may contain more than one 'tax evasion' offence,
those 'tax evasion' offences may be framed very differently from other 'tax evasion' offences
in other statutes, and they will often be repealed, replaced, or be amended over time. As
offences are replaced or amended, the material elements of those offences we may today
recognise as and refer to as 'tax evasion', 'tax fraud', 'customs fraud', 'VAT fraud' or 'benefit
fraud', may be quite different just a few years down the line. This in essence means that any
process involving a determination of whether or not a particular act, arrangement, or scheme,
as executed by a given taxpayer, did or did not amount to tax evasion (or fraud for that matter)
at a given point in time, involves a meticulous process of investigation, analysis, clarification
and legal interpretation. Such a process may typically involve:

(a) an investigation and analysis of the operation of the scheme or conduct in question and
developing an understanding of the mechanics behind its implementation and
operation;

(b) identifying the relevant dates when or periods over which the scheme or conduct in
issue allegedly took place;
274 DEFRAUDING THE REVENUE

(c) an interpretation of the wider statutory framework of the relevant revenue statute as it
was at the time when the scheme or conduct in question operated or took place. This
must be done as part of the process of determining what the law required and forbade
at the relevant time (s);

(d) assessing the legality of the conduct or scheme in question as interpreted and
measured against the legal framework (which was then the expected standard) as it
was at the relevant time(s). Only after this has been done can a determination be made
as to legality;

(e) the fact that a course of conduct amounted to an unlawful breach of the law does not
equate to evasion. Where the conduct or scheme is found to be one that was in fact in
breach of the law as it was then framed, proceed with:

(i) identifying those offences that were in force at the relevant time (s); and

(ii) an interpretation of each of those offences as they were framed at the relevant
time(s) and the identification of the material elements of each of those offences as they
were at the relevant time (s). Experienced investigators will usually be so familiar with
the various offences provided for and the types of conduct covered by those offences,
that the matching of the conduct of suspects with offences that may find application
will usually be a relatively straightforward task.

(f) by comparison matching the conduct of the suspect (s) with the actus reus of offences
that may find application and identifying those with a match. Where the conduct in
question is found to match the actus reus of an evasion offence, the investigators will
proceed to do the same in relation to the other material elements of that offence,
notably the mens rea requirement (assuming they do not as yet have sufficient
evidence and/or have not as yet done so)

In the following discussion will follow a broad overview of frauds committed against the
public revenue with particular emphasis on unlawful conduct that will typically be covered
under the crimes of 'cheating' and fraud under the Fraud Act 2006. These offences are defined
widely and are capable of covering any likely fraudulent misrepresentation an offender may
employ in defrauding the public revenue. It is however to be noted that almost all of the
points raised will also apply in relation to most tax evasion offences out there. This is for the
simple fact that in most common-law countries, and this is certainly so in Britain, tax evasion
is generally viewed as dishonest fraudulent conduct, a species of fraud.20 The consequences of

20
In England, the Fraud Advisory Panel (UK) in its guidance Fraud Bill: Guidance for Industry, April 2006, at
p4 inter alia noted: "Incidences of tax evasion, whilst generally and properly regarded as a species of fraud, are
prosecuted as offences outside what might be called the mainstream fraud offences examined by the Law
Commission ..". See the Canadian case of R v Cardoso (1999) 139 CCC (3d) 430 (Quebec Court of Appeal)
where it was inter alia said: “The gist of the offence of tax evasion is the intentional commission of a fraud upon
the public purse. That fraud need not involve artifice or cunning, although the presence of artifice or cunning
will make it easier for a court to draw in inference of guilty intent.” See e.g. Stanfield v Minister of Correctional
Services and Others [2003] ZAWCHC 46 where Van Zyl J stated: “The applicant,...was convicted of fraud, in
the form of tax evasion”. Also see S v Van der Walt 1989 (2) SA 212 (W), National Director of Public
Prosecutions v RO Cook Properties (Pty) Ltd [2004] ZASCA 36 and S v Van Rooyen 2000 (1) SACR 372 (NC).
In South Africa the common law crime of fraud, an offence very similar to the English crime of 'cheating', is
commonly used in prosecuting instances of tax evasion. As is the case with 'cheating', the offence is framed
widely and it is difficult to contemplate a factual setting involving the evasion of taxation which will not be
275 DEFRAUDING THE REVENUE

tax evasion can after all not be anything but the Revenue being defrauded. In those
jurisdictions where this view is the prevalent view, statutory tax evasion offences therefore
tend to be framed in such a manner as to criminalize fraudulent conduct. For the benefit of the
reader, Part V of this manual provides more detailed discussions on a range of common law
and statutory fraud and evasion offences referred to in this chapter.

3.2 Misrepresentation
3.2.1 Overview
Offences intended to deal with tax frauds vary from jurisdiction to jurisdiction. Those
offences may differ in framing, they may not always share the same material elements, and
interpretation may differ, but what they do all have in common is some or other form of
misrepresentation of the truth, either as a commissio or omissio. If everything required to be
disclosed is disclosed and where the disclosures so made are honest and complete, then there
can be no misrepresentation. What is viewed as conduct that will amount to a
misrepresentation of the truth shows considerable conformity in much of the English speaking
world and notably so in the UK, Ireland, Canada, Australia, New Zealand, India, the United
States and South Africa. Whether or not an act or failure had the potential or effect of
distorting the truth rarely provide for difficulties. The mechanics of misrepresentation is the
same for civil and criminal law. The truth is misrepresented by what people say, write, or do.
The difference between fraudulent misrepresentations within the context of criminal law
versus civil law is in essence a question of legality and legal context. The misrepresentation in
cheating husband X's letter to his wife swearing high and low as to his fidelity is no less
misleading and false compared to the one he sent off to the Revenue wherein he falsely
claimed that he is unemployed whereas he in fact makes millions out of diamond dealing.
Cheating and lying in relation to his marital affairs is no longer a crime in our modern society,
but defrauding the Revenue is.

Those who defraud the Revenue all have in common the intent to fraudulently: (a) evade the
payment of a duty, tax, or levy; or (b) to secure the payment of refunds or claims to which
they are not legally entitled. To achieve this and to do so without detection relies on effective
misrepresentation. The fraud will often be planned, implemented and executed over a long
period of time, often layering one misrepresentation, whether by act or failure, on top of one
another in the furtherance of the same fraudulent scheme. The implementation and execution
of the same fraudulent scheme may well entail the making of multiple misrepresentations by
numerous parties, to numerous parties, at various stages, and often over a long period of time.
Fraudulent misrepresentation may manifest itself either in the form of a commissio or
ommissio. There is no limit to the number of tricks or devices employed to deceive. These
may range from, but is in no way limited to:

(a) The filing of false returns;

(b) The making of false statements;
(c) Producing false documents or false books of account;
(d) The providing of false samples;
(e) Applying false markings or stamps or the failure to apply same;
(f) The manipulation of equipment;
(g) Concealment;
(h) Falsification and counterfeiting;
(i) Sham transactions;

covered by the crime of fraud. Also see Balter, Tax Fraud and Evasion, 5th ed at 2-3 where the writer (in
referring to tax evasion in the United States) inter alia said: “So we, too, shall consider fraud and evasion as
synonymous concepts...."
276 DEFRAUDING THE REVENUE

(j) Providing false answers; or

(k) The simulation of transactions or the movements of funds.

Proving an unlawful fraudulent misrepresentation will often call for an interpretation of the
law as it was framed at the time when the truth was misrepresented. The misrepresentation
will not be the actus reus of a crime unless unlawful at the time when it was made. An act or
failure that may have been lawful one day may not be so the next and vice versa. Such an
unlawful misrepresentation can make out the actus reus of a wide range of offences, some of
them general fraud offences, others specific fraud offences, others making punishable evasion
or smuggling. The intended objectives the legislature intended to achieve and the mischief
they intended to punish may differ from offence to offence and that will be reflected in the
framing. The nature and ambit of the offence will obviously depend on the subject matter, the
material elements thereof, and the wording used. It is a matter of construction. Fraud
involving misrepresentation as the actus reus of that crime, is completed once the
misrepresentation has been made and where all the other material elements of that fraud
offence are present at the time of the misrepresentation.

3.2.2 Misrepresentation of the truth

Proving a fraud requires proof of the mechanics of the fraud, the actus reus. There can be no
fraud absent some or other unlawful misrepresentation. A misrepresentation may be described
as a false representation, a distortion of the truth, an untruth, or a falsehood.21 It may consist
of either a false representation of the truth in the form of a commissio, or as a failure to act
contrary to a duty to act, thus as an omissio. The fraud offence provided for under the Fraud
Act 2006, 'cheating' the public revenue contrary to common law, and the South African
common law crime of fraud, can all be committed either by commissio or omissio. All these
offences cover the unlawful failure to declare or disclose where the failure has the effect of
distorting the truth and where same is accompanied with the intent to defraud.

The question as to whether a misrepresentation has been made is a factual one and can only be
answered taking into account all the facts and circumstances of the case. Assessing the truth is
always easier when looking back with hindsight. It is when looking back at a factual setting
and the representations made, and with the testing, analysis, and assessment of the
information at our disposal, that we start to recognize the arts, tricks, devices, improbabilities
and untruths. What is true or false is just as much a matter of context as content. Facts
accurate in content where each of those facts is viewed in isolation, may be so arranged,
placed, and used, as to provide for a context which, when viewed in its totality, distorts the
truth.

It will always be for the prosecution to prove beyond reasonable doubt that the method,
arrangement, practice or scheme as employed amounted to an unlawful misrepresentation.
The ‘arrangements’ utilized by taxpayers to evade their taxes do not however remain static
and constantly evolve around the changing frameworks and wording of the tax laws. Tax
fraudsters are quick at identifying new opportunities and loopholes, at adopting new practices,
and at modifying old methods to evade the taxing provisions. Proving a tax fraud relies upon
proof, beyond reasonable doubt, of the taxpayer having in fact misrepresented his true tax
position. This necessarily requires the prosecution to prove beyond reasonable doubt:

(a) the basis of the taxpayer’s taxability;

21
Black. A Law Dictionary, 2 nd Ed at 481 defines 'falsehood' as: "Falsehood. A statement or assertion known to
be untrue, and intended to deceive. A wilful act or declaration contrary to the truth. Putman v. Osgood,51 N II
207"
277 DEFRAUDING THE REVENUE

(b) the taxpayer’s tax liability; and

(c) that the tax position as represented by the taxpayer to the Revenue did not correspond
with his true tax position.

A taxpayer cannot be said to have misrepresented the truth where his representations as to his
tax position corresponded with what the law expected from him. Judging whether or not
representations made were indeed false can prove extremely difficult considering the
complexity of the tax laws and economic activity it covers. There is probably no body of
legislation that sees such regular and often drastic amendment as is the case with the laws of
taxation. What may be taxable or deductible one year, may not be so the next and vice versa.
This is the nature of taxation. Whether or not a particular course of conduct can be classed as
fraudulent or not, can only be determined after considering the taxpayer’s conduct against the
laws in force as framed at the time of the alleged offence.

3.2.3 Objective truth and falsity

It is objective truth alone that is relevant in any inquiry as to the truth of a representation.22
Truth and falsity are, for purposes of the law, mutually exclusive. What is not true is false,
and what is not false is true.23 There may however be varying degrees of truth and untruth.24
A single misstatement will not necessarily make a representor’s representations, evaluated
objectively and in its totality, untruthful. Such a misstatement may well be wholly
unimportant or immaterial. The knowledge or belief of the representor is wholly irrelevant
when considering the truth of a representation.25 A person may unintentionally make a
misstatement.26 It is also quite possible for a person to unintentionally make a correct
statement, in which event there will be no misrepresentation.27 The knowledge of the
representor only becomes relevant once the misrepresentation has been proven and “it
becomes necessary to distinguish between innocent and fraudulent misrepresentation.”28

3.2.4 Words or conduct

A misrepresentation may be made by words, conduct,29 or by words and conduct. A false
statement can be made in writing or verbally.30 A representation of fact can also be made in
other ways but in words. A typical example will be the ‘ticking’ of a ‘yes’ or ‘no’, or simply
the scratching out of a word. Misrepresentations can and are mostly made in the form of
words. False representations in written words may typically find expression in a tax return,

22
R v Lancaster [2010] EWCA Crim 370. Also see Turner at 80
23
Turner at 81
24
See Turner at 81 where it is inter alia said that: “In science, absolute exactitude alone is truth, and departure
from it by a hair’s breadth is error. But, in the case of communications between man and man for the purposes of
influencing conduct, there are necessarily degrees of truth and falsity. The facts may correspond with the
statement entirely, or partially, or not at all. The important features may be correctly described, whilst the
unimportant details are misstated, or vice versa.”
25
R v Lancaster [2010] EWCA Crim 370. Also see Turner at 79
26
Turner at 79 and then at 114 where it is inter alia said: “… untruth does not of itself import a dishonest mind
any more than, conversely, an intention to deceive necessarily involves that the statement made was untrue in
fact.”
27
Turner at 79-80 referring to the case of R v Aspinall (1876) 2 Q.B.D. 48 C.A. at 58
28
Turner at 79
29
See Turner at 71 where it is inter alia said: “Indeed, conduct in many cases is a more real expression of
thought than language, just as circumstantial evidence is sometimes more valuable and cogent than direct
evidence”, and then at 71 note 4 where it is said: “In Barley v Walford (1846), 9 Q.B. 197, Lord Denman C.J. at
p. 208, speaks of the absurdity of supposing that a man, “having a conspicuous clock to slow”, could be liable to
any who went by it. No doubt this would be ridiculous; but the act of pointing to a clock, known to the pointer to
be too slow or too fast, might well be a misrepresentation of the kind mentioned by Paley.”
30
See Black’s Law Dictionary, 6th ed at .602 where “false statement” is defined as: “Statement knowingly false,
or made recklessly without honest belief in its truth, and with purpose to mislead or deceive.”
278 DEFRAUDING THE REVENUE

bill of entry, books of account, correspondence, or on an object such as a shipping container

or on a stamp. False verbal representations will often surface during interviews, meetings with
revenue officials, or during inspections. A misrepresentation need not only be made explicitly
but can also be made impliedly. It has long been accepted that a misrepresentation can be
made by conduct alone. Examples of conduct that has in the past been held as conduct that
may amount to a misrepresentation of the truth are: the making use of misleading stationary;31
answering by nodding or shaking of the head;32 the tendering of a document or books of
account;33 conducting an experiment in such a manner as to misrepresent the true outcome or
results thereof;34 the packing of goods in a misleading manner;35 the covering up of a defect;36
or the manipulation of a machine or equipment as a means to misrepresent the truth.
Misrepresentations can be made by both words and conduct. In many instances the misleading
conduct may be accompanied with misleading words. A false statement may typically be
made when handing over to the revenue inspector a false sample, when handing over
fraudulent books of account, or when pointing out a certain property or equipment.

3.2.5 Materiality
A false representation or omission will not necessarily always make a representor’s
representations, evaluated objectively and in its totality, untruthful. Not every false
representation or omission will necessarily be material. For something to be false in a material
particular means it must be false in an important respect.37 A representation will generally be
viewed as materially false where the representation is sufficient to influence the making of a
decision.38 The failure to declare income will generally be viewed as material. 39 Some false
representations or omissions may be as trivial or irrelevant as to make it, within the context
within which they appear, without consequence.40 In most jurisdictions, misrepresentations

31
See R v Rhodes (1898) 19 Coc CC 182
32
R v Larkins 1934 AD 91, 94
33
See Turner at 72. R v Heyne and Others 1956 (3) SA 604 (A). In Edinburgh United Breweries v Molleson
[1894] A.C. 96 HL where the handing over of books of account, which the appellants were entitled to have
examined by an accountant, was deemed an implied representation that they were genuine.
34
Lovell v Hicks (1836) 2 Y & C (Ex) 46, 55, 57 referred to in Turner at 73
35
Ormrod v Huth (1845) 14 M & W 651 referred to in Turner at 73
36
Horsfall v Thomas (1862) 1 H & C 90 referred to in Turner at 73
37
R v Mallett (1978) 67 Cr App Rep 239. This also accords with the meaning of 'material' as used in general
usage. See Fernald, The Concise “Standard” Dictionary Of the English Language at 316 where “material” is
inter alia defined as: “2. Essential; important”. Also see Black, A Law Dictionary, 2nd ed at 765: “Material.
Important; more or less necessary; having influence or effect; going to the merits; having to do with matter, as
distinguished from form”
38
This is also the position in the United States. See Neder v. United States, 527 U.S. 1, 119 S.Ct. 1827 (1999).
Also see Kungys v. United States 485 U.S. 759 (1988) where the following was said as to the "materiality" of
concealment: "The most common formulation of that understanding is that a concealment or misrepresentation is
material if it "has a natural tendency to influence, or was capable of influencing, the decision of the decision-
making body to which it was addressed. See, e.g., Weinstock v. United States, supra, at 367-368, 231 F.2d at
701-702; United States v. Corsino, 812 F.2d 26, 30-31 (CA1 1987)".
39
See e.g. the US Supreme Court case of Neder v. United States, 527 U.S. 1, 119 S.Ct. 1827 (1999)
40
See e.g. R v Lancaster [2010] EWCA Crim 370 where Lord Justice Toulson inter alia said: ".... it does not
necessarily follow that an incomplete or incorrect answer will be material. An error or omission may be trivial.
Further, it is possible to envisage cases where an application form may include questions which have no
discernible bearing on the processing of the application. (Government application forms may include questions,
for example, about ethnic or cultural background which are for statistical purposes rather than because they are
needed for the processing of the application. Application forms issued by companies in the financial services
sector may include questions designed to enable the company to build up a data bank for marketing purposes
rather than for any reason connected with the application itself.) We would therefore not accept that there is a
hard and fast rule that any omission to supply information required by an application form must necessarily
amount to the omission of a material particular."
279 DEFRAUDING THE REVENUE

that may give rise to criminal liability are generally limited to material misrepresentations.41
This however is not necessarily always the case and is not to be assumed. Every penal
provision is to be considered on its own construction and context. What is or is not 'material'
within the context of any particular provision is a matter of interpretation and construction.
What will be viewed as 'material' in the context of one provision may not be so in the case of
another.42

3.2.6 Commissio and omissio

A misrepresentation may be made by falsely representing certain facts or circumstances, or it
may be made by remaining silent about certain facts under circumstances where the disclosure
thereof is called for, thus the non-disclosure or concealment of facts. A misrepresentation will
be in the form of a comissio where the taxpayer makes certain representations, either in the
form of words or conduct, and where the representations so made are in fact false and
misleading. Within the context of taxation, the most common example of this is the filing of a
fraudulent tax return. A misrepresentation will be in the form of an omissio where the
authorities were misled as a result of the taxpayer’s silence or failure to act under
circumstances where there rested on the taxpayer a duty to disclose or act. Examples of this
situation are that of the taxpayer who fails to register for and declare tax, or where the
manufacturer of excisable goods fails to declare to Customs the manufacture and release into
home consumption of locally manufactured excisable goods and where same should have
been declared. The truth may be misrepresented by any number of acts, omissions, or
combinations of the two.

3.2.7 Misrepresentation by omission

Efficient tax administration relies on full and honest disclosure by the taxpayer of all
information required to be disclosed and relevant in assessing his/her tax liability. There rests
a duty on all taxpayers to fully disclose all information in law required to be disclosed.
Accurate assessment and efficient tax administration is not possible absent such full and
honest disclosure. The Revenue may be defrauded by a taxpayer’s failure to disclose certain
facts or circumstances or the failure to act under circumstances where the failure to disclose or
act amounts to an intentional and unlawful misrepresentation of the truth. The fraudulent non-
disclosure of facts under circumstances where the disclosure thereof was called for has the
effect of depriving the Commissioners of the right to administer the tax laws and apply their
discretion in the way they would have applied it had they been aware of all the relevant facts
and circumstances. It denies the Commissioners the information they are entitled to in

41
This then is also so in respect to the offences of fraud under the Fraud Act 2006 and 'false accounting' under
section 17 of the Theft Act 1968
42
See e.g. R v Lancaster [2010] EWCA Crim 370 where the court was called upon to consider 'materiality'
within the context of false accounting contrary to section 17 of the Theft Act 1968 and where Lord Justice
Toulson inter alia said: "In Passmore the defendant was in receipt of housing and council tax benefit. He was
convicted of dishonestly failing to give prompt notification of "a change of circumstances affecting any
entitlement of his to any benefit or other payment or advantage under the relevant social security legislation",
contrary to s 111A of the Social Security Administration Act 1992. The question for the court concerned the
meaning of the phrase "a change of circumstances affecting any entitlement of his to…benefit". The court held
that the change of circumstances must have made a difference to the amount of benefit which the recipient was
entitled to claim in order for it to be characterised properly as a change of circumstances affecting his entitlement
to benefit …. We do not consider that Passmore is relevant to the proper construction of s 17 of the Theft Act.
The offence for which Passmore was prosecuted belongs to a different statutory scheme, and the two sections are
aimed at different mischiefs. The mischief aimed at by s 111A of the Social Security Administration Act 1992 is
not falsification of documents but dishonest failure by a recipient of public benefits to notify the relevant
authority of a change of circumstances which would make a difference to the computation of his benefit. Section
17 of the Theft Act applies generally to the falsification of accounting documents for the purpose of obtaining
financial gain or causing financial loss. It does not require that such gain or loss should in fact result."
280 DEFRAUDING THE REVENUE

assessing a taxpayer's tax liability. It thus comes as no surprise that in most common law
jurisdictions, England and South Africa being notable examples, the failure to disclose where
disclosure was legally called for can be sufficient to carry convictions for fraud 43 and
evasion.44

There are indeed few categories of crime where non-disclosure and concealment feature as
prominently as is the case with tax fraud. The greater majority of tax frauds are committed by
taxpayers who defraud the Revenue by wilfully failing to register for tax, wilfully fail to file
returns, or wilfully fail to make full and honest disclosure. The issue of non-disclosure within
the area of taxation is thus particularly problematic. This is especially so considering the
significant losses in revenue suffered within the underground economy. The information so
withheld may relate to trading activities, investments, relationships between trading partners,
and a legio other factors and/or circumstances. The failure to disclose does not necessarily
always have as main objective the evasion of taxation. The non-disclosure may often be no
more but an attempt to shield from the authorities other illegal activities. Those involved in
criminal activity connected with organized crime, money laundering, corruption and the like,
will invariably attempt to keep their activities in the dark as best they can. These activities
tend to be of the books without disclosure to the Revenue.

3.2.7.1 Failure to act

The truth can be misrepresented by the failure to disclose certain facts under circumstances
where disclosure was called for.45 In many jurisdictions, England and South Africa being
examples in point, wilful omissions can make out the actus reus of a number of offences
making punishable fraudulent conduct. This then is the case with the common law offence of
'cheating' in England, the offence of fraud as provided for in section 1 (read with section 3) of
the Fraud Act 2006, and the South African common law crime of 'fraud'. In those jurisdictions
the wilful failure to file returns and where the non-filing is accompanied with the intent to
evade taxation is viewed as fraudulent conduct and is prosecuted as such. In the United States
however, a wilful omission, such as the failure to file tax returns, cannot in itself constitute
tax evasion in contravention of 26 U.S.C. § 7201 ('Attempt to evade or defeat tax') in the
absence of evidence of 'affirmative acts' proving concealment. Examples of conduct, as per
US case law, which can be affirmative acts of evasion are inter alia: concealing income; the
keeping of double sets of accounts; the destruction of records; the making of false invoices or
false entries in books of account; or any other conduct intended to conceal or mislead.46

A non-disclosure can only be said to amount to a misrepresentation of the truth if the non-
disclosure was sufficient to mislead. It must be material. The non-disclosed facts must be of

43
Under section 1 of the Fraud Act 2006 in Britain and under the common law crime of fraud as it is defined and
applied in South Africa.
44
E.g. under the common law crime of 'cheating' as defined and applied in England.
45
See Turner, Actionable Misrepresentation at 94 where the writer inter alia states: “... there are cases where a
man may positively lie by saying nothing, and where the circumstances are such that reticence or concealment
may amount to active misrepresentation.” The same writer then (at 94-95) refers to the following English cases:
Tapp v Lee (1803) 3 Bos & P 367 where Chambre J at 372 reportedly said: “If a man professing to answer a
question, select those facts only which are likely to give a credit to the person of whom he speaks, and keep back
the rest, he is a more artful knave than he who tells a direct falsehood”; Cazenove v British Equitable Assurance
Co. Ltd (1860) 29 L.J. C.P. 160 at 160 where Pollock C.B reportedly remarked: “it is trifling to say that that is a
true answer which requires something to be added to it to make it true”; Gluckstein v Barnes [1900] A.C. 240
HL where at 251 Lord Macnaghten reportedly stated: “... everybody knows that sometimes half a truth is no
better than downright falsehood”.
46
See Spies v United States 317 U.S. 492 (1943)
281 DEFRAUDING THE REVENUE

such importance as to make misleading the facts or circumstances indeed disclosed. 47 The
failure to disclose effectively amounts to a misrepresentation that the undisclosed facts do not
in fact exist.48 To falsely represent to the Revenue that a full disclosure has been made,
whereas in truth and in fact no such full disclosure has been made, will in itself also amount
to a false representation.49 Such a false representation will in fact be a misrepresentation by
commissio rather that misrepresentation by ommisio. This situation may typically arise where
a taxpayer knowingly signs a declaration to the effect that he has made full disclosure but
where this is in fact not the case. Another example is that of a taxpayer, often after he was
already caught out, entering into a settlement agreement with the Revenue but in the
agreement knowingly fails to make full disclosure.50

All the facts relating to a particular matter need not be concealed for the truth to be
misrepresented. The partial non-disclosure of facts relating to a particular matter may be just
as misleading as total concealment of all the facts relating to that matter.51 Taxpayers will
often disclose most of the facts and circumstances the disclosure of which are called for, but
may nevertheless be selective in the disclosures made. Selective non-disclosure, even the non-
disclosure of a single fact, can make a return incomplete and misleading. It can be argued that
a tax evader’s misleading conduct continues for as long as he persists with the evasion. The
evasion continues for as long as he fails to disclose the true facts to the Revenue. He does
after-all persist in evading a tax debt. Taxes more often than not also tend to be evaded on the
proceeds of investments made with evaded tax money. The taxpayer may typically evade tax,
divert the evaded funds to be invested somewhere else, and then evade the payment of tax on
the income from those investments.

3.2.7.2 Duty to disclose

The failure to disclose certain facts would only constitute a misrepresentation where there
rests on the person concerned a legal duty to disclose those facts.52 It is generally accepted
that there is no general duty to make disclosure. A detailed investigation into and
understanding of the duties placed on the taxpayer is thus vital when considering his criminal
liability. The duty to disclose may have a statutory or common-law basis. The

47
See Turner at 99 where it is correctly stated that: “ ... unless the omission makes the residue false ... the
representation is not only devoid of fraud, but it is not a misrepresentation at all.”
48
In the South African case of Western Areas Ltd and others v S [2005] ZASCA 31 where Howie J inter alia
said: “It is not disputed that non-disclosure amounts to a misrepresentation that the undisclosed facts do not
exist.”
49
In the English case of R v Hudson [1956] 1 All E.R the accused was found guilty of “making false
statements…with intent to defraud” arising from a statement to the effect that he had disclosed all information
pertaining to his bank accounts and tax liability, whereas this had not in fact been done. At 815 Lord Goddard
inter alia remarked: “They are saying, in effect, ‘Tell us in so many words that you have made full disclosure.’ If
the taxpayer says that he has made full disclosure when he knows full well that he has not, then he is acting
fraudulently.”
50
In most jurisdictions the Commissioners are entitled to reject any settlement agreement reached between the
Revenue and a taxpayer where the taxpayer failed to disclose material facts at the time of the settlement.
51
See Arkwright v Newbold (1881) 17 Ch. D 301 C.A at 318 where James J inter alia said: “... supposing you
state a thing partially, you make a false statement as much as if you misstated it altogether. Every word may be
true, but if you leave out something which qualifies it ... that is an actual misstatement.”
52
See Turner at 103 where it is correctly stated that: “It is not silence, or reticence, which in itself can amount to
a misrepresentation. It must be concealment ... A man cannot be said to conceal what he is not bound to reveal,
suppress what he is under no duty to express, or keep back what he is not required to put forward.” Also see
McCann v Goodall Group Operations (Pty) Ltd 1995 (2) SA 718 (C) where at 726 it was inter alia said:
“Silence or inaction as such cannot constitute a misrepresentation of any kind unless there is a duty to speak or
act as aforesaid.” It should be noted that the possibility of the Commissioner instituting a civil claim for damages
against another person, for loss suffered due to the other’s negligent or intentional non-disclosure cannot be
excluded.
282 DEFRAUDING THE REVENUE

Commissioner’s right to full disclosure of all facts or circumstances required to be so

disclosed, will in most cases be expressly stipulated in the tax legislation. Whether or not
there was a legal duty to act or to disclose depends on the facts of the case.

3.2.8 Multiple misrepresentations

The same fraudulent scheme may involve the making of multiple fraudulent
misrepresentations. The number, nature and context of the misrepresentations made are only
limited by the nature and scope of the scheme. In many instances many of those
misrepresentations may be the actus reus of separate charges of fraud or alternatively evasion
(depending on the facts of the case). A straightforward example of this type of situation will
be the criminal syndicate setting up a refund scam involving the filing of fraudulent refund
claims. It may be one scheme, but every fraudulent claim submitted during the scheme's
existence can be charged as a separate offence. Each such offence may however also be made
up of numerous false misrepresentations made to any one or more persons over a period of
time. The truth may also be misrepresented through the use of any combination of omissio
and/or commissio. Numerous false representations may follow one upon the other during
various stadia of tax administration, revenue verification and enquiry, or tax litigation.
Consider the example where self-employed plumber X for 8 consecutive tax years evaded tax
by the understatement of his income. Over the period concerned he understated his income by
failing to record all the work carried out and by making false entries in his books of account.
Making use of the services of an honest and reputable tax accountant for the preparation of his
tax returns, he provides the accountant with his books of account, the accountant bona fide
relying on the false information therein reflected in preparing the plumber's tax returns.
During a subsequent tax audit by revenue inspectors, X produces and hands over to the
inspectors the false books of account and also makes a number of false verbal statements in
answer to the questions put to him by the inspectors. Contesting the figures for income as
accounted for in the books of account and as declared in the tax returns, the tax inspectors
raise assessments against X for all the tax years under review. During subsequent litigation, X
makes further misrepresentations in an attempt to get the assessments overturned. Subsequent
to a judgement in favour of the Commissioners, X orchestrates a fraudulent bankruptcy with
the Revenue being the only creditor. From this example, it should be clear that X made
numerous misrepresentations, not only to the Revenue, but also to his unsuspecting
accountant and the court. His misrepresentations were made over a period of time, and
involved the making of both written and verbal misrepresentations.

3.2.9 Overlapping with the actus reus of other offences

Although there are a number of other offences making punishable the evasion of a range of
duties, taxes, and levies, the primary offences currently in use in the United Kingdom in
dealing with revenue frauds are:

(a) cheating the public revenue;

(b) fraud under section 1 of the Fraud Act 2006;
(c) false accounting under section 17 of the Theft Act 1968;
(d) the fraudulent evasion of VAT under section 72 of the Value Added Tax Act 1994;
(e) the fraudulent evasion of income tax under section 106A of the Taxes Management
Act 1970; and
(f) the fraudulent evasion of duty under section 170 of the Customs and Excise
Management Act 1979;

Whereas these offences may show considerable variance in terms of the material elements
required to be proven for conviction, all of them also share two key characteristics: (a) None
of these offences cover the taxpayer whose mental state of mind at the time of the alleged
283 DEFRAUDING THE REVENUE

contravention can be described as honest; and (b) None of these offences will cover truthful
and complete disclosures by the taxpayer of his tax position as and when they are in law
required to be made, and none of these offences will cover a failure to disclose where the
failure did not in law constitute an unlawful breach of a legal duty to disclose. For the English
lawyer this all in essence translates into offences making punishable unlawful dishonest
misrepresentation by act or failure.

The same unlawful acts or failures employed as part of a scheme to defraud the Revenue may,
depending on the facts of the case, be covered by more than one of the above offences. This
degree of overlapping is common between offences capable of covering misrepresentation, by
act or failure, as the actus reus of those offences. Those offences may, as is clear from the
sample listed above, be crimes under common-law, may be provided for under non-revenue
statutes, or may be offences provided for under the revenue legislation. A number of those
offences may, depending on the facts of the case, be charged in the alternative. Prosecutors
obviously need guard against the risk of duplication of charges.

3.2.10 Commonly employed misrepresentations

False representations or misleading conduct can come in many shapes and forms, may surface
in different contexts, can be made by any number of persons acting in very different
capacities, and can be made for any number of reasons. Although most false representations,
within the context of revenue administration, are generally made with the immediate objective
of escaping some or other tax, duty or penalty, or to escape or impede some or other
procedure, inspection, control measure or process, false representations may well also be
made for other reasons. Examples that come to mind are that of a person who falsely gives
himself out as a tax inspector in an attempt to extract confidential taxpayer information, or a
person passing on to the Revenue fabricated 'information' falsely implicating say a competitor
in a tax fraud.

False representations may be made verbally or in writing, in electronic format or on paper,

may be made during face-to-face contact with a revenue officer or over the phone. Multiple
false representations may be made in different ways, often at various stages of a fraud, and
often over a prolonged period of time. Numerous false representations may be made at the
same time or in combination, often intended to operate in unison in achieving the same
intended objective. They may span over all stages of the fraud, often from the planning and
implementation stages of the fraud, during the term of its operation, and often even after the
operation has been rolled up. This will typically be in an attempt to prevent detection or in an
attempt to keep the proceeds out of the Revenue's reach.

3.2.10.1 False verbal statements

It is standard practice for the Commissioners and delegated officers to request information
from taxpayers for purposes of verification and day-to-day tax administration. In every tax
statute one will find a host of provisions authorizing the request of certain information by the
Commissioners, and/or placing a duty on certain persons to furnish the Commissioners with
certain information. The information so furnished and the disclosures so required to be made,
must be accurate, truthful and complete. Honesty when 'answering questions' is very much the
standard expectation regardless jurisdiction.53 What is called for is honesty and full disclosure
of that which is required to be disclosed. In many instances the information so requested will

53
Section 4 of the Australian Customs Act 1901 provides for the following useful definition of “answer
questions”: “..means that the person on whom the obligation of answering questions is cast shall to the best of his
or her knowledge, information, and belief truly answer all questions on the subject mentioned that an officer of
Customs shall ask.”
284 DEFRAUDING THE REVENUE

be met with false information or answers. Not all ‘false answers’ will however be intended to
defraud or to evade, or be intended to assist another to evade taxation or assessment.

False verbal statements may be made on the taxpayer’s own initiative, or in response to
questions put to him by the revenue inspectors. Many misrepresentations are made as false
verbal statements made to revenue inspectors during field audits and inspections, on passing
through the customs line, or even over the telephone. More commonly, it will be made in
support of other false representations made in fraudulent tax returns or fraudulent books of
account, or in conjunction with misleading conduct such as the concealment of goods. A
revenue officer may typically inquire from the taxpayer as to whether or not the taxpayer has
made full disclosure as to a particular matter. The taxpayer, knowing that he failed to disclose
certain information the disclosure of which is called for, and appreciating the risks associated
with answering truthfully, then falsely answers "yes".54 The false answer in itself amounts to a
false representation. A false statement made by a taxpayer can make out the actus reus of
numerous fraud, evasion, or other statutory offences making punishable the making of false
statements. These latter offences are common in most revenue statutes. Prosecutors therefor
need take care when drafting indictments as there is the risk of duplication of charges where
the making of false statements is charged in addition to fraud or evasion.

3.2.10.2 Fraudulent documentation

The truth can be misrepresented through the use of false documents. In modern times we have
witnessed many new developments and advances in the way people communicate, account,
record, and declare information. As a result there has also been a broadening in modern
definitions of what constitutes a ‘document’. 'Documents' have however long been afforded a
wide interpretation with many definitions, both old and new and from statute and otherwise,
to be found where 'documents' were defined as including more than just papers bearing
written text.55 Statutory definitions of 'documents' are to be found in many statutes. How it is
defined and the 'documents' covered obviously depends on statutory framing and context.
Most modern definitions are framed widely so as to cover a wide range of paper documents,
devices by which information is recorded or stored, and things like photographs, maps,
drawings, photocopies, and printouts of information. Just a few decades ago all commercial

54
In the English case of R v Hudson [1956] 1 All E.R the accused was found guilty of “making false
statements…with intent to defraud” arising from a statement to the effect that he had disclosed all information
pertaining to his bank accounts and tax liability, whereas this had not in fact been done. At 815 Lord Goddard
inter alia remarked: “They are saying, in effect, ‘Tell us in so many words that you have made full disclosure.’ If
the taxpayer says that he has made full disclosure when he knows full well that he has not, then he is acting
fraudulently.”
55
More than a century ago Black's Law Dictionary (2 nd Ed at 386) provided for the following definitions of
'document', 'judicial documents', 'public document' and 'documentary evidence': "Document. An instrument on
which is recorded, by means of letters, figures or marks, matters which may be evidentially used. In this sense
the term "document" applies to writings; to words printed, lithographed, or photographed; to seals, plates, or
stones on which inscriptions are cut or engraved; to photographs and pictures; to maps and plans. The inscription
may be on stones or gems, or on wood, as well as on paper or parchment. .. In the plural, the deeds, agreements,
title-papers, letters, receipts, and other written instruments used to prove a fact. In the civil law. Evidence
delivered in the form established by law, of whatever nature such evidence may be. The term is however applied
principally to the testimony of witnesses .. Judicial documents. Proceedings relating to litigation. They are
divided into (1) judgments, decrees, and verdicts; (2) depositions, examinations, and inquisitions taken in the
course of a legal process; (3) writs, warrants, pleadings, etc which are incident to any judicial proceedings ..
Public document. A state paper, or other instrument of public importance or interest, issued or published by
authority of congress or a state legislature. Also any document or record, evidencing or connected with the
public business or the administration of public affairs, preserved in or issued by any department of the
government .. Documentary evidence. Such evidence as is furnished by written instruments, inscriptions,
documents of all kinds, and also any inanimate objects admissible for the purpose, as distinguished from "oral"
evidence, or that delivered by humans viva voce."
285 DEFRAUDING THE REVENUE

documents, accounting records, tax returns, customs entries, and audit files, to list but a few
examples, were generated and kept as paper documents. This is no longer the case. Most
modern definitions now also cover electronic data and objects.

Different documents may be drafted, integrated, and employed together in such a manner as
to collectively convey or reinforce a single misrepresentation. A single document however
may in itself convey multiple misrepresentations that may potentially mislead and prejudice
multiple parties. Whether or not a document will be misleading obviously depends on the
completeness of the disclosures made in that document, and the truthfulness of the statements
that were made in that document. There is then also no limit to the number and nature of the
statements that can be made in the same document. Those statements may be in text, figures,
graphs, pictures, or in any combination thereof. The context within which a statement is made
or information is omitted is always all-important when dealing with misrepresentation and
fraud. A statement that may be completely true where made or placed in one context may be
wholly false and misleading where so made or placed in another. What a document represents
(where viewed in its totality), may depend on many different statements and omissions
contained in that same document. The employment of those different statements and
omissions, and how they interact with one another, is just as important as is the truthfulness of
each of those individual statements. It is quite possible for a document, where viewed in its
totality, to misrepresent the true facts, even though each of the statements contained therein
may well be true (where viewed and evaluated in isolation).56

A document may be a misleading document in that it contains factually incorrect statements

misrepresenting the truth, and/ or in that it contains omissions having the effect of
misrepresenting the truth, or in that the document gives out a falsehood about itself, that is to
say being a forged document. In the revenue and customs context, much of the false
documentation tend to be false by design, from the start conceived and made up to be
misleading (for example false invoices agreed on between buyer and seller). Another category
of false documents often encountered is documents that were altered into false and misleading
versions (from what was complete and truthful). Also common is the use of false documents
that were lawfully issued as they are, typically things like import and export permits or
certificates issued by regulators, but where the issue thereof was facilitated through fraud (for
example an import permit or tax compliance certificate issued by the respective authorities but
where same was issued on the strength of applications that were fraudulent. Many frauds
involve the use of documents that may in terms of character and content be completely
accurate and truthful, but with the offenders unlawfully using those documents in a fraudulent
manner (for example the use of a stolen passport and that person's identity to further a fraud).
Here we are not dealing with factually incorrect documentation, but with the use of factually
accurate documentation in a fraudulent manner. An unlawfully cloned version of such a
document will be a false document.

Whether or not a document is a misleading document misrepresenting the true facts, is a

factual enquiry focussed on objective fact. The state of mind of those who generated and/or
used the document is wholly irrelevant in assessing whether or not that document is a

56
See R v Kylsant [1931] All ER 179 (CCA), where a company prospectus was held to be misleading as to the
true financial position of the company, even though each of the statements contained therein (and where
considered on its own) were true. Also see Turner, Actionable Misrepresentation at 108 where it is inter alia
said: “Where a number of statements form one entire complex representation, the primary principle of
construction is that all the statements or documents … must be considered in their interrelation and bearing upon
one another, in order to ascertain whether the conjoint effect of the whole is true or a false transcript of the
facts.”
286 DEFRAUDING THE REVENUE

factually incorrect and misleading document. Proof of a document being a factually incorrect
and misleading document is not proof of knowledge of falsity. A document may contain
materially incorrect and misleading statements, or may contain material omissions making the
document misleading, but without those who actually created, authorized, or used the
document, necessarily having had any knowledge of that document being a misleading
document. Proving knowledge of falsity involves an enquiry into the offender's subjective
state of mind.

3.2.10.2.1 Fraudulent registration documentation

Many tax frauds are meticulously planned, and implementation often starts long before the
first return or customs entry is filed. The planning- and implementation stages of these frauds
will often involve the setting up of false identities, the opening of bank accounts under false
names, the registration of front companies, the renting of premises and post boxes under false
names, and the filing of fraudulent registrations with the Revenue and/or other government
departments. Planning will thus often be in depth and this will be evident in the extent of the
deception. The information provided in the registration documentation for registration as
VAT vendor, importer, or exporter, will in many instances be false. It is common for the false
information as supplied in the registration and/or other regulatory documents to be supported
with equally false supporting documentation. This is common with many of the VAT scams,
MTIC frauds, and many of the smuggling operations. Those behind the criminal operation
will usually do so, not only to ensure the success of the operation, but also in an attempt to
hamper or frustrate administration, verification, identification, and prosecution.

3.2.10.2.2 Fraudulent tax returns and claim forms

Much has already been said about misrepresentations in tax returns. The misleading
information reflected in the false return will in many instances be backed with documentation
such as invoices, debit notes, credit notes, financial statements, auditor’s reports, books of
account, and other documentation that may be equally false. The false information reflected in
the false return will more often than not mirror the false information as reflected in the false
supporting documentation. The fraudulent return will in many instances be the ultimate
product of what may be an impressive body of dishonest labour, and may in many instances
only be the final act of misrepresentation in a long chain of false representations.

3.2.10.2.3 Fraudulent Bills of Entry

As is the case with a tax return, an incorrect bill of entry may misrepresent the true facts. Such
a bill of entry may be misleading in that it reflects factually incorrect information, or in that it
fails to disclose information the disclosure of which is called for. The information omitted or
the incorrect information provided, may relate to a wide range of facts or circumstances such
as but not limited to: (i) the invoice value; (ii) the customs procedure to be followed;57 (iii) the
identities of importers or exporters; (iv) the movement or transportation of the goods; (v) the
description or classification of the goods; (vi) any preferences that may be applicable in
relation to the goods; and (vii) the country of origin and/or country of destination, to list but a
few. All misleading bills of entry are not however fraudulent. A bill of entry may also be
misleading as a result of what was no more but innocent oversight or error. There cannot be
fraud absent knowledge. It is common for fraudulent bills of entry to be supported with
fraudulent commercial and/or regulatory documentation such as, but not limited to: bills of
lading or air waybills; invoices; packing lists; import or export permits; certificates of origin,
or preference certificates. It will suffice to say that any wilful and material false representation
or any wilful and material non-disclosure in such a bill of entry, made with the intent to evade

57
Generally referred to as the CPC code
287 DEFRAUDING THE REVENUE

the payment of duties or taxes, or made with the intent to evade some or other form of
regulatory control, will be no less but a fraudulent bill of entry.

3.2.10.2.4 Fraudulent commercial documentation

Fraudulent tax returns and bills of entry will in many instances be supported with fraudulent
commercial and regulatory documentation such as, but not limited to, bills of lading, waybills,
invoices, debit notes, credit notes, packing lists, statements, import or export licenses etc.
These fraudulent documents may typically be generated by, issued by, or be used by the
taxpayer, his advisors, suppliers, or clients. For commercial documents, financial records, or
books of account to be accurate, the entries and information therein reflected need be accurate
and truthful. Entering false information in commercial documents such as invoices, debit
notes or credit notes, will not only make those documents ‘false documents’, but the transfer
of the false information therefrom into the books of account, may also result in the
information reflected in the books of account being false.

Fraudulent invoicing
Over-and under-invoicing has long been used as a means to evade both direct and indirect
taxation. Goods or services supplied or acquired will often be overvalued or understated.58
Investigating the accuracy of the invoices issued will thus usually be an important starting
point in any enquiry where over-valuation or understatement is suspected. An invoice can in
short be described as a document notifying an obligation to make payment. The intentional
misrepresentation of the true value or nature of any goods or service in an invoice, and where
such misrepresentation has as consequence the underpayment of duties or tax, and where the
value or nature of the goods is so misrepresented with the intent to prejudice, will be no less
but fraudulent. Proving an invoice to be false requires proof of the information therein
reflected to be false. The transactions as represented in that false invoice may be no more but
fabricated transactions that in fact never took place, or details relating to the supply in
connection with which that invoice was issued, may be misrepresented. The false information
reflected in the invoice may relate to numerous aspects of a transaction such as but not limited
to value, description, dates, contracting parties, and numerous other facts or circumstances.

Fraudulent invoices will often be used to support fraudulent expense claims or in an attempt
to support an understatement of income. The under-invoicing of imported goods also tend to
be rife amongst importers intent on evading import duties and VAT. The exporter in the
country of export will either conspire with the importer, raising a false invoice, or the invoice
as issued may be falsified so as to reflect information other than what was in fact reflected.
Over- or under-invoicing between related companies can also prove particularly problematic.
Many of these companies tend to manipulate the pricing structures in such a way as to
artificially reduce or inflate the invoice values. Proving an invoice to be falsely overstated or
understated may appear simple or straightforward enough. This however is not always the
case. Proving beyond reasonable doubt that certain invoice values were overstated or
understated may prove difficult. Proving the overstatement or understatement to be
fraudulent, may prove an even more difficult and often impossible burden to meet. Fraudulent
invoicing usually echoes in false figures being reflected in the books of account, tax returns,
and/or bills of entry. It is for the prosecution to prove, beyond reasonable doubt, that the
information as reflected in the invoice is false and misleading. The prosecution will

58
See the New Zealand case of The Queen v Flyger [2001] NZCA 361 where the accused was convicted on 6
charges relating to the fraudulent use of documents to gain tax advantages for his clients. Invoices were alleged
to have been made out wherein the true value of stock was overvalued or where the services invoiced for were in
fact never rendered. Stock in trade worth only 20 000.00 dollars was for example sold to another company for
198 000.00 dollars.
288 DEFRAUDING THE REVENUE

furthermore be required to prove the required knowledge. Where the taxpayer honestly
believed the values as stated in the invoice to be the correct values, then the required intent
will be absent. It is to be noted that most tax statutes in most jurisdictions also provide for
penal provisions making punishable the issue or use of incorrect and false invoices.

3.2.10.2.5 False books of account

The importance of accurate records and books of account being kept and maintained for the
purposes of taxation is obvious.59 The failure to keep such proper records and books of
account undermines the Revenue’s ability to perform its functions. It makes verification and
audit impossible as the accuracy of the taxpayer’s returns cannot be properly verified.
Provisions setting out the taxpayer's duties and responsibilities relating to the retention and
keeping of certain records, documents, and books of account are to be found in most tax
statutes. Most tax statutes will as a general rule also contain provisions authorizing the
Commissioners to request said records and books of account to be made available for
inspection as and when required. Those statutes will as a general rule also contain penal
provisions making punishable the failure to keep same. The types of records, documents, data
and information deemed to be 'records' or 'books of account' required to be kept under the
various revenue (and other) statutes are legio, and may differ from statute to statute and
jurisdiction to jurisdiction. In the case of traders and corporations this will usually include
both source documents such as invoices, debit notes, credit notes, receipts, etc., and the
ledgers and books of account as prepared from those source documents.

Frauds committed against the Revenue may or may not involve the preparation and keeping
of false records and books of account. Trader X may well keep all those documents required
to be kept, and the books of account as prepared from those records may well be accurate and
truthful, but the tax returns he filed may well be fraudulent, reflecting figures not
corresponding with the figures as reflected in his books of account. This however tends to be
the exception considering that even the most basic of revenue inspections may result in
detection. In most instances the offender will go to great lengths to ensure the entries in his
books of account corresponds with the false representations in his tax returns. More often than
not, fraudulent returns will be backed up with records and books of account which were
falsely kept, subsequently falsified,60 or were not kept at all. Where the books of account were
kept, the omission of entries relating to certain transactions is common.61 In other instances
the transactions may be entered but with the nature thereof or some or other circumstances
surrounding same being misrepresented. Books of account will not only be ‘false’ where false
information is carried over thereto, but will also be ‘false’ where information is intentionally
omitted and where the non-disclosure thereof will have the effect of misrepresenting the truth.
Factually incorrect entries in the taxpayer's books of account can only really be attributed to
those doing the accounting and/or preparation:

(a) making the entries as a result of honest reliance on factually incorrect information
provided to them; or
(b) making those factually incorrect entries as a result of genuine error or mistake on their
part; or

59
See Black, A Law Dictionary, 2nd ed at 144 where “books of account” is defined as: “The books in which
merchants, traders, and business men generally keep their accounts.”
60
See Fernald, The Concise “Standard” Dictionary Of the English Language at 197 where “falsification” is
defined as “the act or process of falsifying”, and where “falsify” is defined as to “misrepresent; disprove;
counterfeit; tamper with or pervert; lie”
61
See e.g. the Australian case of Adams v Cleeve [1935] HCA 12 where supplies were not entered into the
taxpayer’s books of account and subsequently also omitted in the taxpayer’s tax returns.
289 DEFRAUDING THE REVENUE

(c) making the entries with some degree of suspicion of the information relied on being
factually incorrect but nevertheless proceeding with the entry thereof; or
(d) knowingly making those entries with knowledge of the information so entered being
contrary to the true facts and thus false.

The fact that entries in the taxpayer's books of account are found to be fraudulent can never in
itself justify an inference of the accounting officer being a perpetrator or accomplice. All
know and appreciate that accountants and tax practitioners in carrying out their functions,
necessarily place reliance on the accuracy of the information as provided to them by the
taxpayer. This being said, where fraud is detected, the evidence will all too often also
implicate the accountants and/or tax advisors.

To wilfully hand over or make available to a tax inspector books of account containing
materially false entries and/or material omissions, will most certainly amount to an unlawful
misrepresentation where those false entries and/or those omissions are capable of
misrepresenting the taxpayer's true tax position. The presentation or handing over to a tax
inspector of records or books of account, knowing that reliance will be placed on the
information contained therein, effectively amounts to a representation to the effect that those
records and books of account, to the best of the taxpayer’s knowledge, are accurate and a true
representation of the taxpayer’s affairs. The manner or method by which they are made
available to the Revenue is irrelevant. Records and books of account may typically be handed
over by the taxpayer personally, by another person acting on his behalf or may just as well be
delivered by courier or post. Financial records are increasingly being kept in electronic
format. The format in which false information is passed on to the Revenue is irrelevant
insofar as criminal liability is concerned.

In many jurisdictions, the preparation and keeping of false books of account is in itself a
criminal offence.62 In most revenue fraud prosecutions however, the taxpayer will usually be
charged with an evasion or fraud offence with evidence of the false accounting being tendered
as evidence in support of the allegations of evasion or fraud. False accounting will however
often be added to the indictment as an alternative charge to the evasion or fraud charge.

3.2.10.2.6 Fraudulent financial statements

Financial statements
The content of financial statements can be technically complex covering complex work-
product included in the balance sheets, income statements, statement of changes in equity,
gains and losses, statement of cash flows, and the notes to the financial statements. Financial
statements are not only relied on by users such as investors, corporate management, banks,

62
In the UK for example, section 17 of the Theft Act 1968 provides for the offence of 'false accounting' which
reads as follows:
“17 False accounting (1) Where a person dishonestly, with a view to gain for himself or another or with intent to
cause loss to another, -
(a) destroys, defaces, conceals or falsifies any account or any record or document made or required for any
accounting purpose; or
(b) in furnishing information for any purpose produces or makes use of any account, or any such record or
document as aforesaid, which to his knowledge is or may be misleading, false or deceptive in a material
particular;
he shall, on conviction on indictment, be liable to imprisonment for a term not exceeding seven years.
(2) For purposes of this section a person who makes or concurs in making in an account or other document an
entry which is or may be misleading, false or deceptive in a material particular, or who omits or concurs in
omitting a material particular from an account or other document, is to be treated as falsifying the account or
document.”
290 DEFRAUDING THE REVENUE

and certain regulators, but the Revenue also place reliance thereon. False corporate tax returns
are often supported with financial statements and auditor’s reports supporting the false
information as reflected in the tax return. Financial statements may typically be fraudulent as
a result of: (a) revenues being falsely overstated or understated; (b) expenses being falsely
overstated or understated; (c) overstating or understating assets; (d) overstating or
understating liabilities; and (e) false disclosures or the dishonest failure to make certain
disclosures. Multiple misrepresentations, either false statements and/or omissions, and in any
number of combinations, may be made under more than one of these fields in the same set of
financial statements. As with all frauds, misrepresentations are guided by the objectives of the
person making the misrepresentations and the target audience of those misrepresentations.
The fields that will be overstated or understated and the nature of the false disclosures or non-
disclosures may thus differ depending on what the representor wants to represent and to
whom.

Those who prepared the financial statements will often be wholly innocent having placed
honest reliance on the information as provided by the taxpayer. Any crooked taxpayer with
just half a brain will ensure his records and books of account only show that which he wants
to show. Financial statements drawn up on the strength of that false information will then
usually no more but mirror the false data, albeit in a processed and condensed form, as
reflected in the false books of account. Where those whom draw up the financial statements
did so honestly, then the levelling of any charge of false accounting or fraud against them will
be out of order. This being said, any person who knowingly assists with the preparation of
false financial statements or whom knowingly makes use of such false financial statements
knowing same to be false and capable of deceiving those whom may place reliance thereon,
clearly acts dishonestly and runs the risk of incurring criminal liability under various offences.
Those offences may, depending on the legal framework of a given jurisdiction and the facts of
the case, range from relatively less serious statutory offences to false accounting, fraud, and
conspiracy. Proving information to be factually incorrect seldom presents difficulties as the
test for truthfulness of information is an objective one. The challenge is usually in proving
that those who prepared and/or used the information in question did so with knowledge of its
falsity. This calls for proof of a subjective state of mind. The information incorporated in a set
of financial statements may in many instances be the work-product of a great number of
individuals. This, coupled with inadequate audit records can in many instances make difficult
the identification of offenders, and proving the required knowledge can prove even more
problematic.

Auditor’s report
The auditor’s report must state whether or not, in the auditor’s professional opinion, the
accounts have been properly prepared and wether or not same can be considered to be a true
and fair representation of the company’s financial position. The auditor’s report contains a
clear expression of opinion on the financial statements as a whole. An unqualified opinion
may only be expressed where the auditor concludes that the financial statements are presented
fairly in all material respects, in accordance with the relevant financial reporting framework.
In expressing an opinion on those financial statements, the auditor should base his opinion on
the conclusions drawn from the audit evidence obtained. Contrary to what many may believe,
a statement of opinion may well be held to amount to a misrepresentation of the truth where
the expressed opinion was not in fact entertained as at the time when it was so expressed.63

63
See Turner, The Law of Actionable Misrepresentation 3rd Ed at 38 where it is said: “In early times it was
frequently said that statements by a man as to his own intention, or generally as to his own mental state, are not
statements of fact, and therefore not representations. It is now recognised, however, that, in this unqualified
form, the proposition is quite incorrect. “The state of a man’s mind”, according to Bowen L.J. (the writer
291 DEFRAUDING THE REVENUE

An auditor who expresses an opinion to the effect that the accounts have been properly
prepared and as presenting a true and fair view of the company’s financial position, whereas
he in truth and in fact does not entertain that opinion or belief is a false representation of fact.
Any auditor who knowingly issues a misleading auditor’s report, with knowledge that those
who may place reliance thereon may be defrauded as a consequence of their reliance thereon,
may thus incur criminal liability.

3.2.10.3 Giving something out as something other than what it in fact is

Deception is as old as humanity itself. It is also an art, lawful or unlawful depending on
context, we encounter in many different areas of human endeavour e.g. entertainment,
marketing, and the military. We can just read through the many military training manuals
dealing with intelligence and deception, and many other books on military history, to
appreciate the effectiveness of camouflage, concealment, and deception at deceiving or
tricking an enemy. Giving something out as something other than what it in fact is, is of
course just one type of deception, but it is one that has been successfully employed to deceive
for centuries. It is in fact one that have been incorporated into many a tale of daring and
cunning - the old tale of the Trojan horse employed by the Greeks to breach the perimeter of
Troy being a notable example in point.

Giving something out as something other than what it in fact is, can in law amount to a
misrepresentation of the truth.64 Typical examples that frequently arise within the context of
taxation are the giving out of misleading samples, or the pointing out of items, property, or
equipment as something other than what it in fact is. The Revenue and in particular the
Customs function, may from time to time request a person to supply the Revenue with
samples of certain imported, exported or locally manufactured goods. To knowingly hand
over to the inspectors a sample other than the sample requested, and where the sample so
supplied may have the effect of misleading the Revenue as to the true nature or character of
the commodity in question, will amount to a misrepresentation as to the true nature of that
item or commodity. The same principle applies in regards to the pointing out of certain things
where the context wherein and manner in which the pointing out takes place will have the
effect of misleading the inspectors. Revenue and Customs inspectors do from time to time
carry out inspections and checks of premises, equipment, or business activities, in an attempt
to verify certain claims from or statements made by taxpayers or traders. An example that
comes to mind is that of the taxpayer or trader who during a pre-arranged VAT inspection of
‘newly acquired’ equipment and stock points out certain equipment or stock as that acquired
by his business, but where the equipment or stock so pointed out was in fact never acquired
by the business but was ‘borrowed’ and hastily moved to his business premises for the
purposes of the inspection. Another example will be equipment or stock being pointed out as

referring to the remarks of Bowen L.J. in Edgington v Fitzmaurice (1885), 29 Ch. D. 459, C.A. at 483), “is as
much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind
at a particular time is, but, if it can be substantiated, it is as much a fact as anything else. A misstatement of the
state of a man’s mind is a misrepresentation of fact”
64
See e.g. the English case of R v Forbesi [2001] 4 All ER 97 where the defendant was charged with a
contravention of section 170 (2)(b) of the Customs and Excise Management Act 1979 in that he attempted to
smuggle into the United Kingdom a video cassette containing certain child pornography. The video cassette was
however labelled “The Godfather Part 2”. The defendant also purchased the genuine cassette (“The Godfather
Part 2”) which he then discarded but he nevertheless retained the purchase-slip for future presentation on entry
into the United Kingdom. The fraud was however detected as he attempted to pass the cassette through
Heathrow airport. A much older example is also to be found in the old Scottish case of R v Paton (1958) 3 Irv
208 where inflated cattle skins with horns were given out as live stock.
292 DEFRAUDING THE REVENUE

‘destroyed property’ whereas the real stock or property was in fact diverted into the market. 65
Although it is quite possible to make such a misrepresentation without uttering a word, the
context within which the handing over of the sample or the pointing out occurs will usually
also involve the making of misleading verbal or written statements.

The use of false indications, markings or stamps

The use of false indications, markings, numbers, or stamps, applied to an article or thing such
as a document, shipping container, packages, or a vehicle, can also be misleading and be
applied with the intent to deceive.66 This may involve the altering, removal, replacement or
defacement of existing markings or stamps, the re-labelling or repacking of goods with other
misleading labels or packaging etc. This may typically be done in an attempt to mislead the
Revenue as to the origin of the goods concerned, the nature or character thereof, the content
of a package or container, the number of units in a carton, or the identity of the manufacturer
of the goods.67 The application of counterfeit revenue stamps onto certain documents or
packages, and with the intent to mislead the authorities into believing that the required duties
and/or taxes have in fact been paid, will also be fraudulent.68 Falsified and other misleading
marks, indications, and stamps, obviously also pose a risk of prejudice to the consumer who
may place reliance on those markings when acquiring the goods.

3.2.10.4 Electronic capturing, submission or programming

A misrepresentation can be made electronically, for example by the transmission of false
information or instructions via a computer network. The fact that a fraudulent return or
fraudulent bill of entry is filed electronically (as opposed to filing same as a hard-copy paper
document) does not make that return or bill of entry any less fraudulent. The electronic
transmission thereof is no more but a modern method of filing or presentation. Similarly,
electronic mail is also no more but a modern form of communication and is commonly used
as a means to mislead and defraud others. The fact that books of account are electronically
maintained or kept will also not make a fraudulent entry therein any less fraudulent than had it
been entered in by hand in hard-copy ledgers. In Britain the Fraud Act 2006 provides that
false representations will be regarded as having been made where “submitted in any form to
any system or device designed to receive, convey or respond to communications (with or
without human intervention)”.69 The offence of fraud as provided for under the Fraud Act
2006 can be used effectively in dealing with any frauds involving electronic filing. The
British courts make no distinction between fraudulent paper and fraudulent electronic returns.
The crimes of 'cheating', fraudulent evasion under section 106A of the Taxes Management Act
1970, and fraudulent evasion under section 72 of the Value Added Tax Act 1994 can likewise
also be charged regardless the format of the return.

65
In this instance there may quite well also be fraudulent insurance claims filed by the taxpayer with his
insurance.
66
See e.g. Puchlosky v Rex 1934 (1) PH H82 (TPD) where a dairy sold milk in bottles embossed with the names
of other dairies. This was held to have been calculated to deceive.
67
See e.g. R v Forbesi [2001] 4 All ER 97
68
A good example in point is the application of falsified ‘duty paid’ stamps on smuggled cigarettes or alcohol.
The dishonest use of genuine revenue stamps, unlawfully using them to your own credit where they in fact
‘belong’ to another taxpayer, will also amount to a misrepresentation of the truth. A good example in point is the
Australian case of R v Kelvin [2000] NSWCCA 190 where the applicant, an accountant, removed tax stamps
from documentation provided to him by his clients. These stamps were then used in his own tax returns claiming
that he had made taxation instalment deductions through the purchase of the tax stamps. This not only satisfied
the applicant’s tax liability for the relevant years of assessment, but also resulted in tax refunds for those years.
The applicant was convicted on six counts of defrauding the Commonwealth.
69
See section 2(5) of the Fraud Act 2006
293 DEFRAUDING THE REVENUE

3.2.10.5 Manipulation of equipment

A misrepresentation may be made by manipulating electronic or mechanical equipment in
such a way as to misrepresent the true facts or circumstances. Examples of this may be the
manipulation of the odometer of a vehicle,70 the programming of a computer, or the
manipulation of a gage or meter used for purposes of measurement, in such a way as to
mislead others who place reliance on and may act on the readings, data, or information
received from or conveyed by said computer, meter, instrument or equipment. A taxpayer
may typically tamper with gages or meters in a manufacturing warehouse, or manipulate a
cash register so as to give a false reading.

3.2.10.6 Physical concealment

Throughout this manual many references have been made to the concealment of information.
It is of course not only information that can be concealed. There is also the physical
concealment of goods, things, or a state of affairs.71 Both the concealment of information and
the physical concealment of goods, things, or a state of affairs can, and are often employed to
deny or suppress information, to conceal a true state of affairs, or to misrepresent the truth. 72
Such concealment may in itself be unlawful, or it may be employed as artifice, trick or device
to achieve a consequence that is unlawful. A person, who unlawfully brings goods into free
circulation without declaring same, and where he does so with the intent to evade the duties
and taxes thereon, will be committing a fraud on the Revenue. The unlawful introduction of
the goods then often takes place in such a manner as to prevent detection by inspecting
officers. Those bringing in the goods often rely on concealment. The goods so smuggled will
often be hidden or camouflaged in or between other goods, or may be hidden away in a secret
compartment build into another object, vehicle or container, or be swallowed or secreted into
a body cavity. The act of concealment and the failure to declare the goods amounts to a
representation that there is in fact nothing to declare.73 The act of concealment may,
depending on the facts and circumstances of the case, in itself amount to a false representation
by conduct.

3.2.11 Deception post-detection

Offending taxpayers will often continue with the deceit long after the fraud was detected, and
often throughout the course of audits, enquiries, and litigation. This in fact is common. Many
a guilty taxpayer, once confronted, will and do attempt to convince the Revenue that the

70
See e.g. the Canadian case of R v Waterloo Mercury Sales Ltd [1974] 4 W.W.R 516 (Alta. Dist Cl)
71
Black’s Law Dictionary, 6th ed at 288-289 defines 'conceal' and 'concealment' as: “Conceal. To hide, secrete,
or withhold from the knowledge of others. To withhold from utterance or declaration. To cover or keep from
sight. To hide or withdraw from observation, or prevent discovery of…” “Concealment. To conceal. A
withholding of something which one knows and which one, in duty, is bound to reveal (e.g. assets in bankruptcy
or divorce proceeding; health condition in insurance application). A “concealment” in law of insurance implies
an intention to withhold or secrete information so that the one entitled to be informed will remain in ignorance”.
Also see The Concise Oxford Dictionary of Current English 7th ed at 194 defines “conceal” as to “keep secret
(from); not allow to be seen or noticed.”
72
Turner, Actionable Misrepresentation at 94. See Gordon v Selico (1986) 18 HLR 219, 238 where the seller of
a property concealed dry rot from the buyer by covering the rot by having it painted over. The court held the
painting over of the rot to be a misrepresentation.
73
See the US case of Pasquantino v United States [2005] USSC 25 (United States Supreme Court) where the
petitioners were engaged in a smuggling operation involving the smuggling of liquor from the United States into
Canada. Drivers employed by the petitioners concealed the liquor in their vehicles, failing to declare same to
Canadian Customs. Thomas J, delivering the opinion of the Court said: “The evidence showed that petitioners
routinely concealed imported liquor from Canadian officials and failed to declare those goods on customs
forms…By this conduct, they represented to Canadian customs officials that their drivers had no goods to
declare. This, then, was a scheme “designed to defraud by representations,”…and therefore a “scheme or artifice
to defraud” Canada of taxes due on the smuggled goods”.
294 DEFRAUDING THE REVENUE

irregularities were no more but the result of honest oversight or mistake. Professed
misunderstandings of law, alleged incompetence of employees, or alleged negligence of
accountants are common excuses. It is also not at all uncommon for corporate taxpayers
accused of fiddling the taxes, to launch their own internal audits and investigations into the
alleged irregularities. This may be done as a genuine attempt to identify wrongdoing or
failures within the corporation, but the possibility of it being no more but an attempt to
identify and destroy incriminating evidence, influence witnesses, or to subvert the outcome of
an enquiry is not to be excluded. It is not at all uncommon for such a taxpayer's 'report of
findings' and explanations to be no more but an attempt to cover up, to create doubt as to the
role and knowledge of certain individuals, or to deflect and shift blame.
Dishonesty is very much part and parcel of many a guilty taxpayer's defence. To argue
absence of knowledge of what was afoot where you in fact were very well aware of the true
state of affairs cannot be anything but dishonest.

There are however many of those taxpayers who do not shy away from engaging in other
unlawful acts, which may also include fraudulent misrepresentations, typically employed with
the view to escape civil penalties, to avoid the recovery of evaded taxes or to keep unlawfully
obtained gains out of the Revenue’s reach, or to decoy revenue investigators away from
incriminating evidence. This may typically involve the making of false statements, perjury, or
various types of fraudulent conduct intended to cipher away funds and assets. Fraudulent
bankruptcies are common. So is perjury. Taxpayers litigating against the Commissioners will
often offer false testimony in an attempt to counter assessments. Such conduct, engaged in
subsequent to the detection of the fraud, or in the course of an enquiry or litigation, will
usually be strong evidence proving a pattern of fraudulent conduct. A taxpayer will usually
find it very difficult to counter charges of fraud in the face of evidence proving a trail of false
representations and concealment followed by perjury, the bribery or intimidation of witnesses,
or the destruction of evidence. In some instances such conduct may, depending on the facts of
the case, give rise to other additional criminal charges.74 Persisting with conduct intended to
carry through a fraud even after its detection, or attempts to subvert an enquiry, or attempts to
subvert the recovery of evaded taxes, may potentially also be viewed as aggravating factors
for purposes of sentencing. A sentencing court may possibly also view in a more serious light
those cases where civil fraud penalties had no apparent deterrent effect on the taxpayer, and
where that taxpayer then committed a fraud in an attempt to escape payment of those civil
penalties.

3.2.12 Misrepresentations through the use of another

A person may incur criminal liability for a fraudulent return even though the return was made
up and/or filed by another person. The same applies to a fraudulent customs entry. This
situation may typically present itself in the following examples:

(a) the taxpayer wilfully and intentionally fails to disclose all required information to his
tax advisor with the latter unknowingly and in good faith completing the taxpayer’s
return reflecting the incomplete information as provided by his client;75
(b) a number of individuals acting with the common purpose to file a fraudulent return -
but with the return completed, signed and filed by just one of them;

74
With many crimes one will find offenders committing one crime, but then committing other crimes to cover up
the first. For the tax evader his fraud will often prompt more fraud. Sometimes more fraud to keep it concealed,
sometimes more fraud (and possibly other offences) in an attempt to escape the consequences of detection.
75
Another example will be the corporate employee preparing a return with information provided to him/her by
his/her managers or another section's employees unbeknown to him/her that the information so relied upon is in
fact false.
295 DEFRAUDING THE REVENUE

The commission of a tax fraud through the use of an innocent party is not uncommon. A
misrepresentation can be made through the use of an innocent agent. The latter will often be
the taxpayer’s accountant, tax agent, customs broker or an employee. Such an innocent party
will lack the required intent and will thus escape criminal liability on charges of fraud or
evasion.76 The fact that the person who made up or submitted a fraudulent statement or return
was an innocent party acting without knowledge of the fraud, will not excuse from criminal
liability those who used that innocent party or return preparer as a tool in carrying out the
fraud.77 The American case of United States v Shortt Accountancy Corp 78serves as a good
example in point. The facts in this case were that the firm’s chief operating officer, acting
with the required knowledge and intent, delegated the task of completing a return to his junior
who innocently completed the return reflecting false information supplied by the chief
operating officer. The defendant company was charged with a contravention of 26 U.S.C §
7206.79 On behalf of the defendant company it was submitted that the company could not be
convicted on strength of a false return subscribed to by a person who at the time of
preparation believed it to be true and correct. The court rejected this argument.80 In most
jurisdictions, including Britain, both the company and the chief operating officer may incur
criminal liability.

In many instances the other person, whether he be the taxpayer’s accountant, tax agent,
customs broker, an employee, business partner, or an acquaintance, may well be a co-
conspirator. This is in fact quite common. The fact that another party to the fraud did the
actual preparation of the return, and/or signed the return, and/or filed the return, will likewise
not be a defence for the taxpayer who knowingly authorized, sanctioned, or went along with
it. It is quite possible that a taxpayer might have signed a return form which the Revenue
subsequently may have received as a fraudulent return, but without the taxpayer who so
signed it in fact being party to the fraud. There is always the possibility that he might not have
had any knowledge of the fraud. The possibility of a taxpayer in good faith signing a blank
return with someone else subsequently completing it with false information cannot be
discounted. The taxpayer who so signed it may well have been deceived by the person whom

76
See e.g. the Australian case of Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC
537 where the applicant, in a civil customs prosecution, faced charges of smuggling and evasion relating to the
fraudulent failure to declare goods imported into Australia. Although the applicant did furnish the customs agent
with the false information used for the fraudulent entry, the court accepted that he in good faith simply passed
the information on as received from the importers and without knowledge of the falsity thereof. The intention to
smuggle, to evade, or to make false statements was found to be absent. The charges were thus dismissed.
77
See the Australian case of White v Ridley [1978] HCA 38 where Gibbs J inter alia said: “If A gives B false
particulars to enter in a register, and B enters them in the belief that they are true. A is guilty of making the false
entry in the register: Reg. v. Butt (1984) 15 Cox CC 564. If A, planning a forgery, procures B, an innocent
engraver, to make a plate, A is guilty of making and engraving the plate: Reg. v. Bull and Schmidt (1845) 1 Cox
CC 281. So it has been held that where the defendants fabricated false vouchers on the high seas and posted them
to a third person who innocently delivered them in Middlesex, a delivery by the defendants took place in
Middlesex so that the defendants were triable there, "for the persons who innocently delivered the vouchers were
mere instruments in their hands for that purpose; the crime of presenting these vouchers was exclusively their
own ..... The provisions of s. 233B (1) (b) of the Customs Act 1901 ... must also be understood in the light of this
well established principle”
78
United States v Shortt Accountancy Corp 785 F.2d 1448 (9th Circuit 1986)
79
United States, 26 USC. The relevant parts of this section read as follows: “Any person who…wilfully makes
and subscribes any return, statement, or other document, which contains or is verified by a written declaration
that is made under the penalties of perjury, and which he does not believe to be true and correct as to every
material particular…shall be guilty of a felony….”
80
Also see the New Zealand case of Nordik Industries Ltd v Regional Controller of Inland Revenue [1976] 1
NZLR 194, where the taxpayer provided his innocent accountant with false information resulting in the filing of
false returns. The taxpayer was convicted.
296 DEFRAUDING THE REVENUE

he entrusted with the preparation e.g. his accountant, a business partner, or a family member.
Signing a blank return form may be irresponsible and foolish, but irresponsibility and
foolishness do not equate to knowledge of falsity. If the taxpayer in such a case honestly did
not reconcile himself with the return ending up as a fraudulent return, then the prerequisite
mental element for evasion or fraud will be absent.81

3.3 Mens rea

Proving a fraud requires proof of the actor's guilty state of mind as at the time of the
commission of the fraud, the mens rea. This calls for proof, beyond reasonable doubt, that the
offender committed the unlawful act, or unlawfully failed to act: (a) with knowledge of his
conduct being unlawful; and (b) with the intent to defraud.82 Not only must there be
knowledge of unlawfulness, but his conduct must be voluntary. In most fraud cases, proving
the physical elements of the crime, whether it be conduct by comissio or omissio, not always,
but more often than not, tend to be the less difficult part of the prosecution case. In most cases
it is proving the mens rea, the state of mind of the defendant as at the time when the offence
was committed, that may prove the more challenging hurdle. It may be easy to prove
something was painted yellow or green, but considerably more difficult to prove the painter at
the time recognized the difference where he pleads being colour-blind.

3.3.1 Motive and intent

Black’s Law Dictionary83defines “motive” as: “Something in the mind or that condition of the
mind which incites to action or induces action, or gives birth to a purpose.” The motive of the
offender is not to be mistaken with criminal intent. The tax fraudster will always have the
prerequisite mens rea, but he will not necessarily always be motivated by a desire to secure a
tax advantage. The Revenue can be defrauded even though the primary motive or purpose of
the person making the false representation may not be the gaining of a tax advantage.
Whereas the intended target of most revenue frauds is the Revenue, cases may also arise
where the fraud was not per se targeted against the Revenue. A good example in point is a
bankruptcy fraud where all the creditors may be defrauded and where the Revenue just
happens to be one of the unlucky creditors. The revenue fraud is thus just collateral damage in
a larger fraud. A bankruptcy fraud can of course also be contrived as a tool to defraud the
Revenue specifically, which is in fact quite common.

Cases may well arise where suspects standing charged as co-accused in the same case, may
well not have shared the same motive. Consider the following scenario: Trader X provides his
accountant Y with his commercial documents and records with a request for Y to update his
books of account and to prepare his tax return. Some of those commercial records contain
fictitious expenditures. Accountant Y early on detect some of the 'expenditures' to be false,

81
This was indeed the defence tendered in the New Zealand case of The Queen v Butler [2003] NZCA 21 (Court
of Appeal of New Zealand) where the defence argued that the appellant signed the blank tax return but that it
was subsequently completed by his twin brother. On the facts of the case, this defence was rejected as the court
found that the appellant did indeed know the return to be false. He was duly convicted.
82
See Smith & Hogan - Criminal Law at 127-128 where it was inter alia said: “The word “fraudulently” and the
phrase “with intent to defraud” both imply dishonesty and the test is the same in commercial dealings as in other
matters. It seems that D has an intent to defraud if (i) he intends to do acts which, in the circumstances known to
him, would, if carried out, defraud P and (ii) he knows that ordinary people would regard what he proposes to do
as dishonest.” In Scott v Metropolitan Police Commissioner [1975] AC 819 Viscount Dilhorne explained "to
defraud" as follows: "'to defraud' ordinarily means … to deprive a person dishonestly of something which is his
or of something to which he is or would or might but for the perpetration of the fraud be entitled." Also see
Welham v DPP [1961] AC 103 at 133 where Lord Denning inter alia said: "… 'with intent to defraud' means
'with intent to practise a fraud' on someone .... If anyone may be prejudiced in any way by the fraud that is
enough."
83
Black’s Law Dictionary, 6th ed at 373
297 DEFRAUDING THE REVENUE

but trader X being a primary an important client, and the fictitious expenditures appearing to
be relatively negligible, he keeps his peace, record it in trader X's books of account, and
prepares X's tax return using the false figures as reflected in the books of account. In this case
both the taxpayer's motive and mens rea relates to the evasion of the tax. The accountant's
motive on the other hand is not the evasion of the tax but to retain a good customer. His
motive may differ from that of his client but his mens rea relates to the same crime. He
knowingly assisted his client in defrauding the Revenue.

In England it is not necessary for the prosecution to prove that the defendant was motivated
by the objective of evading tax. It is sufficient to prove that the defendant acted with the
prerequisite mens rea.84 The courts in other jurisdictions follow a similar approach.85 The
motive of the defendant is however a factor the courts can and often do take into account in
drawing an inference as to the intent to defraud. The absence of motive can be taken into
account as a factor which may indicate the absence of criminal intent.86 Motive is furthermore
also a factor which a sentencing court may take into consideration for purposes of
determining an appropriate sentence.

Expectation of benefit not required

The greater majority of tax frauds will generally be driven by an expectation of some or other
financial benefit. There may however be any number of reasons for a person to commit, or to
assist another in the commission of a fraud. A benefit may be of either a financial and/or non-
financial nature, gained directly or indirectly. The fact that an offender who defrauded the
Revenue or whom assisted another in defrauding the Revenue, did not derive any financial
benefit from the fraud, or in fact did not even entertain any expectation of same, does not
exclude criminal liability.87

3.3.2 Intent to defraud

In practice, many people do on a daily basis find themselves suffering loss or prejudice as a
consequence of their reliance on misleading information. The fact that the information so
relied upon proved to be misleading does not however mean the representor acted
fraudulently. Factually incorrect and misleading representations are often made as a result of
honest error on the side of the representor, or as a result of the representor's honest reliance on
factually incorrect information which he received from others and which he then in good faith
passed on to others. The same applies in relation to non-disclosure. Many people, including
revenue administrations, suffer loss or prejudice as a consequence of the non-disclosure of
information which should in law be disclosed. The fact of non-disclosure does not however
equate to fraud. Such a non-disclosure may be the result of no more but carelessness or honest

84
See R v Shivpuri [1987] AC 1 where the Lord Chancellor inter alia said: “His intention throughout was to
evade and defeat the customs authorities of the U.K. He had no other intention. His motive was gain (the bribe of
£1,000). But as I pointed out in Reg. v. Hyam [1975] AC 55, 73 motive is not the same thing as intention.” In R
v Hammond [1997] EWCA 2027 the accused had imported exotic birds into the United Kingdom. Certain
species of birds had to be placed in quarantine for a period of 35 days. However, the accused had imported the
birds without placing them in quarantine and then sold them locally. Considering the evasion of the quarantine
regulations, the accused did not charge VAT on the sales (as that would have posed the risk of the evasion of the
quarantine regulations coming to light). The court accepted that the primary purpose of the scheme was to avoid
the regulations and not to evade VAT. The accused was nevertheless found guilty of contraventions of sec 72(1)
and 72(3) of the VAT Act 1994 (fraudulent evasion of VAT).
85
See United States v. Foster, No 85-1925 (United States Court of Appeals, Seventh Circuit, April 10 1986),
where Circuit Judge Cudahy (also referring to United States v. Pomponio, 429 U.S. 10 (1976) inter alia said:
“To show that Foster acted wilfully, the Government needed to demonstrate that Foster intentionally violated a
known legal duty – it was not required to show any bad purpose on his part”
86
See Keane, The Modern Law of Evidence, 4th ed at 13
87
See e.g. the Australian case of R v Barnes [2003] QCA 126
298 DEFRAUDING THE REVENUE

error. The person required to make the disclosure may in fact be the most honest, responsible,
and careful of individuals, but may fail to disclose certain information for no other reason but
honest reliance on incomplete information passed on by others. Fraudulent and honest
misrepresentations are two mutually exclusive categories of misrepresentation.88 Innocent or
honest misrepresentations can never be fraudulent, not in criminal law nor in civil law.

It may be so that some fraud and non-fraud offences may show a close resemblance and may
quite well share some elements, but all fraud offences do have one common ingredient seldom
if ever found to be a material element of those other non-fraud offences - the intent to defraud.
In most jurisdictions are to be found statutory offences which may make punishable conduct
that can be classed as deceptive or misleading, but with those offences not necessarily fraud
offences. In the revenue and customs context for example, offences making punishable the
making of false statements or the furnishing of false information are common, but at closer
inspection one will often find those offences not to be fraud or evasion offences. False
statements can be made with the intent to deceive and to defraud, and those offences will
usually also require proof of wilful conduct or a very specific intent, but there is quite a
difference between two offences respectively making punishable 'the intentional making of a
false statement' and 'the intentional making of a false statement with the intent to defraud'.
The actus reus of many of the fraud and non-fraud offences out there may be identical with
the consequences for the victim quite often also identical, but the material element which
always sets fraud offences apart from non-fraud offences is the mens rea element. There is an
intent to defraud. The mens rea requirement serves a critical function in that it limits the
application of fraud and evasion offences to those who defraud and evade, to fraudsters and
tax evaders. It is the fraudulent intent of the offender which sets his conduct apart from that of
those who acted in good faith, negligently or in mere error. Negligent but honest
misrepresentations, no matter how gross, can never amount to fraud. Fraud offences are not
intended to punish the honest, regardless how negligent they may be.89 A defendant will also
lack the intent to defraud where his conduct was the result of a bona fide error. This also
applies to evasion cases.90

The 'intent to defraud' is a state of mind. It involves a subjective knowledge or appreciation of

a course of conduct being an unlawful one. This state of mind is then also the mens rea
element we find to be a material element of fraud offences such as that provided for under the
Fraud Act 2006 and the common law crime of 'cheating'.91 That state of mind, the mens rea, is
for the prosecution to prove beyond reasonable doubt. Whether or not that intent was present
as at the time when the unlawful act was committed, will be inferred from all the evidence
placed before the court, including circumstantial evidence. Proof of intent serves a very
important purpose. It ensures distinction and separation between those whom with a guilty

88
See Turner, Actionable Misrepresentation at 123 where it was inter alia said: “Fraudulent and innocent
misrepresentations constitute two opposite and mutually exclusive categories, just as much as true and false
representations ... a representation can no more be compounded of dishonesty and honesty, than it can be of
untruth and truth. It follows that a misrepresentation is innocent when at the material date the representor did in
fact honestly believe it to be true.
89
Evidence of negligence may however be taken into account as part of that body of evidence from which the
intent to deceive may be inferred. See Turner, Actionable Misrepresentation at 125.Also see R v Heuer 1954 (3)
SA 601 (E) at 604 D where Reynolds JP inter alia remarked: “That gross or other negligence may be evidence
from which deceit may be found, provided the facts are strong enough, is clear, and it may be that it can
sometimes be found from the gross negligence itself .”
90
This is the case in England, the United States, Australia, Canada, New Zealand and South Africa. See e.g.,
Cheek v United States 498 U.S. 192 (1991) (United States)
91
In common with 'fraud' under the Fraud Act 2006, a person charged with 'cheating' must be proven to have
had the intent to defraud. See R v Mavji [1986] STC 508; R v Litanzios [1998] EWCA Crim 2514; R v Hunt
[1994] STC 819.
299 DEFRAUDING THE REVENUE

mind sets out on a course of conduct or participates in conduct intended to defraud, and those
whom innocently or carelessly cause prejudice or risk of loss. The fact that a person is found
with a bloody knife in his hand standing over the dead body of a stabbing victim does not
mean murder. Even if he is proven to have inflicted the fatal blow, it may well not be murder.
He may well have acted in self-defence - thus a lawful killing. Likewise, the fact that a
taxpayer signed a tax return proven to be factually incorrect does not prove fraud. There must
be proof of intent.

Intent to deceive and intent to defraud

In Re London and Globe Finance Corporation Ltd,92 it was inter alia said that: " … to
defraud is by deceit to induce a course of action". In the context within which it was used, "by
deceit" refers to the actus reus, the use of deception or misrepresentation. There can be no
fraud absent some or other act of deception or misrepresentation. Such an act of deception or
misrepresentation can consist of a misleading overt false representation, or by concealment,
by keeping from another person certain information where the disclosure thereof was called
for. A distinction need however be drawn between ‘the intent to deceive’ and ‘the intent to
defraud’. The intent to mislead or deceive may be present without there necessarily being the
intent to defraud.93 There may indeed be offences on the statute books of many jurisdictions
where the mens rea element of those offences may indeed be limited to 'the intent to deceive'
absent any suggestion of the intent to cause prejudice or harm, but then it can be safely stated
that those offences are certainly not fraud or evasion offences. In England, in common with
many if not most other English speaking jurisdictions, both fraud and evasion offences
consistently require proof of the intent to cause some or other loss, injury, prejudice or
evasion. There will always be 'the intent to defraud', 'intent to evade', 'intent to circumvent',
etc.

Relationship between the actus reus and mens rea

Criminal intent will only be held to have been present upon proof, beyond reasonable doubt,
of both wilfulness and knowledge of wrongfulness having been present at the time of the
commission of the unlawful act (actus reus). With fraud offences where the actus reus
consists of misrepresentation, whether it be misrepresentation by commissio or omissio, the
required knowledge and intent must be present as at the time when the misrepresentation is
made.94 In short, the defendant's actus reus and guilty state of mind must be proven to have
co-existed.

Subjective test
With most fraud and evasion prosecutions, it is proving the defendant's criminal intent, the
mens rea element, which usually proves the major hurdle to cross. The defendant must be
proven to have been aware of the fact that he was acting fraudulently as at the time when he
acted or failed to act. The test to be applied is a subjective one. 95 Proving that subjective state

92
(1903) 1 Ch 728, 733
93
In the Australian case of R v MacPherson [1995] QCA 19 (Court of Appeal, Supreme Court of Queensland)
where it was inter alia said: “The respondent sought to draw a distinction between the two offences, one state
and one Commonwealth, on the basis that the former requires an intent to defraud and the latter an intent to
mislead or deceive….At most, this means that an intent to mislead or deceive can exist without an intent to
defraud.” The court's latter remark cannot be faulted and is indeed correct.
94
See Turner, Actionable Misrepresentation at 119
95
See The Queen v Butler [2003] NZCA 21. Also see Turner, Actionable Misrepresentation at 117 where it was
correctly said: “... where the enquiry is whether the representation was fraudulently made, a different test
altogether is appropriate. What we are now investigating is not the effect of the words upon the representee, but
the state of mind of the representor when he uttered them. In deciding whether the representation was
fraudulently made, the question is not whether ... true in the sense assigned to it by the court, or by an objective
300 DEFRAUDING THE REVENUE

of mind and proving so beyond reasonable doubt, can prove a difficult burden to meet. The
prosecution all too often fail to place before the courts evidence sufficiently strong enough to
justify an inference of subjective knowledge and intent.

3.3.3 Dishonesty
In English law, fraud has long been viewed as dishonest conduct. 96 Tax fraud and smuggling,
being the species of fraud that they are, are in essence crimes of dishonesty often referred to
as such by the courts.97 In English law there does not seem to be any clear distinction between
'dishonestly' and 'fraudulently'.98 What is clear however is that fraudulent conduct can never
be but dishonest. 'Fraudulent' conduct is by implication dishonest conduct.99 In the New
Zealand case of The Queen v Flyger100 (a case where the matter under consideration involved
a tax fraud), the court (per Goddard J quoting from the judgment of Rea J in the court a quo),
inter alia explained 'dishonesty' in the following terms:

“You act dishonestly if you act in breach of your legal obligations and if you act without an
honest belief that you are entitled to act in that way.”

In England the 'Ghosh-test'101 has now long been entrenched as the standard for assessing
dishonesty. This then is also the test to be applied in assessing dishonesty in prosecutions

consideration of its truth or falsity, but whether he honestly believed it to be true in the sense in which he
understood it ...”. This equally applies to both criminal and civil cases.
96
See e.g. Scott v Metropolitan Police Commissioner [1975] AC 819 where Viscount Dilhorne explained "to
defraud" as: "'to defraud' ordinarily means … to deprive a person dishonestly of something which is his or of
something to which he is or would or might but for the perpetration of the fraud be entitled." Also see Smith &
Hogan - Criminal Law at 127-128 where it was inter alia said: “…It seems that D has an intent to defraud if (i)
he intends to do acts which, in the circumstances known to him, would, if carried out, defraud P and (ii) he
knows that ordinary people would regard what he proposes to do as dishonest.”
97
See e.g. R v Warren [1996] EWCA Crim 1791 where the advantage secured by smuggling was described by
the court as a “dishonest” one. In R v Mann [1998] EWCA Crim 317, the court had the following to say about
the appellant’s smuggling: “dishonesty was at the root of the defendant’s conduct”. Also see the New Zealand
case of The Queen v Flyger [2001] NZCA 361 and the South African cases of S v Van der Walt 1989 (2) SA 212
(W) and Estate Agency Affairs Board v Mclaggan and Another [2005] ZASCA 34. In Estate Agency Affairs
Board v Mclaggan and Another the Court per Lewis J inter alia said: “However, to try to put a gloss on an old
and familiar English word which is in everyday use is often likely to complicate rather than to clarify.
‘Dishonest’ is normally used to describe an act where there has been some intent to deceive or cheat … Were the
offences under the Income Tax Act and the VAT Act intrinsically dishonest ? In my view they were … The
company deducted tax from salaries for the purpose of paying the fiscus. It used the money for entirely different
purposes. That entails deception of employees …. And it is dishonest in so far as the fiscus is concerned. If an
employer deducts tax from employees, and uses it for any purpose other than paying the fiscus, that is dishonest.
It is deliberate misuse of funds. It is conduct that would be regarded by the public in general as lacking in
probity. Equally, the levying and receipt of VAT for any other purpose other than paying it to the fiscus in
accordance with the statute is inherently dishonest. I consider therefore that dishonesty is also an element of the
offences in respect of which Mclaggan was convicted under the VAT Act.”
98
See Welham v DPP [161] AC 103
99
See Smith & Hogan - Criminal Law at 127-128 where it is inter alia said: “The word “fraudulently” and the
phrase “with intent to defraud” both imply dishonesty .." Also see Re Patrick & Lyon Ltd [1933] Ch 786 where
at 790 Maugham J inter alia said: "I will express the opinion that the words 'defraud' and 'fraudulent purpose,' ...
are words which connote actual dishonesty"
100
The Queen v Flyger [2001] NZCA 361
101
R v Ghosh [1982] QB 1053. The relevant part of this judgement which has since been applied as what we
today refer to as the 'Ghosh test' is to be found in the following remarks (per Lord Lane): "In determining
whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide
whether according to the ordinary standards of reasonable and honest people what was done was dishonest. If it
was not dishonest by those standards, that is the end of the matter and the prosecution fails. .. If it was dishonest
by those standards, then the jury must consider whether the defendant himself must have realized that what he
was doing was by those standards dishonest."
301 DEFRAUDING THE REVENUE

under the Theft Act 1968, the fraud offence as provided for under section 1 of the Fraud Act
2006, and the crime of 'cheating'. The test in essence involves a determination whether:

(a) according to the “ordinary standards of reasonable and honest people what was done
was dishonest”; and
(b) whether the defendant “realised that what he was doing was by those standards
dishonest”.

The first part of the test is an objective test whereas the second part involves an assessment as
to the defendant’s subjective state of mind.102 It is not for the defendant to prove that he acted
honestly, but for the prosecution to prove that he acted dishonestly. Where there is any
reasonable doubt as to a defendant's alleged dishonesty, he must be acquitted.103

Where used in a penal provision in a statute, the words 'dishonest' or 'dishonestly' will usually,
in the absence of anything suggesting otherwise, strongly suggest the mens rea of the offender
to involve what most lawyers in most jurisdictions today will recognise as criminal intent.

3.3.4 Knowledge of unlawfulness

There can be no intent to defraud absent subjective knowledge of unlawfulness. Whereas the
mens rea required to be present for conviction under some of the prominent British evasion
and fraud offences, i.e. 'cheating', fraud under section 1 of the Fraud Act 2006, and evasion
under section 106A of the Taxes Management Act 1970, is 'dishonesty', the US evasion
offences generally require proof of 'wilfulness'.104 In the revenue context, proving that
'dishonesty' or 'wilfulness' will always call for proof of the defendant's subjective knowledge
of his conduct being unlawful. It is for the prosecution to prove:

(a) the taxpayer's knowledge of what the law required / his legal obligations; and

(b) that the taxpayer with that knowledge proceeded on a course of conduct which he
knew to be in breach of those obligations; and

102
See the New Zealand case of Hayes v The Queen [2008] 2 NZLR 321 where it was correctly noted that:
"What is normally in issue at trial is whether the mind of the particular accused was dishonest. That is
conventionally assessed subjectively by reference to what the accused knew or believed the circumstances to
be."
103
See The Queen v Flyger [2001] NZCA 361 where Goddard J approvingly quoted the following instructions
from Rea J in the court a quo: “If you came to the conclusion that…there was a reasonable doubt as to what Mr
Flyger's intention was then he is entitled to be found not guilty…He has put it to you…that at the time he was
dealing with the transaction he believed he was entitled to act as he did, that he was not acting dishonestly and he
genuinely believed he was entitled to do what he did. He does not have to prove that he believed he was entitled
to do what he did. The Crown must disprove it. So if you are left in a reasonable doubt about it, if you are unsure
as to what his intention was at the time, what his belief was at the time, you would find him not guilty because it
is essential for the Crown to prove to you that he knew what he was doing was deliberately dishonest. That is the
test”
104
See United States v Bishop 412 US 346 (1973) (US Supreme Court) where the following was said with regard
to “wilfully”: “The Court, in fact, has recognized that the word ‘wilfully’ in these statutes generally connotes a
voluntary, intentional violation of a known legal duty.” United States v Pomponio 429 U.S. 10 (1976) where it
was inter alia said: “In Bishop we held that the term “wilfully” has the same meaning in the misdemeanour and
felony sections of the Revenue Code, and that it requires more than a showing of careless disregard for the
truth”. See Cheek v United States 498 U.S. 192 (1991) where the Court per White J inter alia said: “Wilfulness,
as construed by our prior decisions in criminal tax cases, requires the Government to prove that the law imposed
a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated
that duty”
302 DEFRAUDING THE REVENUE

(c) that the taxpayer proceeded on that course of conduct with the intent to defraud (where
charged with a fraud offence) or with the intent to evade (where charged with an
evasion offence).

The fact that a taxpayer was not familiar with the finer details of the provisions being
contravened, or with the precise mechanisms of the fraud, will not necessarily exclude
knowledge of unlawfulness. Knowledge of a scheme being an unlawful scheme operated in
such a manner as to result in an evasion of taxation or in the defrauding of the Revenue, and
then to authorize, sanction, or go along with it, with or without detailed knowledge or even a
detailed understanding of the finer mechanisms of its operation, will suffice. This situation is
not that uncommon, especially where one deals with a number of perpetrators who acted with
a common purpose or within a joint enterprise but where just one or two of them were the
architects who planned and managed it. The fact that the taxpayer did not personally
familiarize himself with the legislation that was being contravened does not imply absence of
knowledge either.105 In the United Kingdom and the United States, as is also the case in a
number of other jurisdictions, the required knowledge will be considered to have been present
where the taxpayer wilfully chose to close his eyes to the obvious, thus wilful blindness.

Not surprisingly, many if not most claims of innocence usually involve denials of knowledge.
The professed absence of knowledge will usually relate to the suspected offender's knowledge
of the tax laws, and/or the suspected offender's knowledge as to the duties and responsibilities
that rested on him, and/or the suspected offender's knowledge as to how the unlawful result
came about.106 It is for the prosecution to prove the offender's knowledge as at the time when
he allegedly committed the offence. It is not however always a simple task to determine what
a person subjectively knew or did not know as at the time when he acted or failed to act. That
knowledge, or the absence of that knowledge, will be inferred from all the facts and
circumstances of the case. In doing so the court may consider all evidence relating to the
mechanics of the unlawful operation or arrangements, as well as evidence relating to the
defendant’s conduct before, at the time of, and after the alleged offences. The courts do take
into account circumstantial evidence placed before it, and a defendant can indeed be
convicted based on inferences drawn from what may solely be circumstantial evidence. It is
especially in drawing inferences as to the defendant’s subjective knowledge, his state of mind
as at the time when he acted or failed to act, where the value of circumstantial evidence comes
to the fore.107 The body of evidence relied on must be of sufficient weight to prove that
knowledge beyond reasonable doubt. Where the facts relied on in drawing an inference of
knowledge, can also lead to the drawing of another reasonable inference, then it cannot be

105
See United States v. Florent La Haye 548 F.2d 474 (3rd Cir. 1977) where the court, in considering an appeal
against a conviction under 26 U.S.C. § 7206(2), inter alia said: "In order to prove wilfulness, it need not be
proved that defendant had actually read the applicable statute."
106
See e.g. The Queen v Butler [2003] NZCA 21 where the appellant argued that he signed the tax return when
still blank and that the return was subsequently completed by his twin brother. He argued that he had no
knowledge that the details furnished therein were false.
107
See the United States Court of Appeals case of United States v Jewell 532 F.2d 697 (9th Cir. 1976) where it
was said: “As with all states of mind, knowledge must normally be proven by circumstantial evidence.” Also see
the US case of US v Beck 59-2 U.S.T.C. 9486 (W.D. Wash. 1959) where the judge handed down the following
instructions to the jury: “You cannot, of course, look into the defendant’s mind to see what his intent was with
respect to the tax returns in question. It would be difficult, if not impossible, to establish the intent or willfulness
of any individual by direct evidence. However, direct evidence of willfulness and intent is not necessary, for they
may be found and determined by a consideration of all the facts and circumstances disclosed by the evidence in
the case. In your own affairs in life, ladies and gentlemen, you are constantly called upon to decide from the
actions or omissions of other people what their intentions and purposes are, and in so doing you have probably
discovered that in many instances what a person does or does not do speaks more clearly as to his intent and
purposes than his spoken or written word.”
303 DEFRAUDING THE REVENUE

said that knowledge was proven beyond reasonable doubt. The facts relied on in drawing the
inference must exclude any other reasonable inference. The cumulative effect of all the
evidence, when viewed together in its totality, which may well all be circumstantial in nature,
may be so persuasive as to convince the court that no other inference can be drawn but that
the defendant did indeed have the required knowledge. Examples of factors or circumstances
that a court may take into consideration are: (a) acts suggesting premeditation; (b) the
knowledge, skill and experience of the defendant; (c) the position, role, and functions of the
defendant; (d) the defendant's failure to investigate irregularities, to make enquiries, or to seek
advice; (e) conduct which by its very nature suggests dishonesty or deceit; (f) deviating from
set policies, procedures, practice or codes of conduct; (g) repetition, scale, or nature of
incidents when compared to the taxpayer’s day-to-day operations and/or tax affairs; (h)
disregard in spite of existing suspicions or doubt; (i) the persistent failure to comply, repeated
instances of avoiding revenue control, and obstruction; (j) the failure or refusal to pay; and (k)
patterns of behaviour or conduct resembling negligence or error.

(a) Acts suggesting premeditation

As far as evidence goes (from which knowledge and criminal intent can be inferred), there
is probably no category of evidence more damning than evidence suggesting
premeditation. There cannot be absence of intent where there is premeditation. This
applies to fraud as it does to burglary or murder. Evidence of pre-execution planning by a
defendant, i.e. the identification of targets, information gathering, the setting up of front
companies and/or the opening of bank accounts under cover of false identities, the
sourcing of equipment to be used in the commission of the crime, deception-planning,
attempts to cover tracks, etc, can prove valuable in proving knowledge and intent.

(b) The knowledge, skill and experience of the defendant

The knowledge, training, background, past experience, and skill of the defendant, not only
in general but also in relation to the particular class of transactions or operations he
engaged in, may be taken into consideration as part of the body of evidence from which
knowledge may be inferred.108 Assume a taxpayer is found to have traded but failed to file
any returns, and thus failed to report his income. Further assuming he claims absence of
knowledge of the legal duty to file. Such a defence will be seriously undermined in the
face of evidence proving that he did indeed file returns for another business, or that he did
file returns many years earlier.109 Experience tells us that the more experienced and
knowledgeable a person is in a particular subject-field, the more readily one can infer that

108
See e.g. the US case of United States v McCaffrey 181 F3d 854 (7th Cir 1999). Also see the Canadian case of
The Queen v Tiffin 2013 SKPC 140 where Agnew J, before convicting the defendant, the latter a non-qualified
public accountant who rendered bookkeeping and tax preparation services, inter alia said: "There is caselaw
supporting the proposition that those with greater knowledge are to be held to a higher standard. ... the
proposition might better be phrased that an accused's degree of knowledge and experience form part of the
context in which his actions must be assessed." In the New Zealand case of The Queen v Flyger [2001] NZCA
361 the defendant was convicted on 6 charges relating to the fraudulent use of documents to gain tax advantages
for his clients. Invoices were alleged to have been made out wherein the true value of stock was overvalued or
where the services invoiced for were in fact never rendered. Stock in trade worth only 20 000.00 dollars was for
example sold to another company for 198 000.00 dollars. The defendant did not deny this, but argued that he
honestly believed the conduct to be permissible within the law. In considering whether or not the defendant did
in fact have that honest belief, the court took into account the fact that he was a chartered accountant by
profession, and at one time served with the New Zealand revenue authorities. Both the trial court and the Court
of Appeal rejected his defence, holding that there was no “commercial reality” to the invoices in issue, leading to
the "irresistible inference that the invoices were shams" and that the defendant's creation of them was “not
consistent with any honest belief”. (Per Goddard J in the Court of Appeal).
109
See e.g. the US case of United States v Briscoe 65 F3d 576 (7th Cir 1995)
304 DEFRAUDING THE REVENUE

he must have been able to distinguish between what is possible or impossible, lawful or
unlawful, acceptable or not acceptable within that particular context or field.

(c) The position, role, and functions of the defendant

A defendant's position, role, function, duties, and responsibilities in an organization and
the day-to-day operations of such an organization, will often be strong indicators of his
proximity to unlawful conduct engaged in by the organization or the agents of that
organization. A defendant's positioning and role will often be strong indicators of the
quality and quantity of information he might have had access to, the people he might have
liaised and dealt with, his level of oversight and decision-making, his access and
opportunity, his positioning in terms of reporting lines, and the knowledge he might or
might not have had at his disposal.110 The position, role, function, duties, and
responsibilities of the defendant, are factors which a trial court may take into consideration
as part of the body of evidence from which knowledge may be inferred.

(d) The failure to investigate irregularities, to make enquiries, or to seek advice

The failure to investigate irregularities despite good reason to do so, not making enquiries,
or not seeking advice where a person in his position and under similar circumstances will
normally do so, are factors which a court may take into consideration as part of the body
of evidence from which knowledge may be inferred. A court is fully entitled to take into
account evidence showing that the defendant turned a blind eye to sources of information
which was readily available or easily accessible to him, and which would have revealed
the fraudulent nature of the transactions, arrangements, or returns in question had it been
considered. Examples of circumstances which may point to knowledge of a transaction,
arrangement, operation or scheme being an unlawful one may typically be: the
unwillingness of the taxpayer to accept the views of his advisors or revenue staff; 111 or
failing to seek the advice of Revenue personnel, auditors and other specialists; or the
failure to take heed of such advice. Evidence of shareholders and/or corporate
management disregarding the concerns or warnings from colleagues, partners, or
employees, especially where the latter act in some or other specialist compliance,
advisory, or supervisory positions, may likewise also be a strong indicator of
knowledge.112 Certain arrangements or categories of transactions may also be so complex,

110
See e.g. Hansford v R [2006] EWCA Crim 1225 where the appellant and seven other individuals were
convicted of a diversion fraud. The defendant operated a bonded warehouse from where the bonded goods were
diverted. At a subsequent appeal against conviction, the England and Wales Court of Appeal said: “In our view,
there was an abundance of circumstantial evidence pointing to the appellant’s involvement from the start. The
fraud began very soon after the bond had been set up. The appellant was in charge at SB, he was the person with
whom Customs dealt. He completed the paperwork which Customs required. In our view, it was fanciful to
suggest that he would not have known what was happening to so large a proportion of the spirits in his
warehouse.”
111
See e.g. United States v. Willis, United States Court of Appeals, Eighth Circuit, No 01-2912, January 2002
112
The Australian case of R v Hargraves and Stoten [2010] QSC 188 provides for interesting reading. In this
matter a number of company directors conspired with their accountants in a scheme to defraud the Australian
revenue. One of their fellow directors, a Mr Smibert, was told the scheme was lawful and above board, but said
Mr Smibert did not accept their explanations, concerns he expressed in a letter directed at the other directors
(conspirators). His legitimate concern and questions as to the legality of the arrangements were ignored. The
weight attached to this evidence is clear from the following extract (per Fryberg J): "How would honest men
have reacted to such an expression of views by a respected and trusted co-director? In my judgment they would
at least have sought confirmation from PDC’s accountants, Lee Garvey, that the scheme was legitimate. Lee
Garvey were never consulted. True, Smibert lacked expertise in these matters; but in my judgment honest men
would not have ignored his letter. Moreover Smibert was clearly distressed. Had they continued to believe that
the scheme was legal, they would have referred him to the source of that belief, Feddema, or to Lee Garvey.
They did not do so… I infer from their conduct that upon receipt of the letter, they appreciated the very real
305 DEFRAUDING THE REVENUE

or the risks associated therewith so serious, that the failure to seek or accept expert advice
in relation to those transactions or arrangements may point towards knowledge of the
transactions or arrangements in fact not being above board. The more uncertain or unclear
a legal position, or the greater the weight of circumstances warning of or pointing towards
danger or risk, the greater the need to seek advice and/or to investigate the probability of
those threats materializing and the likely impact of those threats were they to
materialize.113 The fact that a person failed to do so does not in itself prove knowledge, but
it may, when viewed together with all the other evidence placed before the court, push the
court towards the conclusion that based on all the facts of the case, an inference of
knowledge can be the only reasonable conclusion.

(e) Conduct which by its very nature suggests dishonesty or deceit

Knowledge can often be inferred from the very nature of the unlawful conduct itself.114 In
most tax fraud cases the evasion of tax will be a natural and obvious consequence of the
taxpayer's actus reus. Where a taxpayer files false tax returns falsely concealing certain
sources of income, then the natural consequence will be the evasion of part of his tax
liability. In many instances the actus reus may, in the absence of evidence suggesting
against it, justify an inference of the 'intent to evade'. Many of a defendant's acts or
failures executed in furtherance of his criminal objective will often be so inappropriate as
to suggest dishonesty and bad faith. Examples of this may be: (i) the preparation,
maintenance and/or use of fraudulent books of account;115 (ii) the furnishing of false
answers, lies, or the making of false statements;116 (iii) the falsification of minutes of
meetings; (iv) the falsification of records and documents; (v) secretly sharing profits; (vi)
the making of investments under fictitious names; (vii) transferring profits to secret bank
accounts and the keeping of secret accounts; (viii) the furnishing of false names,
addresses, registration particulars, et cetera;117 (ix) simulating transactions and cash flow,
typically through circle transactions; (x) registering and using front companies, businesses
and other false entities;118 (xi) money laundering and the concealment of assets; (xii) the
concealment of transactions or income; and (xiii) the failure to disclose facts or

possibility that the scheme was illegal, and that they were at least indifferent to that possibility. I am well
satisfied that from that point forward their behaviour was dishonest"
113
See the English case of HG Bendall v Customs and Excise [2004] UKVAT (Landfill) L00020 (2003) where
the Court inter alia said: “The Appellant had made absolutely no attempt to get proper advice as to whether or
not tax was due, and whilst at the relevant time the law with regard to landfill tax was not entirely clear, as is
shown by the decision in Parkwood, that was all the more reason for him to have obtained advice.”
114
See the remarks of Mclachlin J in the Canadian Supreme Court of Appeal, R v Théroux [1993] 2 S.C.R 5
(S.C.C.) where the Judge inter alia said: “The second collateral point is the oft-made observation that the Crown
need not, in every case, show precisely what thought was in the accused’s mind at the time of the criminal act. In
certain cases, subjective awareness of the consequences can be inferred from the act itself, barring some
explanation casting doubt on such inference.” Also see Balter, Tax Fraud and Evasion, 5th ed, at 2-10 where it is
said: “In the typical fraud or evasion case, where misrepresentation of fact, concealment, artifice, trick, or device
so often are the dominant characteristics, there is no difficult problem. The bad faith, the wilfulness, or the intent
to evade tax is clear from the act or transaction or evasion device itself (for example: changing entries in books,
false or double sets of books, secret bank accounts under assumed names, repetitive patterns of substantial
understatement of income or overstatement of deductions, fictitious deductions, deliberate misstatement of
material facts in the returns or to the investigating agents, fictitious transactions)”. Also see the Canadian case of
R v Paveley 1976 CanLII 969 (SK CA) where Bayda J inter alia stated that: "...in those cases where a particular
purpose or a specific intent is an essential element of the offence, then proof of the act the natural consequence
of which would be a certain result and no explanation is given, entitles, but does not bind, the Court hearing the
matter, to find the accused guilty of doing the act with the necessary intent."
115
See R v Gill & Anor [2003] EWCA Crim 2256
116
See R v Gill & Anor supra
117
See e.g. R v Litanzios [1998] EWCA Crim 2514
118
See e.g. R v Litanzios [1998] EWCA Crim 2514
306 DEFRAUDING THE REVENUE

circumstances such as business interests, bank accounts, related party transactions et

cetera.

(f) Deviating from set policies, procedures, practice or codes of conduct

Those employed as or active in professions such as the accounting and legal professions,
trustees, revenue and customs officers, and many others, are all subject to various codes of
conduct, and rules and standards of ethics and professional practice. These serve as a
valuable benchmark of the standards of expertise, care, and standards of conduct expected
from those subject to it. Deviation from such policies, procedures, and codes of conduct,
especially where those breaches are grossly inappropriate, repetitive, and where it
coincided with and/or facilitated the fraud, is something which a court may take into
consideration as part of the body of evidence from which knowledge may be inferred.

(g) Repetition, scale, or nature of incidents relative to the taxpayer’s day-to-day

operations and/or tax affairs
The unique repetition, frequency, nature, or scale of certain incidents or acts is something
a trial court may take into account in considering a taxpayer’s professed ignorance.
Evidence of certain patterns of behaviour, or of certain incidents being of such a distinct or
unique nature or scale, or of the pattern or frequency of those incidents or acts being so
unique as to be glaringly obvious, or alarming, or out of place considering the taxpayer's
particular operations, may also support an inference of knowledge. It is quite
understandable for a single act of deceit to go unnoticed, but multiple incidents of deceit
following one another over a long period of time are much less likely to go unnoticed. A
court may also be more inclined to draw an inference of knowledge in those instances
where the nature or magnitude of a particular unlawful transaction, arrangement, incident,
or operation, relative to the scale of the taxpayer's operations, is viewed as something
which could not have gone unnoticed.

(h) Disregard in spite of existing suspicions or doubt

The fact that the defendant proceeded on an unlawful course of conduct despite existing
suspicions as to the legality of that course of action, arrangement, or scheme, is also a
factor that a court may consider in ascertaining the defendant's knowledge or lack thereof.

(i) Persistent failure to comply, persistent avoidance of revenue control, and

obstruction
A court may also take into consideration evidence proving evasive, subversive, or
obstructive conduct on the part of the defendant prior to, during, and subsequent to the
fraud. Examples of this may be: (i) obstructing revenue access to books, records,
documentation or information; (ii) attempts by the taxpayer to conceal his whereabouts
and/or evading personal contact with the Revenue;119 (iii) despite previous warnings,
demands, or civil penalties, remains non-compliant; (iv) the failure to file tax returns
despite being requested to do so; (v) the destruction of records and documentation; or (vi)
attempting to bribe Revenue officers.

(j) The failure / refusal to pay

The failure to pay or to make arrangements for payment despite having the resources to do
so is also a factor a court may take into consideration in ascertaining a defendant's
knowledge or lack thereof.120 This is especially so where over a long period of time there

119
See United States v. Willis, United States Court of Appeals, Eighth Circuit, No 01-2912, 24 January 2002.
120
See e.g. the Canadian case of R v Andrus 2013 BCPC 160
307 DEFRAUDING THE REVENUE

was a persistent failure to declare and pay over and where the evidence prove that the
taxpayer was aware of the fact that taxes were payable.

(k) Patterns of behaviour or conduct dismissed as mere negligence or error

People are fallible and they make mistakes. Negligence and error, even gross negligence,
can never be equated with knowledge or the intent to defraud.121 This being said, what
may appear to be no more but negligent failures or honest error will often be anything but.
Taxpayers attempting to explain fraudulent acts and failures away as no more but careless
failures or honest errors are common. Such an 'error' or 'careless act' can then however no
longer be appropriately viewed as or be referred to as a 'failure' or 'error' which it is not.
Evidence of conduct which may at first glance suggest mere negligence or error may be
taken into account as part of the mosaic of evidence from which knowledge may be
inferred.122 This is common where the 'failures' or 'errors' are of a gross nature, and/or
where it is repetitive,123 and/or where the particular 'failures' or 'errors' have in the past
been pointed out to the person concerned. A court may, judged on all the evidence placed
before it, arrive at the conclusion that the conduct was in fact fraudulent and not the result
of honest failure or error.

3.3.5 Inferring intent or the absence thereof

The evidence placed before a trial court may prove facts from which, when viewed together in
its totality, the defendant's intent to defraud may be inferred. Whether a defendant did if fact
have that intent must be inferred from all the evidence.124 This being said, such a body of
evidence may also prove facts from which, when viewed together in its totality, the absence of
such an intent may be inferred.125 But this once again brings us back to a point raised earlier
in this manual. The right to remain silent is all good and well, but many a defendant choosing
to go that route, choosing to simply sit on his hands with the prosecution piling on layer upon
layer of evidence, which may well all be circumstantial in nature, may well regret that
decision. The greater the quantity and weight of the prosecution's evidence supporting an
inference as to him having acted knowingly and with the prerequisite intent, the more acute
the pressure on him to introduce evidence capable of neutralizing the risk of such an inference
being drawn.

Wilful blindness
In English law, it has long been accepted that evidence of 'wilful blindness' may support an
inference of absence of honest belief.126 'Wilful blindness' is also a concept firmly entrenched

121
See Turner, Actionable Misrepresentation at 125 where it is inter alia said: “Thus, negligence, however gross,
is not fraud. Indeed it may be said to be its direct antitheton.”
122
See Turner, Actionable Misrepresentation at 125
123
Repetitive breaches over an extended period of time which consistently prejudice the Revenue but favour the
taxpayer, and where those breaches are of a class or type where one will not normally expect that degree of
convergence (always to the taxpayer's advantage) where they are due to honest error.
124
See section 8 of the Criminal Justice Act 1967 (England) which inter alia reads: “8. Proof of criminal intent.
A court or jury, in determining whether a person has committed an offence – (a) shall not be bound in law to
infer that he intended or foresaw a result of his actions by reason only of its being a natural and probable
consequence of those actions; but (b) shall decide whether he did intend or foresee that result by reference to all
the evidence, drawing such inferences from the evidence as appear proper in the circumstances.”
125
Evidence to the effect that the taxpayer did indeed make an attempt to make full and honest disclosure of his
tax liabilities, even though he might have failed to declare or disclose same in the prescribed manner or form,
will for example be sufficient to create reasonable doubt as to the presence of an intent to defraud. Such an
attempt to make honest disclosure may typically be evidenced in the form of a letter to the Revenue to which is
attached schedules reflecting his income.
126
See Morris v State Bank of India [2003] EWHC 1868 (Ch) where Patten J inter alia said: “Knowledge
includes deliberately shutting one's eyes to the obvious, provided that the fraudulent nature of the transactions
308 DEFRAUDING THE REVENUE

in the criminal law of the United States finding frequent application in US criminal courts. A
dishonest state of mind it is said may consist in suspicion combined with a conscious decision
not to make inquiries which might result in knowledge.127 We should perhaps start by saying
that defendants are not convicted under evasion or fraud offences for their failure to
familiarise themselves with certain facts. ‘Wilful blindness’ cannot be described as a form of
fault or mens rea but it does relate to a person's state of mind. 'Wilful blindness’ does not in
any way relate to negligent conduct or a careless state of mind. It involves a conscious
decision by a person to shield himself from the confirmation of facts that he knows may prove
what he already appreciates, have already reconciled himself with, or as a minimum suspects.

It will be unsound to ever equate any finding of 'wilful blindness' with the 'intent to commit
the crime'. Where there is a finding of 'wilful blindness', there are fine distinctions to be
drawn. The question must be asked as to what knowledge (in a given case) that finding of
'wilful blindness' actually relates to. Assume prejudice or the risk of prejudice is an element of
an offence, and further assuming the defendant must also be proven to have had 'knowledge'
of that risk or prejudice ensuing as a consequence of his unlawful act, then a finding of 'wilful
blindness' insofar as the conduct element is concerned but absent a finding of knowledge or at
least 'wilful blindness' insofar as the prejudice element is concerned will leave unproven his
knowledge of the risk of prejudice. Accepted that within the revenue context these types of
cases will seldom if ever really present themselves in practice, but it is something to keep in

did in fact appear obvious ….. It is well established that it is no defence to say that one declined to ask questions,
when the only reason for not doing so was an actual appreciation that the answers to those questions would be
likely to disclose the existence of a fraud.”. Also see Matthews v Smith [2008] EWHC 1128 (QB) where the Hon
Mrs Justice Swift inter alia said: “A false statement made through carelessness and without reasonable ground
for believing it to be true, may be evidence of fraud, but does not necessarily amount to fraud. If it was made in
the honest belief that it was true, it would not be fraudulent. It is, however, important to consider in each case
whether there were reasonable grounds for the maker of the statement to believe in its truth, and also to examine
the means of knowledge that were possessed by the maker of the statement at the material time. If that person
shut his eyes to the facts, or deliberately abstained from enquiring into them, he would be guilty of fraud, in just
the same way as if he had made the statement knowing it to be false.” See the oft reported English case of Derry
v Peek (1889) 14 App. Cas. 337 where Lord Herschell inter alia remarked that: “when a false statement has been
made the questions whether there were reasonable grounds for believing it, and what were the means of
knowledge in the possession of the person making it, are most weighty matters for consideration. The ground
upon which an alleged belief was founded is a most important test of its reality. I can conceive many cases where
the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince the
Court that it was not really entertained, and that the representation was a fraudulent one.” In Turner, Actionable
Misrepresentation, and referring to the opinion of Lord Herschell in Derry v Peek supra it is then said (and
correctly so) (at 116): “… when the belief itself is generated by a resolution to avoid all sources and means of
information which would lead to suspicion, - by a wilful and sedulous abstention from, or curtailment of,
investigation for the express purpose of putting the representor in a position to say that he in fact believes what
he professes to believe, - by that “diligence in ignorance” … in order not to ascertain the truth, or have any doubt
thrown on what he desires, and is determined to believe … A belief so engendered may be as much a badge of
fraud as the absence of any belief at all.” Also see Westminster City Council v Croyalgrange Ltd [1986] 2 All ER
353 and the Canadian case of Sansregret v The Queen [1985] 1 S.C.R. 570.
127
See the Privy Council decision of Barlow Clowes International Ltd & Anor v Eurotrust International Ltd &
Ors (Isle of Man) [2005] UKPC 37 where the court per Lord Hoffmann inter alia said: "The judge stated the law
in terms largely derived from the advice of the Board given by Lord Nicholls of Birkenhead in Royal Brunei
Airlines Sdn. Bhd. v Tan [1995] 2 AC 378. In summary, she said that liability for dishonest assistance requires a
dishonest state of mind on the part of the person who assists in a breach of trust. Such a state of mind may
consist in knowledge that the transaction is one in which he cannot honestly participate (for example, a
misappropriation of other people's money), or it may consist in suspicion combined with a conscious decision
not to make inquiries which might result in knowledge: see Manifest Shipping Co Ltd v Uni-Polaris Insurance
Co Ltd [2003] 1 AC 469. Although a dishonest state of mind is a subjective mental state, the standard by which
the law determines whether it is dishonest is objective. If by ordinary standards a defendant's mental state would
be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court of
Appeal held this to be a correct state of the law and their Lordships agree"
309 DEFRAUDING THE REVENUE

mind. 'Wilful blindness' should more correctly be viewed as a finding justifying an inference
of knowledge, but then also only of those facts in relation to which that finding of 'wilful
blindness' is arrived at. The facts in relation to which one can say there was 'wilful blindness'
thus need be clearly identified and distinguished from other facts where knowledge is also
required to be proven. Apart from all this, proving a crime of intent calls for proof of a
defendant's knowledge of unlawfulness, coupled with wilful, voluntary conduct. All the legs
of 'intent' have to be proven. It covers more than just 'knowledge' of certain facts or certain
aspects of a crime. Where there is 'wilful blindness' there will often or even usually be intent,
but not necessarily and it is certainly not something to be assumed.

3.3.6 Lacking Capacity

It is to be noted that, and this is a common requirement in most English-speaking
jurisdictions, a defendant must have had the required criminal capacity as at the time when he
committed the crime. Insofar as criminal intent is concerned, such a defendant must have had:
(a) the cognitive capacity to appreciate his conduct as being unlawful, that is to say the mental
ability to distinguish between that which is lawful and that which is unlawful; and (b) the
conative capacity to act in accordance with that appreciation. A defendant cannot be said to
have defrauded where he lacked the mental capacity to appreciate his conduct as being
unlawful, and/or where he lacked the capacity to act in accordance with that appreciation. 128

3.4 Prejudice or loss

3.4.1 Prejudice or loss as material element
Probably one of the key distinctions between the many 'fraud', 'evasion', and 'smuggling'
offences found in different jurisdictions, relate to 'prejudice' or 'loss' as element of those
offences. With most 'true' fraud offences, actual or potential prejudice or loss will be a
material element of those offences with the burden on the prosecution of proving: (i) that
actual or potential prejudice or loss; (ii) the causal connection or nexus between the offender's
conduct and that actual or potential prejudice; and (iii) the offender's prerequisite state of
mind insofar as it must have related to that element. The offender's intent and his motive must
not be confused. A taxpayer's main motive might not have been to cause the Revenue
prejudice, but he may still have acted with the required intent.129 The question of causation
only comes to the fore when considering consequence crimes. It must be said that in the
majority of tax fraud cases, proving that nexus, assuming prejudice or the risk of prejudice is
an element of the offence charged, between a defendant taxpayer’s unlawful acts and/or
failures and the actual or potential prejudice allegedly suffered, seldom provides for difficulty.
Misrepresentations relating to a tax liability almost always have as natural consequence actual
or potential losses in duties or taxes. We said that "with most 'true' fraud offences, actual or
potential prejudice or loss will be a material element of those offences". There are also many
fraud or 'fraud-like' offences out there where loss or prejudice, not even potential prejudice, is
not an element of those offences. Those crimes will typically be completed where the offender
commits an unlawful act or unlawfully fails to act and where that act or failure is
accompanied with the required mental element, but no more than that. Those offences are thus

128
It is well recognised that certain individuals, many psychopathic individuals being a prime example, will
usually be well aware of their conduct being unlawful, but they will often struggle to resist the temptation to
commit the crime. In most jurisdictions this will not result in a finding of lacking capacity, although the courts in
some jurisdictions may take that fact into account when deciding on an appropriate sentence.
129
See Attorney-General's Reference (No 1 of 1975) where it was inter alia said: "… on the authorities, it
appears that a consequence is intended if in fact a person contributes by his actions to a criminal outcome, if in
fact his actions set the scene and play a relevant part, in the crime. Although it may be that he does not desire
that outcome to ensue and may even discourage it, nevertheless his conduct combined with his foresight make
him liable."
310 DEFRAUDING THE REVENUE

conduct rather than consequence crimes. In most jurisdictions those offences will generally
not be viewed as 'true' fraud offences but rather as akin to fraud.

3.4.2 Potential prejudice sufficient

Most fraud and evasion offences do not require actual loss or actual prejudice for the crime to
be completed. Not the English crime of cheating, fraud under section 1 of the Fraud Act 2006,
fraudulent evasion under section 106 of the Taxes Management Act 1970, or common law
fraud in South Africa, requires actual loss or prejudice.130 In the case of these crimes the
offender will be guilty once all the essential elements of the crime have been satisfied, even
where he subsequently attempted to undo what he did. Such a situation may typically arise
where a taxpayer submits a false return with the intent to obtain a tax credit to which he is not
legally entitled, but, after receiving enquiries from the Revenue and out of fear of being
caught out, submits an amended return with the excuse that he made certain honest errors in
the first return. The false representations were already made by means of the first return, and
the risk of loss was already present when those false representations were made. The fact that
a taxpayer subsequent to detection of an under-declaration repaid the evaded taxes will
likewise not negate criminal liability. The fact that the evaded taxes were repaid may be taken
into account for purposes of sentencing but it does not undo the crime which was already
completed. The fact that the fraud was detected and the evaded taxes recovered will likewise
not exclude criminal liability.

The above also applies to the statutory tax evasion offences provided for under 26 U.S.C. §
7201 (United States), section 239(1) of the Canadian Income Tax Act, section 106A of the
Taxes Management Act (United Kingdom), and section 235 of the Tax Administration Act
(South Africa). It is not at all uncommon for a taxpayer who finds himself the subject of an
enquiry to file amended returns or in the case of a persistent non-filer to voluntarily file
returns once he suspects and/or knows himself to be the subject of a criminal enquiry. 131 In
many cases he may also promptly pay any outstanding taxes due. This then will often be
shortly after an audit where irregularities were detected, after a search and seizure, after being
warned, and/or after his arrest. The reasons behind such a move may vary. He may mistakenly
believe that such a move may prevent prosecution, or he may be confident that a show of
cooperation may convince the authorities not to prosecute, or he may well do so on the advice
of an advisor.

3.4.3 Unlawful deferment

Motive and criminal intent is as has been stated two very different concepts. Even where the
taxpayer’s motive was not necessarily to permanently deprive of or escape taxation, but just to
delay the payment of the taxes to a later date more convenient to himself, he may still face

130
This is also the case in Canada. See R v Olan et al [1978] 2 SCR 1175 where it was inter alia held that:
"Deprivation is satisfied on proof of detriment, prejudice or risk of prejudice; it is not essential that there be
actual loss". In Olan the court approvingly quoted from the English case of R v Allsop (1976) 64 Cr. App. R. 29
where at 31 it was inter alia said: ""Generally the primary objective of fraudsmen is to advantage themselves.
The detriment that results to their victims is secondary to that purpose and incidental. It is “intended” only in the
sense that it is a contemplated outcome of the fraud that is perpetrated. If the deceit which is employed imperils
the economic interest of the person deceived, this is sufficient to constitute fraud even though in the event no
actual loss is suffered and notwithstanding that the deceiver did not desire to bring about an actual loss. ... We
see nothing in Lord Diplock’s speech [in Scott] to suggest a different view. “Economic loss” may be ephemeral
and not lasting, or potential and not actual; but even a threat of financial prejudice while it exists it may be
measured in terms of money . . .Interests which are imperilled are less valuable in terms of money than those
same interests when they are secure and protected. Where a person intends by deceit to induce a course of
conduct in another which puts that other’s economic interests in jeopardy he is guilty of fraud even though he
does not intend or desire that actual loss should ultimately be suffered by that other in this context."
131
See e.g. the Canadian case of R v Andrus 2013 BCPC 0160
311 DEFRAUDING THE REVENUE

charges of evasion or fraud.132 In most jurisdictions, proving evasion does not require proof of
the intent to permanently deprive or evade payment. Evasion can also consist of the
intentional and unlawful deferment of a tax liability.133 The fact that the evader might have
intended to declare and pay all the taxes at some later date does not prevent his conduct from
amounting to evasion.134 Such a situation may typically arises where say X urgently requires
capital for some other purpose but fearing or knowing that the Revenue will not accept
payment at a later date, makes some or other fraudulent misrepresentation intended to mislead
the Commissioner as to his current tax liability. This effectively denies the state of its right to
use the money as and when due.

3.4.4 Patrimonial and non-patrimonial prejudice

Another important distinction between the various fraud offences found in various
jurisdictions, relate to the nature of the 'prejudice' or 'loss' suffered. There are various species
of fraud protecting various interests and making punishable various forms of behaviour. The
nature of the prejudice or loss intended or suffered may differ from offence to offence. In the
case of some of those offences, the prejudice intended or suffered may be limited to
patrimonial prejudice whereas others may also cover non-patrimonial prejudice. The South
African common law crime of fraud for example makes punishable any fraudulent conduct
which has as consequence actual or potential patrimonial or non-patrimonial prejudice. In
England, conspiracy to defraud also covers frauds planned where no economic prejudice is
intended. The offence can also be charged where the conspirator's purpose is to cause a public
official to act contrary to his public duty.135 The State can be the victim of fraud without the
fraudulent conduct necessarily being intended to evade taxation, and without the fiscus
necessarily suffering a tax loss. Fraudulent conduct may for example have as consequence the
subversion of State administration or the circumvention of import controls. The fact that the
prejudice suffered is non-patrimonial does not make it any less fraudulent. A good example in
point is the smuggling of prohibited goods. The offender’s objective and intent is not the
evasion of duties or taxes, but the fraudulent evasion of the controls. Another example that
comes to mind is that of a person who, giving himself out to be a ‘whistle-blower’,
intentionally feeds the Revenue with false information in an attempt to manipulate the
Revenue into unwarranted action against say for example a competitor. Conduct of this nature

132
See Sandford, “Policies Dealing with Tax Evasion” in Feige & Ott (Ed) Underground Economies in
Transition: Unrecorded ativity, tax evasion, corruption and organized crime 87-100 at 87, where it was correctly
said that: “Tax evasion takes one or both of two main forms: 1. An understating of taxable income, profits or
sales and excise tax receipts (of which the extreme form is a failure to declare any such income or receipts by not
making a tax return or not registering for a particular tax when legally required to do so). 2. An overstating of tax
exemptions, allowances, reliefs, credits (of which the extreme form is to claim credits in excess of tax liability).
These are the main but not the only forms of tax evasion. For example, delaying payment, especially in times of
inflation, is a form of evasion.”
133
See the case of DPP v Turner [1974] AC 357 where at 365 Lord Reid inter alia said (in a matter under the
Theft Act 1968): "An obligation is reduced if the creditor agrees with the debtor that the amount owed shall be
reduced. An obligation is deferred if creditor and debtor agree that the date of performance shall be postponed.
An obligation is evaded if by some contrivance the debtor avoids or gets out of fulfilling or performing his
obligation. In the days when such things happened, a welshing bookmaker not only evaded his pursuers, he also
evaded his obligations. Evasion does not necessarily mean permanent escape. If the bookmaker evaded his
pursuers on Monday, the fact that he is caught and made to pay up on Tuesday does not alter the fact that he
evaded his obligations on Monday. Unlike reducing or deferring an obligation, evading an obligation is a
unilateral operation. It leaves the obligation untouched and does not connote any activity on the part of the
creditor. When the evasion ceases he can seek to recover the debt in any way open to him."
134
R v Dealy [1995] STC 217
135
See Scott v Commissioner of Police of the Metropolis [1975] AC 819 where Lord Diplock inter alia said:
"Where the intended victim of a "conspiracy to defraud" is a person performing public duties as distinct from a
private individual it is sufficient if the purpose is to cause him to act contrary to his public duty, and the intended
means of achieving this purpose are dishonest. The purpose need not involve causing economic loss to anyone."
312 DEFRAUDING THE REVENUE

may or may not be covered by a fraud offence, depending on the legislative framework of the
jurisdiction in question, but it is no less fraudulent than those frauds resulting in patrimonial
prejudice.

3.4.5 Parties prejudiced

The State has a right to the tax due to it. The failure to pay that which is due is to deprive the
State of its right to the tax.136 It is however not only the Revenue that may suffer prejudice.
The fraudulent conduct of the offender may also have a direct impact on persons other than
the Commissioners. Cases may for example arise where an employee may defraud both his
employer and the Revenue, or for an advisor such as a tax agent or freight forwarder to
defraud both his client and the Revenue.137 In some jurisdictions where the VAT system is in
use, the authorities may refuse to refund VAT claims to a VAT vendor, even where that VAT
vendor's claim may be a lawful legitimate claim, but where the person to whom that VAT
vendor paid the input tax absconded with it without paying it over to the Revenue. These are
just a few examples. There are many other possibilities. This leaves open the possibility of
potential charges originating not from a Revenue complaint, but from such other prejudiced
parties. This however depends on the facts of the case and the legal framework of the
jurisdiction in question.

3.5 Fraud by omission

In most common law jurisdictions, and certainly so in England, South Africa, Australia, and
Canada, wilful omissions can in itself make out the conduct element of fraud. This is in fact
nothing new and has long been accepted in common law. The common law offences of

136
See Pasquantino v United States [2005] USSC 25 where the petitioners appealed against their convictions on
‘wire fraud’ charges for their part in a smuggling operation involving the evasion of excise taxes on liquor
smuggling into Canada. The US Federal wire fraud statute (18 U.S.C. § 1343) prohibits the use of interstate
wires to effect “any scheme or artifice to defraud, or for obtaining money or property by means of false or
fraudulent pretences”. The petitioners amongst other things argued that the Canadian government’s right to
collect the taxes from them was not “money or property” within the meaning of the wire fraud statute. This line
of argument was rejected on a subsequent appeal to the U.S. Supreme Court where Thomas J, delivering the
opinion of the Court, had the following to say about the Canadian government’s right to the evaded taxes:
“…Canada’s right to uncollected excise taxes on the liquor petitioners imported into Canada is “property” in its
hands. This right is an entitlement to collect money from petitioners, the possession of which is “something of
value” to the Government of Canada…Had petitioners complied with this legal obligation, they would have paid
money to Canada. Petitioners’ tax evasion deprived Canada of that money, inflicting an economic injury no less
than had they embezzled funds from the Canadian Treasury. The object of petitioners’ scheme was to deprive
Canada of money legally due, and their scheme thereby had as its object the deprivation of Canada’s “property”.
The common-law of fraud confirms this characterization of Canada’s right to excise taxes. The right to be paid
money has long been thought to be a species of property...That made sense given the economic equivalence
between money in hand and money legally due. The fact that the victim of the fraud happens to be the
Government, rather than a private party, does not lessen the injury...Canada’s entitlement to tax revenue is a
straightforward “economic” interest...Canada could hardly have a more “economic” interest than in the receipt of
tax revenue.”
137
See e.g. the Australian case of Thompson v The Queen [2005] WASCA 223 where the accused, a practicing
accountant and tax agent, filed false tax claims on behalf of his clients. This was done without the knowledge of
his clients. He diverted the tax refunds for his own use. He repeatedly made false representations to and
defrauded both his clients and the tax authorities. In Beard v The Queen [2003] WASCA 262, the appellant’s
employer, a chartered accountant, also rendered services as tax agent. Although not a registered tax agent
himself, the Appellant also rendered services as a tax agent for his own account. The appellant’s employer was
unaware of this fact. Over a period of three years, the Appellant submitted false tax returns in the names of 192
taxpayers. Although the majority of the taxpayers were clients of his employer, a large number of them were his
own clients. This fraud was perpetrated unbeknown to the revenue, his employer or the taxpayers. The false tax
returns claimed rebates to which the clients were not entitled. The appellant made use of various procedures to
divert the undue refunds for his own personal use. Through this process the appellant perpetrated a fraud not
only on the Australian Tax Office, but also on his employer and the innocent client taxpayers.
313 DEFRAUDING THE REVENUE

'cheating' in England and 'fraud' in South Africa are good examples in point. Under both those
offences, to secure a conviction on a charge of 'cheating' or 'fraud' on account of an omission
to disclose facts, the following will need be proven:

(a) a duty to disclose the particular fact;

(b) knowledge of the particular fact;
(c) knowledge of the duty to disclose;
(d) the intentional failure to disclose that fact;
(e) the intent to defraud; and
(f) risk of loss.

It has long been accepted that an omission would only amount to a misrepresentation where
there was a legal duty on a person, whether imposed by statute or otherwise, to act positively.
But even if a defendant has made a misrepresentation by means of an omission, the
misrepresentation on its own would not be sufficient. The prosecution carries the onus of
proving beyond reasonable doubt that the defendant wilfully failed to act in accordance with
that legal duty and that he so failed to act with the intent to defraud. In the UK, these basic
principles have since been carried over into the statutory fraud offence provided for under
section 1 of the Fraud Act 2006 which provides for the crime of fraud which can be
committed in there ways. Section 1 (read with section 3) of the Act, provides for 'fraud by
failing to disclose information'. A person can be convicted under this offence where he:

(a) dishonestly
(b) fails to disclose information to another person;
(c) where he was under a legal duty to disclose the information which he so failed to
disclose;
(d) where he had knowledge of the legal duty to disclose the information in question;
(e) where he intentionally failed to disclose the information;
(f) with the intent: (i) to make a gain for himself; or (ii) to make a gain for another; or (iii)
to cause loss to another; or (iv) to expose another to a risk of loss.

3.6 Participation
3.6.1 General
With many revenue and customs frauds different participants may have committed numerous
different crimes in furthering the same criminal operation or parts thereof. This may typically
cover crimes such as fraud, theft, bribery, money laundering, false accounting, bribery etc.
The combinations of offences any given participant may potentially be charged with, and the
basis for his alleged criminal liability is as endless as the extent of the criminal acts he
participated in, and the nature of his participation in relation to each of those criminal acts.
Whenever we deal with 'participation in crime', then the starting point will however always be
one of law rather than criminology or the sciences. The reason for this should be obvious.
Where conduct in law does not constitute a crime, then there is no participation in crime. The
law is not always moral, and/or logical, and/or scientific. The legal definition of crimes and
offenders will thus often be very far removed from the lay person or criminologists'
understanding of what makes out a particular offence or a certain category of offender. Who
will in law and on the facts of a case be viewed as ‘participants’ to a particular crime, and
how the nature of their participation will be viewed at any given point in time, will often not
correspond with the views of those outside the court room.

In common law and statute we can find many hundreds of offences making it punishable to
commit certain acts or to fail to act in a certain manner. Those offences will typically go
under those names and labels we are so familiar with e.g. murder, fraud, theft, rape, etc. Then
314 DEFRAUDING THE REVENUE

there are also those inchoate offences making it punishable to 'attempt' to commit certain
offences,138 to 'incite' the commission of certain offences,139 and the 'conspiracy' to commit
certain offences.140 Then there are also those offences making it punishable to 'aid', 'abet',
'counsel' and ‘procure’ the commission of certain offences. Penal provisions, statutes, and
legal rules and doctrines may differ from jurisdiction to jurisdiction and are also not frozen in
time. They evolve in different directions and they evolve over time. Over time the same
statutory provision may also not receive the same interpretation and application in the same
jurisdiction and legal doctrines also develop and drift. Those who may at any given point in
time in any given jurisdiction be viewed as ‘principal offenders’, ‘accessories’, ‘conspirators’,
or as ‘aiders’, ‘abettors’ or ‘procurers’ in relation to any given crime, may be viewed very
differently in another jurisdiction or in the same jurisdiction at another point in time. What
will at this time make out say ‘aiding and abetting’ or ‘conspiracy’ in England, Australia,
India or Singapore, is a matter of law calling for a clear understanding of the current legal
framework in those jurisdictions.

When we look at the current legal frameworks in force in common law jurisdictions like
England, Australia, the United States and Canada, and then reviewing the criminal liability of
offenders in revenue and customs matters in those jurisdictions, then we will find that there is
very little room in the existing legal frameworks for any offender, both principal and
secondary offender, to knowingly participate in a fraud and to not be covered under those
penal frameworks. The legal frameworks provided for in those jurisdictions make possible the
punishment of not only the primary principal offenders but also those who knowingly
orchestrate, plan, assist with, abet, or procure the commission of the crime. The agreement to
commit the crime is in itself punishable under conspiracy offences provided for in those
jurisdictions. The taxpayer also need not himself stand accused for others to be charged for
their part in a fraud committed in connection with the taxpayer’s tax affairs. An example in
point will be that of tax agent X who has misappropriated duties or taxes without the
knowledge of the taxpayer.141 The fact that a person was not involved in a fraud since its
inception does not exclude his own criminal liability for the part he played in that fraud. The
fact that a person was not aware of his precise role or contribution in the greater scheme of a
fraudulent operation, will usually not exclude his own criminal liability either. As long as he
appreciated his own contribution to the furtherance of that fraudulent operation he/she will in
most jurisdictions be held criminally liable. A person also need not be a national, deemed
resident, or be domiciled in a country to be held criminally liable for his/her complicity in the
commission of a revenue or customs fraud in that country. This also applies to local citizens
or foreign nationals orchestrating a fraud or assisting with a fraud from abroad. Extradition of
offenders from abroad may be possible but will usually prove a difficult and drawn-out
process. Successful applications for extradition depend on the existence of treaties providing
for same. Extradition in tax evasion cases may also prove difficult in those cases where tax
evasion as defined in the country applying for extradition is not deemed an extraditable
offence in the country from which extradition is sought. Whether extradition is possible will

138
See e.g. the offences provided for under section 1 of the Criminal Attempts Act 1981 (England and Wales)
and section 11.1 of the Australian Criminal Code Act 1995
139
See e.g. the offences provided for under section 7(2) of the Perjury Act 1911 (England); sections 44, 45 and
46 of the Serious Crime Act 2007 (England); and section 11.4 of the Australian Criminal Code Act 1995.
140
See e.g. the conspiracy offences provided for under sections 11.4 and 135.4 of the Criminal Code Act 1995
(Australia); 18 U.S.C. § 286 and § 371 (United States); and section 1 of the Criminal Law Act 1977 (England).
141
See e.g. Beard v The Queen supra. The agent may thus well find himself the accused with the taxpayer acting
as a witness for the prosecution.
315 DEFRAUDING THE REVENUE

depend on the treaties between the respective jurisdictions, the legal frameworks of those
jurisdictions, and the facts of the particular case.142

Any category of person may potentially commit, assist with the commission, or associate
himself with the commission of a revenue fraud.143 Offenders may hail from any social,
economic, educational, or professional background and may include businessmen, corporate
executives, lawyers,144 judges,145 accountants,146 bankers,147 government officials,148 tax and
other professional advisors, and other salaried employees to academics, the self-employed,
and career criminals. Those who participate in such a fraud will also often fan out to include
the offender's family members, friends, business partners, and professional advisors. Those
different participants may be motivated by any number and/or combination of factors or
circumstances. The most common will usually be greed and pressure to maintain a certain
lifestyle, but there are others. Examples that come to mind are reckless blind ambition, or
crime committed in furtherance of political objectives or ideology,149 or misplaced loyalty to

142
Requests by the US government for the extradition from Britain to the US of suspected tax offenders have in
the past been granted. See e.g. Mauro v Government of the United States of America [2009] EWHC 150 (Admin)
where the appellant, a US citizen, stood charged with non-filing contrary to 26 U.S.C. § 7203 and evasion
contrary to 26 U.S.C. § 7201 (attempting to evade income tax). The offences were held to be "extradition
offences" within the meaning of section 137 of the Extradition Act 2003. US citizens charged under 26 U.S.C. §
7201 can, depending on the facts of the case, be extradited from Britain to the US. The US courts have also in
the past granted orders for the extradition of offenders to other EU member States. See e.g. In the matter of the
extradition of Samir Azizi, Order granting motion for certificate of extraditability: Case No. 5:14-xr-90282-PSG
(20 March 2015) United States District Court, N.D. CA, Doc 60 where the German authorities requested the
extradition of Azizi from the US to Germany for large-scale VAT frauds committed in Germany. The court held
that the offences in question (tax evasion and VAT fraud) fell within the terms of an existing extradition treaty
between Germany and the United States, that Azizi's alleged conduct (in Germany) would have been criminally
punishable in the United States had it been committed in the US, and that the evidence placed before the court
was sufficient to establish probable cause to believe that Azizi did commit the crimes alleged. The Court
accordingly authorized extradition. There is little doubt that the Court, assuming Azizi had committed the same
offences in Britain and assuming it was the British government that requested extradition, also would have
ordered extradition to Britain.
143
See Albrecht, Fraud Examination at 26 where the writer inter alia said: “Past research has shown that anyone
can commit fraud. Fraud perpetrators usually cannot be distinguished from other people by demographic or
psychological characteristics. Most fraud perpetrators have profiles that look like those of other honest people.”
These observations hold equally true insofar as is concerned Revenue frauds. Also see Duffield & Grabosky,
“The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal Justice No 199 1-6 at 2-4.
144
See e.g. the English case of R v Dimsey & Anor [1999] EWCA Crim 1917 where the three co-accused (the
taxpayer, the taxpayer’s solicitor, and the appellant who rendered financial services and company administration
on behalf of the taxpayer), were all convicted on charges alleging conspiracy to defraud the Revenue. The three
conspirators inter alia consulted with each other and agreed on the content of a fraudulent letter to be forwarded
to the Revenue.
145
See e.g. United States of America v Robert Powell, United States District Court for the Middle District of
Pennsylvania (Docket No 09 : CR-189) (2009) (unreported) where two senior judges between 2003-2007
accepted over $2.8 million in bribes from the accused, the latter himself an attorney. The judges for reasons that
are quite understandable then filed fraudulent tax returns.
146
See e.g. Thompson v The Queen [2005] WASCA 223
147
See e.g. The Financial Times, February 19 2009, “UBS settles US tax probes for $780m” reporting on the
UBS Group having been fined for assisting clients with tax evasion.
148
See e.g. the Australian cases of Dwayhi v R; Bechara v R [2011] NSWCCA 67 and R v David Kertebani
[2010] NSWCCA 221 where an officer of the Australian Taxation Office assisted in defrauding the
Commonwealth. Also see Gok v The Queen [2010] WASCA 185
149
Terror groups and 'freedom fighters' have for decades engaged in robberies, kidnapping and ransom, drug
trafficking, various types of smuggling, VAT scams, and other categories of crime as a means to finance their
operations. The 'Red Brigade', Irish Republican Army (IRA), African National Congress (ANC), ETA and the
Revolutionary Armed Forces of Columbia (FARC) are just a few groups that come to mind. According to reports
there are indications of some terror groups now also targeting Revenue administrations with various scams. See
e.g. the Independent. 14 August 2015. "Life is a carousel of fraud and the people involved can be clever and very
316 DEFRAUDING THE REVENUE

family or friends. Relatives being charged as accomplices or co-conspirators in revenue and

customs cases are common. This is not surprising considering the fact that people generally
prefer to trade, deal with and conspire with those they believe to be trustworthy.

With the majority of revenue and customs frauds the number of participants in that fraud can
usually be counted on one hand. It may typically be the self-employed consultant not
declaring all his income, or the plumber and his accountant understating income and
overstating expenses. It is however with corporate frauds, refund scams, and smuggling
operations where the number of participants may be in the dozens. Many of these frauds: (a)
are extensive in size, and are planned and executed over many years; (b) involve large
numbers and/or combinations of individuals, advisors, traders, corporations, other legal
persona, taxpayers and claimants; (c) involve many unlawful acts and/or many
misrepresentations in relation to countless shipments, returns, or claims; and (d) are planned,
implemented and operated in such a manner as to keep secret the identities and/or to deny
evidence against many of the role players, especially so in relation to the leadership and/or
planners. The identification of these latter individuals and the collection of evidence
sufficiently strong enough to arrest, prosecute, and convict them will often prove particularly
difficult. The same group will often run multiple parallel operations involving multiple crimes
of different types and classifications. Where we deal with the more ambitious smuggling
operation or refund scam, there will often be multiple layers of participants, often acting at
different levels and in different capacities. Some may be the financiers, others the planners,
others may execute different parts or phases of the operation. With many of these frauds and
scams, one will often find that the different participants in the operation may have carried out
or assisted with many different acts in furthering the criminal operation or in assisting one or
more of the offenders in furthering that criminal operation or parts thereof, before, during, and
after the commission of the various criminal acts. That involvement may include: (a)
financing a criminal operation or parts thereof; (b) procuring and organising others to commit
the crime; (c) providing assistance with planning and preparation; (d) falsifying records; (e)
preparing false books of account; (f) preparation of fraudulent returns and claims; (g) raising
fraudulent shipping, commercial and other documentation; (h) providing instruction on how
commit the crime or certain aspect thereof; (i) knowingly providing logistics support and
equipment e.g. vehicles, vessels, aircraft, warehouses; (j) executing 'dry-runs' / trial runs; (k)
setting up fronts e.g. to facilitate scams or money laundering; (l) storing or concealing illicit
goods; (m) running a fencing operation to facilitate the onward supply of the illicit goods; (n)
laundering the proceeds; (o) assisting in various low-level operational functions e.g. drivers,
packers, pilots, making deliveries and collections; (p) bribing or intimidating officers and
witnesses; (q) assisting with decoy or other deception operations; (r) acting as a 'sweeper'; (s)
tipping off; and (t) the destruction of evidence.

dangerous"; The Telegraph. 09 December 2001. "Police crack-down on £450m 'red' diesel scam". Crime and
terrorism will often converge, and criminal and terror groups will often collaborate or form alliances. Criminal
groups may use terror tactics in advancing certain objectives, whereas some terror groups, especially those under
financial pressure (often marginalised groups lacking a significant sympathiser base) will often commit crime to
further their objectives. See e.g. the US case of United States of America v. Mohamad Youssef Hammoud et al,
United States District Court for the Western District of North Carolina (Docket 3:CR147-MU) (2002)
(unreported), where Hammoud, an illegal immigrant from Lebanon was convicted on charges relating to the
providing of material support to foreign terrorist organizations, cigarette smuggling, money laundering,
racketeering, and immigration fraud. Hammoud and his co-conspirators between 1992 and 2000 operated a
multi-million dollar fraud involving the illegal diversion of cigarettes over state lines. The profits (or part
thereof) were diverted in support of Hezbollah. Hammoud was sentenced to 155 years imprisonment, a sentence
which was on appeal substituted with a sentence of 30 years imprisonment.
317 DEFRAUDING THE REVENUE

The law will obviously be seriously flawed and ineffective unless all the participants other
than the principal offenders, those who orchestrate, procure, aid, abet, counsel, or otherwise
assist with the commission of crimes cannot be held accountable. In recognising this fact, that
crimes often involve participants other than just the person caught with the bloody dagger in
his hand, and are indeed often promoted and/or made possible by those other participants,
lawmakers and the courts have over many centuries enacted offences and devised rules and
doctrines to ensure all those who orchestrate, plan, assist with, abet, or procure the
commission of crimes are held accountable.

3.6.2 Accessory liability

Those who participate in the commission of a crime can be separated into two main
categories. The first is the principal offenders. These are those participants who commit the
actus reus of the principal crime. This will typically be the smuggler knowingly driving the
truck laden with the smuggled goods over the frontier, or the taxpayer personally and
knowingly preparing and filing a fraudulent VAT claim. By far the greater majority of tax
evaders satisfy all the material elements of the crime charged as primary offenders in their
own right. There is however no limit to the number of persons that may personally satisfy all
the material elements of the fraud or evasion offences charged. Apart from the principal
offenders, we also have the secondary offenders, the accessories, those offenders who aid,
abet, counsel, or procure the commission of the offence. It is thus not only the taxpayer who
evades his tax liability, or only the trader who circumvents a customs regulation, or only the
smuggler who physically controls the illicit goods during its importation, who can incur
criminal liability. Those who aid, assist, incite, counsel, or procure the evasion,
circumvention, smuggling, or fraud can also be held accountable. Accessory liability traces its
roots to common law. In common law aiding, abetting, incitement, counselling, and procuring
have historically been viewed as derivative in nature - the criminal liability of the secondary
offenders is derived from that of the principal offenders. The essence of accessory liability
was well explained in the following extracts from the Law Commission’s consultation paper
Assisting and Encouraging Crime150 where it was inter alia explained:

“ a person can only be an accessory to a crime that has actually been committed … A person is
guilty of an offence as an accessory if, with mens rea … he "procures, assists or encourages"
the commission of that offence by the principal.”151 … and “Secondary liability differs from
primary liability in that … the accessory is convicted not for himself committing the actus
reus of a particular offence, but because of his association with the commission of such an
offence by the principal offender.”152

Let us assume X ‘aids and abets’ Y with the commission of a VAT fraud. Further assume he
is charged with aiding and abetting that fraud, and further assuming that is proven, then he
will be convicted of fraud, albeit as an accessory - not as principal. The law of accessory
liability is however a complex area with considerable variation between jurisdictions and
often not even consistently applied in the same jurisdiction. Differences, depending on time
and place in different jurisdictions, may typically arise as to what will actually make out
'aiding', abetting', 'counselling' or 'procuring'; the precise nature of the mens rea required to be
present; the requirement for causality; whether or not those 'aiding' or abetting' need be
present at the crime; the liability of the accessory where the principal is acquitted; and the
existence of an agreement between the different participants. It is also an area subject to
frequent refinement and reform, through statute and in the courts.

150
(1993) Law Com No. 131
151
At 6
152
At .32
318 DEFRAUDING THE REVENUE

(a) Aiding, abetting, counselling, or procuring

Penal provisions making punishable aiding, abetting, counselling, or procuring can
undoubtedly be find in every common law jurisdiction. In most common law jurisdictions the
sanctions that may follow for their participation may be the same as that of the principal
offenders. In England the starting point when looking at accessory liability is section 8 of the
Accessories and Abettors Act 1861 which reads as follows:153

"Whosoever shall aid, abet, counsel or procure the commission of any misdemeanour, whether
the same be a misdemeanour at common law or by virtue of any Act passed or to be passed,
shall be liable to be tried, indicted and punished as a principal offender.''

This section in essence mirror's the English common law position of the secondary offender,
the party 'aiding', abetting', 'counselling' or 'procuring', being guilty of the same offence as
that committed by the principal. He also faces the same penalties. The words 'aid', 'abet',
'counsel' and 'procure' in this section has been held to each have its own separate meaning and
need be given their ordinary meanings.154 The secondary participant's actus reus is the
'aiding', abetting', 'counselling' or 'procuring' of the crime. It is for the prosecution to prove
that actus reus. Aiding' will be to help or assist before or during the commission of the
crime.155 'Abetting' involves the incitement or encouraging of a crime at the time of the
commission of the crime.156 'Counselling' involves counselling or advising before the
commission of the crime.157 To 'procure' is "to produce by endeavour" - it involves"…setting
out to see that it happens and taking the appropriate steps to produce that happening."158

The obvious advantage of this framework is that every person who aids, abets, counsels or
procures the commission of the crime "shall be liable to be tried, indicted and punished as a
principal offender.'' What this in essence boils down to is that a participant defendant can be
convicted even where the prosecution cannot prove whether he was actually the principal or
the secondary offender. This is especially useful where we deal with frauds and smuggling
operations where you may have a number of participants but where it may be difficult to
prove which one (or more of them) actually executed the physical unlawful acts of the
principal offence. This framework also ensures that those who plan or orchestrate the

153
The Serious Crime Act 2007 under sections 44, 45 and 46 also provides for three offences making punishable
the encouraging or assisting of offences (Under Part 2).
154
Attorney-General's Reference (No 1 of 1975)
155
Assume we deal with a smuggling operation, this may typically be the supplying of the vehicles or storage
facilities, or assisting with loading, reconnoitring the crossing point, acting as an early warning group, signalling
or assistance with navigation.
156
Black, A Law Dictionary, 2nd Ed at 6-7 defines “abet” as: “To encourage, incite, or set another on to commit
a crime”. And then at .7 "Abettor" is defined as: “An instigator, or setter on; one who promotes or procures a
crime to be committed; one who commands, advises, instigates, or encourages another to commit a crime”. And
then at .54 “aid and abet” is defined as: “… doing some act to render aid to the actual perpetrator of the crime ...”
157
Black, A Law Dictionary, 2nd Ed at 280 defines “counsel” as “Counsel … 3. Advice given by one person to
another in regard to a proposed line of conduct … The words "counsel" and "advise" may be, and frequently are
used in criminal law to describe the offence of a person who, not actually doing the felonious act, by his will
contributed to it or procured it to be done.”
158
See Attorney-General's Reference (No 1 of 1975): "To procure" means to produce by endeavour. You procure
a thing by setting out to see that it happens and taking the appropriate steps to produce that happening. We think
that there are plenty of instances in which a person may be said to procure the commission of a crime by another
even though there is no sort of conspiracy between the two, even though there is no attempt at agreement or
discussion as to the form which the offence should take…. You cannot procure an offence unless there is a
causal link between what you do and the commission of the offence". Black, A Law Dictionary, 2nd Ed at .951
defines “procure” as “ … to "procure" is to initiate a proceeding to cause a thing to be done; to instigate; to
contrive, bring about, effect, or cause."
319 DEFRAUDING THE REVENUE

commission of the crime can be convicted even where they did not execute any of the
physical acts e.g. physically generating the false documents, cooking the books, filing the
fraudulent returns, or concealing the illicit goods in a container. Those who plan the crime
will often ensure distance between themselves and the physical commission of the crime.
They will often be no more but puppet-masters pulling the strings. The fact that they are not
the ones physically executing the unlawful acts will not save them from criminal liability.
They are participants. What is true is that proving a case against them will often prove more
difficult. The evidence against them will often be circumstantial in nature.

No person can innocently be ‘complicit’ in the commission of a crime. There must be a guilty
mind and this is for the prosecution to prove. The accessory's mens rea rests on two legs,
namely his knowledge of his own act to be one assisting in the commission of the principle
offence, and his own awareness of all those elements that in law constitutes the principal
offence.159 Mens rea within the context of accessory liability can however be complicated and
problematic. Between and even within the same jurisdictions, there is often inconsistency as
to the precise content of the fault or mens rea required to be proven. In one jurisdiction
foresight or recklessness as to the commission of the offence by the principal offender may be
deemed sufficient to convict, whereas in another jurisdiction he must be proven to have
intended the commission of that offence. This contradiction can often also be found in the
same jurisdiction. Despite some of the differences in the rules of accessary liability that may
exist between different jurisdictions, what is safe to say is that in all common law countries
there are legal frameworks holding liable those who aid, abet, counsel or procure the
commission of crime. Those frameworks usually also tend to have more in common than
different.160

159
In referring to the mental element required to be present in the case of ‘aiding and abetting’ (in England and
Wales), see The Law Commission consultation paper Assisting and Encouraging Crime. Law Com No. 131 at
.34 where it was inter alia said (the Commission quoting from a number of authorities): “2.55 Despite
uncertainty about a range of important matters, there is a substantial degree of agreement on the minimum
requirements for accessory liability: … "It must be proved that D intended to do the acts which he knew to be
capable of assisting or encouraging the commission of the crime. That is not the same thing as an intention that
the crime be committed." … "An accessory must both intend his acts of assistance or encouragement and be
aware of their ability to assist or encourage the principal offender" …"It must, at the least, be shown that the
accused contemplated that his act would or might bring about or assist the commission of the principal offence:
he must have been prepared nevertheless to do his own act, and he must have done that act intentionally"…..
2.56 These statements relate to the accused's knowledge of the propensity of his own acts to assist in the
commission of the principal crime. That latter expression does not however make explicit the additional
requirement that when so acting the accessory must also be aware of all the elements that in law constitute that
principal offence ..”
160
For purposes of comparison against the English framework, see for example that provided for under section
11.2 of the Australian Criminal Code Act 1995 which reads as follows:
11.2 Complicity and common purpose - (1) A person who aids, abets, counsels or procures the commission of an
offence by another person is taken to have committed that offence and is punishable accordingly.
(2) For the person to be guilty: (a) the person’s conduct must have in fact aided, abetted, counselled or procured
the commission of the offence by the other person; and (b) the offence must have been committed by the other
person.
(3) For the person to be guilty, the person must have intended that: (a) his or her conduct would aid, abet,
counsel or procure the commission of any offence (including its fault elements) of the type the other person
committed; or (b) his or her conduct would aid, abet, counsel or procure the commission of an offence and have
been reckless about the commission of the offence (including its fault elements) that the other person in fact
committed.
(3A) Subsection (3) has effect subject to subsection (6).
(4) A person cannot be found guilty of aiding, abetting, counselling or procuring the commission of an offence
if, before the offence was committed, the person: (a) terminated his or her involvement; and (b) took all
reasonable steps to prevent the commission of the offence.
320 DEFRAUDING THE REVENUE

It must be mentioned that not all the penal provisions that cover aiding, abetting, counselling
or procuring will always be provisions enacted as provisions dedicated to tying up accessory
liability.161 Many of the statutory evasion, fraud, and smuggling offences provided for in
many jurisdictions are drafted in broad terms so as to also cover those who in some or other
manner 'participated in', 'assented to', or 'acquiesced' certain unlawful acts,162 or 'with the
intent to assist another person to evade tax' committed certain acts,163 or those who are
'knowingly concerned in'164 such evasion or fraud. Many an accessory is covered and can be
convicted under those offences.

(b) Accessory after the fact

Apart from the 'accessories before the fact' the law can also not tolerate and let go unpunished
the 'accessories after the fact', those who render assistance with the intent to assist the
principal offender with the latter escaping apprehension or punishment.165 A person who
knowingly makes false statements and assists with the destruction of evidence such as
documents or records after the evasion or fraud, and doing so with the intent to assist the
principals in escaping punishment will typically be an accessory after the fact.

(c) Commission through the use of another

A person can incur criminal liability for a tax fraud where he/she committed the fraud through
the use of another. The latter may knowingly assist with the commission thereof or may well
be a wholly innocent party. The latter situation may typically arise where the taxpayer
intentionally supplies his agent, the preparer, or an employee with false information with the
latter unknowingly completing the taxpayer’s returns using the false information as supplied
by the taxpayer. The same applies where an importer knowingly provides his innocent freight
forwarder with false information with the result of the latter filing a customs entry reflecting
false information. The fact that the person who made or submitted a fraudulent statement or
return was wholly innocent and had no knowledge of the fraud, will not exclude the criminal
liability of those who used that innocent party as a tool in committing the fraud. 166 Where a

(5) A person may be found guilty of aiding, abetting, counselling or procuring the commission of an offence
even if the other person has not been prosecuted or has not been found guilty.
(6) Any special liability provisions that apply to an offence apply also for the purposes of determining whether a
person is guilty of that offence because of the operation of subsection (1).
(7) If the trier of fact is satisfied beyond reasonable doubt that a person either: (a) is guilty of a particular offence
otherwise than because of the operation of subsection (1); or (b) is guilty of that offence because of the operation
of subsection (1); but is not able to determine which, the trier of fact may nonetheless find the person guilty of
that offence.
161
In a number of jurisdictions, offences dedicated to tying up accessory liability are also to be found in the
revenue and customs legislation. See e.g. 26 U.S.C. § 7206(2)
162
See e.g. section 239(1) of the Canadian Income Tax Act
163
See e.g. section 235(1) of the Tax Administration Act 28 of 2011
164
See e.g. section 106A of the Taxes Management Act 1970; sections 170 and 170B of the Customs and Excise
Management Act 1979
165
For a straightforward example of such an offence, see the offence provided for under 18 U.S.C. § 3
(Accessory after the fact) which reads as follows: "Whoever, knowing that an offence against the United States
has been committed, receives, relieves, comforts or assists the offender in order to hinder or prevent his
apprehension, trial or punishment, is an accessory after the fact. Except as otherwise expressly provided by any
Act of Congress, an accessory after the fact shall be imprisoned not more than one-half the maximum term of
imprisonment or (notwithstanding section 3571) fined not more than one-half the maximum fine prescribed for
the punishment of the principal, or both; or if the principal is punishable by life imprisonment or death, the
accessory shall be imprisoned not more than 15 years.
166
See the American case of United States v Shortt Accountancy Corp 785 F.2d 1448 (9th Circuit 1986) where
the defendant company (an accounting firm) was charged with a contravention under 26 U.S.C. § 7206, the
relevant parts of which read as follows: “Any person who…wilfully makes and subscribes any return, statement,
321 DEFRAUDING THE REVENUE

fraudulent return was signed by the taxpayer after preparation by a third party, e.g. the
taxpayer’s agent, and where he signed same with knowledge of it being a fraudulent return,
then that taxpayer cannot subsequently justify himself on the basis that he did not personally
prepare the return himself. The possibility of a taxpayer innocently signing a blank return with
someone else subsequently completing it with false information is however a possibility not
to be discounted. Although grossly irresponsible, the possibility of the return subsequently
being completed with false information and without the taxpayer's knowledge of that being
the case cannot be excluded.167 Gross ignorance, irresponsibility, naivety, or negligence, does
not amount to any shade of intent, and the intent to evade or defraud will be absent.

(d) Joint criminal enterprise

In a number of common law countries are to be found what is generally known as the
'common purpose' or 'joint enterprise' doctrine. The doctrine started its life in English case
law, but was over time also transplanted over or adopted in other common law countries e.g.
South Africa, Australia and Ireland. The doctrine still finds application in English law.168
How the doctrine is today understood and applied does however vary from jurisdiction to
jurisdiction and is often also not consistently applied within the same jurisdiction. In its most
basic form the essence of the doctrine involves: “… that if several persons act together in
pursuance of a common intent, every act done in furtherance of such intent by each of them is,
in law, done by all.”169 This in essence means that where a number of parties with a common
intent embark on a joint criminal enterprise, then all those parties may be held criminally
liable for the acts carried out by one of them where committed in pursuance of their common
purpose. One person may thus be held liable despite the fact that the unlawful consequences
were physically caused by the hand of one of the other persons party to that enterprise. That
secondary party’s culpability is to be found in his active association with the common purpose
accompanied with the prerequisite mental element. The test is one of what was subjectively
contemplated by the parties sharing the common purpose.170 It will be for the prosecution to
prove the subjective state of mind of every participant. That the defendant did indeed
associate himself with that common purpose is also for the prosecution to prove beyond
reasonable doubt. Whether he did is for the court to decide on a consideration of all the

or other document, which contains or is verified by a written declaration that is made under the penalties of
perjury, and which he does not believe to be true and correct as to every material particular…shall be guilty of a
felony….”. The facts in this case were that the firm’s chief operating officer, acting with the required knowledge
and intent, delegated the task of completing the fraudulent return to his junior who innocently completed the
return reflecting the false information made available to her. On behalf of the defendant company it was
submitted that the company could not be convicted on the strength of a false return subscribed to by a person
who at the time of preparation believed it to be true and correct. The court rejected this argument.
167
This was indeed the defence advanced in the New Zealand case of The Queen v Butler [2003] NZCA 21
(Court of Appeal of New Zealand) where the defence argued that the appellant did indeed sign the return but that
he signed it as a blank return but subsequently completed as a false return by his twin brother, unbeknown to
him. On the facts of the case however, this defence was rejected as the court found that the appellant did indeed
know the return to be false. He was duly convicted.
168
For historic application see Chan Wing-Siu v The Queen [1985] AC 168; Hui Chi-ming v The Queen [1992] 1
A.C. 34; R v Powell and Another [1997] UKHL 45
169
Macklin, Murphy & Others Case (1838) 2 Lewin 225, 168 ER 1136
170
See e.g. McAuliffe v The Queen (1995) 69 A.L.J.R. 621 where the High Court of Australia held: "Each of the
parties to the arrangement or understanding is guilty of any other crime falling within the scope of the common
purpose which is committed in carrying out that purpose. Initially the test of what fell within the scope of the
common purpose was determined objectively so that liability was imposed for other crimes committed as a
consequence of the commission of the crime which was the primary object of the criminal venture, whether or
not those other crimes were contemplated by the parties to that venture. However, in accordance with the
emphasis which the law now places upon the actual state of mind of an accused person, the test has become a
subjective one and the scope of the common purpose is to be determined by what was contemplated by the
parties sharing that purpose."
322 DEFRAUDING THE REVENUE

evidence. A clear distinction need however be drawn between association with a group and
association with the commission of a crime. The fact that a person is friendly with a group of
criminals does not mean he associated himself with a joint criminal enterprise (or with a
conspiracy to commit a crime for that matter).171

3.6.3 The advisors

Various categories of persons may act as advisors or agents on behalf of the taxpayer,
importer, exporter, or even career criminal for that matter. In most instances they will be
active and/or refer to themselves as ‘accountants’, ‘tax attorneys’, ‘tax advisors’, ‘tax agents’,
‘customs brokers’, ‘freight forwarders’ or something in a similar vain. Some of them may
belong to a professional or industry body, but this is not necessarily the case. For purposes of
this discussion the terms ‘agent’ and ‘advisor’ will be used rather loosely as references to
those who advise and/or assist the taxpayer, importer or exporter with his affairs. 172 Many
bright lawyers and accountants are active within the area of tax planning. Many of them make
their living devising, and/or implementing and/or operating tax-saving schemes for their
clients. This is an area of practice which has grown into a significant industry. The manner in
which many accountants, legal practitioners, and others who act as tax advisors, tax agents, or
clearing agents practice their trade, has in the past been the subject of considerable scrutiny
and criticism. From the agent it is expected to represent his client to the best of his/her ability,
utilizing his specialized knowledge and skill to advance the best possible position for his
client. The taxpayer is entitled to any tax advantage allowed for in law, and the agent’s failure
to advise and/or assist the client in securing those benefits will be to fail the taxpayer. This
being said, from the agent is expected nothing less but honesty in his dealings with the
Revenue and a commitment to the rule of law.173

In most jurisdictions, these various categories of agents, in particular those from the
accounting and legal professions, are expected to possess at least a minimum standard of skill
and expertise in their chosen professions. In some jurisdictions, notably in the US and
Australia, customs brokers are strictly regulated. In others, the UK being an example in point,
there is basically no legal regulation in terms of professional standards and training of tax
advisors and customs brokers. The fact that a person undertook a task demanding a certain
level of skill and a subsequent failure to measure up to that standard, can never be assumed as
being the result of willful conduct. Some of the most technically skilled professionals make
very elementary mistakes or errors in craft or judgment. Experienced surgeons leave
instruments behind in body cavities, experienced soldiers pass the wrong target coordinates to
the firing point, and some judges pass glaringly inappropriate instructions to juries. People,
even the most dedicated and professional make mistakes. There are also varying levels of

171
See the English case of R v Owens & Anor [2006] EWCA Crim 2206 (a prosecution which related to the
evasion of excise duty and where the defendants unsuccessfully appealed against their convictions of conspiracy
to launder red diesel fuel). The Court per Lord Justice Rix inter alia said: “The case against him was, at its core,
that he was the brother of Gary and therefore must have known what was going on. The Crown in opening often
referred to the "Owens" or the "Owens brothers". This was mere guilt by association ... It would be a matter for
the jury to decide whether they were sure of that participation, having been warned to distinguish between
evidence against each of the two brothers individually and of the danger of finding guilt by mere association”.
172
Section 20B of the Taxes Management Act 1970 (United Kingdom) defines 'tax advisor' as “a person
appointed to give advice about the tax affairs of another person”.
173
See Institute of Chartered Accountants in England and Wales, Taxguide 1/00 – Professional Conduct in
Relation to Taxation: Revised Section 1.308 of the Institute of Chartered Accountants in England and Wales
Members Handbook’, March 2000 where at 5 it was inter alia said: “The first duty of a member is to his client.
A member’s duty towards the tax authorities is to comply with the appropriate legislation and the common law
when dealing on behalf of a client with a matter which is governed by tax law. The proper functioning of the UK
tax system depends very heavily on mutual trust between the tax authorities and tax advisers. In all dealings
relating to the tax authorities, a member must act honestly and do nothing that might mislead the authorities.”
323 DEFRAUDING THE REVENUE

training, skill, experience and specialization within the same professions. The knowledge,
skill and experience of an attorney in general practice, unlikely to be a specialist in any
particular area of law, cannot, as far as taxation is concerned, be expected to measure up to
that of an experienced tax attorney.174

The agent also finds himself in a position similar to the Revenue in that he also has to rely on
the honesty of his client.175 The agent’s good faith belief in the accuracy of information will
exclude any fraudulent intent. The taxpayer who provides the agent with the misleading
information, knowing that same may mislead and prejudice the Revenue, will however have
the required knowledge. Active participation or assistance by agents in the commission of a
revenue or customs fraud is not however that uncommon. Agents may typically assist with the
planning and/or setting up of the fraud, the preparation of fraudulent books of account and
other records, the preparation and submission of fraudulent returns, the falsification of
documents, the laundering of the proceeds, and with covering up the fraud. There is also a
clear divide between a legal practitioner offering his taxpayer-client with legal advice and
assistance, and actually conspiring with, or aiding and abetting the taxpayer with the
commission of a crime. In most jurisdictions the taxpayer’s legal privilege does not bar the
legal practitioner from testifying against him/her where said practitioner and the client were
co-offenders. The fact that an accountant, auditor, tax agent or legal practitioner assisted his
clients with a fraud, or himself committed a fraud against the revenue, is universally viewed
in a serious light. They may all be held criminally liable, as principal offender, accessory, or
co-conspirator. In by far the greater majority of prosecutions where an agent stands accused of
complicity in a fraud, he/she will usually deny any knowledge of the falsity of the
representations made to the Revenue or Customs. In most cases they will rely on the honest
reliance excuse. In considering such an agent's knowledge, the trial court will consider all the
evidence placed before it. This obviously calls for the prosecution to lead evidence proving
that agent's knowledge and state of mind. Much of that evidence will often be circumstantial.
This may typically include but is in no way limited to evidence as to:

(a) the facts and circumstances the agent was actually aware of;
(b) possible suspicions he may have harboured;
(c) the information at his disposal and/or available should he have chosen to make
enquiries;
(d) the agent’s experience;
(e) deviation from acceptable practice and/or contraventions of rules and regulations;
(f) the nature of the relationship between the agent and the taxpayer;
(g) the extent to which he knowingly exposed himself to risk;
(h) history of non-compliance by the taxpayer and the agent’s knowledge of the
taxpayer’s compliance history;
(i) previous disciplinary action taken against the advisor and where related to similar
facts;
(j) inconsistencies in documentation and representations made;
(k) instructions to juniors not to carry out certain checks etc.

It can be safely assumed that most members of a jury are unlikely to have any detailed
knowledge as to prevailing industry practices, procedures and standards of certain

174
See Bursten v.United States 395 F 2d 976 (5th Cir.) (1968), (United States Court of Appeals) where at 981 it is
stated: “We must note here, as matter of judicial knowledge, that most lawyers have only scant knowledge of the
tax laws.”
175
See e.g. the Australian case of Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC
537 where the freight forwarder in good faith relied on the fraudulent information as provided by his clients.
324 DEFRAUDING THE REVENUE

professions. The prosecution may thus choose to lead evidence as to industry specific
standards for a particular profession i.e. lawyers, accountants, customs brokers etc. Not
measuring up to those standards, breaches of procedures, and negative conclusions that may
be drawn as to the agent's skill, ethics, and professionalism, does not imply wilful conduct,
and even less so complicity in fraud, but such evidence, coupled with evidence as to the
practitioner’s experience and deviation from the required professional standards, can form
part of that body of circumstantial evidence from which inferences can be drawn as to
whether or not the agent's denial of knowledge can be accepted as reasonably true or
otherwise. An agent charged with the commission of an offence, may find himself in a
precarious position to say the least. It is not uncommon for offending taxpayers to turn against
and accuse the agent of incompetence, negligence, complicity, or being the driving force
behind the fraud. Apart from the risk of conviction and the resulting punishment, reputational
damage and disciplinary action by professional bodies cannot be excluded. With some
advisors, notably so with accountants, lawyers and tax practitioners, the breach of trust
inherent in conspiring with a client to defraud the Revenue is generally also viewed as an
aggravating factor which the courts do take into account in considering an appropriate
sentence.176 The fact that an agent’s conduct is criminal does not limit his liability to criminal
liability. He/she may also face civil claims instituted by the Commissioners and/or third
parties for losses suffered as a result of his/her unlawful conduct. Also not to be discounted is
the risk of criminal liability under money laundering legislation.

3.6.4 Corporate criminal responsibility

Various difficulties and complexities relating to the prevention, detection, investigation and
prosecution of revenue fraud have been pointed out in previous chapters. Many of those
complexities can prove even more acute when dealing with corporate frauds.

Evasion, fraud, money laundering, and corruption, are more likely to be encountered there
where there is increased opportunity and high levels of internal tolerance for reckless and
even criminal behaviour. There are those corporations where the culture is one of compliance
and social responsibility, then there are those that are risk averse and compliant, ensuring they
remain within the letter of the law, but with little regard to social responsibility, and then there
are those where the general ethos is one of recklessness and selective compliance. Corporate
culture can over time influence and alter the behaviour of individuals, but individuals, and
notably senior management, can and often do also leave their mark or a corporation’s culture.
Where criminal conduct is widespread, one will often find a culture of criminality or
recklessness fostered or at least tolerated at senior management level.177 Where the culture is

176
The court in the Australian case of R v Kelvin [2000] NSWCCA 190 (New South Wales Court of Criminal
Appeal) had the following to say about this breach of trust: “His Honour accepted the Crown submission that the
applicant stood in a position of trust not only in relation to the Australian Tax Office but also in relation to his
clients. He held that the applicant’s action breached that trust in a number of ways. He pointed out that the
system of taxation collection in Australia is necessarily dependent to a very large extend upon the honesty of
those who are licensed and qualified to assist ordinary taxpayers in meeting their obligations. That system
depends on the honesty, integrity and co-operation of those persons.” Also see R v Helena Rule [2003]
NSWCCA 97 (New South Wales Court of Criminal Appeal, Australia)
177
A shining example of this is the Enron debacle in the United States. See e.g. The Financial Times, March 16
2005, “Ebbers guilty of $11 bn fraud” where, reporting on the Enron case, at that time the largest bankruptcy
fraud in US legal history, Alberto Gonzales, the then US Attorney General, was quoted as stating: “ ... fraud at
Worldcom extended from the middle-management levels of the company, all the way to its top executive”. Also
see BBC News. Friday July 30, 2004. “Bank facing huge ‘tax scam’ bill”, where it was reported that the Republic
of Ireland’s High Court ordered the National Irish Bank to pay £44.6 million in costs and compensation for tax
evasion and the overcharging of clients. The bank assisted clients with tax evasion by assisting them with the
opening of non-resident and fictitious name accounts. It was inter alia reported that: “Almost the entire
management structure was implicated in the scandal to varying degrees of misconduct.”
325 DEFRAUDING THE REVENUE

corrupt, perceived opportunity is more likely to be exploited. That opportunity is in turn very
much provided for by low levels of corporate governance, poor internal controls, lacking
external oversight, and compromised auditor independence.

Where criminal activity is detected, further investigation will often unearth more offences of
the same type and/or other forms of criminality. This equally applies to the corporate
environment. It is not uncommon to find the same corporation implicated in a wide spectrum
of criminal activities. Where there is evasion, there will often also be other forms of fraud,
money laundering, and corruption, or vice versa. Investigating and successfully prosecuting
corporate frauds can be challenging. They often prove difficult to detect and measure
considering the volumes of transactions and trade. Then there is also the reality of corporate
complexity, that complexity obviously being a matter of the organization's size, organization,
culture, and operations. There will often be difficulties associated with the identification of
the individual employees and officers whom authorised, or planned, or permitted, or executed,
or assisted with the commission of the offences, and proving their guilt may prove difficult.
One will often find that multiple individuals may have worked on the same matter in similar,
the same, or different capacities, sometimes over the same time-period, often over different
periods of time, and sometimes overlapping. One will often find the crimes committed in
settings where decision-making and delegation processes were complex, fragmented, and/or
difficult to determine and prove ex post facto. There will often be blame-shifting between
senior management and lower level managers and employees, colleagues, and the company
and contractors (often accountants, tax practitioners and other professional advisors).
Corporate criminal liability is based on attribution. Proving a body corporate's guilt where the
offences charged are crimes of intent can be challenging. Many of these frauds are also of a
transnational nature and the subject corporations, and often their crimes, are often influenced,
directed, or controlled from abroad. These investigations and prosecutions are also costly and
can be time consuming. They will often tie investigation teams up for years, with the
accompanying strain on resources. Not to be lost sight of is the fact that many corporations
wield considerable influence. Investigators and prosecutors will often face considerable
internal and external pressure and interference.

Where dealing with frauds involving smaller sized corporate offenders, the body corporate
will often be no more but the alter-ego of the individuals with the de facto control over that
company.178 Identifying those who in fact managed or controlled the affairs of an entity will
however often prove difficult.179 The de jure directors may well exercise no de facto control
over the affairs of the body corporate.180 Those with actual control over the entity often make

178
See R v Mark Ramsay Patterson 2002 NSPC 014 (Provincial Court of Nova Scotia, Canada) where Williams
J inter alia remarked: “Because a corporation is an abstraction with no mind of its own, humans who become its
directing mind must direct its activities and will. Thus, frequently, the state of mind of the human individual is
the state of mind of the corporation. Therefore, on that premise, I think that it makes no difference whether the
accused, as here, is an individual or the company itself if it can be shown that he is united in his activities with
that of the company that he directs. Here, I think that he, so to speak, because of his conduct, as found, became
an embodiment of the company. In short, he assumed his company’s personality and is therefore, in practical
terms, the company and, as such, the company’s purposes are manifested or realized through
him. Consequently, as his company is part of the triad of companies created, as I have found, for a common
purpose, he knowingly participated and helped in the furtherance of that common fraudulent scheme.” In this
case the accused used a number of companies as fronts for the facilitation of a tax fraud on the Canadian
Revenue.
179
See e.g. R v Owens and Anor [2006] EWCA Crim 2206
180
The directors of a body corporate may be de jure, de facto, or ‘shadow’ directors. See Re Hydrodam (Corby)
Ltd [1994] 2 BCLC 180 where at 182 Millett J inter alia had the following to say as to 'de facto' and 'shadow'
directors: "I would interpose at this point by observing that in my judgment an allegation that a defendant acted
as de facto or shadow director, without distinguishing between the two, is embarrassing. It suggests - and
326 DEFRAUDING THE REVENUE

use of nominees or middlemen to shield them from identification. An individual need not
however be a shareholder or registered director or officer of a company for a court to find that
said person did in fact exercise control over the affairs of the company.

The setting up of corporations and trusts with the sole purpose of being used as conduits or
vehicles to facilitate fraud and/or other crime is of course nothing new in the world of
crime.181 Those entities will then often also be based offshore. Obtaining information and
evidence from those jurisdictions will then also often prove problematic. 182 The involvement
of professional advisors such as accountants, lawyers and tax advisors in the planning, setting
up, or management of these entities, themselves often also based offshore, is not uncommon
either. There is a long history of criminal groups operating what may appear to be legitimate
business enterprises, often in areas connected with but not limited to, importing and
exporting, freight forwarding and transportation, warehousing, construction and other trades,
waste removal, and leisure and entertainment, but first appearances will often be deceptive.
Investigators will not infrequently come across corporations where legitimate business
activities and crime is so interwoven as to make difficult any confident assessment as to their
true character. In some cases legitimate trade may be engaged in as no more but part of a
scheme to conceal criminal activities. In other instances the entity in question may be engaged
in what may for the most part be legitimate trade, but where those managing the business
simply view criminal conduct as an acceptable means and an acceptable risk in furthering
business objectives. They will often not shy away from evasion and fraud, blackmail, and
bribery when and wherever they deem doing so to be a risk worth taking.

A body corporate is a legal entity with its own rights and obligations. What is deemed to be a
body corporate, and the rights and obligations attaching to such an entity, is a matter of
jurisdiction-specific legal definitions and rules. Even though a body corporate cannot
physically commit a crime, they can, depending on the facts of the case and the legal
framework of a given jurisdiction, incur criminal liability for the unlawful acts and failures of
their agents and servants. Whereas in quite a few civil law jurisdictions, corporations cannot
be convicted of offences in a criminal court, in most common law countries body corporates
may be convicted of most criminal offences. In jurisdictions like the United States, Britain,
and Australia, corporate criminal liability has now been recognized and applied for at least a
century. In those jurisdictions a body corporate can for example be convicted of tax evasion,

counsel's submissions to me support the inference - that the liquidator takes the view that de facto or shadow
directors are very similar, that their roles overlap, and that it may not be possible to determine in any given case
whether a particular person was a de facto or a shadow director. I do not accept that at all. The terms do not
overlap. They are alternatives, and in most and perhaps all cases are mutually exclusive. A de facto director is a
person who assumes to act as a director. He is held out as a director by the company, and claims and purports to
be a director, although never actually or validly appointed as such. To establish that a person was a de facto
director of a company it is necessary to plead and prove that he undertook functions in relation to the company
which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the
management of the company's affairs or undertook tasks in relation to its business which can properly be
performed by a manager below board level. A de facto director, I repeat, is one who claims to act and purports to
act as director, although not validly appointed as such. A shadow director, by contrast, does not claim or purport
to act as director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind
others who, he claims, are the only directors of the company to the exclusion of himself. He is not held out as a
director by the company."
181
See e.g. R v Mark Ramsay Patterson 2002 NSPC 014, (Provincial Court of Nova Scotia, Canada); R v Owens
and Anor [2006] EWCA Crim 2206 (England and Wales Court of Appeal).
182
See R v Anthony James Dickson [2015] NSWSC 268 where the sentencing judge made a point to underline
the serious risk of tax fraud that arises from high levels of secrecy surrounding the ownership and control of
companies incorporated in certain offshore jurisdictions. In that matter the offender devised an elaborate scam to
defraud the Australian Taxation Office out of millions of dollars. An integral part of the criminal operation
involved offshore companies incorporated in the Caymans.
327 DEFRAUDING THE REVENUE

false accounting, ‘smuggling’ offences, fraud, money laundering, and corruption. Such a body
corporate may also (depending on jurisdiction) be convicted of conspiracy to commit an
offence.183 The legal frameworks providing for such criminal liability do however vary
considerably from jurisdiction to jurisdiction. The theoretical basis for the criminal liability of
corporations is a difficult area of law with little agreement between lawyers, academics and
lawmakers. Various models for imputing criminal liability has been suggested and are being
followed in different jurisdictions, but there is very little agreement or consistency, even
within the same jurisdictions.184 Criminal liability generally only follows upon proof of both
the physical and mental elements of a crime. As the body corporate cannot physically act and
as it has no mind of its own (it being directed by those managing its affairs), both the physical
and mental elements are attributed to that body corporate. Between different jurisdictions, at
the State and Federal levels, one will usually find significant differences in when and how
those physical and metal elements can be attributed to a body corporate.

In those jurisdictions where the prosecution of body corporates is possible, we will typically
find: (a) statutory frameworks and/or common law rules, principles, and doctrines allowing
for the criminal liability of body corporates for criminal acts in general; and (b) various
statutes dedicated to matters such as fraud, money laundering, health and safety, trade,
environmental matters, and corruption, and where the legislature in each of those statutes
incorporated penal provisions specifically targeted against or capable of covering corporate
wrongdoing contrary to the provisions of that and/or certain other specific statutes.185 What
one will often find in revenue and customs legislation is that terms such as 'taxpayer',
'importer', 'trader' or 'person' as used in those statutes will often be defined in those statutes as
also including a body corporate. Offences making it punishable for 'any person' or 'any
taxpayer' to commit certain acts or to fail to act in a certain manner will thus often also cover
a body corporate.

In England a legal person can be convicted of almost all those offences a natural person can
commit/can be convicted of. Schedule 1 of the Interpretation Act 1978 defines 'person' as
including "a body of persons corporate or unincorporated". As the body corporate cannot
physically make a false entry, start a fire or smuggle goods, its liability is based on attribution.
The conduct and state of mind of its agents and servants committing the unlawful acts are
attributed to the corporation. In most parts of the common law world it is generally accepted
that not all the unlawful acts of a body corporate's agents and servants can be attributed to the
company. The unlawful acts that can be attributed to the body corporate must be limited. The
courts have over time adopted a number of tests to assist in considering what can or cannot be
attributed to the corporation, but there is often little consistency in the tests used, even within
the same jurisdictions. In England the acts and state of mind of those directors and officers

183
See e.g. R v Innospec Ltd [2010] EW Misc 7 (EWCC) where a UK company was convicted of conspiracy
(contrary to section 1 of the Criminal Law Act 1977) to bribe foreign officials.
184
For discussions on some of those models refer to the discussions in Gobert. J. (1994) 'Corporate Criminality:
Four Models of Fault', Legal Studies, 393-410 and Mays. R. (1998) 'Towards Corporate Fault as the Basis of
Criminal Liability of Corporations', Mountbatten Journal of Legal Studies, 1998 2(2) 31-67
185
Examples in point being section 14(2) of the Bribery Act 2010 and section 12 of the Fraud Act 2006 (both
these statutes British). Under section 14(2) of the Bribery Act 2010, where an offence is proved to have been
committed with the consent or connivance of a senior officer of the body corporate or by a person purporting to
act in such a capacity, the senior officer or person as well as the body corporate is guilty of the offence. Under
section 12(2) of the Fraud Act 2006, where an offence is proved to have been committed with the consent or
connivance of a director, manager, secretary or other similar officer of the body corporate, or a person who was
purporting to act in any such capacity, he (as well as the body corporate) is guilty of the offence. If the affairs of
a body corporate are managed by its members, then subsection 12(2) also applies in relation to the acts and
defaults of a member in connection with his functions of management as if he were a director of the body
corporate.
328 DEFRAUDING THE REVENUE

who represent the body corporate's 'directing mind and will' are imputed to the company
under what is generally known as the 'identification principle'. The identification principle is a
doctrine of ascription. It enables the acts of a directors and officers to be ascribed to a
company.186 In Australia, as is the case in England, a body corporate can also be convicted of
almost all those offences a natural person can commit/can be convicted of. In Australia (at the
federal level), the criminal liability of body corporates is set out in statute, under Division 12,
Part 2.5 of the Commonwealth Criminal Code 1995, the essence of which is mapped out as
follows: (a) a body corporate may be found guilty of any offence, including one punishable by
imprisonment;187 (b) where the physical element of an offence is committed by an employee,
agent or officer of a body corporate acting within the actual or apparent scope of his or her
employment, or within his or her actual or apparent authority, the physical element must also
be attributed to the body corporate;188 and (c) where intention, knowledge or recklessness is a
fault element in relation to the physical element of such an offence, that fault element must be
attributed to a body corporate that expressly, tacitly or impliedly authorised or permitted the
commission of the offence.189 Section 12.3(2) - (5) then continues to lay down the means by
which such an authorisation or permission may be established. As a corporation cannot be
imprisoned, punishment upon conviction takes the form of fines.

The fact that a fraud was committed in the name of or through a body corporate does not
shield the individual offenders from prosecution. The corporate veil can be lifted.190 Those
who knowingly and wilfully plan, implement, operate or otherwise assist in committing a
fraud through or on behalf of a body corporate, or any other entity for that matter, can be held
criminally liable, regardless who manage the affairs of that body corporate, and regardless in
what capacity they act. They may, depending on the facts of the case, be held criminally liable
as principal, accessory or co-conspirator. In England, Australia, and the United States,
individual offenders, such as employees, managers, or directors, can also be convicted with
the body corporate. The fact that the body corporate is convicted does not excuse them from
prosecution and criminal liability.

186
Leigh, LH. (1977) 'The Criminal Liability of Corporations and other Groups', Ottowa Law Review, 1977 Vol
9:247, 255. See Lennard's Carrying Co v Asiatic Petroleum Co [1915] AC 705 where Viscount Haldane inter
alia stated: "My Lords, a corporation is an abstraction. It has no mind of its own any more than it has a body of
its own; its active and directing will must consequently be sought in the person of somebody who for some
purpose may be called an agent, but who is really the directing mind and will of the corporation ..". See Tesco
Supermarkets Ltd v Nattras [1972] AC 153, for long the leading case on the identification/directing mind and
will test.
187
Section 12.1(2), Division 12, Part 2.5 of the Commonwealth Criminal Code 1995
188
Section 12.2
189
Section 12.3 (1)
190
See R v Dimsey & Anor [1999] EWCA Crim 1917 where the Court inter alia said: “If an individual, having
total de facto control of a company, so arranges its affairs that the company (a) makes profits but (b) does not
declare them to the Revenue, he is obviously cheating the Revenue.” In a subsequent appeal by the same
appellants against a confiscation order, the Court of Appeal (reported as R v Dimsey & Anor [1999] EWCA Crim
2261) said: “…it is plain from authorities cited by the Crown that the corporate veil may fall to be lifted where
companies are used as a vehicle for fraud. Here the companies in question were the appellant’s alter ego.”
Piercing the corporate veil is also relevant when it comes to the confiscation of the proceeds of crime. See e.g. R
v Dimsey & Anor [1999] EWCA Crim 2261. Also see R v Foggon [2003] EWCA Crim 270 where referring to
Dimsey it was said: "It seems to us that the tax avoided, or attempted to be avoided, will only be a pecuniary
advantage obtained by the offender in two situations. One is where it is tax for which he himself is liable... The
other is where any companies involved are fronts for the offender and it is appropriate to pierce the corporate
veil. That was the situation in R v Dimsey & Allen ....In that situation too, it becomes his tax."
329 DEFRAUDING THE REVENUE

The body corporate, as is the case with any other principle, must take responsibility for the
actions of its agents if it is to avoid negative consequences, civil or criminal.191 The risk of
prosecution is one that body corporate is exposed to through its agents. It is thus for the
stakeholders with an interest in avoiding that risk to ensure they keep psychopaths out of the
boardroom, senior executives are properly vetted, proper compliance programs are in place,
compliance is properly monitored, and there is a culture of honest dealing with the authorities
and other third parties. The prosecution of corporate offenders is certainly an important tool
within the greater enforcement toolkit. Criminal prosecution may have no impact on the
conduct and culture of some corporations, but it does push many corporations for more robust
recruitment, management, compliance, and oversight.192 There are many corporations that are
acutely aware of the reputational and financial fallout that may ensue in the event of them
being caught out cheating or breaching the law, and most of them do make an effort to
comply with the law, but as with any taxpayer-demographic there will always be those,
natural or legal persons, with little regard for the law. Deterrence is obviously completely
dependent on perceptions of risk and consequences. The best drafted penal statutes in the
world are of absolutely no use absent consistent vigilance, high rates of detection, an
aggressive enforcement posture, and wide publicity.

As important as the prosecution of corporations may be, the importance of aggressive

prosecution of the individual offenders cannot be stressed enough. All too often the
authorities impose administrative penalties on the body corporate without the matter being
referred for criminal investigation. This in fact is the common practice in most jurisdictions.
Just prosecuting and fining the corporation is not the answer either. All too often the
corporation is being used as a shield, that corporation pays the fines, honest stakeholders
suffer the prejudice or losses, and the individuals who orchestrated or executed the fraud
escape prosecution. All too often the same corrupt directors and managers keep on resurfacing
or are continuously being recycled through the various industries, often repeating the same
practices under a different banner, often doing so for many years or decades, but usually
without ever being prosecuted, disqualified, and jailed.

3.7 Selected Defences

It is for the prosecution to lead evidence proving beyond reasonable doubt all the elements of
each of the crimes charged. This being said, where the prosecution tenders layer upon layer of
incriminating evidence in the absence of rebuttal by the defendant, then that defendant will
face serious problems. The prosecution’s evidence can mount up to a point where the
prosecution-case is so persuasive as to leave the defendant with no option but to rebut. An
explanation that may reasonably possibly be true will entitle him to an acquittal. Such an
explanation will be one capable of creating reasonable doubt as to at least one of the material
elements of the crime charged.

Circumstances may exist, the presence of which may well negate the actus reus or mens rea.
That will leave the crime unproven and the defendant will be acquitted. There may however
also be circumstances, even where both the actus reus and mens rea elements are proven,

191
See the English case of Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205
where Viscount Maugham (at 211) inter alia said: “A corporation, which must act through its agents, is as
responsible as any other principle for any wrongful act committed by an agent acting within the scope of his
employment, and not the less where the wrongful act is a fraud...”
192
See Office on Drugs and Crime, United Nations, Legislative Guides for the Implementation of the United
Nations Convention against Transnational Organised crime and the Protocol Thereto, 2004 at 116 where it is
stated that: “Criminal liability of a legal entity may also have a deterrent effect, partly because reputational
damage can be very costly and partly because it may act as a catalyst for more effective management and
supervisory structures to ensure compliance."
330 DEFRAUDING THE REVENUE

where a defendant may still escape criminal liability. As with so much law-related, the
defences that may be available to a defendant in any given factual setting, and the legal rules
and doctrines governing those defences, may vary considerably between jurisdictions. The
rules and doctrines that may apply in a given instance in a given jurisdiction must therefore be
researched on a case-by-case basis. The following discussion will briefly look at a number of
defences that may be of relevance within the context of revenue and customs prosecutions in
most common law jurisdictions.

3.7.1 No legal basis for liability

The categories of persons liable to taxation and the classes of income subject to taxation are
prescribed by law. A person cannot be held liable for taxation in the absence of a taxing
provision setting out his liability to taxation. In Vestey v IRC193 Lord Wilberforce inter alia
remarked: “Taxes are imposed upon subjects by Parliament. A citizen cannot be taxed unless
he is designated in clear terms by a taxing Act as a taxpayer, and the amount of his liability is
clearly defined.” It is a fundamental constitutional principle that no money can be levied for
use by the Crown except by grant of Parliament.194

The fact that there was no liability to taxation will be a complete defence against a charge of
evasion.195 A person can after all not evade (his own) liability where there is no liability to be

193
[1979] 3 WLR 915 at 925
194
In Total Network SL v Revenue and Customs [2008] UKHL 19, Lord Hope inter alia recognized such a move
as one that will be: "…. contrary to article 4 of the Bill of Rights 1688, which declares: "That levying money for
or to the use of the Crown, by pretence of prerogative, without Grant of Parliament for longer time, or in other
manner than the same is or shall be granted, is illegal". Quoting from Gosling v Veley (1850) 12 QB 328 and
Attorney-General v Wilts United Dairies Ltd (1921) 37 TLR 884, Lord Hope then continued to say: "The Court
of Appeal did not, of course, question the fundamental constitutional principle. Ample support for it is to be
found in the authorities. In Gosling v Veley (1850) 12 QB 328, 407, Wilde CJ said: The rule of law that no
pecuniary burden can be imposed upon the subjects of this country, by whatever name it may be called, whether
tax, due, rate or toll, except upon clear and distinct legal authority, established by those who seek to impose the
burden, has been so often the subject of legal decision that it may be deemed a legal axiom, and requires no
authority to be cited in support of it …In Attorney-General v Wilts United Dairies Ltd (1921) 37 TLR 884 the
Food Controller under the Defence of the Realm Acts sought to impose a charge as a condition of the grant of a
licence to purchase milk in certain areas for which no authority had been given by Parliament. It was held that he
had no power to do so. Atkin LJ referred at p 886 to the Bill of Rights and to what he described as the elaborate
customs of Parliament by which money for the service of the Crown is only granted at the request of the Crown
made by a responsible Minister and assented to by the House of Commons. He went on to draw this conclusion:
"In these circumstances, if an officer of the executive seeks to justify a charge upon the subject made for the use
of the Crown (which includes all the purposes of the public revenue), he must show, in clear terms that
Parliament has authorised the particular charge." In the House of Lords, where the decision was affirmed, Lord
Buckmaster said that the imposition could only be properly described as a tax, which could not be levied except
by direct statutory means: (1922) 38 TLR 781".
195
See e.g. R v Dimsey & Anor [1999] EWCA Crim 1917 where the appellant was convicted on charges of
conspiring to cheat the public revenue. The appellant participated in a conspiracy involving the use of companies
incorporated outside the United Kingdom to evade UK tax on profits. The companies were incorporated and
administered outside the UK, but were controlled in the UK. The profits of the companies in issue were not
declared to the UK revenue authorities. Before the Court of Appeal and on subsequent appeal to the House of
Lords, the appellant’s appeal was based upon the proposition that the off-shore companies were not in law liable
to pay UK corporation tax. The appellant thus argued against the income being subject to UK taxation and thus
being income on which UK taxation was evaded. Considering this proposition, Lord Scott inter alia stated: “If
the companies were not in law liable to pay corporation tax, there could be no such thing as an offence of
cheating, or conspiring to cheat, the revenue of corporation tax payable by the companies. This must be right.”
Also see R v Gill & Anor [2003] EWCA Crim 2256 where the appellants argued that they were not domiciled in
the UK and therefore not liable to taxation in the UK. The appellants were found to be liable to taxation and
were convicted on charges of “cheating the revenue”. Also see R v Kruger 1958 (2) SA 673 (C) where the
accused was charged with the failure to prepare and submit a return. On appeal he was found not guilty.
Herbstein J inter alia said: “On the basis that the accused was charged under section 55(5) with a failure to make
331 DEFRAUDING THE REVENUE

evaded. It is for the prosecution to prove that the taxpayer was indeed liable to taxation.
Proving the defendant’s conduct to be unlawful may in many instances, considering the often
complex nature of taxation, be a formidable hurdle. This may in turn also make the burden of
proving knowledge and thus criminal intent that more difficult. An honest belief that there is
no liability to taxation will preclude the prerequisite mens rea.

3.7.2 Tax unconstitutional or unlawful

The refusal to pay a tax on the grounds of it being charged on grounds which are in breach of
a jurisdiction's constitution or bill of rights is a possibility which cannot be excluded. Whether
the basis on which a particular tax is chargeable is indeed unconstitutional, is a question of
law and for the Courts to decide. A tax levied on a person based on something like race,
religion or sexual orientation, will clearly amount to unlawful discrimination and will in the
European context certainly be in breach of the European Convention for Human Rights
(ECHR).196 This will also be the case in most other liberal democracies. Cases may thus well
arise where the constitutionality of a particular tax or basis of taxation can rightly be
challenged.

Just like there are those who refuse to pay tax out of greed, there are also those who refuse to
pay an imposed tax as an expression of their opposition to a particular government or some or
other government policy i.e. an unpopular war, nuclear proliferation, or foreign policy. 'Tax
resisters' are in all probability just as old as 'taxpayers'. Individuals and groups from many
social, religious, and political colours and shades have after all turned towards tax
disobedience in resisting governments and government policies. This has been so since
Roman times.197 Then there are also those who protest the legality of taxation per se or the
government's right to impose that tax. The failure to pay tax simply because the taxpayer does
not agree with taxation per se, the reasons for it being levied, or as a form of civil
disobedience will in most jurisdictions not excuse the taxpayer from criminal liability.198

The courts may accept honest mistake or ignorance as to liability to pay tax under a particular
statute to be a defence negating the fault requirement, but a defence of reliance on an incorrect
belief as to the government's authority to impose on a taxpayer a particular tax seldom if ever
proves successful. In the Canadian case of R v Klundert199 the taxpayer, an optometrist,
refused to file income tax returns on the basis of his belief that the Income Tax Act was
unconstitutional. The taxpayer was at first acquitted but the Crown appealed against the
acquittal. The Crown did not place in dispute the taxpayer's honest belief, but argued the
taxpayer's refusal as having been a case of defiance against the law rather than a mistake of
law. The Court of Appeal accepted that a mistake or ignorance as to liability to pay tax under

a return under section 55(1) it should be pointed out that there was no proof that the accused was a person who
was liable to taxation under the provisions of this Act….All that was elicited from him was that he had certain
income from a fish-shop but that, in itself, does not show that he was a person liable to taxation….I come to the
conclusion that inasmuch as the crown has failed to proof that the accused was so liable to taxation it failed to
proof his guilt.”
196
Ratified 1950. Incorporated into UK law under the Human Rights Act 1998
197
For background reading refer to Burg, D. A World History of Tax Rebellions: An Encyclopaedia of Tax
Rebels, Revolts, and Riots from Antiquity to the Present (2003)
198
See e.g. The Times, September 08 2005, “Vicar who refuses to pay council tax is sent to jail”. The retired 71
year old minister of religion in question, in protest of what he viewed to be an unreasonable rise in council tax,
refused to pay £63 in council tax arrears. Despite wide publicity and a negative response from the public, public
policy and protection of the integrity of the system obviously called for a firm response from the court.
199
[2004] OJ No 3515 (QL) (Ontario Court of Appeal). Also subsequently followed in R v Kennedy 2004 BCCA
638 (CanLII)
332 DEFRAUDING THE REVENUE

a particular statute may negate the fault requirement regardless whether the mistake is one of
fact, one of law, or a combination of both. The Court inter alia said:

“Section 239(1)(d) is part of an Act which is necessarily and notoriously complex. It is subject
to ongoing revision. No lay person is expected to know all the complexities of the tax laws. It
is accepted that people will act on the advice of professionals and that the advice will often
turn on the meanings to be given to provisions in the Act that are open to various
interpretations. Furthermore, it is accepted that one may legitimately structure one’s affairs so
as to minimize tax liability. Considered in this legislative context, I have no difficulty in
holding that a mistake or ignorance as to one’s liability to pay tax under the Act may negate
the fault requirement in the provision, regardless of whether it is a factual mistake, a legal
mistake, or a combination of both.”

The Court nevertheless held that the taxpayer's belief did not relate to his knowledge of his
duty to pay taxes under the Act, but rather to the government’s right to impose that obligation
on him. Rejecting the taxpayer's defence, the court inter alia said:

“Can Dr. Klundert’s belief that the Act is beyond the powers of the federal government and,
therefore invalid, constitute a mistake of law negating the fault component of the crime of tax
evasion? The answer must be “no”. Section 239 (1)(d) refers to the “payment of tax imposed
by the Act”. Dr. Klundert knew full well that he owed tax imposed by the Act. His mistake did
not go to knowledge of his obligation to pay taxes owing under the Act but rather to the
government’s right to impose that obligation on him. He did not assert that he was doing his
best to comply with the law but, through ignorance or mistake, failed to do so. To the contrary,
he acknowledged the obligation to pay under the Act and made a considered decision to refuse
to pay because of a belief that the law requiring him to pay was invalid.”

The gist of the decision in Klundert in essence mirror that of Cheek v United States,200 a US
case just a decade earlier, where it was inter alia held that: (i) a genuine belief that one is not
violating the Federal tax law based on a misunderstanding caused by the complexity of the tax
law is a defence to a charge of evasion excluding "wilfulness", even though that belief is
irrational or unreasonable; and (ii) a belief that the Federal income tax is invalid or
unconstitutional is not a misunderstanding caused by the complexity of the tax law, and is not
a defence excluding "wilfulness" even if that belief is genuine and is held in good faith.

All in all considered, no person can realistically express genuine surprise at decisions like
Klundert and Cheek. All legal arguments aside, no democratically elected government can
tolerate the refusal to pay on the ground of opposition against government policy, or refusal to
pay on the basis of non-recognition of the government's right to tax. The raising of revenue is
one of the most basic but also one of the most important functions of any State. The power to
raise revenue is one which sovereign governments have exercised since the beginning of time
and long before constitutions and bills of rights came along. Bowing to such posturing will
not only threaten the operation of the tax system, but will also, in democratic dispensations,
undermine the will of the majority.201 How protesters and resisters morally justify their

200
498 U.S 192 (1991)
201
See Walden, R. Render unto Uncle Sam That Which Is Uncle Sam's: The IRS and Tax Protest Evangelism,
61 Neb. L. Rev. (1982), 681-742 at 742 where the writer inter alia noted: "As for the protesters for a cause, the
government cannot accede to their demands (i.e., dismantle nuclear weapons, etc.) without violating the principle
of majority rule. Nor can the government allow the principled protesters to keep their tax money; that also would
violate the majoritarian concept and would spread a perception of another type of privilege. However, the
government can only do itself harm by jailing the archbishops and Amish farmers who operate on a sense of a
higher law, as repression of such a sympathetic lot would only help their cause. An alternative is to exercise the
333 DEFRAUDING THE REVENUE

chosen course of action is one thing, but that course of action will be judged against the boni
mores of the majority in courts of law interpreting the laws as enacted by the representatives
of that majority. The fact that juries, in those jurisdictions where trials are conducted by jury,
continue to convict tax protesters and tax resisters, underlines the fact that the weight of the
majority will continue to pass judgement on the minority intent on evading the law, regardless
the merits of the latter's subjective moral justification. Criminal intent is a mental state of
mind which can exist independently from a particular motive, regardless that motive be
malicious or otherwise. Convictions for evasion will follow where the evasion of a tax is
accompanied with that intent, regardless how commendable the offender's motives may be.

3.7.3 Disclosures were accurate and complete

The burden rests on the prosecution to prove beyond reasonable doubt that the taxpayer acted
unlawfully. Absent unlawfulness there is no crime. Any charge alleging evasion or fraud on
the basis of a fraudulent return will be without foundation where the return proves to have
been truthful. Where the prosecution is unable to prove beyond reasonable doubt, the
information as reflected in the returns to be false, then it cannot be held that any false
representation was made with regards to that particular return. Not surprisingly, many a
taxpayer standing accused of evasion of fraud do argue the information as reflected in their
returns or declarations to be accurate, correct, and complete. As can only be expected,
prosecution arguments and defence counter-arguments will often converge toward a conflict
of interpretation. The unlawful conduct the taxpayer is charged with will often involve alleged
breaches of tax provisions where those provisions allegedly contravened may be technically
complex and difficult to interpret. Typical examples of the type of prosecution and defence
arguments and counter-arguments one can expect to encounter are:

(a) The prosecution argues that certain expenditures claimed by the defendant taxpayer as
deductible expenses were in fact not so deductible. The defence on the other hand
argues the expenditures to be deductible expenses;
(b) The prosecution argues that certain receipts were not declared as ‘income’, whereas
the defence argues the receipts not to be ‘income’ as defined in law;
(c) The prosecution argues the fraudulent application of an incorrect tariff heading in a
Bill of Entry, whereas the defence argues that the tariff heading used was indeed the
correct code as intended by the legislature;

In these cases the prosecution’s burden will often be a difficult one, and one that may very
fast grow even more challenging. Not only may the prosecution fail in proving the actus reus,
which will in itself result in an acquittal, but a competent defence team will often also press
'complexity' and 'uncertainty of interpretation' with the view to preparing the ground for a fall-
back defence of mistaken interpretation. A successful defence of mistaken interpretation of
the legislation may create reasonable doubt as to the presence of criminal intent. It is for the
prosecution to prove, beyond reasonable doubt: (i) what the law required from the taxpayer;
(ii) the taxpayer's knowledge of what the law in fact required; and (iii) that the taxpayer
knowingly and wilfully breached those provisions. Reasonable doubt as to whether the
provisions in question were in fact contravened, or reasonable doubt as to the taxpayer's
knowledge of unlawfulness will result in an acquittal. It is not at all that uncommon for the
defence to argue an absence of intent as an alternative defence to a primary defence of
absence of unlawfulness. As primary defence, the defendant may typically argue that the
information as furnished in the returns or customs declarations was indeed complete and

government's powers to impose civil penalties and tax liens so that Caesar can take what is his without throwing
the Christians into the lion's den."
334 DEFRAUDING THE REVENUE

correct, conforming to the letter of the law. In the alternative, he may also argue, that should
the court find the information as furnished in the return or declaration to be incorrect or
incomplete, that the inaccuracies and/or non-disclosures were the result of an honest
misinterpretation of the law, thus mistake, and not the result of conduct engaged in
knowingly, intentionally, or dishonestly.

3.7.4 Ignorance and Mistake

With crimes such as evasion or fraud where 'knowledge', 'intention', or 'dishonesty' is a
material element of those crimes, a court has no option but to acquit where there is reasonable
doubt as to whether the defendant had the prerequisite state of mind. Cases may arise where a
taxpayer failed to comply with a legal obligation due to ignorance of the law, or where he
mistakenly believed he was in compliance with the law. An incorrect return will not
necessarily be a fraudulent return. A return may be factually incorrect for the simple reason
that the taxpayer was ignorant of certain obligations or tax rules, or simply made an honest
error or mistake.202

3.7.4.1 Mistake
Probably the most common excuse advanced by taxpayers upon detection of irregularities is
that of error or mistake. Most tax inspectors have heard the excuse of a taxpayer claiming that
he ‘mistakenly’ claimed deductions he was not entitled to claim, or that he ‘mistakenly’ failed
to include certain income in his return. In the majority of instances this may indeed be the
case. People make honest mistakes for many different reasons. An honest mistake, even
where as a result of naivety or carelessness, is and remains an honest error and will exclude
fraudulent intent.203 This being said, mistake is undoubtedly also the excuse most commonly
advanced by the guilty tax evader. A mistake of law may typically follow as a result of an
incorrect interpretation of the tax legislation or a court decision, or as a result of honest but
incorrect reliance on a prior court decision.204 Such a misinterpretation may typically relate to
the taxpayer’s liability to taxation, the calculation of certain fields or values, the classification
of a particular transaction or item, or an administrative or procedural requirement, and a legio
other factors or circumstances.

Both mistake of fact and mistake of law can exclude mens rea. As long as the taxpayer in
good faith believes his reporting position to be within the letter of the law, he will lack the
prerequisite criminal intent for conviction on charges of evasion or fraud. Any such mistake
must however be an honest mistake. This obviously calls for a determination of the
defendant's subjective state of mind as at the time when he committed the unlawful act. In

202
Black, A Law Dictionary, 2nd ed at 435 defines “erroneous” as: “Involving error; deviating from the law. The
term is never used by courts or law-writers as designating a corrupt or evil act. .. A mistaken judgment or
incorrect belief as to the existence or effect of matters of fact, or a false or mistaken conception or application of
law.” As to what will constitute 'error' also see Re: Microsoft Pty Limited And: Collector of Customs No.
N91/755 AAT No. 8165 Customs (Administrative Appeals Tribunal, Australia) where it was inter alia said: “An
error is something incorrectly done through ignorance or inadvertence. An error of fact is a mistake in the
recounting of a tangible actuality. In the context of the regulation, it usually takes the form of a written account
of a fact which is inaccurate.” See Martin, Oxford Dictionary of Law 4th ed at 295 where “mistake” is defined as:
“A misunderstanding or erroneous belief about a matter of fact (mistake of fact) or a matter of law (mistake of
law)”
203
See the Australian case of Peters v The Queen [1998] HCA 7 where the court per Kirby J said: “For all this
Court knows, if the jury had been properly directed, they might have concluded that the appellant was naive,
even stupid perhaps, but not dishonest and thus not a party to the conspiracy to defraud the Tax Commissioner. It
would follow that the appeal should be allowed, the conviction quashed and a new trial ordered.”
204
See United States v Bishop 412 U.S. 346 (1973), 361 where it was said: “The requirement of an offence
committed “wilfully” is not met, therefore, if a taxpayer has relied in good faith on a prior decision of this
Court”. Also see James v. United States 366 U.S. 213 (1961)
335 DEFRAUDING THE REVENUE

considering whether or not the defendant's conduct was indeed the result of honest mistake, a
court will consider all the facts and circumstances of the case. Such a court may typically,
depending on the facts of the case, take into account factors such as, but not limited to: (i) the
complexity of the particular taxing provisions; (ii) sources of information, advice, or expertise
available to the taxpayer; 205 (iii) efforts made by the taxpayer to ascertain the extent of his
responsibilities; (iv) the taxpayer’s past exposure to taxation;206 and (v) taxpayer conduct
indicating bad faith.207 In Britain, the United States, Australia, and New Zealand, a finding
that the defendant taxpayer, at the time when he submitted the information in question to the
Revenue, did not in fact entertain an honest belief in the information as provided by him to be
true and correct, will result in rejection of such an excuse.

Evidence to the effect that the taxpayer did indeed attempt to rectify or correct an incorrect
return or entry by making post-filing disclosures may satisfy a court that the taxpayer did
indeed lack the required intent to evade or defraud. This will however depend on the facts of
the case. The mere fact that the taxpayer did indeed make such an attempt will not in itself be
indicative of an honest attempt to rectify an honest mistake. Taxpayers who wilfully file
fraudulent returns will often attempt to 'make amends' once they suspect imminent audit or
investigation.

Honest mistake, of law or fact, will negate mens rea where it genuinely excludes subjective
knowledge of unlawfulness. Such mistake, of law or fact, need not be reasonable.208 It need
not be rational either.209 Even forgetfulness may, depending on the facts of the case, exclude
mens rea.210 This then is the current approach followed in revenue prosecutions in Britain,

205
See Cheek v United States 498 U.S. 192 (1991) at 203 where the court per White J said: “Of course, in
deciding whether to credit Cheek's good-faith belief claim, the jury would be free to consider any admissible
evidence from any source showing that Cheek was aware of his duty to file a return and to treat wages as
income, including evidence showing his awareness of the relevant provisions of the Code or regulations, of court
decisions rejecting his interpretation of the tax law, of authoritative rulings of the Internal Revenue Service, or of
any contents of the personal income tax return forms and accompanying instructions that made it plain that
wages should be returned as income.”
206
Evidence may be adduced showing that the taxpayer did in the past comply with the same provisions.
207
A court will hardly believe that a taxpayer acted in ignorance where the State can adduce evidence of
attempts on the taxpayer’s side to circumvent or evade those same provisions he pleaded ignorance of.
208
See B v Director of Public Prosecutions [2000] UKHL 13 where Lord Nicholls inter alia said: The
'reasonable belief' school of thought held unchallenged sway for many years. But over the last quarter of a
century there have been several important cases where a defence of honest but mistaken belief was raised. In
deciding these cases the courts have placed new, or renewed, emphasis on the subjective nature of the mental
element in criminal offences. The courts have rejected the reasonable belief approach and preferred the honest
belief approach. When mens rea is ousted by a mistaken belief, it is as well ousted by an unreasonable belief as
by a reasonable belief. In the pithy phrase of Lawton L.J. in Regina v. Kimber [1983] 1 W.L.R. 1118, 1122, it is
the defendant's belief, not the grounds on which it is based, which goes to negative the intent. This approach is
well encapsulated in a passage in the judgment of Lord Lane C.J. in Regina v. Williams (Gladstone) (1983) 78
Cr.App. R. 276, 281: 'The reasonableness or unreasonableness of the defendant's belief is material to question of
whether the belief was held by the defendant at all. If the belief was in fact held, its unreasonableness, so far as
guilt or innocence is concerned, is neither here nor there. It is irrelevant. Were it otherwise, the defendant would
be convicted because he was negligent in failing to recognize that the victim was not consenting … and so on.'
Considered as a matter of principle, the honest belief approach must be preferable."
209
See Turner, Actionable Misrepresentation at 127 where it is inter alia said that: “.. irrational or ill-founded
belief is not the same thing as the absence of belief, nor can it be said to be indicative thereof, ... A representor
may have acted on enquiry and materials which would not have satisfied a person of normal intelligence, much
less a trained judge of evidence; but this goes for nothing if the belief – the individual being what he was – really
and truly existed. Belief is none the less belief because it is irrational. Innocence is not negatived by proof of the
representor’s stupidity, but only by proof of his bad faith.”
210
See Turner, Actionable Misrepresentation at 128 where it is correctly stated that: “A man may believe in the
truth – that is, the complete truth – of his representation, by reason of his not remembering a qualifying
336 DEFRAUDING THE REVENUE

Australia, and the United States. The US courts were for a long time divided on the question
as to whether a mistake should be reasonable so as to negate ‘wilfulness’. This uncertainty
was finally settled with the US Supreme Court judgment of Cheek v United States211 where it
was accepted that a mistake of law, even if unreasonable, can negate ‘wilfulness’, as long as
the mistake was made in good faith. Even though the US courts no longer require a mistake to
be reasonable for that mistake to negate ‘wilfulness’, they have in the past held the
reasonableness of a taxpayer’s belief to be a factor that a trial court may take into
consideration in making a determination as to whether the defendant did in fact entertain such
an honest belief.212 This approach cannot be faulted.

It is not unreasonable to expect from a taxpayer to seek advice from advisors and/or the
Revenue where he is uncertain as to his tax obligations. The greater the doubt or uncertainty,
the more reason there will be for a taxpayer to seek the necessary assistance or advice.213 The
failure to seek such advice, no matter how unreasonable, can nevertheless not make dishonest
that which was in fact honest and unintended. Such a failure is nevertheless one of the many
factors a trial court may take into consideration when considering a taxpayer's professed
honest or good faith belief. There cannot be an honest belief where the taxpayer deliberately
closed his eyes to the obvious.214 A trial court can only take into consideration the evidence

circumstance which at one time he had known... he cannot be punished for a bad memory, any more than in the
other cases discussed above he can be punished for want of diligence in inquiry, or soundness in judgement.”
211
498 U.S. 192 (1991). In his judgement, White J inter alia remarked: “Wilfulness, as construed by our prior
decisions in criminal tax cases, requires the Government to prove that the law imposed a duty on the defendant,
that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty ... if the
Government proves actual knowledge of the pertinent legal duty, the prosecution, without more, has satisfied the
knowledge component of the wilfulness requirement. But carrying this burden requires negating a defendant's
claim of ignorance of the law or a claim that, because of a misunderstanding of the law, he had a good-faith
belief that he was not violating any of the provisions of the tax laws. This is so because one cannot be aware that
the law imposes a duty upon him and yet be ignorant of it, misunderstand the law, or believe that the duty does
not exist. In the end, the issue is whether, based on all the evidence, the Government has proved that the
defendant was aware of the duty at issue, which cannot be true if the jury credits a good-faith misunderstanding
and belief submission, whether or not the claimed belief or misunderstanding is objectively reasonable. In this
case, if Cheek asserted that he truly believed that the Internal Revenue Code did not purport to treat wages as
income, and the jury believed him, the Government would not have carried its burden to prove wilfulness,
however unreasonable a court might deem such a belief ... it is not contrary to common sense, let alone
impossible, for a defendant to be ignorant of his duty based on an irrational belief that he has no duty.”
212
See United States v Pensyl, United States Courts of Appeals, Sixth Circuit, No 03-4468, Decided 15 October
2004, where it was inter alia said: “A defendant does not act wilfully if he believes in good faith that he is acting
within the law or that his actions comply with the law. This is so even if the defendant’s belief was not
reasonable as long as he held the belief in good faith. The reasonableness of a belief is a factor for the jury to
consider in determining whether the defendant actually held a belief and acted upon it. The more farfetched a
belief is, the less likely it is that a person actually held or would act on that belief.” Also see Turner supra at 127
where it is said: “... the alleged unreasonableness of any belief may be so glaring that a court would be justified
in inferring that the belief could never really have existed, and that the supposed believer was not so irrational,
incompetent, or foolish, as, for his own purposes he may profess to be ..."
213
See the English case of HG Bendall v Customs and Excise [2004] UKVAT (Landfill) L00020 (2003) where,
although made within the context of a civil matter, it was inter alia said: “The Appellant had made absolutely no
attempt to get proper advice as to whether or not tax was due, and whilst at the relevant time the law with regard
to landfill tax was not entirely clear, as is shown by the decision in Parkwood, that was all the more reason for
him to have obtained advice.”
214
The English and US courts consider ‘wilful blindness’ as sufficient to exclude a ‘good faith’ or ‘honest belief’
defence. See United States v. Willis, United States Court of Appeals, Eighth Circuit, No 01-2912, January 2002
where the Court per Circuit Judge Murphy inter alia said: “The court instructed the jury that the necessary
element of knowledge could be inferred: ... if the defendant deliberately closed his eyes to what otherwise would
have been obvious to him. You may not find the defendant acted knowingly, however, if you find that the
defendant actually believed he had no duty to pay taxes. A showing of negligence, mistake or carelessness is not
sufficient to support a finding of knowledge ... A wilful blindness or deliberate indifference instruction is
appropriate when there is evidence to “support the inference that the defendant was aware of a high probability
337 DEFRAUDING THE REVENUE

placed before it. This obviously places the burden on the investigators and prosecution to
secure and present evidence capable of counteracting any honest belief defence.

3.7.4.2 Ignorance of law

The old maxim of ignorantia legis neminem excusat (ignorance of the law is no excuse) is
still very much alive in relation to certain categories of offences in some jurisdictions,
particularly in relation to many public policy offences. This being said, the tax evasion and
fraud offences to be found in most parts of the English-speaking world today, and notably so
in the United States, United Kingdom, Australia, New Zealand and Canada, all require the
unlawful conduct to be done 'wilfully', 'knowingly', 'intentionally' or 'dishonestly'. It is not
possible to 'knowingly' commit an unlawful act or to 'knowingly' fail to comply with a legal
duty but at the same time to be ignorant of that contravention or failure. The courts in those
jurisdictions have long since accepted genuine ignorance of the law to be a valid defence
excluding 'criminal intent', 'dishonesty' or 'wilfulness' where tax evasion or fraud is charged.
Accepting ignorance of the law or mistake of the law to be a valid defence negating
fraudulent intent is not only right but is also common sense fairness. Taxation is a complex
body of law where even the brightest of tax professionals and judges often struggle with
interpretation. Most taxpayers are not familiar with the technical subject-matter of taxation. A
taxpayer cannot in fairness be said to have had the prerequisite intent to evade tax where his
failure to comply was the result of ignorance of his liability to taxation, or as a result of an
honest misinterpretation of the legislation on his part (that is to say mistake). Whether or not
such ignorance was genuine or otherwise will be for the court to decide.

3.7.5 Good faith reliance on others

3.7.5.1 Good faith reliance on advice, work, or instructions of others
Many taxpayers rely on the advice, work and expertise of employees and advisors such as
attorneys, accountants, clearing agents, and tax practitioners. A typical example will be that of
the businessman who relies on the accuracy and truthfulness of the books of account kept,
worked carried out, and returns prepared by an employee, accountant or tax agent. In the case
of taxation, the advice provided, and/or the work carried out will generally relate to an
intricate and complicated subject of law where even the most knowledgeable advisor may
provide a taxpayer with wrong advice or a mistaken interpretation of the law. Error and fraud
on the side of advisors, agents, employees, or others acting on the taxpayer’s behalf is
common. It is also not uncommon for taxpayers to place the blame for irregularities on those
accountants, advisors, employees, or partners. The taxpayer finding himself the subject of an
investigation will often argue honest reliance on the work carried out by others, or honest
reliance on the advice or 'professional opinion' of some or other advisor.215 Honest reliance on
the work done by others, or honest reliance on the advice received from others, can exclude
mens rea and can be a valid defence against a charge or fraud. Many taxpayers arrange for
advisors such as accountants and tax agents to prepare and submit their tax returns. The use of
false or incomplete information in the preparation of a tax return will in most instances have
as consequence a false tax return. Ultimate responsibility for ensuring that the preparer is
provided with the correct information so as to make possible the preparation and filing of an
accurate tax return is that of the taxpayer. Where it becomes evident that false returns were

of the existence of the fact in question and purposely contrived to avoid learning all of the facts in order to have
a defence ... A jury could reasonably conclude from this evidence that Willis was aware of a high likelihood that
he was required to pay taxes and attempted to avoid learning the truth. The wilful blindness instruction was
therefore appropriate.”
215
See e.g. The Daily Mail. 'Wesley Snipes released from prison after serving three years for tax evasion (just in
time for tax day!)', 5 April 2013. In the case of Snipes the trial court rejected his defence, held that he did
possess the prerequisite mens rea and he was convicted. He served 3 years in prison.
338 DEFRAUDING THE REVENUE

filed, the preparer will often argue that he prepared the return using the information as
supplied to him by the taxpayer. The taxpayer who knowingly supplies false information to,
or withholds essential information from the person tasked with the preparation of the return,
effectively uses the preparer as innocent instrument in the commission of the fraud. In these
cases the taxpayer will be held liable even though he did not personally prepare the false
return.216 As long as the preparer, whether he be a legal practitioner, accountant, tax advisor,
business partner, or employee, had an honest belief in the truthfulness of the information
provided to him, and the accuracy of the returns prepared , he will lack the prerequisite mens
rea.

Taxpayers arguing their innocence will often profess honest reliance on the advice or
'professional opinion' of some or other advisor. The taxpayer may typically find himself the
subject of an investigation for suspected evasion through the use of a particular tax evasion
scheme. The taxpayer may then typically produce a written 'opinion' issued by a tax advisor,
tax lawyer or accountant wherein the latter purportedly expressed the arrangement or scheme
to be one that is "permissible", "above board" or as one that "may be interpreted by the
Revenue as a tax avoidance scheme". Honest reliance on such an opinion or advice will
exclude mens rea and will be a defence against charges of evasion or fraud.217 There must
however be honest reliance on that opinion or advice. Whether or not the taxpayer in a given
instance did in fact entertain such honest reliance is a factual enquiry. Evidence to the effect
that an opinion or advice as formulated by an advisor was formulated on the strength of false
information supplied by the taxpayer may strongly suggest that the taxpayer could not have
placed honest reliance on such an opinion or advice. There are many taxpayers who are well
aware of the difficulties associated with proving mens rea and the defences of 'mistake' and
'honest reliance' on the work of others is commonly argued and relied upon. Some taxpayers'
intent on implementing a scheme, or already operating a scheme which they know to be
illegal or the legality of which may at that time be in doubt, may be careful enough to ensure
they plant the seeds of what may later be interpreted as signs of doubt and innocence,
throughout the operation of such a scheme. These taxpayers may be just as dangerous for the
advisor as they are for the Revenue. One of the ways to do that is the solicitation of
professional opinions from advisors, opinions intended to be held in reserve and to be relied
upon in the event of a revenue challenge or investigation. There may be many crooked
advisors, but there are also many honest advisors who are being misled by their own clients.
A taxpayer may for example request an advisor's professional opinion as to the legality of a
particular arrangement or scheme, but in an attempt to get the opinion he is looking for he
simply provides the advisor with incomplete or false information which may have the effect
of steering the opinion towards the sought-after conclusions. Needless to say, a taxpayer who,
knowing that the information relied on by the advisor in researching, preparing and framing
the opinion in question, was in fact so incomplete or false as to invalidate the soundness and
reliability of that opinion, cannot be said to have entertained an honest belief in the validity of
that 'opinion'. Other evidence which may suggest the absence of honest reliance on such an
opinion or advice may be: (a) the fact that there were other contrary opinions that were
ignored; (b) the fact that any doubts that may have existed were subsequently clarified by the
Revenue or the courts; (c) the fact that the 'advisor' who so issued the 'opinion' was (known to
the taxpayer to be) unqualified;218 or (d) evidence obtained from witnesses, minutes of

216
See e.g. United States v Shortt Accountancy Corp 785 F.2d 1448 (9th Circuit 1986)
217
See e.g. Bursten v United States 395 F 2d 976 (5th Cir.) (1968) (United States Court of Appeals).
218
Whether or not the 'advisor' who so issued that opinion was so qualified, experienced, or skilled as to
realistically leave the taxpayer convinced of the technical soundness of his opinions or advice can certainly be
relevant. The financial director of a company, a qualified accountant, who professes honest reliance on an
opinion relating to a query as to the legality of a complex tax avoidance scheme, and where the 'opinion' in
339 DEFRAUDING THE REVENUE

meetings, correspondence etc suggesting that the taxpayer, after that opinion was obtained,
was aware or became aware of it being unsound.

Where the taxpayer and his professional advisors are co-accused, submissions by the taxpayer
of reliance on the advice or work of those advisors can, and often do, turn into a mudslinging
contest between taxpayer and advisor. This can play into the hands of the prosecution as any
unified front that may have existed may quickly crumble as taxpayer and advisor turns against
each other. It is not at all uncommon for advisors who conspired with their taxpayer-clients to
turn around claiming not to have had any knowledge of the fraud. 219 In other instances they
will accuse the taxpayer of having provided them with incomplete or false information. In
worse case scenarios they will often opt for a favourable plea bargain and cooperation.

Following orders not a defence

Many frauds, and here special reference can be made to corporate frauds, involve multiple
participants with the fraudulent operation often planned and managed by senior corporate
executives but with the physical commission of the crime executed by their juniors. We also
find the same pattern with many of the smuggling operations and fraud scams committed or
engaged in by organised crime groups, planned and/or managed as they are by the ringleaders
but executed by the foot soldiers. Leaving the execution of the crime in the hands of the
subordinate managers, employees, or juniors is often intended as a measure to create some
distance between the crime and the ringleaders. There is always the possibility of one or more
of those subordinate managers, employees, or juniors, the ones whom physically executed the
operation, subsequently attempting to justify their participation with the defence that they
acted on the instructions of their employer or superiors. In England, Australia, the United
States, and no doubt in many other common law jurisdictions, following orders, at the time
known by the defendant to be unlawful, will not be a defence. Acting on unlawful instructions
with knowledge of those instructions being unlawful makes him/her an accomplice. This is
very different from the situation where the subordinate employee acted on those instructions
absent knowledge of the illegality of what he/she was assisting with. In those instances there
will clearly be an absence of fraudulent intent. Assume a tax trainee at an accounting firm
makes a number of incorrect statements and entries on the instructions of his/her tax manager
as his/her direct line-manager. Further assume that tax manager knowingly issued those
instructions in furthering a fraud on behalf of a client, and further assume he did so on the
instructions of his seniors. The tax manager is an accomplice and will incur criminal liability.
Where that trainee however made those false statements or entries with an honest belief in the
instructions he/she received from his/her manager as having been proper and lawful, he/she
will lack the required men’s rea.

3.7.5.2 Reliance on incorrect Revenue information

It must be acknowledged that the Revenue has in its employ thousands of employees. On a
daily basis, thousands of taxpayers approach the Revenue for advice, instructions, directives,
or decisions on matters relating to their tax obligations. Revenue staff also makes mistakes,
some may not be as knowledgeable as they should be, and the frequent amendment and
increasing complexity of tax legislation is just as problematic for those who administer it as
for those subject to it. The possibility cannot be excluded of Revenue decisions or Revenue
failures leaving a taxpayer with the honest belief of his conduct being lawful. This will
exclude fraudulent intent. It can after all not be said that a taxpayer made an intentional

question was issued by his cousin, a local dairy farmer with no background in taxation, will find it difficult to
convince a court of his honest belief in the soundness of that opinion.
219
See R v Dimsey & Anor [1999] EWCA Crim 1917 where the taxpayer’s solicitor despite denials of any
knowledge was convicted on a charge of conspiracy to cheat the Revenue.
340 DEFRAUDING THE REVENUE

misrepresentation where the alleged misrepresentation followed as a result of his honest

reliance on an incorrect instruction, information, or interpretation of law as received from the
Revenue.

Past failures, mistakes, or wrong instructions issued by Revenue staff, does not in itself
exclude unlawfulness or fraudulent intent. There may be instances where the taxpayer may
well know the information, advice or instructions to be incorrect. To proceed with an
unlawful course of conduct, despite subjective knowledge of the instructions or advice being
wrong, will not exclude criminal liability. A taxpayer can also not rely on any information,
permission, authority, or instruction given by or received from the Revenue, where such
information, permission, authority or instruction was fraudulently obtained. A typical
example of such a situation will be that of the importer who obtains a favorable binding tariff
information or binding origin information on strength of false information submitted to
Customs relating to the nature or origin of the goods to be imported. 220 It cannot be said that
such information, permission, authority or instruction was lawfully obtained or that the
taxpayer could have placed honest reliance on it, where it was given, made, or decided, on the
strength of false information provided or false representations made by the taxpayer.

3.7.6 Other selected defences

3.7.6.1 Lacking capacity
Certain neurological conditions and mental disorders may severely impact on or limit a
person's cognitive functions (and thus his/her ability to distinguish between right and wrong),
and/or his/her conative functions (and thus his/her ability to act in accordance with that
appreciation). A court may find that a defendant, judged on all the facts and circumstances of
the case, did not possess the required mental capacity to be held criminally liable for his part
in the commission of a crime. Serious neurological conditions resulting from brain trauma or
disease may be so serious in nature and degree as to exclude criminal liability. This also
applies to mental illness. A distinction need be drawn between 'personality disorder' and
'mental illness'.221 Most individuals with personality disorders are not mentally ill, can
distinguish between right and wrong, and can act in accordance with that appreciation. Just
for a moment consider the psychopath, often found amongst confidence tricksters and
fraudsters. The psychopath's personality may be such as to make him less capable of resisting
impulse and temptation, more likely to engage in risky behaviour, and less likely to
experience fear or remorse, but his ability to distinguish between right and wrong is in no way
compromised. Many of the brightest, most capable, and most successful politicians,
lawmakers, lawyers, accountants and business executives are psychopathic. Neurological or

220
Council Regulation (EEC) No 2913/92 (of 12 October 1992 establishing the Community Customs Code for
the European Community), explicitly provides for the annulment of any decision obtained where the application
for that decision was supported with incorrect or incomplete information. Article 6(1) of the Regulation reads:
“Where a person requests that the customs authorities take a decision relating to the application of the customs
rules that person shall supply all the information and documents required by those authorities in order to take a
decision.” Article 8(1) of the same Regulation then continues to state: “A decision favorable to the person
concerned shall be annulled if it was issued on the basis of incorrect or incomplete information and: the applicant
knew or should reasonably have known that the information was incorrect or incomplete; and, such decision
could not have been taken on the basis of correct or complete information”.
221
Various diagnostical manuals are found in use in the health care and legal systems in different parts of the
world. Widely recognised and used ones are the International Statistical Classification of Diseases and Related
Health Problems (issued and maintained by the World Health Organization) and the frequently updated
Diagnostical and Statistical Manual of Mental Disorders (issued and maintained by the American Psychiatric
Association). Definitions, classifications, and the criteria used for the diagnosis of personality disorders and
mental conditions, as recognised in different manuals and between different jurisdictions, do not always
correspond and also see change over time.
341 DEFRAUDING THE REVENUE

mental disorders may well, even where held not to be so serious as to exclude criminal
liability, be a mitigating factor at the sentencing stage.222

It must be said that a defence of lacking mental capacity is one that will very seldom be
successful within the revenue context. Revenue and customs frauds may vary in terms of
complexity, forethought, and planning, but most of those frauds, in common with most
financial crimes really, tend to be more complex and sophisticated than say most murders,
assaults, property offences, and sexual offences. Revenue and customs frauds are not the
types of crimes committed by the enraged, intoxicated, or aroused individual acting on
impulse in seconds, hours, or days. Revenue and customs frauds are not underpinned by rage,
fear, or an uncontrolled desire for instant gratification. Planning and complexity suggest the
intellectual input of people with a certain degree of sophistication, if not that of the taxpayer
or trader, then that of someone who does possess that level of skill. The likelihood of a court
finding a defendant as not having had the mental capacity to appreciate the illegality of what
he was engaged in is highly improbable in the face of evidence proving premeditation,
planning, the calculated execution of steps taken in the furtherance of a fraud, and attempts to
deceive, conceal, or subvert. The possibility of a person who did in fact lack the required
mental capacity finding himself charged with a revenue or customs fraud is not to be ruled
out. Just consider the scenario of an offender committing a crime through the use of or with
the aid of another person but where the latter may lack the capacity to appreciate the true
nature of the conduct he is engaged in or assisting with. Consider the example of cigarette
smuggler X using his mentally impaired cousin Y as a driver to load and deliver the illicit
goods to customers. The latter's mental condition may well allow him to carry out the duties
assigned to him, but he may well be doing so absent any appreciation of the true nature of the
activities he is engaged in.

3.7.6.2 Duress
The possibility of a person participating in the commission of a revenue or customs offence in
an attempt to avoid a greater misfortune is not one that can be discounted. This is especially
so within the customs context where much of the smuggling activity is connected with
organized crime. Organized crime is also heavily involved in many large-scale refund scams.
The possibility of a defendant having acted out of fear for retribution is thus a real one.223 In
the United States, England, Australia, and most other common law jurisdictions, there is the
defence of duress which may, if accepted, excuse a defendant from criminal liability.

222
See e.g.Thompson v The Queen [2005] WASCA 223 (Supreme Court of Western Australia)
223
The Australian case of R v Holland [2002] WASCA 265 provides for interesting reading. In this matter the
respondent, a tax agent, was already serving a prison sentence for the filing of false tax returns on behalf of his
clients. Whilst serving out that sentence, a scheme was devised whereby fraudulent tax claims were filed on
behalf of his fellow prisoners. A total of 125 prisoners participated in the fraud. A total of 210 false claims to the
value of $1.2 million were filed. On behalf of the respondent it was submitted that the respondent’s participation
in the scheme was the result of pressure exerted on him by his fellow inmates. His defence argued absence of
intent (mens rea) on the ground of duress. It is evident that both the prosecution and the court accepted that there
was indeed at least a certain degree of intimidation. On appeal, the court per Wallwork J inter alia said: “There
was reference made to two occasions when threats were made. However, those two relevant matters were not
included as counts in the indictment as the Crown took the view that there was a genuine plea of duress available
to the respondent.... In his sentencing remarks the learned Judge had said that he thought that the way in which
the scheme had evolved was significant. His Honour said: “….it is not difficult to accept that when it became
known that the prisoner had the ability to help other prisoners to defraud the revenue that a large number of
inmates were interested in participating. The prisoner realistically, I think, had little chance of withdrawing his
services once it commenced, or of refusing to provide them. This aspect very much needs to be borne in mind
when focussing on the dimensions of the fraud, in my view.” In this matter the court did not accept that the
scheme started out as a result of duress and the respondent was convicted and sentenced to a further 3 years
imprisonment.
342 DEFRAUDING THE REVENUE

Considering the risk of abuse, it is a defence the courts do not consider lightly. Whether such
a defence will be successful will depend on the facts of the case. A balance of interests will
always be struck when considering this defence and the circumstances will need be
compelling. The nature of the offence, whether the defendant voluntarily exposed himself, the
nature of the threat, the proximity of that threat in terms of space and time, and the
opportunities that were available to the defendant to escape that harm, are just a few factors or
circumstances a court will take into consideration.224 For a defendant taxpayer to argue that he
had to choose between paying over the VAT collected or paying his employees, or for a
defendant to argue that he participated for fear of losing his employment will not be
sufficient. The threat must be real and it must be compelling. Coercion may however, even if
not successful as a complete defence, still be accepted as a mitigating factor when considering
an appropriate sentence.225

3.7.6.3 Entrapment
There are a number of jurisdictions where a defendant may escape criminal liability in the
event of a finding of entrapment. This is the case in Canada, the United States, Australia, and
England, where a finding of entrapment may, depending on the facts of the case, result in an
acquittal or a stay of prosecution for abuse of process. What will be viewed as an entrapment
situation and the legal rules governing such a situation do however vary considerably from
jurisdiction to jurisdiction. In the United States entrapment is considered a valid defence. For
a finding of entrapment there must be an inducement that goes beyond mere solicitation. Mere
solicitation is not sufficient.226 In the United States the most important consideration seems to
be the defendant's 'predisposition' to commit the crime.227 That predisposition is for the
prosecution to prove beyond reasonable doubt. In Canada entrapment occurs when: (a) the
authorities provide a person with an opportunity to commit an offence without acting on a
reasonable suspicion that this person is already engaged in criminal activity or pursuant to a
bona fide inquiry; and (b) although having such a reasonable suspicion or acting in the course
of a bona fide inquiry, they go beyond providing an opportunity and induce the commission
of an offence".228 In Canada entrapment is not a substantive defence. A stay of prosecution
can however be ordered in the event of serious abuse. English law, as is the position in
Canada, does not recognise entrapment as a substantive defence.229 Evidence that has been
obtained by entrapment may however be excluded under section 78 of the Police and
Criminal Evidence Act 1984. Under that section a court has a discretion to exclude evidence

224
For the most recent leading English authority on duress refer R v Hasan [2005] 2 AC 467
225
See e.g R v Holland supra
226
See e.g. United States v Johnson 872 F2d 612, 620 (5th Cir 1989)
227
See Sorrells v United States 287 US 435 (1932); Mathews v United States 485 US 58, 63 (1988)
228
R v Mack [1988] 2 SCR 903. The court in R v Mack offered the following examples of factors that a court
may take into account when considering whether law enforcement went further than just providing an
opportunity: (a) the type of crime being investigated and the availability of other techniques for the detection of
its commission; (b) whether an average person, with both strengths and weaknesses, in the position of the
defendant would be induced into the commission of a crime; (c) the persistence and number of attempts made by
law enforcement before the defendant agreed to committing the offence; (d) the type of inducement used
including: deceit, fraud, trickery or reward; (e) the timing of the officer's conduct, in particular whether they
have instigated the offence or became involved in ongoing criminal activity; (f) whether the officer's conduct
involves an exploitation of human characteristics such as the emotions of compassion, sympathy and friendship;
(g) whether the officers appear to have exploited a particular vulnerability of a person such as a mental handicap
or a substance addiction; (h) the proportionality between law enforcement's involvement, as compared to the
defendant, including an assessment of the degree of harm caused or risked by the officers, as compared to the
defendant, and the commission of any illegal acts by the officers themselves; (i) the existence of any threats,
implied or express, made to the defendant by law enforcement or their agents; and (j) whether the officer's
conduct is directed at undermining other constitutional values.
229
See R v Loosely [2001] UKHL 53
343 DEFRAUDING THE REVENUE

where that evidence would have such an adverse effect on the fairness of the proceedings that
the court ought not to admit it. Such exclusion may in itself potentially result in insufficient
evidence to carry a conviction. In England, as is also the case in Canada, the courts are also
under a duty to ensure a defendant receives a fair trial.230 The English courts have the
jurisdiction to order a stay of prosecution in the event of serious abuse of process, and may
order such a stay where an entrapment situation amounts to such abuse.231 The right to a fair
trial is furthermore also reinforced under human rights legislation. Article 6 of the Human
Rights Act 1998 and Article 6 of the European Convention on Human Rights also guarantee
the right to a fair trial.

Law enforcement officers, informers, or other agents overstepping the limits in encouraging
the commission of a crime, or in themselves overstepping the limits of their own participation
in the commission of a crime, have always been a challenge. The risk of an informer drifting
from just being an informer reporting on observations to that of agent provocateur actively
creating crimes and criminals is a real one. So is the risk of the overzealous undercover officer
pressurizing a susceptible individual whom might never have considered committing a crime
into doing so.232 An entrapment situation is certainly one that may arise in the revenue or
customs context, but especially so within the customs context. The courts accept undercover
operations, the setting of traps, and infiltration to be necessary for law enforcement to be
effective. There is however also a need for proportionality, fairness, and maintaining the rule
of law. It is for the courts to protect the citizens from abuse.233

From a reading of the English, Canadian and American authorities, we can see that in all these
jurisdictions an important consideration in distinguishing between acceptable and non-
acceptable enforcement operations seems to be whether the officers or investigators
artificially created crime as opposed to just presenting "the defendant with an unexceptional
opportunity to commit a crime".234 Few citizens will experience the prosecution of a smuggler
to be "an affront to the public conscience" where that smuggler approached and convinced an
acquaintance transporter to transport a shipment of counterfeit goods from Calais to London
but where that transporter, pretending to assist with the operation (but unbeknown to the
smuggler in fact a customs informer), then proceed to assist Customs with surveillance and
the gathering of evidence. There is no entrapment and few will view it as such. Most citizens

230
R v Sang [1980] AC 402; R v Loosely [2001] UKHL 53
231
See R v Latif [1996] 1 WLR 104. Also R v Loosely [2001] UKHL 53 where Lord Scott inter alia said: "The
entrapment circumstances may in some cases be such that a prosecution would be "an affront to the public
conscience" (Lord Steyn in R v Latif [1996] 1 WLR 109, 112) or "deeply offensive to ordinary notions of
fairness" (Lord Bingham of Cornhill CJ in Nottingham City Council v Amin [2000] 2 WLR 1071, 1076). In
cases of that sort the court has an inherent jurisdiction to stay the prosecution (see R v Horseferry Road
Magistrates' Court Ex p Bennett [1994] 1 AC 42). A successful application to stay a prosecution on the ground
of entrapment enables the accused to escape from the charge. But the entrapment still cannot be properly
described as a defence. It does not negative any of the ingredients requisite for guilt. The court's decision to
allow the accused to go free is based upon its disapproval of the behaviour of the police officers, not upon the
prosecution's failure to establish those ingredients."
232
Such a situation will not necessarily always be a situation created by a police or customs officer. It is quite
possible for the entrapment situation to be the creation of an informer or turned participant (a participant arrested
and who then agreed to cooperate).
233
See R v Loosely [2001] UKHL 53 where Lord Nicholls inter alia said: "Every court has an inherent power
and duty to prevent abuse of its process. This is a fundamental principle of the rule of law. By recourse to this
principle courts ensure that executive agents of the state do not misuse the coercive, law enforcement functions
of the courts and thereby oppress citizens of the state. Entrapment, with which these two appeals are concerned,
is an instance where such misuse may occur. It is simply not acceptable that the state through its agents should
lure its citizens into committing acts forbidden by the law and then seek to prosecute them for doing so. That
would be entrapment."
234
per Lord Nicholls in R v Loosely [2001] UKHL 53
344 DEFRAUDING THE REVENUE

however will likely view as a serious "affront to the public conscience" the situation where
revenue officers should put pressure on a crooked tax practitioner to take the imitative to
attempt to induce taxpayers of previous good standing into engaging in evasion or fraud. Most
will view this latter scenario as one amounting to an attempt to make offenders as opposed to
apprehending them. Other factors pointed out in Loosely as factors or circumstances that a
court may also take into account when considering the limits of that which is acceptable or
otherwise may be: (a) how intrusive the investigative techniques are and proportionality; (b)
whether employed in a "random fashion" and for "wholesale 'virtue-testing' without good
reason"; (c) whether the conduct of law enforcement was so improper as to bring into
disrepute the administration of justice; 235 (d) the nature of the offence; (e) the reason for the
operation and whether law enforcement acted in good faith; (f) the nature and extent of law
enforcement's participation in the crime and the nature and extent of the inducement; and (g)
the defendant's criminal past. A court will take into account all the facts and circumstances of
the case.

3.7.6.4 No prejudice suffered

Although many evasion and fraud offences are pure conduct crimes, considered to be
completed where the offender commits the prohibited unlawful acts or failures with the
prerequisite mens rea, there are also fraud and evasion offences where actual loss or
alternatively the risk of loss is a material element for those offences to be completed. A good
example in point is the US Federal evasion offence provided for under 26 U.S.C. § 7201
(attempt to evade or defeat tax). An essential element of this offence is a 'substantial tax
deficiency'.236 Failure to prove such a deficiency will result in an acquittal. Another example
is the South African common law crime of fraud. This offence requires proof of actual or
potential prejudice as a direct consequence of a false misrepresentation. Where the offences
charged require proof of a tax deficiency or risk of loss, it will be for the prosecution to prove
beyond reasonable doubt that deficiency or risk. As can only be expected cases may arise
where a defendant may argue the absence of such a tax deficiency or risk of loss. In the
revenue context proving that deficiency or risk of loss will however seldom prove a hurdle for
the prosecution. Taxpayers seldom attempt to mislead the Revenue for any other reason but to
evade taxation. There may be such cases but they tend to be the exception. Their unlawful
conduct will almost always be directed at achieving the aim of evading a liability or gaining
an unlawful refund or rebate. Most wilful misrepresentations will thus usually result in a
deficiency or risk of loss. There will be very few cases where there will not be actual or
potential prejudice. Causality between the unlawful conduct and that deficiency or risk of loss
will in most instances also be quite obvious. The amount of the actual or potential loss proven
at trial will often exceed or be less than the amount alleged in the indictment. This is in fact
common, and for reasons that are quite understandable. As long as the loss is proven this will
not make the indictment defective and a conviction may follow. 237 This then is the case in
Canada, Australia, the United States and Britain.

3.8 Specific Problem areas

Many of the revenue and customs frauds out there may indeed be technically complex, often
planned, implemented, and executed in depth by some of the most astute accountants, tax
lawyers, and tax professionals out there. The greater majority of frauds do however tend to be
relatively straightforward, usually falling into one of a few categories most experienced

235
Also see R v Mack [1988] 2 SCR 903
236
See e.g. United States v Thompson 806 F2d 1332 (7th Cir 1986) and United States v Citron 783 F2d 307 (2d
Cir 1986)
237
See e.g United States v Burdick 221 F2d 932 (3d Cir) where the loss proven at trial was considerably less than
the amount alleged in the indictment but was nevertheless held substantial. The conviction was upheld.
345 DEFRAUDING THE REVENUE

inspectors would have come across many times before. Many of those frauds, even where
there may be slight differences in the surrounding circumstances and the mechanics of those
frauds, will be no more but variations of fraudulent operations most of the experienced
inspectors will be very familiar with.

3.8.1 Intentional failure to register for and declare tax

The tax legislation sets out when certain categories of persons are required to be registered for
certain categories of taxation. The failure to register where registration is required will in most
jurisdictions in itself be an offence. The tax legislation also sets out when and how those
taxpayers are required to submit returns. Where a person is legally obliged to register for
taxation but wilfully fails to do so, he/she will first of all be in contravention of those
provisions requiring same. The wilful failure to register for and to declare tax in breach of a
legal duty to do so will however be fraudulent where the taxpayer wilfully and dishonestly
fails to do so with the view to evade taxation. Common examples are that of the tradesman
operating as a sole trader but knowingly doing so unregistered for tax and not declaring his
income, or that of the trader who is not registered for VAT but nevertheless charges VAT
from his clients which he then misappropriates.238 In many instances a trader will simply fail
to inform the Revenue that he started to trade. In other instances he may falsely represent to
the Revenue that the business ceased all trading activity. In other instances he may wilfully
conceal the fact that he again started trading. In some instances revenue administrations will,
and understandably so, assume that there was a cessation of trading activity. In most
jurisdictions, the Revenue will usually deregister a trader at some point after bankruptcy /
liquidation, or where returns are not forthcoming and the trader cannot be traced. In most
instances there will indeed no longer be any trading activity. There are however many traders
who do indeed continue to trade or do indeed start to trade again after a brief interruption in
trading activity, but where they do so without disclosing that fact to the Revenue. For tax
purposes they effectively trade in the underground economy.

In England these cases are often dealt with under the common law offence of cheating,
essentially common law fraud. It is an offence that also covers fraudulent omission.239 In
these cases, the burden rests on the prosecution of proving that the person concerned is in fact
a person on whom there rested a legal obligation to register for and declare tax. Criminal
liability will only follow where he/she is indeed proven to be such a person. It is furthermore
also for the prosecution to prove, beyond reasonable doubt, the prerequisite mens rea. This
calls for proof, beyond reasonable doubt, of the required knowledge and dishonesty, the
fraudulent intent. In proving this the prosecution may typically rely on evidence such as but
not limited to: (i) the failure to register and to declare despite advice to do so by, for example,
the taxpayer’s auditors or revenue staff;240 (ii) the failure to register despite the fact that the
taxpayer is familiar with the tax system and his/her obligations under same; (iii) the failure to
register despite previous demands or warnings from the Revenue Service; (iv) where the

238
In the latter example, it is not uncommon for those traders to reflect a fictitious VAT registration number or a
VAT registration number allocated to another vendor on the invoice so as to mislead the customer.
239
See Alridge & Parry on Fraud 2nd ed 1996 at 353 where the following is said in regard to 'cheating the public
revenue': “…it now seems to be regarded as effectively one of fraud, rather than ‘cheating’ in the ordinary
sense…it is sufficient that the defendant omits to hand over money which is lawfully due to the Crown, e.g. by
failing to register for VAT….”. Also see The Law Commission, Legislating the Criminal Code, Fraud and
Deception, Consulting Paper No 155, 1999 under point 2.37, where the following was said in referring to
'Cheating the Revenue': “The offence has been widely construed. It covers any form of fraudulent conduct by
which money is diverted from revenue-gathering authorities, and it can be committed by omission as well as by
positive act.”
240
See e.g. R v Wells [1998] EWCA 3446
346 DEFRAUDING THE REVENUE

evasion persisted over a long period of time, especially after a number of tax years;241 and (v)
other evidence of attempts to conceal and deceive. In the final analysis, it will be for the
prosecution to prove, beyond reasonable doubt, that:

(a) the defendant was under law required to register and to declare ;
(b) the defendant failed to register and to declare;
(c) the defendant had knowledge of that legal duty that rested upon him to register and to
declare;
(d) the defendant, despite that knowledge of that duty to register and declare, nevertheless
wilfully failed to so register and declare;
(e) that failure was dishonest, intended to evade or defraud; and
(f) there was a risk of prejudice or loss;

The wilful failure to file returns, to declare, will likewise also be fraudulent where the
taxpayer wilfully and dishonestly fails to do so with the view to evade taxation.242 In England
these cases can also be prosecuted as 'cheating'. It will be for the prosecution to prove, beyond
reasonable doubt, that:

(a) the defendant failed to declare;

(b) the failure to declare was in breach of a legal duty to declare;
(c) the defendant had knowledge of that legal obligation to declare;
(d) the defendant, despite his knowledge of that duty to declare, nevertheless wilfully
failed to declare;
(e) that failure was dishonest, intended to evade or defraud; and
(f) there was a risk of prejudice or loss;

Many from non-common law jurisdictions whom may not be familiar with the old English
law of fraud may find themselves somewhat at a loss at understanding the concept of fraud
where there is no overt false representation of the truth. In English law it has long been
accepted that the truth may also be misrepresented by the failure of a defendant to disclose
certain facts where, under the circumstances, there rested a legal duty on that defendant to
disclose. In these instances the defendant's silence, his failure to disclose where disclosure is
called for, is effectively viewed as equivalent to a representation that there is nothing to

241
See e.g. R v Wells supra
242
There is ample authority from the English and US courts where taxpayers were convicted for the evasion of
taxation by failing to declare. See the English cases of R v McCarthy [1981] STC 298; R v Gray [1997] EWCA
4288; R v Dealy [1995] 1 WLR 658, CA; R v Wells [1998] EWCA 3446; R v Hammond [1997] EWCA 2027; R v
Neale [1998] EWCA 2532; R v Unstead [1996] EWCA 163; R v Dimsey & Anor [1999] EWCA Crim 1917; R v
Conway [1996] EWCA 1872; and R v Barnes [1998] EWCA 4086. In the latter two cases the defendants were
registered for VAT and made taxable supplies, but failed to declare. In Conway, the defendant was convicted on
a charge of 'cheating the Public Revenue'. In Barnes the defendant, despite the fact that he had been registered
for VAT, and despite demands by his auditor, still failed to declare VAT. The position in the United States was
well explained in the following extract quoted from Balter (Tax Fraud and Evasion 5th Ed) at 11-41 and 11-42:
“The attempt to evade and defeat tax need not involve filing of a fraudulent return. One who wilfully fails to file
a return where one is required is subject to criminal misdemeanour charges, whether tax is due or not. If,
however, (1) no return was filed, (2) a tax is due, (3) the failure to file was wilful, and (4) there is persuasive
evidence of some affirmative, wrongful act or conduct pointing to a specific intent to evade tax, in addition to the
mere failure to file the return, the government may prefer to proceed with felony evasion charges, which carry a
more severe punishment. It is now settled that evasion charges may be proved in the absence of the filing of a
fraudulent tax return if a wilful attempt is otherwise established.” Also see R v Ackermann 1920 CPD 245 where
the court per Gardiner J at 248-249 inter alia said: “A person may by falsehood, wilful neglect, etc., evade
taxation by means of the return which he has sent in. It may be false or fraudulent return….There may be cases
where the fraud or wilful neglect may consist in failure to make a return.”
347 DEFRAUDING THE REVENUE

declare. Thus misrepresentation by omissio. Academically speaking this is not unsound. In the
Revenue context where there is a legal duty on the taxpayer to register and declare, the
Revenue is fully entitled to rely on the taxpayer complying with that legal duty. Where the
taxpayer does not notify the Revenue of income generating activity or taxable supplies, then
the Revenue is also fully entitled to assume there is nothing to declare. Where the taxpayer
fails to notify the Revenue that he is in fact making taxable supplies, full well knowing that by
failing to do so he is effectively keeping the blanket pulled over the Revenue's head, then he
can hardly protest a finding of deceitful dishonesty. There is a wilful concealment or
suppression of information the Revenue is entitled to, and that concealment or suppression is
intended to mislead.

When looking at those taxpayers who avoid declaring (or registering altogether), we can
identify two groups really. There are those taxpayers whom fail to declare their own income,
and then there are also those whom fail to declare duty and/or tax charged or deducted from
others. The latter category is viewed to be of a particularly serious nature.243 VAT may
typically be charged from clients or PAYE deducted from employees without that VAT or
PAYE being declared and paid over to the Revenue. The taxpayer collecting or deducting the
tax for all practical purposes acts as an agent for the Revenue, charging or deducting the tax
on behalf of the Revenue. This latter group, those whom deduct or collect but fail to declare
and pay over, will almost always also not declare their own income.244

3.8.2 Fraudulent returns

3.8.2.1 Filing of returns
Black’s Law Dictionary245 defines a 'tax return' as: “The form on which an individual,
corporation or other entity reports income, deductions, and exemptions and calculate their tax
liability.” In all tax statutes are to be found elaborate detailed provisions setting out the
circumstances under which certain categories of persons are required to submit certain
returns, and the rules, procedures and requirements to be satisfied for the completion and
filing thereof. Whereas certain categories of taxpayers are not required to submit any returns,
others may be under a legal obligation to file more than one return under different tax statutes.
The taxes payable by or refundable to a taxpayer are calculated by setting off against his
taxable income or output tax, all those deductions or input taxes he is legally entitled to. The
Commissioner’s right to assess for tax is however not dependent on the taxpayer filing a
return.

Knowingly filing a false return misrepresenting the taxpayer's true tax position, and where
intended to evade a tax liability, or intended to obtain some or other tax advantage or refund
the taxpayer is not legally entitled to, is nothing less but fraudulent. In the United States,
England, Australia, New Zealand, South Africa, Canada and most other common law
jurisdictions, such conduct can be charged as evasion or fraud under a variety of fraud and/or
evasion offences provided for in those jurisdictions' common law and/or legislation. In all
these jurisdictions, the tax returns in use, both paper-based and electronic, requires the making
of a declaration wherein the declarant declares the information therein to be truthful and
correct.246 Wilfully making such a declaration with knowledge of the information therein

243
This also seems to be the view of the courts. See e.g. R v Hammond [1997] EWCA 2027
244
The same taxpayer may thus not only evade his own tax, but also misappropriate duty or tax deducted or
charged from others. This then is why integrated audits and investigations are so important within the revenue
and customs enforcement context.
245
Supra at 1462
246
This also applies to bills of entry submitted to Customs.
348 DEFRAUDING THE REVENUE

reflected to be factually incorrect, will amount to a misrepresentation of the truth and the
making of a false declaration.

The fact that a return turns out to be a factually incorrect or false return does not per se justify
an assumption of knowledge on the part of the individual who signed the return as declarant.
Situations may arise where a false tax return may be signed or electronically submitted by a
person whom may well, on the facts of the case, be wholly unaware of the falsity thereof. The
corporate officer tasked with the filing of the company's tax return may submit same in the
full belief of the information reflected therein being complete and factually correct. He may
well be completely oblivious to the fact that the information he relied on and as provided by
his seniors and other employees were in fact false. That does not however absolve from
criminal liability those whom effectively used him to perpetrate the fraud. The taxpayer who
knowingly allows such a fraudulent return to be filed will not escape criminal liability.

Electronic filing
In most jurisdictions, revenue and customs administrations increasingly move away from
paper-based returns and customs entries in favour of electronic filing. Electronic security
measures and signatures are applied in those instances where returns and bills of entry are
filed electronically. The fact that a false return or a false customs declaration was filed
electronically does not make such a return or declaration any less fraudulent. Electronic filing
is no more but a modern method of communication and submission. The return is still a return
and false representations in that return are and remain false representations. The paper-based
return may have proceeded from one postal hub to a Revenue office's post room via another
postal hub, whereas the electronic return is transmitted from one IP address to a Revenue IP
address via servers, but what is posted off or transmitted is and remains a tax return or an
entry communicating through the same information. There was a time in the not so distant
past when there were lawyers who argued that fraud could not be committed over the
telephone or via a computer. The law does however adapt and develop with changing times
and technologies.

Verification
The British tax system in common with that of most jurisdictions is based on a system of self-
assessment. Under the self-assessment system all those taxpayers whose tax liability is not
accounted for under a withholding system are required to self-assess and declare. The
Revenue thus very much relies on the honesty of the taxpayer. Verification of the accuracy of
returns will however always be necessary if compliance and the accuracy of returns are to be
ensured. The Revenue is entitled to verify the validity of the figures and information
contained in any return. This may be done at any stage of the administrative process and also
for past assessment periods and tax years. The starting point for any investigation into the
accuracy of a tax return will always be a determination of what precisely was required to be
reflected in the return and the taxpayer’s books of account.

3.8.2.2 Misrepresentation
As far as false representation go, the filing of fraudulent tax returns is the most common form
of misrepresentation employed by taxpayers intent on evading their tax liabilities, or with the
view to obtain refunds they are not legally entitled to.247 Evading a liability can be achieved
by either: (a) inflating the deductions and expenses a taxpayer is lawfully entitled to deduct;

247
For examples see R v Cannon [1998] EWCA 3981; R v Wahid [1997] EWCA 743; R v Mcbride [1997]
EWCA 4317; R v Allsopp [1997] EWCA 160; R v Chudley [1996] EWCA 823; R v Fink [1996] EWCA 1173.
349 DEFRAUDING THE REVENUE

and/or (b) by under-declaring his/her income.248 With the VAT system a VAT liability can be
evaded by either: (a) inflating the input VAT; and/or (b) by under-stating his output VAT. In
those instances where the declared VAT input tax exceeds the declared VAT output tax, there
will be a VAT refund. A single false tax return may potentially contain multiple false
statements relating to multiple line-items. It may also contain multiple omissions of fact
relating to multiple line-items. Such a false return may also be backed up by a large body of
factually incorrect or incomplete documentation and work product. This may range from
commercial and source documentation, to books of account and financial records, audit
working papers and results, financial statements, auditor's reports etc.

3.8.2.2.1 False statements and unlawful omissions in the return

Completion of a tax return involves the truthful answering of all those fields or lines where a
response is called for, and the furnishing of all such information and supporting
documentation as is required under each of those fields. A return may be misleading due to:
(a) a factually incorrect entry in that return; or (b) due to an omission of fact in that return. It
is a return containing information that is, objectively evaluated, factually incorrect and
misleading, and/or which is misleading for the fact that it fails to disclose certain facts the
non-disclosure of which has the effect of distorting the truth. 'Misleading' does not however
necessarily imply fraud. Factually incorrect information may be so factually incorrect due to
error or deceit. 'False' information on the other hand is information that is factually untruthful
to the knowledge of the person presenting it or passing it on. There is a mental element, an
intent to deceive.249 Likewise, a return may be misleading in that it contains factually
incorrect information and/or in that it fails to disclose certain facts, but the entry of that
factually incorrect information and/or the failure to disclose those facts may be due to error or
deceit. A 'false return' on the other hand is a return that is factually untruthful and where there
is knowledge of the factually incorrect information and/or the omission of fact.

The overall impact of an incorrect statement on the accuracy of a return is a question of fact.
In most instances, it will have the effect of misrepresenting the taxpayer’s true tax position,
and of posing actual or potential prejudice for the Revenue. False statements or omissions
must be material. For such an entry or omission to be material, it must be important or
significant. We earlier stated that a return may be fraudulent by reason of it being filed as an
incomplete return where material facts or information is wilfully and unlawfully omitted with
the intent to defraud.250 It is to be noted that the omission of material facts from a tax return
does not make the taxpayer's misrepresentation a misrepresentation by ommissio. The non-
disclosure in the return may be an omission of fact, but the filing of such an untruthful return
is and remains one of misrepresentation by commissio.

248
See The Commonwealth Association of Tax Administrators, Tax Evasion and Avoidance – Strategies and
Initiatives used by CATA Member Countries at 5-6 where CATA member States indicated the most serious
problems faced by the tax administrations of those States as: (i) non-declaration of income; (ii) under-reporting
of income; (iii) over-claiming of expenses; (iv) non-filing of tax returns; (v) claiming of personal expenses as
business expenses; (vi) individuals generating income through business activity but not registering; (vii)
smuggling; and (viii) VAT fraud.
249
See Black, A Law Dictionary, 2nd ed and at 480 where “false” is defined as follows: “False. Untrue;
erroneous; deceitful; contrived or calculated to deceive and injure. Unlawful. In law, this word means something
more than untrue; it means something designedly untrue and deceitful, and implies an intention to perpetrate
some treachery or fraud.” And then at 480 where “false entry” is defined as “False entry. In banking law. An
entry in the books of a bank which is intentionally made to represent what is not true or does not exist, with
intent either to deceive its officers or a bank examiner or to defraud the bank.”
250
See e.g. R v Dimsey & Anor [1999] EWCA Crim 1917
350 DEFRAUDING THE REVENUE

The making of false statements in a return, or the omission of facts in a return, will not
necessarily always be with the objective to evade a tax liability. Doing do may, albeit not
often, also be motivated for other reasons. The intent to evade may be there and the evasion of
tax may be a foreseen consequence, but the primary motive or objective may be wholly non-
tax related. Examples that come to mind are that of the employer not deducting PAYE from
employees' salaries as they are illegal aliens and for fear of their unlawful employment being
detected, or taxpayers failing to declare income generated from unlawful activity/crime (for
fear of information leaking out to law enforcement). Motive and criminal intent are two very
different things and must be distinguished from one another.

3.8.2.2.2 Misrepresentations in support of the return form

Taxpayers are required to keep proper records and books of account enabling them to meet
the requirements of the tax legislation and to satisfy the Commissioners of the provisions of
the tax legislation having been complied with. Certain documentation, such as tax invoices,
debit notes, credit notes, and import documentation, must also be kept before a deduction can
be claimed. Such books, records and documentation must be kept and be made available for
inspection as and when required. With the better-planned frauds, the fraud can be expected to
be planned and executed in greater detail and depth. The more in-depth the planning and
execution, the more likely the chances of escaping detection in the event of inspection or in
the event of the taxpayer attracting revenue attention.

The false tax return will usually be the final product or the top layer so to speak of a fraud
built on and backed up by different layers of misrepresentation. Various other
misrepresentations, in words and/or by conduct, may be used in support of or to compliment
the false representations in that false return.251 The false information and figures as reflected
in the return will usually mirror the information as reflected in the documentation, records,
and books of account kept and/or submitted in support of the false return. The fraudulent
manipulation will in most cases be thought out and built up from the feet up starting with the
non-recording of transactions, the issue of false invoices, the making of false entries in the
books of account etc. The quantities of supporting documentation and data we are referring to
here obviously depends on the complexity and scale of operations of the taxpayer. Where
dealing with the local hairdresser all his/her records in support of a given tax period may
involve no more but a few files, whereas that of a subsidiary of a large multinational
corporation may consist of many thousands of files. This then also brings us to another
important point. The information as reflected in a tax return will often represent the direct and
indirect work-product of many different individuals, internal and/or external in relation to the
taxpayer. The roles of, and the extent of the involvement of each of those individuals in the
delivery and/or preparation of that body of work may vary considerably. Where there were
indeed irregularities, the knowledge that each of those individuals might have had of what
was in fact afoot may likewise vary. Where one deals with fraud, the question of mens rea
always demands a determination of both the actor's knowledge and wilfulness. It is not
uncommon for an enquiry to me met with all denying knowledge of any wrongdoing or for all
to point the finger at someone else.

Cases may arise where a taxpayer may, depending on jurisdiction-specific practices that is,
submit an incomplete tax return together with his records and books of account, leaving the
completion of the return and assessment to the Revenue officers. Where the accompanying
records and books of account are false and misleading, then the Revenue's assessments will

251
In the Customs context this then will also be the case with many customs frauds. With the better planned
frauds the fraudulent bills of entry can be expected to be backed up with fraudulent commercial documentation,
transport documentation, licenses and permits etc.
351 DEFRAUDING THE REVENUE

likely be incorrect. To knowingly submit fraudulent documentation knowing that Revenue-

reliance thereon may mislead and prejudice the Revenue cannot be viewed as anything but
fraudulent.252 In these instances the fact that the taxpayer did not personally complete the
various fields and line-items in the return does not make what he did anything less than
fraudulent. This situation is in fact very common pre-filing. Many a taxpayer provide their tax
agents and accountants with fraudulent records and books of account, with that tax agent or
accountant then completing his client's returns based on the information as provided by the
taxpayer. Those returns are and remain fraudulent returns.

3.8.2.3 Proving the return to be fraudulent

Very broadly speaking, what we will find is that in most common law jurisdictions, in making
out a case of fraud (for the submission of fraudulent tax returns), evidence proving beyond
reasonable doubt the following circumstances will usually suffice to secure a conviction:

(a) the taxpayer filed a return or allowed a return to be filed;

(b) certain facts were in law required to be truthfully declared in said return;
(c) (i) the information therein reflected was factually incorrect; and/or (ii) certain
information the disclosure of which was called for was not disclosed (in breach of a
legal duty to disclose);
(d) the factually incorrect statements therein reflected or the facts therefrom omitted had
the effect of misrepresenting the taxpayer's true tax position;
(e) the return was submitted or was allowed to be submitted with knowledge of the
factually incorrect information therein reflected and/or the information therefrom
omitted;
(f) the intent to evade / the intent to defraud.

In part 5 of this manual will follow brief discussions on a number of commonly used evasion
and fraud offences provided for in Britain, the United States and a number of other
jurisdictions. Whether or not a tax return is so incorrect or misleading as to say that it
misrepresents the taxpayer's true tax position involves an objective assessment. It is objective
truth alone that is relevant. The knowledge of the taxpayer only becomes relevant once the
return has been proven to be one that misrepresents the true position. The intent to evade or
defraud cannot be assumed or deduced from the mere fact that the information as reflected in
the return is factually incorrect. It need be proven that the return is in fact a false return
prepared and submitted with the intent to evade or defraud. The taxpayer cannot be held liable
on charges of fraud or tax evasion where incorrect statements were made or information
omitted due to honest mistake or error. This is the position in England, Australia, the United
States, and most common law countries.253

252
See the English case of R v Hudson [1956] 1 All E.R where Lord Goddard at 815 inter alia said: “Sometimes
a trader, instead of making a return of his profits by putting in a figure into his income tax return, sends in his
documents and leaves the inspector to decide how much his return should show. If he sends in incorrect
accounts, knowing that they are incorrect, he is deliberately endeavouring to defraud the Crown, and he is
endeavouring to mislead the inspector who has to calculate his liability to tax from the document which he sends
in”, and then at 817: “The offence here was sending in documents to the Inspector of taxes which were false and
fraudulent to the appellant’s knowledge. The jury found it proved….The jury must be taken to have found that
these documents were not only false and fraudulent and that the appellant knew that they were false, but also
they must have taken the view, the only possible view, that the appellant did it for the purpose of avoiding the
payment of tax, and that is defrauding the Crown and defrauding the public.”
253
See e.g. the following instructions in US v Beck 59-2 U.S.T.C. 9486 (W.D. Wash. 1959) to the jury in that
case and as quoted by Balter, Tax Fraud and Evasion, 5th ed, at 14-78: “Incorrect or understated income tax
returns which are the result of a taxpayer’s bona fide mistakes, negligence or carelessness, however great, or the
incompetence, negligence, mistakes or wilful errors of persons whom the taxpayer in good faith relied on to
prepare his returns, are not sufficient to support conviction in a criminal case. If the taxpayer acts without the
352 DEFRAUDING THE REVENUE

3.8.2.4 Under-declaration of income

Whereas refund-frauds are relatively ‘new frauds’ within the context of taxation, the under-
reporting of income is probably just as old as taxation itself. Under-reporting has long been
recognized to be fraudulent.254 Misrepresentations that may be employed to achieve an under-
declaration of income may fall under either or both of the following two categories:

(a) The failure to disclose certain facts or circumstances (in breach of a legal duty to
disclose), and where that non-disclosure results in the taxpayer not being properly
assessed. An example of this will be the taxpayer's failure to disclose in his/her tax
return certain investments, employment, or business operations; and

(b) The making of false statements relating to certain facts or circumstances, and where
Revenue reliance on those false statements result in the taxpayer not being properly
assessed. An example in point will be to disclose certain business activities but the
under-statement of the income generated in the course thereof;255

Proving an under-declaration may, depending on the facts of the case, be a difficult hurdle to
cross. This is for the simple reason that it is for the prosecution to prove, beyond reasonable
doubt, the existence of the ‘income’ alleged to have been under-declared. This may prove
difficult where the taxable activities were conducted clandestinely within the underground
economy, and/or in the absence of proper record-keeping, and/or in foreign jurisdictions and
where information and evidence may not be forthcoming and/or admissible as evidence
domestically.

Proving under-declaration of income

Proving an under-declaration relies upon proof, beyond reasonable doubt, of the taxpayer
having in fact misrepresented his true tax position. An accused taxpayer cannot be held to
have misrepresented his true tax position in the absence of proof: (i) of the basis of the
taxpayer’s taxability; (b) the taxpayer’s tax liability; and (c) that what the taxpayer did in fact
declare was factually false. This can be a difficult burden to meet where taxability and tax
liability is placed in dispute.

wilful intent of evading tax, he is not guilty of the crime here charged even though his income and tax due
thereon was understated on his tax returns.” Also see the following remarks by Bell J in R v Yardley [1998]
EWCA 3038: “Secondly, and really as part of her first challenge, Miss Andrews argues that the judge erred in
answering a question from the jury, namely ‘If you do not understand or misunderstand the VAT rules is this a
reasonable excuse or defence?’ What the judge did was to repeat that the essence of the crime alleged was
dishonesty – fraud. He said that an honest misunderstanding of the VAT rules could or might be the reason for a
non-declaration, and, if so, there would be no crime; but a person might misunderstand some aspect of the VAT
rules and be dishonest as well. He said, rightly, that it was a question of whether the jury were sure that the
failure to declare tax arose from an intent to defraud.”
254
See e.g. the old leading authority of R v Hudson [1956] 1 All ER 814 where it was inter alia held that
(quoting from the header): “ …. making a false statement tending to prejudice the Queen and the Public Revenue
with intent to defraud the Queen is and always has been, a common law misdemeanour, and includes the offence
of causing to be delivered to an inspector of taxes, accounts relating to the profits of a business which falsely and
fraudulently state the profits to be less than they actually were”
255
This is probably the most commonly employed method of under-declaring income or taxable supplies. With
inspection and audit always a possibility, the taxpayer will usually employ some of the oldest tricks in the book
to avoid being found out. This may typically involve the issue of duplicate invoices, under-invoicing, failing to
deposit money into the business bank account, working strictly with cash and not ringing up all sales, and the
under-declaration of sales in books of account.
353 DEFRAUDING THE REVENUE

In the Canadian case of R v Ross,256 the Supreme Court of Nova Scotia was called upon to
consider a matter where the respondent was (in the trial court) acquitted on charges that inter
alia alleged that he failed to include income in his tax returns and that he evaded the payment
of income taxes thereon. The same respondent had been convicted in an earlier prosecution on
charges relating to cigarette smuggling. The Police subsequently informed the Canadian
Revenue of the respondent's involvement in the smuggling operation. The Revenue initiated
an investigation into the Respondent’s compliance with the Income Tax Act. The Revenue
was unable to obtain the respondent’s records relating to his income and expenses (the latter
alleged that same were destroyed in a fire). The Revenue then proceeded to conduct a net
worth assessment of the respondent (for a two year period). The audit revealed what the
Revenue believed to be a substantial amount in unreported income; income which the
Revenue argued increased the respondent’s net worth for that two year period. The Revenue
argued a total net worth increase of $57 947.18 for the first year and $29 206.45 for the other.
The Revenue included into that calculation values relating to inter alia (i) the acquisition and
disposal of several automobiles, skidoos, seadoos and motor cycles; and (ii) large sums of
money which were posted as bail to secure the release of the Respondent and others charged
with the related offences. The respondent argued that the vehicles and money were not his
property and should not have been included into his net worth calculation for the two year
period in question. The Revenue rejected the taxpayer’s submissions and included those
values in arriving at their net worth calculation. On behalf of the respondent it was argued
that: (a) during the two year period in question the respondent's wife also earned income
which was not reported to Revenue Canada; (b) the respondent’s wife’s income was wrongly
included in calculating the respondent's net worth / the Revenue failed to make allowance for
unreported income the respondent's wife may have earned; and (c) the Revenue was informed
that the respondent had received substantial sums of cash in insurance proceeds, a fact it was
argued the Revenue failed to take into account in calculating the net worth increase.

In the trial court the respondent contested: (i) the appropriateness of using net worth
statements argued to relate to both the respondent and his wife as the basis for a prosecution
of the respondent only; and (ii) the failure of the Revenue to investigate information furnished
by the respondent and which it was argued could have explained a significant portion of what
was argued (by the Revenue) to be his net worth increase. The court a quo confirmed the use
of net worth statements in Canadian courts as a means for determining a taxpayer’s income in
cases where there are inadequate financial records, and acknowledged net worth statements as
an accepted method for supporting income tax prosecutions. However, it was the court’s view
that the prosecution was fundamentally flawed. The prosecution it was held failed in its
burden of proving beyond reasonable doubt that there was indeed unreported income or
unpaid taxes and the respondent was acquitted. On appeal, the Supreme Court agreed with the
trial court’s decision and the judge’s reasoning. The Revenue was criticized for its failure to
investigate: (i) the full extent of the respondent’s wife’s contribution to the respondent’s net
worth; (ii) the merits of the loans allegedly made; (iii) the merits of the alleged insurance
payments received; and (iv) the true ownership of the property disposed of. The cumulative
effect of the respondent’s spouse’s contribution coupled with the respondent’s other
explanations, were those explanations accepted to be true, was held to be potentially of
sufficient weight to explain away what the Revenue argued to be a net worth increase. On
appeal, the Court (per Scanlan J) inter alia explained:

“The trial Judge correctly noted that the use of net worth statements as a means for determining a
tax payer’s income, in circumstances where there are inadequate financial statements, has been
approved as an accepted method for supporting income tax prosecutions. The failure of the tax

256
[1998] 3 CTC 159 (Supreme Court of Nova Scotia)
354 DEFRAUDING THE REVENUE

payer to report significant amounts of income may support an inference that his or her actions
were wrongful (see R. v. Lowe (1976) 26 C.C.C. (2d) 346 (Ont. Prov. Ct.) and R. v. Nicholson
(1975), 75 D.T.C. 5095 ... In the present case much of the evidence, if accepted by the trial Judge
would tend to impeach the validity of the net worth statement as a means of proving the various
offences against the Accused/Respondent. I say this not to suggest that a net worth audit cannot
provide a proper basis for a prosecution under the relevant sections of the Income Tax Act. A net
worth assessment can provide evidence sufficient to maintain a conviction. The evidence must
prove beyond a reasonable doubt that the accused person committed the offence charged. In this
case for example the joint net worth assessment included unreported income of the Respondent's
wife. That income must be excluded from the accused's net worth in order to be used in the
prosecution of the accused. A joint net worth statement is only evidence against an accused to the
extent that the crown can prove beyond a reasonable doubt that the assets included in calculating
the net worth are assets of the accused. If the assets are not proven to be assets of the accused then
the evidence does not tend to prove that the accused had committed the offense as alleged. If the
crown is not able to prove what amounts an accused contributed to the net worth then the most that
can be adduced from the evidence is that one of the two people covered by the net worth statement
had unreported income or unpaid taxes. ... In this case it would be necessary that the crown prove
which person covered by the net worth statement had the unreported income or unpaid taxes. If the
Crown uses a joint net worth statement in a criminal prosecution the Crown must be prepared to
fully investigate both spouses as regards their income, whether it be from legitimate or illegitimate
sources. In the present case there was a great deal of evidence which would indicate that Debbie
Ross had unreported income amounting to several thousands of dollars. This unreported income
would, of course, have contributed to the net worth of the couple but it is not evidence that the
accused had unreported income. That evidence is only evidence against the accused's spouse. It is
inappropriate that the unreported income of the Respondent spouse would be used as part of the
total net worth attributed to Mr. Ross as part of the basis for the charges now under review.”

This decision, and the Court’s reasons for finding in favour of the respondent, cannot be
faulted. The Court highlighted a number of important principles, all equally valid in the
United States, Britain, and no doubt many other jurisdictions:

(a) Each taxpayer’s tax liability is his own and cannot be attributed to another and vice
versa; 257
(b) In the absence of sufficient financial records, indirect methods for determining a
taxpayer’s income, such as the net worth method, can be admitted as evidence for
supporting a tax prosecution, and may well be of sufficient weight to carry a
conviction;
(c) The existence of a tax liability need be proven beyond reasonable doubt if it is to be
relied upon as the basis for an allegation of misrepresentation relating to such tax
liability;
(d) The prosecution carries the burden of proving beyond reasonable doubt that there was
indeed income that did go unreported.258

257
In this respect Scanlan J provided the following appropriate analogy: “... I would point out that in a criminal
proceeding it would not be sufficient for the crown to prove that there were only two people in a room and that
one of them must have stolen missing property. Additional evidence would be required to show which of the two
actually stole the property in order to obtain a conviction of either.”
258
The same principle applies in Customs prosecutions where there is an allegation of undervaluation. See e.g. R
v Sauer and Rhodes 2003 BCPC 541 (Provincial Court of British Columbia, Canada) where the importers faced
35 charges of “falsely declaring the value of goods” imported from Korea to Canada. It was alleged that the
importers through the use of sham transactions only declared 75 percent of the value of the imported goods. All
the charges were dismissed as the prosecution was held to have failed to prove beyond reasonable doubt an
undervaluation.
355 DEFRAUDING THE REVENUE

To conclude, in proving evasion or fraud where that evasion or fraud involved an under-
declaration of income, the onus is on the prosecution to prove beyond reasonable doubt: (i)
that there was indeed taxable income; (ii) there was a legal requirement for that income to be
declared; (iii) there was an unlawful non-declaration or under-declaration of that income; (iv)
that unlawful non-declaration or under-declaration of income resulted in the underpayment of
tax or the risk of underpayment of tax; (v) that non-declaration or under-declaration was
wilful and intended to evade or defraud.

3.8.2.5 Claiming deductions or expenses not entitled to

Many a taxpayer wilfully and knowingly file tax returns wherein they falsely give out to the
Revenue that he/she is entitled to certain tax deductions, expenses, or claims.259 What is or is
not tax deductible at any given point in time is a question of law. This may vary from tax
regime to tax regime, statute to statute, and will often change over time. Claiming a deduction
or expense where such a deduction or expense is not legally claimable is unlawful. Unlawful
however does not equate to evasion or fraud. Honest errors do happen, especially in an area
such as taxation, a technical subject-field subject to frequent change. That being said,
willfully and knowingly claiming a deduction or expense where that deduction or expense, to
the knowledge of that person, is not legally claimable, will be nothing less but fraudulent. In
the false return, the false statements or misrepresentations relating to those unlawfully
claimed deductions or expenses will generally fall under either of the following categories:

(a) The claiming of fictitious deductions. Typical examples of this will be to claim as
business expenses salaries paid out to non-existent employees, or to claim for VAT
input tax where the goods or services were in fact not acquired;260
(b) The claiming of non-deductible expenses as deductible expenses. An example in point
will be the declaration of private expenses as business expenses;261 and
(c) Double deductions for the same expense;

As pointed out in the previous sections, the misrepresentations in the return itself will often be
backed up with further layers of artifice, trick, deception, or misrepresentation. This may
range from the concealment of things, to 'manufactured' false or sham contracts and
agreements,262 the falsification of documents, false entries in books of account, the generation
of false commercial documentation, and the simulation of payments and cash flow. The
claiming of deductions or expenses not legally claimable has as obvious consequence final
assessment-amounts that are under-value and prejudicial to the Revenue.

3.8.2.6 Fraudulent schemes

The types of fraudulent schemes employed by taxpayers intent on defrauding the Revenue are
legio. The same fraudulent operation may involve multiple, often thousands of transactions,
often executed as an ongoing operation over many years, may involve multiple offenders, and

259
See e.g. Hunt v Criminal Cases Review Commission [2000] EWHC Admin 307 (an English case); The Queen
v Butler [2003] NZCA 21 (New Zealand); and R v Anthony James Dickson [2015] NSWSC 268 (Australia)
260
See e.g. The Queen v Butler [2003] NZCA 21 where the appellant filed a false tax return wherein he claimed
as deduction (for purposes of GST) the alleged purchase of a commercial property. No agreement for the
purchase had in fact been reached and as such there was in law no purchase or expense to claim for. Also see the
Australian case of R v Nicholson; ex parte DPP (Cth); R v Hyde-Harris; ex parte DPP (Cth) [2004] QCA 393
(Supreme Court of Queensland – Court of Appeal) where one of the appellants claimed as deductions $ 882
500.00 in GST allegedly paid on the acquisition of 29 internet domain names. The appellants were convicted
following a finding that there was no genuine sale agreement and that the claims were in fact fraudulent.
261
See e.g. R v James [1997] EWCA Crim 624
262
Sham lease agreements, service agreements, loan agreements, and contracts of sale being particularly
common. See e.g. the facts in the Australian case of R v Anthony James Dickson [2015] NSWSC 268
356 DEFRAUDING THE REVENUE

may involve the commission of a wide array of different types of offences. The operation of a
single scheme may involve multiple taxpayers, domestic and foreign, and may involve and
impact on multiple tax regimes. The fact that a criminal operation has as consequence the
evasion of tax does not necessarily mean the scheme was set up or operated with the
objective, or sole objective, of evading taxation. It is not uncommon to come across criminal
operations where the main objectives pursued were non-tax related, set up and operated in
furthering some other form of criminality e.g. the circumvention of exchange controls, or
money laundering. However, where there is wilful evasion or fraud, it can be prosecuted
regardless what the offender's motive or primary objective might have been.

Where a fraudulent operation involves numerous fraudulent transactions, fraudulent returns,

or fraudulent claims, then each of those fraudulent transactions, returns, or claims may in
many if not most cases form the basis of a separate charge. This will obviously depend on a
jurisdiction's legal framework and the facts of the case. However, the prosecution will often
opt to limit the number of offences prosecuted, often prosecuting the defendant for his
participation in, or conspiracy to engage in that wider fraudulent operation rather than
prosecuting on an indictment charging hundreds of offences. Sentences on multiple
convictions will usually run concurrently with the result that the defendant convicted of say
fifty offences may well receive a prison sentence not that much different from that of the
defendant convicted of say five similar offences. Cutting down on the number of offences
charged may thus greatly assist with case management and cutting down on trial duration,
which in fraud cases can be exceptionally long and disruptive for all concerned, but without
necessarily impacting too heavily, if at all, on ensuring adequate deterrence.

In common with some of the tax avoidance schemes out there, some fraudulent operations
may consist of or involve the interaction of what may be a cluster of schemes, arrangements,
or simulated transactions. Looking at each of those transactions, arrangements, or schemes in
isolation, the conclusions drawn may be that each of those transactions, arrangements, or
schemes may be lawful. However, a very different conclusion may be drawn where the
nature and consequences of all those individual transactions, arrangements or schemes, are
considered as and when they come together and interact with one another. It may only be
when that cluster or trail of schemes, arrangements, or simulated transactions and the way
they interact with one another is viewed together, all in its totality from the outside so to
speak, that some or all of those individual schemes, arrangements, or simulated transactions
may be recognized as in fact but building blocks of a wider fraudulent scheme. Detecting
these types of operations can only be expected to be difficult, for reasons that should be
obvious. These types of schemes will always be complex, often structured by some of the
most talented tax planners out there. Then there is also the reality that the detection of a fraud
is considerably less likely in the absence of features or circumstances that may arouse
suspicion. In the revenue context frauds are detected as a result of information received,
audits, and verification. With audits, inspections, and verification exercises, most frauds are
detected as a result of something irregular or suspicious that draws the inspector's attention.
That may typically be a breach of procedure, an accounting error, a false statement, a
misdescription, irregular relationships, or transactions that do not make commercial sense.
With most frauds the underlying components or transactions of that fraudulent scheme, or at
least some of them, will be false and misleading. Once one of those components or
transactions come over as irregular or suspicious, there is a high probability of further
investigation and its identification as false, thus opening the door to further enquiries and
possibly uncovering the wider fraudulent operation. The likelihood of detecting a fraud is just
that much slimmer where all or most of the underlying components appear to be legitimate
and above-board.
357 DEFRAUDING THE REVENUE

Simulated arrangements
In previous chapters be pointed out the difficulties associated with simulated transactions
within the context of tax avoidance. We also pointed out that the English courts, and that of
many other jurisdictions, have long since recognized and applied the doctrine of ‘substance
over form’, disregarding the simulated transaction and giving effect to the true nature of the
transaction. A simulated arrangement by its very nature is something that purports to be
something other than what it in fact is. An authoritive definition of a ‘sham’ which has been
widely followed by the courts in numerous common-law countries is to be found in the
English case of Snook v. London & W. Riding Investments Limited263 where Judge Diplock
inter alia said:

“I apprehend that, if it has any meaning in law, it means acts done or documents executed by
the parties to the ‘sham’ which are intended by them to give to third parties or to the court the
appearance of creating between the parties legal rights and obligations different from the
actual legal rights and obligations (if any) which the parties intend to create.”

The fact that an arrangement is entered into for the sole purpose of securing a tax advantage
does not mean it is a sham or unlawful. That arrangement may well be intended to have legal
effect and may well be lawful.264 The taxpayer’s legal relationships will then also be respected
unless they are found to be a sham.265 The intended objectives with such a simulated or sham
transaction, arrangement, or scheme may vary. It may typically be set up in an attempt to
represent a particular class of transaction as something other than what it in fact is, or with the
view to conceal the true identity of a party, or in an attempt to conceal the true purpose or
consequences of a transaction or arrangement. Whether or not a transaction, arrangement, or
scheme, is a sham, is an enquiry which a court will undertake taking into account all the facts
and circumstances of the case.

263
[1967] 2 Q.B. 786 at 802. Also see San Remo Macaroni Co v Commissioner of Taxation [1999] FCA 1468
where Hill J inter alia said: “In Anglo-Australian law the word sham has tended to convey a transaction entered
into by two or more parties with the common intention that the transaction is a disguise for some other and real
transaction or no transaction at all: cf Sharment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449”.
Also see the Australian case of R v Anthony James Dickson [2015] NSWSC 268 where it was inter alia
explained: "A sham is a document such as a contract which has the form or appearance of a legally effective
document but is really one which the relevant parties intend should not have its apparent, or indeed any legal,
consequences (Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55 …It is “intended to be
mistaken for something else, ..., a spurious imitation, a counterfeit, a disguise or a false front”, something that is
not “genuine or true” (Sharrment Pty Ltd & Ors v Official Trustee in Bankruptcy [1988] FCA 179; … To
determine whether such a document is a sham there must be a consideration of the subjective intentions of the
relevant parties (Raftland Pty Ltd v Commissioner of Taxation [2008] HCA 21"
264
See R v Anthony James Dickson [2015] NSWSC 268 where it was inter alia said: "Simply because a contract
appears to be circular or uncommercial or lacks economic sense does not necessarily mean it is not a genuine or
true contract (Raftland at [149]). Even if an agreement was entered into for the sole purpose of obtaining
favourable tax treatment it does not necessarily follow that it was not genuinely intended by the parties to have
legal effect. Also, the fact that parties to a contract later depart from its terms does not necessarily mean that they
never intended the contract to be legally binding (Raftland at [149]) although it can assist in forming such a
conclusion. Parties can genuinely intend to enter into a contract but sometimes events transpire to mean that they
cannot fulfil them."
265
See the Canadian case of R v Sauer and Rhodes 2003 BCPC 541 where Rounthwaite J in considering charges
against importers alleged to have used sham transactions to under-declare imports into Canada, inter alia said (at
paragraph 10): “In assessing the evidence I bear in mind that a court must be sensitive to the economic realities
of a particular transaction, rather than being bound by its apparent legal form. But the economic realities of a
situation cannot be used to recharacterise a taxpayer’s bona fide legal relationships. A court should only
recharacterise a transaction if the taxpayer’s label does not reflect its actual legal effect. It must respect a
taxpayer’s legal relationships unless they are contrary to the Act or found to be a sham” (Rounthwaite J
following Canada Limited v The Queen 99 DTC 5669)"
358 DEFRAUDING THE REVENUE

Proving a simulated transaction, scheme, or arrangement to be such as to amount to unlawful

misrepresentation may prove difficult, but as difficult a burden as that may be, it is just one
hurdle to cross. Probably the most ambitious and difficult challenge to meet is that of proving
the mens rea or guilty state of mind - the knowledge and dishonesty of the taxpayer. One of
the main reasons for this is the commercial and legal complexity of many of these
arrangements and schemes. The potential impact of commercial and legal complexity on the
outcome of a criminal enquiry cannot be stressed enough. The greater the complexity of a
given arrangement or scheme: (a) the more likely the possibility of that arrangement or
scheme belonging to a class not previously encountered or foreseen by the legislature with an
increased likelihood of shortcomings or gaps in legislative frameworks; (b) the more limited
may be the pool of line revenue personnel with the exposure and experience to audit,
investigate, or escalate the matter (appropriately as and when required). This makes more
likely fraudulent arrangements or schemes escaping detection and not being appropriately
escalated; (c) the more limited may be the pool of investigators and prosecutors with
experience in investigating and prosecuting those cases; (d) the more difficult it may be to
present to a jury and the more likely some members of the jury may struggle to understand it;
(e) the more limited may be past prosecutions with similar facts and challenges, and thus less
in terms of past case law and authority; (f) the more difficult may be distinguishing between
lawful and unlawful, and the more difficult may be the burden of proving an arrangement to
be unlawful; and (g) the more real the possibility of misinterpretation, honest error, and the
more likely that a jury will find reasonable doubt as to the defendant's dishonesty / criminal
intent.

There is little doubt that many of the simulated transactions, arrangements, or schemes
encountered by revenue administrations on a daily basis, and for the most part viewed and
dealt with as no more but 'aggressive tax avoidance', will, if subjected to thorough
investigation and rigorous legal scrutiny by experienced financial prosecutors, turn out to be
cases involving unlawful misrepresentation and fraud rather than just the lawful
circumvention of Parliamentary intent (avoidance). Another reality is that neither revenue
administrations nor prosecuting authorities are eager to engage in prosecutions where there is
a relatively high risk or even probability of acquittal. There are no doubt many instances
where the authorities do identify simulated arrangements or schemes as highly likely
fraudulent, or where the available evidence may well justify a prosecution for fraud, but
where they may nevertheless opt to handle the matter as one of 'avoidance' rather than
proceeding with a prosecution, for the simple reason that they recognise the difficulties
associated with proving those cases.

3.8.2.7 Concealment of tax avoidance arrangements

In previous chapters we pointed out the distinctions between tax avoidance and tax evasion.
There may be considerable disagreement as to the ethics of tax avoidance, but what is beyond
any doubt is the legality or rather 'non-criminality' thereof. It is not criminal conduct. That
being said, in many jurisdictions there is growing pressure to clamp down on the levels of
avoidance, and legislatures and revenue administrations are steadily moving towards filing
and reporting frameworks compelling the disclosure by taxpayers of all tax avoidance
arrangements or arrangements posing risk of abuse. Many a taxpayer, and just as often the
agents acting on their behalf, seems to struggle in finding that safe area between presenting
his/the taxpayer’s tax position in the most favourable way possible, but nevertheless ensuring
sufficient and honest disclosure of all those arrangements and practices calling for disclosure.
On the one hand there is the problem of identification and distinction. It is not always an easy
task to distinguish between reportable and non-reportable arrangements. But even where an
arrangement is identified as one to be disclosed, many taxpayers walk a very fine line.
Taxpayers and their advisors will usually attempt to make adequate disclosure, but they will
359 DEFRAUDING THE REVENUE

then usually also attempt to do so without drawing attention to that arrangement or its nature
or operation. That may be a perilous balance to strike where the line between truth and untruth
can be a very thin one. What is expected is clear. Where a reporting position is unclear,
especially in those circumstances where failure may result in criminal sanction, then the
Commissioners should be given the opportunity to consider the matter. 266 Where the reporting
position is clear and disclosure is called for, any disclosure which is, objectively assessed, so
factually incorrect or so incomplete as to misrepresent the existence or true nature of the
arrangement is not sufficient.

Not surprisingly, many a taxpayer opts to conceal the existence or true nature of certain
arrangements, even where those arrangement may be lawful e.g. a reportable tax avoidance
scheme. The incentive for doing so is obvious. Accurate and complete disclosure may alert
the Revenue, thus potentially opening the door to possible audit and assessment. It is hoped
that the concealment of the true and complete facts will prevent the Revenue from making
unwelcome inquiries and taking the appropriate action.267 Concealment can be achieved with
any combination of false statements and/or non-disclosures. False statements and omissions
of fact will often go beyond just the tax return itself. Those false statements or omissions will
often reflect or correspond with false statements and information and/or omitted information
in other documents, records, books of account, and financial statements. ‘Concealment’
implies wilful intentional conduct. Factually incorrect but nevertheless honest statements, and
non-disclosures as a result of honest error, will thus never be 'concealment'. Honest errors do
occur and frequently so, but it is also the most oft-used defence raised by every taxpayer
finding himself on the wrong side of a criminal enquiry. The wilful non-disclosure of an
arrangement, even if that arrangement per se may be one that is lawful, and doing so in breach
of a legal duty to disclose, and to falsely represent that full disclosure has been made but
where the taxpayer knows that not to be so, amounts to nothing less but unlawful
misrepresentation.268 For a taxpayer to so unlawfully misrepresent the truth with the intent to
defraud the Revenue is fraudulent misrepresentation. This then is often where 'tax avoidance'
enters the criminal courts. Taxpayers are not being prosecuted for 'tax avoidance'. 'Tax
avoidance' is never fraudulent and is never the offence. The fraud lies in the fraudulent
concealment of the existence of the scheme in breach of a legal duty to disclose its existence,
or in fraudulent misrepresentation as to the true nature or operation of such a scheme.
Whether there is such a legal duty to disclose and the extent of the disclosure that is called for
obviously depends on jurisdiction-specific legal frameworks and the facts of the case.

3.8.2.8 Failure to disclose a change in circumstances

The Revenue can in certain instances be defrauded by taxpayers or claimants dishonestly
failing to disclose a change of circumstances. Whether a failure to disclose will be a criminal

266
See Taxation and Proffessional Ethics, Circular 7/99, South African Institute of Chartered Accountants, May
1999, where it was correctly stated: “It is the view of the Institute, however that where the tax consequences of
any transaction are in doubt, the revenue authorities must be given the opportunity of considering the matter.
This would be achieved by adequate disclosure in the financial statements or tax returns, albeit in the form most
likely to favour the taxpayer’s case. To place the matter beyond doubt by non-disclosure of the item in question
amounts to tax evasion.”
267
See Wai Yu-Tsang v R [1992] AC 269 where it was inter alia said:“…’intent to defraud' can exist where there
was no other intention than to deceive a person responsible for a public duty from doing something, or failing to
do something, which he would not have done, or failed to have done, but for the deceit."
268
See e.g. R v Hudson [1956] 1 All E.R where the accused was convicted for “making false statements…with
intent to defraud” arising from a statement to the effect that he had disclosed all information pertaining to his
bank accounts and tax liability, while this had not, in fact, been done. At 815, Lord Goddard inter alia remarked:
“They are saying, in effect, ‘Tell us in so many words that you have made full disclosure.’ If the taxpayer says
that he has made full disclosure when he knows full well that he has not, then he is acting fraudulently.”
360 DEFRAUDING THE REVENUE

offence, obviously depends on the facts of the case, the legal framework of a given
jurisdiction and the offences available in that jurisdiction, and the existence of a legal duty to
disclose that change in circumstances. Provisions containing or laying down various
disclosure-requirements are common in the revenue and customs legislation of most
jurisdictions. These are especially common in Customs, VAT, and social security legislation.
These disclosure requirements are common in those situations where a change in
circumstances result in a taxpayer, trader, or beneficiary no longer being entitled to certain
refunds, rebates, payments, or benefits, but where the prompt adjustment, and/or reversal,
and/or suspension, and/or recovery of those payments, benefits, or refunds is dependent on the
prompt disclosure of that change in circumstances by the taxpayer, trader, claimant, or
beneficiary. The result of such disclosure will often be Revenue interviews and audits, the
adjustment, and/or reversal, and/or suspension of past, present, and future payments, refunds,
or benefits, and/or the recovery of past payments, refunds or benefits, and re-evaluation or re-
assessment by the Revenue of a taxpayer, trader, or beneficiary's future entitlement to certain
benefits, refunds, entitlements, and registrations. As can only be expected there will always be
those whom will refrain from disclosing such a change in circumstances so as to avoid these
potential consequences.

What we are dealing with in these cases is the typical fraudulent concealment scenario. The
Revenue is legally entitled to be informed of the change in circumstances. There is also an
underlying trust relationship between the taxpayer, trader, or beneficiary and the Revenue. In
the absence of disclosure the Revenue is legally entitled to assume the taxpayer, trader, or
beneficiary is not aware of any change in circumstances impacting on his entitlement to, or
the extent of his entitlement to the payments, benefits, or refunds in question. The taxpayer,
trader, or beneficiary's unlawful failure to disclose effectively amounts to a misrepresentation
to the effect that there is no change in circumstances. Under most fraud offences out there, 269
proving such a fraudulent non-disclosure will usually require proof beyond reasonable doubt:

(a) that there was a change of circumstances;

(b) the existence of a duty to disclose the change;
(c) the failure to disclose that change;
(d) the failure to disclose was so material as to amount to a material misrepresentation;
and
(e) the failure to disclose the change was wilful and dishonest in that the defendant:
(i) had knowledge of the fact that the circumstances have changed; and
(ii) had knowledge of the legal duty to disclose the change in circumstances; and
(iii) wilfully refrained from disclosing the change; and
(iv) so refrained with knowledge of the risk of prejudice or loss.

A good example of this type of fraud is that relating to social welfare benefits. England and
Wales has an elaborate benefits system where under certain categories of people are under
certain circumstances entitled to certain benefits such as but not limited to job seekers
allowance, housing benefits, and Council tax benefits.270 Those who wish to receive those
benefits need submit the appropriate claim forms. The Social Security Administration Act
1992 does however also require from claimants claiming those benefits to disclose certain
changes in circumstances which may impact on their entitlement to those benefits. The legal
duty to disclose is thus explicitly provided for. A claimant filing a claim and claiming those
benefits on the basis of him being unemployed is for example under a legal obligation to

269
E.g. that provided for under section 1 of the Fraud Act 2006 (England and Wales), cheating contrary to
common law (England and Wales), and the South African common law crime of fraud.
270
Under the Social Security Administration Act 1992. These are administered by local authorities.
361 DEFRAUDING THE REVENUE

disclose to the authorities once he secures employment and is no longer entitled to those
benefits. Assuming the claimant does subsequently secure employment, then his entitlement
to those benefits fall away. If he knowingly fails to disclose that fact, dishonestly continuing
to receive those benefits, then he will clearly be defrauding the authorities. These cases can,
depending on the facts of the case, be charged as fraud under section 1 of the Fraud Act 2006,
or false accounting under section 17 of the Theft Act 1968, or section 111A of the Social
Security Administration Act 1992.271

A distinction need be drawn between: (a) the submission of a fraudulent claim form wherein
the claimant submitting that claim form knowingly claims benefits, refunds, or payments he
knows he is not legally entitled to; and (b) the filing of a valid and truthful claim form and
where a post-filing change in circumstances calls for disclosure, but where the claimant then
dishonestly fails to disclose that change of circumstances where disclosure is called for. In the
first instance, the filing of a fraudulent claim-form, we are dealing with misrepresentation by
comissio. Those misrepresentations then also relate to the facts as they were at the time of
filing. The intent to defraud is furthermore also present at the time of filing. In the second
situation we are dealing with a post-filing non-disclosure. We are dealing with a post-filing
misrepresentation by omissio, relating to facts that arose after filing.

3.8.2.9 Post-filing failure to amend an incorrect return

Thousands of factually incorrect returns and bills of entry are filed every day. The greater
majority of these will be incorrect due to honest error or mistake. It might have been as a
result of oversight, misunderstanding maybe, or maybe just incompetence. In most
jurisdictions, in most instances, detection of these errors will be met with no more but
correction, assessment, and possibly a penalty. The question is what will the situation be
where the return is filed with an honest belief in its accuracy, but where the taxpayer
subsequently discovers same to be factually incorrect ? We know what the Revenue's
expectation is. Revenue administrations, HMRC and the IRS being notable examples, provide
information and instructions on their websites and in their manuals on the procedures to be
followed in the event of the discovery of errors post-filing. Once errors are discovered, the
taxpayer is to file amended returns and/or inform the Commissioners in writing. Doing so
enables the Commissioners to take the appropriate corrective action. From a taxation only
perspective things are quite clear. The fact that the return, at the time when it was filed was an
'honest return' does not change the fact that it was factually incorrect, and it does not ensure
the taxes that are due are properly paid over (where the error amounts in an underreporting).
Where an error in a tax return results in a tax deficiency, then there will be a tax debt and that
tax debt does not fall away after the filing of an erroneous or incomplete return (within the
applicable limitations period). Under self-assessment systems of taxation the duty rests on the
taxpayer to declare his income and to declare it honestly and accurately. He is the one with
knowledge as to his income and tax liability and he is the one the Revenue relies upon to
disclose that honestly and truthfully.

271
Section 111A of the Act reads as follows: “(1) If a person dishonestly - (a) makes a false statement or
representation; or (b) produces or furnishes, or causes or allows to be produced or furnished, any document or
information which is false in a material particular; (c) ..(d)… with a view to obtaining any benefit or other
payment or advantage under the relevant social security legislation (whether for himself or for some other
person), he shall be guilty of an offence.
(1A). A person shall be guilty of an offence if - (a) there has been a change of circumstances affecting any
entitlement of his to any benefit or other payment or advantage under any provision of the relevant social
security legislation; (b) the change is not a change that is excluded by regulations from the changes that are
required to be notified; (c) he knows that the change affects an entitlement of his to such a benefit or other
payment or advantage; and (d) he dishonestly fails to give a prompt notification of that change in the prescribed
manner to the prescribed person.”
362 DEFRAUDING THE REVENUE

The question then arises as to criminal liability. We should perhaps first start with the
incorrect return itself. The return may be factually incorrect, but a 'false return' it certainly is
not. Knowledge of the falsity of the information contained therein was not present at the time
of filing. As per earlier discussions, where a taxpayer files a return containing factually
incorrect information, and at the time when he so files that return, he honestly believes in the
truth of its content, then that return cannot be said to be a fraudulent return. That taxpayer
may incur penalties for the filing of an incorrect return, but there can certainly not be liability
for attempted evasion or fraud (on the basis of that incorrect but honest return only). That
being what it is, the question then arises as to the possible criminal liability of that taxpayer
where that liability is based on his subsequent failure to disclose to the Revenue the fact that
the earlier return was in fact incorrect. Most enforcement personnel and prosecutors will
likely express the view that the taxpayer's honest state of mind as at the time of the filing of
the incorrect return does not excuse dishonesty relating to that same tax liability post-filing.
They will likely share the view that it cannot be anything but dishonest for a taxpayer to allow
the Revenue to continue to rely, in good faith and to its prejudice, on the taxpayer's earlier
incorrect and misleading statements. Such a view does not come over as unsound and does in
fact correspond with old common law principles, both English and American and in particular
within the context of contracts and tort, where it has long been recognised that the failure to
disclose the fact that an earlier representation was factually incorrect can amount to
misrepresentation.272 However, from a criminal law perspective, and in particular within the
context of taxation, it is not that straightforward. In most common law countries, there will
only be fraudulent misrepresentation by failure to disclose where the failure to disclose occurs
under circumstances where there exists a legal duty to disclose. A merely ethical or moral
duty is not sufficient.

This then is where the difficulties arise. For reasons that are uncertain to say the least, revenue
administrations generally provide information and instructions on how to amend incorrect
returns, but hardly any revenue statutes explicitly lay down the duty to file an amended return
once an error in an earlier return is detected.273 That requirement is common in customs
legislation (in regards to incorrect customs entries), but not so in revenue legislation. There
can be no fraudulent non-disclosure in the absence of a legal duty to disclose. Let us for a
moment accept that a given jurisdiction's legal framework does indeed place on taxpayers a
legal duty to disclose to the Revenue any material errors in earlier tax returns. Now further
assume a taxpayer in that jurisdiction files a materially incorrect return with an honest belief
in its accuracy and then subsequently discovers that error, but then dishonestly refrains from
filing an amended return or to inform the Revenue. Where evasion or fraud is alleged, it will
be (under most evasion and fraud offences) for the prosecution to prove:

272
In Brownlie v Campbell (1880) 5 App Cas 925 H.L and at 950 the court per Lord Blackburn inter alia
remarked: “... when a statement or representation has been made in the bona fide belief that it is true, and the
party who has made it afterwards comes to find out that it is untrue, and discovers what he should have said, he
can no longer honestly keep up that silence on the subject after that has come to his knowledge, thereby allowing
the other party to go on, upon a statement which was honestly made at the time when it was made, but which he
has not now retracted when he has become aware that it can be no longer honestly persevered in. That would be
fraud.” Also see McCann v Goodall Group Operations (Pty) Ltd 1995 (2) SA. Also see Turner at 99-103 and
120-123. Also see Turner at 101-102 referring to the civil cases of Pilmore v Hood (1838) 5 Bing N.C 97;
Russell v Thornton (1859) 4H & N 788; Polak v Everett (1876) 1.Q.B.D. 669; and North British Insurance Co v
Lloyd (1854) 10 Exch 523.
273
This is indeed the situation in the United States. See Badaracco v Commissioner 464 US 386, 393 (1984)
where it was inter alia said: "The Internal Revenue Code does not explicitly provide either for a taxpayer's filing,
or for the Commissioners acceptance of an amended return, instead, an amended return is a creature of
administrative origin and grace."
363 DEFRAUDING THE REVENUE

(a) that the return filed was factually and materially incorrect and resulted in a material
underpayment or risk of such an underpayment;
(b) that subsequent to the filing of that return it came to the taxpayer's knowledge that the
return in question was in fact factually incorrect and resulted in a material
underpayment or risk of such an underpayment;
(c) that there rested on the taxpayer a legal duty to disclose to the Revenue the fact that
the return in question was factually incorrect;
(d) the taxpayer had knowledge of the duty to disclose to the Revenue the fact that the
return in question was factually incorrect;
(e) the taxpayer wilfully failed to disclose the fact that the return was factually incorrect;
and
(f) the taxpayer so failed to disclose with the intent to evade a tax liability or to defraud
the Revenue.

Where the legislation of a given jurisdiction explicitly places a duty on a taxpayer to disclose
any errors in a return after the filing of such a return, then the wilful failure of that taxpayer to
do so, accompanied with the prerequisite mens rea will certainly expose him to the risk of
liability under evasion or fraud charges. It is open to the legislature of any jurisdiction to
criminalize as dishonest the wilful failure to disclose such errors post-filing, just as they
already do in most jurisdictions in relation to cases of wilful failure to file. The reason for the
historic failure to do so is unclear, but the importance of doing so should be obvious. Many
'experienced' taxpayers are well aware that only but a very small percentage of returns are
ever audited. The risk of detection of irregularities is thus extremely low. Many may see the
absence of criminal sanction for non-disclosure of errors detected post-filing as an
opportunity for abuse. That may indeed well be something that is already being exploited.

We must be mindful of the possibility that there may be jurisdictions where the courts may
well find that duty to be implied considering the very nature of the Revenue-taxpayer
relationship, and considering that most honest citizens will likely view as grossly
inappropriate a taxpayer remaining silent whilst knowing full well that the Revenue is in good
faith relying on misleading information supplied by himself. The US and English legal
systems are certainly not the only legal systems out there. It will be wise for any taxpayer or
advisor to familiarise himself with any and all duties of disclosure that may be provided for in
the legislation and common law of those jurisdictions relevant to themselves.

In earlier discussions we pointed out the often difficult burden of proving criminal intent
where the taxpayer raises an honest error defence in cases involving just a single tax return
and lacking features which by its very nature suggests deception e.g. blatant falsification,
fictitious transactions, the destruction of evidence etc. Proving that intent in these types of
cases will prove no less challenging, and depending on the facts of the case even more so. In
these cases it will not only be for the prosecution to prove the taxpayer's post-filing
knowledge of the return being incorrect, but also a wilful failure to disclose with an
accompanying intent to evade. This can be a very difficult burden to meet.

3.8.3 Collection but the failure to pay over

There are various categories of tax the administration of which inter alia entails the
collection, deduction, or charging thereof from certain categories of persons by certain
categories of taxpayers. Under those regimes the taxes so charged, withheld, or deducted, are
effectively charged, withheld, or deducted on behalf of the Revenue and are to be accounted
for and paid over to the Revenue. The collection of income tax through the PAYE (Pay As
You Earn) system, VAT (Value Added Tax) charged by VAT vendors from their customers,
364 DEFRAUDING THE REVENUE

and GST (General Sales Tax) charged by traders from their customers come to mind. The
categories of taxpayers required to so charge, withhold, or deduct those taxes, the
circumstances under which same is to be charged, withheld, or deducted, the categories of
persons from whom same must be charged, withheld, or deducted, and the manner in which
this all is to be accounted for is a matter of law, which obviously differs from one tax regime
to another and from one jurisdiction to another. It is not at all that uncommon for certain
dishonest taxpayers to charge, withhold, or deduct the tax but then to fail to declare and pay
same over to the Revenue. Such a failure to declare and pay over will be fraudulent where that
failure is wilful and accompanied with the intent to evade the payment of those taxes.274
Examples in point are that of the employer who deducts PAYE contributions from his
employees but instead of paying it over to the Revenue retains it for his personal use, or that
of a trader who charges VAT or GST from his customers but misappropriates the taxes so
collected.

When it comes to these cases, we can distinguish between two sets of alternative possibilities.
There are those who are in law required to withhold, deduct, or charge certain taxes, and then
to declare and pay same over to the revenue, and then there are those who are not in law
required or even entitled to so withhold, deduct, or charge but then do it in any case. Then
there are those categories of taxpayers whom are registered with the Revenue as taxpayers
under that particular tax regime but whom fail to account for all those taxes so charged,
withheld, or deducted by falsely declaring what was charged, withheld, or deducted, thus the
filing of false returns, and then there are those whom charge, withhold, or deduct those taxes
even though they are not even registered taxpayers under that/those tax regimes. It is not at all
that uncommon to find businessmen who in the past might have been tax compliant, to turn to
the misappropriation of collected taxes such as PAYE collected from his employees and/or
VAT or GST collected from customers when the business comes under financial strain.275 The
evasion will often start out as a 'temporary arrangement' to keep creditors from the door, often
seen as no more but a temporary solution to cash-flow problems, but before long the taxpayer
will often find himself dependent or robbing Peter to pay Paul, either to keep the business
afloat, or to maintain a lifestyle, or a combination of the two. 276 For a trader, whether
registered as a taxpayer or vendor under the relevant tax regime or otherwise, to charge,
withhold, or deduct what is in fact public funds from other taxpayers, but to then unlawfully,
willfully, and dishonestly use same for other purposes, in essence dishonest misappropriation,
is nothing less but fraudulent. It is conduct that is regarded by the public at large as dishonest
and fraudulent. This then is also the view of the legislatures and the courts in most common
law countries, including England where these cases can be prosecuted as 'cheating' contrary to
common law.

In many of these cases we will find that it is not only the Revenue that is being hoodwinked.
In many of these cases those from whom the tax is being charged, withheld, or deducted may
also be misled and defrauded. A good example in point will be that of the trader whom may
not be registered for VAT charging same from his unsuspecting customers and then
misappropriating those receipts. In carrying through the fraud such a trader will often take

274
See e.g. R v Litanzios [1998] EWCA Crim 2514 where the applicant was convicted on four charges of
'cheating'. Two of the charges related to the collection from employees of income tax through the PAYE system
but the subsequent failure to pay same over to the Revenue.
275
See e.g. the Australian case of R v Brown [2001] QCA 553 and the South African case of Estate Agency
Affairs Board v Mclaggan and Another [2005] ZASCA 34
276
One of the features of the VAT and GST regimes that make those systems so susceptible to abuse is the fact
that tax money is in effect handed over into the hands of the vendor. The relationship between the Revenue and
trader is very much a trust relationship. The Revenue will often not know what has been charged and collected in
the absence of honest accounting and disclosure by the trader.
365 DEFRAUDING THE REVENUE

active steps to mislead that person e.g. listing the VAT registration number of another
unrelated and innocent trader on his invoice. For these other victims the consequences may,
depending on the facts of the case, vary from jurisdiction to jurisdiction and from tax regime
to tax regime. It all depends on the tax rules and legal frameworks in place in a given
instance. One may also find what can best be termed as 'hybrid' cases where a taxpayer may
specifically target not only the Revenue and/or Customs, but also other third parties. A good
example in point is that of the clearing agent defrauding not only the Revenue but also his
clients by misrepresenting the correct amounts in duties and VAT payable on imported goods.
In the process of clearing goods the clearing agent may typically inflate the true amount in
VAT and duties payable, or may deceive his client into believing certain duties and taxes to
be payable in circumstances where no such duties or taxes are in fact payable. The funds so
received disappear in the hands of the clearing agent without being declared or paid over to
the Revenue. In these cases both the Revenue and the person from whom the duty or tax is
being collected, deducted or charged can be defrauded in the course of the same fraud.

3.8.4 Failure to account for payments made to others

A taxpayer may fully disclose all his own tax liabilities but nevertheless incur criminal
liability for wilfully assisting other taxpayers in them evading their taxes. Examples that come
to mind are that of the businessman who agrees with certain employees to falsely account for
their salaries and the tax due under the PAYE system,277 or the person who on request from a
registered VAT vendor agrees to pay for goods or services 'cash-in-hand' so as to allow the
transaction to go through without it being recorded and accounted for. The taxpayer making
the payments will often misrepresent the truth surrounding the payments made, often failing
to truthfully record the expenses in his books of account and often failing to truthfully declare
same in his own tax returns.278 Payments will often be made in cash or into undisclosed bank
accounts. It is not uncommon to find that the payments will often be made from receipts
which the taxpayer himself failed to declare as income and/or output tax.279 The taxpayer
receiving the payments will often be employed in or be trading in the underground economy.
This type of activity is no less fraudulent than evading one's own taxes. 280 What we will find,
in most common law jurisdictions, is that the evasion offences provided for in those
jurisdictions often explicitly also make punishable as evasion the act of assisting another
person to evade his/her tax liability.281 Where the act of assisting is not explicitly covered in
those offences, then those individuals whom assisted will usually be covered under the
relevant jurisdiction's rules governing accessory liability.

3.8.5 Post-assessment evasion of payment

The Revenue will raise assessments whenever an underpayment of tax is detected. In this
respect we can identify a number of possible situations that may arise. Firstly, there will be
those instances where the Revenue raise assessments and/or take steps in an attempt to secure
a tax liability that resulted from an underpayment but where there is no evidence of
dishonesty. Then there are those instances where the Revenue raise assessments and/or take

277
See e.g. R v Elvin [1997] ACTSC 1
278
These expenses will often be legitimate business expenses, declaration of which will often qualify as
permissible deductions for tax purposes.
279
See e.g. R v Elvin [1997] ACTSC 1
280
See R v Elvin [1997] ACTSC 1 where Higgins J referring to unrecorded payments by the taxpayer to his
employees inter alia remarked: “That latter practice is, as I have accepted, dishonest and, in the present case,
fraudulent” (at paragraph 33) and then (at paragraph 65): “... there is a need to make it clear that paying “black
money” or “cash in hand”, though it may be connived at by the recipient, is not to be regarded as other than a
seriously dishonest course of conduct.”
281
See e.g. section 106A of the Taxes Management Act 1970 (Britain) and section 235(1) of the Tax
Administration Act 28 of 2011 (South Africa)
366 DEFRAUDING THE REVENUE

steps in an attempt to secure a tax liability that resulted from fraud. There is however also a
third possibility, namely those instances where there was no evasion or fraud up to the point
of assessment, but where, subsequent to assessment, the taxpayer fraudulently evades the
payment of the assessed amounts. A taxpayer can be convicted of evasion or fraud for
fraudulently evading payment of such an assessed amount.282

In most jurisdictions the general rule is that any underpayment of duty or tax or any
overpayment in respect of any refund, drawback, or rebate, and where the underpayment of
the duty or tax or the overpayment in respect of that refund, drawback, or rebate followed as a
result of breaches of the revenue laws, is recoverable as a debt to the Revenue. 283 An unpaid
tax debt makes the Commissioners a creditor of the debtor taxpayer. The Commissioners as
creditor is entitled to all those remedies a creditor will usually have for the enforcement or
collection of a debt. The tax legislation furthermore also provides for strong powers making
possible the securing of amounts due to the Revenue. The crime of ‘cheating’ covers any
fraudulent act or omission whereby tax is diverted from the Revenue.284 A tax debt can also
be evaded.285 Unlawful misrepresentation intended to prevent the Commissioner from
exercising his rights in securing the payment of such a tax debt will be no less but fraudulent.
An unlawful misrepresentation intended to evade the payment of a tax debt but made post-
assessment, is no less fraudulent than a fraudulent misrepresentation made prior to
assessment.

This type of situation is commonly encountered in bankruptcy cases. Defrauding creditors by

fraudulently contriving bankruptcy is nothing new in criminal law. Neither is bankruptcies
contrived and manipulated with the view to evade a tax liability. Where a taxpayer is placed
under sequestration, whether on application of the Commissioners, the taxpayer, or another
creditor, and the taxpayer owes unpaid taxes, then the Revenue will be a creditor of the
taxpayer’s estate.286 Defrauding creditors through the use of fraudulent simulated transactions,
favouring certain creditors to the prejudice of others, and the unlawful concealment and
diversion of the estate’s assets or property, is not uncommon. It is not uncommon to find
taxpayers attempting to cipher away, divert, or to conceal funds and property so as to keep it
out of the Revenue’s reach. In many instances it will be the taxpayer who files for bankruptcy.
In these cases the taxpayer will often file declarations failing to list the Revenue as a creditor.
The effect of this will be the Revenue being prejudiced to the benefit of the other creditors. To
do so knowing that the Revenue as creditor will be prejudiced, will amount to nothing less but
fraud. In many instances the other ‘creditors’ indeed listed, will be no more but accomplices
used as part of a scheme to divert the assets and property back into the taxpayer's hands, albeit
usually indirectly through another conduit or third party. Another example of a situation

282
In the United States the evasion offence provided for under 26 U.S.C. § 7201 (Attempt to evade or defeat tax)
covers not only attempts at evading assessment, but also attempts at evading payment. In Britain the crimes of
'cheating' and fraud under the Fraud Act 2006 are wide enough to also cover the fraudulent evasion of payment
post-assessment.
283
See for example section 167(4) of the Customs and Excise Management Act 1979 (Britain).
284
See The Law Commission, Legislating the Criminal Code, Fraud and Deception, Consulting Paper No 155,
1999 under point No 2.37, where the following was said in referring to ‘cheating the revenue’: “The offence has
been widely construed. It covers any form of fraudulent conduct by which money is diverted from revenue-
gathering authorities, and it can be committed by omission as well as by positive act.”
285
See R v Dimsey & Anor [1999] EWCA Crim 2261 where the Court of Criminal Appeal held that a tax debt
owed to the State, is a debt which can be evaded. Also see Alridge & Parry on Fraud 2nd ed at 353 where the
following is said in regard to “cheating the public revenue”: “... it now seems to be regarded as effectively one of
fraud, rather than ‘cheating’ in the ordinary sense…it is sufficient that the defendant omits to hand over money
which is lawfully due to the Crown …”
286
In some jurisdictions the Revenue may be a preferential creditor, whereas in other jurisdictions that will not
be the case.
367 DEFRAUDING THE REVENUE

where this problem may arise is the fraudulent release of goods into free circulation following
assessment by Customs but before payment of the duties, taxes, or levies due thereon. To so
release the goods into free circulation absent the Commissioner’s authority to do so, will be to
deny the Revenue its right of control over the goods as security for payment. To do so
knowingly and with the view to evade payment will be nothing less but fraudulent.

3.8.6 Criminal attacks against the tax system

There are quite a number of frauds involving not the failure to pay over to the Revenue what
is due (i.e. the failure to declare tax or smuggling), but which are for all practical purposes
criminal attacks against the tax system. Certainly the most endemic of these are VAT scams
and MTIC frauds. These will later be dealt with in greater detail. Scams relating to various
export incentives, rebates, refunds, and drawbacks are just as common. Another example is
benefit frauds. In most states with good social welfare systems, various categories of people
i.e. the disabled, pensioners etc. are entitled to various categories of state benefits. These
systems are just as often targeted with fraudulent claims by people not entitled to those
benefits.287 Then there are also scams which, although more targeted against the taxpayer,
involve the use of fraudulent websites purporting to be that of the national revenue or the
issue of ‘assessments’ purporting to be issued by the national revenue authorities. These are
usually intended to deceive taxpayers into paying ‘assessment’ amounts into bank accounts
run by criminal gangs. There are phishing emails purporting to be from the revenue
authorities but which are in fact no more but part of an attempt to obtain financial
information. Criminals may even give themselves out as corrupt ‘revenue officers’ in an
attempt to extort money from those they know or suspect to be less than honest.

The past three decades have witnessed a steady rise in scams set up with no other objective
but the criminal extraction of money from the fiscus. Most of the so-called VAT scams and
MTIC frauds fall under this category. These schemes are often planned and executed with no
other objective but the extraction of vast amounts in refunds from the fiscus and are nothing
less but a form of organised crime targeted against the State. Criminal syndicates have
increasingly turned their attention to these scams as a source of income.288 The sheer scale of
these frauds is such as to force many states to make adjustments to their reported trade
balance figures.289 Many of these scams fall under the category of what the British authorities
refer to as the so-called ‘short-firm fraud’. A fraudster will typically set up a company or
number of companies which they register as vendors for VAT purposes. They then claim back
VAT refunds on large inputs allegedly made just to close down the ‘company’ and then
disappear with the VAT. These companies typically never traded and the ‘inputs’ claimed are

287
See e.g. Nolan & Anor v R [2012] EWCA Crim 671
288
See e.g. The Guardian, May 09 2006, “Bogus deals keep Customs in a spin”, where it was inter alia reported:
“Investigators say there is evidence of Russian mafia figures becoming involved in carousel fraud in the EU,
while authorities in Dublin say the Provisional IRA has also been involved in the swindle”.
289
See e.g. The Financial Times, May 10 2006, “UK’s trade in goods unexpectedly narrows”, where it was inter
alia reported: “The ONS said the recalculation of February’s number were primarily the result of late data for oil
exports and revised figures for trading associated with VAT missing trader fraud.” Also see The Guardian, May
09 2006, “Revealed: the ₤5bn-a-year tax fraud, Customs scam hits UK trade balance” where it was reported:
“Organized criminals are stealing up to ₤5bn a year from the government’s coffers through an increasingly
sophisticated serious of frauds. The scale of the losses – which one senior official describes as “the equivalent of
two Tonbridge robberies a week” – has staggered customs investigators and Treasury officials and set alarm
bells ringing across Whitehall. The amounts being stolen are rising rapidly. Last year’s haul would have been
more than enough to build and equip a dozen big hospitals or 300 secondary schools, and exceeded Britain’s
total annual spending on overseas aid. More than 500 customs officers are trying to stem the losses, but
investigators say they are hampered by the complexity of some of the frauds, and by the criminals’ use of top
lawyers to frustrate prosecutors. They also say there is increasing evidence that well established crime gangs are
turning to tax fraud as an alternative to drug trafficking, robbery or internet pornography…..”
368 DEFRAUDING THE REVENUE

fictitious.290 Another variant often employed is that of fictitious exports and the declaration of
those ‘exports’ as zero rated supplies. The vendor will typically claim input VAT on locally
acquired goods (the acquisitions of which may in fact also be fictitious) and then ‘export’ the
goods so ‘acquired’. This invariably results in a VAT refund for the vendor. In many of these
cases the goods in truth and in fact never existed, were not acquired, and were not exported.
In these instances both the non-existent VAT inputs and fictitious exports will be supported
with fraudulent documentation. In those instances where the goods did indeed exist, and was
indeed acquired, it generally finds its way to the consumer in the local market without any
output being declared, although an input is claimed.291

These schemes generally tend to be well planned, and both planning and execution may be in
depth. These operations may typically involve: (a) the setting up of both front ‘supplier- ’ and
‘client-traders’ with fictitious directors, employees, and addresses, often in multiple
jurisdictions; (b) the opening of multiple bank accounts in the names of multiple entities; (c)
the generation of false commercial documentation and books of account; (d) fraudulent
registrations as VAT vendor, importer or exporter; (e) the simulation of financial transactions
and cash flow; (f) the simulation of import and export transactions; (g) the setting up and
operation of limited trading activities so as to maintain the front of legitimacy; and (h) money
laundering activities, et cetera. This may often take place in great secrecy with ‘front-men’
being used so as to prevent identification of those in fact managing the criminal operation. It
is not uncommon to find the same offender simultaneously operating a number of these
schemes. In many instances the termination of one scam is shortly after followed by the
setting up of another, often employing the same methods but masked under new VAT
registrations and a new set of fronts. The broader public generally connotes the term ‘evasion’
to the withholding of taxes from the State. From the above, it should be clear that what
distinguishes this category of fraud from other cases of ‘evasion’, is the fact that these frauds
not merely involve the failure to pay tax to which the fiscus is entitled, but that these schemes
are in fact planned, executed, and managed with the view to make possible the large-scale
theft of money from the fiscus, depleting the contributions already made by the law-abiding

290
See e.g. the English case of R v Chudley [1996] EWCA 823 where the facts were as follows: Over a period of
16 months, the accused registered a total of 59 fictitious companies for VAT purposes. The main activity of
these companies was alleged to have been property development. ‘Proof’ of the alleged ‘developments’ was
submitted to the UK Revenue all of which subsequently proved false. The business activities and developments
were in fact fictitious. The accused had submitted in excess of 200 returns in which no outputs were declared but
which nevertheless claimed inputs on the fictitious expenses. £336 000 in refunds were paid over by the
Revenue. The accused was convicted of contravening section 72(8) of the VAT Act 1994 and was sentenced to
three years’ imprisonment.
291
For a good example in point see the following facts quoted from the English case of R v Torode & Anor
[1999] EWCA Crim 281: “Ozanne and Torode were directors and the only shareholders of a Guernsey company
called Offshore Communications Systems Limited (Offshore)…..The prosecution’s case on the three offences of
which they were jointly convicted was that through the medium and for the benefit of Offshore, they perpetrated
a Value Added Tax fraud depriving the Commissioners of Customs and Excise of about £2 million in Value
Added Tax. The scheme of the fraud was as follows. In 1994 and 1995 Offshore bought mobile telephones from
English suppliers, falsely representing in purchase order forms, sales invoices, consignment notes, certificates of
shipment and airway bills that the telephones were to be exported to Guernsey and therefore not chargeable to
Value Added Tax. The telephones were actually delivered to two companies alleged to have been part of the
fraud which sold them on to English companies at a loss, but with the addition of Value Added Tax for which
they did not account to the Commissioners. It was that element of Value Added Tax, just under £2 million,
which came back to Offshore and for which it also did not account to the Commissioners.” In practice, these
cases may give rise to the odd situation where the goods may actually be sold on to the consumer at prices that
may be lower than that of local manufacturers or distributors.
369 DEFRAUDING THE REVENUE

taxpayer. Despite the implementation of countermeasures and improved enforcement over

recent years, this category of fraud is and remains a thorn in the Revenue’s side.292

The longer a criminal group operates, the more skilled the members become, the better they
can test, adapt, and tweak their modus operandi, and the more confident they grow. Not only
may the total losses suffered over the period of their criminal operations grow, but the scale of
their criminal acts may also grow more ambitious and costly as their operations grow more
effective and as their confidence increase. The longer they operate, the greater can also be
expected to be the irrecoverable losses suffered as much of the proceeds may already have
been squandered or ciphered away.293 This all underlines the importance of early detection
and neutralisation.

Criminal networks are often faster to identify weaknesses in systems and will often shift or
diversify criminal operations into those areas where such weaknesses have been identified.
Not surprisingly, revenue agencies often only identify new fraudulent schemes some time
after they were first implemented, which may quite well be a number of years later. Once a
new scheme is identified, it may take some time before effective counter-measures is devised
and implemented. Once one scheme is disrupted, criminals can be counted on to shift their
efforts to another scheme or sector soon after. To say that revenue administration and
enforcement action should be more proactive as opposed to reactive will not be incorrect, but
this is easier said than done considering: all traders cannot be monitored all the time; the
limited resources available; frequent changes in legislation and procedures; and the legio
types of abuse and permutations of fraudulent schemes that can be devised.

The impact of potential and current threats can be mitigated or may in some instances well be
avoided. Pre-implementation risk assessments, effective intelligence, and the neutralization of
criminal networks, are good examples of measures which can mitigate the risk posed by those
threats. Any enactment of law or change in the legislation which opens the door to abuse will
be followed by abuse. Such abuse is more likely to be anticipated and planned for where in-
depth impact studies and risk assessments is conducted before legislation is enacted or
amended. This is not always done or even if it is, not always up to the expected standard. A
major handicap of most revenue agencies in dealing with criminal attacks against the tax
system is the fact that they generally tend to administer and enforce the revenue laws totally
blind as to the in-time activities of the criminal networks behind those attacks. The
identification and monitoring of criminal networks not only offer the opportunity to disrupt
and neutralize their operations, but in-time awareness of what they are planning and/or
engaged in can provide early warning of new threats or trends.

Duping taxpayers into paying moneys over to a criminal syndicate

There have been numerous instances of criminal groups who employ various ruses to dupe
unsuspecting taxpayers into paying moneys over to them as opposed to the Revenue
authorities. Some of these ruses that have seen application are:

292
In the UK, carousel and MTIC frauds are generally prosecuted under section 72 of the Value Added Tax Act
1994 or 'cheating'. They can also be dealt with effectively under the Fraud Act 2006. As these frauds usually
involve the participation of multiple conspirators, they can (assuming there was a conspiracy) also be dealt with
under the conspiracy offences.
293
It is in fact quite often not detection of the crimes generating the criminal proceeds that proves to be their
downfall, but what they do with the proceeds. Following the money will often tell the story and guide
investigators to the predicate offences.
370 DEFRAUDING THE REVENUE

(a) The creation of fraudulent cloned websites purporting to be that of the Revenue
authorities. These may be structured in such a way as to phish for banking details
and/or to solicit payments into bank accounts managed by the criminal syndicate.
(b) The posting or email to taxpayers of ‘assessments’ or ‘demands for payment’
purporting to be assessments or demands for payment issued by the relevant Revenue
authorities. The bank details reflected therein is once again that of the criminal
syndicate.

In most jurisdictions there are offences capable of dealing with these frauds, quite often not in
the revenue legislation but under general fraud offences. In Britain for example the offence of
fraud as provided for in Section 2 of the Fraud Act 2006 (read with section 1 of that Act) can
be used effectively in dealing with this category of fraud. For the purposes of section 2 the
false representation will be regarded as made even if “submitted in any form to any system or
device designed to receive, convey or respond to communications (with or without human
intervention)”.294 In South Africa for example, the South African common law crime of
‘fraud’ can also be used in dealing with these cases. In South Africa it has long been accepted
that a misrepresentation can be made through an electronic interface. In the case of both these
offences false representations can be made in words or conduct, spoken or written, electronic
or otherwise.

294
Section 2(5) of the Fraud Act 2006. In England there are still those who argue against the idea of a false
representation being something capable of being made “to a machine”. This view is frankly out of touch with the
realities of modern business practices, trade, crime, and technology. The Explanatory Notes to the Fraud Act
2006, Home Office, 8 November 2006, (in its discussion dealing with section 2 of the Act) inter alia (correctly)
states that: “subsection (5) is expressed in fairly general terms because it would be artificial to distinguish
situations involving modern technology, where it is doubtful whether there has been a “representation”, because
the only recipient of the false statement is a machine or a piece of software, from other situations not involving
modern technology where a false statement is submitted to a system for dealing with communications but is not
in fact communicated to a human being”
371 CUSTOMS FRAUD

PART IV - CUSTOMS FRAUD

4.1 Background
Frauds on the customs have been a cause of considerable discomfort for governments for
many centuries, depriving states of revenue and lining the pockets of criminals. During the
seventeenth and eighteenth centuries, commodities such as tobacco, tea, silk, and wine were
highly valued commodities, but also highly taxed. It is said that three quarters of all tea
entering Britain in 1750 was smuggled into the country. Smugglers in England operated with
impunity, and any attempt by the customs to interfere with or halt the smuggling, was met
with violent resistance from the smuggling gangs. In 1745 the English parliament went so far
as to make ‘smuggling’, or merely the harbouring of a ‘smuggler’ a felony, punishable by
hanging alone.1 These smuggling gangs were eventually broken, but only after violent
suppression by the state and with the assistance of an additional 6000 soldiers in support of
customs. Today, as was the case then, smugglers are in essence just businessmen prepared to
take calculated risks in pursuit of wealth. It just so happens that some of the risks they take are
illegal and they knowingly take those risks in pursuit of profit. There may however be
individual exceptions, for example the smuggler engaged in smuggling but with his motive
being the subversion of the target state or some or other form of sanctions-busting.

The negative impact of customs breaches on the interests of states has long been recognized. 2
Needless to say, most governments view ‘smuggling’ and the evasion of duties in a serious
light. Although ‘smuggling’ and ‘customs fraud’ have historically always been viewed as
fraudulent conduct, the greater majority of offenders are seldom prosecuted in the criminal
courts. The failure to do so nevertheless does not change the criminal nature of the conduct.
The goods so dealt with may be dutiable or non-dutiable goods, or may fall within a class of
goods the importation, exportation, manufacture or introduction of which is prohibited or
restricted. The goods in question may be imported goods or may be locally manufactured
goods. The unlawful conduct may be intended to evade duties and taxes and/or some or other
form of regulatory control. Customs frauds and tax frauds are all in essence crimes of
dishonesty committed against the State. Certain customs frauds may also be tax frauds, but
many customs frauds, e.g. those relating to the evasion of prohibitions or restrictions, may
have no tax-impact.

All too often the State’s response is limited to no more but administrative sanctions in the
form of pecuniary penalties and forfeiture. The penalties all too often do not reflect the
serious nature of the crime, criminal syndicates are all too often not being neutralized as early
on as they should be, goods smuggled over our frontiers are all too often not being interdicted
as efficiently as it should be, and the measures intended to deter smuggling all too often prove
ineffective. Much of this can be attributed to long porous borders, the apparent inability to
control the amount of traffic in terms of goods and people passing through those borders,
limited resources, lacking state capacity, systemic structural shortcomings within law

1
Nicholls, Honest Thieves, The violent Heyday of English Smuggling at 57. As recent as 2011, tax fraud and
smuggling were still punishable as capital crimes in China. In 2006 the then president of the Supreme People’s
Court justified the death penalty for tax fraud as important for the sake of safeguarding the “smooth operation”
of China’s “economic reconstruction”. See China Daily, September 09 2006, “Top judge: Death penalty to stay”
2
See e.g. the Preamble to the International Convention on Mutual Administrative Assistance for the Prevention,
Investigation and Repression of Customs Offences (Nairobi, 9 June 1977) where offences against Customs were
described as “prejudicial to the economic, social and fiscal interests of States and to the legitimate interests of
trade”
372 CUSTOMS FRAUD

enforcement and the criminal justice system, the failure to move away from old archaic
systems and practices, and possibly to a general lack of awareness amongst policymakers. The
failure to neutralize these smuggling operations, not only has as consequence the State being
defrauded out of large sums of revenue, but it also impacts on the local trade, undermines the
integrity of the tax system, undermines fiscal policies, and places at risk national safety and
security. The risks associated with a conviction for defrauding the Customs are serious. These
include but are not limited to reputational, financial, and operational risk. 3 For the individual
offender there is also the risk of dismissal, financial ruin, being barred from certain
professions or holding certain positions,4 and imprisonment. In this chapter will follow a
general discussion on the topic of customs fraud, various aspects of customs enforcement,
some of the abuses frequently encountered by the Customs authorities, and a general
overview of the legal frameworks intended to deter these frauds.

4.2 Customs enforcement

The customs legislation and procedures provided for in the legislation of most 'modern'
customs jurisdictions are generally well thought out with the requirements, procedures and
measures relating to the handling of all goods under customs control, so framed, structured,
and integrated, as to ensure accountability for the goods at every point during the
manufacture, processing, keeping, or movement of the goods. Accountability is not only a
prerequisite for ensuring the integrity of the system, but is also necessary for the purposes of
liability. Where goods cannot be accounted for, the duties and taxes on those goods will be
recovered as a customs debt. All persons, natural and legal, local and foreign, must comply
with the customs regulatory framework. What the customs legislation calls for is full
compliance with all the applicable rules and procedures, and honest disclosure on all matters
relating to the importation, exportation, manufacture, or release into free circulation, of any
goods covered under the applicable legislation. Compliance is compulsory with the direct and
indirect consequences of non-compliance at best expensive and disruptive, but potentially
very serious indeed. 'Non-compliance' come in many shapes and forms ranging from minor
mistakes or oversight undermining efficient customs administration, to the wilful
circumvention of the customs laws, to organized criminal attacks targeted against a given
customs administration.

Most importers and exporters tend to make use of the services of agents to represent them in
their dealings with the customs authorities. This makes sense for various reasons. Most
importers and exporters tend to be commercially inclined people whom tend to concentrate on
the commercial aspects of international trade and the flow of broader processes rather than the
technical aspects of some of the underlying processes. They may appreciate and plan for
processes like transportation, customs clearance, distribution, quality control etc, but their
own knowledge as to the technical aspects of each of those processes may quite well be
limited. For this reason then they often place reliance on the knowledge and expertise of
agents. In many instances those traders do not operate their own in-house transportation,
warehousing, distribution or clearance sections but contract those services out to one or more
agents. The relationship between those traders and their agents is thus very much based on
trust. This however also applies to the relationship between traders and their agents on the one
hand and the customs authorities on the other. Due to the sheer volumes of goods entering and
leaving British shores on a daily basis, coupled with severe constraints on resources, most of
the goods entering or leaving Britain does so without physical inspection. The customs

3
For example the risk of certain authorizations being revoked i.e. to operate a bonded warehouse or to act as a
clearing agent.
4
For example being struck from the roll of solicitors, or being disqualified from appointment as a company
director.
373 CUSTOMS FRAUD

authorities simply do not have the capacity to examine every consignment. Enforcement
increasingly follows a risk-based approach with more reliance being placed on risk profiling
and intelligence. Considerable reliance is however placed on the voluntary compliance of
importers, exporters and manufacturers to declare where declaration is called for, and on the
honesty of those who so declare. For customs administrations the default position is one of
trust in the good faith and honesty of the importer, exporter, manufacturer, or agent. There
will however always be the dishonest and the careless and therefore the need for enforcement.

If history does illustrate anything, then it is the basic truth that reasonable levels of
compliance cannot be assured absent rigorous enforcement. This responsibility, within the
customs environment, falls on the national customs authorities who carry primary
responsibility for the enforcement of the customs legislation. They fulfil a critical role in
controlling the movement of goods released into, imported into, exported from, or transiting
through customs territories. They are the primary gatekeeper responsible for what comes in,
leaves, or is introduced into the market. As such, the smooth operation of the customs
function, and effective control over goods and people crossing customs frontiers, is essential
for the protection of a nation's (or in the case of a customs union such a union's) national
security, health and safety, economic interests, and tax systems. Effectively protecting those
interests is impossible absent strict and effective customs enforcement. Effective enforcement
in turn calls for:

(a) a legislative framework that is fit for purpose;

(b) a customs function with access to the resources to fulfil its mandate;
(c) efficient administration of the applicable legislation;
(d) ensuring high levels of general compliance;
(e) the capacity to investigate and prosecute contraventions of the legislation;
(f) effective penalty regimes; and
(g) high levels of general deterrence.

Effective enforcement is not possible absent effective monitoring, prevention, detection,

neutralization and deterrence. The identification of non-compliance and fraud, the interdiction
of illicit goods, the identification and neutralization of smuggling routes and supply chains
facilitating the trafficking in illicit goods, and the neutralization of the criminal networks
engaged in those criminal operations, are key components of any successful customs
enforcement strategy. Detection, interdiction and neutralization are also essential if the
underground economy is to be kept within acceptable levels. Widespread customs fraud and a
growing underground economy pose a serious threat to a country's broader tax system and
economy. Not to be lost sight of is the fact that income generated from customs and excise
frauds is seldom reported. There will almost always be an evasion of income and/or
corporation taxes, and/or national insurance / social security contributions, and/or VAT.
Ascertaining whether or not there was such an evasion should therefore always be part of the
enquiry. Where there was such evasion, assessments will also need be raised for the recovery
of those other taxes evaded. There is also the possibility of additional charges relating to the
evasion of those other taxes.

4.2.1 The Customs division

In the United Kingdom Her Majesty's Revenue and Customs (HMRC) carries responsibility
for revenue administration and collection. As a non-ministerial department it reports to the
Exchequer. Her Majesty's Revenue and Customs came into being in April 2005 following the
374 CUSTOMS FRAUD

amalgamation of the then ‘Inland Revenue' and the then 'Her Majesty's Customs and Excise'.5
The Commissioners are appointed by Her Majesty, subject to the general control of the
Treasury. The Commissioners are charged with managing the revenues of customs and excise
and the administration of the customs legislation.6 Any duty imposed or power conferred on
the Commissioners may be performed or exercised by the Commissioners personally or by an
officer or any other person under the authority of the Commissioners.7

Customs and Excise carries primary responsibility for the administration of the customs and
excise legislation. Although the body of legislation underpinning customs and excise is really
made up of a range of UK and EC statutes and regulations, the primary statutes are the
Community Customs Code8 and the Customs and Excise Management Act 1979. Apart from
the administration of various duties and taxes, the Customs Commissioners also play an
important role in:

(a) the enforcement of various controls on the importation and exportation of prohibited
and restricted goods;
(b) border control and the prevention of smuggling;
(c) controlling and accounting for the movement of import and export goods;
(d) the facilitation of international trade; and
(e) the facilitation of various industry schemes, international obligations and trade
measures.

Whereas the typical revenue inspector is primarily concerned with tax administration and the
collection of taxes, the customs officer's mandate is considerably more ‘hybrid’. Customs
officers often find themselves carrying out duties wholly unrelated to taxation, often
involving the carrying out of checks and controls on behalf of other departments of state. 9 In
many ways the Customs function resembles a law enforcement agency more than it does a
revenue collector. All forms of smuggling and trafficking, and many instances of tax evasion,
money laundering, and various other forms of criminality cannot be untied from border-
control and customs. Customs administrations therefore play an important role in border-
protection, the prevention of smuggling, and the investigation of certain categories of crime.10

5
In terms of the Commissioners for Revenue and Customs Act 2005 (Royal Assent 7 April 2005)
6
Section 6 of the Customs and Excise Management Act 1979
7
Section 8 of the Customs and Excise Management Act 1979
8
Community Customs Code as established in terms of Council Regulation (EEC) No 2913/92 of 12 October
1992
9
Few definitions capture the essence of the operational activities of the modern customs function as accurately
as the following definition of “Customs controls” as provided for in Article 4 of “Council Regulation (EEC) No
2913/92 of 12 October 1992 establishing the Community Customs Code” (European Community): “’Customs
controls’ means specific acts performed by the customs authorities in order to ensure the correct application of
customs rules and other legislation governing the entry, exit, transit, transfer and end-use of goods moved
between the customs territory of the Community and third countries and the presence of goods that do not have
Community status; such acts may include examining goods, verifying declaration data and the existence and
authenticity of electronic or written documents, examining the accounts of undertakings and other records,
inspecting means of transport, inspecting luggage and other goods carried by or on persons and carrying out
official inquiries and other similar acts.”
10
The Customs Co-operation Council has long argued for more active participation by customs administrations
in the fight against money laundering and organised crime. See Customs Co-operation Council, Resolution of the
Customs Co-operation Council encouraging members to adopt appropriate legislation to prevent offenders from
profiting from their offences, 25 June 1987, TE3-8021; World Customs Organization, Recommendation of the
World Customs Organization concerning transnational organised crime, June 18 1997; Customs Co-Operation
Council, Recommendation of the Customs Co-Operation Council on the need to develop and strengthen the role
of customs administrations in tackling money laundering and in recovering the proceeds of crime, June 25 2005
375 CUSTOMS FRAUD

The Customs legislation of most jurisdictions generally provides the Commissioners of those
jurisdictions with extensive powers for the enforcement of the provisions of that legislation.
The British customs legislation, and that of the European Union (EU), is no exception. In the
UK, the Commissioners of Customs' duties, responsibilities, and powers are set out in the
Customs and Excise Management Act 1979 (CEMA). The CEMA provides the
Commissioners with extensive powers which include but are not limited to the power to:

(a) board, rummage and search any ship, aircraft or vehicle;11

(b) appoint or approve: ports,12 wharves,13 examination stations,14 and transit sheds;15
(c) exercise control over the movement of aircraft,16 hovercraft,17 and the movement of
goods by pipe-line;18
(d) detain ships;19
(e) issue directions as to the manner in which, and the conditions under which goods may
be moved within the limits of any port or customs and excise airport or between any
port or customs and excise airport and any other place;20
(f) impose conditions and restrictions in regards to the movement of imported goods, or
goods intended for export between places of importation, exportation, free zones, or
other places approved by the Commissioners;21
(g) inspect aircraft, aerodromes, and records;22
(h) prevent the take-off of an aircraft;23
(i) remove un-cleared goods to a Queen’s warehouse;24
(j) regulate the unloading, handling or removal of imported goods;25
(k) refuse or cancel clearance of a ship or aircraft;26
(l) make regulations as to exportation;27
(m) require information, inspect or require the production of documents, or to require
evidence in support of information;28
(n) regulate small craft;29
(o) patrol coasts;30
(p) enter premises;31
(q) search for concealed pipes;32
(r) prohibit the use of certain substances in excisable goods;33

11
Section 27
12
Section 19
13
Section 20
14
Section 22A
15
Section 25A
16
Section 21
17
Section 23
18
Section 24
19
Section 29
20
Section 30
21
Section 31
22
Section 33
23
Section 34
24
Section 40
25
Section 42
26
Section 65
27
Section 66
28
Sections 77, 77A, 77B, 77C, 79, 80
29
Section 81
30
Section 82
31
Section 112
32
Section 113
33
Section 114
376 CUSTOMS FRAUD

(s) keep specimens on the premises of revenue traders;34

(t) estimate excise duties;35
(u) detain any person suspected of having committed any offence;36
(v) seizure or detention of goods or things;37
(w) require any person to give security or further security by bond or guarantee for the
observance of any condition;38
(x) require the provision of facilities;39
(y) examine and take account of goods;40
(z) take samples;41
(aa) search premises,42 vehicles or vessels,43 articles,44 or persons;45 and
(bb) enter land for or in connection with access to pipelines;46

The Customs and Excise Management Act 1979, in common with the customs legislation of
most other jurisdictions, also confers strong powers on the Commissioners relating to: the
imposition, payment and disposal of penalties; the mitigation of penalties;47 the recovery of a
debt; execution against traders;48 and the recovery of customs and excise duty due.49

4.2.2 Enforcement failures

The uncontrolled movement of goods and people crossing a nation's customs frontiers, the
trade in illicit goods, and a growing underground economy, pose a direct threat to a nation's
health and safety, national security, tax system, and broader economic interests. These are the
obvious consequences. Enforcement failures in one area of government may however also
undermine compliance and enforcement in other areas of state administration. Failures in
relation to customs enforcement facilitates and makes more likely enforcement failures in
other areas of state administration and law enforcement, i.e. immigration control, arms
control, anti-money laundering control, national security, policing in general, national health,
and taxation.

In the case of customs unions such as the European Community, customs enforcement need
be rigorous and consistent over national frontiers as the failure to enforce the customs
legislation in one EU member-state will have a detrimental ripple-effect throughout the
European Community. Enforcement failures and/or a growing underground economy in one
member-state may undermine the integrity of the local trade and the tax base of other member
states and the broader community. Each member-state thus carries responsibility for
protecting the interests of the broader Community.

34
Section 115
35
Section 116A
36
Section 138(1)
37
Section 139(1)
38
Section 157
39
Section 158
40
Section 159
41
Section 160
42
Section 161 & 161A
43
Section 163
44
Section 163A
45
Section 164
46
Section 162
47
Section 152
48
Section 117(1)
49
Section 137(1)
377 CUSTOMS FRAUD

The ease with which the customs legislation of any given jurisdiction can be circumvented
may depend on a host of factors or circumstances, some of which customs administrations
may have little or no control over. The failure to effectively enforce that body of legislation
will nevertheless be judged a failure regardless the challenges faced. The borders of a given
jurisdiction may indeed be extensive, but the failure to keep illegal immigrants, contraband
and illicit goods out does not make the consequences anything less but a failure. Assume that
failure follows as a consequence despite the best efforts and optimum use of available
resources by the customs administration and law enforcement agencies of that jurisdiction,
then the failure is that of central government. Within the customs context, enforcement
failures can often be attributed to any combination of the following factors or circumstances,
some of which may to a greater or lesser degree overlap with one another:

(a) existing legal frameworks are flawed or no longer fit for purpose;
(b) existing laws and/or procedures are not enforced;
(c) the failure to adequately respond to and adapt to change;
(d) inadequate resources and understaffing;
(e) inefficient use of available resources;
(f) weaknesses in systems, procedures and control measures;
(g) lack of information exchange, coordination, and cooperation between different
agencies of the same state and/or between the authorities of different jurisdictions;
(h) low detection and interdiction rates;
(i) high levels of corruption;
(j) too few cases referred for criminal investigation and prosecution;
(k) sanctions for contravention lacks the required deterrent effect;
(l) failures in risk analysis, and intelligence failures in regards to criminal groups and
their operations;
(m) enforcement capabilities are not enhanced in tandem with greater criminal
sophistication;
(n) the failure to make use of available technology or the inefficient use thereof;

4.2.2.1 The failure to adapt to change

Technological innovation and the information revolution, globalisation, and a fast changing
political, social, economic and legal landscape, have over the past century, or just recent
decades really, transformed our world into one very different from that of our forebears. It has
forever changed the world of commerce, the way in which international trade is conducted,
and the operation of financial and trade mechanisms, practices, and structures. One can just
consider how the international political, social, industrial and economic landscapes have
changed over recent decades. Whereas Europe and the United States used to be major
manufacturing regions, those regions have turned into consumer economies very much driven
by service industries and with most of the world's manufacturing today taking place in Asia.
The Soviet Union is no more but a footnote in history, the United States is fast losing its
international dominance, and in Europe the nation-state has lost most of its autonomy with the
rise of the European Union (EU). The colonial era has come and gone. States which just a few
decades ago were no more but 'third-world' countries have matured into major economic and
political powers. We have seen the creation of various international bodies such as the UN,
OECD, WCO, and IMF to list but a few. Tax systems have changed. In many jurisdictions
there was a switch to self-assessment systems of taxation. We have seen the introduction of
new taxes. Value Added Tax (VAT) for example was first introduced in France in 1954 and
was only introduced in Britain in 1973. The volumes in trade have increased exponentially,
and the speed at which that trade is being transacted is growing ever faster. Supply chains
have changed as has communication and financial systems. 'Intermodal Shipping Containers'
and 'Unit Load Devices' (ULD's) for example only really started to see widespread use post-
378 CUSTOMS FRAUD

WW2, but especially so since the 1970's. Thus relatively new inventions but they
revolutionized the world of logistics. We only started to see the widespread introduction and
use of the internet, email, and cellular phones in the 1990's. Electronic customs filing only
started to see use in the 1990's. These are just a few developments, and just a few amongst
many, but they had a major impact on international trade. We now live in an era of instant
electronic funds transfers, excellent communications systems, international mobility and trade
with few of the obstacles faced by our forebears, and instant access to a truly global market.
For traders it opened markets, facilitated trade, and sped up processes.

Changing political and legal landscapes, changes in the world economy, the proliferation of
new regulation, new customs unions and the free movement of goods and people,
technological innovation, changes in trading practices, increased volumes in trade, the growth
in airfreight, increased security expectations, and the rapid growth of truly international
criminal networks, to list but a few, have also changed the landscape within which customs
administrations are required to carry out their mandates. But despite this rapid transformation
of our societies, the increased complexity, and growing criminal sophistication, many States
stubbornly continue to administer and enforce their customs legislation in the same way as
they did a century before. Customs legislation, international treaties and cooperation
agreements, the organization of customs administrations, enforcement practices, and counter-
fraud strategies, often tend to be archaic and ineffective in dealing with old problems in a new
world.50

Effective customs administration and enforcement is only possible to the extent that the
legislative framework is fit for purpose. This however is often not the case with customs
legislation or parts thereof often outdated and ineffective. Provisions demanding adherence to
procedures or practices no longer practical or obsolete is clearly not fit for purpose. They will
simply be ignored by both those subject to it and those tasked with enforcing them. Any
provision the operation of which is unconstitutional or unlawful will likewise also not be fit
for purpose, leaving the enforcer with the dilemma of either not enforcing same or having to
find another solution assuming there is any. This also applies to penal provisions. The penal
provisions provided for need be sufficiently wide and flexible so as to be capable of dealing
with all classes of contraventions and offenders. But even assuming the legislative framework
provided for is indeed adequate, then its' efficacy is still reliant on effective enforcement.51

There must be continuous in-time modernization and change if any given Revenue and/or
Customs administration is to have any realistic chance of effectively dealing with fraud. This
however calls for: (a) continues monitoring and the speedy identification of new trends and
potential threats; (b) the identification of loopholes in legislation and the prompt amendment
of legislation or the rewrite of obsolete legislation where this is called for; (c) the
reorganization of and/or increasing the capacity of compliance and enforcement functions
where called for; and (d) the continuous monitoring and re-evaluation of tax administration
practices, training needs, enforcement requirements and practices, and the introduction of new
technology infrastructure where called for. Needless to say, this all comes at considerable
cost.

50
Deflem, M., & Turner, H. (2001). “Smuggling”, Encyclopedia of Criminology and Deviant Behaviour at 475
correctly noted that: “National and international regulations have clearly been ineffective in stemming the global
problem of smuggling. As societies continue to increase in complexity in economic, political, and cultural
respects, traditional models of legal regulation and law enforcement may become obsolete.”
51
Nicholls in Honest Thieves, The violent Heyday of English Smuggling at 56-57 and referring to the endemic
smuggling prevalent in England during the 18 th and 19th centuries, correctly noted that: “…the most repressive
and sternly worded enactments are mere paper tigers if they are not rigidly enforced.”
379 CUSTOMS FRAUD

4.2.2.2 Limitations on resources

Many States, and especially those in the developing world, simply lack the resources to
ensure effective control over all their ports and often long porous borders. Border-controls are
often lacking or close to non-existent. One can simply look at the number of vehicles, aircraft,
vessels and shipping containers entering and leaving our shores on a daily basis, or the
number of import and export transactions processed at any given time and then consider the
number of frontline officers tasked with processing all of this to appreciate how thin the
customs-line really is. Internationally, customs authorities often find themselves severely
over-stretched, struggling to cope with limited resources and limited manpower. The total
staff compliment of any given customs administration may seem impressive on paper, but
those numbers do not provide for any real measure of real enforcement capacity. The greater
majority of such an organization's staff serves in non-frontline functions. The manpower
dedicated to carrying out those critical tasks at the sharp end of operations i.e. audits and
inspections, testing, manning the ports, border patrols, investigations, and surveillance are
usually spread extremely thin.52 This then also explains the low levels of interdiction. Not to
be lost sight of is the fact that a customs administration is a system which need be efficient as
a system. This calls for efficiency in planning and organization, administration, operational
support, and the full spectrum of operational activities. Operational efficiency in turn calls for
investment in technology and infrastructure, personnel and recruitment, training, research, and
capacity building in areas such as routine customs enforcement, intelligence, and
investigations.

There are many areas of border control, law enforcement, and trade facilitation where customs
can play a more active role, but this calls for adequate resources. Visible public policing,
education, health-care and other public services being more visible to the public as they are,
being the more important election campaign-cards as they are, and winning more votes as
they do, investment in strengthening the enforcement capacity of revenue and customs
administrations are just not a primary priority. Uniformed police officers not being seen
'walking the beat', high teacher-pupil ratios, and poor response times by overstretched medical
services are visible, whereas the failure to rummage through boats and planes in the dead of
night, the failure to trace the distributors of counterfeit goods, or the failure to allocate teams
of officers to monitor a controlled delivery are not. Common-sense dictates that the more
efficient the interdiction of illicit goods at the point of entry, the more effective the
neutralization of criminal networks there where it matters, and the more efficient the
collection of revenue, the less the resources required to be dedicated in countering and dealing
with all the resulting ills.

4.2.2.3 Low levels of detection / interdiction

Customs enforcement can only be effective to the extent that non-compliance is indeed
detected. No customs enforcement strategy can be said to be effective absent high levels of
detection and interdiction. The reasons are obvious. In the absence of detection and
interdiction, there will be no seizure,53 penalties, investigation, or prosecution. The illicit
goods are not seized and enter home consumption with all the associated negative
consequences, offenders are not identified and dealt with, and would-be offenders are left
undeterred. Detection and interdiction rates do however depend on much more than just

52
See e.g. The Times, Tuesday June 20 2006, “Borders left wide open with posts unmanned” where it was
reported that British ports were left unmanned due to inadequate staff.
53
Where illicit goods are found, the goods will be seized and assessments will be raised for penalties and
revenue lost. In many instances vehicles, craft, or equipment used in the manufacture, keeping of, trade in, or
conveyance of that illicit goods may also be seized.
380 CUSTOMS FRAUD

tactics, techniques and procedures. Rates of detection and interdiction will very much mirror
the legislative landscape, the capacity and efficiency of general customs organization and
administration, the operational environment, and enforcement capacity. Assuring high levels
of detection and interdiction inter alia demands:

(a) adequate resources adequately distributed between all those line-functions responsible
for the administration and enforcement of the legislation, and the effective utilization
thereof;
(b) an in-depth understanding of current industry and trade practices;
(c) knowledge of current fraudulent practices and areas vulnerable to fraud;
(d) existing laws and rules need be vigilantly enforced;
(e) effective information exchange and cooperation between various agencies of State;
(f) the fostering of international partnerships between customs agencies and treaties
allowing for information exchange and mutual cooperation between those agencies;
(g) continues testing and evaluation for any weaknesses in systems and procedures;
(h) effective risk-profiling with the effective use of all available risk-profiling assets and
intelligence;
(i) adequate training; and
(j) the effective use of available technology;

Illicit goods are extremely difficult to interdict once introduced into the trade, and prosecuting
the smugglers and suppliers is considerably more difficult. The critical point for detection is
thus at the points of entry and introduction. Containing the trade in illicit goods therefore
relies first and foremost on effective control over borders, ports, manufacturers of excise
goods, and the various classes of warehouses. Customs authorities increasingly follow a risk-
based approach in the examination of cargo, which does significantly increasing the
likelihood of detection. The reality however is that the likelihood of detection remains
relatively low. The lower the levels of detection and interdiction, the greater are to be
expected the direct and indirect consequences for society. The interdiction of illicit goods
generally proves difficult and often happens by mere change. The same group of smugglers
may successfully evade Customs and escape detection on many occasions, often over many
years. The reality is that no customs-service in any industrialized state, can search every
consignment of goods crossing its frontiers, or inspect all the documentation relating to those
imports or exports, let alone carry out detailed audits into all aspects of those shipments. The
international norm for cargo stopped for inspection is around 5 percent. Inspection of every
consignment of goods is neither practical nor possible considering limited resources, and the
paralyzing effect such a move will have on the flow of international trade. 54 Enforcement, as
critical as it is, is expected to be conducted in such a manner as to not result in unreasonable
interference with the flow of legitimate trade. There is thus an important balance to be struck.

In many instances the fact that a fraud is being committed can only be detected with proper
verification and audits. The essence of fraud is misrepresentation and concealment, and even
the most amateurish of fraudsters do generally attempt, with varying degrees of success, to
keep concealed the true nature of their criminal activities. Documentation, records, customs

54
See L Vogel & Son Pty. Ltd v Anderson [1967] HCA 46 where it was inter alia said: “Customs officers have of
practical necessity to rely extensively upon the information supplied to them by importers, for the flow of
commerce could not be maintained if every importation had to be fully investigated.” Also see The Financial
Times, July 26 2007, “US to screen all foreign ship cargoes”, where it was reported that proposed US legislation
requiring the screening of all containers entering the US faced considerable opposition from the US trade and
freight industries. Industry representatives argued that the passing of the proposed legislation would have a
severely disruptive impact on the normal flow of international trade.
381 CUSTOMS FRAUD

entries, packaging and labelling, manifests, stamps etc. will thus often be fraudulent. There
will often also be collusion between consignors, consignees, transporters, agents, traders,
warehouse-operators and professional advisors. In many cases it may prove difficult to trace
the true origin or movement of goods.55 Attempts at verification may quite well also prove
difficult or impossible as there may in many instances not be treaties in place providing for
information exchange between the target jurisdiction and other jurisdictions.

4.2.2.4 Insufficient levels of deterrence

Efficient customs enforcement is not possible in the absence of effective deterrence. This then
is also a fact well recognized by the courts, both British and further afield.56 Commercial
smuggling operations tend to be large in scale with the criminal conduct repetitive. The profits
can be staggering. The risks associated with detection often do not mirror the vast profits to be
made from smuggling. There can just not be any realistic expectation of deterrence and
prevention where criminal groups “find the gamble worthwhile”.57 The perceived opportunity
to successfully commit certain crimes and get away with it need be managed. There simply
cannot be sufficient levels of deterrence where the risks of detection, criminal investigation,
and prosecution are perceived to be remote, and/or where punishment is believed to be
unlikely to materialize or believed to be unlikely to outweigh the benefits.

The real risk of detection, and/or investigation, and/or successful prosecution in any given
jurisdiction may depend on or may be shaped by a wide range of factors and circumstances,
which may exist at or are determined at different levels, some of them over-lapping and inter-
dependant. Examples that come to mind are: (a) the nature, origin and quantities of the
commodities dealt with, routes used, and methodologies employed; (b) the nature, duration,
frequency and scale of criminal acts and/or a criminal operation; (c) the capacity and skill of a

55
Goods may in many instances be moved through various jurisdictions and multiple warehouses, often
changing ownership and destination numerous times, often placed in different customs procedures at different
times, and documentation and packaging often being changed all along the way.
56
See e.g. R v Forbesi [2001] 4 All ER 97, where Lord Hope inter alia said: “It is plain that the prohibitions and
restrictions would be ineffective unless they were backed up by criminal sanctions in the event of any breach.
Their evasion would put at risk the benefits which they were designed to achieve. Human nature being what it is
there is bound to be those who with a view to profit or for other ill-founded motives will seek to evade them.”
Also see the Australian High Court case of L Vogel & Son Pty Ltd v Anderson [1967] HCA 46 (also cited (1968)
120 CLR 157) where it was inter alia said: “The Customs laws represent the judgment of Parliament upon an
important aspect of the economic organization of the community, and the object of the penal provisions is to
make that judgment as effective as possible. It is important to remember that Customs officers have of practical
necessity to rely extensively upon the information supplied to them by importers, for the flow of commerce
could not be maintained if every importation had to be fully investigated. Moreover, detection of frauds is not
always easy. No doubt ordinary conceptions of honesty and of civic responsibility suffice to ensure a great deal
of fair dealing with Customs, but for some people little seems to matter but fear of the consequences of
discovery. The Customs Act makes those consequences potentially drastic. It is for the courts to make them, in
suitable cases drastic in fact, for otherwise traders who are not saved by qualms of conscience from willingness
to defraud their fellow citizens may weigh the profits they hope for against the penalties they have cause to fear
and find the gamble worthwhile.” “The Customs laws represent the judgment of Parliament upon an important
aspect of the economic organization of the community, and the object of the penal provisions is to make that
judgment as effective as possible. It is important to remember that Customs officers have of practical necessity
to rely extensively upon the information supplied to them by importers, for the flow of commerce could not be
maintained if every importation had to be fully investigated. Moreover, detection of frauds is not always easy.
No doubt ordinary conceptions of honesty and of civic responsibility suffice to ensure a great deal of fair dealing
with Customs, but for some people little seems to matter but fear of the consequences of discovery. The Customs
Act makes those consequences potentially drastic. It is for the courts to make them, in suitable cases drastic in
fact, for otherwise traders who are not saved by qualms of conscience from willingness to defraud their fellow
citizens may weigh the profits they hope for against the penalties they have cause to fear and find the gamble
worthwhile.”
57
L Vogel & Son Pty Ltd v Anderson [1967] HCA 46
382 CUSTOMS FRAUD

criminal organization or criminal network in terms of leadership, organization, experience and

skill, control, security, and tradecraft; (d) the profiles of those associated with a criminal
network or criminal operation; (e) the perceived threat posed by a particular criminal
operation or criminal group; (f) the integrity of administrative systems, practices, procedures,
and counter-measures; (g) the general standards of border-control and policing; (h) law
enforcement intelligence capacity; (i) risk-profiling and case selection; (j) training standards
and enforcement methodologies; (k) the leadership, organization, and general capacity of
those regulators and law enforcement agencies connected with a particular enquiry; (l)
international information exchange and collaboration; (m) the quality and integrity of state-
administration in general, and the standards of integration between the systems in use between
the different organizations and departments; (n) levels of internal corruption; (o) jurisdiction-
specific legal frameworks; (p) the capacity of the wider criminal justice system in terms of
prosecution and punishment; and (q) political pressures, political will and law enforcement
priorities. Ensuring credible or sufficient levels of deterrence is thus not a simple outcome or
objective that can be quickly manufactured by just getting a few things right. Getting to a
point where one can say that there are sufficient levels of deterrence really involves capacity
building at different levels across different departments and branches of government. It calls
for capacity and commitment at all levels of decision-making.

For the criminal organization engaged in smuggling, the risks of detection, investigation,
prosecution, and conviction ever materializing will obviously vary from jurisdiction to
jurisdiction. In certain parts of the world, and this is especially so in failed States or those
States and regions lacking in capacity, border control, customs enforcement, and law
enforcement will often be limited or be all but non-existent. This being said, even in many
developed countries, the real risk of detection, criminal investigation, and prosecution may be
low. Where a consignment of illicit goods is indeed intercepted, the matter will more often
than not be dealt with administratively with the consequences for the offenders limited to no
more but seizure, forfeiture, and civil penalties.

4.2.2.5 Lenient sentencing and over-reliance on administrative penalties

Within the customs context, low detection rates and lacking capacity to investigate and
prosecute contraventions have always been problematic. Factors that are however often
overlooked as factors seriously undermining deterrence and customs enforcement in general
are lenient sentencing and over-reliance on administrative penalties. In most parts of the
English speaking world, administrative penalties and forfeiture tends to be the default position
with criminal prosecution generally limited to the most serious of contraventions, or to
particular harmful types of smuggling such as narcotics-smuggling and weapons-smuggling.
Where offenders are prosecuted, the offences charged will often not match or reflect the
serious nature of the criminal conduct in issue. There may often be an over-willingness to
accept pleas on less serious alternative charges. Where the offences charged do provide for
imprisonment, custodial sentences will often be waved in favour of other non-custodial
sentences such as suspended sentences or fines. Needless to say, this may all contribute to
greater opportunity, lack of credible deterrence, and the failure to neutralize criminal
operations.

Effective deterrence is not possible unless the negative consequences from punishment
outweigh the benefit of the crime. The risks smugglers currently face, simply are not
commensurate to the profits to be made. Pecuniary penalties and forfeiture have its place, but
is to be used responsibly for dealing with less serious cases. Countless reported cases are to be
found where offenders continued with their illegal operations despite previous warnings,
forfeiture, administrative penalties and previous convictions. Forfeiture, penalties and fines as
deterrents may be effective against certain categories of offenders and/or where there is a high
383 CUSTOMS FRAUD

probability of detection, but it is of little value in deterring smugglers who can recover
potential losses with relatively little effort soon after. The facts of the English case of R v
Dosanjh58 provides for interesting reading. It should be stressed that the facts of this case is
by no means exceptional or distinguishable from the facts of countless other smuggling cases
reported in Britain, Australia, Canada and the United States. The appellant in this matter was
travelling in a van laden with alcohol smuggled into the UK when police officers stopped the
vehicle to carry out a routine check. After the discovery of the smuggled goods in the vehicle,
the police executed a search at the appellant’s house where they also discovered a quantity of
smuggled alcohol and tobacco.59 A subsequent investigation revealed that the appellant in fact
smuggled goods into Britain on no less than 82 occasions over a 10 month period, in the
course of which he managed to evade duties to the amount of £164 000. He had no previous
convictions for the evasion of duties or taxes. He was however apprehended for smuggling on
two previous occasions. In both instances the goods were forfeited to British Customs but he
was never prosecuted. On this occasion the appellant received a 3 year prison sentence. In this
instance the offender was eventually (again) apprehended and successfully prosecuted, but
this is not always the case. There is no guarantee an offender apprehended today will be
caught out again in the future. The fact that the same offender is not caught out again, does
not imply him having stopped his criminal activity. All too often it is his past brushes with the
authorities that educated him and pushed him towards refining his criminal operations.

A criminal group or organisation, as is the case with any other type of organization, will often
grow, develop, learn, and become more efficient as it gains experience. Over time it builds a
collective memory, learns from past successes and failures, gains knowledge and skills,
develops support systems and networks, and gets better at identifying weaknesses and
opportunities, making appreciations, planning operations, coordinating and executing
operations, anticipating threats, and developing mechanisms to counter those threats. The
mere existence of any criminal group is a threat. The longer it is left to grow the more difficult
it gets to contain and eradicate. Criminal operations not neutralised tend to grow in
complexity and size. The more organised, complex, and experienced they become, and the
more influence they wield, the more difficult grows the task of neutralization those groups
and disrupting their operations. Dealing with these groups thus calls for total disruption and
neutralization at the first opportunity that presents itself.

One of the possible reasons for the current and historic over-reliance on administrative or civil
action as opposed to criminal investigation and prosecution is lacking intelligence. There is no
doubt that many of those contraventions indeed detected but dealt with administratively are
being dealt with as such for the simple fact that Customs are not always aware what exactly it
is that they are dealing with. The greater majority of the most harmful smuggling operations
out there tend to be operated by criminal groups. Many instances will however present itself
where individuals are apprehended, but where, unbeknown to Customs at that point in time,
that particular individual will be no more but one member of a wider criminal operation.
Some criminal groups have for decades been using very basic but effective systems involving
the circulation of many different individuals, often seemingly ‘clean’ individuals without any
recorded history of involvement in crime, through elaborate criminal operations – often with
most or all of them never facing prosecution.60 Intelligence is absolutely critical in the

58
[1998] EWCA Crim 1450
59
Section 11 of the Customs and Excise Management Act 1979 explicitly states that it "shall be the duty of every
constable and every member of Her Majesty’s armed forces or coastguard to assist in the enforcement of the law
relating to any assigned matter."
60
Many Italian, Chinese and Pakistani crime families have for decades run circles around authorities by
operating smuggling rings with many a brother, cousin, and friend being circulated around through the various
384 CUSTOMS FRAUD

identification and mapping of criminal organisations, in developing an understanding of how

those organisations are organised and how they operate, in making informed decisions, and in
developing an investigation plan.

With interdiction levels being at the low levels that they are, every opportunity to prosecute
serious cases must be pursued with deterrence and neutralization being the primary objectives.
The difficulties associated with detection should therefore reflect in the penalties and
sentences that are handed down. Appropriate sentencing however is of little use where there
are few to no prosecutions. This once again leads us back to the question of prosecution
policy. There must be clear policy governing all processes relating to case selection for
investigation, referral for prosecution and prosecution decisions.

4.3 The Customs legislation

4.3.1 General
Manufacturing, export, import, distribution and consumption all take place within the context
of trade. There are however few areas of trade that are not subject to some or other form of
statutory regulation and that regulation and its' enforcement will almost always interfere with
the freedom of trade. It may slow it down, make it more costly, or may well make the trade in
certain areas wholly unprofitable or impossible. We are free to trade as we wish, but only
within the parameters allowed for under the laws as enacted by Parliament. This however is
the price we pay for organized, safe, prosperous, and well-functioning societies.

For many observers, customs law and customs procedures may at first glance appear to be
lacking in logic, as archaic, and possibly even as an impediment to legitimate trade. This is, as
far as the Canadian, Australian, US, British and European legislation is concerned, certainly
not the case. No body of customs or tax legislation will always be perfect and there will
always be rules or procedures that may be flawed or out of date, but overall, the laws, rules,
and procedures to be found in most modern customs statutory frameworks are in fact quite
logical, were well thought through and carefully considered before implementation, and were

tentacles of elaborate smuggling operations. The following is a very typical example: Trader Z operating a
number of retail stores may typically set up a front company we will refer to as 'Buying-house X' with a number
of other companies (A, B, C and D) set up as traders importing goods into the country which they then supply to
Buying house X. All those entities may de facto be managed by Z but will all on the face of it be managed by
and be operated by family members, friends, or recent immigrants. On the face of it there may well be no ties
between Trader Z and any of those entities. Importers A, B, C and D will typically engage in the actual
smuggling and or/customs frauds, supplying the illicit goods to Buying House X, and continue to do so for as
long as their operations go undetected. The shipments may be large or small, but will often be relatively small
but imported at a high frequency. Buying House X will typically be just a buffer between the importers and Z
(and there may quite well be other such buffer-companies between Buying House X and trader Z - intended to
create distance between Z and the importers). Assume importer A, operated by Z's cousin Q is caught out, the
likely response from the authorities will usually be administrative in nature with the likelihood of prosecution
remote. Q may well get away with it a few times before he is eventually arrested and prosecuted. Seizure,
forfeiture and fines will usually be viewed as no more but a natural business risk and those losses will usually be
covered many times over on past and future shipments. Assume the day comes when there is a real risk of Q
being arrested and prosecuted. Trader Z will then typically close down importer A's operations, and 'redeploy' Q
somewhere else or fly him out of the country. Over time the same may happen to importers B, C, and D, but this
often takes years (due to the low interdiction rates and over-reliance on administrative penalties). Other
importers may be set up to replace A, and/or B, and/or C, and/or D, or the whole cluster of companies (X, A, B,
C, and D) may well be closed down just to be cloned as another chain. Various similar chains may also operate
simultaneously and parallel to one another. The frontmen employed will often be family members. Where they
are arrested they will often skip bail and abscond overseas. Where they are arrested, tried and convicted, they
will usually refuse to identify Z or to testify against him. They will often be illegal immigrants, temporary
residents, or holders of dual nationality. Assuming Z is careful in keeping a safe distance between himself and
the illegal activities of those clusters of front-companies, the likelihood of him ever facing prosecution is remote.
385 CUSTOMS FRAUD

for the most part enacted with due consideration of the possible impact of its enactment on
legitimate trade. Most Western governments do not wish to kill the goose laying the golden
eggs. They do appreciate the importance of customs legislation drafted in such a way and
customs operations functioning in such a manner as to achieve legislative objectives but with
the least possible interference or impact on legitimate trade.

In Britain, the legal basis for most matters customs and excise related are (as at the time of
writing) to be found in the European Customs Code (Regulation 2913/92), Regulation
2454/93 (Implementing provisions to the Customs Code), the Customs and Excise
Management Act 1979 (CEMA), and the Value Added Tax Act 1994.61 For the importer,
exporter, or manufacturer of excise goods, these statutes and regulations are the primary
points of reference in terms of familiarizing himself with the procedures for the handling and
entry of goods imported into or exported from the United Kingdom, or for the handling of
excise goods manufactured in the UK. Those statutes prescribe the manner in which goods are
to be dealt with, the procedures to be followed in relation to such goods, the liability to pay
duties and taxes, as well as the duties and responsibilities placed on those who deal with
import, export, or excise goods.

The Customs rules relating to imports and exports are uniform throughout the European
Union, conforming as they should to the European Customs Code (Regulation 2913/92) and
the regulations. In Britain, as is also the case in other EU member-states, national customs
legislation is framed in line with and with the view to give effect to the requirements of the
European Customs Code. In Britain the primary statute relating to customs and excise is the
Customs and Excise Management Act 1979. The Act contains detailed provisions dealing with
a wide range of matters such as but not limited to: (a) the application of the legislation; (b) the
appointment, duties and powers of the Commissioners and their officers; (c) administration
and record keeping; (d) customs control areas, and powers and controls in relation to
numerous categories of places, goods, people and movements; (e) controls in relation to
importation, exportation, transit movements, warehousing, free-zones, pipe-lines and
coastwise traffic; (f) controls in relation to excise licence trades and excise revenue; (g) the
prevention of smuggling; (h) various aspects relating to duties, taxes, levies and drawbacks;
(i) various offences; and (j) the detention of persons, forfeiture and legal proceedings.

A wide range of factors and circumstances present prior to, during, or after importation,
exportation, or the manufacture of goods, may determine or impact on the legal obligations
that the law may impose on various categories of persons, their liability to duties and/or taxes,
and the amounts in duty payable. It is the duty of all persons, regardless nationality, residence,
or status in relation to other revenue legislation, to comply with the provisions of the customs
legislation. This body of law sets out numerous duties and responsibilities such as but not
limited to: (a) the keeping of records and accounts; (b) the furnishing of documents and
information; (c) the making of entry and other declarations; (d) various aspects relating to the
marking, packing, handling, storage and movement of goods; (e) reports to be made to
Customs; (f) adhering to the rules relating to various authorizations; (g) disclosure of changes
in circumstances; and (h) the payment of certain duties, taxes or other amounts, to list but a
few.

61
This framework can be expected to change in the foreseeable future (considering Britain's planned departure
from the European Union as a EU member-state)
386 CUSTOMS FRAUD

4.3.2 Importation and Exportation

Customs frauds involve the fraudulent evasion of prohibitions, restrictions, or duty, on goods
imported, exported, or released into home consumption. When goods will, in law, be
considered as 'imported' or 'exported', is thus of great importance where the fact of
importation or exportation is critical as to the criminal liability of those charged with
contravening the laws relating to importation or exportation. When goods will be considered
to be ‘imported’ or 'exported' is a matter of law and thus depends on a given jurisdiction's
legal framework and the facts of the case.

In Britain, section 1 of the Customs and Excise Management Act 1979 defines 'importer' as:
“… in relation to any goods at any time between their importation and the time when they are
delivered out of charge, includes any owner or other person for the time being possessed of or
beneficially interested in the goods and, in relation to goods imported by means of a pipe-line,
includes the owner of the pipe-line”. The same section defines 'exporter' as: “… in relation to
goods for exportation or for use as stores, includes the shipper of the goods and any person
performing in relation to an aircraft functions corresponding with those of a shipper”. Section
5 of the Customs and Excise Management Act deals with the time of importation or
exportation and reads as follows:

"5. Time of importation, exportation, etc.

(1) The provisions of this section shall have effect for the purposes of the customs and excise
Acts.
(2) Subject to subsections (3) and (6) below, the time of importation of any goods shall be
deemed to be -
(a) where the goods are brought by sea, the time when the ship carrying them comes within
the limits of a port;
(b) where the goods are brought by air, the time when the aircraft carrying them lands in the
United Kingdom or the time when the goods are unloaded in the United Kingdom, whichever
is the earlier;
(c) where the goods are brought by land, the time when the goods are brought across the
boundary into Northern Ireland.
(3) In the case of goods brought by sea of which entry is not required under regulation 5 of the
Customs Controls on Importation of Goods Regulations 1991, the time of importation shall be
deemed to be the time when the ship carrying them came within the limits of the port at which
the goods are discharged.
(4) Subject to subsections (5) and (7) below, the time of exportation of any goods from the
United Kingdom shall be deemed to be -
(a) where the goods are exported by sea or air, the time when the goods are shipped for
exportation;
(b) where the goods are exported by land, the time when they are cleared by the proper officer
at the last customs and excise station on their way to the boundary.
(5) In the case of goods of a class or description with respect to the exportation of which any
prohibition or restriction is for the time being in force under or by virtue of any enactment
which are exported by sea or air, the time of exportation shall be deemed to be the time when
the exporting ship or aircraft departs from the last port or customs and excise airport at which
it is cleared before departing for a destination outside the United Kingdom.
(6) Goods imported by means of a pipe-line shall be treated as imported at the time when they
are brought within the limits of a port or brought across the boundary into Northern Ireland.
(7) Goods exported by means of a pipe-line shall be treated as exported at the time when they
are charged into that pipe-line for exportation.
(8) A ship shall be deemed to have arrived at or departed from a port at the time when the ship
comes within or, as the case may be, leaves the limits of that port"
387 CUSTOMS FRAUD

This then will be the time when goods will be considered as 'imported' or 'exported' - not the
time and place as agreed between buyer and seller, importer and shipper. The fact that certain
aspects relating to the commercial transactions underlying an importation were not yet
concluded (e.g the importer did not yet take possession or delivery, or payments were not yet
made/received), does not necessarily mean the goods were not 'imported', and will also not
make offences committed in relation to that importation any less criminal. Illicit goods can in
fact be imported, exported, possessed, harboured, carried, or dealt with absent the completion
or even existence of a commercial purchase. Historically many a weapons-smuggler did what
they did for ideological reasons absent any contractual agreements. A conspiracy to import or
deal with illicit goods can of course also be entered into long before purchaser and seller have
been discharged of their contractual obligations.

All goods imported or exported must be declared to Customs. There is a legal duty to declare.
That declaration must then also be complete, accurate and truthful. Any failure in this respect,
even where due to negligence, will usually in most jurisdictions be an offence. There are
however offences for those who act negligently or carelessly, and then there are offences for
those out to evade, circumvent, or defraud. The wilful and intentional failure to disclose the
fact that dutiable, prohibited or restricted goods are being brought in or taken out of the
customs territory, and where this is accompanied with the intent to evade prohibitions,
restrictions, or the payment of duty will be fraudulent. To declare but to willfully and
intentionally disclose materially false information with the intent to evade prohibitions,
restrictions, or the payment of duty will also be fraudulent.

4.4 The duties and taxes

4.4.1 Customs and excise duty
Customs duties have been imposed on imports and exports for many centuries. The first
centralized system for the collection of customs duty in England can be traced back to the
thirteenth century.62 Excise tax was first introduced in England in 1643 to help pay for
Cromwell’s army during the Civil War. It was the first tax to be levied on home-produced
goods like beer, cider, meat, leather, and clothing, and provoked widespread riots amongst the
population.63 Customs and Excise duty, in common with Value Added Tax, are classed as
‘indirect taxes’.64 The past century has seen a steady decline in the revenue-contribution of
duties in modern industrialized states.65 Customs duties on the other hand may still be an
important source of revenue for many developing countries where the collection of taxes on
intangibles such as services or income is difficult.66

62
McFarlane, McFarlane’s Customs Law Handbook 1989-90 at 1; Also see Ormrod, “The English Crown and
the Customs, 1349-63” (1987) The Economic History Review 40 (1): 27-40, 27
63
Gillman, The Duty Men – The Inside Story of the Customs at 78.
64
A useful definition of an indirect tax is that adopted by the Privy Council in the Canadian case of Bank of
Toronto v Lambe 12 App Cas 575 where it was inter alia said: “Indirect taxes are those which are demanded
from one person in the expectation and intention that he shall indemnify himself at the expense of another; such
as the excise or customs. The producer or importer of a commodity is called upon to pay a tax on it, not with the
intention to levy a peculiar contribution upon him, but to tax through him the consumers of the commodity, from
whom it is supposed he will recover the amount by means of an advance in price.”
65
See Williams, EC Tax Law, European Law Series, 1998 at 53-54: “For 500 of the last 600 years (and probably
more) customs duties were one of the main sources of royal/government revenues in England and then the UK.
The taxes on the movement of goods into, and from, England were the surest of our taxes ... Much of the rest of
the Crown’s extraordinary revenues ... came from excise duties. Until this century, taxes based on income were
fiscally insignificant. By contrast, customs duties are today irrelevant to the British government as a form of
taxation.”
66
Williams, EC Tax Law, European Law Series at 54
388 CUSTOMS FRAUD

Duty is to be paid on imported and excisable goods in accordance with the imposing
legislation and is to be paid as and when called for. Customs duties are either levied on an ad
valorem basis, or as a specific duty. Duties are not only intended as a source of revenue, but
are also extensively used as a protective measure, fulfilling an important fiscal function.
These protective duties take two forms, namely: (a) anti-dumping duties, which are used to
counteract dumping. Dumping occurs where products from one state are introduced into
another state at less than the normal value of the particular commodity, and where the
dumping constitutes a threat to local industry; and (b) countervailing duties, which are levied
on subsidized imports. These duties have the effect of cancelling out the export subsidy from
the exporting state. Both anti-dumping and countervailing duties are extensively used to
protect states against the negative consequences of cheap imports. These usually need be paid
at the time when such goods are deemed to have been imported. Excise duty is in effect a
retail tax targeted at specific commodities such as alcohol, tobacco and fuel. Excise duty is
calculated on the quantity or volume of the product. Customs duty equal to the excise duty
payable on a particular category of excisable goods will usually be levied on the imported
counterpart of the locally manufactured product. Ad Valorem excise duty may also be levied
on selected categories of locally manufactured goods, with a corresponding ad valorem
customs duty levied on imported goods of the corresponding class. Although few States
currently charge export duty, the legislation of most jurisdictions do contain provisions
providing for the administration thereof. Where export duty is levied, same also has to be paid
as and when required.67 This will usually be at the time of entry for export.

Whether or not a particular consignment of goods, or part thereof, will be subject to duty
under the imposing provisions may depend on the nature of the goods in question, the origin
of that goods, the volumes or quantities thereof, and its value. The classes of goods subject to
such duties, as well as the rates of duty or VAT payable, do not remain static and is subject to
frequent change. Information as to the classes of goods subject to duty, as well as the rates of
duty applicable, can be found in the Tariff. Those liable for the payment of duty remains so
liable until such goods have been duly entered, and until the duty thereon has been paid. The
Revenue is fully entitled to claim duty, tax and penalties from any person liable for the
payment thereof, including smugglers and other offenders. Once due and payable, any amount
of duty, interest, and penalties is a debt due to the State.

4.4.2 Value Added Tax

In Britain, the charging of VAT is imposed under section 1 of the Value Added Tax Act 1994.
The relevant parts of section 1 read as follows:

"1. Value added tax.

(1) Value added tax shall be charged, in accordance with the provisions of this Act -
(a) on the supply of goods or services in the United Kingdom (including anything treated as
such a supply),
(b) on the acquisition in the United Kingdom from other member States of any goods, and
(c) on the importation of goods from places outside the member States,
and references in this Act to VAT are references to value added tax.
......
(4) VAT on the importation of goods from places outside the member States shall be charged
and payable as if it were a duty of customs."

67
Where export duties or levies are charged, they are often charged on the export of raw materials and natural
resources. In South Africa for example an export levy is charged on the export of uncut diamonds (under the
Diamond Export Levy Act 2007 read with the Diamond Export Levy (Administration) Act 14 of 2007). These are
administered by the Commissioner of SARS.
389 CUSTOMS FRAUD

Considerable amounts in VAT are collected on imported goods. VAT on the importation of
goods is charged and payable as if a duty of customs. Section 15 of the VAT Act 1994
stipulates when goods are considered to be imported for the purposes of that Act.68 Section 16
of that same Act deals with the application of UK and Community customs legislation in
relation to VAT on imports.69 The VAT paid on imported goods may in certain circumstances
be claimed as input VAT to be set of against a vendor’s output tax. Certain classes of goods
imported from certain jurisdictions may also be exempted from VAT or be imported at a
reduced rate of VAT. Whether or not VAT is payable on imported goods and the rate at which
VAT is payable can be ascertained from the Tariff. VAT frauds relating to imports annually
cost the fiscus vast amounts in lost revenue. Considerable amounts in VAT are obviously not
accounted for where goods subject to VAT are smuggled into the country, or where the goods
are falsely valued at import. Smuggled goods will usually end up being traded on the local
market without the VAT and income tax on the sales being accounted for. It is quite possible
to evade the payment of both duties and taxes simultaneously by a single unlawful act. A
good example in point is that of an import clerk knowingly submitting a fraudulent customs
entry wherein he under-declares the true value of the goods but where both ad valorem duties
and VAT is chargeable on the goods so entered. Thus both VAT and duty evaded by means of
a single entry.

4.5 Customs fraud

4.5.1 'Customs fraud' and ‘Smuggling’
Smuggling has always had a somewhat romantic shadow. It has after all been the topic of
adventure films and books for generations. This is not surprising considering the history and
very nature of smuggling. It is not the story of a dentist overstating his expenses or a butcher
not declaring his cash-takings. It has always been the story of daring pilots and skippers
making clandestine landings, and of rags-to-riches street-wise free-traders outwitting the Her
Majesty's Navy, Customs and the police. What many smuggling cases may lack in terms of
legal complexity (compared to many of the more complex tax cases), they do make up for in
cunning, dare, and determination. Many of those who engage in smuggling also tends to be
the 'man's man'. Many of them come from the previously impoverished, the working classes,
hardened criminals, former soldiers, sailors, and pilots.

68
Section 15 reads as follows: "15. General provisions relating to imported goods. (1) For the purposes of this
Act goods are imported from a place outside the member States where - (a) having been removed from a place
outside the member States, they enter the territory of the Community; (b) they enter that territory by being
removed to the United Kingdom or are removed to the United Kingdom after entering that territory; and (c) the
circumstances are such that it is on their removal to the United Kingdom or subsequently while they are in the
United Kingdom that any Community customs debt in respect of duty on their entry into the territory of the
Community would be incurred.
(2) Accordingly - (a) goods shall not be treated for the purposes of this Act as imported at any time before a
Community customs debt in respect of duty on their entry into the territory of the Community would be incurred,
and (b) the person who is to be treated for the purposes of this Act as importing any goods from a place outside
the member States is the person who would be liable to discharge any such Community customs debt.
(3) Subsections (1) and (2) above shall not apply, except in so far as the context otherwise requires or provision
to the contrary is contained in regulations under section 16(1), for construing any references to importation or to
an importer in any enactment or subordinate legislation applied for the purposes of this Act by section 16(1)."
69
Section 16 reads as follows: "16. Application of customs enactments. (1) Subject to such exceptions and
adaptations as the Commissioners may by regulations prescribe and except where the contrary intention appears
- (a) the provision made by or under the Customs and Excise Acts 1979 and the other enactments and
subordinate legislation for the time being having effect generally in relation to duties of customs and excise
charged on the importation of goods into the United Kingdom; and (b) the Community legislation for the time
being having effect in relation to Community customs duties charged on goods entering the territory of the
Community, shall apply (so far as relevant) in relation to any VAT chargeable on the importation of goods from
places outside the member States as they apply in relation to any such duty of customs or excise or, as the case
may be, Community customs duties."
390 CUSTOMS FRAUD

Within the revenue and customs context, smuggling operations are engaged in with the view:
(i) to evade the payment of duties or taxes; and/or (ii) to obtain a refund to which the offender
is not entitled; and/or (iii) the evasion of a restriction or prohibition. Smuggling operations
may differ from one another in various respects i.e. the commodities smuggled, the general
operation of the scheme and the modus operandi employed, the legislation breached, technical
sophistication and complexity, scale, the objectives pursued, and the background and
motivations of those who plan and operate them, to list but a few. Smuggling is in essence a
crime of opportunity.70 The perceived opportunity can be real or imaginary. Whether or not
the opportunity is real, depends on various factors and circumstances e.g. price differentials
between the exporting and importing jurisdictions, the market demand for the illicit goods in
the target jurisdiction, the standard of law enforcement, the penalties and sanctions associated
with detection and/or conviction, the levels of corruption in the target-jurisdiction, and a legio
others. The perceived opportunity to successfully evade the payment of duty and tax, and/or
to evade a restriction or control-measure, has in the past proven to be prominent drivers of
smuggling.71 Those engaged in the smuggling are profit-driven, although other motives such
as the political or economic subversion of the target-state or the circumvention of sanctions
cannot be excluded.72

‘Smuggling’ has historically always been viewed as fraudulent conduct. In case law, current
and past, and in legal dictionaries it is always connoted to 'fraud', 'dishonesty', and absent
'innocent intent'. Black’s Dictionary of Law73provides us with the following definitions of
“smuggle” and “smuggling”:

“Smuggle. The act, with intent to defraud, of bringing into the United States, or with like
intent, attempting to bring into the United States, dutiable articles, without passing the same,
or the package containing the same, through the custom-house, or submitting them to the
officers of the revenue for examination....The word is a technical word, having a known and
accepted meaning. It implies something illegal, and is inconsistent with an innocent intent.
The idea conveyed by it is that of a secret introduction of goods, with intent to avoid payment
of duties.”

“Smuggling. The offence of importing prohibited articles, or of defrauding the revenue by the
introduction of articles into consumption, without paying the duties chargeable upon them. It
may be committed indifferently either upon the excise or customs revenue”

References to ‘fraud’ or ‘evasion’ in describing smuggling operations, are commonplace in

the transcripts of reported cases where the courts were called upon to consider charges

70
See the papers by Deflem & Turner, “Smuggling”, in Encyclopedia of Criminology and Deviant Behaviour
Vol 2 Crime and Juvenile Delinquency at 473-475, and Norton, “On the Economic Theory of Smuggling”
(1988) Economica 55(217): 107-118. Also see Paulus & Simpson, “Opportunity, Benefit, and Subjective
Disposition: Determinants of Non-professional Smuggling” (1981) Pacific Sociological Review 24(3) 299-327
71
See e.g. Paulus & Simpson, “Opportunity, Benefit, and Subjective Disposition: Determinants of Non-
professional Smuggling” (1981) Pacific Sociological Review 24(3) 299-327
72
See e.g. The Financial Times, January 13 2005, “US ignored warning on Iraqi oil smuggling”
73
Black, Dictionary of Law, 2nd Ed, at 1093. A subsequent edition of the same dictionary (Black’s Law
Dictionary, 6th ed at 1389) defines ‘smuggling’ as: “The offence of importing or exporting prohibited articles
without paying the duties chargeable upon them. The fraudulent taking into a country, or out of it, merchandise
which is lawfully prohibited. …..“Smuggle” has well understood meaning at common-law, signifying bringing
on shore, or carrying from shore, of goods, wares, and merchandise for which duty has not been paid, or goods
the importation or exportation whereof is prohibited.”
391 CUSTOMS FRAUD

relating to conduct criminalized as ‘smuggling’.74 Legislation may or may not use the word
‘smuggling’ in referring to a variety of unlawful acts ranging from conduct involving the
movement of goods over frontiers in an unlawful manner, to the unlawful movement of goods
via a place or port which is not authorized as a place or port for the purposes of importation or
exportation, the movement of uncustomed goods via unauthorized routes, or unlawfully
dealing with uncustomed goods in a certain manner.

Within the context of customs, the word 'smuggling' is very much what the word 'evasion' is
for income tax. In customs legislation it is consistently used in referring to conduct involving
a dishonest evasion of customs controls. Within the context of customs it is never used in
referring to conduct which is bona fide, honest error, or mere carelessness. Customs offences
making punishable 'smuggling' are consistently framed as offences criminalizing the
intentional evasion of duties, taxes, prohibitions or restrictions.

'Smuggling' and 'the passing of false papers'

A distinction has always been drawn between ‘smuggling’ on the one hand, and the making of
false customs declarations or the ‘passing of false papers’ on the other. The U.S Supreme
Court in U.S. v Sixty-Seven Packages of dry goods,75 in considering section 19 of the then
Tariff Act 1842,76 had the following to say about ‘smuggling’ and the fraudulent passing of
false papers through the customs house:

“It first makes the smuggling of dutiable goods into the country a misdemeanour; and
secondly, the passing or attempt to pass them through the customs house, with intent to
defraud the revenue, by means of false, forged, or fraudulent invoices. The latter is an offence
which, in effect and result, is very much akin to that of smuggling, except done under colour
of conformity to the law and regulations of customs.”

The practice of distinguishing between these two categories of conduct seems to be a century-
old practice transplanted from England to her former colonies, notably South Africa, the
United States, Canada, Australia, New Zeeland, India and others. This distinction more often
than not resulted in the enactment of separate penal provisions, penalizing as separate

74
See e.g. in the United States the case of Keck v. US 172 U.S. 434 (1899); The Australian cases of Lyons v
Smart [1908] HCA 34 where it was said: “the word "smuggle" connotes an intention to defraud”. The King and
Another v Tuckett [1914] HCA 62
75
58 U.S. 85 How (December 1854) at 93
76
Section 19 of the Tariff Act 1842 (5 Stat .565). The relevant parts of the section read as follows: “'If any
person shall knowingly and wilfully, with intent to defraud the revenue of the United States, smuggle, or
clandestinely introduce, into the United States, any goods, wares or merchandise, subject to duty by law, and
which should have been invoiced, without paying or accounting for the duty, or shall make out or pass, or
attempt to pass, through the custom-house, any false, forged or fraudulent invoice, every such person, his, her, or
their aiders and abettors, shall be deemed guilty of a misdemeanour”. Congress clearly borrowed from this
section when it enacted the current section 545 (18 U.S.C. 545) which reads as follows: "§ 545. Smuggling
goods into the United States - Whoever knowingly and wilfully, with intent to defraud the United States,
smuggles, or clandestinely introduces or attempts to smuggle or clandestinely introduce into the United States
any merchandise which should have been invoiced, or makes out or passes, or attempts to pass, through the
customhouse any false, forged, or fraudulent invoice, or other document or paper; or Whoever fraudulently or
knowingly imports or brings into the United States, any merchandise contrary to law, or receives, conceals, buys,
sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation,
knowing the same to have been imported or brought into the United States contrary to law - Shall be fined under
this title or imprisoned not more than 20 years, or both. Proof of defendant’s possession of such goods, unless
explained to the satisfaction of the jury, shall be deemed evidence sufficient to authorize conviction for violation
of this section. Merchandise introduced into the United States in violation of this section, or the value thereof, to
be recovered from any person described in the first or second paragraph of this section, shall be forfeited to the
United States. The term “United States”, as used in this section, shall not include the Virgin Islands, American
Samoa, Wake Island, Midway Islands, Kingman Reef, Johnston Island, or Guam."
392 CUSTOMS FRAUD

offences the making of fraudulent customs declarations on the one hand, and clandestine
smuggling on the other, a practice still evident in contemporary international instruments and
in the legislation of many jurisdictions. A good example in point is the International
Convention on Mutual Administrative Assistance for the Prevention, Investigation and
Repression of Customs Offences77 where under Article 1 the following distinction is drawn
between ‘smuggling’ and ‘customs fraud’:

“(c) the term "Customs fraud" means a Customs offence by which a person deceives the
Customs and thus evades, wholly or partly, the payment of import or export duties and taxes
or the application of prohibitions or restrictions laid down by Customs law or obtains any
advantage contrary to Customs law;
(d) the term “smuggling” means Customs fraud consisting in the movement of goods across a
customs frontier in any clandestine manner.”

The wording “smuggling” means Customs fraud consisting ...” as it appears in the definition
of “smuggling”, clearly narrows 'smuggling' down as being a particular species of 'customs
fraud'. As per this definition it involves the movement of goods across a customs frontier in a
"clandestine manner". References to ‘smuggling’ as ‘secret’ or 'clandestine' conduct are
common.78 The word 'clandestine' is generally used in referring to conduct which can be
described as 'secret'. The Concise Oxford Dictionary79 defines 'clandestine' as: “surreptitious”
and “secret”. Black’s Law Dictionary80 defines “clandestine” as: “Secret, hidden, concealed;
usually for some illegal or illicit purpose. For example, a clandestine marriage is one
contracted without observing the conditions prescribed by law…”. The word ‘clandestine’ is
not however used exclusively in referring to ‘smuggling’, or even unlawful conduct for that
matter. It is a word that has in the past been used in referring to: (a) the entering of a country
under a false name;81 (b) secret business negotiations;82 (c) bribery as part of a scheme to
defraud;83 (d) secret personal relationships;84 and (e) the secret entering of a target-house by
police officers for the replacement of the batteries of surveillance equipment. 85 Examples of
conduct, within the context of illegal smuggling, that has in the past been described as
‘clandestine’ are: the movement of goods by vessel under cover of darkness with the lights
switched off;86 the secret landing of cigarettes by aircraft without declaring the cargo to the
local authorities;87 and the secretion of currency in a secret cavity built into a wooden case,

77
Article 1, International Convention on Mutual Administrative Assistance for the Prevention, Investigation and
Repression of Customs Offences, (Nairobi, 9 June 1977), World Customs Organization, Brussels, 1999.
78
See e.g. 18 U.S.C. 545. Also see Trimukh Maroti Kirkan v State of Mahareshtra [2006] INSC 643 (Supreme
Court of India) where it was said that: “Smuggling is clandestine conveying of goods to avoid legal duties.
Secrecy and stealth being its covering guards”. See the Australian case of Chief Commissioner for Business
Franchise Licences (Tobacco) & Anor v Century Impact P/L (Supreme Court of New South Wales, 40784/92
CLD 30062/91), where Priestley JA described those activities which in ordinary language are referred to as
“smuggling and black marketing” as activities which “involve lying, deception and clandestine actions of various
kinds”.
79
The Concise Oxford Dictionary of Current English 7th ed at 170
80
Black’s Law Dictionary, 6th ed at 661
81
See e.g. Cheng Chui Ping v The Chief Executive of the HKSAR [2002] HKCFI 45 (Court of First Instance of
Hong Kong)
82
See e.g. Caricom Cinemas Ltd & Ors v. Republic Bank Limited (Trinidad and Tobago) [2003] UKPC 2;
Hanco ATM Systems Ltd v Cashbox ATM Systems Ltd & Ors [2007] EWHC 1599
83
See e.g. Scott v Commissioner of Police of the Metropolis [1974] UKHL 4
84
See e.g. R v Rajcoomar & Anor [1999] EWCA Crim 447
85
See e.g. R v Chalkley & Anor [1997] EWCA Crim 3416
86
See e.g. HKSAR v Shek Tak Tai [2000] HKCFI 1299 (Court of First Instance of Hong Kong)
87
See e.g. Lloyds of London Underwriting Syndicates 969, 48, 1183 and 2183 v Skilya Property Investments
(Pty) Ltd [2003] ZASCA 112
393 CUSTOMS FRAUD

the content of which was declared as containing eatables.88 The word ‘clandestine’ as used
within the context of ‘smuggling’, can be traced back to a time in England’s history when the
smuggler of the time did indeed land, ship, or remove from shore, the smuggled goods in a
‘clandestine’ manner, evading and by-passing the customs. The smuggler of the time
smuggled his cargo by boat and landed it covertly, usually under cover of darkness at remote
spots along the British coastline.89 This was the standard modus operandi of the time. It was
not the practice of the smuggler of the time to report at a customs office bringing the goods in
under cover of a fraudulent bill of entry. It was safer and less risky to ship, land, and convey
the goods without the King's knowledge, denying the authorities the right to inspect and
exercise control over the goods so brought in or taken out.

Referring back to the above-quoted distinction as provided for under the International
Convention on Mutual Administrative Assistance for the Prevention, Investigation and
Repression of Customs Offences where one can certainly see 'customs fraud' being wider than
'smuggling' is when one looks at some of the frauds Customs administrations encounter on a
daily basis but where there may in fact be no crossing of goods into or out of a customs
jurisdiction. Some of those frauds may quite well be committed absent the existence of any
goods to declare. The definition of 'customs fraud' as quoted above inter alia defines
"Customs fraud" as meaning "a Customs offence by which a person deceives the Customs and
thus … obtains any advantage contrary to Customs law". Some of the customs frauds out
there are basically scams set up with no other objective but to extract money from the
Revenue, thus to gain an "advantage contrary to Customs law". These cases will clearly be
'customs frauds' but can never be 'smuggling'.

These distinctions it must be said are of little importance in the real world. Lawmakers often
do not draft offences in line with these distinctions and few offences are to be found going
under titles of 'customs fraud', 'smuggling', 'excise fraud', 'VAT fraud', 'tax fraud' etc. Conduct
that may in a given factual setting be viewed as a particular category of ‘smuggling’ or
'customs fraud' will only be unlawful where the conduct in question matches the elements of a
clearly defined offence. In practice today, offenders are charged with the contravention of
some or other offence under some or other statute, and it will be for the prosecution to prove
all the material elements of the offence charged. Penal provisions making punishable conduct
viewed as ‘smuggling’ may differ from statute to statute and from jurisdiction to jurisdiction,
with the material elements of those offences often not corresponding. Whereas one provision
may for example only criminalize evasion up to the point of say ‘importation’, another may
well also criminalize the introduction into home consumption up to the point of consumption.
There will often be differences in the actus reus of the 'smuggling' activity, and the mens rea
required to be present may also differ. Where a trial court is called upon to consider the
application of any given penal provision, the court will be guided by the framing and wording
of the provision in question with due consideration to the intention of the legislature and the
intended purpose of the offence. One will most certainly still find different penal provisions in
the legislation of some jurisdictions making punishable as separate offences 'smuggling' and
'the passing of false papers', but whether or not the ambit of any given penal provision is
limited to either the one on the other is ultimately a matter of legal interpretation.

88
See e.g. Agrawal Trading Corporation & Ors v Collector of Customs & Ors [1972] INSC 14 (Supreme Court
of India)
89
Clandestine importation by boat is not however something of the past. See e.g. R v Cadman-Smith [2000]
EWCA Crim 75 where the appellant was convicted on an offence of fraudulent evasion of excise duty for the
unlawful importation of cigarettes into the United Kingdom via Goole. The boat used was under constant
surveillance from the time it entered United Kingdom waters. It was stopped and searched at Goole and the
cigarettes were seized by HM Customs and Excise.
394 CUSTOMS FRAUD

Non-legal definitions and distinctions between this or that fraudulent scheme on the basis of
the nature of the duty or tax that is being evaded, or depending on the fraudulent scheme
being one involving an extraction of refunds or an evasion of payment, or depending on the
fraudulent scheme being one involving an evasion of duties or an evasion of prohibitions or
restrictions, or on the basis of the actus reus consisting of 'clandestine' introduction or the
'passing of false papers' is, from an investigator and prosecutor's perspective at least, of little
real importance. At the end of the day the only sure distinctions that do matter, are those
between the wording and framing of different penal provisions provided for in the different
statutes as they are framed at a given point in time. Statutes and offences see frequent change
with the result that the architecture of a 'smuggling' offence as it is framed today may quite
well look very different 20 years later. They may be so different as to make them wholly
different offences. However the conduct covered by those offences is referred to by the
public, customs officers, or in literature outside the statutes of Parliament is wholly irrelevant
(from a purely legal perspective).

The same criminal operation may also quite well involve both the use of false representations
making out the actus reus of a fraud offence, and the 'clandestine' introduction of goods. In
few if any jurisdiction will the offender be charged with both a 'smuggling' offence and a
'fraud' offence as that will usually result in a double jeopardy situation. He will usually, and
rightly so, be charged with just one offence. Furthermore, some of these frauds may overlap
and some of them may be committed in the course of the same criminal operation. The same
criminal operation, in fact, the same criminal act, may involve the evasion of various types of
duty and tax and may quite well also involve the evasion of prohibitions or restrictions.

Wilful evasion, whether it be by clandestinely bypassing the Customs, or by passing goods

through Customs under cover of fraudulent documentation and/or declarations, can never be
anything but fraudulent. Both practices have historically been viewed as fraudulent conduct
prejudicial to the State. As is the case with 'customs fraud', 'smuggling' also results in evading
"wholly or partly, the payment of import or export duties and taxes or the application of
prohibitions or restrictions laid down by Customs law .. ". Both practices involve evasion. In
both instances there is the intention to evade customs controls/or to evade the payment of
duties.90 The only real distinction to be drawn is between the ‘mechanics’ of the fraud. To
define the one as 'smuggling' but not the other, is just as illogical as to define the one as 'fraud'
but not the other.91 Consider the following, albeit simplified example:

90
The word ‘intention’ as opposed to the word ‘objective’ is of particular importance, as the offender’s intention
and ultimate objective need not and will not necessarily always correspond.
91
See the Australian case of L. Vogel & Son Pty. Ltd v Anderson [1967] HCA 46 (High Court of Australia)
where the High Court of Australia was called upon to consider the application of the offence of ‘smuggling’ as
provided for in the Australian Customs Act 1901. Said Act at the time defined “smuggling” as: “any importation,
introduction or exportation or attempted importation, introduction or exportation of goods with intent to defraud
the revenue.” The offence in question drew no distinction between, the fraudulent passing of the goods through
Customs under cover of false papers on the one hand, and ‘clandestine’ ‘smuggling’ on the other. It only stated
that the importation, introduction or exportation, or attempted importation, introduction or exportation must have
taken place with the intent to defraud. The defendants argued that they were not guilty of the offence of
smuggling as charged, because the word ‘smuggling’ they argued, connotes the “clandestine” introduction of
goods into the country. They admitted that the goods brought into Australia was miss-described in the entries
made to Customs, a misdeclaration they conceded had as consequence the evasion of duties, but argued that as
the goods were cleared and released by Customs, the goods was not entered “clandestinely”. Rejecting the
defendant’s arguments, the court held the offence of ‘smuggling’ (as at that time defined and as per the
indictment) to cover not only those instances where the customs were bypassed, but also those instances where
the goods were brought into the country by fraudulently passing the goods through the Customs. The court per
Kitto J inter alia remarked: “In my opinion it is unsound to divorce an importation of goods from the importer’s
395 CUSTOMS FRAUD

a) Art smuggler A exits the airport through the ‘red channel’, carrying with him artefacts
acquired abroad, furnishing the customs officers with false invoices understating the
true value of the goods;
b) Art smuggler B carries with him through the ‘green channel’ a valuable painting
which he intentionally fails to declare;
c) Art smuggler C clandestinely carries his cargo of artefacts through an isolated border-
fence;

In all these instances the offender acts with the same objective, and in all these instances there
is an intentional evasion with the ultimate consequence being a fraudulent evasion. In all these
instances the evasion will, in general usage, just be referred to as ‘smuggling’ regardless the
manner of execution. In common usage, the word ‘smuggling’ is just as often used in
referring to fraudulent evasion through the use of fraudulent documentation, as it is used in
describing fraudulent evasion by ‘clandestine’ crossings or concealment.92 ‘Smuggling’ is
also just as often used in referring to unlawful conduct associated with the evasion of duties
and taxes on locally manufactured excise goods. Most people will draw no distinction as to
whether or not the goods in question crossed the frontier at night on horseback, entered the
country concealed behind other goods at the back of a container, were diverted from an excise
warehouse, were landed on a Norwich beach, or were falsely declared to customs. The
'clandestine' dealing with illicit goods will generally just be referred to as 'smuggling', and the
goods in question will simply be referred to as 'smuggled goods'. Assume member of the
public X knowingly acquires his monthly supply of illicit cigarettes from his local shop.
Further assuming both shop owner and customer know the cigarettes to be unlawfully
diverted from a local excise warehouse … The illicit cigarettes so traded between shop-owner
and client will generally just be referred to as ‘smuggled cigarettes’. Those who knowingly
participate or assist with the acquisition, transportation, storage, or trade in those illicit
cigarettes, will in common usage also simply be referred to as ‘smugglers’. The words
'smuggle', 'smuggling' and 'smuggler' are just too entrenched in the English language with no
real substitutes available and capable of conveying the same content. The result is that for the
man on the street, the content of the word ‘smuggling’ has changed in tandem with
developments in commerce, technology, and trading practices. For the purposes of this
discussion, the words 'smuggling' and 'customs fraud' will be used rather loosely and
interchangeably. Unless otherwise indicated the word 'smuggling' will be loosely used in
referring to the wider spectrum of fraudulent activities associated with frauds against customs
and excise and involving the fraudulent evasion of duties, taxes, prohibitions, or restrictions in
relation to goods dealt with contrary to the customs and excise legislation.

conduct in passing or attempting to pass them through the Customs, when in truth the whole procedure has been
adopted as a means of getting the goods into the country without paying the duty which is payable upon them. I
see no logic in saying that while the offence of smuggling, as defined, is committed if the intent is to get the
goods past the Customs under cover of darkness and without payment of any duty, it is not committed if the
intent is to get them past the Customs under cover of false papers and upon payment of insufficient duty.”
92
In Hansford v R [2006] EWCA Crim 1225, the appellant and 7 other conspirators were all convicted on
charges relating to the fraudulent diversion of excisable goods from a bonded warehouse. The words “fraud,
“evasion”, ‘smuggling’ and “cheating” were all interchangeably used in referring to the unlawful conduct of the
conspirators. Also see Pasquantino v United States [2005] USSC 25, where the petitioners’ were engaged in the
smuggling of alcohol from the US into Canada. The Supreme Court affirmed the petitioners’ convictions on
‘wire fraud’ charges. The scheme was inter alia held to be and/or described as ‘smuggling’, a “scheme or artifice
to defraud” and “tax evasion”. See Theobald, Defrauding the Government - True Tales of Smuggling, from the
Note-book of a Confidential Agent of the United States Treasury at 352 where the writer inter alia stated:
“Undervaluing of merchandise is, to my mind, the meanest kind of smuggling ... ”.
396 CUSTOMS FRAUD

4.5.2 Continuing Nature of Evasion

'Smuggling' is very much of a continuous nature. In practical terms, the evasion cannot be
said to be limited to the time of importation. The evasion really continues for as long as the
duties, taxes, prohibitions or restrictions are being evaded. Consider the following example: A
manages a smuggling operation involving the inward smuggling and distribution of consumer
goods. A is assisted by pilot B, truck driver C and warehouse operator D. A acts as financier,
is in charge of, and manages the operation. Pilot B is responsible for the collection and inward
transportation of the goods. Once the goods are landed and offloaded at a derelict airstrip,
truck driver C takes possession of the goods, and transport the goods to a warehouse operated
by D. D is responsible for the unpacking, re-labelling, repacking, and distribution of the
goods. Once the re-labelling operation is completed, the goods are sold on to retailer E who
sells it on to the consumer from a number of retail-outlets. All who knowingly assist with the
bringing in, distribution, harbouring, or dealing with the goods may be held criminally liable.
The evasion does not end after the illegal importation by pilot B, but continues up to the
consumer. The smuggled goods will remain to be illicit goods as it changes hands between the
various parties. Those engaged in the initial smuggling gains an economic advantage from the
goods effectively being imported duty-free. This advantage is in turn passed on to the traders
who acquire it from the smugglers.93 This advantage will in many instances be passed on to
the consumer. In Britain, 'smuggling' has long been viewed and made punishable for what it is
- a continuous course of fraudulent conduct. In Britain section 170 of the Customs and Excise
Management Act 1979 makes punishable not only the initial act of 'fraudulent evasion', that is
to say (where we are dealing with goods smuggled in) not only the initial evasion of the
prohibition, restriction, or duty at the time of importation, but also subsequent phases down
the illicit supply chain all the way to the consumer.94 Section 170 reads as follows:

93
See R v Grew & Anor [2011] NICA 31 where the court per Girvan LJ inter alia said: “Where, a defendant is
knowingly involved in the evasion of duty on smuggled cigarettes after importation and comes into possession of
the smuggled cigarettes with knowledge of the evasion and as part of a joint enterprise to take advantage of the
economic advantages flowing from the evasion of the duty at the point of importation he may gain a financial
advantage flowing from his participation in the ongoing enterprise. This can be illustrated by a simple example.
X smuggles cigarettes into the United Kingdom evading the payment of duty at the point of entry. The cigarettes
illegally freed from the duty payable on them represent a valuable asset to X enhanced by the absence of the
duty. If X passes the cigarettes on to Y who has knowledge of the evasion of the duty Y gains the economic
advantage of having effectively duty free cigarettes which he can sell at a considerably greater profit. The goods
can be sold on at prices discounted compared to the legitimate trade market cost of cigarettes which reflects the
imposition of duty. Those acting in the joint enterprise with Y are participating in a venture designed to enable
those involved to profit from the criminal evasion of the duty. The evasion of duty is an ongoing offence and
continues until the goods are no longer tainted by the evasion of the duty".
94
See R v Neal and Others 77 Cr App R 283 where the court (at 288 per Griffiths LJ) provided the following
explanation: “Now the words, 'the evasion of the prohibition on the importation' … are wider than simply the
single word 'importation'. Let me give you a very simple example. A boat arrives in a port in this country and it
has on board cannabis resin. One of the sailors, ... actually carries that cannabis resin ashore. He hands it over to
another man who is waiting, who loads it into a van. The van is driven off to some place where the drug is
unloaded and is stored away in some building and there you have someone who helps in that unloading - perhaps
the owner of the building in which it is stored. Maybe, at a later stage, it is transported to yet another building
and is stored there and it may be that behind all this operation, controlling it and supervising it, is some
organising person. Now you see, of all those men - the sailor, the van driver, the store keeper, the organiser -
strictly speaking, only the sailor has imported the drug into this country. He is the only person who has carried it
into this country, and that is what importation means, but he and each of those other persons have all taken part
in evading the prohibition on the importation of that drug and taken their part in getting round it, in setting at
nought the ban which the law imposes on the importation of the drug"; and then: “Section (1) clearly includes
those who are not a part of the original smuggling team. For example, it includes anyone who acquires
possession of goods unlawfully removed from a warehouse, or anyone who hides goods on which duty has not
been paid, or anyone who carries goods the importation of which is forbidden; and there could be no warrant for
reading into the language of the Section the qualification 'provided they are part of the original smuggling team.”
397 CUSTOMS FRAUD

“170 Penalty for fraudulent evasion of duty, etc

(1) Without prejudice to any other provision of the Customs and Excise Acts 1979, if any
person -
(a) knowingly acquires possession of any of the following goods, that is to say -
(i) goods which have been unlawfully removed from a warehouse or Queen’s warehouse;
(ii) goods which are chargeable with a duty which has not been paid;
(iii)goods with respect to the importation or exportation of which any prohibition or restriction
is for the time being in force under or by virtue of any enactment; or
(b) is in any way knowingly concerned in carrying, removing, depositing, harbouring, keeping
or concealing or in any manner dealing with any such goods, and does so with intent to
defraud Her Majesty of any duty payable on the goods or to evade any such prohibition or
restriction with respect to the goods he shall be guilty of an offence under this section and may
be detained.
(2) Without prejudice to any other provision of the Customs and Excise Acts 1979, if any
person is, in relation to any goods, in any way knowingly concerned in any fraudulent evasion
or attempt at evasion -
(a) of any duty chargeable on the goods;
(b) of any prohibition or restriction for the time being in force with respect to the goods under
or by virtue of any enactment; or
(c) of any provision of the Customs and Excise Acts 1979 applicable to the goods, he shall be
guilty of an offence under this section and may be detained.”

This section will be discussed in greater detail in the following chapters. Suffice to say, being
knowingly concerned in carrying, removing, depositing, concealing, or in any manner dealing
with any goods with the intent to evade any prohibition, restriction, or duties, has been
punishable as fraudulent evasion for at least since 1876. It was punishable under the then
section 186 of the Customs Consolidation Act 1876, but now covered under section 170(1) of
the Customs and Excise Management Act 1979. That fraudulent evasion has long been
accepted as: (i) extending to a point in time long after the initial importation or smuggling is
over;95 (ii) covering all those knowingly dealing with the uncustomed goods post-importation;
and (iii) as fraudulent where accompanied with the prerequisite mens rea.96

4.5.3 Potential Indicators

A customs fraud may typically be detected as a result of: (i) information received; (ii)
irregularities detected during the execution of routine audits or inspections; (iii) information
or evidence unearthed whilst investigating the activities or business affairs of apprehended
offenders or those with whom they associated or traded; or (iv) searches and seizures
executed during targeted enforcement operations. Viewed from a purely front-line policing
perspective, the types of circumstances that may typically raise the suspicions of an inspector,
customs officer, or police officer are legio. In many instances these situations or
circumstances will not necessarily leave the officer convinced of unlawful activity being

95
R v Neal and Others 77 Cr App R 283. Also see R v Green [1976] QB 985 at 993 (a matter where the court
considered the smuggling of prohibited narcotics) where Ormrod J inter alia said: “…evasion is a continuing
offence, that is that it does not cease when the cannabis was seized by the authorities. Once imported, the
evasion of the prohibition continues until the goods ceased to be prohibited goods or, possibly, are re-exported.”
96
Beck v. Binks L.R. [1949] 1 K.B. 250; Sayce, v. Coupe L.R. [1953] 1 K.B. 1; Schneider v. Dawson L.R. [1960]
2 Q.B. 106; Rex v. Cohen L.R. [1951] 1 K.B. 505; R v Green [1976] QB 985; R v Neal and Others 77 Cr App R
283; R v Coghlan [1997] EWCA Crim 1161; R v Bell [2011] EWCA Crim 6; R v Ramzan & Ors [2006] EWCA
Crim 1974. In Rex v Cohen L.R. [1951]1 K.B. 505 the accused was found in the possession of a large number of
uncustomed Swiss watches. He was charged with being in possession of uncustomed goods with the intent to
defraud Her Majesty of the duties thereon contrary to section 186 of the Customs Consolidation Act 1876. It was
inter alia held that the intent to defraud the revenue may be inferred from the defendant's knowledge of the goods
being uncustomed.
398 CUSTOMS FRAUD

afoot, or warrant seizure, detention, or arrest, but will often alert him, draw his attention, and
prompt him to enquire and investigate. Just some examples are:

▪ vehicles not sealed, seals do not match, or tampering with seals;

▪ vehicle is not of a secure configuration where it should be;
▪ vehicle, container, or trailer numbers do not match that on the documentation;
▪ the production or use of false documentation, declarations or certificates;97
▪ measures taken for the concealment of goods i.e. false compartments in vehicles;98
▪ suspicions as to the driver or others found in the vehicle or in the vicinity of the
vehicle;
▪ driver or other persons found in possession of weapons;
▪ the use of unauthorized routes;
▪ vehicle did not enter the country legally;
▪ found moving, parked, being loaded or being unloaded at times, and/or by people,
and/or under circumstances which appear out of place or suspicious;
▪ secret landing strips, landing zones or landing spots;
▪ suspicious activity in areas known or suspected to be clandestine landing sites;
▪ transit cargo found to be missing when vehicle is stopped and searched;
▪ transit documents are found to cover cargo other than that found on the vehicle;
▪ transit cargo never reached destination;
▪ transit documents not properly discharged;
▪ illicit cargo found on a vehicle, vessel or aircraft;
▪ suspicious items, amounts in cash, equipment, devices etc. found on a person, or in a
vehicle, vessel or aircraft and which cannot be adequately explained;
▪ driver or others in the vehicle or vessel acting suspiciously, or seemingly acting under
duress;
▪ different individuals one would expect to share a common knowledge provide
conflicting answers;
▪ movements through areas where or at a time when movement is prohibited e.g
demilitarized zones, national parks after certain hours, or in contravention of a curfew;
▪ failure of vessels to report inwards;
▪ Ship-logs or flight-logs falsified or containing false entries;
▪ Ship, aircraft or vehicle registration irregularities;
▪ Ship, aircraft or vehicle in the past used in the course of criminal activity;
▪ suspicious travelling patterns;
▪ circumstances point to an importation being of a commercial nature as opposed to
brought in for personal use;99

97
See e.g. the facts in Hansford v R [2006] EWCA Crim 1225
98
See e.g. Agrawal Trading Corporation & Ors v Collector of Customs & Ors [1972] INSC 14 (Supreme Court
of India). Also see the following extract from a report published in a 19th century English newspaper (The
Carlisle Patriot, Cumbria, England, January 27th 1844), where it was reported: “Adam Noble and Isabella Noble
of Flat, Bewcastle, were charged with having in their possession on the 2 nd December, a quantity of British
Spirits, with the intent to defraud her Majesty’s revenue. It was proved by the excise officers that they found 2
gallons of whiskey in casks concealed in a peat stack, behind the defendants house, and that tin packages such as
are used in smuggling were also found in the house…”. Even today, a trial court will in all likelihood view
concealment of this nature as strongly suggestive of an attempt to prevent detection and thus knowledge of
unlawfulness.
99
For examples of circumstances that may be taken into consideration see e.g. section (1B)(e) of the The Excise
Goods, Beer and Tobacco Products (Amendment) Regulations 2002 which reads as follows: "(e) … in
determining whether excise goods are held or used for a commercial purpose by any person regard shall be taken
of - (i) that person’s reasons for having possession or control of those goods, (ii) whether or not that person is a
revenue trader (as defined in section 1(1) of the Customs and Excise Management Act 1979(2)), (iii) that
person’s conduct, including his intended use of those goods or any refusal to disclose his intended use of those
399 CUSTOMS FRAUD

▪ the use of planes, boats or vehicles suspected to be stolen, displaying false

identification markings, bearing a false flag etc;
▪ activities which may point to smugglers investigating or testing the viability of
smuggling routes, and/or planning for a smuggling operation, and/or setting up supply
routes i.e. the carrying out of surveillance and other information gathering activities,
conducting 'dry runs', or attempts to recruit accomplices;
▪ discovery of safe-houses, secret entry routes, tunnels, secret storage areas;
▪ unlawful or suspicious re-routing or diversion of goods, people, vehicles, boats or
aircraft;
▪ communication, modes of communication, and countermeasures which appears
suspicious i.e. light-signals; use of high-end communications equipment in
circumstances where the use thereof seems out of place; mobile and satellite phones
that cannot be traced; the use of code, etc.;
▪ the use of countermeasures to mask own activity and/or to gather information /
maintain surveillance on enforcement activity e.g. monitoring enforcement
frequencies, the use of scrambling devices etc;
▪ falsification of travel-documents, manifests, aircraft- or shipping logs;
▪ unlawful re-packing, re-labelling or processing operations;
▪ regulatory records and documentation pertaining to a bonded warehouse not being
properly kept or maintained;
▪ no proper segregation between cleared and uncleared cargo;
▪ shortages on inventory supposed to be on stock;
▪ incomplete or false stock registers and/or books of account;
▪ false or counterfeit stamps, dies, labels, or documentation found on site;
▪ indications of unlawful manufacture e.g. the presence of certain machinery, the
manner in which certain equipment is configured, certain materials or residues on site,
'sweat-shop' workers on site, the presence of certain types of waste or packaging
material etc.;
▪ illegal workers employed in a bonded facility, or people coming over as suspicious
found at such a warehouse;
▪ movement of goods or transport from and to a bonded facility appears suspicious;
▪ tampering with seals, locks, measuring or reading apparatus;
▪ non-adherence to instructions, measures, rules, regulations, and laws regulating
manufacturing, bonded or transit sheds;
▪ illicit goods found in a bonded facility;
▪ attempts to gain access to or interfere with 'known cargo' or attempts to gain
unauthorized access to sensitive controlled areas;
▪ illicit goods interdicted somewhere else but traced back to the shed in question;
▪ warehouse-operator has a history of non-compliance;
▪ transactions do not make commercial sense;
▪ carrying out or engaging in regulated activities absent the required licenses or
authorization;
▪ found in possession of goods or documents reported as stolen or destroyed;
▪ found in possession of documentation under circumstances where he/she should not
ordinarily be in possession thereof;100

goods, (iv) the location of those goods, (v) the mode of transport used to convey those goods, (vi) any document
or other information whatsoever relating to those goods, (vii) the nature of those goods including the nature and
condition of any package or container, (viii) the quantity of those goods .. (ix) whether that person personally
financed the purchase of those goods, (x) any other circumstance that appears to be relevant"
100
See e.g. the facts in Hansford v R [2006] EWCA Crim 1225
400 CUSTOMS FRAUD

▪ consignor found in possession of stamps corresponding to those used by the

consignee;101
▪ clients to whom the goods were allegedly exported does not exist or has no knowledge
of the transactions or the goods;102
▪ documentation reflecting customs stamps which were not in use at the time of alleged
importation or exportation or are proven to be forgeries of the true stamps;103
▪ alleged importation or exportation at a time, place or under circumstances where the
movement of the goods was impossible due to circumstances such as the closure of
borders due to a state of emergency in the jurisdiction of export, natural disasters etc.;
▪ refusal to cooperate with the authorities or hinder officers in the execution of their
duties;
▪ attempts to corrupt, intimidate, subvert or escape;
▪ intimidation of informants and/or witnesses;
▪ attempts to discard, move or destroy goods or things that may be potentially
incriminating;
▪ use of fronts such as front shell companies or the use of individuals operating under
cover of false identities;
▪ the use of bank accounts or post boxes registered in false names;104
▪ the tampering with locks, seals, markings;
▪ the making of false statements or declarations to Customs;
▪ the fact that goods were sold on the local market at a price considerably lower than the
market-price;
▪ goods supposedly exported or destroyed found to be traded in free circulation;
▪ conduct associated with clandestine activity such as the use of false number-plates,
encrypted information, cell structures etc.;
▪ interference with or the manipulation of mechanical equipment or mechanical control
measures such as seals, meters, gages etc.;
▪ failure to record goods on prescribed records, forms or books of account;
▪ bonded goods supposed to be on inventory is found to be missing;
▪ bonded goods not yet cleared for home consumption found to be dealt with in free
circulation;
▪ goods imported, exported or manufactured in contravention of licensing regulations;
▪ money laundering and/or exchange control breaches.
▪ no books of account kept;
▪ misrepresentations to freight forwarders, banks, insurance providers or other parties;105
▪ inconsistencies between the information provided to Customs and that provided for
purposes of income tax or VAT;
▪ varying accounts as to the origin of goods;106
▪ deviation from standard operating procedures or practice;
▪ import-, export- or warehouse licenses fraudulently obtained;
▪ goods imported or exported do not match the description of the goods as reflected in
the documentation;107

101
See e.g. the facts in Hansford v R [2006] EWCA Crim 1225
102
See e.g. Agrawal Trading Corporation & Ors v Collector of Customs & Ors [1972] INSC 14 (Supreme Court
of India)
103
See e.g. Customs and Excise v Arena Corporation Ltd [2003] EWHC 3032 (Ch)
104
See e.g. Hansford v R [2006] EWCA Crim 1225 and Chief Executive Officer of Customs v JMI Trading Pty
Ltd & Ors [2000] VSC 537
105
See e.g. Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC 537
106
See e.g. Fish NO v Adam t/a Charter Bazaar 1978 (2) SA 313 (R)
107
See e.g. Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC 537
401 CUSTOMS FRAUD

▪ the existence of a corrupt relationship between importers / exporters and customs

officers;
▪ individuals falsely holding themselves out as police, revenue, or customs officers;
▪ individuals travelling under false, stolen, or cloned passports, or found in possession
of multiple passports under different names;
▪ supporting documentation such as invoices, packing lists, transport documentation,
bills of lading etc. do not correspond with customs documentation filed or does not
correspond with the goods in fact imported or exported;108
▪ the import values reflected is lower than the prizes actually paid;
▪ circular flow of funds intended to give the impression of payment between importer
and exporter;
▪ found in possession of large amounts of cash;
▪ individuals observed monitoring/carrying out surveillance over vessels, aircraft,
containers, or vehicles;
▪ deviation from flight-plans or the failure to follow stipulated routes;
▪ packages or cartons appear suspicious e.g. contents of packages or containers do not
seem to correspond with package labels or documents, suspicious odours or stains,
inconsistencies or irregularities detected on x-rays, inconsistencies between actual
package weight and that on documents and labels, or signs of tampering with packages
or packaging;

Some of these circumstances may on its own or in combination be of such a nature as to leave
any reasonable observer in no doubt of some or other criminal activity being afoot. In many
instances any or a combination of these circumstances may be such as to demand immediate
seizure, arrest, and further investigation. Many of the acts and failures listed may also
constitute the conduct element of various offences provided for under the customs legislation
of many jurisdictions. Evidence proving many of these acts, failures, or circumstances may
however also, often as part of a body of circumstantial evidence, and depending on the facts
of the case, assist is proving allegations of evasion or fraud.

4.5.4 Taxation and regulation as contributing factors

It is taxation and regulation that makes the illicit trade profitable. The reasons why any state
may wish to tax or restrict are legio. It may simply be intended as a source of revenue for the
State, or it may be motivated by a wide range of other social, safety, economic, or political
factors.109

4.5.4.1 Evasion of taxation

Taxation has long been a driving factor for high levels of smuggling.110 Taxation is not only
used as a means to increase state revenue, but is just as often used as a tool to advance certain
social or fiscal objectives. This then is especially so in the case of customs and excise duties.
It is a generally held view that there exists a direct relationship between the levels of

108
See e.g. Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC 537
109
See Nicholls, Honest Thieves, The Violent Heyday of English Smuggling at 3 where he said: “..there are
hundreds of reasons why, in any given state, an industry, a ministry, a region or an institution may object to the
free movement of goods across a frontier: the goods are harmful or immoral; they are too dear; they are too
cheap; they must not go out because they are needed here; they must not come in because they are not needed
here; the public does not want them, or ought not to want them if it does. Hence all the myriad restrictions on
trade and free passage...”
110
Adam Smith in fact recognised and noted high rates of taxation to be a driver of smuggling. See Adam Smith.
An Inquiry into the Nature and Causes of the Wealth of Nations at 724-726.
402 CUSTOMS FRAUD

smuggling, and disparities between the levels of taxation that exist between markets. 111 The
following explanation as quoted from the Southern Economic Journal will suffice in
explaining this relationship:

“When the full price of a commodity in one economic or political sphere is elevated above
that of the same commodity in a nearby sphere, then there will be gains from arbitrage,
smuggling and/or camouflaging activities ... Gasoline, tobacco, alcohol and a host of common
consumer products are subject to widely varying tax treatments between states. When border
crossing is feasible, one expects at least some consumers to exploit the welfare gains arising
from lower prices by purchasing in neighbouring, low-cost regions. This phenomenon, if
widespread could place significant limits on the ability of states to raise revenues…”112

It is however not only cross-border shoppers and petty smugglers who see cost differentials as
an opportunity to secure financial gain, but also criminal syndicates. The imposition of taxes,
and the resulting rise in costs for the consumer, may create a demand for cheaper goods
amongst a public who more often than not is prepared to acquire the goods at the reduced
prices regardless of how it entered the market. As long as there is a market to feed and profits
are to be made, there will always be people prepared to engage in smuggling activity. The
smuggler thus meets a demand, supplying the goods which the citizenry either cannot legally
acquire, or wish to acquire but at a lower price.113 From a reading of Phillipson’s114 account
of smuggling in England during the period 1700-1850, it is more than evident that the
underlying drivers and motivations for smuggling and the illicit trade have not changed much
over the past three centuries. The writer inter alia explains:

“Smuggling activity over the years has naturally waxed and waned in step with the fiscal policies
of governments. It declined during periods when free trade was the order of the day, but any
customs dues imposed on a particular commodity quickly revived it, and ensured that commodity
being illegally landed in huge quantities, to find a ready market among otherwise respectable
citizens. Silks, lace and tea figured largely in contraband cargoes in the days when those items
bore high duties and were much in demand, but would hardly be worth smuggling today".115

Assume item X is heavily taxed and costs £100 in the UK. Further assuming, smuggler A
acquires and smuggles the item into the country for £30, sells it on to a network of local
dealers for £50, and the latter then in turn sells it on to the consumer for £80. The consumer
secures a financial advantage in that he pays less for the goods than what he otherwise would
have paid.116 The syndicates and traders behind the importation and supply of the smuggled

111
See e.g. the report of the House of Commons, Treasury Committee. (15 March 2005) Excise Duty Fraud,
Fourth Report of Session 2004–05, HC 126; JG Thursby & MC Thursby, “Interstate Cigarette Bootlegging:
Extent, Revenue Losses, and Effects of Federal Intervention” (2000) National Tax Journal 53 (1): 59-78;
Deflem, & Turner, “Smuggling”, in Encyclopedia of Criminology and Deviant Behaviour Vol 2 Crime and
Juvenile Delinquency 473-475; Norton, “On the Economic Theory of Smuggling” (1988) Economica 55(217):
107-118. Also see Molloy Anor, Re The Proceeds of Crime Act 2002 [2006] NIQB 49 (High Court of Justice in
Northern Ireland Queen’s Bench Division).
112
Beard et al, “Border-Crossing Sales, Tax Avoidance, and State Tax Policies: An Application to Alcohol”
(1997) Southern Economic Journal 64 (1): 293-306 at 293
113
See e.g. MacGaffey, The Real Economy of Zaire – The Contribution of Smuggling & Other Unofficial
Activities to National Wealth, 156
114
Phillipson, Smuggling, A History 1700-1970
115
Ibid at 16. See Black. A Law Dictionary, 2 nd Ed at 260 where 'contraband' is defined as: "Contraband.
Against law or treaty; prohibited. Goods exported from or imported into a country against its laws. Brande.
Articles, the importation or exportation of which is prohibited by law."
116
The consumer it must be said will not always be aware of the illicit nature of the goods. In many instances the
illicit goods will be sold on to the consumer as ostensibly licit goods.
403 CUSTOMS FRAUD

goods tend to be the parties who secure the greatest financial benefit from these frauds. The
broader community, thus the collective, ultimately pays the price.

Tax avoidance
Without elaborating too much on a topic that has already received attention earlier in this
book, a clear distinction need be drawn between what is tax evasion and tax avoidance.
Taxpayers are, as has earlier been stated, entitled to mitigate their tax burden in any way they
wish as long as the methods they use, the manner in which transactions and arrangements are
structured, executed and reported, are truthful and lawful. This equally applies to the duties,
taxes, and levies administered by Customs. Tax avoidance is just as relevant from a Customs
perspective. Disputes as to the legality of certain transactions or arrangements may also arise
within the Customs context. Allegations of customs fraud may well be countered with a
defence to the effect that the taxpayer's conduct amounted to no more but legal avoidance in
that the measures or arrangements employed did not make out the actus reus of an evasion or
fraud offence. Additionally it may also be argued that in the event of a finding that the
measures or arrangements employed did in fact make out the conduct element of an evasion
or fraud offence, that the taxpayer lacked the prerequisite mens rea for conviction on the
offences charged. It will be for the prosecution to prove: (i) that the measures or arrangements
employed did in fact make out the actus reus of an evasion or fraud offence; and (ii) that the
actus reus was accompanied with the prerequisite mens rea.

4.5.4.2 Evasion of restrictions

In the customs legislation of most jurisdictions we will find the ‘smuggling’ or 'evasion'
offences provided for in that legislation to make punishable not only the evasion of taxation,
but also the evasion of governmental restrictions and prohibitions on the importation and
exportation of certain commodities. What we will usually find is that almost any commodity,
whether it be as raw materials or as partly finished/ finished product, can be legally imported
or exported, even highly lethal commodities such as conventional weaponry and nuclear
material, but stringent import licensing and control systems limit those whom may import,
hold and use same, and the measures to be complied with for the importation, holding, and
use thereof. In many parts of the world pubicly listed energy companies import nuclear
material for nuclear power stations, publicly listed weapons manufacturing companies import
munitions for research and development, and hospitals import and hold large quantities of
scheduled drugs like morphine. What we will however also find is that the enforcement of
those import and export controls will seldom be regulated directly through or just under the
customs legislation. We must remember that customs administrations, and the legislation
under which they fulfil their mandate, acts as a 'gate-keeper' for various other agencies and
departments of State. They are then usually also tasked with enforcing, or assisting in
enforcing, other non-customs related legislation. The prohibition or restriction will often be
imposed under legislation unrelated to the customs legislation, but Customs may be
authorised and tasked with policing the importation and exportation thereof. Where there is an
evasion of those restrictions or prohibitions, that evasion may then be prosecuted under the
offences provided for in the customs legislation. This is the common practice in most
jurisdictions. Statute A may for example prohibit the unauthorised importation and possession
of commodity XYZ and statute B may prohibit the unauthorised importation and possession
of commodity ABC. Customs Act C on the other hand may make no reference to the
importation or exportation of commodities XYZ or ABC, but the penal provisions provided
for in that Customs Act will typically make it an offence 'to be concerned in the evasion of
any prohibition or restriction on the importation of any goods imposed under any Act of
Parliament'. There will then usually be a reference to a schedule in that Customs Act C setting
404 CUSTOMS FRAUD

out all those statutes so indirectly enforced and breaches of which will be subject to
punishment under the penal provisions provided for in that Customs Act C.117

Goods subject to duty one week, may be duty-free the next. Similarly, a class of goods the
importation or exportation of which may be prohibited or restricted one day, may be imported
or exported free of restrictions the next. What is or is not prohibited, restricted or dutiable at
any given point in time is a matter of law. Smuggled goods may be dutiable but not restricted
or prohibited, or it may be prohibited or restricted but not dutiable. The same smuggling route
may be used for the evasion of both taxation and governmental controls or restrictions. A
smuggling operation may well be embarked upon for no other purpose but to evade
prohibitions, restrictions, sanctions,118 anti-money laundering control, or exchange control.119
Many of these frauds will not necessarily result in the Revenue suffering an actual or potential
revenue loss, and can therefore not truly be classed as ‘tax frauds’. Smuggling however is
fraudulent regardless whether it be for the circumvention of taxation or the circumvention of
restrictions. In many instances however, the evasion of governmental restrictions may well
also be accompanied with the evasion of taxation. Although the evasion of taxation may in
these instances not necessarily be the main objective, it may nevertheless be intended as a
consequence of the smuggling. Conviction on charges relating to the tax fraud will be
possible where duty or tax is evaded and as long as the required intent is present, regardless
the offender’s motive for the fraud. In these instances one will obviously need apply care to
avoid the duplication of charges.

117
A good example in point is section 170 of the Customs and Excise Management Act 1979 (United Kingdom),
which makes it an offence to be knowingly concerned in the fraudulent evasion of any prohibition on the
importation of goods. Many of the prohibitions so made punishable are to be found not in the Customs and
Excise Management Act 1979, but in a range of other statutes. In R v Forbesi [2001] UKHL 40, Lord Hope
offered the following explanation of the operation of section 170(2): “For the good of the country and the health
and safety of its inhabitants the importation into the United Kingdom of a wide variety of goods is restricted or
prohibited. The categories of prohibited goods include such things as flick knives: Restriction of Offensive
Weapons Act 1961, section 1; goat hair infected or likely to be infected by anthrax: Anthrax Prevention Order
1971 (SI 1971/1234); plants and agricultural products which may lead to the introduction into Great Britain of
pests: Plant Health Act 1967, section 2; animals, animal carcases and feeding stuffs, the importation of which
may introduce disease in people and in animals: Diseases of Animals Act 1950, sections 24-33 and 35; indecent
or obscene prints, photographs or other articles: Customs Consolidation Act 1876, section 42 and controlled
drugs: Misuse of Drugs Act 1971, section 3 … It is plain that the prohibitions and restrictions would be
ineffective unless they were backed up by criminal sanctions in the event of any breach. Their evasion would put
at risk the benefits which they were designed to achieve … The provision which reinforces these prohibitions
and restrictions by subjecting their evasion to a criminal sanction is to be found in section 170(2) of the Customs
and Excise Management Act 1979 … This provision extends to all cases involving the evasion or attempted
evasion of a prohibition or restriction.”
118
See e.g. The Financial Times, January 13 2005, “US ignored warning on Iraqi oil smuggling”. Also see the
report issued by the Cameron Commission - Commission of Inquiry into alleged arms transactions between
Armscor and one Eli Wazan and Other related matters, Appointed on 14 October 1994 in terms of Government
Notice R1801 (South Africa).
119
In his historic account of smuggling in England, Phillipson gives the example of a number of Royal Navy
veterans who in the post-war years, were engaged in the sea-born smuggling of goods into Britain. At 134 he
inter alia explains: "Taku’s owner and his friends were, to be fair to them, attempting to meet a demand; and
curiously enough, did not set out to evade the lawful revenue payable on their cargoes ... Unfortunately, a far
greater obstacle lay in the path of these benefactors of mankind than the mere requirement to ‘render unto
Caesar’: this was government restriction on the movement of currency whereby legitimate importers were
severely limited in the amount of sterling they were allowed to spend abroad, and import licensing was required
for all but essential goods. It was this restriction, and not simple revenue evasion, which provided the main
impetus to post-war smuggling.”
405 CUSTOMS FRAUD

4.5.5 'Commercial' smuggling

The England and Wales Court of Criminal Appeal have in the past distinguished between the
following three categories of smugglers:120 (i) those who import comparatively small
quantities on a few occasions; (ii) those who acting on their own, or possibly with one other,
persistently import greater quantities; and (iii) those in organized gangs, involved in
importation on a large commercial scale.

For the purposes of this discussion we will just draw a distinction between what we will refer
to as ‘commercial’ and ‘non-commercial' smuggling. Non-commercial smuggling is that type
of smuggling we will generally view as 'petty smuggling'. It typically involves evasion by
individuals smuggling in small quantities of goods. It is usually opportunistic and small in
scale. The petty smuggler may typically be the cross-border shopper who fails to declare an
amount of cigarettes exceeding the prescribed ‘duty-free’ allowance, or the tourist who on his
return from a holiday fails to declare goods acquired abroad. His objective will in most
instances be no more than acquiring the goods at a cheaper price than the price he can buy it
for in his home jurisdiction, usually for own consumption, and/or to make some profit from
selling the goods or parts thereof on to family, friends, acquaintances, or the local corner-shop
owner. Commercial smuggling on the other hand, generally refers to the movement of large
volumes of goods destined for introduction into the target-state’s trade. It is profit driven,
usually sophisticated, repetitive, and generally involves organization and planning. In R v
Czyzewski121, Lord Justice Rose provided the following as circumstances the presence of
which may be evidence of professional smuggling:

"Evidence of professional smuggling will include:

(1) a complex operation with many people involved;
(2) financial accounting or budgets;
(3) obtaining goods from several different sources;
(4) integration of freight movements with commercial organisations;
(5) sophisticated concealment methods such as forged documents or specially adapted vehicles;
(6) varying of methods and routes;
(7) links with illicit oversees organisations; and
(8) the value of goods involved is, as it seems to us, a potential indicator of professional
smuggling"

The commercial smuggler will often manage and operate enterprises that do trade
legitimately, or on the face of it appear to trade as such.122 The commercial smuggler,
regardless the nature of the goods he trades in, and regardless the extent of his legitimate and
illegal business activities, is in essence a businessmen. Operations are managed and
conducted taking into account the same business principles taken into account by the law-
abiding businessman. He also takes into account factors such as opportunity, risk, expenses,
logistics, payment, markets, profitability, competition et cetera. He may import, export, and
trade in any commodity the smuggling of which may ensure a high profit-yield, that is to say
a potential profit high enough to justify the taking of the risks associated with a given

120
R v Dosanjh [1998] EWCA Crim 1450. Also see Dominguez, “Smuggling” (1975) Foreign Policy (20): 87-
96 at 87, where the following distinctions are drawn: (i) goods smuggled by an individual. This may typically be
the individual who smuggles items such as precious stones or artefacts into the country; (ii) larger volumes or
quantities of goods, e.g. consignments of textiles, electronics, alcohol, machinery and the like; and (iii) the false
classification or valuation of goods.
121
[2003] EWCA Crim 2139. This case is of particular importance within the context of duty evasion. The Court
in this case dealt at length with and laid down guidelines relating to the sentencing of offenders in duty-evasion
cases.
122
See e.g. the facts in the cases of R v Rodwell [1999] EWCA Crim 879 and R v Owens and Anor [2006]
EWCA Crim 2206
406 CUSTOMS FRAUD

smuggling operation. This may include the smuggling of everyday consumables, high-worth
luxuries, counterfeit goods of every possible class, and restricted and prohibited goods of
every possible class. The profits to be made will usually mirror the risks associated with the
activity.

It is commercial smuggling that poses the greatest threat to the well-being of states. This is so,
not only because of the scale and harmful impact of the unlawful activity, but also considering
the criminal profile of many of the members of those syndicates engaged in this type of
smuggling. The commercial smuggler, regardless how he may be viewed in law, regardless
his position and title, regardless the extent of his illegal activity relative to his legal business
operations, is a professional smuggler. He forms part of that cluster of criminals we class as
organised crime.

4.5.6 Organised crime

There are reports of increasing sophistication in the smuggling techniques used by
smugglers.123 This is not at all surprising considering the endemic involvement or organized
criminal syndicates in this type of activity. Criminal penetration of supply chains and the
endemic involvement of organised crime in smuggling have long been noted.124 Smuggling
has for centuries been a staple activity of organized criminal groups. Phillipson125 offers us
the following description of the smuggler active in England during the period 1700-1850:

“The ringleaders of the smuggling gangs were often criminals of great depravity,
contemptuous of the law and of those in office to uphold it; vicious and brutal even by
eighteenth century standards. Their accomplices were the ordinary English people, staunch
upholders of individual liberty who regarded any form of taxation as an intolerable
encroachment upon it.” 126 ... “The smugglers’ chiefs were not petty malefactors such as were
carried off to clink by the parish constable. They were highly organized ‘operators’, often men
of some standing in their own community, who were not regarded by their neighbours (and
certainly not by themselves) as anything but upright citizens, performing a public service to
the community at large. They planned their operations carefully, with due regard to the risks
involved.” 127 ... “The smuggling chieftains were the Mafia of their day; the life of a ‘traitor’
was not worth a tallow dip” 128

The customs frauds of the time manifested itself not so much in the passing of fraudulent
declarations and documentation, but mainly in the form of old-fashioned clandestine landings
and bypassing of the Customs. The smuggled goods, consisting mostly of commodities such
as tea, brandy, lace, tobacco and wool, would be shipped from the European continent to the
English coast where the goods were clandestinely landed. Once landed, collection parties
would take possession of the goods and carry it inland for distribution. The landing and
collection spots tended to be at remote locations bypassing the customs. The smuggling gangs
of the time were often armed, large in size, and often resisted interference by the King’s
customs officers. To counter this particular type of criminal, which the Crown clearly viewed

123
See e.g. China Daily, October 26 2004, “Smugglers get increasingly shrewd”
124
See e.g. South African Revenue Service, Annual Report 2005/06 at 36 where it was correctly noted that:
“Hand-in-hand with increased trade goes increased risk, as crime syndicates and rogue traders exploit
international trade supply chains to smuggle goods, trade in counterfeits, launder money and employ a range of
dubious practices to evade duties and taxes. These activities undermine national economic security and distort
the trade playing field.” Also see Wannenburg, “Organised Crime in West Africa” (2005) African Security
Review 14(4)
125
Phillipson, Smuggling, A History 1700-1970
126
Ibid at 17
127
Ibid at 22-23
128
Ibid at 26
407 CUSTOMS FRAUD

as today’s equivalent of the ‘organised criminal group’, strong legislation was enacted with
deterrence and neutralization clearly foremost in the legislature’s mind. The following serves
as a good example in point: In 1748, and at the ‘Old Bailey’, two smugglers were convicted
of “smuggling with an armed force” and were subsequently sentenced to death. The ‘Kings
Council’ had the following to say in his address to the jury:129

“…the two Prisoners at the bar are indicted on a late act of parliament, made in the 19th year
of his present Majesty, and which the Legislature was forced to make, after having tried a
great many ways, in order to put an end to smuggling with an armed force, to the detriment of
most persons in the kingdom, and to the terror of those upon the coasts; and because these
people would undertake this method, rather than follow their own occupations, the Legislature
made it a capital offence for persons, with an armed force, to the number of three or more, to
assemble together, in order to carry on this practice of smuggling. The act says, that if any
persons, to the number of three or more, armed with fire arms, &c. after the 24th day of June,
1746, shall assemble together, in order to be aiding and assisting in the running of wool or
other goods, prohibited to be exported, or to run any goods liable to pay duties, which have
not been paid or secured, shall be deemed guilty of felony……there are two things to be
considered, first, whether the Prisoners , with such as make three, assembled with arms; and,
secondly, whether they were assembled to that number and armed, in order to be aiding and
assisting in the running of uncustomed goods…..and that made me to state to you what the
offence under this Act of Parliament is; it is being armed and assembled to such a number,
with an intent, or in order to be aiding and assisting in running and landing uncustomed
goods” (sic)

In this matter the prisoners in question were convicted, sentenced to death, and duly hanged.
From the above however, it is more than evident that the legislation in question was targeted
against specific groups engaged in criminal enterprises the control of which proved
problematic for the Crown. The statement “these people would undertake this method, rather
than follow their own occupations”, also strongly suggest that many of those engaged in the
smuggling were for all practical purposes professional smugglers who made their living from
what may today be referred to as racketeering activity. In the world of smuggling not much
seems to have changed since the above prisoners met their end. Our societies may have
changed, our logistical supply chains may be very different, and we may have enhanced
financial systems, communication technology and a much wider range of commodities to
smuggle, but as then we are still dealing with the same class of criminal. The motive is still
the same as is the essence of the criminal activity. As was the case then, most smuggling
operations today also involve conspiracies, often involving large groups of men. Consider the
following examples, all cases where the criminal operations in question cannot be classed as
anything other but racketeering activity:

In Tahir v R130 a total of 8 individuals, stood accused of fraudulently evading excise duty
on spirits and beer smuggled from France into Britain. Various parties based both in
France and the UK conspired in the smuggling operation. Six of the defendants were
convicted whilst two were acquitted. Two of the offenders were members of the same
family. Amongst the offenders were the appellant who controlled the operation, two
brothers who managed the UK side of the operation, another co-accused who managed the
operations on behalf of the appellant in the county of Kent, and two truck drivers
employed by the latter.

129
Trial of Samuel Chilvers and Robert Scott, heard 15th January 1748, London, reference t17480115-28,
Ordinary’s Account 18th March 1748, “The Proceedings of the Old Bailey, London’s Central Criminal Court,
1674 to 1913”.
130
[2006] EWCA Crim 792
408 CUSTOMS FRAUD

In R v Owens & Anor131 10 individuals were charged with various evasion and money
laundering offences committed as part of a smuggling operation involving the evasion of
duty on laundered diesel fuel sold as rebated fuel. Those charged included: (i) two
brothers from Northern Ireland who also operated a legitimate haulage business (ii) a
father and son who assisted with the purchase of chemicals required for the laundering of
the fuel. This they did through other related companies. They also played a role in the
renting of premises for the laundering process, and in the sale of the laundered fuel; (iii)
two of the offenders laundered money on behalf of the conspirators. This they did through
their company’s accounts, retaining a commission for themselves; and (iv) two brothers
who operated a bureau de change in Northern Ireland and who were also implicated in the
laundering of the proceeds on behalf of the conspirators.

In Hansford v R132 eight conspirators were convicted of diverting numerous consignments

of bonded goods from bonded warehouses into the local market. Lady Justice Smith in her
judgment correctly described the smuggling operation as “organised crime.” Those
convicted included: (i) the importer of the goods who managed both legitimate trading
companies and front-companies, the latter invented for no other purpose but facilitating
the fraud; (ii) the appellant who was an accountant by profession but who also assisted in
the smuggling through a bonded warehouse which he managed; (iii) the store-man
employed at the bonded warehouse. He was responsible for the removal of the goods from
the warehouse and arranged for the transportation of the goods; (iv) the owner of the
transport company who transported the goods knowing same to be diverted; (v) an
individual who acted as liaison between the importer and one of the transport drivers and
who also deposited the proceeds of one of the sales into a bank account; and (vi) a
transport driver who acted in that capacity for the transport company and who transported
the goods knowing same to be diverted.

Many of these smuggling operations (as is also the case with many of the VAT scams) are
large in scale, resulting in substantial financial losses for the fiscus. Those operating these
syndicates are opportunists and wherever an opportunity to make money presents itself, legal
or otherwise, they can be counted on to exploit it. These operations are usually well planned,
the illegality generally tends to be repetitive in nature, and the operation may span many years
before it is terminated or neutralized. These criminal syndicates will often: (a) be flexible,
adaptable and innovative; (b) operate at a high level in terms of general tradecraft, technical
expertise and technology; (c) maintain strict hierarchies; (d) be internationally mobile, often
from immigrant communities; (e) operate transnationally; (f) also operate legitimate
businesses and/or business fronts; (g) be adapt at money laundering and make use of
sophisticated money laundering structures; (h) not shy away from bribery, intimidation,
blackmail and violence; (i) recruit personnel and skills and contract expertise; (j) form
alliances with other criminal groupings; (k) learn from past experience and be fast to adapt
and refine operations based on past experience; (l) practice and be seasoned in intelligence
and counter-intelligence, surveillance and counter-surveillance; (m) have the benefit of and
involve professional advisors; and
(n) be knowledgeable as to law enforcement practices, operations and shortcomings.

These groups often operate at a high level utilizing cell-structures, safe-houses, the setting up
of multiple smuggling routes operated parallel but independently from one another, and can

131
[2006] EWCA Crim 2206
132
[2006] EWCA Crim 1225
409 CUSTOMS FRAUD

maintain high standards of communications security. The syndicates involved may use any
available means to protect their trade and this may involve bribery, threats, or the use of
violence.133 Many of these frauds are trans-national in nature with conspirators often based in
multiple jurisdictions. A smuggling operation may consist of a single group executing the
entire operation,134 or the operation may consist of a number of loose-standing cells or groups
facilitating the same operation but doing so independently from one another at different
stages.135 In many instances the syndicate members may be operating legitimate business
operations, or business operations which outwardly appear to be trading legitimately but are
in fact no more but fronts set up to facilitate the operation, to shield the illegal activity, or to
launder the proceeds.

These criminal operations will almost always involve conspiracy involving multiple
perpetrators and accomplices. In many instances these groups have access to and use
professional advisors such as lawyers, accountants, bankers, and freight agents in advising
them and/or facilitating the criminal operation. These same people may also assist with the
laundering of the proceeds of the crime.136 They may also rely on corrupt officials and will
often not waiver to develop and nurture corrupt relationships. Many of these smuggling gangs
involve family members or business associates, either participating in the fraud themselves, or
acting as fronts, sometimes facilitating the fencing or distribution of the goods, or sometimes
assisting in the laundering of the proceeds. This is not of little significance. Running an
operation using extended family brings with it the greater degree of loyalty that usually comes
with kinship. Arranging the importation of multiple consignments through a network of
brothers, cousins and nephews can make neutralization of the group very difficult. Where one
is apprehended, often after getting away with it countless times before, he may as first-time
offender get away with no more but a short custodial sentence, even a suspended sentence. He
may well not even face prosecution and face no more but penalties and forfeiture. Another
cousin or brother may shortly after appear on the scene taking over that part of the operation
but running same through a newly created company. In this manner the size and value of
consignments can be controlled, risk-profiling relating to certain individuals or traders can be
thwarted, and the risk of one 'offender' being apprehended twice is mitigated. This practice is
common amongst certain ethnic criminal groupings.

The prosecution of those engaged in this type of organised smuggling and the imposition of
long custodial sentences is the only way in which these offenders can really be neutralized
and deterred. Closing down an operation without dealing with those who set it up is no
solution. The closure of one operation will just be met with better planned and more secure
clones springing up shortly after. The main effort should thus be directed at neutralizing
smuggling syndicates as opposed to smuggling operations. The neutralization of smuggling

133
See National Director of Public Prosecutions v Naidoo and Others [2006] ZAGPHC 30; R v Rodwell [1999]
EWCA Crim 879; R v Dosanjh [1998] EWCA Crim 1450. Also see Hansford v R [2006] EWCA Crim 1225
where a total of eight conspirators were convicted of diverting bonded goods from bonded warehouses into the
local market. Lady Justice Smith in her judgment correctly said: “ … the kind of people who get involved in this
sort of organised crime, where the stakes are fairly high, are quite likely to resort to violence either themselves or
by instructing others in order to achieve their ends.”
134
E.g. one group may control an operation in its entirety from the manufacture or acquisition of the goods, up to
the eventual distribution of those illicit goods.
135
E.g. one group may be engaged in the sourcing and outward smuggling of the goods whereas another group
may manage the inward smuggling and distribution of the goods.
136
See e.g. R v Glatt [2006] EWCA Crim 605 where the appellant whilst in prison for a customs fraud, operated
a subsequent customs fraud through his solicitor who also assisted with the laundering of the proceeds. See the
paper by Nkala, “Penetrating State and Business Organised Crime in Southern Africa” (2003) Monograph Series
No 89 Vol 2, Institute for Security Studies.
410 CUSTOMS FRAUD

operations and smuggling syndicates, and the closure of smuggling routes does not only
benefit customs enforcement. It is a key component of broader strategies targeted against
organised crime and terrorism.

4.5.7 The illicit supply chain

The import and export of goods over frontiers takes place within the context of international
trade. This also applies to the smuggling of goods over those frontiers. The trade in any
goods, whether it be imported, exported, or locally manufactured goods, necessarily entails
the movement and distribution of those goods via some or other supply chain. The goods so
entering or leaving can enter, leave, or transit between jurisdictions, by land, air, water, or any
combination thereof. The term water is used as it can enter or leave by sea or from one
jurisdiction to another by inland waterways, lakes and the like. The volumes of goods so
moved may range from an entire ship-load to a mere parcel received or forwarded by post.137
Such a supply chain may involve numerous role-players involved at various stages from the
point of supply of the raw material, to the ultimate sale to the consumer. These may typically
include manufacturers, wholesalers, transporters, shed-operators, clearing agents, importers,
buying houses, and retailers. The structure of a logistics system depends on factors such as
but not limited to:

(a) the nature of the commodity in question;

(b) commodity quantities and volumes;
(c) routing requirements;
(d) location and geographical distances involved;
(e) transportation infrastructure such as road-networks, ports, bridges etc;
(f) modes of transport available and capacity;
(g) dealer and distributor networks and their requirements;
(h) security;
(i) cost and profitability; and
(j) government policies and regulation

A single change in any one or combination of these criteria can impact on the choice or
structure of a route. Many traders operating legitimate business enterprises may utilize their
existing routes to start moving illicit goods. Cases of the same trader using his legitimate
trading operations as a cover to import, export, move, and trade in illicit goods is not
uncommon.138 Many smugglers however set up routes primarily intended for the use of
smuggling, usually with the view to maintain information security and anonymity. Many of
the smuggling routes used are extensive, operate from and into multiple jurisdictions, are
planned and maintained in depth, and often go undetected for years. Such a route may be set

137
The information revolution and the increase in 'online' trade will in the future necessitate more attention to be
directed to importation, and thus the fraud that so often accompanies it, through the postal system. Not many
reported cases dealing with the prosecution of smuggling or customs fraud through the postal system are to be
found, but the same principles apply regardless whether imported by plane, ship, vehicle or post. It is true that
miss-declaration and under-declaration through the postal services, measured per value on individual imports,
are usually relatively negligible, but online purchases from abroad can with increased popularity of online
purchasing and over time, increasingly cut out of the supply chain the market-share of many local traders who in
the past imported product in bulk for sale in the local market. With this displacement, the total value of postal
imports and thus evasion through the postal services by a broad consumer-base can be expected to increase.
138
See e.g MacGaffey, The Real Economy of Zaire – The Contribution of Smuggling & Other Unofficial
Activities to National Wealth at 2 where it was inter alia said: “Our smuggling data reveal that the second and
official economies do not form distinct sectors of the real economy, but are interlinked in many complex ways:
the same individuals participate in both, a commodity may pass between the two in the course of successive
transactions, unofficial and official modes of importing may be combined at all stages of the journey.”
411 CUSTOMS FRAUD

up to service an existing black market 'infrastructure' or such a black market 'infrastructure'

may be developed around a newly created route. Around these routes there will usually be
significant levels of planning, organization and coordination, often entailing activities such as
but not limited to: (a) the arrangement of transportation, which may often be multimodal. This
may involve the use of contractors, but will often involve the acquisition of own transport
such as vehicles and boats; (b) the setting up or arrangement of warehouses for warehousing,
re-packing, re-labelling and distribution; (c) the fostering and exploitation of relationships
with corrupt officials; (d) falsification of documentation, end-user certificates, container-
numbers, etc; (e) effecting and receiving payments; (f) the developing of laundering routes
and the laundering of the proceeds; (g) the acquisition of equipment for purposes of
processing, repacking and relabelling, communication, navigation, coordination, and security
(e.g. frequency scrambling devices, encryption software etc); (h) recruitment, often involving
legal and illegal immigration;139 (i) distribution to fences (the latter will often be retailers and
traders operating legitimate businesses); (j) the setting up of fronts; (k) the sourcing of
suppliers and the developing of markets; and (l) the protection of markets and the
neutralization of competition.

What we see here is that the smuggler faces many of the same risks and challenges as that
faced by the legitimate trader. For him it is equally important to move his cargo safe,
undamaged and on time. He does however also face other risks not of concern to the
legitimate trader. Not only is there the risk of state interdiction and interference by other
criminal elements, but his cargo also goes uninsured. The continued safe use of a route is also
only possible to the extent that secrecy can be maintained. The compromise of any part of
such a route can potentially result in the uncovering and closing down of that route. An
operational smuggling route is very much what arteries are for the body. They provide the
blood-supply feeding the organs, veins, and muscle. Connected with that route, directly or
indirectly, will usually be: (a) a large number of suppliers, clients, and accomplices. The
setting up and continued use of a smuggling route often involves the complicity or assistance
of many people, often from diverse backgrounds. These may typically include: drivers,
loaders, packers, skippers, pilots, corrupt police and customs officers, advisors such as
accountants and freight forwarders, and various categories of businessmen e.g. transporters,
retailers, and warehouse-keepers; (b) hard infrastructure and materials such as land, buildings,
aircraft, vessels, trucks, machinery, and equipment; and (c) soft infrastructure such as
corporate structures and bank accounts.

The operation of that route keeps warehouses filled with illicit goods, keeps smuggled
cigarettes under the counter, keeps criminals armed, and keeps drugs on the streets. The
neutralization of these routes is a key component of dealing with smuggling and crime in
general. The mere existence of a smuggling route, regardless the nature of the goods
smuggled, poses a threat for the State and broader community. The same route may, once
tried and tested, be used to facilitate the smuggling of any number of commodities.140 Follow
the flow of goods, money, and the paper-trail and you may identify all those in the supply
chain - from supplier to dealer and consumer, the corrupt officers taking the bribes, the freight

139
In many jurisdictions certain ethnic minorities and/or immigrant communities are heavily involved in
smuggling activities. As they usually prefer the recruitment and use of people whom can be trusted, usually from
the same ethnicity and often family members, they will often 'import' accomplices, usually involving some or
other illegal residence or immigration fraud.
140
See Commentary No 70: “The Threat from Transnational Crime: An Intelligence Perspective”, Canadian
Security Intelligence Service, where it was inter alia said that: “Cigarette smuggling rings openly flourished in
this country between 1990 and 1994. At its peak smuggled tobacco supplied 30-35 per cent of the Canadian
market. This not only cost the Canadian treasury hundreds of millions in lost taxation revenue but established a
smuggling infra-structure as easily turned to arms and illegal alien smuggling as cigarettes and alcohol.”
412 CUSTOMS FRAUD

forwarders, transporters and warehouse-keepers complicit in the operation or turning a blind

eye, and all the other enablers.

4.5.8 Market
The circumstances under which illicit goods are brought in, taken out, or traded with, may be
tainted with illegality, but is nevertheless set within the context of trade. Both legitimate trade
and smuggling exists on the basis of supply and demand. Smuggling cannot be profitable in
the absence of a willing market. The profile of the ultimate consumer may vary depending on
factors such as, the nature of the illicit goods, the availability of the goods in the particular
jurisdiction, and the levels of state interference in regards to the taxation of and control over
the goods in question. Those who trade in the smuggled goods often have an established
client-base to whom the goods can be sold on to. That client-base may include manufacturers,
and/or wholesalers, and/or retailers, or directly to the consumer. In many instances, those who
plan and operate the smuggling-operation will themselves be manufacturers, wholesalers, or
retailers.

There are it must be said few areas of crime where serious criminality and a significant part of
the population manage to co-exist in such a harmonious symbiosis as is the case with the trade
in illicit goods. Many consumers will not necessarily know that the goods are illicit,
especially where sold on as supposedly licit goods through what may appear to be a reputable
trader. In terms of physical appearance, quality, and markings, much of the illicit goods traded
are no different from goods that did legally enter home consumption. There will thus often be
nothing to alert the honest, unsuspecting consumer of the goods being illicit goods. It will be
safe to say that the consumer will in most instances not personally interface with the actual
smuggler, as he will in most instances acquire the illicit goods from his local shop, flea-
market, pharmacy, parts-dealer, through acquaintances, or from street-pedlars. This all being
said, in many instances the consumer does acquire the goods with full knowledge as to the
illicit nature thereof, or may at least harbour suspicions as to the true nature thereof. Targeting
the market is critically important for enforcement to be effective. This then is the reason why
the customs legislation of most jurisdictions provide for the prosecution of those who
knowingly acquire or take possession of illicit goods knowing it to be so, and for the seizure
of any illicit goods wherever it is found.

Not to be lost sight of is that whenever we deal with imports and exports we are really dealing
with two markets, that of the import and export jurisdiction. The availability and non-
availibity of goods, the over-supply and demand of goods, and the socio-economic and
political landscape in either of those jurisdictions, impact on the other. So does the failure to
police those markets. In many jurisdictions there is a general tendency to focus most of the
enforcement effort on imports with little enforcement on the export-side. This can have a dual
impact, on both that jurisdiction as export-jurisdiction and the import jurisdiction. In the
export jurisdiction it may facilitate and promote crime in that it provides for an open door to a
willing market for goods stolen, looted, or unlawfully exploited in that export jurisdiction e.g.
stolen vehicles, boats, unlawfully stripped copper-wire, endangered species, artefacts, and
natural resources such as timber, diamonds, platinum etc. A growing demand in the import
jurisdiction for those commodities, coupled with that uncontrolled outward movement may
thus fuel criminal activity in the export jurisdiction. It may also impact on the destination
market. Dangerous goods like weaponry, narcotics, and dangerous chemicals and waste
exported into a neighbouring state may have serious consequences for that State and its
population. Fail to clamp down on the manufacture and export of counterfeit goods in your
own jurisdiction or turn a blind eye to illicit goods transiting through your own jurisdiction
and it will impact on the holders of the intellectual property rights and on the market in the
destination-jurisdiction. Good fences do indeed make for good neighbours.
413 CUSTOMS FRAUD

4.5.9 Classes of goods dealt with

4.5.9.1 The illicit trade
The illicit trade in dutiable goods, primarily driven with the objective of evading duties and
taxes, is just one area of the illicit trade. The underlying activities making out the 'illicit trade'
cover a wide spectrum of areas and activities ranging from the manufacture and trade in
dutiable good, counterfeit goods and narcotics, to the theft and smuggling of cultural goods
and endangered fauna and flora, to the smuggling of a wide range of dangerous products and
materials such as pharmaceuticals, narcotics, weaponry, and nuclear, biological, and chemical
materials.

Those engaged in the illicit trade, manufacture, import, export, and trade in a wide range of
commodities ranging from precious metals and stones such as platinum,141 fake currency,142
diamonds and gold,143 artefacts looted in conflict areas,144 to vehicles, timber,145 oil,146
alcohol, cigarettes,147 electronic goods, medicine,148 clothing, fuel,149 plant and animal
products,150 arms, nuclear material,151 prohibited narcotics, counterfeit goods, and people.152
Most people will of course never refer to this trade as "the illicit trade". They will simply refer
to it as good old-fashioned 'smuggling'. Different 'types' of 'smuggling' are then also often
distinguished from one another on the basis of the type of commodity smuggled, for e.g. ‘gold
smuggling’, ‘people smuggling’, ‘diamond smuggling’, ‘cigarette smuggling’ et cetera.

141
See e.g. National Director of Public Prosecutions v Naidoo and Others [2006] ZAGPHC 30
142
See e.g. The Financial Times, June 18 2009, “Mafia blamed for $134 bn fake Treasury bills”
143
See e.g. Global Forum on International Investment, Conference on Foreign Direct Investment and the
Environment, The Relevance of the OECD Guidelines for Multinational Enterprises to the Mining Sector and the
Promotion of Sustainable Development, OECD, February 2002, where at 8 it was inter alia stated: “At the end of
last year, the report of the UN Security Council Expert Panel provided details on the smuggling of diamonds
from the Democratic Republic of Congo (DRC) into almost every neighbouring country, and of collusion
throughout the entire region. An estimated one third of the total rough diamond production of the Democratic
Republic of the Congo, valued at $300 million a year, is smuggled out of the country.”
144
See e.g. The Guardian. July 3 2015. "Looted in Syria - and sold in London: the British antiques shops dealing
in artefacts smuggled by Isis"
145
See e.g. Obidzinski et al, Timber smuggling in Indonesia – Critical or Overstated Problem ? :Forest
Governance Lessons from Kalimantan, 2006
146
See e.g. The Financial Times. January 13 2005. “US ignored warning on Iraqi oil smuggling”
147
The Telegraph, January 31 2000, “Crime gangs burn £2.5bn hole in the Treasury's coffers”
148
Sunday Times. May 26, 2002. “Cops clamp down on medicine smugglers”
149
See e.g. The Telegraph. 09 December 2001. "Police crack down on £450m 'red' diesel scam" where it was
inter alia reported: "… customs officers seized "red" diesel worth £40 million in the north of England last
month. It is believed that the fuel was being distributed by Irish paramilitaries to raise funds for terrorist
campaigns in Britain,"
150
See e.g. the London Evening Standard. January 5 2010. “Couple smuggled tortoises in suitcases”
151
Zaitseva, L and Hand, K. (2003) "Nuclear Smuggling Chains Suppliers, Intermediaries, and End-Users",
American Behavioral Scientist, Vol 46 No 6: 822-844
152
For those engaged in human trafficking, the people being trafficked in their 'people smuggling' operations are
no more but goods. They are a commodity just like cigarettes or parrots. Not surprisingly the same language to
be found in smuggling provisions in customs legislation has also been borrowed into international instruments
dealing with people smuggling. See e.g. Art 3(a) of the 'Protocol to prevent, suppress and punish trafficking in
persons, especially women and children, supplementing the United Nations convention against transnational
organized crime', United Nations, 2000 at p2 where the trafficking in persons is defined as: "The recruitment,
transportation, transfer, harbouring or receipt of persons, by means of the threat or use of force or other forms of
coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability or of the
giving or receiving of payments or benefits to achieve the consent of a person having control over another
person, for the purpose of exploitation. Exploitation shall include, at a minimum, the exploitation of the
prostitution of others or other forms of sexual exploitation, forced labour or services, slavery or practices similar
to slavery, servitude or the removal of organs."
414 CUSTOMS FRAUD

Although goods of almost every type and description are 'smuggled', 'smuggling' in high-
value but easily transportable commodities have long been commodities of choice. It is not
surprising to find commodities such as precious stones and metals, cigarettes, alcohol,
‘compact discs’, et cetera, being popular choices with 'smugglers'. Many criminal networks
have over recent decades shifted their operations away from high-risk activities such as
narcotics trafficking and arms smuggling to the less risky trade in illicit high-value consumer
goods. The risks associated with the smuggling of consumer goods, counterfeit or otherwise,
are negligible.

Illicit goods, whether it be prohibited, restricted, or dutiable but not duly entered and
accounted for is treated as ‘illicit goods’ and remains illicit for as long as it is prohibited,
restricted or unaccounted for.153 Such goods will remain to be ‘illicit goods’ even where it
subsequently changes hands or where it is subsequently sold on. It is in essence tainted with
criminality. Goods which at one time may not have been so tainted may become so tainted
once it enters the smuggling chain, but in many instances the goods is being smuggled for the
fact that it is already tainted. A good example in point will be that of the thief who steals
artefacts from a museum in Cairo which he then smuggles into Britain.

Illicit goods may also be of either local or foreign origin. It will not necessarily always be
goods that crossed a ‘frontier’. Consider the situation where a local manufacturer of excisable
goods diverts undeclared stock into the black market. The diversion will result in the evasion
of taxes and the diverted goods will be illicit goods. Once again, the public at large will
simply view and refer to the goods in question as ‘smuggled goods’.

Proving a consignment of goods to be illicit may prove difficult as it will often not be possible
to link the seized goods with any particular contravention. Identifying the true origin of the
goods may prove just as difficult as it may not be possible to determine how and when the
goods entered the local market. What is or is not illicit goods, the fate of same in the event of
seizure, the penal provisions that will find application in relation to any offences committed in
connection with any particular class of illicit goods, and the sanctions that may be imposed in
a particular instance obviously depends on a given jurisdiction's legal framework.

The trade, legal or illegal, is all about supply and demand and is built on the expectation of
profit. The principles are the same. The higher the demand and the greater the risk, the greater
one can expect to be the profit. The greater the potential profit yield, the greater the attraction.
The seller will thus always be a businessman but not necessarily always the buyer. The buyer
may well be a consumer without profit or a saving on his mind i.e. a member of a terror group
acquiring weapons with the view to pursuing a political objective. A terrorist buying a stolen
Stinger surface-to-air missile system with the view to bring down a jet-liner is a party to the
illicit trade but he is a consumer with no interest in profit.

The methods used by those engaged in the illicit trade may differ considerably depending on
the nature of the goods they deal with, the legal frameworks they circumvent, and the
intelligence and policing landscape. The methodologies employed by one criminal group
engaged in the smuggling of one type of commodity will thus often not correspond with that
employed by another criminal group engaged in the smuggling of another type of commodity.
From an enforcement perspective, this obviously calls for tailored approaches in dealing with
the different actors engaged in different areas of the illicit trade.

153
See e.g. the Australian Crimes Act 1914 wherein "illicit goods" is defined as: “… means goods the possession
of which is a contravention of a law of the Commonwealth, a State or a Territory.”
415 CUSTOMS FRAUD

4.5.9.2 Prohibited and restricted goods

Smuggling operations often involve the illegal importation or exportation of prohibited or
restricted goods, such as hard narcotics, illegal firearms, controlled medicines, animal and
plant products, or certain raw materials. Prohibited goods are goods that may not be brought
in or taken out of a jurisdiction. Restricted goods are goods that may only be brought in or
taken out subject to the meeting of certain conditions, typically under cover of a valid permit,
license, or other lawfully issued authorization. It is the duty of the importer and/or exporter to
ensure the goods so imported or exported is covered by a valid license issued by the
competent authority administering the licencing of the commodity in question. In most
jurisdictions the authorities generally take an extremely serious view of smuggling in
prohibited and restricted goods considering the often dangerous nature and harmful impact of
many of the commodities or items in question.

Various forms of conduct associated with the illicit trade, i.e. the manufacture, possession,
conveyance, dealing with or dealing in certain classes of goods, may be prohibited or
restricted under national laws and/or international treaties. There exists a wide framework of
international treaties, many of them ratified or used as guidance by many States, which are of
relevance in relation to certain areas of the illicit trade. Some of these were adopted to target
those actors who so often happens to be engaged in the illicit trade i.e. organised criminal
groups,154 whereas others to a greater or lesser degree cover the illicit trade in various classes
of restricted and prohibited goods, notably those classes of goods posing significant risk to
health, safety, the environment, and security i.e. tobacco,155 counterfeit medicine,156
narcotics,157 cultural property,158 fauna and flora,159 military weapons and munitions,160
firearms,161 hazardous waste,162 and nuclear, biological and chemical weapons and
materials.163

The manner in which illicit goods are traded or dealt with may be punishable as offences
provided for under various different statutes and the consequences for convicted offenders
may vary significantly. The evasion of import or export restrictions on restricted or prohibited
goods will always be fraudulent and will always involve a fraud perpetrated on the Customs.

154
See e.g. the United Nations Convention against Transnational Organized Crime, Res 55/25 of 2000
155
See e.g. the Protocol to Eliminate Illicit Trade in Tobacco Products of 2012
156
See e.g. the Council of Europe Convention on the Counterfeiting of Medical Products and Similar Crimes
Involving Threats to Public Health of 2010
157
See e.g. the Single Convention on Narcotic Drugs of 1961 and the United Nations Convention against Illicit
Traffic in Narcotic Drugs and Psychotropic Substances of 1988
158
See e.g. the Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of
Ownership of Cultural Property of 1970
159
See e.g. the Convention on International Trade in Endangered Species of Wild Fauna and Flora of 1973
160
See e.g. the Convention on the Prohibition of the Use, Stockpiling, Production and Transfer of Anti-
Personnel Mines and on their Destruction, 1997; the Convention on Cluster Munitions of 2008; and the
Convention on Prohibitions or Restrictions on the Use of Certain Conventional Weapons Which May be Deemed
to be Excessively Injurious or to Have Indiscriminate Effects of 1980
161
See e.g. the Protocol against the Illicit Manufacturing of and Trafficking in Firearms, Their Parts and
Components and Ammunition, Res 55/255 of 2001
162
See e.g. the Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and their
Disposal of 1989
163
See e.g. the Treaty on the Non-Proliferation of Nuclear Weapons of 1968; Convention on the Physical
Protection of Nuclear Material of 1979; the International Convention for the Suppression of Acts of Nuclear
Terrorism of 2005; the Convention on the Prohibition of the Development, Production and Stockpiling of
Bacteriological (Biological) and Toxin Weapons and on their Destruction of 1971; and the Convention on the
Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on their Destruction
of 1992
416 CUSTOMS FRAUD

This will be so even where the evasion of the prohibition or restriction has no tax impact. The
Customs mandate stretches beyond that of being just mere tax collectors.

4.5.9.3 Counterfeit goods

Counterfeiting and forgery are in essence species of fraud recognized as falsum and crimen
falsi since Roman times.164 Counterfeit goods are in essence fraudulent imitations represented
as being originals. Black165 defines "counterfeit" as:

"Counterfeit. In criminal law. To forge; to copy or imitate, without authority or right, and with
a view to deceive or defraud, by passing the copy or thing forged for that which is original or
genuine. Most commonly applied to the fraudulent and criminal imitation of money."

Just about every conceivable commodity where money is to be made can be counterfeited.
Notes and coins, electronics, medication, cigarettes, alcohol, clothing, food products and a
legio other commodities. These may be sold at local markets, online, or may quite well even
be sold off through 'trusted' retailers. The seller may or may not know or suspect the goods to
be counterfeit. The buyer of the counterfeit goods may belong to any social class and may
acquire the goods knowing or not knowing same to be counterfeit.

The goods may be locally manufactured, but more often than not it is imported. The fact that
counterfeit goods were manufactured in a foreign country does not however mean the
counterfeiting took place abroad. In many instances the goods concerned may well have been
manufactured abroad as cheap unbranded items, imported as such, but with the counterfeiting
taking place post-importation. Trader A may for example purchase unbranded shirts at £1 a
unit in China, import it into Britain, declare it accurately and truthfully to Customs for what it
is, pay the duties due on same, but then take it into his warehouse (in Britain) where a high-
end brand-name is applied. Same is subsequently given out as the genuine product and sold
off to the public as such - at prices which may well be ten or fifty times the import-value.

Strong links between organised crime and the trade in counterfeit goods has long been noted.
This is especially so in regards to certain high-value items which are easily transportable, and
which often attracts high taxes. The criminal syndicates engaged in the smuggling of
counterfeit goods may often also be engaged in the smuggling of other classes of goods and
are more often than not also engaged in other criminal activity.

The greater part of the counterfeit goods introduced into home consumption generally tend to
be traded ‘of the books’. The sale of the goods and the proceeds from the sales often go
unrecorded. The trader may well charge VAT on the sales with the unsuspecting customer
quite well unaware that not only is the product counterfeit, but the VAT he pays will also be
misappropriated. Needless to say, the profits from the unrecorded sales will usually be

164
See Black. A Law Dictionary, 2 nd Ed at 300 where "Crimen Falsi" is defined as: "Crimen Falsi. In the civil
law. The crime of falsifying; which might be committed either by writing as by the forgery of a will or other
instrument; by words, as by bearing false witness, or perjury; and by acts, as by counterfeiting or adulterating the
public money, dealing with false weights and measures, counterfeiting seals, and other fraudulent and deceitful
practices …..At common law. Any crime which injuriously affect the administration of justice, by the
introduction of falsehood and fraud… In modern law. This phrase is not used as a designation of any specific
crime, but as a general designation of a class of offences, including all such as involve deceit or falsification; e.g.
forgery, counterfeiting, using false weights or measures, perjury etc.". And then at .482 "falsum" is defined as:
"Falsum. Lat. In the civil law. A false or forged thing; a fraudulent simulation; a fraudulent counterfeit or
imitation, such as a forged signature or instrument. Also falsification, which may be either by falsehood,
concealment of the truth, or fraudulent alteration, as by cutting out or erasing part of writing"
165
A Law Dictionary, 2 nd Ed at 282
417 CUSTOMS FRAUD

ciphered away without the taxes on same being accounted for. As the trade in counterfeit
goods gain market-share, the legitimate trade is displaced further impacting on and
undermining the tax base and economy.

The trade in these goods do not however only threaten intellectual property rights and the tax
base, but also pose a serious risk for the consumer. Some of these counterfeit products can be
extremely hazardous or even life-threatening, counterfeit medication, cigarettes, pesticides,
cosmetics, electronics and alcohol being examples in point. The fake product will all too often
fail to meet national safety standards, may seriously malfunction, or may contain compounds
seriously harmful or even fatal for the consumer. Even in those instances where the product in
question does not pose a direct threat to the user, the fact that it may well lack certain qualities
may prove fatal. There are millions of patients, often people in a desperate situation whose
survival may depend on the efficacy of the medication they place their faith in, patients with
conditions such as heart conditions, advanced cancers, high blood pressure, or diabetes, who
may well be defrauded out of all their savings in financing fake medication possessing none
of the properties they are prescribed for.166

Some jurisdictions have legislation in place prohibiting and making punishable the misuse of
trademarks or counterfeiting.167 In some jurisdictions however, the misuse of trademarks and
counterfeiting go without any prohibiting laws or consequences. In some jurisdictions
legislation is in place making punishable the sale of consumer goods not meeting certain
safety standards, which is often the case with many of the counterfeit products ending up in
our domestic markets.168 In some jurisdictions such legislation is non-existent, or where it is
in place is not enforced. In most common law countries knowingly selling counterfeit goods
of to unsuspecting customers as the genuine product is viewed as fraudulent and there will
almost always be penal provisions covering such conduct as criminal offences. 169 In most if
not all common law countries the inward and outward smuggling of goods, regardless it be
genuine goods, counterfeit goods, or pirated goods, is viewed as fraudulent. The goods will be
seized and the offenders will be prosecuted.170

Generally speaking, and this is the case in most jurisdictions, efforts to curb the manufacture
and trade in counterfeit and pirated goods have been anything but successful. In most
jurisdictions the existing legal frameworks are severely lacking and there is simply not the
enforcement capacity. Enforcement operations, where they do take place, generally focus on
the closure of websites selling counterfeit goods, the seizure and destruction of counterfeit
goods, and from time to time the prosecution of a few offenders. It is however a difficult area
to enforce. With most of the manufacturers being based offshore in jurisdictions like China,
Taiwan, India and Korea, the manufacturers are not being closed down. The trader selling the
product, often direct to the consumer, is often based offshore. Enforcement agencies thus now
find themselves in a global trading environment where any of the billions of parcels and
shipments coming in from abroad, be it through the post, borders, or ports, may be
counterfeit. Even if same is interdicted, they will often have nothing to work with apart from
the counterfeit item or goods, and a local buyer whom himself might have been duped. Where

166
See e.g. The Daily Mail, 12 April 2011. "Fake cancer drugs given to thousands: Conman jailed for importing
two million doses"
167
In Britain for example various offences making punishable the misuse of trademarks and counterfeiting are
provided for under the Forgery and Counterfeiting Act 1981, the Trade Marks Act 1994, and the Copyright,
Designs and Patents Act 1988.
168
See e.g. the Consumer Protection Act 1987 (Britain)
169
To do so in England will be fraudulent and can be prosecuted under the Fraud Act 2006. In South Africa
doing so can be prosecuted as fraud under that country's common law crime of fraud.
170
In Britain under sections 50 and 170 of the Customs and Excise Management Act 1979
418 CUSTOMS FRAUD

investigations are launched, they will often be trans-national in nature calling for international
cooperation, they will often be costly, and there will usually be a requirement for technical
expertise.

Counterfeiting it must be said is not only of relevance for the Revenue insofar as it relates to
the smuggling and/or unrecorded trade in counterfeit goods. Acts of forgery and
counterfeiting may also rear its head as criminal conduct intended to mislead the Revenue. A
fraud targeted against the Revenue may well involve the commission of acts involving the
forgery or counterfeiting of Revenue documents, stamps, seals and other things. In these cases
additional or alternative charges relating to counterfeiting, forgery or fraud may well be
charged.

4.5.10 The Offender

Revenue and customs frauds cover a wide spectrum of criminal activity committed by a wide
range of people. These may range from the old poorly shopkeeper fiddling his reported sales
but otherwise incapable of hurting a fly, to shareholders and high flying corporate executives
conspiring to commit international frauds on a massive scale, to groups of violent criminals
running a wide spectrum of criminal operations. The English smuggler of the 18th and 19th
centuries was generally known, and also referred to himself, perhaps proudly, as a 'free-
trader', in that the imported or exported goods changed hands at a price and place agreed on
between buyer and seller, ignoring and evading any state imposed restrictions and
regulations.171 In the developed world, smugglers for the most part are profit-driven, many of
them already wealthy thanks to their criminal lifestyle. For those in the developing world
however, smuggling may be a lifeline, a matter of survival. This latter category can be found
in failed states throughout the world. For them, smuggling all too often is the only means by
which essentials can be sourced that may otherwise not be available or simply too
expensive.172 Between these extremes, many other categories of offenders can be found with
varying levels of involvement, often from diverse economic and social backgrounds, often not
sharing the same motives, knowledge, social, professional, or educational standing.173 Those
associated with large-scale smuggling operations may vary. There may typically be:

(a) Those who make available resources in financing the operation. This may typically be
an 'investor' who provides the financing for an agreed commission on the profits. This
person may be far removed from the operation without detailed knowledge of how the
operation is to be executed;
(b) Those who plan, and/or implement the smuggling operation;
(c) Those who execute the smuggling operation;

171
Nicholls, Honest Thieves, The violent Heyday of English Smuggling at 2
172
See e.g. MacGaffey, The Real Economy of Zaire – The Contribution of Smuggling & Other Unofficial
Activities to National Wealth, 156
173
See Theobald, Defrauding the Government - True Tales of Smuggling, from the Note-book of a Confidential
Agent of the United States Treasury at 322, where the writer inter alia remarked: “The Government officer must
deal with all grades of society, from the highest down to the very dregs of humanity. I have found from my
experience that the possession of great wealth does not deter many men and women from the attempt to evade
the United States Government duties.” The same writer (at the Preface page V), also held the following less than
flattering view of the smuggler: “It is no easy matter to hazard a guess why so many wealthy people smuggle.
That it is a love of gain is no more certain than is the belief that these same daughters or sons of wealth defraud
the Government because they just cannot help stealing. And smuggling, to my mind, is a low form of theft.
Deprived of their riches, some of these cheats of a great Government would be classed as common culprits, and
doubtless many of them would end their days in some State’s prison for pocket-picking, sneak thievery or some
equally low-blooded crime. Money alone keeps many of them from committing these inferior offences.”
419 CUSTOMS FRAUD

(d) Third parties who are not necessarily members of the smuggling syndicate, but who
may nevertheless facilitate the smuggling or assist the smugglers in the execution of
the smuggling. These may typically include corrupt customs officers, bankers, clearing
agents, transporters, accountants etc; and
(e) Those dealing in the smuggled goods, either on behalf of the smuggling syndicate or
for their own account.

The day-to-day operations of a single smuggling operation may involve the participation of
large numbers of men. The nature and levels of involvement may vary greatly. They often
operate within various capacities within the illegal operation, e.g. as manufacturer, importer,
exporter, freight forwarder, distributor, retailer, corrupt customs officer, warehouse operator,
accountant, transporter etc. Typical examples of participation may be:

(a) signalling to smugglers;174

(b) acting as driver or courier;175
(c) arranging the transportation of the illicit goods;176
(d) acting as go-between between other conspirators;177
(e) assisting with the reconnaissance of routes;
(f) the preparation of secret landing strips;
(g) assisting with the configuration of secret compartments in vehicles or containers;
(h) assisting with arrangement for storage, warehousing, re-packing or re-labeling;
(i) the preparation of false documentation or false books of account;
(j) brokering transactions for the acquisition or sale of the goods;
(k) directing another to prepare false documentation;178
(l) the laundering of the proceeds of the crime, et cetera

Some participants may act in more than one capacity. Those who participate in the fraud may
incur both civil and criminal liability. Both natural and legal persons can be prosecuted.
Whether or not a person did indeed knowingly participate in the fraud is for the court to
decide on the facts of the case. Individual participants will often not be familiar with the
identities of the other participants or even the finer details of the operation. This however will
not exclude their criminal culpability. Even participants who might have played a relatively
minor role in the fraud may quite well satisfy all the material elements of the offences
charged. Knowingly participating in, or assisting others in executing a criminal operation,
knowing that the operation may result in the Customs being defrauded is sufficient.
Smuggling operations may of course also be run by single individuals for their own account.
This may typically be a trader who himself acquires the goods abroad, smuggles the goods
into the country, and then subsequently passes in on to his customers. Smuggling is not
however the sole domain of criminal groups out to make money. Many of the methods
employed by criminal gangs have long been used by the agents of many States in moving
around contraband, equipment and funds destined for covert military operations, to
circumvent sanctions, or to subvert another target-state.179

174
In Britain, signalling to smugglers is prosecuted under section 170 of the Customs and Excise Management
Act 1979 which criminalizes the “fraudulent evasion” of duty or a prohibition. See Section 52, paragraph 289 of
the Commissioners for Revenue and Customs Act 2005.
175
See e.g. R v Klann & Ors [1999] EWCA Crim 1970 and Hansford v R [2006] EWCA Crim 1225
176
See e.g. Hansford v R [2006] EWCA Crim 1225
177
See e.g. Hansford v R [2006] EWCA Crim 1225
178
See e.g. R v Sauer and Rhodes 2003 BCPC 541
179
In this regard the report of the ‘Cameron Commission’ provides for interesting reading. The Commission was
tasked with the investigation of the circumstances surrounding the unlawful transfer of South African military
hardware to the middle-east prior to 1994. The Commission found that a number of senior Armscor officials
420 CUSTOMS FRAUD

A knowledge and understanding of how criminal groups are structured and operate is not of
little importance for the investigator. The skill, sophistication, control, and discipline of a
criminal syndicate and their skill at maintaining high levels of operational security directly
impacts on the likelihood of detection, the accuracy and quality of information gathering, and
the successful gathering of evidence. The offender's success at denying investigators and
prosecutors that body of evidence proving his complicity or even better still not implicating
him in the commission of the crime, can greatly mitigate the risks of detection, investigation
and prosecution. Every countermeasure taken may potentially mirror one less opportunity of
apprehension in the act, or potentially less information or evidence for the investigation team.
The profile of the offenders and the nature of the criminal operations they engage in obviously
also dictates the nature of investigations and the resources required for investigation.

Most of the criminal groups engaged in smuggling, VAT scams and the like, are very much
amateurs who noticed a perceived opportunity, tried it, and then increasingly grow more
ambitious as their success, confidence and experience grow. Many will get away with it for
years, but not so much as a result of their own skill as just a lack of effective
interdiction. Some of these groups may however prove highly professional. The use of the
same techniques, procedures and countermeasures as used by terror groups, intelligence
agents, and undercover operatives in their day-to-day tradecraft, is just as commonly
employed by more sophisticated criminal groups in evading compromise or neutralization.
Both terror groups and intelligence organizations contracting criminals, or financing
operations with criminal activity is not uncommon, and people from those organizations
drifting into crime is not uncommon either. The skills are fully transferable. The use of cell
structures and the separation of activities into parallel operations so as to mitigate the
consequences of penetration or compromise are common. Every activity undertaken may be
accompanied with appropriate counter-measures to ensure operational security. This may
typically, depending on the nature of the operations they engage in, include basic tradecraft
such as but not limited to the use of safe-houses, encryption, letter-drops, cover identities,
contingency plans for escape, reconnaissance, early warning groups, deception and decoys,
trial-runs, changing of patterns and routines, surveillance and counter-surveillance,
disinformation, maintaining communication security, the sweeping of evidence, working on a
need-to-know basis, and identifying and promptly responding to threats. Some criminal
groups do not shy away from using all means, fair and fowl, to get what they want or to
neutralize any perceived threats. In some instances they may also attempt to develop and
recruit from amongst those with access to identified targets. Those targets may be within
Customs, the police, revenue officers, prosecuting authorities, corporations or businesses they
wish to exploit, investigation teams, juries etc. They may exploit family or friends close to the
target, nurture corrupt relationships, bribe, blackmail, or threaten with violence. For the
investigator this obviously implies an awareness of the risk of security breaches, subversion
and leaks.

Generally speaking, once a criminal operation is detected or penetrated, it is faced with

possible neutralization. The continued viability of a criminal operation thus relies on it
remaining hidden or clandestine (discounting that is the situation so often encountered in

conspired with a loose network of arms-dealers to export South African arms and munitions to Yemen and
Jordan. The Commission’s report provides an extensive account of what amounts to the smuggling of controlled
equipment to third countries made possible by what Cameron J referred to as a “fraud on the public
administration”. See Cameron Comssion, Commission of Inquiry into alleged arms transactions between
Armscor and one Eli Wazan and Other related matters (Appointed on 14 October 1994 in terms of Government
Notice R1801)
421 CUSTOMS FRAUD

many failed or failing States where criminal groups may well operate in the open with varying
degrees of carte blanche). With those criminal groups functioning at a higher level, the
organisers, usually the more sophisticated offenders, will often organize themselves and
operate in such a way as to offer them some degree of anonymity or deniability in the event of
detection. There will often be a healthy distance between the soldiers and the organizers.

Freight forwarders, customs brokers, and shed operators

If there is one cluster of offenders that is particularly problematic, then it is crooked freight
forwarders, customs brokers, and shed operators. As is the case with taxation, it is often the
professional advisors whom promote, commit, or assist with many of the frauds. Most freight
forwarders, customs brokers, and transit shed operators are generally honest, but there will
always be a small minority who do not shy away from assisting their clients with fraud, or
themselves setting up and running a fraud or smuggling operation. This is supported by the
countless reported cases where the offenders, or at least some of the willing participants, were
freight forwarders, customs brokers, and shed operators. Where there is that level of
criminality and dishonesty, there is also a high probability of dishonesty on other matters, and
not necessarily limited to matters of customs and/or taxation. This is a serious problem and
risk, not only for customs, but also for the logistics industry at large, the country, the
population at large, international travellers, and for foreign jurisdictions. Let us just for a
moment consider the example of a freight forwarder operating an off-port remote transit shed.
In modern times on-port and off-port transit sheds, and their smooth operation, have grown
absolutely critical to the operation of international trade and our modern supply systems, for
both imports and exports. Compliance with customs and security regimes at those sheds is of
particular importance and breaches of those regimes are off particular concern. Now assume
that freight forwarder is a known consignor authorised to scan and 'make known' export
freight. If that agent flaunts security procedures relating to uncleared freight in his bonded
warehouse, how can there be confidence in him ensuring the security of SPX cargo ? If that
agent is prepared to release freight to an impatient customer even though not yet customs
cleared, how can there be confidence in his 'known cargo' export security declarations being
truthful ? (to the effect that the freight covered by that declaration was in fact inspected and
scanned). The reality is that many an international traveller board aircraft every day where
some of the freight in the cargo hold may not have been properly inspected. There are agents
who flaunt those security measures. If a freight forwarder does not shy away from using his
trucks to smuggle cigarettes into a customs territory, will he decline an offer to smuggle in a
load of illegal migrants ? A freight forwarder, customs broker, or transit shed operator whom
knowingly cuts corners in one area will often do the same in relation to other areas. The
relationship between freight forwarders, customs brokers, and shed operators on the one hand,
and Customs and other regulators on the other, is very much one based on trust. There is
however those who cannot be trusted and they pose a serious risk for all. Policing the
operations of this cluster of agents is critical and closing the doors of those with a history of
dishonesty should be a priority.

4.5.11 Impact
The failure to effectively control the importation and exportation of goods into a country,
places at risk not only that nation's trade, industry, and economy, but also the general welfare
of the population at large. The negative impact of large-scale smuggling, a growing
underground economy, poor border control, and rampant customs abuse and evasion, is well
documented. It is especially in those jurisdictions where capacity is severely compromised
where that impact is most noticeable. One just need have a look at the state of affairs in many
of the world's failed states. In those jurisdictions, the markets are often overflowing with
weapons, narcotics, uncustomed goods, and counterfeit and grey products, crime is often a
way of life and all pervasive, corruption is rife, precious natural resources are often smuggled
422 CUSTOMS FRAUD

out of those countries for nothing in return, foreign fishing trawlers often ravage their oceans,
and the local industries often struggle to compete as cheap products are dumped on the local
market. Reversing such a state of affairs will usually also prove a difficult and long process.
The more limited national capacity, the more acute and serious these problems tend to be, and
the more pervasive and deep-seated these problems are the more difficult the challenge of
rebuilding national capacity and turning things around. Estimating the true extent and impact
of customs fraud on states is difficult. That it is significant is clear from the many media
reports and research papers published on a daily basis.180 The following discussion will offer
a brief overview of a number of the negative consequences generally associated with customs
fraud, all of which may not necessarily have a tax impact.

4.5.11.1 Growth in the underground economy

Smuggled goods enter home consumption with the regulatory radar blind as to its existence.
Smuggling contributes significantly to the growth in a parallel underground economy which
goes uncontrolled, untaxed, and cannot be accurately measured. If left unchecked, the illicit
trade can grow beyond the point of being a mere ‘hidden economy’ and can fully integrate
itself into the economies of states. There was a time, almost two centuries ago, when
smuggling was an integral part of the economies of large areas of Southern England.
Smuggling gangs flourished and the trade in illicit goods grew acceptable amongst the
populace.181 It was only after the reinforcement of British customs with 7000 soldiers, violent
suppression, and the imposition of what can at best be described as grossly draconian
penalties, that the smuggling gangs were broken.182 China has for a very long time also
experienced the stranglehold of smuggling in certain parts of that country. The economies of
some of its Southern provinces eventually grew heavily reliant on the illicit trade. The extent
of that illicit trade only became evident following hard-handed action by the Chinese
authorities. In certain areas, the state’s crack-down practically wiped out local economies.183
Targeting smuggling is thus not just about attacking the illicit trade, but just as much about
protecting the legal trade.

4.5.11.2 Loss of revenue

Customs frauds are often viewed as frauds only impacting on import VAT and customs and
excise duties. This however is only partly true. Apart from the initial duties and taxes evaded,
we must remember that the illicit goods will usually remain in the underground economy
where it will be traded on without any of the taxes due on the subsequent supplies being
accounted for.184 The duties and taxes evaded by those who engage in this type of activity and

180
For a few examples see e.g. the Daily Mail, May 11 2006, “Import scam pushes VAT fraud to ₤22bn” at 68
where it was reported that one seventh (one pound in seven) of all imports into Europe was estimated to be due
to fraud. See e.g. The New York Times, “China’s Fierce War on Smuggling Uproots a Vast Hidden Economy”,
March 6, 2000. Also see the Business Report, September 07 2007, “Illegal cigarette sales are smoking hot”,
where a spokesman for the Tobacco Institute of South Africa was quoted as stating that illegal cigarettes
accounted for 20 percent of the local cigarette market and 11 percent of local cigarette consumption. See e.g.
Bowles, “Tax Policy, Tax Evasion and Corruption in Economies in Transition” (1999) in Feige & Ott (Ed)
Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 67-86
at 72 referring to a figure of 70 percent of all alcohol sales in Russia to be estimated as unrecorded sales. See e.g.
MacGaffey, The Real Economy of Zaire – The Contribution of Smuggling & Other Unofficial Activities to
National Wealth at 17-18 on the scale of smuggling in Zaire.
181
See Nicholls, Honest Thieves, The violent Heyday of English Smuggling
182
See Gillman, The Duty Men – The Inside Story of the Customs at 78-83.
183
See e.g. The New York Times, “China’s Fierce War on Smuggling Uproots a Vast Hidden Economy”, March
6, 2000
184
See e.g. R v Mann [1998] EWCA Crim 317 where the appellant participated in a smuggling operation. The
court observed that: “The amount of duty lost to Her Majesty’s Customs and Excise as a result of the conspiracy
was a figure between £374, 000 and £385,000. In addition, when the beer was resold there would have been a
423 CUSTOMS FRAUD

the tax losses suffered by the fiscus are thus multi-layered. The smuggled goods are generally
sold on without the trader recording the sales for accounting or tax purposes. The VAT is not
paid over to the Revenue and income tax is not paid on the profits from the sales. Those who
deal in the smuggled goods tend to keep the smuggled stock and the subsequent sales of their
books of account with no real prospect of the Revenue proving the income-generating activity
or estimating the loss. Collecting evidence for a prosecution will often require the
employment of more traditional investigative techniques in the form of intelligence collection,
marking and tracking, surveillance et cetera. Consider the following example: X smuggles a
pair of shoes into the country without paying the required import duties and taxes. As a result
the fiscus suffers a loss in import duty and VAT. As he pays much less for the item than
competitor Y down the street, he is able to sell it off to the customer at a lower price than that
offered by law abiding competitor Y, in the process drawing away competitor Y’s cliental.
Moreover X also charges VAT on the item which he fails to declare to the Revenue. The
income generated from the sale is not recorded or reported either, with no income tax being
paid on the profit from the sale. Competitor Y cannot compete on an equal footing with X and
may possibly have to close down, or may himself turn to the illicit trade in an attempt to
remain competitive. As a result the state not only suffers a loss in revenue but possibly also an
honest taxpayer.

4.5.11.3 Safety and Security

Customs administrations fulfil functions other than just accounting for duties and taxes. They
also play a crucial role in the interdiction of harmful goods and substances endangering the
public, and in the interdiction of goods and people posing a threat to the nation's security.
Poor standards of customs enforcement equates to less deterrence, less control, more
opportunity for criminal and terror groups, less intelligence, more security failures, and
greater costs for society further down the line.

4.5.11.3.1 Hazards to the public

The uncontrolled entry into home consumption of any weaponry, narcotics, or other
dangerous prohibited or restricted goods obviously poses serious risk for the public. Plant or
animal products unlawfully introduced into home consumption may typically pose a serious
risk to the consumer and agriculture, smuggled vehicles will often go unregistered and
uninsured, counterfeit medication and other consumer goods may contain dangerous
chemicals, and imported electronic goods may not satisfy even the most basic of safety
requirements. These are just but a few examples. Customs is the gatekeeper. The less efficient
enforcement and interdiction, the greater the volumes of dangerous goods released into
consumption. This translates into more dangerous counterfeit goods, more untested
medication, more narcotics, and more bio-hazards released inside the country, with all the
associated safety, social, environmental, and economic costs.

4.5.11.3.2 Security
Our modern world operates on the movement of: (a) people; (b) goods; (c) money; and (d)
communication. So does international crime and terrorism. Both criminal networks and terror

further loss of Value Added Tax, bringing the total loss to the revenue of £500,000 or thereabouts.” The court in
fact failed to recognize or make mention of the loss in income tax on the income accrued from the sales. The
ultimate advantage gained by those trading in smuggled goods will thus usually be considerably more than what
may at first meet the eye. The more profitable an operation is, the more likely the potential for expansion. It also
places criminal elements in a position where they gain an unfair advantage over law-abiding competitors. See the
Preamble to the Indian Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act 13 of 1976
which correctly states that: “..such persons have been augmenting such gains by violations of wealth-tax, income
tax or other laws or by other means and have thereby been increasing their resources for operating in a
clandestine manner”
424 CUSTOMS FRAUD

groups often rely heavily on the uncontrolled movement of goods and people over national
frontiers. Terror groups may require arms, ammunition, explosives and components that may
be impossible or too difficult to source domestically. Operatives may need be infiltrated into
the target-state. They often use fraudulent passports and documentation or stolen identities to
move around, to set up base, to organise themselves, and to live in the target state. They often
import, trade in, and supply contraband to finance their operations, and they often source what
they need from the criminal underworld.185 Terror groups and criminal groups will often also
have a symbiotic relationship or the one may well also be the other. They will often form
loose alliances and there will often be close cooperation. Terror groups are often involved in
crime to finance their operations and to equip themselves. Some criminal groups on the other
hand do not shy away from committing what are effectively acts of terror intended to
intimidate or eliminate competitors.

The mere presence in any given jurisdiction of criminal groups experienced in smuggling and
the mere existence of tried and tested smuggling routes, regardless the nature of the
commodities smuggled, pose a serious security threat. Smugglers do not necessarily limit
themselves to the smuggling of just one or the other category or class of goods. It is not
uncommon to find the same syndicate using the same smuggling route and modus operandi
for the smuggling of various classes of goods. The same smuggling route will often also be
used not only to evade the payment of duties, but also for the evasion of restrictions and
prohibitions. It is not uncommon to find that a route at one time set up or used for the
smuggling of one class or type of commodity, is subsequently used for the smuggling of a
different class or type of goods. A route initially set up for the smuggling of dutiable goods
may well subsequently be utilized for the smuggling of hard contraband such as arms or
narcotics. The neutralization of those individuals and groups setting up and operating the
routes is thus of critical importance.

From a purely policing perspective, limiting the freedom of movement of criminal and terror
groups and those who facilitate their operations, the denial of access to the funds, weaponry,
and material they require to conduct their operations, and good intelligence, have therefore
become critical. Effective control over national borders and the efficient interdiction of
contraband is therefore of critical importance from a policing and security perspective. In all
jurisdictions, customs administrations carry primary responsibility for ensuring the non-
entering of contraband. In most jurisdictions they also share responsibility for preventing the
illegal cross-border movement of persons. Customs administrations and immigration agencies
are the primary gatekeepers when it comes to the international movement of goods and people
over national frontiers and as such are the best placed in terms of screening, interdiction, and
information gathering. The weaker the customs and border controls, the lower the levels of
interdiction of high-risk individuals and contraband, and the greater the ease with which terror
groups can infiltrate and exfiltrate operatives, organize themselves, finance their operations,
and equip themselves. The less control there is over national borders, the less also the
information gathered and the less complete the intelligence picture.

185
ISIS (DAESH), arguably the wealthiest and most powerful terror group to date, financed its operations
through various income and supply streams. Much of this was generated through donations, robbery, theft, and
the trade and smuggling of and in natural resources, artefacts, narcotics, people and other goods. See e.g. FATF.
(2015) Financing of the terrorist organisation Islamic State in Iraq and the Levant (ISIL); The Guardian. June
16 2014. "The terrifying rise of Isis: $2bn in loot, online killings and an army on the run"; The Guardian. July 3
2015. "Looted in Syria - and sold in London: the British antiques shops dealing in artefacts smuggled by Isis";
Financial Times. June 28, 2015. "How antiques are funding terrorism".
425 CUSTOMS FRAUD

4.5.11.4 Undermines the effectiveness of other regulatory frameworks

In all jurisdictions are to be found many different statutes and regulatory frameworks dealing
with and regulating a diverse range of matters such as but not limited to: banking;
manufacturing; mining and strategic resources; healthcare; agriculture; safety standards; anti-
money laundering control; firearms licensing; intellectual property rights; endangered species;
and immigration to list but a few. The effective policing of those statutes, and effectively
protecting those interests Parliament intended to be protected, will often wholly or partly rely
on effective customs enforcement. Just consider something like money laundering control. In
most developed nations are now to be found money laundering reporting frameworks
intended to identify and counteract the laundering and movement of the proceeds of crime. In
many jurisdictions are also still to be found strict exchange control regulations. Both money
laundering and the flouting of exchange control often require a plausible cover for the
movement of goods or funds. Property may be moved around not only through the banking
and financial systems, but can also be moved around in the form of goods, cash, or other
forms of tender. Bartering for example feature prominently in underground economies, and
also proves popular with criminal groups. It has long been a handy tool in the hands of the
money launderer, tax evader and those engaged in the dealing with contraband. As the hold on
financial systems is steadily being tightened, the use of bartering may become a more
attractive option for certain segments of the criminal underworld. Customs frauds can be
effectively used as a cover and means to evade control-measures. Fraudulent transactions
within the context of international trade have in fact long been used as cover for the
facilitation of money laundering. It is wishful thinking to believe that the proceeds of crime
can be successfully identified and interdicted where the financial systems and reporting
mechanisms are rigorously enforced but with the borders being left open and/or where the
integrity of international transactions are not being verified. This is just one example. No
matter how effective any State's internal counter-narcotics strategy may be, if the country is
being flooded with cheap narcotics due to lacking boder-controls, then the streets will be
flooded with cheap drugs. No matter how strict and effective any State's regulating bodies
overseeing the safety of things like medication, chemicals, electronics, or other consumer
goods, if the country is being flooded with dangerous imports, then those goods will end up in
every household.

4.5.11.5 Undermines fair competition and trade

Customs fulfils an important function in the administration of protective control-measures
aimed at the protection of the local trade. The failure to enforce the customs legislation and
high levels of fraud can have a severe impact on fair competition and ultimately honest traders
and manufacturers who do comply with the law. The trade in uncustomed goods negatively
impacts on the economy and the survival of local industries. Smuggled goods are sold on the
local market at lower prices than that of local manufacturers and traders. The local industry
thus finds it increasingly difficult to compete. Compliant traders may themselves cease to be
compliant in an attempt to remain competitive, may themselves start to trade in smuggled
goods, or may stop trading in the products concerned.186 Where only A and B have been
appointed as distributors of a certain product, but X smuggles the same product or
counterfeits thereof into the country, he/she automatically deprives the legitimate distributors
from their market-share. Honest traders furthermore also suffer what has been referred to as a
‘double penalty for compliance’, in that they, unlike the unscrupulous trader, must not only

186
See Minutes of evidence taken before the Treasury Subcommittee, Session 1998-99, Wednesday 3 November
1999 (Treasury, House of Commons, United Kingdom)
426 CUSTOMS FRAUD

pay the relevant duties and taxes, but also have to burden the financial costs associated with
compliance.187

4.5.11.6 Distortion of trade statistics

Measuring economic activity becomes increasingly difficult where an ever-growing part of
that activity goes unrecorded.188 Statistics on international trade is essential not only for the
State but also for the business community, potential investors, and international users such as
the Worldbank and the IMF. The accuracy of trade-balance figures rely on the accurate
recording of imports and exports. Both the under-valuation and over-valuation of imports and
exports can thus distort the true figures. This has the effect of distorting essential information
on which policy-makers rely in doing fiscal planning.189

4.5.11.7 Undermine fiscal policies and initiatives

Customs fraud also undermines state-driven policies and its intended objectives. Good
examples in point are the fraudulent abuse of preferential tariffs and the abuse of rebate
incentives. Many of these incentives are implemented in an attempt to stimulate industry
within certain states and/or customs unions, to stimulate trade between certain states, or as
measures to achieve certain social policies. An example of the latter is the impact of
smuggling on tobacco-control initiatives. Governments increasingly use high taxes as a
measure to discourage activities such as smoking and drinking. Recent years has seen
considerable pressure from anti-smoking campaigners on governments to raise tobacco prices
and to clamp down on the smuggling of tobacco products.190

4.5.11.8 Erosion of international standing

The failure to clamp down on smugglers and other ‘trans-national’ criminals who use one
jurisdiction's territory as springboard for the commission of crime in the territory of another
State, or outward smuggling from the territory of one State into the territory of another state,
can have a serious erosive effect on relations between those respective States. Many States are
used as trans-shipment points for smuggled goods or are themselves targeted as destination
states for smuggled goods. In many instances the goods originate from unstable and/or failed
states. A perception that a given jurisdiction is being used as a safe haven for cross-border
crime can impact on the attractiveness of that jurisdiction for future or continued investment,
international aid, and the willingness of other States to trade with that jurisdiction.

4.6 The penal framework - Transplantation from England

Frauds on the customs have historically been punished by statute. The lineage of the customs
legislation of most English-speaking countries today can be traced back to its transplantation
from England. This heritage is still very much evident in many of the terms, definitions,
phrases, procedures and penal provisions provided for in the current legislation of her former
colonies. The penal provisions and penalties provided for in the British, American, Canadian,
Australian, South African and New Zealand legislation, in many ways still resemble some of

187
See e.g. McTiernan, Customs and Business in Africa: A Better Way Forward Together, July/August 2006 at
25.
188
See e.g. MacGaffey, The Real Economy of Zaire – The Contribution of Smuggling & Other Unofficial
Activities to National Wealth at 1-2
189
See e.g. The Guardian. August 16 2006. “Raids on VAT fraud gangs lead to 22 arrests across UK” where,
referring to VAT scams targeted against the British Revenue, it was inter alia reported: “The fraud is also
distorting Britain's trade figures, which are based on VAT returns. HMRC has estimated that 10 % of the
country's exports are related to carousel fraud. This has upset City economists and the Bank of England who say
it has muddied their attempts to understand what is going on in the economy.”
190
See Lymer & Oats, Taxation: Policy and Practice, 15th ed at 2-3 on the use of the tax system as a means to
influence taxpayer-behaviour.
427 CUSTOMS FRAUD

the offences and penalties provided for in the customs legislation of 18th and 19th century
England. Examples of these are those offences making punishable ‘smuggling’, the dealing in
and dealing with ‘uncustomed goods’, the carrying, harbouring and possession of
'uncustomed goods', obstructing customs officers, bribing of customs officers, and the
unlawful removal of seized goods from customs control.

English customs legislation has since the 1700’s provided for a wide range of statutory
offences criminalizing not only the clandestine landing or importation of goods, but also
criminalizing many acts preceding or following that clandestine importation.191 It has been a
longstanding practice to make punishable any conduct involving the landing, carrying,
removal, receiving, taking possession of, harbouring, dealing in, or dealing with any
uncustomed goods. The US Supreme Court in Keck v US192 offered the following
interpretation of the English legislature’s reasoning:

“…..the aim was to prevent smuggling, and that to accomplish this result every conceivable
act which might lead up to the smuggling of dutiable goods, - that is, their actual passage
through the lines of the custom house without paying the duty,-and every possible act which
could follow the unlawful landing, was legislated against, and each prohibited act made a
distinct and separate offense, entailing in some cases forfeiture of goods and in others
pecuniary penalties and criminal punishments, the forfeitures and punishments varying in
nature and extent according as it was deemed that the particular offense to which they were
applied was of minor or a heinous character (such as armed resistance to customs officers), or
was calculated to bring about the successful smuggling of the goods, and so defraud the
revenue, and cause injury to honest traders. Hence it is that, although the statute law of
England made it clear that smuggling was the clandestine landing of the goods within the
kingdom in violation of law, parliament sought to prevent its commission, not by the specific
punishment of smuggling, but by legislation aimed at all acts which could precede or follow
the consummation of the unlawful landing of the goods. In other words, the statutes establish
not only what was meant by smuggling, but, to use the language of Bacon, also make it certain
that provision against the 'end'-smuggling-was made by the enactment of numerous distinct
and separate offenses 'against the means of accomplishing it.”

The practice of legislating against and criminalizing each unlawful act in the ‘smuggling-
chain’ has become firmly entrenched in the customs legislation of most common law
countries. In theory, a criminal operation involving no more but a single unlawful
importation, may involve the commission of various different offences, often committed by
different individuals, committed before, during, and after the importations.

4.7 Statutory offences

4.7.1 ‘Serious’ and ‘less serious’ offences
The old imperial legislation were replete with provisions which referred to various breaches
of the customs laws as 'offences', even though the penal provisions that made punishable

191
See the US Supreme Court judgement of Keck v. U.S. 172 U.S 434 (1899) for a discussion on the historical
development of the smuggling offences in England.
192
172 U.S. 434 (1899) at 448-449. Also see the Australian case of The Queen v. Bull (1974) 131 CLR 203
where Stephen J inter alia said: “…the customs legislation of the Imperial Parliament has also from early times
designated as offences other acts preliminary to smuggling, thereby providing a legislative model for other
jurisdictions”. Also see the Australian case of The King and Another v Tuckett [1914] HCA 62 where the
defendant admitted guilt not only to the “intent to defraud”, but also to four offences alleging respectively
“smuggling”, “unlawfully conveying and having in possession smuggled goods”, “evading payment of duty”,
and “moving goods under the control of the Customs without authority”. Isaacs J correctly described the various
offences charged as “different legal phases of the same act”. The judge went on to describe the plaintiff’s actions
or conduct as “smuggling and evasion” “deliberately thought out” and as a fraud against the Revenue. Also see
the Australian case of CEO of Customs v Coulton [2005] NSWSC 869
428 CUSTOMS FRAUD

those breaches often imposed no more but administrative monetary penalties and forfeiture.
Many if not most of those penal provisions involved no criminal prosecution and did not
result in the consequences we normally associate with conviction on a criminal charge in a
criminal prosecution (i.e. conviction, the passing of a sentence upon conviction, and a
criminal record).193 Provisions providing for administrative penalties are still to be found in
every customs and excise statute out there today, administrative penalties after all being an
important tool in the government's armoury, but in most jurisdictions today, references to
'offences' tend to be reserved in referring to what we today recognise as criminal offences.
This discussion is not concerned with those 'administrative offences' but only with those penal
provisions that we today will view as criminal offences prosecuted under criminal process.

In common with that of most jurisdictions, the customs legislation of the United States, the
United Kingdom, and Australia generally tend to provide for two broader categories of
statutory offences. The first is a wide cluster of offences considered to be of a less serious
nature, primarily intended to ensure general compliance. These are viewed as more
preventative in nature, primarily imposed to avoid recurrence of less serious breaches. The
second category is that cluster of offences making punishable deliberate contraventions
involving dishonesty or deliberate evasion. Of these, fraudulent declaration to customs and
the clandestine introduction of goods have historically been viewed as the most serious. Close
reading of the various customs statutes in force in England and the United States during the
19th and 20th centuries, consistently reflect a historic legislative distinction between the
general compliance contraventions on the one hand, and those involving fraud and evasion on
the other. This distinction is then also clearly evidenced by the differences in the penalties
provided for in those statutes.194

4.7.2 Offences provided for

In the UK, most customs-related offences are penalized under the Customs and Excise
Management Act 1979 and the Value Added Tax Act 1994. The Customs and Excise
Management Act 1979 provides for a wide range of offences intended to enforce compliance
with administrative rules and procedures, to prevent interference or obstruction of revenue
functions, to prevent smuggling and fraud, to punish those who contravene or evade the law,
and to deter offending. The Act inter alia makes punishable:

(a) The failure to attend as a witness at an inquiry held by the Commissioners, the failure
to give evidence at such an inquiry, or the unlawful failure to produce at such an
enquiry certain documents which such a person may have in his / her possession or
control;195
(b) Falsely holding oneself out to be an officer;196
(c) Failure to surrender commission;197

193
See the English case of Customs & Excise v Anglo Overseas Ltd [2004] EWHC 2198 (Ch) where Justice
Lewison said: “To an English lawyer, the word “offence” connotes a criminal offence”.
194
See Keck v.U.S 172 U.S. 434 (1899) where the prosecution argued that the successful administration of the
US revenue laws required the application of the penalties for smuggling to all unlawful acts antecedent to the
unlawful introduction of the goods. The court then had the following to say on consideration of this argument (at
.457): “…this argument amounts only to the contention that by an act of judicial legislation the penalties for
smuggling should be made applicable to a vast number of unlawful acts not brought within the same by the
lawmaking power. And the result would be to control all acts done in violation of the revenue laws by a highly
penal criminal statute, although the law has classified them into many distinct offenses, according to their
gravity, and imposed different penalties in one case than in others.”
195
Section 12(3)
196
Section 13
197
Section 14
429 CUSTOMS FRAUD

(d) Obstruction and hindering Revenue officers;198

(e) Acts involving bribery or collusion;199
(f) Contravening or failing to comply with any condition or restriction attaching to an
approval by virtue of which a place is an approved wharf;200
(g) Contraventions in relation to the movement, landing, departure on, or unloading from
an aircraft;201
(h) Contraventions in relation to or the failure to comply with conditions or restrictions
relating to areas designated as examination stations;202
(i) Contravening conditions and restrictions imposed by the Commissioners in relation to
the movement of hovercraft and the carriage of goods by hovercraft;203
(j) Import, export or movement of goods by pipeline where not approved by the
Commissioners;204
(k) Contravening or failing to comply with any condition or restriction attaching to an
approval by virtue of which a place is a authorized as a transit shed;205
(l) Failure or refusal to provide accommodation or safe access to and egress from a ship
for boarding officers;206
(m) Contravening or failing to comply with any directions by the Commissioners as to the
manner in which and the conditions under which goods chargeable with any duty
which has not been paid, drawback goods, and to any other goods which have not
been cleared out of charge, may be moved within the limits of any port or customs and
excise airport or between any port or customs and excise airport and any other
place.207
(n) Contravenes or fails to comply with any regulation or requirement imposed relating to:
(i) the conditions and restrictions relating to the movement of imported goods between
the place of importation and a place approved by the Commissioners for the clearance
out of charge of such goods; (ii) the movement of goods between a free zone and a
place approved for the clearance out of charge of such goods, the movement of goods
between a place approved for the clearance out of charge of goods and a free zone, the
movement of goods between a free zone and another free zone; and
(iii) the movement of goods intended for export between a place approved for the
examination of such goods and the place of exportation; or the failure to comply with
the requirements relating to the documents required to be made or produced in relation
to those conditions and restrictions;208
(o) Carrying away of officers;209
(p) Not allowing the boarding and/or inspection of aerodromes, aircraft, or records kept in
relation thereto, or the failure to keep the required records;210
(q) Fail to adhere to instructions from an officer where issued in an attempt to prevent the
departure of an aircraft thought to be departing for a destination outside the UK from

198
Section 16
199
Section 15
200
Section 20(A)(2)
201
Section 21(6)
202
Section 22A(2)
203
Section 23(3)
204
Section 24
205
Section 25A(2)
206
Section 27(2)
207
Section 30(4)
208
Section 31(3)
209
Section 32(1)
210
Section 33(4)
430 CUSTOMS FRAUD

any place other than a customs and excise airport, or a customs and excise airport
before clearance is authorized;211
(r) The failure to make a report in such manner and form and containing such particulars
as the Commissioners may direct of every ship and aircraft arriving from any place
outside the UK and/or leaving for any place outside the UK;212
(s) Failure by the person in command of any ship which has on board any goods loaded in
any place outside the UK, to deliver to the proper officer a proper account in such
form as required of the goods on board, before those goods are unloaded, or the failure
by the person delivering such an account to answer all such questions relating to the
goods as may be put to him by the proper officer;213
(t) Failure by a person making entry of goods on their importation to comply with any
requirements in connection with that entry;214
(u) Failure to comply with regulations issued by the Commissioners relating to the
procedure to be followed by a ship arriving at a port or an aircraft arriving at a
customs and excise airport, and/or the failure to comply with regulations issued by the
Commissioners relating to the unloading, landing, movement and removal of goods on
their importation;215
(v) The unlawful unshipping, re-landing, landing, unloading or carrying of goods intended
for export to and discharge at a place outside the UK from a ship or aircraft without
the required authority to do so;216
(w) The failure to comply with conditions laid down by the Commissioners in relation to
loaded or retained export goods permitted by the Commissioners to be unloaded;217
(x) The opening of any container, or the cancellation, obliteration, or alteration of any
mark, letter or device on any such container or on any lot of goods in relation to
drawback goods, transit goods, or other goods chargeable with duty which has not
been paid, and where that goods are loaded or retained export goods or goods brought
to a customs and excise station for exportation by land;218
(y) The removal of or tampering with seals, locks or marks, or the removal of goods
before such a seal, lock or mark is lawfully removed;219
(z) Signalling to smugglers;220
(aa) Interfering with revenue vessels;221
(bb) Being armed with an offensive weapon whilst in possession of goods liable to
forfeiture under any provision of the Act relating to imported goods, prohibited goods,
or restricted goods;222
(cc) The unlawful mixing of dutiable goods;223
(dd) Obtains or does anything whereby there might be obtained by any person, any amount
by way of drawback, allowance, remission or repayment of, or any rebate from, any

211
Section 34
212
Section 35(5)
213
Section 36
214
Section 41
215
Section 42(2)
216
Section 67(1)
217
Section 67(3)
218
Section 67(4)
219
Section 83
220
Section 84
221
Section 85
222
Section 86
223
Section 129(3)
431 CUSTOMS FRAUD

duty in respect of any goods which is not lawfully payable or allowable in respect
thereof, or is greater than the amount so payable or allowable;224
(ee) Makes or signs, or causes to be made or signed, or delivers or causes to be delivered to
the Commissioners or an officer, any declaration, notice, certificate or other document
which is untrue in a material particular;225
(ff) Makes any statement in answer to any question put to him by an officer which he is
required to answer and which is untrue in a material particular;226
(gg) Knowingly or recklessly makes or signs, or causes to be made or signed, or delivers or
causes to be delivered to the Commissioners or an officer, any declaration, notice,
certificate or other document which is untrue;227
(hh) Knowingly and recklessly makes any statement in answer to any question put to him
by an officer which he is required to answer and which is untrue;228
(ii) Counterfeits or falsifies any document which is required by or under any enactment
relating to an assigned matter or which is used in the transaction of any business
relating to an assigned matter;229
230
(jj) Knowingly accepting, receiving or using a counterfeited or falsified document;
231
(kk) Altering of documents after its official issue;
(ll) Counterfeits any seal, signature, initials or other mark of or used by any officer for the
verification of documents or for the security of goods or for any other purpose relating
to an assigned matter;232
233
(mm)Use or permit to be used any scales which are false or unjust;
(nn) Preventing, hindering or deceived revenue officers so as to prevent them from taking a
true and just account in taking measurements;234

Fraud, evasion and other dishonesty offences

The Customs and Excise Management Act 1979 also provides for a wide range of fraud or
evasion and other dishonesty offences. The following examples will suffice:

(a) With intent to defraud Her Majesty of any duty unships or lands in any port or unloads
from any aircraft in the United Kingdom or from any vehicle in Northern Ireland any
goods or assists or is otherwise concerned in such unshipping, landing or unloading of
any goods chargeable with a duty which has not been paid;235
(b) With intent to defraud Her Majesty of any duty removes from their place of
importation or from any approved wharf, examination station, transit shed or customs
and excise warehouse, or assists, or is otherwise concerned in such removal of any
goods chargeable with a duty which has not been paid;236
(c) With intent to evade any prohibition or restriction unships or lands in any port or
unloads from any aircraft in the United Kingdom or from any vehicle in Northern
Ireland or assists or is otherwise concerned in such unshipping, landing or unloading

224
Section 136(1A)
225
Section 167(3)(a)
226
Section 167(3)(b)
227
Section 167(1)(a)
228
Section 167(1)(b)
229
Section 168(1)(a)
230
Section 168(1)(b)
231
Section 168(1)(c)
232
Section 168(1)(d)
233
Section 169(1)
234
Section 169(2)
235
Section 50(2)(a) read with section 50(1)(a)
236
Section 50(2)(b) read with section 50(1)(a)
432 CUSTOMS FRAUD

any goods the importation, landing or unloading of which is for the time being
prohibited or restricted;237
(d) With intent to evade any prohibition or restriction removes from their place of
importation or from any approved wharf, examination station, transit shed or customs
and excise station or assists or is otherwise concerned in such removal any goods the
importation, landing or unloading of which is for the time being prohibited or
restricted;238
(e) Imports or is concerned in importing any goods contrary to any prohibition or
restriction whether or not the goods are unloaded, and does so with the intent to evade
the prohibition or restriction;239
(f) With fraudulent intent being concerned in the loading of an aircraft where the aircraft
is required to obtain clearance before application for clearance has been made;240
(g) Knowingly concerned in the exportation or shipment as stores or attempted
exportation or shipment as stores of any goods the exportation or shipment of which is
contrary to a prohibition or restriction, and where so concerned with the intent to
evade that prohibition or restriction;241
(h) Knowingly concerned in the fraudulent evasion or attempt at evasion of any
agricultural levy chargeable on the export of goods;242
(i) Taking, removing, loading, or concealing goods as contemplated under section 100(2)
with the intent to defraud her majesty of any duty chargeable thereon or to evade any
prohibition or restriction in relation to those goods;243
(j) With intent to defraud Her Majesty, obtains or attempts to obtain, or does anything
whereby there might be obtained by any person, any amount by way of drawback,
allowance, remission or repayment of, or any rebate from, any duty in respect of any
goods which is not lawfully payable or allowable in respect thereof, or is greater than
the amount so payable or allowable;244
(k) Removes goods from customs and excise charge before same could be examined and
where the goods were removed with the intent to defraud her Majesty out of any duty
thereon or with the intent to evade any prohibition or restriction thereon;245
(l) Knowingly acquires possession of goods which have been unlawfully removed from a
warehouse or Queen’s warehouse and does so with intent to defraud Her Majesty of
any duty payable on the goods;246
(m) Knowingly acquires possession of goods which are chargeable with a duty which has
not been paid and does so with intent to defraud Her Majesty of any duty payable on
the goods;247
(n) Knowingly acquires possession of goods with respect to the importation or exportation
of which any prohibition or restriction is in force and does so with intent to evade any
such prohibition or restriction;248
(o) Is in any way knowingly concerned in carrying, removing, depositing, harbouring,
keeping or concealing or in any manner dealing with goods in relation to which duty

237
Section 50(2)(a) read with section 50(1)(b)
238
Section 50(2)(b) read with section 50(1)(b)
239
Section 50(3)
240
Section 64(7)
241
Section 68(2)
242
Section 68A(1)
243
Section 100(3)
244
Section 136(1)
245
Section 159(5)
246
Section 170(1)(a)(i)
247
Section 170(1)(a)(ii)
248
Section 170(1)(a)(iii)
433 CUSTOMS FRAUD

has not been paid, or in relation to which a prohibition or restriction is in force and
where he does so with the intent to defraud Her Majesty of any duty payable on the
goods or with the intent to evade any such prohibition or restriction;249
(p) Is in relation to any goods, in any way knowingly concerned in any fraudulent evasion
or attempt at evasion of any duty chargeable on the goods;250
(q) Is in relation to any goods, in any way knowingly concerned in any fraudulent evasion
or attempt at evasion of any prohibition or restriction for the time being in force with
respect to the goods under or by virtue of any enactment;251
(r) Is in relation to any goods, in any way knowingly concerned in any fraudulent evasion
or attempt at evasion of any provision of the Customs and Excise Acts 1979 applicable
to the goods;252
(s) Knowingly concerned in the taking of any steps with a view to the fraudulent evasion,
whether by himself or another, of any duty of excise on any goods;253

The offences just listed are all in essence dishonesty offences and crimes of intent. Some of
these offences find frequent application whereas others are seldom charged. As many criminal
operations involve the same offenders committing many different unlawful acts at different
times, often involving the commission of many different types of crimes, some of these
offences may quite well be charged in the alternative, or may be charged as additional or
alternative charges to other offences that may not be customs specific e.g. fraud or theft.

4.8 Fraudulent conduct

Offences targeted against customs frauds vary from jurisdiction to jurisdiction. Those
offences may differ in framing and they may not always share the same elements. What they
all do share is they are targeted against what is nothing less but fraudulent evasion. The
conduct element we will find will always involve some or other form of misrepresentation,
false representation, a failure to disclose, or a wilful circumvention. What we will also find is
that those offences are consistently targeted against the offender who acts wilfully,
intentionally, with a guilty mind.

4.8.1 Misrepresentation
All smugglers have in common the intent to evade some or other prohibition, restriction or
taxing provision. Most of them do however also attempt to do so without detection. Evading
detection does however rely on successful deception. The misrepresentations employed may
typically be intended to prevent the detection of and/or to mislead the Revenue as to the fact
of import, export, possession, release, or manufacture of the goods, or to mislead the Revenue
as to the nature, value or origin of the goods in question. Those misrepresentations may relate
to duties or taxes, regulatory control measures, or both.254 They may be made before, during
or after the importation, manufacture, or exportation of the goods in question.

249
Section 170(1)(b)
250
Section 170(2)(a)
251
Section 170(2)(b)
252
Section 170(2)(c)
253
Section 170B(1)
254
Consider the following example: Importer X is an importer of fruit and vegetables. The release into home
consumption of a particular consignment of fruit imported by X is subject to the goods being covered by a valid
phytosanitary certificate covering the whole consignment, and same being present at the time of entry. Upon
arrival of the goods but before entry, X discovers that no phytosanitary certificate accompanied the consignment.
Knowing that a release cannot be effected absent the certificate, and which he may only be able to get after a
delay the result of which may be the cargo going to ruin, X convinces his clearing agent to release the cargo.
Assuming the clearing agent does make entry, but falsely states a phytosanitary certificate to be present, then the
release will be effected with a fraudulent entry. Although the duties and VAT will be paid, a regulatory control-
434 CUSTOMS FRAUD

It is not uncommon to find that the offender planned, implemented and executed a customs
fraud over a long period of time, often layering one set of false representations on top of
another in the furtherance of the same fraudulent scheme. The implementation and execution
of the same fraudulent movement or transaction may well entail the making of multiple
fraudulent representations by numerous parties, and at various stages of that particular
movement or transaction, to various other parties such as customs officers and/or other
regulators, aviation authorities, shed operators, freight agents, banks, and employers to list but
a few.

Fraudulent misrepresentation may manifest itself either in the form of a commissio or

ommissio. There is no limit to the number of tricks or devices employed to deceive the
Revenue. These may range from, but is in no way limited to: (a) the making of false
statements; (b) the providing of false samples; (c) applying false markings or stamps or the
failure to apply same;255 (d) the manipulation of equipment; (e) concealment; (f) the
presentation of false documentation; (g) falsification and counterfeiting; or (h) the simulation
of movements or transactions. A representation cannot be proven to be false absent proof of:
(a) the representations that were in fact made; and (b) what the true position was. The test in
assessing the falsity or otherwise of such a representation is an objective one.

4.8.2 Fraudulent intent

It has in the past been said, and correctly so, that the unlawful and intentional prevention of
something “getting into the revenue which the revenue is entitled to get” will amount to the
intent to defraud.256 The unlawful evasion of duties, prohibitions or restrictions has always
been viewed as species of fraud. Smugglers, regardless the nature of the smuggling, smuggle
the goods concerned with the knowledge that they have no legal right to deal with the goods
in the manner it is being dealt with. The state of mind required to be present in relation to the
manner in which the goods is being dealt with can be described as nothing less but dishonest.
References to ‘fraud’, ‘fraudulent’, ‘defraud’, ‘evade’, ‘dishonest’ and ‘evasion’ can be found
in most dictionary and statutory definitions of ‘smuggling’. Similar references also abound in
local and international case-law where 'smuggling' or the unlawful evasion of duty,
prohibitions, or restrictions were considered.257 What is required is subjective knowledge of
the operation being an unlawful operation which may have as consequence the government
being defrauded or which may have as consequence the evasion of a prohibition or restriction.

measure is being evaded. Assuming the consignment is being released from the agent’s customs warehouse
without making entry, with the agent and importer X fraudulently concealing the true fate of the consignment,
then both the taxes and the regulatory control measure will be evaded.
255
See e.g. Customs and Excise v Arena Corporation Ltd [2003] EWHC 3032 (Ch)
256
See the Australian case of R v Australasian Films Ltd (1921) 29 CLR 195 at 218. Subsequently also followed
by the Australian Court of Criminal Appeal in Barendse v Comptroller-General of Customs (1996) 93 ACR 212
257
See the Australian case of Barendse v Comptroller-General of Customs 93 ACR 212 where the Court of
Criminal Appeal, in considering charges of smuggling, at 231 inter alia said: “The meaning of `defraud' was
explained in re London and Globe Finance Corp as follows: `To deceive is, I apprehend, to induce a man to
believe that a thing is true which is false, and which the person practising the deceit knows or believes to be
false. To defraud is to deprive by deceit; it is by deceit to induce a man to act to his injury. More tersely, it may
be put, that to deceive is by falsehood to induce a state of mind; to defraud is by deceit to induce a course of
action’ ... It is essential to the concept of smuggling that the revenue is entitled to something. It is also essential
that it be proved that there was an intention to deprive the revenue of that to which it was entitled. That
`something' quite simply, is the duty payable on goods imported into the country, which, in turn is assessed on
the customs value of the goods.”
435 CUSTOMS FRAUD

There must be subjective knowledge of involvement in what the offender subjectively

appreciates to be a fraudulent evasion.258

Goods cannot be ‘smuggled’ unknowingly, accidentally, or honestly. A duty, tax, prohibition,

or restriction, can likewise not be evaded unknowingly, accidentally, or honestly. An offence
which criminalizes a mere failure, error, or merely negligent conduct, cannot be said to
amount to ‘smuggling’, ‘evasion’ or fraud. The mens rea requirement serves a critical
function in that it limits the application of 'fraud', 'evasion' and 'smuggling' offences to those
who defraud and evade, to fraudsters and tax evaders. It is after all often only the fraudulent
intent of the offender which sets his conduct apart from that of those who acted in good faith,
negligently or in mere error. Consider the example of warehouse operator X who knowingly
warehouse smuggled goods on behalf of smuggling gang Z, versus that of warehouse operator
Y who also warehouse the same class of smuggled goods for the same gang of smugglers but
with Y lacking any knowledge of or even suspicion of his clients being part of a criminal
group or of the goods in question being smuggled goods. As far as their conduct is concerned,
the warehousing of smuggled goods, no practical distinction can be drawn. What sets them
apart from one another is their subjective knowledge and intent. One can safely assume that
many a warehouse operator out there have in the past unknowingly warehoused illicit goods.
Similarly many a pilot or truck driver would have unknowingly flown or transported illicit
goods. Fraudsters or smugglers they are not as criminal intent they lacked.

The mere breach of a policy, procedure or provision does not amount to wilful unlawful
conduct.259 A person may unknowingly contravene a prohibition or may unknowingly fail to
comply with a duty.260 The fact that information reflected on a document and as furnished to
Customs is incorrect, or the fact that a governmental control-measure was not complied with,
does not in itself imply fraud. Neither does the mere fact that a taxpayer underpaid duties or
taxes.261 The unlawful act or failure must be accompanied with the required intent. Fraud,
evasion, smuggling, and any attempt or conspiracy to commit any such offence will always be
accompanied with knowledge of unlawfulness and wilfulness. In all these instances, the
prosecution will carry the burden of proving beyond reasonable doubt that the required intent
was present as at the time when the unlawful act was committed, as at the time when the
attempt was made, or as at the time when the conspiracy was entered into. With 'fraud',
'evasion', and 'smuggling' offences where proof of knowledge of unlawfulness is a
prerequisite in proving 'fraudulent intent', the 'intent to defraud' or 'dishonesty', a finding that a
defendant acted as a result of honest error, or in ignorance of the facts, or in ignorance of the
law, can have no other outcome but an acquittal.

All the participants in a fraud or unlawful evasion will not necessarily always be familiar with
the precise mechanics of, or all the intricacies of the fraudulent scheme or evasion, but this
will not exclude criminal liability. Knowingly participating in or assisting with the unlawful

258
See the English decision of R v Taaffe [1984] AC 539, where the court accepted that for purposes of a
conviction on an offence of fraudulent evasion of a prohibition in contravention of section 170 (2) of the
Customs Management Act 1979, the defendant had to be judged on the facts as he believed them to be. The
defendant's subjective believe was considered critical in judging whether he was knowingly concerned in a
fraudulent evasion of a prohibition on importation. Also see Keck v. US 172 U.S. 434 (1899); R v Smith [2001]
UKHL 68
259
See the Australian case of Wilson v Chambers and Co Pty Ltd (1926) 38 CLR 131.
260
See e.g. Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC 537
261
See e.g. Wilson v Chambers and Co Pty Ltd (1926) 38 CLR 131 where Knox J at 136 inter alia remarked:
“The distinction in the meaning between the words ‘evade’ and ‘avoid’ is well established and a charge of
evading payment is not made out by evidence which proves no more than that the person charged failed or
omitted to pay an amount payable by him”.
436 CUSTOMS FRAUD

evasion, with the knowledge that the scheme is one intended as one to defraud or to evade, is
sufficient. It need not be proven that a defendant knew all the details, were familiar with all
the intricacies of the criminal operation, or were aware of the precise description of the goods
so being dealt with.262

4.9 Fraud regardless the nature of goods smuggled

As both dutiable and non-dutiable goods can be smuggled, the smuggling of many
commodities does not pose the risk of a revenue loss. All customs frauds will thus not be tax
frauds. Only in those instances where duties and taxes are evaded, can it be said that a tax
fraud was indeed committed. Smuggling will nevertheless be fraudulent conduct regardless
the nature of the goods so smuggled. No distinction can be drawn between the conduct of the
smuggler who smuggles a bag of heroin through the green channel of an airport, and the
smuggler who smuggles a bag of diamonds through the same channel. Distinctions between
the two are really limited to the harmful consequences. Both offenders will be making a
misrepresentation through their conduct and the failure to declare. They also share the
common objective of entering the goods without detection. The intent of the one may be to
evade duty, and that of the other to evade the prohibition, but both share the common intent to
fraudulently evade. Both rely on deception to avoid detection and evade control. Both the
heroin-mule and the diamond-smuggler smuggles the goods through the ‘customs-line’ with
the ultimate objective of getting his consignment through the ‘customs-line’ and into the
country. In both instances, there will be a fraudulent evasion.263

4.10 Selected Problem Areas

Contrary to the commonly held view, the customs environment is a considerably more
complex area of operations to police compared to the revenue environment. This is so for a
number of reasons. The Customs mandate is a hybrid one with Customs supporting the
enforcement of many different statutes, both revenue and non-revenue related. Customs
effectively acts as gatekeeper, directly and indirectly, for various different government
departments or functions. Enforcement operations cover from day-to-day revenue
administration and enforcement on the one side of the enforcement spectrum, to the
investigation of serious crime on the other side of that spectrum. Enforcement operations must
furthermore be geared to cover the full spectrum of criminality and the full spectrum of
criminal offenders. Offenders may range from the amateur petty cigarette smuggler to the

262
See e.g. the English case of R v Hussain [1969] 2 All ER 1117 where the appellant was convicted on charges
of being knowingly concerned in a fraudulent evasion of a prohibition against the importation of cannabis,
contrary to s 304(b) of the then Customs and Excise Act 1952. Widgery LJ at 1119 inter alia had the following
to say as to the mental element required: “It seems perfectly clear that the word “knowingly” in s 304 is
concerned with knowing that a fraudulent evasion of a prohibition in respect of goods is taking place. If,
therefore, the accused knows that what is on foot is the evasion of a prohibition against importation and he
knowingly takes part in that operation, it is sufficient to justify his conviction, even if he does not know precisely
what kind of goods are being imported. It is, of course, essential that he should know that the goods which are
being imported are goods subject to a prohibition. It is essential he should know the operation with which he is
concerning himself is an operation designed to evade that prohibition and evade it fraudulently. But it is not
necessary that he should know the precise category of the goods the importation of which has been prohibited.”
Also see the English cases of R v Hennessey (1978) 68 Cr App R 419, 423; R v Forbesi [2001] 4 All ER 97; R v
Shivpuri [1987] AC 1. This then is also the view held by the Australian and American courts.
263
See e.g. section 170 of the Customs and Excise Management Act 1979 which criminalises both the evasion of
duties and the illegal importation of prohibited narcotics as “fraudulent evasion”. See the English case of R v
Hussain [1969] 2 All ER 1117 where Widgery LJ at 1119 correctly remarked that: “... there is no reason to
suppose that the jury would associate the word “smugglers” solely with those who seek to evade customs duty.
We think that, in the ordinary use of language today, the verb “to smuggle” is used equally to apply to the
importation of goods which are prohibited in import and, indeed, one sees the word used quite often in regard to
illegal immigrants brought in secretly by night in small boats.” Also see R v Moubuike [1997] EWCA Crim 1767
437 CUSTOMS FRAUD

highly sophisticated gang of drug traffickers or arms dealers, and from the most basic of
frauds committed by the smallest of dishonest traders to highly complex corporate offending
involving technically complex financial crime, often planned, implemented, and executed in
depth by some of the most astute accountants, tax lawyers, and tax professionals out there.
Much of the offending is also of a trans-national nature. A detailed discussion of all the types
of offending one can expect to encounter, clearly falls outside the scope of this short
discussion. In the following discussion will however follow a brief overview of a number of
the most common frauds so often encountered by line customs personnel.

4.10.1 Fraudulent Customs Entry

4.10.1.1 General
Any exercise at ascertaining whether goods have been 'imported' or' exported' calls for a
careful interpretation of the laws governing customs as they were framed at the time of the
alleged importation or exportation.264 The same applies when considering: (a) liability to any
duty, levies, or taxes chargeable on such an import or export; (b) the existence and nature of
any restrictions or prohibitions on the import or export of the goods in question; and (c) the
legal duties and responsibilities that may rest on the importer or exporter of the goods.
Customs duty and import taxes have to be paid where it is payable. Importers and exporters
are required to make due entry of imported and exported goods. The person so entering the
goods is required to deliver a 'bill of entry' in the prescribed form setting forth full particulars
of the goods being entered, the purpose for which the goods are being entered, and to make
and subscribe to a declaration as to the correctness of the particulars shown on the bill of
entry. Black’s Law Dictionary265defines an ‘entry’ for customs purposes as: “In customs law,
the entry of imported goods at the customs house consists in submitting them to the inspection
of the revenue officers, together with a statement or description of the goods, and the original
invoices of the same, for the purpose of estimating the duties to be paid thereon.” The
procedures to be followed for the making of an ‘entry’ are prescribed in the Customs
legislation and the Tariff. Needless to say, the procedures for the making of such an ‘entry’
have not remained static over time. A good example in point is the introduction of electronic
filing (electronic submission of ‘bills of entry’).266 The reasons for and the principles behind
the making of an entry have nevertheless remained the same.

As is the case with a tax return, a materially incorrect bill of entry may have the effect of
misrepresenting the truth. A bill of entry may be misleading as a result of a non-disclosure of
information where the disclosure thereof was called for, or where that entry reflects
information that is factually incorrect. The information omitted or the incorrect information
provided, may relate to a wide range of facts or circumstances such as but not limited to: (i)
the invoice value;267 (ii) the customs procedure to be followed;268 (iii) the identities of
importers and exporters;269 (iv) movement or transportation of the goods; (v) the description

264
See the Australian case of The Queen v Bull (1974) 131 CLR 203 where Barwick CJ inter alia said: “The
question is not what constitutes importation in an abstract or universal sense: the question is when, according to
the provisions of the Act, are goods imported into Australia”. This holds equally true as to when goods are
considered to be 'exported'.
265
Black’s Law Dictionary, 6th ed at 533 under the definition of “entry”
266
In the European Union a standardised form (the C88) is used in all EU member states. Although goods may
still be entered in hard-copy/paper format, paper entries are now relegated to no more but a fall-back procedure
where the C88 cannot be submitted electronically (usually due to technical or system failures). Entries in the
European Union are primarily submitted electronically.
267
See e.g. Kaplan and Another v Rex 1909 TS 642
268
Generally known as the CPC code and as set out in the Tariff.
269
See e.g. National Director of Public Prosecutions v Naidoo and Another [2006] ZAGPHC 30 where the
defendants allegedly exported stolen platinum in another name fraudulently used for that purpose.
438 CUSTOMS FRAUD

or classification of the goods;270 (vi) any preferences that may be applicable in relation to the
goods; or (vii) the country of origin and/or country of destination,271 to list but a few
examples. The customs legislation of all jurisdictions makes punishable the making of false or
fraudulent entry.272 This is universal. Making and subscribing to a declaration in a bill of
entry, knowing the particulars therein to be incorrect, will make the declaration a false
declaration. A false declaration is a declaration which is factually untrue to the knowledge of
the person making the declaration.

We pointed out that the filing of customs declarations with Customs is increasingly moving
away from paper-based filing to electronic filing. The fact that a false declaration is filed
electronically does not make any difference as to the criminal liability of those who
knowingly file same.273 An unlawful and intentional misrepresentation of the true facts made
with the intent to evade the payment of duties or taxes, or made with the intent to evade some
or other restriction or prohibition will be fraudulent. The fraudulent bill of entry will often be
supported with false commercial and/or regulatory documentation such as but not limited to
invoices, bills of lading, CMR's, packing lists, import or export permits, conformity
certificates, preference certificates, and end-user certificates.274 The false information as
reflected in the bill of entry will then often also mirror that reflected in the false supporting
documentation. The false bill of entry may typically be intended to mislead the Revenue into
believing that duties are not payable, or that the amounts in duty payable is lower than what it
in fact is. In Britain, the Customs and Excise Management Act 1979, in common with the
customs legislation of most other jurisdictions, contain a wide range of provisions providing
for the seizure, detention and forfeiture of goods dealt with contrary to the legislation.275
Goods fraudulently declared to Customs will be subject to seizure and forfeiture.

Two of the most commonly employed methods of achieving an under-payment of duty are:
(a) the fraudulent valuation of goods; and (b) fraudulent classification. Fraudulent valuation
and classification can however also be used to achieve, or to assist in achieving, other
unlawful objectives. One will often find fraudulent valuation and/or classification to be
features of criminal operations involving: (i) the evasion of duty and tax; (ii) trade-based
money laundering / the shifting of the proceeds of crime; (iii) the circumvention of exchange

270
As per the classifications under the Tariff
271
See e.g. the Australian case of CEO Customs v CHS Enterprises Pty Ltd and 3 Ors [2007] NSWSC 1133
272
For examples of such offences see 18 U.S.C. 541 and 18 U.S.C. 542 (United States). Section 541 reads as
follows: "§ 541. Entry of goods falsely classified - Whoever knowingly effects any entry of goods, wares, or
merchandise, at less than the true weight or measure thereof, or upon a false classification as to quality or value,
or by the payment of less than the amount of duty legally due, shall be fined under this title or imprisoned not
more than two years, or both." 18 U.S.C. 542 reads as follows: "§ 542. Entry of goods by means of false
statements - Whoever enters or introduces, or attempts to enter or introduce, into the commerce of the United
States any imported merchandise by means of any fraudulent or false invoice, declaration, affidavit, letter, paper,
or by means of any false statement, written or verbal, or by means of any false or fraudulent practice or
appliance, or makes any false statement in any declaration without reasonable cause to believe the truth of such
statement, or procures the making of any such false statement as to any matter material thereto without
reasonable cause to believe the truth of such statement, whether or not the United States shall or may be deprived
of any lawful duties; or Whoever is guilty of any willful act or omission whereby the United States shall or may
be deprived of any lawful duties accruing upon merchandise embraced or referred to in such invoice, declaration,
affidavit, letter, paper, or statement, or affected by such act or omission - Shall be fined for each offense under
this title or imprisoned not more than two years, or both. Nothing in this section shall be construed to relieve
imported merchandise from forfeiture under other provisions of law…."
273
See the Canadian case of R v Sauer and Rhodes 2003 BCPC 541 where customs entries filed electronically
were held to constitute statements “made verbally or in writing”.
274
See e.g. Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC 537
275
See sections 49, 139, 140, 141 of the Customs and Excise Management Act 1979.
439 CUSTOMS FRAUD

control regulations; and (iv) the smuggling of controlled or illicit goods in or out of a customs
territory.

4.10.1.2 Fraudulent valuation

The downward manipulation of the value of goods, can directly impact on the amounts in
duty, levy, and VAT payable thereon.276 Considering the always present risk of inspection,
not only of the goods but also the import documentation, the importer will usually ensure the
documentation reflect the values he intends to declare. The false information as reflected on
the fraudulent customs entry will thus usually mirror equally false information reflected in the
fraudulent import documentation. The fraudulent valuation will usually be supported with
fraudulent invoices: (a) purporting to be the invoices of a genuine supplier (but where that
supplier does not in fact exist); or (b) that may be falsifications of true invoices issued by the
foreign supplier; or (c) genuinely issued by the foreign supplier but understated per agreement
between the importer and that supplier (that supplier or an agent of that supplier thus being an
accomplice). It is not at all uncommon for foreign suppliers to be participants in the fraud.
They will often be prepared to issue false invoices and supporting documentation.277 The
problems and dangers posed by fraudulent customs valuation have long been recognized. In
1988, The Customs Co-Operation Council in a set of recommendations concerning valuation
fraud inter alia noted that:278

(a) Fraud relating to the value declared to Customs for imported and exported goods is
prejudicial to the economic and fiscal interest of States and autonomous Customs
territories;
(b) False declaration of the value for Customs purposes could deprive States of a
significant part of their revenue;
(c) Customs valuation fraud is a matter of serious concern;
(d) False declarations of value for Customs purposes provide a means of circumventing
fiscal, financial and trade control measures regulated in any manner by value;
(e) Dealing with fraud relative to value should be a priority for Customs administrations
with particular reference to the prevention, detection and repression thereof; and
(f) Provision should be made for the exchange of information between the Customs
administrations of jurisdictions.

Where a fraudulent undervaluation is alleged, the burden is obviously on the prosecution to

prove: (a) the true value of the goods in question (the value that should have been declared);
(b) the value that was indeed declared; (c) that the value declared falsely understated the
correct value; and (d) that the declarant knowingly misstated the value. Where fraud is
alleged, the failure to prove, beyond reasonable doubt, the true value of the goods, the
declared value of the goods, and knowledge of the under-declaration, will leave a court with
no alternative but to acquit.279 This being said, it will not always be possible to prove the
precise value of the goods as at the time of the entry, and thus the precise extent of the under-

276
The VAT paid at importation will in most instances be reclaimable as input tax by the importer where that
importer is a VAT vendor. The fact that the importer is a VAT vendor will not however make a fraudulent
undervaluation any less fraudulent.
277
See e.g. R v Omar [2004] EWCA Crim 2320; L Vogel & Son Pty Ltd v Anderson [1967] HCA 46 (also cited
(1968) 120 CLR 157).
278
Customs Co-Operation Council, Recommendation of the Customs Co-Operation Council concerning action
against customs valuation fraud, June 22 1988, TE2-80221 V3-306 V15-2.
279
See e.g. the Canadian case of R v Sauer and Rhodes 2003 BCPC 541 (Provincial Court of British Columbia)
where the importers faced 35 charges of “falsely declaring the value of goods” imported from Korea to Canada.
All the charges were dismissed as the prosecution failed to prove beyond reasonable doubt an undervaluation
and thus that the values declared were false.
440 CUSTOMS FRAUD

valuation. This is not a requirement either. It will be sufficient for the prosecution to prove,
beyond reasonable doubt, that there was a material under-valuation. The fact that the true
extent of the under-valuation might have been greater than that actually proven will thus not
make flawed the prosecution. Proving an unlawful under-valuation, and even more so the
prerequisite knowledge, will often prove a difficult burden to meet. The valuation of goods
may in itself be a complex exercise. There may be straightforward cases where the fraudulent
under-valuation is evident from blatant and obvious misrepresentation and deceit, but in many
instances, especially where the exporter and importer colluded, proving such an unlawful
under-valuation may prove a near impossible task.

4.10.1.3 Fraudulent classification

The incorrect classification of goods is probably one of the most problematic areas for
Customs. Incorrect classification may be intentional and done with the intent to mislead, or
may be due to honest error. With fraudulent classification however there will always be
criminal intent. It will usually be intended to evade duty payable on the goods and/or to
circumvent some or other control measure. The false goods description may typically relate to
the material composition of the goods,280 manufacturing processes involved in its processing,
or the use of the particular commodity. It must be said that classification, as is the case with
valuation, can be a technical and complex process. The many reported judgments where the
correct classification of a particular commodity was in dispute testify to this. Classification in
essence involves a three-stage process:

(i) first, interpretation: ascertainment of the meaning of the words used in the
headings and relevant chapter notes which may be relevant to the classification of
the goods concerned;
(ii) second, consideration of the nature and characteristics of the goods concerned; and
(iii) third, the selection of the heading which is most appropriate to that particular class
of goods.

Legal interpretation in itself requires a certain level of skill and experience. Ascertaining the
precise physical nature and characteristics of a commodity may also prove technical, often
calling for the specialist expertise of experts in the fields of metallurgy, engineering, geology,
and the like. It is very possible for those tasked with the classification process, and this may
include experts and other specialists, to arrive at an incorrect classification despite reasonable
care and skill. In a fraud prosecution, the onus is on the prosecution to prove, beyond
reasonable doubt, that the tariff heading used was indeed ‘false’, as opposed to just factually
‘incorrect’. Proving a fraudulent misrepresentation in these instances calls for proof: (a) that
the goods had to be declared under a particular commodity code; (b) that the declarant used an
incorrect commodity code; (c) that the declarant knowingly declared the goods under that
incorrect commodity code; and (d) that the declarant so declared the goods under that
incorrect commodity code with the prerequisite mens rea.

280
See e.g. S v Friedman (1) 1996 (1) SACR 181 (W) where the defendant was convicted on charges of fraud in
that he had exported gold, silver and platinum to Europe while maintaining that they had been exporting scrap
silver and scrap gold. Also see L. Vogel & Son Pty. Ltd v Anderson supra where goods imported into Australia
was misrepresented as being entirely of cotton whereas in fact it consisted out of a mixture of cotton and
synthetic fibres. The goods were then entered for home consumption as cotton poplin and only paid the lower
duty appropriate to that kind of material. See National Director of Public Prosecutions v Naidoo and Another
[2006] ZAGPHC 30 where stolen platinum to the value of R69 919.90 was described as a copper sample worth
only R100.
441 CUSTOMS FRAUD

4.10.1.4 Misrepresentation as to origin

Where any particular consignment of goods will be considered to originate from, that is to say
the country of production or manufacture, depends on a given jurisdiction's rules of origin.
These may differ from jurisdiction to jurisdiction (depending on a jurisdiction’s legal
framework and any relevant treaties). There are a number of reasons why an importer may
want to mislead the Customs as to the true origin of goods. These may inter alia include: (a)
the securing of a preferential rate of duty where he is not legally entitled to same on that
particular class of goods manufactured or produced in the country in question;281 (b) the
evasion of payment of countervailing or anti-dumping duty where same is legally due; and (c)
the evasion of prohibitions, restrictions, or sanctions that may be in force in relation to the
true country of origin. The tricks and ruses used in executing these frauds are legio. In many
instances it will entail no more but a fraudulent customs entry, but in many instances there
may also be fraudulent preference certificates, and other false documents, records, and
declarations. In some instances the fraud may be considerably more in-depth and elaborate
with the goods first being diverted through another State (where the latter is given out as the
country of origin), and/or the use of misleading markings, labelling, packaging and
documentation (in an attempt to pass through any physical inspection).

4.10.1.5 Honest mistake or misinterpretation

Only those who intentionally classify the goods incorrectly, or who intentionally under-value
the goods with the intent to defraud, will have the prerequisite mens rea. The possibility of a
mistaken but honest under-valuation or miss-classification cannot be counted out. An honest
but mistaken under-valuation or classification will exclude the required intent. The mistaken
classification may be the result of either a mistake of law and/or a mistake of fact. In this
regard, reference may be made to the English case of R v Chohan282 where Evans J inter alia
handed down the following instructions to the jury:

“The Crown must satisfy you so that you are sure in respect of each defendant in each count in
which he is charged that: (i) there was duty due on the goods; (ii) the duty was evaded by a
false classification; and (iii) the evasion was deliberate, not accidental or as a result of an
honest mistake. Dishonesty is an ingredient of each alleged offence in this case.”

The incorrect valuation or classification must be due to an honest misinterpretation or genuine

error. In judging whether or not it was due to genuine error is something a court may have to
infer from all the evidence placed before it.283 There can only be an absence of intent where

281
States often enter into preferential trade agreements with other States where-under certain classes of goods
meeting specific rules of origin can be imported at preferential rates of duty. Black’s Law Dictionary, 6th ed at
1457 defines preferential tariff as a “tariff aimed at favouring the products of one country over those of another.”
There are strict rules as to when an importer will be entitled to the preference, the procedure for the claiming
thereof, and the form of the required preference certificates. The preference will generally speaking be claimed
at the time when the customs entry is submitted, but it can also be claimed post-entry. Where duties were paid on
deposit (at the time when the customs entry was submitted and processed - usually where the importer was still
awaiting the preference certificate or awaiting a replacement certificate), fraudulent claims (post-entry) for the
refund of those duties are not uncommon.
282
[1997] EWCA 3150
283
See the South African case of Commissioner of the South African Revenue Service v Formalito (Pty) Ltd
[2005] ZASCA 135 where the Court of Appeal had to consider whether a declaration (in a bill of entry as
contemplated in section 39 of the Customs Act) was ‘false’. The Court concluded that “no discernible pattern
consistent with a genuine error” emerged on a consideration of the evidence. The Court reached this conclusion
taking into account the fact that the managing director of Formalito, ignoring his own professed ignorance on
such matters, nevertheless instructed his clearing agents to submit clearance documents reflecting tariff codes of
his own choosing. He instructed his clearing agents to submit the documentation reflecting those incorrect tariff
codes “to test the attitude of SARS”. The Court also found it inconceivable that the disparities that arose in
consequence of the employment of the incorrect tariff codes could have gone undetected in Formalito’s ultimate
442 CUSTOMS FRAUD

there was an honest subjective believe that the declared value or classification was indeed
correct. To knowingly furnish incorrect tariff codes amounts to false misrepresentation.
Negligence, no matter how gross, will exclude knowledge and thus intent.

4.10.2 Bypassing the Customs and Concealment

4.10.2.1 General
Many of the techniques used to clandestinely smuggle goods in and out of jurisdictions have
remained very much unchanged from those used centuries ago. Clandestine or covert frontier
crossings, thus bypassing the Customs, are still as popular amongst smugglers as ever. The
same can be said of those instances where the smuggler does indeed report to Customs or
passes through the customs line but where he conceals and fails to declare the goods being
brought in or taken out. Successful evasion obviously relies on successfully evading
detection. All these cases tend to show the following common characteristics:

(a) There is an importation or exportation of goods from one customs territory to another;
(b) The goods concerned may or may not be subject to prohibitions or restrictions;
(c) The goods is being imported or exported in a manner that is unlawful;
(d) There is an intention to evade customs controls and/or duties and taxes;
(e) There is an unlawful evasion of duties and/or other taxes, and/or state controls;
(f) The unlawful evasion is accompanied with a dishonest intent.

Most of the techniques used for the smuggling of dutiable goods correspond with that used for
the smuggling of prohibited and restricted goods such as narcotics, counterfeit medication or
weaponry. A single consignment may be a mixed consignment consisting of both dutiable
goods and prohibited or restricted goods, or the goods itself may be both dutiable and
restricted. In many instances the same smuggling gang may use the same route for the
movement of both categories of goods. Investigation and proof of wrongdoing can be difficult
with investigators often having to fall back on the more ‘traditional’ methods of investigation
such as surveillance, the use of informants and undercover agents, the collection and analysis
of samples and physical evidence, electronic monitoring, traps, etc. As these offences are
committed over national boundaries, trans-national cooperation between the authorities of the
relevant States may prove indispensable.

4.10.2.2 Bypassing the Customs

The clandestine bypassing of customs has long been a serious problem for many states, in
particular many failed states or states lacking in capacity. This then is especially so in certain
parts of South America, Africa, Southeast-Asia, some of the former Soviet satellite states, the
Caucuses, Balkans, and the Middle-East. This problem however is not limited to states
lacking in capacity. High levels of smuggling are also reported in many wealthy states such as
the United States, Canada and the United Kingdom. This can partly at least be attributed to
the high tax rates in those states. It makes smuggling profitable. In many ways smugglers still
use the same old methods and techniques as used in previous centuries. Many of the
smugglers active in Britain still convey their illicit cargo clandestinely from mainland Europe
by boat in the same way as their forbears did a few centuries earlier.284 They still use secret

pricing structure. A finding of “genuine error” would have excluded knowledge in which event the declaration
concerned would at best have been an ‘incorrect declaration’ as opposed to a ‘false declaration’.
284
See e.g. R v Smith [2001] UKHL 68 where the respondent used boats for the smuggling of cigarettes from
mainland Europe into the United Kingdom. Also see the United States Courts of Appeals case of United States v
Boots 80F.3d 580 (1 st Cir.)(1996) where evidence was led that the three accused conspired together to smuggle
cases of tobacco from the United States into Canada for resale in that country. The smuggled goods were
transported into Canada by boat, bypassing the customs checkpoints at the Canadian border. Once the goods
443 CUSTOMS FRAUD

landing spots and they still set up and operate clandestine supply and storage areas. Their
forebears also sailed out into the high seas to rendezvous with 'mother-ships' for the collection
of consignments to be clandestinely brought back to shore. In many parts of the world the
movement of the illicit goods often take place over long borders and inhospitable terrain,
often using any mode of transport suitable for the task, whether it be wheeled, by boat, on
horseback or on foot.

It is not only goods which originated abroad which can be smuggled. Locally manufactured
goods can also end up being smuggled back. A good example in point will be excisable goods
manufactured in jurisdiction A, declared for export to jurisdiction B (with any duty and VAT
benefits that may entail) but with the same goods then unlawfully brought back and released
into home consumption. The vessel laden with the export goods may for example make a
temporary halt on its outward journey, transfer the goods concerned over to a smaller boat
which then heads back to the export jurisdiction. In many instances there may be no legal
requirements for proof of arrival in the country of destination, or where there is such a
requirement, the evidence may be falsified, often with no agreements between the export
country and country of destination for purposes of verification.

Goods must be brought in or taken out through approved routes provided for in the Customs
legislation. The goods so brought in or taken out are to be declared at those places appointed
as places for the making of such entry. When goods will be considered to be ‘imported’
depends on the legislative framework of a given jurisdiction and the facts of the case.285 An
import will not be considered to have taken place before certain requirements have not been
met. This will usually be that the goods have crossed into a state’s territorial waters, or
crossed a certain boundary or point. An unlawful import will thus also not be considered to
have taken place before the goods concerned have not actually been ‘imported’. Once those
who import goods reach that point in time and place where the declaration of goods is called
for, then same must be declared. It cannot be said that there was a failure to declare goods
where the point for the declaration of the goods have not as yet been reached. Authority for
this can be found in British, Australian, and United States case law. Once however that point
has been reached and where those carrying the goods knowingly and wilfully pass that point
without declaring the goods, then we are not only dealing with an importation of goods, but
also with an evasion. This is illustrated well from the facts of R v Smith286 where the
respondent was convicted for the fraudulent evasion of excise duty on cigarettes contrary to
section 170 of the Customs and Excise Management Act 1979. The facts on which he was
convicted can be quoted as follows:

“The boat was used in April 1998 on a run to Heligoland to buy cigarettes and to smuggle
them into this country without paying duty. On 8 May 1998 the respondent, Marriott and
another man, David Russell, set sail once more for Heligoland. Two days later, on 10 May,
they sailed The Vertine, laden with cigarettes, into the Humber estuary, past the customs
houses at Immingham and Hull and so on for some 50 miles up the River Ouse until she
reached Ocean Lock at the entrance to Goole. There is no customs house at this point. When
the boat arrived at Goole, customs officers stopped and searched her. They found 1.25 million
cigarettes on board. The excise duty payable on that quantity of cigarettes would have been
£130,666.40.”

were landed in Canada, the goods and payment therefore exchanged hands between the smugglers and their
contacts on the Canadian side, evading the taxes payable on the importation.
285
As to the time of importation into the UK and time of exportation from the UK, refer section 5 of the Customs
and Excise Management Act 1979. For the definition of 'importer' and 'exporter' as defined in the UK legislation,
refer to section 1 of the Customs and Excise Management Act 1979.
286
[2001] UKHL 68
444 CUSTOMS FRAUD

In this case, the passing of the customs point clearly was when the boat passed the customs
houses but instead of declaring the goods to Customs proceeded on to Goole. Smith’s by-
passing of the customs houses and the clandestine bringing in of the goods, was held to be an
unlawful introduction of the goods and as intended to unlawfully evade the duties payable
thereon. He was duly convicted. Every case need be judged on its own facts. It will be for the
court to consider whether or not there was a fraudulent non-declaration of the goods
concerned. It will be for the prosecution to prove:

(a) that the goods were brought in;

(b) that there was an unlawful failure to declare the goods to Customs;
(c) that the unlawful failure to declare the goods to Customs resulted in the evasion of a
control measure and/or duties; and
(d) that the non-declaration was intended to evade the control measure and/or taxes.

In considering the matter, the court will consider all the facts of the case, judging the conduct
of the defendant against the law as it was framed at the time of the alleged offence. The fact
that goods have not as yet been imported does not however mean that there was no attempt at
or conspiracy to fraudulently evade. The legislation of most jurisdictions provide for offences
making punishable the attempt to commit an offence, or conspiracy to commit an offence. In
the UK for example a conviction on charges for conspiracy to contravene section 170 of the
Customs and Excise Management Act 1979 (fraudulent evasion of duty, prohibitions or
restrictions) is possible even though the goods have not as yet been imported. In the UK, the
Customs and Excise Management Act 1979, in common with the customs legislation of most
other jurisdictions, provide for a range of provisions providing for the seizure, detention and
forfeiture of goods dealt with contrary to the legislation.287 Goods smuggled in will be subject
to seizure and forfeiture.

4.10.2.3 Smuggling goods through the Customs point

4.10.2.3.1 General
Many a smuggler does indeed pass through the customs point but fails to truthfully declare
goods brought in or taken out. This will typically be those cases where a truck driver or a
motorist passes from one customs territory to another through a border-post, or the
international traveller smuggling goods through the ‘red’ or 'green’ channels at an airport. In
many instances, especially where goods are smuggled through in containers and trucks, the
goods so smuggled in may be of considerable bulk and value, but the majority of cases
involve what one can refer to as 'petty smuggling'. The majority of 'petty-smuggling' cases
involve relatively small amounts, but in some instances the value of the goods brought in can
be significant, especially where the goods so brought in consists of small high-value items
such as precious stones, artefacts, or currency.288 Large quantities of narcotics are of course
also smuggled through on the person, in luggage, in secret compartments etc.

The methods and techniques used to pass the goods through the customs point may vary, but
those techniques will usually just be variations of the same techniques employed for centuries.
Whether it be the petty smuggler smuggling in small easily transportable items, or the
professional smuggler, they all rely on some or other form or combination of methods of

287
See sections 49, 139, 140, 141 of the Customs and Excise Management Act 1979.
288
See e.g. The Financial Times, June 18 2009, “Mafia blamed for $134 bn fake Treasury bills” where it was
reported that Italian customs officers discovered fraudulent Treasury Bills to the value of $134 bn in a false
bottom of a suitcase carried by two men travelling per train from Italy to Switzerland. The discovery was made
after the pair told the customs officials they had nothing to declare.
445 CUSTOMS FRAUD

deception. This will usually include the use of false documentation, and/or the making of false
declarations and statements, and/or conduct intended to deceive, and/or concealment. They all
also share the intent to unlawfully evade some or other control measures and/or the payment
of duties and tax. Mere carelessness or negligence will not suffice for conviction on charges
alleging 'smuggling' or fraudulent evasion.289 In most common law jurisdictions, and certainly
so in England, Australia and South Africa, there must be a wilful evasion. It will be for the
prosecution to prove and for the court to judge the state of mind of the defendant at the point
in time when he passed the customs point. In the UK, the Customs and Excise Management
Act 1979, in common with the customs legislation of most other jurisdictions, provides for a
range of provisions providing for the detention, seizure, and forfeiture of goods dealt with
contrary to the legislation.290 Goods so fraudulently smuggled in through the customs line will
be subject to seizure and forfeiture.

4.10.2.3.2 Failure to truthfully declare

It is not for the person bringing the goods into or taking the goods out of a customs territory to
decide whether or not certain goods are to be declared or not. All goods required to be
declared must be so declared. The reasons for declaring same are: (a) to enable Customs to
determine whether duty is payable; and (b) to prevent prohibited or restricted goods being
brought into or taken out of the customs territory. For the authorities the failure to declare the
bringing in or taking out of the goods, may result not only in a loss of duties and taxes, but
also denies the authorities its right to exercise control over the goods so brought in or taken
out. Goods will be considered to have entered the country once it has passed the customs
point. The failure to declare goods, in the face of a legal duty to do so will be an unlawful
failure and an offence. It amounts to a representation that there is in fact nothing to declare.291

289
There are however offences other than 'smuggling', 'evasion', 'fraud' or 'fraudulent evasion' offences where the
intent to defraud is not an element of the crime. See e.g. section 167 of the Customs and Excise Management Act
1979 (untrue declarations). The offence under section 167(1) requires proof of an intention to make such an
untrue declaration or statement, or recklessness as to the making of such an untrue declaration or statement. The
offence provided for under section 167(3) is a strict liability offence. Under both offences the declaration must
be proven to have been untrue in a material particular. Section 167(1)-(3) reads as follows:
“167 Untrue declarations, etc. (1) If any person either knowingly or recklessly - (a) makes or signs, or causes to
be made or signed, or delivers or causes to be delivered to the Commissioners or an officer, any declaration,
notice, certificate or other document whatsoever; or (b) makes any statement in answer to any question put to
him by an officer which he is required by or under any enactment to answer, being a document or statement
produced or made for any purpose of any assigned matter, which is untrue in any material particular, he shall be
guilty of an offence under this subsection and may be detained; and any goods in relation to which the document
or statement was made shall be liable to forfeiture.
(2) Without prejudice to subsection (4) below, a person who commits an offence under subsection (1) above
shall be liable - (a) on summary conviction, to a penalty of the prescribed sum, or to imprisonment for a term not
exceeding 6 months, or to both; or (b) on conviction on indictment, to a penalty of any amount, or to
imprisonment for a term not exceeding 2 years, or to both.
(3) If any person - (a) makes or signs, or causes to be made or signed, or delivers or causes to be delivered to the
Commissioners or an officer, any declaration, notice, certificate or other document whatsoever; or (b) makes any
statement in answer to any question put to him by an officer which he is required by or under any enactment to
answer, being a document or statement produced or made for any purpose of any assigned matter, which is
untrue in any material particular, then, without prejudice to subsection (4) below, he shall be liable on summary
conviction to a penalty of level 4 on the standard scale."
290
See sections 49, 139, 140, 141, and 167 of the Customs and Excise Management Act 1979.
291
See the US case of Pasquantino v United States [2005] USSC 25 (United States Supreme Court) where the
petitioners were engaged in a smuggling operation involving the smuggling of liquor from the United States into
Canada. They were convicted on ‘wire fraud’ charges, convictions subsequently affirmed by the US Supreme
Court. Drivers employed by the petitioners concealed the liquor in their vehicles, and failed to declare same to
Canadian Customs. Thomas J, delivering the opinion of the Court inter alia said: “The evidence showed that
petitioners routinely concealed imported liquor from Canadian officials and failed to declare those goods on
customs forms…By this conduct, they represented to Canadian customs officials that their drivers had no goods
446 CUSTOMS FRAUD

To do so knowingly, and with the intention to evade a control measure or taxation in relation
to the goods, amounts to 'smuggling', a fraudulent evasion.292 In most jurisdictions it is
generally accepted that goods can only be said to have been brought in absent declaration
where the customs point or barrier has been passed.293 Someone can after all not be said to
have fraudulently failed to declare an import or export if the goods concerned are not in law
considered as having been 'imported' or 'exported'. The point at which declaration of the
goods is required, and the manner and form of such a declaration, may obviously vary from
jurisdiction to jurisdiction and may also change over time within the same jurisdiction,
depending on how that jurisdiction’s customs legislation is framed at any given point in time.

4.10.2.3.3 Misrepresentation / Deception

Misrepresentation by conduct
A misrepresentation can be made by words or conduct, and can be made by conduct alone. A
good example in point will be that of a smuggler carrying with him illicit goods and
knowingly passing through the 'green channel' at an international airport (a dedicated channel
for those who have nothing to declare). For the customs officer scanning the passengers as
they approach and then enter the respective channels, that passenger's conduct of choosing
and passing through the green channel is no less a representation than would be a verbal
statement or written answer on a landing card. That smuggler's conduct of choosing and then
passing through the green channel effectively amounts to a representation to the effect that he
has nothing to declare. Other examples of misleading conduct may be as simple as nodding
your head in answer to an officer's questioning, or flying a false flag on a vessel, or disguising
the true nature of an item by shaping, processing, or packing it in such a manner as to
resemble something other than what it in fact is.

False documentation
The smuggler taking goods through the customs point has very few options available really in
terms of him passing his goods through the customs-line without detection of his evasion.
Those basically are: (a) physical concealment in the sense of hiding the goods in such a
manner as to escape physical observation thereof (e.g. secreted into a secret compartment in a
vehicle); (b) disguising the goods as something other than what it in fact is (e.g. substituting
the content of bottles of non-prescription painkillers with illegal narcotics in tablet form); and
(c) declaring the goods for what it in fact is but making false declarations with the view to
underpayment or the evasion of a restriction. In all these instances, there is the possibility of
that smuggler using false documentation as part of his deception-strategy, often to back him
up in the event of a stop and questioning by Customs or in support of his false declaration.

to declare. This, then, was a scheme “designed to defraud by representations,”…and therefore a “scheme or
artifice to defraud” Canada of taxes due on the smuggled goods”.
292
See e.g. S v Bennett-Cohen 1985 (1) ZLR 46 (S)
293
See e.g. Keck v US 172 U.S. 434 (1899) (US Supreme Court) where customs officials acting on information
received, searched a ship docked at the Port of Philadelphia. During the course of the search, the customs
officers demanded from the ship’s Captain the handing over of a consignment of diamonds he received in
Antwerp (Belgium) on behalf of the accused. The Captain handed it over and the accused was subsequently
charged with smuggling in that he “knowingly, wilfully, and unlawfully, and with intent to defraud the revenue
of the United States” “introduced” the diamonds into the United States. The court found that the diamonds were
not smuggled as the accused still had the opportunity to declare the diamonds after leaving the boat. It was the
court’s view that the smuggling act can only be said to be complete after the point at which the goods had to be
declared. The diamonds was thus viewed as never introduced. See the Australian case of He Kaw Teh v The
Queen (1985) 157 CLR 523 at 596 where Dawson J inter alia remarked: “Goods would not, to my mind, be
imported if they were discovered on board a ship or an aircraft during a journey to Australia and were handed to
customs officers on arrival here because their importation was prohibited.” Also see the South African cases of
Tieber v Commissioner for Customs and Excise 1992 (4) SA 844 (A) and Capri Oro (Pty) Ltd and Others v
Commissioner of Customs and Excise and Others [2002] 1 All SA 571 (A).
447 CUSTOMS FRAUD

Those documents may be of a personal, commercial, financial, legal, scientific, or regulatory

nature. False commercial documents such as invoices and packing lists, and/or misleading
transport documentation and manifests, and/or fraudulently obtained regulatory documents
such as import and export licenses, and/or altered or counterfeited passports are particularly
common. The fact that a document is objectively assessed considered to be an incorrect and
misleading document, does not in itself make that document a 'false document'. In most
common law countries, a 'false document' is generally understood as referring to a document
that is factually untrue and where there is also knowledge of it not being truthful, or in the
case of some jurisdictions at least recklessness as to whether it is truthful or not.294 In this
context it will be a document employed by the user with knowledge of it being untrue or
misleading.

False declarations
Goods required to be declared must be so declared. This is a legal requirement. It is not for
the person bringing the goods into or taking the goods out of a customs territory to decide
whether or not certain goods are to be declared or not. That declaration must also be complete
and truthful.The reasons for declaring same are: (a) to enable customs to determine whether
duty is payable; and (b) to prevent restricted goods being brought into or taken out of the
customs territory. In the wider customs context the person making the declaration will
typically be the imports clerk submitting the customs entry, or the bonded warehouse operator
signing a declaration as to the correctness of his warehouse registers, or the pilot of a vessel or
the driver of a truck declaring his cargo before passing through customs. Another example,
one international travellers will be familiar with, is 'landing cards'. These are handed out on
international flights before landing in the destination country. These are legal documents
requiring from the passenger the disclosure of certain basic information such as his
nationality, the purpose of his travel, and the nature and value of the goods and currency
he/she is bringing in. These landing cards contain a declaration section wherein the traveller is
required to declare the information as furnished by him/her to be truthful and correct. This
then is handed over to Customs as the traveller passes through the customs line. The smuggler
attempting to bring goods in through the customs line by concealing it or hiding it away is
certainly not going to declare the fact that he is bringing it in. The same holds true for the
smuggler bringing the goods in disguised as something other than what it in fact is.
Declarations made by these individuals will almost always be false. Their conduct is driven
by an intent to deceive. The declarant who declares that he has no restricted goods in his
possession whereas he does in fact have such goods concealed in his luggage clearly makes a
declaration that is factually untrue. Where he does so knowingly, then it will be a false
declaration. The same applies to the declarant who declares that he is only bringing in an
ornament worth £100 whereas the item in question is in fact a highly sought after artefact
worth £200 000. Where such a false declaration is made with the intent to evade taxation or to
evade a restriction, then the making thereof will be no less but fraudulent. In most
jurisdictions the making of a false declaration is in itself an offence. Where however the
authorities are dealing with a 'smuggling' situation and assuming they decide to prosecute for
'fraudulent evasion', then the offender will usually only be charged with a 'fraudulent evasion'
offence, or where such a 'false declaration offence' is also charged, then it will usually be
charged in the alternative. Any attempt to prosecute such a defendant under both those
offences will in most jurisdictions generally be viewed as duplication. Evidence relating to the
making of that false declaration will then usually be tendered as evidence of the offender's
deception and dishonesty.

294
See Black’s Law Dictionary 6th Ed at 602 where a ‘false statement’ is defined as “.. knowingly false, or made
recklessly without honest belief in its truth, and with purpose to mislead or deceive.”
448 CUSTOMS FRAUD

Concealment
With the use of dogs and modern technology (e.g. x-ray scanners, chemical detection
equipment, and thermal imaging equipment), the concealment of illicit goods and people as a
technique to get it/them through the customs line undetected, is certainly no longer as easy as
it used to be thirty or fifty years ago. It is nevertheless still a common method employed by
various categories of smugglers. The goods so unlawfully taken through the customs point
will typically be camouflaged as something other than what it in fact is, or be hidden behind
or between other goods, or be hidden away in secret compartments build into another object
such as a parcel, suitcase, vehicle, container, or vessel.295 The goods in question may be
brought in or taken out as complete functional units or products ready for use without any
further assembly or processing (e.g. a fully assembled pistol, electronic appliance, or
narcotic), or it may be individual parts, components, or ingredients intended for later
consolidation, processing or assembly post-importation (e.g. the pistol frame, barrel, slide,
magazines, and ammunition smuggled in separately as separate shipments to be assembled
again post-importation). Those individual parts, components, or ingredients may be shipped
individually through different routes or separately as different shipments via the same route.
Each one of those components may be concealed differently and may be smuggled through in
a different manner. These ruses are intended to prevent the Revenue from detecting the fact
that the goods are being brought in (for example cigarettes hidden in a secret compartment in
a vehicle), or to mislead the Revenue into believing the goods so brought in to be something
other than what it in fact is (for example bringing in a box of what seems to be soap powder
but where same is in fact filled with heroin). Ultimately all these ruses are no more but
'artifice, tricks and devices' designed to mislead the Revenue as to what is in fact being
imported or exported.

Combinations of false representations

In many instances the offender's conduct will not be limited to just one misleading act or
failure, but rather a combination of willfully employed failures, false representations, and
other deceptive acts. The same operation may involve the making of misrepresentations by
both words and conduct. It is quite common for the same illegal importation to involve
physical concealment, the presentation of false documents, and the making of false oral and/or
written declarations. Some of those acts or failures may also be replicated multiple times.
Consider the example of X landing at London Heathrow airport. He has in his possession a
rare original artefact of artist XY worth £100 000. He carries with him a fraudulent invoice
falsely stating the value to be £300 (thus within his allowance and below the value requiring
declaration at the 'red channel'). He also completed a landing card wherein he signed the
declaration and wherein he stated he had nothing to declare. As he enters the customs area he
hands his landing card to customs officer R, the latter collecting the landing cards from the
passengers. With the art-piece tucked under his arm X heads for and then enters through the
'green channel'. In the green channel customs officer Q decides to stop and question X.
Officer Q enquires as to his journey, purpose of his travels, and any goods he may have
brought with him. Officer Q asks X if he has anything that should be declared whereupon X
states 'no'. Officer Q asks him as to the nature and value of the artefact. X states it to be a

295
For typical examples, see Fazenda NO v Commissioner of Customs and Excise [1998] JOL 4067 (T) (South
Africa) where a truck driver attempted to smuggle cigarettes into the Republic by concealing the goods in a
hidden compartment in the vehicle. In Rajesh Gulati v Govt of N.C.T of Delhi & Anr [2002] INSC 368 (Supreme
Court of India) 40 mobile phones were found hidden away in a microwave-oven; In Agrawal Trading
Corporation & Ors v Collector of Customs & Ors [1972] INSC 14, currency was secreted in a secret cavity build
into a wooden case declared as containing food. Also see Frenken v Controller of Customs [2005] ZWHHC 27
(South Africa)
449 CUSTOMS FRAUD

reproduction of artist XY's work with a value of £300. In support of this statement he
produces the false invoice. From this example we can see that X effectively employed a
combination of misrepresentations in the course of the same importation i.e. (a) he wilfully
made a false declaration in the landing card he handed to officer R; (b) he knowingly, and
deceptively, proceeded through the 'green channel', effectively signalling that there is nothing
to declare; (c) in response to officer Q's questioning he answered 'no' whereas he should have
answered 'yes', a false and misleading statement; and (d) the use of the false document
(invoice) to back up the fraudulent scheme.

4.10.3 Unlawful diversion

The processing, storage and movement of goods is the basis of commerce and international
trade. There are many situations where traders, for sound commercial reasons, may wish to
process goods in one jurisdiction without necessarily releasing same into home consumption
in that jurisdiction, or may wish to re-export goods, or to move goods from one location to
another location in the same customs jurisdiction, or to transfer goods from one mode of
transport to another, or to move such goods through one customs jurisdiction to another.
These may be commercial realities, but there is also another reality: national legal
requirements need be complied with. The fact that goods that are subject to customs control is
the property of an exporter, importer or manufacturer, does not give the owner (or any other
title-holder or possessor for that matter), the right to move the goods or deal with the goods as
he pleases. As long as the goods are under customs control, it must be dealt with in the
prescribed manner as set out in law. The customs legislation of most jurisdictions provide for
various procedures, practices, and mechanisms, a few of them developed over centuries,
which operates in such a way as to allow for a fair degree of customs and excise control but
without suffocating those activities which are the lifeblood of any country, its manufacturing
base and international trade. This is not to say that these procedures cannot be disruptive.
They can be and they can create inefficiency in systems.

Warehousing and transit

Many of those customs procedures developed and intended as measures to ensure customs
control over goods, both locally manufactured excise goods and imported foreign goods,
revolve around warehousing and transit. It also so happens that a significant percentage of all
customs and excise frauds involve abuses of those regimes.

Warehousing
Customs and excise warehouses are required to be licensed. Such a warehouse is licensed for
the manufacture or storage of dutiable goods. Goods may be cleared from these warehouses
for home consumption or exportation but only after all regulatory requirements have been met
and/or after the payment of the duties and taxes due thereon. These warehouses can in a sense
be described as an extension of the customs area. The licensee of the warehouse must keep
accurate records of the goods so manufactured, received in, stored in, or released from the
warehouse. The customs legislation of most jurisdictions contain a wide range of detailed
provisions laying down various requirements relating to the storage, control, security and
accounting for the goods so entering, manufactured in, or leaving the warehouse.

Transit
The movement of goods in transit over customs frontiers, and the movement of goods in bond
from one area to another is an integral part of today’s international trade. Customs transit is in
essence a customs procedure providing for the transportation of goods, under customs control,
from one place to another. Those transit movements may involve transit between different
customs offices in the same jurisdiction (national transit) or customs offices located in
different jurisdictions (international transit). The goods in question may be imported goods, or
450 CUSTOMS FRAUD

it may be goods destined for export. Section 1 of the Customs and Excise Management Act
1979 defines 'Community transit goods' as:

"(1)(a) in relation to imported goods, means -

(i) goods which have been imported under the internal or external Community transit
procedure for transit through the United Kingdom with a view to exportation where the
importation was and the transit and exportation are to be part of one Community transit
operation; or
(ii) goods which have, at the port or airport at which they were imported, been placed under
the internal or external Community transit procedure for transit through the United Kingdom
with a view to exportation where the transit and exportation are to be part of one Community
transit operation;
(b) in relation to goods for exportation, means -
(i) goods which have been imported as mentioned in paragraph (a)(i) of this definition and are
to be exported as part of the Community transit operation in the course of which they were
imported; or
(ii) goods which have, under the internal or external Community transit procedure, transited
the United Kingdom from the port or airport at which they were imported and are to be
exported as part of the Community transit operation which commenced at that port or airport
and for the purposes of paragraph (a)(i) above the Isle of Man shall be treated as if it were part
of the United Kingdom”. The same section then continues to define: “transit goods” as
“except in the expression “Community transit goods ”, means imported goods entered on
importation for transit or transhipment”; “transit or transhipment” as “in relation to the entry
of goods, means transit through the United Kingdom or transhipment with a view to the re-
exportation of the goods in question or transhipment of those goods for use as stores”; and
“transit shed ” as having “the meaning given by section 25A”

Goods in transit are not considered to be ‘imported’. Transit goods can be removed within the
same control area and from one control area to another, without the payment of duties and
VAT. Transit goods may typically be removed in bond from one place where they were
entered into a country or territory to another place where they are destined to leave the
country. Goods may also be entered for removal in bond to a place appointed as a place of
entry or warehousing or to any other place in a common customs area appointed as a
warehousing place for re-warehousing. The transit goods are under customs control for as
long as it is in transit. Customs transit as a customs procedure is always followed with another
customs procedure i.e. warehousing, a new transit procedure, or entry for home consumption.
The goods may under no circumstances be released into home consumption absent entry for
that purpose. In the case of trans-shipments, the goods is imported and exported under the
control of the same customs office, involving no more but the transfer of goods from the
importing plane, vessel or vehicle to the exporting plane, vessel or vehicle.

Needless to say, keeping track of the movement and use of warehouse and transit goods is
critical for the smooth operation of the system. In theory this may seem straightforward
enough, but in practice this is often very difficult, for various reasons i.e.: (a) manufacturing
processes involve the processing, change and assimilation of goods into products the
characteristics of which are often very different from the original product or components; (b)
the form, appearance, packaging and labelling of goods may change as it moves through the
manufacturing and supply chain; (c) legitimate shrinkage, destruction, and theft can always be
expected; (d) it is common practice for goods to be consolidated for one leg of a journey and
then split again for onward movement to different consignees and or onward movement to
different locations; (e) goods are often reloaded from one set of containers or aircraft units to
other containers or units; (f) goods will often be entered into different customs procedures in a
very short space of time; (g) physical possession will often change multiple times whilst being
processed, held, or moved, often in a very short space of time; (h) ownership of goods may
451 CUSTOMS FRAUD

often change whilst still being manufactured, processed, or kept, or whilst in transit; (i)
volumes of trade; (j) failures by traders i.t.o record-keeping and control; (k) honest error; and
(l) fraud. The more difficult it is to keep track of the movement and use of goods, the more
lacking the control and the more difficult administration and enforcement.

Diversion
Many of the customs and excise frauds out there involve the unauthorised and unlawful
diversion of goods into home consumption absent lawful discharge under a prescribed
customs procedure. Not only is the duty and tax on the goods not accounted for, but the goods
in question usually ends up on the black market, with the associated negative consequences.
The unlawful diversion effectively denies the Revenue of its legal right of control over the
goods until such time as all the duties and taxes have been accounted for and/or all regulatory
requirements have been met. The unlawful and wilful removal of goods from customs control
and the subsequent unlawful release into home consumption for all practical purposes
amounts to no less but a form of ‘smuggling’.296 These frauds will often involve abuses of the
transit and trans-shipment regimes, abuses of the systems allowing for the movement of goods
on a duty-paid basis, abuses of the systems allowing for the movement of goods under
suspension of excise duty, and 'exported' goods in fact not exported or simply smuggled back.
Some of these different regimes can in certain circumstances also be combined (e.g IPR
combined with subsequent transit). Where this is the case, more than one regime can be
abused or circumvented in the course of the same fraudulent scheme.

The diversion will usually involve some or other misrepresentation intended to deceive the
Customs as to the true fate of the goods. This may typically involve misrepresentations to the
effect that the goods never existed, or that the goods were never received, or that the transit
movement was discharged whereas it has in fact not been properly discharged, or that the
goods were stolen from or destroyed in a Customs and Excise warehouse, 297 or that the goods
were destroyed, hijacked or stolen whilst in transit.298 These alleged incidents will typically be
staged with co-conspirators carrying out the theft, committing the arson, or hi-jacking the
vehicles. It is not uncommon for bonded or transit goods allegedly ‘stolen’ or ‘destroyed’ to
be subsequently traced as having been diverted into home consumption, often with insurance
companies also being defrauded for the alleged loss of vehicles, goods, or facilities. In many
instances those liable for the payment of the duty can simply not account for the missing
goods.299 Fraudulent documentation falsely representing that the goods were indeed placed in
an approved customs procedure or did indeed arrive at the declared destination is not
uncommon either.300 The diversion of goods into home consumption will often also be
covered up by falsely representing that the goods were exported. In other instances goods may

296
See the Indian case of N.K Bapna v Union of India and Ors [1992] 3 SCR 267 (Supreme Court of India) and
at 278-279 where Ranganathan J inter alia said: “Even the general concept of smuggling contains two elements:
one, the bringing into India of goods the import of which is prohibited; and two, the bringing, into the country’s
trade stream, of goods the import of which is permitted without paying the customs duties with which they are
chargeable. In our view, the second eventuality can occur not only where there is a clandestine import evading
the assessment of duty but also where there is a clandestine removal without payment of the assessed duty. In a
case where the goods are warehoused under s. 49 and they are clandestinely removed, there would be
‘smuggling’ as the duties payable thereon have been evaded altogether.”
297
See e.g. Collector of Customs (N.S.W.) v. Southern Shipping Co Ltd [1962] HCA 20
298
Whether or not a customs debt may still be incurred despite the loss, destruction or theft of the goods in
question (for the duties and/or taxes on the goods allegedly lost, stolen or destroyed), depends on the legal
framework of a given jurisdiction. See e.g. the case of Ministero delle Finanze v Esercisio Maggazine Generali
[1983] ECR 2951 where duties and taxes were held to be payable despite the alleged theft of the goods.
299
See e.g. Collector of Customs v Wallace Laboratories Pty Ltd [2002] FCA 659; Hessam Pty Ltd v CEO,
Australian Customs Service [2001] AATA 808
300
See e.g. Customs and Excise v Arena Corporation Ltd [2003] EWHC 3032 (Ch)
452 CUSTOMS FRAUD

well be taken out through a border-post just to be clandestinely rerouted back over the frontier
(thus smuggled in again). The transit regime can and is also used very effectively to facilitate
the smuggling of goods other than the goods in fact covered by the transit document and
CMR. The substitution of the goods declared for transit with other goods is quite common. A
shipment of non-dutiable low-cost vegetables may for example be substituted with cigarettes.
This obviously poses serious danger for society's health, safety, and security as the goods so
smuggled may include a wide range of prohibited and restricted goods i.e. narcotics,
counterfeit medication, weapons etc.

Diversion frauds are not limited to imported goods. Many of the diversion frauds out there
involve the unlawful diversion of locally manufactured excise goods. There are circumstances
where those engaged in the manufacturing of certain commodities are required to register with
Customs and are under a legal obligation to make honest and full disclosure to the Revenue as
to the goods so manufactured, and to pay the duties and taxes payable thereon. Domestic
production that goes undisclosed forms part of the underground economy, and will in most
instances result in a loss of revenue for the State.301 Typical examples of this type of evasion
are the undisclosed distilling and sale of alcohol or the undisclosed manufacture and sale of
cigarettes. This form of evasion is just as old as taxation itself. In many instances both the
manufacturing processes and the introduction of the goods into home consumption takes place
in a clandestine and dishonest manner. In other instances the manufacturing operation may be
operated as a registered manufacturing warehouse, but with part of the dutiable goods so
manufactured going undisclosed. In this latter scenario the required records may be kept and
returns may be filed, but part of the dutiable stock is omitted from the records and returns.
The records kept and the returns filed, will in most instances be fraudulent and intended to
mislead the Revenue as to the true quantities of goods in fact manufactured and/or released
into home consumption. These frauds will usually entail the employment of various forms of
deception so as to conceal the precise quantities and or product-lines in fact manufactured e.g:
(a) the manipulation of measuring equipment used in recording manufacturing output; (b) the
use of false or counterfeit stamps, dies, labels; (c) the use of false or misleading packaging
and labelling; (d) the filing of false entries and returns; (e) the keeping of false stock registers,
records and accounts; or (f) falsely representing that excise components or product had been
destroyed. In some instances, all the goods manufacture is declared, but the goods are diverted
into home consumption under cover of some subsequent misrepresentation to Customs as to
the ultimate fate of the goods so manufactured. This diverted product will often be falsely
declared as exported.302

Falsely declaring goods as exported is common with locally manufactured excise goods,
transit goods and trans-shipment goods. The goods will be declared for export but is in fact
never exported. Falsely declaring goods as having been exported whereas this was not in fact
the case is also common with some of the fraudulent schemes intended to unlawfully obtain
refunds in duty or tax to which the claimant is not legally entitled. Drawback frauds and VAT
scams in particular come to mind. Frauds involving 'round-tripping' is evidently a century-old
problem. Adam Smith now almost three centuries past already noted:303

"The bounties which are sometimes given upon the exportation of home produce and
manufactures, and the drawbacks which are paid upon the re-exportation of the greater part of

301
Bowles, “Tax Policy, Tax Evasion and Corruption in Economies in Transition” (1999) in Feige & Ott (Ed)
Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 67-86
at 73
302
See e.g. Daily Monitor, July 30 2005. “Smuggling costs govts multi-billion tax losses”
303
Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations at 725
453 CUSTOMS FRAUD

foreign goods, have given occasion to many frauds, and to a species of smuggling, more
destructive of the public revenue than any other. In order to obtain the bounty or drawback,
the goods, it is well known, are sometimes shipped, and sent to sea, but soon afterwards
clandestinely re-landed in some other part of the country. The defalcation of the revenue of
customs occasioned by bounties and draw- backs, of which a great part are obtained
fraudulently, is very great."

The tricks and ruses employed in representing that the goods did in fact leave are legio and
will often involve: (a) the unlawful re-routing or diversion of vehicles, boats or aircraft; (b)
setting up of clandestine smuggling routes for goods 'round-tripped' back into the export
country;304 (c) seals unlawfully broken and replaced with duplicate seals; (d) the use of false
or misleading packaging and labelling; (e) the falsification or use of false commercial
documents and shipping documents; (f) the filing of false entries and returns; (g) the
substitution of goods declared for export with other goods; (h) the setting up and use of
various front e.g front consignees in the import jurisdiction;305 (i) the structuring of artificial
financial transactions so as to simulate payments made or received but where those payments
were in fact never received or made. In most jurisdictions are to be found penal provisions
making punishable the unlawful re-landing or re-importation of goods.306

The architecture of these frauds and the methods used in executing these frauds are often
moulded around the legislative frameworks, rules, procedures, and countermeasures that are
being circumvented. The mechanics of a fraud involving the diversion of excise goods from
an excise manufacturing warehouse will not necessarily correspond with that of a fraud
involving the diversion of imported goods entered for Inward Processing Relief, or with that
of a fraud involving the diversion of transit goods. Some of those frauds may show some
resemblance in some respects, but many will not. Diversion frauds may differ from one
another in terms of the mechanics employed in executing those frauds, sophistication, the
legislative provisions and systems that are being circumvented, and the penal provisions that
may find application. As with all fraudulent circumventions, the key to the success of any
unlawful diversion is concealment of the truth. Doing so will usually involve
misrepresentation intended to deceive the Customs as to the true fate of the goods. Those
misrepresentations will often be layered one on top of the other with some misrepresentations
backing up other misrepresentations. Those misrepresentations may also be made to various
individuals or bodies at various stages of the same illegal operation. Organised crime is
particularly active in the area of diversion fraud.307 These frauds are often sophisticated, well

304
The goods may for example be loaded on a ship and may leave the export jurisdiction's shores, but on its
outward voyage the ship is met by smaller craft where the freight is transferred and brought back, or a truck
laden with export goods may exit the export jurisdiction through a border post just to cross back in through a
border-fence a few kilometres down the road.
305
The goods will often be 'exported' to jurisdictions with whom the export jurisdiction does not have treaties or
agreements for information exchange, and/or where verification may be difficult.
306
See e.g. 18 U.S.C. 544 which reads as follows: "§ 544. Relanding of goods - If any merchandise entered or
withdrawn for exportation without payment of the duties thereon, or with intent to obtain a drawback of the
duties paid, or of any other allowances given by law on the exportation thereof, is relanded at any place in the
United States without entry having been made, such merchandise shall be considered as having been imported
into the United States contrary to law, and each person concerned shall be fined under this title or imprisoned not
more than two years, or both; and such merchandise shall be forfeited."
307
See e.g. the facts in Hansford v R [2006] EWCA Crim 1225, where the appellant and 7 other conspirators
were all convicted on charges relating to the fraudulent diversion of excisable goods from a bonded warehouse.
Spirits imported into Britain was taken into a bonded warehouse operated by the appellant. The goods were
subsequently diverted into the local market. This diversion took place without the customs authority’s
knowledge and the duty on the goods was evaded. For most of the consignments so diverted, there was no
documentation showing where the goods ultimately ended up. For many of the later consignments, false
documentation was created so as to give the impression that the goods were transferred in bond to another
454 CUSTOMS FRAUD

planned, large in scale, involve extended networks of participants and accomplices, may
prove difficult to investigate, and are costly. Financial investigation on its own will often not
prove sufficient in dealing with these syndicates. Investigators will often have to revert to
many of the more ‘traditional’ methods of crime investigation which may quite well involve
covert investigation i.e. the developing of sources, surveillance, controlled deliveries,
forensics etc.

In Britain, the Customs and Excise Management Act 1979, in common with the customs
legislation of most other jurisdictions provides for a range of provisions providing for the
seizure, detention and forfeiture of goods dealt with contrary to the legislation. Goods
fraudulently diverted into home consumption will be subject to seizure and forfeiture. Any
unlawful diversion of goods where the diversion is intended to evade the payment of the
duties or taxes required to be paid on those goods, or where the diversion is intended to evade
a restriction or prohibition in relation to those goods will be nothing less but fraudulent. In
Britain, fraudulent diversion is generally prosecuted as 'fraudulent evasion' under section 170
of the Customs and Excise Management Act 1979.

4.10.4 Possession, carrying, harbouring and dealing

4.10.4.1 General
Smuggling operations more often than not involve the participation or involvement of
multiple individuals often acting in different capacities at various stages of the importation,
supply, and distribution of the goods. Customs frauds do not end with the ‘bringing in’ of the
goods, but continues with the onward local distribution of the illicit goods into home
consumption. The illicit goods tend to move from the control of one party to another as it
moves down the supply-chain. The evasion continues for as long as the duties, taxes,
prohibitions, or restrictions are being evaded. Taking possession of illicit goods thus tend to
be a recurring event down the ‘smuggling-chain’. It is quite possible for the goods to start its
onward journey from the manufacturer to the consumer passing through the hands of
exporters, international carriers, importers, transporters, warehousemen, dealers etc., until it
eventually reaches the consumer. In recognizing this fact, the legislatures of most jurisdictions
have long since ensured that the customs legislation of those jurisdictions provide for a
framework making punishable any conduct involving the possession, carrying, removing,
depositing, concealing, harbouring, dealing in, or dealing with uncustomed goods. For
centuries now, in both England and the United States, knowingly taking possession of,
conveying, harbouring, or dealing with illicit goods, knowing same to be illicit, and doing so
fraudulently, has long been penalized as fraudulent evasion.308 Many references can in fact be
found in 18th and 19th century English law where the conveyance, taking possession of, or

bonded warehouse. Lady Justice Smith in her judgment correctly described the smuggling operation as
“organised crime.” Also see Customs and Excise v Arena Corporation Ltd [2003] EWHC 3032 (Ch).
308
See for example the following passage as quoted from Stockwell v United States [1871] USSC 121: “On the
18th of July, 1866, Congress passed another act, entitled 'An act further to prevent smuggling, and for other
purposes.' The 4th section of this statute enacted: 'That if any person shall fraudulently or knowingly import or
bring into the United States, or assist in so doing, any goods, wares, or merchandise contrary to law, or shall
receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of such goods,
wares, or merchandise after their importation, knowing the same to have been imported contrary to law, such
goods, wares, and merchandise shall be forfeited, and he or she shall, on conviction thereof before any court of
competent jurisdiction, be fined in any sum not exceeding $5000 nor less than $50, or be imprisoned for any
time not exceeding two years, or both, at the discretion of such court” The same section declares that present or
past possession of the goods by the defendant shall be sufficient evidence to authorize his conviction, unless
such possession be explained to the satisfaction of the jury.” Also see section 170(1)(b) of the British Customs
and Excise Management Act 1979 and section 545 of the US Code (18 USC Sec 545 (Title 18, Part I, Chapter
27, Sec 545)
455 CUSTOMS FRAUD

dealing with ‘uncustomed goods’ were punishable as a fraud on the Crown. It is however
clear that the presence of a guilty mind has always been a prerequisite for conviction.

4.10.4.2 The Smuggling chain

Taking possession of illicit goods will more often than not be a recurring event in the
smuggling supply chain. The illicit goods tend to move from the control of one party to
another as it moves down the chain. The illicit import goods may start its onward journey
from the manufacturer to the consumer passing through the hands of brokers, exporters,
international carriers, importers, transporters, warehousemen, then the dealers, and last but not
least on to the consumer. In many instances the person found in possession of the illicit goods
will be no more but a clog in the machinery of a larger criminal operation. His role will often
be limited to the transportation, processing, harbouring, or distribution of the goods on behalf
of others. We can distinguish between the following categories of persons who may be found
in possession of the illicit goods:

(a) those conveying, carrying, or transporting the goods, either for their own account or
on behalf of another;
(b) those who deposit, conceal, store, keep, or harbour the goods, either for their own
account or on behalf of another;
(c) those who deal in the goods, either for their own account or on behalf of another;
(d) those who process it in some or other way, e.g. refining it, moulding or converting it,
or repacking or re-labelling it; and
(e) those who acquire the goods for their own use;

The conveyance of illicit goods has historically been viewed as one of the main stages in the
smuggling chain. Those who ‘carry’ or ‘convey’ the goods do after-all play a key-role in the
wider trade in illicit goods. There can after all be no supply-chain without the movement of
goods from producers, manufacturers and suppliers to the dealer and consumer. It is not
surprising to find penal provisions throughout old and current Commonwealth legislation
making punishable as 'smuggling', 'fraud', or 'evasion' the wilful carriage or conveyance of
illicit goods.309 The movement or transportation of illicit goods is obviously not a single one-
off event. The same shipment may be moved around many times as it changes hands between
different parties. The same shipment may start its journey from outside the target jurisdiction

309
See for example the following passage as quoted from Stockwell v United States [1871] USSC 121: “On the
18th of July, 1866, Congress passed another act, entitled 'An act further to prevent smuggling, and for other
purposes.' The 4th section of this statute enacted: 'That if any person shall fraudulently or knowingly import or
bring into the United States, or assist in so doing, any goods, wares, or merchandise contrary to law, or shall
receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of such goods,
wares, or merchandise after their importation, knowing the same to have been imported contrary to law, such
goods, wares, and merchandise shall be forfeited, and he or she shall, on conviction thereof before any court of
competent jurisdiction, be fined in any sum not exceeding $5000 nor less than $50, or be imprisoned for any
time not exceeding two years, or both, at the discretion of such court” The same section declares that present or
past possession of the goods by the defendant shall be sufficient evidence to authorize his conviction, unless
such possession be explained to the satisfaction of the jury.” Also see section 128 of the Customs Consolidation
and Shipping Act No 13 of 1899 (In Statutes of Natal, Volume II, compiled and edited by RL Hitchins), which
read as follows: “128. Any person who shall evade or attempt to evade the payment of Customs duties, or who
shall not produce any goods when lawfully called upon to do so, or who shall be in any way concerned in the
evasion or attempted evasion of such payment, or in the not producing, or in the carrying uncustomed goods,
shall forfeit treble the duty-paid value of such goods, or the sum of One Hundred Pounds, at the election of the
Collector of Customs, and the goods shall be forfeited.” See e.g. section 170(1)(b) of the Customs and Excise
Management Act 1979 which inter alia makes it punishable as 'fraudulent evasion' for any person to be
“knowingly concerned in carrying, removing, depositing, harbouring, keeping or concealing or in any manner
dealing with any such goods” .”
456 CUSTOMS FRAUD

to the point where it can be said that it has crossed the frontier, from that point of entry it may
again be moved onwards to a distributor, and from that distributor it may later move on to the
dealers. For all those knowingly concerned with the movement of those illicit goods, the act
of physically moving the goods will often be the point where they are at their most vulnerable
with the greatest risk of interdiction. Moving the goods around undetected will often involve,
and often be dependent on effective deception, misrepresentation, or concealment. 310 This
may typically involve conduct such as but not limited to: the concealment of illicit goods in
secret compartments; the use of misleading markings and packaging; moulding,
manufacturing, or processing the goods into a shape or form so as to appear to be something
other than what it in fact is; the concealment of illicit cargo behind or under other
legal/declared cargo; sailing the vessel used in the smuggling under a false name and flag;
feeding customs with false information, setting decoys and creating diversions; and the use of
misleading transport documentation.

Those who 'harbour' are those who knowingly hold or store for another. This may typically be
the warehouse-owner allowing illicit goods to be stored in his warehouse knowing same to be
illicit goods. The trading in illicit goods by a person who knows the goods so traded to be
illicit goods, and who so trades therein knowing that the duties payable thereon will be
evaded, has long been understood to amount to the defrauding of the Revenue. The trader can
more appropriately be said to be 'dealing in' goods. Although many penal provisions do make
punishable the 'dealing in' goods, we will find that most penal provisions also make
punishable the 'dealing with' goods.311 This then is obviously intended to cast the net as wide
as possible. In general usage to 'deal in' goods will usually be associated with the activities of
the trader or dealer dealing in goods.312 To 'deal with' is wider than 'dealing in', also covering
as it does activities other that just dealing. All those whom 'deal in' goods, will also be
'dealing with' goods, but not all those who 'deal with' goods can be said to be 'dealing in'
goods.

The last ‘possessor’ in the smuggling chain is the consumer who acquires the illicit goods for
consumption or use. He certainly plays an important role as he does after all represent the
market that fuels the illicit trade and smuggling. As long as there is a willing market for illicit
goods, and thus a demand, there will always be smuggling and trade in illicit goods. Illicit
consumption must therefore also be targeted and deterred. This obviously calls for offences
making punishable the acquisition or possession of illicit goods. The customs legislation of
most jurisdictions do provide for such offences, and in some instances the acquisition of
goods in relation to which duty, tax, prohibitions, or restrictions have been evaded can be
prosecuted as fraudulent evasion, assuming the goods so acquired is acquired knowingly and
with the intent to evade. The truth however is that in very few jurisdictions today will one find
any meaningful policing at the point of consumption. One may from time to time encounter a
road testing vehicle stopping and testing vehicles for the illegal use of rebated fuel, or the odd
raid on the shop-keeper selling illicit cigarettes, but no more. For the grass-roots distributor
and consumer the risk of detection is remote and the risk of prosecution highly unlikely. The
conduct of the consumer who knowingly acquires and takes possession of the goods, knowing

310
See Black, A Law Dictionary, 2 nd Ed, at 236 where 'conceal' is defined as: "To hide; secrete; withhold from
the knowledge of others … to hide or secrete physical objects from sight or observation”
311
See for example the offences provided for under section 72(1)(10) of the Value Added Tax Act 1994 and
section 170(1)(b) of the Customs and Excise Management Act 1979
312
See Henry Campbell Black, A Law Dictionary, Second Edition, West Publishing Company, 1910, at p.332
where 'deal' is defined as: “To traffic; to transact business; to trade”, and where 'dealer' is defined as: “A dealer,
in the popular and therefore in the statutory sense of the word, is not one who buys to keep, or makes to sell, but
one who buys to sell again..... – Dealings. Transactions in the course of trade or business.”
457 CUSTOMS FRAUD

that in doing so he denies Customs of its right of control thereover and/or of Revenue and
Custom's right in the taxes therein, is no less dishonest than that of the offender who smuggles
it in or who steals it out of a customs warehouse.313

The fact that someone is found to be 'in possession' of illicit goods does not mean that he/she
is just a possessor. Many different individuals may be found in possession of illicit goods but
they will nevertheless not necessarily fall within the same offender-category. That person may
be the smuggler importing the goods, or he may be the distributor, or he may only do certain
processing activities on behalf of the importer, or he may be the transporter, the dealer, or the
consumer. Some may be the 'owner' whereas others may be dealing with it on behalf of
others. Needless to say, it is not always that simple, or even possible, to determine the precise
relationship between the person found in possession of the illicit goods and the illicit goods
found in his possession. The difficulties associated with distinguishing between those who
may in fact have acted as importer, exporter, transporter, manufacturer, dealer, consumer, or
the person harbouring the illicit goods on behalf of another, has long been recognised.
Customs inspectors can thus not be faulted for suspecting every possessor of illicit goods,
especially where caught with quantities of goods greater than one would normally expect to
be in the possession of a mere consumer, as being a potential participant in a wider smuggling
operation. For the customs or police officer it will always be a matter of correlating and
applying legal frameworks to assessments of factual settings, circumstances, and evidence.
Where an international traveller is apprehended at Charles De Gaulle Airport attempting to
pass through the green channel with twenty condoms filled with cocaine in his stomach, then
there is little doubt as to the category of offender you are dealing with. However, no
rightminded policeman arresting a high-strung street-prostitute for shoplifting and then
finding a small stone of crack and a crack-pipe in her possession will view or charge her with
drug-trafficking. The nature and character of the goods, the quantities involved, the profile of
the individual, explanations provided and representations made to customs or the police by
the apprehended person and/or witnesses, the connection between that individual and the
goods in question, and the place, time, and circumstances of apprehension, will usually point
towards the category of offender you are dealing with. There will then almost always be one
or more offences provided for under one or more statutes that will be the appropriate offence.

All those whom may be found in possession of the illicit goods, whether it be the person
carrying the goods, the person harbouring the goods, the trader dealing in the goods, or the
consumer, cannot be assumed to be carrying, harbouring, dealing in, dealing with, or
otherwise be 'in possession' of that goods simply for the fact that the illicit goods is found
under his control, on his vehicle, in his luggage, or in his warehouse. In most common law
countries, and this is the case in England, to be 'in possession' of goods, where made
punishable under statute, is generally understood as implying knowledge, knowledge of the
goods belonging to a class the possession of which is unlawful. There are a few possibilities.
The person concerned may be in possession of the goods knowing it to be illicit goods, or
suspecting but not necessarily knowing same to be illicit, or he may well be wholly innocent
lacking any knowledge of its illicit nature. Where fraud is alleged his knowledge and state of

313
See Lyons v Smart [1908] HCA 34 (High Court of Australia) where Isaacs J inter alia remarked: “The person
who evades payment of duties or the prohibitory clauses of the Act is a public offender; can it be reasonably
contended that another who knows of his offence is morally justified in taking from him the proceeds of that
offence? And if bona fide taken at first, should subsequent knowledge of that offence be brought home to the
recipient is he morally absolved though he still secretly retains the profits of the public plunder or public
disadvantage? As well, in my opinion, can a man either morally receive stolen property knowing it to be stolen,
or, if he at first gets it honestly, retain it after knowledge of the truth.”
458 CUSTOMS FRAUD

mind is paramount. The presence of a guilty mind has always been a prerequisite for
conviction on any offence making punishable 'evasion', 'fraudulent evasion' or 'smuggling'.

4.10.4.3 Possession
Considering the prominence of ‘possession’ in the smuggling chain, it should rightly be
criminalized. The possession of any particular class of goods will only be unlawful where the
possession is, as judged on the facts of the case, in contravention of the law as it was framed
at the time of the possession.314 The actus reus of offences making punishable the possession
of illicit goods obviously involves the possession thereof or the maintaining of control
thereover. The state of mind that will be required to be present for a conviction on possession
under any particular penal provision depends on the framing of the provision alleged to have
been contravened.315 Wherever it is an offence to possess a certain class of goods, then it will
be for the prosecution to prove that the defendant had knowledge of his possession or control
thereover.316 Statutory provisions criminalizing the possession of illicit goods, even where no
particular mens rea is explicitly mentioned, tend to be interpreted by the courts, in most
common law countries, as offences requiring proof of the possessor having knowledge of the
goods being illicit goods. Where a person obtains control over illicit goods, absent knowledge
of the illicit nature thereof, he will lack the knowledge for it to be said that he is 'in
possession' thereof. He will however have the required knowledge where he subsequently
becomes aware of its true nature but despite that knowledge unlawfully maintains control over
it.317 An inference of knowledge may be, and is often drawn from the surrounding

314
See the Australian case of Lyons v Smart [1908] HCA 34 where Isaacs J inter alia remarked that: “It is plain
the legislature meant to make some possession unlawful, and I understand it to be possession that would
contravene the Act, that would not exist if the provisions of the Statute were obeyed, and that the conscious
possession by a person of any imported goods that could not, without some contravention of the Act, be in his
possession at all is unlawful and therefore an offence.
315
In First National Bank of South Africa Limited Trading as Wesbank v Minister of Finance 2002 (4) SA 768
(CC), a South African case, it was correctly said that: “It is trite law that possession of a movable requires both
physical control (detentio) and the necessary state of mind (animus). When used in a statute the context will
determine what state of mind is required for possession in terms of such statute.”
316
See Director of Public Prosecutions v Brooks [1974] AC 862, 866, Lord Diplock remarked: “In the ordinary
use of the word “possession”, one has in one's possession whatever is, to one's own knowledge, physically in
one's custody or under one's physical control.” Also see R v Warner [1969] 2 AC 256 where Lord Guest at 298
inter alia said: "there must be knowledge before there can be possession. There is no possession by a man until
he knows what he has got”. In the Australian case of He Kaw Teh v R [1985] HCA 43, Gibbs J had the following
to say in regards to the words “has in his possession” as it appeared in section 233B(1)(c) of the Australian
Customs Act as it was framed at the time: “The effect of the authorities to which I have referred is that where a
statute makes it an offence to have possession of particular goods, knowledge by the accused that those goods
are in his custody will, in the absence of a sufficient indication of a contrary intention, be a necessary ingredient
of the offence, because the words describing the offence (“in his possession”) themselves necessarily import a
mental element. In such a case it is unnecessary to rely on the common law presumption that mens rea is
required. The question then is whether the words of the Customs Act contain a sufficient indication that the
Parliament intended that knowledge should not be an ingredient...”. In Director of Public Prosecutions v Brooks
(1974) AC 862 at 866 Lord Diplock inter alia said: “In the ordinary use of the word 'possession', one has in one's
possession whatever is, to one's own knowledge, physically in one's custody or under one's physical control.” In
Reg. v. Boyesen (1982) AC 768 and at 773 Lord Scarman inter alia remarked: “Possession is a deceptively
simple concept. It denotes a physical control or custody of a thing plus knowledge that you have it in your
custody or control. You may possess a thing without knowing or comprehending its nature: but you do not
possess it unless you know you have it.” In Williams v The Queen (1978) 140 CLR 591 and at 610, Aickin J
inter alia said: “It is necessary to bear in mind that in possession there is a necessary mental element of intention,
involving a sufficient knowledge of the presence of the drug by the accused. No doubt in many cases custody of
an object may supply sufficient evidence of possession, including the necessary mental element, but that is
because the inference of knowledge may often be properly drawn from surrounding circumstances.”
317
See Lyons v Smart [1908] HCA 34 (High Court of Australia) where Isaacs J inter alia remarked: “The person
who evades payment of duties or the prohibitory clauses of the Act is a public offender; can it be reasonably
contended that another who knows of his offence is morally justified in taking from him the proceeds of that
459 CUSTOMS FRAUD

circumstances.318 It is to be noted that knowingly taking possession of smuggled goods was

historically, and is still made punishable as the actus reus of numerous evasion or fraud
offences, not only in Britain and the United States but also in many other Commonwealth
jurisdictions.319 In the case of these offences, it will also be for the prosecution to prove the
intent to evade or to defraud.

4.10.4.4 The illicit goods

All goods imported or exported, and all excise goods subject to Customs-control, must be
declared in the prescribed manner. Goods entered into free circulation absent declaration to
Customs will be illicit goods. Illicit goods will remain illicit until such time as declared to
Customs, regardless how many times it has changed hands within the smuggling supply-
chain. Certain categories of illicit goods are such that most will immediately recognize or
suspect it to be illicit. This is typical of some types of prohibited goods such as military grade
weaponry and child pornography. The reality however is that most of the illicit goods in
circulation today tend to be everyday commodities such as vehicles, electronics, clothing,
food, alcohol, cigarettes etc. As these commodities lack what can be described as an intrinsic
unlawful character, but rather tend to be illicit simply because of a tainted history, few will be
able to distinguish licit from illicit in the absence of other surrounding circumstances that
should alert them to there being irregularities.

It is for the prosecution to prove the illicit nature of the goods, and it is also for the
prosecution to prove the defendant's knowledge of its illicit nature. Assume X is charged with
harbouring a shipment of amphetamine. Neither the allegation of it being amphetamine, nor
the allegation of it being prohibited can be accepted just on the say-so of customs officer Q
who discovered and seized it. It is for the prosecution to prove beyond reasonable doubt that:

(a) X harboured the goods at the time in question (e.g. found concealed in his premises);
(b) The goods so harboured by X were found to be amphetamine;
(c) That amphetamine at that time was subject to a prohibition under statute Z;
(d) That X knew he was harbouring it;
(e) That X so knowingly harboured it with knowledge of the prohibition;

Proving the goods to be amphetamine obviously calls for scientific analysis and evidence. The
integrity of the evidential chain will of course also need be sufficiently intact. The mens rea
required to be present for conviction will of course depend on the offence X is charged with.
The burden of proving that mens rea rests with the prosecution. The same principles apply in
relation to dutiable goods on which duty has been evaded. Assume X is not charged with
harbouring amphetamine but with harbouring uncustomed goods on which the prosecution
allege duty was evaded. Neither the allegation of it being dutiable goods, nor the allegation of
duty on it having been evaded can just be accepted on the say-so of the customs officers. It is
for the prosecution to prove beyond reasonable doubt that:

(a) X harboured the goods at the time in question;

(b) The goods so harboured by X were goods of class QR;

offence? And if bona fide taken at first, should subsequent knowledge of that offence be brought home to the
recipient is he morally absolved though he still secretly retains the profits of the public plunder or public
disadvantage? As well, in my opinion, can a man either morally receive stolen property knowing it to be stolen,
or, if he at first gets it honestly, retain it after knowledge of the truth.”
318
See Williams v The Queen (1978) 140 CLR 591, 610
319
See e.g. section 170 of the Customs and Excise Management Act 1979 (United Kingdom) and section 545 of
the US Code (18 USC Sec.545 (Title 18, Part I, Chapter 27, Sec. 545)
460 CUSTOMS FRAUD

(c) Goods belonging to class QR were at the time in question subject to duties imposed
under statute P;
(d) That at the time when X was so caught harbouring the goods, the duties on that goods
was not accounted for;
(e) That the harbouring of goods belonging to class QR under those circumstances and
where the duties have not been accounted for was unlawful;
(f) That X harboured the goods with the prerequisite knowledge (knowledge of the nature
of the goods and knowledge of the unlawfulness of his conduct);

Proving the goods to be goods belonging to class QR may also, as would be the case with the
amphetamine, call for evidence. The mens rea required to be present for conviction will in
this instance also depend on the offence X is charged with. The burden of proving that mens
rea rests with the prosecution. In Britain, the Customs and Excise Management Act 1979, in
common with the customs legislation of most jurisdictions, contain a range of provisions
providing for the seizure, detention and forfeiture of goods dealt with contrary to the
legislation.320 Any goods so unlawfully taken possession of, carried, removed, deposit,
harboured, kept, concealed, or dealt with, will be subject to seizure and forfeiture.

4.10.4.5 Fraudulent evasion

The conduct of those who knowingly take possession, convey, harbour, deal in, or deal with
illicit goods, knowing that in doing so they are evading a prohibition, restriction, or duty, or
assisting another in the evasion of such a prohibition, restriction, or duty, is no less dishonest
than that of the offender who smuggles the goods into the country. The acts of taking
possession of, conveyance, harbouring, dealing in, and dealing with the illicit goods,
invariably forms part of a chain of conduct the consequences of which will, unless detected
and interdicted, be the defrauding of the Customs. In Britain, the statutory evasion offences
provided for under subsections 170(1)(a) and 170(1)(b) of the Customs and Excise
Management Act 1979 makes punishable as 'fraudulent evasion' the taking possession of, the
carrying, the removing, the depositing, the harbouring, the keeping, or the concealing of
goods where this is done with the intent to evade duty, prohibitions, or restrictions.321 In the
United States, section 545 of the US Code makes it punishable as smuggling for any person to
knowingly receive, conceal, buy, sell, or facilitate the transportation, concealment, or sale of
merchandise unlawfully imported into the United States.322 The actus reus of these offences

320
See sections 49, 139, 140, 141 of the Customs and Excise Management Act 1979
321
Section 170(1) reads as follows: “170 Penalty for fraudulent evasion of duty, etc (1) Without prejudice to any
other provision of the Customs and Excise Acts 1979, if any person - (a) knowingly acquires possession of any
of the following goods, that is to say - (i) goods which have been unlawfully removed from a warehouse or
Queen’s warehouse; (ii) goods which are chargeable with a duty which has not been paid; (iii)goods with respect
to the importation or exportation of which any prohibition or restriction is for the time being in force under or by
virtue of any enactment; or
(b) is in any way knowingly concerned in carrying, removing, depositing, harbouring, keeping or concealing or
in any manner dealing with any such goods, and does so with intent to defraud Her Majesty of any duty payable
on the goods or to evade any such prohibition or restriction with respect to the goods he shall be guilty of an
offence under this section and may be detained.
322
Section 545 of the US Code (18 USC Sec.545 (Title 18, Part I, Chapter 27, Sec. 545) reads as follows:
“Whoever knowingly and wilfully, with intent to defraud the United States, smuggles, or clandestinely
introduces or attempts to smuggle or clandestinely introduce into the United States any merchandise which
should have been invoiced, or makes out or passes, or attempts to pass, through the custom house any false,
forged, or fraudulent invoice, or other document or paper; or Whoever fraudulently or knowingly imports or
brings into the United States, any merchandise contrary to law, or receives, conceals, buys, sells, or in any
manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the
same to have been imported or brought into the United States contrary to law - Shall be fined under this title or
imprisoned not more than five years, or both. Proof of defendant's possession of such goods, unless explained to
461 CUSTOMS FRAUD

consists of the taking possession of, carrying, removing, depositing, harbouring, keeping,
concealing or in any manner dealing with the goods.323 The actus reus must furthermore be
accompanied with the prerequisite knowledge and intent. Words like 'knowingly', 'wilfully',
'evade', and 'intent to defraud' can consistently be found in smuggling provisions targeted
against this type of conduct. Knowledge and the intent to evade or intent to defraud can
consistently be found to be a material element of offences of this nature.

The offences provided for under section 170 are intended to punish and deter any person who
knowingly enters the smuggling chain and knowingly participates in the illicit trade,
regardless the stage at which he does so participate, and regardless his personal legal interest
and relationship in relation to the goods so taken possession of, carried, removed, deposited,
harboured, kept, or dealt with. Legislatures can, and often do, enact strict liability offences
making punishable the dealing with uncustomed goods, but then those penal provisions will,
due to their wide application and absent the dolus element, and unlike these section 170
provisions, not be true smuggling offences targeted against and limited to smugglers intent on
defrauding the Customs. 'Smuggling' or 'fraudulent evasion' offences such as that provided for
under section 170 are targeted against those who knowingly and fraudulently contravene the
law, not the merely careless, negligent, or innocent possessor. Where the latter carelessly,
negligently, or otherwise innocently acquires possession off, carry, remove, keep, or deals
with the illicit goods absent knowledge of the goods being illicit, and absent the intent to
defraud, then he will lack the prerequisite mens rea for conviction under these offences.
Those who take possession, carry, remove, deposit, harbour, keep, conceal, or deal with such
goods must be proven to have so taken possession, carried, removed, deposited, harboured,
kept, concealed, or dealt with same with knowledge of the goods being uncustomed. Where
the taking possession, carrying, removing, depositing, harbouring, keeping, concealing, or
dealing therein is charged as the actus reus of a fraud or evasion offence such as that provided
for under section 170, then the required intent to defraud will need to be proven.324

Smuggling and evasion being just species of fraud, doing so successfully is a matter of
successful concealment, artifice, deception, or misrepresentation. Those who so unlawfully
convey, harbour, deal with, or deal in the illicit goods, rely heavily on concealment,
deception, and misrepresentation, often involving multiple misrepresentations to various
parties and in different settings. These may include but is not limited to the use of false
commercial documents or certificates, fraudulent customs entries, the keeping of fraudulent
stock and/or warehouse registers, the making of false statements to customs officers and/or
regulatory bodies, and physical concealment and camouflage. The possibility of the offender’s
conduct constituting a fraud against persons other than the Revenue and/or Customs can also

the satisfaction of the jury, shall be deemed evidence sufficient to authorize conviction for violation of this
section…”
323
See e.g. Customs & Excise v Anglo Overseas Ltd [2004] EWHC 2198 (Ch) where the Court (per Lewison J)
and referring to section 170 of the Customs and Excise Management Act 1979 (making punishable the
fraudulent evasion of duty), inter alia said: “The actus reus of this offence may consist in taking possession of
goods.” Also see R v Neal and Others 77 Cr App R 283.
324
See R v Cohen (1950) 34 Cr.App.R. 239 (index) at 245 where (referring to a similarly worded offence) it was
inter alia said: “another ingredient of the offence is the intent to defraud, and of this the jury should be reminded.
But as in all cases where an intent to defraud is a necessary ingredient, the intent must usually be inferred from
the surrounding circumstances. If a jury is satisfied that the defendant knew, which, of course, would include a
case in which he had wilfully shut his eyes to the obvious, that the goods were uncustomed, and he had them in
his possession for use or sale, it would follow, in the absence of any other circumstance, that he intended to
defraud the revenue. That there may be cases where the circumstances would negative the intent is possible, but
ordinarily speaking it is indeed difficult to see how it could be found that he did not intend to defraud the
revenue, certainly in such a case as the present, where the appellant not only had the goods in his possession for
the purpose of selling but told lies to the officers when he challenged on the matter”.
462 CUSTOMS FRAUD

not be excluded. A good example will be the situation of the retailer selling on to his shop-
owner clients smuggled goods which he knowingly buys from a gang of smugglers. Many an
unsuspecting customer may in turn acquire the goods absent any knowledge or even suspicion
of the goods being illicit. The average honest trader or customer will generally acquire the
goods in good faith without any cause to suspect that what he is being sold to be anything
other than goods lawfully being traded within free circulation. Many of those shopkeepers and
customers may well not have purchased the goods in question had they been aware of the
goods being ‘smuggled’ goods. The act of knowingly selling on to an unsuspecting customer
illicit goods can be argued to be an act of misrepresentation in itself.325

4.10.5 Fraudulent refund claims

Many situations may present themselves where taxpayers or traders may be entitled to claim
refunds of duty or VAT. Not surprisingly, there are also those whom are fast to exploit any
vulnerability in those refund-systems with the result that revenue and customs administrations
annually loose vast amounts of money as a result of fraudulent claims. Many of these
fraudulent claims relate to duty placed on deposit pending proof of preference, entitlement to
the repayment of drawback duty, or entitlement to the repayment of VAT. In earlier
discussions we already pointed out that any unlawful circumvention of the customs laws
which has as consequence the unlawful evasion of a duty or tax, and where this is done with
the prerequisite mens rea, will be fraudulent. Any false claim which has as consequence the
unlawful evasion of a duty or tax, or which has as consequence the unlawful obtaining of a
refund in duty or tax, and where this is done with the prerequisite mens rea, will also be
fraudulent. In the legislation of most jurisdictions are to be found penal provisions making
punishable fraudulent claims made with the view: to obtain the payment of duty or tax the
claimant is not legally entitled to; or to secure the repayment of duty or tax where the claimant
is not legally entitled thereto; or to obtain a credit in duty or tax the claimant is not legally
entitled to.326 Those penal provisions may not necessarily always describe the conduct in
question as 'fraudulent', but fraudulent it certainly is. To knowingly and willfully claim a
refund in duty or tax you are not legally entitled to can not be classed as anything but
fraudulent.

325
See Turner, Actionable Misrepresentation at 74 where it was inter alia said that: “Another class of
representation by conduct comprises cases in which an act or transaction may be lawfully or unlawfully carried
out, and where (since the law presumes against illegality) the mere doing of the act or entering into the
transaction is equivalent to a representation that all those circumstances and conditions exist but for which the
act or transaction would be unlawful. Thus the act of delivering an article of food to a customer, at his request,
the delivery of which article in an adulterated state would be a statutory offence, is, of itself, a representation that
it is unadulterated”
326
See e.g. 18 U.S.C. 550 (United States), section 235 of the Tax Administration Act (South Africa), and section
72 of the Value Added Tax Act 1994 (United Kingdom). 18 U.S.C. 550 e.g. reads as follows: "§ 550. False
claim for refund of duties - Whoever knowingly and willfully files any false or fraudulent entry or claim for the
payment of drawback, allowance, or refund of duties upon the exportation of merchandise, or knowingly or
willfully makes or files any false affidavit, abstract, record, certificate, or other document, with a view to
securing the payment to himself or others of any drawback, allowance, or refund of duties, on the exportation of
merchandise, greater than that legally due thereon, shall be fined under this title or imprisoned not more than two
years, or both, and such merchandise or the value thereof shall be forfeited." Also see section 136(1) of the
Customs and Excise Management Act 1979 which makes it punishable to (with intent to defraud Her Majesty)
obtain or attempt to obtain, or to do anything whereby there might be obtained by any person, any amount by
way of drawback, allowance, remission or repayment of, or any rebate from, any duty in respect of any goods
which is not lawfully payable or allowable in respect thereof, or is greater than the amount so payable or
allowable.
463 CUSTOMS FRAUD

Preferences
Trade agreements are a common feature of today's global trade (and political) landscape.
Subjects that are almost always covered in those agreements are tariffs and preferences.
Under preference agreements certain classes of goods meeting specific rules of origin can be
imported into those States at preferential rates of duty (assuming preferential rates are agreed
upon between those contracting States).327 There are strict rules as to when an importer will
be entitled to the preference, the procedure for the claiming thereof, and the form of the
preference certificate. As can only be expected there will always be the crooked importer
claiming preference where he/she is not legally entitled to same. In backing up that false
claim they will often employ various tricks and misrepresentations e.g. the use of fraudulent
certificates, and/or misrepresentations as to the true nature and/or origin of the goods. With
the view to pass inspection, these importers will often make use of misleading markings,
labelling, packaging, and documentation, so as to mislead the Customs as to the true nature
and/or origin of the goods. Where duties were paid on deposit, fraudulent claims for the
refund of those duties are not uncommon.

Drawbacks
The Revised Kyoto Convention328 defines the 'drawback procedure' as follows: “Drawback
procedure” means "the Customs procedure which, when goods are exported, provides for a
repayment (total or partial) to be made in respect of the import duties and taxes charged on the
goods or on materials contained in them or consumed in their production.” Section 1 of the
Customs and Excise Management Act 1979 defines “drawback goods” as meaning “goods in
the case of which a claim for drawback has been or is to be made”. The drawback procedure
applies to both: (a) locally manufactured duty paid excise goods that are exported;329 and (b)
imported goods on which import duty was paid and then subsequently exported.330 The
drawback is for all practical purposes a reimbursement of duty, subject to certain conditions
being met. Those conditions it must be noted may differ from jurisdiction to jurisdiction. The
goods in question must be eligible for repayment under the drawback procedure and the
drawback claim must be backed up with supporting evidence. For any drawback claim on
such duty paid excise goods to be valid, the goods may not be consumed in the UK. The
repayment of the duties under the drawback procedure inter alia relies on the fact of
exportation. Many of the drawback frauds out there involve deception as to the fact of
exportation. In misleading the Customs as to the fact of exportation, the offender will often
employ the same old tricks and ruses so commonly employed with other diversion frauds (e.g.
submitting fraudulent documentation purporting to prove exportation but: the goods in fact
never left as the trucks dispatched were in fact empty, or just part of the goods was in fact
dispatched, or the true goods was in fact substituted with other goods; or the goods were taken
out but subsequently (clandestinely) rerouted back over the frontier (thus smuggled in again).

VAT scams
The VAT system (and the GST system) per se is susceptible to abuse. This became evident
quite soon after first implemented in the UK, South Africa and the European Union. The
revenue and customs administrations in those jurisdictions were soon faced with a range of

327
Black’s Law Dictionary, 6th ed at 1457 defines preferential tariff as a “tariff aimed at favouring the products
of one country over those of another.”
328
The International Convention on the Simplification and Harmonization of Customs Procedures, Kyoto, 18
May 1973 came into force in 1974. The revised Kyoto Convention was adopted by the World Customs
Organization (WCO) in June 1999 and came into force on 3 February 2006
329
In the case of duty paid excise goods the goods must be placed in an eligible customs procedure which
includes warehousing for export, exportation, or destruction.
330
This is common where goods are imported under Inward Processing Relief or where the goods are returned to
the supplier.
464 CUSTOMS FRAUD

very serious and costly frauds. Many of those frauds centred on fictitious imports and exports.
A vendor would typically claim input VAT on locally acquired goods and then ‘export’ the
goods so ‘acquired’. This invariably resulted in a VAT refund for the vendor.331 In many
cases the goods were in fact never exported but were instead diverted into the local market
where it was sold on without accounting for the output VAT. In many instances the goods in
truth and in fact never existed (thus a fictitious acquisition), a claim for the refund of the input
VAT (which was in fact never paid) was filed, and the non-existent goods would again be
'exported'. The net effect of this is the extraction of VAT on the back of wholly fictitious
paper-transactions. These scams are planned and executed with no other objective but the
extraction of vast amounts in refunds from the fiscus and are nothing less but criminal attacks
targeted against the State. These frauds tend to be well planned, and both planning and
execution may be in depth. These frauds will often involve: (a) the setting up of front
‘supplier'- and ‘client-traders’ with fictitious directors, employees, and addresses, often in
multiple jurisdictions; (b) the opening of multiple bank accounts in the names of multiple
entities; (c) the generation of false commercial documentation and records; (d) fraudulent
registrations as VAT vendor, importer or exporter; (e) the simulation of financial transactions
and cash flow; (f) the simulation of import and export transactions; (g) the setting up and
operation of limited trading activities so as to maintain the front of legitimacy; (h) money
laundering activity; and (i) the keeping of false books of account.

4.10.6 Undue Rebates

Certain categories of goods may, subject to the satisfaction of certain specified conditions, be
brought in or be used under rebate of duty. As with everything taxation-related, what is taxed,
when it is taxed, and the applicable rates of taxation, is a matter of law. The commodities that
may at any given time be subject to rebate, and the conditions attached to those rebates, may
change over time. Entitlement to any particular rebate will, as has been stated, be subject to
certain specified conditions being met. Where a person is no longer entitled to a rebate due to
the non-satisfaction of any one or more of those conditions, then he should not be claiming
same. If he knows goods to be rebated goods only to be used within the parameters of certain
specified conditions, then he should not be using the goods in question in breach of those
conditions. To knowingly claim such a rebate or to knowingly use such rebated goods
contrary to the conditions that apply in relation to that rebate or those goods will amount to a
contravention or circumvention of the law. Where that circumvention is part of a scheme to
unlawfully obtain an advantage in duty to which he/she is not legally entitled, and where this
is done dishonestly, then that circumvention will be no less but fraudulent.332

A good example of rebate-abuse (within the British context but just as much a problem in
many other jurisdictions) is that of frauds relating to hydrocarbon oils. Hydrocarbon oils
include fuels such as diesel, petrol and kerosene. The duty and tax on every litre of petrol or
diesel consumed by the British consumer are significant. In the UK, most of the purchase
price on the regular 'non-rebated' fuels, in the region of around 70 percent, consists of duty
and VAT. In the UK most of that duty is collected directly from local refineries based in
Britain. Duty is however also collected from traders trading in imported oils. In Britain,
different classes of hydrocarbon fuel oils are subject to different rates of excise duty. Certain
categories of fuel are treated as 'rebated fuels' and are subject to lower rates of excise duty

331
The same scam has however also long been employed to extract undue refunds out of the GST system. See
e.g. the facts in the Australian case of R v Bromley [2010] VSC 345
332
See e.g R v Miller and Another 1939 AD 106 where the accused was convicted of a fraud committed against
the Union Government, in that he falsely represented to Customs officers that certain conditions for rebate were
met in that material had been processed into clothing. The material in question was in fact not used for that
purpose.
465 CUSTOMS FRAUD

compared to DERV (diesel engine road vehicle fuel). The duty chargeable on DERV is
significantly higher than that of the rebated fuels. Some of those fuels (for example DERV
and 'red diesel' fuel) are basically identical apart from differences in colouration. 'Red diesel
fuel' furthermore also has statutory markers. It is unlawful for rebated fuels to be used for
purposes other than those purposes allowed for under the legislation. Most frauds relating to
hydrocarbon oils involve the inward smuggling of rebated fuel and the onward sale thereof
into home consumption, or the use of rebated fuel for purposes other than what it was
intended for.333 Rebated fuel is typically distributed on to the consumer (the latter acquiring
same knowingly or unknowingly) for 'non-rebate' purposes. Many of these operations are no
less but organised crime operations with criminal syndicates defrauding the Exchequer out of
millions in duty and VAT.334 These frauds also serve as a prime example of how one type of
fraud can have a multi-layered impact on many honest people. Not only is there a loss in duty
and tax, but honest traders (e.g. honest filling-station owners who do not trade in the illicit
fuel) is undercut by their dishonest competitors. The result is the dishonest traders gain
market-share with the honest traders being put out of business. 335 Other dangers are the
environmental risks posed by the dumping of by-product generated from the 'laundering' of
rebated fuels, and other health and safety risks for the public. Smuggling and laundering
operations more often than not takes place with total disregard for the basic health and safety
measures generally associated with the handling, transportation and processing of dangerous
goods.

4.10.7 Outward smuggling

As is the case with goods brought into a customs territory, goods taken out from such a
customs territory must be declared to Customs. The importation, exportation, dealing with,
dealing in, or possession of many commodities imported into or exported from a given
customs territory is often strictly regulated. The failure to inform the authorities of the fact
that goods are being taken out, effectively prevents the authorities from exercising control
over the export of the goods. All goods smuggled into one customs territory obviously comes
from some other customs territory. The inward smuggling, in particular when the goods in
question is of a strictly regulated nature such as narcotics, certain chemicals and
pharmaceuticals, certain strategic metals, weaponry, or restricted technology, will thus very
commonly be mirrored by outward smuggling on the export-side. Outward smuggling may be
intended to evade taxation or to evade prohibitions or restrictions in the import jurisdiction,

333
Smuggling tends to rear its head once material price differentials in that commodity develop between
jurisdictions. The smuggling of diesel has long been a problem in Northern Ireland where diesel is smuggled in
from the Republic of Ireland where the fuel can be acquired at a much lower price.
334
See e.g. R v Owens & Anor [2006] EWCA Crim 2206 where the appellants and four other conspirators were
convicted on charges relating to the fraudulent evasion of duty in contravention of section 170 of the Customs
and Excise Management Act 1979. The conspirators bought 'red diesel fuel' in the name of fictitious buyers and
then 'laundered' the fuel at a plant leased for that purpose. The 'laundering' process involved the treatment of the
'red diesel fuel' with chemicals so as to give it the appearance of DERV (diesel engine road vehicle fuel). The
laundered fuel was then sold on as “diesel engine road vehicle fuel” (DERV). The entire operation was carried
out clandestinely. The conspirators managed to make a profit on the sale of the fuel (sold on as fuel subject to
51.8 pence duty per litre) whereas it was in fact rebated fuel subject to only 3.13 pence of duty per litre. Her
Majesty’s Customs suffered an estimated loss of £1.4 million. It can be argued that the innocent consumer is also
being defrauded. Many customers will purchase the fuel even if they are aware of the fact that the goods in
question is illicit, but those customers who would not have purchased the fuel had they been aware of its illicit
nature can certainly be said to be defrauded where the true nature of the fuel was misrepresented and where that
misrepresentation posed a risk of actual or potential prejudice for him/her. This again underlines the fact that the
same fraud may potentially place at risk more than one party.
335
In these instances the information as reflected in the dishonest trader’s records, stock registers, and books of
account, will in most instances be false so as to conceal the fact of acquisition and sale of the rebate goods. As
these sales will usually not be reflected and declared, income taxes will usually also be evaded on those sales.
466 CUSTOMS FRAUD

the export jurisdiction, or both. This type of activity is just as often associated with the
evasion of exchange controls, the facilitation of illegal barter transactions, to cover money
laundering, and the circumvention of sanctions. The commodities in question may, depending
on its nature and the legal framework of the export jurisdiction, be subject to varying levels of
state control. Some of those commodities may also be subject to control under international
treaties. Although outward smuggling will seldom have a direct duty or tax impact on the
export jurisdiction (with some exceptions in some jurisdictions), outward smuggling can still
have serious economic, security and even political consequences for that jurisdiction.

Those engaged in the outward smuggling may source or obtain the export goods in question
legally or illegally. The unlawful operation will more often than not involve the participation
of various individuals and groups, often at different stages as the goods progress along the
supply-chain. At the operational level, the goods will often pass hands more than once before
it reaches the target destination. Various individuals and groups may thus at some point in
time be in possession of the goods. As those goods may well undergo varying levels of
processing at various stages, the form and character of the goods may obviously change along
its journey. As is the case with ‘inward smuggling’, the goods can also be taken out by either
‘bypassing the customs’ or ‘the passing of false papers’ through the Customs.

Where the exportation of a given commodity is subject to certain prohibitions or restrictions,

then the wilful evasion of those export controls will be no less fraudulent than the evasion of
import controls or the evasion of import duties and/or taxes. Export controls can also be
fraudulently evaded. The same applies where, albeit rarely nowadays, an export is indeed
subject to an export duty or levy and where there is a wilful evasion of those duties or levies.
In the legislation of most jurisdictions will usually be found an array of offences making
punishable not only the fraudulent evasion of restrictions or duty on imports, but also offences
making punishable the fraudulent evasion of restrictions or duty on exports, and/or the
smuggling of goods into foreign jurisdictions.336 Those penal provisions will also not

336
See e.g. 18 U.S.C, sections 554 and 546. Section 554 (18 U.S.C. 554) reads as follows: "§ 554. Smuggling
goods from the United States - (a) In General.— Whoever fraudulently or knowingly exports or sends from the
United States, or attempts to export or send from the United States, any merchandise, article, or object contrary
to any law or regulation of the United States, or receives, conceals, buys, sells, or in any manner facilitates the
transportation, concealment, or sale of such merchandise, article or object, prior to exportation, knowing the
same to be intended for exportation contrary to any law or regulation of the United States, shall be fined under
this title, imprisoned not more than 10 years, or both. (b) Definition. - In this section, the term “United States”
has the meaning given that term in section 545." Section 546 reads as follows: "§ 546. Smuggling goods into
foreign countries - Any person owning in whole or in part any vessel of the United States who employs, or
participates in, or allows the employment of, such vessel for the purpose of smuggling, or attempting to smuggle,
or assisting in smuggling, any merchandise into the territory of any foreign government in violation of the laws
there in force, if under the laws of such foreign government any penalty or forfeiture is provided for violation of
the laws of the United States respecting the customs revenue, and any citizen of, or person domiciled in, or any
corporation incorporated in, the United States, controlling or substantially participating in the control of any such
vessel, directly or indirectly, whether through ownership of corporate shares or otherwise, and allowing the
employment of said vessel for any such purpose, and any person found, or discovered to have been, on board of
any such vessel so employed and participating or assisting in any such purpose, shall be fined under this title or
imprisoned not more than two years, or both. It shall constitute an offense under this section to hire out or charter
a vessel if the lessor or charterer has knowledge or reasonable grounds for belief that the lessee or person
chartering the vessel intends to employ such vessel for any of the purposes described in this section and if such
vessel is, during the time such lease or charter is in effect, employed for any such purpose." Also see section 68
of the Customs and Excise Management Act 1979 (Britain) reading as follows: “68. Offences in relation to
exportation of prohibited or restricted goods (1) If any goods are - (a) exported or shipped as stores; or (b)
brought to any place in the United Kingdom for the purpose of being exported or shipped as stores, and the
exportation or shipment is or would be contrary to any prohibition or restriction for the time being in force with
respect to those goods under or by virtue of any enactment, the goods shall be liable to forfeiture and the
exporter or intending exporter of the goods and any agent of his concerned in the exportation or shipment or
467 CUSTOMS FRAUD

necessarily always be customs offences. Many of those offences may be under legislation
dealing with things like arms-control, narcotics, or medicine. Such cases may in some
instances, depending on the facts of the case and the legal framework of the jurisdiction in
question, quite possibly be prosecuted under other general offences, often general fraud
offences.337

The smuggling rings engaged in the inward smuggling of goods into the import jurisdiction
will often be assisted by the exporters, whom may well also be smuggling the goods, albeit
outwards from the export jurisdiction. Both these groups may however also be part of the
same criminal gang. Assistance may typically consist of: preparing and/or providing
fraudulent documentation; assisting with the concealment of the illicit goods in vehicles,
boats, other goods, containers, or luggage; the application of fraudulent packaging, labelling,
or markings; the processing of goods in a manner, shape or form intended to thwart customs
inspectors, etc. Not to be dismissed is the possibility of those engaged in the outward
smuggling incurring criminal liability in both the export and import jurisdiction. This
obviously depends on the facts of the case and depending on the legal frameworks of the
export and import jurisdictions. In many instances both the exportation and importation will
be planned, and/or be executed by the same individuals. But even where this is not the case, in
most common law countries the rules of accessory liability also captures those who aid, abet,
assist with, counsels, or procure the commission of most crimes. Where the exporter
knowingly assists an importer with the fraudulent evasion of import restrictions or duty in the
import jurisdiction, then the former will usually be viewed as and can be prosecuted as an
accessory in the import jurisdiction. In practice however, prosecution of those 'foreign'
accessories is a rare occurrence considering the practical difficulties associated with cross-
border investigations and the associated effort, time, and cost.

In Britain, the Customs and Excise Management Act 1979, in common with the customs
legislation of most jurisdictions, provides for a range of provisions providing for the seizure,
detention and forfeiture of goods dealt with contrary to the legislation.338 Where there is a
fraudulent evasion of export restrictions or duties, the export goods will with very few if any
exceptions be subject to seizure and forfeiture.

The outward smuggling of natural resources

Many states have for centuries battled with smugglers engaged in the outward smuggling of
goods that were at that time viewed to be a national resource. In 18th century England, wool
was not only considered to be a valuable resource, but was also a commodity the export of

intended exportation or shipment shall each be liable on summary conviction to a penalty of three times the
value of the goods or level 3 on the standard scale], whichever is the greater. (2) Any person knowingly
concerned in the exportation or shipment as stores, or in the attempted exportation or shipment as stores, of any
goods with intent to evade any such prohibition or restriction as is mentioned in subsection (1) above shall be
guilty of an offence under this subsection and may be detained. (3) Subject to subsection (4) [or (4A)] below, a
person guilty of an offence under subsection (2) above shall be liable - (a) on summary conviction, to a penalty
of the prescribed sum or of three times the value of the goods, whichever is the greater, or to imprisonment for a
term not exceeding 6 months, or to both; or (b) on conviction on indictment, to a penalty of any amount, or to
imprisonment for a term not exceeding 7 years, or to both.”
337
In the United States for example, the so-called ‘wire-fraud’ offence have in the past been used in dealing with
smugglers who defrauded the Canadian government out of duty on goods smuggled from the United States. In
Pasquantino v United States [2005] USSC 25, the petitioners were engaged in a smuggling operation involving
the smuggling of liquor from the United States into Canada. The Fourth Circuit affirmed their convictions,
rejecting the petitioners’ argument that the prosecution contravened the common-law revenue rule which bars
courts from enforcing another state’s tax laws. On appeal, the Supreme Court held that a plot to defraud a foreign
government out of tax revenue did indeed amount to ‘wire-fraud’ and affirmed the convictions.
338
See sections 49, 139, 140, 141 of the Customs and Excise Management Act 1979
468 CUSTOMS FRAUD

which was heavily taxed. On the 9th of September 1747, four young men, Thomas Puryour,
George Lancaster, Thomas Fuller and Hosea Youell, stood trial at the 'Old Bailey’, London,
England, for the smuggling of wool from England to France. In the transcript from the
proceedings, the judge was quoted as having said:339

“I have hitherto had my eye only on one branch of smuggling, viz. the running of prohibited
goods from abroad,…but there is another not less pernicious to the Commonwealth, viz.
running of unwrought wool from England to France. The damage done the industrious clothier
in all parts of the Kingdom, is too glaring to need any exaggeration. If we only consider what
a number of hands are employ'd in manufacturing a ship-load of wool, who must all starve
when that wool is exported to our rivals in trade, and enemies to our interest. This trade
employs the poor among the French, strengthens their hands, increases their treasure, and
enables them to vye with us at foreign markets in our staple commodities. A few mercenary
masters of Sheep-Walks may gain by this pernicious trade, but how many thousands, nay,
millions of poor have reason to curse the ill-gotten wealth”

The four men concerned were convicted, sentenced to death, and hung. Draconian as the
sentences may have been, the problem in issue and the judge's reasoning is just as valid today
as it was when these young men met their untimely end. Outward smuggling is particularly
problematic for many developing countries where the economies of many of those States
often rely on the sale and export of raw materials. The economies of many States and regions
in Africa, South America, South East Asia, and the former Soviet Union comes to mind. The
commodities so smuggled may range from diamonds and gold,340 to platinum, copper, animal
products, timber,341 and oil. The fact that the trade in the goods goes unrecorded, in the
underground economy, also means the income generated goes undeclared with the resultant
tax impact.342 The mechanics of these frauds may vary but will always involve either
clandestine smuggling without making entry, or the filing of fraudulent entries (usually with
the goods concealed or given out as something other than what it in fact is).343 The foreign

339
See Trial of Thomas Puryour, George Lancaster, Thomas Fuller and Hosea Youell, heard 9th September,
1747, London, Ordinary's Account 16th November 1747, “The Proceedings of the Old Bailey, London’s Central
Criminal Court, 1674 to 1913”
340
See e.g. Global Forum on International Investment, Conference on Foreign Direct Investment and the
Environment, The Relevance of the OECD Guidelines for Multinational Enterprises to the Mining Sector and the
Promotion of Sustainable Development, OECD, February 2002, where at 8 it was inter alia stated: “At the end of
last year, the report of the UN Security Council Expert Panel provided details on the smuggling of diamonds
from the Democratic Republic of Congo (DRC) into almost every neighbouring country, and of collusion
throughout the entire region. An estimated one third of the total rough diamond production of the Democratic
Republic of the Congo, valued at $300 million a year, is smuggled out of the country.”
341
See e.g. Obidzinski et al, Timber smuggling in Indonesia – Critical or Overstated Problem ? : Forest
Governance Lessons from Kalimantan, 2006
342
See National Director of Public Prosecutions v Naidoo and Others [2006] ZAGPHC 30 where Rabie J,
referring to the outward smuggling of stolen platinum group metals inter alia remarked: “Apart from the loss
suffered by the mining sector, the government also suffers large revenue losses due to taxes and royalties which
are not paid by criminals in respect of stolen product. Platinum is an extremely valuable commodity…..Platinum
is sought after worldwide. Precious metals are a national asset of South Africa and earns a large amount of
foreign currency and provides substantial employment opportunities.”
343
See e.g. National Director of Public Prosecutions v Naidoo and Others [2006] ZAGPHC 30 (South Africa)
where 21 defendants were part of an elaborate criminal network engaged in the outward smuggling of stolen
platinum from South Africa to Britain. This criminal operation inter alia involved: (a) the smuggling of stolen
platinum from South Africa to Zambia from where it was exported to the United Kingdom. The goods were so
smuggled by: (i) the concealment of the goods (in false compartments in motor vehicles) without making entry;
and (ii) entering the goods as something other than platinum but with the platinum covered up/ concealed under
the commodities indeed declared (in the containers); (b) platinum was exported directly from South Africa to the
United Kingdom under the cover of fraudulent entries. Details pertaining to the name of the consignor, the goods
descriptions, and the value of the goods were false; and (c) platinum was exported by companies who had
licenses to export goods containing legitimate platinum components such as computers and telephone
469 CUSTOMS FRAUD

buyer’s involvement will not always be just that of an innocent foreign buyer. In many
instances he may also be complicit, or may quite well be a kingpin in the unlawful operation.
He may typically be knowingly concerned in the unlawful mining, theft, manufacture, or
acquisition of the goods, and/or may knowingly finance the operation or part thereof. It is not
uncommon to find that the stripped resources are paid for with barter-goods, the latter often
illicit goods.344 Apart from the economic impact, the State’s right of control over the outward
movement of goods, and the State’s fiscal policies are also being subverted. The keeping of
accurate economic and trade statistics is undermined as the trade in and export of those
commodities goes unrecorded.

4.10.8 Failure to disclose a change of circumstances

The business environment and trade in general, can often prove uncertain and unpredictable.
Most traders may at one stage or another be confronted with situations where changing
circumstances may dictate or force upon them a deviation from a planned course of conduct.
It is not uncommon for goods to be entered under one customs procedure, but to subsequently
be dealt with under another. Such a situation will not only affect the procedures to be
followed by both the authorities and the trader, but may also affect the amount in duty
payable, or refunds or rebates claimable. The duty payable on the goods under the procedure
ultimately followed, may be higher than what it would have been had the goods been dealt
with under the procedure initially entered for. Another example is the entering of goods on an
'incorrect' invoice understating the true value, with an amended invoice reflecting the correct
higher value issued post-declaration. There are many situations where the failure to disclose a
change in circumstances may result in an underpayment of duty. Not surprisingly, there are
many traders who knowingly and dishonestly refrain from disclosing a subsequent change in
circumstances, often in the face of, and in breach of, a legal duty to file an amended entry or
to make disclosure.

Both common law and statutory offences are to be found in many jurisdictions where the
wilful failure to disclose certain facts, in breach of a legal duty to disclose, and where
accompanied with the intent to evade a liability, or where accompanied with the intent to
defraud another, is punishable as evasion or fraud. Penal provisions obviously differ from
statute to statute and jurisdiction to jurisdiction, but generally speaking, under most of these
fraud, evasion, or 'fraud-like' offences, it will usually be for the prosecution to prove that: (a)
there was in fact a change in circumstances; (b) there existed a legal duty to disclose that
change of circumstances; (c) there was a failure to disclose that change in circumstances and
that failure was unlawful; (d) the failure to disclose that change in circumstances resulted in or
posed the risk of loss (typically the evasion of a liability, or of that person obtaining a refund
or credit to which he/she was not legally entitled to); (e) the accused at the time when he so
failed to disclose had knowledge of: (i) the change in circumstances; and (ii) the legal duty to
disclose that change in circumstances; (f) the accused so failed to disclose with the intent to
evade a liability or to so obtain a payment, benefit, refund, or credit which he was not legally

equipment. False export documentation was used for these exports, with both the quantities and values of the
goods so exported having been understated.
344
See e.g. Curtis et al, Transnational Activities of Chinese Crime Organizations 2003 where it was inter alia
said: “A highly profitable activity of Chinese criminal groups is the smuggling of raw materials from Russia into
China. Citizens of the economically depressed Russian Far East see cooperation with Chinese traffickers as a
means of survival. The raw materials of primary interest are ferrous and non-ferrous metals, gold, timber, fish,
and agricultural products. Many of these items are considered to be precious national resources in Russia. The
exchange of smuggled goods across the border decidedly favours the Chinese, because contraband alcohol
(much of it substandard or even poisonous) and cigarettes are the items most often moved into Russia from
China. Millions of gallons of illegal vodka move across the Chinese border into the Russian Far East, where the
beverage is very popular because of its cheap price and despite its potential lethality.”
470 CUSTOMS FRAUD

entitled to. These elements just listed do not represent that of any particular given penal
provision, but they tend to be common features of most fraud offences where the actus reus
involves a failure to disclose (and where applied in this particular context).

The unlawful non-disclosure of a change in circumstances in the face of a legal duty to

disclose same, can for all practical purposes be equated with a representation to the effect that
the circumstances have in fact remained unchanged. The key to cases of this nature however
always centre around three key elements being present: firstly proof of the existence of a duty
to disclose; secondly proof of an unlawful non-disclosure; and thirdly that the non-disclosure
was accompanied with the prerequisite intent. Where a trader at the time when he makes
entry, makes his declaration with an honest belief in the truth of its content, then the
declaration cannot be said to be a false declaration. A subsequent fraudulent failure to disclose
to the Commissioners that the circumstances as set out in the earlier declaration has in fact
changed, and is in fact no longer valid, will not make the earlier declaration a fraudulent
declaration. The fraud is to be found in the fraudulent post-declaration failure to disclose the
change in circumstances in the face of a legal duty to do so. The prerequisite intent was only
formed subsequent to the making of the entry.345

4.11 Foiled attempts

Every attempt to smuggle goods in or out of the country will not be successful. From time to
time, consignments of smuggled goods are indeed interdicted and the smugglers apprehended.
The unlawful conduct will often be detected whilst the smugglers or their agents are engaged
in the act of landing, loading, transporting, or clearing of the goods.346 This will often be as a
result of information received. Once the smuggled enter home consumption the likelihood of
interdiction usually dissipates very fast. The fact that the smuggler’s plan is foiled before he
was able to introduce the goods into home consumption will not however free him from
criminal liability.347 The smuggling provisions provided for in the United States, British, and
Australian legislation make punishable not only successful evasion, but also any attempted
illegal importation, exportation, or evasion.348 In many jurisdictions are also to be found
provisions making punishable the attempted commission of any offence (where the offender

345
In Commissioner for Customs v Miller SATC 69 (also cited as 1939 CPD 420), an old colonial decision, the
Commissioners claimed from the defendant a sum in import duties on goods brought into the Union from
overseas and under rebate of duty. The customs regulations at the time provided for certain categories of goods
to be brought in under rebate by certain categories of registered persons. As a further requirement the goods so
brought in could be used only for certain specified purposes as laid down in the regulations. The Commissioners
argued that the defendant fraudulently claimed these rebates as: (i) he imported the goods in question
representing to be a registered person entitled to import the goods under rebate whilst in truth and in fact he was
not so registered; and (ii) he represented that the imported goods was to be used or disposed of as per the
customs regulations for goods imported under rebate, whilst in truth and in fact he subsequently used or disposed
of the goods in another manner. Jones J inter alia remarked that: “It is worthy to remark that in paragraph 12 the
pleader claims the full duty because of “defendant’s aforesaid frauds”, in the plural, which can only mean the
fraud prior to importation and the fraud subsequent to importation; for it may well be that if prior to and at the
time of importation there was an honest intention to use the material in accordance with the undertaking given, a
subsequent departure from that undertaking would in itself give rise to a cause of action.”
346
See e.g. Lloyds of London Underwriting Syndicates 969, 48, 1183 and 2183 v Skilya Property Investments
(Pty) Ltd [2003] ZASCA 112; Pasquantino v United States [2005] USSC 25. See e.g. the English cases of R v
Smith [2001] UKHL 68 where those involved were detected whilst transporting the smuggled cigarettes inland
by boat.
347
This is the case in Australia, Britain and the United States. See e.g. Pasquantino v United States [2005] USSC
25 (United States Supreme Court) and R v Smith [2001] UKHL 68
348
See e.g. section 170(2) of the British Customs and Excise Management Act 1979; section 1 of the Australian
Customs Act 1901; and section 545 of the US Criminal Code (18 USC Sec 545) (Title 18, Part I, Chapter 27).
471 CUSTOMS FRAUD

attempted to commit the offence but where he for some or other reason did not manage to
complete the offence).349

349
See for example section 1 of the Criminal Attempts Act 1981 (England). Also see division 11.1 (under Part
2.4) of the Australian Federal Criminal Code Act 1995
472 OFFENCES

PART V - COMMONLY EMPLOYED OFFENCES

5.1 Introduction
Offences making punishable revenue frauds come in many shapes and forms. In many
jurisdictions the same fraudulent conduct may be indictable under a number of offences. In
many instances the same conduct may well be punishable under either tax legislation or non-
tax legislation. There are still jurisdictions where common law and statutory offences may be
charged in the alternative. A taxpayer finding himself as defendant in a criminal court in one
of those jurisdictions may thus well be charged with either offences at common law or with
some or other statutory offences provided for in statute. In Britain for example, a defendant
may be charged with either the statutory offences provided for in the tax legislation, or with
the old common law crime of ‘Cheating. This then is also the case in South Africa where the
South African common law crime of fraud, a crime very similar to cheating, continues to find
frequent application in tax fraud prosecutions. In Australia and the United States on the other
hand, no common law fraud offences are available in relation to instances of federal tax fraud.
Revenue frauds against the federal government (or Commonwealth in Australia) are dealt
with under the respective criminal codes.1

In most jurisdictions, old common law fraud offences are increasingly being replaced with
statutory offences. In most instances however, one will find those newly created offences to
show a strong resemblance with the common law fraud offences it replaced. In some instances
however differences are to be found in the some of the material elements required to be
proven for a conviction, the width of application of the respective offences, and interpretation.
It is also to be noted that whereas some offences are specially tailored creations intended for
dealing with specific tax-breaches, some of the offences that can find application in tax-
prosecutions are in fact general fraud offences.2 Although there are a number of other
offences making punishable the evasion of a range of duties, taxes, levies, prohibitions and
restrictions, the primary offences currently in use in the United Kingdom in dealing with
revenue and customs frauds are:

(a) Cheating (the revenue contrary to common law);

(b) Section 1 of the Fraud Act 2006 (fraud in general);
(c) Section 106A of the Taxes Management Act 1970 (fraudulent evasion of income tax);
(d) Section 72(1) of the Value Added Tax Act 1994 (fraudulent evasion of VAT);
(e) Section 72(3) of the Value Added Tax Act 1994 (false documents and statements);
(f) Section 72(8) of the Value Added Tax Act 1994(conduct involving the commission of
an offence);
(g) Sections 50(2) and 50(3) of the Customs and Excise Management Act 1979 (improper
importation of goods);
(h) Sections 170 and 170B of the Customs and Excise Management Act 1979 (fraudulent
evasion of duty); and
(i) Section 17 of the Theft Act 1968 (false accounting)

1
In the United States under the United States Code (USC) (Code of Laws of the United States). In Australia the
Criminal Code (Cth) (in the schedules to the Criminal Code Act 1995). Although some Australian States are still
common law jurisdictions (Victoria, New South Wales and South Australia), Commonwealth crimes are only to
be found in the Codes. Section 1.1 of the Criminal Code Act 1995 reads: "The only offences against laws of the
Commonwealth are those offences created by, or under the authority of, this Code or any other Act." Some
Australian Commonwealth offences are still to be found in the Crimes Act 1914, but none of them are relevant
for the purposes of this discussion.
2
The offences provided for under section 17 of the Theft Act 1968 (false accounting) and section 1 of the Fraud
Act 2006 (fraud) being good examples of this latter category.
473 OFFENCES

Any attempt to even briefly discuss just a small sample of the many evasion, fraud,
conspiracy, and other offences out there, and which may depending on the facts of the case
find application, is well impossible. The following discussion will very briefly look at a
number of revenue specific offences, fraud offences, and conspiracy offences currently in use
in the United Kingdom and the United States, the money laundering framework within the
UK context, as well as a number of other offences that may well also be encountered on an
indictment, charged either as additional and or alternative charges.

5.2 Revenue specific offences

5.2.1 UK: 'Cheating' under common law
5.2.1.1 Introduction
We are all familiar with the word ‘cheating’, an old English word of common usage that may
surface in any poker game, conversation, speech, debate or court transcript.3 The English
common-law has however long recognized the crime of ‘cheating’. Hawkins in his A Treatise
of the Pleas of the Crown provided the following definition of “cheating”4:

“....deceitful practices, in defrauding or endeavouring to defraud another of his own right by

means of some artful device, contrary to the plain rules of common honesty.”

In England, the offence of cheating is now reserved for frauds against the public revenue
only.5 The offence may no longer apply in relation to all ‘frauds affecting the public at large’
but it is still commonly used in ‘frauds affecting the Crown’. A useful definition or rather
explanation of what will make out ‘cheating the revenue’ is that provided for in R v Less6
where it was inter alia said:

“Cheating can include any form of fraudulent conduct which results in diverting money from
the Revenue and in depriving the Revenue of the money to which it is entitled. It has, of
course, to be fraudulent conduct. That is to say, deliberate conduct by the defendant to
prejudice, or take the risk of prejudicing, the Revenue’s right to the tax in question, knowing
that he has no right to do so"

In R v Mavji 7 Davies J inter alia had the following to say about ‘cheating the revenue’:

3
We will find many reported cases, English and otherwise, where judges in the course of their judgements
referred to a defendant's conduct as 'cheating'. Most of these references are no more but common usage use
without any intended reference to or connection with the crime of 'cheating'. In the English courts we will also
often find references to a taxpayer or trader's tax fraud or customs fraud as 'cheating' even though the offender
was charged not with the offence of ‘cheating’, but with contraventions of say the Taxes Management Act or the
Customs and Excise Management Act 1979. See e.g. R v Glatt [2006] EWCA Crim 605 and Hansford v R [2006]
EWCA Crim 1225.
4
Hawkins W, A Treatise of the Pleas of the Crown, Vol 1, 8th ed (1795) by J Curwood, 1 PC 318
5
See section 32(1) of the Theft Act 1968 in terms of which the common-law offence of ‘cheating’ was abolished
(as from the commencement of the Act), “except as regards offences relating to the public revenue.”
6
[1993] (Times: 30 March 1993 CA). As quoted in Arlidge & Parry, Arlidge & Parry on Fraud, 2nd ed at 352
and HM Revenue & Customs 2010-11 Accounts: tax disputes, Sixty-first Report of Session 2010-12, House of
Commons Committee of Public Accounts at .91.
7
[1986] STC 508. Also see R v Gill & Anor [2003] EWCA Crim 2256 where the Court of Criminal Appeal
approved of the following directions given to a jury as to the content of the crime of ‘Cheating the Revenue’:
“The meaning of cheat in this indictment, members of the jury, can include any form of fraudulent conduct
which has the result of diverting money from the Revenue and depriving the Revenue of money to which it is
entitled. It has of course to be fraudulent conduct; that it to say, deliberate conduct by the defendant whose case
you are considering, to prejudice or to take the risk of prejudicing the Revenue’s right to the tax in question,
knowing that he has no right to do so....The Crown do not have to prove that tax was actually evaded, providing
that there was deliberate conduct with intent to defraud [and] that there was a risk of tax being evaded.”
474 OFFENCES

“In our judgment, ‘cheating the revenue’ can take place without any positive act of deceit or,
to adopt and respectfully endorse the words of Drake J when ruling on this matter in the
appellant's first trial: “The common law offence of cheating does not necessarily require a false
representation, either by words or conduct. Cheating can include any form of fraudulent
conduct which results in diverting money away from the Revenue and in depriving the
Revenue of money to which it is entitled”. This appellant was in circumstances in which he
had a statutory duty to make the VAT returns and to pay over to the Crown the VAT due. He
dishonestly failed to do either. Accordingly he was guilty of cheating Her Majesty the Queen
and the Public Revenue. No further act or omission required to be alleged or proved”

The fact that a revenue statute does provide for offences making punishable evasion or
fraudulent conduct does not bar from use the offence of cheating.8 Despite the availability of
various other statutory fraud or evasion offences provided for in the various revenue and
customs statutes, the authorities still have the option of charging the offender with ‘cheating’.9
The offence is still commonly employed in dealing with ‘frauds affecting the Crown’. The
‘public revenue’ covers all duties and taxes and one can only conclude that it was
parliament’s intention to retain the offence for all duties and taxes.10

5.2.1.2 Elements
The offence of ‘cheating’ is a common law fraud offence.11 It is a wide offence capable of
capturing a wide range of conduct thanks to the very widely defined or rather interpreted
actus reus element, and then also due to the fact that potential prejudice, or the risk of
prejudice, as opposed to actual prejudice is deemed sufficient for conviction. Both acts and
failures posing the risk of money being diverted from the Revenue, and where accompanied
with the prerequisite mens rea are covered.12 Guilt does not require an overt act of

8
See Norris v United States of America & Ors [2007] EWHC 71 (Admin) where the High Court per Lord Justice
Auld inter alia said: “The common law is replete with examples of conduct that may be chargeable under statute
or at common law, not least conspiracies, various jointly committed offences of dishonesty, including theft, false
accounting, fraudulent trading and tax evasion; and see e.g. the citation in R v Barnett [1951] 2 KB 425, at 427,
of a passage from the judgment of Williams J in Eastern Archipelago Co v The Queen (1853) 2 El & BL 856, at
879. This is a state of affairs that the Interpretation Act 1998, in section 18, not only contemplates, but for which
it makes firm provision: "where an act or omission constitutes an offence under two or more Acts, or both under
an Act and at common law, the offender shall, unless the contrary intention appears, be liable to be prosecuted
under either or any of those Acts or at common law, but shall not be liable to be punished more than once for the
same offence."..... In R v Rimmington [2006] 1 AC 459, which concerned the overlap between the long-
standing common law offence of public nuisance and a variety of statutory offences covering the same conduct,
it was held … that the fact that Parliament creates a statutory offence that covers in whole or in part a common
law offence, without expressly abolishing the latter, does not extinguish the common law offence. Rather, it
places limitations on its use where it could be seen as an improper means of circumventing constraints or
limitations in use of the statutory offence amounting to abuse of process.”
9
See R v Redford (1988) 89 Cr App R1
10
See Arlidge & Parry, Arlidge & Parry on Fraud 2nd ed at 353, 10-003, where it is also inter alia said:
“Although the offence has traditionally been used by the Inland Revenue, the expression ‘the public revenue’
appears to embrace all taxes and duties levied by central government, including those administered by the Board
of Customs and Excise such as VAT
11
See Arlidge & Parry, Arlidge & Parry on Fraud 2nd ed at 353, 10-003, where (referring to cheating) it is inter
alia said: “Moreover it now seems to be regarded as effectively one of fraud, rather than ‘cheating’ in the
ordinary sense.”. Also see R v Less supra where it was said: “… the common-law recognizes an offence of
defrauding the general public, sometimes known as cheating”. The offence of cheating as it is currently applied
closely corresponds with the South African common law crime of fraud. The use of the latter is not however
limited to revenue frauds.
12
See Arlidge & Parry, Arlidge & Parry on Fraud, 2nd ed at 352. Also see R v Mavji [1986] STC 508; R v Gill &
Anor [2003] EWCA Crim 2256; R v Redford (1988) 89 Cr App R1, CA; R v Litanzios [1998] EWCA Crim
2514; R v Dimsey & Anor [1999] EWCA Crim 1917
475 OFFENCES

deception.13 Conduct involving an omissio, thus the failure to do something is sufficient.14

This position is a sound one considering that false representations can and are made by
comissio and/or omissio. In the revenue and customs context just as many frauds, if not the
greater majority, are committed not by false representations in tax returns and customs entries,
but by wilful concealment, evasion and circumvention by the failure to register and/or declare.
The ‘cheat’ may involve either the evasion of a liability to duty or tax,15 or may involve any
fraud intended to unlawfully obtain refunds from the Revenue e.g. MTIC and carousel
frauds.16

Dishonesty is an essential element of the offence.17 The offender must have had the intent to
defraud.18 Mere negligence will never be sufficient. The time-lapse between the time when
the criminal intent was first formed and the point in time when the crime was in fact
completed may range from just a brief moment to many years. The extent of the planning and
preparation that may have gone into the fraud and the complexity of the conduct making out
the actus reus of the crime may also vary from case to case. The fact that a criminal scheme
intended to defraud the Revenue did not go according to plan will not save a defendant where
all the elements of the crime were satisfied. Once the crime is completed it is completed. The
diversion of the money from the Revenue need not be successful. Actual loss is not an
essential element of the offence. It is sufficient for the prosecution to prove that there was a
risk of prejudice to the Revenue’s right to the duty or tax in question.19 This may all seem
academic to many but many tax frauds are in fact committed (in the sense that all the essential
elements of the crime have been satisfied and the crime is completed) before an actual loss
have been suffered. Where there is an initial deprivation, then the deprivation need not be
permanent. Fraudulent conduct intended to delay payment will also be punishable. It is the
fraudulent conduct and the ensuing potential risk that is made punishable, not the actual
consequences. This all being said, the evidence must prove that there was risk of prejudice to
the Revenue. In most revenue cases however, proving that risk will seldom be a hurdle for the
prosecution. The requirement to prove at least the risk of loss does serve an important
function in that it does limit the types of acts or failures that may result in criminal liability.

13
Webster's Revised Unabridged Dictionary (N. Porter, Ed) G & C. Merriam Co. 1913 at 375 defined "deceit"
as: “Deceit ... 1. An attempt or disposition to deceive or lead into error; any declaration, artifice, or practice,
which misleads another, or causes him to believe what is false; a contrivance to entrap; deception; a wily device;
fraud. ... 2. (Law) Any trick, collusion, contrivance, false representation, or underhand practice, used to defraud
another. When injury is thereby effected, an action of deceit, as it called, lies for compensation. Syn - Deception;
fraud; imposition; duplicity; trickery; guile; falsifying; double-dealing; stratagem”. Also see Black, A Law
Dictionary, 2nd Ed at 336 where “deceit” was inter alia defined as: “A fraudulent or cheating misrepresentation,
artifice, or device ... A subtle trick or device, whereunto may be referred all manner of craft and collusion used to
deceive and defraud..”.
14
See R v Litanzios [1998] EWCA Crim 2514; R v Redford [1989] Crim LR 152; R v Mavji [1986] STC 508. In
Mavji for example it was the failure to register for and submit VAT returns. His defence argued that as there was
no commissio (submission of false returns or other overt false representations as to his VAT position) there was
no “deception”. This argument was rejected by the trial court and the conviction was upheld in the Court of
Appeal.
15
See e.g R v Mavji [1986] STC 508. Also see R v Dimsey & Anor [1999] EWCA Crim 1917 where the fraud
involved the evasion of corporation tax.
16
See e.g. R v May & Ors [2005] EWCA Crim 97
17
R v Mavji [1986] STC 508; Mauro v Government of the United States of America [2009] EWHC 150 (Admin)
18
R v Mavji [1986] STC 508; R v Litanzios [1998] EWCA Crim 2514; R v Hunt [1994] STC 819
19
See R v Hunt [1994] STC 819; R v Gill & Anor [2003] EWCA Crim 2256. Also see R v Dimsey & Anor
[1999] EWCA Crim 1917 where it was inter alia said: “But it is a constituent element of the common-law
offence of cheating the Revenue that there should exist such an actual or potential loss. In its absence there could
be no cheat ..”
476 OFFENCES

5.2.1 3. Alternative Charges

There are a number of other offences that may, depending on the facts of the case, be charged
as alternative charges to 'cheating'. These include but are not necessarily limited to the
fraudulent evasion of income tax contrary to section 106A of the Taxes Management Act
1970, fraudulent evasion contrary to section 170 of the Customs and Excise Management Act
of 1979, evasion contrary to section 72 of the Value Added Tax Act 1994, fraud in
contravention of section 1 of the Fraud Act 2006, and false accounting in contravention of
section 17 of the Theft Act 1968. Any number of persons, natural and/or legal can of course
also conspire to cheat the Revenue. The fact that the Revenue is ‘cheated’ by a legal persona
such as a company or a trust does not exclude the criminal liability of those behind the
company or trust who planned and/or executed the fraud.20 Conspiracies may be charged as
conspiracy to cheat the public revenue (contrary to section 1 of the Criminal Law Act 1977 or
common law) and are in fact dealt with as such in a wide range of prosecutions ranging from
income tax evasion to criminal attacks against the tax system.21

5.2.1.4 Sentencing
Cheating is still punishable at large. In Arlidge & Parry on Fraud the writers inter alia noted
that: “Being a creature of the common-law, the offence is punishable at large; it is therefore a
powerful weapon not only where no statutory offence seems appropriate but also where the
maximum penalty seems insufficient.22 This statement still holds true and has been reaffirmed
by Government and the courts alike. A conviction for cheating may mean a long period of
imprisonment that may for many seem disproportionate compared to the maximum sentences
that may be imposed under the statutory tax evasion offences. This perceived
disproportionality is in fact something the courts have in the past considered. In Dosanjh &
Ors v R23 the appellant received a 15 year prison sentence for his part in a MTIC VAT fraud
following a conviction for conspiracy to cheat the public revenue. On appeal against sentence,
Lord Justice Hallett provided the following background:

“Miss Montgomery insists that a "significant and growing discrepancy" has become apparent
in penalties for common law and statutory offences. Unless this "anomaly" is properly
addressed by the court, a prosecutor may simply ignore any restrictions imposed by statute and
choose to charge an offence where no time limits apply or the penalty is at large…. As the law
stands, there are four categories of offence, all of which may apply to the same fraudulent
conduct: i) Common law conspiracy to defraud where sentence was originally at large but
which now carries a maximum of 10 years imprisonment … ii) Common law conspiracy to
cheat ….. Sentence remains at large. iii) The fraudulent evasion of VAT contrary to s.72 of
the Value Added Tax Act 1994, which carries a maximum sentence on indictment of seven
years' imprisonment. iv) A statutory fraud offence, carrying a maximum sentence of ten years'
imprisonment…. Here, the Appellants were convicted of conspiracy to commit the common
law offence of cheating the public revenue. Had they been convicted of statutory fraud or VAT
offences they would have been liable to maximum penalties of ten and seven years
respectively. Miss Montgomery's theme was that it is wrong in principle to pass a sentence on
a common law conspiracy that is longer than the maximum penalty available for the equivalent
statutory offence or the cognate common law charge of conspiracy to defraud.”

20
See e.g. R v Dimsey & Anor [1999] EWCA Crim 1917 where it was inter alia said: “If an individual, having
total de facto control of a company, so arranges its affairs that the company (a) makes profits but (b) does not
declare them to the Revenue, he is obviously cheating the Revenue.
21
See e.g. R v May & Ors [2005] EWCA Crim 97, R v May [2008] UKHL 28, where the appellants were
convicted on charges for “conspiracy to cheat contrary to section 1(1) of the Criminal Law Act 1977” for a
multi-million missing trader VAT fraud.
22
Arlidge & Parry, Arlidge & Parry on Fraud 2nd ed at 353, 10-003
23
[2013] EWCA Crim 2366
477 OFFENCES

The appeal was rejected. In handing down the Court’s judgement, and after referring to inter
alia Mavji,24 R v Ward,25 and R v Randhawa & Ors,26 also revenue related cases where the
discrepancy between the common law and statutory offences were also challenged (but were
also rejected), Lord Justice Hallett proceeded to say:

"It is for Parliament to decide upon maximum and minimum level of sentences, and Miss
Montgomery claimed there is a real possibility of courts encroaching on their territory. Where
Parliament has set maximum sentences for particular conduct, it is not for the courts and the
executive to decide that those sentences are not enough, and that the statutory limits should be
evaded … Here, however, Parliament has created statutory offences of fraud and conspiracy to
defraud to which maximum penalties apply but it has also expressly retained the common law
offence of cheating the revenue. The offence was singled out from the general abolition of
common law dishonesty offences by section 32(1)(a) of the Theft Act 1968. Further, despite
subsequent reviews of the offences of fraud, Parliament has left not only the offence in
existence but the penalty at large. This is entirely consistent with the general approach over
decades to major frauds on the revenue. They have always been treated as offences of
particular seriousness ... Thus, we are entirely confident that as far as Parliament is concerned,
the offence of conspiracy to cheat the public revenue retains its established and clearly
understood role in the prosecution of revenue cases. It is used to supplement the statutory
framework and is recognised as the appropriate charge for the small number of the most
serious revenue frauds, where the statutory offences will not adequately reflect the criminality
involved and where a sentence at large is more appropriate than one subject to statutory
restrictions. These are not 'ordinary' cases."

This then is the current position in England and Wales insofar as the offence of 'cheating' is
concerned. A defendant charged with this offence may thus, in the event of conviction, face a
long prison sentence. In theory a sentence of life imprisonment may be imposed but in
practice that possibility can be excluded. Refer to the last chapter in the manual for a more
detailed discussion on sentencing.

5.2.2 UK: Evasion - Sec 106A Taxes Management Act 1970

Section 106A of the Taxes Management Act 1970 makes punishable the fraudulent evasion of
income tax. The section started life as section 144 of the Finance Act 2000 but was then
transferred over to the Taxes Management Act 1970 as section 106A.27 The section does not
apply to conduct prior to 01 January 2001.28 The framing and wording of the section went
unchanged. Section 106A reads as follows:

"106A Offence of fraudulent evasion of income tax

(1) A person commits an offence if that person is knowingly concerned in the fraudulent
evasion of income tax by that or any other person.
(2) A person guilty of an offence under this section is liable -
(a) on summary conviction, to imprisonment for a term not exceeding 12 months or a fine not
exceeding the statutory maximum, or both, or
(b) on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine, or
both."

This offence cannot be employed in relation to any customs or VAT frauds. Its application is
limited to the evasion of income tax. The person so "knowingly concerned in the fraudulent

24
[1987] 2 All ER 758
25
[2005] EWCA Crim 1926
26
[2012] EWCA Crim 1
27
In terms of the Taxation (International and Other Provisions Act) 2010
28
Section 106A(4)
478 OFFENCES

evasion" need not necessarily be concerned in the evasion of his own income tax. The section
also covers those who are "knowingly concerned in the fraudulent evasion" of another
taxpayer's income tax.

The wording "fraudulent evasion" was seemingly borrowed over from section 170 of the
Customs and Excise Management Act 1979 and section 72 of the Value Added Tax Act 1994.
To fraudulently evade is to evade with the intent to defraud. There must be dishonesty.
"Knowingly concerned" implies both knowledge and participation. Those words have been
used in smuggling offences for at least 150 years. They were thus likely also borrowed from
the customs legislation. To be "knowingly concerned" in some criminal endeavour means
there must be some or other act of assistance or participation. The provision is framed so wide
as to cover almost any likely act of assistance one can in practice expect to encounter. Those
who knowingly order, request, prepare, issue or sign a fraudulent return, false invoices, or
false books of account and where they do so with the prerequisite mens rea will all typically
be viewed as being “knowingly concerned” in the fraudulent evasion. There must be
knowledge that what is taking place is a fraudulent evasion of tax. The offender must
knowingly take part or be concerned in that evasion. Knowledge of him being concerned in a
fraudulent evasion will be sufficient even if he does not appreciate the precise mechanics or
detailed intricacies of the fraudulent operation. The offender must be proven to have
knowingly concerned himself with a course of conduct which he appreciated to be fraudulent
and dishonest. An attempt to evade, where accompanied with that dishonest state of mind,
will also be covered by this offence. There is no requirement for actual loss.

In common with the common law crime of 'cheating the public revenue', the offence also
covers fraudulent failures, e.g. knowingly and dishonestly refraining from informing the
Revenue of trading activity and the non-registration and non-filing that usually goes with it. It
thus covers both comissio and omissio. This offence is framed so wide as to cover any likely
fraudulent act or failure that can be employed to evade, and to hold liable any person
knowingly concerned in any such evasion. In contrast to 'cheating' which as common law
offence is punishable at large, the sentence upon conviction on indictment for a contravention
under this section is limited to a term of imprisonment not exceeding 7 years. A person guilty
of an offence under section 106A is liable: (a) on summary conviction, to imprisonment for a
term not exceeding 12 months or a fine not exceeding the statutory maximum, or both, or (b)
on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine, or
both. Fines may thus be imposed as an alternative to imprisonment. There is currently no
upper limit as to the amount of the fine that may be imposed. The amount of such a fine is left
to the discretion of the sentencing court. The option of fines or imprisonment provides the
sentencing court with a wide sentencing discretion allowing considerable freedom to decide
upon the most appropriate punishment. Each case will be judged on its own facts, and the
punishment meted out will depend on the facts of the case.

The enactment of the offence provided for under section 144 (now under this tittle) followed
the recommendations of the Grabiner Report which inter alia expressed the need for a
general tax evasion offence capable of dealing with smaller tax frauds.29 This then may also
explain why this offence, in common with those provided for under section 72 of the Value
Added Tax Act 1994 was also enacted as a two-way offence providing for summary
conviction or conviction on indictment.30 Charges of conspiracy to contravene section 106A,
‘conspiracy to defraud’, ‘cheating’, or fraud under section 1 of the Fraud Act 2006 may,

29
The Informal Economy (2000)
30
Section 106A(2)
479 OFFENCES

depending on the facts of the case, also be competent alternative charges and may well be
charged as such. An attempt to fraudulently evade income tax may also be charged under
section 1 of the Criminal Attempts Act 1981.

5.2.3 UK: Fraudulent Evasion - Sec 170 - Customs and Excise Management Act 1979
5.2.3.1. General Background
The Customs and Excise Management Act 1979, in common with the customs legislation of
most jurisdictions, provides for a wide range of statutory offences, but section 170 of that Act
can be singled out as the provision of choice for the British authorities in dealing with
customs frauds. Section 170 has proven itself exceptionally robust in dealing with customs
frauds. It is exceptionally wide. The conduct made punishable under that section covers most
if not all those fraudulent activities we generally associate with customs fraud and smuggling.
Parliament subsequently also enacted the offence provided for under section 170B making
punishable the 'taking of any steps with a view to the fraudulent evasion of excise duty'.
Sections 170 and 170 B are very much intended as catch-all provisions and it is difficult to
imagine any factual setting involving the evasion or attempted evasion of any duty,
prohibition, or restriction, where the offenders will not be covered under one of those
provisions. Section 170 covers the evasion or attempted evasion of customs duty, excise duty
and VAT. Sections 170 and 170B read as follows:

“170 Penalty for fraudulent evasion of duty, etc

(1) Without prejudice to any other provision of the Customs and Excise Acts 1979, if any
person -
(a) knowingly acquires possession of any of the following goods, that is to say -
(i) goods which have been unlawfully removed from a warehouse or Queen’s warehouse;
(ii) goods which are chargeable with a duty which has not been paid;
(iii)goods with respect to the importation or exportation of which any prohibition or
restriction is for the time being in force under or by virtue of any enactment; or
(b) is in any way knowingly concerned in carrying, removing, depositing, harbouring, keeping
or concealing or in any manner dealing with any such goods,
and does so with intent to defraud Her Majesty of any duty payable on the goods or to evade
any such prohibition or restriction with respect to the goods he shall be guilty of an offence
under this section and may be detained.
(2) Without prejudice to any other provision of the Customs and Excise Acts 1979, if any
person is, in relation to any goods, in any way knowingly concerned in any fraudulent evasion
or attempt at evasion -
(a) of any duty chargeable on the goods;
(b) of any prohibition or restriction for the time being in force with respect to the goods under
or by virtue of any enactment; or
(c) of any provision of the Customs and Excise Acts 1979 applicable to the goods,
he shall be guilty of an offence under this section and may be detained.”

“170B Offence of taking preparatory steps for evasion of excise duty

(1) If any person is knowingly concerned in the taking of any steps with a view to the
fraudulent evasion, whether by himself or another, of any duty of excise on any goods, he shall
be liable -
(a) on summary conviction, to a penalty of the prescribed sum or of three times the amount of
the duty, whichever is the greater, or to imprisonment for a term not exceeding six months or
to both; and
(b) on conviction on indictment, to a penalty of any amount or to imprisonment for a term not
exceeding seven years or to both.”
480 OFFENCES

Reading through the above provisions it should be clear that section 170 effectively creates a
number of separate offences, offences that can cover a legio different factual settings and
different offenders. We will briefly deal with those provisions in the discussion below.

Section 186 of the Customs Consolidation Act of 1876

When looking at the framing of the offences provided for under sections 170(1) and 170(2)
(and those provided for under the earlier Customs and Excise Act 1952), it is obvious that
those provisions can trace their lineage back to section 186 of the Customs Consolidation Act
of 187631 and quite possibly before the enactment of that statute. Section 186 read as follows:

“186. Every person who shall import or bring, or be concerned in importing or bringing into the
United Kingdom any prohibited goods or any goods the importation of which is restricted,
contrary to such prohibition or restriction, whether the same be unshipped or not; or shall unship
or assist or be otherwise concerned in the unshipping of any goods which are prohibited, or of any
goods which are restricted and imported contrary to such restriction, or of any goods liable to duty,
the duties for which have not been paid or secured; or shall deliver, remove or withdraw from any
ship, quay, wharf, or other place previous to the examination thereof by the proper officer of
Customs, unless under the care or authority of such officer, any goods imported into the United
Kingdom or any goods entered to be warehoused after the landing thereof, so that no sufficient
account is taken thereof by the proper officer, or so that the same are not duly warehoused; or shall
carry into the warehouse any goods entered to be warehoused or to be re-warehoused, except with
the authority or under the care of the proper officer of the Customs, and in such manner, by such
persons, within such time, and by such roads or ways as such officer shall direct; or shall assist or
be otherwise concerned in the illegal removal or withdrawal of any goods from any warehouse or
place of security in which they shall have been deposited; or shall knowingly harbour, keep, or
conceal, or knowingly permit or suffer, or cause or procure to be harboured, kept, or concealed,
any prohibited, restricted, or uncustomed goods, or any goods which shall have been illegally
removed without payment of duty from any warehouse or place of security in which they may
have been deposited; or shall knowingly acquire possession of any such goods; or shall be in any
way knowingly concerned in carrying, removing, depositing, concealing, or in any manner dealing
with any such goods with intent to defraud Her Majesty of any duties due thereon, or to evade any
prohibition or restriction of or application to such goods; or shall be in any way knowingly
concerned in any fraudulent evasion or attempt at evasion of any duties of Customs, or of the laws
and restrictions of the Customs relating to the importation, unshipping, landing, and delivery of
goods, or otherwise contrary to the Customs Acts; shall for each such offence forfeit either treble
the value of the goods, including the duty payable thereon, or one hundred pounds, at the election
of the Commissioners of Customs; and the offender may either be detained or proceeded against
by summons.” (own underlying)

From a close reading of section 186 we will see that the section really provided for numerous
offences, all of which covered smuggling activity that will today, as then, be viewed as
essentially fraudulent conduct. Whereas the mechanics of many species of frauds as they are
committed today may have changed considerably with the passing of time, the mechanics of
many customs frauds as they are committed today still very much resemble those of 1876.
The offences provided for under subsections 170(1) and 170(2) closely correspond with the
underlined parts of section 186 as quoted above. Although the “intent to defraud Her Majesty
of any duties due thereon or to evade any prohibition or restriction” is not explicitly expressed

31
The Customs Consolidation Act of 1876 is in fact still in force although most of it has with time been repealed.
The prohibition of “indecent or obscene prints, paintings, photographs, books, cards, lithographic or other
material” and infected cattle, sheep, or other animals, or the carcases thereof” contained under section 42 of the
Act is however still in force. It will be a contravention under section 170(2) of the Customs and Excise
Management Act 1979 to be knowingly concerned in attempting to evade the prohibition on those articles listed
under section 42.
481 OFFENCES

as a material element of the other parts of section 186, the intent to defraud or evade
apparently also applied to those other clauses.32

Continuing Evasion
Evasion is in essence a continuing state of affairs with the evasion continuing for as long as
the duty is not accounted for or for as long as the goods remain prohibited or restricted.33 The
offences provided for under subsections 170(1) and 170(2), in common with those provided
for under the then section 186, cover not only those who import the goods into the country but
also those who subsequently deal with the goods post-importation.34 In Beck v Binks35 the
appellant was found in possession of 208 Swiss watches on which it was alleged no duty was
paid. He was charged with “knowingly carrying uncustomed goods with intent to defraud His
Majesty of the import duty thereon, contrary to Section 186 of the Customs Consolidation Act
1876". On appeal the appellant contended that the offence in question could only be
committed by the actual smugglers or importers of the goods or those engaged in carrying the
goods from the ship, aircraft or warehouse, at the actual time and place of importation. His
appeal was rejected and it was held:

“… as the offence created by section 186 included being “in any way knowingly concerned in
carrying … or in any manner dealing with uncustomed goods with intent to defraud His Majesty of
any duties due thereon,” a person knowingly carrying the goods was as much assisting in
defrauding His Majesty as was the actual smuggler, his acts and those of the smuggler all being
part of the same operation.”

In the subsequent cases of Sayce v Coupe,36 Schneider v Dawson LR37 and Rex v Cohen LR,38
the appellants in all those cases were arrested with uncustomed goods in their possession,
none of them were engaged in the initial smuggling, but all of them were convicted on the
basis of being caught in possession of the goods in question. In all those cases they were held
to have had the prerequisite intent to defraud.39 The appellants in Sayce v Coupe and Rex v
Cohen were convicted under section 186 whereas the appellant in Schneider v Dawson was
convicted under the later Customs and Excise Act of 1952. What is very clear, is that in
English law smuggling has long been viewed as a continuing offence, and that the offence of

32
Frailey v. Charlton L.R. [1920] 1 K.B. 147
33
See R v Bell [2011] EWCA Crim 6; R v Green [1976] QB 985
34
See R v Neal & Ors [1983] 77 Cr.App.R. 283 where at 286 Jones J inter alia said: "Now, the words 'the
evasion of the prohibition on importation',... are wider than simply the single word 'importation'. Let me give you
a very simple example. A boat arrives in a port in this country and it has on board cannabis resin. One of the
sailors ... actually carries that cannabis resin ashore. He hands it over to another man who is waiting, who loads it
into a van. The van is driven off to some place where the drug is unloaded and is stored away in some building
and there you have someone who helps in that unloading - perhaps the owner of the building in which it is
stored. Maybe, at a later stage, it is transported to yet another building and stored there and it may be... that
behind all this operation, controlling it and supervising it, is some organising person. Now you see, of all those
men - the sailor, the van driver, the store keeper, the organiser - strictly speaking, only the sailor has imported
the drugs into this country. He is the only person who carried it into this country, and that is what importation
means, but he and each of those other persons... have all taken a part in evading the prohibition on the
importation of that drug and taken their part in getting round it, in setting at nought the ban which the law
imposes on the importation of the drug".
35
L.R. [1949] 1 K.B. 250
36
L.R. [1953] 1 K.B. 1
37
[1960] 2 Q.B. 106
38
[1951] 1 K.B. 505
39
In Rex v. Cohen L.R. [1951]1 K.B. 505 the accused was found in possession of a large number of uncustomed
Swiss watches. He was charged with being in possession of uncustomed goods with the intent to defraud His
Majesty of the duties thereon contrary to section 186 of the Customs Consolidation Act 1876. On the matter of
the ‘intent to defraud’ it was held that if the accused knew the goods to be uncustomed, the intent to defraud the
revenue may be inferred.
482 OFFENCES

being “knowingly concerned in carrying, removing, depositing, concealing, or in any manner

dealing with any such goods with intent to defraud Her Majesty of any duties due thereon, or
to evade any prohibition or restriction of or application to such goods” (thus the offence
currently provided for under section 170(1)(b)) has long been considered as one: (i) the
commission of which extends to a place in time long after the initial importation is over; and
(ii) can cover those engaged in the carrying of the uncustomed goods post-importation. From
these old cases it is also clear that the possession of uncustomed goods with the intent to
evade the duties thereon has in English law long been treated as fraudulent conduct.

5.2.3.2 Section 170(1)

Each of the offences provided for under section 170(1) involves proof of a different actus
reus. To “knowingly” commit any of those offences thus also require a corresponding
knowledge.40 The knowledge of the defendant must co-exist with the actus reus element of
the offence. It should be noted that Value Added Tax on the importation of goods is charged
and payable as if a duty of customs.41 The references to "duty" in the offences provided for
under section 170 thus also relate to Value Added Tax.

Section 170(1)(a)
For a conviction under section 170(1)(a) it is for the prosecution to prove beyond reasonable
doubt that:

(a) the defendant knowingly;

(b) acquired possession of;
(c) (i) goods which have been unlawfully removed from a warehouse or Queen’s
warehouse;42 or
(ii) goods which are chargeable with a duty which has not been paid; or
(iii) goods with respect to the importation or exportation of which any prohibition or
restriction is for the time being in force under or by virtue of any enactment; and
(d) (i) he so acquired possession of that goods with the intent to defraud Her Majesty of
any duty payable on the goods; or
(ii) he so acquired possession of that goods with the intent to evade any such
prohibition or restriction with respect to the goods.

The person acquiring possession of the goods must know that the goods so acquired is: (i)
goods which have been unlawfully removed from a warehouse or Queen’s warehouse;43 or (ii)

40
Black, A Law Dictionary, 2 nd Ed, at 689 defines “knowingly” as “With knowledge; consciously; intelligently.
The use of this word in an indictment is equivalent to an averment that the defendant knew what he was about to
do, and, with such knowledge, proceeded to do the act charged. US v Claypool (D.C) 14 Fed. 128”
41
Section 1(4) of the Value Added Tax Act 1994
42
Goods may be unlawfully removed from a warehouse by fraud or theft. Receiving stolen property knowing
same to have been stolen is a crime in itself. This may well be a competent alternative charge where the
possessor received the goods with knowledge of it being stolen from say a customs warehouse.
43
Section 1 of the Customs and Excise Management Act 1979 defines “Queen’s warehouse” as meaning “any
place provided by the Crown or appointed by the Commissioners for the deposit of goods for security thereof
and of the duties chargeable thereon”. The same section then continues to define “warehouse” as “except in the
expressions “Queen’s warehouse ” and “distiller’s warehouse ”, means a place of security approved by the
Commissioners under subsection (1) or (2) or subsections (1) and (2) of section 92 below and, except in that
section, also includes a distiller’s warehouse; and “warehoused ” and cognate expressions shall, subject to
subsection (4) of that section and any regulations made by virtue of section 93(2)(da)(i) or (ee) or (4) below, be
construed accordingly”; and “excise warehouse” as meaning “a place of security approved by the
Commissioners under subsection (1) (whether or not it is also approved under subsection (2)) of section 92
below, and, except in that section, also includes a distiller’s warehouse”
483 OFFENCES

goods which are chargeable with a duty which has not been paid; 44 or (iii) prohibited or
restricted goods.45 The prosecution must furthermore prove, beyond reasonable doubt, that at
the time when he/she so acquired possession he/she did so with the intent to defraud Her
Majesty of any duty payable on the goods or to evade any such prohibition or restriction with
respect to the goods. The onus rests on the prosecution to prove each element in each charge
beyond reasonable doubt. If the court has any doubt then the defendant must be acquitted. A
person cannot evade something he is not aware of. Where the charge alleges the evasion of
duty, then the defendant must be proven to have known the goods were dutiable and that duty
was payable. Likewise, where the charge relates to goods taken from a warehouse, prohibited
goods, or restricted goods, then the defendant must be proven to have known that to be the
case.

Section 170(1)(b)
For a conviction under section 170(1)(b) it is for the prosecution to prove beyond reasonable
doubt that:

(a) the defendant was knowingly concerned in;

(b) carrying, removing, depositing, harbouring, keeping or concealing or in any manner
dealing with;
(c) (i) goods which have been unlawfully removed from a warehouse or Queen’s
warehouse; or
(ii) goods which are chargeable with a duty which has not been paid; or
(iii) goods with respect to the importation or exportation of which any prohibition or
restriction is for the time being in force under or by virtue of any enactment; and
(d) (i) he did so with intent to defraud Her Majesty of any duty payable on the goods; or
(ii) he did so with the intent to evade any such prohibition or restriction with respect to
the goods.

It is for the prosecution to prove beyond reasonable doubt that the defendant was knowingly
concerned in the carrying, removing, depositing, harbouring, keeping or concealing of the
goods, or in some other manner dealing with the goods. The prosecution must furthermore
also establish beyond reasonable doubt that the defendant so proven to have been so
knowingly concerned in the (i) carrying; (ii) removing; (iii) depositing; (iv) harbouring; (v)
keeping; (vi) concealing; or (vii) in any manner dealing with, the dutiable, prohibited or
restricted goods, did so with the intent to defraud the Revenue out of the duty payable on
those goods, or with the intent to evade the prohibition or restriction with respect to the goods.

"Knowingly concerned" implies both knowledge and participation. The use of "knowingly
concerned" in penal provisions making punishable evasion or smuggling has a long history. It
already appeared in the smuggling offences provided for under section 186 of the Customs
Consolidation Act 1876. It was also incorporated into numerous 'fraudulent evasion' offences
currently provided for under the Customs and Excise Management Act 1979 (e.g. section 170
- fraudulent evasion; and section 68(2) - exportation of restricted or prohibited goods);46

44
Section 1 of the Customs and Excise Management Act 1979 defines “dutiable goods” as: “except in the
expression “dutiable or restricted goods”, means goods of a class or description subject to any duty of customs or
excise, whether or not those goods are in fact chargeable with that duty, and whether or not that duty has been
paid thereon” and “dutiable or restricted goods” as having “the meaning given by section 52”.
45
Section 1 of the Customs and Excise Management Act 1979 defines “prohibited or restricted goods” as
meaning: “goods of a class or description of which the importation, exportation or carriage coastwise is for the
time being prohibited or restricted under or by virtue of any enactment”
46
Section 68 (1)-(2) read as follow: "68. Offences in relation to exportation of prohibited or restricted goods (1)
If any goods are - (a) exported or shipped as stores; or (b) brought to any place in the United Kingdom for the
484 OFFENCES

Value Added Tax Act 1994 (section 72(1) - fraudulent evasion of VAT)47; and the Taxes
Management Act 1970 (section 106A - fraudulent evasion of income tax).

To be "knowingly concerned" in some criminal endeavour means there must be some or other
act of assistance or participation. In the case of this section, that participation involves being
concerned in the (i) carrying; or (ii) removing; or (iii) depositing; or (iv) harbouring; or (v)
keeping; or (vi) concealing; or (vii) in any manner dealing with the goods so (i) unlawfully
removed from a warehouse, or so (ii) chargeable with a duty which has not been paid, or (iii)
with respect to the importation or exportation of which any prohibition or restriction is for the
time being in force. To be “concerned in” may involve simple acts such as the renting of a
property for the storage of the goods,48 signalling a boat onto a landing site, the unloading of a
container,49 or the transporting of the goods. Those dealing with smuggled goods may play
their part in the evasion at various stages of the smuggling operation. Section 170(1)(b) is
very much targeted against the full spectrum of actors than may be engaged in the smuggling
supply chain, including those active in the post-importation distribution of the goods. There
must be knowledge that what is taking place is a fraud on Her Majesty, or an evasion of a
prohibition or restriction with respect to the goods.50

In practice there will often be considerable overlapping. It is quite possible for the same
offender's conduct to be covered under subsections 170(1)(a), 170(1)(b) and 170(2). Many of
those who are knowingly concerned in the (i) carrying; (ii) removing; (iii) depositing; (iv)
harbouring; (v) keeping; (vi) concealing; or (vii) in any manner dealing with, the dutiable,
prohibited or restricted goods, may also be in possession of those goods at the time when they
are so knowingly concerned in the carrying, removing, depositing, harbouring, keeping,
concealing, or dealing with same. Likewise, many of those who are “in any way knowingly
concerned in any fraudulent evasion or attempt at evasion” of duty, prohibitions or restrictions
on goods (contrary to subsection 170(2)) may also at some point in time be in possession of
the dutiable, prohibited or restricted goods. Many of those who can be charged under

purpose of being exported or shipped as stores, and the exportation or shipment is or would be contrary to any
prohibition or restriction for the time being in force with respect to those goods under or by virtue of any
enactment, the goods shall be liable to forfeiture and the exporter or intending exporter of the goods and any
agent of his concerned in the exportation or shipment or intended exportation or shipment shall each be liable on
summary conviction to a penalty of three times the value of the goods or level 3 on the standard scale],
whichever is the greater.
(2) Any person knowingly concerned in the exportation or shipment as stores, or in the attempted exportation or
shipment as stores, of any goods with intent to evade any such prohibition or restriction as is mentioned in
subsection (1) above shall be guilty of an offence under this subsection and may be detained."
47
Section 72(1) reads as follow: "72. Offences. (1) If any person is knowingly concerned in, or in the taking of
steps with a view to, the fraudulent evasion of VAT by him or any other person, he shall be liable - (a) on
summary conviction, to a penalty of the statutory maximum or of three times the amount of the VAT, whichever
is the greater, or to imprisonment for a term not exceeding 6 months or to both; or (b) on conviction on
indictment, to a penalty of any amount or to imprisonment for a term not exceeding 7 years or to both."
48
See R v Green [1976] QB 985
49
See R v Grew & Anor [2011] NICA 31
50
There is authority pointing to 'evade' as used in the customs legislation to have a different meaning to that
generally attached to 'evade' as used in the revenue legislation. See R v Coghlan [1997] EWCA Crim J0512-
28 (Monday 12th May 1997) where the matter under consideration turned on the interpretation of “being
knowingly concerned in a fraudulent evasion of a prohibition on the importation of goods contrary to section
170(2) of the Customs and Excise Management Act 1979”. In that case Otton LJ inter alia said (referring to
Archbold and R v Hurford-Jones & Others (1977) 65 Cr App R 263): “There has always been a distinction
between evasion and importation. In Archbold at chapter 25–410 it is stated: “By ‘evade’ Parliament meant no
more than there must be an intention on the part of the accused to ‘get around’ the prohibition or restriction.
‘Evade’ in this context does not carry the connotation of fraud or dishonesty as it does in revenue laws: see
Hurford-Jones 65 Cr App R 263 , CA ...”
485 OFFENCES

subsections 170(1)(b) or 170(2) may thus just as well be convicted under subsection
170(1)(a). This being said, there are also many who may be dealt with under subsections
170(1)(b) or 170(2) who would not necessarily be in possession of the goods at any given
point in time. Those who knowingly falsifies the bonded warehouse or transit shed’s records,
provide the transport, or make the counterfeit seals, or cause a diversion so as to distract the
customs officers, or do the false accounting, and many others like them who may well be in
some way be “knowingly concerned in any fraudulent evasion or attempt at evasion” of duty,
prohibitions or restrictions, will not necessarily ever have in their possession the goods in
question.

5.2.3.3 Section 170(2)

Section 170(2) reads as follows:

"(2) Without prejudice to any other provision of the Customs and Excise Acts 1979, if any person
is, in relation to any goods, in any way knowingly concerned in any fraudulent evasion or attempt
at evasion -
(a) of any duty chargeable on the goods;
(b) of any prohibition or restriction for the time being in force with respect to the goods under or
by virtue of any enactment; or
(c) of any provision of the Customs and Excise Acts 1979 applicable to the goods,
he shall be guilty of an offence under this section and may be detained.”

For a conviction under this subsection, it is for the prosecution to prove beyond reasonable
doubt that the defendant was knowingly concerned in a fraudulent evasion, or attempted
evasion, of either duty chargeable on goods, or a prohibition or restriction for the time being
in force with respect to those goods. All indications are that subsection 170(2) was intended to
widen the scope of those offences provided for under subsection 170(1). In R v Neal and
others51 Griffiths LJ inter alia said:

"Subsection (1) clearly includes those who are not a part of the original smuggling team. For
example, it includes anyone who acquires possession of goods unlawfully removed from a
warehouse, or anyone who hides goods on which duty has not been paid, or anyone who carries
goods the importation of which is forbidden; and there can be no warrant for reading into the
language of the subsection the qualification ‘provided they are part of the original smuggling
team’. The subsection is aimed at making it an offence for anyone in any circumstances to be a
party to defrauding the Crown of duty or evading any prohibition or restriction on imports. The
language of the subsection is so embracing and casts the net so wide that one is left to wonder
what purpose is served by sub-s (2), for it is difficult to think of any behaviour aimed at defrauding
the customs and excise that would not be caught by sub-s (1). However, sub-s (2) has consistently
appeared in similar form in a succession of Customs and Excise Acts as the final and sweeping up
provision: see the Customs Consolidation Act 1853, s 232, the Customs Consolidation Act 1876, s
186 and the Customs and Excise Act 1952, s 304(b). We are satisfied that it was inserted by the
draftsman with the intention of casting his net as widely as words enabled him (note his language),
‘in any person’ and ‘in any way’. This was the view of Lord Salmon expressed in DPP v Doot
[1973] 1 All ER 940 at 954 …. This decision appears to be clear authority that in any charge under
s 170(1) of the 1979 Act the offence can be committed after importation is completed and by a
person who may not have been connected with the importation. As s 170(2) is intended to widen
the scope of s 170(1) it must follow that it cannot be construed as applying only to those engaged
on the initial illegal importation."

This offence may be committed not only by being knowingly concerned in any fraudulent
evasion, but also by any attempt at evasion. The evasion need not be successful for

51
[1984] 3 All ER 156 at 159-160
486 OFFENCES

conviction.52 Acts committed in attempting to evade the payment, prohibition or restriction is

thus already an offence negating the need to fall back on other provisions criminalizing such
an attempt.53 The prosecution must however prove the defendant had the required intent and
committed an act more than merely preparatory.54 An attempt to evade contrary to section
170(2) involves the same state of mind as that of actually evading contrary to section 170(2).
A conviction under section 170(2) for attempted evasion may follow even if no importation
has as yet taken place.55 The acts committed in attempting to evade need not to have been
taken or committed in Britain.56

The offences provided for under section 170, in common with those provided for under
section 72 of the Value Added Tax Act 1994 (fraudulent evasion of VAT) and section 106A of
the Taxes Management Act 1970 (fraudulent evasion of income tax) are also two-way
offences providing for summary conviction or conviction on indictment. Subject to
subsections 170(4), (4A) or (4B),57 any person guilty of an offence under section 170 may
face: (a) on summary conviction, a penalty of the prescribed sum or of three times the value
of the goods, whichever is the greater or to imprisonment for a term not exceeding 6 months,
or to both; or (b) on conviction on indictment, to a penalty of any amount, or to imprisonment
for a term not exceeding 7 years or to both.58 Goods in respect of which an offence under
section 170 was committed is liable to forfeiture.59

52
See R v Green [1976] QB 985 where at 993 Ormrod LJ inter alia said: “The actus reus of this offence is being
concerned in the evasion or attempted evasion of a prohibition on the importation of the goods in question, not
the successful evasion. All the necessary ingredients were proved or admitted: cannabis is a prohibited drug; it
was imported in breach of the prohibition; so evasion was established. We accept [counsel for the Crown's]
argument that evasion is a continuing offence, that is, that it does not cease when the cannabis was seized by the
authorities. Once imported the evasion of the prohibition continues until the goods ceased to be prohibited
goods, or, possibly, are re-exported”
53
‘Attempt’ as provided for under section 1 of the Criminal Attempts Act 1981 may find application in dealing
with an attempted evasion contrary to section 170(2). Attempt under section 1 of the Criminal Attempts Act 1981
is possible as long as the offender has the required intent to evade and had committed an act more than merely
preparatory in attempting to commit the crime. See the case of R v Shivpuri [1996] UKHL 2 where the appellant
was convicted of attempts to be knowingly concerned in dealing and harbouring cocaine with the intent to evade
the provisions of the Misuse of Drugs Act 1971 contrary to section 170(1)(b) of the Customs and Excise
Management Act. He was convicted despite the fact that the goods in question proved to be not cocaine but
sodium bicarbonate.
54
See Hutchings v Cummings [2002] EWCA Crim 2393 per Justice Colman: “In the last of these authorities
another division of this court in a judgment given by Potter LJ. made a number of observations in relation to the
actus reus under section 170 (2) which are particularly pertinent to the submissions made before this court.
Firstly, it is a proper working approach for a trial judge, directing himself and the jury for the purposes of section
170 (2), to adopt the statutory definition of an offence of attempt under section 3 of the Criminal Attempts Act
1981, namely that “a person is guilty of an attempt under a special statutory provision if, with intent to commit
the relevant full offence, he does an act which is more than merely preparatory to the commission of that
offence”. Whereas under section 170 (2) the substantive offence is that of being mainly concerned in an attempt
at evasion of the prohibition of importation, there must nevertheless be an attempt with which the defendant
must be established to be knowingly concerned. Accordingly, there must be established to be an act which is
more than merely preparatory to the commission of the offence of importation.”
55
See the facts in Hutchings v Cummings [2002] EWCA Crim 2393
56
R v Latif [1996] 1 WLR 104
57
Section 170(4) provides for the imposition of enhanced sentences in relation to certain categories of goods i.e.
arms and narcotics.
58
Section 170(3)
59
Section 170(6)
487 OFFENCES

5.2.3.4 Section 170B

Section 170B(1) of the Customs and Excise Management Act 1979 reads as follow:

“170B Offence of taking preparatory steps for evasion of excise duty (1) If any person is
knowingly concerned in the taking of any steps with a view to the fraudulent evasion, whether by
himself or another, of any duty of excise on any goods, he shall be liable -
(a) on summary conviction, to a penalty of the prescribed sum or of three times the amount of the
duty, whichever is the greater, or to imprisonment for a term not exceeding six months or to both;
and
(b) on conviction on indictment, to a penalty of any amount or to imprisonment for a term not
exceeding seven years or to both.”

Contravention of this section involves the taking of any steps with a view to the fraudulent
evasion of excise duty. The burden rests on the prosecution of proving beyond reasonable
doubt that the defendant was:

(a) knowingly concerned;

(b) in the taking of steps with a view to the fraudulent evasion
(i) by himself; or
(ii) by another person;
(c) of any duty of excise on any goods;
(e) (i) with knowledge of the goods being subject to duty; and
(ii) with knowledge of him being concerned in the taking of steps with the view to evade
those duties by himself or another person;

Where any person is guilty of an offence under section 170B, the goods in respect of which
the offence was committed is liable to forfeiture.60 The goods concerned to be so forfeited
must however be goods that are liable to excise duty.61 In common with the offences provided
for under section 170, the offence provided for under section 170B(1) is also a two-way
offence providing for summary conviction or conviction on indictment. The penalties also
correspond with that provided for under section 170.

5.2.3.5 Knowledge
It is not required that those engaged in the smuggling of the prohibited or restricted goods
know the precise nature of the goods in question. Knowledge that a prohibition or a restriction
is being evaded is sufficient.62 This however applies equally to dutiable goods. Those engaged
in the smuggling of dutiable goods need not know the precise nature of the goods in question.
It will be sufficient for the offender to know that what he is engaged in is the evasion of duty.
Restrictions or prohibitions against the importation of any particular commodity may,

60
Section 170B(2)
61
Wnek v Director of Border Revenue [2013] UKFTT 575 (TC)
62
See R v Hussain [1969] 2 Q.B. 567 at 571 where Widgery LJ inter alia said: “It seems perfectly clear that the
word “knowingly” in section 304(b) is concerned with knowing that a fraudulent evasion of a prohibition in
respect of goods is taking place. If, therefore, the accused knows that what is on foot is the evasion of a
prohibition against importation and he knowingly takes part in that operation, it is sufficient to justify his
conviction, even if he does not know precisely what kind of goods are being imported. It is, of course, essential
that he should know, that the goods which are being imported are goods subject to a prohibition. It is essential he
should know that the operation with which he is concerning himself is an operation designed to evade that
prohibition and evade it fraudulently. But it is not necessary that he should know the precise category of the
goods the importation of which has been prohibited.” Also subsequently followed by R v Hennessey (1978) 68
Cr. App. R. 419
488 OFFENCES

depending on the facts of the case, also be under EC Council regulations.63 An honest belief
of the goods not being subject to prohibition or restriction will be a defence.64

Knowledge must be proven, and for obvious reasons. Mens rea in the form of 'knowledge' or
'intent' serves an important function in distinguishing between different types of offenders,
and that includes distinguishing between smugglers and the careless, and between smugglers
and those who just happened to (innocently) find themselves in the wrong place at the wrong
time. The reality is that many innocent people will and do carry illicit goods out of and into
other jurisdictions on a daily basis, innocently. Consider the position of many transporters
within the context of international trade. The reality is, the transport industry is a fast-paced
environment where trucks get loaded at speed, the driver seldom has the opportunity to
inspect the freight and will often have no real idea of what is being loaded on his vehicle. The
booking with the transport company will typically contain no more information other than the
number of pallets to be collected at point A for delivery to point Z with a basic description of
the nature and dimensions of the cargo. The freight is loaded, the vehicle is sealed, the driver
signs the paperwork (at the collection point) for the number of pallets loaded, and he makes
his way to the delivery address where the seals are broken. He will often make multiple
collections and deliveries on his route. The pallets will often be wrapped up or crated in such
a way as to make visual inspection impossible, the paperwork may indicate the product to be
no more but 'vegetables' or 'automotive parts'. In most instances the transport operator will
have no detailed knowledge as to the shipper or consignee's operations. This is the practical
reality of road-logistics. Now assume truck driver X is stopped by customs, the seals are
broken, and customs discover two crates the content of which are not automotive parts but
contraband. Can the driver be accused of smuggling ? Unless he had knowledge of the content
of the cargo … then the answer must be 'no'.

What we will often find is that where the prerequisite mens rea of a statutory consequence
crime is expressed as 'intent' or 'intention', then the corresponding mens rea in a statutory
conduct offence will often be expressed as 'knowledge' or 'knowingly'. This is not necessarily
always the case, but it is common. To be "knowingly concerned in" a crime is to play your
part in the furthering of that crime with knowledge of that being what you are engaged in - the
furthering of that crime. Where 'knowledge' or 'knowingly' is the expressed or implied mens
rea, it will be on the prosecution to prove that the defendant appreciated the unlawfulness of
what he was engaged in, and his wilful participation in that criminal endeavour - with that
knowledge. The offences provided for under section 170 were not intended, and were not
drafted to cover innocent, careless, or negligent conduct. They were all intended and drafted
so as to cover only those knowingly party to the evasion, attempted evasion, or fraudulent
evasion. That knowledge is an essential element of all the section 170 offences, an element
which must have co-existed with the actus reus. This in turn is something which the
prosecution is required to prove beyond reasonable doubt.

5.2.3.6 General conclusions

The UK legislature has for the past 30 years amended and refined the offences provided for
under section 170. This was done in following with countless decisions relating to the
application and interpretation of this section in the courts. The result is a cluster of robust
penal provisions that have already been ‘through the mill’ of judicial scrutiny. Sections 170
and 170B when viewed together are phrased wide enough so as to cover any fraud involving
(a) the evasion or attempted evasion of any duty or tax levied; and (b) the evasion or

63
R v Sissen [2000] EWCA Crim 67
64
R v Taaffe [1984] AC 539
489 OFFENCES

attempted evasion of any control, prohibition or restriction in force. Section 170 covers any
attempted evasion regardless the evasion being successful or not. The mens rea required to be
present for conviction consistently requires proof of the prerequisite knowledge and state of
mind, limiting liability as it does to those acting wilfully and knowingly. The offences
provided for does not rely on any presumptions or reverse onus provisions. The onus of
proving all the material elements of those offences is on the prosecution.

The offences are framed in such a way as to cover any fraudulent evasion at any stage of
importation, exportation, manufacture, transportation, warehousing, or distribution. They are
wide enough so as to cover any fraudulent evasion regardless the point in the importation,
introduction, or supply chain where the evasion is taking place. They are furthermore framed
sufficiently wide enough so as to cover any goods in relation to which any duty, tax, levy,
prohibition, restriction, or other control-measure can be evaded, and regardless whether it be
locally manufactured, imported, exported, or in transit. None of the offences requires actual
prejudice. The wording and framing of sections 170 and 170B are clear and precise. It is
sufficiently clear for revenue officers, police officers, prosecutors and the courts to understand
and apply without difficulties of interpretation. The offences provided for are furthermore
framed in such a way as to remain effective despite amendments in the framing of the
underlying legislation those penal provisions are intended to protect. The punishment
provided for in those sections also allows for sufficient flexibility so as to allow for the
passing of an appropriate sentence fitting any particular contravention, both serious and less
serious.

Charges of conspiracy,65 common law conspiracy to defraud, 'cheating the revenue’, or fraud
under the Fraud Act 2006 may, depending on the facts of the case, be competent alternative
charges to an offence under section 170. Charges of conspiracy to contravene section 170
offences are common. This is not surprising considering that most smuggling operations tend
to involve a conspiracy between two or more persons. The key to conspiracy however is the
agreement between the parties.66 A conviction on charges of conspiracy to contravene a
section 170 offence may follow even if the operation was compromised and neutralized
before the goods could be released into free circulation, for example where the goods were
interdicted by a HMRC reception party expecting the arrival of the goods.67

5.2.4 UK: Improper importation - Sec 50 CEMA 1979

Section 50 of the Customs and Excise Management Act 1979 provides for what are in essence
a number of different offences making punishable various forms of conduct relating to the
"improper importation of goods". These offences, as is also the case with those provided for

65
Under section 1 of the Criminal Law Act 1977 (England).
66
See R v Green [1976] QB 985 where at 993 Ormrod LJ inter alia said: "There is ample authority for the
proposition that the actus reus of conspiracy is the agreement to effect an unlawful purpose, and that the offence
is committed whether or not any act is done in pursuance of the agreement. It must follow that the fact that,
unknown to the conspirators, the unlawful purpose could not be achieved is no defence…in the present case only
the lifting of the prohibition could prevent their purpose from being unlawful”. Also see R v Sissen [2000]
EWCA Crim 67.
67
See e.g. R v Bajwa & Others [2011] EWCA Crim 1093 where the appellants attempted to smuggle into the
UK a shipping container loaded with 7 million counterfeit cigarettes imported from China, The shipping
documents including the bill of lading indicated the content to be “patio heater parts”. HMRC already had
knowledge of the consignment whilst it was still at sea. All the appellants were arrested a week prior to the
ship’s arrival in Felixstowe. At the time of their arrest the vessel was sailing between Valencia (Spain) and
Rotterdam (Netherlands) but the position of the container on board the vessel was such that it could not be
unloaded before the vessel’s arrival at Felixstowe. The vessel entered the port of Felixstowe a week after the
appellants' arrest where the cigarettes were seized and forfeited to the Crown. The appellants were subsequently
convicted on charges of conspiracy to contravene section 170(2)(b).
490 OFFENCES

under section 170 of the same Act, are primary targeted against the evasion of duties,
restrictions and prohibitions. Section 50 reads as follows:

50. Penalty for improper importation of goods

(1) Subsection (2) below applies to goods of the following descriptions, that is to say -
(a) goods chargeable with a duty which has not been paid; and
(b) goods the importation, landing or unloading of which is for the time being prohibited or
restricted by or under any enactment.
(2) If any person with intent to defraud Her Majesty of any such duty or to evade any such
prohibition or restriction as is mentioned in subsection (1) above -
(a) unships or lands in any port or unloads from any aircraft in the United Kingdom or from any
vehicle in Northern Ireland any goods to which this subsection applies, or assists or is otherwise
concerned in such unshipping, landing or unloading; or
(b) removes from their place of importation or from any approved wharf, examination station,
transit shed or customs and excise station any goods to which this subsection applies or assists or
is otherwise concerned in such removal, he shall be guilty of an offence under this subsection and
may be detained.
(3) If any person imports or is concerned in importing any goods contrary to any prohibition or
restriction for the time being in force under or by virtue of any enactment with respect to those
goods, whether or not the goods are unloaded, and does so with intent to evade the prohibition or
restriction, he shall be guilty of an offence under this subsection and may be detained.
(4) Subject to subsection [(5), (5A) or (5B)] below, a person guilty of an offence under subsection
(2) or (3) above shall be liable -
(a) on summary conviction, to a penalty of the prescribed sum or of three times the value of the
goods, whichever is the greater, or to imprisonment for a term not exceeding 6 months, or to both;
or
(b) on conviction on indictment, to a penalty of any amount, or to imprisonment for a term not
exceeding [7 years], or to both.
(5) In the case of an offence under subsection (2) or (3) above in connection with a prohibition or
restriction on importation having effect by virtue of section 3 of the Misuse of Drugs Act 1971,
subsection (4) above shall have effect subject to the modifications specified in Schedule 1 to this
Act.
[(5A) In the case of an offence under subsection (2) or (3) above in connection with the prohibition
contained in section 20 of the Forgery and Counterfeiting Act 1981, subsection (4)(b) above shall
have effect as if for the words “2 years” there were substituted the words “10 years”.]
[(5B) In the case of an offence under subsection (2) or (3) above in connection with the prohibition
contained in regulation 2 of the Import of Seal Skins Regulations 1996, subsection (4) above shall
have effect as if -
(a) for paragraph (a) there were substituted the following -
“(a)on summary conviction, to a fine not exceeding the statutory maximum or to imprisonment for
a term not exceeding three months, or to both”; and
(b) in paragraph (b) for the words “7 years” there were substituted the words “ 2 years ”]
(6) If any person -
(a) imports or causes to be imported any goods concealed in a container holding goods of a
different description; or
(b) directly or indirectly imports or causes to be imported or entered any goods found, whether
before or after delivery, not to correspond with the entry made thereof,
he shall be liable on summary conviction to a penalty of three times the value of the goods
or [level 3 on the standard scale], whichever is the greater.
(7) In any case where a person would, apart from this subsection, be guilty of -
(a) an offence under this section in connection with the importation of goods contrary to a
prohibition or restriction; and
(b) a corresponding offence under the enactment or other instrument imposing the prohibition or
restriction, being an offence for which a fine or other penalty is expressly provided by that
enactment or other instrument, he shall not be guilty of the offence mentioned in paragraph (a) of
this subsection.
491 OFFENCES

Subsections 50(2) and 50(3)

The offence under subsection 50(2) may be committed with the view to evade duties, or with
the view to evade prohibitions or restrictions. A person will be guilty of an offence under
subsection 50(2) where he:

(i) with the intent to defraud Her Majesty;

(ii) of any duty chargeable on goods which has not been paid;
(iii) (a) unships or lands in any port or unloads from any aircraft in the United
Kingdom or from any vehicle in Northern Ireland any such goods chargeable with a
duty which has not been paid, or assists or is otherwise concerned in such unshipping,
landing or unloading; or
(b) removes from their place of importation or from any approved wharf, examination
station, transit shed or customs and excise station any such goods chargeable with a
duty which has not been paid, or assists or is otherwise concerned in such removal;

Or where he:

(i) with the intent to evade any prohibition or restriction;

(ii) in relation to goods the importation, landing or unloading of which is for the time
being prohibited or restricted by or under any enactment;
(iii) (a) unships or lands in any port or unloads from any aircraft in the United
Kingdom or from any vehicle in Northern Ireland any such goods the importation,
landing or unloading of which is for the time being prohibited or restricted by or
under any enactment, or assists or is otherwise concerned in such unshipping, landing
or unloading; or
(b) removes from their place of importation or from any approved wharf, examination
station, transit shed or customs and excise station any such goods the importation,
landing or unloading of which is for the time being prohibited or restricted by or
under any enactment, or assists or is otherwise concerned in such removal;

The offence provided for under subsection 50(3) is limited to the evasion of prohibitions and
restrictions and do not find application in relation to the evasion of duties. A person will be
guilty of an offence under subsection 50(3) where he:

(i) (a) imports any goods; or

(b) is concerned in importing any goods;
(ii) contrary to any prohibition or restriction for the time being in force under or by
virtue of any enactment with respect to those goods; and
(ii) where he does so with the intent to evade that prohibition or restriction

The mens rea required to be present for a conviction under subsections 50(2) and 50(3) is that
of 'intent'. There must be the intent to evade the duties or the intent to evade the prohibitions
or restrictions. This also applies to those who assist with or is concerned in the unshipping,
landing, unloading, removal or importation. That guilty state of mind must be present when
they so assist with or are so concerned in the unshipping, landing, unloading, removal or
importation. Carelessness or negligence will never be sufficient. Needless to say, the onus
rests on the prosecution to prove that intent.

The prohibitions or restrictions so in force may relate to a wide range of commodities such as
narcotics and other controlled substances, weapons and ammunition, animals and animal
products, indecent material, and plant products to mention but a few. Where a defendant is
492 OFFENCES

charged with the evasion of prohibitions or restrictions contrary to subsections 50(2) or 50(3),
then it will be for the prosecution to prove, beyond reasonable doubt, that the goods were
dealt with contrary to prohibitions or restrictions that were in force in relation to that
particular class of goods at the time when the defendants so dealt with the goods. Needless to
say, it is also for the prosecution to prove that the goods in question did indeed belong to the
class of goods as stipulated in the prohibiting or restricting enactments.

Penal provisions intended to curtail smuggling obviously need be framed sufficiently wide so
as to capture all those tricks, ruses and scams employed by smugglers, regardless the mode of
transport employed, regardless the place and time of the importation, unshipping, landing,
unloading, or removal, and regardless the architecture of the tricks or ruses employed. Those
provisions also need be framed widely if it is to capture all those knowingly involved in the
criminal scheme. Section 50, when looked at in its totality, was clearly framed in such a way
as to cover any offender knowingly concerned in the unlawful evasion, regardless the point in
time where he rendered his assistance or became so "concerned in" the criminal endeavour.
The provision (s) that may find application in relation to the conduct of a given defendant
obviously depends on the nature of the defendant's conduct and the point in time where he
became so "concerned in" the criminal operation. It is important to understand when goods
will be considered as 'imported', 'landed', 'unloaded' or 'removed'. We are talking about
different stages. Goods will usually be considered 'imported' before it is considered as
'unloaded', 'landed' or 'removed'.68

Assume freight lands at London Heathrow on a flight from Thailand. In the case of airfreight,
the general rule is that goods is considered to be imported into the UK at "the time when the
aircraft carrying them lands in the United Kingdom or the time when the goods are unloaded
in the United Kingdom, whichever is the earlier".69 Assuming the aircraft is laden with freight
destined and planned for unloading at London Heathrow, then the freight on that aircraft will
usually be considered 'imported' at the time when it landed at London Heathrow even though
the freight has not yet been offloaded, taken into the airline shed, or accounted for (checked
in) on the airline shed's bonded inventory and customs systems. The aircraft in question may
well sit airside for quite some time before it is unloaded (for various reasons such as the
Aircraft Units cannot be offloaded due to technical breakdown, or the airline shed being filled
up with the shed personnel struggling with the amounts of incoming freight, or due to an
accident, bomb scare, or shed systems failures). A wide range of people may have access to
the aircraft and its cargo before and during unloading. After the aircraft is unloaded, the
freight will first be taken into the airline shed which is also an approved bonded shed. The
goods in question may spend many hours or days in the airline shed whilst it is broken down,
accounted for and checked in. It will stay in the shed until such time as it is customs cleared,
transferred from that place to another bonded facility, destroyed, or exported. From the time
when the aircraft landed, and thus the point in time when the goods is considered as
'imported', countless individuals may have access to the freight and the opportunities to

68
In the UK, section 5 of the Customs and Excise Management Act 1979 deals with the 'time of importation'.
The section inter alia reads:
"5. Time of importation, exportation, etc.
(1) The provisions of this section shall have effect for the purposes of the customs and excise Acts.
(2) Subject to subsections (3) and (6) below, the time of importation of any goods shall be deemed to be -
(a) where the goods are brought by sea, the time when the ship carrying them comes within the limits of a port;
(b) where the goods are brought by air, the time when the aircraft carrying them lands in the United Kingdom or
the time when the goods are unloaded in the United Kingdom, whichever is the earlier;
(c) where the goods are brought by land, the time when the goods are brought across the boundary into Northern
Ireland."
69
Section 5(2)(b) of the Customs and Excise Management Act 1979
493 OFFENCES

smuggle the goods out so as to evade the duties, restrictions or prohibitions, with or without
collusion by others (i.e. contractors, air-crew, shed personnel etc), are legio.

The same smuggling scheme may involve many offenders involved at different points in time,
some of them playing different parts in the unlawful endeavour, all not acting at the same
level, and some of them may well not even be familiar with the other participants or
accomplices. Section 50 is however framed, as is also the case with the offences provided for
under section 170, to capture all those involved at the various stages of the criminal operation.
Both subsections 50(2) and 50(3) also cover those who are "concerned in" the evasion. To be
"concerned in" is quite wide indeed and will also cover corrupt officials or employees,
drivers, agents, aircrew, financiers who bankrolled the operation, planners who planned and
coordinated the criminal operation, and others who knowingly assisted, facilitated or
participated. Those who are "concerned in importing" the goods can be convicted even where
the goods were not unloaded. Going back to the scenario sketched above - of the plane ex
Thailand landing at London Heathrow. Assume Customs acting on information received
board the aircraft before it is unloaded and with the aid of a dog finds a container filled with
cocaine. Those who planned and executed the operation, even though the freight was not
unloaded, and despite the operation being a failure, can be charged under subsection 50(3).

The offences provided for under subsections 50(2) and 50(3) are 'either way' offences, triable
on indictment or as summary offences. A person convicted under either of these provisions
shall be liable: (a) on conviction on indictment, to a penalty of any amount, or to
imprisonment for a term not exceeding 7 years, or to both;70 or (b) on summary conviction, to
a penalty of the prescribed sum or of three times the value of the goods, whichever is the
greater, or to imprisonment for a term not exceeding 6 months, or to both.71 Subsection 50(5)
in essence lifts and lowers the maximum penalties that may be imposed where the
contraventions relate to the importation of certain goods such as drugs (read with section 3 of
the Misuse of Drugs Act 1971), counterfeit currency (read with section 20 of the Forgery and
Counterfeiting Act 1981), and firearms and ammunition (read with section 5 of the Firearms
Act 1968).

Subsection 50(6) provides for a summary offence the framing of which resembles many of the
strict liability offences so often found in the customs legislation, past and present, of many
jurisdictions. Unlike the offences under subsections 50(2) and 50(3) which requires proof of
what amounts to evasion and thus fraudulent conduct, proof of fraud or the intent to evade is
not a material element under subsection 50(6). The conduct targeted under this subsection will
certainly amount to fraudulent conduct where it is accompanied with the intent to evade or
defraud, but that does not make subsection 50(6) an 'evasion' or 'fraud' offence.

Many of those 'enactments' or 'other instruments' imposing certain prohibitions or restrictions

also contain penal provisions making punishable the possession, dealing with, or importation
of the restricted or prohibited goods. Subsection 50(7) was inserted to prevent the possibility
of a duplication of offences. There is considerable overlapping between the offences provided
for under sections 50 and 170 of the Customs and Excise Management Act. Section 50, for
reasons unknown, does not seem to find much application in practice. Conduct that can be
charged under section 50 is seemingly always charged under section 170. The most likely
explanation is that section 170 is somewhat wider and the offences provided for under section

70
Section 50(4)(b)
71
Section 50(4)(a)
494 OFFENCES

170 is tried and tested and have survived considerable scrutiny in the courts. It has seen wide
application and prosecutors are familiar with it.

5.2.5 US: Offences under Title 26 - U.S.C

5.2.5.1 General
In the United States all tax offences are penalized under statute. The US, in common with the
Commonwealth of Australia no longer has common law offences akin to the English common
law offence of ‘cheating’ or the South African common law crime of ‘fraud’, offences which
can and still find use in dealing with revenue frauds in those jurisdictions. In common with
England and most of her former colonies, notably Australia, Canada, New Zealand, and South
Africa, the US legislation also provides for a wide range of offences targeted against a wide
spectrum of unlawful acts and failures. Whereas most of those offences are intended to ensure
general compliance, quite a few of them are reserved for the most serious breaches i.e tax
evasion and other wilful breaches of the Revenue Code. These are all to be found under Title
26 of the U.S Code72, the most important of which are:

(a) The wilful attempt to evade or defeat the assessment of tax where additional tax is due
and owing;73
(b) The wilful attempt to evade or defeat the payment of tax where additional tax is due
and owing;74
(c) The wilful failure to collect tax;75
(d) The wilful failure to truthfully account for and pay over tax;76
(e) The wilful failure by a person required by law to pay a tax, to pay the tax at the time
required by law;77
(f) The wilful failure by a person required by law to file a return to file that return at the
time required by law;78
(g) The wilful failure to keep records;79
(h) The wilful failure to supply information;80
(i) The wilful supply of false or fraudulent information or the wilful failure to supply
information which would require an increase in tax withheld;81
(j) The wilful making of a false certification or affirmation on any statement required by
a payor who is attempting to satisfy certain dividend or interest information reporting
requirements or the wilful making of a false certification about not being subject to
backup withholding;82
(k) Falsely and wilfully subscribing to a return, statement, or other document, where the
return, statement, or other document was false as to a material matter, where the
return, statement, or other document contained a written declaration made under the
penalties of perjury, and where the maker did not believe the return, statement, or
other document to be true and correct as to every material matter;83

72
Title 26, Chapter 75 - Crimes, Other Offences, and Forfeitures (§§ 7201-7344)
73
I.R.C. § 7201 (Internal Revenue Code, United States)
74
I.R.C. § 7201
75
I.R.C. § 7202
76
I.R.C. § 7202
77
I.R.C. § 7203
78
I.R.C. § 7203
79
I.R.C. § 7203
80
I.R.C. § 7203
81
I.R.C. § 7205 (a)
82
I.R.C. § 7205 (b)
83
I.R.C. § 7206 (1)
495 OFFENCES

(l) Wilfully aid or assist in, or procure, or counselor advise in the preparation or
presentation of a return, affidavit, claim, or other document which involves a matter
arising under the Internal Revenue laws, and where the return, affidavit, claim, or
other document is fraudulent or false as to a material matter;84
(m) With the intent to evade or defeat the assessment or collection of tax, remove, deposit,
conceal or is concerned with removing, depositing, or concealing of goods or
commodities where a tax is or shall be imposed, or any property upon which a levy is
authorized;85
(n) Wilfully concealing from a United States employee any property belonging to the
estate of a taxpayer or other person liable for tax, or wilfully withholding, falsifying or
destroying records, or wilfully making a false statement, as to the estate or financial
condition of a taxpayer or other person liable for a tax; 86 (Insofar as it relates to
closing agreements as provided for in I.R.C. § 7121 and compromises as provided for
in I.R.C. § 7122)
(o) Wilfully or knowingly deliver or disclose to any IRS officer or employee any false or
fraudulent list, return, account, statement, or other document, where the list, return,
statement, or other document is false or fraudulent as to a material matter.87

Not all these offences are 'evasion' offences and some of them are viewed as more serious
than others. The most serious of these are certainly the 'felony offences' provided for under 26
U.S.C. § 7201 (the attempt to evade or defeat tax); 26 U.S.C. § 7202 (the wilful failure to
collect or pay over tax); 26 U.S.C. § 7206 (1) (declaration under penalties of perjury); and 26
U.S.C. § 7206 (2) (aiding and assisting). A 'felony offence' in essence means for a US lawyer
what 'indictable offence' means for his English counterpart. 'Felony' and 'indictable' offences
are offences charged on indictment only. For a detailed discussion of these provisions the
reader is referred to the Internal Revenue Service (IRS) Criminal Tax Manual,88 where these
offences are dealt with in great detail. The following discussion will only offer a very brief
overview of these provisions.

5.2.5.2 26 U.S.C. § 7201 - Attempt to evade or defeat

The offence provided for under 26 U.S.C. § 7201 is the US government's primary tax evasion
offence. The offence was drafted and is intended for use in dealing with wilful conduct and
wilful conduct only. Section 7201 reads as follows:

“I.R.C. § 7201 - Attempt to evade or defeat tax

Any person who wilfully attempts in any manner to evade or defeat any tax imposed by this
title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a
felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the
case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of
prosecution.”

For conviction under this section, the prosecution carries the burden of proving beyond
reasonable doubt all the material elements of the offence. These are:

(a) attempts in any manner:

(i) to evade or defeat any tax imposed, or

84
I.R.C. § 7206 (2)
85
I.R.C. § 7206 (4)
86
I.R.C. § 7206 (5)
87
I.R.C. § 7207
88
U.S. Department of Justice, Tax Division, Criminal Tax Manual, 2012, chapters 8 - 18
496 OFFENCES

(ii) to evade or defeat the payment of tax;

(b) the existence of a substantial tax deficiency;
(c) wilfulness (which in US law translates into the attempted evasion being both
voluntary and intentional); and
(d) an affirmative act made with the intent to evade tax.89

Section 7201 can effectively be committed in one of two ways. The provision makes
punishable: (i) the wilful attempt to evade or defeat the assessment of tax; and (ii) the wilful
attempt to evade or defeat the payment of any tax. The filing of fraudulent tax returns, in
essence misrepresentation by commissio, is the most common method used to evade correct
assessment. Where the income is unlawfully understated or the deductions are unlawfully
overstated in such a manner as to create a deficiency in the assessment amount, and where this
is done with the intent to evade or defeat a tax, then there will be an evasion of assessment.
The evasion of payment entails wilful conduct intended to evade the payment of amounts in
tax after the tax liability became due. This situation may typically arise where the taxpayer
ciphers away money, property, or assets in an attempt to keep it out of the Revenue's reach i.e.
contriving a bankruptcy fraud defrauding the Revenue as creditor.

The actus reus or conduct element of the offence is to be found in the "attempts ... to evade or
defeat any tax imposed … or the payment thereof", with the mens rea or mental element to be
found in "willfully". Section 7201 makes it an offence to attempt to evade or defeat the
imposition of tax, or the attempt to evade or defeat the payment of tax. To 'attempt' to commit
a crime involves more than just the intent to commit a crime.90 There must be an act. The
attempt to evade must be made willfully. There must be a voluntary, intentional violation of a
known legal duty.91 Careless disregard is not sufficient to satisfy the mens rea requirement.92
Honest mistake of fact or law will negate ‘willfulness’.93

Evasion by omission, a mere failure to act on its own, is not sufficient for conviction under
section 7201. The prosecution must prove some or other affirmative act. Mere failure to file
absent an affirmative act is thus not sufficient. Examples of conduct which have in the past
been accepted as affirmative acts of evasion are inter alia: false statements to agents,94
concealing income; the keeping of double sets of accounts; the destruction of records; the
making of false invoices or false entries in books of account; or any other conduct intended to

89
Sansone v. United States 380 U.S. 343 (1965); United States v. Masat 896 F.2d 88 (5th Cir. 1990)
90
See United States v Resendiz-Ponce 425 F. 3d 729 (2007) where Stevens J inter alia said: "At common law,
the attempt to commit a crime was itself a crime if the perpetrator not only intended to commit the completed
offense, but also performed “ ‘some open deed tending to the execution of his intent.’ ” 2 W. LaFave,
Substantive Criminal Law§11.2(a), p. 205 (2d ed. 2003) (quoting E. Coke, Third Institute5 (6th ed. 1680) … Not
only does the word “attempt” as used in common parlance connote action rather than mere intent, but more
importantly, as used in the law for centuries, it encompasses both the overt act and intent elements."
91
See United States v Bishop 412 US 346 (1973) (US Supreme Court) where the following was said with regard
to “wilfully”: “The Court, in fact, has recognized that the word ‘wilfully’ in these statutes generally connotes a
voluntary, intentional violation of a known legal duty.” Also see United States v Pomponio 429 U.S. 10 (1976)
where it was inter alia said: “In Bishop we held that the term “wilfully” has the same meaning in the
misdemeanour and felony sections of the Revenue Code, and that it requires more than a showing of careless
disregard for the truth”. In Cheek v United States 498 U.S. 192 (1991) the Court per White J inter alia said:
“Wilfulness, as construed by our prior decisions in criminal tax cases, requires the Government to prove that the
law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and
intentionally violated that duty”
92
See United States v Pomponio 429 U.S. 10 (1976) where it was inter alia said: “In Bishop we held that the
term “wilfully” has the same meaning in the misdemeanour and felony sections of the Revenue Code, and that it
requires more than a showing of careless disregard for the truth”
93
United States v Bishop 412 U.S. 346 (1973); Cheek v United States 498 U.S. 192 (1991)
94
United States v Wilson 118 F.3d 228 (4th Cir 1997)
497 OFFENCES

conceal or mislead.95 This is in sharp contrast to the tax evasion offences provided for in
many other parts of the English-speaking world, including Britain, where the failure to act is
sufficient as long as that failure was contrary to a known legal duty, was voluntary and
intentional, and where that failure was intended to evade a tax liability.

Tax must be due and owing. The prosecution must prove a tax deficiency. The prosecution
need not however allege or prove the precise amount of additional tax due and owing. 96 The
income on which the tax becomes due does not need be earned in a manner that was lawful.
Income generated from criminal activity is also viewed as taxable.97 The offence covers not
only the taxpayer but also those who assist the taxpayer with the evasion.98 The taxpayer need
not have prepared the return himself to be held liable. It is sufficient for the taxpayer to know
that the return as prepared is fraudulent.99

The statute of limitations for this offence is six years.100 A taxpayer charged with evasion
under 26 U.S.C. § 7201 can file a motion for acquittal where the indictment was returned
outside that period. The burden rests on the prosecution of proving that the prosecution was
initiated within the limitations period. The limitations period for a violation of § 7201 begins
to run on the date of the last affirmative act of the evasion.101 Requests by the US government
for the extradition from the UK to the US of those charged with evasion under § 7201 have in
the past been granted.102 US citizens charged with this offence can, depending on the facts of
the case, be extradited from the UK to the US.

5.2.5.3 26 U.S.C. § 7202 - Wilful failure to collect or pay over

In most jurisdictions are to be found taxing provisions placing a duty on certain categories of
persons to collect, deduct, or withhold certain duties or taxes which they have to collect,
account for, and pay over to the Revenue. Good examples of these (in the UK) are PAYE,
National Insurance and VAT. The person from whom the contribution or tax is collected or
withheld is in fact the 'taxpayer'. On the person doing the collecting, deducting, or
withholding, rests a legal duty to so collect, deduct, or withhold, and to account for and pay
same over as and when same must be accounted for and paid over.

95
Spies v United States 317 U.S. 492 (1943)
96
United States v Citron 783 F.2d 307 (2d Cir. 1986); United States v. McKee 506 F.3d 225 (3d Cir. 2007)
97
Moore v. United States 412 F.2d 974 (5th Cir. 1969); Rutkin v. United States 343 U.S. 130 (1952)
98
See Balter, Tax Fraud and Evasion, 5th Ed, 11-35 where the writer inter alia had the following to say about
this provision: “Normally the person who violates the statute is the taxpayer. What is involved would be his own
fraudulent tax return. But the statute digs much deeper than that. The person who finds himself charged with
violating the evasion statute may have filed a perfectly honest tax return of his own. His alleged crime may be
based on involvement in the tax returns of others. The more typical relationships where such involvement may
take place are between (1) husband and wife; (2) corporations and their officers, stockholders, or employees; (3)
partners; and (4) accountants and attorneys, and others similarly situated who aid in the preparation of third-party
returns”
99
US v Jolly 55-2 U.S.T.C. 9725 (W.D. Tenn. 1955), aff’d, 229 F.2d 180 (6 th Cir. 1956) where the judge handed
down the following instructions to the jury: “The court instructs you the signing by a taxpayer of an income tax
return prepared by another makes it the taxpayer’s return; that if it is false and fraudulent, and the taxpayer
knows it to be so, he violates the law when he files it with the Collector wilfully and with an intent to evade the
payment of his proper tax.”
100
26 U.S.C. § 6531
101
United States v Wilson 118 F.3d 228 (4th Cir. 1997)
102
See Mauro v Government of the United States of America [2009] EWHC 150 (Admin) where the appellant, a
US citizen, was charged with non-filing contrary to section 7203 and evasion contrary to section 7201
(attempting to evade income tax). The offences were held to be "extradition offences" within the meaning of
section 137 of the Extradition Act 2003.
498 OFFENCES

Wilfully failing to collect, deduct or withhold those taxes or contributions in the face of a
legal duty to do so will be unlawful, as would be the collection, deduction or withholding
thereof but the failure to account for and pay same over. The offence provided for in §7202
makes punishable the failure to collect, account for and pay over contributions and taxes such
as federal insurance contributions and income taxes required to be withheld on employee
wages. Section 7202 reads as follows:

I.R.C. § 7202 - Wilful failure to collect or pay over tax

"Any person required under this title to collect, account for, and pay over any tax imposed by
this title who wilfully fails to collect or truthfully account for and pay over such tax shall, in
addition to other penalties provided by law, be guilty of a felony .....".

For conviction under this section all the material elements must be proven beyond reasonable
doubt. These are:103

(a) the legal duty to collect, truthfully account for, and pay over tax;
(b) (i) the failure to collect; (ii) the failure to truthfully account for; or (iii) the failure
to pay over; and
(c) wilfulness

This offence can be committed in one of three ways namely: (i) the failure to collect; or (ii)
the failure to account for; or (iii) the failure to pay over. This is the actus reus element of the
offence. There cannot be an unlawful failure to collect, account for, or pay over in the absence
of proof of the legal duty to do so. There must be proof, beyond reasonable doubt of:

(a) the imposition in law of the tax in question;

(b) that the tax so imposed had to be collected, accounted for, and paid over; and
(c) that the defendant was in fact a person on whom the legal duty rested to so collect,
account for, and pay over.

The mens rea required to be proven is 'wilfulness' as construed by the US courts in criminal
tax cases. The term 'wilfully' as used in sections 7201, 7202 and 7206 has the same
meaning.104 There must be a voluntarily and intentional violation of a known legal duty.105
There cannot be a voluntarily and intentional violation of a known legal duty absent
knowledge. It is for the prosecution to prove that the defendant (a) had knowledge of the duty
to collect, account for, and pay over; and (b) knowingly failed to so collect, or account for, or
pay over.

5.2.5.4 26 U.S.C. § 7206 - Perjury, Aiding and Assisting

Section 7206 effectively creates five separate offences. Of those five offences, the most oft
used are those provided for in sections 7206(1) (declaration under penalties of perjury) and
7206(2) (aiding or assisting).

(a) Section 7206 (1) Declaration under penalties of perjury

103
United States v Simkanin 420 F.3d 397 (5th Cir. 2005)
104
See United States v Pomponio 429 U.S. 10 (1976)
105
United States v Bishop 412 US 346 (1973); United States v Pomponio 429 U.S. 10 (1976); Cheek v United
States 498 U.S.192 (1991). See United States v. Florent La Haye 548 F.2d 474 (3rd Cir. 1977) where the
appellant appealed against a conviction under 26 U.S.C. § 7206(2). The court inter alia said the following as to
the meaning of "wilfulness": "Wilfulness, as employed in a tax statute, has been held to mean intentional action
with bad purpose; that is, a deliberate commission of the specified violation with the idea of evading taxes and
with the intention of getting away with it."
499 OFFENCES

Section 7206(1) makes it punishable to wilfully subscribe to any false return, statement, or
other document and where said return, statement, or other document contains or is verified by
a written declaration made under penalties of perjury. The section reads as follows:

"I.R.C. § 7206 - Fraud and false statements.

Any person who - (1) Declaration under penalties of perjury - Wilfully makes and subscribes
any return, statement, or other document, which contains or is verified by a written declaration
that it is made under the penalties of perjury, and which he does not believe to be true and
correct as to every material matter"

For conviction under this section all the material elements of the offence must be proven
beyond reasonable doubt. These are:106

(a) a return, statement, or other document which was subscribed to, was false as to a
material matter;
(b) the return, statement, or other document contained a written declaration made under
penalties of perjury;
(c) there was no honest belief in the return, statement, or other document being true and
correct as to every material matter;
(d) the return, statement, or other document was wilfully and falsely subscribed to,
voluntarily and intentionally.
This offence is frequently charged as an alternative to a charge under 26 U.S.C. § 7201 (the
attempt to evade or defeat tax). The mens rea required to be proven is wilfulness, thus a
voluntarily and intentional violation of a known legal duty.

(b) Section 7206 (2) Aiding or assisting

Section 7206(2) makes punishable aiding, assisting, procuring, and counselling. The section
reads as follows:

"I.R.C. § 7206 - Fraud and false statements. Any person who - … (2) Aid or assistance -
Wilfully aids or assists in, or procures, counsels, or advises the preparation or presentation
under, or in connection with any matter arising under, the internal revenue laws, of a return,
affidavit, claim, or other document, which is fraudulent or is false as to any material matter,
whether or not such falsity or fraud is with the knowledge or consent of the person authorized
or required to present such return, affidavit, claim, or document".

For conviction under this section all the material elements must be proven beyond reasonable
doubt. These are:107

(a) The person aided or assisted in, or procured, counselled, or advised the preparation or
presentation of a return, affidavit, claim, or other document;
(b) The return, affidavit, claim, or other document involved a matter or was in connection
with any matter arising under the internal revenue laws;
(c) The return, affidavit, claim, or other document is false or fraudulent as to a material
matter;
(d) The person wilfully aided or assisted in, procured, counselled, or advised in the
preparation or presentation of the false or fraudulent return, affidavit, claim, or other
document.

106
United States v Bishop 412 U.S. 346 (1973); United States v Scholl 166 F.3d 964 (9th Cir. 1999)
107
United States v. Florent La Haye, 548 F.2d 474 (3rd Cir. 1977)
500 OFFENCES

As is the case with the offences provided for under 26 U.S.C. § 7201 and 26 U.S.C. § 7202,
the mens rea required to be present for a conviction under § 7206(1) and § 7206(2) is
'wilfulness'. There must be a voluntarily and intentional violation of a known legal duty.

5.2.6 Canada: Section 239 of the Income Tax Act

As is the case in the UK, Australia, the US, New Zealand and South Africa, evasion in
Canada can be dealt with civilly or criminally. It can be penalized by imposing civil penalties
under sections 162 and 163 of the Canadian Income Tax Act,108 or it may be prosecuted under
section 239(1) of the same Act. Section 239(1) is Canada's primary tax evasion offence
targeted against frauds on the public revenue.109 The language and framing of section 239 is
such that there should not be any problems as regards the interpretation thereof. The
provisions are clearly framed and worded. The section reads as follows:

"239. (1) Every person who has

(a) made, or participated in, assented to or acquiesced in the making of, false or deceptive
statements in a return, certificate, statement or answer filed or made as required by or under
this Act or a regulation,
(b) to evade payment of a tax imposed by this Act, destroyed, altered, mutilated, secreted or
otherwise disposed of the records or books of account of a taxpayer,
(c) made, or assented to or acquiesced in the making of, false or deceptive entries, or omitted,
or assented to or acquiesced in the omission, to enter a material particular, in records or books
of account of a taxpayer,
(d) wilfully, in any manner, evaded or attempted to evade compliance with this Act or payment
of taxes imposed by this Act, or
(e) conspired with any person to commit an offence described in paragraphs (a) to (d),
is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary
conviction to
(f) a fine of not less than 50%, and not more than 200%, of the amount of the tax that was
sought to be evaded, or
(g) both the fine described in paragraph (f) and imprisonment for a term not exceeding 2 years.
(2) Every person who is charged with an offence described in subsection (1) may, at the
election of the Attorney General of Canada, be prosecuted on indictment and, if convicted, is,
in addition to any penalty otherwise provided, liable to
(a) a fine of not less than 100%, and not more than 200%, of the amount of the tax that was
sought to be evaded; and
(b) imprisonment for a term not exceeding 5 years."

The conduct set out in subsections 239(1)(a) - (e) effectively creates five separate offences.
Most evasion cases in Canada tend to be dealt with under subsection 239(1)(d). The actus
reus required for conviction under subsection 239(1)(d) can consist of an act or failure. In
common with some of the British110 and South African111 offences, taxpayers who evade by
failing to file are thus also covered by the section. The failure to file it must be noted does not
in itself amount to evasion. The failure to file must be wilful, accompanied with the
prerequisite mens rea.112 The failure to file must be accompanied with the intent to evade tax.

108
Income Tax Act, RSC 1985, c 1 (5th Supp).
109
See the Canadian case of R v Cardoso (1999) 139 CCC (3d) 430 (Quebec Court of Appeal) where it was inter
alia said: “The gist of the offence of tax evasion is the intentional commission of a fraud upon the public purse.
That fraud need not involve artifice or cunning, although the presence of artifice or cunning will make it easier
for a court to draw in inference of guilty intent.”
110
E.g. the offence provided for under section 106A of the Taxes Management Act 1970 and 'cheating'.
111
E.g. the offence provided for under subsection 235(1)(d) of the Tax Administration Act 28 of 2011 and
common law fraud.
112
See Ciglen v R [1970] S.C.R. 804 at 814 where the court per Cartwright C.J inter alia said: "It is clear that
mens rea is an essential element of an offence against s. 132(1)(d) of the Income Tax Act; the use of the word
501 OFFENCES

The mens rea required to be present is in essence one of intent.113 That intent may be inferred
from the facts.114 The Court in R v Andrus115 (per Ehrche J) provided the following useful
discussion of the mens rea requirement within the context of section 239(1):

"In most cases of tax evasion, the trial judge will adequately describe the elements of the
offence by instructing the jury that they must be satisfied beyond a reasonable doubt that the
accused:
- did something or engaged in a course of conduct that avoided or attempted to avoid the
payment of tax imposed by the Act;
- knew there was tax imposed by the Act; and
- engaged in the conduct for the purpose of avoiding or attempting to avoid payment of tax
imposed by the Act or knowing that avoiding payment of tax imposed by the Act was a virtual
certain consequence of his actions …

I must be satisfied beyond a reasonable doubt that the defendant (1) did something or engaged
in a course of conduct that avoided or attempted to avoid the payment of tax imposed by the
Act, and this is the actus reus, (2) knew there was tax imposed by the Act or, I will add, was
wilfully blind to that fact, and (3) engaged in the conduct for the purpose of avoiding or
attempting to avoid payment of tax imposed by the Act or knowing that avoiding payment of
tax imposed by the Act was a virtual certain consequence of his actions."

As is the case with the US and British evasion offences, evasion under section 239 will also
cover wilful blindness, in relation to both acts or failures committed in the furtherance of the
evasion. It is for the prosecution to prove beyond reasonable doubt the offender's conduct and
the intention to evade.116 The prosecution therefore also carries the burden of proving the
taxpayer's knowledge of the duty to pay. Neither negligence nor incompetence, no matter
how gross, will in itself be sufficient for a conviction on a charge of evasion.117 An attempt to
evade taxes is sufficient for a conviction under section 239(1)(d). There need not be a
successful evasion culminating in actual loss for the crime to be completed.

The offence provided for in subsection 239(1)(e) makes punishable the conspiracy to commit
any of the offences provided for in subsections 239(1)(a)-(d). Section 239 covers not only the
taxpayer, but also any advisor, accomplice, or conspirator, who evades, attempts to evade, or
conspires to evade. As two or more of these offences may overlap there is a real risk of
duplication which may put the accused at risk of being convicted twice for the same criminal
act, a risk prosecutors obviously need guard against.118

“wilfully” in the clause puts this beyond question." Also see R v Pavely 76 DTC 6415 where the Court inter alia
said: "The word 'wilfully' as used in the subsection under consideration carries a distinct connotation of
deliberate purpose and ulterior motive."
113
See e.g. R v Paveley 76 DTC 6415; The Queen v Nagda and Nagda 2002 DTC 7158; R v Andrus 2013 BCPC
160
114
See Ciglen v R [1970] S.C.R. 804 at 814 where the court per Cartwright C.J inter alia said: ".... guilty intent
may be inferred from the actions of an accused but the question whether or not the guilty intent exists is one of
fact. This is expressly stated in the judgment of this Court in Lampard v. The Queen"
115
2013 BCPC 0160
116
R v Klundert 2004 CanLII 21268 (ONCA); R v Andrus 2013 BCPC 160
117
See R v Q.I.X. Facilities Corp 91 DTC 5440 (B.C. Prov. Ct.) where Craig J inter alia said: "Its sole purpose
could be to serve to reduce the amount of taxes ultimately payable by QIX. It matters not how clumsy,
unsophisticated, or unbusinesslike the attempt might be. It would not equate to a wilful attempt to evade tax
unless the element of deceit is present in the creation of a facade of reality quite different from the truth."
118
See e.g. The Queen v Goett 2010 ABQB 100 where the taxpayer was convicted on a number of charges under
both subsections 239(1)(a) and 239(1)(d). It was however held that on the facts of the case conviction under both
subsections effectively amounted to a duplication of charges. Convictions were thus only entered on the charges
under subsection 239(1)(d).
502 OFFENCES

Upon summary conviction, fines of not less than 50% and not more than 200% of the amount
of the tax that was sought to be evaded may be levied, as well as imprisonment for a term not
exceeding two years.119 The Government also has the option of prosecuting the offender upon
indictment.120 If convicted upon indictment, the person so convicted is liable to a fine of not
less than 100%, and not more than 200% of the amount of the tax that was sought to be
evaded, and imprisonment for a term not exceeding 5 years.

5.2.7 South Africa: Section 235 - Tax Administration Act

The primary tax evasion offences in South Africa are those provided for under sections
235(1)(a)-(e) of the Tax Administration Act 28 of 2011. Section 235(1)(a) - (e) replaced but
essentially mirror those offences that were provided for under sections 104(1)(a) - (d) of the
Income Tax Act 58 of 1962 and sections 59(1)(a) - (e) of the Value Added Tax Act 89 of 1991
before those provisions were repealed by the Tax Administration Act. Section 235 reads as
follows:

"Criminal offences relating to evasion of tax

235. (1) A person who with intent to evade or to assist another person to evade tax or to obtain
an undue refund under a tax Act -
(a) makes or causes or allows to be made any false statement or entry in a return or other
document, or signs a statement, return or other document so submitted without reasonable
grounds for believing the same to be true;
(b) gives a false answer, whether orally or in writing, to a request for information made under
this Act;
(c) prepares, maintains or authorises the preparation or maintenance of false books of account
or other records or falsifies or authorises the falsification of books of account or other records;
(d) makes use of, or authorises the use of, fraud or contrivance; or
(e) makes any false statement for the purposes of obtaining any refund of or exemption from
tax,
is guilty of an offence and, upon conviction, is subject to a fine or to imprisonment for a period
not exceeding five years.121
(2) Any person who makes a statement in the manner referred to in subsection (1) must, unless
the person proves that there is a reasonable possibility that he or she was ignorant of the falsity
of the statement and that the ignorance was not due to negligence on his or her part, be
regarded as guilty of the offence referred to subsection (1).
(3) A senior SARS official may lay a complaint with the South African Police Service or the
National Prosecuting Authority regarding an offence contemplated in subsection (1)."

Section 235(1) effectively provides for five distinct offences. A person will only be guilty of
an offence provided for under section 235(1)(a)-(e) where the prosecution can prove, beyond
reasonable doubt, that all the material elements of the offence so charged were satisfied at the
time when the unlawful act was committed. All the material elements of the offence charged
must have co-existed. The failure to prove all those material elements must be followed by an
acquittal. The unlawful conduct as listed in subsections 235(1)(a)-(e) only makes out the actus
reus element and must be read with the prerequisite mens rea as set out in the introductory
part of section 235(1). The burden will thus be on the prosecution of proving beyond
reasonable doubt:

119
Section 239(1)(e)-(g).
120
Section 239(2)
121
Section 1 of the Criminal Procedure Act 51 of 1977 defines an “offence” as “any act or omission punishable
by law.” Section 1 Of the Tax Administration Act 28 of 2011 defines a ‘‘tax offence’’ as meaning: "an offence in
terms of a tax Act or any other offence involving fraud on SARS or on a SARS official relating to the
administration of a tax Act"
503 OFFENCES

(a) the framing of the taxing provisions allegedly contravened as they were framed at the
time of the alleged contravention;
(b) the conduct of the accused at the time when the offence was allegedly committed;
(c) that the conduct of the accused at the time of the alleged offence corresponded with the
actus reus of the offence charged;
(d) that the conduct of the accused was wilful with knowledge of the conduct in question
being unlawful;
(e) that the accused committed the unlawful act with the intent to:
(i) evade tax under a tax act; or
(ii) assist another to evade tax under a tax act; or
(iii) obtain an undue refund of tax under a tax act; or
(iv) assist any other person obtain an undue refund under a tax act.

South African law distinguishes between three categories of intent. These are dolus directus,
dolus indirectus and dolus eventualis. Dolus directus is direct intent, dolus indirectus will be
where the consequences were not the offender’s main aim but a certain or unavoidable
consequence of the unlawful course of conduct he embarked upon. Dolus eventualis will be
present where the offender, with actual foresight of the possibility of his conduct being
unlawful, and with actual foresight of the possibility of the consequences ensuing as a result
of that conduct, nevertheless proceeds with that course of conduct. He must have reconciled
himself with the possibility of the consequences ensuing. Fault in the form of intention
(dolus) is a material element of all the offences provided for under sections 235(1)(a)-(e).122
Dolus eventualis will be sufficient. The court in ITC 1577123 and per Howie J inter alia
provided the following explanation of intention in the form of dolus directus, dolus indirectus
and dolus eventualis in tax evasion cases:

(a) dolus directus or ‘direct intent’ will be present where the taxpayer acts with the
intention to evade taxation and in circumstances where it is his aim to bring about the
evasion of the tax;
(b) dolus indirectus or ‘awareness of certainty’ will be present where the taxpayer acts
in circumstances where evasion is not his closest aim, but where in achieving his main
aim, the evasion of the tax is necessary, certain or unavoidable; and
(c) dolus eventualis or ‘awareness of possibility’ will be present when evasion is a
possible result of achieving his aim, but in spite of that possibility he/she pursues his
objective, reconciling himself with the risk of the evasion possibly occurring.

The evasion of tax or the obtaining of an undue refund need not be the defendant’s main
objective. His main objective may be unrelated to the evasion of tax, but he may nevertheless
still have the prerequisite intent to evade. Dolus eventualis will be present where he, at the
time when he committed the unlawful conduct as set out in subsections 235(1)(a)-(e), did if
fact have actual foresight of the possibility of a tax being evaded or of an undue refund being

122
See D.R. McLachlan v Rex 2 SATC 129 (TPD) where the taxpayer was charged with a contravention of
section 69(d) of the Act 40 of 1925 which read as follows: “Any person who with intent to evade or to assist any
other person to evade assessment or taxation - …(d) makes use of any fraud, art or contrivance whatsoever, or
authorizes the use of any such fraud, art or contrivance…shall be guilty of an offence.” The offence with which
the accused was charged thus essentially corresponded with the offence provided for in section 235(1)(d). As
regards the requirement of culpability, Stratford J inter alia commented: “On all points save one the Court had
confirmed the findings of the magistrate. On one point, the matter had been referred back to the magistrate, to
ascertain whether he had found on the evidence that the accused had had any intention to assist the evasion of
taxation, as it was clear from a reading of the section that that was a necessary element of the crime…”
123
56 SATC 236 at 247
504 OFFENCES

obtained, but where he nevertheless reconciled himself with those consequences and
proceeded with the conduct. The evidence placed before the court must prove beyond
reasonable doubt that actual foresight. The burden rests on the prosecution of proving beyond
reasonable doubt the intent of the accused.124 The accused will only have the required intent
where he at the time of the commission of the offence possessed knowledge of the duty to pay
the tax.125 He must be proven to have had knowledge of the unlawfulness of his conduct, and
it must be proven that he possessed the prerequisite intent to evade/ assist with the evasion at
the time when he committed the unlawful act (under subsections 235(1)(a)-(e)). This being
said, it will not be unreasonable for a court to draw an adverse inference where the accused
fails to adduce evidence as to the absence of that knowledge in the face of a strong
prosecution case.126 A finding of absence of knowledge of unlawfulness must be followed by
an acquittal. Any person standing accused under section 235(1) will not have the prerequisite
intent where his conduct was the result of a bona fide error or mistake.127 Fault in the form of
negligence will not be sufficient for a conviction under this section. Evidence of negligence
may however be taken into account as part of the evidence from which the intention to evade
may be inferred.128

The burden rests on the prosecution of proving beyond reasonable doubt all the material
elements of the crime charged. Where the prosecution alleges something like tax evasion, the
onus rests on the prosecution of proving beyond reasonable doubt that the unlawful conduct
as set out in the relevant penal provision was committed with the prerequisite mens rea.
Knowledge of unlawfulness is a material element of crimes such as the South African
common law crime of fraud.129 This knowledge is also a material element of the offences set
out in sections 235(1)(a)-(e). Section 235(2) however provides:

124
See D.R. McLachlan v Rex 2 SATC 129 (TPD); R v Ackerman 1920 CPD 245; L Berman and Others v Rex
1925 CPD 72; S v Van der Walt 1989 (2) SA 212 (W)
125
In Harvey v Rex 3 SATC 90 (1927 TPD 878) the court was called upon to consider charges alleging the
contravention of section 26(c) of the then Stamp Duty and Fees Act 30 of 1911. Section 26(c) at the time
provided that any person: “who by any wilful act, contrivance, or omission evades or attempts to evade or aids or
abets any other person in evading any duty under this Act” committed an offence. The court held that the
relevant section specifically dealt with a deliberate evasion of the law by a person who knew what he was
evading, that the onus rested on the Crown of proving that the appellant knew that the statement of account sent
by him was a receipt in terms of the Act, and that he had knowledge of the fact that the duty was to be paid. The
Court on its own interpretation of the provisions, found section 26(c) to be aimed only at those who sought to
escape a duty of which they were actually aware. The court per Greenberg J at 95-96 continued to say: “It might
be said that such knowledge was presumed, in terms of the maxim “ignorantia juris neminem excusat,” but, in
his Lordship’s opinion that maxim only meant that when you had committed an act which was a contravention of
the law you could not avoid the liability for such act by pleading ignorance of the law ….the use of the words
“wilful,” “evades or attempts to evade or aids or abets” seemed to contemplate a guilty intent to evade the duty,
which pre-supposed a knowledge of such duty. In the present case the appellant knew the facts on which the duty
became payable; could it be said that he must be regarded as knowing that by law those facts made the duty
payable, on the ground that ignorance of such law did not excuse him? But in spite of the maxim the section
might have been aimed only at those who sought to escape a duty of which they were actually aware. It seemed
to his Lordship that …sec 26(c) was intended to deal with a deliberate evasion of the law by a person who knew
what he was evading”. The Harvey case was subsequently followed by the Cape Provincial Division in the case
of Jutzen v Rex 6 SATC 293 (1933 CPD 497) where the facts were essentially the same to that in Harvey. The
Harvey case was heard almost five decades prior to the landmark decision of S v De Blom 1977 (3) SA 513 (A)
126
S v De Ruiter 2004 (1) SACR 332 (W)
127
S v De Blom 1977 (3) SA 513 (AD)
128
See Milton, South African Criminal Law and Procedure, 2nd ed Vol II at 766. Also see R v Heuer 1954 (3)
SA 601 (E) at 604 D where Reynolds JP remarked: “That gross or other negligence may be evidence from which
deceit may be found, provided the facts are strong enough, is clear, and it may be that it can sometimes be found
from the gross negligence itself .”
129
S v Coetzee 1997 (1) SACR 379 (CC).
505 OFFENCES

"(2) Any person who makes a statement in the manner referred to in subsection (1) must,
unless the person proves that there is a reasonable possibility that he or she was ignorant of the
falsity of the statement and that the ignorance was not due to negligence on his or her part, be
regarded as guilty of the offence referred to subsection (1)"

This provision is in essence a reverse onus provision similar to those in the now repealed
subsections 59(2) of the Value Added Tax Act and 104(2) of the Income Tax Act. Subsection
235(2) effectively creates a presumption of knowledge. The false statement is presumed to
have been made with the intention to evade the payment of the tax or to obtain the undue tax
refund. The South African Constitutional Court has in the past held reverse onus provisions of
this nature to be in breach of an accused person's fundamental right of being presumed
innocent.130 Subsection 235(2) prima facie undermines the fundamental rights enshrined in
subsection 35(3)(h) of the Constitution and is certainly open for constitutional challenge.
Although this has not as yet happened, one can safely assume that subsection 235(2) will be
held to be irreconcilable with the South African Constitution should it ever be challenged.

Section 235(1) was framed sufficiently wide to cover any likely category of person/s that may
knowingly be a party to the unlawful evasion. Any person who knowingly commits any of the
prohibited acts listed in subsections 235(1)(a)-(e), and where that conduct is accompanied
with the intent to evade tax, to assist another to evade tax, to obtain an undue refund for him,
or to assist another to obtain such an undue refund, will be liable. It is thus not only the
offending taxpayer who can be held criminally liable, but also any other person who assists
the taxpayer in evading taxation or in obtaining refunds he is not legally entitled to. The
section thus also covers perpetrators, accomplices and co-conspirators. A person may well
pay his own taxes, but he may nevertheless be held liable where he assists another in evading
taxes or to obtain undue refunds.131 Those who assist others with the evasion will however
only incur criminal liability under this section where their conduct and state of mind satisfy
all the material elements of the offences charged.

A defendant convicted of any of the offences provided for in section 235(1) may be liable to a
fine or imprisonment for a period not exceeding 5 years. Apart from imprisonment, the
Criminal Procedure Act 51 of 1977 also provides for other forms of imprisonment such as
periodical imprisonment and correctional supervision. A prison sentence may also be partly or

130
See e.g. the Constitutional Court case of S v Coetzee 1997 (1) SACR 379 (CC) where the reverse onus
provided for in section 245 of the Criminal Procedure Act 51 of 1977 was held to be unconstitutional. Section
245 read: “245 Evidence on charge of which false representation is element - If at criminal proceedings at which
an accused is charged with an offence of which a false representation is an element, it is proved that the false
representation was made by the accused, he shall be deemed, unless the contrary is proved, to have made such
representation knowing it to be false.” The wording “unless the contrary is proved” was rightly held to be a
reverse onus on the accused with the burden on the accused of rebutting the presumption of intent on a balance
of probabilities. This presumption was held to be in conflict with section 25(3)(c) of the then Interim
Constitution 200 of 1993. At .383 and per Langa J it was inter alia said: “An essential element of crimes such as
fraud and theft by false pretences is knowledge of the falsity of the representation by the person making it. The
effect of the provision is that once it has been proved that the accused had made the false representation, the
presumption of knowledge comes into operation and the onus of disproving it falls on the accused…. It is clear
that the presumption is in conflict with the long established rule of the common-law on the burden of proof that
‘it is always for the prosecution to prove the guilt of the accused person, and that the proof must be proof beyond
a reasonable doubt’. The provision clearly infringes the presumption of innocence which is entrenched in s
25(3)(c) of the Constitution.” Also see S v Zuma and Others 1995 (4) BCLR 401 (CC) paragraph 33, S v
Prinsloo 1996 (3) BCLR 293 (CC) paragraph 12
131
The framing of statutory evasion offences in these broad terms so as to also cover those who assist the
taxpayer with the evasion tend to be a common feature in the penal provisions provided for in the legislation of
most jurisdictions. This is certainly the case in England, the United States, Canada, Australia, South Africa, India
and New Zealand.
506 OFFENCES

wholly suspended on certain conditions and may also be imposed in conjunction with other
forms of punishment.

To commit any unlawful act meeting the description of the conduct as set out in subsections
235(1)(a)-(e) may also amount to a misrepresentation of the truth. Misrepresentation of the
truth is the actus reus element of the South African common law crime of fraud. To cheat the
Revenue out of tax cannot be anything but prejudicial for the Revenue and it will be difficult
for any taxpayer who evaded his taxes to argue that he did not foresee prejudice. Any person
who knowingly commits any act falling within the ambit of subsections 235(1)(a) – (e), and
where he does so with foresight that the unlawful conduct may potentially deceive and
prejudice the Revenue, and who despite that foresight nevertheless proceeds with the unlawful
conduct, will clearly also expose himself (in the alternative) to charges of fraud (the South
African common law crime of fraud).132 Any person charged with a contravention under
subsection 235(1)(d), can accept as highly likely the probability of an alternative charge of
fraud. It is to be noted that both the common law crime of fraud and the offence provided for
under subsection 235(1)(d), will cover not only fraudulent representations but also fraudulent
failures. In common with the British crime of 'cheating', these offences also cover those
instances of evasion where the taxpayer knowingly, contrary to a legal duty to do so, and with
the intent to defraud, fails to register for and/or to declare tax.

5.3 Fraud and evasion offences

5.3.1 UK: 'Fraud' contrary to the Fraud Act 2006
5.3.1.1 Introduction
The Fraud Act 2006 received Royal Assent on 08 November 2006 and came into force on 15
January 2007.133 The Act was introduced following recommendations by the Law
Commission and a lengthy Home Office consultation process. The deception offences
provided for under the Theft Act 1968 and the Theft Act 1978 were viewed as too technical
and outdated. The result was the introduction of the Fraud Act 2006. The deception offences
provided for under the Theft Act 1968 and the Theft Act 1978 remain applicable in relation to
offences committed prior to 15 January 2007. The Fraud Act 2006 applies to offences
committed in England, Wales and Northern Ireland after 15 January 2007. The Fraud Act
2006 in no way impacts on the common law offence of 'Cheating' and the evasion / fraudulent
evasion offences provided for in the Revenue and Customs legislation. The preamble of the
Act simply states it to be “An Act to make provision for, and in connection with, criminal
liability for fraud and obtaining services dishonestly”. The Post-legislative assessment of the
Fraud Act 2006 however provides the following explanation of its intended objectives:

“The objectives of the Act were to clarify and modernize the law, and to make fraud law more
straightforward for juries and practitioners. The offences contained in the Act were intended to
provide law enforcers and prosecutors with a modern and flexible law of fraud capable of
combating the increasing sophistication of fraudulent activity and the rapid technological
advances made by fraudsters”.134

132
Milton. South African Criminal Law and Procedure, 2nd ed, Revised Reprint, Vol II at 755 provides for the
following definition of the South African common law crime of fraud: “Fraud consists in unlawfully making,
with intent to defraud, a misrepresentation which causes actual prejudice or which is potentially prejudicial to
another.”
133
Fraud Act 2006 (Commencement) Order 2006 SI 2006/3200.
134
Post-legislative assessment of the Fraud Act 2006, Memorandum to the Justice Select Committee, Presented
to Parliament by the Lord Chancellor and Secretary of State for Justice, June 2012, The Stationary Office, ISBN:
9780101837224, p.3, paras 3 - 4.
507 OFFENCES

Section 1 of the Fraud Act 2006 provides for the offence of ‘fraud’ which can be committed
in one of three ways, namely: (a) fraud by false representation;135 (b) fraud by failing to
disclose information;136 and (c) fraud by abuse of position.137 Apart from the fraud offence
provided for under section 1, the Act also provides for the new offences of possessing articles
for use in fraud;138 making and supplying articles for use in fraud;139 fraudulent trading;140 and
obtaining services dishonestly.141 Conspiracies to commit an offence under the Act can be
charged as conspiracy under section 1 of the Criminal Law Act 1977. Conspiracy to defraud
under common law may, depending on the facts of the case, also be a competent alternative
charge.

5.3.1.2 The Fraud Offence

5.3.1.2.1 Fraud under section 1
It is to be noted that sections 1-4 do not create separate fraud offences. Section 1 creates the
offence of fraud with sections 2, 3 and 4 merely setting out the ways in which that offence can
be committed. Section 1 reads as follows:

“Fraud
(1) A person is guilty of fraud if he is in breach of any of the sections listed in subsection (2)
(which provide for different ways of committing the offence).
(2) The sections are -
(a) section 2 (fraud by false representation),
(b) section 3 (fraud by failing to disclose information), and
(c) section 4 (fraud by abuse of position).
(3) A person who is guilty of fraud is liable -
(a) on summary conviction, to imprisonment for a term not exceeding 12 months or to a
fine not exceeding the statutory maximum (or to both);
(b) on conviction on indictment, to imprisonment for a term not exceeding 10 years or to a
fine (or to both).
(4) Subsection (3)(a) applies in relation to Northern Ireland as if the reference to 12 months
were a reference to 6 months."

A person who is guilty of fraud is liable on summary conviction, to imprisonment for a term
not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both), and a
person convicted on indictment is liable to imprisonment for a term not exceeding 10 years or
to a fine (or to both).

5.3.1.2.2 Sec 2 - Fraud by false representation

Section 1 read with section 2 sets out the offence of fraud (by false representation). Section
2(1) of the Act reads as follows:

“2 Fraud by false representation (1) A person is in breach of this section if he -

(a) dishonestly makes a false representation, and
(b) intends, by making the representation -
(i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss.”

135
Under subsection 1(2)(a) and section 2
136
Under subsection 1(2)(b) and section 3
137
Under subsection 1(2)(c) and section 4
138
Section 6
139
Section 7
140
Section 9. This offence is additional to the offence of fraudulent trading as provided for in section 993 (Part
29) of the Companies Act 2006.
141
Section 11
508 OFFENCES

A representation will be any representation as to fact or law, including a representation as to

the state of mind of the person making the representation or any other person. 142 A
representation will be false where it is untrue or misleading, and where the person making it
knows that it is, or might be, so untrue or misleading.143 There must be subjective knowledge.
The false representation may be express or implied.144 The representation may also be made
by conduct. There is no limitation on the way in which the representation must be
expressed.145 The person to whom the false representation is made need not be deceived for
the crime to be completed. For the purposes of this section the false representation will be
regarded as made if it was “submitted in any form to any system or device designed to
receive, convey or respond to communications (with or without human intervention)”.146 A
person will only be guilty of fraud "by false representation" under section 1 (read with section
2) where he:

(a) he made a representation;

(b) the representation made was false;
(c) he made the representation dishonestly with knowledge of its falsity;
(d) his dishonest false representation was made with the intent:
(i) to make a gain for himself; or
(ii) to make a gain for another; or
(iii) to cause loss to another; or
(iv) to expose another to a risk of loss.

The false representation must be made dishonestly.147 In English law the test followed in
considering dishonesty is that laid down in the Appeal Court case of R v Ghosh, also referred
to as the 'Ghosh test'.148 The test in essence involves a determination whether: (i) according to
the “ordinary standards of reasonable and honest people what was done was dishonest”; and
(ii) whether the defendant “realised that what he was doing was by those standards
dishonest”. The first part of the test is an objective test with the second part in essence being a
test as to the defendant’s subjective state of mind.

The representation must be made with the intent of making a gain or causing a loss or causing
a risk of loss to another.149 The offence does not require actual loss to ensue.150 This is a
conduct crime. The required intent need however be proven. “Gain” and “loss” is defined in
section 5 as: “(2) “Gain” and “loss” – (a) extend only to gain and loss in money or other
property; (b) include any such gain and loss whether temporary or permanent; and “property”
means any property whether real or personal (including things in action and other intangible

142
Section 2(3)
143
Section 2(2)
144
Section 2(4)
145
See Explanatory Notes to the Fraud Act 2006, Home Office, 8 November 2006
146
Section 2(5)
147
Section (2)(1)(a)
148
R v Ghosh [1982] QB 1053 where Lord Lane inter alia said: "In determining whether the prosecution has
proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary
standards of reasonable and honest people what was done was dishonest. If it was not dishonest by those
standards, that is the end of the matter and the prosecution fails. .. If it was dishonest by those standards, then the
jury must consider whether the defendant himself must have realized that what he was doing was by those
standards dishonest."
149
Section 2(1)(b)
150
The fact that the offence can be completed absent actual loss is nothing novel or new. The offence of
'cheating' is a prime example of an offence where fraudulent conduct has long been punishable even where there
was only a risk of loss.
509 OFFENCES

property). (3) “Gain” includes a gain by keeping what one has, as well as a gain by getting
what one does not have. (4) “Loss” includes a loss by not getting what one might get, as well
as a loss by parting with what one has”.

5.3.1.2.3 Sec 3 - Fraud by failing to disclose

Section 1 read with section 3 sets out the offence of fraud (by failing to disclose information
to another person in breach of a legal duty to disclose same). Section 3 reads as follow:

“3 Fraud by failing to disclose information

A person is in breach of this section if he -
(a) dishonestly fails to disclose to another person information which he is under a legal
duty to disclose, and
(b) intends, by failing to disclose the information -
(i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss."

From the outset it can be stated that the offence of fraud "by failing to disclose information"
(contrary to section 1 read with section 3) was never intended by the legislature as an offence
to punish anything other than fraudulent non-disclosures. It was never intended as an offence
to punish innocent failures or carelessness. The offence is an offence of dishonesty. A mere
failure, absent dishonesty and the required intent will not be sufficient. All the elements of the
offence need be present and need co-exist for the offence to be completed. A person will only
be guilty of fraud "by failing to disclose information" where he:

(a) dishonestly
(b) fails to disclose information to another person;
(c) where he was under a legal duty to disclose the information which he so failed to
disclose;
(d) where he had knowledge of the legal duty to disclose the information in question;
(e) where he intentionally failed to disclose the information;
(f) with the intent:
(i) to make a gain for himself; or
(ii) to make a gain for another; or
(iii) to cause loss to another; or
(iv) to expose another to a risk of loss.

A person will only be guilty of fraud "by failing to disclose information" where he failed to
disclose the information in breach of a legal duty to disclose.151 The Law Commission’s
Report on Fraud, provides for the following explanation of “what may make out the existence
of such a legal duty”:152

“7.28 First, non-disclosure of information should suffice if there is a legal duty to disclose it.
Such a duty may derive from statute (such as the provisions governing company prospectuses),
from the fact that the transaction in question is one of the utmost good faith (such as a contract
of insurance), from the express or implied terms of a contract, from the custom of a particular
trade or market, or from the existence of a fiduciary relationship between the parties (such as
that of agent and principal). 7.29.For this purpose there is a legal duty to disclose information
not only if the defendant’s failure to disclose it gives the victim a cause of action for damages,
but also if the law gives the victim a right to set aside any change in his or her legal position to

151
Section 3(a)
152
The Law Commission, Fraud, Report No. 276, July 2002, p. 64 at paragraphs 7.28 and 7.29. Also see
Explanatory Notes to the Fraud Act 2006, Home Office, 8 November 2006
510 OFFENCES

which he or she may consent as a result of the non-disclosure. For example, a person in a
fiduciary position has a duty to disclose material information when entering into a contract
with his or her beneficiary, in the sense that a failure to make such disclosure will entitle the
beneficiary to rescind the contract and to reclaim any property transferred under it.”

The failure to disclose the information to the other party must be dishonest.153 The test for
dishonesty will be the 'Ghosh test' as discussed above. The failure to disclose the information
must be made with the intent of making a gain or causing a loss or causing a risk of loss to
another.154 The offence does not require actual loss to be completed. The required intent need
however be proven. “Gain” and “loss” is defined under section 5.

The reality is that unlawful, dishonest, non-disclosures as the actus reus for offences
penalizing fraudulent conduct, have been punishable in English law for a very long time. A
good example in point is that old stalwart of 'cheating' contrary to common law, an offence
commonly used in dealing with revenue-frauds. The offence of cheating is in fact nothing
other but a common law fraud offence. It is furthermore an offence that not only makes
punishable overt acts of misrepresentation but also punishes unlawful dishonest non-
disclosures. It is an offence that does not discriminate between omissio and commissio when it
comes to the nature of the actus reus required to be present for the offence to be completed.
Fraudulent non-disclosures by taxpayers intent on evading their tax liabilities have been
prosecuted as 'cheating' for a long time.

5.3.1.2.4 Sec 4 - Fraud by abuse of position

Section 1 read with section 4 deals with fraud by abuse of position. Under those sections it is
an offence for any person occupying a position in which he is expected to safeguard, or not to
act against, the financial interests of another person to commit a fraud by dishonestly abusing
that position. Section 4 reads as follows:

“4 Fraud by abuse of position

(1) A person is in breach of this section if he -
(a) occupies a position in which he is expected to safeguard, or not to act against, the
financial interests of another person,
(b) dishonestly abuses that position, and
(c) intends, by means of the abuse of that position -
(i) to make a gain for himself or another, or
(ii) to cause loss to another or to expose another to a risk of loss.
(2) A person may be regarded as having abused his position even though his conduct consisted of
an omission rather than an act."

The Law Commission’s report on fraud provided for the following explanation of the
meaning of "position”: "7.38 The necessary relationship will be present between trustee and
beneficiary, director and company, professional person and client, agent and principal,
employee and employer, or between partners. It may arise otherwise, for example within a
family, or in the context of voluntary work, or in any context where the parties are not at
arm’s length. In nearly all cases where it arises, it will be recognized by the civil law as
importing fiduciary duties, and any relationship that is so recognized will suffice. We see no
reason, however, why the existence of such duties should be essential. This does not of course
mean that it would be entirely a matter for the fact-finders whether the necessary relationship
exists. The question whether the particular facts alleged can properly be described as giving

153
Section 3(a)
154
Section 3(b)
511 OFFENCES

rise to that relationship will be an issue capable of being ruled upon by the judge and, if the
case goes to the jury, of being the subject of directions.” 155

A position can be abused by omission, thus the dishonest failure of the person to do
something.156 The offender must have abused his position dishonestly.157 Once again the test
for dishonesty will be the 'Ghosh test' as discussed above. The abuse of position must have
been intended to make a gain or causing a loss or risk of loss to another.158 Actual loss is not a
requirement for the offence to be completed. The required intent need however be proven.
“Gain” and “loss” for the purposes of this section is defined in section 5 of the Act.

5.3.1.3 Other offences

Section 6 of the Act makes it an offence for a person to possess or have under his control any
article for use in the course of or in connection with any fraud. 159 The maximum custodial
sentence on summary conviction is 12 months, and in the case of conviction on indictment the
maximum custodial sentence is 5 years.160 Section 7 of the Act makes it an offence for any
person to make, adapt, supply or offer to supply any article knowing that it is designed or
adapted for use in the course of or in connection with fraud, or intending it to be used to
commit or facilitate fraud.161 The maximum custodial sentence on summary conviction is 12
months, and in the case of conviction on indictment the maximum custodial sentence is 10
years.162

Section 9 makes it an offence for a person to be knowingly a party to fraudulent trading “with
the intent to defraud creditors of any person or for any other fraudulent purpose”. The offence
provided for in this section was intended to extend the criminal liability for fraudulent trading
(as provided for under section 993 of the Companies Act 2006) to non-corporate traders.
Section 9 also covers fraudulent trading by non-corporate traders such as sole traders,
partnerships and trusts. The maximum custodial sentence on summary conviction is 12
months, and in the case of conviction on indictment the maximum custodial sentence is 10
years.163 Section 9 and 993 is discussed in greater detail in the discussion dealing with
‘Fraudulent Trading’.

5.3.1.4 Liability of company officers (Section 12)

Under section 12(2), where an offence is proved to have been committed with the consent or
connivance of a director, manager, secretary or other similar officer of the body corporate, or
a person who was purporting to act in any such capacity, he (as well as the body corporate) is
guilty of the offence. If the affairs of a body corporate are managed by its members, then
subsection 12(2) also applies in relation to the acts and defaults of a member in connection
with his functions of management as if he were a director of the body corporate.

155
The Law Commission, Fraud, Report No. 276, July 2002, p. 66 at paragraphs 7.38. Also see Explanatory
Notes to the Fraud Act 2006, Home Office, 8 November 2006
156
Section 4(2)
157
Section 4(1)(b)
158
Section 4(1)(c )
159
Section 6(1) reads: “(1) A person is guilty of an offence if he has in his possession or under his control any
article for use in the course of or in connection with any fraud.”
160
Section 6(2)
161
Section 7(1) reads: “(1) A person is guilty of an offence if he makes, adapts, supplies or offers to supply any
article – (a) knowing that it is designed or adapted for use in the course of or in connection with fraud, or (b)
intending it to be used to commit, or assist in the commission of, fraud.”
162
Section 7(2)
163
Section 9(6)
512 OFFENCES

5.3.1.5 Conclusions
Preliminary assessments of the efficacy of the Fraud Act indicate satisfaction amongst both
enforcement and prosecuting agencies with the results. All indications are that the objectives
set out to be achieved with the introduction of the Act, have been achieved. In the Post-
legislative assessment of the Fraud Act 2006 it was inter alia reported:164

“13. In their response to the evaluation the CPS advised that the Act has simplified fraud law. The
offences are now easily understood by those involved in, and responsible for, the investigation of
fraud. …. 17. Prosecutors are making use of all the offences in the Act. They have indicated that
the Act provides a comprehensive suite of offences for a diverse range of cases …. 19. The CPS
reports that cases brought under the Act tend to be disposed of more quickly than other types of
cases involving fraud. All practitioners agree that it would be difficult to assess overall resource
savings, but that a significant increase in guilty pleas, simplification of the offences and
investigation of fraud indicate a productive use and considerable saving of resources…. 41. We
have carefully considered the evidence provided by those we consulted in this review. Our overall
assessment of the Act is that it has been successful in achieving its initial objectives of
modernising the former array of deception offences. It provides a clear statutory basis for fraud
offences, targets complex fraud and introduces new offences specifically designed to assist in the
prosecution of technology focused crime.”

Of particular importance though, within the context of taxation, is the following quoted from
the same assessment:

“16. Practitioners generally report that guilt in respect of the new offences under the Act seems to
be more readily admitted than for the former deception offences. For example, it appears that in
the context of revenue offences, defendants are more willing to plead to a Fraud Act 2006 charge
than to an alternative charge such as the common law offence of cheating the revenue.”

The Fraud Act is a well drafted statute and the offences therein well thought out. They are
clear, wide in ambit, and robust. They are certainly capable of being used quite effectively in
dealing with most if not all frauds, including revenue frauds. The introduction of the Act has
undoubtedly provided the authorities with a powerful prosecution-tool in addition to the
common law offence of 'Cheating' (and the other offences provided for in the revenue and
customs legislation). British legislation is replete with offences penalizing a wide spectrum of
fraudulent acts and failures. With the enactment of the Fraud Act, and in particular the
offence provided for under section 1 (read with sections 2, 3 and 4), Parliament did manage to
create an offence capable of dealing with a wide spectrum of fraudulent acts and failures
historically penalized under a legio statutes.

The section 1 offence is not so wide as to cover any conduct which is anything but fraudulent.
The fact that the section 1 offence will be completed absent actual prejudice is nothing new
either. The offence of 'cheating' is a prime example of an offence where fraudulent conduct
has long been punishable where there is only a risk of loss. As with ‘cheating’ where a
taxpayer's fraud need not be successful for the crime to be completed, this offence can also be
completed even where actual loss was somehow averted. The language used and the material
elements of the offence required to be proven is clear enough and experienced investigators
and prosecutors ought not experience any difficulty in identifying the material elements or in
matching the evidence in proving those elements. This is also supported by the fact that the
offence provided for under section 1 has thus far escaped any setbacks in the higher courts.

164
Supra at 5-10
513 OFFENCES

Public as complainant
Any member of the public who believes he or she has been defrauded by another person
contrary to the Fraud Act is entitled to file a complaint with the police. The fraud offence
provided for under the Act is framed so wide as to cover a wide spectrum of frauds without
the Act or anything outside the Act seemingly limiting its application to specific species of
fraud i.e. insurance fraud, bank fraud, bankruptcy fraud, investment frauds etc. In short, it is a
general fraud offence. Members of the public can be, as individuals in their personal
capacities, be defrauded in the course of what may also be a revenue or customs fraud.
Consider the following examples:

(a) X's luxury car, his pride and joy, is running low on fuel and he decides to fill up at the
next filling station. At the first filling station he pulls up and fills his car up with the best
grade diesel on sale. He pays the attendant and is issued with a receipt. As X was careful
in selecting the fuel of his preference, as he did not notice anything untoward, as he had
no reason to doubt the integrity of the filling station's owners, and as the cost-price was
the average retail price, he thought nothing of it and goes on his way. A week later he
takes the vehicle in for its annual service. When he collects the vehicle the mechanic asks
him why he is using 'red diesel' in his vehicle and warns him against doing so. X believes
he has been defrauded. Firstly, the diesel he filled up with was of a different grade and
description than that indicated at the pump or on the receipt he received. He was misled
into filling up with diesel other than that he intended to purchase, diesel which may not
only be harmful to his vehicle's engine, but also diesel which customs is entitled to seize
from him. Furthermore, a large part of the retail price paid by him to the filling station
consists of duties and taxes which were misappropriated by the owners and the smugglers
supplying him. X being the law abiding citizen he is, he never would have filled up at the
station had he known the true facts. He promptly goes to the police and files a complaint
of fraud contrary to the Fraud Act. An investigation reveals that the filling station owners
have knowingly been selling laundered red diesel to unsuspecting customers. Has X been
defrauded and can a charge of fraud contrary to the Fraud Act succeed ? Most certainly.

(b) Trader X approaches contractor Y and requests a quote for certain work he wishes to be
carried out at his business premises. Y provides X with a written quotation stating the
contract price plus 20% VAT. X agrees to the quote and contractor Y carries out the work.
After completion of the work, Y raises an invoice issued to X whereon is indicated the
contract price with a breakdown of the costs and VAT charged. The invoice also reflects a
VAT number. X pays the invoice. X subsequently attempts to reclaim the VAT but is
informed that the VAT number as provided by Y is in fact false and that Y is in fact not
registered for VAT. In short, Y misrepresented the truth, misled X, and misappropriated
the VAT. As X would not have traded with Y had he known that the VAT was going to be
diverted into Y's pocket he files a complaint of fraud with the police. Is he entitled to do
so ? The answer is yes. He has clearly been defrauded, it is a fraud covered under the Act,
and the police are responsible for the investigation of crimes covered under the Act.165

165
There is in fact at least one reported case where these were broadly the facts of the matter. In R v Thompson
[2013] EWCA Crim 988 the appellant was convicted of two counts of fraud contrary to section 1 read with
section 2 of the Fraud Act 2006. The particulars of the offence under count 1 (count 2 was a like offence) were
that: "Between 1st day of March 2009 and the 26th day of May 2009 dishonestly made false representations to
Rachel and Simon Ballamy by invoices that stated that Value Added Tax totalling £5907.15 was due, when in
fact Eaglerock Associates Limited were not VAT registered and no monies arising out of the invoices was to be
accounted to Her Majesty's Revenue and Customs and furthermore that Jayne Anne Thompson and William
Henry George White being a director, manager, secretary or other similar officer of Eaglerock Associates
Limited or a person purporting to act in such a capacity and the offence being committed with their consent or
514 OFFENCES

In Britain the 'complainant' in revenue and customs prosecutions has historically always been
the Revenue, and for the most part this will always be the case. The Fraud Act 2006 does
however open the door to the prosecution of certain 'tax offenders' where the complainant
may well not be the Revenue but a member of the public, and where the investigating agency
may well not be the Revenue but the police. In these instances the matter will of course from
the start be handled as a criminal matter, and rightly so.

5.3.2 UK: Fraudulent Trading

Knowingly being a party to carrying on business with the intent to defraud creditors can make
out an offence under either section 9 of the Fraud Act 2006 or section 993 of the Companies
Act 2006.166 Section 993 in essence deals with fraudulent trading by companies whereas the
offence provided for in section 9 was intended to extend the criminal liability for fraudulent
trading (as provided for under section 993) to non-corporate traders such as sole traders,
partnerships, trusts, and overseas registered companies. Section 993 reads as follows:

“993 Offence of fraudulent trading

(1) If any business of a company is carried on with intent to defraud creditors of the company
or creditors of any other person, or for any fraudulent purpose, every person who is knowingly
a party to the carrying on of the business in that manner commits an offence”167

The offence can be committed whether or not the company has been, or is in the course of
being, wound up.168 The maximum custodial sentence in the case of conviction on indictment
is 10 years.169 Section 9 of the Fraud Act reads as follow:

"9. Participating in fraudulent business carried on by sole trader etc

(1) A person is guilty of an offence if he is knowingly a party to the carrying on of a business
to which this section applies.
(2) This section applies to a business which is carried on –
(a) by a person who is outside the reach of section 993 of the Companies Act 2006 (offence of
fraudulent trading), and
(b) with intent to defraud creditors of any person or for any other fraudulent purpose.
(3) The following are within the reach of that section –
(a) a company (within the meaning of the Companies Act 1985 or the Companies (Northern
Ireland) Order 1986);
(b) a person to whom that section applies (with or without adaptations or modifications) as if
the person were a company;
(c) person exempted from the application of that section."

connivance are also guilty of the offence by virtue of Section 12 of the Fraud Act 2006" The appellant's co-
accused pleaded guilty to two similar counts of fraud. The appellant's convictions however were subsequently set
aside as they were held to be unsafe (as a result of the judge's directions as regards to inferences and
circumstantial evidence and as a result of the pressure of time the jury were put under).
166
The Companies Act 2006 replaced the Companies Act 1985. Section 993 of the 2006 Act effectively replaced
section 458 of the 1985 Act.
167
Section 1 of the Act defines "companies" as: “1. Companies - (1) In the Companies Acts, unless the context
otherwise requires - “company” means a company formed and registered under this Act, that is - (a) a company
so formed and registered after the commencement of this Part, or (b) a company that immediately before the
commencement of this Part - (i) was formed and registered under the Companies Act 1985 (c. 6) or the
Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or (ii) was an existing company for the
purposes of that Act or that Order (which is to be treated on commencement as if formed and registered under
this Act)”
168
Section 993(2)
169
Section 993(3)
515 OFFENCES

The maximum custodial sentence on summary conviction is 12 months, and in the case of
conviction on indictment the maximum custodial sentence is 10 years. 170 The Explanatory
Notes171 to the Fraud Act 2006 inter alia provides for the following brief but helpful
explanation of what 'fraudulent trading' entails:

“A person commits the offence of fraudulent trading under the companies legislation if he is
knowingly party to the carrying on of a company’s business either with intent to defraud
creditors or for any other fraudulent purposes. This section creates a similar offence that
applies to persons knowingly party to the carrying on of non-corporate businesses in either of
those ways. Fraudulent trading is in effect a general fraud offence, comparable to conspiracy to
defraud, but requiring the use of a company instead of the element of conspiracy. The case law
has established that:

- dishonesty is an essential ingredient of the offence;

- the mischief aimed at is fraudulent trading generally, and not just in so far as it affects
creditors;
- the offence is aimed at carrying on a business but can be constituted by a single
transaction; and
- it can be committed only by persons who exercise some kind of controlling or managerial
function within the company.

It is intended that these principles should apply to the new offence in section 9 too.”

Both the section 9 and 993 offences are in essence fraud offences. Both these offences cover
not only frauds against creditors, but fraudulent trading in general. This is clear from the
wording “or for any other fraudulent purpose” which are to be found in both sections. The
"fraudulent purpose" referred to in section 9 has the same meaning as that used in section
993.172 It will be for the prosecution to prove that the business was being carried out by the
company in question (where section 993 is charged) or by the non-corporate trader (where
section 9 is charged in the case of sole traders, partnerships, trusts and foreign registered
companies). The prosecution will also need prove that those charged were knowingly party to
the carrying on of that business. Both offences can be committed either by defrauding
creditors or for some other fraudulent purpose.

The wording "intent to defraud" and "fraudulent purpose" connotes knowledge, intent, and
dishonesty.173 No person can unknowingly "intent to defraud" or unknowingly be "knowingly
a party to the carrying on of a business ... for any other fraudulent purpose". Both the section
9 and 993 offences are dishonesty offences. Dishonesty is a material element of both those
offences. This will be for the prosecution to prove beyond reasonable doubt. In both instances

170
Section 9(6)
171
Explanatory Notes to the Fraud Act, p. 5 at paragraph 30
172
Section 9(5)
173
See Welham v DPP [1961] AC 103 at 133 where Lord Denning inter alia said: "… 'with intent to defraud'
means 'with intent to practise a fraud' on someone .... If anyone may be prejudiced in any way by the fraud that is
enough." In Scott v Metropolitan Police Commissioner [1975] AC 819 Viscount Dilhorne explained "to defraud"
as follows: "'to defraud' ordinarily means … to deprive a person dishonestly of something which is his or of
something to which he is or would or might but for the perpetration of the fraud be entitled." Also see Smith &
Hogan - Criminal Law at 127-128 where it is inter alia said: “The word “fraudulently” and the phrase “with
intent to defraud” both imply dishonesty and the test is the same in commercial dealings as in other matters. It
seems that D has an intent to defraud if (i) he intends to do acts which, in the circumstances known to him,
would, if carried out, defraud P and (ii) he knows that ordinary people would regard what he proposes to do as
dishonest.”
516 OFFENCES

the 'Ghosh test' will apply.174 It will also be for the prosecution to prove that the required
knowledge and intent was present at the time when the offence was committed. These
offences feature particularly prominent in prosecutions where creditors were defrauded. The
Revenue can of course also be a creditor which can be defrauded out of taxes due to the
fiscus. Where this is the case, those responsible may, depending on the facts of the case, be
charged with the fraudulent trading offences provided for in section 9 or 993.175

5.3.3 Canada: Section 380 of the Criminal Code

Tax evasion in essence involves a fraud perpetrated upon the fiscus. Many instances of
evasion covered under section 239(1) of the Income Tax Act, RSC 1985, c 1 (5th Supp) may,
depending on the facts of the case, also be successfully dealt with under the general fraud
offence provided for under section 380 of the Criminal Code. Section 380 reads as follows:

"380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a
false pretence within the meaning of this Act, defrauds the public or any person, whether
ascertained or not, of any property, money or valuable security or any service,
(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding
fourteen years, where the subject-matter of the offence is a testamentary instrument or the
value of the subject-matter of the offence exceeds five thousand dollars; or
(b) is guilty
(i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or
(ii) of an offence punishable on summary conviction,
where the value of the subject-matter of the offence does not exceed five thousand dollars.

380(1.1) When a person is prosecuted on indictment and convicted of one or more offences
referred to in subsection (1), the court that imposes the sentence shall impose a minimum
punishment of imprisonment for a term of two years if the total value of the subject-matter of
the offences exceeds one million dollars."

The Canadian authorities may, depending on the facts of the case, charge an offender with
fraud under section 380, as an alternative charge to evasion under section 239(1). Section 380
makes it punishable, on summary conviction or conviction upon indictment, for any person to
defraud the public or any other person through any "deceit, falsehood or other fraudulent
means". The mens rea required to be present for a conviction on charges of fraud will only be
present where there is:

(a) subjective knowledge of the falsehood or deceit; and

(b) subjective knowledge that the falsehood or deceit (actus reus) could result in the
deprivation of another.

A conviction may follow where the accused actually intended the consequences, or where he
was reckless as to whether or not it would ensue.176 Section 380 provides for a maximum

174
The English law the test for dishonesty was cemented in the Appeal Court case of R v Ghosh [1982] QB
1053. The test in essence involves a determination whether: (i) according to the “ordinary standards of
reasonable and honest people what was done was dishonest”; and (ii) whether the defendant “realised that what
he was doing was by those standards dishonest”. The first part of the test is an objective test with the second part
in essence being a test as to the defendant’s subjective state of mind.
175
See R v Leaf [2007] EWCA Crim 802 where the Appellant was sentenced to 12½ years imprisonment
following conviction on 13 counts of fraudulent trading contrary to the then section 458 of the Companies Act
1985. The fraud in essence involved the defrauding of the Revenue out of corporation taxes through a series of
sham loans and sham foreign exchange transactions.
176
See R v Théroux [1993] 2 S.C.R. 5 (S.C.C.)
517 OFFENCES

sentence of 14 years with a 2 years minimum sentence where the fraud exceeds one million
dollars.

5.3.4 Australia - Offences under the Commonwealth Criminal Code 1995

The Australian Commonwealth Criminal Code 1995 provides for a wide range of dishonesty
offences primarily intended to protect the Government administration against fraud. The most
important of those (for the purposes of this discussion) are those provided for under:177

(a) Section 134.1(1) Obtaining Commonwealth property by deception

The offence provided for under this section reads as follows: "134.1 Obtaining property
by deception (1) A person is guilty of an offence if: (a) the person, by a deception,
dishonestly obtains property belonging to another with the intention of permanently
depriving the other of the property; and (b) the property belongs to a Commonwealth
entity." The maximum penalty is imprisonment for up to 10 years.

(b) Section 134.2(1) Obtaining a financial advantage by deception

The offence provided for under this section reads as follows: "134.2 Obtaining a financial
advantage by deception - (1) A person is guilty of an offence if: (a) the person, by a
deception, dishonestly obtains a financial advantage from another person; and (b) the
other person is a Commonwealth entity." The maximum penalty is imprisonment for up to
10 years.

(c) Section 135.1 - General Dishonesty

Section 135.1 effectively provides for four 'general dishonesty' offences. These are:

(i) Section 135.1(1) which reads as follows: "(1) A person is guilty of an offence if: (a) the
person does anything with the intention of dishonestly obtaining a gain from another
person; and (b) the other person is a Commonwealth entity";

(ii) Section 135.1(3) which reads as follows: "(3) A person is guilty of an offence if: (a)
the person does anything with the intention of dishonestly causing a loss to another
person; and (b) the other person is a Commonwealth entity";

(iii) Section 135.1(5) which reads as follows: "(5) A person is guilty of an offence if: (a)
the person dishonestly causes a loss, or dishonestly causes a risk of loss, to another
person; and (b) the first-mentioned person knows or believes that the loss will occur or
that there is a substantial risk of the loss occurring; and (c) the other person is a
Commonwealth entity"; and

(iv) Section 135.1(7) which reads as follows: "(7) A person is guilty of an offence if: (a)
the person does anything with the intention of dishonestly influencing a public official in
the exercise of the official’s duties as a public official; and (b) the public official is a
Commonwealth public official; and (c) the duties are duties as a Commonwealth public
official";

The maximum penalty in the event of conviction under any of these section 135.1
offences is imprisonment for up to 5 years.

177
Others (dealt with in later discussions) are the conspiracy offences provided for under section 135
518 OFFENCES

Of these offences it is the offences provided for under sections 134.2(1) 178 and 135.1(1)179
that seemingly finds the most frequent application (within the revenue context). It is difficult
to imagine situations (within the revenue context) where obtaining a financial advantage by
deception under section 134.2(1) will not also be an offence of general dishonesty under
section 135.1(1). The offence under section 135.1(1) will seemingly be a competent
alternative charge capable of dealing with most if not all instances of obtaining a financial
advantage by deception covered under section 134.2(1), but all cases that can be captured
under section 135.1(1) will not be covered under section 134.2(1). To do "anything with the
intention of dishonestly obtaining a gain" (section 135.1(1)) is certainly wider than to "by a
deception, dishonestly obtains a financial advantage" (134.2(1)). For conviction under section
135.1(1) it is sufficient to engage in the unlawful conduct with the intent to make a dishonest
gain. That attempt need not be successful.180 Another noticeable difference between these
offences is the differences in penalties - up to 10 years imprisonment in the event of
conviction under section 134.2(1), as opposed to a maximum of 5 years imprisonment under
section 135.1(1).

5.3.5 US: 18 U.S.C. § 287 - False, fictitious, or fraudulent claims

Section 287 is not a dedicated tax offence but an offence of general application intended to
protect the United States against false, fictitious, or fraudulent claims. It can however and
does often find application in revenue cases involving fraudulent claims for refunds. Section
287 reads as follows:

Ҥ 287. False, fictitious or fraudulent claims

Whoever makes or presents to any person or officer in the civil, military, or naval service of
the United States, or to any department or agency thereof, any claim upon or against the
United States, or any department or agency thereof, knowing such claim to be false, fictitious,
or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the
amount provided in this title.”

The material elements of the offence can be broken downs as follows:181

(a) (i) made or presented any claim; and (ii) the claim was upon or against the United
States, or any department or agency thereof; and (iii) that claim was made or presented
to any person or officer in the civil, military, or naval service of the United States, or
to any department or agency thereof, and
(b) the claim so made or presented was false, fictitious, or fraudulent; and

178
For application see e.g: De Hollander v The Queen [2012] WASCA 127 (filing of false GST returns. Failed to
declare all cash receipts); R v Bromley [2010] VSC 345 (Large scale GST refund scam); The Queen v Alimic
[2006] VSCA 273 ( Income tax returns lodged in false names and fraudulently claiming of Family Tax Benefits);
R v Knight [2004] NSWCCA 145
179
For application see e.g: Milne v R [2012] NSWCCA 24 (False tax return - capital gains understated); R v
Knight [2004] NSWCCA 145
180
See e.g. R v Knight [2004] NSWCCA 145 where the appellant was involved in a scheme which involved the
creation of false identities which he then used to obtain benefits from the Australian Commonwealth. It was in
essence a well organized criminal refund scam. He was inter alia convicted of: (a) 18 offences contrary to section
134.2(1) of the Criminal Code 1995 - these convictions related to claim payments (in false names) obtained from
the Commonwealth Services Delivery Agency to which he was not entitled; and (b) 3 offences contrary to
section 135.1(1) of the Criminal Code 1995 - these convictions related to three unsuccessful attempts to obtain
benefits payments (in false names) to which he was not entitled.
181
See United States v Okoronkwo 46 F.3d 426 (5th Cir.) where it was inter alia said: "To establish a violation
of 18 U.S.C. § 287, the Government must prove (1) that the defendant presented a false or fraudulent claim
against the United States;  (2) that the claim was presented to an agency of the United States;  and (3) that the
defendant knew that the claim was false or fraudulent." Also see United States v Syme 276 F.3d 131 (3d Cir.);
United States v Miller 545 F.2d 1204 (9th Cir.1976) and United States v Nash 175 F. 3d 429 (6th Cir 1999).
519 OFFENCES

(c) the claim was made or presented with knowledge of it being: (i) upon or against the
United States, or any department or agency thereof; and (ii) being false, fictitious, or
fraudulent.

It is for the prosecution to prove that the defendant made or presented a false claim. 182 A
claim for money qualifies as a ‘claim’ for purposes of § 287.183 A tax return claiming a refund
is also viewed as a claim against the Government.184 Section 287 also covers fraudulent
claims submitted electronically.185 Section 287 is a conduct offence with no requirement for
actual loss. There is no requirement for proof that the claim has been honoured.186 It is also
for the prosecution to prove that the claim was made or presented to “any person or officer in
the civil, military, or naval service of the United States, or to any department or agency
thereof”. This is a material element of the offence. The return containing the claim may have
been submitted through another person, even if the other person did not know the return to be
fraudulent.187 The person must have made or presented the claim with knowledge of it being
false, fictitious or fraudulent.188 This knowledge will need be present at the time when the
claim was made or presented. Conspiracies to file fraudulent claims may be prosecuted under
18 U.S.C § 286 (conspiracy to defraud the Government with respect to claims). Fraudulent
false claims for refunds may also be prosecuted under 26 U.S.C. § 7206(1) (false returns).

5.4 Conspiracy offences

In most jurisdictions one will find that it is not only the offending taxpayer who can be held
criminally liable, but also any other person who aids, assists, incites, counsels, or conspires
with the taxpayer in evading taxation. Likewise, it is not only the smuggler who can be held
criminally liable, but also any other person who aids, assists, incites, counsels, or conspires
with the smuggler to defraud the Customs. A person may well pay his own taxes, but he may
nevertheless be held liable where he aids, assists, counsels, or conspires with another in
evading another person's tax.

The framing of statutory evasion offences in broad terms so as to cover not only the taxpayer
but also those whom in one way or another assists the taxpayer with the evasion is a common
feature in penal provisions provided for in tax legislation.189 Any person whom knowingly
partakes in a conspiracy to evade tax can be charged as co-conspirator. Personal benefit for
his part in such a conspiracy is not a requirement.190 Penal provisions making punishable
aiding, abetting, incitement, counselling, procurement or conspiracy can be found in both tax
and non-tax legislation. More often than not penal provisions of this nature, depending on
jurisdiction that is, tend to be derivative offences with the sanctions that may follow for their
contravention usually the same as those that may be imposed for the underlying offences
which the offenders agreed to commit, or aided, abetted, counselled, incited or procured. This
is especially the case with common-law and non-revenue specific aiding, abetting and
conspiracy offences.

182
United States v Tieger 234 F.2d 589 (3d Cir 1956)
183
United States v Tieger 234 F.2d 589 (3d Cir 1956)
184
United States v Drape 668 F 2d 22 (1st Cir 1982)
185
United States v Williams 164 F.3d 627 (4th Cir) (1998)
186
United States v Coachman 727 F 2d 1293 (DC Cir 1984)
187
United States v Catena 500 F.2d 1319 (3d Cir 1974)
188
United States v Irwin 654 F.2d 671 (10th Cir. 1981); United States v Milton, 602 F.2d 231 (9th Cir. 1979)
189
See e.g. section 106A of the Taxes Management Act 1970 (United Kingdom) and section 7201 of the United
States Internal Revenue Code.
190
The benefit a person may have derived from his part in a revenue fraud does however become relevant at the
sentencing stage and when dealing with confiscation orders.
520 OFFENCES

Conspiracies to commit crime are just as old as crime itself. Criminal conspiracy has in the
past been defined as "an agreement to do an unlawful act or a lawful act by unlawful
means".191 The essence of conspiracy is the agreement. The agreement is the actus reus. It is
also a crime of intent. A person cannot non-intentionally conspire to commit a crime. Proving
conspiracy can, depending on the facts of the case, be difficult. Circumstantial evidence will
often prove key in conspiracy cases.192 Conspiracy offences, as is the case with all offences
really, are jurisdiction-specific and the material elements required to be proven for the crime
to be completed may differ from jurisdiction to jurisdiction. Those definitions may in fact
even differ between federal states.193 Those different offences may be either common law or
statutory offences and the material elements of those offences may differ, but they always
have two common characteristics: entering into an agreement; and doing so with the
prerequisite mental element. The precise content and proof of that 'agreement' and 'mental
element' may however differ considerably between different conspiracy offences. A common
distinction between different conspiracy offences is the requirement or otherwise for proof of
one or more of the parties to the agreement to have done or to have executed any act in
furtherance of the object of the conspiracy. Whereas with some conspiracy offences the crime
is completed once the agreement is entered into, some conspiracy offences do require an act
in furtherance of that criminal objective, additional to the agreement. The conspiracy offence
provided for under 18 U.S.C § 371 (conspiracy to defraud the United States) is a good
example of the latter. The following discussion will offer a very brief overview of a number
of conspiracy offences provided for in Britain, the United States and Australia.

5.4.1 UK: Conspiracy to defraud under common law

In England conspiracy offences are to be found both in common-law and as provided for
under section 1 of the Criminal Law Act 1977. Common-law conspiracy was abolished under
the Criminal Law Act 1977 with the exception of the offence of 'Conspiracy to defraud'.194 An
oft quoted definition of conspiracy to defraud is to be found in Scott v Commissioner of Police
of the Metropolis195 where Lord Dilhorne said:

"…. it is clearly the law that an agreement by two or more by dishonesty to deprive a person
of something which is his or to which he is or would be or might be entitled and an agreement
by two or more by dishonesty to injure some proprietary right of his, suffices to constitute the
offence of conspiracy to defraud"

191
R v Jones (1832) 4 B & Ad 345 per Lord Denman at 349
192
See R v Owens and Anor [2006] EWCA Crim 2206 where Lord Justice Rix observed that: “As so often in
cases of conspiracy, the evidence was circumstantial rather than direct.”
193
In the United States, § 5.03 of the Model Penal Code (1962), provides for the following definition of 'criminal
conspiracy': "Section 5.03. Criminal Conspiracy. (1) Definition of Conspiracy. A person is guilty of conspiracy
with another person or persons to commit a crime if with the purpose of promoting or facilitating its commission
he: (a) agrees with such other person or persons that they or one or more of them will engage in conduct which
constitutes such crime or an attempt or solicitation to commit such crime; or (b) agrees to aid such other person
or persons in the planning or commission of such crime or of an attempt or solicitation to commit such crime."
The Model Penal Code it must be noted (or in many instances just parts of it), has thus far only been adopted by
a number of states.
194
Section 5(2)
195
[1974] UKHL 4. Also see Wai Yu-Tsang v R [1992] AC 269 at 279 where Lord Goff described "conspiracy to
defraud" as follows: " … it is enough for example that, as in Reg v Allsop and that in the present case, the
conspirators have dishonestly agreed to bring about a state of affairs which they realise will or may deceive the
victim into so acting, or failing to act, that he will suffer economic loss or his economic interests will be put at
risk. It is however important in such a case, as the Court of Appeal stressed in Reg v Allsop, to distinguish a
conspirator's intention (or immediate purpose) dishonestly to bring about such a state of affairs from his motive
(or underlying purpose). The latter may be benign to the extent that he does not wish the victim or potential
victim to suffer harm; but the mere fact that it is benign does not prevent the agreement from constituting a
conspiracy to defraud. …"
521 OFFENCES

The offence of conspiracy to defraud thus effectively requires proof: (i) of two or more
individuals; (ii) to agree to; (iii) by dishonesty; (iv) to injure a proprietary right of another.
Dishonesty is a material element of the crime.196 Deception however is not an essential
element of the offence. There can be no conspiracy to commit a crime without agreement to
do so.197 This is the essence of conspiracy, the entering into the agreement, the "articulation of
a common intention."198 Conspiracy to defraud also covers frauds planned where no economic
prejudice is intended.199 The offence can also be charged where the conspirator's purpose is to
cause a public official to act contrary to his public duty.200 The agreement may involve more
than one objective and may also involve the agreement to commit more than one crime. The
offence can consist of (a) agreeing dishonestly to prejudice another's economic interests; or
(b) agreeing to mislead another person with intent to cause him to act contrary to his duty.201

This offence is of particular value within the context of fraud where one will often find that
the fraud was planned, implemented and operated by a number of individuals, each of whom
contributed to the conspiracy in varying capacities and to varying degrees. The one may for
example be the planner, the other may generate the false documentation, the other may
launder the funds, the other may set up front companies, another member may open bank
accounts under false names, and another may submit the false returns. This effectively means
that whereas the conduct of any one particular actor, viewed in isolation outside the context of
a conspiracy may not in itself be sufficient to carry a conviction for a particular fraud or
evasion offence, the same conduct carried out in the furtherance of a conspiracy to defraud the
Revenue may be followed by a conviction on the offence of conspiracy to defraud. It is thus a
particular wide offence but also a useful and necessary one. It is in fact considerably wider
than the offence of ‘cheating the revenue.202 The maximum custodial sentence that may be
handed down in the event of conviction is 10 years.

196
See R v Evans & Ors [2014] EW Misc 5 (CrownC) where Mr Justice Hickinbottom inter alia said: "It has
been said that dishonesty is "the crucial constituent of the offence" (Norris v Government of the United States of
America [2007] EWHC 71 (Admin); [2007] 1 WLR 1730 at [64] per Auld LJ), or "a defining element" (the Law
Commission 2002 Report, at paragraph 5.1). It is common ground before me and uncontroversial that, in a
conspiracy to defraud, the prosecution must prove that the particular conspirator defendant was dishonest."
197
See Mulcahy v. The Queen (1868) L.R. 3 H.L. 306, 317 where Willes J inter alia said: "A conspiracy consists
not merely in the intention of two or more, but in the agreement of two or more to do an unlawful act, or to do a
lawful act by unlawful means. So long as such a design rests in intention only it is not indictable. When two
agree to carry it into effect, the very plot is an act in itself, and the act of each of the parties, promise against
promise, actus contra actum, capable of being enforced, if lawful, punishable if for a criminal object or for the
use of criminal means .... The number and the compact give weight and cause danger."
198
See The Law Commission. (1976) Report on Conspiracy and Criminal Law Reform, No 76 at 4-5 where it
was said: "Conspiracy essentially consists of an agreement between two or more persons to effect some
"unlawful" purpose. In that it consists of nothing more than the articulation of a common intention"
199
See Welham v DPP [1961] AC 103 and R v Moses and Ansbro [1991] Crim LR 617
200
See Scott v Commissioner of Police of the Metropolis [1974] UKHL 4 where Lord Diplock inter alia said:
"Where the intended victim of a "conspiracy to defraud" is a person performing public duties as distinct from a
private individual it is sufficient if the purpose is to cause him to act contrary to his public duty, and the intended
means of achieving this purpose are dishonest. The purpose need not involve causing economic loss to anyone.
201
See R v Evans & Ors [2014] EW Misc 5 (CrownC) per Justice Hickinbottom quoting from Smith: "The
standard texts reflect the authorities in identifying discrete ways in which the offence can be committed. As it is
put in Smith (at paragraph 5.12): "There are two versions of the offence of conspiracy to defraud: (i) agreeing
dishonestly to prejudice another's economic interests; or (ii) agreeing to mislead a person with intent to cause
him to act contrary to his duty." Although limbs of the same offence, these are conceptually quite distinct."
202
See Scott v Commissioner of Police of the Metropolis [1974] UKHL 4 where Lord Dilhorne inter alia also
remarked: "The common law offence of cheating is, it appears, far narrower in ambit than the offence of
conspiracy to defraud"
522 OFFENCES

With the consultation process before the introduction of the Fraud Act 2006, questions arose
as to the continued need and existence of this offence. Repeal of the offence was strongly
opposed by the Attorney General’s Office, CPS and the SFO and the offence was retained.
The retention of the offence was again evaluated during the post-legislative assessment of the
Fraud Act 2006 with a finding in favour of continued retention.203

5.4.2 UK: Conspiracy under the Criminal Law Act 1977

The conspiracy offence provided for under section 1 of the Criminal Law Act 1977 have been
used in a wide range of prosecutions ranging from income tax evasion to criminal attacks
against the tax system.204 Section 1 reads as follows:

"1. The offence of conspiracy

1) .. if a person agrees with any other person or persons that a course of conduct shall be
pursued which, if the agreement is carried out in accordance with their intentions, either -
(a) will necessarily amount to or involve the commission of any offence or offences by one or
more of the parties to the agreement, or
(b) would do so but for the existence of facts which render the commission of the offence or
any of the offences impossible,
he is guilty of conspiracy to commit the offence or offences in question"

The essence of conspiracy is to be found in the ‘agreement’ to commit an offence. It is for the
prosecution to prove that agreement beyond reasonable doubt. There is no limit to the number
of persons that may enter the conspiracy. All those who partake in the conspiracy also need
not have joined the conspiracy at the same time. Conspiracies are continuing offences and
various parties may join the same conspiracy at various stages and in different capacities.

A person cannot unwittingly 'conspire' to commit a crime of intent. To convict a person of

conspiracy to defraud, under common law or section 1 of the Criminal Law Act 1977,
demands proof of subjective knowledge of the conspiracy being one that poses risk of the
victim being defrauded. There must be dishonesty. A person cannot be said to have conspired
to commit murder if he was unaware of the fact of him entering into such a conspiracy, or
where he was unaware of a conspiracy he did enter into being one involving an agreement to
commit murder. Conspiring to commit an offence requires knowledge of the nature of the
agreement being entered into. In common with most fraud and evasion cases, in conspiracy

203
Post-legislative assessment of the Fraud Act 2006, Memorandum to the Justice Select Committee, Presented
to Parliament by the Lord Chancellor and Secretary of State for Justice, June 2012. Refer p.10, paras 42-43
where it was inter alia concluded that: “With regard to conspiracy to defraud, taking account of the comments
and experience provided by the key prosecution practitioners, we have concluded that this offence continues to
be an effective and essential tool in combating fraud. This is particularly pertinent where there are various levels
of criminal activity involved and the court would not otherwise be aware of the full extent of criminality
involved. ….. 43. Whilst it would be possible to consider codifying the common law offence in statute, the
evidence strongly suggests that the current situation is working perfectly satisfactorily and therefore we have
concluded that we should leave matters as they are”.
204
See e.g R v May & Ors [2005] EWCA Crim 97, R v May [2008] UKHL 28, where the appellants were
convicted on charges for “conspiracy to cheat contrary to section 1(1) of the Criminal Law Act 1977” for a
multi-million missing trader VAT fraud. In Nolan & Anor v R [2012] EWCA Crim 671 the conspirators in a
conspiracy relating to fraudulent claims for tax credits were charged with contravening section 35 of the Tax
Credits Act 2002 contrary to section 1(1) of the Criminal Law Act 1977. Section 35(1) of the Tax Credits Act
2002 reads as follows: "35. Offence of fraud - (1) A person commits an offence if he is knowingly concerned in
any fraudulent activity undertaken with a view to obtaining payments of a tax credit by him or any other person.
(2) A person who commits an offence under subsection (1) is liable - (a) on summary conviction, to
imprisonment for a term not exceeding six months, or a fine not exceeding the statutory maximum, or both, or
(b) on conviction on indictment, to imprisonment for a term not exceeding seven years, or a fine, or both."
523 OFFENCES

cases the prosecution will more often than not have to rely on circumstantial evidence in
proving the conspirator's intent to enter the conspiracy.205

Conspiracies to defraud can be charged under either common law or section 1(1). Conspiracy,
under common law and under section 1(1) is triable only on indictment. In the UK a body
corporate can be convicted of conspiracy and can be convicted of conspiracy under this
section.206 There can however be no conspiracy where the only other person (s) party to the
agreement are: (a) a person under the age of criminal responsibility; or (b) an intended victim
of the crime agreed to; or (c) a spouse.207

Those who conspire in the commission of a crime can, where third parties suffered loss as a
consequence thereof, and depending on the facts of the case, also incur civil liability for
damages. In the UK, the Proceeds of Crime Act 2002 also allows for the confiscation of any
benefit any of those co-conspirators may have received from the commission of the crime.
The mere fact of being engaged in a conspiracy does not however, of itself, establish that each
conspirator has obtained the property which is the product of the conspiracy. The capacity in
which a conspirator received property and the extent of the benefit he obtained from it is a
matter of evidence.208

5.4.3 US: 18 U.S.C. § 371 - Conspiracy to defraud the United States

Section 371 provides for a general conspiracy offence making punishable the entering into
any conspiracy for the purpose of committing any offense against the United States or
entering into any conspiracy for the purpose of defrauding the United States. The offence
provided for in section 371 is a separate offence and not tied to the underlying substantive
offence. Section 371 finds frequent application in tax evasion prosecutions. A conviction
under this section may follow even if the underlying substantive offense was not
committed.209 Section 371 reads as follows:

Ҥ 371. Conspiracy to commit offense or to defraud United States

If two or more persons conspire either to commit any offense against the United States, or to
defraud the United States, or any agency thereof in any manner or for any purpose, and one or
more of such persons do any act to effect the object of the conspiracy, each shall be fined under
this title or imprisoned not more than five years, or both. If, however, the offense, the commission
of which is the object of the conspiracy, is a misdemeanour only, the punishment for such
conspiracy shall not exceed the maximum punishment provided for such misdemeanour.”

205
See e.g. United States v. Okoronkwo 46 F.3d 426 (5th Cir 1995) which involved a conspiracy in
contravention of 18 U.S.C. § 286.
206
See e.g. R v Innospec Ltd [2010] EW Misc 7 (EWCC) where a UK company was convicted of conspiracy to
corrupt foreign officials.
207
Section 2(2) of the Criminal Law Act 1977
208
See R v Mackle [2014] UKSC 5 where Lord Kerr inter alia said: "The focus must be ... on what benefit the
defendant has actually gained. Simply because someone has embarked on a joint criminal enterprise, it does not
follow that they have obtained an actual benefit. Being engaged in a conspiracy does not, of itself, establish that
each conspirator has obtained the property which is the product of the conspiracy. Thus in R v Sivaraman [2008]
EWCA Crim 1736, [2009] 1 Cr App R (S) 80, at para 12 (6) the Court of Appeal said: "Where two or more
defendants obtain property jointly, each is to be regarded as obtaining the whole of it. Where property is received
by one conspirator, what matters is the capacity in which he receives it, that is, whether for his own personal
benefit, or on behalf of others, or jointly on behalf of himself and others. This has to be decided on the evidence:
Green, para 15. By parity of reasoning, two or more defendants may or may not obtain a joint pecuniary
advantage; it depends on the facts." In the subsequent case of R v Allpress [2009] EWCA Crim 8, [2009] 2 Cr
App R (S) 58, an argument that the judgment in Sivaraman on this point was wrong was firmly rejected"
209
Pereira v United States 347 U.S. 1 (1954)
524 OFFENCES

The elements of the offence are:210

(a) an agreement by two or more persons;

(b) (i) to commit any offense against the United States; or (ii) to defraud the United States
or any agency thereof;
(c) knowingly and wilfully entered the conspiracy;
(d) one or more of the parties to the agreement do any act to effect the object of the
conspiracy; and
(e) the intent to: (i) commit any offense against the United States; or (ii) defraud the
United States or any agency thereof;

It is for the prosecution to prove beyond reasonable doubt all the elements of the offence
charged. In common with the other conspiracy offences discussed (section 1 of the Criminal
Law Act 1977 (England); ‘conspiracy to defraud’ under common law (England); and 18
U.S.C § 286 - Conspiracy to defraud the Government with respect to claims), the essence of
the offence provided for under § 371 is also to be found in the agreement to commit the
crime.211 There can be no conspiracy absent agreement between the parties.212 There must be
at least two parties to the agreement.213 The agreement need not be in express terms, a mutual
understanding between the parties will be sufficient.214 A tacit agreement will suffice.215 The
wording “and one or more of such persons do any act to effect the object of the conspiracy” is
of particular importance. In contrast to the conspiracy offence provided for under 18 U.S.C. §
286 where an overt act is not required for the crime to be completed, the § 371 offence
requires an overt act in addition to the agreement and knowledge.216 The overt act must have
been done by one of the parties to the agreement, but it will be sufficient where it was done at
the direction of one of those parties.217 It is not necessary for the person charged to have
committed the overt act.218 The acts of one conspirator are viewed as the acts of the other
conspirators.219 It is also not a requirement for one conspirator to have known about the overt
acts of the other conspirators.220 Proving the agreement between the parties will often rely
heavily on circumstantial evidence.221 This will more often than not also be the case in
proving the required intent. It is for the prosecution to prove the accused agreed and thus
entered in the conspiracy knowingly, wilfully and voluntarily.222 Corporations can be charged
as co-conspirators.223 Private persons can also conspire with corporations.224 The prosecution
only need prove that the accused conspired with another person, but conviction does not rely
on the other conspirator being convicted.225

210
United States v Snype 441 F.3d 119 (2d Cir. 2006); United States v White 492 F.3d 380 (6th Cir. 2007);
United States v Pursley 474 F.3d 757 (10th Cir. 2007)
211
United States v Feola, 420 U.S. 671 (1975)
212
United States v Weidner 437 F.3d 1023 (10th Cir. 2006); United States v Tobin 480 F.3d 53 (1st Cir. 2007)
213
Rogers v. United States 340 U.S. 367 (1951)
214
United States v Duff 332 F.2d 702 (6th Cir 1964);
215
United States v Brown 739 F.2d 1136 (7th Cir 1984)
216
United States v Weidner, 437 F.3d 1023 (10th Cir. 2006)
217
United States v Dago 441 F.3d 1238 (10th Cir. 2006)
218
United States v Chandler 586 F.2d 593 (5th Cir. 1978)
219
United States v Lake 472 F.3d 1247 (10th Cir. 2007); United States v Chandler 586 F.2d 593 (5th Cir. 1978)
220
United States v Colson 662 F.2d 1389 (llth Cir 1981)
221
United States v Pursley, 474 F.3d 757 (10th Cir. 2007)
222
United States v Brown 31 F.3d 484 (7th Cir. 1994)
223
United States v Socony-Vacuum Oil Co 310 U.S. 150 (1940)
224
United States v Lowder 492 F.2d 953 (4th Cir)
225
Rogers v United States, 340 U.S. 367 (1951)
525 OFFENCES

5.4.4 US: 18 U.S.C § 286 - Conspiracy to defraud - claims

Section 286 makes punishable the entering into any agreement to defraud the US government
in respect of claims. Fraudulent tax refunds can, depending on the facts of the case, also be
prosecuted under section 286.226 Section 286 reads as follows:

"§ 286. Conspiracy to defraud the Government with respect to claims

Whoever enters into any agreement, combination, or conspiracy to defraud the United States,
or any department or agency thereof, by obtaining or aiding to obtain the payment or
allowance of any false, fictitious or fraudulent claim, shall be fined under this title or
imprisoned not more than ten years, or both."

The elements of the offence can be broken down as follows:227

(a) enters into any agreement, combination, or conspiracy to defraud the United States, or
any department or agency thereof;
(b) knowledge of the agreement, combination, or conspiracy being unlawful and intended
to defraud the United States; and
(c) intends to join the conspiracy and does so voluntarily.

The actus reus of the offence provided for under section 286 is the agreement to enter the
conspiracy. There need not be an overt act for the crime to be completed. The fraudulent
claim need not even be prepared, filed, or received by the Revenue. The agreement
accompanied with the prerequisite knowledge and wilfulness is sufficient. The offender must
have acted knowingly and wilfully. This implies: (a) knowledge of the agreement,
combination, or conspiracy so entered into; (b) knowledge of the agreement, combination, or
conspiracy being intended to defraud the United States and thus unlawful; and (c) his entering
into the agreement, combination, or conspiracy must have been voluntarily. The section 286
offence is not a consequence crime and whether or not the government did indeed suffer any
loss need not be alleged or proven. Neither overt acts nor loss are material elements of the
offence.

5.4.5 Australia: Section 135.4 - Conspiracy to defraud a Commonwealth entity

In Australia the primary Commonwealth offences making punishable conspiracies to defraud
the Commonwealth are provided for under section 135.4 of the Commonwealth Criminal
Code 1995. It will be more correct to say that section 135.4 contains a number of distinct
conspiracy offences. These offences are:

Subsection 135.4 (1) - Conspiracy with the intention of dishonestly obtaining a gain:
The offence provided for under this subsection reads as follows:

226
See e.g. United States v. Austin 774F.2d 99 (5th Cir. 1985) where the defendant's conviction on charges under
§ 286 was affirmed. The charges related to a conspiracy between the defendant and his accountant where they
prepared and filed false returns wherein the defendant made false claims for tax refunds he were in fact not
entitled to. Also see United States v. Orr 864 F.2d 1505 (10th Cir. 1988) and United States v. Okoronkwo 46
F.3d 426 (5th Cir. 1995). The latter case was a conspiracy one can best describe as an organized refund scam
which involved the filing of fraudulent returns by a large number of people recruited for that purpose.
227
See United States v Okoronkwo supra where the court said: "To prove a defendant guilty of violating 18
U.S.C. § 286, the Government must establish:  (1) that there was a conspiracy to defraud the United States;  (2)
that the defendant knew of the conspiracy and intended to join it;  and (3) that the defendant voluntarily
participated in the conspiracy."
526 OFFENCES

"135.4 Conspiracy to defraud … (1) A person is guilty of an offence if: (a) the person
conspires with another person with the intention of dishonestly obtaining a gain from a
third person; and (b) the third person is a Commonwealth entity."

Subsection 135.4 (3) - Conspiracy with the intention of dishonestly causing a loss:
The offence provided for under this subsection reads as follows:

"135.4 Conspiracy to defraud … (3) A person is guilty of an offence if: (a) the person
conspires with another person with the intention of dishonestly causing a loss to a third
person; and (b) the third person is a Commonwealth entity."

Subsection 135.4 (5) - Conspiracy to dishonestly cause a loss, or to dishonestly cause a

risk of loss knowing or believing that the loss will occur or that there is a substantial risk
of the loss occurring;228
The offence provided for under this subsection reads as follows:

"135.4 Conspiracy to defraud … (5) A person is guilty of an offence if: (a) the person
conspires with another person to dishonestly cause a loss, or to dishonestly cause a risk of
loss, to a third person; and (b) the first-mentioned person knows or believes that the loss
will occur or that there is a substantial risk of the loss occurring; and (c) the third person is
a Commonwealth entity."

Subsection 135.4 (7) - Conspiracy with the intention of dishonestly influencing a public
official in the exercise of the official’s duties as a public official:
The offence provided for under this subsection reads as follows:

"135.4 Conspiracy to defraud … (7) A person is guilty of an offence if: (a) the person
conspires with another person with the intention of dishonestly influencing a public
official in the exercise of the official’s duties as a public official; and (b) the public official
is a Commonwealth public official; and (c) the duties are duties as a Commonwealth
public official."

Whereas the offences provided for under subsections 135.4 (1), 135.4 (3) and 135.4 (5) are
very typical 'conspiracy to defraud' offences, the offence provided for under subsection 135.4
(7) can also be seen as an offence of 'conspiracy to corrupt'. Viewing the offence under
subsection 135.4 (7) as a form of 'conspiracy to defraud' is nevertheless a correct one. It is in
fact also the view held in England and Wales where the common law offence of 'conspiracy to
defraud' can be charged where the conspirator's purpose is to cause a public official to act
contrary to his public duty.229

In common with the other conspiracy offences discussed (section 1 of the Criminal Law Act
1977 (England); ‘conspiracy to defraud’ under common law (England); 18 U.S.C § 286 -
Conspiracy to defraud the Government with respect to claims; and 18 U.S.C § 371 -
Conspiracy to commit offense or to defraud the United States), the essence of these offences
is also the entering of two or more parties into an agreement to commit an offence. 230 With all
these offences it is for the prosecution to prove that the defendant and one other party to the

228
For an example of application refer to DPP v Gregory [2011] VSCA 145
229
See Scott v Commissioner of Police of the Metropolis [1974] UKHL 4 where Lord Diplock inter alia said:
"Where the intended victim of a "conspiracy to defraud" is a person performing public duties as distinct from a
private individual it is sufficient if the purpose is to cause him to act contrary to his public duty, and the intended
means of achieving this purpose are dishonest. The purpose need not involve causing economic loss to anyone.
230
Subsection 135.4(9)(a). Also see R v LK [2010] HCA 17 and Agius v R [2015] NSWCCA 200
527 OFFENCES

conspiracy participated in an agreement to commit the relevant offence he is charged with.

Assume the defendant is charged with an offence under subsection 135.4 (5), then it will be
for the prosecution to prove that the defendant and one other party to the conspiracy
participated in an agreement to dishonestly cause a loss, or to dishonestly cause a risk of loss
knowing or believing that the loss will occur or that there is a substantial risk of the loss
occurring.

All these conspiracies involve the Commonwealth as prejudiced party. In Australia the
Australian Taxation Office (ATO) is considered to be a 'Commonwealth entity'. In the case of
the offences provided for under subsections 135.4 (1), 135.4 (3) and 135.4 (5), it is not
necessary to prove that the defendant knew that the third person was a Commonwealth
entity.231 In the case of the offence provided for under subsection 135.4 (7) it is not necessary
to prove that the defendant knew that the official was a Commonwealth public official or that
the duties were duties as a Commonwealth public official.232

All these offences are dishonesty offences. A person cannot 'in error', or 'in good faith' be a
'criminal conspirator'. It is this side or that side. A defendant cannot be said to have entered
into a 'conspiracy to commit an offence', an 'agreement to commit a crime', absent the
intention to partake, in some or other capacity or manner, in a course of conduct intended to
achieve a criminal purpose. With all the offences under subsection 135.4, the defendant and at
least one other party to the agreement "must have intended to do the thing pursuant to the
agreement".233

Under certain conspiracy offences the entering into an agreement (with the prerequisite mens
rea) is in itself sufficient whereas under other conspiracy offences there may also be a
requirement for at least one overt act in the furtherance of that agreement. With all the
offences under subsection 135.4, the defendant or at least one other party to the agreement
must have committed an overt act in furtherance of the agreement. 234 A person may be found
guilty of an offence under section 135.4 even if: (a) obtaining the gain, causing the loss,
causing the risk of loss, or influencing the Commonwealth public official, as the case may be,
is impossible;235 (b) the only other party to the agreement is a body corporate;236 or (c) each
other party to the agreement is a person who is not criminally responsible; 237 or (d) subject to
subsection 135.4 (11), all other parties to the agreement have been acquitted of the offence.238
Under subsection 135.4 (11), a person cannot be found guilty of an offence under section
135.4 where: (a) all other parties to the agreement have been acquitted of such an offence; and
(b) a finding of guilt would be inconsistent with their acquittal. Under subsection 135.4 (12), a
person cannot be convicted of an offence under section 135.4 if, before the commission of an
overt act pursuant to the agreement, the person: (a) withdrew from the agreement; and (b)

231
Subsections 135.4 (2), 135.4 (4) and 135.4 (6)
232
Subsection 135.4 (8)
233
Subsection 135.4 (9)(b). See R v LK [2010] HCA 17 where it was inter alia said: "At the trial of a person
charged with conspiracy it is incumbent on the prosecution to prove that he or she meant to conspire with
another person to commit the non-trivial offence particularised as being the object of the conspiracy. In charging
a jury as to the meaning of “conspiring” with another person, it is necessary to direct that the prosecution must
establish that the accused entered into an agreement with one or more other persons and that he or she and at
least one other party to the agreement intended that the offence particularised as the object of the conspiracy be
committed pursuant to the agreement. Also see Agius v R [2015] NSWCCA 200
234
Subsection 135.4 (9)(c)
235
Subsection 135.4 (10)(a)
236
Subsection 135.4 (10)(b)
237
Subsection 135.4 (10)(c)
238
Subsection 135.4 (10)(d)
528 OFFENCES

took all reasonable steps to prevent the doing of the thing. Any person convicted of any of the
offences provided for under section 135.4 may be imprisoned for a period of up to 10 years.

5.5 Organised crime and money laundering

Although legislation specially tailored and targeted against organised crime and money
laundering have long been in place in the United States, the enactment of this type of
legislation is a relatively recent development in jurisdictions like Britain, Australia, and South
Africa. These jurisdictions, like most others, only really started rolling out this type of
legislation from the late 1980’s onwards. The enactment of money laundering legislation and
the setting up of money-laundering reporting frameworks only really started to gain
international momentum during the 1990's.

5.5.1 Organised crime

Article 2(a) of the ‘United Nations Convention against Transnational Organised crime’
defines an ‘organised criminal group’ as: “a structured group of three or more persons,
existing for a period of time and acting in concert with the aim of committing one or more
serious crimes or offences established in accordance with this convention, in order to obtain,
directly or indirectly, a financial or other material benefit.”239 Such a 'structured group' need
not necessarily be a rigidly structured organization operating under the command and control
of a centralized leadership, but may also consist of a loose grouping of individuals operating
together.

Organised crime groups will and does engage in any criminal activity with promise of a high
profit-yield. This may range from any imaginable type of fraud and counterfeiting, to
weapons trafficking, drug trafficking, the rigging of public tenders, illegal prostitution, the
operation of 'sweat-shops', extortion, the trafficking and dumping of toxic waste, money
laundering, commodity smuggling, hijackings and thefts, match-fixing in sport and athletics,
and the trade in illicit goods. Conduct almost all of these groups also engage in is tax evasion.
Most tax fraudsters are not racketeers, but most racketeers are tax fraudsters.

The involvement of organised criminal syndicates in certain categories of revenue and

customs fraud, have long been a serious problem for most revenue and customs
administrations. Organised crime syndicates have always been the main actors when it comes
to large scale smuggling. Transnational crime always involves the cross-border movement of
people, goods, and money. These groups control the trade in illicit goods and in many failed
states may even control the market in general. Considering the considerable profits to be made
on the smuggling of general consumables such as cigarettes, alcohol, clothing, electronics,
textiles etc. (both genuine and counterfeit), and considering the relative low risk for the
perpetrator, it is not surprising that organised crime syndicates have increasingly expanded
their operations to the movement of and dealing in these ‘general’ consumables. This however
is not really something new considering that the smuggling in wool, tea, alcohol, and silk used
to be the bread-and-butter activities of the English smuggler three centuries earlier. The
profitability of these activities by far outweighs the State’s response or the likely
consequences in the event of detection and apprehension.240 These groups tend to be well

239
Article 2(b) of the same Convention defines a ‘serious crime’ as “conduct constituting an offence punishable
by a maximum deprivation of liberty of at least four years or a more serious penalty.”
240
See The Telegraph, January 31 2000, “Crime gangs burn £2.5bn hole in the Treasury's coffers” where it was
inter alia reported: “Crime syndicates across the world are scrambling to get into the multi-billion pound
business of smuggling cigarettes into Britain and other European nations with high tobacco taxes. "It has become
the new boom business for organised crime,” said one Customs investigator. "Some gangs are even turning away
from drugs because the profits on cigarettes are so good. The risks are so much lower to, and if they get caught,
529 OFFENCES

organized with extensive networks of contacts providing assistance and/or facilitating the
group’s criminal operations. In many instances those assisting the group may be clearing
agents, hauliers, corrupt government officials, accountants, banking officials, and lawyers to
list but a few. These groups supply a demand and often tend to have an existing client-base
amongst traders. It is not uncommon for the goods to find its way into the outlets of brand-
name companies or for many of these groups to control their own outlets from where goods
can be set off on the local market. Whereas organised crime syndicates have been engaged in
smuggling for centuries, they have over the past two decades increasingly started to target
revenue administrations with numerous VAT and rebate refund scams where there may in
many instances not even be any physical movement of goods or where the goods may well
not even exist (many of the ‘carousel frauds' - a category of VAT scam - being a prime
examples in point).241 Many of the criminal groups out there are fast at identifying
weaknesses within systems and they are fast at exploiting them. Governments on the other
hand are usually slow at identifying and countering abuse.

Governments have historically proven slow and often ineffective at neutralizing organised
crime groups and their operations. Those groups are also fast at changing modus operandi and
reorganizing operations where indeed disrupted.242 These groups will often: (a) be flexible,
adaptable and innovative; (b) operate at a high technical level in terms of skills, general
tradecraft, technical expertise and technology; (c) be structured along ethnic lines; (d)
maintain strict hierarchies and internal discipline; (e) be internationally mobile; (f) operate
transnationally; (g) operate legitimate businesses and/or business fronts; (h) be adapt at
money laundering and make use of sophisticated money laundering structures; (i) not shy
away from bribery, intimidation, blackmail and violence; (j) recruit personnel and skills and
contract expertise; (k) form alliances with other criminal groupings; (l) learn from past
experience and be fast to adapt and refine operations based on past experience; (m) place at a
high premium security of information and covering their tracks; (n) have the benefit of access
to professional advisors such as lawyers, accountants, bankers, and clearing agents; (o) be
knowledgeable as to law enforcement practices, operations and shortcomings; and (p) rely on
the assistance of corrupt officials in the police, immigration, customs etc.

In the public's mind, any individual associated with 'organised crime', the 'mafia' or the 'triads'
must be a villain spending all his time in bars and smoke-filled rooms plotting murder and
mayhem. This view may possibly hold true for a number of the mobsters out there, but is
certainly not valid when looking at organised crime in general. The mobster of today will
more often than not be the businessman, civil servant, banker, or corporate high-flyer. Many
of them have interests in businesses and corporations ranging from pawn shops and hotels to
workshops, laundromats, construction companies, bars and restaurants, import and export
companies, transport companies, and manufacturing companies to list but a few. Some of
those enterprises may be legitimate businesses, whereas others may primarily or partly be
intended to serve as vehicles to facilitate crime and/or the laundering of the proceeds of crime.
Many of these groups, with the aid of their professional advisors, also make full use of
complex offshore structures. Most individuals involved in what we know as organised crime
come with their own histories and curriculum vitae's. Many of them have careers and many
come with histories of employment in skilled or unskilled roles. Many of them may be

the penalties for doing it are nothing like as heavy.” Organised crime, though, goes much farther afield than
Europe to find its supplies. South Africa and China are both considered to be major sources…”
241
See Europol, European Union organised crime report, 2003 at 11
242
See The Guardian, May 09 2006, “Bogus deals keep Customs in a spin” where it was inter alia reported:
“Revenue and Customs say the fraudsters are smart enough to stay many months ahead of investigators, and
mutate their activity into something slightly different the moment that they feel under suspicion”.
530 OFFENCES

lifelong career criminals, but a very large percentage of them have undergone past education
or training, often of a very specialized nature. They may be past or current lawyers,
accountants, dentists, mechanics, pilots, policemen, chemists, or truck drivers. This possibly
is one of the reasons why so many societies fail to put a face to organised crime. Most
members of the general public do not recognise organised crime for 'organised crime' is a
label they tend to associate with a very narrow spectrum of criminal activity, typically the
type of conduct they associate with a romantic stereotype that is very seldom valid - the Al
Capone type gangster. Most members of the public will not generally think of the owners of
the waste processing plant dumping chemicals in a nearby ocean or the businessman next
door relabelling counterfeit shirts as being engaged in 'organised crime'.

These groups will often be very knowledgeable as to law enforcement capabilities, practices,
operations and shortcomings. Many of the individuals in these groups have past experience
with the criminal justice system, or may have legal training, or may have past service in law
enforcement or intelligence, or may have contacts within law enforcement. Many of these
groups thus operate with due care to the mitigation of risk. They often place at a high
premium security of information and covering their tracks. They will often practice and be
seasoned in what are effectively intelligence and counter-intelligence, and surveillance and
counter-surveillance. They will often limit their exposure through a combination of
intelligence production, thorough planning with secrecy being a prime consideration in that
planning, careful selection of criminal operatives and accomplices, the use of cell structures,
maintaining distance between planners and foot soldiers, operating on a need-to-know basis,
and maintaining strict discipline and control within cells or groups. Some of these groups also
do not shy away from doing whatever is necessary to protect their interests. They will often
resort to violent crime and crimes against the public administration i.e the destruction of
evidence, the intimidation of witnesses, arson, murder, and bribery. Many of these groups
belong to distinct ethnic groupings, very often from immigrant communities, and they will
often collaborate with other foreign groups from the same ethnic background.243 This can
make investigation and successful prosecution that much more difficult considering the
loyalties of kinship and the difficulties associated with infiltration.

Although organised crime is a scourge in all societies, it is in those jurisdictions most lacking
in capacity, often burdened with considerable political, social and economic pressures, and
more often than not situated in regions marked with instability and high levels of corruption
where the impact of these groups are most serious and acute. There we will usually find
endemic levels of crime, high levels of corruption, a robust underground economy with the
legal trade and industry often under pressure, high levels of unemployment and poverty, and
low levels of tax compliance. Those states, especially where one of the many failed states,
will often also be a liability for its neighbors as they are often used as a springboard for illicit
activity and trade from and into neighboring territories.

243
See e.g. Curtis GE et al. (2003) Transnational Activities of Chinese Crime Organizations, Library of
Congress, United States of America. See e.g. Gastrow, “Triad Societies and Chinese Organised Crime in South
Africa” (2001) Occasional Paper No 48, Institute for Security Studies, where it was inter alia said: “From
available information, it appears that, since the mid-1980s, Chinese criminal groups have become well-organised
entities, modelled on the triad societies of Hong Kong and China. They are now active in a number of South
African cities and have branched out into a range of criminal activities such as various forms of fraud, drug-
trafficking, firearm-smuggling, extortion, money-laundering, prostitution, illegal gambling, the smuggling of
illegal immigrants, tax evasion, and the large-scale importing of counterfeit goods”.
531 OFFENCES

5.5.2 Racketeering Offences

Legislation specially enacted to deal with organised crime is something relatively new, first
enacted in the United States in 1970 as the Racketeer Influenced and Corrupt Organizations
Act (RICO) - 18 U.S.C. § 1961-1968.244 Similar legislation has since been enacted in a
number of jurisdictions, notably in Australia, South Africa, and Canada but not in Britain. For
reasons unknown the British Parliament provided for an elaborate framework of legislation
dealing with inter alia the gathering and exchange of information, the investigation of serious
crime, inter-agency cooperation, money laundering offences, and the confiscation of the
proceeds of crime, but no offences dedicated to dealing with 'racketeering activity'.
'Racketeering' offences are offences primarily targeted against those who engage in a pattern
of criminal behaviour. What we will usually find, regardless jurisdiction, is that those
racketeering offences will usually only cover a list of specified predicate offences, and the
pattern of activity will also always be linked to a specified period of time..

Racketeer Influenced and Corrupt Organizations Act (RICO)

Under RICO at least two criminal acts (from the offences as listed in the list of predicate
offences) within a 10 year period of each other will make out a pattern of racketeering
activity. The facts of the case must however indicate those criminal acts to establish a pattern
of activity. This then is also the case with the South African legislation. 245 In essence, under
RICO, any person who has committed (i) "at least two acts of racketeering activity",246 (ii)
from the list of predicate crimes (iii) within a 10 year period, (iv) associated or related in one
of the four ways as set out under 18 U.S. Code § 1962 ("Prohibited activities") to an
"enterprise," can be charged with racketeering.247 A conviction on racketeering charges can be
met with up to 20 years imprisonment. These offences can and do find application in relation
to all those categories of crime listed as predicate offences, including financial crime.248 RICO
furthermore provides for restraining orders for the seizure of assets and the forfeiture of the
proceeds of crime.249 It is especially in relation to restraining orders and forfeiture where
RICO has left a lasting legacy.

Most repeat-offenders who can rightly be dealt with under RICO are for the most part still
being dealt with under non-racketeering legislation. RICO is generally reserved for the most
serious cases. Although not widely acknowledged, what this type of legislation does bring
with it is a considerable fear factor. The sentences that can follow upon conviction are severe.
Not only are those facing the prospect of conviction under RICO more likely to negotiate or
settle for a plea on other lesser charges, but they are also more likely to turn and testify
against their former co-offenders or masters.

The offences provided for in this type of legislation will not find application in the case of
most revenue frauds, but where it may possibly rear its head (in those jurisdictions where this
type of legislation is in force) is in the case of smuggling operations and criminal attacks

244
Enacted under the Organized Crime Control Act of 1970 (Effective 15 October 1970)
245
See section 1 of the Prevention of Organised crime Act 121 of 1998 (South Africa)
246
See 18 U.S. Code § 1961(1) for the definitions of "racketeering activity" and "patterns of racketeering
activity". "Pattern of racketeering activity” is defined as "... requires at least two acts of racketeering activity, one
of which occurred after the effective date of this chapter and the last of which occurred within ten years
(excluding any period of imprisonment) after the commission of a prior act of racketeering activity".
247
18 U.S. Code § 1961(1) defines "enterprise” as including "any individual, partnership, corporation,
association, or other legal entity, and any union or group of individuals associated in fact although not a legal
entity"
248
See the definition of "racketeering activity" under 18 U.S. Code § 1961(1) which lists a wide range of
financial crimes, many of them relating to fraud.
249
See 18 U.S. Code § 1963 and § 1964
532 OFFENCES

against the tax system (e.g refund scams). Although tax crimes are not included in the list of
predicate offences permissible under RICO, the ‘mail fraud’ and ‘wire fraud’ offences are.
Taxpayers who find themselves charged with ‘mail’ or ‘wire’ fraud for their part in a tax
fraud, may thus be dealt with and face the severe penalties provided for under RICO. Whereas
most of the tax offences provided for under the Internal Revenue Code provide for sentences
ranging between 3 and 5 years, the taxpayer convicted under RICO faces up to 20 years
imprisonment.

5.5.3 Money Laundering

Over recent decades many jurisdictions enacted into law anti-money laundering legislation
backed up with extensive and rigorous anti-money laundering compliance frameworks. In
those jurisdictions where those anti-money laundering regimes do work, criminals now
certainly have a more difficult time in moving the proceeds of their criminal activities into the
legitimate financial system. This being said, the best framed legislation, even where backed
up with the best thought out compliance framework and procedures, is a toothless dog in the
absence of the necessary capacity and enforcement. Many jurisdictions, mostly failed States
and States in the developing world, simply do not have the capacity to enforce these
frameworks. There are however also rich Western nations where the resources that are made
available is so lacking as to make the compliance frameworks in those jurisdictions largely
ineffective.250 The failure to enforce these frameworks directly undermines the fight against
tax evasion, organised crime, and corruption. But even where these frameworks are not
operating as expected, their introduction is a necessary start. The development of these
regimes and the building of that capacity takes time and must rather be seen as a working
progress.

The introduction of these regimes certainly comes with more risk for offending taxpayers,
those who assist them, and careless advisors. In those jurisdictions where tax evasion is
treated as a predicate offence under the money-laundering legislation, the tax offender may
well find himself facing criminal charges relating to not only tax contraventions, but also
contraventions under the money laundering rules. In many jurisdictions the penalties for some
of the money-laundering offences are draconian to say the least, and those who defraud the
Revenue may, depending on the facts of the case and the jurisdiction in question, face
criminal charges far more serious than what they may have contemplated when they first
embarked on their tax-related criminal endeavour.251 There has always been a strong revenue-
enforcement undercurrent behind the introduction of these anti-money laundering regimes.
The opportunity to better target tax evasion and the underground economy is not just a
coincidental ‘spin-off’ from the implementation of these regimes, but has in fact always been

250
See e.g. The Independent. June 10, 2015. “Britain's £100bn-a-year money-laundering problem: police only
acted forcefully on seven reports of grand corruption last year"
251
For a good example in point, see the Australian case of R v Anthony James Dickson [2015] NSWSC 268. In
that case the accused over a number of years set up and operated an elaborate tax fraud. Apart from his
conviction for that fraud, he was also convicted of conspiracy (under s 11.5(1) of the Criminal Code Act 1995) to
commit an offence under s 400.3(1) of the Criminal Code. Division 400 of the Schedule to the Criminal Code
contain the Australian Federal money laundering offences. If we have a closer look at the offence provided for
under S 400.3(1), then we will see that the penalties are severe, significantly more so than any offence provided
for under the revenue legislation of any Commonwealth jurisdiction today. Section 400.3(1) reads as follows:
“(1) A person is guilty of an offence if: (a) the person deals with money or other property; and (b) either: (i) the
money or property is, and the person believes it to be, proceeds of crime; or (ii) the person intends that the
money or property will become an instrument of crime; and (c) at the time of the dealing, the value of the money
and other property is $ 1, 000, 000 or more. Penalty: Imprisonment for 25 years, or 1500 penalty units, or both.”
In this matter the accused was sentenced to 7.5 years imprisonment for the tax fraud, but to 9 years imprisonment
for the money laundering offence (which involved the laundering of the proceeds of that tax fraud).
533 OFFENCES

a primary driving factor behind the enactment of this kind of legislation, or in some
jurisdictions at least.252

Any number of individuals and/or groups may to a greater or lesser extent be involved with or
assist at various stages of the placement, layering and integration stages of the laundering
process. These include individuals, groups, or organizations from within the banking systems,
accountancy firms, front companies, groups or companies engaged in international trade,
corrupt officials, rogue states and many others. The methodologies used to shift flight capital,
evaded taxes, the proceeds of crime, funds destined for terror groups, or money destined for
government sanctioned covert operations, often correspond or overlap. Criminal organizations
have long made use of trade-based money laundering techniques to move the proceeds of
crime.253 This may often involve the use of frauds related to taxation and customs. In this
respect the Revenue can play a key role in the detection and investigation of money
laundering. The detection and investigation of money laundering, and the confiscation of the
proceeds of crime is indeed also important and beneficial from a revenue perspective
considering: (a) in many jurisdictions no distinction is drawn (for tax purposes) between
income generated from crime and income generated through lawful industry. The proceeds so
laundered may thus be taxable income, the taxation of which may be evaded in the absence of
detection; (b) the property may be an instrumentality in a fraud being perpetrated against the
Revenue; and (c) the property may well be proceeds generated from crimes perpetrated
against the Revenue.

Many tax evasion schemes may have much in common with, or may show considerable
overlapping with many of the money laundering schemes out there. The money launderer’s
sole objective with the laundering is to disguise the origin of the proceeds. Many tax evaders
attempt to conceal or disguise the origin of their income or wealth, but with the view to
escape the tax net. In common with many money launderers, many tax offenders also
frequently change practices and adopt new methodologies to counter the state’s enforcement
strategies. Some of the evasion schemes out there may be used to facilitate money laundering
and vice versa. The tax evader may well employ the same scheme to evade tax and to launder
the proceeds of crime whereas money launderers may use the same money laundering scheme
to evade tax. The use of legal persona like companies, trusts, and registered charities to evade
tax, to launder the proceeds of crime, and to funnel money to criminal and terror groups is
nothing new. The same body corporate, trust, or charity, can be used for the facilitation of
both laundering and evasion.254 The same practices and methodologies can be used to launder
the proceeds of crime and to evade tax. False invoicing, sham transactions, and sham loans
can for example be used to facilitate both. The bribery of public officials by tax evaders and

252
See e.g. section 4 of the Australian Financial Transaction Reports Act 1988, which inter alia states the
enforcement of that country’s tax laws to be the “principle object” for the compulsory reporting requirements set
out in that Act. See the Australian case of Leask v The Commonwealth (1996) 187 CLR 579 where at 596
Dawson J inter alia said: “The mischief with which the Act was designed to deal is identified in the Second
Reading Speech to the Cash Transaction Reports Bill as being “the underground cash economy, tax evasion and
money laundering”. It was intended to "give law enforcement agencies the ability to monitor the movement of
large amounts of cash and thus to identify tax evaders and the recipients of proceeds of crime”. In Australia the
Australian Taxation Office (ATO) is an enforcement agency for the purposes of the Proceeds of Crime Act 2002
(Cth) (Under section 4A of the Proceeds of Crime Amendment Regulations 2006). The enactment by American
Congress of the Bank Secrecy Act in 1970 and the subsequent Money Laundering Control Act of 1986 also had
as one of its main objectives the identification and targeting of the untaxed underground economy.
253
See Customs Co-Operation Council, Recommendation of the Customs Co-Operation Council on the need to
develop and strengthen the role of customs administrations in tackling money laundering and in recovering the
proceeds of crime, June 25 2005.
254
See for example the Report on abuse of charities for money laundering and tax evasions, Centre for Tax
Policy and Administration, OECD, 24 February 2009
534 OFFENCES

other criminals is common as is the smuggling of currency, or commodities like diamonds,

gold, or artefacts. They often use the same techniques to ensure secrecy. Fake beneficiaries,
secret property transfers, or the transfer of financial instruments like bearer share certificates
and bearer bonds are commonly employed to facilitate evasion and laundering.

Most tax investigations, as is the case with most money-laundering investigations, tend to be
overwhelmingly financial in character. These investigations share one very important
common denominator. Both very much turns on ascertaining the nature and origin of money
and property. Many arrangements and schemes can only be correctly identified for what they
in fact are after preliminary investigations. Suspect arrangements or transactions, no matter
how suspicious they may be, may well prove to be anything but part of a scheme to evade,
defraud or launder proceeds. A person moving or concealing money and property in a manner
which may at first appear as highly suspect, may well be no more but a paranoid husband or
wife attempting to shield property from his/her soon-to-be ex-partner. What may during
preliminary investigations appear to be a customs fraud or tax evasion may eventually turn
out to be a money laundering scheme, on what may appear to be money laundering may turn
out to be a case of tax evasion. The same scheme may however involve both evasion and the
laundering of proceeds. The detection of suspected money laundering during the course of a
criminal tax investigation is not at all that uncommon. In those cases the evidence collected
during the course of that investigation may well include much or all of the evidence required
to prove the money laundering (or rather certain money laundering offences). The opposite
also holds true. Evidence collected during the course of a money laundering investigation may
well include much or all of the evidence required to prove tax evasion. The following
discussion will briefly look at the money laundering framework as provided for in the UK.

5.5.4 UK Legislation - Proceeds of Crime Act 2002

5.5.4.1 Overview
In the UK a number of statutes have in the recent past been enacted to better deal with serious
crime and the laundering of the proceeds of crime. These include:

(a) the Proceeds of Crime Act 2002255 which forms the basis of the UK’s anti-money
laundering legislation and inter alia provides for the confiscation and recovery of the
proceeds of crime;
(b) the Serious Crime Act 2007256 ; and
(c) the Serious Organised Crime and Police Act 2005257 which inter alia provides for a
range of powers, procedures and protocols relating to inter alia investigations, arrest,
prosecutions, and international cooperation.

This framework of legislation was intended to supplement the existing legal framework in
relation to all serious crime, including serious financial crime. The Proceeds of Crime Act
2002 read with the EU Money Laundering Directives forms the basis of the UK’s anti-money
laundering legislation. Insofar as revenue related offences is concerned, the Proceeds of
Crime Act 2002 has in recent years seen wide application. The objectives intended to be
achieved with the Proceeds of Crime Act 2002 is summed up well enough in its preamble
which reads as follows:

"An Act to establish the Assets Recovery Agency and make provision about the appointment
of its Director and his functions (including Revenue functions), to provide for confiscation

255
Received Royal Assent on 24 July 2002
256
Received Royal Assent on 30 October 2007
257
Received Royal Assent on 07 April 2005 (Only partial application in Scotland and Northern Irelands)
535 OFFENCES

orders in relation to persons who benefit from criminal conduct and for restraint orders to
prohibit dealing with property, to allow the recovery of property which is or represents
property obtained through unlawful conduct or which is intended to be used in unlawful
conduct, to make provision about money laundering, to make provision about investigations
relating to benefit from criminal conduct or to property which is or represents property
obtained through unlawful conduct or to money laundering, to make provision to give effect to
overseas requests and orders made where property is found or believed to be obtained through
criminal conduct, and for connected purposes."

The Proceeds of Crime Act 2002 received Royal Assent on 24 July 2002 and extends to
England, Wales, Scotland and Northern Ireland. Part 7 of the Act deals with money
laundering and contains the provisions dealing with the various offences and disclosures. This
part of the Act is supported by the UK Money Laundering Regulations 2007 and applies
throughout the UK. For those who contravene the legislation, two closely inter-woven clusters
of provisions come into play. The first involves the criminal prosecution of those who commit
any of the offences as provided for in the Act, the second involves the preservation and
confiscation of criminal property. Sections 327 - 333 of the Act sets out a range of offences
making punishable:258

(a) The concealment, disguising, converting, transferring and removal of criminal

property;259
(b) The entering into or being concerned in any arrangement whilst knowing or suspecting
it to facilitate the acquisition, retention, use or control of criminal property by or on
behalf of another person;260
(c) The acquisition, use, or possession of property which was the benefit of criminal
conduct;261
(d) The failure to disclose money laundering offences;262
(e) The failure of nominated officers in the regulated sector to disclose money laundering
offences;263
(f) The failure of nominated officers outside the regulated sector to disclose money
laundering offences;264 and
(g) Tipping off (the making of any disclosure likely to prejudice a money laundering
investigation);265

Whereas the offences provided for under sections 330 - 333 all relate to the unlawful non-
disclosure or disclosure of information, the money laundering offences itself are to be found
in sections 327, 328 and 329. The offences provided for under those sections effectively
replaced the separate sets of money laundering offences that were provided for in the
Criminal Justice Act 1988 and the Drug Trafficking Act 1994. The reporting framework
provided for in the Proceeds of Crime Act 2002 has as main objective the providing of a
system for the detection, reporting and control of money laundering. The offences provided
for under sections 330 - 333 are intended as a measure to ensure the integrity of that reporting
framework.

258
These offences came into force on 24 February 2003
259
Section 327
260
Section 328
261
Section 329
262
Section 330
263
Section 331
264
Section 332
265
Section 333
536 OFFENCES

5.5.4.1.1 ‘Money Laundering’

What is or is not considered to be ‘money laundering’ in any given jurisdiction is a question
of legal definition and interpretation. In most jurisdictions there will not be a single offence
criminalizing ‘money laundering’, but rather a framework of offences making punishable
different types of conduct associated with the laundering of, or the facilitation of the
laundering of the proceeds of crime. These offences, the conduct covered, the mens rea
required to be present for conviction, the penalties that may be imposed, and those who may
be held criminally liable under those provisions, differ from offence to offence and
jurisdiction to jurisdiction. A criminologist will likely define money laundering as the process
by which the illicit nature of the proceeds of crime is camouflaged so as to have the proceeds
appear legitimate or clean. Most money laundering operations involve three distinct stages
namely:

(a) Placement - the movement of the proceeds from its illicit source and its introduction
into the financial system;
(b) Layering - the use of transactions in an attempt to camouflage the illicit origin of the
proceeds in question; and
(c) Integration - being the movement of layered proceeds around the financial system so
as to be available as non-traceable wealth.

Section 340 (11) of the Proceeds of Crime Act 2002 defines 'money laundering' as an act
which: (a) constitutes an offence under section 327, 328 or 329 of the Proceeds of Crime Act
2002; (b) constitutes an attempt, conspiracy or incitement to commit an offence under section
327, 328 or 329; (c) constitutes aiding, abetting, counselling or procuring the commission of
an offence specified in section 327, 328 or 329; or (d) would constitute an offence specified in
paragraph (a), (b) or (c) if done in the United Kingdom.

5.5.4.1.2 Criminal Property

Property is defined as being criminal property if: (a) it constitutes a person’s benefit from
criminal conduct or it represents such a benefit (in whole or part and whether directly or
indirectly), and (b) the alleged offender knows or suspects that it constitutes or represents
such a benefit.266 It is for the prosecution to prove: (a) the laundered proceeds to be the
alleged offender’s benefit from criminal conduct or as representing such a benefit; and (b) that
the alleged offender knew or suspected it as constituting or representing such a benefit.
Proving both these elements are key for any prosecution case where laundering under sections
327-328 is alleged. In proving the money to be derived from crime, it is sufficient to establish
that the circumstances in which the money was handled were such as to give rise to an
inference that it could only have been derived from crime.267

266
Section 340 (3)
267
See National Crime Agency v Azam & Ors [2014] EWHC 2722 (QB) where Mrs Justice Andrews, referring
to R v Anwoir inter alia said: "If the NCA alleges that the unlawful conduct from which the property is derived is
money laundering, it must establish that the respondent concerned was handling money derived from criminal
activity. There are two ways of doing this: i) by establishing that the money was derived from unlawful conduct
of a specific kind or kinds, or ii) by establishing that the circumstances in which the money was handled are such
as to give rise to the irresistible inference that it could only have been derived from crime. See R v Anwoir and
others [2008] EWCA Crim 1354 at [21] as applied by Griffith Williams J in SOCA v Gale [2010] Lloyd's Rep
FC 39 at [17] (a judgment deservedly commended by both the Court of Appeal and the Supreme Court in that
case as "meticulous and comprehensive"). Thus where money-laundering is relied upon there is no requirement
to specify the predicate offence, only to satisfy the court that the evidence establishes that the property was
obtained through laundering the proceeds of criminal activity."
537 OFFENCES

Money is either the proceeds of crime or it is not. It is as simple as that. Where it is not, then
any government allegation of the money being the proceeds of crime should not be that
difficult to counter. If same was generated in the operation of a legitimate trade or business
activity, then nothing should be simpler than providing the authorities with the business
records, or even better, past tax returns and assessments. But maybe, for criminals that is, that
is just the problem … what do you do when everything was off the books and nothing was
declared for tax purposes to start with. As 'Tony Montana' was told by his lawyer in the
classic movie 'Scarface' (1983): "Tony, the law has to prove beyond a reasonable doubt. I'm
an expert at raising that doubt. But when you've got a million three of undeclared dollars
staring into a videotape camera, honey baby, it's hard to convince a jury you found it in a Taxi
Cab."

As the law stands, and as accepted by the British courts, the proceeds of tax evasion are
viewed as ‘criminal property’.268 Even where a person or trader earns money in undertaking a
legitimate business or trade, then any taxes evaded on the income so generated will be viewed
as a benefit derived from a tax fraud, and the proceeds from this fraudulent evasion is viewed
as being ‘criminal property’. This is indeed the correct approach. Evaded taxes cannot be
anything other but the proceeds of a crime. It may well have been generated by lawful labor,
but as long as tax evasion is a crime, the evaded taxes post-evasion cannot be viewed in any
other light but as tainted.269 No amount of academic hair-splitting can get around it.

5.5.4.1.3 Criminal Conduct

Criminal conduct is defined as conduct which: (a) constitutes an offence in any part of the
United Kingdom, or (b) would constitute an offence in any part of the United Kingdom if it
occurred there.270 In framing section 340 in the way it did, Parliament effectively followed an
‘all crimes’ approach in terms of the crimes considered to be predicate offences covered by
the Proceeds of Crime Act. Viewing tax evasion or fraud as predicate offences is completely
in line with the Act and Parliament's intent.

268
See e.g. R v IK [2007] EWCA Crim 491. In this matter the question of law and the facts of the case were
broadly as follows (as per Lord Justice Dyson): “The question of law that arises on this appeal is whether the
proceeds of cheating the Revenue can amount to “criminal property” within the meaning of section 340(5) of the
Proceeds of Crime Act 2002 (“POCA”), where the trader whose profits are liable to income tax or whose
turnover is subject to VAT is a legitimate trade…. The particulars are that between 1 January 1999 and 6
December 2003 MR “did with intent to defraud and to the prejudice of Her Majesty the Queen … keep an
account which purported to be a true trading record of Ambrosia, which account omitted receipts from one of the
tills at his market stall”. Count 12 charges SK and MR with money laundering contrary to section 328(1) of
POCA. The particulars are that between 1 October and 6 December 2003, SK and MR “entered into or became
concerned in an arrangement knowing or suspecting that the arrangement would facilitate the retention, use or
control of [MR’s] criminal property, namely banknotes … In summary, the prosecution case in relation to counts
11 and 12 was that MR had systematically cheated the Revenue of tax and VAT between 1 January 1999 and 6
December 2003 (count 11). The banknotes which were the subject of count 12 were undeclared takings from
Ambrosia and represented, at least in part, tax and/or VAT of which the Revenue had been cheated.” The Court
(of Criminal Appeal) held the proceeds of the cheating to be ‘criminal property’.
269
See the relatively early case of R v Dimsey & Anor [1999] EWCA Crim 2261 (England and Wales Court of
Appeal) where Lord Laws inter alia said: “The ordinary and natural meaning of pecuniary advantage must
surely include the case where a debt is evaded or deferred….In short, the fact that the tax remains due does not
mean that its evasion did not confer a pecuniary advantage, nor indeed that that pecuniary advantage consisted of
the whole of the tax withheld, the value of the liability that was evaded. By his crime the appellant evaded
payment of £4 million tax. That sum constituted the proceeds of the offence … The fact that he remained in law
liable to pay the tax, the fact even, were it so, that the Revenue might later recover it, does not, in our judgment,
yield the proposition that the proceeds of his crime were one penny less than the whole of the tax evaded.”
270
Section 340(2)
538 OFFENCES

5.5.4.1.4 Benefited from Criminal Conduct

A person will be held to have benefited from criminal conduct if he obtained property as a
result of or in connection with the criminal conduct in question.271 If a person benefits from
criminal conduct his benefit is the property obtained as a result of or in connection with the
conduct.272 Where a person obtains any pecuniary advantage as a result of or in connection
with the criminal conduct, then he will be taken as to having obtained as a result of or in
connection with the conduct a sum of money equal to the value of the pecuniary advantage.273
Being engaged in a conspiracy does not, of itself, establish that each conspirator has obtained
the property which is the product of the conspiracy. The capacity in which a conspirator
received property and the extent of the benefit he obtained from it is a matter of evidence.274
The property which may make out a benefit from criminal conduct is defined exceptionally
wide. Property is defined as all property wherever situated and includes: (a) money; (b) all
forms of property, real or personal, heritable or moveable; and (c) things in action and other
intangible or incorporeal property.275 Property is obtained by a person if he obtains an interest
in it.276

5.5.4.2 Laundering Offences - Sec 327 - 329

Sections 327 - 329 of the Act makes punishable: (a) the concealment, disguising, converting,
transferring and removal of criminal property;277 (b) the entering into or being concerned in
any arrangement whilst knowing or suspecting it to facilitate the acquisition, retention, use or
control of criminal property by or on behalf of another person;278 and (c) the acquisition, use,
or possession of property which was the benefit of criminal conduct.279

Sections 327 – Concealing etc

Section 327 makes punishable the concealment, disguising, converting, transferring and
removal of criminal property. Section 327 reads as follows:

"327 Concealing etc (1) A person commits an offence if he - (a) conceals criminal property; (b)
disguises criminal property; (c) converts criminal property; (d) transfers criminal property; (e)
removes criminal property from England and Wales or from Scotland or from Northern Ireland.
(2) But a person does not commit such an offence if - (a) he makes an authorised disclosure under
section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he
has the appropriate consent; (b) he intended to make such a disclosure but had a reasonable excuse
for not doing so; (c) the act he does is done in carrying out a function he has relating to the

271
Section 340 (5)
272
Section 340 (8)
273
Section 340 (6)
274
See R v Mackle [2014] UKSC 5 where Lord Kerr inter alia said: "The focus must be ... on what benefit the
defendant has actually gained. Simply because someone has embarked on a joint criminal enterprise, it does not
follow that they have obtained an actual benefit. Being engaged in a conspiracy does not, of itself, establish that
each conspirator has obtained the property which is the product of the conspiracy. Thus in R v Sivaraman [2008]
EWCA Crim 1736, [2009] 1 Cr App R (S) 80, at para 12 (6) the Court of Appeal said: "Where two or more
defendants obtain property jointly, each is to be regarded as obtaining the whole of it. Where property is received
by one conspirator, what matters is the capacity in which he receives it, that is, whether for his own personal
benefit, or on behalf of others, or jointly on behalf of himself and others. This has to be decided on the evidence:
Green, para 15. By parity of reasoning, two or more defendants may or may not obtain a joint pecuniary
advantage; it depends on the facts." In the subsequent case of R v Allpress [2009] EWCA Crim 8, [2009] 2 Cr
App R (S) 58, an argument that the judgment in Sivaraman on this point was wrong was firmly rejected"
275
Section 340 (9)
276
Section 340(10)(a)
277
Section 327
278
Section 328
279
Section 329
539 OFFENCES

enforcement of any provision of this Act or of any other enactment relating to criminal conduct or
benefit from criminal conduct.
(3) Concealing or disguising criminal property includes concealing or disguising its nature, source,
location, disposition, movement or ownership or any rights with respect to it."

The onus rests on the prosecution of proving:

(a) that the person: (i) concealed; or (ii) disguised; or (iii) converted; or (iv)
transferred; or (v) removed;
(b) criminal property (as defined under section 340 of the Act); and
(c) (i) knowing the property to be criminal property as defined under section 340 of the
Act or (ii) suspecting the property to be criminal property as defined under section 340
of the Act.

Contravention of this provision is punishable with: (i) imprisonment for 14 years; or (ii) a
fine; or (iii) both imprisonment for 14 years and a fine. A conviction for an offence in
contravention of this section attracts the use of the lifestyle assumptions as provided for under
section 75 and schedule 2 of the Act.

Sections 328 - Arrangements

Section 328 makes punishable the entering into or being concerned in any arrangement whilst
knowing or suspecting it to facilitate the acquisition, retention, use or control of criminal
property by or on behalf of another person. Section 328 reads as follows:

"328 Arrangements (1) A person commits an offence if he enters into or becomes concerned in an
arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention,
use or control of criminal property by or on behalf of another person.
(2) But a person does not commit such an offence if - (a) he makes an authorised disclosure under
section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he
has the appropriate consent; (b)he intended to make such a disclosure but had a reasonable excuse
for not doing so; (c) the act he does is done in carrying out a function he has relating to the
enforcement of any provision of this Act or of any other enactment relating to criminal conduct or
benefit from criminal conduct."

The onus rests on the prosecution of proving:

(a) the act of entering into or becoming concerned in an arrangement;

(b) (a) which he knows to be an arrangement which facilitates (by whatever means) either
the (i) acquisition, or (ii) retention, or (iii) use, or (iv) control; or
(b) which he suspects to be an arrangement which facilitates (by whatever means)
either the (i) acquisition, or (ii) retention, or (iii) use, or (iv) control;
(c) of criminal property (as defined under section 340 of the Act);
(d) by or on behalf of another person; and
(e) (i) knowing the property to be criminal property (as defined under section 340 of the
Act); or
(ii) suspecting the property to be criminal property (as defined under section 340 of the
Act);

Contravention of this provision is punishable with: (i) imprisonment for 14 years; or (ii) a
fine; or (iii) both imprisonment for 14 years and a fine. A conviction for an offence in
contravention of this section attracts the use of the lifestyle assumptions as provided for under
section 75 and schedule 2 of the Act.
540 OFFENCES

Sections 329 - Acquisition, use and possession

Section 329 makes punishable the acquisition, use, or possession of property which was the
benefit of criminal conduct. Section 329 reads as follows:

"329 Acquisition, use and possession (1) A person commits an offence if he - (a) acquires criminal
property; (b) uses criminal property; (c) has possession of criminal property.
(2) But a person does not commit such an offence if - (a) he makes an authorised disclosure under
section 338 and (if the disclosure is made before he does the act mentioned in subsection (1)) he
has the appropriate consent; (b) he intended to make such a disclosure but had a reasonable excuse
for not doing so; (c) he acquired or used or had possession of the property for adequate
consideration; (d) the act he does is done in carrying out a function he has relating to the
enforcement of any provision of this Act or of any other enactment relating to criminal conduct or
benefit from criminal conduct.
(3) For the purposes of this section - (a) a person acquires property for inadequate consideration if
the value of the consideration is significantly less than the value of the property; (b) a person uses
or has possession of property for inadequate consideration if the value of the consideration is
significantly less than the value of the use or possession; (c) the provision by a person of goods or
services which he knows or suspects may help another to carry out criminal conduct is not
consideration."

The onus rests on the prosecution of proving that the person:

(a) (i) acquired criminal property; or

(ii) used criminal property; or
(iii) had possession of criminal property; and
(b) (i) knowing the property to be criminal property (criminal property as defined under
section 340 of the Act); or (ii) suspecting the property to be criminal property.

Contravention of this provision is punishable with: (i) imprisonment for 14 years; or (ii) a
fine; or (iii) both imprisonment for 14 years and a fine. A conviction for an offence in
contravention of this section does not attract the use of the lifestyle assumptions as is the case
in the event of a conviction under sections 327 and 328.

These offences can be charged either on their own, or they may be charged together with the
underlying predicate offences alleged to have generated the criminal property. Any person
who launders the proceeds of crime can incur criminal liability regardless whether or not the
proceed-generating offences were committed by him/her or another and regardless whether or
not the proceeds belong to him/her. Section 340(2)(b) is of particular importance, effectively
broadening as it does the ambit of the Act to cover also predicate offences committed in
jurisdictions outside the United Kingdom. Any offence committed in a jurisdiction outside the
United Kingdom will also be viewed as a predicate offence: (i) where the laundering acts are
committed within the United Kingdom; and (ii) where the predicate offence so committed
outside the UK would also be an offence in the UK if it occurred in the UK. It is immaterial
who carried out the criminal conduct or who benefited from it.280 It is also immaterial whether
the criminal conduct occurred before or after the passing of the Proceeds of Crime Act 2002
as long as the laundering act took place after the commencement of the Act.281

5.5.4.3 Reporting and Tipping Off Offences - Sec 330 - 333

The reporting framework provided for under the Proceeds of Crime Act 2002 has as main
objective the providing of a system for the detection, reporting and control of money

280
Section 340 (4)
281
Section 340 (4)
541 OFFENCES

laundering. The Proceeds of Crime Act 2002 together with the Money Laundering
Regulations 2007 place a number of important duties on a wide range of persons in relation to
the reporting of suspicious transactions, recordkeeping, and the prevention of money
laundering. Those persons include advisors such as accountants, lawyers, and tax
practitioners. The advisor now finds himself /herself in a precarious position. On the one hand
there is the advisor/client trust-relationship, but on the other hand there now is the duty to
disclose suspicious transactions that may relate to that same client. The failure to comply with
those reporting requirements may result in his/her criminal liability.

The system as a whole, including the confiscation and penal frameworks is very much
preventive in nature.282 Intended as a measure to ensure the integrity of this reporting
framework, the legislature under sections 330 - 333 provided for offences making punishable
the non-disclosure of information and the subversion of that reporting framework. These
offences make punishable: (a) the failure to disclose money laundering offences;283 (b) the
failure of nominated officers in the regulated sector to disclose money laundering offences;284
(c) the failure of nominated officers outside the regulated sector to disclose money laundering
offences;285 and (d) tipping off (the making of any disclosure likely to prejudice a money
laundering investigation).286 These offences read as follows:

“330 Failure to disclose: regulated sector

(1) A person commits an offence if each of the following three conditions is satisfied.
(2) The first condition is that he - (a) knows or suspects, or (b) has reasonable grounds for knowing
or suspecting, that another person is engaged in money laundering.
(3) The second condition is that the information or other matter - (a) on which his knowledge or
suspicion is based, or (b) which gives reasonable grounds for such knowledge or suspicion, came
to him in the course of a business in the regulated sector.
(4) The third condition is that he does not make the required disclosure as soon as is practicable
after the information or other matter comes to him.
(5)The required disclosure is a disclosure of the information or other matter - (a) to a nominated
officer or a person authorised for the purposes of this Part by the Director General of the National
Criminal Intelligence Service; (b) in the form and manner (if any) prescribed for the purposes of
this subsection by order under section 339.
(6) But a person does not commit an offence under this section if - (a) he has a reasonable excuse
for not disclosing the information or other matter; (b) he is a professional legal adviser and the
information or other matter came to him in privileged circumstances; (c) subsection (7) applies to
him.
(7) This subsection applies to a person if - (a) he does not know or suspect that another person is
engaged in money laundering, and (b) he has not been provided by his employer with such training
as is specified by the Secretary of State by order for the purposes of this section.
(8) In deciding whether a person committed an offence under this section the court must consider
whether he followed any relevant guidance which was at the time concerned - (a) issued by a
supervisory authority or any other appropriate body, (b) approved by the Treasury, and (c)
published in a manner it approved as appropriate in its opinion to bring the guidance to the
attention of persons likely to be affected by it.

282
See R v Sekhon & Ors [2002] EWCA Crim 2954 where Lord Chief Justice Holland inter alia remarked: “One
of the most successful weapons which can be used to discourage offences that are committed in order to enrich
the offenders is to ensure that if the offenders are brought to justice, any profit which they have made from their
offending is confiscated. It is therefore not surprising that Parliament has repeatedly enacted legislation designed
to enable the courts to confiscate the proceeds of crime”
283
Section 330
284
Section 331
285
Section 332
286
Section 333
542 OFFENCES

(9) A disclosure to a nominated officer is a disclosure which - (a) is made to a person nominated
by the alleged offender’s employer to receive disclosures under this section, and (b) is made in the
course of the alleged offender’s employment and in accordance with the procedure established by
the employer for the purpose.
(10) Information or other matter comes to a professional legal adviser in privileged circumstances
if it is communicated or given to him - (a) by (or by a representative of) a client of his in
connection with the giving by the adviser of legal advice to the client, (b) by (or by a
representative of) a person seeking legal advice from the adviser, or (c) by a person in connection
with legal proceedings or contemplated legal proceedings.
(11) But subsection (10) does not apply to information or other matter which is communicated or
given with the intention of furthering a criminal purpose.
(12) Schedule 9 has effect for the purpose of determining what is - (a) a business in the regulated
sector; (b) a supervisory authority.
(13) An appropriate body is anybody which regulates or is representative of any trade, profession,
business or employment carried on by the alleged offender.”

“331 Failure to disclose: nominated officers in the regulated sector

(1) A person nominated to receive disclosures under section 330 commits an offence if the
conditions in subsections (2) to (4) are satisfied.
(2) The first condition is that he - (a) knows or suspects, or (b) has reasonable grounds for knowing
or suspecting, that another person is engaged in money laundering.
(3) The second condition is that the information or other matter - (a) on which his knowledge or
suspicion is based, or (b) which gives reasonable grounds for such knowledge or suspicion, came
to him in consequence of a disclosure made under section 330.
(4) The third condition is that he does not make the required disclosure as soon as is practicable
after the information or other matter comes to him.
(5) The required disclosure is a disclosure of the information or other matter - (a) to a person
authorised for the purposes of this Part by the Director General of the National Criminal
Intelligence Service; (b) in the form and manner (if any) prescribed for the purposes of this
subsection by order under section 339.
(6) But a person does not commit an offence under this section if he has a reasonable excuse for
not disclosing the information or other matter.
(7) In deciding whether a person committed an offence under this section the court must consider
whether he followed any relevant guidance which was at the time concerned - (a) issued by a
supervisory authority or any other appropriate body, (b) approved by the Treasury, and (c)
published in a manner it approved as appropriate in its opinion to bring the guidance to the
attention of persons likely to be affected by it.
(8) Schedule 9 has effect for the purpose of determining what is a supervisory authority.
(9) An appropriate body is a body which regulates or is representative of a trade, profession,
business or employment”

"332 Failure to disclose: other nominated officers

(1) A person nominated to receive disclosures under section 337 or 338 commits an offence if the
conditions in subsections (2) to (4) are satisfied.
(2)The first condition is that he knows or suspects that another person is engaged in money
laundering.
(3) The second condition is that the information or other matter on which his knowledge or
suspicion is based came to him in consequence of a disclosure made under section 337 or 338.
(4) The third condition is that he does not make the required disclosure as soon as is practicable
after the information or other matter comes to him.
(5) The required disclosure is a disclosure of the information or other matter - (a) to a person
authorised for the purposes of this Part by the Director General of the National Criminal
Intelligence Service; (b) in the form and manner (if any) prescribed for the purposes of this
subsection by order under section 339.
(6) But a person does not commit an offence under this section if he has a reasonable excuse for
not disclosing the information or other matter."
543 OFFENCES

“333 Tipping off

(1) A person commits an offence if - (a) he knows or suspects that a disclosure falling within
section 337 or 338 has been made, and (b) he makes a disclosure which is likely to prejudice any
investigation which might be conducted following the disclosure referred to in paragraph (a).
(2) But a person does not commit an offence under subsection (1) if - (a) he did not know or
suspect that the disclosure was likely to be prejudicial as mentioned in subsection (1); (b) the
disclosure is made in carrying out a function he has relating to the enforcement of any provision of
this Act or of any other enactment relating to criminal conduct or benefit from criminal conduct;
(c) he is a professional legal adviser and the disclosure falls within subsection (3).
(3) A disclosure falls within this subsection if it is a disclosure - (a) to (or to a representative of) a
client of the professional legal adviser in connection with the giving by the adviser of legal advice
to the client, or (b) to any person in connection with legal proceedings or contemplated legal
proceedings.
(4) But a disclosure does not fall within subsection (3) if it is made with the intention of furthering
a criminal purpose.”

Contravention of any of these provisions is punishable with: (i) imprisonment for up to 5

years; or (ii) a fine; or (iii) both imprisonment up to 5 years and a fine. For the taxpayer
and/or his advisors, these reporting requirements pose considerable risk. Any knowledge or
suspicion of money laundering must be reported to the National Criminal Intelligence Service
(NCIS), and the filing of such a report is triggered in relation to the proceeds of all crime
including evasion or fraud. Offending taxpayers and advisors in breach of these provisions
face prosecution. The framework as a whole significantly increases the risk of detection. An
additional benefit of this framework, one which poses an increased risk for offenders, is the
greater levels of information and evidence retention at all levels within those sectors subject
to the reporting framework. This significantly increases the likely integrity of audit-trails,
accurate information, and potential evidence.

5.5.4.4 Confiscation and Civil Recovery

In most jurisdictions are to be found various statutes and provisions providing for the
recovery of things like unpaid taxes, penalties, interest, fines, compensation upon conviction,
and the proceeds of crime. The legal basis for the taking of those moneys or property, the
categories of people from whom same may be recovered, the circumstances under which
various methods of recovery may be available, the agencies empowered to recover same, the
procedures to be followed, the forums where those decisions may be made, authorized, heard,
or appealed to etc. are all matters of law. In all those jurisdictions where money laundering
legislation was enacted are to be found provisions dealing with the confiscation and recovery
of the proceeds of crime. In the United States, Britain, Australia, and undoubtedly in many
other countries, an integral part of the anti-money laundering framework involves the
confiscation of the proceeds of crime. Confiscation is seen as not only making possible the
recovery of ill-gotten gains, but also as a mechanism to make crime less profitable for
criminals.

How confiscation and recovery regimes are organised may differ from jurisdiction to
jurisdiction. In most jurisdictions one will generally find a separate agency or a dedicated unit
within a responsible agency responsible for the recovery of such proceeds. In Britain, at the
time when the Proceeds of Crime Act 2002 was first enacted, it was the Asset Recovery
Agency. That agency was later integrated into SOCA, the latter since reshuffled into what is
now known as the National Crime Agency. The procedures for the confiscation of proceeds,
the agencies tasked with that responsibility, and the powers of those agencies tasked with the
responsibility of information gathering and identification, investigation, confiscation, and
544 OFFENCES

recovery, also differ from jurisdiction to jurisdiction. Those powers, functions, and
responsibilities are a matter of law.

Whether or not such an agency will have the authority to recover the proceeds of a revenue or
customs fraud (as the proceeds of crime) obviously depends on whether or not revenue frauds
are deemed predicate offences under domestic money laundering legislation. What is or is not
viewed to be the proceeds of crime is a matter of legal definition and will differ from
jurisdiction to jurisdiction. In Britain, where revenue frauds are viewed as such, the National
Crime Agency (under Part 6 of the Proceeds of Crime Act 2002) has the authority to exercise
certain Revenue functions. Those functions include the right to: (a) investigate the tax affairs
of any person; (b) to raise tax assessments; (c) to issue penalties; and (d) to enforce any tax
debts. These strong powers it must be noted are quite unique to the British legislation - not to
be found in the legislation of most other jurisdictions.

The money laundering legislation of many if not most jurisdictions provide for the
confiscation of the proceeds of crime from convicted persons, and the civil recovery of the
proceeds of crime from non-convicted persons. In Britain, Parts 2-4 of the Proceeds of Crime
Act 2002 inter alia provides for: (a) the confiscation of the proceeds of crime from convicted
persons who benefited from crime; (b) restraint orders; and (c) compensation orders. 287 Under
Parts 2, 3 and 4, it is for the court to decide whether the defendant has a criminal lifestyle and
where that finding is in the affirmative, then that court must decide whether the defendant
benefited from his general criminal conduct. Where the court finds that the defendant does not
have a criminal lifestyle, then it must decide whether he has benefited from his particular
criminal conduct. Where the court finds that the defendant has benefited from his conduct,
then it must decide the recoverable amount, and make an appropriate confiscation order. A
confiscation order is an order of the court requiring the convicted person to pay a specified
amount of money by a date as laid down by the court. The failure to comply with that
confiscation order (to pay the specified sum) may be met with an additional period of
imprisonment.288

Part 5 of the Act provides for and deals with the civil recovery of the proceeds of crime from
non-convicted persons. These proceedings are wholly civil in nature. 289 Part 5 applies
throughout the UK. The National Crime Agency (NCA) may bring a claim for a civil
recovery order under section 243(1) of POCA against any person whom it believes to hold
recoverable property. The High Court must make a recovery order where it is satisfied that the
property is recoverable property.290 Section 304(1) of POCA defines 'recoverable property' as
"property obtained through unlawful conduct". Such property may either be property

287
The provisions dealing with confiscation-, restraint- and compensation orders are broken up in three parts.
The relevant provisions dealing with those matters are in the case of England and Wales dealt with under Part 2
of the Act, in the case of Scotland they are dealt with under Part 3, and in the case of Northern Ireland under Part
4. Those Parts do however also deal (respectively for the different countries) with a range of other administrative
and procedural issues.
288
Part 2 (section 6), Part 3 (section 92), Part 4 (section 256). See e.g. R v Bajwa & Others [2011] EWCA Crim
1093
289
Section 240 of the Act provides the following explanation of the general purpose of Part 5: "240 General
purpose of this Part - (1) This Part has effect for the purposes of - (a) enabling the enforcement authority to
recover, in civil proceedings before the High Court or Court of Session, property which is, or represents,
property obtained through unlawful conduct, (b) enabling cash which is, or represents, property obtained through
unlawful conduct, or which is intended to be used in unlawful conduct, to be forfeited in civil proceedings before
a magistrates’ court or (in Scotland) the sheriff. (2) The powers conferred by this Part are exercisable in relation
to any property (including cash) whether or not any proceedings have been brought for an offence in connection
with the property."
290
Section 266(1)
545 OFFENCES

representing the original property,291 or profits which accrued in respect of that recoverable
property.292 An acquittal in a criminal prosecution does not exclude subsequent civil recovery,
even where the subsequent civil recovery is based on the same conduct alleged in the criminal
prosecution. Evidence tendered during the earlier criminal prosecution is also not precluded
from such civil proceedings.293 The bringing of the subsequent civil claim does not amount to
the bringing of another charge. The burden of proof in civil proceedings being ‘on a balance
of probabilities’ as opposed to that of ‘beyond reasonable doubt’ in criminal prosecutions may
thus well mean that the civil claim may succeed where the criminal prosecution failed.

5.5.4.5 Taxation
The UK's money laundering legislation and the offences therein provided is certainly wider
than that of most other jurisdictions, covering as it does any proceeds from any crime. In the
UK, and following on from the definition of 'criminal conduct' as set out under section 340 (2)
of the Proceeds of Crime Act 2002, tax evasion is treated as a predicate offence covered under
the Proceeds of Crime Act. An offending taxpayer may thus well find charges alleging
contravention of the money laundering legislation riding alongside charges alleging tax
evasion on the same indictment, and apart from the criminal liability that may follow upon
conviction, the offender may also find his assets being targeted as the subject of confiscation
orders under the Act. Part 6 and Schedule 10 of the Act is wholly dedicated to taxation. Part 6
of the Act grants the Director (of the "Assets Recovery Agency" - now part of the National
Crime Agency) with the authority to exercise certain Revenue functions e.g. the right to
investigate the tax affairs of any person, to raise tax assessments, to issue penalties and to
enforce any tax debts.294 Subsections 317(1) and (2) read as follows:

"317. Director’s general Revenue functions

(1) For the purposes of this section the qualifying condition is that the Director has reasonable
grounds to suspect that -
(a)income arising or a gain accruing to a person in respect of a chargeable period is chargeable
to income tax or is a chargeable gain (as the case may be) and arises or accrues as a result of
the person’s or another’s criminal conduct (whether wholly or partly and whether directly or
indirectly), or
(b) a company is chargeable to corporation tax on its profits arising in respect of a chargeable
period and the profits arise as a result of the company’s or another person’s criminal conduct
(whether wholly or partly and whether directly or indirectly).
(2) If the qualifying condition is satisfied the Director may serve on the Commissioners of
Inland Revenue (the Board) a notice which -
(a) specifies the person or the company (as the case may be) and the period, and

291
Section 305
292
Section 307
293
See Gale & Anor v Serious Organised Crime Agency [2011] UKSC 49
294
See Fenech v Serious Organised Crime Agency [2013] UKFTT 555 (TC), where Demack J inter alia
explained: "SOCA is a non-departmental public body established by s.1 of the Serious Organised Crime and
Police Act 2005. In broad terms, SOCA’s statutory remit is as follows: (a) to detect and prevent serious
organised crime; (b) to mitigate the consequences of such crime; (c) to reduce the incidence of such crime in
other ways; (d) to gather, store, analyse and disseminate information relevant to the above; and (e) to gather,
store, analyse and disseminate information relevant to the investigation and prosecution of offences. SOCA may
adopt the functions of HMRC where the qualifying condition contained in s. 317 POCA is met.... The condition
is met where SOCA has reasonable grounds to suspect that income, chargeable to tax, has arisen in a chargeable
period as a result (in whole or part, directly or indirectly) of criminal conduct. Such conduct may be that of the
person concerned, or another. The condition must continue to be met throughout the relevant periods. By virtue
of section 323(1) and (1)(d) of POCA, the general revenue functions include such of the functions vested in the
Board of HMRC as relate to income tax, NICs and capital gains tax. "In this case the matter under consideration
was assessments for tax raised by the Serious Organised Crime Agency under section 29 of the Taxes
Management Act 1970, and penalty determinations under sections 93 and 95."
546 OFFENCES

(b) states that the Director intends to carry out, in relation to the person or the company (as the
case may be) and in respect of the period, such of the general Revenue functions as are
specified in the notice."

Assessments raised under Part 6 need not specify the source of the income or gains.295
Assessments raised are also subject to appeal. An appeal in respect of the exercise by the
Director of general Revenue functions is to be made to the Special Commissioners. 296 Part 6
applies throughout the UK.

Assuming a given jurisdiction does have a legal framework for the confiscation of the
proceeds of crime, and further assuming tax crime is classed (in that particular jurisdiction) as
qualifying predicate offences subject to confiscation orders, then the issue of a confiscation
order against a particular individual may be subject to prove of the latter having received
some or other benefit from the crime. Whether or not a particular participant in the fraud will
be deemed as having benefitted from the crime may in turn depend on his liability to the duty
or tax evaded. In Britain, as the law currently stands, should an inquiry into the facts of a case
indicate that a participant in a revenue crime did not in fact gain a benefit from the crime, then
a confiscation order will not be made (against that individual).297

5.6 Other offences

In the foregoing discussions it was explained that the same fraudulent conduct can often be
prosecuted under different dishonesty offences provided for in common law and/or under
different statutes. In those discussions we briefly looked at a number of those offences, some
of which may, depending on the facts of the case, be charged as alternative offences in
relation to the same facts. Whereas most of those citizens who do comply with the revenue
and customs laws will also comply with the law in general in other areas of their daily lives, a
large chunk, if not the majority, of those who do not shy away from committing serious crime
in their day-to-day lives, do not care much for the revenue and customs laws either. Where
they are apprehended for those other crimes, one will often find that they also defrauded the
Revenue. In most jurisdictions the majority of taxpayers and traders do not cross the line into
the world of evasion or customs fraud. By the law of averages however, those who do engage
in evasion or fraud is more likely to be less risk averse and more likely to engage in or to have
engaged in other non-revenue or non-customs related crime.

Where the Revenue launches a criminal enquiry, then the main focus of that enquiry will be
the gathering of information and evidence relating to suspected contraventions of the revenue
legislation. This being said, investigators will often during the course of such an enquiry also
uncover evidence of other non-revenue related offences. Offenders will often embark on an
unlawful course of conduct with the view to achieve a certain objective, but in the process
they will often also commit various other offences, usually offences intended to facilitate or
support achievement of the primary objective, or with the view to conceal the primary crime,
or with the view to subvert the administration of justice. An offender’s main objective may be
wholly unrelated to the evasion of taxation with the defrauding of the Revenue being no more
but an intended consequence of his main criminal endeavour. A good example will be that of
the trader operating an underground manufacturing operation using undocumented workers
and/or slave labour and then trading the goods in the underground economy. Many like him

295
Section 319
296
Section 320
297
See e.g. R v Khan [2009] EWCA Crim 588; R v White [2010] EWCA Crim 978; R v May [2008] UKHL 28; R v
Jennings [2008] UKHL 29; R v Chambers (2008) EWCA 2467; R v Grew & Anor [2011] NICA 31; R v Mitchell
[2009] EWCA Crim 214
547 OFFENCES

will for security reasons refrain from registering for tax and will not declare. In other
instances a taxpayer or trader's efforts at furthering a revenue or customs fraud may involve
the commission of other non-revenue and/or non-customs offences e.g. bribery, falsification
of stamps or giving himself out as a customs officer.

There are very few areas of our daily and economic lives that do not intersect with, are not
facilitated through, and are not accounted for in financial systems. Analysis of financial data,
often obtained from and tested against data from various sources, will often provide for a
good in-depth intelligence picture of a subject's personal life, economic activity, and financial
affairs. A tax investigation is in essence a financial investigation. Such an investigation,
especially where it involves in-depth audits of a taxpayer's affairs, will often lift the lid on
non-revenue related irregularities. With many a revenue and customs enquiry the investigators
will execute warrants, search premises, and seize large quantities of material from those
premises. In most jurisdictions, even in those jurisdictions where revenue and customs
officers are viewed as law enforcement officers, the investigators will often also be
accompanied by police officers. What may start out as a search by customs officers of
premises with the view to gather evidence of an excise fraud may result in them finding say
narcotics and/or weapons on site, or a forensic analysis of an accountant's computer may
uncover evidence of him also running a money-laundering operation or of being engaged in
the sexual exploitation of children. There is no limit to that one may find during a search.

Some of the irregularities uncovered during the course of some revenue or customs enquiries
will demand referral to, and investigation by, other law enforcement agencies. This may
typically be for the fact that the investigation of those other matters may fall beyond the
mandate, legal authority, and capacity of the given revenue and/or customs administration. In
other instances the facts of a case may be such as to justify revenue investigation but will
nevertheless call for prompt referral of information and collaboration with law enforcement. It
is a well-recognised fact that Islamic terror groups have long been aggressively involved in
the illicit trade and various refund scams, notably VAT scams, as part of their fund-raising
operations. Where revenue investigators uncover evidence of such a fraud being no more but
part of such a wider fund-raising operation, then public policy will demand the prompt
referral of that information to the intelligence services and police.

Many taxpayers mistakenly believe the secrecy provisions in the revenue and customs
legislation to be an absolute prohibition against the sharing of information by the
Commissioners with law enforcement agencies. This may still be the case in some
jurisdictions, but in many jurisdictions this is no longer the case. In many jurisdictions
revenue and customs administrations may make public interest disclosures to law enforcement
agencies.298

To conclude, a matter that may well have started out as a revenue or customs investigation
may fast turn into numerous different lines of enquiry, some of which may well not be
revenue or customs related. Investigation dockets are referred to the prosecuting authorities.
Those prosecuting authorities may charge suspected offenders with any additional and/or
alternative charges deemed appropriate based on the evidence at hand. The possibility of a
taxpayer eventually facing a range of additional non-revenue related charges can thus not be
excluded. This may typically include but is not limited to offences relating to: exchange
control contraventions; false accounting; various non-tax related frauds; immigration
offences; various types of theft (of goods, identity theft, information theft etc); corruption;

298
See for example section 20 of the Commissioners for Revevenue and Customs Act 2005 (United Kingdom)
548 OFFENCES

money laundering; bankruptcy offences; contraventions of the companies legislation; various

offences relating to possession of various things; the circumvention of import or export
restrictions and various types of smuggling; counterfeiting offences; and racketeering activity
to list but a few examples. We will now briefly look at a number of those offences not yet
discussed in the preceding chapters.

5.6.1 False Accounting

An offence that may, in England, also quite possibly appear on an indictment for tax related
offences is that of 'false accounting' as provided for under section 17 of the Theft Act 1968.299
The section is targeted against the falsification of accounting documents or knowingly making
use of such documents for the purpose of obtaining financial gain or causing financial loss.
Section 17 reads as follows:

“17 False accounting (1) Where a person dishonestly, with a view to gain for himself or
another or with intent to cause loss to another, -
(a) destroys, defaces, conceals or falsifies any account or any record or document made or
required for any accounting purpose; or
(b) in furnishing information for any purpose produces or makes use of any account, or any
such record or document as aforesaid, which to his knowledge is or may be misleading, false
or deceptive in a material particular;
he shall, on conviction on indictment, be liable to imprisonment for a term not exceeding
seven years.
(2) For purposes of this section a person who makes or concurs in making in an account or
other document an entry which is or may be misleading, false or deceptive in a material
particular, or who omits or concurs in omitting a material particular from an account or other
document, is to be treated as falsifying the account or document.”

The actus reus of the offence is to be found in 17(1)(a) and (b). Sections 17(1)(a) and (b) not
only distinguishes between different types of conduct, but in effect also targets two different
categories of offenders. Section 17(1)(a) targets what can best be described as the 'destroyer',
'defacer', 'concealer' or 'falsifier' of the account, record or document, whereas section 17(1)(b)
is targeted against the user of such an account, record or document. The document referred to
in section 17(1) must be a "document made or required for any accounting purposes". This is
a material element.300 The actus reus must be accompanied with the prerequisite state of mind
which is set out in the introductory part of subsection 1 as " dishonestly, with a view to gain
for himself or another or with intent to cause loss to another". There must be dishonesty. The
offender must have the prerequisite intent to: (i) make a gain for himself or another; or (ii) to
cause loss to another. This is a material element of the offence. The completion of the offence
does not require such a gain or loss to actually follow.301

A document may be false due to: (a) a material false entry in that document; or (b) a material
omission in that document. Falsifying an account or document is defined as including the
making of or concurring in the making of an entry in an account or other document which is
or may be materially misleading, false or deceptive, or omitting or concurring in omitting a
material particular from an account or document.302 The entry in the document or account, or

299
See e.g. Doncaster v R [2008] EWCA Crim 5 and Mote v R [2007] EWCA Crim 3131
300
Doncaster v R [2008] EWCA Crim 5
301
R v Lancaster [2010] EWCA Crim 370
302
Section 17(2)
549 OFFENCES

the omission therein must be materially misleading, false or deceptive. For such an entry or
omission to be material, it must be important or significant.303

From a close reading of the offence provided for under section 1 of the Fraud Act 2006 (read
with sections 2, 3 and 4 of that Act), it is quite evident that some of the language used in those
sections closely correspond with that used under section 17 of the Theft Act. Sections 2, 3 and
4 of the Fraud Act inter alia also use the wording “dishonestly”, “to gain for himself or
another” and “with intent to cause loss to another”. Conduct making out the actus reus under
section 17 may or may not, depending on the facts of the case, also make out the actus reus of
fraud under section 1 of the Fraud Act 2006 and vice versa. Both the section 17 (Theft Act)
and section 1 (Fraud Act) offences are dishonesty offences. Those offences may well,
depending on the facts of the case, be charged in the alternative.

5.6.2 Corruption
5.6.2.1 General
Corruption is viewed as a serious crime undermining the rule of law and the principles of
good governance. It undermines every branch of government at every level, political,
executive and judicial, and it severely undermines economies, the rule of law, corporate
governance, and healthy competition. It is a major obstacle to economic growth, and it fuels
the underground economy and tax evasion.304 Corruption has in the past been referred to, and
correctly so, as "at the top end of serious corporate offending both in terms of culpability and
harm".305

303
See R v Mallett (1978) 67 Cr App Rep 239. Also see R v Lancaster [2010] EWCA Crim 370 where Lord
Justice Toulson in following R v Mallett (1978) 67 Cr App Rep 239 inter alia offered the following analysis of
section 17(2) and the materiality requirement: "There remains the question what is meant by "omits a material
particular" in the second part of s 17(2), relating to non-disclosure. Section 17(1)(b) refers to the production or
use of a document which to the defendant's knowledge is or may be misleading, false or deceptive in a material
particular. Section 17(2) identifies two ways in which a document may be regarded as falsified - either by an
entry which is or may be misleading, false or deceptive in a material particular, or by omission of a material
particular. Although the words "misleading, false or deceptive" are contained in the first part of the subsection
(relating to misrepresentation), and not the second part (relating to non-disclosure), it is clear when read as a
whole and in its context that the subsection is concerned with documents which are or may be materially
misleading either by reason of what they contain or by reason of what they should contain but fail to contain. So
in a non-disclosure case the omission will be material if it has the effect that the document is liable to mislead in
a way which is significant."
304
See Ott, “Economic Policy and the Underground Economy in Transition” (1999) in Feige & Ott (Ed) in
Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 29-41
at 34 and 36; Bowles, “Tax Policy, Tax Evasion and Corruption in Economies in Transition” (1999) in Feige &
Ott (Ed) Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized
crime 67-86 at 67
305
See R v Innospec Ltd [2010] EW Misc 7 (EWCC) where Lord Justice Thomas quoting from a speech of Kofi
Annan, the then Secretary General of the UN inter alia said: "There can be no doubt that corruption of foreign
government officials or foreign government ministers is at the top end of serious corporate offending both in
terms of culpability and harm. It is deliberate and intentional wrongdoing. It causes serious harm. In the
foreword to the 2004 UN Convention against Corruption Kofi Annan, the Secretary General described its
effects: "Corruption is an insidious plague that has a wide range of corrosive effects on societies. It undermines
democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and
allows organised crime, terrorism and other threats to human security to flourish. This evil phenomenon is found
in all countries - big and small, rich and poor - but it is in the developing world that its effects are most
destructive. Corruption hurts the poor disproportionately by diverting funds intended for development,
undermining a government's ability to provide basic services, feeding inequality and injustice and discouraging
foreign aid and investment. Corruption is a key element in economic underperformance and a major obstacle to
poverty alleviation and development"
550 OFFENCES

Corrupt relationships may surface in a legio of contexts and at every level. It may be national
or international, it may be inter-business between corporations, between corporations and
government servants, or between natural persons and corporations and/or government
servants. The nature of the corrupt act, those committing same, their motives for doing so, and
the potential harm caused may vary from situation to situation. Just a few examples of the
types of acts that may typically be classed as corrupt are:

(a) the granting of contracts or the non-granting of contracts to competitors in return for a
bribe;
(b) offering a bribe in return for a favourable regulatory certification relating to the
quality, safety or standards of products such as medication and consumables;
(c) obtaining favourable judgements from corrupt judges;
(d) bribing members of juries;
(e) members of the legislature corruptly steering the legislative process in favour of
certain lobby-groups;
(f) contriving up administrative or criminal action against competitors;
(g) enforcement personnel or administrators closing their eyes to irregularities for a fee;
(h) customs officers assisting with smuggling for a fee;
(i) selling privileged or secret information;
(j) offering for sale fraudulent registrations e.g. as medical practitioners or lawyers;
(k) investigators selling dockets or leaking information;
(l) the issue of things like customs licences, trading licenses, or tax compliance
certificates in return for a bribe;
(m) fraudulently generate or offer for sale fraudulent passports, identity documents, birth
certificates etc; and
(n) destroy records or evidence in return for a fee.

It will probably not be wrong to say that the greater majority of citizens in the West do not
think of their own countries as jurisdictions struggling with corruption. It may be ignorant, but
most people only appreciate what they see or experience in their daily life. The average
British or US citizen will likely pass through life without ever finding himself in a position
where a bureaucrat will ever hint at an inducement to do something or to refrain from doing
something - a very visible type of corruption. Corruption is seen as something that happens in
Africa and Latin America. In the West it is just more concentrated, hidden, and sophisticated.
In the West the corrupt army general or corrupt customs commissioner is just more likely to
be rewarded after retirement with an appointment to the board of a large corporation - as
opposed to accepting a new car or suitcase filled with cash.

Few members of the general public really appreciate the gravity of the problem. Most lack
any real awareness of the direct and indirect consequences or impact of corruption on
transparency, political and judicial processes, competition, investment, economic growth,
state administration and service delivery, safety and security, etc. They will likely view it as
serious if they were to know that when taking off from Nairobi, Kenya, historically a major
transit-hub for terrorists, the Boeing 747 on which they flew back to London carried freight in
the cargo-hold which were loaded without having been scanned as Nairobi based freight
forwarder MC, pressed for time to get his freight on board bribed the X-ray scanners to allow
the freight through without scanning same. The fact of scanning is not something most people
are aware of, or even if they are it is not something they will ever really contemplate or think
about. The possibility of people bribing scanners to pass the freight through is something very
few will even consider. What this example illustrates is the fact that few people can appreciate
the damaging impact of an activity where they cannot relate that activity to their daily lives or
to that which falls within their personal reference framework. Something like corruption,
551 OFFENCES

hidden as it is, rears its head in factual settings more often than not falling outside the
framework of knowledge and experience of most people. They are unaware of the spectrum of
threats and thus cannot appreciate the risks or impact.

Corruption poses a serious threat to any country's revenue-base and revenue administration. It
may have a serious deteriorating impact on tax morale. Tax morale is not something which
can be fostered where the system is viewed as unjust or corrupt. The population need be
convinced of the system being fair and just, something which calls for a fair distribution of
the tax burden and the exposure and punishment of offenders at all levels of society. This is
not possible where the elites, the rich and powerful, those in public office, or those charged
with the administration and collection of the taxes, are viewed as corrupt and/or as being
unfairly advantaged. Probably the most pressing concern today is that many governments
marketing themselves as 'democratically elected' governments increasingly represent not the
broader electorate but small groups of unelected financial interests. The consequences are but
predictable: favourable legislation unfairly favouring those privileged groups, an unequal
distribution of the tax burden, and an upward redistribution of wealth.

Corruption amongst revenue officers is evidently not a new problem. 306 The Revenue and
Customs administrations of most States are large organization with thousands of employees
and as such it cannot be but expected that there will always be a number of corrupt officials
amongst them. Although internal corruption is almost always driven by money (greed or
financial pressure), it may also be driven, partly or in combination, by other non-financial
drivers such as interpersonal dependency and/or personal loyalty, giving in to blackmail,
and/or being disgruntled with his employer. The incidence of corruption is closely tied to
opportunity. Higher levels of corruption can be expected in those government functions where
the opportunity to demand or accept bribes is more acute and/or where taking bribes may be
more profitable. Revenue and customs officers are placed in a position of trust and authority.
Taxpayers can ‘suffer’ a severe financial loss in the case of an audit, inspection, confiscation
or penalties. Officers often decide upon, or can significantly influence decisions or actions
relating to inter alia the nature and depth of inspections to be carried out, the audit procedures
that may be appropriate or are to be followed, the recording and reporting of findings,
decisions to be taken, and the penalties to be levied. The extent of a particular officer's
authority, influence, and discretion will depend on factors such as the officer’s role, seniority,
managerial and departmental controls and procedures, and the oversight mechanisms that are
in place.

Ensuring the success of an evasion or smuggling operation, and/or avoiding the consequences
of detection may be a strong incentive for taxpayers and smugglers to attempt to bribe officers
and other officials.307 Revenue and Customs officers are also ideally placed to solicit and/or
accept them. The corrupt officer's conduct may consist of positive acts or the failure to act
under circumstances where it is his/her duty to act. The corrupt activity will not necessarily
always have a tax impact. Corrupt activities may also relate to or be targeted against other
aspects of revenue or customs administration. Just a few examples of corrupt activities
commonly encountered in the revenue and customs context are: (a) actively assisting a

306
See Nicholls, Honest Thieves, The violent Heyday of English Smuggling and at 34, where the writer in his
historic account of smuggling in England during the 18 th and 19th centuries, had the following to say about the
smuggler of the time: “..he had become so powerful not only by bludgeon and musket, but also by money, with
all its power to mollify, soothe and corrupt.”
307
Bowles, “Tax Policy, Tax Evasion and Corruption in Economies in Transition” (1999) in Feige & Ott (Ed)
Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime 67-86
at 73
552 OFFENCES

taxpayer or trader with a fraudulent scam; (b) at a price corruptly applies his discretion in
favour of the taxpayer in the determination of assessments and/or penalty amounts; (c) the
selling off of confidential taxpayer information; (d) the subversion of an investigation or the
‘tipping off’ of a taxpayer or smuggler; (e) agree not to record or report certain things; (f)
approve or assist with fraudulent claims on behalf of the taxpayer;308 (g) allowing illicit goods
to pass through; (h) corruptly agree to release seized goods; (i) pass information to smugglers
relating to enforcement operations and dispositions; (j) at a price take action against a
taxpayer's competitors; (k) destruction or theft of evidence against a taxpayer; and (l)
fraudulently authorize the issue of a customs licence where same may on the facts of the case
not be issued.

The taxpayer, importer or exporter will often have at his disposal the financial resources to
make a substantial offer as inducement. An attractive offer from a taxpayer or trader who may
often have much too loose, may all too often prove too much of an inducement to resist.
Stringent personnel selection, engineering weak points out of operational practices, good
standards of internal control and oversight, providing for reporting channels, monitoring
mechanisms and a good standard of intelligence, and taking a hard stance against corruption
can do much to control corruption and to limit officers from straying. That being said, in
many parts of the world, and this is particularly so in many parts of the developing world,
counter-corruption strategies and measures are often non-existent with officers poorly paid.
Controlling corruption in organizations such as police forces, revenue administrations and
customs administrations, is very difficult in an environment where there is a combination of
generally high levels of crime, lacking capacity, opportunity, and poverty. The corrupt
taxpayer or trader will often subvert an existing relationship. In many instances the
relationship between corruptor and corruptee may have existed as a non-corrupt relationship
long before the first corrupt act. In some instances the officer may over a period of time be
befriended and groomed. It is by no means always the taxpayer or trader who makes the offer.
It is not uncommon to find instances where it is the revenue or customs officer who solicits a
bribe. The inducement will not always be in the form of money. It may also be in the form of
gifts in kind e.g. paid holidays or jewellery. The fact that an officer committed a corrupt act
does not necessarily mean he accepted a bribe. The corrupt act may well not be motivated by
money or greed but for some other reason such as misplaced loyalty, or as a result of
blackmail or some other form of coercion.309

More robust enforcement efforts targeted at reducing evasion, and in particular more severe
penalties for evasion, can obviously provide for a greater incentive to revert to bribery in an
attempt to escape those sanctions.310 More vigilant enforcement to counter evasion must
therefore be mirrored in greater vigilance against corruption. Counter-evasion and counter-

308
See e.g. Nolan & Anor v R [2012] EWCA Crim 671 where a claims administrator at the Tax Credit Office
assisted with fraudulent tax credit claims. Some of the claimants were not entitled to those credits, whereas the
claims of others were fraudulently inflated.
309
How 'blackmail' is defined, as is the case with most crimes, is a matter of law and differs from jurisdiction to
jurisdiction. It always involves some or other form of unlawful coercion. In England blackmail is made
punishable under section 21 of the Theft Act 1968 which reads as follows: "(1) A person is guilty of blackmail if,
with a view to gain for himself or another or with intent to cause loss to another, he makes any unwarranted
demand with menaces; and for this purpose a demand with menaces is unwarranted unless the person making it
does so in the belief: (a) that he has reasonable grounds for making the demand; and (b) that the use of menaces
is a proper means of reinforcing the demand. (2) The nature of the act or omission demanded is immaterial, and
it is also immaterial whether the menaces relate to action to be taken by the person making the demand."
310
See Bowles, “Tax Policy, Tax Evasion and Corruption in Economies in Transition” (1999) in Feige & Ott
(Ed) Underground Economies in Transition: Unrecorded ativity, tax evasion, corruption and organized crime
67-86 at 82
553 OFFENCES

corruption strategies cannot really be dealt with as separate problems. Corruption undermines
tax morale, facilitates and in many respects drive evasion, and also undermines enforcement
efforts. Every counter-evasion strategy should therefore have as one of its primary objectives
the clamping down on corruption.

Even in organizations that are very much geared towards the integrity of its people and
systems, certain levels of corruption can be assumed. Detection however may prove difficult.
The same corrupt officer or official may be engaged in the same corrupt activities for many
years before it is detected. In common with many other crimes, many corrupt officers will
only become the subject of closer scrutiny following 'tip-offs', often from suspicious
colleagues, vindictive ex-wives, undercover agents and informants. Corrupt officials will also
often be identified in the course of enquiries into the activities of a particular criminal group,
often when one member of the group is turned to testify against the others, often ending in
corrupt officers also being pointed. In other instances officers from one agency investigating
the activities of a particular criminal group may identify an officer or official from another
agency as being involved with or assisting that criminal group and its operations and then
pass that information on to that officer's agency. If detection is difficult, then the investigation
thereof, successfully making out a criminal case against a corrupt officer or official, can be
even more demanding. Those investigations will often call for the full spectrum of
intelligence and investigative expertise. This will often call for the employment of the
complete suite of covert surveillance capabilities, the assistance of financial investigators, and
other technical support.

A common problem in most jurisdictions is poor levels of cooperation, coordination, and

intelligence sharing between different agencies. The result is counter-corruption efforts which
are often fragmented and ineffective, often guided by an incomplete intelligence picture. The
same criminal group will often corrupt multiple officers and officials in different agencies.
The same corrupt officer will often commit corrupt acts on behalf of different criminal
groups. Those different criminal groups may in turn target different agencies and/or be under
investigation by different agencies. A corrupt officer in the employ of one agency may often
also be in a position to undermine the operations of another agency. Sharing information and
mutual assistance will nevertheless often be haphazard, ineffective, or non-existent.
Effectively countering corruption is simply not possible where agencies work in silos
oblivious to the intelligence needs, threats to, and operations of one another. There must be
intelligence sharing, coordination, and pooling of resources. Counter-corruption strategies, as
is the case with intelligence and counter-intelligence strategies, and strategies targeted against
organised crime and money laundering, should ideally be planned and coordinated at a
national level with multi-agency input.

In most jurisdictions are to be found various offences targeted against various forms of
corruption. Throughout the common law world the old common law bribery offences have
over time been abolished, replaced as they were with statutory offences. In most jurisdictions
today, penal provisions targeted against various forms of corruption are to be found in
multiple statutes, some of those offences limited to particular types of corruption involving
particular categories of persons in relation to particular activities or factual settings covered
under particular statutes e.g. bankruptcy legislation, police legislation, revenue legislation etc,
whereas other offences may be general corruption offences. Offences targeted against various
forms of corruption are to be found in the revenue and customs legislation of most
jurisdictions. This then is also the case in Britain. In Britain, as is common in many other
jurisdictions, is also to be found a number of corruption or bribery offences provided for
under the Bribery Act 2010. The offences provided for under this act can also find application
in the revenue and customs context.
554 OFFENCES

5.6.2.2 The Bribery Act 2010

Corruption/bribery offences, as is the case with most crimes really, are jurisdiction-specific.
What may, in law, be a corrupt act in one jurisdiction may not be so in another. It is a matter
of legal definition. In many jurisdictions there may also be many relationships that most
people may view and describe as 'corrupt', that may not be captured under domestic legal
definitions and penal provisions. Corruption in general in the United Kingdom is criminalised
under the Bribery Act 2010.311 The Act repealed the common law crime of bribery and
provides for a number of distinct offences, these being: (a) offences of bribing another
person;312 (b) offences relating to being bribed;313 (c) bribery of foreign public officials;314
and (d) the failure of commercial organizations to prevent bribery.315 A person will be guilty
of an offence under section 1 (Offences of bribing another person) where:

(a) he offers, promises or gives a financial or other advantage to another person, and
where he intends the advantage (i) to induce a person to perform improperly a relevant
function or activity, or (ii) to reward a person for the improper performance of such a
function or activity.316 It does not matter whether the person to whom the advantage is
offered, promised or given is the same person as the person who is to perform, or has
performed, the function or activity concerned.317 It also does not matter whether the
advantage is offered, promised or given by that person directly or through a third
party.318

(b) he offers, promises or gives a financial or other advantage to another person, and
does so knowing or believing that the acceptance of the advantage would itself
constitute the improper performance of a relevant function or activity.319 It does not
matter whether the advantage is offered, promised or given by that person directly or
through a third party.

A person will be guilty of an offence under section 2 (Offences relating to being bribed)
where:

(a) He requests, agrees to receive or accepts a financial or other advantage intending

that, in consequence, a relevant function or activity should be performed improperly
either by him or another person.320 It does not matter whether he requests, agrees to
receive or accepts (or is to request, agree to receive or accept) the advantage directly
or through a third party, and neither does it matter whether the advantage is (or is to
be) for the benefit of him or another person.321

(b) He requests, agrees to receive or accepts a financial or other advantage, and where
the request, agreement or acceptance itself constitutes the improper performance of a

311
Received Royal Assent 08 April 2010. Came into force on 1 July 2011
312
Section 1
313
Section 2
314
Section 6
315
Section 7
316
Section 1(1) & 1(2)
317
Section 1(4)
318
Section 1(5)
319
Section 1(1) & 1(3)
320
Section 2(1) & 2(2)
321
Section 2(6)
555 OFFENCES

relevant function or activity.322 It does not matter whether he requests, agrees to

receive or accepts (or is to request, agree to receive or accept) the advantage directly
or through a third party, and neither does it matter whether the advantage is (or is to
be) for the benefit of him or another person.323 It does not matter whether he knows or
believes that the performance of the function or activity is improper.324

(c) He requests, agrees to receive or accepts a financial or other advantage as a reward

for the improper performance by himself or another person of a relevant function or
activity.325 It does not matter whether he requests, agrees to receive or accepts (or is to
request, agree to receive or accept) the advantage directly or through a third party, and
neither does it matter whether the advantage is (or is to be) for the benefit of him or
another person.326 It does not matter whether he knows or believes that the
performance of the function or activity is improper.327

(d) In anticipation of or in consequence of him requesting, agreeing to receive or

accepting a financial or other advantage, a relevant function or activity is performed
improperly by him or another person at his request or with his assent or
acquiescence.328 It does not matter whether he requests, agrees to receive or accepts
(or is to request, agree to receive or accept) the advantage directly or through a third
party, and neither does it matter whether the advantage is (or is to be) for the benefit of
him or another person.329 It does not matter whether he knows or believes that the
performance of the function or activity is improper.330 Where the function or activity
is performed by another person, then it also does not matter whether that other person
knows or believes that the performance of the function or activity is improper.331

A prosecution under the Act can also be brought with the consent of the Director of Revenue
and Customs Prosecutions.332 Contravention of any of these offences is punishable with
unlimited fines and up to 10 years imprisonment.

5.6.2.3 Extra-territorial application

The bribery of foreign officials has long been an offence in the United States under the
Foreign Corrupt Practices Act of 1977.333 Similar provisions have since been incorporated
into the corruption legislation of a number of jurisdictions.334 Under section 6 (Bribery of
foreign public officials) of the Bribery Act 2010 a person is guilty of an offence where he
bribes a foreign public official and where he does so with the intent to influence that official
in his capacity as a foreign public official.335 It must also be his intention to obtain or retain
business or an advantage in the conduct of business.336 He will only be considered to have
bribed such a foreign official where he directly or through a third party, offers, promises or

322
Section 2(1) & 2(3)
323
Section 2(6)
324
Section 2(7)
325
Section 2(1) & 2(4)
326
Section 2(6)
327
Section 2(7)
328
Section 2(1) & 2(5)
329
Section 2(6)
330
Section 2(7)
331
Section 2(8)
332
Section 10
333
15 U.S.C § 78
334
Also see section 5 of the Prevention and Combating of Corrupt Activities Act 12 of 2004 (South Africa)
335
Section 6(1)
336
Section 6(2)
556 OFFENCES

gives any financial or other advantage to that official or to another person at that official's
request or with that official's assent or acquiescence, and where that official is neither
permitted nor required by the written law applicable to that official to be influenced in his
capacity as a foreign public official by the offer, promise or gift. 337 Any corrupt act or
omission by a person done outside the UK and where that act or omission would form part of
an offence under the Act if done in the UK may be prosecuted in the UK as long as the person
concerned has a close connection with the UK.338

5.6.2.4 Overlapping with fraud

Corruption is a dishonesty offence and is very much underpinned by deceit. It is not at all
uncommon to find overlapping between a particular jurisdiction's fraud and corruption
offences. The corrupt conduct will in many instances involve the making of fraudulent
misrepresentations. Consider the following example: Officers X, Y and Z, being officers of
revenue administration XYZ, ‘seize’ a consignment of undervalued goods imported by
importer A. They are subsequently approached by importer A and they corruptly enter into an
agreement with A to the effect that they will release the shipment upon payment by importer
A of only 30 percent penalties instead of the 200 percent which may on the facts of the case
be considered to be the appropriate penalty, on condition of the payment of a bribe to each of
the three officers. X, Y and Z subsequently file their reports, make their submissions and issue
assessments which are all in fact fraudulent. Importer A pay the bribes, X, Y and Z accept it,
they are all enriched, but at the cost of the Revenue which had been defrauded. Apart from the
fact that officers X, Y and Z fraudulently abused their positions of trust, they also submitted
fraudulent reports and submissions to the Revenue as their employer. In many instances
corruption and fraud offences may well be charged in the alternative. 339 In those instances
care with the framing of charges is paramount so as to avoid the risk of duplication.

5.6.3 Breaches of Exchange Control Regulations

Many revenue and customs frauds involve, as a component of the fraudulent scheme, the
transfer of large amounts of money or goods from one jurisdiction to another. The funds or
goods so taken out may well have been taxed in the past, or may be the proceeds of legitimate
business activity that have gone untaxed, or may just as well be the proceeds of crime.
Although increasingly rare, some countries do still maintain strict exchange controls. The
transfer of funds into or out of those States may be subject to local exchange control
regulations.340 Exchange control regulations can also be circumvented under cover of sham

337
Section 6(3)
338
Section 12
339
In England and Wales, the offences provided for under the Bribery Act 2010 and the offences provided for
under the Fraud Act 2006 may, depending on the facts of the case, be charged in the alternative. In South Africa
the corruption offences provided for in the Prevention and Combating of Corrupt Activities Act 12 of 2004 and
the South African common law crime of 'fraud' may, depending on the facts of the case, also be charged in the
alternative. The Fraud Act 2006 in fact provides for fraud "by abuse of position" under section 4 read with
section 1. The abuse of position is one of the ways in which fraud under section 1 can be committed. Many
corrupt acts may however also fall contrary to section 2 read with section 1 and section 3 read with section 1.
The English common law crime of 'conspiracy to defraud' may also find application in many corruption cases.
See the English case of Scott v Commissioner of Police of the Metropolis [1974] UKHL 4 where (per Lord
Diplock): “In the instant case the intended victims of the conspiracy to defraud were private individuals…The
dishonest means to be employed were clandestine bribery.”
340
See for example the South African Exchange Control Regulations as published in the Government Gazette,
number R1111, 1 December 1961 (Made under section 9 of the Currency and Exchanges Act 9 of 1933). Also
see the English case of King v The Serious Fraud Office [2008] EWCA Crim 530, an appeal against a Restraint
Order and a Disclosure Order by South African businessman Mr Dave King, and wherein reference is made to
allegations of exchange control breaches committed by Mr King in the furtherance of an alleged tax fraud.
557 OFFENCES

imports or exports.341 The circumvention of exchange controls may in many instances also
coincide with the evasion of taxation, smuggling, and/or money laundering. Where a tax
evasion, smuggling, or money laundering operation in a given jurisdiction also involve a
breach of that jurisdiction's exchange control regulations, then those exchange control
breaches may well also be charged in additions to the tax evasion, smuggling, or money
laundering offences.

5.6.4 Insolvency Offences

An unpaid tax debt makes the Commissioners a creditor of the debtor taxpayer. The
Commissioners as creditor is entitled to all those remedies a creditor may have for the
enforcement or collection of a debt. The Commissioners may file an application for the
bankruptcy or winding up of a debtor taxpayer where the Revenue has reason to believe that
the taxpayer is insolvent. Where the debtor taxpayer is indeed insolvent, then the Revenue
will find itself to be a creditor of the taxpayer's estate. As with all creditors in that position the
Revenue also has to prove the validity of its claim.

Taxpayers defrauding creditors, fraudulently favouring certain creditors to the prejudice of

others, and the fraudulent diversion or theft of assets or property from the estate is not
uncommon.342 In many instances it will be the taxpayer who files for bankruptcy. In most
instances his filing for bankruptcy will be legitimate and honest, but in many instances it may
be no more but part of a ploy to defraud the Revenue as creditor, often involving the ciphering
away, diversion, or concealment of property and funds. The taxpayer may typically also fail to
list the Revenue as a creditor, or the other creditors indeed listed may in fact be no more but
frontmen or conduits intended to divert the assets and property back into the taxpayer's
pockets. Regardless the methods used, the Revenue is being defrauded in favour of the
taxpayer and/or other creditors.

A tax debt can be evaded.343 To dishonestly evade the payment of a debt is nothing less but
fraudulent. It is to cheat another out of that which he/she is legally entitled to.344 The fact that

341
See e.g. Jacquesson v Minister of Finance [2005] ZASCA 103 where the defendant was convicted on 1058
counts of fraud for the unlawful taking out of large amounts of money from South Africa to the UK under the
guise that it was for the purchase of films when in truth it was not the case. He was sentenced to seven years in
prison.
342
For purposes of this discussion the 'offence' of 'fraud in insolvency' as provided for under § 224.11 of the
Model Penal Code (1962) (United States) provides for a brief but sufficient layout of the types of conduct
usually employed in defrauding creditors. The section reads as follows:
"Section 224.11. Fraud in Insolvency A person commits a misdemeanor if, knowing that proceedings have been
or are about to be instituted for the appointment of a receiver or other person entitled to administer property for
the benefit of creditors, or that any other composition or liquidation for the benefit of creditors has been or is
about to made, he: (a) destroys, removes, conceals, encumbers, transfers, or otherwise deals with any property
with purpose to defeat or obstruct the claim of any creditor, or otherwise to obstruct the operation of any law
relating to administration of property for the benefit of creditors; or (b) knowingly falsifies any writing or record
relating to the property; or (c) knowingly misrepresents or refuses to disclose to a receiver or other person
entitled to administer property for the benefit of creditors, the existence, amount or location of the property, or
any other information which the actor could be legally required to furnish in relation to such administration."
343
See the English case of R v Dimsey & Anor [1999] EWCA Crim 2261 where it was correctly stated that a tax
debt owed to the State, is a debt which can also be evaded..". See DPP v Turner [1974] AC 357 where at 365
Lord Reid inter alia said (in a matter under the Theft Act 1968): "An obligation is reduced if the creditor agrees
with the debtor that the amount owed shall be reduced. An obligation is deferred if creditor and debtor agree that
the date of performance shall be postponed. An obligation is evaded if by some contrivance the debtor avoids or
gets out of fulfilling or performing his obligation. In the days when such things happened, a welshing bookmaker
not only evaded his pursuers, he also evaded his obligations. Evasion does not necessarily mean permanent
escape. If the bookmaker evaded his pursuers on Monday, the fact that he is caught and made to pay up on
Tuesday does not alter the fact that he evaded his obligations on Monday. Unlike reducing or deferring an
558 OFFENCES

it is evaded through the use of or as part of bankruptcy proceedings is irrelevant for purposes
of criminal liability. In England any one or more of a number of offences may potentially,
depending on the facts of the case, find successful application e.g. section 1 of the Fraud Act
2006 (fraud), section 9 of the Fraud Act 2006 or section 993 of the Companies Act 2006
(fraudulent trading), or the common law offence of 'cheating' the Revenue. In South Africa
the common law crime of fraud will be a competent charge, and in the US the evasion of
payment under 26 U.S.C. § 7201 (attempt to evade or defeat tax). 26 U.S.C. § 7201 can be
contravened by attempting to evade assessment or attempting to evade payment. The offence
can be committed by attempting to divert money, property or assets out of the IRS's reach. It
also covers those instances where the attempted evasion takes place within the context of
bankruptcy.345

5.6.5 Theft
Much of what importers, exporters, manufacturers, warehouse operators, freight agents and
the Revenue do relates to goods and money. Wherever the goods or money are at any given
time, its transfer, those in possession of same, those who have rights in relation to those
moneys or property, and the nature of those rights, depends on legal frameworks and the facts
of the case. Insofar as the Revenue is concerned, there are many instances where the Revenue
will be in possession of property capable of being stolen. This may range from cash receipts
and revenue stamps, to taxpayer files, detained or forfeited goods, or exhibits from an
evidence room. Many situations may thus arise where money or property may be stolen from
the Revenue, by revenue employees, taxpayers, traders, or other third parties.346 How theft is
defined is a matter of law and may differ from jurisdiction to jurisdiction. In England theft is
criminalized under sections 1 of the Theft Act 1968 which read as follows:

"1. Basic definition of theft.

(1) A person is guilty of theft if he dishonestly appropriates property belonging to another
with the intention of permanently depriving the other of it; and “thief” and “steal” shall be
construed accordingly.
(2) It is immaterial whether the appropriation is made with a view to gain, or is made for the
thief’s own benefit.
(3) The five following sections of this Act shall have effect as regards the interpretation and
operation of this section (and, except as otherwise provided by this Act, shall apply only for
purposes of this section)"

obligation, evading an obligation is a unilateral operation. It leaves the obligation untouched and does not
connote any activity on the part of the creditor. When the evasion ceases he can seek to recover the debt in any
way open to him."
344
See Alridge & Parry on Fraud 2nd ed 1996 at 353 where the following is said in regard to “cheating the public
revenue”: “... it now seems to be regarded as effectively one of fraud, rather than ‘cheating’ in the ordinary
sense…it is sufficient that the defendant omits to hand over money which is lawfully due to the Crown, e.g. by
failing to register for VAT ...”
345
See e.g. United States v. Huebner 48 F.3d 376 (9th Cir. 1994)
346
See e.g. the Australian case of Pellegrino v Director of Public Prosecutions (CTH) [2008] NSWCCA 17
where the Appellant and two others were charged with the dishonest appropriation of property belonging to the
Commonwealth in that a container under customs control was moved from a wharf without the permission of
Customs. The court inter alia said that: “ ... a statutory scheme may take the further step of conferring a right of
control on a government officer. In the latter case it is at least possible that, because property consists primarily
in control over the moveable object, the government or relevant government agency thereby acquires a right akin
to the right of an owner, within the sphere of protected interests, which can be dishonestly appropriated.” In the
Australian case of R v Delly [2003] ACTSC 113 the following was said as to the meaning of `dishonestly' on
charges of theft: "… the crown must positively prove the existence of a belief held by accused that they had no
legal right to deal with the goods”
559 OFFENCES

The Act then proceeds to define "dishonestly" (under section 2), "appropriates" (under section
3), "property" (under section 4), "belonging to another" (under section 5), and "with the
intention of permanently depriving the other of it” (under section 6). Sections 9 and 22 of the
Act deals with burglary and the handling of stolen goods and reads as follows:

"9. Burglary.
(1) A person is guilty of burglary if -
(a) he enters any building or part of a building as a trespasser and with intent to commit any
such offence as is mentioned in subsection (2) below; or
(b) having entered any building or part of a building as a trespasser he steals or attempts to
steal anything in the building or that part of it or inflicts or attempts to inflict on any person
therein any grievous bodily harm.
(2) The offences referred to in subsection (1)(a) above are offences of stealing anything in the
building or part of a building in question, of inflicting on any person therein any grievous
bodily harm F1... therein, and of doing unlawful damage to the building or anything therein.
(3) A person guilty of burglary shall on conviction on indictment be liable to imprisonment for
a term not exceeding—
(a) where the offence was committed in respect of a building or part of a building which is a
dwelling, fourteen years;
(b) in any other case, ten years.
(4) References in subsections (1) and (2) above to a building, and the reference in subsection
(3) above to a building which is a dwelling, shall apply also to an inhabited vehicle or vessel,
and shall apply to any such vehicle or vessel at times when the person having a habitation in it
is not there as well as at times when he is."

"22. Handling stolen goods.

(1) A person handles stolen goods if (otherwise than in the course of the stealing) knowing or
believing them to be stolen goods he dishonestly receives the goods, or dishonestly undertakes
or assists in their retention, removal, disposal or realisation by or for the benefit of another
person, or if he arranges to do so.
(2) A person guilty of handling stolen goods shall on conviction on indictment be liable to
imprisonment for a term not exceeding fourteen years."

A good example of a situation where these offences may find application is that of theft of
bonded or detained goods from a Queens Warehouse. In these cases the subsequent dealing
with the goods will in itself also amount to fraudulent evasion under the Customs and Excise
Management Act 1979. The crime of theft is a continuing offence. Those who subsequently
receive and/or deal in the goods knowing the goods so handled to be stolen can also incur
criminal liability.

5.6.6 Forgery and uttering

There exists a strong relationship between the crimes of ‘forgery’ and ‘uttering’ and the crime
of fraud. Fraud, forgery and uttering are all dishonesty offences involving some or other form
of misrepresentation. Forgery and uttering has in fact been criminalized under the crimen falsi
since Roman times. They are essentially a species of fraud. In Britain, forgery is made
punishable under section 1 of the Forgery and Counterfeiting Act 1981 (in Part I) wherein
forgery is defined as:

"1. The offence of forgery. - A person is guilty of forgery if he makes a false instrument, with
the intention that he or another shall use it to induce somebody to accept it as genuine, and by
560 OFFENCES

reason of so accepting it to do or not to do some act to his own or any other person’s
prejudice."347

The Act amongst others also provide for offences making punishable the copying of a false
instrument,348 the use of a false instrument,349 and the use of a copy of a false instrument.350
The forgery of stamps, licenses, authorizations, certificates and the like, especially within the
revenue and customs environment is common. It thus comes as no surprise to almost always
find a number of offences in the revenue and customs legislation of most countries making
punishable forgery, uttering and counterfeiting.351

5.6.7 False declarations and Perjury

In most if not all jurisdictions we will find penal provisions, in revenue and non-revenue
legislation, making punishable the making of false statements, false declarations and perjury.
Good examples of these are the offences provided for under 26 U.S.C. § 7206(1) (in the
United States) and section 167 of the Customs and Excise Management Act 1979 (in Britain).
The offence under 26 U.S.C. § 7206(1) reads as follows:

"26 U.S.C. § 7206(1) ..Any person who - (1) Declaration under penalties of perjury - Willfully
makes and subscribes any return, statement, or other document, which contains or is verified by a
written declaration that it is made under the penalties of perjury, and which he does not believe to
be true and correct as to every material matter; … shall be guilty of a felony .. "

Section 167 of the Customs and Excise Management Act 1979 reads as follows:

167 Untrue declarations, etc

(1) If any person either knowingly or recklessly -
(a) makes or signs, or causes to be made or signed, or delivers or causes to be delivered to the
Commissioners or an officer, any declaration, notice, certificate or other document whatsoever; or
(b) makes any statement in answer to any question put to him by an officer which he is required by
or under any enactment to answer,
being a document or statement produced or made for any purpose of any assigned matter, which is
untrue in any material particular, he shall be guilty of an offence under this subsection and may be
detained; and any goods in relation to which the document or statement was made shall be liable to
forfeiture.
(2) Without prejudice to subsection (4) below, a person who commits an offence under subsection
(1) above shall be liable -

347
In comparison, see § 224.1 of the Model Penal Code (1962) (United States) wherein forgery is defined as:
"Section 224.1. Forgery. (1) Definition. A person is guilty of forgery if, with purpose to defraud or injure
anyone, or with knowledge that he is facilitating a fraud or injury to be perpetrated by anyone, the actor: (a)
alters any writing of another without his authority; or (b) makes, completes, executes, authenticates, issues or
transfers any writing so that it purports to be the act of another who did not authorize that act, or to have been
executed at a time or place or in a numbered sequence other than was in fact the case, or to be a copy of an
original when no such original existed; or (c) utters any writing which he knows to be forged in a manner
specified in paragraphs (a) or (b). "Writing" includes printing or any other method of recording information,
money, coins, tokens, stamps, seals, credit cards, badges, trade-marks, and other symbols of value, right,
privilege, or identification."
348
Section 2
349
Section 3
350
Section 4
351
See e.g. the British Customs and Excise Management Act 1979 section 168(1)(a) (counterfeits or falsifies any
document which is required by or under any enactment relating to an assigned matter or which is used in the
transaction of any business relating to an assigned matter); section 168(1)(b) (knowingly accepting, receiving or
using a counterfeited or falsified document); section 168(1)(c) (altering of documents after its official issue); and
section 168(1)(d) (counterfeits any seal, signature, initials or other mark of or used by any officer for the
verification of documents or for the security of goods or for any other purpose relating to an assigned matter).
561 OFFENCES

(a) on summary conviction, to a penalty of the prescribed sum, or to imprisonment for a term not
exceeding 6 months, or to both; or
(b) on conviction on indictment, to a penalty of any amount, or to imprisonment for a term not
exceeding 2 years, or to both.
(3) If any person -
(a) makes or signs, or causes to be made or signed, or delivers or causes to be delivered to the
Commissioners or an officer, any declaration, notice, certificate or other document whatsoever; or
(b) makes any statement in answer to any question put to him by an officer which he is required by
or under any enactment to answer.
being a document or statement produced or made for any purpose of any assigned matter, which is
untrue in any material particular, then, without prejudice to subsection (4) below, he shall be liable
on summary conviction to a penalty of [level 4 on the standard scale].
(4)Where by reason of any such document or statement as is mentioned in subsection (1) or (3)
above the full amount of any duty payable is not paid or any overpayment is made in respect of
any drawback, allowance, rebate or repayment of duty, the amount of the duty unpaid or of the
overpayment shall be recoverable as a debt due to the Crown or may be summarily recovered as a
civil debt"

In the case of the offence provided for under 26 U.S.C. § 7206(1) (United States), tax returns
are signed under the penalties of perjury. The crime of perjury was in Roman times treated as
a species of crimen falsi. Perjury is in essence a species of fraud and is viewed as a serious
offence. How perjury is defined does however differ from jurisdiction to jurisdiction but in
most English-speaking jurisdictions it is generally understood to refer to false testimony under
oath. In England, section 1(1) of the Perjury Act 1911 defines perjury as:

"1. Perjury. (1) If any person lawfully sworn as a witness or as an interpreter in a judicial
proceeding wilfully makes a statement material in that proceeding, which he knows to be false or
does not believe to be true, he shall be guilty of perjury, and shall, on conviction thereof on
indictment, be liable to penal servitude for a term not exceeding seven years, or to imprisonment
for a term not exceeding two years, or to a fine or to both such penal servitude or imprisonment
and fine."

In England, the Perjury Act does however also make punishable the making of false
statements on oath made otherwise than in judicial proceedings,352 and the making of false
statutory declarations and other false statements without oath.353 In the revenue and customs
context convictions for the making of false statements and declarations (under offences such
as those provided for under 26 U.S.C. § 7206(1) and section 167 of the Customs and Excise

352
See e.g. sections 2 of the Perjury Act 1911 which reads as follows: "2. False statements on oath made
otherwise than in a judicial proceeding. If any person - (1) being required or authorised by law to make any
statement on oath for any purpose, and being lawfully sworn (otherwise than in a judicial proceeding) wilfully
makes a statement which is material for that purpose and which he knows to be false or does not believe to be
true; or (2) wilfully uses any false affidavit for the purposes of the Bills of Sale Act 1878, as amended by any
subsequent enactment, he shall be guilty of a misdemeanour, and, on conviction thereof on indictment, shall be
liable to penal servitude for a term not exceeding seven years or to imprisonment, for a term not exceeding two
years, or to a fine or to both such penal servitude or imprisonment and fine."
353
See e.g. section 5 of the Perjury Act 1911 which reads as follows: "5. False statutory declarations and other
false statements without oath. If any person knowingly and wilfully makes (otherwise than on oath) a statement
false in a material particular, and the statement is made - (a) in a statutory declaration; or (b) in an abstract,
account, balance sheet, book, certificate, declaration, entry, estimate, inventory, notice, report, return, or other
document which he is authorised or required to make, attest, or verify, by any public general Act of Parliament
for the time being in force; or (c) in any oral declaration or oral answer which he is required to make by, under,
or in pursuance of any public general Act of Parliament for the time being in force, he shall be guilty of a
misdemeanour and shall be liable on conviction thereof on indictment to imprisonment, for any term not
exceeding two years, or to a fine or to both such imprisonment and fine."
562 OFFENCES

Management Act 1979) are common. Convictions for perjury in the form of false testimony in
a court of law are however rare.

5.6.8 Attempt
In most common-law jurisdictions, what we will generally find is that most evasion and
smuggling offences are generally framed in such a manner as to cover all those engaged in
any 'attempt to evade', and/or all those 'engaged in' or 'concerned in' the fraudulent evasion of
tax or customs controls. With almost all those offences conviction may follow even where the
fraud was detected and neutralised before actual loss was suffered and before the offender
received any actual benefit from the fraud. In most instances all the material elements of
those evasion, smuggling, or fraud offences will be satisfied and the crime thus completed
even if the crime was foiled and actual prejudice for the Revenue averted.354 Practical
examples that come to mind are that of the taxpayer filing a fraudulent VAT return but where
the Revenue during a post-filing inspection identify that return for what it in fact is (a
fraudulent return), or where an importer files fraudulent customs entries falsely declaring the
true nature and value of the goods but where Customs following inspection of the cargo
realise those customs entries to be fraudulent.

It is however quite possible for a person to embark on a course of action wilfully intending to
defraud the Revenue, but where his attempted evasion or fraud for some or other reason fails
to materialize before all the material elements of the available evasion or fraud offences are
satisfied. An example that comes to mind is that of the taxpayer who prepares a fraudulent
return, hands it over to his accountant, but the accountant noticing the irregularities calls the
police. The taxpayer intended to defraud the Revenue but for some unforeseen occurrence
things just did not materialize to the point where all the material elements of the crime (as
defined) were satisfied. In many jurisdictions the taxpayer may still be convicted on some or
other offence of ‘attempt’.355 These offences may be provided for under the revenue
legislation, non-revenue legislation,356 or common law. The framing of attempt offences, the

354
Good examples of such offences are those provided for under section 1 of the Fraud Act 2006 and the crime
of 'cheating'.
355
See e.g. the Australian case of R v Bromley [2010] VSC 345 where a 7.5 year prison sentence was imposed
following convictions on 3 charges of dishonestly obtaining a financial advantage by deception from a
Commonwealth entity contrary to s 134.2(1) of the Australian Federal Criminal Code 1995 (Cth), and a further 2
charges of attempting to obtain a financial advantage by deception from a Commonwealth entity contrary to ss
11.1(1) and 134.2(1) of the Criminal Code 1995 (Cth). All the charges related to fraudulent Goods and Services
Tax (GST) refund claims made by the accused in 186 ‘business activity statements’ lodged with the Australian
Taxation Office over a 7 year period.
356
See e.g. the offence provided for under section 1 of the Criminal Attempts Act 1981 (In force in England and
Wales, received Royal Assent 27 July 1981, Commencement 27 August 1981). Section 1 reads as follows: “1.
Attempting to commit an offence (1) If, with the intent to commit an offence to which this section applies, a
person does an act which is more than merely preparatory to the commission of the offence, he is guilty of
attempting to commit the offence …. (2) A person may be guilty of attempting to commit an offence to which
this section applies even though the facts are such that the commission of the offence is impossible.” Under
section 1(4), section 1 applies to any offence which if it were completed would be triable in England and Wales
as an indictable offence other than conspiracy (contrary to common law or under section 1 of the Criminal Law
Act 1977); aiding, abetting, counselling, procuring, or suborning the commission of an offence; and offences
under section 4(1) (assisting) or 5(1) (accepting or agreeing to accept consideration for not disclosing
information about an arrestable offence) of the Criminal Law Act 1967. Also see the attempt offence provided
for under the Australian Criminal Code (Criminal Code Act 1995) which reads as follows:
"11.1 Attempt (1) A person who attempts to commit an offence commits the offence of attempting to commit
that offence and is punishable as if the offence attempted had been committed.
(2) For the person to be guilty, the person’s conduct must be more than merely preparatory to the commission of
the offence. The question whether conduct is more than merely preparatory to the commission of the offence is
one of fact.
563 OFFENCES

elements required to be present for conviction on those offences, and the nature of the
attempts a particular offence will cover is a matter of law and may thus differ from
jurisdiction to jurisdiction. What they all share is the required intent to bring about the
prohibited consequence. Most of these offences, the attempt offences provided for under the
Criminal Attempts Act 1981 (England and Wales) and section 11.1 of the Criminal Code Act
1995 (Australia) being examples in point, do however also require the commission of an act
which is more than merely preparatory to the commission of the offence.357

5.6.9 Incitement
In most jurisdictions are to be found penal provisions making punishable the incitement,
encouragement or instigation of crime. These may be provided for under common law or in
statute. Those offences may make punishable the incitement of certain specified offences,358
certain classes of crime, or may be of general application covering the incitement of crime in
general.359 In common with conspiracy and attempt, incitement is also a crime of intent and an

(3) For the offence of attempting to commit an offence, intention and knowledge are fault elements in relation to
each physical element of the offence attempted. Note: Under section 3.2, only one of the fault elements of
intention or knowledge would need to be established in respect of each physical element of the offence
attempted.
(3A) Subsection (3) has effect subject to subsection (6A).
(4) A person may be found guilty even if: (a) committing the offence attempted is impossible; or (b) the person
actually committed the offence attempted.
(5) A person who is found guilty of attempting to commit an offence cannot be subsequently charged with the
completed offence.
(6) Any defences, procedures, limitations or qualifying provisions that apply to an offence apply also to the
offence of attempting to commit that offence.
(6A) Any special liability provisions that apply to an offence apply also to the offence of attempting to commit
that offence.
(7) It is not an offence to attempt to commit an offence against section 11.2 (complicity and common purpose),
section 11.2A (joint commission), section 11.3 (commission by proxy), section 11.5 (conspiracy to commit an
offence) or section 135.4 (conspiracy to defraud)."
357
This is also a requirement under the model 'offence' of 'criminal attempt' as provided for under § 5.01 of the
Model Penal Code (1962) (United States) which requires "an act or omission constituting a substantial step in a
course of conduct". The section reads as follows: "Section 5.01. Criminal Attempt (1) Definition of Attempt. A
person is guilty of an attempt to commit a crime if, acting with the kind of culpability otherwise required for
commission of the crime, he: (a) purposely engages in conduct which would constitute the crime if the attendant
circumstances were as he believes them to be; or (b) when causing a particular result is an element of the crime,
does or omits to do anything with the purpose of causing or with the belief that it will cause such result without
further conduct on his part; or (c) purposely does or omits to do anything which, under the circumstances as he
believes them to be, is an act or omission constituting a substantial step in a course of conduct planned to
culminate in his commission of the crime."
358
See e.g. section 7(2) of the Perjury Act 1911 (England) making punishable the incitement of perjury.
359
In England incitement was until recently dealt with under the common law crime of incitement but same was
abolished and replaced with the offences provided for in sections 44, 45 and 46 of the Serious Crime Act 2007.
Sections 44-46 reads as follows: "44 Intentionally encouraging or assisting an offence (1)A person commits an
offence if - (a) he does an act capable of encouraging or assisting the commission of an offence; and (b) he
intends to encourage or assist its commission. (2) But he is not to be taken to have intended to encourage or
assist the commission of an offence merely because such encouragement or assistance was a foreseeable
consequence of his act." "45 Encouraging or assisting an offence believing it will be committed A person
commits an offence if - (a) he does an act capable of encouraging or assisting the commission of an offence; and
(b) he believes - (i) that the offence will be committed; and (ii) that his act will encourage or assist its
commission." "46 Encouraging or assisting offences believing one or more will be committed (1) A person
commits an offence if - (a) he does an act capable of encouraging or assisting the commission of one or more of
a number of offences; and (b) he believes - (i) that one or more of those offences will be committed (but has no
belief as to which); and (ii) that his act will encourage or assist the commission of one or more of them. (2) It is
immaterial for the purposes of subsection (1)(b)(ii) whether the person has any belief as to which offence will be
encouraged or assisted. (3) If a person is charged with an offence under subsection (1) - (a) the indictment must
specify the offences alleged to be the “number of offences” mentioned in paragraph (a) of that subsection; but
564 OFFENCES

inchoate offence. All these offences have historically been intended as measure to prevent
crimes from progressing beyond the attempt, conspiracy or incitement, thus preventing the
consequences of the crime, and to hold liable those who so incited, attempted, or conspired to
commit the crime. Although incitement to commit a revenue or customs offence is certainly
possible, the likelihood of coming across a prosecution for incitement of such an offence is
remote considering the nature and dynamics of most revenue and customs crimes.

(b) nothing in paragraph (a) requires all the offences potentially comprised in that number to be specified. (4) In
relation to an offence under this section, reference in this Part to the offences specified in the indictment is to the
offences specified by virtue of subsection (3)(a)."
Compare against this the offence provided for under section 11.4 of the Australian Criminal Code Act 1995
which reads as follows:
"11.4 Incitement (1) A person who urges the commission of an offence commits the offence of incitement.
(2) For the person to be guilty, the person must intend that the offence incited be committed.
(2A) Subsection (2) has effect subject to subsection (4A).
(3) A person may be found guilty even if committing the offence incited is impossible.
(4) Any defences, procedures, limitations or qualifying provisions that apply to an offence apply also to the
offence of incitement in respect of that offence. (4A) Any special liability provisions that apply to an offence
apply also to the offence of incitement in respect of that offence.
(5) It is not an offence to incite the commission of an offence against section 11.1 (attempt), this section or
section 11.5 (conspiracy)."
565 PENALTIES AND PUNISHMENT

PART VI - PENALTIES AND PUNISHMENT

6.1 Administrative penalties

6.1.1 General
Taxation is not voluntary. It is a forced contribution demanded by Parliament. Many
taxpayers may view it for what it is - a painful necessity, but many will comply only to the
extent that they are coerced to do so. The same coercive measures will not necessarily work in
regards to all categories of taxpayers, and the same penal measures do not always prove
equally effective with all. Revenue legislation therefore provide for a wide range of sanctions
intended to deter all categories of taxpayers from any and all breaches of the law. Those
sanctions may be imposed for a wide range of acts or failures in breach of a wide range of
legal duties and responsibilities. The consequences that may follow from any such breach,
depends on the nature and gravity of the breach, the circumstances surrounding the breach,
and the choice and severity of the sanctions imposed. Those sanctions may be civil or
criminal in nature. Civil penalties tend to be monetary in nature. Monetary penalties may
typically be in the form of default surcharges,1 as fixed penalties limited to a maximum
amount,2 or may be a fixed amount calculated as a percentage of the duty or tax in issue.3
Also common in the customs legislation of most jurisdictions is forfeiture. In the event of
criminal prosecution, the range of sanctions an offender may face (following conviction in the
criminal courts), is much wider and may range from fines to incarceration.

The objectives any particular penal provision and sanction is intended to achieve may vary
with some placing a higher premium on the punitive and deterrent elements compared to
others. In the United States, Britain, Canada, Australia, Ireland, New Zealand, and
undoubtedly in most other jurisdictions, the general view is that those taxpayers and traders
who make honest mistakes should be corrected, but wilful circumvention is deserving of
punishment. Most civil penalty provisions are generally intended as a measure to ensure
general compliance, to protect the general integrity and operation of the system, and to ensure
the accuracy of returns.4 The range of sanctions available to the Revenue need be sufficiently
diverse and flexible so as to be capable of dealing with all breaches, serious and less serious,
layered in such a way as to provide for appropriate application and escalation as and when
called for. The Commissioners do not however have carte blanche to impose whatever
penalties they wish as and when they wish. The sanctions available to the Revenue is limited
to those provided for in the revenue legislation, and the imposition thereof must be in
conformance with broader constitutional frameworks.

1
See e.g. section 59 of the Value Added Tax Act 1994 (failure to submit a return when due and failure to pay an
amount of tax when due)
2
See e.g. section 207 of the Income Tax Act 2007 (issue of a compliance certificate or compliance statement
made fraudulently or negligently); section 348 of the Income Tax Act 2007 (issue of a tax relief certificate made
fraudulently or negligently);
3
See e.g. section 60(1) of the Value Added Tax Act 1994 (Dishonestly does any act or omits to take any action
for the purpose of evading VAT) where the penalty is equal to the amount of VAT evaded. Also see section
62(1) and 62(1A) of the Value Added Tax Act 1994 (Preparing or giving out to a supplier a certificate which is
incorrect) where the penalty is calculated on the difference between the VAT that would have been chargeable
had it been correct and the VAT actually chargeable.
4
In FCT v Trautwein (1936) 56 CLR 211 (High Court of Australia) and in referring to the penalties levied under
section 67 of the then Assessment Act of 1922, Evatt J inter alia said (at 217): “ … the object of the section is to
impose a heavy penalty so as to ensure the accuracy of returns, upon which the whole income tax system of the
Commonwealth is based.” Also see Israehlson v Commissioner for Inland Revenue 1952(3) SA 529(A) and
Commissioner for Inland Revenue v McNeil 1959 (1) SA 481 (AD) (South Africa).
566 PENALTIES AND PUNISHMENT

Where any given provision provides for a range of penalties, then it is obviously the
legislature's intention for discretion to be applied by some or other executive or judicial body
in deciding the most appropriate penalty to be applied in relation to the defendant in question
on the facts of the matter under consideration.5 Insofar as civil penalties are concerned, the
decision as to the most appropriate penalty within the available range of penalties will in most
jurisdictions lie with the Commissioners. The exercise of that discretion however comes with
the responsibility of ensuring the penalty decided upon is justified, fair and proportionate.
Most penalties are subject to appeal, but whether or not it is, the grounds of appeal available,
the appeal procedure to be followed, the forums authorised to hear those appeals, and the
relief that may be available, all depends on national legal and constitutional frameworks. In
most jurisdictions, and this then is also the case in the UK, the legislation usually allow for
the remission of penalties or parts thereof under certain circumstances. The circumstances
under which penalties may be remitted is a matter of law depending as it does on the legal
framework of any given jurisdiction. The Commissioners may also, depending on the legal
framework of the jurisdiction in question, agree with a taxpayer as to the amount in penalties
to be paid. The rules that may apply in any given jurisdiction in regards to the imposition of,
appeals against, and remission of penalties, are not cast in stone but change in tandem with
legal frameworks and the legal landscape.

Civil penalties, though generally less ‘draconian’ compared to the punishment that may be
imposed following conviction in the criminal courts, can also be extremely punitive. The fact
that these penalties are administrative in nature does not negate the need for fairness and
proportionality. The nature and application of these penalties are considerably more common
and sweeping compared to those imposed in the criminal courts. A too draconian approach in
the penal frameworks provided for, and/or in how revenue authorities deal with certain
categories of taxpayers, especially those who failed to comply due to a mere lack of care or
ignorance, may quite well prove counterproductive, undermining the psychological tax
contract but without necessarily contributing anything towards fostering voluntary
compliance.

Most instances of tax evasion tend to be dealt with administratively involving no more but the
imposition of administrative penalties. The reality is that most tax offenders who intended to
evade tax, and also executed the evasion in line with that intent, are more likely to be dealt
with administratively than being prosecuted in the criminal courts. If every revenue fraud,
great and small, had to be prosecuted in the criminal courts, then the revenue functions and
criminal justice systems of most states will simply grind to a standstill being overwhelmed
with drawn-out and costly evasion prosecutions. Apart from the impact of such a policy on
Revenue operations and resources, such a policy will also result in thousands of taxpayers
entering the criminal justice system, many of whom could have been dealt with and could
have been deterred just as effectively through the use of administrative sanctions.
Administrative penalties do thus serve an important role in dealing with the greater majority
of less serious cases. This all being said, there is the real danger of revenue authorities placing

5
In the Irish case of Deaton v. Attorney General [1963] I.R. 170 at 182, Ó Dálaigh C.J. inter alia said: "There is
a clear distinction between the prescription of a fixed penalty and the selection of a penalty for a particular case.
The prescription of a fixed penalty is the statement of a general rule, which is one of the characteristics of
legislation; that is wholly different from the selection of a penalty to be imposed in a particular case...... The
legislature does not prescribe the penalty to be imposed in an individual citizen's case; it states the general rule,
and the application of that rule is for the courts. If the general rule is enunciated in the form of a fixed penalty
then all citizens convicted of the offence must bear the same punishment. But if the rule is stated by reference to
a range of penalties to be chosen from according to the circumstances of the particular case, then the choice or
selection of penalty falls to be made. At that point the matter has passed from the legislative domain."
567 PENALTIES AND PUNISHMENT

too much reliance on civil penalties in regards to certain categories of conduct and offenders
whom should rightly be dealt with in the criminal courts. There is thus a balance to be struck.

6.1.2 ‘Civil’ and ‘Criminal’ fraud

The UK tax legislation provides for civil penalties or criminal liability in cases of tax evasion.
This then is also the case in Canada, Australia, New Zealand, the United States and South
Africa. It will be safe to say that most jurisdictions today follow this approach. 6 In the UK,
criminal liability will only follow upon conviction in the criminal courts. Civil penalties on
the other hand are administrative in nature and are imposed by the Revenue. This then is also
the position in Canada, Australia, the United States, New Zealand and South Africa. The fact
that these penalties are administrative in nature does not mean it is not penal in nature. In the
US courts, tax evasion dealt with administratively under the civil penalty regimes is generally
referred to as ‘civil fraud’, whereas those prosecuted as criminal offences in the criminal
courts are referred to as ‘criminal fraud’. The Keith Committee7 also used those terms in
distinguishing between the two. Black’s Law Dictionary8 provides for the following
distinction between 'civil fraud' and 'criminal fraud':

“Tax fraud falls into two categories: civil and criminal. Under civil fraud, the IRS may impose
as a penalty an amount equal to 75 percent of the underpayment….Fines and/or imprisonment
are prescribed for conviction of various types of criminal tax fraud…Both civil and criminal
fraud require a specific intent on the part of the taxpayer to evade the tax; mere negligence is
not enough.”

‘Civil fraud’ and ‘criminal fraud’ are both equally dishonest and criminal in nature. The
difference between the two is in essence one of procedure, proof and consequences.9 The
main differences between civil and criminal evasion cases are:

(a) The criminal evasion offences are dealt with in the criminal courts whereas the civil
evasion cases are dealt with by the Revenue and in the civil courts;
(b) The burden of proof in civil cases is proof on a balance of probabilities, whereas in
criminal cases the burden rests squarely on the prosecution to prove its case beyond
reasonable doubt;
(c) Whereas the taxpayer in a civil evasion case will face no more but monetary penalties
and/or forfeiture, the taxpayer convicted on evasion charges in a criminal court will be
sentenced upon conviction. The sentence imposed may include imprisonment.

In the UK, Canada, Australia, South Africa and the United States, administrative penalties are
a common response to less serious cases of tax evasion, with criminal charges generally being
reserved for more serious cases. A compelling argument in favour of civil penalties can be
found in the Keith Committee10 report. Set up during the early 1980’s, the committee was
inter alia tasked with investigating the enforcement powers of the then Inland Revenue (IR)
and the then Her Majesty’s Customs and Excise (HMCE). The legislation administered by the
then Inland Revenue provided for both civil penalties and criminal prosecution, whereas that

6
For a discussion on the British approach, refer to Roording, “The punishment of tax fraud” (1996) Criminal
Law Review at 240 - 242
7
Keith Committee, Report on Enforcement of Revenue Powers, Cmnd 8822, (1983)
8
Black’s Law Dictionary, 6th ed, 661
9
See Keith Committee, Report on Enforcement of Revenue Powers, Cmnd 8822, (1983) where at 18.4.16 it was
inter alia said: “...we use the term “civil fraud” to distinguish it from similar dishonest conduct, “fraud”,
prosecuted in the criminal courts…the difference in terminology marks the difference in the investigatory
techniques and sanctions applied, rather than a difference in the essential nature of the conduct.”
10
Keith Committee, Report on Enforcement of Revenue Powers, Cmnd 8822 (1983)
568 PENALTIES AND PUNISHMENT

administered by the then Customs and Excise only provided for criminal prosecution. The
Committee inter alia recorded:

“18.3.7. Turning to the question of the introduction of penalties for civil fraud, to run in
parallel with the bringing and compounding of criminal proceedings, Customs and Excise told
us that to run the two systems together would undoubtedly give much greater flexibility in
dealing with fraud or near fraud. It would afford welcome assistance in dealing with those
cases where there were indications of fraud but where it was not possible to obtain proof to the
criminal standard. At present those cases finished as simple unpenalised assessments and
represented a loss to the Exchequer in delayed receipt of tax and cost of investigation. The
proposal would therefore help the Department to deploy their resources effectively in the light
of changing circumstances.”

And then at 18.4.16 the report continued to state:

“We have noted … the high resource cost of the investigation of fraud to the criminal
standard, and the understandable constraints this imposes on the investigation of the smaller
frauds. We recognise the need for effective criminal sanctions to deal with the more serious
frauds ... while more than 80 per cent of VAT fraud cases are now compounded because of the
entirely criminal character of the VAT offence code all VAT fraud cases have to be
investigated and reported to the criminal standard, even if at an early stage it can be identified
that the case is one that is likely to be compounded. By comparison, the Inland Revenue
offence code providing civil penalties for fraud, buttressed by inducement provisions, allows a
“civil” form of investigation settlement, with the burden of criminal investigation being taken
up only in those cases identified from the outset or in their course as sufficiently heinous to
justify prosecution. In those cases where “civil” investigation techniques suffice to secure
evidence of the true extent of the fraud, the process is an economical one, at least by
comparison with the cost of a comparable criminal investigation ... We conclude that a new
default should be introduced into VAT law and we use the term “civil fraud” to distinguish it
from similar dishonest conduct, “fraud”, prosecuted in the criminal courts.”

The penalties considered appropriate for a particular breach, will generally be determined and
stipulated in policy-documents as issued by the Commissioner’s office, and will usually be on
a ‘sliding scale’ taking into account numerous factors and criteria such as but not limited to:
(a) the monetary amounts involved; (b) the nature of the conduct; (c) the serious nature of the
breach; and (d) the taxpayer’s history of past non-compliance. In the UK, the decision as to
whether or not a matter will be dealt with administratively or be referred for criminal
investigation is that of the Commissioners with the ultimate decision to prosecute being that
of the Crown Prosecution Service (in England and Wales). This then is also the model
followed in many other common law jurisdictions (e.g. the Public Prosecution Service of
Canada and the Commonwealth Department of Public Prosecutions in Australia. Evasion
prosecuted in the criminal courts calls for the prosecution to make out its case beyond
reasonable doubt, whereas matters dealt with administratively calls for proof on a balance of
probabilities.

6.1.3 Both administrative penalties and criminal prosecution

Whether or not civil penalties can also be imposed for a particular contravention where that
taxpayer has already been convicted of that same offence or vice versa depends on the legal
and constitutional framework of the jurisdiction in question. In most jurisdictions are to be
found what is generally referred to as 'double jeopardy' provisions, often provided for in those
jurisdiction's constitutions or bills of rights. These are in essence intended to protect citizens
from being prosecuted or punished twice for the same conduct. Whether or not the imposition
of civil penalties following a conviction for the same conduct will be viewed as punishing the
offender twice, depends on the legislative framework of the jurisdiction in question.
569 PENALTIES AND PUNISHMENT

Assuming that jurisdiction's 'double jeopardy' provisions only cover sanctions imposed in a
criminal court, and further assuming those administrative penalties are not viewed as criminal
in nature, and in the absence of any other law prohibiting the imposition thereof despite an
earlier conviction, then they may well be imposed. A sentence imposed following conviction
in a criminal court, and the subsequent imposition of civil penalties thereafter, certainly has
the effect of penalizing the offender twice, but this may not necessarily be contrary to the laws
of the jurisdiction in question. Likewise, whether or not the authorities can proceed with a
criminal prosecution despite the earlier imposition of civil penalties will also be a matter of
law. In the UK, those provisions intended to deal with 'civil fraud' explicitly excludes the
imposition of civil penalties in the event of conviction for the same conduct.11 The Australian
legislation also excludes the imposition of civil penalties in the event of prosecution.12 In
Canada, civil penalties for evasion cannot be imposed (under sections 162 and 163 of the
Canadian Income Tax Act) where the taxpayer was already convicted for evasion under
section 239(1) of that Act.

6.1.4 Administrative penalties of criminal nature

The United Kingdom's constitutional and legal landscape was not left untouched with her
entry, as a member State, of the European Union. Many British laws and practices, not
surprisingly, had to be aligned with the European Convention on Human Rights. In the UK,
Parliament enacted the Human Rights Act 1998, the main objective of which was to
incorporate into UK law the rights as provided for in the Convention. The constitutional and
legal landscape has changed. With this came increased scrutiny of revenue enforcement,
taxpayer rights, and the manner in which HMRC conducts itself. One of the consequences of
this changing legal landscape was a departure, in following with EU law and precedent, from
the traditional British view as to the nature and character of administrative penalties as
imposed by the Revenue. Whereas penalties imposed by the revenue authorities of most other
non-EU jurisdictions under any process or in the course of any proceedings other than a
criminal prosecution is viewed to be administrative and civil in nature, this is no longer the
case in the European Union and the UK where certain tax-geared penalties, even if imposed
by the Revenue, are now viewed as criminal in nature. Article 6 of the European Convention
on Human Rights applies to all the signatory member states. Article 6 reads as follows:

“1.In the determination of his civil rights and obligations or of any criminal charge against
him, everyone is entitled to a fair and public hearing within a reasonable time by an
independent and impartial tribunal established by law. Judgment shall be pronounced publicly
but the press and public may be excluded from all or part of the trial in the interest of morals,
public order or national security in a democratic society, where the interests of juveniles or the
protection of the private life of the parties so require, or the extent strictly necessary in the

11
See e.g. section 60 of the Value Added Tax Act 1994. Section 60(1) and (6) which reads as follows: "60. VAT
evasion: conduct involving dishonesty. (1) In any case where - (a) for the purpose of evading VAT, a person
does any act or omits to take any action, and (b) his conduct involves dishonesty (whether or not it is such as to
give rise to criminal liability), he shall be liable, subject to subsection (6) below, to a penalty equal to the amount
of VAT evaded or, as the case may be, sought to be evaded, by his conduct…. (6) Where, by reason of conduct
falling within subsection (1) above, a person is convicted of an offence (whether under this Act or otherwise),
that conduct shall not also give rise to liability to a penalty under this section."
12
See e.g. section 8ZE of the Taxation Administration Act 1953 (Cth) which reads as follows: "8ZE Civil
penalty not payable if prosecution instituted If: (a) a person is liable to pay by way of penalty (other than for an
offence) an amount under a taxation law because of an act or omission of the person; and (b) a prosecution is
instituted against the person for a taxation offence constituted by the act or omission; then (whether or not the
prosecution is withdrawn): (c) the person is not liable to pay the amount; and (d) any amount paid, or applied by
the Commissioner, in total or partial discharge of that liability is to be refunded to the person, or applied by the
Commissioner in total or partial discharge of another tax liability of the person."
570 PENALTIES AND PUNISHMENT

opinion of the court in special circumstances where publicity would prejudice the interests of
justice.
2. Everyone charged with a criminal offence shall be presumed innocent until proved guilty
according to law.
3. Everyone charged with a criminal offence has the following minimum rights:
(a) to be informed promptly, in a language which he understands and in detail, of the nature
and cause of the accusation against him;
(b) to have adequate time and the facilities for the preparation of his defence;
(c) to defend himself in person or through legal assistance of his own choosing or, if he has
not sufficient means to pay for legal assistance, to be given it free when the interests of justice
so require;
(d) to examine or have examined witnesses against him and to obtain the attendance and
examination of witnesses on his behalf under the same conditions as witnesses against him;
(e) to have the free assistance of an interpreter if he cannot understand or speak the language
used in court."

In Britain, civil penalties such as that provided for under section 60(1) of the Value Added Tax
Act 1994 (for the dishonest evasion of Value Added Tax) used to be viewed as purely civil in
nature, but the British courts today, in following with the protections offered under Article 6
of the European Convention on Human Rights and the corresponding provisions of Article 6
of the Human Rights Act 199813 now view those penalties to be criminal rather than civil in
nature.14 Although the person subject to those civil penalties will not face those same
consequences generally associated with conviction in a criminal prosecution, he may
nevertheless be entitled to some of those rights associated with a person facing criminal
prosecution. It is not however only civil evasion penalties that may be viewed as criminal in
nature.15 Penalties imposed for negligent failures may also be viewed in the same light. The
criteria for deciding whether a criminal charge has been imposed are: (i) the domestic
classification of the offence, (ii) the nature of the offence, and (iii) the nature and degree of
severity of the penalty that the person concerned risks incurring.16

6.2 Forfeiture
6.2.1 General
The measures and sanctions available to the Commissioners in enforcing compliance with and
deterring contraventions of the customs and excise legislation are extensive. This includes
criminal prosecution (assuming the prosecuting authorities proceed with prosecution). The
offences charged may range from summary offences to indictable offences, 'petty' offences
usually intended as no more but a means to promote general compliance, to serious offences
like fraudulent evasion. As a general rule however, criminal prosecutions tend to be reserved
for the more serious cases. In by far the greater majority of cases, the Commissioners tend to

13
Royal Assent on 09 November 1998, Commencement on 02 October 2000
14
See e.g. Customs & Excise Commissioners v Han [2001] EWCA Civ 1040; King v UK [2004] ECHR 631;
King v Walden (Inspector of Taxes) [2001] STC 822; Lam & Anor v Revenue & Customs [2014] UKFTT 359
(TC); Pipe & Ors v Revenue & Customs [2008] EWHC 646 (Ch)
15
See King v Walden [2001] STC 822
16
See Customs & Excise Commissioners v Han [2001] EWCA Civ 1040. Also see King v Walden [2001] STC
822 where Jacob J holding penalties under section 95(1) of the TMA 1970 (for the fraudulent or negligent
delivery of an incorrect tax return) to be criminal in nature inter alia said: "In my judgment the system of
imposition of penalties for fraudulent or negligent delivery of incorrect returns or statements is "criminal" for the
purposes of art 6(2). I so hold for the following reasons: (a) plainly the system is intended to punish the
defaulting taxpayer and to operate as a deterrent. (b) The amount of fine is potentially very substantial. (c) The
amount of fine is not related to any administrative matter. In particular the fine is not limited to the
administrative and other extra cost of dealing with the taxpayer concerned … (d) The amount of fine imposed
depends upon the degree of culpability of the taxpayer, the less culpable the more mitigation there is. Mitigation
is an essentially criminal rather than civil consideration….”
571 PENALTIES AND PUNISHMENT

rely on their powers of imposing administrative penalties and forfeiture. In the customs
legislation of most jurisdictions are to be found provisions providing for the forfeiture of
certain categories of goods under certain circumstances.

Forfeiture has been a common penalty for smuggling in England for centuries. The penalties
provided for in the old imperial legislation was considered to be a penal debt to the Crown.17
Payment of the penalties was enforced by imprisonment for those who failed to pay. Penalties
and forfeiture is today not viewed as a source of revenue but as a measure to ensure
compliance with the law. The imposition of penalties and forfeiture at the time when first
introduced in England was however, or was partly at least, motivated as a means to increase
state revenues.18 Forfeiture has however long been viewed as a measure to prevent and deter
fraud and other contraventions of the law.19

Forfeiture has an undeniable deterrent and punitive value. The financial loss to the owner or
investors can be significant.20 This being said, forfeiture may serve as a deterrent for certain
categories of offenders, but is unlikely to have any real deterrent effect on criminal syndicates
who view forfeiture as an acceptable operational risk. Accounts of professional smugglers as
people not left intimidated or deterred by the risk of forfeiture can be found in many historical
accounts of smuggling in England. Forfeiture had no real deterrent impact on these groups.
The authorities eventually recognized the neutralization of these smuggling gangs to be the
only practical solution.21

Forfeiture as tool in the Commissioner's enforcement arsenal can only really contribute
insofar as the broader enforcement effort is effective. Forfeiture is impossible absent
interdiction. Goods can only be forfeited if the smuggling is indeed detected and the goods
indeed seized. There is an obvious enforcement failure where the interdiction rates are low.
The question must then be asked: "why are we not intercepting the illicit goods". The answer
to this question will usually be a general failure of enforcement which can be attributed to a
number of factors and circumstances such as, but not limited to: (a) a lack of accurate, fit-for-
purpose, and in-time intelligence; (b) the failure to neutralise smuggling gangs and the

17
See the Australian case of Comptroller-General of Customs v D’Aquino Bros Pty Ltd (1996) 135 ALR 649 at
654
18
This observation was also made by Deflem, & Turner, “Smuggling”, in Encyclopedia of Criminology and
Deviant Behaviour, Vol. 2, Crime and Juvenile Delinquency, 473-475
19
See e.g. the old US Supreme Court decision of U.S. v. Sixty-Seven Packages of dry goods 58 U.S. 85 How
(1854) where the objective of forfeiture was said to be the prevention of “frauds upon the revenue”.
20
See Theobald, Defrauding the Government - True Tales of Smuggling, from the Note-book of a Confidential
Agent of the United States Treasury at 323 where more than a century ago, the writer stated: “It must also be
apparent that with each seizure of goods, with each foiling of an attempt ... to evade the payment of duties, a
considerable financial loss ensues to the smuggler – a parting with prospective gains - a crushing mental
disappointment”
21
See Phillipson, Smuggling, A History 1700-1970 at 18 where the writer inter alia wrote: "..until 1722 the worst
he had to fear was the loss of his ship and cargo, about which he was able to be philosophical, knowing that his
losses on one run would be more than covered by his profits on the next.” Also see Nicholls, Honest Thieves,
The violent Heyday of English Smuggling at 60-61: "Even if the law was negligent and corrupt most of the time,
it is clear that it was sometimes capable of drastic action in killing smugglers and seizing goods. Yet even then it
would show itself grossly misguided in its policy towards prevention. ….the customs-house men of the time
seem to have been more concerned with getting their hands on the run goods than with arresting the men running
them……Obviously, too, as the incident of the Hoo company illustrates, the gang was not unduly distressed by
the loss, and certainly not discouraged from doing exactly the same thing again…When at last, after the defeat of
Napoleon, the Government was able to turn its attention to grappling firmly with these anarchists, it was a
keystone of its policy that the men must be secured first, that all the strength of officers and dragoons must be
devoted to catching the smugglers….,thus not only reducing the size of the gangs, but also- and more
importantly – striking a death blow to the morale of the remainder.”
572 PENALTIES AND PUNISHMENT

manufacturers of illicit goods; (c) high levels of corruption; (d) a flourishing underground
economy; (e) a lack of resources and/or systemic organisational failures; or (f) extended
borders and geographic location, and/or neighbouring States used as springboard for
smuggling into the home jurisdiction. Low levels of interdiction obviously mean more
shipments escaping forfeiture. For smugglers this means less risk and loss with more
shipments getting through. This in turn impacts on the value of forfeiture as punishment and
deterrent.

6.2.2 Legal framework

In the British customs legislation, as is common with that of most other jurisdictions,
forfeiture is underpinned by a framework of provisions dealing with the circumstances under
which goods are subject to seizure, detention, condemnation and forfeiture. Other provisions
in turn deal with inter alia mitigation, restoration, the challenging of a forfeiture, and
disposal. In Britain, the Customs and Excise Management Act 1979 provides for a number of
provisions providing for the forfeiture of goods chargeable with duty, goods the importation
of which is for the time being prohibited or restricted,22 spirits;23 and ships, aircraft, vehicles,
animals, containers or other things used for the carriage, handling, deposit, or concealment of
good liable to forfeiture.24 Provisions relating to the detention, seizure and condemnation of
any thing liable to forfeiture are provided for in section 139 of the Act. Section 139 reads as
follows:

"139 Provisions as to detention, seizure and condemnation of goods, etc.

(1) Any thing liable to forfeiture under the customs and excise Acts may be seized or detained
by any officer or constable or any member of Her Majesty’s armed forces or coastguard.
(2) Where any thing is seized or detained as liable to forfeiture under the customs and excise
Acts by a person other than an officer, that person shall, subject to subsection (3) below, either
-
(a) deliver that thing to the nearest convenient office of customs and excise; or
(b) if such delivery is not practicable, give to the Commissioners at the nearest convenient
office of customs and excise notice in writing of the seizure or detention with full particulars
of the thing seized or detained."

Subsections 139(3), (4), and (7) continue to deal with seizure and detention by the police and
other persons not being officers. Subsections (5), (6) and (8) then continues:

"(5) Subject to subsections (3) and (4) above and to Schedule 3 to this Act, any thing seized or
detained under the customs and excise Acts shall, pending the determination as to its forfeiture
or disposal, be dealt with, and, if condemned or deemed to have been condemned or forfeited,
shall be disposed of in such manner as the Commissioners may direct.
(6) Schedule 3 to this Act shall have effect for the purpose of forfeitures, and of proceedings
for the condemnation of any thing as being forfeited, under the customs and excise Acts.
(8) Subsections (2) to (7) above shall apply in relation to any dutiable goods seized or detained
by any person other than an officer notwithstanding that they were not so seized as liable to
forfeiture under the customs and excise Acts."

Section 49 of the Customs and Excise Management Act 1979 provides for the forfeiture of
goods improperly imported. The sections read as follows:

"49 Forfeiture of goods improperly imported.

22
Section 49
23
Section 140
24
Section 141
573 PENALTIES AND PUNISHMENT

(1) Where -
(a) except as provided by or under the Customs and Excise Acts 1979, any imported goods,
being goods chargeable on their importation with customs or excise duty, are, without
payment of that duty -
(i) unshipped in any port,
(ii) unloaded from any aircraft in the United Kingdom,
(iii) unloaded from any vehicle in, or otherwise brought across the boundary into, Northern
Ireland, or
(iv) removed from their place of importation or from any approved wharf, examination station
or transit shed; or
(b) any goods are imported, landed or unloaded contrary to any prohibition or restriction for
the time being in force with respect thereto under or by virtue of any enactment; or
(c) any goods, being goods chargeable with any duty or goods the importation of which is for
the time being prohibited or restricted by or under any enactment, are found, whether before or
after the unloading thereof, to have been concealed in any manner on board any ship or
aircraft or, while in Northern Ireland, in any vehicle; or
(d) any goods are imported concealed in a container holding goods of a different description;
or
(e) any imported goods are found, whether before or after delivery, not to correspond with the
entry made thereof; or
(f) any imported goods are concealed or packed in any manner appearing to be intended to
deceive an officer, those goods shall, subject to subsection (2) below, be liable to forfeiture.
(2) Where any goods, the importation of which is for the time being prohibited or restricted by
or under any enactment, are on their importation either -
(a) reported as intended for exportation in the same ship, aircraft or vehicle; or (b) entered for
transit or transhipment; or
(c) entered to be warehoused for exportation or for use as stores,
the Commissioners may, if they see fit, permit the goods to be dealt with accordingly."

Section 141 provides for the forfeiture of: any ship, aircraft, vehicle, animal, container or any
other thing which has been used for the carriage, handling, deposit or concealment of the
thing liable to forfeiture;25 and any other thing mixed, packed or found with the thing so
liable.26 Section 141 finds frequent application in cases involving the forfeiture of vehicles
used in the smuggling of goods from the European mainland to the UK. Section 141 reads as
follows:

"141 Forfeiture of ships, etc. used in connection with goods liable to forfeiture
(1) Without prejudice to any other provision of the Customs and Excise Acts 1979, where any
thing has become liable to forfeiture under the customs and excise Acts -
(a) any ship, aircraft, vehicle, animal, container (including any article of passengers’ baggage)
or other thing whatsoever which has been used for the carriage, handling, deposit or
concealment of the thing so liable to forfeiture, either at a time when it was so liable or for the
purposes of the commission of the offence for which it later became so liable; and
(b) any other thing mixed, packed or found with the thing so liable, shall also be liable to
forfeiture. (2) Where any ship, aircraft, vehicle or animal has become liable to forfeiture under
the customs and excise Acts, whether by virtue of subsection (1) above or otherwise, all
tackle, apparel or furniture thereof shall also be liable to forfeiture"

The Act (with its Schedules) allows for the forfeiture to be challenged and procedures are
provided for the review of and appeal against decisions. If no notice of challenge is filed
within the time periods specified, the goods will be deemed to have been duly condemned as
forfeited. Where the Commissioner's right to forfeit is challenged, the Commissioners must

25
Section 141(1)(a)
26
Section 141(1)(b)
574 PENALTIES AND PUNISHMENT

take proceedings for the condemnation of the thing to the court, and if the court finds that the
thing was at the time of seizure liable to forfeiture, then the court must condemn it as
forfeited.27 Section 152 of the Act provides for the Commissioners to stay or compound any
proceedings for an offence or for the condemnation of any thing as being forfeited, to restore
insofar as they see fit and subject to such conditions as they deem proper any thing forfeited
or seized under the Act, or to mitigate or remit any pecuniary penalty imposed.28

Forfeiture has been accepted by legislatures and the courts alike as an important deterrent in
ensuring compliance where in the public interest. In common with the Revenue's other
penalty regimes, the Commissioner's decisions in relation to forfeiture must comply with the
principles as enshrined in the Human Rights Act 1998. As with all penalties, condemnation
and forfeiture is also subject to the principles of fairness and proportionality.29 It is to be
noted that the fact that goods were forfeited does not exclude the possibility of prosecution.
Most courts are likely to take into account for purposes of punishment in a criminal
prosecution the fact that goods, vehicles or property were forfeited.30

Controlled deliveries
As a general rule, uncustomed goods smuggled in will be seized and forfeited. Cases may
however arise where the customs authorities may opt for letting it proceed as a controlled
shipment, tracking its onward progress, identifying those involved in the smuggling ring, and
building up an intelligence picture of that particular network and other distribution networks
possibly associated with it.31 In practice however this will seldom happen and where it does, it
will usually only be in cases suspected to be serious cases. Many jurisdictions do not have the
legal frameworks in place providing for what is in effect a covert operation, and/or may not
have the capacity to carry out operations of this nature. In purely practical terms, operations of

27
Schedule 3 of the Act
28
Section 152 reads as follows: "152 Powers of Commissioners to mitigate penalties, etc. The Commissioners
may, as they see fit - (a) stay, sist or compound any proceedings for an offence or for the condemnation of any
thing as being forfeited under the customs and excise Acts; or (b) restore, subject to such conditions (if any) as
they think proper, any thing forfeited or seized under those Acts; or (c) after judgment, mitigate or remit any
pecuniary penalty imposed under those Acts; or (d) order any person who has been imprisoned to be discharged
before the expiration of his term of imprisonment, being a person imprisoned for any offence under those Acts or
in respect of the non-payment of a penalty or other sum adjudged to be paid or awarded in relation to such an
offence or in respect of the default of a sufficient distress to satisfy such a sum; but paragraph (a) above shall not
apply to proceedings on indictment in Scotland."
29
See Air Canada v UK (1995) 20 EHRR 150. Also see Lindsay v Customs and Excise Commissioners [2002] 1
WLR 1766 where the Court of Appeal per Lord Phillips (in a matter where was at issue the forfeiture of a car in
which was found uncustomed cigarettes) inter alia said: "The action taken must, however, strike a fair balance
between the rights of the individual and the public interest. There must be a reasonable relationship of
proportionality between the means employed and the aim pursued".
30
The fact that property was forfeited is unlikely to be considered as voluntary reparation. Forfeiture, whether it
be under customs, Prevention of Organised Crime, or any other legislation will after all never be voluntarily. See
the Australian Supreme Court case of Beard v The Queen [2003] WASCA 262 where the appellant was
convicted of a tax fraud perpetrated on the Australian Tax Office. Although this matter was not concerned with
forfeiture under the customs legislation, the same principle can also be said to be applicable to forfeiture in
general. On appeal and considering the weight to be attached to the forfeiture of certain property, the court per
Parker J inter alia said: “It is further submitted in support of both grounds that there was a failure to take into
account, or adequately into account, the forfeiture and reparation orders made…The forfeiture order was made
pursuant to statutory powers in respect of assets of the applicant which had been frozen by court order from the
time of the applicants arrest…There is no doubt that the effect of the forfeiture has been to lessen the amount
presently outstanding to some $240,000. It is not the position, however, that this involved voluntary repayment
by the applicant in mitigation of the harm his criminal conduct caused. These assets were frozen and then
forfeited pursuant to statutory process over which the applicant had no control"
31
See e.g. the facts in R v Grew and Anor [2011] NICA 31 and R v Gowland-Wynn [2001] EWCA Crim 2715
575 PENALTIES AND PUNISHMENT

this nature are expensive, are time consuming, and they swallow up much of the little
specialist manpower available.

6.3 Punishment upon conviction

6.3.1 General
The following discussion will briefly have a closer look at punishment. The adequacy of a
penal framework very much depends on the adequacy of the penalties provided for in the
event of contravention. The punishment of offenders is essential for the protection of the
interests of both the State and those taxpayers who do comply with their obligations. The
penal provisions provided for in the tax legislation is intended to ensure compliance with the
legislation, to punish offenders, and as a measure to deter taxpayers from evading taxes.
These provisions provide for a wide range of penalties, both administrative penalties and
penalties upon conviction. Administrative penalties such as pecuniary penalties and forfeiture,
has historically proven popular with revenue administrations. These however are not capable
of dealing with many of the more serious offences and offenders.

It will not be wrong to say that the sentences handed down for the tax fraudster of the twenty-
first century is exceptionally lenient compared to the punishment he would have faced had he
committed the same crime a few centuries earlier. In 1662 the export of wool from England
was a felony with hanging as punishment.32 In Roman-Dutch Law and in accordance with the
Generale Placaat op het stuk van den opheve van de Generale en Gemeene Middelen he
could face forfeiture, prohibition of carrying on his trade, ‘perpetual banishment’, liability to
be declared ‘useless to the country’ or even to be declared an ‘enemy of the state’. 33 In 1722
and in England, “smugglers or runners of foreign goods” faced conviction of a ‘felony’,
followed by transportation for seven years hard labour on one of Her Majesty’s Plantations or
Colonies in America.34 The survival rate amongst those transported was dismal.

With the limited resources at their disposal, revenue administrations do not have the capacity
to investigate every contravention and every instance of evasion as a criminal matter.
Maintaining the integrity of the tax system nevertheless demands that non-compliance, and
especially dishonest conduct, being kept within acceptable limits. Considering that only a
small fraction of tax offenders will ultimately face prosecution in the criminal courts, the
authorities has no option but to ensure the maximum degree of general deterrence with the
convictions indeed secured. Understandably, revenue administrations therefore place a
considerable premium on the deterrent value of the sentences handed down. The convictions
indeed secured, and the sentences handed down following those convictions, therefore tend to
be well-publicised.

The Revenue Commissioners tend to be quite flexible in their stance and approach to the
punishment of non-compliant taxpayers. Their mandates and objectives do not correspond
with that of the prosecuting authorities, they often prove to be open for negotiation, and they
are more likely to change their posture towards a taxpayer where the taxpayer makes an
attempt to resolve a dispute. Prosecutors and criminal courts however are less concerned with
'fostering psychological tax contracts' and 'striking a balance between enforcement and
fostering voluntary compliance'. Their primary function is to prosecute and judge offenders.
The tax offender's status changes to that of an accused. It signals the slave's transfer to the
jurisdiction of an unsympathetic, less flexible, and unforgiving foreign king playing by very
different rules.

32
Nicholls, Honest Thieves, The violent Heyday of English Smuggling at 12
33
Simon van Leeuwen, Simon van Leeuwen’s Commentaries on Roman-Dutch Law Vol II at 575-576.
34
Phillipson, Smuggling, A History 1700-1970 at 20.
576 PENALTIES AND PUNISHMENT

Once the tax offender enters the criminal justice system, charged with offences like evasion or
fraud, his position is not much different from that of the scammer or car-thief. A plea will be
entered, there may or may not be a trial (depending on the plea entered), and if convicted he
will be sentenced. Sentencing follows either after a guilty plea or after conviction upon trial.
A sentence, in 'old' language, is in essence the punishment meted out following conviction.35
The sentences that can be handed down varies from jurisdiction to jurisdiction and can,
insofar as tax frauds go, range from years of forced labour in a Russian Siberian labour-camp
to the more creative and lenient forms of punishment i.e. community orders in the UK. As
recently as 2011 the Chinese courts could still pass the death penalty for tax fraud.

The general expectation is that the punishment imposed must be such as to ensure the
offender is adequately punished, but “must not be out of touch with the circumstances of the
case such as to constitute an affront to the community”.36 In most common law countries, the
courts are expected to have regard to all the objectives of sentencing. In England, the courts
do generally give thoughtful consideration to those objectives and do generally make an
attempt to individualize and tailor sentences to suit different offenders and circumstances.
When looking at sentencing practice in revenue fraud cases in different common law
jurisdictions, one will find considerable overlapping in how the seriousness of revenue frauds
are assessed, in those factors or circumstances viewed as aggravating and mitigating, and in
how the culpability of offenders is assessed. That being said, the fact that similar classes of
crimes and offenders may be viewed in a similar light will not necessarily translate into
similar sentences being handed down. Whereas in some jurisdictions lengthy custodial
sentences for first time offenders are the norm, in others community or suspended sentences
are common with custodial sentences, where handed down, often relatively short. In the
United States and Australia for example, custodial sentences tend to be the norm whereas in
Canada very few convicted offenders will ever see the inside of a prison. These differences
can usually be attributed to a given jurisdiction's history and culture of compliance and
punishment, a given legislature's resolve to make examples of offenders and to deter revenue
fraud, and jurisdiction-specific enforcement philosophies, sentencing guidelines, and tariffs.

6.3.2 Punishment
6.3.2.1 Justification and objectives with punishment
The mechanisms for the reduction of crime are argued to be: (i) deterrence; (ii) reform; and
(iii) incapacitation.37 Historically, the most common justifications for punishment were what
criminologists and the courts will generally refer to as ‘retribution’ and ‘reductivism’.38 The

35
See Black. A Law Dictionary, 2 nd Ed at 268 where 'convict' and 'conviction' was defined as: "Convict. v. To
condemn after judicial investigation; to find a man guilty of a criminal charge. The word was formerly used also
in the sense of finding against the defendant in a civil case … Convict n. One who has been condemned by a
court. One who has been adjudged guilty of a crime or misdemeanour. … Convicted. This term has a definite
signification in law, and means that a judgment of final condemnation has been pronounced against the accused
… Conviction. In practice. In a general sense, the result of a criminal trial which ends in a judgement or sentence
that the prisoner is guilty as charged."
36
See R v Gallagher (1991) 53 A Crim R 248 and R v Sakovits [2013] NSWSC 464
37
See Cavadino & Dignan, The Penal System, An Introduction, 2nd ed at 33-38 for a detailed discussion on these
respective mechanisms.
38
Cavadino & Dignan, The Penal System, An Introduction 2nd ed at .33 explains "reductivism" as follows:
“Reductivism is a forward-looking (or ‘consequentialist’) theory: it seeks to justify punishment by its alleged
future consequences. If punishment is inflicted, it is claimed, the incidence of crime will be less than it would be
if no penalty were imposed... If punishment does indeed reduce the future incidence of crime, then the pain and
unhappiness caused by the offender may be outweighed by the avoidance of unpleasantness to other people in
future..” And then at .39: “The retributivist principle – that wrongdoers should be punished because they deserve
it – it is in some ways the complete antithesis of reductivism. Where reductivism is forward-looking,
577 PENALTIES AND PUNISHMENT

courts in the United States, the United Kingdom, Australia, and Canada, generally view the
objectives of punishment to be, retribution, prevention, deterrence, and the rehabilitation of
the offender.39 In England the objectives of sentencing are set out as follows in section 142(1)
of the Criminal Justice Act 2003:40

"142. Purposes of sentencing

(1) Any court dealing with an offender in respect of his offence must have regard to the
following purposes of sentencing -
(a) the punishment of offenders,
(b) the reduction of crime (including its reduction by deterrence),
(c) the reform and rehabilitation of offenders,
(d) the protection of the public, and
(e) the making of reparation by offenders to persons affected by their offences."

In England the courts are expected to have regard to these five objectives of sentencing. It is
however for the sentencer to determine, on the facts of the case, how much weight is to be
attached to each of those objectives.41 In certain instances deterrence or protection of the
public may outweigh the other objectives. There are various schools of thought as to the value
and efficacy of the various penal philosophies and the objectives of punishment. Striking a
balance between the interests of the community on the one hand, and that of the offender on
the other, has always proved a difficult challenge when sentencing a convicted offender. The
contemporary view is that an appropriate sentence is a sentence that most appropriately
accomplishes all the objectives of punishment. The sentence must fit both the crime and the
offender, but must also be fair to society. In arriving at an appropriate sentence, the

retributivism looks back in time to the offence. It is the fact that the offender has committed a wrongful act
which deserves punishment, not the future consequences of the punishment that is important to the retributivist”
39
See Cross, & Jones, An Introduction To Criminal Law, 3rd ed at 146 where in discussing the objectives of
punishment in English law, the objectives of punishment (as at that time) was stated to be: (i) the reform of the
offender; (ii) the deterrence of the offender and potential offenders; and (iii) the protection of the public.
40
In the United States, imposition of sentence in federal cases are dealt with under 18 U.S. Code § 3553. Section
3553(a) lays down the factors to be considered in imposing a sentence. Section 3553(a) reads as follows:
"18 U.S. Code § 3553 - Imposition of a sentence
(a) Factors To Be Considered in Imposing a Sentence - The court shall impose a sentence sufficient, but not
greater than necessary, to comply with the purposes set forth in paragraph (2) of this subsection. The court, in
determining the particular sentence to be imposed, shall consider -
(1) the nature and circumstances of the offense and the history and characteristics of the defendant;
(2) the need for the sentence imposed -
(A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for
the offense;
(B) to afford adequate deterrence to criminal conduct;
(C) to protect the public from further crimes of the defendant; and
(D) to provide the defendant with needed educational or vocational training, medical care, or other correctional
treatment in the most effective manner;
(3) the kinds of sentences available;
(4) the kinds of sentence and the sentencing range established for -
(A) the applicable category of offense committed by the applicable category of defendant as set forth in the
guidelines - (i) issued by the Sentencing Commission pursuant to section 994 (a)(1) of title 28, United States
Code ….and (ii) that … are in effect on the date the defendant is sentenced; or
(B) in the case of a violation of probation or supervised release, the applicable guidelines or policy statements
issued by the Sentencing Commission …
(5) any pertinent policy statement - (A) issued by the Sentencing Commission pursuant to section 994 (a)(2) of
title 28, United States Code … ; and (B) that … is in effect on the date the defendant is sentenced.
(6) the need to avoid unwarranted sentence disparities among defendants with similar records who have been
found guilty of similar conduct; and
(7) the need to provide restitution to any victims of the offense."
41
R v Wilkinson [2010] 1 Cr App R (S) 628 (Court of Appeal)
578 PENALTIES AND PUNISHMENT

sentencing court has to take into account all the facts and circumstances of the case. The
sentencing discretion of courts varies greatly from one jurisdiction to another. The more that
discretion is limited, the more difficult and unlikely it is to tailor punishment to fit both the
offence and the offender, and the more difficult it is to obtain the right balance between the
various sentencing objectives. The English courts do however have a generally wide
discretion in deciding on an appropriate sentence.

6.3.2.2 Certainty of punishment

It need not be said that no punishment, whether it be of an administrative nature or
punishment upon conviction, is possible absent detection. As for criminal prosecutions,
punishment obviously also relies on successful investigation and prosecution. For any strategy
to deter would-be offenders to be effective, would-be offenders must know, or there must at
least be a perception, of there being a real risk of detection, of matters being investigated and
escalated to the criminal courts, of there being a real risk of conviction, and of punishment in
some form or another.42 The reality however is that very few contraventions are ever escalated
to the criminal courts. Criminal prosecutions tend to be reserved for the selected few. In this
respect, administrative penalties do serve a valuable function in that it makes possible at least
some form of punishment for all types of non-compliance, conveying the message, or at least
strengthening a perception amongst the greater body of taxpayers, that the Revenue is alert
with at least some risk of detection.

6.3.2.3 Punishment must fit the crime

The punishment meted out must not only fit the offender, but must fit the crime. This very
much involves an objective assessment of the criminal conduct under consideration. The
serious nature of the crime, the impact of the crime on society, society’s indignation with the
crime committed, and general deterrence, must be reflected in the punishment handed down.
Sentences handed down must have the required deterrent effect, but must nevertheless be fair,
proportionate and consistent. There is thus a balance to be struck. Although every case is
different and should be considered on its own facts, comparisons between crimes and
offenders should be drawn so as to ensure a degree of consistency and fairness.43 The
sentences handed down for offenders in other cases with similar facts should and may be
taken into account by a court in considering an appropriate sentence. 44 The inducement to
commit certain categories of crime may differ from jurisdiction to jurisdiction and may also
change over time, and so may the seriousness with which a particular class of crime is viewed
in a given jurisdiction at a given point in time.45 All considered, the penalties provided for in a
given penal section may prove adequate today, but may quite well prove inadequate a few

42
See Beccaria, “On Crimes and Punishment” in Muncie et al, Criminological Perspectives at 9-10, where it is
inter alia stated: “The certainty of a punishment, even if it be moderate, will always make a stronger impression
than the fear of another which is more terrible but combined with the hope of impunity.....To make men see that
crimes can be pardoned or that punishment is not their necessary consequence foments a flattering hope of
impunity and creates a belief that, because they may be remitted, sentences which are not remitted are rather acts
of oppressive violence than emanations of justice.” The authors’ latter statement may well be a compelling
argument against tax amnesties. Also see Cavadino & Dignan, The Penal System, An Introduction, 2nd ed at 35
43
See the Australian case of Putland v R [2004] HCA 8 where Kirby J inter alia had the following to say on the
sentencing of the appellant in that matter, convicted as he was of defrauding the Australian Government out of
federal taxes: “Because the victim of the crime is, in effect, the Australian community, the offence is the same
for every offender throughout the Commonwealth. On the face of things, without a clear statutory indication of a
different purpose or other justification, it would ordinarily be assumed that the approach to sentencing of
offenders convicted of such a crime would not vary, or vary significantly.”
44
See e.g. R v James [1997] EWCA Crim 624
45
Consider for example bootlegging before and during prohibition in the United States. Prohibition made
bootlegging profitable and not surprisingly criminal entrepreneurs of any colour and shade were soon smuggling
alcohol like never before.
579 PENALTIES AND PUNISHMENT

years later. The penalties and sentences provided for in any given penal provision is thus not
something which can be left unchecked for years. The penalties provided for must from time
to time be reviewed so as to ensure its current adequacy.

(a) Punishment must be commensurate to the harm that the crime causes
In terms of gravity, tax frauds can often be distinguished from one another based on criteria
such as but not limited to: (a) the nature of the tax, duty or levy evaded;46 (b) whether or not
the fraud was intended to evade the paying of tax or as a scheme to obtain money from the
Revenue; (c) whether or not the fraud involved a single individual acting on his own or
involved a conspiracy; (d) the operation and sophistication of the fraud; (e) the nature and
extent of the prejudice suffered; (f) the profile of the offender/s; and (g) the threat posed to
society by the fraud under consideration.

The greater the impact of a crime on society, the greater should be the deterrent measures
employed in deterring men from committing those crimes.47 Tax evasion is a serious financial
crime. It is a crime of dishonesty, more often than not motivated by greed. Detection is
difficult and detection rates tend to be low. The impact of a tax fraud on broader society is an
important consideration in assessing the seriousness of the crime. Certain categories of fraud,
commercial smuggling and VAT scams being examples in point, are typically viewed in a
more serious light compared to say the unlawful withholding of tax. Offenders can in those
cases usually expect lengthy custodial sentences.

In assessing the impact of the offender's crime, the sentencing court must consider not only
the impact of the particular category of fraud on society, but also the impact of the offender's
fraud for which he was convicted.48 In making that assessment, the sentencing court must
consider all the facts and circumstances of the case. Assessing the true extent and impact of
the convicted offender's fraud may nevertheless prove difficult or impossible. Ascertaining his
true income or the true extent of his economic activity is not always possible and there will
often be a significant dark figure in terms of the real loss to the fiscus. A fraud viewed as a
serious fraud calling for a greater measure of deterrence will often move the prosecution to
charge the offender with offences allowing for heavier penalties, and will usually move
sentencing courts to hand down heavier sentences.49

46
Differentiation between various types of evasion or fraud committed in relation to different categories of
duties, taxes, and levies, is often evident when comparing differences in the penalties provided for in the penal
provisions of different revenue statutes. The evasion of one category of duty or tax contrary to one statute may
well attract a maximum sentence much heavier compared to the maximum sentence that may be handed down
for the evasion of another duty or tax contrary to another statute.
47
See Beccaria, “On Crimes and Punishment” in Muncie et al, Criminological Perspectives at .10 where it was
inter alia said: “It is to the common interest not only that crimes not be committed, but also that they be less
frequent in proportion to the harm they cause society. Therefore, the obstacles that deter men from committing
crimes should be stronger in proportion as they are contrary to the public good ...”
48
Prosecutors should rightly place before the court evidence to show the impact of the offender's fraud on the
Revenue and broader society. In doing so they may call witnesses from the Revenue, industry experts, or even
academics from relevant disciplines.
49
See the English case of R v Czyzewski [2003] EWCA Crim 2139 where the court per Rose J (Vice President)
inter alia said: “It is to be noted that alcohol and tobacco smuggling causes very considerable economic and
social harm ... we repeat the view expressed in Dosanjh that deterrence is a relevant consideration when dealing
with major fraud of this kind and that, in exceptional cases where very many millions of pounds in duty have
been evaded, it may be appropriate to impose consecutive sentences or, alternatively, to charge an offence of
cheating the public revenue, for which the maximum sentence is life imprisonment, compared with 7 years for an
offence contrary to section 170. It is also to be borne in mind ... that there is likely to be, in smuggling cases, a
loss to the Revenue not just of excise duty but also of Value Added Tax.”
580 PENALTIES AND PUNISHMENT

(b) Punishment must be commensurate to the inducement

Tax fraud can be committed by any person irrespective of their intelligence, social standing,
education, past history, future prospects, wealth etc. It can be one of the simplest of crimes to
commit as the Revenue can be defrauded my mere inaction, the intentional and dishonest
failure to declare.50 The self-assessment system relies on honest reporting by taxpayers. This
obviously provides opportunity for dishonest taxpayers to report whatever they wish with no
consequences in the absence of detection. The stigma attached to tax evasion is not as
negative as that of e.g. motor-vehicle theft, bank-robbery or running a '419 scam', but the
wealth that may potentially be diverted from the Revenue, will in many if not most instances
overshadow any of these other 'common crimes'. Statistically speaking, the likelihood of
detection, prosecution, and incarceration for tax fraud is also highly unlikely. The less likely
the risk of detection, prosecution and punishment, the lesser need be the inducement required
to move a taxpayer to offend.

Many if not most tax frauds can be distinguished from most other crimes in that they more
often than not involve the failure (by unlawful means) to part with money already in the
possession of the offender. What is more, the money in question will more often than not be
the fruit of the offender's own labour and toil. Parting with this money grows even more
difficult under circumstances where the taxpayer himself may be under financial pressure.
This all gives tax fraud as a crime a strong psychological dimension. There will always be a
strong temptation. Adam Smith correctly stated that the temptation to evade taxation is
effectively created by the fact of taxation.51 All considered, the inducement to commit this
crime is great. The greater the inducement, the greater will be the pressure to evade. Many
taxpayers will act on that temptation in the absence of effective deterrence and enforcement.
The inducement to evade can partly be countered with appropriate levels of transparency and
good governance, fostering of the psychological tax contract, taxpayer education, and routine
enforcement, but this is not enough. There must be appropriate and adequate levels of
enforcement, deterrence and punishment.

6.3.3 Deterrence
'Deterrence' has in the past been explained as: “.. the simple idea that the incidence of crime is
reduced because of people’s fear or apprehension of the punishment they may receive if they
offend”.52 Theory holds that the risks associated with committing crime, should outweigh the
benefits derived from it if people are to be deterred from committing crime. Successful
deterrence furthermore relies on a general perception of there being a real risk of detection
and punishment. Deterrence is very much a key component of revenue enforcement in most
jurisdictions. Civil penalties and the forfeiture of seized goods for example are very much
intended to deter taxpayers and traders from breaching the law. Those sanctions are then also
structured in such a way as to deter a wide spectrum of breaches, be they great or small, wilful
or careless. Enforcement action intended to audit, verify or inspect can in itself also have a
deterrent effect. For some taxpayers and traders the mere thought of a tax audit or inspection
and the fear of detection may in itself be a deterrent.

50
In those jurisdictions (i.e. in Britain) where it is sufficient to prove an unlawful failure to declare in breach of a
known legal duty to so declare, and where that failure is accompanied with the pre-requisite mens rea.
51
See Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations 5th Ed, Book V, Chapter II,
V.2.28 where he inter alia said: “An injudicious tax offers a great temptation to smuggling. But the penalties of
smuggling must rise in proportion to the temptation. The law, contrary to all the ordinary principles of justice,
first creates the temptation, and then punishes those who yield to it; and it commonly enhances the punishment,
too, in proportion to the very circumstance which ought certainly to alleviate it, the temptation to commit the
crime.”
52
Cavadino & Dignan, The Penal System, An Introduction, 2nd ed at .33
581 PENALTIES AND PUNISHMENT

Deterrence however stretches beyond the hardening of targets, the strengthening of

enforcement capacity, increasing detection rates, and ensuring robust policing. Deterrence,
both individual and general deterrence, is an important objective of punishment.53 This then is
also the case with revenue frauds where sentencing courts consistently emphasize the need for
deterrence.54 General deterrence carries considerable weight in tax fraud prosecutions. Hardly
a reported case can be found where sentencing officers did not emphasize the importance of
general deterrence in deterring frauds on the public revenue.55 As important as deterrence may
be, the courts do generally attempt to strike a balance. Deterrence may be an important
component of punishment, but the courts do recognize it as one which may not be
overemphasized over the interests of fairness and proportionality.

Although the threat of criminal prosecution is a powerful deterrent for most, many are not
deterred. This may, partly at least, be attributed to perceptions of: (a) a low risk of detection;
and/or (b) in the event of detection, matters more likely to be dealt with administratively as
opposed to referral for criminal investigation; and/or (c) tax fraud being a less serious crime
readily 'excused' or 'pardoned', a view reinforced by tax amnesties and various voluntary
disclosure arrangements; or (d) criminal investigations , even where they do follow, to be
unlikely to yield sufficient evidence to secure convictions; and/or (e) the risk of custodial
sentences upon conviction being unlikely or remote; and/or (f) custodial sentences, if indeed
handed down, likely to be lenient; or (g) offenders convinced they can for some or other
reason escape prosecution i.e. offenders situated in another jurisdiction hostile to extradition
or where the offences in question are not extraditable offences.

Categories of offences and offenders

Whether or not a particular punishment will have the required deterrent effect depends on the
profile of offenders and the nature of the crime in issue. There are a wide spectrum of revenue
frauds ranging from petty evasion by the individual taxpayer who, but for that evasion may
otherwise be a responsible citizen, to the career criminal defrauding the Revenue through a
pattern of racketeering activity. For the former, and many other taxpayers engaged in similar
evasion, the fear and shame of arrest and conviction may be a sufficient deterrent. The same
punishment however may have no deterrent effect on the career criminal. The sentences
handed down must therefore be capable of being tailored to deter a wide spectrum of
offenders from committing a wide spectrum of revenue frauds. The offender(s) may typically

53
See Cavadino & Dignan, The Penal System, An Introduction, 2nd ed where at .33-34 the following distinction
is drawn between ‘individual’ and ‘general’ deterrence: “Individual deterrence occurs when someone commits a
crime, is punished for it, and finds the punishment so unpleasant or frightening that the offence is never repeated
for fear of more of the same or worse...But there is another, perhaps more promising category of deterrent effect:
general deterrence. This is the idea that offenders are punished, not to deter the offenders themselves, but pour
encourager les autres”.
54
See e.g. the Canadian cases of R v Lang 90 DTC 6151 (B.C. Prov. Ct) and The Queen v Ahir (1986,
N.S.Co.Ct.). In R v Gray [1997] EWCA 4288 the court inter alia said: “...as well as punishment, there had to be
a deterrent element in the sentence. With regard to the VAT indictments, the matters were so serious that only
custody could be justified for them….” In Ceo of Customs v Coulton [2005] NSWSC 869 the court per Simpson
J said: “Quite obviously, the legislature has determined that, in sentencing for customs offences, deterrence, both
general and individual, is a factor of very considerable weight. Penalties imposed are required to reflect the
serious inroads made on the revenue by customs offenders, and to render customs offending a very unattractive
proposition.” See the Australian case of R v Barnes [2003] QCA 126, where White J inter alia remarked:
“Deterrence, as has been regularly said, is a particularly important aspect of sentencing for fraud against the
revenue which is so difficult to detect” Also see The Queen v Alimic [2006] VSCA 273 and R v Bromley [2010]
VSC 345
55
See e.g. the Canadian case of R v Lang 90 DTC 6151 (B.C. Prov. Ct) where general deterrence was said to be
the primary principle in determining an appropriate sentence in the case of frauds on the public welfare and the
income tax system. Also see R v Bromley [2010] VSC 345
582 PENALTIES AND PUNISHMENT

be the individual taxpayer who files a false return, professional advisors such as accountants
or tax attorneys who assist their clients with the setting up of fraudulent schemes, the corrupt
revenue officer assisting taxpayers or traders with a fraud, career smugglers, or the career
criminal who identified an opportunity to target the Revenue with a fraudulent scheme. Many
of the most serious revenue frauds are committed by transnational corporations and
businessmen operating in multiple jurisdictions. The sentences handed down must be capable
of deterring all these categories of offenders.

Deterrent measures must match the incentives

The measures and penalties intended to deter tax fraud must from time to time be reviewed
with due consideration to changes that may increase the incentive to evade. Compared to
many other categories of crime, the measures and penalties intended to deter tax fraud tend to
change very little over time. It is not uncommon to find the same penal provision almost
unchanged in the same statute or copied into subsequent statutes absent any change in terms
of the nature and severity of the penalties provided for. A penal provision which at one point
in time might have read: "... commits an offence and may be sentenced to a fine, or to no
more than 3 years imprisonment or both", may read exactly the same 50 years later. Is it a
case that the lawmakers do from time review those provisions and find them to be adequate
still, or is it a matter of forgot about it and not high enough on the agenda. Whatever the
reasons may be, the need to prosecute and deter offenders, and the penalty regimes intended
to deal with offenders need mirror the incentives to evade. The pressure to evade during a
severe economic depression will not be the same compared to a time of prosperity a decade
earlier. The pressure and incentives to evade does not remain static over time.

Displacement
A weak state-response to tax-criminality, coupled with a perception of tax crime offering
greater yields but with less risk compared to other types of crime, poses the danger of criminal
elements identifying tax crime as an alternative to other types of crime. This may potentially
drive a displacement of crime from other areas of criminal activity to the revenue domain.56
The last thing any state can afford is for criminal elements to divert their effort to the state-
coffers. Sentences handed down for revenue frauds, and this is especially so in relation to
criminal attacks targeted against the Revenue, and the deterrent effect of those sentences,
therefore need from time to time be re-assessed in relation to the sentencing trends prevalent
with other non-revenue related frauds.

Fostering of the psychological tax contract

The deterrence of non-compliance and the punishment of offenders are possible without
compromising the psychological tax contract.57 There is sufficient flexibility within the penal

56
See e.g. Government Regulation and their Unintended Consequences for Crime: a Project to Develop Risk
Indicators – Final Report to the EU Crime Proofing Steering Group), Jill Dando Institute of Crime Science
(September 2003) at .3 where it was correctly stated that: “..regulation that ... .in any other way impacts the
intensity of law enforcement activity may have unintended effects. If it increases the intensity, it may produce
displacement of the behaviour subject to enforcement to other times, places or through other means. However, if
it reduces the intensity, it may result in an increase in the behaviour subject to enforcement.”
57
See the paper by Feld & Frey, “Deterrence and Tax Morale: How Tax Administrations and Taxpayers
Interact” (2002) where it is inter alia said: “Tax officials are at the same time well aware that tax payments do
not solely depend on tax morale but that extrinsic incentives play a major role. In particular, deterrence for tax
evasion has to be used to prevent taxpayers with low tax morale, or lacking tax morale altogether, from
exploiting the more honest taxpayers and from escaping paying their due share. A combination of respectful
treatment and deterrence is possible and, as will be demonstrated in the empirical part, is widely practiced.
…Deterrence has two different aspects as well. On the one hand, in order to keep up a psychological tax contract
between the tax office and the taxpayers, honest taxpayers must be confident that they are not exploited by
dishonest taxpayers. Thus deterrence for major violations of the tax code reduces tax evasion. On the other hand,
583 PENALTIES AND PUNISHMENT

frameworks provided for in the legislation of jurisdictions such as Britain, Canada and
Australia to make this possible. The flexibility provided for in the systems of those
jurisdictions allows for a much more tailored approach in how contraventions and those who
breach the legislation are dealt with. It makes possible the enforcement of the legislation in a
balanced and fair manner without compromising the objective of "reaffirm(ing) basic
community values that all citizens according to their means should fairly share the burden of
incidence of taxation".58 Making responsible use of the full spectrum of administrative and
criminal penal provisions makes possible the punishment of all categories of breaches and
offences, including serious crimes like fraud.

6.3.4 Sentences upon conviction

Most of the revenue offences provided for in the revenue legislation of jurisdictions such as
Britain, Australia, New Zealand and Canada, tend to provide for fines, or imprisonment, or
both. This is especially common with the 'less serious' non-evasion offences. This provides
sentencing courts with a wide sentencing discretion. A wider range of sentencing options
provides a sentencing court with greater freedom in deciding on the most appropriate
punishment for a particular criminal act.59 The severity of the punishment provided for any
particular contravention usually serves as a good indication of the seriousness with which the
contravention is viewed. In arriving at an appropriate sentence, the sentencing court will take
into account all the evidence placed before it. Such a court will, in arriving at an appropriate
sentence, also consider and determine the weight to be attached to all aggravating and
mitigating factors. Each case will be judged on its own facts, and the punishment meted out
will depend on the facts of the case. The sentencing court must balance all the circumstances
of the case in order to arrive at an appropriate sentence.60

6.3.4.1 Fines
Fines as a form of punishment have been around for thousands of years. As early as 2000 BC
they proved a popular form of punishment for a wide range of crimes in the Mesopotamian
and Sumerian legal systems, which at that early time already started to show signs of
codification.61 Fines were also used as a punishment for lesser offences during Roman
times.62 Fines as an alternative to imprisonment is common in statutory offences provided for
in tax legislation.63 It is also an important sentencing option in the criminal courts.64 The

any taxpayer may make a mistake, so that minor offences can be penalized less, without undermining the
psychological tax contract.” Also see the subsequent papers by the same authors: Feld & Frey, “Tax compliance
as the result of a psychological tax contract: The role of incentives and responsive regulation” (2005) Working
Paper 76: Centre for Tax System Integrity; Feld & Frey, “Tax Evasion in Switzerland: The Roles of Deterrence
and Tax Morale” (2006) Working Paper No. 284: Institute for Empirical Research in Economics.
58
See the Australian case of R v Sakovits [2013] NSWSC 464 where it was said that: "The sentences to be
imposed are intended to reaffirm basic community values that all citizens according to their means should fairly
share the burden of incidence of taxation so as to enable Government to provide for the community"
59
See the old Australian case of Lewis v The King 14 CLR 183 at .191 where the Chief Justice inter alia said:
“When the legislature allows such a large range of punishment, I read it as an instruction to the Court to consider
in each case the particular circumstances under which the offence was committed. If it is a very bad offence
indeed, committed with deliberation and part of a system of fraud, the Court may well impose the maximum
penalty. If it is an isolated offence and not likely to be repeated, the Court may apply a different rule.” Also see
The King and Another v Tuckett [1914] HCA 62
60
R v Martin [2006] EWCA Crim 1035
61
See Lyons, The History of Punishment at 18-23 on his discussion on the Mesopotamian legal codes, the “Laws
of Eshunna” and “The Code of Hammurabi”
62
Lyons, The History of Punishment, 69
63
See e.g. the offence provided for in section 106A of the Taxes Management Act 1970 (fraudulent evasion of
income tax)
64
See sections 163 to165 of the Criminal Justice Act 2003 (United Kingdom) dealing with the imposition, fixing
and remission of fines.
584 PENALTIES AND PUNISHMENT

amount of the fine to be imposed is left to the discretion of the sentencing court, but may be
limited to both the maximum amount provided for within the relevant statutory provisions,
and/or the jurisdiction of the sentencing court in question. In most jurisdictions the sentencing
court may order imprisonment in default of payment. The option of fines or imprisonment
provides the sentencing court with a wide sentencing discretion allowing considerable
freedom to decide upon the most appropriate punishment.65 Where fines are imposed, they
also need be appropriate considering the seriousness of the offence and the person of the
offender.

6.3.4.2 Imprisonment
Debates, arguments and counter-arguments as to the merits, advantages and disadvantages of
imprisonment as a sentencing option for white-collar criminals can fill libraries. It is true to
say it is a sentencing option with a severe disruptive impact on the offender and his family,
and its rehabilitative value is generally recognised to be low. It is also an expensive
sentencing option compared to other forms of punishment such as correctional supervision
where the offender may remain economically active as opposed to being a ‘dead weight’ on
society. Not surprisingly, the courts do tend to take into account the growing size of the prison
population when considering imprisonment.66 This all said, not a single modern state has
managed to control crime without imprisonment as a sentencing option. The main value of
imprisonment is to be found in its general deterrence. The imprisonment of offenders,
especially where widely publicised, does send out a powerful message to would-be offenders
and is a strong deterrent for most.

Every jurisdiction obviously has its own rules relating to the imposition of imprisonment and
the nature thereof. Those rules will as a general rule be codified but may be covered under
various statutes. In most common law countries, those statutes dealing with sentencing will
typically provide for periods of imprisonment one can class as falling within a sentencing
court's 'standard' or 'normal' discretion, imprisonment for life for certain offences, minimum
periods of imprisonment for certain serious offences, indefinite periods for certain dangerous
criminals, periodical imprisonment, etc. Those statutes will usually also lay down strict rules
as to the types or classes of courts that may impose prison sentences, the circumstances under
which certain courts may order imprisonment, and the periods of imprisonment certain courts
may impose. In England and Wales for example, a magistrates' court does not have the power
to impose imprisonment for more than 12 months in respect of any offence.67 In some
jurisdictions the prison authorities may have a high degree of autonomy with the legal
authority to release prisoners earlier subject to certain conditions or even to substitute parts of
a prison-sentence with some or other form of correctional supervision. In other jurisdictions
they may have no such autonomy. Not only are the rules relating to imprisonment
jurisdiction-specific, but they also change over time. Whereas the maximum period of
imprisonment for a certain fraud may now be limited to say 5 years, changes to the legislation
may lift that to 10 or 15 years for a similar fraud committed just a year later. Needless to say,
the jurisdiction where an offender chooses to commit a particular crime, and just as
importantly when he commits that crime, may have a significant impact on his future.

65
See the old Australian case of Lewis v. The King 14 C.L.R 183 at 191 where the Chief Justice inter alia said:
“When the legislature allows such a large range of punishment, I read it as an instruction to the Court to consider
in each case the particular circumstances under which the offence was committed. If it is a very bad offence
indeed, committed with deliberation and part of a system of fraud, the Court may well impose the maximum
penalty. If it is an isolated offence and not likely to be repeated, the Court may apply a different rule.” Also see
The King and Another v Tuckett [1914] HCA 62
66
See e.g. R v Kefford [2002] EWCA Crim 519
67
See section 154(1) of the Criminal Justice Act 2003
585 PENALTIES AND PUNISHMENT

In the UK, prison sentences are not handed down lightly. A sentencing court will only order
imprisonment where there is no appropriate alternative to imprisonment. This then is
especially so in regards to a first offender, not that a first offender will not be sent to prison
where the crime is so serious as to justify such a sentence. Whether or not a custodial sentence
will be the only appropriate sentence will depend on the facts of the case. Certain offences
may be so serious as to demand the imposition of custodial sentences, even for first-time
offenders. The professional smuggler is not deterred by fines, forfeiture, and the risk of a
suspended sentence or correctional supervision. He makes his living and grows rich by
committing crime. He is a career criminal. A community sentence is not going to deter him or
protect the public at large. He can thus expect as highly likely a prison sentence.

The period of imprisonment ordered by the sentencing court must be appropriate. In deciding
on an appropriate period of imprisonment, the sentencing court must take into account and
endeavour to give effect to the objectives of punishment. In considering an appropriate period
of imprisonment, the sentencing court will take into consideration factors and circumstances
such as but not limited to, the serious nature of the offence, the prison sentences handed down
for similar offences, any aggravating and mitigating factors that may be present, minimum
sentences prescribed, guidelines provided for by higher courts or sentencing councils, the
interests of the community, and the person of the offender. In the event of conviction on a
statutory offence, the term of imprisonment that may be handed down will usually be limited
to the maximum period of imprisonment provided for in the relevant provision.

Where periods of imprisonment is handed down following conviction on a number of charges,

the cumulative period of imprisonment where all those sentences are taken together may be
severe. In many jurisdictions the courts may order those sentences to run concurrently, thus
limiting the cumulative impact. This however is not to be assumed to be the case as it is a
matter of national law and judicial discretion. This is also the case in regards time spent on
remand. Trials can often span months or even years. If the accused is not out on bail, then he
will be incarcerated for that time. In many jurisdictions a court may in certain cases direct that
time spent in custody shall count as part of his sentence.68 This will not necessarily be the
case in other jurisdictions. In many jurisdictions a prison sentence may also be imposed in
conjunction with other forms of punishment such as some or other form of correctional
supervision or community based sentence. Periods of imprisonment handed down as part of a
sentence may also be subject to different rules as to eligibility to parole and parole conditions.

In many jurisdictions there has been a gradual drift away from custodial sentences. In the UK,
the legislature in sections 152 and 153 of the Criminal Justice Act 2003 clearly made an
attempt to keep people out of prison and to make custodial sentences a punishment of last
resort. The Act in essence expects from sentencing officers to substitute imprisonment with
fines and community orders wherever the imposition of those alternatives are justified. These
are important provisions. The relevant parts of the relevant sections read as follows:

"152.. (2) The court must not pass a custodial sentence unless it is of the opinion that the
offence, or the combination of the offence and one or more offences associated with it, was
so serious that neither a fine alone nor a community sentence can be justified for the
offence."

"153 .. (2) … the custodial sentence must be for the shortest term (not exceeding the
permitted maximum) that in the opinion of the court is commensurate with the seriousness

68
See e.g. section 240 of the Criminal Justice Act 2003
586 PENALTIES AND PUNISHMENT

of the offence, or the combination of the offence and one or more offences associated with
it."

These provisions apply to discretionary custodial sentences other than those fixed by law or
provided for in dealing with serious and dangerous offenders. The sentencing court may in
essence not impose a custodial sentence unless the nature of the offence is so serious as to
leave no other alternative, and where a custodial sentence is imposed, it is to be limited

Despite the enactment of these provisions, British courts more often than not still tend to hand
down custodial sentences for those tax frauds that are indeed prosecuted. Conviction will in
the greater majority of cases be followed by imprisonment regardless considerations such as
the fact that the accused pleaded guilty, is a first offender, cooperated with the authorities, or
refunded the evaded taxes. Mitigating factors more often than not only impact on the duration
of imprisonment although the facts of a case may prompt the handing down of a non-custodial
sentence. This may however be explained by the fact that it is HMRC's policy to (generally)
only refer serious cases for prosecution. The revenue prosecutions heard by the courts thus
generally tend to be serious to start with. In the UK, US, and Australia considerable weight is
attached to the objective of deterrence and non-custodial sentences are very much the
exception.69

6.3.4.3 Community based and suspended sentences

The legislation of many jurisdictions do allow for alternatives to custodial sentences.
Examples of these are intermittent custody, suspended sentences, and community sentences.
Community based sentences are seen as a valuable sentencing alternative to imprisonment, as
less disruptive on the offender and society, and holding more promise of reformation. It
allows for the offender to stay out of prison, keep working, and to support his/her family. It is
certainly a much less costly and a more rehabilitative alternative than imprisonment.70 In the
UK, the Criminal Justice Act 2003 provides for community sentences. Sections 147 and 177
of the Criminal Justice Act 2003 inter alia read:

"147. Meaning of “community sentence” etc.

(1) In this Part “community sentence” means a sentence which consists of or includes - (a) a
community order (as defined by section 177)".

"177. Community orders

(1) Where a person aged 18 or over is convicted of an offence, the court by or before which he
is convicted may make an order (in this Part referred to as a “community order”) imposing on
him any one or more of the following requirements -
(a) an unpaid work requirement (as defined by section 199),
(b) an activity requirement (as defined by section 201),
(c) a programme requirement (as defined by section 202),
(d) a prohibited activity requirement (as defined by section 203),
(e) a curfew requirement (as defined by section 204),
(f) an exclusion requirement (as defined by section 205),
(g) a residence requirement (as defined by section 206),

69
See e.g. R v Hammond [1997] EWCA 2027 where Kay J made inter alia the following remark: “However,
deterrence is very much to the fore in considering sentences for offences of this kind…other traders have to be
taught that there is no degree of option about charging VAT and recovering that tax, and that those who do not
do so are likely to find themselves in prison.” In R v Dosanjh [1998] EWCA Crim 1450 the England and Wales
Court of Appeal and referring to the evasion of duties on smuggled goods stated that: “when the amount evaded
is in thousands of pounds, custody will generally be called for.” Also see R v Ollerenshaw [1998] EWCA Crim
1306
70
See R v Seed & Anor [2007] EWCA Crim 254
587 PENALTIES AND PUNISHMENT

(h) a mental health treatment requirement (as defined by section 207),

(i) a drug rehabilitation requirement (as defined by section 209),
(j) an alcohol treatment requirement (as defined by section 212),
(k) a supervision requirement (as defined by section 213), and
(l) in a case where the offender is aged under 25, an attendance centre requirement (as defined
by section 214)."

The conditions a sentencing court will impose may vary from offender to offender depending
on the facts of the case. It is a system allowing for a greater degree of flexibility. By
structuring the monitoring of the offender, selecting and adding conditions, and by pairing
together certain conditions, the sentence imposed can be better structured to fit both the crime
and the offender. Community based sentences like these are also common in the United
States, Canada and Australia, but there is considerable variance in terms of the circumstances
under which they may be imposed and the requirements that can be imposed.

Suspended sentences
Suspended sentences are provided for as a sentencing alternative to imprisonment in the UK,
US, Australia and many other jurisdictions. In essence suspension provides for the suspension
of one form of punishment subject to the convicted offender complying with certain
conditions as laid down by the sentencing court. The suspension will be tied to a specified
period of time. A 5 year prison sentence may typically be suspended for a period of 5 years
subject to the condition that the convicted offender does not commit a similar offence over a 5
year period and subject to him making reparation payments within a specified period of time.
The conditions a court may impose will differ from jurisdiction to jurisdiction, but will
usually include: the repayment of certain amounts; or the offender not re-offending over a
specified period of time; or the offender attending certain rehabilitation or preventative
programmes.

Suspended sentences are generally seen as an alternative to prison with a better rehabilitative
value. Whether or not suspension is available in a given instance, the circumstances under
which suspension may be ordered, the conditions that may be imposed, and the consequences
in the event of breach of those conditions, is a matter of law and varies from one jurisdiction
to another. In the UK, section 189 of the Criminal Justice Act 2003 provides for the
suspension of sentences where the period of imprisonment does not exceed 51 weeks. Such a
suspended sentence order must include at least one or more of the requirements falling within
section 190(1) of the Criminal Justice Act 2003.71 Section 189 reads as follows:

189. Suspended sentences of imprisonment

(1) A court which passes a sentence of imprisonment for a term of at least 28 weeks but not
more than 51 weeks in accordance with section 181 may -
(a) order the offender to comply during a period specified for the purposes of this paragraph in
the order (in this Chapter referred to as “the supervision period”) with one or more
requirements falling within section 190(1) and specified in the order, and
(b) order that the sentence of imprisonment is not to take effect unless either -
(i) during the supervision period the offender fails to comply with a requirement imposed
under paragraph (a), or
(ii) during a period specified in the order for the purposes of this sub- paragraph (in this
Chapter referred to as “the operational period”) the offender commits in the United Kingdom
another offence (whether or not punishable with imprisonment), and (in either case) a court
having power to do so subsequently orders under paragraph 8 of Schedule 12 that the original
sentence is to take effect.

71
See R v Lees-Wolfenden [2006] EWCA Crim 3068
588 PENALTIES AND PUNISHMENT

Section 181 (referred to in section 189) reads as follows:

181. Prison sentences of less than 12 months

(1) Any power of a court to impose a sentence of imprisonment for a term of less than 12
months on an offender may be exercised only in accordance with the following provisions of
this section unless the court makes an intermittent custody order (as defined by section 183).
(2) The term of the sentence - (a) must be expressed in weeks, (b) must be at least 28 weeks,
(c) must not be more than 51 weeks in respect of any one offence, and (d) must not exceed the
maximum term permitted for the offence.
(3) The court, when passing sentence, must - (a) specify a period (in this Chapter referred to as
“the custodial period”) at the end of which the offender is to be released on a licence, and (b)
by order require the licence to be granted subject to conditions requiring the offender’s
compliance during the remainder of the term (in this Chapter referred to as “the licence
period”) or any part of it with one or more requirements falling within section 182(1) and
specified in the order.

The requirements under section 190(1) inter alia include: unpaid work, activity requirements,
programme requirements, prohibited activity requirements, residence requirements, and
exclusion requirements. The conditions so imposed may thus require the convicted offender to
act positively e.g. attend certain programmes, or those conditions may require him to refrain
from doing certain things e.g. reoffending. The failure to comply with the conditions of
suspension may result in the suspended sentence being executed. In some jurisdictions the
repayment of evaded taxes may also be ordered as a condition of suspension. The failure to
repay it may result in the suspension being lifted. This provides for an effective method of
ensuring reparation.

A sizeable minority of all taxpayers evade taxation or have evaded taxation in the past. Tax
evasion is a serious crime and those who engage in it are dishonest criminals. This is not a
sentiment but a legal fact. Accepting the fact that they are defrauding the State and every
other law-abiding taxpayer, one must also accept that most of them are economically active,
many may be traders employing people, most of them support their families, and many if not
most of them do pay most of their tax dues. A community based sentence may allow those
taxpayers to remain economically active, to keep on trading, to continue to employ others, to
make reparation, to continue to support their families, and to regularise their tax affairs. A
community based sentence may thus allow him to make a contribution as opposed to
becoming a burden. Community based sentences is a sensible alternative when dealing with
certain categories of offenders, but in many instances imprisonment will be the only
appropriate sentencing option.

6.3.5 Factors in considering appropriate sentence

An appropriate sentence is a sentence which not only fits the crime, but also the offender.
Taking into account all the facts and circumstances of a case, and attributing the appropriate
weight to all those factors that may impact on an appropriate sentence, is all-important if the
right balance is to be struck between the weight to be attached to the offence on the one hand,
and the person of the offender on the other. As every case may present its own set of
circumstances and difficulties, a criminal court may take into consideration all the facts and
circumstances of the case it may deem relevant in considering an appropriate sentence. There
is however no mathematical formula in arriving at an appropriate sentence.72 Typical factors
or circumstances a sentencing court may take into consideration are:

72
See R v Martin [2006] EWCA Crim 1035 where it was inter alia said: "The sentencing decision does not
represent a mathematical exercise, nor does it result from an arithmetical calculation."
589 PENALTIES AND PUNISHMENT

(a) the nature and seriousness of the offence;

(b) impact of the crime on the victim(s);73
(c) the damage or loss suffered;
(d) the personal circumstances of the offender;
(e) the personal character traits of the offender;
(f) the circumstances under which the offence was committed;
(g) the offender's motive and objectives;
(h) impact on the offender's family;
(i) the offender's prospects for rehabilitation;
(j) remorse shown by the offender;
(k) voluntary reparation made and losses recovered;
(l) co-operation of the offender;
(m) a guilty plea;
(n) any / other aggravating circumstances that may be present;
(o) any / other mitigating circumstances that may be present;
(p) punishment and general deterrence;
(q) individual deterrence;
(r) time served and prosecution delays; and
(s) policy guidelines and instructions;

At the sentencing stage of a prosecution, both the prosecution and defence are afforded the
opportunity to address the court and lead evidence on sentencing. A sentencing court cannot
be expected to arrive at an appropriate, balanced, and fair sentence absent evidence of all the
facts and circumstances that should rightly be taken into account. There is often a tendency on
the side of investigators and prosecutors to focus all their attention and efforts on collecting
and adducing the evidence required to support a conviction, but then to become complacent
and passive spectators at the sentencing stage. This is a major failure. Evidence that may
impact on sentencing is to be identified, collected, and documented throughout the
investigation, and the prosecution’s efforts at preparing for the sentencing stage should mirror
the effort shown during the course of the investigation and trial. A conviction followed by an
inappropriate sentence can do serious harm in terms of the message communicated through to
the offender and the public at large. It undermines the very important objective of deterrence.
An inappropriate sentence is just a partial success. A partial success in turn suggests a partial
failure. A partial failure, where that failure is the consequence of complacency, in turn
amounts to a needless waste of valuable resources.

The following discussion will offer a brief overview of some of the factors and circumstances
a court may possibly take into consideration in judging the seriousness of an offence, and/or
that may depending on the facts of the case be viewed as aggravating or mitigating. The
courts in different jurisdictions will not necessarily attach the same weight to a particular
aggravating or mitigating factor, and some viewed as aggravating or mitigating in one
jurisdiction will not necessarily be viewed as such in another. It is for the sentencing court to
decide on the facts or circumstances that should be taken into consideration as aggravating or
mitigating factors and how much weight is to be attached to each of those factors.

73
There may be instances where revenue and customs frauds may also result in loss or damage for other third
parties.
590 PENALTIES AND PUNISHMENT

6.3.5.1 Nature of the offence and aggravating circumstances

As can only be expected, sentencing courts attach considerable weight to the nature of the
offence, and the personal involvement of the offender in the commission of that offence.
Generally speaking, the more serious the fraud, the greater the need for deterrence, and the
greater the offender’s personal involvement in the fraud, the less lenient can be expected the
sentence that will be handed down.

6.3.5.1.1 Serious nature of the offence

(a) General
Every fraud must be approached as unique. One revenue fraud may differ from another in
terms of sophistication, modus operandi employed, the profiles of the offenders involved in
the fraud, the period of time over which it was committed, the amounts of money involved,
the nature of the duty or tax evaded, the impact of the fraud, and the objectives pursued by the
offenders. In R v Wright74 the court per Pincus J inter alia had the following to say as to the
gravity of taxation offences:

“The Victorian Sentencing Manual provides examples of the variety of considerations which
bear upon the gravity of taxation offences. They include the extent of the fraud and the amount
avoided, the potential loss of revenue, the length of time the fraud continued, the nature of the
planning and execution, and whether professional or technical skills were used to facilitate the
fraud. Many other matters may bear upon the seriousness of the offence, such as whether the
fraud was due to desperate financial circumstances and whether there was an element of
carelessness or delusion rather than undiluted dishonesty”

In R v Czyzewski75 the Court per Vice President Rose and referring to the fraudulent evasion
of excise duty had the following to say as to the principle factors to be considered in assessing
the seriousness of excise frauds:

“As to seriousness, the principal factors are the level of duty evaded; the complexity and
sophistication of the organisation involved; the function of the defendant within the
organisation and the amount of personal profit to the particular defendant.”

The serious nature or gravity of a fraud is an important factor taken into account by the courts
in considering an appropriate sentence.76 The view that a sentencing court will take on the
seriousness of a particular crime very much depends on the harm caused and the culpability of
the offender.77 The greater the impact of the fraud on tax administration, on the fiscus, on the
economy, on honest traders,78 and on the broader public, the more likely the sentencing court
will view the crime as one that warrants a more severe punishment.

74
(1994) 74 A Crim R 152 at 165
75
[2003] EWCA Crim 2139
76
See e.g. Beard v The Queen supra; R v Mann [1998] EWCA Crim 317; Lewis v The King 14 C.L.R. 183; R v
Stewart and Others [1987] Cr App R(S) 135; R v Sakovits [2013] NSWSC 464; R v Hargraves and Stoten
[2010] QSC 188; R v Bromley [2010] VSC 345
77
See the Criminal Justice Act 2003 (UK) under section 143 which reads: "143 Determining the seriousness of
an offence (1) In considering the seriousness of any offence, the court must consider the offender’s culpability in
committing the offence and any harm which the offence caused, was intended to cause or might foreseeably have
caused."
78
See e.g. R v Mann [1998] EWCA Crim 317 where the sentencing court took into account the impact of the
crime on honest traders.
591 PENALTIES AND PUNISHMENT

(b) Premeditation and planning

Commercial crimes such as fraud and tax evasion are seldom unplanned or impulsive crimes.
They more often than not show premeditation, complexity and planning.79 The fact that the
fraud was deliberately planned and executed, especially where over a long period of time, or
consisted of many repetitive unlawful acts committed over a period of time, has long been
viewed by the courts as an aggravating factor.80

(c) The extent of the prejudice suffered and scale of the fraud
The prejudice suffered as a result of the fraud is generally viewed as an important factor in
assessing the seriousness of a crime.81 The English courts increasingly follow 'tariff'
guidelines set by earlier decisions in considering appropriate sentences for revenue frauds.
The amount in tax evaded has a marked influence on the 'tariff' considered to be appropriate.82
The fact that the evasion or fraud was unsuccessful and that no actual loss was suffered does
not exclude criminal liability in England and Wales, Australia, South Africa or the United
States. The sentencing court must take into account not only actual loss suffered but also
potential loss or risk of loss. The financial value of the loss may not reflect the full extent of
the harm caused by the offence.83 Not to be lost sight off is the fact that there will often be a
considerable dark figure not reflected in the Revenue’s calculations and estimates. It is not
uncommon to find that the offender’s activities involved multiple frauds perpetrated over a
long period of time. A sentencing court can however only take into account actual and
potential losses that are actually proven. In practice however, the reality is that many
offenders escape detection many times over before they are caught out.84 The fact that

79
See Burke, An Introduction to Criminological Theory at 212 where it is inter alia said: “There is much
evidence that high-ranking governmental and corporate officials, acting independently or on behalf of the
organisations they serve, use fraud and force in carefully planned ways to enrich themselves and maintain their
positions. As Barlow (1991: 238) observes: Compared to low-end crime, high-end crime is much more likely to
involve planning, special expertise, organisation, delayed gratification, and persistence – as well as considerably
larger potential gains.”
80
See the Australian cases of Beard v The Queen [2003] WASCA 262; R v Sakovits [2013] NSWSC 464; R v
Hargraves and Stoten [2010] QSC 188; R v Kelvin [2000] NSWCCA 190; R v Elvin [1997] ACTSC 1; R v
Bromley [2010] VSC 345. Also see the Canadian cases of R v Viccars 2010 ABPC 351 (Provincial Court of
Alberta, Canada); Galloway v The Queen 69 DTC 5023. Also see R v Stewart and Others [1987] Cr App R(S)
135 where the subject-matter of the prosecution was a benefit fraud.
81
Randhawa and Others [2012] EWCA Crim 1; R v Ravjani [2012] EWCA Crim 2519; R v Dosanjh [1998]
EWCA Crim 1450; R v Rodwell [1999] EWCA Crim 879; R v Ollerenshaw [1998] EWCA Crim 1306; R v Mann
[1998] EWCA Crim 317; R v Owens and Anor [2006] EWCA Crim 2206; R v Wright (1994) 74 A Crim R 152;
R v Stewart and Others [1987] 9 Cr App R(S) 115; R v Graham & Ors [2004] EWCA Crim 2755; R v Elvin
[1997] ACTSC 1; R v Bromley [2010] VSC 345; HKSAR v Shek Tak Tai [2000] HKCFI 1299 (Court of First
Instance of Hong Kong); R v Viccars 2010 ABPC 351 (Provincial Court of Alberta, Canada), R v Breakell
[2009] AJ No. 1167 (Court of Appeal - Alberta, Canada); R v Stewart and Others [1987] Cr App R(S) 135
82
See e.g. R v Czyzewski [2004] 1 Cr App R (S) 49
83
See R v McDevitt [2012] NICC 16 where Miller J inter alia remarked: "In some fraud cases, the harm that
results from an offence may be greater than the harm intended by the offender. In others, the offender may have
intended more harm than actually results. In these situations, the harm caused by the offence should be judged in
light of the offender’s culpability. In general terms, the greater the loss the more serious will be the offence.
However, the financial value of the loss may not reflect the full extent of the harm caused by the offence"
84
See e.g. R v Warren [1996] EWCA Crim 1791 where the defendant, arrested as he was for smuggling alcohol
and tobacco into the UK, admitted 18 smuggling trips in total. In R v Rodwell [1999] EWCA Crim 879 the court
accepted that there might have been a total of 15 smuggling trips. In R v Dosanjh [1998] EWCA Crim 1450 the
appellant over a 10 month period smuggled goods into Britain on 82 occasions, evading duties to the amount of
£164 000. He had no previous convictions for the evasion of duties or taxes despite the fact that he was stopped
for smuggling on two previous occasions. In both instances the goods was forfeited to Customs but he was never
prosecuted.
592 PENALTIES AND PUNISHMENT

innocent people have also been drawn into or prejudiced as a result of the fraud has in the past
also been taken into account as an aggravating factor.85

(d) Prevalence of the crime and the need for general deterrence
No State can expect to curb frauds on the fiscus where the sentences handed down are seen to
be too lenient and where prosecution and conviction is seen to be a risk worth taking. It is not
only offenders who must be deterred, but also would-be offenders.86 The more serious the
crime, the greater the threat it poses to society, the greater the need for strong general
deterrence. Insofar as revenue and customs frauds go, the courts frequently express the need
for general deterrence.87 The prevalence of the crime, especially where it is one of a serious
nature, may also call for sentences offering a greater level of general deterrence. In the
Australian case of R v Sakovits88 it was inter alia said that: "It has long been accepted that
general deterrence is an important consideration in relation to taxation fraud, offences of that
kind being difficult to detect, investigate and prosecute successfully." In this statement the
Court made a particularly valid point. The lower the rates of detection in relation to particular
types or classes of evasion or fraud, the greater the actual and perceived opportunity to
successfully evade taxation and sanctions. This in turn implies a greater attraction to engage
in that type of activity. High-risk taxpayers must be convinced of there being a real chance of
detection and sanctions. Prosecution successes must therefore be fully exploited. Sentences
must carry substantial weight in terms of general deterrence, and they must receive wide
publicity.

(e) Sophistication and the employment of other forms of unlawful conduct

The fact that the fraud was of great complexity, and/or involved particular harmful forms of
deceit, and/or relied on other serious forms of unlawful conduct are also circumstances which
a sentencing court may take into account.89 Frauds may typically be viewed to be more
sophisticated where they involve the use of false documentation and the keeping of false
books of account, and/or where they involve the use of fronts and complex offshore
structures. It will also be viewed as aggravating where the criminal operation involved
unlawful activities such as: (a) attempts to intimidate or bribe officers or witnesses; (b) the use
of innocent parties as decoys or attempts to implicate other innocent parties; (c) money
laundering; (d) identity theft and the theft of information; (e) defrauding others in the
execution of the fraud e.g. other creditors in a bankruptcy fraud; (f) the falsification of
documentation and the use of forged documentation, stolen stamps etc; (g) falsely giving out
to be revenue and customs officers; (h) offences placing at risk the safety of others; and (i) the
making of false statements under oath.

85
See the Canadian case of R v Viccars 2010 ABPC 351 (Provincial Court of Alberta, Canada)
86
Beard v The Queen [2003] WASCA 262
87
R v Gray [1997] EWCA 4288. Also see the Australian cases of R v Brown [2001] QCA 553, R v Hargraves
and Stoten [2010] QSC 188; and Beard v The Queen [2003] WASCA 262. In Beard, the sentencing judge inter
alia remarked: “Finally, there is a need, of course, for general deterrence in any sentence for offences of this
nature. People must be aware that defrauding the public purse on the scale you did must, if detected, meet with
severe punishment. I have been referred to a number of authorities involving a variety of sentences; these are
only a guide, every matter must be looked at on its individual merits”. Also see the Australian case of R v Barnes
[2003] QCA 126, where White J inter alia remarked: “Deterrence, as has been regularly said, is a particularly
important aspect of sentencing for fraud against the revenue which is so difficult to detect.” The Australian
courts have in the past also held general deterrence to be the "predominant consideration in sentencing for
offences of defrauding the revenue" See R v Sakovits [2013] NSWSC 464; R v O'Connor [2002] NSWCCA 156;
R v Gregory [2011] VSCA 145. Also see the Canadian cases of R v Lang 90 DTC 6151 (B.C. Prov. Ct);
Galloway v The Queen 69 DTC 5023
88
[2013] NSWSC 464
89
See e.g. R v Dodd [1997] EWCA 2957; R v Czyzewski [2003] EWCA Crim 2139; R v Hargraves and Stoten
[2010] QSC 188
593 PENALTIES AND PUNISHMENT

(f) Conspiracies, the recruitment of others, and/or criminal enterprises

Frauds or smuggling operations committed as part of a conspiracy are viewed in a serious
light and can generally be counted on to be taken as an aggravating factor. The same applies
to those instances where the offender recruited others to assist with the fraud.90 Participation
in an organised criminal enterprise will also be an aggravating factor.91

6.3.5.1.2 The offender

(a) The role of the offender in the commission of the fraud
The role and contribution of the offender in the commission of the fraud is a factor which the
courts take into account in considering an appropriate sentence.92 Estimating the true extent of
the offender’s activities will often prove difficult. The fact that the offender was the initiator
or brain behind the fraud or the fact that the offender played a significant role in the fraud is
consistently viewed by the courts as an aggravating factor.93

(b) Lack of remorse

The fact that a convicted offender shows a lack of remorse for his unlawful conduct has long
been viewed as an aggravating factor. The fact that an offender lacks remorse for his crime
also reflects negatively on his prospects for rehabilitation. Lack of remorse may be inferred
from the offender’s conduct and behaviour before prosecution and during trial. The fact that
the offender attempted to conceal the crime, destroy evidence, intimidate witnesses, launder
the proceeds, or in some other way attempted to obstruct an investigation or prosecution, may
strongly suggest a lack of remorse.

(c) Persistent and repetitive conduct

Repetition of unlawful acts, whether it be repetitive misrepresentations, or numerous attempts
to commit the fraud, and/or the fact that the fraud was committed over a long period of time,
are all factors which a sentencing court may view as aggravating factors.94 It suggests

90
R v Mann [1998] EWCA Crim 317. Also see R v Rodwell [1999] EWCA Crim 879, where the court
considered as an aggravating factor, the fact that the accused recruited young and unemployed persons to act as
couriers for the smuggling of cigarettes into Britain.
91
R v Czyzewski [2003] EWCA Crim 2139; R v Stewart and Others [1987] Cr App R(S) 135. In the old
Australian cases of The King v Tarrant 15 C.L.R 172 and The King and Another v Tuckett [1914] HCA 62, the
courts drew a clear distinction between isolated acts of smuggling and evasion, and those instances where the
evasion was repetitive and of a “typical business nature”. The latter category was viewed to be of an aggravating
nature.
92
See e.g. R v Nicholson; ex parte DPP (Cth); R v Hyde-Harris; ex parte DPP (Cth) [2004] QCA 393. Also see
R v Czyzewski [2003] EWCA Crim 2139 where the England and Wales Court of Criminal Appeal where Vice
President Rose inter alia said (the matter under consideration the fraudulent evasion of excise duty in
contravention of section 170 of the Customs and Excise Management Act 1979): “An offence will be aggravated
if a defendant: (1) played an organisational role; (2) made repeated importations, particularly in the face of a
warning from the authorities; (3) was a professional smuggler, to which we shall return. (4) used a legitimate
business as a front; (5) abused a position of privilege as a customs or police officer, or as an employee, for
example, of a security firm, ferry company or port authority; (6) used children or vulnerable adults; (7)
threatened violence to those seeking to enforce the law; (8) dealt in goods with an additional health risk because
of possible contamination; or (9) disposed of goods to under-aged purchasers.”
93
See the English cases of Randhawa and Others [2012] EWCA Crim 1; R v Ollerenshaw [1998] EWCA Crim
1306; R v Ravjani [2012] EWCA Crim 2519; R v Dosanjh [1998] EWCA Crim 1450; R v Rodwell [1999]
EWCA Crim 879; R v Warren [1996] EWCA Crim 1791; R v Mann [1998] EWCA Crim 317; R v Owens and
Anor [2006] EWCA Crim 2206.
94
See the Canadian case of Galloway v The Queen 69 DTC 5023. See the English cases of R v Ollerenshaw
[1998] EWCA Crim 1306; R v Czyzewski [2003] EWCA Crim 2139; R v Dosanjh [1998] EWCA Crim 1450.
See the Australian cases of R v Bromley [2010] VSC 345; R v Nicholson; ex parte DPP (Cth); R v Hyde-Harris;
ex parte DPP (Cth) [2004] QCA 393; R v Wright (1994) 74 A Crim R 152. Also see R v Elvin [1997] ACTSC 1
where Higgins J inter alia remarked: “I agree with Davies JA and White J in Wright at 160 ... where a calculated
594 PENALTIES AND PUNISHMENT

determination and stubborn persistence to succeed in achieving the intended criminal

objective. It may also suggest organization and planning. The fact that the offender persisted
with the fraud even after it had come to light and despite previous warnings by the authorities
may likewise also be an aggravating factor.95

(d) Motive and financial gain

The motive of the offender and the use to which the proceeds of the fraud was put is also a
factor that a sentencing court may take into consideration.96 This then is also correct. The
trader who defrauds the Revenue out of desperation and in an attempt not to lay off his
employees cannot be compared to the directors of a company defrauding the Revenue out of
greed so as to live a lavish lifestyle, or a gang engaged in commercial smuggling. The courts
in considering an appropriate sentence do take into account as aggravating factor the fact that
a fraud was motivated by the offender’s need to enrich himself at the expense of the fiscus.97
It is important to note that the financial benefit gained need not be received by the offender
directly. A benefit may be secured indirectly e.g. as commissions or performance bonuses.
‘Financial gain’ can be taken into account for purposes of sentencing even if the offender for
some or other reason never actually directly received any part of the benefit, as long as it is
evident that his conduct was wholly or partly motivated by the prospect of securing that
benefit.

(e) Previous convictions

The fact that the offender has previously been convicted may be an aggravating factor.98 The
fact that the offender has previously been convicted on dishonesty offences, but especially
offences similar to those under consideration, not only reflects negatively on his prospects for
rehabilitation, but may also be indicative of a lack of remorse.

(f) The fact that the offender acted in breach of a trust-relationship

In considering an appropriate sentence, the courts may also take into consideration as an
aggravating factor, the fact that the offender committed the crime in breach of a trust-
relationship.99 It will be wrong however to assume a trust relationship to exist only in those
cases where the offender acted as an officer of a company, accountant, auditor, revenue
inspector etc. The relationship that exists between the taxpayer and the Revenue can also be
viewed as one built on trust. This is especially so in a self-assessment tax system where heavy

and systematic tax fraud involves a substantial sum of money the offender should usually be required to serve a
term of imprisonment particularly where, as in this case, it is not an isolated act but is persisted in for some
time.”
95
See e.g. the English cases of R v Ollerenshaw [1998] EWCA Crim 1306; R v Dosanjh [1998] EWCA Crim
1450; R v Rodwell [1999] EWCA Crim 879
96
See e.g. R v Elvin [1997] ACTSC 1 where the court accepted that almost all the tax evaded was not diverted
for the offender’s personal use. Higgins J inter alia remarked that: “Had that income merely been diverted to the
personal use of the offenders, their culpability would, prima facie, be considerable.” Also see R v Bromley
[2010] VSC 345 and R v Stewart and Others [1987] Cr App R(S) 135
97
See e.g. Beard v The Queen supra; R v McKenna [1999] NSWCCA 358; R v Elvin [1997] ACTSC 1
98
See e.g. the Australian case of R v Kelvin [2000] NSWCCA 190. Also see S v Hickman [2008] NAHC 142.
Also see the Australian case of R v Brown [2001] QCA 553 and the New Zealand case of The Queen v Butler
[2003] NZCA 21. See the Criminal Justice Act 2003 (UK) under section 98 which reads: "98. References in this
Chapter to evidence of a person's 'bad character' are to evidence of, or of a disposition towards, misconduct on
his part, other than evidence which - (a) has to do with the alleged facts of the offence with which the defendant
is charged …."
99
See e.g. the Australian cases of Beard v The Queen supra; R v Helena Rule [2003] NSWCCA 97; R v Kelvin
[2000] NSWCCA 190. Also see the Canadian cases of R v Viccars 2010 ABPC 351 (Provincial Court of Alberta,
Canada), R v Breakell [2009] A.J. No. 1167 (Court of Appeal - Alberta, Canada)
595 PENALTIES AND PUNISHMENT

reliance is placed on the honesty of the taxpayer.100 In the case of certain taxes such as Value
Added Tax, the collection and declaration of the tax is very much based on trust, with the
VAT vendor for all practical purposes collecting the VAT ‘on behalf’ the Revenue.101

6.3.5.2 Mitigating circumstances

(a) General
In arriving at an appropriate sentence, the courts not only consider the serious nature of the
crime and the unlawful conduct of the offender, but also take into account the circumstances
under which the offence was committed.102 A sentencing court will take into account all the
facts and circumstances of the case that may act in mitigation of sentence. In doing so the
court will also take into account the personal circumstances of the convicted offender. The
court is free to consider any facts or circumstances the consideration of which may be called
for in arriving at an appropriate sentence.103 It is when considering mitigation in sentence that
the personal circumstances of the offender very much come to the fore. The weight that will
ultimately be attached to the personal circumstances of the offender will be determined by the
court after careful consideration of all the facts and circumstances of the case, keeping in
mind all the objectives of punishment. In doing so, the sentencing court will always keep in
mind the serious nature and prevalence of the crime, and the interests of the community. The
serious nature of an offence, the interests of the community, and policy considerations will
often outweigh the personal circumstances of the offender.104 The presence of mitigating
circumstances, especially where they are compelling, can make a significant difference in the
sentence ultimately handed down. In some instances the cumulative weight of those
circumstances may mean the difference between imprisonment and a non-custodial sentence,
even in cases where imprisonment is the norm.105

(b) Age, frailty, poor state of the offender’s health

Age, frailty, and the poor physical state of the offender are factors which a sentencing court
may take into consideration for purposes of sentencing. Bad health and frailty may be taken
into account as a mitigating factor.106 The weight a sentencing court will attach to the

100
See the Australian case of Putland v R [2004] HCA 8 where Kirby J inter alia quoted the following remark
from the judgement of the court a quo: “The tax system is based on trust and depends, for its effective operation,
on the honesty of taxpayers.”
101
See S v Saeed [2006] SCA 43 (RSA) where Lewis JA said: “By its nature the system of VAT collection is
dependent on the trustworthiness of the VAT vendor.” Lewis JA found that the appellant “had breached the trust
of the fiscus”, a factor which the court considered to have weighed heavily against a non-custodial sentence.
102
See e.g. the Australian cases of The King v. Harris, Scarfe & Co. Ltd 8 C.L.R. 225 and The King and Another
v Tuckett [1914] HCA 62
103
See Ex Parte Minister Of Justice (In Re Berger) 1936 AD 334 where at 339 it was said: “Everything that
adversely affects the accused in his person, his occupation or his property is part and parcel of the punishment
inflicted upon him”. R v Ollerenshaw [1998] EWCA Crim 1306; R v Dosanjh [1998] EWCA Crim 1450
104
In the Canadian case of The Queen v Ahir (1986, N.S.Co.Ct.) the defendant was convicted of a revenue fraud.
In this matter the cultural background of the offender (to the extent that it may have contributed to the offending)
was held not to be a mitigating factor. Whether or not a particular offender's cultural background did if fact
contribute towards the commission of the crime or otherwise, in today's multicultural societies the acceptance of
unique cultural backgrounds as a mitigating factor will, on policy considerations alone, be wholly untenable.
105
See e.g. the Australian case of R v Elvin [1997] ACTSC 1 where Higgins J inter alia said: “Whilst those who
set out to defraud the revenue of substantial sums of money can ordinarily expect a custodial penalty, it is not
necessarily the case that substantial remorse, cooperation and reparation will not so mitigate the proper penalty
that the custodial term cannot be wholly suspended, particularly if the level of culpability is less than that usually
found.”
106
See e.g. R v Warren [1996] EWCA Crim 1791 (England and Wales Court of Criminal Appeal). See the
Canadian cases of R v Viccars 2010 ABPC 351 (Provincial Court of Alberta, Canada) and Galloway v The
Queen 69 DTC 5023. In the Australian case of R v Tacey [1994] QCA 15 the taxpayer’s existing medical heart
condition, and the unacceptable risks associated with imprisonment, was taken into account as a mitigating
596 PENALTIES AND PUNISHMENT

offender's health (as a mitigating factor) will depend on the facts of the case. This will very
much depend on factors such as the nature of the offender's medical condition, whether it is
terminal or otherwise, the medical facilities and resources available for prisoners, the nature
of the offences for which he was convicted,107 the likelihood of the offender re-offending in
spite of his medical condition, the offender’s dignity, and a host of other factors.

(c) Diminished capacity

A court may find that an offender, judged on all the facts and circumstances of the case, did
not possess the required capacity to be held criminally liable for his part in the crime. This
will be the case in those circumstances where the offender, at the time of the commission of
the crime, did not possess the capacity to distinguish between right and wrong and/or did not
possess the capacity to act in accordance with that appreciation. Assuming the offender is held
to be criminally responsible for his conduct, then, the next line of inquiry is whether his moral
blameworthiness was lessened as a consequence of the mental illness or impairment.
Diminished capacity due to circumstances such as psychopathy, pressure on the accused, a
medical condition, dependency etc may, depending on the legal framework of any given
jurisdiction, be taken into account as a mitigating factor.108 The destructive effect of
compulsive vices such as gambling and drug dependency on the life of the dependent person
has long been recognized. The inability to control the dependency is often associated with
diminished mental resistance. Dependencies such as drug dependency and gambling addiction
can be very expensive, and it is thus not surprising to find that many of these individuals turn
to theft from their employers, theft from trust-funds, tax evasion et cetera.109 It can be safely

factor. In another Australian case - R v McKenna [1999] NSWCCA 358 (New South Wales Court of Criminal
Appeal), the accused in that case was convicted on charges relating to a tax fraud perpetrated on the Australian
Tax Office. Although the court did take into account the accused's HIV positive status, the court nevertheless
sentenced him to 6 years imprisonment with a minimum of 3 years to be served. The sentence was confirmed on
appeal. Also see R v Elvin [1997] ACTSC 1 and R v Bromley [2010] VSC 345
107
See the Australian case of R v Sakovits [2013] NSWSC 464 where it was said that: "It is accepted that an
offender's psychological and medical health and age may increase the hardship of a sentence and may therefore
be taken into account in deciding what sentence is appropriate, but that consideration is limited by the necessity
of maintaining proper standards of punishment: R v Hart [1999] NSWCCA 204 per Sperling J at [8]. Whilst a
sentencing judge is entitled, in arriving at the appropriate penalty, to take into account an offender's age, health,
generally speaking, those factors of themselves do not mean that a term of imprisonment should not be imposed
if it is otherwise warranted. They are factors that may, instead, affect the length of a custodial sentence."
108
See e.g. Thompson v The Queen [2005] WASCA 223 (Supreme Court of Western Australia). In this matter
the offender was a chartered accountant who defrauded his clients and the Australian Tax Office out of large
amounts of tax. On appeal against sentence, it was submitted that the offender before and at the time of the
offences, suffered from severe depression, bipolar disorder and from time to time also suffered from various
degrees of disassociation. It was nevertheless held that he did possess the required capacity to appreciate the
unlawfulness of his conduct and that he did possess the capacity to act in accordance with that appreciation.
Accepting that his mental illness did influence his behaviour, his mental state of mind was taken into account as
a mitigating factor for purposes of sentencing. The court inter alia explained the relevance of mental illness to
sentencing as follows (at paragraph 59): “It is settled that serious psychiatric illness not amounting to insanity is
relevant to sentencing. In R v Tsiaras [1996] 1 VR 398 at 400, Charles and Callaway JJA and Vincent AJA said
that this was so in at least the following five ways: “First, it may reduce the moral culpability of the offence, as
distinct from the prisoner's legal responsibility. Where that is so, it affects the punishment that is just in all the
circumstances and denunciation of the type of conduct in which the offender engaged is less likely to be a
relevant sentencing objective. Second, the prisoner's illness may have a bearing on the kind of sentence that is
imposed and the conditions in which it should be served. Third, a prisoner suffering from serious psychiatric
illness is not an appropriate vehicle for general deterrence, whether or not the illness played a part in the
commission of the offence. The illness may have supervened since that time. Fourth, specific deterrence may be
more difficult to achieve and is often not worth pursuing as such. Finally psychiatric illness may mean that a
given sentence will weigh more heavily on the prisoner than it would on a person in normal health.”
109
See Duffield & Grabosky, “The Psychology of Fraud” (2001) Trends and Issues in Crime and Criminal
Justice No 199, 1-6 at 2 where it is inter alia said: “Other sources of financial stress may result from lifestyle
choices, the most prominent of which is compulsive gambling. In contemporary society the cost and addictive
597 PENALTIES AND PUNISHMENT

said that in tax fraud cases, a criminal court will not lightly find a taxpayer to have lacked the
required capacity to distinguish between that which is lawful or unlawful, and/or to have
lacked the capacity to act in accordance with that appreciation. Evidence proving the presence
of factors or circumstances so often present in tax fraud cases, e.g. complex income
generating activities, planning and premeditation, complex misrepresentations, et cetera, will
in most instances strongly suggests conduct, cognitive ability, and levels of control, not
generally associated with someone who lacks capacity.

(d) Influence or pressure on the offender and/or vulnerability of the offender

The circumstances we find ourselves in at any given point in time can and often do impact on
our judgment, our resistance to temptation, our resistance to pressure, and our actions. The
nature or severity of the pressure or temptation we face may impact on our judgment and
actions. At the individual level people also do not possess the same strength of character, and
qualities of judgement when faced with the same pressures or temptations. All people do not
possess the same intelligence, foresight, coping skills, and conative capacity. Some people
may just be weak people in all situations and settings, whereas others may momentarily find
themselves in a position of weakness or in a situation where they are vulnerable. The
vulnerable and weak will often be targeted, tempted and pressured for the very fact that they
are vulnerable and weak. Those individuals will often have very limited options available to
them to start with. It is a reality of life that jails are filled with people who gave in to
circumstances, pressures and temptations. In the absence of an excuse negating criminal
liability, the commission of a fraud, or assisting with the commission thereof, can never be
excused. This however is not to say a sentencing court is to ignore those circumstances which
may have contributed to the offender's offending. Is a court to paint with the same brush the
greedy corporate executive and the unemployed and financially dependent partner in an
abusive relationship who went along with or assisted in the commission of a tax fraud under
pressure from or fear of retaliation from her violent and domineering partner ? Assume truck
driver X employed by employer Y becomes aware of the pharmaceuticals on his truck being
counterfeit controlled product. He approaches his manager and protests. The manager answers
him with the veiled threat of "if you know what is good for you and your family, deliver the
freight and keep your mouth shut". Not sure how to extricate himself from the situation driver
X decides to proceed with the delivery and to keep on doing the deliveries until such time as
he can come up with a solution. His truck is however stopped and searched shortly after and is
found to be laden with the counterfeit medication. Assuming he is prosecuted and convicted,
is the sentencing court to ignore his peculiar circumstances ? To do so will affront the sense of
justice of most people. Or consider the example of a tax practitioner convincing his clients of
the legality of a particular tax evasion scheme, a scheme the taxpayers subsequently discover
to be fraudulent. Once they realise the scheme is fraudulent they cannot just hold their peace,
go along with it and subsequently wash their hands of responsibility when arrested. But
assume they are arrested shortly after they learn of its illegality but at a time when they were
still considering how to approach the matter … can they be said to be just as blameworthy as
the taxpayer who personally planned a fraud, premeditated with the objective to defraud ?110

properties of illicit drugs may also contribute to financial stress on the part of those individuals who indulge in
them. Relationship breakdowns can also cause acute stress, both financial and emotional. ... This constellation of
factors reflects the old-time detectives’ explanation of what turns a person to fraud – sexual relationships,
substance abuse and risk-taking or gambling.”
110
In these types of cases the sentencing court will obviously take into account all the surrounding facts and
circumstances. See the Australian case of R v Sakovits [2013] NSWSC 464 where it was said that: "In R v
Boughen; R v Cameron a submission was made that weight should be given to the fact that the respondents had
been inveigled or lured into the scheme. Simpson J however observed: "[95] ... Had the fraudulent conduct
ceased on, or soon after, the respondents' realisation of its true character, this circumstance may have had some
weight. Given that the conduct continued for another seven years after that realisation, its significance is
598 PENALTIES AND PUNISHMENT

Organised crime networks and many conspiracies will often involve different offenders
playing very different roles in the criminal operation, often not sharing the same knowledge
and objectives. It is not uncommon to find certain individuals being influenced, dominated or
intimidated by other dominant role-players. This is common where the crime network or
conspiracy involve family members with strong familial hierarchies and loyalties, or where
the organisation is one known for its violence and as one not tolerating dissent. Sentencing
courts may take into account any pressures on the offender that may have contributed to his
offending.111 This then is also rightly so.

(e) Disbarment from a profession, loss of employment and income

It need not be said, that a conviction on a charge of fraud or evasion can also impact on an
offender’s current employment, future employability, wealth, and future earning potential.
Professionals such as accountants or attorneys may typically be found not to be fit to practice
as such in the future, or an offender may for example be disqualified from acting as a
company director.112 The loss of employment, the disbarment from professional registration,
or the loss of income or wealth, as potential consequences of conviction, are factors impacting
on the offender’s personal circumstances. These are factors which courts have in the past
taken into account as mitigating factors.113

(f) Disgrace, shame, and loss of reputation

The public disgrace, shame, and loss of reputation suffered by the offender as a result of
disciplinary action, suspension, dismissal, negative publicity in the media, standing accused in
a criminal court, and conviction, are factors the courts do tend to take into account as
mitigating factors.114 The weight a sentencing court will attach to these circumstances will
very much depend on the character and circumstances of the offender. For certain offenders,
the shame and disgrace may in itself be a hard blow. These consequences may however be of
limited significance for others.

(g) Cooperation of taxpayer

The investigation and prosecution of commercial crimes such as tax fraud can be drawn-out
affairs and are resource intensive. Many tax frauds are only unravelled and referred for
prosecution after years of investigation. This may follow after hundreds or in certain instances
even thousands of working days spent on the investigation of a single matter. Co-operation is
viewed on favourably for a number of reasons such as: (i) the fact that it saves time in terms
of investigation and prosecution;115 (ii) co-operation often proves indispensable in unravelling
the extend of the fraud and in securing convictions against others who participated;116 and (iii)

diminished to almost nothing." Whilst there are relevant difference in those cases, given the jury's verdict in the
present cases, a similar view must, in my view, be taken."
111
See e.g. the Australian cases of Caratti v The Queen [2000] WASCA 279 and R v Holland [2002] WASCA
265. Also see the English cases of R v Mann [1998] EWCA Crim 317 and R v Czyzewski [2003] EWCA Crim
2139
112
See e.g. DPP v. Paul Begley [2013] IECCA 32. In England a director can be disqualified from acting in that
capacity under the Company Directors Disqualification Act 1986
113
See e.g. the Australian cases of R v Kelvin [2000] NSWCCA 190 and R v Tacey [1994] QCA 15. Also see R v
McParland & Anor [2007] NICC 39. Also see the Canadian cases of R v Viccars 2010 ABPC 351, R v Breakell
[2009] AJ No 1167
114
See Cross, & Jones, An Introduction To Criminal Law 3rd ed at 147
115
R v Holland [2002] WASCA 265
116
R v Holland [2002] WASCA 265; R v Ollerenshaw [1998] EWCA Crim 1306. See R v Warren [1996]
EWCA Crim 1791, where the Court taking into account as mitigating factor the cooperation of the accused
stated: “.. had the appellant not been so frank the authorities would not have known about the earlier trips; they
would not have known the name of the person who was paying the appellant; and they would not therefore have
599 PENALTIES AND PUNISHMENT

it often assists with the speedy tracing and collection of evaded taxes and the proceeds of
crime.

The fact that the taxpayer cooperated with the authorities during a criminal investigation
and/or prosecution is a factor which a court may take into account as a mitigating factor when
considering an appropriate sentence.117 Courts have for example taken into account the fact
that the offender had kept proper records and notes which enabled the Revenue to calculate
and recover the amount of tax evaded,118 the fact that the taxpayer did not deny the facts
alleged against him and accepted and paid the assessments raised for the evaded taxes and
penalties,119 the fact that the offender voluntarily implicated other offenders,120 and the fact
that the offender offered his cooperation to the authorities knowing that he may face severe
hardship or retribution at the hands of other participants.121

Taking into account the cooperation of offenders serves as an incentive for cooperation. This
being said, a sentencing court need consider the weight to be attached to any such
cooperation, taking into account the time when it was forthcoming and the extent and value of
that cooperation. A mere undertaking to cooperate in the future is not good enough unless
satisfactory future cooperation is a condition tied into the sentence. The Australian courts
have in the past taken into account such an undertaking, but the sentence handed down was
framed in such a way as to ensure leniency on condition of satisfactory future cooperation.122

(h) Remorse
In considering a suitable sentence, the courts do take into account remorse shown by the
offender. Whether or not that remorse is genuine and the extent of that remorse can only be
answered after due consideration of all the facts of the case. The presence or absence of
remorse will be inferred from the offender’s conduct. In many instances this conduct may
manifest itself during the criminal investigation and trial. True remorse or the absence thereof
can be inferred from many of the same factors considered to be aggravating or mitigating
factors. Examples of circumstances that may be indicative of remorse are cooperation and
reparation by the offender.123 The courts will often infer a lack of remorse from conduct such
as the destruction of evidence, continued deceit, and attempts to divert evaded funds out of the
Revenue’s reach even after commencement of the investigation into his affairs or during his
trial.

known the extent of the operation in which he was involved. The calculation of Customs & Excise was that the
amount of duty evaded by the activities of the appellant was something in the region of £50000.”
117
See R v Czyzewski [2003] EWCA Crim 2139, where cooperation with the authorities, but in particular
assistance with the prosecution of other offenders was stated to be a mitigating factor. Also see R v Elvin [1997]
ACTSC 1 where (at paragraph 66), Higgins J inter alia remarked: “The fourth observation relates to the role of
cooperation and reparation. ... as with a plea of guilty, it is a relevant matter favouring leniency. The weight to be
accorded to it depends, as with a plea of guilty, on the implication as to remorse and a desire to make amends
which the reparation in the circumstances discloses. The degree of hardship accepted by the offender in making
reparation is also material.” Also see R v James [1997] EWCA Crim 624; DPP v. Paul Begley [2013] IECCA
32; R v Small & Anor [2010] NICC 6; L. Vogel & Son Pty. Ltd v Anderson [1967] HCA 46; R v Brown [2001]
QCA 553; R v Cappadona [2001] NSWCCA 194; R v Bromley [2010] VSC 345.
118
R v Hammond [1997] EWCA 2027.
119
See e.g. R v Elvin [1997] ACTSC 1
120
See e.g. the Australian cases of R v Elvin [1997] ACTSC 1; R v Cappadona [2001] NSWCCA 194
121
R v Holland [2002] WASCA 265
122
See R v Holland [2002] WASCA 265 where the offender, following a conviction on charges of tax fraud, was
sentenced to 3 years imprisonment with a further 12 months reduction in sentence made subject to satisfactory
future cooperation.
123
See e.g. R v Elvin [1997] ACTSC 1
600 PENALTIES AND PUNISHMENT

(i) Previous good record and standing

A sentencing court may also, in considering an appropriate sentence, take into account as
mitigating factor the fact that the offender is of previous good character and standing.124 The
force of the offender’s previous good record and standing will however be affected by
prolonged and repeated acts of dishonesty.125 It is to be said that sentencing courts do not
generally attach much weight to previous good standing as mitigating factor.126

(j) Children, family, employees

The impact of a sentence on the offender’s family, especially so where he/she has dependents,
is a factor which a sentencing court may take into consideration as a mitigating factor. 127 The
fact that the offender is an employer whose incarceration will on the facts of the case lead to
job losses is also something a sentencing court may take into consideration.

(k) A guilty plea

The fact that an offender pled guilty is usually considered a mitigating factor.128 A guilty plea
avoids a lengthy and drawn-out trial.129 An early plea may also indicate remorse. The weight
that a court will attach to the offender’s guilty plea will vary depending on the facts of the
case. It is important not to lose sight of the fact that the offender’s guilty plea will not
necessarily always be motivated by a true sense of remorse, but will often follow in the face
of a strong prosecution case. In considering the mitigating weight to be attached to a guilty
plea, the court may take into account factors such as the time of the plea, the strength of the
prosecution case, and other circumstances that may have prompted the offender to enter the
plea.130

124
See the Canadian, English and Australian cases of R v Viccars 2010 ABPC 351 (Provincial Court of Alberta,
Canada); R v Breakell [2009] A.J. No. 1167 (Court of Appeal - Alberta, Canada); R v Dosanjh [1998] EWCA
Crim 1450; R v Ollerenshaw [1998] EWCA Crim 1306; R v Mann [1998] EWCA Crim 317; R v James [1997]
EWCA Crim 624; R v Owens and Anor [2006] EWCA Crim 2206; R v Kelvin [2000] NSWCCA 190; R v Elvin
[1997] ACTSC 1; R v Stewart and Others [1987] Cr App R(S) 135. Also see R v McParland & Anor [2007]
NICC 39; R v Small & Anor [2010] NICC 6.
125
See the Australian case of Beard v The Queen [2003] WASCA 262. Also see R v Sakovits [2013] NSWSC
464 where it was said that: "Whilst the absence of any criminal antecedents is a factor to be taken into account, it
has been accepted that less weight is to be given to good character where the offending has involved systematic
defrauding of the revenue: R v Rivkin (2004) 184 FLR 364 at [410]."
126
In R v Czyzewski [2003] EWCA Crim 2139 it was said to be a factor that may be taken into account as a
mitigating factor, but to a “limited extent”. Also see R v Elvin [1997] ACTSC 1 where Higgins J referring to the
weight to be attached to previous good character as a mitigating factor in tax fraud cases, inter alia remarked:
“In most of these cases there is prior good character. Little weight therefore is accorded that factor ... “
127
See e.g. R v Small & Anor [2010] NICC 6 where the fact that imprisonment of both parents would leave
young children without parents was viewed as compelling. Both parents (conspirators in the same fraud)
nevertheless received custodial sentences despite the fact that their imprisonment left 3 young children with both
parents in prison.
128
R v Czyzewski [2003] EWCA Crim 2139; S v Saeed [2006] SCA 43 (RSA); Estate Agency Affairs Board v
Mclaggan and Another [2005] ZASCA 34; R v Holland supra, Beard v The Queen supra; R v Bromley [2010]
VSC 345; R v Dosanjh [1998] EWCA Crim 1450; R v Rodwell [1999] EWCA Crim 879; R v Ollerenshaw
[1998] EWCA Crim 1306; R v Mann [1998] EWCA Crim 317; R v James [1997] EWCA Crim 624. S v Kearns
[1999] ZASCA 85; R v Elvin [1997] ACTSC 1; R v Cappadona [2001] NSWCCA 194; DPP v. Paul Begley
[2013] IECCA 32; R v McCorry [2005] NICA 57; R v Stewart and Others [1987] Cr App R(S) 135
129
See R v Kelvin [2000] NSWCCA 190; See e.g. R v Elvin [1997] ACTSC 1
130
See the Criminal Justice Act 2003 (UK) under section 144 which reads: "144. Reduction in sentences for
guilty pleas (1) In determining what sentence to pass on an offender who has pleaded guilty to an offence in
proceedings before that or another court, a court must take into account - (a) the stage in the proceedings for the
offence at which the offender indicated his intention to plead guilty, and (b) the circumstances in which this
indication was given." Also see e.g. R v Kelvin [2000] NSWCCA 190 and R v Dosanjh [1998] EWCA Crim
1450. Also see the Australian case of Beard v The Queen [2003] WASCA 262 where Parker J remarked: “The
strength of the prosecution case, which I would think is correctly described as compelling such that conviction
was virtually inevitable, together with the lateness of the plea of guilty, lessened the weight properly to be given
601 PENALTIES AND PUNISHMENT

(l) Reparation made

The courts do take into account reparation by the taxpayer when considering an appropriate
sentence.131 There are a number of reasons why the repayment of evaded taxes may be taken
into consideration for purposes of sentencing. These may be considerations such as but not
limited to the fact that: (i) it may be evidence of a true sense of remorse and the intention to
make good a wrong that has been committed; (ii) the money was recovered and thus no actual
loss suffered; (iii) the offender did not benefit from his crime; and (iv) the offender did not
waste the Revenue’s time with unnecessary litigation. The weight to be attached to reparation
made is to be considered with great care. A person convicted of evasion remains liable for the
duties or taxes evaded. In Britain the evaded taxes are a debt due to the Crown.132 This is also
the case in most other jurisdictions. The Revenue will recover any amount of tax evaded
together with interest thereon, regardless any subsequent decision by the taxpayer to repay the
amounts evaded and regardless a subsequent conviction. A conviction for an offence
involving the evasion of tax does not exempt a person from the payment of that tax. Whether
or not the collection will always be successful is a different matter. The taxpayer may well
repay the evaded taxes knowing that the Revenue will recover it in any event. In many
instances the taxpayer will only do so following the issue of assessments, after being advised
to do so by his lawyers or accountants, or in the hope of the matter not escalating to a criminal
prosecution. The taxpayer will thus not always refund the amounts out of remorse and/or in an
attempt to make amends. A sentencing court therefore need investigate the offender’s reasons
for repaying the amounts in question, the time of and circumstances surrounding the
repayment, and whether or not the Revenue would have suffered actual prejudice had it not
been for the repayment, when considering the weight to be attached to the repayment.133

6.3.6 Confiscation and Compensation orders

6.3.6.1 Confiscation orders
In the UK, parts 2-4 of the Proceeds of Crime Act 2002 inter alia provides for (a) the
confiscation of the proceeds of crime from convicted persons who benefited from crime; (b)
restraint orders; and (c) compensation orders. It is for the court to decide if the defendant has
benefited from his criminal conduct. Where a court should find that a defendant did so benefit
from his criminal conduct, then it must decide on the recoverable amount and make the
appropriate confiscation order. A confiscation order is an order of the court requiring the
convicted person to pay a specified amount of money by a date as laid down by the court. The
failure to comply with the confiscation order may be met with an additional period of

to the plea of guilty in mitigation of punishment.” Also see the Australian cases of R v Tacey [1994] QCA 15 and
R v Brown [2001] QCA 553 where the court took into account the fact that the taxpayer pleaded guilty at an
early stage. In the Canadian case of R v Viccars 2010 ABPC 351 (Provincial Court of Alberta, Canada), the
Court considered the taxpayer's guilty plea but attached no weight to it as mitigating factor considering it was
only offered eight years after commencement of the trial.
131
DPP v. Paul Begley [2013] IECCA 32; S v Kearns [1999] ZASCA 85; R v Holland [2002] WASCA 265; R v
Kelvin [2000] NSWCCA 190; R v Tacey [1994] QCA 15; R v McParland & Anor [2007] NICC 39; R v Small &
Anor [2010] NICC 6. Also see R v Elvin [1997] ACTSC 1 where (at paragraph 66), Higgins J inter alia
remarked: “The fourth observation relates to the role of cooperation and reparation. ... as with a plea of guilty, it
is a relevant matter favouring leniency. The weight to be accorded to it depends, as with a plea of guilty, on the
implication as to remorse and a desire to make amends which the reparation in the circumstances discloses. The
degree of hardship accepted by the offender in making reparation is also material.”
132
R v Glatt [2006] EWCA Crim 605.
133
See the Canadian case of R v Maloney [1942] CTC 77 Que Sess Ct, where the offender paid the money
shortly after assessment but before sentencing. The court considered the repayment not to have any significant
effect in determining sentence.
602 PENALTIES AND PUNISHMENT

imprisonment.134 In the UK, the proceeds of revenue frauds are viewed as the proceeds of
crime. Even where a person or trader earns money in undertaking a legitimate business or
trade, any taxes evaded on the income so generated will be viewed as a benefit derived from
criminal conduct. The proceeds from this fraudulent evasion thus fall to be treated as
‘criminal property’ under the Proceeds of Crime Act 2002. In Britain, the making of
confiscation orders in tax fraud prosecutions is common.

6.3.6.2 Compensation
Reparation by offenders to persons affected by crime has long been viewed as one of the key
objectives of sentencing. The legislation of many jurisdictions provide for the making of
compensatory awards for damage or loss suffered by the victim of a convicted offender's
criminal conduct.135 Compensation orders are an important means of achieving the objective
of reparation.136 A compensation order is however no more but an order for compensation and
is not a form of punishment.137 It is awarded in addition to punishment, not in lieu of it.138
This then is also the correct approach. There is no justice in allowing for those who have the
money to pay, to buy their freedom with the money they misappropriated to start with. 139 In
the UK, the Powers of Criminal Courts (Sentencing) Act 2000140 provides for compensation
orders to be awarded in certain circumstances. Section 130(1) of the Act inter alia read as
follows:

"130. Compensation orders against convicted persons.

(1) A court by or before which a person is convicted of an offence, instead of or in addition to
dealing with him in any other way, may, on application or otherwise, make an order (in this
Act referred to as a “compensation order”) requiring him -
(a) to pay compensation for any personal injury, loss or damage resulting from that offence or
any other offence which is taken into consideration by the court in determining sentence; …"

Such a compensation order must be of such amount as the court considers appropriate, having
regard to any evidence and to any representations that are made by or on behalf of the accused
or the prosecutor.141 In determining whether to make such a compensation order against any
person, and in determining the amount to be paid, the court must have regard to that person's
means to pay it.142 Where the court considers it appropriate to impose both a fine and

134
Part 2 (section 6), Part 3 (section 92), Part 4 (section 256). See e.g. R v Bajwa & Others [2011] EWCA Crim
1093
135
See e.g. section 130 of the Powers of Criminal Courts (Sentencing) Act 2000 (UK) and section 300 of the
Criminal Procedure Act 51 of 1977 (South Africa)
136
See Black. A Law Dictionary, 2 d Ed at .283 where 'compensation' is defined as: "Compensation:
Indemnification; payment of damages; making amends; that which is necessary to restore an injured party to his
former position. An act which a court orders to be done, or money which a court orders to be paid, by a person
whose acts or omissions have caused loss or injury to another, in order that thereby the person damnified may
receive equal value for his loss, or be made whole in respect of his injury."
137
See R v Miller (1979) 68 Cr App R 56 where the court appropriately stated: “a compensation order is not an
alternative to a sentence”
138
See Cross, & Jones, An Introduction To Criminal Law, 3rd ed at 4 where it is said: “.. a criminal court may
occasionally order compensation or restitution to be made to the victim of the crime, but this does not alter the
fact that the primary objective of the criminal law is the punishment of the offender. The compensation or
restitution that may be awarded is in addition to, not in lieu of, punishment ....”.
139
See the Australian case of R v Elvin [1997] ACTSC 1 where (at paragraph 66), Higgins J correctly remarked:
“The fourth observation relates to the role of cooperation and reparation. It is true that the perception that those
who have profited from tax evasion can buy freedom from incarceration either from the profits of that evasion or
their accumulated wealth must be avoided.”
140
Received Royal Assent on 25 May 2000
141
Section 130(4)
142
Section 130(11)
603 PENALTIES AND PUNISHMENT

compensation order, but where it is accepted that the offender has insufficient means to pay
both such fine and the compensation, then the court must give preference to compensation
(although it may impose a fine as well).143 A court must give reasons, on passing sentence, if
it does not make a compensation order and where section 130 empowers it to do so.144

Compensation orders must be distinguished from the confiscation orders provided for in the
Proceeds of Crime Act 2002.145 In R v Jawad,146 Lord Justice Hughes explained the difference
between the two in the following terms:

"A compensation order and a POCA confiscation order are two very different things. They
derive from quite separate statutes and they serve different purposes. The power to make a
compensation order is now derived from section 130 Powers of Criminal Courts (Sentencing)
Act 2000. Historically the power existed long before any proceeds of crime legislation and has
not been modified as a result of it. A POCA confiscation order is designed to remove from the
defendant the fruits of crime. A compensation order has a different purpose; it is designed as a
limited and summary method of ordering the defendant to repay the loser and is available to
short-circuit a civil action against the defendant in a straightforward case. Because the two
orders serve different purposes, it has been held on several occasions in the past that there is no
obstacle to making both orders in the same case."

For a court to make either a confiscation or compensation order, such a court will need an
indication of the extent of the benefit obtained or the damage or loss suffered. For this reason
then the Revenue need make an effort in quantifying the amounts in duties and taxes evaded
as most courts are unlikely to pass orders of this nature in the absence of evidence as to the
amounts in fact evaded.

6.3.7 Sentencing Tariffs and Guidelines

Minimum sentences and sentencing tariffs may have a significant impact on the sentence a
convicted offender can expect to be handed down.147 These are found in many jurisdictions
including the United States, the United Kingdom, and as far afield as South Africa. 148 The
enactment of legislation and guidelines prescribing minimum sentences or sentences within
certain tariffs is usually motivated by the legislature’s intention to ensure consistency, to
counter disparities in sentencing, and to ensure the sentences for certain categories of crime
are appropriate with sufficient deterrent value. Tariffs and minimum sentences do provide for
a greater level of consistency, and can also be argued as promoting certainty and greater

143
Section 130(12)
144
Section 130(3)
145
As to the operation of the compensation regime after the order has been made, Lord Justice Hughes in R v
Jawad [2013] EWCA Crim 644 explained: "A compensation order requires the defendant to pay the specified
sum to the court, for the benefit of the loser. It is not the equivalent of a civil judgment in favour of the loser. Its
enforcement depends on section 41 and Schedule 9 of the Administration of Justice Act 1970, taken together
with Part III of the Magistrates Courts Act 1980. The compensation order is, by these provisions of the
Administration of Justice Act 1970, treated for the purposes of enforcement as if it had been made by the
magistrates (the particular magistrates' court is specified in the order). It is then enforceable by the magistrates."
146
[2013] EWCA Crim 644
147
Offences carrying severe penalties may prove particularly effective in one respect. They force suspects to
give serious consideration to cooperation and entering into a plea bargain (in those jurisdictions where plea
bargains are provided for). In the United States for example, offenders facing charges under the RICO statutes
will often opt for a plea bargain rather than risk two decades in prison.
148
See e.g. section 51 of the Criminal Law Amendment Act 105 of 1997 (South Africa) which provides for the
imposition of minimum sentences of 15 years imprisonment in relation to offences such as fraud, forgery,
uttering, and corruption where the amounts involved are over certain thresholds. The South African courts may
only deviate from those sentences where material and compelling circumstances warrants a reduced sentence.
See S v Malgas [2001] ZASCA 30; Kimberley and Another v S [2005] ZASCA 78
604 PENALTIES AND PUNISHMENT

equality when it comes to the sentencing of different offenders convicted of comparable

offences. This all being said, sentencing tariffs and minimum sentence provisions do not
come without criticism considering the greater degree of inflexibility and the interference
with the judicial discretion that comes with it.

In some jurisdictions, guidelines may be laid down by higher courts and/or sentencing
councils, guidelines the courts are often expected to follow, but are not necessarily cast in
stone. In Britain for example, the Criminal Justice Act 2003 requires that a court when
sentencing an offender must have regard to any guidelines as published by the Sentencing
Guideline Council which may be relevant to the offender's case.149 These guidelines remain
guidelines from which a sentencing court may deviate, but where it chooses to do so it need
give good reasons for doing so.150 In the United States, the Federal Sentencing Guidelines as
issued by the United States Sentencing Commission are not mandatory, but sentencing courts
must consider them when determining an appropriate sentence. Sentencing judges may depart
from those guidelines but they must provide an explanation for any such departure.151

6.3.8 Publication of names of offenders

Most revenue authorities place at a high premium press coverage received on tax-related
convictions. Publicity of searches and seizures, arrests, and convictions is viewed as a
valuable general deterrent. A conviction for tax evasion or fraud may pose a significant
reputational risk. This is especially so in the case of corporations sensitive about the
reputation of the brand. The legislation of most jurisdictions provide for the publication of the
names of tax offenders where convicted for certain categories of offences. The mere risk of
conviction and the resulting bad publicity may be sufficient to deter many taxpayers from
offending.152 Public disgrace as a form of punishment for revenue related offences has in fact
long been an acceptable form of punishment in certain parts of the world. 153 It must be said
that although 'public disgrace' may still have a deterrent effect for many, the weight to be
attached to disgrace as a deterrent must be considered against the gravity of the offence, the
person of the offender, and the current views prevalent within society. 'Name and shame’

149
Section 172 of the Criminal Justice Act 2003
150
R v Martin [2006] EWCA Crim 1035 and R v Whittle [2007] EWCA Crim 539. In R v Czyzewski supra, Rose
J inter alia said: “We stress two matters. First, our proposals provide guidelines, not a straightjacket. Secondly,
from the starting points indicated, sentencers can be expected to move up by reference to aggravating factors, or
down, by reference to mitigating factors, particularly a prompt plea of guilty and co-operation.” See R v Tongue
[2007] EWCA Crim 561 where it was said that: "once guidelines have been issued it should be the exception
rather than the rule to cite previous cases".
151
These were at first mandatory but were subsequently held to be in breach of a convicted offender's Sixth
Amendment right under the US Constitution. United States v Booker 543 U.S. 220 (2005) (United States
Supreme Court)
152
See Cross, & Jones, An Introduction To Criminal Law, 3rd ed at 147 where it is inter alia said: “ ... the
disgrace of trial and conviction is usually far more powerful as a deterrent than the mere prospect of
imprisonment, powerful though the latter is.”
153
See Simon van Leeuwen, Simon van Leeuwen’s Commentaries on Roman-Dutch Law Vol II and at 578-579,
where the following was inter alia said as to the punishment of those who intentionally evaded the payment of
excise duties: “… those who intentionally transgressed were publicly exposed upon the pillory with a wooden
hood, or were led along all the streets with a cask without a bottom suspended to their body, and they were to
undergo further similar public disgrace..” Also see Lyons, The History of Punishment at 98 where it is inter alia
said that: “The pillory and the stocks represented a diverse method of discipline by ensuring that the shame and
discrimination suffered by a criminal became his direct punishment....Thought to have originated in England in
the 13th century, these devices were later exported to other European countries.” The writer then offers an
example of a man pilloried at Cheapside (England) in 1738 for refusing to pay the government duty on soap. It
this instance the offender was however cheered by his townsfolk throughout his stint, saying much about the
views and sympathies of the public of the time. His townsfolk obviously viewed him more the hero than an
offender.
605 PENALTIES AND PUNISHMENT

tactics can over time loose its deterrent value in societies where the boni mores of the public
at large has drifted to a point where tax evasion is no longer viewed as criminal or even
'wrong', or where they may well live in a society where they are being bombarded with daily
media reports of other categories of crime generally viewed as more serious i.e. violent crime.
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The Financial Times. July 26, 2007. “US to screen all foreign ship cargoes”

The Financial Times, February 19 2009, “UBS settles US tax probes for $780m”

The Financial Times, June 18 2009, “Mafia blamed for $134 bn fake Treasury bills”

The Financial Times, November 17 2009, “US tax amnesty reaps billions for Treasury”

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617 BIBLIOGRAPHY

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The Guardian. February 14, 2003. “Scandal of crashed company’s tax evasion”

The Guardian. June 16, 2005. "Customs man was Mr Big of cocaine gang"

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The Guardian. May 09, 2006. “Revealed: the ₤5bn-a-year tax fraud, Customs scam hits UK
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The Guardian. September 07, 2016. "Switzerland prosecutes UBS banker for helping
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The Independent. May 31, 2005. “Khodorkovsky sentenced to nine years”

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The Mercury. May 31, 2005. “A grey-import car could be an expensive ride”

The New York Times. April 11, 1939. "Torrio and 2 aides admit tax frauds"

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618 BIBLIOGRAPHY

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The Telegraph, 19 November 19, 2014. "Heroin dealer masterminded VAT fraud after
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The Times. June 20, 2006. “Borders left wide open with posts unmanned”

The Times. September 08, 2005. “Vicar who refuses to pay council tax is sent to jail”

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Torgler, B. (2001), “What do we know about tax morale and tax compliance?”, International
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Torgler, B. (2011) Tax morale and compliance: review of evidence and case studies for
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621 BIBLIOGRAPHY

STATUTES

Australia
Acts Interpretation Act 1901
Australian Crime Commission Act 2002
Commonwealth of Australia Constitution Act 1900
Crimes Act 1914
Criminal Code Act 1995
Customs Act 1901
Evidence Act 1995
Financial Transaction Reports Act 1988
Income Tax Assessment Act 1936
Proceeds of Crime Act 2002 (Cth)
Proceeds of Crime Amendment Regulations 2006
Sales Tax Assessment Act (No. 1) of 1930-1933
Taxation Administration Act 1953

Canada
Constitution Act, 1982
An Act respecting the criminal law (R.S.C. 1985, c. C-46, as amended (Criminal Code of
Canada)
Income Tax Act (R.S.C. 1985)

European Economic Community

Convention for the Protection of Human Rights and Fundamental Freedoms, ratified 1950
Council Regulation (EEC) No 2913/92 of 12 October 1992

India
Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act 13 of 1976

Ireland
Interpretation Act 2005

New Zealand
Income Tax Act 2007
Interpretation Act 1999

South Africa
Constitution of the Republic of South Africa 108 of 1996
Criminal Law Amendment Act 105 of 1997
Criminal Procedure Act 51 of 1977
Diamond Export Levy Act 2007
Diamond Export Levy (Administration) Act 14 of 2007
Exchange Control Regulations, Government Gazette number R1111 (Currency and
Exchanges Act 9 of 1933)
Income Tax Act 58 of 1962
Prevention and Combating of Corrupt Activities Act 12 of 2004
Prevention of Organised crime Act 121 of 1998
Tax Administration Act 28 of 2011

United Kingdom
Accessories and Abettors Act 1861
622 BIBLIOGRAPHY

Bail Act 1976

Bribery Act 2010
Commissioners for Revenue and Customs Act 2005
Companies Act 1985
Companies Act 2006
Consumer Protection Act 1987
Crime (International Co-operation) Act 2003
Criminal Attempts Act 1981
Criminal Justice Act 1967
Criminal Justice Act 1988
Criminal Justice Act 2003
Criminal Justice and Public Order Act 1994
Criminal Law Act 1977
Criminal Procedure and Investigations Act 1996
Criminal Procedure Rules 2014
Customs and Excise Management Act 1979
Customs Consolidation Act 1876
Data Protection Act 1998
Drug Trafficking Act 1994
Extradition Act 2003
Finance Act 2000
Finance Act 2004
Finance Act 2006
Finance Act 2007
Finance Act 2013
Forgery and Counterfeiting Act 1981
Fraud Act 2006
Human rights Act 1998
Income Tax Act 2007
Indictments Act 1915
Intelligence Services Act 1994
Interpretation Act 1978
Limitations Act 1980
Magistrates Courts Act 1980
Perjury Act 1911
Police Act 1997
Police and Criminal Evidence Act 1984
Police and Criminal Evidence Act 1984 (Application to Revenue and Customs) Order 2007
(SI 2007/3175)
Powers of Criminal Courts (Sentencing) Act 2000
Proceeds of Crime Act 2002
Regulation of Investigatory Powers Act 2000
Security Service Act 1989
Serious Crime Act 2007
Serious Organised Crime and Police Act 2005
Social Security Administration Act 1992
Taxation (International and Other Provisions Act) 2010
Tax Credits Act 2002
Terrorism Act 2006
Theft Act 1968
Value Added Tax Act 1994
Taxes Management Act 1970
623 BIBLIOGRAPHY

United States
Code of Laws of the United States (U.S.C)
Internal Revenue Code (IRC)
Money Laundering Control Act of 1986
Organized Crime Control Act of 1970
Racketeer Influenced and Corrupt Organizations Act 18 U.S.C, 1961 (RICO)
Revenue Act of 1862
Tariff Act 1842
United States Constitution
624 BIBLIOGRAPHY

TABLE OF CASES

Australia

Adams v Cleeve [1935] HCA 12

Agius v R [2015] NSWCCA 200

Barendse v Comptroller-General of Customs (1996) 93 ACR 212

Beard v The Queen [2003] WASCA 262

Caratti v The Queen [2000] WASCA 279

CEO Customs v CHS Enterprises Pty Ltd and 3 Ors [2007] NSWSC 1133

Ceo of Customs v Coulton [2005] NSWSC 869

Chief Executive Officer of Customs v Amron [2001] VSC 373

Chief Executive Officer of Customs v JMI Trading Pty Ltd & Ors [2000] VSC 537

Chief Commissioner for Business Franchise Licences (Tobacco) & Anor v Century Impact
P/L (Supreme Court of New South Wales, 40784/92 CLD 30062/91) (unreported)

Collector of Customs (N.S.W.) v. Southern Shipping Co Ltd [1962] HCA 20

Collector of Customs v Wallace Laboratories Pty Ltd [2002] FCA 659

Comptroller-General of Customs v D’Aquino Bros Pty Ltd (1996) 135 ALR 649

Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297

De Hollander v The Queen [2012] WASCA 127

Denlay v FCT [2011] FCAFC 63

Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) [1949] HCA 25

DPP v Gregory [2011] VSCA 145

DPP v Rowson [2007] VSCA 176

Dwayhi v R; Bechara v R [2011] NSWCCA 67

FCT v Trautwein (1936) 56 CLR 211

Forbes v Traders Finance Corporation Ltd (1971) 126 CLR 429

Gok v The Queen [2010] WASCA 185

He Kaw Teh v The Queen (1985) 157 CLR 523

625 BIBLIOGRAPHY

Hessam Pty Ltd and CEO, Australian Customs Service [2001] AATA 808

L. Vogel & Son Pty. Ltd v Anderson [1967] HCA 46

Leask v The Commonwealth (1996) 187 CLR 579

Lewis v. The King 14 C.L.R 183

Lyons v Smart [1908] HCA 34

McAuliffe v The Queen (1995) 69 A.L.J.R. 621

Microsoft Pty Limited v Collector of Customs No. N91/755 AAT No. 8165 Customs
(Administrative Appeals Tribunal, Australia) (unreported)

Milne v R [2012] NSWCCA 24

Pellegrino v Director of Public Prosecutions (CTH) [2008] NSWCCA 17

Peters v The Queen [1998] HCA 7

Putland v R [2004] HCA 8

R v Anthony James Dickson [2015] NSWSC 268

R v Australasian Films Ltd (1921) 29 CLR 195

R v Barnes [2003] QCA 126

R v Bromley [2010] VSC 345

R v Brown [2001] QCA 553

R v Cappadona [2001] NSWCCA 194

R v David Kertebani [2010] NSWCCA 221

R v Delly [2003] ACTSC 113

R v Gallagher (1991) 53 A Crim R 248

R v Gregory [2011] VSCA 145

R v Hargraves and Stoten [2010] QSC 188

R v Helena Rule [2003] NSWCCA 97

R v Holland [2002] WASCA 265

R v Kelvin [2000] NSWCCA 190

626 BIBLIOGRAPHY

R v Knight [2004] NSWCCA 145

R v LK [2010] HCA 17

R v MacPherson [1995] QCA 19

R v McKenna [1999] NSWCCA 358

R v Nicholson; ex parte DPP (Cth); R v Hyde-Harris; ex parte DPP (Cth) [2004] QCA 393

R v O'Connor [2002] NSWCCA 156

R v Sakovits [2013] NSWSC 464

R v Seller and McCarthy [2012] NSWSC 934

R v Tacey [1994] QCA 15

San Remo Macaroni Co v Commissioner of Taxation [1999] FCA 1468

The King v Tarrant 15 C.L.R 172

The King v. Harris, Scarfe & Co. Ltd 8 CLR 225

The King and Another v Tuckett [1914] HCA 62

The Queen v Alimic [2006] VSCA 273

The Queen v Bull (1974) 131 CLR 203

Thompson v The Queen [2005] WASCA 223

White v Ridley [1978] HCA 38

Wilson v Chambers and Co Pty Ltd (1926) 38 CLR 131

Canada

Avrams v The Queen 2012 TCC 247 (CanLII)

Bank of Toronto v Lambe, 12 App Cas 575

Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559

Bigayan v The Queen 2000 D.T.C. 1619

Ciglen v R [1970] S.C.R. 804

Dao v The Queen 2010 TCC 84 (CanLII)

627 BIBLIOGRAPHY

Galloway v The Queen 69 DTC 5023

Hsu v The Queen 2001 D.T.C. 5459

Pappajohn v The Queen (1980) 14 CR (3d) 243

R v Andrus 2013 BCPC 0160

R v Breakell [2009] A.J. No. 1167

R v Cardoso (1999) 139 CCC (3d) 430

R v DiGiuseppe 2008 ONCJ 126

R v Hunter [2008] O.J. No. 467

R v Jarvis 2002 SCC 73

R v Kennedy 2004 BCCA 638 (CanLII)

R v Klundert [2004] OJ No 3515 (QL)

R v Lang 90 DTC 6151 (B.C. Prov. Ct)

R v Mack [1988] 2 SCR 903

R v Maloney [1942] CTC 77 Que Sess Ct

R v Mark Ramsay Patterson 2002 NSPC 014

R v Olan et al [1978] 2 SCR 1175

R v Q.I.X. Facilities Corp 91 DTC 5440 (B.C. Prov. Ct.)

R v Pavely 76 DTC 6415

R v Ross [1998] 3 CTC 159

R v Sauer and Rhodes 2003 BCPC 541

R v Sharpe [2001] 1 S.C.R. 45

R v Tacey [1994] QCA 15

R v Sault Ste. Marie [1978] 2 SCR 1299

R v Théroux [1993] 2 S.C.R. 5 (S.C.C.)

R v Viccars 2010 ABPC 351

R v Waterloo Mercury Sales Ltd [1974] 4 W.W.R 516 (Alta. Dist Cl)
628 BIBLIOGRAPHY

Ramey v The Queen 93 D.T.C. 791

Rizzo & Rizzo Shoes Ltd (Re) [1998] 1 S.C.R. 27

Sansregret v The Queen [1985] 1 S.C.R. 570

The Queen v Ahir (1986, N.S.Co.Ct.)

The Queen v Goett 2010 ABQB 100

The Queen v Nagda and Nagda 2002 DTC 7158

The Queen v Redpath Industries 84 DTC 6349 (QCCS Crim Div)

The Queen v Tiffin 2013 SKPC 140

Will-Kare Paving & Contracting Ltd. v. Canada, [2000] 1 S.C.R. 915

European Court of Human Rights

Case of Khodorkovskiy and Lebedev v Russia, (Applications nos 11082/06 and 13772/05),
European Court of Human Rights, Strasbourg, 25 July 2013

Halifax plc, Leeds Permanent Development Services Ltd, County Wide Property Investments
Ltd v Commissioner of Customs & Excise, Case C-255/02, judgement handed down on 21
February 2006 (unreported)

Murray v UK [1996] ECHR 3

Salabiaku v France (1988) 13 EHRR 379

Saunders v The United Kingdom [1996] ECHR 65

Hong Kong

HKSAR v Shek Tak Tai [2000] HKCFI 1299

Cheng Chui Ping v The Chief Executive of the HKSAR [2002] HKCFI 45

India

Agrawal Trading Corporation & Ors v Collector of Customs & Ors [1972] INSC 14

Dr. T. A. Quereshi v. Commissioner of Income Tax, Bhopal [2006] INSC 914

N.K Bapna v Union of India and Ors [1992] 3 SCR 267

629 BIBLIOGRAPHY

Rajesh Gulati v Govt of N.C.T of Delhi & Anr [2002] INSC 368

Trimukh Maroti Kirkan v State of Mahareshtra [2006] INSC 643

Ireland (Republic)

DPP v. Paul Begley [2013] IECCA 32

Deaton v. Attorney General [1963] I.R. 170

Environmental Protection Agency v Harte Peat Ltd & Anor [2014] IEHC 308

Kelly & Anor v District Judge Ann Ryan [2013] IEHC 321

New Zeeland

Allen & Anor v The Commissioner of Inland Revenue [2004] NZCA 184

CIR v Gerard [1974] NZLR 280

Commissioner of Inland Revenue v Auckland Harbour Board [2001] 3 NZLR 289

Commissioner of Inland Revenue v BNZ Investments Limited [2001] NZCA 184

Elmiger v CIR (1966) NZLR

Hayes v The Queen [2008] 2 NZLR 321

Nordik Industries Ltd v Regional Controller of Inland Revenue [1976] 1 NZLR 194

The Queen v Butler [2003] NZCA 21

The Queen v Flyger [2001] NZCA 361

South Africa

Capri Oro (PTY) Ltd v Commissioner for Customs and Excise 2001 (4) SA 1212 (SCA)

Commissioner for Customs v Miller 11 SATC 69

Commissioner of Customs and Excise v Tayob and Others 2002 (6) SA 86 (TPD)

Commissioner of the South African Revenue Service v Formalito (Pty) Ltd [2005] ZASCA
135

CSARS v NWK Ltd 2011 (2) SA 67 (SCA)

630 BIBLIOGRAPHY

D.R. McLachlan v Rex 2 SATC 129 (TPD)

Estate Agency Affairs Board v Mclaggan and Another [2005] ZASCA 34

Fazenda NO v Commissioner of Customs and Excise [1998] JOL 4067 (T)

First National Bank of South Africa Limited Trading as Wesbank v Minister of Finance 2002
(4) SA 768 (CC), 781

Fish NO v Adam t/a Charter Bazaar 1978 (2) SA 313 (R)

Frenken v Controller of Customs [2005] ZWHHC 27

Harvey v Rex 3 SATC 90 (1927 TPD 878)

Israelsohn v Commissioner for Inland Revenue 1952 (3) SA 529 (AD)

ITC 1577 (56 SATC 236)

Jacquesson v Minister of Finance [2005] ZASCA 103

Jutzen v Rex 6 SATC 293 (1933 CPD 497)

Kaplan and Another v Rex 1909 TS 642

Kimberley and Another v S [2005] ZASCA 78

L Berman and Others v Rex 1 SATC 72 (CPD)

Lloyds of London Underwriting Syndicates 969, 48, 1183, 2183 v Skilya Property Investments
(Pty) Ltd [2003] ZASCA 112

McCann v Goodall Group Operations (Pty) Ltd 1995 (2) SA 718 (C)

MP Finance Group CC (in liquidation) v Commissioner for South African Revenue Service
[2007] ZASCA 71

National Director of Public Prosecutions v King [2010] ZASCA 8

National Director of Public Prosecutions v Naidoo and Others [2006] ZAGPHC 30

National Director of Public Prosecutions v RO Cook Properties (Pty) Ltd [2004] ZASCA 36

National Director of Public Prosecutions v Rautenbach and another [2005] 1 All SA 412
(SCA)

Puchlosky v Rex 1934 (1) PH H82 (TPD)

R v Ackerman 1920 CPD 245

R v Davies 1928 AD 165

631 BIBLIOGRAPHY

R v Heuer 1954 (3) SA 601 (E)

R v Heyne and Others 1956 (3) SA 604 (A)

R v Kruger 1958 (2) SA 673 (C)

R v Larkins 1934 AD 91

R v Miller and Another 1939 AD 106

S v Arendstein 1964 (1) SA 361 (A)

S v Bennett-Cohen 1985 (1) ZLR 46 (S)

S v Botha [2005] ZAGPHC 257

S v Campbell 1991 (1) SACR 503 (Nm)

S v Coetzee and Others 1997 (1) SACR 379 (CC)

S v De Blom 1977 (3) SA 513 (AD)

S v De Ruiter 2004 (1) SACR 332 (W)

S v Friedman (1) 1996 (1) SACR 181 (W)

S v Haslam [2007] SCA 33 (RSA)

S v Hickman [2008] NAHC 142

S v Huijzers 1988 (2) SA 503 (AA)

S v Kearns [1999] ZASCA 85

S v Malgas [2001] ZASCA 30

S v Prinsloo 1996 (3) BCLR 293 (CC)

S v Saeed [2006] SCA 43 (RSA)

S v Thebus and Another 2003 (6) SA 505 (CC)

S v Van der Walt 1989 (2) SA 212 (W)

S v Van Rooyen 2000 (1) SACR 372 (NC)

S v Zuma and Others 1995 (4) BCLR 401 (CC)

Stanfield v Minister of Correctional Services and Others [2003] ZAWCHC 46

Tieber v Commissioner for Customs and Excise 1992 (4) SA 844(A)

632 BIBLIOGRAPHY

Western Areas Ltd and others v S [2005] ZASCA 31

United Kingdom

Air Canada v UK (1995) 20 EHRR 150

Al Fayed & Ors v Advocate General for Scotland [2004] ScotCS 112

Arkwright v Newbold (1881) 17 Ch. D 301 C.A

Ayrshire Pullman Motor Services & Ritchie v Commissioners of Inland Revenue 14 TC 754

Attorney-General's Reference (No 1 of 1975)

Attorney-General v Radloff [1854] EngR 636

Attorney-General v Wilts United Dairies Ltd (1921) 37 TLR 884

B v Director of Public Prosecutions [2000] UKHL 13

Barclays Mercantile Business Finance Limited (Respondents) v Mawson (Her Majesty's

Inspector of Taxes [2004] UKHL 51

Barlow Clowes International Ltd & Anor v Eurotrust International Ltd & Ors (Isle of Man)
[2005] UKPC 37

Beck v Binks L.R [1949] 1 K.B. 250

Blackpool Marton Rotary Club v Martin [1990] STC 1

Blunt v Park Lane Hotel Ltd [1942] 2 KB 253

Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205

Brownlie v Campbell (1880), 5 App. Cas. 925, H.L

Caricom Cinemas Ltd & Ors v Republic Bank Limited (Trinidad and Tobago) [2003] UKPC 2

Chan Wing-Siu v The Queen [1985] AC 168

Christie and another v Leachinsky and another [1947] AC 573

Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46

Commissioners of Inland Revenue v McGuckian [1997] 1 WLR 991

Customs & Excise v Anglo Overseas Ltd [2004] EWHC 2198 (Ch)

Customs and Excise v Arena Corporation Ltd [2003] EWHC 3032 (Ch)
633 BIBLIOGRAPHY

Customs and Excise v Oliver [1980] 1 All ER 353

Customs & Excise Commissioners v Han [2001] EWCA Civ 1040

C & E v Polok and Another [2002] EWHC 156 (CH)

De Figueiredo v Commonwealth of Australia [2010] JRC 146 (Jersey)

Derry v Peek (1889) 14 App. Cas. 337

Director of Public Prosecutions v Brooks [1974] AC 862

Director of Public Prosecutions v Kilbourne [1973] AC 729

DPP v Turner [1974] AC 357

Doncaster v R [2008] EWCA Crim 5

Duke of Westminster v Commissioners of Inland Revenue 19 TC 490

Duport Steels Ltd v SIRS (1980) HL

Edinburgh United Breweries v Molleson [1894] A.C. 96 HL

Ex Parte Minister Of Justice (In Re Berger) 1936 AD 334

Farrell v Alexander [1976] UKHL 5

Fenech v Serious Organised Crime Agency [2013] UKFTT 555 (TC)

Frailey v. Charlton L.R. [1920] 1 K.B. 147

Gale & Anor v Serious Organised Crime Agency [2011] UKSC 49

Gittins v Central Criminal Court [2011] EWHC 131 (Admin)

Global Funds Management Asia Limited v The Securities Commission [1995] 2 AC 500

Gordon v Selico (1986) 18 HLR 219

Gosling v Veley (1850) 12 QB 328

Gouriet v Union of Post Office Workers [1978] AC 435

Gujra, R (on the application of) v Crown Prosecution Service [2011] EWHC 472 (Admin)

Hanco ATM Systems Ltd v Cashbox ATM Systems Ltd & Ors [2007] EWHC 1599

Harding v Price [1948] 1 KB 695

Hansford v R [2006] EWCA Crim 1225

634 BIBLIOGRAPHY

Heydon’s Case (1584) 3 Co.Rep. 7a

HG Bendall v Customs and Excise [2004] UKVAT (Landfill) L00020 (2003)

Houghton v Smith [1975] AC 476

Hui Chi-ming v The Queen [1992] 1 A.C. 34

Hunt v Criminal Cases Review Commission [2000] EWHC Admin 307

Hutchings v Cummings [2002] EWCA Crim 2393

Inland Revenue Commissioners v. Duke of Westminster [1936] A.C 1 HL

Inland Revenue Commissioners and another v Rossminster Ltd and related appeals [1980] 1
All ER 80

IRC v Willoughby [1997] 1 WLR 1071

King v The Serious Fraud Office [2008] EWCA Crim 530

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In the matter of the extradition of Samir Azizi, Order granting motion for certificate of
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