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Property developer fined £400,000 in ‘Swiss disc’ prosecution for tax evasion

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A millionaire property developer who failed to disclose a Swiss bank account to HMRC during a civil enquiry pleaded guilty to cheating the public revenue, in the first prosecution based on data stolen by a former HSBC employee and obtained by HMRC under the terms of a tax treaty with France.

Some experts have questioned tax authorities’ use of stolen data. The ‘Swiss disc’ was reported to list more than 6,000 British investors with HSBC accounts in Geneva.

Wood Green Crown Court heard that Michael James Shanly, aged 66, from Berkshire, opened an account with his own and his mother's money.

HMRC said in a press release: ‘When his mother died, he later closed the account, and transferred all the money – evading £430,000 inheritance tax. Shanly was ordered to pay fines and compensation totalling £830,000.’

Chris Martin, Assistant Director HMRC Criminal Investigation, said: ‘Mr Shanly – like others – took advantage of his offshore account to hide money that was owed to the public purse. He thought it was out of reach of HMRC and hoped we would never find it. However we discovered it, and he will pay a heavy penalty. HMRC are continually receiving information from various sources and working together with partner agencies here and abroad. Those attempting to hide offshore accounts must be aware that HMRC are closing in on offshore assets.’

HMRC said further prosecutions were likely. Recorder Rosamund Horwood-Smart QC told Shanly: ‘In this court there are no rules just for the rich and no rules just for the poor ... the tax system relies on voluntary and honest disclosure of tax affairs and it applies to all equally.’

The Times reported today: ‘[HMRC] had believed that more than £800,000 that accrued in the account belonged to Shanly, the court was told. However, after new expert evidence emerged, HMRC accepted that the money had been deposited in the account by Shanly’s late mother to support his older brother, Richard, who had health and personal problems. Richard Shanly died in 1997.

‘HMRC accepted that the money was not Shanly’s but argued that he should have paid inheritance tax amounting to £430,000 on the amount when his mother died in 2004 … William Clegg QC, for Shanly, told the court that his client had never personally benefited from the money and had already paid HMRC most of the outstanding inheritance tax in May this year. The businessman had neglected to disclose the account to HMRC during the civil investigation because he was preoccupied at the time with difficult adoption proceedings that he and his partner were involved in in Poland, the barrister said.’

The paper reported that Shanly was ordered to pay £400,000 in fines, compensation of £430,000 and legal costs of £26,000.

John Cassidy, tax investigation and dispute resolution partner at PKF, said the prosecution would send out a strong message to anyone with hidden assets in offshore accounts. ‘If anyone is under the impression that HMRC is being complacent or just scaremongering, they need to think again and consider their options,’ he said.

‘Uncertainty’ over use of stolen material

Harry Travers, Partner at London solicitors BCL Burton Copeland, said today: ‘Although the defendant in this case apparently pleaded guilty, the Crown were relying in a criminal prosecution on stolen material, and in my view HMRC shouldn't be doing that.’

He added: ‘If the case had gone to trial I am not sure that this material would have been admissible.’

Writing in this week’s issue of Tax Journal, Jonathan Fisher QC, a barrister practising at Devereux Chambers, said: ‘There remains considerable uncertainty in English law regarding HMRC’s ability to use criminally obtained evidence when pursuing taxpayers in respect of their concealed offshore income.’

He noted that while HMRC had been using [stolen] material to launch tax investigations, an opportunity to challenge the use of the material in civil or criminal proceedings had not yet arisen.

‘When it does, there are some good arguments to be advanced and HMRC should not be in any doubt that the taxpayer’s lawyers will be ready and waiting,’ he said.