Sums banked as the result of the sale or purported sale of goods by a buffer company in the course of a carousel fraud generating false claims for the repayment of VAT were not property obtained “in connection with [the] commission” of the offence within section 71(4) of the Criminal Justice Act 1988.
The Court of Appeal (Criminal Division) so held when allowing, in part, appeals by the defendants, Shakeel Ahmad and Syed Mubarak Ahmed, against confiscation orders, each in the sum of £92,333,667, made on 5 July 2010 in the Crown Court at Leicester by Flaux J following the defendants’ convictions on 28 March 2007 in the Crown Court at Northampton before Judge Alexander QC and a jury of conspiracy to cheat the public revenue. Confiscation orders, each in the sum of £16,145,098 were substituted.
HOOPER LJ, giving the judgment of the court, said that the first issue concerned the meaning of the words “in connection with its commission” in section 71(4) of the Criminal Justice Act 1988. The sentencing judge hadconcluded that the defendants had each benefited in the sum of some £72m, uplifted for inflation to £92,333,667, that being the sum which passed through bank accounts under their control in furtherance of a carousel fraud which involved fraudulent reclaims of VAT amounting to £12,662,822. In accordance with R v May [2008] AC 1028 each defendant had benefited in the sum of £12,662,822 and the issue was whether the sentencing judge had been right to go further by including all the money which passed through bank accounts in furtherance of the fraud. Carousel fraudsters had to put up large sums of money to “prime the pump” as part of deceiving HM Revenue and Customs into believing that goods had been traded. That money was part of the cost of committing the fraud. It would be surprising if Parliament had intended the costs of committing a fraud to form part of the benefit of the offence. The object of the legislation was to deprive the defendant of what he had gained or its equivalent: Jennings v Crown Prosecution Service (Practice Note) [2008] AC 1046. In R v Smith (David) [2002] 1 WLR 54, which had concerned tobacco smuggling, it had not been suggested that the cost of purchasing the smuggled cigarettes, which had been forfeited, was a benefit, but in R v Waller [2009] 1 Cr App (S) 449, the Court of Appeal had upheld inclusion in the calculation of benefit of the cost of the smuggled tobacco concerned. Analysis revealed central flaws in the reasoning in R v Waller and the court’s view was that R v Waller was clearly wrong. R v Smith (David) pointed very much the other way. The decision in R v James [2011] EWCA Crim 2991; [2011] WLR (D) 389, which concerned items bought to assist the process of converting raw tobacco into hand rolling tobacco and in which the Court of Appeal had distinguished R v Waller, showed that the words “in connection with” had to be construed with the word “benefit” in mind. The court was not rigidly bound by the doctrine of stare decisis and departure from it was justified. Unless, in cases unlike the present, statutory assumptions, such as the provisions concerning criminal lifestyle, applied, expenditure on committing fraud should not be included in the calculation of benefit.
Rex Tedd QC (assigned by the Registrar of Criminal Appeals) for the defendants; Sir Derek Spencer QC and Jonathan Kinnear (instructed by Crown Prosecution Service, Appeals Unit ) for the prosecution.