A recent snippet in a London business newspaper provided a clear indication of how much focus HMRC are directing towards investigating major furlough fraud. City AM reported that the number of penalties issued to finance directors at large businesses by HMRC has dropped from 148 to just 20 in a year. With an estimated £3.5 billion worth of furlough payments deemed to have been fraudulently obtained*, mostly by organised crime players, for the time being, the HMRC investigations are concentrating on catching the biggest fish, so to speak.
HMRC have made clear that prosecution will be reserved for the most serious of cases – it simply does not have the resources to investigate every ‘administrative’ mistake made by SMEs. In these cases, repayment is all that is required, and in situations where the furlough money claimed was not simply due to an honest mistake, the department will issue financial penalties rather than prosecute. There are two advantages to taking this approach,
a) the Treasury does not have to wait until the conclusion of lengthy Court proceedings before it can collect any revenue, and
b) proving dishonesty in order to make a gain or cause a loss is challenging and the multiple changes made to the Coronavirus Job Retention Scheme over the past 18 months and the haste in which it was implemented is likely to benefit an alleged fraudster’s defence.
To understand how the HMRC investigate and prosecute serious furlough fraud cases, it is necessary to set out the law as it relates to fraud.
What is fraud?
Fraud is where deception and/or false statements are used to gain a dishonest advantage, which is often financial, over another person or organisation Offences of fraud are wide ranging, and are set out in both legislation and common law (i.e. law made by the Courts through judicial precedent).
The main pieces of legislation that cover fraud are:
Three main offences are provided by the Fraud Act 2006, namely:
- Fraud by false representation (section 2). A representation may be express or implied.
- Fraud by not disclosing information where there is a legal duty to disclose it (section 3).
- Fraud by abuse of position (section 4). This applies where a person holds a position in which they are expected to protect the financial interests of another person (for example, an Attorney under a Lasting Power of Attorney or a Trustee).
In all the above offences the Prosecution must prove the Defendant acted dishonestly with the intention of gaining an advantage for themselves (or another) or causing loss to the victim.
The Theft Act contains the offences of:
- False accounting (section 17).
- False statements by company directors (section 19).
Common law provides an offence of conspiring (or agreeing a criminal course of conduct) with one or more people to deprive someone of something which is legally theirs or which they are entitled to. A person may not know the full extent of the agreement, and you can be prosecuted for conspiracy to defraud even if the actual fraud is never committed.
What powers does the HMRC investigations have in furlough fraud?
When it comes to furlough fraud, the HMRC has several powers at its disposal to ensure it can meticulously investigate any serious suspicions or allegations, including:
- Applying for a search warrant so officers can enter and search any premises connected with the allegations or suspicions.
- Applying for a production order to demand the handing over of any documents deemed relevant to the investigation.
- Searching one or more persons for evidence.
- Seizing material that may provide relevant evidence of the offence.
- Interviewing one or more people under caution, either following an arrest, or by offering a voluntary interview under caution.
If you have been served a search warrant, are subject to a dawn raid, or have been asked to attend an interview under caution, it is imperative that you get expert legal advice. HMRC investigations are serious and should not be gone into lightly. A Furlough Fraud Solicitor will speak with investigators and check their documentation to ensure they are acting within the boundaries of the law. They will also advise you on what you should and should not say during an interview and examine requested documents to see if they can be held back from disclosure due to legal professional privilege.
What are the penalties for furlough fraud?
There is a wide-range of penalties for furlough fraud including fines, imprisonment, disqualification as a director, and Serious Crime Prevention Orders (SCPO). Furthermore, if you are found guilty, the Prosecution can bring further proceedings under the Proceeds of Crime Act 2002 (POCA) and confiscate any assets purchased with the proceeds from criminal activity.
Instructing a Specialist Fraud Solicitor the minute HMRC investigations begin into your furlough money claims will dramatically improve the chances of an investigation concluding without a prosecution being brought. And if a Prosecution proves inevitable, your lawyers will have had time to build a robust and persuasive defence in your favour.
If you are facing investigation or prosecution for furlough fraud, our Criminal Law Barristers and Solicitors can help. You can contact us through our contact page here.
‘Given the scale of the task ahead for HMRC and the newly formed £100m furlough fraud task force, whilst the investigative net will be cast far and wide, it is unlikely in the extreme that all indiscretions will be uncovered. The question arises where there are concerns within a company about payments received, should a wait and see approach be adopted, or should issues be confronted head on, so that consciences, as well as liability are cleared. At present, HMRC appear to be dangling a carrot, however as they work through their caseload, how long before the carrot becomes a stick?’
Neil Williams – Complex Crime
*The ONS figures given in Q4 of 2020 – the figure at the time of writing, and is likely to be far higher.