HMRC smashes £108m fake eco-investment scam

Six men have been jailed for a total of 45 years for a £107.9m tax crime, which HMRC says is one of the UK’s biggest, based on a fake eco-investment scheme they sold as a tax break for wealthy investors

They created, marketed and administered a tax incentivised investment scheme which was intended to create a claim for sideways loss relief against income tax. The scheme was supposed to support re-forestation projects abroad, largely in Brazil, which would absorb carbon and so address climate change.

A ten-month long trial at Southwark Crown Court heard evidence that some 730 high net worth individuals  invested large sums of money and claimed tax relief of over £107m in what the judge described as ‘a very effective fraud based on a very bad reforestation project’.

The scheme was sold on the basis of land options which he said ‘were concocted by the conspirators and were uncommercial and unreal’.

In his summing up, Mr Justice Andrew Edis said the investors each became a partner in a limited liability partnership (LLP) which then commissioned a company called Carbon Positive Trading Ltd (CPTL) to carry out research and development at a cost of £7.1m per LLP under a scientific research agreement (SRA).

Tax relief claims

There were, in the end, 38 LLPs. Each LLP purported to raise about £8.5m to fund the SRA and other costs, so the scheme appeared to have raised investment of £323m. Of that, £269.8m had apparently been spent on research and development and investors made tax relief claims on that basis.

The judge said: ‘In fact, nothing of the kind had happened. Rather less than 20% of the apparent value of the investment actually existed. This was the substantial sum of £65m. The remaining 80% was thin air.’

Each time an LLP was floated, money contributed by previous investors was passed to it by an offshore company which was owned and operated by the group, based in the Isle of Man. The LLP then passed that money to CPTL, the research and development contractor, another offshore company registered in the British Virgin Islands, and some was then routed back to fund the next LLP and the reminder paid out to the group.

The scheme ran between 2004 and 2010, but HMRC said an intensive, far reaching and forensic investigation lasting ten years revealed it was nothing more than a fraud based on a complex series of contrived bank and paper transactions.

The judge said: ‘The same money went round and round in circles, and each time it passed Go it created an apparent expenditure which was the basis of a claim for tax relief by the investors.’

The trial jury heard evidence the investors’ money to fund their lavish lifestyles, buying properties around the world, expensive jewellery and enjoying luxury holidays.

During the court case, Cambridge-educated engineer Michael Richards was identified as the self-styled ringmaster and originator of the fraud, and led the group to create and trade carbon emission reduction certificates which help countries hit environmental emissions targets set by the United Nations.

He was assisted by entrepreneur Robert Gold, of Dubai, described in court as Richards’ bulldog and negotiator who ensured the fraudulent deals actually took place. He diverted money from the scheme to purchase properties in the UK and Dubai for himself.

Rodney Whiston-Dew, from south-east London – a solicitor and former president of the Rotary Club of London – set up the complex offshore structures to disguise the true nature of the fraud and hide the money, none of which was declared to HMRC.

Verdict

The other group members found guilty at Southwark Crown Court were environmentalist and business consultant Jonathan Anwyl, and former music industry executive and ex-banker Evdoros Chrysanthos Demetriou.

Another of the group, Malcolm Gold, pleaded guilty to a charge of cheating the public revenue in November 2016 and was sentenced to 20 months in prison in January 2017.

Sentencing the men, Edis said: ‘You played with high stakes and lost. It was bare-faced dishonesty and you did everything to inflict loss on the public, the people who pay their taxes, who were also victims.

‘This case involves a scheme whose chief characteristics were utter dishonesty, sophisticated planning, and astonishing greed hidden behind a mask of concern for the environment which adds an element of hypocrisy and cynicism to this case which is deeply distasteful.’

There is no evidence to suggest investors – who are paying back the money they received from HMRC - knew the scheme was a scam or that their money was not being spent on research and development.

In the case of the ringleader Richards, he was found to have cheated the Revenue out of £2,327,372 in income and capital gains tax over a three year period. Whiston-Dew’s methods of operating his business were described by the judge as ‘outrageous’, as he produced no accounts and claimed in evidence that his accountant had failed him and had thrown away his books and records because they were too bulky to keep. He was said to have evaded more than £2m in tax.

Simon York, director of fraud investigation service, HMRC said: ‘This was an audacious and cynical fraud on an astonishing scale, characterised by greed and a complete disregard for the ecological causes the perpetrators claimed to be supporting. Instead the group spent investors’ money on their own lavish lifestyles.

‘These individuals thought they had worked out the perfect fraud. At every step they used contrived offshore structures, complex transactions and blatant lies in an attempt to hide their tracks and derail our criminal investigation.

‘But the determination and professionalism of our teams has shown, yet again, that we will not hesitate to bring fraudsters to justice. Work has now begun to recover the proceeds of this crime in order to fund vital public services.’

Sentencing Remarks of Mr Justice Edis are here.

Report by Pat Sweet

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