Proceeds of Crime Bill

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Mr. Grieve: The hon. Gentleman makes a reasonable point, and I tried to address it when I raised the difficulty of the disclosure not going to NCIS.

If a client were to say to his accountant, ''This money is the result of tax evasion and, on top of that, I

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do not want too much said about its origins,'' I would expect the accountant to act in a different way from that which I have described. I am assuming that the only information that is given to the accountant is that the money is the result of tax evasion. I also made the point that in those circumstances, reasonable people, even though they may not be given any further information, may well say, ''Dear, oh dear. I hope that this money is not the fruit of criminal activity.''

Stephen Hesford: That is the point. Criminals are most unlikely to walk into the accountant's office and say, ''Actually, this is drug money.'' They are more likely to come up with a story—a garage business or something.

Mr. Grieve: That may be so, but although I am not a tax lawyer or accountant, it would be surprising if the accountant contacted the Inland Revenue and said, ''I have a client who wishes to notify you under the Hansard agreement terms that he owes you £150,000 in unpaid tax. He is very sorry and would like to clear up the matter.'' Someone who knows more about it will correct me if I am wrong, but the Inland Revenue would not write back saying, ''Thank you very much, please send us the cheque.''

I suspect that some searching questions would be asked to establish whether a Hansard agreement would be appropriate and that there had been full disclosure of all the material facts surrounding the origin of the money. I would be staggered if the Inland Revenue would not check—and from talking to tax advisers, I understand that it does—the full facts of the matter, to be sure that someone was not trying to pull the wool over its eyes and laundering the money by paying the tax on it through a Hansard agreement. If that were found to be the case, I would expect the Inland Revenue to prosecute itself. Failing that, I have no objection to the full weight of the law and investigative powers falling on the individual concerned.

My concern is for the Hansard agreement. If the Bill goes through in its present form, the Hansard agreement will go down the plughole of history. An irony of that would be that the Government and the Inland Revenue would be substantial losers. All sorts of individuals who had wanted to regularise their tax affairs would no longer do so.

How will the Minister tackle such a problem? I have never heard it suggested that the Hansard agreement be jettisoned, and seeing that it is a tried and tested method, there would be a problem without it. Furthermore, as the Bill applies retrospectively, I foresee the raising of all sorts of human rights issues concerning the ability to keep Hansard agreements going until the legislation is enforced.

The issue is broad. The amendments were tabled as a result of representations to me from those in the tax world. The amendments are designed to meet the need for a disclosure to be made to the Inland Revenue—for there not to be tipping off—to place the person to whom that disclosure can be made in the regulated sector, and to ensure that there is protected disclosure.

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I need to hear from the Minister how the Government view the problem and then we may need further debate.

Mr. Hawkins: Like my hon. Friend the Member for Beaconsfield, I am not a tax lawyer specifically, but during my own practice at the Bar, tax matters came into the ambit of fraud cases with which I dealt, and I have certainly come across the concept of Hansard agreements. The Hansard agreement system has been in place some considerable time, and while I have not had extensive dealings with tax officials, one of my godfathers was a senior Inland Revenue employee for many years.

The Minister of State, Scotland Office (Mr. George Foulkes): What kind of godfather?

Mr. Hawkins: Not a mafia one, but a purely Christian one.

I recall from various discussions, not only during my work at the Bar, but with a member of my family, that often the most important theme for the Revenue has been the way in which it can get people to volunteer information to it. Sometimes, that would be under pressure, in that if the information were not volunteered, prosecutions would follow. As my hon. Friend the Member for Beaconsfield and I examined the Bill, it struck us as odd that, given the parallel functions of Customs and Excise when dealing with VAT and the Inland Revenue when dealing with other taxation, the clause should provide a defence if there was instant disclosure as soon as practicable to a Customs officer who was dealing with VAT, but there was no mention of Inland Revenue officers dealing with taxation. That seems peculiar, especially in light of the fact that the Hansard agreement system seems to work so well.

Mr. Ainsworth: I take the point that one of the consequences of extending the possession offence under clause 323 that covers any criminal proceeds, whether or not they are one's own or another's, is that a tax adviser or an accountant will be duty bound to make a report. The hon. Member for Beaconsfield has taken soundings, and we have consulted fully on the matter. We have talked to the Revenue, the police and NCIS. Before we think about how we want the provision to work, it needs to be said that tax evasion is a serious, criminal offence. The hon. Gentleman did not suggest that it should be treated as anything other than that.

While the sums involved in tax evasion could, in some cases, be small, the offences with which we are concerned are serious. The main argument that has been advanced is that, when accountants and tax advisers are brought within the regulated sector, many clients who have a genuine desire to put their tax affairs straight through the Hansard process will be less inclined to seek the views of tax advisers, knowing that the matter will have to be reported to NCIS. They will be far more likely to seek advice from the solicitor next door who will not have to report the matter to NCIS, because of the legal privilege exemption. It is also argued that clients will no longer be so keen to regularise their tax affairs and that there will be a substantial loss of revenue as a result.

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The facts do not bear that out. The Inland Revenue's analysis is that, against a background of a rough figure of £100 million of revenue recovered in total through the Hansard procedure, only about £15 million is recovered through Hansard disclosures, which are made spontaneously to the Revenue without there being any prior knowledge on the Revenue's part. The Hansard procedure is used, and the view of the tax authorities is that it is used more often than not when they are already on to the case, and in some circumstances they are more than happy to accept that they can regularise the position in that way. The sum is not huge and the Revenue advises that it would not expect to lose all of it anyway. It sees a counterbalancing effect of improving compliance through the more robust reporting regime. In short, the Revenue does not see an overall loss to it as a result of the clause. Indeed, it believes that there may be an increase.

10.30 am

It is important to point out that in the majority of cases a tax adviser will not know whether the criminal proceeds in the hands of his client were derived from tax evasion rather than another crime. The hon. Gentleman said that if the Revenue became aware that there was other criminality, obviously it would report that to NCIS, but the Revenue will not necessarily know whether other criminality is involved. NCIS, rather than the Revenue or the tax adviser, will be best able to decide whether the case is purely one of tax evasion, rather than other criminality.

Much has been said about the idea that NCIS will be swamped with minor reports of tax evasion. We accept that there will be an increase in the number of reports that will be made to NCIS, but we consulted NCIS, and it is satisfied that it can cope with the additional work load. It takes the view that it would be better to allow it to dismiss a report as relating only to minor tax evasion than to risk losing an important money laundering lead. The sums involved do not necessarily determine whether money laundering is involved.

Mr. Hawkins: I do not know whether the Minister will come to this later, but he has not yet responded to my point that if there is provision for disclosure to Customs and Excise for VAT, surely there should be a parallel exemption for disclosure to the Revenue. Should that be examined?

Mr. Ainsworth: The hon. Gentleman can see that I am trying to answer several points on a range of issues, and I wish that he would wait until I am near completion before he asks whether I have answered a specific point. I find that he repeatedly wants me to answer his questions before those of other hon. Members, and if I do not, he gets a little agitated during my response.

When there is no evidence of wider criminality beyond tax evasion, NCIS will in any event pass cases back to the Inland Revenue to be dealt with, as happens at present. It is already public knowledge that the Revenue has a presence in NCIS. There is nothing new about a close liaison between the Revenue and NCIS on matters of this kind.

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Concerns have been raised because reports must be made to NCIS as soon as practicable after the information gives rise to knowledge or suspicion. NCIS may pass on reports to the Revenue long before they would have been received under the Hansard procedure, which can take many months to sort out. However, I reassure the Committee and those who made representations that when that happens, the Revenue will not withhold the offer of a Hansard arrangement to settle the matter purely on the basis that it learned about the evasion from a report sent from NCIS, rather than being notified by the taxpayer or his adviser. That is important, because we have been asked for that assurance. The Revenue will not deal with cases differently because they were received via NCIS rather than directly.

 
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Prepared 24 January 2002