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The majority of people in the United Kingdom pay tax due and claim only the credits they’re entitled to. But there is a small minority who are determined not to pay tax or who set out to defraud the tax and credit system. At the extreme end, organised criminal gangs make sophisticated attacks on the system itself by making false claims to repayments or tax credits on a massive scale. It’s essential this criminal element is effectively investigated and prosecuted. Criminal investigation is an important part of HM Revenue and Customs (HMRC) overall enforcement strategy.
HMRC’s criminal investigation policy.
1. How criminal investigation work is organised
HMRC is responsible for investigating crime involving all of the taxes and other regimes it deals with.
Three directorates in HMRC have staff authorised to use criminal investigation powers:
- Criminal Investigation including Internal Governance
- Specialist Investigations (Road Fuel Testing Unit)
- Risk and Intelligence Service, Intelligence Development & Integration
HMRC isn’t responsible for criminal prosecutions. The decision whether to bring a criminal prosecution is made by an independent prosecuting authority. In England and Wales this is the Crown Prosecution Service. In Northern Ireland it is the Public Prosecution Service for Northern Ireland. In Scotland it is the Crown Office and Procurator Fiscal Service.
Criminal Investigation is responsible for all criminal investigations undertaken by HMRC, where criminal investigation has been determined to be the appropriate response to tax or duty fraud. This section deals mainly with their work. Internal Governance is responsible for undertaking investigations into potentially serious disciplinary and criminal allegations involving HMRC staff.
Specialist Investigations (Road Fuel Testing Unit) is responsible for the detection and disruption of the illicit supply, distribution, sale, storage and misuse of fuel for road vehicles.
Risk and Intelligence Service is responsible for profiling and intelligence work. Risk and Intelligence Service, Intelligence Development and Integration requires the use of criminal investigative powers as part of its criminal intelligence development role.
These are the only areas in HMRC who are authorised to use HMRC’s criminal investigation powers. There is a complete separation of civil and criminal investigations. No one in HMRC dealing with civil enquiries such as tax returns, and claims for tax credits can use criminal powers to further these enquiries.
Within HMRC, Criminal and Enforcement Policy (CEP) has oversight of the criminal legislation and powers that are at HMRC’s disposal. The application of these powers is subject to review and assurance by an Enforcement and Compliance Assurance Team (ECAT). Each of the directorates using criminal powers also maintains professional standards functions that oversee management assurance of these powers. Together CEP and ECAT and directorate standard functions, work to ensure compliance with the many safeguards that are built into the legislation and associated Codes of Practice.
2. HMRC’s criminal investigation powers
Criminals, including organised criminals, seek to attack the UK’s tax and duty systems to steal taxpayer’s money. To counter this HMRC needs similar criminal investigation powers to those that are available to other law enforcement agencies. In particular it needs powers to:
- apply for orders requiring information to be produced - production orders
- apply for search warrants
- make arrests
- search suspects and premises following arrest
3. Police and Criminal Evidence (PACE)
In England and Wales criminal investigation powers are made available through the Police and Criminal Evidence Act 1984. In Northern Ireland they are made available through the Police and Criminal Evidence (Northern Ireland) Order 1989.
The Finance Act 2007 amended PACE and the PACE (NI) Order for all HMRC criminal investigations. There are a small number of former Inland Revenue functions for which PACE powers are not available.
The advantage of using PACE is that it provides a set of powers that are designed for use by law enforcement agencies. It means that tax crime is tackled in the same way as other crime.
Not all the powers in PACE are made available to HMRC. For example, HMRC does not take fingerprints, charge or bail suspects. This has to be done by the police.
Some of the powers in PACE are modified for HMRC. For example, a search warrant may allow HMRC to search persons found on the premises without the need for arrest. This allows HMRC to search a bookkeeper who may have evidence in a briefcase or laptop when a company’s premises are searched but who is not considered a suspect.
PACE does not apply in Scotland. The Finance Act 2007 introduced a special set of powers that apply in Scotland within the Criminal Law (Consolidation) (Scotland) Act 1995 and the Criminal Procedure Scotland Act 1995. These powers address the same areas in PACE.
Following the Cadder Review to assess the rights and safeguards available to persons arrested by the police, the Criminal Procedure (Legal Assistance, Detention and Appeals) (Scotland) Act 2010 was introduced. This act is only applicable to the police.
HMRC has introduced The Criminal Procedure (Legal Assistance, Detention and Appeals) (Scotland) Act 2010 (Consequential Provisions) Order 2011 to extend those rights and safeguards to suspects arrested for HMRC offences.
5. Authorisation to use powers
The criminal investigation powers can be used only by officers who are authorised to use them. An authorised officer is an officer of HMRC appropriately trained and engaged on operational duties in Criminal Investigation including Internal Governance, Specialist Investigations (Road Fuel Testing Unit), Risk and Intelligence Service, Intelligence Development and Integration Directorates.
PACE provides that some powers can be exercised only by police constables of a particular rank. When those powers are applied to HMRC the police ranks are converted to HMRC grades of an equivalent authority:
- Sergeant = Officer
- Inspector = Higher Officer
- Chief Inspector = Higher Officer
- Superintendent = Senior Officer
6. Authority levels
HMRC has set internal authorisation levels requiring an authorised officer to get the approval of a higher graded officer before using certain powers. The authority levels for HMRC are set no lower than the authority levels in the police, the primary user of PACE powers. However in most cases HMRC has set the main authority level required at a minimum of Senior Officer grade, for example, applications to a magistrate or court for a production order or search warrant. The majority of authorities in the police service are held at Inspector level, equivalent to HMRC’s Higher Officer grade.
The approximate numbers of officers in HMRC who have powers of arrest are:
- 1570 in Criminal Investigation including Internal Governance
- 118 in Specialist Investigations (Road Fuel Testing Unit)
These powers can be used only for HMRC offences. They are not general powers of arrest. As with all of HMRC’s criminal investigation powers arrests are made only by trained, authorised officers.
These powers can be used only for HMRC offences. They are not general powers of arrest.
8. Cross-border investigations
It’s usually evident early on in a criminal investigation that the investigation may need evidence to be gathered in different parts of the UK. This means it’s necessary to take account of the differences between the legal systems in England and Wales, Scotland and Northern Ireland. In particular there are significant differences between the legal system in Scotland and those in other parts of the UK.
HMRC’s criminal investigation powers can be exercised in all parts of the UK. For example, a search warrant issued by a court in Scotland can be exercised in England if it is endorsed by an English court and vice versa.
Cross border powers contained in the Finance Act 2007 only apply to UK borders and not EU or international borders.
Internationally the UK has made a number of mutual legal assistance agreements with other countries. These allow HMRC to ask for evidence to be gathered in another country. Other countries may make similar requests of HMRC.
It may be possible to prosecute an offence in more than one part of the UK. The prosecuting authorities have a system in place to determine in which UK country the offence is prosecuted. This is available through the CPS website.
9. Intrusive surveillance
For cases of serious crime, HMRC can apply to use the intrusive surveillance powers in the Regulation of Investigatory Powers Act 2000 (RIPA) and the Police Act 1997. The most significant powers are:
- the interception of post and telecommunications
- intrusive surveillance
- property interference
These powers are very effective in the fight against serious and organised crime. But because they are so intrusive their use is subject to strict safeguards.
They can be used only when investigating serious crime. The interception of communications has to be approved personally by the Home Secretary. The use of this power is overseen by the independent Interception of Communications Commissioner.
The most intrusive surveillance requires prior approval of a surveillance commissioner. The role of the surveillance commissioner includes reviewing and overseeing all other cases of intrusive surveillance. The surveillance commissioner may also revoke any authorisation.
The use of these powers has to be approved at the highest levels in Criminal Investigation. Only certain members of the senior management team can approve applications for the use of any of these powers.
10. Training and support given to HMRC officers
An officer must be properly trained before they can be authorised to use any of the criminal investigation powers and that training must be kept up to date.
The training covers the PACE Codes of Practice and the Scottish Powers, changes to the relevant legislation and HMRC policy and procedures. The broad range of subjects covered include:
- entry, search and seizure powers
- powers of arrest
- cautioning and interviews
- the law of evidence
- personal safety and the use of handcuffs
- responsibilities for disclosure under the Criminal Procedures and Investigation Act 1996
Comprehensive operating procedures are provided in internal guidance. Investigators can also ask for the advice of HMRC criminal lawyers. A HMRC lawyer will be assigned to work on the larger investigations. Investigators and HMRC lawyers will also consult with the prosecuting authorities at an early stage on major prosecutions.
11. Safeguards on the use of HMRC’s criminal investigation powers
There are numerous statutory and non-statutory safeguards on HMRC’s use of its criminal investigation powers.
HMRC’s criminal investigation powers are used only in its criminal work and are not used in civil investigations or other HMRC activities.
HMRC isn’t responsible for prosecuting the crimes it investigates. The decision whether or not to prosecute is taken by the relevant independent prosecuting authority.
Like all other aspects of HMRC’s work criminal investigation is subject to review by HMRC’s Internal Audit directorate.
External oversight is provided by the HM Inspectors of Constabulary, the Scottish and Northern Ireland inspectors and the National Audit Office. Complaints can be made to the Independent Police Complaints Commission, the Ombudsman and the Adjudicator.
Many of the powers require external independent approval before they can be used. The person granting approval has to be satisfied that the relevant conditions are met. Production orders and search warrants have to be issued by a magistrate or a judge. The use of intrusive surveillance powers is subject to external approval at the highest level as described in the section on intrusive surveillance.