This article was first published in the July/August 2016 UK edition of Accounting and Business magazine.

There have been some high-profile examples of raids on businesses in recent months: Swiss authorities raided the Geneva office of HSBC; French prosecutors raided Google’s Paris office in relation to corporate tax avoidance allegations; and the Panamanian authorities raided Mossack Fonseca’s office following the leaks of its clients’ information. The reasons for these raids may differ, but the planning behind them and their international consequences reveal consistent patterns from which we can draw useful lessons in a UK context.

HMRC tax fraud raids are planned weeks in advance and executed without warning. Once a target is identified, HMRC liaises with its counterparts in the National Crime Agency, Serious Fraud Office and the Financial Conduct Authority to facilitate information-sharing through its legal gateways. 

International tax fraud investigations are increasingly common, and will be even more so when automatic sharing of tax information between states comes into full effect under the Common Reporting Standard in 2017. 

When HMRC has sufficient information from abroad to suspect tax fraud, it can make use of mutual administrative and legal assistance treaty agreements to ask foreign jurisdictions for properties to be searched, individuals to be interviewed, computers to be imaged, and banking documentation to be obtained. 

HMRC has a number of liaison magistrates stationed abroad, as well as a permanent member seconded to Eurojust, the European Union’s judicial cooperation unit, to facilitate judicial cooperation between EU member states.

On home turf, production orders can be served on third-party advisers and suppliers of luxury goods, such as cars and yachts, to produce documentation. Figures obtained by law firm RPC show that HMRC issued almost 1,500 production orders to accountants and lawyers in 2014-15, and a total of 8,000 in the past five years. In addition, HMRC can use directed surveillance to establish which properties the target has access to so they can request an appropriate warrant for each premises.

Search and seize

HMRC will coordinate the execution of the search warrants both in the UK and abroad to ensure that evidence isn’t lost or destroyed. HMRC officers will also serve Serious Organised Crime and Police Act 2005 disclosure notices on third parties such as solicitors, accountancy firms and associated companies to ensure the production of relevant documentation and securing of witness statements at the same time as the raid is taking place. 

Contingency planning 

While it may not be possible to know in advance that a raid is about to happen, the damage of a raid can be significantly mitigated by having a strategic risk management plan in place. It is important, for example, to ensure that training is given to employees so they know what powers are available to HMRC when it conducts raids. Employees should be given a list of procedures that should be followed in the event of a raid. Key staff should be aware of their individual responsibilities; not only senior executives, but also receptionists – who are likely to be the first point of contact – and the IT department – which is likely to be present when computers are imaged. 

Companies should make sure they have a list of key telephone numbers available for employees to call in a crisis, and the client’s accountants and lawyers should feature high on the list. It is advisable to have a retainer with a law firm that specialises in criminal tax investigations, and companies with offices abroad should also have a similar retainer with a law firm in that country to ensure a similar service.            

Search warrants

HMRC should produce a search warrant when it conducts a raid. A designated employee should check the warrant to ensure that the name of the company and the address relates to the premises they are proposing to search, and that the date of the warrant is still valid. The scope of the documents and evidence will be specified in the warrant. Each investigator should have an HMRC ID. 

During the raid, each investigator should be shadowed by an employee, who should make an additional copy of each document. The employee should make sure that no legally privileged documents are seized and should also ensure no documents are taken that fall outside the scope of the inquiry. 

A note should be taken of any questions from the investigator, along with answers given; care should be taken to ensure that members of staff don’t incriminate either themselves or the company. 

Legal professional privilege should be asserted over any legal communications between the company and its lawyers that were created for the purpose of actual or potential litigation. Accountancy advice isn’t privileged, so it is essential that all key meetings with clients should have a lawyer present so the meeting notes can be protected by legal professional privilege. In such an event, HMRC will instruct an independent lawyer to look at the documentation, and the documentation will be sealed and sent to independent counsel to be assessed.

The individuals whom HMRC believes are responsible for tax fraud will be arrested and taken to a predetermined police station, where HMRC will interview the suspect under caution. This is generally the first of several interviews conducted over the next few months, and it is imperative that the suspect has access to advice from a lawyer who specialises in tax fraud litigation to ensure they are properly represented.

The aftermath 

Immediately following a raid, it is vital that an experienced legal and accountancy team is put in place to assess the evidence seized and to supervise the investigative process on behalf of the company. 

Copies of the seized documents, as well as the electronically imaged data, should be catalogued and kept in a secure room so that an internal audit can take place and the best course of defence action can be determined. The physical location of the documents seized, as well as who controlled the documentation in question, is a good starting point; that information is often readily available from the seized property logs compiled by HMRC officers during the raid. Other issues to manage include the reputation of the company, possible civil litigation, and employment
law issues.      

HMRC has access to more information than ever before, particularly from abroad, and we can expect the frequency of criminal tax investigations to increase. The steps that a company and its advisers take before, during and after a raid will have a major bearing on the defence strategy available to both the company and the suspects involved in the criminal investigation, as well as the potential outcome of that investigation.

Tessa Lorimer is special counsel at legal firm Withers