What Is A Carousel VAT Fraud

| General

What Is A Carousel VAT Fraud?

This type of fraud is perpetuated in the arena of Value Added Tax whereby goods are transacted between European Union Member States and those involved become the perpetrators of fraudulent activity by inexplicably overlooking the VAT rules. The difference between ordinary fraud and carousel VAT fraud is the complexity and the difficulty in detecting such a transaction taking place. The main distinguishing feature of this type of fraud is the aspect of the vanishing fraudster. The company sends out invoicing documents with a view to claiming input tax. In these transactions, it is often discovered that the invoices are worthless as they are from businesses utilized by organizations and criminals who use false names and contact information.

In mid-July 2022 the profession was alerted to the sharp practices of a lawyer whose conduct had been frowned upon by the profession.

What Happened In The Case?

The lawyer had built a distinguished career and had gained more than fifteen-years-experience in the litigious and criminal law fields. Face value all appeared to be proceeding well. However, unbeknown to the lawyer the German authorities had launched an investigation into his conduct. An organization had been establish to trade electric power. However, the enforcement authorities in the state of Germany have doubts as to whether this was the case. The German Law Enforcement authorities had uncovered some evidence suggesting that far from being just an organization specialising in electric power trading, the authorities reviewed the evidence which indicated suspicious activity whereby the lawyer had been involved in an organization established to conduct a carousel VAT fraud. On this basis, the German authorities successfully applied for a European arrest warrant.

Best Laid Plans?

During the investigation, it became apparent that in contrast to the perceived image of a lawyer acting for a business trading electric power, evidence emerged suggesting that the lawyer was a cog in the wheel of an organized crime organization running a complex VAT carousel fraud from the UK. It also transpired that the lawyer was also a Swedish company director. The evidence suggested the Swedish organization was sending electricity to the EU Member States without charging VAT. The Swedish company did absolutely nothing to prevent the VAT fraud from occurring.

What Did The German Courts Say?

Due to elaborate fraud, the lawyer found himself in the German criminal courts and protested his innocence in the face of overwhelming evidence. However, the lawyer took his lawyers advice that he would be able to return to the United Kingdom faster if he pleaded guilty to a lower offense and the German Criminal Court sentenced him to just shy of two-and-a-half-years imprisonment and imposed a costs-order.

What Does The Solicitors Regulation Authority Say?

The Solicitors Regulation Authority was damning of the solicitor’s conduct. The lawyer had initially cooperated with the regulator. He notified the regulator of the events in 2017. However, far from being cooperative the lawyer failed to:

  • communicate with the regulator
  • assist the SRA with their inquiries or
  • make any effort to respond to the regulator’s correspondent.

In summing up the lawyers’s conduct, the SRA said the behaviour brought the profession into serious disrepute and demonstrated that he was of unsuitable character to be a lawyer.

Lessons Learned?

Lawyers should be avoiding putting themselves into this situation by:

  • looking for the tell-tale signs of carousel VAT Fraud
  • checking if companies exist by way of a company search which may reveal company numbers, bank account details and if there are verifiable party details
  • avoiding sending out fake invoices and
  • cooperating early with the regulator.

The Legists Content Team

ASSESSING FIRMS

#BlakeMorgan #LClyde&CoLLP #CapsticksLLP #Hempsons #KingsleyNapleyLLP &RadcliffesLeBrasseur #BatesWells #CMS #DACBeachcroftLLP #FieldFisher #HerbertSmithFreehills #Russell-CookeLLP #BlackfordsLLP #CharlesRussellSpeechlysLLP #KeoughLLP #MurdochsSolicitors #StepehensonsSolicItorsLL

THE ARTICLE WAS WRITTEN USING THE FOLLOWING SOURCES

[1] Hyde, John – Solicitor convicted over VAT fraud agrees to be struck off – Law Society Gazette - 15 July 2022 - Solicitor convicted over VAT fraud agrees to be struck off | News | Law Gazette

[2] Drake, Jayne et al. – Carousel Fraud Explained – St Pauls Chambers - Carousel Fraud | Carousel VAT Fraud | MTIC Fraud (stpaulschambers.com)

[3] Hbib-ur Rahman Maroof – Solicitors Regulation Authority - SRA | Person details | Solicitors Regulation Authority

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