Mobile phone scam costs VAT billions:

Customs accused of overreaction in bid to combat swindle based in Stoke
on Monday 19 October 2009
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Mobile phone scam costs VAT billions: Customs accused of overreaction in bid to combat swindle based in Stoke

Saturday 17 August 2002

by James Oliver and Paul Lashmar

Stoke-on-Trent seems an unlikely rival to London or Manchester as a home of organised crime. But it is the epicentre of an enterprising wave of fraud that customs sources say may have already cost taxpayers pounds 10bn. Huge sums in VAT refunds are being stolen during international trading in mobile phones. Customs officially estimate the size of the frauds was up to pounds 2.6bn in 2000-01. While customs says it believes the figure has reduced, internal sources say they fear losses are in reality rocketing out of contol and could be as much as pounds 10bn.
The swindle relies on the European single market. No VAT is charged for trading between EU countries, and mobile phones are ideal for trafficking because they are in high demand, and easy to transport. Fraudsters use a front company to import the phones VAT free within the EU and then sell them on to other traders in the UK charging VAT at 17.5%. The fraudsters pocket the VAT money and disappear.

The amounts involved are enormous: pounds 200m is not uncommon. In more sophisticated versions called carousel fraud, the phones are imported, VAT free, and pass through the hands of a number of companies.Somewhere in the chain there will be a trader who disappears with the VAT money. Eventually, the goods are exported back out of the UK. Then they return, to go round again with a new missing trader. In some cases the mobile phones never move out of the warehouse. Only the paperwork shows movement. One criminal approached by Stoke fraudsters says: "They're called Basher companies - because they bash the VAT. Everyone's moving into it".It was former employees of a company in Stoke-on-Trent who first realised that mobile phones could be used as an effective device for VAT fraud. Many of the former employees from that company are under investigation by the police.As word spread locally, more frauds were spawned. With hundreds of people in the area allegedly involved, several customs investigations are under way. In one case alone, customs arrested 20 people allegedly involved in a VAT fraud centred in Stoke. Not all have been charged.

There are signs of dismay in the Treasury. Customs documents obtained by the Guardian admit the mobile phone frauds are "widespread and growing significantly" and represent "highly organised criminal activity on a global scale".To combat mounting tax losses, customs has redeployed staff. Some 340 are investigating so-called missing trader fraud. All VAT offices have been alerted to "the risks to the revenue which is now occurring" according to one document. Many traders say innocent people who may have unwittingly traded with fraudsters are being caught up by the arrests, in a belated overreaction by customs to mounting losses. One of those arrested, but not charged, is flamboyant Staffordshire businessman, Stu Baillie, who has been trading in mobile phones for several years He has a pub called Baillies Bar in Stoke and plans for a nightclub. His main company, Baillies Limited was incorporated in 1999. According to Mr Baillie, last year's turnover was in the region of pounds 387m.He says seven customs officers arrived at his house on the July 8. He was questioned at a police station about his alleged involvement in VAT fraud. His office and home computer were seized.

Mr Baillie has recently bought a helicopter and is the owner of a number of classic cars, including a Ferrari and an Aston Martin DB7, some with personalised number plates which Mr Baillie buys over the internet to trade. One, "bought as a joke", and recently sold was JU51 VAT, or JUST VAT."The one that the VAT office have commented on before, is the one I've got on my DB7 (Aston Martin), which is ABU 51T, roughly it's ABUSE IT."Mr Baillie told the Guardian: "I feel I have been very poorly treated by the VAT office".He firmly denies customs' allegations. He was released pending inquiries.Industry specialists claim overreactions are bringing the legitimate industry to a halt.One tax consultant, Don Mavin says: "Customs are panicking. They're under huge pressure to stop the leakage and are refusing to pay out VAT repayments until they have checked through the entire trading chain." At least two of Mavin's clients are considering a judicial review of customs' actions. "They have been forced to stop trading."In their efforts to crack down, customs have also begun visiting all newly VAT registered firms involved in the mobile phone business.But according to VAT experts, the criminals are shifting tactics. Some are registering companies for VAT without mentioning mobile phones - registering as innocuous businesses like general services, the construction industry, or even as plumbers.

CLONING

Others have developed a new method, hijacking, or "cloning" the VAT registration numbers of reputable companies. The innocent business with its VAT registration details hijacked knows nothing about it. But when the missing trader disappears with the VAT, the legitimate trader may find himself picking up the bill.One trader, who wishes to remain anonymous, is attempting to claw back over pounds 700,000 of VAT that customs are refusing to pay him after they discovered that the company he was buying from was using a cloned VAT registration number and had disappeared.The businessman, who is taking customs to a VAT tribunal, faces ruin. "I have to appeal. But there's still a chance you lose. And if you lose, you're out of business." Mr Mavin says: "Customs should concentrate on preventing fraudsters from registering for VAT, rather than going after innocent traders for the losses."But a customs representative toldthe Guardian: "If somebody has been negligent themselves in not carrying out the checks or making sure they are not part of a fraud, then appropriate action is taken. Companies have to take responsibility for their own actions."

In addition, customs are using the civil courts to recover extraordinary amounts of VAT that they claim are outstanding.Last month, customs issued a civil writ against a Stoke-on-Trent company, Worldsoft Ltd, demanding a return of nearly £24m of VAT.To amass this amount of liability, the company would have had to book more than pounds 135m of sales in 50 days' trading - enough to rank it as one of Britain's biggest firms. Directors Stephen Hancock and Barbara Moran could not be contacted by the Guardian.