Complex Cases

The press, in recent years, has made much of the unfairness of HMRC pursuing small companies for small tax bills, whilst cutting deals with large avoiders.  A similar complaint may be made about criminal prosecution.  I have seen, in a magistrates court, a case brought against a man carrying a novelty-belt-buckle-cum-knuckleduster on the Eurostar, at a time when criminal prosecutions for large scale financial misconduct seem scarce and unsuccessful.

The problem on both counts is two-fold; complexity and (relatedly) outside option. A large scale tax avoider, or long running fraud, are doing clever and complicated things. In any case, they are vast. A fraud running for 6 years will necessarily involve more documentation, money movements and representations than a mugging or a bank heist. To decide whether the actions were illegal is more difficult, and involves more work – for an investigator or a prosecutor.  All the while, its subject will be taking legal advice from top end lawyers with a long billing leash. (A big corporate would, in all likelihood, outspend the Serious Fraud Office in any given proceedings.)

An investigator, then, has to decide whether to take that gamble. If he is wrong, he has spent a large amount of money and time achieving nothing.  The knuckleduster chap got off – at a small cost to the taxpayer.  The Tchenguiz litigation, a failed SFO case relating to the Icelandic banking crisis, is a serious loss to the public purse.

Outside options are the state’s way of bypassing this risk.  Cutting a deal with Fyodor plc saves litigation costs and risks; even if the recovery isn’t as good as it may be. In a simpler case, there is no reason to cut a deal – a hairdresser who doesn’t pay VAT is a stonewall court win, why negotiate? Deferred Prosecution Agreements look to be a way to bring an element of that negotiation to the criminal table. But, as we will see, there are problems with those too.