17 year sentence for VAT carousel fraud

Recently Dilawar Ravjani was sentenced to 17 years imprisonment following conviction for conspiracy to cheat the public revenue.  He was said to be the ring-leader in a complex missing trader intra community (MTIC) VAT fraud – sometimes known as carousel fraud.  But was that sentence – reportedly the longest ever given to an individual in the UK for this type of fraud – too harsh?

 

The offending

It is said that Mr Ravjani was at the head of a conspiracy involving purported trading in mobile phones of a total value of £1.7 billion.  But some of the phones did not even exist and a total of 5,700 fake transactions had been created to give the appearance of legitimate trading.  HM Revenue & Customs started their investigation in 2006.  It culminated in five trials and the conviction of 15 conspirators.  Only recently has the final trial been concluded.  The total VAT loss to HMRC was £107 million.

Undoubtedly the offending was serious.

 

The criminal charges

Mr Ravjani was charged and convicted of a single offence of ‘Conspiracy to Cheat the Public Revenue’.  He was sentenced to 17 years imprisonment and banned from acting in the management of a company for 15 years.  He is also to be subject to confiscation proceedings.

The offence of ‘Conspiracy to Cheat the Public Revenue’ is a common law offence in England & Wales with a history going back hundreds of years

The offence of ‘Conspiracy to Cheat the Public Revenue’ is a common law offence in England & Wales with a history going back hundreds of years.  The common law offence of ‘Cheat’ had applied more widely but was abolished by s32(1)(a) Theft Act 1968 except in relation to the public revenue.  The logic of that abolition was that the statutory offences set out in the Theft Act 1968 replaced the old common law.

One of the consequences of this was that, except in relation to offending concerning the public revenue, the statute introduced maximum sentences for offending formerly prosecuted as ‘Cheat’.  The maximum sentence for theft was originally set at 10 years imprisonment.  For some offences a lower maximum was set, for example ‘false accounting’ carried a maximum sentence of 7 years.

In relation to VAT a criminal offence was enacted by s72(1) Value Added Tax Act 1994 where “any person is knowingly concerned in, or in the taking of steps with a view to, the fraudulent evasion of VAT by him or any other person”.  Subsection (2) provides that “the evasion of VAT includes a reference to the obtaining of . . . the payment of a VAT credit”.  A ‘VAT credit’ is defined in s25(3) to include a VAT refund paid following the submission of a trader’s VAT return.

So it seems that Mr Ravjani could have been prosecuted under s72 VAT Act 1994.  But the maximum sentence for an offence under that section is 7 years imprisonment.

It appears to be the case that the offending occurred prior to the coming into effect of the Fraud Act 2006, which provides a maximum sentence of 10 years for fraud by false representation and similar offences.

However had the victim of this fraud been a wealthy individual, rather than the public purse, the maximum penalty (for the common law offence of conspiracy to defraud) would have been 10 years.

Mr Ravjani was not charged with any money laundering offence under Part VII, Proceeds of Crime Act 2002.  Such offences carry a maximum sentence of 14 years imprisonment.

the prosecutors may have had an option to charge Mr Ravjani either under the specific statutory offence or with the common law offence

So it seems that the prosecutors may have had an option to charge Mr Ravjani either under the specific statutory offence of s72 VAT Act 1994 (with a maximum sentence of 7 years) or with the common law offence of ‘Cheating the Public Revenue’ (which has no statutory maximum sentence).

It is perhaps not surprising that they chose to charge Mr Ravjani with the common law offence.  But were they entitled to do so?

 

Common law v statutory offences

It might be argued that Mr Ravjani ought to have been charged with the statutory offence under s72 VAT Act 1994 because his alleged criminal conduct fell within the scope of that statutory offence.

good practice and respect for the primacy of statute do in my judgment require that conduct falling within the terms of a specific statutory provision should be prosecuted under that provision unless there is good reason for doing otherwise

In the case of R v. Rimmington [2005] UKHL 63 Lord Bingham said this at paragraph [30]:
“Where Parliament has defined the ingredients of an offence, perhaps stipulating what shall and shall not be a defence, and has prescribed a mode of trial and a maximum penalty, it must ordinarily be proper that conduct falling within that definition should be prosecuted for the statutory offence and not for a common law offence which may or may not provide the same defences and for which the potential penalty is unlimited.  . . .    It cannot in the ordinary way be a reason for resorting to the common law offence that the prosecutor is freed from mandatory time limits or restrictions on penalty.  It must rather be assumed that Parliament imposed the restrictions which it did having considered and weighed up what the protection of the public reasonably demanded.  I would not go to the length of holding that conduct may never be lawfully prosecuted as a generally-expressed common law crime where it falls within the terms of a specific statutory provision, but good practice and respect for the primacy of statute do in my judgment require that conduct falling within the terms of a specific statutory provision should be prosecuted under that provision unless there is good reason for doing otherwise”.

It is clear that Mr Ravjani was regarded as the organiser and ring-leader in this conspiracy.  It is also clear that other members of the conspiracy were convicted of money laundering and sentenced to prison terms in excess of 7 years.  It follows that, had Mr Ravjani been prosecuted only under s72 VAT Act 1994, he would have received a lighter sentence than other conspirators who were considered less culpable.

But is that, in the words of Lord Bingham, “good reason for doing otherwise”?

It has to be said that appropriate sentencing in this area remains open to debate.  In the Court of Appeal judgment R v Meehan [2006] All ER (D) 105 it was indicated that organisers of such frauds should expect sentences well into double figures – clearly in excess of those envisaged in VAT Act 1994.  That appears to leave a tension between the views of the Court of Appeal and those of Lord Bingham in the House of Lords.

Perhaps that should be resolved by Parliament looking again at the 7 year maximum sentence under s72 VAT Act 1994?

But can it be right that a person who defrauds the public purse faces a higher sentence on conviction than a person who defrauds wealthy individuals or businesses?

David

P.S.  Mr Ravjani might, on the other hand, consider himself fortunate to have been prosecuted in England rather than in another jurisdiction.  At least he did not have to face a very, very long sentence such as that meted out in the US courts in the case of Bernie Madoff – 150 years!

UPDATE
On 29 November 2012 the Court of Appeal refused Mr Ravjani’s application for leave to appeal against his 17 year sentence R v Ravjani [2012] EWCA Crim 2519.

SECOND UPDATE
The Court of Appeal on 17 December 2013 in the case of Dosanjh & Others v R. [2013] EWCA Crim 2366 commented upon the use of common law charges in circumstances where the offending could be covered by a statutory offence. They said, at paragraph [33], “we are entirely confident that as far as Parliament is concerned, the offence of conspiracy to cheat the public revenue retains its established and clearly understood role in the prosecution of revenue cases. It is used to supplement the statutory framework and is recognised as the appropriate charge for the small number of the most serious revenue frauds, where the statutory offences will not adequately reflect the criminality involved and where a sentence at large is more appropriate than one subject to statutory restrictions”.
In practice however I see the common law offence being charged apparently routinely in cases which could not be described as “the most serious revenue frauds”. Will that no longer be the case in future?

3 Responses to 17 year sentence for VAT carousel fraud
  1. Prince Daniel Antigha
    August 13, 2012 | 8:54 pm

    David,
    Thanks for the article but it raises a lot of issues.
    (1) Was the statement of Lord Bingham a ratio decidendi or orbiter dictum?
    (2) If the former its a trite learning in law the principle of stare decisis, or is House of Lords decisions not binding on Court of Appeal?
    (3) Can the defense argue that the charge should be changed to the one that will obviously favour their client?
    (4) Could it be the case that contemporary judicialism is riding on the bandwagon of giving the maximum sentence possible for tax evasion/fraud cases as deterrent to other members of society?
    (5) What in your opinion is the likelihood of getting a lower sentence based on the statutory provisions on appeal? (Assuming that the defense used the argument in the trial)

    • David Winch
      August 25, 2012 | 9:41 pm

      In the case of Rimmington both defendants won their appeals for reasons related to the facts of what they had done and their state of mind (or mens rea) when doing them. Ultimately the decisive issue was not whether they should have been charged with statutory, rather than common law, offences. (So Lord Bingham’s remarks were obiter dicta.)

      In English Courts the House of Lords (which in 2009 became known as the Supreme Court) is a court which is superior to the Court of Appeal and therefore judicial decisions of the House of Lords / Supreme Court are binding upon the Court of Appeal. (Rather confusingly there is a completely separate body also called the House of Lords which is not a court but is the upper house of the UK parliament.)

      The choice of charge is a matter for the prosecutor. In appropriate circumstances the defence can ask the judge to stop the prosecution on the basis that it is an abuse of process.

      However neither the defendant nor the judge, in the UK, has power to require the prosecutor to charge a defendant with a statutory offence rather than a common law one, or to charge the defendant with a less serious offence in place of a more serious one (or a more serious offence rather than a less serious one).

      In practice in courts throughout the country there are routinely pre-trial discussions between prosecutors and defendants’ legal representatives which may lead the prosecutor to decide to change the offence charged and accept a guilty plea from the defendant to the lesser charge (in a form of plea bargaining). But only the prosecutor can decide what the defendant is to be charged with.

      If the defendant in this case were to appeal on the basis of abuse of process, and succeed in that appeal, the Court of Appeal would have power to substitute a conviction for another offence which is one of which (on the basis of facts of which the jury must have been satisfied) the defendant must be guilty.

      But if the defendant here were on appeal to be acquitted of the common law offence and, in substitution, convicted of the statutory offence then his sentence would have to be reduced.

      However it is rare for appeals to be successful on the basis of an abuse of process.

      It is very much open to question whether this defendant would be successful if he were to appeal against his conviction on the basis that he should not have been charged with the common law offence because (the defendant would argue) he could have been and should have been prosecuted for the statutory offence on the same facts.

      David

  2. Blackhawk Investigations
    November 11, 2012 | 9:09 am

    Few points on this :-

    1. the guy will not serve 17 years, probably 40% of that.
    2. the sum of money defrauded is surely relevant, if it multi millions, the sentence must reflect this as a deterrent but also to reflect the damage done.
    3. on the other side of the argument, it costs about 50k a year just to keep someone in jail, probably an open prison. The fraudster will have other repercussions in life , so is there a point in keeping someone in prison for a non-violent offence for more than 5-6 years in reality ?

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