In the Media

Bogus deals keep Customs in a spin

PUBLISHED May 9, 2006

Britain's fastest-growing criminal enterprise, which is costing taxpayers billions of pounds each year, is pursued by around 9,000 people, according to estimates by Revenue & Customs. The figures include warehouse workers and well-heeled accountants, hitherto law-abiding clerical workers and ruthless gangland figures.

Among them are a man who likes to be known as Colin, a genial wheeler dealer, all winks and smiles, and his mate "Andy", said to be "a bit of an anorak" when it comes to computers. "He's the technical expert," Colin explained. "I'm into banking, investments, things like that." Each afternoon, hunched over a couple of PCs in his apartment in a new city centre development in the north of England, Andy spins the wheels of carousel fraud, the crime that is sucking up to ?5bn a year out of the government's coffers.

Initially he traded in computer software that was bought and sold between myriad companies which he controlled. He would claim back the VAT refund due from each purchase, not pay a penny of the VAT that was due, and then vanish before Revenue & Customs could realise anything was amiss. Then Andy developed software which created a "virtual carousel", generating all the paperwork needed to convince Customs that a sequence of genuine sales had taken place.
Bank account

"You can turn the carousel in just 10 minutes, and then you just have to wait 30 days for the money to come in," says Colin. "You can run it round five companies but there are up to 300 that can be used. Each spin can give you up to ?200,000. The longest it stays in any bank account is two hours. It's no good being on a 90-day VAT repayment arrangement, you have to be on 30 days so you get your money back at the end of the month.

"You can move money so fast. The scale of it is beyond comprehension, you have no idea how much money is being made. And the Customs are not on to it. They are losing billions. A lot of the money goes out via France, but there's Ireland, Hong Kong, Dubai. Sometimes a guy comes in from Dubai with millions of dollars in cash. The guys involved in this are all driving around in Ferraris, Lamborghinis and Bentleys."

Carousel fraud began in the rag trade in the 1970s, but gained a new lease of life five or six years ago in the Midlands as criminals started trading mobile phones and computer chips. It has spread across the country, and is a serious problem within other EU nations, all of whom share a common VAT system open to abuse by fraudsters. Investigators say there is evidence of Russian mafia figures becoming involved in carousel fraud in the EU, while authorities in Dublin say the Provisional IRA has also been involved in the swindle. According to Colin, Andy's successful frauds have been assisted by some experienced accountants and lawyers, and he believes that at least one Customs officer is also on the take.

As long as the carousel was turning smoothly, and Customs remained at least one step behind, everyone was happy. The downside, as Colin and Andy discovered late last year, is that carousel fraud is becoming increasingly attractive to violent criminals.

"Andy had a knock on his door, and then he found he was having to pay out to some really heavy people. He's had some local people knocking on his door, and some very serious people from London. He's had some people from Liverpool claiming he owes them money. I drove him down there to meet them, and I thought he was going to get cracked. He didn't get cracked, but they made it clear exactly what they wanted."


There are now people embroiled in carousel fraud, Colin says, who would not draw the line at murder if they thought their profits were under threat. Senior Customs officers are alarmed by the growing scale of the crime. Roy Clark, Revenue & Customs' director of criminal investigations, says: "The figures are increasing because of the growing confidence of the people involved. However, we are determined to combat the problems and make their confidence shortlived."

Revenue & Customs say the fraudsters are smart enough to stay many months ahead of investigators, and mutate their activity into something slightly different the moment that they feel under suspicion. Once arrested, carousel fraudsters can afford to hire the best lawyers. So much time is now spent, at the request of defence lawyers, examining all the material generated during lengthy investigations to establish whether it should be disclosed to the court, that more than three dozen cases which began in 2003 are unlikely to reach court before 2008.

Lord Goldsmith, the attorney general, has condemned what he described as the "disclosure industry" as an abuse of the judicial process. Mr Clark says: "These people are doubly intelligent. Not only are they able to do very clever frauds but are also able to make themselves extremely difficult to prosecute."