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Broken Britain 16: HMRC refuses to investigate money-laundering and tax fraud charges by largest Conservative donor

Three classes of British looting: which is the most culpable?

Professor Prem Sikka, Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex, draws attention to the case of the UK telecoms giant Lycamobile, the biggest donor to the Conservative Party, which has accepted £2.2m in donations since 2011.

Her Majesty’s Revenue and Customs (HMRC) has refused to assist the French authorities and raid Lycamobile’s UK premises in order to investigate suspected money laundering and tax fraud.

Economia, the publication for members of the Institute of Chartered Accountants in England and Wales (ICAEW) which covers news and analysis on the essential issues in business, finance and accountancy, reports:

Following an initial denial (left, Financial Times), Economia confirmed that in an official response to the French government dated 30 March 2017,  a HMRC official noted that Lycamobile is “a large multinational company” with “vast assets at their disposal” and would be “extremely unlikely to agree to having their premises searched”, said the report.

The letter from HMRC to the French government added, “It is of note that they are the biggest corporate donor to the Conservative party led by Prime Minister Theresa May and donated 1.25m Euros to the Prince Charles Trust in 2012”.

This is an ongoing saga: in 2016 Economia noted: “The Tories have come under fire for continuing to accept donations of more than £870,000 from Lycamobile since December, while it was being investigated for tax fraud and money laundering”.

In 2016 In May it emerged that KPMG’s audit of Lycamobile was limited due to the complex nature of the company’s accounts. Later, KPMG resigned saying it was unable to obtain “all the information and explanations from the company that we consider necessary for the purpose of our audit”.

HMRC: “has become a state within a state”.

Prem Sikka (right) continues, “The House of Commons Treasury Committee is demanding answers to the Lycamobile episode – but HMRC is unlikely to prove amenable”.

In recent years, the Public Accounts Committee has conducted hearings into tax avoidance by giant global corporations such as Microsoft, Amazon, Google, Starbucks, Shire and others. The hearings have not been followed by HMRC test cases.

The Public Accounts Committee has also held hearings into the role of the large accountancy firms in designing and marketing avoidance schemes and exposed their predatory culture. In a telling rebuke to PricewaterhouseCoopers, the Committee chair said: “You are offering schemes to your clients—knowingly marketing these schemes—where you have judged there is a 75% risk of it then being deemed unlawful. That is a shocking finding for me to be told by one of your tax officials.”

Despite the above and numerous court judgments declaring the tax avoidance schemes marketed by accountancy firms to be unlawful, not a single firm has been investigated, fined or prosecuted.

There are real concerns that HMRC is too sympathetic to large companies and wealthy elites.

A major reason for that is the ‘revolving door’, the colonisation of HMRC by big business and its discourses: its current board members include non-executive directors connected with British Airways, Mondi, Anglo American, Aviva, PricewaterhouseCoopers and Rolls Royce.

After a stint at HMRC many of the non-execs return to big business. Corporate sympathies are therefore not counterbalanced by the presence of ordinary taxpayers or individuals from SMEs and civil society.

Sikka ends: “In such an environment, it is all too easy to turn a Nelsonian eye on corporate abuses and shower concessions on companies and wealthy individuals”. Read more here.

 

Why should we care?

Because tax revenue pays for the services used by all except the richest, the education health, transport and social services, increasingly impoverished by funding cuts imposed by the last two British governments.

The Shadow Chancellor has twice called for more rigorous examination and tightening of processes at HMRC to ensure that corporations and wealthy individuals are free from political corruption and pay fair rates of taxes.

Will the next government elected be for the many, not the few?

 

 

 

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Big auditors have penetrated the state & organised their own accountability

prem sikka 4“The big auditors have not only penetrated the state but have become part of the state and have organised their own accountability off the political agenda”.

So writes Professor Prem Sikka director of the Centre for Global Accountability at the University of Essex (Accountancy) in a recent article.

Extracts

By colonising bodies such as the International Auditing and Assurance Standards Board and the UK’s Financial Reporting Council, big accounting firms control the production of auditing standards. Various international auditing standards, codes and related pronouncements, for instance, cover about 3,000 pages but remain silent on auditor accountability to the public.

The public bears the cost of audits and audit failures, but has no right to see audit files or to make an assessment of the quality of audit work. Legal cases show that, even despite an admission of negligence, auditing firms escape liability because under UK law they do not owe a “duty of care” to any individual shareholder, creditor, employee, pension scheme member, or any others affected by their negligence.

The silence of the auditors at distressed banks is well documented though this has resulted in little effective action. No auditing firm has returned the fees for dud audits. Earlier this year, nearly six years after the banking crash, the Wall Street Journal reported that a US auditing regulator found more than one in three audits inspected were considered to be deficient and did not provide enough evidence to enable auditors to reach a conclusion.

Who will audit the auditors?

What should we do with producers who routinely deliver faulty goods and services? Producers of cars, food, medicines, aeroplanes and even financial products are forced to compensate injured parties, recall their goods and face the possibility of being forced out of business. But such niceties do not apply to the auditing industry.

IFIAR logoA damning report was produced by the International Forum of Independent Audit Regulators (IFIAR), an organisation representing audit regulators of 49 jurisdictions, including Australia, France, Germany, Italy, Japan Spain, UK and the US. This IFIAR report was compiled from the audit inspections carried out by national regulators and focuses on audits of major listed companies. The audit market for these companies is dominated by the Big Four accountancy firms – Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers – and smaller rivals Grant Thornton and BDO. Their combined global revenue is around US$120 billion and the “too big to close” syndrome continues to prevent effective regulatory retribution.

Auditors will continue to audit the very transactions that they themselves have created

The post banking crash auditing reforms recently announced by the EU require that financial institutions and listed companies change their auditors every 10-24 years, something which will not prevent collusive relationships between companies and auditors. The EU will impose further restrictions on the auditor’s ability to sell consultancy services to their clients, rather than imposing a complete ban. So auditors will continue to audit the very transactions that they themselves have created.

Minimalist reforms are welcomed by the auditing industry, but do not address the problems identified above . . .

Auditors should owe a “duty of care” to all stakeholders who have reasonably relied on audit reports. The consumer rights revolution which applies to even mundane things like toffees and potato crisps also needs to apply to producers of audit opinions. All auditor files should be publicly available so that interested parties can make their own assessment by considering the composition of the teams, time spent, horse trading with company directors and conflicts of interests.

The above proposals can stimulate competition and hnf and thus create incentives for accounting firms to escape the cycle of institutionalised failures. No doubt, auditing firms would oppose any proposals that strengthen their public accountability, but the reforms can save them from their own follies.

Read the whole article here: https://theconversation.com/big-auditors-must-be-made-accountable-to-the-public-25766

Government ‘sweetheart’ tax deals and yet another revolving door reward for failure

Yeah, we’re all in this together? 

So said the reader who recommended the Guardian article by Rajeev Syal which reveals the scale of the government’s “sweetheart” tax deals – individual secret agreements drawn up between tax officials and corporations to settle disputes.

Another whistleblower revelation

A leaked document sent by Dave Hartnett, the former head of tax at HM Revenue and Customs (HMRC), to David Gauke, the exchequer secretary at the Treasury, discloses a figure of £4.5bn for four settlements.

Conflict of interest: the government’s civil servant too close to the corporate world

dave hartnettTwo years ago the Telegraph and others reported that Dave Hartnett, during his service as ‘permanent secretary for tax’ at HM Revenue & Customs, was entertained 107 times by some of the UK’s biggest banks.

These included law firms and accountancy firms and other corporates, amongst them, Goldman Sachs, JP Morgan, Ernst & Young, KPMG, PriceWaterhouse Coopers and Deloitte.

Revolving door

In January he was hired by HSBC to help to enforce the highest standards in dealing with international money transfers.

The leaked document describes deals in excess of £1bn as “not uncommon”.

The disclosures about the multibillion-pound scale of the government’s deals come from a seven-page memo sent by Hartnett in December 2011 as he asked for public support from Gauke in the face of growing criticism in the media and parliament.

Margaret Hodge, the chair of the Commons public accounts committee, said: “If we got £4.5bn in, how much did we not get? That is what taxpayers will want to know, and I’ll be raising this with HMRC through the committee.

Whistleblower protected? No: treated like serious criminal

Separate documents disclosed in the Guardian show that tax officials used intrusive investigative powers designed to help them catch serious criminals to try to prove that the whistleblower who uncovered one of the first sweetheart deals, involving Goldman Sachs, had spoken to the Guardian.

Read more about HMRC’s draconian action against its whistleblower and deals with Vodafone and Goldman Sachs here: http://www.guardian.co.uk/politics/2013/apr/29/sweetheart-tax-deals

 

Government has never tried to recover legal costs from promoters of tax avoidance schemes and continues to award them taxpayer funded contracts

Despite the evidence of fraudulent schemes, no major accountancy firm has ever been disciplined by any professional accountancy body

Professor Prem Sikka writes that Her Majesty’s Revenue and Customs (HMRC) is investigating some 41,000 tax avoidance schemes, but there is still no investigation of the industry that designs and markets aggressive tax avoidance schemes . . .

Now the public accounts committee (PAC) chair Margaret Hodge has PwC, Ernst & Young, KPMG and Deloitte in her sights. The PAC should investigate the role of these firms in organised tax avoidance. An earlier internal HMRC study estimated that these four firms “were behind almost half of all known avoidance schemes” . . .

Despite the evidence, no accountancy firm has ever been disciplined by any professional accountancy body and despite spending millions of pounds to quash predatory schemes, the UK Treasury has never sought to recover the legal costs from the promoters of the schemes. Instead, the big accountancy firms continue to receive taxpayer funded contracts . . .

No government will be able to effectively tackle tax avoidance without shackling the designers and enablers.

Read the whole article here: http://www.guardian.co.uk/commentisfree/2012/dec/08/predatory-practices-accountancy-firms