Global film scheme gang on trial for £100m tax fraud

A financial adviser and a group of film producers who set up an international scheme are facing a trial for fraud.

It is alleged the scheme, which took advantage of the tax relief the UK Government offers the film industry, created the appearance of huge “paper losses”, The Times reported on Tuesday.

Investors in the scheme were predominantly high-net-worth individuals, and included pop stars, politicians and aristocrats.

Financial adviser Norman Leighton allegedly used his Monaco-based company to give the appearance that up to £262m ($401m, €357m) was being invested in the scheme, Birmingham Crown Court heard on Monday. He was paid £300,000 for his part in the scheme.

Cynical attempt

Patrick Harrington, QC, for the prosecution said investments in the scheme were transferred from the UK to an account in Monaco, the British Virgin Islands, Guernsey and then back to the British Virgin Islands, before returning to the UK. He said the transfers were a “deliberate and cynical attempt to disguise what was going on”, with the potential loss to HM Revenue & Customs amounting to £100m.

“Tax avoidance, although morally repugnant in the minds of many, is not against the law. Evasion is.”

Morally repugnant

“Tax avoidance, although morally repugnant in the minds of many, is not against the law. Evasion is. This is evasion,” Harrington said during the hearing.

Chartered accountant and film producer 65-year-old Keith Hayley was described as the “principal architect of the scheme” and allegedly made £8m. Charles Savill, 52, was accused of recruiting the investors and allegedly made £13m.

Another producer Robert Bevan, 52, allegedy made £5m from the scheme, and 40-year-old media consultant Cyril Megret is accused of making £800,000.

Little Wing Films

The group allegedy used a London-based company, Little Wing Films, to operate the scam. They are also accused of secretly controlling a number of offshore companies, including a Guernsey-based firm called Fat Cat Films.

The film partnerships agreed to invest £40,000 in pre-production funding for 302 films, 35 of which were eventually made, Harrington said.

All five men pleaded not guilty to conspiring to cheat the taxman and conspiring to commit false accountancy for the purposes of a tax avoidance scheme between 2002 and 2009.

The trial is expected to last six months.

Recycled

Court documents from earlier this year reveal that the film producers promoted the scheme to financial advisers who then in turn marketed it to their clients.

Rather than investing in films, most of the money was recycled through a network of offshore companies owned by Hayley, Bevan and Savill and was used to finance the limited recourse loans made to investors, which made the scheme effective as a tax mitigation scheme.

Documents also reveal the scheme produced little or no legitimate commercial activity.

Avoidance vs. evasion

Andrew Watters, director of UK law firm Thomas Eggar, said this case is interesting because it highlights the difference between avoidance and evasion.

“Any tax planning is avoiding tax that might otherwise be paid if the planning had not occurred,” he said. “The point at which the tax planning becomes unacceptable can be difficult to pinpoint. Different people may have different views as to what is acceptable.”

“The world of evasion is simpler. The defendants are accused of deliberately misleading, and if found guilty the defendants will be sentenced as criminals.

“As far as investors are concerned, while their tax returns will no doubt be challenged as they will have been based on a fraud, they will not be criminals unless they were involved in the fraud.”

Increasing expectation

Watters pointed out that most investors of tax schemes enter them on the advice of their financial advisers.

“The case is an example of the need for care on the part of professional advisers before recommending any planning to their clients,” he said.
“In fact, certainly from the point of view of civil penalties, the defence of ‘I just did what my adviser recommended’ is no longer adequate.
“There is an increasing expectation that individual taxpayers must make serious efforts to satisfy themselves that any tax planning in which they engage is legitimate.”

In July, hundreds of investors took a film investment firm Ingenious to the High Court after it promoted a initiative accused of being a tax avoidance scheme.