Oral evidence: Increasing the effectiveness of tax collection: a stocktake of progress since 2010, HC 974

Oral evidence, 11 February 2015.

Witnesses

Jennie Granger, Director General Enforcement and Compliance, HMRC, Jim Harra, Director General Business Tax, HMRC, Lin Homer, Chief Executive and Permanent Secretary, HMRC, and Indra Morris, Director General Tax and Welfare, HMT, gave evidence.

Chair

Thank you very much. May I start by saying congratulations to Jim Harra, who was honoured in the new year’s honours list? Well done. We did not know the last time you were before us, but congratulations on behalf of the Committee.

Jim Harra

Thank you, Chair.

Chair

Have you been to the Palace yet?

Jim Harra

On 6 March.

Chair

Enjoy. Can I say to you, Ms Homer, that it is not for you to decide who appears in front of this Committee? It is for us to decide who we want to see. We will expect Edward Troup to be here when we have our session on 4 March, and we hope that it will not be necessary for us to take further action. Can I move to talk in the first instance about HSBC? Because we have so much to cover, it would be really helpful if you kept your answers short. If there is a bank that actively supports a client in giving them a credit card to withdraw money from an account that it knows is an undeclared bank account, is the bank—I accept that we are taking about the Swiss private banking arm of HSBC—knowingly facilitating tax evasion or avoidance?

Lin Homer

Thank you for that question. In relation to the information we have received in respect of HSBC Suisse, we believe that there is a lot of information about behaviours of individuals that is worthy of investigation. It is quite difficult for me to pass an absolute comment on an abbreviated version of something, but we would certainly consider individuals to be capable of committing offences when they act on behalf of their organisation and, in certain circumstances, potentially organisations.

Chair

So, can I ask the question again? In the situation where a bank actively supports a client in giving them a credit card, for them to use that credit card to withdraw money from an account that the bank knows is undeclared in the UK, is the bank knowingly facilitating tax evasion or avoidance?

Lin Homer

It may depend on the circumstances of where the bank is and the rules which apply. We would consider all those cases and—

Chair

It is the bank. I am not talking about the individual—you have very done very little on the individual, and we’ll come to the individuals in a minute.

Lin Homer

And it may depend. So—

Chair

Would you consider taking action against the bank?

Lin Homer

We would always consider the full range of possibilities of the evidence that is in front of us—

Chair

Are you considering?

Lin Homer

Well, if you would like me to, I would like to tell you a little bit about what we have been doing about—

Chair

Let me ask you about the other instances that came out. We are talking about the bank, not the individuals.

Lin Homer

I understand.

Chair

And it is the Swiss private banking arm that we are talking about. If a banker sits down with a client in a coffee shop in London and tells the client how he can withdraw $2 million in cash from an account that the bank knows is undeclared, is the bank knowingly facilitating tax evasion or tax avoidance?

Lin Homer

Well, again, it is not territory where I am prepared to say, on a simple one or two-line description, would that person be guilty of an offence or not. If I put this into context, when we take a case through to the CPS it takes on average 44 months for us to get to a point where the CPS considers charging. That illustrates the complexity within which we have to consider criminal proceedings, and I think it suggests a degree of superficiality about me trying to do yes or no answers to that kind of question. What I can assure you—

Chair

You have had five years to think about it, Ms Homer. You have been in the job how long?

Lin Homer

I have been in the job for three years.

Chair

You personally have had three years.

Lin Homer

If you would like me to, I would very much like to tell you what we have been doing in relation—

Chair

Let me ask you further questions. If a bank writes to a client, or many of its clients, inviting them to enter into an arrangement that is deliberately constructed to avoid a European directive that has been specifically introduced to tackle deliberate tax avoidance, is that bank knowingly facilitating tax evasion or avoidance?

Lin Homer

The answer to that is the same as the answer I gave to you before: I am not going to give a yes or no answer to a complicated question about criminal law on the back of a summary like that.

Chair

Have you been thinking about it for the past three years?

Lin Homer

Yes, and I will say again: if you would like me to, I will give you an account of what we have been doing.

Chair

Go on, tell me what you have been doing in the past three years that you don’t see these very clear specifics that have been in the press.

Lin Homer

I would also quite like to remind the Committee of how often we have discussed prosecution with you, because it has been the subject of conversation on a regular basis.

Chair

If I may, Lin, I will let you say what you want to say, but I would be grateful if you actually addressed the pertinent question, not the wider issues—not the framework thing that you always tell us about, but something new.

Lin Homer

Solace is the operational name of the project that has been running to look at the information that we received through what is commonly known as the Lagarde list. We have talked about that with you on occasion—I think the last time was in autumn last year. From the moment when we received the data, which was at the end of April, our risk and intelligence group has been looking at it.

Stephen Phillips

April when?

Lin Homer

April 2010. We received the data and it was handed to our risk and intelligence unit. We have had a project team working on that, with three directors from across Jennie’s business, our criminal intelligence, our special investigations and RIS, as well as deputy directors from the rest of the department . More than 300 staff were working on the project. We looked at—we have given you these figures before—6,800 entities at first pass. We believed that we had identified 3,600 individuals. We traced 3,200 of those individuals. We triaged them into three sections: those who we thought were the most serious, where we considered criminal investigation; and those who we thought were more serious but not likely to meet the criminal threshold. From the beginning, in discussion with the CPS, we were clear that we were dealing with incomplete and dirty data and an organisation that was unlikely to proffer us any more information, whereas often we will be working in a circumstance where we are able to collect more. Also, in most cases, we had no third-party corroboration. Our expectation was always that the numbers—

Stephen Phillips

You said that you triaged them into three groups; you have given us two. You have not given us the third.

Lin Homer

Yes, I am about to tell you about the third, but I am just trying to make the point that we had that in our mind from the beginning. We looked at the first number—about 150—to consider seriously whether we could mount a criminal investigation. For 500, we used our powers under our special investigation to consider whether we could pursue them for serious fraud[1]. The remainder we pursued for what would more generally be called disclosing and settling.

Mr Bacon

Which was how many?

Lin Homer

The remainder was about another 400 or 500[2].

Mr Bacon

Sorry; 150, followed by 500, followed by what?

Lin Homer

About 500. So that is about a third[3], and I think you have seen from what we have said publicly in recent days that, from that first look, we believed that about a third needed and suggested some lack of compliance. For the other two thirds, we entered into discussion and required disclosures so that we could satisfy ourselves that there was nothing more to disclose. We then proceeded to fast-track the ones in the first section. I think that, on previous occasions, we have told you that we thought that there were possibly about 15 or so that we hoped to get through to criminal prosecution. As I have told you on a previous occasion, a number of those moved into the disclosure facility and took themselves out of prosecution that way. A number were discussed with the CPS, and, in the end, of the three that we and they felt most likely to be able to prosecute, they felt that only one had reached the test. That is the top tier. Of the remainder, we then used—I think we may have been among the first to use—our section 62 powers under the Serious Organised Crime and Police Act. Those were new powers that were brought in—

Chair

When did those powers come in?

Lin Homer

I will remember—

Chair

When?

Lin Homer

I think it will have been towards the end of the last Government.

Chair

Pardon?

Lin Homer

Towards the end of the last Government, when the Serious Organised Crime Agency was in place. They were new powers, particularly for us, which require the provision of more information, even if it is incriminating. As a result of that work on those first two tiers we have reached settlements on all except 130 of those cases[4].

Chair

One hundred and thirty of which cases? Of the 1,100?

Lin Homer

Of the 1,100, yes, and 130 of those are still open. That has all been done under what we term Project Solace and Jennie can give you more information, if you would like. Just to be clear, we have always told you that we use the full range of our toolkits. I think on the last occasion I was here, Mr Smith accused me of looking defensive and I said it was because I was expecting the next question from the Chair to be, “Why don’t you do more prosecutions?” We had a bit of a discussion about the fact that I was going to say that prosecution is only one part of what we do. That is still what we believe. It is a very important part of the toolkit, but we are after the tax, a change of behaviour and a deterrent. We believe all those things are required.

Austin Mitchell

How much did you recover?

Lin Homer

It was £135 million.

Austin Mitchell

That is less than was recovered by the French and Belgians.

Lin Homer

No, I’m sorry. The other thing that has been asserted is that we are significantly behind others. We have one successful conviction. Other than Ireland, I am not sure that anywhere else does. We have been talking to our colleagues to see and we will learn from others if we can, but we believe others are thinking about prosecutions. If you look at the relative amount of money, we think, on the numbers of names that we had, that we are in good company with all our colleagues.

Chair

No, you are not.

Lin Homer

We are.

Chair

It would be nice to have a straight and open discussion. According to the information I have got, the French have got £200 million in and they had only 3,000 names. The Spanish have got £185 million in and they had 2,900 names. So, between them, they had fewer names, accounts or whatever it is referred to them than you have, and they have managed to get in nearly £400 million and you have got in £135 million. We will come back to why you have not taken more litigation or actions against people, but if your main objective was to get in the money, you have not done as well as either the French or the Spanish.

Lin Homer

This is another discussion we have regularly: I can only collect the tax that is due. I have made the point that we believe with around two thirds of these accounts there was no money due. There are different laws in different parts of Europe about what income is taxable.

Chair

Is this the non-dom status?

Lin Homer

To a degree, yes. Therefore, that will alter the numbers. I also do not know whether the numbers you are referring to—I’m afraid I haven’t had an absolute chance to check these with colleagues—cross-compare with our 1,000 or with our 3,000. Relative to those figures, again, I do not think there is a significant difference in these approaches when you take that into account.

Chair

My understanding, Lin, is that the amounts involved and the accounts for UK-based citizens, whether they are non-dom status or wholly resident here, were worth more than either the French or Spanish. Can I ask you what discussions—

Lin Homer

The account may be, but the tax due may not have been.

Chair

Pardon.

Lin Homer

The accounts may have had different or greater sums—

Chair

More.

Lin Homer

But what I am allowed to pursue is the tax due, not the amount of money in the bank account.

Chair

I have to say that when you read some of these stories, bluntly, and the ones that avoided the European savings directive in particular, it is pretty outrageous what was going on. If you could not have got them under that, I don’t know. This is the first time in many of these leaks that we have seen in front of this Committee where there are really strong allegations not of egregious tax avoidance, but of tax evasion, and that is incredibly serious. For you to sit there and say, as you are doing, “Well, actually we couldn’t get in the money in the same way as the French and Spanish could, and actually we did not litigate because we wanted to get the money in,” although you did worse on the money, leaves me believing that you are not serving the British taxpayer—our interest here—properly.

Lin Homer

Perhaps I could bring in Jennie, because that is absolutely not the case. I have not said that we are in any way lacking appetite. One thing that has happened in the past couple of days is that much more of this information has appeared in other places. Therefore, we have been talking again with the French. We have also asked the media. If there is more information to hand, Jennie will pursue it, and she has already put steps in place to do so.

Chair

Before we get Jennie in, let me ask you something. I understood that you were finally talking to the French authorities. Why did you not talk to the French authorities in 2010?

Lin Homer

We did.

Jennie Granger

If I may, Chair, we had been talking to the French throughout that period, both informally and formally, but we have only just had permission to widen the scope of this.

Chair

Who did you get that permission from?

Lin Homer

From the French.

Nick Smith

When did you ask for permission?

Lin Homer

When did we first ask permission for the data? That was back in February 2010.

Nick Smith

So it has taken them four years to allow you permission?

Jennie Granger

No. Excuse me, but we asked for the data in February 2010 and we received it at the end of April 2010. Immediately—

Mr Burrowes

Is that the same time as the sharing with other Governments?

Lin Homer

Earlier than some—

Jennie Granger

Yes.

Chair

Let’s just get the data dates right. You were offered the data in 2008, weren’t you?

Lin Homer

No. Well, that is not—

Chair

You were offered the data by Falciani in 2008.

Lin Homer

That is not what my records show—

Chair

You were offered the data. It is pretty well clear on the record. That has been around for a long time. I was going to ask you why you did not take it in 2008.

Lin Homer

As far as my records show, and I am happy to pursue if you have—

Chair

This is why I would have liked Mr Troup here—he was around at the time.

Lin Homer

No, Mr Troup was not involved in this.

Chair

Yes he was. In 2008, you were offered the data.

Lin Homer

In 2009, the French began discussions with us about the data—towards the end of 2009. In February, we formally asked for it—that was their requirement of us, because this is a treaty-to-treaty arrangement—and in April 2010 they gave it to us.

Chair

Were you offered the data in 2008?

Lin Homer

Not to my knowledge.

Chair

Mr Harra, were you? Does anyone at the table today know whether you were offered the data?

Mr Burrowes

We are distinguishing between the sharing of the French authorities and the offering from Falciani.

Chair

Yes. Falciani himself offered you the data in 2008. That is my understanding.

Lin Homer

Well, I would like you to share with us the information that makes you think that, and I will check.

Chair

It is in the public domain. You should have it.

Lin Homer

It is not—to my knowledge, it is not in the public domain.

Austin Mitchell

You said in 2010 that you were given the data under strict conditions and that the strict conditions precluded some of the recovery and the prosecutions.

Lin Homer

Yes, that’s right.

Austin Mitchell

Now Falciani himself says that neither he nor the French authorities were approached, and that had they been approached they would have co-operated with you, as they co-operated with the tax authorities in the other countries involved.

Lin Homer

I think that’s just wrong, Mr Mitchell.

Austin Mitchell

Well that’s in The Guardian. It must be true.

Lin Homer

Well, there we go—who am I to say? We got the data from the French. I am in the realms of public domain knowledge here, but my belief is that when the gentleman escaped from Switzerland, there was a period of discussion and negotiation with the French, during which they themselves had to decide whether they were going to prosecute and extradite, or take and use. That, I believe, is what takes up the majority of end of 2008 through to 2009. Then discussions started between the French Government and the French tax administration and other tax administrations. At that point, I can confirm, HMRC was involved in those discussions, and after a few months of those discussions—you will know that these intergovernmental things are not instant—we formally asked—

Nick Smith

Just remind us when that was, please?

Lin Homer

Towards the end of 2009-February 2010, we formally asked—Government to Government, it has to be turned into a formal request—and in April the information was physically handed over to us, with restrictions.

Chair

Can I just quote to you from what Mr Falciani himself said?

Lin Homer

Please do.

Chair

Okay. This is in September 2013. “Did they”—HMRC—“ever get in touch with you?” was the question asked on one of the Panorama programmes. “No, never. I never heard about them and you are the first. Welcome.” “Did you expect them to call you?” “Of course. I’m there to help them the best, and starting by being in contact.” “What do you think about the fact they didn’t contact you?” “I think they missed an opportunity.” Why didn’t you contact Mr Falciani?

Lin Homer

Because we believed—we are now checking this—that we had received from our colleagues the information pertaining to UK residents, and therefore we had all of the data that he had provided. We had received that under arrangements. We have, as I have just described, been working through it, and I will say again that we remain open to receiving more information. We have never been shy about asking other sources; we do regularly take information from a range of sources and indeed, as you know because we have talked to you, we sometimes pay for that information. We have been working through the information. In the past couple of days, there have been a couple of things that have suggested there might be more. One is—I think the illustrious Guardian has quoted a figure which is bigger than the 6,800, so we want to see whether they have something more in terms of entities. There has also been reference—quite significant reference—to narratives and e-mails, and we want to check whether other sources are giving us more information.

Chair

A final question on this. The Panorama people who interviewed me for their second programme this week offered to give you all the information they had when they made the first programme, in September 2013. They offered to give it to you; they have made a number of attempts to give it to you, and up to today nobody has taken it. There was one point at which somebody rang them and said, “Of course we want it.” They didn’t hear again. They rang back that somebody, who said, “I’ve changed my job,” and they have never heard from HMRC again. You may sit there Lin, but I think you should talk to Falciani. Did he ask for money for this stuff? Did you pay him for this?

Lin Homer

I am not aware of that conversation.

Chair

Okay. So he was a genuine whistleblower, not after money.

Mr Burrowes

Well, we’re not sure about that.

Chair

Okay, but looking at the material he revealed, it is important material. Whether or not it proves to be correct is another thing. You should have talked to him. He offered you the material. "Panorama" have offered to give their information to you. One of the reasons for my feeling of anger with you is that you sit there waiting for people to come; you do not go out and police in the way that other authorities are doing, therefore they are getting more money in, they are doing more litigation and they are defending their taxpayers.

Lin Homer

I can feel your anger, Chair, but I think your assertions are not true. We do take—we are very proactive—

Chair

Why didn’t you take the stuff from Panorama?

Lin Homer

We are very proactive. I am not personally aware of any formal offer from Panorama. We have spoken to the BBC in the last couple of days to say that we will happily take any information from them; we have definitely worked with media sources—

Chair

Ask them for it. I don’t believe they are lying to me.

Lin Homer

We have asked them for it.

Chair

You are sitting there and saying to me that when they said to me, “We offered it all,” they didn’t.

Lin Homer

They did not say to me—

Chair

They did, Lin.

Lin Homer

They did not say to me—

Chair

Not to you. They wouldn’t have talked to you. They talked to your people.

Lin Homer

I will check if they talked to someone. The concern I would have is that I have no proof of that at the moment. If you can show that my organisation missed an opportunity, I will apologise.

Chair

You should go and seek it out.

Lin Homer

We have.

Chair

You should go and seek it out. That’s your job.

Chris Heaton-Harris

We have done the marriage brokering bit now, because you want the information and you, Chair, say Panorama want to give it. Maybe after this, you could have a nice conversation with them.

Lin Homer

We have already been in touch with the BBC.

Nick Smith

Why didn’t you get in touch in 2013, after the first programme?

Lin Homer

I would just go back. All of the anger is based on an assumption that we have not received and activated, and we think we have. All of that work I have described has looked, we think, at least at the bulk if not the entirety of information available.

Nick Smith

Specifically, why didn’t you contact Panorama after the first programme in 2013?

Lin Homer

We have said on a number of occasions that when we see things in the media, what we do is look to see whether there is new information, over and above what we have. If there is, we will go and ask for it; if there isn’t, there is very little point in us doing so. I have just explained to you that, out of the numbers of entities that we have, we believe we have not only reviewed every single piece of information we got, but we have identified those people who owe us money and pursued them, and we have identified those we believe don’t and have certified that they don’t, although we will continue to monitor them. From our perspective, although we are now checking and will be diligent in pursuing extra information, there is nothing to suggest we have missed significant amounts of information. Jim and I have sat here on a number of occasions and said similar things to you: we have heard what somebody has said; it does not tell us anything we did not know. That is because we are diligent, we do look, and of course we should do that.

Stephen Phillips

The documents to which that third party has access may tell you something that you don’t know. If one looks at this from the perspective—forgive me—of a lawyer, which is my training, if someone offers you a series of documents, it is absolutely true that they may contain no information whatsoever relevant to the issues which you have to do with one way or the other, but they may. What you’re saying to the Committee is—not just in relation to these documents, but more generally—when information is out there, if we take the view that it is not likely to or it may not contain anything that we don’t already know, we will just ignore it, and we won’t ask for it. That is what you’ve just said.

Lin Homer

No, I did not use those words.

Stephen Phillips

Well, forgive me, that’s the effect of what you’ve just said.

Lin Homer

It might help if Jennie just describes more generally what we do with all receipts of information. We get hundreds and thousands of pieces a year, and we do actively consider what to do with that. So there is no sense that we ignore information, but what we do try to do is focus on the information—

Stephen Phillips

Forgive me, Ms Homer, I am going to interrupt you. This was a big chunk of information. It was a massive document dump, to which you had access, if you’d asked for it—

Lin Homer

No, we had access.

Stephen Phillips

And perhaps even if it was offered to you in 2013, what I can’t understand is why, either if it was offered to you, you didn’t take it, or if it wasn’t—and we can’t get to the bottom of which it was—you didn’t ask for it.

Chair

Can I just add one thing?

Stephen Phillips

No, no; I want an answer to that.

Jennie Granger

Can I please come in there, more specifically?

Stephen Phillips

Yes, Ms Grainger.

Jennie Granger

We believe that the French authorities have all the information—completely the same information—and what they then had to do was cut it up relevant to each country to pass it to.

Stephen Phillips

I am going to stop you again, because you’re saying, “We believe that”. Without going back and looking at the original materials, you don’t know whether the French have done a good job, a bad job, an indifferent job, a perfect job, an excellent job. You have no idea. There is no substitute for HMRC, when that cache of material became available to you in 2013, actually looking at it.

Jennie Granger

Yes, we did look at it very thoroughly, and if you would just allow me to complete the answer: when we received that information, there was a very sophisticated analysis—

Stephen Phillips

So with the information from the French?

Jennie Granger

Yes, that’s right.

Stephen Phillips

That you had in 2010?

Jennie Granger

Correct.

Stephen Phillips

I am talking about the information that you could have asked for or which was offered to you in 2013.

Jennie Granger

If I could just finish my answer: we believe that what the French have is exactly the same information. I think if you were making—

Chair

“We believe”.

Jennie Granger

If I could finish: I think that you are making a good point about how it has been analysed, and that is one of the reasons why we want to talk to the BBC and to ICIJ to see if there is different analysis, and it is also why we are going back to ask the French whether there is something in the way this was analysed. So, with all three sources, we will be doing that.

Stephen Phillips

Okay. I understand your answer.

Jennie Granger

If I could—

Stephen Phillips

No. I am going to ask Ms Homer. You heard both those answers. “We believed” that the information that we could have had access to in 2013 from “Panorama” was the same as the information that the French gave us in 2010. That’s what the belief of the organisation, which you head, was. You have no idea one way or the other whether that belief was correct, whether that information had been dealt with properly by the French, whether they had passed you everything, whether they had passed some of it. You had no way of knowing that.

Lin Homer

Actually, we do, and this is, again, a discussion we have had with you on numerous occasions. There is much media commentary about tax. When that happens, we review everything that is put into the public domain, and if there is any suggestion—

Stephen Phillips

What if the illustrious Guardian has missed something? Go and look at the original documents yourself. You are the taxpayer-funded part of the state responsible for ensuring that people pay their taxes.

Lin Homer

We do, and we do exactly what you say when we believe there is any source of information that is different or available to us. It would not be value for money for us to go and to collect another tranche of the same information and put it through the same analysis. Now, again, this is quite difficult for us, because, as the Chair knows, we protect confidentiality, so we will not comment on individuals, but I can assure you, in all the cases we have discussed over the years, if we see any media commentary or any whistleblowing where there is evidence that there is a wider, deeper or different database than we have, we will take it. I would say again—

Chair

Right. I am going to move on. Chris wants to come in. I just want to say two things. First of all, I gather that Falciani did e-mail you offering the data in 2008, and that Le Monde, ironically, has seen those e-mails and published a report to that effect. I think it is really important that we put that on record, because you have told us today that you had no knowledge. Now, if that’s been in the press, you should have had knowledge.

Mr Bacon

Perhaps you should subscribe to Le Monde.

Chair

But they have seen the e-mails, Ms Homer, and in preparing for today’s session you should have known that. I want to know why your organisation did not respond to that.

Lin Homer

This hearing was about a Report that the NAO wrote about us—

Chair

No. We had a conversation. You knew perfectly well that this hearing would end up being about HSBC.

Lin Homer

We had a conversation this morning that this hearing would be about HSBC.

Chair

Ms Homer, don’t let’s go over this, because we had a lot of discussion about who should be our witnesses today because of the changing circumstances that made this a topical issue. So I would have expected you to have checked your files and known that in 2008, there was an offer from Falciani to—

Lin Homer

I am happy to give you a note on that.

Chair

I would like that note very quickly and I will publish it. Secondly, we are not asking about information on individuals on the list; we are asking about the role of the private Swiss arm of the bank. My understanding is that in looking at their role, in which I believe you ought to be seriously considering whether to take action in that they encouraged or colluded with tax evasion and avoidance, the first time you asked the French for permission to do that was yesterday. Is that true?

Lin Homer

No.

Chair

When did you ask the French for permission?

Lin Homer

We initially asked permission to use it for wider purposes.

Chair

When?

Lin Homer

When we received the data.

Chair

What did you recently do in your negotiations with the French?

Lin Homer

Because a lot of the data is now being placed in the public domain, and therefore the French restrictions, in a sense, have lost their power, we went back and asked them again—

Chair

When?

Lin Homer

When we saw the publication—

Chair

So in the last day or two?

Lin Homer

Yes.

Chair

Are you telling this Committee that in 2010 the French did not give you permission to look at the wider implications of the data that you received from Falciani and what it meant for the probity of and potential action against the bank? Are you telling us to believe that today?

Lin Homer

Yes.

Chair

The French refused to give you permission to do that?

Lin Homer

The French gave us the information on a restricted basis which meant that we—

Chair

That is a different question. Did you ask them whether you could use it more widely to consider whether it was appropriate for HMRC to take action against the Swiss arm of the bank for colluding with or actively promoting evasion and avoidance?

Lin Homer

Yes. We discussed our—

Chair

Did you ask them for that?

Lin Homer

We did not ask them for what you have just said because we have seen no evidence necessarily to support that. This is the problem. I am sorry, but the things that get written in newspapers do not stand up to the criminal test of evidence. Therefore, your question suggests that we knew or had already decided we could do that, but we were restricted in any event from sharing with other law enforcement agencies—

Chair

But what has changed for the French to give permission? It is the same evidence.

Lin Homer

I believe what has changed is that it is now in the public domain and therefore we will get it from other sources anyway.

Chair

What I do not understand is why all these other countries are taking action against HSBC.

Lin Homer

They are not, and this is one of the things that I would like to say to you. There is a suggestion that everybody else has been much more prolific than us. As far as I can see—and again you may have better evidence—there is consideration of action against the bank in a small number of countries. There is no decision to proceed and there is no conviction. There have been early moves potentially to charge one or two individuals, but again no completion. I believe that only we and the Irish have convicted anybody.

Chair

Who is taking action against HSBC? Is the information that we have that the French are, the Belgians are—

Lin Homer

They are considering.

Chair

—and the Americans and Argentinians—

Jennie Granger

If I could just clarify, on the French and the Belgian activities, the police are looking at—

Chair

Well, maybe you have talked to the police. Have you?

Jennie Granger

It is an important distinction, Mrs Hodge, in terms of who can actually investigate what. What I would fully expect we will need to do is also collaborate through law enforcement—

Chair

It has taken you five years to get there.

Stephen Phillips

Are you the investigatory agency as far as the bank is concerned, particularly bearing in mind that we are not dealing necessarily with the HSBC that everybody has a cheque book from, but with some subsidiary sitting in Switzerland, which is in no way related to the high street bank in this country, other than it is wholly owned by it?

Lin Homer

We have a code of conduct for banks, which Jim is responsible for.

Jim Harra

First, in terms of the regulatory powers, if it is about cheating the Revenue then, yes, we are the authority for that. If it is about the wider regulation of the banks’ conduct—for example, money laundering—then, no, we are not the regulatory authority. We have, however, a code of conduct in relation to tax for banks, which has been in place since 2009—so it came in shortly after this. We expect a standard of behaviour of the banks that is higher than simply not breaking the criminal law. In the circumstances you described, whether they are criminal offences or not, we would expect the banks not to be doing those kinds of things. If they do those things, then, since 2009, they would be in breach of that code of conduct.

Stephen Phillips

Let’s try to get to the bottom of it for the taxpayer. Now that this material is in the public domain, who is going to be investigating HSBC? Is it going to be HMRC? Is it going to be you? Is it going to be the Serious Fraud Office? Is it going to be the City of London police? Who is it going to be?

Lin Homer

Jennie has just mentioned—

Jennie Granger

If I could just mention something. We will now broaden the scope of Solace and look at those offences. If there is the potential, we will call together the relevant authorities—in fact, we will be meeting them later this week—and share with them what we already have once we have formally confirmed with the French exactly how we are going to widen the scope. As I pointed out, our information came from the revenue authority, which has a more restricted ability to pass that to us.

Stephen Phillips

You will understand that this is obviously very important to the taxpayer. I was slightly horrified by the statistic that shows that when you prosecute an individual for evading tax, the average charge time from the date of the beginning of your investigation—when you hand the papers to the CPS—is 44 months. We can’t wait 44 months for this to be sorted out.

Lin Homer

That is why we strongly believe that we need a toolkit that also allows us to use civil powers. In a similar case, we might reach a settlement on tax and a penalty in a matter of weeks or months. A range of new powers has been granted to us, in relation both to when money is due and to the level of the penalty. We can now charge a penalty of up to 200% on tax.

Stephen Phillips

Can I stop you, Ms Homer? This Committee well understands the importance of collecting the tax that is due to the Exchequer, particularly in the times in which we live, because it funds public services. As a relatively new member of the Committee, I am concerned that out of the data that have been forthcoming in relation to tax evasion, which is a crime, you have brought only one prosecution. Why is that?

Lin Homer

Because, as I said when we met the Committee last July, prosecution is one end of the toolkit, and it is an expensive end.

Stephen Phillips

You said that already. You also said—

Lin Homer

Well, it’s the answer to your question. Therefore, we do not use it against everybody.

Stephen Phillips

Forgive me, you said that you also want to offer a deterrent.

Lin Homer

Yes.

Stephen Phillips

Now, not prosecuting people for tax evasion does not deter other people who might be tempted to engage in it. The evidence from these files—

Lin Homer

Making someone pay their tax and charging a penalty of 200% does, we believe.

Stephen Phillips

Don’t interrupt; I am going to ask you a question. The evidence from these files is that you prosecuted one person. Now, the message that that sends to people who might be inclined to evade tax by having Swiss bank accounts and other things is, “Don’t worry about it. If you get caught, there won’t be a prosecution; there will be a settlement.” If, as you said earlier, you want to deter people from evading taxes, do you accept that having only one prosecution has precisely the opposite effect?

Lin Homer

No, I don’t accept that. Would you like me to answer that question?

Stephen Phillips

Yes.

Lin Homer

We have said on numerous occasions that we believe that prosecutions are a key and important part of what we do. We accepted in one of my very early meetings—I think this may have been prompted by Mr Bacon—that we should increase the proportion of prosecutions across the range, and we have done that fivefold in the past three years, but we do not believe that prosecutions for any law enforcement agency are the single or the only deterrent, or are a cost-effective way to do all your compliance.

Mr Bacon

If we use the analogy of unlawful gun ownership, one can quickly see that that approach must be correct. Lots of people in this country own guns unlawfully, and from time to time the police have amnesties and people bring in these unlawfully held guns. They could be convicted of having committed a crime—the unlawful possession of a gun—and they are not. As a result, we are familiar with the sight on our television screens every few years of an amnesty, with lots of guns coming in. You said there are three things: you want to get the tax, you want to change behaviour, and you want a deterrent effect. You want all three.

Lin Homer

Yes.

Mr Bacon

It is also true that occasionally gun runners do get prosecuted. You used the word “balance” and reminded us of our conversation some time ago. The question is not, “Should you be trying to do three things rather than one?” Nor is it, “Should you be trying only to have a deterrent?” because yes, you do want the tax in—we want it too, and so do the public—and yes, you do want to change behaviour. The question is whether you have got the balance right when you say, “We regard prosecution as a key tool,” yet there is such a tiny, tiny smidgeon of prosecution going on, relative to the other factors you have talked about. The question is: have you got the balance right and is the deterrent effect that you say you want either there at all, or there sufficiently? That is what we have doubts about.

Lin Homer

I will ask Jennie to give you some facts and figures about prosecutions, but first let me put into context whether we have got the deterrent effect right. There is a range of statistics, some of them in the Report—we may not get to them—that show that we have decreased the tax gap, increased compliance as well as revenue collected, and seen significantly fewer people using marketed avoidance. We therefore believe that our use of a range of skills is having a deterrent effect. These discussions with you are etched on my brain—

Chair

Can we just talk about these issues, Lin? We will come on to the broader issues later.

Lin Homer

Well, one of the things I have suggested is that our poster campaign has a deterrent effect. All these things do work, we believe. We accept we need to do more prosecutions, and Jennie has been doing more.

Jennie Granger

First of all, across the period this Report relates to, more than 2,500 prosecutions have been successful.

Chair

Jennie, can I just say to you that we are focusing here on 6,800 different accounts? We will come to the general afterwards. If we carry on and get this out of the way, we can then come on to other issues, but we are focusing on this at the moment. To try to pray in aid what you have done elsewhere will not help you in justifying your action in relation to these HSBC files. Can you talk about those, please?

Jennie Granger

I certainly will. I would like to explain the strategy a little bit. Clearly, there are a lot of prosecutions and we try to do them across everything—

Chair

HSBC?

Mr Bacon

For the avoidance of doubt and to back up what the Chair was saying, you said 2,500 prosecutions—

Jennie Granger

More than 2,500.

Mr Bacon

Yes, and I bet some of those are corner shops in Leeds who did not pay their VAT. Correct?

Jennie Granger

If you would like to look at our crime map, you can see the range including up to £87 million. There is a range, but I think that will show to you quite easily not just the value of it, but the seriousness of it across the patch. You have raised that issue with us before and I think it is more than fair that we try to give you as much information, while of course keeping that balance—

Chair

Can you get back to the HSBC list, please?

Jennie Granger

Certainly I can. It is very difficult to prosecute for offshore. One of the challenges, particularly in the situation where you have stolen data, which is what this is, is that you have to be able to prove those facts another way for the CPS to be able to take it forward. That is one of the challenges and one of the reasons why, although we have done our best in all the circumstances, clashing it with other data that we have, hauling people in to question them and using other information we may have from other sources, we will—[Interruption.] If I can just finish the explanation. We build a case. That is one of the reasons it takes time—

Chair

Five years since you’ve had it. Five years.

Mr Bacon

I don’t understand this business about not using the material. Mr Phillips is the QC, not me, but some Members of Parliament went to jail because of stolen data that was used in the criminal court. I don’t think they had to get it from A. N. Other source in order to be able to mount the prosecution.

Jennie Granger

To be clear, I did not say another source. I said we have to have corroborative evidence.

Stephen Phillips

Why?

Mr Burrowes

That is the value of the evidence; it doesn’t stop the admissibility of it.

Jennie Granger

I do not make the final decisions on prosecution. I am simply—

Chair

You’re the boss in charge of it, aren’t you? That is why you are here.

Mr Bacon

Why do have to have corroboratory evidence?

Jennie Granger

The CPS makes the final decision on charging—

Mr Bacon

And test A applies—the likelihood of a successful prosecution. If the evidence is clear enough, why do you need corroborating evidence before you can go any further?

Jennie Granger

I am sorry, but we did investigate that. That is my point. We had to be able to build a case that has more than the stolen data.

Chair

Why?

Jennie Granger

Well, that is the standard to be able to get a charge.

Chair

You’re in charge of this, Ms Granger. You two are in charge of this. Do you want me to read through the stuff that you have got? I cannot for the life of me begin to understand that pathetic response.

Lin Homer

Just to put it in context, you are concerned about the 6,800 today. You were when we discussed this with you last July. Overall, the relevant teams in Jennie’s area have been dealing with 57,000 disclosures and £1.6 billion, which we have pursued. You cannot suggest to us that we can just forget everything else and put all our activity into this area.

Chair

What I am suggesting to you, Lin, is that if you manage to have an account in Switzerland, there’s a risk worth taking. The worst that can happen to you if HMRC can be bothered to catch up with you is that you may have to pay, you won’t have a prosecution, you won’t have any shame, you won’t be an example to anybody else—you’ll get away with it. That is a terrible message to get out to British taxpayers. It is a really rotten message.

Lin Homer

That was a statement, not a question, but it is not correct.

Chris Heaton-Harris

May I follow up on what Ms Granger was saying? I understood what you were saying. You obviously feel that you have to provide extra evidence for the CPS to take forward a successful prosecution. Does that filtration process take place in HMRC, or do you present the file to the CPS, and they come back to you and say, “We need more information from you”?

Jennie Granger

First, we triage the cases ourselves, together with our experienced civil and criminal investigators, to pull out the top cases that we think have the strongest basis for being successful. Obviously, we have been doing this for many years, and so they have a good sense. It is also after we have filtered everything we can from our own database into those cases. The final decisions are for the CPS. We send them the files and they make those decisions based on the strength of the case and the public interest. Those are essentially their criteria.

Chris Heaton-Harris

Fair enough. How many files, based on the data that we are talking about now, did you send to the CPS?

Jennie Granger

We sent three, and they accepted one. That was the next part of this that I wanted to answer, so that we understand the strategy here. That particular prosecution involved our discovering from the data that an earlier voluntary disclosure had not been full. They were prosecuted on that basis. I want to make it clear to the Committee that where there has been a settlement either on the basis of the special investigation people investigating this, or by inquiry, we require assurance back, as part of that process, that there has been either full and true disclosure or confirmation that there is nothing owed. That means that, if there is a false statement, it is a much simpler prosecution to do. If you like, there is a double jeopardy here. If people have lied to us during this process, it opens a much simpler route to prosecution. We also keep everybody on databases like this in our database, and they are red flagged if we find anything that does not jibe with their disclosure. It is a tough process. The penalties can be up to 200%. Some where we have prosecuted work out higher than the court fines. We are not taking this lightly. We are not soft. It is quite a serious process.

Stephen Phillips

That’s the point. If you secure a conviction, people go to jail, which acts as a deterrent to other people to evade tax.

Lin Homer

People are going to jail. Some do, but not always.

Chair

It is not for you to decide that.

Chris Heaton-Harris

My previous question was on the basis of the conversation we were having. I have just a couple of questions on the timeline and especially the year before February 2010, when discussions were obviously going on with the French authorities. I think you said it was a Government to Government request.

Lin Homer

Yes.

Chris Heaton-Harris

Would it not have been a tax authority to tax authority request?

Lin Homer

Well, yes.

Chris Heaton-Harris

So, in that year, what was going on?

Lin Homer

I am sorry: I can’t remember the date in February ’09 when conversations started with the French, so I am not sure whether this was 12 months or three months—

Chris Heaton-Harris

Okay, but what was going on in that period when there were discussions—

Lin Homer

But during that period, conversations were going on. Again, I am in probably the same position as many of you are. What was going on between the French and Falciani was largely told through the newspapers, but I think there was a period of time when the French themselves were deciding what to do and probably working out to what degree they themselves wanted to use the information. There was then, clearly, the beginnings of discussions with a number of other countries, so at the same time as they were talking with us, they were clearly talking with many of the other countries involved. Some have come later; I think Argentina was much later. So my assumption is that that period was largely taken up with the French in a sense deciding what they were going to release, how, whether; and once they had reached that stage, there was an indication to us, “Now is the time to ask formally,” and then—

Chris Heaton-Harris

And that’s quite a significant request, is it, when you get to that stage?

Lin Homer

Yes.

Chris Heaton-Harris

Do you communicate it to Ministers when you do that?

Lin Homer

We are confident we will have told Ministers that we were about to receive a big cache of operational information, yes. We don’t ask them.

Chris Heaton-Harris

Because your independence is—

Lin Homer

It is our decision to receive it, but we would tell them.

Chair

Can I just get confirmation? That is an important point. When you got that cache in 2010—there are two questions—did you inform people outside HMRC?

Lin Homer

It was generally—this was talked about a lot in the public domain. I believe Dave was in a hearing here in September ’11, when he said something like, “As everybody knows, we have got a document with 6,000 names on.” There was definitely public coverage of this. We put a statement out ourselves towards the end of ’11 basically saying to people, “You had better start coming in or else.” So between ’10—

Chair

Right. I just want to clarify things. In February ’10, you had the offer. In April, I understand, Dave Hartnett went and collected the disc himself.

Lin Homer

No, Dave did not collect the disc.

Chair

Okay. Well, the disc was—

Lin Homer

Collected in accordance—

Chair

Put into the hands of HMRC. At what point did you tell people outside HMRC that you had that disc of evidence from Falciani in relation to HSBC’s private bank in Switzerland accounts? When did you tell them?

Lin Homer

We will have told people, including Ministers, I suspect sometime in the next few months. I have no doubt—

Chair

Have you got a date? So you would have told them pretty immediately?

Lin Homer

Yes.

Chair

Okay. Can I just ask one more question? Then I’ll go to Amyas. Who was responsible for deciding how you dealt with that disc of information? Who took those decisions?

Lin Homer

This was the governance within E and C, which I described at the beginning.

Chair

Well, Jennie wasn’t there. Who was responsible?

Lin Homer

This was Mike Eland, as Jennie’s predecessor.

Chair

Working on his own?

Lin Homer

No. I described the governance, but Jennie can repeat it.

Jennie Granger

The directors of civil and criminal investigation and the director of risk and intelligence, who are all directors that reported to Mike, were all part of the governance committee over the project. They were the steering group. Underneath that were their relevant assistant directors, who were more operational lead—

Chair

And was anybody outside HMRC involved in deciding how you would deal with that disc and the information on the disc?

Lin Homer

The CPS.

Jennie Granger

The CPS when it was—

Chair

Nobody from the Treasury and no Ministers.

Lin Homer

No.

Sir Amyas Morse

I just want to clarify what Jennie was telling us about the interaction with the CPS when you had prepared your file, because I think the Committee is interested in understanding the interaction between an appetite for exemplary criminal proceedings and what you have explained are the very substantial penalties that can arise in a settlement. When you go to the CPS and they say yes or no as to whether they are going to prosecute, are they informed by your attitude? In other words, if you said to them, “Look, we appreciate that it may be difficult to pursue this case. But whether or not we think it will be successful, we really want to bring criminal charges here if there’s a basis for them,” would their decision be influenced by that? In other words, do you actually have some control over that or is it completely that you put the file to the oracle and they tell you what they are going to do or not do?

Jennie Granger

Of course we talk about priorities. But at the end of the day, we do not have control over that process at all. It is up to the CPS. We talk to them about our priorities for the year. They also ask us what level of activity we are going to do. For example, over this period, as you will know, we have strengthened our resources in our criminal investigation area. We have increased the number of prosecutions—not just the more straightforward ones, but some of the very complex ones, including tackling organised crime. They are well aware that it is important for us to do a range and that we need to strengthen some of that. At the end of the day, it has to be the strength of the case—they are the ones who decide that—and it has to be in the public interest.

Lin Homer

When we talked in July 2014, we had one prosecution under our belt. At the time, we were still looking at around 15 that we were hopeful would go on. To try to reassure the Committee, we would have liked to see more prosecutions in this space if we could have met the threshold.

Sir Amyas Morse

Just to make sure that we have that clear—the CPS does pay attention to what you are telling them about your appetite, but at the end of the day, they make an independent judgment?

Jennie Granger

Yes.