Guardian: VAT Fraudsters that cost taxpayers £40m

Fraudsters that cost taxpayers £40m

· Musician among gang guilty of cheating on VAT
· Simple scams cream £1.7bn a year from UK plc

Ian Cobain
Thursday October 27, 2005
The Guardian

In 1987 Steve Pigott co-wrote Living in a Box, a pop-funk song that
reached No 5 in the singles charts. "Woke up this morning, closed in on
both sides," he wrote. "Life goes in circles, around and around."

This morning Pigott will have plenty of time to contemplate the irony
of those lyrics as he sits in a box of sorts, in HMP Elmley, a category
C prison on the Isle of Sheppey. He has years of imprisonment ahead,
during which he will have little to do but reflect on the way his life,
or at least his crimes, went around and around.

Until a few months ago Pigott's reputation revolved around his
successful career as a musician. He had worked with the likes of Rod
Stewart, Mike and the Mechanics and Celine Dion, and had a string of
song-writing awards to his name.

Then he was drawn into a new genre of deception, committing a fraud on
a breathtaking scale with his gang of accomplices. It is a scam in
which the victim is UK plc. And the practice of it has become so
widespread it is distorting the balance of trade figures.

Pigott became a carousel fraudster: a simple crime which involves
moving products around and around to swindle the taxman. Under the
scam, Revenue & Customs are tricked into sending VAT refunds to
companies that are not entitled to them. The fraudsters buy and sell
small but expensive goods, such as mobile phones or computer chips,
passing them between a series of companies around the EU which they
secretly control. Each time one of the companies buys the goods, they
claim back the 17.5% VAT. Each time they sell the goods they charge the
value of the goods plus 17.5%, but then fail to pay the VAT they owe.

The goods often move in a circle, hence the name carousel fraud. And
the rewards can be enormous. With just one consignment worth £500,000,
a gang controlling a dozen companies could pocket more than £1m with
each turn of the carousel. By the time the authorities realise what is
happening, the fraudsters have vanished.

This practice is said to rob the British taxpayer of up to £1.7bn a
year - and it is not confined to Britain. There is evidence that
carousel fraud has financed drug trafficking, arms deals, even
terrorism. Last year the European Federation of Accountants warned that
the fraud cost EU countries around £70bn a year - "effectively the VAT
take for France".

Pigott's swindle was just one small example. He was joined by three
others with CVs just as distinguished as his own. Stacey Hofberg was a
highly regarded former judge from New York, living with her English
husband and their three young children in Liphook, Hampshire. Joanne
Harris was a personal fitness trainer whose south London clients were
prepared to pay £80 an hour for her time. Theresa Igbanugo was a
pioneering music entrepreneur, talent-spotting young acts.

In just one fraud, Pigott and co conned Revenue & Customs into handing
over more than £40m before the Duty Men came knocking in February last
year. Last month they were found guilty of cheating the public revenue
with intent to defraud as well as money laundering. Hofberg, 43, was
jailed for six years while Harris, 36, and Igbanugo, 40, each got 3½
years. Pigott, 42, pleaded guilty to both charges and was jailed for
eight years.

The judge told them their crimes had been "audacious and outrageous",
and that all four had "displayed at times dishonesty which was quite
shameless".

It was music, rather than crime, that brought the four together. On
emigrating to England six years ago, Hofberg had found work with an
entertainment law firm whose clients included an associate of Pigott -
a keyboard player, who, in turn, had dealings with a record label set
up by Igbanugo and Harris. Despite his previous successes, Pigott was
finding work, and money, difficult to come by.

Over the next two years they discovered the ease with which organised
criminals can bleed vast amounts from the country's coffers. Their
fraud was imprinted with several classic carousel hallmarks. One was
the use of false identities. Employing a trick lifted from the
Frederick Forsyth novel The Day of the Jackal, Pigott got a passport in
the name of David Roy Chapman after finding the name on a child's
gravestone in a churchyard near his birthplace in Yorkshire. The child,
a copy of whose birth certificate he obtained, would have been Pigott's
age had he lived. Then there was the high living: as they flew around
the world, some members stayed in the best hotels, supped the finest
wines and dressed impeccably. Several top-of-the-range cars were parked
outside their homes.

In a brazen piece of chutzpah, they used clones of legitimate firms,
flying to Hong Kong where they set up a dozen companies, each with
names and letter-heads identical to British firms dealing legitimately
in telephones and computer chips. The carousel was whirling.

A final feature, one seen in many carousel cases, was that the
suspected Mr Big behind the fraud got away scot free.

This person was John Andrew Shaw, 52, a businessman and father of two
from Sheffield. Revenue & Customs has compiled a 67-page dossier on
him, in which he is given the codename Z111. Another codename, Mauve
111, is given to his former home, a converted farmhouse in a South
Yorkshire village. The dossier outlines a series of suspicious
transactions via banks in Dublin, Hong Kong, Ghana and the Isle of Man,
which investigators believe show traces of profit laundering.

Pigott refused to identify Shaw, saying the fraud had been organised by
a man he knew as Matt, whom he had "met in a bar". When he tried to
withdraw from the fraud, he said, "Matt" threatened his children.
Pigott's wife, Helene, says she too was menaced near their home in
Sheffield by a man who told her to make sure her husband did "the right
thing".

In court, the prosecution said neither Pigott nor his co-defendants had
dreamed up the carousel fraud, and that others had pocketed most of the
proceeds. Pigott's counsel said that the musician "was clearly under
the direction of Shaw and clearly taking instructions from Shaw".
Hofberg's QC said that she too had "named Shaw as the person that was
directing others". The court also heard that the four defendants may
have formed only one of a number of teams being directed by the
carousel masterminds.

The court heard that Shaw was under investigation, but that they had
been unable to arrest him. He is said to be living in Dubai, which
shows no interest in extraditing carousel fraudsters.

Meanwhile, in Sydenham, south London, the luxury cars have gone from
outside the house Harris and Igbanugo once rented. In Liphook,
Hofberg's ex-husband David talks about how their marriage collapsed
under the strain. Their home, Robin Cottage, may now be seized.

In Sheffield, Helene Pigott says she is waiting for the day she and her
daughters, six and 12, may be forced to leave their Victorian mansion.
She asks that you keep your voice down, because her children do not
know the full details of what their father did. When the conversation
is interrupted by the ringing of the phone, it is usually a call from
somebody chasing her husband's credit card debts. "I tell them to join
the queue," she says.

http://money.guardian.co.uk/scamsandfraud/story/0,13802,1601421,00.html

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