The Corporate Veil and Proceeds of Crime – Court of Appeal Ruling


The corporate veil affords little or no protection to directors who use their companies as instruments of tax fraud. However, as a Court of Appeal ruling showed, that does not mean that the separation between corporate and individual personalities is necessarily irrelevant when it comes to recovering the proceeds of crime.

The case concerned a director who was convicted of three counts of fraudulently evading VAT and one of cheating the public revenue. He committed the offences in his role as a director and financial controller of three companies. Until the balloon went up, he treated the companies as his personal cash cow, extracting sums from them that greatly exceeded his entitlements as a director and shareholder.

When the frauds came to light the companies swiftly collapsed. After the Crown launched further proceedings under the Proceeds of Crime Act 2002, a settlement was reached whereby the man’s benefit from crime was agreed at £6,673,082. The value of his available assets was agreed at £5,470,258. By consent, a confiscation order was made in the latter amount.

Upholding his appeal against that outcome, the Court expressed the clear view on the available evidence that, before the consent order was agreed, he had received mistaken advice that he could place no arguable reliance on the fact that he and the companies had separate legal personalities.

The companies, the Court noted, could neither be described as a sham nor merely a device to facilitate tax fraud. Whilst also defrauding the Revenue, they operated legitimate businesses and had a large number of real employees. Although the man controlled their finances, it was certainly arguable that the sums paid to, or withheld by, the companies as a consequence of the frauds were not a proper measure of the criminal benefit he received.

Although the confiscation order was made by consent, the Court found that the most exceptional circumstances existed which would render it unfair not to allow the man’s appeal. The ruling meant that the amount of his criminal benefit, but not the amount of his available assets, would be reassessed at a further hearing. Whether that hearing would result in a reduction in the amount of the confiscation order remained to be seen.

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