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UK Customs & Excise detected carousel consignments of computer chips shipped to Ireland in the first half of 2002 large enough in aggregate to have supplied the entire market for that chip in Europe, Asia and Africa put together.-HM Treasury
In recent times there has been much media focus on the increase in armed gang attacks on security vans delivering cash to ATM outlets. However, as with past tax evasion in Ireland, the estimated billion or more pounds which Irish nationals have looted from the UK, has hardly caused a ripple.
September 1, 2004: Some years ago during the so-called 'blue flue' strike of members of the Garda (Irish Police) who went on sick leave to highlight a pay claim, I stopped a burly garda in civvies as he paraded with a placard in front of the main gates of Leinster House, site of the Houses of the Oireachtas (Irish Parliament) on Kildare Street, Dublin.
'Isn't there a law against demonstrations within some distance of Leinster House?' I asked the garda.
'Where you from?' the garda asked, mistaking me for a tourist.
'Cork,' I responded and his expression turned surly.
'If there is a law, what are you going to do about it?' the garda asked and resumed his trek as I momentarily rejected the notion of a citizen's arrest.
There are of course many laws; some generally observed and some not. The perceived gravity of an offence in Ireland often depends on the pedigree of citizen involved.
In the International comparisons of criminal justice statistics 2001 report which was published by the UK Home Office in October 2003, it is reported that over the period 1997 - 2001, there was an average fall of 10% in the EU, of domestic burglary. The highest falls were in Greece (28%), Germany (27%), England & Wales (26%), Finland (24%), Scotland (18%) and Sweden (17%). Amongst the other countries, there were high falls in Bulgaria (58%), Turkey (50%), Norway (39%), Switzerland (31%), Canada (28%) and New Zealand (27%). The implementation of a new recording system in Ireland means that recent figures may not be comparable with those of previous years. The number of recorded burglaries in Ireland in 1997 was 16,970 compared with 14,877 in 1997. According to John Gapper of the Financial Times, the decline in burglary can be attributed to the significant fall in the prices of household goods such as televisions and video players. The percentage paid by a fence just isn't worth the risk unless the burglar desperately needs a drugs fix . In contrast, by acquiring an education, an individual can win greater awards in the corporate world and if things go wrong, fraud and insider trading are more rewarding and less risky. In recent times there has been much media focus on the increase in armed gang attacks on security vans delivering cash to ATM outlets. However, as with past tax evasion in Ireland, the estimated billion or more pounds which Irish nationals have looted from the UK, has hardly caused a ripple.
For example, from the late 1990s, UK revenue losses from what is termed Missing Trader VAT fraud was growing by up to three quarters of a billion pounds each year. By 2001/2002, it was costing the UK taxpayer up to £2.75 billion and it has made some Irish people very rich. In the first half of 2002, the category "Electrical Machinery (apparatus, appliances and parts)" in Irish trade statistics was inflated by more than €8 billion in respect of both import and export trade with the UK. UK Customs & Excise detected carousel consignments of computer chips shipped to Ireland in the first half of 2002 large enough in aggregate to have supplied the entire market for that chip in Europe, Asia and Africa put together.
VAT Missing Trader Fraud, of which the most common variant is 'carousel' fraud, involves a fraudster obtaining a VAT registration number in the UK to purchase goods VAT free from a business in another EU Member State under the Single Market rules which govern intra-community transactions between EU businesses. The fraudsters create bogus companies, import goods VAT-free, collect VAT on onward sales to customers (17% of the invoiceable value of the goods in the UK) and then disappear without accounting for the tax due to the Inland Revenue, leaving the UK taxpayer hundreds of millions of pounds out of pocket. The fraud relies on bogus trade in high-value, low-volume consignments like computer chips and mobile phones. In ‘carousel’ fraud, the same consignment of goods is sold through a series of contrived transactions back and forth between EU Member States, to steal the sums charged as VAT every time the goods go around the circle. There have been a number of convictions involving Irish nationals but they are thought to represent a small minority of the number of Irish involved. The UK Customs is currently investigating 100 cases worth around £2 billion, according to the UK Treasury Department.
In 2002, Bernadette Devine, a Sligo woman was jailed in the UK for six years for her involvement in a stg£20 million VAT fraud. Earlier in 2002, her partner in the fraud, Daniel O'Connell from Limerick, was jailed for eight years. In O'Connell's trial, the prosecution had referred to his association with Michael Keating, former Fine Gael Lord Mayor of Dublin and latterly Deputy Leader of the Progressive Democrats, the junior partner in the current Irish government. Keating has denied any involvement in the fraud. Also in 2002, Dylan Creaven, the 30 year old founding director of computer components distributor Silicon Technologies Europe, was arrested in the UK and it is alleged that he was involved in a VAT fraud estimated at £162 million (€242 million). Creaven's trial is due to commence at London's Blackfriar's Crown Court on April 5, 2005. Creaven who claims to be innocent of the charges, is a native of County Clare and has had assets valued at more than €20 million frozen on the request of the Irish Criminal Assets Bureau. Silicon Technologies Europe was founded in 1996 when Creaven was 22 years old. According to the company's website, the turnover for the year 2000/2001 was €416 million in respect of the Irish operation and $46 million in respect of an American subsidiary.The international accountancy firm KPMG's UK firm has reported that the total value of fraud which was the subject of court charges in the UK in 2003 was £374m. KPMG says that
The firm has published a profile of the typical company fraudster from 100 cases that it has been involved with over 2 years. Long-serving, male executives are most likely to commit company fraud according to the analysis, a profile of a fraudster has been created. Alex Plavsic, national head of fraud investigations at KPMG UK, said: 'One of the alarming findings from the study was the seniority of the perpetrators - we found that directors or senior managers committed almost two thirds of the 100 cases surveyed.'
The analysis found that many of the perpetrators were long serving employees - 32% of them had been working for their companies for between 10 and 25 years. And they were not operating alone - in more than half of all the cases (51%) two to five parties were involved in the fraud, compared with only one in three cases carried out solely by the perpetrator. The number of people involved in some of the cases (more than five people in 10% of them) is indicative that fraud can be endemic within some departments and consequently more difficult for outsiders to detect. In one case analysed, 207 individuals were involved in a single fraud.
In 72% of cases, the fraudsters were found to be male-only. Female-only fraudsters were identified in 7% of cases and both male and females were involved together in some 13% of cases. In the remainder of cases, no perpetrator was identified. The age of the principal fraudster was typically between 36 and 45 (41% of cases). 29%t of cases involved those aged between 46 and 55. Those aged between 18 to 25 made up only 1% of perpetrators.
The finance department is the most likely business area that the fraudster targeted or was responsible for (40% of cases). Procurement was the next most likely area (12.5%), while one in ten frauds occurred in the sales area.
A weak control environment was the primary reason. In half of the cases surveyed, this was the weakness exploited by the fraudster. In nearly one in three incidents it was the perpetrator abusing their key authorities. Just over one in ten frauds were achieved by the fraudster operating in alliance with others to circumvent controls. While the finance department is often perceived as guardian of control, it remains the top opportunity and target for fraudsters.
And if company directors are hoping that their internal controls are robust enough to pick up fraud they are likely to be disappointed - only one in four were detected by a management review. 31 per cent of frauds were discovered following an employee blowing the whistle, an anonymous tip-off or a report by an external third party. Whistle-blowing is an important weapon in the fight against fraud, despite this, the survey found that while four in ten employees were aware of or suspected that a fraud was occurring, they took no action.
Personal gain was the most likely reason (41%) for committing fraud. External pressures were also a trigger for fraudulent activity with one in eight cases were caused by the perpetrator getting into financial difficulties. In nearly 33% of the cases the amount stolen was more than £1 million while in 26% of the cases, it was more than £100,000.
As to ethics in general in the workplace, a survey by Management Today and KPMG UK found that:
The survey of over 800 managers also reveals that 1 in 4 wouldn’t rule out giving a clean reference to a dishonest member of staff. Two-thirds (67%) agreed that everybody lies to their boss on occasion.
One respondent commented: ‘During the time I have worked for the company I am with now I have come across a few scams, usually involving the same person who works at director level. All of the scams involve ripping off the company and I am not the only person to know about them either. People are too fearful of losing their jobs or of being overlooked for promotion etc. to rat on this person.’ (Male, over 40, board director)
'A Corporate Kleptocracy'
Besides fraud for direct individual gain, there have been well publicised examples in recent times both in Ireland and internationally of fraud and law breaking that is perpetrated by the senior management of corporate bodies which benefits them indirectly. The recent report on National Irish Bank outlined how fraud and tax evasion was used for the personal benefit of senior management in terms of earnings and career advancement. In recent weeks, The New York Times has reported that KPMG in the US is under scrutiny for promoting tax shelters found to be abusive; discussed selling a new shelter highly similar to a banned version more than two years after the Internal Revenue Service (IRS) outlawed the original one and any variations, according to newly disclosed internal e-mail messages.
'KPMG has taken strong measures to reorganize and restructure its tax practice, including changes to leadership, policies, practices and procedures," George Ledwith, the chief spokesman for KPMG, said. 'Simply put, we are not doing today what we did years ago.'
Nonetheless, according to the The New York Times, the e-mail messages do show how KPMG's efforts to create and sell dozens of tax shelters appear much more rigorous and extensive than detailed in documents made public last year by the Senate Permanent Subcommittee on Investigations. KPMG faces a federal grand jury investigation in Manhattan for its tax shelter work, as well as scrutiny by the IRS and Justice Department. The firm is also a defendant in several investor lawsuits.
An example of misusing or looting a company's money on a grand scale, are the allegations which have been made about Lord Conrad Black, when he was chairman of Hollinger International. The company which is the former owner of the UK newspaper The Daily Telegraph, was 'victimized' by its controlling shareholders, who took millions in payments that should have gone to the company, according to a report filed with the US Securities and Exchange Commission on August 30, 2004. The report said the company was 'systematically manipulated . . . in a manner that violated every fiduciary duty.’ A summary of the report was given the title ‘A Corporate Kleptocracy.’
‘Not once or twice, but on dozens of occasions Hollinger was victimized by its controlling shareholders as they transferred to themselves and their affiliates more than $400 million in the last seven years,’ according to the report commissioned by a special board committee of the newspaper publisher.
‘Hollinger went from being an expanding business to becoming a company whose sole preoccupation was generating current cash for the controlling shareholders, with no concern for building future enterprise value or wealth for all shareholders,’ the committee found. ‘Behind a constant stream of bombast regarding their accomplishments as self-described proprietors, Black and Radler (former publisher of the Chicago Sun-Times) made it their business to line their pockets at the expense of Hollinger almost every day, in almost every way they could devise.’
Black and his wife, Barbara Amiel Black, a former columnist for The Daily Telegraph, as well as the Radler family used Hollinger as a ‘piggy bank’ for personal expenses, the panel said. The company bought a Challenger aircraft for Radler for $11.6 million and leased a Gulfstream IV jet at $3 million to $4 million a year for the Blacks. Hollinger allowed the Blacks to ‘swap’ Park Avenue apartments with the company, which ‘rigged’ the transaction so the Blacks could obtain Hollinger’s apartment for $2.5 million below its market value, the report said.
Hollinger also paid for food, cell phones, perfumes and other living expenses for Black and his wife, the report said. These included $2,463 on handbags for Amiel Black, $2,785 in opera tickets, $2,083 on exercise equipment and a $42,870 ‘Happy Birthday Barbara dinner party’ at New York’s La Grenouille restaurant attended by designer Oscar de la Renta and television broadcasters Peter Jennings, Charlie Rose and Barbara Walters.
The meal, given for 80 guests, included beluga caviar, lobster ceviche and 69 bottles of wine.
Former board member Richard Perle, 62, gets his own chapter in the report. Perle is also a former member of the Pentagon's Defense Policy Board. The Hollinger board panel said Perle and Radler helped Black evade disclosure of his actions to the audit committee and the board. Perle should be required to disgorge all the pay he received from the company, which includes $3.1 million in bonuses from running a money-losing Internet investment arm, the report said.
‘The Special Committee finds that Perle repeatedly placed his own interests ahead of those of Hollinger’s public shareholders, which violated his duty of loyalty,’ the report said.
The allegations made in the Hollinger report are of 'self-righteous, and aggressive looting' by Black and his associates who owned a small stake in Hollinger but exercised control through an elaborate mesh of holding companies and multiple-vote shares. Black may well argue that the expenditures were to support his role as an international media baron. Fraud appears in many guises.
There were 705 reports of Fraud/Deception in Ireland, according to the Garda Crime Statistics for 2002 compared with 367 in 2001. There was one offence of fraud under the Companies Acts; 1 charge of corruption in 2002 and 35 of embezzlement. The total number of fraud reports was 4,270. No value figures are available. Fraud accounted for 4% of total offences.
Fraud is both under reported and detected. Be it insider trading or other forms of fraud, it is widely viewed as being less serious than other crimes. A middle class judge can jail a poor person for shoplifting but often the white collar criminal laughs all the way to the bank.
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from October 2004