England and Wales Court of Appeal (Criminal Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
CRIMINAL DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		04/04/2007

Lord Justice Maurice Kay :

1. On 21 November 2005 in the Crown Court at Southwark Ian Andrew Leaf was convicted of 13 counts of fraudulent trading. 10 days later he was sentenced to terms of imprisonment on each count. The sentence on Count 4 was five and a half years' imprisonment and the sentence on Count 12 seven years' imprisonment. Those two sentences, being the longest terms of imprisonment imposed, were ordered to be served consecutively. The sentences in respect of the other 11 counts ranged from 18 months' imprisonment to 5 years' imprisonment and they were all ordered to be served concurrently. Thus, the total sentence was one of 12½ years' imprisonment. Mr Leaf sought to appeal against conviction and sentence. He was refused leave for the conviction appeal by Pitchers J but was granted leave to appeal against sentence by Poole J. Our first task is to consider a renewed application in relation to the proposed appeal against conviction.
2. The factual background is complex but, for present purposes, can be stated quite briefly. In the early 1990s there existed a tax avoidance scheme known as a company purchase scheme. It involved the purchase of a dormant company which held a large amount of cash that had been set aside to meet outstanding corporation tax liability. The purchase price for the company would reflect the tax liability. The purchaser would then use various forms of tax relief which had not been available when the company was under its previous ownership in order to extinguish or greatly reduce the tax liability of the company and therefore make a profit in the form of the balance of the cash held. Until its later abolition by legislation, such a scheme, if properly implemented, was lawful. Mr Leaf sought and obtained professional advice from people familiar with the lawful operation of such schemes. However, the prosecution case against him was that, rather than avail himself of lawful company purchase schemes, he set about acquiring a number of companies through which, by fraudulent means, he was able to evade the liability for corporation tax and thereby to extract large sums of money from the companies for his own benefit. The thirteen counts on the indictment related to 13 companies acquired in this way. The aggregate corporation tax liability of the companies was approximately £55 million pounds. The prosecution case was that Mr Leaf had benefited by approximately £22 million pounds, the whereabouts of which were unknown.
3. Mr Leaf deployed two different fraudulent methods. The first involved false loan transactions in which a bank known as Allied Bank Corporation purported to loan the companies large sums of money. The companies could then set about reducing their corporation tax liability by reference to the interest payments on the false loans. Allied Bank Corporation was controlled by Mr Leaf. The second method involved bogus foreign exchange transactions through two entities called Guild Corporation Ltd and Gilt Edged Investments Ltd. These entities, which were again controlled by Mr Leaf, purportedly carried out foreign exchange transactions on behalf of the purchased companies resulting in profits from which the purchased companies paid dividends, thereby enabling the purchased companies to claim that their corporation tax liability had been extinguished in respect of the current year and also previous years by virtue of advance corporation tax, and facilitating claims to be made for repayment of tax in respect of sums previously paid in satisfaction of corporation tax liability. Normally the charge against someone who had behaved in such ways would be the conventional one of defrauding the Revenue. However, at the material time Mr Leaf was resident in Switzerland and that country does not extradite for fiscal offences. For this reason, Mr Leaf was extradited and prosecuted for offences of fraudulent trading pursuant to section 458 of the Companies Act 1985. The maximum sentence for a single offence of fraudulent trading is 7 years' imprisonment. The different sentences imposed in relation to the various counts on the indictment were explained by the different amounts of loss reflected in the various counts. These ranged from £118,000 to approximately £11.8 million pounds.
4. The form of fraudulent trading particularised in the indictment was the one whereby a person is knowingly a party to the carrying on of the business of a company for a fraudulent purpose. The "carrying on of the business" was treated by both the prosecution and the defence at trial as the submission of the accounts to the Inland Revenue and the subsequent negotiation to resolve outstanding fiscal issues. As these events took place in this country, there can be no jurisdictional issue, notwithstanding Mr Leaf's Swiss residence. The particulars of each offence as pleaded referred to the fraudulent purpose as being "to conceal his theft of monies to which he was not entitled" in the form of credit balances belonging to the respective companies and required for the satisfaction of their corporation tax liabilities and/or sums belonging to the government as being corporation tax already paid by the respective companies.
5. Counsel now appearing for Mr Leaf did not represent him at trial. Mr Owen QC seeks to advance two proposed grounds of appeal against conviction. The first is to the effect that the trial judge failed to direct the jury adequately on the offence of fraudulent trading.
6. In his summing-up the judge directed the jury that the prosecution had to prove four things. The first was that a business was being carried on by the acquired company in question. This was not disputed because of the submission of accounts to the Inland Revenue. The second was that the defendant was knowingly a party to the carrying on of the business. Again, there was no dispute as to this. The third matter was that the purpose of the carrying on of the business was the extraction from the company of funds by one or both of the two methods we have described. The judge left that to the jury on the basis that it was not disputed. He then turned to the fourth matter which he described as lying "at the heart of the case". It related to proof that, to the defendant's knowledge, the purpose was a fraudulent one. The judge said this:

"The prosecution allege that the fraud lay in the fact that the purpose was for the defendant to conceal his theft of monies in the form of credit balances to which – and you may think that this is the crucial part – he knew he was not entitled. Theft for the purposes of this case simply means: the taking of the monies to which he knew he was not entitled … with the intention of permanently keeping the monies."

7. Later he said:

"… to establish the fourth element of the offence, the prosecution must prove that the defendant acted dishonestly, with the objective to which I have just referred, which, for the purposes of this case, means that they must prove that, at the relevant time, the defendant did not believe that he had a legal right to do what he did and that he did not intend to create the legal relations to which the documents speak, in order to commit the theft as alleged."

8. In the ensuing passages he developed these directions, emphasising that the issue was as to the genuineness of the loan agreements and foreign exchange dealings. He then said:

"… you must then ask yourselves whether the defendant believed or may have believed that he had, in law, the right to do what he did … Only if you are sure that the defendant did not believe, at the relevant time, that he had, in law, a right to do what you decide that he did, and that all the elements of the offence … have been proved, including the fraudulent purpose … is a verdict of guilty open to you."

9. Mr Owen makes a number of criticisms of this part of the summing up. He is particularly critical of the way in which the judge dealt with theft and with the requirement of dishonesty. As to the latter point, he submits that there ought to have been a Ghosh, [1982] QB 1053, direction. He suggests that this is particularly important in the context of tax avoidance because there is a risk that juries will consider even a lawful tax avoidance scheme to be dishonest. He also complains about resort to an absence of intention to create legal relations, which he describes as an "inappropriate concept for a jury".
10. We do not consider that there is any force in these criticisms of the summing up. This was a complicated case and it was entirely right that the judge should endeavour to simplify it as much as possible, without falling into the trap of oversimplification. In our judgment, in the passages which we have set out, the judge managed to achieve the desirable degree of simplification. The fundamental issue in the case was and became a simple one: did Mr Leaf believe that, at the relevant time, he had a lawful right to do that which he did? It seems to us that that approach is actually more favourable to a defendant than a Ghosh direction would have been. It is certainly no less favourable. It is intelligible. Moreover by directing the jury to give consideration to whether or not the various transactions actually happened and were genuine transactions, they were directed to the part of the evidence which was most relevant to the resolution of the fundamental issue. In this context, the absence of an intention to create legal relations was referred to simply as a possible indication of a lack of genuineness. The direction on theft may not have been comprehensive, but it was tailored to and sufficient for the needs of the instant case. Mr Owen has set out in his skeleton argument what he suggests the appropriate structure of the summing up should have been. However, there is more than one way in which to sum up most cases. We have no doubt that the structure adopted by the judge in this case was carefully considered, was designed to assist and did assist the jury to concentrate on the fundamental issue. We do not consider it arguable that there was any misdirection as Mr Owen submits or at all.
11. The second ground of appeal is headed "non-direction on the evidence". In seeking to advance it, Mr Owen criticises the judge for not taking the jury through the documents in the case. He says that this was "a documents case" and the summing up amounted to an abdication of the judge's responsibility in this regard. He also sold Mr Leaf short on his defence that he had believed that he was engaging in an entirely lawful tax avoidance scheme. This, says Mr Owen, required more detailed guidance from the judge on tax avoidance and tax evasion and the complexities of the subject. We do not think that these criticisms are justified. Whilst the judge did not spend the summing up going through the documents, page by page, as undoubtedly counsel on both sides had in addressing the jury, he made it clear to the jury that the documents were important, he explained their importance and, from time to time, he gave page references in the jury bundle. The jury could have been under no mistake as to which documents were important nor as to the vital issue between the parties as to the genuine or sham nature of those documents. All this was properly explained to them. Moreover the judge made it plain to the jury that tax avoidance schemes can be perfectly lawful and that their verdicts must depend exclusively upon whether it was established that, in this case, what had taken place was fraudulent evasion rather than lawful avoidance. He demonstrated to the jury that company purchase schemes could be operated lawfully in the early 1990s and that the one upon which Mr Leaf had originally been advised would have been effective and lawful. He added:

"As to your verdict, it is fundamental to the prosecution's case that what the defendant did was not to implement Robin John's scheme but, without belief in his legal right to do so, and therefore, dishonestly, he merely pretended to implement the scheme, such that he was guilty of the crime with which he is charged."

12. Again we are entirely satisfied that this properly placed the issues before the jury and that, whilst other approaches to the summing up may have been permissible, the one adopted by the judge was both appropriate and fair. The contrary is not arguable.
13. We now turn to the appeal against sentence. It is abundantly clear from the transcript of his sentencing remarks that the judge approached his difficult task with great care. He observed that this was not a typical case of fraudulent trading. It was fraud "on a truly massive scale". It involved "an intricate and sustained web of deceit into which you drew different individuals and different firms of accountants and lawyers". He referred to the generation of a huge body of documentation which was " at best … misleading, at worst, simply mendacious". He eschewed the notion that white collar crime is necessarily less serious than other more lurid types of crime. He added:

"Moreover, your crimes are not victimless. Quite the contrary, every law-abiding citizen of this country is a victim of your crimes, in that you have denied the country substantial resources which can only mean one of two things, or perhaps a combination of the two: either the burden must be increased on the law-abiding or the resources available for proper use must be reduced."

14. The judge then referred to dishonesty which was "sustained, sophisticated and immensely serious". The offences were the product of "premeditation, careful planning and intricate execution in which you persisted for many years and even today the whereabouts of your huge profits are not known". He detected no remorse and added that "of mitigation there is, in my judgment, absolutely none". Finally, he said:

"You simply appear to have taken a decision for financial gain to jettison all relevant principles, scruples and morals and by way of persistent criminality acquire as much of other people's money as you could."

15. We say at once that we agree with all of that. We also agree with the judge's later observation that

"The simple expedient of making all sentences run concurrently, where the maximum sentence on any one Count is seven years, would not begin to reflect the gravity of this case."

16. Thus, on matters of approach and structure of the sentences, we entirely approve of what the judge said and did.
17. There are no guideline authorities in this area. However, a number of cases have been referred to. Mr Owen seeks to place particular reliance on Hunt [1995] 16 Cr App R(S) 87 which concerned a fraud on the Revenue committed over a period of nine years and resulting in a loss to the Revenue of £55 million. The sentence, following a trial, was one of eight years' imprisonment. However, it was the co-accused, Botnar, who had been the moving spirit in the conspiracy and there was doubt about the extent to which Hunt had benefited from the proceeds of the fraud. In Palmer [2003] 2 Cr App R(S) 2 a sentence of eight years was imposed in relation to a timeshare fraud which had yielded a benefit of over £30 million to the appellant. The sentence followed conviction by the jury. Gokal (unreported, 11 March 1999, CACD) concerned an enormous fraud connected with the collapse of BCCI. The Court of Appeal referred to it as a highly sophisticated fraud which was "by a very substantial margin, the largest ever to have resulted in a conviction in this country. It had international consequences of great gravity to banking, to the proper control of banking and to all those who rely on the integrity of banks". The sums involved were many hundreds of millions of dollars. The sentence after a trial was 14 years imprisonment for conspiracy to defraud and it was upheld on appeal.
18. The most recent authority to which we have been referred is that of H and P [2006] EWCA Crim 2385 in which, for offences of cheating the Revenue and money laundering, involving a total tax loss of £41.5 million, a sentence of eight years' imprisonment following a plea of guilty on one who was "not the originator of the scheme nor its prime mover" was upheld.
19. We derive some assistance from these authorities, whilst at the same time reminding ourselves that all frauds are different. Gokal is significant because it illustrates that, although the present case is one of large scale fraud, there is still some headroom above it. H and P is of particular relevance because it involved Revenue fraud and is the most recent of the authorities. Given that there had been a plea of guilty, it suggests that for a roughly comparable quantum of tax loss, the starting point must have been in the region of 12 years for the person who was not the prime mover.
20. As this appellant did not have the mitigation of a guilty plea, there is little that can be said in his favour beyond his previous good character and some public spirited aspects of his life to which reference has been made in the supporting documentation. We also know, which the sentencing judge could not have known, that the appellant is responding to his sentence in very positive ways and there is now some evidence of remorse.
21. It was inevitable that the appellant would receive a very substantial period of imprisonment for this persistent and sophisticated fraud. As we have indicated, we do not think that the learned judge can be criticised for structuring the sentences in the way that he did. Like him, we consider that consecutive sentences were necessary to reflect the gravity of the criminality. However, there is one particular matter which causes us concern. It relates to the headline figure given as to the extent of the fraud. We take the view that it was not appropriate to sentence the appellant on the basis that he had caused a tax loss in excess of £50million. The fact is that the thirteen companies in question were all highly attractive to business people at the time in connection with lawful company purchase schemes of the kind as to which the appellant had been advised. At the time of these offences, there was a perceptible market in such companies for such purposes. It seems to us that, even if the appellant had never engaged in this fraud, it is very likely that some or all of the companies would have been acquired, whether by him or by other people, so as to effect lawful company purchase schemes. In this way, a very significant amount of the tax which was due and owing from the companies in their dormant states would have been lawfully avoided. We are unable to agree with Mr Owen that the entire liabilities would have been extinguished. However, we suspect that, in reality, the loss to the Revenue is not the headline figure but a significantly lower one. On the other hand, by his resort to a sophisticated fraud, the appellant has benefited personally to the extent of some £22million which remains unaccounted for. He was not content to live within the parameters of lawful tax avoidance. He preferred the dishonest and criminal route to satisfy his monumental greed.
22. Having taken all these matters into consideration, we have come to the conclusion that a total sentence of 12½ years was too long. In our view, the appropriate figure is one of 10 years. We shall achieve this by quashing the sentences of 5½ years in respect of Count 4 and 7 years in respect of Count 12 and by substituting sentences of 5 years and 5 years respectively. The sentences in respect of Counts 1 to 5 will still be ordered to be served concurrently with each other but consecutively to the terms imposed in respect of Counts 6 to 13 (which will still themselves be served concurrently with each other). In arriving at these figures we have interfered with the careful arithmetic of the judge but we have done so pragmatically so as to give effect to our view as to the appropriate totality of sentence. We confirm that 742 days served in custody prior to the imposition of the sentences on 1 December 2005 shall count towards the sentence of 10 years. As we understand it, confiscation proceedings have not yet taken place but are listed for June of this year.