First-tier Tribunal (Tax)

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URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00007.html
Cite as: [2009] UKFTT 00007 (TC), [2009] STC (SCD) 472, [2009] UKFTT 66 (TC)

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Chemists (a firm) v Revenue & Customs [2009] UKFTT 66 (TC) (27 February 2009)
INCOME TAX/CORPORATION TAX
Penalty

TC00007

DISCLOSURE - Witness summons - Reference in Revenue witness statement to evidence from unidentified sensitive sources - application for production of such evidence - claim for public interest immunity - order that evidence be produced in redacted form

THE SPECIAL COMMISSIONERS

CHEMISTS

(a firm) Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

-and-

BANK PLC Interested Party

DIRECTIONS

Special Commissioner: Nicholas Aleksander

Sitting in London, in public on 17 October 2008, in private on 16 January 2009, and

in public on 16 January 2009

Jeremy Woolf of Counsel for the Appellant

Bruce Carr of Counsel, instructed by the Solicitor for HM Revenue and Customs for the Respondents

Andrew Carns of Counsel, for Bank PLC

© CROWN COPYRIGHT 2009

ANONYMISED DECISION

This [anonymised] decision relates to an application by the Appellants for the production of certain documents by the Revenue, and for the issue of witness summons to certain personnel at Bank PLC ("the Bank") to give evidence and to produce certain documents. The Bank opposes the application on grounds of public interest immunity.

Given the circumstances of the case, I directed under Regulation 15(2) of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 that I would take evidence and hear the submissions of the Revenue and the Bank on public interest immunity in a hearing in private in the absence of the Appellant. This would be followed later that same day by a hearing in public at which the Appellant could make its submissions. This procedure is in line with that adopted by the High Court under the Civil Procedure Rules when public interest immunity is asserted in proceedings before that court.

At the private proceedings, a witness statement of a solicitor employed in the Bank's legal department was submitted on behalf of the Bank with an exhibit. The exhibit included the document in respect of which public interest immunity is being asserted. No evidence was submitted on behalf of the Revenue, and the Revenue confirmed that they no longer made any claim for immunity in respect of the documents that they hold, although they made an application that the documents be provided to the Appellants with some minor redactions. I refer to these below.

Background

The Appellants are a business partnership between a father and his two sons. The Appellants maintain their business accounts with the Bank. The substantive issue in the appeal is whether the Appellants had disclosed all of their income.

The Revenue, in support of their case that the appeal should be dismissed, place reliance, amongst other things, on the following assertions made in a witness statement by one of the Revenue's officers:

(1) Evidence from unidentified sensitive sources to a law enforcement agency that 26 cash credits were made at a branch of the Bank to the credit of an account of a bank in India; and

(2) Evidence from unidentified sensitive sources to a law enforcement agency that approximately £250,000 of "old" £20 bank notes had been exchanged at a branch of the Bank for "new" £20 bank notes.

As a result of the discussions between the parties, it has become apparent to all concerned that the unidentified sensitive source was the Bank.

In October 2003 the Bank was served with a notice under s20(3) Taxes Management Act 1970 requiring the disclosure of material relevant to accounts maintained by the Appellants and its partners at the Bank. The Bank complied with the s20 notice by way of disclosure to the Revenue of a number of documents. These documents were subsequently disclosed by the Revenue to the Appellants. Further s20 notices were subsequently served on the Bank by the Revenue, with which the Bank has complied. The only document which the Bank has withheld from disclosure is the original "authorised disclosure" in the form of the suspicious activity report filed with the National Criminal Intelligence Service ("NCIS") in 2001 relating to the alleged exchange of notes mentioned at paragraph 5(2) above (although the report refers to an exchange of £200,000 and not £250,000). The Bank takes the position that this document ("the SAR") was outside the scope of the various s20 notices (and the Revenue does not dispute this).

The Bank maintains that it is not required to produce the SAR on the grounds that it attracts public interest immunity. The Bank also opposes the applications for its staff members to attend to give evidence before the Special Commissioners.

As part of its investigations into the affairs of the Appellants, the Revenue made enquiries of NCIS. NCIS responded giving information about the matters mentioned in paragraphs 5(a) and (b) above. In relation to the information about the exchange of the old bank notes, the NCIS report largely repeats the text of the SAR. The Revenue are not claiming public interest immunity in respect of the NCIS report, and will be disclosing it to the Appellants (subject to limited redactions of internal NCIS contact details and reference numbers which I have reviewed and approved).

Public Interest Immunity

The Bank asserts public interest immunity, in summary, on the basis that the production of the SAR or the summoning of any witness connected with it:

(1) May tend to directly or indirectly reveal the identity, location, office or position of employees or officers of the Bank connected with money laundering supervision arrangements, and

(2) May tend to directly or indirectly reveal documents, systems, procedures or controls connected with the Bank's money laundering supervision arrangements.

The Bank asserts that there is a genuine and well established public interest in protecting the individuals concerned (who may be at risk) and the nature of the internal systems and information (which may for example, reveal the identity of those individuals), or which could reveal information concerning other customers.

Suspicious activity reports are a key source of information that are passed in confidence to NCIS (and its successor the Serious Organised Crime Agency). The Criminal Justice Act 1988 (and now the Proceeds of Crime Act 2002) (amongst other things) governs the confidential reporting by banks and other members of the regulated sector in the financial services industry of suspicious transactions for the purposes of the prevention and detection of crime. The reporting regime is a key part of the Act and operates to require banks to report such suspicions to the relevant authorities in confidence.

The Bank submits that the SAR in and of itself is a document that having regard to it status and purpose, namely for the protection of the public and the prevention of crime, attracts public interest immunity and ought not to be disclosed.

The Bank also notes that it has long been held that a witness cannot be asked questions as would disclose the informer in a public prosecution - this principle was expressed in R v Cheltenham Justices ex parte Secretary of State for Trade [1977] 1 WLR 95. However in this case the informant (the Bank) is already known to the Appellant, and therefore maintaining the confidentiality of the informer is not in point.

The Bank also opposes any application for witness summons in respect of its staff for the following reasons: first, compelling branch staff to recall an event which took place over seven years ago is likely to be of little evidential value; and secondly it is likely to act as a significant deterrent to staff members making disclosures in the future and may pose a serious threat to their safety and security where their identity is revealed as a result either of the disclosure of the SAR or by virtue of those individuals being compelled to give evidence. It would be contrary to the public interest if members of staff of the Bank were placed in fear of their identities being disclosed such as to discourage them from making suspicious activity reports, and thereby undermining one of the central purposes of the Act. The Bank is concerned that any such witness summons would not only identify members of the Bank's staff, but also the questions put to them would inevitably stray into the highly confidential systems and procedures surrounding the operation of suspicious activity reports with NCIS and with the Serious Organised Crime Agency which in and of themselves it is submitted attract public interest immunity.

The Balancing Exercise

In considering whether the public interest immunity applies, the Tribunal needs to address a series of questions considered by the House of Lords in R v H [2004] UKHL 3 at [36] and summarised as follows:

(1) What is the material which the Bank seeks to withhold? This must be considered in detail.

(2) Is the material such as may weaken the Revenue's case or strengthen that of the Appellants?

(3) Is there a real risk of serious prejudice to an important public interest if full disclosure of the material is ordered?

(4) If the answer to (2) and (3) is yes, can the Appellants' interests be protected without disclosure or disclosure be ordered in such a way as to give adequate protection to the public interest in question and also afford adequate protection to the interests of the Appellants? This question requires the Tribunal to consider, with specific reference to the material sought to be withheld and the facts of the case and the defence as disclosed, whether it is possible for the Revenue to formally admit what the Appellants seek to establish, or whether disclosure short of full disclosure may be ordered. This may be done in appropriate cases by the preparation of summaries or extracts of evidence or the provision of documents in a redacted form and approved by the tribunal.

(5) Do the measures proposed in answer to (4) represent the minimum derogation necessary to protect the public interest in question?

(6) If limited disclosure is ordered, may its effect be to render the trial process viewed as a whole unfair to the defendant?

(7) These matters relating to disclosure and the assertion of public interest immunity must be kept under review throughout the trial process.

The balancing exercise is unusual in this case. The Appellant is not seeking disclosure of material that would otherwise not be used by the Revenue. Rather, the Appellants are seeking the opportunity to challenge evidence upon which the Revenue seek to rely. Lord Bingham in R v H at [18] stressed that any derogation from full disclosure must be the minimum necessary to protect the public interest and should not imperil the overall fairness of the trial. He went on to give the further guidance that I have enumerated above. His comments and questions were given in the context of the disclosure of evidence at a criminal trial upon which the prosecution have placed no reliance. They do not directly address the circumstances of this case, where a public authority (the Revenue) are relying upon the evidence in question and express reference to it is made in their witness statements. The Appellants seek disclosure of the documents mentioned in the witness statements in order that they may have a proper opportunity of challenging them. The Appellants argue that it is unfair that the Revenue should be able to rely upon evidence, in circumstances where public interest immunity is being claimed to prevent disclosure of the underlying documents. The Appellants submit that if I uphold the claim to immunity, then I should also order that the Revenue may not rely upon the evidence in respect of which immunity is granted.

I am mindful of the decisions of the European Court of Human Rights. Although the European Court of Human Rights recognises the doctrine of public interest immunity, this has to be balanced against the rights of the individual within the context of Article 6 and the right to a fair hearing. Thus in Jasper v. United Kingdom (2000) 30 EHRR 441, it was said:

" ... The entitlement to disclosure of relevant evidence is not an absolute right. In any criminal proceedings, there may be competing interests, such as national security or the need to protect witnesses at risk of reprisals or keep secret police methods of investigation of crime, which must be weighed against the rights of the accused. In some cases, it may be necessary to withhold certain evidence from the defence so as to preserve the fundamental rights of another individual or to safeguard an important public interest. However, only such measures restricting the rights of the defence which are strictly necessary are permissible under Article 61. Moreover, in order to ensure that the accused receives a fair trial, any difficulties caused to the defence by a limitation on its rights must be sufficiently counterbalanced by the procedures followed by the judicial authorities."