It is not uncommon for businesses and individuals to be subject to inspections by HMRC of trading records during which informal interviews may be carried out by visiting officers. This is perfectly proper under the civil powers of HMRC to seize and inspect material which may be relevant to a civil tax inspection. What individuals and businesses should be aware of, however, is where significant losses are alleged to have occurred, HMRC may seek to rely on comments made as part of the civil investigation in later criminal charges against the individuals involved.
This approach can lead to unfairness. When an individual is investigated by the police, SFO or indeed HMRC for criminal offences, the protections of PACE 1984 (‘PACE’) apply along with associated codes of practice.
Section 67(9) PACE provides that:
Persons other than police officers who are charged with the duty of investigating offences or charging offenders shall in the discharge of that duty have regard to any relevant provision of … a code.
The relevant code is PACE Code C.
The most important provisions of PACE Code C include the right to a solicitor, accurate recording of the interview, and to be cautioned. This includes the reminder of the right to remain silent. When these safeguards are set aside there is vast scope for individuals to make comments which can later be used against them before they have received legal advice.
The remedy for this can be found in PACE itself.
Section 78(1) PACE 1984 provides as follows:
In any proceedings the court may refuse to allow evidence on which the prosecution proposes to rely to be given if it appears to the court that, having regard to all the circumstances, including the circumstances in which the evidence was obtained, the admission of the evidence would have such an adverse effect on the fairness of the proceedings that the court ought not to admit it.
According to R. v Okafor(1994) 99 Cr. App. R. 97, a customs officer who suspects that an offence has been committed should either comply with the relevant Code, or refrain from asking questions relating to the offence per Lord Taylor CJ; in that case the relevant conversation was excluded under s.78 PACE (emphasis added):
We have come to the conclusion that the learned judge ought to have excluded this conversation. There were clear breaches of the rules, and breaches which were of significance in the context of this case. Therefore we conclude, because it seems that this matter has been ventilated by Mr Issard-Davies with a view to future conduct by the Customs and Excise, that where a customs officer has reason to suspect that an offence has been committed, he must either avoid asking questions in relation to the offence or he must follow the provisions of the Code and administer a caution.
The relevant principles were considered in R. v Ellery [2003] EWCA Crim 553 which concerned the admissibility of admissions made to a probation officer preparing a pre-sentence report. It was held by Lord Woolf CJ (emphasis added):
The matter has to be considered, as was done by the trial judge in this case, by deciding whether there is a basis for excluding it under s. 78 of the Police and Criminal Evidence Act 1984. However, the fact that the evidence may be admissible in criminal proceedings does not mean that the fact that the admission was made in the course of an interview between an offender and a probation officer should be ignored. It is clearly important that there should be frankness in the exchanges between a probation officer and an offender as this furthers the role of the probation officer in the sentencing exercise. If it were to be the practice that the prosecution regularly rely upon what is said by an offender to a probation officer as evidence for further prosecutions then clearly this would have an adverse effect upon this need for frankness. Indeed a situation could soon arise where probation officers would be hampered in performing their important duty to assist the court in determining the correct sentence for offenders. So in the case of an admission the prosecution should first carefully consider whether it is right to rely upon evidence provided by a conversation between a probation officer and an offender and only rely upon it if they decide it is in the public interests so to do. If they do decide to rely upon that evidence, having taken into account the considerations of public interest to which we have made reference, then the court still has a discretion under s. 78 of the 1984 Act to ensure that no unfairness will occur because of the reliance on the admissions which an offender is alleged to have made. In deciding whether to exclude the evidence it is perfectly appropriate for the court to have in mind the contrast between the position that exists where an offender is interviewed by the police and that which exists when the offender is interviewed by a probation officer. The court should bear in mind the need for frankness between the offender and the probation officer; the fact that there may not be a reliable record of what was said; that the offender has not been cautioned; and that the offender has not had the benefit of legal representation. The protection which the court can provide under s. 78 in the majority of cases should be sufficient to ensure that no unfairness occurs to an offender.
Accordingly, whether or not PACE Code C strictly applies to a HMRC officer’s interview with an individual concerning a civil tax enquiry, a compelling argument can be made in any later criminal proceedings that the material can be excluded from the jury’s consideration if criminal proceedings were in contemplation, as will most often be the case where significant losses are alleged to have occurred.
The authorities considered in this article highlight the importance of individuals who are being inspected by any state authority - whether a prosecuting agency or not - to be aware that anything they say may in some circumstances be used against them in a criminal prosecution. There may therefore be good reason to seek legal advice and indeed representation from an experienced criminal solicitor during any civil investigation so that their future rights can be protected