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April 2024 Tax Investigation Round Up

April's round up of the latest tax investigation news and cases:

  • Treasurer avoids jailed for £17k embezzlement
  • Jail sentence for former online retailer
  • Mortgage advisers in £3 million fraud case
  • 800 bans for Covid loan scheme fraud

Treasurer avoids jailed for £17k embezzlement

Gemma Pearse, a 33-year-old former treasurer from Leiston, Suffolk, has received a suspended sentence after being found guilty of embezzling £17,000 from a local child playgroup following a HMRC tax investigation.

As the financial controller of Knodishall Playgroup, Pearse managed the group’s accounts from January 2017 until her resignation in February 2022. During this time, she was responsible for a series of fraudulent activities, including falsifying financial records and redirecting funds to her personal account using fictitious payee names. This fraudulent behavior resulted in the theft of £17,000 over five years.

Pearse’s management of the playgroup’s finances was marked by consistent dissatisfaction over her attendance at committee meetings and her vague quarterly financial reports.

The deception came to light following a detailed review of the financial records by a colleague, who noted several discrepancies in the bookkeeping, raising doubts about the proper handling of funds.

The financial impact of Pearse’s actions was severe, leaving the nursery unable to pay its staff and halting planned construction work.

Following her arrest in May 2022, Pearse faced legal proceedings, and in April, she was sentenced by Judge Martyn Levett at Ipswich Crown Court. Judge Levett described Pearse as a "risk to any other gullible charity."

Detective Constable Ed Vincent of Suffolk Police commented on the case, noting that although Pearse had pleaded guilty early, showing some remorse, it did not compensate for the distress and inconvenience caused to the playgroup’s management, and the parents and caregivers of the attending children. DC Vincent also remarked on the lost opportunities to enhance the playgroup’s facilities and equipment, which would have benefited the community and the children.

Ultimately, Pearse was handed a 16-month prison sentence, which was suspended for two years. She is also required to perform 200 hours of unpaid community service.

Jail sentence for former online retailer

Nida Khan, a 29-year-old former employee at the now-defunct online retailer Nanobits, has been sentenced to four years in prison after pleading guilty to embezzling over £100,000 from her employer.

Khan, who had been entrusted with the company's management since 2019, exploited her position to transfer £88,000 to her own bank accounts and make unauthorized purchases totaling over £5,000 on luxury items, including watches, phones, and makeup. These transactions were made using company funds.

The tax fraud activities led to significant operational disruptions, forcing Nanobits to issue £15,000 in refunds to customers for unfulfilled orders. The combined financial impact on the company exceeded £100,000, contributing to its eventual dissolution.

PC Rob Parson of Dudley Local CID remarked on the case, highlighting Khan's lack of remorse and her initial attempts to shift blame onto others. He stressed the intensive investigative efforts required to expose Khan's deceit, which continued until her admission of guilt at Wolverhampton Crown Court in October 2023.

"The severity of the punishment reflects the seriousness of her crimes and serves as a deterrent, demonstrating that crime does not pay," stated Parson. He also mentioned that the West Midlands Police are considering pursuing a Proceeds of Crime Act (POCA) order to recover the illicitly obtained funds.

The sentence is viewed by the affected family, including Tej Jain and his son Tarun, who had previously stepped back from the business due to health reasons, as a measure of justice served.

Mortgage advisers in £3 million fraud case

Two mortgage advisers, Larry Barreto and Tassib Hussain, have received suspended sentences after being convicted of committing mortgage fraud amounting to £3 million by manipulating client incomes to secure loans.

The fraudulent activity, which occurred between January 2015 and March 2018, involved the creation of fraudulent documents to inflate the incomes of Barreto’s clients. Hussain was responsible for producing fake HMRC documents and payslips that misrepresented the financial standing of the clients. These documents facilitated the approval of 11 mortgage applications, which Barreto submitted to lenders, fully aware of the deceit.

Southwark Crown Court heard the case in November 2023, where Hussain was found guilty of fraud and sentenced to a 16-month suspended sentence, alongside an order to complete 120 hours of unpaid work. Barreto, who had previously pleaded guilty in 2022 to conducting regulated activities without authorization from the Financial Conduct Authority (FCA), received a two-year suspended sentence.

His Honour Judge Nicholas Cole condemned the advisers’ actions, stating they had committed "systematic mortgage fraud" and had "abused your position," thereby harming the integrity of the financial system.

Therese Chambers, joint executive director of enforcement at the FCA, emphasized the severity of the advisers’ dishonest actions, noting that they not only jeopardized the financial stability of individuals but also damaged the reputation of the industry. She highlighted that the sentences should serve as a deterrent and underscored the ongoing efforts by the FCA and the courts to address such fraudulent practices rigorously.

The FCA has initiated confiscation proceedings to reclaim the profits gained from the fraudulent activities by Barreto and Hussain, reflecting the serious long-term consequences of their actions.

800 bans for Covid loan scheme fraud

In a significant crackdown on financial misconduct, the Insolvency Service has banned 831 directors in the fiscal year 2023-24 for misappropriating funds from the Covid bounce back loan scheme, marking an increase of over 80% from the previous year's 459 bans. The average disqualification period for these offenses is now 10 years.

Dean Beale, CEO of the Insolvency Service, emphasized the agency's commitment to addressing loan scheme abuses as a top priority. "Our dedicated teams are vigorously pursuing those who exploited the Covid support schemes during an unprecedented global health crisis, ensuring that dishonest directors are removed from the corporate sphere," Beale stated.

One notable case involved Richard Ward of Huddersfield, who received a 12-year ban in June 2023. Ward fraudulently obtained three loans totaling £120,000 for purported corporate activities and property developments that were non-existent, according to the Insolvency Service's findings. He diverted at least £105,000 of these funds to his personal account.

Similarly, builder Darrel North from East Sussex was disqualified for 12 years after improperly securing loans amounting to £90,000, most of which he transferred to his personal account, far exceeding the legitimate needs of his construction business.

Another case involved Sabine Zogota from Surrey, who was banned for 11 years starting April 2, after she falsely claimed a turnover of £200,000 to obtain a £50,000 loan for her dormant interior design business, which she did not use for business purposes.

Since 2021, when the Insolvency Service began its investigations into Covid loan scheme abuses, a total of 1,430 directors have been disqualified for misusing funds intended to support businesses during the pandemic. The bounce back loan scheme, introduced in early 2020, was designed to help small and medium-sized enterprises with low-interest loans guaranteed by the government, exclusively for business use.

The enforcement actions by the Insolvency Service range from winding up companies in court to securing criminal convictions and compensation orders, all aimed at upholding the integrity of financial support mechanisms and penalizing those who violate them.

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