Somchul Haqe Rashid, a director of TM Global Ltd and TM GB Ltd, mobile phone wholesalers based in Barking, Essex has been disqualified as a director by the High Court for 15 years for involving these companies in a scheme linked to VAT fraud and making wrongful VAT reclaims against HM Revenue & Customs.
Somchul Rashids brother Foxlul Haqe Rashid, also a director of these two companies, had earlier given an undertaking to the Secretary of State for Business, Innovation & Skills to be disqualified as a director on similar terms for a period of 14 years from 31 January 2014.
Somchul Rashids disqualification from 16 April 2014 means that he cannot promote, manage, or be a director of a limited company until 2029. The same restrictions apply to Foxlul Haqe Rashid for the duration of his ban.
Both disqualifications follow investigations by a specialist team of the Insolvency Service, whose involvement commenced with the winding up of the two TM companies, for debts owed to a supplier to these two companies, which was itself wound up by HMRC for VAT losses.
Commenting on this case Paul Titherington, Official Receiver in the Public Interest Unit, said:
TM Global and TM GB were involved in trading and making wrongful reclaims in a fraudulent VAT scheme which had been costing the UK Exchequer significant amounts of money at the time the fraud was perpetrated.
This is not a victimless crime, the main impact being on honest tax payers and their families who as a result suffered the effects of funding shortages in healthcare, education and other front line services.
Regulatory changes, investigative action and legal proceedings have reduced the scale of this fraud from 2007 onwards.
The Insolvency Service will not hesitate to use its enforcement powers to investigate and disqualify directors whose companies defraud the public purse.
The investigation uncovered that between February and June 2006, these companies, buying mobile phones in the UK, made onward sales of 218.8 million to wholesalers in other EC countries, and then filed monthly returns with HMRC reclaiming UK VAT monies that missing traders (i.e. traders that had not paid over VAT due to HMRC) earlier in supply chains had failed to pay.
This missing trader fraud is commonly known as Carousel fraud, as large consignments of electrical or other small item size high value goods are invoiced rapidly and repeatedly around trading chains, speeded up by movement on paper , with actual movement of goods only taking place as they enter or exit the UK.
The court heard that the companies entered into trading arrangements which were too good to be true, and against which they had been expressly and repeatedly warned by HMRC.
Such missing trader fraud indicators included, the rapid succession of same day trades without deliveries within the UK of goods sitting at a shared freight forwarder, the common use of the same offshore bank, and entering into payment arrangements involving third parties who were neither suppliers nor customers.
All traders banked with the First Curacao International Bank which was shut down by the Netherlands Antilles authorities in September 2006 in order to prevent money laundering.
The court also heard that as the managing director with responsibility for sales, Somchul Rashid was involved in pricing decisions which ran against any commercial logic and could only be explained in terms of this fraudulent scheme.
The companies sourced goods either from supply chains involving missing traders with default losses of 12.1 million, or from contratraders, which were companies that offset 21.5 million of VAT from their trades across different trading chains, thereby obscuring trading and transaction connections to fraudulent losses, and improving chances of obtaining VAT reclaims from HMRC. While performing this role, the contratraders received a premium price from the companies.
Somchul Rashid also extended TM Global Ltds trading chain by bringing in another company as an intermediary with its existing customer, sacrificing profit in the process. The extension of supply chains is a feature of missing trader fraud distancing traders seeking fraudulent reclaims and so facilitating their denial of knowledge of missing trader tax evasion.
The court heard that VAT registration checks on trading partners were undertaken as a cynical exercise to put HMRC off the scent. The companies had already started trades without making checks, and when HMRC advised of failed verifications, the companies continued trading regardless.