Brothers Waseem and Ajaz Saddique, directors of Winnact Ltd, mobile phone wholesalers based in Birmingham have been disqualified as director by the High Court for 15 years each at hearings on 7 May and 23 July for involving the company in a scheme linked to VAT fraud and making wrongful VAT reclaims against HM Revenue & Customs.
The disqualifications are as a result of investigations by a specialist team of the Insolvency Service, following the winding up of Winnact Ltd, for debts owed to HM Revenue & Customs, for unpaid VAT.
The disqualifications mean that they cannot promote, manage, or be a director of a limited company until 2029.
Commenting on this case Paul Titherington, Official Receiver in the Public Interest Unit, said:
Winnact was 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 May and September 2006, Winnact Ltd, bought mobile phones in the UK and other EC Countries, made onward sales of 29.2 million to wholesalers in the UK and onward sales of 41.4 million to wholesalers in other EC countries and in Dubai. Winnact then filed monthly returns with HMRC reclaiming UK VAT monies that missing traders earlier in supply chains had failed to pay when due to HMRC.
This Missing Trader Intra-Community (MTIC) 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.
WInnact Ltd acted as a contratrader, in this MTIC fraud trading scheme. A contratrader plays the role of matching and offsetting input and output VAT from purchases and sales in different trading chains. This has the effect of moving and dissociating the role of making a wrongful reclaim to a broker into a separate clean chain from the default losses generated by an acquirer in a dirty chain. Winnact Ltd took part in a complex and orchestrated scheme whereby VAT returns were staggered by multiple contratraders over a period of time in order to hide the multimillion VAT default of a single trader.
The court heard that as the director with responsibility for all aspects of the companys trading, Waseem Saddique was involved in pricing decisions which ran against any commercial logic and could only be explained in terms of this fraudulent scheme.
The court heard that Winnact Ltd failed to conduct any VAT registration checks on its trading partners during the period of misconduct, despite receiving numerous warnings from HMRC about the need to do so.
The court concluded that Waseem Saddique was actively involved and his brother Ajaz either knew of the fraud or sat back and let Winnact involved itself. Either way he was plainly a danger to the public, and for the protection of the public both directors should be subject to the maximum period of disqualification.