Chahal & Anor v R

In a criminal-lifestyle confiscation case, fraudulently obtained VAT input credits and repayments are a pecuniary advantage and form part of benefit under the Proceeds of Crime Act 2002. Benefit is not confined to net profit, the victim’s loss, or the conspirators’ ultimate gain. A defendant cannot deduct amounts used to finance later sham transactions in the same fraud.

The statutory assumptions are not seriously unjust merely because the fraudulent credits or payments were passed onwards within the scheme. Where those assumptions are properly applied in a lifestyle case, an order will ordinarily be proportionate under Article 1 of Protocol 1. Repeated sham claims which produced real credits against tax liabilities or real payments justified confiscation without further reduction.

The appellants were convicted of conspiracy to cheat the public revenue through a missing trader intra-community VAT fraud. Their companies acted as buffer companies in chains of purported mobile-telephone transactions. They claimed input VAT, received repayments or credits from HMRC, and used the funds in further sham transactions.

Following confiscation proceedings at Birmingham Crown Court, HH Judge Mayo held that each appellant had a criminal lifestyle. He assessed benefit by reference to the fraudulent input-tax claims rather than the scheme’s total turnover or the exporters’ final claims. The appellants appealed only against the confiscation orders.

The central issue was whether benefit should be limited to HMRC’s ultimate loss or the conspirators’ net gain, and whether the higher assessment was unjust or disproportionate.

1. The appeals were dismissed. The judge was entitled to assess benefit by the total fraudulent input VAT credits and repayments received by the appellants’ buffer companies.
2. Under sections 76(4) and 76(5) of the Proceeds of Crime Act 2002, a person benefits by obtaining property or a pecuniary advantage as a result of or in connection with criminal conduct. Each successful input-tax claim produced either a real credit against an existing output-tax liability or a real payment into a company account. That was benefit, notwithstanding that the funds were used to continue the carousel fraud.
3. The confiscation exercise does not calculate accounting profit or compensate the victim’s loss. It does not permit an offender to set off the expenses of crime. The court followed the approach in Waya [2012] UKSC 51 and endorsed the analogous reasoning in Sangha [2008] EWCA Crim 2562.
4. Section 10(6)(b) did not create a serious risk of injustice. The appellants knowingly made fraudulent claims and chose to pass the resulting credits or payments along the chain. That choice could not make it unjust to treat the advantages as criminal benefit. The court held that Ahmad [2012] EWCA Crim 391 could not support an exclusion of expenses where the circulating funds had themselves been generated by the fraud.
5. Article 1 of Protocol 1 required no reduction. Unlike Waya, this was a lifestyle case involving repeated bogus claims and sums with a wholly criminal provenance. Proper application of the section 10 assumptions will only exceptionally produce a disproportionate result. The orders therefore bore a proportionate relationship to the statutory purpose of removing the proceeds of crime.

• Court of Appeal (Criminal Division) — dismissed the appellants’ challenges to the confiscation orders: [2015] EWCA Crim 816.
• Birmingham Crown Court — HH Judge Mayo held that both appellants had a criminal lifestyle and made confiscation orders after assessing benefit by the fraudulent input-tax claims.