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05.10.2017 01:49 Age: 2 days

UK: Undisclosed grounds for suspicion were sufficient to grant HMRC search warrant

The England and Wales High Court has upheld warrants used by HMRC to search the premises of Newcastle United Football Club for evidence of tax evasion.

The searches took place on 26 April 2017, when 180 HMRC officials raided both Newcastle United's St James' Park premises and the London club West Ham United, on suspicion of a GBP5 million disguised remuneration fraud linked to player transfers. Newcastle Managing Director Lee Charnley was arrested and had his home searched, but was later released without charge. The warrants authorised access to eight other premises connected with football agents and players associated with NUFC, but there is no challenge in relation to HMRC's access to those premises.

HMRC's investigation concerned payments allegedly made by the clubs to football agents purporting to act for it, but which were said to be secretly transferred to intermediate and ultimate recipients to benefit the player or his agent. Such payments, if they existed, would be a taxable benefit in kind, but HMRC suspected the arrangements were structured to disguise the nature of the fees and their recipients, so as to avoid the tax liabilities.

Some of the players concerned were French residents, so the French authorities were also involved. They executed ten searches and arrested four people in France pursuant to a mutual assistance request made by the UK.

On 22 June, Newcastle obtained permission to bring a judicial review application regarding HMRC's actions, collectively known as Operation Loom. The club alleged that the warrants, obtained under the Police and Criminal Evidence Act (PACE) 1984, were excessively wide, and that the due legal procedures to obtain them were not followed, with no proper reasons being given. It was common ground that HMRC did not disclose its evidence to the circuit judge who issued the warrants.

The judicial review hearings were held in July, and HMRC was temporarily forbidden to examine the seized material, which included mobile phones, until a decision was issued.

The England and Wales High Court has now issued its ruling, in HMRC's favour - even though it was confirmed that the judge who issued the warrant was given only 45 minutes to read the application, and was not presented with the full evidence backing HMRC's theories of a sham contractual arrangement. Nor did he give any written reasons for his decision to issue the warrant. Moreover, HMRC's representative admitted that he had not tried to obtain the material sought in any other way.

But Beatson LJ and Whipple J said HMRC's case was 'materially correct', and were satisfied that HMRC's undisclosed evidence 'provided reasonable grounds for the belief that NUFC was engaged in criminality'. Reasonable grounds for belief did not mean any criminal offence had in fact been committed, they said. The lack of written reasons for granting the warrant was unfortunate but not fatal; the reasons could be inferred from HMRC's own submission.

'We reject the argument that HMRC should have disclosed to the judge the evidence on which it asserted its belief that NUFC was involved in criminal activity ... In the event, we are satisfied that, despite an inadequate time estimate, the judge's reading adequately prepared him for the hearing. The inadequate time estimate did not, in the end, make any difference', said the High Court, dismissing Newcastle United's application ( Newcastle United Football Club v HMRC, 2017 EWHC 2402 Admin).

HMRC said its investigation into the suspected fraud will continue.


UK: Undisclosed grounds for suspicion were sufficient to grant HMRC search warrant