Frequently asked questions

This area of the Central Fraud Division (CFD) section of the website provides answers to questions we are frequently asked about our work. Click on the questions below you would like the answers to.

• Who decides whether to prosecute a case or not?
• What is disclosure?
• What is a missing trader intra-community (MTIC) or 'carousel' fraud?
• Why is missing trader intra-community (MTIC) fraud particularly difficult to prosecute?
• What is a confiscation order?
• How is the amount of the confiscation order calculated?
• Who makes sure an offender pays his confiscation order?
• What is a default sentence?
• What is a restraint order?
• In what circumstances can a restraint order be made?
• Who makes a restraint order?
• What do receivers do?
• Whose decision is it to appoint a receiver?

Who decides whether to prosecute?

Our lawyers decide whether to prosecute or not. To make this decision, they use the Code for Crown Prosecutors. This involves being able to answer the following two questions positively before proceeding to prosecute.

1. Is there enough evidence to provide a realistic prospect of conviction against each defendant on each charge?
2. Is a prosecution in the public interest?

What is disclosure?

Disclosure is the duty placed on prosecutors to disclose to the defence any material they hold that either undermines the prosecution or assists the defence. This does not mean that all the material available to the prosecutor has to be given to the defence, but that each item has to be assessed and a decision made as to whether it is relevant or not.

What is a missing trader intra-community (MTIC) or 'carousel' fraud?

Missing trader intra-community (MTIC) fraud is a VAT fraud that exploits the fact that the movement of goods between EU member states is free of VAT.

At its simplest, MTIC fraud involves importing into the UK low bulk, high value goods, such as mobile phones or computer chips, from a supplier in another EU state free of VAT. They are then sold to another UK company and VAT is charged on the sale in the usual way. Instead of the company that sells the goods within the UK paying the VAT charged on the sale to Her Majesty's Revenue and Customs (HMRC), they disappear - hence the term 'missing trader'. The 'missing trader' tends to operate for a short period of intensive trading in an effort to avoid preventive action, before disappearing.

There are variants of this form of fraud. One involves traders who simply default on the payment of VAT that is owed (called 'defaulting traders'), and another involves hijacking the VAT registration numbers of legitimate companies.

Thereafter, there are normally several other companies ('buffers') forming a chain of sales transactions that give the appearance of legitimate trading. Eventually, at the end of the chain, the goods are sold by an exporting company back to a purchaser outside the UK. That transaction is VAT free. In a 'carousel' fraud, the UK exporter is the same company that originally imported the goods.

The company that finally sells and exports the goods to the EU is able to claim a repayment of the VAT that they paid when they purchased the goods from another UK company. However, due to the 'missing trader', HMRC will not have been paid the VAT due on the original sale of the goods following their importation.

The same goods often go round the 'carousel' a number of times without even moving their physical location. In some instances, goods will be falsely described or don't exist at all.

This fraud results in the loss of hundreds of millions of pounds in VAT revenue.

Why is missing trader intra-community (MTIC) fraud particularly difficult to prosecute?

Missing trader intra-community (MTIC) fraud poses some very particular challenges to the prosecutor. These challenges include:

• long and complex investigations
• trials involving multiple defendants
• vast amounts of potentially relevant material held by Her Majesty's Revenue and Customs, much of which has to be sifted by investigators in order to comply with their responsibilities with regard to the disclosure of evidence
• the same companies featuring in several cases simultaneously, creating obvious overlaps and cross-disclosure issues
• cases relying on documentation, produced by companies that are themselves suspect, to prove transactions
• the most common defence being that the individual being prosecuted was an innocent businessman used by others - this is often accompanied by requests for disclosure of any material that points to the knowledge of the fraud by any of those companies involved in that defendant's trading chains
• evidence being required often from foreign jurisdictions where arrangements for mutual legal assistance can be less developed
• chains of fraud and the justification for VAT reclaims being knowingly built and backed by advice from financial and legal professionals.

MTIC fraud affects almost every jurisdiction in the EU, and we are in regular contact with our European colleagues to share experience and practice.

What is a confiscation order?

It is an ancillary order handed down to an offender that is designed to ensure the offender does not keep the money they acquired through their crimes.

How is the amount of the confiscation order calculated?

The judge sets the amount of the confiscation order by assessing the extent to which the offender benefited from their crime, unless the offender is able to persuade the judge that they do not have the means to pay back the total amount they benefited. In this situation, the judge will set the confiscation order at the amount the offender is able to pay.

Who makes sure an offender pays his confiscation order?

The CPS has a specialist enforcement team whose job it is to ensure that confiscation orders made in our cases are paid.

What is a default sentence?

A default sentence is the name given to the term of imprisonment an offender must serve if they fail to pay their confiscation order. The length of the sentence is fixed by the crown court judge who makes the confiscation order.

If an offender fails to pay their confiscation order, it is the magistrates' court that considers why this has happened and whether to order that the offender should serve the term of imprisonment set as the default sentence.

What is a restraint order?

It is a court order that prevents the person subject to it from disposing of their assets so that they would be unable to pay a confiscation order.

In what circumstances can a restraint order be made?

A restraint order can only be made where the prosecutor has established that there is reasonable cause to believe that the person concerned has benefited from crime and, unless the order is made, will dissipate their assets.

In cases that predate the Proceeds of Crime Act 2002, orders can only be made if criminal proceedings against a defendant have started or are imminent. Under the Proceeds of Crime Act 2002, restraint orders can be made if a criminal investigation has started.

Who makes a restraint order?

The law that applies here depends on when the alleged crime was committed.

If it was on or before 23 March 2003, then (depending on the type of crime the case is concerned with) either the Drug Trafficking Act 1994 or the Criminal Justice Act 1988 apply. In either case, a high court judge must make the order.

If the alleged crime took place on or after 24 March 2003, then the Proceeds of Crime Act 2002 applies and it is a crown court judge who must make the order.

Hearings on restraint orders always take place in private.

What do receivers do?

There are two types of receiver: management receivers and enforcement receivers.

Management receivers can be appointed only where a restraint order has been made. Their job is to manage or preserve the defendant's property, where a restraint order alone will not be enough to achieve this. A typical case where a management receiver might be appointed would be where a business or company under the control of the defendant may need close supervision.

Enforcement receivers are appointed after a confiscation order has been made, and their job is to arrange the sale of the offender's assets so that a confiscation order can be paid.

Whose decision is it to appoint a receiver?

The prosecutor asks the court to appoint receivers. If the case predates the Proceeds of Crime Act 2002, the decision is made by a high court judge. If the Proceeds of Crime Act 2002 applies, then the decision is made by a crown court judge.

Once appointed, the receiver is an independent officer of the court.