Evading Avoidance

We have seen a few old faces and themes emerge overnight in the light of the surprisingly excellent Channel 4 exposé on Rangers. Annoyingly, an old myth has been repeated by some posters: “tax evasion is illegal, tax avoidance is legal”. Another one is that Rangers have not been accused of tax evasion- ergo they have not done anything illegal. This is absolute rubbish on both counts.

This is the sort of ill informed mythology that gets repeated by the idiots who told us Craig Whyte was buying Rangers for £33m. It is a bit like the story about Eskimos having lots of words for snow: just because a piece of untrue nonsense is repeated often does not change its central essence. It is still untrue nonsense.

So by way of a bit of a filler post while we are waiting on events to further unfold, we shall do a bit of revision for those who might have missed this first time around. The laws covering tax evasion and tax avoidance are identical. The only real difference is that in cases of tax evasion, such overwhelming evidence will exist that HMRC believes it can prove that the people involved planned to commit fraud. The perpetrators must also have known that what they were doing was criminal when they did it. (Our lawyers friends will provide a more precise definition, but this will be good enough for most purposes). This is a pretty difficult standard to achieve. In fact, it is so difficult to prove, criminal prosecutions for tax evasion are normally reserved for accountants and lawyers- people whose knowledge of tax law is easier to demonstrate. This explains why several high profile tax fraud cases, such as the recent one involving the canine pet of a football manager, ended in acquittals despite evidence that looked pretty impressive to the general public. In Scotland, this high hurdle is elevated further by the requirement for corroboration.

Tax avoidance can be illegal. It is a term used to describe tax schemes that simply will not be pursued in a criminal court. Some avoidance schemes are illegal, while others have been deemed to be legal if implemented correctly. HMRC even have a tax avoidance scheme registration plan (DOTAS). Tax payers can use DOTAS registered avoidance schemes and be sure that they will not be accused of criminality. Those who are deemed to have breached tax law through an illegal avoidance scheme are pursued through a civil process i.e. a tax tribunal- rather than a criminal court. This is where Rangers are. They are not accused of any criminal action at this point (and it is unlikely that they will), but they have been accused by HMRC of pursuing illegal tax avoidance practices. This resulted in them being sent tax assessments for underpayment, interest, and penalties. Rangers have appealed this determination by HMRC and the First Tier Tribunal (Tax) will decide whether to uphold Rangers’ appeal or not. The First Tier Tribunal will effectively rule on whether Rangers’ tax practices were legal or illegal.

You might wonder why criminal charges would not be pressed if someone was found to have shredded key documents in a tax investigation. Surely this would be criminal? Well, mibbees aye, mibbees naw.

It could be deemed criminal if you could prove that the person who requested the shredding was knowingly destroying a document to subvert an investigation by a government body. Proving this degree of intent will often be impossible. So, tax collectors will settle for collecting taxes- through the civil courts. In the tax tribunal process, interest payments and penalties are used to ensure that tax avoiders (that is ones deemed to have broken the law) do not gain an advantage by paying a smaller amount later. In cases, where there is the possibility of criminal behaviour by ‘minor cogs’ in the machine rather than the ‘big gear’, there would also be a reluctance to prosecute.

Is Channel 4’s report of document shredding relevant to Rangers’ tax cases? I do not know. That would be for Rangers FC and its former directors to comment.

There must be some kind of remedial teaching award available to anyone who is able to explain any of this to a Scottish sports journalist.

Not Long To Go

On Tuesday this coming week, this blog will celebrate its first birthday. Thanks to the assistance of so many informed and intelligent posters, this blog has played an outsized role in awakening a sleeping public to the crisis that would soon envelope Rangers Football Club. The arrival of the cavalry in the form of BBC Scotland and, latterly- the English media, means that this blog has achieved its central goal.

It was with particular satisfaction that I read the thoughts of Alex Thomson of Channel 4 on the Scottish media. In many ways, the actual implosion of Rangers has become a sideshow in this story. The enemy here is not Rangers FC or its fans, but the corruption of our national media. A free press is essential for the healthy functioning of any society and, to paint with a broad brush, Scotland does not have a healthy, functioning free press that can be trusted to challenge vested interests or investigate corruption.

Not all are tainted by this embarrassment. Mark Daly and BBC Scotland should be singled out for praise. While so many others copied & pasted our work on this blog (with only the editorial tone being changed), the BBC Scotland team conducted a real investigation of their own. I would like to think that the work done on this blog helped convince them that this story was worth some time, but they picked up where we left off and got to the bottom of issues where we amateurs only found strong suspicion. (Graham Spiers’ refreshingly honest admissions to Alex Thomson are also worthy of note, but he has not been as willing to discuss this subject as openly with his colleagues on Radio Clyde).

What is really startling is how few others did any work. The Daily Record is still being fed through the umbilical chord by former Rangers directors in the form of The Blue Knights consortium. They are bound to be a font of truth. Even now, the Daily “off-the-radar wealth, billionaire” Record acts as an agent for those wishing to blame Craig Whyte for all of Rangers’ troubles. These are the same people who presided over a decade plus of maladministration. The Scottish editions of The Sun and The Daily Mail have produced some good stories, but have failed to follow them up or shown much interest getting to the heart of it all.

It struck me as surreal that last Monday afternoon alone I spent more time talking with various English journalists than I have with all Scottish media outlets combined in the last year. Without the story of the corruption of the Scottish media, this would have been a parochial sports story of no more interest in London or Manchester than today’s Kilmarnock vs. Motherwell game.

The year long history of this blog should tell any objective reader that we have information on this story and know how to interpret it. Yet only one Scottish journalist has contacted me to discuss this case. Over a dozen journalists from outside Scotland were able to get in touch. That tells its own tale. The Scottish media- tabloid and broadsheet & sport and business- do not want to cover the biggest story in the history of Scottish football or the biggest Scottish business story since the Darien Disaster.

The recent attention garnered by Rangers’ long-predicted descent into crisis presents this blog with an existential crisis. When no one would publish the story, blogs were the best way to get the story out. As our first birthday beckons, there remains just two tasks before we wrap up this project:

– Stitch the whole story together in the form of a book
– Create a lasting online memorial to the failure of the Scottish sports media

The die is cast in the rest of this story. The First Tier Tribunal outcome will determine the size of Rangers’ debt to HMRC. HMRC will decide whether a pennies on the pound is better than nothing or whether they see dangers in Rangers being seen to have “gotten away with it”. The people who will decide these matters will know the facts and will likely have already decided how they will proceed. We have little to do here.

With contempt for the Scottish media beginning to spread far and wide, our work is nearly done.

Campbell Ogilvie: His responsibilities in his own words

Following on from Campbell Ogilvie’s pre-emptive puff piece with Tom English in Scotland on Sunday, I thought that a few extracts from Rangers’ 2001 Annual Report might help jog his memory. For it seems that our Campbell cannot remember what the duties of a company director are.

Ogilvie either was complicit in directing a tax scam or failed to execute his duty to take reasonable steps for the prevention and detection of fraud and other irregularities.  Tell us Mr. Ogilvie, what reasonable steps did you take? Did you consult an independent advisor? Did you raise any concerns with other directors? From today’s interview, it sounds like you did nothing.

Update:

In response to some poorly researched comments that claimed that Campbell Ogilvie was only Rangers’ company secretary and not a director, I attach data that should lay this issue to rest. While it is possible to be secretary and not a director, Ogilvie was both for several years. He was a director of Rangers FC when the EBT scheme started and did not stop being a Rangers director until 30 November 2005- 288b-Ogilvie-termination.

Illegal Use of EBTs & Other Issues

Correcting the constant stream of misinformation from the Scottish media has become a tiresome chore. However, in the face of repeated failures of print & radio journalists to check their facts, the task of setting the record straight falls on us: unpaid, amateurs working on a handful of blogs covering Scottish football.

“No one is accusing Rangers of doing anything illegal”
This “misstatement” was started by Rangers’ former chairman, Alastair Johnstone almost two years ago, and is said to have been repeated by Mike McGill of MIH this week. It is nonsense. Rangers have been accused of breaking UK tax law. They stand accused of pursuing an illegal tax strategy. It appears that some journalists lack the skills and/or work-ethic required to research the difference between criminal and civil proceedings.

No one is saying (or has said to the best of my knowledge) that Rangers are facing criminal charges. However, the First Tier Tribunal (Tax) on whose findings we are all waiting, will determine the legality of Rangers tax strategy. If the FTT(T) finds against Rangers, it will have deemed that the strategy used by Rangers for over a decade was indeed illegal. I struggle to believe that any hack is so stupid as to not understand this issue. One wonders if recent contact with Sir David Murray has dulled the investigative zeal of the five hand-picked journalists who were recently granted an audience. I could be wrong. Maybe they were just “duped”? Does this word mean “to have been misled voluntarily?”

Why are there no criminal proceedings?
As we saw with the Harry Rednapp trial, what appears to the general public as an open and shut case, can be very difficult to prove. Weeks of pouring over arcane legal details and endless pages of numbers would drive any jury to distraction. Bored jurors become prey to skilled advocates for the defence resorting to emotional arguments and playing on the likeability of the man in the dock. If it was Rangers on trial, it could be difficult to find a jury that would agree to convict regardless of the evidence presented. (The same might also be said of Celtic). In Rangers’ tax tribunal, three expert judges with extensive experience in tax law will decide.

Mens rea- presents a problem. This legal concept means that prosecutors would have to prove that Rangers, or any individual directors charged, were fully aware that what they were doing was criminal.  As we will see later, some individual actions do appear to be criminal in nature.  However, in Scots Law, we have an additional problem: corroboration. Individual pieces of evidence need to be supported by other submissions in criminal trials. In Scotland, it is difficult to both prove that someone intended to act illegally when breaking tax law and to have enough evidence to support corroboration. This means that criminal convictions for tax evasion are rare. The network of disreputable people who profit by taking advantage of distressed businesses- e.g. by pocketing their withheld tax- deliberately exploit this difficulty of obtain convictions. There is a certain poetic irony in Rangers’ situation- both beneficiary and victim of a flawed system.

Take these factors together and the decision to pursue Rangers through the civil court system will almost certainly be shown to be a wise one. But be in no doubt: Rangers have been accused of acting illegally.

Changing the subject entirely-

Why are Duff & Phelps going to court to get Ticketus deemed to be a creditor?
This issue has been butchered by our friends in the Scottish sports press as well. So I will try to undo some of the damage.
Ticketus believe that they have purchased £20m worth of heavily discounted Rangers tickets over the next four seasons. (The VAT that was not paid to HMRC would not count as Ticketus’ debt). No one in their right mind would want to buy a football club that is obligated to give away an average of 25,000 season tickets per year away to another company. (This would cut Rangers’ turnover in these years by almost half). It would be best for Rangers if this £20m is considered to be a debt. If it is a debt, Ticketus could be forced- under the right conditions- into a “cram down”.  In this situation, they would have to accept the same reduction in the value of debt as the other creditors.

When could a “cram down” happen? If more than 75% of the creditors agree to a reduction in the value of their debt, then all of the debt holders will have the amount they are due reduced proportionately. If Rangers’ total debt after FTT(T) result is returned exceeds £80m, and if Ticketus was treated as an unsecured creditor, they could no longer block a Company Voluntary Arrangement (CVA).

So what will happen? Without access to the executed version of the contract documents for the Ticketus deal, it is really impossible to say. It is hard to imagine a situation where you think you have bought an asset but had accidentally granted a loan. Yet, Rangers’ difficulties have thrown up many surprises. A few more can be expected. I would assume that Ticketus’ rights to the tickets will be upheld until we hear otherwise.

If Ticketus win their case, they would effectively control Rangers’ future. Owning over 100,000 tickets for a team that no longer exists will not do Ticketus any good however. So they will be inclined to push the other creditors for a CVA. However. they would be able to demand better terms for themselves than the creditors as their price of not liquidating Rangers. This reduces the incentives for the actual creditors to do a deal on any terms.
In a complicated game of Russian roulette, the various parties all understand that the debt level will greatly exceed any price that a buyer will pay. So Ticketus, Craig Whyte, and the unsecured creditors, such as HMRC, will play an elaborate game of bluff and bluster hoping to scare each other with threats of getting less (or nothing) in liquidation.

How will it end? My money is still on liquidation and a lengthy series of court battles that bleed Rangers FC dry in the meantime. Do not forget that Craig Whyte’s ominous silence is unlikely to mean that he has abandoned his floating charge.  However, only a fool would see any certainties in this mess.

It’s A Deal

In a move backed by the Treasury, a government source today announced that the taxpayer will fund a stadium made of gold (complete with hover-pitch) for Celtic Football Club.

See- I can do it too. I can publish fabricated nonsense. Can someone now send me an NUJ card?

It is a confusing business following events surrounding Rangers these days. Depending upon the agenda of the day, we are treated to stories designed to either terrify players into accepting reduced terms or to build confidence in ticket buyers and prospective investors.

The story this week that the Treasury is supporting an HMRC deal to write off all of Rangers’ debts to allow a CVA to go through shows that a nauseating mixture of naivety and cynicism is still pumping through the hearts of the Scottish media. Are they really so stupid to believe the same individuals who briefed them on behalf of Whyte? Those same people are still employed by Rangers but are now fabricating on behalf of their new bosses.
(How many “HMRC about to do a deal” stories have we heard from the media in the last year?)

An actual source close to the facts of this story described the latest wave of claims of about a Treasury sanctioned deal as “utter bollocks”.

There is no process for, and no history of, the Treasury involving itself in this type of discussion. Of course, the people who invented this story know that HMRC cannot comment. So, they hope to do a “Dave King” and make all sorts of claims about deals with the taxman in the belief that the stories will go unchallenged and eventually be accepted as fact.

Quite what HMRC will do after the FTT returns a result is anyone’s guess. My guess is that after mishandling deals with Goldman Sachs and Vodaphone, they will want to demonstrate that all tax bills must be paid- end of story.
They might offer time to pay (which is of no use to Rangers as the amounts are unpayable on any time scale), but I think that they will want the tax paid in full.

However, the idea that anyone is discussing a deal- and with the Treasury no less- a bill that has not been legally determined and with an unknown amount- is just stupid.

Any journalist who accepted the word of a PR company, especially one that has been proven wrong in almost its every utterance about this subject, without seeing documentary evidence is an idiot.