Civil Fraud Quarterly Round-Up: Q1 2021
There has been much debate over the past few years about the extent to which high net worth individuals have a right to keep their financial affairs private. This has been a particularly thorny issue in respect of alleged tax avoiders. It is a debate that is unlikely to go away any time soon.
The starting position is to look at Article 8 of the European Convention on Human Rights Act:
Article 8 – Right to respect for private and family life
Financial information is generally regarded as private but it will not always be so. It will depend on the nature of the information and the extent to which it goes beyond what is already in the public domain. Information that a wealthy person uses accountants to minimise tax, without giving any specifics, would arguably not be private because it is not sufficiently intimate, but information about specific agreements and investments probably would cross the line. Likewise, the fact that a person banks at a particular bank might not be private but his/her account details clearly would be (underlying data is also capable of protection under the Data Protection Act).
Whenever a person is seeking to exercise his or her right to privacy under Article 8, a balance also needs to be struck against Article 10 of the European Convention on Human Rights Act:
Article 10 – Freedom of expression
Therefore, when balancing Article 8 against Article 10 much will depend on the status of the high net worth individual and whether there is a legitimate public interest in the use of the financial information in question. The information ought to properly highlight the issue of public interest to the story, rather than merely adding sensation or colour to it. If it is already public knowledge or it is innocuous that will give extra protection to the party seeking to make use of the information.
Ingenious Media Holdings Plc v HMRC
This case recently went before the Court of Appeal and attracted a considerable amount of media interest. Ingenious Media is an investment and advisory group which, amongst other things, promoted film investment which allowed participants to take advantage of certain tax reliefs and exemptions. In 2012 the Times began investigating tax avoidance, which led to two of its journalists to invite the then Permanent Secretary for Tax at HMRC (David Hartnett), to an 'off the record' meeting. During the meeting the journalists suggested that HMRC had reached unduly lenient settlements with some taxpayers. Mr Hartnett denied this and gave as an example the way HMRC has dealt with certain individuals involved in film schemes, including Patrick McKenna, the CEO of Ingenious Media. Later in the conversation, Mr Hartnett referred to Mr McKenna in personal terms, saying that he was a "big risk" for HMRC, and went on to describe film schemes in general as "scams for scumbags".
This year, the Court of Appeal upheld the High Court's ruling against Ingenious Media in its judicial review application against HMRC for disclosing information to the Times. The Court of Appeal held that the disclosure did not breach section 18 of the Commissioners Revenue and Customs Act 2005, which allows HMRC to make a disclosure for the purposes of an HMRC function. It held that the section should be construed widely and a reasonable citizen would expect HMRC to disclose information that has the effect of raising the total tax revenue or reducing the effect of tax avoidance schemes that it genuinely considers are ineffective.
The Court of Appeal also held that Article 8 was not breached, finding that there was no answer to the High Court's ruling that it could not be said that the disclosures, which were to a very limited class of journalists and intended for them alone, would have an inevitable direct effect on Mr Mckenna's private life. The limited disclosure had no effect which was what Mr Hartnett expected on the faith of the ‘off the record’ assurance. Further, there was no damage to reputation and the Court of Appeal held that it was entirely in the public interest that HMRC should let the public know its views about these schemes.
HMRC were assisted by the fact that the disclosed information was created by HMRC (rather than provided by Ingenious Media or taxpayers) and concerned the activities of Ingenious Media as a promoter of schemes (rather than their individual tax affairs). Further, HMRC believed that the conversation with the Times was 'off the record' and it was unrealistic to draw a line between the promoters (of the schemes that HMRC were targeting) and Ingenious Media (the most well-known or only provider of the schemes).
In reality, the facts of this case favoured HMRC although there is in any event a feeling that tax avoiders (suspected or proven) generate little sympathy with the courts or the HMRC, and may therefore face an uphill battle from the outset. However, it is not difficult to see how a different outcome would have been reached had HMRC disclosed financial information that had been created by Ingenious Media or if the discussion had been about Mr McKenna's personal tax affairs. That information would, most probably, be private and protected by Article 8.
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