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Mobile phone trader given 14 year bankruptcy restriction for participating in £multi-million VAT fraud

Rafiuddin Ismail also known as Rafiuddin Ahmed Ismail, unemployed of Nuneaton, Warwickshire has received a 14 year bankruptcy restriction for being involved in a scheme linked to VAT fraud and for submitting wrongful VAT reclaims to HM Revenue & Customs (HMRC).

Mr Ismail’s restriction, from 4 March, follows an investigation by a specialist team of the Insolvency Service which commenced on the making of the bankruptcy order on 19 March 2014, following a petition presented by HMRC.

Mr Ismail, 42, was a wholesaler of mobile telephones and other electronic items trading under the name Swiss Gulf.

The investigation uncovered that between 13 March 2006 and 27 June 2006, Mr Ismail purchased goods in the UK and made onward sales of over £74m to wholesalers in the EU. Mr Ismail then filed VAT returns attempting to reclaim VAT in excess of £12.7m. This amount was disallowed by HMRC as ’missing traders’ earlier in the supply chains had failed to pay VAT when due.

Mr Ismail acted as a broker in this Missing Trader Intra-Community (MTIC) VAT fraud scheme. A broker exports the goods to another EU member state. In the normal course of trading as a result of selling goods to another member state, Mr Ismail would have been entitled to zero-rate his sales and reclaim the VAT paid on his purchases. However, in this case all of Mr Ismail’s transactions were traced back to traders who had defaulted on their VAT payments to HMRC, resulting in tax losses circa £12m.

There were significant aspects of Mr Ismail’s wholesale trading which bore the hallmarks of MTIC VAT fraud. These included:

* all of the deals in question were traced back to tax losses
* all of the deals were back to back with no holding of stock
* there were no written contracts with Mr Ismail’s trading partners
* lack of adequate insurance for the goods being exported
* the mobile telephones were not made to UK specifications, yet they were being traded in the UK
* the other electronic goods that were traded contained English manuals, yet they were sold to customers in countries where English was not the first language
* Mr Ismail, his suppliers and his customers, all held accounts with the First Curaçao International Bank (“FCIB”), located in the Netherlands Antilles. On 9 October 2006, FCIB accounts were frozen by the Central Bank of the Netherlands on the suspicion that FCIB had aided financial fraud.

Mr Ismail also failed to conduct adequate VAT registration checks and other due diligence on his trading partners despite receiving numerous warnings from HMRC about the need to do so. The due diligence conducted was insufficient to protect him from becoming involved in transaction chains tainted with MTIC VAT fraud.

Commenting on this case Ken Beasley, Official Receiver of the Public Interest Unit (North), said:

This was an attempt at a sophisticated and lucrative attack on the public purse which could have caused considerable losses to HM Revenue and Customs.

Mr Ismail’s lengthy restriction reflects the severity of the misconduct perpetrated.

MTIC VAT fraud is commonly known as ‘Carousel’ fraud. Large consignments of high value, low bulk and electronic goods such as mobile telephones and computer components are invoiced rapidly and repeatedly around trading chains, with actual movement of goods only taking place as they enter or exit the UK. The imported goods may be sold from one trader to another, and eventually exported. When this happens, the exporter can claim back from HMRC the whole of the VAT that should have been paid on the goods (as exports are zero-rated). However, if there is a ‘missing trader’ further back in the chain of sales, part of this VAT was never paid in the first place. Hence, there is a loss to HMRC. This process can repeat many times, with the goods going round in a ‘carousel’.

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