4 YEARS JAIL FOR £16.5 MILLION PENSION FRAUDSTER

26 Apr 2004 05:15 PM

49 year old Tax Consultant and father of four, Anil Kumar of The Broadway, Letchworth, Hertfordshire is today beginning a four year prison sentence for cheating the public revenue. The charge related to a scheme (The Stax Scheme) that was marketed as allowing clients to gain access to funds "locked" in Occupational and other Pension Schemes.

The Stax scheme for obtaining cash from pension funds was used by 96 clients. The total amount of the transfer values was 16,553,550. The Stax scheme was advertised as enabling clients to access monies 'locked' in tax approved pension schemes. Approved Pension Schemes are operated by employers and other providers and are intended to provide long term benefits after retirement. Pension funds receive tax-free contributions from the member, and sometimes the employer. In addition income and gains of the fund are not liable to tax.

Following information received from the Occupational Pensions Regulatory Authority (Opra), Inland Revenue investigations led to the successful prosecution. Stax was a partnership of Anil Kumar and Peter Rumball, which operated from late 1997 until 2000. Peter Rumball, who was named alongside Kumar, left the UK to go to the Philippines in 2001. A warrant for his arrest is outstanding.

The scheme involved obtaining transfer payments from clients' pension funds to the Pension Funds of companies controlled by Stax. These Pension funds then bought "E U annuities" on behalf of the clients. The Clients were then able to obtain loans, which would never, in practice, be repaid from the Annuity issuer. In a later development the money was transferred to Jersey based trusts for the benefit of the client's family.

The later development of the scheme used a Swedish Sparkassa, something like a Credit Union, as the annuity provider. Evidence in the case showed Anil Kumar had purchased this Sparkassa for 10,000 which he paid in cash in 1998.

This dishonest scheme earned its promoters more than 2 million in fees charged to clients and proceedings will be taken to confiscate as much of this as can be traced.

In passing sentence, Judge Byers remarked:

" It is often said that this type of crime is a victimless crime but those who indulge in this type of dishonest activity steal from every citizen in the UK. Those who were persuaded to use the scheme paid fees and many now face liability to Income Tax on the sums transferred."

The tax loss as a result of this scheme is 5.5 million.

Anybody who is tempted to use a scheme that offers savings and access that seem too good to be true should be very cautious. Any adviser should be especially cautious before recommending such a scheme to his clients.

Inland Revenue Investigator Peter James commented:

"The Inland Revenue will continue to seek to prosecute those who promote dishonest schemes for the evasion of tax. Where appropriate we will seek a custodial sentence along with repayment of the tax loss. The sentencing reflects the severity of the offence and brings our investigation to a successful conclusion."

There are specific rules in Income Tax legislation charging to tax monies obtained from pension funds other than as approved benefits (broadly those that may be taken on retirement).

In his summing up, the Judge gave special praise to the investigating officer for his encyclopedic knowledge of the case. He commended Peter James for his excellent work and the clarity of the presentation of the facts.

DETAILS

1. The Inland Revenue Audit and Pensions Schemes Services Helpline, 0115 974 1600 is
available to deal with enquiries and concerns about proposals to access pension funds
may be referred to that number.

2. Individuals contribute to an Occupational Pension Scheme whilst in employment, additional contributions are made by the Inland Revenue. The fund is held and invested by the fund holder with a view to providing benefits after retirement (depending on the rules ICTA 591 onwards). In certain circumstances (usually after aged 55 ) a 'draw down' of a proportion of the fund can be taken. Under no circumstances can the whole of the fund be made available to the employee - punitive tax charges will apply.

3. Freedom of financial investment means that the taxpayer can elect to move his
accumulated fund between Pension Schemes Office approved companies. 4. Opra is the independent UK regulator of work-based pension schemes. Established on 1 April 1996 by the Pensions Act 1995, Opra became operational on 6 April 1997. Its primary role is to look into breaches of the Pensions Act 1995 and related legislation. Opra has the power to investigate pensions schemes considered to be at risk. It also has the power to work together with other regulators and government departments such as the Inland Revenue, in providing information where that information would enable the regulator to carry out its duties.

Opra's leaflet 'Don't Risk Losing your Pension' highlights the risks of pension liberation schemes to trustees and scheme members and is available on www.opra.gov.uk or ordered from the Opra helpline on 01273 627600.

www.inlandrevenue.gov.uk

Inland Revenue
Press Office
Room G7
New Wing
Somerset House
London WC2R 1LB
Non-media enquiries: your own tax office
Web: www.inlandrevenue.gov.uk