Fraudsters that cost taxpayers £40m
· Musician among gang guilty of cheating on VAT · Simple scams cream £1.7bn a year from UK plcIan Cobain Thursday October 27, 2005 The Guardian
In 1987 Steve Pigott co-wrote Living in a Box, a pop-funk song that reached No 5 in the singles charts. "Woke up this morning, closed in on both sides," he wrote. "Life goes in circles, around and around."
This morning Pigott will have plenty of time to contemplate the irony of those lyrics as he sits in a box of sorts, in HMP Elmley, a category C prison on the Isle of Sheppey. He has years of imprisonment ahead, during which he will have little to do but reflect on the way his life, or at least his crimes, went around and around.
Until a few months ago Pigott's reputation revolved around his successful career as a musician. He had worked with the likes of Rod Stewart, Mike and the Mechanics and Celine Dion, and had a string of song-writing awards to his name.
Then he was drawn into a new genre of deception, committing a fraud on a breathtaking scale with his gang of accomplices. It is a scam in which the victim is UK plc. And the practice of it has become so widespread it is distorting the balance of trade figures.
Pigott became a carousel fraudster: a simple crime which involves moving products around and around to swindle the taxman. Under the scam, Revenue & Customs are tricked into sending VAT refunds to companies that are not entitled to them. The fraudsters buy and sell small but expensive goods, such as mobile phones or computer chips, passing them between a series of companies around the EU which they secretly control. Each time one of the companies buys the goods, they claim back the 17.5% VAT. Each time they sell the goods they charge the value of the goods plus 17.5%, but then fail to pay the VAT they owe.
The goods often move in a circle, hence the name carousel fraud. And the rewards can be enormous. With just one consignment worth £500,000, a gang controlling a dozen companies could pocket more than £1m with each turn of the carousel. By the time the authorities realise what is happening, the fraudsters have vanished.
This practice is said to rob the British taxpayer of up to £1.7bn a year - and it is not confined to Britain. There is evidence that carousel fraud has financed drug trafficking, arms deals, even terrorism. Last year the European Federation of Accountants warned that the fraud cost EU countries around £70bn a year - "effectively the VAT take for France".
Pigott's swindle was just one small example. He was joined by three others with CVs just as distinguished as his own. Stacey Hofberg was a highly regarded former judge from New York, living with her English husband and their three young children in Liphook, Hampshire. Joanne Harris was a personal fitness trainer whose south London clients were prepared to pay £80 an hour for her time. Theresa Igbanugo was a pioneering music entrepreneur, talent-spotting young acts.
In just one fraud, Pigott and co conned Revenue & Customs into handing over more than £40m before the Duty Men came knocking in February last year. Last month they were found guilty of cheating the public revenue with intent to defraud as well as money laundering. Hofberg, 43, was jailed for six years while Harris, 36, and Igbanugo, 40, each got 3½ years. Pigott, 42, pleaded guilty to both charges and was jailed for eight years.
The judge told them their crimes had been "audacious and outrageous", and that all four had "displayed at times dishonesty which was quite shameless".
It was music, rather than crime, that brought the four together. On emigrating to England six years ago, Hofberg had found work with an entertainment law firm whose clients included an associate of Pigott - a keyboard player, who, in turn, had dealings with a record label set up by Igbanugo and Harris. Despite his previous successes, Pigott was finding work, and money, difficult to come by.
Over the next two years they discovered the ease with which organised criminals can bleed vast amounts from the country's coffers. Their fraud was imprinted with several classic carousel hallmarks. One was the use of false identities. Employing a trick lifted from the Frederick Forsyth novel The Day of the Jackal, Pigott got a passport in the name of David Roy Chapman after finding the name on a child's gravestone in a churchyard near his birthplace in Yorkshire. The child, a copy of whose birth certificate he obtained, would have been Pigott's age had he lived. Then there was the high living: as they flew around the world, some members stayed in the best hotels, supped the finest wines and dressed impeccably. Several top-of-the-range cars were parked outside their homes.
In a brazen piece of chutzpah, they used clones of legitimate firms, flying to Hong Kong where they set up a dozen companies, each with names and letter-heads identical to British firms dealing legitimately in telephones and computer chips. The carousel was whirling.
A final feature, one seen in many carousel cases, was that the suspected Mr Big behind the fraud got away scot free.
This person was John Andrew Shaw, 52, a businessman and father of two from Sheffield. Revenue & Customs has compiled a 67-page dossier on him, in which he is given the codename Z111. Another codename, Mauve
111, is given to his former home, a converted farmhouse in a South Yorkshire village. The dossier outlines a series of suspicious transactions via banks in Dublin, Hong Kong, Ghana and the Isle of Man, which investigators believe show traces of profit laundering.Pigott refused to identify Shaw, saying the fraud had been organised by a man he knew as Matt, whom he had "met in a bar". When he tried to withdraw from the fraud, he said, "Matt" threatened his children. Pigott's wife, Helene, says she too was menaced near their home in Sheffield by a man who told her to make sure her husband did "the right thing".
In court, the prosecution said neither Pigott nor his co-defendants had dreamed up the carousel fraud, and that others had pocketed most of the proceeds. Pigott's counsel said that the musician "was clearly under the direction of Shaw and clearly taking instructions from Shaw". Hofberg's QC said that she too had "named Shaw as the person that was directing others". The court also heard that the four defendants may have formed only one of a number of teams being directed by the carousel masterminds.
The court heard that Shaw was under investigation, but that they had been unable to arrest him. He is said to be living in Dubai, which shows no interest in extraditing carousel fraudsters.
Meanwhile, in Sydenham, south London, the luxury cars have gone from outside the house Harris and Igbanugo once rented. In Liphook, Hofberg's ex-husband David talks about how their marriage collapsed under the strain. Their home, Robin Cottage, may now be seized.
In Sheffield, Helene Pigott says she is waiting for the day she and her daughters, six and 12, may be forced to leave their Victorian mansion. She asks that you keep your voice down, because her children do not know the full details of what their father did. When the conversation is interrupted by the ringing of the phone, it is usually a call from somebody chasing her husband's credit card debts. "I tell them to join the queue," she says.