The Wayback Machine - https://web.archive.org/web/20071001051829/http://news.independent.co.uk/business/news/article2586539.ece

Law Lords slam crime agency for freezing UMBS payments

By Paul Lashmar

Published: 27 May 2007

The Serious Organised Crime Agency (Soca), the UK equivalent of the FBI, has been strongly criticised by Law Lords in the Court of Appeal for its "unlawful" action in freezing payments to a company that the organisation believed may have been involved in a VAT fraud.

In their judgement, Lord Justice Sedley, Lord Justice Hooper and Lord Justice Ward delivered a stinging rebuke to Soca and have granted the request by UMBS Online, an international money transfer company, for a judicial review. They said: "A feature of the way Soca operates is that it does not condescend to detail either in the reasoning for its decision or in disclosing the facts upon which it relies in coming to that decision. This is not a very satisfactory position."

Soca had frozen the UMBS transactions early this year on the suspicion they may be part of a VAT dodge known as "carousel fraud". No other action has been taken against UMBS or any of its clients in the case.

Carousel fraud, also known as missing trader fraud, occurs where fraudsters obtain VAT registration to acquire goods such as chips and mobile phones VAT-free from other EU states. They then sell on the goods at VAT inclusive prices and disappear without paying over the VAT paid by their customers to the tax authorities.

In this case, the judges' comments came as the Lords EU Committee raised concerns on Friday that legitimate businesses are being caught in Her Majesty's Revenue & Customs' (HMRC) clampdown on carousel fraud. They also said in the report that the huge resources used by HMRCto stop fraudulent VAT claims are "unsustainable".

The judgement in UMBS Online v Soca suggests Law Lords are worried about Soca's unprecedented powers,granted under the Proceeds of Crime Act.

"In setting up the Serious Organised Crime Agency, the state has set out to create an Alsatia - a region of executive action free of judicial oversight," said Lord Justice Sedley.

John Day of UMBS's lawyers, Mallets, said: "The Proceeds of Crime Act is a truly frightening and draconian piece of legislation where the rights of the individual come a distant second to those of the state. In my view, Parliament urgently needs to look again at this piece of legislation."

A spokesman for Soca said: "Soca is accountable to Parliament through the Home Secretary and accountable in the normal way to the National Audit Office, Her Majesty's Inspectorate of Constabulary and the Independent Police Complaints Commission."

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