States around the world are trying to hunt tax evaders and controversy has erupted about use of stolen data. Rulings from previous cases suggest, however, that at least as far as the UK is concerned, there are precedents for courts to use illegally obtained material as evidence, writes Anthony Riem, of PCB Litigation.

States around the world are trying to hunt tax evaders and controversy has erupted about use of stolen data. Rulings from previous cases suggest, however, that at least as far as the UK is concerned, there are precedents for courts to use illegally obtained material as evidence.

Both the UK's Her Majesty's Revenue & Customs and the German tax authorities have bought bank records of a large number of individuals holding bank accounts at the LGT Bank in Lichtenstein. The UK authorities have reportedly paid £100,000 for the information and the German authorities have paid €5 million. It is alleged the records have been purchased from an ex-employee of the bank who is a convicted fraudster and who has also reportedly previously tried to blackmail the Liechtenstein government.

Liechtenstein is listed by the Organisation for Economic Co-operation and Development together with Andorra and Monaco as the only three tax havens on its blacklist of “uncooperative tax havens”.

It has been reported that about 100 accounts of UK individuals are being investigated. The UK taxman hopes to recover about £100 million of unpaid tax. Individuals in the UK face jail terms of up to seven years and a fine up to the amount tax that should have been paid if they are found guilty of tax evasion. In Germany, about 750 accounts are being probed. The head of the German Post Office as well as four politicians have already been questioned. In a new twist, Germany has offered to share the information it has bought with any other country for nothing and countries as far afield as the US and Australia have shown an interest in examining it.

How are the courts in England going to react if proceedings are issued using the stolen information? Recent rulings suggest that it will be possible for the English tax authorities to use information obtained from the Liechtenstein bank.

The reason why is that as long ago as 1861, the traditional English view was expressed by Crompton J in R v Leatham case, when it was stated that “it matters not how you get it if you steal it even, it would be admissible in evidence".  Therefore, it has been long held under English common law that evidence obtained by illegal means can be used in criminal cases.

This was again recognised more recently by the House of Lords in R v Khan, where Lord Nolan stated that “as a matter of English Law, evidence which is obtained improperly or even unlawfully remains admissible”. Apart from two exceptions in England, as a matter of law, illegally obtained information is admissible. The two exceptions are a reference to an admissible confession of guilt or the commission of an act of contempt of court.  Therefore as a general statement under common law the evidence obtained by HMRC is admissible in English courts.

The Police and Criminal Evidence Act (1984) has now clarified the position originally set out under English common law and now provides the judiciary with a statutory discretion. Section 78 of the Act says: “In any proceedings the court may refuse to allow evidence on which the prosecution proposes to rely to be given if it appears to the court that, having regard to all the circumstances, including the circumstances in which the evidence was obtained, the admission of the evidence would have such an adverse effect on the fairness of the proceedings that the court ought not to admit it.”

It seems unlikely that the judiciary would seek to use its discretion in any case brought relating to the stolen information. In R v Quinn, Lord Lane CJ stated: “The function of a judge is therefore to protect the fairness of the proceedings and normally proceedings are fair if a jury hears all relevant evidence which either side wishes to place before it, but proceedings may become unfair if, for example, one side is allowed to adduce relevant evidence which, for one reason or another the other side cannot properly challenge or meet, or where there has been an abuse of process, e.g. because evidence has been obtained in deliberate breach of procedures laid down in an official code of practice”.

Therefore the discretion to allow the use of illegally obtained evidence used by the courts previously under common law has been continued under the new statutory framework. For example in R v Christou evidence obtained when the police operated a jewellers shop to secure evidence of theft was admissible.

It appears highly likely that if and when HMRC act by using material that has been obtained from Liechtenstein, then the court will rule that the material is admissible even though it was allegedly obtained through illegal means.

There are other issues to consider in civil rather than criminal cases. Prior to the introduction of the Civil Procedure Rules, English courts had no discretion to exclude evidence on the grounds that it was unlawfully obtained in civil cases. However, since the introduction of the Civil Procedure Rules, the courts have had a general discretion to exclude evidence in civil proceedings.

Discretion is, however, to be used in a far different way to that in criminal cases. In particular, courts should ensure that the parties are on an equal footing and ensure cases are handled fairly. Therefore, the court has wide powers which it can use in considering if it should allow illegally obtained evidence to be used in civil proceedings.

In Jones v University of Warwick, for example, the Court of Appeal had to decide between two conflicting public interests – achieving justice in the present case and considering the effect in general of allowing the illegally obtained evidence to be used. In this case, the claimant claimed damages for personal injury from her employer for injury to her right hand. It was alleged she was suffering continuing disability.  An insurance company hired a private investigator to enter the Claimant’s house posing as a market researcher and used a hidden camera. The Court of Appeal held that the behaviour was not so outrageous that the evidence should not be allowed to be used.  This position was confirmed in another case.

There is a strong prospect that the civil courts would allow HMCR to make use of the illegally obtained evidence in civil proceedings. HMCR will be able to take steps against any individuals who are implicated through this evidence including obtaining freezing injunctions against the individuals’ assets either in the UK or worldwide and/or getting disclosure orders against third parties such as banks to trace the assets of any of the individuals. This is extremely important as given the current regime in Liechtenstein it is highly unlikely that the HMCR will be able to take any steps against any assets which still remain in the accounts identified in the records.

Data protection laws must be considered. It is a crime under the Data Protection Act (1998) to obtain personal data of another person without their consent. However, HMRC investigators are exempt from the Act’s provisions so they can detect criminal behaviour or carry out court orders.

Concerns remain that a number of countries will not take steps to reform their secrecy laws unless their competitiors do so at the same time.  One can hope that the pressure of this episode may help to break this circle and make the life of an international criminal even more difficult.