An Interview with HM Revenue and Customs on the UK’s New Tax Whistleblower Reward Scheme

Benjamin Calitri: So how long have you been in this role?

Richard McConaughey: I’ve been in this role around about four years, and I have a deep expertise in tax fraud from an investigation perspective, but now moving more into the intelligence field, which is why I’m leading the Scheme.

Motivation for Program [01:20]

Benjamin Calitri: What was the impetus for starting and implementing this Strengthened Reward Scheme?

Richard McConaughey: So ultimately the government priority is to close the tax gap. That money is needed to fund vital public services. And there is a need to make sure that that tax gap is as small as possible. So with that in mind, we set up the new Scheme, which deliberately targets that more top end tax fraud in terms of corporate wealthy offshore and avoidance tax problems.

Prior Scheme [01:48]

Benjamin Calitri: So I know that there was a system in place prior to the Strengthened Reward Scheme. So can you tell us a little bit about this prior scheme, what were the shortcomings from that, and were there any notable successes that came from it?

Richard McConaughey: Sure. So paying rewards is not new for HMRC. We’ve been doing it for many years and we’re very successful at it. And the old team was particularly focused on driving sort of intelligence from an excise fraud perspective, more commodity driven. And whereas the focus in terms of that high end tax avoidance just weren’t procuring the intelligence for that kind of risk. The thinking is, that when somebody comes through with that kind of intelligence, it’s at high personal risk to them. The compromise that they’re going to perhaps face in the future, maybe on their business, in their private lives, simply wouldn’t correlate under the old scheme. So that’s why we felt there was an opportunity to expand into the new Scheme, where we recognize the risk to individuals coming forward to report.

New Scheme [02:51]

Benjamin Calitri: So what are those changes that you’ve made with the new Scheme? What’s changed from the old scheme to the new Scheme?

Richard McConaughey: So the new Scheme is very deliberately focused on the types of fraud that we are interested in. Now, of course, I know that people want to know, what exactly are you interested in?

Benjamin Calitri: Yes, very much.

Richard McConaughey: The response is tax fraud is complicated. So we are interested in any tax fraud that looks like it impacts HMRC primarily from those receptors of high-net-worth, international and corporate and avoidance. And the thing for us is we recognize this can be complex and confusing. So we encourage those reporting to come in and have a conversation with us. We will help steer the reportees through the process, whether we think the intelligence they have is relevant and will meet the strategic aims of the new process. The other bit that is different is we’ve set a de minimis. We need to be making sure that we are focusing our resources on the highest harm frauds. So therefore, that’s why we set the de minimis as 1.5 million pounds of tax at risk as a minimum.

Examples of Tax Evasion [04:12]

Benjamin Calitri: Richard, so what are some examples of this type of tax evasion that you’re really trying to focus on with this Scheme.

Richard McConaughey: So to give a few examples, quite often it’s about how people are going to bury their money, disguise its origin and its location around the globe. Quite often conventional investigation tools won’t get us to that really key point of X amount of hundred millions of pounds are in a an offshore bank account in this high risk jurisdiction. So that’s an example. The other thing is perhaps profit manipulation. So you know the world is truly global, people can move their profits reporting around the globe to protect and potentially minimize their tax exposure. Now whether that’s fraud or not, the facts would be dependent. But those are the kind of things where ultimately the international platform is being used to disguise wealth and minimize tax exposure.

Benjamin Calitri: This is something that a lot of early criminologists actually looked at, white-collar crime as some of the most hidden and most difficult to find, especially when it’s across borders, because there’s limitations for investigators on what they can go find. Whistleblowers don’t have borders. Whistleblowers don’t have those types of limitations. And that’s one of the greatest parts about starting these types of schemes.

Deterrence as Goal [05:54]

Richard McConaughey: The other thing I think is really important to the center of the Scheme’s success. So we’ve constantly tried to very much on individual cases being reported, us investigating it and recovering tax that’s been lost to the Exchequer. The other important aspect of our Scheme, and a measure of success is actually deterring the losses occurring in the first place. If we can correct that sort of approach to the UK tax system, where actually it’s not okay to avoid paying taxes and people think twice about doing it, because there is a fear that they may be sort of exposed by virtue of an informant, and that prevents them from doing it, then I think that is as much of a success as is paying out a reward.

Information Outside of Scheme [06:38]

Benjamin Calitri: So what happens to information that comes in that falls outside of the Scheme? You define [what qualifies for the Scheme] as serious tax avoidance or evasion. What happens to what you determine isn’t serious tax evasion?

Richard McConaughey: So we really welcome any insight from the public or professional advisers about how the UK tax system is being attacked. If it doesn’t fall in line with the new Reward Scheme, we’ve still got the existing reward scheme that is still available for people. So if it fits that profile, we will enter them into that. And equally, some people don’t want a reward for the information they want to provide us. They’re just really happy to help the tax system be as healthy as possible. And we will take that information and it will help us understand and improve our risk assessment processes.

Steps for Whistleblowers Using Scheme [07:24]

Benjamin Calitri: Can you walk us through the steps that a whistleblower or informer who wants to use the Strengthened Reward Scheme would go through when they’re providing information to this program?

Richard McConaughey: So the first thing is that my team is available and will strike up a relationship with the individuals. The first thing I must stress is the importance of confidentiality. This Scheme relies on trust that people are going to share with us some really intrusive intelligence information, very sensitive. So they know that we are on hand to help and carefully debrief them so that we can understand quite quickly whether what they’re telling us makes the brief for HMRC.

Benjamin Calitri: So you’re going to give them advice on how to protect their own confidentiality, whether they should continue providing information, and if it’s worthwhile to do so.

Richard McConaughey: We have a duty of care to anyone that reports tax fraud to HMRC, and we take it very seriously. And we have been doing this for a long time. So we are experienced in handling informants. We will be very clear about the protections that we can afford to them, but equally will also be clear that in some instances, the judiciary may decide that the revelation of what we’re being told will need to be made available in court of law. Now, there are all kinds of protections around that, but we need to be upfront and transparent when looking into the new Scheme.

Benjamin Calitri: Yes, that is unavoidable whenever you’re reporting information that could lead to a criminal indictment.

Duty of Care [09:06]

Benjamin Calitri: Can you explain the duty of care?

Richard McConaughey: The duty of care is actually about its founding trust. We are independently regulated when someone reports human intelligence interaction to HMRC, there is a code of conduct that we need to follow religiously, to make sure that the identity and the protection of the individual is at the forefront of our minds.

Anonymity [09:31]

Benjamin Calitri: So the Strengthened Reward Scheme does allow, as you said, anonymous reporting of information. But if you report information anonymously, you are not entitled to receive an award under the Scheme. So my question about this is: if you’re a whistleblower, at what point do you need to reveal your identity to the HMRC in order to still qualify under the SRS for an award? Do you need to do it immediately, or can you work with the Scheme a bit before providing your identity?

Richard McConaughey: So every case will be individual. Yes, we encourage first and foremost that people make contact with HMRC. They can in the first instance discuss how they think they would meet the Scheme’s objectives. If at that point they wish to remain anonymous, that’s okay and we would treat that with respect. However, in order for us to discharge our duty of care, but also make sure that what we’re being told is of quality and of the right standard, we will need to know their identity, because equally, if we don’t know that, then how do we know to whom we are going to need to pay a reward to?

Benjamin Calitri: So it is alright if they come to you anonymously and then over the course of working with you, disclose their identity.

Richard McConaughey: Yes.

Benjamin Calitri: From my experience, that will make whistleblowers a lot more comfortable having some basis of trust. After talking with you before revealing their identity.

Continued Contact with Office [10:59]

Benjamin Calitri: From what we understand, whistleblowers or informers using this Scheme will remain in direct contact with your office of the Strengthened Reward Scheme at HMRC, rather than interacting directly with the enforcement staff, which is how US programs tend to operate. What prompted you to organize the program this way, and what benefits do you expect to see from this?

Richard McConaughey: It goes back to how the duty of care and the regulations that we have to adhere to are prescribed. So we must protect and keep separate the source reporting from any enforcement action. That is the law that we’re bound to. And that’s why we’ve got strict protocols about keeping the identity of the source in as limited number of hands as possible. And then actually, what is valuable to the enforcement team is the intelligence itself, not who provided it. That’s not valuable to the enforcement team. Their job is to act on the intelligence that we have received.

Discretionary Awards [12:04]

Benjamin Calitri: One of the potential weak spots with this program is that the awards are discretionary, meaning there’s no right to appeal if a whistleblower does not receive an award. So what can you say to potential whistleblowers who are thinking about using this program, to reassure them that when they come to you and they provide this information at great risk to themselves, they aren’t wasting their time because at the end of the day, years later, they’re suddenly going to be denied an award and not have any right to appeal it.

Richard McConaughey: So it’s in HMRC’s interest to make sure that when we get the right intelligence against the right threats against the tax system, that we take that intelligence on board, we act on it, and there is an operational outcome in response. So it’s not in our interest to deny payment of rewards. Equally, if the individual thinks that the intelligence they provided is of a high standard, and we assess it not to be, then it’s our responsibility to make the informant aware as soon as possible.

Benjamin Calitri: So you’re not going to just string them along. You’ll let them know whether the information has merit or not.

Richard McConaughey: Yes, and like I said, we’ve been paying rewards for a long time, and it’s not in our interest to be misleading.

Benjamin Calitri: It’s in everyone’s best interest to pay awards, yes.

Richard McConaughey: Absolutely.

Benjamin Calitri: That’s what we want to hear!

Joint Whistleblowers [13:37]

Benjamin Calitri: So another question is in the US, we often have whistleblowers working together as joint whistleblowers to provide information. Is that allowed under your Scheme? If they come in together, will their information be considered as a joint unit?

Richard McConaughey: So that’s not an unusual scenario for HMRC. We have had cases like that in the past. We would encourage if there are multiple parties that have the insight that’s going to lead to a reward, that they organize themselves in coming together. And what makes it challenging is if you’ve got two different individuals reporting on the same fraud at different times, then we are then duty bound to think about who told us first and took the risk, and if the intelligence is exactly the same, then actually it’s very unlikely that the second person reporting later in the track would receive a reward.

First to Report [14:33]

Benjamin Calitri: So when considering paying awards, is it just to the person who’s provided the information first, or is there the possibility for someone who is second to the party but provides some new information or expanded information that substantially helps the investigation, to also receive an award? What is your thinking about that when it comes time to pay awards?

Richard McConaughey: Yeah, so I guess it’d be specifically driven on the facts of the case. So if we have reporting on a case that leads to a certain line of inquiry, and then somebody else reports on the same corporation, for example, but it’s different or enhances, and there’s a direct additional value line, then we would consider that as part of how we would then reward.

Analysts [15:31]

Benjamin Calitri: In the US, we also have people who provide information who aren’t employees at the company, don’t have any direct link to the company or the perpetrator, but they analyze publicly available information. They add some of their own expertise to that, which can lead to a collection of tax or collection of sanctions. Would they be considered for an award under the Strengthened Reward Scheme, or is that a little bit too tenuous?

Richard McConaughey: I would say, as you’d expect, every case is decided upon its merits. However, ultimately, if we are receiving intelligence we don’t have that helps us understand how the tax system is being attacked, then we will absolutely give that due consideration. But it’s very difficult for me to say yes to that without really bringing the facts of the case.

Benjamin Calitri: So it’ll be fact dependent and if they can lead to a collection of tax, it can be considered.

Richard McConaughey: Yes, and ultimately the judge of that will be, if we’ve acted on what we’re being told, and we end up with an amount of tax being collected as a result, then it’s about how do you link those two things together.

Benjamin Calitri: Excellent. So it’s all about leading to actual success. Actual results.

Richard McConaughey: Absolutely

Billions [16:52]

Benjamin Calitri: As we know, the IRS whistleblower program has been incredibly successful. It’s led to collections of $7.37 billion from whistleblower information, and paid $1.7 billion in rewards. My question to you is what we all want to know: do you have an expectation as to how successful the HMRC Strengthened Reward Scheme will be, and how long till you collect your first billion? And even more importantly, how long till you pay your first billion out in rewards?

Richard McConaughey: So, Ben, nothing would please me more as to pay that first reward as soon as we possibly can. On the basis of some of the things that we’ve discussed. And I truly believe that the Scheme will really take off once we have paid that first reward. I think that builds trust and confidence, not just in the United Kingdom, but globally – about how this is a legitimate Scheme. We are serious about procuring intelligence to protect the UK tax system and close the tax gap. So when we collect our first billion, I wish I could tell you that…I can’t. But what I can say is that the Scheme has been met with extreme positivity, both in the United Kingdom and actually in the US. And, you know, we have to thank the US private and public sector here for helping us shape and design our Scheme. So I am confident that it will be a success. I am confident that it will help close the tax gap. What I can’t tell you just at this moment in time, because we’re only ten months old, is just by how much.

Benjamin Calitri: Yes, we all want this program to be incredibly successful. And it seems that you’re taking all the best practices learned from the US programs and implementing them.

No Caps on Awards [18:53]

Benjamin Calitri: One of the really promising aspects of this program is that you haven’t adopted a cap on whistleblower awards, so there’s no upper limit. And what that allows for, of course, is going after the biggest fraudsters and tax evaders without setting your sights smaller. What led you to adopting this program without an awards cap?

Richard McConaughey: So it was back to extensive consultation, both with the private and public sector, really understanding the risks that an informant would be taking if they are reporting at the highest end of tax fraud.

It could mean that they will lose their job. It could mean that, you know, their personal circumstances change going forward. And we need to recognize that as a tax authority that the risk has to be balanced with a level of compensation, as it were. And in that regard, when we spoke to the US, and it was really clear that they were driving high end tax fraud reporting, because the level of rewards were commensurate with the risks that people were taking. So we have taken that strong lead from the US, and we think it’s the right move to make in this time.

No Geographic Limits [20:12]

Benjamin Calitri: Are there any limits for where a whistleblower or informer can be located to provide information to the Scheme? Do they have to be a UK citizen? Do they have to be located in the UK? Are there any limits on that?

Richard McConaughey: No. So we recognize that tax fraud, especially now, is truly a global risk and initiative. So for us to kind of draw quite narrowly around UK taxpayers, I think would truncate the level of reporting that we may wish to receive. So for us, it’s very clear we don’t mind where you are based, but it’s about the quality of intelligence that you’re providing us with to help protect the tax system.

Benjamin Calitri: And of course, just the only limitation being where the tax is owed to.

Conclusion [20:58]

Benjamin Calitri: Thank you so much, Richard, for joining us today. We really look forward to working with you and HMRC going forward. And we really hope to see the Strengthened Reward Scheme become incredibly successful. Thank you very much.

Richard McConaughey: In fact, I guess one final thing from us. There will be links in the show notes. So if there is anyone who wants to report into our new program, the links are there for you to connect with us directly. So please do get into contact with us.

Benjamin Calitri: Thank you so much.

Richard McConaughey: Thank you.