Revenue’s entitlement to freezing orders upheld

L. McL v J.D (otherwise S.D.) and E.D 2009 IEHC 184 3 April 2009

On 3 April 2009 Laffoy J issued a High Court judgment concerning procedures for applications for orders under section 908(2) and 908(8) Taxes Consolidation Act (TCA) 1997.

The background to this case was that in November 2006, officers of the Criminal Assets Bureau (CAB) carried out searches of a number of premises including an office in a dwelling house which was the home address of the respondent, an accountant. It appears that the search was initiated as part of an investigation into the affairs of an unnamed client as there was no suggestion of any criminal activity on the part of the respondent. The CAB seized a laptop and a disc containing information relating to the accountant was passed over to the Revenue Commissioners. On the basis of this information and other information in the Revenue’s possession a successful application had been made in 2008 by an authorised officer of the Revenue for inspection of documents and furnishing of information by four named financial institutions. An application was also made to effectively freeze any assets with those financial institutions.

The issues to be decided were as follows:

Did the authorised officer require the consent of a Revenue Commissioner to make an application for a freezing order? Laffoy J concluded that where consent is obtained for a court order seeking access to information under section 908 that the consent also extended to any application for a freezing order, the latter power being ancillary to the primary relief.

Should Revenue have resorted to a lesser power before using section 908, which the taxpayer described as ‘the nuclear option’? While there are other provisions empowering authorised officers to call on taxpayers for the production of books and information which are less invasive, Laffoy J was of the view that the section 908 was a stand alone provision and that “it may be invoked by an authorised officer and irrespective of what other avenues have been availed of by an authorised officer.”

Was the information received from the CAB obtained illegally? The CAB is empowered to provide any material obtained by an officer for the purposes of the CAB Act 1996 to the Revenue Commissioners. The objective of the CAB Act was the identification and confiscation of assets of persons “which derive or are suspected to derive, directly or indirectly, from criminal activity.” A search warrant obtained under that Act is only available where there are reasonable grounds for suspecting that evidence relating to assets or proceeds deriving from criminal activities are to be found.

In this instance it was not contradicted that CAB were investigating an unnamed client who had employed the respondent to complete tax returns for him. The respondent argued that any information on the laptop that didn’t relate to that investigation was inadmissible. An analogy was drawn between a filing cabinet containing papers of many clients and a laptop. Laffoy J agreed that the authority conferred by a search warrant in connection with the investigation of the affairs of Mr. X would not extend to any file in the filing cabinet other than the files in relation to Mr. X. The conclusion was that so much of the information on the laptop that did not relate to the unnamed client's affairs was not obtained for the purposes of the 1986 Act and thus the CAB had no authority to provide the information to the Revenue. Such information was inadmissible to support an authorised officer’s application under section 908.

However, on the facts there was additional evidence to support the application, in particular the lack of response by the respondent to the Revenue investigation into his tax affairs.

The remainder of the decision, which considered whether a freezing order should have been issued, concerned whether there had been a ‘flight risk’ in this case. The most significant feature per Laffoy J was the failure to engage with Revenue and respond to enquiries and it was felt there were reasonable grounds for considering that assets might be moved so as to avoid a liability to tax. A contention by the respondent’s wife that, as there was no evidence that she intended to leave the jurisdiction, a freezing order should not have been made against her was also rejected. She had substantial capital gains tax issues to resolve with Revenue and had also allegedly failed to engage with Revenue. Furthermore the affairs of both respondents were ‘intertwined to a very considerable extent’.

The orders made in 2008 were properly made.