HMRC allege that Ecclestone, 91, failed to declare overseas assets of more than £400mn, consequently – they say – evading his UK tax liabilities.
Ecclestone amassed a vast personal fortune while running F1, and is today worth an estimated £2.5bn.
According to German court papers obtained by BBC Panorama in 2014, he reportedly receives divorce maintenance payments of around $100mn (£81.4mn) each year from his ex-wife.
Ecclestone is expected to appear at Westminster Magistrates' Court on August 22, where the case is likely to be remitted to the Crown Court in light of the amounts at stake and the apparent factual complexity.
That would mean Ecclestone would be tried by jury at a later date. Ecclestone has not commented on the charge and is innocent in English law unless convicted of the offence.
It is not known how Ecclestone will plead or what, if he pleads not guilty, his defence will be. The elements of the offence of committing fraud by false representation are that a person dishonestly makes a false representation (eg a statement he knows or believes to be wrong) either to make a gain for himself or another or to cause loss to another.
To secure a conviction, the offence must be proven by the Crown beyond reasonable doubt. The maximum sentence on conviction in the Crown Court is 10 years’ imprisonment, an unlimited fine, or both.
The decision to charge Ecclestone was taken by the Crown Prosecution Service independently of government (including HMRC).
In reaching its charging decision, the CPS reviewed a file of evidence collected by HMRC’s Fraud Investigation Service. HMRC’s investigation, which led to the charge, is said to have been “complex and worldwide”.
Mounting a defence
It is not known how Ecclestone will plead or what, if he pleads not guilty, his defence will be.
Typically, the first step for the defence in a trial of this sort is to put the prosecution to proof that the alleged elements of the offence have each been proven beyond reasonable doubt.
If the defence team considers that they have not, then they can ask the judge to dismiss the charge.
Subject to that, the defence will offer evidence in an attempt to show the jury that reasonable doubt exists as to one or more of the elements of the offence.
For example, the defence might seek to demonstrate that the representation (or representations) were not false – or not knowingly false – and/or that there was no intention to make a gain or to cause loss to another.
This might involve factual evidence to undermine the prosecution’s case, or evidence indicating that the accused’s state of mind was not dishonest, for example.
The defence might also run technical legal arguments to persuade the judge that the relevant requirements have not been met and the case should be discontinued.
Bigger picture
The wider policy issue raised by the charge in the Ecclestone case is whether the use of such criminal charges is the most effective way of tackling alleged tax evasion.
Given the cost and evidential burdens inherent in criminal proceedings, HMRC’s longstanding approach is typically to pursue recovery of allegedly unpaid tax through civil, not criminal, proceedings, which they consider a more cost-effective use of their powers and limited resources.
Whereas criminal proceedings are intended to prove the innocence or guilt of the accused (though not necessarily, or only tangentially, at the recovery of tax lost to the exchequer), HMRC’s non-criminal enquiry powers – and litigation in the tax tribunals – are intended primarily at the recovery of tax and, if the taxpayer’s default was culpable, the imposition of tax-geared penalties.
Non-criminal enquiries and litigation usually have much lower costs, and the civil burden of proof ("on the balance of probabilities") is significantly lower than the criminal standard ("beyond reasonable doubt"), meaning a successful outcome for HMRC is easier to achieve.
As a result, HMRC is rightly proud that they have an 86 per cent success rate in the First-tier tax Tribunal.
In recent years, the House of Commons public accounts committee has been critical of HMRC’s scarce use of their criminal investigation powers and has called for a more proactive approach to prosecution.
HMRC is probably right to focus their resources on civil recovery in the overwhelming majority of cases.Parliament has given HMRC sweeping powers to tackle potential tax avoidance and evasion under all governments.
Meanwhile, HMRC is keen to stress that the overwhelming majority of taxpayers pay an appropriate amount of tax and their most recent annual report notes that anti-avoidance and anti-evasion activities generated £30.4bn in 2020-21.
Perhaps stung by parliamentary criticism, HMRC has tried to increase the number of its criminal investigations in recent years, but seemingly with only limited success.
High-profile fraud trials might represent a public relations victory (if they lead to conviction), but the anti-avoidance ‘day job’ of civil investigations and penalties for non-compliance is likely to have the greater positive impact on the exchequer.
And notwithstanding criticism from parliamentarians and tax justice campaigners, HMRC is probably right to focus their resources on civil recovery in the overwhelming majority of cases, leaving criminal prosecutions only for cases where other factors suggest that civil proceedings are inappropriate or insufficient for some reason.
Whatever the outcome of the Ecclestone prosecution, it will be fascinating to see how HMRC’s strategy continues to evolve in the coming years.
James Austen is a partner and head of tax disputes at Collyer Bristow
