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Former KPMG partners seek judicial review of steps taken to search homes and business premises

Published 29/11/2016

Eamonn Donaghy, Jon D'Arcy, Paul Hollway and Arthur O'Brien claim HMRC misled judges into authorising the raids
Eamonn Donaghy, Jon D'Arcy, Paul Hollway and Arthur O'Brien claim HMRC misled judges into authorising the raids

HM Revenue and Customs bosses investigating suspected tax evasion were "gleeful" ahead of raids on the homes of four former partners at Belfast accountancy firm KPMG, the High Court heard today.

Counsel for the executives claimed there was no justification for taking the "nuclear option" of an intrusive operation that also involved trawling through children's school bags.

Details emerged during a challenge to the legality of the process to obtain warrants to search the accountants homes and offices.

Eamonn Donaghy, Jon D'Arcy, Paul Hollway and Arthur O'Brien claim HMRC misled judges into authorising the raids as part of a criminal probe.

All four men were arrested last November, but have not been charged with any wrongdoing.

At the time KPMG said it was cooperating with the inquiry and had placed them on "administrative leave".

In February this year the company announced the partners in its Belfast office subject to the HMRC probe had retired.

KPMG stressed the investigation related solely to the executives' personal affairs and was unrelated to the company's business or its clients.

It emerged in court today that Revenue concerns involved the formation of a separate business partnership and when it was registered.

Loans being issued and written off as bad debt also featured in inquiries.

Mr Donaghy, Mr D'Arcy, Mr Hollway and Mr O'Brien are now seeking to judicially review the steps taken to search their homes and business premises.

Opening their case, barrister Barry Macdonald QC acknowledged the decisions to launch a criminal investigation or arrest his clients was not being challenged - although neither action was accepted as reasonable or justified.

"The applicants are making this challenge with their hands tied in relation to the grounds for suspicion, but they completely reject the allegation they were involved in any tax evasion or wrongdoing," he said.

"Even if the suspicion entertained by HMRC is taken at its height, there was no justification for seeking or being granted a warrant to search their homes and offices."

A panel of three judges was told the tax authority should have considered less intrusive steps in an attempt to quell any suspicions.

No attempt was made to put direct questions to the accountants about issues of concern to HMRC.

Instead, it allegedly saw the case as a chance to detain four high-profile men.

"They were (motivated) by an improper collateral purpose... on the night before the warrants were executed senior (HMRC) managers were gleefully exchanging emails to the effect that this had the makings of a great story for them," Mr Macdonald contended.

He claimed judges who granted the warrants were given misleading information about the extent of the four accountants' co-operation with inquiries.

Adverse inferences were wrongly drawn from their alleged failure to get back to HMRC during correspondence in 2014, the court heard.

Their barrister argued the truth had been withheld - that HMRC had written thanking for "comprehensive and detailed replies" and pledging to get back to them.

It was claimed that officers arrived in numbers at the executives' private homes.

At one house they searched through children's school bags, while documents in the case also allege officers waited for one of the men outside his bathroom.

"This is a nuclear option, it has to be a last resort and it has to be properly justified," Mr Macdonald insisted.

Lord Justice Gillen, Lord Justice Weir and Mr Justice Treacy were also taken through a statement of complaint relied on by HMRC in its applications for the warrants.

It claimed: "This case provides an opportunity to arrest and prosecute four high-profile individuals who are involved in (an)... attack on the revenue system."

According to Mr Macdonald this further demonstrated a failure to consider steps other than interfering with his clients' privacy rights.

He also questioned the timing of the raids, which coincided with the British Chancellor's announcement of a crackdown on tax evasion in his Autumn statement.

Later, the court heard the four accountants set up a finance partnership in 2009.

But it was claimed that it took nearly a year for a partnership document to be created, with no bank account until August 2011.

Judges were told the initiative was aimed at providing short-term financing to businesses.

It was also said to have lent sums of up to £800,000 and 2.2m euros to another property investment company, JEAP, the four men set up previously.

Counsel for HMRC said that within 24 months the loans to JEAP had been wiped out.

That was said to be a ground for concern that unlawful activity may have occurred - that the partnership could have been used as a vehicle to  reclaim bad debt.

The case continues.

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