How the £176 million IGB VAT scam was smashed

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One year on since one of the UK’s biggest and most high-profile mobile phone VAT fraud cases came to an end, Mobile News takes a look back at how the complex scam involving 15 people and 20 firms was foiled

In June last year the final member of a 15-strong gang was convicted for his role in one of the UK’s largest VAT fraud cases.

As a result of the year-long court case 10 people were sentenced to a total of more than 62 years behind bars for their roles in a mobile phone VAT scam worth £176 million.

The court case brought to an end one of the longest and most high-profile criminal sagas ever to involve a UK mobile company.

It sent shock waves through the industry due to the involvement of one of its most high-profile companies, distributor Unique Distribution, and one of its most high-profile personalities, John McFarnon.

Unique’s involvement in a case which otherwise would have taken place on the periphery of the mobile industry, dates back to April 2005, when the distributor was saved from insolvency by the intervention of McFarnon with the backing of Innovative Global Businesses (IGB), a conglomerate of companies owned by the Ravjani family.

Unique, a firm which had consistently been one of the top three distributors in the UK, had collapsed in April 2005 when its credit line was slashed by lender Heller after its takeover by GE Capital, which did not view mobile as a safe market to be in.

Within five days, McFarnon rode to the rescue with a deal to buy out the bankrupt distributor with backing from IGB.

McFarnon later claimed that IGB had seen Unique as an opportunity to “pick up a business with a good name for very little money”.

A year after the takeover, McFarnon spoke to Mobile News about how he was rebuilding the firm.

Unique had signed high-profile deals with the likes of Nokia, and was working with Three and MVNO Tesco Mobile.

From the outside, it seemed as if McFarnon was overseeing Unique’s phoenix-like resurrection.

What few were then aware of was that Unique was on the verge of a second fall from grace, and one which would see the company collapse and McFarnon facing a three year jail term.

In his 2006 Mobile News interview, McFarnon said that the firm was “moving away from the buy/sell distribution model and trying to get more creative in the marketplace.”

Yet while Unique was looking for new ways to do legitimate business, it appears the rest of the IGB group, and McFarnon himself, were being creative in a way that would soon land them all in hot water.

Five months earlier, HMRC had caught wind of irregularities at IGB and had launched an investigation into the activities across the group.

What they would eventually uncover was a huge operation designed to carry out a complex fraud taking in more than 20 companies.

Central to the operation was phone trader Future Communications which was run by the man who would later be described by HMRC as the “ringleader” of the fraud at IGB, Dilawar Ravjani.

He was the son of IGB owner Haider Ravjani, and the brother of Roshan Ara Hussain, one of Unique’s two directors along with McFarnon.

According to HMRC, Future Communications and Unique formed the core of an operation which carried out fraudulent VAT transactions on mobile sales.

The firms in the operation claimed to have sold four million mobiles worth £1.7 billion.

However, HMRC’s investigation discovered that many of the handsets did not exist, including 250,000 which had not even been launched in the UK at the time the firms were filing paperwork claiming back VAT on their sale.

Future positioned itself in trading chains where it exported handsets that originated with companies which would go missing, in a complex version of what is called ‘missing trader fraud’.

The companies would collude in creating fake paper trails for handsets they claimed were being imported into the UK VAT-free, but being sold on in the UK with VAT charged. The handsets, many of which would often not exist, would then be sold through a number of ‘buffer’ companies before being ‘sold’ on by a final exporter back to the EU.

The exporter would then fraudulently claim back the VAT it theoretically owed, aided by freight forwarding firms that would provide false paperwork to back up the claims that the devices had in fact entered and exited the country.

According to HMRC, Future also worked as an importer, allowing firms including Unique to seek “significant VAT repayments”.

In total, 5,700 fake transactions were created in order to claim back large sums of VAT.

Money from the fraud was a laundered through another company owned by the Ravjani family, Property and Management Services, which was run by Roshan Hussain.

Former staff at IGB claim that Unique was not directly involved in the fraud, and that the firm’s revenue growth under McFarnon, which doubled in the space of a year from £200 million to more than £500 million, was down to genuine deals.

However, HMRC claims that Unique was “at the centre of the fraud” and McFarnon was certainly involved.

During its investigation, HMRC found £47,000 of cash in the back of McFarnon’s luxury sports car, and he was at one point handed a £50,000 bonus by Roshan Hussain for his work. The find was just part of £170,000 recovered  during HMRC arrests in the case.

What is not in doubt is that few if any who worked at Unique were aware of what their managing director and owners were up to.

No Unique staff other than McFarnon and Hussain were ever implicated in any wrongdoing, and after McFarnon’s exit in the middle of 2007 the firm appears to have been entirely unconnected to any fraudulent activity.

Nevertheless, the activities of IGB and HMRC’s investigation would still be the downfall of Unique.

Full article in Mobile News issue 540 (June 3, 2013).

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