A North East solicitor who designed a “tax mitigation” scheme which left the taxpayer with a potential £1.6m loss has walked free from court.
Malcolm Graham used a falsified document from leading London tax barrister Conrad McDonnell to induce clients into his Gateshead firm, SFM Legal Ltd.
Once there he offered them a stamp duty “avoidance scheme” which helped cut the tax bill on properties worth more than £500,000.
Detectives discovered the scheme left HM Revenue and Customs with a £1.6m deficit which officers were forced to recoup from homeowners and property tycoons across the UK.
The schemes also resulted in a £400,000 profit for Graham’s business which he was forced to reimburse. In total the tax ploy saw 280 transactions dupe the public purse out of hundreds of thousands of pounds. Graham’s legal team argued the loss to the Revenue was “zero” because the HMRC had clawed back the cash from all but one of the deals.
In a landmark legal case, father-of-four Graham walked free from court despite admitting seven counts of fraud. Prosecutor Paul Reid told Newcastle Crown Court the case had huge “ramifications” and would spark similar prosecutions across the country.
Suspending a two-year prison sentence for two years, Judge Simon Hickey told Graham: “You are a man who has an impeccable character but that has been lost to you as a former professional man.”
In July 2007 Graham devised a so-called “Stamp Duty Land Tax Mitigation Scheme” which he hoped would cut tax bills. Graham attracted a client base of financial advisors from across the UK after his firm placed adverts in the Sunday Times and the Daily Telegraph.
Leading London tax barrister Conrad McDonnell sent “advice” paperwork which said the proposed scheme “would not work” and could not be used to avoid paying tax. The contents of Mr McDonnell’s advice were altered and used to attract clients who wanted to use SFM’s tax avoidance schemes.
The document was kept under lock and key at Graham’s SFM firm in Gateshead’s Team Valley. Only he was allowed access to the fake document and he told others “not to let the advice out of their sight”.
He even staged seminars in Jesmond Lodge Hotel where he “promoted the services offered by SFM to an invited audience of guests”.
When a client, self-employed estate advisor James Keogh, was told by the HMRC that the scheme didn’t work, he contacted Graham who blamed “shoddy paperwork for the failure of the scheme”.
Mr Keogh contacted Mr McDonnell by phone, a move which Graham claimed had threatened to bring “down the whole pack of cards”.
Howard Godfrey QC, defending Graham, said his client had already suffered a substantial punishment after losing his business and being made bankrupt.
Mr Godfrey told the court Graham was now working as a £40,000-a-year car salesman. He said: “He has already suffered. In 2009 he was struck off as a practicing solicitor and he was also made bankrupt.
“He’s lost his livelihood and he’s a man now without means who works in a sales capacity.” He added: “Mr Graham does not accept that he changed the document himself. It arrived on July 20 2007 when he was on holiday.
“It’s very difficult now to know quite what happened but certainly Mr Graham has always maintained he did not alter the genuine document.”
Mr Graham claimed the schemes offered to clients had not been based on the falsified document. Instead he said the altered document was simply a “puff” to attract clients.
Mr Godfrey said: “The point is that there is no casual link between the altered [barrister’s] opinion and the claims for stamp duty relief.”
Prosecutors dropped two fraud charges against Graham’s brother, David Graham, 34, of The Gardens, Axwell Park.
Graham, of Whickham Lodge Rise in Whickham, entered guilty pleas to seven counts of fraud. Prosecutors said they would lodge a Proceeds of Crime Application in an effort to claw back his ill-gotten gains. He was disqualified from being a company director for five years.