Customs & Excise has dropped all criminal charges in the largest ever European fraud case, apparently blaming the investigator formerly in charge of the case.
But the lawyer defending the charges, Neil Gerrard, of Dibb Lupton Alsop, said: “I believe there are other reasons which they just haven't told us yet.”
Gerrard and his counsel Antony Shaw QC were due to apply for his costs at a hearing at the Old Bailey last Friday. Customs insists that it did have evidence for the charges.
Customs arrested four directors and two managers of UK-based subsidiaries of the New Zealand Dairy Board, including Anchor Butter, in a dawn raid on their Reigate and Swindon premises in April 1996.
The men: Alan Absolon, Colin Bell, Fernando Guerra, Jens Haugstrup, Edmond Verschueren and Gulab Sharma were charged with five counts of fraudulently importing butter over the permitted fat limit and two counts of deliberately exceeding the butter quota.
Customs also commenced proceedings to extradite the New Zealand Dairy Board's external policy manager Nigel Mitchell from New Zealand.
Customs had begun the investigation of the subsidiaries – Milk Products Europe, Milk Products New Zealand and Anchor Butter – a year earlier in April 1996. The directors had hired Gerrard, a former policeman who heads a “corporate defence” unit across Dibbs' London and Manchester offices, to defend them. Gerrard called the arrests “aggressive” and pointed out that the defendants had voluntarily attended interviews by customs some months before they were arrested.
Customs will not say what triggered the investigation. But in 1996, the European Court of Auditors began examining the way British customs checked imports of New Zealand dairy products. It issued a series of verbal “observations”, believed to be critical of customs for not checking butter and other imports.
Its final report, published in April this year, said that New Zealand had underpaid levies on dairy imports to the EU by ECU410m, of which ECU118m was recoverable.
In early 1996, Dutch customs seized a shipment of New Zealand Anchor Butter. The Dutch claimed that the butter contained too much fat to qualify for a reduced levy under New Zealand's EU quota.
In July 1997, the defendants were committed for trial. Their counsel made no submissions.
In September 1997, customs dropped the five charges relating to fat content after offering no evidence. Extradition proceedings for Nigel Mitchell were dropped.
Mark Perlstrom, who was leading the investigation, left customs in October 1997 to work for niche forensic accounting firm Lee & Allen, where he is advising companies on handling raids by customs officers. His role as investigating officer was taken over by Joan Fraser.
At the beginning of this month customs dropped the last two criminal charges. In the Old Bailey, customs' counsel Julian Bevan QC said that following Perlstrom's departure, Fraser had reviewed the evidence when a junior prosecution counsel had queried the provenance of “at least two” documents.
The review found, Bevan said, that “the prosecution is substantially hampered in proving the origin/provenance of many important documents which have been included in the core bundle”.
A customs spokesman later explained to The Lawyer: “A number of key documents that we were relying on couldn't be linked to the particular shipments of butter under dispute.”
In court Bevan also said that the “standing of the original investigating officer, Mr Perlstrom”, may have been “substantially” affected by a “scathing and wholly inaccurate attack on the investigating arm of Customs & Excise” that Perlstrom made at a conference in February 1998.
Perlstrom had warned companies to assume that customs had “prosecution as an ultimate goal”, saying “if you desire peace, make ready for war” – and that if a settlement could not be reached “litigation and warfare in a criminal court will follow”.
Bevan claimed: “The impact upon any jury hearing this, in my view, would be profound.”
However, The Lawyer has learnt that the parts of Perlstrom's speech that Bevan quoted were taken, almost word for word, from a January 1995 article in the magazine Accountancy by former customs solicitor Malachy Cornwell-Kelly. Cornwell-Kelly, now at Titmuss Sainer Dechert, gave Perlstrom permission to use the particular phrases.
Gerrard said: “If you believe that Customs & Excise is dropping its largest fraud investigation in Europe because of a couple of documents and the remarks of an officer who left Customs & Excise… well you can draw your own conclusion.”
He added: “What he [Perlstrom] said is absolutely true. If you read that to any lawyer who does my sort of work he will say “yes, so what?'”
A Customs & Excise spokesman stressed that “We did have plenty of evidence, or we wouldn't have brought the case in the first place”.
In a separate civil action, British customs alleged that the new “spreadable” butter, which the New Zealand Dairy Board had begun importing in 1995, did not qualify for the reduced levy quota.
A customs VAT tribunal ruled in favour of the Dairy Board at the beginning of this year but customs is appealing.