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Bannatynes

Bannatyne FD jailed for £7.9m fraud

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9th Nov 2015
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Christopher Watson, finance director in Duncan Bannatyne’s business empire, has been jailed after pleading guilty to defrauding the celebrity entrepreneur’s group of companies of £7,974,221 from July 2008 to July 2014.

The judge at Teesside Crown Court sentenced Watson to four years and eight months.

The court heard how the Darlington FD siphoned huge amounts from corporate accounts belonging to Bannatyne's Fitness over a period of six years to cover his debts with major betting firms.

Andrew West, prosecuting, said Watson had tried to cover up his corruption by submitting doctored invoices which he could pay into his own accounts.

Watson also admitted five counts of transferring criminal property - homes he purchased in the Darlington area - with the stolen funds.

When arrested Watson told police he found he had the opportunity to steal and claimed he had been exposed to a "culture of undoubtedly corrupt company management"

West told the court that Watson “took money as he thought they were all doing it.”

Defending Watson, barrister Adrian Langdale called him: “a product of the environment he found”, and claimed that there were other examples of senior staff using the company “as a form of personal bank account”.

Watson became addicted to gambling, Mr Langdale said, and first took money from the firm to try to recover his losses, but the situation soon spiralled out of control.

‘Callous actions’

The Darlington-based Bannatyne Group, was set up in 1996 and runs health clubs and hotels across the UK.

Bannatyne, best-known for appearing on BBC series Dragons’ Den, was not present in court, but in a statement read out by the prosecution said he was “shocked and appalled at the callous actions of Mr Watson”.

The statement continued that Bannatyne had raised the issue of increasing some staff's pay from the minimum wage level, but “Chris Watson argued cash flow would not allow it”.

He had refinanced the firm in 2014, and sold freehold land which he then rented back, "although it had always been my plan to pass the land along with my companies to my children”.

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Replies (35)

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Glenn Martin
By Glenn Martin
09th Nov 2015 20:59

He got 5 years.
I wonder when he will be "out" .

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Replying to Tax Dragon:
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By jw1234
11th Nov 2015 13:32

He will be out in 39 months anything over 4 years you do 2/3 Jail time and anything under 4 years you do 1/2 Jail time.

So 3 years and 3 months he will be out but "on licence", in other words they will be watching him for the remainder of his sentence

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By mrme89
09th Nov 2015 22:07

In my experience, less than 24 months.

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Replying to The Dullard:
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By tom123
10th Nov 2015 08:46

Personal?

mrme89 wrote:
In my experience, less than 24 months.

What was the food like? :)

 

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By mrme89
10th Nov 2015 09:11

Fortunately, not personal experience from being a convict.

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David Winch
By David Winch
10th Nov 2015 16:47

Release date

A person sentenced to four years & eight months would expect to leave prison when he had served 50% of the sentence (in the sense of leaving without any expectation of having to return).  In practice he would be let out for short periods (a sort of 'holiday' if you like) before then in order to get used to life outside prison.

He would not normally expect earlier release on a 'tag' because of the length of the sentence.

If he had been sentenced to less than four years he could have expected to have been released on a 'tag' about four months before reaching the half-way stage of his sentence, e.g. on a sentence of 40 months one would expect release on a tag after 16 months.

In the case of theft from employer the convicted defendant might also be made subject to a compensation order (in favour of the victim of the theft) or a confiscation order (in favour of the Crown) or both.  Either of those orders might carry a risk of an additional sentence in default of payment.

David

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Replying to the_drookit_dug:
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By John Wheeley
11th Nov 2015 11:52

Release date

I don't understand our legal system. Why give a sentence of four years and eight months, knowing that he will be let out early ?

In the interests of clarity, wouldn't it be easier to give a sentence of two years and four months, with no parole ?

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Replying to Wanderer:
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By yorkiehurst
11th Nov 2015 13:03

release date

I think the reduction in sentence is only given after the prisoner has admitted their guilt,

thereby giving the authorities mandate to prove how just and effective our system is as nearly all those convicted later go on to admit they were guilty !!

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Replying to Wanderer:
David Winch
By David Winch
11th Nov 2015 16:46

@John Wheeley
The theory is that he remains 'on licence' for the remainder of his sentence & is subject to various reporting requirements etc. If he breaches the terms of his licence (during his remaining sentence) he can be recalled into prison swiftly (i.e. without a trial).

David

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Replying to the_drookit_dug:
By mrme89
11th Nov 2015 14:14

@David

davidwinch wrote:

A person sentenced to four years & eight months would expect to leave prison when he had served 50% of the sentence (in the sense of leaving without any expectation of having to return).  In practice he would be let out for short periods (a sort of 'holiday' if you like) before then in order to get used to life outside prison.

He would not normally expect earlier release on a 'tag' because of the length of the sentence.

If he had been sentenced to less than four years he could have expected to have been released on a 'tag' about four months before reaching the half-way stage of his sentence, e.g. on a sentence of 40 months one would expect release on a tag after 16 months.

In the case of theft from employer the convicted defendant might also be made subject to a compensation order (in favour of the victim of the theft) or a confiscation order (in favour of the Crown) or both.  Either of those orders might carry a risk of an additional sentence in default of payment.

David

 

I appreciate your experience in this field.

 

In the particular instance I earlier mentioned, the person received a sentence of 6 years and was released on tag after 18 months. The conviction was GBH.

 

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Replying to Paul Crowley:
David Winch
By David Winch
11th Nov 2015 16:31

Early release
@mrme89

Was that in South Africa (joke!).

The sentencing laws are changed from time to time (it can get a bit party political) & the position may vary depending upon when the offence was committed etc.

If you committed GBH today & were sentenced to 6 years you would probably serve 3 years (or something approaching that) inside.

David

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Replying to Paul Crowley:
David Winch
By David Winch
11th Nov 2015 18:16

@mrme89
I have to say I am surprised by that release. Could it be that the sentence was reduced on appeal or that the offence was one committed many years earlier?

Sentencing rules are complex & you would be surprised (or maybe not) how often appeals against sentence succeed on the grounds that the judge passed an unlawful sentence or one which failed to take account of relevant sentencing guidelines.

David

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By ketteringfc
11th Nov 2015 10:54

Bannatyne FD


Is this an open goal for HMRC with profits potentially overstated by £8m due to fake invoices and the opportunity to levy penalties as well ?

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Replying to TriBilly:
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By Ian McTernan CTA
11th Nov 2015 11:22

Kettering

ketteringfc wrote:


Is this an open goal for HMRC with profits potentially overstated by £8m due to fake invoices and the opportunity to levy penalties as well ?

 

I'd feel sorry for your clients if your attitude to one of them being defrauded of £8m is to ask HMRC to look at taxing your client and levying penalties on them as well...

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Replying to frankfx:
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By ketteringfc
12th Nov 2015 12:18

No, it was just a comment seeing how HMRC seem to work these days ( unless of course you are a multi national ! )

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Replying to TriBilly:
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By Nick6976
11th Nov 2015 11:23

Its the other way around

ketteringfc wrote:


Is this an open goal for HMRC with profits potentially overstated by £8m due to fake invoices and the opportunity to levy penalties as well ?

 

Actually, if the FD was creating fake invoices to pay himself, assuming they were tax deductible, then profits have been understated by £8m - surely an easy investigation for HMRC, as they simply can remove the invoices, any VAT claimed, and then start the interest and penalties.  There could be a large liability coming from this.

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Replying to Tax Dragon:
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By DexterDog
11th Nov 2015 11:38

But it's only the tax they should have paid in the first place - as it is, the fraud appears to have saved the company a substantial amount of tax. 

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Replying to Tax Dragon:
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By DexterDog
11th Nov 2015 11:42

The large liability will be about to land on the auditors who I presume are being sued to recover from them the money lost.

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By Golfemmo
11th Nov 2015 11:36

 

 

About 15 years ago there was a TV Programme that was titled something like "Cons are Us" which illustrated very similar frauds. Do these companies not have internal controls and authorities? No one person should be able to "cradle to grave" a transaction. I would also be highly concerned by the accused assertions that the organisation had endemic corruption. Surely as FD he had a responsibility to stop such a culture. Or am I just old fashioned?

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By AndyC555
11th Nov 2015 11:49

Theft by director

A theft by a subordinate in an organisation is generally an allowable deduction but theft by a controlling Individual is generally not (see Curtis v J & G Oldfield Limited).  I guess the idea being that you can't steal from yourself.

It would be interesting to know how HMRC view this but the fact that the individual was prosecuted suggests the theft would be an allowable deduction.

 

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By Poindexter316
11th Nov 2015 11:52

Unless Section 34 ITTOIA applies

.. I would agree that there is an argument that profits are understated.

The key question will therefore be whether, in the case of this particular FD ,you are dealing with a "subordinate Employee" . See also the case of Curtis v J & G Oldfield Ltd [1925] 9 TC 319 

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By financialdirection
11th Nov 2015 11:55

any auditors present?!

Ok management needs to ensure adequate control systems are place, but this is not a minor sum!

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By Poindexter316
11th Nov 2015 11:55

Sorry, Andy beat me to the punch.

As regards the stance of HMRC I have only one specifice experience (from about 18 months ago) where HMRC accepted that the FD (a non shareholder) was indeed a subordinate employee.

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Glenn Martin
By Glenn Martin
11th Nov 2015 12:49

When Duncan gets back from the Jungle

I dare say he will be having a full and frank conversation with the Auditors at the time.

I wonder if the other dragons are mocking him for allowing this to happen.

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By rdrtaxwizard
11th Nov 2015 13:24

Bannatyne

It is correct to say that losses to a company due to staff defalcations are normally allowable for tax.  This would not prevent HMRC, in the case of fraudulent invoices, to adjust and reassess corporation tax and VAT.

On the face of it the auditors do have questions to answer because the fraud was systemic over a number of year and the FD appears to have had too much control over payments, always a danger area.

It is a pity that the case report does not tell us whether compensation/confiscation orders have been made against Watson but, noting that the thefts were to support a gambling addiction, there is probably nothing to collect.

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Replying to stuartb:
David Winch
By David Winch
11th Nov 2015 16:41

Compensation & / or confiscation
Very often the Crown Court when sentencing an offender in a case such as this will set a timetable for a later hearing in respect of possible confiscation and / or compensation orders.

As you say though, with a gambling habit he may well have lost the lot & more besides & so the amount which will actually be recovered may be nominal.

Also his prospects of holding down a well paid job in future may be somewhat impaired!

David

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By SJH-ADVDIPMA
11th Nov 2015 16:48

Law and disorder
CRIME DOES PAY, that's the message these light sentences for fraud convey.

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By AndrewV12
12th Nov 2015 09:50

It just goes to show you...

 

I bet once upon a TIME Duncan would have been on top of top and spotted the fraud much earlier on, but as organisations grow they can become unwieldy and complacent, more money than sense? , or was it a question he's having it so so am I. 

 

Extract above

"culture of undoubtedly corrupt company management"

Really!

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By David Gordon FCCA
12th Nov 2015 14:34

bannantyne

 

 Personal comment first: Except you sat in court it is not proper to comment on the sentence.

 In my time i have been involved in four serious financial fraud cases, involving crook directors. I make the following observations:

 Fraudsters do not come dressed in pirate costume with a label saying crook pinned to the jacket. In one case he came in a white Rolls Royce complete with country mansion, butler, and wine cellar.

Without exeption the frauds were devastingly simple, and three of them were within "Company law".

Without exception simple accounting controls would have prevented all four.

So whilst I had every sympathy for my client companies, two of whom were busted by this, contributory not-quite-negligence is certainly a factor.

 I pass on lessons learnt:-

 Having at least two persons involved in every financial accounting exercise or procedure will stop 90% of fraud before it starts.

If a senior director takes it in his mind to fiddle the books, the auditor will not find him until he makes a mistake .

Executives and particularly banks will tie themselves in knots before they admit that fraud has tekn place, especially banks. They very rarely prosecute because "It shows them / their company in a bad light".

 The common result of finding that an exec has been naughty, is that the accountant loses the client. This because the MD or similar does not enjoy being shown to be careless or worse, an idiot.

 Certainly, the consequences for an accountant doing his job can be devasting. I discovered, one does not get paid for being a witness, or for helping the police. It is not similar to TV, all over in one hour. The case may take years. The time you spend sitting in court, or working with the policeman soon adds up to thousands.

 Notwithstanding the above comments; My words of sympathy to a distraught director were as follows; You have been honest all your working life. You have never mixed with villains, nor do you have any conception what villainy is. You have never screwed anybody, or even thought about it. You were similar to an innocent virgin, you got caught out, it happens. it is to your credit that the concept of doing bad was not in your life. Now, let us see how we may lessen the damage.

 One more thing:

 These are not victimless crimes. Ask anyone whose office has been burgled how they feel about going back to the desk.

 

 

 

 

 

 

 

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David Winch
By David Winch
12th Nov 2015 15:18

@ David Gordon

I agree with (almost) everything you say.  Most people make an inherent assumption that the people they are dealing with are basically honest.  It is only because of the nature of the work that I do that I make the opposite assumption!

I can appreciate that if your client has suffered a devastating loss from fraud you do not wish to rub salt in the wound by charging for your time assisting the police etc & I would anticipate that you would be asked to attend court as an (unpaid) witness of fact rather than a (paid) expert witness.  Nevertheless some would say that your time should be chargeable.

Finally I think you would probably agree that most frauds do not consist of a single dishonest action but a series of dishonest actions over a period of time & that typically once one or two of these actions have been uncovered it is a simple matter to uncover a lot more of them.  Sadly it is often a trusted employee who, it turns out, cannot be trusted.

David

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By SJH-ADVDIPMA
12th Nov 2015 18:20

Sentence
One can comment on sentences, as they are heavily influenced by politicians (the sentencing guidance) and there is a trend, white collar crime or defrauding the tax payer is sentenced very lightly. Steal £7m get 2 yrs inside. Bargain!

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David Winch
By David Winch
12th Nov 2015 19:36

Sentences

Of course in most cases in England & Wales maximum sentences are set by statute (i.e. by MPs / government).  The maximum for routine theft or fraud is 10 years.

The sentencing guidelines however are set independent of government & it is these which heavily influence judges.  It is very rare for a maximum sentence to be set as there is usually something which can be said in mitigation.

MPs / government routinely chide judges for sentencing too leniently.

In cases of fraud / theft the amount stolen is one of the many factors which the judge should take into account in fixing the sentence.  In this case it seems the defendant admitted the wrongdoing at an early stage & that in itself is likely to have led to a significant reduction.

A sentence of 4 years 8 months looks suspiciously like 7 years with a one-third reduction for an early guilty plea.

David

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By ravi916b
13th Nov 2015 09:58

Corporate Governance

The Auditors will take cover in the Management Letter which will clearly represent that Management have the appropriate financial controls and systems in place to ensure that the records are complete and accurate. However an auditor should have (and may have done so) highlighted the lack of internal controls in this instance. It must be noted that smaller business concerns are normally not in a position to apply the full aspect of segregation of duties and internal control procedures though there can be ways of implementing workable control measures. This does show the importance of a more vigilant Management team and the need for extensive analytical review of financials by Management as a whole. However, if Management in general is below par, it is then left to the shareholders to act.Failing which there can be an argument for self contribution in the form of negligence or carelessness. Thankfully professionals are in the main trustworthy and such acts as these are not so common. On balance it is always easier to be wise with the benefit of hindsight, nevertheless there is always lessons that can be learned to prevent future such acts. 

 

Ravi  

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By SJH-ADVDIPMA
13th Nov 2015 12:44

Poppy
Just reading a more 'common' crook received a 1 year sentence for stealing £200 from a poppy appeal collection box. Hmm, a quarter of the sentence for a tiny weeny % of the value stolen and harm done. I dont agree with the 6 months inside for running off with £200, much too harsh, and 24 months inside for bagging £7/£8m from continued fraud for years is an insult to the public. Was he related to the judge?

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By David Gordon FCCA
16th Nov 2015 10:57

davidwinch & ravi

 

 David, one is not allowed to charge for helping the police. In any case who would be the client?

 Not the victim. Most certainly he will not throw good money after bad, except in exceptional circumstances.

 Liquidators are not permitted to pay for anything which does not directly protect the assets.

 Ravi

 You quote the textbook and the professional associations.

Life is not similar to this for the previously mentioned 99.20% of UK businesses. Those labelled small by the statisticians.

 Through the whole ,of my working life I have never enjoyed a client with a textbook style "Accounts department". I have / had clients preparing balanced ledgers and management accounts, and trial balances. Or clients similar to solicitors who by law are required to prepare proper books (Yeah right!!). Internal control systems and staff?? Maybe the director's wife.

 I have never understood how any auditor might sign a clear audit certificate, when the accounting function was entirely in the physical and psychological control of the directors and or the family. There cannot be what the textbook calls "Internal control" through independent operatives.

The uplifting thing is that 99% of small UK businesses do work on trust, and receive trust in return. This is why being caught out is so devasting for them. We are very lucky.

 I may name at least one city in the world where to my certain knowledge people sewed zips onto their trouser pockets.

 

 

 

 

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