Gangsters have stolen billions of pounds of British taxpayers’ money and used tens of millions to fund terrorism, according to police and intelligence files.
A network of British Asians based in London, Buckinghamshire, Birmingham, northwest England and Scotland mounted VAT and benefit frauds against the exchequer over two decades and made further gains from mortgage and credit card fraud targeting banks and individuals. The group netted an estimated £8bn in public money alone.
The gang, which has links to the 7/7 London bombings in which 52 people died, is alleged to have sent 1% of its gains, or £80m, to al-Qaeda in Pakistan and Afghanistan, where it funded madrasahs, training camps and other terrorist activities, according to the leaked files.
Secret intelligence held by MI5 states that some of the money reached the Pakistani compound that housed the al-Qaeda mastermind Osama bin Laden before it was stormed by US special forces in 2011.
The sum the gang extracted from the Treasury is almost triple the annual government expenditure on MI5, MI6 and GCHQ and approaches the central government grant for policing in England and Wales each year.
The Sunday Times is prevented from revealing the identities of gang members by court orders dating back almost 10 years. Last night Meg Hillier, chairwoman of the public accounts committee, said she would consider launching a parliamentary inquiry and would question Sir Mark Sedwill, the cabinet secretary and national security adviser to the prime minister, tomorrow.
The gang infiltrated multiple government agencies and corrupted local politicians in its war on British taxpayers, the files allege. Much of the detail comes from HM Revenue & Customs (HMRC) and Special Branch, which investigated the network over a 20-year period.
Some of the information, which highlights the role of an accountant in a provincial English town, was discovered on a discarded laptop in Afghanistan by CIA and MI6 officers during their search for bin Laden after the 9/11 attack in 2001.
HMRC intelligence officers also identified the gang’s links to Shehzad Tanweer, a terrorist involved in the 7/7 London bombings in 2005, at least two years before the attack. However, senior HMRC officials declined to use the intelligence to mount prosecutions and take the gang out of operation until after the bombings.
A customs officer told this newspaper that he was repeatedly prevented from sharing intelligence with MI5 because HMRC wanted to maintain the confidentiality of the terror suspects’ tax records.
Mid-ranking gang members have been sentenced to more than 100 years in prison for fraud and money laundering in a series of linked trials. Their crimes cost the taxpayer an estimated £100m. They have never faced terror charges.
Reporting restrictions imposed at the start of the first trial prevent the identification of any of the gang because several kingpins fled the UK before they could be arrested. They are thought to be in the Middle East. The Crown Prosecution Service (CPS) continues to insist that nothing can be reported until the masterminds have been returned to the UK to face trial.
Nazir Afzal, a leading prosecutor who brought the Rochdale sex-grooming gang to justice in a series of linked trials, said the situation was unprecedented.
“The scandal here is that individuals have been to prison and come out of prison, yet the public still don’t know about it,” he said.
“I have never heard of reporting restrictions being in place for defendants who have fled the country. You can’t have a situation when we wait several more years to find out what has happened here. This is of major public interest.”
A CPS source said he believed the reporting restriction orders remained in place for “national security” reasons.
A two-year-investigation by The Sunday Times, based on thousands of intelligence files, emails, court documents and interviews with security officials briefed on the matter, has uncovered as much of the story as it is possible to tell.
Carrier bags full of cash
The first sniff of the gang’s activities came 24 years ago when police officers from a rural English force became so alarmed at the claims of one informant that they called in Special Branch, the police unit responsible for national security.
Secret police reports show the “extremely frightened” source told Special Branch and HMRC officers in 1995 that gang members were engaged in mortgage fraud with the help of corrupt banking agents and mortgage brokers.
“Asian customers are coming in with carrier bags full of cash on a regular basis,” said the informant, who alleged that the money was placed in bank accounts under false names before being “sent out of the country by an Asian solicitor for terrorist or drugs purposes”.
The claims led to a four-year investigation by HMRC, then called the Inland Revenue, and other agencies. The inquiry pooled intelligence from tax, customs, police, immigration and trading standards officers and put suspects under surveillance.
It concluded that the gang was using a network of factories and companies and exploiting their workers for identity and benefit frauds, the sale of counterfeit goods, car crash scams and mortgage and credit card frauds.
The crimes were complex and varied. But they led to a single outcome: billions of pounds being stolen from the public purse and private sources.
The dog with a camera
HMRC inquiries found the gang used “hijacked or altered national insurance numbers to create false records” and exploited “illegal immigrant labour” before laundering the cash “through bogus offshore companies”.
An undercover HMRC officer says he watched Abu Hamza, the hook-handed cleric, recruiting young Muslims in the late 1990s to work with the crime syndicate — years before he rose to prominence as an al-Qaeda recruiter.
Those involved in the investigation say the gang was extremely difficult to penetrate. Undercover agents eventually resorted to attaching a camera to a dog and encouraging it to run around inside one of the network’s factories to find out how many people worked there.
The most lucrative crime was carousel fraud, which involves the bogus import and export of items such as mobile phones and computer chips. Investigators concluded that the gang had gained more than £1bn from unjustified VAT rebates in a single postcode area.
“A large proportion of these frauds originated from just a few families (covering several generations) perpetrating serious, organised and sustained attacks against any agency with apparently weak systems,” the report said. It added that the money was sent mainly to Pakistan “but also Hong Kong and Dubai and is most likely to be linked to terrorism”.
One gang member who can be identified is Afra Syab Ilyas, an accountant with Burnley borough council. The files state that he left Lancashire for Afghanistan in the late 1990s to fight for the Taliban, the Islamic fundamentalist movement that gave shelter to bin Laden as he plotted his 2001 attack on the World Trade Center in downtown Manhattan.
Ilyas was killed when an artillery shell hit a mosque near the capital, Kabul. It emerged that he had left for Afghanistan not long after hearing Abu Hamza deliver a lecture at a mosque in Burnley.
An HMRC source said the workers that Hamza recruited all claimed working family tax credits and housing benefit and the factories that employed them had extra staff who “were ghosts claiming benefits and having car crashes”.
The source added: “A factory of 180 workers only had 120 physical workers. The rest were identity frauds with all proceeds going back to the owners of the companies. This generated around £20,000 a week in benefit claims alone.”
The abandoned laptops
In the months after 9/11, CIA and MI6 officers looking for bin Laden in the remote Spin Ghar mountain range between Afghanistan and Pakistan came across several laptops that had been left in a hurry.
When the hard drives were analysed, they laid bare the funding that had helped al-Qaeda orchestrate a deadly terror attack from a mountain cave. Security officials were amazed to discover that a key source of funding was an accountant in an English town.
The unassuming beancounter was, in reality, part of a network engaged in monumental frauds against the Treasury.
The gang built UK property portfolios and bought Ferraris, Mercedes and Range Rovers with personalised numberplates at the expense of the taxpayer.
For years HMRC and other agencies did little to disrupt it and took almost no formal enforcement action. The files show that at least four rank-and-file HMRC intelligence officers implored bosses to launch prosecutions. Their requests were rejected “due to their complicated nature and a lack of resources”.
When the 9/11 attacks occurred in 2001, one official warned HMRC chiefs that he had “basic information” that would be of great interest to MI5.
Internal files seen by this newspaper show the officer said he was “ready to meet someone from the intelligence services” with the “mountains of information available to us” that had “taken on a whole new significance” after the attacks on New York and the Pentagon.
“Officers and, increasingly, their direct management have become frustrated at the lack of action,” wrote the officer. His request was refused because HMRC was worried about preserving the taxpayer confidentiality of the terror suspects.
“HMRC had no concept of big-picture thinking,” said a source briefed on the matter. “Post 9/11 it had no information exchange with the Security Service [MI5] and the Secret Intelligence Service [MI6].” He alleged: “Then, even when in place, this was overridden by the rules that tax files are sacrosanct.
“HMRC still has no concept as to how it should operate as an agency alongside the intelligence agencies in protecting the nation and its interests.”
HMRC said: “HMRC can and does pass information to other law enforcement agencies and the intelligence services. We take our critical role in the fight against serious organised crime and terrorism very seriously. We work with the intelligence services to break up criminal gangs and disrupt terror funding.”
After being briefed by this newspaper, Hillier said: “Taxpayer confidentiality is important but where individuals are evading tax to seek to do us harm, then the appropriate agencies should be told.
“HMRC routinely shares information with other agencies so I find it extraordinary that they did not do so in this case.”
Some of the HMRC investigators wondered whether corruption played a part in the decision. The gang had infiltrated government agencies to obtain “sensitive information” for its frauds.
“From just one company we highlighted some 20 potential internal fraud cases involving [gang] members in government agencies,” one intelligence summary said.
“We also have two suspects at the Post Office who appear to be assisting with the theft of documents used in creating false identities. Infiltration is widespread.”
Concern also focused on the thousands of pounds given in donations to the Labour Party, which was then in government. “The most alarming factor is the use of politics to create an air of legitimacy,” said an internal HMRC report.
“There are numerous [gang] members involved in think tanks and business forums which bring them into contact with senior British politicians. I myself have seen one member shoulder to shoulder with Tony Blair on at least two occasions following the war in Iraq.”
The files also show that the gang enjoyed links with a top politician in Pakistan. There is no suggestion that Blair was aware of the alleged crimes.
The tensions inside HMRC became unsustainable when al-Qaeda finally delivered a big blow in the UK. Four young suicide bombers inspired by bin Laden’s anti-western rhetoric launched co-ordinated attacks on London’s public transport network in July 2005, killing 52 people. It was Britain’s deadliest terrorist attack since the 1988 bombing of Pan Am flight 103, which crashed onto Lockerbie.
Embarrassingly for HMRC chiefs, one of the bombers was linked to the network at the centre of its inquiries, which it had decided not to pass on to MI5.
Leaked HMRC intelligence reports show that as far back as 2003, the investigation had identified associates of Tanweer, 22, who detonated a bomb while travelling eastbound on the Circle Line between Liverpool Street and Aldgate, killing himself and seven others.
The associates were suspected of “multi-identity fraud, phoenix trading, tax evasion, tax credit fraud and money laundering”, according to the files.
After the bombings HMRC bosses finally told their inquiry team to prepare a report on the intelligence they held that could “help the security services in regard to counter-terrorism”.
Many suspects identified by the investigation in the 1990s were prosecuted. Associates of the ringleaders were charged with carousel fraud and money laundering. The CPS had to review secret MI5 intelligence about the defendants to ensure there was nothing that would prejudice a fair trial.
The result was “jaw-dropping”, according to a source: “MI5 had information that the ultimate destination for some of the money was Osama bin Laden’s compound in Abbottabad.”
The al-Qaeda leader spent his last five years evading western intelligence in a safe house less than a mile from a Pakistani military academy and 150 miles from the Afghan border. Bin Laden was eventually found and killed by a team of US Navy Seals in May 2011.
At the time no one would have guessed that the world’s most wanted man had survived partly on money stolen from the British taxpayer.