Royal Bank of Scotland has been drawn into a criminal tax fraud investigation as five current and former employees of its investment banking arm have been arrested as part of a wider probe thought to involve at least two other City institutions.
The London office of RBS's investment banking unit was searched in connection with the investigation, which is understood to involve at least two other City banks.Photo: GETTY
Four current and one former staff member of RBS’s global banking and markets division were arrested at their homes on Wednesday in a series of raids, as HM Revenue & Customs (HMRC) investigated allegations that City financiers have been using film finance schemes to evade taxes.
The London office of the taxpayer-backed lender’s investment banking unit also was searched in connection with the investigation, which is understood to involve at least two other City banks.
More than 15 people are thought to have been arrested as part of the HMRC probe, which is part of a crackdown on tax evasion.
The news is set to inflame the political and public outcry surrounding RBS, as the majority state-owned bank prepares to hand out £500m in bonuses to staff at its investment banking arm.
Last night, HMRC confirmed the arrests: “As a result of an on going HMRC investigation into tax-related criminal offences, HMRC has arrested a number of people, some of whom work for UK banks. This investigation relates to the actions of the people arrested in relation to their own financial affairs and is not connected to the business activities of the banks.”
A spokesman for RBS commented: “We do not comment on ongoing investigations. We are fully co-operating with HMRC.”
The arrests will prove highly embarrassing for RBS as it prepares to hand out the slug of bonuses, and comes just a fortnight after Stephen Hester, chief executive, was forced to give up his own £963,000 bonus after the payment of the all-share award triggered a Parliamentary debate.
RBS is already scaling back its investment bank, which will lead to a further 4,500 job cuts on top of several thousand announced last year.
At least one of the RBS investment bankers arrested last week is understood to have worked for its equities business and according to one source one of those held has a senior management position.
HMRC’s investigation is understood to centre on claims City bankers have been illegally using film finance schemes to evade taxes.
Film investment schemes had in recent years become a common way to claim tax relief. UK taxpayers had been allowed to take advantage of statutory tax relief by investing in film production, or to invest in a directly in a film and then write down the value of the investment to nothing to claim tax relief on the loss.
The authorities curbed film schemes and so-called “sideways tax loss relief” three years ago, and investors are now limited to £25,000 in tax relief per year unless “actively involved” in the film.
The arrests are just the latest affecting senior City figures. In 2010, six men, including a hedge fund trader, a senior stockbroker, and a managing director at a major investment bank, were arrested in dawn raids by more than 100 officials from the Financial Services Authority and the Serious Organised Crime Agency as part of an investigation into allegations of insider trading.