Remember the Cup Trust?
The charity registered by the Charity Commission in 2009 with a company established under the laws of the British Virgin Islands - which is not a tax haven according to it and others, including David Cameron - as it sole corporate trustee?
The charity in relation to which the Charity Commission opened a statutory inquiry in 2013 as a result of concerns that that it was involved in a rather sizeable tax avoidance scheme?
The charity whose existence was very much at the centre of the criticisms levelled at the Charity Commission's regulatory performance by the National Audit Office which concluded that the Commission was not regulating charities effectively?
Well, over 5 years later we now have the results of the Charity Commission's statutory inquiry.
To be fair to the Commission, whilst the basic facts raise eyebrows, the scheme within which the Cup Trust was involved was highly complex. Approximately 18 months ago I sat through a talk setting out how the scheme operated and left with more questions than answers.
In very basic terms, the Cup Trust tax avoidance scheme involved the charity receiving circa £176 million in donations, purchasing government bonds with those funds which were then sold on for less than £17,000. Gift aid claims of £46 million were submitted to HMRC despite only £55,000 being granted by the charity in pursuit of its charitable purposes.
The Cup Trust was removed from the Register of Charities in May 2017 following a winding up of the charity's affairs by an interim manager appointed by the Commission. The sole corporate trustee - the BVI company known as Mountstar - was also disqualified from charity trusteeship for 15 years using new powers granted to the Charity Commission under the Charities (Protection and Social Investment) Act 2016.
In addition to this, one of Mountstar's directors was banned from the accountancy profession for 10 years and fined £70,000.
Rather unsurprisingly, the Commission's inquiry report (available here https://www.gov.uk/government/publications/the-cup-trust-charity-commission-inquiry-results) concludes that Mountstar was responsible for “clear mismanagement and misconduct”, failing to fulfil its legal duties as trustee in entering the charity into the scheme and managing its participation in the scheme.
The Commission also focuses on the personal benefits that arose to individuals involved in the scheme - being well beyond permitted incidental personal benefits - and the failings to manage conflicts of interest (although clearly personal interests were the driving force being the scheme and so properly managing them would not have been a priority).
The report also highlights the scale of the abuse. The £46 million in Gift Aid claims submitted to HMRC were unsuccessful (HMRC quite correctly smelled a rat) but nonetheless, Matthew Jenner, a director of Mountstar and the man to whom control of the Cup Trust has been attributed by the Commission, received in excess of £2 million in up-front fees from his taxpayer clients for his work on the scheme. Mr Jenner is now disqualified from being a charity trustee (along with a number of his colleagues) and, despite the fees received, Mr Jenner was declared bankrupt in 2015.
The Cup Trust case has had a significant impact on the regulatory landscape for charities. It was a significant factor in the Commission securing new powers in the 2016 Act and in the Commission's recasting as a the sector's "policeman", "robust regulator", etc, etc.
A very complex case and one that I expect the Commission is very happy to have finally concluded.
Harvey Grenville, Head of Investigations at the Charity Commission, said: Our inquiry demonstrates beyond doubt that The Cup Trust was misused by the corporate trustee to assist higher-rate tax payers in reducing their tax bills, and earning individuals connected to the scheme lucrative fees. Those personal benefits were far more than incidental and the fact that the charity would, had the scheme been accepted by HMRC, have benefited from gift aid, does not legitimise these intentions or actions.