“But that is far from saying that the surrounding circumstances cannot establish sufficient knowledge to treat the trader as a participant. As I indicated in relation to the BSG appeal, Tribunals should not unduly focus on the question whether a trader has acted with due diligence. Even if a trader has asked appropriate questions, he is not entitled to ignore the circumstances in which his transactions take place if the only reasonable explanation for them is that his transactions have been or will be connected to fraud. The danger in focussing on the question of due diligence is that it may deflect a Tribunal from asking the essential question posed in Kittel , namely, whether the trader should have known that by his purchase he was taking part in a transaction connected with fraudulent evasion of VAT. The circumstances may well establish that he was. ” 25. He then at [83] went on to say: “The questions posed in BSG (quoted here at § 72) by the Tribunal were important questions which may often need to be asked in relation to the issue of the trader's state of knowledge. I can do no better than repeat the words of Christopher Clarke J in Red12 v HMRC[2009] EWHC 2563 :- "109 Examining individual transactions on their merits does not, however, require them to be regarded in isolation without regard to their attendant circumstances and context. Nor does it require the tribunal to ignore compelling similarities between one transaction and another or preclude the drawing of inferences, where appropriate, from a pattern of transactions of which the individual transaction in question forms part, as to its true nature e.g. that it is part of a fraudulent scheme. The character of an individual transaction may be discerned from material other than the bare facts of the transaction itself, including circumstantial and "similar fact" evidence. That is not to alter its character by reference to earlier or later transactions but to discern it. 110 To look only at the purchase in respect of which input tax was sought to be deducted would be wholly artificial. A sale of 1,000 mobile telephones may be entirely regular, or entirely regular so far as the taxpayer is (or ought to be) aware. If so, the fact that there is fraud somewhere else in the chain cannot disentitle the taxpayer to a return of input tax. The same transaction may be viewed differently if it is the fourth in line of a chain of transactions all of which have identical percentage mark ups, made by a trader who has practically no capital as part of a huge and unexplained turnover with no left over stock, and mirrored by over 40 other similar chains in all of which the taxpayer has participated and in each of which there has been a defaulting trader. A tribunal could legitimately think it unlikely that the fact that all 46 of the transactions in issue can be traced to tax losses to HMRC is a result of innocent coincidence. Similarly, three suspicious involvements may pale into insignificance if the trader has been obviously honest in thousands. 111 Further in determining what it was that the taxpayer knew or ought to have known the tribunal is entitled to look at the totality of the deals effected by the taxpayer (and their characteristics), and at what the taxpayer did or omitted to do, and what it could have done, together with the surrounding circumstances in respect of all of them." 26. It is therefore not surprising that in considering whether to make an assessment based on the application of the Kittel principle HMRC will wish to look at the circumstances surrounding the totality of the transactions entered into by a taxpayer with all its various counterparties, and the question as to whether a taxpayer undertook appropriate due diligence on its counterparties is clearly a relevant circumstance to take into account in assessing whether the taxpayer should have known his transactions were connected to fraud. Mr Mantle, contrary to the position taken by Mr Kinnear, submits that the due diligence question is less relevant to the question of actual knowledge and this is an issue to which I will return later. 27. I can summarise the issues that I have to consider in order to determine the preliminary issue as follows: (1) Did Officer King hold the opinion that the last piece of evidence of sufficient weight to justify the Assessment was all or any of the due diligence material she received on28 October 2011 in response to her request for further information in that regard? (2) If the first question is answered in the positive was her opinion perverse or wholly unreasonable? Evidence 28. Mr Daniel Edelman (“Mr Edelman”), a director of Carbondesk, provided two witness statements and gave oral evidence. His first witness statement largely dealt with the background to Carbondesk’s trading in carbon credits and HMRC’s investigation as well as giving evidence as to when information requested by HMRC had been provided. In his first witness statement Mr Edelman’s evidence was that all relevant information had been provided to HMRC by26 October 2010 . He subsequently realised after reading Officer King’s witness statement that this was not fully accurate because he accepted that HMRC received some further due diligence material in response to Officer King’s request in October 2011. He therefore filed a second witness statement correcting his first statement. 29. Mr Kinnear’s cross-examination of Mr Edelman focused on two areas, first on the question as to whether Carbondesk stopped trading for a period in July 2009 after being alerted to possible fraud within the carbon credit market and secondly on the additional due diligence undertaken by Carbondesk on its counterparties during July 2009. As regards the first area, Mr Kinnear referred Mr Edelman to various invoices which were not on the agreed bundle of documents for the hearing (although they were on the list of documents for the appeal as a whole) and I allowed Mr Mantle’s objection to those invoices being admitted late for the purpose of the preliminary issues hearing, not only because there the application to admit them was made at a late stage without good reason but also because I did not consider the question as to whether or not Carbondesk did cease to trade for a short period to be relevant for the determination of the preliminary issue and I make no findings on that point, bearing in mind it was common ground that Carbondesk did resume trading later in July 2009. Except in respect of his view as to the rigorousness of the due diligence carried out by Carbondesk before it was alerted to the possibility of fraud in the carbon credit market, which in my view he initially over exaggerated, I had no reason to doubt Mr Edelman’s evidence on the matters on which I have made findings of fact so that unless I indicate otherwise I have accepted his evidence. 30. Officer King also provided a witness statement and was cross-examined. I had no reason to doubt her evidence on the matters on which I have made findings of fact in this decision. 31. As well as the pleadings filed in the substantive appeal, I was provided with copies of the due diligence material provided by Carbondesk in response to Officer King’s request, copies of Officer King’s notebooks relating to her consideration of the case, relevant correspondence and a copy of the witness statement of Officer Julie Yeomans, filed on behalf of HMRC in respect of the substantive appeal. Findings of Fact 32. From the documents submitted and the oral evidence I heard I make the following findings of fact. 33. It is helpful to start with some brief background findings on the trading of carbon credits. Much of this is taken from Mr Edelman’s evidence (which was not challenged on this point) and an explanatory memorandum I was provided with issued by the Department of Energy and Climate Change (“DECC”) in March 2009 regarding the operation of the UK Emissions Trading Registry. 34. Carbon credits are traded as if they are a physical commodity. There are basically two forms of trading, a spot contract, where title to the asset traded is transferred as soon as the contract is struck, and a futures contract, where the purchase price is agreed at the time the contract is entered into to be paid at a specific date in the future. Carbondesk traded in a particular form of carbon credit, evidenced by a certificate, and known as a European Union allowance (“EUA”). 35. One certificate relating to an EUA is effectively a licence to emit one tonne of carbon dioxide in one year. They are issued by each EU state to qualifying industrial installations in that state. They are held electronically in state run registries and only exist in dematerialised form. For the reasons mentioned below it is impossible to receive bad delivery of an EUA. The entities that are issued with these EUAs are free to buy and sell them but must, once a year, surrender the same number of EUAs as the measured and audited carbon dioxide emissions that they have made. 36. Futures trades are carried out on a standardised exchange trade basis and then lodged with the clearing house. Spot trades are bilateral agreements and are settled between the parties. Spot trades can be brokered where neither party knows the other party until the trade is struck and the broker is paid a commission for negotiating the deal, or bilateral agreements, where each party negotiates directly with the other or by using a broker as a riskless principal where, instead of a broking fee, an agreed margin is taken by the broker which ensures that each party has anonymity with regards to the other. 37. Carbondesk acted as a broker in the spot market for EUAs during 2009 on the following basis. A party wishing to enter into a transaction would instruct Carbondesk who then locates an appropriate counterparty. Carbondesk transacts simultaneously with each party at a different price. The difference in the two prices is Carbondesk’s profit margin. 38. Carbondesk acted as a riskless principal in relation to its brokerage activity. The transactions were riskless as all parties wishing to trade in the certificates had to maintain an account with the relevant state registry, in this case the UK Emissions Trading Registry operated by the DECC. All certificates owned by a trader had to be held in this account and a broker or counterparty could be reassured that the trader would be able to deliver the certificates it had contracted to sell if they appeared in his account; settlement would be from one DECC account to another. 39. Opening an account with DECC in 2009 was a straightforward process. Any individual or company was able to do so and DECC’s explanatory memorandum said that it “will only take a few minutes.”
“In the light of recent events in the EU ETA spot trading market we have taken advice in relation to enhancing our due diligence checks. As a result, we can confirm that we will be undertaking the following checks in relation to each of our customers: 1. We will take steps to verify the trading address of each of our customers. 2. We will obtain a copy of the relevant VAT Certificate and will take steps to verify the contents of this with HMRC. 3. We will obtain copies of the passports of each of the Director/s and take steps to verify the home address/es. 4. We will obtain a copy of the Certificate of Incorporation. 5. We will seek a reference for the company from any relevant external accountancy firm. 6. We will seek to obtain a letter of good standing from the customers’ bank. Can you please confirm that your due diligence policy is in keeping with ours at your earliest convenience?” 48. Mr Edelman accepted that most of the recipients of this letter did not answer it. He said that no chasing action was taken in light of the decision on1 August 2009 to zero-rate the trading of carbon credits which Mr Edelman said made the issue irrelevant. However, it appears that at least one letter was sent after that time, that to Winnington which was dated8 September 2009 , well after the only trade with that counterparty which had been effected on27 July 2009 . Mr Edelman accepted that was the case but offered no explanation as to the reason for the delay. Mr Edelman was unable to point to any evidence that Carbondesk obtained a reference from any external accounting firm or a letter of good standing from a bank, as envisaged in the letter, so I find that none were obtained. Indeed Mr Edelman said that no bank would issue a letter of good standing. 49. There were various visits from HMRC to Carbondesk and communications between them between5 October 2009 and26 August 2010 but it appears that the only new information received by HMRC as a result was printed copies of Carbondesk’s bank statements, which were provided on27 January 2010 along with information about its transactions between 1 April and31 July 2009 which had previously been provided but was provided again at HMRC’s request on a USB stick. 50. On7 May 2010 the officer then handling the investigation wrote to Carbondesk informing them that 561 of its purchases of carbon credits made between 5 May and30 July 2009 commenced with defaulting traders, the relevant deal chains having by then having been traced. The letter gave no indication of what the next steps would be as far as Carbondesk was concerned. 51. On14 October 2010 Louise King became the designated officer for Carbondesk. Mr Mantle cross-examined Officer King regarding what work she did on the matter following her appointment. She was quite vague about what she did before the review she carried out in August 2011 referred to below, but I accept that the first significant work she did was during 2011 when she started to prepare a means of knowledge report which was ultimately finalised on31 July 2012 . As appears from her notebooks, between 18 and24 August 2011 she carried out a general review of all the material held by HMRC in relation to Carbondesk at that time. Just before then, on31 July 2011 , the time limit in s 73(6)(a) VATA for the making of an assessment in respect of the periods which are relevant to this appeal expired which meant that an assessment could only lawfully be made in respect of those periods if s 73(6)(b) applied on the facts. 52. Amongst the material reviewed was the due diligence material provided by Carbondesk on the USB stick referred to at [46] above. Officer King was aware that Carbondesk had, as I have found, continued to trade after this due diligence material had been provided to HMRC. In particular, Carbondesk had traded for the first time after that material had been provided with two counterparties, Pan Energy Markets limited (“Pan Energy”) and Winnington Networks Limited (“Winnington”) and continued to trade with Apex Global Trading Limited (“Apex”) although it had undertaken a single deal before that time. Six transactions took place with Pan Energy (on 23, 24 and28 July 2009 ) and one transaction with Winnington (on27 July 2009 ). 53. It became common ground that the memory stick obtained in July 2009 contained incomplete due diligence material in relation to Apex and Pan Energy and no due diligence material in relation to Winnington. In addition, no material was on the USB stick in relation to another counterparty, Aducco Consulting Limited (“Aducco”) although, as we shall see, the Assessment did not include any trades with that counterparty, nor, as it transpired, with Apex. 54. The Assessment included significant sums in respect of purchases made by Carbondesk from Pan Energy and Winnington, in total amounting to 1,648,977 Euros all of which save for 105,240 Euros related to Pan Energy. 55. Officer King’s evidence was that she considered that the extent and quality of Carbondesk’s due diligence on these suppliers at the time it obtained supplies from them was likely to be relevant to the issue as to whether it knew or should have known of the fact that these transactions were connected with fraudulent tax losses. Her evidence was that unless she had the evidence of the due diligence that Carbondesk carried out on these suppliers she would be unable in the exercise of her best judgment to make the Assessment, and in particular to include the sums in respect of Carbondesk’s purchases from Pan Energy and Winnington, because she had to be satisfied upon the objective evidence that Carbondesk knew or should have known of the connection to fraud. 56. Officer King wrote to Carbondesk on28 October 2011 stating that she was seeking further information. In particular she asked whether any due diligence was carried out in respect of a number of named suppliers and customers, including those mentioned at [52] above. She then asked to be sent within 30 days any copy paperwork relating to due diligence checks which were undertaken in respect of the named traders in relation to carbon credit deals carried out in April, May, June and July 2009. 57. Carbondesk replied to this letter, sending a memory stick containing the information requested. This was received by HMRC on28 October 2011 . 58. Much of this information had previously been provided by Carbondesk. When Mr Edelman prepared his first witness statement he believed that HMRC received no new material in response to Officer King’s letter of12 October 2011 but accepted in his second witness statement and in cross examination that some new material had been provided, in particular the letter set out at [47] above sent to all of its counterparties following the advice Carbondesk received to enhance its due diligence procedures. These letters clearly had not been created at the time the original material had been provided on the memory stick handed over after the visit on14 July 2009 . Other material which although available, had not, as Mr Edelman explained, been uploaded on to Carbondesk’s computer database at the time the first memory stick was provided. 59. In relation to those counterparties in respect of whose trades VAT was included in the Assessment, the only new material received was as follows: Pan Energy An enhanced due diligence letter, in the form set out at [47] above, dated20 July 2009 and a company details document on Pan Energy headed paper. Winnington The full set of due diligence material then required according to Carbondesk’s enhanced procedures. This consisted of · documentation to establish Winnington’s identity and that of its directors; · details of other information filed at Companies House, including a description of its business as being involved in wholesale electrical goods; · its VAT registration certificate and HMRC’s response validating its VAT number; · an introduction letter from Winnington describing its business as being a trader in the OTC energy and emissions market which letter also enclosed Winnington’s “know your customer” documents; and · the enhanced due diligence letter from Carbondesk, dated8 September 2009 . 60. Officer King’s evidence was that this new material was relevant to make the Assessment, including as it did VAT in respect of trades effected with Pan Energy and Winnington, and that without this material the Assessment would not have been justified in her best judgment. In my view it was implicit in her evidence that it was only the material which related to those transactions which were actually included in the Assessment (that is those relating to Pan Energy and Winnington) which influenced her in this respect. 61. In particular, Officer King said that as some of the deals in question were effected after the date of HMRC’s visit on14 July 2009 she needed to request due diligence material in respect of the traders concerned in order to further her enquiries. Officer King explained that she wished to see whether any further due diligence had been done in the light of HMRC’s visit during which Carbondesk had been informed of fraud in the carbon credit market and that they could potentially become involved in it. Officer King’s stated conclusion on what she saw after the additional material was provided was that not much more due diligence had been carried out and that what had been carried out was not satisfactory. In particular, she saw no evidence that any bank references, trade references or any evidence that that Carbondesk had obtained any of the additional information that it said it would in the enhanced due diligence letter, which she said she would have expected to see if due diligence was being carried out properly. She said that she expected to see more work having been done and a different way of trading after14 July 2009 , bearing in mind that Carbondesk had recently been told that their deals may well be connected to fraud. Her evidence was that these were matters she took into consideration in deciding whether to assess, the lack of documentation indicating to her that inadequate checks were made. 62. Mr Mantle did not challenge Officer King as to whether she genuinely held the opinion that such of the additional material that she obtained on which she said she relied was relevant to her decision to make the Assessment and that without that new material the Assessment would not be justified. I therefore proceed on the basis that Officer King was of the opinion that the information she received in response to her letter of11 October 2011 included evidence of facts sufficient to justify making the Assessment and that until that point she would not have been justified in making the Assessment. 63. The Assessment was ultimately made on26 October 2012 , one day before the elapse of one year since Officer King received the new information referred to at [59] above. Certain deals which Officer King had recommended be included in the Assessment were not included, in particular those relating to Adduco as mentioned at [53] above. This was as a result of a decision by HMRC that no deals that took place before the closure of the Bluenext exchange on9 June 2009 would be assessed. Nevertheless, as Officer King explained, as the decision making officer, she took responsibility for the assessment that was actually made. Neither did the fact that the decision letter sent on26 October 2012 to Carbondesk notifying it of the Assessment was signed by a more senior officer affect the position; it was accepted that for the purposes of this decision the question as to whether HMRC’s opinion is open to challenge is to be tested by reference to the decisions made by Officer King, as reflected in the Assessment and its accompanying decision letter. 64. The decision letter set out a number of the features of Carbondesk’s trading which HMRC say they took into account in making their decision to deny Carbondesk’s claim for input tax credit as follows: · The transactions have been traced back to fraudulent tax losses in the appropriate periods · The Bluenext exchange in France was Carbondesk’s main counterparty for its sales of carbon credits for the periods in question. On8 June 2009 , Reuters News Agency reported that the Bluenext exchange had been closed and that France was to apply a zero rate to carbon credits due to the prevalence of VAT fraud in the market · There was also a Bloomberg report published on8 June 2009 confirming the existence of fraudulent trading activities within the carbon credit trade sector · On11 June 2009 Reuters published a report relating to the French authorities probe into suspected multi million euro fraud in the French carbon credit market · The due diligence undertaken by Carbondesk could not have provided it with adequate assurances that transactions undertaken were not connected with fraudulent evasion of VAT · The rapid increase in levels of trade following the Bluenext suspension should have made Carbondesk realise that the only reasonable explanation for these supplies was that they were connected with fraud · The individuals involved in Carbondesk each had a background in commodities dealing. Carbondesk should have queried why its suppliers were able to source EUAs cheaper than itself. 65. It is clear from this list that HMRC’s view that Carbondesk’s due diligence on its counterparties was inadequate was a factor in Officer King’s decision to make the Assessment. It is also clear from this list that HMRC would have received many documents in the course of its investigation, in particular the complete record of transactions undertaken by Carbondesk between 1 April and31 July 2009 , 561 of which HMRC traced to deal chains with defaulting traders, 547 of which formed the basis of the Assessment. It is therefore clear that apart from the very limited documentation that Officer King’s further enquiries produced, HMRC had all the evidence of facts on which it based the Assessment more than one year before the Assessment was actually made. 66. In the light of these findings of fact I now turn to the question as to whether the Assessment was out of time. Discussion 67. As I set out at [27] above there are two issues that I need to consider in order to determine the preliminary issue. I have already determined the first issue in favour of HMRC through my finding of fact at [62] above that Officer King was of the opinion that the information she received in response to her letter of11 October 2011 was evidence of facts sufficient to justify making the Assessment and that until that point she was of the opinion that she was not justified in making the Assessment. I therefore only now need to discuss the second issue, that is whether Officer King’s opinion to that effect was perverse or wholly unreasonable. 68. In that regard I focus purely on the information that Officer King received in relation to Pan Energy and Winnington because of my finding at [60] above that Officer King placed no weight on the material she received in respect of those counterparties whose transactions were not included in the Assessment. 69. I should emphasise at the outset that I make no findings as to the quality of Carbondesk’s due diligence and whether, as HMRC contend, it was no more than a smokescreen to hide the fact that it knew the transactions concerned were connected to fraud. Those are matters for the substantive hearing of the appeal. I am purely concerned with the question as to whether Officer King’s opinion as to the significance of this material as being of sufficient weight to justify the Assessment was perverse or wholly unreasonable. 70. As I have indicated at [20] above I accept the thrust of Mr Mantle’s submission that the correct approach to the material in question (which as I have identified at [60] above is the due diligence material received in respect of Pan Energy and Winnington) is to consider whether that material is of sufficient weight to justify the making of the assessment that was actually made. In that regard the material was insignificant in quantity compared to the many thousands of documents previously received and reviewed by HMRC in the course of its investigation and on which it based its decision to assess in respect of transactions between Carbondesk and 50 of the 52 counterparties with whom in dealt in the relevant periods. It would clearly have been open to Officer King to make an earlier assessment in relation to those transactions and leave the Pan Energy and Winnington transactions out of account at that stage to be considered later in the light of the receipt of the further information requested. Those matters are, however, not relevant to the question I have to decide because I have to focus on the assessment that was actually made. Officer King decided to make one assessment in relation to all the transactions under consideration rather than make two separate assessments. I therefore need to consider whether it was perverse or wholly unreasonable of Officer King to consider that the she could not make an assessment which included the Pan Energy and Winnington deals until she had received and reviewed the additional material in respect of those counterparties. 71. Mr Mantle observes that HMRC’s primary case is that Carbondesk was actually aware of fraud in its deal chains. He submits that the Pan Energy and Winnington documents received after Officer King’s request could not be evidence of actual knowledge of fraud. He submits that there is nothing in those documents which tips the balance between having not enough evidence to show that Carbondesk had knowledge of fraud and sufficient evidence of fact to show that Carbondesk had knowledge of fraud. In effect he submits that all the essential ingredients to make the Assessment on the basis of actual knowledge were in place before the receipt of the additional information. The additional documents were so insubstantial, given the evidence which HMRC had previously obtained, that it was wholly unreasonable not to have made the Assessment earlier. The missing documents were not the “missing piece of the puzzle” referred to by the Court of Appeal in Pegasus Birds needed for HMRC to make the Assessment. For the same reason, he submits that it was wholly unreasonable and perverse not to have made the assessment earlier on the basis that Carbondesk should have known of the connection to fraud. 72. Mr Mantle submits that there was ample evidence of the approach to due diligence in HMRC’s hands before the additional material was provided. HMRC’s conclusions on that approach were expressed in the decision letter, as set out at [64] above as being that the scope of the due diligence checks undertaken could not have provided Carbondesk with adequate assurances that the transactions were not connected with fraud. It was clear from this, he submits, that HMRC regarded due diligence as providing Carbondesk with no shield, given the other points relied on by HMRC to show knowledge and means of knowledge; there was nothing expressed in HMRC’s conclusions to suggest that they relied on the alleged inadequacy of the due diligence to conclude that what they did was a smokescreen to hide the fact that they knew the transactions concerned were connected to fraud. 73. With regard to the enhanced due diligence letter sent in July 2009 (in the case of Pan Energy) and September 2009 (in the case of Winnington) there was nothing in those that tipped the balance between insufficient and sufficient knowledge of fraud and in any event by 30 July when the law changed the fact that no further information was provided as envisaged by the letter was no longer relevant. Had Officer King felt that whether additional information was provided as envisaged in these letters was significant she could have followed up and asked for it, but she did not do so. 74. Finally, Mr Mantle reminded me of the warning of Moses LJ at [82] of Mobilx that tribunals should not unduly focus on the question whether a trader has acted with due diligence and also the observations of Arden LJ in BUPA as to the need to make an assessment to best judgment at as early a stage as reasonably practicable. His submission was that the reason the Assessment was made out of time was that there was delay on the part of HMRC in analysing, or reaching conclusions on the basis of, the evidence obtained by HMRC well before a year before the Assessment was made. The purpose of s73(6)(b) VATA is precisely to protect taxable persons from tardy assessments and the facts show delay on the part of HMRC in particular in the last part of 2010 and the first half of 2011. 75. I have some sympathy with the view that this was a tardy assessment in terms of the ordinary use of language. HMRC had virtually all the information they needed well before they actually made the Assessment. Officer King took a period of over a year between becoming the designated officer and making a request for further information, during which she spent only a short amount of time (4 days) in carrying out a general review of the matter and an unspecified period of time in preparing a means of knowledge report. During this period the time limit in s 73 (6) (a) expired. It then took almost another year before the Assessment was made during which there was only a small amount of additional information to review. 76. However the legal test as to what is tardy is different. It is measured by reference to when HMRC received the last piece of evidence sufficient in its opinion to make the assessment it did. Parliament has given HMRC significant leeway in this respect, placing great weight on their judgment as to when that point has been reached; the only risk for HMRC in taking an extended period of time before they ask for further information is that what they ask for by way of further information turns out not to have the degree of importance that they thought it might have with the result that it would be perverse or wholly unreasonable to rely on it as justifying an assessment. I can therefore place no weight on the fact that HMRC should have concluded matters much quicker than they did. I do not see Arden LJ’s observation in BUPA , referred to at [19] above as operating as a gloss on the correct test in s 73 (6) (b). 77. In my view Mr Mantle’s submission, summarised at [72] above, on how HMRC viewed the due diligence as expressed in the decision letter amounts to a questioning as to whether Officer King in fact did rely on the lack of what she perceived to be adequate due diligence after HMRC’s visit on14 July 2009 , during which Carbondesk had been warned of potential fraud in the market, as going to the question of actual knowledge. Officer King was clear in her oral evidence that she did rely on it in her consideration of the actual knowledge issue and this was not challenged. 78. Nor do I see anything in Mr Mantle’s submission that if Officer King had thought the lack of evidence that any further information was provided as envisaged by the enhanced due diligence letter was significant she would have followed up on the issue. Her letter requested “any copy paperwork relating to due diligence checks” on the specified counterparties. None of the additional information envisaged was provided and she was entitled to assume if it was not then it did not exist and take that factor into account. 79. Mr Mantle submitted that the process envisaged by the enhanced due diligence letter in effect became redundant after30 July 2009 . However, that submission fits uneasily with the fact that Winnington’s letter was not sent until8 September 2009 , well after the only trade with that counterparty had been effected on27 July 2009 . Mr Edelman accepted that was the case but offered no explanation as to the reason for the delay. 80. In answer to Mr Mantle’s submission that there was nothing in the enhanced due diligence letter that was relevant to the question of actual knowledge, Mr Kinnear referred me to the finding of Arnold J sitting in the Upper Tribunal in A One Distribution (UK) Limited[2011] UKUT 496 (TCC) where he held at [29] that it was permissible for a tribunal to consider A One’s due diligence to see whether it was a genuine attempt to avoid becoming involved in transactions which were connected to VAT fraud or whether it was a “smoke-screen”