The case of the taxman, the prostitute and the rich men's bungs

The long trial of Michael Allcock, the most senior Inland Revenue official ever convicted for corruption in a British court, has cast a shaft of light into one of Whitehall's darkest corners.

Even within the traditionally closed confines of the civil service, the Inland Revenue has been the most reticent to discuss its working custom and practice.

Whenever challenged to reveal the simplest detail of the techniques employed to select and investigate tax defaulters, they have always withdrawn in silence behind their abiding principle of "taxpayer confidentiality".

But for three months the jury at the Old Bailey has been made privy to some of the Government's most closely guarded secrets concerning the clandestine methods used to catch tax-dodgers.

Evidence presented to the court revealed that deals were regularly struck between the taxmen and wealthy individuals, who often owed millions in unpaid taxes, but subsequently paid much less after supplying "useful" information on others.

It became clear that a distinct "culture" prevailed among the elite corps of inspectors who staffed the 12 Special Offices (SOs) first set up in 1974 to tackle tax evasion by employing unconventional methods.

Michael Allcock, 47, joined the SO team in 1983 from an unpromising backwater income tax office in Colchester, Essex. He began his career in 1966, straight from school with only a handful of O levels. After a while he began to make a name for himself as a diligent, if unorthodox, investigator.

One inquiry led to the home of a local prostitute where Allcock quizzed her husband. He demanded to know what the man did when his wife entertained "gentleman callers". "I go to the shed," he replied. "Let me see it," said Allcock. Inside, the taxman discovered that the husband kept an appointments diary of his wife's clients. That was evidence enough for Allcock to serve them with a joint demand for income tax.

He told the court that years later, as head of the task-force nicknamed the Ghostbusters, because they inquired into "spooks" - wealthy foreigners who claimed non- resident status and admitted no tax liability here - he sanctioned a highly speculative approach to the offices of the Royal Borough of Kensington and Chelsea.

Inland Revenue investigators asked the town hall to supply a list of names of all those who qualified for resident's parking permits. Allcock knew that the local authority was under no obligation to comply with the cheeky request. But it did.

"If you don't ask, you won't get," was the philosophy Allcock brought with him when he first began work at the anonymous office building off Borough High Street, Southwark, that housed the SO2 operation.

"I was shown to a room where there was a desk and a telephone and told to get on with it," he said. "I was told we were the last line of defence. If we did not collect tax from these individuals, no one would."

It was in this climate that the Inland Revenue set Allcock running on the Stock Exchange Project. In 1986, the year of Big Bang, the liberalisation of trading rules in the City of London, a series of press stories alleged that a growing number of City brokers and dealers were making millions from insider deals with the undeclared profits being siphoned off into offshore "brass plate" companies.

Allcock used a friend of his wife, who he knew worked in the Exchange, to arrange an informal invitation. Without declaring his professional interest, he went out to lunch with his new friends and what he learnt startled him. Later, he told colleagues: "I was gobsmacked. There was one guy there saying I had a bad morning, I only made pounds 60,000 for my Jersey company. I could not believe what I was hearing."

Allcock pursued his new contacts in the City in a way no tax inspector had ever before. His arrival on the scene met a need. The Stock Market's insider-dealing team was under growing pressure to clean up some of the market's potentially most embarrassing cheats, and on as many as 50 previous occasions their own investigators had drawn a blank when the trail they were following led to offshore tax havens.

Allcock arrived at the Exchange complete with a Section 20 notice, which officially gave him the power to demand the production of share-dealing information. The Stock Exchange indicated the dealers thought to be most guilty of insider dealing, and sat back. The Inland Revenue men did the rest - trying to get their hands on undeclared capital gains of cash shipped quietly out to offshore tax havens. If brokers and dealers refused to name the beneficial owners of the offshore companies where they deposited the share dealing profits, he threatened to make dealers personally liable for the unpaid tax. He got results.

Allcock's Stock Exchange work was to undo him. John Black, for the prosecution at his trial, said: "He was gradually corrupted by the huge wealth he saw before him."

Things were also going wrong in his private life - his wife had a malignant breast tumour, and he had started a sexual relationship with an escort girl - but he was still bringing in millions for the Exchequer. There were no special rules or guidelines restricting the way the SO investigators should set about their business and for Allcock it was very much a case of the ends justifying the means. If he picked up some bonuses along the way, so be it.