Creation myths about entrepreneurs inevitably include tales of triumph over adversity—a failed early company here, a break with a long-term partner there. Richard Branson, the goateed and grinning mascot of British capitalism, is no different. His Virgin empire grew from a record label that brought us both the Sex Pistols and Boy George to encompass airlines, rails, and mobile phone service. In the process, it has also spawned a fair number of busts: Virgin soft drinks, Virgin fashion lines, Virgin makeup. Along with his publicity stunts—such as trans-Atlantic hot-air balloon voyages—these misfires have burnished his reputation as an adventurer willing to try just about anything in business or sport. At the moment, it’s not clear when or if his ambitious space tourism venture, Virgin Galactic, will ever get off the ground. We shouldn’t be too surprised. After all, Branson did write an advice book titled Screw It, Let’s Do It. Guaranteed success isn’t part of the Virgin brand.
But Branson’s march to riches may have truly begun with a somewhat less benign and fun-loving version of failure: a youthful foray into tax fraud, in which he was caught red-handed.
As Branson tells the story, his scam was always meant to be short-lived. In the spring of 1971, the future billionaire was a 20-year-old British public school dropout with a restless entrepreneurial streak. He had founded and folded a national magazine, Student, which managed to land interviews with the likes of Mick Jagger, but no profits. His new company, Virgin, was losing money as a discount music retailer. Its record shop on London’s Oxford Street was popular and its mail-order business was growing, but thanks in part to its rock-bottom prices, the company was burning cash and digging itself deeply into debt.
One day, Branson thought he had found a quick way to dig it back out.
The scheme, as recounted in Branson’s memoir Losing My Virginity, was rudimentary: Virgin would avoid paying purchase taxes on its merchandise by pretending to export albums that it actually sold in England. In Britain at the time, music retailers paid a heavy 33 percent levy on records they planned to sell domestically. But the tax didn’t apply to vinyl destined for abroad. While attempting to drive a large shipment of discs to Belgium, Branson discovered that he could stop at customs in Dover, get his export paperwork stamped, then bring the cargo back to sell at home, where he could pocket the tax savings. After a few such profitable trips, he figured, Virgin would be debt-free. “It seemed like the perfect way out,” he later wrote.
The British journalist Tom Bowers, who has written two harshly critical biographies of Branson, cast the young entrepreneur’s motivations in a less innocent light:
For [Branson], the plot to defraud Customs and Excise was just another wacky prank.
“It’s a great wheeze,” he buzzed. Cheating Customs, he urged his employees, would be effortless. … Doubters were swayed by Branson’s enthusiasm for Robin Hood. Helping impoverished adults hear their music despite the ogre-ish government’s taxation, he urged, would constitute a blow for justice.
Branson was, it turned out, far from the first person in England to think up this particular hustle, and it didn’t take customs officials long to catch on to him. According to Bowers, investigators immediately began probing Virgin’s export forms after an employee at the record label EMI suggested there was “something fishy” about Branson’s low record prices. Then they noticed that Branson claimed to have exported 30,000 records inside of a single Land Rover. The four-wheelers were big, but not that big.
To confirm the scam, customs began marking EMI records that Branson was officially buying to export using an ultra-violet pen (the invisible ink was meant to keep Branson from realizing they were on to him). Then, they placed orders for the same records through Virgin’s mail order service; the marked merchandise arrived back in their mailboxes, proving that they weren’t really meant for export after all.
And so customs planned a raid.