Examination of Witnesses (Questions 23
WEDNESDAY 17 MARCH 1999
MURPHY and MR
23. Mr Maxwell, we are very grateful to
you and your colleagues for coming. We have the advantage of knowing
who you are and we obviously have nameplates on the table but
if you wish to introduce your colleagues in a moment that would
be very welcome. Because you were in the room, you will have heard
the remarks which I made to the earlier witnesses but I will repeat
them. First, if there is anything you would like to say before
we take evidence, please feel free to do so. Second, not necessarily
all of us will ask you questions and the questions may come from
different quarters of the room. If at any stage you want to gloss
any answer you have given, either at the time or in writing afterwards,
please do not hesitate to do so. We will feel free to follow up
with any written questions which we feel we failed to ask at the
time. We are appreciative of your coming. I will pass the ball
briefly back to you before asking my colleagues to ask questions.
(Mr Maxwell) We wish to thank the Committee today
for inviting us along to provide evidence into the illegal sale
of fuel oils in what has been a very difficult time for petrol
retailers throughout the Province. My name is David Maxwell. I
am President of the United Kingdom Petrol Retailers' Association
and also a retailer back in Northern Ireland. At this point I
will take the opportunity of introducing my colleagues. On my
right is Ray Holloway, Director of the Petrol Retailers' Association.
On my extreme right is Thomas Palmer, who has just recently been
appointed the Chairman of the Petrol Retailers' Association back
in Northern Ireland and also is a retailer. On my immediate left
is Seamus Murphy, who is the Deputy Chairman of the Petrol Retailers'
Association in Northern Ireland and also a retailer with a site
close to the border. On my extreme left is Noel Smyth, the Regional
Manager of the Retail Motor Industry Federation in Northern Ireland.
Can I say just a few words about the Petrol Retailers' Association
and who we are? It is a major trade association within the Retail
Motor Industry Federation. The Association represents the interests
of 3,000 forecourt retailers throughout the United Kingdom and
the forecourt retailers are independent of the motor fuel supplier.
The Retail Motor Industry Federation serves and represents businesses
concerned with all aspects of the retail motor fuel industry products
and services. Its aims are to assist and provide members with
the highest standards of operation for the mutual benefit of themselves
and their customers. The problem in Northern Ireland with reference
to smuggling has become enormous since the Budget. It has been
a very difficult time since duty levels were increased. If we
look at the recent figures that we have, there has been a market
decline by a third since 1994, and overall the United Kingdom
market has declined in that time by probably about a rate of six
24. You report in your memorandum that Customs
were aware of evidence of around 25 million litres of smuggled
fuel in 1998, about 20,000 tonnes. In 1997, some 466,000 tonnes
of petrol and 338,000 tonnes of diesel were supplied in Northern
Ireland. What do you assess to be the extent of penetration of
the retail market in Northern Ireland by, first of all, smuggled
petrol and, secondly, smuggled diesel? Are Customs just seeing
the tip of the iceberg or is the problem being seriously overstated?
(Mr Holloway) It is very difficult to know precisely
what the penetration of smuggled product is because unfortunately
the market is not obliged to report the movement of refined products.
The way the duty is paid is by the refiners at the point of production.
There is no refinery in the north of Ireland; therefore there
is no actual figure to attach to the Province. When you therefore
produce the product elsewhere and move it to Northern Ireland,
you are not obliged to report the movement. The closest we can
get is to use figures which have been provided by the Institute
of Petroleum. David referred earlier to the fact that the total
market has declined broadly by about a third since 1994 and that
is based on statistics provided by the Institute of Petroleum.
I am very happy to provide those to the Committee. In terms of
the effect diesel has against petrol, there is no doubt that the
market for smuggled fuel appeared first, as I heard referred to
in the last session, in the diesel area. It was because of the
opportunity to take the product and contaminate or change the
product to sell it for greater gain. The other thing is that the
transportation regulations that govern the movement of diesel
and petrol are very substantially different. It is indeed much
easier to move diesel or gas oil across the border than petrol.
However, in a recent meeting with Customs and Excise in Northern
Ireland, they admitted for the first time that product being seized
was now showing that petrol was the greater part of the two. In
terms of tracking the problem, it is very evident from the figures
that I will happily give you that the issue began to escalate
following the 18 March 1998 Budget when we saw an 11 per cent
increase in diesel and around five per cent in petrol. From that
time on, there is very clear evidence that the legal trade in
those products declined in the Province, and indeed Customs and
Excise began to seize greater quantities of diesel which they
believed came from the south. It would be true to say that, after
last week's increase, we can only expect that those who are the
opportunists in this will again seize the advantage of a further
11 per cent change in the value of diesel and four and a half
or five per cent on petrol to again increase the trade in smuggled
25. When you said the meeting with Customs
and Excise had been recent, that being a somewhat elastic word,
how recent is recent?
(Mr Holloway) One week last Friday.
Chairman: I would
call that recent.
26. What form does illegal diesel fuel normally
take and is there a significant smuggling of road diesel, duty
paid in the Republic of Ireland?
(Mr Holloway) If I correctly understand that,
we are trying to get a balance here between the product that may
well be agricultural diesel and already in the Province as against
that which is prepared in the South. The benefit, again as I heard
referred to in the past session, was that there is a greater profit
to be taken if diesel is both diluted by adding kerosene and indeed
having the marker dye removed than by smuggling transport diesel
from the south. There is a considerable difference in the profit
to the individuals concerned in that trade and it is approximately
double. The benefit of taking green or agricultural diesel, as
it is known, and taking away the marker which would give the game
away would bring about a 50p per litre profit potentially as against
almost 26p if we take the value of the smuggled product coming
south to north. Because of the figures that we so desperately
would like to have but do not have accurate figures for, it is
impossible to say.
27. Your assessment would be that the mark-up,
if you like, is about 50 per cent?
(Mr Holloway) Yes. Because of the quantities that
we are talking about and the overall distortion of the market,
you have to assume that much of the product is coming from the
south and therefore is wholly duty unpaid when it is resold in
the North. If we were seeing movement between markets, that would
be evident to most of the players in the market in the north of
28. Staying with the question of smuggling
from the Republic of Ireland, what is the view of your Association
in terms of the extent of involvement of paramilitary groups?
We have heard anecdotal evidence that there is evidence of involvement,
but do you have any clear evidence of the involvement of paramilitary
organisations in the smuggling of fuel oil from the Republic of
Ireland to Northern Ireland?
(Mr Maxwell) No. Anything we have is anecdotal
evidence. I know there is a lot of speculation but we prefer to
deal with facts. That is not to say that we do not have a view
and certainly there is a lot of speculation that there is an involvement.
29. If you have not got specific evidence
that it is paramilitaries, is there evidence to suggest that it
is organised in the sense that it is not just individuals here
and there? Are there syndicates operating here?
(Mr Holloway) If we look at the scale of the problem
and the funding that would be necessary in order to move the quantities
that we believe are being smuggled, clearly you begin to see that
those who are involved have substantial funding available.
30. That would suggest organised smuggling.
There are groups, whatever the nature or character of those groups,
involved in this smuggling that have access to significant funding
and have a network of distribution in place in Northern Ireland?
(Mr Holloway) Yes.
31. I would like to clarify one point on
the mechanics of exporting from the Republic of Ireland to Northern
Ireland which I have not quite grasped. The exporter in the Republic
will receive his supply. He will not pay duty on it in the Republic
because it is for export. Is there any channel of communication
between Excise in the Republic and United Kingdom Customs in Northern
Ireland or is the onus entirely on the exporter to declare?
(Mr Murphy) He will pay the duty on it in the
South but the duty in the South is a lot less than the duty in
Northern Ireland. It is because of the duty differential that
he can pay his duty in the South, buy it in the punt, the Republic
of Ireland currency, take it into Northern Ireland and sell it
for sterling, thereby making a bigger profit. He will still pay
his duty to the Southern Irish Government. His duty differential
is about 20p per litre.
32. Therefore, there is no need for the
Excise authorities in the Republic to communicate?
(Mr Murphy) No.
33. As far as the suppliers are concerned,
this is a neutral exercise. I imagine there is an increase in
demand in Northern Ireland compensated by increased supplies going
to the Republic but how is this traffic from south to north affecting
the major parts of the retail side?
(Mr Murphy) I have a station in Newry, six miles
from the border. I have lost 10,000 gallons a week trickling through
my station. That is significant. It is down almost 50 per cent.
That is a loss in revenue to the Exchequer of this country of
almost £1.5 million a year. That is just on one site.
34. You have reason to believe that that
is not out of the ordinary for other stations?
(Mr Murphy) Not in the Newry area. As you move
further away from the border regions, it would probably become
(Mr Maxwell) We have been able to collect some
information from our members. In many cases, the figure is as
high as 60 per cent. That in itself certainly highlights the real
(Mr Holloway) May I go back to something Mr Hunter
asked regarding product moving from the South to the North? Product
is being purchased in the South as if it is to be resold in the
South so it is a legitimate purchase. They will pay the duty and
they will pay the VAT. If it was being purchased for export, it
would not technically be smuggled product because where they would
run into a risk would be if they did not have a bonding arrangement
with Customs and Excise for the transfer of the product into a
different duty level. It is legitimately purchased product that
we are talking about for resale in the south that is being moved
35. How easy is it to audit whether a filling
station is selling fuel which is of dubious origin? Should it
not be easier in a case where there is a legitimate contractor,
a major supplier involved so that there could be a tallying of
deliveries, pump readings and financial data, etcetera, in order
to check what it is that is going on?
(Mr Holloway) The answer, in theory, is yes because
standard VAT inspection actually matches purchases with sales,
but that is provided of course that the purchase and the sale
has been recorded.
36. So do you have any indications as to
what actually occurs, as to whether these things are not checked
out? Is it the case that there is maybe fraud taking place, so
there is falsified information which is being provided?
(Mr Holloway) I think the issue surrounds a visit
of the VAT inspector and his ability to immediately spot whether
invoicing is actually legitimate. As we have said already, there
is actually quite a creative way of disguising the legality or
source of the product that is actually being stored on site because
VAT numbers often change as many as 20 times perhaps before the
product is actually delivered to a filling station.
37. Are you limited as an Association in
having information as to the extent that this might be taking
place, that there might be fraudulent, unchecked activities taking
place that allow people to get by?
(Mr Holloway) I think in the area that you are
wishing to go, Mr Barnes, it is actually really a question for
the VAT inspectors and Customs & Excise who have scheduled
visits to make to each of the retail points that we are talking
about. Again I heard it referred to earlier that it is the intention
of Customs & Excise now, having got the resource in place
in Northern Ireland, to visit every single retail outlet in the
Province starting from April 1st, and that process, with some
assistance being given by ourselves in terms of how best to check
the accounts of individual service stations to identify where
errors may be in the accounting of purchases and sales, they will
actually complete that task just as quickly as possible. That
will be the first time as an exercise that this issue has been
(Mr Maxwell) Can I just add to that that the average
period for a site visit from a Customs & Excise officer would
be three years, except if they saw something untoward in the figures
that were going in, so remembering that this problem has probably
over this just last year and a half to two years really come to
the attention of everyone, it has taken time and I believe that
in due course, as our Director has mentioned, that when the site
visits take place from the 1st April, then of course detections
will in fact start to occur. You also have to remember that quite
often, frequently, they are paying for this product in cash and,
therefore, it is not hitting the purchase ledger and it is not
entering the sales ledger and that is a problem and the Customs
& Excise officer who comes out in fact is probably told that
the sales are down 40 per cent simply because of the smuggled
fuel issue and there is nothing untoward in their accounts in
fact to suggest otherwise, apart from a loss of turnover, so it
38. So what is your assessment of the Customs
& Excise operation in these areas? There are the general activities
that they engage in and you have talked about the three-yearly
visits, but then there are the particular anti-smuggling operations,
so how do you judge these areas?
(Mr Holloway) I think in terms of the task that
we are talking about here in addressing the problem at its source,
and that is when the smuggled product crosses the border, you
are talking about a 300-mile border when you actually weave your
way right along it between the North and the South, and policing
that border, if indeed there was the political will to do so,
is, I would suggest, an impossible task. I think I have heard
from Customs & Excise during the time that I have been involved
in this problem that they have tried to concentrate on patterns
that the large players actually work to and they have tried to
contain the problem by perhaps choosing to pick out the large
players as that would produce the largest effect, but again, I
stress, you are talking about the limited resource of people,
although they have supplemented it very substantially from a year
ago, addressing a 300-mile border between the North and the South.
39. So is this the major problem that you
say they have? They might have some limited resources, but you
are saying that they have got almost an impossible task to engage
in given the length of the border, so is that the major inhibition
that you see being placed upon Customs or might there be some
(Mr Holloway) I think it most definitely is the
biggest single restraining factor because clearly if it were possible
to identify when the product is being moved, then their success
rate would be higher. I would have to say also, to come to the
second part of your question, that this escalated on March 18th
1998 which had great proximity to Good Friday in 1998 and it may
well be that the political will was diluted because of those two
dates being so close together in order to give the problem the
due attention that it deserved at that moment in time.