Further Memorandum submitted by HM Customs
Thank you for your letter of 2 December telling
me that the Committee has agreed to conduct an enquiry into the
illegal sale of fuel oils in Northern Ireland.
You asked for a memorandum on the matter and
I enclose this. You kindly offered the option of extending our
September 1997 paper but that was about road fuel misuse and although
there are similarities, I felt that a stand-alone paper would
be of more use to the Committee.
I know the Committee is visiting Northern Ireland
in January and will receive a presentation from the Customs operational
staff there. I hope they will find it useful; I know the Collector
and his staff are anxious to demonstrate that they are able to
contain and disrupt the illegal smuggling of road fuels.
ROAD FUEL SMUGGLING INTO NORTHERN IRELAND
1. The Northern Ireland Affairs Committee has
agreed to conduct an enquiry into the illegal sale of fuel oils
in Northern Ireland. The specific terms of reference are:
"To examine the sale of fuel oils in Northern
Ireland on which appropriate duty has not been paid and the effect
of this on the legal trade in such fuels"
2. The Committee asks for a memorandum from
HM Customs and Excise, extending and updating their earlier memorandum
of September 1997 as appropriate. The previous memorandum concentrated
mainly on the illegal use of red diesel in Northern Ireland and
the effect of this on the road haulage industry; it did not attempt
to address the issues of road fuel (petrol and diesel) smuggling.
This memorandum therefore summarises the smuggling issues and
the action taken by Customs and other agencies to detect and deter
3. Duty rates on petrol and diesel are set out
in the Hydrocarbon Oil Duties Act 1979. Current rates of duty
49.26 pence per litre
43.99 pence per litre
44.99 pence per litre
Ultra Low Sulphur Diesel:
42.99 pence per litre
Retail prices in Northern Ireland for petrol
and diesel vary as they do in other parts of the UK but an average
current price for each grade of fuel including 17.5 per cent VAT
at 9 November 1998 would be:
65.23 pence per litre
66.08 pence per litre
4. Duty rates in the Republic of Ireland, converted
into £ sterling at the current exchange rate (1.08 punts
to £) are:
39.027 pence per litre
31.800 pence per litre
27.663 pence per litre
Retail prices of petrol and diesel in the Republic
of Ireland, including VAT are:
51.63 pence per litre
48.52 pence per litre
5. It is clear from these figures that there
is an incentive to smuggle road fuels across the border. It is
important, however, to note that there is considerable scope for
cross border shopping between North and South; the land boundary
is 300 miles long and there are something like 200 crossing points.
This cross-border shopping is entirely legal and can range from
a motorist driving to a supermarket in Dundalk to fill up to a
local authority instructing its vehicle drives to fill up in the
South where the cost of driving there is more than offset by the
price saving. But this is limited to fuel carried in the standard
tanks of vehicles and to minor amounts in portable containers
for emergency use, but not to bulk movements of road fuels.
6. Smuggled fuel therefore tends to be in bulk
loads in road tankers or vehicles adapted to carry tanks. There
are a number of systems operated by Customs for the legitimate
trade between EU Member States of goods subject to excise duties.
Because there are no border posts where payment of duty can be
made, import tanker movements should be notified to Customs in
the UK in advance and the duty paid to one of our local offices
also before the movement takes place. We also operate a system
for frequent movements: this is known as the Registered Excise
Dealers and Shippers system and provides for periodic payments
for regular traders. Movements of fuel outside these systems are
considered to be smuggling.
7. It is only over the last 18 months to two
years that the price differentials between Northern Ireland and
the Republic of Ireland have provided sufficient incentive to
smuggle. Before that, prices were roughly equal and earlier still
there was actually some smuggling from North to South.
8. There have been a number of Parliamentary
Questions asked about estimates of the amounts of road fuels being
smuggled. Customs do not have a robust estimate of this activity,
partly because illegal activity by its very nature is not conducive
to reliable measurement, and partly because the basis of the duty
charge on oils in the UK is at a very early point in the distribution
chain. This is at the time of delivery from the refinery in the
UK or on delivery from import warehouse.
9. No oil refining takes place in Northern Ireland
so all fuel is either brought in from the Great Britain or imported
with the duty paid at the time of importation. Customs do not
monitor fuel after duty has been paid.
10. Northern Ireland is one of the 14 operational
regions in Customs and Excise. It is referred to as a Collection
and is managed by the Collector. The Collection is divided into
a number of operational and management units covering areas such
as VAT and excise audit programmes, import and export freight,
11. Customs and Excise also has a National Investigation
Service (NIS) which, as the name suggests, operates nationally.
It handles the most serious cases.
12. The Collection operates a Road Fuel Testing
Unit which is part of the Local Fraud team based in Belfast. This
unit has specialist responsibility for initiating the detection
and investigation of oils road fuel offences. It conducts targeted
and roadside challenges of vehicles to establish that the fuel
contained in their running tanks has borne the correct duty rate
commensurate with the use of the vehicle. Although this unit is
mostly concerned in ensuring that red diesel (duty rate 2.82 pence
per litre) is not misused as derv (duty rate 44.99 pence per litre),
it inevitably becomes involved in smuggling cases as green diesel,
the Republic equivalent of red diesel, is misused as a road fuel
in Northern Ireland. Our previous memorandum to the Committee
covered this in more detail.
13. There are about 600 Customs staff in Northern
Ireland and although most of them are employed on duties other
than anti-smuggling, they are made aware that they can be effective
in providing information and intelligence as they travel throughout
14. The Collection currently uses about 20 staff
full time in countering fuel smuggling. These staff are deployed
as follows: three in the Anti-Fraud Team, seven in the Road Fuel
Testing Unit, six in the Flexible Anti-Smuggling Teams and four
in Intelligence. These staff are used flexibly. In addition, staff
are deployed from other areas during times of need, e.g., during
a "knock", carrying out special exercises to gather
information/intelligence or conducting assurance visits to selected
distributors and retailers. The NIS does not devote resources
specifically to road fuel smuggling but currently has two major
investigations in progress in Northern Ireland involving five
15. Within the Single Market, overt border controls
are not permitted, and so the Collection must rely on an approach
based on use of intelligence, aiming at specific targets.
16. It has been suggested that Customs should
simply close down an "illegal" site as soon as it comes
to their attention. But that does not help find the smuggler.
These sites are often run by people unconnected with the actual
smuggling, using equipment that costs little to obtain; closing
them does not solve the problem, it merely pushes them into setting
up another site equally cheaply. Often the sites that are referred
to Customs are known by us to be connected to current cases under
17. The results for 1998 to date are:
2 successful prosecutions for smuggling
of road fuels;
10 cases currently with the Director
of Public Prosecutions;
6 compound penalties. These are offered
by Customs in lieu of prosecution in cases where we think it is
£59,300 in compound penalties;
420,098 litres of fuel seized;
admissions of smuggling of 24,195,569
litres of fuel;
40 ongoing investigations.
18. In addition the Road Fuel Testing Unit has:
detected 182 offences involving misuse
achieved revenue receipts of £227,516;
seized 3 vehicles using hidden tanks;
detected 10 previous offenders;
investigated and reported 3 cases
of significant fraud;
imposed five compound penalties;
achieved detections from 39 per cent
of its targeted challenges.
19. We are conscious that Customs operations,
and hence the preventive effect, must be seen to be effective.
With that in mind we are seeking to extend co-operation with the
Royal Ulster Constabulary, particularly in the border areas where
the RUC has greater presence and awareness of local operations.
We are currently working on a memorandum of understanding with
the RUC where we have established contact at the highest level.
We also continue to work with the Revenue Commissioners in the
Republic of Ireland, obtaining information on supplies of fuel.
20. We are already engaged in a programme of
visits by trained audit staff to sites selling petrol and diesel
in Northern Ireland. Their task is to use credibility techniques
to examine sources of supply and sales of fuel, tracing these
to suppliers where necessary to establish the duty status. One
hundred and fifty sites have already been visited. Site visits
will include distributors of fuels as well as retailers. "Illegal"
sites will also be visited.
21. We now plan to extend this programme to
all retailers and distributors in Northern Ireland. The Collection
will be provided with additional resources of up to five staff
years to support this operation: these will come from redeployment
of the existing national pool of resources. In making this reallocation
we have had to bear in mind that the smuggling of alcohol and
tobacco is also a high priority for Customs. One hundred and forty
visits are scheduled for January 1998 using experienced VAT auditors;
information from our VAT database will be used to select businesses
showing recent changes in their trading patterns. Apart from the
usual checks of business records they will focus on how cash flows
in and out of the business; they will also, for example, check
pump meter readings over a period of time and look closely at
Health and Safety documentation kept by regulation for all fuel
deliveries. Information on CCTV has also featured in some recent
22. After this round of visits, the intelligence
gathered will be evaluated and decisions taken about extending
the programme to the remainder of the sites. We are conscious
that in conducting this operation we must minimise disruption
to normal business and we must be sensitive to claims that we
should focus on the smugglers, not the honest businesses hit by
the loss of trade. But the programme will include all sites
including "illegals": concerted action of this kind
should provide a greater pool of usable intelligence.
22 December 1998
1 See also Appendix 11 p. 90. Back