Select Committee on Northern Ireland Affairs Minutes of Evidence

Further Memorandum submitted by HM Customs and Excise

  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.



  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 the smugglers.


Duty rates

  3. Duty rates on petrol and diesel are set out in the Hydrocarbon Oil Duties Act 1979. Current rates of duty are:

    Leaded petrol:

49.26 pence per litre

    Unleaded petrol:

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:

    Unleaded petrol:

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:

    Leaded petrol:

39.027 pence per litre

    Unleaded petrol:

31.800 pence per litre


27.663 pence per litre

  Retail prices of petrol and diesel in the Republic of Ireland, including VAT are:

    Unleaded petrol:

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.[1] 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, etc.

  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 the Province.

  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 case officers.

  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 investigation.


  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;

    —  25 arrests;

    —  6 compound penalties. These are offered by Customs in lieu of prosecution in cases where we think it is appropriate;

    —  £59,300 in compound penalties;

    —  48 vehicles seized;

    —  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 of fuel;

    —  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 investigations.

  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

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