Select Committee on Northern Ireland Affairs Appendices to the Minutes of Evidence


Memorandum submitted by HM Treasury

UN Counter Terrorism Resolution

  United Nations Security Council Resolution 1373 (28 September 2001) calls upon States to freeze the financial assets or economic resources of persons who commit or facilitate the commission of terrorist acts; of entities owned or controlled by such persons; and of anyone acting on behalf of or such persons.

  This is implemented in the UK by SI 2001 No 3365 and is made under Section 1 of the United Nations Act 1946. This instrument, which became effective on 10 October 2001, empowers the Treasury to designate individuals and entities suspected of being linked to terrorism and to direct banks and financial institutions to freeze these accounts. Failure to do so is an offence.

  The Bank of England, as agent for the Treasury, issues these lists by post, fax and e-mail to some 600 banks and other financial institutions in the UK. The lists are also published by way of a Bank of England Press Release.

Freezing Orders

  Part 2 of the Anti-Terrorism, Crime and Security Bill replaces older emergency powers and allows the UK to freeze the assets of individuals or groups unilaterally. The Treasury will be able to make a freezing order when an individual, group or government outside the UK threatens action against UK economic interests, or against the lives or property of UK nationals and residents. The orders can designate those who plan such action, and anyone (including people inside the UK) who provides them with material assistance. Since the threat must be from people outside the UK, this power may not be as relevant for the terrorist groups operating in Northern Ireland. However, part 1 of the ATCS Bill provides for the freezing of terrorist assets when there is a police investigation underway in the UK, at an earlier stage than is currently possible. Part 1 also puts in place new powers for in-country cash seizure, and for 90-day account monitoring orders.

Excise Fraud

  The Northern Ireland Threat Assessment (published in May 2000) estimated that 18 per cent of all known criminal organisations in Northern Ireland are engaged in excise fraud. The same assessment estimates that just over half of all criminal organisations have current or historic links to paramilitary organisations. The two most serious problems in the excise sector in Northern Ireland are tobacco smuggling and road fuels fraud.

Tobacco Smuggling

  Customs estimate that cigarette smuggling in the UK as a whole cost in the region of £2.8 billion in 2000-01 with 21 per cent of all cigarettes smoked in the UK illicit; Customs does not break this assessment of the illicit market down to a regional level for Northern Ireland alone. The illicit cigarette market has been growing rapidly since around 1996-97 and without action Customs estimate that it could have accounted for one-third of the market by 2003.

  The Government has set in place a £209 million strategy to put cigarette smuggling into decline within three years. This strategy includes an additional 1,000 Customs officers throughout the UK, a national network of mobile x-ray scanners and the introduction of tough new penalties, including the compulsory marking of all UK duty paid cigarettes and tobacco.

  The results of the first year of the strategy, announced by the Government as part of the recent Pre-Budget Report, show that Customs are on track to deliver their key outcomes. This confirms that their analysis of the problem was sound and that the operational responses have thus far been effective:

    —  most importantly, Customs have hit their key target to hold the market share of smuggled cigarettes to 21 per cent in 2000-01, thereby succeeding in slowing the growth in cigarette smuggling;

    —  in 2000-01, Customs seized 2.8 billion cigarettes: 1.9 billion in the UK and 0.9 billion en route to the UK through joint operations with overseas agencies. This represents almost a billion more cigarettes than were seized in 1999-2000, and 0.8 billion more than Customs' target for the year;

    —  Customs investigators have also broken up 56 major excise smuggling gangs, 43 of them involved in the large-scale smuggling and supply of cigarettes.

  While the targets for the strategy remain extremely challenging, the Government fully expects that Customs will achieve the outcome of reducing the market share of smuggled cigarettes by 2003. Given the strong upward trend in smuggling before implementation of the strategy, this would be a considerable achievement.

  As part of this strategy, enforcement activity in Northern Ireland has increased. Among recent operational successes are:

    —  350,000 cigarettes in air passenger traffic from Tenerife;

    —  30 million cigarettes in two seizures by Republic of Ireland agencies following close co-operation between UK Customs and Republic of Ireland agencies;

    —  2 million cigarettes in freight traffic from Rotterdam;

    —  1.5 million cigarettes from two national strikeforce exercises targeting air passenger smuggling; and

    —  43 million cigarettes seized at Warrenpoint in freight traffic from Eastern Europe.

Road Fuels Fraud

  Customs estimate that in the calendar year 2000 the revenue lost from use of non-UK duty paid petrol and diesel in Northern Ireland was approximately £380 million:

    —  £150 million from petrol; and

    —  £230 million from diesel.

  These revenue losses are a result of legitimate cross-border shopping and fraud which include smuggling from the Republic of Ireland and the misuse, laundering and mixing of rebated and duty free oils.

  The Government has already recognised this problem and has taken action. Since April 2000 Customs increased the number of staff engaged in tackling this form of fraud from 25 to more than 160. As a result of this action seizures of fuel have more than doubled, vehicle seizures have more than trebled, and 17 plants for laundering the chemical markers out of rebated fuels have been dismantled.

  While there is some evidence that this increased Customs activity has slowed the growth of the fraud the Government believes that it remains at unacceptably high levels and is considering further initiatives to counter road fuel duty evasion.

  The Government is also committed to tackling all manifestations of serious crime and has set up an Organised Crime Task Force in Northern Ireland to combat all forms of serious criminality, including oils fraud.

Information Disclosure

  Part 3 of the Anti-Terrorism, Crime and Security Bill, currently passing through Parliament, contains provisions to allow for information disclosure from Customs and the Inland Revenue to law enforcement agencies and the intelligence and security services.

  These will allow the Revenue Departments to disclose otherwise confidential information for the purposes of criminal proceedings, criminal investigations and for the purpose of facilitating whether a criminal investigation should begin or end. In addition, the provisions will permit disclosure to the Intelligence Services "in support of their functions".

  These gateways will significantly assist in combating terrorism, allowing information held by Customs and the Inland Revenue to be disclosed urgently, for example, before a case reaches the stage of a proceedings or when the police may be unaware of the activities of a particular individual. In such instances, the Revenue Departments will be able to disclose voluntarily—however, there will be no element of compulsion and the relevant provisions of the Data Protection Act and the Human Rights Act will continue to apply.

  In addition, steps have been taken to ensure that money service businesses (bureaux de change, cheque cashers and money transmission agents) fulfil their obligations under the money laundering regulations. A new regime for the regulation of money services businesses came into force on 12 November. Under this regime, all MSBs not already regulated by the FSA are required to register with Customs, who have new powers to enter premises, inspect documents and prosecute for breaches of the money laundering regulations.

10 December 2001

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