Examination of Witnesses (Questions 140-159)
MR RICHARD BROADBENT AND MR MICHAEL HANSON MBE
WEDNESDAY 31 OCTOBER 2001
140. That takes me on to the question of convictions. There was 100 prosecutions, as I understand it, with total penalties of 200 years, which works out at two years each, can you clarify for me—of course with rebates and remission that is probably about 6 months—how many Mr Bigs were there were amongst all these?
(Mr Broadbent) I think it is quite difficult and potentially quite dangerous for me to single out individuals. However, there are a number of individuals within the 100 plus convictions who received substantial sentences, including sentences in excess of 10 years. I would prefer to offer you a note and try and give you a breakdown of who got what.[4]
141. The whole strategy of letting it run was based on getting Mr Big. An average of two years each, I am not entirely clear how many Mr Bigs there were.
(Mr Broadbent) I understand that. The sentence in some cases exceeded 10 years and in other cases they were three months. I can try and break that down for you, I do not have the exact figures.
142. The whole strategy is based on identifying principles. Were there a number of principals identified that were not prosecuted or found not guilty.
(Mr Broadbent) There were a number of cases which were either stayed, that is to say we dropped proceedings, and there were a number of cases, although fewer, that we lost.
143. Okay. Can I clarify one point for the future. For the sales of diverted alcohol in future is there to be marking on drink based for exports so that it will be identifiable in this country, so this problem could be overcome.
(Mr Broadbent) The government is consulting on the question of marking alcohol.
144. Can I come back to the question of Mr Bigs, the confiscation of assets was only £23 million, is that because money could not be identified, because the courts were soft, what is the explanation? I find that very surprising, given the scale of fraud.
(Mr Broadbent) There are several reasons, none of them which I think make the balance you are referring to any more palatable. One of the causes is the profits of these people were not the same as the revenue lost. Another one is the cost of undertaking these frauds, the profit was less because you have to pay all these costs, you had to pay all these people bribes and—
145. In a minute you will be telling me it is hardly worth doing it.
(Mr Broadbent) Over a period of time the money gets spent, the assets get dissipated and the courts will only confiscate what we can identity is in people's ownership at the time.
146. Your predecessor could not have been happy with £23 million?
(Mr Broadbent) One observation I would make is that we are much clearer now pursuing the money right at the beginning of an investigation, this was not done before. I can tell you now that the value of the confiscations we are raising through the courts in this year alone in relation to fraud is half again the whole of that period. When we have an investigation now the first thing we ask is, "where is the money?"
147. Can I come back to the point about the assumptions made by yourselves, that the loss in revenue is due to a fall in consumption. I am just referring you to paragraph 3.5 on page 23, the sentence where it says, "the possibility that external factors such as fraud might be having an impact in the outturn was discounted as an explanation despite evidence from elsewhere within Customs which suggested otherwise". It is not as if nobody in your organisation had thought fraud, I would have thought in these circumstance you would have taken those suggestions more seriously.
(Mr Broadbent) I think you are right, this goes to the heart of that delay I referred to, that 9 to 12 months when one part of the organisation was pursuing the frauds vigorously and other parts were working on without making use of that knowledge. That in organisational terms is a key issue.
148. It certainly is. I recognised earlier on you said this had been a learning experience. I always remember when I used to be in local government every time a social work made a mess of something they described it as a valuable learning experience, as if that made it all all right. I am sure you have picked up the point. Can I just clarify, in the terms of the proceeds of crime legislation that is going through the House at the moment, presumably the powers of confiscation would be of assistance to yourselves, are there major deficiencies you have identified?
(Mr Broadbent) The Proceeds of Crime Bill will be a very important piece of legislation. There are certain deficiencies, some of them relate to the nature of the crime we have to prove in order to confiscate cash. At the moment we can only confiscate financial assets in relation to certain sorts of crime. Another relates to the procedure we have to go through to actually confiscate the cash, this has to be done through court orders as a result of convictions. The Proceeds of Crime Bill will speed that up very quickly and we are very interested, indeed, to get to work very quickly as soon as legislation is passed.
149. Can I pick up the point that was made about the extra costs on business at one point, about rules, and so on and so forth. Can you give me an indication of what the balance was in terms of the revenue that was lost as compared to what the costs of the burdens placed on business who avoided those losses?
(Mr Broadbent) There is no doubt that the revenue loss was disproportionate relative to the burdens on business, I would not pretend otherwise. I think the point I was making, though, was that a lot of these decisions were taking place in an environment—
150. I understand that. I am not sure what disproportionate means, is it one to two, one to ten?
(Mr Broadbent) I would find it difficult to give you an exact figure, it is a generalisation.
151. I would be very interested in getting some sort of indication of what the costs of those additional burdens on business would have been as compared with the revenue we would have saved? In the Proceeds of Crime Bill we are hearing a great deal about not placing burdens on business in order to allow them to cheat people without any inconvenience. We are obviously a little concerned about that. Can I move to another point about the EU, from what you have said would it be reasonable for me to assume that the EU essentially and the other countries do no take fraud as seriously as we do?
(Mr Broadbent) I think the EU take fraud very seriously. The time scales that we are pushing in the EU are a sign of that. Fraud is to do with criminality and most of the people in the EU who I talk to recognise whatever level of fraud you allow if you let it lie what you get is criminality spreading from it. That is why the Italians, the Spanish they have problems with fraud, including cigarettes and drink, despite the fact they have low duty rates and those problems proliferate into crime.
152. I have not picked up the point on the extent to which the Single Market increased fraud, can you give me and indication of the extent to which the Single Market has increased fraud and the cost to the revenue as a result in this country?
(Mr Broadbent) I do not know whether the Single Market has increased fraud generally or not. What we do know in this particular case is that the Single Market was the one external development which led to this fraud developing, which has now been stopped. I do not think any estimate has been made as to whether the Single Market, as it were, in the aggregate, taking all sorts of fraud across commercial and governed activities has increased or reduced the opportunity for fraud. I think a much bigger effect is—
153. Is it not the introduction of the Single Market that has recently exploited tobacco smuggling?
(Mr Broadbent) I think tobacco smuggling has been exploited for a much wider reason, which is that in the modern world, where human and financial resources move round to exploit economic opportunities. When opportunities present themselves, tobacco is one, they get exploited, That is irrespective of the Single Market.
154. You are a very generously minded man.
(Mr Broadbent) I think perhaps the Single Market is clearly part of the development of the global economy, it is the development of the global economy which is driving some of these activities, not just in the United Kingdom.
Chairman: Thank you, Mr Davidson. Richard Bacon.
Mr Bacon
155. Thank you, Chairman. Mr Broadbent, could I start by asking you about openness. Do you think that your organisation is sufficiently open?
(Mr Broadbent) It is quite a wide question. I think probably the answer is we could do more.
156. In chapter nine of the Roques Report it describes the reluctance of your Department to publish data which might put its own performance under more scrutiny and possible criticism. This is on page 193 and it says "Had the numbers been published, it is my view that the effect would have been to focus public attention onto excise fraud and the need for extra resources to be devoted to tackling it." Do you basically agree with that?
(Mr Broadbent) I think the latter point is right, I think the former point is wrong.
157. You think the point about the Department preferring not to publish data that put its own performance under more scrutiny is wrong?
(Mr Broadbent) I think that is a harsh judgment.
158. Can I ask you about these bodies. You said to the Chairman earlier in response to his point that the problem was not enough bodies that that was not the main problem. Again, the Roques Report says "The Department's actions to combat outward diversion fraud were too slow and too late to prevent haemorrhage of excise revenue. For two years the Department concentrated on increasing resources to investigate diversion fraud without improving controls at excise warehouses but through a tighter approvals regime and the introduction of physical checks. Indeed, through this period the numbers of staff deployed by Excise warehouse control dropped steadily".
(Mr Broadbent) I think the major problem there was not the fact that the resources were dropping, that was a contributory factor, as I said earlier. The major problem there was why did the Department, knowing from its enforcement activity there was fraud, not tackle the control regime.
159. Indeed. This comes back to the corporate issue that you were talking about earlier. There is a lot of evidence in various of these reports that the Department did know. It says in paragraph 1.19 "By 1995, Customs' National Investigation Service recognised and quantified the emerging scale of diversion fraud . . . ." What is more, in paragraph 2.7 "In 1996 senior staff in Customs became concerned at the conduct of the investigations because of the high level of revenue losses. But it was not until 1998 that Customs took action . . . ." In the Roques Report on page 79 it talks about an operation in 1996 where apparently following the operation "Such was the seriousness of the emerging trend towards outwards diversion, that a post-operation briefing . . . was given to the Chairman." You talked earlier about this corporate issue, that there was knowledge but it was somehow dispersed around the organisation, this was 1995.
(Mr Broadbent) The level of fraud in 1995 was £9.3 million.
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