Examination of Witnesses (Questions 180-195)
MR RICHARD BROADBENT AND MR MICHAEL HANSON MBE
WEDNESDAY 31 OCTOBER 2001
180. I do not want to suggest it is the case but it seems odd that so many people have raised this question as to why the frauds were allowed to run, why letting the loads run as a policy was allowed to continue for such a long time. Was the reason that loads were allowed to run for such a long time because there were people making money out of it, including employees of your organisation?
(Mr Broadbent) The Roques Report and the NAO both looked at this and they said there was no evidence of corruption or malpractice. I have also looked at it and that is also my conclusion.
181. When you say there is no evidence of corruption and malpractice why are seven of your officers in Leeds under investigation?
(Mr Broadbent) That is a completely different matter, in relation to heroin.
182. There is no evidence of corruption or fraud in relation to alcohol duties.
(Mr Broadbent) That is correct.
Mr Trickett
183. I am the last in a long line, well, maybe not quite the last, but you are coming to the end of an interesting session. Reading the Report and listening to the questions and the answers given it is difficult to escape the number of conclusions, the first, which I think you accept, is the organisation was dilatory in responding to a crisis which occurred a as result of external factors. Secondly, the management structures were inadequate to respond in an early enough time to, if you like, the crisis, if that is the word you would like to apply, to this particular level of fraud? I wonder though why you, having accepted those two points, go on to say that you were also wrong headed as an organisation both in terms of objective and also in terms of methodology. I want to take objectives first, it seems to me that there is a common conflict between the objective of trying to maximise the revenue, and that might involve actually intercepting at an early stage fraud, on the one hand, and on the other hand apprehending villains. How do you strike the balance between those two objectives, one which is costing large amounts of money, we were collecting evidence to catch villains but we were losing revenue which was never recovered? Do you think the balance was right at that time?
(Mr Broadbent) Can I just say when you quote it as my conclusion, I understand the point you made but I would not accept the way you put it. It is important that I say that. I do accept the thrust of your comments. In terms of the balance you are talking about this is one of the most difficult judgments that we have to make. I think that it has been said in the Roques Report and the NAO report, and I would wholly accept it, that not enough attention has been given to this judgment in the past, at what point we are trying to protect the revenue as opposed to trying to get a conviction. Perhaps even more difficult, the judgment—at what point in allowing some of the revenue loss to go ahead in order to get a bigger conviction, is really a complex judgment. There are two things I think which are most relevant to taking that judgment today. The first is those judgments are more easily taken within a strategic framework. If you know what the nature of the problem is you are tackling and what you are trying to achieve in terms of outcome you have some guidance for operational decisions. As the NAO Report points out there was no high level strategy at the time. The second is to have a very, very good system of controls that triggers that judgment up the chain as the judgment gets bigger. Again that was not properly in place at the time.
184. I understand that you put in a new system of control and new management arrangements, and they are welcome, but a system of management is not underpinned by some sort of valued judgment and philosophy, it seems to me to be a useful tool on methodology rather than something which secures objectives. I am asking about objectives and it is clear that we ran up possibly tens, possibly hundreds of millions of pounds worth of losses because we were pursuing the latter objective of trying to catch villains and establish how big those villains were. Where the losses might have been smaller perhaps we would not have identified so many villains or the scale of their villainy. You now have a new set of controls in place and you make decisions, say where it is a million pounds that is in jeopardy, of letting things run. I am asking you to tell me, how can you codify the balance which you strike between those two objectives?
(Mr Broadbent) It is very difficult to codify and your question is a good one and I am anxious to answer it as accurately as I can. There is no answer I can give which says, here is a framework and it determines all of the decisions. What I can say is this. You look at a number of things. The first thing you look at is how much is the revenue at stake? We are ultimately an organisation to collect revenue and our prime objective must to be collect the revenue. We also then look at, is this a new fraud, is it an increasing fraud or is it a situation I know about? If it is a situation I know about and it is stable I am much more inclined to take it down very quickly. If it is something entirely different, you have to learn and you have to pay to learn. I think the third thing I would say, this is maybe what you were really trying to get me to answer in the first place, as an organisation I believe we are, I mean the total organisation, not just the law enforcement bit, much more focussed on stopping activity. That is a very deliberate change in our value judgment.
185. Had that been done it is possible to argue that the losses to the revenue would have been substantially less, possibly in the tens or even hundreds of millions?
(Mr Broadbent) It is possible to argue everything. John Roques has been over this ground and so have the NAO have been over this ground.
186. I draw the conclusions, which I have I already indicated, that there was a raw headedness and a lack of clarity about what our objectives were or what your objectives were. I also want to move on to methodology. This business of letting loads run has been explored by a number of members but there is one aspect which has not come out, there was a necessary collusion between the warehouse keeper and Customs and Excise. According to the document the warehouse man may well have been aware or become aware of a fraud which was going on and it was necessary to forewarn the warehouse keeper that there was an investigation going on here and as a consequence there was collusion where there was no actual fraud by the warehouse man, which had probably been drawn to his attention by Customs and Excise themselves. What then seemed to happen was we had to issue indemnities because the law required them to be jointly and severely liable with the person who was carrying out the fraud. The warehouse man and the Excise man were aware of fraud which was going on, how can we then say with any certainty there was not any collusion with the criminals?
(Mr Broadbent) Between the warehouse man and the criminal?
187. And Excise as well. This was a closed loop, was it not?
(Mr Broadbent) Certainty it is a valuable commodity but there have been several independent inquiries into this and all of those tell me there was not corruption or malpractice by the customs officers.
188. I want to go on to paragraph gave 2.12, which relates to this question of indemnity, the fact is that the reason why tens of millions of pounds have not been recovered is because of the failure to adequately implement a legal regulations, and the detail is indicated there, is it not, we are unable to recover the money without actually taking the warehouse keeper to court, and we could not do that because we had indemnified the warehouse keeper. This was a misunderstanding of a European Directive, as I read the document, which to this day you still have not put right.
(Mr Broadbent) I think this was put right in Regulations last month.
189. In this document it says the legislation will not be in place until March 2002.
(Mr Broadbent) I think we are talking on the same point. That Regulation was put in place in September, I am glad to say, to deal with that, after this document was written.
190. It is a fact that we were unable to prosecute criminals or to recover assets from criminals which were the public assets because we had entered into a relationship with warehouse keepers and without understanding it indemnifying the warehouse keeper effectively protected the criminal.
(Mr Broadbent) The number of cases that happened in is very small. The biggest issue here is identifying who are the owners or the transporters of the goods who are, if you like, the criminals. When you have found them, you actually have to find assets they have to seize. The fact that the warehouse keeper and the owner of the goods could not be assessed because it was a joint assessment, and therefore you were assessing the warehouse keeper at the same time, never prevented us pursuing the owner through the courts if we could. Generally speaking, the difficulty was in pursuing the owners through the courts and getting confiscation orders while they had assets.
191. Why did it take nine years to put right an error which had been made?
(Mr Broadbent) I think it was partly the fact that this issue here was not the key driver of the inability of getting assessments which were worth money raised. As I say, the issue was identifying the owners and hauliers and pursuing them through the courts.
192. This report says "The reviews that were carried out identified a number of deficiencies in the way the European Directives had been implemented in the UK". It then goes on to say that it was impossible to assess the fraudsters' dosh.
(Mr Broadbent) Yes.
193. Because we had entered into a relationship with the warehousekeeper.
(Mr Broadbent) It says it may be impossible to assess the fraudsters without also assessing the warehousekeeper.
194. Because he was jointly and severally liable for money which had been defrauded. We could not take the criminal for the assets because we had entered into a relationship with the warehousekeeper.
(Mr Broadbent) The point I am trying to make is that never stopped us pursuing a criminal through the courts for confiscation.
Chairman: Thank you very much. If there are no further questions—
Mr Bacon
195. I would just like to come back on the question of criminal investigations which are currently going on because I know in the Pakistani case there is an issue about the candour of the evidence that has been presented by Customs and Excise. Specifically, to quote from the radio programme last night, "There is evidence that the informant's statement for evidential purposes was misleading and misleading at the behest of Customs officers" and "That one participating informant was coached as to his statement with the purpose of giving misleading evidence in court". The programme concluded by saying that there is the possibility that ". . . another string of Customs convictions may soon be challenged, as the role of a participating informant and lack of disclosure again come to the fore in cases involving duty fraud running into many hundreds of millions of pounds." I just wanted to read that into the record. The accusation again is that innocent people have been trapped and sent to prison. Could you ensure that when you do your note, should you find the need to do one, you refer to this in as much detail as possible?
(Mr Broadbent) I will do that. I would also like to add one comment, which is that in his report and, unlike the commentator on last night's radio, Mr Roques had complete and total access to all our internal papers. He reviewed in detail a sample of nine individual cases and he says in his report that in each of those nine cases he found no fault with them. This report has been disclosed in open court several times, in appeals and legal hearings, and no changes in judgments have resulted.
Mr Bacon: Thank you very much.
Chairman: Mr Broadbent, thank you very much. You will recall that you promised Mr Davidson a break down of sentences. We are very grateful for what you have told us today. I am sure that other Government organisations will take to heart what you have said about the pockets of information in Customs and Excise which resulted in all this money being lost. Thank you very much for giving your evidence so fully.
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