Annex 3
ALTERNATIVE WAYS TO STAMP OUT FRAUD
In the 2003 Budget Report the Chancellor set
the spirits industry a challenge, to find a better way of tackling
fraud than the Government believed would be achieved by tax stamps.
The alcohol trade, as represented by the Joint Alcohol Tobacco
Consultation Group (JATCG), across the production and supply chain
rose to the challenge and developed a forward-looking package
of alternative proposals. These aimed to go to the heart of the
problem, to focus on areas where the opportunity for fraud arises
and to strike directly at the fraudster rather than the legitimate
trade. The key benefits included:
— The industry believed its package
of measures could remove at least 50% of spirits fraud
— Faster implementation than tax
stamps and delivery of an earlier revenue gain—by end of
FY 2004-05
— More enduring effectiveness
— Multi-faceted and flexible
— Based on current success and partnership
and offer a proportionate response to actual current fraud levels.
Details of the industry proposals are contained
in the attached table, but in summary cover:
TIGHTER SYSTEM
OF GUARANTEES
— All diversion fraud takes place during
movement. Without an excise guarantee, there can be no movement
of spirits. Warehousekeepers will not provide a guarantee for
high-risk movements. The trade will introduce the new system as
best practice in 2004. This forces fraudsters into the guarantee
system or out of business. As a fraudster is unlikely to survive
the financial scrutiny necessary to obtain a guarantee, this measure
alone could effectively stop outward diversion (over 50% of fraud
level).
WINNING IN
PARTNERSHIP
— Implementation of the already negotiated
industry/government Memorandum of Understanding (MoU) introducing
restrictions on supplies of highest risk, notification of other
movements fitting risk profiles, and assisting C&E with detailed
information about supply routes and customers.
— Establishment of a new Joint Warehouse
Fraud Task Force, with early implementation of a new warehousekeepers/government
MoU. Improved approval, control and analysis of warehouse stocks,
movements, sales and ownership of goods to pick up high-risk or
illicit transactions.
— Early implementation of new initiatives,
such as the introduction of a "recognised transporters"
scheme, and the fuller use of a number of other recent C&E
controls and databases.
NEW WAREHOUSE
CONTROLS
— Better identification by C&E
of risk and unusual trends through improved use of warehouse returns
now being submitted by the trade. C&E will have this in place
by mid-2004. Rigorous review of warehouse approvals, and cancellation
in cases of irregularity. Professional accreditation and better
training of warehousekeepers. C&E assurance officers could
also be placed in the highest-risk warehouses, which are small
in number.
USING EXISTING
SYSTEMS MORE
EFFECTIVELY
— Increased collaboration via the existing
Joint Spirits Fraud Task Force to extend C&E's ability to
tap into industry expertise in identifying and tracking illicit
spirits. "Fast track" contact details can be provided
for all investigations, to identify sources of illicit supply.
Call up producers to assist in tracing where fraud has occurred.
INNOVATIVE SOLUTIONS
— All businesses selling spirits throughout
the supply chain would require licences. Tighter C&E links
to the licensing of all wholesalers and retailers to cut off fraudsters'
markets for illicit supplies. Infringement would lead quickly
to loss of licence.
— Introduction of a new machine to
uniquely number and process movement documentation. This would
counter the use of forged signatures and stamps on documents.
— Development of the electronic European
Movement Control System and we will co-operate in its design,
development and implementation. This EU-wide scheme should be
at the heart of a secure and efficient supply chain.
— Enhanced co-operation between different
EU Member States on cross-border movements will help clamp down
on fraudulent trade.
— Extended use of bar coding technology
and lorry tracking to enhance traceability.
— Full participation in current government
plans to modernise excise law—tax stamps would be a backward
step.
A TWO-WAY
EXCHANGE
— Industry/C&E partnership, on
a privileged basis if necessary, to identify fraud as it happens,
to target C&E assurance resources where fraud is most prevalent,
such as high-risk owners, sales and movements at high-risk warehouses,
and to build on success in tackling inward diversion.
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