Examination of Witnesses (Questions 220-239)
DR DAVID
LONG, MR
PETER SCULLY,
MR IAN
GOOD, MR
GAVIN HEWITT
AND MR
IAN SHEARER
8 DECEMBER 2004
Q220 Mr McFall: I understand that. What
I am saying to you is that what is in Edrington's control is that
you are supplying to people. If you have doubts about them, then
you ask them to pay duty. That is the point.
Mr Good: Exactly and that is what
we do; that is what we have done.
Q221 Mr McFall: What is the problem then?
This should be a land free of fraud then, if that happens.
Mr Good: The point I was making
earlier was that we have had one call in the last year from Customs
and Excise with even a question mark over fraud of our products.
Q222 Mr McFall: I would put it back to
you that maybe a quality control exercise should be instigated
by yourselves with your own companies looking at things like that
to verify the veracity of the people down the line.
Mr Good: We have a team of people;
Diageo have a team of people; Allied have a team of people. Their
job is security. That is to make sure that we are not trading
with illicit traders.
Q223 Mr McFall: There is a dislocation
here. You are here because there is fraud. You have said that
we cannot stop fraud, but we are trying to eliminate it and we
want more radical steps to eliminate that. You have already admitted
that in Liverpool and elsewhere you have it. If you have doubts
about this step, asking for duty to be paid, surely to goodness
that must eliminate fraud quite a bit. Would you not agree?
Mr Shearer: The big companies
do look at this.
Q224 Mr McFall: But others do not, is
that correct?
Mr Hewitt: Yes.
Mr Good: Yes.
Q225 Mr McFall: How can we get to the
others who do not?
Mr Good: Some of the companies
you say do not, are small companies and they do not have the resource
effectively to have a protection department; they do not have
anything like that. They may legitimately sell—
Q226 Mr McFall: So we have identified
a black hole here; we have identified a black hole.
Mr Good: There are areas—
Q227 Mr McFall: No, no; we have identified
a black hole.
Mr Good: That is why there is
fraud.
Q228 Mr McFall: How do we . . .?
Mr Hewitt: May I say how we do
it? We have suggested to Customs that those companies allowed
to trade under duty suspension should be registered and there
should be a known register of companies which are totally approved
by Customs to operate under duty suspension, to trade under duty
suspension.
Q229 Norman Lamb: A fit and proper person
test of some sort.
Mr Hewitt: It is the job of Customs
to make sure that each company is legitimate, has a good track
record on paying tax.
Q230 Mr McFall: So you are discussing
this with Customs, there is a memorandum of understanding coming.
What is your suggestion? Would you agree that memorandum of understanding
can take us a long way? Is that right?
Mr Hewitt: We should like Customs
to do that, but Customs say they have a problem because they cannot
stop people trading. I am sorry: that is not an acceptable response.
Mr McFall: There is an industry responsibility
here. You should have accepted that industry responsibility and
seen it and that black hole which was described.
Q231 Mr Walter: Are you saying that there
are warehouses, there are traders who are what one might call
bonded traders, who are trading, yet Customs and Excise do not
approve or register or have any control or any means of checking
what is in those warehouses, what is bonded, what is duty paid?
Mr Hewitt: No. Technically every
person who is trading in bonded goods is checked by Customs and
they do have, and they say and they claim they have, an assurance
and they check to make sure they are legitimate traders. If they
have done enough checks, we will not have leakage from these people.
If they are leaking, they are not legitimate traders and they
should not be on the register. Hence the point I made about one
bond which we know has a director who has a criminal record for
fraud.
Mr Shearer: One example of a very
new control which has just come in is that all these warehouses
now have to do electronic mandatory warehouse returns. Monthly
they have to submit detailed information about what is in their
warehouses and the idea is that Customs can then do trend checks
on this. This is one example of the kind of controls where I think
they have been very successful. I really believe that the level
of fraud has come down significantly and it is a story of success.
Q232 Norman Lamb: It did come down.
Mr Shearer: Since 1997 all sorts
of new controls have been put in place and one has to give Customs
credit, they are policing this system more effectively.
Q233 Mr Walter: You are saying that it
has come down, but that does not alter the fact that the system
still operates whereby somebody can operate duty free in the UK
and Customs are happy for them to operate duty free, yet Customs
themselves admit that this is open to abuse. Let me give you a
parallel. I used to have a farm and a Customs and Excise man would
come to check my VAT returns and he would be more interested in
the level of my phone calls. Yet here we are talking about millions
and millions of pounds, to which they seem almost to have turned
a blind eye in the past.
Mr Hewitt: That is exactly the
point we are making. It seems to me that like a football referee,
if someone gets it wrong there is a yellow card, if someone gets
it wrong twice there is a red card on the basis that the first
time it might have been a mistake, but with two mistakes where
you are cheating the system you should not be let off.
Q234 Mr McFall: I would be the last to
divide you, but I think Ian Shearer has a different view on that
in terms of Customs.
Mr Shearer: It is very interesting
to see that you are in the Thatcher Room. If we go back to Mrs
Thatcher, in those days there used to be a Revenue officer in
every bonded warehouse. They were taken away during the 1980s
and this was great for blue chip companies, because there was
no Revenue officer watching everything they were doing. Blue chip
companies were trusted to police themselves effectively. It did
open up opportunities for the unscrupulous in these third party
warehouses. I believe that by policing these properly—
Q235 Norman Lamb: Hang on. We have already
established that Customs and Excise were allowing the frauds to
continue; they were aware of it happening. Whether you have a
bloke there or not—
Mr Shearer: I do not know whether
that was before these new warehouse returns or not.
Q236 Norman Lamb: It was in the 1990s.
Mr Shearer: With these new warehouse
returns and other effective controls, if you watch, where is the
brand going that these warehouses are sending? Is it going abroad?
Why would a warehouse in Liverpool be exporting one of Mr Good's
brands? Surely an intelligent use of warehouse returns would mean
that Customs would be phoning up and asking whether this brand
should be going abroad. You can police this system effectively
if you study the warehouse returns properly. This system has just
come in and I believe that it will be very helpful in trying to
police the system more effectively.
Mr Hewitt: There are still gaps,
but they are doing better.
Q237 Mr McFall: There is still a black
hole and there is responsibility on both sides.
Mr Hewitt: Yes.
Mr Good: Absolutely.
Q238 Mr McFall: Is there any scope for
a more consistent standard of vigilance across the industry to
reduce fraud? Are some traders more careful than others to whom
they sell? If so, is there anything the trade as a whole can do
to ensure more rigorous checks?
Mr Good: A lot of it comes back
to scale. Small companies will not have the resource to put in
the policing which the larger companies do have. Some of the smaller
companies will not be trading with what you might call international
brands and therefore perhaps would be less concerned, not about
fraud, but less concerned about where their goods end up. For
example, if we sold our goods to a warehouse in the UK and they
legitimately sold it on to a warehouse in France, we would be
concerned because in fact our distributor in France was getting
goods coming into France from the UK that could disrupt the market.
The question of control over brands is perhaps much more legitimate
in terms of the bigger companies than a smaller company which
is not developing brands, but is perhaps developing a secondary
brand. They would not have the resource and they may be vulnerable
to the person who just wants to trade a bottle of whisky rather
than a brand.
Mr Hewitt: Additionally, in the
17 proposals we put forward before the Budget, there was a very
important proposal and I touched on it already. It was that warehouses,
particularly now we are talking about third party warehouses,
should not have their guarantee used for the movement of goods
under bond. It is the person who owns those goods who should actually
be liable for that guarantee. If that owner is a fraudulent person,
he will find it very difficult to get that guarantee. It is a
fundamental change of where you get the guarantee for moving and
holding.
Q239 Norman Lamb: Is it perfectly possible
to implement that? No problem with European law or anything like
that?
Mr Hewitt: Nothing. There is no
difficulty whatsoever.
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