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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 886-v House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE Northern Ireland Affairs COMMITTEE
Organised Crime in northern ireland
Wednesday 22 March 2006 MR PAUL GERRARD and MR DONALD TOON Evidence heard in Public Questions 305 - 358
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Northern Ireland Affairs Committee on Wednesday 22 March 2006 Members present Sir Patrick Cormack, in the Chair Mr David Anderson Gordon Banks Rosie Cooper Mr Christopher Fraser Mr John Grogan Mr Stephen Hepburn Lady Hermon Stephen Pound Sammy Wilson ________________ Memoranda submitted by HM Revenue and Customs
Examination of Witnesses
Witnesses: Mr Paul Gerrard, Deputy Head of Enforcement and Compliance Operations and Mr Donald Toon, Deputy Director Criminal Investigations, HM Revenue & Customs, gave evidence. Q305 Chairman: Good afternoon and welcome. Could I thank you very much indeed for coming. As you know, we are engaged in a fairly intensive investigation into organised crime in Northern Ireland. We have had evidence now from a number of big bodies and organisations. We have seen the Assets Recovery Agency and we are very grateful to you for coming to give evidence on behalf of HM Revenue and Customs. Would you like to introduce yourselves and tell us precisely what your respective positions and responsibilities are, and then if you would like to make any sort of opening submission we would be very glad to hear it. Mr Toon: I am Donald Toon. I am the Deputy Director for Criminal Investigations with responsibility for northern England, Scotland and Northern Ireland, and with a particular responsibility for the excise strategies across the UK. Mr Gerrard: My name is Paul Gerrard. I am the Deputy Head of Enforcement and Compliance Operations and my responsibilities are to do with our strategies that are designed to tackle organised criminal attacks against the tax system such as cigarette smuggling, oils fraud et cetera. Q306 Chairman: I would be right in thinking that both of you have pretty lengthy backgrounds on the customs side. Mr Toon: That is correct. Mr Gerrard: Yes. Q307 Chairman: Is there anything you would like to say by way of opening submission? Mr Toon: I do not think so. Q308 Chairman: Thank you very much for the paper that you sent which is very helpful. Obviously we want a number of things on the record from you. We will conclude this particular session at four o'clock and then have half an hour with you to discuss one or two things privately. Some of the evidence that we have been receiving is of course of an extremely sensitive nature. You are perhaps in as good a position as anybody because of your responsibilities extending beyond the Province, if you are assessing the scale of organised crime in Northern Ireland particularly with regard to fuel smuggling and laundering, cigarette smuggling or alcohol fraud, how would you assess the state in comparison with the rest of the UK and how would you assess recent trends? Mr Toon: In terms of comparison with the rest of the UK, I think it is fair to say that serious and organised criminality in Northern Ireland is probably more significant and has a higher impact in terms of Northern Irish based criminals than it would elsewhere in the UK. I think the key point in this is also the level to which Northern Irish criminals have a significant impact across the rest of the UK and indeed into Europe. I think that is particularly noticeable in terms of oils fraud and in terms of tobacco fraud. In terms of the serious criminality, more than 50% of those involved would be Northern Irish or at least of Northern Irish extraction. Q309 Chairman: As many as that? Mr Toon: Yes. Q310 Chairman: How sophisticated is criminality in Northern Ireland and is it becoming more sophisticated? Mr Toon: I think the criminality is becoming steadily more sophisticated but that is in terms of a response from the criminality to the type of investigation activity and type of intervention activity that is carried out against them. This is always an evolutionary business; you are always going to be in a position where the more impact we have, the types of techniques we use, as we become more sophisticated and drive some people out of the business into other areas of criminality - or indeed out of criminality entirely - then other people will become better, use more complex mechanisms, use tighter knit groupings and move into slightly different areas of the fraud. It is becoming more sophisticated but a lot of that is driven by the effectiveness of the enforcement interventions in particular, and I do not mean by that just what we as an organisation are doing but very much what we are doing in cooperation with the PSNI, in cooperation with the Assets Recovery Agency, with the authorities in the Republic and in particular I think with our Fiscal Liaison Officer Network overseas which is providing us with a particular set of information which is useful and very effective in terms of detecting the criminality, particularly when we are talking about tobacco smuggling where there has to be an original source. Q311 Chairman: How far would you say that there is a transfer of the techniques and the experience of those who have, for generations, been involved in paramilitary activity into what I might call more ordinary criminality and how far would you go along with those who say that there is real danger that the domination of the paramilitary will be replaced by the domination of the mafia? Mr Toon: I think it is very difficult for us to comment from our point of view as an organisation on paramilitaryism, on the operation of paramilitary or paramilitary links to organisations. That is not the business we are in. Whilst we do have a significant exchange of information with PSNI and other authorities, our primary business is in focussing on the revenue frauds themselves. We have an awareness of the paramilitary links and we take those into account in operational activity et cetera, but our targeting is driven by the revenue frauds. It is therefore very difficult for us as an organisation to make a realistic assessment of paramilitaryism as a single issue within Northern Ireland. We would say, I think, that it is clear that paramilitary organisations have had to be funded throughout their history. Most of that funding has been done, we believe, through different forms of criminality; a lot of that criminality will have been revenue fraud criminality. What we have no information on at all is how much of the criminality that currently exists is going to fund paramilitary or paramilitary linked organisations or how much goes into the individual pockets of individual people or how much of it is going in any other direction. The point was made in evidence to the Committee by the PSNI that this is a very difficult assessment to make and it is certainly not an assessment that we would feel qualified to make. Chairman: Thank you for that; it is extremely helpful. I would like to bring in Lady Hermon who I know wants to follow up on a particular aspect of this. Q312 Lady Hermon: May I just take you to paragraph 14 of your written paper? There is a comment which jumped off the page as I was reading through it and that is: "Finally, it is important to note that while we believe the majority of illicit fuel is not sold through legitimate filling stations in Great Britain, our latest assessment is that a very significant proportion of the illicit fuel sold in Northern Ireland is sold through retail filling stations." How on earth has this come about? Do people do it knowingly or willingly? Mr Gerrard: I think there are a range of behaviours involved. Certainly once there is a volume of illegal fuel - be that smuggled fuel or be it laundered red diesel, mixed kerosene or whatever it may be - there is what you would term illicit sale through the use of tanks by the side of the road but most people will not buy fuel to put into their vehicles through those sites; most people will want to go to what looks like a legitimate filling station. Some of those individuals owning those sites will know they are buying illegal fuel because they are part of that criminal network. Some of them will have suspicions because they are buying fuel at a price that they cannot buy legitimately. Oil has a floor price; you cannot buy it legitimately below that floor price but this is often below that floor price and it is attractive. They may say they did not know, but they must have had suspicions. Equally there are people who will be buying fuel which is illegal but paying the full price, therefore they are completely unknowing of the fact that they are selling illegal fuel, so I think there is a range of behaviours involved. Our difficulty is that we engage in a good deal of enforcement activity targeting retail sites but our frustration is that we will seize fuel and where we can we will seek to prosecute people, but that site we cannot close down. Q313 Lady Hermon: When you say "we" could you just tell me how big is the "we"? How many people are actually engaged in Northern Ireland - I mean exclusively in Northern Ireland - and actually going round testing fuel and seizing fuel in Northern Ireland? How big is your operation? Mr Gerrard: In terms of testing the fuel which is done by our detection officers there is about 100 or 110 of those. In addition to that we have intelligence officers, we have criminal investigation specialists and we have non-compliance officers who will raise duty assessments. Over all we have just over 160 officers in Northern Ireland exclusively dedicated to oils activity. Q314 Lady Hermon: What would help you in your investigations in Northern Ireland in dealing specifically with the retail side? Mr Gerrard: I think there are two parts to that. There must be more that we can do to improve our inter-agency cooperations with the other agencies in Northern Ireland; I am absolutely certain of that. I am aware of a recent operation where we received fuel from a particular vehicle that was delivering fuel to the retail sites. It was delivering that fuel from the back of a normal truck, it was a skip with a tank in it. I am sure we have all seen when fuel is legitimately delivered to retail sites it is cordoned off and you have the hazchem signs because it is a very hazardous product. This is not; this is done through a hosepipe down to the floor. So there is something we can do with health and safety; there is something we can do around the quality of the fuel with the Trading Standards people; there are things we can do to improve our co-operation. From my perspective it is not my responsibility. When I look at what we do in GB it is very difficult for someone to get illegal fuel into legitimate retail sites because those sites are licensed. I have friends who work for the oils majors downstream and certainly one of my friends has been interviewed under caution twice and it terrifies her because of the potential health and safety issues at her retail sites in GB. That does not happen in Northern Ireland. I have been involved for six years in Northern Ireland and there is an issue about how those sites are licensed and are those licences effective for the 21st century; I would say that they are not. Q315 Lady Hermon: We have heard evidence from another witness at another session of the Committee and that point was made, that the introduction of the licensing system in Northern Ireland would be very helpful. Having tabled the question I then had a reply from the Minister, Angela Smith, which is very disappointing but I will read it into the record: "Proposals to streamline a type of petrol licensing regime are currently being considered"; they are only now currently being considered and you say you have been working there for six years. Mr Gerrard: Yes. Q316 Lady Hermon: Is it your view that the Government has been very lapse and very slow responding to the needs that you have? Mr Gerrard: Certainly we have spent a good deal of time trying to get our own house in order to make sure that we are doing all we can. We are a very active member of the Organised Crime Task Force and it is an issue we have raised in the Organised Crime Task Force and I know that my colleagues in Northern Ireland are looking at those issues. Q317 Lady Hermon: When would you have raised that? Some time ago? Mr Gerrard: I raised it in 2004/05 time; I could not give you the exact date. Q318 Chairman: Your aim in doing this is to help the legitimate retailer resist the pressures to sell the illegitimate fuel. Mr Gerrard: Absolutely. My minister said when he launched the UK oil strategy that one of the reasons for this was to protect legitimate trade. If you have a business that is run by criminality then the pressures on the honest trader are very difficult and I think by putting in place regulatory control to put in the standard of behaviour that is acceptable then that will help legitimate trade. Q319 Lady Hermon: How many legitimate traders would you estimate have actually been driven out of business in Northern Ireland in the past five or six years? Mr Gerrard: I do not know the answer to that question because the trade itself, regardless of the impact of fraud, is a fluid one anyway. What I can say is that in the last six years the legitimate market has got healthier. It needed to because it had dipped very sharply between 1996 and 2000. From 2000 onwards the legitimate market has grown by about 22%. That is good but it has some way to go. My own view would be that people have been driven out but we are supporting those businesses much more because of the work that we do on oils in Northern Ireland. Q320 Lady Hermon: Was any form of compensation paid to those traders who went out of business? Mr Gerrard: Not that I am aware of. Q321 Chairman: What is the percentage of illegitimate fuel? Mr Gerrard: HM Revenue and Customs are one of the few fiscal authorities in the world that will estimate the size of the revenue loss that we have so I can tell you that in cigarettes it is currently 16% across the UK. In Northern Ireland I cannot tell you what the volume of illegal fuel is, be that smuggled or laundered, but I can tell you what the volume of fraudulent fuel and legitimate cross-border shopped fuel is (that is people going to visit relatives in the south, filling up with fuel and coming back). We estimate there is something like £245 million that is lost in Northern Ireland as a result of fraud and shopping. That is currently about 30% of the market. That is down from over 40% of the market four years ago but it is still a significant share. What element of that £245 million is fraud I am afraid I cannot tell you but I would suggest it is a significant proportion. Q322 Lady Hermon: As a point of information I would like to clarify some evidence that was given on another occasion. The illicit fuel that is moved around Northern Ireland, is it primarily moved in tankers marked with well known brands? Do these organised, sophisticated criminals have lorries disguised as a legitimate brand? Would you say that there are more illegitimate branded lorries and containers on the roads than legitimate ones? Mr Gerrard: I think it is a mixture. Certainly we are well aware of illegal fuel being moved in legitimate road tankers that are built just to move fuel. Equally I am well aware of instances where fuel is moved in vehicles that are not intended to move fuel. I think it depends on what the organisation perceives as the risk. Certainly five years ago they were moving tankers and they quickly worked out that we were stopping as many tankers as we could so they moved to concealment. So I think it is a mixture; it depends on what they think they can get away with. At present a large volume of fuel is moved in informal vehicles rather than legitimate road tankers. Q323 Sammy Wilson: We had evidence that - and we know this has been the case in Northern Ireland - this has been going on for years. The retailers as far back as 1996 met with you and highlighted the effect of this and I notice that in your submission to us it was not until 2000 - despite all the evidence that was available to you - that you increased the number of officers you had working on this from 25 to 160. Why did it take so long, given all of the evidence? The second question is that in paragraph 17 you have given us what, on the face of it, appears to be an impressive commentary that between 2000 and 2004 you have dismantled 13 criminal organisations, seized eight million litres of fuel and blown up 65 laundering plants. Given that the revenue loss that you have estimated as £245 million and even assuming that 60 pence per litre was taxed, that means that there is 400 million litres of illegal fuel per year and you are seizing two million. It is hardly a success, is it? Mr Gerrard: I will take the first question first. I have been working in this field for a long time. I started in April 2000 and on the evidence we had then we took action very quickly. I have to say that I am not clear what the evidence was earlier than that but certainly I think this Committee in an earlier form took evidence on that in 1999 and part of that response was the action we took in 2000. In terms of our success, the only point I would make is that the ultimate success measure that we must use must be how much fuel is legitimately sold in Northern Ireland. That has gone up by 22%. There is significantly more fuel legitimately sold in Northern Ireland than there was four years ago, 22% more. We did that through a range of interventions and I think that as a fiscal authority of which we have a law enforcement arm we have an awful lot of tools available to us that are not necessarily criminal justice tools so we can, for example, seize fuel, we can impose assessments, we can control the supply chains of things like red diesel and kerosene. There are a whole range of interventions that we make and I think judging us just on the outputs on those kinds of figures does not really capture the whole picture. The ultimate measure must be: is the legitimate market healthier than it was four years ago? The answer is yes. Can we do more to make it healthier still? You are absolutely right, we can and we should and we are determined to do so. Q324 Sammy Wilson: The fact that 99.5% of the illegitimate fuel is not being seized by you hardly marks a success against the illegal fuel. Mr Gerrard: I take you point but as I say I think we need to be measured by the impact we have on the market that we face, the illicit revenue loss, and that is going down. I am sure we can do it better and quicker, but I think the ultimate measure must be on our impact. Mr Toon: One additional point is that of that £245 million only a proportion of that is actually illicit fuel. The point that Paul made before is that also included in that is legitimate, perfectly legal, cross-border shopping. The 99.5% is probably a significant over statement of the position. Q325 Stephen Pound: Mr Gerrard, you referred to a 16% illicit mark share UK-wide in cigarettes which equates at about two billion. Can I ask the obvious and what may seem absurdly naïve question, why can you not make a Northern Ireland estimate? Mr Gerrard: I will answer that in my layman's way. I have economists and statisticians back in the office who will be pulling their out at the thought of my providing you with this reason. We estimate the size of the illicit market using a technique called gap analysis and what we do is that we estimate the overall theoretical consumption using survey data from things like the General Household Survey and the Omnibus Survey. We then take away what we collect - our receipts - and that gives you a gap. That gap is made up of both fraud and shopping. We can do that for Northern Ireland for the consumption of oils but we cannot do it for the fraud shopping. For the UK for cigarettes we have this gap. We can then split that between fraudulent (because we have an estimate) shopping. We cannot estimate the consumption in Northern Ireland nor do we have data releases as to the receipts as they relate to Northern Ireland. For those two we do not have the base data specifically collected in that way by the statisticians in order to be able to make that assessment. Q326 Stephen Pound: Your colleagues in London frequently mount a very skilful operation now where they visit football grounds and they pick up all the empty cigarette packets at the end of a football match. The Glentoran Oval is a pretty large football ground and it is pretty well attended and well supported, have you ever thought of doing that? It does give a body of empirical data and apparently there is a fairly accurate read-across in terms of penetration. Have you ever tried that or would you prefer not to answer that in public? Mr Gerrard: The pack survey carried out by the Tobacco Manufacturers Association does exactly that. They do a pack swap, approaching people giving them a voucher for a new packet if they give them their old packet. There is quite a decent corollary between their estimates and our estimates. I am not aware if this sample size is big enough in Northern Ireland to allow that to do Northern Ireland, but it is I have recommended to manufacturers and would be happy to discuss with them. Q327 Stephen Pound: Following on from Lady Hermon's point about the actual point of sale, in my experience in buying cigarettes in Northern Ireland I was asked if I was interested in "cheapies" and it took me quite some time to work out exactly what was being offered me, but they were ordinary legitimate traders who had cheap cigarettes underneath the counter. Is that a typical form of sale or are we more in the realm of the street corner trader? How are they actually sold and is there any evidence that the sellers to the ultimate consumer are complicit in the process? Mr Gerrard: It is certainly unusual in our experience today. It is unusual for illegal cigarettes to be sold through legitimate tobacconist retail sites. The vast majority of illegal sales of cigarettes throughout the UK are through informal networks, that would be family circles, social circles (pubs and clubs), car boot sales, the work place, often on the shop floors of big factories and also on street corners. Certainly in places in London and throughout the UK there are street sellers selling cigarettes. The Holloway Road is the most infamous example here in London. That is the typical experience, including in Northern Ireland. Certainly if a retailer is selling illegal cigarettes they run some pretty serious risks. The risk getting a criminal record because it is an absolute offence to sell non-fiscally marked cigarettes and there is a risk of a £5000 fine. With that they will lose the lottery terminal if they have it; we can oppose certain licences necessary to sell other products. They are running a significant risk. Q328 Stephen Pound: In terms of our inquiry, if there was street selling being done in Northern Ireland on the Holloway Road basis, there would be criminal gang involvement, but the Holloway Road cigarette selling is almost entirely dominated by Kosovo and Kurdish gangs who pay their local protectors. Are you saying there is very little street selling or is there some street selling and, if so, is it done by agreement with local organised crime? Mr Gerrard: There is undoubtedly some street selling in Northern Ireland, as there is in the rest of the UK. Those street sellers may appear at a relatively low level, but of course they are being supplied and that supply chain will ultimately and undoubtedly lead back to organised criminality. It will not be an amateur operation. Our experience in the UK is that those street sellers are supplied by organised criminality. Mr Toon: The supply chain for cigarettes has become stronger, more heavily organised over the last few years. During the first few years of the tobacco strategy I think we took out an awful lot of the smaller scale importers and distributors and we now find ourselves tackling what are very large, complicated and very organised networks of criminals. That applies in the UK as a whole and it applies in Northern Ireland. Q329 Stephen Pound: In that evidence are you differentiating between smuggled cigarettes and counterfeit cigarettes? Is there a difference? Mr Gerrard: In terms of the duty loss no there is not. Q330 Stephen Pound: I was thinking in terms of the providers and those who oversee the operation. Mr Gerrard: When we first started this strategy back in March 2000 the vast majority of illegal cigarettes - about 16 billion in 2001 - that came to the UK were genuine UK manufactured cigarettes that had been genuinely exported abroad, had been bought up overseas by smugglers and then smuggled back in. They were a genuine product; they looked, tasted and were genuine products. Increasingly now - I think it was 48% of our seizure last year - they are counterfeit cigarettes. When I talk about illicit cigarettes I talk about both genuine smuggled and counterfeit smuggled, but of course counterfeit cigarettes carry significantly higher health risks. Smoking is not good for you - it kills 120 thousand people a year - but counterfeit cigarettes are even worse for you. They contain more arsenic, more cadmium and more lead; they have more tar and produce more carbon monoxide. Q331 Stephen Pound: Will people intentionally buy counterfeit cigarettes? Mr Gerrard: If they are sold on the street corner or at the car boot sale, a packet of cigarettes for £2.50 or £3.00 they will think they are buying genuine cigarettes because they look like genuine cigarettes. It is only when they smoke them that they realise that they taste particularly unpleasant. Q332 Gordon Banks: The Committee recently heard that pre-1993 protection money was clawed back as a legitimate tax deduction; since that time it has no longer been the case. What effect has this change since 1993 had and in particular what kind of impact has this had? How much was being tax deducted in the first place? What effect has it had on businesses and on the people who are carrying out the extortion? Have they changed the levels that they would seek to extort from businesses because it was a taxable expense and now it is not? Mr Gerrard: I am afraid I am not an expert on tax deductible issues. I apologise for not being able to answer those questions and I would be very happy to provide a note.*** Chairman: We can pick that up at a later session and we would very much appreciate your note. Q333 Gordon Banks: We have heard about the 1.4 million seizure in the middle of March and described by Sean Woodward as being a priority. What would your view be on the harmonisation of fuel duty across the island of Ireland? Would this be of benefit and do you see it as a possible solution? Mr Gerrard: Those are matters for my minister rather than for me. In terms of the island of Ireland, Northern Ireland in oils is unique in that there is an issue around cross-border smuggling that we do not have in terms of oils in the rest of the UK. Were you to harmonise duty rights in the island of Ireland then that would stop cross-border smuggling. However, that would not, I would suggest, stop oils fraud because then I think the criminality would simply look to replace that lost opportunity with a new opportunity. You would still have a differential between that and rebated fuels and certainly speaking to my colleagues in the Republic of Ireland they have a significant problem with rebated fuels fraud. I think harmonisation of duty rates would impact on a specific kind of fraud in Northern Ireland but it would not solve the oils fraud problem. Q334 Gordon Banks: I appreciate that but it would also undoubtedly free-up a lot of your available man hours to follow up the then on-going fraud which is part of the fraud just now. Mr Gerrard: I think we would be facing the same criminality. We would be looking to exploit the rebated fuel issue more in the absence of the ability to exploit the cross-border smuggling issue. Q335 Gordon Banks: You would have the same level of resources to combat one aspect of criminality and you are saying they would grow to compensate, but in some ways it is much easier to address the counterfeit fuels than the smuggled fuels. Mr Toon: I am not sure that I would necessarily agree with that. I think that because you are dealing, particularly in diesel, with market product - green diesel in the south - if that is smuggled without a laundering process you have a very easily detectable fraud. You still have a laundering process; you still have the cleaning of the fuel to make it useable and invisible, which is precisely the same as you have with rebated red diesel in Northern Ireland and in the UK more generally. I am not sure it would actually make a significant difference. It would make a difference in the cross-border shopping on the legitimate side and it would make some difference in terms of smuggling, but in terms of actually reducing the level of fraud, given that we are still talking about a laundering process, I would find it hard to see just how much difference it would really make from an operational point of view. Q336 Mr Anderson: We have heard from a number of people at the sharp end of this in terms of the people you represent and they have said that despite the increase in numbers in terms of officers and setting up the various bodies to deliver, the effect of all this put together has not been very positive. It has been said that the increase in fuel paid for legitimately could be explained by higher vehicle usage but also they believe Revenue and Customs have only scraped the surface. There is a lot of crime going on. There is a lot of resource and the business of feeding through information to yourselves they do not believe it is being acted on. Can you comment on that? Mr Gerrard: The revenue loss figure that I gave you, the £245 million, as a proportion of the shared market takes into account increased vehicle usage. The overall amount of fuel used in Northern Ireland that is not UK duty paid - shop and laundered - has dropped from over 40% to under 30% so I would dispute that. In fact I have had letters over the past few years from petrol retailers complaining about something we have done but also saying they have seen their products increase. That is the first point. I think the second point is that I certainly do not think there is a lack of will on our behalf. We have devoted significant volumes of resource for a significant period to do this and we are very determined to continue to make that impact. In terms of the information we have seen over the last three years the volume of information that comes into our Customs Confidential Hotline (which is, if I can give it a little plug, 0800 595000) increase in Northern Ireland in relation to oils, but it is still at relatively small levels and I think one of the things that we need to do with our joint forum is to look at ways to get more information from them. We have a very sophisticated intelligence set up and we take a lot of information from that, but they are on the ground at the sharp end and they can get the information and I think sometimes that does not always get through to us. Mr Toon: In terms of the core criminality there are two aspects to this. One is the way in which we are actually working very closely with PSNI, that we are involved on a very regular basis - weekly, if not multiple weekly basis - in dealing with detections which are made of illicit fuel as it is being transported, moving then to seizure and then taking enforcement action. That is happening very, very often. In terms of the more sophisticated criminality, the more organised criminality, I think that we are beginning to see that it is feeding through in terms of the kind of figures that Paul was talking about. We are being able to put out of business in Northern Ireland and elsewhere some significant players who have been involved in oils fraud and oils laundering for quite an extended period of time. These are people who are operating in the South Armagh cross-border area. We are working very regularly again with PSNI. We are working regularly with the Assets Recovery Agency and with CAB and the Revenue Commissioners in the South. We were involved obviously in the operation which got quite a lot of publicity ten days or so ago in relation to Mr Thomas Murphy. There is a lot of that sort of work being done. We are dealing with some very sophisticated, very long term criminality and that takes time and a lot of effort. I do not think that the will or the effort is lacking either in our agency or indeed any of the others to tackle that problem. Could we do more with our resources? The simple answer of course is yes because any organisation can always do more if it has more, but we, as all organisations, are limited to the amount of resource available but also limited in relation to the information that is available to us to act on. As Paul says, there is a limited pool of information that is coming to us from the legitimate trade and from elsewhere. Q337 Mr Anderson: Another suggestion was that the security forces are not working as well with you as the retailers would like them to and perhaps you could do with more officers on the ground. I think you have probably answered the second part; what about the first part? Mr Toon: I would think that quite categorically our operational relationship with the PSNI is better now than it has been in a very long time. The level of cooperation is very high; we work very closely on joint activity both in terms of targeted investigations and in terms of a reaction to low level fraud. I find it difficult to see how much more cooperation we could receive from agencies like the PSNI. We also work closely with the Assets Recovery Agency; that is a growing relationship. Only a few days ago you saw the Assets Recovery Agency take action in the High Courts on Malachy Maloy where there was a £1.4 million restraint. That was a referral from Revenue and Customs. That is direct, effective operational cooperation where we cannot take an enforcement action because of availability of evidence but the Assets Recovery Agency is able to have an impact. That is real co-operation. Q338 Mr Hepburn: I would just like to clarify some of the things that have been mentioned in the last few minutes. Do you routinely check fuel or is it always lead-based? Mr Gerrard: We try to work with as much intelligence as we have but as Don says there is a limit to the amount of information available and we do do roadside work as we call it, particularly with colleagues in the Vehicle Licensing Agency. We are stopping vehicles without very specific intelligence and certainly over the last two years we have done significantly more challenges on the roadside than we have ever done before. Q339 Mr Hepburn: What about the testing of fuels in the forecourts, speculatively? Mr Gerrard: We will do that, yes, but for that work we tend to rely on intelligence, intelligence in the broader terms and not necessarily intelligence that says: "The filling station run by Mr X is selling illegal fuel"; we use data that we have as official authorities as to where there is potential risk and therefore we will go and say, "There is a risk and we want to satisfy ourselves". Q340 Mr Hepburn: So I could be a retailer in Northern Ireland and it is possible that you would never check my forecourt. Mr Gerrard: I am sure there are some forecourts that have never been checked because they pose very little risk. Q341 Mr Fraser: On the point of partnerships - which is very important in terms of the job you are doing - the Army has spent a great deal of time in Northern Ireland with highly sophisticated mechanisms of finding out what is going on. Are you replacing the Army? Mr Toon: We do work closely with the Army. We have an exchange of information and intelligence with all the law enforcement and security forces in Northern Ireland and we have a direct operational cooperation with the Army as well. What has been extremely helpful is where we have been involved with operations on the border we have had significant military security and military logistical support. That has been absolutely critical to us. We have military tankers, military plant equipment actually going in and working with us to make seizures where the risk assessment would suggest that it would be unwise for civilian contractors to be involved. Q342 Mr Fraser: The withdrawal of army personnel as a result of current decisions that have been taken, is that going to hamper that cooperation you talk about? Mr Toon: We have certainly seen nothing that would suggest any reduction in the capacity to cooperate in the areas that are critical to us; certainly not at this stage. Q343 Mr Hepburn: We have heard a lot about the damage that illicit fuels can cause to a car, but how would a motorist know whether he was buying this properly in terms of price? How would he know he was not going to put something in his car that was doing damage? Is there anything to say they are registered or something like that? Mr Gerrard: The licensing regime in Northern Ireland is one thing, but in terms of how can I tell that I was not going to buy illegal fuel, I think my key indicator is going to be price. If I am buying fuel that is cheaper by any more than a couple of pence a litre than anywhere else, then I should be very suspicious. Q344 Chairman: But you did say that there were some people selling at the same price. If I, as a tourist enjoying the beauties of Northern Ireland (of which there are many), pulled in on a forecourt, paid what appeared to me to be a perfectly normal price for my fuel, how would you then answer Mr Hepburn's question? Mr Gerrard: There is a risk there and it is not like cigarettes where cigarettes are invariably sold at a cheaper price. Q345 Chairman: Are there particular areas of Northern Ireland that we should be wary of? There are the border areas, but are there any other areas? Mr Gerrard: We seize illegal fuel throughout Northern Ireland, from filling stations throughout Northern Ireland. Q346 Chairman: So even if I were enjoying a nice visit to the Giant's Causeway and driving up the Antrim coast I could still have the misfortune of getting fuel that would damage the engine of my car. Mr Gerrard: That is a possibility. Q347 Sammy Wilson: Can I move on to the testing of stations? According to the Petrol Retailers and even according to your own figures given the volumes of fuel sold illicitly one way or another, they say up to half of the filling stations in Northern Ireland either contemporaneously or at some time use illicit fuel. That is their evidence and certainly your own figures indicate that maybe the numbers are not as high as that but it is certainly a high proportion. Given that, surely that is the natural place and the natural focus of your attention to try to identify who is selling fuel. Let us say in an average year how many stations would your officers test? Or do you simply rely - as has been pointed out - on catching the motorist who may have inadvertently purchased the illicit fuel, but if stations are not being tested how do they know? I was driving into Lady Hermon's constituency - although I am not saying they are all criminals in Lady Hermon's constituency - and they were testing there and there were eight cars in a row, some of them fairly high grade cars that had been pulled to the side and obviously had been dipped and found to be using illegal fuels. Many of those people may well have bought it inadvertently and yet if stations are not being tested how does one know? Mr Gerrard: I think there are two parts to that. In terms of the fuel that we will visit and test, those tests will identify rebated fuels, so they will identify laundered red diesel or they will identify kerosene mixed fuel. From memory about 130 or 140 stations were visited and tested last year and more than that the year before. If somebody is selling smuggled fuel we can go in and test and we will find that it is duty paid and what we do with those is that we will go in using other techniques. Our assurance VAT officers begin to look through their books and records because the books and records may not add up to what is going through the till. This number of visits does not include those visits that are done by assurance officers. We do not test fuel because you cannot find smuggled fuel through tests but you can find it looking at the books, the records and the paperwork. Q348 Sammy Wilson: Can you give us an indication of the success rate of these visits? Mr Gerrard: The success rate has dropped over the past few years. Where we used to get a very high hit rate that has dropped successively over the last few years, which suggests that the market is getting more legitimate. Q349 Mr Hepburn: Changing the theme to cigarette smuggling and to give us an idea of the size of the problem in Northern Ireland, we are told that last year in the UK you broke up 68 gangs and seized £2 billion worth of cigarettes. What are the figures for Northern Ireland? Why are the figures for Northern Ireland not published? Mr Gerrard: Because it is a national strategy and we publish them for the UK as a whole. We will publish, when asked for, the figures for Northern Ireland. Starting off in 2002/03 we have seized 44 million cigarettes, followed by 31 million cigarettes, followed by 19.7 million cigarettes. I can give these in a note to the Committee.*** I cannot give you the numbers for 2005/06, the current financial year, because the Department only publishes those in the annual report. What I can tell you is that we have seized more cigarettes already this year than we have seized in either of the last two years. That is because we have made a number of very large seizures. We have made one seizure of 15 million cigarettes, another of nine million cigarettes, another of six million and another of three. Although I cannot tell you the total number of cigarettes seized this year, what I can say is that at the end of this year we will have seen more cigarettes than we did in either of the previous two years. Mr Toon: What is very clear to us is that a very high proportion of cigarettes that were seized in Northern Ireland are not destined for the Northern Ireland market. Northern Ireland and Northern Irish criminals clearly play a very significant role in terms of cigarette supply to the UK as a whole both in terms of being in control of the movement of the cigarettes, in control of the financial position in terms of the assets then going back to Northern Irish criminals, but also in terms of the routing of cigarettes into the UK. We have quite a long history of significant consignments of cigarettes moving into the Republic from mainland Europe going up from the Republic being either broken up, split up or simply having the method of transport slightly changed, over the border then across into GB and then distributed into Scotland, to the north and north-west of England as well as down into Essex and the London area. Q350 Chairman: Are the port facilities adequate? Mr Toon: One thing that is worth perhaps mentioning is that any movement between the port of Belfast and GB is that it is an internal UK movement. When you get into this large scale smuggling you are dealing with something which is very much organised criminality. The one operation which is worth mentioning links to that 15 million seizure that Paul mentioned which I think was also mentioned by PSNI when they spoke to you because that was a joint operation. It was a joint operation involving ourselves, involving the Metropolitan Police, involving the guards, involving the Revenue Commissioners and the security intelligence agencies. There were three people arrested in November 2005 in relation to that including one or two extremely well known names in Northern Ireland who have a very long history in Northern Ireland. On that operation well over 20 million cigarettes were seized, including the 15 million. There were a number of other seizures involved. Those seizures were all over the UK. The revenue on that particular operation, even with a very snapshot period of time, would have been about £31/2 million and we believe that that is a small proportion of the activity that is actually going on. This is a very much controlled trade by organised criminality linked into Europe and from Europe into the Far East because what we are talking about here is a cigarette supply which involves British, Northern Irish based criminals in mainland Europe who are brokering the cigarette supply from the Far East and then to organised criminals in Northern Ireland and then into middle level distributors and low level distributors across the whole of the UK. You can publish figures for the UK, you can publish figures for Northern Ireland, but you have to look at this as a large scale international fraud and simply looking at the figures for the numbers of arrests or numbers of seizures in one particular area does not give you a real picture of what is actually going on. Mr Gerrard: Of those four cigarette seizures that we have made this year, two have come from China originally and one has come from Malaysia. This is international. Another point is that over the course of the last five years we have seen ten billion illegal cigarettes destined for the UK markets. When I say "we", HM Revenue Customs in the UK have seized five billion. Five billion have been seized overseas by our officers based overseas in conjunction with host agencies. Q351 Chairman: Those would almost all be counterfeit, would they not? Mr Gerrard: In more recent years increasingly they will be counterfeit, but they would have been genuine as well. Those are cigarettes en route to the UK which, by working with our host agencies overseas, we seized those cigarettes. Some of those would have been coming to Northern Ireland. Q352 Mr Grogan: You talked about the ways in which you have improved in recent times, increased co-operation with other agencies and the Serious Organised Crime Agency comes into being very shortly. How would you see your relationship with them? Mr Toon: I think the relationship will be a very close one; there is no doubt about that, not least because 757 of our officers are actually transferring to the Serious Organised Crime Agency as part of the remit. One baseline point that is worth making, the primacy and control of organised revenue fraud remains the responsibility of HM Revenue and Customs even after the creation of the Serious Organised Crime Agency. We have retained all the powers which currently exist and retain all the responsibilities in relation to UK revenue fraud. We are already in the process of working up detailed arrangements for co-operation with the Serious Organised Crime Agency. Those arrangements will be very comprehensive. They will certainly focus initially very largely on intelligence and intelligence assessment, the exchange of intelligence and information and on direct operational support from one agency to the other. We see this very much as an inter-twinned future. We will have to work closely with the Serious Organised Crime Agency in a range of areas. For example there are links between VAT missing trader fraud which will be of primary responsibility for HM Revenue and Customs and organised Class A drug trafficking. Those links are primarily often arranged in the relationship of money. Class A drug traffickers tend to be cash rich in the UK. Antique fraudsters tend to be cash rich outside the UK. There is a relationship between the two in terms of where they need their money to actually be to be able to pay off the money who are involved in the fraud. There are direct relationships between the two types of fraud. There has to be a very direct and very close relationship between the agencies involved in investigating those types of fraud to make sure that we actually have the greatest possible impact and the greatest possible benefit for the UK exchequer as well as to the reduction of harm across the UK, even down towards the local level. Q353 Mr Grogan: Can I ask you about Revenue Commissioners and the Criminal Assets Bureau in the Republic and links there, and also EUROPOL and INTERPOL as well? Mr Gerrard: The relationship with the Revenue Commissioners is a good one; it has been a good relationship for a long time. It is not just straightforward cross-border co-operation between the two agencies; we also have a fiscal liaison officer based in Dublin who works with all of the authorities including the Criminal Assets Bureau in the Republic. We have a particular issue at the moment on the exchange of information between ourselves and the Criminal Assets Bureau. There is a restriction on our ability to exchange information which has been brought about by the detailed point with the Commissioner for Revenue and Customs Act 2005. Chairman: I think we will deal with that privately later. Mr Fraser has one or two quick public questions and then we will move onto our private session. Q354 Mr Fraser: Can you briefly tell us about the actions you are taking against accountants, lawyers and the professional services who may well, on occasions, be helping some of these criminals conceal assets? Mr Toon: We do not specifically target professionals but we certainly take investigation and prosecution action against anyone whom it is clear is involved in further criminality. We will not be put off dealing with professionals where we can obtain the evidence that the professional is actively involved and complicit in the criminality. We had a result recently with an accountant who was involved in the laundering of the proceeds of oils fraud, he was prosecuted, he got a custodial sentence and that has certainly had a significant impact on his business and on his colleagues in the accountancy profession. Q355 Mr Fraser: You do not specifically target those individuals. Why not? Mr Toon: We would target them only as part of the fraud itself. There has to be some evidence of their actual involvement in a fraud to actually target them. This is particularly in relation to the indirect taxes. On the direct tax side, where there are direct tax offences which involve a professional then that is more likely to attract a criminal investigation and the subsequent prosecution than similar offences that do not involve a professional. Q356 Mr Fraser: I was more interested in why not? Routine checks that a lot of organisations have, you count them in on that equally as you would any other visit? Mr Toon: Yes. Q357 Mr Fraser: You mentioned sentencing. Do you think the current sentencing regime discourages this type of activity or should sentences for these types of crime be improved upon? Specifically in Northern Ireland. Mr Toon: I think there is a particular issue in relation to sentencing in Northern Ireland, certainly across all the revenue frauds. We have a number of examples where we have had offences where we would have expected custodial sentences - the sentencing guidelines would suggest custodial sentences - where we have seen suspended sentences actually being given. That is a point of concern certainly to us. It has a far less impact on the individuals; it has a far less deterrent effect. Q358 Lady Hermon: It must be demoralising for your staff. Mr Toon: It certainly does not build enthusiasm and encouragement, that is for sure. Chairman: I think that is a very good note on which to move into private session. We can follow some of these points up. Thank you very much indeed publicly for the evidence you have just given. Could I now ask members of the public to withdraw and we will immediately resume in private. |