Appendix: Government response
Recommendation 1
HMRC and Border Force must continue to strengthen
the lines of communication between the two organisations, to ensure
that relevant and up-to-date information is passed between teams.
In particular, it is vital that referrals be made to HMRC in all
cases of seizures where it appears that there might be scope for
sanctions to be imposed. HMRC and Border Force should create a
platform where effective examples of joint-working with local
police forces and partner agencies such as Trading Standards across
the UK can be accessed for training and in order to share good
practice. Without sharing information, raising prosecution and
arrest rates for tobacco smuggling will be more difficult, if
not impossible.
HMRC and Border Force recognise the importance of
effective communication between the two organisations. To this
end, this year we have made a number of changes to significantly
improve intelligence sharing and joint working in response to
the evolving threats from tobacco smugglers. We have refreshed
joint protocols governing criminal investigation and intelligence,
which provide: greater clarity on criminal investigation adoption
criteria; improved processes for mandatory feedback; better joint
management information; and improved joint approach to planning.
We have also established joint intelligence teams to address specific
intelligence priorities. Border Force refers all cases, where
there is scope to impose sanctions, to HMRC to consider criminal
or civil action. These referrals have significantly increased
over the last 12 months. To further bolster this joint working
HMRC and Border Force are putting in place a strengthened process,
which we expect to be agreed by December 2014.
HMRC and Border Force work closely with other government
agencies to tackle illicit tobacco. HMRC actively pursues opportunities
for joint working with Trading Standards in order to have an impact
on the illicit trade at the point-of-sale. Using the latest intelligence
to identify high risk areas, HMRC officers will lead new inland
enforcement operations in hotspot areas across the UK. These operations
are intensive bursts of activity where officers will carry out
checks on shops, warehouses, self-storage sites, businesses and
workplaces suspected of being used to sell, store, supply or distribute
illicit tobacco and alcohol. All six national hotspot actions
undertaken this year plus numerous smaller scale local actions
have involved Trading Standards officers. The police have also
been engaged particularly in respect to local authority alcohol
licensing or VOSA vehicle licensing activities. Immigration Enforcement
officers have also attended on a number of occasions, which have
resulted in the identification of immigration offences. In the
Plymouth national hotspot Border Force undertook intensified examination
of ferry traffic to maximize enforcement opportunities simultaneous
to the enforcement activity undertaken by HMRC and trading standards.
In March 2014 HMRC led an exercise to target illicit tobacco sales
in Kent which was supported by the police, Trading Standards and
Medway council officers.
HMRC uses operational lessons to continually evaluate
its effectiveness and develop and disseminate best practice as
part of its new approach to tackling fraud inland. This ensures
better planning and co-ordination of activities; intelligence
exchanging; sharing of expertise and best practice and deployment
of the full range of sanctions available.
Through the refresh of the joint HMRC and Border
Force Tobacco Strategy we are developing revised standard operating
procedures for an Inland Enforcement framework for tobacco. These
procedures will be aligned to those of our partner agencies so
that HMRC officers are able to identify and pursue the most appropriate
high impact sanctions available for each tobacco offence tackled.
We will ensure that the maximum benefit for both Enforcement and
Intelligence is derived from this work by undertaking thorough
post-operational reviews and dissemination of best practice to
ensure the success of future activity in this area.
Conclusion/Recommendation 2
It is astonishing that no UK tobacco manufacturer
has ever been fined for oversupply of products to high-risk overseas
markets, and that only one statutory warning letter has been issued.
The penalties available are too weak and enforcement too rare.
We find it farcical that a respected enforcement agency such as
HMRC has not imposed tougher punishments on those over-supplying
overseas markets. We recommend that HMRC publish a clear set of
criteria setting out the circumstances in which it would normally
impose a fine and that an immediate review be taken against all
historic and ongoing cases against this criteria in order to ensure
those who have committed an offence do not go unpunished.
The Tobacco Products Duties Act supply chain legislation
has succeeded in its objective to reduce tobacco manufacturer
supplies to high-risk markets. The law provides for proportionate
action to address non-compliance, with penalties up to £5m.
A list of the relevant criteria and the approach HMRC takes when
considering potential action under the supply chain legislation
is already published in Notice 477 "Tobacco products duty:
control of supply chains". Any decision to issue a warning
notice or penalty requires HMRC to consider all relevant factors,
both positive and negative, on a case-by-case basis. HMRC continually
monitors and reviews all four UK major tobacco manufacturers'
compliance with the legislation and will take action where appropriate.
At the time of the committee oral evidence hearing
on 11 March one tobacco manufacturer was in receipt of a statutory
warning letter stating that they were in breach of their obligations
under the supply chain legislation and could be subject to penalty
at the end of the review period if they failed to adequately address
the breaches identified. Following expiry of the review period,
HMRC has issued the manufacturer involved with a penalty.
HMRC is reviewing the current guidance to help improve
the tobacco manufacturers' understanding of how their compliance
with the legislation will be evaluated.
Recommendation 3
The lack of media reports relating to prosecutions
and enforcement activity in this area is disappointing for two
organisations held in high public regard. As part of their new
communications strategy, HMRC and Border Force should publicise
prosecutions and enforcement action more widely to deter potential
offenders. It is important that the agencies work together to
ensure that those who offend are named and shamed and that the
public money, spent combating this crime, is shown to have been
used effectively.
HMRC and Border Force frequently publish details
in national and local media of successful operations, seizures,
prosecutions and convictions where publication does not compromise
ongoing investigations.
HMRC is currently revising its communications strategy
to take a more targeted approach, focussing appropriate media
messages on the specific risks presented by specific trade sectors,
social groups and geographical areas. Publicising successful HMRC
and Border Force operational activity will be a key feature of
this approach, and communications will be tailored to build public
confidence, deter potential offenders and change attitudes to
illicit tobacco.
Government agencies will continue to work with other
enforcement bodies and use all available channels to educate,
change perceptions and make the UK a hostile environment for those
trading in illicit tobacco, where it is perceived to be a high
risk and socially unacceptable activity.
Recommendation 4
We believe that the decision on standardised packaging
should be driven by health reasons and the imperative need to
reduce the numbers of young people who start smoking. We note
the statement of Sir Cyril Chantler to the effect that he was
not convinced that standardised packaging would bring about an
increase in the illicit market; even if this were the case, we
believe that the proper response would be a more vigorous effort
on enforcement rather than any lessening in the Government's drive
towards introducing standardised packaging.
On 26 June 2014, the Government published a consultation
that will inform the decision on whether to introduce standardised
packaging. The current consultation asks, in particular, for views
on anything new since the last consultation that is relevant to
the development of this policy, including in relation to illicit
tobacco. The Public Health Minister has encouraged anyone with
an interest to respond to the consultation.
HMRC is also undertaking an assessment of the potential
effect of standardised packaging on the illicit tobacco market.
This assessment will feed into the Department of Health consultation
to inform the Government's policy. It will enable HMRC to prepare
for any potential changes in the illicit market that are identified.
The HMRC/Border Force strategy to tackle tobacco smuggling will
adapt to any changes in risk as it has done over many years.
Recommendation 5
An effective track and trace system could potentially
mitigate many of the possible risks which have led the Government
to adopt a more cautious approach to standardised packaging. Any
increase in criminality should be avoided at all costs and considerations
on standardised packaging must be taken on health and commercial
grounds. Therefore, we recommend that any future legislation to
introduce standardised packaging should include a requirement
for appropriate security and tracking features, in accordance
with the EU Tobacco Products Directive and best evidence.
The new European Tobacco Products Directive (TPD)
includes requirements for traceability of tobacco products and
for the incorporation of tamper-proof security features on tobacco
products. The European Commission has powers to ensure that Member
States' domestic implementation acts set out the detail of how
these requirements are to be implemented on a Europe-wide basis.
The Department of Health and HMRC are currently working closely
with the European Commission and other Member States to implement
the Directive. Transposing the track and trace elements of the
Directive into UK legislation will need to be completed by 2019
for hand-rolling tobacco and cigarettes. This will also discharge
the UK's obligations under the World Health Organisation Framework
Convention on Tobacco Control Protocol, which the UK signed up
to in December 2013.
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