Examination of Witnesses (Questions 80
- 99)
WEDNESDAY 10 JANUARY 2007
MR RUDY
VOLDERS AND
MR YANNIC
HULOT
Q80 Chairman:
I would live to move us on because this study is new to us, I
think we should take it away, have a good old look and come back
and ask you a few more questions on paper so that we can establish
what we are doing. We now know the kind of basis on which you
have been operating, which I find very helpful. I would like to
move us on to ask you what is happening in the Belgian economy.
We have a faint feeling that perhaps Missing Trader Fraud manifests
itself differently in each country and we would very much like
to know what you think is happening here and what steps you are
taking to deal with it.
Mr Volders: The politics of the approach in
tackling this sort of fraud?
Q81 Lord Watson of Richmond:
Not just that. You made the point right at the beginning that
we are not looking at the same patterns of fraud, that even from
the research you have done the evidence is that it is done differently,
there is not a European-wide fraud, so to speak, there is fraud
taking place in different Member States and it is done differently.
Mr Hulot: Yes.
Q82 Lord Watson of Richmond:
How about Belgium?
Mr Hulot: In my team we identified eight typologies
of fraud. We have to establish the difference between operators
first, the fraud and the damage. Of course the problem is everywhere
in the EU but the missing trader is in the UK and the damage is
where the missing trader is. It is very important to identify
which operators are in your country. In Belgium five years ago
we had a very big problem with missing traders and the fraud was
reduced by 10 in five years. We reduced the damage of that fraud
by 10 times.
Mr Volders: We have the figures for that also.
Mr Hulot: Now we have conduit companies we have
no fraud in Belgium but we have offshore companies for fraud in
other countries and we have tried to fight against those companies.
It is more and more difficult because there is no fiscal fraud
in our country.
Q83 Chairman:
Can I get it straight that your missing traders are now in other
countries, is that right, they are not in Belgium any more, you
believe them to be in other countries?
Mr Hulot: I work in the Police Service also
and we know that all Belgian fraudsters are now in France, Spain
or the UK.
Q84 Chairman:
In England?
Mr Hulot: Yes.
Q85 Lord Watson of Richmond:
There is one less now!
Mr Hulot: Yes.
Q86 Chairman:
You got rid of them on the whole, you persuaded them to move,
by enforcement.
Mr Volders: We have very stringent policies
for attacking fiscal fraud. We had a commissioner of government
in 2001 and now we have a secretary of state, the Minister of
Finance, to attack fiscal fraud. Why has Belgium had experience
in VAT fraud? Because we have had this system of the Benelux reverse
system.
Mr Hulot: In 1993 and before in the 1980s.
Mr Volders: I think in the 1970s we had the
reverse charge system between Belgium, the Netherlands and Luxembourg.
We detected the carousel fraud in the 1980s.
Lord Cobbold: Do you think that the reverse
charge could be applied throughout the Community?
Lord Watson of Richmond: Is it the most
effective method of stopping this?
Q87 Lord Cobbold:
Would it stop it generally?
Mr Volders: It is a political opinion now, it
is not Mr Hulot's opinion, it is a political opinion of the Director.
With the reverse charge, the system that now exists, there are
risks. We now have eight typologies already detected. When you
have Kovacs doctrine, he has another statement and he wants another
method of attacking fraud, another technique on the VAT system,
but the change has got to be more at the last person in the chain
logistically in the chain of goods. There are always risks in
every system of your fiscal regime and there are possibilities
for fraud. When you think about it, it is unbelievable that OLAF
and the European organisations are not dealing with the Member
States enough to deal with this international fraud because when
you want to attack carousel fraud you must co-operate with the
other countries. In the European Commission there is an institution
for attacking fraud. Now it is a bilateral reunion but maybe we
have to deal with the other countries also and ask whether you
are experiencing it. We do not have an instrument where we can
say, "Okay, this is the experience of Belgium, this is the
experience of the UK", then we could have it all in OLAF
and maybe we would find more typologies than the eight because
the missing traders are now in another country.
Q88 Chairman:
It seems to me that the missing traders are offshore to the EU,
which is the problem I am struggling with, that the missing trader
on the whole has moved outside the EU countries, or is this not
your experience, Mr Hulot, do you think they are still in the
EU countries?
Mr Hulot: It is the companies which are moving
out. The missing trader is where you have the damage.
Q89 Lord Cobbold:
They have to be within the Union to benefit from the VAT.
Mr Hulot: Yes.
Chairman: Yes, that is true.
Q90 Lord Watson of Richmond:
I have, if I may, a question which comes from your summary here.
On the second page, you say: "...it's of the utmost importance
to gain intelligence and experience that should be shared in due
time by all Member States. By making the best use of current European
legislation, allowing the direct contact between nominated anti-fraud
staffs, it must be possible to exchange faster and better intelligence."
If I understand correctly what you have been saying, even by making
the best use of current European legislation, the fact is that
you are not able to draw information from very important Member
States, including the UK and Germany, I would like you to be more
specific about the position of current European legislation. Are
you saying that for this effort against fraud to become a comprehensive
one you need new European legislation or are you saying that there
is enough legislation there for you to widen your search to be
comprehensive?
Mr Hulot: I think we have enough but it is another
way of working. The Eurocanet project is legal, we have the 1798
regulation from 2003 and it is enough to work like this. We need
another way to work together which is more flexible because VAT
fraud is a very big fraud where you need to be very fast. The
ordinary tools to fight against normal fraud are different. If
it is for criminals I think we have the tools but it is the mentality
that we have to change.
Lord Watson of Richmond: If I may come
back to Lord Kerr's point which really is fundamental. Unless
and until you have comprehensive information it is not possible
to answer the very first question which we posed, which is what
is the scale of the problem, and if you cannot answer the question
what is the scale of the problem you cannot either answer the
question what is the severity of the problem. What is unfortunate
about the way all this has developed through the BBC and all the
rest of it is that what has actually come through is that there
is somehow a special UK problem, which may or may not now be being
properly addressed, it probably is. I come back to the original
point. Is that really the picture that we should be looking or
should we be looking at a much wider picture of this fraud across
the European Union, in which case it is essential that you have
the co-operation of Germany and the United Kingdom otherwise you
will not be able to do this work.
Chairman: Nobody will be able to do this
work.
Q91 Lord Watson of Richmond:
Do you see the reason for our unease? In terms of a parliamentary
report, as things stand at the moment we would simply have to
report that the view in Brussels was that this is primarily a
British problem. We will talk to people in Britain who will say
that they have now tackled it and significantly reduced it, and
you were saying that yourself, in which case there is no problem,
it has gone away, but we could be making a very fundamental mistake
and we may be looking at a much wider problem, much more diffuse
within the EU and it may be growing rather than diminishing. I
think we have to get this right. What you said initially would
indicate to me that we should not spend too much time on this
problem because it is actually diminishing, the UK has probably
got on top of it and there is not much to talk about, but could
we making a bad mistake and what we are looking at is actually
something much bigger?
Mr Volders: I think it is a problem for all
the countries within the European Union. VAT fraud and carousel
fraud is a very big problem for all the countries. Why? Because
damage for Europe and the Member States can be very, very quick
and the loss for the treasury is immediate. We have The Guardian
and The Guardian has begun to give us shivers and we have
been interviewed by the Belgian Parliament and the Secretary of
State says "Okay, fiscal VAT Fraud is estimated at that",
and The Guardian has said, "In the UK this is the
amount of VAT fraud", and what they have they done is on
the basis of the gross national product extrapolated from the
other countries. The Belgian parliamentarians have read it in
The Guardian and said, "That is strange. Secretary
of State, why do you say the amount is that and The Guardian
says it is very, very much bigger?" That is why the specialised
people in VAT fraud have begun this work because when we know
exactly the size of the VAT fraud you can come up with solutions.
When you know how much is fraud it is a statistic, it is proof.
Q92 Lord Kerr of Kinlochard:
I understand that but I do think it is dangerous on the basis
of extrapolations to make statements about other countries' problems.
The total level that is discussed in your report is an extrapolation.
Mr Volders: Yes.
Q93 Lord Kerr of Kinlochard:
The amount in the UK asserted in your report is an extrapolation.
The breakdown between the—
Mr Hulot: The study is an extrapolation.
Q94 Lord Kerr of Kinlochard:
It is an estimate. On page 37 you tell the world that in the United
Kingdom 30 per cent of the problem is classic carousel fraud and
70 per cent is the Dubai route. On page 39 you say that the Dubai
route is an important problem which must be given considerable
attention in view of the "astronomical" amounts at issue
for the United Kingdom. Forgive me, but publishing words like
"astronomical" or numbers like "70 per cent",
or even giving an estimated total for somebody else's problem,
without discussing it with the person whose problem it is, seems
to me to be very dangerous. I go back to what I said first. I
think it is very good to take an initiative against carousel fraud
but very dangerous to publish extrapolations on the scale of the
problem in other Member States without using data from the other
Member States. I cannot see what use we can make in our study
of your extrapolations.
Mr Volders: I am a scientist, I work only on
figures and perhaps for the public consideration it was a response
to—
Mr Hulot: The Secretary of State is responsible
and he has done his work, we have this report. The Secretary of
State has said to the journalists that on the basis of our report
we estimate the frauds to be like this. Maybe that is dangerous.
We do not want a diplomatic incident, we want to co-operate. I
hope the feeling of the people around the table is that it is
a beginning.
Q95 Chairman:
And a most useful thought.
Mr Hulot: We have to try to estimate the size.
Chairman: We have two more questions.
Lord Cobbold has one and I have another one to ask people who
are involved at this sort of technical one. Lord Cobbold.
Q96 Lord Cobbold:
Do you feel that there is a role for OLAF in tackling this problem
Europe-wide or do you feel it is best handled by the nation state
at nation state level?
Mr Volders: It is best handled by the Member
States because OLAF is not really competent.
Q97 Chairman:
They have other jobs?
Mr Volders: We do not have the competence in
OLAF that you have in the Member States. There are not so many
people, there are only three for the VAT for all of the EU. The
intervention of OLAF in the project at the beginning was only
funding for the meeting. I have to say it was very important that
at the beginning the project was not only involving Belgium but
five countries, and among the five countries we had the UK. At
the beginning we had very good contact with someone who was the
boss from the CCT.
Mr Hulot: He has retired.
Q98 Chairman:
I am not going to try and guess what happened. What I would like
to ask, Mr Hulot, while you are here is there has been much talk
about and, indeed, we have proposed a reverse charge on two commodities.
You have views on whether reverse charging will fix the problem,
whether it be ours or the European problem.
Mr Hulot: Yes, when we had the big problem of
Dubai the reverse charging system was a good solution but at the
moment it is over. For us we will have a new method very soon
that we are looking at in the Eurocanet project so we will be
able to say one week later if you have a new Dubai route or Hong
Kong route—
Q99 Chairman:
One assumes that somebody will find a new one.
Mr Hulot: It was a very big problem that some
countries had but now you can have 100 carousels from one million
pounds but with the reverse charge you can have one million fraud
from £1,000. Do you understand?
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