Examination of Witnesses (Questions 60-79)
MR RICHARD BROADBENT AND MR MICHAEL HANSON MBE
WEDNESDAY 31 OCTOBER 2001
60. I am sure there are a lot of people who are involved in fraud who nevertheless would agree with your original remark, which I am delighted to hear you in a sense taking back now, who do see it as an economic opportunity, if you like. I am thinking perhaps of some of the smaller business people who come in with their van loads of alcohol that they have bought in a cheap shop on just the other side of the Channel. What are you doing to try to make sure that you get the message across to them that this is a crime and it is something which you are not prepared to put up with, it is not simply a question of a game which they can try and play to try and beat you?
(Mr Broadbent) This is one of the themes that came most strongly out of Martin Taylor's Report on Tobacco Strategy. Martin Taylor was clearly disturbed at what he saw as law breaking at the Channel ports. The Tobacco Strategy, which has been well resourced, has got within it quite a heavy component not just of increased controls but also publicity and some quite tough penalties which I think are getting the message home. We are going to be shortly publishing the first year results of the Tobacco Strategy and the signs are that the message has got home to the cross-Channel market, both through quite a large publicity budget and very, very tough, effective measures. We now confiscate your vehicle if you come through Dover with too many cigarettes if you are white van man, and that message has got home.
61. You said also that you did not have enough people stopping and checking the documents and this was how the fraud was able to continue and take hold. You were saying to the chairman at the start that you thought it was not the lack of people at the warehouses, that was not the problem, although they were reduced. Was there a lack of people at the ports and, if so, what was done about that? When was that recognised?
(Mr Broadbent) My point about the ports was slightly different. Article 7 of the EU Treaty, which was put in place when the Single Market was created, means we do not have the powers to stop as a matter of course every lorry and ask to check their documents, I would be breaking the law if I did that. That makes it difficult for us to check as a routine matter the documents accompanying, for example, lorry loads of spirits or wine. It was a loss of that power which meant no matter how many people I had at the ports I could not stop every lorry and ask to check the documents. I had to select, but of course as well as selecting one has to select the right ones and that is more difficult.
62. We have talked already about the huge drop that took place very suddenly in 1998-99 as compared to 1997-98. Can you just go through with us what was the main reason for that huge drop in one year over the previous year?
(Mr Broadbent) I think there were three steps leading up to that. The first one was the creation really in the middle of the previous year of what are called IMPEX teams. This was really the first step that the organisation took following the internal audit report of 1996. They created what were called IMPEX teams which were essentially specialist teams designed to look at excise fraud. They were resourced and put in the job and very quickly they started uncovering the true nature of this fraud. This was the key step. This was in April 1997. In October of that year, largely as a result of the IMPEX teams, a direction was made under existing regulations which effectively put more obligations on warehousekeepers to control their loads more carefully. Again, as a result of the information that began to flow from that, in April the following year a guidance was issued to all warehousekeepers in the trade that they were going to be held responsible for loads going astray. They had to take a commercial decision in each case as to whether they should let the load run. Those three steps cumulatively led to, if I can use my earlier language without being misunderstood, the economic opportunity collapsing, so you saw the fraud fall off like that.
63. You told us earlier that you were concentrating in the first stages when you began to realise that there was a lot of fraud going on, on trying to catch the people concerned and bring them to justice. Which of those three mechanisms that you have just outlined could not have been implemented straight away alongside the attempts to bring people to justice?
(Mr Broadbent) I think they all could have been.
64. So why were they not?
(Mr Broadbent) Because you have to know what is going on. I do think it important to recognise that understanding what is happening is always more difficult at the time than it looks. I think it is right to say
65. In implementing a team to investigate, which was the first mechanism you mentioned, you do not have to understand exactly what is going on in order to take the decision that you need to get a team in there to understand what is going on.
(Mr Broadbent) You need to know that something is going on. You need to know what is going on.
66. You knew something was going on because you were trying to bring the people concerned to justice. You knew there were people there who were committing fraud.
(Mr Broadbent) The big investigations started taking place at the end of 1995, the beginning of 1996, and I think there was then a delay, this is absolutely right. There was a delay in my view, I think I used the phrase nine to 12 months before, when I thought the organisation should have made the connection between these cases and a control failure. It did make the connection but it made it perhaps nine to 12 months late and once it made the connection it put these steps in place. I do agree that in hindsight the organisation should perhaps, could perhaps, have acted more quickly. Nine to 12 months, it is a challenge.
67. In 1997-98, the height of this fraud, how many warehouses were there?
(Mr Broadbent) I do not know the exact figure, I am afraid. There were 532 at the beginning of the period and there are about 950 now. I do not know the point for every year in between I am afraid.
68. I thought there was a figure in here of 20,000 plus, I am obviously looking at the wrong figure.
(Mr Broadbent) Not warehouses. At least not that I am aware of.
69. I will try to find that figure later. You say there were 500 and something.
(Mr Broadbent) There were 532 at the start of the period and there are currently 986.
70. How many of those were involved in fraud?
(Mr Broadbent) It is very hard to know in how many warehouses fraud did take place. One would have to assume probably most. How they were involved in fraud in the sense of being complicit, it is very difficult to judge, probably quite a small number.
71. The worst case was 30 per cent or 40 per cent of the total.
(Mr Broadbent) One case in London was a significant proportion of the total.
72. Why was so much going on there as opposed to anywhere else?
(Mr Broadbent) Partly because it is one of the biggest warehouses in the country. London City Bond has one million square feet of space, it has 15 units in it, 8.5 million cases of spirits going through it a year, it is very, very large. It serves London.
73. Is it 30 per cent to 40 per cent of the warehouse total?
(Mr Broadbent) I do not know off hand, I would think probably not. I would think it would be disproportionate.
74. Why was it disproportionate?
(Mr Broadbent) I do not think we know the answer to that question. I am hesitating I am afraid because there are some outstanding legal cases involved in that warehouse, so I must tread carefully. I think I would say to you we do not fully know the answer to that question.
75. Have you ever confiscated a warehouse?
(Mr Broadbent) No, but we have under the procedures introduced turned down some requests for authorisations, which is something we should have been doing more.
76. Why have you not confiscated them?
(Mr Broadbent) It is not always the case that the warehouse keeperI am not actually aware that we have powers to confiscate a warehouse. We can call a guarantee but I am not sure we have powers to confiscate a warehouse.
77. Has any warehouse owner been prosecuted, you have prosecuted a number of people?
(Mr Broadbent) I will have to check if any of the individuals were warehouse keepers.
78. Do you know the level of Customs and Excise manpower involved, how have they changed in those six years?
(Mr Broadbent) During the period in question the levels were falling year-on-year.
79. Was that significant? Did that have any significant effect on the fact that this fraud went on as long as it did?
(Mr Broadbent) I do not think it had a significant effect on the fact that it went on for as long as it did. I attach much more importance to the corporate issues of how an organisation works out what is happening and responds quickly. The organisation was under a lot of resource pressure at the time and in retrospect probably some parts of the excise regime were under resourced, which is something that we are now trying to reverse.
1 Note by witness: There were 512 warehouses in May 1992. Back