Examination of Witnesses (Questions 200-219)
MR RICHARD BROADBENT AND MR MIKE WELLS
MONDAY 25 FEBRUARY 2002
200. You have 15 Road Fuel Testing Units and 16 road fuel auditors for the whole of the United Kingdom. You put them in the North East of England anyway. I do not know what that is supposed to suggest. Why do you not have them in Yorkshire? Why do you not have them in Sussex or somewhere like that?
(Mr Broadbent) This blitz was Yorkshire. This is a cutting from the Northern Echo.
201. Seriously, you have a small number of units, when are you going to have them all over the country?
(Mr Broadbent) May I answer your question because it is one I take very seriously? I recognise the impatience. There are two things I must say about this. One is that I am not so much certain that the world is changing. I believe much more knowledge is being made available about the world, which is a good thing, but we are not uncovering vast new themes of new fraud. We are beginning to tackle the real problem and uncover it, but we must be careful not to believe that we are being swamped when in fact what we are doing, quite properly, is uncovering the problem. The second point which it is very important for me to make, is that it is important we work as hard as we can and the RFTUs are active, but I do not believe we are going to solve any of these problems by doing more of the same. We are up against people who are very sophisticated, have access to a lot of talent, a lot of money. Although we make some impact by working hard and doing a bit more of the same, we are not going to solve these problems that way. We are only going to solve these problems by doing things differently. That is what a lot of the work is going into. We are effectively trying to crack the whip over the organisation and the results are coming through, in this area and one or two other areas. We are on track on tobacco, we have made a big impact on VAT missing trader fraud, we are getting this oil thing, within limits, under some control in the mainland and at the same time as that is going on we are trying to get people to behave in quite different ways, to be intelligence led, to be strategically driven. I personally have to accept that I am putting an enormous strain on the organisation. I accept that it is not yet having the outputs it should have, but I do believe and recognise the need to do things differently, to get to outputs.
Chairman: Thank you very much. You are still giving very interesting answers, in fact they are getting better after two and a quarter hours. Keep going. Your last questioner.
202. May I start by seeking clarification about the percentage of red diesel used by various sectors? I do not have a clear picture in my mind as to whether or not most of it is in agriculture or most of it is in construction. At one point someone mentioned hauliers as well, but presumably hauliers would not be able to use red diesel. No, that is what I thought. So it is mainly agriculture and construction. Who uses most?
(Mr Broadbent) The three big sectors are agriculture, construction and civil engineering. I do not have a breakdown to hand of the three.
(Mr Wells) I am afraid I do not either, but I am sure we could provide a breakdown for all of this.
203. I am surprised you do not have that. Which sector, do you think has the greatest leakage into the illegality?
(Mr Broadbent) The leakage probably comes from one step up the distribution chain.
204. Distributors are actually handing it over to people in order for them to launder it.
(Mr Broadbent) I need to be very careful. Our assessment is that oil comes down from the refiners, it then goes to distributors. There are about 1,000 distributors and they then pass it on to end users: they might be farmers, they might be builders, whoever it is. We think that it is mostly going missing between the distributor and the user.
205. Missing? It was there last night and is not there this morning.
(Mr Broadbent) Illegal market.
206. So the distributor is selling it.
(Mr Broadbent) There are a number of possible frauds. A distributor may be selling to somebody whom he believes is a perfectly legitimate customer, but in fact is laundering it. He may be selling diesel to somebody who has a perfect right to use red diesel but he is taking twice as much as he actually uses and is selling it on. There are a number of possible frauds.
207. Given the intelligence-led policing, or its equivalent here, you must have some idea of which of these sectors, if it is being diverted from them, is the one which causes you most anxiety.
(Mr Broadbent) Most of our work at the moment is focusing on the refiners, the distributor and then the distributor downwards.
208. Can you clarify whether I heard you correctly when I think you said you reckon 25 per cent of red diesel was used fraudulently? Did I pick that up correctly? I thought either you or Mr Wells said that in response to Mr Osborne's point.
(Mr Wells) I have managed to do my maths in the intervening time. My very rough calculation, if we assume that red diesel or kerosene was consumed at the same rate as ordinary diesel when it is used illegally, is that would represent about eight per cent of the diesel and kerosene which is used.
209. Only eight per cent. May I just clarify the question of the 19 laundering plants? Was that only in Northern Ireland or was that in the UK?
(Mr Broadbent) That was in Great Britain.
210. I am not clear whether or not that is then for re-sale to the public or whether or not it is by big users for use by themselves. I am just wondering in particular about taxi firms owned by gangsters and the like of whom there are several in my part of the country which are used to launder money. I can see why they would have an involvement in this trade. Can you give me an indication of the balance?
(Mr Broadbent) It is very difficult, as it is all illegal activity, to break it down in detail. That laundered fuel will probably go either to the haulier who will buy direct from the launderer, or possibly through an intermediary, so it goes direct to the haulier's yard. They keep quite big tanks. It might go into the retail distribution system. It might be sold to a garage as perfectly ordinary diesel with a few pence off. It might, although probably this would be a small scale laundering plant, get retailed directly to a taxi firm. Laundering plants vary in size. A big laundering plant might be five million litres a year; a small one a few thousand.
211. My reservation is that I do not quite see how this can appear in the legitimate market, say via a haulier or via a garage, without policing being able to pick up the paper trail. If they are buying in from Shell X numbers of gallons and their VAT receipts are showing that they have X + such-and-such, surely it must be clear in those circumstances that something is not adding up there. Is there a mechanism by which you regularly check all garages? Unless they are committing a VAT fraud as well, which presumably means they are running a completely additional set of books.
(Mr Broadbent) I agree first of all that the audit trail is very important. The amount of fuel going into the retail distribution trade is probably quite small, partly for that reason, because in this country, not in Northern Ireland but in GB, most of the retail distribution is in the hands of large chains. In Northern Ireland they are mostly independents, so it is quite different. I also agree that where you have a haulier or a taxi firm, if you can get to the VAT receipts you can check the receipt against a number and you can work back and find it was false. You do face a couple of problems: one is that you cannot through that prove that the person knew he was using it illegally, so you cannot prosecute, you cannot confiscate, you can just go back up the chain, which is not an insignificant thing but it is difficult to prosecute.
212. Presumably then anybody could argue that they had red diesel in their tank but they had no idea how it got there, somebody must have put it there, the garage must have sold them red diesel by mistake. They could just argue complete ignorance and you could not catch anybody in those circumstances.
(Mr Broadbent) They could argue, but with red diesel in every case we would assert and we would win in court. There are about 100 cases a year where we accept that it was innocent use, or at least we are prepared to accept in this case that it was not knowledgeable, but a very small number of cases. Where it is red diesel we are pretty clear, we know. Where it is laundered, it is more difficult because it looks the same.
213. A taxi firm run by a well-known Glasgow gangster is found to have a substantial amount of laundered diesel in its cabs and they say they did not know. Do you accept that?
(Mr Broadbent) No. What we can do is to try to go up the audit trail. It is quite difficult, just as a matter of what evidence the courts will accept.
214. Then there is a fire and all the paperwork disappears so there are no records.
(Mr Broadbent) We can take the records, we can go up, but the records do not always lead us to a destination. I would accept your point that there is an important audit trail but as always it is quite difficult.
215. Is it feasible to consider simply abolishing red diesel altogether and those who benefit from the discount at the moment could reclaim it back in some way as they would VAT or something similar?
(Mr Broadbent) There are schemes of this sort. The Denmark scheme comes to mind. We are looking to see how that works in practice. One of the problems you may have there is that you may displace the fraud into another area of fraud which is fraudulent repayments.
216. Do you not have better mechanisms for dealing with that?
(Mr Broadbent) Repayment frauds are a major concern as well.
217. That is just as bad as this then, is it? I am not sure whether I should be cheered or depressed at that.
(Mr Broadbent) We are losing more money through repayment fraud at the moment than we are through other fraud.
218. We should be glad they are cheating us in this way then rather than repayment fraud because it would just encourage them to do more of it.
(Mr Broadbent) They could be doing both of course.
219. Am I right in thinking that the new super Euro marker is going to be less effective than the one we have at the moment?
(Mr Broadbent) If it were used by itself, our judgement is that it would not be as effective, but we are not going to use it by itself. We are consulting at the moment on combining it with our existing colour.