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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1504-viii
House of COMMONS
TAKEN BEFORE the
Northern Ireland Affairs Committee
Fuel Laundering and Smuggling
Wednesday 25 January 2012
Miss Chloe Smith MP, Bill Williamson and John Whiting
Evidence heard in Public Questions 499 - 564
USE OF THE TRANSCRIPT
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Taken before the Northern Ireland Affairs Committee
on Wednesday 25 January 2012
Mr Laurence Robertson (Chair)
Mr Stephen Hepburn
Lady Sylvia Hermon
Dr Alasdair McDonnell
Examination of Witnesses
Witnesses: Miss Chloe Smith MP, Economic Secretary, HM Treasury, Bill Williamson, Acting Director of Excise, Customs, Stamps & Money, and John Whiting, Assistant Director, Criminal Investigation, HM Revenue and Customs, gave evidence.
Q499 Chair: Good afternoon, and welcome to the Committee. As you are aware, we are looking at smuggling and counterfeiting of fuel, tobacco and whatever else. We are very pleased to have you to this session, which is most probably going to be the final evidence session. Can I ask you to make a brief opening statement about your role, particularly in respect of HMRC?
Miss Smith: I certainly will, Mr Robertson, and thank you for inviting us to be part of this hearing about oil fraud and crime. I know you have had plenty of evidence up to this point, so I hope we will be able to contribute to that. To set out a few points to begin with, as you say HMRC is the lead Department in the fight against fuel smuggling and laundering. I am sure we will go into the detail of what comprises those elements. I know you have already had sessions with the officials with me today. We are more than happy to go further into operational matters, policy matters, or indeed whatever else we can cover.
I also note at the beginning that I think the Committee is aware that the Department’s spending review plans include approval to recycle £900 million back into the front line in this area to tackle avoidance, evasion and criminal attack, which is very positive. We hope to be able to tell you some other positive events that have taken place in the fight against oil fraud.
Chair: Thank you very much, most welcome. Perhaps we could start questions then.
Q500 Kris Hopkins: I have just realised I have not brought my glasses with me; fortunately I have long arms. The estimate for the amount of duty lost due to oil fraud in Northern Ireland is questionable, because by HMRC’s own admission they do not know the actual amount of legitimate cross-border shopping. As a result, the margin of error is quite broad. As the Minister responsible for HMRC and protecting tax revenues, are you content with the accuracy of these estimates of how much duty is lost? I want to put a couple of other questions you might want to think about as well. Are there implications for the block grant to the Executive as a consequence of these losses? There is a second question about UK losses, but perhaps we will do those two first.
Miss Smith: Certainly.
Kris Hopkins: What I did not say was: welcome, Minister; it is good to see you again.
Miss Smith: Why, thank you very much. If I may, I beg your pardon, just add to my opening statement-sorry, Mr Robertson-I did not mention of course that I am here in my capacity as Minister responsible for environmental taxation and, indeed, transport taxes. My colleague David Gauke, the Exchequer Secretary, would technically be the Minister with departmental oversight of HMRC, although HMRC is itself nonministerial, which I suspect the Committee already well knows.
In that case, if I may start on the question of the tax gap, and then go on to implications for the block grant. To answer the first point at a political level, whether I am content that we are able to keep good track of money going in and out is, I suppose, at the root of that question. We have it to the best of our ability. As you have already acknowledged, it is difficult to split out the difference between cross-border shopping and-the non-duty paid label, I should say, includes cross-border shopping as well as the illicit trade and it is hard to split those out beneath that label. As you say, that data does have confidence intervals associated with it, but it means we have a long-term estimate, a trend, if you like, of what is happening. It gives us enough to be able to say we have made some progress over time. For example, the illicit market share in Northern Ireland diesel-combined with cross-border shopping-has come down from 39% in 2006-07 to 12% in 2009-10. That is on a central estimate of that data. That gives us an indication of what is happening, which is helpful; it gives us an indication that it is going in the right direction, which is helpful. But it does ensure we stay on our toes to keep on it.
Is there anything you would like to add on the confidence we have in the data?
Bill Williamson: You are absolutely right, Minister. The methodologies for the data are extremely complex; the Committee has had access to some of those documents. We have been using tax gap methodologies for a number of years, and we have them for all of our indirect and major direct taxes, but we do use them as an estimate of long-term trend. It gives us a comparative picture on how we are progressing in closing the tax gap. It particularly gives us a comparative picture on oil fraud in Northern Ireland and Great Britain. We can tell by the current tax gap figure that it is still around three times more prevalent in Northern Ireland than in Great Britain, which affects the way we deal with Northern Ireland as a major priority for us. It gives us comparative information and a long-term trend, but as the Committee has previously heard, it is not an exact science because of the amount of data sources and the complexity of the analysis that goes into it.
Q501 Kris Hopkins: What about the implications for the block grant and the loss in legitimate trade as well? If someone is using illicit materials, presumably somebody else is losing out of the business.
Miss Smith: It certainly is a concern. Clearly, the nonduty paid sector has a relationship to the sector where duty is paid. I am not able to tell the Committee about the block grant completely; that would perhaps be a matter for other Ministers to come here and discuss with you. But we are certainly aware of concerns on the legitimate side of trade from these figures.
Would you like to add anything on the criminal side of this?
John Whiting: What I would add in that respect is that we are very conscious of the impact illicit trade has upon legitimate trade. I am aware that one of the questions later might be, "Is this a victimless crime?" Very much part of the message we have been trying to get out into the public arena is that this is definitely not a victimless crime. Apart from anything else, the legitimate trade is a victim.
Q502 Kris Hopkins: I have one final point on the scale. You said three times the level in Northern Ireland compared with the UK. Is the criminal activity from Northern Ireland being carried out on the mainland? Are criminals from Northern Ireland carrying out some of that smaller amount of activity?
John Whiting: Criminals from Northern Ireland are definitely involved in the illicit trade in GB.
Q503 Nigel Mills: Minister, you said in your opening remarks that you were recycling £900 million into tackling evasion, avoidance and criminal fraud, including illicit trading in tobacco; that is what your predecessor set it out to be. Can you update us on how that £900 million is being spent and perhaps how much of it is being spent in Northern Ireland?
Miss Smith: Yes I certainly will, and I will also ask Bill to come in and go into slightly more detail. As I say, the £900 million is earmarked at a broad level for additional work against avoidance, evasion-with your background, Mr Mills, I am sure you will be perfectly aware of the difference between those two-and criminal attack. It is also important to see that £900 million-£917 million specifically-in the context of the HMRC spending settlement. That does mean that it goes alongside HMRC making savings of 25%, in the context of the whole of the Government having to do such things. But what it means is that you have reinvestment in the front line and you have not only maintenance of our existing activities in this area, but you are also increasing capacity to deliver. My colleagues will be able to tell you a bit more about how that is being put towards personnel, for example.
Bill Williamson: Of the £917 million, some of that money is going towards tackling organised crime. That is not necessarily organised crime focused on any specific fraud in any of our tax regimes, but tackling organised crime across the tax regimes. That will benefit Northern Ireland as well as the rest of the UK. More specifically when it comes to tobacco, some of that investment is going to go into our fiscal crime liaison officers, who operate overseas, working with overseas partners, seeking to identify illicit cigarettes and hand rolling tobacco being targeted on the UK. In 2009-10, through the work of the FCLO network, HMRC seized over 1 billion cigarettes with our overseas partners, which was over 50% of the total cigarettes seized by HMRC and UKBA in that year. They play a tremendous role in terms of combating the illicit trade in cigarettes. Again, we do not know whether, when those cigarettes are intercepted upstream, they are coming in to Belfast, London or Liverpool. Again, that is an overall benefit to the UK.
At one of our other evidence sessions, we talked about how HMRC would be increasing its criminal investigation capacity. Over 300 additional new posts will be coming in, and that again provides additional capacity. John was saying that he can call on those criminal investigation assets-although they will not specifically be based in Northern Ireland-to be able to tackle fraud here. We have that flexibility built into the way we do our planning and prioritisation.
Finally, on Northern Ireland specifically, we have increased the level of criminal investigation capability within Northern Ireland quite recently. As the Minister said, over the Spending Review period we will continue on that level of increased resource in Northern Ireland, whilst other areas of HMRC have to make a 25% overall reduction over the period of the Spending Review.
Q504 Nigel Mills: Thank you. Has any of this money been prioritised on capturing fuel fraud, or has tobacco fraud been much higher in the priority scale?
Miss Smith: They are joint top priorities for the Northern Ireland branch, both fuel and tobacco.
John Whiting: Perhaps it would reassure the Committee to say I am receiving a significant extra resource in Northern Ireland. I promised Lady Hermon that I would give her the numbers in a private session, and we forgot to do that last time. I am prepared to give the numbers in a private session, or inform the Committee privately in some way. But it is a substantial increase: the officers are in the process of being recruited. Some of them are being trained and are in training in London now. There will be something of a lead-in time for those people to become operationally effective. But set against the fact that we already have a downward trend, you can be reassured that we are not going to use those officers on another tax regime. We still maintain the fact that we have to address oils and tobacco as our top priorities.
Q505 Chair: Could you perhaps write to the Committee with those figures?
John Whiting: Certainly.
Chair: Thank you.
Q506 Oliver Colvile: Can I just talk about the block grant, because I want to understand it. If they are successful in finding more monies, does that come off the block grant or not?
Miss Smith: I am afraid I do not have that analysis here today. I would be happy to follow up with that information if I can.
Q507 Oliver Colvile: That would be very helpful. It seems to my mind that, if there is not a way in which the Northern Ireland Executive can get some more money out of it, there is no incentive for them to necessarily push on for it. If they are going to carry on getting the block grant in the first place, it does not really matter one way or the other. That just seems a little odd to me.
Miss Smith: As I said, I would be happy to try to come back to you with further information. I do not have it here today. But I would note that since 2001 the oil strategy HMRC has been pursuing on this matter has shown a high degree of cooperation, not only in terms of Great Britain and Northern Ireland, but of course with the Republic as well, which is perhaps not as bleak a picture as that might suggest.
Oliver Colvile: I suppose I have been speaking from an English Member of Parliament’s point of view. I am quite interested to see how I can get more money for my constituents.
Chair: Okay, thank you very much; Sylvia.
Q508 Lady Hermon: Thank you very much indeed, Mr Chairman. It is very nice to see Mr Williams, it is very nice to see Mr Whiting, and it is delightful to welcome the Minister giving evidence to the Northern Ireland Affairs Committee for the first time. Minister, as a matter of curiosity, have you ever had the opportunity to visit Northern Ireland?
Miss Smith: I have, in my former employment, yes.
Q509 Lady Hermon: Excellent. Were you able, on that occasion or those occasions, to travel along the border with the Republic of Ireland?
Miss Smith: No, I have never done that, although I have also visited the Republic extensively with friends and family.
Q510 Lady Hermon: Yes; well, of course Northern Ireland is the only part of the United Kingdom that shares a land frontier with another EU member state, another sovereign nation, the Republic of Ireland. Evidence given to us has shown that international criminals are exploiting the border. We were delighted with the injection of additional funds to fighting fraud, including fuel fraud, but when your Department is prioritising resources what priority is given to combating fraud that is available to international criminals because of the border?
Miss Smith: My colleagues will perhaps try to set out what the priorities are within their work. I hope that might give a starter here. If I may, I just offer a general comment on the way the border in particular poses this problem-clearly you and others have great practical experience of this-it is partly almost too obvious to say: you can drive across it with stuff in your boot, or in your tank. But I would just note at this point that one of the clear priorities within this is laundering, and another is smuggling. They are separate things. I am sure we can go into more detail on ways to tackle both of those.
But I would also just note that one of the main drivers of fraud in total is the duty differential between road diesel and rebated diesel. It is not only that there are two different jurisdictions with different taxation regimes but also the difference between tax and less tax, or rebated, which goes as high as 46.8p per litre on diesel. We suggest that is one of the drivers. Of course, that does occur in other parts of the UK as well, between red diesel and road diesel.
Lady Hermon: Mr Whiting is anxious to add to that, Minister. I just know by the look on his face.
John Whiting: I am not sure that I am anxious to answer it.
Lady Hermon: Yes, but you are now.
John Whiting: But I can perhaps provide some help. Internationally, you would look around and see there are borders; borders provide opportunities for smugglers. Despite Mr Colvile’s assertions last time that it is perhaps romantic-
Oliver Colvile: I merely remembered my childhood of Russell Thorndike books.
John Whiting: We know about your father’s book.
Chair: We are not going too deeply into Oliver’s childhood, thank you.
John Whiting: But borders and differentials in duty rates provide opportunities for criminals. Different jurisdictions obviously have different laws: something is legal in one jurisdiction; it is illegal in another jurisdiction. We have this Europe wide. I am sure it is a wider issue. We are part of Europe, and therefore we do not have border controls. There is an issue around the fact we have a border; I am not sure that the border between Northern Ireland and the Republic of Ireland is any more of an issue than the border between Germany and any of its neighbours.
Q511 Lady Hermon: No, but within the UK it is significant.
John Whiting: I am looking at this as a global issue around the phrase "a border and smuggling". Does it provide an opportunity for criminals? Yes it does. How do we respond to that? I suppose we have two options. The absurd option is we put a line of men along the border and we stop everybody from crossing. We are not going to do that. I do not think it is within our abilities to even have a border crossing now. We do not put an officer at the roadside anymore. We used to: there were border patrols and crossings 30 years ago. We do not do that.
How do we respond now? We respond by developing our intelligence against those criminals who are engaged in this activity. We are targeting those who we believe are most active in all types of crime. I am sure that PSNI would tell you that they are involved in developing their intelligence and operations against those individuals for the issues they are responsible for, whether it is drugs or waste, where they would work with the Environment Agency. Where it clearly involved cigarette smuggling, we would work with the PSNI assisting us in that, as well as fuel fraud.
Q512 Lady Hermon: Can I take it on a little bit? The UK Border Agency is obviously the responsibility of the Home Office. Are you able to explain to us in practical terms how the UK Border Agency and HMRC overlap? How do they work together in a practical fashion in dealing with smuggling and fuel laundering, etc, between Northern Ireland and the Republic of Ireland?
Miss Smith: If I may add a brief statement, I will then hand over to the operational experts.
Lady Hermon: Yes, please. As long as we receive the evidence, we do not mind, Minister, thank you.
Miss Smith: Very briefly, just to furnish you with the detail, I am meeting the head of the UKBA tomorrow for the first time in my tenure in this post. It is a relationship that occurs ministerially, in the sense that I shall meet the Minister for Immigration at the same time, but clearly then I think at all levels operationally there is close cooperation.
John Whiting: Firstly, the UK Border Agency deploys at the frontier, but at the moment generally speaking deploys at our ports and airports in Northern Ireland. It does not operate along the land boundary, but it will provide assistance if we have specific operations. They are very keen to be involved. But it does not provide or deploy officers to the land boundary to intercept anybody who may be moving contraband.
I would explain something that I am sure the Northern Ireland Members are aware of, but maybe not. There is a thing called the Prescribed Area, which is an imaginary line about 20 miles within the border. Effectively, anything between the border and the imaginary line-which is set out on maps-is the Prescribed Area. As far as HMRC is concerned, anyone moving goods within that area can be stopped by an officer of HMRC, as if they were at the border. Effectively the border is much wider than the imaginary line on the map-the red line between the UK and the Republic of Ireland.
Q513 Lady Hermon: Can you just clarify then that the UK Border Agency, based at ports and airports-which happen to be away from the border in Northern Ireland-does not have the powers or responsibilities to move into the Prescribed Area? If HMRC were to notify the UK Border Agency, and you said that the UK Border Agency is very keen to be of assistance to you, they are not able to move from their ports and their airport bases into the Prescribed Area to help you and assist you, are they?
John Whiting: I do not think there is anything in law that prevents them from doing that. I am not sure it is part of their operational plans at the moment. I know that there are discussions and perhaps aspirations in respect of the National Crime Agency, who will be subsuming the UK Border Agency in time.
Lady Hermon: I am just keen that Northern Ireland does not become the soft underbelly, if you like, that international criminals can easily come through en route to the rest of the UK. Thank you.
Q514 Kris Hopkins: I understand from a staffing point of view where you have your staff at this moment in time. You get a top tip; there is something coming through; how quickly can you respond? I sometimes have trouble getting a police officer to come out to my village within a few days. How quickly can you get the Border Agency to respond to intelligence like that?
John Whiting: Firstly, if I had a top tip and it was coming across the border, I would not be calling the Border Agency, because I can send my own troops. I have roughly 10 officers on call at any given time, so if we have a top tip at midnight, we can respond by sending in those officers. We would engage with the Police Service of Northern Ireland to support us. We can have probably 10 officers there within 45 minutes if we have a top tip.
Q515 Kris Hopkins: You have a response unit.
John Whiting: Absolutely.
Q516 Naomi Long: You are very welcome. As predicted by Mr Whiting earlier, we are about to move on to the issue of victimless crime, and the perception that fraud, and fuel fraud in particular, is a victimless crime. It has even been suggested in some of the evidence we have received that some people may derive some perverse pleasure from outwitting the tax system. That is something that would be of concern to us. Could you tell us what you are able to do as a Department in terms of changing people’s mindsets and creating direct linkage between the tax and revenue that are raised from fuel duties and services that are provided to people in their local communities, and also in terms of linking the criminal behaviour, the intimidation and many of the other things that go along with these kinds of crimes, to the purchase of cheaper fuel, so that link is live in people’s minds at the time they make their purchase?
Miss Smith: I begin with a couple of examples of what is taking place. Within the partnerships I was beginning to outline earlier, which we can lay out in far greater detail, there is a very strong focus on public awareness to address exactly what you have just described there. That is starting to show some results-we understand that perhaps you can track those results over the last three years or so-which is to say that you have a Crimestoppers campaign functioning there, and documentaries by Panorama and others highlighting the problem, explaining what it is and the impacts of it.
Another thing you can do to raise this up the agenda is talk about the environmental damage from fuel fraud and laundering. I have to say, I was told a slightly hairraising anecdote. I might be about to go off script here; I am not sure it was the officials who told me this-it may be unauthorised information-but I understand there is a way to launder fuel using cat litter in a stream, I am told. Perhaps these gentlemen will correct me if that is not the case, but it is clearly something you would not want to have happen at the back of your village: not pleasant for anyone involved. There are many ways to draw out the public impact of this: some are financial, others are environmental, and then others are cultural. In terms of how we are doing it, would you furnish more detail?
John Whiting: We have articulated some of the work we have done, mainly through the Cross Border Fuel Fraud Enforcement Group, since July 2008, which was firstly to launch that group with a media campaign including the then Security Minister, Paul Goggins, and HMRC’s Minister at that time, Jane Kennedy. That was followed up with a very proactive campaign, involving taking broadcasters to laundering plants and on operations, which hitherto they had never had any kind of access to. Part of that led to national TV appearances-including for yours truly.
The message we were trying to get across was not necessarily for the UK public; it was for the Northern Ireland public. These are issues that are happening in your backyard-we know the Nimby phrase, not in my backyard, but people are sitting with huge piles of cat litter and other toxic waste in South Armagh. We are trying to persuade those people to provide information to HMRC that will lead us to finding those laundering plants. As you say, we do have a challenge to make the public more acutely aware of the impact on their lives, whether it is waste in their forests and woods or rivers, or whether there is an illicit huckster site and there is a queue of cars trying to get into that. We need that information. I suppose we decided to relax our interest with the broadcasters, as they can get a little bit bored of us. We moved into the newspapers and the internet. We are almost certainly going to go back to the broadcasters and see if we can get further interest through news releases.
Last time we were here we indicated that we were hoping to have an international workshop. We have now secured some money from Brussels under the Fiscalis Programme. That workshop will be taking place in March. I am very pleased that David Ford is going to open that workshop, and we will be seeking as much media interest as we can get, because part of what we are saying at that workshop is that we are very much in the lead in the UK with some of the work around this. Some of our European partners are behind us, and only now realising that they have a problem like we do.
Q517 Lady Hermon: Sorry, where exactly are we going to have that conference?
John Whiting: The Hilton hotel.
Lady Hermon: The Hilton, okay. Wrong constituency, that is fine; it is Northern Ireland-it is Belfast.
Q518 Naomi Long: I have a followup. You have mentioned the efforts you are making to try to create that more immediate link in people’s minds. How do you measure the effectiveness of that work? Have you seen a reduction in demand for illicit fuel, for example, or is there another measure by which you can judge whether that message is getting through to the public, particularly in the current economic climate, where people may opt for cheaper regardless? That is a challenge that we face at this point in time.
John Whiting: What you have said there is true. Firstly, we had that Crimestoppers campaign several years ago. We spent £100,000 of criminally confiscated money on that campaign, but I had a budget for that. It would have cost an enormous amount of money to do a postCrimestoppers campaign review to see how well the public had received it, whether it had influenced them. Some work has been done around the counterfeit trade, and I am aware-the PSNI may have told you this-that, in respect of their campaigns, they do receive feedback that the public become aware, and the target audience are aware of and understand the campaign and the messages sought to be sent across. They still choose to buy counterfeit products for the very reasons that the economy is in difficult times and people want the deal. We have not done that work; we have not spent thousands of pounds doing that sort of analysis.
There is a piece of work, which again is being done under the Organised Crime Task Force, around changing the mindset, and there will be some surveys attached to that. That is due to happen. Linked to that-I know, because I am part of this-there is to be a four programme series about the Organised Crime Task Force. Filming is about to start, and that will include the work of HMRC. Each of the organisations involved will be seeking to make some of those linkages around organised crime to try to get the message to the public that what you do with your counterfeit product-with your illicit cigarettes and your fuel-has an impact: it is funding organised crime, causing environmental damage, impacting on cheap labour in the Far East, etc.
Miss Smith: If I may add one element to that, perhaps we should talk about the registered controlled dealers scheme. On the good side of life, as it were, we have a way of measuring what is legit fuel going through. Through that, we have been able to track volumes and register suppliers within that. You can have a fairly clear idea of what is happening on that side of the equation. We think that has had quite some success over time.
John Whiting: Over the past 10 years, that has been a very positive influence in squeezing the illicit trade. Of course, that only applies in the UK at the moment. This causes some displacement, and that is why we get considerable amounts of green diesel being used in the laundering process.
Q519 Nigel Mills: Do you think this is particularly a matter for tobacco and fuel duty avoiding, or do you think there is a general issue that people do not appreciate how much tax they pay and how that is spent? Do you think there would be a role here for letting all taxpayers have more information about exactly how much they are paying and what it is used on, so the general appreciation that paying taxes leads to public services?
Miss Smith: I suspect Nigel may have been in the Chamber for the Ten Minute Rule Bill that proceeded today, where the Member for Ipswich was laying out an idea that would help with that. Yes, of course, is the answer: there is always a call for that. Tax transparency is one of the key things the Treasury is working hard on over this Parliament and through HMRC, not just for the areas these gentlemen here are responsible for but, of course, within personal tax and, where it is relevant, business tax as well.
There is work that every part of Government must do to be absolutely clear about what it spends, what it costs, what choices are there within how we spend public money. My personal view would be that it is always helpful to get hard figures out there into the public domain. For example in this case we think there is an estimate-as we have discussed already-of £70 million uncollected in relation to diesel in Northern Ireland, which correlates to the 12% I mentioned earlier on. I am personally a great believer in the hard facts, and I am certainly a believer in having tax be as transparent as possible so that public spending can be held to account.
Would you add anything in general about how we do that in HMRC?
Bill Williamson: These things are difficult to measure in terms of demand and the impact you can have on public perception and behaviour. As John described, we had similar campaigns on illicit tobacco as well. The real measure we have is how we impact on the overall crime over a period of time. We have to say that is partly the enforcement action and partly the amount of influence we have over public demand for cheaper fuel and cigarettes. I do not want it to sound too sycophantic, but the role this Committee is playing in these hearings is very important as well. As we said at the beginning, the fuel crime in Northern Ireland is proportionately three times larger than fuel crime in Great Britain. It is a UK problem, but that means that some of the key victims of the crime are legitimate businesses in Northern Ireland, who are proportionally impacted more than the businesses in Great Britain overall. We have to keep getting that message across at every available opportunity. These hearings will help that process as well.
Miss Smith: Never lose an opportunity to compliment a Committee.
Chair: Thank you very much, thank you. I take it the Government is supporting the Ten Minute Rule Bill then.
Nigel Mills: It is very churlish to ask that.
Q520 Jack Lopresti: Going back to the education of people that fuel smuggling is not a victimless crime, I hear what you said about what you are doing from your level, coordinating and putting in resources, but what is happening on the ground with local initiatives, from local community groups and local councils, that sort of thing, coming from the bottom up across communities?
John Whiting: Certainly, if we are talking about the Assembly, the Assembly would take an active interest. Clearly, we have the Policing Board, who are heavily involved in advertising issues of the day. I have to say, more than any other part of the country I have lived in or sat and watched local television in, crime in all its forms seems to be the subject that the media likes to focus on. There are lots of different crimes, but it does seem to form a greater part of the news than any other part of the country. You mentioned the councils: the councils, certainly in Newry and Mourne and Armagh have an issue with the costs of cleanup. I know that they are trying to get that out into the public mind-that their cleanup costs mean that something else is not being delivered. We need to work harder with the councils as well as a partnership. We sit on a fuel oil forum with all of the councils, representatives from the councils, looking at various initiatives that we can introduce and have them involved in, as well as working with the trade. We have a six-monthly meeting with the trade, where we invite their comments as to what they think we can do and report back to them on what we have achieved.
Chair: We were on the socalled victimless crime.
Q521 Dr McDonnell: Chair, just very quickly: surely education is very difficult, because the consumer of laundered or smuggled fuel in most cases does not know, whereas, with tobacco, in most cases they do know. I have no doubt I have used smuggled fuel. Most of the fuel stations-or a large percentage of them, from evidence we have heard earlier-are somehow or other compromised. I have innocently driven into a petrol station and filled up a tank of diesel. A number of my friends were totally oblivious to the fact that they were doing this until the car engine or the injectors blew up, and they found the bleach has an effect on this. On the education thing: is there much point? Quite frankly, nobody wants to buy diesel-as most of them are buying it-at full market value that is adulterated in some way. Is your education project not hitting your head against a brick wall, so to speak?
John Whiting: I would have to accept that there are some filling stations that are selling laundered fuel. We are actively involved in a project in respect of filling stations where we believe that is happening. We are trying to bring them to boot by a regular and systematic approach, where we are challenging both the fuel in their large tanks and their business records as well. There is a policeman that I deal with on a regular basis, and I told him we had visited and taken the fuel, and it was illicit. He said, "That is the filling station that I use." That is the example. We are trying to squeeze that particular outlet for fuel.
What we are seeing as a result is a preponderance of the huckster site, described by Panorama as a popup site. This is a different problem entirely because they are very cheap to establish; we dismantle them; they pop up again. We removed three from Belfast completely last week or the week before. I am not sure whether they have reappeared. The point about these premises is that they are very clearly illicit. We are aware that there are queues of cars trying to get into these places. I have been to one of these premises when it was working before: it was selling pure kerosene as diesel. The public were buying what they thought was diesel but it was kerosene. That was very definitely going to damage the engine. These are some of the messages we have to get out to the public; we have to make those associations. Yes, you are getting a cheap deal today; you have a big bill with your garage tomorrow. We are trying to squeeze the illicit trade into or away from the filling stations, which appear to be legitimate to the public.
Miss Smith: If I may add a brief political point on that, there is a general role for Government to play in protecting consumers, through various ways. This is one of them. There are others, of course, that you would hope would help in those instances.
Dr McDonnell: My problem is I regularly buy fuel from what I think is a reliable source, but inevitably you are travelling at some point or another, and you buy fuel or fill up a tank, or whatever, and you are not quite sure. You become a little bit neurotic about it after a while, if you are paying any attention. I have been, and I am beginning to hear knocks in my car engine; I hear all sorts of things. All I am saying is that in the majority of those cases the people are the victims-the people who use the diesel-rather than being complicit in it, and no amount of education will help them. I am sorry, Chairman.
Q522 Mr Hepburn: These garages that use and buy this fuel are not just going to buy one load of it; they are going to be serial offenders, and they are going to do it over a period of time if it is going to pay off for them. Surely, if they are buying that, they are not going to be paying tax. It must be fairly simple to look at a garage and do a comparison with something in the UK, and assess and say, "How come they are in business? How on Earth do they make a living because they are not paying any tax?" It must be fairly easy at the end of the year; they must stand out like a beacon.
John Whiting: We have a holistic view in respect of our fuel trade. On the one hand I have criminal investigators and intelligence officers seeking opportunities to target filling situations. This is an end-to-end process, so if we catch somebody moving a certain amount of fuel in the back of a van, let us say, that is potentially a case we will take on for investigation and prosecution. From the bottom end to the top end-the godfather behind all this-we would look for opportunities for prosecutions, but we are also looking for opportunities whereby we can apply all of the tax regimes.
Just as you indicated, an individual running a filling station might stand out like a sore thumb, but it is not quite that simple. What they tend to do is take two legitimate loads and one illicit load. That does not quite stand out like a sore thumb. There is a challenge for us there. But we will look at these individuals from their VAT perspective, and at their personal tax and business tax, and some of these people are very often claiming their tax credits as well. We will look at them holistically, and whichever way we can assess money and take it off them, we will do that. Sometimes it is a civil response; sometimes it is a criminal case.
Q523 Oliver Colvile: One of the issues we feel concerned about-and no doubt others will comment otherwise-is the inability to get as many convictions as possible and to have them as high profile as they possibly can be. It seems to my mind that, if there were regular stories in the local newspapers, or for that matter on the Northern Ireland news, with people being nicked and put into prison with high levels of imprisonment sentences-which is something that most certainly needs to be looked at-do you think that would have a significant impact on deterring people from getting more involved in this and the whole of this crime as well?
Miss Smith: I certainly think it would myself. There is a slightly more complex debate or Committee session to be had there about some aspects of sentencing and how the whole justice picture works there. But from the point of view of these cases, whether it is civil or criminal, there is a public service aspect to publicising some of what happens, and the penalties.
Q524 Oliver Colvile: You talked about £70 million being lost to the Exchequer, whether it is in Northern Ireland or here. If we quantified the number of schools, hospitals or nurses not being employed, that would be a very useful way of making sure that people understood what was happening. That may encourage more people to shop those people who are doing this criminal activity as well. On top of that, we need to ensure that more Northern Ireland Ministers-not necessarily here, but in the Executive-are seen to be campaigning in a bigger way and having a higher profile. Do you agree?
Miss Smith: I would not be in a position to comment specifically on the way the Ministers conduct themselves, but as I say there is certainly a public service point there for the protection of consumers and revenue, and for the more broad political service of how we spend our money as a country. I genuinely think that is right.
Q525 Oliver Colvile: How much support do you have from the main people, like BP, Shell and people like that, who have stations in Northern Ireland as well? They are obviously quite keen to be supportive of a campaign to do that.
John Whiting: I do not think BP are in Northern Ireland, but BP are part of the trade that meet with us on a six-monthly basis. We are meeting with the representatives of these major players. They are generally very supportive. That is a good news story, as they were not supportive three or four years ago; they were quite critical of HMRC’s activities and frustrated with what they felt was probably inertia. We now have their support. We look for suggestions from them. I have to say, again, probably using Bill’s line, the Committee and its hearings have been very successful in raising this issue around sentencing. I am not sure how much good you realise you have already done around the Lord Chief Justice’s promises. But before the Director of the Public Prosecution service met with the Committee, we had a discussion around what are called referable cases, which are cases where we think the sentence is unduly lenient. That has progressed beyond those initial discussions. We are aware it may now be possible for the Assembly to introduce some legislation in Northern Ireland.
Q526 Oliver Colvile: Are you saying that we have shone a spotlight at an area that needed to have a spotlight shone at it?
John Whiting: Absolutely. We do have to defer to Westminster, but I do not think there would be any objections at Westminster if there were some new legislation that would enable excise cases to be included in the list of referable cases in the particular legislation under which we prosecute. That would be very, very good news.
Q527 Kate Hoey: Minister, you mentioned earlier the difficult issue of the tax differentials between the Republic of Ireland and Northern Ireland. Clearly a sovereign country like the Republic of Ireland has the right to make its duties whatever it wishes them to be. Has Her Majesty’s Government at any time in any meetings with Republic of Ireland Ministers-your appropriate opposite number-ever raised the particular issue of the differentials in terms of fuel, tobacco and one or two other areas?
Miss Smith: The Committee may have to forgive me; I have not done so in my time as Minister. I can ascertain historically what has taken place.
Q528 Kate Hoey: Bill, are you able to help me on that? Do either of you discuss it with your counterparts in the Republic?
Bill Williamson: We do now meet at senior official level with the Revenue Commissioner and the Revenue Commissioner in the Republic of Ireland. We have an annual meeting and discussion, and have quite a lot of meetings outside of that. We do not get into the conversation around duty rates between the two countries; we respect the fact that is an area of sovereignty for the Republic.
It is worth reflecting a little bit on duty rates and how they affect behaviour. We have found over the last year, when we have been tracking the tax gap figures, that the duty rates have equalised. At one point we saw reverse cross-border shopping. I said in our last evidence session that the calculation for 2009-10-although we cannot separate cross-border shopping-is probably as close as we can get to a figure of illicit fraud within our calculations, simply because cross-border shopping would simply not have been worthwhile. Since July last year, we have seen the differential start to grow again.
Q529 Kate Hoey: Is this just fuel, or are you talking about tobacco as well?
Bill Williamson: Diesel specifically. The differential remains quite small on petrol. We have a much bigger problem, of course, on diesel. I am reliably informed by Mr Curtis-who gave evidence at our last session, and I believe lives on the border and is an avid cross-border shopper-that we are talking about a 21p per litre differential now. It has moved quite significantly. That requires John and his people to be very alert to those changes and those indications.
The differential between rebated and unrebated, as the Minister said, is much greater: 46p per litre. The profits are much greater there for the criminals. We need to be able to respond: as the pound strengthens against the euro, it will become more profitable again to have straight smuggling from the South to the North. We have had some recent operational examples of that. In terms of the operational activity, again, John has the flexibility with his resources to be able to deploy them and respond to those threats when they come through changes in rates in that respect.
Q530 Kate Hoey: I saw the figure for tobacco loss: a £3.8 billion loss in 2008-09. Is that a correct figure? Was the loss in revenue to the UK Treasury due to tobacco fraud around £3.8 billion in 2008-09?
Bill Williamson: We use a system with tobacco across HRT and cigarette markets. It gives a spectrum. You are absolutely right: the spectrum is somewhere between a lower band of £1.1 billion and an upper band of £3 billion.
Q531 Kate Hoey: Would it ever be possible for Government to decide, "Look, we are losing so much in Northern Ireland; let us take the tax off a bit and make Northern Ireland a special case because we have a land border with another country"?
Miss Smith: That would be a slightly challenging decision to have to make. Of course, I am duty bound to say the Chancellor keeps all taxes under review and their rates for Budget. I am not necessarily sure that would be the particular tool to tackle this with, because there would still be plenty of other ways to operate and plenty of other things for criminals to do. I am sure that HMRC has years of experience in that sense.
If I may briefly note at this point that there is the point, if that is in the Committee’s minds, about air passenger duty, where the importance of the land border has been acknowledged, but I do not think that sets a precedent across all taxation, especially when there are such extensive criminal elements involved in this case.
John Whiting: The only thing I would add is that where a pound is to be made, the criminal will attempt to do that. Clearly, if you did seek some kind of harmonisation with the Republic of Ireland, the first difficulty is the euro/pound exchange is changing constantly, so how do you maintain that harmonisation? We have probably seen a 10% appreciation in sterling over about six weeks. We would then move the opportunity for making money to the ferry journeys across into the mainland.
Q532 Kate Hoey: But you cannot really blame a heavy smoker who lives near the border driving across-you cannot stop them doing that.
John Whiting: I have to say, it is dearer to buy cigarettes in the Republic.
Q533 Kate Hoey: So we do not really mind if it is the other way round?
John Whiting: The issue with tobacco is not smuggling between Northern Ireland and the Republic; there is an issue in the fact that many cigarettes are smuggled into the Republic, which then come north into Northern Ireland, but that is just around the fact that there may be a perception that it is easier to bring the cigarettes through there than the UK port of Belfast. There is not really a cross-jurisdictional issue, because there are brands. A popular brand that is sold at the moment is called Palace; you would not have many people from the Republic of Ireland wanting to smoke a brand of cigarettes called Palace.
Q534 Mr Hepburn: On the issue of a marker, it strikes me as strange we can put a man on the moon but we cannot come up with some form of technology to get a satisfactory marker that cannot be diluted in any way. What progress is being made on the marker?
Miss Smith: I am told there is a significant programme going on at the moment, which I am sure John will be able to tell you all about.
John Whiting: Firstly, as we told you, there is a short-term answer around the current marker. We are still on track to introduce that improvement by 31 March. We would not want to reveal too much about that, as that would be giving a headsup to any of the criminal gangs engaged in this crime who may be watching today. There is an ongoing, longer term programme, as you know, that involves the procurement process, which relates to a completely new marker.
The first main significant progress is that we have signed an MoU with the Republic of Ireland, with the Revenue Commissioners and the state laboratory, to work together. Rather than having a two-speed process between the jurisdictions, we have agreed to work together in effectively one tendering process, and where a number of potential suppliers of a marker engage in that process.
Q535 Mr Hepburn: Are you satisfied with the progress that has been made so far?
Miss Smith: I certainly am at a political level. My colleague David Gauke obviously has ministerial oversight as well. Clearly, considering what we have said about the prime position of laundering within this criminal area, specifically of rebated to nonrebated, this is one of the key areas to be focusing on. I am certainly reassured by what I have been told is occurring under that programme.
John Whiting: If you ask me, as somebody who wants to reduce this as much as possible, whether I am satisfied, in some senses I am not disagreeing with the Minister at all. But I would rather we had the answer now. If we have five companies who are interested, I wish they had come forward and given us the silver bullet, but Mr Curtis’s evidence last time around was that none of them have yet provided the answer.
There is a process that we are going to go through, which has to be transparent, so there can be no suggestion of favour in respect of any of the interested firms. Apart from that, they have to give us something that is better than we already have. They also have to give us something for which we are able to conduct a quick and efficient roadside test. Mr Curtis said that the four companies that had previously shown an interest had all been invited to come and see how we operated on the roadside, so that they had some idea of what the problems were that they had to overcome. So far none of them have taken us up on the offer. I have to say, I am particularly frustrated with the trade and its response to the Department’s invitation to come up with a solution.
Q536 Mr Hepburn: Is it still your view that there is possibly a foolproof marker?
John Whiting: I am aware that there is a particular company that believes it has a foolproof marker. I am aware that the state laboratory in Dublin has tested that marker and on seven occasions has gone back to them and said, "No, we have laundered it out."
Q537 Mr Hepburn: And the delays are nothing to do with a lack of resources?
John Whiting: This is private industry. We are using the laboratory of the Government Chemist; the Revenue Commissioners used a state laboratory. Those organisations are equally as involved in this process as the Revenue Commissioners and HMRC. We have four partners seeking to get the foolproof answer that you allude to, the silver bullet. We are not the chemists, and we are asking industry to come up and help us. They have not provided that answer yet, but we do have to go through a process. At the stage we are, I probably have the same frustrations as you: I wish somebody would come up with something that is better than we have, because I know the launderers have become highly efficient in what they are doing.
Q538 Mr Hepburn: I find it remarkable that there is not a company out there that would see an opportunity to make a lot of money and grasp it. That is remarkable. Do you agree with that?
John Whiting: Yes.
Bill Williamson: Your point is well made, Mr Hepburn. In fact at the moment legal teams in both the UK and the Republic are looking at revisions to put forward proposals-they have to go to our Minister, of course-for a joint tender for a new marker. We really need to encourage industry to come forward. As John has said, when we looked for expressions of interest previously, we had four or five companies come to us. They have not been out on the ground with John’s people to look at what they do, and see whether their products could be adapted and work with that. The products that have come forward and claims that have been made about the indelible marker have not stood the test of the technical testing that has gone on and the Republic has carried out in their labs.
The conference being held in Belfast, which John mentioned earlier and is bringing together a number of EU member states, is also partly about reaching out into industry to see what is out there, because when we do go for a joint tender, it is critical that we get as many companies as possible coming forward to give us options. We have not had that at the moment, and this is something I would like to encourage more and more. Hopefully, the hearing here will encourage industry to come forward.
Q539 Kris Hopkins: You might already be doing this, but bearing in mind the scale of loss here as a consequence of this, what about going to universities, going out to PhD chemists-the Government offering a competition to do this: the patents and the whole range of different things there? Securing those losses could be beneficial. If it is difficult, then rather than just rely on a commercial company, perhaps we need to get some of our great brains thinking about it as well.
Miss Smith: There is something in that, and I wonder if there is then a further aspect to bring to light about how you could link that with the need to make this a known crime against the community and against individuals and, as I think you are alluding to, recycle any gains made from that against losses. I am conscious, in some of the cases of sentencing that have occurred, there has been an opportunity to recycle funds back round from that. There could be a very interesting opportunity to do that now.
Q540 Kris Hopkins: Just to follow on that, I am sure if you wrote to our universities across the country and said we have this drama-I used to lecture, and you get people coming up with a great idea, and you put it to students; you’d be amazed-they might find a solution to it.
Oliver Colvile: I am sure Plymouth University would love to do it.
John Whiting: When the original advert went out, it was in a gazette that would go out to academic institutions as well. I am aware of a piece of research that is being done by a university on our behalf in respect of something that relates to the problems we have. We do have some of our best minds working on some initiatives. Of course, I am not sure that everyone who might have been interested would have read the initial advert.
Miss Smith: Britain, as far as I know, Chair, remains a nation of garden shed inventors, so maybe there is one out there listening to this.
Q541 Oliver Colvile: A curious question: are we the only country in the world that suffers from this problem? What happens elsewhere? What have they been doing, and have you been speaking to them to try to get some understanding from them as to how they have been dealing with this?
John Whiting: That is why we have 17 countries coming to this workshop, because we have been speaking to them. Some of them have different regimes and different problems, or not quite the same problem. I am aware that there is a problem around fuel laundering in Japan; there is a similar problem in California.
Q542 Oliver Colvile: Have they cracked it?
John Whiting: No, they have not. I would be very encouraged to travel there and find out.
Miss Smith: May I just add a detail that might be of interest to the Committee on international matters? There is the EU Energy Products Directive, which does have an effect here in the sense that-in answer to Ms Hoey’s question-you cannot just slash the duty off fuel products. Partly for that reason, there is an international obligation on us to work within that directive. That plays into your question there, in the sense that you cannot go around levelling everything to zero across the world, and, even if you did, there would still be criminal elements. That is just a bit of extra detail for the Committee.
Q543 Kate Hoey: Minister, am I right that the estimates for lost revenue from fraud with fuel are showing a downward trend?
Miss Smith: Yes.
Q544 Kate Hoey: In that case, given that criminals would then be looking for something else, are we one step ahead in thinking where they might be going to next?
John Whiting: It was interesting that, in the last evidence we gave, Bill provided the new information on the reduced estimate in terms of our tax gap. I followed up by saying that we had increased our operational activity and we had a significantly higher number of cases with the Public Prosecution Service ready for court. Mr Paisley’s response to that was, I think, "Mr Williamson, you have been trying to lead us up the garden path. You have said this is a downward trend, this is not a very serious problem, and then Mr Whiting is telling us that it is a serious problem." What we are doing is recognising that there is a problem; we have put additional resources against it, and we are putting even further resources against this problem to maintain the downward trend. What we are working on is making sure that we are alive to what is happening. That is why we look at the exchange rates and we say, "Right, it is now more profitable to smuggle than it was six months ago." We have to be alive to the fact that smuggling may start happening, which could mean there is less laundering, or it might not, because there is still a lot of money to be made from laundering. What I am saying is we are not complacent.
Q545 Kate Hoey: No; we should not put a lot of emphasis on the downward trend.
John Whiting: We are not taking a lot of glory from it, I have to say that.
Bill Williamson: If we go back 10 years, before we had a strategy on oils, we know from the analysis that over 50% of diesel in Northern Ireland in vehicles was illicit product. We know we have had an effective impact over that period of time, and so we do have the downward trend. But we also know that one of the nuances with Northern Ireland, which is not necessarily prevalent in Great Britain, is, over that period of time and before, we have had organised criminals who have developed specific ingenuity and expertise, deep experience, of how to perpetrate this crime. In our last evidence session we gave some examples of their global reach as well. We are reaching out for new products and technology to help us; they will reach out as well for new products and technology to be able to launder fuel. I am not answering your question about whether there are new crimes; I am really saying there is a crime that has been in Northern Ireland for a long time now. I think we have made some quite deep inroads into it, but it is still highly profitable and there are still people with unique skills that are able to perpetrate this crime on a significant scale.
Q546 Kate Hoey: Are we making any inroads into the idea that it is somehow acceptable in Northern Ireland, because of its history in terms of paramilitary involvement in crime and all of this? Are we getting across the message that we are taking criminal activity of any kind very seriously? There is no doubt that for certain periods things like this would not have been treated very seriously, because it was seen as something that went on, on all sides of the community, to help fund paramilitaries.
Miss Smith: It is clear that we must take that approach. There are no two ways about that, in my view.
Q547 Kate Hoey: Do you think Northern Ireland itself is doing as much as they can about that?
John Whiting: I have to say that 10 years ago we would fly into South Armagh to conduct some operations like this, and we would perhaps get half an hour to do our business and then we would fly out again. It was really quite unsatisfactory in terms of what we could achieve. That is not the case now. We are able to be on the ground for considerable amounts of time and we are able to make the seizures we feel we need to make and have the time to collect our evidence. That said, we would not go without police support.
Q548 Lady Hermon: Following on from that, I am sure you are aware that last week, in his evidence to us, Alex Attwood, the Environment Minister in the Executive in Northern Ireland, explained to the Committee that there was the spectre of intimidation for those who would contact, for example, Crimestoppers in relation to fuel fraud. You have told the Committee just now that you still have police protection when you are in South Armagh in particular, but you are able to spend more time there than you could have in the past. How would you quantify the threat of intimidation, even in South Armagh, in these better times?
John Whiting: The fact of the matter is that it is still difficult to collect what I would describe as third-party evidence. There would not necessarily be intimidation of my officers. The police would attend with us, and not just in South Armagh; if we have an operation in Belfast, even in areas where you imagine that there would not be trouble, we would generally still seek police support, just in case of public order offences.
In respect of gathering evidence from third parties, we would still find that an issue. For example, very often bank staff would be reluctant to provide statements in respect of the customers who are coming in and dealing with the bank, because the bank staff very often live in the same communities as the people who are the accused in our cases. The banks have a policy that they will not give us statements. That is very much still a real issue. We have to, generally speaking, collect the evidence ourselves by other methods.
Q549 Lady Hermon: Again, an issue was raised and discussed by both the Justice and the Environment Ministers before the Committee last week, and that was in relation to nonjury trials, if in fact there was intimidation of witnesses or a fear of jury tampering. Can I just take it that HMRC would have absolutely no objection to cooperating with the Prosecution Service in Northern Ireland, if they were to choose to use nonjury trials-nothing, I repeat, to do with Diplock courts-in combating what is a very serious crime? It is perpetrated by very dangerous individuals.
John Whiting: I am fully aware of the legislation that allows us to have nonjury trials. We have, in fact, made an approach to the Public Prosecution Service in respect of two of our current cases where we would seek to use those particular powers. So yes: no objections whatsoever.
Q550 Lady Hermon: Yes, and can we also have a view from the Minister, just for the record?
Miss Smith: Yes, I am certainly in agreement with that.
Q551 Kris Hopkins: One of HM Treasury’s priorities is to recover as much as possible from those who defraud UK Revenue. How would this affect the amount of money you could recover through civil recovery if you were pursuing an investigation into an individual who is arrested and charged in the Republic of Ireland?
Miss Smith: I beg your pardon? Just so I understand the question, would you mind-
Q552 Kris Hopkins: Basically, it is the Government’s job to go in pursuit of as much money as possible from somebody, and use civil recovery to make that work. What happens if the person you are pursuing is charged and prosecuted in the Republic of Ireland? Can you get your money back?
Miss Smith: You perhaps have an example of the way in which we make that work through the partnerships we have.
John Whiting: I am aware of an example-this is very historic, and I think this has only happened once-where a fuel smuggler was dealt with in a joint operation, and when the settlement was secured by the Criminal Assets Bureau, they delivered a sum of money to HMRC as part of that settlement. That has only happened once. There is an ongoing case that we referred to the Criminal Assets Bureau and the Serious Organised Crime Agency of such an individual; I referred to that particular case in the last evidence session. Some of the assets acquired by this individual are in GB; some of them are in the Republic of Ireland. I am not sure that there is an official route to say, "This money was lost to the UK Exchequer, therefore the Republic of Ireland should hand over any proceeds that they secure." You may say to me that it would have been better had we not decided to have the criminal case against this individual. I would have to say, in answer to that, it is an operational decision, and in these circumstances it was deemed to be the best option.
We have just recently had a case that we have been pursuing for 12 years against such an individual, who resides just south of the border. We attempted to arrest him, and 12 years later, having extradited him, discovered that he was unfit to stand trial, and in that period he had dissipated his entire asset portfolio. That was hugely frustrating and disappointing: to not have him standing trial, and also for there to be no assets, although we have referred the case to SOCA to see if they can find any. It is a case of looking for the best option on a case-by-case basis: can we secure money? Can we secure a conviction? Can we look at other agencies, who are our partners in this, in an allIreland cooperation? Can we secure some kind of result that is going to stop this individual from causing even further loss, continuing loss, to the UK Treasury?
Q553 Kris Hopkins: You have two priorities: one is to pursue the criminal and prosecute, and whether the operational demands may be in conflict with your ability to retrieve money as a consequence of that. You might want to achieve the same aims-receive a positive response on both. I note you have talked already about the financial pressures on local authorities on both sides of the border to clean up waste. Obviously some of that money is used to address some of that as well. Depending on where the money is recovered, if it is on the opposite side of the border to where the waste problem is, we are talking about treaties here-about some form of negotiation: where recovered monies come back to; which crown, or to which authority; and then its use. Do we need to establish some formal processes? You said it has occurred only once, but it could possibly occur again. Do we need to establish something more formal to be able to negotiate these things?
Miss Smith: May I just ask, would you be able to set out any existing rules that apply in addition to the example given?
John Whiting: If there is a perception that the problem is only on our side of the border, i.e. the laundering is taking place in Northern Ireland and the waste product is appearing in the Republic of Ireland-
Q554 Kris Hopkins: I am sure it is the other way around.
John Whiting: It is both, in fact. If I go back 12 months, the councils in the Republic of Ireland sought an appearance from us, and one of my team did go down and explain that there was no provision for us giving them money for their cleanup costs. Since then, they have discovered numerous laundering plants in County Louth and County Monaghan. What we are seeing in Northern Ireland is replicated in the Republic of Ireland. In fact, probably the biggest laundering plant discovered anywhere on the whole island was discovered south of the border in a joint operation, with searches both north and south of the border.
Q555 Kris Hopkins: I know there are other questions coming, but would it be sensible to establish some form of formal protocol to enable the transfer of some of these funds?
Miss Smith: That is a sensible strand of discussion that takes place within the partnership. My personal view is I wonder if that is the most pressing amongst all the strands of the work that needs to take place at that point.
John Whiting: My view is just as it is impossible to establish the cost to the UK Treasury of cross-border shopping, it is impossible to distinguish the origin of the waste, and therefore if you had any of these discussions, whether the laundering plant was north or south of the border, you would never be able to tell.
Chair: I know the Minister’s time is getting short now.
Q556 Nigel Mills: We have had some discussion about the cooperation between you and your counterparts south of the border. Your initial evidence at the start referred to the fact that one of the problems is the amount of time it would take to get certain evidence shared between the two jurisdictions. If relations are so good on a day-to-day basis, why is this problem still there? Is there any way you could follow the shortcut arrangement that the various directors of prosecution have managed to produce so you can get that evidence in the right place much quicker, and avoid the 12-year delay you were talking about?
John Whiting: The 12-year delay was around extradition, rather than moving evidence. I have to say that, on a day-to-day basis, if I need to seek the assistance of the Revenue Commissioners or Criminal Assets Bureau in terms of going out and acquiring evidence, that can be done very, very quickly. I ask for it, and they can probably deliver that day or the day following, or as required. I can secure copies of that evidence very quickly. But there is a legal process under the Commission Rogatoire, or the international letter of request, which is a legal process. I have to say that the problems that we might have with the Republic of Ireland are nothing compared with some of our other EU partners. Looking much further afield, you sometimes do not get any response, let alone the informal response. Generally speaking, it is a process.
What we are looking at as agencies-that is HMRC, the PSNI, and SOCA-working to the Public Prosecution Service and with our counterparts in the South, is to minimise the delay at each stage of the process, so that we reduce the time by being much more efficient and joined up. On some of the issues we have had in particular cases about which I have been quite concerned in the past, we have been able to make an informal arrangement with the Public Prosecution Service. Where we indicate a case is urgent and we need it quicker than others, there is a prioritisation process that they can apply to that to jump the queue. We are looking at making things quicker. It is not as big a problem as it has been hitherto.
Q557 Nigel Mills: Is there any role for either the Northern Ireland Executive or the UK Government to try to speed up and smooth out those discussions?
John Whiting: The only issue is that we have to remember we are asking another state to conduct inquiries on our behalf. They have their own priorities. If they are doing work for us, they are not doing work for themselves. There is a challenge here. Of course it works in reverse: other countries ask us to do things, for which I have to stop my operational activity to help them out. If I cannot provide my side of the deal, it can be embarrassing if I am pressing too hard.
Q558 Dr McDonnell: Minister, thank you for all the evidence you have provided, but just leading on from where we are at there, have you or the Treasury ever considered raising this or having this as an agenda item either at a BritishIrish Council, at an intergovernmental level, or even at a NorthSouth level within the island of Ireland between Stormont and the Irish Government? Surely if this problem is as big as we are dealing with, and it appears to be, then perhaps-and I come back to Kris’s point-instead of working at a functional or process level, there needs to be some formal or informal or semiformal political discussion at an intergovernmental level to come to terms. Is there space, or would it just be too much to ask, for a little bit of sympathy perhaps in each direction in terms of Mr Whiting’s point that you do not go over on someone else’s patch; you do not intrude on somebody else’s patch and vice versa? What strikes me is that those who are up to criminal activity and fraudulent activity are able to create a space where they are able to invade and exploit diplomacy and intergovernmental niceties. Is there a case that there should perhaps be formal discussions?
Miss Smith: I am sure the answer in broad principle is yes; of course it is the kind of thing that should be discussed between two nations, as much as what we have said this afternoon has, I hope, shown. Again you will have to forgive me: during my time in this role, I am not aware of it having been formally placed on, but we can ascertain that on a point of fact for you. But my view is that it is of course the kind of thing that should be discussed between the two nations for the protection of citizens on both sides. We have given many examples under every strand today of how the problem is closely intertwined for people and businesses on both sides.
Q559 Dr McDonnell: It is way beyond my remit and authority, but is there a possibility of synergising tax regimes or revenue regimes-taxation regimes on oil or whatever-so that there will not be a big differential that encourages smuggling?
Miss Smith: That would be the harder end of that discussion, I dare say, and for the good principle that we would remain two sovereign nations that require flexibility in their tax codes for all sorts of reasons. I would not like to stake out that particular ambition for that conversation, but I do think the policing, justice, enforcement and intelligence aspects must be done on a collaborative basis as far as they can be.
Q560 Naomi Long: Minister, the estimate we were given for annual revenue lost to diesel fraud is about £70 million, and the amount recovered through civil recovery is about £3 million, if those facts are correct. We recognise it is a very difficult and dangerous job that HMRC have to do in terms of pursuing this particular form of crime, and we are obviously grateful for every penny that is recovered, but are you satisfied that this is a reasonable return in terms of being able to recover that money?
Miss Smith: As I say, and as John has said several times, the complexity of it is such that I do not think you could say, "We are going to get every penny back." I simply do not think it is that kind of situation. It is a case of ascertaining trend in data, and we have spoken about the quality of the data available to us. It is a case of setting up strong working relationships, which has been done. It is then a case of never letting up within that project, but I do think it would be hard to quantify that for you to an aim of X for Y or for Z because of the nature of the problem.
Q561 Naomi Long: In terms of the amount of recovery, is that something that is used as any of the performance measures for HMRC in this or not, or do you simply judge that it would not be a good index of how effective HMRC are being in terms of disrupting the work of people who are involved in this particular criminal enterprise?
Miss Smith: Technically speaking, the money would lie in the budget of SOCA, the Serious Organised Crime Agency. It would be hard to include that within HMRC’s performance or reward, if that is what you are aiming at there. Clearly, we have spoken this afternoon about what the staff’s priorities are, and how their time is dedicated to these things. Clearly, every single one of those members of staff will be aware of what they can try to retrieve from these situations, albeit that they need to work with other agencies to make the hard money come in where that can be done.
Q562 Naomi Long: In terms of the evidence we have received, this is clearly a multiagency approach, and that does make lines of accountability and so on slightly more complex. We would also accept that it is a very complex area in which to work. But on a number of issues, for example on the work that is done around trying to deal with public perceptions of a victimless crime, and also on this, it seems to be very difficult to find measurable indices by which you can judge success of the programmes in which you are engaged. I suppose one of the fundamental questions the Committee is going to have is, are the things we are doing, albeit they are very worthy and you are very active in those things, the most effective things you could be doing, and how do you measure that? That comes at the very crux of the issue of whether you are going to be able to get to the core of the problem.
Miss Smith: To take the question about measurement initially, and then go on from there, to an extent-and perhaps Bill may say this is across much of what HMRC does-whatever you try to measure about a black or grey market is very often going to be estimated, for obvious reasons. That is certainly one of the things we have here. You then have that compounded by the distinction we have spoken about with cross-border shopping. However, parts of that formula are extremely measureable: you can look at the number of units used and work out where those parts differ. Half the formula is measurable and half of it is not.
Are we ever going to get away from that? I am not so sure. Does that diminish the work that anybody is doing? Absolutely not. I suspect we are all in quite vocal agreement here this afternoon that this is an appalling criminal activity that has its effects, and in my view that is enough to motivate the work that is done by HMRC. It would be the cherry on top if we could put an absolute price to it, but because of the nature of a black or grey market, I suspect we will always have to live with a certain amount of estimation.
Bill Williamson: I remember most of the questions from the last Committee hearing, but there was one question around whether this is a busted flush in Northern Ireland as a fraud. It is rather like, I guess, asking whether we are ever going to completely stop burglary. It is very difficult. When you have an opportunity to make money, criminals will always seek to make money.
In terms of the current strategy, we are tackling this in a number of different ways. We tackle it through regulation: the RDCA scheme the Minister mentioned, which regulates the control of oils, has been extremely successful in providing us with risk and intelligence information. It has demonstrated that we are serious about this to the industry, and it has limited the availability of red diesel. We can see that: we are seeing it in the amount of green diesel we are seeing and John’s people are seeing when they are tackling and dismantling laundering sites. We can see that has an effect. We are tackling it from the law enforcement end, criminal investigations; we are tackling it through the confiscation of assets and civil sanctions on that as well.
We are tackling it in multiagency; that is the key thing. We have heard through the OCTF and the Cross Border Fuel Enforcement Group that John chairs that we are collaborating across the agencies very effectively. As I say, it is that journey of where we came from over the last number of years to where we are now. We can see that we have made progress; we have to continue to make that progress.
I do not think we are a busted flush, but is there ever going to be a time when there is not fuel fraud in Northern Ireland, or indeed in the UK? Whether there will ever be no illicit cigarette smuggling is a very difficult question to answer.
Naomi Long: I do appreciate that. Chairman, I suppose my point really is how we establish that we are doing the best and most effective things if many of the indicators of levels of activity are so vague and difficult to measure. It could well be that there is very worthy activity, but it is dealing with the fundamentals of the problem in the most productive way; I suppose that is really where my concern lies, but I do accept it is a complex area.
Chair: Final question now, Sylvia.
Q563 Lady Hermon: That is very nice of you, Chairman. It was a detailed point, but a very interesting point, that was highlighted by the newly appointed Director of Public Prosecutions in Northern Ireland. In his evidence to us he pointed out that the Serious Crime Act of 2007 does give the DPP, and indeed his office, the Public Prosecution Service in Northern Ireland, the power to make civil recovery of assets, although investigating agencies have never asked the PPSNI-not to be confused with the PSNI in Northern Ireland-to use those powers. The complicating factor highlighted is that it is unlike the Crown Prosecution Service here in England and Wales, which has a statutory indemnity for a claim of costs against it if it happened to lose a case seeking civil recovery of assets. The Public Prosecution Service in Northern Ireland does not have a similar or equivalent statutory indemnity if they were to lose the case. Interestingly, the Justice Minister, David Ford, indicated that it was an issue he would look at. Could we just in your final few moments confirm that HMRC would, of course, support a change in the legislation? It is a devolved issue, but it would be lovely for HMRC and for the Minister to write to David Ford and just indicate support for a change in the legislation to enable there to be statutory indemnity for the PPSNI if they were to lose a case of civil recovery. It is an interesting point, isn’t it?
Miss Smith: It is a fascinating point, and what a wonderful one on which to finish the session. My understanding of this is that it first of all is a specific issue around civil cases, as you have said, and, as you have also said, such cases in NI have been conducted by SOCA, who would be the experts on that. My understanding is it has not had a negative impact on HMRC’s casework to date. With regard to the question you posed to me-whether I can say that HMRC would support such changes to the legislation-I am afraid I shall have to take that away for you, the point being I am not the Minister with responsibility for HMRC, but I would be happy to put that point to my colleague. Perhaps he would be able to write to you with further detail.
Q564 Lady Hermon: Yes, but there is obviously a willingness from Her Majesty’s Government to support such a move in Northern Ireland.
Miss Smith: As we have probably answered today, there is clearly a willingness to support moves that increase the efficacy of what we are doing in this area. But on that specific note, with the devolved complexity to it, you would have to allow me to come back on that for the Committee.
Chair: It has been a very useful session. Minister, gentlemen, thank you very much for coming.