Tackling Tobacco Smuggling Together
Presented by:- Graham Forbes HMRC Inland teams
• Specialist Investigations - Structured Fiscal Attacks. • New national dedicated teams with effect from 01.04.09 • Three strategies: Tobacco, Alcohol and Oils. • Intelligence led and geographically spread. • High Impact activity. • 24/7 Operation. • Range of types of intervention: ¾ Middle Market Criminal Investigations ¾ Searches of Domestic and Commercial premises ¾ Priority Blitz Activity with LE Partners ¾ Arrest, prosecute & disrupt illicit supply chains MULTI FUNCTIONAL & RFTU TEAM COVERING :
• TOBACCO INLAND • ALCOHOL • MISUSE OF REBATED FUELS INCLUDING LAUNDERING • POCA CASH INLAND
Across Cheshire, Merseyside, Greater Manchester, Lancashire and Cumbria TYPE OF ACTIVITY Tobacco - Inland
• TARGETING MIDDLE MARKET CRIMINALS – DISRUPTING THE ILLICIT SUPPLY CHAIN • HIGH IMPACT, HIGH VISABILITY ACTIVITY IN THE COMMUNITY • TARGETED INDUSTRIAL PREMISES • TARGETED PUBS & CLUBS – BLITZ ACTIVITY • MARKETS & CAR BOOTS – BLITZ ACTIVITY • TARGETED SELF STORAGE FACILITIES • TARGETING SUPPLIERS AT DOMESTIC PREMISES • WORKING CLOSELY AND SUPPORTING OTHER LE AGENCIES; POLICE, TRADING STANDARDS, UKBA, NHS, ETC… • PROVIDING ASSISTANCE TO HMRC CRIMINAL INVESTIGATION AND INTELLIGENCE COLLEAGUES What is meant by High Impact?
• High Level • Substantial quantities of illicit product and money • Investigative resources required (DSA’s & SW’s) • Large seizures and arrests • Frontier breaches linked to importation What is meant by High Impact?
• Low Level • Joint blitz activity (including domestic visits) • Selling to children • Workplace selling • Car boot sales & markets • Pubs/Clubs & other retail outlets Current position
• Illicit tobacco sells at roughly half the price of duty paid tobacco products in the UK. • Approximately 3.4 million people (or a third of the UK’s smokers) admit to purchasing “cheap” or illicit tobacco. • Smokers in poorer communities use illicit tobacco at much higher rates. • We estimate we lose around £2.7 billion in revenue per annum. Composition of the illicit market
15% Non-UK Duty Paid Market Share 65% - TMA Pack Swap figures
20%
Counterfeit Genuine Cheap whites
49%
44%
Composition of UK large seizures (Sep 08 - Aug 09)
7% Different Types of Tobacco
• Cigarettes. • Flavoured Tobacco – Shisha/Hookah • Hand Rolling • Leaf/Cured • Bidi/Beedees Counterfeit cigarettes
• 70% of large cigarette seizures are counterfeit • No control anywhere in supply chain • No legitimate manufacturers to help restrict supply • Often indistinguishable from the genuine article without laboratory tests • Mostly manufactured in Far East and Eastern Europe • Substantially greater profits for smugglers – can afford to have more consignments seized Flavoured Tobacco
• Flavoured Tobacco Used In Hookah and Shisha Pipes – Average • Street Price £4.99-£9.99 for 250gm – Excise Duty £17.94 New Threat: Cheap Whites
• Prior to the launch of the Brand Country No. of Total strategy in 2000, the illicit of Origin Seizures seized cigarette market was predominantly made up of Raquel Cyprus 31 49m genuine cigarettes UK brands.
• Since then, the brand mix Richman UAE 7 23m found on the UK illicit cigarette market has been progressively diversifying. Initially, we saw a Jin Ling Russia 14 22m rapid growth in counterfeit cigarettes. • More recently, brands not sold on the legitimate UK market, in particular “cheap white” brands made by small independent tobacco companies are representing a growing share of cigarette seizures. Example - Cover Loads
• The following are all examples of goods used for Smuggled tobacco: • Electrical goods • Computer casings • Handbags/Suitcases • Textile Cloth/Yarn • Girders • Water Coolers • Sewage Pipes • Industrial Machinery • Tinned Products Changes in demand
• Increase in UK duty-paid volumes – Receipts are £300m (7.3%) above forecast and 9% above the same period last year.
• Accelerated down-trading to ‘Value’ cigarettes – (E.g Richmond, Mayfair, Royal) – The value sector is the fastest growing cigarette sector
• Accelerated down-trading to hand-rolling tobacco – Receipts are substantially up on the same period last year – Seizures are 30% above the profiled target for this year – HRT formed 5% of tobacco receipts three years ago, it’s currently up to 7% and is predicted to rise to 10% by 2014. Changes in Supply
• Reduction in cross border shopping – Increased air fares – New routes – Weak pound – Barbecue summer! • Smugglers changing tactics – Diversifying routings – Exploiting weak entry points – Using complex concealment methods Domestic measures to control supply
Memorandum of understanding with tobacco manufacturers
EU anti-smuggling agreements
UK Supply chain control legislation:
Places legal obligations placed on tobacco manufacturers to control their supply chains
Tobacco manufacturers must: Supply in volumes commensurate with legitimate demand Undertake due diligence on their customers Provide information on seizures to identify the point of diversion
Tobacco manufacturers face penalties of up to £5m for failure to comply Cross-government collaboration
TRADING STANDARDS
Responsible for enforcing consumer related legislation
•Underage Counterfeit sales tobacco •Advertising products ban ILLICIT •Product TOBACCO labeling
DEPARTMENT OF HMRC HEALTH Responsible for Affordabilit Responsible for improving ensuring the correct y (taxation) people’s health and taxes and benefits are wellbeing paid at the right time Results
Since 2000 we have:
broken up over 370 criminal gangs
prosecuted over 2000 people
issued over £35 million worth of Confiscation Orders.
We are proud of that record but problem cannot be addressed by enforcement action alone. CASE STUDY ONE Seizure of Cigarettes and Cash
• Multi agency operation involving local police, Trading Standards and Local Housing Association
• Visit made to a home address known to be selling illicit cigarettes and hand rolling tobacco following complaints received from neighbours and people nearby CASE STUDY ONE Seizure of Cigarettes and Cash
• The owner admitted to having 43,200 cigarettes and £7,000 in cash in the house
• A search of the premises by consent produced a further 36,300 cigarettes leading to his arrest CASE STUDY TWO Housing Association
• Following complaints to local police and representations from the Local Housing Association regarding the sale of illicit cigarettes to school children, we visited a private address with Trading Standards and Police as part of a joint operation • We were accompanied by a representative of the Local Housing Association who were keen to assist in responding to local concerns CASE STUDY TWO Housing Association
• The tenant provided entry to the premises which were searched by consent
• Inside the house we found a total of 33,240 cigarettes, 13.45 kilos of HRT, a dealer book with sales records and a till drawer full of cash takings • Action was limited to seizure only
• The Local Housing Association now wish to evict the tenant from her home on the grounds that she is having an adverse effect on the local community Conclusion We need to focus on outcomes not outputs such as: • A reduction in the size of the illicit market and associated tax losses;
• A reduction in smoking prevalence
• A reduction in the demand for illicit tobacco
• A major shift in public attitude towards illicit tobacco
• Improved understanding of how we can work together and acceptance of each others roles. Published sources of information
Tackling Tobacco Smuggling Together www.hmrc.gov.uk/pbr2008/tobacco-2800.pdf
HMRC Annual performance report www.hmrc.gov.uk/about/autumn-report-2008.pdf
Tax Gap estimates www.hmrc.gov.uk/pbr2008/mtg-2450.pdf H M Revenue & Customs
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