House of Commons Northern Ireland Affairs Committee

Fuel laundering and smuggling in Northern Ireland

Oral and written evidence

5 September 2012 Mike Norgrove, Director, Excise, Customs, Stamps and Money, Sarah Harlen, Deputy Director, Environmental and Transport Taxes, John Whiting, Assistant Director, Criminal Investigation, and Pat Curtis, National Oils Lead, Specialist Investigations, HMRC

Ordered by The House of Commons to be printed 5 September and 20 November 2012

HC 556-i Published on 3 April 2013 by authority of the House of Commons London: The Stationery Office Limited £6.00

Northern Ireland Affairs Committee

The Northern Ireland Affairs Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Northern Ireland Office (but excluding individual cases and advice given by the Crown Solicitor); and other matters within the responsibilities of the Secretary of State for Northern Ireland (but excluding the expenditure, administration and policy of the Office of the Director of Public Prosecutions, Northern Ireland and the drafting of legislation by the Office of the Legislative Counsel).

Current membership Mr Laurence Robertson MP (Conservative, Tewkesbury) (Chair) Mr David Anderson MP (Labour, Blaydon) Mr Joe Benton MP (Labour, Bootle) Oliver Colvile MP (Conservative, Plymouth, Sutton and Devonport) Mr Stephen Hepburn MP (Labour, Jarrow) Lady Hermon MP (Independent, North Down) Kate Hoey MP (Labour, Vauxhall) Naomi Long MP (Alliance, Belfast East) Jack Lopresti MP (Conservative, Filton and Bradley Stoke) Dr Alasdair McDonnell MP (SDLP, Belfast South) Nigel Mills MP (Conservative, Amber Valley) Ian Paisley MP (DUP, North Antrim) Andrew Percy MP (Conservative, Brigg and Goole) David Simpson MP (DUP, Upper Bann)

The following Member was also a member of the Committee during the inquiry.

Kris Hopkins MP (Conservative, Keighley)

Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No. 152. These are available on the Internet via www.parliament.uk.

Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/niacom.

Current Committee staff The current staff of the Committee are Mike Clark (Clerk), Duma Langton (Inquiry Manager), Edward Faulkner (Senior Committee Assistant), Ravi Abhayaratne (Committee Support Assistant) and Jessica Bridges-Palmer (Media Officer).

Contacts All correspondence should be addressed to the Clerk of the Northern Ireland Affairs Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 2173; the Committee’s email address is [email protected].

List of witnesses

Wednesday 5 September 2012 Page

Mike Norgrove, Director, Excise, Customs, Stamps and Money, Sarah Harlen, Deputy Director, Environmental and Transport Taxes, John Whiting, Assistant Director, Criminal Investigation, and Pat Curtis, National Oils Lead, Specialist Investigations, HMRC Ev 1

List of written evidence

1 HMRC Ev 15

Northern Ireland Affairs Committee: Evidence Ev 1

Oral evidence

Taken before the Northern Ireland Affairs Committee on Wednesday 5 September 2012

Members present: Mr Laurence Robertson (Chair)

Mr David Anderson Naomi Long Mr Joe Benton Jack Lopresti Oliver Colvile Dr Alasdair McDonnell Mr Stephen Hepburn Nigel Mills Kate Hoey Ian Paisley Kris Hopkins David Simpson ______

Examination of Witnesses

Witnesses: Mike Norgrove, Director, Excise, Customs, Stamps and Money, HMRC, Sarah Harlen, Deputy Director, Environmental and Transport Taxes, HMRC, John Whiting, Assistant Director, Criminal Investigation, HMRC, and Pat Curtis, National Oils Lead, Specialist Investigations, HMRC, gave evidence.

Q1 Chair: Thank you very much for joining us. It is was in Belfast just last week, a seizure was made in good to see you again. As you know, we produced our Dublin Port of 20,000 litres of fuel on its way to report some while ago now, but at that time we Liverpool. All of that is relevant in the context of your expressed a concern about the apparent slowness, as deliberations about future markers, either we felt, in developing the technology to counter fuel developments of the current one or brand new fraud. You very kindly offered to come back. We markers. hoped to get you back in the summer but the Thank you for your report too, Chairman. I am sorry programme was so congested we could not do that. that you were disappointed and expressed your We are delighted that you are with us again now: disappointment in the progress that we have been thank you for coming. Could I ask you perhaps to give making. We have a lot of detail to give you today us an update on where you are with the development about the progress we have been making. The process of the new marker, please? of improving or replacing markers is a very important Mike Norgrove: Thank you, Chairman; thanks for but complex one. We cannot wish those complexities your welcome. Could I perhaps ask my colleagues to away. For us to replace or amend the marker that we introduce themselves before we kick off? are using at the moment—which is continually being Sarah Harlen: I am Sarah Harlen; I am Deputy refined and improved by Pat and his team—imposes Director for Environmental and Transport Taxes, costs on businesses. We need to check the stability of HMRC. the fuel that has been marked in a different way and Pat Curtis: I am Pat Curtis, the National Oils Lead its volatility. We are talking about a highly dangerous for Specialist Investigations, HMRC. product: the corrosive effect of it, the effect of the John Whiting: John Whiting, Assistant Director, marker when put in a new plastic container or metal Criminal Investigation, Northern Ireland. container and so on. I do not think we have ever Mike Norgrove: Thank you; thank you for the hidden from you the difficulty of finding a marker that opportunity to update the Committee too. I will begin we are sure is both safe and an improvement on the by bringing the Committee right up to date on an present one. Although we understand your important element of our strategy before we get on to disappointment at the progress, we think we are the marker itself, which is what has been happening making real progress. The intervening time since your north and south of the border in the last seven days. report has meant we have been able to make further Pat, John and their teams, with the help of the PSNI, progress that we can report today. have seized fuel and dismantled three plants capable Perhaps Sarah, who is my expert in this field, can of producing 25,000 litres of laundered fuel a day. It bring us up to date. has been a tremendous week for the teams in Northern Sarah Harlen: Thank you very much. It might be Ireland. Some of that fuel—we will get on to this; it helpful if I separate out first of all the progress we will be highly relevant to the Committee’s have made on the new marker from that we have made deliberations—had been laundered eight times in an on the enhancements to the existing marker, which attempt to remove all traces, but our existing test, the are two completely separate projects. Taking the new SET, the silica extraction test, has stood the test of all marker first, we have made a lot of progress since we eight launderings. On one of those plant dismantlings, last came before you back in January. The first thing on one of those seizures of fuel, the fuel that resulted we did was to sign a memorandum of understanding even from eight launderings has been found still to with our colleagues in the Irish Revenue contain one of our markers. Commissioners at the end of May. Following that, at That is an important bit of context, first of all because the end of June, we issued a formal invitation to make of the success of our teams on the ground. While I submissions, which went out widely to attract industry Ev 2 Northern Ireland Affairs Committee: Evidence

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis interest and to invite them to participate in the process will be looking on a monthly basis to see whether we of finding a new marker. We held a briefing can detect the new ingredient we are putting into the presentation for interested companies on 24 July; 16 recipe for the marker, both in laundered and representatives from 10 companies were able to non-laundered products, so we can assess how well it attend. As well as talking them through the detailed is achieving its objectives. We intend to do the process we were going through and what we were evaluation of the new, enhanced marker certainly by looking for from them, we had specialists from the early new year, and of course by that stage we will be State Laboratory and also from LGC Forensics, which able to start looking across at how that plays into the Revenue and Customs use, to explain the invitation to make submissions and our search for a technicalities both of the existing marker and testing new marker, and how it affects our benchmark in that we do, and in terms of what we would be looking terms of what a new marker might look like. for in the future. Chair: Thank you for that update. We have had an iterative exchange with companies since then, in that they have come back to us with Q2 Dr McDonnell: The memorandum of supplementary questions that we have been able to understanding with the Irish Republic was set for May field. We are answering those individually as quickly 2013 for a full evaluation: is that still on track? Where as we can, but we are also trying to pull together a are we with that? composite set of questions and answers that we can Sarah Harlen: The memorandum was signed in May share widely with the whole of the industry. We then 2012 with the aim of completing the final evaluation asked for firm expressions of interest by the end of by May 2013. We are still on track for that, but as I September from those companies that wish to make a have just explained we cannot give an absolute formal submission to us. We have already had four guarantee that we can stick to that timetable. formal indications of interest, and we have asked for the final submissions to be with us by the end of Q3 Dr McDonnell: How much of a delay do you November. After that we will be going through the think there might be? evaluation process, which is in two stages. The Sarah Harlen: It really depends on when we get the preliminary evaluation, which will be set against a set final submissions in for the proposals for new of defined criteria, which are set out in the invitation markers, which will not be until November. We do not to make submissions, will be done—we hope—by the know how many of those we will be looking at and end of January, followed by the end of February for need to test and assess, and we also do not know how the first preliminary evaluation, and the end of May complete the information will be or how difficult the for the secondary and final evaluation. testing by the State Laboratory and LGC will be. I have to say, these timescales are indicative, partly Again, experience has shown—certainly with the because we do not know at this stage exactly how work the Irish have already done on these products— many formal submissions we will have to deal with, the testing can be a very iterative process, whereby but also we recognise this is very much an iterative the first set of tests may reveal a particular issue or process. As the companies provide us with concern that can then be dealt with through a slight information, we need to be able to go back and discuss change to the recipe. Another period of testing then with them and to refine some of the information they has to take place. have given us. We have built into the timetable the opportunity to have presentations and briefings with Q4 Dr McDonnell: On a side issue, when you test the companies. Again, we cannot give an absolute roadside-wise for diesel or whatever, are you picking guarantee of how quickly those will take place, but up much, if you like, clear diesel with markers in it? we have set out very clearly through the invitation to How often does that occur? The question that springs make submissions the timetable we are aiming to to my mind is what is the outworking of this? How adopt.1 much are you picking up in cars, vans, lorries? The other area we have been working on is the Mike Norgrove: We have good, healthy, recent enhancements to the existing marker. We were experience of those sorts of figures. They are not probably over optimistic in what we could achieve figures we have published in the past, I do not there. I know we said in the response we put through think.2 to your report we hoped to have a pilot in place by the end of July. The timetable for that has slipped, in Q5 Dr McDonnell: They are not figures I have found part because we have had to negotiate with the anywhere. We tend to concentrate here on getting a companies involved in the pilot how we get the new laundering plant somewhere or we get news of that. enhanced marker into the supply chain and through to That is one issue—if you like, one link in the chain. their customers. They made one big supply at the end The link in the chain I am wondering about is how of July; we understand that supply will not have run useful a marker is in terms of end product and in terms its course through the systems with the petrol of finding somebody with what appears to be white companies until October, but they have given us as diesel in their car, or a van or a lorry, but in fact firm a commitment as they can that we can start the is contaminated. new pilot in Northern Ireland from October. We Mike Norgrove: Perhaps I will start and Pat confirm expect that pilot to run for three months. We will be with some figures. The purpose of our roadside tests— evaluating it throughout the process of the pilot. We stopping vehicles, commercial and private and so 1 See the supplementary memorandum from HMRC for further 2 HMRC’s supplementary memorandum confirms that these information on the timetable for evaluation figures have been published in the past, but not recently Northern Ireland Affairs Committee: Evidence Ev 3

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis on—is really threefold. The first is to stop Q9 Dr McDonnell: My question is about if I am not wrongdoing, so people who are using fuel for which intentionally using laundered fuel. If I am buying it it was not intended. In other words, red for road fuel out of a filling station along a dual carriageway—and usage, for example. It is to stop that. Secondly, the there are many of them across Northern Ireland—and intelligence we pick up from those sorts of seizures I innocently go in there, it is obvious from these is very valuable for the sort of work you were also figures that some proper stations are taking deliveries mentioning. For example, we might find out where of counterfeit fuel. I go in there innocently; I pay the that driver had acquired the fuel, which could lead £60, £70, even £80 it can take now to fill a car. The us on to the next stage of something bigger: a major next day one of your guys dips me on the way up to operation, for example. Thirdly, it is important—and Stormont—they have a habit on Belmont Road you will understand this better than I—to have the there—and says, “Sorry, it is contaminated.” I have deterrent factor of our people being out there and seen fuel go into my car; it looks white, it looks clean. being seen to be out there around the north of Ireland, I have paid the full money for it, including the enforcing the law and checking for the good of the equivalent of tax. What is the comeback there? community as a whole. It is those three objectives. We Pat Curtis: Dr McDonnell, I can give you some hard make many more seizures of illegal fuel from vehicles figures here and then I will come and answer your than we dismantle plants. This year, for example, we question. We do make roadside checks and we are have dismantled 10, three in the last week, but of relatively successful. The hit rate is round about 5%: course they are very small compared with the number of the 100 vehicles we check on the roadside, we of seizures we make from vehicles. roughly get a 5% to 6% hit rate on it. Last year the figures showed we did 56,000 roadside stops of Q6 Dr McDonnell: If I can put my question again, different variations and we had just under 3,500 Chair—I am sorry for labouring—because I think detections. We are making detections. If you take the other members might share the same question, looking 3,500, you are talking a substantial amount on a daily at your illicit market shares there in terms of diesel, basis. Year to date, while the figures are not published, you are somewhere in the region of 40%, you we are still heading on the same thing: we have made estimate. What is the risk of me getting stopped, just under 1,200 detections from 1 April from these having purchased fuel at full value in any one of half roadside stops and other challenges. a dozen different fuel stations, petrol stations, with If we stop somebody and it fails our test, we have an illicit diesel? obligation to listen to the story that the driver tells us, Mike Norgrove: On your statistic, I do not recognise and if they tell us they bought the fuel at the ABC the 40%. Last time we were able to give evidence to retail site, the staff are informed that they must stand the Committee we had the new set of tax gap down the roadside operation there, if there is only one estimates, as it were, which put the figure more like team out with the police, and they must pay a visit to 12%. that supplier within that period of time, within that day, to verify the story from the motorist. If our tests Q7 Dr McDonnell: Sorry, I am looking back at 2004. are of a standard that makes the detection at the Mike Norgrove: We have come down a long way roadside, we have no problem making the detection at since then. The year before I was last here it was 27%; the supplier’s yard if he has the product in it. We have it went down to 12% in the most recently published to balance that out, but everybody tells us the same figures. There will be more out next month. It is a story: everybody is innocent out there; everybody says very much smaller percentage than it was. that they bought it. That is our safeguard for the motorists. We do advise them—although we cannot Q8 Dr McDonnell: But am I susceptible to insist on it—that it is beneficial to have the receipt for prosecution if I am found with laundered fuel in my your fuel purchase to prove that you bought it from tank, even though I may very well be innocent? ABC garage. We cannot impose that, but we give it John Whiting: We have a number of measures, but it out as a piece of advice. On every occasion we catch would not be proportionate for HMRC to prosecute somebody, most of them are not willing to tell us you as a single individual for having laundered diesel where they bought the supply, so they have to take in your car. There is a process by which Pat’s our enforcement action on the chin. If they tell us officers—in fact I have a number of these officers where they bought it, I can assure you we visit that too—would deal with it on the spot, essentially, by retailer or supplier immediately within that day before seizing your vehicle and then offering you to buy it we take any other action against the motorist. back, effectively for a restoration amount, which is Dr McDonnell: Thank you. That is the answer to normally £500 plus the value of the duty you have the question. evaded. We are looking to increase that amount to Chair: It is a very interesting point that we probably make it more prohibitive. You asked if you are likely could pursue further, but we have to press on a bit to be caught: the answer is yes, and in fact I can give now. you one anecdote of my officers seeing an individual approach a huckster site and drive away. They Q10 David Simpson: You are very welcome, by the established where that individual lived; they went to way; it is good to have you here. I think the opening his house the next day and seized the car on his comment from Mike was that he was disappointed to driveway. Yes, if you are using laundered fuel, you hear that the Committee was disappointed. are potentially going to be caught. Mike Norgrove: I was sorry to hear. Ev 4 Northern Ireland Affairs Committee: Evidence

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis

Q11 David Simpson: Yes, sorry to hear that we had Mike Norgrove: No, we are going to pilot, as soon as basically said that three years was too long. I think possible, a new marker if one is required by then.3 this delay in time is scandalous; I have been straight and honest about that. I am not being personal; I just Q14 Ian Paisley: But in October this year you are feel it is unacceptable that three years down the road just putting more dye in. Is that right? we are still looking at this. Sarah gave a very telling Sarah Harlen: It is that, essentially. statement that these timeframes are indicative—they Ian Paisley: Thank you. could change—and we are looking at a situation Sarah Harlen: But essentially what the new dye will where we still do not have a marker. I am no scientist, do is to double the effectiveness of the existing but in reading the IMS document it seems to me that marker. there are no specific details of exactly what your requirement is for a marker. I am no scientist; maybe Q15 Ian Paisley: I will just say that the sales of cat you could shed a bit of light on that to show me where litter and bleach will increase, because they will just it is in the document, but it does not give the specific move it; they will just remove it. requirements. We are looking at a pilot scheme next Sarah Harlen: Yes, I understand that, but effectively October—I think that is what Sarah said—in relation what it does is make it more expensive for the launderers. It makes it twice as difficult and twice as to Northern Ireland. The whole thing is so expensive. We are not suggesting for a moment that open-ended. Our understanding is—and we have this is the perfect solution, but it is a step forward. taken evidence over the number of months—that there David Simpson: Sorry for cutting across, Chair, but is technology out there that has been proven in Brazil realistically, when you say that it makes it more and other places and has been working now for a expensive, it does not mean that, because they are decade. If there is evidence that there is technology getting so much money out of it—millions. out there that can do this job, why can it not be Unbelievable; unbelievable. fast-tracked? Why can it not be brought to the fore Chair: Let Mr Norgrove answer a little bit further and and tested immediately? If it works, bring it. then we can certainly come back in. I have to come back to this Chair: I made a comment Mike Norgrove: I would like to pick up Mr Simpson’s some months ago that there seems to me, for some point about the deficiency, as he saw it, in the IMS reason, to be an acceptable level of this carrying on. I that we were not asking for something specific. have said it before and I am saying it again, because Obviously we are not going to name a chemical that three years down the road, with the millions that have will be the new marker, if that is what you are looking been lost by the Exchequer, when we have the Irish for—or have I misunderstood your question? Republic and we have the British Government in such David Simpson: Yes. dire straits for money, we are still sitting today Mike Norgrove: We are asking industry to provide us looking at this and we may get a pilot scheme into with something that will improve, enhance—maybe Northern Ireland by October 2013, and that is an radically improve—our current effectiveness. We are indicative timeframe. It is unacceptable. That is not not stipulating exactly what that should be, otherwise being personal with anyone. It is unacceptable. What you would not have to ask. We want to know what is can we do to speed this up, and why are there no out there. specific details—maybe there are and you can point them out to me—within the IMS document of exactly Q16 David Simpson: That is fine. Okay, that is a what the requirement is? good point that you have raised, Mike. The Mike Norgrove: Can I just start with one correction, Committee received evidence of technology that is which is that the pilot will start next month, October supposed to be out there that can do this job. Why is 2012, which is the pilot of the improved current HMRC not bringing it forward, fast tracking it, marker. dealing with it—and ruling it out. If it is not right, rule it out. David Simpson: Okay. Mike Norgrove: Can I put it back to you? I have been in this Department for 35 years or so now. If there Q12 Ian Paisley: Can I ask for clarity on that exact were a marker out there, if there were new technology point, because this is very important to us: are you that would solve this problem for us, do you really talking about a dye improved marker, or are you believe that I would not have had it in like that? I will talking about a new technology marker that will start just put it back to you that way. Our job is to be as next month? Are we going to have more of the same effective as we possibly can, using any new but with more dye, effectively, from October? Is that technology, markers, roadside tests, criminal going to be your pilot? investigation techniques—whatever we can. I would Mike Norgrove: Yes. grab it with both hands if someone could demonstrate to me that there was something out there that solved our problems. Of course I would. Q13 Ian Paisley: Right, so you are not actually doing what the Committee asked, which was to bring 3 HMRC’s supplementary memorandum states: “the Revenue forward a pilot—recommendation 15—as soon as Authorities have no current plans to pilot a new marker; the IMS process is very thorough so if it identifies a new marker possible on new technology. You are just chucking it should not be necessary to pilot it. However, a pilot more dye into what is effectively there. remains an option.” Northern Ireland Affairs Committee: Evidence Ev 5

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis

Q17 Kate Hoey: Are you saying that there is not? much at the cutting edge. Our experience is of course Mike Norgrove: I am saying we have not had founded on years of trying to solve this problem, or anything like that demonstrated to us yet. I am hoping to keep a lid on it. We are still in the market for new I will be proved wrong—not wrong, as at the moment ideas from our colleagues overseas, but at the moment I am right, but there is not something that has been we are telling more than we are learning. proven to us as being that effective. Why would we John Whiting: I think I am correct in saying there turn our faces against it if there was such technology? were 24 countries there; we had 65 delegates in There is, I believe, no silver bullet. Belfast. We began the conference on the day that you Let me just add one thing. We used to use that launched your report, which somewhat trumped us in expression when we talked about a strategy on terms of press, and we were gagged, shall I say, in anything: it could be on beer or VAT fraud. This terms of making any comment about the report, and question of a marker is only one element of our that is what the media wanted us to respond to. The strategy, because not only do we have people at the timing, I would have to say, was unfortunate, but what roadside testing vehicles and going to retail sites; not we did discover was that our European partners do only do we have people making life difficult at filling not use the additional markers we use in the UK. They stations that we know to be receiving laundered fuel; simply use what is called a Euromarker, which is in not only do we have—for the first time ever—an our fuel, but we have a supplementary marker on top agreement with the Republic of Ireland on a joint of that. That is almost certainly the reason why our approach to marking; not only do we have fantastic European partners are not making the detections we cross-border co-operation with them and Garda are. It was an education for our colleagues. Síochána and so on; not only do we have a fully joined up set of agencies under David Ford, but we Q19 Oliver Colvile: Forgive me for being very also have a marker that we think is very effective. The boring, but we are not just part of Europe; we are example I gave you right at the beginning also part of the wide world, and so what is happening demonstrated its resilience even after eight elsewhere in the world, like in the United States of launderings. I do not know how much cat litter or America and other places? bleaching agent that involved, but even after eight Mike Norgrove: The first response we have had since goes they had failed to beat this marker. This is a fully that event was I think from British Columbia, Pat. joined up strategy. It is not perfect. We are always Pat Curtis: The Minister of Finance in British looking for improvements, but believe me: if there Columbia put in an official request because they had were a proven technology or marker out there, I am heard of the SET test that Belfast had piloted and happy to go anywhere in the world to see it, but it has rolled out to the UK. We have sent samples of them not been presented to us yet. Let us hope by over there because they are experiencing the same November we get some really encouraging news. problems we are having.

Q18 Oliver Colvile: First, thank you very much Q20 Oliver Colvile: At some stage what would be indeed for coming. Can I ask you what other parts of incredibly helpful is for us to have a physical the world suffer from this problem too, and how much demonstration of it, rather than just always talking co-ordination do you have with other countries that about all this. Maybe we can set that up. are trying to do it? Are you claiming that you are in Mike Norgrove: You would be very welcome. the vanguard of this activity and, frankly, we are the best here in this bit of Northern Ireland at delivering Q21 Naomi Long: The question I was going to ask this? Is that what you are claiming? has by and large been answered, but you mentioned Mike Norgrove: I would not make a claim. One of the impact of your ability to raise public awareness of your earlier witnesses would not want to be a what you were doing at the conference in March being champion of his own self-righteousness, I think he slightly hampered. Since March have you found that said. I would not claim anything. This is a problem there has been more industry interest in your call for that is now being experienced by more and more a new marker? You have indicated there was not a lot countries as the emphasis on excise receipts gets of interest prior to that. Has that had any impact? Has greater and greater with the recession and austerity the Committee report been seen to have any impact in and so on. Last time Pat was here he mentioned to terms of people coming forward with new ideas or you a European event, a Fiscalis event as they call it, new technology or new suggestions? Certainly it was where we invited colleagues to come to Brussels to given to the Committee that there were other ideas out discuss—in fact, where was it held, Pat? there that were feasible and viable. I know there was Pat Curtis: Belfast. some dispute about whether that was the case, but Mike Norgrove: It was in Belfast. So European, EU have you detected whether there is an active interest colleagues came together. I think 17 member states out there, not just in the UK but maybe further afield? attended, all interested to know what we were doing, Sarah Harlen: I can say for certain that we had four none of them claiming to have technology that they or five expressions of interest in the original RFI, the wanted to sell us or tell us about, I am afraid. It was request for information we originally put out. Sixteen good to be able to share our knowledge with them, individuals representing ten companies attended the but we did not get any silver bullets from them, if I briefing we held on 24 July this year in response to can put it that way. As far as I know, and I have the IMS, and we have had four strong expressions of discussed this with Hungarian, Spanish, French, Irish interest since then. We have not yet reached the colleagues obviously, Dutch colleagues, we are pretty deadline for all the expressions of interest. I am quite Ev 6 Northern Ireland Affairs Committee: Evidence

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis sure that the work the Committee has done to raise does it do it? I do not know, so I am genuinely asking the profile has helped, as well as certainly the greater how it is done. It seems to me that, even if you got emphasis we have put on trying to progress the this refined or improved new marker, there would still project. be a demand for a more extensive, if you like, investigation and overall watching of the situation if Q22 Naomi Long: In terms of the conference itself, you are going to achieve any marked success. I in terms of having that discussion with European wonder if you would care to comment on that. counterparts and so on, has that sparked any interest The other thing I was going to ask about was your that you are aware of in those countries, from people response to our recommendation 15. The phrase you coming forward with new ideas or suggestions, or is used was that there have been “new technical issues”. the situation more the reverse—that they are looking Again, I am not pouring scorn on the phrase, but I to us to take a lead on these things? would like to know what the “new technical issues” Mike Norgrove: We are ever hopeful. are, if that is possible. John Whiting: We have had an approach from some Mike Norgrove: Can I start with that last one, just of our partners to help them with some of their while it is fresh in my mind? Before we unleash on problems. It has worked in the reverse, in that we are an unsuspecting market any new requirement on being seen as perhaps being in the lead. business to apply a marker, for example, we have to Naomi Long: Thank you very much. be pretty sure that the product is safe and can be used Mike Norgrove: Sorry, Chair, could I interrupt—I am effectively and so on. At the 11th hour—Pat or Sarah sorry to intervene—just to complete an answer to Mr will give us more detail—questions were raised as to Colville, if I may? You asked, “That is the EU, fine; whether the enhancement of the current marker we what about the rest of the world?” The UK chaired a were planning was going to destabilise the fuel. Some conference of the World Customs Organization suppliers had raised that as a question. We could not recently with 160 delegates from all over the world, ignore that. That is the classic example of what can and an especially strong contingent from Africa and cause delay. Here we were, about to go out with a the Far East. This was on the agenda. In fact, two of revised marker and doubts were raised. We had to the people sitting here today gave a joint presentation pursue those. In practice that fear turned out to be on this very subject with our Republic of Ireland unfounded. The technical issues we had been led to colleagues, which went down extremely well. It got a believe could have destabilised the fuel turned out to lot of interest, but so far—I do not say this be easily solved; it was not a problem. We are going provocatively—we have not been assailed with lots ahead with those revisions next month. That was to of intelligence and information and help from other your third question. quarters to us, but we are hopeful. The co-operation On your main point, you are absolutely right that, in is now beginning in earnest. a way, all these separate components of a strategy may be necessary but none of them in themselves is Q23 Mr Benton: I hate to labour it, but I want to go sufficient. We have a fantastic marker, which, let us back to new markers again. I know you have answered say, putting it simply, is some colouring, some dye, so many questions; you have already referred to the ones that you can see whether something is white diesel or I was proposing to put to you. Perhaps you can not: red in our case; green in the Republic. That is enlighten me somewhat, but if I have understood your essentially what a marker does. What we are looking remarks correctly, you are using the best technology for is a dye that, even when criminals try to take out that is available to you at the moment—I accept your that dye, leaves a trace there. They are pretty clever point that, if there was anything better out there, you at removing it and we are getting cleverer at spotting would use it. The confusion in my mind is that this it when they have left even a tiny proportion in it. so-called new marker that you are seeking or looking As to the question of whether we will still need for would be used only if it was to your advantage; in investigation and compliance work even with a other words, it would be a quicker method, if you like, fantastic new marker, the answer is yes, we would. of identifying illicit fuel. It would still demand road We would still need to be testing. As long as criminals stops and examinations of vehicles and eventually have access to fuel to which they are not entitled or analysis. as long as retailers are availing themselves of fuel and What all this suggests to me is that, even if you had a using it for purposes that it is not intended for, you much better, shall we say, marker, you would still be will need a compliance effort to keep people on the highly dependent upon sufficient manpower and straight and narrow and to check. You are right. We resources to enable more extensive controls, have discussed alternatives to such a system—where examinations, analysis, so on and so forth. I am not you did not dye anything and you did not have to pouring scorn on or trying to hold up to ridicule the check whether something was dyed or not—here in emphasis on a new marker, but it still seems to me this Committee before, and I know you have thought that there are other factors as well that must be about that and you have discussed it with other brought into play if you are going to successfully witnesses, which would be a completely different make any progress at all on it. Progress will not be system, where there was no rebate at the point of entirely dependent on the new marker. Before you dispatch, as it were, and there was not a fuel that was came in, in our preamble, I had to ask the question: 11p a litre and another one that was 57p. Everyone what do we mean by the new marker? What is the would pay it at the same rate—let’s say 57p. If you marker? Does it immediately identify the falsity in the are a farmer trying to run your tractors then you would fuel, the illicitness of the fuel? What does it do? How have to claim that money back, the difference between Northern Ireland Affairs Committee: Evidence Ev 7

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis the two. Attractive though that would be in some Oliver Colvile: Can I go a bit further: why won’t lights, that would give us, we believe, even more you? problems than we have at the moment. In other words, Mike Norgrove: To run two simultaneous pilots when what we have got at the moment is the worst of all you are a roadside fuel officer would put you in a systems except for all the alternatives, I am afraid. It pickle, for a start. For example, you are dipping the is something the Republic has thought about and had tank and you do not know whether you are testing one a parliamentary debate about recently. They have that has been dyed with one or chemically marked decided that, regretfully, they do not think an with one or the other. You would have to shelve any alternative to a marker is the right solution at the thought that we might amend and pilot the current moment. marker. That would be a reversal of strategy, for a Pat Curtis: The marker consists of two constituents. start. As a civil servant, I could not justify piloting one The dye is for a member of Joe Public to identify that manufacturer’s apparently successful fuel over anyone this fuel is not for road use. What we test for is a else you would like to supply into that market and hidden chemical marker. Unfortunately we use the who is in business to do so, without going to some same term: it is the chemical marker that is the tendering or IMS process. It is impossible to conceive offence. Mr Paisley has mentioned—and he is of our advising our Ministers, “Forget everyone else possibly quite correct—that there may be a chemical who might be out there, we have heard this company out there supplied by a company that is more resistant is really good. We are going to pilot this one.” to laundering than the chemical we currently have. We Inconceivable. are tweaking the recipe for the current chemical to run Sarah Harlen: Could I just add one further point, alongside this project to allow us to make better Mike? Even if we decided we wanted to run a pilot, detections. we would still need to go through the full testing of The dye is easily removed; as I say, the dye is really that product before we could even pilot it. This is a only for me and you to identify fairly easily: “this fuel product that is going to go out onto the streets; there should not go into my car.” The test we carry out on are health and safety issues, and potential issues about the road is to look for this chemical that is in the how it interacts with car engines or heating systems fuel. The problem was, when we floated this project or whatever it might be used for. I do not see that of enhancing this chemical, a couple of the companies trying to run a second pilot would really speed up this said, “This may be unstable in the fuel and will not process. Essentially what we have done through the remain in the same proportions throughout a certain IMS process is try to get the full information in terms quantity of fuel, as it should.” That delayed us for of the technical specification of the new product that maybe a month, but we found out it was the is available and then put it through the kind of production techniques of some companies as opposed rigorous testing that has to be done for any product to other ones. There was a production technique out before it can be rolled out either nationally or as a there that would easily add this chemical without any pilot. problems with its stability, but it did cause us a problem for a while. I have to emphasise: the colour Q26 Ian Paisley: If the ambition is zero, as Mike has is incidental to this. It is the chemical marker that we said, surely you could use all of your genius to get are after in the fuel. Under the new project it is a new over the obstacles you have just identified—i.e. some chemical-type marker that we are after—one that is sort of procurement, some sort of industrial advantage more resistant to everything that is currently being to a chemical company, the delays it might cause. I used to launder fuel. do not believe your ambition is zero. I am sorry to say that, Mike, I am really sorry to say it, because I have a great respect for your people on the border and your Q24 Ian Paisley: Why do you not do what we have people on the ground, but I just do not believe your requested, and that is pilot that other technology as ambition is zero. well as what you are doing? Pilot it in the field. Let John Whiting: The last time we were giving us see how it operates and corresponds and responds evidence, none of the companies who were interested, in the field. I must ask you this: what is the acceptable which I believe includes the company that you suggest level of loss that the Exchequer and HMRC is has the answer for us, had actually seen how we prepared to take each quarter? Is it another £3 billion conduct a roadside test. The first thing I would like to between now and 2014? say is we do not have a problem in testing fuel when Mike Norgrove: Can I answer, because the answer is we get it to LGC Forensics. There is nothing that beats simple? Zero is the acceptable level. our examination. There is a whole load of scientific testing that is done in the laboratory that will identify Q25 Ian Paisley: I am glad you said it is zero, Mike, and confirm that the fuel has been laundered. Where because if you are saying that the acceptable level of we have some problems is around the roadside test. loss is zero, then I do not know how you explain the At the moment we have to be able to do a roadside go-slow from 2009 until now on this process and this test, and I would have to say and suggest I do not search, and how you explain the intended go-slow think this is available to us yet; I will stand corrected from now until 2013 for this other process. We have if my colleagues tell me differently. None of the said to you as a Committee of this Parliament, “Here companies who are proposing to come forward have is another technology; in the name of all that is decent, the ability to conduct a roadside test. I am prepared to try it. At least test it.” And you come back to us today be corrected on that, but I do not think they have done and say, “No.” that. We may have a perfect marker, but if we cannot Ev 8 Northern Ireland Affairs Committee: Evidence

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis conduct a roadside test, we are no further forward than than a human life—revenue, in fact—but there has to we are with the current product. be some way of addressing the bureaucracy and also putting the safeguards in. There are a lot of questions Q27 Ian Paisley: Can you not take it and do a there, but anyway. roadside test yourself? I am looking for you to have Oliver Colvile: Why do you not talk to the some ingenious answer to this. You have manufacturers of the oil products and get them to £900 million: do something about it. physically pay for it? Frankly, I do not want my Pat Curtis: It is highly likely there is a marker out constituents to have to spend a lot of money on this, there that is far, far better than the one we currently ideally. Therefore, to my mind the manufacturers of have. One of the difficulties John has expressed is that the oil and the petrol should be making a contribution. none of the companies has given us a roadside test It would be helpful to know whether you have had that is capable of identifying the silver bullet marker. any conversations with them. There might be a really good marker out there that we Mike Norgrove: I will start on those, I think, four are still looking for, but we need it in conjunction with questions. First, let us be clear about our logic here. the ability to stop somebody or visit a retail site and There is a sort of syllogism here somewhere: is our say, “You are wrong.” At the moment, if the marker ambition zero, or is there something between 12% and is out there, we are hindered by the fact it has to be zero that we would be satisfied with? If it is zero, then sent through a laboratory process that might take a why not go for this marker? This is Mr Benton’s number of days. That is quite difficult because, if it is point: even if we had the best marker ever invented a retail site, the product will be disposed of in the anywhere in the world, that would not take us to zero. meantime.4 All that would do is give us—if it worked at roadside tests as well—a fractional advantage when we are at Q28 Kris Hopkins: There are a couple of things I the laboratory in testing something that we had want to get some clarification on and to add to some already seized as being suspect fuel, and it would give of the comments that have been made so far. us greater certainty. I would not say this focus on a Somebody mentioned 40% was the original strike rate new marker is a distraction, but it is a tiny potential at some point in the past; you have now got to 12%. improvement in our effectiveness. If I was to guess Apparently the figures that Pat gave suggest you have what difference it would make between 12% and zero, another figure coming out in the near future. I would I would not say more than a percentage point or two. just like to know, is that a fall in scale—in other We must not equate a radical, effective improvement words, an understanding of what that is about? Is that in our performance with, “Let’s get the new marker because you are now effective at finding people, or is in”; those two things are completely separate. To get it because you have now produced a deterrent so down from 12% we have got to do a lot more of the people therefore do not participate as much? same and come up with new ideas in investigation, on Understanding that, if it is a lesser amount this time criminal assets, on working with our overseas partners round, you must get to a point where, although your and across government agencies. The marker is just ambition might be zero, the cost of generating another one point in that. It is not the silver bullet, even if marker may exceed what your potential revenue there were one out there that we could buy tomorrow. saving is—in other words that figure. I am just That is the first thing: please do not equate massive wondering what your contemplations are about that. improvements with a new marker. Before you go there, I will give you the second bit. I The development of the current marker, even before have to say, on the point you made about one it is enhanced—today’s one that I reported to you company and not recommending something to a about the eight-times-laundered product where our Minister, I do understand the dramas around marker was still traceable using our new techniques— procurement, particularly in the public sector, but at is a really high benchmark this new one now has to the same time I have worked for companies, and there beat. Let us not equate radical improvements with a are R and D departments that want to go out into the new marker. field and want to explore the potential of a product. Mr Hopkins, on your point about strike rates, do you You do not have to do a full-scale, side-by-side piece; mean the level of illicit market penetration? It was you can do an exploration, at their cost. Also, at the 40%; we thought that was the share of the total diesel same time, my experience in local government was if market that criminals, as it were, were responsible for. they entered the arena they might need to recognise That is the one that has come down to 12%. It is not they might prejudice any future participation in any a strike rate; it is the percentage of illicit versus procurement process. There are ways of addressing legitimate. that. Ian has enthusiasm for getting it into the market. Sarah Harlen: It is non-UK duty paid, actually, which This is an extreme situation, but if you wanted to save again can be skewed by cross-border shopping, which a soldier’s life and there is a product on the market will depend on differentials with the Irish Republic. you would not say, “I am sorry, but there is a procurement process”—perhaps we did actually— Q29 Kris Hopkins: So it has come down to 12%: is “that I would not like to jeopardise here, even though that about poor detection or is it about deterrent? I may have found a product that saves a soldier’s life.” Mike Norgrove: It is a complex question. The first You would solve the problem about buying it and thing to say is cross-border shopping has reduced in introduce it into the field. I know this is petrol rather its attractiveness during that time. In that time the 4 See the supplementary memorandum from HMRC for further pound was weakening; we are talking about 2009–10 information on road-side testing here. With the weakening of the pound and a big drop Northern Ireland Affairs Committee: Evidence Ev 9

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis in the number of journeys abroad, even around the are negotiations, discussions and mutual EU, the availability of that cheap fuel for cross-border understanding, with no options excluded from the shoppers was reduced. That suggests that, however start. Now is the time. big our improvement on the criminal component of it, Oliver Colvile: I rather agree with Mr Paisley that we it was not the whole amount. Some of that reduction need to have a big overhaul of this, don’t we? from 40% and then from 27% to 12% is accounted Kris Hopkins: Chair, can I just come back; I have for by the reduction in cross-border shopping. We do one quick question. not know how much; we cannot measure those two Chair: Yes, Kris; I have a number of people queuing things separately. up, but please. In answer to your question, there is a deterrent. I do not think we have had a better period of publicity; Q35 Kris Hopkins: On the procurement process there has been some fantastic press coverage recently, again: the British Government buys lots of fuel, and on the mainland on Panorama, and I was in Newry one of the things it could do is put into its last week, where there was tremendous local coverage procurement process that it wants a particular product. of the seizures there, and on Ulster television and so Therefore, the development of the process is picked on. That deterrent is discernible. We would like to be up by the fuel manufacturer rather than the individual better at measuring the effect of our work on the company. It would be in their interest to go and then public’s attitude, but it also comes down to the straight source the product, which solves your problem, effective improvements in our performance that Pat, because it would come pre-market with hopefully the John and their teams have performed. ultimate product already attached, if you set the specification. Q30 Kate Hoey: Chair, just before we move on, can Dr McDonnell: Surely government is buying white I just ask very clearly: have we asked the companies diesel; there is very, very little agricultural diesel. It is to involve themselves in roadside testing of new the agricultural red diesel or green diesel that is dyed, markers? Have we asked? Have formal letters gone so if government’s getting dyed— out? Kris Hopkins: I think you will find tanks do not run Sarah Harlen: We have not gone specifically to the around on white diesel; I think they can run on aught. oil producers. It was a general invitation issued Dr McDonnell: Well, they could probably. through the IMS, which went out to business very, Chair: Okay; could you come back? very widely, for those companies involved in Mike Norgrove: I do not think we answered Mr producing markers to come to us with their ideas, both Hopkins’ third question—or Mr Colville’s—about the on the marker but also on the technology for testing. cost of the pilot and so on, and whether there are ingenious ways of getting one company to pay for it, Q31 Kate Hoey: Like roadside testing of the new and so on. I am happy to explore that and try to marker? understand it better with you. I do not want to stand Sarah Harlen: Yes. behind bureaucracy; it is not bureaucracy. If it was a dire emergency then we might consider anything, but, Q32 Oliver Colvile: So you are saying to me you as I was saying, this is one small facet of a massive have not actually asked those people who are the problem. producers of this petrol whether they could work with you on trying to make sure that we have a system that Q36 Naomi Long: Some of my questions have is going to sort this problem out? already been answered, but I do have one and it is a Sarah Harlen: No. very simple one: do you have a research budget of your own to initiate research, for example with Q33 Oliver Colvile: Why not? universities—more primary research that you would Sarah Harlen: Part of the answer to that would be be able to look at—or are you entirely reliant on that, as far as I understand it, the producer of the companies to do research on a commercial basis to actual marker that goes into a fuel is generally a fulfil a particular brief? How does that work? There different company from the actual oil producer, the are two ways of tackling this: there is the commercial refiner; it is the actual producers of the marker. Plus I side where somebody goes off and produces the dye assume—Pat may be able to help here—there may and the roadside test, but there is also exploratory be other companies that are not current producers of work that is done on a regular basis and universities markers but are still involved in research and will tackle other things. It can often be much cheaper development that may be interested. and can come across quite innovative solutions. Do you have a research budget to look at things like that, Q34 Oliver Colvile: Is it in the interest of the or are you completely reliant on commercial research? producers, the manufacturers of this, to try to find a Mike Norgrove: The IMS that went out did go to solution to it? academic institutions as well. That is the shortest Sarah Harlen: To the extent of protecting legitimate answer to your question. We do have a research business, yes. budget that we use across a range of functions in Mike Norgrove: I would not want to give the HMRC, especially in the economic area. We make a impression we are not working from now on— lot of use of economic institutions, including for the especially once we get all the submissions in and so measurement of the tax gap and so on. On this on—with everyone who makes a return to our occasion, this particular invitation to make expressions of interest exercise. From now on, there submissions was extended to academic institutions. Ev 10 Northern Ireland Affairs Committee: Evidence

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Q37 Naomi Long: Can I just follow up: was there Mike Norgrove: That is a good outcome test, isn’t it? any interest from academic institutions? Let me look first of all at the guys based in Northern Mike Norgrove: We are still waiting to hear. Ireland: easier or harder? Sarah Harlen: I am not aware of any. Pat Curtis: Very difficult question to answer, which is Mike Norgrove: Nothing yet.5 why I am pausing. It is also biased by the very fact Naomi Long: That is interesting, thank you. that we were aware that the launderers were becoming Pat Curtis: Can I just say that Queen’s University more professional, which is why we are here. What have come on board? At the Fiscalis they were invited we are also trying to sell is the fact we have improved to the pan-European event, and Dr Charles Gillan our technology. Is the technology identifying what from Queen’s University believes that he might have was already there, or is it identifying more? That is technology that could actually “sniff out” the problem, very difficult for us to say. The figures are also twisted for want of a better term. He is exploring that for us. slightly. It makes it difficult for me to give you a figure because we have actively moved from doing Q38 Mr Anderson: Just in relation to the last point, not only roadside challenges but starting at the supply I would hope that, if this can be developed through chain and working down. Therefore, the number of research, it is better research than some of the stuff challenges and detections may look slightly different that the HMRC has based some of its calculations on or may even be reduced, but the quality of the over the last few years in terms of economic detections is a lot higher. So the figures and the hit development etc. The point I was going to make is rate are skewed; it would take someone to look at what people over there have been talking about—the them really closely. What I can say is we have got commercial side. It seems to me you are getting a lot more successful in detecting the suppliers and the of hassle here. It is part of the whole frustration we retail sites than before. Is that because there are more have shared for many years on this Committee. To of them, or is it because our technology is better? I me, unless the commercial side want to play ball with am struggling to give you a straight answer on that. you, you are not going to be able to produce a marker; We would say that we have actively and successfully it is really down to them. Are they up for it, or are closed down more stations, and they have not opened they not up for it? up again, than we have done in previous years. Mike Norgrove: The proof of the pudding will come in the eating in November when we see the quality of Q41 Oliver Colvile: Stations is one thing, but the responses we get to this IMS; I am hopeful. We obtaining the stuff is the other. That is really the do come up with markers and variants and so on of question I am trying to ask. our own. Pat’s team is very ingenious, but of course John Whiting: It is a terribly complex problem. In we want to go out to the market and see. Come fact, one of the issues we have seen over the past two November we will know. If there are products out years is the volatility of sterling against the euro. there that are as good as they claim to be, then I am When we were here last time we were saying that the expecting to hear all about them. non-UK duty paid figure was £70 million, and we would have had virtual parity with the euro at that Q39 Oliver Colvile: What evidence has HMRC got point. If that was the figure, that was the figure for to prove that the downward trend of your figures is laundering, because there would not be any smuggling taking place on the ground? You are showing that or cross-border shopping. That was a good litmus test there is a downward trend; in reality, how is that of what the problem was with laundering. looking on the ground? How are you able to support What has happened? If somebody wants to get a cheap that? deal—to think they are a getting a bargain—they are Mike Norgrove: The reduction from 27% to 12% is no longer crossing the border to buy the cheap fuel; of the tax gap—it is an outcome, as it were. Outputs they are going to a huckster site or some other filling add up to outcomes. We have a range of indicators station that has a deal with laundered diesel, because that we look at. Of course there is the number of the opportunity to get that cheap diesel by crossing arrests; this Committee has discussed sentencing the border has gone. In a sense there is perhaps a policy before and confiscation of assets and so on, and bigger market for laundered diesel than there might we have those figures. We have the number of plants have been previously. So, in fact, the problem dismantled—30 last year, which was a big increase on changes. The reality is that of course sterling is now the previous year, and 10 so far this year, dismantled stronger against the euro, so there is the potential for and closed down. John, you were giving me up-to- smuggling. That is back, but we still have a date figures today of the sorts of effects of some of preponderance of laundering plants. The people to ask your criminal investigation work and the civil are the public, rather than us, as to whether it is easier handling of crime. We have a host of indicators we or not. believe are evidence of our effectiveness; are you after Oliver Colvile: I am sure they will be very willing to something specific, Mr Colville? own up to it. Chair: We might not be able to do that. Q40 Oliver Colvile: Let me ask you this question: John Whiting: They might indeed say it is easier, but has it become more difficult or easier to obtain illicit we do have a very wide range of activity, especially diesel fuel in Northern Ireland in the last year? around filling stations and suspect filling stations, 5 HMRC’s supplementary memorandum clarifies that one which I would like to tell you about but not in this academic institution expressed interest and sought additional session, that is very successful in dealing with outlets information after publication of the IMS the public would be going to. Northern Ireland Affairs Committee: Evidence Ev 11

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis

Mike Norgrove: Could I pick up one point, which and I think that more has got to be done. This is just I think is another answer to Dr McDonnell’s earlier eating away at our budget, resources and economy, question? I believe it is harder for a member of the and I think the response we have got today has not public to get illicit fuel from filling stations than it been what it ought to be. I am sorry to say that, was—that is my subjective assessment—because of because that man beside you knows the efforts I put the effectiveness of the action against filling stations in to supporting your industry and your sector. I sat themselves. The proliferation of huckster sites or on the Organised Crime Task Force, I supported them, whatever they may be is always a problem, but to get and I must say publicly I am bitterly disappointed with laundered fuel unknowingly is a harder thing than it the responses that we have had today in terms of what was. If people are buying laundered fuel they know it, we can do. by and large, from the price, for a start. If it is Mike Norgrove: I say equally sincerely that the anything like the sort of reduction we were seeing conflation of £2 billion lost in the UK from tobacco before, then people are buying this stuff knowingly. I fraud with your statistic relating to Northern Ireland believe, in answer to your question, the best answer is is potentially misleading. I would not want that to that there will be an attractive smuggling or remain in people’s minds. cross-border shopping element to this increasingly, as Tobacco fraud in Northern Ireland is a big issue for the pound is strong, but it is harder to get hold of us; it is joint top priority for John and his team. That laundered fuel through filling stations than it was represents about 10% of the UK’s cigarette market. At because of this new element of John’s strategy to the beginning of this century, that figure was around target filling stations. We can talk about that in a about 26% and rising. It is not a question of this being different session maybe. the emergency you described and it not being tackled. Dr McDonnell: Chair, I do not mean to be neurotic: We have gone down from 26% to 10%: again, it is an I am terrified of being accused of using laundered unacceptable figure, but it is one we at least publish, fuel. I am serious, because I believe that half the first of all—most countries do not do that.6 At least filling stations have been guilty in the past. we measure it—most countries do not do that. Of Chair: It is a good point, perhaps something we can course the most important thing to say is that, as you further explore. heard at the last hearing, the Government put aside £917 million for HMRC to put towards the countering Q42 Ian Paisley: You say in your submission about of evasion, criminal attack and avoidance. We had to Government resources that “HMRC is committed to make our efficiency savings, along with other ensuring that everyone pays their fair share”, that you Departments, but we were almost alone in getting want to produce “robust estimates of tax gap”, you almost £1 billion back in order to tackle the very want “better identification of the minority who seek problems you are describing, Mr Paisley. There is no to avoid and evade tax as well as those criminals who complacency on this side. Of course, not all of that try to attack the systems”. You list a series of issues, money will go into countering oils fraud in Northern and you say that tackling oils fraud is “a joint top Ireland; some of it will go to tobacco for example. priority” with “tobacco fraud”. What does that mean, Your original question was about the effect of having apart from the obvious, or is it just a statement of the this as a joint top priority. It means that we are holding obvious: these are your two key priorities? John and the Director of Criminal Investigation to John Whiting: We have probably made you aware account, if for nothing else, for those two things—not before that HMRC has responsibility for well over for VAT MTIC fraud or alcohol fraud, but for those as 100 different regimes, including national minimum the top two. It is for those two that they are principally wage on behalf of the Department for Business, accountable. That is a significant decision for the Innovation and Skills, collection of the student loans, Department to have made. etc. We have a very wide range of taxes, duties and, in respect of that, from my perspective, criminality to Q45 Chair: Has the estimate of the loss of tobacco deal with. In Northern Ireland the top priorities for me itself gone down? You talked percentages, but then of are fuel fraud and tobacco fraud. course fewer people smoke so that could confuse it a bit. Q43 Ian Paisley: Could you remind me then just Mike Norgrove: Ten per cent. of the total market, what does the Exchequer lose in terms of specifically even if the total market has been reducing. Yes, the tobacco fraud, tobacco smuggling? What is the absolute numbers are well down too. annual loss? Mike Norgrove: It is a range that we publish, but it is Q46 Kate Hoey: Can I just ask you about this around £2 billion a year for the UK as a whole, £917 million? How much of it have you have spent, cigarettes and hand rolling. where is it going, how much has Northern Ireland got, and what elements of it in Northern Ireland are going Q44 Ian Paisley: You published figures last year, specifically to oils vis-à-vis tobacco? 2011, on the gap: I think it was about £2.1 billion in Mike Norgrove: I have some up-to-date figures I can total per year because of tobacco fraud alone and give you; some of those I am afraid are not here tobacco smuggling. That is almost a quarter of because we do not separate some into Northern Northern Ireland’s total annual budget. Mr Norgrove, 6 HMRC’s supplementary memorandum clarifies that this I put it to you very sincerely: if that is not dire answer should read “At the beginning of this century, the emergency, I do not know what is. We are losing figure was over 20% and predicted to raise if no action was almost a quarter of our local national budget on fraud, taken ... we have gone down to 10%.” Ev 12 Northern Ireland Affairs Committee: Evidence

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis

Ireland and the rest of the UK. So far we are on track Mike Norgrove: Yes, and we could go into details of on all the inputs and outputs. In the first year of the how many have been trained and so on, but not in a Change Programme we have saved £400 million public session I am afraid. against the target of £392 million in HMRC. A big element of our budget was to save money as well, Q53 Kate Hoey: The recent seizure of cigarettes that whether that is through IT or accommodation. We are we have seen the coverage of—huge amounts of illicit on track, just above target on that. We have brought cigarettes seized—some in June and some just in additional revenue of £15 billion. The baseline was recently; we always seem to get a big seizure just £13 billion; we have brought in that £13 billion and before our Committee. Perhaps we should meet more an additional £2 billion, which was our target in return often. in the first year for that £917 million. We have Mike Norgrove: Daily, daily. exceeded it by £167 million.7 In output terms and the revenue yield, the extra money—the sort of money Q54 Kate Hoey: Seriously, it is a very, very good Mr Paisley was talking about going missing—we have result for you, but is there a particular reason for this taken away that extra £2 billion and brought it back recently? to the Exchequer. Mike Norgrove: There is, but it is not one that I can disclose in this Committee, I am afraid. Of course we Q47 Kate Hoey: How much of the extra rely on all sorts of things for tobacco seizures, but the £917 million do you estimate has been spent in days of the cold find, as it were, are just about over. Northern Ireland? We are the Northern Ireland Affairs All our tobacco operations are driven, essentially, by Committee: I am trying to find out where the priority intelligence; sometimes intelligence is especially within the UK is of Northern Ireland and what seems good. That is from the countries in which these to us a huge amount of money that is being lost to cigarettes are produced and all intervening points from the Northern Ireland economy, as has been said by China and Dubai through Europe to the UK. Seizure Mr Paisley. figures are good; they are always a worry to us, Mike Norgrove: I am afraid we do not break down because if you were to seize none, is that an indication our expenditure figures around regions or even for that there is no longer a problem? The more you seize, Northern Ireland. is that the better you are doing, or the worse you are doing? The indication we have got is that there is no Q48 Kate Hoey: What about staffing? Presumably reduction in the volume of cigarettes targeted on the Northern Ireland has some extra staffing out of this: UK, but there is a big increase in the volume of have we got them all in post now? How many have cigarettes targeted on other countries, including we got? Have they all been trained? Ireland. Mike Norgrove: If I may Chair, I do not know if you wanted to go into private session— Q55 Kate Hoey: Do you think there would be an increase, or what would you see as the effect, if this Q49 Kate Hoey: I do not know what is private about country was to follow the Australian line of going that; it is public money. down plain packaging? Mike Norgrove: We have never published details or Chair: Let us not go too deeply into this. given publicly details of how many people we have Kate Hoey: And the effects on Gallaher, for example, on the ground in Northern Ireland countering criminal in Northern Ireland. attack. I do not think that would be a service to our Mike Norgrove: The Department has made side. representations, as everyone else has, on the consultation about the possible effects of plain Q50 Kate Hoey: Do we have an overall figure for packaging. the number of people that are employed by your Department? Q56 Kate Hoey: Did you put in a submission? Mike Norgrove: Yes. Mike Norgrove: We did.

Q51 Kate Hoey: What is that? Q57 Kate Hoey: Is that public? Mike Norgrove: I think it stands round about the Mike Norgrove: No, it was not a public submission. 60,000 mark at the moment; that is all the functions John described, from national minimum wage and the Q58 Kate Hoey: Right, okay; so you are not going student loans through to the sort of work we are to tell us. talking about there. That had to be reduced by 25% Mike Norgrove: I can say that the obvious danger over the four years of the spending review. With that from our point of view is that the ability to detect efficiency gain we were given back almost £1 billion. counterfeit or illicit material would be made more We do not make public details of how much of that is difficult by a system where there was no difference spent in this country. between one packet and another. Kate Hoey: Thank you; that is all I needed. Thank Q52 Kate Hoey: But you can say there are more staff you very much. in Northern Ireland than there were? Chair: Very interesting. 7 HMRC’s supplementary memorandum clarifies that during the first year of the Change Programme HMRC have actually Q59 Jack Lopresti: Mr Norgrove, you answered one exceeded the target by £1.7 billion of my questions already by confirming you have Northern Ireland Affairs Committee: Evidence Ev 13

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis dismantled 10 laundering plants this year. Is that from Q61 Jack Lopresti: Would you say you select the March this year? vessels completely randomly or through prior Mike Norgrove: From April. intelligence or both? John Whiting: We use both. Q60 Jack Lopresti: Can you provide any evidence on the aims and outcomes of Operation Razorwire? I Q62 Jack Lopresti: And are the results markedly will ask my next question to save time: are you different between intelligence or random? broadly satisfied with your level of cooperation with John Whiting: Effectively, in advertising the fact we the Irish Revenue Commissioners and the Garda, for are doing this, it is— instance? Jack Lopresti: It is a deterrent? Mike Norgrove: Can I do the last one first? I will pass John Whiting: It is a deterrent effect, but clearly on over to John for Razorwire. I can honestly say that the those occasions where we have specific intelligence relationship with the Republic of Ireland, with both that there is a dirty load on its way we can effectively the Revenue Commissioners and the Garda, is superb. hide the fact there is intelligence by saying it is I saw it for myself just last week on the ground. I was Operation Razorwire. in a text exchange this morning with Josephine Feehily, the Chairman of the Revenue Commissioners. Q63 Nigel Mills: One of our other recommendations I do not think it could be better, honestly, and I am in our report was, where there were good news stories not being complacent about that. We have worked about seizures or plant closures, to involve Northern very hard on it. Sarah’s description of the joint Ireland Ministers in the publicity of those seizures. Is agreement, the MoU and so on, I think is that something you have been able to take forward, or unprecedented with a foreign country. At that level are ideas ongoing for that? and on the ground, every time I go I see great Mike Norgrove: It is going back to Ms Hoey’s point. examples of that. On Razorwire, I will hand over to As recently as this Monday David Ford was out on John. the ground with John. John, do you want to pick up John Whiting: Can I first add to Mike’s answer about the story? cross-border cooperation? If I had not been here today John Whiting: Yes. I suppose I smiled wryly when I would have been chairing the cross-border fuel it was suggested that we had perhaps choreographed group this morning and this afternoon we had the success, because twice now we have had Mr Ford cross-border excise group, which basically covers tax ready to present himself in front of a camera at a and alcohol issues as well. That meeting was held in laundering plant, once in the spring when he spent Belfast with colleagues from the Garda and the most of the morning waiting in a police station—I Revenue Commissioners. Cooperation on the ground think he had a great time speaking to local policemen. is alive and well. On Monday he started his work after his holidays in Operation Razorwire is an ongoing operation. It is one his car waiting in a lay-by for us to find a laundering that we now work with the Irish on. It is something plant that was not there. I think it demonstrated to him that we started ourselves, an idea that came from a the difficulties that, even with intelligence— cross-border conference and essentially it is one where Ian Paisley: It is good to know you are keeping tabs we have all the agencies available in Northern Ireland on the Justice Minister. and we will target a ferry, inbound or outbound, from Naomi Long: I am just glad he is using his time so Scotland or from Heysham, and we will look to use wisely. all the agencies and effectively say, “Right, stop John Whiting: I am aware he was working in the whichever vehicles or container traffic you want to back of his car. It is very difficult to do this, but I and see if you can find something wrong.” It has been know that we have had the launch of the Organised more successful, I would say, for the police in terms Crime Task Force annual report, where our figures of their finding road traffic offences than it has been were again advertised. There was some publicity for us, but we have had seizures of laundered fuel and around that—I think even Pat was in the papers. There some cash seizures. It is successful. have been some other projects; Alex Attwood and It is something akin to what is called the west coast David Ford have had a meeting where they are ports project, but it is much easier for us to effect as interested in waste product from laundering plants as we can literally drive up from Belfast to a number of well. That is going to be taken forward. There is also ports and be there very quickly. We can target one a fly-on-the-wall series that is being pushed forward vessel out and one vessel in, and of course the through the Department of Justice and the Organised vehicles are committed to that particular ferry. If they Crime Task Force where we are expecting cameras to try to do that in England or Scotland they have 100 follow us around with our activities. That is likely to miles or so to travel from their base and of course be broadcast next year. usually they have additional travel costs. Anybody who is a criminal is then able to alert other criminals Q64 Mr Hepburn: How effective has the by Twitter and Facebook. I have to say that social Government’s strategy, local to global, been in seizing networking is used by criminal elements to alert financial assets in Northern Ireland? others that law enforcement is active. Our presence at Chair: There is a Division. Do we want to come back those ports is exposed and, of course, the next ferry, or do the Committee want to finish? there will be nobody there to target. It is quite useful Mr Hepburn: May I suggest a written answer? for us to head out, quick activity and pull away again. Chair: Just very, very quickly if you do not mind. Ev 14 Northern Ireland Affairs Committee: Evidence

5 September 2012 Mike Norgrove, Sarah Harlen, John Whiting and Pat Curtis

John Whiting: We have financial investigators in way away to get them out of our reach, but we are PSNI, SOCA and HMRC. For all our major organised aiming to get those. crime cases we would have a parallel financial Jack Lopresti: Chair, are we coming back? investigation. Unfortunately, some of the big cases are Chair: No, we will end the session there, with in the pipeline and are taking a considerable time to apologies to those who have questions they wanted to get through the courts. We will obviously look in ask. Thank you very much for coming. The meeting terms of global assets, which are obviously put a long is closed, thank you. Northern Ireland Affairs Committee: Evidence Ev 15

Written evidence

Supplementary memorandum from HMRC Please find attached our suggested amendments to the draft transcript of the 5 September NIAC hearing on Fuel Fraud transcript. Additionally, in response to guidance from the Committee, I have attached a separate note with slightly more expanded clarifications where we believe these would be helpful. One further update, if I may: during the oral hearing we highlighted our aim to increase the restoration free where vehicles found to be illegally using red diesel or laundered fuel were seized (currently £500 plus the value of the duty and VAT evaded, plus occasionally storage and removal costs). I am pleased to inform you that as from yesterday, 1 November 202, the VAT and duty element is based on the total litre capacity of a vehicle’s fuel tank, not the quantity of illicit fuel remaining in the tank. We believe this will in practise mean a significant increase in the level of fees payable, which was the direction of travel I believe the Committee was hoping to see. I hope the Committee finds our corrections and clarification helpful, but please do not hesitate to let me know if you require any further information on these.

APPENDIX HMRC CLARIFICATIONS With reference to Question 1, the timetable for evaluation is set out in the published Invitation to Make Submissions, and the preliminary evaluation is due to be completed in February 2013. In addition, the enhancements to the current marker discussed in the response to Q.1, as is spelt out clearly in the responses to Q.12, Q.14 and Q.15, are an increased level of an existing ingredient rather than a new ingredient. Q.4: These figures have been published in the past, but not recently. Q.13, Q.25 and Q.35. HMRC would like to clarify that the Revenue Authorities have no current plans to pilot a new marker; the IMS process is very thorough so if it identifies a new marker it should not be necessary to pilot it. However a pilot remains an option. Q.26, and Q.27 included discussions about road-side testing. To be entirely clear, all the respondents to the Request for Information (RFI) had made provision for roadside testing, but that stage of the process was not reached. In this respect the IMS is a natural continuation of the RFI. Para 1.4 of the IMS in turn says, “If practical, the product should incorporate the use of an effective field-testing system, but this is not critical”. Although the Revenue Authorities cannot easily envisage a marker system that does not incorporate a roadside test, we do not wish to discourage or rule out innovative solutions that might work without the necessity of roadside testing. Q.37—HMRC indicated that there had not been interest from academic institutions in the marker work; in fact one academic institution expressed interest and sought additional information after publication of the IMS. In addition, as HMRC go on to answer, Queen’s University were involved in the recent Fiscalis event in Belfast and have offered suggestions for possible technical solutions. Q.44—To clarify our answer in relation to tobacco fraud it should read, “At the beginning of this century, the figure was over 20% and predicted to raise if no action was taken…we have gone down to 10%”. Q.46—During the first year of the Change Programme HMRC have actually exceeded the target by £1.7 billion, not £167 million as stated in the uncorrected transcript ie achieving £16.7 billion against a baseline for additional revenue of £15 billion.

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