Home Affairs Committee: Written evidence Tobacco smuggling This volume contains the written evidence accepted by the Home Affairs Committee for the Tobacco smuggling inquiry. Web No. Author Page TOB0032 00 Border Force, HM Revenue and Customs and the National Crime Agency 1 TOB0001 01 Terence E Rowe 6 TOB0002 02 TaxPayers Alliance 7 TOB0003 03 Transcrime 13 TOB0004 04 Royal College of Physicians 15 TOB0005 05 Will O’Reilly 21 TOB0006 06 Association of Convenience Stores 28 TOB0007 07 National Federation of Retail Newsagents 31 TOB0008 08 Action on Smoking and Health 38 TOB0009 09 Fresh, Tobacco Free Futures and Smokefree South West 45 TOB0010 10 Trading Standards Institute 56 TOB0011 11 Tobacco Manufacturers’ Association 60 TOB0012 12 Philip Morris Ltd 71 TOB0013 13 Cancer Research UK 79 TOB0014 14 Imperial Tobacco Ltd 87 TOB0015 15 Japan Tobacco International 96 TOB0033 15a Supplementary 104 TOB0016 16 Asian Media and Marketing Group 135 TOB0017 17 Scottish Grocers’ Federation 136 TOB0018 18 Petrol Retailers Association 139 TOB0019 19 SICPA UK 141 TOB0020 20 Irish Cancer Society 145 TOB0021 21 Action on Smoking and Health (ASH) Scotland 152 TOB0022 22 Federation of Wholesale Distributors 155 TOB0023 23 Center for Regulatory Effectiveness 158 TOB0024 24 De La Rue International Limited 163 TOB0025 25 British American Tobacco UK Limited 170 TOB0026 26 Derbyshire County Council 181 TOB0027 27 Len Tawn 186 TOB0028 28 North East Trading Standards Association 187 TOB0029 29 National Asian Business Association 191 TOB0030 30 Cllr Paul Rone 194 TOB0031 31 Herefordshire Council 195 TOB0034 34 HM Revenue and Customs 198 TOB0035 35 Border Force 201 TOB0036 36 Australian High Commission 204 As at 6 May 2014 Written evidence from Border Force, HM Revenue and Customs and the National Crime Agency [TOB00] Inquiry into tobacco smuggling and the trade in illicit tobacco We are grateful to the Committee for launching an inquiry into tobacco smuggling and the trade in illicit tobacco. We welcome the opportunity to debate the nature and scale of tobacco smuggling and the Government’s response to it. Please find enclosed the Government’s written submission. Should you require any further information or evidence on any issues, we would be pleased to provide it. This written evidence has been provided by the following government departments with responsibility for tackling tobacco smuggling. 1. HM Revenue and Customs (HMRC) HMRC have policy responsibility for the effective collection and administration of taxes and have overall responsibility for the strategy to reduce the illicit market in tobacco. HMRC are also responsible for inland and overseas delivery of the strategy; criminal investigation of fiscal offences and prosecution and other sanctions. 2. Border Force, Home Office Border Force is responsible for the seizure of illicit tobacco and the collection of revenue at the border. In his role as Director Border Revenue, the Director General Border Force is directly accountable to the Chancellor of Exchequer in respect of customs and revenue controls at the border. Mark Harper MP, Minister for Immigration Jeremy Browne MP, Minister for Crime Prevention Sajid Javid MP, Economic Secretary to the Treasury Introduction 1. This paper sets out the Government evidence to the Home Affairs Select Committee inquiry into tobacco smuggling and the trade in illicit tobacco. It has been prepared in consultation with officials from HM Revenue and Customs (HMRC) and specifically seeks to address the following areas / questions. Why the number of arrests, prosecutions and convictions for tobacco smuggling have fallen over the past three years 2. The number of tobacco arrests and prosecutions have shown an overall increase over the past three years, with conviction numbers broadly stable, as illustrated below. 10/11 11/12 12/13 Arrests1 143 115 156 Prosecutions Organised Crime Cases 133 62 51 Volume Crime Cases 81 105 214 Prosecutions Total 214 167 265 1 There is no direct correlation between arrest and prosecution numbers as many cases are progressed using information & summons rather than arrest. 1 Convictions Organised Crime Cases 78 52 37 Volume Crime Cases 82 104 122 Convictions Total 160 156 159 3. During the above period, HMRC changed its approach to investigations which recognised an alternative to prosecutions designed to disrupt Organised Criminal Gangs (OCGs). This involved an end-to-end strategy whereby upstream activity in conjunction with partner agencies sought to attack the overseas supply chain of illicit tobacco. Coupled with the increased use of civil powers inland, HMRC was able to deploy organised crime criminal investigation resources more efficiently. 4. Criminal investigation and prosecution plays a key role in the delivery of HMRC’s strategy. HMRC seeks prosecution where that is seen as the most effective intervention on the criminal trade – both to punish criminals and to deter others from becoming involved in the trade. Prosecution is not appropriate in every case as it is often neither the most efficient nor effective means of disrupting criminal activity. 5. Over the last three years, HMRC has sought to increase the quality of its organised crime casework – targeting resource against the greatest threats. At the same time, the department has taken on a significant number of smaller tobacco cases, as part of its ‘volume crime’ initiative to increase deterrence against fraud in the tax and duty systems. This approach saw an increase in the number of Volume Crime prosecutions, disrupting a greater number of smugglers across all levels of criminality, whilst the number of OCG prosecutions fell. This more efficient deployment of investigation resource delivered an overall increase in the amount of revenue protected from criminal investigation work from £281 million in 2010/11 to £378 million in 2012/13. Why Border Force failed to meet its operational targets for tobacco seizure in 2012–13 6. Border Force works in partnership with HMRC overseas officers and inland teams to jointly interdict illicit tobacco en route to the UK market. Whilst Border Force faced a broad range of challenges in 2012/13, not least the London Olympics, resource was allocated proportionately and in line with the Border Force Control Strategy which balances all of Border Force’s operational priorities including efforts against Class A drug smuggling. 7. Border Force tobacco targets for 2012/13 were derived from Border Force’s agreed contribution to the joint 2011 HMRC/UKBA Tackling Tobacco Smuggling strategy. They reflect the strategic priorities that are agreed annually with Treasury Ministers. 8. The seizure targets for 2012/13 were re-calculated using the 2010/11 outturn and uplifted to reflect the expected benefits for SR10 investment. The Border Force targets for cigarettes and hand-rolling tobacco (HRT) were also re-calibrated to reflect the large volumes of HRT seized at the border. The overall Border Force and HMRC tobacco volume targets were increased. The Border Force cigarette target was decreased by 9% to 558 million sticks and the HRT target was increased by 54% to 524 tonnes. 9. In 2010/11 650 million cigarettes were seized at the border. Since then, there has been a consistent shortfall of cigarettes seized against volume targets. There was small increase in the number of cigarettes seizures made at the border in 2011/12 and 2012/13. 10. HRT seizure volumes have also fluctuated over the last three years between 315 and 508 tonnes, although seizure numbers have shown a small increase. 11. Border Force believe that that the following factors are significant in explaining changing seizure patterns: 2 • HRT and cigarette smuggling through postal traffic reduced significantly from 2011/12 when substantial seizures were made. • Changing methods of smuggling, particularly by OCGs, in response to the combined enforcement activities of HMRC and Border Force overseas and at the border. One example is a trend of smaller and more frequent consignments. • Increased quantities of tobacco seized upstream, with 1,272 million cigarettes and 55.7 tonnes HRT seized in 2012-13. This represents a 28% increase for cigarettes since 2010/11 and a significant increase in HRT from 8 tonnes in 2011/12. 12. To inform targeting to improve seizure levels Border Force and HMRC have undertaken a number of joint initiatives and exercises over the past year to develop intelligence and increase our understanding of the threat. 13. Border Force and HMRC recognise that the nature of tobacco fraud continues to evolve and we keep our approach under constant review to ensure that the balance and application of our responses are applied to maximum effect. HMRC and Border Force are currently refreshing the joint Tobacco Strategy (from April 2011) taking into account the change in risk / threat and modus operandi, along with lessons learned from the current strategy. This work will help us to understand how the overseas and inland activity impacts on seizures at the border. Whether the current sanctions and penalties for tobacco smuggling are appropriate 14. We have a comprehensive and effective range of sanctions available to deter people involved in all aspects of tobacco fraud and tailored to fit the seriousness of the offence. Tobacco smuggling ranges from individuals abusing cross-border shopping rules through to highly organised, trans-national OCGs smuggling containers of illicit product from across the globe. HMRC and Border Force’s Tobacco Strategy aims to maximise impact across all levels of criminality, capitalising on the wide range of civil and criminal sanctions and penalties available. The strategy has been successful in reducing the illicit market share of overall tobacco consumption in the UK from 21% in 2000 to 9% for cigarettes and from 65% to 38% for HRT. We regularly review our strategy ensure that we have the appropriate sanctions and penalties available to respond to changes in the risks we face. Current sanctions include: • Civil sanctions primarily used to tackle small-scale smuggling.