Press Release - HM Customs and Excise: The Misuse and Smuggling
of Hydrocarbon Oil
15 February 2002
In November 2001, Customs produced estimates for the first time
of the revenue loss from frauds on petrol and diesel. Customs
estimated that in 2000 the loss could be between £450 million and
£980 million in the UK, compared to revenue receipts of £22.6
billion on oils duties. Of this, diesel frauds on the UK mainland
in 2000 amounted to £450 million, while for Northern Ireland, the
estimated revenue loss from fraud and legitimate cross border
shopping was £380million for 2000, up from £140 million in
1998.Customs are concerned that fraud losses on the UK mainland in
the diesel sector could continue to grow if concerted action is not
taken to tackle the problem.
These findings appear today in a report to Parliament by Sir
John Bourn, head of the National Audit Office. According to the
report, Customs believe that the smuggling of fuel is a material
problem only between the Republic of Ireland and Northern Ireland.
This is because of the long land border, the lower price of diesel
and petrol in the Republic compared to the UK - for example, on
diesel there was a price difference of about 29 pence (38 per cent)
per litre in January 2002 - and the presence of sophisticated
criminal groups with experience in smuggling.
Since 1999-2000, when Customs started to develop their strategy
for tackling frauds on hydrocarbon oils duty in Northern Ireland,
the amount of fuel seized by Customs there has doubled and the
number of vehicles seized involved in smuggling has more than
tripled. But Customs estimate that, of the 700 filling stations in
Northern Ireland, around 400 to 450 sell illicit fuel to some
extent of which around 200 to 250 sell only or largely illegal
fuel. Where Customs detect a filling station selling illegal fuel
they seize the fuel, may seize the fuel pumps, raise an assessment
for the duty and VAT owed and may prosecute. However, the Northern
Ireland Petrol Retailers Association are concerned that these
filling stations are quickly back in business and that if Customs
are not more effective their members will continue to go out of
business.
Customs see the illegal use of rebated fuels in road vehicles as
the main risk they face on hydrocarbon oils duty on the UK
mainland, although it is also a problem in Northern Ireland.
Customs have undertaken a number of intelligence led operations in
both areas to track duty-rebated supplies from the point of
production through the distribution system to detect and disrupt
illicit consumption.
The rebated fuels of red diesel and kerosene are chemically
marked, so that Customs can detect illegal use by testing samples
from fuel tanks. Fraudsters can use laundering techniques to remove
the markers from red diesel and kerosene, or mix red diesel with
other agents to mask the dye. Laundering plants are a problem in
Northern Ireland where in 2000-01Customs found more in operation
than on the UK mainland.
Customs have moved towards a risk-based fraud detection system:
by tracking the sale and purchase of kerosene and red diesel from
oil producers to retailers and consumers they are identifying the
illicit use of fuel.
Customs are building on their strategy by considering
initiatives including: increased numbers of intelligence-led checks
and investigations; tougher penalties against those engaged in the
supply of fuels for illicit purposes, or for those found using such
fuel in road vehicles; as part of the Organised Crime Task Force in
Northern Ireland, working with other public sector agencies to
tackle the supply and sale of illicit fuel there; and developing
their intelligence data to provide anti-smuggling teams with
profiles of vehicles and individuals most likely to be smuggling
oil.
There has been a constructive dialogue between the NAO and
Customs throughout the development of Customs strategy. Sir John
recommends that Customs could:
- examine the cost effectiveness of chemically marking all duty
paid fuel in Northern Ireland; this could act as a
deterrent to smugglers and launders of fuel;
- give fresh guidance to road fuel testing units to ensure that
current penalties and sanctions are used to best effect in order to
act as a sufficient deterrent to others; and
- assess the effectiveness of measures taken by other EU member
states in the oils fraud sector.
Sir John Bourn said today:
"The estimated revenue losses from the misuse and
smuggling of hydrocarbon oils duty reveal that growing sums of
revenue are being lost through smuggling and the illegal use of
rebated fuel. Customs have recognised this problem by producing a
strategy to deal with the frauds and are developing that strategy
further.
"Every effort must be made to combat this criminal
activity which not only results in large amounts of lost duty but
also poses threats to health and safety."
Notes for Editors
- In general rebated fuels may only be used for off road purposes
and attract significantly reduced rates of duty, for example
red diesel (on which the duty is 3.13 per litre) is used
principally in construction and agriculture, and marked kerosene
(on which no duty is paid) is used in domestic heating.
- Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/ Hard copies can
be obtained from The Stationery Office on 0845 702 3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office employing some 750 staff. He and
the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 16/02
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