Categorized | International, News, Politics

Brexit: EU to hit Britain with €2bn fraud claim

Customs failure will affect post-Brexit trade talks

Sean O’Neill, Chief Reporter

Investigators say that Chinese crime gangs have made British ports such as Felixstowe their gateway to the European market – Toby Melville/Reuters

Britain will have to settle a demand for €2 billion over its failure to tackle customs fraud before it can agree a post-Brexit trade deal with the EU, senior Brussels sources have told The Times.

European officials believe that HM Revenue & Customs is failing to curb Chinese crime gangs that systematically undervalue goods imported into the EU through Dover and Felixstowe, avoiding billions of pounds in customs duty and VAT.

“This fraud is still going on and Britain knows,” one European Commission source said. “It will come up in trade discussions and it will have an impact on the future customs relationship between the EU and Britain.”

Official figures obtained by The Times reveal that crime gangs, based in Britain but operating internationally, have doubled the volume of fraudulent freight they ship into Europe through British ports in three years.

Suspicious shipments of clothing and shoes imported through Britain from China rose from 192 million kg in 2013 to more than 407 million kg last year. Investigators say that sophisticated criminal businesses have made Britain their gateway to the European market.

The gangs chose Britain because they are allowed to declare imported goods at impossibly low values. The EU’s anti-fraud office, Olaf, says that the average value declared at the UK border for women’s cotton trousers was €0.91 per kg, compared with an EU average of €26.09. Customs duty is charged at 12 per cent of the declared value so the fraudsters make huge savings by declaring in Britain.

The seriousness of the fraud is exacerbated because 86 per cent of the suspicious goods are immediately re-exported to the Continent, usually by “shadow companies” that disappear without paying VAT.

The data shows that the quantity of suspect goods re-exported from Britain almost tripled from 134 million kg in 2013 to 353 million kg last year.

Meg Hillier, chairwoman of the Commons public accounts committee, said that she had asked the National Audit Office to look into the issues of excise fraud and organised criminality at the border. “HMRC needs to get on top of this because Britain is now seen by these crime gangs as the soft underbelly of Europe,” she said.

“Water finds the easiest route and fraudsters also look for the easy way. They will find every loophole — Britain has come to be a soft touch. We have been concerned that HMRC have been slow to act. These criminals are very clever and move very swiftly but there is also a competency issue and we have to ask if HMRC can keep pace.”

Ms Hillier said failure to tackle the fraudsters hurt British businesses. “The major loss may be to the EU budget, but British businesses are being affected by this because they are being undercut by people who are not paying duties and taxes. It creates an unlevel playing field and that hits British jobs.”

Olaf has calculated the excise losses at €2 billion and the VAT loss at €3.2 billion from 2013-16. The Brussels-based unit said that despite “repeated efforts” to engage HMRC in an EU-wide campaign against the fraud rings, the volume of suspect trade through Britain continued to grow. Olaf said that it held four senior-level bilateral meetings with British officials to highlight the problem in 2015 and last year. HMRC took an active part in two multinational investigations into the fraud gangs and detected — but never recovered — €400 million of duty losses during one four-week period.

Ernesto Bianchi, head of investigations at Olaf, said that Britain co-operated with a new EU-wide fraud detection system “for a short period of time” during an investigation called Operation Snake. He added: “Then they stopped. We are concerned more than disappointed because we’ve seen that, over time, as the other 27 countries were applying this in a systematic way traffic seems to have diverted to the UK.”

He said that 79 per cent (€646.8 million) of total losses in customs duties for the EU budget last year occurred upon importation through Britain. The European Commission is considering whether to bring formal infringement procedures against Britain.

HMRC rejects the Olaf analysis but Edward Troup, executive chairman of HMRC, and Jon Thompson, the chief executive, who arrived at the organisation a year ago, have been alerted to political concerns. The Crown Prosecution Service has been sent a list of suspects by the EU. The public accounts committee planned to raise the issue next week but its meeting was cancelled after the election was called.

HMRC said Olaf’s figures were not recognised by its experts. A spokesman added: “ HMRC is handling more than 550 cases relating to potential import fraud, and will not hesitate to engage the relevant prosecuting authorities.”

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Customs failure will affect post-Brexit trade talks

Sean O’Neill, Chief Reporter

Investigators say that Chinese crime gangs have made British ports such as Felixstowe their gateway to the European market – Toby Melville/Reuters

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Britain will have to settle a demand for €2 billion over its failure to tackle customs fraud before it can agree a post-Brexit trade deal with the EU, senior Brussels sources have told The Times.

European officials believe that HM Revenue & Customs is failing to curb Chinese crime gangs that systematically undervalue goods imported into the EU through Dover and Felixstowe, avoiding billions of pounds in customs duty and VAT.

“This fraud is still going on and Britain knows,” one European Commission source said. “It will come up in trade discussions and it will have an impact on the future customs relationship between the EU and Britain.”

Official figures obtained by The Times reveal that crime gangs, based in Britain but operating internationally, have doubled the volume of fraudulent freight they ship into Europe through British ports in three years.

Suspicious shipments of clothing and shoes imported through Britain from China rose from 192 million kg in 2013 to more than 407 million kg last year. Investigators say that sophisticated criminal businesses have made Britain their gateway to the European market.

The gangs chose Britain because they are allowed to declare imported goods at impossibly low values. The EU’s anti-fraud office, Olaf, says that the average value declared at the UK border for women’s cotton trousers was €0.91 per kg, compared with an EU average of €26.09. Customs duty is charged at 12 per cent of the declared value so the fraudsters make huge savings by declaring in Britain.

The seriousness of the fraud is exacerbated because 86 per cent of the suspicious goods are immediately re-exported to the Continent, usually by “shadow companies” that disappear without paying VAT.

The data shows that the quantity of suspect goods re-exported from Britain almost tripled from 134 million kg in 2013 to 353 million kg last year.

Meg Hillier, chairwoman of the Commons public accounts committee, said that she had asked the National Audit Office to look into the issues of excise fraud and organised criminality at the border. “HMRC needs to get on top of this because Britain is now seen by these crime gangs as the soft underbelly of Europe,” she said.

“Water finds the easiest route and fraudsters also look for the easy way. They will find every loophole — Britain has come to be a soft touch. We have been concerned that HMRC have been slow to act. These criminals are very clever and move very swiftly but there is also a competency issue and we have to ask if HMRC can keep pace.”

Ms Hillier said failure to tackle the fraudsters hurt British businesses. “The major loss may be to the EU budget, but British businesses are being affected by this because they are being undercut by people who are not paying duties and taxes. It creates an unlevel playing field and that hits British jobs.”

Olaf has calculated the excise losses at €2 billion and the VAT loss at €3.2 billion from 2013-16. The Brussels-based unit said that despite “repeated efforts” to engage HMRC in an EU-wide campaign against the fraud rings, the volume of suspect trade through Britain continued to grow. Olaf said that it held four senior-level bilateral meetings with British officials to highlight the problem in 2015 and last year. HMRC took an active part in two multinational investigations into the fraud gangs and detected — but never recovered — €400 million of duty losses during one four-week period.

Ernesto Bianchi, head of investigations at Olaf, said that Britain co-operated with a new EU-wide fraud detection system “for a short period of time” during an investigation called Operation Snake. He added: “Then they stopped. We are concerned more than disappointed because we’ve seen that, over time, as the other 27 countries were applying this in a systematic way traffic seems to have diverted to the UK.”

He said that 79 per cent (€646.8 million) of total losses in customs duties for the EU budget last year occurred upon importation through Britain. The European Commission is considering whether to bring formal infringement procedures against Britain.

HMRC rejects the Olaf analysis but Edward Troup, executive chairman of HMRC, and Jon Thompson, the chief executive, who arrived at the organisation a year ago, have been alerted to political concerns. The Crown Prosecution Service has been sent a list of suspects by the EU. The public accounts committee planned to raise the issue next week but its meeting was cancelled after the election was called.

HMRC said Olaf’s figures were not recognised by its experts. A spokesman added: “ HMRC is handling more than 550 cases relating to potential import fraud, and will not hesitate to engage the relevant prosecuting authorities.”