MINUTES OF EVIDENCE
THURSDAY 3 MAY 2001

Members present:
Mr A Maginness (Chairperson)
Mr Close
Mr Clyde
Mr Douglas
Mr Ervine
Sir John Gorman
Mr Kane
Mr McNamee

Witnesses:
Mr B Logan )  HM Customs and Excise
Mr D Toon )

334.

The Chairperson: Gentlemen, I thank you for coming here today. We look forward to your contribution.

335.

Mr Toon: First, I will emphasise the department's primary areas of responsibility - in direct taxation, VAT, excise duties and control of the international movement of goods. That involves the enforcement of a range of prohibitions and restrictions on drugs and firearms, and sanctions against weapons of mass destruction, paedophile pornography and a range of related issues. It is worth noting that all operational Customs and Excise issues are reserved matters for which Westminster is responsible.

336.

Overall, the department has a dual approach to its responsibilities. First, we support those who are compliant, or who wish to be compliant, in all our areas of responsibility, be they businesses or individuals. Our other approach is to enforce the law effectively against those who are deliberately non-compliant.

337.

On that end, we are heavily involved in combating serious and organised crime throughout the UK. Our most high-profile areas are combating class A drug trafficking; excise and VAT fraud; and related money-laundering issues. Over the last few years we have come to recognise just how important and effective it is to tackle the money flows related to serious crime. Those flows of money are the reason for the crime and, very often, its lifeblood.

338.

To illustrate the scale of the problem in the UK, intelligence estimates suggest that around 60 to 70 tonnes of class A drugs - heroin and cocaine - are directed towards the UK every year. Between £1 billion and £1·5 billion must leave the UK annually to pay for that amount. Moreover, that is simply to pay for the drugs and not necessarily the movement of profit from those drugs.

339.

My final preliminary remark before turning to the detail is that we were involved with, and strongly supported, the work of the Performance and Innovation Unit. Its work led to the Government's report and subsequent policy on recovering the proceeds of crime. We have also worked closely with the Home Office and other policy departments in developing the Bill since that stage. We strongly support the provisions contained in the Bill.

340.

The Bill has six principal benefits to Customs and Excise: the changes to the criminal confiscation procedures; changes to the restraint procedures; amendment and strengthening of the money-laundering offences; changes to the provisions for the seizure of crime-related cash; two new investigation powers and the overall introduction of a civil recovery regime.

341.

The main change to the criminal confiscation procedures is the consolidation, strengthening and streamlining into one Bill of the provisions currently contained in the Drug Trafficking Act 1994 and the Criminal Justice Act 1998. At present, the courts are taking an inconsistent approach to the application of the assumptions on people's benefit from criminal activity. In future, where any convicted defendant is identified as having a criminal lifestyle - the Bill defines what that would constitute - it will be mandatory for the court to base a confiscation order on the premise that all property that has passed through that defendant's hands in the previous six years was the proceeds of criminal activity. That mandatory application is currently only available in connection with drug trafficking convictions.

342.

By widening the spectrum, we would expect to see the new provisions leading to an increase in the amount of money ordered to be confiscated in a range of other offence cases, including our priority areas of oil fraud and tobacco smuggling. There are also helpful amendments in England and Wales bringing restraints and criminal confiscation processes together in the Crown Court. However, restraint will remain a High Court responsibility in Northern Ireland.

343.

Another helpful change is that power is to be given to prosecutors to challenge the court's decision when they consider that the criminal confiscation order is lower than is warranted by the evidence. Therefore we can essentially appeal the court's decision.

344.

One very simple change has been made to restraint procedures. The Bill will give prosecutors the power to seek a restraint order, at any time after a criminal investigation has started - we can currently only seek a restraint order close to the time when a person will be charged. As people become aware that an investigation is ongoing, we witness the dissipation of people's assets. A restraint order can help ensure that confiscation has the maximum effect after conviction.

345.

In regard to money laundering offences, the Bill will remove the current distinctions between provisions relating to drug and non-drug money laundering offences. The law currently causes difficulty in court cases where we have to demonstrate to the court that the laundered money was derived from a specific offence as opposed to being derived from criminality. Recent cases in England have run into trouble because although juries have been certain that the money involved derived from criminality, they have not been certain "beyond all reasonable doubt" that the money was derived from either drugs or some other forms of criminality. This has led to problems with the application of the assumptions (which would be used in drug trafficking offences when we have had convictions) and confiscation orders, which have then been related to non-drugs criminality.

346.

Another point is the offence of failing to report suspected money-laundering activities. That, as an offence, will be extended to cover the proceeds of any criminal conduct - not just drug trafficking, as at present. Any business covered by the money-laundering regulations - banks, building societies, bureaux de change, et cetera - will, in future, be susceptible to prosecution where they have reasonable grounds to suspect that a person that they are dealing with is engaged in money laundering. The change is that we currently have to demonstrate actual knowledge or suspicion, that the person did suspect, rather than that they had reasonable grounds to suspect.

347.

Seizure of crime-related cash: This is an interesting area for us and a power which is almost exclusively used by us. We have a power under Part 2 of the Drug Trafficking Act 1994 to seize and detain cash to the value of £10,000 or more being imported or exported and which is reasonably suspected as being the proceeds of, or intended for use in, drug trafficking. We seize that cash at the frontier, seek an authorisation by the Magistrate's Court for continued detention and then take forfeiture proceedings under civil rules in front of a Magistrate's Court.

348.

We expect the Bill to extend those powers to include the proceeds of, and money intended for use in, any criminal conduct, and also to cover non-cash instruments such as travellers' cheques, bearer bonds and a few other categories. That area is still under discussion with the Home Office: the final policy is not settled, and the clauses have not been drafted. We believe that provision to extend that power beyond the drug trafficking arena would have a significant impact. At present we have problems where we identify money that we know is related to tobacco, or to other excise goods, trafficking but under current legislation we have no power to seize that money.

349.

Extension would enable us to cover all crimes and to take action on behalf of other agencies if we detect money that proves to be the proceeds of a robbery, for example. We would be able to seize that money and to provide the police with information to enable them to take the case forward.

350.

Two changes on investigation powers are the introduction of an account monitoring order and a customer information order. An account monitoring order enables a senior officer of Customs and Excise to go before a County Court Judge in Northern Ireland to seek an order under which a financial investigator will then be able to gain access to transaction information on suspect bank accounts for a specified period. The customer information order, with the authorisation of a County Court Judge, would enable us to require banks to identify accounts held by a person who is under investigation. We would expect these new investigatory powers to be useful in gathering evidence to support criminal offence and confiscation action, and overall to increase the effectiveness of financial investigation work.

351.

Finally, and perhaps a major part of the Bill, but not one in which we have a significant role, is civil recovery. The proposed civil recovery scheme will enable the Criminal Assets Recovery Agency to recover the proceeds of criminal conduct under the civil rules of evidence. That will not be of direct benefit to Customs and Excise.

352.

As a law enforcement agency, we will expect to refer cases to the Director of the new agency for civil recovery action, where we have concluded that it is not feasible to mount a successful prosecution but that there are substantial assets which appear to come from criminal activity. In those circumstances we would pass the case to the new agency and it would be for the Director of the agency to use his powers under the civil recovery provisions. We also expect to second some of our financial investigators, possibly some of our lawyers, and other staff to the new agency. We have already agreed to second two officials - one is a specialist financial investigator - to the agency in Northern Ireland.

353.

Fiscal fraud in Northern Ireland is our highest priority issue and, within that, the highest priority work is concerned with tackling hydrocarbon oils fraud, which poses a specific and very serious threat. In addition, as per the rest of the UK, there is a serious problem with tobacco smuggling that we are tackling with a national tobacco strategy. There is an element of class A drug trafficking, as there is throughout the UK, and we have a national and a multi-departmental strategy to tackle that. However, it is not such a high profile issue for us in Northern Ireland. Enhanced resources for tackling oils fraud in Northern Ireland, and tobacco smuggling nationally, have already enabled us to make significant increases in our enforcement approach and presence for tackling these problems. We expect the powers in the Bill to go some way towards further improving the effectiveness of our increased resources.

354.

Overall, Government strategy is about undermining the economics of smuggling and removing the profits of criminals. We expect the Bill, in its final form, to make a significant contribution towards our efforts and interdepartmental efforts by tightening the offence provisions, enabling us to seize cash and improving our investigatory powers and confiscation procedures. We expect this to make it much more difficult for traffickers or fraudsters to make a profit and then to sequester those profits.

355.

The Chairperson: Oil and tobacco smuggling seem to be the two main areas of fiscal fraud in Northern Ireland. Do you have an estimate of the amount of tax evasion in that area?

356.

Mr Toon: We would not make an estimate for tobacco fraud specifically for Northern Ireland. However, we would make the point that tobacco fraud is an UK-wide threat, and about 22% of all cigarettes that were smoked in the UK last year were illicit. This area involves huge issues such as the undermining of Government health objectives. The Government has increased our resources quite significantly - we have had over £200 million of additional investment to enable us to tackle the problem. Mr Logan, would you like to say anything with regard to oils fraud in Northern Ireland in particular?

357.

Mr Logan: We published an estimate that the total revenue lost for the year 1998 was £100 million. We are working to update this estimate, and the most recent trade estimate is that there is a fifty-fifty split between legitimate cross border shopping and smuggling. In addition, we would say that oils fraud takes the form of four main components: smuggling, laundering of marked and gas oil, misuse of rebated fuels, and mixing all of these. However, work is ongoing to update the position in order to inform our strategies on how to take our work forward.

358.

The Chairperson: You spoke about a loss of revenue of £100 million. Is that correct?

359.

Mr Logan: Yes.

360.

The Chairperson: I want to get the facts correct. Half of that is made up by people who cross the border, fill up their tanks, and come back; and the other half is made up of tax evasion by people who launder oil products?

361.

Mr Logan: Yes.

362.

The Chairperson: The £100 million represents the loss of revenue, but that is the tip of the iceberg because there is loss of revenue to the outlets in Northern Ireland that sell petrol or other oil products. Is that correct?

363.

Mr Logan: Yes.

364.

The Chairperson: It represents a huge loss to the economy in Northern Ireland.

365.

Mr Logan: We recognise that. While the figure of £100 million is for the calendar year 1998, we have been working to update that. In order to evaluate the total loss, Customs and Excise has, since September last year, increased its resources fourfold in order to deal with the problem. Since then, the indications are that legitimate sales have stabilised, which is a significant impact.

366.

Mr Close: There appears to have been a lot of foot-dragging over this, certainly from the aspect of the petrol retailers in Northern Ireland. They are suffering at an unacceptable rate through the illegal fuel trade. It is also on record. A letter, raised at the highest authority, stated that £100 million, in the overall scheme of things, was a rather small amount. However, the marginal changes that have taken place recently have been appreciated.

367.

A House of Commons Select Committee report in 1999 produced a number of recommendations, but there appears to have been some tardiness in the application of many of those recommendations. There have been suggestions of licensing systems and other checks that might go some way to improving the situation.

368.

There also appears to be a number of diverse organisations that would be involved in licensing retailers for petroleum and other spirits. There is our own Health and Safety Executive and local authorities, but there does not appear, either to me or to petrol retailers, to be any joined-up Government approach.

369.

A lack of such an approach leaves it wide open for outlets, which appear to be legitimate on the surface, to operate illegally. It is happening in virtually every local authority area in Northern Ireland, with outlets openly flouting the law. We need to seriously get to grips with it. The relativity of the £100 million may be small in the overall scheme of things, but as it relates to Northern Ireland, and with the impact that it is having here because of the land frontier, it is quite dramatic.

370.

There needs to be urgent and determined effort made by everyone through a joined-up approach to deal with that and to get this scourge out of our society. That is merely the position on the oils. The legislation also needs to be looked at. Petroleum licensing is governed by legislation dating from the 1920s, and there are also holes in that.

371.

Mr Logan: The Northern Ireland Affairs Committee recommended a joined-up approach, which Customs and Excise has been pursuing. That has been added to by the creation of the Organised Crime Task Force, which has brought other organisations together under the umbrella of looking at criminality and organised crime. A key part of that is to look at any additional legislative issues that are needed.

372.

Mr Close: Are there any timescales for that? Many petrol stations have gone out of business since the 1999 report by the Northern Ireland Affairs Committee because of Government policy on the difference in the rates of duty and also because of criminality.

373.

Mr Logan: As far as oils and Customs and Excise are concerned, we have increased fourfold our resources since September 2000. All the evidence suggests that we are making a serious impact on stabilising the amount of smuggling. We are evaluating the results of this work and considering how we can improve on that. We are in the process of doing that in order to make sure that we retain and maintain the amount of our effort in this area.

374.

Mr McNamee: Although some of the legislation has yet to be drafted, the Human Rights Commission has a number of concerns about its compliance with the European Convention on Human Rights, particularly in relation to the limitation of recovery. Your introduction states

"all property that has passed through a defendant's hands in the previous six years"

375.

The aspect that there is no limitation on the property - it applies to all property that has passed through a person's hands - and the six-year period could both be open to challenge.

376.

Another point is that the burden of proof is on the person accused to show how they obtained property, rather than the prosecution proving beyond reasonable doubt that they are guilty of something. There are also concerns that relate to employees of sectors covered by the money laundering regulations. They will be susceptible to prosecution where there are reasonable grounds to suspect that another person is engaged in money laundering. Take, for example, an employee of such a business who may not be at all focused on the issue of money laundering - they are just employed to do a job and they are probably thinking of going on holiday in the summer. Have you any concerns about how those employees may be affected? Somebody could say that they had reasonable grounds for suspecting that a third party was involved in money laundering and that the employee did not report it. The employee would be liable to prosecution because of that.

377.

In the cases where you have seized cash at borders under the existing powers - and in all likelihood there will be a significant increase in those incidents - to what extent has Customs and Excise been tied up in the legal process that follows that when a person challenges it? How do you anticipate this legislation affecting your operation? Are you concerned about the amount of time you will spend facing challenges in court? Given that there are concerns about the regulations' compliance with European Human Rights legislation, are you concerned that Customs and Excise will spend more time in court dealing with challenges than in investigation and seizure?

378.

Mr Toon: The easiest point to comment on first is the position of employees of businesses covered by the money laundering regulations. There is a duty, on all such businesses, to ensure that their employees are aware of the money laundering regulations. That is a key part of their responsibility in carrying out their business. Generally, the National Criminal Intelligence Service obtains a large number of Suspicious Transaction Reports. However, some businesses do not provide the reports that they should when it is clear that there are reasonable grounds to suspect money laundering. Such an example would be bureaux de change, which are not simply dealing with customers wishing to change a few hundred pounds into dollars for their trip to America. Recently, we had a case in the north of England, which involved people moving £0·5 million at a time into and out of a bureau de change in cardboard boxes. There is a clear responsibility on that bureau de change to report that as a suspicious transaction. It is very difficult to see why somebody would be moving £0·5 million in cash legitimately. All they are required to do is report that there is a transaction that looks suspicious. It is then for the law enforcement agencies to take any further action. There is not a heavy burden on those employees.

379.

This legislation will have to be certified as being compliant with the Human Rights Act 1998. Law officers will examine it, and the Home Secretary will be responsible for certifying its compliance with the Act. I have no doubt that there will be challenges, but I have no reason to believe that the legislation will not be compliant with the Human Rights Act 1998.

380.

We have got quite a lot of experience of drugs cash at borders. It is not time-consuming, nor are the investigation and subsequent forfeiture hearings. We are applying the civil burden of proof. On many occasions we seize large amounts of cash. We have seized hundreds of thousands of pounds from suitcases where the individuals have simply never challenged us. This suggests that there is quite a lot of money being moved around which people cannot demonstrate as legitimate.

381.

To an extent, a "suck it and see" scenario will apply as we see how this fits in with the broader powers. A good deal of training and education will be required for our officers as we are now looking at a much broader set of circumstances in which we might be seizing money. Provided we are effective in training, I do not see that it should cause a significant increase in court time or challenge.

382.

Mr Kane: Do you believe that the Bill will result in criminals moving their headquarters to another jurisdiction? How do you perceive the legal basis of "innocent until proven guilty" to be distorted by this Bill? Finally, would the ordinary citizen be aware that he or she should retain proof of possession of any asset?

383.

Mr Toon: It is difficult to see at this stage what the likely reaction would be as regards moving assets to other jurisdictions. There is quite a comprehensive set of international agreements on asset recovery. Their effectiveness depends on the effectiveness of the law enforcement agencies in the states concerned. However, we are talking about serious organised criminals who wish to remain in their locality. They wish to live where they are and have a good lifestyle surrounded by people they know. Many of them will find it very difficult to move assets overseas without those assets being traceable and capable of being attacked by international agreements.

384.

I cannot comment in detail on the issue of "innocent until proven guilty". Much of what you are referring to concerns civil recovery, which is more an issue for Criminal Assets Recovery Agency (CARA). It would be much more of an issue for the Home Office and the Northern Ireland Office. There is no real comment we can make.

385.

If we are talking about crime-related cash at borders, then the guilt lies in the cash, rather than on the person. This is how aspects of customs work have operated for hundreds of years - focusing on the status of the goods or the cash and not of the individual. Criminal confiscation is a direct follow-on from a criminal conviction, so we look at the full criminal standard of proof before confiscation takes effect.

386.

I am not quite sure what your last question was.

387.

Mr Kane: Would the ordinary citizen be aware of the need to retain proof of the manner in which he or she came into possession of any asset?

388.

Mr Toon: There is an implication there that the ordinary citizen has something to fear from this, and that is not so. For the matters that we are dealing with, criminal confiscation follows on from a conviction anyway - that takes it away from your average, ordinary citizen.

389.

If you are talking about the powers concerning cash at borders, the ordinary citizen does not tend to move £10,000 or more in cash without being able to demonstrate to some degree where it came from. We have to have reasonable grounds of suspicion in order to seize it. The burden of proof is not reversed but remains on us. It may be to the civil standard of proof, "the balance of probabilities", but the burden is still on us to demonstrate that that cash is intended for use in crime. I do not see it as being a huge issue. It may be more of an issue with civil asset recovery, but that is not something we can comment on in detail.

390.

Mr Close: If somebody has a suitcase with £100,000 in it, do you have a reasonable suspicion that he is up to no good?

391.

Mr Toon: It is not just the fact that we find it that causes a reasonable suspicion. There would be a number of other indications such as where the person was going, how he obtained the ticket and how it was paid for. It would be considered whether the person was going to a major drug trafficking destination, whether £100,000 was consistent with the appearance of the person, and so on. All that can give one reasonable grounds to suspect and make an initial detention, before going at a later time in front of the Magistrate's Court. One would do a degree of investigation then to try and demonstrate the link to criminality.

392.

These are difficult issues when the amounts are £10,000 or £12,000,which are just over the limit. When you get to hundreds of thousands of pounds, it rapidly becomes clear that very often, the money is inconsistent with the person. There is just as much use in the drug arena of mules to move cash as to move drugs.

393.

Mr Close: That is exactly my point.

394.

Are tobacco smugglers immune from cash seizure, and what is the thinking behind that?

395.

Mr Toon: Tobacco smuggling is currently immune because cash seizure provisions were brought in under the Drug Trafficking Act 1994, which focused solely on combating the drug trade. While excise goods smuggling has always been a problem, it was not the high profile problem and the level of smuggling as it is now. It is a problem that has grown.

396.

Mr Close: Today it is a wide open door through which a lot of money is made.

397.

Mr Toon: Certainly a lot of money is made through it, but I might argue about whether it is a wide open door. We seized about two billion cigarettes last year, so it is not quite as wide open as you might perceive. We think we are beginning to have a significant impact now on tobacco smuggling, but it is a big problem.

398.

Mr Ervine: Mr Logan told us about a fourfold increase in resources to target oil smugglers. What kind of an increase have you had to target drug dealers and drug importation?

399.

Mr Logan: While you rightly ask me that question in the context of a local scene, the drug aspect is resourced nationally. Because of the modus operandi of drug trafficking, we deal with drugs on a national UK basis.

400.

Mr Toon: Mr Logan is right; this is very much seen as a national and an international problem. We are putting together, in common with all the other enforcement agencies - the Home Office and Foreign Office have been involved - a joint action plan to cover all of the UK's activity to combat drug trafficking from end to end - from local police forces dealing with dealers at the 1 to 5 kilogram level in local areas, through Customs activity at the frontier, to working with law enforcement and intelligence operations overseas in order to tackle the problem as close to the source as we can.

401.

The Government has recently put some additional money - £67 million over the next three years - in to combating drug trafficking. That does not seem like a large amount, but you need to appreciate that this sum is additional to the hundreds of millions of pounds that are currently spent by the enforcement agencies on combating drug trafficking.

402.

Mr Ervine: Oil smuggling is a much greater problem here, by comparison to the rest of the United Kingdom. This is because we have a land border with the Irish Republic. Drugs are more easily carried across land borders than by ferry or plane. There is substantial evidence to suggest that there is a serious drug problem in the Republic of Ireland and that a substantial amount of drugs enters here via that border. Your resources have been increased fourfold to deal with the importation of illegal oil. How much funding have you been given to combat the importation of illegal drugs across that land border?

403.

Mr Logan: No additional resources have been earmarked specifically to combat drugs trafficking. However, all our law-enforcement work is intelligence- driven. If there is any fraud involving tobacco, alcohol, drugs or hydrocarbon oil, the resources will be made available to deal with that.

404.

Mr Toon: We would argue that although you have a land boundary, which can be more easily penetrated than a sea boundary, the drugs need to be smuggled into the Republic in the first place, and that is done by sea or air. It is possibile to deal with the problem much further upstream, for example, in co-operation with Europe as a whole, or with the authorities in the Republic of Ireland.

405.

Mr Ervine: I am not an expert on how importation takes place, but the land border is clearly used in the importation of drugs. I asked the question, and in such a manner, because resources are always a matter of politics, especially in the context of Government institutions. I would argue that, in the political mind, there is often a hierarchy of offences. Therefore, when CARA comes on board and begins to make its decisions, it will have a raft of offences with which it might wish to deal. It will not be able to deal with them all at once. What is the likelihood of gaining political direction in that respect? In other words, if the Exchequer is being hit, the Chancellor might deem that to be of more serious concern than the problem of kids dying after taking some type of chemical produce. There may well be a political evaluation. Do you feel that you have been a victim of such political evaluation? This would probably depend on how much you want more resources and whether you are satisfied with the resources that you have? You might remember that in a previous incarnation, I wanted you to be proactive, rather than reactive, so I am not complaining about the introduction of this legislation. However, I am worried about the degree of political direction which might take place, based upon the level of resources you are given.

406.

Mr Toon: Ultimately, decisions on resources are made by Ministers, but all law-enforcement activity is based on an agreed UK threat assessment for serious and organised crime that defines the priorities. The Director of CARA will be responsible to an asset recovery committee, which will be driven by the UK threat assessment. The trafficking of class A drugs is one of the top priorities in that assessment.

407.

Mr Ervine: I can picture the manufacturers of CDs, jeans or any item which is fraudulently created or imported, kicking the door of number 11 Downing Street, or the door of any Minister which deals with such matters, and that Minister phoning Customs and Excise or CARA.

408.

I fear that this will provoke a reaction that will affirm that there is a hierarchy of offences depending upon the political direction that is given at any time.

409.

Mr Toon: There is a hierarchy of offences. It is not dependent on political direction, and the picture you draw is not one that I recognise.

410.

Mr Clyde: In combating VAT crime, how will the draft Bill assist HM Customs and Excise?

411.

Mr Toon: The main assistance will increase our ability to remove assets after there has been a conviction of VAT fraud. VAT fraud will attract the same assumptions on lifestyle criminality as drug trafficking does now. This brings us back to the point that it will be assumed that property that has passed through the hands of a convicted person during the past six years, is the proceeds of crime.

412.

The key issue in regard to many areas of criminality is the broader use of those assumptions. Those assumptions are mandatory in regard to criminal lifestyle offences, as defined in the Bill. The courts must apply those assumptions, and they must apply the six-year assessment. That will have the greatest impact.

413.

Mr Logan: That is a different regime. We have powers at the moment, however they will be added to by the Proceeds of Crime Bill.

414.

Mr Toon: This is perhaps the area of the Department's work on which the Bill will have the least impact.

415.

Mr Douglas: You said that oil fraud caused the most serious loss, followed by tobacco and drug trafficking. In the past it was not the large-scale drugs traffickers who got caught, but those operating at a local level. Will the legislative changes help to catch these people? Even at a local level, such individuals can accumulate great wealth, and they still manage to stay out of the reach of the law.

416.

Mr Toon: Yes, that is the fundamental rationale for the introduction of civil assets recovery. It is aimed at curbing those who never get their hands dirty or who never commit an identifiable prosecutable criminal offence, but who are able to maintain a lifestyle without any visible means of support.

417.

The Chairperson: In the modern world, assets can be moved between countries and jurisdictions, and Mr Ervine quite rightly referred to the land border in Ireland. It is very easy to discreetly move assets between the North and the South. Under the present circumstances and arrangements, do you have any difficulty in tracing assets if they are moved from Northern Ireland to the Republic?

418.

Mr Toon: You have phrased your question in a way that makes it quite difficult to answer. On the whole, the difficulty in tracing the assets depends very much on how well they are hidden. The difficulty is not caused by the fact that the assets have been moved into the Republic of Ireland. We follow up assets in the Republic of Ireland through standard mutual legal- assistance provisions, as we would with any of around 100 other countries.

419.

The Chairperson: So, no serious problems with tracing are caused by any official barrier between the North and South?

420.

Mr Toon: Barriers will always be created because there are slightly different forms of legislation in each jurisdiction but, in general, there are no significant barriers to tracing assets in the Republic. Co-operation is, and has been, good.

421.

The Chairperson: Mr Close raised a point about your involvement with CARA. You mentioned that personnel would be seconded to CARA. Is that correct?

422.

Mr Toon: That is correct, partly because CARA will not only take on the role of civil recovery. CARA will also become the overall centre of excellence for financial investigation on a national level. We will expect our financial investigators to be accredited by CARA, which will operate an accreditation regime for financial investigation. CARA must start from somewhere. The best start for it will be to have seconded staff with experience of financial investigation work.

423.

The Chairperson: We recently visited Dublin where we learned about the impressive work of the Criminal Assets Bureau there. Assuming that CARA is set up - and I know that you cannot speak on behalf of CARA - do you envisage full co-operation between it and the Criminal Assets Bureau in the Republic?

424.

Mr Toon: We hope that there will be full, appropriate co-operation between CARA and all other agencies that have a role, where that is appropriate and necessary.

425.

The Chairperson: Thank you for your submission and for engaging in the question-and-answer session. It has been very interesting.

MINUTES OF EVIDENCE
THURSDAY 3 MAY 2001

Members present:
Mr A Maginness (Chairperson)
Mr S Close
Mr W Clyde
Mr B Douglas
Mr D Ervine
Mr G Kane
Mr P McNamee

Witnesses:
Mr J Gilbody )
Mr D Hinstridge ) Inland Revenue
Mr D Humphries )

The Chairperson: You are very welcome. We are very pleased that you could come to give a submission and to answer some questions. Mr Gilbody, are you leading the delegation?

427.

Mr Gilbody: Yes.

428.

The Chairperson: Would you introduce your colleagues, and we will then proceed.

429.

Mr Gilbody: I am from the Inland Revenue's policy division in London. Mr David Hinstridge, on my right, is the director of the Inland Revenue in Northern Ireland. My policy colleague, Mr David Humphries is on my left. We are grateful for the invitation to provide evidence to the Committee.

430.

It is the Home Office, rather than the Inland Revenue, which is responsible for the Proceeds of Crime Bill. The Inland Revenue is supporting the Home Office by helping to develop policy on matters related to taxation. The Inland Revenue has been fully involved over the past few months in advising the Home Office on taxation matters. The draft legislation on those issues was not, therefore, new to the Inland Revenue, and it represents an agreed position.

431.

Since the Inland Revenue's involvement is limited to taxation issues, it is not in a position to comment on any other provision in the Bill. The Home Office and the Northern Ireland Office are the appropriate departments to approach in regard to any other matter. It is important to appreciate that the proposed Criminal Assets Recovery Agency (CARA) will be operationally independent of the Inland Revenue. Therefore it would be inappropriate if the Inland Revenue were to comment on internal issues which might arise in the future daily operation of the agency. Those will fall within the remit of the Director of CARA, should the Bill become law, and when he or she has been appointed.

432.

I do not wish to be unhelpful, but it is important to define the Inland Revenue's locus on these matters. The Inland Revenue is happy to assist the Committee in its consideration of the taxation matters which are contained in chapter 6 of the consultation document. The Committee also had some written questions to which the Inland Revenue replied in the memorandum. I apologise that we were not able to respond within the requested time, but we are happy to answer your questions.

433.

The Chairperson: CARA is the most novel aspect of the Proceeds of Crime Bill. What role do you envisage the Inland Revenue playing in the setting up of CARA, its staffing, and the discharge of its functions?

434.

Mr Gilbody: In my view, the Inland Revenue will not have a large role. It will want to discuss with the Director of CARA operational issues and the interface between the agency and the Inland Revenue, but CARA will be operationally independent and will be run solely by the Director.

435.

The Chairperson: Will any staff from the Inland Revenue be attached to CARA?

436.

Mr Gilbody: That is a possibility but not a certainty, and it is something that the Inland Revenue must carefully consider. That issue has not yet been addressed.

437.

The Chairperson: During the Committee's visit to Dublin, members were interested in the workings of the Criminal Assets Bureau. It has the power to carry out the equivalent of civil recovery in the High Court, but if civil recovery is unlikely or difficult because of a lack of evidence, the Criminal Assets Bureau focuses on taxing the suspected criminal.

438.

It seems to be an effective method of dealing with the problem. Around £10 million was raised through taxation over the past four to five years. That is additional to a further £10 million that was raised through civil recovery. It is therefore a very effective weapon in the fight against crime. What are your views on that approach to the problem?

439.

Mr Gilbody: When the Home Secretary launched the Bill, he made it clear that the Director of CARA would have three main approaches. The first would be to seek prosecution, the second to seek civil recovery, and the third to use his taxation powers. The use of taxation powers is clearly a third option for CARA. We hope that it will be a very effective power, and we have all approached it on that basis.

440.

Mr Close: Does the Inland Revenue believe that tax investigation by CARA would be part and parcel of the operation rather than being an option? Do you believe that Inland Revenue staff, if they are seconded to CARA, could actually raise assessments against individuals who are suspected of living a lifestyle beyond their means?

441.

Mr Gilbody: We need to draw a line of demarcation between what the Inland Revenue currently does, what it will continue to do - functions that will be unchanged by the Bill - and what the director of CARA will do. The taxation power is one weapon in his armoury that we hope will be successful, but I do not want to go further in commenting on how that might be used.

442.

Mr Close: I would like to believe that we are seeking a joined-up Government approach to tackling and defeating criminality in our society. However, I am concerned that if it appears that there are lines of demarcation or little empires, people will be prevented from doing what is necessary in the public interest. I would like there to be an impression that everything possible is being done to defeat criminality; that the Inland Revenue would be slapping assessments on those whose lifestyle provokes suspicion among the proverbial "dogs in the street", asking them to account for their assets. It strikes me that under current Inland Revenue rules, "Joe Citizen" can be put through the hoops to demonstrate his income, make his returns, et cetera, yet the criminal seems to manage to avoid that.

443.

Mr Gilbody: I use the term "demarcation" simply to make it clear that the Inland Revenue and the new agency must be careful not to step on each other's toes. Each must be clear about its powers and responsibilities. The strategy is joined-up - the evidence for that is the extent to which we have been involved in supporting the Home Office.

444.

As regards your point about our investigation activities and those of CARA, we will continue to pursue tax evasion as we currently do. We hope that CARA will bring in this additional weapon of tax investigation and that it will be able to perform certain sorts of investigation more effectively.

445.

Mr Close: It may be difficult to refer to a specific case. In a current case that is related to foot-and-mouth disease, an individual allegedly returned because of an assessment that was made through the Criminal Assets Bureau in Dublin. Do you foresee that type of situation in Northern Ireland, where an individual comes back to face the music after an assessment?

446.

Mr Gilbody: We are trespassing into areas of CARA's operation, which I am not empowered to comment upon.

447.

Mr Hinstridge: It is unwise for us to comment without having further details of the circumstances of the case. To a certain extent, it is a matter of public record, but we do not know the background or history of the individual who has been named by the press.

448.

Mr McNamee: One of the strengths of the Criminal Assets Bureau in the South is that it takes a multi-agency approach. A number of bodies, including the Office of the Revenue Commissioners, Customs and Excise, and staff from the social welfare section of the Department of Social, Community and Family Affairs have been seconded to work for the Criminal Assets Bureau while remaining with their original employers.

449.

If Inland Revenue staff were seconded to CARA, they could not only raise tax assessments. A staff member with experience of revenue matters could make a great contribution to certain areas of investigative research in which a Garda Síochána member would not realise the significance of the relevant papers. Similarly, people in other bodies, because of their experience in a given field, could make a significant contribution in CARA investigations, as well as raising assessments. Would the Inland Revenue object if CARA were to request a secondment of experienced staff who could be of benefit to them?

450.

Mr Gilbody: We would respond to such a request with great care, and we would discuss it with the Director. It is an attractive idea for the reasons you have mentioned, however, there are a number of considerations that we would want to examine in detail. In addition, the Director of CARA will be setting up an agency from scratch. It will become a centre of investigative excellence, and it is hoped that the agency staff will, through time, acquire the skills needed to carry out their functions.

451.

Mr Kane: Does the Inland Revenue currently receive information from the RUC that could lead them to investigate individuals?

452.

Mr Hinstridge: I will phrase my response carefully. The Inland Revenue receives information from a variety of sources, and in certain circumstances they can include the RUC. However, the circumstances in which we receive information from these sources, and in which we can use that information for evidence or in an investigation, are regulated by statute.

453.

Mr Kane: How will the proceeds of crime be used after they have been seized from criminals - and how will this affect the issue of victims benefiting? Is it not now the case that HM Customs and Excise and the Inland Revenue will be the best placed to gain from property seizure?

454.

Mr Gilbody: In my understanding, the money recovered during CARA's operation will go to the Exchequer. That is the only comment that I can make.

455.

Mr Ervine: The Bill provides a greater opportunity for society or the state to be proactive in apprehending criminal assets. Do you therefore have individuals in mind who seem to fit your targets? Are there many in Northern Ireland? I am not asking you to name them, and you have not said that there are any. In practical terms is there already a series of likely targets for investigation by virtue of the opportunity offered by this legislation?

456.

Mr Gilbody: In due course, we certainly expect to have such a discussion with the Director of CARA. This will take place when the Director approaches the Inland Revenue and other departments, such as Customs & Excise, to seek information which could assist CARA, in accordance with the Bill and his specified duties. We are far from the stage of identifying the types of case that might be appropriate to CARA, and not the Inland Revenue. It is far too early to comment on that.

457.

Mr Ervine: Do you think, however, that there might well be some specific benefits for your organisation in this legislation?

458.

Mr Gilbody: I am not sure that there are many benefits for the Inland Revenue but I hope that in due course we can provide information to the Director of CARA to assist in the destruction of organised crime.

459.

Mr Clyde: Will cases in which the only crime is tax evasion be dealt with by CARA or the Inland Revenue?

460.

Mr Gilbody: Tax evasion, and the investigation of it, is a matter for the Inland Revenue, and that will continue to be the case. The Director of CARA must have a suspicion of criminality before he can act.

461.

The Chairperson: Are you familiar with the criteria that might be used to establish a suspicion of criminality?

462.

Mr Gilbody: Only in so far as it is defined in the draft Bill.

463.

The Chairperson: Do you envisage a situation where the Inland Revenue might refer individuals to CARA?

464.

Mr Humphries: That would be unlikely. The Director of CARA will get cases from other sources. The Inland Revenue could refer cases, but it is unlikely. Agencies other than the Inland Revenue will act as intelligence sources. When a case is referred to CARA, it will be considered for prosecution, civil recovery and finally for taxation. It is unlikely that a case will open with a tax investigation or that it will be referred at that level.

465.

The Chairperson: The Inland Revenue commiss- ioners already have the power of taxation that CARA will have. That power enables the commissioners to investigate a person's circumstances and to raise an assessment. Where is the distinction between the Inland Revenue's existing power and the new power that CARA would have to deal with someone who is involved in criminality?

466.

Mr Gilbody: The Inland Revenue is constrained by the Taxes Management Act 1970, and its powers are derived solely from that. When carrying out tax investigations, the Director of CARA will stand in the shoes of the Inland Revenue. It will have precisely the same powers, and he will interpret the Acts in the same way. The Bill makes provisions to make sure that this happens properly. The Inland Revenue does not have the power that CARA will have to make an income tax assessment without specifying the source of that assessment. That is the difference between the way that CARA will operate and how Inland Revenue operates at present.

467.

Mr Humphries: The Director of CARA will have greater powers to gather information from such third parties as banks and financial institutions.

468.

The Chairperson: The Inland Revenue does not have those powers?

469.

Mr Humphries: That is correct.

470.

Mr Ervine: Perhaps I am wrong, but it seems that all liaison between the Inland Revenue and CARA will be based on the mainland.

471.

Mr Gilbody: No, I did not mean to give that impression.

472.

Mr Ervine: I did not say that you had given that impression.

473.

Mr Close: I want to clarify a point about demarcation. Could a situation arise in which CARA would be legally authorised to assess, charge and demand tax?

474.

Mr Gilbody: Yes.

475.

Mr Close: Will CARA be obliged by statute to fully apply revenue Acts to those who are suspected of criminal activity?

476.

Mr Gilbody: The Director of CARA will be empowered to serve a notice on the board of Inland Revenue. The Director must specify the tax payer, the suspicion, the periods for which he wishes to take over the taxation affairs, and the taxes - whether income or corporation tax- that he wishes to investigate. The board will then respond to that and pass the case over. It will be clear what the Director of CARA will be doing and what the Inland Revenue will be doing. There will be a mechanism to specify the precise arrangements.

477.

Mr Close: Can you foresee any circumstances in which the Inland Revenue might refuse to give information to CARA? I cannot foresee that.

478.

Mr Gilbody: No, that cannot happen.

479.

The Chairperson: Thank you very much. Your contribution has been helpful to our deliberations.

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