In the 1997 Budget the Chancellor made a commitment to raise the annual rate of increase in tobacco duties by 5%.14 In his 2000 Budget Statement the Chancellor raised cigarette taxes by 5 per cent above inflation with 25 pence on a packet of 20 cigarettes.
In 2000, the Chancellor also hypothecated some of the additional moneys accruing from the duty increases on tobacco towards the NHS. In his Budget Statement in March 2000, the Chancellor said that "every penny of the extra revenue....[would go] to funding our hospitals and the National Health Service".15 The Scottish Executive received £26 million of the extra tobacco taxation money and announced that it would invest the money a major health improvement and public health programme in Scotland.16
However in the March 2001 Budget the Chancellor abandoned this policy and announced that tobacco taxes would only increase in line with inflation (1.8%), raising the price of a pack of 20 cigarettes by 6p.17
The Government supports the view that smuggling is a law and order issue, which should be tackled separately from public health policy. As the Chancellor Gordon Brown stated in his 1999 Budget speech:
"Organised smuggling, which is now a 1½ billion pound a year racket, will not be permitted to undo a policy on cigarettes which successive British Governments have adopted for good and urgent health reasons. As the Government strengthens its anti-smuggling strategy, we will target new resources to detect, prevent and punish this costly form of organised crime."18
In 1999, the Chancellor commissioned Martin Taylor to evaluate the ways in which tobacco smuggling was being combated. Taylor reported in November 1999, recommending measures toincrease detection; to increase the risk and reduce the reward for smugglers and to act on the public perception.
The Government unveiled the following range of measures19:
x-ray scanners
a national network of container x-ray scanners to help detect shipments of smuggled tobacco hidden in commercial freight; (Scanners make concealments of cigarettes apparent in minutes rather than hours, allowing more examinations of high risk or targeted traffic.) Customs and Excise have already put into operation 6 new x-ray scanners at key ports - which have been responsible for the detection of 32 million cigarettes, 3 tonnes of hand rolling tobacco (HRT) and 11 illegal immigrants. More scanners are on their way.
Duty paid marks
On 1 July 2001, a compulsory pack mark came into effect - it must be displayed on cigarettes or hand rolling tobacco packets bought and sold in the UK, clearly indicating that UK duty has been paid. It is an offence to possess, sell, deal, transport or store cigarettes or hand-rolling tobacco without the pack mark or for premises to be used for the sale of unmarked products. Anyone buying or selling tobacco will know immediately whether they are dealing with legitimate goods and it will make it easier for the police and trading standards officers to help Customs in their enforcement role. Anyone caught trading in unmarked cigarettes will lose their tobacco, risk a criminal conviction, a fine of up to £5000 and a possible restriction on the sale of legitimate tobacco goods for up to six months.
Following consultation, a scheme to prevent forestalling was agreed with the main trade associations involved in the manufacture and sale of cigarettes in the UK. Forestalling is a tax avoidance device whereby excessive quantities of goods are removed for home use on payment of duty because an increase in the rate of duty is expected.
Restrictions on the volume of removals of cigarettes from all duty-suspended storage were introduced in the period from 1 January 2001 to Budget Day. The quantity which traders could remove during the restriction period was calculated using the average daily home use removals in a base period from 1 November 1999 to 31 October 2000. It also took account of clearances in the two months before the restriction period began and the duty paid stock the trader already held.
Asset confiscation
Confiscation powers against criminals' assets, including smugglers, are to be enhanced. Customs Officers can seek a confiscation order from the court in tax fraud or smuggling cases, to seize assets from a convicted criminal to compensate Government for the tax that has been stolen. In 1999/2000 ,C&E obtained £7.2 million from confiscation orders made in excise smuggling or fraud cases (largely tobacco or alcohol).
However, the court can currently only confiscate assets up to the level of the perceived crime. For example, if the charge is that someone evaded £80, 000 worth of duty, they can only have £80, 000 worth of assets confiscated regardless of what the person is individually worth.
It would be beneficial if asset confiscation legislation was revised (and brought into line with drug offences) to cover all serious crime, including tobacco smuggling.
Licensing
Proposals for a new licencing framework to provide for a more graduated range of penalties such as the temporary closures of pubs and other licenced premises.
In March 2000 the Government officially launched its anti-smuggling strategy, Tackling Tobacco Smuggling, a new package of measures which included nearly 1000 extra Customs officers, working at ports and inland, additional specialist investigators and intelligence staff, and a public awareness campaign.20 They announced that new criminal offences would be introduced for possessing, selling or dealing in unmarked cigarettes and hand-rolling tobacco or permitting premises to be used for such activity, with fines of up to £5000.
As a result of the measures outlined in Tackling Tobacco Smuggling, Customs aim to seize over 10 billion cigarettes, break up 180 smuggling gangs and collect an additional £2.5 ? 3 billion in tobacco revenue. The overall aim of the strategy is to reverse the trend in tobacco smuggling within three years. Increasingly, markers of success for Customs officers will be their impact on market penetration and street prices.
- increasing the number of seizures all along the supply chain;
- improving intelligence to optimise interception rates and disrupt inland distribution;
- targeting measures to apply effective sanctions to those involved in inland distribution;
- increasing use of asset confiscation to remove the economic rewards of smuggling;
- enhancing inter-agency working at home and abroad;
- deploying extra resources - both human and technological;
- ensuring the public and potential smugglers are in no doubt about the consequences of their actions.
There is a network of Fiscal Liaison Officers in Europe supporting a policy of 'upstream disruption'. Fiscal Liaison Officers, based in embassies, form part of the investigation service of Customs & Excise. Their primary function is to act as a go-between between foreign authorities and Customs & Excise regarding fiscal crime. The FLOs act on intelligence so, for example, Belgian authorities can seize a container in a Belgian port rather than British authorities waiting for it to arrive. This saves staff time and resources.
Loss of vehicle
Anybody who uses light commercial vehicles (a van, pick up, transit or similar) for smuggling alcohol and tobacco now face losing their vehicle on the first occasion they are caught.21 There is also an agreement with retail organisations of 'one strike and they're out' so that a customer with a conviction for tobacco smuggling cannot hire a car.
Since the beginning of September 2000 there has been a massive increase in the seizure of suppliers' vehicles. In the nine months to December 2000, Customs officers in Scotland had seized 79 vehicles.22 The courts also have the power to remove driving licences on conviction.
Since 1 July 2001, this policy extends to seizure of lorries. Anyone who uses a Heavy Goods Vehicle (tractor unit and/or trailer) to smuggle tobacco risks losing it. Customs' publicity campaign is urging responsible lorry drivers to make sensible checks to ensure they are not being used for smuggling.
Jail sentences of up to seven years
At the moment those caught smuggling tobacco in the UK receive a lesser sentence (7 years) than if they were caught smuggling drugs. On average tobacco smugglers caught bringing in large quantities of tobacco face low prison sentences of between six and 15 months.23 However, there is an indication that the attitudes of Scottish courts towards tobacco smuggling may be changing. In March 2001, a Glasgow man pled guilty to evading duty totalling nearly £250, 000 on two million cigarettes. James McCaffrey masterminded a major operation smuggling British-manufactured cigarettes into Scotland from Russia. He was jailed for three and a half years on 17 April.24
However, there is a lack of consistency on sentencing within the UK with community service often the only sentence received. Following a High Court test case, the Law Lords produced comprehensive sentencing guidelines for fining and imprisoning tobacco smugglers in England and Wales. However, in Scotland, Sheriffs still take each case on its own merit. Customs' disruption strategy focuses on the economics of tobacco smuggling and recognises that loss of profits can be more harmful to the low level criminal than minimal sentencing or fines.
Loss of lottery terminal and/or liquor licence
Under an agreement between Customs and Excise and Camelot plc., retailers who are convicted in court of selling or distributing smuggled alcohol or tobacco and who are National Lottery retailers will lose their lottery terminal. In October 2000, a Yorkshire newsagent became the first retailer in Britain to have his National Lottery terminal removed after pleading guilty to dealing in smuggled alcohol and evading £8,500 of duty. As running a lottery terminal can bring in a commission of about £7,500 a year to a retailer, the loss of licence acts as a powerful disincentive. Customs can also seek revocation of liquor licences from retailers who are members of the licensed trade.25
Unfortunately, all the above penalties currently rely upon a criminal conviction. It would be helpful if the registration of an objection by Customs & Excise was sufficient evidence for local licensing boards to remove licences. Customs and Excise officers are increasingly aiming to work in partnership with local trading standards officers, police and environmental health officers in order to tackle illegal activity more systematically. For example, in South Ayrshire, four local enforcement agencies recently raised objections to the granting of a licence to market operator, SPOOK Erections, to operate an outdoor market, arguing that market operators have a responsibility to ensure that illegal activity (such as smuggled tobacco sales) is not taking place. The market operator was refused a renewal of their licence although this has now gone to appeal.
Those convicted of tobacco smuggling offences should receive stronger sentences