Outward Excise Diversion Fraud
Outward diversion frauds involve the illegal diversion onto the UK market of beers, wines and spirits moving under duty suspension ostensibly for export from a UK excise warehouse to a similarly approved warehouse in the EU. The goods move under cover of an Accompanying Administrative Document, or AAD and a guarantee for the duty involved provided by the warehouse, haulier or any other party. The frauds usually involve large numbers of individuals including the owners of the goods, the hauliers, wholesalers and those selling the product onto the UK market.
The essential part of the fraud involves the false certification of the AADs and sometime CMRs (‘Convention Marchandises Routiers’), an internationally recognised consignment note used by hauliers to show the goods have arrived at the foreign warehouse, when in fact the goods never left the UK, and normally enter the secondary wholesale market in bulk.
In the mid 1990s, the first of a whole series of outward diversion frauds was uncovered involving a warehouse in East London, London City Bond, which HMCE had used as undisclosed informants. Two directors of the company, Alf and Ed Allington, had regularly provided information to their handler in HMCE concerning account holders using the bond, together with details of duty suspended loads of alcohol leaving London City Bond, ostensibly destined for foreign warehouses but in reality never leaving the UK.
More than 25 separate fraud trials were brought before the courts in which Alf Allington or other witnesses from London City Bond gave evidence for the Prosecution, explaining the procedures for the receipt, storage and subsequent export of duty suspended goods from London City Bond. The AADs were formally produced for the movements in question involving the particular defendants, showing a stamped receipt of the goods at the receiving warehouse in Europe.
Over £680 million in excise duty was evaded from these frauds which HMCE had allowed to continue in order to apprehend those involved. HMCE was severely censured for their handling of these frauds, and these failings became the subject of the report by Mr Justice Butterfield, published in 2003.
Inward Excise Diversion Fraud
A variation on outward diversion fraud is the situation where duty suspended goods are imported into the UK from a warehouse in the EU, ostensibly and according to the documentation, to a UK excise warehouse, but in reality to be illegally diverted on to the UK market, without payment of duty. Again, beers, wines and spirits are the preferred commodity.
Inward diversion frauds often use goods originally exported from the UK to an EU warehouse; the AAD will show the destination to be a UK excise warehouse, although the goods will only be delivered there if the load and documentation is inspected on entry into the UK by Customs. Otherwise, once through the port, the goods will be diverted into the UK market, and a false UK warehouse stamp provided on the AAD to be sent back to the EU warehouse as evidence of arrival of the goods at the UK warehouse.
Excise diversion frauds are usually prosecuted under Customs & Excise Management Act 1979 s 170 as the fraudulent evasion of duty, or cheating the revenue under common law.
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