Linington, Head of Legal and International Affairs, FTA. - Firstly, I am very privileged to come and contribute to the very valuable work that this committee has been doing. I have been following very closely the interim reports. As well as being Head of Legal and International Affairs at the Freight Transport Association I am also on the IRU Customs Commission and a representative on the UN Working Party 30 which is looking at the review of the TIR regime in the light of the fraud problems it has experienced.
The Freight Transport Association has a dual interest in the transit fraud problem. Firstly, many of our member companies have been directly affected by fraud and by the consequential measures now being taken to combat it, for example we have many of the manufacturers and exporters of alcohol and tobacco in the UK in our membership. Secondly, we have a direct, may I say vested interest, as an organization which has provided guarantees both within the Community Transit System, that is comprehensive and flat-rate guarantees, and have also issued TIR carnets including tobacco and alcohol carnets. It is in this latter role that we, along with many other trade associations throughout Europe, have become direct victims of the fraud ourselves.
From our point of view there are a number of key issues which are linked. Firstly, the inherent weakness of the customs regime which existed and which allowed repetitive frauds to be committed over a period of many months either without the frauds being detected, or where they were detected, effective preventative measures being taken at an early stage. Secondly, in the procedures for dealing with the matter where fraud was suspected or irregularities detected. Those very procedures gave the criminals ample notice that the game was up and gave them time to remove themselves and their assets from the reach of the authorities. Linked to that is the apparent difficulties that the authorities in many countries have experienced in successfully prosecuting or recovering money from those who perpetrated the frauds, even where in many cases the identities of those people are well-known.
Apart from the prosecution of some drivers in Germany, and I understand a number of those were convicted and jailed, the Southwark case that we are going to refer to in detail is the only instance I am aware of where a customs authority has attempted to prosecute the organizers of the fraud rather than just those who carried the goods.
I was not directly involved in that case, other than an observer, although members of my staff gave evidence and therefore I was there throughout the proceedings. I was not there obviously during the legal argument that was taking place in the judge's chambers. So I have an overview of the case but some detail is not available to me.
One of the things that I became very aware of because of the outcome of that case is the great difficulty that customs authorities face in actually obtaining a successful conviction.
Chairman. - Can I interrupt you Mr Linington because it might be helpful as the note from the United Kingdom Permanent Representative only arrived last night, if you could expand your introductory remarks and give a very brief review of the case before you give your analysis. It might be helpful to the other members of the committee who have not had the documentation in their own language.
Linington. - I should say that I have to be slightly wary in my remarks because there is a further case starting in the UK on Monday, where I am one of the key witnesses, which follows very closely the pattern of the case that failed.
Chairman. - In that case feel free not to say anything you do not want to say because the last thing this Committee would want to do is bear any culpability for prejudicing your evidence.
Linington. - I shall endeavour to steer that course. Very briefly, the case in the UK that failed was against a number of people who had organized in various ways the use of the TIR system to bring tobacco products into the Community free of duty, either directly into a bonded warehouse within the United Kingdom or into a bonded warehouse in Switzerland and had then used the TIR system to remove those goods without payment of duty, purportedly to take them to Morocco.
In all cases the carnets were correctly stamped showing that the goods had been shipped out through Algeciras and subsequently some documents were produced to show that the goods had been received in Morocco. It was alleged that all those documents and stamps were false and that the goods had been diverted onto the European market without payment of duty, in five cases in Italy and two in Spain. That was where the goods ended up on sale.
The difficulty that the customs faced was that the legislation they were attempting to bring the case under was new legislation both to them and to the courts. I was not privy to the legal argument that went on prior to the hearing but this led to two of the defendants being dismissed because the evidence against them was deemed inadmissible for a variety of reasons. Subsequently all charges relating to the goods that were diverted onto the Italian market were dropped because again there was an inability on the part of the prosecution to bring the right documents before the court to show that a crime had been committed in Italy that could be prosecuted in the UK.
The difficulty appears to be the fact that these are international crimes and the point at which the fraud took place is a foreign country and one of the things that the prosecution has to do is to produce certificates from that country which substantiate the fact that a criminal offence was committed there.
The Spanish prosecution continued on the basis of a certificate which the prosecution had obtained from the Spanish authorities. After several weeks of legal argument, the defence, which I have to say was extremely competent, produced a Spanish lawyer who gave evidence that the certificate was defective inasmuch as it gave details of the Spanish criminal code in a way which was not applicable to the actual offences that had been committed. In other words there was a discrepancy in that document. It was a highly technical discrepancy, but one which nevertheless the judge accepted as being material to the effect that he dismissed the case. The jury never heard the evidence, or heard very little of it.
Chairman. - That is what is described in the first three pages of the Customs and Excise note.
Linington. - Yes. I have only read it very quickly, as I am sure you have.
Chairman. - But that seems to be the analysis of the legal argument.
Linington. - Yes. There seemed to be two particular arguments. One is that the document had to be absolutely correct in every detail and secondly, it had to be signed by the correct officer in Spain. I believe it failed on both counts.
That highlighted the difficulties that the prosecution were facing. They were faced with new legislation. They were faced with a judge who was having difficulty in grasping exactly what crime had been committed and where. From my observation of the jury, it was totally bewildered by what was being said because introduced into the whole case there were companies that had been set up in the Isle of Man, companies set up in Ireland, goods shipped from Cyprus, goods moving from Switzerland to bonded warehouses in Morocco; and there was not a body, they could not actually see who had been damaged by all this. Of course within that the defence were advancing the fact that this whole system was incredibly complicated, that there were many claims by customs authorities which were due to defects in the system itself, that they were due to errors because pieces of paper had not passed from one customs authority to another and even if the case had gone ahead I would not have put money on anybody being convicted.
Chairman. - Well, that is for all members of the committee an almost totally gloomy prognostication. Not only were there the technical mistakes in the certificate so that the judge could not accept them, but even if the prosecution had been completed it would be your guess it would have been difficult to succeed. I think that is an important point. We accept that as only a personal evaluation but it makes our life in relation to the prescription of what you do in the case of fraud very difficult indeed.
Kellett-Bowman (PPE), rapporteur. - I am delighted with a system which enables people to get off if the prosecution cannot make the case stick. Having said that, as a magistrate I am no lover of the Crown Prosecution Service and am delighted that it is going to be improved. It would seem to be that we need to have a European prosecution service with experts who can collect the evidence from different countries in order to be able to advance them in court. We made progress in enabling an offence in one country to be tried in a second country. However from the details which you have given, is it open to the prosecution to prosecute again either in the UK or elsewhere, or would the acquittal be used in their defence to avoid the case coming up at all? There seems to me to be here evidence about offences in other countries. Does the fact that we took a lead and prosecuted mean that they get off in other countries where offences might be able to be proved.
Linington. - Thank you for that question. I am not sure that I am competent to answer it in all its respects. Certainly I believe there is no possibility of further charges being brought in respect of the seven carnets which were the subject of this case.
However, it is interesting to note that the people involved with this company were issued with a total of 18 tobacco and alcohol carnets and that nine of those are the subject of claims under the guarantee in Germany and two are the subject of claims under the guarantee in France. As far as I am aware there is no attempt being made to prosecute these people in relation to those particular frauds, either in the UK or elsewhere and that brought me to a point that I was going to make in my introductory remarks.
One of the consequences of the great difficulty of getting these people into court and then making the charges stick when you get there is that it seems that a number of authorities have decided that their resources are better invested in going after the guarantor who is available, tangible and has a cheque-book. I am afraid that is a knock-on effect of this.
I know of no instance where the actual perpetrators of the frauds have had any money recovered from them from the customs authorities. In all cases there has been reversion to the guarantee arrangements, rather than an attempt to get money from those who committed the frauds.
Chairman. - Can I just clarify one thing because you are saying that of eighteen carnets issued, seven were the subject of legal action in the United Kingdom, two the subject of claims in France, and nine the subject of claims in Germany. That is all eighteen. Is that the total number of carnets that have been issued to this group of people or is this eighteen out of a much larger total?
Linington. - Eighteen tobacco/alcohol carnets were issued to this particular group of people.
Chairman. - And none of them satisfactorily completed?
Linington. - That is correct. And that is the pattern. Where a company was set-up or subverted for this particular purpose of committing fraud, practically every tobacco/alcohol carnet issued to them was used fraudulently.
Chairman. - That indicates the sort of odds that make me despair of ever winning the national lottery.
Linington. - Correct.
Katiforis (PSE). - I am not sure what this certificate was. Is it a certificate that certain acts had taken place, or was it supposed to give a description of Spanish law? That is my first question.
Chairman. - What Mr Katiforis is really asking is that you have referred to the production of the certificate, what is the role of the certificate? The certificate is supposed to prove, is it not, that the offence that is being prosecuted in one country has in fact occurred somewhere else, so the certificate is the evidence of the proof of the offence? Perhaps you can explain it.
Linington. - As I understand it, one of the things that the prosecution has to do, where the offence is being prosecuted in another Member State is to produce a document, from the Member State where the offence occurred, in this case Spain, stating that it would have been an offence in Spain, under which provisions of Spanish law it would have been an offence and what the penalties would have been in Spanish law had the case been heard in Spain. It is making the link between the law in one country and the law in the country where the case is actually being heard.
Katiforis (PSE). - I do not understand something in the document, it says: the offence committed in Spain must be a serious offence, it must be punishable by a maximum of 12 months or more. I do not understand this expression. A maximum of 12 months or more. How can a maximum have more?
Chairman. - That was the mistake that was in the certificate and what has confused you also confused the judge and contributed to the judge rejecting the certificate. What you have seen is something written in one language in one country which appeared in that form in translation, and what has rightly confused you this morning confused the judge. This is empirical evidence of the difficulty of a trans-national prosecution. I think I have understood it correctly, have I not Mr Linington?
Linington. - Absolutely, there was a lot of confusion. This argument lasted for three days. I have twelve pages of notes if anybody is interested.
Chairman. - It is a salutary lesson and one of the reasons I want to translate this for all Members. This is the first example we have of a major prosecution against an alleged organized conspiracy to defraud and the reasons why it failed. Those of us who are talking about not only the need to detect but also to prosecute have to address not only the questions that we have already discussed about should there be a European prosecution service, but should there be a defined European offence, should there be a defined standard of European evidence, should there be a defined procedure and check-list for collaboration between national prosecuting services, which is virtually agreed by the judicial system as being the appropriate standard of evidence. This is why I referred to that one thing earlier about motorway toll receipts. It seems quite evident that it is acceptable evidence in one place, but unless it has accompanying evidence that the machine was working is rejected somewhere else. This is a very good example; it almost ought to be a case study in a number of European law schools.
Katiforis (PSE). - Who actually issued this certificate?
Linington. - As I understand it, the Spanish Ministry of Justice issued the certificate.
Wemheuer (PSE). - (DE) I understand why the certificate was not accepted. But I do have a question on that point. Was there any room for manoeuvre? There are sometimes decisions in which it is said that something can be accepted as grounds but need not be accepted. What is the position in English law? What would have happened if it had nevertheless been accepted, if they had said it was reasonable to assume that a translation error had occurred? It plainly cannot be intended to mean that the maximum sentence is twelve months. It is actually quite obvious what has happened here. Would there have been no scope for accepting the certificate without infringing the law as it stands?
Linington. - I am again limited in the answer I can give because most of the discussions about the admissibility of the certificate took place in chambers between the judge, the prosecuting counsel and the defence counsel so what I have to say is hearsay. I understand the judge took the view that it was an absolute requirement that it be accurate in all respects and that he had no flexibility. I know the prosecution attempted to argue that there were translation errors but I understand that the judge ruled that there was a more fundamental error in that it referred to the wrong section of the Spanish code rather than details within that and that was the fundamental flaw on which it failed. So he did not have to ask himself whether he could have accepted an amended document if it had only had a translation error.
Chairman. - I apologize that members of the committee did not have the document available before, but if you go through the detail there is the assertion followed by the commentary from the customs service and they admitted the criticism. Point B cites an offence which is irrelevant. The customs service admits that is the case. It mentions civil penalties - admitted. It shows that this certificate, which on first reading appeared to make sense, did not actually prove what the certificate was required to prove. We are not using this as a criticism of either the Spanish authorities or the Customs and Excise, both of whom have said to me that they regarded this as a case of exemplary cooperation, but to show that a good spirit of cooperation by itself is not enough. It has to lead to the watertight standard of evidence to secure a prosecution.
Can I lead on to a separate question. What sort of signal do you think that the collapse of this prosecution gives to what we could think of as organized groups who are conspiring to defraud the revenue by abusing the transit system? Does it give any sort of signal that might lead them to have worries about the likelihood of successful prosecution?
Linington. - Again I hesitate to answer but I think if I was a criminal I would be very relaxed following this case.
One of the things you touched on was the fact that there was exemplary cooperation. That is true, but it is interesting to note that the reason that the errors were detected was that the defence did not accept the document at its face value and employed a Spanish legal expert to go through the document with a fine tooth- comb and look for errors. It was the defence witness, the Spanish lawyer, who drew the judge's attention to the defects in the certificate and persuaded him that it could not be used. It is interesting that the customs relied on the document they received without going to the trouble of checking its validity. That might be a lesson in itself.
Chairman. - That I can fully appreciate. I came face-to-face with this when I addressed the annual meeting of the United Kingdom branch of the Association of Lawyers for the protection of the financial interest of the European Community. At that gathering there were a number of lawyers from both the Customs and Excise Service and from the Department of Trade and Industry and they were rather shell-shocked because it coincided with this. Their initial reaction was not one of criticising the Spanish authorities' intention to cooperate. What this shows is that good intention often paves the road to hell. Good intention has to translate itself into good technical evidence, acceptable for prosecution before a court of law. Without that, the good intention can even become counterproductive because the more cases that collapse the more incentive there is for people to say: it is going to be difficult to get a successful prosecution against us.
Linington. - I totally agree. One thing that you have to bear in mind is that if these people were guilty of the crimes they are accused of, if they made £8 million, they could afford a very good lawyer. It is incumbent on those authorities who are prosecuting under the existing rules, which are a huge obstacle to prosecution and which need addressing in themselves, that they apply the same level of expertise to the prosecution.
Pronk (PPE). - It is a very interesting case but some of it, especially Point F, the minimum penalty of 12 months, is not only due to the strength of the defence lawyer but also to the absence of strength of the judge because this is a very stupid mistake. Anybody who knows anything about any treaty concerning this kind of thing knows about these things and in my opinion should not be fooled by it.
This brings me to my first question which is: would it not be better to have a special court in each country with a special judge who knows a little bit about foreign law, so that he can rule better on questions of foreign law? I think in cases like this that would have helped an awful lot.
The second point is on the excluded evidence on the receipts. This seems to be a case which has nothing to do with the fact that it was in France. This could have happened equally if they had given British toll receipts. Is this true or not?
Thirdly, would it be possible to make a list for other cases where violations of Community law would be deemed to be automatically punishable in other countries so that this whole question would not have arisen?
Chairman. - I emphasize to the committee that Mr Linington was neither responsible for the prosecution, or its collapse. He was a very interested observer because companies in his association were detrimentally affected and with the collapse of the prosecution could be called on to meet the guarantees.
Pronk (PPE). - Are you going to call the judge then?
Linington. - I would go further than that and say I was even more interested because we were the actual suppliers of the guarantees and we faced the bill for this.
In answer to the points you raised. Firstly, one of the great problems in all complicated fraud trials, particularly those dealing with international fraud, is the level of competence of the people hearing a case. You have to bear in mind that even if the judge had allowed the case to go ahead you had a jury of twelve very ordinary upright citizens hearing it who were already becoming confused by the evidence that they were hearing. There are in the UK, and I suspect elsewhere, many precedents of complicated fraud trials collapsing, or returning a verdict of not guilty, because the jury do not understand the case they have heard. There is a very strong argument that not only the judge but those hearing the case should be competent to judge the case on its merits.
Chairman. - Are you saying then that trial by jury is an impossible mechanism for getting a conviction in complicated fraud trials?
Linington. - It seems to mitigate against getting a correct result on the basis of the evidence presented.
The second part related to the admissibility of evidence and the French motorway tolls. One of the things I believe is correct is that once the case has been accepted and the certificate has been accepted then the case proceeds on the basis of UK law and what is admissible under UK law, not what would have been admissible in Spain. I think that comes down to the prosecution. The prosecution, having got over the hurdle of having the case accepted, should be working within rules that they are familiar with, i.e. the UK courts and what is admissible or not. It is not a question of it being a French receipt it is a question of what is admissible in UK law. That is not a major obstacle in itself to a prosecution; the main obstacle is getting the case accepted.
Perry. -It is rare that we do not hear Switzerland and the Isle of Man getting into the frame somewhere and we heard them mentioned in this particular case. I take it that Section 71 of the Criminal Justice Act of 1993, which refers to crimes in other Member States, does not in fact cover Switzerland and the Isle of Man. Can you tell me whether in any sense it refers to offences which might be committed in the Visegrad countries or whether bringing a prosecution if the crime was found to have been committed there would have been yet more of a problem?
I was not allowed my question on X-ray machines in Rotterdam so let me try another. Apparently £8 million went missing and we hear this morning it was closer to £20 million if there were 18 of these certificates issued. What would have been the considerable expense of a live witness, against that £8 million or £20 million?
Chairman. - You were allowed the question, it was just that you asked it of somebody who did not have the competence to answer it.
Linington. - I cannot answer any of those. I can simply add the name Gibraltar to the list.
Chairman. - And you referred to Cyprus which Mr Perry forgot to mention.
Linington. - I do not understand the reference to bringing somebody over because I understand you have to have a certificate anyway. I can only assume you mean bring a Spanish lawyer over who will verify that the certificate is correct in Spanish law and therefore take the judge through it, just as the defence witness from Spain took the judge through it and proved it was inaccurate.
There was a witness from the Spanish customs authorities who had come over to give evidence on behalf of the Spanish customs to say that the stamps that were on the carnets purporting to show that they had gone through Algeciras were in fact false stamps but I can not help you any further.
Chairman. - Can I pursue one or two questions myself in relation to your association, the Freight Transport Association. Of the cases of transit fraud affecting members of your association over the last five years, have there been any that have resulted in criminal convictions in either British or other EU courts?
Linington. - Yes. There was one sub-contract driver who was jailed in Germany. He was working for this organization but was not part, as far as we are aware, of the criminal conspiracy. But he accepted loads from them and admitted that he delivered those loads to a warehouse in Spain on the instructions of the company he was working for, rather than taking them through to Morocco.
Chairman. - That is the only one.
Linington. - That is the only one I know of.
Chairman. - The second question. In a case such as that where you have got a conviction or where there is a conviction against a third party, is the freight forwarder in such a case automatically released from his guarantee obligations?
Linington. - No. He is not automatically released from his obligations, nor is the guarantor. Because of the way in which the TIR carnet system works, if a load of cigarettes goes missing or does not arrive at its destination and there is a customs claim, the first claim is against the holder of the carnet for the full amount of the duty that is at risk. That is normally about three-quarters of a million pounds per load of cigarettes. In the event that the holder of the carnet does not meet that obligation then customs have resort to the guarantee arrangement which is $200,000 against the guarantor which is the issuer of the carnets which in these cases were ourselves. As far as the driver is concerned, under some legislation, German legislation is an example, he is deemed to be jointly and severally liable together with the named holder of the carnet. In this case the driver has had sent to him bills for several million Deutschmarks which clearly he is not able to pay and the German authorities are then having recourse to the guarantor for the failure to obtain payment.
Chairman. - My third question is have you or any of your members in the Freight Transport Association ever testified in a court of law in another EU Member State in a case involving transit fraud and do you believe that you can be required to do so?
Linington. - We have not done so. If I was required to do so, I would do so voluntarily. I do not believe there would be any compulsion on our members to give evidence because there are several drivers who are witnesses in the forthcoming case who could also be material witnesses in certain cases in Germany and, as I understand it, there is no direct mechanism to compel them to appear in those cases. I cannot say that for certain but that is my understanding.
Chairman. - But in a road traffic accident case they could be compelled because the prosecuting authorities would get the British Home Office to serve the demand that they appear in court. If they were involved as either a witness or as an accused in a road traffic accident they could be required to appear in a case but where it is a major offence against the Community financial interest you do not think that requirement would apply?
Linington. - I believe that to be the case. Again, it is the difference between where they are a witness in a criminal case and what is seen to be a tax case. I understand most cases in Germany are brought under tax law rather than the criminal code.
Katiforis (PSE). - There is something that strikes me as remarkable about this case. Apparently no charges have been brought in Britain for any serious infringement of the United Kingdom legal order except in so far as British citizens have been allegedly conspiring to commit crimes in other countries. That does not seem to be the case in Count 3. In Count 3 - which has been dismissed anyway - it is the question of cigarettes smuggled illegally - it was not an assigned matter - I do not understand the term very well but it is irrelevant to my question. Then the comment is that conspiracy to defraud by putting the FTA at financial risk would have been a better alternative. In all this it does not appear to have occurred to anybody that there could be a count of conspiracy to defraud the European Community. It seems that the legal order of the European Community is not adopted as part of the legal order of the United Kingdom. That is what strikes me as very strange.
Chairman. - I listened to the question with great interest and I look forward to having the same analytical response to a failed prosecution in all other Member States.
Linington. - Again you have to forgive me because I am not a practising lawyer in the UK and I simply was not involved in this prosecution.
Firstly I agree with you that what we have here is a situation where citizens of the UK were involved in an international fraud in which the UK Government suffered no loss and where there was no offence committed on UK soil. The carnet journey was perfectly legitimate up to the point where the goods were diverted rather than going on to their final destination and in this case we are told the diversions took place in Italy and Spain. I believe that the customs authority's reason for making that allegation was that they had a variety of evidence to show that those were the countries where the goods were unloaded. That is why Spain is referred to as the country where the offence took place, hence the need for the certificate showing a criminal offence had been committed in Spain, although it was being prosecuted in the UK.
I totally agree with you that because we have this single market for one purpose but we still have national justice systems for another, that is working in the favour of the criminal. It is making it very difficult to say that the crime was committed in this place or that place, rather than being able to say a crime was committed on the territory of the European Union, and an offence was committed against the authorities of the Union. It would be far simpler if the ability to prosecute on that basis existed. But that I guess is some steps away.
Chairman. - And would likely be denounced in the United Kingdom as further evidence of Eurofederalism and diktat from Brussels.
Linington. - I am sure it would. Nevertheless, despite our xenophobia, if you are asking me as someone looking at this objectively, it seems absolutely clear to me that would remove a lot of the difficulties that have been experienced in this case.
Katiforis (PSE). - Depriving the Community of funds ultimately deprives the Member States of funds. The British legal order is attacked via the attack on the legal order of the European Union.
Chairman. - It is not even ultimately, in almost every single case it is both. The very process of the fraud in most cases of transit frauds simultaneously attacks both own resources and the Member State budget. In so far as it attacks own resources that ultimately feeds through again into the Member States.
Linington. - To take up the point you make. The customs reference to the fact that they ought in a future situation to suggest it was the Freight Transport Association that has been defrauded, there are some merits in that. One of the difficulties we have is that there are two frauds that have taken place. At the first level the Member States have been defrauded of some £8 million as stated here. That breaks down to loss of revenue to the Member State itself and to loss of revenue to the Community because those are divided between them. Because of the guarantee system the customs are able to recover at least part of that £8 million from the guarantor, approximately in this case about £1 million. That £1 million would be recovered against UK organizations, ourselves and our insurers. Effectively there is a fraud that has taken place relating to the UK but it is the subsidiary fraud, the consequential fraud. It might have been far easier for the customs if they wanted to secure a conviction and wanted to convince a jury that a fraud had taken place, to put up the Freight Transport Association insurers and say these people have lost £1 million, as a result of the activities of this company, rather than trying to show that these national bodies far away, that the jury has little interest in, have lost £8 million. That is a pragmatic approach.
Wemheuer (PSE). - (DE) Mr Linington, let me ask you as a practitioner whether you have heard of any cases in which drivers who had to or wanted to testify in such trials were threatened, injured or even murdered?
Linington. - The short answer is yes. This is organized crime and some of the drivers I believe took part in the knowledge of what they were involved in and were rewarded, others simply turned a blind eye in order to get work. Certainly they were not part of the central conspiracy and were not rewarded accordingly. They are the most vulnerable because where there have been arrests and successful prosecutions it has been the amongst the drivers themselves. They are the potential witnesses against those who organized it and some have been intimidated. I know of one case where someone has been murdered.
Kellett-Bowman (PPE). - Cases which could have been brought must have been considered by the CPS. What they were trying to do was to get convictions which would lead to the back claim. The difficulty with making multiple cases in our law - it must be the same in most countries - is that if you fail on one line of your argument you are in danger of collapsing the others.
Mrs Theato has another job to do. We have to try and get a Community definition of smuggling. In this paper the most distressing thing is, Point A says they had two options, whether to go for cheating the revenue or for smuggling. We are interested in the first because that is the money that needs to be claimed back. There surely is an international definition of smuggling and I thought it was the taking of goods across a tax frontier. What has happened here is that they have failed to take them across a tax frontier. Can that be described as smuggling?
Linington. - I do not know about the international legal definitions but generically and talking to customs, they make a distinction between transit fraud and smuggling. Transit fraud is basically where the goods are properly declared. They are using the system apparently legally but actually diverting the goods and using forged stamps on legal documents. Smuggling comes under two categories. One is the clandestine introduction of goods into a market without going through any of the legal procedures or controls. The other form of smuggling is where you mis-declare the goods, in other words you say you are carrying woollen jumpers but in fact you have a truck load of cigarettes.
One of the consequences of the withdrawal of the tobacco/alcohol carnet, and the increase in the comprehensive guarantee amounts required, is that there has been a revision to the more traditional forms of smuggling that you refer to. It just so happened that at a particular moment in time this offered an easier, and from the point of view of the fraudsters, more secure means of introducing goods onto markets free of duty. With that door now closed they have gone back to traditional methods.
Chairman. - Before asking my question can I just refer to something that happened in the United Kingdom yesterday. In the budget the Chancellor of the Exchequer announced an increase in taxation on tobacco, in the form of cigarettes of 15p per pack, cigars by 7p, pipe tobacco by 8p and then went on to announce that concerning hand-rolling tobacco, the duty would remain fixed due to cross-border smuggling. Anything to observe on that Mr Linington?
Linington. - It seems perverse.
Chairman. - But it is in fact quite incredible that a Member State differentiates in its budget this week specifically in relation to cross-border smuggling.
My question was however: if we go back to your original evidence, Contribution No. 6, and it shows us how closely the Freight Transport Association have followed us by being one of the first people to make a contribution to us, in the summary at the end, Point 5(4), you talk of the improvements that need to be made to the system, coordinated recovery actions and instigation of criminal proceedings against those organizing and benefitting from fraud. Particularly bearing in mind what the customs and excise document says about the appropriateness of the charge being conspiracy to defraud, do you believe there is any evidence that links the possibility of tobacco producers being people that benefit from fraud, not by directly participating in it but maybe by being part of what could be thought of by some, not myself, as being a criminal conspiracy?
Linington. - I will have to choose my words very carefully here. I plead guilty to being the author of this document. I was not intending to draw any real distinction between those who organize it and those who benefit from it. I believe they are the same people, although in practical terms there are different levels, just as in drug smuggling you could say those organizing it are those who actually strap the drugs on the courier and send him through. Behind them are people who are financing the whole operation. This is true also of cigarette fraud. The people the customs are getting to are at best the middle-men and the couriers. There are people behind them who put up a substantial amount of money in the first place to organize this, bearing in mind in some cases they bought transport companies outright in order to be able to perpetrate the fraud. They obviously made an investment in buying cigarettes in the first place and putting them in warehouses and those people remain elusive. I was not intending to make a distinction in the way that you have suggested.
Chairman. - I have not suggested it I was just trying to clarify whether you were suggesting it.
Linington. - No, I was not. To go on to your point, I have no reason to believe that there is any direct connection between the tobacco companies themselves and this type of fraud other than the fact that I suppose they were selling more cigarettes because the fraudsters were buying them along with everybody else.
Theato (PPE). - (DE) Unfortunately I have been otherwise engaged and could not come here any sooner. For that reason I have not followed the whole discussion, Mr Linington, but I did want to point out that offences involving Community resources are basically regulated for all Member States, because the judgment delivered by the European Court of Justice in the Greek maize case laid down that offences involving Community funds must be punished in the same way as offences against national funds.
Now in this particular matter of the transit system, of course, we also have a twofold offence, because the Member States have contributed to these crimes, as the Chairman quite rightly pointed out before. Moreover, the Maastricht Treaty instructs the Member States to apply the same criteria when punishing crimes, whether they involve the misuse of Community funds or the misuse of national funds. The crux of the matter, however, is that legislation varies between countries. To put it bluntly, in the one country tax evasion is regarded as a regulatory offence, while in others it carries a prison sentence. You have already intimated here that you regard this as an area where Community jurisdiction is needed. The relevant national laws should be harmonized in such a way that their effects are the same in every country. I wanted to point out that our Parliament is working very hard in this area; the practical experience you have shared with us today has shown us where legislative variations are playing into the hands of organized criminals.
But I wanted to ask you one specific question. You have heard of Europol. The Europol Convention has still not entered into force, or is not yet fully in force. Do you expect cooperation with Europol to yield certain benefits in terms of detecting transit crimes, and in particular will it benefit you and your industry?
Linington. - I believe that any mechanism for pooling and exchanging information and identifying those companies which may be involved in crime, and those persons who may be involved in crime, with a view to excluding them from the system would be useful. The Chairman asked a question of my predecessor on the stand as to whether or not there was a black-list in Germany. There is certainly a list in the UK, colour unspecified, whereby we check all applicants for TIR carnets, very rigorously, both with customs intelligence agencies and with commercial agencies involved in the field of probity checking. The difficulty is that you have to walk a very thin line between excluding legitimate businesses and excluding the criminals, but there is a lot of work going on in that area. On that basis I would have thought that any Union-wide body that is in the business of pooling information and disseminating it must be a step forward.
I would just like to add one thing and that is that we have not mentioned the benefits from computerization. One of the problems throughout has been the delays in detecting things going wrong, of identifying who has been doing it and stopping them. Perhaps the biggest step forward is in computerization of the system, coupled with very stringent controls on who is allowed into the system. Those stringent controls can only work if there is a pool of information that can be accessed by those who are in the business of saying "yes, you can have a guarantee or no, you cannot", they are all linked together.
Chairman. - Can I just pick up that last point and say that members of this committee were quite diligent during the budgetary procedure to make sure that adequate resources were put into the European Union's budget for next year for computerization. The only reason we did not raise it with you was an almost self-denying ordinance. When we saw Working Party 30, of which you are a member, and their distinguished record in not being able to agree barcodes for TIR carnets, leaving us with the result that I once described by saying that my cans of baked beans at the local supermarket are more protected by barcodes than is a TIR carnet, we did not think we think we would burden a member of WP30 with concepts like computerization, when they had not yet fully managed to grasp the barcodes on the TIR carnet. As I have offended WP30, I should perhaps allow you to respond.
Linington. - You have not offended this particular member of WP30, who has been advocating all the measures including barcodes and indeed the rapid introduction of the system that the trade through the IRU has put in place for the TIR carnets. It is a mystery to me why this has not been enthusiastically endorsed by those other members of WP30, unfortunately the ones that count.
Chairman. - By the ones who count you mean DG XXI?
Linington. - I mean those who are representing national bodies as either customs representatives, ministry representatives or representing the European Union through the Commission.
Chairman. - I am sure they will hear your voice.
Kellett-Bowman (PPE). - I just want to thank Mr Linington for his contribution. I would like to feel that we could hear more people who have had his sort of experience, particularly in a case like this, although we are sorry to hear about cases like this. The information he has given us and the insight into what happened has been fascinating and helpful.
Linington. - I hope I have been able to make a contribution to this committee's deliberations and if I can supply any further information I would be more than happy to do so.
Chairman. - Thank you very much for your cooperation.
European Parliament, 27/11/96; revised 26/02/1997
URL : http://../dg7/hearings/en/transit/fta-law.htm