Behind the Headlines

Changing the law to tackle counterfeiters

A number of methods have been used over the past four years to deal with the growing problem of counterfeit and smuggled vodka.

One of those has been through tackling the counterfeit black market, which is estimated to cost the taxpayer £8bn pounds a year, through legislation and increased operational activities.

In 2001 consumer minister Melanie Johnson made a pledge of no tolerance for sellers of counterfeit goods, including vodka.

Later that year Vince Cable, the man heralded as the Liberal Democrats economics expert, stood up in Parliament and introduced the Copyright and Trade Marks (Offences and Enforcement) Bill.

The bill was passed in July 2002 making it into an Act of Parliament. It is a broad piece of legislation meant to cover a number of issues including the use of brand names on counterfeit goods.

Before the introduction of the Act producers and manufacturers with intellectual property rights to trademarks, such as Glen’s vodka only could only pursue counterfeiters through the civil courts.

The effect of the Act was to make it a criminal offence to sell goods, packaging or labels bearing a trademark that had been applied without the consent of the trade mark owner.

It amended the s.92 of the Trademarks Act 1994 and is now used by trading standards officers when they bring a prosecution against retailers for selling counterfeit products.

Balihar Khalsa

Duty stamps - an attempt to reduce alcohol fraud

Duty stamps on the sale of alcohol stronger than 30 per cent was introduced in April 2006 as part of a range of measures designed to prevent fraud.

Alcohol fraud is moving duty-free goods from warehouse to warehouse to avoid paying excise tax.

The recommendation to introduce the measure was originally made in the Roques Report on excise diversion fraud, which was an attempt at examining the extent of the problem and a number of ways to stop the activity.

Out of 62 suggestions the government decided to adopt 44 of them, one of those being the duty stamp scheme.

A consultation with industry representatives took place in 2001. From that process, it emerged that the introduction of a new taxation scheme would place a heavy financial burden on wholesalers and retailers, and there was resistance to the measure.

Representatives claimed that the cost of the scheme would be disproportionate to the benefits and offered a range of alternative suggestions. However, the government decided to press ahead with duty stamps after an estimate that the Exchequer had lost £600m to spirit fraud and that was a trend set to continue.

Despite the introduction of duty stamps as a means of tracing duty paid goods, counterfeiters are now reproducing fake versions of the stamps to get around the rules.

Balihar Khalsa

Tackling spirit fraud - government and industry

Spirit fraud entered the spotlight in 2005 when the government introduced a number of measures to tackle the problem.

The Memorandum of Understanding (MoU) was one of those measures. It is an agreement between government and various trade bodies including: The Gin and Vodka Association, The Scotch Whisky Association and The Wine and Spirits Trade Association.

Edwin Atkinson, director of the Gin and Vodka Association, speaking in 2005, said: “UK spirits producers will be actively working with HMRC to tackle the spirits fraud problem.

“Particularly the large scale organised freight diversion frauds, which deprive the government of millions of pounds of revenue each year.”

Each year the MoU is amended and renewed in order to maintain the information sharing relationship between the regulators and the alcohol sector.

However, a report produced by HMRC earlier this year indicated that the MoUs have not been as successful as was expected. The ‘Alcohol Activity Report’ published in January said:

“The usefulness of information was generally low as it contained little risk information or information that HMRC was not already obtaining from other industry sources.”

The revelation has led to a renegotiation of the terms putting more of an emphasis on fraud, rather than distribution and supply chains.

One of the main problems that emerged in the run-up to the introduction of the MoU was the disparity between estimates of the amount of money that was being lost in spirit fraud.

HMRC estimates were much higher than the trade associations and no conclusive figures were available to demonstrate the amount of money being lost through the fraudulent spirit trade.

Balihar Khalsa

Government renewal of alcohol fraud strategy

Alcohol fraud continues to be a major problem for HM Revenue and Customs (HMRC) despite a four year strategy aimed at reducing the activity.

Since 2005 HMRC have worked with the alcohol industry in a bid to reduce the amount of money lost to the taxpayer through tax avoidance carried out by organised criminal gangs.

A renewed strategy called, ‘Tackling Alcohol Fraud’, was announced last month in the budget along with a range of measures designed to prevent tax avoidance.

It is estimated that £250m is lost in taxes annually through the sale of spirits that have not had the correct amount of tax paid on them. VAT and excise duty are the two levies payable before the sale of spirits on the retail market.

The renewal of the strategy highlights government awareness of criminal gangs and organised fraudsters’ successful attempts to enter the alcohol industry.

HMRC and the UK Border Control Agency will continue to work together, to tackle the problem and focus on three main themes: changing the law, working with honest business and strengthening operational responses to alcohol fraud.

A new anti-fraud team has been established which includes a national network of detectives capable of providing a quick response to risky alcohol consignments 24/7.

Not all of the new measures will be implemented immediately. Consultations into the impact that changes in the law will have on legitimate industry will be held in the near future.

The Federation of Wholesale Distributors (FWD) has welcomed the move after lobbying the government.

John Murphy, FWD director general said: “This is really good news and fulfils our best hopes for strong HMRC action to crack down on duty fraud on alcohol.

“We alerted the authorities to the escalating scale of the problem early last summer, and singled out abuse of the duty drawback facility as a prime mover of the fraud at that time.”

Balihar Khalsa