When I first heard of this scandal, I was put in mind (as were others) of HMCE running a covert criminal entrapment fraud in the 1990s that lost half a billion quid in revenues, those ensnared in it jailed and to this day HMRC smearing the entire innocent alcohol sector to shore up their lies to Parliament, external investigators and the Metropolitan Police. It was an enormous conspiracy - even HMCE Policy staff were lied to at the time and for a few years after the event. When the truth broke, all convictions were quashed and it was eventually revealed (by HMCE's lawyers accidentally sending top secret briefing - the London City Bond fraud "spine" - intended for their barrister to a defence solicitor(!)) that HMCE were using registered informants "on the inside", a crucial fact which was not disclosed to the defence hitherto.
But it is the damage done to wholly innocent and unaware traders that is the big disgrace. In my dotage, I'm writing a book about it - I have most of the first hand evidence I need (including the London City Bond fraud "spine" - what a doc THAT is!) but also with oral reports from my former colleagues in HMCE after I left end of 1997. It's also a picaresque tale of my unplanned journey from Pensnett to Whitehall and places between with some of the buffoonery encountered and yet more high-level lying to give a few (many, I hope) loffs. I've sent HMRC an early extract of my draft, Two Billion Lies....
Since I've written it, you might be interested to read the intro (preface). I'm about 20% into the chapters. Skip by all means but I hope it finds some interest (my ode mon in Dudley gets an early mention).
Preface - Two Billion Lies
Two Billion lies by HM Customs and Excise? Well, something like it occurred due to the enormity of mendacity required to cover up an alcohol bootlegging operation run over four years by supposedly elite customs investigators in which they lured hundreds of unwitting fraudsters into their honey trap to be set up for prosecution, conviction and imprisonment.
The illegality of this covert entrapment operation was bad enough but, while it was running between 1994 – 98, an estimated £2 billion in alcohol duty was lost irrecoverably to the government’s coffers. The truth and scale of this sting operation was withheld from the courts for years by senior lawyers and mandarins of HMCE until the conspiracy buckled fatally under the weight of its own lies at Liverpool Crown Court in November 2002. That collapse was more dramatic because one of HMCE’s own senior lawyers - unable to bear the stress of continuing with HMCE’s dishonesty – gave damning witness evidence against his own side.
All this carnage was brought about simply because the elite investigators wanted to boost their prosecution figures; the alcohol duty fraud via the honey trap was an easy way to go about it and for as long as they could get away with it. When the truth came out, all the convictions HMCE had obtained were quashed.
Despite such epic villainy - leading to two civil reviews and two investigations by the Metropolitan Police - nobody within HMCE was busted, although some officials got a damn good scolding. The plug was also pulled on HM Customs and Excise as an independent government department after being put under the wing of the Inland Revenue in 2005, thus forming the taxation citadel of His Majesty’s Revenue and Customs. It’s worth remembering how it came about when a buff envelope drops through your letterbox.
Some estimates of the money HMCE deliberately allowed to be defrauded are lower than the “headline” figure of £2 billion bandied about by official sources. My own estimation is about £500 million in alcohol duty lost, an amount based upon easily available empirical data and inside knowledge of HMCE’s capacity for deceit and statistical mayhem. That’s still an awful lot of dosh poured down the drain by HMCE’s rogue team opening the revenue taps wide, standing back and watching it glug away.
If this weren’t bad enough, HMCE smeared innocent businesses to try to keep the lid on the scandal and to cover up subsequent calamitous errors. Amazingly, the harm caused by HMCE to the industry’s innocent bystanders in their cover-up remains in the form of iniquitous, damaging laws they finagled through Parliament before the full truth came to light. This is so dystopian that every time I glimpse a duty stamp on a bottle of spirits, I hear the clock strike thirteen.
The disastrous operation that set in train such huge revenue losses to the Exchequer - and the consequent demise of HM Customs and Excise - is known eponymously as the London City Bond (LCB) fraud. This was originally a simple scam - lorry loads of booze were sent from LCB’s warehouse (and other warehouses) to travel under bond to destinations within the EU but, in reality, they got nowhere near a port of exit. The lorries instead headed for various destinations in the UK where the cases of booze were divided up (“slaughtered”) and sold on the black market. And sold very cheaply indeed, since about 70% of the price of a standard bottle of whisky or other spirit is tax. A single lorry load of alcohol diverted in the 1990s meant that about £100,000 was lost in duty to the Exchequer, to say nothing of the VAT shortfall.
It was an easy deception - the paper document required to be signed to provide receipt of the goods by the EU consignees was easily falsified by the fraudsters who sent it “back” to the dispatching warehouse as evidence that goods had gone abroad when, in fact, that booze was already circulating “untaxed” in the UK. HMCE’s specialist National Investigation Service (NIS) soon became aware of this scam which started shortly after commencement of the EU Single Market in 1993 but, instead of stopping it or disrupting it immediately, they decided to let the fraud run in an attempt to catch what they believed to be major criminals behind it. The NIS saw this as an opportunity to increase the number of prosecutions they could make, by using LCB’s warehouse as a honey trap to entice more perpetrators into this criminal activity, and, by using inside informants, gathering evidence for every load diverted which had not borne excise duty.
As well as a few accomplished villains running loads this way, a goodly number of opportunists were drawn into this scam who would not have been otherwise, seeing it pretty much risk-free and nothing more than a “Robin Hood” crime against the taxman. But it meant, of course, that a huge amount of money was robbed from the Exchequer – all the untaxed booze had been drunk by some very merry men. HMCE Policy officials, me included, were initially unaware of the cause of all the black market activity that was being reported to us, not knowing that the fraud was an artificial contrivance of the specialist investigators running amok. The limited and cryptic feedback we got from the NIS was that they were tracing “Mr Big”, or there were “shadowy figures” behind it all. Messrs Big and Shady, it seemed.
The fraud got so huge and commonplace at its height that, in some areas, whisky was being offered cheaply with the milk delivery in the morning or in very attractive BOGOFs. To my own embarrassment and discomfiture, on a visit to see my father back in Dudley in about May 1997, he threw open his pantry door to reveal rows of bottles of scotch whisky which he gleefully informed me “cost just a few quid fer the lot” and chucked me a couple of bottles to take back home to Manchester. As an excise Policy official within HMCE responsible for “holding and movement” of excise goods and therefore of protecting the revenue, I transported them via New Street with disbelief, embarrassment and wonder. Not least that my dad never understood what my job entailed and that I was “the tax man” he was evading with vicarious delight.
Even HMCE recognised the tax losses couldn’t continue, so after stern word from the top, the NIS closed the fraud operation at LCB abruptly in 1998, but they continued to cover up the real cause of the entire country being awash with cheap booze and also continued to prosecute those they had ensnared. Worse still was that an external appointee to investigate the tax losses, John Roques, a former Deloitte senior partner who commenced his review in June 2000, was totally lied to by HMCE into believing the fraud was rampant throughout the entire UK excise warehouse system, hence his apparent confusion about the fraud figures.
In giving evidence to a Treasury Select Committee in November 2001, Roques said:
"My judgement is that order of magnitude the fraud in Excise of spirits is running at circa £500 million a year, although 1998-99 the numbers are very peculiar. It looks as though fraud suddenly stopped, unless you believe people drank a lot more because of the millennium. I am unable to tell you which is the more probable answer; I have my suspicions."
Roques added: "Ignoring that, it is £500 million a year and in my judgement the market has been established, the distribution system exists and the criminals will seek to satisfy that market one way or another. I believe that is likely to be continuing.”
The revenue receipts for 1998-99 indeed looked “peculiar”, not because of an aberration in the figures that Roques apparently thought was the true explanation, or that everybody had been partying like it was 1999, but because the singular fraud at LCB had been stopped dead by HMCE in mid - 1998. That is the simple truth (although with the amount of booze my dad had crammed into his pantry, he did keep partying well into the new millennium). Furthermore, not only did the alcohol revenue receipts shoot straight back up after the fraud was stopped, they continued to increase year on year. It makes one wonder why Mr Roques thought that spirits duty fraud was still running to the tune of £500 million per year when the receipts into the Exchequer showed the exact opposite. I can only think that the scale of lies told by HMCE had obscured the obvious truth to him.
HMCE later deceived a High Court judge, Justice Neville Butterfield, in the course of his review of the debacle after more of the true picture had come into focus about the diversion of spirits from LCB’s bonded warehouse. Justice Butterfield’s published report in 2003 concluded that there was no deliberate entrapment by the NIS, but this is because the full facts of what had gone at LCB were withheld by HMCE and only came to light after publication of his report.
Furthermore, whilst London City Bond is the eponym for the fraud, HMCE was trying to encourage other warehousekeepers to participate in the conspiracy. A former excise warehousekeeper has provided evidence in an email to me of 12 August 2019 headed "working with HMRC on running scams" of his being encouraged by HMCE to participate in entrapment and other criminal activities at his warehouse. He says:
"I was contacted by a fellow who wanted me to receive similar products (spirits) to export. He said “ I don’t want to piss about with bits and bats I want to do a load a day… sort out getting it (your bond) increased so we can do the business, your cut will come in brown envelopes”! I reported this to HMRC’s Investigation Division. Their response was go “along with him. We’ll arrest both of you but you’ll just be let go…” I… didn’t pursue it any further."
Although the entrapment scenario had been rejected, HMCE had tried to spread the conspiracy and had hidden it from Butterfield.
I left HMCE at the end of 1997 a few months before HMCE finally shut down the LCB fraud in 1998 so was oblivious at that time to the antics of the NIS. As we have seen, when the fraud ceased abruptly, the revenue receipts for spirits shot back up to what had been stable levels pre-1994 and, in fact, the yield increased quite significantly over a year or two. Yet HMCE persisted in smearing the entire industry that the fraud was on-going and endemic.
HMCE also cynically threw innocent warehousekeepers under the bus by attempting to revoke their warehouse approvals (and livelihoods) in sacrifice to the deception. The policy of “weeding out” of warehousekeepers was a recommendation of John Roques in 2001 which was carried out by HMCE to maintain the pretence of an endemic fraud whilst deflecting the true blame. The poor warehousekeepers were utterly distraught and bewildered by this egregious onslaught, but I was able to help fight back and rout HMCE at one battle in court in March 2003, as we shall see.
Incredibly, in giving evidence and exhibiting documents about duty losses to a Court of Appeal case in 2019 concerning Seabrook Warehousing Ltd, HMRC disinterred the erroneous claims initially made to Parliament in 2000 that there were “shadowy figures” behind what turned out to be the LCB fraud. Incredible because the true cause of the fraud has been public knowledge since 2002 and the subject of Butterfield’s (albeit flawed) review of 2003, but apparently and inexplicably unknown to HMRC. The evidence exhibited by HMRC in Seabrook totally misled the judges and deceived them into believing that the fraud in spirits perpetrated at LCB – snuffed out twenty years before - still existed.
It has been said by a learned judge that “Beyond the everyday world … lies the world of VAT; a kind of fiscal theme park in which factual and legal realities are suspended or inverted.” The world of excise has those attributes, too, but with dominating elements of Kafka and Capone accompanied by a good dollop of Stan and Ollie.
Let’s peer behind the veil.
But it is the damage done to wholly innocent and unaware traders that is the big disgrace. In my dotage, I'm writing a book about it - I have most of the first hand evidence I need (including the London City Bond fraud "spine" - what a doc THAT is!) but also with oral reports from my former colleagues in HMCE after I left end of 1997. It's also a picaresque tale of my unplanned journey from Pensnett to Whitehall and places between with some of the buffoonery encountered and yet more high-level lying to give a few (many, I hope) loffs. I've sent HMRC an early extract of my draft, Two Billion Lies....
Since I've written it, you might be interested to read the intro (preface). I'm about 20% into the chapters. Skip by all means but I hope it finds some interest (my ode mon in Dudley gets an early mention).
Preface - Two Billion Lies
Two Billion lies by HM Customs and Excise? Well, something like it occurred due to the enormity of mendacity required to cover up an alcohol bootlegging operation run over four years by supposedly elite customs investigators in which they lured hundreds of unwitting fraudsters into their honey trap to be set up for prosecution, conviction and imprisonment.
The illegality of this covert entrapment operation was bad enough but, while it was running between 1994 – 98, an estimated £2 billion in alcohol duty was lost irrecoverably to the government’s coffers. The truth and scale of this sting operation was withheld from the courts for years by senior lawyers and mandarins of HMCE until the conspiracy buckled fatally under the weight of its own lies at Liverpool Crown Court in November 2002. That collapse was more dramatic because one of HMCE’s own senior lawyers - unable to bear the stress of continuing with HMCE’s dishonesty – gave damning witness evidence against his own side.
All this carnage was brought about simply because the elite investigators wanted to boost their prosecution figures; the alcohol duty fraud via the honey trap was an easy way to go about it and for as long as they could get away with it. When the truth came out, all the convictions HMCE had obtained were quashed.
Despite such epic villainy - leading to two civil reviews and two investigations by the Metropolitan Police - nobody within HMCE was busted, although some officials got a damn good scolding. The plug was also pulled on HM Customs and Excise as an independent government department after being put under the wing of the Inland Revenue in 2005, thus forming the taxation citadel of His Majesty’s Revenue and Customs. It’s worth remembering how it came about when a buff envelope drops through your letterbox.
Some estimates of the money HMCE deliberately allowed to be defrauded are lower than the “headline” figure of £2 billion bandied about by official sources. My own estimation is about £500 million in alcohol duty lost, an amount based upon easily available empirical data and inside knowledge of HMCE’s capacity for deceit and statistical mayhem. That’s still an awful lot of dosh poured down the drain by HMCE’s rogue team opening the revenue taps wide, standing back and watching it glug away.
If this weren’t bad enough, HMCE smeared innocent businesses to try to keep the lid on the scandal and to cover up subsequent calamitous errors. Amazingly, the harm caused by HMCE to the industry’s innocent bystanders in their cover-up remains in the form of iniquitous, damaging laws they finagled through Parliament before the full truth came to light. This is so dystopian that every time I glimpse a duty stamp on a bottle of spirits, I hear the clock strike thirteen.
The disastrous operation that set in train such huge revenue losses to the Exchequer - and the consequent demise of HM Customs and Excise - is known eponymously as the London City Bond (LCB) fraud. This was originally a simple scam - lorry loads of booze were sent from LCB’s warehouse (and other warehouses) to travel under bond to destinations within the EU but, in reality, they got nowhere near a port of exit. The lorries instead headed for various destinations in the UK where the cases of booze were divided up (“slaughtered”) and sold on the black market. And sold very cheaply indeed, since about 70% of the price of a standard bottle of whisky or other spirit is tax. A single lorry load of alcohol diverted in the 1990s meant that about £100,000 was lost in duty to the Exchequer, to say nothing of the VAT shortfall.
It was an easy deception - the paper document required to be signed to provide receipt of the goods by the EU consignees was easily falsified by the fraudsters who sent it “back” to the dispatching warehouse as evidence that goods had gone abroad when, in fact, that booze was already circulating “untaxed” in the UK. HMCE’s specialist National Investigation Service (NIS) soon became aware of this scam which started shortly after commencement of the EU Single Market in 1993 but, instead of stopping it or disrupting it immediately, they decided to let the fraud run in an attempt to catch what they believed to be major criminals behind it. The NIS saw this as an opportunity to increase the number of prosecutions they could make, by using LCB’s warehouse as a honey trap to entice more perpetrators into this criminal activity, and, by using inside informants, gathering evidence for every load diverted which had not borne excise duty.
As well as a few accomplished villains running loads this way, a goodly number of opportunists were drawn into this scam who would not have been otherwise, seeing it pretty much risk-free and nothing more than a “Robin Hood” crime against the taxman. But it meant, of course, that a huge amount of money was robbed from the Exchequer – all the untaxed booze had been drunk by some very merry men. HMCE Policy officials, me included, were initially unaware of the cause of all the black market activity that was being reported to us, not knowing that the fraud was an artificial contrivance of the specialist investigators running amok. The limited and cryptic feedback we got from the NIS was that they were tracing “Mr Big”, or there were “shadowy figures” behind it all. Messrs Big and Shady, it seemed.
The fraud got so huge and commonplace at its height that, in some areas, whisky was being offered cheaply with the milk delivery in the morning or in very attractive BOGOFs. To my own embarrassment and discomfiture, on a visit to see my father back in Dudley in about May 1997, he threw open his pantry door to reveal rows of bottles of scotch whisky which he gleefully informed me “cost just a few quid fer the lot” and chucked me a couple of bottles to take back home to Manchester. As an excise Policy official within HMCE responsible for “holding and movement” of excise goods and therefore of protecting the revenue, I transported them via New Street with disbelief, embarrassment and wonder. Not least that my dad never understood what my job entailed and that I was “the tax man” he was evading with vicarious delight.
Even HMCE recognised the tax losses couldn’t continue, so after stern word from the top, the NIS closed the fraud operation at LCB abruptly in 1998, but they continued to cover up the real cause of the entire country being awash with cheap booze and also continued to prosecute those they had ensnared. Worse still was that an external appointee to investigate the tax losses, John Roques, a former Deloitte senior partner who commenced his review in June 2000, was totally lied to by HMCE into believing the fraud was rampant throughout the entire UK excise warehouse system, hence his apparent confusion about the fraud figures.
In giving evidence to a Treasury Select Committee in November 2001, Roques said:
"My judgement is that order of magnitude the fraud in Excise of spirits is running at circa £500 million a year, although 1998-99 the numbers are very peculiar. It looks as though fraud suddenly stopped, unless you believe people drank a lot more because of the millennium. I am unable to tell you which is the more probable answer; I have my suspicions."
Roques added: "Ignoring that, it is £500 million a year and in my judgement the market has been established, the distribution system exists and the criminals will seek to satisfy that market one way or another. I believe that is likely to be continuing.”
The revenue receipts for 1998-99 indeed looked “peculiar”, not because of an aberration in the figures that Roques apparently thought was the true explanation, or that everybody had been partying like it was 1999, but because the singular fraud at LCB had been stopped dead by HMCE in mid - 1998. That is the simple truth (although with the amount of booze my dad had crammed into his pantry, he did keep partying well into the new millennium). Furthermore, not only did the alcohol revenue receipts shoot straight back up after the fraud was stopped, they continued to increase year on year. It makes one wonder why Mr Roques thought that spirits duty fraud was still running to the tune of £500 million per year when the receipts into the Exchequer showed the exact opposite. I can only think that the scale of lies told by HMCE had obscured the obvious truth to him.
HMCE later deceived a High Court judge, Justice Neville Butterfield, in the course of his review of the debacle after more of the true picture had come into focus about the diversion of spirits from LCB’s bonded warehouse. Justice Butterfield’s published report in 2003 concluded that there was no deliberate entrapment by the NIS, but this is because the full facts of what had gone at LCB were withheld by HMCE and only came to light after publication of his report.
Furthermore, whilst London City Bond is the eponym for the fraud, HMCE was trying to encourage other warehousekeepers to participate in the conspiracy. A former excise warehousekeeper has provided evidence in an email to me of 12 August 2019 headed "working with HMRC on running scams" of his being encouraged by HMCE to participate in entrapment and other criminal activities at his warehouse. He says:
"I was contacted by a fellow who wanted me to receive similar products (spirits) to export. He said “ I don’t want to piss about with bits and bats I want to do a load a day… sort out getting it (your bond) increased so we can do the business, your cut will come in brown envelopes”! I reported this to HMRC’s Investigation Division. Their response was go “along with him. We’ll arrest both of you but you’ll just be let go…” I… didn’t pursue it any further."
Although the entrapment scenario had been rejected, HMCE had tried to spread the conspiracy and had hidden it from Butterfield.
I left HMCE at the end of 1997 a few months before HMCE finally shut down the LCB fraud in 1998 so was oblivious at that time to the antics of the NIS. As we have seen, when the fraud ceased abruptly, the revenue receipts for spirits shot back up to what had been stable levels pre-1994 and, in fact, the yield increased quite significantly over a year or two. Yet HMCE persisted in smearing the entire industry that the fraud was on-going and endemic.
HMCE also cynically threw innocent warehousekeepers under the bus by attempting to revoke their warehouse approvals (and livelihoods) in sacrifice to the deception. The policy of “weeding out” of warehousekeepers was a recommendation of John Roques in 2001 which was carried out by HMCE to maintain the pretence of an endemic fraud whilst deflecting the true blame. The poor warehousekeepers were utterly distraught and bewildered by this egregious onslaught, but I was able to help fight back and rout HMCE at one battle in court in March 2003, as we shall see.
Incredibly, in giving evidence and exhibiting documents about duty losses to a Court of Appeal case in 2019 concerning Seabrook Warehousing Ltd, HMRC disinterred the erroneous claims initially made to Parliament in 2000 that there were “shadowy figures” behind what turned out to be the LCB fraud. Incredible because the true cause of the fraud has been public knowledge since 2002 and the subject of Butterfield’s (albeit flawed) review of 2003, but apparently and inexplicably unknown to HMRC. The evidence exhibited by HMRC in Seabrook totally misled the judges and deceived them into believing that the fraud in spirits perpetrated at LCB – snuffed out twenty years before - still existed.
It has been said by a learned judge that “Beyond the everyday world … lies the world of VAT; a kind of fiscal theme park in which factual and legal realities are suspended or inverted.” The world of excise has those attributes, too, but with dominating elements of Kafka and Capone accompanied by a good dollop of Stan and Ollie.
Let’s peer behind the veil.
