An EU anti-fraud organization says the UK has not done enough to stem the flow of illicit goods to other EU states, and should pay almost £1.7bn in redress for that failure.
The request – sent to the European Commission and HM Revenue and Customs (HMRC) in the UK – comes as relations between the UK and the rest of the EU are already strained by Brexit, suggestions that the UK will have to pay a hefty amount to extricate itself from its EU commitments, and debate about the UK's future role – if any – in the EU customs union.
The EU anti-fraud office - known as OLAF – said its investigations had uncovered a pattern of customs fraud involving textiles and footwear imported from China and entering the EU via the UK which costs the EU as a whole around €2bn in lost duties.
It recommends that the EC seek to claw that lost money back from the UK, at a time when arguments are already building about a supposed £60bn leaving bill post-Brexit.
A spokesperson for OLAF told SecuringIndustry.com that the case is an example of "undervaluation fraud", in which goods are declared at a fictitiously low value so that importers can derive profit from evading customs duties and related taxes. Most of the imports arrive for custom clearance in the UK, but are in fact supplies destined for the black market traffic of textiles and footwear in other member states across the EU.
Specifically, OLAF cites a case in which women’s trousers which were declared with a value of 91 cents per kilo, well below the market price of cotton at the time of €1.44/kg. The average price for the trousers declared at customs across the EU was €26 per kilo.
It also says fraudsters indulge in "substantial" valued-added tax (VAT) evasion in connection with imports through the UK by abusing the suspension of the payment of VAT - so called customs procedure 42.
"These fraudsters are in fact organised crime groups whose actions affect the entire EU," said the spokesperson in an emailed statement. "They operate in criminal networks active across the EU."
Investigations revealed the activity was prevalent between 2013 and 2016 but – despite making the UK authorities aware of the problem repeatedly, and in contrast to the actions taken by several other member states, the fraud hub in the country "continued to grow." OLAF claims 79 per cent of the €817m losses in customs duties for the EU budget last year occurred upon importation through the UK alone.
"OLAF has also alerted the UK authorities to the need to implement EU-wide risk profiles and to investigate the fraud networks active in the UK. As far as OLAF is aware, the UK authorities have not introduced risk profiles and the measures that they have taken do not appear to have curbed this traffic. To date, they have not initiated any criminal investigations in relation to these frauds either."
In a statement, an HMRC spokesperson said it had an "very strong record for tackling fraud" and the OLAF conclusion is "not one that is recognised by our experts who will be challenging OLAF on their calculations."
"HMRC is currently handling more than 550 cases relating to potential import fraud, and will not hesitate to engage the relevant prosecuting authorities to bring cases before the courts where evidence of wrongdoing exists," it added.
The HMRC has worked with OLAF on a number of anti-illicit trade enforcement actions, including a large-scale campaign in 2015 against tobacco smuggling and counterfeiting.