Calling time on alcohol smuggling and drinks duty fraud

Tax losses in unpaid duty on beer and spirits - but not wine - is as high as £1.2 billion a year says HMRC

The boss of Britain's biggest off licence chain warns fraudulent alcohol is so widespread it is not worth some traders setting up shop.

"There are certain areas of the country which de facto are no-go areas for legal and honest retailers," says Keith Webb, acting managing director of Bargain Booze.

Alcohol smuggling has become big business for organised crime according to HM Revenue and Customs, with tax losses in unpaid duty as high as £1.2 billion per year.

The alcohol industry is demanding tougher action, but these are highly complex frauds, which take years to investigate.

"The understanding is anyone who goes in there will be faced with this competition from duty fraud, and to be brutally honest it's not dealable with," says Mr Webb, whose company has 600 licensed convenience stores and a turnover of £600m.

Mr Webb told the BBC that the wide availability of cheap illicit booze, on which duty has not been paid, is the number one concern for those in the industry who are legitimate.

There are vast profits to be made by dodging the taxes payable on what we drink. UK duty rates are among the highest in Europe.

The UK supply chain for alcohol is supposed to be tightly regulated, but the BBC has found armed gangs and even paramilitaries have muscled into the duty fraud market, which, according to HMRC, is now run by organised criminals.

HMRC's Andy Leggett told File on 4 that British-brewed lagers have become favourites for smugglers who use bonded warehouses and the long-established system which allows duty to be suspended until they are sold into the market. This way, vast supplies are moved from this country to the near continent, but then sneaked back in, dodging duty.

"Last year alone approximately 450 million litres of alcohol was shipped to the EU duty unpaid from the UK", said Mr Leggett, who is deputy director of alcohol strategy and tax for the government department.

"Our very cautious estimate is that anything up to around 180 million litres a year could be for legitimate purposes, which means there is a large gap - which we believe is solely positioned abroad, in order for alcohol to be smuggled back to the UK. It's certainly what the figures indicate and it's also what our intelligence suggests is happening."

It means the fraudsters can readily undercut sales prices of the legitimate trade - a trade which is calling for tougher action against those involved.

Last month a report from MPs on the Public Accounts Committee also criticised HMRC for not putting enough people before the courts.

"In each of the four years from 2009-2012, there were convictions in just six cases, or fewer, for alcohol duty fraud," according to Conservative committee member Richard Bacon.

"We feel the lack of understanding of likely costs and benefits of prosecution, and the impact of successful prosecutions in deterring organised criminals, has been underestimated by HMRC," says Mr Bacon.

This bonded warehouse was used for a £50m a year alcohol tax evasion scam.

Revenue and Customs estimate total alcohol tax losses to the Treasury from organised crime are as high as £1.2 billion a year, and that figure does not include unpaid duty on wine, which trade intelligence suggests is as big as the problem with beer.

The HMRC say they are stepping up criminal investigations and deploying a range of civil penalties to try to disrupt and take down the gangs.

Earlier this year, criminals responsible for one of the biggest ever alcohol smuggling frauds uncovered in the UK were jailed, following an HMRC investigation.

The scam cost the Exchequer an estimated £50m a year in unpaid duty and taxes.

Gang members made a fortune, buying luxury properties across Europe, and high performance cars.

Listen to the full report on File on 4 on BBC Radio 4 on Tuesday, 9 October at 20:00 BST and Sunday 14 October at 17:00 BST.

Listen again via the Radio 4 website or download the File on 4 podcast.