MASP on Excise Fraud - Main contents

Document date	18-10-2017
Publication date	19-10-2017
Reference	13231/17
From	General Secretariat of the Council
External link	original article
Original document in PDF

Council of the European Union Brussels, 18 October 2017

PUBLIC

(OR. en)

13231/17

LIMITE

COSI 224 ENFOCUSTOM 220 UD 228 JAI 912

NOTE

From: General Secretariat of the Council

To: JHA Counsellors / COSI Support Group

Standing Committee on Operational Cooperation on Internal Security (COSI)

No. prev. doc.: 7704/17, 9450/17, 12561/17

Subject: MASP on Excise Fraud

DOCUMENT PARTIALLY ACCESSIBLE TO THE PUBLIC (09.11.2017)

Action 11 of the timeline for the continuation of the EU Policy Cycle for organised and serious international crime for the period 2018-2021 provides that expert groups of Member States and EU agencies, coordinated by the Commission will draft Multi-Annual Strategic Plans (MASPs) "to address the crime priorities, including the identification of common horizontal minimum strategic goals in advance in order to strengthen the consistency and facilitate the MASP drafting".

The general MASP workshop was held in Brussels under the auspices of the Commission on 26 June 2017 and COSI Support Group agreed on the common horizontal minimum strategic goals as set out in 12561/17 at its meeting on 18 September 2017.

The MASP workshop on "Excise Fraud" was held at Europol under the auspices of the Commission on 12 September 2017. Participants agreed on the draft MASP as set out in the annex. This MASP is submitted to COSI for adoption.

ANNEX

Priority: To disrupt the capacity of OCGs and specialists involved in excise fraud.

• 1. 

  Description of the scope of the problem

KEY FINDINGS

• OCGs increasingly set up and operate illegal cigarette production facilities in the EU.

• The preferred method of smuggling excise goods involves the abuse of duty suspension regimes.

• Excise goods are increasingly offered and bought online.

Alcohol, cigarettes and mineral oils are subject to excise duty upon production in, or on import to, the EU. OCGs use various modi operandi to avoid excise duties and generate significant profits selling both genuine and counterfeit excise goods at lower prices than their licit equivalents. Excise tax fraud is driven by legislative differences and varying excise tax rates applied by different jurisdictions. Member States applying high excise rates remain the most vulnerable as there is more demand for trafficked excise goods. OCGs involved in excise fraud heavily rely on the use of legal business structures to perform their activities. This includes creation of front companies, collusion with key employees in customs and bonded warehouses, as well as cooperation with transport companies and distributors. Raw materials used to produce counterfeit cigarettes remain largely unregulated in the EU. DELETED The legal status of lubricating oil also constitutes a major weakness exploited by criminals to divert large quantities of diesel oils and defraud authorities of millions of euros in unpaid excise duties. As lubricating oils and other base oils are not subject to excise duties and are not covered by the EU agreement on dangerous good transportation, their transport is also not registered nor monitored. DELETED

ANNEX DGD 1C LIMITE EN

Tobacco products

Tobacco is the main commodity subject to excise fraud in the EU and the trade in illicit tobacco products affects all Member States. Most of the illicit tobacco products trafficked and sold in the EU are counterfeits and contraband. In 2015, illicit whites accounted for about 35% of the illicit cigarette market in the EU. Illicit whites are cigarettes that are legally manufactured in their country of origin and are illegally sold in the EU. Illicit tobacco products are already traded online and the trade volume is expected to further expand for the foreseeable future. This development is also directly linked to an increase in the use of postal and parcel services to traffic illicit tobacco products. Illicit tobacco products are increasingly produced in the EU closer to destination markets. Production now takes places in Member States that were previously not affected by illicit tobacco production such as Hungary and Spain. The production in counterfeit tobacco products is set to further increase and take place in additional Member States. The production of counterfeit cigarettes is no longer limited to major cigarette brands. Certain brands of cheap white cigarettes have become popular among consumers and are increasingly counterfeited to meet consumer demand. Illicit tobacco products continue to be trafficked to the EU in large quantities. OCGs increasingly rely on the abuse of the EU’s Excise Movement and Control System (EMCS) and T1 procedures to traffic illicit tobacco products to the EU. Tobacco products are introduced into the EU as part of ‘ant-trafficking’ activities in increasing quantities. Ant-trafficking relies on couriers crossing the EU’s external border carrying small amounts of cheap tobacco products within legal limits typically making several trips each day. OCGs direct and pay these couriers. However, due to the small quantities involved as part of each trip it is difficult to detect organised crime involvement in this type of trafficking activity. OCGs involved in excise fraud rely on document fraud to enable their trafficking activities. This includes the mislabelling of goods in official documentation and the use of forged documents. It is still too early to assess the impact of the EU’s Tobacco Products Directive (2014/40/EU) on tobacco counterfeiting which entered into force in May 2016. However, the introduction of ‘plain packages’ is likely to facilitate the distribution of illicit tobacco products as plain packages are easier to forge and make it more difficult to distinguish genuine from counterfeit packs.

ANNEX DGD 1C LIMITE EN

Alcohol

DELETED

IMPACT / HARM

• Excise fraud deprives the Member States and the EU directly of significant revenue, which could be invested in infrastructure projects, regional development or other ventures benefiting EU citizens and businesses.

• 2. 

  Existing activities and policies

2.1. EU Strategy and Action Plan for customs risk management (12644/14 + ADD 1)

Following the introduction of risk management in the EU legal framework in 2005 and its roll-out between 2009 and 2011, the Commission evaluated the situation and on 21 August 2014 adopted a Communication on the EU Strategy and Action Plan for customs risk management: Tackling risks, strengthening supply chain security and facilitating trade (COM/2014/527). The Strategy and Action Plan annexed to the Communication proposes a set of step-by-step actions to reach more coherent, effective and cost-efficient EU customs risk management at the external borders.

The strategy identifies the key priorities where action is needed in order to achieve more effective and efficient EU-wide customs risk management.

Each of these priorities is then developed, in the accompanying action plan, in terms of actions to be taken and deliverables to be achieved. The

Commission, Member States and economic operators all have important and clearly defined roles to play in ensuring the successful implementation of the new strategy.

ANNEX DGD 1C LIMITE EN

The action plan sets out specific measures to achieve this, together with the actors responsible and clear deadlines for doing so. Robust risk management should allow customs to identify also where, when and how their controls are best deployed, and to respond effectively when threats do arise.

The main priorities in the strategy to improve customs risk management are:

• - 

  Data quality

In order to ensure that customs have high-quality, timely information on goods entering and leaving the EU, adjustments are required to certain legal, procedural and IT systems. These adjustments should be implemented in a way which does not create undue costs for businesses or public authorities (e.g. to the IT systems that process entry summary declarations (ENS).

• - 

  Information sharing

To ensure customs authorities can effectively analyse and mitigate risks, mechanisms should be put in place to improve the availability of data and the sharing of risk-relevant information amongst customs authorities throughout the entire control process.

• - 

  Efficient controls and risk-mitigation

Different types of risk require different responses. For example, the risk of a bomb or infectious disease needs to be dealt with before the shipment is even loaded for transportation in a third country, whereas financial misdemeanours can be addressed through post-clearance audits. To maximise the efficient use of resources, controls have to be performed at the right place and time in the supply chain, and information should be shared more effectively between customs authorities. This will help to avoid duplication of controls.

ANNEX DGD 1C LIMITE EN

• - 

  Capacity building

To ensure that all customs authorities implement risk management to a high standard across the EU, divergences between Member States should be identified and addressed. EU level support could be given to address weaknesses, including possible further capacities at EU and Member State level where needed, and cooperation between national customs authorities should be further enhanced.

• - 

  Interagency cooperation

Customs has to work closely with other law enforcement authorities. Common risk criteria and improved information sharing would allow tackling supply chain risk enforced by the various authorities to support and complement each other's work.

• - 

  Cooperation with traders

The partnership between customs and reliable traders should be further developed, including through the promotion of the EU Authorised Economic Operator (AEO) concept, and in particular through a broader recognition of the AEO standards by non-customs authorities.

• - 

  International customs cooperation

The EU should remain active in creating global standards in international fora, and should work to implement and promote these common norms amongst international trading partners.

The Competitiveness Council of 4 December 2014 recognising that customs authorities are primarily responsible for the supervision of the Union's international trade (enhancing the security and safety of the EU, its Member States and its inhabitants, promoting the competitiveness of the EU and protecting the financial and economic interests of the EU and its Member States) endorsed the Strategy and Action Plan. The Council called on the Member States and on the Commission to implement them and to adopt a realistic and detailed roadmap.

ANNEX DGD 1C LIMITE EN

2.2. Council conclusions on the EU Strategy and Action Plan on customs risk management (15403/14)

These Council Conclusions were focused on risk management for the supervision and the control of goods entering into, taken out of or transiting through the Union in order to tackle the full range of threats and risks associated with the movements of goods taking into account strengthening the security and the safety of the supply chain as well as the facilitation of legitimate trade.

The EU Customs Administrations, with the support of the Commission, were asked to enhance cooperation against trans-boundary risks, including also risk associated to the protection of the national and EU economic and financial interests which are threatened by, inter alia, VAT, excise and customs duties evasion at import and export.

The Commission had been asked to report on the implementation of the Strategy and the Action Plan and on the results achieved, see above.

2.3. 8th Action Plan (2016-2017) of the Customs Cooperation Working Party (CCWP) (13749/3/15)

The CCWP 8th Action Plan builds upon objectives set out in the Council Resolution 2012/C5/01 on the future of customs law enforcement cooperation and the Strategy for the future customs law enforcement co-operation (17778/12).

These documents define the CCWP’s strategy for the ‘identification of the requisite measures to contribute to the future customs law enforcement cooperation and co-operation with other law enforcement authorities’. The strategy recognizes that ‘Customs is the lead authority for control of and the fight against illegal trade in goods crossing the external borders of the EU and contributes within its competencies to the fight against the illegal trade in goods including, above all excisable goods, within the EU customs territory’. The strategy defines three objectives: 1) to improve institutional cooperation; 2) to enhance operational co-operation; and 3) to ensure effective information management and exchange.

ANNEX DGD 1C LIMITE EN

The CCWP is the main coordinating body for implementation of this Action Plan and assure inputs of all relevant agencies and organisations, in particular in the area of internal security and fight against organised crime. As such the working party coordinates, among others, with COSI, LEWP, Commission, EUROPOL and FRONTEX.

The 8th Action Plan contains the Action No 8.6 which is entirely focused on excise fraud and consists of two main components on: cigarettes and tobacco products and mineral oils. Tobacco action contains also threat assessment.

2.3.1. Mandate for Action 8.6.1 "Regional occurrence of excise fraud (cigarettes and tobacco products)" (7449/2/16)

DELETED

ANNEX DGD 1C LIMITE EN

2.3.2 Mandate for Action 8.6.1 "Regional occurrence of excise fraud (cigarettes and tobacco products). Threat assessment" (15427/1/16)

DELETED

2.3.4 Mandate for Action 8.6.2 - Regional occurrence for excise fraud (mineral oils) (6389/4/16)

DELETED

ANNEX DGD 1C LIMITE EN

2.4. Commission Communication "Stepping up the fight against cigarette smuggling and other forms of illicit trade in tobacco products - a comprehensive EU strategy" (COM (2013) 324 final i of 6.6.2013) (11014/13)

This Communication outlines the nature and scale of the EU problem of illicit tobacco trade, identifies factors that contribute to it, and proposes a comprehensive EU Strategy to fight the problem in the EU.

The Strategy's comprehensive approach takes into account that the fight against the illicit trade is a cross-cutting issue that is affected by many factors and drivers and in turn involves a broad range of EU and/or national policies.

The Council adopted Conclusions on "Stepping up the fight against cigarette smuggling and other forms of illicit trade in tobacco products" on 10 December 2013 (16644/13)

2.5 Report from the Commission to the Council and the European Parliament Progress report on the implementation of the Commission

Communication "Stepping up the fight against cigarette smuggling and other forms of illicit trade in tobacco products - a comprehensive EU strategy (Com (2013) 324 final of 6.6.2013)" (9319/17)

In 2013, the Commission presented a comprehensive Strategy (11014/13) to step up the fight against the illicit tobacco trade. Based on a detailed analysis of the phenomenon of smuggling in the EU and the factors driving it, the Strategy proposed ways to counter the illicit tobacco trade, building on an earlier Action Plan to fight the smuggling of cigarettes and alcohol along the EU’s eastern border. The 2013 Strategy was accompanied by a new Action Plan (11014/13 ADD 1) with 50 items to be implemented by the Commission and/or Member States. The Strategy and Action Plan were endorsed by the Council through conclusions on 10 December 2013 (16644/13). The European Parliament has recently underlined the need to intensify the fight against the illicit tobacco trade, in particular with regard to cheap whites.

ANNEX DGD 1C LIMITE EN

This progress report fulfils a 2013 commitment by the Commission to monitor implementation of the Strategy and the Action Plan, with special regard to the specific factors driving the problem. Section B of the report offers an overview of the main initiatives taken since the presentation of the 2013 Strategy. Section C briefly describes the current situation with the illicit market. Section D discusses lessons learned since then and makes some suggestions for further reflection.

2.6. Work within the Customs Cooperation Working Party (CCWP):

• Draft Council conclusions on stepping up the fight against illegally traded tobacco products in the EU (11761/1/17).

These draft Conclusions are being prepared by Estonian Presidency in order to follow the Commission's 'Tobacco Implementation Report' progress report on the implementation and execution of the Action Plan accompanying its Communication.

The Conclusions are scheduled to be adopted in this half of the year and may address many issues which might of the relevance for the implementation of the Excise MASP.

The Presidency is also preparing the 9 th Action Plan for the years 2018-2019. Based on Member States' feedback the Presidency proposed the second draft of actions for the 9th Action plan. (12372/1/17 REV 1 + COR 1) which includes at this stage:

Action 9.1 Fight against excise fraud consisting of two sub-actions:

9.1.1 illegal cigarette production sites within the EU and proliferation of cigarette production machines and tobacco precursors imported legally, and

9.1.2 smuggling and illegal handling of mineral oils.

The 9th Action Plan is expected to be adopted during this semester.

ANNEX DGD 1C LIMITE EN

DELETED

ANNEX DGD 1C LIMITE EN

DELETED

ANNEX DGD 1C LIMITE EN

DELETED

ANNEX DGD 1C LIMITE EN

• 4. 

  Strategic goals: their definition and measurement of achievement:

• 1. 

  Intelligence Picture

Objective: Develop or keep updated, through the detection of intelligence gaps, the monitoring of trends and new developments, and the identification of links to other crime areas, the intelligence picture relating to Excise Fraud crime priority, and to integrate it in the strategic and operational planning of the relevant stakeholders.

Type of actors involved: Type of actions:

• - 

  Law enforcement services (customs, police, border and coast - Detect intelligence gaps guard, tax administration) and judicial community - Collect relevant data

• - 

  EU JHA Agencies (Europol, Eurojust, Frontex) and other EU - Perform surveys / questionnaires bodies ( OLAF, TAXUD, CCWP) - Improve data accessibility to Law Enforcement authorities

  • - 

    International organisations (Interpol, WCO) - Develop analytical products such as threat and risk - Academics assessments, early warnings, list of High Value Targets, - Third countries law enforcement services scenarios and future trends - Private sector - Define reporting strategy and disseminate reports to identified stakeholders

Benefit: KPIs:

• - 

  EU wide threat assessment / strategic and operational - Quantity and quality (participation rate of stakeholders) of analysis collected data

• - 

  Identification of key threats, high-value targets, new patterns - Availability and quality of statistics on seizures, arrests, etc. and modus operandi - Number of (joint) intelligence reports produced / year giving

• - 

  Most accurate and up-to-date information to allow for an insight in where and how OCGs work/collaborate in intelligence-led policing specific crime areas

• - 

  Support decision-making and intelligence-led activities, - Satisfaction of stakeholders with intelligence reports (quality, including operations and investigations frequency, relevance, operational results)

  • - 

    Better understanding of criminal business model - Number of intelligence requirements addressed

ANNEX DGD 1C LIMITE EN

• 2. 

  Operational activities

Objective: Prepare and conduct coordinated controls, investigations and prosecutions to detect and disrupt organised crime groups and suspects active in serious cross-border crime in Excise Fraud crime priority.

Type of actors involved: DELETED

• - 

  Law enforcement services (customs, police, border and coast guard, tax administration) and judicial community

• - 

  EU JHA Agencies (Europol, Eurojust, Frontex) and other EU bodies (OLAF, TAXUD, CCWP)

  • - 

    International organisations (Interpol, WCO) - Third countries law enforcement services

Benefit: DELETED

• - 

  Disruption of OCGs and other serious crime networks - Awareness about specific tactics, initiatives and practices - Reduction of illicit supply - Establishment of coordinated operational response - Establishment of professional links between law enforcement officers and tax administrations

ANNEX DGD 1C LIMITE EN

• 3. 

  Prevention and Capacity building

Objective: Increase prevention against threats relating to Excise Fraud crime priority, including through disruptive measures and awareness-raising amongst relevant public and private actors, and build the law enforcement capacity to tackle crime by improving knowledge, skills and expertise based on training and the sharing of best practices.

Type of actors involved: Type of actions:

• - 

  Law enforcement services (customs, police, judicial - Activities to prevent crime community, border and coast guard, tax administrations) - Crime proofing of existing legislation

• - 

  EUCPN, EU JHA Agencies (e.g. CEPOL, Europol, Eurojust, - Identification and development of relevant policy measures Frontex, etc.) and other EU bodies (TAXUD, OLAF) and preventive tools

  • - 

    International organisations (Interpol, WCO) - Awareness raising campaigns to law enforcement, the - Third countries law enforcement services judiciary and the public - Private sector - Training of relevant actors - Identification and sharing of best practices Networking - Measures within the compendium on the administrative approach - Roll-out of relevant information exchange systems and platforms e.g. AFIS, PNR, SIENA, EUROSUR, CENcomm, etc. - Explore options to pool capacity between Member States

Benefit: KPIs:

• - 

  Increased awareness of relevant actors - Number of prevention actions initiated per year - Reduce number of crimes - Increased level of awareness – reporting rate (surveys) - Reduce damage caused by the threats - Number of guidelines, leaflets, handbooks or manuals for - Improved knowledge, skills and expertise practitioners and the public - Implementation of best practices, state of the art techniques - Number of trainings (or number of trained persons) per year - Satisfaction of trainees with training (surveys)

ANNEX DGD 1C LIMITE EN

• 4. 

  Cooperation with non EU partners (third countries, international organizations and partners)

Objective: Enhance cooperation with relevant non EU partners such as international organisations, regional fora, non EU source, transit and destination countries and key crime markets for Excise Fraud crime priority.

Type of actors involved: Type of actions:

• - 

  Non EU Law enforcement services and other government - Joint operations with non EU partners departments - Joint investigations and prosecutions with non EU partners

• - 

  Non EU Judicial community - Information collection and exchange - Law enforcement services (customs, police, border and coast - Multilateral projects with non EU partners guard, tax administrations) - Promotion of multidisciplinary approach - EU JHA Agencies (Europol, Eurojust, Frontex, CEPOL) and other EU bodies (OLAF, TAXUD, CCWP) - International organisations (Interpol, WCO)

Benefit: KPIs:

• - 

  Disruption of international OCGs - Number of information exchanges provided by and to non EU - Better insight into criminal market partners - Reduction of illicit supply - Number of joint operational actions initiated per year - Enhance multinational LE cooperation - Number of joint investigations, prosecutions initiated per year - Increase the profile and capabilities of EU Law Enforcement - Number of non EU countries participating in projects funded organisations towards non EU partners by the EU

ANNEX DGD 1C LIMITE EN

DELETED

ANNEX DGD 1C LIMITE EN

• 5. 

  Financial Investigations

Objective: Combat criminal finances, money laundering, and facilitate asset recovery and confiscating proceeds of crime by involving specialised financial investigators, where relevant, as part of investigations in the Excise fraud crime priority.

Type of actors involved: DELETED

• - 

  Law enforcement services (customs, police, border and coast guard, tax administration)

• - 

  Participants of the OAP group on Criminal finance - EU JHA Agencies (Europol’s CARIN network) and other EU bodies (TAXUD, OLAF, CCWP) - International organisations (Interpol, WCO) - Judicial community - Third countries law enforcement services - Financial and asset recovery communities

Benefit: DELETED

• - 

  Disruption of OCGs by reducing the financial benefit derived from criminal activities

• - 

  Provides an effective deterrent - Increase confiscation and recovery of proceeds of crime

ANNEX DGD 1C LIMITE EN

DELETED

ANNEX DGD 1C LIMITE EN