In February 2004, David Blunkett, the then Home Secretary announced plans to set up the Serious Organised Crime Agency (“SOCA”), which would harness the resources of the police National Crime Squad (“NCS”), the National Criminal Intelligence Service (“NCIS”), the investigative and intelligence resources of HM Customs (as it then was), specific to drug trafficking and recovery of criminal assets, and the Immigration Service’s work on organised immigration crime. The new Agency was formally created by the Serious Organised Crime and Police Act 2005, and becomes operational in April 2006.

The Government is to be commended for recognising the need to constantly review law enforcements response to Organised Crime. The new Agency has been referred to as the “British FBI”, but will it live up to expectations?

The Agency’s remit, as outlined in the Government’s White Paper entitled “One Step Ahead: A 21st Century Strategy to defeat Organised Crime”, is to;

(i) restrict the opportunities for organised criminals to make money;
(ii) make criminal enterprises unprofitable by disrupting and dismantling them; and
(iii) increase the personal risk for the criminals by more successful and targeted prosecutions.

As you would expect, the actual mechanics of bringing together the various enforcement bodies has not been straightforward. Rumours abound about NCS staff being unhappy with the proposed terms and conditions and the right to return to their original force. Customs staff arestaff is similarly unhappy at the lack of detail as to the terms and locations at which they will be based. Cultures and working practices are different. The legislation is the same, but police tend to work on an overtime basis, which does play a part in operations mounted, whereas Customs are paid a fixed allowance, irrespective of additional hours worked. Perhaps more unexpectedly, it looks as if the Agency will have to undergo a rather large recruitment drive to fill its ranks.

WHY ONE AGENCY?

NCIS provides the definition of Organised Crime as

“Those involved, normally with others, in continuing serious criminal activities for substantial profit, whether based in the UK or elsewhere.”

In the late 1970’s criminal gangs all had their own areas of expertise, and stuck rigidly to that, be they armed robbers or cannabis smugglers. As the 1990’s progressed, the criminals became increasingly sophisticated and, in relation to drugs, commodity brokers. Organised crime was no longer about smuggling only cannabis or only heroin. The same gangs were smuggling various commodities in their shipments, cannabis, cocaine and ecstacy. Recognising this phenomenon, Customs changed their investigation team structure, which had previously been targeted at specific commodities. This avoided friction between investigating teams as to which of them had primacy--was the criminal organization a cannabis enterprise or a heroin one? Customs focused on criminal organizations, irrespective of the commodity. NCS adopted a similar strategy, identifying and targeting specific criminal gangs. There was the occasional turf battle between police and Customs as to which agency led the investigation into a specific crime group, with Customs having the lead role in drug importations, a role which caused resentment within police ranks.

Criminal gangs started to diversify again. Using the proceeds of VAT fraud to fund purchases of drugs or tobacco to be smuggled back to the UK. Other gangs moved into counterfeit currency and people trafficking.

To avoid duplication of effort, a national flagging system was set up, managed by NCIS. Law Enforcement agencies advised NCIS of targets they were interested in, and had to demonstrate that they were actively working on the specific target or his associates. This system worked well, as it was independent of both NCS and Customs, and over the years, relationships and the pooling of intelligence has got much better. There are joint police/Customs teams working together already to target organised crime.

However, the advent of SOCA has the potential to cause friction between the new Agency and Her Majesty’s Revenue and Customs (“HMRC”) in several key areas.

IMPACT ON HMRC

Leaving aside these administrative teething problems, questions have been asked as to how the Agency will interact with HMRC, bearing in mind that organised crime is involved in tobacco smuggling and “Carousel” or “Missing Trader intra-Community” fraud, where the VAT loss is generally measured in the £millions. HMRC has stated publicly that it will retain the right to prosecute those involved in tax fraud. Some commentators however, have raised concerns as to whether or not SOCA will take on tax fraud cases.

We do not think there was ever any doubt that HMRC would relinquish its right to prosecute tax evaders, given that it has primacy in the arena of tax collection and compliance. However, whilst the Home Secretary may have thought he was creating clearer demarcation lines, ie all serious drug trafficking to be the responsibility of SOCA, it leaves open some areas of potential conflict between SOCA and HMRC.

HM Customs & Excise merged with the Inland Revenue in April 2005 to become HMRC. Whilst there were obvious synergies in bringing together the UK’s primary tax compliance and collection Departments under the one umbrella, the Customs Law Enforcement responsibilities, in particular in respect of drug trafficking, was never going to sit comfortably in the new HMRC. This had obviously been recognized even before the publication of the Government’s White Paper on Organised Crime was published in March 2004.

HMRC Law Enforcement’s resources to deal with drug trafficking include investigation, surveillance and financial investigation staff. HMRC operates a system of Dedicated Surveillance Teams (“DST”) who are tasked by the Operational teams to conduct surveillance on a particular target. This ensures compliance and a working knowledge of the legislation governing surveillance. The DSTs are tasked in drug trafficking cases and in both excise (tobacco/cigarettes) and VAT matters. DST officers have all undergone, and passed, specific training to allow them to operate as surveillance officers. On the initial review of HMRC Law Enforcement, it was assumed that DSTs would transfer across to SOCA, on the basis that the individual officers were working on drug investigation matters, which was the primary criteria used in selecting staff for SOCA. Such a mass transfer would leave HMRC potentially unable to conduct surveillance in excise/VAT matters. Clearly an unsatisfactory state of affairs. Whilst training programmes were being stepped up, the uncertainty over terms and conditions has meant that many surveillance officers have opted to stay with HMRC, and thus eased the pressure on training new surveillance officers. Time will tell, once clarification of the conditions is made, whether there will be an exodus of staff, thus severely hampering HMRC’s surveillance capability. Perhaps worthy of note for future reference.

HMRC will still deal with some drugs importations. Couriers intercepted at the ports and ferry ports, who are not active targets of SOCA, will still be dealt with by HMRC. Therefore, HMRC requires to maintain an expertise in dealing with trafficking matters.

INTERACTION WITH HMRC

HMRC Law Enforcement will be actively targeting, amongst others, VAT fraudsters, tobacco smugglers and money launderers. In the past, targets were flagged with NCIS. NCIS was independent. NCIS will now be SOCA. SOCA will have its own operational arm. Whilst one would like to think that all the agencies will be open and honest with one another, there will be a reluctance on the part of some Customs officers to see SOCA as anything but a competitor—exactly what the Government are trying to avoid.

Given that Organised Crime deal in several commodities, what happens when one criminal enterprise is involved in drug importation and tobacco smuggling.smuggling? This is not such an unusual occurrence as readers may think.

If SOCA areis the lead agency, will they allow a few tobacco runs to gather evidence and then execute arrests when they know the shipments contain drugs? Do you ask HMRC to take over the investigation and arrest the organisation for tobacco smuggling, before a drugs importation is attempted? Who makes that decision? Again one would hope commonsense would prevail and the best interests of justice served.

HMRC is unrivalled for financial investigation. It was the leading light in the early days of the financial investigation of proceeds of crime, dating back to the Drug Trafficking Offences Act 1986. The Asset Recovery Agency is now the recognized Centre of Excellence, but HMRC still has many experienced financial investigators. This is one area of expertise where it has to be said there is no rivalry between police and HMRC. Financial Investigation officers in both disciplines realise that it is about depriving the criminals of their gains, and by sharing intelligence, then they are at their most effective. In Scotland, the Scottish Money Laundering Unit was set up in Paisley at the behest of the Scottish Executive, the Scottish Drug Enforcement Agency (“SDEA”) and HM Customs. The unit is staffed by police officers on secondment to SDEA and Customs officers, together with civilian analysts and accountants. The unit is highly successful and is a working example of how law enforcement agencies can pool resources and may be an area that SOCA should look to.

CONCLUSION

Whilst it is hoped the new Agency will be a success, it remains to be seen how it will cope with the merger of different cultures and working practices. No doubt NCS or Customs have kept a couple of jobs back until early April, to be executed and then hailed by the Government as justification and success for SOCA. Perhaps a true measure of its success would be a review of the last year of the NCS results, together with Customs figures and comparison made with SOCAs figures. Only time will tell.

John O’Donnell is Director – Indirect Tax Investigations at Chiltern plc and can be reached on 020 7153 2506 or odonnellj@chilternplc.com.