Iain MacWhannell, Mark Sutherland Williams and Thomas Jaggar write on the statutory framework

This article provides an overview of the law in relation to what some still describe as “bootlegging”. Cigarette and tobacco smuggling has been successfully deployed by criminal organizations to raise funds for many years and the extremes to which individuals will go to in order to evade the authorities are becoming increasingly sophisticated.

The condemnation of goods covers a vast area in terms of legislation and, as a result, this article concentrates on those areas that are typical of matters that regularly come before the courts.

The UK Border Agency (UKBA) took over the role of Customs at airports and ports throughout the UK on August 5, 2009. While the force and application of the condemnation provisions remain unchanged, the switch will involve the handing over of responsibility from HM Revenue and Customs (HMRC) to the UKBA for seizures and investigations found in possession of excise goods at ports. Inland seizures will still be dealt with by HMRC. In the first part of this article we consider the statutory framework that governs the seizure and forfeiture of excise goods. In the second part, the authors examine procedural steps that lead to condemnation in the magistrates’ courts.

The Condemnation of Goods – The Forfeiture of Goods

The statutory basis for the forfeiture of goods improperly imported derives from s.49 of the Customs and Excise Management Act 1979 (CEMA). Section 49(1) sets out the circumstances under which goods shall be liable to forfeiture when they have been imported contrary to HM Revenue and Customs restrictions and where the goods in question are chargeable with duty.

These broad ranging provisions cover, subject to their own particular legislative provisions, the forfeiture of cigarettes and tobacco [see, s.2 of the Tobacco Products Duty Act 1979] and alcohol. [Alcoholic Liquor Duties Act 1979, particularly s.5 (spirits), s.36 (beer), s.54 (wine) and s.62 (cider.)] They also cover a multitude of other excise goods, including bullion and coins, [see, Allgemeine Gold-und Silberscheideanstalt v. Customs and Excise Commissioners [1980] 2 All ER 138 (CA)] pornography, vehicles, as well as goods prohibited from importation by virtue of matters as diverse as trade descriptions, the Convention on International Trade in Endangered Species of Wild Fauna and Flora and UN sanctions orders.

Duty Payable, Unless for Own Use

UK excise duty is generally payable at the point of importation. [See, reg.12(1) of the Tobacco Products Regulations 2001, SI 2001/1712 for tobacco; reg.15(1) of the Beer Regulations 1993, SI 1993/1228 for beer and reg.4(1) of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992, SI 1992/3135 for wines and spirits.] As a result of the Divisional Court’s decision in R (Hoverspeed and Others) v. Customs and Excise Commissioners [2002] 4 All ER 912, the regulations governing the point at which duty becomes payable were amended in 2002 [see, Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002, SI 2002/2692 and the Channel Tunnel (Alcoholic Liquor and Tobacco Products) (Amendment) Order 2002, SI 2002/2693] to insert subreg.(1A), which makes provision for the cross channel shopper (amongst others) who acquires and transports goods for his own use.

This provides that no duty will be payable unless and until the goods are held or used for a commercial purpose by any person. Sub-regulation (1B) provides the definitions and criteria to be applied when considering whether subreg.(1A) applies.

Importations for a Commercial Purpose

Excise duty only becomes payable if the goods are being imported for a commercial purpose (ie, forward sale or for money’s worth). Article 8 of Council Directive (EC) 92/12 provides:

“As regards products acquired by private individuals for their own use and transported by them, the principle governing the internal market lays down that excise duty shall be charged in the member state in which they are acquired.”

The amendment regulations confirm that duty and tax must be paid on the goods in the member state in which they are acquired. [See subreg.(1B(d)).] Article 9(1) of the same Directive adds:

“Without prejudice to art.8, excise duty shall become chargeable where products released for consumption in a member state are held for a commercial purpose in another member state.”

Civil Proceedings

Actions for forfeiture and condemnation are actions in rem (against the property as opposed to the individual). Nobody stands in jeopardy and the action is by way of complaint heard, in the first instance, usually before a magistrates’ court. Paragraph 8 of sch.3 to CEMA confirms that the proceedings are civil and corresponding case law confirms the same [see, Goldsmith and Anor v. Customs and Excise Commissioners (2001) The Times June 12, and Mudie v. Kent Magistrates’ Court [2003] EWCA 237.] Condemnation matters do not involve the determination of a criminal charge and therefore none of the usual consequences of a criminal conviction apply.

This is therefore one of the rare examples of the magistrates’ court’s civil jurisdiction and because the proceedings are civil, the burden of proof is on the balance of probabilities and not the higher criminal test of “beyond reasonable doubt”.

Civil rules of evidence apply, including the admissibility of hearsay evidence and there is no necessity for compliance with the Police and Criminal Evidence Act 1984.

Legislative Background

As stated above, the Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002, came into force on December 1, 2002. They sought to correct any deficiency in the previous regulations by amending the existing Excise Goods (Holding, Movement, Warehousing, and REDS) Regulations 1992, SI 2002/3135, by inserting a specific provision in relation to “own use”: subreg.(1A).
In the case of excise goods acquired by a person in another member state for his own use and transported by him to the United Kingdom, the excise duty point is the time at which those goods are held or used for a commercial purpose by any person.

In other words, excise duty only becomes payable on the goods when they are held for a commercial purpose, or at the point in time when they become held or are used for a commercial purpose. This applies to both the traveller who imported them and/or by any other person who has possession or control of them.

The Excise Goods, Beer and Tobacco Products

(Amendment) Regulations 2002 also amended the Beer Regulations 1993, SI 1993/1228, and the Tobacco Products Regulations 2001, SI 2001/1712, in identical terms. The effect of these amendments is to reassert that goods being brought into the UK for a traveller’s “own use” are not subject to excise duty. This should ensure that goods purchased on cross-border shopping trips for an individual’s own personal use are not subject to the payment of any excise duty. [See, R (Hoverspeed and Others) v. Customs and Excise Commissioners [2002] 4 All ER 912 at paras.107-109.]

Gifts

The Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002, also altered the pre-existing regulations to define “own use” as including use as a personal gift. [See, para.(1B)(b).]

It is therefore permissible for a traveller to bring in larger than expected consignments of excise goods, if he intends to give them away as personal gifts. Much will depend on the credibility of the traveller’s story, the likelihood of the assertion, and the evidence the traveller is able to produce to support the claim.

Transfers for Money’s Worth

The Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002 [see para.(1B)(c)] establish a comprehensive provision that has the effect of catching any importation where the goods concerned are passed on in return for any payment, including any travel expenses. The transaction does not have to be for profit (indeed the legislation is broad enough to cover receiving payment at a loss), and it could be for money’s worth, eg, payment as a “thank you”, such as a dinner out, would make the transfer commercial.

What Factors Define “Commercial Purpose”?

Paragraph (1B)(e) of the Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002, sets out a list of matters that should be taken into account by both Revenue and Customs (now the UKBA) and, ultimately, the magistrates’ court, in making their determination as to whether the goods in question were being imported for a commercial purpose. These considerations are:

(1) the person’s reasons for having possession or control of the goods;
(2) whether or not the person is a Revenue trader (as defined in s.1(1) of CEMA 1979);
(3) the person’s conduct, including his intended use of the goods or any refusal to disclose his intended use of the goods;
(4) the location of the goods;
(5) the mode of transport used to convey the goods;
(6) any document or other information whatsoever relating to the goods;
(7) the nature of the goods, including the nature and condition of any package or container;
(8) the quantity of the goods; and in particular whether the quantity exceeds the guideline quantities;
(9) whether the person personally financed the purchase of the goods in question; and
(10) any other circumstance which appears to be relevant.

Revenue traders, in the context of (b) above, are persons carrying on a trade or business involving the buying, selling, importation, exportation or dealing in or handling of excise goods. If the person importing the goods had an obvious outlet through which he could sell the goods then that would clearly be a matter that the court/authorities may wish to take account of.

Regard should be particularly given to (h), the quantity of the goods. If an individual is importing into the UK 100,000 cigarettes (eg, in the boot of their car), there is a strong inference that they will not all be for personal use. Although that inference may be rebutted if the individual is a heavy smoker, rarely travels abroad, or has sufficient means or another legitimate non-commercial reason for bringing the
cigarettes in, eg, gifts for family members at Christmas. In R. v. Customs and Excise Commissioners ex parte Mortimer and Anor [1999] 1 WLR 17, see especially p.22, the court held that Customs officers must take account of the above criteria, regardless of the imported quantity, and give the importer a “fair opportunity” to explain the importation when considering whether or not they should seize goods. As a result, in practice, what is commonly referred to as an “A to J interview” (or “one to 10” interview) will take place at the initial point of interception.

Mortimer was decided under the now defunct Excise Duties (Personal Reliefs) Order 1992. As a result the mandatory presumption referred to therein no longer applies. Under the new regulations, the fact that the goods in question now exceed the minimum indicative levels (the quantity guidelines) is something which HMRC/the UKBA and the court are merely entitled to have “regard to”. The assertion, however, that the importer must have a “fair opportunity” to satisfy the authorities of his case remains, it is suggested, good law.

In the Divisional Court’s judgment in Hoverspeed, Brooke LJ stated that:

“if no satisfactory explanation is forthcoming, then the national official may well conclude that the goods were indeed held for ‘commercial purposes’”. A refusal to provide an explanation, or a misleading explanation, may both be factors that a court may ultimately take into account in deciding the issues it has to determine. [See (3) in the one – 10 list.]

What are the Minimum Indicative Levels?

The “minimum indicative level” is now a fairly dated term that relates to the guideline quantities set by the EU. When travelling within the EU the quantities are: [see, subreg.(1B)(e) of the Excise Goods, Beer and Tobacco Products (Amendment) Regulations 2002.]

• 10 litres of spirits.
• 90 litres of wine.
• 20 litres of ‘intermediate products’.
• 110 litres of beer.
• 3200 cigarettes.
• 400 cigarillos.
• 200 cigars.
• 3kg of any other tobacco products.

The levels set out mirror the minimum levels that may be adopted by member states in EC Directive (EC) 92/12, (except those for cigarettes and hand rolling tobacco, which are four and three times respectively above the levels set out in the original Directive).

While difficult to quantify, the cigarette and tobacco levels represent around six months usage for an average smoker (20 cigarettes a day x 182 days = 3,640 cigarettes). It should be emphasized that these levels are only a guide. There are no limits. Genuine shoppers are entitled to bring back greater quantities for their own use. Nor is it unheard of for bootleggers to bring back quantities below the guidelines or matching the guidelines, in an attempt to avoid having their goods being seized.

Travelling to the UK from Outside the EU

Similar, albeit more restrictive, levels exist when travelling from a non-EU country (including the Canary Islands and the Channel Islands). Gibraltar is part of the EU, but is outside the EU customs territory, and therefore the “outside the EU” levels apply. Similarly, although Cyprus is a member of the EU, any importation from an area not deemed under the control of the Government of the Republic of Cyprus is treated as a non–EU import. From January 1, 2009 the “outside the EU” levels are, [see, the schedule attached to the
Traveller’s Allowance Order 1994, SI 1994/955, as amended by the schedule to the Travellers’ Allowances (Amendment) Order 2008, SI 2008/3058.]

• 200 cigarettes or 100 cigarillos or 50 cigars or 250g of tobacco.
• 4 litres of still table wine.
• 16 litres of beer.
• 1 litre of spirits or strong liqueurs over 22 per cent in volume or 2 litres of fortified wine, sparkling wine or other liqueurs.
• £340 worth of other goods, including perfumes, gifts, and souvenirs.

Detention, Seizure and Condemnation

Section 139 of CEMA details the provisions as to detention, seizure and condemnation of goods, with s.139(6) referring to sch.3 to the Act as having effect for the purpose of forfeiture and condemnation proceedings.

The Forfeiture Provisions

Schedule 3 of CEMA sets out the relevant provisions relating to forfeiture, including notice of seizure, notice of claim and condemnation. Paragraph 7 of sch.3 states that the forfeiture shall have effect as from the date when the liability to forfeiture arose.

What Does “Liable to Forfeiture” Mean?

The expression “liable to forfeiture” denotes something different to “shall be forfeited” or” shall automatically be forfeited”. “Liable” implies some form of discretion by those considering forfeiture, either at the time of seizure or later at court.

However, that initial elasticity may be somewhat illusory. Paragraph 6 of sch.3 to CEMA states that if the court finds that the thing was at the time of seizure “liable to forfeiture”, the court shall (meaning presumably must) condemn it as forfeit. The Draconian nature of these provisions appears to be analogous to strict liability/absolute offences in the criminal jurisdiction, where intention or state of mind is irrelevant. This was confirmed in the case of De Keyser v. British Railway Traffic and Electric Co Ltd [1936] 1 KB 224 where it was held that the justices’ were bound to condemn prohibited goods and that they possessed no discretion to refuse to do so, eg, on the grounds of hardship of an innocent owner.

Secondary Forfeiture

Section 141(1) of CEMA states where anything has become liable to forfeiture under the Customs & Excise Acts:

(a) any ship, aircraft, vehicle, animal, container (including any article of passengers’ baggage) or other thing which has been used for the carriage, handling or concealment of the thing so liable to forfeiture, either at a time when it was so liable or for the purposes of the commission of the offence for which it later became so liable; and
(b) any other thing mixed, packed or found with the thing so liable, shall also be liable to forfeiture.

This section once again highlights the Draconian nature of the forfeiture provisions by setting out the consequences for property found and used in connection with goods liable to forfeiture – hence the term “secondary forfeiture”. Any vehicle used in the transportation of excise goods where no duty has been paid will itself be liable to forfeiture. Many travellers’ motorcars have been forfeited as a result. Similarly, smaller quantities of goods that accompany larger importations of, eg, tobacco or cigarettes, are themselves liable. So, where for example, 60,000 cigarettes are being imported, together with 3 litres of gin and 1 litre of Bacardi, although the 3 litres of gin and the 1 litre of Bacardi may be understandably considered for personal use, because of s.141(b) the spirits are also liable to forfeiture. In Travell v.Customs and Excise Commissioners (1997) 162 JP 181, the Divisional Court held that ss.141(a) and (b) are to be read disjunctively.

The reference to “any other thing” should be interpreted to include only things of a like kind. For example, where 90kgs of hand rolling tobacco are discovered in the suitcase of an individual, together with their travel alarm clock, the alarm clock is not an excise good, nor is it sufficiently similar to justify its forfeiture. [see, R. v. Uxbridge Magistrates’ ex parte Webb (1998) 162 JP 198 (DC).]

The application of the “mixed, packed or found” rule must always be a question of fact and degree upon which the court must find. This is illustrated by Travell, where the Crown Court held that 365 obscene magazines found “all over the defendant’s one bedroom flat” were also liable to forfeiture because they had been “found with” 15 imported magazines containing indecent pictures of children. In Webb, the defendant had imported six obscene videos in a suitcase. The magistrates’ fast forwarded through two of them and concluded that their content was obscene. They condemned all six videos on the basis that the other four were “packed with” the two videos liable to forfeiture that had been viewed.

In Customs and Excise Commissioners v. Jack Bradley (Accrington) Ltd [1959] 1 QB 219, the court held that where kerosene oil had been discovered in the fuel tanks of vehicles, the vehicles themselves would be liable to forfeiture since they had been “used for the carriage” of the oil.

In the second part of this article we go on to consider the practical steps that lead to seizure and the consequences that flow from the same.

About the authors

Iain MacWhannell and Mark Sutherland Williams are members of the Asset Forfeiture Group at 3 Paper Buildings. Mark Sutherland Williams is the author of The Proceeds of Crime (3rd ed, OUP). Thomas Jaggar is an HMRC pupil currently on secondment to 3 Paper Buildings.