JOINT COMMITTEE ON THE ENVIRONMENT, TRANSPORT, CULTURE AND THE GAELTACHT debate -
Wednesday, 1 Feb 2012

Fuel Laundering: Discussion

Chairman

This meeting has been called to consider the issue of fuel laundering with particular inference to the loss of revenue to the State and its impact on the road haulage sector and retailers in the industry.

Members have been circulated with a number of briefing documents on the matter. Correspondence from Deputy Anne Phelan relevant to today's meeting was also circulated. Is it agreed to note this correspondence? Agreed.

We will hear from a number of witnesses throughout the morning who have kindly attended at short notice to assist in our deliberations. For the first session, I wish to welcome from the Irish Farmers' Association: Mr. John Bryan, president, Mr. Tom Doyle, chairman IFA farm business committee, and Mr. Fintan Conway, IFA grain and inputs executive. From the Professional Agricultural Contractors' Association we have Mr. Tom Murphy, director, Mr. Peter Farrelly, chairman, and Ms Brigid Cunniffe, administrator and health and safety adviser.

I thank the witnesses for attending the joint committee. I wish to draw their attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. However, if you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to do so, you are entitled thereafter only to qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment upon, criticise or make charges against a person outside the Houses or any official either by name or in such a way as to make him or her identifiable.

Having said that, I would like to welcome the witnesses appearing before the joint committee this morning. I thank them for having come here at such short notice. I will now call on Mr. Bryan to address the joint committee.

Mr. John Bryan

I wish to thank the Chairman and other members of the joint committee. I welcome the opportunity to discuss the issue of fuel laundering and the measures that should be taken to deal with this problem. It has been suggested by other groups that an equalisation of the excise treatment of agricultural diesel and road diesel and the introduction of a rebate system for farmers would result in a reduction in the illegal fuel trade. It is critical that we examine the potential implications of this proposal not only for farmers and the agricultural sector, but also in terms of dealing with the increase in the illegal fuel trade. At the outset, I wish to state the IFA's position clearly: we believe that it makes no sense to target the excise rate that applies to agricultural diesel.

Farming is a low-margin industry and farmers are price takers. Average farm income over the last three years was €17,000. Farmers have no alternative energy sources for food production. Agriculture is very important to the economy and competitiveness is essential every day, as a lot of our food is exported.

The differential tax treatment of marked gas oil, or agricultural diesel, across Europe is a recognition of these facts. The price of agricultural diesel has already increased by over 50% since 2010. Any further increase in the cost of agricultural diesel would lead to a direct increase in food production costs.

The IFA has serious concerns about any attempt to raise the price of agricultural diesel for farmers and agricultural contractors. It would have a negative impact on cash flow, putting pressure on the viability of small businesses, particularly given the restricted access to working capital from the banks. It would impose significant additional paperwork and compliance costs on farmers and the proposal does not take into account the costs of policing and administering a rebate system.

Farmers themselves spend approximately €160 million on agricultural diesel annually. In addition, farmers spend €280 million per year on contracting costs. It has been estimated that up to 25% of this is due to fuel costs. The IFA estimates therefore that if the excise rates were equalised, the additional up-front costs for farmers, plus the costs of financing this, would be over €80 million. I will cite examples of the costs involved. For an individual grain farmer burning over 900 litres of agricultural diesel a day during peak season, this represents an increase in upfront costs of over €400 a day and for an agricultural contractor burning up to 3,000 litres a day, it represents an increase of €1,300 a day. These costs are unsustainable for the farming and contracting sectors and undermine competitiveness. In addition, in the recent past there has been a considerable increase in the level of theft of agricultural diesel from farms. An increase in the value of the fuel held on farms will only aggravate the position. The argument for equalising the duty rates on agricultural and motor fuel is that the move will diminish the illegal fuel trade as lower taxed fuel will not be available. However, this argument does not take into account the fact that in Britain and Northern Ireland there is a reduced excise rate for marked gas oil. It is simplistic, therefore, to suggest changing the tax treatment of agricultural diesel in the Republic of Ireland, while it remains unchanged in Northern Ireland, will automatically reduce the presence of illegally washed diesel in the economy. The IFA believes that to tackle the problem presented by the illegal fuel trade the Government should introduce a robust, non-removable, marker for agricultural diesel.

There is also a need for a verifiable track and trace system for marked gas oil from port to end user. In addition, substantial penalties, including loss of licence, should be imposed on retailers of illegally laundered diesel. These measures would reduce the volume of illegally traded fuel, while at the same time underpinning the competitiveness of our growing agriculture and agrifood sector.

Marked gas oil has long been available in Ireland and farmers are used to it. The extra cost involved will be significant. The proposed solution to eliminate it is the creation of a rebate system, but this will put onerous additional costs on farmers and also on the State in terms of administration of the scheme. If the costs to be incurred by the State were to be incurred in enforcing the current system by way of having a better marker and better enforcement, the end result would be much better.

Chairman

I thank Mr. Bryan for his opening comments. I now invite Mr. Tom Murphy to make an opening statement.

Mr. Tom Murphy

I thank the Chairman and members of the committee for the invitation to attend this meeting. Has our brief submission document been circulated to members?

Chairman

It has been received and issued to members.

Mr. Tom Murphy

In that case I will not read it.

The use of washed fuel is not only criminal but also undermines the whole system for marked fuel. There is a need to do something about this because the system is being abused across the agriculture, haulage and other sectors. The agricultural black economy has increased in the past two years to a level it did not reach during the so-called depression of the 1980s and this has resulted in significant revenue losses. There is a serious undermining of agricultural contractors by the use of black economy contractors who are using marked diesel and outside the tax net.

In the view of our association there is no point in replacing the existing dyeing system with anything more sophisticated because within a very short time, with the money that can be made, the system would be abused again. A method would be found to remove the mark and the fuel would be sold once again as white diesel.

There is no simple solution and the association would not even attempt to recommend a solution because the matter is not as simple as that. However, the problem must be addressed, but we have the distinct impression that there is an attitude that it is too onerous to deal with. With the use of information technology and software we have the tools to deal with it and it is not a case of changing the existing system. One could tinker with the marking system, but in the end, those who want to do so would find a way around it. The association is of the view that all companies, farmers, contractors and anyone else with a legal right to use marked diesel should be registered. It should not be possible to get one's hands on marked diesel without being registered and there being a paper trail. This would include being completely tax compliant, including VAT, where necessary. Our contention is that a solution will not be found around this table today, nor do we attempt to provide one for the committee. However, a working party should be established comprising all stakeholders and Departments which should be expected to provide a solution within a specified time in order to eliminate the illegal use of marked deisel and the avoidance of tax.

Deputy Timmy Dooley

I thank Mr. Bryan and Mr. Murphy for their insightful presentations. The committee is endeavouring to establish the facts and we have heard submissions from persons involved in the haulage and contracting sectors and members of the public on the potential loss of revenue to the State as a result of the use of laundered fuel. This illegal use of fuel has resulted in a loss of revenue to the State and damaged machinery belonging to those who have unwittingly used this product.

The Revenue Commissioners outlined to the finance committee the reasons they undertook to communicate with pensioners after Christmas in the wake of the budget announcements. They had identified a potential loss of revenue to the State of approximately €45 million, as a result of an incomplete analysis of the incomes of pensioners. This spurred them into taking a particular course of action which was well ventilated in the media. We are receiving information which may be somewhat circumspect that there is the potential loss of approximately €200 million or €300 million to the State as a result of the illegal use of washed diesel. If this is the case, it is incumbent on us to come up with a solution, or at least to provide an opportunity for a solution to be found.

While the committee welcomes the information provided by the delegates, I am particularly impressed by Mr. Murphy's suggestion that a working group be established involving representatives of all the sectors involved in order to find a solution. This committee does not have all the answers, nor can it come up with them in a short period of time. However, we are hoping to collect some information and statistics. I recognise that Mr. Bryan has spoken about the cost to farmers being in the region of €80 million which is probably a realistic figure.

I ask the delegates to explain to the committee what they believe to be the legitimate use of marked diesel, as this would make it easier to extrapolate information from other figures we have been given and in this way we might establish the extent of the illicit market and the loss of revenue loss the State. If this top line number can be established, it may be easier for us to convince the Department of Finance.

I do not wish to make a political point, but it is a case of ensuring departmental officials understand, appreciate and accept there is a loss of revenue. Even though we recognise this, as Mr. Murphy identified, it is still difficult to find a solution. I understand representatives of the Revenue Commissioners will attend the meeting later and will identify the good work they are doing in co-operation with the Northern Ireland authorities to find a mark that will not easily be removed from fuel. However, a rebate system would have clear advantages. We will probably need to find a solution that will meet the needs of the constituency of the delegates and their associations, but they will also need to accept that a rebate system could be the solution. I ask them to come up with ways of managing its introduction. It should not be seen in any way as an attempt to erode their position. If the Department proposes the introduction of a rebate system, how would they like to see it implemented? I do not expect a response today, but perhaps they might revert to us with an operational model on how such proposals could be implemented in a way that would meet the concerns of their constituents.

Chairman

A considerable number of representatives are due to come before the committee. We will ask the delegates for their views and then offer our own opinion when we produce our report. As we are limited on time, I ask members to put questions rather than make comments.

Mr. John Bryan

I welcome Deputy Timmy Dooley's comments. This system has operated in Ireland for a long time and also operates in Northern Ireland and Great Britain. There are obvious short-comings, but one does not reinvent the wheel because one has a flat tyre. We are reinventing the wheel when what we need are stronger markers and stricter enforcement. The UK economy is much bigger than ours, but it is able to enforce the law. The Deputy estimated the potential losses at €300 million, while the petroleum industry's estimate is €150 million. These are shocking figures which should not be contemplated. It is up to the Revenue Commissioners to strengthen enforcement.

The programme for Government proposes to make Ireland more competitive. However, we will not improve our competitiveness by creating new layers of bureaucracy and imposing additional costs on farmers and the Revenue Commissioners in order to deal with a problem that could be managed through the introduction of stronger markers and stricter enforcement. A recent programme on RTE reported on washing plants and sludge. We need to spend money on enforcing current legislation before we start to think about reinventing the wheel.

Mr. Peter Farrelly

We are losing approximately 20% of contractors because of the black economy. The revenue lost through the use of washed diesel is estimated at €115 million. As agricultural contractors, we service one of the biggest industries in Ireland and if these men are lost to the black economy, farmers will not receive the service-----

Chairman

Will Mr. Farrelly explain in detail how these positions are being lost rather than making a value judgment about them?

Mr. Peter Farrelly

Washed diesel is used in Border counties which is where we mainly work. Washed diesel and red diesel permit the price for cutting an acre of silage to be reduced by approximately €50. That money is going back to Northern Ireland with no trace of it in the tax net. When this work is lost, jobs go by the wall. A review of the matter is needed urgently.

Mr. Tom Murphy

The losses in respect of washed fuel amount to approximately €115 million and that evidence has been presented. The loss to Revenue in the agriculture sector in respect of individuals who are not registered for tax and VAT and use marked fuel because it is available is in excess of €220 million. We do not want to get rid of marked fuel which is the subject of a rebate, but the question arises of how one manages the system. If the supply can be controlled, one can go a long way towards eliminating the washing of fuel. There have been proposals on strengthening the marker by making it more sophisticated and scientifically rigorous, but while this would help, it is not the solution on its own because, ultimately, it could be subverted.

Chairman

I ask Mr. Murphy to explain his position to the uninformed observer. If we were to do away with the two colour system, a different fraud method might develop that might never be identified. Cars travelling the length and breadth of Ireland might be using a certain fuel system that agricultural operators could appropriate to achieve tax reductions. Can we identify whether a regular car is using illegal fuel?

Mr. Tom Murphy

My organisation has no difficulty with marked fuel being retained. The method of marking could be more sophisticated, but we will continue to support a system of rebates, as agriculture would not work without it. We are calling for a tighter traceability system for those who purchase fuel. That is not a system we will work out today, but it is not beyond our intelligence or the sophistication of our computers. Farmers and contractors purchase marked fuel, but they are already in the tax net. The problem arises in respect of fuel purchased by those who are not in the tax net and who are pushing existing contractors out of the system.

Chairman

The Professional Agricultural Contractors Association is not promoting the concept of having a single fuel system with tax rebates.

Mr. John Bryan

As it is legitimate for silage and grain contractors to use green marked diesel, they have no reason to purchase laundered diesel. If contractors are going out of business, it is not because they are using laundered fuel. Why would they buy laundered fuel when they can purchase fuel legitimately with a rebate?

Deputy Noel Coonan

I welcome the representatives from the IFA and the Professional Agricultural Contractors Association. I declare an interest on both sides, or at least a past interest on one side.

Deputy Timmy Dooley

On the fuel or farming side.

Deputy Noel Coonan

Deputy Timmy Dooley likes to add fuel to the fire. I apologise for my late arrival.

I ask the IFA to expand on the concept of a robust, non-removable marker in maintaining the system of green and white diesel. Coming from a rural constituency, I am aware that diesel theft has become an issue. How would the farming community cope if diesel was all the same colour? Agricultural contractors who operate for long periods in remote areas have to carry substantial amounts of diesel and are sometimes vulnerable to theft when they park their vehicles. Somebody would probably have to be left on duty overnight. As these major issues have been overlooked thus far in the debate, I ask the delegates for their views.

Mr. John Bryan

I completely agree with the Deputy. Theft and criminality pose huge problems in rural Ireland. Cutbacks have resulted in fewer Garda stations in rural areas and people are concerned as a result. If the price of a tank of diesel was suddenly to increase from €1,500 to €2,500, it would certainly become appealing for a thief and be much easier to sell if there was only one colour of diesel. Marked diesel must, at least, be laundered. If it was pure white, it would be more appealing for a thief because it would be easier to pass on. I agree with Deputy Coonan. A silage contractor could have a 300 gallon tank in the field and a 200 gallon tank on site. The value of the products could make it very dangerous. It will increase costs because machinery would have to be brought back to houses and locked up or there would have to be extra security. Before the Deputy came into the room, I welcomed the fact that Fine Gael and Labour were all about competitiveness in the programme for Government. It is very important that nothing is introduced to make us less competitive. The move from marked diesel to unmarked diesel would make us less competitive. Mr. Conway will elaborate on the robust marker.

Deputy Noel Coonan

It is always nice to get a compliment from the IFA.

Mr. John Bryan

To a fellow member.

Mr. Fintan Conway

We have had talks with a number of chemical companies and fuel importers. They tell us it is not beyond the bounds of possibility to use a different marker. The issue is whether the engine manufacturers will accept the marker that is used. A number of interested parties are examining the possibility of a robust marker. If we move the goalposts and use a different marker that is more difficult to remove, it will take time for the opposition to catch up. We need to take a multifaceted approach using track and trace, a new marker and registration of fuel users, distributors and retailers to ensure the problem is resolved.

Deputy Ann Phelan

I welcome the IFA and the other witnesses. On my travels with this issue, I found it quite complex and a solution from one side creates a problem for someone else. Rest assured, we are trying to find a solution to which most people will be agreeable. The marker seems to be the simplest solution. The status quo cannot remain. People have called for more enforcement but that costs money on top of the loss of revenue. It runs across a number of Departments because the Department of the Environment, Community and Local Government must then do a clean-up. We need a multifaceted approach but the situation cannot remain as it is and we must find a solution. A register of users is a good idea and it works well in the fishing industry. I welcome the working committee because myth and legend has built up around this issue.

Chairman

I ask the Deputy move from commentary to questions.

Deputy Ann Phelan

I have been told that we can add radioactive isotopes to the diesel, which cannot be removed.

Mr. Tom Murphy

We said quite clearly that different options have been offered but only one can be worked on, the registration system. If we know who is buying it, we know where it is going. I can buy a silage outfit in the morning, if I have the money, and start up a business-----

Deputy Noel Coonan

Mr. Murphy is a wealthy man.

Mr. Tom Murphy

-----and I can ignore the fact that I must register for VAT and I can work with marked diesel. If I had to register with the oil companies, which is done in other countries, there is immediate traceability. With computerisation, there can be exchange of information and we could go a long way to getting the problem under control even if we can never eliminate it.

Mr. John Bryan

I agree with most of what was said by Deputy Ann Phelan. It should be possible to make a more robust marker. As with sport, technology moves on and we must improve both testing and the marker. The figures are large but it is crazy to say that we cannot deal with this problem. England and Northern Ireland are able to deal with that. The cost of enforcement will be higher than at present. Failure to enforce has resulted in the Department of the Environment, Community and Local Government having to clean up. This is not an invisible activity and it is carried on by criminals. There is a good level of knowledge about this and more should be spent on enforcement and a crackdown. This practice has developed in the black economy and more so in the Border counties. There needs to be a serious tightening up and I would try hard enforcement of current legislation before changing it. No one has a problem with the register of users but I am for more enforcement.

Deputy Gerald Nash

Enforcement has improved considerably in recent months. Some 32 filling stations have been closed in the past few months. Deputies Conlon and Humphreys and Mr. Farrelly know that there is a particular problem in counties Louth and Monaghan. The figures reflect this in terms of the environmental cost.

I am concerned at the view expounded by the IFA on the prospect of a rebate scheme for farmers. The status quo will not remain because we are haemorrhaging revenue through the loss to the Exchequer. There is an evisceration of legitimate businesses in my constituency because of the continuation of this practice notwithstanding the improvement in enforcement. Do the witnesses oppose a rebate scheme because of the additional administrative burden on farmers? The witnesses point to the fact that the average farm income is approximately €17,000 but productivity in agricultural exports is booming. This is to the credit of the IFA and its individual members and represents part of the way back for the economy. I ask the IFA to review its position. I do not want to see a solution imposed on everyone without adequate consultation. I ask the IFA to work with the Revenue Commissioners, as Mr. Bryan is a pragmatic man and the IFA is more pragmatic than it is given credit for. A rebate system will form part of the solution. Other suggestions include a registration system and improving the marking of the diesel but we will not find an infallible solution.

Chairman

A question please, Deputy Nash.

Deputy Gerald Nash

Is the IFA hostile to a rebate scheme for farmers? I ask it to review that and clarify its position.

Mr. John Bryan

I welcome the opportunity to clarify the position. One of the first issues to arise is the need for competitiveness, which got lost in the Irish economy over the past number of years. Why is agriculture increasing exports? It is because we try like hell to be competitive. Wages in the agricultural sector are lower and farmers did not set their expectations as high as other parts of the economy. We survived in the real world and we must do everything to trim costs legitimately. Anything that creates a new layer of costs, such as administration and borrowing the extra money, affects us exporting food from Ireland. We must compete with countries that do not have the same level of bureaucracy and the layers of costs, such as the high cost of interest. Several other countries we export against have a lower cost of money. If farmers have to borrow money to provide finance until a rebate is received, that would involve a cost. Any of us who reclaim VAT will know it involves paperwork which is a cost, and on submitting a claim, one must wait to receive the rebate. Therefore, the claiming of a rebate will involve a cost and we will resist as long as possible anything that involves an extra cost in the economy.

Deputy Coonan mentioned that the increased value of the product will increase the incidence of robbery. If people rob diesel at least it is marked; if diesel is not marked it is much more saleable and tradeable. The defence of agricultural diesel being held on farms-----

Chairman

For an uninformed observer witnessing this debate, can Mr. Bryan explain how legitimate diesel can find its way into the illegal market? Somebody is purchasing diesel in a large quantity and it is being moved to washing farms, so to speak. How is that happening?

Mr. John Bryan

I would not be as knowledgeable on that question as on others.

Chairman

People buy diesel and it is being found in the illegal market. Can Mr. Murphy explain that?

Mr. Tom Murphy

There is no restriction on the amount of marked diesel one can buy. The Chairman and I could get a tanker in the morning, fill it with marked diesel, pay the cost of it, take it to a factory to be washed and its value will increase. That is the point we are making.

Chairman

There is no quantifying how a purchaser uses diesel or a breakdown of its use for various machines.

Mr. Tom Murphy

No, that is the reason we are seeking registration. Deputy Nash appears to be advocating that we move from this practice to a new system. If we were to move to the use of white diesel for everybody and to having a rebate system, as Mr. John Bryan said, that would cripple contractors because we could not afford to pay the money upfront and wait for the rebate, even from Revenue. That would cripple the system. It would bring agriculture to a standstill. We must continue with a marked system. There would be leakage in a move to such a system because there would be leakage in the case of every person who would buy diesel, even in the case of VAT registered farmers and contractors, in that the family cars would be run on it.

Chairman

Can Mr. Murphy explain how the diesel a person buys is ending up in Louth in Deputy Nash's constituency where it is being washed?

Mr. Tom Murphy

There is no control over it.

Chairman

Who is buying it? Is it legal purchasers who sell it on illegally or how is it happening?

Mr. Tom Murphy

One can go into any oil company and-----

(Interruptions).

Mr. Tom Murphy

It does not matter. That is the point, one does not need to have one. One can purchase diesel, take it away, wash it and sell it at a higher value. What we are seeking, as we clearly stated, is to have traceability on who buys it and the quantity in which it is bought. Mr. Peter Farrelly is an active contractor and if he uses 50,000 litres a year but suddenly started to buy 200,000 litres a year, that change would pop up quickly through the oil companies and immediately the Revenue Commissioners would contact him to ask where it was going because his returns would show the use of a certain quantity but he would be buying five times more oil.

Mr. John Bryan

That is one of the points I was going to make, agricultural contractors are under severe pressure. Their costs of doing business in the South are quite high. If an additional cost is imposed on them in this respect, more agricultural contractors will go out of business. We must be careful not to put anyone out of business. A tight register together with a tighter marker is very doable and no one would have any objections to that. The cost of enforcing that would be far less for farmers and the State than the cost of a rebate system. The Revenue Commissioners would incur the extra cost of having to put in place a rebate system.

Chairman

Does Deputy Dooley wish to make another point?

Deputy Timmy Dooley

I wish to follow up on a point the Chairman raised. I met fuel distributors who said people have visited their sites offering to launder diesel on their sites for them at a margin. There are people in the business prepared to take that chance. The witnesses before us have suggested that the solution may be to have better traceability but we will never be able to get into the yard of the unscrupulous distributor who is prepared to accept the offer of a quick buck on the basis that a couple of guys will show up with a mobile laundering unit and cleanse the diesel whether it is in Clare, Donegal or Limerick. There is a misapprehension that suggests that much of this activity takes place along the Border. The level of operation by Revenue officials seems to have forced a great deal of this activity well south of the Border. One is more likely to get washed diesel in west Cork, west Clare or west Kerry than in Clontibret, Ballyhaunis or Louth. It is a serious issue throughout the country.

Chairman

I am keen to wrap up this session and I invite members who have contributed to ask a supplementary question if they wish to do so. Deputies Coonan and Phelan have indicated and I call Deputy Coonan.

Deputy Noel Coonan

I have a question for both organisations. Is their membership doing enough on this issue, particularly in identifying what is happening? While this is a semi-covert operation, it must have been done in some cases with the knowledge of agricultural contractors and local farmers. Have the organisations imposed restrictions on their membership in regard to people who have been involved in this? Is there something the authorities should be doing that they are not doing? Is there something to which they are turning a blind eye? This issue could be easily solved if there was a will and co-operation among various groups to do so.

Mr. John Bryan

It is not farmers who are involved in this activity because they can legitimately buy green diesel. It is not a person with a 300 gallon tank who is involved in this. As Deputy Dooley said, it is unscrupulous traders and dealers, major distributors. We are not talking about 30 or 100 gallons tanks. It is not operating at the farm level.

Deputy Noel Coonan

Farmers may know that it is going on close to them.

Mr. John Bryan

Why would they? They would have no incentive to buy it. I can telephone Esso or Texaco to buy green diesel, so there is no incentive for the farmer to be involved in this. The person involved in it is at a higher level up the chain. The point Deputy Dooley made is relevant. This is happening at a higher level. It involves tankers. It is not small-----

Deputy Noel Coonan

I am not suggesting that farmers are involved in it but that people may know it is happening in the area and they are staying quiet about it.

Mr. John Bryan

I note Deputy Nash has left but, from what I hear, in certain areas people might be aware that diesel laundering and other things are happening but whoever is supplying it is operating at a very high level. Some of the suggestions we made should be taken on board. Petrol station operators who are involved in this activity should be closed and not only for a day or a week. They should not be allowed to re-open a few days later. Enforcement is not rigorous enough here. Why does the system in place work in the UK and in Northern Ireland? It works because enforcement there is stronger. We need a much stronger level of enforcement, much stiffer penalties and to close down such operators. Perhaps we have not dealt with them seriously enough in the past; it is time to strengthen the rules. The Deputy asked if we had suggestions. We put forward three or four suggestions, including the introduction of a register of users and the use of a stronger marker. Deputy Ann Phelan was right in saying the Government does not have a great deal of money to spend at this time but this is an area in which money should be spent to close down this activity.

Mr. Peter Farrelly

If a person pulls up to a pump in a station and fills one's jeep or car with such diesel and then travels down the road and the pump goes in that car or jeep, a fine of €500 will be imposed on the garage owner for selling washed diesel. That garage should be closed. The owner is fined €500, but how much would he have made even on one tank? That end of the practice must be addressed by Revenue. Are pumps being examined to check if the diesel in the tanks is washed or legitimate?

Chairman

It is Mr. Farrelly's knowledge that supposedly legitimate petrol and diesel stations are selling washed diesel through the pump system?

Mr. Peter Farrelly

It is happening.

Chairman

That is Mr. Farrelly's view.

Mr. Peter Farrelly

That is happening.

Chairman

Is that widespread or only located geographically in particular parts of the country?

Mr. Peter Farrelly

It is widespread.

Mr. Tom Murphy

People running garages believe they can make money from this. Operators can open up in, say, Cork or Kerry and if caught they will be closed down and get a smack on the hand; they should go jail. The penalties need to be more severe.

Deputy Ann Phelan

I wish to reassure the witnesses that we are in the business of trying to find a solution to this. We should pursue all the suggestions that have been offered, but I reiterate that we need to separate fact from fiction. Another element of this practice has not been mentioned. Two other operators have a vested interest in this context, one is the small rural service station that is being put out of business by these illegal operators and the other is the motorist who unwittingly buys this diesel and then finds the engine of his or her car is destroyed. Their car is destroyed and they have no recourse to anyone to pay for the cost of their engine being destroyed because of the diesel. We must do some work on the issue and separate fact from fiction. Perhaps it is rocket science to understand the chemical aspect of it but we could do much more in the interim to at least frustrate those criminals and be one step ahead of them.

Chairman

I will take the final comments from the witnesses before we move on to the next group of witnesses.

Mr. Tom Murphy

I reiterate our thanks for appearing before the committee. It is not rocket science. We believe in having registration and a tracking of all companies who buy the product, which should be restricted to those who are registered. The penalties for taking excessive amounts or going outside the system, which could be easily verified, should make it prohibitive for anyone to want to take that route.

Mr. John Bryan

We welcome the opportunity to appear before the committee. I repeat that if this country is to get out of the mess it is in we must be more competitive and work consistently every day to ensure we do not create new layers of bureaucracy. I would be in favour of a register of users and a much more robust marker as well as stronger enforcement.

Chairman

I thank Mr. John Bryan, Mr. Tom Doyle, Mr. Fintan Conway, Mr. Tom Murphy, Mr. Peter Farrelly and Ms Bridgid Cunniffe, for their attendance before the committee. They are more than welcome to remain for the next part of the meeting.

Sitting suspended at 11.32 a.m. and resumed at 11.33 a.m.

Chairman

I ask Deputies to take their seats. I welcome members of the Irish Petrol Retail Association, IPRA. As they can see, they need to behave themselves. I thank Mr. Michael Griffin, chief executive officer, for coming before the committee, along with Mr. David Blevings, media director, Mr. Johnny Brady, IPRA executive committee member, and Mr. Michael McKeon, also IPRA executive committee member.

I draw to their attention that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give this committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of a long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the Houses, or any official by name in such a way as to make him or her identifiable.

I invite Mr. Blevings to address the committee.

Mr. David Blevings

I thank the Chairman for the opportunity to attend and address the committee. I hope committee members have received a copy of our submission.

I am media spokesperson for the Irish Petrol Retail Association, which is a trade body representing the interests of more than 400 legitimate petrol retailers in this country. As the committee is well aware, legitimate retailers are struggling to make profit in the difficult economic circumstances, with reduced consumption, competition from illegal and unauthorised car washes setting up on street corners, the increase in non-payment drive-offs from the forecourt and on top of that, the major problem of unfair competition from retailers selling adulterated fuel. We do not need to go into the details as committee members are well aware of the marker being removed from the gas oil, which is then being sold as road fuel.

One of the key statistics I heard this morning is the difference in the revenue loss we are all talking about. That gives us a steer but nobody has an idea of what the product movements are North or South across the island of Ireland. The statistics we put together from the oil companies suggest there is a conservative loss of anywhere between €150 million to €200 million per annum. To put it in perspective, the tax take on a 38,000 l tanker, including VAT duty, on road diesel is currently approximately €30,000. The same tax on a tanker of gas oil is €8,000. That is a substantial difference of more than €20,000 and a potential profit for the criminal network that wants to profiteer from it.

The industry's view, which I represent today, is that the problem of fuel abuse is now out of control and we have severe reservations about how we move forward unless the committee gives clear direction. We believe that there are sophisticated and substantial networks now in place to canvass and supply laundered and illegal fuel throughout the Republic, from County Monaghan to County Cork. We believe the fuel market is totally out of control.

It is clear that retailers who stock and supply this laundered fuel do not fear Revenue. The actions taken are not punitive. I heard earlier the comments to the effect that Revenue has stepped up its action. Let me make clear that we do welcome that but the sentences imposed for supplying and retailing laundered fuel are not punitive. The latest fine was €10,000 and the station was closed for one day. The retailer will make that up in two weeks. It is derisory. The lack of direction by the Government is forcing legitimate retailers to take chances. They are being forced to stock illegal product to make ends meet. Legitimate business is going out of trade and that situation will only be exacerbated as the problem continues.

There is a severe lack of understanding of the size and scale of the problem within Government. That has resulted in a lack of funding and manpower being made available to the bodies trying to make progress against this severe problem. We commend Revenue on its actions to date but believe it is understaffed, under-resourced and does not have the correct detection equipment or the audit tools to allow it to do its job correctly.

As a legitimate retail trade body our members are crying out for assistance. We want the committee to give the Minister for Finance direction, to reassure the legitimate retail trade that adulterated fuel has no place in the marketplace, and that the Government will support legitimate traders only.

We heard this morning about a rebate system. The Irish Petrol Retail Association has no objection to a rebate system but believes the paperwork and time to put that in place could be quite onerous. We have suggested in our proposal that a rigorous audit scheme could be put in place from supplier to end-user. A similar scheme has operated in Northern Ireland for in excess of five years and has been very successful and where a minimal amount of agricultural gas oil is finding its way into the road fuel market. We would support the registration scheme and we would also suggest that the Government should look at a quality assurance scheme for consumers.

Deputy Phelan mentioned that the consumer has no comeback against anyone. It is not beyond the realms of possibility that the Government could support a legitimate retailer's assurance scheme. We could do that through modern technology. The Minister alluded to it in respect of taxis this week. We need to think of new and innovative ideas. We would support a rebate scheme if that is the way the committee decided to proceed but we think a much easier methodology would be to put a rigorous audit scheme in place which could be done within months rather than years. We would also support a new chemical marker.

Chairman

Could Mr. Blevings please explain the process? Legitimate diesel is manufactured and marked for farm use and so on. It can be found on the forecourts of retail petrol outlets. I assume the diesel coming from those taps is not 100% illegal, rather it has been diluted with legal diesel. Is that correct? Is it being sold as 100% illegal diesel?

Mr. David Blevings

That is a question the Chairman should pose to Revenue today. I understand the mark is removed in a straightforward manner or products could be mixed with legitimate diesel and or kerosene, which is another favourite for lengthening the product. There are a number of variations.

Chairman

For some reason, when the process starts there is diesel that is legal for a particular use but ends up on forecourts. How does it go through that process?

Mr. David Blevings

It is very simple. As mentioned by the IFA, anybody can buy agricultural gas oil. It is not illegal for a retailer to sell it or export it from North to South and vice versa. Distributors and others are buying the product, it finds its way into the hands of criminal networks and markers are removed, usually in old barns and disused farms which is where most of the revenue fines are found. The acid waste is left at the side of the road and the product is sold on to the retail network.

Deputy Timmy Dooley

I thank Mr. Blevings for his comprehensive presentation. Has he any experience of the network of distributors in terms of the kind of illegal activity that goes on? Can he quantify what he believes to be the scale of the problem? It is a difficult question but he has some grapevine information. Oil distributors have made it known to me that they have been approached by unscrupulous laundries who are prepared to carry out the activity on site. They will deliver a quantity of laundered fuel in return for payment and will take away legitimate agricultural diesel which will be laundered and brought to the next operation. Can Mr. Blevings estimate the quantity of laundered diesel and the potential loss to the State? We can work out the figures if he can provide the information in terms of litres.

Mr. David Blevings

The Deputy's question is one of the key points. We cannot get data on fuel movements within Ireland. We have asked for figures on exports for Northern Ireland and Dublin Port and import data. All we have been able to access is some information from some of the major oil wholesalers and the NORA statistics. I do not believe that gives a true picture of the fuel movements within Ireland as a whole. To answer the question on size and scale, a conservative estimate is that over 20% of the Irish market is currently supplied by agricultural gas oil fuel. That is hearsay from my members.

Deputy Timmy Dooley

Is 20% of the legitimate activity supplied by laundered fuel?

Mr. David Blevings

Yes, by marked gas oil. The loss to the Exchequer is estimated to be in excess of 200 million.

Deputy Gerald Nash

I thank the delegation for the presentation which was very useful. How many jobs are at risk and how many have been lost already as a result of the illicit fuel trade?

Mr. David Blevings

A substantial number of forecourts have closed. The sad reality is they are now reopening but not as legitimate traders. We believe criminal networks are putting people in place to run service stations and the profits are going in to those networks. There are two retailers present today, who said if the situation does not stop they will lay people off this year because they cannot afford to employ people. The profitability is not there when one is trying to sell legitimate fuel. There is not enough profit to keep the current number of jobs. The sad reality is that retailers have closed and reopened under different names.

Deputy Gerald Nash

I have encountered a problem faced by retailers in Louth. There are concerns about health and safety on forecourts. Staff members of illicit traders and members of the public are concerned about the fact that many codes of practice and employment law and regulations are being breached on a regular basis by illicit traders.

Mr. David Blevings

We believe that enforcement is not happening. Again, we do not blame Revenue or HSA for that. The legislation does not permit them to carry out proper enforcement. We would love to see stations selling adulterated fuel closed, and not just for one day with a €10,000 fine, which is a slap on the wrist. There is no fear factor which is pushing more and more retailers who are struggling to make ends meet to take illegal products.

Chairman

The proceedings are being televised. If people have telephones switched on the television coverage will be lost as a result. I ask members to turn off telephones rather than putting them on silent.

Deputy Marcella Corcoran Kennedy

In Mr. Blevings's experience, how long has this been going on for? When did he first notice it happening? Does it appear to be escalating? Does the association have any opinion on who the target market is? Can he elaborate on the model in the North to which he referred?

Mr. David Blevings

On how long the problem has been going on for, Ireland has a reputation for smuggling going back 300 or 400 years. It depends on the duties and price of products North and South. The problem has been ongoing for the past five, six or seven years. It has escalated in the past three years as the price differences and profitability of laundering gas has made it very attractive. The difficult economic climate has also helped, in that people are turning to this as an easy way to make money.

Revenue is well aware of who is doing it. It has tackled smugglers and lifted fuel product from them on a number of occasions but it struggles, because of the legislation, to do something with them permanently. Revenue has a clear idea of who is involved and I am sure the Garda does too.

RDCO in Northern Ireland has proved a success. If one asks Revenue today what key gas oil product is currently being used for laundering it would not be red gas oil, as in that from the UK, rather it would be green gas oil from the Republic of Ireland. To get red gas oil in Northern Ireland one must be registered as a dealer of controlled oil, which includes kerosene and gas oil. I can only sell agricultural gas oil to somebody who is an RDCO licence holder. If he or she wishes to sell it on, he or she must have an RDCO licence. They require monthly returns to HMRC electronically. Revenue can look at those returns to see where large quantities of gas oil are going.

I understand very little red gas oil finds its way into the illegal fuel market. At least 90% is green gas oil. This approach has proved quite successful in Northern Ireland and colleagues in Revenue have spoken to HMRC about it. The committee can check this with the Revenue.

Deputy Marcella Corcoran Kennedy

My question may not have been clear. Who is the target market for illegal fuel?

Mr. David Blevings

Does the Deputy mean consumers or retailers? Consumers will buy products where they are cheap. If I am selling a product at 2 cent above a neighbouring garage consumers will still go to the cheapest place. It is very difficult because there is so much profit in laundered fuel. Illegal traders are now competing with legal ones and set the prices very close to them. Unfortunately, as was said earlier, consumers do not know what they are buying or who they are buying from.

Deputy Ann Phelan

Mr. Blevings points are well taken. On my travels I find that because the task seems to be too onerous it is much easier to leave things the way they are. Mr. Blevings referred to a fine of €10,000 and being forced to close for one day. Fuel laundering is now so profitable that it is a minimalist approach to take. A huge amount of work could take place. We need to have a multifaceted approach. A very simple solution regarding the quality assurance scheme would be for a retailer to erect a sign stating the fuel supplied in his outlet is legitimate. Irrespective of what one says about people and cheaper fuel, I believe 90% of people want to comply with the law. Perhaps the retailers who sell illegal fuel would erect signs also.

I take the point on enforcement because I have had people contact me who say they have never had an inspection, even in 25 years. It is also being said there is a considerable amount of data that has not been gleaned. The industry seems to be very loose and haphazard and plods along, but it is now at a crisis point and all strands must come together if we are to save all those represented this morning.

Mr. David Blevings

On the haphazard approach, nobody has asked for the figures. Compiling them would be a huge step forward.

With regard to the quality assurance scheme, I agree one can just put up a sign. Some of the brands have tried it but it must be supported by the Revenue Commissioners and the Government. It must carry weight and there must be responsibility placed on the licence holder. Perhaps there should be a fund such that if one had a problem with one's car on having bought fuel from a branded station or a supplier in a quality assurance scheme, one would have a means of redress. This needs to be discussed. A quick fix comprising a scheme for registered dealers of controlled oil, similar to the one in Britain and Northern Ireland, would be a huge move forward in addressing the impasse.

To return to our solutions, we are not against the duty being raised to the same level as that for road fuel. However, we see a severe difficulty arising with the farmers' associations over the rebate. The nature of the fraud could just change from being physical fraud to paper fraud. These considerations should be taken into account.

Deputy Tony McLoughlin

I welcome the delegates and apologise for being late.

We discussed fuel laundering at a meeting last week. The delegation mentioned the closure of a number of retailers. I do not know the percentage but realise it has been quite substantial over the past 12 or 18 months. The delegates referred to many places closing down and reopening and selling diesel illegally. It was suggested that the name of the supplier be made known on the forecourt. Is that possible?

Mr. Michael Griffin

A seller may have a contract with an oil company and the sign would identify that company. In some cases, however, there may be no contract and the fuel could be purchased from a number of sources. This occurs and one does not know whom the retailers are buying from. They could be buying from a local supplier or somebody up the country. They could be shopping around for the cheapest price. That is what is happening at present.

Deputy Tony McLoughlin

Is the source not known?

Mr. Michael Griffin

With regard to the licence to sell oil, the Revenue Commissioners can check where one bought one's product. I refer to the change on 1 July. If there is rigorous enforcement, it will be possible to check. However, there is not enough manpower on the ground. One would need to check almost every month or have a means of checking. Sometimes the pumps could be doctored and one would not know what was going through them. There could be a problem with the returns to the Revenue Commissioners based on sales in a forecourt if they are illegitimate.

Deputy Tony McLoughlin

There are companies that have been supplying for years and in respect of which there are no worries. Mr. Blevings mentioned a number of places that have closed down and reopened soon afterwards. The vast majority of people I know, particularly constituents I represent in the Border region, are familiar with several people who have had difficulties driving away from the forecourt and whose engines were destroyed two or three miles down the road. Irrespective of the fact that the Revenue Commissioners will be appearing before us, do the delegates believe there is a way of policing businesses that have reopened?

Mr. Michael Griffin

One must be very careful. I understand the Deputy's point. He is talking about the difference between branded and unbranded sites. The difficulty is that an unbranded site may be buying from a big name, but it could be bringing in one load of oil in four from the big name and the remaining three from A.N. Other. Just because a premises has a sign above the door with a name on it does not actually mean very much. What we need is a robust scheme to allow the Revenue Commissioners to state, on the basis of monthly audits, that a company has bought X million litres of gas oil and to ask what has been done with it. If the station cannot demonstrate it sold it on to farmers or agricultural contractors, for example, it should be hit for the difference in revenue. It is not rocket science. A quality audit scheme would go a long way towards reducing this problem.

I understand the Deputy's point on branded oil. While I would certainly be keen to support the branded companies, I realise a person running an unbranded station could be buying from a reputable company. We need to be careful in that regard. There are others who are running unbranded stations buying one load in four from a reputable source so they can demonstrate to Revenue the origin of their fuel. We must also be very careful in that regard.

Chairman

Mr. Blevings is saying any individual in the State can purchase green diesel of any volume and do whatever he wants with it. There is no monitoring of how it is disposed of or its location.

Mr. David Blevings

That is correct.

Chairman

Over the course of the next 12 months, Mr. Blevings could, in theory, buy 1 million cu. l of green diesel and the State would have no idea where it went.

Mr. David Blevings

Yes.

Chairman

Mr. Blevings mentioned a movement or monitoring scheme. How does he envisage it working? As Deputy McLoughlin stated, people are entering stations and buying illegal fuel with the result that their cars break down 2 km down the road. They may also be stopped by a customs and excise officer or be fined for having illegal fuel in their cars. They are open to a penalty one way or another. What is the current inspection regime of the Customs and Excise or Revenue Commissioners for retail stations nationally? Are they inspected every six or 12 months or, if they are lucky, once every ten years?

Mr. David Blevings

The Chairman would need to ask the Revenue Commissioners that question.

Chairman

What is Mr. Blevings's experience?

Mr. David Blevings

Some members say they are inspected regularly by the Revenue Commissioners, for which organisation I cannot speak, and there are other members who state they have never had a visit. We suspect and hope the Revenue Commissioners have a top-ten list. They are bound to have identified some stations as high risk, medium risk and low risk. We would like to believe the top 20, 30 or 40 stations are being visited regularly. I do not know the answer to the Chairman's question. He needs to ask the Revenue Commissioners to find out. We commend the Revenue Commissioners on its work and believe they do a good job. They are handicapped, however. I mean that most sincerely.

The Chairman referred to motorists being tested. Current laundering techniques are so good that the Revenue Commissioners have severe difficulty in finding laundered fuel. I will allow them to answer for that this afternoon.

We would not object to an increase in the duty to match the level for road fuel but believe doing so would be fraught with severe difficulty. It is not the easy solution. We envisage an easy solution in the audit process, whereby everybody dealing with controlled oil, be it gas oil or kerosene, would be registered as a dealer of controlled oils. Monthly returns should be submitted to the Revenue Commissioners and the latter should be in charge and have clear legislation on licensing to back them up. In this case, if one is discovered to be supplying gas oil to the sector that is being used illegally, one's business should be closed down. We have a fear of taking away the right to trade, etc., but it has gone past that. Closure for one day and a €10,000 fine are not enough. While I agree there are difficulties with enforcement, I believe that if processes are in place such that one knows exactly how gas oil is going from port to consumer, one will remove many of the opportunities from the criminal fraternity.

Deputy Seán Conlan

My question was to be on enforcement and how often the Revenue Commissioners carry out inspections, but it has been asked already and Mr. Blevings has replied. Critically, what has emerged this morning is the failure of Revenue to inspect and check, as well as the lack of legislation to force illegitimate traders out of business.

Mr. David Blevings

To clarify, I do not think it is a failure on the part of Revenue. It has a committed bunch of people who wish to tackle this problem and the system is failing them.

Deputy Seán Conlan

The legislation is the problem.

Mr. David Blevings

Yes.

Deputy Seán Conlan

Okay. To revert to the quality assurance scheme, there is nothing to prevent any retailer from taking in a load of washed diesel at any time. Consequently, I cannot discern how this could be enforced unless Revenue appeared on the ground more often to check each pump. As Mr. Blevings has noted, many of the association's traders have never been checked or certainly are not checked on a regular basis. He mentioned that Revenue has a top ten, top 20 or top 40 retailers it checks regularly. The system in Northern Ireland certainly seems to work effectively to prevent red diesel from getting into the system. Is it correct to state the Irish Petrol Retail Association considers this to be the route that should be taken in this State?

Mr. David Blevings

A quality assurance scheme could work if there was independent and random testing and sampling by Revenue. It must work with the Government and would never work on its own. It would not have any teeth unless it had some Government force behind it. The registered dealers in controlled oils, RDCO, scheme that operates in Northern Ireland is not perfect. One is obliged to go through the procedures to get a licence, etc., and one of course can do things to dodge and weave, if members excuse the expression, to get licences. However, there at least is something to prevent the unauthorised sale of gas oil freely throughout the country. I think Revenue has examined the HM Revenue & Customs, HMRC, scheme operating in Northern Ireland and has cherry-picked it. It has decided it likes this and this, does not like that and would add on this. Revenue has examined the scheme and I am sure it will be able to provide members with further information in this regard this afternoon. However, we believe a quality audit scheme, possibly linked to a new marker, certainly would go a long way towards stamping out this problem.

Deputy Heather Humphreys

I thank the Irish Petrol Retail Association for the presentation. Can Mr. Blevings indicate what percentage of the association's membership is buying from multiple sources? I do not know whether Mr. Blevings has that figure to hand but if he does, are the members concerned concentrated in any particular area of the country?

Mr. David Blevings

I do not have those figures. The difficulty is it is a competitive market and while some traders will engage in a contract with a brand for one, two or three years, others will buy on an ad hoc basis. I apologise but it is very difficult to gauge what is the relationship at present.

Deputy Heather Humphreys

That is all right.

Deputy Brian Stanley

I thank the Irish Petrol Retail Association for the presentation and apologise for being late as I was engaged in other business. I refer to the proposal to have forecourt signage indicating from where the diesel is sourced. The association's case in this regard is that while one load may be from Esso or Texaco or whoever, the weakness is there may be another load of dodgy fuel from elsewhere. Nevertheless, it would be worthwhile to find a way to make this system work. As a motorist, I wish to buy proper diesel. Have some of the association's members identified a way around this problem to enable one to ascertain that a seller has a reputable source?

On auditing, the association's point that no proper auditing procedure is in place is something of a revelation, as is the lack of accountability to ensure one must account for where all one's diesel came from or to where it went. Are there State-wide problems in trying to enforce this? While the myth is this problem is confined or primarily confined to the Border region, I live in the midlands and four places were closed down in my constituency, and rightly so, for selling laundered diesel. As the problem extends quite widely across the country, would it be highly cumbersome for Revenue to engage in such enforcement? This issue is somewhat akin to drink driving, in that one can take the chance in a gamble that one will get away with it. However, if dealers were sure the penalty was extremely severe and did not merely entail closure for a day or a week but meant being closed down and put out of business for five or ten years, in such circumstances, the risk would be too high. I seek the witnesses' views on how this proposal would bear down on the industry and whether it would be unfair. Would such a measure involving severe penalties allow those who are trading properly and who source diesel and fuel properly to trade? Three stations in a row are located on the approaches to one midlands town and in hindsight, the station that was closed was suspect. At the time, however, while passing it I did not think anything of it. How willing is the trade to put up with extremely severe penalties? Obviously, this entails getting Revenue to carry out spot-checks in the same manner as the Garda conducts drink driving checks.

Mr. David Blevings

The legitimate trade has no difficulty with, and for a long time has been seeking, more severe fines. Ultimately, there is no penalty. A €10,000 fine and having one's station closed for one day certainly would not put me off, were I interested in dealing with illegal fuels.

The Deputy asked whether the trade could do anything about this warranty scheme. I am sure the Deputy is aware that a couple of companies including Maxol, Topaz and others have tried to operate a quality assured brand. The difficulty arises in the question of ownership, that is, whether a site is owned by the company or is a tenanted site. One must be very careful unless there is support from Revenue or the Government to back up such a scheme, perhaps with a compensation scheme for those who have had engines damaged etc. This is what we would like to see on the ground.

The concept of "three strikes and you are out" sounds reasonable to me. If one is caught dealing in dodgy fuel, one could receive a warning. One could receive a fine the second time and the third time, the station should be closed down. I certainly think it should be more rigorous - I am looking at my colleagues to see if I am all right in saying that. Ultimately, however, a one-day closure and a fine of €10,000 is not sufficient.

Mr. Michael McKeon

If there is a censure, it should be applied to the station and not to the operator because the problem is it is opening up every other day with a different operator. If the Revenue considers a station to be unfit to sell, that judgment should stay with the station and not be circumvented with a new operator. One would then not wish to let a station to an unsavoury character.

Deputy Brian Stanley

It is a similar situation to that which obtains in a public house.

Mr. Michael McKeon

Exactly.

Deputy Brian Stanley

When the licence is withdrawn, it does not affect one person only. One cannot open up the day after with someone else.

Mr. Michael McKeon

Deputy McLoughlin asked earlier what was being lost within the industry. There is much talk to the effect that several hundred million euro are being lost. I can state, from personal experience and that of some acquaintances, that the average loss per station is approximately 15,000 litres to 20,000 litres per week. One can ascribe a little of this to the recession but the rest of it definitely is due to competition from other sources. If members wish to work that out it is-----

Deputy Tony McLoughlin

Last week, members of this joint committee attended some meetings in Belfast at which the issue of fuel laundering was discussed. It is a major issue in Northern Ireland, particularly along the Border. Does the association co-operate with or engage in discussions with its counterparts in Northern Ireland on this problem?

Mr. David Blevings

The simple answer is "Yes". I sit on an HM Revenue & Customs forum with the oil distributors in Northern Ireland and there is co-operation. I acknowledge it could be better but the HMRC and Revenue meet on a regular basis and discuss ideas and initiatives to try to help with the problem. Were they to get a push from this joint committee, I think it could work better, if that answers the Deputy's question.

Deputy Tony McLoughlin

The Chairman and other members attended the aforementioned meeting, at which there was a long discussion on this issue. Everyone was of the opinion there certainly should be closer co-operation on this issue and I hope the joint committee can be of assistance in this regard.

Deputy Ann Phelan

We are seeking closer co-operation through the British-Irish Parliamentary Assembly. However, in trying to get some detail, they appear to favour a much stronger marker and appear to consider this to be the simplest method. They believe the introduction of a chemical marker would help to solve this issue much faster and more simply than many other measures. A multifaceted approach must be adopted and one simply must frustrate those who engage in this activity.

Mr. Johnny Brady

As a retailer, to make it simple for those who do not understand, although huge amounts of money are involved, not much paperwork is involved. Years ago, as a retailer I used to be audited as a seller of LPG. The customs officials would read the meter on my pump. The meter never zeroised but continued on and on and from one visit to another, they would subtract the previous reading from the new reading to ascertain one's sales. One could not tamper with this measurement and was obliged to produce one's purchase invoices to match one's sales. It was so simple. At present, however, in the petrol and retail business, I believe a quiet filling station would not even sell one full delivery of fuel per week, whereas a really busy one would sell three or four loads. We are only talking about three or four invoices per week.

Deputy Tony McLoughlin

We are only talking about two products so it is not rocket science.

Chairman

I invite the witnesses to make their concluding remarks and we will conclude this module.

Mr. David Blevings

We have discussed most of the issues and I thank the committee for giving us the opportunity to make a presentation. We would have no problem with an increase in the duty to the same level as road diesel but we do not believe that is the quick fix. We support a claim for a quality audit scheme to be put in place quickly, with a quality assurance programme for consumers and more legislation and assistance for the Revenue Commissioners to help it carry out its enforcement duties.

Chairman

I thank Mr. Griffin, Mr. Blevings, Mr. Brady and Mr. McKeon for assisting us with our deliberations today. They are welcome to stay for the remainder of the day's proceeding is they wish to observe from the Visitors Gallery.

Chairman

I welcome the delegation from the Revenue Commissioners: Mr. Gerard Moran, Assistant Secretary, indirect taxes division, Mr. Niall Butler, principal officer, planning division, and Mr. Michael McGill, assistant principal officer, investigations and prosecutions division. From the Department of the Environment, Community and Local Government, I welcome Mr. Pat Fenton, assistant principal officer, waste policy section, and also Mr. David Fallon, Monaghan county manager, and Mr. Ciarán Duffy, executive engineer in the environment section of Monaghan County Council. I thank them for attending today.

Before we recommence, I draw witnesses attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. If a witness is directed by it to cease giving evidence on a particular matter and continues to so do, he or she is entitled thereafter only to qualified privilege in respect of his or her evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they do not criticise or make charges against a person, persons or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

Mr. Gerard Moran

I listened with interest earlier and there were many questions to which we hope to have some of the answers. Often not only do we not have all the answers, it seems we do not have the questions either.

Oil laundering has always been a problem but it has escalated dramatically in the last year since low sulphur marked oil became widely available. Currently we collect €1.1 billion annually in excise duty from road diesel, so the scope for loss of tax revenue from this fraud is significant. If laundered fuel captured 5% of the market, the cost to the Exchequer would be around €48 million annually in excise alone. When VAT and other taxes evaded are factored in, the cost increases further. It is important, however, to recognise these costs do not tell the full story. Oil laundering undermines competitiveness of legitimate businesses, damages the environment, damages consumers' vehicles and helps to sustain organised criminal networks.

Revenue is tackling the problem on a number of fronts, including robust and sustained enforcement action, implementing more effective controls for oil distribution and pursuing a more effective market in conjunction with Her Majesty's Revenue and Customs in Britain. I will briefly outline what we are doing on these fronts and will touch on the estimated cost to the State of this fraud, an area of particular interest to the committee.

On the enforcement front, oil laundering is one of our key priorities. In this work we are supported by well established structures to ensure close co-operation between all relevant agencies, North and South. The cross-Border fuel fraud group brings together representatives from a number of agencies, including An Garda Síochána and the PSNI, as well as the British and Irish revenue authorities. There has been excellent cooperation between all agencies in sharing intelligence and identifying and investigating criminals involved in this fraud. We detected and closed nine laundries in 2011. In the course of these operations, 327,000 litres of oil were seized and 16 people were arrested. Overall, we seized over 1 million litres of oil last year, including oil seized from unlicensed premises. Almost two thirds of that total was seized in the last four months of the year, reflecting significant recent progress in tackling the problem.

I want to acknowledge the courage and dedication of the frontline Revenue staff involved in this work. They operate in a hostile environment but have not been intimidated or deflected from dealing with the criminal elements involved in this business.

While we have enjoyed some success in detecting and closing oil laundries, we recognise this approach will not solve the problem on its own. Oil launderers must be denied access to marked oil for the purposes of laundering and must be denied access to the market for the laundered product. Since July we have tightened up the licensing regime for road fuels to make it more difficult for launderers to get their product on to the market. As a result we have succeeded in recent months in closing 32 filling stations that did not have a licence or were in breach of licensing conditions. This represents real progress and the work will continue and be intensified in 2012.

It is disappointing to have to say it but launderers seem to be able to source ample supplies of marked oil for laundering. For this reason, we have been examining the legislative framework to see how the distribution of this product can be controlled more effectively. Legislative changes that would enable more effective controls in this sector, as well as for road fuels, are under consideration in the context of the forthcoming finance Bill.

The crux of the problem is the vulnerability of the current marker to new, improved laundering techniques. We plan to go the market shortly with the British authorities to seek a new marker. A good deal of preparatory research has already been undertaken here and in Britain and we expect to proceed with this project shortly.

An issue of concern to the committee that was referred to this morning is the cost to the Exchequer of oil laundering. As with any illegal market, it is impossible to estimate its size with any degree of confidence. The British authorities measured the tax gap for road diesel in Northern Ireland and in Britain but the estimates are heavily qualified. In the case of Northern Ireland, they are unable to disaggregate their tax gap estimate between illegal diesel and diesel bought legitimately across the Border. We would face the same difficulties here. As things stand, we are unable to measure the scale of the problem but we know it is significant and could escalate further unless tackled effectively.

The Revenue Commissioners are fully aware of the scale of the oil-laundering problem and the threat it poses to the Exchequer and legitimate business. We are committed to taking effective action.

Chairman

I thank Mr. Moran for his presentation. I call on Mr. Kieran Duffy, executive engineer, Monaghan County Council.

Mr. Kieran Duffy

I will highlight the effects of illegal diesel laundering from a local authority perspective and outline the problems Monaghan County Council has had with it over the past several years.

The practice of dumping residues from diesel laundering processes has been a major issue for counties Louth and Monaghan over the past eight years or so. These waste residues, known commonly as diesel wash, are produced through a variety of methods. Over the years this has involved the use of materials such as sulphuric acid, cat litter, charcoal and bleaching earth among others. More recently, the use of bleaching earth appears to be the preferred method of washing diesel. Bleaching earth is an absorbent type clay that has legitimate uses as a cleaning agent.

In County Monaghan the problem is concentrated in the south east along the Border with south Armagh with the majority of the incidents taking place in the rural border region around the Castleblayney and Carrickmacross areas. Between 2004 to January 2012, Monaghan County Council dealt with over 150 separate incidents of diesel wash dumping. In 2004 and 2005, the council dealt with 37 and 27 separate incidents respectively. From 2006 to 2010 there was a steady decline in the number of incidents culminating in only one incident in 2010. However, since the beginning of 2011 there has been a dramatic increase in the number of dumping incidents. Last year, we attended 37 incidents and to date in 2012 we have already had ten such incidents, seven of which were last week alone. Our staff have been out every day of the week, including last Saturday, lifting diesel wash. The past two months have undoubtedly seen the most intense period of diesel wash dumping in the county.

The waste is typically left in containers known as intermediate bulk containers, IBCs. These are square cubed containers with a cage around them, typically seen in industrial estates. The nature and scale of the dumping incidents can vary significantly and can range from one or two containers left on the roadside to an abandoned 40 ft. trailer containing up to 45 IBCs. Each IBC can hold approximately 1,000 litres of waste which is approximately 1 tonne of waste.

At a typical diesel wash dumping incident, several specialist personnel are required on site such as fire brigade personnel, specialist contractors with lifting equipment, council plant to transport the waste and council environment staff. To date since 2004, it is estimated Monaghan County Council has dealt with 276,000 litres of sulphuric acid wash, approximately 276 tonnes, 360 tonnes of contaminated cat litter and 200 tonnes of bleaching earth sludge. An additional 200 tonnes of primarily bleaching earth type waste is currently in storage at our landfill compound pending removal off site.

With the significant price differential between road use diesel and marked diesel, there is scope for huge profits to be made by washing or laundering marked diesel. Regarding the sulphuric acid wash for example, it has been estimated that 1,000 litres of wash found would represent 100,000 litres of washed marked diesel on the market. In Monaghan we have handled approximately 276,000 litres of sulphuric wash. Does this mean 28 million litres of washed diesel was sold on the market?

The costs incurred by Monaghan County Council since 2004 have been approximately €1.5 million. It is estimated the cost of disposing of the material currently in storage at the council's compound is likely to be approximately €200,000.

Apart from the huge costs associated with diesel laundering waste, there are other issues such as the environmental and health and safety dangers posed. In many instances the material is dumped in an extremely careless manner close to watercourses and lakes, posing a major pollution threat. Monaghan County Council in the past has had to take appropriate action to protect watercourses, temporarily turning off public water supplies in some cases. Last week, following an incident in Carrickmacross, we are monitoring private water wells as the material was dumped close to private dwellings.

The sulphuric acid type wash also represents a significant health and safety risk because of its very acidic nature. We have concerns for locals and especially children who may approach dumped material. Another problem is that roads in the county are being left in a very dangerous and slippery condition as a result of this activity. It is a matter of time before there is a serious fatal road accident caused by this dumping.

Chairman

I thank Mr. Duffy for his presentation. I call on Mr. Pat Fenton of the Department of the Environment, Community and Local Government.

Mr. Pat Fenton

The role of the Department of the Environment, Community and Local Government is to assist local authorities in carrying out their role as competent authorities under waste legislation which is to take the necessary measures, on behalf of the State, to ensure any waste generated and left abandoned by the diesel launderers is managed without endangering human health and without harming the environment, in particular without risk to water. Local authorities' role is front line ensuring the safe disposal of the residues which are generated by such illegal activities. The Department has up to now reimbursed in full all costs associated with such disposal case by case. The funding comes from the environment fund which is raised through plastic bag and landfill disposal levies.

The problem has been primarily a Border county one with Louth and Monaghan County Councils bearing the brunt since the issue first surfaced in 2003. In 2010, Offaly County Council required €29,000 to pay for the disposal costs associated with residues from a diesel-laundering facility there. As Mr. Duffy explained, the materials used are classified as hazardous waste and need to be handled and treated accordingly. It is not a simple issue of landfilling it but exporting it to the Netherlands and Germany for incineration.

Since 2003, the Department has provided funding of €4.677 million for disposal costs. Of this, €3.254 million went to Louth County Council and €1.395 million to Monaghan County Council. This funding was provided on an exceptional basis in recognition of the particular difficulties which arose for those authorities in responding to instances of illegal dumping of oil-laundering residues. A fair amount of the historical deposition came from across the Border also as it is not all arising from the southern side. The Department, as part of an ongoing co-operation with the Northern Ireland authorities on repatriation of illegally deposited waste in Northern Ireland, has begun discussions with those authorities on a sharing of such historically incurred costs.

In 2011, however, the Department was fairly hit for six when it paid over €900,000 to Louth County Council and €90,000 to Monaghan County Council for the removal of oil-laundering residues. The problem escalated in 2011.

Since January 2011, the Department participates in a cross-Border fuel fraud enforcement group led by the Revenue Commissioners. We presented the problems faced by the Border counties to that group in December 2011.

The Department recognises a complete solution to this problem is difficult to arrive at and must necessarily involve more effective and co-ordinated enforcement of the law from both a revenue and waste management perspective and from authorities on both sides of the Border. The Department will continue to meet with representatives of the Revenue Commissioners, the local authorities concerned and the Office of Environmental Enforcement to seek to identify more effective enforcement solutions and these contacts will continue. There are 120 waste enforcement officers across the country on which approximately €7.5 million is spent from the environment fund. We should co-operate as much as we can on the ground. We recognise that this is now a major burden on the environment fund at a time of extreme pressure on the fund, but we certainly intend to assist the local authorities in this matter, subject to the availability of moneys in the fund.

On behalf of the Department, and as Mr. Moran has done, I thank the local authority staff at the front end who have borne the difficult problem of picking up this waste, sometimes also under threat.

Deputy Timmy Dooley

I welcome both presentations. I want to concentrate on the Revenue officials to start with. They have been recognised by all the contributors here for the work that they do, in particular, the front line staff who must deal with a difficult situation on a daily basis. It is right and fitting that we would duly note the difficulties Revenue staff face.

It is clear from the presentations that nobody lays the blame at Revenue's door. Certainly, this committee is not about laying blame and, as an Opposition spokesperson, that is not where I want to go with this. That is the reason we are having this debate here, to try to use the committee in a way that would strengthen the activities of the State or the legislative architecture that provides Revenue with the appropriate capacity to deal effectively with the problem that has been well presented here.

Can Mr. Moran, either today or soon - because we are trying to put this report together in a relatively short period of time - come back to us with any legislative changes he deems appropriate? Revenue is doing the best within the framework. I do not want to make the political point that it should be given more funding and a greater number of staff. That is not what this is about. If Mr. Moran thinks there is a deficiency in the legislation and if he thinks there is some capacity that can be given to Revenue within its current resources that would be more beneficial to Revenue in resolving this problem in so far as possible, I ask him to tell us about it.

Ms Josephine Feehily, through the Joint Committee on Finance, Public Expenditure and Reform, was before us on the collection of taxes on pensions after Christmas and she spoke of the deployment of the State's resources targeting those areas that provide the best chance of return. It seems, based on the kind of numbers that we have heard today, that this is an area that would warrant serious consideration and I am sure that is being done by the Revenue Commissioners.

Could Mr. Moran estimate the loss to the State? There are three elements to the loss to the State: the impact on the Department of the Environment, Community and Local Government in terms of the cost of the clean-up which is small in comparison to the loss in Revenue; the distortion of trade due to the inability of legitimate operators to compete, particularly in the haulage sector, because there are rogue operators with laundered fuel in an unfair competitive environment; and this issue of the unwitting user who picks up laundered fuel and whose diesel pump, injectors or whatever are damaged at a cost to them. The big cost, however, is to the State.

Perhaps Mr. Moran would comment on what has been delivered by others, where they stated that perhaps 20% of the entire usage of fuel comes from the laundered sector. Can he add any credibility to that number? If €200 million is the loss to the State on an annual basis, then it is a crisis of gargantuan proportions and one which would require all of us in this room to find a solution when one considers the measures that we all have had to take in terms of imposing austerity on the citizens. If there is a pot of €100 million or €50 million, it is enormous. We must work constructively and collectively to try to resolve that.

Mr. Gerard Moran

This discussion is timely. It is hugely encouraging from our perspective because there is a significant problem and we need to have the tools and the ability to tackle it. To do so, we need much co-operation from many different interested parties here in the industry and elsewhere.

Deputy Dooley asked about the legal changes required and I mentioned those in my opening address. There are legislative proposals under discussion in the context of the finance Bill. I suppose I feel somewhat constrained from going into that because the Bill is due to be published and that is a separate exercise, but I want to say that there are specific legislative proposals under discussion in the context of the finance Bill, which is expected to be published in a matter of a few days.

As I stated in my opening remarks, we need to strengthen further our controls on the retailing of road fuels. We have already made significant progress in doing that under existing legislation, and they became effective from July last. Following that, we have targeted suspect filling stations and, as I stated earlier, closed 32 of them. To the best of my knowledge, those 32 filling stations remain closed. There were many more closures involved because a number of filling stations kept popping back up the next day and the following day, and we had to go and close them repeatedly and remove the product from them. We have been aggressive in pursuing those, but we want to strengthen further the legislative framework and our controls.

A real problem referred to in several of the contributions over the course of the morning relates to the marked fuel. That fuel is used not only in the agriculture sector; it is used right through the wider business and commercial sector. It is used by households who often use marked diesel as well as kerosine. Frankly, our controls in that regard really do need strengthening. We need a stronger licensing system. We need a proper licensing system in that sector. We need a far greater sense of responsibility on the part of all of the distributors and those involved in that business in relation to whom they sell to. We need that sense of responsibility and we need accountability. There was some reference earlier to the fact that in the UK there is a system that requires persons in this sector to make returns and we have had discussions with HMRC about that system.

Deputy Dooley asked whether this is a priority issue for Revenue and, I suppose, made the point, with which I agree, that it ought to be a priority. I can assure the Deputy that it is a priority. That is reflected in what I was able to state in my opening remarks about the way our activity and the results that we have achieved have ramped up dramatically in the latter part of the year. I stated that this problem has been bubbling along for quite a while but it really became a major issue in the course of this year with the availability of low-sulphur marked oil which is indistinguishable from road diesel. It has really blown up on us in the course of this year. We have responded quickly and aggressively to it. We have changed licensing conditions and we have really targeted suspect outlets. That is reflected in the very creditable results that we achieved in the last three or four months of the year.

Deputy Dooley invited me to comment on the cost to the Exchequer. I have heard various figures being bandied around. My view of it is that the loss to the State is by no means trivial. It is significant. I stated that if it was 5%, for example, the cost to the State would be something under €50 million per annum. We really do not know. There is no real effective methodology that would allow us to measure that. I pointed out that where they have gone down this road in the UK and in the North, they have really been unable to quantify the scale of the illegal market. I would like to be able to put a figure on it. It would certainly, if that figure was significant enough, reinforce the case for resources on it, but I really would be speculating.

I will make one further point on this. We examined the aggregate statistics for consumption of marked gas oil and road diesel. The numbers are not frightening and they do not encourage us to think that anything approaching 30% of the market is affected but we are not complacent about the issue and we continue to regard it as a serious problem. The obvious existence of rogue filling stations selling dodgy diesel presents a challenge to us and to other State authorities.

Deputy Dessie Ellis

I thank the delegation for their presentation. There was an extensive discussion of this issue in Stormont because it is a Northern problem as well as a Southern one. Laundered diesel costs the State a huge amount of money and it also has a significant environmental impact. In regard to the discussions that Revenue has entered into with British authorities on marked oil, this is one of the keys to the problem. I presume the policies in place in other European jurisdictions were investigated. Given that the issue appears to be more significant here compared with elsewhere in Europe, we must be doing something wrong.

Clearly there is disagreement between the farming industry and other interests in respect of the use of certain diesels but I am curious to learn and know more about how the matter escalated. Mr. Moran blamed the introduction of low sulphur oil. Can something be done to stop this? It is not a new development because diesel has been laundered for as long as I remember but I have never seen as many abandoned vehicles as over recent weeks. The representatives of the road haulage industry estimated a figure amounting to tens of millions of euro. There must be some truth in that estimate.

In regard to the 32 filling stations closed by Revenue, what is the total number of stations in the State? I do not know how many have been closed permanently. Does Revenue believe the penalties need to be increased? I am sure it is monitoring the main stations in areas that are more inclined to use this diesel but a system of regular inspections will also have to be rolled out if we are to get to the bottom of what is happening.

Chairman

I invite Deputy Ellis to ask questions.

Deputy Dessie Ellis

The discussions that are currently ongoing in respect of marked oil are the key to this problem.

Mr. Niall Butler

I will deal with the question about low sulphur. I am not a technical expert or a chemist but I will do my best. Until the end of 2010, marked gas oil had a high sulphur content whereas road diesel had a low sulphur content. An environmental directive which entered into force in January 2011 essentially allows the sulphur content of marked gas oil to be reduced from 1,000 particles per litre for environmental reasons. In the context of enforcement, we had a presumption in law that it was difficult to reduce sulphur content in laundered marked gas oil. Even if a marker was not found to be present when we sampled fuels, a high concentration of sulphur was sufficient for us to pursue a prosecution. This was a very effective mechanism but the problem has escalated since the start of 2011 from the perspective of Revenue and the Department of the Environment, Community and Local Government.

In regard to the number of stations, anyone who wants to sell automotive fuels must acquire an excise licence from Revenue. Approximately 3,200 valid licences are in force. As my colleague noted, we introduced more stringent conditions from July onwards. We also introduced a vetting system for new licence applications, especially in respect of pop-up stations. When they applied for a licence, we examined their premises and took whatever actions were deemed necessary to close them.

Offences that incur penalties in respect of marked gas oil include having marked fuel in the tank of a motor vehicle; sale, delivery or keeping for sale marked gas oil for use in a motor vehicle; removing or attempting to remove the marker from mineral oil; and unlicensed trading of mineral oil. On summary prosecution, penalties can include a fine of €5,000 or imprisonment of up to 12 months, and the penalty on indictment can be a fine not exceeding €126,970, which I think equates to £100,000, and a term of imprisonment of up to five years. The penalties for indictable offences are clearly substantial.

Deputy Ann Phelan

The delegates referred to effective control of and denying access to marked oil. What measures will be put in place to deny access? What happens to fuel after it is imported that allows these people to get their hands on products? Something in the system must not be working correctly.

Mr. Gerard Moran

The problem is that there is a substantial difference between the rates of duty and, therefore, an incentive to launder fuel. Consumption of marked oil, whether gas oil or kerosene, is considerable but some of it is leaking out of the distribution system somewhere between the apex of importers, refiners and main distributors and the distribution network. The fuel should be going to businesses, farmers and households for domestic heating, but significant quantities are leaking out of the system and being sold to others for the purpose of laundering. We will need to put a tighter regime in place in the sector so that we have proper traceability and can ensure dealers are responsible and accountable for what they are doing. Substantial improvements in record keeping will also be necessary. There will be better checking on our part on that, but we just need to have a whole regime. I am reluctant to get into too much detail on it, as I hope the Deputy appreciates. We are talking about some of our thoughts on how we address this problem. They are in the mix, as it were, regarding the finance Bill and that is the vehicle where this will get thrashed out at a high level. The detail of this is likely to take shape in secondary legislation and I would envisage that we would have considerable consultation with interested parties and the sector about this.

Deputy Tony McLoughlin

I welcome the officials and thank them for their contributions. Earlier I asked about cross-Border co-operation between the Revenue here and its counterpart in Northern Ireland. It is a major issue for our colleagues in Northern Ireland, which was highlighted. Can Mr. Moran confirm that Revenue, in conjunction with the State Laboratory, has been evaluating a new fuel marker in the past two years? Last Wednesday at a meeting of the House of Commons select Northern Ireland Affairs Committee in Westminster, an official of HMRC stated that the Irish State Laboratory had laundered out this new fuel marker on seven occasions. Can Mr. Moran either confirm or deny this? Can he confirm that HMRC and the Revenue here have signed a memorandum of understanding, as stated in Westminster last Wednesday, regarding working together and giving one tendering process?

Mr. Gerard Moran

I can confirm that the State Laboratory over a period of time has, in an exploratory way, worked with various parties that have come forward with potential marker solutions. Its opposite number in the UK has been doing likewise. We are exploring possible solutions and various parties have come up with ideas. It may also be the case that some promoters of a particular solution may have come back repeatedly with a marker, but I do not really have any information on that.

Regarding a memorandum of understanding, we have discussed this several times with our UK colleagues and we have agreed in principle that we will proceed jointly to do this because to do otherwise would be foolish and ineffective. I believe we will probably formally complete a memorandum of understanding about that exercise pretty shortly.

Deputy Tony McLoughlin

I asked about what had been said at a select committee meeting in Westminster that a fuel marker had been checked on seven occasions. Is Mr. Moran familiar with that?

Mr. Gerard Moran

I am sorry but I am not familiar with that. However, I know the State Laboratory has been involved in this kind of exploratory work and that some of the parties involved have approached the laboratory on more than one occasion. I imagine that is with a view to addressing any weakness and improve what they are working on.

Deputy Tony McLoughlin

Last Wednesday an official of the HMRC stated that the Irish State Laboratory had laundered out this new fuel marker on a number of occasions. I believe it might have been seven times. Is Mr. Moran not aware of that?

Mr. Gerard Moran

I am not aware of that.

Deputy Tony McLoughlin

Is the Revenue working closely with its British counterpart?

Mr. Gerard Moran

The last time we met them was in early January.

Chairman

I have a question for Mr. Fenton. We have seen a presentation from Monaghan County Council that much of the residue of laundering systems can be in containers. However, I imagine it is not always in containers and could be in ponds or other such bodies of water and find its way into the water table. What is the cost to the Exchequer per litre each time that needs to be cleaned up? Can any use be found for the fuel that is confiscated? Does it get incinerated or does it find its way into the system? Can it be given to charity organisations to burn in their heating systems or whatever? Perhaps that question might be more suited to Revenue.

I have some questions for Revenue. Deputy McLoughlin has already asked Mr. Moran to expand on Revenue's relationship with HM Revenue & Customs. I will not ask Revenue what legislative measures it proposes - I can understand that. However, what are the current legislative deficiencies? What aspects of the current system are making life more difficult for Revenue officials? In his presentation Mr. Moran mentioned that the licensing system had brought some success. I ask him to expand on that.

Yesterday afternoon, representatives of local authorities spoke to the committee about clamping whereby the local authorities outsource the policing of the system and it became a very profitable operation for clamping agencies. Is there potential to outsource the inspection regime? It does not need to be done by Revenue and could instead be done on a find and reward basis. A company could set up and visit a series of retail filling stations. It would carry out the examination and then get a percentage of any fine. If it can be stamped down at the consumer end, it becomes too expensive and damaging for people to purchase it. No one will manufacture it if a retailer is afraid to buy it. Would it be possible to introduce an inspection regime that would work under the guidance, regulation or direction of Revenue? Just as we have clamping firms working on behalf of local authorities can we have some agency inspecting retail filling stations on the basis that if it inspects a station and finds it is legitimate, it does not get a penny for it, but if it visits a station that is found to be operating illegally, it gets a percentage of the fine imposed by Revenue?

Mr. Pat Fenton

I will deal with the cost per litre. We do not compile statistics on a cost per litre. What tends to happen is that several of these containers are left at the side of the road and are taken away by the local authority, which hires specialist staff. They are basically repackaged since the material can leak. It is initially kept in a quarantined area and then sent for incineration to Germany. Up to now we have not attempted any sort of recycling of the material. One could take it that it is recovered in the sense that the incineration abroad is very likely creating energy, but not here in Ireland. Coincidentally a company approached us last week to inform us that it might be able to do something with some of that residue. We will see whether it can. However, that is the way it is done. We respond on an incident basis, so to speak. When Monaghan County Council or Louth County Council has a problem and sends a bill to us, we try to deal with it as it arises. We do not have a specific funding mechanism per se set aside for the particular problem. I am afraid that is what happens to the material. For the time being it is incinerated abroad and we have not attempted to recover it. However, as I said, a company has approached us and its representatives will talk to the local authority to see if there is any possibility of using some of that material.

Mr. David Fallon

From the councils' point of view, the best estimate we can come up with is approximately €1,000 per tonne to deal with it. So it would cost approximately €1 per litre to deal with the waste product. In addition, it is extremely hazardous. Our fire service staff go out in full chemical suits. There is a health and safety danger for them and people coming afterwards and there is also a danger to the water supply. The real danger - the Revenue Commissioners and the Garda suffer this also - is the criminal elements who are sometimes on site when the activity is going on. We have had occasions when criminals were taking photographs of our staff and were able to take them unhindered because it is quite legitimate to take a photograph of anyone.

Mr. Niall Butler

I will deal with the questions on what we would like to see and Mr. Moran will deal with the final question. I must repeat we are constrained somewhat by the sensitivities of the Finance Bill. The areas in which we would like to see improvement are tighter registration or licensing of those involved in moving the product around the country; provision of or access to data which would allow us to carry out a supply chain analysis so we know where it comes from, who gets it and where it goes; and more stringent record keeping. This is our wish list, although it is probably a little more than a wish list at this stage.

Mr. Gerard Moran

The Chairman asked a profound question about the possibility of outsourcing the checking of outlets. Potentially this could be feasible if one was simply checking the product. However, at present the difficulty is we are unable to identify a laundered product as such. The type of checking that will be involved, and which we will operate in the licensing system for road diesel and what we would like to see in the licensing system for marked diesel, is one based on records where all dealers must keep in a particular way records of deliveries and what they have received and must keep accounts. We are moving into the realm of not looking at the physical product but at the business and accounting systems. With regard to dealing with discrepancies and fraud when we uncover it, these are core Revenue competencies of raising assessments and pursuing them against the person discovered operating the fraud.

Chairman

Earlier, Mr. David Blevings of the Irish Petrol Retail Association stated that any individual in the State can buy an unquantified sum of marked diesel and locate it wherever and dispose of it however he or she wants without it coming to the attention of the authorities. Mr. Moran states Revenue is moving away from a marked diesel system to a paper trail system as being a more efficient means of examination. If Joe Bloggs were to buy 500,000 litres of marked diesel, Revenue would want to know why he is doing so, he would require a licence for purchasing it and there would need to be a register as to how he uses or disposes of it.

Mr. Gerard Moran

Certainly we want a dramatic improvement in the records we have on the movement of oil but, like many of the delegations which came before the committee this morning, we think the marker should be retained and a superior marker substituted for the one used at present. We want a much improved system of tracking the movement of marked oil through the distribution system. At the higher realm of the distribution system we would like the information electronically, ideally on a real-time basis. This will take some time to put in place.

The Chairman is correct. At present it is far too easy for people with no business buying marked fuel to do so in large quantities. We have received co-operation here and there from the oil industry, and we have a forum at which we meet its representatives regularly. It has been tightened up here and there but when major distributors tighten up, people are still able to source it in some fashion. We require a far more rigorous control regime throughout the distribution chain while retaining a marker. We will be able to track it. The problem is that people who should not buy marked oil are able to do so in large quantities and we must have controls in place to make this extremely difficult.

Chairman

Rather than creating a massive bureaucracy, because every farmer in the country listening to this will think he or she will have to pay a registration fee to buy marked fuel, would it be possible for warehouses or major providers of marked fuel to keep a register of every litre they sell and to whom it is sold? This would mean farmers would not need to register but the person who sells to the farmer would have to state he or she had done so, the quantity sold, the date on which the transaction occurred and how much would be sold to that farmer per annum. Is this the objective Revenue is hoping to achieve?

Mr. Gerard Moran

We would not require every user of fuel to be registered. We do not want to create bureaucracy. We do not want bureaucracy for consumers or for ourselves. We want everyone selling marked gas oil to keep proper records in order that we will be able to trace where all the oil goes, but without have to register everyone.

Deputy Heather Humphreys

I thank the witnesses for their presentation. As a former member of Monaghan County Council I particularly welcome Mr. Kieran Duffy and Mr. David Fallon. I am aware of the problem, and Mr. Duffy outlined it very clearly, as diesel wash causes a serious problem in County Monaghan, an area about which I can speak specifically. I met Mr. Duffy two days before Christmas when I went to look at a site where washed diesel had been left by the side of the road. It was very dangerous. The staff must clean up this mess and the cost to the Exchequer is terrible. Numerous complaints are received by members of the public where diesel has been dumped beside lakes, and it is a serious problem. I am delighted the committee is examining the issue.

Regarding the cost to local authorities of the clean-up, does the Department refund the full cost to local authorities? These costs include the staff who clean up on site and administration. Is all of this refunded?

Mr. Pat Fenton

The Department provides funding from the environment fund for waste enforcement staff, so they are fully funded. The claims sent in are for the full costs associated with the disposal so they are fully recouped.

Deputy Seán Conlan

I welcome the witnesses from Monaghan County Council and the Revenue Commissioners. Monaghan County Council does a sterling job on waste management with regard to laundered fuel and acid sludge, as Mr. Fallon pointed out. I wish to ask a question of the representatives from Revenue. Earlier, the retailers stated there was no fear factor with regard to selling laundered fuel because the fines and legislation are weak. With regard to what should be done, they mentioned the system in Northern Ireland of having a dealer of controlled oil. They stated record keeping was not an issue for retailers because large retailers have perhaps only four invoices a week and smaller retailers have only one. Therefore, record keeping should not be a major issue. They mentioned electronic record keeping exists in the North and records must be sent to their equivalent of the Revenue Commissioners every month.

I listened carefully to what was said about keeping records of what is received by retailers. However, the key issue is what is sold by retailers. One of the retailers mentioned that in the past, each unit of liquid petroleum gas had to be clocked and Revenue would check what was sold through an outlet. One can take in lorry loads of laundered fuel and sell it if no records are required of what is being sold. As the Chairman stated, perhaps farming out the checking of each retail outlet for what is sold and what is in their tanks should be considered. The retailers mentioned some retailers have never been checked over the past ten, 15 or 20 years while others are checked regularly. The Chairman made a point about tendering for a private operator to check retailers regularly. I am sure that legitimate retailers would have no objections whatsoever, as Mr. Blevings stated.

Mr. Gerard Moran

I apologise if I was not clear enough. When I discussed records, I intended to say - I believed I did - that we wanted the complete set of records of every transaction in which people received and sold oil.

Mr. Butler mentioned the list of penalties, which are significant. In terms of a fear factor in the courts, our most intense activity in confronting this problem has been in recent months and the timeframe means those cases have not appeared before the courts yet. Therefore, we are not sure what sorts of penalty will be applied. Some 16 arrests followed from dealing with oil laundries last year. We discovered another oil laundry last week and two people were arrested. However, all of this has occurred relatively recently and we need to see what kind of penalties will be applied by the courts, assuming we can get the cases before the courts.

The work on checking will revolve around accounting records and is encapsulated in the nature of the regular auditing work in which Revenue staff are engaged. This work results in assessments and settlements. Checking is an integral part of the regular audit compliance-type work that we do.

There will be a considerable focus on requiring everyone in the business to have proper records. We will specify this clearly. We will have a serious programme to verify compliance, but it will be on a risk basis. As we do not have unlimited resources, we will target where we believe the risk is greatest.

Chairman

That concludes this morning's hearings. I thank Mr. Moran, Mr. Butler, Mr. McGill, Mr. Fenton, Mr. Fallon, Mr. Duffy and all of our other witnesses for attending at such short notice and for assisting us in our deliberations. I also thank the witnesses who contributed earlier for staying to observe the following proceedings. I propose that we enter private session to discuss these issues further.

The joint committee went into private session at 1.13 p.m. and adjourned at 1.35 p.m. until 2.15 p.m. on Tuesday, 7 February 2012.