EU anti-fraud investigators have accused UK authorities of turning a blind eye to a massive fraud network allowing ultra-cheap Chinese goods to flood into Europe.

The EU’s anti-fraud office OLAF said this week it has found the UK to be a “significant hub” for undervaluation fraud whereby importers can profit from evading duty and VAT.

Despite new legislation in the UK in 2016 to tackle VAT and customs duty evasion, the investigators found the losses to the EU budget are still ongoing and “the fraud hub in the UK has continued to grow”.

They say the fraud hub cost the EU £1.7bn in lost duties between 2013-16 and they recommend that the European Commission recover the money from the UK. They calculate that in 2016 79.2% of the €817.2m (£709m) losses in customs duties for the EU budget were through UK importation.

A spokesman for HMRC said: “This is not a bill, it is Olaf’s estimate of evaded duty, and not one that is recognised by our experts who will be challenging Olaf on their calculations.

“HMRC has a very strong track record for tackling fraud and rule breaking of all kinds, securing more than £26.6bn last year alone and no one should be in any doubt that we are responding to the threat of fraud.”

OLAF told media it had repeatedly drawn HMRC’s attention to the scale of fake invoicing of Chinese imports, particularly of clothing and footwear, and the on-going revenue losses.

“As far as Olaf is aware, the UK authorities have not introduced risk profiles and the measures that they have taken do not appear to have curbed this traffic,” said an OLAF spokesman.

“To date, they have not initiated any criminal investigations in relation to these frauds.”

HMRC says it is “currently handling more than 550 cases relating to potential import fraud”.

Responding to OLAF’s announcement VATFRAUD UK tweeted:

“UK faces €2 billion fine over Chinese imports scam. It looks like HMRC (Her Majesty’s Revenue and Customs) have nowhere left to turn.”

VATFRAUD UK is a campaign against Chinese and non UK sellers with stock in the UK committing VAT Fraud on Amazon and eBay.

The campaign helped pressure the British authorities into introducing new laws in 2016 to tackle online and VAT fraud, imposing joint and several liability for online marketplaces and a proposed due diligence scheme for fulfilment houses.

But earlier this year VATFRAUD UK commented that “the new laws fall well short of what needs to be done and simply amount to a chocolate teapot”, adding that “there are still 1000’s of Overseas Online Retailers committing VAT Fraud in the UK”, and “by allowing this to continue HMRC has created a huge market distortion in unfair competition and pricing for UK businesses”.

Statement by Right Hon David Gauke MP. In 2016.

“The growth in online shopping has meant the average UK consumer can get goods faster and cheaper than ever before. According to a recent British Retail Consortium report, more than 20 per cent of non-food retail spending occurs online in the UK. This growth in online e-commerce has benefited the wider UK economy but has also left it open to severe abuse.

Non-EU traders who sell goods (located in the UK at the time of sale) to UK consumers, mainly via online marketplaces, are not always paying the correct VAT and duty to HMRC. These goods are normally shipped to the UK prior to sale and stored in fulfilment houses close to their final delivery point. This abuse has grown significantly and now accounts for £1-1.5bn of the total VAT gap. These overseas traders are unfairly undercutting all businesses trading in the UK, abusing the trust of UK consumers and depriving the government of significant revenue.

The government has announced at Budget 2016 a comprehensive package of measures to disrupt and deter this 21st century fraud. We are targeting non-compliant overseas traders themselves by making them appoint a UK tax representative who will be liable for their VAT and/or seeking a security. If these traders fail to comply and online marketplaces do not help stop the abuse occurring, the online marketplaces themselves will become jointly and severally liable for the unpaid VAT. We will be working with international partners to try to develop solutions to this problem that affects all major economies. Work has already begun on engagement with the EU and OECD on this matter.

The Fulfilment House Due Diligence Scheme complements the above measures, equipping HMRC with the tools it needs to tackle this fraud. The government will make sure fulfilment houses who are part of this scheme perform proper due diligence on the goods that they fulfil. This will ensure that HMRC can target those traders who use this business model to undercut legitimate business and protect revenue.

This consultation will ensure we minimise as far as possible the scheme’s impact on legitimate firms that import goods. It is therefore crucial that any business that is involved in storage, breaking bulk, unpacking, re-packing and/or subsequent delivery to customers of imported goods responds to this consultation. I hope that you take the time to respond fully. Your responses will help us to ensure this scheme is designed in a way that best meets its objectives, including ensuring the costs faced by firms are minimised.”

The UK is facing a £1.7bn fine after failing to stop Chinese criminal gangs using the country as a fraud “hub”, despite repeated warnings.

Clothes and shoes were imported through the UK at fictitiously low values for years to avoid duties, the European Anti-Fraud Office (Olaf) has found.

As a result, investigators say the EU budget has lost millions of pounds in customs duties.

HMRC said it plans to challenge Olaf’s claims about lost revenues.

The Olaf investigation found the UK to be a “significant hub” for so-called undervaluation fraud – where importers can profit from evading customs duties and related taxes.

Organised crime groups are using fake invoices to undervalue goods being imported from China – many of which are destined for the black market in other parts of the EU, investigators found.

They say the fraud has cost the EU £1.7bn in lost duties between 2013-16 and now they want the European Commission to recover the money from the UK.

In 2016, according to Olaf, 79.2% of the €817.2m (£709m) losses in customs duties for the EU budget were through UK importation.

Image copyright, AFP

Olaf have said the losses to the EU budget are on-going, as this fraud is still happening. Investigators warned HM Revenue and Customs a number of times but they failed to take tough action to curb the problem, it said.

A spokesman said: “Olaf has repeatedly drawn the attention of the UK customs authorities (HMRC) over the last years to the scale of the phenomenon and to the on-going revenue losses.

“As far as Olaf is aware, the UK authorities have not introduced risk profiles and the measures that they have taken do not appear to have curbed this traffic.

“To date, they have not initiated any criminal investigations in relation to these frauds.”

He went on to say that it is the taxpayers who “pick up the tab” to compensate for the revenue losses.

But a spokesman for HMRC said: “This is not a bill, it is Olaf’s estimate of evaded duty, and not one that is recognised by our experts who will be challenging Olaf on their calculations.

“HMRC has a very strong track record for tackling fraud and rule breaking of all kinds, securing more than £26.6bn last year alone and no one should be in any doubt that we are responding to the threat of fraud.

He added that HMRC is currently handling more than 550 cases relating to potential import fraud.