Dirty laundering
Fuel laundering is causing the State to lose out on €150 million in lost taxes annually as well as hitting legitimate retailers severely in the pocket. Gillian Hamill reports
Print18 November 2011
Lobby group Retailers Against Smuggling (RAS) has carried out excellent work in highlighting the widespread nature of illegal cigarette sales within this country. However, another burgeoning area of criminality is currently afflicting Ireland’s legitimate forecourt retailers, namely, fuel laundering.
The statistics certainly make for alarming reading. Retail Ireland has said that the illegal fuel trade is costing the Exchequer at least €150 million in lost taxes every year. What’s more, recent import figures suggest that at least 12% of all diesel sold in Ireland is illegal.
The good news is that Revenue officials, alongside gardaí , have persevered in trying to counteract this worrying development. Fortunately they have achieved some considerable successes in this pursuit; seizing 158,000 litres of laundered fuel this year alone.
Yet the geographically diverse nature of such seizures from Dublin to Donegal, suggests that this is a growing illegal industry, which in itself is a cause for concern.
Not limited to border counties
Retail Ireland chairman and Topaz retail director Frank Gleeson notes: “The latest seizures by Revenue and gardaí in Dublin, Galway and Louth disprove the common misconception that the majority of laundered fuel is only available in border counties. Earlier in the year enormous quantities of illegal fuel were seized in Galway, Roscommon, Westmeath, Offaly and Dublin. This suggests that the illegal fuel market is spreading in Ireland.”
The criminals engaged in diesel laundering have the capacity to make vast profits from their dealings moreover. They start off with diesel intended for use in the agricultural sector which is marked with a green dye. Once marked, it is subject to lower excise taxes than those applied to diesel for road use.
However, those operating illegal laundering plants source agricultural diesel which they then launder to remove the dye. The dyed fuel costs approximately 70c per litre. When the dye is removed, the diesel currently sells for approximately €1.30 to €1.35 per litre, which is 10c below the market price. According to Retail Ireland: “This indicates the substantial profit margin for the criminals involved which they then use to fund other criminal activities. The excise tax on agricultural diesel is lower than diesel for road use and the price differential between them currently stands at approximately 51c”.
Retail Ireland chairman and Topaz retail director Frank Gleeson
Retail Ireland chairman and Topaz retail director Frank Gleeson
Legitimate retailers suffer
Unsurprisingly, this can have a potentially devastating impact on law-abiding retailers’ businesses. Frank Gleeson has highlighted the stark realities involved, stating: “Legitimate fuel retailers are already struggling to survive in a difficult economic market. Their livelihoods are being threatened because they are being undercut by cheaper laundered diesel. The inevitable consequence is fewer hours worked, job losses and in some cases business closures”.
It’s not hard to see why motorists would be tempted to go for a cheaper option though. The Automobile Association (AA) reported in August that motoring costs in Ireland rose by 5.8% in the past year, with the biggest change due to increases in fuel prices. The association’s annual survey of motoring costs found the cost of running a family car had increased by 5.8%, or €646, around double the rate of inflation.
Ethical considerations aside, warnings that agricultural or green diesel can damage vehicle engines is enough to put some consumers off purchasing diesel at such enticing prices. Yet the fact of the matter is that some consumers are not even considering such pitfalls. This is for the simple reason that in some cases, they are buying their diesel at unscrupulous service stations, and remain blithely unaware that they are engaging in any wrongdoing.
Consumers unaware of criminality
Indeed, a spokeswoman for the Revenue Commissioners has confirmed that the serious difficulty involved in tracking down illegal fuel poses serious challenges. “It can be difficult to establish that diesel oil on sale at forecourts is, in fact, laundered fuel,” she said.
Some operators dealing in laundered fuel actually mix the illegal product with genuine diesel to disguise its presence at the forecourt. “Often, the initial indicators may be a damaged fuel pump or other mechanical problems caused by the residue of acids left in the laundered oil,” the spokeswoman added.
This echoes the views of Fine Gael TD for Meath, Ray Butler, who claimed earlier this year that several local petrol station owners and a major petrol supplier in West Meath had told him there were between 15 and 20 filling stations in the area selling laundered fuel. While Retail Ireland estimated the State was losing out to the tune of €150 million in taxes, Butler believed that this figure could be more in the region of up to €300 million a year.
In fact in September, 48,350 litres of laundered fuel were seized from five filling stations in five different counties. Also in 2010, nine retailers were found dealing in laundered oil, and eight haulage companies were detected using laundered oil. Gleeson believes that: “In most cases filling stations involved in the illegal trade are run by individuals that are aware that the fuel they are purchasing and selling on to motorists is laundered. Some stations have been opened illegally on vacant sites specifically for this purpose”.
A damaging trend
On the other hand, motorists who are aware that they’re engaging in illegal activity, may believe they’re making valuable savings. Yet the reality is that laundered fuel may potentially inflict a far greater cost by creating broader damage; not just to car engines but to the environment. “Illegal diesel plants inflict substantial environmental damage where they operate, polluting local water with harmful consequences for livestock”, said Gleeson.
One example of this was reported by the media in September. At the time, gardaí had begun an investigation into suspected illegal dumping in Co Louth and was examining a pond containing what appeared to be hazardous sludge linked to diesel laundering.
Worryingly, the site expanded to 140 acres, and was situated close to the water treatment plant that serves Dundalk town. However, a spokesman for Louth County Council said he wanted “to allay any fears of a threat to the water supply to Dundalk”. He said “the water abstraction for the treatment plant is at a higher point and there is no threat of any kind to the supply”.
Criminal behaviour
Meanwhile, at another laundering plant in Co Monaghan, rows of 20ft bales of straw on a moveable frame, were used to conceal the tanks and other equipment used to launder fuel. A Customs source warned of the huge dangers firefighters would have faced if called to deal with a reported fire in bales of straw, unaware that highly volatile diesel-laundering tanks were there.
At the plant which had the capacity to launder some four million litres of fuel a year, large quantities of “angel dust” were also found. This is an illegal growth promoter used on cattle – just one example of how the diesel launderers are involved in other forms of criminality.
These problems show that diesel laundering is therefore not just damaging for retailers but for the public at large. So what can be done to counteract a well developed criminal industry which has the power to leave legitimate forecourt retailers, not to mention the Exchequer, severely out of pocket?
Frank Glesson explained: “In a recent letter from Retail Ireland to the Minister for Finance we called for more resources to be redeployed within the Customs Service and An Garda Síochána for inter-agency operations. This would be self-financing because of the tax revenue saved and would help reduce State borrowing”.
Fighting back
The group’s letter made a number of other recommendations to combat the illegal trade.
These included “equalising the duty rates for agricultural and motor fuel. Such a move would help quickly diminish the illegal fuel trade as lower taxed fuel would not be available”. It also advised introducing a reclaim system for agricultural fuel users, as well as adding a robust dye marker to agricultural gas oil that would be easily detected by Revenue. Another recommendation advised employing an audit scheme from port to forecourt that would offer traceability of the fuel product.
According to Frank Gleeson: “Premises selling diesel should be subject to the same licensing requirements as petrol is under the Dangerous Substances Act, No. 10 of 1972 so that filling stations and sites selling illegal diesel can be closed and an increase in the penalties imposed on people who engage in this criminal activity. The current fines are not sufficient. Fines of €1,290 for offences have been recorded but these small fines are not a sufficient deterrent to criminals as they are disproportionate to the vast profits being made”.
Rebate ruled out
However as ShelfLife was going to print, the idea of equalizing the taxes applied to agricultural and motor fuel, and then providing a rebate for genuine farm use, had effectively already been panned.
Minister of State for Energy Fergus O’Dowd has said such systems would be “vulnerable to abuse” and large-scale bogus claims would also result in a “very significant administrative burden for the Revenue Commissioners”.
The repayment system was called for by Labour TDs Ann Phelan (Carlow-Kilkenny) and Robert Dowds (Dublin Mid-West), with Dowds stating it would be an “effective and obvious change” to harmonise the duties on green or agricultural diesel, currently 13.5% and auto diesel at 21%.
Yet O’Dowd countered this argument by pointing out that the cost for marked or green diesel was taxed at €88.66 for every 1,000 litres, while the normal auto diesel rate is €465.70 for every 1,000 litres. He added that “illicit use would be difficult to detect and almost impossible to prove”. The oil could still be laundered, as could a UK-marked oil and “a move away from marking could only be considered if the UK were to do likewise”.
If the government is not going to proceed with the rebate proposal, serious consideration needs to be given to Retail Ireland’s other recommendations, particularly those surrounding higher penalties for those involved in fuel laundering. This is absolutely vital to ensure honest forecourt retailers aren’t ultimately left ‘running on empty’.
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