Due diligence for excise registered businesses

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Find out about risks of excise duty evasion and other commercial risks if you're an excise warehouse keeper or registered consignor.

Due diligence is the appropriate reasonable care a company takes when entering into business relations or contracts with other companies, and how it responds to trading risks identified.

Without effective safeguards in place, there are considerable risks to all businesses along alcohol supply chains of becoming implicated in illicit trading.

As an excise registered business operating in the alcohol sector, you must consider the risk of excise duty evasion as well as any commercial and other risks when you are trading. This will help get rid of illicit trading from alcohol supply chains and reduce the risk to businesses of financial liabilities associated with goods on which duty has been evaded.

To be approved as an excise warehouse keeper or registered consignor you must:

• assess the risks of alcohol duty fraud within the supply chains you operate in
• put reasonable and proportionate checks in place to identify transactions that:
  • may lead to fraud
  • involve goods which duty may have been evaded
• have procedures in place to take timely and effective mitigating action where a risk of fraud is identified
• document the checks you intend to carry out and have appropriate management governance in place to make sure that these are, and continue to be, carried out as intended

Assessing risks and checks to carry out

You will need to consider the full range of trading relationships you have established and the potential for fraud in each.

The main risks within the alcohol sector include:

• involvement in the supply of goods for fraud

• receiving goods that have been smuggled or diverted into the UK

• unintentionally facilitating fraud by providing import or warehousing services

A key feature of the smuggling or diversion of alcohol to the UK market is the ability to source products either where the excise duty has been suspended or it has been refunded under drawback provisions.

To assess your exposure to this risk you will need to assess if there is potential for duty evasion resulting from your trading activity. You will need to:

• know who you are selling to
• where the goods are destined for
• understand the market for these products

Without these, there is a risk of supplying goods directly or through a third party into illicit supply chains.

Import and warehousing procedures are often exploited to provide cover for the illicit movement of goods. Fraudsters will seek to distribute duty evaded goods as well as counterfeit alcohol into legitimate retail supply chains. To assess your exposure to this risk you will need to consider whether the supply chain and trading activity is credible which includes knowing who you source goods from and provide a service to.

High level indicators of risk include goods being received from unusually complex or apparently uneconomic supply routes, for example, regular supplies of UK produced goods that have been shipped out to an EU member state and then re-imported. If you are sourcing duty paid goods you will also need to consider the credibility of suppliers and the level of evidence you can obtain to demonstrate the origin and duty status of goods.

Once you have established the main risks of fraud you may be exposed to, your regular checks during trading should be of a type and level sufficient to establish the integrity of the excise transactions and supply chains you are trading in. This level needs to be reasonable and proportionate to the risk.

Depending on the nature of your business and complexity of your transactions, checks will need to be individually tailored. They must be sufficiently sensitive, yet robust enough, to pick up potential fraud risks. These checks should provide protection from the threat of fraud or you becoming inadvertently involved in fraudulent activity.

Responses to identified risks

Where checks you make indicate concerns, we would normally expect aspects of your supply chain to be changed to address this. For example your concern may be with the supplier or the destination of the goods. A decision of whether or not to trade with another party remains a commercial decision for your business to take.

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