Report - Guardian

The LSE Identity Project Report: June 2005 105HM Customs & ExciseTwo separate figures are given in the Cabinet Office report. The first relates to MissingTrader Intra Community (MTIC) fraud, which essentially involves VAT fraudperpetrated by chains of traders operating within the EU. The Cabinet Office reportstates that:“MTIC fraudsters often operate using false identities or by using frontpeople. It is often difficult to establish the identities of the truedirectors and identify those committing the fraud. HMCE estimatetotal losses due to this at between £1.7bn and £2.6bn pa. It isimpossible to say how much is directly attributable to identity fraud,but even allowing for just 10% would give a figure of between £170mand £260m pa.” 287In calculating the loss of £215 million due to identity-related VAT fraud, the reporttakes the mid-point of the estimated total losses, and then assumes that 10% of theselosses will involve false identities. We are not given the basis of the HMCE totalestimates and there is no reasoning backing up the assumption that 10% is identityrelated.This is remarkable since the US studies show that in general, identity fraud isless than 3% of all forms of fraud.Several points of concern arise from these numbers:- Given that these frauds are perpetrated by EU traders, many, if not most, ofthese will not be UK citizens and a UK identity card scheme will not touch themajority of the fraudsters causing these losses. 288- The actual losses due to MTIC fraud which also involve identity fraud on thepart of UK citizens will likely be a fraction of the £215 million claimed in thereport.- Even this amount of loss will not be avoided unless ID cards are demanded andverified at the point of transaction. This is not likely to occur since this wouldrequire verification against the national identity database and such access isunlikely to be granted to ordinary traders.The second figure given by HMCE relates to money laundering, with estimates of £395million being laundered each year. There remain a number of concerns with thesefigures as well:- The connection with identity fraud is not established here. It is perfectly possibleto lauder money using a genuine identity and the claim that all £395 million issomehow laundered using a false identity remains unproven.- Although financial institutions are required to know their customer, it is notroutine for customers to be asked to prove their identity with each transaction.Unless financial institutions are going to be required to do this and are also giventhe technological equipment to allow them to cross-check with the national287 Cabinet Office, Identity Fraud: a study, July 2002, http://www.homeoffice.gov.uk/docs/id_fraud-report.pdf, p73.288 It is also interesting to note that many of the countries referred to within the Cabinet Office report are countrieswith existing identity card schemes.