Wednesday, 4 April 2012

Metal Theft | Cashless Payments | ENA opposes the government exemption for itinerant collectors

LEGAL AID, SENTENCING AND PUNISHMENT OF OFFENDERS BILL

AN INDUSTRY VIEW ON THE PROPOSAL TO PERMIT ITINERANT SCRAP METAL COLLECTORS TO PURCHASE METAL WITH CASH

Summary

The Government has amended the Bill via clauses 146,147 and 148 to implement a cashless system for the scrap metal industry to address the issue of metal theft. Whilst these are to be welcomed the Government have also included an exemption for itinerant scrap metal collectors. They will be permitted to continue offering cash payment when purchasing scrap metal, while the rest of the scrap metal industry must employ cashless systems for such purchases.

The concerted view of the scrap metal industry, expressed individually and through its relevant trade bodies, is that the Government’s proposal to mandate cashless payment for the purchase of scrap metal must apply to all dealers, with no exemptions allowed. This view is strongly endorsed by the sectors especially hard-hit by metal theft – transport, infrastructure, the Local Government Group, the Church of England and the War Memorials Trust – and by the law enforcement agencies.

During the Third Reading of the Bill on 27 March 2012, the scrap metal industry urges Members of the House of Lords to support the amendment moved by Lord Faulkner of Worcester, which deletes this exemption for itinerant collectors, and in addition permits a court to take into account while sentencing, wider aggravating factors (business interruption, disruption to public services, etc) arising out of the theft.

The exemption for itinerant collectors

The Government has proposed that itinerant collectors can continue paying in cash for the purchase of metal, although the obligation to accept cashless payment would still apply when the metal is sold to a scrap metal dealer. Furthermore, under Section 3.1 of the SMDA 1964, itinerant collectors may request the Local Authority for a relaxation of the more detailed recording and recordkeeping obligations that apply to the rest of the sector.

The scrap metal industry opposes the proposed exemption for the following reasons:

(a) Itinerant traders are a key part of the problem: Government’s reliance on the SMDA 1964 to regulate transactions conducted by itinerant collectors is misplaced. Inquiries to Local Authorities have indicated that registration of itinerant collectors under the SMDA 1964, and especially under Section 3.1 of the Act, is very low relative to the number of collectors believed to operate in the UK, suggesting that this sub-sector is in essence operating outside of the mainstream regulatory and enforcement regime. Evidence from law enforcement agencies has shown that, particularly in the West Midlands, the existence of itinerant collectors is a key contributory factor to the high levels of metal theft in that region.

(b) Traceability lost: End-to-end traceability of the transaction would be lost were intermediate actors in the shape of itinerant collectors to be exempt from the obligation to go cashless in relation to the acquisition of the metal, even though they would rightly be obliged to trade via electronic transfer or cheque for the subsequent on-sale to a scrap metal dealer. Verification checks on the bona fides of the itinerant collector are rarely if ever made by the seller, not least because of the receipt of instant cash payment for the metal bought.

(c) Mobile card payments are easy: The requirement for a cashless transaction between the itinerant collector and the scrap metal dealer will in any event necessitate the former to maintain a bank account with provision for electronic or cheque payment. It is illogical to exempt the initial transaction between the seller and the itinerant collector, but to (rightly) mandate a cashless transaction for the on-sale of the material. Cheap, mobile electronic payment technology is readily available (for example, as used by market traders and taxis) so there is no structural impediment preventing itinerant collectors from adopting a cashless payment system.

(d) Loss of tax revenue: Cash transactions between sellers and itinerant collectors are typically unreceipted and unrecorded. Hence result there is a high likelihood that they will not be declared in full in VAT and income tax returns.

(e) Opening a dangerous loophole: The intention to offer this exemption opens a loophole that could readily be exploited to the detriment of the legitimate scrap metal trade in the UK. Even under a more robust version of the SMDA 1964, individuals could deliberately register as itinerant collectors in order to continue acquiring and trading in cash, metal obtained through theft – thereafter either laundered through the legitimate trade in the UK, or shipped directly out of the UK to an offshore destination.

The scrap metal industry’s concerns

The offer of a cash sale by an itinerant collector to a seller will continue to drive metal theft and other illegitimate dealings, a circumstance that could readily be camouflaged during the on-sale of the material to a legitimate dealer, who can take only reasonable steps to ascertain the provenance of the material presented. Only this week a high voltage transformer (designed to supply between 100,000 and 500,000 people) stored as a spare for the Olympics was attacked resulting in the leakage of 30,000 litres of oil (which was luckily contained within the site). This will take 2 years and £2.5m to replace. The sale of the metal to an itinerant collector does not have to be recorded, hence the provenance and traceability of the material back to its source is lost. The integrity of a cashless system is destroyed, while making crime detection and enforcement more difficult.

The exemption opens the door for unscrupulous collectors to register as itinerants in order to continue offering cash for scrap metal, which in turn will continue to fuel metal theft. The proposed exemption opens up a huge gap in enforcement.

The proposed exemption can be easily removed and we are not convinced that this represents a major challenge in terms of practical operation. The loophole opened up by leaving it in will on the other hand fundamentally undermine the bold purpose of the amendment. This would be nothing less than a tragedy.

We urge Members of the House of Lords to support the amendment moved by Lord Faulkner of Worcester during the Third Reading of the Bill on 27 March 2012 and obligate all actors engaged in the collection and trading of scrap metal to go cashless.

APPENDIX

The rationale for introducing cashless payments

The exponential rise in metal theft over the past few years has mirrored the dramatic rise in the price of both primary and scrap metal as supply of this material has become less secure. Government has rightly concluded that the principal drivers for metal theft have been the ease with which stolen metal can be sold for ready cash with complete loss of traceability, and the derisory fines imposed on convicted offenders relative to the damage and disruption caused by such thefts.

Government has signalled a multi-pronged approach – moving to cashless payment for the purchase of scrap metal, supported by amendment of the Scrap Metal Dealers Act 1964 to tighten overall regulation of the scrap metal sector, improve the traceability of each transaction, and increase the level of fines. The scrap metal industry supports this approach.

Full end-to-end traceability is the raison d’ĂȘtre of a cashless system, its key strength in facilitating detection of criminal or fraudulent activities, and enforcement by relevant competent authorities. Under a cashless system, a transaction accompanying the sale of scrap metal will be from the bank account of an identified scrap metal dealer into the bank account of an identified seller, with all details of the transaction (weight of metal, purchase price, etc) recorded manually or electronically. Revision of the SMDA 1964 will tighten identification, recording and recordkeeping requirements.

The scrap metal industry believes that a cashless system will act as a powerful deterrent to organised and particularly opportunistic theft of metal, since conversion of the metal into instant cash (“with no questions asked”, in the words of Lord Henley) would no longer be possible, and by virtue of a bank-to-bank transfer, the identity of the seller and the details of the transaction will no longer remain hidden, but open to inspection.