Organised fraud gangs target UK tax credit system

LONDON, June 9 (Reuters) Criminal gangs are stealing confidential personal information on an ''industrial scale,'' a Conservative MP has said.

Richard Bacon yesterday said officials probing an identity theft scam that used the personal data of nearly 9,000 civil servants to steal 2.7 million pounds of tax credits were now investigating 40 similar frauds.

The disclosure was contained in a letter to Bacon from John Bourn, head of the National Audit Office, who said initial indications suggested that at least 5 million pounds had been stolen in the scams.

In December, the Department of Work and Pensions said the identities of thousands of its staff had been stolen by criminals to get fraudulent payments via the government's tax credit Web site.

Bourn said 8,800 identities had been stolen from Jobcentre Plus staff in London and 6,800 were used to make bogus tax credit claims.

Although tax officials intercepted 4,100 of these, some 2,700 were successful and 2.7 million pounds was paid out before the tax credit site was closed and the claims stopped.

''Organised criminal gangs have been stealing confidential personal information on an industrial scale, from many different employers,'' said Bacon.

''The appalling design of the tax credits scheme provides a perfect opportunity for criminal gangs to commit massive fraud.

''It is quite sick-making and it calls into question the whole basis of the scheme''.

In all, 40 separate fraud case are now being overseen by HM Revenue and Customs' Organised Tax Credit Fraud Strategy Board, Most involve multiple claims based on hijacked or false identities, and 20 of the cases involve more than 250,000 pounds each, Bourn said.

Investigators probing the identity theft at the work and pensions department believe the personal data was stolen when information from a payroll was sent to a regional office in London as part of an appraisal process, said Bourn.

This contained names, National Insurance numbers and dates of birth, enough information to obtain payments from the tax credit Web site.

''There are clearly wider lessons to be learned about the secure handling of personal data,'' Bourn said.

The tax credit system -- a cornerstone of Prime Minister Tony Blair's welfare reforms -- was introduced in April 2003 as a way of reducing dependency on social security handouts.

But it has been fiercely criticised for its complexity and administrative blunders which have led to more than 4 billion pounds being paid out to families in error.

REUTERS SK VC0418