A GANG set up a bonded warehouse and used forged papers to run a massive fraud operation which cheated the Inland Revenue out of £7million in 15 months.

Westhoughton businessman Kevin O'Connor, aged 46, who was described as a key figure in the sophisticated fraud, has been jailed for five years.

Manchester Crown Court heard that the gang pretended to export large consignments of alcohol to the Nefertiti warehouse near Malaga Airport.

But the spirits stayed here and were illegally sold for massive cash profits.

One distillery legitimately supplied thousands of cases of vodka at less than £10 for a dozen litre bottles.

The gang's profit was £7 per bottle or about £84 a case.

The gang laundered £1million in cash in a few months through their bond which was properly set up and approved by HM Customs.

O'Connor, of Bankside, Westhoughton, had a coffee supply business in Manchester. It was through his trade contacts that the operation was possible.

It involved numerous trips to Malaga. Spanish nationals provided forged local documentation including what appeared to be a Government stamp.

Customs officers discovered large payments were made through Western Union in Bolton to pay for the forged documents.

O'Connor was convicted of plotting to evade duty on spirits between early 1997 and July, 1998.

Haulage contractor John Brooks, aged 44, of High Street, Stoke, was acquitted of that offence, but he and Francisco Pacheco, aged 37, of Quenton, Birmingham were found guilty of smuggling spirits from Spain. They will be sentenced next month.

The court heard that in five months it was estimated the Revenue lost about £700,000 through the smuggling operation.

It was centred on Bolton's Beaumont Hotel which was used "almost like a business conference centre".

The court heard that hotel records showed that conspirators based in Spain met up with O'Connor, Brooks and Pacheco, a Spanish national.

The hotel was used as an accommodation address for documents faxed from Spain linked with the smuggling, the court was told.

Messages gave details of arrival times of vehicles at motorway service areas.

Pacheco helped drivers make contact with smaller pick-up vehicles.

The documentation made it appear the spirits were on route from one bonded warehouse to another in the UK, but that was totally fictitious.