Her Majesty's Revenue and Customs (HMRC) is set to hand over sensitive trade data to its American counterpart in return for access to a state-of-the-art fraud detection system, too expensive for the British agency to build.
In an embarrassing admission of HMRC capabilities, officials said that British techniques for analysing trade-based money laundering are sub-standard and a deal with the US is required "for HMRC to be effective".
American Immigration and Customs Enforcement (ICE) officials made a presentation to senior figures from HMRC and the Treasury at the US Embassy in London earlier this month.
US officials are thought ready to grant British authorities access to Dartts, its highly regarded anti-fraud system, in return for the "regular exchanging of trade data with them on UK-US import-export declarations".
America has ploughed millions of dollars into Dartts, the Data Analysis and Research for Trade Transparency System, which searches for trade anomalies and financial irregularities, which could indicate money laundering, customs fraud, smuggling or tax evasion.
In a further embarrassing revelation for HMRC, officials have conceded that the department "would need somewhere to hold large amounts of data and more analysts to process the data, which would be a difficult decision in the current climate".
An HMRC spokesman described discussions between British and American officials on the matter as "routine".
This latest revelation for HMRC comes days after the publication of the damning Poynter review into data loss which described the agency as having no visible management of data security at any level.
In response to the findings, the Government announced it would spend £155m on improving data security in HMRC after a glut of recent breaches.