Three men were arrested yesterday in connection with the alleged illegal export of 1,400 tonnes of hazardous household and clinical waste from Britain to Brazil.

Environment agents inspect one of 41 UK containers shipped to Brazil with 1,400 tonnes of allegedly toxic waste (The Times) The arrests in Swindon, Wiltshire, came as the Environment Agency said that it was reviewing rules covering the recycling industry because of concerns that companies were exploiting loopholes to avoid scrutiny.

Companies that handle waste can avoid inspections and auditing by applying for exemption from the need to obtain an environmental permit. If they claim that they are handling low-risk waste, such as recyclable plastic, the agency generally grants exemption without making checks.

This loophole allows them to profit by mixing toxic waste with recyclable items with little risk of detection.

Yesterday's arrests come after the discovery of 99 shipping containers of hazardous waste mixed with recyclable plastic at several Brazilian ports.

The Brazilian Institute for the Environment and Renewable Resources (Ibama) said that the waste included syringes, bags of blood, condoms, nappies and used bandages. The shipping manifest stated that the contents were recyclable plastic.

Ibama said that the waste was sent to Brazil by Worldwide Biorecyclables and UK Multiplas Recycling, which share a director and are both based in Swindon.

Worldwide had contracts to recycle plastic waste collected by Swindon Council and Wiltshire County Council. The Environment Agency had granted it exemption from needing an environmental permit. UK Multiplas had not been granted exemption and did not have a permit.

Two of those arrested were understood yesterday to be Andre de Oliveira, 28, and Julio da Costa, 48, Brazilians who set up the two companies in 2007. A 24-year-old man was also arrested.

Officers from the Environment Agency national environmental crime team and Wiltshire Police made the arrests during early morning raids on three properties.

The agency said that it was arranging to have the containers returned to Britain where it planned to inspect their contents to verify the findings reported by Ibama.

Waste can be sent abroad for recycling but it is illegal to export it for disposal. The maximum penalty for breaking the rules is an unlimited fine or up to two years in prison.

A shipping company informed the Environment Agency on July 1 that Ibama had seized two containers that it had delivered to Brazil. The agency contacted Ibama on July 10 to discuss returning the containers to Britain.

The agency stepped up the pace of its investigation last Friday after a senior Ibama official was shown on Brazilian national television news opening containers and demanding that Britain take responsibility.

Liz Parkes, the agency's head of waste, told The Times that the system of granting exemption certificates was being reviewed. She said: "We are concerned that some of what is being exported under the guise of being paper or plastic for recycling has a higher degree of contamination than is acceptable."

She said that the global economic downturn and fall in the oil price had reduced the value of recyclable plastic. The recent increase in the tax on landfill had made it more expensive to dispose of non-recyclable waste. "As the cost of handling waste legitimately rises, unfortunately there will be those who seek to flout the rules and profit from that."

Ms Parkes admitted that the existing rules had weaknesses. "Clearly the system isn't working if we have cases of illegal activity. If, when we have conducted this investigation, we find there are areas which need to be tightened up, we will be working with the Government on those areas," she said.