House of Commons - Defence

Select Committee on Defence Fourth Report

7 ENFORCEMENT IN THE UK

194. There are two basic measures of effectiveness in export control policy and administration. On the one hand, are undesirable and illegal exports being prevented? On the other, is British industry, which the Government wants to promote, subject to the minimum regulatory burden and the minimum delay?

Preventing undesirable exports: the criminal and the unintentional

195. Undesirable strategic exports fall into three categories: exports for which a licence is properly sought (the white market), exports for which a licence is sought, but obtained through corrupt practices or with some element of subterfuge about its end use (the grey market) and exports for which no licence is sought (the black market). Our inquiries tend to concentrate on the white market, and we look at decisions on the basis of value judgements as to whether a particular export is acceptable or not. We have some oversight of the Government's role in regulating the grey market: on occasion, it has emerged that a licence has been refused because an end-use certificate has been found to be a forgery, or because intelligence sources have indicated that the actual end use of an export is likely to differ from the stated end use. We have little or no oversight of the black market, because our remit is to look at strategic export controls, and because information about it is either lacking or highly sensitive. HM Customs & Excise are the front line organisation responsible for preventing illegal exports. We comment briefly on their effectiveness below.[209]

196. It is also worth noting that some exports may take place without a licence, not owing to criminal subterfuge, but because a company is simply unaware that a licence is required. The Defence Manufacturers' Association (DMA) has brought to our attention the extent to which the current export licensing system is misunderstood.[210] In January and February 2004, the DMA, together with Government, undertook a roadshow to brief firms around the UK on the new Export Control Act. According to the DMA,

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We recommend that the Government should seek actively to disseminate greater understanding of the export control system, to limit the possibility of companies inadvertently exporting or trading in controlled equipment or technology without a licence.

Bureaucracy and competitiveness

197. The administration of the export control system, led by the Export Control Organisation (ECO) in the Department of Trade and Industry (DTI) has in the past been unacceptably slow in delivering licensing decisions, missing its own targets by a considerable margin. We have criticised the Government for this on several occasions.[212]

198. A review of export licensing procedures throughout Government took place in 2003, known as the JEWEL (Joint Effective Working in Export Licensing) review. We discuss the results of this below.[213] It is perhaps too early to say to what extent this is delivering a more effective service to exporters, especially as a major expansion of the licensing system has taken place in the same month as publication of this Report, with the coming into force of secondary legislation under the Export Control Act. This new legislation will require licences to be sought and records to be kept in a range of circumstances where these were not previously required. As we concluded last year, the introduction of the new controls will be a major test of the efficiency of the licensing regime.[214] We make further comment below on this legislation and the burden that it will impose on business.[215]

199. We have heard complaints from industry that the British licensing system as a whole is less efficient and more bureaucratic than the systems of other European governments, and that British business suffers a cost handicap as a result of this, and sometimes loses contracts because of the length of time that the licensing process takes. The particular witness from whom most of these complaints came specialises in the export of non-conventional weapon detection equipment, which is particularly sensitive. We might therefore expect the Government to be careful about who is allowed to receive such equipment, and to take a little more time over licensing decisions in this sector. Nonetheless, the alleged discrepancy in licence turnaround time between the United Kingdom and other European Governments is startling.

200. In the course of our evidence, we have heard the following allegations from industry about the slowness of the British licensing process compared to others:

while the British Government typically takes six to eight weeks to issue a licence, the German Government can indicate whether a licence will be approved in the course of a single telephone conversation;[216]
in 2001, the OSCE cancelled a contract with a British company for peace-keeping equipment to be used in Macedonia due to the length of time that the licensing process was taking. French and Italian replacement suppliers were able to start delivering equipment within 36 hours.[217]

201. We have also heard of particular bureaucratic requirements faced by British companies which apparently are not in place in other European countries:

German companies, unlike British companies, do not require licences to export goods temporarily for display at exhibitions overseas;[218]
in France, some equipment requires a licence to be exported if it is painted green (for military use), but not if it is painted blue (for civilian use). Perhaps unsurprisingly, far more blue equipment is sold than green. In the United Kingdom the equipment requires a licence to be exported whatever colour it is painted;[219]
the United Kingdom is one of the few EU countries in which a licence is required for the export of anti-riot shields.[220]

As the DMA notes in apparent frustration: "UK has just picked up and award from the EU for being the best country at implementing EU regulations - need we say more?"[221]

202. We have detected a tendency within industry in a number of EU member states to regard the national bureaucracy wherever the business is located as singularly burdensome, and to view regulatory systems elsewhere in the EU as havens of free enterprise. The DMA makes a similar observation, suggesting that industry views the export control systems of other countries "through rose-coloured spectacles". However, it goes on to suggest that "the French export control system" is "regarded, almost universally, as being extremely liberal and export-friendly".[222] During our recent visit to Paris, we heard from the French Government and from French industrialists about how restrictive and time-consuming their export control system is, in their view.

203. We conclude that if the evidence given to us by industry is correct, then British exporters are losing business to European competitors either because the British export licensing process is unacceptably slow and bureaucratic or because the systems of other European countries are unacceptably lax. We recommend that the Government should examine industry's allegations closely, and should answer them in its response to this Report. We further recommend that the Government should ensure that any discrepancy is minimised between the time taken to grant an export licence in the United Kingdom and the time required to acquire a similar licence in other European countries; and that the Government should seek harmonisation across the EU of types of police equipment subject to export licensing requirements.

Results of JEWEL review

204. The JEWEL review has resulted in a number of changes to the way in which export licence applications are processed. A "smart front end" is being trialled, under which uncontentious applications are fast-tracked. A computer base shared between the relevant Government Departments is being developed. New joint working procedures such as common staff training and a joint mission statement are being introduced. The interface with exporters is being improved. Finally, performance targets are being finessed.[223]

205. The design of the "smart front end" seems to strike a good balance, ensuring that the majority of uncontentious applications are processed more quickly, while still giving appropriate specialists the opportunity to review any case in full if they wish to do so.

206. We are surprised that a shared computer base was not put into place before now, for an area of government which so clearly requires the sharing of large quantities of information among a number of Departments. Our inquiries have revealed a number of errors (two in 2002 alone) caused by the use of a paper-based system. We note that the proposed IT base will only store and manage information classified RESTRICTED (the lowest level of classification). Some of the information associated with export licences will be classified at above this level. The inability to access this information electronically may limit the usefulness of this system. We conclude that the introduction of a shared IT base for Government Departments involved in export licensing is long overdue, and we recommend that its development should be made a priority. We further recommend that consideration should be given to whether a system able to manage information above the lowest level of classification (RESTRICTED) would be more useful, given the information sharing needs of Government Departments in this field.

207. The changes in performance targets are not radical. A previously internal target to process 95 per cent of all SIELs within 60 working days is to be published, along with the average time taken to process licences which have taken more than 20 days. We conclude that changes in performance targets introduced as part of the JEWEL review may help to encourage those in Government involved in export licensing to apply some urgency to the processing of licence applications which have already missed the basic 20-day processing target.

208. Performance against a number of targets has in fact already improved. In 2003, for the first time the Government met its target to process within 20 days 70 per cent of SIEL applications circulated to Departments other than the DTI. The number of grossly overdue cases has also been substantially reduced. One of our witnesses from industry congratulated the FCO in particular for "a marked improvement" in licence turnaround.[224]

209. The one area in which performance has continued to be unacceptable is in the processing of appeals. It seems that the target of 30 working days is rarely met. Of the 50 relevant appeals considered in 2002, only one met this target.[225] We welcome the improvements made in processing export licence applications against published targets, and we particularly welcome the new emphasis on clearing the backlog of outstanding cases. We recommend, however, that the Government should seek to improve its performance on appeals as a matter of priority.

New controls under the Export Control Act

210. We considered last year the detail of the controls that the Government proposed to introduce under the Export Control Act. The controls on trade with embargoed destinations came into force in March; other controls under the Act came into force on 1 May.

211. We have long argued that controls on trafficking and brokering in arms need to have extra-territorial reach. At the same time we have been concerned to ensure that the regulatory impact of the new legislation does not impose an unreasonable burden on legitimate business. We took evidence in April from NGOs and representatives of industry during which both these issues were discussed.[226]

212. Both the Defence Manufacturers' Association and BAE Systems have commented favourably on our suggestion last year that the Government should "think outside the box of conventional export controls" by reconsidering "whether intangible technology is best controlled at the moment of export, or at the moment of transfer" and "whether brokering activities, which may not involve an export at all, might not be best controlled as in the USA, by licensing the people who carry out the activities, rather than the activities themselves".[227] The DMA has said that it considers it "to have been an immensely regrettable lost opportunity that the Government did not take advantage of the chance created by the perceived need to replace the UK's existing export control legislation to undertake a 'starting with a blank sheet' total 'blue sky' review of how the UK undertakes export controls to identify if there might be another, better and more efficient way in which this can be done" and has stated that "the Registration route is one which deserved greater consideration".[228] NGOs have also suggested controlling individuals, in addition to goods.[229] Our suggestion that the Government should take a fresh look at the export control system as a whole has received support from both industry and NGOs. We recommend that the Government should take heed of this and not ignore the possibility that more radical reform of its export and trade control system might allow it to target more accurately those activities of most proliferation concern.

EXTRA-TERRITORIALITY

213. The Government's controls apply to British citizens operating abroad only in very limited circumstances, where they relate to trade in long-range missiles (LRMs) and torture equipment, or trade to an embargoed destination. Practicality is at the root of the Government's arguments against further extending extra-territorial controls:

UK persons operating abroad could not be expected to know that they would need to apply for a licence from the United Kingdom.

It would be wrong to criminalise activity in another state that that state might properly be promoting.

The controls would be unenforceable, unworkable or prohibitively expensive to administer.

214. In February, the Foreign Secretary again stressed the practicalities of the matter: "The only question is, is it going to work? It is not an issue of principle here whatsoever, we are all in favour of the toughest enforcement in this area."[230] When pressed, he told us that he had "always been sceptical about this issue of extra-territorial control and extra-territorial offences except in very specific circumstances", but he promised several times to look at the issue again.[231]

215. An extension of extra-territorial controls has also been opposed by the DMA on the grounds that it would be "a totally unprecedented arbitrary extension of the UK's jurisdictional controls":

you need a licence to get married, drive, go fishing, watch TV, compete in boxing matches, practise medicine, run a raffle, sell alcohol, busk, own a shotgun, run a bookmakers and fly

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216. The DMA has also argued that while small arms proliferation is a major cause of concern, "it must again be recognized that any controls introduced will not just impact on the illicit trade, but also on legitimate trade, and, therefore, jurisdictional problems could arise in this", and concludes that it "fully support[s] the Government that multi-lateral action is undoubtedly the best way to proceed in this, and that a unilateral approach is futile".

217. But the DMA is opposed not only to an extension of extra-territorial controls as we and a number of NGOs have proposed, but also to the controls which the Government has in fact put in place. Indeed, as the detail has emerged of how the Government proposes to apply extra-territorial controls, the rationale for its approach has come to look increasingly weak. It has emerged that the controls on LRMs will also apply to unmanned aerial vehicles (UAVs), presumably on the basis that there are no sensible grounds for distinguishing between the two in terms of their effect.

218. BAE Systems has called for the removal of long-range missiles from those goods subject to extra-territorial control.[233] The DMA has argued that trade in UAVs and LRMs is not "of greatest concern" (unlike trade in torture equipment and trade with embargoed destinations) and also that controlling trade conducted overseas in such equipment will be futile:

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219. The DMA is trying to have its cake and eat it, by arguing on the one hand that small arms should not be controlled because it is impossible to distinguish between legitimate and illegitimate trade in such weapons, and on the other hand that LRMs and UAVs should not be controlled because the real concern is small arms. But the issue about LRMs and UAVs seems to deserve further consideration.

220. LRMs and the technology associated with them are certainly a cause of concern, in the hands of a terrorist or a rogue state, because they enable force to be delivered to distant targets. But the fact is that there is legitimate trade in UAVs and LRMs, just as there is legitimate trade in small arms. The problems which the Government cites as an obstacle to controlling extra-territorial trade in small arms are just as relevant to trade in UAVs and LRMs. The Government has identified for extra-territorial control those categories of transaction which are, supposedly, "internationally condemned and abhorrent".[235] Yet a British citizen working for a foreign company seeking to supply UAVs to the British Armed Forces would require a British trade licence to do so. This is an obstacle to British citizens working for legitimate defence businesses overseas. As the DMA has pointed out,

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221. We conclude that in applying extra-territorial control to categories of transaction which are supposedly internationally recognised as undesirable, the Government has not only failed to target its legislation at those transactions which are of most concern—in particular the trafficking and brokering of small arms; it is also in fact meeting with precisely those problems which it claimed would make extra-territorial control of trade in small arms unenforceable.

222. In our Report last year, we recommended that "the Government should seek to extend extraterritorial control to all trafficking and brokering which, if conducted in the UK, would not be granted a licence". This requires some further definition, as it might at first sight appear to be a circular argument. Clearly, it would not be acceptable for the Government to decide to prosecute on the basis of a post facto judgement that a particular instance of trafficking or brokering abroad would not have been granted a licence if conducted in the UK.

223. The aim of our recommendation was to encourage the Government to seek to identify more accurately those areas of genuine concern which could usefully be regulated even where they occur abroad. For example, it might be appropriate to subject trafficking and brokering in small arms (automatic weapons, in particular) to extra-territorial regulation where the end user of these weapons is not a national government or an established police force. As mentioned above, there has been agreement both at the G8 and within the Wassenaar Arrangement on the control of man-portable air defence systems (MANPADS) which would prevent their export to any end user other than a national government. The prospect of a terrorist using MANPADS against a civilian aeroplane is horrifying to contemplate.

224. We recommend that the Government should reconsider which types of trafficking and brokering activity it subjects to extra-territorial control to identify more accurately those which are of most pressing and genuine concern—in particular those weapons most likely to be used by terrorists or in civil wars. We recommend that trade in such weapons, including MANPADS, rocket-propelled grenades and automatic light weapons, should be subject to extra-territorial control where they are intended for end use by anyone other than a national government or its agent, and where the country from which the trade is being conducted or from which the export will take place does not itself have adequate trade or export controls consistent with the British Government's policy on arms exports. We further recommend that the Government in its response to this Report should explain more clearly how it can justify permitting British individuals and bodies to engage in arms exports outside the UK which if made from within the UK would not be permitted.

IMPACT ON INDUSTRY

225. Many of industry's concerns about the legislation seem to have eased somewhat since we took evidence last year, with the DMA reporting that "for the most part companies now appear to be much more relaxed about the practicality of complying with the new regulations".[237] The DMA itself has stated reassuringly that while it still has "a number of concerns about the Government's proposals" "some (or even perhaps many?) of these … may have, at least in part, been met by the DTI". The DMA has told us that it "now believe[s] that much of [its] previously expressed concern about regulatory burden on Industry has now probably been eased, although not completely extinguished", while noting pragmatically that "only practical experience with the implementation of the new control regime will give us any truly accurate assessment of whether this is, indeed, the case".[238]

226. BAE Systems, echoing some of the DMA's comments to us last year, has complained that the time allowed to companies to implement procedures to meet the legislative requirements has been "barely adequate". The company has set out in its evidence the steps that it has taken to meet these requirements, and they do indeed appear extensive. As BAE comments, the cost of the exercise "will not be trivial", but is "unavoidable" if the company is "to meet the compliance requirements of the DTI … as well as [its] duty of care to company employees".[239] The Government's final regulatory impact assessment estimates the cost of training employees about the new controls at nearly £500,000 for a large company. We would be interested to see whether BAE's assessment of the costs it has incurred to meet the new controls matches the Government's projection—and indeed the assessment of any other British company.

227. We were pleased to learn that there has been, as we recommended last year,[240] "continuing liaison" between Government and industry, "intended to assist the DTI to pilot and refine its proposals for the practical administration of the new controls, and to address any Industry concerns or confusion on how the new controls will actually operate in practice".[241] We conclude that close co-operation with the Government appears to have resolved some of industry's concerns about the regulatory impact of the introduction of the new controls.

Controls on WMD and long-range missiles

228. High levels of concern persist, however, in those sectors on which greater controls are to be placed, trade in WMD detection equipment and long-range missiles in particular. We heard of these concerns very forcefully during our evidence from industry.

229. Smiths Detection, a company specialising in WMD detection equipment, has estimated that it will require in the region of 100,000 licences annually to conduct its business. Discussions with helpful officials at the DTI have not succeeded in bringing this total down to a manageable figure.[242] A single visit by an official to three countries apparently required 57 separate meeting reports to be filed.[243]

230. MBDA is a multinational company manufacturing long-range missiles, which was created in response to a Government initiative to consolidate. However, the effect of the new controls on MBDA will mean that a British national working for the company in one of its offices in Italy or France would need a British individual trade control licence for every contract that they were seeking to acquire. This will, according to the DMA, put MBDA at a competitive disadvantage to competitors who do not need to seek such licences. Another example given by the DMA concerns a contract, even one for the British MoD, where the British office needs to instruct its office in France to deliver components to its factory in Italy. This telephone call would also require a licence.[244] As we were told in evidence, companies have been advised by the DTI that under certain circumstances they will require a licence to enter into discussions with the MoD, or in the course of fulfilling their contractual obligations to the MoD. We conclude that to require British companies to apply for a licence to enter into discussions with the British Ministry of Defence would be a manifest absurdity, which cannot have been the intention of those devising the legislation.

231. Long-range missiles and WMD equipment are sectors of particular concern, which we would expect the British Government to be controlling more closely than, for example, trade in warships. But we conclude that the new controls as they stand risk imposing an unacceptable bureaucratic burden on reputable companies which the Government should be seeking to support, albeit that they are operating in fields of potential concern. We recommend that the Government should, as a matter of urgency, take action to ensure that the bureaucratic burden of complying with the new controls for companies such as Smiths Detection and MBDA is reasonable, predictable and well understood.

232. The DMA also continues to be concerned about "the issue of promoting awareness amongst those British nationals overseas who may be affected by the 'restricted goods' trade controls".[245] As it has previously noted, this will be "an especially difficult task" because of the extra-territorial nature of the controls and the fact that they will capture "peripheral activities" which would not otherwise be caught by export or trade controls. The DMA has observed somewhat sardonically that "we can only hope and pray that the DTI has already set out a truly effective awareness raising and training strategy to address this need, and the Government's duty of care to its citizens around the World".[246] We recommend that the Government should explain in response to this Report what action it is taking to identify and inform British citizens abroad who may be caught by the new controls. We further recommend a degree of lenience where British citizens abroad are found to have inadvertently committed insignificant breaches of the new controls.

Application of controls to visiting foreign nationals

233. Foreign nationals operating from the United Kingdom will also be caught by the new controls. If a representative of an Indian company attends a British defence exhibition and agrees while there to supply equipment to an exhibitor from an Israeli company, both people can only do so legally under cover of a trade control licence. The DMA has written that industry is not sure how it will be possible to train people based overseas who are visiting the United Kingdom on the controls which will apply to them.[247] Nor is it clear how it will be possible to ensure that these people have complied with the controls, given that if the DTI asks to see the kind of audit information which it would normally require of a British company, this may look, in the words of the DMA, rather too much like "state-sponsored commercial espionage".[248] And there can presumably be no legal obligation on people abroad to supply information requested of them by the British Government. We recommend that the Government should explain in its response to its Report what steps it is taking to ensure that foreign nationals visiting the United Kingdom understand their obligations under the new trade controls, and how it intends to investigate suspected breaches of these controls by visiting foreign nationals.

Clarity

234. We heard last year of industry's concerns about lack of clarity in the proposals for new trade controls.[249] The Government estimated at the time that it would receive 100-250 individual trade licence applications annually.[250] The DMA, however, stated that this "greatly underestimates the number of licences which will have to be sought, not only by UK Industry, but also by overseas business visitors to the UK".[251] The Government's final regulatory impact assessment has greatly increased the estimated number of new individual trade licences that will be required initially, to between 900 and 1,500.[252] The number of new licences would have been a third higher, had it not been for the addition of India and Pakistan to the list of permitted destinations on the Open General Trade Control Licence.[253] The DMA has noted this fact with "some degree of self-justification" and has expressed its "hope that the new figures do not also prove to have been similarly significant under-estimates".[254]

235. There is still uncertainty in industry as to what the new legislation will require of them. The DMA has told us that

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236. In particular the DMA has pointed to the question of whether organisers of trade fairs will themselves require a licence, where the DTI's original answer was subsequently reversed. Another area of concern is whether after-sales support will require a licence where the export licence for the goods concerned has expired. Written advice from the DTI on this point has not been forthcoming. The DMA has unfortunately concluded from such examples that companies must put "the most rigorous possible interpretation" on the legislation and should not rely on guidance from the DTI. Companies have also found it difficult to train their staff, without any certainty as to what this legislation actually means.[256]

237. This is new legislation, and there will be a bedding-in period during which a certain degree of uncertainty is to be expected. But we recommend that the Government should take on board complaints from industry about inconsistency and uncertainty, and should seek to provide as consistent an interpretation as possible of what the new legislation means for business. Companies and individuals should not be penalised for inadvertent lack of compliance where the Government has been unclear or inconsistent about what the law means.

Drafting

238. The DMA has identified several drafting problems which, it claims, could frustrate the apparent legislative aim of the secondary legislation:

The legislation explicitly aims to control the electronic (intangible) transfer of software. However, software is defined for the purposes of the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 as, "one or more 'programmes' or 'microprogrammes' fixed in a tangible medium of expression". If software must be fixed in a tangible medium of expression, how can the Order control its intangible transfer?
Articles 8 and 9 of the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 seek to impose controls on the electronic and non-electronic "transfer" of software and technology in an "end-use" context, but, according to the DMA, would require a UK company wishing to hold technical discussions with the British Ministry of Defence on a WMD detection programme to have an export licence for such discussions, since the transfer would be from a person in the UK to a person in the UK, with reason to believe that the technology would be used outside the EU by our own Armed Forces; but would not control a disaffected UK person communicating whilst outside the EU in an "end-use" context envisaged by the Order beyond the reach of the legislation.
Article 11 of the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 exempts from control "the exportation of any aircraft which is departing temporarily from the United Kingdom on trials". According to the DMA, this is probably intended to cover flights beginning and ending in the United Kingdom. But because this is not explicitly stated, it may be a loophole which could be exploited by illicit exporters.[257]

We are unable to comment on the accuracy of these claims, but some of them appear to have the backing of DTI officials. If true, they would seem to indicate drafting which needs to be corrected urgently. As we noted last year, "the notable procedural advantage of secondary legislation is that it can be made, amended and, if necessary, revoked, swiftly and decisively".[258] We recommend that the Government should re-examine the drafting of the secondary legislation in the light of comments from industry, to ensure that the Orders have the intended legislative effect. If they do not, amending legislation should be urgently made and laid before Parliament.

Role of Customs and Excise

239. HM Customs & Excise (HMC&E) is responsible for preventing the illicit export and transhipment of controlled goods. It is authorised to take action where breaches of export controls occur, including breaches of trade controls and intangible transfer controls. Serious breaches of export controls are subject to criminal prosecution. Following the Scott Inquiry, prosecutions carried out by HMC&E seeking to show that controls have been deliberately evaded (mens rea) are supervised by the Attorney General.

240. In its Annual Report for 1998-99, the Intelligence and Security Committee (ISC) stated that it was "concerned to be told that UK companies and individuals are still attempting to export material illegally from the UK to countries of concern". In the year in question the Security Service had contributed to the prevention of 20 attempts by companies and organisations to circumvent the Government's counter-proliferation policy. Although the ISC was told that "the UK export control policy is working and it is believed that no WMD related equipment or technology has been exported from the UK to a country of concern" the Committee stated that it was "concerned that too much faith is being placed in the ability of various control regimes and treaties, together with the effectiveness of UK and international policies, in preventing the proliferation of WMD". The view of the Foreign Office "that sanctions and control regimes are working" was "not backed up by the intelligence which the Agencies have provided". The ISC recommended "a more proactive approach" which "would require greater effort by the Agencies to track down and stop proliferators".[259]

241. In its Annual Report for 2002-03, the ISC found that "the basic situation has not changed significantly from that of four years ago. Most counter-proliferation work is done at official levels. A small number of UK companies are still trying to breach export restrictions but the UK authorities seem to be thwarting these efforts. However, world-wide, sanctions, even when effective, only slow proliferation".[260]

242. In this context, it is perhaps surprising how few recent prosecutions have been brought for breaches of export controls. Between January 2002 and October 2003, there was only one such prosecution, for exporting a quantity of aluminium to Pakistan without a licence, to which the defendant pleaded guilty. The charge did not involve seeking to prove deliberate evasion of export controls. During the same period, 13 new cases were adopted by specialist investigators, which would seem to indicate a large discrepancy between the number of cases investigated and those actually brought to prosecution.

243. Over this same period, HMC&E dealt with 456 cases of strategic goods, but most of these cases involved only technical breaches. Among the goods stopped during this period were 88 firearms, 17 firearms parts, 134,800 rounds of ammunition, two hand grenades, one mortar, one mortar shell and one artillery shell projectile—not an insignificant quantity of conventional weapons, but without knowing what goods HMC&E failed to stop, the true scale of illegal export will be impossible to assess.[261]

244. HMC&E investigations are intelligence-led, and as a result prosecutions may be difficult to bring.[262] HMC&E may be successful at disrupting illegal exports of controlled goods, even if its prosecution rate seems slight. Nonetheless, we conclude that it is surprising how few prosecutions have been brought recently for breaches of export controls, given the concern expressed by the Intelligence and Security Committee that a small number of UK companies and individuals are trying to breach export restrictions. We recommend that the Government should explain in its response to this Report what efforts it is making to bring those who deliberately breach export restrictions to justice.

INTANGIBLE TRANSFERS

245. As of 1 May 2004, HMC&E has become responsible for policing the country's virtual borders as well as its physical ones, with the introduction of controls on intangible transfers of military technology. We asked the Foreign Secretary how this would be achieved. He refused to answer in open session,[263] and even the information he has provided to us in confidence tells us little or nothing that is not available from open sources. Given the quantity of communications in the ether and advances in encryption which make such communications difficult to interpret even if they are successfully intercepted, on the very limited evidence available to us, we conclude that it is likely to be very difficult indeed to bring successful prosecutions for illegal exports of technology by intangible means or to successfully disrupt such transfers.

CAPACITY

246. We have not taken evidence on the capacity of HMC&E to investigate and prosecute breaches of export controls, but it is worthwhile remembering that without effective policing of the country's borders, all of the work carried out on export licensing elsewhere in Government serves little purpose. We conclude that the Government must ensure that HMC&E and the Intelligence and Security Agencies are adequately resourced to detect and prevent the illegal export of controlled goods if the country's export control system is to function effectively as a tool in the fight against proliferation.

209 See paras 239-246. Back

210 Appendix 19; Appendix 25 (DMA) Back

211 Appendix 19 Back

212 HC (2001-02) 718, paras 90-95; HC (2002-03) 474, paras 176-181 Back

213 See paras 204-209. Back

214 HC (2002-03) 474, para 181 Back

215 See paras 210-238. Back

216 Qq 143, 145 (Mr Otter) Back

217 Appendix 23 (DMA) Back

218 Q 118 (Mr Otter) Back