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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 873-vii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

Quadripartite COMMITTEE

 

 

Strategic Export Controls

 

 

Thursday 25 May 2006

MR KEVIN FRANKLIN, MR MARK FUCHTER, MR DAVID GREEN QC,

MR DAVID RICHARDSON and MS HELEN WOLKIND

Evidence heard in Public Questions 337 - 443

 

 

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Oral Evidence

Taken before the Quadripartite Committee

on Thursday, 25 May, 2006

Members present

Roger Berry, in the Chair

John Barrett

John Bercow

Mr David S Borrow

Richard Burden

Mike Gapes

Linda Gilroy

Mr Lindsay Hoyle

Peter Luff

Sir John Stanley

Richard Younger-Ross

________________

Memorandum submitted by HM Revenue and Customs and the Revenue and Customs Prosecution Office

 

Examination of Witnesses

 

Witnesses: Mr Kevin Franklin, Director, Frontiers Customer Unit, Mr Mark Fuchter, Head of the Publications and Restrictions Policy Group, HM Revenue and Customs and Mr David Green QC, Director, Mr David Richardson, Head of Division C (Borders Detections), Ms Helen Wolkind, Senior Lawyer, Revenue and Customs Prosecution Office, gave evidence.

Q337 Chairman: Good morning, you are most welcome. For the record, may I ask you to introduce yourselves to the Committee?

Mr Franklin: I am Kevin Franklin and I am the Director of something called the Frontiers Customer Unit in HM Revenue and Customs and I have policy responsibility for international relations on Customs' matters as well as imports and exports, Customs' regimes and prohibitions and restrictions.

Mr Fuchter: I am Mark Fuchter, I take the lead in HM Revenue and Custom prohibitions and restrictions enforcement policy working for Kevin.

Mr Green: I am David Green, Director of the Revenue and Customs Prosecution Office which you will know, Mr Berry, is wholly independent of HMRC.

Mr Richardson: My name is David Richardson, I am one of the operational heads of division and the responsibility for export control prosecution sits in my division.

Ms Wolkind: I am Helen Wolkind and I am a lawyer at RCPO and work in the Director's private office providing legal advice for the Director.

Q338 Chairman: Thank you very much and thank you for your written submission. This is the first time that your organisations have given evidence to the Quadripartite Committee and, as you know, the issues we are particularly interested in are staffing within Revenue and Customs, the priority given to strategic export controls and what is happening in relation to prosecutions and enforcement. Can I start by asking how many officials in both Revenue and Customs and the Prosecution Office deal exclusively with strategic export controls, both nationally and regionally?

Mr Fuchter: If I can take that first of all from Revenue and Customs' point of view. The vast majority of our staff are actually multi-functional. Multi-functional means that they might work in one discrete area, for example, cargo examination, but they will undertake cargo examinations for a multitude of reasons, a multitude of risks, it could be drugs, tobacco or whatever but, if I may cut to the chase and take my steer from previous debates in this Committee, if we add up across all the various activities in Revenue and Customs that contribute to our role in strategic export controls, it is something between, say, 60 and 100 full-time equivalent staff in any one year, but it will fluctuate ----

Q339 Chairman: Can you repeat the figure again?

Mr Fuchter: Between 60 and 100.

Q340 Chairman: 60 and 100 full-time equivalents?

Mr Fuchter: Full-time equivalents, across a number of our directorates.

Q341 Chairman: Thank you, that is very helpful. I tabled the parliamentary question and I could not get an answer at all, you probably noticed?

Mr Fuchter: Yes. We have obviously thought further.

Q342 Chairman: Thank you. Somewhere between 60 and 100 full-time equivalents will be essentially the staffing input to ----

Mr Fuchter: That is in the spirit of being helpful. I cannot give you to decimal points because it is fingers, toes, arms and legs, but it will be within that range.

Q343 Chairman: I am very grateful, you are being helpful, I am not even concerned about to the nearest 10, but at least we have an order of magnitude; seriously, that is very helpful.

Mr Franklin: I wonder if it is worth adding to that, Chairman. Although that is the core group that specialise in strategic exports, because of the nature and the way in which we pull our workforce together, we can actually deploy much higher numbers at very short notice and indeed recently we have been redeploying people to stem the threat of Avian Flu and at a moment's notice we are able to redeploy over 200 officers. The reason why we set our workforce in a flexible mobile context is to enable us to be as agile as possible.

Q344 Chairman: We do appreciate that and we are very grateful for that information. Can I ask just one further question on this? The Export Control Act 2002, the Bill had a regulatory impact assessment related to it as legislation always does and it was estimated then that Customs needed an extra £200,000 to £300,000 to implement that legislation; could you give us an idea of how that figure was arrived at?

Mr Fuchter: I would be struggling to do so, but it was based on an assessment which I think was made in the mid nineties, which was well before my time, that we would need up to five extra specialist investigators with all the various on-costs, so I think that was the basis of the figure.

Q345 Chairman: Five extra investigators?

Mr Fuchter: Yes, and they could be investigation or intelligence officers.

Q346 Chairman: And that was all that was thought necessary to implement the additional --

Mr Fuchter: Yes it was, that was the estimate at the time.

Q347 Chairman: Has that turned out to be an accurate estimate?

Mr Fuchter: In fact, I think it is fair to say, that in the two years that the controls have been in place we have been able to deal with the work that has arisen within the existing resource allocation, so we have not increased our baselines by the amount originally envisaged in the RIA, we have not needed to.

Q348 Sir John Stanley: This continues the question in relation to your staffing. As I am sure you may have seen in the evidence session that we had on April 19, we were told about an interesting, unintended I am sure, side effect of the impact of setting targets to process work and we were told that as far as the DTI was concerned their target was to turn around licensing applications in 21 working days in 70 per cent of cases and I am sure unintended consequence of saying that to staff is that when they get overwhelmed with work, given one of the rules of the game is that if you send the work back to the person trying to do the export the clock is stopped as far as the 21 days is concerned, there is a great temptation for the licence application to go back with lots of possibly unnecessary and irrelevant questions to have the effect of stopping the clock and so no one is embarrassed about not meeting the 70 per cent target. I would just like to ask you whether you have, in this particular area in HMRC, whether you have any similar types of targets and whether that might be having the same unintended consequences of actually producing a stimulus to delay activity rather than to increase it?

Mr Fuchter: Yes, certainly. The target that I can immediately think of is one to do with the turn round times of our cargo processing activity and I think we have - I may be wrong here - but I think it is around two hours for a routine transaction, but let me ----

Q349 Sir John Stanley: I am sorry, a what transaction?

Mr Fuchter: A routine cargo transaction but, bear in mind, a lot of the process is automated, so if there is a documentary check officers are expected to deal with it immediately and if it is straightforward to have dealt with it in order to meet our (where we used to call them charter standard) targets but let me answer the question that that has no effect on this area of our export responsibilities in terms of strategic exports, there are no targets that any part of the organisation has, as far as I am concerned, that deflects us from our main objective.

Q350 Sir John Stanley: There is no stopping the clock rule, you are satisfied that there are no searches and written procedures resulting in officials refusing to process, extending it back for further questions with the primary purpose of stopping the clock and making certain that the target that has been set, whether two hours or whatever it is, has not been jeopardised?

Mr Fuchter: I am aware that that activity is going on all the time but for reasons of checking and scrutiny rather than artificially stopping the clock.

Sir John Stanley: Thank you for your assurance.

Q351 Mr Hoyle: Can I just move you on to outreach? Obviously I understand that you have been involved with the DTI, but I wonder if you could tell us what activities HM Revenue and Customs has actually undertaken in the last five years, what you have been involved in and I wonder what is planned for the next couple of years in the case of outreach?

Mr Fuchter: Certainly. If I take the planning first; the planning is very much driven by the Foreign Office and the Ministry of Defence and every year they come to us before the new year and let us know their planning intentions for the coming years, so I would have to answer the question by saying basically we start off from an assumption of supporting that outreach. To go back to the earlier part of your question, I think if we can run past over the last five years. I guess three types of activity, overseas outreach, where we will accompany delegations headed by foreign office and/or MoD and alongside DTI colleagues and possibly others as part of a delegation to various countries and those countries are chosen, as you know, by those departments who ask us to come along to deliver, it can vary what they ask us to deliver, but it is in the area of making an assessment of that Customs' enforcement capability and export controls, probably their Customs' capability, but it might be looking more widely, it might be collaborating with DTI to look at the whole end-to-end licensing and enforcement process and to identify capacity building needs for that country and we have been to a number of EU accession countries, going back a couple of years, some trans-shipment locations, such as UAE, Singapore and Hong Kong and others, including Libya and South Africa and China. The second phase is inward outreach where such states send delegations to the UK hosted by the foreign office or the Department of Trade and Industry and typically we will attend to give presentations on our approach to export controls, what we regard as good practice, tips and techniques. Examples there include the Ukraine, Serbia, Montenegro, Albania, Pakistan and Turkey, but we are really driven by the needs as established by the foreign office and the lead policy departments. That did include last year in our current building we hosted a one week training seminar for Libyan export control officials. The third element is, I guess, our contribution to the four international export control regimes which include elements of outreach where we are often asked, for example, diplomats we will say to us, "We have identified some of the parties/enforcement officers attending the enforcement experts' meeting, they could do with particular reinforcement in certain aspects and can you please help out?" and that is the sort of thing we do.

Q352 Mr Hoyle: So you continue to establish in third countries in this way, so that is going to be part of the future programme?

Mr Fuchter: That continues to be part of our future programme, we look to support it, as I said, we have an assumption of support in progress.

Q353 Mr Hoyle: Do you think those countries should form part of the core functions in UK licensing and enforcement officers?

Mr Fuchter: We regard the activities as very important and I think it is probably indispensable, because we also do outreach customs-to-customs on other topics. Arguably with all our interest in trying to improve the security of the supply chain, I think we regard that as an essential component of it.

Q354 Mr Hoyle: Are you winning the battle in the securities of the supply chain?

Mr Fuchter: Are we winning the battle? I am not sure I know the answer to that. We are committed to winning the battle, we have got a lot further to do, I think, but it is not a static position.

Mr Franklin: I think we are winning battles. I think the question I would ask is are we winning the war and there I think they can be less certain about the answer? Certainly if you expand upon some of the things that Mr Fuchter has already mentioned, we are working very closely with the world customs' organisations on this as well and we have just signed up to a framework of standards around security and trade facilitation which has helped to cement the work we are doing on the supply chain and we are engaged with some 50 odd projects at the moment in terms of capacity building that is essential in our drive to win these battles on security issues.

Q355 Richard Burden: On 19 April the defence manufacturers came to see us, as you probably know, and one of the things that they talked about was the specific example of Felixstowe where they were saying that 50,000 containers go through that port each day and Customs probably open just one and they said that that one would probably be opened because somebody's tracker was in a container that was being tracked and they open the container and there are four or five stolen cars in it. Would that be an accurate picture of the situation at Felixstowe would you say?

Mr Fuchter: To start with I would have to say "no". Firstly, I think we do not recognise those numbers of containers going through Felixstowe. We think there is something around 3,500 TEUs, and I am sorry, this is a 20 foot equivalent unit; Felixstowe calculates its container movements on what they call TEUs, so a 40 foot container would be two TEUs, I am sorry for that diversion. I think the numbers of containers being exported from Felixstowe, and I think that is the ones we have to concentrate here, are far fewer. Of those we will ----

Q356 Richard Burden: Roughly, in layman's language?

Mr Franklin: In layman's language 8,000 containers a day. 3,500 would be for export.

Q357 Richard Burden: So the others would be coming in?

Mr Fuchter: Yes, and that will include empties.

Q358 Richard Burden: What is going out of the country?

Mr Fuchter: Around about 3,500.

Q359 Richard Burden: Whether it is technically for export or not, are there about 8,000 or about 3,000 that would be going ----

Mr Franklin: In terms of containers leaving the country, around 3,500 a day.

Mr Fuchter: It is fair to say the numbers of physical examinations are small, it is probably averaging something between one and two a day, but I would want to emphasise that running in the background of course is our automated processing export processing system and at any one time there are something in the order of 60 of our profiles against which all those containers, all those consignments, will have been screened, so all 3,500 are screened against export profiles.

Q360 Richard Burden: What does that mean?

Mr Fuchter: It means that none of them obviously contain any goods which should generate an export licence, if so the machine will have identified that consignment and it will go for either a documentary check or physical check.

Q361 Richard Burden: One of the things we talked about is companies inadvertently exporting equipment that could be licensable but, let us say for the moment that a particular company was not doing it inadvertently but deliberately, your profiling would show that up if they had admitted that to you in advance, but if they just made a judgment, if they stick it in a container and put it through, if it is not in your profile you are never going to pick it up anyway?

Mr Fuchter: That is right.

Q362 Richard Burden: Is that a reasonable judgment for them to make?

Mr Fuchter: That would be right, but the point is that our approach to this is based on intelligence and risk profiling. If someone opts to export goods completely outside the export system, then with the sheer volume of exports going through all the ports of the UK, we are not randomly searching cargo which is cleared as being low risk according to the export declaration to look for what may or may not be happening with the exception of some of our other teams looking for other risks such as missing trader intercommunity fraud, so in this area we do not do that because we are driven very much by intelligence.

Q363 Richard Burden: Even within an intelligence led system do you think spot checks on the basis of one per 3,000 per day - and if I was better at sums I would work out what that was in a week and every year - do you think that is a reasonable proportion of spot checks?

Mr Fuchter: The process I would say is reasonable and, rather than doing it on a daily basis, what we do is we do exercises and drives, I cannot say how many there are a year, we have a programme of doing those and they tend to be driven by our investigators and intelligence staff at the centre. They have said to me that some of this is sensitive and if you feel I am not going into enough detail please tell me, but they will conduct special drives and exercises, rather than doing spot checks per day, they will look at the prevailing risk traffic, look at the prevailing intelligence assessment and say, for example, "Let us do an exercise at Heathrow on such and such a time because it coincides with certain high risk flights coming and going". They will go down there with our intelligence and investigations' staff and they will take DTI technical experts and they will do a programme of, I suppose, blanket checks looking at all the exports going out in that particular window.

Mr Franklin: I wonder if I could just add one or two comments. The first thing is always to remind ourselves that the majority of the traffic that crosses our borders is legitimate trade and why we think intelligence led activity is the right way to go is two reasons, because we target those areas that we feel are suspicious and allow illegitimate trade to go about its business and it is the most effective use of the resources available to us, but I think it is a multi-prong approach that we have. We use an automated system for Customs' declarations which will have profiles attached to it, but we also check licences in local offices, we have a whole range of target checks that are made by our detection workforce which are based on the intelligence that we receive from colleagues in other government departments and we also run a number of assurance visits by our compliance officers at traders' premises, so there are a number of things that we do to create an important framework which enable us to cover as many of the bases as we are able to.

Q364 Richard Burden: Can I ask two very brief factual questions for the record? Can you tell us, first of all, how many Customs' officers there are at Felixstowe? The second one is that we are told that a former DTI official estimated that somewhere in the region of 35 per cent of UK companies who should be applying for export licences are not. The second question is, do you think that is an accurate estimate and, if not, what do you think the estimate would be?

Mr Fuchter: The answer to the first question it is something in the order of 250 staff based at Felixstowe and I say in a caveat that is across a number of disciplines, it is detection, investigation, intelligence and I think support staff and the other caveat is that that number can fluctuate and can be supplemented by mobile teams. The second assessment is we do not recognise 35 per cent at all. If it is the case that my staff think it is, this goes back possibly as long ago as 15 years when I think it was a different world in terms of, for example, more sanctions being in place, but I think if the lead departments were saying to us something of the order of 35 per cent of exporters are not applying for them, I think we would say to them, "Well we need to sit down with you and re-think our whole operational approach, are we sure that you will be doing the right thing as a network of enforcement responses, have we got the response right?" and that would be the dialogue we would expect to have, but we do not accept it and I do not have a figure for an accurate assessment at the moment?

Q365 Mr Borrow: It is a bit like some other issues of public policy where it is difficult to know the answer because it is a lawful activity, is it not?

Mr Fuchter: Yes.

Q366 Mike Gapes: What I am going to ask follows on quite well. The export group for aerospace and defence sent us a memorandum, I am quoting it and I would be interested in your reaction. It talks about "the current poor level of checking of shipments (for import and export) by HMRC, is a significant problem. We all too frequently come across perfectly law abiding companies who have been in business for many years, and exporting during that time, blissfully unaware what they are doing is caught by export controls, and whose shipments have never been stopped by HMRC officers querying why there is no export licence". Do you agree with that statement?

Mr Fuchter: The first thing I would say about the EGAD body is one of the things I must do, and this hearing has been very helpful in concentrating my mind, is establish a good relationship with them, to understand the detail behind that and to really test whether that is right or not. We would say in response to that, if it is based on physical examinations, they are really the tip of the iceberg. As I say, underneath a lot of this will be documentary checks going on that are partly automated but are partly done by humans without necessarily disrupting the trade. Remember the pressure we are under not to disrupt legitimate trade, so I think we have to accept that they are saying that and they are clearly saying that with good reason and I would like to explore with them and it is part of validating the approach we are taking right in that particular area.

Q367 Mike Gapes: We have had evidence put to us, for example, by the export compliance manager of EDS about inadvertent exports of dual use goods which should be subject to control. I understand that dual use is very difficult and in a parliamentary answer just a few days ago the Minister of the Foreign Office, Kim Howells, said that dual use nature of virtually all the know how, materials and equipment used in biology means that most industrialised countries have such a capability but, having said that, are you concerned at the novel uses of equipment? We have had evidence referring to components for cars which could have been used in some forms of weapon systems and suddenly somebody gets a huge order they have never had before for a particular component of a car. Are you sure that either the companies or your own people are able to deal with that kind of circumstance or, in fact, is this just a needle in a haystack operation, there are thousands of containers going in and out of the country and there is stuff being sent all over the world and you are just picking up a few by a couple of containers that get opened, but all the time there is a lot more going in and out that you do not know about?

Mr Fuchter: I might have lost the track of where to start there, but those of dual use, the key element has to be the training that we provide to our officers. I would reinforce that we are part of a network driven by, it starts with intelligence, all activity is co-ordinated. But to go to the actual question of dual use, if we had a wish list or a magic wand one of our desires would be to see a robust correlation between the dual use lists and the Customs' nomenclature and I think you are aware of that from previous hearings and that is not possible, although we constantly drive to match up those lists as closely as possible, but I think you have heard evidence about beryllium in previous hearings, for example, and I think
beryllium can fit, for example, 31 Customs' commodity codes, so in a sense if I am answering your question by saying are we alive to all the complexities and anomalies enforcing the dual use regulations I would say we are. Are we equipped to do it? Yes, I think we are, and we are aware of these challenges that profiles will not work as well as they will on very clearly defined items. I am not sure if that is ----

Q368 Peter Luff: I do not want to ruin this burgeoning relationship between you and EGAD, but we have had both oral and written evidence from them which suggests that actually your primary focus is about raising revenue, that is your name after all, not strategic export control at all, is that fair?

Mr Fuchter: I do not think it is fair to be frank. I think if we went back to when we were Customs and Excise a large proportion by volume of Customs and Excise activity was to do with VAT, but I have spent a lot of my career in those parts of frontier activity that are to do with drugs, tobacco and a whole host of frontier activities. In essence the merger into HM Revenue and Customs will not deplete the effort and activity we give to this work area.

Q369 Peter Luff: You have a website, a phone number, Customs Confidential, which invites people to shop people who are cheating on the aggregates levy for example, but does not mention anything to do with strategic export controls. I know aggregate levy is very important, I am sure, but I think a third world war is rather more important?

Mr Fuchter: I completely agree and we have to say thank you for pointing that out. We have not spotted that and that is something I am trying to get put right and I have started those steps already. That confidential hotline it is not going to work for us in terms of other threats as well. I would say, however, that our assessment is that those most likely to have quality information around this particular work area are likely to be in the international trade industry sector and readily know how to get hold of Customs, so we do not think we are losing out, but it is a valid point that we fully accept.

Chairman: You have advertised the importance of intelligence to the work you do, it just seems a bit odd that you are aware that you need to get information from the public in the areas that my colleague has mentioned, but somehow illegal arms' trading has slipped off the list.

Q370 Peter Luff: It just suggests an underlying mind-set that makes me nervous.

Mr Franklin: The website is wrong and it needs to be fixed, there is no doubt about that. That is not to suggest though that we do not have contact with legitimate business within the industry and that we are tapping into that expertise and we do use that as a source of intelligence, we are in constant contact on a daily basis with a broad range of customers who import and export goods and that is a sort of intelligence, so I can assure you that there is not an underlying issue in terms of us using that as a source of intelligence. The technology in terms of the website is bad and it needs to be changed and we will change it.

Chairman: I am not sure it is technology, but we will leave that.

Q371 Linda Gilroy: Looking at the table in the joint memorandum at paragraph 44 it appears to show that there have been five successful prosecutions in six years resulting in fines totalling £13,500, asset forfeiture worth £70,000 and no imprisonments other than suspended sentences. How can anybody view that as a deterrent to someone considering breaching export controls?

Mr Green: Could I answer that in this way: the number of prosecutions we would say does not reflect either the effort or the success behind this for this reason. You have heard that work in this area is intelligence led by HMRC and the forum for dealing with that information is the strategic goods co-ordination committee and at any one time they will be considering - they meet every six weeks, that is RCPO which chair it and people from HMRC - at any one time they will be considering cases which should be resolved by disruption, cases where intelligence is being assessed with a view to turning it into evidence and cases put to RCPO with a view to prosecution. To give you an example it last met in April and some 15 cases covering all three of those categories were under consideration. In addition the DTI inform us that the robust fines in the last two cases on that chart have had a valuable deterrent effect throughout the trade. Further, it is right to say that, depending on the circumstances, other options other than prosecution are actively pursued, such as education, warning visits, disruption, compounding, seizing and detaining goods pending payment of a fee. So my point is this that the number of prosecutions does not represent either the effort or the success going into it.

Q372 Linda Gilroy: Well that seems to go against the grain of what, and I think others, would traditionally understand as being the pre-requisites for successful deterrents, first that there is a good chance of detection and, secondly, an exacting penalty. Do you really think that what you have just offered us is a sufficient insurance that people who will be trying to get round this will actually be deterred?

Mr Green: My point was simply that the number of prosecutions does not represent perhaps the deterrent effect that is going on broadly.

Q373 Linda Gilroy: You think education would be a deterrent to somebody who is quite determined to get round these controls?

Mr Green: If we are talking about the value of that, it is probably a question better for HMRC, but certainly the evidence is that education warning and disruption is a very effective tool in this area.

Q374 Linda Gilroy: Perhaps if I can just follow that on. The Homayouni Multicore case in 2004/2005 resulted in 18 months' imprisonment suspended for two years, Mr Homayouni was banned from being a company director for 10 years and an asset forfeiture in the order of £69,980. According to press reports, Multicore was a front company for Iran's air force and had been engaged in systematic efforts to procure and smuggle components for the Iranian military, including parts for Hawk missiles and Hercules transport aircraft as well as F-14, F-4 and F-5 fighter jets. Do you really think that that punishment fits the crime and acts as any deterrent at all?

Mr Richardson: I may be able to help with this as that case was prosecuted in my division. We prosecuted, if you like, a component of the case and one of the features of these cases is that they straddle a number of jurisdictions. The evidence that we have available to us will be limited to a number of the physical items that are being exported. We will not necessarily be able to prosecute the entirety of an international picture, we can only prosecute the bit that we have evidence for in the UK and I think it is important to remember, first of all, that this was the first time that we had a confiscation order being used in export control cases and the feedback we get in other arenas is that the one thing that the criminals really fear is having their money taken away from them and that really does have a big impact and, of course, in any prosecution where somebody is convicted or pleads guilty, the court will hear mitigation about their personal circumstances and the circumstances of the offence and they will set a penalty, or the judge will impose a penalty, taking into account all of those circumstances. In terms of how that case was dealt with, we put the case as fully as it could be put in the UK, the court had all the factors to take into account on sentencing.

Q375 Linda Gilroy: You seem to be saying two things there, first of all that because of the complexity of the international dimensions to a case like that it is perhaps difficult to pursue things as completely as you would want. Do you see that improving as time goes by? You were describing international co-operation, are you working to try and improve that, because if you look at the other aspect of it you are saying that the court takes into account the position of the defendant; I would hazard a guess that £70,000 to a man in that position is not really something that would sting him very much?

Mr Richardson: I think to take the first part of your question about the international co-operation effort, a lot of the ground work for that, of course, is done by investigators who work with colleagues overseas, there are very well established mechanisms for seeking mutual legal assistance. Some of that mutual legal assistance is easier to get in some countries than it is in others, but the sort of cases that are prosecuted by RCPO, whether in this field or others, they are almost inevitably transnational cases with evidence from abroad, so it is a feature that we are well used to dealing with as prosecutors and our prosecutors are experienced in working with prosecutors overseas to get the best evidence we can. I think it is fair to say that the export controls arena is a difficult one in the sense that it pulls together all the features that make prosecutions difficult in terms of overseas' evidence, in terms of sensitive destinations that are being dealt with, but we are confident that we have the expertise and the people who can make the progress that we need to in that area.

Q376 Chairman: What about the penalty, I mean £70,000, as my colleague says, an illegal export to Iran for goodness sake, what sentence were you pressing for?

Mr Green: Obviously, Chairman, it is not the prosecution's job to press for a particular sentence, we can point out sentencing guidelines, minimum and maximum sentences, but obviously sentencing is a matter for the courts.

Q377 Chairman: Do you understand how the public and this Committee might feel that when we look at these prosecutions, I take your point about you should not judge the efficiency of an organisation such as yours by the number of prosecutions, that is a point very well made and we accept that, but when we look at the penalties, nobody goes to jail and it looks like people are paying penalties that frankly, in their business, they can easily afford, what is going on?

Mr Green: I think all one can say here is Mr Richardson refers to the fact that it was the first confiscation order we have had in a case such as this and my understanding in that particular case the confiscation order represented his entire profit from that transaction.

Q378 Linda Gilroy: You have mentioned that the whole question of prosecution in these cases brings together all the difficulties that challenge court cases and at paragraph 48 of the memorandum you explain that before initiating prosecution the prosecutor has to take into account the public interest in bringing charges and in explaining the factors you take into account you state that the courts have not imposed particularly severe sentences even in relation to goods intended for WMD programmes and that a cocaine smuggler would get far harsher treatment. Why, in your view, are the courts taking such a lenient approach, given the severity of what will flow from the sort of situation that we have just been discussing?

Mr Green: I think I could answer that question this way that obviously you referred to drug importation, obviously it is one of the Government's priorities to reduce the harm from smuggled drugs and also, of course, ----

Q379 Linda Gilroy: Are you suggesting it is not a priority to try and control exports to countries like Iran?

Mr Green: I very much hope it is, but obviously with drugs one is thinking of a parcel of powder or parcel of pills which people can readily recognise and understand, but it may be perhaps difficult to give a clear picture of the threat posed by particular goods to a court and one is dealing with often a trade where there is often a legitimate trade in particular goods and they may be standard industrial products, it is difficult for a court to put it in context and you have made the point there are relatively few prosecutions under these heads for reasons I have indicated and it may be that the courts have a great deal more experience of, for instance, smuggled drugs than they do of this sort of offence.

Q380 Linda Gilroy: One of the other areas that this Committee is very interested in is at the other end of the scale on small arms. I note that one of the criteria you weigh up is the general availability of the goods on the worldwide market, so on that basis would someone exporting small arms without an export licence not be prosecuted because small arms are freely available in the United States?

Mr Green: To my knowledge the problem here is not export of small arms, certainly our experience of what one hears of is import of firearms and in those cases they are taken extremely seriously.

Q381 Mike Gapes: The Serious Organised Crime Agency has just come in. Given that some of us would think that exporting military equipment to Iran would be a serious crime, has that given you any extra powers in terms of confiscation of assets or other measures that you might be able to use in the future?

Mr Green: We do have some extra powers under the Serious Organised Crime and Police Act power to compel answering questions, power to produce documents for instance and others relating to people giving evidence who have been involved in crime, giving evidence for the prosecution and we intend to make full use of those powers.

Q382 Mike Gapes: What about confiscation of assets?

Mr Green: Confiscation of assets we already have very considerable powers in relation to the confiscation of criminal assets and indeed 35 per cent of the total amount of money paid over to the Home Office in money confiscated from criminals came as a result of RCPO confiscation orders of £21 million.

Mike Gapes: I hope you use it for arms' exports.

Q383 Linda Gilroy: We have been discussing successful prosecutions and their low number. How many prosecutions have failed and what can be done to improve the chances of successful prosecutions?

Mr Green: How many prosecutions have failed? We have had no acquittals and none have been dropped for technical reasons. I am often concerned by that, with respect, with the phrase "failed prosecution". A court may or may not be convinced by the evidence put before it, that is a matter for the court. All we can say is five successful prosecutions from 2000 with the back-up that I referred to, action in other areas short of prosecution.

Q384 Linda Gilroy: If we are looking at other international examples, Germany, for instance, appears to have a much better track record. Is there a systematic exchange of information with Customs and prosecutors in other EU countries, exchanging experience and how to improve the possibility of pursuing successful prosecutions?

Mr Green: Ms Gilroy, you will be aware that there are such European organisations as Eurojust and Europol and certainly they provide for the dissemination and exchange of such information and we also have very good liaison, certainly on the prosecution side, with our colleagues within the European Union.

Q385 Peter Luff: In almost every area of public policy there is a seminal emblematic moment which defines organisation issue and I suppose earlier this year we had the tenth anniversary of one of those, the Scott Inquiry and the super gun report. What lessons did Revenue and Customs draw from that?

Mr Fuchter: I think there are two sets of lessons, the Scott Inquiry arose from a dual use case, the super gun was obviously a weapon of itself. Very, very broadly, in terms of lessons relating to the super gun, parts of it were being made in separate countries and that quickly exposed the need for greater intelligence sharing as well as greater awareness of the potential of any such item and of course technical appraisal of such an item, because I think there was a passage of time, looking back at the case, when agencies had not really identified that what was actually being built was a gun. From the Scott Inquiry there were a lot of lessons around intelligence handling and improved governance and oversight of our strategic exports case work and in particular to set out clear separation of responsibility between the policy and responsibilities of my area and the investigation teams who are under pressure of themselves. We already had within Customs and Excise, as it was at the time, a tripartite process for controlling sensitive cases. That tripartite process was extended to all strategic exports cases regardless of whether they fitted departmental definitions of sensitive. That led to the formation of the committee, I think we describe in the memorandum as the "tripartite committee" and we have now re-named as strategic goods co-ordination committee, but same thing, chaired by RCPO and the various components that sit on that committee. Those, I think, are the broad lessons from those two.

Q386 Peter Luff: And that tripartite system is not just a triple lock preventing the initiation of prosecutions?

Mr Green: I would say, with respect Mr Luff, it is quite the reverse, it comes in post stop and it is designed as a forum for exchange of information and the close monitoring of these cases in the categories that I described earlier.

Q387 Mr Borrow: We heard evidence from Mark Thomas, the journalist, a few months ago about the proposed export of 100 stallion trucks by Ashok Leyland from India to Sudan and my understanding is that Sudan is a country that we should not be exporting military vehicles to and given that Ashok Leyland is a subsidiary of a UK company, many members of the Committee found it strange that a prosecution did not take place and has not taken place and I wondered if you had any comments on that?

Mr Green: Mr Borrow, you will be aware that under section 40 of the Commissioners of Revenue and Customs Act I am unable to discuss cases either under consideration or which have been rejected. All I would say in relation to that particular case is that it does provide a very good example of journalistic endeavour and some anecdotal evidence and some anecdotal material failing to translate into evidence.

Q388 Chairman: Would that Act prevent you giving us answer to the question in a confidential memo to the Committee in the sense that we do see, for example, we know where all sorts of arms exports go, the ultimate end user, we see these in strictest confidence as a committee, would there be any reason why you would not be able to advise us of the exact position in confidence?

Mr Fuchter: Our advice is that we cannot even do so in confidence. It is not a question of the security level at which the conversation takes place, we are actually clearly constrained from doing so. If I can give the Committee an assurance, and we are in difficulty here, but in an attempt to be helpful, and you will tell me if this fails, what HMRC does do and I think you have seen this in previous parliamentary answers, is that we look into all intelligence and all allegations, we say all credible allegations, but take it from me it is all allegations involving sensitive goods and sensitive destinations. They will be subjected to a test I think we laid out in the memorandum that our intelligence and investigation specialists will firstly assess if there is evidence of an offence and if there is evidence of an offence we will adopt that as an investigation, that will be taken on as a formal criminal investigation and move through hopefully, if sufficient evidence is available, it will be discussed en route by the strategic goods co-ordination committee and it will hopefully move through to prosecution. So I can give you an assurance that all such allegations involving sensitive goods and sensitive destinations are considered in that way, if that is helpful.

Mr Green: Equally can I emphasize we can only proceed where there is evidence or solid evidence such as we can put before a court.

Q389 Chairman: We understand your position and I think you understand ours, particularly those of us who had the pleasure of discussing with Ashok Leyland their export policy in relation to Sudan as at least two of us on this Committee have.

Mr Fuchter: To expand on my answer just a little bit about the ingredients of the offence, the goods would have to fall within the Act where they would have to be military listed goods and there would have to be other ingredients of an offence.

Q390 Mr Borrow: I recognise that you have got difficulties in terms of the amount of information you can give to the Committee, but were a minister to ask the same question would you give the same answer?

Mr Green: I am accountable, Mr Borrow, to the Attorney General and certainly I would be able to give him answers on that and indeed in many cases.

Q391 Chairman: Can you speak up a little, Mr Green?

Mr Green: Forgive me. I was pointing out that I am accountable to the Attorney General and obviously he has the superintendence, I work under his superintendence, I would be able to give answers there.

Q392 Chairman: Do you know anything that would prevent the Attorney General sending a confidential letter to this Committee to inform us what you have said to him?

Mr Green: Chairman, with respect, not offhand.

Chairman: Thank you, that is extremely helpful.

Q393 Mike Gapes: Do you have anybody working for you in HMRC on a dedicated monitoring of the internet?

Mr Fuchter: Within the whole of HMRC I actually do not know the answer to that because we will have officers engaged on anti-drugs, anti-counterfeiting, anti-tobacco work who will be using the internet. Access to the internet is part of the operational toolkit, if you like, so I would probably have to say "yes". I am unable to explain how many.

Q394 Mike Gapes: Can you send us a note, please, when you have got more information?

Mr Fuchter: Yes.

Q395 Mike Gapes: Secondly, why not, in terms of arms' exports?

Mr Fuchter: In terms of strategic exports, because that is not the role we have agreed with our partners in the restricted enforcement unit, principally the intelligence agencies. The task that we have, it is not required of us that we spend our intelligence resource looking on the internet for cases that may be prima facie breaches and that is the responsibility of the agreements we have with our other departments through REU with the intelligence agencies.

Q396 Mike Gapes: Can I put it to you that if journalists hypothetically can find things on the internet which are thought to be in breach of export control regulations and can write articles about it, it would be perhaps helpful if you had someone in your department who was actually doing that so that you could deal with these things before necessarily a determined journalist was able to discover them?

Mr Fuchter: Yes, to the point that I would say not within our department, but within the restrictive enforcement unit, the REU contributory agencies, I think that is absolutely right but, I say again, it is not our responsibility as we have agreed with REU partners, that lies with the intelligence agencies. In another area of our responsibilities, endangered species, in fact we do do such things and we have been tracking endangered species appearing for sale, for example, on EBay.

Q397 Mike Gapes: Is there not an argument that you perhaps should review your understandings with other people and therefore you could be more proactive on these matters?

Mr Fuchter: We would always be prepared to discuss with the intelligence agencies the question of who does what, should we be doing something, are we all assuming that we are doing things that we are not or whatever, we would always keep that under review, yes.

Q398 Chairman: Do you think your colleagues check websites to see if arms' companies, just per chance, happen to be advertising the fact that they are seeking to export to an embargoed country, or do they check names regularly to see what is going on, does somebody do this?

Mr Franklin: I think it is fair to say that the use of internet by our operational staff is increasingly becoming one of the many tools that they have to do research into this type of activity. I do need to reinforce the fact though that we do not do detective work on a speculative basis, that is not the way in which we are organised, we do it based on intelligence that comes from a rather sophisticated range of sources that do come together in the REU, but clearly we make a contribution to the REU based on things that we have discovered as a result of the work we are doing on the front line at an operational level, that is fed back into those intelligence sources and so it would be correct to say that we use the internet as one of the tools. I do not have the number in terms of number of people that actively use the internet and we will write to you on that.

Q399 Peter Luff: Chairman, I have difficulty in reconciling the two answers we have. Do they or do they not? Does the Government or does the Government not? Does somebody do this work or do we have to leave it to investigative journalists?

Mr Franklin: Our understanding is that the answer is yes, someone does do that work, but it is not done in strategic arms control - a proactive targeting if you like - in HMRC in the context of strategic exports.

Chairman: We may have to ask your colleagues about that.

Q400 Sir John Stanley: Can I turn to trafficking and brokering? As you know, the Government has made a very limited extension of extraterritoriality whereby for the first time those who are normally resident in the UK can face criminal prosecution if they engage in trafficking and brokering outside the territorial jurisdiction of the UK, with a very limited number of weapons or quasi-weapons, and in particular, on the one end is limited to torture equipment in broad generic terms and, on the other end, is limited to missiles with a range of in excess of 300 kilometres. Since those new powers have been available to you, can you tell us how many investigations you have carried out into potential criminal offences committed extraterritorially and how many of those investigations, if there have been any, have turned into actual prosecutions?

Mr Fuchter: There is one case that we have adopted and is being processed, is going through the system, but it is at the stage when I think it has not formally been reported to RCPO, but we expect to be reporting it to RCPO with a view to prosecution. I should add that that case is going to be taken forward under the WMD trafficking and brokering, but the case was started as a trafficking and brokering inquiry and I think we will probably be proposing offences under the Anti-Terrorism, Crime and Security Act. It is a trafficking and brokering case, and it is the only one that has got as far as that so far in the two years that the controls have been in place. In the meantime, we have received a number of allegations and referrals of trafficking and brokering activity and, again, each one of those we have pursued in the way that I have described earlier.

Q401 Sir John Stanley: Can I respond on a point of clarification, if I may? Were you saying to the Committee that this particular, at the moment, sole investigation involved components of, or materials related to, a weapon of mass destruction? Are you saying that?

Mr Fuchter: Yes.

Q402 Sir John Stanley: You were. Thank you.

Mr Green: Sir John, I would just add that the case to which Mr Fuchter has referred is one on which we have provided early prosecutorial advice as to what evidence is required, and we have been fully involved in that.

Q403 Sir John Stanley: Just taking this case further, which is clearly of profound significance, given that I am not aware that this has appeared in the public domain previously, and that it does involve a weapon of mass destruction, or components of a weapon of mass destruction, can you give us any indication as to the timescale within which a prosecution is likely to be formally entered into?

Mr Fuchter: I cannot. I know there are particular challenges over the evidence.

Mr Green: Obviously, in due course, if it came to it, evidence would be submitted to us and we would apply the code test as to sufficiency of evidence and public interest, and so forth, but until such evidence has been gathered (and, as I say, we have had an input into what evidence would be required) I am unable, Sir John, to give you a particular timing on that.

Q404 Sir John Stanley: Are you satisfied that the particular individual or individuals concerned are in a situation in which they could no longer continue these particular activities?

Mr Fuchter: I think, from our enforcement perspective, yes, we can say that.

Q405 Sir John Stanley: I am asking it from a public security aspect.

Mr Fuchter: I am sorry, yes.

Q406 Sir John Stanley: Yes to that?

Mr Fuchter: Our view is the operation has been thoroughly disrupted.

Q407 Sir John Stanley: And the individuals concerned are in custody?

Mr Richardson: No, they are not.

Q408 Sir John Stanley: They are not. We may wish to pursue that separately, Chairman. Can I continue on another aspect. In paragraph 59 of your paper you say: "Trade controls on trafficking and brokering do not involve goods moving from UK ports and are not, therefore, subject to regulatory checks by HMRC officers". Does the inwardness of that sentence mean that where you have not got your own officers in place at a port then you are solely dependent on intelligence for picking up a trafficker or broker inside the UK who is trying to get out of the UK other than through a port where you have got your regulatory operation in place? You are solely dependent on intelligence for picking up those particular individuals who may be trying to get stuff out by light aircraft, fishing vessels, etc. Is that the right deduction?

Mr Fuchter: Yes. I think we would say that they are not necessarily - because this is trafficking and brokering - in the process of getting material out of the UK, but, to answer the broad question: "Are we dependent on intelligence research?", yes, we are.

Q409 Sir John Stanley: When you say they are not necessarily in the process of getting them outside the UK, are you suggesting ----

Mr Fuchter: Moving from the UK.

Q410 Sir John Stanley: Moving them from one place to another within the UK. Is that what you are saying?

Mr Fuchter: No, I am sorry. I may have misunderstood you. I thought the question was about activity that would have taken place where the goods would have moved from one overseas state to another, and the person is in the UK; are we solely dependent on intelligence to initiate action against that ----

Q411 Sir John Stanley: No, I am talking about traffickers and brokers inside the UK who may be seeking to circumvent your export controls and the physical regulatory checks you have in ports and are trying, in a trafficking and brokering capacity - ie they are not involved in manufacture but are simply involving middle men in trading operations, which the traffickers and brokers characteristically are. For those people, who know, presumably, exactly where your staff and officers are carrying out their regulatory checks, I am just asking if you are then solely dependent on intelligence for trying to stop that trafficking and brokering and the movement of, say, a portable missile consignment out of the UK; you are solely dependent on intelligence where it is going through something other than a port.

Mr Fuchter: Yes.

Q412 Sir John Stanley: You are. One appreciates and understands you cannot have somebody everywhere, but in terms of the manpower that you have, how adequate do you think your coverage is of the sea exits and air exits out of the British Isles?

Mr Fuchter: Given that the whole process is driven by intelligence, our assessment is that the manpower we have is adequate for the purpose. We have a number of regulatory profiles on the system and we do regulatory checks, all of which are fed back to our intelligence staff. The intelligence to which you refer is a cycle, a cycle through the Restricted Enforcement Unit; it is added to, we give feedback to the REU, we get action by the REU. I am conscious I am painting a very intelligence-dependent picture, but that is why. People such as middle men who will act in such a way are not going to make themselves known (rather similar to major drugs operators), and it is only through intelligence and understanding the results of our previous activities that we will be able to make an impact.

Q413 Sir John Stanley: Your answer clearly poses a very key question (obviously not for you) which is whether the intelligence resources are sufficient to give you the necessary information that you need to pick up what is potentially a very sizeable geographical loophole in the coverage.

Mr Fuchter: Yes, and if the intelligence picture changed - for example, say the REU suddenly generated in volumes four times the number of quality intelligence logs - we would be able to redeploy extra resources, on a mobile and flexible basis, to respond to that intelligence, whether they are intelligence officers of our own, investigators, or detection staff.

Q414 Sir John Stanley: Thank you. Just one further one: you say, at the opening of paragraph 15: "HMRC has no regulatory role in relation to controls on activities such as trafficking and brokering, intangible transfers and the provision of technical assistance." Do you think you should have a regulatory role? Is there a gap in our policing of the trafficking and brokering and what you describe and intangible transfers, etc, by virtue of the fact that you do not have a regulatory role? Have you any proposals that you want to put to the Committee on this?

Mr Fuchter: We do not have any proposals that we want to put to the Committee, although I am conscious that much of the thinking around this was done when the Bill was going through early stages, and that is quite a few years ago now (we would obviously welcome your stance and your suggestions on this). However, going back to the decisions at the time, I am conscious that a lot of this is done through open licensing, and I think it really starts with the platform of the licensing authority deciding how broadly drawn should be the open licensing arrangements. If they are broadly drawn, which I understand they are, then we are not sure in that context whether it would be an effective use of our resource to be regulating the activity. I am struggling to remember the detail at the moment, and we could write to you if you would like more specific information on this, but I think we suggested to lead departments at the time that there was not a regulatory role that we could effectively undertake at the frontier, and that was accepted.

Q415 Sir John Stanley: From where you sit in your key, pivotal position, do you believe or not that the necessary regulatory role is being discharged satisfactorily elsewhere?

Mr Fuchter: We have no information to the contrary. So our assessment is that it is.

Q416 Sir John Stanley: May I put it round the other way: the information that is available to you in terms of the degree of what one must describe and rightly describe as criminality, is the degree of criminality or risk of criminality such that you have concerns as to how adequate the regulatory system is?

Mr Fuchter: That is not the position now but if it became the position and, for example, the lead departments approached us and said: "I think we need to look again at how we as departments are interacting", then certainly HMRC would be prepared to look at that very carefully.

Q417 Chairman: The export control organisation at the DTI grants a licence on the basis of the information about the end-user which they regard as being perfectly reasonable, entirely within the criteria, so they tick the box and this arms export to this end-user goes ahead. Who in the system is checking that the arms are going to that particular end-user? I am not suggesting that every arms shipment should be checked very carefully in those terms, and most arms exports go to UK allies, but there are certain countries and certain end-users who are, to say the least, suspect. Who, in the end, is policing it?

Mr Fuchter: Firstly, as far as the export taking place, our regulatory system will have confirmed that the goods were exported, the licence was decremented and returned, etc - as far as that goes. At the other end of the spectrum, where we have intelligence on suspect end-users, obviously that is where our profiling activity comes in.

Q418 Chairman: That is part of your department?

Mr Fuchter: Yes. We are made aware of end-users of concern and our profiling system, of those 60 profiles of screening export consignments I mentioned earlier, they include profiles on suspect end-users ----

Q419 Chairman: Is that information from intelligence sources?

Mr Fuchter: I think, ultimately, it will have originally derived from intelligence sources, yes.

Q420 Chairman: So they flag up potentially dodgy end-users?

Mr Fuchter: Yes, and there is clear line of sight between intelligence and the front line regulatory check that takes place. However, in terms of are we testing at the time of export - to go back to the more regulatory environment - that the stated end use, if it does not hit one of our profiles, are we testing whether or not the goods, ultimately, are going there, we are not doing that. So I think whoever in the system is doing that bit of it, we are not.

Q421 Chairman: I purchase a television licence to use a television and the powers of the state are used to deploy vehicles up and down my street and throughout the length and breadth of the land to check that there is not somebody there actually doing something illegal in relation to watching TV without a licence. The decision on granting a licence is a key decision in the export control business, but do you appreciate the concern that some may have that there has got to be very, very serious follow-up and policing, regulation - whatever the term is being used?

Mr Fuchter: We certainly do appreciate that concern. I am aware of cases where we have been challenged over our role in terms of end-users, where export consignments have ended up being transhipped from the declared end-user to another state, where they have been used in conflicts, but if everything is in order and lawful - if all the processes in place are legal - then we can take no enforcement action but what we can do, of course, is feed back in the intelligence, although I think in the cases of which I am aware intelligence agencies would be perfectly well aware.

Q422 Sir John Stanley: Just one last request for a written note: in relation to what you have told the Committee about the ongoing investigation approaching a possible prosecution, in relation to a weapon or components of a weapon of mass destruction in relation to something happening extra-territorially, could you give us a note as to under what section or sections of which Acts that investigation is being carried out, please?

Mr Richardson: It is Section 47 of the Anti-Terrorism, Crime and Security Act 2001.

Sir John Stanley: Thank you very much.

Q423 Chairman: Can I ask about warning letters? In his evidence to the Committee Mark Thomas said that Global Armour, a South African company, offered electro shock weapons in their company brochure at the last DSEI exhibition in London, and that Imperial Armour, another South African company, offered to provide stun weapons and set about negotiating a deal from the fair. It is understood that the evidence of those alleged breaches in the law were passed to Revenue and Customs Prosecution Office and that warning letters were issued to the companies. I understand, Mr Green, under the duty of confidentiality, Section 14 and so on and so forth, the constraints that operate on what you can say. Would I be right in saying you cannot comment on those individual cases?

Mr Green: I cannot, I am afraid, on any case currently being considered ----

Q424 Chairman: If the Attorney General were to ask you, of course, you would answer to him. Fine. What are the circumstances under which warning letters would be issued? Would a situation such as this: somebody comes to an arms fair in Docklands and starts advertising instruments of torture in their brochures, which is clearly not what we want - would that be the kind of thing that you might send a warning letter for?

Mr Green: It is really a matter for HMRC.

Mr Fuchter: In essence, yes. If a case is not going to go to prosecution or any other sort of enforcement action, in fairness warning letters can be part of (they are obviously at the lower end) enforcement action. It is a form of closure, if you like; it means that they get to understand that we have finished looking at something, but the benefit for us is that we have made it very clear to them that we think - and we have to express it in careful terms - that their behaviour may have breached relevant legislation, etc, etc (we make that very, very clear) and that by doing so they may have rendered themselves liable to prosecution, but that reviewing the whole circumstances we have decided to take no further action. In the sort of cases to which you refer, where there were brochures, if there were brochures at an exhibition, it would be our policy, in every one of those cases, for there to be at least that form of closure. If a company was showing brochures or video clips or interactive boards, or whatever, at an arms exhibition involving sensitive goods, then the matter would not be left high and dry.

Q425 Chairman: How many such letters were issued within the last 12 months?

Mr Fuchter: We are issuing about 50 a year, for not just the internet-type or brochure-type scenario but, generally, where we wish to conclude an inquiry by means of a warning letter. It is round about one a week.

Q426 Chairman: Has any company allegedly re-offended after they have had a warning letter?

Mr Fuchter: We are not aware of any in the last three years.

Q427 Chairman: When it has happened in the past, has a prosecution taken place?

Mr Fuchter: Our principle would be yes, because that provides you with guilty knowledge. We would look for Section 68(2) because the primary point is they are in a difficult position to say they did not understand the regulations.

Q428 Chairman: You are familiar with the information we have received about arms fairs; we have read about it in the newspapers and it has been on television, and we have had evidence from Mark Thomas and other journalists, always ringing me about dodgy things going on. What does HM Revenue and Customs do to try to detect this kind of activity on our doorstep and to take appropriate action?

Mr Fuchter: First of all, we put a lot of effort into the prior planning, working with DTI colleagues and others and, principally, with the organisers - in the case of DESI, but also with Farnborough the year before (certainly I think those are the two major ones that have taken place since the new controls have been place) - to make sure the organisers have the right material and dispatched it to the exhibitors that made abundantly clear what the obligations were on those exhibitors. That took place before DESI and, obviously, it is very disappointing to then read the allegations which have emerged. The next stage of our activity is to put a lot of control effort in by means of our local control staff, but I have to say our priorities were, firstly, those real weapons themselves - the genuine firearms under the Firearms Act that were on display. That was our top priority in making sure the temporary importation of those was controlled in accordance with the exhibitors' obligations (we put a lot of effort in on that) and, secondly, any exhibitor dealing with missile components. I have to say I think we have learned a lesson from this that the brochures and the other interactive-type materials and screens were not amongst those top two priorities, and I think we have accepted we need to sit down ourselves, also with the DTI, in the event of any future exhibition and see what lessons we have learned and see if we can take a different approach.

Q429 Chairman: Did your department spot any brochures that were advertising arms that should not have been included in those brochures? For example, weapons of torture.

Mr Fuchter: No, is the answer.

Q430 Chairman: So your staff went looking around and could not find any?

Mr Fuchter: We did do some work, as you say, incognito, in terms of just walking round and examining, but it was very selective. I think it was Mr Thomas who picked up those things before we did.

Q431 Chairman: From the TV programme I saw Mr Thomas was certainly not incognito; it was perfectly clear who he was and there must have been TV cameras and things. How was it that he was able to find things that your staff were not able to find?

Mr Fuchter: As I say, I do not have the detailed sort of incident report but I do know that our main priority was the real firearms themselves, and ask the Committee to bear in mind that when there are the sort of weapons that appeared there they are, perhaps, a more clear and immediate threat should any of those be diverted ----

Q432 Chairman: A final question on this, you will pleased to hear: I understand the efforts that you say are made to advise arms dealers who are advertising at arms fairs that they should operate within the law, and this requires certain things. Do they submit brochures for inspection by the organisers of the arms fair?

Mr Fuchter: I do not know the answer to that but that is an excellent point that we could take away. I suspect we did look at some material - I do not know the detail. I know a lot of effort went into marshalling materials that was dispatched, as I say, to make sure they understand their obligations. Was the sort of reverse side of that done? I do not know the answer but I think it is something well worth pursuing.

Q433 Chairman: It does seem a bit obvious, does it not? In terms of labour time it is a lot quicker than having to go walking round all the stalls and spot the dodgy brochures; you simply require people - and they can afford it; these companies are not badly off - to submit to the organisers of the fair the brochures, and then somebody quickly flips through to see if they are advertising anything that should not be advertised in the UK.

Mr Fuchter: It may have been done. I do not know that it was done. If it was not we would pursue it.

Q434 Chairman: Would you be able to write to the Committee and inform us whether that was, in fact, done? Certainly, if it was not done, if you would consider - the Committee has yet to produce a report - as you say, it would not be a bad idea, would it?

Mr Fuchter: Very much so.

Chairman: I think my colleagues might even find that a unanimous view of the Committee. Thank you for that.

Q435 Mike Gapes: In your memorandum to us, paragraphs 63/64, you talk about the training of your staff and you talk about a programme of seminars. How much training do your staff get in terms of detection and the understanding of things like dual use and weapons of mass destruction - specific training on issues of that kind? How much do you give?

Mr Fuchter: They get more training in this area than they do on some of our other prohibition and restriction regimes, I have to say, and it is by virtue of these seminars. The programme runs at around about four a year, and the intention is to cover the UK every two years or so, and we do that by ----

Q436 Mike Gapes: I am sorry. Four seminars? How many people are on each seminar?

Mr Fuchter: I do not have those numbers but we do ask officers, if we hold a seminar in Manchester for example, to travel so that we are covering in terms of spread.

Q437 Mike Gapes: Can you tell us, perhaps in writing, how many people actually attend and take part in the seminars each year, so that we have a sense of the amount of training that is going on in terms of keeping people up-to-date with legislation, technology and other issues?

Mr Fuchter: Yes, we can.

Mike Gapes: Thank you.

Q438 Linda Gilroy: We were discussing the difficulties of prosecution earlier. On policing intangible transfers, can you give the Committee a feel for how you go about doing that and some indication of how you would like us to measure your success in doing so? If it is not by prosecution, what is it?

Mr Fuchter: It is fair to say that to our knowledge, since these controls came in, we have received no allegations about intangible transfers, and no intelligence. It is, obviously, an untested area.

Q439 Linda Gilroy: So is it an area where you rely on the intelligence again?

Mr Fuchter: Yes. We are intelligence-driven, yes.

Q440 Linda Gilroy: It is certainly something that arose in the evidence that we received from industry, where they felt that there was a lightness of touch as far as looking at what might be going on in the form of intangibles in universities and academic institutions.

Mr Fuchter: Yes. I am aware of the issues around universities. Those do not involve HMRC, but I think one of the questions I would need to ask the industry representatives who have spoken to this Committee is that they may be able to help us, and maybe it is perfectly fair that we might prompt the intelligence agencies, through the Restricted Enforcement Unit, to be looking in a different direction.

Q441 Linda Gilroy: Is it possible that is a lacuna where there is no activity really going on proactively at the moment?

Mr Fuchter: I think our assessment at the moment is that it is not a lacuna as such, it is just that there is no activity being reported to us that requires us to take action.

Chairman: Unless there is any final question from any of my colleagues.

Q442 Mike Gapes: Given the way in which globalisation is happening and the sheer volume of containers in international trade - I have just been in China and have seen the new container terminals being built - would it be fair to say that you are never going to be able to catch up with all of this and the reality is that, basically, globalisation is going at such a pace that technologies are going to be transferred and dual use goods are going to be sent around, and that you are just simply chasing your tail?

Mr Fuchter: No, I do not think so. This Committee will know better than I do the extent of the intelligence that is deployed in this area by the intelligence agencies and by the Ministry of Defence. I have no doubt that that intelligence will continue to be deployed and we will be able to respond to it. However, we are intelligence-driven, and by virtue of the very point that you make, the sheer volumetrics, I think there would be an outcry if we were to decide to stop large numbers of containers purely on the grounds that they might contain X or they might contain Y; we need to be intelligence- and risk-driven. Increasingly, another response to this, of course, is to alternate our screening ever better, and we have got some pilots within the organisations not yet extended to exports, but I think in the future, as globalisation grows, we would like to see increasingly automated screening and more sophisticated profiling - by that I mean a greater number of indicators against which the machine can screen cargo so the whole thing moves a lot more quickly. That is for the future, and the globalisation "just in time" environment you are describing.

Q443 Chairman: Can I thank you very much indeed. I think it has been a very helpful session and, if I might say, I think you have answered our questions very fully and we do appreciate the time and effort you have put in, and for the written submission. We appreciate very much the difficult job you have to do, and I am sure you appreciate the job that we have to do, and it may be, since this is the first time we have had the opportunity of inviting you to give evidence to the Committee, the Committee may wish to give you an annual invitation, given your important role in the strategic export control regime. Again, on behalf of my colleagues and myself, thank you very much indeed.

Mr Fuchter: Thank you.