Examination of Witnesses (Question 360-379)
MR KEVIN
FRANKLIN, MR
MARK FUCHTER,
MR DAVID
GREEN QC, MR
DAVID RICHARDSON
AND MS
HELEN WOLKIND
25 MAY 2006
Q360 Richard Burden: What is going
out of the country?
Mr Fuchter: Around about 3,500.
Q361 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.
Q362 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.
Q363 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.
Q364 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.
Q365 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 for two reasons, because we target those
areas that we feel are suspicious and allow legitimate 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 enforcement framework which enable us
to cover as many of the bases as we are able to.
Q366 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% 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% at all. If this 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%
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.
Q367 Mr Borrow: It is a bit like
some other issues of public policy where it is difficult to know
the answer because it is an unlawful activity, is it not?
Mr Fuchter: Yes.
Q368 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.
Q369 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 it
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—
Q370 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.
Q371 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.
Q372 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 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.
Q373 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.
Q374 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.
Q375 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.
Q376 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.
Q377 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.
Q378 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.
Q379 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.
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