Quadripartite Select Committee Written Evidence

Supplementary memorandum from the Export Group for Aerospace and Defence (EGAD)

  Further to the oral evidence that we gave to the Committee on 19 April 2006. Towards the end of the session, we were asked by the Chairman "whether it might be possible for the EGAD to let us have a paper, before we see HM Revenue and Customs, in which they just list the particular improvements that they would like to see, in the present system, fall firmly within the parameters of not doing anything that is going to damage the tightness, such as it is, of the existing export control system."

  As promised, I have taken soundings from Members of EGAD in general, and the Members of the special HMRC Sub-Committee, in particular. The comments which we have are as follows.



  There is a widely-held perception within Industry on the low level of priority apparently given to export control matters by HM Revenue & Customs (HMRC), whose main focus (as reflected in the prioritization given in its new name) appears to be on revenue collection. Resources are being further cut, and this further limits the effort which can effectively be put into export control compliance enforcement. Whilst enforcement is taking place, as best it can, within the resource limitations, HMRC will say that their controls are based fundamentally upon risk analysis and intelligence, and targeted at attempts to avoid export controls, and not at those companies who have good compliance records. We believe that the Government should be actively encouraged to provide additional resources for HMRC's vital enforcement work—at present HMRC is being pulled in several different directions by its revenue raising, enforcement and trade facilitation roles, and enforcement is suffering, as a result.

  We believe that Industry can provide constructive comment and suggestions to HMRC on how, within the reality of its current deficiencies and considerable resource limitations, it can be more effective in its enforcement activities.

  We believe that the current risk-based assessment system is not thorough enough. It is widely agreed that the British Defence Industry (generally speaking) has an excellent and demonstrably proven track record of having a very high level of commitment to compliance—however, we believe that this level of awareness and commitment is not necessarily replicated in all other sectors, who are also affected by export control issues.

  The truth that no-one has ever been bold enough to stand up and say is that there are no totally 100% effective systems, procedures or mechanisms which can prevent proliferation from taking place, and it is impossible to identify any mechanisms or procedures which would effectively catch 100% of all attempted export control violations and problems which might arise. No such systems exist, or ever could do so. This is a fundamental reality which must be recognized and cannot be ignored. The recent extension of our control systems also to encompass the intangible transfer of technology and trade activities make any potential entirely theoretical 100% effective system even more remote. It must be recognised that some things in the new regulations cannot be fully implemented and enforced at the practical level (eg the intangible transfer of technology controls). The current system has been described by one person within the Industry as being "the collusion of the willing"—if you are willing to be subject to and bound by export controls, then you are, and if you are not . . . then you are not. This situation is unacceptable.

  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 that what they are doing is caught by export controls, and whose shipments (which have always been accompanied by complete and accurate normal shipping documentation) have never been stopped by HMRC officers querying why there is no export licence. One of the most extreme cases was one we came across back in early-2004 involving a company heavily involved in the export of Chemical, Biological, Radialogical & Nuclear (CBRN) protective clothing, which had been in business for over 20 years, and never applied for a single export licence (entirely through ignorance), and also never had any shipments stopped! How many more, similar cases are there out there?

  The UK needs to ensure that its export control system is as universally respected as possible, or major problems will develop. HMRC needs to pick up on non-compliant exports more than it currently is. Meanwhile, it is clear from the June 2005 Joint Customs Consultative Committee (JCCC) paper that HMRC regards much of Industry as being hopeless in its paperwork! The main highlighted findings of the reviews (which looked at the activities of some 1,600 traders of all types, involving over 18,000 export declarations) which this paper summarised were:

    "The findings of these two reviews indicate significant non-compliance with requirements for the completion of export declarations. Some of the more serious shortcomings are:

—  19% of declared values were incorrect

—  20% of commodity codes were incorrect

—  14% of declarations did not agree with the actual weight/packages actually exported".

  One of the fundamentals is for exporters (of all types) to get their shipping documentation right, and the apparent lack of thoroughness which these reviews identified is a potential concern—what else are these companies getting wrong? There are those within Industry who believe that mechanisms must be made to pick up on these errors prior to shipment and not permit the goods to leave the UK until the documentation is corrected and more accurate. Whilst, undoubtedly, this would result in many complaints by the traders involved about Government "jobs worths" (quite possibly to their MPs) affecting their business and delaying their shipments, such an initiative would actively encourage Industry in general to start getting its paperwork correct—a fundamental facet of exporting correctly.

  In our view a reasonable goal is to increase a "culture of compliance" for most and tools for the enforcers to try and cut back on the recalcitrant others.

  Whilst to the uninitiated it might appear to be perverse that some of us are arguing that it is in Industry's best interests to encourage HMRC to be more rigorous in its enforcement of export control regulations, there is a logic behind this, quite apart from the recognition of the fundamental vital strategic importance of the basic raison d'etre of export controls. The current system puts the non-compliant at a commercial advantage over the compliant, who bear the costs of compliance and put the resources and efforts into being compliant. The current system, and the seemingly ad hoc and uncoordinated way in which HMRC officers around the country seem to implement the regulations are: undermining the role and authority of export control compliance managers within companies with their colleagues in other disciplines/departments; undermining the procedures that compliance staff are trying to put into place; wrecking the credibility of compliance staff and the regulations with their other colleagues elsewhere; and giving other staff the innate perception that export controls are just a farce. This is not in anyone's interests.

  There are three types of non-compliance:

    —  Deliberate, premeditated and fraudulent non-compliance;

    —  Frivolous, ad hoc non-compliance;

    —  Ignorant non-compliance.

  We believe that some effective mechanisms need to be found to enable HMRC to pick up on these non-compliance cases more regularly and effectively, in order to get some in Industry to take compliance more seriously. There is clearly an issue of where and how it is best and most effective to target and use the limited resources available within HMRC to achieve this. This must involve not just the high profile, and most serious cases, but also the more minor ones.

HMRC Staff Knowledge and Locations

  Whilst export controls are relatively easy for specialist, dedicated teams, this is frequently not the case for front line staff—this is so for HMRC, just as it is for other Government Departments and Industry. Ease of identification and recognition of controlled goods and technology is a major problem for HMRC's front line staff, who are the last line of defence against proliferation. It is widely agreed within Industry that the awareness of HMRC front-line staff with regard to the rules on hand-carry items is generally very poor, as are the mechanisms to check the related documentation. When hand carrying equipment and laptops go out through airports many companies find that there is frequently not a customs officer available to check the goods, either for carnet or licence purposes, and this causes all sorts of problems for them.

  We believe that whilst some effort has been made in the training of HMRC staff, especially by the Export Control Organisation (ECO) at the Department of Trade & Industry (DTI), which is to be welcomed, more effort needs to be put into this. Whilst there has been much discussion within EGAD on whether Industry could constructively offer to assist in the training of HMRC staff, it is recognised that there would likely to be a lot of opposition to this from within some quarters of HMRC.

  There is frequently discussion within Industry on different and inconsistent interpretations on IPR authorisations between Entry Processing Unit (EPU) officers, and the lack of quality control within HMRC. There are due to be only six EPUs left across the UK, due to rationalization, and there are many who query how HMRC intends to look after Industry's interests with only six EPUs spread across the country. As EPUs are being reduced, so is trade facilitation!

  This also raises the issue of local customs offices, and the recent reduction in their numbers. When a UK company ships to a European destination against a SIEL, the export licence should be endorsed by its local customs office. Many companies report that they have found in the past that their local customs offices (which sometimes can only be regarded as being "local" in inter-galactic terms!) do not know anything about licences, so they have been unable to get them to endorse the licences, as necessary.

  They then have to find other means (such as getting their freight forwarders to get these licences endorsed at the port/airport) but quite often the port/airport customs office have either complained or sent the licence forward with the goods in error. It would be better for companies if all licences, irrelevant of the destination, were handled in the same way—consistency and harmonization.


  As we have already told the Committee before, we believe strongly that more public information is needed to be made available by HMG to demonstrate that HMRC is undertaking its enforcement role seriously and proactively. HMRC frequently states that whilst prosecutions, of which there had only been three reported over the previous three years, were the visible side of actions taken against companies, there is a very considerable amount of other, behind the scenes, activity also taking place on a regular basis, including a lot of investigations, and that these can, and do, result in companies being shut down altogether. Yet, at present there is very little information published on identified violations. We believe that more publicity should be given of cases, not just of prosecutions, but also of other actions and disruptive activity which is undertaken against companies. Perhaps, if it is felt there may be confidentiality concerns, such publicity could avoid stating the names of the firms involved. We believe that, as is the case in the USA, giving much more publicity to actions being taken against companies could have a significant, beneficial and galvanizing affect on promoting proper consideration and commitment to routine compliance issues and mechanisms within Industry.

  Whilst it has been stated that HMRC is looking to undertake more prosecutions in the future (something which is seemingly borne out by the publicity given to the three prosecutions which have taken place since January 2005), and that it is now starting to look in more depth at paperwork, it is clear that they are only pursuing cases where these will, with some certainty, stand up in court, and there is a marked reluctance otherwise. At a seminar in London in June 2005 an HMRC official explained why it was difficult, or even (for instance in the case of the intangible transfer of technology controls) seemingly impossible, to bring successful prosecutions which will be upheld by the courts.

  At least two of the cases which have been publicized over the last two years have been perceived by many within Industry to indicate a new, and more harsh, interpretation of administrative errors by HMRC, and that HMRC is only interested in "soft targets". Until HMRC manages to succeed in going after more substantial and challenging cases, this perception will remain: that HMRC, under political pressure from the Government to be seen to be doing something about export controls and pursuing prosecutions, is opting for the simple expedient of going after the "easy meat" of companies who have committed some form of administrative error which is unarguable, rather than pursuing those who are more illicit in their activities. The publication by HMRC of more information on what enforcement it has been doing would help to rectify and counter-balance this perception.


  NES is an electronic-based system that enables exporters/agents to send their export declarations to Customs and Excise electronically. NES was implemented at all UK maritime ports on 27 October 2002, and at all UK airports by 31 July 2003. Details on NES are available at:



  There are many within Industry who believe that the NES system is flawed in several ways, and could be improved upon. Whilst there are good, efficient and professional shipping agents who have to use NES, and do so effectively, there are also, sadly, all too frequently, far less competent ones, whose staff are seemingly unable to use it properly. There is a perceived need for much greater awareness amongst freight forwarders in the use of NES.

  There is widespread agreement that the best thing in awareness and commitment to compliance terms would be for HMRC to start to enforce the regulations more forcefully and consistently than is currently the case, and NES could, and should, be able to be used by HMRC as a more effective tool to enable them to do this.

  We believe that thought should be given to possible software solutions and tools which would assist HMRC staff, and benefit companies. Industry would be very happy to make constructive suggestions to the HMRC on "warning flags" for the NES system to assist HMRC staff in making intelligent use of its resources and focus these on shipments of real potential concern. HMRC could make better use of the information at its disposal (eg companies' VAT numbers) to identify shipments of potential interest to them. We would suggest that a computer-based trigger system, linked to NES, which was built around the commodity codes and country codes listed on the shipping paperwork, and the companies' VAT numbers, could be a good basis for such a system to be created. At present there appears to be a marked reluctance to put active profiles on the NES system. Efforts are being made to refine the profiling, using CN codes, and NES has a keyword search facility. We also believe that more concentration needs to be given to quantities, rather than values, given on NES.

  We believe that the amount of information required in Box 44 on the NES should be increased, if only to require the exporter to quote the Military List (ML) or Dual-Use rating associated with the goods involved. We believe that any entry into Box 44 on the NES that indicates that a licence is needed (and it would also be useful to know what percentage of declarations contain a reference in Box 44 to DTI licensing as there licences other than those issued by DTI to consider) should result in an increased likelihood of Route 1 sampling, for closer scrutiny, and Route 1 declarations should be checked in the following way:

    —  Exporter should be checked for registration for the Open General Export Licence (OGEL) quoted on the NES entry (whilst also managing those entries referring to post-shipment registration OGELs or no registration needed, by exception);

    —  Destination country should be checked against the quoted OGEL;

    —  Use of the DTI's new OGEL Checker to ensure that the use of the OGEL is valid.

  Using such a system involving greater use of Route 1s will do two things:

  Firstly, it will, admittedly, slow down the automatic export, possibly adding a day to the whole process—this will find some (possibly considerable) opposition from some quarters of Industry, but should probably be acceptable in most cases. However, what exporters do not want is HMRC holding up urgent shipments when all the correct export licence process has been complied with before shipment.

  Secondly, when there are problems, HMRC should perform some sort of "seizure" pending resolution—they already have this kind of a process. These seizures should be considered serious and would need written explanation from a Company Director, etc., and they would be reportable back to ECO.

  As it is generally the Shipping Agent who enters the details into Box 44, rather than the exporting company, maybe an additional check could also be against what is listed on the exporter's documents against what is listed in Box 44—if the goods have not been declared correctly in Box 44, currently there would be no Route 1 checks made anyway.

  We believe that checking is needed and that this should be done during the electronic processing of the declaration, with any errors to be sent for further checking. This could be achieved by introducing an electronic interface between the DTI and HMRC licensing processes. There must be reconciliation between the OGEL quoted and registration with the DTI, but only to confirm that the exporter is registered. Conformance to the conditions of the licence would be checked via the DTI's audits. If the exporter is not registered with DTI, then the shipments should be seized.

  The adoption of such a policy would be fundamental to any enhanced system as it means that exporters will have to start to pay the same attention to open licensing as they do for Standard Individual Export Licences (SIELs).

  There is also an inherent incompatibility between NES and Crown Exemption, which the NES system is incapable of recognizing, and it would appear from discussions with HMRC that perhaps the most obvious solution to this, involving a change to NES to allow it to accept a Crown Exemption entry, would be prohibitively expensive for HMRC. It has been suggested that a CPC code could be created as a possible solution, and Industry has agreed that this would be a very practical way to address the issue, but still nothing along these lines has been done about this issue, after over a year since this problems was first brought to HMRC's attention.

  We believe that the creation of a joint Industry/HMRC working group, with HMRC's NES staff and Industry experts, on the NES system, and how this could be enhanced, through flagging up shipments which might be worth examining carefully, should be seriously considered.

  We would also like to propose that companies should be able to have access to their NES records, for their record-keeping needs. At present many shipping companies/freight forwarders do not send details of the records that they have passed on to HMRC via NES to their exporter customers. Whilst best practice should dictate that companies demand this information, if only to ensure that their freight forwarders are submitting accurate paperwork, this is frequently enormously difficult to obtain. It is illogical and indefensible for freight forwarders to refuse to allow their customers to have this essential data, yet many seem to do so. It would be very helpful for companies, and avoid nugatory duplication of record keeping effort, if companies could have access to their NES records and make use of them for their compliance auditing record keeping. At present Industry puts data in, but cannot then access it—one database entry into NES, which companies could then access afterwards to meet all of their Customs record-keeping needs, would be invaluable, and save on nugatory additional duplicated administrative effort. This would also ensure consistency of records kept. We recognize that NES was originally designed as an HMRC tool, and was not intended for companies to be able to use it as well. Therefore, there could well be (for HMRC, unacceptable) cost implications if amendments were needed to allow firms to have access to these records. However, we believe that this possibility should, at least, be looked at carefully.

  We would also like to propose that companies should be able, in return for a small fee, to submit post-entry export declaration amendments, to rectify any inadvertent errors which may have occurred. Currently there is no post-export amendment procedure, although there is for post-import. We believe that it would be very useful for companies if this facility could be made available.


  There has been much discussion within Industry over the last few years on the proposed introduction of a system of electronic licensing. It is recognized that systems of electronic licensing operating in other countries have demonstrated that such a system is not always a panacea to solve problems, and that these have not worked everywhere smoothly (eg the DSP5 system in the USA). Nevertheless, Industry is extremely keen to see the introduction of a system of electronic licensing here in the UK. There is a perceived lack of electronic interface between DTI and HMRC on the export licensing front which such a system would help to remedy. In this regard, HMRC is well ahead of the game (and to be commended as such) as NES is all set up to enable it to cope with electronic licensing, and HMRC is ready to go when such a system is eventually introduced by the ECO.

  One of the reasons for companies' keenness to see the introduction of a system for electronic licensing concerns the issue of lost licences, which is an increasing enormously frustrating one for firms. Industry has a major issue with lost licences—whenever an export licence gets lost (almost invariably somewhere between the freight forwarder and HMRC . . . and also almost inevitably at Heathrow!) the company, if it still has some outstanding goods covered by the licence which it still needs to ship, has to go through the whole process of applying for a brand new export licence all over again to cover this residue amount which is still yet to be shipped . . . and, of course, this will show up in the annual reports as a separate SIEL approval. So one deal = twice the number and value of licences approved, thus distorting the figures and presenting an unrealistic impression in the annual report.

  To avoid the inevitable delays with having to submit a whole new licence application (to be processed from scratch), with the inherent delays that that entails, we understand that it is not unknown for some firms to play safe and apply right up front for duplicate licences, just so that they have one in their back pocket in case the first one goes missing . . . and we have heard of one case where one firm's standard policy is now to apply for up to four licences to cover each export deal—thus quadrupling the entries in the annual report for numbers of licences and values over the actual figures. At a DTI seminar in 2005 one of the companies present reported that in recent months they had had (as ever at Heathrow!) 15 (fifteen!) export licences which had gone walk-about—some of them then eventually re-appearing with the goods concerned out in Mauritius, or wherever. Apparently some freight forwarders at Heathrow seem to regard the words "export licence" as an instruction, rather than a title!!!

  This is a very common experience, (especially at Heathrow). Customs are not necessarily to blame—invariably they will blame the freight forwarder, and vice-versa, and the exporter is caught between the two and left having to apply for a replacement licence. Blame might well be shared between the two, but if the licence actually turns up with the goods in country, then there is a very strong likelihood that the freight forwarder is the one at fault. The procedures used by Customs in processing licences (at Heathrow), should make the shipping of the licence with the goods almost impossible and the fact that a licence will not have been processed or stamped means that an illegal shipment has taken place.

  A best practice solution for the current situation is for exporters to ensure that they always enclose a self-addressed, stamped envelope attached to the back of the export licence, when this is being presented to Customs. This should help to ensure that the licence is sent back to the exporter, provided the freight forwarder presents the licence to Customs in the first place, of course! Also, we always advise companies to make sure that the freight forwarder used is fully briefed on what is required of them, and not to take it for granted that they know what they are doing.

  The planned introduction of electronic export licences would help enormously in this problem being dealt with and, potentially, eliminated. We understand that this is really a matter for the ECO, with HMRC ready, willing and able to implement such a system on its existing systems, and would like to see the ECO encouraged to expedite developments in this regard.


  It would be enormously valuable if HMRC front line staff had now immediate and ready access to information, to assist them in spotting potential infringements of export control regulations that is, we believe, currently the case. At present the DTI has a 24 hour, seven day a week emergency hotline that HMRC officers can contact with queries about shipments which have been presented to them, but we believe that more than this could be done. Amongst the information which should be made automatically readily available to HMRC front line staff are:

    —  access to a listing of OGEL registrants, to ensure that those shipping under an OGEl are actually registered to be able to do so—this could be done via a linkage between the ECO's list of OGEL registered companies and NES;

    —  access to a listing of OIELS by company, country and expiry date.

  These measures will really affect the majority of law abiding companies but should start to sharpen them up.

  To assist HMRC in profiling the ignorant or criminal, we would propose that frontline HMRC staff could be provided with something as simple as a listing of most defence and aerospace companies worldwide, and those know to be involved in the dual-use sector, to support HMRC's own intelligence tools.

  In the event of HMRC catching illicit exports there needs to be some sort of real penalty (as in the USA where the fines are regularly enforced and huge). There is some perception that we are not going to get that here in the UK (for the reasons set out above), so HMRC should consider what other measures could be taken instead which are short of prosecutions, but are also disruptive in their effectiveness. What really motivates companies is the recognition that their goods will not make it to customer in time . . . so delaying this will have some beneficial impact.


  We believe that considerable effort needs to be made on promoting awareness within Industry aimed at achieving a greater understanding of how HMRC operates and how companies can help the latter to focus their resources more effectively, and help themselves at the same time. We believe that outreach awareness activities to exporting companies, freight forwarders, shipping companies, the non-containerised shipping industry, and couriers (who pose a particular proliferation threat), etc should be undertaken.

  Any feedback which could be gleaned from HMRC staff on their perceptions of best practice by companies, which was of assistance to them, and how to use HMRC's systems correctly, would be immensely helpful, and could be disseminated Industry-wide both on HMRC's own website, as well as those of other bodies (eg via EGAD's own website). Seminars on Customs Procedures, with a speaker from a knowledgeable shipping company giving a freight forwarder's view, as well as from HMRC, itself, would also be invaluable. These could address the mechanical processes of HMRC, and how companies can help HMRC to help them, including on documentation requirements.

  Inclusion in the course syllabus for any qualifications for the freight forwarding community of such information from HMRC would also be helpful.

  There needs to be greater liaison between most exporters and their freight forwarders, and examples of best practice in their dealings with each other, and with HMRC, would be invaluable, and assist enhancing the quality of Industry's inputs to NES, etc.

  There are many who believe that the best thing in awareness and commitment to compliance terms would be for HMRC to start to enforce the regulations more forcefully and consistently than was currently the case, as more robust enforcement of the regulations would also have its own awareness raising benefits. For instance, with regard to the controls on technology, and its effect on those leaving the country carrying laptops, if HMRC undertook a short (six to eight week) crack down focusing on this and stopping everyone leaving the country carrying a laptop to question them about the technology which was on it, there could have great benefits in raising awareness. For instance, in March 2006 we received the following "interesting" message from one of the EGAD Executive Committee Members:

    "I am currently ensconced in Paris doing a course. Two of the other attendees report that on the Eurostar between London and Brussels, upon which they are regular passengers, Customs are making regular checks for licensed technology on laptops. A fellow British industrialist was horrified that all of his export control compliance officer's warnings were coming true. The Belgian was absolutely mortified! The two people from the MoD(UK) who were involved in the conversation were ashen!! "

  It would appear that this was just a blip, but a more concerted and long-duration effort on HMRC's part along these lines could have a significant impact on those whose attitude to export controls is currently too dismissive.

  Also, we fear that the experience of many within Industry is that the HMRC national "helpline" is operating in breach of the Trades Description Act! In addition, a lot of the information available online from the HMRC's website is not very good or clear. Trying to find out the contact details of your "local" customs office, or where in an airport terminal the HMRC offices are, is often akin to a soap opera, and ways must be found to make this information simpler and easier to find, in a more user friendly way. We strongly believe that this should be achievable through HMRC's website, perhaps (with regard to enquiries on where a company's local customs office is) through the use of a postcode linked search facility, where the company inputs its postcode and the system immediately locates the details of the local office for them to use.

  For many firms the closure of "local" HMRC offices means that they have to send their paperwork to their new "local" offices, which can frequently be a long way away, and they can often insist on allowing for a 3-day turnaround. Although they are often very co-operative for urgent shipments, this means an extra 3 day delay for intra EU shipments. Some more effective solutions to these problems are needed to be identified, perhaps involving measures such as empowering individuals at local Business Link offices to endorse licences or a same day fax back system. Whilst some exporters are aware of some mechanisms which can be used in these circumstances, knowledge of these is not Industry-wide, and it would be very helpful if HMRC could produce guidance on these for everyone's benefit.

  As we have stated previously, references to "free movement of goods" which results from the submission of certain enquiries (for instance when using NES), can be very confusing and result in the enquirer, who is trying to do the right thing, being led to believe that this refers to licences, when it is, in fact, merely a tax term. Clear clarification on this is essential


  We believe that considerable more awareness raising effort also needs to be given to the import sector, as well as the export one. Even highly knowledgeable companies with dedicated export control compliance staff can be left completely unaware of import regulations, how to deal with them and what they need to do. Again, more information on this needs to be made available both from HMRC and the DTI.

  Some companies involved in the relevant sector have voiced their concerns with the import procedures when clearing "Explosive/Hazard Goods" consignments. For health and safety reasons, Dock Authorities insist that goods unloaded from vessels must be cleared and removed from the docks as soon as the vessel is discharged. If they are not, then the vessel may be turned away unloaded. However, a lack of Custom Officers to clear the cargo can then become a very major problem. Absence of Customs Officers may be because of the unsociable hour of the ship's arrival, or the fact that due to cut backs one Customs Officer has now to cover a very large number of arrival points across his allocated part of his country, and may not be on or in the vicinity of the arrival site at that time in question.

  We believe that it would help the Industry greatly if, for imports of explosives (hazard goods and/or chemicals etc), a pre-clearance procedure could be operated in the same way as is allowed with exports. We feel sure this would be easily achievable and beneficial.


  On HMRC's activities, it must be pointed out that the planned future adoption of the Authorised Economic Operator system by Customs bodies across the EU will be a major development which must be borne in mind. The proposed adoption of such a registration system, especially if linked to NES, would potentially make things easier for HMRC in being able to identify registered, and, thus, law-abiding and compliant firms, and filter them out from others whose own exports might need more close scrutiny.

  The adoption of a system to register pre-qualified or certified companies, who have undertaken adequate in-house training, have qualified export control compliance staff and have the necessary mechanisms and procedures, which are subject to regular robust auditing by DTI, is a welcome development. This would put into place a system whereby such companies can come to be viewed by HMRC and Government to be reliable exporters, and, thus to be granted certain special and commercially desirable privileges (such as expedited licence processing or clearance by HMRC) so that effort and resources can be concentrated on more problematic areas. In this regard we welcome Authorised Economic Operator (AEO) rating system initiative currently being planned by EU Member States in Brussels (for introduction on 1 January 2008), to which such a system could be tied. This could be further linked to a system for corporate self-certification, which reduces the risk posed by those certified firms and enables the limited resources available to be focused more effectively and efficiently on those who are not certificated and who do not meet the safety and security criteria for approval as AEOs.

  Hopefully the adoption of such a system would allow the introduction of a faster track "Route 6" mechanism for companies with proven compliance tracks records, so that scarce HMRC resources can be focused elsewhere.


  We believe that the "seizure" process needs to be beefed up by HMRC, and we would be more than happy to discuss the intelligence work HMRC do in one way or another way to see if it is felt that we can contribute some constructive comments on how this can be further enhanced. We are more than happy to offer any help we can give to HMRC to enhance their effectiveness and efficiency, as we believe that this is in everybody's interest.

  We hope that the above additional comments may be of interest to the Committee.

May 2006

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