Quadripartite Select Committee Written Evidence

Joint memorandum from HM Revenue and Customs and the Revenue and Customs Prosecution Office


  1.  HM Revenue & Customs (HMRC) and the Revenue and Customs Prosecutions Office (RCPO) welcome the opportunity to give evidence to the Quadripartite Committee. This joint Memorandum sets out HMRC's and RCPO's various roles in relation to strategic exports and sanctions and aims to address some of the issues raised in previous evidence to the Committee.

HM Revenue and Customs

  2.  HMRC came into being on 18 April 2005 with the merger of the Inland Revenue and HM Customs & Excise. The aim of HMRC is to administer the tax and customs control systems fairly and efficiently and make it as easy as possible for individuals and businesses to understand and comply with their obligations. HMRC's PSA commitment is to strengthen frontier protection against threats to the security, social and economic integrity and environment of the United Kingdom in a way that balances the need to maintain the UK as a competitive location in which to do business.

Revenue and Customs Prosecutions Office

  3.  RCPO similarly came into being on 18 April 2005. It was formed out of the former Customs & Excise Prosecutions Office and the former Inland Revenue Crime Group. It is led by its first Director, David Green QC, and is an independent body, accountable to the Attorney General. It is responsible for prosecuting cases investigated by HMRC and, since 1 April 2006, it has a dual responsibility with the Crown Prosecution Service for prosecuting offences reported by the Serious Organised Crime Agency (SOCA).


  4.  HMRC contributes to a multi-agency approach to prevent and deter the illegal trade in strategic goods. Policy is determined by the FCO in consultation with the MOD and DFID. DTI sets out the regulatory framework and issues or refuses licences in accordance with agreed criteria. Other agencies provide intelligence to inform licence decisions, to inform HMRC's targeting and to alert it to consignments of concern. HMRC's contribution is to:

    —  Ensure that declared export trade is accompanied by the correct documentation, for example to check that a licence is present and correct if required.

    —  Detect illegal goods at export and to take enforcement action, including:

      —  seizure and subsequent confiscation or restoration of the goods; and

      —  investigation with a view to prosecution in appropriate cases; and

    —  Disrupt activity, eg by visiting potential exporters and by preventing non-listed goods going to end-users of concern under the WMD end-use catch-all.

  5.  HMRC supports international initiatives such as the Proliferation Security Initiative. It has chaired enforcement experts meetings of the Nuclear Suppliers Group for the last five years and is represented at similar meetings of the Australia Group, the Missile Technology Control Regime and the Wassenaar Arrangement. As a member of the international export control community it participates in a number of international outreach visits each year and sends experts to international export control seminars.

  6.  HMRC also supports Department of Trade and Industry (DTI) outreach to industry. It gave presentations at all 18 outreach events organised by the Defence Manufacturers Association prior to the Export Control Act 2002 coming into effect, and it contributes to DTI and FCO staff training programmes as required.

  7.  HMRC attends cross-Whitehall meetings of the Counter Proliferation Implementation Committee and the Restricted Enforcement Unit. Where sensitive cases require urgent and coordinated cross-departmental action HMRC and RCPO attend meetings to provide the law enforcement and criminal justice perspectives.


  8.  The legal framework in which HMRC operates is extremely complex and involves a matrix of customs and licensing provisions in both UK and EU instruments.

Creation of the prohibition or restriction on export

  9.  Orders created under the Export Control Act 2002, and Council Regulation (EC) No 1334/2000 of 22 June 2000 prohibit or restrict the export of controlled goods without a licence. Breaches of prohibitions and restrictions on the export of goods are enforceable under the Customs and Excise Management Act 1979 (CEMA), which also sets out the principal offences and penalties in the event of an illegal export.

Customs powers and regulatory requirements

  10.  General customs regulatory requirements in relation to the export of goods from the customs territory of the Community, including those that exit via another member state, are common throughout the EU. They are set out in Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code, and its implementing Regulation: Commission Regulation (EEC) No 2454/93 of 2 July 1993. Goods for export are subject to a customs declaration and must be presented to the customs authorities. HMRC sets out in detail how licensable goods must be declared in the Customs and Excise Tariff.

  11.  Article 13.1 of the Community Customs Code allows customs authorities to carry out all the controls they deem necessary to ensure that customs rules and other legislation governing the entry, exit, transit, transfer and end-use of goods moved between the customs territory of the Community and third countries are correctly applied. Article 13.2 provides that customs controls, other than spot-checks, shall be based on risk analysis using automated data processing techniques. Regulatory checks include the examination of goods and inspection of documents.

  12.  As well as regulatory checks on the goods, HMRC can also carry out anti-smuggling checks and, in addition to the powers set out above, has the power under section 27 of CEMA to board and search means of transport.

Exports to other EU member states

  13.  The European Community is a customs union, which means that goods whose destination is within the customs territory of the Community can move freely across borders without the need for a customs declaration. However, export licences are required for the intra-EU transfer of military goods and those dual-use goods listed in Annex IV to Council Regulation (EC) No 1334/2000 of 22 June 2000, and arrangements are in place for such licences to be presented to HMRC. While not subject to routine regulatory checks goods are subject to intelligence-led anti-smuggling checks. CEMA offence provisions apply to these goods in the same way that they apply to goods being exported to third countries.

Seizure, forfeiture and restoration of goods

  14.  Goods that are liable to forfeiture, such as listed military and dual-use goods being exported without a licence, may be detained and seized under section 139 of CEMA. Section 152 provides that HMRC may restore, subject to any conditions it sees fit, goods that have been seized or forfeited. Schedule 3 of CEMA provides that where a person claims against forfeiture, HMRC must take court action for condemnation of goods. Persons who accept that the goods are liable to forfeiture may nevertheless appeal to the VAT and Duties Tribunal if HMRC either refuses to restore goods, or offers to restore goods on what they consider to be unreasonable terms.

Controls on activities such as trafficking and brokering, intangible transfers and the provision of technical assistance

  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. However, HMRC is the investigating authority for breaches of such controls under the Export Control Act 2002, the Landmines Act 1998, Acts relating to Nuclear, Biological and Chemical Weapons, and Orders relating to UN and other Sanctions and embargoes. These have been made `assigned matters' as defined in CEMA which means that HMRC's full range of arrest and search powers under CEMA and under the Police and Criminal Evidence Act come into effect.

Offences and Penalties

  16.  Offences for breaches of controls fall into two categories. These are:

    —  Strict liability offences, which apply when a breach is committed regardless of the knowledge or intent of the exporter; and

    —  Offences relating to the deliberate evasion of the controls.

  17.  Section 68(2) of CEMA provides that any person knowingly concerned in the exportation of goods, with intent to evade any prohibition or restriction in force shall be guilty of an offence and may be arrested.

  18.  Section 68(3) of CEMA provides that such persons are liable as follows:

    —  On summary conviction, to a penalty of £5,000 or of three times the value of the goods, whichever is the greater, or to imprisonment for a term not exceeding 6 months, or to both; or

    —  On conviction on indictment, to a fine of any amount, to imprisonment for a maximum term of 10 years, or to both.

  19.  Section 68(1) of CEMA provides a lesser, strict liability offence: "if any goods are exported or shipped as stores" or "brought to any place in the United Kingdom for the purpose of being exported or shipped as stores" and the exportation is or would be contrary to any prohibition or restriction in force, then the goods are liable to forfeiture and the exporter and any agent are guilty of an offence and liable on summary conviction to a maximum penalty of three times the value of the goods or £1,000, whichever is greater.

  20.  The provisions in section 68 of CEMA apply in cases involving:

    —  Goods that are listed in the relevant legislation as being prohibited to be exported without a licence; and

    —  Other goods that are for a WMD end-use where it can be proved beyond reasonable doubt that the exporter had grounds to suspect a WMD end-use.

  They do not apply in end-use cases where a person other than the exporter knows of, or has grounds to suspect, a WMD end-use. Such a person could be:

    —  A middle-man;

    —  The intelligence agencies; and/or

    —  A customs officer.

  21.  Where HMRC officers identify unlisted goods that they suspect might be destined for WMD or certain military end-uses, they detain them under article 20 of the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 whilst DTI decides whether or not to invoke the end-use catch-all control and notifies the exporter that the goods therefore need a licence. Once the exporter has been "informed" the exporter is usually free to withdraw the goods from export or to apply for a licence. The only cases where HMRC could allege an offence would be in those cases, as outlined above, where there is evidence that the exporter already had grounds to suspect that the goods were for a WMD use, or, having been informed by the DTI that the goods cannot be exported without a licence, the exporter subsequently attempts to do so.

  22.  The Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 sets higher penalties for strict liability offences involving knowledge of a WMD end-use. This might apply in a case where knowledge of export licensing rules cannot be proved. On summary conviction, such offences attract a maximum fine of £5,000 or imprisonment for up to six months. On conviction on indictment they attract a fine of any amount or imprisonment for up to two years.

  23.  Penalties for breaches of the controls on trafficking and brokering, intangible transfers and on the provision of technical assistance are set out in the lead Departments' legislation. Those in Orders under the Export Control Act closely mirror those in CEMA except that, since no export goods are involved, the strict liability offences do not carry a fine based on value. As with the export of goods, where knowledge of WMD end-use can be proved the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 sets the higher penalties outlined in the previous paragraph.

  24.  Offences set out in other trafficking and brokering legislation differ as follows:

    —  Anti personnel landmines offences carry a maximum penalty of 14 years imprisonment;

    —  Nuclear, chemical and biological weapons offences carry a maximum penalty of life imprisonment; and

    —  Offences in UN sanctions Orders carry a maximum penalty of seven years imprisonment.

  25.  Customs have the power under section 152 of CEMA to compound offences, that is to accept a monetary amount in lieu of pursuing criminal proceedings. However, compound penalties cannot be issued unless there is evidence to a criminal standard that an offence has been committed.

  26.  In appropriate cases HMRC and RCPO can make use of the Proceeds of Crime Act 2002 enabling a court to issue a confiscation order for monetary assets earned through criminal activity. In order to do so, they need to establish that on the balance of probability the money has been gained by unlawful activity rather than legitimate means.


  27.  HMRC's enforcement framework is based on:

    —  The obligation on exporters to declare to HMRC whether goods require a licence;

    —  Targeting checks on the basis of intelligence and risk;

    —  Taking action against goods and persons breaching the controls, including activity based controls;

    —  Dealing with intelligence and credible allegations to establish if an offence has been committed;

    —  Investigating where there is evidence of a serious offence;

    —  Reporting for prosecution in appropriate cases; and

    —  Disrupting illicit activity where there is insufficient evidence.

Exports to countries outside the EU—obligation on exporters to declare whether goods require a licence

  28.  Under the new export system, customs declarations are made electronically to CHIEF (Customs Handling of Import and Export Freight) processing system. The declaration must contain a licence identifier code indicating:

    —  The licence number of any standard individual export licence (SIEL) or open individual export licence (OIEL);

    —  The title of any open general licence (OGEL); or

    —  "CGEA EU001" where the Community General Export Authorisation is being used.Entry Processing Unit (EPU) staff respond to profiles by inspecting the official and commercial documentation and may also call for examination of the goods where there is reason to believe that they may not conform to what is permitted by the licence. When in doubt, officers are able to call on experts in the DTI and where necessary, the MOD. EPU staff ensure that the export of the goods is endorsed on SIELs. Exhausted licences are returned to the DTI.

Movements within the EU

  29.  Although there is no need for a customs declaration, exporters are required to present SIELs to their inland HMRC office three days prior to export. A shorter period may be agreed with the inland office, and mutually agreeable simplified arrangements may be put in place. HMRC will check the licence against commercial documents and may inspect the goods prior to removal if there is reason to believe that they do not conform to what is permitted by the licence.

Targeted checks on the basis of intelligence and risk

  30.  HMRC attends a formal meeting of the interdepartmental Restricted Enforcement Unit (REU) every fortnight but is also in daily contact with other Departments and agencies as and when the need arises. The REU reviews all current intelligence and sets priorities. HMRC evaluates all relevant intelligence and trends and alerts ports and airports of sensitive exports by means of computer-generated profiles. HMRC also runs multi-agency targeting exercises where experts (including experts from the MOD and DTI) visit a particular port or airport to assist with targeting and the examination of goods.

  31.  Detection officers work at the frontier and inland to detect and disrupt smuggling, fiscal fraud and non-compliance with international trade procedures. Activity is intelligence-led and employs a targeted risk-based approach to intervention. They make maximum use of technology to scan and examine baggage, vehicles and freight and to detect and deter smuggling. Detection's enforcement skills and flexible deployment enable front line staff to tackle a wide range of illegal activity. Detection operations encompass a mixture of nationally-delivered activity, including the National Strike Force, the HMRC cutter fleet, and locally-delivered operations.

  32.  HMRC's compliance staff visit a wide range of traders and will report activity that they consider might be licensable. They also follow up DTI compliance reports that feed into the overall risk assessment of any particular business.

Deterring and disrupting illicit activity

  33.  HMRC works closely with other Government departments and agencies to assess current intelligence and trends and to disrupt activity before any offence is committed. HMRC visits arms dealers to advise them of the activities for which they would need a licence and potential exporters who have received orders from end-users of concern. Such visits are followed up by letters which, in the event of a subsequent breach, would underpin a prosecution. This type of visit has been successful in preventing materials getting to countries of concern, and it also formed the basis of prosecution. HMRC is also active in detecting non-listed goods going to end-users of concern under the WMD end-use catch-all.

Goods being exported in breach of the controls

  34.  In the vast majority of cases, before any action is taken, HMRC will seek formal written ratings advice from the DTI's Technical Assessment Unit (TAU). The TAU provides HMRC with a dedicated fax service which aims to provide written advice within 24 hours, once all the necessary technical information has been provided by the exporter. Where end-user or third party checks are needed, DTI aim to provide that advice within a further five days. If the case is being investigated with a view to prosecution, or subject to appeal to the VAT and Duties Tribunal, the TAU provide witness statements as to the licensability of the goods.

  35.  For simple breaches, HMRC action may be confined to detaining the goods until a licence is produced, or to formal seizure of the goods with immediate restoration on payment of a restoration fee, based on a points system, and an undertaking not to export the goods without a licence.

Persons breaching the controls, including activity based controls

  36.  HMRC considers all detections, intelligence and credible allegations for follow up action against the following criteria:

    —  The Government's export control priorities;

    —  Practicability in terms of ability to secure sufficient evidence; and the

    —  Seriousness of the offence.

  In practical terms the first step is to establish that an offence has been committed and can be proven. If so then the case will be considered for investigation. HMRC will report for prosecution those cases where a deliberate attempt has been made to contravene the licensing rules in circumstances where a licence is unlikely to have been granted. HMRC will also report strict liability cases with aggravating features. For minor cases not involving destinations or goods of particular concern HMRC confines action to a formal warning, which could be by a letter or a visit to the exporter to ensure they are fully aware of their obligations and of the implications of any similar conduct in future.

  37.  HMRC prioritises activity as follows:

High PriorityExport or supply of strategic goods and technology to destinations of concern, ie those developing WMD; those proscribed by UN or EU sanctions; those practising human rights abuses; those with links to destinations of concern; and those with inadequate export controls from where goods may be diverted.
Medium priorityOther export licensing breaches.
Low priorityBreaches of intra-EU controls.


  38.  All strategic exports investigation and intelligence cases are monitored and reviewed by an extension of the former HM Customs & Excise (HMCE) enhanced arrangements for managing sensitive cases. All such cases were reviewed on a tripartite basis—investigator, administrator and lawyer. Following the Scott Inquiry into Arms to Iraq, the tripartite system for strategic exports and arms cases was placed on a more formal footing, with structured meetings every six weeks to review all cases. Exact arrangements have been refined over time, with chairmanship of the Tripartite Committee passing from HMCE administrators to RCPO. There is close liaison with the Office of the Attorney General, particularly in relation to major cases. In addition, some types of prosecution require the Attorney General's consent. Under current arrangements, RCPO continues to chair the committee, which now includes HMRC's investigation advisory lawyers. RCPO has the final say as to whether proceedings are instituted. RCPO and Departmental lawyers advise on the conduct of investigations and administrators advise on enforcement policy.

  39.  In 2004 the Tripartite Committee reviewed the approach to investigation in response to its concern that in a number of investigations there was insufficient evidence to prosecute. HMRC accepted the need to bring more prosecutions for reasons of deterrence and undertook to identify suitable strict liability cases for prosecution. Two such cases, both involving the export of body armour, have been prosecuted in the past year. DTI has publicised these cases and feedback of their deterrent effect has been generally positive.


  40.  HMRC is responsible for the enforcement of revenue evasion and a wide range of prohibitions and restrictions on the import and export of goods. In deploying their resources against these responsibilities HMRC must take account of both the Government's key priorities and how the resources they deploy can make as effective a contribution as possible to the overall enforcement effort. HMRC deploys control and anti-smuggling resources across the UK on an intelligence-led, flexible and mobile basis. Some officers, such as members of the Heathrow Export Enforcement Team specialise in freight exports. Similarly, within its Criminal Investigation directorate HMRC deploys two specialist teams on strategic exports and arms cases—one on intelligence casework, the other on active investigations. The teams work closely together and are co-located to ensure they can make effective use of secret intelligence. In addition to their operational role, these teams give specialised advice and support to any front line or investigation and intelligence staff handling an export control case. Any strategic exports casework that they cannot handle because of pressure of other work can be passed to other investigation teams.

  41.  HMRC does not record time spent by any specific units on particular work and while Criminal Investigation and Intelligence staff work in structured teams, it is normal practice to reprioritise teams to deal with particular threats.


  42.  The following table repeats figures given in response to a recent Parliamentary Question from Mr Bercow:
Financial yearHMRC seizures Referrals to HMRC from DTI compliance officers Total
2000-0112030 150
2001-028027 107
2002-036721 88
2003-046331 94
2004-053728 65

  HMRC assess that the majority of UK exporters comply with the export control legislation. Most breaches involve goods that would have been granted an export licence had the exporter applied for one.

  43.  HMRC targets goods thought to be of WMD end-use concern. In addition to the goods that were seized as being exported without a licence, customs targeting resulted in the WMD end-use control being invoked in the following number of cases.

Calendar yearWMD end-use controls invoked

  44.  The following table outlines successful prosecutions since 2000:

Financial year Goods Destination Person or company concerned Penalty
2000-01 Five-ton crane, a 12-ton heat furnace and a quantity of Aluminium PakistanAbu Bakr Siddiqui 12 months suspended
2003-04 Aluminium Pakistan David Lee Nicklin of AM Castle & Co Ltd £1,000 fine (strict liability offence)
2004-05 Aircraft parts Iran Saroosh Homayouni 18 months imprisonment suspended for two years; banned from being company director for 10 years; asset forfeiture order for £69,980.
Body Armour Pakistan Praetorian Associates£2,500 fine
2005-06 Body Armour Kuwait, Iraq, Saudi Arabia Vestguard UK Ltd £10,000 fine


That there should be more prosecutions

  45.  HMRC investigates all serious breaches where there is evidence of an offence. This section sets out the criminal justice requirements that must be taken into account in all cases considered for prosecution. Any prosecution has to be reviewed and undertaken in accordance with the Code for Crown Prosecutors, the Criminal Procedure and Investigations Act 1996 and the Attorney General's Guidelines on Disclosure. In addition, the right to a fair trial guaranteed by Article 6 of the European Convention on Human Rights and the Human Rights Act 2000 is of fundamental importance. The examples given below are not exhaustive.


  46.  In order to prosecute an offence, it is necessary to prove beyond reasonable doubt every element of the offence, including disproving the defence. For example, in a prosecution for `doing an act calculated to promote the supply of goods' to an embargoed destination, the Crown would have to prove what act was done, that it promoted the supply of goods, that it was calculated to do so and that the destination was embargoed. Usually this will require bringing evidence sufficient to demonstrate a defendant's guilty knowledge.

  47.  There are a number of areas where finding sufficient evidence can be particularly challenging. All of the following have been factors in one or more investigation:

    —  Proving the intended destination. Whilst there may be intelligence to show that goods are going to a country of WMD concern the apparent destination may be quite innocuous;

    —  Vital evidence is often located abroad. Whilst HMRC may be able to obtain some or all of it through bilateral requests under Mutual Legal Assistance arrangements, cooperation can vary and there are issues over the provenance of the evidence and its admissibility in the UK;

    —  Evidence about the specification, functionality and proposed use of the goods can be ambiguous, which makes inference of guilty knowledge difficult to draw;

    —  Exports sometimes benefit from End Use Certificates supplied by foreign governments. It is difficult to get behind these and prove them false where suspicions exist; and

    —  Where defendants are located abroad, extradition may be difficult outside the EU.

Public interest

  48.  In any case where the evidence is sufficient to give a realistic prospect of conviction, the RCPO prosecutor then has to take into account the public interest in bringing charges. There can be no doubt that a high public interest attaches to preventing proliferation of WMD and controlling the exports of conventional weapons, related technology and material.

  49.  The prosecutor also has to consider factors such as:

    —  The age, health and previous compliance history of the defendant;

    —  The role of the defendant and his importance relative to others who may not be available for prosecution;

    —  The likely sentence that would be imposed on conviction. Historically, Courts have not imposed particularly severe sentences, even in relation to goods intended for WMD programmes. A cocaine smuggler would get far harsher treatment;

    —  Whether an export licence would have been granted had one been sought;

    —  The danger actually posed by the goods;

    —  The general availability of the goods on the worldwide market;

    —  The financial benefit to the defendant; and

    —  Any assets that might be available for confiscation.

  This is not an exhaustive list, but illustrates the sort of decision-making involved.

Disclosure, exclusion of evidence and abuse of process

  50.  A defendant is entitled to have disclosed to him any material held by the Prosecution that undermines the prosecution case, assists the defence case or may reasonably lead to a line of inquiry that achieves either of those ends.

  51.  Where the prosecutor is aware of material that is held by a 3rd party (such as another Government Department or agency), then there is an obligation to review that material and consider it for disclosure.

  52.  Where a prosecutor knows that material is held by a foreign agency, there are particular difficulties. While the material may assist the defendant, the foreign agency is under no obligation to the UK courts to disclose it. Whilst a negotiated solution is often possible, there remains the risk of simple refusal or incomplete assistance, which would make it impossible for the disclosure exercise to be completed properly, leading to an unfair trial.

  53.  Where material is considered too sensitive to be disclosed, the prosecutor may apply to the trial judge to withhold it (a Public Interest Immunity application—PII). The trial judge has to balance the rights of the defendant to a fair trial against the harm that would be done to the wider public interest by disclosing the material. If the trial judge orders disclosure, then the only realistic option may be to abandon the proceedings.

  54.  Thus, the only material that is normally capable of being protected by this process is likely to be of marginal significance to the case. If the material is highly relevant and significantly undermines the case, the prosecutor would additionally have to review the evidential sufficiency and consider whether it was possible to continue with the case at all.

  55.  Whilst disclosure is an issue in all major prosecutions and many minor ones, it is of particular importance in strategic goods cases:

    —  There may be highly sensitive material from the security and intelligence agencies and the Ministry of Defence, including details about sources of information or the threat posed to UK interests by particular states or items;

    —  There may be a history of contact between the suspect and HMG. The suspect may have been a source, a contractor, or have had contact with a variety of agencies, giving scope for allegations that he had been acting with HMG's knowledge and consent;

    —  There may be material to support allegations of entrapment; and

    —  There may be information about other exports with similarities to the immediate case and which may assist the defendant. That information may itself be highly sensitive.

  56.  The likely existence of material in these categories has several consequences. Firstly, it may undermine the prosecution case sufficiently to make it improper to continue. Secondly, the material may be sufficiently relevant to have to be disclosed, yet so sensitive that its owner would not wish to disclose it, even in an edited form. This would be fatal to a prosecution. Thirdly, even if disclosed, the material may give the defence scope to argue that it is unfair to try the defendant or that he cannot have a fair trial. Fourthly, even if a fair trial is still possible, the defence may be able to use the disclosed material to argue that some evidence should be excluded. For example, if one defendant has been himself an informer, he may argue that he cannot properly defend himself without disclosing that to co-defendants, with adverse consequences. Another example would be if the material supported suggestions that someone else had duped or duressed the defendant. This may substantially weaken the prosecution case.

  57.  None of this should be taken to suggest that prosecutions for breaches of export controls are impossible. They are not. They exhibit, however, just about every complicating feature that a prosecutor could expect to find. Far more cases are carefully considered for prosecution and rejected than are taken forward. Any prosecution is a major commitment and these are particularly so. It should therefore come as no surprise that export control prosecutions are rare.

  58.  All strategic export controls cases are difficult to prosecute and those involving intangible transfers particularly so. However, the controls have a deterrent effect by restricting exports from responsible companies and academic institutions. Moreover the fact that an activity is difficult to prosecute does not necessarily mean that it is impossible; where there is sufficient evidence and a realistic prospect of securing a prosecution then proceedings would be instituted.

Trade controls (trafficking and brokering)

  59.  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. The controls are based on activity within the UK and, in certain circumstances, by UK persons overseas. At the time the controls were introduced, HMRC was already responsible for enforcing the trafficking and brokering legislation relating to UN embargoes, anti-personnel landmines and nuclear, biological and chemical weapons. HMRC therefore agreed to investigate breaches of these new controls as an extension to pre-existing trafficking and brokering controls. Since these controls were based entirely on activity, rather than on the movement of goods, enforcement was laid to the specialist teams in London.

That HMRC does not give sufficient priority to export controls

  60.  HMRC will evaluate all intelligence and will look into all credible allegations and deploy sufficient resources to ensure this role is discharged. Strategic exports are amongst the top frontier priorities and the exact degree of effort applied will be driven by the available intelligence and risk profiles. All cases that fit HMRC's criteria for criminal investigation have been adopted. Accepting that, for the reasons above, few end in a prosecution, it should be emphasised that in high priority cases the necessary resources will always be deployed. HMRC uses other tools such as visits to make exporters aware and warning letters. Export controls capture anything from:

    —  An export of goods for legitimate industrial use in a friendly destination without the proper paperwork by a person who is normally compliant; to

    —  A deliberate attempt to export goods for WMD use in a hostile country, using a complex network of intermediary companies and countries.

Defence Systems and Equipment International Exhibition (DSEI)

  61.  As with other such exhibitions, HMRC officers attended the DSEI exhibition to ensure that temporarily imported firearms were properly accounted for and to deal with any breaches of the import or trafficking and brokering legislation. HMRC also worked with DTI and the exhibition organisers to ensure that breaches were few and were capable of appropriate enforcement. Owing to its duty of confidentiality as set out in section 18 of the Commissioners for Revenue and Customs Act (CRCA), HMRC is not able to discuss individual cases.

Perception that HMRC has not investigated, or RCPO prosecuted, certain high profile cases

  62.  Allegations have been made in the press and elsewhere that certain high profile cases have not been prosecuted. Again, their duty of confidentiality as set out in section 18 of the CRCA prevents HMRC and RCPO from discussing specific cases.

That there should be better training for HMRC officers

  63.  All front-line HMRC staff dealing with imports and exports include strategic exports among their responsibilities and are provided with guidance on how to tackle a detection involving strategic goods. Export controls are complex and it is not practical for HMRC officers to be experts in identifying the extensive range of controlled goods. Frontline staff are given training in detection techniques, controlled goods in general, and where to seek advice, including internal online guidance. It is HMRC policy that when officers detect what they suspect to be controlled goods, they seek ratings advice from the DTI Technical Assessment Unit. The DTI provides HMRC with a 24 hour dedicated ratings advice service.

  64.  Advice and guidance are supported by a confidential booklet, which includes details of updated sanctions and embargoes and by a programme of seminars for front line staff by HMRC central policy and Criminal Investigation staff accompanied by officials from DTI's Export Control Organisation. These sessions provide an overview of the types of goods that are controlled and why they are controlled. DTI shows examples from each category of goods subject to control and explains how such goods might be used in warfare (conventional or WMD) or human rights abuses. HMRC's Criminal Investigation officer presents two or three case studies and shows examples of goods HMRC officers have seized.

Increasing trade awareness of the controls

  65.  It was suggested in the evidence from Industry that one way to increase trade awareness is for HMRC to delay more goods. Whilst we might accept that having their goods delayed at export might be one way to improve the awareness of exporters to the requirements of export controls, we think this proposal does not represent a practical way forward for a number of reasons, including:

    —  Cost effectiveness. Undertaking random interventions on export consignments without good reason runs counter to the expectation that HMRC efforts will be targeted according to risk and is counter to our strategy to make it as easy as possible for businesses to comply with their obligations;

    —  Doing so to the extent that the goods were delayed, and perhaps missed their departure, could be ultra vires unless HMRC had grounds to suspect an irregularity;

    —  Submitting cases to the DTI for technical advice would again be questionable without sufficient grounds and could deflect officials from a more serious case deserving attention; and

    —  Detaining goods simply to get the attention of the exporter would not be a proportionate response.

April 2006

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