Joint memorandum from HM Revenue and Customs
and the Revenue and Customs Prosecution Office
INTRODUCTION
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).
ROLE OF
HMRC IN STRATEGIC
EXPORT CONTROL
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.
LEGAL FRAMEWORK
IN WHICH
HMRC OPERATES
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:
— The intelligence agencies; and/or
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.
HMRC APPROACH TO
ENFORCEMENT
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 Priority | Export 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 priority | Other export licensing breaches.
|
| Low priority | Breaches of intra-EU controls.
|
INVESTIGATIONS: GOVERNANCE
ARRANGEMENTS
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.
HMRC FRONTIER RESOURCES
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.
RESULTS
42. The following table repeats figures given in response
to a recent Parliamentary Question from Mr Bercow:
| Financial year | HMRC seizures
| Referrals to HMRC from DTI compliance officers
| Total |
| 2000-01 | 120 | 30
| 150 |
| 2001-02 | 80 | 27
| 107 |
| 2002-03 | 67 | 21
| 88 |
| 2003-04 | 63 | 31
| 94 |
| 2004-05 | 37 | 28
| 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 year | WMD end-use controls invoked
|
| 2001 | 105 |
| 2002 | 82 |
| 2003 | 59 |
| 2004 | 72 |
| 2005 | 38 |
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 |
Pakistan | Abu Bakr Siddiqui |
12 months suspended |
| 2001-02 |
|
|
|
|
| 2002-03 |
|
|
|
|
| 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 |
ISSUES
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.
Evidence
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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