APPENDIX
Likely Scale of Unlicensed, Controlled Exports
The UK exported £188 billion of goods and
services in 2003, the proportion of these which were subject to
export controls is difficult to determine but defence exports
are quoted in various sources as being in the order of £4bn,
or 2.1% of the total. However, it is increasingly being recognised
that, whilst the defence industry is largely compliant in the
area of export controls and is, quite rightly, heavily scrutinised
by Parliament and the NGOs, the dual-use sector raises significant
concerns and probably accounts for the bulk of the missing 65%
referred to by Mike Coolican.
Analysis of the number of Standard Individual
Export Licences issued in 2003 (the first year after the Export
Control Act came into force, so at a time of heightened awareness)
shows that military licences exceeded dual-use by 1.9 times. A
later analysis, after the secondary legislation came into force,
for the quarter Jul-Sep 2005 (reports were by this date compiled
quarterly) shows that military licences exceed dual-use licences
by 1.6 times. In each case EU and Community General Export Authorisation
countries, as they existed at that time, were removed to improve
the parity of comparison. Given the scope of the dual-use controls,
which cover everything from chemicals to machine tools and electronics
to gas turbine engines, it is inconceivable that all dual-use
exports are being carried out under the correct licensing regime,
even when one takes into account the fact that virtually everything
military requires an export licence. To some extent this factor
is offset by the ability of the UK government to create OGELs
for military exports, a national legal competence. More OGELs
exist for military exports than exist for dual-use. Can it really
be accepted that an industry with 2% of GDP accounts for 66% of
export licences and there is not an export control compliance
problem with the industries accounting for the remaining 98% of
GDP?
Activity Levels in Relation to Controlled Exports
Standard Individual Export Licence (SIEL) applications
number about 8000 per year (the last full year for which figures
are available is 2004). However, by definition these licences
cover the most sensitive goods and/or the most sensitive countries
and hence account for only a small percentage of exports (by number
of shipments). Numerically, the greatest number of export shipments
are made under open licences (either Open Individual Export Licences
[OIELs], Open General Export Licences [OGELs] the Community General
Export Authorisation [CGEA]) or are intra-EU transfers of Annex
1 dual use items made under Article 21(7) of EC Regulation 1334/2000.
Reliable figures for numbers of export shipments
are difficult to obtain because available statistics, such as
those available from the Civil Aviation Authority, are based on
weight not number of discrete shipments. An informed estimate
would be that the number of exports under open licences is at
least two orders of magnitude greater than the figure for SIELs
(in one major exporting company the known figures are that over
250 times more exports are made under open licences than are made
under SIELs).
Extrapolation of the 8000 per annum figure for
SIELs to there being (conservatively) one hundred times this figure
under open licences gives a figure of 800000 shipments under open
licences, if this is (again conservatively if Mike Coolican's
estimate of 35% of exporters who require licences actually use
them is used as the baseline) taken to represent 50% of the total
of all shipments which should actually be under licence (N.B.
the "Coolican estimate" related to companies NOT to
export shipments and the companies with the best compliance programmes
tend to be the major defence exporters—the general consensus
being that dual-use controls are largely ignored), the target
population of single instances of export could be estimated as
being 1.6 million transactions per annum. Given that the defence
industry is largely compliant, a reasonable estimate would be
that 85% of defence exports are compliant and 50% of dual-use;
thereby giving an estimate of 520000 ([800000 x 15%] + [800000
x 50%]) unlicensed controlled exports[116].
To be even more conservative, assume that this
population is actually ½ million unlicensed, controlled exports.
The expected percentages occupying various groups or types of
potential non-compliance are shown in the table below, together
with illustrative penalties.
Based on the illustrative penalties and biasing
the penalties towards the lower end (i.e. assuming 50% of violations
relate to dual-use transfers within the EU and attract only a
£200 penalty), the potential penalty income would be £155
million per annum. Even a 2% successful detection rate would therefore
generate a penalty income of over £3 million per annum, based
on these assumptions.
A further step would be to penalise what are
referred to as "validity failures" by companies making
customs entries which do not correctly match the tariff schedule,
i.e. cases where HMRC knows that the line entry is wrong. If this
were to be included, based on £200 per entry and performed
only for exports (inside and outside the EU) this would add another
£40 million to the penalty figure. The same process could
be performed on imports and add another £20 million. This
would give an overall potential penalty income in excess of £200
million p.a. based on conservative estimates.
| Type of Export |
Description of
Non-Compliance | Penalty GBP
| Comments | Assumed % of
Non-Compliant
Population
|
| Intra—EU transfer of dual-use items (Annex 1)
| Article 21(7) statement not on shipping paperwork
| 200 | Note: Article 16(8) of the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 provides for a fine of up to level 3 on the standard scale (currently £1000) for this offence.
| 50 |
| Annex 1 dual-use items to CGEA country |
CGEA not cited on shipping paperwork | 300
| | 20 |
| Dual-use items to non-EU, non-CGEA country |
No licence quoted/used | 400 |
| 10 |
| Military List items eligible for OGEL | No licence quoted/used or used outside of eligibility
| 400 | | 15
|
| Military List items non-OGEL to non-embargoed country
| No licence quoted/used | 1000
| | 5 |
| Military goods to embargoed country | No licence quoted/used
| — | Refer to HMRC Fee to Agency
| Negligible |
| Failure to comply with information request from Agency within time limits (to be set)
| | 1000 and a further 100 per day for which requested information remains outstanding
| | Additional to above |
June 2007
|
| | | |
116
includes unauthorised intra-EU transfers of Annex 1 dual-use
items. Back
| 
