House of Commons - Foreign Affairs

Select Committee on Foreign Affairs First Report

4 THE LEGISLATIVE FRAMEWORK

The Export Control Act 2002: overall assessment

33. There was a measure of agreement in the evidence that we received that the Export Control Act 2002 provided an adequate mechanism for the control and regulation of strategic export controls.

The UK Working Group on Arms took the view that "the Export Control Act 2002 and the subsequent secondary legislation of 2004 is a major improvement on what we had before which [dated] back to 1939 [and] essentially said that export control is the responsibility of the government, full stop. At least we now have in law a section of relevant consequences so everybody is clear about why we have export controls and the need to stop undesirable activity."[51]

The Campaign Against the Arms Trade, while expressing reservations about the manner in which the Act was used, considered that the "Act gave the Government the powers necessary to ensure that UK arms exports do not contribute to regional instability, internal repression or external aggression".[52]

EGAD took broadly the same view: "Following the introduction of the [2002 Act] the UK now has, undoubtedly, one of the best and most comprehensive export control systems in the World […] Many of [the] criticisms […] stem from disagreements over some of the individual licensing decisions which have been made by HMG since the adoption of the new regulations, but […] some contentious decisions, one way or the other, will always arise, no matter what the regulations are."[53]

Parliamentary scrutiny of secondary legislation and guidance

34. When the Export Control Bill was before Parliament there was pressure that the exercise of the main order-making power to impose export controls should be subject to the affirmative rather than the negative resolution procedure. Although there are powers in the Act, the exercise of which require the affirmative procedure, none of these have been used. All orders have been made under the negative resolution procedure and it appears that only one of these was the subject of a debate to annul—the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 (S.I. 2003/2764)—in the Lords in 2003.[54] We found no evidence to reach a conclusion that the balance between the requirements for the affirmative and the negative resolution procedures in the Export Control Act 2002 need to be re-examined or altered.

35. Our predecessor Committees recommended "that Orders under the Act should first be exposed in draft and in confidence to the Quadripartite Committee and, if then made and laid, the Government should undertake to use their best endeavours to find time for a debate if the Committee so recommended".[55] Our predecessor Committees carried out an inquiry into the secondary legislation in 2003.[56] We recommend that any secondary legislation to implement conclusions arising from the Government's review of export controls be shown in draft to our Committees.

GUIDANCE

36. During the Commons Committee Stage of the Export Control Bill the then Minister of State at the Department of Trade and Industry, Nigel Griffiths MP, stated:

The guidance referred to […] in clause 8 [now section 9] […] is guidance about announced policy, and about the way in which existing or future obligations concerning licensing decisions should best be carried out in furtherance of agreed policy. The consolidated [EU] criteria in themselves count as guidance […] If there were to be changes to the criteria, the Government would announce them, and it would be for Parliament or parliamentary Committees to consider any changes in the usual way. Of course the Quadripartite Committee would have a role in scrutinising any changes with Ministers. Any other guidance issued under clause 8 could also be subject to parliamentary consideration in that way.[

37. The Government confirmed to us that where new guidance about the exercise of licensing powers became necessary—which included any changes to the Consolidated EU and National Arms Export Licensing Criteria—this would be announced by the Government. It would then be open for individual Members to ask Ministers questions about those changes following their announcement, and the Quadripartite Committee to do likewise, either as a specific response to the announcement, or as part of the Annual Report scrutiny process and linked evidence sessions.[58]

38. These arrangements were seen by the UK Working Group on Arms as giving the Secretary of State excessive discretion to change the guidance and it said that Parliament's role in this process was unduly limited, i.e. merely being informed of the guidance, potentially retrospectively. The Government had assured critics that it would exercise this power with care, and that significant changes to the guidance would not be introduced without due consideration being paid to the concerns of Parliament. But the Working Group pointed out:

39. Our predecessor Committees expressed concern about the announcement made on 8 July 2002, in particular we were "not wholly convinced that, in making his statement" the Foreign Secretary "fully met his own standard of not applying any unannounced criteria to licensing decisions".[60] Where there are substantial changes to guidance on strategic export controls it is unacceptable that they should be made without consulting those with an interest in the changes. Nor is it acceptable to issue guidance retrospectively after applications for export licences have been determined in accordance with the emerging guidance. We recommend that the Government give an undertaking to consult interested parties—the defence manufacturers, the non-governmental organisations and our Committees—before deciding to make significant changes to the guidance on strategic export controls.

Clarity of the secondary legislation

40. We asked respondents to indicate whether the Orders made under the Export Control Act 2002 have been clear, well-drafted and intelligible. EGAD indicated that they had been clear, "except in regard to those areas where the Government has sought to give itself the broadest possible control powers, where it has found some confusion". EGAD said that there were some areas of uncertainty within the trade controls legislation, which needed to be clarified if industry was to have the certainty that it needed to operate legally and to prevent illicit activities from being undertaken with impunity from a realistic threat of successful prosecution. EGAD cited two instances of ambiguity.

a) The Export Control Organisation (ECO) had stated that, whilst the transfer of software and technology was not controlled as such under the trade controls, the transfer of technology could be caught, where this was related to "restricted goods"[61] or "embargoed destinations", as the provision of technology could be construed as "an act calculated to promote" a trade deal.

b) A clear outline of what constituted trade control licensable "general advertising and promotion" was needed.[62]

41. Miss Kidd and her colleague, Dr Christopher Hobbs, also identified two areas where there was a lack of clarity.[63]

a) They questioned how to make a practical distinction between basic and applied scientific research. They pointed out that basic scientific research was covered under the end-use section of the act whereas applied research came under both dual-use and end-use. It did not appear to be clear as to how a distinction was made between the two, which raised the question whether researchers in the basic sciences should be made aware of the dual-use list.[64] In order to avoid such queries, they recommended that UK export controls included some additional clarification as to what constituted a basic science project and what constituted an applied science project.

b) Further clarification was needed to the definition of the "public domain", particularly in respect of the grouping of a number of papers/sources which individually would not come under the control list because they were available in the public domain.[65]

42. The Government confirmed that EGAD's analysis was correct and that the trafficking and brokering of technology was not subject to export controls. Where technology was, however, not the subject of the export itself, but was used by a UK concern as a medium, to promote the trafficking and brokering of restricted goods or of controlled goods to embargoed destinations, that act of promotion was controlled, whether it was done by the provision of technology or by any other means. The Government provided a theoretical example.[66] The Government was not aware that UK companies were encountering significant difficulties in this area, but offered to examine any evidence that was put forward during the forthcoming public consultation.[67] It also undertook to consider whether current guidance adequately explained this distinction and take steps to clarify it further if necessary.[68]

43. We are grateful to those who raised points for clarification and to the Government for its response to EGAD's points. On the basis of the evidence supplied to us we conclude that the secondary legislation is intelligible to those to whom it applies. We recommend, however, that the Government clarify in guidance the distinction between applied and basic research scientific projects and that it defines the "public domain" in greater detail.

Challenges in the courts

44. The orders made under the Export Control Act 2002 have not been challenged in court and there have been no successful challenges to licensing decisions made since those Orders came into force. Currently, however, one licensing decision is subject to an application for Judicial Review, but the Government said that at this stage it was not appropriate to provide further details.[69] The absence of successful challenges in the courts is not conclusive proof that the legislation is working satisfactorily but we conclude that it provides an indication that the legislation is accepted by exporters and interested parties. Once the case that is currently before the courts is concluded, we recommend that the Government supply us with a note describing the case and the lessons, if any, that it has for the operation of the legislation.

Notice of changes to the secondary legislation

45. We also asked respondents to indicate whether those to whom the Orders applied received sufficient notice of any changes and adequate explanation of the requirements in the Orders. EGAD replied that the Government, in general, and ECO in particular, had been "very constructive and proactive in their dealings with industry and very willing to discuss changes with relevant companies before they take place". EGAD believed that the ECO, and other government departments were "far more approachable, constructive and user-friendly than many of their foreign counterparts".[70] We welcome EGAD's comments that the Government has given sufficient notice and adequate explanation of changes in the Orders. We recommend that the Government continue to provide notice and adequate explanation of any changes proposed to the secondary legislation.

Effectiveness of the legislation

46. In carrying out their pre-legislative scrutiny of the secondary legislation, as we have noted, our predecessor Committees concluded "that the main test of effectiveness of the Government's proposals is to be judged by how well they are able in practice to discourage trade in military goods and technology where it is undesirable without also discouraging trade that the Government wishes to promote. An ability to do this depends in the first instance on having reliable methods of distinguishing between 'legitimate' and 'illegitimate' trade".[71]

47. The UK defence industry was not clear how effective the regulations had been in curtailing the sorts of proliferation trade which the Government regarded as being undesirable. On the question of distinguishing between "legitimate" and "illegitimate" trade, EGAD commented that exports "which are undertaken within the regulatory framework, legally, and with the necessary licences (and other documentation) are legitimate, whilst those which are outside of the regulatory framework are illegitimate". EGAD commented that if this view was accepted it followed that it was entirely for the Government to determine what was a "legitimate" and what an "illegitimate" export.[72]

48. We have considered the question of the effectiveness of the legislation very carefully but have not been able to reach any firm conclusions:

there is a lack of research to test the effectiveness of the legislation. See also paragraphs 26 to 31;

the part of government best placed to advise whether "illegitimate" or undesirable trade in military goods and technology has been discouraged is the intelligence services from whom we have not taken evidence; and

the limited evidence we have received indicating that some parts of the system of control are not as effective as they should have been was fragmentary and sometimes anecdotal. The most prominent example is the control of dual-use goods which we examine at paragraph 191.

As we do not have information to reach a firm conclusion on the effectiveness of the system as a whole we have instead examined components of the strategic export control system, starting with the controls on brokering and trafficking and extra-territoriality.

Brokering and trafficking and extra-territoriality

49. When she opened the debate on the second reading of the Export Control Bill in the Commons on 9 July 2001 the then Secretary of State for Trade and Industry, Rt Hon Patricia Hewitt MP, said the Bill was about the reduction of poverty, the promotion of sustainable development and the reduction of conflict. She cited a number of tragic cases and declared that "illicit gun running and unregulated arms brokering contribute to the suffering and death of children, adult civilians and whole communities around the world".[73]

50. When the Export Control Bill was before the House of Commons the then Minister of State at the Department of Trade and Industry, Nigel Griffiths MP, said:

51. During pre-legislative scrutiny of the draft Bill our predecessor Committees concluded:

52. The Government replied:

53. The Trade in Goods (Control) Order 2003 made under the 2002 Act requires those trading in Restricted Goods (torture equipment or long-range missiles (over 300 km) and their component parts) to have a licence when the activity is carried out in the UK or anywhere in the world by British citizens. With the Trade in Controlled Goods (Embargoed Destinations) Order 2004 controls were introduced on trading and other acts calculated to promote the supply or delivery of Military List items to destinations subject to an internationally agreed arms embargo. The Controlled Goods Order mirrors the controls on Restricted Goods as its restrictions also apply to those carrying out the activity in the UK or anywhere in the world by British citizens.[77]

54. The goal of export control is to prevent negative effects from the transfer of strategic goods and technology. Those negative effects could be, for example, to national or international security or to human rights. During the Cold War responsibilities were clearly delineated when the State could regulate strategic export controls made from its territory. Since the end of the Cold War it has become much more difficult to establish a causal link between transfer and a negative consequence. What exactly falls within a government's—and industry's—area of responsibility has become less clear cut. It depends on whether government is held to have responsibility for the territory on which actions take place, the impact of actions and transactions, the nationality of the staff, the origin of components, the location of production sites or the ownership of a company. In our view States—and companies—need to ensure and accept responsibility for controls along the whole supply chain, which requires looking beyond the traditional territorial scope and focus on the actual end-use, controls over technology transfers, licensed production and role of subsidiaries. When it carried out pre-legislative scrutiny of the secondary legislation our predecessor Committees concluded that the "Government's current proposals for a limited extension of extra-territorial jurisdiction are an inadequate halfway house solution".[78]

55. There are two issues we examined: (i) whether the provisions enacted in the legislation are effective and enforceable; and (ii) whether the provisions should be extended. The Government explained that it would measure the effectiveness of the extra-territorial controls by looking at three key factors:

a) the extent to which the controls achieved their desired effect;

b) their impact upon businesses operating them; and

c) the extent to which difficulties were encountered in administering or enforcing them.[79]

In the 2007 Consultation Document the Government said that there was "a choice to be made between blanket extra-territorial controls, and extra-territorial controls which are focused on the specific categories of equipment, activities, or destinations which concern us".[80]

EFFECTIVENESS OF THE EXTRA-TERRITORIAL CONTROLS

56. The UK Working Group pointed out that in 2005 there had been applications for brokering activities for 71 trade control licences,[81] and five had been refused. In contrast, before 2004 none of these activities would have been controlled.[82] Thus brokering and trafficking which was previously uncontrolled has been brought within the system of strategic export control. It is to be assumed that those who had their applications for licences refused and who are law-abiding have desisted from brokering and trafficking. It appears to us that the legislation has therefore prevented brokering and trafficking in contravention of the Consolidated Criteria. For those who are prepared to flout the 2002 Act—as we note at paragraph 70—enforcement may be remote. For them the legislation is therefore largely declaratory, although prosecution is always possible if evidence of breach of the law becomes available. We raise no objection to such legislation which sends a clear signal to those living in the UK and to British citizens abroad that brokering and trafficking is an activity that must be regulated. In the 2007 Consultation Document the Government cited the case of "at least one documented instance in which a UK person overseas decided to cease trading activity when confronted by the need to apply for a trade control licence".[83]

57. EGAD argued that trade controls that encompassed an extra-territorial dimension acted as a potential discriminator against the employment of UK nationals by firms overseas, and

58. The Government said that three UK nationals working overseas had applied for trade control licences. In one case the ECO had determined that no licence was necessary. Licences were issued to the two other applicants. In total, one Open Individual Trade Control Licence and three Standard Individual Trade Control Licences had been issued.[85] The low number of applications suggested to the Government that:

the activity may not be happening to any significant degree;

UK exporters may have decided to arrange their business so that all items are exported from the UK for administrative reasons, thus no "trading" takes place; or

UK persons overseas may be unaware that they are affected by these controls, or if they are aware, judge that there is no realistic prospect of the UK Government taking enforcement action against them and therefore decide to disregard them.[86]

59. In our view the Government's suggestions are credible, though the third is worrying if correct. In addition, as EGAD suggests, it may be the case that British citizens overseas are reluctant to apply for trade control licences if it puts their employment at risk. The Government needs to assemble evidence and to reach a view on the reasons there have only been four persons overseas who have applied for trade control licences. We recommend that at the end of the review process the Government set out in its conclusions to the Review the reasons for the small number of applications for trade control licences from British citizens overseas.

60. We received no evidence that the controls on brokering and trafficking imposed onerous burdens on those working in, and operating from, the UK or, other than in the one instance from EGAD, on British citizens overseas. British citizens working overseas to whom the extra-territorial provisions in the legislation apply must be encouraged to apply for the appropriate licences as a matter of course and, to safeguard their employment, the process must be streamlined. Where a British citizen working overseas for a reputable and responsible organisation applies for a trade control licence we recommend that there be a presumption that a licence will be granted. We conclude that to do otherwise may penalise the responsible British citizen and may undermine the UK's extra-territorial controls on brokering and trafficking.

EXTENDING THE EXTRA-TERRITORIAL CONTROLS

61. During the Bill's passage much debate focussed on the criteria which had to be met before extra-territoriality could be applied. In 1996 the Home Office published the report of the Interdepartmental Steering Committee reviewing the policy on the assumption of extra-territorial criminal jurisdiction, "Review of Policy on Extra-territorial Jurisdiction".[87] The report set out six guidelines to be applied, when a need was established, to decisions whether or not legislation should have extra-territorial effect:

a) the offence is serious;

b) by virtue of the nature of the offence, the witnesses and evidence necessary for the prosecution are likely to be available in UK territory;

c) there is international consensus that certain conduct is reprehensible and concerted action is needed involving the taking of extra-territorial jurisdiction;

d) the vulnerability of the victim makes it particularly important to be able to tackle instances of the offence;

e) it appears to be in the interests of the standing and reputation of the UK in the international community; and

f) there is a danger that offences would otherwise not be justiciable.

62. During debate on the Export Control Bill, the then Parliamentary Under-Secretary of State for Science and Innovation, Lord Sainsbury of Turville, explained how the guidelines were applied:

63. Although not cited in the 2007 Consultation Document, the Government confirmed that the six guidelines would inform the 2007 review of export controls, but that, in addition, when considering any proposals to extend extra-territorial export controls, the Government would "have regard to other factors such as the likely effectiveness of assuming extra-territorial jurisdiction in addressing the perceived problem and any practical enforcement issues, including resource implications. Thus, the fact that an offence satisfies one or more of the six guidelines would not necessarily mean that the government will extend extra-territorial control in the relevant area."[89] The Government added in the 2007 Consultation Document that an issue to consider before changing the provisions on extra-territoriality was that "extra-territorial controls are by nature very difficult to enforce".[90] The Government said that "the difficulty of enforcing extra-territorial powers is not one of the criteria taken into consideration when considering an export licence application".[91]

64. The Government explained that it had always adopted a cautious approach towards the imposition of extra-territorial controls.[92] That was why extra-territorial controls had been introduced in a strictly defined range of circumstances, usually when the activity to which they related could never be regarded as in any way acceptable to the Government—for example, the supply of weapons to embargoed destinations, the supply of torture goods, or provision of assistance to Weapons of Mass Destruction (WMD) programmes. In these limited circumstances, the Government judged that the difficulties inherent in enforcing such controls were outweighed by the need to create a legal framework that enabled it to refuse to sanction UK involvement and possibly to deter British citizens who might be considering becoming involved. Whilst numbers were small, experience had shown the Government that the UK had been able to prevent some undesirable activities taking place as a result of the imposition of these controls. Whether this was sufficient to justify the retention of these extra-territorial controls, and whether convincing evidence could be produced to support arguments for extra-territorial controls to be extended into broader areas, would be key issues for the Government's review.[93]

65. In the 2007 Consultation Document the Government identified three possible changes:

A new "Middle Category": The "Restricted Goods" controls would be reserved for items for which the Government would never normally grant a licence. A new category, "Partially Restricted Goods" would be created for more sensitive goods but where there was legitimate trade. Under this category, the core activity of trading in these goods would still be controlled if carried out by a UK person anywhere in the world, as would other acts calculated to support that trading, including transportation, financing/financial services, and insurance or re-insurance; but the more peripheral acts, such as the promotion or advertising of these goods at trade fairs or in periodicals would not be controlled.

Reduction of the "Restricted Goods": The Government pointed out it was right that the most rigorous controls should apply to equipment the supply of which was inherently undesirable. But whilst this was true of torture equipment and supplies to embargoed destinations, the case was less strong for long range missiles. Long range missiles were a legitimate defence weapon for the UK and many other nations and so there were many occasions when licences would be granted. There was no evidence that they had been the subject of trading activities. An added complication was that unmanned air vehicles (UAVs) were in effect classified as long range missiles, because their range is variable and so use beyond 300 km was often feasible. These would often carry no warhead at all and yet were still subject to the most rigorous level of control.

Extension of controls on some categories of equipment: The Government said that certain types of military equipment were widely viewed as being of greater concern than others: in particular, small arms, light weapons (SALW) and man-portable air defence systems (MANPADS) and cluster bomb munitions.[94]

66. In its evidence the UK Working Group called on the Government to "honour its manifesto pledge and start from the premise that all arms brokering activities of UK passport-holders should be controlled, wherever they are located". It was, however, prepared to accept exemptions for classifying certain types of equipment which although sensitive had legitimate uses—such as unmanned aerial vehicles—as separate from other goods which could never be classed as legitimate—such as torture equipment—and where no licence would be required for activities such as general advertising or promotion. The Working Group argued that this would, for example, avoid the need for defence publications to obtain licences to carry advertisements for unmanned aerial vehicles and that small arms and light weapons would logically fall into this category.[95]

67. In contrast, EGAD found considerable problems with extra-territoriality, both in principle and in practice. EGAD identified the following problems.

In practice extra-territorial controls were neither effective nor enforceable.

It was wrong in principle to seek to control the exports of other sovereign nation states.

Extra-territorial legislation could criminalise activities to which the Government did not object and which, in some cases, it even supported.

It could not be right to impose on an individual the law of two different jurisdictions at the same time for the same act in the same place.[96]

68. In EGAD's view extra-territoriality worked in an area in which there was universal condemnation—such as paedophilia, bribery and corruption and drug smuggling—and where the laws and enforcement capabilities of other nations might not be effective in pursuing and curtailing these inherently immoral and undesirable activities. EGAD contended that this was not the case in the vast majority of areas of the "arms trade", in most instances of which the proposed deals might not only be approved and sanctioned by the local governments, but even also enjoy their enthusiastic support.[97]

69. EGAD considered that it would be invaluable if the ECO could, as part of the review, provide a report on how effective and successful the extra-territorial provisions of the regulations had been in operation, to demonstrate how successfully they had been working. This could include the publication of details of numbers of UK nationals who had applied for trade control licences because of their planned activities overseas and the numbers of licences involved. Also, it would be useful if HM Revenue and Customs (HMRC) could report, informally, on what efforts it had made since March 2004 to investigate and pursue any suspected infringements of the extra-territorial aspects of the 2002 Act, as, if it had "made no efforts to do so because of lack of resources or the perception that it is all too difficult, then there is absolutely no point in seeking to expand the scope of extra-territoriality under the review".[98]

70. The Government told us that the "extra-territorial powers provided under the Export Control Act 2002 have not been used to initiate any prosecutions".[99] The Government also explained that "other countries would provide information to HMRC, only by consent and there would be a general expectation from the recipient country that HMRC's requests should relate to a type of activity that would also constitute an offence in their own country. If the activity was carried out legally in accordance with the laws of the country concerned, HMRC could not expect to be given the required assistance."[100]

71. EGAD also found "baffling" the

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72. Mrs Susan Griffiths, Export Control Manager, MBDA UK Ltd, explained that in respect of long range missiles:

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73. On the current items covered by the extra-territorial controls EGAD said:

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74. The Government was not aware of any conflicts between UK and other countries' legislation but said that it was interested in evidence from industry and others on these issues and would consider whether the UK extra-territorial controls that were currently in force have placed British citizens overseas in unacceptable positions. The Government said it would seek specific evidence on these points.[104] While noting in the Consultation Document that there was a "potential for a clash of jurisdictions",[105] it appears that the Government is not seeking information in the questionnaire directed at those responding to the Document about British citizens who have been placed in unacceptable positions. We recommend that the Government enquire whether the extra-territorial provisions in the legislation have placed British citizens overseas in unacceptable positions.

75. We note that there are currently 25 separate pieces of legislation on the statute book under which criminal offences can be prosecuted in the UK when they are committed overseas. These range from bribery and corruption committed outside the UK to bigamy; the full list is set out in the Annex to this Report. It is clear to us that there are now a substantial body of precedents for extra-territorial provisions in UK law. We cannot see why it should be acceptable to have extra-territorial provisions to tackle bribery and corruption and bigamy but unacceptable to the Government to extend the current extra-territorial provisions to reduce the supply of arms in order to prevent massive loss of life.

76. We and our predecessor Committees have consistently and persistently recommended that the extra-territorial controls be extended.[106] As we feared the provisions have been an inadequate halfway house which have satisfied neither industry nor the non-governmental organisations. In our view the Government's approach was misconceived. By attempting to define trade in terms of the items that could be reasonably identified in advance as those which would not generally be granted a licence in the UK the Government has produced a regime that is too tightly and inconsistently drawn. One obvious example is the inconsistency in the treatment of missiles—with those with a range greater than 300 kilometres included within the extra-territorial control but those with a range below 300 kilometres excluded—which is baffling and confusing. As the Government acknowledged in the Consultation Document, there is no evidence that long range missiles have been the subject of trading activities.[107] Moreover, the Government pointed out there was "an added complication" in that Unmanned Air Vehicles (UAVs) were classified as long range missiles, because their range was variable and so use beyond 300km was often feasible.[108] Nor are we persuaded that the creation of a new category, "Partially Restricted Goods" based on a more widely-drawn list of goods will address the problems we have identified. It is still a limited extension of extra-territorial jurisdiction which, rather than being an inadequate halfway house solution, would be an inadequate two-thirds-way house solution, which is likely to throw up a new set of anomalies. Instead, we consider that the Government should adopt a fresh approach. We conclude that the Government should bring forward proposals to extend the extra-territorial provisions of the export control legislation to encompass trade in all items on the Military List. In our view the experience of the past three years has shown that the current arrangements have failed and that the extension of the extra-territorial provisions is overdue. We therefore recommend that the Government require all residents in the UK and British citizens overseas to obtain trade control licences, or be covered by a general licence, before engaging in any trade in the goods on the Military List. In order not to undermine the employment prospects of British citizens working for reputable organisations, we further recommend that the Government issue general licences covering British citizens working overseas and engaged in categories of trade between specified countries or in certain activities such as advertising.

REGISTRATION OF BROKERS

77. In our Report in 2006 we concluded that there was a case for greater regulation of brokers operating in the UK requiring all arms brokers to be registered, for registration to be dependent upon a broker meeting defined standards and requirements and that, where a person who was not registered carried out any brokering activity, he or she should be guilty of a criminal offence. We recommended that the Government bring forward a proposal to require the registration of arms brokers.[109] The Government rejected the recommendation but undertook to include it in its 2007 review.[110] The issue is addressed at paragraph 2.5 of the 2007 Consultation Document.

78. We invited further evidence on the registration of brokers. The UK Working Group saw registration as a valuable additional tool in the battle against irresponsible arms brokers. It pointed out that this position seemed to be reflected in the EU Common Position, which encouraged Member States to have a system of registration in addition to case-by-case licensing of individual transactions.[111] It also made the point that registration would ensure that brokers had a good knowledge of the law, which could be one of the criteria for being admitted to the register, and would assist in the dissemination of information regarding changes to control lists, open licences, embargoed destinations.[112] In its oral evidence the UK Working Group added:

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79. EGAD took a different view. It said that "the issue of registration would not actually make things any easier because at the moment you would have to try to prove that a person has been involved in facilitating a deal. In future, if you had a registration system, you would have to prove that they were not registered and they were trying to facilitate the deal. You still have to prove the involvement in the deal."[114]

80. In responding to our Report last year the Government's view chimed with EGAD's. It considered that registration of brokers would not make prosecution easier as brokering in contravention of the 2002 Act as well as failure to register would have to be proved. In addition, it argued that a register could be used by brokers to suggest that they had official approval, risking embarrassment for the Government should a registered broker subsequently commit an offence.[115] We found this additional argument wholly unconvincing. Official registers are used for many purposes and, for example, the persons listed on the Violent and Sex Offender Register could under no circumstances be construed as carrying any degree of approbation. While we do not suggest that a register of arms brokers would be analogous to the Violent and Sex Offender Register, the point is that a register of brokers will not carry an automation presumption of official approval.

81. In the Consultation Document the Government advised that a pre-licensing registration system could be achieved via secondary legislation.[116] While accepting that there were not likely to be "insuperable problems" it said that a "number of issues then arise to question the value of creating a pre-licensing system". First, the register would not give the Government additional powers, nor would it prevent UK involvement in undesirable activities. Second, it would add another layer of complexity/bureaucracy to existing licensing controls and as such, could lead to delays in the licensing process for those not already registered. Third, traders may be unlikely to apply to register on a speculative basis (i.e. simply because they might, at some future date, need to indulge in trading activity), but are more likely to apply to register shortly before their first trade transaction. This might not allow sufficient time for the registration checks, thus delaying the business.[117]

82. We accept that the EU Council Common Position on the control of arms brokering, adopted on 23 June 2003, does not call for the registration of arms brokers. Article 4 suggests that Member States "may" establish a register of arms brokers, and that "registration or authorisation to act as a broker would […] not replace the requirement to obtain the necessary licence or written authorisation for each transaction". We conclude that the EU Common Position on the control of arms brokering sets the best practice and we recommend that the Government follow best practice to establish a register of arms brokers. We conclude that a register will help to ensure that brokers meet defined standards, requirements and checks as well as deterring those—for example, with a relevant criminal conviction—for applying for registration. We also recommend that any brokering or trafficking in arms by a person in the UK or a British citizen abroad who is not registered be made a criminal offence.

83. In a supplementary memorandum the Government said primary legislation may be required to ensure publication of a register. It pointed out that section 7(f) of the 2002 Act empowered the Government to make provision in an order under the Act "about the persons to whom [information held in connection with anything done under or by virtue of the order] may be disclosed" but "this section of the Act is not conclusive as to the extent to which such information can be published". [118] We note, however, that the Government has not raised this point in the Consultation Document.[119] We recommend that the Government obtain and publish in its reply to our Report definitive legal advice setting out whether primary legislation is required to publish a register of brokers and, if the conclusion is reached that primary legislation is required, that the Government bring forward an amendment to the Export Control Act 2002 to permit publication.

"Catch-all" provisions (weapons of mass destruction)

84. Under UK law before 2004 a licence was required if an "exporter knows, or is informed by UK Government, or has grounds for suspecting, that exports of technology or electronic transfers of technology from the UK to a destination outside of the EC would, or might be used in connection with WMD [weapons of mass destruction]".[120] This rule was broadened in 2003 to include the transfer of WMD end-use technology by any means, including "face-to-face communication, personal demonstration, or by handing over material recorded on documents or disks".[121] These new restrictions also applied to anyone in the UK who proposed to transfer technology by any means to another entity within the UK, if the provider knew or had been informed by the Government that it might be intended for use outside the EU in connection with WMD. The Government explained, however, that "none of the new controls are based on suspicion of a WMD end-use. The person or entity concerned must be aware or have grounds for suspecting or have been informed."[122]

85. Although the Government advises that all reasonable enquiries are made should there be any suspicions,[123] under the "catch-all" provision there is no requirement on a potential exporter to make attempts to check that a proposed recipient of technology did not intend to use information in a WMD programme. Miss Kidd and Dr Hobbs suggested that this "caveat" was intended to reassure potential exporters that they did not have to investigate all casual business acquaintances, as they would not be liable for prosecution on the basis of a face-to-face conversation with a foreign entity who, unbeknownst to them, was involved with WMD and sought to elicit technical details from them.[124] However, where potential exporters behaved recklessly they might breach the law. Paragraph 2.2.(a) of the Uranium Enrichment Technology (Prohibition on Disclosure) Regulations 2004 (S.I. No, 1818/2004) expands on the definition of "reckless": "the disclosure creates an obvious risk […] but at the time he makes the disclosure he has failed to give any thought to the possibility that the disclosure would create such a risk".

86. Miss Kidd and Dr Hobbs acknowledged that there "is only a limited amount of time that a busy UK exporter of dual-use goods can devote to evaluating a potential customer's intentions" and pointed out that "proliferators are aware of this, and often bury their desired items in a long list of innocuous products, or only make a request after a secure business relationship has been secured with the exporter". Miss Kidd and Dr Hobbs suggested possible technical solutions, such as (non-removable) transponders attached to dual-use goods which would reveal their final destination, "could be explored in an attempt to make this task easier for the exporter".[125]

87. We asked HMRC about its powers under the catch-all provisions to seize goods. HMRC explained that it did not have powers to seize non-controlled goods in cases where the exporter was not aware of nor suspected WMD end-use. Where HMRC identified non-controlled goods that it suspected might be destined for WMD end-use, it had the power to detain them under the 2002 Act whilst DTI[126] decided whether or not to invoke the end-use catch-all control. If DTI decided that goods required a licence on end-use grounds, they informed the exporter and HMRC. HMRC then detained the goods until the exporter either obtained an export licence, or withdrew the goods from export. The only cases where HMRC could seize the goods would be where there was 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 could not be exported without a licence, the exporter subsequently attempted to do so.[127] HMRC considered that the law was strong enough.[128]

88. Changing the regulations to impose a duty on exporters to enquire into the intended use of their goods and to withhold exports where they have a suspicion that goods could be used for WMD purposes is a step that cannot be taken lightly or without clear evidence of the systematic failure of the export control system. Such a change would impose a considerable burden on industry. While we have expressed reservations, and continue to express reservations, about the adequacy of the controls on dual-use goods (in chapter 6 below), we conclude that the imposition of a duty on exporters to enquire into the intended use of their goods and to withhold exports where they have a suspicion that goods could be used for WMD purposes is not yet justified. There are, however, a number of steps that the Government could take to improve the operation of the current system.

First, the Government could regularly remind exporters of the provisions of WMD end-use and encourage exporters voluntarily to report any suspicions that they may have about WMD end-use.

Second, the Government itself has to gather intelligence from its own sources and exchange information with its EU partners and other services, as well as carrying out market surveillance in the same way as the Zollkriminalamt, the German Customs Criminological Office. It can use its powers under the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 (S.I. No. 2764/2003) to inform exporters where a WMD end-use is suspected and to bring the prospective exports within export control.

Third, HMRC must be able to seize goods where there is good intelligence that they are likely to be used for a WMD end-use, irrespective of the knowledge and intentions of the exporter.

89. We conclude that the imposition of a duty on exporters to enquire into the intended use of their goods and to withhold exports where they have a suspicion that goods could be used for WMD purposes is not yet justified. There are, however, a number of steps that the Government could take to improve the operation of the current system. First, we conclude and recommend that the Government regularly remind exporters of the provisions of WMD end-use and encourage exporters voluntarily to report any suspicions that they may have about WMD end-use. Second, for the system to work the Government has to gather intelligence from its own sources and exchange information with its EU partners and other services, as well as carrying out market surveillance in the same way as the Zollkriminalamt, the German Customs Criminological Office. In addition, it must use its powers under the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 (S.I. No. 2764/2003) to inform exporters where a WMD end-use is suspected and to bring the prospective exports within export control. We recommend that the Government in responding to our Report confirms that this is the approach it has adopted. Third, we are concerned that HMRC cannot seize goods destined for a WMD end-use without evidence that the exporter was aware of the intended use. We recommend that in its reply the Government explain whether this requirement has been an impediment preventing enforcement action against proliferators of WMD or whether other legislation provides HMRC with adequate alternative powers to seize goods. If the absence of a provision is an impediment to effective enforcement, we recommend that the regulations be changed to allow HMRC to seize goods where there is good intelligence that they are likely to be used for a WMD end-use, irrespective of the knowledge and intentions of the exporter.

Transfer of software (weapons of mass destruction)

90. The WMD end-use control allows the government to impose an export licensing requirement on software which are not normally controlled.[129] From their research Miss Kidd and Dr Hobbs have concluded that the area of software transfer was where UK Export Controls were "most contentious and possibly at their least adequate" and that the "controls were frequently flouted because of their impracticability".[130] They suggested that this area should be reviewed as a matter of urgency. They explained:

A number of the senior academics […] expressed concern over the potential implications of the Act for collaborations in software development projects with non-EU groups. In order to develop a piece of source code in an international collaboration it can be necessary to transfer frequently (usually via email) fragments of code from one group to another. This type of exchange was [for example] essential to the development of the Serpent encryption algorithm […] Under the Act it would appear to be necessary to apply for separate export license to sanction each separate email exchange (with non-EU colleagues). If this is indeed the case, the effectiveness of any collaboration with non-EU groups would be seriously inhibited.

131

91. We recommend that the Government in responding to this Report clarify whether each e-mail exchange within a group containing participants from within and outside the EU working on the collaborative development of IT source code requires a licence under the legislation and, if it does, whether an open or general licence or exemption could be provided.

51 Q 2 Back

52 Ev 120, para 3 Back

53 Ev 57 Back

54 HL Deb, 16 December 2003, cols 1080-91 Back

55 HC (2000-01) 445, para 31 Back

56 HC (2002-03) 620 Back

57 Stg Co Deb, Standing Committee B, Export Control Bill, 19 July 2001 Back

58 Ev 100, para 4 Back

59 Ev 44, paras 7-8 Back

60 Defence, Foreign Affairs, International Development and Trade and Industry Committees, First Joint Report of Session 2001-02, Strategic Export Controls: Annual Report for 2000, Licensing Policy and Prior Parliamentary Scrutiny, HC 718, para 147 Back

61 Currently long range missiles and torture equipment. Back

62 Ev 57 Back