Examination of Witnesses (Questions 140-159)
MR MARK
FUCHTER, MR
GUY WESTHEAD,
MR DAVID
RICHARDSON AND
MR DAVID
GREEN QC
1 MARCH 2007
Q140 Judy Mallaber: So you do not
completely archive the cases, they are still there and can be
brought out?
Mr Fuchter: They can be. I might
be misleading you in generalising, it does depend entirely on
the case in hand.
Q141 Judy Mallaber: The two cases
you did prosecute, how much did that cost?
Mr Fuchter: The two cases for
HMRC, based on the investigators' time, our costs each came to
around about £3,000 with possibly some fingers and toes on
top of that.
Q142 Judy Mallaber: What did the
£3,000 cover?
Mr Fuchter: That would be salary
costs. These were very short duration cases, we only took about
10 days of investigation time in each case. That is on the low
side and that is quite efficient; very efficient in fact.
Judy Mallaber: I was expecting it to
be a much bigger figure than that.
Q143 Chairman: Mr Green was going
to add to the costs, I fear!
Mr Green: In relation to the two
cases from September 2006 we worked out that it cost some £18,700
to prosecute and then fines, costs, were imposed by the courts
to the tune of just over £20,000 in those cases taken together.
Q144 Judy Mallaber: What was the
value of the potential contract?
Mr Richardson: The value of goods
was not high, those two cases were body armour. I do not know
the value of the body armour, but it was a relatively small amount.
Chairman: We can pursue this through
further written questions later. Let us move on.
Q145 John Battle: In one of the pieces
of written evidence the Committee got, a background paper, it
was suggested that given the low level of prosecutions there needed
perhaps to be a bit of a shake-up really and there was a suggestion
that there should be a single compliance agency drawing together
the DTI and Revenue and Customs just focusing exclusively on implementing
export controls. I wonder what would your view be of that? Do
you think there would be advantages, because I have to say, as
a minister, I have served both in the DTI for a while and the
Foreign Office, and despite all the efforts, I know there are
real, serious efforts of co-ordination on working groups, exporters
can still bypass the whole procedure, and do, or really flout
one department to play one off against another. What is your view
of setting up a compliance agency to really get a grip on this
issue and implement prosecution?
Mr Westhead: I will take that
one, if I may, initially. Clearly, it is not something we have
been formally consulted on before and the DTI would have a strong
lead interest in this, but looking at it purely in terms of the
implementation from a customs point of view, looking at the advantages
and disadvantages. I think it is quite easy to get carried away,
I am not suggesting any one of the Committee is doing, but in
any area of operational difficulties that Departments face, to
suggest "Let's have an agency to solve that problem".
You have to look quite critically at what setting up an agency
would do differently and how it could be made to be more effective
compared with the status quo because, on the face of it, creating
an agency does not itself create any additional resources. Indeed,
it makes it quite difficult to get even the existing level of
resources you have got because you have got to denude large multifaceted
teams, particularly in Revenue and Customs, which are working
together across a number of issues at the same time because it
makes sense to do so. You have to take the resources out of that
and get the central overheads for the agency.
Q146 John Battle: Forgive me, have
you not done that in proceeds from fraud crime, for example? Has
exactly that not applied there?
Mr Westhead: Clearly, it has been
done in particular areas and it has been done in the Serious Organised
Crime Agency, for example. If we found that there was evidence
of real benefit that could be brought about through some further
work then it is clearly something we would be prepared to look
at. One of our particular concerns, though, is that without having
a multifaceted team you have not got quite the same ability to
react quickly. I think we have made the point before that though
we only have a certain level of resources on strategic exports
we can bring in much larger amounts of resources very quickly
if there is a problem, in the same way the Department has done
with MTIC[2]
fraud and avian flu to some extent. The ability to bring in large
amounts of officers quickly to flood a particular issue would
be more difficult, you would then be reliant on cross-agency co-operation
with another department rather than within a large amount of resource
that is already there.
Q147 John Battle: You do not experience,
for example, the frustration, to draw an analogy, that sometimes
happens, say, in local crime where we go to the police station
and say, "Yes, we picked him up but went down to the Crown
Prosecution Service and they haven't got enough gear on them to
get them and we are caught between departments"? You do not
experience that frustration in dealing with people breaking the
export credit rules? You are not saying, "It is the other
department", are you, occasionally?
Mr Westhead: I could not comment
on the prosecution angle and, clearly, it would give an extra
focus to the task in hand. I do not know if any of my colleagues
want to add anything?
Mr Richardson: I can perhaps help
on that. Because of the way that we work with HMRC in this area,
if the investigators refer a case to us then we look at it very
closely and whatever the disposal is going to be, whether it is
a prosecution or a lower level disposal within HMRC's powers,
then we will operate very much by consensus so you do not have
the position of the policeman arresting somebody and the CPS just
saying "No", there is much more of a reasoned discussion
about it.
Chairman: I think expecting you to agree
on that proposal without ministerial clearance was a bit optimistic
by my colleague, but the issues were discussed.
Q148 John Barrett: I was somewhat
bemused and surprised to discover that in the percentage of breaches
of export control legislation the estimates of those people who
had been prosecuted, had the very same people applied for export
control licences, the vast majority of whom would have been granted
the licences. Over the last five years between 80% and 92% of
Customs seizures were, in fact, for goods that would have been
granted licences had people bothered to apply for them in the
first place, so that prompts a few questions. One is, is this
not a huge waste of resources, chasing about after people who
effectively would not have broken the law had they bothered to
apply for licences? Noting that the percentages have not really
changed over five years, is there not some basic failure in the
system to let people know when they should be applying for licences?
Mr Fuchter: Firstly, if I can
take the point about waste of resources, I do not think so. Let
me first say that those percentages we came up with were estimates,
and they were estimates made in the time available to answer a
parliamentary question, which is quite limited, and it was the
best judgment of officials on my team. In fact, if anything, those
figures might be slightly overstated, because where we were unsure
from the information available to us as to the rating which might
have been applied we erred on the side of assuming a licence would
have been granted. To take the point about waste of resources,
I think I would link that to the point that EGAD are making and
the military and dual-use sectors are making to us that there
needs to be a level playing field and we need to be seen to be
enforcing controls. If we discover export control breaches, such
is the general complexity that we will not necessarily know at
the time as to whether such goods would be rated licence-required.
Sometimes we might find in some cases that the decision which
emerges from the DTI ratings people does not follow what we expected.
If we were to pull back from these cases you might be criticising
us for paying less attention to enforcing this area.
Q149 John Barrett: Even if the figures
are slightly over-optimistic here, in each year it is clear well
over 50% of the cases had they applied probably would have been
granted, so can I ask you, what needs to be put in place now to
make sure that these figures, even, as you say, if they are high,
are not continued for the next five years because it does seem
to be madness?
Mr Fuchter: I think I would dispute
that it is madness, we are here to enforce export control breaches,
and you probably expect me to dispute that, nor do I think it
is a failure of the system. One of the steps that we have already
put in place is a profiling exercise using our automated freight
control systems to get behind what is going on in terms of the
use of OGELs and we need to understand the outcomes from that
exercise. It has been running almost a year now and we have had,
I think, almost 500 checks as a result of that exercise. In fairness,
they have not discovered any discrepancies and, in fact, the emerging
picture—and I would stress it is an emerging picture—is
that goods tend to be going where an OGEL is quoted because the
goods are going, as you would expect, to a non-sensitive destination
or the goods are less sensitive. If you are saying to us that
because there is a large amount of compliance out there we should
pull back, I am not sure we are satisfied as to the evidence either
way in terms of degree of compliance.
Q150 John Barrett: Could I ask what
penalties are imposed on exporters, because the madness to me
is the fact on behalf of the exporters, if individuals are being
stopped and eight out of the 10 times they themselves discover
that had they applied for a licence they would not have fallen
foul of the rules. Could you indicate what the penalties are,
because it may well be that penalties are fairly mild and they
say, "It does not matter either way"?
Mr Fuchter: I should have answered
the earlier question by putting it in the context of the DTI's
Export Control Organisation's efforts. We work with them very
closely in terms of awareness-raising and all the other things
going on of which we are part but, to turn to your question, as
you know, we have only had a limited number of cases concluded
by prosecution and you can add up for yourselves the number of
breaches and you can see only a very small number were concluded
by prosecution. I would like to add to my earlier answer that
although we had two cases concluded by a conviction in a court
we have also settled two cases by compound penalty as a result
of a criminal investigation, so we have had four of the cases
in the last year concluded in that way. Below criminal investigation
and prosecution, what I can say about those breaches is that each
case would have been closed in a way, quite often just with a
warning letter or an oral warning depending on the case concerned.
Some of those do involve exports of perfectly legally-owned personal
use firearms, so the figures—they are high level figures
themselves—do not paint a true picture, but again if we
find someone exporting a firearm and if they have not got a licence,
if we do not take action then I think we are undermining compliance
in the longer term.
Q151 Linda Gilroy: Just a couple
of questions about relations with academic research institutes.
HM Revenue and Customs is the enforcement authority for breaches
involving intangible transfer of technology from the UK and for
the overseas transfer of WMD-related technology. We have had some
evidence which, I suppose, could be summarised as follows: scientific
research has been unaffected by the UK's export controls because
few scientists are aware of the 2002 Export Control Act and its
implications for research and those who are aware do not alter
their research programmes to take the Act into account. Do you
accept that description?
Mr Fuchter: I have to say that
is, in a sense, news to us. We are quite surprised, given the
extent of the awareness-raising effort that has been led by the
Export Control Organisation and supported by us, but if that is
the case then that is something we need to look into to try and
have dialogue with whoever might be able to give us some more
information on that.
Q152 Linda Gilroy: I think we raised
this last year, perhaps you have been doing something about that
since. Can you tell us a bit more about the awareness-raising?
Mr Fuchter: I will have to write
to the Committee on that in detail, it is very much led by the
Export Control Organisation. In terms of academics themselves,
we will respond to intangible transfers on the basis that it is
intelligence led. We have to work on the basis of intelligence,
but we are prepared to do so and we will.
Q153 Linda Gilroy: Have you done
so? Are there any occasions where you can quote to us to say that
you have investigated an academic institution?
Mr Fuchter: In our past cases,
none of the cases concluded either by warning letter or prosecution
has involved an academic. I am afraid I must adhere to the department's
policy and not say anything about who we may or may not be prosecuting
or investigating.
Q154 Linda Gilroy: Can you not even
say without naming anybody as to whether you have investigated
any academic institutions?
Mr Fuchter: We have not concluded
any investigations against academics. I am aware of past instances
where we have intercepted academics at outward controls at London
Airport on the basis of intelligence. I can also say that we are
investigating a case not involving an academic but involving intangible
transfers of technology.
Q155 Mike Gapes: Can I ask you some
questions about compounding penalties? Mr Fuchter, you mentioned
two cases which have been settled by compounding. Last year, Mr
Green explained to us the basis of this alternative to prosecution,
to compound offences and accept a monetary amount in lieu of pursuing
a criminal proceeding. That assumes that there is evidence to
a criminal standard that you might have been able to prosecute
to but you have chosen not to.
Mr Fuchter: Yes.
Q156 Mike Gapes: Can you explain
why you would do that rather than prosecuting?
Mr Fuchter: Only in certain cases.
In this area, our starting point would be to report a case for
prosecution because of the greater deterrent effect, we think,
and the overriding ground for deterrence. The two cases we concluded
by compounding contained factors which we felt added up to a lower
degree of seriousness and exceptional mitigating factors. I can
say a bit more about that if you wish.
Q157 Mike Gapes: I would be grateful
if you would.
Mr Fuchter: Both cases that were
settled by compounded penalty involved limited companies and in
one case the employee who had committed the wrongful acts had
left the company. For reasons which I cannot recall, the person
who would have ended up being arraigned as a representative of
the company in the magistrates' court would have been the person
who was actually working with us to put things right within the
company's export control systems. With that and the fact that
the company was prepared to work with us to put things right,
we felt that added up to a case where we would offer a compound
penalty. These are exceptional circumstances. The second case
had different factors again. In this case, the company brought
this matter to our attention voluntarily before either receiving
an audit from ourselves or from the DTI Compliance Unit. The factors
were fairly straightforward and, to be honest, we want to encourage
companies apart from anything else, if they discover matters like
this going on, to report them to us. Those two added up to a decision
on balance to offer a compound penalty.
Q158 Mike Gapes: Do you believe that
section 152 of the 1979 Act which allows compounding is compliant
with the Human Rights Act?
Mr Fuchter: Yes, we do. It was
tested at the time that the Human Rights Act was implemented.
We applied compounding in a way, on legal advice, that is compliant.
Perhaps I can explain that a little—on the following principles.
Equality of treatment; the opportunity to compound—it is
an opportunity that is offered to a company and there is no duress—has
to be available to everyone in a similar position. That is an
approach we take in compounding. Secondly, it must be truly voluntary.
There must be no improper pressure by way of threat of prosecution.
Thirdly, we must already have had confirmation from Revenue and
Customs Prosecutions Office that there is sufficient evidence
to justify prosecution and, secondly, that if we were to report
the case for prosecution the public interest criteria would still
justify a prosecution.
Q159 Mike Gapes: Would you not accept
that when you do this process of compounding you are treating
people in a different way than they would have been treated if
they had been prosecuted? Whoever comes along to you, whether
voluntarily or because you have discovered something and you choose
to go down that route, does not end up with a criminal record;
they do not risk going to prison. They simply pay a fine. Do you
think it is right that there is not equitable treatment in that
sense?
Mr Fuchter: It is equitable for
the reasons I have already given. The overriding point for me
and our area of policy at the moment is that we do not seek to
assume to conclude cases by compounding them. We are extremely
sensitive, with the various examinations we have had, as to the
need to deter. As we said to this Committee last time, the whole
point of prosecuting under section 68(1) of the Act has had quite
a considerable deterrent effect when it is publicised amongst
the export community, so our assumption is towards prosecution.
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