Examination of Witnesses (Questions 60
- 79)
THURSDAY 20 MARCH 2008
MR DAVID
HAYES, MR
BRINLEY SALZMANN,
MS BERNADETTE
PEERS AND
MR BARRY
FLETCHER
Q60 Mr Clapham: In terms of the further
research that the Government is carrying out regarding the support
activities, such as transport and promotional activities, what
kind of activities do you think should be included?
Mr Hayes: I think control in the
peripheral activities such as transportation is fraught with difficulties.
If, for example, a UK company is arranging the movement of military
goods between two other countries, let us say two countries in
Africa, it is extremely unlikely that the transportation company
that is going to be used will have any connection with the UK
at all. If we are talking about the British party arranging transportation,
I suppose theoretically that could be brought within the scope
of the controls but controlling the transportation activity itself
would be extremely problematic.
Ms Peers: I am from a freight
forwarding company and we arrange transport, mostly defence equipment,
as a part of my daily job. At the moment we arrange transit permits
for equipment to go from countries and to countries. We take great
time and effort and money because it takes time. In some countries
we have to pay somebody in that country to apply on our behalf
because the transit legislation is such that as a UK person we
cannot apply so we have to engage somebody. We do all that on
a daily basis. I cannot see any enforcement of us in actually
doing that job because there are other freight forwarders who
do not go to those lengths or go to that detail in applying for
these licences. If we have legislation, will that legislation
be enforced and enforceable? At the moment we have legislation
but I have rarely been asked by a Customs officer to even present
our transit permits when we apply for them.
Q61 Mr Clapham: In terms of the transportation
facility, all the material that is being moved presumably there
would be end-user certificates?
Ms Peers: Which have to be submitted
for an export licence. Once the export licence is issued, you
then have to present the export licence to get a transit permit.
All of this takes time. We recently lost a contract because we
did not have a transit permit issued but I know that equipment
was moved without licences and there is very little enforcement.
Documentation is required to get the export permits but my concern
is what are the checks to ensure those permits are in place and
how could that be enforced in third countries.
Q62 Malcolm Bruce: In your memorandum
you support the case for an International Arms Trade Treaty, which
of course we would wholly agree with, but you then go on to criticise
the British Government's attempt to try and pursue British brokers.
You quote Rhian Chilcott, from CBI's Washington office, last month
saying: "Business has gone global whilst the political world
has remained fundamentally based on the concept of the nation
state."[8]
You go on to say you believe there has been far too much public
focus on the issue of trying to curb the activities of the British
brokers and you are saying it does not make a difference what
the nationality is if they are up to no good, they are just as
bad, which is of course also true. Then you say that effectively
what the British Government is doing is just re-arranging deck
chairs on the Titanic. Given we do not have an International Arms
Treaty, is it not appropriate the British Government does what
it can to regulate British citizens' activities? You seem to be
almost suggesting that we should not bother and we should wait
until we have an International Arms Treaty. Is that your position?
Mr Hayes: An International Arms
Trade Treaty would be by far the preferable way to go because
by definition it is far easier to effectively enforce a domestic
law than it is to enforce a law extra-territorially. If arms were
being moved between two countries, those arms would be an export
from one of the countries and an import to the other by definition.
If we could get to the stage where that transaction was being
controlled effectively by the countries directly involved, that
would be a far more efficient means of enforcement and far more
likely to result in a successful prosecution than would the UK
trying to control that transaction from one stage removed.
Q63 Malcolm Bruce: In other contexts
a number of us have criticised the Government for ineffectiveness,
and I take your point, in prosecuting corruption in third countries
and so on, and there will be other questions on that. I take your
point that it is difficult and we are not very good at it and
all those things but is it not right that in the meantime we should
be more active and that brokers out there who are British should
be aware of the fact that frankly if they are up to no good there
is a reasonable chance that they might be pursued? I am slightly
concerned your memorandum seems to be implying it is so difficult
that we should not even go there.
Mr Hayes: It depends on where
the country chooses to focus its enforcement efforts. I submitted
a paper in a previous evidence session which pointed out that
some years ago Mike Coolican, then at the DTI, said that approximately
65% of the companies in this country who should be applying for
export licences are not. We have a system which focuses exclusively
on the defence industry. There is hardly any activity in relation
to dual use at all, leaving aside the recent prosecution of the
gentlemen for gyrocompasses, yet at the same time we are being
told by government that the greatest threat to our national security
is the potential use of a dirty bomb. All of the ingredients for
a dirty bomb are controlled on the dual-use list not on the Military
List. We are in danger of having a system which focuses increasingly
tightly on the minority of industry that are operating legitimately
and requires that minority to carry a heavier burden of compliance
whilst a huge amount of activity in products and technologies
of great concern goes unexamined.
Malcolm Bruce: I understand where you
are coming from. From your point of view, as practitioners in
the field, I can understand the difficulties that you are identifying
but I think you need to accept that our concern, in terms of British
citizens, is that actually leaving it on the basis it is too difficult
or it is too interfering would leave the citizens feeling that
the Government was not doing its job in pursuing people who are
up to no good. I would suggest to you respectfully that the terms
of your memorandum do not reassure.
Chairman: Take that as a comment not
a question.
Q64 Mike Gapes: Your memorandum to
us refers to the proposal to consider extending controls to component
level as a scatter gun approach that must in all certainty fail.
Why?
Mr Hayes: I would like to defer
to Mr Fletcher on this one.
Mr Fletcher: I think there is
a terrific misconception that most military equipment is manufactured
using specially designed or modified military components. That
may have been the case 20 years ago but the case today is, particularly
in the electronics industry, that many components which are manufactured
for industrial use are finding their way into military equipment.
Therefore, if one is trying to broker electronic components which
happen to meet a military specification no way do you know at
that particular time whether they are licensable products or not,
you would spend an awful lot of wasted time trying to find out
the answer to that before you continue with that particular activity.
Therefore, to try and introduce components rather than just the
equipment into this category would be catastrophic for the British
defence industry.
Mr Hayes: Of course, even if those
components are licensable, they are licensable as dual use not
as military components and they would be outside the scope of
the broker controls anyway. It brings us back to the point of
why is the dual-use sector of industry apparently going largely
unmonitored.
Q65 Mike Gapes: Is there not then
a problem that unless we get the Arms Trade Treaty and every country
in the world complying to a common approach there is going to
be always this tension?
Mr Hayes: No, because anything
which is dual use is, by definition, outside the scope of the
Arms Trade Treaty.
Q66 Mike Gapes: Unless the Government
includes components of small arms within its own criteria, it
will not be able to have control of the system overall with regard
to extraterritorial brokering or trafficking in small arms, which
the Prime Minister said in the speech last November he wanted
to bring about.
Mr Fletcher: If it was just for
small arms the problem is a lot easier. In fact, the problem,
from what I have just described to you, almost goes away in that
in my experience 99% of the items used would probably be specially
designed or modified for that particular use. We were talking
on the submission of a possibility of extending the Category 2
controls to UAVs and missiles where it does become more problematic
or even eventually to the whole of the Military List. When you
go to that extreme, then it does become absolutely unworkable
in our terms. If you just keep it to small arms and light weapons,
then I do not have a real argument against what you are suggesting
for components.
Q67 Mike Gapes: What is the way forward?
Mr Fletcher: To accept what we
are agreeing with the NGOs of limiting it to small arms and light
weapons, for which incidentally I do not think you need a definition.
In fact, the definition would only complicate matters because
it has to be interpreted. You should stick to the existing ML
control numbers where everybody would know exactly where they
stood on what was and what was not controlled.
Q68 Mr Hamilton: Five years ago our
predecessor committee, the Quadripartite Committee, received memoranda
alleging that bribes were paid by the Defence Sales Organisation
to senior Saudi Arabian officials in order to obtain defence contracts.
The Committee then put these allegations to the Ministry of Defence
and I suppose we should not be surprised that the response was
that it was a principle that officials should not be engaged in
or encourage illegal or improper actions whether in their relations
with UK or overseas firms and the MoD no longer employed agents
nor pays commissions in its government-to-government defence export
programme. When the Defence Secretary gave evidence to this Committee
on the 17 January this year he reiterated that those allegations
were totally unfounded. Do you think that the decision of the
Serious Fraud Office to end its investigation into the al-Yamamah
case has created a negative impression of British companies overseas
and damaged the UK's reputation for combating corruption?
Mr Salzmann: Yes, it is a political
question.
Chairman: This is about perceptions of
British business in the light of a political decision. You are
a British business substantially. I think it is a very relevant
question. How has that affected the view of British business in
the wider community? The question is not a political one.
Q69 Malcolm Bruce: I am asking you
to comment on the effect that that decision has had on the impression
people have of your companies.
Mr Hayes: I do not think it has
necessarily changed the positions greatly. I think people will
probably, largely speaking, still have the impression of the defence
industry that they had before this happened whether that is in
favour of the defence industry or, broadly speaking, against the
defence industry. The decision to drop the prosecution or drop
the investigation was primarily a matter for the SFO and the decision
was taken to drop the investigation. If you are going to take
the view that by dropping the investigation it allowed the defence
industry off the hook, then a pre-requisite to taking that point
of view is that you must believe that had the investigation been
continued something untoward would be found. It requires almost
a presumption of guilt for you to take the view that the defence
industry is somehow worse off as a result of the investigation
having been stalled.
Q70 Mr Hamilton: What is the impression
out there? Is the impression that there was some guilt here and
it was squashed by government in a political decision or is the
impression that this was just too complex, too political, and
actually British companies are untainted?
Mr Hayes: It depends who you talk
to. If the person you are talking to believed before the event
that the industry was tainted, they will still believe that. If
they believed before the event that it was not tainted, then they
still believe that. I do not think it made any material difference.
Mr Fletcher: I cannot see that
it has damaged the defence industry. The UK defence industry is
still broadly respected. If people really want the best defence
equipment they still look to the UK and a couple of other countries
for that equipment. I do not think it makes any difference to
them what has gone on in the past in the UK. I see no evidence
from talking to British defence companies that it has altered
any perception at all.
Q71 Mr Hamilton: We had a reputation
for combating corruption and not paying bribes. Do we still have
that reputation?
Mr Salzmann: I believe so, yes.
I think we do still maintain that reputation.
Q72 Chairman: Lord Gilmour, former
Secretary of State, said it would be fair to say that the only
way to do business with the Saudis was with bribery and corruption.
Did this come as a complete bolt out of the blue when you heard
that?
Mr Hayes: We have to say he is
entitled to his view.
Q73 Chairman: Your answer was not
"No, we were shocked, we were astonished" but "He
is entitled to his opinion."
Mr Hayes: Absolutely.
Chairman: I think I understand what you
are saying.
Q74 Mr Weir: The NGOs consider the
open licence regimes as too "light touch" and have suggested
various changes including restricting the use to those companies
that are correctly applying good internal compliance and due diligence
procedures and also advanced notice of trade. Do you consider
it to be too light touch and how do you feel about the NGOs proposals?
Mr Hayes: The Open General Export
Licence system is fundamentally designed so that exports which
would raise little or no concern, you would almost say exports
where it is inconceivable that a licence would be refused, are
achieved by using the open licence system. The UK is not the only
country to operate on this basis, in fact the United States operates
on a very similar basis. They would deny they do so because they
do not like open licences but there are in excess of 50 exceptions
under the International Traffic in Arms Regulations, many of which
achieve exactly the same end result as the UK's Open General Export
Licence system achieves so we are not unique in that regard. Could
the system be improved? Certainly one improvement that many would
welcome would be the ability of BERR to remove the right of a
company to use Open General Export Licences, something which does
not currently exist.
Q75 Mr Weir: It has been suggested
that you remove for a specified period. I take it from what you
are saying that you would support that if there is a breach in
the system.
Mr Hayes: We would.
Q76 Richard Burden: Could we move
on to the question of end uses and the kind of procedures that
could be adopted to tackle this. The NGOs have drawn attention
to the situation in Germany where you have a single action catch-all
clause that you can refuse the transfer of an unlisted item which
you think could be used for internal repression even if it is
not on the list at the start. Would you support that catch-all
clause?
Mr Hayes: I do not think we know
enough about it. We have heard a little about it. We have done
our own research into it and, as far as we can establish talking
to German colleagues they are only aware of one instance where
this procedure has ever been used. The point that we would make
is that what industry is looking for in relation to export controls,
in fact what industry is looking for in relation to legislation
in general, is that legislation is clear and predictable. We would
not be looking for a situation where there was carte blanche
to stop any shipment of anything at any time on the surmise that
it might be used for a purpose that was claimed to be adverse
to the policy of the day.
Mr Fletcher: I totally favour
a catch-all for torture equipment. You referred in your question
to internal repression. Are you actually referring to torture
equipment?
Q77 Richard Burden: Not necessarily;
it could go a lot wider than that.
Mr Fletcher: I think you need
to feed us a little more information of what type of thing you
are trying to control for us to be able to try and advise you
on what we consider to be the best way forward.
Q78 Richard Burden: This is the problem
in the nature of trying to deal with the issue of end use in that
you are looking at pieces of equipment and components that may
not of themselves be a problem but actually if they are destined
for use in an item of equipment that is on the Military List they
become a problem. It is very difficult to say.
Mr Fletcher: You already have
some type of control for an embargo destination. Are you considering
expanding that type of control?
Q79 Richard Burden: This is turning
around to you questioning us. If you look back to our other discussions,
we have covered some of these issues. Even in embargo destinations
if items of equipment go through particular routes the embargo
does not work very well. Could I just take you on to something
that the NGOs have suggested as a starting point towards what
they would regard maybe as a practical solution to this problem.
If there is a non-controlled component that is destined for incorporation
into a piece of equipment that is on the Military List, if the
exporter has been informed by the Government that the goods might
be destined for that sort of incorporation, or if the exporter
has knowledge that the goods might be intended for use on something
on the list, really the exporter could then protect themselves
from breach of export controls if they make all reasonable inquiries
about the proposed list. This is something that we have talked
about before. Is a form of regulation that puts an obligation
on the exporter to make reasonable inquiries the way we should
go?
Mr Hayes: It is a form of regulation
which would completely paralyse British industry.
Mr Fletcher: To all destinations.
Mr Hayes: The activity you just
described is happening thousands of times every day, the export
of uncontrolled items which might be incorporated into something
which will be on the Military List.
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