Examination of Witnesses (Questions 80
- 93)
THURSDAY 20 MARCH 2008
MR DAVID
HAYES, MR
BRINLEY SALZMANN,
MS BERNADETTE
PEERS AND
MR BARRY
FLETCHER
Q80 Richard Burden: You are in favour
of end-use control in principle. You say you are looking at what
would be the practical way of that working. I have suggested a
way and you have said that is not practical. What would be practical?
Mr Hayes: We have not got there
yet is the answer. We are looking at it and we hope that there
might be a system which would work in a practical sense but we
have not yet come up with it.
Q81 Richard Burden: Have you any
sense of the characteristics even if it is not fully honed yet?
Mr Hayes: Not really because whichever
way you try to approach it there are always problems with the
law of unintended consequences. Almost always you end up catching
things where there is no conceivable reason to catch them within
the ambit.
Chairman: We are really short of time
and there are three more topics we want to cover. Can you make
the questions and answers brief. Forgive me for moving on.
Q82 Linda Gilroy: On enforcement
the NGOs have contrasted the United States enforcement authority's
approach with their counterparts in the UK and they cite the case
of the ITT Corporation which was criminally convicted and fined
$100 million for illegally sending classified night vision technology
used in military operations in China and Singapore but the UK
authorities have come nowhere near such a penalty. Why is there
such a disparity?
Mr Hayes: I do not think it is
for us to answer the question why there is such a disparity because
the penalties are determined by the legislature not by industry.
The point I think we would make is I have absolutely no doubt
that there are companies in the UK who look at the UK export controls,
look at the cost of compliance, look at the risk of potential
non-compliance and make the obvious commercial decision.
Q83 Linda Gilroy: In general you
do favour enforcement prosecution demonstrating to those that
do not behave in the way that the best in the industry do.
Mr Hayes: Yes.
Mr Salzmann: And fully publicising
it.
Q84 Linda Gilroy: The NGOs suggested
that rather than relying exclusively on the criminal law that
the Government amend the primary legislation to be able to proceed
through the civil courts with the lower standard of proof. How
do EGAD view that?
Mr Hayes: It was something we
suggested in the paper to which I referred to earlier.
Q85 Linda Gilroy: One of the penalties
open to HM Revenue and Customs is compounding fines, that is accepting
a monetary amount in lieu of pursuing criminal proceedings. Does
EGAD consider that fines as imposed by HM Revenue and Customs
are fair and transparent?
Mr Hayes: We have no way of knowing
because Customs' policy is they do not publish compound penalties.
The Committee itself might have a way of finding out what is happening
but we do not.
Mr Fletcher: In principle there
is no problem.
Q86 Linda Gilroy: That is a whole
area of weakness. Do you have any final observation in relation
to enforcement and levels of fine and penalty?
Mr Fletcher: If you were an export
compliance officer in a company trying to justify to your board
that you needed to spend X amount of money to make your company
compliant it is a very difficult argument at the moment because
of what David has said: the penalties just do not seem to fit
the crime.
Mr Hayes: If I was to contrast
the situation in the United States with the situation in the United
Kingdom, working as I do with both systems frequently, the main
difference, from a company's perspective, is that non-compliance
with the UK system can make economic sense but non-compliance
with the US system never makes economic sense.
Chairman: That is very helpful.
Q87 Mr Weir: Last year you floated
the idea of the single Export Control Agency, an idea that has
now been taken up by the NGOs who suggested a viability study
by the Government. HM Customs and Revenue seem to have thrown
some cold water on the idea. How do you feel about their reaction
to it?
Mr Hayes: I would always expect
vested interests to pour cold water on any idea which does not
coincide with those interests. I submitted a paper so I too have
a vested interest I suppose but I would like to see the idea explored
and given some serious consideration, perhaps by way of some sort
of feasibility study, and then we could reach a conclusion based
on the evidence available rather than just reacting to the decision
and saying it is a bad idea but not basing it on evidence.
Q88 Mr Weir: Basically you support
the NGOs call for a viability study of the whole idea.
Mr Hayes: Yes, we do.
Q89 Mr Clapham: Could I ask about
the Defence Export Service Organisation being transferred to UKTI?[9]
Do you feel that it is going to be beneficial or, in general,
what are your views?
Mr Fletcher: My understanding
is that on the 1 April the RDs[10]
from DESO will be moved into UKTI whereas DESP,[11]
the administrative part of DESO, will remain in the Ministry of
Defence under the Equipment Capability Organisation. That means,
from what I can gather, in practical terms DESP will still be
responsible for co-ordinating MoD replies on both 680s and export
licences and will, therefore, still be able to filter and decide
what they think is best to pass to the ECO or to the company via
a 680 application. In other words, I do not see all that much
practical change happening immediately.
Q90 Mr Clapham: Is there likely to
be a cultural change in the sense that export defence equipment
has all tended to have a priority? Do you feel that priority will
still be given?
Mr Fletcher: I am not sure what
their terms of reference will be under UKTI.
Mr Hayes: In those terms it is
vital that the promotional activities that are undertaken by serving
officers in our Armed Forces continues to happen because that
is one of the major factors which lends credibility to the items
of equipment for export.
Q91 Mr Clapham: You would tend to
feel government will give the same kind of support that it has
given previously.
Mr Hayes: I hope so.
Q92 Mr Clapham: If there was to be
a change in the culture and defence exports were treated on a
par with all other exports, would that be detrimental or beneficial
do you think?
Mr Fletcher: It would be detrimental,
I would have thought, to the UK economy as a whole not just to
the defence industry.
Q93 Mr Clapham: You do not see that
culture changing at all. You still feel that the priority will
be given.
Mr Fletcher: I would have thought
the people who are transferring across are of such a calibre that
they will make sure, to the best of their ability, that it continues,
but that is a personal judgment.
Chairman: Mr Hayes, I thank you and your
colleagues both for your oral evidence this morning and for the
written evidence. It is pleasing to see the work you are doing
with government and the NGOs, a point you stress in your submission.
One never expects three parties to always agree on things but
at least when people communicate we know what the issues that
separate us might be. Thank you, it has been very helpful.
9 UK Trade and Investment Back
10
Regional Directorates Back
11
The Directorate of Export Services Policy Back
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