Select Committee on International Development Eighth Report

4  ENFORCEMENT

Introduction

48. Since the start of this Parliament we have scrutinised the enforcement of export controls closely. Ahead of our last two Reports we took oral evidence from HM Revenue and Customs (HMRC) and the Revenue and Customs Prosecution Office. This year we took written evidence and visited the Customs facilities at the Port of Southampton, where we had an informal meeting with both HMRC and the Revenue and Customs Prosecution Office. A note of the visit is annexed to this Report.[124]

Seizures by HM Revenue and Customs

49. The table below sets out the number of seizures in each of the past seven financial years. Seizure occurs when HMRC detain goods subject to export control which appear to be intended for export without a valid export licence.[125]

Financial year	HMRC seizures
2000-01	120
2001-02	80
2002-03	67
2003-04	63
2004-05	37
2005-06	34
2006-07	44

50. We have previously expressed concern about the downward trend in the number of seizures by HMRC.[126] The Minister, Malcolm Wicks MP , in his oral evidence as well as pointing out that in 2006/7 there had been 44 seizures by HMRC said that "in 2007/8 the figure is likely to be significantly higher and we will be reporting on those figures in our next annual report".[127] We conclude that we should continue to monitor the number of seizures made annually by HM Revenue and Customs and we recommend that the Government continue to supply this information in annual reports on strategic export controls along with an explanation for the trend in seizures.

Level of penalties

51. The Export Group on Aerospace and Defence (EGAD) in its evidence last year pointed out that the dearth of any headline prosecutions underscored with heavy penalties on transgressors had allowed the threat of potential prosecution to reduce as an "effective awareness raising tool".[128] In its evidence this year EGAD returned to this issue. David Hayes from EGAD pointed out that:

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.[129]

In its evidence the UK Working Group on Arms made a similar point when it compared the penalty imposed on the ITT Corporation in the USA which had been criminally convicted and fined US$100 million for illegally sending classified night-vision technology used in military operations to China and Singapore with the penalties imposed by the British courts.[130]

52. If EGAD's assessment is correct, it casts serious doubt on the effectiveness of the export control system. In our past two Reports we have recommended that the Sentencing Guidelines Council as a matter of urgency conduct a review of the guidelines on sentences for breaches of export control.[131] On each occasion the Council has decided not to include a review of the penalties for breach of export control in its annual programme. We are extremely disappointed and concerned that the Council has on two occasions declined to review the penalties. That said, the Revenue and Customs Prosecution Office and courts have made progress without the Council. In November 2007 a British arms dealer, John Knight, was jailed for four years after pleading guilty to illegally moving weapons contrary to Article 9(2) of the Trade in Goods (Control) Order 2003. Mr Knight was also made subject to a confiscation order of £53,389.51 to be paid within six months or face an 18 month prison sentence in default. This prosecution was brought by the Revenue and Customs Prosecutions Office and was the first use of this legislation by any prosecuting authority in the UK.[132] The sentence was appealed. The Court of Appeal upheld the sentence and, as the Government pointed out, "set out some quite useful guidance on how sentences should be applied in cases of conviction under the arms control legislation".[133] Following the Knight case we consider that the time has come for the Council to take its lead from the Court of Appeal and to review the penalties for breaches of export control. We reiterate our recommendation made previously on two occasions that the Sentencing Guidelines Council conduct a review of the guidelines on sentences for breaches of export control and we press the Council as a matter of urgency to include the review in its programme for 2008-09. We are deeply dismayed to have to make this recommendation again.

Open licences

53. The Knight case also gave rise to representations on the use of open licences. Oliver Sprague from Amnesty International said :

from the court transcripts [John Knight's] lawyer says that he is registered to use various open general licences for his brokering and trafficking activities and he wants to continue to use them after he has finished his sentence. I would go one step further: under the current system there is nothing to stop him using it now. As long as he has access to a phone, he could be using that licence. It seems crazy that somebody convicted of such a serious export control violation is eligible to use an Open General Export Licence for the movement of small arms and light weapons or of a wide range of goods on the Military List.[134]

54. We put Amnesty International's concerns to the Minister, Malcolm Wicks MP. He pointed out that HM Prison Services rules did not permit convicted prisoners to run a business when in prison. But he accepted that an anomaly had been pointed up and he said that:

We had our lawyers look at what could be done and I am now pleased to be able to tell the Committee that a notice to exporters has been issued setting out the circumstances where the Secretary of State may consider suspension or revocation of open general licences for individual exporters. The notice sets out the circumstances where the Secretary of State may consider it appropriate to take speedy action to suspend or revoke such licences. John Knight has now been advised that his company, Endeavour Resources, is suspended forthwith from the use of the Open General Trade Control Licence for a period of four years from the date of his conviction. We have learned lessons.[135]

55. We applaud the Government for suspending the rights of Endeavour Resources Limited from the use of the Open General Trade Control Licence. We consider that the lesson learned from the Knight case is of general application. We recommend that the Government suspend as a matter of course any person or company convicted of breach of export controls from the use of the Open General Trade Control Licence for a period no less than the length of their sentence and, if the Government establishes a register of brokers, he or she be struck off the register. We also recommend that those who have committed minor breaches have this recorded against their names in the register.

Compliance visits

56. When an exporter registers to use an Open General Export Licence (OGEL), he or she is subject to compliance visits by the Export Control Organisation (ECO).[136] The UK Working Group on Arms pointed out that the figures showed a "growing trend of examples of misuse of open licences when the compliance officers come to visit. In 2004, 5% of OGELs were seen to be misused; in 2005, 8% were seen to be misused; and in 2006, 11%. That is just over one in 10, from compliance visits, are shown to have problems with their use."[137] The trend should be seen against an increase in the number of open licence-holders from 779 in January 2003 to 3,114 in December 2007.[138] The Government told us that it was "concerned about levels of non-compliance in relation to use of open general licences" and it explained that "partly this has come about because more people are using the open general licences".[139] It pointed out that it now had "the mechanism in place to remove entitlement to use open general licences if there are persistent breaches, so there would be a real incentive on exporters to get it right, make sure that they are following the rules".[140] The Minister also made the point that the majority of non-compliance cases were "usually minor record-keeping errors" or "incorrect references on documentation" and that these breaches were "reported to HMRC".[141] But he explained that he was not "complacent" and he considered that "we need to improve".[142] He had been able to reallocate resources to compliance with the result that the compliance team at the ECO had "increased by over 30% so that more companies can be visited each year".[143]

57. We note the Government's explanation for the trend showing increases in the number of misuses of open general licences and on the nature of the breaches and we welcome the reallocation of resources to increase the number of compliance visits. We conclude that we should monitor the trend and type (in particular, intent, lack of awareness or neglect of duty of care) in the number of misuses of open general licences next year. We recommend that this information should be included in the Government's annual reports on strategic export controls.

58. We consider that it is neither good for the integrity of the export control system nor defence exporters for the authorities to adopt heavy-handed enforcement tactics in the face on isolated, technical breaches of the system of open licences. The same considerations do not apply to persistent breaches. Where breaches of the requirements to use open general licences are persistent and an exporter shows no inclination to bring his or her administrative arrangements up to the required level, we recommend that the Export Control Organisation automatically remove the exporter's entitlement to use open general licences.

59. The UK Working Group on Arms had concerns also about the scope of Open General Export Licences. It claimed, for example, that Open General Export Licences could be used to export military small arms and their components to Guinea, a state adhering to the ECOWAS[144] convention on small arms, if imported from the Guinean government to be repaired or replaced. The Open General Export Licences could also be used to export instruction manuals and blueprints for military equipment to, inter alia, Burkina Faso, Congo (Brazzaville) and Guinea (Conakry).[145] In responding to this Report we recommend that the Government set out the arrangements and programme for reviewing and updating open general licences.

Civil penalties

60. Amnesty International UK, the Omega Research Foundation and Saferworld suggested that, rather than relying exclusively on the criminal law to prosecute breaches of export control, the Government should amend the primary legislation to be able to proceed through the civil courts as well as the criminal courts.[146] The non-governmental organisations said that:

civil penalties would create a lesser test for prosecutors and therefore enable a greater number of breaches to be successfully prosecuted, creating stronger deterrent against transgressing the export control regime. [Civil penalties] would create an incentive for compliance from those who would stand to lose financially and would generate a more cooperative stance from companies under investigation.[147]

61. We asked whether other countries applied civil penalties to breaches of export controls. The UK Working Group replied that Germany used them and that Israel had recently introduced a new law that contained civil penalties. The UK Working Group also cited its experience of the USA where officials had pointed out that the lower burden of proof was "very helpful and that companies actually tend to dismiss the likelihood of criminal prosecution and are much more wary of civil procedures" and the US officials took the view this was a "critical component in ensuring compliance from industry".[148] Picking up EGAD's point about compliance in the USA, the Working Group understood that UK industry was "far more concerned about complying with civil law in the US than it is about the law as it stands in the UK".[149] EGAD in its evidence showed sympathy towards further consideration of civil penalties.[150]

62. We also asked the Government about civil penalties and it replied:

We have been looking at this very carefully with Customs and will be planning to make an announcement if ministers agree in the coming months. Part of this is suspending people's right to use OGELs—that is part of it—but also whether financial penalties can be imposed perhaps with a slightly less onerous burden of proof than if one had to go through a formal process in the courts. There may well be a place for that in the regime and we have done a lot of work on it and an announcement will be coming forward in the not too distant future.[151]

63. We are pleased to note that the Government is considering the possible application of civil penalties to breaches of export control. We conclude that the use of civil penalties for the breach of export controls appears to offer a method of strengthening the UK's export controls. We conclude that we should consider this matter further when the Government has completed its consideration of the use of civil penalties for the breach of export controls. We recommend that the Government inform the Committees and the House of the outcome of its deliberations at an early date.

Bribery overseas

64. We deal with enforcement against bribery overseas in chapter 7.

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124   Annex 2 Back

125   Foreign and Commonwealth Office, United Kingdom Strategic Export Controls Annual Report 2005, Cm 6882, July 2006, p 9; and for 2006-07 Q 178 [Mr Wicks] Back

126   HC (2006-07) 117, para 157 Back

127   Q 178 [Mr Wicks] Back

128   HC (2006-07) 117, Ev 57 Back

129   Q 86 [Mr Hayes] Back

130   Ev63, para 19 Back

131   HC (2005-06) 873, para 126; HC (2006-07) 117, para 165 Back

132   "Arms dealer jailed in first use of export control legislation", Revenue and Customs Prosecution Office press notice 23, November 2007, http://www.rcpo.gov.uk/rcpo/pressoffice/news/200711023_2.shtml; see also Annex 2 to this Report, section 3 Back

133   Q 177 Back

134   Q 122 Back

135   Q 156 Back

136   Cm 7141, para 3.7 Back

137   Q 122 Back

138   Ev57, para 29 Back

139   Q 168 Back

140   Ibid. Back

141   Q 161 [Mr Wicks] Back

142   Q 164 [Mr Wicks] Back

143   Ibid. Back

144   The convention is the Economic Community of West African States (ECOWAS)-Convention on Small Arms and Light Weapons, their Ammunition and other related materials / Moratorium on Import, Export and Manufacture of Light Weapons. ECOWAS Member States are Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea Bissau, Cote D'Ivore, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo. The ECOWAS Convention on was adopted on 14 June 2006. UK exporting policy is that, as well as meeting the EU Code of Conduct on Arms Exports and the National Export Licensing Criteria, an export licence for small arms and light weapons, components or ammunition will not be issued unless the ECOWAS Commission has issued an exception to the Moratorium. See guidance on the ECO's website at http://www.berr.gov.uk/europeandtrade/strategic-export-control/sanctions-embargoes/by-country/westafricanstates/index.html. Back

145   Ev 57, para 30 Back

146   Ev 65, para 31; see also HC (2006-07) 117, Ev 139.  Back

147   Ev 65, para 31 Back

148   Q 98 Back

149   Q 98 Back

150   Q 84 Back

151   Q 178 [Mr Doddrell] Back

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Prepared 17 July 2008