Examination of Witness (Questions 100-120)
MR DAVID
HAYES, MR
NIGEL KNOWLES
AND MS
BERNADETTE PEERS
11 MARCH 2009
Q100 Mr Holloway: I asked earlier
what would be the effect of an arms embargo on Israel in terms
of our ability to keep up with the very, very fast pace of technological
development of unmanned surveillance and weapons systems?
Mr Hayes: Because of Israel's
prominent position in the UAV market, which is in part at least
evidenced by the fact that the UK MoD has made a procurement decision
to obtain equipment from Israel, we have to reach the conclusion
that a total arms embargo on Israel—which would of course
impede our ability to procure equipment from Israel—would
have a devastating effect on the operational capability of our
own Forces and put our own military personnel at increased risk.
Q101 Mr Clapham: Could I just turn,
Mr Hayes, to the dual use sector? It is important because we see
that there is a lot of anecdotal evidence anyway that there is
a great deal of non-compliance, yet it is in this particular dual
use sector that we are likely to see, for example, elements that
could go towards the construction of a dirty bomb being on that
list rather than on the military list.
Mr Hayes: Yes.
Q102 Mr Clapham: How do you see controls
being brought about that are going to give us a little more certainty
about compliance?
Mr Hayes: There are two elements
to that and you highlighted them in your question, the controls
and the compliance. One of the problems with the dual use control
list is that it is very, very complex to understand for people
in the industry, much less for lay people who have no involvement
with it at all or, worse, people who believe they have no involvement
with it at all. How you deal with the level of complexity is itself
complex because the lists are drawn up in a number of multilateral
regimes and it is those regimes that define the technical parameters
in the list, so trying to change the list in order to make it
more user-friendly would be a very difficult and very time-consuming
task. Looking at the enforcement angle we are aware of nine prosecutions
between May 2005 and today; of those nine seven related to military
items, items on the military list, two related to items that are
on the dual use list. Given what we are told in that as you expressed
the threat is in relation to non-state actors using dirty bombs
et cetera, then looking at the enforcement that is happening the
enforcement priorities appear not to be matched to the threat.
It may be that the enforcement priorities are being dealt with
in another way—we hear from HMRC about compound penalties
being used. It would be of great help if we could have some clarity
from the Revenue and Customs Prosecution Office about their policy
on the use of compound penalties and some publication of events
in which compound penalties have been imposed. Appreciating that
part of the compound penalty process is that the details are not
revealed it does not seem impossible to devise a system as is
used for television licensing where an advert is put out that
says a 33 year old woman from Croydon was fined £1000 for
not having a TV licence; we cannot actually identify the lady
concerned from the poster but it does act as a deterrent. To that
extent we have to look at the enforcement priorities in the context
of the risk and if the enforcement priorities are actually being
dealt with in a way that is not currently visible, like for example
through compounding, to make that visible so that we are reassured
that the enforcement priorities do match the risk.
Q103 Mr Clapham: You seem to be saying
that the penalties are not sufficient to deter people from non-compliance.
Mr Hayes: In some cases that is
true. In the case of compounding we do not know how many cases
are being compounded or what the penalties are.
Q104 Mr Clapham: It really is a complicated
and complex issue but nevertheless, as you said earlier, it will
take time and effort to actually bring in a control system but
because of the risk do you feel that that time and effort should
be spent in actually bringing them into a control list?
Mr Hayes: Yes, I do, I firmly
believe that the time and effort should be spent and there are
ways now in which we can potentially improve the enforcement or
improve the awareness of companies in the dual use sector that
they are in fact dealing in controlled items. Perhaps an exercise
by the relevant authorities, be it BERR and/or HMRC, could look
at websites. It is quite obvious in some cases from websites that
the products of certain companies are controlled and it should
not be impossible, particularly now we have the NES export system,
to identify shipments by those companies and give them a greater
level of scrutiny than is currently the case, stop some shipments
and actually ask them to provide the technical specifications
of the items they are exporting as not requiring a licence.
Chairman: Thank you, that is very helpful.
Sir John.
Q105 Sir John Stanley: Mr Hayes,
as you know over what is a period of seven years now this Committee
has strongly advocated the extension of extra-territoriality to
items on the military goods list, that being, making it a criminal
offence that is capable of criminal jurisdiction in this country
if a British person in a third country carried out arms trading
that would otherwise require an arms export licence if carried
out from this country. I have to say it has always been something
of a mystery to me why your organisation, EGAD, has been so doggedly
resistant to our proposal, which I would have thought is wholly
in the reputational interests of your member companies, because
it would appear to me that if any of your member companies or
individuals associated with your member companies got involved
in arms exporting from a third country of that company's military
equipment, which otherwise would require an arms export licence
from the UK, and thus is clearly circumventing the arms export
licence regime, then the company concerned is going to be the
subject of a totally deserved absolute hammering in this Parliament
and no doubt in the media also. Could you say to us why is EGAD
so resistant to the extension of extra-territoriality in the way
that this Committee has in successive reports recommended?
Mr Hayes: The first thing would
be that the absence of total hammerings makes us question whether
there really is a problem in that regard. The problem with extra-territoriality—if
I can refer you back to the previous question from Mr Clapham—is
that if we are not terribly effective (and it appears that we
are not) at enforcing the current laws within the current level
of resource when we are only talking about our own domestic law,
why would we believe that we can effectively police the world?
Q106 Sir John Stanley: I do not think
we would be suggesting that you should police the world but in
every walk of life there are individuals who, for gain, will bend
the rules and will act contrary to their organisation's interests—you
have many glaring examples of that, not least in the news today.
In these circumstances the responsibility ultimately for enforcement
would lie with the criminal jurisdiction in the UK, so why do
your organisations, your companies, not feel it is very much in
their interests to have the buttress of the criminal jurisdiction
in this country against members of your company's staff who might,
at some future date, be persuaded to act in a venal way and try
to make money out of what effectively would be criminal illegal
exports of your member companies' goods from a third country?
Mr Hayes: My colleague is burning
to answer your question.
Ms Peers: I would like to step
back. I agree ignorance of the law is no excuse but the awareness
campaign that has taken place so far by BERR to make industry
UK employees aware of this has been limited. Whilst they have
made their best efforts, David and I were recently in the US at
a large conference there; nobody in the audience had any knowledge—these
were large defence companies—of the changes in the legislation,
so as industry representatives we were advising these possible
UK employees about UK legislation which I feel is the Government's
job to be doing and not necessarily ours, although we will assist.
To say that they have gone to embassies and advised embassies
and consulates is a step towards it, but they need to check that
those embassies and those consulates have done something with
the information that they have received from the UK Government.
If I am a UK employee in a Swiss company legitimately moving defence
equipment, I now have to apply for an export licence to be involved
in the transaction. I am now being put at risk of possibly losing
my job because I could delay the process, or if I am a UK company
operating overseas they could go to a non-UK company because they
do not have to get an export licence. So this idea of a level
playing field does not exist for a UK company operating in the
trafficking or brokering who are acting extra-territorially. Going
back to the US and looking at their extra-territorial controls
which they do rigorously enforce it is still quite minor and they
have huge resources available to them for enforcement. The Department
of State quoted that they have 900 voluntary self-disclosures,
i.e. industry has found the errors and told Government, and just
under 100 directed disclosures, i.e. they have found out. Therefore,
even with the best country operating enforcement their deduction
and finding out is still quite minimal, so industry in the compliance
sector is being policed and acting properly but industry who is
ignorant is acting outside of all of this and the enforcement
is not there to back up to find out who these companies are, so
we do not have a level playing field.
Mr Hayes: I would like to add
something if I may, Chairman: there are additional practical issues
around this. For example, if I were working for a major UK Plc
which was exporting goods from the UK that required a licence,
that Plc—not me as an individual—would be required
to obtain a licence. If I am working for a major defence company
in the United States then I am still a British person; am I the
broker or is the company? If I am the broker do we really believe
that if the British Government were to say, "sorry, but we
are not granting a brokering licence to David Hayes who works
for you", the US company would not make the export once it
got a licence from the US Government? It would not actually prevent
anything happening.
Ms Peers: A further concern with
this, harking back to the US because they have such rigorous enforcement,
even they do not control carriers—truckers, airlines—because,
I believe, it is unenforceable. If you approach BA, as we did
to advise them of the change, that transport companies will have
to get licences, British Airways just said "We are not going
to carry small arms and light weapons" so the result will
be the compliant industry, i.e. freight forwarders like ourselves,
will have to find another legitimate carrier to move it. The non-compliant
freight forwarders will either mis-declare or go to a less compliant
company which I do not think is the direction that the NGOs would
like us to go in.
Q107 Sir John Stanley: Can I just
ask one final question for Mr Hayes on this? As you are aware
the Government has moved in two steps towards the Committee's
position, the first when Patricia Hewitt was secretary of state
and then we had further movement last year. The question I would
just like to ask you finally, Mr Hayes, the Government has yet
to complete the remaining moves to the Committee's position, which
we hope it will, and bring the remaining items on the Military
List within the ambit of extra-territoriality. Is EGAD still opposing
the Government moving to the remaining position wanted by the
Committee?
Mr Hayes: EGAD has concerns. As
the NGOs said, we are working with them and we hope to have a
meeting with the Government shortly to discuss the extension of
extra-territorial controls to the whole of the Military List and
to determine whether that is possible in a way which would minimise
the burden on legitimate industry whilst enabling Government to
target those people it intends to target. I would not interpret
the fact that we are working towards it as meaning that we are
supportive of the concept of extra-territoriality. We accept the
reality that extra-territoriality is upon us; do we believe that
it is effective, do we believe that it is the best way of achieving
the end, no, we do not.
Q108 Chairman: Which sort of takes
us to the Arms Trade Treaty, a proposal that you have in general
terms welcomed for obvious reasons, but equally you have pointed
out some severe practical problems with it. You have talked, for
example, about the need for greater clarity on definitional issues.
I wonder if you could identify two or three of the key definitional
issues that you think are problematical in all of this.
Mr Hayes: Yes, it has already
been touched upon by one of the NGOs in terms that the UN list
does not read across into the lists of other countries. The EU
of course operates on the basis of the common Military List at
an EU level and individual military lists at the Member State
level. Wassenaar has its own Military List and if we were to try
to use the definitions that exist in Wassenaar the danger is that
the Arms Trade Treaty itself will be perceived as being promoted
by the Wassenaar states, almost being imposed by the Wassenaar
States on Wassenaar members. Conversely, if we move to a completely
different methodology for defining the items that are covered
under the International Arms Trade Treaty that will increase the
burden on industry around the world because we will have to work
under one list for the Arms Trade Treaty and another list for
our own national controls.
Mr Knowles: From industry's point
of view we would really want to see some kind of harmonisation
of the list so that everybody was playing off the same level playing
field and the tendency towards confusion would be removed. Also,
if the Arms Trade Treaty was a success with a harmonised list
then that would be preferable to extra-territoriality because
can one imagine 160 countries of the world all having their own
extra-territoriality rules? Citizens throughout the world would
be very vulnerable to be arrested, extradited and imprisoned almost
anywhere at any time for anything.
Q109 Chairman: In some areas of course
there are such rules but in terms of your particular concerns,
do you have working group negotiations on all of this and have
you got any input into that? Have you passed your concerns on
to simply the UK Government or how closely are you involved in
the UN negotiations?
Mr Hayes: Not closely at all,
we have passed our concerns on to the UK Government.
Q110 Chairman: Thank you. Could I
turn to an issue that cropped up earlier this morning about re-exports,
the whole question about re-export clauses. As you know the Government
say that re-export clauses and licensing would make little difference
in reality, they are sceptical about it, whereas a number of us
on this Committee, with various examples in mind, seem convinced
that actually a re-export clause from time to time would be exceedingly
helpful. Do you think the Government has got it right when they
say re-export clauses would make little difference?
Mr Hayes: Broadly speaking yes.
For one thing they are an interference with sovereignty and if
I can recall the events where Lord Drayson was involved in the
debates concerning the Joint Strike Fighter, one of the things
that the UK was saying to US about it in relation to the ability
to share information with other parties on the programme—other
parties within the UK because the culture in the US is to regard
a transfer between any parties as a re-export—was that we
needed operational sovereignty. It would be incredibly arrogant
of us to take the position that the UK needs operational sovereignty
over its defence equipment but other countries should not be entitled
to the same treatment.
Q111 Chairman: If there is an embargoed
destination—the UN embargoed Sudan, Burma and so forth—if
the UK is exporting to a non-embargoed destination and there is
no provision for a re-export clause to prevent the re-export to
an embargoed destination, does that not provide a greater impediment
to British exports because the natural reaction is—and I
could name some countries but I had better not—if you think
that the UK exporting to a certain country runs a real risk of
that country exporting to an embargoed destination, if you cannot
use a re-export clause to try to discourage that, are you not
going to apply common sense and not export to that country at
all? We are talking about some major UK export markets here and
I need not name the countries for you to know what I am talking
about. Do you not actually think that not only is it morally right
to consider embargoed destinations seriously—and that does
involve being concerned about re-exports—but if you do not
have the re-export clause could that not stifle the arms trade
even more?
Mr Hayes: To some extent we already
have a mechanism for dealing with this because one of the considerations
in the code of conduct is the likelihood that the goods will be
diverted, and that is assessed upfront by the UK Government before
the licence is issued, and the Government of course is better
placed to assess the risk than industry is. If the re-export clause
were to be included in the contract and the foreign company were
then to breach that contract, who would bring the action for the
breach of contract? The UK Government is not a party to the contract;
would the UK company be expected to bring an action for breach
in the UK courts? Would, for example, the Government be prepared
although not a party to that action to fund that action, even
though there are arguably legal reasons why it cannot, or would
it be left to industry to bring the action? Once the breach occurs,
i.e. once the re-export occurs, the goods are in the undesirable
destination anyway and bringing the breach of contract action
is not likely to actually result in the goods being returned to
the country to which they were originally exported, so I do not
actually see that it provides any greater reassurance than the
current mechanism of assessing the risk of diversion. Of course
in either case, whether it was a breach of contract action or
whether the licence was issued in the belief that there would
not be a diversion but the diversion occurred, the end result
would be the same: it would be that in future licences to that
particular destination for that type of equipment would be much
less likely to be granted.
Q112 Chairman: That of course is
the inevitable consequence, I agree. You do not think the re-export
clause actually clarifies that responsibility?
Mr Hayes: Again you get into the
definitional weeds.
Q113 Chairman: Let me briefly put
it another way. What is wrong with saying to countries we export
to, our friends and allies if you will, that a condition of a
UK export to your country is that you do not go off and re-export
it a UN-embargoed destination—you do not pass it on to Sudan,
you do not pass it on to Burma. What is the problem?
Ms Peers: That happens now. When
you apply for an individual licence you have to submit an end-use
undertaking which specifies exactly that, and with an open individual
export licence you have to have a consignee undertaking saying
that he will not export it to a destination not on the licence,
so there is a sort of re-export clause in the undertaking from
the company or the country that it is going to. If it then gets
re-exported after a period of time it is back to David's point,
who is going to do the enforcement and the prosecution? Perhaps
the way forward is to have something like a denied parties list
for that company that has breached and re-exported, but this is
a matter for Government.
Mr Hayes: Another question to
bear in mind is what do we mean by re-export? Do we mean re-export
of the individual item in its original state in which it was exported
from the UK or are we seeking to control that component when it
is re-exported, incorporated into, say, an aircraft or a ship?
Q114 Chairman: That is the Turkey/Uzbekistan
case of the Land Rovers.
Mr Hayes: Yes.
Q115 Chairman: You are suggesting
that you think having a re-export clause is pointless because
it is not really enforceable, but the other argument is these
undertakings are already given which begs the question why on
earth is the Government asking for undertakings if they are not
enforceable.
Mr Hayes: In the Turkey/Uzbekistan
case there would not have been an undertaking because of course
the goods were not controlled.
Chairman: That is absolutely correct,
that was a non-military vehicle flatpack that went to Turkey.
Adam is desperate to come in on this so I will shut up.
Q116 Mr Holloway: Is it not the case
that if you have an end-user certificate to go for argument's
sake to Angola—to use a real example from a few years ago—and
the plane so much as touches its wheels down in Angola and then
goes off to Sierra Leone, which it did not do in that case because
it did not want to waste money on fuel, that is perfectly legal,
is it not?
Mr Hayes: No.
Q117 Mr Holloway: In terms of the
person who has got the end-user certificate, the company selling
the arms.
Ms Peers: If they had an end-user
certificate—
Q118 Mr Holloway: It is a question.
Mr Hayes: No, because if what
they are doing is touching down in Angola or flying over Angola
and the original end-user was actually someone else, and they
knew at the time that the end-user was not them it was someone
else, then no, they are not the legitimate end-user.
Q119 Mr Holloway: What if they touch
down, offload the goods and then the Angolans or whoever choose
to re-export them?
Ms Peers: They are in breach of
the undertaking that they would have given to the UK Government
because the end-user certificate clearly states that they will
not export it to a destination without permission.
Mr Holloway: That is very helpful.
Chairman: David, you wanted to come in
on this; I am sorry if we have poached on some of your territory.
Q120 Mr Borrow: If we move on, EGAD
raised complaints about the efficiency of the MoD in signing end-user
undertakings. I would be interested in whether the MoD has given
an explanation for the inefficiency in dealing with this.
Mr Hayes: I believe so, but that
is something that we would need to come back to you on, if that
is okay.6[6]
Mr Borrow: I have got a lot of questions,
Chairman, would it be better to deal with that in writing as well?
Chairman: Yes, okay, we will do that.
David, thank you to you and your colleagues, and I am sorry we
kept you waiting a little earlier. Thank you again for the written
response, as for the others this morning it was very helpful as
always and we are very grateful. Thank you.
6 6 Ev 109 Back
| 
