6 Enforcement
80. Our predecessor Committees recommended that information
in annual reports on the number of seizures by HM Revenue and
Customs and the trend and type of misuses of open licenses should
be published in the annual reports on strategic controls.[131]
The statistics provided in the 2009 annual report show the number
of companies and sites holding open licenses increased from 1,600
in 2007 and 2008, to 1,800 in 2009. The figures also show that
the number of enforcement visits undertaken also increased, rising
from 675 in 2008 to 836 in 2009. A total of 290 misuses were found
and 56 warning letters were issued to Company Directors informing
them of the errors which had been found during visits and the
steps necessary to ensure compliance at revisit.[132]
81. We recommend that in its response to this
report, the Government explains what action, if any, was taken
in the 290 cases of misuse that did not result in a warning letter
following the 836 enforcement visits in 2009.
Civil penalty regime: compound
penalties
82. Our predecessor Committees recommended that the
Government implement a civil penalty regime for breaches of strategic
export controls.[133]
On 31 March, shortly after the 2010 report was published, the
then Business Minister Mr Ian Lucas wrote to the CAEC advising
that the Government had decided to implement a revised policy
for issuing compound penalties instead of introducing a civil
penalty regime.[134]
The present Government's response to the 2010 Report said
as a result, HMRC put in place a revised compounding
policy expanding its use for minor breaches of export controls,
in agreement with the Crown Prosecution Service, from 1 April
2010. We are satisfied this delivers the original objectives of
a civil penalty regime with the advantages of not requiring new
legislation and of being implemented immediately without significant
additional resource. The ECO in coordination with HMRC now publishes
notifications of recent compound penalty offences on the Department
for Business website.[135]
83. The BIS website, which publishes a list of cases
since 2009 where compound penalties have been made, says:
Compounding is the means by which HMRC can
offer the exporter the chance to settle a case which
would justify being referred to the CPS for prosecution, therefore
saving the taxpayer and company time and legal fees.
Compounding should not be viewed as a light option
as there is no maximum compound penalty limit. The largest fine
currently awarded for an export control related offence was for
£575,000 in 2009.[136]
84. In evidence to the Committees, EGAD called the
system of compound penalties "completely opaque" and
added that EGAD had "absolutely no idea" what criteria
were used for imposing the penalty or how the penalties were arrived
at."[137] EGAD
went on to complain of a lack of "give-and-take or feedback"
so exporters were left unaware of their non-compliance until a
penalty was issued.[138]
When asked how the system was working, the BIS Minister, Mr Mark
Prisk, said: "it is early days...but we have seen a number
of cases brought with a range of fines, one, as I understand it,
in the region of £500,000. So, so far so good."[139]
As regards the uncertainty for determining the size of civil penalties,
the Minister said:
we hear a variety of opinions on that, ... but
if that is their concern, it's certainly my assurance to make
sure that the people who should be aware are, and I will certainly
be establishing whether in fact that is followed across Government.[140]
85. We also asked the BIS Minister, Mr Mark Prisk,
whether he thought it appropriate to make the names of individuals
and companies who had breached arms export controls public, along
with the information regarding the size of their compound penalty.
The Minister said he did not think names should be released.[141]
86. We conclude that it is too early to assess
fully the effectiveness of the compound penalty regime since it
has been in operation for barely one year. However, we further
conclude that even at this early stage the penalty system seems
to lack clarity and therefore fairness. We recommend that the
Government considers the industry's concerns and make public the
criteria used for imposing compound penalties and how the amounts
of such penalties are calculated.
87. We also recommend that as compound penalties
are applied to cases which would justify being referred to the
Crown Prosecution Service for consideration for prosecution,
the Government holds open the possibility of making public the
names of companies and individuals who have breached arms exports
controls sufficiently seriously to attract compound penalties.
131 Scrutiny of Arms Export Controls (2008), Session
2007-08, HC 254, paras 50 and 57; Scrutiny of Arms Export ontrols
(2010), Session 2009-10, HC 202, para 92. Back
132
Strategic Export Controls, 2009 Annual Report, HC 182.
para 1.6 Back
133
Scrutiny of Arms Export Controls (2010), Session 2009-10,
HC 202, para 96. Back
134
According to the BIS website: "Compounding is the means by
which HMRC can offer the exporter the chance to settle a case
which would justify being referred to the Crown Prosecution Service
for prosecution, therefore saving the taxpayer and company time
and legal fees." Back
135
Scrutiny of Arms Export Controls (2010), Session 2009-10,
HC 202, para 16 Back
136
http://www.bis.gov.uk/policies/export-control-organisation/eco-press-prosecutions/compound-penalties
Back
137
Q 60 Back
138
Q 61 Back
139
Q 92 Back
140
Q 98 Back
141
Q 95-97 Back
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