House of Commons - Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly Reports for 2010, licensing policy and review of export control legislation

Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly Reports for 2010, licensing policy and review of export control legislation - International Development Committee Contents

5 Review of Arms Export Controls

Licensing Criteria

32. All arms exports require a licence from the ECO. The ECO assesses all applications for a licence according to specific criteria which are a consolidation of the UK's national criteria and the EU Code of Conduct on Arms Exports (agreed on 8 June 1998). The background on the establishment of the Consolidated Criteria is set out below.

UK Licence Decision Making - The Consolidated Criteria
After the May 1997 election, the Labour Government introduced new national export
licensing criteria and supported the creation of a voluntary EU Code of Conduct on Arms Exports. The Code came into effect in 1998.

In October 2000 the Labour Government introduced the Consolidated EU and National Arms Export Licensing Criteria (henceforth, Consolidated Criteria), which brought together the UK's national export licensing criteria with those of the EU Code of Conduct on Arms Exports.[57] Since then, all applications to export arms and other strategically controlled goods that appear on what is known as the UK's Strategic Export Control Lists, also called the Consolidated List of Strategic Military and Dual-Use Items that require Export Authorisation (henceforth, Consolidated List) have been considered, on a case-by-case basis, against the Consolidated Criteria.

Final decisions about specific applications are issued by the Export Control Organisation (ECO), which is part of the Department of Business and Skills, following
consultation with the Foreign and Commonwealth Office (FCO), the Ministry of Defence (MOD) and the Department for International Development (DFID).

The Consolidated List brings together into one document the UK's own lists and those that derive from the EU. It includes the UK Military List, the UK Dual-Use List, the EU Human Rights List, the UK Security and Paramilitary List, the EU UK Radioactive Sources List and the EU Dual-Use List.[58] It is regularly updated.

In terms of criteria set out in the Consolidated Criteria, the ECO website offers this summary of the Criteria:

contravene the UK's international commitments
be used for internal repression
provoke or prolong armed conflicts or aggravate existing tensions in the destination
country
be used aggressively against another country
adversely affect the national security of the UK or allies
be diverted or re-exported under undesirable conditions
seriously undermine the economy
seriously hamper the sustainable development of the recipient country.

Source: House of Commons Library

33. In December 2008, the EU adopted the Council Common Position 2008/944/CFSP defining common rules governing control of exports of military technology and equipment.[59] An extract of the Common Position is reproduced in Annex 1. In written evidence, the UKWG states that the UK's Consolidated Criteria are "in certain aspects weaker than the criteria set out in the Common Position, most notably with regard to the application of international humanitarian law."[60] In oral evidence, UKWG called for the Export Control Act to be updated as a matter of urgency to reflect the new requirements of the Common Position." Mr Oliver Sprague of Amnesty told the Committee:

34. Mr Oliver Sprague said that although the Common Position was legally binding, licensing officials use the Consolidated Criteria of 2000 and not the text of the Common Position. He added that adopting the EU Common Position as official guidance would be a simple task under the UK Export Control Act 2002.[62]

Mr Tom Smith, Head of ECO, responded to this point:

He added that "there is going to be a revision of the Consolidated Criteria fairly soon and, when we do that, precise alignment of the criteria with the Common Position is, I think, one thing that will be looked at very closely."[64]

35. In a letter to the Chair, dated 10 February 2011, the FCO Minister, Mr Alistair Burt, states the Common Position was "fully applied in the UK strategic export licensing process" and that, while the wording of the Consolidated Criteria did differ "in some minor respects" to the Common Position, "in practice the licensing decisions we make are fully in accord with the provisions of the Common Position". He added: "We are currently examining these differences with a view to updating the wording of the Consolidated EU and National Arms Export Licensing Criteria before the end of 2011."[65]

36. We conclude that the Government's timetable of before the end of 2011 by which the wording of the UK's Consolidated Criteria will be updated to be wholly consistent with the EU Common Position is too protracted. We recommend that the Government sets itself a much shorter timetable in which to conclude this updating and to inform us of the revised timetable in its response to this report. We further conclude that, while the consolidated criteria appear robust their application seems to be less so. We therefore recommend that the Government ensures that the EU Common Position is rigidly and consistently applied.

'Brass plate' companies

37. "Brass plate" companies exist in Britain in name only: "They have no presence in the UK other than the brass plate, employ no UK nationals and no part of their activity is actually conducted within the UK."[66] The issue of 'brass plate' companies was raised in CAEC's 2009 report after the Committees visited Ukraine and were provided with a document containing a list of UK-registered brokers to whom the Ukrainian State Service for Export Control had granted licences for strategic exports.[67] Four of those 12 companies were brass plate companies, though the Government said for legal reasons it was unable to provide information on whether the companies would be prosecuted for any breach of UK strategic export control legislation.[68] In 2010, our predecessor Committees again raised the issue, recommending that the Government "explore ways in which it would be possible to take enforcement action against brass plate companies, including consulting enforcement agencies in other countries on their approach to this problem."[69]

38. In its written submission to this inquiry, the UKWG said that it "remains very concerned about the growing evidence that UK 'brass plate' companies are being used to facilitate the unlicensed supply of weapons to countries of concern."[70]

39. In a letter to the Committees dated 10 February 2011, the FCO Minister, Mr Alistair Burt, said that any company registered in the UK was a UK legal person and subject to UK law, though in practice it could be hard to take enforcement action against a company with no meaningful physical presence in the UK. He went on:

You asked specifically what options the Government was considering to address the particular challenges posed by brass plate companies. The Government's position is that any company with a registered office address in the UK is a UK legal person and therefore subject to UK law. However, it can in practice be difficult to take enforcement action against a company which has no meaningful physical presence in the UK. The Government is exploring the possibility of using the Secretary of State's powers under the Companies Act 2006 to ask the Court to dissolve a company which is operating against the public interest. There would of course need to be an adequate level of evidence against a particular company before such a case could be brought.[71]

40. We conclude that the Government's current examination of ways to tackle concerns about brass plate UK companies in the UK trading in arms from overseas locations with virtual impunity because of difficulties of enforcement is welcome. We recommend the Government tells us in its response what precise action it will take, including the results of its exploration of the possibility of using powers under the Companies Act to dissolve a company which is operating against the public interest.

Pre-licence registration of arms brokers

41. Article 4 of the EU Common Position 2003/468/CFSP on the control of arms brokering does not require the creation of a pre-licence register, but says that in addition to licenses, Member States "may also require brokers to obtain a written authorisation to act as brokers, as well as establish a register of arms brokers."[72] UKWG say that such a register is considered best practice at EU and international level. At the international level, the Wassenaar statement on arms brokering[73] and the guidelines of the Organisation for Security and Co-operation in Europe (OSCE) also encourage states to develop registers.[74]

42. Regarding the registration of companies involved in the defence or security sector, the UKWG said the Government needed to "take a wider view of the use of company registration in relation to arms brokering activities and consider tightening the rules governing and oversight over registration and incorporation procedures for companies involved in the defence or security sector."[75]

43. In the last Parliament, our predecessor Committees repeatedly recommended that the Government establish a pre-licence register of arms brokers.[76] The then Government's repeated response was that it was not convinced of the benefits of such a register, especially when the electronic system for applying for licences (SPIRE) acted as a de facto register.

44. The last Government also stated that it was "not opposed in principle to the idea of a pre-licensing registration system under which traders can be vetted before they can be registered."[77] In 2009, the then Government said it would "be happy" to look at whether to introduce a register after it had assessed the effectiveness of other initiatives such as focussing awareness activity on traders and clamping down on those who misuse open licences.[78] In evidence to our predecessor Committees, the then Minister of State, FCO, Mr Ivan Lewis told the Committees the last review had been in 2007 and therefore "it may be worth having a look at it at some point in the near future".[79] In response to our predecessor Committees' 2010 recommendation for a pre-licence register, the present Government said:

45. During this inquiry, Mr Alistair Burt, the FCO Minister, told us again that the Government did not have a "completely closed mind on this issue" and that "the question is whether it would make any difference to the kind of rogues we are trying to deal with here..."[81]

46. We recommend that the Government carries out a full review of the case for a pre-licence register of arms brokers and that its review includes a public consultation and is concluded with a Ministerial decision within four months of the start of the consultation.

Extra-territorial arms export controls

47. Extra-territorial legislation enables UK persons to be prosecuted in the UK for actions overseas which, if carried out in the UK, would constitute a criminal offence. A substantial body of extra-territorial legislation already exists on the statute book. A summary of the legislation, indicating the Government's successively amended position on the matter, is reproduced as Annex 3. Successive CAEC reports have taken the view that in the matter as important as arms exports extra-territoriality should be expanded to all types of arms exports and that it would be irrational and inconsistent to apply extra-territoriality to some but not to others.

48. The Government's current position on extra-territoriality with regard to arms exports, is set out in secondary legislation, most recently in the Trade in Goods (Categories of Controlled Goods) Order 2008.[82] The current system is based on a three tier categorisation system where full range of controls apply to category A goods, but their scope is reduced for category B and reduced still further for category C. A summary of this system is set out below.

Box A

Category A goods s consist of cluster munitions, and specially designed components thereof; and certain
paramilitary goods whose export the Government has already banned because of evidence of their use in
torture, including electric shock batons, electric-shock belts, leg irons and sting sticks

Any person within the UK, or a UK person anywhere in the world, is prohibited from supplying or delivering, or doing any act calculated to promote the supply or delivery of, Category A goods without a licence from the Secretary of State. These strict controls reflect the fact that the supply of many of these goods is inherently undesirable. Licences will not normally be granted for any trade in paramilitary goods listed because of evidence of their use in torture. However, as with physical exports of such goods, there will be rare circumstances in which one might be granted, (e.g. for the export of equipment for museum or exhibition display).

Category B goods consist of Small Arms and Light Weapons (including ammunition); Long Range Missiles (LRMs) capable of a range of 300km or more (Note: this includes Unmanned Air Vehicles (UAVs)), Man Portable Air Defence Systems (MANPADS), specially designed production and field test equipment for MANPADS, and specialised training equipment and simulators for MANPADS, and specially designed components for any of the above

Any person in the UK, or a UK person anywhere in the world, is prohibited from transferring, acquiring or disposing, or arranging or negotiating a contract for the acquisition or disposal of Category B goods without a licence from the Secretary of State. Financing, insuring, advertising and promotion for Category B goods will not be controlled, but active or targeted promotional activities aimed at securing a particular business deal will be.

Category C goods consist of all goods contained within Schedule 2 of the Export Control Order 2008 that do not fall into either of the two categories above, and certain substances for the purpose of riot control or self-protection and related portable dissemination equipment.

Trading between two countries in Category C goods is only controlled if carried out from within the UK.

Source: Based on the UK Strategic Export Controls, Annual Report 2009 and the Review of Export Control Legislation (2007) Supplementary Guidance Note on Trade ("Trafficking and Brokering") in Controlled Goods

49. The principle that extra-territoriality should be applied to arms exports was first conceded by the previous government when the Trade in Controlled Goods (Control) Order 2003 was given legal effect.[83] That Order introduced new controls on trade in military equipment between overseas countries (including 'trafficking' and 'brokering').[84] Under the Order any person within the United Kingdom, or a United Kingdom person anywhere in the world was prohibited from supplying or delivering, or doing any act calculated to promote the supply or delivery of, restricted goods without a licence from the Secretary of State. Extra-territorial controls (on the activities of United Kingdom persons anywhere in the world) were applied to trade to any destination in:

long-range missiles (over 300 km) and their component parts;
torture equipment the export of which had already been banned by the Government (including, for example, electric shock batons, and leg irons); and
to any embargoed destination.[85]

50. Our predecessor Committees again recommended in their 2007 and 2008 Reports (and in previous Reports) that the Government should bring forward proposals to extend further extra-territorial provisions of the export control legislation to encompass trade in all items on the Military List.

51. The previous Government subsequently rejected proposals by our predecessor Committees and by NGO and industry stakeholders to further strengthen extra-territorial controls on Category C goods by extending them to UK persons overseas as part of efforts to combat international arms brokering. Instead, the then Government's preferred approach was to consider "targeted extensions to the extra-territorial controls where that is justified by evidence" and to reduce burdens on industry where appropriate using more targeted measures.[86]

52. From 1 October 2008 cluster munitions were added to the list of goods to be treated as Category A goods and Category B controls were widened to include small arms and man-portable air defence systems.[87]

53. The then Trade and Industry Minister, Ian Lucas, told our predecessor Committees in a letter dated 11 February 2010 that Anti-Vehicle Landmines would be added to Category B and therefore their trade by UK persons would be subject to extra-territorial controls.[88] Our predecessor Committees had called for this change in their Report of March 2010[89] Additionally, as a first step towards targeted extensions, the letter detailed how NGOs had agreed to

54. The 2010 CAEC Report recommended the Government report back to its successor Committees by the end of October 2010 on the work undertaken to establish the items or regions where it would be appropriate to extend extra-territorial controls.[91] In its response to that Report, the present Government said that it

55. Anti-Vehicle Landmines were added to Category B through entry into force of the Export Control (Amendment) (No.2) Order 2010, on 31 August 2010. However no further information regarding discussions on specific list items has been forthcoming. We asked EGAD and the UKWG about progress in this area. Mr David Hayes of EGAD told us they had not had any discussions with the NGOs or Government in this regard.[93] Mr Alistair Burt, the FCO Minister, said that

56. Mr Sprague of Amnesty said:

57. We conclude it is disappointing that the Government's discussions with the industry and NGOs have not resulted in extra-territorial controls being extended to include specific items in Category C. We recommend that the Government re-engages with NGOs and industry groups on this important policy issue and lets us know of the progress being made in its response to this report. We further conclude, as did our predecessor Committees, that there is no justification for allowing a UK person to conduct arms exports overseas that would be a criminal offence if carried out from the UK. We note that extra-territorial legislation already applies to a number of areas, including sexual offences against children and young people, war crimes, terrorism, torture, bribery and corruption and taxation. We conclude that there is no reason why enforcing extra-territorial controls in connection with arms export controls should be more difficult to enforce than in these areas. We recommend that the Government extends extra-territoriality to all items on the Military List in Category C.

Military end-use control

58. Military end-use control seeks to limit the ultimate consignee's intended use of the items being exported. Military end-use control already operates in relation to items or technology:

for use in connection with the development, production, handling, operation, maintenance, storage, detection, identification or dissemination of chemical, biological or nuclear weapons or other nuclear explosive devices or the development, production, maintenance or storage of missiles capable of delivering such weapons;
for military end-use in an embargoed destination;
as parts or components of an illegally exported military item.[96]

59. However, the current EU military end-use control does not control complete items that, whilst not strategically controlled, could nevertheless be of significant use to the military in an embargoed destination; neither does it control any exports to non-embargoed destinations, some of which might be of considerable concern.[97] In CAEC's 2010 Report, an additional concern was noted: that the Government intended to implement a system based on lists of goods, but not expanded to include components or unfinished vehicle kits. Examples of items which would not be caught under the Government's proposal, such as electronic components for Improvised Explosive Devices in Iraq and Afghanistan have been provided in previous reports.[98]

60. Our predecessor Committees expressed concern about the lack of progress in both their 2009 and 2010 Reports.[99] Up until the publication of the 2010 CAEC Report, the Committees were told that there were continuing discussions within Government and informally with some of the UK's EU partners.[100] However, in response to the Committees' 2010 recommendation that the Government report back to the successor Committees by October 2010, the Government said:

101

In a letter to the Chair of 10 February 2011, the Foreign Minister, Alistair Burt, confirmed that on the issue of military end-use controls that "there have been no further discussions on this issue and we have nothing to report to the Committees at this time."[102]

61. We conclude it is disappointing that the Government appears not to have continued the previous Government's work and pressed for an expanded Military End-Use Control. We recommend that the Government immediately re-starts work in producing specific policy proposals and to ensure that it has the requisite support for them at EU level in time for the 2012 review of the EU Dual-Use Regulation. We recommend that the Government provides us with an update on how this work is progressing when replying to this report. We further recommend that the Government in the meantime makes the necessary amendments to UK legislation to rectify the present deficiencies in military end use controls.

Torture end-use controls

62. Our predecessor Committees praised the Government's 2008 announcement that they would seek to amend the current EU regulations to introduce a 'torture end-use control' requiring an exporter to submit an export licence application where they had reason to believe, or had been informed, that the items could be used for capital punishment, torture or other cruel, inhuman or degrading treatment. However, our predecessor Committees concluded that if it was not possible to achieve end-use controls through the EU, the UK should introduce them unilaterally.[103] The Government accepted that it might be necessary to do this.[104]

63. At the time of our predecessor Committees' 2010 Report, the then Government had acknowledged the slow progress but emphasised the Government's preference for EU wide control, noting that there was significant support for the proposal amongst Member States.[105] The then FCO Minister, Mr Ivan Lewis, had informed the Committees that the proposal was with the EU Commission Legal Service for their comments. In its Response of October 2010, the present Government updated the CAEC on the progress:

106

The situation had not changed as of 10 February 2011 when the FCO Minister, Mr Alistair Burt, wrote to the Chair as follows:

107

64. The UKWG expressed disappointment at the delay in progress on torture end-use control, recommending that "if such a catch-all clause is likely to take more than six months, or is rejected by EU partners, it should be introduced unilaterally in the UK level."[108]

65. We conclude that the slow pace of progress towards an EU torture end-use control is very disappointing. We recommend that in its response to this report, the Government provides detailed information on the parameters of the torture end-use control it intends to propose to the EU. We further recommend that the Government simultaneously prepares draft UK legislation on this issue for public consultation.

Sodium thiopental - UK exports to the US for use in lethal injections

66. In the course of our inquiry, it was reported that a UK company, Dream Pharma, was exporting sodium thiopental, an anaesthetic drug, to the United States for use in capital punishment.[109] The UKWG said that this case highlighted the urgency with which the UK should proceed to secure a torture end-use control: "if the Government had delivered on its 2008 commitment in this area, it would have been able to control exports of sodium thiopental and any other similar drug or items, as soon as it became known that they were being used in executions."[110] In the event, the Government took more than one month to make an Order under the Export Control Act 2002 during which time Dream Pharma is reported to have exported more shipments of sodium thiopental to the US.[111]

67. We asked the Minister about the speed with which the Government had introduced the emergency Order. He said:

112

113

In response to the allegation that the Government had acted too slowly the BIS Minister, Mr Mark Prisk, said:

114

68. Mr Oliver Sprague of Amnesty outlined how a torture end-use control would work:

115

However, Mr Oliver Sprague also noted that the Government's idea of a torture end-use control is not the same as the NGO's idea:

From our discussions with the Government, there is a difference of opinion between what we think a torture end-use catch-all control clause is and what they might think it is. We think that it is about risk: it is about reasonable knowledge and where the exporter has—or ought to have—knowledge that their goods might be used to facilitate torture in death penalty cases. It seems that the Government's view is that the burden of proof in these cases is extremely high, so that the knowledge has to be almost certain for them to think that the torture end-use control would kick in. So it is not a risk-based system; it is a proof-based system.

116

69. Mr Sprague of Amnesty said the sodium thiopental case highlighted the need for more urgent action than seems possible at the EU-level.[117]

70. We conclude that the export of sodium thiopental from the UK for use in executions in the United States is deeply disturbing as is the elapse of time between this information becoming public and the Government making an Order under the Export Control Act 2002 during which further shipments were reportedly made. We recommend that the Government in its response to this report sets out what monitoring and procedural changes it has made to prevent any similar avoidance of export controls occurring.

'No re-export' clauses and undertakings

71. On several occasions, our predecessor Committees recommended that a standard licensing clause be inserted in export contracts for goods on the Military List; the clause should prevent re-export of the goods to a destination subject to a UN or EU embargo. Those predecessor Committees have also recommended that the contracts should include a subrogation clause, which would allow the UK Government to stand in the place of the exporter to enforce the contract in the British or foreign courts in the event that the exporter was unwilling or unable to enforce the contract against the buyer.[118]

72. The previous Government long resisted the idea of no re-export clauses, arguing that the existing licensing process was efficient in preventing undesirable re-export of goods as it included an assessment of the risk of re-export by the recipient country, and that enforcement would be very difficult.[119] The then Government also rejected the idea of a subrogation clause.[120]

73. However, on 16 December 2009, the Government advised our predecessor Committees that it had decided to add a no re-export provision to the undertakings that exporters are required to obtain from end users prior to export.[121] The revised undertakings became compulsory from July 2010. The then Minister for Business and Regulatory Reform, Ian Lucas, told our predecessor Committees that

122

74. In addition, the then Government said it was interested in knowing how the no re-export clauses required by other countries export controls worked and how effective they were considered to be by those states.[123] In a letter dated 8 February 2010, the then FCO Minister, Ivan Lewis, told our predecessor Committees:

124

75. He also added that he would update the Committees and provided the information in a letter dated 6 April 2010 to our predecessor Committees:

Our findings show that the decision by the Minister for Business and Regulatory Reform Ian Lucas MP ... to add a no re-export provision to the undertakings which exporters are required to obtain from end users prior to export, brings the UK no re-export provisions into line with the majority of our EU partners.

While some EU Member States (EU MS) such as Italy and Bulgaria do have mandatory no re-export provisions as part of their export control policy, the majority of EU MS include no re-export provision in their end-user assessment or documentation. In most cases EU MS apply these provisions to re-exports to all third countries but in some circumstances EU or NATO member states are excluded. Some EU MS, such as France and Netherlands, have their own permitted country list and differentiate between different types of exports such as "systems" and "components".

Although EU MS include these provisions in their national legal and administrative frameworks, all recognise the difficulties inherent in implementing and enforcing such provisions in cases where provisions on undertakings are breached. This is particularly the case with regard to hard measures such as imposing criminal or civil penalties. Some EU MS therefore use soft measures such as the revocation of licences and/or the inclusion of breaches in future case-by-case assessment decisions.

125

76. In written evidence to us, the UKWG welcomed the Government's decision "to require end-use declarations to prohibit re-export to embargoed destinations without permission" but says it is of

transfers are already prohibited

126

77. The UKWG also noted that currently arms transfers are embargoed to 17 states under UK law, and only 9 under UN embargoes. In 2009, the UK denied licences for exports to 89 states not under embargo, including for example Algeria, Israel and Ukraine.[127] Mr Rob Parker of Saferworld was not able to say how the undertakings were working so far, but did provide an explanation of why a contractual clause (as opposed to the undertakings) would assist in making risk assessments:

128

78. Mr David Wilson of EGAD agreed with Mr Oliver Sprague of Amnesty, saying that they were

129

However Mr Wilson of EGAD also said that the US position, "which is to make it explicit that if a company or country wishes to re-export a specific item, they go back to the US Government for approval to do so. The Americans realise that that places a huge restraint on US trade."[130]

79. We recommend that the Government provides us with an assessment of how no re-export undertakings are working, and details of the Government's methodology for assessing their effectiveness. We also recommend that the Government provides us with information as to which other countries have no re-export clauses in their contracts, as opposed to in their undertakings, and the effects of such clauses.

57 The Written Answer (26 October 2000c200W), announcing the establishment of the Consolidated Criteria is reproduced in Annex 1. Back

58 All items on the Military List need an export licence to all countries, including those in the European Union (EU). Back

59 The text of the relevant extract from the EU Council Common Position is reproduced in full in Annex 2. Back

60 Ev 50 Back

61 Q 6 Back

62 Q 6 Back

63 Q 88 Back

64 Q89 Back

65 Ev 42 Back

66 Committees on Arms Export Controls, Government Response to Committee Report, Scrutiny of Arms Exports Controls (2008).Cm 7938, p 6.'Brass plate companies' do not have an operational presence in the UK but do have a UK-registered address. Back

67 Scrutiny of Arms Export Controls (2009), Session 2008-09, HC (2008-09) 178, paras 20-22 Back

68 Scrutiny of Arms Export Controls (2010), Session 2009-10, HC 202 Ev 62-63 Back