9Brokering
Background
169.While there is no internationally-agreed definition of the term “arms brokering”, it is often used to mean arranging or facilitating the supply of controlled items—as distinct from actually exporting them. As we noted in Chapter 3, the Export Control Act 2002 conferred on the government powers to regulate such activities; and this is done through Trade Control Licences (SITCLs, OITCLs and OGTCLs).
170.As we also noted in Chapter 3, the UK has since 2003 been bound by the EU Common Position on Arms Brokering, which concerns regulation of “activities of persons and entities” involved in the “transfer of items [to which the Common Position on Arms Exports applies] from a third country to any other third country”. The Common Position on Arms Brokering includes mandatory and voluntary elements as follows:197
Member States must:
- define brokering activities;
- control brokering activities that take place within their territory;
- establish a licensing system;
- grant or refuse licences on the basis of the criteria of the Common Position on Arms Exports;
- keep for at least ten years records on licences granted;
- exchange information with other Member States; and
- establish adequate sanctions.
Member States may:
- control the brokering of items that are exported from their national territory or the territory of another Member State;
- establish a registration system;
- require that brokers submit regular activity reports; and
- control extra-territorial brokering activities [i.e. those outside their own jurisdiction].
Proposed pre-licensing register of brokers
171.In its encouragement of registration systems for brokers, the EU Common Position echoes statements by two multilateral forums: the Document on Small Arms and Light Weapons, issued by the Organisation for Security and Co-operation in Europe in 2000;198 and the Wassenaar Statement of Understanding on Arms Brokerage, agreed in 2002.199 Under such a system, registration of brokers complements the issuing of licences for brokerage activity; and being listed on the register (which would be a public document) would be a precondition of being able to apply for such a licence.
172.The UK currently has no arrangements for the registration of brokers. The previous Committees consistently urged the implementation of a pre-licensing register for brokers, but successive governments have disagreed. In 2013 the previous Committees noted that individuals with criminal convictions for arms-export offences had been able to register on the SPIRE system. The then government had acknowledged that the only check made for SPIRE registration was “to ensure that any person registering on behalf of an entity is properly authorised by that entity to act on its behalf”. Consequently, the previous Committees concluded that “the Government’s regulation of arms brokers is patently inadequate” and urged “a full review of the case for a pre-licence register of arms brokers”.200
173.Subsequently, in April 2014, the then government initiated a consultation on this issue. When the results of the consultation were published, in July 2015, the then government stated that it would not be establishing a pre-licensing register of brokers. The differing points of view heard in the consultation were summarised as follows:201
On the one hand, businesses chiefly favoured maintaining the status quo (namely licensing on a case by case basis only) and cited the downsides of a pre-registration system in terms of additional costs or targeting by anti-arms trade campaigners. On the other hand, civil society representatives and non-governmental organisations (NGOs) advocated the benefits of a comprehensive registration system, based on thorough vetting, eligibility and assessment criteria in order to act as a preventative measure to guard against undesirable brokering activity.
174.The subsequent government concluded “that there was no consensus or sufficiently powerful arguments in favour of implementing a comprehensive register.” It was “not convinced that the introduction of a pre-licensing register would substantially enhance the enforcement of brokering controls and that it would place considerable extra burdens on legitimate defence companies.”202
175.Our inquiry showed that calls for the introduction of a pre-licensing register of brokers are no less urgent or persistent than they were previously.It was particularly emphasised to us that the UK is out of step with other jurisdictions in this regard. As part of the 2014–15 consultation, the then government carried out a survey of other EU Member States. On the basis of information provided on the existing registration systems among Member States, the government noted that these existed in the context of “national authorities and legislation” that were “all structured differently to the UK model”. It also noted that “where countries already have such a system, they have a much smaller base of brokers which may be monitored more easily through a registration system”. Such a system in the UK, where there were “approximately 450 trade control licence holders”, was “likely to be more resource intensive” than those currently existing among Member States.203
176.Mr Feeley-Sprague, of Amnesty International, told us that this survey of Member States had in fact yielded compelling reasons in favour of pre-licensing registration of brokers:204
this is what the EU partners that have registers said: “It acts as a precautionary measure to send out a strong message that uncontrolled brokering activity is a bad thing. It allows better outreach to companies involved in this activity. It helps us enforce the controls in areas where legal jurisdictions are problematic and it facilitates the information exchange between us and other export control departments overseas. In some areas, it helps reduce bureaucracy because it gives a filter around allowing fit and proper people to be engaged in this activity”—very strong reasons.
He also pointed out that the number of brokers might not be as large as had been indicated:
The Government have analysed that there were 450 licence applications for small arms and light weapons brokering. Obviously, companies will apply for multiple licences, so we are probably talking between 50 and 100 companies that are involved in this.
177.According to Corruption Watch UK, a register of brokers would:205
Increase the transparency of arms brokering, both to the public [and] to the UK government. Transparency is often the best means of preventing the abuse of systems such as the export licensing process and increasing public trust in such systems.
178.Corruption Watch UK also told us that the UK was:206
at odds with trends in Europe, where the vast majority of EU member states have chosen to implement the voluntary aspects of the EU Common Position […] In total, 18 EU member states have chosen to establish a register of brokers. These are:
Belgium, Bulgaria, Croatia, Czech Republic, Estonia, France, Greece, Hungary, Italy, Latvia, Lithuania, Malta, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.
Similarly, 20 EU member states have chosen to require that brokers provide regular activity reports. They include:
Austria, Bulgaria, Croatia, Czech Republic, Estonia, Finland, France, Greece, Hungary, Latvia, Lithuania, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden
This means that 23 EU states (out of a current total of 28) are in compliance with one or both of these voluntary aspects of the Common Position on Arms Brokering.207
179.Corruption Watch UK also drew attention to the regulatory regime that is operated in the USA under the International Trade in Arms Regulations (ITAR) in respect of brokering. ITAR defines brokering much more widely than does the EU Common Position on Arms Brokering, so that it includes the activities of agents (those who act on behalf of companies, exercising wide discretion) and advisors (those who provide advice to companies but do not act on their behalf):208
brokers of any kind involved in the export [of “a defense article or defense service”] have to be registered and licensed with the State Department. This has the effect of informing the State Department that a broker is being used by the exporting company for a specific transaction; it also creates a de facto pre-licensing register of brokers. In addition, Section 130.9 of ITAR also requires that exporting companies, or their vendors (people who provide services to the exporting company), disclose any political contributions valued at $5,000 or more, or any fee or commission in excess of $100,000 to the Directorate of Defense Trade Controls. Brokers are also required to submit an annual activity report to the DDTC, which must set out detailed information on brokering activity such as the dollar value and the category, quantity and type [of] items brokered.
Ms Kirkham, of Saferworld, told us that registers of brokers were also operated in South Africa and Australia. She thought that “New Zealand will have one because it is in the process of developing it”.209
180.Mr Stuart conceded that the idea of a register had “an immediate intuitive attraction”, but the question was “whether, with further investigation and analysis, you think it will overall deliver more good than harm”. He emphasised the effectiveness of the existing Trade Controls:210
There have been 13 convictions for trade control offences since 2005, and a number of compound financial penalties. We are not aware of any EU country with a better record of prosecuting illicit arms brokers, but we have been reviewing our brokering policies to see whether we can improve our controls in this area. We will be announcing a policy change to Parliament in the coming weeks.
“Fit and proper person” vetting
181.Control Arms UK argued that brokers should not only be required to join a register but they should also “be subject to an appropriate vetting procedure in to order to establish their fit and proper status to be engaged in arms brokering activities”.211 Mr Feeley-Sprague, of Amnesty International, told us: “It is now a mandatory requirement under the [EU] weapons directive to register both firearms dealers and arms brokers, and, more importantly, to run a registration system that includes a fit and proper persons vetting system.”212
182.This refers to a May 2017 Directive which amends the Weapons Directive / Firearms Directive (dating from 1991).213 The original Directive was adopted prior to the abolition of frontier controls within the then European Community under the Schengen Convention and provided for a Community licensing system for the import and export of firearms. It aimed to prevent firearms passing between Member States in an uncontrolled fashion; and also required Member States to strengthen controls on firearms entering the Community. The amending Directive, among other things, requires each Member State to “establish a system for the regulation of the activities of dealers and brokers”. This must include at least: registration; licensing or authorisation; and “a check of the private and professional integrity and of the relevant abilities of the dealer or broker concerned” (sometimes referred to as “fit and proper persons” vetting).214
“Brass-plate” companies
183.Corruption Watch UK suggested that one benefit of a pre-licensing register of brokers was that it would prevent “unscrupulous brokers from using brass plate companies in the UK to undertake questionable arms transfers that may have the end effect of decreasing the UK’s national security”.215
184.Critics have argued for some time that there is significant scope for brokers to abuse or bypass existing export control by means of so-called “brass-plate” companies. The previous Committees defined these as companies which enjoy the benefits of UK registration, yet have “no or minimal staff permanently based in the UK and which are, or have been, carrying out arms exporting and arms brokering activities overseas in contravention of UK Government policies”.216 From 2009 the previous Committees consistently highlighted this issue and criticised successive governments for failing to take any effective action against brass-plate companies. It was suggested that the government could have recourse to powers under the Companies Act 2006 to “dissolve a company which is operating against the public interest”.217
185.Replying to the previous Committees’ 2014 report, the then government stated that:
Existing legislation would enable action to be taken against brass plate companies that are acting in breach of UK law or where their continued registration is against the public interest, subject to the availability of sufficient evidence that could be disclosed in any legal proceedings.218
186.In its response to the previous Committees’ 2015 report, the subsequent government referred to one case of a brass-plate company that had been subject to export-control enforcement action, but not closed down:
The company was being operated by a British national who was based outside the UK. In this case, a compound penalty for £47,000 was issued for an offence relating to the trafficking and brokering of arms and ammunition. The Government is aware of a small number of other UK-registered companies with no staff in the UK whose activities are, or may be subject to, UK trade controls. The activities of these companies are monitored carefully.219
187.However, critics say that in practice the existing powers are rarely used. (Another such power, it has been suggested, is that under the Insolvency Act 1986 for the Insolvency Service to wind up companies “in the public interest” as well as on grounds of insolvency.)220 Control Arms UK told us that: “there is still evidence of the use of UK ‘Brass Plate’ companies to broker the supply of weapons to countries of concern, including to end-users subject to international sanctions”. It cited as an example allegations made, in September 2017, by Amnesty International UK that a UK-registered company had brokered a 2014 deal between Ukraine and South Sudan involving “50,000 assault rifles, 50 million rounds of ammunition, 10,000 grenade launchers and 30,000 grenades”. Control Arms UK called it a “serious concern” that “such an enormous arms deal could have been brokered by a UK-registered company”, especially “given the UK’s high-profile activities to establish a UN arms embargo on South Sudan at the UN Security Council”.221
188.Control Arms UK said the Government needed to ensure it had: “the necessary powers to wind-up Brass Plate companies which are shown to be engaged in illicit brokering activities”. It was suggested that such provision could be inserted in the Sanctions and Anti-Money Laundering Bill, which was then making its way through Parliament,222 but no such amendments were made to the Bill.
Operation of Trade Control Licences
189.We also heard some disquiet about the operation of Trade Control Licences. Mr Feeley-Sprague, of Amnesty International, told us:
previous Committees have highlighted, as have we, the anti-piracy open general licences, which seem to us to be extraordinarily permissive about the number of small arms and light weapons that could be exported under an open general licence for anti-maritime [piracy] private military companies operating overseas.223
190.A further matter of concern in relation to the Trade Control Licence system is the extent to which information is shared with other states. There is, as we noted in Chapter 8, a well-established system for such information-sharing among EU Member States; and, under the Common Position on Arms Brokering, Members States must exchange information with each other specifically on brokering activity. However, no such arrangements or obligations exist in respect of other states.
191.A media report in June 2018 drew attention to a case in which 30 million Bosnian-made bullets224 had been shipped from Bosnia to Saudi Arabia in November 2015 and January 2016. Two UK-based brokers had applied to the UK Government for three SITCLs to allow them to act as intermediaries in respect of these shipments. Their applications had taken around 14 months to process (rather than the standard time of 20 working days) and eventually been refused in March 2016—after the shipments had actually been made. The licences had reportedly been refused on the basis of concerns that the items concerned could be diverted to “Saudi proxies” fighting in the civil wars in Syria and Yemen. Yet it appeared that no intelligence on the matter had been passed to the Bosnian authorities, despite government concerns that the shipments were destined for diversion and government obligations to inform other ATT signatories under Article 11 of the Treaty.225
192.When we asked Mr Stuart about this case, he emphasised the fact that the licence applications in question had been turned down, which was “an indication of how thorough the [ECJU] is and the process is, against the criteria”.226 He also told us: “I know that we did not contact the Bosnians”;227 such communication “is not something that my Department would engage in”. The Minister could not comment on “what information may or may not have been shared by other arms of Government, because I do not know”.228 He categorically denied that the Government was at all complicit in the shipment actually going ahead.229
Conclusions and recommendations
193.We note the regulatory regimes operated in respect of brokers by the USA and 23 of the EU’s Member States, which are significantly more stringent than that of the UK. In light of this, we reiterate the previous Committees’ advocacy of a pre-licensing register of arms brokers. The Government must formally consider implementing the voluntary aspects of the EU Common Position on Arms Brokering in respect of establishing a pre-licensing registration system for brokers and requiring them to submit regular activity reports. We note that this may require legislative change. The Government should set out clearly the reasoning behind whatever decision it takes.
194.The Government should give consideration to implementing a “fit and proper person” test for individuals apply for brokering licences, as already applies to registers under the EU Firearms Directive. The Government should also consider going further than this by introducing such a test for anyone applying for an export licence. The Government should look into the potential usefulness and feasibility (taking account of resource implications) of such an approach and set out the reasoning behind whatever conclusion it reaches.
195.The Government must provide information about where enforcement action has been taken against “brass-plate” companies engaged in brokering activities in its Annual Reports on Strategic Export Controls. We also recommend that the Government keep under review the appropriateness of its current powers to wind-up such companies in the public interest.
196.We note concerns about information on brokering activities not being shared with non-EU countries, as illustrated by the recent case in which UK-based brokers were involved in the shipment of 30 million bullets from Bosnia to Saudi Arabia. While the UK should continue to share information with EU Member States, such sharing should not be limited to those countries.
197 Council Common Position 2003/468/CFSP on the control of arms brokering, 23 June 2003
198 OSCE Document on Small Arms and Light Weapons, November 2000
199 Statement of Understanding on Arms Brokerage, December 2002
200 Committees on Arms Export Controls, First Joint Report of Session 2013–14, Scrutiny of Arms Exports and Arms Control (2013): Scrutiny of the Government’s UK Strategic Export Controls Annual Report 2011 published in July 2012, the Government’s Quarterly Reports from October 2011 to September 2012, and the Government’s policies on arms exports and international arms control issues, HC 205, para 39
201 Department for Business, Innovation and Skills, Export Control Organisation: A pre-licensing register of arms brokers: Government Response, July 2015, p 5
202 Department for Business, Innovation and Skills, Export Control Organisation: A pre-licensing register of arms brokers: Government Response, July 2015, p 5
203 Department for Business, Innovation and Skills, Export Control Organisation: A pre-licensing register of arms brokers: Government Response, July 2015, p 35
206 Corruption Watch UK (UAE0013); cf Q68, Control Arms UK (UAE0007), para 80, United Nations Association London and South East Region (UAE0009), p 6
207 Cf Groupe de recherche et d’information sur la paix et la sécurité, Arms Brokering Controls: How Are They Implemented in the EU?, 2013, p 3
208 Corruption Watch UK (UAE0013); cf Q68 [Elizabeth Kirkham], Control Arms UK (UAE0007), para 80, United Nations Association London and South East Region (UAE0009), p 6
213 Council Directive 91/477/EEC on control of the acquisition and possession of weapons, 18 June 1991
214 European Parliament and Council Directive (EU) 2017/853 on control of the acquisition and possession of weapons, 17 May 2017
220 Q66; Written evidence to the Sanctions and Anti-Money Laundering Bill Committee, Amnesty International UK (SAMLB02), February 2018
224 The documentation in relation to this case refers to “rounds”.
225 “UK Missed Chance to Stop Suspect Bosnian Bullet Deal”, Balkan Insight Reporting Network, 6 June 2018
Published: 18 July 2018