Conclusions and recommendations
Ministerial evidence
1.In keeping with the practice of their predecessors, we consider that both the Foreign Secretary and the Secretary of State for International Trade should make every effort to attend to give oral evidence to us on an annual basis, given the importance of this policy area. It is not acceptable for departments to leave it to the last minute before confirming the attendance of ministerial witnesses. To do so is disrespectful to the House. (Paragraph 8)
The licensing regime
2.We note that the Government has in recent years encouraged industry to apply for open rather than standard licences, in order to reduce the workload associated with the processing of uncontentious licences. We accept that it is legitimate for the Government to seek to make the best use of limited resources in this way—provided there is evidence to show that open licences do represent a more cost-effective approach without compromising necessary standards. The Government needs to supply evidence to that effect, either in response to this report or in correspondence. (Paragraph 54)
3.At the same time, there is a need for greater clarity and transparency regarding the circumstances in which open licences are deemed appropriate rather than standard licences. This is particularly the case given the concerns raised with us about reporting in respect of open licences. The Government must explain how it is going to bring greater clarity and transparency in this regard, which would be of practical benefit to industry, as well as being good policy. (Paragraph 55)
4.In addition, the Government must demonstrate that companies using open licences are subjected to proportionately rigorous and frequent compliance audits. (Paragraph 56)
5.We are most dissatisfied at the Government’s admission that no such audits are ever carried out in respect of UK companies’ operations overseas. The compliance-audit regime must be extended as soon as practically possible to cover such companies in relation to Trade Control Licences (and Export Control Licences in any relevant circumstances). The Government must say how it will achieve this, either in response to this report or in correspondence. (Paragraph 57)
6.The resources provided to HM Revenue & Customs for export-control enforcement must be commensurate with the scale and complexity of the task. We are not convinced that this is currently the case. The Government should review the allocation of resources, setting out to us in its response to this report what the current level of resourcing is and how it relates to current demands. It should also provide data on the staff numbers and budget for Customs A/B for each year since 2008. (Paragraph 58)
7.The Government should provide raw / base statistical data on numbers of investigations, reports for prosecution, prosecutions, convictions, fines, seizures, compound penalties and warnings—both successful and unsuccessful—in the last ten years. It must not, as it did in the 2016 Annual Report, confuse data on prosecutions with data on seizures. We are extremely disappointed at what we see as a misrepresentation of data in this area, as we believe it leads to public distrust of the licensing process and casts doubt on the data that the Government provides. (Paragraph 59)
8.The Government should set out in the response to this report what the arrangements are for the exchange of information between the Export Control Joint Unit and HM Revenue & Customs, and show that these are adequate for the successful discharge by both bodies of their responsibilities in this regard. (Paragraph 60)
9.The Government should consider whether to begin end-use monitoring, and how that would be done, taking account of resource implications, and set out the reasoning behind its conclusions in the response to this report. We believe that some end-use monitoring is advisable, and that it would assist the Government in making better, more informed, export licensing decisions, as well as in addressing questions around compliance and enforcement. (Paragraph 61)
10.The case has been put to us for the introduction of an Open General Export Licence to cover “non-contentious” cryptographic goods. This merits serious attention and the Government should accordingly give it formal consideration (taking fully into account the oppressive uses to which such items can be put). It should then set out clearly, in its response to this report or in correspondence, the reasoning behind the conclusion that it reaches, being explicit about how it defines “non-contentious goods” in this context. (Paragraph 62)
Processing of licence applications
11.We welcome the fact that Standard Individual Export Licences were processed more quickly in 2016 than in 2015, as long as this was not accompanied by a reduction in the quality of the consideration given to applications. We note that the head of the Export Control Joint Unit told us that he could not show any “improvement in terms of metrics” since the Unit’s formation in July 2016; and that industry told us the formation of the Joint Unit has made no perceptible difference to the processing of licence applications. The Government should set out, in its response to this report or in correspondence, clear evidence to show the benefits brought by formation of the Joint Unit. This evidence must include (but not be limited to) data in respect of processing times for all types of licence. (Paragraph 73)
12.We are concerned to have heard from industry that the Open Individual Licensing System is “fraught with perceived problems and delays, especially when it comes to the time and bureaucracy involved when exporters seek to have the existing OIELs renewed or replaced”. While we acknowledge that such applications require careful consideration, the Government should bring forward detailed plans to address unnecessary delays and bureaucracy in the process; and it should show how they will be addressed in the design of the new LITE online licensing system. (Paragraph 74)
Application of the Consolidated Criteria
13.It has been suggested to us that staff of the Department for International Development should form an integral part of the Export Control Joint Unit. Given that that Department does have a particular role in relation to Criterion 8 (concerning sustainable development), there may be a case for changing the composition of the Unit in this way. The Government should give formal consideration to this proposal and set out clearly, in its response to this report or in correspondence, the reasoning behind the conclusion it reaches. (Paragraph 103)
14.We accept that it is entirely appropriate for Ministers to be involved in both setting the criteria and principles for dealing with licence applications and in dealing with difficult cases that involve clarifying the interpretation of those criteria and principles or otherwise setting a precedent. However, we note that there is concern about the circumstances under which cases are escalated up to Ministers and the basis for some of the decisions that result. In the interests of transparency and political accountability, the Government should set out clearly, in its response to this report, the grounds on which individual cases are selected for consideration at ministerial level, with reference to the Consolidated Criteria and the six thresholds. It must also ensure that such cases are clearly identified in the Annual Report on Strategic Export Controls. (Paragraph 104)
15.We have heard a proposal for a “presumption of denial” in respect of open licences for exports to countries that have not signed the Arms Trade Treaty; and a similar proposal in respect of countries that are on the Foreign Office’s list of “Human Rights Priority Countries”, as set out in its Annual Human Rights Report. We can see that there are arguments for and against both proposals. The Government should review these proposals and report back, either in response to this report or in correspondence, with its findings. (Paragraph 105)
16.In any case, we believe there must always be a more stringent process in place for any arms exports to such countries, so the Government will be able to show, if such arms exports are approved, that they would not be in breach of the Criteria. (Paragraph 106)
17.We have not looked in depth at the adequacy of the existing Criteria (although we have considered the possibility of adding a wholly new Criterion, regarding corruption—see below). This is a matter to which we plan to return in our future work, particularly in respect of Criterion 2c. (Paragraph 107)
Reporting and transparency
18.Reporting and transparency are indispensable elements of a reliable and credible licensing regime. While we welcome the fact that the Government publishes a lot of licensing information, we find it a major failing that such information is in formats that are very difficult to navigate, interrogate and interpret. We note that it is left to a non-governmental organisation with a particular viewpoint (the Campaign Against the Arms Trade) and an academic institution (King’s College London) to present the published official data in a user-friendly format. The Government should make clear and easily digestible the information about controlled exports that is provided to parliamentarians and the public alike. This will allow non-governmental organisations to present information in a more accurate manner; and enable interested members of the public to access relevant information about arms exports more easily, without the need to resort to an intermediary. We do not believe the failure to do so is down to a lack of resources, given that a non-governmental organisation with far fewer resources than the Government has been able to create such a data-presentation platform. (Paragraph 128)
19.We are concerned at the continuing lack of published data in respect of open licences. The Government should address the data-quality issues that apparently lie behind this. In light of ADS Group’s statement that it does not oppose a requirement for industry to publish what its members have exported under Open General Export Licences, the Government should also reinstate the commitment made in 2012 by the then government (which was later dropped) to gather and publish regarding open licences a description of the items, the destination, value (and / or quantity) and information about the end-user. We welcome the statement to us by the Minister that he “will see benefit in being able to publish more information” once “new and […] improved digital systems” are in place. (Paragraph 129)
20.Given public concern about specific licences, the High Court’s established feeling that CAEC is the appropriate scrutiny body, and the Government’s agreement to share information with CAEC in confidence in some scenarios, a more proactive approach from the Government towards the Committees should be established. In particular, the Government should share with the Committees documentation relating to arms exports, including end-user certificates, correspondence within government, details of the exporters or brokers and the value of the exports made under open export licences, along with the rationale as to how they assess these controversial shipments. (Paragraph 130)
The Arms Trade Treaty
21.We welcome the Government’s commitment to promote signature of the Arms Trade Treaty by as many countries as possible. It must set out detailed plans for promoting both signature and implementation of the Treaty in its response to this report and give updates on progress in respect of these plans in its Annual Reports. (Paragraph 137)
22.The Government should say what evidence there is of tangible effects that have been brought about by the £300,000 that it donated to the Arms Trade Treaty Voluntary Trust Fund. (Paragraph 138)
23.It is inexcusable that in 2015 and 2016 the UK did not report on the imports of arms covered by the Arms Trade Treaty, in clear violation of its treaty obligations in this regard. The Government should set out, in its response to this report, what it is doing to ensure that the required information is collected, collated and published in a timely fashion in accordance with the terms of the Treaty. (Paragraph 139)
Brexit
24.We note with concern that the Government’s Technical Note on Consultation and Cooperation on External Security did not address the impact of Brexit in relation to arms-export control. (Paragraph 166)
25.The Government should set out in detail in its response to this report:
- its position on the European Commission’s proposal to recast the EU Dual-Use Regulation, setting out the basis on which it is envisaged that UK-EU technical cooperation on export control of dual-use items will take place after Brexit;
- what it is doing regarding the need for post-Brexit licensing arrangements in respect of transfers of controlled items between the UK and the remaining EU Member States;
- its position regarding the continuity of the Consolidated Criteria after Brexit, including clarification of its intentions regarding the possible use of legislation to confirm the binding status of the Criteria;
- whether, and, if so, by what means, the UK trade-control regime will be recast after Brexit;
- its understanding of the consequences of UK and EU arms control policy drifting apart after Brexit, including the impact this would have on the defence and security industry, and how it plans to respond to these;
- its plans to deal with the possible consequences of the UK no longer participating in the EU Council of Ministers Conventional Arms Working Group after Brexit; and
- what the UK’s post-Brexit relationship will be to the EU’s denial-notification and consultation mechanism under the Common Position on Arms Exports. (Paragraph 167)
26.It would also be helpful for the Government to set out for us what information it has on the broader impact that Brexit will have on the defence and security industry. (Paragraph 168)
Brokering
27.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. (Paragraph 193)
28.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. (Paragraph 194)
29.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. (Paragraph 195)
30.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. (Paragraph 196)
Extra-territoriality
31.We reiterate the previous Committees’ recommendation to extend the application of extra-territoriality to brokerage of Category C items. We heard from ADS Group that industry is prepared to work with the Government to create a workable enforcement regime that extends extra-territoriality in this way but that the Government has found it difficult to accept this “because of the resource burden it would imply”. We note the Government’s response regarding the difficulty of post-licensing checks overseas and the need for “the return [to] be worth the considerable effort” involved but we consider that the Government must set out a plan and a timetable for implementing this. (Paragraph 206)
32.In addition, we are greatly concerned that the Government’s failure to carry out audits overseas means that the current extra-territorial controls in respect of brokering Category A and Category B items are not being properly enforced. This needs to be addressed as a matter of urgency. (Paragraph 207)
33.We are conscious that UK-connected exports of, and trade in, controlled items outside UK jurisdiction are a problematic area and we intend to look at this further. (Paragraph 208)
Corruption
34.We note the written and oral evidence to our inquiry that links intermediaries (agents, advisers and brokers) with corruption and the diversion of arms. While we are not in a position to be able to validate these allegations, we are, nevertheless, mindful of the need to be concerned about them. (Paragraph 227)
35.The Government must publish, in its Annual Reports on Strategic Export Controls, the names of any individuals or companies against whom it has taken action under the provisions of the Bribery Act 2010 in relation to arms-export dealings or financing related to such dealings. (Paragraph 228)
36.We note the previous Committees’ recommendation regarding the creation of an additional licensing Criterion relating to corruption. The Government must give this formal consideration and set out clearly the reasoning behind the conclusion it reaches. (Paragraph 229)
Published: 18 July 2018