CONSERVATIVE
New Forest East

10th REPORT OF 2017–19: 'UK ARMS EXPORTS DURING 2016' [1st JOINT REPORT OF COMMITTEES ON ARMS EXPORTS CONTROLS OF 2017–19] (HC 666) - 18 July 2018

10th REPORT OF 2017–19: 'UK ARMS EXPORTS DURING 2016' [1st JOINT REPORT OF COMMITTEES ON ARMS EXPORTS CONTROLS OF 2017–19] (HC 666) - 18 July 2018

Committees publish Joint Report on Government's Arms Export Controls Policy

CAEC Press Notice – 18 July 2018

A new Report by Parliament’s Committees on Arms Export Controls (CAEC) comments on a variety of issues – including the regulation of arms-dealers; the quality of information in the public domain; concerns regarding auditing and end-user monitoring; concerns about the role of brokers / agents / advisors; concerns about enforcement and the capacity to enforce; and tackling alleged corruption in the arms trade. These issues were looked at in the context of the Committees’ review of the Government’s most recent Annual Reports on strategic export controls.

Chair's Comments

The Committees’ Chair, Graham Jones MP, said:

"During our inquiry we heard from the defence industry, academic experts, campaign groups and the Government itself. The Committees have together agreed a Report that looks in depth at this very sensitive area and makes a series of detailed, constructive suggestions to improve policy and procedures.  Although the UK has one of the toughest arms-control systems anywhere in the world, this in-depth analysis has highlighted some of the gaps in those controls. I am delighted that there was a consensual view across the Committees on what is a very thorough Report. There are, however, outstanding questions and the Committees intend to look into these further in the future."

Committees on Arms Export Controls

CAEC consists of four House of Commons Committees meeting together to scrutinise the Government’s controls on exporting, and dealing in, both weapons and items with a potential military use. These Committees are the Defence, Foreign Affairs, International Development and International Trade Committees.

In their Report, the Committees:

  • draw attention to the potentially significant impact of Brexit on UK arms export controls, and ask the Government to show that it is planning for the legal and other consequences of the UK ceasing to be part of EU arrangements in this area;
  • recommend the Government consider tightening the regulation of arms-dealers;
  • ask the Government to provide information about situations where licensing decisions are made by Ministers, rather than by officials;
  • recommend that the Government consider introducing a presumption that certain licences will be denied for exports to countries that have not signed the Arms Trade Treaty or are on the Foreign and Commonwealth Office’s list of Human Rights Priority Countries;
  • are critical of the Government for presenting data in formats that are very difficult to use – and say that the Government has misrepresented data in relation to prosecutions over export-control offences;
  • ask the Government to review the resources given to HM Revenue & Customs for the enforcement of export controls;
  • express dissatisfaction at the Government’s admission that it carries out no auditing of overseas operations by UK companies in connection with licences, recommending that the compliance-audit regime be extended accordingly; and
  • recommend that the Government consider whether to start monitoring where arms exports finally end up.

In addition, the Committees heard evidence linking middle-men in the arms industry to alleged corruption and diversion of arms to destinations for which they’ve not been licensed. The Committees noted they couldn’t judge the truth of these allegations, but took them very seriously, asking the Government to consider adjusting the criteria used to assess licence applications to incorporate a criterion specially relating to corruption.

[To read the full Report, click here.]

[For this inquiry, the Chairman of the Committees on Arms Export Controls (CAEC) was Graham Jones MP, a member of the Defence Committee. While the Report was published as the 10th Report of the Defence Committee, it was the work of the CAEC and reflected their views.]

* * *

REPORT SUMMARY

The Committees on Arms Export Controls (CAEC) are the Defence, Foreign Affairs, International Development and International Trade Committees, meeting together to scrutinise the Government’s policies and processes relating to controls on the export of, and trade in, strategic (military and dual-use) items. These controls operate by means of licensing the export and transfer of listed types of item where certain criteria are met.

The present CAEC Report relates to the UK Strategic Export Controls Annual Report for 2016, but we have also referred to those for 2014 and 2015 during the course of our inquiry, as these had not been subjected to scrutiny by the previous Committees. Neither the Foreign Secretary nor the Secretary of State for International Trade (the latter of whom is now responsible for export-control licensing) was available to give us oral evidence. Both Secretaries of State should make every effort to give oral evidence to us annually.

The Government encourages industry to apply for open rather than standard licences, to reduce the licensing workload. It is legitimate to seek to make the best use of limited resources, but evidence must be provided to show that this is a cost-effective approach that does not involve compromising standards. Also, there is a need for greater clarity and transparency regarding the circumstances in which open licences are deemed appropriate.

We are dissatisfied at the Government’s admission that no compliance audits are ever carried out in respect of UK companies’ operations overseas. The compliance-audit regime must be extended to cover such companies (where appropriate) as soon as practically possible.

The Government should review the allocation of resources to HM Revenue & Customs in respect of export-control enforcement and provide data on current staff numbers and budget levels. It should also provide raw / base statistical data on numbers of investigations, reports for prosecution, prosecutions, convictions, fines, seizures, compound penalties and warnings in the last ten years. We are extremely disappointed at what we see as a misrepresentation of data in this area in the most recent Annual Report.

The Government should consider whether to begin end-use monitoring, which we believe would assist it in making more informed licensing decisions, as well as helping address compliance and enforcement.

The case for an Open General Export Licence to cover “non-contentious” cryptographic goods merits serious attention by the Government.

Staff involved in advising on licence-applications work in the cross-departmental Export Control Joint Unit (ECJU), which is based at the Department for International Trade (DIT). The head of the Joint Unit told us that he could not show any “improvement in terms of metrics” since the Unit’s formation in July 2016; and industry told us its formation had made no perceptible difference to the processing of licence applications. The Government should set out clear evidence to show the benefits brought by formation of the Joint Unit.

Industry told us 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 [Open Individual Export Licences] renewed or replaced”.

The Government should address unnecessary delays and bureaucracy in the process; and it should show how they will be addressed in the design of the new Licensing for International Trade & Enterprise (LITE) online licensing system, which will replace the current SPIRE system.

Licensing applications are assessed against the eight Consolidated Criteria, last revised by the government in 2014. While DIT has statutory responsibility for licensing controlled exports, three advisory departments are also involved in advising on the application of the Criteria: the Foreign and Commonwealth Office (FCO), the Department for International Development (DfID) and the Ministry of Defence. Of these, only DfID does not participate in the ECJU. The Government should give formal consideration to DfID staff becoming part of the Joint Unit, given the Department’s particular role in advising on Criterion 8 (regarding sustainable development).

Certain licence applications are passed to Ministers for consideration. It is entirely appropriate for Ministers to be involved in setting the criteria and principles for dealing with licence applications and in dealing with difficult cases. However, there is concern about the circumstances under which cases are escalated up to them and the basis for some of the decisions that result. The Government should set out clearly the grounds on which individual cases are selected for consideration at ministerial level and flag such cases in the Annual Report.

It has been proposed there should be a “presumption of denial” in respect of open licences for exports to countries that have not signed the Arms Trade Treaty (ATT) or are on the FCO’s list of “Human Rights Priority Countries”, as set out in its Annual Human Rights Report. The Government should review these proposals and report back with its findings.

We welcome the fact that the Government publishes a lot of licensing information, but it does so in formats that are very difficult to navigate, interrogate and interpret. The Government should make clear and easily digestible the information about controlled exports that is provided to parliamentarians and the public alike.

The Government should address the data-quality issues that apparently lie behind non-publication of data on open licences. 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 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 Government’s commitment to promote signature of the ATT by as many countries as possible. It must set out detailed plans for promoting both signature and implementation of the Treaty. It is inexcusable that for 2015 and 2016 the UK did not report on imports of arms covered by the ATT; the Government should set out what it is doing to ensure it meets its Treaty obligations in this regard.

Brexit will have a potentially significant impact on the UK’s export-control and trade-control regimes. The Government should set out in detail: its position on the European Commission’s proposal to recast the EU Dual-Use Regulation; what it is doing about post-Brexit licensing arrangements for UK-EU transfers of controlled items; its position regarding the legal continuity of the Consolidated Criteria after Brexit; whether, and, if so, by what means, the UK trade-control regime will be recast after Brexit; its understanding of the potential consequences if UK and EU arms control policy drift apart after Brexit, including the impact on the defence and security industry; its plans to deal with the possible consequences of the UK no longer participating in the 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.

Brokering is often defined as arranging or facilitating the supply of controlled items, as distinct from actually exporting them. This is currently regulated through Trade Control Licences. The regulatory regimes operated in respect of brokers by the USA and 23 of the EU’s Member States are significantly more stringent than that of the UK. The Government must formally consider establishing a pre-licensing registration system for brokers and requiring them to submit regular activity reports. It should also consider implementing a “fit and proper person” test for individuals applying for brokering licences, as well as for anyone applying for an export licence. The Government must provide in its Annual Reports information about where enforcement action has been taken against “brass-plate” companies engaged in brokering activities; and keep under review its current powers to wind up such companies.

The problem of UK citizens

“engaging in arms export or arms brokering activity overseas which would be a criminal offence if carried out from the UK”

is addressed by “extra-territorial” legislation, allowing UK citizens to be prosecuted in the UK for actions carried out overseas. Under current legislation, regulation of brokering in respect of non-embargoed destinations only applies to UK citizens operating outside UK jurisdiction in respect of trade in goods covered by Categories A and B. Trade in Category C items is only subject to trade control where it is carried on from within the UK. The application of extra-territoriality should be extended to brokerage of Category C items and the Government must set out a plan and a timetable for implementing this. 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.

Evidence to our inquiry 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. The Government must publish in its Annual Reports 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. The Government must also give formal consideration to the creation of an additional licensing Criterion relating to corruption.