Andrew Smith comments in WorldECR on export and trade controls

Penalty Spot

In the first of a regular series of features in which WorldECR examines enforcement issues and trends, this month we look at enforcement of export and trade controls in the UK.

Of the EU’s 28 Member States, the UK is regarded as one of those most proactive in terms of its engagement with export control issues and its willingness and capacity to enforce the law. And yet – as elsewhere in Europe – evidence of enforcement remains elusive and anecdotal – perhaps even frustratingly so. In part for this reason, an influential Parliamentary Committee has recently asked the UK government to provide a roadmap as to how it intends to address business noncompliance with export control regulations – and in no uncertain terms.

Enforcement framework

Certainly, the requisite infrastructure and process necessary for enforcement are in place. Suspected breaches of the export control regime are investigated by the Department for Business, Innovation and Skills (‘BIS’ – within which sits the Export Control Organisation or ‘ECO’), Her Majesty’s Revenue and Customs (‘HMRC’), the UK Border Force – either singly, jointly or all three. The evidence gathered by these authorities is then passed on to an independent prosecuting body, the Crown Prosecution Service (‘CPS’), which considers whether a decision to pursue criminal proceedings is in the public interest. In the case of successful prosecution, a confiscation order is made on the application of the prosecuting authority, compelling the convicted defendant to pay a monetary penalty or ‘recoverable amount’.

But white-collar crime lawyer and Corker Binning partner Andrew Smith says that despite a more aggressive stance pursued by regulators in recent years when it comes to violations of export and trade controls, criminal enforcement and prosecutions continue to be rare. He believes that this is mainly due to a ‘lack of resources given to the criminal investigations department within HMRC’ – a small department compared to the authority’s other branches.

‘If the regulators do uncover evidence that they’ve been [committing violations] deliberately over a number of years, then of course they will continue with criminal prosecutions,’ says Smith. ‘Most cases they investigate are on a first defendant basis, i.e. often, it is the first time a company has been in trouble, and this is usually down to ignorance about the export controls that apply. In those circumstances, British authorities take the view that it is disproportionate to pursue prosecution – it is far better to let them off with a warning, take some money, and encourage them to reform.’

Case Matters

The Export Control Organisation does not publish details on every single case of enforcement – perhaps restricting its reporting to the more newsworthy cases, and the open-source information that is available is often outdated (the last case listed on the BIS website where a compound penalty was imposed dates back to June 2012, when an unnamed company was fined ‘£1,000 for alleged offences in relation to the export of controlled goods without licences between July 2007 and December 2008’ ).

On behalf of the authorities, Tim Morris of the Customs Enforcement Policy team in HMRC referred WorldECR to the annual report for 2013 (the last of its kind to be published on the BIS website), which highlights the enforcement outcomes for 2013-14 as being:

• 450 seizures of strategic goods in breach of licensing requirements or sanctions and embargoes (see table 5.III)
• 138 catch-all cases where goods subject to end-use control were prevented from leaving the UK
• Eight compound penalties paid to HMRC totalling £447,000

One successful criminal prosecution is also listed. In 2013, Christopher McDowell and Wellfind Ltd. were convicted of being knowingly concerned in the supply and transfer of K8 Fighter Aircraft and designated parts to Ghana with intent to evade the prohibition of such controlled goods. McDowell was found guilty on one count and sentenced to two years’ imprisonment, suspended for two years on completion of 200 hours of community service.

More recently, in March 2014, Gary Summerskill was jailed for 30 months and his company, Delta Pacific Manufacturing Limited, ordered to pay £1,072,000 after an investigation by HMRC found he had attempted to conceal the illegal export of alloy valves to Iran.

Perhaps the figures are not in themselves the whole story. James Robinson, a partner at UK law firm Eversheds points out that while ‘the number of criminal prosecutions for export control breaches in the UK is relatively low – certainly in comparison to criminal enforcement in the U.S. – there has in recent years been a clear drive to demonstrate that the UK is actively monitoring compliance.’ Robinson says that the UK appears to be increasingly recognising the value of voluntary disclosure in respect of potential breaches of export controls.

Another interesting exercise would be to contrast UK statistics with those of other EU Member States. That, however, is likely to remain an aspiration for some time: WorldECR understands that even the DG Commerce within the European Commission (responsible for export control policy) has yet to obtain enforcement records from most Member States – and that any further centralisation of enforcement-related activities has been explicitly excluded from the Commission’s forthcoming review of the dual-use export control regime.

See the original article in WorldECR magazine.