What has happened?
HM Revenue & Customs (HMRC) recently issued a compound penalty of more than £10,000 to a UK person who was "brokering" an unlicensed trading of body armour. Although the goods were not exported from the UK, the transaction involved a UK person. This activity requires a trade control licence if UK nationals or companies are involved, even if the goods do not pass through the UK.
What does this mean?
It is a criminal offence to export goods without the relevant trade licence, and this recent penalty demonstrates that HMRC is increasingly using its enforcement powers to prosecute UK persons involved in trading goods outside of the UK without a licence.
The UK Department for International Trade publishes a consolidated control list of strategic military and dual-use items that need an export licence, and the 2008 Order sets out detailed rules for the export of items on the control list.
UK persons should be aware that a trade licence is required for trafficking and brokering in listed items when this involves a company or person from within the UK (whether or not they are a UK person) or by any UK person operating overseas.
The term “UK person” means a UK national (including British nationals overseas and dual nationals) or a UK company.
Government guidance defines ‘brokering services’ as the selling or buying of dual-use items or the deal, negotiation or transaction for purchasing or supplying dual-use items from a third country to any other third country.
In practice, brokering could include the following activities:
- arranging supply from overseas factories/warehouses;
- arranging intra-company transfers;
- drop shipping;
- acting as a ‘project manager’ for a project in one third country who sources supplies for that project in other third countries.
This requirement applies even if the items are not exported from the UK or do not pass through the UK
Therefore, when UK persons are involved in arrangements pertaining to certain listed items, their activities are still controlled by the UK export control regime, even if the goods are exported from a third country to another.
What are the penalties?
In the UK, HMRC monitors export control compliance and can bring prosecutions for non-compliance.
It is a criminal offence to ship unlicensed goods. A strict liability offence covers inadvertent breaches, and a more serious offence covers deliberate evasion of export controls (which can attract a fine or up to 10 years’ imprisonment).
However, HMRC can also offer an offender the opportunity to avoid prosecution in return for the payment of a compound penalty.
Compound penalties avoid criminal prosecution and so may incentivise UK persons to make a voluntary disclosure.
Therefore, where a company or person suspects that export control rules may have been breached, self-reporting may reduce any potential penalty.
It should be noted, however, that there is no maximum compound penalty limit; HMRC recently issued a compound penalty of over £109,000 to a UK person in relation to unlicensed exports of military goods.
Please contact us if you would like to know how the issues mentioned in this article may affect your organisation.
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