‘Increased rigour’ in HMRC export controls enforcement since Brexit

Tom Stocker of Pinsent Masons was commenting after the Department for International Trade (DIT) confirmed that enforcement agency HM Revenue & Customs (HMRC) had imposed fines totalling more than £500,000 for export control breaches in the six months up to the end of October this year.

It is a strict liability criminal offence to breach export controls and fines are calculated based on three times the value of the goods exported illegally.

HMRC has a discretion to not prosecute and instead to proceed by way of either a warning letter or what is called a ‘compound settlement’. A compound settlement is essentially a civil penalty, the amount of which is agreed by negotiation. The starting point for the compound settlement is also three times the value of the goods exported but considerable discounts are given for the making of a voluntary disclosure, remedial efforts, and other points of mitigation.

According to the DIT, 12 compound settlements were paid between May 2022 and October 2022, totalling £510,670.13. The largest compound settlement paid in the period was a settlement for £271,700.25 in July in a case where military goods were exported in breach of export controls. A compound settlement was reached in another case concerning military goods in May, where £105,895.05 was paid. The smallest compound settlement paid in that period was £1,000 in a case where dual-use goods were exported without a licence.

Stocker said: “While the majority of penalties for export control breaches issued in the last six months were low, there were two substantial penalties imposed and the largest compound settlement case to date was in February 2022, which resulted in a penalty of £2.7 million.”

Companies which agree compound settlements, are not named. This means a company avoids criminal sanction and public censure.

In responding to queries from MPs earlier this year, HMRC defended its decision not to name the company involved in the £2.7m compound settlement. It said it did not believe that disclosing the company name would drive compliance, promote voluntary disclosure or be proportionate, nor therefore in the public interest.

However, in their joint report issued on arms export controls in October, the House of Commons’ Defence Committee, Foreign Affairs Committee, International Development Committee and International Trade Committee, said there is scope for greater transparency.

“We see no reason why data such as the name of the company, the item being exported and the destination, cannot be provided to us privately to allow us to undertake effective scrutiny,” they said. “We also recommend and expect that where unlicensed goods have reached their destination the government inform us, in private if necessary, of the steps taken to recover the items.”

The committees also said that data on criminal convictions for export control breaches should be published in the government’s strategic export controls annual reports in future.

“Despite the criticism, in my experience, compound settlements are an effective enforcement tool,” Stocker said. “Businesses benefit from avoiding public censure but only in return for improved compliance and a penalty being paid. HMRC gain additional revenues and achieve the objective of improving export control compliance through proportionate enforcement while retaining a discretion to proceed with a criminal investigation in more serious cases, or where there are multiple breaches and a voluntary disclosure has not been forthcoming.”