Register of Arms Brokers Bill [HL]

Baroness Jolly Excerpts

Committee: 1st sitting (Hansard): House of Lords
Friday 18th November 2016 Lords Chamber

Moved by

[Baroness Jolly]

1: Clause 1, page 1, line 5, leave out “by Order in Council” and insert “lay before each House of Parliament a draft of an order to”

[Baroness Jolly (LD)]

My Lords, I start by thanking the Minister and her officials for a really useful meeting last week. Amendments 1 and 2 are technical and would rectify shortcomings in the original Bill debated at Second Reading, as highlighted by the Delegated Powers and Regulatory Reform Committee report of 25 October this year.

With the leave of the Committee, I should like to outline briefly the purpose of the Bill. It is a small Bill to meet an obvious need. Its purpose is to require British arms brokers to register before they can trade. It brings arms brokers into line with those of other countries, such as the US—a country not recognised as being in favour of unnecessary regulation. Here, I should point out that a strong regulatory regime is already in place to ensure that licences are granted to export appropriate goods to states which we trust to act responsibly with the arms that are purchased.

At Second Reading the right reverend Prelate the Bishop of Derby summed up the issues really well. He said that the Bill,

“builds upon existing legislation about licensing and export control, so we have a set of criteria and an assessment process in place so that all companies involved are scrutinised and licensed. We are doing the work that would provide the register. So the principle of identifying and monitoring arms brokers is established.

Secondly, there has been a recommendation from the House of Commons Committees on Arms Export Controls that the Government establish a register of UK arms brokers. So besides have a principle of identifying and licensing brokers, even in our own parliamentary system there has been some expert scrutiny of that principle and a recommendation that it is taken forward to a formal system of registration”.

Finally, I refer to the right reverend Prelate’s recent experience of being involved in the crafting and implementation of the Modern Slavery Act. He said:

“In the language of that world, which is analogous, there is the issue of … supply-chain transparency: how people trade and make it transparent for the benefit of all concerned, pushing back against temptations towards corruption”.—[Official Report, 10/6/16; col. 958-59.]

As I said, these are two technical amendments, which were prompted by the DPRRC. I beg to move.

[Lord Swinfen (Con)]

My Lords, I apologise for speaking, as I did not have the opportunity to take part at Second Reading.

I am a little puzzled by the meaning of new Section 4A(2) proposed in Clause 1. As I read it, it would mean that members of the Ministry of Defence, civil servants, members of the Armed Forces and the Treasury and various Ministers,

“involved in the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import of military equipment or military technology”,

should be registered. I find that odd. It is quite obvious that members of the Armed Forces and civil servants in the Ministry of Defence are involved in the design, improvement and manufacture of weapons to be used by our Armed Forces, but I do not really understand why they should be registered as arms brokers.

[Lord Judd (Lab)]

My Lords, I must also apologise for not having been able to participate at Second Reading. However, I am glad to say that I cannot think of a Bill that is more pressing or important in the highly dangerous world in which we live.

Weapons are lethal. I have always held the view that the export of arms is so dangerous that it should be only to recognised allies, in the context of alliances to which we belong, or in the case of very specific arrangements that further defence interests as we see them and which can be monitored. The ethos has to be changed from one of exporting arms unless there is a reason not to, to seeing arms as very dangerous, hazardous and unwise things to export unless there is a very good reason for doing so. I believe that that underlying ethos is crucial. In the context of what I have just said, the amendment speaks for itself. As far as I am concerned, I warmly applaud it, as I do the Bill, and hope that it succeeds.

[Baroness Jolly]

Perhaps I can better help the noble Lord, Lord Swinfen, by explaining that the issue he raised comes under the second group of amendments. The amendments in the first group are merely technical to determine how such legislation could take effect.

[Lord Swinfen]

I am quite happy for the noble Baroness to answer my query when we come to the second group. I shall wait patiently to hear what she has to say.

--- Later in debate ---

[Baroness Mobarik]

One cannot get into the mindset of such people, but we have such a thing as brass-plate companies. They operate in name only. They are shell companies that have no presence other than a brass plate. Therefore, the kind of people that the noble Lord is talking about will operate under the radar regardless. The existing legislation is adequate, according to the Government, in controlling such behaviour as far as we are able to.

[Baroness Jolly]

I thank the Minister for her explanations. We have already gone into the next amendment, which I will introduce in a moment. To bring us back to Amendments 1 and 2, I guess that this is very much a legal point. We looked at the issues raised by the committee. We took some legal advice and came up with another form of drafting. It seems as though the Government’s lawyers are less than happy with what we have come up with, but I thank the Minister nevertheless.

Amendment 1 agreed.

Moved by

[Baroness Jolly]

2: Clause 1, page 1, line 14, leave out “in Council laid”

--- Later in debate ---

Moved by

[Baroness Jolly]

3: Clause 1, page 1, leave out lines 16 to 18 and insert—
“(b) a person may only be entered in the register if he or she is a fit and proper person to be registered as an arms broker.(4A) The Secretary of State shall specify in guidance what is meant by a “fit and proper person” in subsection (4)(b).”

[Baroness Jolly]

This amendment is really the nub of what we are trying to achieve. It calls for a fit and proper test for arms brokers. The majority of British arms brokers are decent, upright citizens who have chosen this particular profession and would most certainly pass any fit and proper person test as defined by the Secretary of State. However, as the Minister indicated earlier, some are brass-plate operators and work in offshore tax havens such as the British Virgin Islands, Cyprus, Hong Kong, Liechtenstein or Gibraltar. They pay no tax on considerable earnings.

The events of earlier this year highlighted the key role that offshore shell companies have played in large-scale tax avoidance, prompting a series of reforms and proposed new legislation in the Criminal Finances Bill, which will come before this House some time early next year. There is widespread political support to crack down on these activities and make it harder for individuals to use such offshore vehicles for tax avoidance, including greater powers of disclosure over such overseas assets.

Crucially, these offshore company vehicles have not just been used by those seeking to avoid paying tax. There is a direct link to arms brokering in that they are also the vehicle of choice for arms brokers wishing to conceal their activities. Here, I am clearly not referring to perfectly bona fide arms manufacturers, Ministers, members of the Cabinet or whatever who, if they are caught within the remit of the Bill, are caught totally unintentionally.

A registration system of arms brokers, including mandatory disclosure of all overseas company assets, would serve as a major enforcement tool for Her Majesty’s Government to tackle illicit brokering. It would also be fully consistent with complementary to parallel initiatives being pursued to clamp down on tax avoidance using the same overseas company vehicles and structures. As such, it would be wholly inconsistent with emerging government policy in this area and a huge missed opportunity to exclude arms brokering activities from the process of establishing greater oversight and regulation over offshore companies.

The UK has one of the most active and lucrative arms industries in the world and, at a time of global instability, it is critical that we play our part to ensure that it is transparent. Over 30 industries in the UK require registration, from bouncers to beauticians, yet people who make millions trading weapons, bombs and military equipment have no such scrutiny. The amendment would require all UK arms brokers to pass a fit and proper person test, bringing us into line with most western countries, including the USA and Australia. I beg to move.

[Lord Judd]

My Lords, the amendment is critically needed. It relates to my previous point. Ideally, we should export arms only when they are furthering our defence policies or our strategic alliances for specific purposes. If they are exported outside that context, it should be in a very carefully considered way that contributes towards world peace and stability. Of course all the huge issues of end use and the rest are critically important for context. From that point of view, I can imagine that only the most responsible citizens are qualified to be involved in this trade. The amendment is very important if we are to take the whole purpose of the Bill as seriously as we should.

--- Later in debate ---

[Baroness Jolly]

The point I thought the noble Lord was making was to do with the breadth of the measure having to cover Secretaries of State, members of the Cabinet and British arms manufacturers who deal perfectly legitimately and regularly overseas. Do I understand the noble Lord aright?

[Lord Swinfen]

The noble Baroness is moving in the right direction, but as I read her Bill it would cover the Ministry of Defence, civil servants working for that ministry, members of the Armed Forces, the Treasury, Ministers in the Treasury and anyone involved in the manufacture and supply of arms for our own forces. I am sure that that is not her actual intention, and I am not a lawyer although I am descended from lawyers, but that is my reading of her Bill. It may be that she needs to look at this point before the Report stage.

[Baroness Jolly]

I thank the noble Lord for that clarification. I am not a lawyer either and neither am I descended from lawyers, but I will most certainly take advice from them and ensure that, should the Bill reach the Report stage, I table any necessary amendments to exclude those particular groups. The aim of the Bill is to catch arms brokers who for the most part operate in small or single-individual companies hiding behind brass plates. Recently there have been several instances of brokers trading illegally. They have been charged and served their time, but because there is no registration, they can come straight back and trade again. That is the purpose of the Bill and so that is what the fit and proper person provision is for.

[Lord Swinfen]

I am most grateful to the noble Baroness for saying that she will have a look at this point, and I look forward to hearing what she decides on it at a later stage.