Making a voluntary self-disclosure to HMRC for suspected breaches of export controls
Compound settlements are penalties offered for breaches of export controls in lieu of criminal prosecution. They are issued by HMRC and can amount to three times the value of the goods exported. It is therefore important for firms who suspect there has been a breach of export controls to mitigate potential penalties and damage to reputation.
In recent years the value of penalties issued for breaches of export controls has increased significantly. With recent updates to export controls and sanctions regulations, including but not limited to The Russia (Sanctions)(EU Exit) Regulations 2019, the scope for goods falling under regulation has widened, meaning that exporters need to have an up-to-date understanding of the law.
At the time of writing, the latest data on compound settlements offered by HMRC to UK exporters can be found here.
Where a firm discovers or suspects incorrect licence usage, breach of licence conditions or unlicensed exports it is important for them to consider making a voluntary self-disclosure to HMRC.
Breaches of UK Export Controls are liable to prosecution under section 68(1) of the Customs & Excise Management Act (CEMA) 1979. This states that a person who contravenes a prohibition commits an offence and shall be liable on summary conviction to a penalty of three times the value of the goods or level 3 on the standard scale, whichever is greater. This is a strict liability offence.
When dealing with export control offences HMRC has a number of options available to it in terms of enforcement. These options are generally determined by the nature and seriousness of the offence and range from a written warning, through to offering a compound settlement or referring the matter to the Crown Prosecution Service with a view to instituting criminal proceedings.
The powers to issue a compound settlement are contained in section 152 of CEMA and allow HMRC to enter into an agreement to settle offences out of court as an alternative to criminal proceedings. Compounding has a number of advantages, for example, saving time and money in the form of legal fees. Furthermore, HMRC's policy is generally one of not publicising the names of individuals or companies accepting compound settlements, which reduces the risk of damage to a firm’s reputation.
What is a voluntary self-disclosure?
A voluntary self-disclosure informs HMRC of potential export controls non-compliance in respect of goods, technology and or software (herein ‘Items’) listed in either the military or dual-use lists or end-use controls.
A voluntary self-disclosure should detail:
- What has been exported, where they have been exported and on what date they have been exported
- Written explanations of the non-compliance as well as appendices of the Items exported
- Any relevant commercial documents (e.g. commercial invoices, customs and/or technical documents)
- How the non-compliance has been discovered
- What steps have been taken to prevent any further non-compliance
What are the benefits of making a voluntary self-disclosure?
HMRC look favourably on those making a voluntary self-disclosure and there are a number of benefits, including:
- Penalties may be significantly discounted where a firm discloses and complies with any subsequent investigation
- Firms have the opportunity to conduct their own investigation and provide a full explanation to HMRC as to how and why the breach occurred and what steps have been taken to prevent any recurrence
- Damage to reputation is limited, as HMRC do not publish the names of firms that make a voluntary self-disclosure
- Prevents going to court and having to defend criminal proceedings
On submission of a voluntary self-disclosure, HMRC will consider all the facts and will advise the exporter of their decision. It is understood that HMRC currently consider the value of the past three years exports, when looking to calculate compound penalties. There is no obligation for an exporter to accept a compound penalty offer and they can choose to go to court if they wish.
Have a question about a suspected breach of export controls or voluntary self-disclosure?
Please get in touch for fast, expert advice from an export controls and sanctions lawyer. For a free initial 15-minute consultation to find out how Andrew can help you, please call +44 (0) 1423 734019 or make an enquiry. All enquiries will be responded to promptly.