Export Controls: Seizure and Forfeiture

This is the second article in a series from 2 Hare Court’s Export Control Team.

Last month’s article gave an introduction to this growing and complex regime. This month’s article examines the potential consequences of attempting to export goods without the requisite licence.

Detention and seizure

Strategic military and dual-use items listed on the UK Strategic Export Control List can only be exported with a licence issued by the Export Control Joint Unit (ECJU) within the Department for Business and Trade. Without a licence, the goods are liable to be ‘snagged’ (detained) at the border by UK Border Force (UKBF) or HMRC. Goods may also be snagged if there are end-user concerns, regardless of whether a licence was necessary and/or obtained.

Goods may be held for 10 working days, which can be extended to 30 working days, for example if consultation with the ECJU is required (Export Control Order 2008, para 40). If the requisite licence is not in place, both the goods and any vehicle carrying them are liable to seizure (Section 139 of the Customs and Excise Management Act 1979). If goods are seized, a notice of seizure will be provided indicating the reasons for the seizure – this often happens immediately upon snagging.

The owner of the goods then has three options. They can (1) request that the goods are returned; (2) challenge the legality of the seizure; or (3) do both.

Requesting the return of the goods

Regardless of whether the legality of the seizure is challenged, the owner of the goods can request their restoration (ie. return) from UKBF or HMRC. A request for restoration differs from a challenge to the legality of the seizure as it is an administrative process – a formal request for the return of goods without court intervention.  A request for restoration must be made within one calendar month of the seizure.

Section 152(b) of the 1979 Act gives HMRC a discretion to restore, subject to such conditions (if any) as they think proper, anything forfeited or seized. Whilst there is a general presumption against restoration, HMRC state that any mitigating or exceptional circumstances will be taken into account and that each case will be determined on its own merits.  Providing an undertaking not to export the seized goods in the event of restoration at least permits for the owner of the goods to sell them within the United Kingdom and is sometimes agreed by the seizing authority.

If restoration is refused, the owner has 45 days from that refusal to request a review of that decision by an officer not previously involved in the case. The reviewing officer can confirm the original decision, vary its terms or cancel the refusal and allow the restoration request. If the review is unsuccessful, the owner has 30 days from the review decision to appeal to the First Tier Tribunal (Tax Chamber) (Sections 14 – 16 of the Finance Act 1994).

The operation of the restoration procedure is illustrated by the case of Boston Ltd v Director of Border Revenue [2015] UKFTT 0534 TC. Boston was (and is) a computer hardware manufacturer that sought to export partially built servers incorporating ‘AES encryption’ to India. On 4 July 2014, a shipment was detained by UKBF at Heathrow Airport as Boston did not have an export licence for the goods. On 22 July 2014, Boston wrote to UKBF seeking restoration of the goods. Boston explained that there had been a miscommunication with the freight forwarders, who had failed to hold the goods until an export licence that had already been applied for had been obtained. On 3 September 2014, Boston received the export licence and sent it to UKBF. On 9 September 2014, UKBF refused restoration in the absence of exceptional circumstances, noting that it was the fifth seizure within a year. Boston requested a review of that decision. On 17 October 2014, the officer undertaking the review confirmed the original decision, and in so doing accused Boston of having a complete disregard for export regulations. The fact that Boston had subsequently obtained an export licence for the goods, had undertaken internal staff training, and sought and obtained compliance advice were on this occasion insufficient for UKBF to find ‘exceptional circumstances’ to restore the goods. On 30 January 2015, Boston appealed to the First Tier Tribunal (Tax Chamber). The Tribunal dismissed Boston’s appeal, finding that UKBF’s decision not to restore the goods to Boston was proportionate and one that could reasonably have been reached.

Challenging the legality of the seizure

If the owner of the goods wishes to challenge the legality of the seizure, either on the basis that the goods have the correct licence, or that they do not require a licence, they must complete and send a ‘notice of claim’ to UKBF or HMRC (as applicable) within one calendar month of receipt of the notice of seizure. Otherwise, the owner will be deemed to have accepted the legality of the seizure (Section 5, Customs and Excise Management Act 1979).

Once UKBF or HMRC receive the notice of claim, they will commence condemnation proceedings before a magistrates’ court or the High Court. These are civil proceedings in which the court will determine, on the balance of probabilities, whether the owner of the goods was in possession of the requisite licence or not. If the court finds that the seizure of the goods was unlawful, the goods will be returned to the owner. If the court finds that the seizure of the goods was lawful, it will make an order for forfeiture of the goods to UKBF or HMRC. The provisions governing condemnation proceedings are set out in Schedule 3 to the 1979 Act. Note that condemnation proceedings only have consequences for the goods themselves, not the company seeking to export them or its directors.

Takeaways

The lesson here is that prevention is better than cure. Challenging the legality of seizures in condemnation proceedings and/or seeking restoration of seized goods can be protracted, time and resource consuming and expensive. The risks to a company’s supply chain, business operations and profits can be significant.

The export control regime continues to evolve and expand. Taking specialist advice early is critical to ensure that the correct licence is in place before goods are exported, so that seizure and forfeiture can be avoided.