UK Strategic Export Licencing Criteria
Military, dual-use, and other sensitive goods and technologies require a licence to leave the UK (Export Control Act 2002). This means manufacturers and distributors need to apply for an export licence from the Export Control Joint Unit (ECJU).
However, the ECJU will consider numerous factors before granting a licence. This includes taking advice from the Foreign Commonwealth and Development Office (FCDO) and the Ministry of Defence (MOD) when considering the Strategic Export Licencing Criteria:
- Criterion 1: International obligations and commitments
- Criterion 2: Respect for human rights and international humanitarian law
- Criterion 3: Preservation of internal peace and security
- Criterion 4: Preservation of regional peace and security
- Criterion 5: National security of the UK and its allies
- Criterion 6: Behaviour of the buyer country
- Criterion 7: Risk of diversion to an undesirable end-user
- Criterion 8: Sustainable development
- Other factors: any exceptional circumstances that may have a significant negative impact on the UK’s international relations.
Examples from Russia and Israel
In 2022, the ECJU rejected over 400 licence applications and revoked over 150 existing licences. Over 200 of these were due to Criterion 1, coinciding with the sanctions imposed on Russia in response to the war in Ukraine. Additionally, around another 200 were due to Criterion 7: the risk that controlled goods could be re-routed to undesirable end-users such as the Russian armed forces.
In September 2024, the government announced the ‘suspension’ of 30 licences to Israel, due to international humanitarian law concerns. Under Criterion 2, where there is a ‘clear risk’ that the exported items ‘might’ be used to facilitate internal repression or in violation of humanitarian law, then the ECJU would reject an application or revoke a licence. Whilst this is not an embargo, combined with Criterion 8 (risk of diversion), this does create a significant hurdle for exporting to Israel.
These two examples show that in an increasingly unstable world, the Strategic Export Licencing Criteria are increasingly important for UK exporters. Manufacturers, distributors and agents should mitigate the risk of a rejected or severely delayed application by ensuring that any submission has clearly considered these criteria and can provide evidence to support.
Due diligence and the key to safe defence exports
The importance of due diligence and supporting evidence cannot be over emphasised. Know Your Customer (KYC) checks should be carried out in any case. However, beyond knowing the customer’s details, exporters should also understand the customer’s wider standing.
Where the customer is the ultimate end-user and the export arrives directly in the ultimate destination, due diligence is slightly simpler. However, the complexity for the defence market is that this often entails dealing with a ministry or department of defence.
Depending on the country, this could encompass a wide range of organisations and units, including police and paramilitary organisations. Given that different military units in the same military could have different reputations in respect of humanitarian law and internal repression, it is critically important to narrow down who the ultimate end-user will be and where they will be using the exported goods.
However, it is also common for manufacturers and distributors to use ‘intermediaries’ in third countries to access their local defence markets. This increases the risk of re-diversion (see Criterion 7). In that case, the exporter should perform due diligence on each part of the supply chain between themselves and the ultimate end-user.
This includes checking whether the anyone in the supply chain, their company directors or shareholders, are on a sanction list; knowing the immediate customer’s reputation in respect of counter-terrorism financing and anti-money laundering practices; knowing who their customers are, and their reputations; and knowing whether each part of the supply chain is committed to complying with international sanctions that mirrors the UK’s commitment.
Where the immediate customer, or their customers, is part of group of companies, these considerations should be given to each subsidiary of their group.
Restricted countries and considerations for International Trade
The exporter should consider the situation in the country they are exporting to, and its relationship with the UK. Restrictions apply differently for different country. For example, despite wide ranging sanctions, it is still possible to export certain goods such as medical supplies to Russia under licence (The Russia (Sanctions) Regulations 2019).
Equally, there are restrictions on exports destined to regions in Ukraine including Crimea and Donetsk. However, exemptions may apply if the ultimate end-user of the military goods is the Ukrainian government, provided a recognised trade route is used.
Additionally, the exporter should consider if non-UK restrictions apply over and above UK requirements. For example, the ECJU is likely to reject an export if it would breach US International Trade in Arm Regulations (ITAR) or Export of Arms Regulations (EAR).
Summary
Exporting military and dual-use goods and technologies is incredibly complex, involving multiple jurisdictional, legal, and governmental considerations. There are both commercial and criminal implications for getting this wrong.
Proelium Law has extensive experience in this area, with a proven record of assisting its clients to navigate these complexities to deliver commercial success.
If you would like more information on how Proelium can help you, please contact us or send a message below.
