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Export Control (Amendment) (No. 2) Order 2011

Volume 726: debated on Tuesday 29 March 2011

Considered in Grand Committee

Moved by

That the Grand Committee do report to the House that it has considered the Export Control (Amendment) (No. 2) Order 2011.

Relevant documents: 18th Report from the Joint Committee on Statutory Instruments, 24th Report from the Merits Committee.

My Lords, the order was laid before Parliament and came into force on 2 March. It was made using powers under Section 6 of the Export Control Act 2002. It imposed export controls on unissued Libyan bank notes and unissued Libyan coins. As a result, the export to any destination of such notes and coins is prohibited unless a licence has first been obtained from the Secretary of State for Business, Innovation and Skills. The order revoked and replaced the Export Control (Amendment) Order 2011 which, for reasons of urgency, was made and came into force on Sunday 27 February and was laid before Parliament at the earliest opportunity on Monday 28 February. This order had imposed controls on the export of unissued Libyan bank notes.

I will explain the background to the orders. On Friday 25 February, the Government became aware that a commercial printer in the UK had a contract with the Central Bank of Libya to print Libyan bank notes. The Libyans had asked for urgent delivery of the entire stock of outstanding notes, valued at nearly £900 million. Given the worsening situation in Libya and the imminent imposition of United Nations sanctions against that country and its regime, the Government judged that there was a risk that regime members would attempt to move state assets with the intention of keeping them for their own benefit if the regime failed, against the interests of the Libyan people. There was also a risk that the assets might be misdirected through corruption. In both cases, we assessed that the movement of these funds would constitute money laundering.

There was an urgent need to prevent the supply of the bank notes in order, first, to mitigate the risk that the money would be used by Colonel Gadaffi and his associates to support further violent repression of the civilian population; secondly, to prevent Colonel Gadaffi and his associates misappropriating the money for personal use if and when forced from office; and thirdly, to ensure that the money was kept safe for future legitimate use by Libya when the risks I referred to no longer exist.

We needed to act quickly. The printer had told us that contractually it had no grounds for delaying the shipment. We considered a number of ways in which we could prevent the supply of the notes. We were working hard at the UN for a Security Council resolution that would impose, among other things, an asset freeze. We did not know at the time whether this would include the Central Bank of Libya, or how long it would take. We also considered whether it would be possible to take action under the Proceeds of Crime Act 2002.

However, the Export Control Act 2002 allows the Secretary of State to make provision, by order, for or in connection with the imposition of export controls in relation to goods of any description. The Libyan Bank notes were not in circulation and therefore did not constitute legal tender, but because they were paper notes they were “goods” that could be controlled under the powers of the Export Control Act. We decided that the use of these powers offered the quickest and most robust method of preventing the supply of the notes. Officials in my department worked closely with HM Treasury and others to draft the legislation. Work continued on this on the Friday night and into the weekend. Because the notes could be shipped at any time, it was essential that the order came into force as soon as possible. This meant bringing it into force on Sunday 27 February, before it could be laid before Parliament.

In compliance with the requirements of Section 4 of the Statutory Instruments Act 1946, my department wrote to the Speakers of both Houses setting out the reasons. The Export Control (Amendment) Order 2011 was laid before Parliament at the earliest opportunity, on Monday 28 February. Soon after this, the Government became aware that a further contract existed with another supplier, in this case for the supply of unissued Libyan coins. Although the value of the coins was much lower, we judged that the same risks of money laundering and of the misappropriation of state assets existed. We therefore made the Export Control (Amendment) (No. 2) Order which imposed export controls on unissued Libyan coins as well as bank notes. This order was made, laid and came into force on 2 March. At the same time, the original order was replaced and revoked by the new order. The order was laid before Parliament pursuant to the procedure in Section 13 of the 2002 Act and, unless approved by a resolution of each House within 40 days, it will cease to have effect. Orders made under Section 6 last for a maximum of 12 months.

The situation in Libya and the international response to it is and has been changing rapidly. We are keeping the need for this order under review. If it becomes clear that it is no longer required, it will be withdrawn. On the basis of the facts that I have outlined, I commend the order.

My Lords, I start by welcoming the noble Lord, Lord Green of Hurstpierpoint, to these important but less dramatic moments. I understand that his debut was in Questions in the Chamber the other day and I am very sorry to have missed that. I also welcome him in his capacity to that very fine and sensitive line that exists between business, trade and foreign policy with its ethical umbrella that we attempt to live up to in our dealings with all of these matters.

This order has its origins in the United Nations Security Council Resolution 1970 and is subsequently reinforced through Resolution 1973 as well as EU directives to comply with the new sanctions regime in Libya. There was a time in the 1970s and 1980s when economic sanctions were seen as the poor cousins of military sanctions that were deemed to be the only thing that really worked. I am delighted to say that such is the power of capital and capital flows in a globalised world that they are now an essential element of what we see as specific and targeted mechanisms, designed not to impose real hardship on mass populations but rather to prevent specific named individuals, their friends and their businesses from carrying out illegal acts in support of reprehensible objectives.

In pledging our support for these measures, I have a few questions that I hope the Minister will be able to answer. Some might go slightly wider than his brief but I will put them on the record in any event. The first relates to the activities of the Libyan Investment Authority and its assets held by UK banks. Is the Minister confident that we now have clarity on the value of these and of our banks’ co-operation with the sanctions regime? On a related point, have the assets of those running the Libyan Investment Authority, such as Mr Mustafa Zarti, been frozen in the UK? We know that other countries such as Austria have moved to freeze them and we also know that the Sanctions Committee of the United Nations formed under Resolution 1970 is moving to publish a new and updated list. I hope that these named individuals who are extremely close to the Gaddafi family will find that they cannot usurp the assets of their fellow citizens in that manner. Are we also clear that Libya’s stakes in other UK companies are subject to being frozen, including the subsidiaries of those companies if the companies are designated for such purposes? Finally, Libya appears to hold the Middle East’s fourth largest gold reserves. Can the Minister tell us if HM Treasury is in discussion with its partners in other jurisdictions to ensure that Libyan gold cannot be sold on the international gold markets until such time as UNSCR 1970 and 1973 are complied with? Apart from those points, we are delighted to support these smart sanctions and hope that they will have the effect that they are intended to in the longer term.

My Lords, I also welcome the noble Lord, Lord Green. I was not there on the previous occasion. I must admit that I did not expect to be involved in the Libyan situation, but one never knows what happens in these circumstances. The noble Lord answered most of the questions I had. The question of why we did not include coins as well as notes in the first one was satisfactorily answered when he pointed out that there was a first contract for £900 million and then another in relation to the coin contract.

Can the noble Lord say whether he thinks there will be an impact on these businesses? I do not question the need to do this—I agree with the noble Baroness, Lady Falkner, that this is a smart sanction and, indeed, a necessary one, although I concur with the further points that she made. The noble Lord also gave a general indication which answered a question I wanted to pose as to what happens to the seized assets. I saw a figure of up to £2 billion worth of seized assets and he indicated generally that they would be kept until such time as they could be transferred. Will he expand a bit on that? Other than that, I also welcome this legislation.

My Lords, I would like to close this debate by thanking noble Lords for their attention and for the contributions of my noble friend Lady Falkner and the noble Lord, Lord Young. In response to my noble friend Lady Falkner’s questions, I can confirm that the Libyan Investment Authority is covered by the assets-freeze requirements of Resolution 1973. I cannot confirm whether we have clarity on the value of the assets held with the banks; I will have to look into that. I am pretty sure that I can confirm, or ought to be able to confirm, that the banks are co-operating, but I will look into the value of the assets held. As for specific individuals, we will, of course, apply sanctions to any named individual and, as the UN updates its lists, we will make sure that those are complied with. Again, I will have to look into the question of stakes in companies; it is clear to me that it ought to be covered, but I will confirm that to my noble friend.

We will certainly work with others to ensure that gold reserves do not get illegally sold in a way which creates a back-door access to assets that they should not be able to get hold of. On the question of the impact on businesses, I do not think that we have any clear information; it is one of those things that those businesses will have to reckon with. It is not yet clear what the ultimate outcome will be and therefore it is not possible at this stage to make any meaningful assessment of the implication for those businesses, but the Committee ought to know that it was those businesses that came to us and said, “We have this issue. We have no contractual right to refuse. We would like your help, please”. I am very pleased to report that this was a very responsible and swift action by the company concerned.

As for the eventual outcome, the money is being held securely by the Bank of England; it will be delivered at a time when there is an appropriate resolution of the Libyan situation and it becomes clear that there is a legitimate recipient of these banknotes, but at the moment, the situation is grave and unclear. I think that I have dealt with all the questions that were tabled. I commend this order.

Motion agreed.