Return to an Address of the Honourable the House of Commons
dated 18 July 1996 for the Appendices to the Report of the Inquiry into the Export of Defence Equipment and Dual-Use Goods to Iraq and Related Prosecutions laid before The House on 15 February 1996*

Volume Two
Section D Arms and Defence-Related Exports to Iraq
Chapter 6 Specific Export Licence Applications after the Cease-fire

Excerpt:
COMPUTER SYSTEMS

International Computers Limited (ICL)

D6.269 After the cease-fire ICL continued, as it had done before, to make applications for licences to export a variety of computer systems to Iraq. Nearly all the applications were recommended for approval by the MODWG and IDC and led to the grant of export licences. By way of illustration, at the IDC meeting on 18 January 1989 four ELAs were approved, two ELAs were approved on 28 April 1989, two were approved on 10 August 1989 and five were approved on 1 September 1989. *511 All of these ELAs had been assessed by the MODWG as ‘A(Nil)’. A few applications, however, presented some problems.

D6.270 Under an ELA dated 18 November 1988 (ELA 3G/44205/88) ICL sought a licence to export to Iraq “4 SUN 360C-4-P5U4-Computer Systems, Related Equipment, Spare Parts, Accessories and Software.” The value F0B of the goods was stated to be £168,000. The ELA named the Iraq State Oil Company as the intended ultimate user and gave the “Precise purpose” of intended use as “Computer aided design for structural mechanical and civil engineering”. *512 The application was marked ‘R(Sy)’ (ie refused on security grounds) by the MODWG on 12 January 1989 and refusal of the ELA was recommended by the IDC at its meeting on 18 January 1989. *513 On 21 February 1989 the DTI requested the MOD to provide “a form of words giving the reason [for the refusal] which we can send to the applicant”. *514 The refusal had been recommended by the MODWG on security (Sy) grounds and formulation of a reason that could be communicated to ICL may have presented some problems. But for whatever reason, the MOD delayed their response and further requests for the reason for the refusal were made by the DTI on 7 and 9 March. *515

D6.271 Pending the formulation by the MOD of a communicable reason for the refusal of the ELA, ICL by letter dated 12 February 1989 gave the DTI additional information about the computer system which, said the letter, had “already been licenced (sic) by the DTI... and installed in the same department for which this new application has been made”. *516 ICL also informed the DTI, a few weeks later, that “the US had approved export licence for identical equipment for same location and to be used by same department”. *517 The DTI responded to these two communications from ICL by a letter dated 12 April 1989 to Mr Barrett, seeking “urgent reconsideration by MOD” of the refusal *518. A manuscript note dated 19 April written by Mr Hextall on the 12 April letter asked for “this appeal” to be circulated “to DI (Def. Sales) and MOD SY (S&T) for early review”. The note recorded also Mr Hextall’s recollection that the refusal of the ELA on security grounds had been as a result of technology transfer concerns. The DTI wrote again to the MOD on 18 April 1989 confirming that “Sun Graphics Workstations formed part of an earlier consignment for the same end-user under Licence No. 3G/8266/88 which was issued following FCO and MOD approval given over the telephone to Mr Steadman in June 1988” and asking for the review of ELA 44205 to be carried out “at the next IDC meeting on 26 April and if not whether a decision could be taken outside committee with a view to a licence being issued.” *519

D6.272 A reconsideration of ELA 44205 did not take place at the next or any IDC meeting. Instead, on 1 June 1989 the relevant correspondence was sent by DESS2a to LSOR 10a Sy (Lieut- Colonel Glazebrook’s department in MOD) for advice. *520 The advice seems not to have been forthcoming for on 21 July 1989 the DTI wrote again to Mr Barrett complaining that although the writer had been told the case would be on the agenda for the 23 June IDC meeting that had not happened. The letter went on: “We are now being pressed by ICL for our response which is long overdue. I should be grateful if, in view of the time that has elapsed, the case could be considered outside the IDC machinery and let me have your response urgently”. *521 The letter was copied to Mr Simmons, FCO/MED, and the copy bears a manuscript note, written by Mr Lillie on 28 July “Noted: it is for Mr Barrett to respond now”.

D6.273 The papers before the Inquiry do not indicate whether LSOR 10a SY gave any, or if so what, response to the request for a review of ELA 44205. However the copy of DTI’s 21 July letter on the ELA 44205 file bears the manuscript note “Superseded by 3G/50523/89.” *522 ELA 44205 does not appear on any subsequent MODWG or IDC lists and it seems, therefore, safe to assume that the appeal against the refusal of the licence was abandoned with ELA 50523 taking the place of its unsuccessful predecessor.

D6.274 ELA 50523 was dated 21 November 1989. The details of Consignee, ultimate user and Precise purpose were identical to those contained in ELA 44205. In 44205, the “proposed date of shipment” was “March 1989”; in 50523, it was “a.s.a.p.” The full description of the goods comprised in ELA 50523 was “4 x Sun Graphics Workstations Type 3/80/C, 1 x Sun 141 MB Fixed Disc Unit and Cartridge Tape, 2 x OSLAN Local Bridge, Related Equipment, Spare Parts, Accessories and Software.” The value FOB of the goods was given as £168,000. The description of the goods is not identical to the description of the goods in ELA 44205, but the differences seem minimal and the “value FOB” in each ELA is the same. ELA 50523 was circulated to FCO/MED and MOD/DESS2a on 15 December 1989. It was, for a while, kept pending to enable DIS to examine the software, details of which were to be provided by DTI. At the MODWG meeting on 7 March 1990, however, the ELA was marked A(I), and the grant of a licence was approved by the IDC at its meeting on 19 March. *523

D6.275 An AWP application by ICL regarding the supply to Iraq of its “ASMA and INDEPOL Command and Control System” had been approved in January 1988. *524 On 30 May 1989 ICL applied for a licence to export to Iraq “ASMA Software (Air Staff Management Aid System” and “INDEPOL Software”. The ultimate user was the Iraq Ministry of Defence. The “Precise purpose” for which the software was to be used was stated to be “Command and Control, Security System and Office Automation”. *525

D6.276 The ELA (3G/15730/89) was considered by the MODWG on 24 August 1989 *526 and was marked “Indepol-LSOR to check”. *527 In the lists for the IDC meeting on 1 September 1989 the ELA was marked “Pending MOD (LSOR and DIS) to consider”. *528 At the 14 September 1989 MODWG meeting, however, the ELA was marked ‘A(I)’ *529 and on 25 September the IDC approved the grant of the licence. A similar approval was given in respect of ICL’s ELA 3G/15732/89 which related to a “Series 39 computer system and software”. The approval of the grant of the ELA was not, however, made until details of the software had, at the request of the MODWG, been provided to DIS. *530

International Computer Systems (ICS)

D6.277 On 29 June 1988, in response to a query raised in December 1987 by Keeling Metrology Company Ltd, the DTI informed the company that “co-ordinate measuring machines and accessories did not require an export licence under current UK export regulations” but that an export licence was required for the “associated computer systems”. *531 Accordingly, by an ELA dated 17 March 1989, Keeling applied for a licence to export to Iraq an “IBM XT 386 Computer System and 3D Measuring Software... to be used in conjunction with unlicenceable co- ordinate measuring machine”. The ELA was given the reference number 3G/22838/89. The Consignee was stated to be Nassr; the “Precise purpose...” for which the equipment was to be used was stated to be “Measuring molds”. The ELA gave the name of International Computer Systems (London), (ICS), as the “agent through whom the order had come”.

D6.278 By an earlier ELA dated 27 January 1989, ICS had itself applied for a licence to export to Iraq a Microvax Computer System and software. This ELA was given the number 3G/11052/89. The Consignee was Nassr and the “Precise purpose...” was stated to be “Computer aided design for tooling of commercial products”. This express reference to a commercial purpose provides a striking contrast to the usual general and unspecific answers given to the “Precise purpose” question in ELAs for goods destined for Nassr. The ELA was accompanied by a letter dated 27 January 1989 from ICS to the DTI pointing out that the goods for which an export licence was being sought were manufactured in the United Kingdom but could also be obtained directly from an associated company in the United States without the need for a specific export licence. *532 The DTI was asked to expedite the export licence “to ensure that this and future orders are placed with us in the UK”. The ELA was circulated to the FCO/MED and MOD/DESS2a on 15 February 1989. It appears from manuscript notes made by DTI officials that on 1 March Mr Hextall, DESS2a, sought additional information about the “software package”. Mr McDonald has suggested that it is “inconceivable” that Mr Hextall “as a layman could have sought additional information about the software package unless at the suggestion of one of the MOD clearance authorities.” *533 This may well be so.

D6.279 ICS complained to the DTI about the slow progress of ELA 11052. In addition a letter dated 22 February 1989 querying the progress of the ELA was received by Mr Alan Clark, the Minister for Trade, from Mr John Moore MP. *534 In a submission dated 28 February 1989 from Mr Steadman, to which a suggested draft reply to Mr Moore’s letter was attached, the background was set out as follows: “ICS submitted 2 applications on 27 January; one for a DEC Microvax Computer... for Nassr State Enterprise for Mechanical Industries and another for computer parts for Ministry of Industry and Minerals... The latter application has been approved today. The one for Nassr has been circulated to the IDC because of the sensitivity of the end user. It will be considered at an IDC meeting on Friday 3 March. Thereafter ministerial approval would be needed...”. *535 Mr Clark replied to Mr Moore by a letter dated 9 March. The letter explained the position regarding the IDC meeting to be held on 3 March and said that ICS would be contacted as soon as possible after the meeting. *536

D6.280 In the event the next IDC meeting took place on 14 March 1989. ELA 11052 was not, however, on the agenda. Nor had it been referred for advice to the MODWG. The reason for this is not clear, but may be that Mr Hextall was still seeking additional information. Whatever the reason, the delay occasioned a sharp letter from Mr Beston to Mr McDonald, Head of DESS. Mr Beston’s letter, dated 17 April 1989, said this:

“Tony Steadman has been in frequent contact with Allan Barrett to chase the case, but the continuing lack of an MOD recommendation is becoming impossible to sustain. The case has already been taken up with our Ministers by the company’s MP in February at which time we were hopeful of an IDC decision in March. The export is one of the first for the company in Iraq where it has recently established a Branch Office. In its view, its future success there is very dependent upon fulfilling the order.

I am conscious of the need for careful examination of applications for exports to this country and this end-user, but the case has now been with MOD for 2 months and there is really no way in which we can justify the delay to the company. Not surprisingly, the company cannot understand why we should be so concerned when they are able to ship the equipment from the US to Iraq without difficulty under a US licence. I understand that Allan Barrett has, or is, to make contact with the US Authorities to establish how, given the intelligence background on the end user, they were able to issue a licence.

I should be grateful if you would look into the position and let me have an urgent reply. I fear our Ministers will have a further MP’s letter to answer before too long if we cannot tell the company something positive. We would find it difficult to sustain a refusal for this type of equipment unless there was some proof of its use for sensitive purposes. But if this is to be your recommendation we will need a pretty good story to explain why the US got it wrong and action by then to prevent supply from the USA if a UK licence is refused.” *537

D6.281 Mr Barrett was on leave when Mr Beston’s letter was received in the MOD. Manuscript notes on the MOD file copy of the letter show that Mr Hextall acted on it under instructions from Mr McDonald. *538 A manuscript note made by Mr Hextall on the same day, 17 April 1989, records that Mr Barrett had discussed the ELA with an official in the DIS unit responsible for technology transfer assessment and had been informed by the official that the US authorities were “confident that the machine would not be shipped on to the Soviet Union” and that “as he [the official] was acting only as a longstop to protect US technology, he withdrew his objection.” *539 On 18 April, the day following Mr Beston’s letter, Mr Hextall (according to a manuscript DTI Note on the ELA file) “telephoned to say that application can be granted (as non military equipment it was agreed the case need not be taken to the IDC)”. So, on 18 April the export licence was granted. Neither the MODWG nor the IDC had considered the ELA. Nor had the case been referred to Ministers. It was true that the ELA had explicitly declared a “commercial” purpose. But the “Consignee” was, nonetheless Nassr. Technology transfer had been considered but the MODWG experts, in particular, should, in my opinion, have been given the opportunity to express a view on the advisability of the export vis à vis the Guidelines, albeit by this time relaxed for Iraq. Mr Hextall has commented “I find it inconceivable that I would have given clearance to the DTI without first consulting the MODWG.” *540 As a general point, I accept that this was so, but it must be remembered that Mr Hextall was acting under instructions from Mr McDonald (in Mr Barrett’s absence on leave) and that Mr McDonald had been put under some pressure by Mr Beston’s letter of 17 April. There is no evidence at all that any MODWG member was asked to consider the ELA in the context of the guidelines.

D6.282 The history of ELA 11052 had an impact on Keeling’s ELA 22838. A Note dated 3 May 1989 from Mr Mayne, DTI, to Mr Hextall said that “Mr Steadman has already spoken to DESS about this case and wants to draw your attention to a previous application under which this equipment was cleared by MOD, namely, 3G/11052/89...” and that “In view of the link between the two applications... Mr Steadman has requested that the current application should be approved without going to the IDC”. *541

D6.283 ELA 22838 had been circulated to the FCO and the MOD on 31 March 1989 and was considered by the MODWG at its meeting on 10 May 1989. Refusal was recommended on enhancement grounds, notwithstanding that the MODWG was applying the “new relaxed guidelines” to exports to Iraq. *542

D6.284 Mr Steadman’s suggestion that the ELA need not go to the IDC was not adopted. The ELA was considered by the IDC on 18 May 1989. The Summary Record of the meeting records:

“The MOD Working Group had recommended refusal of this highly advanced equipment since it could, potentially, assist with quality assurance in missile production. It was intended for [Nassr] which is a major manufacturing centre for both military and industrial equipment. The IDC noted however that there was no reason to believe that Nassr intended to use this computer in missile production. It could equally be used for legitimate industrial purposes. While there was inevitably some risk attached to its export, the IDC therefore decided to recommend APPROVAL” *543

The IDC’s recommendation was endorsed by Mr Lillie, agreed by Mr Stephen Lamport and Mr Gore-Booth and approved by Mr Waldegrave. *544

D6.285 In the MOD the recommendation for approval of Keeling’s ELA was the subject of a note dated 14 June 1989 from Mr Barrett to the Minister (DP), Lord Trefgarne. *545 The note, after describing the computer system, informed the Minister of the MODWG view that “as the equipment could be used to improve quality control in missile and other weapons production, and against the background of intelligence reports about the Nassr establishment’s involvement in this area, its supply should not be agreed”. The Note referred to the DTI argument that “as all previous applications for lathes and machine tools for the Nassr establishment had been agreed by Ministers (albeit for special reasons) in the knowledge that they might be used for weapons manufacture, it would be inconsistent to refuse Keeling’s application” and then said that “The IDC agreed to recommend approval but to highlight to Ministers that the MODWG continued to be concerned about the use to which this type of equipment would be put”. In a Note dated 15 June 1989 Lord Trefgarne’s Private Secretary conveyed Lord Trefgarne’s agreement with the IDC’s recommendations for approval. *546 In his written evidence to the Inquiry, Lord Trefgarne explained his decision. He stated “... the IDC synthesised the views of the MOD, DTI and FCO before making a recommendation. I was receiving clear advice that notwithstanding MOD concerns, the officials from the three departments acting together had recommended approval. I assumed that the three departments had, between them, considered all the relevant factors. In so far as the MODWG had concerns about the application, the MOD representatives at the IDC would have been able to air those views at the IDC meeting on 18 May and would have been able subsequently to obtain, for example, any appropriate assurances about end use. Therefore, whilst I noted the MOD concerns, I was content to approve the decision of the IDC”. *547

D6.286 The grant of export licences under ELAs 11052 and 22838 was not repeated when, later in 1989, three ELAs submitted by ICS were dealt with. The ELAs in question were 3G/12992/89, 3G/13419/89 and 3G/13432/89. Each of these ELAs related to the export of VAX computer equipment to Iraq. The proposed consignee was Iraq’s Scientific Research Council. The ELAs were considered by the MODWG on 3 August 1989 and, as they had done with ELA 22838, the MODWG recommended refusal of the ELAs on ‘enhancement’ grounds. *548 At its meeting on 10 August 1989, the IDC, too, recommended refusal. *549 The recommendation for refusal was approved by FCO Ministers. *550

D6.287 DTI disagreement with the refusal of the three ELAs was made apparent by a letter dated 14 August 1989 from Mr Steadman to Mr Barrett. *551 Mr Steadman told Mr Barrett that he had conveyed the refusal of the ELAs to ICS and then continued as follows:

“I have no further detail on the reasons for refusal and it would be helpful if you could let me know the background to the decision and what I am able to say to the company by way of further explanation. I doubt if the standard reply quoting the guidelines to the conflict would be relevant unless the computer equipment was to be used to directly enhance the offensive capability of Iraq”. *552

After referring to the company’s reaction to the refusal and to its commercial implications for the company, Mr Steadman put once again the argument based on the availability of the equipment from the United States:

“You will recall that [the company] held US licences for the supply of the VAX equipment to Nassr on which we ultimately approved UK licences a few months ago. If we continue to maintain a stricter line than the US is alleged to be taking, we shall need to consider what representations should be made through diplomatic channels”.

D6.288 A DTI internal Note of the result of the 10 August 1989 IDC meeting listed the three ICS ELAs under the heading “Refusals subject to appeal by the company”. However, Mr Steadman’s letter of 14 August had been copied to, inter alia, Mr Duncan of FCO/SEND and, as appears from a manuscript note appended to the letter by Mr Barrett on 8 April 1990, SEND had, by a letter of 6 September 1989, supported the refusal of the ELAs.

D6.289 It is surprising that in relation to ELA 22838, the IDC did not accept the MODWG’s refusal recommendation. Similarly, it is surprising that the IDC accepted the MODWG refusal recommendation in the case of the SRC destined computers without any reference to the apparently inconsistent decision reached earlier in the year on ELA 22838. The argument that the equipment could easily be obtained from the US manufacturer was, however, a forceful one and underlines the inevitable futility of unilateral export restrictions on equipment that is freely available from other countries. Mr Steadman’s observation in his letter of 14 August, that if the United Kingdom were to continue to impose stricter restrictions on the supply of computer equipment to Iraq than were imposed by the United States, diplomatic representations might need to be made was, in my opinion, justified. The situation was a mirror image of that which was presented by the vacuum furnaces ELAs. There the United States wanted to restrict the export and made diplomatic representations to endeavour to persuade the United Kingdom Government to do likewise. *553

Endnotes:

*511 - MOD/24.1.193; MOD/25.1.219; MOD/28.2.243; MOD/30.1.67

*512 - DTI/58.2.4252 at 4261 et seq.

*513 - MOD/24.1.193 at 209

*514 - DTI/58.4252 at 4253

*515 - DTI/58.4252

*516 - MOD/25.1.343

*517 - the telex sent from Baghdad to the DTI on 29 March: FCO/6.1.180

*518 - MOD/25.1.341

*519 - FCO/6.1.177

*520 - MOD/25.1.339

*521 - FCO/6.1.176

*522 - DTI/162.3.3.12846

*523 - MOD/31.1.227 at 237 and MOD/31.1.329; MOD/31.1.349 at 355; MOD/31.2.7 at 39, MOD/31.2.253 at 85, MOD/31.2.159 at 183, and MOD/31.2.317 at 343; FCO/6.4.24 - 37

*524 - see paragraphs D2.404 to D2.405 supra

*525 - DTI/162.3.3.12660 et seq.

*526 - Although copied to the FCO on 5 June the ELA was not copied to the MOD until 14 August 1989

*527 - MOD/28.2.321 at 345

*528 - MOD/28.2.375 at 399

*529 - MOD/30.1.111 at 137

*530 - MOD/30.1.5 at 13; MOD/30.2.51; FCO/6.1.37 at 50

*531 - DTI/307

*532 - It appears that the US equivalent of a UK Open Individual Licence was held by the US manufacturer. See also MOD/25.1.345 for a similar point made in an analogous case.

*533 - Written comments submitted on 14 December 1995

*534 - DTI/44.1.2497 and DTI/44.1.2498

*535 - DTI/44.1.2493

*536 - DTI/44.1.2492

*537 - MOD/25.1.73

*538 - MOD/25.1.73

*539 - MOD/25.1.77

*540 - Written comments submitted on 26 May 1995

*541 - DTI/307

*542 - MOD/25.1.183 at 189

*543 - FCO/6.2.42 at 43, paragraph 1(iii)

*544 - FCO/6.2.39 and FCO/6.2.40

*545 - MOD/25.2.167

*546 - MOD/25.2.211

*547 - Lord Trefgarne’s written statement of 18 March 1994, paragraph 159

*548 - MOD/28.2.243 at 275

*549 - FCO/6.1.154 at 172

*550 - FCO/6.1.153 and MOD/28.2.291

*551 - MOD/28.2.287

*552 - Note Mr Steadman’s use of the language of the reformulated guideline (iii)

*553 - see paragraphs D6.312 to D6.336 infra.

* The Full report is available from The Stationery Office Ltd., PO Box 276, London, SW8 5DT.