HM CUSTOMS & EXCISE
C&E S2/96 15 February 1996
THE PROSECUTION OF HENDERSON, ABRAHAM AND ALLEN (MATRIX CHURCHILL)
BACKGROUND
1. Matrix Churchill was a long established Midlands based machine
tool manufacturer which was purchased in 1987 by an Iraqi controlled
company, TMG Engineering Ltd, which was in turn controlled by another
Iraqi controlled company, Technology and Development Group Ltd (TDG).
2. The prosecution related to two contracts placed with the company.
The first was placed by Industrias Cardoen of Chile and was for
supply to Iraq of machine tools for manufacture of fuses for shells.
The second was placed direct by NASSR Establishment for Mechanical
Industries in Iraq and was for the supply of machine tools for a
project, code named "ABA", to manufacture parts for multi launcher
rocket systems. These contracts are referred to as the "Cardoen" and
"ABA" contracts respectively. Export licences had been applied for
in relation to these contracts and granted on the basis that civil
end use was stated.
3. See "Prosecution Procedures" note for a description of the way in
which Customs cases are handled.
INITIAL ENQUIRIES BY CUSTOMS
4. Following receipt of intelligence from the West German authori-
ties in March and May 1990 that Matrix Churchill machine tools were
being (illicitly) diverted to Iraq for military use, Customs planned
low key enquiries at Matrix Churchill premises for June 1990. Prior
to the visits, the DTI were made aware of Customs plans. This was
brought to the attention of Ministers. Customs undertook to keep DTI
informed of progress.
5. Enquiries at Matrix Churchill in June 1990 found indications in
company records of potential export breaches in relation to Cardoen
exports. DTI officials were advised of Customs suspicion and other
departments at inter-departmental meetings (known as Restricted
Enforcement Unit meetings). Liaison between Customs and DTI
officials resulted in a meeting on 11 October 1990. Both had taken
legal advice on Customs' findings and the investigators advised DTI
of interviews of Matrix Churchill individuals planned for the
following week. These interviews were carried out but no charges were
brought at the time. Further enquiries were conducted during October
1990.
6. Investigators' early contact with the intelligence agencies (just
before the first visit to the company) established that there was a
source in Matrix Churchill. After the arrest of Henderson and his
fellow directors it was revealed that the source was Mr Henderson.
In October 1989 he had provided a bundle of blueprints to the
intelligence agency. In March 1990 he provided his contact with
information on the ABA project. The connection between the drawings
he had provided and Project ABA was not made. Furthermore at no time
did he give information about Matrix Churchill's involvement in the
supply of goods for the Cardoen and ABA contracts. In particular he
had given no hint that these contracts concerned the supply by Matrix
Churchill to Iraq of equipment specifically for military production.
Against this background, Customs obtained an explicit view from the
intelligence agency that his involvement with them was not a reason
for not prosecuting him. Acting as an informant does not confer any
individual special immunity against prosecution for criminal
activity.
7. At a meeting of senior Customs and DTI officials on 29 October
1990, Customs alerted DTI to the potential line of defence that
Ministers had encouraged machine tool manufacturers to "cloud the
truth" about machine tool exports. DTI outlined concerns about
exposing Ministers to unnecessary examination and protecting
intelligence sources. The potential significance of the January 1988
meeting between Mr Alan Clark and the Machine Tools Trade Association
(MTTA) was recognised and a DTI official (who had also been at that
meeting) effectively rebutted that line of defence by stating that
any guidance given was on the basis of dual-use machines being
supplied in good faith for civil production. A witness statement was
taken from the DTI official to this effect. DTI officials agreed
that the evidence should be put to Counsel for advice on whether
offences had been committed. In a further meeting between Customs and
DTI officials on 20 November 1990, it was agreed that Customs
investigators would examine all information held by DTI, including
"sensitive source" material, so that decisions on prosecution would
be informed by the results.
8. In early December 1990 a Sunday Times article alleging that Alan
Clark had helped firms to circumvent export licensing requirements
was discussed both by Customs and other departments and within
Customs. Mr Clark strenuously denied these allegations and on 3
December he caused a statement to be made in the House stressing the
inaccuracy of the article.
9. Initial enquiries, including contact with other parts of
government, had therefore found no public interest or evidential
reason to prevent a criminal prosecution. Customs investigators
therefore sought the assessment of lawyers on the adequacy of the
evidence for criminal proceedings.
INSTITUTION OF CRIMINAL PROCEEDINGS
10. Recognising obvious sensitivities which could affect criminal
proceedings, in December 1990 Customs sought the advice of Counsel at
what was a relatively early stage in the case. Counsel, Mr
Calvert-Smith, was given briefing - which included Mr Henderson's
role as an intelligence source and the meetings between Ministers and
the MTTA - and advised that, taken as a whole, there was a
"respectable" case for prosecution.
11. Following Counsel's advice, further evidence was gathered during
December 1990 and January 1991. Counsel saw DTI files relating to
"Cardoen" licences and had a discussion with a legal representative
of the Security Service about disclosure of documents. Customs
investigators saw the SIS legal adviser.
12. With this knowledge, Counsel's written advice of 1 February 1991
and a further written advice on 13 February 1991 (after seeing
material in the FCO), was that there was a "reasonable prospect for
convictions" under the Customs and Excise Management Act 1979 (CEMA)
section 68 (2). Commencement of criminal proceedings was delayed to
give FCO time to review their files and to consider the disclosure
issue. On 15 February 1991 FCO stated that it had no objection to
criminal proceedings (subject to there being the usual safeguard of
claiming PII in respect of sensitive papers). On 18 February 1991
Customs advised other departments of a decision to prosecute and
Henderson, Abraham and Allen were charged with export offences on
19 February 1991.
FURTHER ENQUIRIES
13. On 29 April 1991 Customs Investigators interviewed Mr Clark about
his meeting with the MTTA. He subsequently made a written statement,
dated 12 July 1991, which stated that his remarks to the MTTA had
referred to machine tools for general engineering and not to those
for military use. On 17 July 1991 Lord Trefgarne, who had met twice
with MTTA delegations, signed a written statement that it had never
been suggested to him that the export applications concerned machine
tools designed for military use and stated that he had never
encouraged applicants to "cloud the truth". Written statements were
also sought from DTI officials.
14. After consultation with lawyers, further criminal charges were
laid. Other departments were advised of progress in the case.
COMMITTAL PROCEEDINGS
15. At a pre-committal court hearing on 22 July 1991 it emerged that
the defence would want Mr Clark, Lord Trefgarne and a Security
Service officer to give oral evidence at the Committal proceedings.
At a subsequent meeting, Prosecuting Counsel, Alan Moses QC (who had
been appointed in October 1991), reviewed the case and placed a
greater emphasis on the evidence of Mr Clark and Lord Trefgarne. He
had advised on the importance of both being called as prosecution
witnesses, at Committal and at trial. He further advised in writing
the importance that DTI witnesses should be totally frank in their
written statements as to their state of knowledge of possible
military use of the goods at the time licences were granted.
16. Counsel's advice was communicated to other departments. Concern
was expressed about the precedent of Ministers being called to give
evidence in a criminal trial. In the event, the written statements of
Mr Clark and Lord Trefgarne were not contested at the Committal by
the defence who did not require the two witnesses to give oral
evidence. The 3 defendants were committed on 26 November 1991 for
Crown Court trial. Customs were made aware of advice from the then
Attorney General, Sir Patrick Mayhew, to the Prime Minister that Alan
Moses' advice about the two Ministers giving evidence should be
respected. Ministers do not have any immunity from appearing as
witnesses.
17. Mr Peter Lilley (Secretary of State for Trade and Industry)
signed a PII certificate to protect sensitive information in DTI
documents and Mr Kenneth Baker (Home Secretary) signed a PII
certificate to protect sensitive information being disclosed by
Security and Intelligence agency witnesses. These certificates were
not in the event required.
FURTHER PREPARATION FOR TRIAL
18. In December 1991 the indictment was lodged and in January 1992,
witness summons were served. These included Mr Clark and Lord
Trefgarne. In January 1992 Junior Counsel, Mr Calvert-Smith, returned
the brief due to other pressures and was replaced by Mr Gibson
Grenfell. Periodically, Customs updated other departments with
progress in the case.
19. On 20 December 1991 Customs solicitors wrote to Irwin Mitchell
and Co. inviting them to inspect unused material held by Customs.
Their attention was also drawn to 'sensitive' material which would be
subject to PII claims which were to be made. Ninety items of unused
material consisting of several hundred pages were made available for
inspection by the defence and copies were provided on request.
20. In June 1992 Counsel for Mr Henderson requested "full discovery"
of documents. Following a pre-trial review before Judge Smedley on
19 June 1992 Customs advised other departments about defence requests
for disclosure and Counsel viewed DTI, FCO, SIS and MOD papers in
July and August 1992. Following a further pre-trial review on 24 July
1992 Counsel further viewed papers in FCO, SIS and MOD and, after
another pre-trial review on 4 September 1992, Counsel examined all
documents made available by departments. During this process, Counsel
considered whether and how individual documents were relevant to
issues in the case.
21. During various enquiries in other Government departments to
identify documents of potential relevance, some 10,000 pages of
material were examined. Further documents were identified as
potentially disclosable but of a type subject to PII claims. These,
including documents resulting from extensive requests from the
Defence for disclosure, were the subject of PII certificates signed
by Mr Heseltine (DTI), Mr Garel-Jones (FCO), Mr Rifkind (MOD) and Mr
Clarke (Home Secretary). Following the trial Judge's rulings on PII a
further 634 pages were disclosed to the defence.
22. The Scott Inquiry has since drawn attention to a further 23
documents amongst the material submitted by the Departments to the
Inquiry but which were not identified for potential disclosure. None
of these documents are different in nature from those disclosed for
the trial. Scott makes particular reference to one document - an
Intelligence Report of 13 October 1989 - which related to the Matrix
Churchill exports covered by the prosecution. This had been seen by
Customs investigators in 1989 but its significance was not
appreciated. It was routinely destroyed in May 1990 and its
existence was not identified during the investigation and was not
recalled when enquiries and the disclosure exercise were conducted.
This highlighted deficiencies in the system for retrieval of historic
intelligence material which have now been rectified.
23. A Sunday Telegraph article of 2 August 1992 alleged that Mr Alan
Clark had helped UK companies to get round export licensing
guidelines. A similar story appeared in the Independent on 6 August
1992. Prosecuting Counsel advised that he should be re-interviewed.
He had by then left Government and proved difficult to contact. On 5
September 1992 the Attorney General minuted his officials, after
considering concerns expressed by Mr Heseltine, that he should see
the prosecution team to take an overview of the prosecution and
assess the pros and cons. On the 7 September the Solicitor to
Customs and Excise, quite independently, concluded that he should
discuss with the Attorney General the problem relating to Mr Clark's
evidence and wrote to the Attorney General's office that day. The
meeting to discuss the case took place on 10 September 1992. Those
attending were the Attorney General, the Solicitor General, Alan
Moses and the Customs Solicitor. Mr Moses gave an assessment that the
case was a fair and proper one to bring to trial and on that basis,
and subject to a re-interview of Mr Clark, the Attorney was content
for the prosecution to continue.
24. Mr Clark was eventually reached by telephone on 18 September 1992
and he confirmed that his written statement was correct. On the
strength of that, Counsel advised that the case could continue. (Mr
Clark saw the record of the telephone conversation shortly before he
gave oral evidence and agreed it was accurate).
THE TRIAL
25. The basis of the prosecution was that the contracts for machine
tools, associated tooling and computer programs, which were the
subject of the prosecution, were as a whole specially designed for
military purposes (the so-called "package theory") but the
prosecution also proceeded on the alternative basis that only
computer programs and specified tooling were specially designed for
military purposes. The specially designed tooling represented a
considerable proportion by value of the items exported and, if the
"package" argument failed, that alone was sufficiently serious to
justify prosecution.
26. On 1 October 1992 the defence applied for disclosure of the
documents covered by the PII certificates. Judge Smedley saw all the
documents and expressly acknowledged that the PII claims had been
properly made. Having balanced the competing public interests, he
ordered on 5 October that all the category B (formulation of policy)
documents should be disclosed but that the category A ("informant")
documents should not. As to the category C (security and
intelligence) documents he initially declined to order disclosure
but, having heard the nature of Mr Henderson's defence, on 7 October
ordered, with Mr Moses' agreement, that the documents be disclosed in
an edited form which would protect the passages for which PII was
claimed on a contents, as opposed to a class, basis.
27. The trial proper began on 12 October 1992. Mr Clark commenced his
evidence on 4 November and, under examination by prosecuting counsel,
was consistent with his witness statement. Under defence
cross-examination he had, by 5 November, in effect accepted that the
MTTA may well have inferred from their meeting in January 1988 that a
truthful statement of the use to which the machines was to be put
need not be given in export licence applications and that if they had
stated military use in their application they would have been
rejected by a "clerk".
28. Prosecuting Counsel considered that this evidence was wholly
inconsistent with Mr Clark's previous written statement. Counsel
advised that the proceedings should not continue and the
Commissioners of Customs and Excise accepted this advice. The Judge
directed the jury to acquit the Defendants on 9 November 1992 at
Prosecuting Counsel's request.
