Examination of Witnesses (Questions 120
- 139)
MONDAY 15 DECEMBER 1997
SIR JOHN
KERR, KCMG, MR
PETER WESTMACOTT,
LVO, MR JOHN
KERBY, and MR
LEE BEAUMONT
MR JAMIE
MORTIMER
Mr Davidson
120. I was very impressed, in your answer
to Mr Love, with the number of closures there have been in various
sectors of the financial community. Presumably the fact that that
had to take place is a pretty damning indictment of your predecessors
in the Department, is it not, that it actually got to that stage?
(Sir John Kerr) This is a "Have you stopped
beating your wife?" question, I think, and there is no good
answer to such questions.
Mr Davidson: There is actually. A
confession of error in the past would do fine.
Mr Page
121. You have stopped beating your wife!
(Sir John Kerr) Thank you for that!
Mr Davidson
122. I was looking through this and I know
something of some of these areas and it strikes me very much that
in the financial areas, it has been really a bit like the Wild
West and that ever since the British Government and the Department
has been playing the equivalent of catch-up rugby, in a sense,
you have been trying to close things down, improve things and
so on and so forth. I am not clear about the carrot and stick
and I want to be clear whether or not you feel that the British
Government and yourselves have sufficient powers to deal with
these matters. If you do not have sufficient powers, have there
been occasions in the past when you have specifically asked for
them?
(Sir John Kerr) We have nuclear weapon-type powers.
We can always in the last resort override the Government, disallow
the country's budget or pass by Order in Council here legislation
which changes, overrides, replaces their legislation, except in
the case of Bermuda where we have more complicated legislation,
but for all the Caribbean Dependent Territories, we could do that.
It is a nuclear option which we have on occasion threatened to
use. If we found a really very alarming situation, it would be
right in future to threaten to use it again; and if we were ignored,
it might be right to use it.
123. So the situations that you have found
so far have never been so alarming as to justify considering using
those powers because I thought some of these situations you found
in the past were actually pretty alarming?
(Sir John Kerr) Yes, but I cannot immediately
recall a case where we changed that situation by Order in Council.
I think we changed that situation by locking people up in the
situations we found, but it would be perfectly possible to envisage
using the nuclear option. Now, you might very well say to me,
and I would agree with you if you did, "Would it not be nice
to have some small clean weapons, not just nuclear ones?"
I think that would be a very fair and reasonable line. On the
other hand, I would be unable to go very far down it while there
is a Dependent Territories Review going on where Ministers will
be considering what is the correct future relationship with the
Dependent Territories. I think it is possible to argue, and some
of us would, that there is a case for finding a way of exerting
a little more pressure and having a rather greater armoury for
use in the situation you have described.
124. Do I take it then that your Department
has given to Ministers a list of clean weapons, if we can use
that term, that you would feel it was advisable to have within
your armoury and is it possible for you to provide a note, not
of that advice, but of these clean weapons to this Committee?
(Sir John Kerr) Mr Chairman, the answer to both
parts of the question, I think, has to be no. We are now in an
area where the Government needs to make up its mind what it is
going to do. The Government has not collectively begun to exchange
papers. I suspect I would be in trouble if I offered you my papers
before I offered those papers to the Government.
Mr Davidson: That is why I am distinguishing
in that I was not necessarily asking for sight of the document
you have given to the Government because there may be a number
of value judgments you will make in there, but what I think it
would be helpful, Chairman, is if this Committee has a paper indicating
the range of clean weapons that were possible because it might
very well be that many of us, as Members of this Committee, might
want to contribute ourselves to the Review of the Dependent Territories
and have the benefit of your Department's expertise and knowledge
in these matters and make our own judgments which may or may not
come to the same conclusions as your own.
Chairman
125. I think you are asking our witness
for policy advice.
(Sir John Kerr) I would be happy to give a note
on that. [6]
Mr Davidson
126. That would be very nice, thank you.
(Sir John Kerr) I do not think I can give you
internal papers of the Review.
127. I accept that. Can I clarify the position
of the Americans in all of this because you made a very interesting
point, I think, earlier on about tax evasion and saying it was
not quite your problem and that it was American taxes which were
being evaded, but there was an element of that perhaps there and
I know that the Americans have been concerned about a whole range
of issues in the Caribbean Territories because obviously it is
the American market which is affected most. I have had the impression
when meeting the American Department of Justice that they are
not happy with the situation in some of the Dependent Territories
and they were unhappy about the slowness of the British response
and the response in those Territories. My knowledge is about one
year old or so. Has the situation improved? Would we be able to
say now that the variety of American agencies were generally happy
with the standards of probity and that these were being enforced
by the legislation that is in place in the Caribbean Dependent
Territories, in particular, and Bermuda?
(Sir John Kerr) Yes, I can only speak for Louis
Freeh and Janet Reno, but I think they would both be advised-I
cannot pretend that they look at the problem every day, but they
would be advised by their officials,-that is the FBI and the Department
of Justice, that the situation in terms of co-operation with the
Brits about the problems when they touch on British Dependent
Territories was very much better than it looked some years ago.
I think they would tell Janet Reno and Louis Freeh about WCCIT,
the white collar crime unit; they would tell them about the Dependent
Territories criminal intelligence system, the information exchange
system; they would tell them about the close co-operation with
the FBI not just in Miami, but also in Washington which is plugged
into this system, and I think they would tell you that their relationships
with us are not only much better than they used to be, but they
are also better than they are with some others in and around the
Caribbean, including some of the Independent Territories of the
Caribbean.
128. So whilst I accept that the relationship
is better, where there is a benchmark for these things, would
you feel we would get a very high score in these circumstances
if the Americans, in particular, were comparing us with others?
(Sir John Kerr) I would like to say two things,
if I may. First, I think the situation is better, that the situation
both in respect of drugs and money laundering is better. But,
second, the situation needs to get a lot better still. I do not
want you, Mr Davidson, to think that I think that everything in
the garden is lovely. There was trouble with the Americans. The
TCI prosecution in the mid-1980s caused a lot of people in the
United States to think that the situation that emerged, where
it was clear that the Chief Minister of the Dependent Territory
was seriously mixed up in criminal activity and went to court
in the United States and was found guilty, that caused a lot of
people in America to think that maybe these British Dependent
Territories are not very clean or are not very keen on trying
to stay clean. I think the situation then, and I was in Washington
then, in the middle of the 1980s was quite different from the
situation now. I was in Washington for the last couple of years
and they have quite a different view about the Dependent Territories
partly because of WCCIT and the criminal intelligence system.
129. Could I just follow up the point about
tax evasion and the sharing of information? My understanding is
that the Dependent Territories are generally willing to share
information on matters that are a crime in their country, but
some of them, unless I am mistaken, do not have income tax and,
therefore, do not recognise income tax evasion or avoidance or
anything similar as in fact being a crime and, therefore, will
not share information and, therefore, will not assist the American
authorities in particular in providing any information whatsoever
on some of the most outrageous cases of tax evasion. Now, do you
have any intention of pursuing that matter at all?
(Sir John Kerr) Absolutely. It is a Cayman Islands
problem. The Cayman Islands have passed their all-crimes law,
but in a way that contains an exclusion which we are not prepared
to agree to. We are insisting that they must change their law.
We are also unhappy with the state of Bermudan law. So you are
correct that it is a problem, and a problem not yet solved. The
legislation that the Caymans have is, in our view, for this reason
defective.
130. Can I pick up other issues of law enforcement?
The Chief Constable of Bermuda resigned recently, I think, did
he not, and I believe he was leaving? There is obviously something
wrong when that happens, is there not? There are, firstly, stresses
and strains there between some of the imported police, as it were,
and the local people. What is the way forward in that and are
we any closer to having confidence that the law enforcement agencies
within the Dependent Territories are completely free of any accusations
of a lack of probity?
(Sir John Kerr) Can I ask Mr Westmacott to answer
on Bermuda because I do not know the answer?
(Mr Westmacott) Certainly we knew about the resignation
of the police chief, who was not a local person. He had been imported
on an expatriate contract. Our understanding of that case is that
he did reach his decision to resign for personal reasons. He has
not told us exactly what those were, but I think, certainly when
I was in Bermuda a few months before that, the Governor then and
all the other senior members of the Bermudian Government felt
that he had done an extremely good job in trying to raise the
standards of police effectiveness in Bermuda, and in many respects
clearly it is a shame that he has moved on. However, I think the
answer to your general question is that ensuring there is a high
quality of police work and that the police force enjoys local
respect is something which has been given a lot of priority. We
have got a police adviser employed by the Foreign Office based
in Bridgetown, Barbados specifically for the purpose of advising
on police work and we are putting people in on technical co-operation
terms as secondees with police experience from here to help both
train and run local police forces. It is very important and we
spend a lot of resources in trying to make sure that standards
are as high as they can be.
131. I wonder if I can pick up finally this
whole question of the cultural ambience of the Dependent Territories.
Do you see yourselves having any responsibility or interest in
maintaining the essential Britishness of the Dependent Territories
and do you wish to make efforts to stop them all being "Macdonaldised"?
(Sir John Kerr) I do not think I have any very
clear view on that. I do not think that our contingent liability
would be any greater with fewer or more Macdonalds. I am not sure
it is wholly relevant to the inquiry. They feel very British.
They wish to remain very British. There is no pressure for independence
anywhere, except there was, and there perhaps still is, in the
Gibraltar Opposition, and there was, and there perhaps still is,
in the Bermuda Opposition, but the Bermudan referendum in 1995
went as it went. In all the others, there is no question of independence.
There is perhaps a slight tendency to try to have the cake and
eat it. It seems to me that, and I am not talking now of very
poor Dependent Territories who certainly do need our help, but
in those that are richer than us, where per capita GDP is higher
than that in the United Kingdom, I think we have a right to ask
them, if they indeed wish to stay very British, to carry a fair
share of the burden of costs and liabilities that accrue in their
Territory.
132. Presumably we believe that the standards
of probity, the standards of governance would be improved the
better the links were with the United Kingdom and the more opportunity
there was for particularly up and coming young professionals to
pick up good practices here and take them back to their own lands.
I am not sure that you should not be taking that as part of your
responsibility and in the longer term, as it were, trying to maintain
good standards. I was particularly concerned when I was in some
of the Dependent Territories to see the numbers of young professionals
who go off for training in the United States, Canada and elsewhere
rather than coming to the United Kingdom and there is a constant
irritation, as I am sure you must be aware, at the passport controls
at Heathrow, for example, where they all have to go through the
"Other" channel rather than through the UK/EC channel,
for example. Would you not have thought that your Department ought
perhaps to be a trifle more proactive in these sorts of aspects
in terms of maintaining the essential Britishness as a means of
investing in good practice to avoid contingent liabilities being
greater in the future?
(Sir John Kerr) Yes, I do not think that training
in Canada or the United States is necessarily lower on quality
than the training in the UK, I do not think that, but I do understand
the point you are making and I think it is perhaps possible to
envisage some kind of bargain. I would like to feel that we could
deal more firmly with the having-the-cake- and-eating-it problem
if, in order to enable us to do that, we found some concessions
to make to the Dependent Territories which they felt were very
attractive, and I can envisage a bargain which might be useful
to them, useful to us in the context of your question. I am sorry
to sound so vague, but this Review is at an early stage.
Chairman: Thank you. We will go into
closed session now.
(EVIDENCE HEARD IN PRIVATE)
Mr Hope
133. I just have a couple of points. Firstly,
in response to questioning from Mr Love and Mr Williams around
the financial services in the Dependent Territories, you in effect
called for this Committee's support for strengthening that in
relation to the numbers of staff that are there and so on. I am
struggling with the fact that this contradicts the clear statement
in here which says that you consider the supervisory framework
in each Territory to be satisfactory. Is it or is it not satisfactory?
Do you or do you not want this Committee's support for strengthening
it? If you were being diplomatic in your replies earlier in not
wanting to offend people in those countries, if there are reasons
for diplomacy for the way you put it, then please tell us. What
I would like to know is what the position is.
(Sir John Kerr) I think it could not be unhelpful
if the Committee were to draw attention to the desirability of
a continual process of improvement, and the point that was made
by two Members of the Committee was that techniques of financial
crime are continually changing, and the techniques of regulation
need to change and they need continual updating and it could not--
134. Yes, but I am just struggling with
the fact that you have pointed out, you said to us that the guidelines
that you have sent out have not been implemented, and then we
talked about the number of staff based on the islands as being
insufficient with eight staff to cover 130,000 business companies
on the British Virgin Islands and so on. It has all been said
in open session and in the closed session I just want to ask,
is the reason why the Report says, and you say, that the supervisory
framework is satisfactory and yet in response to questioning quite
clearly it is not, is this something to do with our relationship
with those Territories that you are managing in a diplomatic way
and that there is a problem and that is the way forward, or is
there not a problem?
(Sir John Kerr) I think that there is a problem.
There is a problem which the Committee were on to from the start,
that our powers are small and our responsibilities large. I think
that there is a problem. I am not concealing some nugget. I am
not aware of some awful scandal in any of these islands.
135. My dilemma then is that the public
position of the Foreign Office is that the supervisory framework
is satisfactory, but you know that it is not.
(Sir John Kerr) We are the colonels in an army
which is going over the top tomorrow. We are fighting the criminal,
the crook. We do not actually want to say that our army is useless
and we will all be shot down. I do not think it is useless or
that it will be shot down. We could do with more armour. It is
quite a good army, but it could be made better.
Mr Wardle
136. Sir John, I just have one question.
Are you confident that the human rights of the people who remain
in the camps, who remained at the time of the hand-over in the
camps, in Hong Kong and the listed known refugees still resident
in Hong Kong will be adequately protected?
(Sir John Kerr) Yes, I think so because the eyes
of the world are still on them. The camp, it is clear where it
is. I think actually that the Hong Kong authorities would not
wish to treat these people badly, but if they did treat these
people badly, that would be instantly detected. The NGO eye is
still on them, our own eye is still on them, the camp is not far
away, and I am still confident.
Mr Wardle: That is reassuring.
Mr Hope
137. I have a question on Spanish pensioners.
Is the Gibraltar Government going to pay the household cost allowance?
Are they incurring this liability or do we still have some liability
in that regard? ***
(Sir John Kerr)
138. ***
(Sir John Kerr) 139. ***
(Sir John Kerr) ***
6 Note: See Appendix 1, p. 23 (PAC99); supplementary
note (PAC/118) not reported. Back
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