Examination of Witnesses (Numbers 378
- 399)
TUESDAY 6 JULY 1999
MR M CASALE,
MR J JONES,
MR A J GAMMON
AND MR
S GODDARD
Chairman
378. May we welcome you and get started? We
have a huge number of questions to get through so we are going
to try to be very disciplined in asking you questions and making
comments. If you could also be very disciplined in the length
of your replies, we might have some hope of getting through the
list of questions we should like to put to you. I should like
to thank you for coming this morning and helping us with this
subject. The further we go into it, the more technical it becomes.
I am delighted for you to be here to help us look at these issues
in more detail. May I set the ball rolling by asking you what
financial sanctions are?
(Mr Casale) In general a means of exerting pressure
on a target regime by restricting the movement of their financial
assets or restricting the movement of payments. That is how we
would define financial sanctions.
379. By what means do you do that?
(Mr Casale) You first of all have to identify the
assets. Let us say there is money held in a bank account. You
would need the bank to indicate which accounts they had in the
name of the target and then they simply prevent movement of funds
into and out of that account.
380. How can you identify the bank which is
holding this asset and will the bank comply with your demands,
requests, to reveal this to you?
(Mr Gammon) The answer to the second part of that
is yes, the banks do have an obligation to answer and indeed we
find the banks in the UK are very cooperative to reasonable requests.
The answer to the first question is that we rely on the banks
to tell us. We give them the definition of what we are looking
for, which rarely, but sometimes, can be names. They then search
their records to see what there is. At the moment for example
there are new sanctions against the former Republic of Yugoslavia
and the banks are looking for the assets of a named list of entities
and a named list of individuals.
381. Will they not be cleverer than that by
putting it in other names and other company names so that it makes
it difficult for the banks to identify even when you ask them
to do so?
(Mr Casale) Yes, that is one way of preventing your
assets from being frozen. However, if you were to, let us say,
open an account in an offshore financial centre using a shell
company, you would have to go to some lengths and to some expense
to do that. In that sense, you would still be restricting the
movement of their assets or the movement of payments without necessarily
freezing their assets.
382. This is all right with British banks whom
you say are usually helpful, but what about other banks outside
our jurisdiction? Swiss banks are notorious for being very secretive.
(Mr Casale) If you have UN level sanctions as a legal
obligation for all banks to comply with the measures, that also
extends to Swiss banks.
(Mr Gammon) Although the Swiss are not members of
the UN, they voluntarily introduced their own legislation to track
the UN legislation.
383. So you do not anticipate difficulties with
foreign banks tracing assets.
(Mr Gammon) Only the one you mentioned before of people
using somebody else's name to hold their funds.
384. What do you think are the essential preconditions
for a successful targeted sanctions regime?
(Mr Casale) That depends what your objectives are
in the first place. If your objectives are simply to send a political
signal that you dislike the behaviour in question then you would
not necessarily need to freeze the assets to meet that objective.
If your objective is to prevent any movement of assets, you would
then need to identify the accounts and to freeze those. In order
to do that you basically need to apply the sanctions before the
targets have a chance to move their funds. Thirdly, your objective
might have been just to frustrate the target, in which case the
fact that they had moved their assets at some cost and inconvenience
to them, would meet the objective. We tend to be careful in defining
success in relation to what we try to do.
385. First identify what you are trying to do.
(Mr Casale) Yes.
386. Then move with speed. Is that what I understand
you to say?
(Mr Casale) Yes; especially if your objective is to
freeze the assets you need to move quickly before they can be
moved. Also, you still need to be able to identify assets. If
somebody has concealed the identity of those assets, you will
not be able to freeze them.
387. It is not easy, is it?
(Mr Casale) No.
388. Do you believe that targeted financial
sanctions will ultimately displace traditional full scope economic
sanctions imposed by the United Nations, the European Union and
other groups?
(Mr Casale) There has been a recent move towards adopting
targeted sanctions in general and that includes targeted trade
embargoes. For example, currently we have an arms embargo against
Serbia and a ban on the export of certain items. The general shift
has been towards a targeted approach. The Government's policy
is that in the most extreme cases you would still consider what
you call traditional full scope economic sanctions, that is a
complete assets freeze and a complete trade embargo.
Mr Worthington
389. Could you explain in turn what the roles
of the National Criminal Intelligence Service, the Treasury and
the Bank of England are? Where do they overlap? What are the respective
roles?
(Mr Casale) In general the policy towards sanctions,
that is what we decide to do, is agreed by government departments;
it would be the Treasury with the Foreign Office and other interested
departments. The FCO have overall responsibility but obviously
the Treasury have a lot to say on financial matters. The Bank
of England has been appointed to act as the Treasury's agent for
the purposes of implementing financial sanctions. The Bank also
consults with other agencies for the purposes of identifying accounts
and implementing the measures which have been adopted.
(Mr Goddard) The NCIS is purely responsive to requests
from government departments to assist in identifying transactions,
identifying the location of assets and trying to pull together
criminal intelligence which is held by the police and that which
is held by other agencies both here and abroad. Purely responsive:
we do not have a significant role in sanctions at all.
Mr Robathan
390. Do you have an international network at
all?
(Mr Goddard) We have an international network of financial
intelligence units as well as Interpol. We do have a relationship
with the financial intelligence units which are in most countries
now, certainly most developed countries which have accepted financial
systems, and we do pass financial intelligence between our two
countries.
Mr Worthington
391. I would assume there are great gaps in
your intelligence because the people you are trying to get have
turned out to be controlling the police in the countries in which
they are existing rather than being under the scrutiny of the
police. Do you find you have great gaps in your intelligence?
(Mr Goddard) We have to an extent, but I have to reiterate
that we have not really been involved in this area. Our business
is criminal intelligence. We have in the past assisted government
departments in identifying assets in the UK which have belonged
to deposed dictators for want of a better expression. Whilst people
are actually in power then yes, they are in control of the state
machinery, so it is very difficult to get that information or
intelligence. Where we do manage to get it is through our suspicious
transaction reporting regime, where the assets or the transactions
are located in the UK.
392. I am still not quite clear what would happen.
Say you have the instruction, "Find Milosevic's money".
What happens?
(Mr Casale) First of all you would look for an account
in the name of Mr Milosevic, but you probably would not find one.
Then the agencies may have information which for example indicates
that an account in the name of A N Other is in fact controlled
by Mr Milosevic or he is the beneficial owner of those assets.
If you have that intelligence, you might then wish to freeze that
account. That is the only way of going about it. Alternatively,
you may have assets held by a certain company but that company
might be controlled by Mr Milosevic. In turn you could get to
his assets that way, if he happens to have hidden his personal
accounts in the name of a company. It is quite difficult if you
are dealing with somebody who, as it were, knows how to hide their
assets. Alternatively, Mr Milosevic could keep his money in his
own country and obviously he can do what he wants with it there.
393. Have the Bank and the Treasury been involved
in thinking about or developing better, more acute ways of financial
sanctions?
(Mr Casale) Do you mean within the UK or more globally?
394. We are thinking globally. We all recognise
that unilateral action is pretty limited.
(Mr Casale) The Swiss recently organised a conference
at Interlaken, both this year and last year, which brought together
people from the UN and from a whole range of countries to discuss
exactly how to improve the implementation of financial sanctions.
(Mr Gammon) I have retired from the Bank theoretically
so I work part time there. In my spare time I was given a contract
last year by the Swiss to help them with the Interlaken process
as they call it. It does seek to find better ways of targeting,
better ways of enforcing without doing violence to the people
in general of regimes. We have developed a model law which is
available for countries to use to implement UN sanctions in a
uniform way. That was one of the outputs from this year's Interlaken
conference. We have produced some words which we think would create
an even environment for the implementation of sanctions in a targeted
way. We have offered a kind of menu which will enable the UN Security
Council, or whomever, to take what it needs out of that menu in
terms of what to freeze and what to allow as exemptions; humanitarian
would obviously be one, but others too. To allow them to pick
and choose from the menu we have also offered some definitions
which, if they are picked up at the UN, could lead to a much better
targeted form of sanctions.
395. We are trying to identify whether this
is a more useful way forward than general sanctions, this term
smarter sanctions. What are the obstacles to you finding these
"smarter" sanctions? What needs to be done?
(Mr Casale) This comes back again to your objectives.
If your objective is to send a signal, then you merely need to
implement the measures and that signal may be that if you do not
comply with what the imposing country wants you to do, you will
suffer from military action in the next month or something. If
the objective is to frustrate the target then by introducing the
sanctions you would automatically force them to hide their assets
in countries where they may get a lower return or they may not
be able to move them as effectively. Although you would not freeze
their assets, you would cause some discomfort which might have
some impact on their behaviour. If you are actually wanting to
freeze assets to prevent their movement, you need to implement
measures quickly, but you obviously need to identify the accounts.
If you cannot identify the accounts, then you are not going to
be able to freeze their assets.
396. I would put my money on the person who
is trying to evade you really.
(Mr Casale) Yes, the second one.
397. No, what I mean is that it sounds like
we are a long way away from effectively getting hold of people's
money when they are in positions like Milosevic or someone else
against whom you are trying to have a smart sanction.
(Mr Casale) That is true. If you are dealing with
a smart target, they will probably be able to prevent their funds
from being frozen, in which case you might say you would not be
able to achieve an objective of preventing the movement of their
funds. You would just frustrate the movement of their funds.
398. Does London's role as a major financial
centre mean that we are a very, very significant player in terms
of the development of financial sanctions or are we just a medium-sized
country which is trying to impose sanctions ourselves. Do we cause
big changes elsewhere?
(Mr Casale) The fact that we have a large financial
centre does not necessarily mean that we have the money in the
UK. Because we tend to apply sanctions as effectively as we can
in the UK we do not have a large offshore sector with a large
company formation sector for example. I suppose the significance
of the City's dominance is that there are greater compliance costs
because all banks and other institutions in the UK have to try
to identify the accounts. We do not necessarily have all the money
in the UK. In terms of our influence in affecting policy and implementation
in other countries, together with other major countries such as
the US and our European partners obviously we play a full role
in trying to improve implementation.
Chairman
399. Mr Jones, is all of this legal?
(Mr Jones) Certainly it is legal. There are three
legal bases for implementing sanctions in the UK, which I will
run through if you would like me to very briefly.
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