Examination of Witness (Questions 720
- 737)
THURSDAY 28 OCTOBER 1999
MR JEREMY
CARVER CBE
720. Yes.
(Mr Carver) This holding of assets is part of the
problem I am referring to between different legal systems, and
much of the difficulty arises because of the much more aggressive,
muscular, and mature system for policing sanctions that exists
in the United States. They base their administration of sanctions
on something that they copied from the United Kingdom in 1917
when they entered the First World War, which was the Trading with
the Enemy Act. That was itself a product of a very elaborate analysis
conducted by the Committee for Imperial Defence in 1912-1913,
simply to try to understand how to deal with the economic relations
between two states that then find themselves in war. It is a simple
piece of legislation because it addresses the issue: having identified
an enemy, how do you effectively wage economic war while in contradiction
to all the ordinary legal obligations that exist prior to the
waging of war? So you have to break a whole lot of legal undertakings
and obligations. Under the Trading with the Enemy Act, and its
model, which still survives and is the basis of US sanctions,
all the assets that are seized are assets of an enemy and are,
therefore, held for the benefit of national claimants who have
suffered loss by reason of what the enemy has done to those claimants.
Peculiarly, this is still the view held in the United States and
by the administrators of sanctions, for instance, in relation
to Cuba, Iran, Iraq and they do not differentiate. They do not
use their UN Powers Act of 1946, which is the equivalent of our
United Nations Act; they use this identification of an enemy asset
which, therefore, stands forfeit not for the use at all of the
enemy. In the UK we have never done that except under the distinct
regime of wartime. In the only post war situation which we have
used this, which was Argentina in 1982, we simply said, "No,
we cannot do that any more. These assets are frozen so you cannot
have the actual enjoyment of them, but they still belong to the
account holder, interest is still earned—and it should be—and
if that account holder owes money to some creditor, those assets
are available to pay it". In 1991-1992 the Americans were
scandalised at the way in which creditors could come along to
the courts and get a judgment against an Iraqi debtor and attach
frozen assets and pay themselves off in that way. They were only
slightly less scandalised when they realised this was not for
some national interest. American creditors could come along to
our courts and get the same result, and they did so, and that
is why there are no Iraqi assets frozen left in this country,
by and large. They were dissipated in that way. On the Continent
they have not done this analysis at all; therefore, they are in
some confusion as to whether or not these assets somehow are forfeit
or whether they are still belonging to and owned by the original
account holder. I do not understand the analysis that Mr Bruderlein
is giving in saying that, because you hide assets, as it were,
they stand forfeit. But, if you admit them, then you should enjoy
the usual impact of having accounts even if you cannot use them;
but there is a fundamental difference between the treatment that
the Bank of England has always given in our huge and very busy
financial centre that the United Kingdom is, and the attitude
of the Office of Foreign Asset Control in Washington, which produces
quite different results, quite different analysis. I am sorry,
that is a long answer.
Chairman
721. That is fascinating. In relation to that,
in the case of South Africa, it is said that the only real sanction
which worked was, finally, the financial sanction of not allowing
them to re-negotiate international loans, I believe, with Swiss
banks. Is that your understanding and, if it is, why do we not
use financial sanctions in that way at a much earlier stage to
bring about the result, of course, that the international community
wish, ie the ending of apartheid?
(Mr Carver) Financial sanctions, in my view—I
agree with the proposition—were far more effective in bringing
South Africa to a change than what is often attributed in the
press, for example, which is the Gleneagles Agreement and the
cutting of sporting links. There are those who feel it was those
that did more to undermine morale in South Africa. I do not accept
it; I think it was the economic impact of the financial sanctions
that were probably, on balance, more effective because they did
hurt the economy directly. The whole debt—particularly Third
World debt—situation which I think your Committee, sir,
is already examining, as it were, differently is, you already
know, extremely complicated. It is not easy to line up the necessary
parties to accept that. It is a different set of officials and,
sometimes, governments that are involved in the equation of how
to deal with external sovereign debts than those that sit in the
Security Council when there has been identified a threat to international
peace and security. Relating those two sets may be quite complicated
but, in principle, I accept the proposition that there is more
that could be done. For example, as a result of the mutual testing
of nuclear devices by India and Pakistan, the United States immediately
slapped certain sanctions on both countries with regard to access
to aid funds and so on. Now the assessment is that those probably
were very painful indeed. Access to external funds and the treatment
of loans, which means, of course, also re-negotiation of debt,
is also terribly important for many countries.
722. Yes. It seems to me that all loans to a
sanctioned country should become immediately repayable to the
bank or country that has lent them, or the international institution.
That would bankrupt them pretty quickly.
(Mr Carver) Well, you cannot bankrupt a country. We
have realised that countries are in a situation of bankruptcy
occasionally but you cannot literally bankrupt a country. There
is no international liquidator that can move in in the way that,
for instance, the IMF can under different circumstances. I would
say that you can certainly provide in your loan instruments that
all debts become repayable in the event of sanctions being imposed,
and the London market has certainly seen an increasing number
of such provisions written into loan instruments with this effect.
I do not think that it is a necessary corollary simply of imposing
sanctions, whether internationally or domestically, that that
is the result. That is beyond, to my mind, the scope of certainly
Article 41 of the UN Charter or of most domestic measures.
723. So it would not be possible then legally
to do it if it is beyond Article 41?
(Mr Carver) Correct.
Ann Clwyd
724. The Treasury told us in evidence that you
need to be able to identify assets. If somebody has concealed
the identity of those you will not be able to freeze them but
they were not able to give us any examples of assets being successfully
identified and frozen. Do you think the Treasury and the Bank
of England could be doing more, or are they doing as much as they
can?
(Mr Carver) I must be prudent in my answer.
Ann Clwyd: Why?
Mr Robathan
725. Because he is a lawyer, that is why!
(Mr Carver) I attended the giving of evidence by the
Treasury and the Bank of England and my prudence is, perhaps,
not ordinary lawyer's caution. The Bank of England does a lot
but I was struck by the fact that the Bank of England representative
said very little to you and most of evidence came from the Treasury
and I am not sure that the Treasury really does know what is going
on in the Bank of England. The Bank of England has a sophisticated
and very intelligent, to my mind, view of the way in which sanctions
have to be applied. The Bank of England understands the way the
banking system works; I am not convinced that the Treasury does.
Now, I think the Bank of England does much more than it was able
to tell you when it gave evidence in July. They have been successful:
they were much criticised internationally during the time when
the UN itself was facing bankruptcy because it was unable to support
the UNSCOM programme in Iraq, the UN compensation fund in Geneva,
because there were no assets available. No oil was being sold;
Iraq was deliberately not taking advantage of opportunities available
and, therefore, there was a dramatic deficit of funding available
to the UN which is classically always underfunded. Internationally
a resolution was passed essentially empowering the Security Council
to make use of frozen assets. This was done and a search was made
for frozen assets and the United Kingdom was among those targeted
specifically in order to identify all the accounts belonging to
Iraqis that were frozen in this country. The Bank of England's
returns, I have not seen them obviously, by report were very small
and the explanation for it I have already given, which is, essentially,
that creditors had already moved in and, with court judgments,
had taken the assets away. The United States still had massive
assets but they were not prepared to make them available for this
cause other than—and they did this on a matched funding
basis only if other countries would produce frozen assets for
this purpose—to match them from frozen assets in the United
States. The Bank of England could probably do more but it requires
more sophisticated software and the implementation of a much wider
and perhaps more creative policy with regard to money laundering
and other fruits of crime.
Ann Clwyd
726. Can I ask you about the situation in Switzerland
where it is said that substantial Iraqi assets remain in Swiss
banks? What is the law in Switzerland, and how does it relate
to the UN sanctions regime.
(Mr Carver) The Swiss adopted a law consistent with
Resolution 661 in August 1990 along with most other countries
and it was an effective asset freeze. In August 1990 the need
was for freezing not just Iraqi assets, such as there were, but
Kuwaiti assets, which were enormous, because of the concern over
the fact that Iraq, in possession of Kuwait, could manipulate
Kuwaiti assets, and this was the very lively concern in the first
few days after the invasion. Swiss law has developed and refined
and it is very tough. One of the characteristics of the international
community, particularly at the interaction of economics and politics,
is that everybody accuses every other country of being defective
and deficient. One has seen this more recently in other spheres.
My own experience of the Swiss law is that it is clear, clean;
the Department of External Economic Relations has been very effective
in policing it; there were funds in Switzerland belonging to Iraq
which were the source of some confusion and they were held by
the Bank for International Settlements which, although it is a
Swiss entity, has total protection and immunity and its role as
an international banking supervisor means that it cannot, as it
were, cough up assets and it declined to do so and that, in some
commentators' minds, was associated with the Swiss being difficult.
The Swiss, to my mind, have behaved extremely well. In relation
to another topic this Committee might address, the question of
international corruption, the Swiss have just introduced new laws
which make our own laws look very, very, ropey indeed.
727. Can I just ask you about the situation
of an Iraqi living in Switzerland representing his country who
may have diplomatic immunity? Would that diplomatic immunity extend
to his bank accounts if he was holding a considerable sum of money
for the Iraqi regime?
(Mr Carver) This is Mr Barzan, Iraq's former representative
to the UN. I do not know the answer to the question so I should
not try to answer it. It could be that the Vienna Convention on
Diplomatic Relations, as it were, prevailed where you have these
clashes between legal effects—and remember Switzerland is
not a member of the UN and, therefore, it does not have the same
Article 24 international obligations but it is bound by the Convention.
Chairman
728. Is what you are saying that the British
law needs to be updated and tightened very considerably along
the lines of recent banking legislation in Switzerland?
(Mr Carver) I think, more broadly, I do agree with
that. I do think that the UK law does need to be brought up to
date and made less complicated because we do have a tendency to
complicate our legislation and I think that we could look with
some degree of respect to other newer laws that are passed elsewhere.
But, in terms of the basic law to implement Security Council sanctions,
we have the best, in my view.
Ann Clwyd
729. You mentioned in your evidence that the
sharing of intelligence between governments appears still to be
rudimentary, an assertion also shared by the National Criminal
Intelligence Service, who told us they did not have a significant
role in sanctions at all. How do you think the role of the intelligence
service could be enhanced in this field?
(Mr Carver) Again, this is I think part of a broader
phenomenon of a weakness of internationality. National authorities
cling to what they know and hate the notion of trying to copy
something that somebody else knows; and this is a phenomenon that
makes international co-operation in fighting crime extremely poor.
It makes money laundering access pretty weak, frankly. If you
do not have this degree of co-operation between authorities, you
are not going to be able to have a substantial contribution towards
making sanctions effective. But that is another reason why the
Interlaken process focused on financial sanctions—because
you do not need these inherent weaknesses of national authorities
stumbling to co-operate internationally. You can rely upon the
much more efficient and effective international banking system,
where there are very real incentives to abide by the law and to
make sure that the reputation of banks is not sullied by getting
into these problems. One international bank was threatened the
other day because of participation in simply a cheque clearing
scheme and it was threatened with fines of in excess of one hundred
million dollars. These are real incentives to make sure that you
do not break the law.
730. Finally, do you have any reason to believe
there are any significant Iraqi assets salted away in this country
which have not been identified?
(Mr Carver) I have no reason to believe that there
are.
Mr Khabra
731. In general, are UN procedures aimed more
towards preventing the movement of physical goals because that
takes weeks, rather than financial results which can move very
quickly?
(Mr Carver) Traditionally economic sanctions have
been aimed at impeding exports and imports. Exports and imports
are physical; they are also more complicated, and that is why
you had the response of these enormous interdiction forces, very
expensive, in the Gulf of Aqaba and then just in the Arabian Gulf,
and in the Adriatic. The cost of these is simply prohibitive.
They are also not terribly effective. For a country like Yugoslavia,
of course, they depend significantly on physical trade using the
Danube, rail links and others, and it is simply not conceivable
that you can cut this very effectively. If, however, you can cut
the external money—it is nothing to do with internal money
within the country—but if you can cut access to funds—then
the external goods cannot be paid for so that in a stroke, by
concentrating on the financial sector, you actually police the
physical goods. I agree with the proposition, however, that traditionally
the UN has thought very much more in terms of interrupting physical
goods as opposed to financial digital money.
732. Both of them go together, you are saying?
(Mr Carver) Well, if you target the finances, you
will probably achieve a significant measure of success on the
physical as well; but you cannot do it just by concentrating on
the financial.
733. Secondly, what changes are necessary to
adapt UN procedures towards controlling financial assets?
(Mr Carver) The language that the Security Council
uses is not the language of the international banker. That is
not a criticism of the UN at all—it uses a language that
is the product of a quite complex drafting process in cobbling
together something that will get a sufficient consensus within
the Security Council. But it has not been terribly helpful in
enabling the next stage which is to make sure that the countries
who are obliged to give effect to these sanctions actually translate
them into their domestic law intelligently and comprehensively,
which many of them do not; and it is even less helpful to the
international banker that is trying to manage its accounts according
to the various legal obligations it has to its customers, its
national bank regulators, its international regulators, and to
the law. If you do not make the language of the resolution more
effective, then it is harder to carry out the translation to relevant
law. One of the suggestions that Interlaken came up with was not
only whether we should try to introduce and use in Security Council
Resolutions the type of language that immediately gets a response,
because bankers know what it means and know how to operate that,
but perhaps there was a case for trying to develop within the
Security Council some sort of guideline as to what is meant by
it so you can adopt, as it were, a code word within a resolution,
but the explanation of the code is in a public document that has
been carefully worked out by the UN Security Council members and
perhaps the international banking community so it could be more
effective.
734. Can the UN ever be expected to have the
capacity to deal with financial sanctions, or would this be better
left to individual member states?
(Mr Carver) I think the UN can and must be expected
to deal with sanctions. That said, the first detailed financial
asset control sanctions that were put in place after we reported
at Interlaken last March was the EU regulation giving effect to
the Contact Group resolution on Yugoslavia in the wake of Kosovo.
That used much of the language that we had recommended for adoption
at Interlaken and it has been more helpful but already there are
beginning to be real problems. The Contact Group only numbers
a few states: it leaves the vast majority of states out of the
equation and you have a problem of administration and enforcement
of sanctions in this way when you have only a part of—however
important a part they are—the regulated banks and so on
caught within them. That creates confusion. Therefore, if you
are going to get financial sanctions working, you have to have
a single source—and that is the UN.
735. Can I ask you another question related
to this one: that if a more powerful member state imposes its
own sanctions, can those sanctions be overriding the sanctions
which the UN is imposing?
(Mr Carver) There is nothing in domestic law, probably,
to prevent a state adopting more stringent sanctions than the
UN requires, although that has been tested in certain jurisdictions
and at one stage it was thought that the English courts would
rule that, as it were, you could not be tougher than the UN required.
Traditionally the Americans have gone further and you have, for
instance, today a situation where US sanctions have remained in
place against Libya, whereas the Security Council has resolved
that all sanctions against Libya should be suspended. Now, the
United States would say, "We are not in breach of that resolution:
we are simply doing our national thing because this is one of
the ways in which we exercise our national self-interest in foreign
affairs". I think the short answer is yes, a state can be
tougher than the international obligation demands. You cannot
be less tough than the international obligation demands; but international
law does, and should, operate to restrict certain things you try
to do—as, for example, the justification for the blocking
legislation under the Protection of Trading Interests Act and
more recently from Brussels, has been that the United States is
in breach of its international law obligations by imposing these
external, extraterritorial laws.
736. Next, I would like to ask a question personal
to you, are you happy with the conclusions of the Government's
review of sanctions policy? What more could the Government be
doing to target sanctions so as to ensure that they are both more
effective and less damaging in humanitarian governmental terms?
(Mr Carver) Am I happy with the Government's review
of sanctions? No, I do not think I am happy, because I have yet
to see any real understanding of this distinction which I think
is fundamental between sanctions as instruments of coercion and
sanctions as Article 41 lays down which is as instruments of isolation.
I think there is a real distinction between that and, until we
understand that distinction, we are going to go on making mistakes
with the way in which we view sanctions and the way in which we
apply and administer sanctions. The way in which sanctions are
administered in this country is, in large part, a product of our
old, and I think quite cumbersome, licensing system for physical
trade, and I think that is a bit cumbersome and I think they have
tried to address it and improve it but I am not sure how successful
that will be. So far as asset control is concerned, that I think
is simpler and probably more effective and I do not think there
is very much more that the Bank of England needs to do other than
to make sure that the availability of technical means (interdiction
software) is much more widespread throughout the banking community.
The relationship between humanitarian deficit and sanctions is,
I think, a very much more complicated one. A very glib equation
seems to be made between the imposition of sanctions and humanitarian
suffering and I do not think that equation is justified. If sanctions
are, as I suggest, simply a product of Article 41, whose aim is
the excommunication, the isolation of the target state, then they
are not intended to be internally coercive. I think most of the
suffering that has happened within Iraq and undoubtedly there
has been monstrous internal humanitarian suffering within Iraq
which actually preceded, as we know, 1990, has been entirely the
responsibility of the Iraqi regime. It is not the result of sanctions.
Sanctions are there to operate externally. I do think, however,
that the Security Council's motives, or at least the motives of
certain members of the Security Council, were quite complicated
and some of them were quite plainly coercive and that coercive
effect has come back and undermined the validity in general perception
of the sanctions that were imposed. But I do think that, in terms
of Article 41, those sanctions were justified and the maintenance
of those sanctions had been justified—as, indeed, the Secretary
General has successively recommended in his regular reports to
the Security Council—that they are still justified.
Mr Rowe: Mr Carver has really answered the question
I was going to ask but I would like to ask another one briefly:
is it not the case that the physical sanctions on most countries
leads to an extraordinary explosion of illegal activity and is
it your perception that that would, if it goes on long enough,
distort the whole nature of the country's proceedings, or do you
think, taking for example the huge smuggling that goes on between
Turkey and Iraq, that that would come to an end if the sanctions
were lifted? Do you think that is now a permanent and demoralising
part of the situation?
Chairman: Perhaps Mr Robathan could come in
with his question and you could answer them at the same time.
Mr Robathan
737. I agree entirely with what you say about
Iraqi sanctions so I am not trying to trip you up in a legalistic
manner, but could you develop slightly what you said about the
complicated motives and the coercive element of the sanctions?
I did not really understand what you were trying to say there.
What were the complicated motives that led to some of the sanctions
being coercive?
(Mr Carver) Can I park coercion and deal with the
effects of smuggling? I would have said that it was a feature
of many states where sanctions get imposed that there is a degree
of considerable instability around borders. Where you do have
instability around borders, you have traditional smuggling. You
only have to look, for instance, at the complexity of Yugoslavia
and its component states at any time in history to see the extent
to which smuggling was a feature of ordinary social life around
the borderlands, and borderlands encourage this unless they are
nice and simple and straightforward. I do not think the removal
of sanctions is going to change very much the extent to which
smuggling takes place. Yes, sanctions can encourage an increased
degree of smuggling, but I do not think the Turkish—Iraqi
smuggling is, relative to the size of the pre 1990 Iraqi economy,
that significant. It is certainly very vigorous, but remember
that the whole of the northern sector of Iraq is now without any
effective Iraqi administration and it is a source of a quite different
and dreadful human problem which is the plight of the Kurds. So
all of this, as it were, is taking place in a situation of dreadful
instability. I am not sure that sanctions actually have this dramatic
effect. I think it takes place, increases and may decrease if
the economic climate changes so that smuggling is not so attractive.
On coercion, I read quite carefully the emanations from different
foreign ministries around the world, particularly in Washington,
particularly in London—perhaps also in other European capitals.
There is a Babel of voices—a confusion, you could say—there
is a significant degree to which it is said that the aim of sanctions
has been to remove Saddam Hussein. It could not possibly be that
that was the aim of Article 41; it is quite beyond Article 41
that that should be the result. To slightly answer the question
differently, I was in Kosovo in August and interviewed the Serb
orthodox Archbishop and he said, "What were your war aims?
Were they to punish the Yugoslav people or to remove Milosevic?".
I fortunately did not have to answer the question but the answer
was given too glibly which was, of course, "Nothing against
the Yugoslav people". "Ah, then you lost the war. The
war was to get rid of Milosevic and, therefore, you have left
us with him as a feature", as it were. Now, you get the same
sort of mistakes being made over Saddam and the continuation of
the Iraqi regime. In vain does the Security Council regularly
recite its respect for the territorial integrity of Iraq. In vain
do they say, as an institution, "We are not trying to undermine",
because it is also reported and perhaps more regularly that there
are those in Washington and maybe those in London too, who are
energetically putting resources behind the undermining of that
regime and they also sometimes equate those actions with the maintenance
of sanctions. I think this is wrong.
Chairman: Thank you very much indeed, Mr Carver.
You have given us a great deal of food for thought as we brood
over the report that we will be making on sanctions and the future,
and you have helped us a great deal this morning. I would like
to thank you on behalf of the Committee very much indeed for making
yourself available this morning.
|
