Examination of Witnesses (Questions 40
- 59)
TUESDAY 31 OCTOBER 2000
MR RICHARD
MANNING, DR
ELAINE DRAGE,
MR GORDON
WELSH, MR
CERI SMITH
AND MS
LORNA HARRIS
40. In this case we have moved almost tortoise-like,
we have moved very slowly.
(Ms Harris) We move very slowly and tortoise-like
on a discrete area of activity. If one were to broaden a much
wider approach then progress would be even more slow to watch.
41. Mr Manning, you would believe that, from
a DFID view, you would urge all departments of government to move
forward much more rapidly than they have done in the past, to
ensure that criticisms contained in the Review are dealt with
urgently in the coming session?
(Mr Manning) I am sure that is so, yes.
Chairman: Mr Rowe, would you lead us
on ECGD?
Mr Rowe
42. What information sources does the ECGD use
in making an assessment of corruption in countries and companies?
What use is routinely made of other sources of information, such
as Transparency International in corruption and bribery, for example?
(Mr Welsh) We use a wide variety of sources for information.
We spent the morning talking about aid. We are obviously on very
much more the commercial side of the business, in terms of the
business that we involve ourselves in. The nature of the risk
is such that the corruption element is just one part of that risk-profiling
structure. In terms of what we have done, we use the lists that
are available, the World Bank being one of them. In the United
Kingdom we have fraud investigation networks and we use our posts
abroad and we use local lawyers abroad for opinions on elements
of the structure that we might be involved in. We go as far and
as wide as we feel is necessary to satisfy ourselves.
43. If you thought that somebody looking for
ECGD backing was likely to be corrupt and you had no clear proof
of that, would that affect your judgment?
(Mr Welsh) I think the question of definition comes
in, in terms of what is likely to be corrupt. We deal with a lot
of companies of high standing in the United Kingdom. We deal with
companies abroad as well who source from the United Kingdom. They
are generally larger companies, I have to say, although part of
our mission states we are looking to widen our customer base.
From their point of view, we have due diligence procedures available
to us and we use them, all of our staff are trained to use them,
they are trained to look at the evidence that is there.
44. If a company was being prosecuted overseas,
would you continue to do business with it?
(Mr Welsh) If the company is being prosecuted, and
has been prosecuted, then we would obviously have to look at the
information that is being provided to us. There is a presumption
of innocence and a presumption of well-being until such time as
there is a conviction in the United Kingdom or in a foreign country.
45. Presumably if somebody is going to be found
guilty of corruption overseas, that makes them quite a bad risk?
(Mr Welsh) I would like to reiterate, the issue is
one of fact. Presumption of something is not a fact. It may lead
you to consider the fact, consider everything that is surrounding
the case, but until such time as someone has been proven to be
guilty of a malpractice, of some criminal act, then in our law
and our legal situation in the United Kingdom it is a very dangerous
area to get into to make a pre-empted decision.
Chairman
46. Do you ever pull out of a country because
it is too corrupt?
(Mr Welsh) We pull out of countries and go into countries
on a regular basis, Chairman. Our risk systems look at a whole
range of information in order for us to judge whether we should
be on-cover or off-cover. That includes their ability to make
repayments when they are falling due. It includes looking at their
judicial system, looking at their fiscal systems to understand
whether the country can function in a proper sense. In the context
of corruption, that is an issue that is taken on board. We as
ECGD are not in a position to make a wholesale decision against
a country just because there may be corruption. We have to look
at it case-by-case, we cannot be fettered in our discretion.
47. The answer is, no, you have not pulled out
of a country.
(Mr Welsh) I am not aware of a country in my experience
where we have pulled out solely on that basis.
48. You are solely concerned as to whether or
not you are going to be repaid, to hell with the corruption, is
that right?
(Mr Welsh) That is not correct. We are taking account
of all aspects of the risk associated with the project that we
are looking at. Corruption is one. We have instigated new warranty
procedures for exporters, so that they are now required to sign
in advance of our cover being offered, such that they have not
been involved in any malpractice in the past or in the future.
Mr Rowe
49. We have, have we not, a case running in
Lesotho which the EU regard as so important they are prepared
to fund the prosecution, but you are still prepared to do business
with the companies charged in that court. Have you made enquiries
of your own as to whether or not the charges are likely to stand
up?
(Mr Welsh) I am not aware that we have made our own
personal enquiries into the alleged allegations that are being
made. Yes, we are aware that there is a case pending. We believe
that case may commence next year. Again, if those criminal charges
are well-founded then obviously we would have to look at it. In
the final analysis we could not do business with companies or
the countries in lieu of those decisions. Under English law our
legal advice is such that if we were not then to be supported
in our actions, then we would be held liable. Obviously that is
a decision that we would have to weigh in the balance.
Chairman
50. Are you proactive in this area, ie Commissioning
audits so you can find out what is going on, or are you just reactive
to what other people tell you is going on?
(Mr Welsh) We are proactive. We have our own internal
audit team. They are tasked with sampling on-going transactions,
so it is not a question of once we have issued a guarantee is
it finished, done and dusted. We have post-issue management criteria
and post-issue processes. They go out and audit the companies
in question and the banks that are involved in our transactions.
Mr Rowe
51. Does that include agents? If you thought
some of your clients were in the habit of regularly paying commissions
to agents which were well above the going rate, would that cause
you to hesitate before supporting their demand or at least their
request for credit guarantee?
(Mr Welsh) It is certainly true to say that our new
warranties apply to companies and to those acting on behalf of
the companies, so agents would become part of that.
52. If they cannot sign the warranty you would
not support them?
(Mr Welsh) Prima facie that would give us grounds
not to support on that case.
53. If they sign the warranty and are later
found to have lied would that put them on a black list?
(Mr Welsh) I was just reminded that if they are not
prepared to sign a warranty then we will not give cover.
54. You will not give cover. If they sign a
warranty and are found later to behave badly, would that put them
on a black list or cause you to rap their knuckles?
(Mr Welsh) The issue of us having a black list as
opposed to other institutions having a black list is worth exploring.
At this time we are not able to provide a black list because of
the nature in which we operate under our Act and the discretion
which is given to ECGD on that issue. We would obviously want
to look at all of the issues and decide whether or not we should
withdraw. Obviously if someone has lied then we have the right
to take away that cover and would do so.
55. British taxpayers' money could still go
quite often to companies with very dodgy records in terms of this—not
dodgy records in term of profitability but in terms of behaviour.
(Mr Welsh) The behaviour has to be judged on a case-by-case
basis. We make rigorous checks of the individuals involved, the
companies involved, the nature of the project, and the extent
to which that project is involving us, as well as other parties.
Remember, we are not usually the only party involved in a given
project.
Mr Rowe: If they were on the World Bank
black list, would you support them?
(Mr Welsh) It would give us prima facie grounds
for not supporting them.
Chairman
56. Surely it should not be on a case-by-case
basis, it should be on what you believe you should be doing generically,
not whether they are well known to you or whatever the circumstances
surrounding the case? You should be in a position, should you
not, to say, if a company is corrupt or has indulged in corrupt
practice you will not cover them.
(Mr Welsh) We have taken extensive legal advice in
this regard.
57. Another set of departmental lawyers?
(Mr Welsh) They were not departmental lawyers, we
have opinions from outside Queen's Counsel as well.
Mr Rowe
58. I wish I felt my bank was as accommodating.
(Mr Welsh) The issue is important to us because of
the nature of the way we operate and the nature of the way the
Act is founded. For there to be a change, as perhaps you are suggesting,
that would not just go for ECGD that would also go to all departments
across government. That would be a significant change for government
to make and, of course, it would require primary legislation,
I am sure of that.
Chairman
59. Can you give me any examples of how many
cases you have had in the last five years which you have turned
down because the companies or individual agencies of those companies
have, in fact, been guilty of corrupt practices?
(Mr Welsh) In the last five years we have had no cases
where we have turned down companies. We have had five cases which
we have referred to the appropriate authorities. Of those five
cases just one has been taken forward for investigation. No conviction
was made.
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