Examination of Witnesses (Questions 80
- 94)
TUESDAY 31 OCTOBER 2000
MR RICHARD
MANNING, DR
ELAINE DRAGE,
MR GORDON
WELSH, MR
CERI SMITH
AND MS
LORNA HARRIS
80. There are 15,000. How many would be acted
on? How do you decide which ones to act on? Does it depend on
the seriousness? Does it depend on the evidence that has come
in? What does it depend on?
(Mr Smith) My understanding is that all of them are
acted upon. NCIS acts as an intelligence clearing house. It will
take the facts relating to a suspicious report and will input
it into a database and see if a name brings up other names or
other transactions. From one particular source of a suspicious
transaction report there might be a final piece of jigsaw and
you get a huge web. Every single transaction report is put into
the database and will be actioned out to a police force or other
law enforcement agency who acts upon it for further investigation.
Ann Clwyd: Did you have a similar number
last year?
Mr Worthington
81. Can you name a conviction that has occurred
as a result of this procedure?
(Ms Harris) I think there is genuine concern—I
cannot name you one—that individual prosecutions for money
laundering per se do not take place often enough. That
may be an answer to your question.
(Mr Smith) There has been a recent high profile case
of a Bureau de Change owner who was prosecuted for laundering
the proceeds of a considerable sum of money related to drugs.
I could not say whether that was related to a suspicious transaction
report that came in or other intelligence which led to that prosecution.
Mr Rowe
82. I have two short questions. From what you
are saying, Mr Smith, is it easier to launder money in the United
Kingdom, one of the biggest world financial centres, or in these
offshore centres, which are currently under a great deal of scrutiny
from the bigger brothers, such as London and New York? The second
question, unrelated, is that it is excellent we might be able
to take the proceeds of corruption off former dictators, such
as Milosevic, but what about the recent ruling relating to the
ECHR that a drug trafficker's assets could not be confiscated?
(Mr Smith) On the question of whether it is easier
to launder in the United Kingdom, we would argue that it is not
easier. We do have high hurdles for anybody who wishes to access
the global financial system, if they wish to come into the financial
system through a United Kingdom institution. The Financial Action
Task Force, which is the principle international anti-money laundering
organisation in the last United Kingdom assessment said, "The
United Kingdom anti-money laundering system is an impressive and
comprehensive one...which meets the 40 recommendations",
(which are the principal international standards), and indeed
in many areas goes beyond them". The United Kingdom is home
to the largest international financial centre and it is one that
is characterised by a very good reputation. There is a perception
that money that is coming out of the UK is money that has been
scrutinised already and is, therefore, cleaner than money coming
from certain other jurisdictions. In that sense the United Kingdom
could be said to be a victim of its own success, in that if you
are laundering large quantities of money you may wish it to go
through London at some point during the laundering cycle simply
because it would add a certain amount of legitimacy to the money.
It is important to emphasise that there are three stages in laundering,
there is the placement, where you try and access the financial
system, there is layering, effectively the wash-cycle in the laundering
process, where you move it between the jurisdiction or between
different companies, and then, finally, there is the integration
where you, as the owner of the funds, are able to enjoy the funds
and you integrate it back in as apparently legitimate funds. Within
the United Kingdom my impression—and this is not founded
on scientific evidence—from anecdotal evidence is that the
United Kingdom is principally used for the second or third stages
of the laundering cycle rather than the placement. If you are
seeking to put money into the financial system you could not walk
into a United Kingdom bank with a carrier bag of used fivers and
say, "Deposit this" without questions being asked. You
may be able to do that in another jurisdiction, going through
several intermediary corporate vehicles, trusts, or whatever,
and at some point access the United Kingdom financial system prior
to integrating it back into the legitimate financial system.
(Ms Harris) On the second question, the decision you
were referring to is a decision of the Scottish Appeal Court where
the deprivation of assets was ruled to be against the Human Rights
Convention because it could not be proved they were illicitly
got. The Scots have had 12 months' advance on the English incorporation
of the Human Rights Convention, since that was one of the matters
that went to Scotland last year. That particular decision is being
considered for appeal to the Privy Council, as the last Court
of Appeal for that issue. Certainly the proceeds of crime legislation
currently under contemplation for England and Wales anticipates
that similar provisions would be, if I can use the term, ECHR
proof.
Ann Clwyd
83. 15 states have been identified by the Financial
Action Task Force as non-cooperative in the international fight
against money laundering. Can you tell us which are the 15 states
on the list? What action are we likely to take against those states
if they continue to be uncooperative?
(Mr Smith) The 15 jurisdictions are the Bahamas, the
Cayman Islands, the Cook Islands, Dominica, Israel, Lebanon, Liechtenstein,
the Marshall Islands, Nauru, Niue, Panama, Philippines, Russia,
St Kitts, St Nevis, St Vincent and Grenadines. These 15 jurisdictions
are subject to an advisory notice in all of the G7 and, I believe,
all or most FATF countries. An advisory notice is the product
of one of the recommendations of the FATF, Recommendation 21,
where a Government informs its financial institutions that there
is an additional risk associated with people or institutions in
a certain jurisdiction and additional due diligence should be
required. It is not yet the subject of sanctions. We do not say
that no money should be taken from these jurisdictions, simply
that there is an additional risk that, perhaps, money that has
entered the financial system through the jurisdiction and is then
passed to the United Kingdom, might be associated with money laundering,
and any institution would be wise to undertake additional due
diligence.
Chairman
84. You say in your memo, "The Government
believes that asset recovery is a key part of the anti-corruption
efforts. Foreign governments gain access to the United Kingdom
legal system through the United Kingdom Central Authority and
the Home Office". How long is the average processing time
of such requests from foreign governments? In the last five years
how many instances have there been of asset recovery of the proceeds
of corruption? How many people work on this issue?
(Ms Harris) First of all, the United Kingdom Central
Authority deals with many other things, apart from asset restraint
and recovery on behalf of other governments. Its main function
in terms of work is dealing with mutual legal assistance in large
international investigations and also for extradition. Those are
two of the main areas. The confiscation work is a small part of
the work. However, the part that deals with confiscation exists
to provide foreign governments with access to United Kingdom courts,
where there are thought to be assets in the United Kingdom which
can be traced to individuals and subject to charges overseas,
or vice versa, where we in the United Kingdom seek assets abroad
which relate to people under investigation in the United Kingdom.
In fact, it is a very small traffic. There are a number of requests
each year both ways, but in terms of requests from overseas to
the United Kingdom which result in restraining or confiscation
orders in the United Kingdom, there are only one or two a year
successful because many applications fail to meet the criteria
for United Kingdom acceptability.
Ann Clwyd
85. How many people work on this particular
aspect?
(Ms Harris) Nobody works exclusively on it. There
is a confiscation branch in the CPS, staffed with three or four
professionals who work exclusively on confiscation matters, that
is domestic confiscation significantly.
86. You cannot say how many instances there
have been of criminal assets?
(Ms Harris) My information is it is literally one
or two per year at the behest of foreign authorities.
Ann Clwyd: Thank you.
Chairman: I think we should hurry on
with "Working with the Private Sector".
Mr Khabra
87. It is quite extraordinary for me to see
different departments, including ECGD, getting together to give
evidence on corruption and considering ways and means to tackle
it. What efforts are being made to develop an internationally
agreed Code of Conduct for the private sector? What is the most
appropriate forum for doing this? Does DFID require contractors
to comply with a recognised Code of Conduct?
(Dr Drage) Codes of Conduct are very rapidly evolving
area. There are many different strands being brought together.
There are a number of companies, some of them large and British,
who have been very much at the forefront of developing their own
Codes of Conduct, which cover quite a wide range of issues, some
including issues of ethics and probity in the areas you are investigating.
There are a number of NGOs who have done some very good work in
trying to define framework Codes of Conduct which companies could
then use as a format for developing their own. Internationally
probably the most useful thing that has happened in the OECD has
been the Guidelines for Multinational Enterprise. They have had
these guidelines for 23 years and they have recently been refurbished
and considerably beefed-up, in the Government's view, and they
were approved by OECD ministers in June this year. They are available
on the DTI website and they are about to be published in hard
copy form, and we are going around and talking to companies to
promote them. Those guidelines now include base lines of the sort
of things that companies should have to have higher ethical standards
to deal with this.
(Mr Manning) To follow up on DFID, all our contracts
include an anti-corruption clause, that is the case whether it
is a contract that we let ourselves or whether it was one we financed.
Chairman
88. There is a clause but not a code?
(Mr Manning) That is right.
Mr Khabra
89. What are we doing to support companies and
what advice do we offer them in relation to corruption to ensure
that they are competing on a level playing field? How do we assist
them when they are working in countries where corruption remains
a significant problem?
(Dr Drage) If I may, I will just make one more point
about the Codes of Conduct generically. The OECD have recently
published a very useful paper on Codes of Conduct, which I will,
if I may, Chairman, let the Clerk have.[16]
That was published a few weeks ago. You asked me about how
the Government supports companies. My colleagues in British Trade
International, which is now the Government's export promotion
arm, along with Foreign Office officials in posts overseas, give
a very wide range of advice and guidance to British companies
on matters to do with the law in the countries in which they are
operating or seek to operate. They would be given a degree of
guidance about what the local conditions were. It is clearly a
matter for the company to behave in a way that is proper themselves.
You also mentioned how companies operating overseas were assisted
if they ran into problems. Clearly there is advice they can seek,
but they would need advice on the law of the country concerned,
and it would be a matter for them to buy appropriate advice in
that country.
90. Are there particular industries or particular
kinds or size of company, which are more likely to engage in bribery
and corrupt practice in developing countries than others? Does
the DTI know who the bribers are?
(Dr Drage) Referring back to something my colleague
Mr Manning from DFID said, I do not think bribery is purely a
problem in developing countries, it is a generic problem across
the world. That is not something that the Government would feel
able to give generic advice on in terms of particular companies
or particular sectors. It is also probably an issue that changes
over time.
91. The World Bank are currently examining the
scope for international development agencies to exchange and share
information on firms or individuals that have been engaged in
corruption or fraud. The Bank has arrangements in place to pass
evidence of corruption or other criminal offences to the prosecuting
authorities of the country in which the company is registered.
It is unlikely, for legal reasons, that development agencies will
be able to simply accept and implement each other's decisions
on disbarment. The Government intends to come forward with practical
proposals for the United Kingdom. What action is being taken to
ensure that there is an internationally agreed and recognised
index of corrupt companies?
(Mr Manning) That is a complex area, because you have
to look at the law in each of the jurisdictions concerned. What
we do is we keep a copy of the World Bank's list and we consult
that as part of our procurement process. We obviously look extremely
carefully at any proposals for business to do with companies that
are on the World Bank or other lists. At the same time we would
need to understand the reason why they were on the list and, as
my ECGD colleague said, we have to deal with what has been established
by the courts rather than allegations. Within those parameters,
and without exposing ourselves to judicial review proceedings,
we will obviously do what we can to work as closely as possible
with others who have found evidence of fraud or corruption.
92. There are companies which are in partnership
with the foreign company, country-based, involved in these projects?
(Mr Manning) The World Bank has a list, which I think
is a matter of public record. I think it is a matter of public
record.
Chairman: We have it.
Mr Khabra: Thank you.
Chairman: I think Mr Rowe wants to make
a point.
Mr Rowe
93. I want to ask one question before we rise.
Is there not something certainly disquieting, and almost obscene,
in international consultants, usually from developed countries,
staying in countries in five star hotels and having as their interlocutors,
officials and others who are very close, if not below, the poverty
line and actually expecting that these people will get absolutely
nothing out of what would appear to them to be colossal sums of
money? What do we do about that?
(Mr Manning) It is certainly the case where you have
extremes of wealth and poverty that the pressures for corruption
are greater. That is why I think that we have been very keen to
support governments who try to do something about public sector
salaries. I can give you many examples in Africa where over a
period of 15 years public sector salaries in real terms fell by
an astonishing amount, to a point where they no longer represented
any kind of living wage. In the last few years we have seen an
attempt to get back to reasonable salary levels. The Government
of Uganda has been particularly successful with that, the Government
of Tanzania is taking similar sort of action and the Government
in Ghana is doing likewise. You cannot expect to root out corruption
if you do not pay your public service appropriately. As long as
there are such disparities between developed and developing countries,
even a reasonable living wage in a developing country will look
very small compared to your consultant in the five star hotel.
The solution to that in the long term is effective development
around the world and narrowing these income gaps which lead to
the problems in the first place.
94. In the short-term, there is something to
be said for having transparent opportunities for people, instead
of paying international commission agents to get the business?
Is there not some way of negotiating an open transaction, whereby
somebody who is an interlocutor of a big project gets some enhancement
with their salary, which is on the books, wide open and not in
any sense corrupt? Otherwise we are going to have a tremendous
job for the next 30 years, at least, in trying to reach a sensible
solution.
(Mr Manning) That question take us to an extremely
complex area, the way in which different aid agencies do or do
not pay salary inducements or salary enhancements to the people
they are working with. That has been the subject of a lively debate.
A transparent process like the kind you have outlined could only
be put in place by the recipient countries, it is not a matter
on which we will be able to take action.
Chairman: Can I thank you all for giving
us evidence this morning on this very difficult issue. It is not
an easy thing to do. You have obviously done a lot of homework
and you have given us a lot of written material. You have promised
additional material. I think the Clerk has noted it to help you,
if you do not remember. I would like to thank you all very much
indeed. Can I also thank those who have been recording us, and
I believe on television as well, because they have been working
under extremely difficult conditions, in which they have not had
much air in the room which they occupy, which is out of our sight.
We owe them our thanks as well. Thank you very much indeed.
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