Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 160 - 172)



  160. I asked the question also why did they not prosecute the banks, and they said in reply that if there was reason to suspect there was a problem, and the suspicions were brought at the appropriate moment, no doubt the banks could be liable. That was all they said.
  (Mr Rodmell) When you think about it they talk about wanting to prosecute the predicate offence and that is a very easy way out because almost certainly those responsible for the predicate offence are offshore, so they are not likely to be prosecuted in this country.


  161. One of the most potent forces for money laundering is actually lawyers, lawyers' clients accounts are what give rise to, as you say, the final rinse. Is that your experience?
  (Mr Rodmell) I have no direct experience because it is a long time since I was in private practice. I am sure that they are at risk and not just the major city law firms, I think firms outside of London are also targeted for processing funds in this way. That is an issue which is being tackled by the EU at the moment and the revised Directive will put much more stringent responsibilities on the lawyers, accountants and banks and I think that will get better. I think also the Financial Crimes Bill is going to make the whole area of the money laundering offences much less complex. There is good movement in that area.
  (Mr Cockcroft) Chairman, if I could just add to that. TI has also, on an international basis, recently assisted ten major private investment banks to formulate, as it were, a particularly detailed form of know your client. This was announced in the press about two weeks ago. The key point being that in agreeing to take a certain deposit there must be a full understanding of the origins of that deposit so that, to meet the immediate point under discussion, if it is reintroduced by a lawyer or a solicitor the actual beneficial owner is known; likewise in relation to trust funds. These guidelines have been welcomed. In fact, they were developed by the banks themselves under our kind of umpireship.

  162. The British are curiously behind in this. I have known that this kind of practice has been in place in Third World countries for a very long time. It is extraordinary that the British are so far behind, is it not?
  (Mr Cockcroft) That seems to be a form of collective self-deception, as it were.

  163. Arrogance perhaps. In your memorandum you talk about the possibility of civil remedy as an alternative to criminal proceedings and you recommend that "consideration should be given to raising awareness of civil remedies in victim countries". Are there any examples of successful civil action being taken in corruption cases? Will proposals to amend the UK law on corruption that we have just discussed make it easier to institute criminal proceedings both to freeze or recover the proceeds of corruption, and to take action against those guilty of corruption? First of all, are there successful civil actions that are possible and will the new law make it possible for civil actions to take place?
  (Mr Cockcroft) I think Mr Rodmell will take that.
  (Mr Rodmell) Again, I do not claim to be an expert in these areas but I understand that there have been a number of very successful and quite high profile cases in which civil claims have been successful. The point about this really is that they do not have the same problems with standards of proof, they do not have the same restrictions on freezing orders and so on which are necessary in support of criminal prosecutions. Our courts on the civil side do show a great deal of flexibility, so it is certainly worthwhile countries considering that if they actually want to get money refunded to their exchequer as opposed to punishing individuals, but for some reason, I suppose in a way it is quite natural, they actually want to punish those responsible instead of getting the funds back. There are some exceptions to that. I have got a note of some of the cases here which I can just mention if you wish. There is a 1989 case where the Republic of Haiti took proceedings in France to recover proceeds of corruption and so on from Baby Doc Duvalier, who had been deposed. English proceedings were taken in support of that. Our courts purported to grant a freezing of all Duvalier's assets worldwide, which was a pretty strong situation, possibly the French court might have been less inclined to do that. That shows the flexibility on the civil side. I have got the references for these, which I can pass to the Clerk later.


  164. Thank you.
  (Mr Rodmell) There is the Attorney-General for Hong Kong v Reid in which an official in Hong Kong was fined for bribery. They also took a claim against his assets which were in New Zealand. They were then held to be in trust for the Crown through Hong Kong, so that was useful as well. There is a case by the Arab Monetary Fund v Hashim which I think was related to Bernard Sunley's building of the headquarters building of the bank in Abu Dhabi, which was also successful. A more recent case concerned the Ajaokata, a steel mill in Nigeria where some 25 defendants, including banks, were sued for a civil claim.

  Chairman: That is very helpful. If you have other examples perhaps you could give them to the Clerk as well. We must move hurriedly to the private sector where Mr Rowe is going to lead us.

Mr Rowe

  165. Why do you think the private sector is so unwilling to fight actively against corruption in developing countries? Are there advantages for the private sector in the corruption regime, or is there some other reason?
  (Mr Cockcroft) I would like to ask Mr Bray to respond to that.
  (Mr Bray) Two things. I think that the private sector is taking a much more active role in putting its own house in order and that is clearly where its prime responsibility lies. Companies do not wish to be seen to be telling other countries what to do, so in that respect they perceive their role as being very different from an advocacy group such as TI.

  166. Is there not a risk that they take on codes of conduct as a kind of window-dressing and actually, with the exception of the very, very big international companies, like Shell Petroleum or something, they just become a sort of fig leaf which means nothing much?
  (Mr Bray) There is a risk for a company in taking on a code and not applying it. That means that if they are found guilty of an infringement they look even worse than they otherwise would. Yes, there is a risk but I do not think that is what is happening. I would rather put it that the current movement, and there is something of a movement, towards codes of conduct is part of a process. The process is not completed when you have a code of conduct and you can put it on your website, the process has to be followed through by implementing it, by getting buy-in, as I think the phrase is, from your middle management and from your country managers and implementing a whole series of compliance measures. That process is incomplete. We did a survey last year of some 50 US companies and 70-odd Northern European companies and we found that the overwhelming majority now did have formal codes of conduct saying that they would not pay bribes to secure business, but follow-up mechanisms were not so consistent. Among the mechanisms which we think are particularly important are adequate training for people who are going to be exposed to difficult situations and there are several others as well.

  167. Finally, local companies do not have the option that, for example, Unilever recently exercised in the case of Bulgaria where it pulled out because it reckoned it was too corrupt to do business. How can donors and multinational companies provide practical assistance to local businesses to enable them to avoid corrupt practice, do we have to accept that until the system changes such businesses will have to go along with corruption in order to survive? We are almost back to our telephone.
  (Mr Bray) I think local companies do face significantly greater pressures and one might also say greater risks in that if they make a mistake they may lose the whole business, whereas a company like Unilever can afford for one part of its empire to suffer. The kind of back-up which can be given is in the area of best practice and this, incidentally, comes to the kind of advocacy that a company can do. It is badly received for a company to give lectures on corruption; it is not so badly received for a company to say "these are the kinds of best practice which we expect to be carried out in our companies". That kind of assistance could be given, for example, through Chambers of Commerce. The International Chamber of Commerce has taken quite a strong stand on corruption and extortion issues. Professional associations have already been mentioned. I regard that kind of help to be something which is quite legitimate and quite appropriate for companies to do in partnership with local organisations and, if appropriate, with government funds as well.

  168. This is my last question which is not to do with actual money necessarily. If, for example, a firm decides to use as its agent the Prime Minister's son, is this not enormously corrupting even if the Prime Minister's son only takes a reasonable commission?
  (Mr Bray) There are two sides. Perhaps if I can broaden it out to the whole question of agents, I do regard this as one of the greatest areas of vulnerability of companies, including British companies. There tends to be a kind of complacency about the use of agents. That complacency is not justified from the legal point of view, at least as regards the Foreign Corrupt Practices Act where there have been prosecutions of companies using agents who pay bribes or under the general sense of the OECD. So when we have proper legislation I trust the British legislation will cover that particular point. We would also say, as a risk consultancy, that it does not address the risk point of view. If you pay money to an agent who is then paying you do not know who, but on your behalf, first of all you are incurring financial expenses but also your reputation is at risk. On the specific point of employing the Prime Minister's son, let us say that you were paying him, the ICC phrase is something like a "commensurate fee" in line with the services rendered, there probably would be no legal issue. We would say, however, there would be quite considerable political risks because the Prime Minister's son might not remain the Prime Minister's son. He will be the son but he will not be the Prime Minister's son.


  169. The Prime Minister may not remain in office.
  (Mr Bray) He might even be disowned, but that does not happen very often. We would not regard that as best practice. It is perhaps an example of alternatives to corruption which are both just as risky and just as reprehensible as the actual payment of bribes.

  170. Are there any quick examples of companies who have adopted Codes of Practice who have actually taken action against employees of theirs who have indulged in corrupt practice?
  (Mr Bray) Yes, there are.

  171. How common is it?
  (Mr Bray) I hesitate to say how common because companies do not normally boast about it. For example, Shell, which has various publications on its social responsibility, has referred to the number of employees it has sacked. I would actually want to check my facts, I am not sure if it is Shell or BP.
  (Mr Cockcroft) In 1998 it was 18 people who were fired in Shell.
  (Mr Bray) That was Shell.

  Chairman: Perhaps you could write to us about those examples[7], that would be very useful.

Ms King

  172. I am sorry that debates in the House this morning seem to have culled a fair number of our Committee at various times. I wanted to welcome the members of Transparency International. When we were in Bangladesh I pleaded with my colleagues to meet Transparency International because of my friendship with Tawfique Nawaz and they agreed and I have not been able to keep them away from you or your briefings ever since. When we had our discussions in Bangladesh we asked when the corruption is endemic, how do you start and where do you start? I apologise if you have covered these areas. I do remember somebody saying you start by trying to build up, I think the phrase was, "islands of integrity", which loosely means you find somebody who is not corrupt and you strengthen them or you reward them in some manner. That is in the public sector. Is there any way that you can imagine that this can be replicated in the private sector?
  (Mr Hasan) I would say this is something that we have just started to work on with the private sector and at the moment we are going through a process whereby we are trying to identify certain companies in the private sector who would be able to work together, not just within the private sector but also linked up with the government and also multinational enterprises, MNEs, to create a kind of coalition with various Chambers of Commerce and other organisations and create initially that awareness. By creating impediments, creating the problems we have talked about today, it increases the costs of doing business but to MNEs the extra cost is minuscule, it is very small, and what is more important is that they have to compromise on their ethical standards, like Shell and others. That really is the major factor. Doing business you cannot compromise with the ethical standards. It does not really matter whether it is MNEs, it is also true involving local enterprises because they feel the same way. If you speak to small business companies, firms, they are extremely frustrated because they keep their books, they want to pay their taxes and want to do everything properly but even when they want to do things properly they cannot, they are forced into a position where they have to bribe people and get involved in unethical things. That is the message that we are getting from various companies, both local and international. This is something we said earlier on, this is forming a coalition of not just one particular section but a whole range and pushing that. Again, I think the government is also quite keen. For example, the Board of Investment would be very happy to see all the commitments that people are making to invest in Bangladesh are actually translated into real investment. There is a very wide gap between what they would like to do and what they actually do at the end of the day. That gap is mainly due to the fact that businesses cannot operate on an ethical plain.
  (Mr Cockcroft) Chairman, could I just add something to that. First of all, we are very conscious in TI generally, including TI-UK, of the fact that there are quite a number of international companies who do want to address this issue, not just the most obvious names. To some extent that is why we have been able to put together in the UK a Corporate Supporters Forum with about 17 members. What I would really like to mention, and I think it is relevant to your question, is that within TI generally we are now in the process of attempting to develop a corporate integrity standard and that process is actually being worked through with ten multinational companies, by no means all from the north, some of them with a base in the south. The objective of this is to produce something that might be resembling a standard, but perhaps not called that, that would represent corporate best practice in relation to corruption, and because it would be emanating, at least to a considerable extent, from within corporate circles it would have a validity that an independent, as it were, self-standing "standard" would not have. That is a process that we are very much engaged in and which I think next year will have a specific outcome.

  Chairman: May I thank you all very much for your written evidence but also for coming here this morning, particularly in view of the fact that you are all volunteers. I think the fact that the Committee is addressing this subject is in large part as a result of TI-Bangladesh and I would very much like to thank Mr Hasan particularly because I know he has journeyed here from Bangladesh and delivered a large amount of evidence to us only yesterday which we will go through in detail. I would like to thank you in particular for coming all this way. I think what it has done is to focus on what Britain itself is doing about this subject and I think we have got a lot to do to put our own house in order, as Mr Rodmell has indicated. It has been a very beneficial session, thank you all very much.

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