Examination of Witnesses (Questions 380
- 399)
TUESDAY 9 JANUARY 2001
MR DAVID
PHILLIPS, MR
IAN WHITE,
DR REG
HINKLEY, MR
MIKE WELTON,
MR STEPHEN
WILLIAMS AND
MR JOHN
BRAY
Mr Colman
380. Thank you for picking that up. Can I press
that. Is that acceptable, under the international code of accounting,
that no such line is in fact not going to mean the qualification
of the accounts of that subsidiary operating company?
(Mr Williams) All I can say in our case, in so far
as these things, is they are immeasurably small.
381. Could I ask if other members of the panel
would like to comment on whether they receive a qualification
of the accounts of any of their developing country subsidiaries
because, in fact, of corrupt payments being made?
(Mr Phillips) From our point of view, we use the same
audit company worldwide and we apply the same standards worldwide,
no less. That is a very rigorous standard. I think the other thing
is I do not suspect that anybody has a line saying "facilitation
payments or bribes" in their accounts. What they will have
under customs clearance entries is a line which is long accepted
and which will always appear. You have to remember that particularly
in customs you are often dealing with clearance agents who formerly
have been customs officers and you will see a line which is called
"petty disbursements" and that will cover a multitude
of items and I think you will find that most of these facilitation
payments, the "tea money", the "speedy money",
the small payments, will appear under that category. The one thing
that we have tried to do, certainly in Mozambique and certainly
in our own practices here in the UK and elsewhere, is design corruption
out, create the sort of system where the references, the operating
procedures, the systems in place, the internal audit, the external
audit, and encouraging whistle blowing will actually help overcome
the sorts of problems which we are all prone to.
(Mr Bray) On the accounting, I understand, and this
is based on a presentation by an American lawyer, that under American
law although facilitation payments are not currently within the
definition of the FCPA definition of a bribe, nonetheless it is
mandatory to record facilitation payments and if you do not do
so you may get into trouble with the Securities Exchange Commission.
That is an answer to that specific question. Could I just on the
subject of hotlines emphasise that hotlines should also be helplines,
so it is not just you are denouncing somebody because you think
there is a problem, you may say "I myself have a problem"
and there should be somewhere you can go for support within your
company.
Chairman: That concludes the generic
side. We have some specific questions, the first to Crown Agents.
Ms Kingham
382. I would like to ask about your work in
Mozambique. I understand that you have carried out some very radical
changes to the Mozambique Customs Service and from past personal
experience no doubt those changes were greatly needed. I would
like to ask if you have an exit strategy for Mozambique? You mentioned
in your submission that it is difficult acting as an island of
integrity for the Customs Service there and that changes to the
judicial system and a lot of enforcement systems have not been
as speedy as the work you have been doing. How does that impact
on the long-term sustainability of the work that you have been
doing in Mozambique? Do you feel confident that in the long-term
it can be sustainable? If not, what more needs to be done to ensure
that your work in the long-term has not been in vain?
(Mr White) Sustainability of the work that we have
been doing has always been an issue from day one. We would be
less than honest to say that we are totally confident that we
can create a sustainable Customs Service with the work we have
done. What we have tried to do is to involve as many people in
the process of the reform of customs as we possibly can, both
within government, with the trading community and within the employees
of customs itself. We spent an incredible amount of time in developing
systems which are transparent and concentrating on trying to separate
functions as much as possible, so that you try and avoid these
co-operative circles, or the "mafia", that you quite
often see in developing countries' customs organisations. We did
that initially and we started off very much on a systems based
approach to that. In fairness, I think we possibly missed some
of the softer issues, some of the people issues. We have had instances
recently where customs officers, who are trying to be honest in
a new environment, have had threats on their families and their
home situations. We have to try to take that into account as well
and we have to create a circle of protection, not only within
the workplace but outside of the workplace. That is a critical
problem in ensuring sustainability. If you are a consultant, and
we have a lot of consultants in the field, and you are going home
to a comfortable house every night with guards outside, it is
slightly different from going back to the barrios and living amongst
the staff.
(Mr Phillips) May I interject there. There have been
quite a lot of reports recently, particularly in relation to customs
activity in Dover, where the increase in cigarette smuggling is
a major problem, and if you read any of the reports by the staff
or in the Civil Service magazines you will see that security and
protection and harassment of those people is a major problem.
Individuals have been attacked, their houses have been attacked.
All our risk, if you like, in Mozambique is like that but there
are a lot more guns about.
383. I come back to this donor co-ordination
theme again. You mentioned the judicial system and law enforcement
systems need work and it has not been that speedy and that your
work might be left as it is, an island of integrity, afterwards.
Is any co-ordination going on looking at programmes that have
perhaps been carried out as a country strategy in terms of law
enforcement and judiciary in relation to your work to ensure that
they are working in parallel or the time frames are at least in
some ways consistent?
(Mr White) Recently, to address the issue of sustainability,
we have talked at length to the World Bank and to DFID. Less to
the Fund because they are not particularly involved in the execution
of the Mozambique project, but certainly we have raised this issue
with the Fund. To be honest, we think it comes down to some form
of conditionality which frankly, in our view, has not been used
particularly well by the donor community. We have created an island
of integrity within customs, there are still problems, let us
not kid ourselves, but we are improving. If that is not supported
by the judiciary or the police you are taking cases to court with
no chance of getting a prosecution, which is just not acceptable.
We have learned that instead of having sensible conditionality
of the release of donor funds in terms of making sure that there
are parallel actions which support a project which has been widely
acclaimed as a success, there seems to be a lack of will to want
to address those issues in a co-ordinated way. So donor policy
tends not to be co-ordinated. It might sound good at Paris Club
and things like that, but when it gets down to the ground there
is very little co-ordination of the actions of donors. It is one
thing that we have tried very hard to do and in the process of
the last six to nine months we have started getting a forum together
with all of the donors to try to explain what we are trying to
do and to get this action happening in a co-ordinated fashion.
Frankly, there has not been an awful lot of evidence of that.
(Mr Phillips) May I amplify a point there. There are
two main things. One, in customs in Mozambique we are a tool of
the Government, we collect revenue. We do a lot of other things
as well but it has been easy to raise revenue and, therefore,
government has more money. In many of the other departments improvements
would be efficiency rather than revenue raising necessarily. Also,
and it has to be recognised, donors, development partners, the
international community, are unwilling and reluctant to interfere
in policy. We are not in policy in customs, as I say we are the
instrument of the Government. For donors you would actually have
to say "you have to change your policy" and to a certain
extent, and I agree entirely with what Ian White has said, several
times, very much with the support of DFID, we have had to go on
the offensive almost with other donors, other governments, to
say "you must regard what we are doing here as important.
We are not asking you for more money but you must support the
type of process that will widen the reforms into the judiciary,
into the police". If you want us to carry out anti-smuggling
operations, which the World Bank complain about all the time,
they say we are not stopping smuggling, you need military and
armed police support. If you have not got that sort of support
and you are not quite sure whether the AK is to be pointed at
you or the smuggler, it is something that we are reluctant to
do because national staff are put at tremendous risk in carrying
out those types of operations.
384. What about poverty reduction strategy papers
that are coming through from the World Bank, have these not picked
these issues up? Have you been involved in this in any way?
(Mr Phillips) We have obviously been involved in the
debate, we are obviously always pleased to give our opinion, but
we are not a policy maker, we are a policy implementer. I think
Ian White is right, it is the nature and type of conditionality
that donors particularly, the development partners, feel able
to enforce. I think HIPC is the opportunity to achieve more focused
conditionality, if I may put it like that.
Mr Khabra
385. How successful have you been in stopping
the smuggling of goods because, after all, the goods come into
the port and you are responsible for them? Have you made any progress
or not?
(Mr Phillips) Yes, we have made considerable progress.
I think the best way of identifying the progress we have achieved
would be to talk about the increase in domestic production but
also in terms of revenue collected. The year before Crown Agents
were appointed to manage customs in Mozambique government had
collected $86 million and the graph line was downwards, this last
year we collected something over £200 million.
(Mr White) $230 million.
(Mr Phillips) Correction, $230 million. In that regard
against a reducing tariff and reduction in controls on trade into
Mozambique because of SADC and so on, I think we have done remarkably
well.
Chairman: We must hurry on. Balfour Beatty
and Ann Clwyd is going to lead.
Ann Clwyd
386. Mr Welton, Balfour Beatty appears to have
been implicated in a number of scandals, including the Pergau
Dam, which I had a particular interest in since I took it to the
National Audit Office which then carried out an investigation,
but that is something in the past, and the Lesotho Highlands Water
Project in which four UK firms, including Balfour Beatty, are
being accused of bribery to obtain contracts in conjunction with
the project. Can you tell us exactly what the allegations are
against Balfour Beatty in Lesotho and what you are doing to address
the issues that the case raises?
(Mr Welton) I will do so. First, with your agreement,
Chairman, I would like to comment on Pergau. You do say it is
the past. There was a newspaper article in The Observer
which has been reported by one of the correspondents to your Committee,
as indeed it has commented on various other things to do with
our company, many of which are incorrect and untrue. With your
agreement I would like separately to write to the Committee and
point out where that evidence is untrue.[5]
Chairman
387. Please do.
(Mr Welton) The instance of Pergau will be dealt with
in that regard. As far as Lesotho is concerned, there are a number
of consortia and individual companies that have been cited in
actions citing that an agent acted in bribing an official. Those
actions have stalled. It is the consortia in each case that have
been cited, not the individual companies. At the moment the matter
is sub judice. There are obviously things that we could
say to the Committee in private, and we would be happy to do so,
but beyond that I cannot comment. The resolution of the issue
may take a year or more.
388. Perhaps it would be convenient at the end
of this session if we could go into private session and you could
give us that evidence if there is time.
(Mr Welton) Indeed.
Ann Clwyd
389. What controls does Balfour Beatty have
in place to prevent corruption? I am not clear from the earlier
answers that you gave what these controls are?
(Mr Welton) We have had controls in place for a number
of years and obviously we have progressively felt in a number
of issues that not only do we have to have controls but we have
to be seen to have controls and they have to be in the public
domain. We have a policy on ethical business practices and that
policy is very clear in what it expects from individuals. It is
part of a number of policies on business practices. We then have,
as I alluded to earlier, processes from the bottom up that identify
issues where they may result in the company either not bidding
for work or not operating in countries and decisions are taken
to do so. That is the day to day process of the risk management
of business, a part of it. As the Chief Executive I am required
to report on our business practices to our Business Practices
Committee, which is a board committee entirely comprised of non-executive
directors and is chaired by a separate director from the Chairman,
it is not chaired by the Chairman. I report regularly to that
committee on all aspects of what we regard as business practices
as opposed to the day to day commercial activity of the company.
This includes health and safety, business ethics, environmental
issues and human rights. That process is designed to ensure, as
much as is practically possible, that we comply with our policy
and that we take whatever actions are necessary if there is any
disregard of that policy.
390. We talked earlier about transparency. The
Corner House has told us that you were banned from bidding for
contracts in Singapore, for example, when you were prosecuted
again as you have been prosecuted in Lesotho. Your company's annual
report did not mention those problems at all. Why is this and
should the company not have a duty to report these problems to
their shareholders? Why omit them?
(Mr Welton) Two points. First of all, Balfour Beatty
has never been banned from operating in Singapore in its history
and, indeed, operates in Singapore very successfully today and
is carrying out rail work in that country at the moment. I would
like to be helpful to the Committee rather than appear to be at
all obstructive. Its parent company was BICC plc and a subsidiary
of that company, which is a cables company, was banned from bidding
in Singapore. At no time has Balfour Beatty ever been banned from
bidding in Singapore and, indeed, it has always continued to operate
successfully there. I would add that that is another example of
misleading information that has been put in writing to this Committee.[6]
391. And Lesotho?
(Mr Welton) If I go on to the particular subject of
Lesotho. Naturally enough, if such a serious situation as alleged
bribery is made against a company we would always conduct a very
stringent internal investigation. If we felt that there was anything
we could find, any knowledge we had that any wrongdoing was done
and the company was affected by this we would indeed report that
publicly and these matters are judged to be material or not. In
the case of Lesotho we have made a judgment on that and that judgment
is supported by our audit committee, which is non-executive directors,
and will be supported by our external auditors as well. So the
three processes that go through are the company deliberation,
the audit committee deliberation and the external auditors. It
is a question of materiality.
392. The point has also been made to us in evidence
that civil construction and the arms industries of major exporting
countries are conspicuous in their willingness to pay bribes.
Would you agree with that?
(Mr Welton) I certainly would not agree with it from
any knowledge. I can only read the comments of some commentators
which I presume you have as well. I have tried to consider why
that might be seen to be the case and the only thing that I can
see that they have in common is that there are very large capital
sums involved in both cases and maybe the opportunity for people
to disguise sums of money within those large sums is greater than
the smaller ones, but that is merely speculation, I have no knowledge
of that and certainly no evidence to support that.
393. Is there anybody else present who would
like to comment on that assertion?
(Mr Bray) Perhaps I can comment. It was a little bit
more than an assertion. Transparency International in 1999 conducted
a survey and it was a set of structured interviews with people
from, I believe, 19 host countries and that was the opinion which
was expressed by the respondents to that survey. It was quite
a substantial bit of research. Commenting on why that would be,
I would endorse the point about the sums of money, not just that
the sums of money can be disguised but also that the temptations
are obviously higher. The other particular issue in the arms industry
is that arms is nationally a sensitive topic and you can hide
all sorts of things under disguise of official secrets and the
national interest.
Ms Kingham
394. I will not ask you details obviously about
the Lesotho case but there is an issue of public interest here
because the Export Credits Guarantee Department in Britain is
the department that underwrites using taxpayers' money in business
deals internationally and I know they have been involved in the
project. Has the ECGD called Balfour Beatty in for any discussions
about the allegations that have been made in Lesotho and, if so,
when? Perhaps if you could answer that first.
(Mr Welton) Yes, we have had discussions with ECGD.
We have been asked for our position and we have given them our
position on Lesotho.
395. So they have actually conducted an investigation
into the matter?
(Mr Welton) I have no idea of the depth of the investigation
other than with interviews with us but certainly they conducted
interviews with us concerning that.
396. When were those, roughly?
(Mr Welton) I would probably mislead you, I am guessing
a year ago but I can come back with the facts on that and I am
happy to do that.[7]
397. I would be quite interested to see them
and the depth of the investigation that takes place, considering
this is taxpayers' cash.
(Mr Welton) Yes, indeed, and our responses if that
would be helpful.
Chairman
398. The World Bank has also suggested that
Balfour Beatty should be put on their blacklist I believe, is
that right?
(Mr Welton) At no time have I had any knowledge of
that whatsoever. I do not believe that to be true.
399. It is not true?
(Mr Welton) I do not believe it to be true.
Chairman: It is important that we get
these facts.
5 See Evidence p. 197-8. Back
6
See Evidence p. 198. Back
7
See Evidence p. 197. Back
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