Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 600 - 613)



Ms Kingham

  600. Mr Carver, you have mentioned that the Government is proposing to have new extraterritorial jurisdiction over the bribery of foreign officials, and, Mr Raphael, you have pointed out some of the problems that will be associated with implementing that jurisdiction, but I would like to probe a little bit further. Has anybody, to your knowledge, done any concrete work, anything proactive, to look at ways around the difficulties that you have outlined? For example, has any work been done perhaps on joint investigations between nation states on these kinds of issues, and how would proceedings in the UK relate to proceedings abroad, in a technical sense; do you know of any work that has been done on this?
  (Mr Carver) I think the sad truth is that very little work has been done at all, except perhaps in the private sector and by concerned NGOs, in trying to build up some understanding of what happens. I think the reality is that national authorities, and particularly when you get into the sphere of criminal economic crime, are as introverted, as parochial, as you will find anywhere. As a firm, we have worked for many years for governments all over the world, and occasionally I have had to assist governments in mutual legal assistance matters, simply because they find it so difficult to deal with the UK authorities. There are a number of reasons for this, but just to highlight it. For instance, one government (strictly its prosecuting authorities), I would prefer not to identify it, told me five years ago that they deal regularly with 12 nations, the authorities in 12 nations, in terms of seeking mutual legal assistance, and in giving legal assistance, on request, and the very bottom of their pile, of those 12, is the United Kingdom. They dread having to make a request here. And the reason is that, in part, there is no priority given by the Home Office to this. At the time, I think, two or three years ago, the Home Office received in excess of 1,200 requests for mutual legal assistance, with a staff of eight. It is pathetic. It is humiliating. It is desperately frustrating for authorities trying to do something about it. When these cases arise, they often arise with a lot of publicity, generated locally; at last the authorities in other States are trying to do something about it. Inevitably, because of the importance of the United Kingdom, particularly in the financial service sector, one part of the chase will come to this country, and there they are entitled to expect the best assistance possible, in terms of finding the evidence, of doing what is possible, in order to ensure that they are assisted in their search. What do they get: sloth, non-activity, they get a complicated process, and very expensive to manage if they seek outside assistance. They should not need to take assistance from law firms. They should be able to do it. The authorities here should help them to do it, and it simply does not happen at all.

  Chairman: That actually confirms the evidence we took on the ground, in both Zambia and Malawi, the anti-corruption units in the Governments of those two countries complained about the British slothfulness, as you have just described.

Ms Kingham

  601. So even if we do see, in some future Queen's Speech, and do not hold your breath on it, this legislation coming out, you do not hold out much hope that the implementing of it by firms will be satisfactory?
  (Mr Carver) Not unless there is a complete change of heart. It is not a matter of increasing resources, as such, because, as George Staple has already pointed out, it is all part of the same process of trying to deal with international criminal activity, international economic crime, white collar crime, on an international basis. If you just deal with it domestically you simply are blind to what is happening in the rest of the world. Your door is closed. You are not helping. Without that, of course, an enormous amount can go on and be encouraged.
  (Mr Raphael) May I just add that I do not want the impression to be given, Mr Chairman, to you and your colleagues, that we are failing only in the international area, in tackling white collar crime. We have never had a National Fraud Squad as we have a National Crime Squad, it has been mooted many times but rejected for all kinds of reasons, turf wars and resources being two of them. We have 43 police forces, as you know, in England and Wales, which is an absurdity by itself for such a small country, but of those 43 forces only about 33 now, I am told, have any fraud squad facility at all, and of those only one, the City of London, places it as an operational priority. And it seems to me just to be a total Cassandra, that once the Proceeds of Crime Act is implemented, to implement the suggestions made by the Policy and Innovation Unit of the Cabinet Office, there will be fewer police officers investigating fraud. The one thing that has emerged; may I say this, I hope it is not going to sound patronising, I find it both interesting and fascinating that it has taken this Select Committee to pull together matters which, as Jeremy Carver has already said, are really the concern of so many other government departments, and only this oversight Committee has sought to address it in this way. But it would be quite wrong, as you have now discovered, from all the evidence that has been given to you, to dig a ditch between corruption, fraud, money laundering, they all merge at various places, and so if you are going to have an effort in this area it has to be a holistic effort. We are starving our investigators and prosecutors of resources, they are going to have fewer fraud investigators, not more, they are going to concentrate on confiscation, which seems to me to be rather putting the cart before the horse, when one rather wants to investigate, prosecute and convict before one confiscates, and so forth. And so far as the international scene is concerned, until 1989 we were very much an island, in the scheme of international mutual assistance; for the last 11 or 12 years, we have joined the international mutual assistance club, we are a party to everything that is going, by way of multilateral treaties, in which we can join, and a great number of bilateral treaties. But, again, it is resources, resources, resources, wherever one looks one sees that one is starved of this, and it will do us no good, even if the great day of the Queen's Speech arrives and we have legislation, it will do us no good at all unless we have the troops on the ground to enforce it, and, unless we have, there will be no trials, and if there are no trials there will be no convictions, and if there are no convictions there will be no deterrents.


  602. Absolutely. Mr Staple?
  (Mr Staple) I only wanted to add a word on the Convention front. Jeremy Carver painted a very black picture of our failure to co-operate with foreign countries in this area, and historically that may well be right. I think there is a ray of hope, however. I think it has been recognised that the need for an overseas country to come first to the Home Office, before going to the judicial authorities, either the prosecuting authorities or the courts, has been really, in many cases, an unnecessary link in the chain. So much so that a European Convention, and I think it is an OECD or Council of Europe Convention, was signed last May, which cuts out the Home Office as the central authority, and in future, once the Convention is incorporated into our law, it will be possible for foreign judicial authorities to go straight to our own judicial authorities to seek the taking of evidence for use in the foreign court. And that is going to make a huge difference; all the delay does seem to take place at the Home Office stage. My experience, at the Serious Fraud Office, was that where it was a case of serious fraud the Home Office sent it through to the Director of the Serious Fraud Office pretty quickly, there seemed to be a fast-track procedure, particularly if representations were made that it needed to be acted upon quickly. And as a result of an amendment to the law, I think in 1994, it was possible for the Director of the Serious Fraud Office to use her, now, investigating powers, which, as you know, go beyond the normal police powers, to assist a foreign government. And I think there have been a large number. They are referred to regularly in the Annual Reports of the Office, of cases where assistance has been given on a very fast basis to foreign countries in cases of fraud. I am told that what clogs up the system is a huge number of traffic cases from France, but I do not know whether that is right; that is purely anecdotal.

Ms Kingham

  603. Companies have been accused of turning a blind eye to the activities of agents that they employ concerning corruption. Do you think these accusations have a sound basis, and, if so, how could the law be tightened up to control this kind of activity?
  (Mr Carver) I am not sure that I would accept that companies turn a blind eye. I think the traditional advice that companies got was that under the rules that still prevail today, certainly under the laws that we have, we are talking about a 1906, an 1896 and a 1916 Act, after all, mainly the 1906 Act, the best advice that you could get, as a company, was that provided you set up a subsidiary that had no common shareholding (in Switzerland, was the classic place) with the directors being local lawyers, then it was not so much a blind eye, you could function and pay commissions to agents with impunity, because there was no possible transgression of English law — as long as everything took place outside the United Kingdom. And it was not by any means — this practice, which is now fast being eliminated, because of changes in Swiss law — it was by no means confined to the United Kingdom. Italians did it. The French did it, I have no reason to suppose that other countries did not do it as well. But corporations did set up these mechanisms whereby these free-standing companies could make commission payments, without needing to inquire as to the reason why.

  Chairman: I think we need to look at money laundering in a bit more detail, and Ann Clwyd is going to lead us in that.

Ann Clwyd

  604. Yes; except I take your point that you cannot take one aspect of economic crime in isolation, there must be a holistic approach. But, as you know, in the Queen's Speech, there is provision for a Bill to increase powers on money laundering, and do you think this is a mistake, or do you welcome that? And how is that going to help in making these economic crimes important issues and not matters to be kicked into the long grass, which, as this inquiry has gone on, I feel they may be kicked into the long grass all over again?
  (Mr Carver) I am sure Monty Raphael knows a greater amount than I do about the detail of money laundering. I would make just one short point though. Money laundering regulation is emerging, banks are becoming that much more conscious of the need to impose on their own disciplines, internally, and often voluntarily, proper `know your customer' procedures. This is having a significant effect. It is being encouraged because of the high degree of risk that a bank will incur if it does not have these procedures in place. We have seen the various banking scandals over the last two years, which have been significant. It is interesting that the United States has just introduced a voluntary code, which is very tough on banks, and, plainly, this is going to set a requirement for all banks operating within the United States, to ensure that the system basically is sound. If it is not sound, then all banks dealing with that system, as well as their customers, are operating with an unacceptable degree of instability in their investments activities, their assets, or whatever. Therefore `know your customer' principles must be put more firmly in place to ensure that this fight not only against corruption, narco-traffic, any other proceeds of white collar crime, criminal activity, are identified and isolated, not on the passive basis which has always been, "Well, we don't inquire; we receive the money, there it is, it's money, it's characterless, money has no taint attached to it at all;" that is wrong. You have to now ask, "Where is it coming from, who is this customer, and are we obliged now to report it to the authorities, is there an obligation on us not to tip off our customers?", and these are having an effect.
  (Mr Raphael) Mr Chairman, of course, one could reply to Ann Clwyd's question for the rest of the day.


  605. We cannot do that.
  (Mr Raphael) But I will exercise some self-restraint. Let me just say this, by way of preface, if I may, before answering your question directly. We have had anti money laundering laws in this country since the Statute of 1986, they were introduced piecemeal, firstly for drug money laundering and then for terrorism and then all crimes in 1994. That, in an accident of history, is going to be remedied, I think, by legislation, so that they are going to have everything in one Statute, which I would welcome. The inconsistencies between these different pieces of legislation will, I hope, disappear; at the moment, as you know, in certain bits of the legislation there is an obligation to report, in others it is voluntary, and, obviously, it is very confusing and it is not terribly good. So I think probably we will see an obligation to report, which I will welcome; it is likely to be strengthened anyway when the Second EU Directive comes into force, it is being debated, as you probably know, in the European Parliament in January and it is likely to result, I hope, in a Queen's Speech Bill in 2002. And that will bring lawyers and accountants and others, the similar professions, into the scheme, which we now have in a minor order in regulations, which only is subordinate legislation and only affects those conducting investment business governed by the Second Banking Directive. And, again, that is a grey area. We have got at the moment, Mr Chairman, primary legislation, secondary legislation and codes of conduct, and instead of complementing one another I fear at the moment there is a lot of confusion as to what is happening. May I just grasp the nettle, if you will forgive me, wearing my hat only as an individual practising lawyer, on the issue of the low level of reporting, which was raised, I think, twice now by your colleagues, by solicitors; the figures are the figures, but may I just say this. We have about 15,000 reports to NCIS a year now, they have settled down around this figure; there is no research more modern than 1994 on the quality of those reports, we do not know how good they are or how bad they are. The statistics that you have been supplied with, very helpfully, both by Lorna Harris at the Home Office and by NCIS, dealing with the number of prosecutions and convictions, I think, are very helpful, as figures, but not very helpful in interpretation, because they do not go year on year and we do not know to what the convictions refer, by way of prosecution, we do not know. In my anecdotal experience in this sphere, there are very few year-on-year prosecutions, even now, for specifically money laundering, they tend to be very often linked to drug trafficking cases, or breaches of Customs and Excise provisions. So, at the moment, as your Chairman has said, we have NCIS understaffed, we do not know what the quality of the reports is, and though there are fewer coming out of solicitors, fewer coming out of accountants, larger numbers, we are told, are coming out of the banks. Overall, by itself, with respect, it does not tell us enough, it only just tells us bare numbers. NCIS would have us believe that conclusions can be drawn from that; but I must say, and you would expect me to say this but I say it nonetheless, that it by no means betokens that lawyers are, as a whole, complicit in money laundering, certainly I have seen no evidence to that effect at all. And, although one wishes to, the Law Society does, it is very alive to this, I do not speak on behalf of the Law Society, but they have set up a money laundering task force in the last 12 months, they have been active in this area, they constantly try to raise awareness, they have codes of practice which they amend from time to time, to bring them up to date, and I know that they are very keen, I have assisted them, as best I could, in raising awareness. It is a constant process, you have to train and retrain and retrain each generation of lawyers, and sometimes the same generation of lawyers, you have to bring them up to date; lawyers are no better at retaining information than the rest of us. So I am not sanguine or blase about it. But, again, can I just say that one welcomes anything that will improve the self-policing, subject to the difficulties which lawyers have, which George Staple has referred to, arising out of their contractual relations with clients, one would welcome increased self-policing, but we must not allow these, as it were, factional views necessarily to prevail. NCIS has its own legitimate view, which is that more could be done, and doubtless more can always be done, but I do not think that the low level of reporting by solicitors necessarily is sinister by itself, but I do think awareness needs to be raised, as indeed it needs to be raised in the area of corruption. And if I can just bang a very small drum, that is why the International Bar Association, whose hat I am wearing today, principally, has set up a working group and run conferences, and so on; you cannot do enough in this area, you have constantly got to do it. And there is one other area which I think needs to be looked at, and that is mandatory training for lawyers and other professionals in these areas, mandatory; they would have to have financial implications, because there are very small firms of solicitors and very small firms of accountants, and for them to take time off and pay fees is a real hardship. But if some way could be found of ameliorating the cost to them, and at the same time requiring them to do it, not just by way of stacking up some continuing education points but because it is very important, personally, just wearing my own personal hat, as Monty Raphael, individual lawyer, I would welcome that. Because otherwise it is very difficult for lawyers to persuade themselves to go away, leave their offices, leave their clients and pay fees to be trained in this area constantly.

  Ms Kingham: Thank you.

  Chairman: Now we have got to hurry on; so, Mr Worthington.

Mr Worthington

  606. I think you have covered a good many of the points I was going to ask about, which was about how you would improve the procedures for investigating and prosecuting money laundering, you have said things like a National Fraud Squad, you have said resources, resources, resources, and so on. Is there anything else you want to draw to our attention, as ways of improving the investigation and prosecution, that have not come up so far?
  (Mr Staple) Perhaps I could just offer a thought on that. I do think that the Serious Fraud Office, which is perhaps in the lead in this area, has a very narrow remit. It is charged with investigating and prosecuting serious and complex fraud. That is an undefined term in the Statute which sets the Office up. It has been taken by successive Directors to include corruption, but usually it is corruption that has been prosecuted which has been associated with fraud. It has a highly trained workforce, it is small, the resources are not large, but they do target the biggest and most complex frauds, and it does seem to me that it may be that we could look at charging the Serious Fraud Office with a wider remit to deal with more specifically cases of money laundering and corruption.

  607. I am not talking about facilitation payments now, we are talking about allegations of money laundering on the large scale. Many of us will have received a letter from the Nigerian High Commissioner about the dissatisfaction of the Nigerian Government, and we are seeing the Nigerian Government later this week, with the response of this country to the allegations that the Abacha family siphoned, I am using the High Commissioner's word, US$4 billion out of Nigeria, and that before last Christmas Sir Howard Davies, of the FSA, confirmed that US$92 million had been paid by the Abacha family into the UK branch of a European bank. In June 2000, the Nigerian Government requested assistance from the UK Home Office, the Serious Fraud Office, Metropolitan Police, City of London and the security services, but the British authorities have not yet responded, according to the Nigerian High Commissioner, to President Obasanjo's request for funds held in London bank accounts to be frozen, following the criminal investigation under way in Nigeria. That fills me with a sense of shame, if that is true. What can be done to deal with that?
  (Mr Carver) The short answer is that you have to ensure that the importance of this phenomenon rises much higher up the political consciousness. It is not a party point, as this Committee knows perfectly well. It is simply that it ranks so far down, in terms of the willingness to do things. And it is very worrying indeed, particularly because of the importance for the economy of this country of financial services, that we are not addressing this as a problem. Unless we take this seriously, we will gather increasingly a reputation as being sleazy, a source of washed funds through the system inevitably: increasingly inefficient, increasingly risky to place your funds there. People do not want to place their assets in a sleazy environment, other than those whose assets are very seedy, and even they will get better service probably elsewhere. It is so important that we wake up to it. I cannot speak, because I am not involved in the detail, of Abacha. I have read the Swiss Federal Banking Commission's report, which makes alarming reading. They are very strict, looking at it from the perspective of Switzerland, but a very significant proportion of the funds, the Abacha funds, that flowed into Switzerland came from the United Kingdom and its territories, and an overwhelming proportion went back there. So the laundering process was plainly facilitated by the United Kingdom financial service sector.

  608. I take your point about priority, there must be priority, but what do you do when a request comes in, what is the right way of dealing with that, who should act, and how?
  (Mr Carver) What actually happens is that the request comes in to the Judicial Co-operation Unit, where it gets processed, one of the 1,200, 1,500, whatever it is now, 2,000, requests. A court will be nominated, usually Bow Street. I give the highest praise to Bow Street, a tiny staff, very well motivated, very experienced indeed, and doing an astonishing volume of work, in trying to deal with and collect the evidence that is necessary. But they cannot pass it back to the Nigerian authorities, they have to pass it back to the Home Office. Now, in the case of Pakistan, when the last democratic Government embarked upon a process of trying to follow up and gain evidence in connection with their investigations and prosecutions in Pakistan, with considerable difficulty but using the full resources of the court immaculately, and very conservatively, I am bound to say, in terms of effectiveness, 26 boxes of evidence were tied up and delivered to the Home Office; and there they sat, and there they sat. I am told that they have now been passed by the Home Office, reluctantly, to Islamabad, but for two and a half years this stuff just sat there. Now that is unacceptable. There are elements that can be motivated to work very swiftly and effectively, the police can carry out these investigations quickly, speedily and effectively, but if you have a swamp in the middle where things just get lost, nothing happens at all.

  609. And the swamp is the Home Office?
  (Mr Carver) I am afraid it is the Home Office.

  610. Mr Staple?
  (Mr Staple) I hesitate to comment, too, about Abacha, because I do not know the details of the case. Of course, you do need to have a prosecution actually taking place in the requesting country to use the powers—

  611. Which is happening.
  (Mr Staple) There are people being prosecuted in Nigeria; well then the procedure exists to react pretty quickly to that, given the will.

Mr Jones

  612. You have told us what you think ought to happen in this country, but is the Department for International Development doing enough to try to tackle corruption in developing countries, and are they doing enough to strengthen the judiciary investigative bodies and legal systems in countries where corruption is endemic?
  (Mr Carver) I think the short answer is that they are doing a great deal. Can you ever do enough? It cannot be done too energetically, because what you need to do is to generate domestic capacity. You cannot, as it were, hand over and say, "Here's a beautiful working system, you just put that in place and it works." Moreover, I am not sure, as we have just been discussing elements of what goes on in the United Kingdom, that we should be transferring this experience to other countries. What I do think we do have in this country, and what DFID, it seems to me, is very good at doing, is to encourage and fund quite small-scale but very specifically targeted initiatives to generate capacity within developing countries to build on government procedures, to build on judicial training, to build on improvements to the workings of criminal law, so that there is a capacity and an independence. There is a whole lot of other ways that it can be done, and it cannot be left to the Department for International Development alone. I think, for instance, the Lord Chancellor's Department should be much more active about promoting agreements, bilateral, multilateral, for enforcement of judgments, and so on. That is a means of giving independence to judges, because they are not just scrutinised within their own system, they are actually subject to scrutiny outside. So there is a whole lot of things that can and should be done to increase the flow of this technical assistance to other parts of the world, and there is a great deal that we can learn and bring back here to improve our systems.


  613. Do you think the Foreign Office is a stumbling-block in this, their remit being, of course, to carry out policy and conduct diplomacy, in effect, for British interests and British interests alone? And that, therefore, to promote anti-corruption processes in some countries towards which they wish to be friendly might seem to be counter-productive to them?
  (Mr Carver) Much of my work, over the last 30 years, has been in the field of foreign affairs, representing governments, often in political areas, and I reacted with considerable enthusiasm to the announcement, in June of 1997, of a new ethical foreign policy, and I thought the first thing that would be put in this particular basket was corruption. I am still waiting for any sign that the Foreign Office has even noticed international corruption.

  Chairman: Yes; well perhaps that sums it up rather nicely. We have got to hurry on, and I would like, first of all, to thank you, all three of you, for coming today to give us this very important evidence; and I hope that perhaps we will, together, make a contribution to reducing it, at least, in the future. Thank you very much indeed.

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