Examination of Witnesses (Questions 600
- 613)
TUESDAY 23 JANUARY 2001
MR JEREMY
CARVER, CBE, MR
GEORGE STAPLE,
CB QC AND MR
MONTY RAPHAEL
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.
Chairman
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.
Chairman
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.
Chairman
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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