Memorandum submitted by Jeremy P Carver
CBE, Head of International Law Group, Clifford Chance LLP[1]
The Need for Legislation
1. As a matter of policy, British Governments
do not normally ratify international Conventions unless and until
domestic United Kingdom laws permit full compliance with the international
obligations to be performed. Exceptionally, in the case of the
OECD Anti-Bribery Convention of 17 December 1997, the United Kingdom
ratified the Convention before UK laws had been changed to allow
the United Kingdom to abide by its international obligations.
Despite doubts expressed from various quarters, Parliament was
assured that the scope of the OECD provisions was "fully
compatible with existing UK law" (see paragraph 1 of Explanatory
Memorandum presented to Parliament September 1998—attached).
2. Since ratification of the OECD Convention
by the United Kingdom, the United Kingdom's compliance with its
obligations have been a matter for international concern, not
only by other parties to the Anti-Bribery Convention, but in particular
by the OECD Working Group responsible for monitoring implementation
of the Convention. The Working Group's evaluation of the United
Kingdom found its compliance with the Convention to be sadly wanting.
One result was the overdue announcement from the Home Office on
20 June 2000: Stamping out the Virus of Corruption. Our
international partners were led to believe that the Convention
would be swiftly implemented. Nevertheless, despite the Home Office
announcement and despite the numerous occasions when concerned
and professional bodies have pointed out the defects in our domestic
laws, the Government has presented no legislation to Parliament
to comply with our international obligations.
Use of Money-laundering and related enforcement
capabilities
3. New legislation will provide cover for
the present gap in UK compliance with the OECD Convention; but
will not thereby demonstrate that the United Kingdom is taking
its obligations as a signatory sufficiently seriously to ensure
effective implementation. That will be tested at the next stage
of monitoring. A frequent plea from Departments is lack of necessary
resources, in a prevailing climate of economic stringency. This
supposes that, to give effect to the Convention, new resources
are needed; whereas the probability is that resources that are
already being mobilised to meet other international obligations
and expectations are available to combat international corruption.
4. Corruption involves the payment or promise
of payment contrary to the law. When made, a payment enters the
financial marketplace as an illegal transaction which is capable
of being identified and giving rise to prosecution as are other
illegal payments. The fight against money-laundering, narco-traffic
and similar criminal transactions has led to the development of
increased resources: both at the official level and among financial
institutions. The Swiss Federal Banking Commission report on Abacha
funds moving into and out of Switzerland illustrates why banks
need to ensure tighter scrutiny of customer transactions. Loss
of reputation is of fundamental concern to banks. Moreover, even
inadvertent handling of illegal funds introduces levels of risk
into a bank's business which can prove very expensive.
Developments in international banking practice
5. On 16 January 2001, a multi-agency working
group drawn from the United States Justice and Treasury Departments
and various federal agencies issued guidelines to meet the perceived
threat arising from the transmission of the proceeds of foreign
political corruption to U.S. financial institutions. These guidelines
are designed to advise banks, broker-dealers, and other financial
institutions on their obligations with regard to funds that appear
to be related to the theft of sovereign assets by foreign political
leaders. The guidelines follow in the wake of embarrassing disclosures
relating to the transmission of funds to U.S. financial institutions
by a long list of foreign leaders including the Marcos family
of the Philippines, Raul Salinas of Mexico, and General Abacha
of Nigeria.
6. Entitled "Guidance On Enhanced Scrutiny
For Transactions That May Involve The Proceeds of Foreign Official
Corruption" (the "Guidance"), the Guidance is intended
to help financial institutions identify and avoid transactions
involving the proceeds of foreign political corruption by suggesting
specific know your customer and account monitoring steps that
institutions should take with respect to accounts owned by a foreign
political official or his or her family or close associates. The
Guidance also sets forth some examples of suspicious transactions
involving the proceeds of foreign political corruption. The Guidance
applies with equal force to banks, broker-dealers and other types
of financial institutions engaged in businesses such as private
banking. The Guidance is available at http://www.ustreas.gov/press/releases/guidance.htm.
Several features of the Guidance may be instructive for UK regulators.
— The Guidance Is Not Mandatory
7. The Guidance is advisory; it is not
law, rule or regulation. Rather, the Guidance
contains "advice that financial institutions are encouraged
to employ in conjunction with policies, practices and procedures
that are in place to enable financial institutions to comply with
applicable laws and regulations and to minimize reputational risks."
On the other hand, according to the Guidance, deficiencies in
a financial institution's anti-money laundering controls may prompt
a regulator to require that the Guidance be integrated
into the institution's policies and procedures.
— The Guidance applies to a finite
class of "Covered Persons"
8. The Guidance focuses on the risks presented
by accounts held for foreign political leaders, their families
and their close associates, all grouped under a defined class
of "Covered Person". This includes a senior official
of a major political party, a senior executive of a foreign government-owned
corporation, and any entity formed by a senior political figure,
his or her "immediate family"; or a close associate
(one who is "widely and publicly known to maintain an unusually
close relationship with the senior political figure").
— Action Steps for Know Your Customer
and Account Monitoring Procedures
9. The Guidance sets out five know your
customer and account monitoring steps to take with respect to
accounts beneficially owned by a Covered Person. These include
establishing the identity of the account holder and the account's
beneficial owner, their reputation and source of wealth and waiver
of local law secrecy protections. Banks must document the purpose
of opening the account and anticipated account activity, and should
measure account activity against the Covered Person's official
salary and any other sources of wealth. Additional periodic oversight
should be applied to the account, and at a more senior level of
management, recording all material decisions.
— The Guidance describes suspicious
activities
10. The Guidance gives examples of questionable
or suspicious activities that may involve the proceeds of foreign
official corruption: requests to involve a bank unaccustomed to
foreign transactions; requests for secrecy or routing through
a secrecy jurisdiction or missing wire transfer information; unusual
and unexplained fund or transaction activity, such as fund flow
through several jurisdictions or banks, use of a government-owned
bank, excessive funds or wire transfers, rapid increase or decrease
of funds or asset value not attributable to the market value of
investments, high value deposits or withdrawals, wires of the
same amount of funds into and out of the account, and frequent
zeroing of account balance; and large currency or bearer transactions,
or structuring of transactions below reporting thresholds.
— The Guidance Identifies Other Valuable
Sources of Information
11. The Guidance identifies other valuable
sources of information (including many internet websites) that
can be used to assist a financial institution to decide whether
to conduct business with a Covered Person. These include publications
issued by the US Treasury's Financial Crimes Enforcement Network
("FinCEN"), the State Department, the CIA, the General
Accounting Office, Congress, the Financial Action Task Force ("FATF"),
international financial institutions (such as the World Bank and
the International Monetary Fund), the United Nations, and other
government and non-government organizations.
12. The Guidance, in effect, imposes new
responsibilities on financial institutions in the United States.
Although foreign political corruption has yet to be included as
a "specified unlawful activity" under money laundering
laws (nor have OFAC laws yet been expanded to cover corruption),
the Guidance intends to achieve the same goal, by telling banks
and broker-dealers to stop doing business with senior foreign
political figures unless there is clear information demonstrating
the legitimacy of the proposed business.
Jeremy P Carver, CBE, Head of International Law
Group,Clifford Chance LLP
March 2001
1 These comments supplement the evidence given by
Jeremy Carver to the Committee on 23 January 2001. Back
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