Examination of Witnesses (Questions 80-99)
23 FEBRUARY 2005
Mr Douglas Alexander, Mr John Weiss, and Mr Nick
Ridley
Q80 Chairman: But in the case of a kind
of satellite agency, like the ECGD, is there the same degree of
ministerial and Secretary of State control or supervision of the
activities of this, what might be regarded as a, semi-detached
institution?
Mr Ridley: Well, John may be better
placed to talk about the details of practical delegation. We are
in fact though, if I can just preface what he might say, strictly
speaking, a separate Department by statute rather than an Agency.
Q81 Chairman: I used the word "Agency"
perhaps loosely, but if you are a separate department, nevertheless,
that Department is answerable ultimately to the Secretary of State.
Mr Ridley: Yes.
Q82 Chairman: So would changes in arrangements
of this character come before some ministerial sub-committee in
which ministers from other departments, for example, the FCO,
would be involved?
Mr Weiss: No, Chairman, that is
not the situation here. With this specific issue, the submissions
were made to the Minister, which was Mr O'Brien at the time. It
would be normal in issues of this type for those submissions to
be copied to the Secretary of State. As far as I can recall, there
were no other departments involved in this discussion. I think
most of these submissions were internal to ECGD or DTI, but there
is no ministerial committee that sort of oversees ECGD.
Mr Alexander: It may be helpful
to suggest that in the context, for example, of business principles
in the form of ECGD's work, then there is the opportunity to call
on the expertise of other departments, for example, in the issue
of human rights where the Foreign Office has a locus, but that
stands apart from what we are discussing which were changes which
were initiated by the Minister of Trade and decisions that then
came back to the relevant ministers, in this case the Minister
for Trade and the Secretary of State.
Q83 Chairman: We were told that this
was a balanced package of measures and it would be for the ultimate
benefit of all UK companies, yet it seems that the balance and
the benefit eluded the grasp of most British companies. How was
it that these proposals, in the eyes of these companies, were
shown to be so unworkable that major revisions were required to
them within weeks of their introduction?
Mr Alexander: Well, let me say
first of all that, given the nature of the changes made in May
2004, I understand that ECGD officials did not expect the objections
which would be raised by industry that you refer to, nor did it
believe that the changes were of sufficient importance to warrant
formal public consultation and were indeed surprised, as I think
John made clear when he was before the Committee previously. ECGD
first imported specific anti-bribery and corruption provisions
into its application procedures back in the year 2000. This was
when an anti-bribery warranty was introduced, the breach of which
entitled ECGD to seek financial redress from the company. The
2000 procedures were really, therefore, the first part of a sequence
of amendments where no formal public consultation took place and
they were accepted by exporters and by the banks without objection,
and I think that is an important context against which the changes
that were first envisaged and introduced from May 2004 have to
be understood. This was the position when further changes took
place in 2002-03 and indeed the changes we are discussing in 2004.
Apart from the last of these, the further changes did not bring
about objection either from industry or the banks, as I say, so
I think, against that background, it explains the fact that there
was, albeit perhaps misplaced, a sense of confidence that these
changes were not as controversial as they ultimately transpired
to be.
Q84 Chairman: It might be argued that
the need for a third set of changes in four years was because
the first two were inadequate and the first two, because of their
inadequacy, were innocuous to the parties concerned and, therefore,
it was in their interests to keep shtum on this issue because
in the past there has not been anything that they really objected
to. If there had been some reason for them to object to the new
ones, it would have been because there was an improvement and
a tightening up of what was going to be too slack a situation.
Mr Alexander: Tempting though
it is to move into analogies of bottles half full or half empty,
I think it would be more candid to suggest that the intent of
ECGD has been articulated on a number of occasions, not least
by the Secretary of State in correspondence which is in the public
domain where she made clear that the determination was to hold
to the principle that we should be rigorous in terms of anti-bribery
and corruption procedures. I think it is reasonable to suggest
against that backdrop of that enduring principle that where there
are steps that can be taken on a sequential basis between 2000
and moving forward, those steps were appropriately taken.
Q85 Chairman: Was the Department surprised
by the reaction of the companies given the way in which they had
handled it before?
Mr Alexander: Yes, I think it
is fair to say that officials were surprised.
Mr Weiss: Chairman, as I said
to you at the last hearing, we were surprised and, with hindsight,
I think I accept that it would have been more sensible to have
consulted industry and the banks about these changes. I think
in the sequence of changes, probably the two major enhancements
were the original 2000 introduction of the warranty with the financial
redress and then probably in 2003 was the next sort of major step
up and I think the other ones were perhaps less significant, including
the May 2004. I would not like to characterise them as being inadequate
from the beginning and only getting acceptable in May 2004; we
have tried progressively to improve them and that improvement
has been done as a result of discussions we have had with NGOs
who are active in this area as well as our understanding of what
our fellow export credit agencies are doing, so we are learning,
we are all improving the way we tackle this issue, it is progressive
and I think it will continue.
Chairman: The changes which have been
introduced from 1 December last, as I understand it, were explained
by ECGD as clarifications and minor amendments designed to make
its anti-corruption measures workable without weakening them.
Now, I just wonder to what extent this `without weakening them'
is in fact correct. The removing of the ECGD's right to independent
audit, allowing an applicant to withhold information about agents
and business partners and removing the requirement to monitor
the activities of those business partners surely makes it more
difficult for the Department to perform due diligence on project
applications and achieve its anti-corruption objectives. You have
denied yourself a number of quite important weapons in the pursuit
of corruption and bribery, have you not?
Mr Alexander: In fact, Chairman,
the letter of 5 November in fact did not talk about minor amendments.
It did say that the changes were meant to clarify what was expected
of customers when they come to ECGD, but let me try and answer
your substantive point. The NGOs, and indeed the memoranda that
have been placed before this Committee by the NGOs, contain a
long list of concerns, a number of which you have discussed today
in terms of agents' details or of affiliates. It is the business
of the forthcoming consultation to look in detail at each of these.
I do not want to prejudge the outcome of the consultation by debating
each point in too much detail here, but we will of course look
at all the representations with an open mind. I will try and give
you, as best I am able, a brief explanation of what ECGD thought
at the time it made the changes and why it made the changes in
each case, but you will appreciate that it might be helpful, on
occasion, to turn both to Nick Ridley and indeed to John Weiss
should the Committee members have detailed points in terms of
legal interpretation. Firstly, on the issue of affiliates, affiliates
were defined in the May forms to include bodies whose behaviour
applicants could not control. In the December forms ECGD replaced
that definition with two others, that of controlled companies
and associates. It accepted that there was force in customers'
arguments that not every representation and warranty in the May
forms about behaviour beyond the applicant's control was appropriate.
On the issue of agents, in the December forms ECGD recognised
views put forward by customers about commercial confidence and
sensitivity of information about agents and, therefore, reduced
the information required on the application form. However, and
I think this is an important point to bear in mind, ECGD retains
the right to make any further inquiry about agents or indeed anything
else which it considers the circumstances merit. It remains the
case that if corrupt activity is proved or admitted, the applicant
is obliged to reimburse ECGD under a buyer credit and liable to
have an insurance policy voided, and those liabilities are of
course absolute. Finally, on the issue which you raise of audit
rights, the investigation of suspected crime is a matter which
is primarily of course the task of criminal investigation agencies
with statutory powers to seize documentation without notice. ECGD
has no such powers, but refers all allegations of wrongdoing to
the National Criminal Intelligence Service. On the final point
of audit rights, ECGD's audit rights included in the May provisions
the ability to audit documents relating to contractual award as
well as performance. The rights regarding audit of contractual
award remained, but were restricted in December to occasions when
ECGD had reasonable grounds to suspect corrupt activity because
ECGD accepted at the time it was not appropriate for it to have
the right to audit papers without reason.
Q86 Chairman: On the other hand, it has
to be said that if you allow the people whom you are enquiring
into to withhold information, surely that restricts your ability
to find out what is going on?
Mr Alexander: It depends on the
circumstances and what information is being sought, but I think
also it is important to recognise the principle which was upheld
in the Secretary of State's correspondence following on from the
initial meeting of Mike O'Brien with customers where she made
clear that ECGD was unyielding on the principle, but was willing
to discuss specific issues in terms of legal clarification. Suffice
to say, as I have discovered in preparing for this hearing and
in my time in office, these are extremely complex legal documents
and each of them has to be examined on the specific merits of
the points in question.
Q87 Chairman: I am sure that there is
plenty of work for members of your former profession to make money
out of, but the fact is that I am still not very clear about this.
You may accept the principle, but if you do not have the means
of applying that principle in a rigorous way, it is just posturing
surely?
Mr Alexander: ECGD would not accept
that characterisation of the forms under which it is operating.
These changes were one of a sequence of changes aimed at improving
the forms that were available to customers and on that basis I
understand the Committee has before it or has had before it representations
reflecting the relative strength of the ECGD's anti-bribery and
corruption procedures relative to other export credit agencies.
Q88 Chairman: I think it is fair to say
that under the May proposals we were going to be as rigorous as
perhaps any country, I think, apart from the Netherlands. I am
not quite sure how far down the league we have slipped as a consequence
of the change in procedures and it may be more appropriate to
leave it to other people to determine the league placings.
Mr Alexander: My understanding
is that the basis on which the information was provided to you,
the international comparison was actually the end of December
rather than the May forms.
Mr Weiss: It was a comparison
of the December procedures with what other export credit agencies
were doing at the time. You have to weight each aspect of the
comparison, but I think it is a perfectly reasonable conclusion
to reach that we are still amongst the leaders in the rigour of
our procedures in this area.
Q89 Chairman: Well, I think, given that
there is an element of confidentiality about some of this information,
that it might be more appropriate for others with less jaundiced
views or less self-interested views, shall we say, to make such
judgments as that. I think we come down to the point that the
criticism which has been levelled against the ECGD suggests that
the revision of the definition of the statement "to the best
of our knowledge and belief" weakens the ECGD case that it
remains as rigorous.
Mr Alexander: Well, with your
permission, Chairman, let's discuss that specific instance. I
think it is fair to say that in terms of the principle we upheld,
as articulated by the Secretary of State in her commitment to
uphold the principle, the position was clear. We then move inevitably
to the area of specifics and I would of course be happy to discuss
with the Committee the specifics, and let's deal with the specifics
of knowledge and belief. Insofar as it may be suggested that the
definition of the phrase "to the best of our knowledge and
belief" altered between May and December, which seems to
be the implication of your question, ECGD rejects this. The definition
used in the December provisions is appended to the buyer credit
application form and in fact I think Nick Ridleyhas a copy of
the form with him today. ECGD's understanding of what the phrase
means has never changed. Indeed, ECGD gave the same definition
to a customer back in 2001, so I have to say, in preparing for
the Committee hearing today, I and advisers were somewhat perplexed
as to the significance that the NGOs have attached to this specific
provision appearing as an appendix in that form, given that the
legal understanding used by ECGD has not altered during the period
under discussion in terms of the change in procedures between
May and December of 2004.
Q90 Chairman: I think that the word "belief"
we will leave in the eyes of the beholder, but the word "knowledge"
implies that you have the means of obtaining a full understanding
of the affairs of the organisation or company concerned, and the
fact is that, as a consequence of the change in the procedures
that you have introduced, you will be less able to secure that
knowledge in the way that you had hoped you would. Is that not
the case?
Mr Alexander: Let me perhaps assist
the Committee by, first of all, the definition, so, Nick, perhaps
you could just offer the definition of the form itself in relation
to "knowledge" because I think it is central to the
understanding of this point.
Mr Ridley: Yes. Would the Committee
like to see it or shall I read it out?
Q91 Chairman: I think you are just as
well reading it out because there are other people here who would
just as much like to hear it as we would.
Mr Ridley: I have to say, Chairman,
it is three paragraphs.
Q92 Chairman: I think we can stay awake
for that!
Mr Ridley: It appears as an appendix
to the application for a buyer credit form of support which is
probably the most frequently used, especially for large cases,
form of ECGD support. It says as follows: "The following
is ECGD's understanding of the expression `to the best of our
knowledge and belief' and the way in which ECGD will interpret
a company's obligation to it when signing any form or undertaking
containing the expression. It is our view that the words `to the
best of our knowledge and belief' must be read disjunctively as
if it consisted of two phrases, that is to say, `to the best of
our knowledge' and `to the best of our belief', each having a
separate and independent meaning. `Knowledge' is unqualified and,
therefore, means the actual knowledge of the person concerned
as at the time of making the statement in question. `The best
of' requires the maker of the statement to review his or her then
state of knowledge and to report all that that review tells him
or her. It does not require the person to make any enquiries or
in any other way to seek to improve or augment his or her state
of knowledge before making the statement. `Belief' requires a
factual basis, entitling the person whose belief is being expressed
to hold it. Nevertheless, it does not stop with matters of fact.
A person's factual knowledge may lead him or her to infer, and
hence believe, other facts of which he or she has no knowledge
as such. `The best of' belief means that the person is answering
what he or she genuinely believes to be true as opposed to matters
as to which he or she entertains doubts. Again since `belief'
is unqualified, there is no requirement to seek to verify or bolster
a belief by enquiry other than by a diligent search of the person's
own conscience". Could I just add perhaps an explanatory
word of why such a long definition was appended in the way that
it was as a result of the discussions with industry last year?
This is taken almost word for word from a letter written to explain
the self-same phrase in the past in 2001 to one of our customers
and it was agreed that since that letter represented our understanding
of the term, the easiest way of dealing with it was to append
effectively the terms of that letter to the form.
Q93 Chairman: Could it have been the
fact that it was the same author of both letters?
Mr Ridley: Well, the author of
the letter to the customer in 2001 was David Alwood. There is
not an author, as such, for this appendix to the form.
Q94 Chairman: Really I come back to the
point that I made earlier and your definition still implies that
there has to be a degree of rigour. Our concern would be, I would
imagine—and I am not only talking for myself here, but my
colleagues would probably come to the same view—that if
you deny yourself the opportunity of being as rigorous now as
you were going to be before in the sense that you no longer can
require people to give the information if they wish to withhold
information, then the knowledge that you have, based on the information
you give, will not be as great as it was before.
Mr Alexander: I think there is
perhaps a misapprehension creeping into the analysis, with respect,
Mr Chairman. The knowledge and belief relates to the customer
who is signing ECGD's form and in that sense the knowledge and
belief clause reflects the state of mind of the person signing
the form as distinct from the view being taken by ECGD officials.
Q95 Chairman: But there is this sense
that, in TI(UK)'s view, "The effect of the revised definition
of `to the best of our knowledge and belief' is that it will be
in the interests of the applicant to have the application signed
by a representative who has as little knowledge as possible, and
who has never made any enquiries. It would also appear to be weaker
than definitions provided in criminal and company law". Would
that be the case, Mr Ridley?
Mr Ridley: We would not accept
that, Chairman, no. If I can take you to the signatory clause
of the buyer credit application form, and again if the Committee
members want to have this before them, I can easily supply it,
but I will just read it out to begin with, the notes to the signatory
clause say that, "In the case of an incorporated company,
this Application must be signed by a director or a person authorised
by the company's board of directors or an officer of the company,
in accordance with the company's articles of association or equivalent
constitutional document, to sign this application or documents
of the same nature as this application on behalf of the company".
It would, therefore, be our firm view that it would not be open,
as I think the implication is in some of the memoranda before
you, for directors of an Applicant, who were themselves entertaining
doubts about whether they could make declarations in the Application
Form, to appoint somebody extremely junior who they knew would
entertain no doubts because they would have no knowledge. I do
not for one moment imagine that that would ever happen, but if
it did, it would be an act of deception which we would say would
vitiate contracts written on the basis of it.
Q96 Chairman: I can just about follow
you here, I think. Are you telling us then that in circumstances
of that nature it would be the directors who would carry the can
and not the hapless employee?
Mr Ridley: Indeed, because the
directors will have had to authorise this hypothetical person
with little or no knowledge to sign this form and if they did
that because they themselves entertained doubts, and again I stress
I do not for a moment imagine any of our applicants would do this,
but hypothetically, that would be an act of deception.
Q97 Chairman: What about if the managing
director decides that he wishes to withhold the information from
you and signs it anyway: is he more culpable than the hapless
person who knows nothing and was told to do it?
Mr Ridley: Well, he is certainly
equally, if not more, culpable because in the circumstances which
you then describe there is an act of deception being committed.
Q98 Chairman: But is it deception if
you choose to withhold information because the law does not require
you to provide it?
Mr Ridley: Well, what we are speaking
of here, Chairman, is the contractual or pre-contractual representation
of fact made to the best of the signatory's knowledge and belief,
so what he may or may not say or may or may not withhold is defined
by the content of the representation. Perhaps it is easier if
I give concrete examples. For example, one of the representations
which is qualified by the phrase "to the best of knowledge
and belief" is whether any board director of the applicant,
for example, has appeared on a World Bank, to use the shorthand,
blacklist or has been convicted of corruption in the last five
years, so what anyone making that declaration would be saying
is that, to the best of their knowledge and belief, that is not
the case.
Q99 Chairman: On the other hand, one
would have imagined that a reputable British company would not
have employed someone who had a record like that in the first
place.
Mr Ridley: That may be.
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