Examination of Witnesses (Questions 100-119)
23 FEBRUARY 2005
Mr Douglas Alexander, Mr John Weiss, and Mr Nick
Ridley
Q100 Chairman: Because if you do not
know what they have done or if they have not been caught yet,
we are still back to this point that the requirement to provide
knowledge has been watered down: yes or no?
Mr Ridley: No, I do not think
it has been watered down because the phrase "to the best
of our knowledge and belief" has always been in this form,
there was not a change between May and December, and, secondly,
ECGD's understanding of it has not changed between May and December
and indeed ECGD is on public record to at least one of its customers
as indicating that unchanged understanding.
Q101 Chairman: All that one would say
there is perhaps initially it was not as strong as it could have
been and it is still not as strong as it could have been.
Mr Ridley: Well, yes, that is
a separate point of course. It is plain that one can, in theory,
require absolute warranties and representations of fact which
are unqualified in any way.
Mr Alexander: My own hesitation
in this reflects the fact that this is all subject to the consultation
which ultimately I will be called upon, if still the Minister
for Trade and political events do not intervene, to be a decision-maker
and in that sense if there are concerns which are raised by other
organisations in terms of the content of the form, then of course
that will be the subject of consideration as part of the consultation
that is due to start shortly. That being said, I thought it was
important to clarify what we believe to be a genuine misapprehension
on the part of at least one of the bodies providing information
to the Committee in terms of whether there had been a change in
understanding within ECGD as to the meaning of "knowledge"
and "belief" when in fact the legal definition predated
by a number of years the change in the forms between May and December
of 2004.
Q102 Sir Robert Smith: Can you just clarify
one thing for us. Obviously in 2001 one company out of all the
people you have done business with looked at this thing and said,
"Oh dear, what am I signing? Can you tell me?" Everyone
else happily signed with this statement there for all these years
and then suddenly in 2004 they panicked and wanted collectively
reassurance on it.
Mr Ridley: Well, I would not necessarily
endorse the word "panic", but, save for that, that is
broadly correct, that the one customer had enquired and been given
that answer and in the course of the discussions last year, other
applicant companies and interested bodies wanted the same answer
to be given to them.
Q103 Sir Robert Smith: And these are
people who had happily signed that form in the past?
Mr Ridley: Yes.
Q104 Sir Robert Smith: So they signed
it happily and then suddenly this last year wondered what they
were signing?
Mr Ridley: The topic came up again.
Some applicants have always had more interest in the meaning of
that phrase than others. Those with more interest in it brought
it up again and it became a topic of debate which was settled
by the annexing of the previous definition to the form for everyone
to see.
Q105 Mr Clapham: Minister, I heard you
say that you came into the job in September of last year, but
many of the problems of course started well before you took up
the new job. Is it possible to say when ministers first became
aware that there were problems with the new procedures?
Mr Alexander: Yes, of course.
Perhaps it would be helpful for the Committee if I just run through
the chronology as I have come to understand it because some of
the dates precede my arrival. Within weeks of the initial letters
of complaint being received by ECGD, Mike O'Brien was advised
by ECGD that those objections to the May 2004 procedures had been
received and of how ECGD was responding to them. Letters received
by ECGD between April and May 2004 made it clear that industry
would not accept the May procedures. Mike O'Brien agreed that
ECGD should set about negotiating with industry to find a solution.
Mike opened the 5 July 2004 meeting between ECGD and industry,
for which the CBI led, which launched these discussions. He set
out objectives for those discussions at the time which were later
reflected in the objectives set out in the Secretary of State's
letter to the CBI of 9 July. On 9 July 2004 the Secretary of State
wrote to the CBI in reply to their letter of 23 June 2004,
acknowledging the concerns that industry had expressed about the
procedures as revised. She said, as I reflected earlier, that
whilst the principles underpinning the procedures were not up
for discussion, it was important that no undue burden be placed
on industry in the course of ECGD doing what it could to discourage
bribery and corruption. She urged all the parties to work quickly
to resolve the matter. Throughout July and August, ECGD regularly
updated ministers on the progress in these discussions. I took
up my post, as I have said, as Minister for Trade on 9 September
last year and in the immediate days following was made aware that,
following advice from ECGD, the Secretary of State had decided
how she wished the matter to be concluded. This was communicated
to the CBI in a letter of 13 September by ECGD's Chief Executive,
Patrick Crawford. Officials then met industry once more and, following
further advice to the Secretary of State and myself, the final
terms on which the issue should be resolved were agreed. John
Weiss duly wrote to the CBI on 29 October 2004 recording the final
agreement and to customers more generally on 5 November 2004 with
that final agreement.
Q106 Mr Clapham: I note that ministers
met eight times with representatives of industry between May and
November. Is it possible to say what instructions were given to
the ECGD and DTI officials as a result of the representations?
Mr Alexander: Yes. Thereafter
in terms of what then followed, and I have sought as faithfully
as possible to relate that in the chronology, there was initially
direction given to the terms of the discussion between ECGD officials
and industry by Mike O'Brien. Those reflected the terms that were
in turn related by the Secretary of State's letter to the CBI
on 9 July. Officials then conducted the negotiations, advice was
then provided to the Secretary of State on which basis a decision
was reached, and there were further discussions with officials
and then further agreement by the Secretary of State and communication
to customers.
Q107 Mr Clapham: So from the early part
of May we see the problem and there are meetings taking place,
so was it possible that ministers were thinking in that early
period of May, June and July that the problem could have been
resolved and yet we see it sort of going on well into October
when meetings were still carrying on and indeed rolling on after
October?
Mr Alexander: I certainly think
that was the intention, as related in the Secretary of State's
letter to the CBI, that these negotiations be brought to a conclusion,
but I think it is fair to say that these were often very complex
legal issues that required deliberation and discussion between
officials and the representatives of the companies in question.
In that sense, I think it is perfectly reasonable for the Minister
to have set down the terms of the negotiations that were to proceed
and that is what I understand both my predecessor and then, in
turn, the Secretary of State did, but thereafter the detailed
negotiations were to be taken forward by the respective officials
and customers in questions.
Q108 Mr Clapham: It does seem that the
meeting with the CBI was a real crunch meeting because the CBI
were bringing to your attention the problems that had been put
to them by the people that they represented. Is it possible to
say whether, following that meeting, the Minister had made certain
decisions regarding the changes in relation to the problems that
had been put to him?
Mr Alexander: As I say, in terms
of the initial direction and steer that was given to officials,
that was set down both by the Secretary of State and by Mike O'Brien
thereafter. The next decision point was communicated to the CBI
in Patrick Crawford's letter of 13 September in which it was related
how the Secretary of State wished the matter to be concluded,
so I think that gives you the sequence of discussions taking place
by early September. Then there is a decision reached and a communication
made to the CBI and I understand there was one further meeting
thereafter.
Q109 Mr Clapham: So in terms of the decision
being made as to what was and was not acceptable, it was not so
much the decision of Mike O'Brien, but rather the Secretary of
State who made that decision?
Mr Alexander: According to the
letter, and I quote the letter of Patrick Crawford, the Chief
Executive of ECGD, dated 13 December, paragraph 4, it says, "I
am now writing to advise you of the outcome of our consultations
with ministers on the detail of agents for which ECGD should ask
in its application forms. The Secretary of State has now advised
that she considers the following arrangements to be those which
should be adopted", and it then goes on to describe the terms
set down by the Secretary of State.
Q110 Mr Clapham: I think that is quite
clear, that it was the Secretary of State who made the decision
as to what was acceptable. What do you say to those who allege
that, through their intervention, ministers have really undermined
the ECGD's anti-corruption efforts?
Mr Alexander: Again I would return
to the point that I made earlier in terms of what was the remit
given to officials in terms of the negotiations with the CBI and
with customers. Patricia Hewitt made clear on 9 July in those
instructions, and these were communicated directly to the CBI,
that whilst she acknowledged the concerns of industry, the principles
underpinning the procedures were not up for discussion, so the
intention of ministers was clear and was made clear in that letter.
Clearly what has emerged is a matter of some debate and discussion
not least before this Committee and indeed involving others, and
the merits or demerits of individual changes will clearly now
be the subject of the consultation that will take place in the
months to come.
Q111 Mr Clapham: So we are saying that
lessons have been learnt and we are likely to ensure in future
with changes of this particular nature that perhaps there is a
need for a more thorough discussion with the partners before embarking
on such changes?
Mr Alexander: I think that is
a point which John made when he was previously before the Committee,
that there would have been merit in further discussions with the
customers in terms of the specifics of the forms and the changes
that were anticipated.
Q112 Chairman: The document in May had
a number of points to which the CBI et al took exception.
The CBI, you could say, then went into bat with you and they seemed
to have won pretty well every point they pursued. Were there any
areas which they had to concede?
Mr Alexander: I am not sure that
we would accept the chronology of—
Q113 Chairman: They would have had an
agenda and they would have had, as it were, a shopping list. How
many points on that shopping list were not available for negotiation?
Mr Alexander: Let me tell you
what I am given to understand is the position in terms of the
December forms and then I will ask Nick perhaps to deal with some
of the detail in terms of some of the legal points. It is the
case that there are provisions contained in the December 2004
forms which were not present in the May 2004 forms and in that
sense the implication of your question, which is that the only
change that took place was that items contained in the May 2004
forms were removed in the December 2004 forms, I am given to understand
is not correct.
Mr Ridley: That is right. There
are one or two things that appear in the December forms which
do not appear in the May forms. There is, for example, a positive
obligation on companies to inform us if, for example, it comes
to their notice that their joint venture partners have been involved
in corrupt activity and there were a number of discussions on
which not all of the requests or negotiating positions of those
we were speaking to were acceded to in full.
Q114 Chairman: I have got here a summary
of complaints received by ECGD from customers on the enhanced
anti-corruption procedures as at 24 June 2004. Now, there are
some 17, I think, of these—of which six are so important
that they are commercially confidential—so we have 11 out
of the 17, and perhaps we could just ask you to give us a brief
summary of your reaction to each one in the sense of whether you
conceded it or whether the CBI et al went away empty-handed.
That might be rather blunt, but it might be interesting to get
this for the record because we have the paper which you have given
us. These are the concerns: firstly, that there was no formal
consultation prior to the implementation of procedure, and I think
that is accepted; secondly, that ECGD is placing unnecessary difficulties
and bureaucracy on exporters.
Mr Alexander: Well, the terms
of the Secretary of State's letter made clear that she was keen
to avoid undue burden on British exporters.
Q115 Chairman: They are unhappy about
making declarations that would seem to be more stringent than
the rules required by other ECAs and the objectors, in this case
Rolls-Royce and the SBAC, felt that the insertion of the new legal
awareness warning in applications was all that was required. What
happened to that one?
Mr Alexander: Well, that seems
to me to be a view that is being expressed by another party to
the discussions as to their concerns. The substance of the discussions,
and I am in the hands of John and Nick here, was actually on individual
points. Nowhere does the Secretary of State relate in her letter
setting out the remit of negotiations with ECGD the point you
describe in terms of the relative position of other ECAs. Her
concern was to ensure that there was a degree of legal certainty
in the points that she related in the letter.
Q116 Chairman: I could go through the
lot of them, but I do not know if we should or not because we
have not unlimited time. Some of them are trade associations complaining
that they should have been sent a copy of the letter that was
sent out direct to customers. I think that one we can understand.
The next one is that the anti-corruption declarations and application
forms should not extend to affiliates in connection with a contract,
that the definition of "affiliates" is too broad, that
the applicants would have to make specific enquiries about its
affiliates, and that it is not practical.
Mr Alexander: It is certainly
the case that ECGD accepted that there was force in the customers'
argument that not every representation and warranty in the May
forms about behaviour beyond the applicant's control was appropriate.
Q117 Chairman: Then there is this one
where it says that they are disappointed that the words "to
the best of our knowledge and belief" once again prefaced
most of the anti-corruption declarations and their legal advice
suggests—this is the complainant's—that the companies
would have to make specific enquiries in such cases. Do they still
have to make these enquiries?
Mr Ridley: Well, this refers to
the conversation we had earlier, Chairman. You will note, as I
was saying, that of course it remains the case that that phrase
does preface a lot of the declarations in the application form.
As far as the enquiries are concerned, the extent to which they
are or are not obliged to make enquiries was dealt with in the
previous definition which had been given in 2001 and which is
repeated in here.
Q118 Chairman: That one we might put
down as a scoring draw.
Mr Weiss: I think, Chairman, the
one you mentioned at the very beginning about relying, and I cannot
recall the exact terminology, but relying on companies' procedures
or straightforward declarations, was not, I should emphasise,
a general CBI point, but it was, I think, a point made from one
company. We clearly did not accept that there should be such a
simple solution to this problem which was essentially around relying
on companies' own procedures rather than having our own procedures,
so we certainly did not concede on that one.
Q119 Chairman: Well, that one was Rolls-Royce
and the SBAC which is a fairly widespread trade association amongst
interested parties. Then number seven was that a blacklist of
conviction declaration should not extend to employees of the applicant
and its affiliates in connection with a contract, that applicants
would have to make specific enquiries of such employees and an
explanation was also sought as to what was meant by "freely
admitted" in the context of this declaration being expanded
to capture admissions of corrupt activity even where there has
been no conviction. It was additionally felt that a maintained
reference to "found by a court" in relation to an engagement
in any corruption activity in this declaration was too woolly.
This was Rolls-Royce. Do you accept that one?
Mr Ridley: Well, there are a large
number of points rolled up in that rather omnibus complaint, most
of which we did not accept. We did not think that "found
by a court" was unworkable and you will find that that reference
is still in there. It has been qualified a little to indicate
that any judgment of a court shall be final and unappealable,
but that is still there. We have taken the point about employees
and declarations about all employees have been reduced. The declarations
now much more centre on company directors. The point being made
to us was that some of these applicants have very, very large numbers
of employees which produces a considerable administrative burden
to make declarations about their past. Forgive me, Chairman, those
are two of the points which were wrapped up in the omnibus, so
are there any others I have not covered?
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