Examination of Witnesses (Questions 140
- 157)
THURSDAY 27 APRIL 2006
MR ALEX
YEARSLEY
Q140 Mr Davies:
You are saying some rather remarkable things that we ought to
probe before we just accept them on the record. You said you thought
that there would always be diamond smuggling but it would be quite
easy, to use your words, to close off the financial channels through
which money gained as a result of corruption is salted away, such
as the Channel Islands to which you referred. But, surely, if
one closes down one tax haven of that kind one merely creates
a market for another. There are 200 countries in this world and
a lot of people would find it very attractive to get into that
business if one closed down the existing tax havens. Equally,
if as you suggested we kept the extractive industries out of post-conflict
situations for some time until after the conflict had been resolved
a lot of other countries would be delighted to rush in, notably
China which would be there in five minutes. China would be very
grateful to you for keeping out any competition, but it would
not be in the interests of the country concerned to have no competition
when the Chinese made some sort of bid for its natural resources.
Do you accept that there are other possible perspectives on these
complicated issues?
Mr Yearsley: Most definitely.
I did not suggest that we should wait indefinitely. With regard
to the Chinese, Indians and Brazilians they are already there,
and have been for some time. I do not know whether on your trip
to the Congo you will see just how prevalent is the Chinese influence.
Q141 Mr Davies:
Precisely. I do not, therefore, see the benefit to the country
concerned in keeping out, let us say, European extractive industries
and preventing them from making bids and offers to the host government?
Mr Yearsley: The country itself
will accept the bid that is best for itself.
Q142 Mr Davies:
It will not have any other bids if you do what you suggest?
Mr Yearsley: With a quite simple
change to a number of laws now in place and with the enforcement
of current laws the situation can be cleaned up dramatically.
I did not mean to single out the Channel Islands. There are numerous
tax havens around the world. Through FATF[9]
and the UN Convention against Corruption we can quite happily
fine-tune a number of treaties and laws which will crack down
on fairly significant money-laundering and corruption, and major
attention needs to be paid to that. Simple enforcement of the
current laws would dramatically reduce the problem. On Monday
we released a report[10]
which showed how the president of an Eastern European country
has close to $4 billion in Deutsche Bank under his personal control.
It is the country's money, not his, and yet he uses it as his
own money.
Mr Davies: It is a very well known phenomenon,
but I put it to you that if you close down the Channel Islands
it will just go to Macao or somewhere else.
Q143 Ann McKechin:
Earlier Professor Collier said that elections did not mean that
suddenly there was a solution. Perhaps I may take as an example
the DRC where there is a very fragile peace settlement about to
be legitimised by a democratic election. How does one negotiate
with a democratic government, as it will then become, on the use
of the proceeds of minerals? At the end of day, if it has the
tag of democratic government surely it is for it rather than any
outside influence to decide on the sequence, or not, and how to
prevent corruption. Clearly, it is aid-dependent, but it is a
matter of how we try to preserve and grow the democratic government
at the same time as we try to tackle the issues that you have
mentioned, such as corruption.
Mr Yearsley: It is about making
investment more attractive. If one wants to attract legitimate
investment one has to have the relevant laws and procedures in
place. As to the elections in the Congo, I disagree with Professor
Collier. They are tremendously important to that country. I have
met taxi drivers in New York who have flown back especially to
register. National identity is vitally important. The protracted
delay in the elections has been pretty disgraceful. Some of the
blame for that lies with some western governments that have been
messing around in some of the election politics. The issue of
national sovereignty, however, is very important to governments,
and how they use their resources legitimately is a matter for
them. But if one wishes to attract companies of a pedigree and
quality that will produce the best return, provide the most jobs
and the best professional services one needs a secure operating
environment for them to ensure that they are not asked for a $2
million bribe every other month or asked to falsify their invoices.
Q144 Ann McKechin:
You believe that there should be the sort of governance conditionality
that DFID and other donors should apply in their aid?
Mr Yearsley: Very much.
Q145 Ann McKechin:
In its submission to us[11]
the ODI pointed out the relative difficulties in addressing natural
resources. If one has interstate conflict it is relatively easy
to deal with it; it has not ended up with post-conflict problems
over natural resources, but if it is a civil war, as has happened
in the DRC, there are continuing difficulties about who actually
gets the resources. Realistically, in somewhere like the Congo
where one has a number of disparate factions that are divided
physically as well as in terms of a long-standing, vicious war
what lessons do you believe the UK Government can learn from how
to apply best practice and encourage post-conflict peace?
Mr Yearsley: One of the key issues
that we have looked at in a number of conflicts—Angola,
Sierra Leone, Liberia and Cambodia—is the role of the peace
process itself and the negotiating phase when the belligerents
are brought together. In many of these conflicts the key negotiating
point has been the control of the resource or the ministry that
will eventually control the revenues that come from that resource.
In Sierra Leone Foday Sankoh was made chairman of the Strategic
Minerals Marketing Corporation. In Angola in 1992-93 UNITA tried
to turn itself initially into a diamond-mining company. It tried
again in 1997. It was almost as if the rebel groups were being
rewarded for their mayhem; in other words, "We are going
to fight for this area; we are going to cause a mess. We are saying
that we want this and this is what we are being rewarded with."
One has bribed them to get to that situation. One sees that as
a dangerous practice to continue from which one has not learned
the lessons. The same applies within the DRC. The fighting of
the ministries which will have the greatest economic gain was
one of the key factors in that long drawn-out peace process. Those
lessons have yet to be learned. There must be a way to deal with
a rebel group which has genuine and legitimate concerns. In Sierra
Leone it certainly did, and many argue that it still does today.
The corruption within government has not gone way. DFID and the
Foreign Office have tried very hard to eradicate the corruption
but, unfortunately, they have failed and there are still many
grievances in Sierra Leone. There remain concerns and fears that
those grievances may return. Somehow the lessons of peace negotiations
need to be learned.
Q146 Ann McKechin:
It is a long-term process rather than a short-term fix?
Mr Yearsley: Yes.
Q147 John Battle:
In practice, what can the Government learn from interstate conflicts
where problems spill over? What lessons can be learned from how
we handle that situation in civil wars?
Mr Yearsley: Numerous. One of
the key issues in many interstate conflicts is the movement of
resources, as Professor Collier stated earlier. One of the chronic
failures of the past few years has been the implementation of
targeted commodity sanctions. Many people think that they have
been successful. I have spent literally the past seven years talking
to the people who have been smuggling diamonds, timber and arms.
Those measures have been dramatically unsuccessful. There has
been no successful prosecution of a single UN-imposed commodity
sanction. At the moment, there is one trial taking place in Holland
in which we have been fairly instrumental. It involves the Dutch
timber/arms trader Gus Kouwenhoven. We need to learn the lessons
of implementation, monitoring and enforcement in relation to how
those interstate conflicts are financed, and we need to learn
the lessons as to how arms arrive in the country. If one seeks
to cut off the supply of money and guns, which are the two critical
factors in stopping conflicts, one must have systems to stop them
arriving in the first place. We still have not learned how to
do that effectively. Many governments are deliberately not doing
so because there are certain belligerents that they want to arm
and keep in power, or they want to maintain the conflict.
Q148 John Battle:
In terms of spillovers, most conflicts now are, as it were, internal
and civil wars rather than interstate wars. Have we not developed
processes that are better able to handle interstate conflicts
and keep countries separate and organisations within countries
separate—call them governments or whatever—than civil
wars? How can we, or do we, apply the techniques to resolve conflicts
between states to conflicts within states? Can we make such a
quick transfer?
Mr Yearsley: The answers are known
but it is a question of having the willingness to apply them.
If one wants to cut off the financing of a warring group one can
do it very quickly if there is the political will to do so. When
a UN panel is set up why does it take three months to appoint
it and to find the members of it so that the rebel group has another
three months to move its money and to change the techniques that
it uses to finance itself and the air route by which it brings
in its weapons? There needs to be a permanent panel of experts
within the UN to monitor arms embargoes and trade in natural resources
that fund conflicts. One needs to institutionalise the knowledge
so one learns from past mistakes. Many of the people who finance
these conflicts and move the arms are the same.
Q149 John Battle:
There has been talk in the past few weeks about efforts to "reorganise
the UN". Do you think the UN sees things too simplistically
in terms of state-to-state relations and conflicts and does not
understand intervention in a civil war?
Mr Yearsley: I think that it is
very sophisticated in its understanding of it. The ability to
do anything about it is where the problem emerges. Mobilising
17,000 troops to go into a conflict or post-conflict situation
takes an extraordinary amount of planning. Troop commitments from
the majority of the countries are very hard to achieve. It understands
the complexities; it is the political dealing in New York that
causes the problems and delay.
Q150 John Battle:
If I may just push it one stage further, I believe that there
are some facile assumptions that the UN can intervene easily.
To give a practical example, one can point to the intervention
of the UN in Indonesia vis á vis East Timor. I remember
CNN asking me why the UN did not get an army that it assumed was
parked in a field outside New York to march into Indonesia and
intervene immediately. I was trying to explain that for the UN
to invade Indonesia was not so obvious given that its population
was 218 million and quite a few of them were armed. Maybe Indonesia
had to invite the UN to help it resolve a conflict within its
territory between East Timor and itself at the time. Do you think
we will make any progress on the policy of invited intervention
within the UN?
Mr Yearsley: In the short term,
I doubt it; it is too much of the moment. If one wanted to do
some forward planning and the UN could become as sophisticated
as the Department of Defense in America in relation to how many
countries the US might have to invade in the future, or be invited
to participate in defensive or peace-keeping operations, these
interventions might be sequenced a little better.
Q151 Chairman:
You are recommending the definition of conflict resources and
taking action to deal with them. I believe that the definition
in your submission is "natural resources whose systematic
exploitation and trade in the context of violent conflict contribute
to, benefit from, or result in, the commission of serious violations
of human rights, international humanitarian war, or violations
amounting to crimes under international law". That is fine
as a definition; it tells you something, but in practice what
does it mean? For example, we have all kinds of conflict in Sudan
fuelled mostly by the discovery of oil in that country. Would
one get a country like China to agree that that was a conflict
resource, and how could you enforce it? I give that as an example.
Can you give an indication of how it would work?
Mr Yearsley: The rationale for
it came from the Kimberley process and the issue of conflict diamonds.
We spent a year and a half negotiating a very turgid definition
of what "conflict diamonds" meant. At the same time,
it emerged that there were a number of other conflicts financed
by natural resources: coltan cassiterite, timber, gold, rubies,
sapphires—you name it. These are natural resources with
easy market access which can be easily transported. Therefore,
rather than have a Kimberley process for every single resource—gold,
coltan and so on—it would be far easier if there was an
instrument within international law to make the trade in that
resource automatically illegal. Rather than having to launch a
two or three-year campaign through the United Nations or other
organisations to get the trade in a particular resource banned
in a particular country it would already effectively be illegal.
World customs organisations and enforcement practitioners would
have the ability to apprehend the people trafficking in that resource
and fuelling that conflict and would already have the law on their
side. The reason why it took so long to apprehend the diamond
traders who were buying from Angola, Sierra Leone, Liberia and
Congo was that there was no law against it; it was legal for them
to do so. No customs agents or enforcement agency, therefore,
would take any action. If through the Security Council, which
is the ultimate international legal instrument that covers as
many countries as possible, one has a definition that is automatically
translated into international law and action is taken to the best
of each and every country's ability one will automatically have
a very good tool to curtail that trade.
Q152 Chairman:
I do not think any of us would disagree that that is a worthwhile
thing to do, but the practicalities are that we have lots of laws
about drug-trafficking but it is multiplying and fuelling all
kinds of conflict. In the context of Africa countries like China
say that to get these resources is absolutely crucial, so to what
extent will they be bound by it? Russia and Congo are among the
top 10 corrupt countries in the world. How do you enforce it?
I do not dispute the value of having a legal definition, but in
practice how will it work in a way that will genuinely stop or
reduce conflicts or give us a chance to end them?
Mr Yearsley: One of the most important
things is the markets for these resources. The diamond campaign
was successful by targeting Belgium, Israel, the United States
and Dubai—the people who were taking the diamonds. By squeezing
that market for the resource which drives the economic need for
that resource one starts to close it down. If one has that definition
one will be able to do that legally. Customs agents generally
are interested in things only if they have revenue attached to
them and they are able to make money by applying tax to them.
For many reasons diamonds had no taxes and therefore they were
not interested. There are many other resources like that. Bilateral
trade agreements between countries remove import and export taxes
obviously to stimulate growth in trade. If one has that definition
there is legal accountability for those enforcement practitioners—customs
agents, law enforcement agencies and so on—to do something
about it. It does not mean that they necessarily will do so, but
at least one is able to call them to account and ask, "Why
have you not done this? We think you should. Hold on, there is
a conflict that is fuelled by a resource which is coming into
this country. You need to take action." That is how it will
work in practice.
Q153 John Battle:
I should like to follow that through in two areas that may seem
to you tangential. Commodity prices, perhaps even in the case
of diamonds, fell in the eighties and nineties. Now copper prices
and so on have risen very sharply. Oil and gas are other massive
commodities. But beyond even those resources the commodities that
cause most of the problems in terms of raising money illegally
are drugs, for example heroin and cocaine. We have lots of discussions
on where we should go. Some groups argue that, for example, one
should buy all of the heroin crop from Afghanistan and solve the
problem in that way. There is also trafficking in people. Does
that feature on your radar as part of the commodity analysis?
Mr Yearsley: About a year ago
we were asked to become involved in the issue of people-trafficking
to see whether it would be possible to do anything about it in
a way similar to the tracking of commodities. We did not do that
because we did not believe that we had the relevant expertise
to do so. As to drugs, this is the one natural resource that has
not hit in the same way as other natural resource conflicts. Mention
was made earlier of FARC. Dealing with environmental, human rights
and the pure and simple conflict aspects, FARC is not concerned
solely with the production of coca; it is involved in gold and
even diamonds in Venezuela. An article appeared a few months ago
in which it was said that DFID or the Foreign Office wanted to
try to mount a consumer campaign about the role of cocaine and
the human rights implications. Those kinds of campaigns need to
be mounted if one is to try to affect the market, or one should
look at complete legalisation. That is not the viewpoint of my
organisation but a personal viewpoint. If one legalised, legitimised
or controlled the heroin trade in Afghanistan in a constructive
way—again, this is not a matter on which my organisation
has worked—it would go a long way to bringing about stability
and controlling that market, and it would also bring some legitimate
cash, one could say, into the country.
Q154 Chairman:
You do a lot of work in DRC. You also said that you were working
for DFID. Some members of the Committee are about to go there
in the next couple of weeks. Briefly, can you give us a flavour
of what is currently happening particularly on the frontier on
the east in terms of who is fighting whom, the main problems and
what actions you are looking for which could lower the temperature,
stop these incursions and bring a more stable regime, allowing
for the fact that MONUC[12]
is on the ground? We had a briefing from MONUC when we were in
Kampala, Uganda. The point that they made to us very frankly and
honestly was that given the job they had been asked to do and
the troops they had the resources were nothing like enough.
Mr Yearsley: I will start by saying
that I am not the DRC expert within our organisation. I have been
there a few times, but my colleagues have given, or will give,
a more detailed briefing. In relation to the various different
armed groups in Ituri, there is still involvement in and fighting
over the control of those natural resources. It will be a problem
for a while, and it will become even more problematic during the
elections and in the immediate post-election period, if the elections
ever occur. From my trips to the Congo, one of the most important
things is that there is an equitable return on the money that
is levied in tax. One of the main problems is that Mbuji-Mayi,
the diamond-mining capital of the Congo, is a town through which
billions of dollars of diamonds have passed over the past 50 or
60 years. This town has no running water and no paved roads of
any description that can be traversed unless one is in a four
by four. It has seen nothing because the money has been systematically
stolen for a number of years. Even now, the governor of that province
has to fight to get the 1 per cent tax that he is supposed to
receive on the monthly exports of the diamonds that come from
that region. It is seen very much as a regional issue. The money
goes to Kinshasa and never returns. There are laws relating to
it.
Q155 Chairman:
It is being collected?
Mr Yearsley: It is being collected,
but not all of it; a fair percentage disappears, but it never
returns to provide those services. The same can be said for Ituri.
What is the point of declaring officially what one is mining if
one knows that the taxes one pays will never return and one will
not see any benefit? That is why people continue to smuggle and
do not want to declare what they have, because if they put it
into a bank they know that potentially it can be
stolen. They also become a target for people who
do not have access to that resource but may have access to guns.
One needs decent systems in place—everything from micro-credit—to
be able to finance people so they can set up in business for themselves.
One needs a system to keep wealth in the country so it is not
pillaged at the whim of various different officials, and one needs
an equitable return on any taxes, if they are ever paid. The extractive
industries transparency initiative, although it is still in its
infancy and has a very long way to go, could be a potential success
across many countries. Under Jean-Pierre Bemba Congo has implemented
a law on this matter. Nothing is happening; it was done for political
gain, but the willingness to do it can be exploited, and it could
be pushed further by DFID and the Foreign Office.
Q156 Chairman:
Quentin Davies has left. As a final question, should British companies
not be transacting business there or is there also the counter-argument
that if they are the right companies applying the right standards
they should be there? What is the right answer?
Mr Yearsley: The second answer.
There needs to be a level playing field. If one is concerned about
the Chinese coming in and undermining supposedly high standards
set by European or North American companies one needs a law in
the Congo that is enforced by the Congolese, or whoever, which
says investment or the particular activity will be accepted only
under certain conditions that need to be applied rigorously across
the board. Then healthy competition will win through. If a British
company has the best bid and provides the best services, so be
it. But there must be a level playing field; otherwise, exactly
what you say will happen: Chinese, Indian, Russian, even British,
companies will come in and undermine the process.
Q157 Chairman:
I wish you were right, but I fear that sometimes to apply law
in lawless states does not appear to be terribly effective.
Mr Yearsley: Absolutely. Many
people even wonder how one can call the DRC a state. It is not
even a failed state because it never was a state.
Chairman: Thank you very much. We will
see some of this for ourselves, but it is helpful to have this
input.
9 Financial Action Task Force. Back
10
It's a Gas, Funny Business in the Turkmen-Ukraine Gas Trade,
Global Witness, April 2006, http://www.globalwitness.org/reports/download.php/00297.pdf Back
11
Ev 199 Back
12
United Nations Mission in the Democratic Republic of the Congo. Back
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