Examination of Witnesses (Questions 120-139)
RT HON
IAN MCCARTNEY,
MINISTER FOR
TRADE, AND
ECGD OFFICIALS
14 JUNE 2006
Q120 Judy Mallaber: Can we move on
to one of the most important issues that has been a contentious
one, the question of agents. When this Committee reported in March
2005, we certainly were not persuaded by the arguments of those
who said that the Department did not have the right to information
on the agents used. Does ECGD accept that one of the main conduits
for bribes is through agents and so the control or regulation
of agents is an absolute prerequisite for tackling bribery?
Mr Weiss: May I open with a bit
of a disclaimer. ECGD is not a criminal investigatory agency and
perhaps is not therefore in a position to comment expertly on
the most common means of making bribes.
Q121 Judy Mallaber: You must have
a view from your experience.
Mr Weiss: We do and we think it
is possible that bribes might be paid via agents and therefore
we should do what we can, within the terms of our role, which
is as an insurer and not an investigatory agency, to deter such
practices. Equally it is important not to overlook the fact that
agents do play and can play a very important part in helping our
customers win important business, the commission paid to them
is perfectly legitimate remuneration for the services they provide
and it would be dangerous to make what is paid synonymous with
bribes. Finally, just to keep this in perspective, although there
have been allegations of bribery, there is no instance of an ECGD
customer being convicted or admitting bribery in relation to an
ECGD supported transaction.
Q122 Judy Mallaber: But if you are
seeking to make sure that the company that you are supporting
is legitimate and operating properly, presumably it is also a
legitimate part of that to know about their agents. Why are you
not requiring applicants to give details of the agents of their
consortium partners and their group companies? Surely that is
an important part of the process of ensuring the legitimacy of
the way in which the companies are operating so that indeed we
do not get into situations where we find the companies we are
involved with could possibly be accused of giving or accepting
bribes.
Mr Weiss: This is, in a way, a
very specific aspect of seeking the names of agents. We did ask
for the names of agents under the December procedures, although
there were exemptions around that, which we are now proposing
to remove in the July measures which are coming in. The question
you were asking was in relation to why we should not have the
names of agents of consortium partners which actually is, on the
whole, a smallish part of ECGD's business. Most of our exports
are done by companies on their own: BAE, Airbus, Rolls-Royce.
The definitive answer to your question is actually in paragraph
77 of that rather weighty tome of our final response to the public
consultation. May I emphasise that that is the definitive answer
and if I try to paraphrase it that takes precedence over what
I say in case I say anything slightly inconsistent with it. First
of all, we do require the name of the agents of consortium partners
if they are also acting on behalf of the applicant, but where
they are not acting on behalf of the applicant, they are acting
solely for the consortium partner, our view is that it could be
very difficult, indeed possibly impossible for our exporter and
our applicant to get hold of that information. It has been represented
to us by British industry during the consultation how sensitive
it is for the names of agents to be disclosed and disclosed to
the British Government in the shape of ECGD. This is postulating
that a consortium partner, who may well be French or German or
whatever, is to give the name of their agent to our applicant
to be given to us and, given that the consortium partner and the
applicant in another transaction may well be competing with each
other—they come together in consortia for specific deals,
but there may be another project in that country where they are
actually competing—it seems to us that it may well be that
the consortium partner would refuse to give this information to
the applicant and we have effectively built in a condition to
our cover that they would be incapable of fulfilling. May I also
say one general point on this? The questions in our application
form are meant to apply to the great majority of our business
and consortium business is not the great majority of our business,
so they are in a way starter questions. If we have a transaction
coming along which has other features to it, and it could be a
consortium partner, we have made it absolutely clear throughout
the consultation that we have the right to ask more questions
and we could well ask in a particular circumstance, if we felt
there was reason to do it, for the name of the agent of the consortium
partner. We have not put it in our standard application.
Q123 Judy Mallaber: You putting it
like this is really worrying me because it is almost an invitation
for the consortium partners' agent to become the route for bribes,
if that was what was going to happen. We are surely seeking to
root out bribery and corruption across the board amongst our competitors
as well. Transparency International said that it is both commonsense
and good practice for an applicant to find out who their partners'
agents are and surely if an agent is saying to an exporter or
someone from the consortium is saying to another member of the
consortium "Don't tell anybody. We don't want to tell you
who our agents are", the alarm bells would then ring? It
almost seems to me to be an invitation for that new route for
bribery because we are saying that one element of where that bribery
route could be should be kept hidden.
Mr Ridley: If that were to happen,
of course the applicant is obliged under the standard application
forms to make reasonable inquiries about the absence of corruption
on the part of his consortium partner and he is obliged to represent
he has done that and he is obliged to represent that the results
of those inquiries give him no cause to believe that the consortium
partner has been corrupt.
Q124 Judy Mallaber: How does he know
that if he is not even asking for the information? Surely it is
reasonable for one of our exporters to say to their consortium
partners "Tell us who your agents are" and, if they
will not give them that information, that surely sets suspicions
going?
Mr Ridley: We do not prevent him
from asking that and he may well ask that. What we do not do is
require, as a condition of the cover, that he shall produce something
that it may not be in his power to get. We do not stop him at
all from asking that from a consortium partner and, if he does
and if he gets an answer which does not satisfy him and there
is a question of what constitutes a reasonable inquiry, it may
be prudent on his part to go further.
Q125 Judy Mallaber: But I cannot
see why it is unreasonable for you to ask them for that information.
What are they trying to hide?
Mr Ridley: We do not think that
it is necessarily unreasonable for him to ask. It may be not reasonable
for him, and/or beyond his power, to insist on being provided
with it and it would possibly be unreasonable for us to insist
on it being provided to us.
Q126 Chairman: If we were talking
about one of the most corrupt countries in the world, and we know
the rankings, if it were a country in the top five of the most
corrupt countries in the world, and we are talking about taxpayers'
money here, would it not be reasonable to expect disclosure of
the agents of other members of the consortium?
Mr Weiss: We are not sending a
signal out that we will never ask for this information. We are
saying that our standard application forms will not ask it because
consortium business is not a regular feature of our business.
It could well be, if we have a consortium situation, for example,
in one of the countries you mention, that we decide, perhaps for
other reasons surrounding the application, that we do indeed want
that information. As I say, we are not sending a signal out that
we will not ever ask it.
Q127 Judy Mallaber: I am just a bit
worried that by putting it in this way signals are being sent
out. Obviously we hope our companies are not involved in those
areas of corruption but we do not know second-hand of the people
they are dealing with, whether contracts are being awarded and
gained in a way that is not acceptable. Is it reasonable for our
local diplomats in an area to make discreet inquiries about how
a company operates and how their agents operate and who they are
or is that not something that we regard as being a reasonable
course of action for our diplomatic service to operate?
Mr Weiss: We may well ask the
embassy in the country to give us advice on how the project was
awarded, what they know about the agent, and it could well be
a feature of our own investigation of the application.
Q128 Chairman: Have you ever done
that? Has this ever arisen?
Mr Weiss: Oh yes.
Q129 Chairman: It has?
Mr Weiss: Yes.
Q130 Judy Mallaber: Would our diplomats
tend to be fairly clued up on it?
Mr Weiss: Could I be very precise?
I do not know whether it was in the situation of a consortium,
but we have certainly asked the embassy to give us information
about agents on a transaction.
Chairman: It would be useful to know
because that is part of the picture that we are unclear about.
Q131 Mr Weir: I do not know whether
I am being unduly cynical but I got the impression from your earlier
question that perhaps you would only ask for the information if
you were suspicious about the consortium. Is that the case?
Mr Weiss: I hope what I said was
that there may be a set of issues around a case—and I cannot
forecast what they would be—where in a sense it would not
be good enough for us not to know the identity of the agent.
Mr McCartney: To be fair to Mr
Weiss, on a case-by-case basis there will be a range of different
features and some of those features, to be fair to the Committee,
have been mentioned as reasons why in some instances the question
should be automatically asked. Can I give the Committee an assurance,
having got this far, that we shall try to make these arrangements
work effectively and if occasions arise where the profile of the
circumstances are such, then a range of inquiries will be made.
Q132 Mr Weir: There is also the question
of special handling arrangements. Are the special handling arrangements
for agents' details the price you had to pay for exporters to
divulge any information about agents?
Mr McCartney: There was never
a case of having to get the agreement of any party to the public
consultation in the terms of the Government's final and concluding
responses. These terms were our own view of what achieved the
best balance between regulation and the practicability of the
proposals. In the course of the consultation we had noted applicants'
concerns over the possible damage to their competitiveness which
could arise from inadvertent disclosure of information about agents'
identities. The special handling arrangements are designed to
minimise this risk, thus making more workload for the applicant.
In fact they were voluntarily offered to industry during the June
2004 discussions when we met the CBI Solutions Group and the workability
issues were being addressed. Whether they use the special handling
arrangements or the other arrangements, that information will
be made available to us.
Q133 Mr Weir: Do you think the need
for such special arrangements indicates that some companies at
least have a lack of trust in the ECGD?
Mr McCartney: No. There are no
grounds to have a lack of trust in ECGD. One thing is certain:
if you want to export and use the facilities of it, then people
will be required to work with us to their fullest to implement
the proposals. I see no grounds for that not to happen and it
will not happen. We want to try to assure our customer base that
our investigations and our inquiries are as effective and exhaustive
as they need to be to make a decision and at the same time recognising
any instances of protecting confidentiality. We shall balance
that and do that and that is exactly why we have put these arrangements
in place. That is why we offered them; we were not asked for them,
that is why we offered them.
Q134 Mr Weir: Have you made any estimate
of the proportion of applicants who may request special handling?
Mr McCartney: No. I could not
possibly predict at this stage exactly how many would. If it helps
the Committee, and I have no brief to say this but it is a reasonable
thing to say in the circumstances, once this is up and running
we shall have a review in three years but in the meantime,
because of the Committee's quite right interest in this, once
these arrangements are in place and up and running, I shall come
back and advise the Committee.
Chairman: Thank you very much. That would
be helpful.
Q135 Mr Weir: If a company comes
to you and asks for special handling arrangements, would you treat
that company any differently from someone who just comes in with
an ordinary application? Would you consider that by asking for
special handling arrangements, they needed to be looked at more
closely than a run-of-the-mill application?
Mr McCartney: No. A request for
special handling arrangements does not, in ECGD's view, mean that
it is more likely to be corrupt. It simply reflects the applicant's
view of their own commercial position, no more no less than that.
But that does not mean, having said that, because of the answer
I gave to a previous question, that if the profile is such as
to require us to make an extensive range of inquiries, we shall
not do exactly that. All this process means in the end is that
the details of the agent are given in a different way, but the
details are given.
Q136 Mr Weir: Would the special handling
arrangements give a company any additional protection from disclosures
under the Freedom of Information Act or inquiries by Parliament?
Mr Weiss: The answer is no. We
sent the Committee what was called the concluding response to
the public consultation, which had the special handling arrangements
attached to it and at the foot of that document we refer to that
position under freedom of information. The fact is that for any
information given to us under the special handling arrangements,
if an application were made under FoI for disclosure, we would
have to look at that on its own merits. The fact that it has been
given to us under these arrangements would make it no different
from the same information given to us outside those arrangements.
Mr McCartney: As I understand
it, it falls within it, unless it is protected under the law of
commercial confidence, or other exceptions. I am not a lawyer,
but I can think of maybe two or three instances where this could
happen: prejudicial to commercial interest, prejudicial to international
relationships or prejudicial to criminal investigations. Outside
of those, the arrangements are subject to legal obligations placed
by the Department.
Q137 Chairman: I note you have said
that the idea for special handling arrangements came from the
Department and not from clients. When we took evidence from the
CBI last month, they did however say that companies did have concerns
that information might, inadvertently, be released. It might find
its way into the public domain. We obviously then asked whether
there were any example of this and they cited the case of a South
African defence contract where they alleged information from an
ECGD file appeared in the public domain. Does ECGD know anything
about this? Had the CBI reported this to you or anyone else?
Mr Weiss: Yes, we are aware of
it and indeed to the point where, because the journal was claiming
to have ECGD papers, we conducted a thorough internal investigation
into this alleged leak of what were claimed to be ECGD papers
which concerned the South African defence package. The outcome
of the investigation was that it simply was not possible to identify
who might have leaked, whether from within ECGD or wherever else.
Yes, we are aware of that instance and therefore understand the
concerns of industry in this area.
Q138 Chairman: Have there been any
other such instances that you are aware of?
Mr Weiss: There is no evidence
of ECGD staff having been responsible for any other leaks.
Q139 Chairman: And that is just a
possibility. You have said you did not find evidence that the
source of the problem was ECGD; it could have been, but it might
not have been.
Mr Weiss: Yes.
Mr McCartney: If there had been—and
this is important for the Committee and all concerned—if
there had been, I am absolutely certain that rigorous action would
have been taken at the time. I deprecate any attempt to leak.
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