Examination of Witnesses (Questions 40-59)
FOREIGN AND
COMMONWEALTH OFFICE
& DEPARTMENT FOR
INTERNATIONAL DEVELOPMENT
10 DECEMBER 2007
Q40 Mr Dunne: I would like to explore
this a little further. You have mentioned that you have one individual
covering the Caribbean to advise on financial services compliance,
if that is the right way of expressing it. Do you think that is
enough?
Sir Peter Ricketts: It is never
enough and the more we can do to provide technical assistance
and help to the territories, the better, which is why I have recently
written again to the Treasury and the financial authorities here,
encouraging them all to do everything they can to work with the
various financial centres in Bermuda and in the Caribbean Overseas
Territories.
Q41 Mr Dunne: If you look at appendix
4, I have counted a total of 33 FCO members of staff plus four
from DfID, two of which are part-time, in post in location for
all of these overseas territories, only one of whom looks after
financial services. It is that right?
Sir Peter Ricketts: Only one official—
Q42 Mr Dunne: I assume DfID and administrative
staff are not involved in financial services. Is it right that
only one of the 33 has a focus on financial services?
Sir Peter Ricketts: I think the
number that you are counting up includes our Governors and Deputy
Governors and UK-based staff in the Governor's offices in the
territories.
Q43 Mr Dunne: I think it excludes
the Governors. I am counting up the bottom line in the table,
so it excludes the Governors. It might include the Deputy Governors.
Dr Shafik: We do use external
expertise on a regular basis. For example, even in St Helena,
which has a very modest financial sector, we are providing advisers
to help them write new legislation. In Montserrat similarly the
Governor retains special powers to restrict the amount the sector
can grow because they have had past problems, and again, we have
made external advice available. So the numbers here are really
just the officials who administer and oversee but it is not the
total pool of expertise that we draw on.
Q44 Mr Dunne: Apart from the physical
risk of natural disaster, which is obviously ever present in the
Caribbean and in the remoter territories, the reputational risk
from financial malpractice is rightly identified in the NAO Report
as one of the most serious reputational risks, which obviously
affects this country as much as it does those territories, as
we have an oversight responsibility, and particularly given that
Cayman, the British Virgin Islands, Gibraltar and, to a lesser
extent, Anguilla but also Bermuda are increasingly significant
players in the offshore financial industry, it would seem to me
that the use of the occasional outside consultant and one individual
does not begin to address the risks that this country is facing
from having oversight of all of these territories.
Sir Peter Ricketts: The first
point I would make, going back to the table on page 23 of the
Report, is that it is primarily the responsibility of the territories
themselves to develop the regulatory arrangements that are necessary.
I see Bermuda have 11 people dealing with financial intelligence
and investigative capacity; Cayman Islands have 21. The larger
financial centres are employing significant numbers of experts
to monitor and regulate their own financial services industry,
which I think is right. We need to stand behind that. Just to
finish my point, the primary responsibility has to lie on the
territories themselves. In the larger and wealthier ones I believe
that they are discharging that more effectively now and I think
the Report bears this out. In the smaller territories I share
the concern that the regulatory, anti-money laundering and financial
investigative powers are still small and we need to do the maximum
we can from the UK to bolster those.
Q45 Mr Dunne: Do you train Governors
or Deputy Governors or other in-post staff on financial irregularities
and how to look out for them?
Sir Peter Ricketts: That, I am
sure, is part of the training that we give Governors before they
go out.
Q46 Mr Dunne: Can you confirm that
for us in writing afterwards? You say you are sure, but you say
it in such a way as to assume rather than to know.
Sir Peter Ricketts: By all means
I will confirm that but all Governors of relevant territories
are very conscious that the regulation of the financial services
industry and the oversight of contingent liability to this country
is a very important part of their job.[4]
Q47 Mr Dunne: Can I turn to physical
risk? I recall as a schoolboy in the 1970s the Governor of Bermuda
was shot and killed. What risk assessment do you undertake for
posting people to vulnerable and far remote territories, which
in many cases are not accessible by aeroplane in less than 24
hours?
Sir Peter Ricketts: Some of the
Governors are in very remote places, I agree. I saw the new Governor
of Bermuda today. I did not actually raised with him his personal
security but we maintain a watch on the threat, terrorist or other
threat, to all our heads of mission worldwide through the joint
Whitehall arrangements for threat assessment. That would cover
potential threats to Governors in the overseas territories.
Q48 Mr Dunne: Do we have personal
security contracts in place in any of these locations to look
after our staff?
Sir Peter Ricketts: No, sir, I
do not believe so.
Q49 Mr Dunne: Can I ask about the
British Antarctic Survey? We continue to lay claim to land in
the Antarctic. That is correct, is it not?
Sir Peter Ricketts: Yes, and I
believe that all the territorial claims are on hold as a result
of the Antarctic Treaty but I believe that the claims stands,
yes.
Q50 Mr Dunne: We also have both the
Falklands and South Georgia and the Sandwich Islands within our
territories. Do we maintain claims over the seas around these
territories for mineral extraction rights?
Sir Peter Ricketts: I think I
need to write to you with the full details of that. I do not want
to mislead you.[5]
Q51 Mr Dunne: We certainly do in relation
to the Falkland Islands because it is identified in the NAO Report
on page 49. My interest would be in how extensive these claims
are in the whole of the South Atlantic area and what we are doing
to facilitate exploration of where it is commercially viable.
This links into the risks identified by the air access agreements
for the Falklands, where it is clear from the NAO Report in appendix
3 that the Falklands government have raised concerns about the
lack of a regular service. There is reference to a new service
with a civilian operator coming into force from last October.
Can you confirm whether that has taken over and who the operator
is?
Sir Peter Ricketts: I confirm
that it has taken over. I can confirm that it has a premium economy
service for tourists and others wishing to pay more to travel
with a bit more comfort. I cannot tell you the name of the operator
but no doubt I could rapidly discover that for you.[6]
Q52 Mr Dunne: Is that service from the
UK to the Falklands and back and that is the extent of it?
Sir Peter Ricketts: That is right.
Q53 Mr Dunne: Could you also let
us know the frequency of that and the cost to the Exchequer of
underwriting that, if there is a cost?
Sir Peter Ricketts: Of course.
Q54 Mr Dunne: There is a suggestion
that it has not been underwritten in the past and it would be
useful to know whether we are continuing to subsidise that and
whether that might be a fruitful source of encouraging increasing
economic self-sufficiency, not just of the Falklands but also
the other territories to the south, and whether or not that could
then become effectively a profit centre for the FCO to help fund
activities elsewhere in the world.
Sir Peter Ricketts: I am always
in favour of profit centres for the FCO, Mr Dunne. I will certainly
look at that and write to you.
Q55 Mr Dunne: Thank you. Finally,
are we going to lay claim to any of the Arctic territory?
Sir Peter Ricketts: I do not believe
so.
Q56 Mr Dunne: Do we have any historic
claim to the Arctic in view of the fact that our northernmost
islands are, I assume, eligible to claim?
Sir Peter Ricketts: I will mislead
you if I try to answer that. I will include that in my letter.[7]
Q57 Mr Dunne: It may be a policy issue.
There may be some historic antecedents that you could look up
for us.
Sir Peter Ricketts: I will cover
that in my written response, Mr Dunne.
Q58 Mr Davidson: Can I ask what assessment
has been made of the reputational risks to the United Kingdom
in view of the fact that so many of the overseas territories are
low-tax jurisdictions and established simply in order to offer
low tax basically? How does this impact on the City of London
and our reputation?
Sir Peter Ricketts: I do not think
we have carried out a survey on that point. It goes to the heart
of the overseas territories in the sense that these are self-governing
territories with their own governments, their own elected legislatures,
they make their own rules and regulations, so it is their choice
which economic path to follow. Many of them do not have all that
much by way of diversity of their economy. In many of them one
single sector of the economy dominates. The Report here makes
reference to the narrow tax base and the need for economic diversification
in many of them. They choose different ways of doing that diversification
and because we want to—
Q59 Mr Davidson: You have presumably
condoned over a long period the development of some of these islands
as financial tax havens on the basis that it avoided British subsidy
to them.
Sir Peter Ricketts: I do not think
we have condoned it.
4 Note by witness: Financial services training
for Governors-designate is considered with the individual concerned
in accordance with their requirements, taking into account their
experience and skills, and the issues relevant to their Post.
For example, the new Governor of Bermuda (sworn in on 12 December)
had pre-posting calls on a range of financial services-related
departments, agencies, associations and companies in the UK. He
also visited relevant experts in Washington and the Cayman Islands,
and had extensive consultations with his predecessor and with
the FCO. Back
5
Ev 16 Back
6
Ev 16-17 Back
7
Note by witness: The UK will not be submitting any claim
to an extension of the continental shelf in the Arctic. Back
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