Examination of Witnesses (Questions 60-79)
FOREIGN AND
COMMONWEALTH OFFICE
& DEPARTMENT FOR
INTERNATIONAL DEVELOPMENT
10 DECEMBER 2007
Q60 Mr Davidson: Have you stopped
it then?
Sir Peter Ricketts: No. What we
have said is—
Q61 Mr Davidson: Have you taken action
to stop it at any stage?
Sir Peter Ricketts: No, and I
think it would have been—
Q62 Mr Davidson: So if you have not
stopped it, you have obviously been happy to see it develop.
Sir Peter Ricketts: We have given
these territories autonomy to develop their economies.
Q63 Mr Davidson: That is right. OK.
I have had my answer to that. Thank you very much. Can I just
ask about this question of weak regulation and the impact upon
the United Kingdom's reputation and financial liability if the
regulators were not adequate in Anguilla, Montserrat, Turks and
Caicos, and we were then sued in some way? There is a wonderful
phrase in the briefing that we have been given referring to these
three jurisdictions which says that they: "have been increasingly
left behind by rising international standards". That basically
means they are not up to par. You are condoning that, I presume,
by not taking action. Why have you done so?
Sir Peter Ricketts: I do not accept
that we are condoning it. We are—
Q64 Mr Davidson: Sorry. Can I clarify
that? What action have you taken to resolve it then?
Sir Peter Ricketts: As I have
said in answer to previous questions, we are working with the
small territories, with advisers based in the region—
Q65 Mr Davidson: This situation exists
at the moment. The standards of supervision in these territories
are presently inadequate and you are allowing that to continue,
leaving the United Kingdom at risk, not only of reputational damage
but also of financial liabilities. How long has this been going
on?
Sir Peter Ricketts: The risks
have been growing as the development of all the territories as
financial centres has been growing. That is why we, as this Report
indicates, have been working increasingly hard—
Q66 Mr Davidson: You are a bit complacent
about all this really, are you not?
Sir Peter Ricketts: No, sir.
Q67 Mr Davidson: What are you doing
urgently to deal with the inadequate financial supervision in
Anguilla, Montserrat, and the Turks and Caicos?
Sir Peter Ricketts: As I have
described, we are seeking to develop their own capacity to regulate
themselves.
Q68 Mr Davidson: "Seeking to
develop" does not give me any smack of urgency, does it?
This is a classic Foreign Office phrase: "Some time in the
future we might get round to it if we have nothing better to do."
Dr Shafik: In the case of Montserrat,
they did have problems in the late Eighties and early Nineties
and the FCO has given the Governor special powers to restrict
the development of the financial sector because they judged that
their capacity was inadequate. So they have actually frozen the
development of the financial sector.
Q69 Mr Davidson: That is good. So
it has not been felt sufficiently inadequate in the other authorities
to take the same action, so you are happy to condone it there.
You must be happy with it because otherwise you would have taken
the same action as you have in Montserrat.
Sir Peter Ricketts: I am never
happy where there are contingent liabilities of the UK that are
not being fully managed.
Q70 Mr Davidson: Why have you not
then taken the same action as you have in Montserrat?
Sir Peter Ricketts: Because with
all the overseas territories there is a balance to be struck between
oversight from the UK and giving these territories local autonomy
to run their own affairs. If we kept stopping them and intervening
and preventing them from taking action that they ought to to diversify
their economies, in a way, that contingent liability to the UK
rises in other ways. So it is a balance.
Q71 Mr Davidson: That is true. We
might require to give them subsidy, but surely the financial responsibilities
that you might be shouldering on our behalf would far outweigh
any conceivable subsidy that we might have to provide to these
locations given the enormous sums of money that are potentially
at stake. I presume your pension is not affected by any of them
but many of the rest of ours might very well be. Does that not
seem a trifle complacent to you?
Sir Peter Ricketts: No, I do not
think we are complacent about this. I think there is a question
of scale because the biggest financial risks are occurring in
the territories which are more able to fund the necessary regulation.
In the smaller territories to which you refer, quite rightly,
you point to the risks. We are very conscious of this and we are
doing things about them. They are smaller financial centres and
therefore the contingent liability of this country is lower, but
it is not negligible and we do take it very seriously.
Q72 Mr Davidson: How do you deal
with this unwillingness of the overseas financial sectors to place
what they describe as "undue burdens of reporting" upon
their clients which they feel might drive them away, while at
the same time we have to have adequate standards? There is always
somebody providing a lower quality service somewhere in the world
but surely we ought not to accept their existence as an argument
for second class standards. You have accepted this Report, have
you not? This point is made very well, I think, in paragraph 1.33.
Sir Peter Ricketts: Yes, we have
accepted the Report. We think this Report is extremely useful
and it reinforces our existing view that we have to concentrate
on this very hard. We do not want any of these territories accepting
lower standards than the best in the region and the best in the
world.
Q73 Mr Davidson: They do at the moment.
Sir Peter Ricketts: They can always
be improved, and they must be.
Q74 Mr Davidson: Of course they can
always be improved. That is a slightly different point though.
Some of them do have standards well below—not just below
but well below—the best standards elsewhere in the world,
and you are condoning that.
Sir Peter Ricketts: I accept the
judgement in this Report and I accept the responsibility for us
to be very active in dealing with it.
Q75 Mr Davidson: I do not get the
impression that you are very active, you see. That is the difficulty.
I get the impression that you would much rather it all went away.
Sir Peter Ricketts: I am sorry
that I fail to convince you on that point but it is something—
Q76 Mr Davidson: I think I would
be convinced by evidence and you have not actually produced any
evidence that there is any degree of urgency in your actions in
this matter.
Sir Peter Ricketts: I do not believe
that is the case. I believe that there has been a lot of activity
undertaken to improve the regulatory position of these smaller
territories.
Q77 Mr Davidson: Can I come to the
question of offshore money-laundering? I see that in paragraph
1.35 and in chart 9 there are very small numbers of successful
local prosecutions despite quite a number of suspicious activity
reports. Is that because they are just being hyper-cautious in
putting forward the suspicious activity reports or is it because
they are not particularly active or there is a lack of capacity
to prosecute?
Sir Peter Ricketts: I think there
is certainly some of the latter. I think there is a lack of capacity
to follow up all these cases. I saw the same figures and I was
concerned by them.
Q78 Mr Davidson: What have you done
about it since you saw the figures then?
Sir Peter Ricketts: As I said
earlier on, the first thing is I have written to other Departments
in Whitehall who are experts in this area of financial regulation
and international crime, the Serious Organised Crime Agency, for
example, urging them to redouble their efforts to help us improve
capacity.
Q79 Mr Davidson: That will really
terrify them, will it not, the knowledge that there is a letter
circulating in Whitehall? It just seems that you are not making
much of an effort. Any locals who are involved in money laundering
will presumably be known by other people in the islands, those
who might have responsibility for taking action, but you do not
seem to recognise that that is an enormous inhibitor. Have you
considered putting in external authorities, investigatory or prosecution
authorities, from the United Kingdom because we bear the ultimate
risk?
Sir Peter Ricketts: Yes, and I
think that is the sort of issue that we will now be talking to
others in London about like the Serious Organised Crime Agency.
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