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The Financial Services Authority is urgently scouring Britain's banking system for evidence of Iranian terrorism funding following an alert from the US authorities. The move comes after officials at the FSA were shown American intelligence indicating that suspicious Iranian funds were being funnelled through the City of London and other financial centres.
Apart from that report of 2006, however, there is no indication that the agencies to which I referred earlier have really done anything. I think I am entitled to ask the Minister whatif the Observer article was correctthe FSA found.
what steps are planned to be taken through the Financial Action Task Force to ensure that certain Iranian banks cannot abuse the international banking system to support proliferation activities and terrorism.
The Financial Action Task Force... has expressed concern that the Islamic Republic of Irans lack of a comprehensive regime for anti-money laundering and combating the financing of terrorism... represents a significant vulnerability within the international financial system.[ Official Report, 26 June 2008; Vol. 478, c. 466W.]
what assessment he has made of the implications for UK financial institutions of the decision by the United States administration to ban Iran from undertaking U-turn financial transactions
involving US financial institutions.
The U-turn licence enabled Iranian entities to have indirect access to the US financial systemincluding through UK financial institutions. Revocation of that licence will mean financial institutions worldwide can no longer route payments for the benefit of Iran through the US.
We are not aware that UK financial institutions made any significant use of the U-turn licence.[ Official Report, 24 November 2008; Vol. 483, c. 951W.]
Perhaps the Minister will confirm this later, but I should have thought that both morally and legally, under UK law and because of our international obligations, we had a duty to adhere to the best practices of international banking. Even if at the time of these practices by Lloyds TSB there was no Order in Council or statutory instrument making the activity specifically illegal in the United Kingdom, surely through our lack of intervention we were acquiescing in a serious breach of our international obligations.
I have referred to the deferred prosecution agreement, which is a legal document. The agreement reached between the Department of the United States Attorney General and Lloyds TSB admits that from 2001 until 2004 Lloyds
falsified the business records of banks in Manhattan by engaging in a systematic process of altering wire transfer information
to hide the identity of its clients.
Lloyds had not owned up to that activity, although it had ceased to engage in it in 2004. It was rumbled only because in 2006 the diligent US authorities had embarked on an investigation of the relationship between the Government of Iran and two New York entities. It was during that investigation that they stumbled across evidence that Lloyds
was engaged in the illegal transfer of funds into Manhattan on behalf of sanctioned Iranian banks.
The authorities discovered that Iranian business men were looking for high-quality American electronics. They had to act stealthily. They sought special parts coveted by Iran and especially by those seeking to make roadside bombs to kill United States troops in Iraq. That seems to have been the position. When the US Attorney General was asked whether these moneys were being directed towards terrorism, he said, Actually thats why we need the full disclosure. We want to know where this came from and where it was going to. If the United States has not, as of this afternoon, fully discovered and had declared to it the totality of this criminal act in the United States, what confidence can I have, as a Member of the House of Commons, that our FSA, our security and intelligence services, the Bank of England and the Treasury have the slightest notion of what has gone on? I have no confidence about that. All the evidence suggests that there has been wilful ignorance and a washing of hands on the part of these agencies.
These were not random acts, nor were they a mistake; they were not undertaken by rogue individuals. It is indicative that Lloyds TSB knowingly set out to break United States law and condones the action of a large number of its employees acting on its behalf. That could have happened only with the permission of people at the highest level. One internal Lloyds TSB document said that transactions from the London branches of Iranian banks should be processed in the normal
way, which meant removing information that would tie them to Iranthis is all according to the agreement that Lloyds has now entered into with the US authorities.
Lloyds eventually dedicated specific employees to scrubbing the Iranian transactionsI think there was even an instruction book on how the employees dealt with that. One of the main questions on which the United States authorities are focusing is whether the money went to terrorism. I, too, want to know the answer to that, and I am entitled to know it, given that, apparently, I and others in this House have sent our armed forces into conflict situations where ordnance is coming from Iran.
In summary, I ask the Minister to address the following points. Will he tell us precisely to what extent this has been examined by the Treasury, the Bank of England, the FSA, SOCA and our security and intelligence services? I guess that he will not tell us about the last of those, and that goes to the heart of the problems with this placethere is no oversight of the security and intelligence services. The ridiculous Intelligence and Security Committee is not a parliamentary Committee; we do not even know, and we not allowed to know, whether it is even trespassing on this issue. That is a further indication of why we need a proper parliamentary Committee. Perhaps we could also create a precedentperhaps the Minister will indicate whether the Intelligence and Security Committee has looked at this. If it has not, will he invite it to do so?
I have focused largely on Iran, but some $20 million came from Sudan, through this process, to the US. As has been indicated, this practice went on until 2007I do not know whether it is a coincidence, but that was when a statutory instrument was passed here. That was probably the cut-off point. It rather indicates that there was full knowledge of and consent about this grave matter by people at a certain level in Lloydsthey were watching all the time. I want the Minister to tell me specifically whether it is lawful for a UK bank to falsify documents in the UKlet us forget about the US on that particular point.
Obviously, this was a systematic process; people were prepared to do this and it was sanctioned at the highest level in Lloyds TSB. One of the things that we have discovered over the past few weeks is that people do not do things for nowtclearly, bonuses would have been paid to these people. I would like the Minister to sayif he would not mindwhether or not bonuses were paid to the staff and managers involved.
Over the past three or four months, the sums of money that have been discussed in this place are beyond beliefnot billions, but trillionsso a mere $300 million may appear small change. But to most of us, it is a very serious matter. That is the sum paid to the US authorities by Lloyds TSB as an interim payment. It is no exaggeration to say that that is our money, which is not to say that the US authorities were wrong to demand it. Therefore, we have a right to know what happened. There was criminal wrongdoing, and the response by the UK has been pathetic. I am disappointed with the Prime Ministernot because he wrote the letter, but because he should have told the Treasury that it had to look into what happened. I will not let him get away with washing his hands of this issue; it is a very serious matter. It makes us a laughing stock around the world, it will prejudice the reputation of reputable financial institutions in this country, and I look forward to the Ministers response.
Mr. Charles Walker (Broxbourne) (Con): I congratulate the hon. Member for Thurrock (Andrew Mackinlay) on securing this debate and bringing this important matter to the attention of the House. I intend to make only a brief contribution.
We live in a morally ambivalent age, and nothing will change that. But what on earth was a British bank doing, doing business with Iran? It was a shameful performance by Lloyds TSB. As the hon. Gentleman rightly points out, the $300 million fine is not coming from a magical printing press. It is shareholders money and, as taxpayers, we are the shareholders, so it is our money. We need to know exactly what was going on.
All this happened a few years ago. Since then, we have had a bail-out of the banking sector, in which Lloyds TSB received the full endorsement of Government to take over HBOS, with this appalling act in the US hanging over its head. We can ask Lloyds TSB and its senior board membersthey are still in placehow much money is enough. How much money do they need to make? Why did they do business with Iran? After all, we know full well that in Iran homosexual men are routinely murdered and hanged from cranes. Lloyds TSB makes great play of its corporate social responsibility. It claims to value its people. Well, in this matter, its corporate social responsibility does not amount to a hill of beans.
As the hon. Gentleman so rightly pointed out, we do not know whether the transactions conducted via Lloyds TSB have resulted in the loss of life of young American men and women who are meant to be our allies and whom we are meant to support. Lloyds TSB still has a huge amount of explaining to do on this issue and I hope that the Minister can address those issues when he winds up.
I do not expect the banking sector to be a paragon of virtue. Indeed, we have seen over the past year that it is very far from that. It is one thing to make bets on derivatives and overseas mortgage markets; it is quite another to do business with the regime in Iran. Lloyds TSB not only did business with that regime, but actively falsified the evidence and covered it up. It cannot claim that an innocent mistake was made, or a rogue manager was responsible and the bank had no idea what was happening. It was sanctioned at the very highest levels of one of the UKs leading plcs. And at that time it was one of our leading plcsit was probably one of the top large companies quoted on the stock exchange. Again, I agree with the hon. Member for Thurrock that that is of critical importance.
The hon. Gentleman also highlighted the very important fact that Lloyds did business with Sudan as well as with Iran. Month in and month out, hon. Members and Ministers come to this place to express concern and disgust about what is going on in terms of the persecution of minorities in Sudan, yet one of this countrys leading banks was doing business there. I imagine that Lloyds bank thought that it was a sweetener to secure further business. I do not know for sure, but I have a strong suspicion that if the people involved had not been caught they would have continued to grow their business in Iran.
I accept that there are issues to do with dual jurisdiction, and that we live in a global marketplace where there will always be conflicts and problems such as have been set
out today. However, I shall conclude my brief comments by repeating my question of a few moments agothat is, how much money is enough?
I always thought that the people who run our major industries, and most politicians, were fundamentally decent people tasked with making hugely important decisions. A lot of people do not like the decisions that our leading business men and politicians take, but they put themselves in such leadership positions, and that means that they have to take difficult decisions and stand by them. The British people are fair minded: we may not like the decisions that are taken, but we recognise the right of the people involved to make those decisions and the reasons why they take them.
However, I doubt that anyone in this country can fathom how probably decent people thought that it was legitimate to do business in Iran. On the scale of things, and compared to Lloyds global portfolio, the amounts of money involved are quite small. It did business in Iran because it wanted to earn a little extra. Again, how much money is enough? How much profit did it need to make? Frankly, it is not surprising that our banking sector is in its current mess if such morally ambivalent people are in leadership positions.
The Financial Secretary to the Treasury (Mr. Stephen Timms): I am grateful to my hon. Friend the Member for Thurrock (Andrew Mackinlay) for drawing the Houses attention to this very important issue. He referred to the letter dated 29 January that he received from the Prime Minister, but let me say a word about the settlement that has been reached. My hon. Friend described it as an interim settlement, and I think that he took that to mean that there could be a further fine.
My understanding is that that is not the case: the matter has been settled and Lloyds has signed a deferred prosecution agreement, as my hon. Friend the Member for Thurrock rightly said. That means that the matter is settled as long as Lloyds sticks to the agreement for the next two years.
Andrew Mackinlay: It is early in his response, but the Minister is uttering the spin given to him by Lloyds TSB and the Treasury. He says that the matter has been settled, but it will be final only if there is full disclosure. The settlement is contingent on Lloyds TSB coming up with the fine and full disclosure, but that process has not been concluded yet. The US authorities will draw a line under the matter only when they are satisfied that it has been concluded. I do not feel comfortable that some people involved in criminal activity might get off scot-free, but that has not been agreed yet. The deferred prosecution is precisely thatdeferred.
Mr. Timms: Indeed, and as long as Lloyds sticks to the agreement for two years there will no further fine or action. The disclosure process to which my hon. Friend referred is not about to start, and neither did it commence with the agreement on 9 January: as I shall explain in a moment, it happened well before that.
I want first to explain a little more of the facts of the US case; secondly, to explain how the case fits into UK law and international best practice at that timeI hope to answer some of my hon. Friends questionsand thirdly, to explain more generally the actions that we have taken to improve the transparency of inter-bank payments and to deal with the financial threats posed by Iran.
The US Department of Justices statement of 9 January 2009 set out that Lloyds TSB committed a violation of the US International Emergency Economic Powers Actlegislation under which the US Executive are able to prohibit transactions in response to an extraordinary threat arising outside the United States. Of course, the US has had sanctions in place against Iran since 1979, so now for 30 years. They have been progressively tightened since then due to growing concerns about the Iranian regimes sponsorship of terrorism, as my hon. Friend said, and, more recently, its nuclear programme. However, until November last year, US financial sanctions against Iran included a special licensing arrangement, to which my hon. Friend referred, known as the U-turn exception, which allowed some US dollar transactions that involved Iran to be processed through US dollar clearing in New York.
Those transactions were allowed if, first, they were sent between two non-US banks; and secondly, if the transactions did not require the debiting or crediting of an account of an Iranian individual or entity managed on the books of a US bank. The way that my hon. Friend referred to that slightly gave the impression that a bank had to apply for such a licence. My understanding is that that was a general licence that could be exercised if those two conditions were met. In other words, the exception applied if the Iranian link to the transaction did not touch the US or a US bank directly. It was designed to prevent US sanctions completely shutting off Iranian access to the dollar, given that oil transactions are globally denominated in US dollars. There was quite a wide interest in Iranian oil sales having such access.
Andrew Mackinlay: The Minister might recall that I raised the issue in the context of a reply to the right hon. Member for Richmond, Yorks (Mr. Hague), where the then Minister, our hon. Friend the Member for Dudley, South (Ian Pearson) indicated in his reply that there was not much activity. I raised it in the House to demonstrate that, in my view, there has not been due diligence by our authorities, because demonstrably a lot of activity was going on, but the reply, diligently given by a decent Minister but fed to him by the machine behind, indicated that there was nothing much in this. I do not want to labour the point by going back over my notes, but the Official Report will show that the tenor of the reply was that there was no problem. Well, there was a problem, and part of my submission to the House is that there has not been due diligence by the other agencies, not even to scratch the surface of this matter.
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