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Lord Dubs: My Lords, will my noble friend confirm that the measures applying to the Crown Dependencies and Overseas Territories will also apply to the Channel Islands and the Isle of Man?

Lord McIntosh of Haringey: My Lords, I had understood them to be included in the phrase, "Crown Dependencies and Overseas Territories".

Lord Neill of Bladen: My Lords, will the Minister confirm that when the detailed legislative measures are tabled, consideration will be given to some of the devices used by criminals operating on the international scene? They do not conveniently have bank accounts in the names of terrorists. Corporations are widely used. There are two well known methods of concealment: first, nominee shareholdings, which make it impossible, under many legislative systems now in force, to know who owns a company; and, secondly, the peril of bearer shares. I know of a particular case involving criminality in one part of the Commonwealth, in which money was held in a company in the form of bearer shares, for which there is no register, making it totally impossible to establish the ownership of the company. It is therefore important to introduce some transparency into the very dark areas of finance of which these master crooks are already well aware. I hope that consideration will be given to that matter.

Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Neill, makes a very valid point. Reference is made in the Statement to the need, difficult to achieve, to identify and force financial institutions to identify the beneficial owners of shareholdings and funds. Unless we can do that, criminals and terrorists will continue to exercise ingenuity to conceal the true ownership of those funds. The funds that have been seized, particularly by the American Government, who have issued lists, are not held in accounts named, "Al'Qaeda Terrorist Account Number 1". Rather, they are held in the names of corporations and individuals. Therefore, effective intelligence and effective co-operation between the intelligence agencies is needed to ensure that those covers do not succeed. The controversial point is the obligation to reveal the beneficial ownership, and that affects bearer shares and a large number of devices that have for many years been supported by financial institutions in all countries of the world.

Lord Marlesford: My Lords, we all recognise that the sums involved in crime, particularly crime related to drugs, are enormous. However, it is apparent that

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the sums involved in terrorism are rather remarkably small. I have seen an estimate--I do not know how reliable it is--of the total operation and administration cash cost of the atrocities of 11th September of little more than 500,000 US dollars. Does the Minister recognise that from 1st January next year, when the euro is introduced--and the biggest euro note will be 500 euros--the total amount required for such an operation, assuming that that figure is anywhere near correct, can be transported in something little larger than a fairly big paperback book? It therefore seems to me that the more sensible approach, as was mentioned earlier, is to investigate very fully the finances of suspected terrorists, rather than merely spending enormous resources on examining finances in the hope of finding the terrorists who might be using them.

Lord McIntosh of Haringey: My Lords, I have seen an estimate that the total direct cost of the 11th September atrocities was more like 11,000 dollars because it represented 19 one-way airline tickets. It can be defined in a number of ways. It must cost a substantial amount of money to operate a network of terrorists in a large number of countries, with terrorists acting as sleepers in those countries, to train them in the first instance, to maintain communications with them and to supply them. But, of course, by definition it is an unknowable statistic. If we knew how much it cost, we would know where to find it and how to wipe it out. The noble Lord, Lord Marlesford, is quite right that the profit to be made from drug smuggling and drug production and distribution is much greater than that which results from certain kinds of terrorist attacks. However, that does not mean that we need not do as much to eliminate finance for terrorism as we try to do in respect of drugs.

Lord Eatwell: My Lords, I should like to ask some questions about the role of the Financial Action Task Force, the organisation established some years ago by the G7 to undertake measures against money laundering. First, what role will the Financial Action Task Force play in the development of anti-terrorism measures in this country? Secondly, are the Government seeking to encourage other members of the G7 to extend the powers, scope and resources of the Financial Action Task Force? Thirdly, what will be the relationship between the Financial Action Task Force and the new organisation to be established, to which the noble Lord referred?

Lord McIntosh of Haringey: My Lords, the Statement refers to new organisations to be established in this country, and that clearly is not the proper homologue of the Financial Action Task Force. I think the noble Lord, Lord Eatwell, is seeking some indication of the way in which the international conference, which will meet before the end of this month and to which the Statement refers, will operate and how it will relate to the task force. There is no answer to that question. It still has to be determined.

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I should make it clear that we act at all times in accordance with, and sometimes even in advance of, the actions of the United Nations. For example, we were one of the first countries to ratify the United Nations Convention on Suppression of the Financing of Terrorism, passed in December 1999, ratified by us in February 2000, along with only Botswana and Uzbekistan. It is clear that much more needs to be done in the international sphere to ensure that international co-operation is pursued. That is why, as the Statement makes clear, we are pressing the United Nations to establish a monitoring and enforcement unit to make sure that we have the kind of co-operation that the noble Lord, Lord Eatwell, rightly desires.


6.9 p.m.

The Minister of State, Department for Transport, Local Government and the Regions (Lord Falconer of Thoroton): With the leave of the House, I shall repeat a Statement made in another place by my honourable friend the Secretary of State for Transport, Local Government and the Regions:

    "With permission, Mr Speaker, I wish to make a Statement concerning Railtrack: to describe to the House the worsening financial crisis facing Railtrack which led the Government to petition for railway administration on 7th October; and to outline the further measures that we intend to take to put the interests of the travelling public first.

    "The House will be aware of the history of Railtrack. When the railway industry was restructured following the 1993 Railways Act, Railtrack was created.

    "It was in 1996 that Railtrack was privatised. Railtrack was the only publicly floated utility subsidised by the Government, this subsidy making up the majority, in fact some two-thirds, of its revenue.

    "After the Hatfield train crash, the whole network was urgently reviewed and fundamental safety issues addressed. This added significantly to costs, with Railtrack claiming it needed an additional £700 million a year to put the track into a proper condition.

    "On 2nd April 2001, Railtrack asked for help because of pressing financial difficulties. We brought forward £1.5 billion of investment from the period beyond 2006 to the five-year period beginning on 1st April 2001. The first instalment of £337 million was paid on 1st October 2001. However in May, June and July, the company's position apparently deteriorated.

    "Finally, on 25th July at a meeting in my office the chairman said that the position was far worse than it was thought in April. It was clear that unless extra financial assistance was provided, on 8th November when Railtrack was due to give its interim results, it would be unable to make the

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    critical statement that "it was a going concern". The effect of this would have been disastrous. Immediately I ordered intensive discussions with Railtrack.

    "In August, Railtrack's advisers came back to the department and said that there were only three options: restructuring; renationalisation; or, as they described it, receivership. So it was Railtrack's advisers who first raised the possibility of insolvency if no additional government funding was available.

    "I asked my officials to investigate the restructuring option, which involved the provision of yet more funding to Railtrack. Railtrack asked for government funding to cover all its costs, plus a profit, plus a four-year suspension of the regulatory system. That was Railtrack's proposal.

    "Given the company's demands, we also began to prepare for the possibility that we might feel unable to provide additional funding and that, as a consequence, Railtrack would prove to be insolvent.

    "To protect the interests of passengers it was clearly right to explore the need for railway administration on a contingency basis. As a result, preliminary contact was made with Ernst & Young on 23rd August.

    "There were further negotiations and various modified proposals. But it was becoming obvious that the company could not continue unless we offered to fund whatever losses it might have for a period of several years. I took the view that I simply could not responsibly enter into such a guarantee on behalf of the British taxpayer.

    "We carried on discussions until 3rd October, but no way out of the dilemma could be found. Either we gave the guarantee on money or the company became insolvent.

    "On Friday 5th October, I reviewed all the relevant papers and considered all the options, including Railtrack's proposed rescue package and the additional funding that would be required. Railtrack's proposals were cast in such a way that it was hard to be sure the precise sum it was seeking, but it was effectively an open-ended funding request on the Government.

    "I decided that I could not give Railtrack a blank cheque. I informed John Robinson, the chairman of Railtrack, on Friday afternoon of this decision and of my intention to petition the High Court for a railway administration order if the company was insolvent. This order was granted on 7th October.

    "Railtrack was taken into administration because it was, or was likely to become, unable to pay its debts. Our petition to the High Court showed that there would be a deficit of £700 million by 8th December, rising to £1.7 billion by the end of March next year.

    "In granting the order, Mr Justice Lightman said:

    "This is clearly a case where the making of a railway administration order is not only appropriate, but absolutely essential, and I shall therefore make that order immediately".

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    "Much has been made in the press of the position of shareholders. At the time of the April agreement the Government felt that we should make clear that the role of government should be to support the railway network, but that we should not be seen as acting as guarantor of individual companies or their shareholders. We therefore agreed with Railtrack a statement of principles. The first point in the statement reads as follows:

    "The Government stands behind the rail system but not individual rail companies and their shareholders who need to be fully aware of the projected liabilities of the companies in which they invest and the performance risks they face".

    "To ensure that this had a wide circulation in the City it was sent out through the Stock Exchange News Service.

    "The directors of Railtrack have said that they want £3.60 a share. On our calculations that would require the transfer of up to £1.5 billion of new money from the taxpayer to Railtrack shareholders. We believe that it would be wrong to make new money available. We will not do it.

    "In the light of the administration of Railtrack, we believe that we should now consider reshaping the structure of the industry in a way which recognises that the needs of the travelling public must come first. We shall be proposing to the administrator that a private company limited by guarantee be established to take over Railtrack's responsibilities. Any operating surplus it makes would be reinvested in the railway network. Such a company would have the needs of the travelling public and other users as its priority. With no shareholders we would remove the conflict between the need to increase shareholder value and the interests of rail passengers.

    "The company we propose would have responsibility for operations, maintenance and renewals. It would have a small professional board of executive and non-executive directors. Performance targets would be set linked to levels of service, safety and value for money. It would have a board working on commercial lines but focused solely on delivering a safe, well-maintained rail network that is fit for the 21st century.

    "The company would be able to promote collaboration and co-operation around the wheel and track interface, the absence of which has been one of Railtrack's weaknesses.

    "A private company limited by guarantee would need far less intensive regulation. We therefore intend to streamline the existing structure while still recognising that there will be a continued need for some form of independent economic regulation.

    "We shall discuss our proposals with the industry's key players, but we are clear that it is important for the new structure to provide the following: strong strategic leadership; a cut in the burden of day-to-day interference; an end to the self-defeating system of penalties and compensation; clearer accountability; and an end to perverse incentives.

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    "The new company we will be proposing would be able to raise funds in the market. Private sector funding would operate in partnership with government to deliver the 10-year plan objectives for rail. Under our proposals, we intend to offer all existing lenders to Railtrack plc the opportunity to transfer over to the new company with no loss of principal or interest. Any debt transferred to the new company will be financially sound and have, at the time of transfer, good long-term and short-term credit ratings.

    "Mr Speaker, there are many talented and motivated people working in Railtrack. They have worked with dedication, in particular over the past seven days, and I want to thank them for that. I know that they and the rest of the industry want to see an improved railway system. I believe that with the demise of Railtrack that is what they will get. The Government are committing some £30 billion to the network over the next 10 years.

    "The administration of Railtrack provides us with a golden opportunity to create a railway system which is united and not fragmented; a railway industry with a shared strategic vision; a railway industry which can respond to the needs of our time; and a railway network provider that answers to the millions of passengers and not private shareholders. Our decisive action makes all this possible and I commend it to the House".

My Lords, that concludes the Statement.

6.20 p.m.

Viscount Astor: My Lords, I thank the noble and learned Lord for repeating the Statement. Before I start to attack the Government, perhaps I may express my sorrow for the noble and learned Lord who has just managed to leave the mess of the Dome only to move to the mess of Railtrack. Bad news appears to follow the noble and learned Lord.

This mess has been brought about by government bungling and mismanagement. The future of the whole rail industry is in tatters, and there is now little hope of the £34 billion of private sector investment, alongside the Government's £30 billion, required over the next 10 years going ahead. The Secretary of State has been caught out by the disgraceful behaviour of his own spin doctor. Ms Moore told a Sunday Times journalist who asked about Railtrack and possible administration:

    "If you run that you will look like an idiot".

In fact, she used words worse than that. Next day, the Secretary of State made that announcement. When will Stephen Byers follow the advice of his own senior Back-Benchers in another place and get rid of Ms Moore? I remind noble Lords of her words within an hour of an aircraft flying into the World Trade Center:

    "It's a very good day to bury bad news stories".

This is another bad news story. The Financial Services Authority is to investigate claims that the Secretary of State rigged the market for shares before forcing the company into administration. The

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Railtrack group is considering suing the rail regulator under the Railways Act 1993 and bondholders are considering legal action. Class action suits brought by pension funds and other shareholders loom. Finally and importantly, the employees of Railtrack, 90 per cent of whom are shareholders, face losses and possible redundancies.

The Secretary of State forced Railtrack into administration without giving it the opportunity to appeal to the regulator. Can the Minister tell the House what meetings took place with Railtrack before the Secretary of State's announcement? At what date did the Secretary of State take the decision to formulate the plan to put Railtrack into administration? Is it not true that Railtrack would have been solvent if the funding promised by government had been committed by them? This will have an effect on all the Government's other PFI initiatives. It is interesting that the rating agencies have reduced Railtrack bonds to junk status despite government promises. They do not believe the Government either.

Perhaps I may ask the Minister what the Government propose to do about the Channel Tunnel Rail Link, ownership of which is essential if the Railtrack group, as opposed to Railtrack itself, is to survive. The Secretary of State had accused Railtrack of not controlling its costs, but is it not true that those increased costs have been imposed by the regulator and the Government themselves so that Railtrack has been squeezed at both ends?

What guarantees can the Minister give that there will be sufficient public funding for the rail network in the future? The Minister said that a private company limited by guarantee would lead to less intensive regulation. Can the noble and learned Lord explain why? It will still raise funds in the market. Extraordinarily, the Secretary of State believed that this would be a good news story--a political coup--which would be welcomed as nationalising Railtrack and bringing it back into public ownership. Clearly, it is not. The Secretary of State ignored the advice of the Treasury and the Chancellor and rushed out an announcement.

But the most important group of people--the poor long-suffering passengers--have been left entirely out of the equation. The train operators do their best but in future. when passengers suffer delay, fares go up and track upgrades are put off, the Government will not need to blame; the blame will lie opposite with the Government.

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