Examination of Witnesses (Questions 54
WEDNESDAY 11 MARCH 2009
Mr James Robertson, Mr Stephen Webb, Ms Gaynor Ithell
and Mr Christopher Yvon
Chairman: Good morning. We have a plethora
of Whitehall talent before us this morning from three departments.
Welcome. We are most grateful to you for coming and giving evidence.
As you know, we are carrying out an inquiry on money laundering.
I am going to ask you to introduce yourselves to begin with, but
before that I think Lord Marlesford has some specific questions
he would like to ask you in terms of your particular responsibilities.
Q54 Lord Marlesford:
Thank you, Lord Chairman. I just think it would be helpful to
us if each of you, in introducing yourselves, said briefly what
you are there to do, how long your units have been in operation,
the costs if you have them and what the total staff of those units
is and, in the case of HM Treasury, the linkage with HMRC in particular.
Mr Robertson: I am James Robertson. I am the
Head of the Financial Crime Team in the Treasury which is comprised
of ten staff. I could not tell you the overall costs of that but
it could be worked out and I can certainly submit that afterwards
if it was required, but it is essentially the cost of basic staff
salaries and associated expenses with that. The role of the team
is across financial crime as a whole so that incorporates not
only money laundering and terrorist financing but also issues
relating to fraud, to corruption and to proliferation financing.
In relation to money laundering and terrorist financing, the Treasury
has, particularly for money laundering, responsibility for the
oversight of the regime as a whole in terms of the money laundering
regulations, for instance in terms of coordinating the various
supervisory and regulatory bodies. Obviously there is a link to
the Home Office and for most of the major groups and committees
we will co-chair those with the Home Office, for instance the
Money Laundering Advisory Committee. We are responsible in particular
for the financial regulations and standards whether that is domestic
or international; for the monitoring and oversight, ensuring consistent
activity amongst the regulators, the supervisors and so on; similarly
monitoring within the EU and internationally by the Financial
Action Task Force and I am head of the UK delegation to the FATF.
We are also responsible for corrective action on capacity building,
to identify and fill in any gaps in the regime, and also then
for the financial systems and infrastructure, so safeguarding
the integrity of the payment systems and financial infrastructure
more broadly. In terms with links with HMRC, HMRC is a regulator
and it has certain responsibilities under the money laundering
regulations and so our relationship with them is pretty much as
any other regulator in that extent. The fact that HMRC report
to Treasury ministers does not make a material difference necessarily
because they regulate their sector which, in relation to money
laundering, is primarily money services businesses whereas the
Financial Services Authority, for instance, regulates the bulk
of the financial sector.
Ms Ithell: I am Gaynor Ithell. I lead the Terrorist
Financing and Proscription Team. We have four people covering
both areas. The Home Office have the overall lead for the UK counter
terrorism strategy CONTEST and as such has a coordinating role
bringing together departments to deliver part of the terrorist
finance strategy. We work very closely with the Treasury with
their lead with the financial sector. That is basically what we
do. In terms of cost, I am afraid I do not have the costs of the
team but we could always pass the details to you later on.
Mr Webb: I am Stephen Webb. I am the Acting
Director of Policing Policy and Operations in the Home Office.
It is a very disparate directorate and I will just focus on the
bits that are of interest to you, one of the units within the
directorate is the Organised and Financial Crime unit and within
that there is a team that is responsible for the process of crime
acts, so the criminal law, money laundering and asset recovery.
That is a team of five so I guess that would be around £300,000
to £350,000. The Organised and Financial Crime unit is also
the sponsor unit within the Home Office for the Serious Organised
Crime Agency. Again there would be a couple of people working
on that. The other area I am responsible for is the UK Central
Authority within the judicial cooperation unit which will process
mutual legal assistance requests including those in the financial
area. The total size of the FIU is now 35 staff so the budget
would be somewhat under £2 million. As I say, that is really
all the requests for evidence of which the financial will only
be a fairly small proportion. As James said, we work with the
overall money laundering policy in the Treasury, the criminal
law and the suspicious activity report regulation; the criminal
sanctions for that resting in the Home Office it is very much
a joint effort and we jointly share groups like MLAC. I hope that
Mr Yvon: My name is Christopher Yvon. I am the
Deputy Head of the International Organisations Department within
the Foreign and Commonwealth Office. My department is 33 people
strong. The direct relevance to this particular Committee's interest
I think is where the department carries out sanctions work which
is essentially maintaining sanctions regimes including one that
is about asset freezing against terrorists. That is probably the
direct interest for this Committee and there are five people in
that team of people who work on sanctions and the unit has been
in existence since 1998. We do UN sanctions as well as EU sanctions
and the broader department does multilateral institutions.
Thank you. There is a bit of scope for supplementary evidence,
particularly on costs. Let me now begin with the first question.
In June of last year the UK, Brazil and the Netherlands proposed
a review of the standards of the Financial Action Task Force and
of the mutual evaluation process. To what extent has the global
financial crisis made the need for such a review more pressing?
What is the current status of this initiative?
Mr Robertson: I think the financial crisis has
certainly added a degree of impetus. The G20 in its report in
November set out certain action points; some of those were directed
towards the FATF in particular. Indeed we have recently had an
FATF plenary meeting at the end of February in Paris and the financial
crisis was one of the issues that was strongly debated in this
context. Where that feeds into the proposal that the three presidencies
made to review the standards, the idea behind that was to look
at the FATF standards and review them with a view to being in
a position to improve those standards where relevant before the
commencement of a fourth round of mutual evaluations (the mechanism
by which the FATF monitors compliance is to undertake mutual evaluations
of countries). At the meeting in February in Paris ten initial
issues were identified for further consideration. I would say
that list of issues almost completely matched up with those that
were highlighted in the initial Three Presidencies Paper. I would
say that some of those issues in particularfor instance
on international cooperationhave been given extra impetus
by the financial crisis. Separately and in addition to that the
Dutch, who are about to take over the presidency of the FATF from
July, have proposed a specific piece of work to look at how the
financial crisis has had an impact in relation to money laundering
and terrorist financing: what we should take from that, what it
might mean with the nature of the global financial system and
what that should mean for money laundering and terrorist financing
Q56 Lord Hannay of Chiswick:
If I could just raise one specific issue arising from your reply,
there is one area which has seen very rapid growth in recent times
of criminal activity and presumably of money laundering and that
is the proceeds of piracy off the Horn of Africa, in particular
off Somalia. Judging from press reporting very large sums of money
have been transferred from, among others, insurers in the City
and elsewhere to criminals in Somalia in order to obtain the release
of crews and of ships. The FATF covers piracy as I understand
it; it is part of its original remit. To what extent is work going
on to ensure that these very large sums of money are traced and
indeed pursued`? Is there any consideration being given to forbidding
the payment of such sums for the purposes of rewarding criminal
Mr Robertson: I would say in broad terms that
the FATF is a standard setting body so its role is to set the
standards in relation to money laundering and to terrorist financing.
In terms of the implementation of those and pursuit of individual
cases, that would be for individual jurisdictions to take forward.
The FATF itself would not engage in that sort of activity. What
it would do, for instance, would be to consider whether there
were particular ways in which pirates could launder their money
or particular things that jurisdictions should look for in trying
to spot money laundering that was related to piracy. At the present
time there is nothing that I am aware of that is underway within
the FATF on that particular issue. They are not in a position
to drive forward any enforcement action.
Q57 Lord Hannay of Chiswick:
I understand that, but, should there not be some consideration
given to the specifics of this activity which seems to have grown
pretty large so that all the jurisdictions are given guidelines
on how best to deal with it? Is the normative activity of the
FATF not relative here?
Mr Robertson: I think in relation to issues
like an examination of the methods used and so on, that would
certainly be an appropriate thing for FATF to do and if this is
a growth sector, if you like, in relation to criminal proceeds
and money laundering then it would be entirely appropriate for
FATF to undertake that sort of work.
Mr Webb: There is quite a difference in treatment
across jurisdictions internationally about the payment of ransoms.
In some areas it is illegal and in other countries it is not.
It is not currently an offence in the UK. Clearly once the money
has got to the pirate that is extortion and the proceeds of crime
and we would expect to see it traced if we can. There has been
a lot of work. As you say, there has been an upsurge in the problem
although that seems to have damped down since the heavy naval
deployments in the area, but nonetheless it is clearly a problem.
It is a very complex area, particularly as so many of the transactions
happen outside the jurisdiction. I cannot say an awful lot more
yet, but there is work going on to look at it.
Q58 Lord Mawson:
In an area of work that I work in, which is not this, I watched
government spend £450 million on processes and systems that
have not actually built anything, and yet small enterprise projects
have built many things at a tenth of the cost. I am just wondering
what success looks like from these processes and systemshow
effective they areand whether there is any entrepreneurial
input into the way you are approaching some of this because it
seems to me that people who are involved in money laundering are
thinking not in a processing system way but a very different sort
of way and I wonder how much of that logic is involved in your
thinking, particularly if you are going to review some of these
Mr Webb: That would be the wider issue of money
laundering and the processes and systems that the financial sector
has put in. The Serious Organised Crime Agency has put a lot of
work into understanding the methodology with money laundering
and obviously using its various covert sources to understand what
motivates them and how the techniques change in response to the
law enforcement activity we put in. As you said, it is a rapidly
changing area and of course we have to keep track of that. I think
there is a lot of that kind of work going on. On the wider issue
of what success looks like, I think the easiest thing to measure
is obviously the proceeds of crime that come in as a result partly
of the suspicious activity reports being made and financial investigations.
We are hoping this year to achieve a sum basically six times more
than we were achieving seven years ago. The pipelines are quite
long and there is even better stuff in the pipeline; we would
expect performance to continue to increase over future years.
I think dramatically better use has been made of the intelligence
provided by the regulator sector. The Serious Organised Crime
Agency does an annual report on the workings of the SARs system
that looks at it in some detail and gives case studied of specifically
how reports have made a difference.
Q59 Lord Marlesford:
Under the EU money laundering directives does HMG require financial
institutions in the UK to report to HMG any payments of ransoms
made. If not, why not? Do you have the power to require this information?
If you do not have them, do you think you should have them?
Mr Webb: This is quite a complex legal issue.
I will give an answer now and hope I get it right. My understanding
of this is that a ransom payment in itself is not illegal. The
way the Proceeds of Crime Act regime works is that you are required
to notify SOCA in the case of making a payment that is an act
of money laundering and therefore something illegal. The initial
payment would not necessarily be illegal and therefore not necessarily
need to be reported. Much will depend on circumstances and once
it gets to the criminal then it becomes criminal property because
it is proceeds of extortion. It is quite a fine legal point and
different people take a slightly different view on individual