Money laundering and the financing of terrorism - European Union Committee Contents


Examination of Witnesses (Questions 54 - 59)

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 is helpful.

  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.

  Q55  Chairman: 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 particular—for instance on international cooperation—have 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 controls.

  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 activity?

  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 systems—how effective they are—and 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 things.

  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 transactions.


 
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