Examination of Witnesses (Questions 400
- 419)
WEDNESDAY 22 APRIL 2009
Sir James Sassoon
Q400 Lord Mawson:
This is all about how we make this more effective in the sense
that a lot of this behaviour around money laundering is very entrepreneurial
behaviour. I am following a particular case of a family that I
am aware of that got caught in this because I am always interested
in the micro, in what happens to one family in detail as it passes
through. In terms of ministers and politicians, how much work
have you done with them in terms of this detail about particular
individual cases? I am aware that often people get caught in the
systems and processes and they talk strategies and documents,
they never look at the detail of one example. Entrepreneurs and
business people know that the one micro sample is very critical
in terms of really understanding what is happening in the system.
You have said a bit about case studies with business, but how
much of that has been done with politicians in terms of understanding
the detail?
Sir James Sassoon: Not very much is the straight
answer. What the FATF does is to take problem areas and subject
them to case studies, so it has recently, for example, produced
a very big piece on casinos and how they operate. And, to give
another example, we launched an inquiry into football clubs and
other sporting clubs and their exposure to money laundering issues
and a report will be produced. There is therefore work focused
on the detail which is informed by as many countries as want to
participate in each of these studies. Hw that is then translated
into ministerial involvement at the granular level is essentially
left to the individual national authorities to brief their ministers
as they see fit.
Q401 Lord Mawson:
It is my experience in terms of changes that if particular individual
ministers never get hold of the granular detail, what often happens
is very little actually changes, as you know, so I just worry
about how we enable some of that more granular stuff. This is
all about the detail of pretty entrepreneurial behaviour by individuals
and groups and organisations and that understanding is not there.
Sir James Sassoon: I do think it has to be done
at the national level but there is a huge misunderstanding about
the linkages in the chain. One of the things that I use as an
example of the granular that we all face and the link through
to the FATF is around the frustrations about opening bank accounts.
It may all be done for very good purposes but you go into the
bank to open an account for a child who is asked for a utility
bill when obviously they do not have one. And then the very well-meaning
person across the counter in the bank will say "We have to
do this because the FSA tells us we have to do it." Who tells
the FSA to do it? It is the Treasury or the Government. And it
is the European Union who impose the rules on the UK Government.
So who tells the European Union? And of course right back up the
chain it is ultimately the FATF that determines the rules. I suspect
that even among a lot of ministers in the member countries actually
understanding this chain and why it is important to start driving
the FATF in some of the ways that would ultimately effect the
end of the chain with everyday transactions is something that
all involved in the processes need to understand better.
Q402 Chairman:
Can I just go back to the UK Presidency? You twice referred to
the inhibitions caused by the consensus rule; how limiting is
it and in practice is it particular countries who refuse to come
into a consensus and are they ones who are reluctant to take on
fully the responsibilities which FATF rules impose on them? How
much easier would it be to make progress if it was in line with
OSCE which, I think I am right in saying, is consensus minus two
as I recall—I may be wrong on that. Would it make life much
easier and would it be possible to change the rules so that it
was easier to get agreement without 100 per cent consensus?
Sir James Sassoon: It is a question that I pondered
on a lot as I had to grapple with getting decisions taken. Ultimately
for the FATF consensus works very well. But the first thing I
said to myself was "I am going to be taking the chair of
this organisation; what do I do if somebody is holding out against
a decision?" There was no piece of paper anybody could give
me, and actually it turned out to be rather a good thing that
there was no piece of paper, that said if one particularly large
country objects you cannot overrule that one, or if two of this
other category of countries object you would be unwise to do that
but if it is three or four of another group it is okay. I developed
some informal lines which I thought I should not cross as chairman,
but the ability of the Presidency, guided by the secretariat,
to be able to sense the mood of the meeting without having strict
rules about who we could not overrule worked well. Looking back
on it, although it was enormously frustrating at the time, the
ability of the organisation to take decisions that neither required
unanimity nor where people could play games because there was
a set rule that allowed, say, two members to hold out actually,
on balance, worked pretty well. If one stands back from it, although
a lot of the work does take a very long time to go through the
various working groups and then through the plenary, the FATF
has shown a very considerable flexibility to take on additional
parts of its mandate, most notably the terrorist financing aspects.
It has been flexible and pragmatic in its approach to non-co-operative
territories, so on balance the impression I would like to leave
you with is that the decision-making has worked well. To take
your other point about does this reflect countries not being prepared
to take on responsibility, I do not think that is right. When
the consensus is struck I would say that it is very powerful because
it is not that there is anybody who is formally seen to be holding
out. The greater difficulty is that there are some issues that
different groups of countries tend to coalesce on which are around,
most aggravatingly from the perspective of countries like the
UK, the approaches that FATF requires countries to take to enforce
FATF recommendations. To give you an illustration, the UK was
found by the FATF to be non-compliant on the recommendation referring
to politically exposed persons. If you look at all the hard evidence
the UK does as much if not more than any country to generate activity
reports and for there to be clear evidence of follow-up on politically
exposed persons. Because of the way the UK had those rules in
place in 2007, which was through guidance which the FSA required
regulated bodies to adopt, but was not in some formal law or regulation,
one side of the FATF was able to ensure that the UK was rated
non-compliant. When faced with that sort of issue in an evaluation—and
it comes up in almost every evaluation and causes enormous frustration
and waste of time—there will be, and everybody knows it,
a group that will hold out against allowing countries to be sensibly
evaluated in their ratings on an issue like that. So there are
fault lines which the consensus approach has helped to foster
which are well understood by the FATF members, but the way around
it is not to change the voting rules but is actually to look back
at the recommendations and see whether the recommendations are
being either drawn up or enforced in a way that puts form over
substance.
Q403 Lord Avebury:
Does what you said about the preferability of decision-making
by consensus over having, for example, an OSCE-type rule, have
a bearing on the willingness or otherwise of FATF that you talked
about earlier to accept new members and would there have to be
changes in the rules if you got much larger membership than you
have now?
Sir James Sassoon: I cannot compare it with
other organisations because I have not worked closely enough with
enough other international organisations but my conclusion is
that the consensus is working well with the limitations I have
given for the FATF. I do not think that for the FATF now there
is a better way of proceeding, but if the membership was significantly
enlarged it is something the FATF would have to look at but I
would not say it is a pressing issue for the FATF.
Q404 Lord Hannay of Chiswick:
Is not the key criterion that none of the current members of FATF
in your view, in your experience, were using the requirement for
consensus abusively, i.e. to block something that the large majority
of members believed should be done. Perhaps you could say whether
or not you did have any experience of that and, if not, the answer
is perhaps that is why consensus works quite well.
Sir James Sassoon: As you can imagine, in an
organisation like this there were always cases when one country
might have felt very strongly about something and they would rush
around the table and try to get other people to block things,
and of course that went on, but that is part of the baggage that
goes with the consensus process and the FATF generally manages
to work around that. If the secretariat, as they do, do their
preparation work well and the Presidency does the work well in
advance—these things happen but it is okay.
Q405 Lord Marlesford:
Really following up, Sir James, a slightly earlier question, am
I right in getting the feeling that you are talking about the
importance of FATF acting in countries where there is widespread
and systemic corruption, particularly at a political level, and
the difficulties of doing so?
Sir James Sassoon: I was making the point about
politically exposed persons to make another point which is that
it was a very clear example, I would say, where a group of FATF
members feels very strongly that legal form is as important, let
us say—let us not say more important—as the outcome.
I was not wanting to make a point particularly about the approach
of different members to politically exposed persons, but of course
as a general topic it is an area on which the FATF and individual
national authorities could usefully make a huge amount of additional
progress, so it is an area of continuing focus of course for the
FATF.
Q406 Lord Marlesford:
Could it be regarded as quite an important international priority
for the FATF to improve the governance of countries where governance
has been particularly inadequate due to a note of corruption of
various sorts?
Sir James Sassoon: There are limits to what
the FATF can do in this or any other area. The FATF can make sure
that its broad recommendations impose a requirement on countries
to be effective in addressing this issue. It can draw attention
in a very practical way to some of the issues that fall out of
it, so for example as I mentioned in the joint public/private
sector work, one of the things the private sector wanted to talk
about in very practical, granular terms was their approach to
identifying the telltale signs and what they should do about them
in relation to politically exposed persons. When it comes to broader
questions of corruption in regimes the question would be, I suppose,
would that pose such a risk to the international financial system
that a country should be included within the special processes
for dealing with non-co-operative countries. That would be the
other way that it could bite on the work of the FATF.
Chairman: We must move on but
first Lord Faulkner on this point.
Q407 Lord Faulkner of Worcester:
Just a quick question on the membership. I am a little puzzled
as to what the criterion for membership is because I see, for
example—and these are only examples—Israel, India,
Taiwan are not members of the FATF and I just wondered why that
might be and whether their applications were opposed by other
members?
Sir James Sassoon: India and Korea are the two
countries that are on the list of prospective members; they are
going through a process and if the next evaluations which they
go through come up to the required benchmarks then the formal
applications for India and Korea will be considered for the FATF.
What the FATF has said in essence is that once those two countries
have gone through the membership process then the organisation
will have a further look at seeing where next it goes on membership,
and at that point a whole list of countries would be prospective
candidates.
Chairman: Thank you. Lady Garden, who has been
most patient.
Q408 Baroness Garden of Frognal:
Not at all, thank you, my Lord Chairman. Sir James, can I take
you back to the Three Presidencies Paper which you alluded
to earlier, which was June 2008 with the UK, Brazil and the Netherlands
proposing a review of the standards set by the FATF and of the
mutual evaluation process. You have mentioned some of the factors
already, but perhaps you could crystallise what were the most
important factors which prompted this particular initiative, what
you hope will result from it and do you have any timescales for
when you hope to see results?
Sir James Sassoon: What prompted it was first
of all the desirability in any standard-setting organisation like
this to do a comprehensive review on a periodic, regular basis
of its standards, and such reviews have been done by the FATF
in 1996 and 2003. I do not know whether there is a definitive
timescale that has now been set on this but typically these reviews
in the past have taken a couple of years and so now looks like
a good time to kick one off, particularly because the FATF is
coming towards the end of its third round of evaluations, and
that would be the natural point to look at the whole construct
before you then start putting countries through the evaluation
cycle for the fourth time. The other thing is we touched on the
fact that this an organisation where the Presidency only lasts
one year and it seemed to be important and helpful to the organisation
to try and give some sort of multi-year sense of direction of
travel; that is why we kicked it off. What do I hope comes out
of it? I certainly hope and believe that there will be a recommendation
by recommendation review and that all the experience over the
last six or seven years will be fed into the review. More importantly
than that, I hope that the FATF will take the opportunity to consider
some of the big picture issues because if there are lessons to
come out of the financial crisis one is the danger of losing sight
of the wood for the trees, and I would very much hope that big
questions like the compatibility of a risk-based approach to more
prescriptive guidelines, the question about whether the FATF is
going too far down the one size fits all approach to rule-making
and some other issues to do with broad questions of law and regulation
are going to get looked at. From the latest I hear, I am pleased
that the latest plenary session seems to have given considerable
impetus to the recommendation by recommendation review. I do not
hear that there is much appetite—and maybe there is something
else going on that I do not know about—for taking a broad
overview and that would be disappointing. I hope over the next
year to 18 months they do look at the whole shape of the wood.
Q409 Baroness Garden of Frognal:
Did the three countries share the common view, was it relatively
straightforward to focus between the UK, Brazil and the Netherlands
as to what you hoped to achieve through the review?
Sir James Sassoon: There was a very high degree
of common approach. I went to see the Dutch Finance Minister and
even at that stage, some 18 months before they were due to take
over they were already thinking about what they wanted to get
out of their Presidency, so there was a high degree of engagement
and forward looking by the Netherlands. I also had very extensive
discussions with the now President from Brazil and we jointly
put this together.
Q410 Lord Faulkner of Worcester:
I wonder, Sir James, if I can ask you about how you feel the FATF
is coping with the global financial crisis. The memorandum they
have sent us I have to say for blandness is hard to beat. It contains,
for example, phrases like "the FATF will take stock of the
consequences of the financial and economic crisis for the FATF
and identify issues for further analysis and discussion."
It does not sound like a great deal of urgent attention is being
given to this and I wonder whether you feel that particularly
the banking secrecy provisions that are contained in the way FATF
works are making this job particularly difficult and whether you
would like to see them do more.
Sir James Sassoon: I find it difficult to comment
on what the FATF is up to and the speed and detail of its current
work programme, but they clearly are collecting evidence from
their members and I am sure they will be coming back to it at
the next one or two plenaries. I would be surprised if, when the
research is done and the discussions had, if there is anything
in the basic FATF framework about banking secrecy that needs to
be changed as a result of lessons from the crisis. My lessons
from the crisis would be looking at two different areas. I would
be very concerned about the possible diversion of resources within
finance ministries and financial regulators, in particular, and
maybe in other authorities away from this area of work as the
authorities are under enormous and continuing pressure to deal
with the day-to-day aspects of the crisis. I have no particular
evidence about whether this is happening, but the diversion of
resources away from the focus on this area would be one thing
that I think needs to be guarded against. The other thing which
is really important is whether one of the lessons for the FATF
should not be so much about looking at whether the individual
rules are still fit for purpose—which I am sure will get
looked at—but are there questions about looking at the shape
of the wood rather than being lost in the trees. While the situation
is very different from straight financial regulation, and how
the rise in debt was a key thing that somehow people missed or
missed the consequences of, I do think that the commitment that
the FATF gave under our leadership to the global threat assessment,
for example, should be given more focus and attention post crisis.
Q411 Lord Avebury:
My question earlier on about enlargement had in mind the differences
between FATF and MONEYVAL and the reasons for the existence of
two separate organisations. One thing we have been told is that
12 of the 27 EU Member States are members of MONEYVAL and not
of FATF. Is there any need for the two organisations and why should
they not be merged, apart from the difficulties of having a much
enlarged membership?
Sir James Sassoon: One of the principles about
the FATF and its membership is that it should be globally balanced
and it should be reflective of factors to do with the size and
importance of economies, so if one was to say that all the MONEYVAL
members could become FATF members if they met the technical membership
criteria, the implication of that would be that to all the regional
bodies similar to MONEYVAL you would effectively be saying we
open up FATF membership, to 180 countries provided they met the
criteria, which many of them would. It would completely change
the character of the FATF. You are taking evidence from MONEYVAL
next week and of course they may say something different to me,
but the relationship between FATF and MONEYVAL I would say is
extremely close. There is a high degree of mutual respect and
co-operation; they are working to absolutely the same standards
in terms of their evaluations; and the MONEYVAL non-EU members
are actually also assessed to some extent on EU standards, so
the evaluation of the non-EU members of MONEYVAL will reflect,
for example, the third Money Laundering Directive. It works extremely
well and I had a couple of meetings, at his request, with the
Secretary-General of the Council of Europe who, as you know, is
the sponsoring body of MONEYVAL—Terry Davis—so there
is commitment right through the Council of Europe to MONEYVAL;
and most importantly in the current context, and it bears on some
things we have just been talking about. MONEYVAL is ahead of the
FATF in the cycle of their reviews, so they have completed their
third round of evaluations and are already leading the thinking
about what the fourth round should be. You might discuss this
with Mr Ringguth, but I know from my discussions with him last
year that they are already very focused on shorter evaluations,
looking at effectiveness and outcomes, and I rather hope that
if MONEYVAL is committed, as I am sure they are, to driving that
through, the FATF will be able to learn from that. I think the
construct works pretty well at the moment.
Q412 Lord Avebury:
You said that there was use of the same standards in FATF and
MONEYVAL; does that apply also to the monitoring mechanisms of
the two organisations, are they exactly the same? If you have
got the same standards and the same monitoring mechanisms can
you really justify the existence and the superstructure of two
separate international organisations?
Sir James Sassoon: They are exactly the same
and the way they are kept exactly the same is in all sorts of
ways. It happens, for example, that the Financial Services Authority
recently seconded somebody into the secretariat of MONEYVAL so
there is cross-fertilisation. And I have to say, in parentheses,
that the Financial Services Authority is enormously supportive
and effective in supporting the wider FATF efforts. It does work
exactly the same so why does not one merge the two together? Quite
apart from the fact that, as we have discussed, the FATF would
become a very large organisation if everything was merged, in
every region of the world there are particular challenges. As
you know, many of MONEYVAL's members are in Central and Eastern
Europe and have very particular characteristics and challenges
of their own. Countries in the African region, for example, have
particular and very different challenges, the Asia-Pacific region
similarly, so one of the benefits of having these regional groupings
is that they are able to tailor a lot of their training initiatives
and their initiatives to look at particular typologies, for example,
to their individual members and they can focus very particularly
on the challenges of individual member countries. Again you should
ask MONEYVAL directly about this but recently MONEYVAL identified
concerns around one of its members, Azerbaijan, and issued a statement
of concern on it. That was before the FATF had taken any particular
public stance on Azerbaijan so it is an example of where a regional
body is able to focus attention on particular regional problems,
and I think that is rather powerful and useful.
Q413 Lord Avebury:
Have you got any formal agreements between yourselves and MONEYVAL
on how the relationship between the two organisations is supposed
to function and, in particular, could you say anything about the
function of the two EU countries which are appointed by the FATF
Presidency to the membership of MONEYVAL. What do they do?
Sir James Sassoon: Again, you should ask MONEYVAL
on the first question to make sure I have got it right. What the
FATF sets out are some model rules for the regional bodies. MONEYVAL
has been a model of what the regional bodies should be—it
was one of the first to become an associate member of the FATF
so the way it has developed is that the methods of operating of
groups such as MONEYVAL, and very much led by MONEYVAL, have been
the standards which have been encouraged in the other regional
bodies, but you might want to ask them more about that. On the
second point, again, they will know more of the background of
this but it was just a question of making sure that at any one
time, to reinforce the linkages between the two groups, there
would be at least two FATF member countries within the EU who
were going to all the plenaries, playing a full part, and it was
thought that the best way of doing it would be to have this rotating
approach. So I do not think there is any magic in it, but it was
a pragmatic way of making sure that the linkages between the two
bodies were kept strong and refreshed.
Q414 Chairman:
Two questions about membership of FATF. I was surprised to see
that the Gulf Co-operation Council is represented and not the
seven Member States; is there any particular reason for that?
The other question is the fact that those members of the EU who
are not members of FATF, as you say mostly Eastern European states,
to what extent is that a product of a consensus rule and to what
extent is that due to the influence of Russia?
Sir James Sassoon: I cannot really answer the
first question and it may be that you could ask supplementary
questions on the specifics of the GCC from the FATF secretariat
as that was well before my time. The broad answer to the question
is that when the FATF was originally set up 20 years ago it was
a creation of the G7 and it has incrementally increased its membership
from that point with a view to include at every stage countries
or, in the case of the GCC and the European Union, representatives
of important groups of countries, that were most significant in
terms of economic and financial flows but also to keep a regional
balance within the organisation. It has been an incremental process,
in stages and it continues.
Q415 Chairman:
What about the Russian influence and consensus with regard to
the Eastern European countries?
Sir James Sassoon: I saw no particular evidence
of anything there.
Q416 Lord Mawson:
What strategies are utilised by the FATF to promote global implementation
of its standards? What is the nature of the involvement of the
International Monetary Fund and the World Bank in this process
and how can this process be strengthened and improved?
Sir James Sassoon: I will come back to the IMF
specifics and the improvements but in answer to your broad first
question I would say, having quickly looked at the FATF secretariat
paper, it actually sets out that answer well. On the specifics
of the IMF and the World Bank, the FATF works incredibly closely
with them; they put a lot of resources into this area and they
are particularly effective and important when it comes to helping
low capacity countries. There are questions that arise, particularly
out of the IMF's involvement—they cut their budget for this
area of their work during the UK's Presidency and the FATF quite
rightly asked me to express in strong terms the FATF's concerns
to the managing director of the IMF. I understand that the IMF's
response has been to set up a trust fund to take up some of the
slack from a reduction in the budget in this area and that the
UK is one of a small group of donors that has contributed to this
trust fund, so actually this may be good news because it means
that the UK will have particular influence on where this money
is deployed and the areas of activity. So there are issues in
particular with the IMF and questions, for example, about the
balance in their work between developed countries and low capacity
country evaluations that they contribute to. Why are they involved
in evaluating countries like Germany and Luxembourg at the moment?
I do not know. There are some questions therefore that need to
be asked but the broad point is that the FATF relies heavily on
the IMF, who are very good partners, as are the World Bank, when
it comes to helping countries implement the standards.
Q417 Lord Hannay of Chiswick:
Could you say, Sir James, what your assessment is of the current
procedures within FATF for identifying and dealing with countries
which do not apply, or insufficiently apply, FATF recommendations.
Is there a need for counter measures, when called for, to be implemented
in a more harmonised fashion—and I was thinking here of
the example of Iran?
Sir James Sassoon: As I am sure you know the
current process that the FATF is adopting for non-co-operative
countries and territories has really only been in operation for
18 months or so now. It needed to be kicked off and we kicked
it off under our presidency, but what can perhaps give us confidence
that the new processes will deliver results over time is, first,
that there was quite an interesting study very recently done by
the IMF that attempted a scorecard across various different groupings
of countries on the basis of their most recent reviews, and actually
the 23 countries that went through the previous process, the so-called
NCTT process, which was the previous approach to listing non-co-operative
territories, if you take where those 23 countries are now they
score almost up with the G7 countries in terms of their overall
implementation of the FATF regulations. So the best evidence of
how the current process might work is the evidence of the previous
process and that is good news. What has been going on in the last
year or two is that there is one territory, the northern part
of Cyprus, which came into and out of the current process. I am
not completely up to date but that clearly reflects work that
has been done by the authorities there, so that is encouraging.
Another example I would give is Uzbekistan which went as far as
completely rescinding all its anti-money laundering laws by presidential
decree and they were put on the list. After repeating the concerns
that the FATF thought Uzbekistan gave rise to, in the last six
months there has been a delegation that has gone out there and,
as I understand it, the laws have been or are being restored,
so that is another bit of progress. Iran is clearly much the biggest
challenge; in lots of respects it outweighs all the others and
there is clearly an extremely long way to go—Iran does not
have terrorist financing as a criminal offence—but as a
result of letter-writing and public statements—there was
correspondence that I as President had with their ministers—there
is now a dialogue and some engagement. There have been meetings
with groups of officials on behalf of the FATF member countries
and the FATF secretariat and there have been requests from Iran
to help with the setting up of a financial intelligence unit.
I would not want to overplay the significance of those moves because
Iran has a very, very long way to go, but it demonstrates that
the FATF, because it applies to Iran, as to all these other countries,
absolutely technical criteria on a consistent basis, independent
of other broader political considerations, is capable even or
particularly, let us say, with Iran of contributing to the wider
global effort. On harmonisation—and it is really not for
me to be able to go into much of the detail because it is very
recent—I do note that the latest FATF statement on Iran
does talk about counter measures but leaves it to individual countries
to decide what counter measures they implement. Whether that is
a pragmatic and sensible way to proceed or whether it is a cop-out
I find it difficult to say because I was not involved in the discussions.
I certainly think it would be highly desirable in these circumstances
if the FATF, since it has a specific ranking of counter measures
in its rules—whether it is for Iran or for anybody else
-, was actually able to agree where in the ranking of counter
measures they would expect their members to be. There are some
issues there, therefore, but I am really not in a position to
answer on the specifics. When all this is said and done, where
the most progress will be made on a lot of these countries is
bilaterally with the countries that have the biggest flows, whether
they are financial flows, trade flows or political engagement
and therefore, yes, there should be harmonisation of the FATF
but in the real world it will be the countries that deal most
directly with Uzbekistan on a trade and finance basis or with
the northern parts of Cyprus or Iran who are bound to have a disproportionate
influence and therefore it is up to them to take the strain.
Q418 Lord Hannay of Chiswick:
Thank you. Could I just lead you on from that into an area which
was not probably quite so active during your chairmanship but
which has become in the last months extremely prominent, which
is the question of Somalia and piracy and the transfers of funds
to Somali pirates basically to get back crews, ships and things
like that. This has become much more prominent in the last few
months and, to tell you the truth, we have been pretty puzzled—the
polite word—by the lack of response so far by any of the
organisations that deal with this. FATF has not uttered a cheep
about it as far as I can see; the EU seemed not to know that it
existed when we went to Brussels; and the British Government has
given us some thoughts on it which can perhaps politely be described
as not very substantial. I wonder what you think this says about
FATF's ability to respond to an emerging threat or challenge..
After all, we all understand that Somalia is not only a non-co-operating
country it is almost a non-country, but that does not mean to
say that there is not a problem here, a problem both in the money
laundering sense but also a potential problem in the laundered
money getting to terrorists. One cannot possibly assume that none
of the millions that are going to Somali pirates are reaching
terrorists; could you comment a bit on that and I do understand
that this is not related to your period of the presidency. But
from someone as skilled as yourself who has seen this whole process
from the inside it would help the Committee a great deal if you
could tell us a bit about this because we are feeling somehow
that there are tricks being missed here.
Sir James Sassoon: I will do my best although
I fear that when you next recite this long list of people who
have given these inadequate responses I risk being added to the
list. Seriously though, as far as the FATF is concerned there
are a number of ways in which they can engage with an issue such
as this. First of all it would be unfair to say that they are
not capable of moving at relative speed to identify threats and
deal with them, but if you take something like the Somali pirate
issue the first thing is that a lot of what the FATF does depends
on being able to engage with a country that has some sort of structure
with which you can interface and try and progress issues. You
have said what the state of affairs is in terms of the government
and governance of Somalia, so by that standard it is quite difficult
for the FATF to find the right people to engage with in terms
of the public authorities. The second thing is that, linking back
very much to the previous question and answer, the question that
the FATF should be going through—and I am sure it is—is
to ask whether this activity mean that Somalia should be added
to the list of territories which require governments and financial
institutions to exercise heightened due diligence or whatever
other counter measures. I do not know, because I am not there
now, what discussion if any there has been to establish how Somalia
ranks alongside these other territories and whether it should
be brought to attention as a country that people should be wary
of dealing with, although I suspect that everybody knows to be
wary. The other way that the FATF could get into this sort of
topic is through typology work and if it was thought that light
could be shed on piracy and the flows of money out of pirates
as a generic topic then that is the sort of case study that the
FATF can usefully do, but that is obviously a slightly longer
range activity and I do not have a particular view as to whether
looking at piracy would be useful for the FATF to lead work on,
but clearly they could get into it that way. Stepping back from
that, this seems to me to be much more a question of intelligence
operations to try and get at where the money is flowing, for which
the FATF on a month by month, year by year basis has no particular
locus.
Q419 Lord Hannay of Chiswick:
Yes, but national governments do of course.
Sir James Sassoon: Indeed.
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