Select Committee on International Development Minutes of Evidence


Examination of Witnesses (Questions 40 - 59)

TUESDAY 31 OCTOBER 2000

MR RICHARD MANNING, DR ELAINE DRAGE, MR GORDON WELSH, MR CERI SMITH AND MS LORNA HARRIS

  40. In this case we have moved almost tortoise-like, we have moved very slowly.
  (Ms Harris) We move very slowly and tortoise-like on a discrete area of activity. If one were to broaden a much wider approach then progress would be even more slow to watch.

  41. Mr Manning, you would believe that, from a DFID view, you would urge all departments of government to move forward much more rapidly than they have done in the past, to ensure that criticisms contained in the Review are dealt with urgently in the coming session?
  (Mr Manning) I am sure that is so, yes.

  Chairman: Mr Rowe, would you lead us on ECGD?

Mr Rowe

  42. What information sources does the ECGD use in making an assessment of corruption in countries and companies? What use is routinely made of other sources of information, such as Transparency International in corruption and bribery, for example?
  (Mr Welsh) We use a wide variety of sources for information. We spent the morning talking about aid. We are obviously on very much more the commercial side of the business, in terms of the business that we involve ourselves in. The nature of the risk is such that the corruption element is just one part of that risk-profiling structure. In terms of what we have done, we use the lists that are available, the World Bank being one of them. In the United Kingdom we have fraud investigation networks and we use our posts abroad and we use local lawyers abroad for opinions on elements of the structure that we might be involved in. We go as far and as wide as we feel is necessary to satisfy ourselves.

  43. If you thought that somebody looking for ECGD backing was likely to be corrupt and you had no clear proof of that, would that affect your judgment?
  (Mr Welsh) I think the question of definition comes in, in terms of what is likely to be corrupt. We deal with a lot of companies of high standing in the United Kingdom. We deal with companies abroad as well who source from the United Kingdom. They are generally larger companies, I have to say, although part of our mission states we are looking to widen our customer base. From their point of view, we have due diligence procedures available to us and we use them, all of our staff are trained to use them, they are trained to look at the evidence that is there.

  44. If a company was being prosecuted overseas, would you continue to do business with it?
  (Mr Welsh) If the company is being prosecuted, and has been prosecuted, then we would obviously have to look at the information that is being provided to us. There is a presumption of innocence and a presumption of well-being until such time as there is a conviction in the United Kingdom or in a foreign country.

  45. Presumably if somebody is going to be found guilty of corruption overseas, that makes them quite a bad risk?
  (Mr Welsh) I would like to reiterate, the issue is one of fact. Presumption of something is not a fact. It may lead you to consider the fact, consider everything that is surrounding the case, but until such time as someone has been proven to be guilty of a malpractice, of some criminal act, then in our law and our legal situation in the United Kingdom it is a very dangerous area to get into to make a pre-empted decision.

Chairman

  46. Do you ever pull out of a country because it is too corrupt?
  (Mr Welsh) We pull out of countries and go into countries on a regular basis, Chairman. Our risk systems look at a whole range of information in order for us to judge whether we should be on-cover or off-cover. That includes their ability to make repayments when they are falling due. It includes looking at their judicial system, looking at their fiscal systems to understand whether the country can function in a proper sense. In the context of corruption, that is an issue that is taken on board. We as ECGD are not in a position to make a wholesale decision against a country just because there may be corruption. We have to look at it case-by-case, we cannot be fettered in our discretion.

  47. The answer is, no, you have not pulled out of a country.
  (Mr Welsh) I am not aware of a country in my experience where we have pulled out solely on that basis.

  48. You are solely concerned as to whether or not you are going to be repaid, to hell with the corruption, is that right?
  (Mr Welsh) That is not correct. We are taking account of all aspects of the risk associated with the project that we are looking at. Corruption is one. We have instigated new warranty procedures for exporters, so that they are now required to sign in advance of our cover being offered, such that they have not been involved in any malpractice in the past or in the future.

Mr Rowe

  49. We have, have we not, a case running in Lesotho which the EU regard as so important they are prepared to fund the prosecution, but you are still prepared to do business with the companies charged in that court. Have you made enquiries of your own as to whether or not the charges are likely to stand up?
  (Mr Welsh) I am not aware that we have made our own personal enquiries into the alleged allegations that are being made. Yes, we are aware that there is a case pending. We believe that case may commence next year. Again, if those criminal charges are well-founded then obviously we would have to look at it. In the final analysis we could not do business with companies or the countries in lieu of those decisions. Under English law our legal advice is such that if we were not then to be supported in our actions, then we would be held liable. Obviously that is a decision that we would have to weigh in the balance.

Chairman

  50. Are you proactive in this area, ie Commissioning audits so you can find out what is going on, or are you just reactive to what other people tell you is going on?
  (Mr Welsh) We are proactive. We have our own internal audit team. They are tasked with sampling on-going transactions, so it is not a question of once we have issued a guarantee is it finished, done and dusted. We have post-issue management criteria and post-issue processes. They go out and audit the companies in question and the banks that are involved in our transactions.

Mr Rowe

  51. Does that include agents? If you thought some of your clients were in the habit of regularly paying commissions to agents which were well above the going rate, would that cause you to hesitate before supporting their demand or at least their request for credit guarantee?
  (Mr Welsh) It is certainly true to say that our new warranties apply to companies and to those acting on behalf of the companies, so agents would become part of that.

  52. If they cannot sign the warranty you would not support them?
  (Mr Welsh) Prima facie that would give us grounds not to support on that case.

  53. If they sign the warranty and are later found to have lied would that put them on a black list?
  (Mr Welsh) I was just reminded that if they are not prepared to sign a warranty then we will not give cover.

  54. You will not give cover. If they sign a warranty and are found later to behave badly, would that put them on a black list or cause you to rap their knuckles?
  (Mr Welsh) The issue of us having a black list as opposed to other institutions having a black list is worth exploring. At this time we are not able to provide a black list because of the nature in which we operate under our Act and the discretion which is given to ECGD on that issue. We would obviously want to look at all of the issues and decide whether or not we should withdraw. Obviously if someone has lied then we have the right to take away that cover and would do so.

  55. British taxpayers' money could still go quite often to companies with very dodgy records in terms of this—not dodgy records in term of profitability but in terms of behaviour.
  (Mr Welsh) The behaviour has to be judged on a case-by-case basis. We make rigorous checks of the individuals involved, the companies involved, the nature of the project, and the extent to which that project is involving us, as well as other parties. Remember, we are not usually the only party involved in a given project.

  Mr Rowe: If they were on the World Bank black list, would you support them?
  (Mr Welsh) It would give us prima facie grounds for not supporting them.

Chairman

  56. Surely it should not be on a case-by-case basis, it should be on what you believe you should be doing generically, not whether they are well known to you or whatever the circumstances surrounding the case? You should be in a position, should you not, to say, if a company is corrupt or has indulged in corrupt practice you will not cover them.
  (Mr Welsh) We have taken extensive legal advice in this regard.

  57. Another set of departmental lawyers?
  (Mr Welsh) They were not departmental lawyers, we have opinions from outside Queen's Counsel as well.

Mr Rowe

  58. I wish I felt my bank was as accommodating.
  (Mr Welsh) The issue is important to us because of the nature of the way we operate and the nature of the way the Act is founded. For there to be a change, as perhaps you are suggesting, that would not just go for ECGD that would also go to all departments across government. That would be a significant change for government to make and, of course, it would require primary legislation, I am sure of that.

Chairman

  59. Can you give me any examples of how many cases you have had in the last five years which you have turned down because the companies or individual agencies of those companies have, in fact, been guilty of corrupt practices?
  (Mr Welsh) In the last five years we have had no cases where we have turned down companies. We have had five cases which we have referred to the appropriate authorities. Of those five cases just one has been taken forward for investigation. No conviction was made.



 
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