Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 80 - 94)



  80. There are 15,000. How many would be acted on? How do you decide which ones to act on? Does it depend on the seriousness? Does it depend on the evidence that has come in? What does it depend on?
  (Mr Smith) My understanding is that all of them are acted upon. NCIS acts as an intelligence clearing house. It will take the facts relating to a suspicious report and will input it into a database and see if a name brings up other names or other transactions. From one particular source of a suspicious transaction report there might be a final piece of jigsaw and you get a huge web. Every single transaction report is put into the database and will be actioned out to a police force or other law enforcement agency who acts upon it for further investigation.

  Ann Clwyd: Did you have a similar number last year?

Mr Worthington

  81. Can you name a conviction that has occurred as a result of this procedure?
  (Ms Harris) I think there is genuine concern—I cannot name you one—that individual prosecutions for money laundering per se do not take place often enough. That may be an answer to your question.
  (Mr Smith) There has been a recent high profile case of a Bureau de Change owner who was prosecuted for laundering the proceeds of a considerable sum of money related to drugs. I could not say whether that was related to a suspicious transaction report that came in or other intelligence which led to that prosecution.

Mr Rowe

  82. I have two short questions. From what you are saying, Mr Smith, is it easier to launder money in the United Kingdom, one of the biggest world financial centres, or in these offshore centres, which are currently under a great deal of scrutiny from the bigger brothers, such as London and New York? The second question, unrelated, is that it is excellent we might be able to take the proceeds of corruption off former dictators, such as Milosevic, but what about the recent ruling relating to the ECHR that a drug trafficker's assets could not be confiscated?
  (Mr Smith) On the question of whether it is easier to launder in the United Kingdom, we would argue that it is not easier. We do have high hurdles for anybody who wishes to access the global financial system, if they wish to come into the financial system through a United Kingdom institution. The Financial Action Task Force, which is the principle international anti-money laundering organisation in the last United Kingdom assessment said, "The United Kingdom anti-money laundering system is an impressive and comprehensive one...which meets the 40 recommendations", (which are the principal international standards), and indeed in many areas goes beyond them". The United Kingdom is home to the largest international financial centre and it is one that is characterised by a very good reputation. There is a perception that money that is coming out of the UK is money that has been scrutinised already and is, therefore, cleaner than money coming from certain other jurisdictions. In that sense the United Kingdom could be said to be a victim of its own success, in that if you are laundering large quantities of money you may wish it to go through London at some point during the laundering cycle simply because it would add a certain amount of legitimacy to the money. It is important to emphasise that there are three stages in laundering, there is the placement, where you try and access the financial system, there is layering, effectively the wash-cycle in the laundering process, where you move it between the jurisdiction or between different companies, and then, finally, there is the integration where you, as the owner of the funds, are able to enjoy the funds and you integrate it back in as apparently legitimate funds. Within the United Kingdom my impression—and this is not founded on scientific evidence—from anecdotal evidence is that the United Kingdom is principally used for the second or third stages of the laundering cycle rather than the placement. If you are seeking to put money into the financial system you could not walk into a United Kingdom bank with a carrier bag of used fivers and say, "Deposit this" without questions being asked. You may be able to do that in another jurisdiction, going through several intermediary corporate vehicles, trusts, or whatever, and at some point access the United Kingdom financial system prior to integrating it back into the legitimate financial system.
  (Ms Harris) On the second question, the decision you were referring to is a decision of the Scottish Appeal Court where the deprivation of assets was ruled to be against the Human Rights Convention because it could not be proved they were illicitly got. The Scots have had 12 months' advance on the English incorporation of the Human Rights Convention, since that was one of the matters that went to Scotland last year. That particular decision is being considered for appeal to the Privy Council, as the last Court of Appeal for that issue. Certainly the proceeds of crime legislation currently under contemplation for England and Wales anticipates that similar provisions would be, if I can use the term, ECHR proof.

Ann Clwyd

  83. 15 states have been identified by the Financial Action Task Force as non-cooperative in the international fight against money laundering. Can you tell us which are the 15 states on the list? What action are we likely to take against those states if they continue to be uncooperative?
  (Mr Smith) The 15 jurisdictions are the Bahamas, the Cayman Islands, the Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, the Marshall Islands, Nauru, Niue, Panama, Philippines, Russia, St Kitts, St Nevis, St Vincent and Grenadines. These 15 jurisdictions are subject to an advisory notice in all of the G7 and, I believe, all or most FATF countries. An advisory notice is the product of one of the recommendations of the FATF, Recommendation 21, where a Government informs its financial institutions that there is an additional risk associated with people or institutions in a certain jurisdiction and additional due diligence should be required. It is not yet the subject of sanctions. We do not say that no money should be taken from these jurisdictions, simply that there is an additional risk that, perhaps, money that has entered the financial system through the jurisdiction and is then passed to the United Kingdom, might be associated with money laundering, and any institution would be wise to undertake additional due diligence.


  84. You say in your memo, "The Government believes that asset recovery is a key part of the anti-corruption efforts. Foreign governments gain access to the United Kingdom legal system through the United Kingdom Central Authority and the Home Office". How long is the average processing time of such requests from foreign governments? In the last five years how many instances have there been of asset recovery of the proceeds of corruption? How many people work on this issue?
  (Ms Harris) First of all, the United Kingdom Central Authority deals with many other things, apart from asset restraint and recovery on behalf of other governments. Its main function in terms of work is dealing with mutual legal assistance in large international investigations and also for extradition. Those are two of the main areas. The confiscation work is a small part of the work. However, the part that deals with confiscation exists to provide foreign governments with access to United Kingdom courts, where there are thought to be assets in the United Kingdom which can be traced to individuals and subject to charges overseas, or vice versa, where we in the United Kingdom seek assets abroad which relate to people under investigation in the United Kingdom. In fact, it is a very small traffic. There are a number of requests each year both ways, but in terms of requests from overseas to the United Kingdom which result in restraining or confiscation orders in the United Kingdom, there are only one or two a year successful because many applications fail to meet the criteria for United Kingdom acceptability.

Ann Clwyd

  85. How many people work on this particular aspect?
  (Ms Harris) Nobody works exclusively on it. There is a confiscation branch in the CPS, staffed with three or four professionals who work exclusively on confiscation matters, that is domestic confiscation significantly.

  86. You cannot say how many instances there have been of criminal assets?
  (Ms Harris) My information is it is literally one or two per year at the behest of foreign authorities.

  Ann Clwyd: Thank you.

  Chairman: I think we should hurry on with "Working with the Private Sector".

Mr Khabra

  87. It is quite extraordinary for me to see different departments, including ECGD, getting together to give evidence on corruption and considering ways and means to tackle it. What efforts are being made to develop an internationally agreed Code of Conduct for the private sector? What is the most appropriate forum for doing this? Does DFID require contractors to comply with a recognised Code of Conduct?
  (Dr Drage) Codes of Conduct are very rapidly evolving area. There are many different strands being brought together. There are a number of companies, some of them large and British, who have been very much at the forefront of developing their own Codes of Conduct, which cover quite a wide range of issues, some including issues of ethics and probity in the areas you are investigating. There are a number of NGOs who have done some very good work in trying to define framework Codes of Conduct which companies could then use as a format for developing their own. Internationally probably the most useful thing that has happened in the OECD has been the Guidelines for Multinational Enterprise. They have had these guidelines for 23 years and they have recently been refurbished and considerably beefed-up, in the Government's view, and they were approved by OECD ministers in June this year. They are available on the DTI website and they are about to be published in hard copy form, and we are going around and talking to companies to promote them. Those guidelines now include base lines of the sort of things that companies should have to have higher ethical standards to deal with this.
  (Mr Manning) To follow up on DFID, all our contracts include an anti-corruption clause, that is the case whether it is a contract that we let ourselves or whether it was one we financed.


  88. There is a clause but not a code?
  (Mr Manning) That is right.

Mr Khabra

  89. What are we doing to support companies and what advice do we offer them in relation to corruption to ensure that they are competing on a level playing field? How do we assist them when they are working in countries where corruption remains a significant problem?
  (Dr Drage) If I may, I will just make one more point about the Codes of Conduct generically. The OECD have recently published a very useful paper on Codes of Conduct, which I will, if I may, Chairman, let the Clerk have.[16] That was published a few weeks ago. You asked me about how the Government supports companies. My colleagues in British Trade International, which is now the Government's export promotion arm, along with Foreign Office officials in posts overseas, give a very wide range of advice and guidance to British companies on matters to do with the law in the countries in which they are operating or seek to operate. They would be given a degree of guidance about what the local conditions were. It is clearly a matter for the company to behave in a way that is proper themselves. You also mentioned how companies operating overseas were assisted if they ran into problems. Clearly there is advice they can seek, but they would need advice on the law of the country concerned, and it would be a matter for them to buy appropriate advice in that country.

  90. Are there particular industries or particular kinds or size of company, which are more likely to engage in bribery and corrupt practice in developing countries than others? Does the DTI know who the bribers are?
  (Dr Drage) Referring back to something my colleague Mr Manning from DFID said, I do not think bribery is purely a problem in developing countries, it is a generic problem across the world. That is not something that the Government would feel able to give generic advice on in terms of particular companies or particular sectors. It is also probably an issue that changes over time.

  91. The World Bank are currently examining the scope for international development agencies to exchange and share information on firms or individuals that have been engaged in corruption or fraud. The Bank has arrangements in place to pass evidence of corruption or other criminal offences to the prosecuting authorities of the country in which the company is registered. It is unlikely, for legal reasons, that development agencies will be able to simply accept and implement each other's decisions on disbarment. The Government intends to come forward with practical proposals for the United Kingdom. What action is being taken to ensure that there is an internationally agreed and recognised index of corrupt companies?
  (Mr Manning) That is a complex area, because you have to look at the law in each of the jurisdictions concerned. What we do is we keep a copy of the World Bank's list and we consult that as part of our procurement process. We obviously look extremely carefully at any proposals for business to do with companies that are on the World Bank or other lists. At the same time we would need to understand the reason why they were on the list and, as my ECGD colleague said, we have to deal with what has been established by the courts rather than allegations. Within those parameters, and without exposing ourselves to judicial review proceedings, we will obviously do what we can to work as closely as possible with others who have found evidence of fraud or corruption.

  92. There are companies which are in partnership with the foreign company, country-based, involved in these projects?
  (Mr Manning) The World Bank has a list, which I think is a matter of public record. I think it is a matter of public record.

  Chairman: We have it.

  Mr Khabra: Thank you.

  Chairman: I think Mr Rowe wants to make a point.

Mr Rowe

  93. I want to ask one question before we rise. Is there not something certainly disquieting, and almost obscene, in international consultants, usually from developed countries, staying in countries in five star hotels and having as their interlocutors, officials and others who are very close, if not below, the poverty line and actually expecting that these people will get absolutely nothing out of what would appear to them to be colossal sums of money? What do we do about that?
  (Mr Manning) It is certainly the case where you have extremes of wealth and poverty that the pressures for corruption are greater. That is why I think that we have been very keen to support governments who try to do something about public sector salaries. I can give you many examples in Africa where over a period of 15 years public sector salaries in real terms fell by an astonishing amount, to a point where they no longer represented any kind of living wage. In the last few years we have seen an attempt to get back to reasonable salary levels. The Government of Uganda has been particularly successful with that, the Government of Tanzania is taking similar sort of action and the Government in Ghana is doing likewise. You cannot expect to root out corruption if you do not pay your public service appropriately. As long as there are such disparities between developed and developing countries, even a reasonable living wage in a developing country will look very small compared to your consultant in the five star hotel. The solution to that in the long term is effective development around the world and narrowing these income gaps which lead to the problems in the first place.

  94. In the short-term, there is something to be said for having transparent opportunities for people, instead of paying international commission agents to get the business? Is there not some way of negotiating an open transaction, whereby somebody who is an interlocutor of a big project gets some enhancement with their salary, which is on the books, wide open and not in any sense corrupt? Otherwise we are going to have a tremendous job for the next 30 years, at least, in trying to reach a sensible solution.
  (Mr Manning) That question take us to an extremely complex area, the way in which different aid agencies do or do not pay salary inducements or salary enhancements to the people they are working with. That has been the subject of a lively debate. A transparent process like the kind you have outlined could only be put in place by the recipient countries, it is not a matter on which we will be able to take action.

  Chairman: Can I thank you all for giving us evidence this morning on this very difficult issue. It is not an easy thing to do. You have obviously done a lot of homework and you have given us a lot of written material. You have promised additional material. I think the Clerk has noted it to help you, if you do not remember. I would like to thank you all very much indeed. Can I also thank those who have been recording us, and I believe on television as well, because they have been working under extremely difficult conditions, in which they have not had much air in the room which they occupy, which is out of our sight. We owe them our thanks as well. Thank you very much indeed.

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