Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 180 - 199)



  180. Of the world?
  (Mr Abbott) So, of overall wealth, between 2 and 5 per cent is laundered money. As far as the United Kingdom is concerned, there are no specific statistics that I can give you with any certainty at all. It would be misleading if I tried to do so. The black economy, of which money laundering would form a part, and probably a substantial part, has been assessed at between 7 and 13 per cent of the United Kingdom GDP. We have seen cases where hundreds of millions of dollars have been involved, often through crime, tax evasion or corruption in other countries. How does it get here? By a whole host of different ways. Undoubtedly things like electronic transmission are highly valuable tools, but can be misused by criminals and the corrupt. Our experience is that criminals will move very quickly to find new ways once they feel under threat, and we have seen in recent times, the last decade in particular, a significant move of many money launderers into things like bureaux de change, exploiting the use of company formation agents and so on. So, it gets here by a whole range of different routes. In terms of money laundering I think you have had a previous presentation in terms of the activities of placement and then layering, confusing either law enforcement or others from identifying where the money comes from, and then the integration into the correct system. How vulnerable? I think the United Kingdom is vulnerable because of what my colleagues have already said in terms of it being a major financial centre. I think that London has a reputation of being relatively well regulated, particularly in comparison with many other parts of the world. Therefore, from a money launderer's perspective if they can get it through London, it is going to be seen as clean. So there is some of that there, certainly. In terms of our vulnerability I think that the systems that have been put in place are assisting us in making it more vulnerable for the criminal, and I would certainly commend the findings of the Performance and Innovation Unit Report on Recovering the Proceeds of Crime as a step in the right direction. That is certainly something within NCIS that we have embraced, and we are working with our partner agencies wholly and fully.

  Chairman: I think that gives us an idea and it shows us where you are in all of this. Tony Worthington.

Mr Worthington

  181. Can I ask, not about criminals, but about the links between politics, states and your work? Would I be right in saying that if you had a pariah state—the Chairman has mentioned Nigeria and the Abacha regime, but there are other regimes—where it was known that systematically over a period, in Nigeria's case, of decades, the rulers were robbing their countries, that there is no body, no person who instructs you or suggests to you that you should get Abacha, or get a particular politician against whom sanctions are being laid? Is there any proactive work that is done elsewhere or with you to take that kind of action?
  (Mr Thorpe) An easy answer would be to say no, but I think the answer is slightly more complex than that. There are requirements in place that will bear upon any institution in this country seeking to establish relations with a client, to demand knowledge about that client's intentions and where client's funds come from. That can bring to light the possibility that those funds come from criminal sources, and if that does occur then a report has to be made and our regulation and the criminal provisions apply. That does not actually deal with the issue of someone making a judgment about whether the activity is criminal, or potentially criminal from a potentially criminal source. It would be a judgment that would have to be made. There is no Directive that says that person is someone who you cannot deal with. From our perspective, if it was widely known that a source was likely to be criminal and no report had been made, there might be an action or prevention. One of the prime difficulties for any of the institutions that we regulate and Mr Sweeney represents in this regard is that quite often the political signals are extremely mixed. There is no single list of people or institutions that are regarded as criminal on a global scale. The United Nations does not put a list on its board saying, "Don't deal with these people." Individual governments have great difficulty being as single minded as that, and quite understandably institutions at the commercial level have a great deal of difficulty then deciphering the signals that are coming forward. For our part, for the FSA and our predecessors, there is nobody saying, "Don't deal with this institution."

  182. This is a very, very important issue. We did an earlier report on sanctions and we heard a great deal about so called "smart sanctions", but found no evidence at all that anywhere in the United Nations organisation or in any of the Sanctions Committee, there was anybody heading an intelligence unit to link with the financial organisations to make that operate, and that is still true, is it not?
  (Mr Abbott) I believe that that is still the case, yes. The position is that we cannot do fishing expeditions, attractive though it may seem in some circumstances. We, as the Intelligence Organisation, rely primarily on suspicious transaction reports from financial institutions or individuals. We can be proactive if given sufficient cause, and we need to be given that sufficient cause to enable us to move into proactivity. That may well be a request from a regulatory body, it may well be a request from a government department, it may well be a request from a law enforcement agency, either here or in another country. Of course, the development of groups such as the Egmont Group, which is an international group of 53 countries' financial intelligence units, is extremely encouraging. I can tell you that, for example, we are exchanging intelligence with other partners within the Egmont Group on a daily basis, but it has to be related to a cause. That is the key issue.
  (Mr Thorpe) I think it is important to stress the size of this problem. Where a state has not chosen to categorise the issue as one of criminality, it makes it extremely difficult to convert suspicions or propositions relating to the nature of that regime into action within our own jurisdiction. I distinguish this from your references to the Nigerian problem with General Abacha, but it is not always the case that the state involved will say, "The last man in was corrupt and we are going to get him." There is not an outstanding warrant. We find that quite a problem.

  183. The point I want to have absolutely established and on the record is that we frequently say that there should be sanctions against this regime and particularly target about the wealth of the regime. Can you remember an instance of where that decision led to any proactive action by yourselves?
  (Mr Thorpe) I think, if I may clarify, Chairman, in respect of the Financial Services Authority in its previous life—and that is all we have to go on—our concern is with systems and controls, not specific acts of criminality, corruption or money laundering per se. We would be looking always in terms of whether an institution had activated its systems to show a suspicious transaction rather than a specific piece of money laundering that was going on. I think we cannot answer that question for ourselves.
  (Mr Sweeney) This discussion illustrates very well how much of this actually devolves on to the commercial judgment of individual institutions who have to work, to some extent, in a vacuum. There is no list of unacceptable countries. There are countries—again, the United Kingdom and others—who impose sanctions and that is then clear. Where that does not happen the institution has to rely on the sort of general ethos of attitude towards that country. The point of time at which you say, "Well, yes, that country is somehow involved and, yes, that individual is widely perceived to be involved in criminal activity", will begin to crystallise the basis against which you make those decisions. Then you have flows of funds and you have to attach that flow of funds to that individual. I have no inside knowledge of the Abacha case at all, but it would not be unusual for money launderers in positions of power to use the Central Bank to transfer money. If a commercial bank receives a telegraphic transfer from a Central Bank, then it is highly likely to regard that as a legitimate transaction, unless it has very good reason to believe that it is not a legitimate transaction. It is all about judgment and suspicion, which has to be applied at all levels. There are no absolutes. One final point I want to make is that you could say, "Why don't you just report everything?" Reporting everything is not without its cost, in two senses. One is that flooding NCIS with vexatious suspicions would be irritating and counterproductive, but, also, once you have formed the judgment that it is genuinely suspicious, then you have a problem in continuing the relationship with that customer. We explored some of those problems in our paper. It is this question "is this a suspicious transaction" that is at the heart of money laundering prevention. There is very little guidance from anybody as to how to exercise that judgment.

Mr Rowe

  184. I would like to raise two linked points. One is that Mr Sweeney said that we have a widely admired code of conduct and systems. I am not quite sure how one establishes that it is effective if we do not have very many prosecutions. The second thing is, would it be fair to say that the culture of many of financial institutions working in the City would be to let sleeping dogs lie? The parallel seems to me to be that the auction trade of fine art and so on for a long time knew that what they were doing was potentially illegal but, because they were in competition with other auction houses, they let it lie until in fact the pressure on them became so great that they could not.
  (Mr Sweeney) Are people prepared to let it lie? I was recently quoted before another Select Committee as saying something was barking mad. I am going to do it again. Any financial institution who is not regarding this as a very serious issue is barking mad. Quite apart from the attentions that it draws from the regulator and the consequences of that involvement in this has huge reputational issues for large institutions and for all sorts of smaller institutions of all sizes. I very much hope that everybody is taking it seriously. We are certainly urging them to do so. If they are not doing so then the sort of action that Mr Thorpe was describing earlier will take effect. Let me hasten to add that I have no reason to suppose that people are not taking it very seriously. The level of attendance at our training courses suggests that they are. In terms of how do you test whether something is working effectively or not is extraordinarily difficult. The question of prosecutions is not one for me but in a number of cases it is the underlying crime that is prosecuted rather than the crime of money laundering. That is very much a problem for NCIS. One of the difficulties, and this is something we have discussed with NCIS, is to make sure that the feedback from the investigation service and the prosecution service is good enough for banks to work out for themselves whether the sort of report they are giving is being helpful and is actually generating activity or whether it is noise in the system. There is a feedback problem. How you test whether a thing is effective takes us right back to the first question: how much of this is happening and therefore how much is being detected? I do not know the answer to those questions.
  (Mr Thorpe) The "letting sleeping dogs lie" point is a matter which I would like to expand on a little if I may because I have some sympathy with that observation. It is not entirely without a reasonable base. Certainly it would have been a matter 10 years ago that I would have had a great deal of sympathy with as an observation but I do think there have been changes in the last 10 years. As I have said earlier, we are waiting for new legislation to be turned on. The Financial Services Act came in in 1988 and we had about 10 years before it was determined that it needed overhauling. That created a fundamental shift for a lot of financial institutions in the United Kingdom. It brought in a regulatory structure which for a lot of those institutions was alien, sometimes unwelcome, but significantly increased the standards that applied in what might seem like relatively trivial areas but which had a highly material impact on the capacity of those businesses to let the dogs stay where they are. One of the things that always amused me when I first arrived in this country—I arrived here from Hong Kong and their regulatory institutions and I thought that things would be running reasonably smoothly here—was that I had the good fortune to be engaged in looking at commodities traders at that time and was somewhat confounded by the fact that many of those traders appeared to view details like the name and address of their client as not particularly material. That may have had a business justification but I was rather hard pressed to see it. Things have changed since then. There is a far greater understanding across a very wide segment of the financial services sector of the importance of strong systems of control. We have seen in this last 10 years the realisation that individuals, including the senior management of those institutions, will be held responsible for failures of those systems. While I think the picture is still capable of improvement, the understanding of the importance of the money laundering regulations has increased beyond recognition over that period of time. The characterisation probably was not without foundation but I think we have moved well past that stage. Our concern at the FSA is to ensure that the attention that is currently applied, particularly in the banking sector, is applied more widely, that there is a level playing field in this, and that all institutions understand their responsibilities and have those systems of controls at a level which will generally display management controls.


  185. The trouble is, though, is it not, Mr Thorpe, that you have got to be careful that you do not regulate so intensely that you make the financial markets of London uncompetitive with its competitors and that should be a constraint on you presumably in pursuing your aims quite as diligently as you might?
  (Mr Thorpe) I find that a very unattractive proposition that you put forward, and I think it actually does not accord, with respect, Chairman, with the statutory mandate we have. We have a mandate to reduce financial crime, a statutory objective. We also have some conditioning elements in the legislation which require us to recognise the competitive position of the United Kingdom—the Government saw that as important—and to generally look at competitiveness between market sectors. I do not think those propositions are incompatible. I have never heard of any institution in the United Kingdom, any institution we regulate, complain that not being allowed to do criminal business was interfering with their competitiveness, and that is what we are at. When I speak to my counterparts in New York or Tokyo or wherever, they are not looking to see if they can achieve advantage by attracting more criminal based business. I think there is a widespread understanding and effort amongst the major financial centres that there is no place to harbour criminal activity through those markets.

  186. Yes, but all regulation of course means that whether you are a criminal or not you have to examine every single one of them in case one of them is, and therefore it is not a matter of encouraging the criminal element, but if you over-regulate to the extent that even legitimate business is deterred from adhering to the regulations you impose, then you will make the market uncompetitive.
  (Mr Thorpe) Chairman, you are correct of course. If it was taken to extreme it would not make the market uncompetitive probably, but probably close. I think however the type of requirements we put in place are targeted at a number of things. They are targeted at reducing the opportunities for money launderers to utilise institutions in this country but they are also targeted—and this is not a coincidence—at ensuring businesses are well run. The sorts of activities that we require firms to undertake, to know their customer, to understand the sorts of funds, are material from the point of view of good business as well as money laundering prevention, and wherever possible we try and align those outcomes because we find there is an understanding and an enthusiasm on the part of businesses to run their businesses well. You are right: if we over-regulate I am sure that it has the capacity to close down good businesses and bad, but we think there is a reasonably clear middle line to be drawn.

Ann Clwyd

  187. It seems to me we have a mass of legislation and have had for the past decade, the money laundering regulations of 1993 for example, but no convictions for breaches of the regulations. Does that not make us look rather ridiculous? We have all this legislation and yet we cannot catch any of the criminals. What is the reason for that?
  (Mr Abbott) If I may say so, I agree with your comment. I think the laws are too complex. I think that there are loopholes, there are for example gaps in enforcement capability. Broadly speaking the police service and the law enforcement agencies have the powers but not the incentive, the regulators may have the information but do not have the powers yet. There is no obligation, for example, to report corruption, so there are loopholes, or corrupt monies. It is around drugs and terrorism, the current legislation. I think there are lots of good things in the money laundering regulations but their application has been patchy and that is certainly again the findings of the Performance and Innovation Unit report. I am very anxious to see a simplification of the legislation with responsibilities placed on organisations to play their part in the system, so I agree almost entirely with your comment. There have been prosecutions as a result of information received from suspicious financial transactions. Invariably that is not easily visible because it is linked into some other form of criminal offence, so, for example, there have been quite a lot of convictions around drugs issues and other criminal conspiracies but it will not always be apparent that the money laundering regulations are working. Certainly in terms of disclosures to us, and I think this harks back a little to Mr Rowe's comments, the NCIS view and my view has been quite clearly that I do not think that we receive sufficient disclosures. We have provided in Annex A of our submission to you, the numbers, which, if they are looked at, are really quite alarming and this is something that I have been public about on previous occasions, that I find it quite remarkable that in 1999 only 57 solicitors and 17 accountants out of a total of 30,000 have reported suspicious financial transactions.


  188. It struck us too.
  (Mr Abbott) To come back to Ann Clwyd's comment, I broadly agree with her. There is a need for these areas to be sharpened up. I think that the PIU report (which I believe the Government has accepted in principle) moves us in the right direction and I think that that will be of benefit to us all.

Ann Clwyd

  189. So if the existing legislation is flabby in your description, instead of getting rid of that flab we are actually introducing new legislation again. There is the EU Directive, there are the proposed Financial Services Authority rules on money laundering, the revision of the Joint Money Laundering Steering Group, guidance notes. Are these going to make it more difficult to launder the proceeds of corruption in the United Kingdom or is this just more legislation and therefore it is going to become even flabbier?
  (Mr Abbott) That is certainly not the intention and I think that there is a place for it. We need to operate at different levels to counter money laundering and criminal activity. That includes an international capability because this sort of activity is so international. The United Kingdom in my view needs to be leading the way. It needs leadership and I would have thought that the United Kingdom is in a strong position to do that. We need legislation at a national level in my view that is comprehensive and ties everything together neatly and coherently, and then we need to have an international capability which is encouraging other countries to move forward in a positive way. Of course we learn from other countries' experiences too but broadly speaking we have the opportunity now to grasp the nettle and to come up with a comprehensive piece of legislation which will make the criminals think twice. We want to prevent, we want to detect, we want to deter, and we want to prosecute effectively. I think the new proposals in the PIU report will enable us to do so.
  (Mr Thorpe) I would not like to leave the impression with the Committee that the current legislation, the Financial Services and Markets Act, complicates the picture. The Government, in drafting that, recognised that there were, as Mr Abbott suggests, some loopholes, some shortfalls, particularly in respect of the regulator's capacity for prosecuting, and these have been addressed. We are of the view that this will be a net improvement in the current position. The fact that there are layers of regulation, guidance and statute I think is inevitable in what is a very complex area where you need to be able to ensure that the response fits the nature of the market place, but I think the general picture is one of improving our position.

  190. Can you tell me whether the issue of corruption has featured largely or not at all in the Joint Money Laundering Steering Group discussions?
  (Mr Sweeney) As a separate discrete issue the answer to that would be no. We said in our paper that we would regard corruption as covered in the definition of fraud. To that extent it is part of the maelstrom of issues with which we deal; it is not a separate headline issue but it will undoubtedly be so in the next revision, that which we are currently working on.

  Mr Jones: Mr Abbott, you have already told us that you find figures quite alarming on the statistics of the number of organisations disclosing, and they are alarming: 57 solicitors out of 12,000, 17 accountants out of 17,500, and one company formation agent out of 300. It does strike me as being quite alarming that we are getting so few disclosures. Can I ask the other organisations, the BBA, what have you done to improve reporting in the banking sector in terms of guidance codes of practice and training, and how is the FSA going to improve reporting when we are getting figures like this?


  191. The figure for you is 10 out of 554 banking institutions contributed 78 per cent of reports.
  (Mr Sweeney) What have we done? The guidance notes are all about alerting the industry to the importance of this issue and steering them towards the circumstances which should trigger suspicion in order to make the report. That is the whole structure of the guidance notes, that it is in a sense about reporting suspicious transactions. Since 1990 we have done a lot of work within the industry in providing training. We run regular courses throughout the year for all levels from compliance officers up to senior management. We produce videos, we produce booklets, we produce a whole raft of information which is made freely available to our members, always in consultation with the public sector, the Treasury, NCIS and the FSA, in an attempt to raise the level of awareness. In our view, and it will be for John Abbott to comment on this, we have significantly improved the quality of reporting over the last decade and I would hope the level of reporting that NCIS are now getting is of value to them. I mentioned before the problem we have of feedback, not in a generic sense but from specific instances of reporting: was this of value (which is part of the process of learning, which is valuable). Is there more to be done? In a sense it is difficult for me to answer that because I provide the guidance. I am not part of the regulatory system which oversees what is actually happening within organisations and maybe that is something on which Phillip Thorpe will comment. Certainly all our emphasis is on raising awareness and providing people with the training to enable them to respond to that awareness by making practical reports to NCIS.
  (Mr Thorpe) I think it is a question again which at the moment for us is somewhat open as to just how effective is the guidance across a much wider spectrum than banks. I would however perhaps caution the observation that we are trying to be proportionate in our responses. We know, as Tim Sweeney mentioned, that banks probably do more work to detect and deter money laundering because they are the most obvious avenues. We do not know yet whether there are other avenues which perhaps should be more obvious but are currently not on our radar screen. As I mentioned earlier, one of the exercises we are undertaking with our new prospect of responsibilities is to try and look at a range of institutions from a range of areas that we now have responsibility for to see how they are taking the guidance and implementing it. At the moment it is a very patchy picture for us. I would also caution that there are a number of areas identified in the NCIS statistics which are well beyond our remit. This is I assure you no plea for an expansion in it. You do illustrate, Mr Jones, the dilemma we have. There is a displacement theory that abounds in this area. If we move to ensure that the large institutions are well set up to detect and deter money laundering, if we move to the greater regulated community of 10,000 institutions that we currently have responsibility for, this will push the money flows elsewhere. We know this will be the case. The PIU report mentioned by Mr Abbott reflects upon that and identifies bureaux de changes and auction houses and unfortunately casinos. The inventive money launderer will move to wherever the softest point of entry will be. I do not want to sound at all restrictive or selfish in this, but our primary concern is financial institutions that we regulate and we are determined to ensure that the guidance is applied, as I mentioned earlier, in a level fashion across all sectors. If we find that some sectors—and I think statistics suggest that we can find some sectors—somewhat wanting in that, we will be moving to implement regimes for improvement and encouragement in those areas. I do not think we should deceive ourselves. We will see this activity moved elsewhere.
  (Mr Abbott) Could I say first of all I agree entirely with Mr Sweeney that there has been an improvement in the quality of reporting. I think I can say that at least 20 per cent of suspicious transaction reports provide positive leads to criminal activity and money laundering. That is extremely positive. Certainly the suspicious transaction reporting that exists in this country is far in advance of some of the other schemes that exist elsewhere in the world where they set a certain figure for transaction reporting. What happens is that agencies such as mine then become inundated and flooded with everyone's purchase of a vehicle or a house and so on. I am a great supporter of the suspicious transaction reporting scheme. It has made good progress in recent years and the quality of those reports that we get from those organisations and individuals who do report is much greater. Of course the sting in the tail therefore is that I am arguing that perhaps some of the figures are rather disappointing. The question of feedback has been mentioned a couple of times and I think I should address that. NCIS is the intelligence organisation and it is not the investigation agency. Quite clearly we are very anxious to provide feedback but often the timescale of an investigation, a suspicious financial transaction for example, may occur in 1997 and just be currently coming to fruition as a criminal matter now three years later. That gives us a bit of a problem. I would acknowledge that we have not been good in providing feedback to the institutions who have reported to us historically. There is good news. The good news is that our new computer system, known as ELMER, now includes within it as part of the system the requirement for feedback and the introduction of that new system this year has already seen a significant increase in the amount of feedback we have been giving. I have a chart here that I will willingly show the Committee should you so wish, Chairman, that indicates that we have certainly provided feedback during this year on in the region of 5,500 suspicious transaction reports. It is still not perfect, we are working at it hard, it will get better with this new computer system, but it is moving in the right direction.

Ms Kingham

  192. There are a lot of different agencies involved in investigating suspicious transactions. You have just mentioned this new system that you have, the ELMER computer. Are these different bodies and agencies such as Customs and Excise and the police going to be involved in that feedback process and, if so, how?
  (Mr Abbott) If I may briefly endeavour to describe the new system, and it may be touched upon in our submission to you as well, broadly speaking we now have the capability for a financial institution to computer link in with the National Criminal Intelligence Service Economic Crime Unit. We then do our checks, our analysis, our development, and we could computer link it out to the investigation agency. More than half of the police forces in this country are already on line. Her Majesty's Customs and Excise is on line. We are very confident that everyone will be on line within the next one to two years. All of this is designed to speed up the process because we need to be able to speed it up. The PIU report identified how important that is. It is not a by-product but another aspect of this is that it enhances our ability to give feedback because one of the parameters requires the investigating agency to give us feedback so that we can then pass it back to the financial institutions.

  193. Have these agencies been involved in developing this system? Have they had any input into the development of the ELMER project?
  (Mr Abbott) Yes.

  194. And you have targets set for feedback in terms of benchmark targets for feedback response times built into the process?
  (Mr Abbott) Yes, of course.


  195. How confident are you that the police, in implementing the information you have given them, are carrying out the kind of investigation you would like to see? PC Plod is not exactly the person you would have thought would have the kind of investigatory capacity to do what you want them to do.
  (Mr Abbott) I do not believe there are sufficient resources devoted by law enforcement agencies to this area of business. That said, there are a huge number of demands on law enforcement agencies to undertake a lot of priority areas of work but my personal view is that I have some reservations about the ability of all law enforcement agencies to conduct these sorts of enquiries, which are specialist enquiries, I agree, that require certain skills. We have not yet got there but again the PIU report draws attention to this. Only two weeks ago we had the National Financial Investigators' Conference down in Birmingham. We were heartened both by the turnout and by the knowledge, understanding and willingness of those participants there. I agree that not every law enforcement agency is punching its weight sufficiently in this area but all are being urged to do so.

  Chairman: I know that most of my colleagues that have had my experience when asking the police to do something, they always say they need more resources and then they will be delighted to do it but they do not do it. That is why I am worried about it.

Mr Rowe

  196. I have not quite got a feel for this. I am delighted to hear that the reporting is getting better but what I have not got a feel for is, are you telling us that the very small percentage of reporting institutions means that because they are so much more aware of money laundering than they were three or four years ago they do not have suspicious incidents, or are you saying that despite all your improvements the vast majority of financial institutions are not actually taking the trouble to report?
  (Mr Sweeney) It is pretty difficult to answer that. Certainly the raising of awareness is there. The guidance as to what to look for is there, and the guidance as to how to report on it is there. I devoutly hope that the low level of reporting in some areas of the banking market reflects one of two things: either that they are relatively small institutions with relatively unsophisticated banking relationships and are therefore not a target for major reports, or that they are in the area of wholesale business for which many banks are in the London market, dealing fundamentally with professional markets, trading in securities for example, some off-balance sheet business, and do not hold themselves out for the sort of large scale retail business which is the conduit through which much of this flows. I cannot really say more than that. I would be foolish to say that I am absolutely confident that my membership are reporting everything because I just do not know that. There is no lack of will within the banking industry for that to happen, that I can tell you, at all levels.

Mr Robathan

  197. But has any organisation looked into the number of reports and whether financial institutions do or do not report? You say you cannot tell but can you make a guess? Has there been any sort of study?
  (Mr Sweeney) I can do a very neat passing of the ball here because as a group of trade associations we set the guidance ground rules but we are not policing authorities. Phillip Thorpe has already referred to the work that the FSA is doing in looking at systems of controls and that is their focus and that will be the first layer. If the systems and controls are not good enough to detect the sort of suspicions that ought to be triggered, then it will not be reported. There is a different issue as to whether their systems are good enough but nonetheless they still have not reported it, and that again is something which is simply outside my purview as a trade association.
  (Mr Thorpe) I suspect I am meant to catch hold of that. When the FSA in its previous incarnation has been looking at systems and controls its starting point is generally what reports have been made. There is some element of self-censoring in that, in that it could indicate that reports have been made and therefore the systems are adequate or not adequate. It also could indicate that no reports have been made and the systems are wholly inadequate. That is purely a starting point. The approach of in this case the banking supervisors has invariably been to look at money laundering systems and controls in the context of the overall systems and controls of the institution unless there is a specific reason to be concerned or alerted to a problem. This is part of normal business for most banking supervisors and the general presumption I am probably left with is that we are getting a reasonable indication of the percentage of firms that have weak systems and controls. I am not willing to extrapolate from that that we are getting under-reporting of suspicious transactions, but I am afraid that outside the banking sector the picture is a lot less clear and there is a lot more work for us to do and we need the new powers in the legislation to do this, to be able to put hand on heart and say that we are as satisfied about the systems and controls in the other sectors, whether it be broking or insurance or whatever it might be.
  (Mr Abbott) If I may make a couple of comments, in 1999 ten banks made 78 per cent of disclosures from their sector. I agree wholeheartedly that analysing what that means is quite complex and indeed we will be conducting a strategic assessment from early next year to identify what we can learn from the fact that a significant number of organisations are not disclosing. We are doing that in partnership with other agencies, including those represented along this desk today.


  198. That will be part of your proactive work that you have been talking about?
  (Mr Abbott) Yes, that is right.

  Chairman: It is certainly a striking statistic, is it not?

Mr Robathan

  199. This has become rather more complicated than I thought. Can I go back to what I was going to say. Mr Sweeney, in answer to a question from Andrew Rowe you said that you thought the banks would be barking mad if they did not take this seriously because there were reputational issues at stake. Is there not a conflict of interest here between the duty of a financial institution to report suspicious transactions but the need for or purpose of making money? The real question is whether financial institutions are totally committed to tackling money laundering or do they in fact only make a token number of reports to have some sort of defence to say, "Of course we are doing it. Here is a report"? There must be a conflict of interest to an outsider.
  (Mr Sweeney) I do not think there is a conflict of interest in this case any more than for example a motor manufacturer making sure that the car they are selling is compliant with the law and is roadworthy.

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