Select Committee on International Development Minutes of Evidence


Examination of Witnesses (Questions 200 - 219)

TUESDAY 21 NOVEMBER 2000

MR PHILLIP THORPE, MR JEREMY ORME, MR JOHN ABBOTT, MR GAVIN COLES AND MR TIM SWEENEY

  200. It is much more easy to determine.
  (Mr Sweeney) That is a different issue. You were talking about will, about approach, about attitude, and the attitude of anybody doing business, whether profitable or unprofitable, must be in the first instance to work within the structure of the law. Money laundering is first and foremost a matter of law and responsibility. The point I was making earlier is that even if you abstract from that regulatory intervention then there are reputational issues which reflect directly on your business. If you as an institution are known to have connived in fraudulent activities it has disastrous consequences for your business. More respectable names will not want to deal with you. As an extreme case of course you get something like BCCI where the entire edifice collapses because it involved corruption. There is a business self-interest in behaving responsibly as well as adhering to the letter of the law. That is the point I was making. That is a judgment which it seems to me all businessmen in almost all environments have to make and I hope it is no different in banking than it is in the other examples I gave, and there are others I could give. Again, I cannot, because I am not a regulatory authority and I do not sit within my members and watch what they are doing, give you any overall blanket assurance. I can tell you that the amount of time and energy that the members of the BBA put into money laundering prevention in terms of working on the guidance, making sure it reflects best practice, in attending the training, in responding to consultation documents and discussions we have with them, suggests that the industry does understand the importance of this issue at a very high level. That is important to me because I regard it as important. If I did not think that were the case then I would be saying to them very forcefully, "You should". I do not have to make those sorts of exhortations. What is difficult for me is to translate that into what actually happens on the ground. I would like to give you a blanket reassurance. I give you as much as I credibly can. At the end of the day I do not sit in banks doing business.

  201. Could I go one step beyond that to NCIS or the FSA? We have heard what is a very small number of solicitors and accountants have been making reports about suspicious activity. One does not have to be too avid a reader of novels to know that there does appear to be the odd solicitor or accountant who is not scrupulously honest. I am sure there are solicitors and accountants who are working for crooks, and therefore it is in their interests very much not to report suspicious transactions. More than that, of course, there are many solicitors and accountants who may be working for people who are paying them extremely well and they do not know to be crooked, whatever their suspicions. Would that be a fair comment?
  (Mr Thorpe) I am a lapsed solicitor so I have a conflict with that.

  Mr Robathan: There are many honest solicitors too, I am sure—I hope!

Chairman

  202. It has been said to us by a banker that in fact the most fruitful source of money laundering is in fact client accounts of lawyers.
  (Mr Abbott) There is certainly evidence from NCIS strategic analysis that indicates that for top tier criminals one of their major tactics is to have a lawyer and/or accountant on their books. There is clear evidence of that. I would rather not go into specifics. The other aspect of your comment is extremely important. There is a whole host of activities that are undertaken by solicitors and accountants that bring them into contact with the movement of money and I believe that there is still a lot of work to be done in terms of raising their awareness and understanding and education so that they are better equipped to identify what we would regard as likely suspicious financial transactions.

Mr Colman

  203. The first part of my question has been answered but may I go on initially to address Mr Abbott in terms of the whole area of resources. You clearly told us that things are improving quite dramatically. The new computer has come in and there is the much speedier catch-up that is going on in terms of the situation before. At the moment as far as we understand it your budget is only £900,000 and only 30 staff and that is out of a total budget of NCIS of £48 million and 700 staff. Given that your main remit is serious crime, it looks as though at the moment you are not asking for enough and are dramatically under-resourced.
  (Mr Abbott) I am extremely grateful for that question. You will be interested to know that the recent submission of my service authority to the Home Secretary is for an increase in our budget overall of in the region of 100 per cent.

  204. That is still very small.
  (Mr Abbott) It is a sniff at the park. In terms of what we are doing with regard to the Economic Crime Unit, we are moving forward extremely quickly within my organisation, as others are too with the implementation of issues identified in that Performance and Innovation Unit report. For example, we have increased our number of staff on the basis of promise of more funding from the Home Office this year from 30 to 42. We are taking on board more staff from other organisations, so that very shortly a representative from the Financial Services Authority will be working within the Economic Crime Unit. We also have staff from other agencies such as the Benefits Agency and from Her Majesty's Customs and Excise and police forces who are working with us. In terms of the future I am hopeful that the Government will see its way to endorsing the recommendation in the PIU report which suggests that if we are to tackle this area of criminality more effectively (and I believe that following the money is the correct way of trying to tackle serious and organised crime) one of the major planks of that approach, we are looking for an increase in that particular budget area of a further two million pounds per year. I sincerely hope that comes and that will enable us to raise our game and to be far more effective in terms of money laundering, particularly if it is accompanied by the drawing together of the legislation as I suggested in answer to an earlier question.

  205. Even at that point, which appears to be the height of your ambition, you still seem to be spending in three years' time less than AUSTRAC, which apparently is the Australian equivalent to you, which currently has a budget of £3.8 million and has 82 staff, and they of course are handling some 965 organisations, it says here, compared to 7,000 in the United Kingdom. Are they that much better than us?
  (Mr Abbott) The AUSTRAC system is an extremely impressive system but of course it is designed for the particular environment in which it is operating. We are operating in a different environment. I am a great fan of AUSTRAC and we have certainly endeavoured to take what we can from them to improve our own capability.

  206. And the comparison with Europol and other financial institutions within the EU of your own nature?
  (Mr Abbott) In comparison with other European Union countries we are in quite good shape, and of course the real benefit of having the Economic Crime Unit within the National Criminal Intelligence Service is the links that can be made with all the other intelligence development that is going on against serious and organised crime. Whilst we are talking about perhaps 42 people at the moment, more to come in the next year or so, they are linking in with lots of other experts and intelligence officers. It is not the whole picture. In other words the Economic Crime Unit can draw down on resources from elsewhere in the organisation.

  207. So Frankfurt is not higher resourced if you like than London in dealing with this?
  (Mr Abbott) I am afraid I cannot answer that with my hand on my heart because I do not know exactly what the arrangements are there. All I can say is that I think we have been massively under-resourced historically, that the staff who have been working in this area have worked extremely hard to get the results that have been achieved, but I am delighted that at last recognition has occurred that by investing more in this area we will produce the goods that will reassure society far in excess of the actual cost.

  208. Could I ask the same of Mr Thorpe in terms of what is happening at the FSA? What is the size of your budget? How many people are involved in this, given the huge extension of power which potentially you have to deal with this? What is the current situation? Is it enough and what do you need?
  (Mr Thorpe) It is always tempting to say of course more would be the answer, but it is worth putting a perspective on this. We have something of the order of 2,000-2,200 staff at the FSA. The pursuit of money laundering, or indeed the pursuit of our financial crime objective, is not something that is contained to a narrow segment of the FSA. These are statutory objectives which we collectively pursue. In practical terms this converts to hands-on activity for a very substantial proportion of our staff. We have a small unit that looks specifically at money laundering issues and is responsible for developing the policy and indeed looking at issues like training and will provide advisory services to the rest of our supervisors and overseers. Approximately half of our staff are (to use probably the wrong phrase) on the street getting out to look at institutions, visiting checking systems and controls. Whether that proportion is correct I cannot say today. That is an issue that we are constantly focusing on. We will always look to see where the risk is greatest and address our resources accordingly. We will be structured in a way which allows us to shift resources that way, but there are a lot of people with a concern about money laundering, as indeed there are about financial stability and consumer protection. This is not something that is isolated in one corner of the organisation.

Ms Kingham

  209. You have said that additional resources and restructuring will help to produce the goods in terms of intelligence about money laundering. You also highlighted earlier the concern that perhaps the police did not have the specialist skills to follow some of that intelligence. Of course we have the situation where there have been almost no prosecutions in terms of corruption and money laundering, or very low levels anyway. Is it the case that when the police are following up these incidents that you are highlighting and they do not have the skills perhaps to follow them up adequately, the evidence has not been produced to give to the CPS that enables the CPS to initiate prosecutions? What is happening between it going from the police and getting a prosecution through from the CPS? Is there a gap there?
  (Mr Abbott) I am not sure that the gap is there. I think that the gap is a little bit earlier. There are occasions when the investigative law enforcement agency is not in a position to react to the suspicious transaction report with the amount of commitment that may appear appropriate. That is a resourcing issue in terms of supply and demand. Law enforcement agencies have a huge number of responsibilities. They have to make choices. They have to prioritise. We help them to prioritise by flagging up the really hot lines of enquiry, but there will be occasions when it is not possible for, typically, a police force to react to every suspicious transaction report that we forward to them.

  210. Can I just continue getting it from start to finish? In a sense you are almost at the start, you and the FSA, but at the end what we want also are the prosecutions presumably to ensure that some of this is going to be eradicated, particularly if the EU Directive is reformed. If the resources are going in, are you confident that your area is going to be better resourced to deal with this? What about ensuring a longer continuum? Do you feel confident that it is going to end up in some decent prosecutions?
  (Mr Abbott) First of all, of course there are a number of prosecutions that occur that do not apparently have a direct link to a suspicious financial transaction report. I think I mentioned a little earlier that there will be some criminal offences that are being prosecuted as a result of very valuable information arising initially from a suspicious transaction report, so it will not be apparent at the prosecution end that it has all come from that. There are certainly some areas of very good practice. The Metropolitan Police Service has developed a money laundering investigation team in the last year or so and they have had some extremely positive results with persons charged, going to be prosecuted at the current time. That is not the picture uniformly throughout the whole country, but if note is taken of this document (the PIU report) that position should improve.

Chairman

  211. Can I ask one additional question of you, Mr Thorpe? You are planning to increase resources to deal with money laundering, but to what extent are you aiming to increase expertise and prioritise corruption within the range of crimes which produce laundered funds?
  (Mr Thorpe) I confess our primary concern is money laundering. The wider remit we have is financial crime. It may not come as a surprise to members of this Committee to know that there is not a helpful definition of what that might include or exclude. We are at the moment in the process of trying better to define what our remit should be in this regard. We are inclined to view that relatively widely. At this stage it is a matter of "watch this space". In respect of corruption—I hope I do not do an injustice to the Committee's interest in this—as represented by, say, what we term "the potentate risk",—

  212. The bribing of public officials.
  (Mr Thorpe) Yes. We are looking at how that could be incorporated in our rules and guidance as specifics that will influence suspicion reports so we intend to take that on board. As I say, the fuller remit of our financial crime objective we are still exploring.

Mr Worthington

  213. On the question of identifying money laundering and corruption, can you help us get a grip on this? You are looking for certain signs of illegal activity: large flurries of money into dormant accounts, that kind of unusual behaviour. Can you give specific examples of how you go about identifying these signs? Perhaps with that you could give us examples of success stories that there have been. Mr Abbott was hinting at one with the Metropolitan Police a moment or two ago. I think that is still current and may not be able to be quoted. I think it would help us put the flesh on these bones as to how you spot the money moving around, the tell-tale signs.
  (Mr Sweeney) Perhaps I could start with that, Chairman, because in a sense it starts with the reporting of the suspicious transaction at the bank level. It is highly complex because it is a matter of judgment. Suspicion is a state of mind. What we try to do with the guidance notes is as far as possible get across to people the sort of things you need to know in order to put yourself in a position where you can say an event is suspicious. It starts with an account relationship, knowing your customer. That means having a sense of not only who your customer is and whether he or she or a corporate entity is what they say they are, but also what sort of business they are in and therefore what sort of flows are likely to pass through. If you have satisfied yourself that you have a sound account relationship and you are conscious that it is not a fraudster, it is not a money launderer, so it is a respectable business or a respectable individual, then it is a question of monitoring that account and looking for departures from the normal scale of business. To take a very simple example which is not really relevant but I use it because it is easier, if there is somebody who is a relatively small scale builder who suddenly passes through his account on a regular basis sums which are inconsistent with his business transactions that you have seen before, then you might well want to know why that is. If you are adhering to the spirit of the guidance you would actually talk to him and say, "I notice there have been some changes in your account", and he may say, "I have bought another partnership and am doing a bigger scale of business." It may well be that what he is actually doing is passing some funds through his account for a friend who might well be a money launderer, a drug dealer or whatever, who is saying, "Look: I do not want to attract attention to this. Can I pass £5,000 or so through your account?" That sort of thing should immediately trigger suspicion. It is a state of mind and the training that we do is constantly helping people with case studies, "This is the sort of thing that might happen, this is what you might receive." At the heart of it is being sure you know who you are doing business with at the start and then being sure that the scale of business and the type of business remains consistent with what you know about that relationship. Does that help?

  214. Yes, it does, but I suppose the bottom line is, do the activities of all these organisations stop illicit activity going on? Does the prevention work or can you point out examples of successful prosecutions that have occurred because of your activities, and how many?
  (Mr Abbott) If I may, Chairman, I can help. I am a little reluctant to reveal the techniques used by the bad guys because if they know that we know they will change their tactics. However, if I may take a fairly simple but nevertheless disturbing example, of a paedophile selling material through a mail order company, he was receiving a lot of cheques through a number of different bank accounts. The banks became suspicious, correctly reported their suspicions, an investigation occurred and principally because of the report that was received the paedophile was convicted. That does not come up as a money laundering offence or conviction but that is a very good example of how valuable the suspicious transaction reporting scheme can be. That can be moved much higher up the scale in terms of complexity just by the numerous layering activities, moving money from one account to another, which is typical of the money launderer trying to wash the money clean. That again is where the various financial institutions can play a very valuable part in keeping their eyes open. In terms of training and helping money laundering reporting officers and relevant staff, there is a lot of very valuable work undertaken by the British Bankers' Association and others in conjunction with ourselves to try and enhance awareness as to the sort of tactics the criminals use.

  215. That did not sound like laundering though, the example you gave, in that he was involved in criminal activities.
  (Mr Abbott) You are probably right, that it is not a typical laundering activity, but the criminal was in the process of hiding his money and had it gone further it would have been more effective laundering but fortunately, because of an early report, it was stopped. I will repeat what I said earlier. Whilst I too am disappointed at the level of money laundering convictions and cases brought to court, certainly in comparison with some other countries we are not in as good a shape as we should be; however, in comparison with the majority we are doing a fair job.
  (Mr Orme) You were talking earlier about the systems. How does somebody train to be alert and competent to spot something and make the report? There are points about that. It is clear that it is at the heart of this being an effective system. In the FSA's public consultation about the new role and how we seek when we have new powers to use them we have explicitly said things about it. I think it is a mixture of common sense about the external role where even mixed signals, which were referred to earlier in this morning's evidence, can help somebody to form a suspicion, and where the internal and private information which is available inside an institution can be crucial for revealing either inconsistencies or classic symptoms of unusual sums of money in cash, classic symptoms of signs of unreal or forged names or identities or documents, and classic symptoms of instructions about handling correspondence, mail or whatever, "Do not please send this letter to me at my ordinary address; do something else with it", those kinds of things (which are not an exhaustive list) are ones with which, with training, with a mixture of common sense and awareness, we can try to maintain and develop a high standard of the quality of the reports that come to the National Criminal Intelligence Service. We want to try to get effective reporting, not simply volume reporting which then overloads even the increased resources without meeting what I think the Committee is looking for.

  216. We have been talking mainly about money coming into the country and being processed in some ways. It is going to be made absolutely clear in the future, if it has not been so far, that bribing public officials overseas is to be a criminal offence. There has been some dispute about whether it is or is not. Will your procedures help in that respect, or is it going to be extremely easy for a company, for example, to conceal the fact that it is bribing a public official abroad?
  (Mr Thorpe) Chairman, may I congratulate the Committee members on their capacity to provide questions that are almost impossible to answer. It would depend on the circumstances. If the funds are being moved through regulated institutions where money laundering requirements impact and, as my colleague Mr Orme was suggesting, they are packaged in a way which causes concern about the criminality that might attach to them, then yes, but it would not be very difficult to conceive of circumstances where any barrier that we might put in place or any deterrent we might have could be circumvented. We would be much more relying on other parties or third country similar provisions. Perhaps a more constructive point that I might add here is that it is the displacement point again. If we alone are looking to see a sea change in the business of money laundering we will not succeed on a global basis. We have to look to other institutions and other governments to put in place similar requirements. There I think the news is actually improving and evidently so. There are a number of initiatives about that to suggest that there is a global distaste for easily used accounting arrangements or banking arrangements in offshore centres. There is an increasing recognition of the common minimum standards necessary for any financial centre to operate. The IMF and other institutions have set about trying to provide some grading system for jurisdictions and some assistance where jurisdictions are not up to standard and wish to improve. It has to be a collective effort.

Chairman

  217. Can I just come in here? The crucial thing that this Committee is looking at, as we said at the beginning, is corruption. You have been talking, Mr Thorpe, (and so has Mr Abbott) about increasing your surveillance of money laundering as a whole, but what the Committee wants to know is, are you going to prioritise corruption, bribing of public officials, overseas and then the subsequent laundering of the money? That particular crime is what we want you to concentrate on. I want to know whether you are proposing to do so.
  (Mr Thorpe) Our remit is wider than bribery. We are looking at all financial crime.

  218. So you are not going to prioritise?
  (Mr Thorpe) I suspect that our requirements as given to us by Parliament allow us certain flexibility in terms of assessing where the greatest risks lie, but I have to reinforce that our remit is quite wide. Bribery is but one form of activity to which our attentions are drawn.

  219. But do you not think you should prioritise countries overseas which are known to be substantially corrupt? It is common parlance. We can begin to name them. Iraq is one, Nigeria is another; we can go on. Should you not then prioritise those countries and take specific action, you, Mr Abbott and the banks, to supervise the receipts from those countries in view of that situation?
  (Mr Thorpe) Chairman, I can understand the frustration at the difficulty of pinning down the jurisdictions or regimes which are apparently propagating bribery or otherwise promoting corrupt activities. However, it comes back to a point which we touched on fairly early on which is that there is not a black list of jurisdictions that we can rely on. I do not offer this in any way as an excuse but we are primarily concerned about domestic financial institutions and the systems of controls they have in place. We wish to play a part in this wider debate but it is a part. I do not believe in the sense that you are describing that we can play a lead in this regard.
  (Mr Abbott) Chairman, from the National Criminal Intelligence Service point of view may I just say, happy to do so provided I get the information. For example, it would be quite helpful to know what contracts have been let to a country which is regarded as a vulnerable country because that would then give us some clues upon which we could start searching.

  Chairman: I think perhaps there is more to be done.



 
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