Examination of Witnesses (Questions 220
TUESDAY 21 NOVEMBER 2000
220. In the evidence from NCIS you mentioned
the Egmont Group, 53 countries there. It would be very useful
to know who those countries are, whether there are any developing
countries that are part of that, whether there is a model for
development here, because what Mr Thorpe was suggesting is that
there has to be bilateral monitoring in the receiving country
as well as the transmitting country. As part of that it would
be interesting to see what the rules are for entering the Egmont
Group and whether they are ones we could see as a basis to recommending
in our final report because plainly it is going beyond the Financial
Action Task Force area which tends to be developed countries.
(Mr Abbott) I would willingly provide the Committee
with that information.
I regret I cannot remember all 53 countries but certainly there
are some emerging countries on that list.
Chairman: If you could provide that we
would be grateful.
221. Obviously our concern in this Committee
is with the needs of developing countries. It was raised with
us by Transparency International that perhaps more information
could be shared with victim countries and better provision be
made for mutual legal assistance. In relation to the activities
of NCIS and the FSA what kind of intelligence do you share with
countries that are the victims of corruption? Do you have a programme
or framework through which access to information, technical and
legal assistance and training can be given to developing countries?
What more do you think you could do to help out developing countries
with capacity building?
(Mr Thorpe) Again I pray in aid the new legislation
because at the moment there are some defects in the structure
that we have. We rely upon, to use a bit of the jargon, gateways
to be able to communicate with other jurisdictions, other authorities
in similar positions. At the moment our legislative empowerment
constrains us significantly in doing that. The new legislation
allows gateways to be achieved with anyone with whom we choose
to establish them.
222. Can you explain that? I do not understand
(Mr Thorpe) We are constrained about whether we can
pass information. We have confidentiality requirements upon us
under the existing legislation, which means that we cannot simply
pass information other than of a very generic nature to anybody
and everybody. We are constrained in that regard. Depending on
the part of the forest you are looking at we have constructed
mechanisms for getting around that but they are generally imperfect
and certainly incomplete. The new legislation will empower us
to deal with other authorities in other jurisdictions and to provide
them with information with some constraints but it will open up
223. The legislation at the moment does not
prevent you from assisting with areas like capacity building though,
(Mr Thorpe) It does not prevent us from assisting
in general trading and advisory work, and to the degree we can
we have been engaging in that in our area. This is slightly less
specific than money laundering or corruption, but I would urge
the Committee to recognise the value of this. I mentioned before
the importance to London of having developed systems broadly to
deal with their financial markets. There is an infrastructure
here which makes the market attractive and which provides reinforcement
to the issues related to money laundering. If systems and controls
generally are good, if accounting standards are high, if disclosure
is frequent, these things drive out bad business. The effort that
the FSA has first off to put in is exporting those general regulatory
concepts to other jurisdictions. We do this by hosting delegations
from interested states that wish to set up similar institutions
in their own back yard. We have annual meetings of regulators
from developing jurisdictions to show them what we are up to and
to encourage them to take a similar course, and we meet specific
requests as and when we can. There are limits to how much we can
do on this. I have to flag up also that other major jurisdictions
do similar things. There are initiatives in the European Union,
there are SEC colleagues who take on similar sorts of activities
in respect of jurisdictions as well, such as competition. By bringing
up standards generally we see this as underpinning and reinforcing
the overall approach.
224. Has the Department for International Development
been involved in these initiatives?
(Mr Thorpe) We have tended to do these on a bilateral
basis. The collective conferences we have done through our own
network of contacts. There are one or two international regulatory
bodies that provide the basis for this. I am not going to trouble
you with the initials for them but there are some that focus particularly
on European and possibly new European groupings. There are others
which look more at the international sphere. We participate in
(Mr Abbott) In terms of capacity building we have
worked in a number of countries in the last three years, such
as Turkey, Bulgaria, British Virgin islands, the Czech Republic,
Slovakia, Croatia, Russia, the Ukraine and South Africa, and others.
225. Have you been paid for by the Department
for International Development?
(Mr Abbott) Sometimes yes, Chairman, and sometimes
we have done it off our own bat. We have really taken to the Egmont
Group because it supports financial intelligence units and we
do all we can to try and assist countries who do not have a financial
intelligence unit to build one. When we are satisfied, as with
the other members of the Egmont Group, with the probity and security
of the processes and systems they have in place, then we are in
a position to exchange intelligence with them. As far as evidence
is concerned of course, that is, I regret, a process that must
occur through the United Kingdom central authority and it is notoriously
slow, the evidential side of things, but on the intelligence side
of things, provided all the ground rules are met, we can exchange
information and intelligence relatively successfully and there
are plenty of examples of that occurring.
226. Is there any strategic reason for choosing
those countries? There seems to be a particular emphasis or focus
on particular regions within your capacity building work. Is that
because they are emerging economies or because their approaches
come from a particular block of countries or what?
(Mr Abbott) I think it can be those two reasons but
also things like our assessment of the impact that certain forms
of criminality may be having on the United Kingdom, and so we
try to prioritise in that way.
227. We are very concerned about the incoherent
look that all your efforts have because of the very large number
of departments of state involvedthe Home Office, the Treasury,
the Department for International Development, the Department of
Trade, and the large number of institutions involved. We worry
whether or not the result is that we are not actually focused
properly on the whole area you are trying to deal with. We would
like to know what you have contributed, the British Bankers' Association,
the Joint Money Laundering Steering Group, the Financial Services
Authority, the National Criminal Intelligence Service, into the
revision of the European Directive on money laundering and other
planned changes to United Kingdom legislation. How is it possible
for you to share effectively information amongst all these different
players, particularly with some of the constraints that you have
described to us today which are upon you? Have you been contributing
to the European Directive on Money Laundering?
(Mr Abbott) Yes, Chairman. From an NCIS perspective
we have been doing that through the Treasury lead on that. I have
to say that I support the gist of your comments which suggest
that a single point of contact would be extremely valuable.
(Mr Thorpe) For the first part we too have operated
through a Treasury lead and have contributed to Treasury efforts
in that regard.
228. Have you been working on this?
(Mr Sweeney) We work in two different streams. We
work through the United Kingdom Treasury. We are also members
of the European Banking Federation and we work through them to
try to influence all European Directives, so yes, we play a major
Chairman: Can we move straight to prosecutions
and convictions which Mr Rowe is going to lead on?
229. I think you will have picked up a sense
of frustration within the Committee that if there is laundering
on the scale that we think must exist in such a sophisticated
market it is extraordinary how very few prosecutions happen. We
were told that the reason was that it is the predicate offence
that is prosecuted. Why is it that it is so often the predicate
offence that is pursued, and if London is used for the later stages
of laundering should there not be a greater number of prosecutions
for money laundering?
(Mr Thorpe) Perhaps I can start by clarifying the
fact that there are several elements to the prosecution question,
and I will be selfish here and identify the bit that concerns
me. That is the FSA and that is the failure to have systems and
controls. If you were to charge us with having done very little
by way of prosecution in that regard you would be right. The approach
that has persisted in the past has been one of correction. If
problems were identified then correction efforts were made and
that has been a collective response of the system that was here,
that that was seen as the best way of promoting that course. New
legislation gives us a prosecuting power for the first time in
the FSA in respect of those systems and controls issues, that
alone, not the underlying offence of money laundering and certainly
not the offences that they may be related to. In respect of systems
and controls we will acquire that power and we will expect to
230. If I can give you a parallel, it seems
to me that if the police fine people consistently for speeding
and take them aside and tell them they should behave better, it
may be very good for the individual driver but it does not half
give a much greater shock to the system if somebody is fined £5,000
for speeding and it is put in all the local papers.
(Mr Thorpe) And unfortunately we have not had a capacity
to fine. We have been blessed with one of two responses: trying
to fix it or close down the bank. Invariably, when you are faced
with options of that sort, you try and fix it. The situation must
231. If the newspapers and the media are consistently
reporting that money is moved through United Kingdom banks and
financial institutions, why have there not been more prosecutions
and convictions? If the media are so sure they know, is the evidence
of such poor quality that you cannot act on it? I am encouraged
by what Mr Thorpe says in a way but are we going to see more convictions
in the future?
(Mr Abbott) Regrettably I am not sure that the media
reporting is always based upon evidence. I think sometimes it
is quite speculative.
232. Some of it is based on things like reports
from the Swiss banks.
(Mr Abbott) Yes, I appreciate that, but I think to
suggest that we can rely upon media colleagues for an accurate
interpretation of what is going on is perhaps sometimes fraught
233. Well chosen words, Mr Abbott!
(Mr Abbott) To try and answer your question, the complexity
of the current legislation, the difficulty of proving knowledge
or suspicion, all these issues are issues that have been identified
and which I hope will be addressed in the Government's response
to the PIU report. I mentioned earlier that there has been a gap
in enforcement in terms of the police having the powers but not
necessarily the incentive given other priorities, and the regulators
having the information but not the powers. I think that we are
moving forward now and that that will be addressed. I appreciate
it is jam tomorrow but this is an extremely complex area which
people have been grappling with for a number of years. We need
to bear in mind that the United Kingdom, in comparison with many
other countries, remains near the top of the list of those endeavouring
to tackle these issues.
234. It was suggested earlier that one of the
commonest channels was money to be sent from a foreign bank or
foreign financial institution to a British institution. If you
have reason to suppose that the particular financial institution
overseas is a conduit for laundered money, do you then tell the
British institutions that if they get large deposits from this
particular source they should look at it particularly clearly
or they should include it in their report to you or something
of that kind?
(Mr Abbott) To date no, on the basis that I may well
be in danger of committing an offence of tipping off. Also there
is an issue around civil liability, that that may well bounce
back upon me.
(Mr Sweeney) May I make a general comment and a specific
comment? The general comment is that we have talked before about
the volume of funds that flow to London and it is absolutely vast.
Even if there is a substantial proportion of laundered funds flowing
through London it will still be a minuscule proportion of the
level of funds that are actually dealt with. When you are talking
about exercising judgment, quite apart from the complexities of
the legislationand I fully agree with all the comments
that have been made about the complexities of legislationforming
the commercial judgment that that is a suspicious transaction
and that you should report it is far from easy. Identification
post hoc that some money that passed through was criminal does
not necessarily mean that it was detectable at the time. That
is why so much importance is attached to the training aspect to
help people to understand. That is the first leg in the chain
of prosecution. The specific point is that in terms of correspondent
banking under legislation at the moment, banks are entitled to
assume a chain of knowledge so that if you are satisfied that
the bank you are getting the money from is itself a regulated
bank in a respectable system then you can rely on that. You do
not have to look behind that bank to explore the origin of the
funds or the nature of the customer who has produced the flow.
235. If you do prosecute a bank or a financial
institution for money laundering, who goes to jail?
(Mr Thorpe) In respect of money laundering controls
and systems we are looking at institutions being prosecuted, in
which case the likelihood is, if it is of sufficient seriousness,
closure of the institution. If it were less serious it would be
a matter of financial penalty and publicity. If there were individual
culpability then we would seek out the individuals and prosecute
236. Mr Orme, I think you wanted to come in.
(Mr Orme) Chairman, it was picking up on the element
about would one of the trade associations here actually finger
a suspected problem overseas institution? I want to emphasise
that both the laws and the way the courts interpret the laws require
us to have very good grounds for interfering there in third party
matters. It comes back to the bit about mixed signals. In our
approach which we have consulted on about how we operate our new
role we have welcomed and picked up usable public agreed governmental
and intergovernmental signals. We speak about using national and
international findings where there are jurisdictions with problems
attached to them, and this is part of the international co-operative
effort which Mr Thorpe was speaking about in our actual financial
crime. There is a lot of work going on to try to identify and
make publicly visible and usable judgments about whether one or
other originating jurisdiction should be regarded with heightened
care, tendency to suspicion, and that we are building on. It is
in our document.
(Mr Thorpe) I can give the Committee some specific
meat on that. The Financial Action Task Force named in June this
year 15 unco-operative jurisdictions. Following Mr Orme's observations
about our guidance, we would expect that to be taken on board
by those receiving instructions from, say, a bank in Nauru or
St Kitts and Nevis or wherever it might be. That would be something
that we think should trigger a suspicion. There are sources for
Mr Rowe: So it is happening.
237. Do you take the evidence given to you by
anti-corruption units which have been established in a number
(Mr Thorpe) We have no direct dealings with anti-corruption
238. Do you think you should do?
(Mr Thorpe) I think we would have to examine what
they gave us and what use we could make of it.
239. The Department for International Development
is part financing them so there is British money involved. If
they are turning up anything of use to you it seems to me to be
a productive source of information.
(Mr Thorpe) Our problem invariably is, if there is
to be a problem, whether the information they can provide is sufficiently
public in nature so that we can then provide action.
2 See Evidence pp 151-152. Back