Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 220 - 239)



Mr Colman

  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.[2] 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.

Ms Kingham

  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 that.
  (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 the gateways.

  223. The legislation at the moment does not prevent you from assisting with areas like capacity building though, does it?
  (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 those.
  (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.

Ms Kingham

  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 involved—the 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 part.

  Chairman: Can we move straight to prosecutions and convictions which Mr Rowe is going to lead on?

Mr Rowe

  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 use that.

  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 improve.

  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 with dangers.


  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.

Mr Rowe

  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 legislation—and I fully agree with all the comments that have been made about the complexities of legislation—forming 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 those.


  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 this.

  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 of countries?
  (Mr Thorpe) We have no direct dealings with anti-corruption units.

  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

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