Select Committee on International Development Minutes of Evidence

Examination of Witnesses (Questions 380 - 399)



Mr Colman

  380. Thank you for picking that up. Can I press that. Is that acceptable, under the international code of accounting, that no such line is in fact not going to mean the qualification of the accounts of that subsidiary operating company?
  (Mr Williams) All I can say in our case, in so far as these things, is they are immeasurably small.

  381. Could I ask if other members of the panel would like to comment on whether they receive a qualification of the accounts of any of their developing country subsidiaries because, in fact, of corrupt payments being made?
  (Mr Phillips) From our point of view, we use the same audit company worldwide and we apply the same standards worldwide, no less. That is a very rigorous standard. I think the other thing is I do not suspect that anybody has a line saying "facilitation payments or bribes" in their accounts. What they will have under customs clearance entries is a line which is long accepted and which will always appear. You have to remember that particularly in customs you are often dealing with clearance agents who formerly have been customs officers and you will see a line which is called "petty disbursements" and that will cover a multitude of items and I think you will find that most of these facilitation payments, the "tea money", the "speedy money", the small payments, will appear under that category. The one thing that we have tried to do, certainly in Mozambique and certainly in our own practices here in the UK and elsewhere, is design corruption out, create the sort of system where the references, the operating procedures, the systems in place, the internal audit, the external audit, and encouraging whistle blowing will actually help overcome the sorts of problems which we are all prone to.
  (Mr Bray) On the accounting, I understand, and this is based on a presentation by an American lawyer, that under American law although facilitation payments are not currently within the definition of the FCPA definition of a bribe, nonetheless it is mandatory to record facilitation payments and if you do not do so you may get into trouble with the Securities Exchange Commission. That is an answer to that specific question. Could I just on the subject of hotlines emphasise that hotlines should also be helplines, so it is not just you are denouncing somebody because you think there is a problem, you may say "I myself have a problem" and there should be somewhere you can go for support within your company.

  Chairman: That concludes the generic side. We have some specific questions, the first to Crown Agents.

Ms Kingham

  382. I would like to ask about your work in Mozambique. I understand that you have carried out some very radical changes to the Mozambique Customs Service and from past personal experience no doubt those changes were greatly needed. I would like to ask if you have an exit strategy for Mozambique? You mentioned in your submission that it is difficult acting as an island of integrity for the Customs Service there and that changes to the judicial system and a lot of enforcement systems have not been as speedy as the work you have been doing. How does that impact on the long-term sustainability of the work that you have been doing in Mozambique? Do you feel confident that in the long-term it can be sustainable? If not, what more needs to be done to ensure that your work in the long-term has not been in vain?
  (Mr White) Sustainability of the work that we have been doing has always been an issue from day one. We would be less than honest to say that we are totally confident that we can create a sustainable Customs Service with the work we have done. What we have tried to do is to involve as many people in the process of the reform of customs as we possibly can, both within government, with the trading community and within the employees of customs itself. We spent an incredible amount of time in developing systems which are transparent and concentrating on trying to separate functions as much as possible, so that you try and avoid these co-operative circles, or the "mafia", that you quite often see in developing countries' customs organisations. We did that initially and we started off very much on a systems based approach to that. In fairness, I think we possibly missed some of the softer issues, some of the people issues. We have had instances recently where customs officers, who are trying to be honest in a new environment, have had threats on their families and their home situations. We have to try to take that into account as well and we have to create a circle of protection, not only within the workplace but outside of the workplace. That is a critical problem in ensuring sustainability. If you are a consultant, and we have a lot of consultants in the field, and you are going home to a comfortable house every night with guards outside, it is slightly different from going back to the barrios and living amongst the staff.
  (Mr Phillips) May I interject there. There have been quite a lot of reports recently, particularly in relation to customs activity in Dover, where the increase in cigarette smuggling is a major problem, and if you read any of the reports by the staff or in the Civil Service magazines you will see that security and protection and harassment of those people is a major problem. Individuals have been attacked, their houses have been attacked. All our risk, if you like, in Mozambique is like that but there are a lot more guns about.

  383. I come back to this donor co-ordination theme again. You mentioned the judicial system and law enforcement systems need work and it has not been that speedy and that your work might be left as it is, an island of integrity, afterwards. Is any co-ordination going on looking at programmes that have perhaps been carried out as a country strategy in terms of law enforcement and judiciary in relation to your work to ensure that they are working in parallel or the time frames are at least in some ways consistent?
  (Mr White) Recently, to address the issue of sustainability, we have talked at length to the World Bank and to DFID. Less to the Fund because they are not particularly involved in the execution of the Mozambique project, but certainly we have raised this issue with the Fund. To be honest, we think it comes down to some form of conditionality which frankly, in our view, has not been used particularly well by the donor community. We have created an island of integrity within customs, there are still problems, let us not kid ourselves, but we are improving. If that is not supported by the judiciary or the police you are taking cases to court with no chance of getting a prosecution, which is just not acceptable. We have learned that instead of having sensible conditionality of the release of donor funds in terms of making sure that there are parallel actions which support a project which has been widely acclaimed as a success, there seems to be a lack of will to want to address those issues in a co-ordinated way. So donor policy tends not to be co-ordinated. It might sound good at Paris Club and things like that, but when it gets down to the ground there is very little co-ordination of the actions of donors. It is one thing that we have tried very hard to do and in the process of the last six to nine months we have started getting a forum together with all of the donors to try to explain what we are trying to do and to get this action happening in a co-ordinated fashion. Frankly, there has not been an awful lot of evidence of that.
  (Mr Phillips) May I amplify a point there. There are two main things. One, in customs in Mozambique we are a tool of the Government, we collect revenue. We do a lot of other things as well but it has been easy to raise revenue and, therefore, government has more money. In many of the other departments improvements would be efficiency rather than revenue raising necessarily. Also, and it has to be recognised, donors, development partners, the international community, are unwilling and reluctant to interfere in policy. We are not in policy in customs, as I say we are the instrument of the Government. For donors you would actually have to say "you have to change your policy" and to a certain extent, and I agree entirely with what Ian White has said, several times, very much with the support of DFID, we have had to go on the offensive almost with other donors, other governments, to say "you must regard what we are doing here as important. We are not asking you for more money but you must support the type of process that will widen the reforms into the judiciary, into the police". If you want us to carry out anti-smuggling operations, which the World Bank complain about all the time, they say we are not stopping smuggling, you need military and armed police support. If you have not got that sort of support and you are not quite sure whether the AK is to be pointed at you or the smuggler, it is something that we are reluctant to do because national staff are put at tremendous risk in carrying out those types of operations.

  384. What about poverty reduction strategy papers that are coming through from the World Bank, have these not picked these issues up? Have you been involved in this in any way?
  (Mr Phillips) We have obviously been involved in the debate, we are obviously always pleased to give our opinion, but we are not a policy maker, we are a policy implementer. I think Ian White is right, it is the nature and type of conditionality that donors particularly, the development partners, feel able to enforce. I think HIPC is the opportunity to achieve more focused conditionality, if I may put it like that.

Mr Khabra

  385. How successful have you been in stopping the smuggling of goods because, after all, the goods come into the port and you are responsible for them? Have you made any progress or not?
  (Mr Phillips) Yes, we have made considerable progress. I think the best way of identifying the progress we have achieved would be to talk about the increase in domestic production but also in terms of revenue collected. The year before Crown Agents were appointed to manage customs in Mozambique government had collected $86 million and the graph line was downwards, this last year we collected something over £200 million.
  (Mr White) $230 million.
  (Mr Phillips) Correction, $230 million. In that regard against a reducing tariff and reduction in controls on trade into Mozambique because of SADC and so on, I think we have done remarkably well.

  Chairman: We must hurry on. Balfour Beatty and Ann Clwyd is going to lead.

Ann Clwyd

  386. Mr Welton, Balfour Beatty appears to have been implicated in a number of scandals, including the Pergau Dam, which I had a particular interest in since I took it to the National Audit Office which then carried out an investigation, but that is something in the past, and the Lesotho Highlands Water Project in which four UK firms, including Balfour Beatty, are being accused of bribery to obtain contracts in conjunction with the project. Can you tell us exactly what the allegations are against Balfour Beatty in Lesotho and what you are doing to address the issues that the case raises?
  (Mr Welton) I will do so. First, with your agreement, Chairman, I would like to comment on Pergau. You do say it is the past. There was a newspaper article in The Observer which has been reported by one of the correspondents to your Committee, as indeed it has commented on various other things to do with our company, many of which are incorrect and untrue. With your agreement I would like separately to write to the Committee and point out where that evidence is untrue.[5]


  387. Please do.
  (Mr Welton) The instance of Pergau will be dealt with in that regard. As far as Lesotho is concerned, there are a number of consortia and individual companies that have been cited in actions citing that an agent acted in bribing an official. Those actions have stalled. It is the consortia in each case that have been cited, not the individual companies. At the moment the matter is sub judice. There are obviously things that we could say to the Committee in private, and we would be happy to do so, but beyond that I cannot comment. The resolution of the issue may take a year or more.

  388. Perhaps it would be convenient at the end of this session if we could go into private session and you could give us that evidence if there is time.
  (Mr Welton) Indeed.

Ann Clwyd

  389. What controls does Balfour Beatty have in place to prevent corruption? I am not clear from the earlier answers that you gave what these controls are?
  (Mr Welton) We have had controls in place for a number of years and obviously we have progressively felt in a number of issues that not only do we have to have controls but we have to be seen to have controls and they have to be in the public domain. We have a policy on ethical business practices and that policy is very clear in what it expects from individuals. It is part of a number of policies on business practices. We then have, as I alluded to earlier, processes from the bottom up that identify issues where they may result in the company either not bidding for work or not operating in countries and decisions are taken to do so. That is the day to day process of the risk management of business, a part of it. As the Chief Executive I am required to report on our business practices to our Business Practices Committee, which is a board committee entirely comprised of non-executive directors and is chaired by a separate director from the Chairman, it is not chaired by the Chairman. I report regularly to that committee on all aspects of what we regard as business practices as opposed to the day to day commercial activity of the company. This includes health and safety, business ethics, environmental issues and human rights. That process is designed to ensure, as much as is practically possible, that we comply with our policy and that we take whatever actions are necessary if there is any disregard of that policy.

  390. We talked earlier about transparency. The Corner House has told us that you were banned from bidding for contracts in Singapore, for example, when you were prosecuted again as you have been prosecuted in Lesotho. Your company's annual report did not mention those problems at all. Why is this and should the company not have a duty to report these problems to their shareholders? Why omit them?
  (Mr Welton) Two points. First of all, Balfour Beatty has never been banned from operating in Singapore in its history and, indeed, operates in Singapore very successfully today and is carrying out rail work in that country at the moment. I would like to be helpful to the Committee rather than appear to be at all obstructive. Its parent company was BICC plc and a subsidiary of that company, which is a cables company, was banned from bidding in Singapore. At no time has Balfour Beatty ever been banned from bidding in Singapore and, indeed, it has always continued to operate successfully there. I would add that that is another example of misleading information that has been put in writing to this Committee.[6]

  391. And Lesotho?
  (Mr Welton) If I go on to the particular subject of Lesotho. Naturally enough, if such a serious situation as alleged bribery is made against a company we would always conduct a very stringent internal investigation. If we felt that there was anything we could find, any knowledge we had that any wrongdoing was done and the company was affected by this we would indeed report that publicly and these matters are judged to be material or not. In the case of Lesotho we have made a judgment on that and that judgment is supported by our audit committee, which is non-executive directors, and will be supported by our external auditors as well. So the three processes that go through are the company deliberation, the audit committee deliberation and the external auditors. It is a question of materiality.

  392. The point has also been made to us in evidence that civil construction and the arms industries of major exporting countries are conspicuous in their willingness to pay bribes. Would you agree with that?
  (Mr Welton) I certainly would not agree with it from any knowledge. I can only read the comments of some commentators which I presume you have as well. I have tried to consider why that might be seen to be the case and the only thing that I can see that they have in common is that there are very large capital sums involved in both cases and maybe the opportunity for people to disguise sums of money within those large sums is greater than the smaller ones, but that is merely speculation, I have no knowledge of that and certainly no evidence to support that.

  393. Is there anybody else present who would like to comment on that assertion?
  (Mr Bray) Perhaps I can comment. It was a little bit more than an assertion. Transparency International in 1999 conducted a survey and it was a set of structured interviews with people from, I believe, 19 host countries and that was the opinion which was expressed by the respondents to that survey. It was quite a substantial bit of research. Commenting on why that would be, I would endorse the point about the sums of money, not just that the sums of money can be disguised but also that the temptations are obviously higher. The other particular issue in the arms industry is that arms is nationally a sensitive topic and you can hide all sorts of things under disguise of official secrets and the national interest.

Ms Kingham

  394. I will not ask you details obviously about the Lesotho case but there is an issue of public interest here because the Export Credits Guarantee Department in Britain is the department that underwrites using taxpayers' money in business deals internationally and I know they have been involved in the project. Has the ECGD called Balfour Beatty in for any discussions about the allegations that have been made in Lesotho and, if so, when? Perhaps if you could answer that first.
  (Mr Welton) Yes, we have had discussions with ECGD. We have been asked for our position and we have given them our position on Lesotho.

  395. So they have actually conducted an investigation into the matter?
  (Mr Welton) I have no idea of the depth of the investigation other than with interviews with us but certainly they conducted interviews with us concerning that.

  396. When were those, roughly?
  (Mr Welton) I would probably mislead you, I am guessing a year ago but I can come back with the facts on that and I am happy to do that.[7]

  397. I would be quite interested to see them and the depth of the investigation that takes place, considering this is taxpayers' cash.
  (Mr Welton) Yes, indeed, and our responses if that would be helpful.


  398. The World Bank has also suggested that Balfour Beatty should be put on their blacklist I believe, is that right?
  (Mr Welton) At no time have I had any knowledge of that whatsoever. I do not believe that to be true.

  399. It is not true?
  (Mr Welton) I do not believe it to be true.

  Chairman: It is important that we get these facts.

5   See Evidence p. 197-8. Back

6   See Evidence p. 198. Back

7   See Evidence p. 197. Back

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