Examination of Witnesses (Questions 160
TUESDAY 14 NOVEMBER 2000
160. I asked the question also why did they
not prosecute the banks, and they said in reply that if there
was reason to suspect there was a problem, and the suspicions
were brought at the appropriate moment, no doubt the banks could
be liable. That was all they said.
(Mr Rodmell) When you think about it they talk about
wanting to prosecute the predicate offence and that is a very
easy way out because almost certainly those responsible for the
predicate offence are offshore, so they are not likely to be prosecuted
in this country.
161. One of the most potent forces for money
laundering is actually lawyers, lawyers' clients accounts are
what give rise to, as you say, the final rinse. Is that your experience?
(Mr Rodmell) I have no direct experience because it
is a long time since I was in private practice. I am sure that
they are at risk and not just the major city law firms, I think
firms outside of London are also targeted for processing funds
in this way. That is an issue which is being tackled by the EU
at the moment and the revised Directive will put much more stringent
responsibilities on the lawyers, accountants and banks and I think
that will get better. I think also the Financial Crimes Bill is
going to make the whole area of the money laundering offences
much less complex. There is good movement in that area.
(Mr Cockcroft) Chairman, if I could just add to that.
TI has also, on an international basis, recently assisted ten
major private investment banks to formulate, as it were, a particularly
detailed form of know your client. This was announced in the press
about two weeks ago. The key point being that in agreeing to take
a certain deposit there must be a full understanding of the origins
of that deposit so that, to meet the immediate point under discussion,
if it is reintroduced by a lawyer or a solicitor the actual beneficial
owner is known; likewise in relation to trust funds. These guidelines
have been welcomed. In fact, they were developed by the banks
themselves under our kind of umpireship.
162. The British are curiously behind in this.
I have known that this kind of practice has been in place in Third
World countries for a very long time. It is extraordinary that
the British are so far behind, is it not?
(Mr Cockcroft) That seems to be a form of collective
self-deception, as it were.
163. Arrogance perhaps. In your memorandum you
talk about the possibility of civil remedy as an alternative to
criminal proceedings and you recommend that "consideration
should be given to raising awareness of civil remedies in victim
countries". Are there any examples of successful civil action
being taken in corruption cases? Will proposals to amend the UK
law on corruption that we have just discussed make it easier to
institute criminal proceedings both to freeze or recover the proceeds
of corruption, and to take action against those guilty of corruption?
First of all, are there successful civil actions that are possible
and will the new law make it possible for civil actions to take
(Mr Cockcroft) I think Mr Rodmell will take that.
(Mr Rodmell) Again, I do not claim to be an expert
in these areas but I understand that there have been a number
of very successful and quite high profile cases in which civil
claims have been successful. The point about this really is that
they do not have the same problems with standards of proof, they
do not have the same restrictions on freezing orders and so on
which are necessary in support of criminal prosecutions. Our courts
on the civil side do show a great deal of flexibility, so it is
certainly worthwhile countries considering that if they actually
want to get money refunded to their exchequer as opposed to punishing
individuals, but for some reason, I suppose in a way it is quite
natural, they actually want to punish those responsible instead
of getting the funds back. There are some exceptions to that.
I have got a note of some of the cases here which I can just mention
if you wish. There is a 1989 case where the Republic of Haiti
took proceedings in France to recover proceeds of corruption and
so on from Baby Doc Duvalier, who had been deposed. English proceedings
were taken in support of that. Our courts purported to grant a
freezing of all Duvalier's assets worldwide, which was a pretty
strong situation, possibly the French court might have been less
inclined to do that. That shows the flexibility on the civil side.
I have got the references for these, which I can pass to the Clerk
164. Thank you.
(Mr Rodmell) There is the Attorney-General for
Hong Kong v Reid in which an official in Hong Kong was fined
for bribery. They also took a claim against his assets which were
in New Zealand. They were then held to be in trust for the Crown
through Hong Kong, so that was useful as well. There is a case
by the Arab Monetary Fund v Hashim which I think was related
to Bernard Sunley's building of the headquarters building of the
bank in Abu Dhabi, which was also successful. A more recent case
concerned the Ajaokata, a steel mill in Nigeria where some 25
defendants, including banks, were sued for a civil claim.
Chairman: That is very helpful. If you
have other examples perhaps you could give them to the Clerk as
well. We must move hurriedly to the private sector where Mr Rowe
is going to lead us.
165. Why do you think the private sector is
so unwilling to fight actively against corruption in developing
countries? Are there advantages for the private sector in the
corruption regime, or is there some other reason?
(Mr Cockcroft) I would like to ask Mr Bray to respond
(Mr Bray) Two things. I think that the private sector
is taking a much more active role in putting its own house in
order and that is clearly where its prime responsibility lies.
Companies do not wish to be seen to be telling other countries
what to do, so in that respect they perceive their role as being
very different from an advocacy group such as TI.
166. Is there not a risk that they take on codes
of conduct as a kind of window-dressing and actually, with the
exception of the very, very big international companies, like
Shell Petroleum or something, they just become a sort of fig leaf
which means nothing much?
(Mr Bray) There is a risk for a company in taking
on a code and not applying it. That means that if they are found
guilty of an infringement they look even worse than they otherwise
would. Yes, there is a risk but I do not think that is what is
happening. I would rather put it that the current movement, and
there is something of a movement, towards codes of conduct is
part of a process. The process is not completed when you have
a code of conduct and you can put it on your website, the process
has to be followed through by implementing it, by getting buy-in,
as I think the phrase is, from your middle management and from
your country managers and implementing a whole series of compliance
measures. That process is incomplete. We did a survey last year
of some 50 US companies and 70-odd Northern European companies
and we found that the overwhelming majority now did have formal
codes of conduct saying that they would not pay bribes to secure
business, but follow-up mechanisms were not so consistent. Among
the mechanisms which we think are particularly important are adequate
training for people who are going to be exposed to difficult situations
and there are several others as well.
167. Finally, local companies do not have the
option that, for example, Unilever recently exercised in the case
of Bulgaria where it pulled out because it reckoned it was too
corrupt to do business. How can donors and multinational companies
provide practical assistance to local businesses to enable them
to avoid corrupt practice, do we have to accept that until the
system changes such businesses will have to go along with corruption
in order to survive? We are almost back to our telephone.
(Mr Bray) I think local companies do face significantly
greater pressures and one might also say greater risks in that
if they make a mistake they may lose the whole business, whereas
a company like Unilever can afford for one part of its empire
to suffer. The kind of back-up which can be given is in the area
of best practice and this, incidentally, comes to the kind of
advocacy that a company can do. It is badly received for a company
to give lectures on corruption; it is not so badly received for
a company to say "these are the kinds of best practice which
we expect to be carried out in our companies". That kind
of assistance could be given, for example, through Chambers of
Commerce. The International Chamber of Commerce has taken quite
a strong stand on corruption and extortion issues. Professional
associations have already been mentioned. I regard that kind of
help to be something which is quite legitimate and quite appropriate
for companies to do in partnership with local organisations and,
if appropriate, with government funds as well.
168. This is my last question which is not to
do with actual money necessarily. If, for example, a firm decides
to use as its agent the Prime Minister's son, is this not enormously
corrupting even if the Prime Minister's son only takes a reasonable
(Mr Bray) There are two sides. Perhaps if I can broaden
it out to the whole question of agents, I do regard this as one
of the greatest areas of vulnerability of companies, including
British companies. There tends to be a kind of complacency about
the use of agents. That complacency is not justified from the
legal point of view, at least as regards the Foreign Corrupt Practices
Act where there have been prosecutions of companies using agents
who pay bribes or under the general sense of the OECD. So when
we have proper legislation I trust the British legislation will
cover that particular point. We would also say, as a risk consultancy,
that it does not address the risk point of view. If you pay money
to an agent who is then paying you do not know who, but on your
behalf, first of all you are incurring financial expenses but
also your reputation is at risk. On the specific point of employing
the Prime Minister's son, let us say that you were paying him,
the ICC phrase is something like a "commensurate fee"
in line with the services rendered, there probably would be no
legal issue. We would say, however, there would be quite considerable
political risks because the Prime Minister's son might not remain
the Prime Minister's son. He will be the son but he will not be
the Prime Minister's son.
169. The Prime Minister may not remain in office.
(Mr Bray) He might even be disowned, but that does
not happen very often. We would not regard that as best practice.
It is perhaps an example of alternatives to corruption which are
both just as risky and just as reprehensible as the actual payment
170. Are there any quick examples of companies
who have adopted Codes of Practice who have actually taken action
against employees of theirs who have indulged in corrupt practice?
(Mr Bray) Yes, there are.
171. How common is it?
(Mr Bray) I hesitate to say how common because companies
do not normally boast about it. For example, Shell, which has
various publications on its social responsibility, has referred
to the number of employees it has sacked. I would actually want
to check my facts, I am not sure if it is Shell or BP.
(Mr Cockcroft) In 1998 it was 18 people who were fired
(Mr Bray) That was Shell.
Chairman: Perhaps you could write to
us about those examples,
that would be very useful.
172. I am sorry that debates in the House this
morning seem to have culled a fair number of our Committee at
various times. I wanted to welcome the members of Transparency
International. When we were in Bangladesh I pleaded with my colleagues
to meet Transparency International because of my friendship with
Tawfique Nawaz and they agreed and I have not been able to keep
them away from you or your briefings ever since. When we had our
discussions in Bangladesh we asked when the corruption is endemic,
how do you start and where do you start? I apologise if you have
covered these areas. I do remember somebody saying you start by
trying to build up, I think the phrase was, "islands of integrity",
which loosely means you find somebody who is not corrupt and you
strengthen them or you reward them in some manner. That is in
the public sector. Is there any way that you can imagine that
this can be replicated in the private sector?
(Mr Hasan) I would say this is something that we have
just started to work on with the private sector and at the moment
we are going through a process whereby we are trying to identify
certain companies in the private sector who would be able to work
together, not just within the private sector but also linked up
with the government and also multinational enterprises, MNEs,
to create a kind of coalition with various Chambers of Commerce
and other organisations and create initially that awareness. By
creating impediments, creating the problems we have talked about
today, it increases the costs of doing business but to MNEs the
extra cost is minuscule, it is very small, and what is more important
is that they have to compromise on their ethical standards, like
Shell and others. That really is the major factor. Doing business
you cannot compromise with the ethical standards. It does not
really matter whether it is MNEs, it is also true involving local
enterprises because they feel the same way. If you speak to small
business companies, firms, they are extremely frustrated because
they keep their books, they want to pay their taxes and want to
do everything properly but even when they want to do things properly
they cannot, they are forced into a position where they have to
bribe people and get involved in unethical things. That is the
message that we are getting from various companies, both local
and international. This is something we said earlier on, this
is forming a coalition of not just one particular section but
a whole range and pushing that. Again, I think the government
is also quite keen. For example, the Board of Investment would
be very happy to see all the commitments that people are making
to invest in Bangladesh are actually translated into real investment.
There is a very wide gap between what they would like to do and
what they actually do at the end of the day. That gap is mainly
due to the fact that businesses cannot operate on an ethical plain.
(Mr Cockcroft) Chairman, could I just add something
to that. First of all, we are very conscious in TI generally,
including TI-UK, of the fact that there are quite a number of
international companies who do want to address this issue, not
just the most obvious names. To some extent that is why we have
been able to put together in the UK a Corporate Supporters Forum
with about 17 members. What I would really like to mention, and
I think it is relevant to your question, is that within TI generally
we are now in the process of attempting to develop a corporate
integrity standard and that process is actually being worked through
with ten multinational companies, by no means all from the north,
some of them with a base in the south. The objective of this is
to produce something that might be resembling a standard, but
perhaps not called that, that would represent corporate best practice
in relation to corruption, and because it would be emanating,
at least to a considerable extent, from within corporate circles
it would have a validity that an independent, as it were, self-standing
"standard" would not have. That is a process that we
are very much engaged in and which I think next year will have
a specific outcome.
Chairman: May I thank you all very much
for your written evidence but also for coming here this morning,
particularly in view of the fact that you are all volunteers.
I think the fact that the Committee is addressing this subject
is in large part as a result of TI-Bangladesh and I would very
much like to thank Mr Hasan particularly because I know he has
journeyed here from Bangladesh and delivered a large amount of
evidence to us only yesterday which we will go through in detail.
I would like to thank you in particular for coming all this way.
I think what it has done is to focus on what Britain itself is
doing about this subject and I think we have got a lot to do to
put our own house in order, as Mr Rodmell has indicated. It has
been a very beneficial session, thank you all very much.
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