Examination of Witnesses (Questions 200
TUESDAY 21 NOVEMBER 2000
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
Mr Robathan: There are many honest solicitors
too, I am sureI hope!
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.
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
(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
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.
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.
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 corruptionI
hope I do not do an injustice to the Committee's interest in thisas
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.
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
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
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.