Newcastle North MP, Catherine McKinnell, called on the Government today (11th December) to prevent British companies and individuals helping corrupt criminals in poor countries.
Speaking during an adjournment debate she secured in the Commons to mark UN International Anti-Corruption Day (9th December), Catherine highlighted the potential for corruption to undermine much-needed development aid. She said the current system means Britain is effectively ‘giving with one hand and taking away much more with the other’.
Catherine, who is the co-chair and founder of the All-Party Parliamentary Group on Anti-Corruption in Westminster, also described the alleged role of British companies and professionals who help politicians from developing countries steal huge sums from their citizens.
She raised the impact of ‘dodgy deals’ reportedly arranged by UK lawyers and channelled through shell companies in London, or UK-linked territories like the British Virgin Islands, and highlighted the devastating impact this can have on some of the world’s most vulnerable citizens. Citing the Democratic Republic of Congo as an example, Catherine explained that five bad mining deals are thought to have lost the country more than its annual education and health budget combined.
The Newcastle North MP called on the Government to ensure British firms do not facilitate these transactions. She asked the Department of Business, Innovation and Skills to require the new public registry of who really owns and controls companies to include a unique identifier for individuals listed, to check the information submitted is accurate and to make sure it adheres to the G8 Open Data Charter to which the Government is a signatory.
The Labour MP also highlighted the role of British banks alleged to take corrupt funds, asking the Government to make sure senior bankers take personal responsibility for preventing this in the future.
Speaking during the debate, Catherine said:
‘We are rightly proud of our aid spending in this country, and I strongly welcome the Chancellor’s confirmation in Budget 2013 that the Government intend to meet and build on Labour’s legacy, which was to set the UK’s historic target of spending 0.7% of gross national income on overseas aid.
‘It is time, however, to take that a step further. We must ensure that resources are provided in a broader context that ultimately reduces developing countries’ dependence on aid. To do so, we have to look in our own backyard at how domestic business legislation can have a major impact on international poverty.’
She described the UK-regulated shell companies and British banks laundering illicit cash as ‘tools provided by western businesses that facilitate devastating global corruption’ which hinders the life chances of the world’s poorest citizens.
‘It is vitally important that the register of who owns and controls companies be fit for purpose and that the Government improve bankers’ compliance with anti-money laundering rules.’
And Catherine emphasised the urgency of dealing with this situation:
‘It is important to recognise the context in which we are speaking. Today…800 women will die unnecessarily in childbirth, 29,000 under-fives will die from preventable causes, 67 million children are not in school when they should be and almost 1 billion people will go to bed hungry. The money to remedy that appalling situation is entirely available but is often being stolen for private gain.’
This is the full transcript of Catherine’s speech:
We are here to highlight the United Nation’s international anti-corruption day, which took place on Monday this week. Citizens and parliamentarians have been marking the day right around the world, and I am pleased that the United Kingdom is playing its part, too. It is very appropriate that legislators in this country should highlight international anti-corruption day, because we are in a particularly good position to do something about it. Many of the tools that allow corruption to happen are within our control. I therefore hope that today’s debate, albeit brief, will contribute to the momentum of calls for change.
When we speak about corruption, we think about malevolent characters in places far removed from the UK, such as Nigeria, Afghanistan and the Democratic Republic of the Congo. While those might be the sites of theft and where the devastating consequences impact on people, the deals themselves might be taking place just down the road from Parliament, in our capital city. In truth, corrupt officials in developing countries would find it much harder to steal from their citizens if they were unable to use the tools provided by international business, which includes UK citizens, UK-based companies and those listed on the London stock exchange. Those are all elements over which we can exercise some control. We are rightly proud of our aid spending in this country, and I strongly welcome the Chancellor’s confirmation in Budget 2013 that the Government intend to meet and build on Labour’s legacy, which was to set the UK’s historic target of spending 0.7% of gross national income on overseas aid.
It is time, however, to take that a step further. We must ensure that resources are provided in a broader context that ultimately reduces developing countries’ dependence on aid. To do so, we have to look in our own backyard at how domestic business legislation can have a major impact on international poverty. Western business frameworks facilitate illicit financial flows out of Africa. Shockingly, those flows outweigh the amounts that those countries receive from aid and foreign direct investment. We have the power to prevent that, but until we do so, we will effectively keep giving with one hand and taking away much more with the other.
It is important to recognise the context in which we are speaking. Today is 11 December, and on this day, 800 women will die unnecessarily in childbirth, 29,000 under-fives will die from preventable causes, 67 million children are not in school when they should be and almost 1 billion people will go to bed hungry. The money to remedy that appalling situation is entirely available but is often being stolen for private gain.
Since the creation of the Department for International Development by the previous Labour Government in 1997, the UK has played a leading role in tackling these problems, and we should celebrate that important work and recognise that it is very much being continued under the coalition Government. It is vital that we continue to provide targeted, efficient and comprehensive aid where we know it will have a significant impact on the life chances of our fellow global citizens. However, those citizens are not simply asking us for direct assistance; they are asking us to look at how the conditions that we regulate continue to make and keep poor people poor.
To consider the role of western countries in this scandal, let us take a hypothetical example. A corrupt Minister tenders the mining rights to his country’s substantial mineral wealth. A multinational company guarantees winning the tender by sweetening its application with a large bribe. It most likely does so using a shell company to provide anonymity and an almost total guarantee that the money will be unrecoverable by officials. Alternatively, perhaps the Government sell the mines directly to a recently registered company with no employees, premises or registered activities. The Minister oversees the sale of the assets at as little as 5% of their market value, and the company then sells the assets on for a hefty profit, making sure that the corrupt Minister is well compensated personally for his generous deal. The shell company hides the often overly close relationship between the individual buying the assets and the person selling them, and corporate vehicles essentially render owners unaccountable for their actions.
After the deal, both the Minister and the company have illegitimate wealth from which they wish to benefit, and that is where the second element implicating international business comes to the fore: the laundering of ill-gotten gains through western financial institutions. To access the global marketplace, individuals need reputable banks in countries with strong property rights, such as our own. Without banks willing to take their cash, criminals would be unable to reap the rewards.
Shell companies and money laundering are two major tools provided by western businesses that facilitate devastating global corruption. Before I go on, it is worth commenting on the scale of the problem. Deals very similar to those that I just described lost the Democratic Republic of the Congo—a country at the very bottom of the UN’s human development index—more than its total annual health and education budget combined. In Nigeria, General Sani Abacha stole an estimated $1.3 billion while in power from a country where the national income is just $260 a head.
I suspect that the Minister, who is from the Department for Business, Innovation and Skills, is wondering what he is doing here, or is slightly concerned that he has arrived to respond to the wrong debate, because much of what I have discussed so far relates to the Department for International Development. However, many of these deals, such as the lost funds in the Abacha case, are alleged to have been laundered through British banks, and it is our own country’s role in this global scandal to which I turn.
Our role is in part a consequence of the sheer scale of our financial services, which undoubtedly play a major role in the nation’s economy. The UK accounts for 18% of cross-border banking and houses 251 foreign banks—more than any other country. London has been voted the most attractive financial centre for asset management and is the largest currency trading centre in the world. However, we are also implicated through our links to British overseas territories and Crown dependencies, which, together with the UK mainland, account for one third of all shell companies. A number of thefts from the Democratic Republic of the Congo, for example, were routed through the British Virgin Islands.
Thirdly, and on a very positive note, we are also linked by our potential international leadership on this issue. Since 1997, the UK has proved itself at the forefront of international development work and has recently taken steps to lead the world in global transparency too. We very much support the steps that the Government have taken in relation to transparency, particularly the recent Lough Erne declaration, after the G8 summit there.
It is important that beneficial owners are required to provide information such as a passport number or date of birth, so that the register provides a unique, verifiable identifier for every person listed. It is also important that the information goes through some means of verification by Companies House. For example, it could be cross-checked with other registers, such as those of the Driver and Vehicle Licensing Agency or the passport authority. Where company ownership is not direct, individuals should be asked to explain how they exercise control, and when control changes it should be noted within a reasonable time period. Lastly, it is important that the information is published in line with the principles outlined in the G8 open data charter, to which the UK is a signatory, and on a very practical note, it must be machine-readable and searchable, because the amount of information contained will be vast and it is of no use if it cannot be searched.
It is vital that the register is fit for purpose, so the eyes of parliamentarians from across the House will be on the Government as they implement their own pledge next year. I and other members of the all-party group on anti-corruption will make sure that the Government make every effort to introduce the legislation to make that happen.
Money laundering has been much discussed in recent days, during the passage of the Financial Services (Banking Reform) Bill. Noble members, including former members of the respected Parliamentary Commission on Banking Standards, not least the Archbishop of Canterbury, have been calling on fellow legislators to take this opportunity to tighten up our anti-money laundering regulations, because our current checks are inadequate. In 2011, the Financial Services Authority found that 75% of banks, including the major ones, had inadequate checks in place and a Treasury report published just last month described the common failures as
“fundamental Anti-Money Laundering/Counter-Terrorist financing obligations… that all firms should be aware of.”
The new banking standards created by the Bill present an ideal opportunity to embed anti-money laundering compliance, both at the very top and throughout the culture of British banking.
Finally on the subject of money laundering, it is worth noting that this week is the anniversary of the imposition of a $1.9 billion fine on HSBC for transacting with Mexican drug lords, terrorist financers and those in countries subject to sanctions, including Libya, Burma and Iran. As a result of the deferred prosecution agreement that HSBC signed in order to avoid more serious punishment, its compliance with anti-money laundering laws is being independently monitored for five years. HSBC will be monitored not just in the United States; the Financial Conduct Authority will also be monitoring HSBC’s compliance with UK laws during the next five years. I would be interested to hear the Minister’s views on whether those monitoring reports should be published.
There are some general anti-corruption steps that the Government should consider taking. I draw to the Minister’s attention a Transparency International report on asset recovery that was released this week. Clawing back the money stolen in the type of deals that I have talked about is vital, but at present it is extremely rare. Currently, 99% of illegally obtained money flows undetected through the financial system. The seizure rate could be as low as 0.2%. How many people would steal millions of pounds if they had a 99.8% chance of keeping it?
The report suggests that there should be a new law against corrupt enrichment, which would allow suspicious assets that vastly outweigh the declared wealth of a politician or public official to be seized until proven legitimate. That would shift the burden of proof to the individuals wishing to invest, and away from businesses, which are already under significant obligations. I would be interested to hear the Minister’s views on this proposal.
It is also important to stress the important work of law enforcement in this area. As legislators, we are often very quick to add to the statute book, but of course it is vital that existing laws are enforced. The all-party group on anti-corruption was recently briefed by the head of the Metropolitan police’s proceeds of corruption unit. The unit, which is funded by DFID, costs just 2% of the amount of money that it has recovered, and just 0.3% of the amount of money that it is currently investigating. A £50 return for every pound of investment seems to be a pretty good deal.
The overseas anti-corruption unit, which sits within the City of London police, is also funded by DFID and since its creation in 2006 it has investigated more than 155 cases where corruption or bribery were alleged, resulting in more than 115 suspects being investigated and in the arrest of 80 individuals involving a number of sectors, including energy and natural resources, security, humanitarian aid, construction and engineering, and publishing. For every pound invested in that unit, Her Majesty’s Revenue and Customs retrieves between £10 and £30 from the clutches of shell companies and returns it to the UK public purse. In times of austerity, the Government should clearly be prioritising areas of work that provide such good value for money.
I will conclude by turning once again to those who suffer the impact of these devastating crimes. I would like to relay the words of a Zambian nurse quoted by ActionAid in one of its reports about the alleged abuse of shell companies. She describes what her hospital would do if it received the money that was owed to it. She says that
“maybe that money would be used…to access hard to reach places.”
She goes on to say that at present the hospital staff can only reach
“surrounding areas which we are able to walk to.”
The President of Equatorial Guinea’s son purchased a Gulfstream jet with suspicious funds, so he could probably solve that problem for them. However, I doubt that he will do so on his own. Instead, let us take the opportunity that we have here in the UK Parliament to do it.