HC Deb 13 November 1969 vol 791 cc743-54

10.0 p.m.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Harper.]

Mr. Joel Barnett (Heywood and Royton)

Thank you, Mr. Speaker, for enabling us to have this debate on the evasion of exchange control. There are four questions which I want to ask the Minister: first, what action the Treasury proposes to take on the specific allegations made in the Daily Mirror: second, what discussions the Minister is having with the Swiss authorities; third, to what extent the balance of payments is affected by losses from this cause; fourth, how much is lost by this form of evasion?

To begin with the specific allegations made in the Daily Mirror on 5th November, I should like to quote from an article by a reporter, Patrick Lay, who opened a numbered account in what he describes, quite rightly, as a respected Swiss bank. The bank is Julius Bar and Company and the address is 36 Bahnhofstrasse, Zurich, where he saw a Mr. Hansjurg Kagi. Having opened his numbered account, he said that he was a British citizen and asked how he could manage to get sterling into the account in Switzerland. He asked if he had to smuggle it out in a suitcase. He was told that it was not necessary to go to these lengths, and I quote what he was told by this Gentleman in the Swiss bank:

There is an easier way, though it would cost you a little bit more. There are people here [in Zurich] who would take the money off you in England and deposit it here in your account for a fee. A lot of money comes to us from England this way. Mr. Kagi proceeded to give Patrick Lay the names of two banks which would carry out the deal for him. One bank was the Bank Landau and Kimche, and there he saw Mr. Christian Ambuhl who told him that the job could be done by simply handing over cash, and I quote again: You can send me a cheque. The cheque would take three weeks to clear—I can tell you it has to go via Hong Kong—but the rate of exchange is slightly better, we could give you 2.33 dollars to the £ [the official rate is 240]. The rate of exchange if you hand banknotes to our correspondent is slightly lower, but the money is credited to your account in Switzerland within an hour. I have known for a long time that it is possible to evade exchange control and get sterling out of Britain. I am not so naive as to believe that the Treasury is able to plug every loophole. Here we have a specific named case, and I expect to hear from the Treasury that something will be done about it.

This is more than a holiday travel fiddle. We know that people are able to use business expense allowances and are able, with assistance from friendly doctors, to obtain an extra allowance for holiday travel, but this is more than that. This is evasion on a grand scale, the purpose of which is to evade income tax, surtax, capital gains tax, estate duty and the dollar premium. Tiny amounts are not concerned here, there is no purpose in doing this for the sake of tiny amounts. These are done on a grand scale.

I appreciate the difficulties of the Treasury in this situation, that it cannot stop every case. But now that we have been given specific names and evidence of what is going on, I would expect the Treasury to say that it is not allowing the matter to rest. I want to know specifically what the Treasury have been doing, what it is doing and what it is proposing to do to stop up this loophole which has been made so clear.

The other allegation in the article concerns the evasion through Switzerland, Hong Kong, the Cayman Islands, Bermuda, the Bahamas, Malta and many other sterling area countries. What is the Treasury doing, now that it has been given specific examples? Of course, it is not possible to prevent a British national from drawing money out of his bank account and handing over either cash or a cheque to a Swiss national, or any other national. The Inland Revenue every five years checks the capital increases of individual taxpayers to see whether there has been an increase in capital from some unauthorised source. I wonder whether it would be prepared to do a sort of reverse exercise to see whether there has been a diminution of capital which is totally unexplained and to inquire as to where the money has gone, because this situation is rather more serious.

Normally, a man would be reluctant to hand over hundreds of thousands of pounds to a complete stranger, but here we have cases brought to our notice where it is not handed over to a complete stranger but to a representative of a respected Swiss bank. Indeed, this particular bank has a recent acquisition in Mr. Roy Bridge. a former assistant to the Governors of the Bank of England. He has been appointed, apparently, to this Swiss bank as an adviser to the chairman. So it is obviously a respected bank, and therefore a British citizen could feel that he could hand over hundreds of thousands of £s and be confident that the money would finish up in his numbered account in Switzerland.

We have a situation now in which we have names, addresses and details and one would think it possible for the Treasury, perhaps in conjunction with the Foreign Office, to bring some pressure to bear on the Swiss authorities to stop up this loophole.

Then there is the case of a colony of this country, Hong Kong. Anyone who has knowledge about the subject knows that evasion has been and is going on through Hong Kong. But Hong Kong is a colony and one wonders what the Government are doing about it. I want to quote what Mr. Robert Head said m the Daily Mirror on 12th November. He referred to a discussion he had apparently had with a former official of the Treasury. He quoted the former official as saying: We know most of the loopholes but we don't necessarily want to close them all at once. We would only have to increase the very large exchange control staff in order to detect new loopholes that would undoubtedly open up. Is it true that the Treasury does not want to detect these loopholes or is it really trying to stop them up? It is important that the House should know, because clearly it is a situation which would be considered by most members of the community to be a very serious one. They are prevented from taking more than £50 out of the country, while others can take out many thousands of £s and Treasury officials are closing their eyes to it. I would like to know specifically whether the Treasury would concur in what this apparently ex-Treasury official has said.

I come, then, to the third question which concerns the balancing item on the balance of payments. The Minister will know that in recent years the difference on balance of payments has varied substantially. In the last 10 years, from 1958, the balancing item on the balance of payments has been 67, minus 22, plus 299, minus 25, plus 75, minus 72, minus 13, plus 15, minus 80, plus 176 and minus 130. All those figures prove only that clearly something is wrong with them. It is like a balance sheet which does not balance. But it is not a simple balance sheet. It means not that there is a simple error but that there are a variety of compensating errors where there may be a substantial amount on both sides.

In this instance, it could and very likely does mean that in this balancing item over the years there have been some very substantial figures of capital outflow. I would very much like to know the Treasury's estimate of how much in the balancing item relates to the amount of evasion by this form of smuggling.

This is the worst type of capital outflow. I have complained in this House for a long time that we have allowed far too much capital outflow, even where we had a small amount of return on it. But here we get no kind of return. I would like to know the Minister's estimate of the figure included in the balancing item.

I come now to the final and much more important figure. What is the Minister's estimate of the sum being lost through this form of smuggling? According to the Daily Mirror article which I quoted, the gentleman in Switzerland referred to "a lot of money" which goes out in this way.

On llth November, I got some Answers to a series of Questions which I put down to the Treasury. I asked how many people are engaged on the task of checking this form of evasion. I was told by the Financial Secretary: In the Treasury, five officers are employed full-time and four part-time in investigations work (excluding ancillary staff). In another Answer I was told: In the 12 months ending 31st October, the Treasury completed investigations into 445 cases of suspected evasion. Thirty-three prosecutions involving 37 defendants were instituted. Twenty-eight have been heard and all resulted in convictions. One defendant was sentenced to 9 months' imprisonment and fines totalling £12,250 were levied on the others. In the same period, H.M. Customs and Excise instituted 65 exchange control prosecutions resulting in fines totalling £112,480 and, in addition, made 3,880 seizures of currency totalling £120,000. That is chicken feed. It is not the real money. The real money is going out in the ways which have been described and which the Treasury has not been able to find.

I accept that in very many cases it is probably not possible for the Treasury to check because of the reasons that I have given. But if the Minister is now able to say that he is 'taking specific action against the main allegations made in this article, clearly it could have a very important effect on preventing what in effect is a form of conspiracy between Swiss banks and British citizens illegally to evade British exchange control. It could also have a deterrent effect in that it might well prevent many millions of £s leaving the country.

I hope that the Minister will be able to assure the House tonight that he has taken and will be taking action to prevent the kind of specific allegations that are made happening again.

10.15 p.m.

The Minister of State, Treasury (Mr. William Rodgers)

I am glad that my hon. Friend has had this opportunity of raising an important matter about which he and other hon. Members have been very concerned. I have noted with care all the points that he has made. I hope that he will understand when I say that in some cases his purpose, and mine, which in this case are the same, may be best served by the minimum of detailed comment. I entirely share the spirit of his remarks.

As my hon. Friend said, there is nothing new in the story to which he referred, first told in the Daily Mirror on 5th November with a further instalment yesterday. There have been other recent articles—for example, in both the Financial Times and the Daily Telegraph last week—drawing attention to the cashing of sterling area travellers' cheques in New York. The methods of evasion described in both cases are aspects of what has long been known as the "Kuwait Gap", although it may not necessarily involve Kuwait. There are aspects involving Hong Kong and, as he said, Switzerland.

My hon. Friend asked me to give an assurance that we were not allowing the specific matter to rest. I can give that assurance. The identity of the man whose photograph appeared in the columns of the Daily Mirror yesterday is known to the authorities and further inquiries will certainly be made.

The result of the "Kuwait Gap" is a loss of foreign exchange through the evasion of United Kingdom exchange control. These losses are regrettable and have been a matter of close concern to us for well over a decade. In amount they are not significant. I hope that my lion. Friend, at least this evening, will not press me to go further. They show as an outflow in the balancing item in the trade figures. But I agree that the loss cannot be ignored. In fact it has not been ignored over a considerable period.

We deplore most strongly the action of those United Kingdom citizens who, through the use of the "Kuwait Gap", or whatever we choose to call it, and the evasion of exchange control, knowingly behave in a way damaging to this country. There is certainly no question of closing our eyes to this. I can think of few more unpatriotic acts over the last few years than to transfer, illegally, considerable sums of money abroad at a time when the balance of payments has been of first importance to Britain. Those involved are, fortunately a tiny minority, but there is not one word to be said in their defence. They let down all those who are working extremely hard to put Britain on a sound economic footing.

Although the phrase "Kuwait Gap" has come into quite general use as a description of operations of this kind, they are not necessarily confined to Kuwait. They can be routed through any part of the sterling area in which the local exchange control is, for one reason or another, not fully effective, or where, as in the case of Hong Kong, there exists a recognised free market. The essential features are that the initial sterling payment by the United Kingdom resident who is to benefit from the transaction is made within the sterling area, but to one of those parts of it. The transfer from sterling into foreign currency having been effected outside the United Kingdom, the foreign currency value is then made available to the United Kingdom resident in some destination of his choice—not unusually a Swiss bank.

This is the procedure. I mention it because I think it helps to illustrate some of the complications in the total matter with which we are dealing. Complete closure of the gap would be possible only by bringing to an end the sterling area as it operates today. I need hardly say, whatever views may be held about this, that this would bring into consideration very wide counter arguments, with implications for our balance of payments of much greater moment than the losses incurred through the gap.

In addition, one feature of the channels of operation which are used is that in the majority of cases no infringement of United Kingdom law is involved, and this is important. Many of the transactions are entirely legitimate. A wide range of transactions involve the movement of funds which is in no way contrary to United Kingdom exchange control, although it may be offensive to the exchange control or other laws of other countries. This adds to the difficulty of picking Jut those transactions which are in breach of United Kingdom law.

It is generally the case that, at some stage in the chain of transactions involved, payment will be made through some United Kingdom bank account. I am glad to say that on a number of occasions we have had valuable assistance from banks in this country in tracking down particular channels of operation which have developed through accounts with those banks. This is how ever by no means a sufficient method of detection because it is frequently outside the ability of the banks concerened to recognise particular transactions of this kind as forming part of some chain which, more remotely, involves exchange control offences. Again I emphasise the complications of the situation.

It remains a matter of great importance that the losses should be limited, and that the exploitation of the gap should be made as difficult and hazardous as possible. To this end, very considereable efforts are continually made by the term of Treasury enforcement officers with valuable assistance from officers of H.M. Customs and Excise and the police, and I think that my hon. Friend need not doubt that if any further steps are necessary in terms of personnel they will certainly be taken.

It is a constant battle, but some measure of the success of it is that the scale of operation has not expanded during the last year or two when against the background of international currency fears, it might have been expected to. This is in large part attributable to the deterrent effects of our investigation and prosecution success. I noted what my hon. Friend said, but I have every reason to say that British exchange control is more effective and more effectively enforced than that of any other comparable country, notwithstanding the complexity of international transactions passing through London. I am not saying that that is a reason for complacency, but I think that it should be firmly on the record.

Mr. Barnett

How can my hon. Friend say whether it is effective if he does not know what is going out?

Mr. Rodgers

My hon. Friend misrepresents me. I did not say that we had no idea of how much was going out. I said that in all the circumstances it did not seem to me, bearing in mind the interests that both he and we have, to mention the sort of figures which may be involved.

A good deal of the work has consisted in the discovery by search in appropriate quarters for links in the chain of transactions which is extended until the prime movers, and, in particular, the United Kingdom residents benefiting from the transactions, are identified. Among the hundreds of cases which have come to notice, many have proved not to involve breaches of our law, and others, involving relatively small sums and transactions in which there has been some element of mitigation, have, after consultation with the Director of Public Prosecutions where appropriate, not led to legal action. But there have been in this same period of two years successful prosecutions against about 30 people involved in transactions of amounts varying up to £ million, although most individual cases are for sums a good deal smaller than that. Additionally, there are some former United Kingdom residents who, having emigrated and taken funds with them, would be imprudent to return unless they have some very good explanation for the transactions which they appear to have carried out.

In general, the courts have been severe in dealing with these cases which have usually been reasonably prominently reported at the time.

Perhaps I can mention one or two examples. In a recent case a man who had acquired property abroad and transferred money to a bank account abroad was prosecuted. After detection he took steps to reverse the effect on our reserves of all his illegal transactions at some cost. He was fined £2,000. In another case an official of a Brussels bank purchased securities in New York which were placed to the order of a United Kingdom resident, payment being effected through a Kuwait Gap account. The United Kingdom resident concerned was fined £11,000. There is an interesting case not yet closed when a channel making use of the account of a British company with a British bank in London was discovered. Some £250,000 had been paid into the account evidently for the subsequent transfer through the Kuwait Gap. The sum of £85,000 still remained in the account at the point of discovery. This was immediately blocked and remains blocked as far as any benefits for non-residents are concerned in the absence of a satistory explanation of its legality. Officers of the British company concerned were fined a total of just over £1,000 for their complicity in the operation.

It is of some interest that the Swiss bank which was evidently associated with these transactions has dismissed from its employment the bank official alleged to have been concerned in organising them.

I turn briefly to the position of the Swiss banks. As I indicated, Swiss banks operating in Switzerland and elsewhere outside the United Kingdom stand outside our jurisdiction in relation to these matters. Moreover, they are not in breach of Swiss law and in the normal way companies and institutions resident and operating in other countries cannot be expected to govern all aspects of their conduct by the requirements of legal systems in our own or any third country. Nevertheless the Government regard evidence of active participation by Swiss banks in these operations as being regrettable and this is particularly the case with any Swiss bank which has a recognised branch in London.

There are therefore two aspects to the situation. To reverse the order, there is first the role of the Swiss banks, and whether any steps can be taken to impress upon them the grave view which Her Majesty's Government take of their involvement in the evasion of United Kingdom exchange control. Secondly what can be done in this country to prevent evasion by United Kingdom citizens? My right hon. Friend the Chancellor has discussed this first question with the Governor of the Bank of England. It happens that the Governor will be in Switzerland this weekend, and I can tell my hon. Friend, and I think that this is the answer to his second and perhaps more important question, that he intends to take the opportunity to impress upon his Swiss opposite number the importance which the Government attach to losses of foreign exchange which can be promoted through these channels.

He will make clear the extreme undesirability of any respectable banking institution becoming actively involved and will seek his colleague's co-operation. It would be wrong to lay the principal blame for these problems on foreigners. Their activities may be from our point of view, and surely are, undesirable, but there would be no room for them if it were not for the United Kingdom residents seeking to break the law. It is for this reason that I draw attention once again to the risks of detection and the possibility of severe penalties on prosecution. We take a very grave view of evasion and as more channels become known to the authorities the risks are likely to increase. We shall certainly take every step we can to catch and bring to justice those in breach of currency regulations, whose actions are contemptible and beyond excuse.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Ten o'clock.

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