HC Deb 15 May 1996 vol 277 cc908-16

10 am

Mr. Austin Mitchell (Great Grimsby)

The title of the debate has been changed slightly. The original title was about money laundering. Unfortunately, it appears that if a debate concerns money laundering, it requires a response from the Treasury, which does not appear to know all that much about it. I aim to raise the role of accountants in money laundering, and I congratulate the Under-Secretary of State for Trade and Industry, the hon. Member for Amber Valley (Mr. Oppenheim), on his happy lot in having to reply to the debate. I am sure that he will enjoy it.

The problem is whether we can regulate accountancy to stop the complicity of accountants in money laundering. That complicity must be on a considerable scale because the Organisation for Economic Co-operation and Development estimates that about £500 billion-worth of funny money is being laundered through western financial institutions—through drugs, crime, and fraud, but mostly drugs. Much of that money must be coming through the United Kingdom and London. Accountants must be involved. Such activity cannot be undertaken without the complicity of accountants in setting up shell companies, fiddling the figures and covering the tracks—and not only small-time accountants and individual companies either. Some of the biggest accountancy houses are involved, too. One must ask why such houses are so keen to set up their organisations in places such as the Channel Islands if it is not to participate in such activity and to do so covertly.

The problem is that it is very difficult to discover money laundering. The tragedy of the case to which I shall refer was that when it was discovered what was going on—it was fairly clear that money laundering had been taking place—Governments and regulators, who are now committed and should have been then to stopping money laundering, and professionals and administrators just did not want to know about it and did not seem able to deal with it.

AGIP (Africa), a company incorporated in Jersey, in the oil business in Tunisia and a subsidiary of ENI, the big Italian group, was involved in money laundering. I am not sure why and whether it was being defrauded by its chief accountant, Mr. Zdin, who was making double payments on invoices, or whether the company itself was involved and authorised the activity. Certainly, from March 1983 to January 1985, the company was defrauded of, or laundered, $10.5 million by altering 27 orders and invoices. Such activity had clearly been going on far longer than that—probably since 1976.

The money was paid to the shell or cut-out companies in England—a process apparently unnoticed by the auditors of AGIP (Africa), Coopers and Lybrand. Indeed, Coopers and Lybrand gave AGIP unqualified annual reports in each of the years concerned. The annual report for 1984, which was again unqualified and dated 26 March 1985, came after the discovery of what had been going on in January that year. Did Coopers and Lybrand know about the activity? Was it co-operating with something that the company wanted—to transfer money through Tunisia's exchange regulations? I do not know, and the question remains unanswered.

The system of transferring money had been developed by Mr. Roger Humphrey, who was introduced to it by Yves Coulon, the lawyer of the French interests to whom the money was eventually being transferred. Mr. Humphrey worked first for Minet trust in Guernsey, which used such systems, then for the Tyndall bank, taking the systems with him, and finally, in 1982, he became a partner of Thornton Baker, which is now Grant Thornton.

Yves Coulon wanted to transfer the schemes to Thornton's as had been done on each previous occasion. Humphrey did not think that that would be possible, so the money was transferred to a correspondent firm, Jackson and Co., accountants in the Isle of Man, although Grant Thornton continued to charge fees for acting as the authorised signatories and to provide companies through which the money was being laundered. I have the invoices and the evidence that that was going on.

Mr. Humphrey introduced Jacksons not only to Coulon, who then worked directly with the company, but to the High Holborn branch of Lloyds bank. The procedure for laundering the money was to set up a shell company with no assets and no activity, and after two or three payments had been transferred through it and immediately paid out, it was wound up, closed and put into liquidation. A new account was then set up for the successor company. The money was then transferred to a firm called Euro-Arabian Jewellery, which also had its account at the High Holborn branch of Lloyds bank, and then straight to France—mostly to Kinz Joaillier, a firm with which Roberto Calvi, the man who was found hanging under the Blackfriars bridge, was associated. Whether he was inspecting the bridge in an unusual fashion or his death was a mafia-type murder, we have not yet authenticated. It did not seem to be suicide.

All those events are typical symptoms of the process of money laundering. In the Institute of Chartered Accountants' advice to accountants, "Spotting Moneylaundering", it says that typical symptoms of money laundering are: The forming of companies or trusts with no apparent commercial or other purpose"— which is exactly what was going on—and The use of financial, legal or other advisers —Jackson and Co. and Grant Thornton— to provide their names as directors or trustees, with little or no commercial involvement. Unusual transactions with companies registered overseas —Kinz Joaillier in France. All those activities are classic symptoms of money laundering, yet nobody claims to have known what was going on. When it was suggested that the institute should inquire into the matters, it began to argue that it had no idea whether money laundering was in process.

The fraud, if it was a fraud, was discovered by AGIP in January 1985. It sued—interestingly enough not for all the money, which was almost certainly much more than $10 million, but for the last sum transferred, which was about $500,000 and 92 cents, which was an interesting rounding up.

The case was heard at the Chancery Division of the High Court, where the judge, Mr. Justice Millett, was scathing in his judgment about the accountancy firms involved in the transfer. He said: Mr. Jackson and Mr. Griffin"— the Isle of Man accountants— are professional men. They obviously knew they were laundering money … It must have been obvious to them that their clients could not afford their activities to see the light of day. Jackson and Co. were introduced to the High Holborn branch of Lloyds Bank PLC in March 1983 by a Mr Humphrey, a partner in the well known firm of Thornton Baker now part of Grant Thornton. They probably took over an established arrangement. Thenceforth they provided the payee companies … In each case Mr. Jackson and Mr. Griffin were the directors and the authorised signatories on the company's account at Lloyds Bank. In the case of the first few companies Mr. Humphrey"— a partner in Grant Thornton— was also a director and authorised signatory. In other words, it was money laundering. The people had been caught bang to rights, and a very strong judgment indicated that accountants had been complicit in the process.

I therefore took up the matter and referred the case to the regulators, who are supposed to ensure that the profession functions according to honest standards of high integrity and that such derelictions do not occur.

In January 1991 and February 1991, I referred the matter to the then Parliamentary Under-Secretary of State for Corporate Affairs. He did not seem to be particularly interested in the matter, but he replied that he had no powers to deal with it and that it was a matter for the police and for the recognised supervisory body, the Institute of Chartered Accountants in England and Wales.

The matter began to get more serious and more melodramatic at this point. The story is almost like a thriller in many respects—although it may not be very thrilling at the moment. In June 1991, after I had referred the matter to what I considered to be the appropriate regulators in this country, Yves Coulon—the French middleman and lawyer at the French end of the operation—was due to give evidence on the matter to a tribunal in Paris. He was interviewed by an Accountancy Age journalist, Stuart Mansell, and agreed that he should put the story on the record—that he should spill the beans. However, he warned: A former Conservative cabinet minister still very prominent in politics was available to provide protection … A major organisation involved in the affair had the powers of a government. They've got an important politician in England who is looking after their interests. They and he will make sure things do not get out. Yves Colon added that he feared a fate similar to that of Mr. Calvi, at the hands of the same people. I do not know who "the same people" are. The P2 Masonic lodge was reported to have been involved in the Calvi affair, but I do not know whether it was a reference to P2. The point is that, on the day after giving that information to the journalist and promising that he would very shortly unveil the story and make it public and before he had appeared before the French tribunal, he was shot dead, with a single bullet through the head. No one has ever been charged with that murder. That is the melodramatic part of what, had it not been for a bullet through the head, I could have described as a heady brew.

I went back to the regulatory trail to see what would happen and whether there would be an inquiry into the matter, because it cried out for an inquiry. I wrote, first, to the Chairman of the Select Committee on Trade and Industry. He did not reply. I wrote to the Prime Minister, mentioning the accusations against a former Cabinet Minister and urging investigation. He referred me to the police and to the Isle of Man authorities.

I went to the Serious Fraud Office, which said that its authority was limited to England and Wales—an area that appeared not to include Lloyd's bank in High Holborn, although I had always though that that was part of England and Wales. I went to the Isle of Man authorities, who told me, "We are not doing anything." I must say that the Isle of Man is a wonderful place to do just that—nothing.

I wrote to the Institute of Chartered Accountants in England and Wales, offering them the 20,000 pages of evidence on the affair which had been made available by Jackson and Co. in the Isle of Man. Jackson and Co. was anxious to volunteer that evidence and anxious that the case should be fully investigated. It offered that evidence to me, to the institute and to the regulators, but no one took up the offer.

The institute fell silent, saying that it could not comment on an investigation then in progress. I did not find out exactly what progress there was until March 1994, when I again wrote to the Serious Fraud Office about why nothing had been done about the case. The Serious Fraud Office—not the institute—told me that the institute had decided not to pursue the matter any further.

I wrote then to the Parliamentary Under-Secretary of State for Corporate Affairs, in the Department for Trade and Industry, saying that that really was not good enough. He replied that his officials were still discussing the matter with the institute. So discussions were taking place after the report had been finalised.

Finally, in May 1994—in response to a further letter from me—the institute coughed. It said that it had inquired into the matter but could not do anything about it, even though all the symptoms of illegality—according to its own indicators for detecting money laundering—were present. The institute said that although the members must have known that their activity was illegal, the institute could not prove that they knew it was illegal. Therefore, unless the institute could prove that the accountants involved knew that the activity was illegal, it could not do anything about it.

The judge had said that the activity was illegal and that the accountants involved must have known what was going on. But apparently the institute knew better than the court. No report was ever published or made available. There is no evidence that the institute interviewed Jackson in the Isle of Man, and there is certainly no evidence that it used or even examined the evidence that Jackson offered to it. So, effectively, it was not a proper inquiry but a hush-up.

The extent to which the inquiry was a hush-up cannot be revealed because the institute will not reveal the report. This has been an incredible legislative runaround, but it is typical of the fuddle one encounters when one tries to bring to book a matter of malpractice by accountants. That is because the system of regulation for accountancy is totally inadequate.

The mafia—I use the term jokingly, as a closed organisation—cannot regulate the mafia. The only way forward is to introduce independent regulation to intrude the public interest in these matters and to give the profession the backbone to restore its integrity—the integrity of what was once a profession but is now a big business, with big firms competing to sell services in intense competition and, therefore, prepared to comply with the desires of the management of the firms to which they offer audit services. To keep business, they are prepared to do the bidding of chief executives and to gratify their desires—by creative accountancy or by the creation of dodgy companies through which money can be laundered.

Tax schemes, dodgy companies and money laundering merge into one another on a downhill slope into illegality. As the Observer stated in an article of 31 March 1996: If you want to launder large sums of money forget banks and deposit accounts. The best way to avoid detection is through your friendly solicitor or accountant. The article stated that of the 14,000 cases of money laundering reported to the National Criminal Intelligence Service since the introduction of the Criminal Justice Act 1993, only 50 were reported by accountants, compared with 13,700 from banks.

This is the only case in which we have hard and fast evidence of what is involved in the process of money laundering for clearly fraudulent purposes. The evidence has been submitted to the regulators, although they have done nothing because they are apparently not interested in inquiring into or coming to grips with the case. Given the allegations that have been made, why is that the case?

Having recounted the facts of the case, I tell the Minister that clearly there must be an effective—preferably independent—inquiry into the facts of the case. In particular, there should be an inquiry into the role of the big accountancy houses, like Coopers and Lybrand, the auditors for AGIP (Africa) in the Channel Islands, and Grant Thornton. Both of those firms must have known more than they let on, and certainly more than they have told to the regulators. Surely Coopers and Lybrand must have known about the transfer of money, for whatever purpose, by AGIP. Either the company did not detect that transfer, in which case it is a bad auditor, or it knew, in which case it was complicit. Grant Thornton charged fees for setting up companies through which money could be laundered.

Those of us who have raised the case with the Government and the relevant authorities have been fobbed off, so there is every reason for an inquiry. The Government say that they want to stamp out the practice of money laundering and that they do not want London to be the sleaze money laundering capital of the western financial system. If they want to get to grips with that problem they must inquire into the one case that has broken the surface in that system. Why keep fobbing someone like me off with excuses and claims that nothing wrong has gone on when the court has judged that money laundering took place?

Secondly, we must have a more effective system of regulation than the current structure of self-regulation by the professionals, which effectively means that the mafia is regulating the mafia, in the interests of the mafia. Public interest does not intrude. When professional interest, which means getting business for the big accountancy houses, conflicts with the public interest, it is always the professional interest that wins under the current system of regulation. We need to place a requirement on auditors to detect and report fraud—that should include the fraudulent process of money laundering.

I hope that the Government accept that we need a more open accountancy profession. The big accountancy houses must be involved to some extent in certain practices— why else have they set up companies and organisations in the Channel Islands? Those secretive organisations tell us nothing about their actions. The stakeholders, whose accounts are being audited, get no information, and do not have access to the working papers. These accountancy houses are intensely powerful, but secretive organisations.

It is only by having an open profession, which is given backbone by independent regulation, that we will know what is going on. I ask for an inquiry into the case and a recognition by the Government that their structure of professional self-regulation has failed, will continue to fail and must be replaced.

10.22 am
The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Phillip Oppenheim)

I thank the hon. Member for Great Grimsby (Mr. Mitchell) for raising the issue of AGIP. I view with some admiration the terrier-like tenacity with which he has pursued it in the past few years.

As the hon. Gentleman has rightly pointed out, the plot is complex, with many twists and turns. It involves a murder and accusations that a Secretary of State has been involved with the mafia. In many respects, it resembles a Jacobean tragedy or perhaps the plot of a Grisham novel. That obviously suits the hon. Gentleman's mind bent.

I should like to relate the beginnings of the conspiracy. The fraud apparently began in 1976, as the hon. Gentleman stated, when AGIP (Africa) was apparently defrauded of $17 million by one of its Tunisian employees. The plot took a particularly dramatic turn with the assassination in court of a French lawyer, who was allegedly acting as a middle man in the affair.

As the hon. Gentleman correctly pointed out, there were even allegations that a former Secretary of State for Trade and Industry was involved in a "mafia-style protection racket". The Government face many accusations and many criticisms, but I am pleased to say that the accusation that we are involved in such protection rackets is, thankfully, uncommon and rare, and one that I hasten to deny.

The hon. Gentleman is right to raise certain points that have important implications for the United Kingdom, bearing in mind that the laundering allegedly took place between a company based in the Channel Islands and Tunisia. It is important to consider the role of the lawyers and auditors based on the Channel Islands, and whether they facilitated, in an illegal manner, the laundering of the money.

I should say to the hon. Gentleman that the involvement of a solicitor or a firm of accountants in setting up a company or the transfer of money abroad could be quite legitimate and would not necessarily imply that it was complicit in any illegal activities. It does not necessarily follow that, because a firm of accountants or solicitors was involved in such activities, it must have known, or should have known, about the illegal purpose, especially bearing in mind the fact that it was dealing with a large, reputable company—one of the largest oil companies in Europe, the owner of which is an Italian nationalised institution.

It is important to the United Kingdom to note that the allegation that the professionals involved should or could have known about the illegal activities has been properly investigated twice. The Serious Fraud Office could not find sufficient evidence of fraudulent or illegal activity. As the hon. Gentleman quite rightly pointed out, the Institute of Chartered Accountants in England and Wales also exhaustively investigated the audit firm and the allegations that it had facilitated the fraud. That lengthy investigation, which ran to 20,000 pages of evidence, concluded in 1994 that there was insufficient evidence to substantiate any investigation.

The institute has quite rightly said that if the hon. Gentleman can provide further evidence to change its conclusion, it will be happy to reconsider the case. If the hon. Gentleman has substantial evidence which he could put forward either to the SFO and the institute, they would be happy to reconsider the case. It is important to stress that there have been two full inquiries about the role of the auditors in the Channel Islands and no evidence has been found of complicity or wrongdoing. That is not to say that we should be complacent about the case. Although the affair started in 1976 and is now ancient history in some respects, it is important to ensure that, in future, there is only a minor possibility of such a case occurring again.

I should like to list the actions that we have taken in recent years to ensure that illegal money laundering does not take place. First, in terms of the scope of the UK money laundering legislation, the Criminal Justice Act 1993 introduced a number of new drug money laundering offences, which enabled the UK to implement fully the EC money laundering directive. The 1993 Act also extended a number of the previous drugs money laundering offences to the proceeds of other criminal activities. Under UK legislation, it is now an offence to acquire, possess or use the proceeds of crime in the knowledge that they are such proceeds.

It is important to note that it is also an offence to assist another person to retain or control the proceeds of crime by concealment, removal from the jurisdiction, transfer to nominees or otherwise. It is an offence to conceal and disguise one's own or another's property which is, or which represents, the proceeds of crime; to convert or transfer that property, or to remove it from the jurisdiction; to disclose anything likely to prejudice an investigation into money laundering; and to fail to report to a constable a knowledge or suspicion, in the course of one's trade that another person is engaged in money laundering.

It is therefore clear that the legislation has been significantly strengthened in the past few years. Failure to comply with the regulations constitutes an offence punishable by a maximum of two years' imprisonment or a fine, or both, irrespective of whether money laundering eventually took place. Those important changes have strengthened the legislation. They ensure that any offence of the type that might have happened in the AGIP (Africa) case in the 1970s will not be committed again.

The effect of that comprehensive legislation is to place requirements on all UK citizens, but systematically on all UK financial sector institutions, including accountancy, audit firms and any firms carrying out investment business under the Financial Services Act 1986, to report all suspicious transactions to the police or Customs and Excise. The National Criminal Intelligence Service will then pass on those reports to the appropriate law enforcement agency for investigation.

Two further legislative strands also add to the prevention of money laundering: first, the powers of Customs to seize at the border cash that represents the proceeds of drug trafficking, or which is intended for use in drug trafficking; secondly, the powers now available to the courts to freeze the assets of suspected or convicted criminals which are the proceeds of crime, money laundering or other offences, and to confiscate them on conviction.

I do not want to minimise the strength of the case outlined by the hon. Gentleman or his role in pursuing it. He is right to raise the issues involved. However, unless he can produce further substantiated evidence that the SFO or the Institute of Chartered Accountants in England and Wales can investigate, it does not strike me that there is any cause for a Government inquiry. I should like to emphasise the extent to which the Government have significantly enhanced the laws against money laundering in the past few years through the Criminal Justice Act 1993 and other measures.

Sitting suspended, pursuant to Order [7 May], till One o'clock.