§ 8.55 p.m.
§ Lord Harris of Greenwich rose to ask Her Majesty's Government whether Treasury Ministers propose to discuss with the Governor of the Bank of England the recent conviction of subsidiaries of the Bank of Credit and Commerce International on money laundering charges in the United States Federal Court in Florida.
§ The noble Lord said: My Lords, I think the House was looking forward to having the opportunity of listening to the one Treasury Minister who sits in this House replying to the debate. Indeed, this debate was arranged through the usual channels. Only earlier this evening I heard that the noble Earl, Lord Caithness, would not be here. I regret to say that he did not give me any explanation for that. It is extremely unfortunate, to put it no higher, that a Treasury Minister who has some responsibility for these matters is not in his place. What is even more surprising is that the noble Earl should not be here given the fact that when the matter was raised through oral Questions he—inadvertently, I am sure—seriously misled the House in his reply. The noble Earl has subsequently made no effort to correct the record; I find it even odder therefore that he is not here today to explain why it was that he misled the House on that occasion.
§ Perhaps I may now turn to the issue which is raised in the Question. I believe that it is a matter of some importance. It relates to money laundering by a bank which trades in the United Kingdom. The bank, the Bank of Credit and Commerce International, admitted in the Federal Court in Tampa, Florida, after plea-bargaining negotiations 408 with the federal authorities, that two of its wholly owned subsidiaries had indeed been guilty of such offences. As a result the federal authorities confiscated 14-8 million dollars of the bank's assets, representing laundered money which had been passed through the bank's accounts.
§ The proceedings in the United States followed a long investigation by the US customs authorities in which the British customs played a part. We learn that as a result of an Answer to a parliamentary Question given by the Chancellor of the Exchequer in the House of Commons. I understand that what happened was that under-cover customs agents posing as money launderers were told at a meeting which was taped that there was an inner circle of highly placed officials inside the bank who could be trusted to carry out the business of laundering the proceeds of cocaine sales.
§ One of the more significant issues which arose in Florida related to the former dictator of Panama, General Noriega, who was said to have used that bank, together with others, to launder the millions of dollars paid to him by major drug traffickers.
§ The Assistant United States Attorney, who was prosecuting in the case, indicated that the authorities had tapes of many other meetings and telephone calls in Florida, Paris and London, recording no less than 18 separate conversations during which officials of the Bank of Credit and Commerce International openly discussed the laundering of drug money on behalf of the Medellin drug cartel.
§ The admissions made by the bank following that investigation, and made to the federal judge, could hardly have been more damaging to the bank's reputation. Here was the world's fifth largest private bank, an institution with 424 offices in 73 countries, pleading guilty to the gravest charges of impropriety levelled against any bank since the inception of the campaign in the United States against the international drug traffickers.
§ I turn now to the response of the British authorities to the situation. I accept at once and indeed welcome the steps that have been taken by the Government to deal with international money laundering. It is an issue which lies at the very heart of the struggle against the threat of the international cocaine and heroin barons.
I also welcome the publication last week of the report of the Financial Action Task Force which was established after the Group of Seven meeting in Paris. I believe that the Prime Minister put this matter correctly when she dealt with the threat that was posed to our society by drug smugglers at the world ministerial drugs conference in London on 9th April. She spoke of,
the insidious threat to our way of life from drugs and from the evils they bring in their wake: disease, corruption, violence, crime, breaking up families and destroying young lives".
§ I believe that that in no way exaggerates the threat that is posed to the world community and to the United Kingdom in particular. This country faces an exceptionally serious situation, the gravity of which is still not appreciated by some of our fellow citizens.
§ I believe that a great deal has been done by the Government, the police, the customs and many 409 others to deal with the threat. Unhappily, there is still not a great deal of evidence that we are succeeding. Tonight we are discussing one element of that threat; namely, money laundering and the conduct of one bank which operates in the United Kingdom.
Before I return to the conduct of that bank, I believe it is right to remind the House of what the Home Affairs Committee of the House of Commons had to say about the dimensions of the scale of money laundering in the United Kingdom. In its seventh report at paragraph 20 the committee stated:
The National Drugs Intelligence Co-ordinator (NDIC) estimated that there is at least £1,800 million derived from drug trafficking in the United Kingdom. In its written memorandum, the NDIU noted that such vast amounts of money circulating within the legitimate banking system may have a destabilising effect on smaller financial institutions. The NDIC also indicated that, despite the Drug Trafficking Offences Act 1986, the United Kingdom continued to be a major centre for money laundering. Indeed, he said that the United Kingdom was 'regarded by the United States, Canada and some others as an offshore banking system' ".
I find that a most disturbing statement, coming as it does from the most senior police officer in this country who is responsible for dealing with the threat posed by the international drug traffickers. I fear that our problems are sometimes not made a great deal easier by the attitude of the Bank of England in this matter. Again I shall quote from the report of the Home Affairs Committee of the House of Commons. At paragraph 80 it states:
The difficulties in securing convictions for money laundering offences raise the question of whether changes to the law are required. In the light of the dangers in Britain being perceived in North America as 'an offshore banking system' referred to by the NDIC, we asked the Bank of England and the Committee of London and Scottish Bankers how they believed the law against money laundering could be strengthened. We were extremely concerned that neither body, with their considerable combined expertise of the financial world, were able to propose any changes to the law in response to the scale of the threat facing the financial system. If bodies such as the Bank of England and the Committee of London and Scottish Bankers are as passive as appears to be the case in responding to the significant threat facing financial institutions from money laundering, the Government must take the initiative".
§ I find the relationship between the statement that I quoted from the national drugs intelligence co-ordinator and that judgment by the Home Affairs Committee of the House of Commons rather striking. I fear that it indicates a degree of complacency and a desire not to rock the boat which are worrying. I believe that such attitudes impede the work of those who are responsible for enforcing the criminal law and also those who have the responsibility of considering whether there should be changes in our criminal law. I must admit that that does not fill me with total unqualified confidence that the Bank of England is necessarily being sufficiently rigorous in dealing with the representatives of the Bank of Credit and Commerce International in London following the prosecution in Florida.
I accept at once that I may be being unfair to the Bank of England. That is certainly not my purpose, but the Bank can hardly be surprised that there is a suspicion abroad, not least in the United States, that it sometimes does not have a great deal of enthusiasm for firm action in matters of this kind, When I pressed the noble Earl, Lord Caithness, on
19th March to tell us what action the Bank of England proposed to take concerning the BCCI following its conviction in Florida, he said, at col. 6 of Hansard, that,
the confidentiality requirements of Part V of the Banking Act 1987 prevent the Government from commenting on a general point relating to the Bank of England".
A few moments later he told us that were he to do so he could face a term of two years' imprisonment or a fine. He added:
Perhaps the noble Lord would like that, but I would not".
When challenged about the accuracy of the statement that he had just made to the House the noble Earl, Lord Caithness, said:
Noble Lords opposite may be right, but that is my advice".
§ We are in a position to reassure the absent noble Earl. I have no desire, and I am sure that no other noble Lord has any desire, to cause him to be sent to prison. As we all know from recent experience the prisons are fairly crowded in any event. However, as I hope the noble Earl's advisers will by now have told him, no one can be prosecuted for anything which is said in this Chamber or that of the House of Commons—unless the Government propose to repeal the Bill of Rights. I assume that that is not part of their policy.
§ I hope that the absent noble Earl, freed from his fears about imprisonment, will be able to help the House rather more than he did on 19th March, through his representative the noble Lord, Lord Henley, who has had the misfortune to pick up his brief at a very late stage.
§ First, does the noble Lord representing the Government on this occasion agree that the Banking Act requires banks operating in this country to conduct their business in a prudent manner and with integrity? That, I believe, is a requirement of the statute. Secondly, does he agree that the Bank of England has to satisfy itself that owners and controllers are fit and proper persons?
§ Perhaps I may put this point. These are not matters, I can reassure the noble Lord, of confidentiality referred to in Part V of the Banking Act. The question is a simple one. Is the Bank of England satisfied that in relation to the BCCI the answer to both those questions is yes? Indeed, it would be astonishing were the answer to be anything other than an unqualified yes. Presumably, were it not, the Bank of England would already have taken some action.
§ Next, and this issue is referred to directly in the Question on the Order Paper before the House, has the Chancellor or any of his ministerial colleagues raised the issue of the operation of the BCCI in London with the Governor of the Bank of England following the bank's conviction in Florida? If, as we are told repeatedly, Ministers are prepared to take any action to drive the leaders of the drug industry out of business, is it conceivable that Ministers have not even bothered to mention the case—I repeat, the largest and most serious case to come before the federal courts in the United States in relation to money laundering offences—to the Governor of the Bank of England?
§ Of course the Governor is not a free and independent spirit. He is directly accountable to the 411 Chancellor of the Exchequer for his actions. What many of us want to know is whether the matter has been raised with the Governor. I hope that tonight we shall receive a clear and unequivocal answer to that question.
§ I also hope that we shall not receive any further suggestions that this is not in any way a matter for Ministers. Quite apart from anything else, that does not have to be true. Under Section 80 of the Banking Act the Treasury may, after consulting the Bank of England, by regulation impose on overseas institutions such requirements as the Treasury may consider appropriate. The power could hardly be wider.
§ The debate this evening relates to a matter of high public importance. We are discussing a scandal. We are examining the conduct of a bank with considerable power and influence which has been convicted, through its subsidiaries, in the criminal courts of the United States of grave offences against the world community. We are asking Ministers to assure themselves and Parliament that all appropriate steps are being taken by the British regulatory authority —the Bank of England —to deal with this bank, operating as it does on a considerable scale in the United Kingdom.
Finally, I turn to the Prime Minister's speech on 9th April. She said this:
The coming decade has been proclaimed as the United Nations decade against drug abuse. This must not be just a label or a slogan. It must represent our united will and determination to prosecute the campaign against drugs".
§ That statement represents our views. I hope that the noble Lord who is to reply on behalf of the Government will be able to demonstrate, not by rhetoric but by action, that it is also the will of the Chancellor of the Exchequer.
§ 9.15 p.m.
Lord Bruce of Donington
My Lords, the House will be grateful to the noble Lord, Lord Harris of Grenwich, for having put down this Unstarred Question which, as he said, raises matters of considerable importance not only to the banking community but to the nation as a whole.
Like the noble Lord, I very much regret that the noble Earl, Lord Caithness, is unable to be with us this evening. As the noble Lord pointed out, this matter involves the Treasury itself by virtue of its position vis-à-vis the Bank of England where under Section 4 of the original Act it has powers to give general direction. It is not, at any rate as yet, an independent bank; it is the Government's bank and is answerable to the Government themselves.
Moreover, the Government, and particularly the Treasury, have another responsibility in relation to drug trafficking under the provisions of the Drug Trafficking Offences Act 1986 where they are responsible for the suitable deployment and actions of the Customs and Excise. There can be no doubt therefore as to the Government's involvement.
The noble Earl would have known that much wider questions concerning money laundering would be raised in the debate than just the recent case in 412 the United States involving the Bank of Credit and Commerce International. He must have know that after a recent meeting of bankers belonging to the Group of Seven a task force was set up to investigate the question of money laundering. A copy of the report, which was published only on 18th April, came into my possession today, since when I have had an opportunity to examine it. The noble Lord, Lord Harris, does not err in the slightest when he points out the gravity of the question of money laundering in the international banking community.
This Unstarred Question raises the position of a particular bank, the Bank of Credit and Commerce International, whose headquarters are in Luxembourg but which operates out of Leadenhall Street. It employs 600 people and has 43 branches in the United Kingdom. I am not sure about the status of the Leadenhall establishment or its branches in relation to the Bank of England and regulations laid down under the Banking Act. It is one of those matters on which the noble Earl, Lord Caithness, could have been questioned. However, the question of the credibility of the bank has by inference been raised in the nature of the Question put down by the noble Lord, Lord Harris.
Here I wish to utter a word of caution. When the affairs of an institution or a named body are discussed, particularly within the privileges of Parliament, it is necessary that one proceeds with great caution before passing judgment on the ostensible conduct of the body concerned, which in this case is the BCCI. I have had the opportunity of examining at some length the press reports that have appeared in various reputable sections of the press, including the Financial Times, the Observer, the Economist and the Daily Telegraph, which have set out their accounts of what happened in Tampa, Florida, and have given, at any rate by inference, their judgment upon those events. I have been in Parliament long enough to know that just as trial by television is dangerous, so is trial by the press.
So far, for reasons that are unknown to me but are not necessarily disreputable, the Bank of Credit and Commerce International has not seen fit to rebut some of the more colourful accounts that have been given of the proceedings at Tampa and the attitude of the US authorities that have appeared in the press. However, I think it is true to say that in so far as BCCI was concerned, under the essential terms of the settlement arrived at in Tampa of some £14-5 million—I invite the House to take note of that figure in view of the figures that I shall give later—and under the terms of plea bargaining, which, mercifully, is so far unknown in the United Kingdom, all charges against the parent company, BCCI Holdings, and BCC's Colombian subsidiary, Banco de Credito y Comercio de Colombia, have been dismissed and all drug trafficking charges against the bank entities which were completely without foundation have also been dismissed. One does not gather that from reading the press reports.
Money laundering is a very complex operation and, believe it or not, it is very difficult to trace. The United States has adopted one measure—with or without success, I do not know—of insisting on the monitoring of every bank transaction in excess of 413 10,000 dollars, which is checked through a vast computer network. But essentially money laundering is composed of three stages. First, there is the placement side of the transaction, which means collecting together, centrally or regionally, funds accumulated by the drug barons and main dealers, who then proceed to take it through a second stage which is called layering.
I appreciate that noble Lords are not involved in drug trafficking and therefore will not appreciate the significance of those terms. In essence layering means collecting together moneys of a different currency and distributing or changing that money widely over a series of bureaux de change where, as noble lords will know, currencies of all kinds can be obtained. For example, dollars can be taken into 1,000 or even 2,000 bureaux de change which can be found quite widely in the United States and elsewhere. One can then obtain pounds, Swiss francs, French francs, pesetas, escudos, marks or whatever. Those different currencies are collected together and one goes on to the next stage of money laundering, which s called integration. That means that the various lots of currencies gathered together can then be converted into either property or other assets with an appearance of legitimacy—or sometimes actual legitimacy—or else can be deposited in various banks in different currencies.
It is most difficult for any bank purely by the inspection of accounts—and the banks in the United Kingdom, including BCCI, have computer screens to check accounts—and a matter of some complexity, bearing in mind that these transactions are often accomplished with the speed of light, to determine whether a certain transaction in a particular type of currency is likely to be associated with drug money laundering. The problems facing any bank, let alone BCCI, are therefore considerable.
As I mentioned to your Lordships, the Government and the Bank of England took the very sensible step at the meeting of the G7 group of bankers of initiating a task force to investigate the question and to report in detail. I have not had the opportunity of reading the annexures to the report. I have read the entire report. However, I can tell noble Lords that the task force came to the conclusion that the total amount of money from drugs available for laundering amounted to 84 billion dollars, of which the amount under plea bargaining admitted by BCCI amounts, if my arithmetic is correct, to 0-00017 per cent. of the total available for laundering.
I accept immediately the assertion of the noble Lord, Lord Harris, that the problem is widespread. But in proportion, the amount—under plea bargaining, the somewhat unique conditions available in the United States, and with the political pressures available in the United States—is a very small amount of the total involved.
Much has been said about BCCI in the various journals that I have mentioned. I have no connection with BCCI. I know none of its directors. I do not bank there. I do not have even a credit card there or anything of that kind. However, since, if I may say so, it is part of my profession, I have looked 414 through these documents with what I hope your Lordships may feel has been a professional eye. I have the accounts of BCCI for the year ended 31st December 1988, which were signed by Price Waterhouse as auditors on 11th April 1989.1 assume that presently a further set of accounts for 1989 will become available. I do not complain that they are likely to be issued slightly later than those for 1988. However, it is quite clear from those accounts that the bank has a very considerable gross turnover of some 2 billion dollars. It has assets of 20 billion dollars, of which the unusually high proportion of 47 per cent. of assets is liquid. It has total reserves of 1-5 billion dollars. It has increased very rapidly over the past four or five years.
From other sources—notably by perusal of Congress records—I have been able to find that BCCI was of considerable assistance to the former President of the United States, President Carter, in setting up a network of banks especially founded to enable the developing countries to conduct banking transactions with one another. That has been singularly successful. In spite of being one of the five large private banks to which the noble Lord quite correctly referred, BCCI has not been involved to any great extent in the disastrous third world indebtedness with all the problems that have arisen as a consequence. Those are problems that lie very heavily at the door of some banks that have so far not attracted any attention, and probably quite rightly so, in connection with drug money laundering.
We have a bank which, on the face of its balance sheet audited by a renowned British firm of chartered accountants and in the main founded with the approval of the former President of the United States, President Carter, who spoke highly of it, is caught up in a scandal involving 000017 per cent. of the estimated total of the world's drug money now being laundered. Indeed, it does not seek to escape the liability of its servants lower down the scale.
In answer to the noble Lord, Lord Harris, I suggest that it is proper that the Government should have conversations with those in the Bank of England about BCCI and the remainder of the money. According to United States authorities, a large proportion of that is swishing round in the British banking system; it is not in Tampa but in London. We should be grateful if, in the absence of his noble friend Lord Caithness, the Minister would indicate what conversations are taking place along those general lines.
At the Vienna Conference in 1988 the laundering of drug money was discussed. Approximately 80 nations signed the convention but before it can come into operation it must be ratified by 20 of the countries concerned. So far only four countries have done so, and I regret to say that they do not include the United Kingdom. The countries which have ratified the convention are China, the Bahamas, Nigeria and Senegal. I believe that if Her Majesty's Government wish to press forward with the recommendations set out in the Vienna Convention—which were fortified in the report of the task force set up by G7 —they would be wise to ratify it forthwith. They should come to the House 415 with a full explanation of the reasons why they seek Parliament's approval for the ratification of the convention.
The Question tabled by the noble Lord, Lord Harris, for which my party is deeply grateful, raises questions which go far beyond the matter of BCCL They go into practically every nook and cranny of the banking system in the United Kingdom and in Europe. The House will wish to hear about the actions which the Government and the Bank of England propose to take in order to pursue the matter with greater resolution than has so far appeared. They must not be diverted from the essential and mammoth task—and it will be difficult to accomplish —by press reports of an action which took place in Tampa dealing, in my view unjustly, with one single bank and company.
§ 9.34 p.m.
§ Lord Callaghan of Cardiff
My Lords, perhaps I may intervene briefly. The noble Lord, Lord Harris, raised an important Question about the dreadful activities relating to drug money and the way in which huge sums are laundered. However, perhaps I may say that my noble friend Lord Bruce of Donington hit the nail on the head when he spoke of the ease with which those transations can be laundered—if that is the word—and the difficulties of the banks in keeping up with what is happening in the millions of transactions which take place every day.
I am not at all sure that I would not be right if I said, quite apart from the particular bank mentioned in this Unstarred Question, that there are other people in the City of London and outside of it who are saying quietly to themselves, "There but for the grace of God go I" —not because of ill-will or malevolence but because of the very formidable difficulties which exist in that field. My noble friend Lord Bruce of Donington has outlined some of those.
The noble Lord, Lord Harris, said that he did not wish to be unfair to the Governor of the Bank of England. I hope also that he does not intend to be unfair to the Bank of Credit and Commerce International. Unlike my noble friend Lord Bruce, I happen to know the directors. I was introduced to them through President Carter at a dinner given for him in London some years ago. I was immediately impressed by the quality of the president of the bank. Unfortunately, a year ago he was struck down by a stroke and a heart attack and has been unable to operate since that time.
His philosophy is one which, if carried into his operations, I find wholly admirable, as I believe would the noble Lord, Lord Harris. In my capacity as a trustee of a very large charitable organisation into which I do not wish to go in any detail, I have been struck by the immense generosity of the leaders of the Bank of Credit and Commmerce International in that sphere. They have been so generous because of their philosophy and for no other reason.
When the noble Lord, Lord Harris, asks whether they are fit and proper people to take charge of this bank, I can only say to him and to your Lordships 416 that from my knowledge of the president of the bank, of the chief executive and two others whom I know—and that is the limit of my knowledge of the bank—I have no hesitation in saying that in my judgment they are certainly people of the highest integrity and probity. I feel that I should put that on record from my knowledge of them.
I add that ha'porth as I am probably one of the few people in the Chamber who know them. As my noble friend Lord Bruce of Donington said, it is true that they are rather secretive. That is not only because this is a private bank but is also because of a different culture. In every sense it is an international bank—and I shall say a few words about that later—in a great many countries. I have no detailed knowledge of their operations and do not wish to know them. I only know them in a sideways manner because one talks about all sorts of things when one is discussing one's major interests. What struck me about their philosophy and approach, which was new, was that because of their culture they are not used to disclosing their innermost thoughts very clearly. That is perhaps a proper tradition in banking circles. However, I was struck by the fact that the purpose which they carried out was to finance trade between third world countries. That struck me as being a very desirable objective and one which should be encouraged. Also, perhaps I may say that that is of benefit to the City of London.
The noble Lord, Lord Harris, asked how the Bank of England is going to deal with this bank. I am not sure what he meant by that. However, I know how I should like to deal with it. This international bank does not really have a proper home. I should like to deal with the bank by bringing it under the close surveillance and supervision of the Bank of England. The noble Lord, Lord Harris, nods his head, so I assume that he does not disagree with me.
The alternative would be to drive it out of London, as I understand it has been driven out of Florida as a result of this conviction by a subsidiary of the bank. That would be wrong for a number of reasons.
To put it at its highest, it would be wrong because this very large bank, operating in so many countries, the trustee and holder of such tremendous funds, should not be driven from pillar to post. The assets of its customers are too important for that. It would be a very serious matter if that were to happen. The bank also brings considerable advantage to the City of London, if under proper supervision and control in the normal way.
I hope that Treasury Ministers will discuss this matter with the Governor of the Bank of England. I agree that there is no reason why a Chancellor of the Exchequer cannot raise any issue with the Governor of the Bank of England if he wishes to do so. I certainly used to talk about a great many things. I hope he will discuss this matter. I hope he will say that this is a very important bank which, in my judgment (and I can go no further than that), has very high standards. The people whom I know in the bank are men of propriety and integrity. We should like to see the bank brought properly under the control of the Bank of England in the same way 417 as other banks which operate in the City of London. That would be the best solution.
That is all I wish to say. In some ways there has been a campaign against the bank, a political campaign in its broadest sense—not a party political campaign. It is a bank which is rather strange to the City of London. We all know that the City of London sometimes finds it difficult to absorb people who have a slightly different philosophy from the way in which the City operates. When they are accepted, they are embraced and become part of the family.
The purpose and philosophy of the bank are honourable, and those who are at the head of it are fit and proper people to control it. It should be brought within the embrace of the City of London. It could become a great strength without losing its international reputation and spread, which is perhaps wider than most of the banks that operate out of the City of London.
§ 9.42 p.m.
§ The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)
My Lords, perhaps I may begin by apologising to the noble Lords, Lord Harris and Lord Bruce, for the absence of my noble friend the Paymaster General. As noble Lords are probably aware, he is at the ECOFIN Council today and, sadly, is unable to be here. I should stress, as my noble friends from these Benches stressed earlier, that all noble Lords speaking from the Dispatch Box speak on behalf of the Government. The fact that my noble friend is absent is not necessarily relevant.
I start by dealing with a point made by the noble Lord, Lord Harris. He implied that my noble friend the Paymaster General had misled the House. As a matter of policy Ministers always regard themselves as bound by the confidentiality of provisions of the banking Act and would not disclose information subject to those confidentiality restraints.
§ Lord Harris of Greenwich
My Lords, that does not deal with the point at all. The noble Earl told us that, were he to answer the question put to him, he may be subject to a term of imprisonment. He said it twice. Is the noble Lord apologising on behalf of the noble Earl for having inadvertently misled the House, or is he seriously suggesting that the noble Earl could have been sentenced to imprisonment for answering the questions put to him from these and other Benches?
§ Lord Henley
My Lords, I shall repeat what I said. As a matter of policy Ministers regard themselves as being bound by the confidentiality provisions. I shall certainly pass on the comments of the noble Lord, Lord Harris, to my noble friend. If he wishes to comment on them, no doubt he will.
§ Lord Harris of Greenwich
My Lords, the noble Lord is not doing himself justice. He has been asked specifically whether a Minister of the Crown, answering a question in this House, could lay himself open to criminal prosecution and imprisonment. Is the answer to that question yes or no?
§ Lord Henley
My Lords, I have already answered that question. I repeat the answer I gave. Ministers always feel themselves bound by the confidentiality provisions and it would be wrong to break that binding. As I said, I shall certainly pass on the remarks of the noble Lord to my noble friend the Paymaster General.
The noble Lord, Lord Harris, asks whether Treasury Ministers propose to discuss with the Governor of the Bank of England the Bank of Credit and Commerce International's recent acceptance of liability in connection with money laundering charges brought before the United States Federal Court in Florida. Before replying to this question I should like to make two general points about the statutory basis for banking supervision.
The first point concerns allocation of responsibilities. Under the Banking Act 1987, responsibility for the authorisation and supervision of banks is a matter for the Bank of England within a clear statutory framework defined in the Act and is not a matter for the Government. So, for example, it is for the Bank of England to decide whether a bank's directors, controllers and managers are "fit and proper", to use the words of the Act, and whether its business is "conducted in a prudent manner" and with "integrity and skill". It was a deliberate choice when the 1987 Act was drafted to impose these responsibilities clearly and unequivocally on the Bank of England; and rightly so. It follows that supervisory judgments and decisions affecting the UK operations of the Bank of Credit and Commerce International, in line with those affecting any other authorised institution, are for the Bank of England to take and the Government have no locus to intervene.
My second general point concerns confidentiality, which was referred to by the noble Lord, Lord Harris. As my noble friend the Paymaster General explained to the House on 19th March in reply to a Question from the noble Lord, there are strict confidentiality constraints on the disclosure by the Bank of England of supervisory information relating to individual institutions. The 1987 Act provides that with certain exceptions the Bank of England may not disclose or make public confidential information about an institution without that institution's consent; and there are provisions to the same effect in the European banking legislation.
Perhaps I might explain the importance of protecting the confidentiality of banking supervisory information. The Banking Act gives the Bank of England wide-ranging powers to demand highly sensitive commercial information from individual banks for supervisory purposes. It is only right and proper that that information is fully protected under the law. It is essential for the effective operation of the supervisory system, not least in order to encourage a climate in which people are willing to volunteer information and speak freely with the supervisors. Moreover, it allows any corrective action which may be needed to be taken in good order in the interests of safeguarding the interests of depositors, which noble Lords know is the primary purpose of the Act. It is difficult to think of circumstances where the interests of depositors were 419 served by potentially destabilising publicity regarding an authorised institution.
However, as I have indicated, it has always been acknowledged that there must be exceptions in the interests of effective supervision. Therefore, the Act provides for the Bank of England to exchange confidential information with other supervisory authorities where necessary. It also allows the Bank of England to discuss supervisory issues with the Treasury in certain well-defined circumstances. Specifically, the Act does not preclude the disclosure by the Bank of England of information to the Treasury if disclosure appears to the Bank to be desirable or expedient in the interests of depositors or in the public interest.
Lord Bruce of Donington
My Lords, I take it that the noble Lord is aware of the provision in Section 4 of the Bank of England Act 1946 which was not in any way repealed by the Banking Act 1987. I quote from Section 4(1):The Treasury may from time to time give such directions to the Bank as, after consultation with the Governor of the Bank, they think necessary in the public interest".
§ Lord Henley
My Lords, I repeat what I said as regards the 1987 Act. As the noble Lord will know, it is later than the Act to which he referred. Specifically the Act does not preclude the disclosure by the Bank of England of information to the Treasury if disclosure—and here I accept that possibly I misread the word "preclude" and said something different—does not preclude the disclosure by the Bank of England of information to the Treasury if disclosure appears to the Bank to be desirable or expedient in the interests of the depositors or in the public interest. I thank the noble Lord for that correction. I suspect that it was misreading on my part.
The important points to recognise about the disclosure of supervisory information to the Treasury are that the powers are highly restrictive and that discretion on whether to disclose such information rests with the Bank of England. This is of course consistent with the fact that it is the Bank and not the Government that is responsible for supervising individual banks, as I have already explained. But in these circumstances the Treasury is bound by the same confidentiality restrictions as the Bank. I cannot discuss such information publicly, nor can my colleagues who are Treasury Ministers; and nor would noble Lords wish me to do so once they consider the implications fully.
None of this inhibits the Treasury from taking the initiative in approaching the Bank of England if there are issues of policy arising from the affairs of individual banks, either singly or collectively. Naturally the Treasury maintains close contacts with the Bank of England on any issue which has been a matter of parliamentary or public concern.
Against this background I now turn to the specific Question of the noble Lord, Lord Harris, about discussions between the Government and the Bank of England concerning the Bank of Credit and Commerce International. It is important to keep in 420 mind that the trial —and noble Lords have referred to this—of a number of BCCI's employees in the United States continues. One employee in London is awaiting trial in September for an alleged offence under the Drug Trafficking Offences Act 1986, to which the noble Lord, Lord Bruce, referred. The matter is accordingly sub judice.
It should also be borne in mind that there are substantial differences between the United States law of vicarious corporate liability and the English law of corporate liability. In the United States, if an employee commits a crime in the course of his employment while exercising the authority, real or apparent, vested in him by a corporation and the criminal act was done, at least in part, to the benefit of the corporation, however small that benefit might be, the corporation is also guilty of the offence. It is not a defence for the corporation that the employee acted outside the policies of the corporation. The knowledge of individual employees acting within the scope of their employment may be imputed to the corporation. Under English law the employees would need to form part of the directing mind of the corporation in order for a charge to be brought against it.
I hope that in the light of this and the general points which I have made about the statutory position, the House will appreciate the constraints on what I have to say about the role of the Bank of England in the supervision of the BCCI.
§ Lord Callaghan of Cardiff
My Lords, will the noble Lord allow me to intervene? Am I correct in understanding what he is saying about United States law to mean that the president of the bank in London and the chief executives in London could be held to be guilty of an offence under United States law if any employee in Florida were to commit an offence against United States law of which they were entirely ignorant?
§ Lord Henley
Certainly, my Lords, the law is different in America. As I understand it—I do not know how much criminal law the noble Lords knows—in England for a criminal offence to be committed there has to be the mens rea, the guilty act.
§ Lord Henley
My Lords, yes, the guilty mind. Under American law, that mens rea can be imputed to the corporation merely by the act of the employee, although that employee is not what in England would be called part of the directing mind of the company. So in America there is a much stricter interpretation of what is the guilt implied or imputed, the guilty mind imputed to the company. I should not like to comment on the noble Lord's question about the English directors apropos America, but certainly there is a much tighter definition of corporate liability in America.
Lord Bruce of Donington
My Lords, I am grateful to the noble Lord for giving way. I should like to 421 clarify the point raised by my noble friend Lord Callaghan. Is it not a fact that, despite the difference between American law and British law, which the noble Lord has perfectly adequately conveyed, in the American court BCCI was acquitted as a corporation of any offence?
§ Lord Henley
My Lords, I am not sure that the noble Lord is correct. My understanding is that in the case in Florida BCCI as a corporation pleaded guilty to some of the charges. Is that what the noble Lord is referring to?
Lord Bruce of Donington
My Lords, it pleaded guilty to the charges that were brought against its employees as such, but not as a corporate entity, as I understand it.
§ Lord Henley
My Lords, no doubt I shall have to write to the noble Lord. My understanding is that it pleaded quilty as a corporation and as such accepted its criminal responsibility. The case would be different in England, but obviously I cannot comment on specific cases. There is a difference between English law and American law on the liability of corporations.
Perhaps I should explain something of the structure of the group. The holding company and one of the two main banking subsidiaries of the BCC group are incorporated in Luxembourg and the latter's banking activities are subject to the supervision of the authorities there. The other main banking subsidiary is incorporated in the Cayman Islands and is the responsibility of the local supervisory authority. The United Kingdom banking activies of the Luxembourg-incorporated bank are supervised by the Bank of England. Overall supervision of the group is carried out by a college of supervisors, with representatives from a number of countries in which the group has operations. Nevertheless—and here I come to the noble Lord's actual Question—I can say that Treasury officials have been in touch with the Bank of England to emphasise to it the degree of public concern about the case, not least that expressed by noble Lords, and to ask it to take full account of the concern in its continued supervision of BCCI. The Bank of England has confirmed that it is doing this and will continue to do so.
I should like to turn to the broader question of action against drug money laundering. I am glad that the noble Lord, Lord Harris, welcomes the Government's action in this field. The Government treat the threat of drug money laundering as a matter of serious concern and have already introduced a number of significant measures to address it. Internationally, the United Kingdom is playing a leading role in taking measures against money laundering and we have been very active in developing international co-operation. The Drug Trafficking Offences Act 1986 created a drug money laundering offence—assisting another to obtain the 422 benefit of drug trafficking—subject to strict penalties, strengthened the powers of enforcement agencies and provided for financial institutions to report suspicious transactions to Customs and police officers.
More recently we have brought forward measures which will further strengthen these powers by enabling the United Kingdom to ratify the United Nations Convention—the Vienna Convention to which the noble Lord referred—on Illicit Traffic in Narcotic Drugs and Psychotropic Substances of December 1988. We are also providing for Customs officers and the police to detain cash at the border where they have reasonable grounds to suspect that it is connected with drug trafficking.
Internationally, a high level of co-operation already exists between enforcement authorities in the United Kingdom and other countries. The United Kingdom participated fully in the Financial Action Task Force which was established with representatives from 15 major countries following the Paris Economic Summit last July to recommend improvements to measures against money laundering. The task force has completed its report, which was published, as the noble Lord said, on 19th April. The Government have endorsed its recommendations. Our priority now is to implement the recommendations and press other participating countries to do likewise. The United Kingdom has also concluded bilateral agreements or arrangements with 13 countries to trace, freeze and confiscate the proceeds of drug trafficking. An Order in Council to implement those agreements has been laid before Parliament. Further such agreements are currently under negotiation.
However, action is not confined to the Government alone. The Bank of England has acted to remind banking institutions of their duties under statute and their responsibility to adopt policies to deter money laundering. It has indicated that it expects banks to adhere to the principles of the Basle statement on money laundering which has been endorsed by the governors of central banks in G10 countries. It has also made clear that failure to install or maintain adequate systems to cope with money laundering will be taken into account in its consideration of whether an institution continues to meet the criteria for authorisation.
Following on from this, the Bank has decided that it is appropriate to commission reports on this specific aspect of systems and control under Section 39(1)(b) of the Banking Act—that is, using reporting accountants—from authorised institutions in the 1990 round. Parallel action has been taken by the Building Societies Commission in respect of building societies which have identical repsonsibilities under the Drug Trafficking Offences Act.
Together with the government departments involved, the Bank of England played an active role in the work of the task force and has subsequently been instrumental in setting up and chairing a joint working group of banks, building societies and law 423 enforcement agencies to implement the task force's recommendations as they affect deposit-taking financial institutions.
In the light of these remarks, I hope that noble Lords will acknowledge the seriousness with which the Government and the Bank of England view the problem of money laundering and the firm action which we are taking to curb it.