Future of CDC

Caroline Lucas Excerpts

Thursday 14th July 2011 Westminster Hall

[Caroline Lucas (Brighton, Pavilion) (Green)]

I am grateful for the opportunity to speak in the debate, particularly because I am not a member of the International Development Committee, although I follow its work closely. I welcome the Committee’s report on CDC, which has operated in the shadows for too long and which is increasingly a subject of public concern.

I am pleased to note that the issue of compliance by CDC fund managers with the Department for International Development-sponsored CDC investment code has been raised in the report, because it is an important issue. I have followed the issue at first hand after one of my constituents, Mr Dotun Oloko, came to see me about the investments of two CDC-backed funds in Nigeria, Ethos and Emerging Capital Partners. Mr Oloko’s concerns have been set out in written evidence received by the Committee, so I will not detail them here. Suffice to say that Nigeria’s Economic and Financial Crimes Commission reports that four of the companies in which CDC-backed funds have been invested are fronts for laundering money. That money is said to have been corruptly obtained by James Ibori, the ex-Governor of Nigeria’s Delta state. Mr Ibori, who has previously been convicted twice in the UK, is on trial here again, this time for alleged money-laundering offences involving CDC investee companies.

CDC’s investment in such companies raises many concerns. As hon. Members will recall, CDC’s investment code requires that all businesses in which CDC’s capital is invested must

“comply with all applicable laws and international standards intended to prevent bribery and financial crime.”

Under these rules, companies with links to a politically exposed person, such as Mr Ibori, his relatives and close associates, should have been subject to an enhanced due diligence process. Why did the funds fail to pick up on these links, even after they had been brought before a Nigerian court and were widely publicised in print and in the electronic media? A simple internet search would have revealed the details of corruption associated with these CDC investee companies.

I also want to know whether procedures were in place, both within the funds and within CDC, to ensure compliance with money laundering laws in the UK, the US, Jersey, South Africa and Mauritius—all countries where the funds and CDC are variously registered. For example, here in the UK, the Money Laundering Regulations 2003 require CDC to implement procedures to forestall and prevent money laundering. If, as the evidence from this case suggests, CDC has failed in that respect, will there now be a broader review of CDC’s portfolio with regard to money laundering risks?

My constituent Mr Oloko’s own investigations revealed another stunning fact: a discrepancy of several million pounds between the amount one of CDC-backed funds claims was paid for its investment in a Nigerian fertiliser company, and what was actually received for the shares in Nigeria. The fertiliser company is reported—alleged—to be a front for Mr Ibori. Yet this appears to have gone unnoticed by CDC and, once it was informed, unreported too. In future, will CDC be required to report such information, if there are reasonable grounds to suspect that a crime has been committed?

There are other causes for concern. CDC continues to be an investor in a bank whose director has been jailed and in other indicted investee companies. Those companies include one where a former chief executive officer is facing criminal charges in Nigeria as well as civil action in the UK, and another which Private Eye magazine has accused of tax evasion and corruption. DFID’s response has been equally worrying. When concerns were raised, did it seek further information from Mr Oloko? No, it did not. Did it bring in independent investigators? No, it did not. All it has done is to ask the funds and CDC—the very institutions whose actions need investigation—to give assurances that no wrongdoing occurred. That is not sufficient to reassure the public.

A key question, still to be answered, is whether CDC passed on the information that it received from Mr Oloko to the police, as required under the Proceeds of Crime Act 2002. We do not know, because CDC refuses to say. When I met the director of the Serious Fraud Office earlier this year, he told me that he learned about the concerns directly from my constituent, Mr Oloko.

CDC’s Nigerian investments are not the only causes for concern. CDC also invested in funds that have backed companies accused of human rights abuses, such as Anvil Mining, and of profiting at the expense of the poor. For example, in Uganda the CDC-backed power distributor Umeme has hiked electricity prices to the point where many poorer Ugandans have been forced to steal electricity from the grid; Umeme’s manager is reported to have called for their execution.

DFID officials have argued that the measure of CDC’s contribution to relieving poverty is the profitability of the companies backed by its funds, which is not a serious argument. While investment is certainly needed to relieve poverty, it is both simplistic and irrational to assume that any investment, even if conditioned by environmental and social safeguards, automatically translates into positive impacts on poverty reduction simply because that investment generates growth.

Before I was elected to this House, I worked for Oxfam for more than 10 years. I have seen some of these development questions at first hand. Many of the funds in which CDC invests make extensive use of tax havens. I listened with interest to the right hon. Member for Gordon (Malcolm Bruce) on the complications and issues around tax havens, which is a matter of concern. Those funds are using tax havens, and although the right hon. Gentleman explained that that is not always to avoid paying taxes, it still raises concerns.

[Malcolm Bruce]

I want to reassure the hon. Lady that we share those concerns. We did not dispel them; we just felt that the matter was more complicated than we had appreciated. In a wider inquiry, we did not have time to come to a definitive conclusion. The concerns exist and we need assurances, but she should accept the danger that investment may be driven away if the matter is handled wrongly.

--- Later in debate ---

[Caroline Lucas]

I hope that the issue can be looked at in greater detail. I appreciate that it is complex, but none the less there are real causes for concern.

The Government have acknowledged many of the concerns about CDC. I am encouraged that that has strengthened CDC’s environmental, social and governance procedures. CDC is also committed to introducing new development impact indicators and to developing new investment instruments, so that it no longer operates exclusively as a fund-of-funds investor. By 2015, 20% of its investments will be loans and 20% of them will be direct equity investments. However, that still leaves 60% of its investments being delivered through private equity funds. I question whether such turbo-charged profit seekers are always the appropriate development finance vehicles. Indeed, fund managers themselves are sceptical about the compatibility of the fund-of-funds approach with DFID’s development objectives, particularly in addressing poverty.

There are some important lessons to be learned, most notably about the need for proper scrutiny of development projects and for CDC’s investments to be properly monitored on a regular basis. My constituent has looked at a relatively small proportion of CDC-backed funds, but what he has already discovered makes me extremely concerned that there deep-seated problems that needed to be addressed as a matter of urgency.

Profiting from development at the expense of the poor is easy; history is, unfortunately, replete with examples of that. The more difficult challenge is to assist poorer people in designing and developing programmes for their own benefit, rather than that of their financial backers. I very much hope that CDC can rise to that challenge in the future.

Finally, I sincerely apologise for the fact that I cannot be present for the whole debate, although I will be here for some time. I understand that it goes on until 5.30 pm.

[Malcolm Bruce]

It can do.

[Caroline Lucas]

If it does, I cannot be here until then. I hope that the Secretary of State will forgive me, and none the less address some of the issues that I have raised. I will avidly look at his response in Hansard.

--- Later in debate ---

[Mr Mitchell]

I will come directly to that point. CDC investments in India will be in addition to the 50% of the programme funding that we expect to be spent on pro-poor private sector development over the next four years. If the hon. Gentleman will allow me, I will come in a moment to some of the other points that he has raised.

[Caroline Lucas]

I am sorry to delay the Secretary of State on this issue, but I want to return to the point raised by the hon. Member for Birmingham, Northfield (Richard Burden). The Secretary of State said that the figure of 50% was not arbitrary, but he then said that the criteria were that that figure “feels right”, which does sound arbitrary. Will the Secretary of State be clearer about the criteria that led to the discussion and agreement on a figure of 50% for India, and what criteria were used elsewhere?

[Mr Mitchell]

At the moment, the target exists only in India. I can only repeat what I said to the hon. Lady: the figure feels right; it is not a science and I am not setting an arbitrary target in that sense. It is an aim and as long as we move down that course over the next four years—which I am sure we will—we will see the benefits in terms of what is happening in India and of the effectiveness of our programme.

I know that the hon. Lady has an urgent constituency matter to attend to and may leave before the end of my speech, so I will address the point she raised. She made a number of detailed comments about the nature of the operation of CDC’s investment in Nigerian companies against which corruption allegations have been made. I hope that she will forgive me if I draw her attention to the fact that some of those matters are before the courts and I must therefore be careful about what I say in my response. I can tell her, however, that the Department and CDC take allegations of corruption extremely seriously. We have looked at the allegations in exhaustive detail, and I have written in great detail on the matter to the chief executive—I think—of the Jubilee Debt Campaign. I would be happy to share the contents of that correspondence with the hon. Lady, and if she would like me to do that, she has only to say.

[Caroline Lucas]

indicated assent.