Corruption (International Business)

Debate between Catherine McKinnell and Anas Sarwar

Wednesday 11th December 2013 Westminster Hall

[Catherine McKinnell]

The hon. Gentleman makes an interesting point, and I am interested in what the Minister will say in responding to this debate. As the Government, they could exercise their influence to ensure that UK ambassadors play their part in tackling international corruption, which we know damages developing countries.

It is important to recognise the context in which we are speaking. Today is 11 December, and on this day, 800 women will die unnecessarily in childbirth, 29,000 under-fives will die from preventable causes, 67 million children are not in school when they should be and almost 1 billion people will go to bed hungry. The money to remedy that appalling situation is entirely available but is often being stolen for private gain.

Since the creation of the Department for International Development by the previous Labour Government in 1997, the UK has played a leading role in tackling these problems, and we should celebrate that important work and recognise that it is very much being continued under the coalition Government. It is vital that we continue to provide targeted, efficient and comprehensive aid where we know it will have a significant impact on the life chances of our fellow global citizens. However, those citizens are not simply asking us for direct assistance; they are asking us to look at how the conditions that we regulate continue to make and keep poor people poor.

To consider the role of western countries in this scandal, let us take a hypothetical example. A corrupt Minister tenders the mining rights to his country’s substantial mineral wealth. A multinational company guarantees winning the tender by sweetening its application with a large bribe. It most likely does so using a shell company to provide anonymity and an almost total guarantee that the money will be unrecoverable by officials. Alternatively, perhaps the Government sell the mines directly to a recently registered company with no employees, premises or registered activities. The Minister oversees the sale of the assets at as little as 5% of their market value, and the company then sells the assets on for a hefty profit, making sure that the corrupt Minister is well compensated personally for his generous deal. The shell company hides the often overly close relationship between the individual buying the assets and the person selling them, and corporate vehicles essentially render owners unaccountable for their actions.

After the deal, both the Minister and the company have illegitimate wealth from which they wish to benefit, and that is where the second element implicating international business comes to the fore: the laundering of ill-gotten gains through western financial institutions. To access the global marketplace, individuals need reputable banks in countries with strong property rights, such as our own. Without banks willing to take their cash, criminals would be unable to reap the rewards.

Shell companies and money laundering are two major tools provided by western businesses that facilitate devastating global corruption. Before I go on, it is worth commenting on the scale of the problem. Deals very similar to those that I just described lost the Democratic Republic of the Congo—a country at the very bottom of the UN’s human development index—more than its total annual health and education budget combined. In Nigeria, General Sani Abacha stole an estimated $1.3 billion while in power from a country where the national income is just $260 a head.

I suspect that the Minister, who is from the Department for Business, Innovation and Skills, is wondering what he is doing here, or is slightly concerned that he has arrived to respond to the wrong debate, because much of what I have discussed so far relates to the Department for International Development. However, many of these deals, such as the lost funds in the Abacha case, are alleged to have been laundered through British banks, and it is our own country’s role in this global scandal to which I turn.

[Anas Sarwar (Glasgow Central) (Lab)]

I congratulate my hon. Friend on securing the debate. Does not the point that she just made highlight the fact that this issue needs a cross-governmental approach? It is not about one Department looking at this, but a joined-up approach that includes the Department for International Development, the Treasury, the Department for Business, Innovation and Skills and the Foreign and Commonwealth Office. Through that, we can ensure that the UK continues to be a gold standard when it comes to its relationship with the world.

[Catherine McKinnell]

My hon. Friend makes the case very well and I thank him for his work in the all-party group promoting these issues. He succinctly highlights the key message that we want to convey to the Minister. He can work with other Departments, which will help us do what we can to bring an end to some of the corruption that is causing devastation in developing countries.

Our role is in part a consequence of the sheer scale of our financial services, which undoubtedly play a major role in the nation’s economy. The UK accounts for 18% of cross-border banking and houses 251 foreign banks—more than any other country. London has been voted the most attractive financial centre for asset management and is the largest currency trading centre in the world. However, we are also implicated through our links to British overseas territories and Crown dependencies, which, together with the UK mainland, account for one third of all shell companies. A number of thefts from the Democratic Republic of the Congo, for example, were routed through the British Virgin Islands.

Thirdly, and on a very positive note, we are also linked by our potential international leadership on this issue. Since 1997, the UK has proved itself at the forefront of international development work and has recently taken steps to lead the world in global transparency too. We very much support the steps that the Government have taken in relation to transparency, particularly the recent Lough Erne declaration, after the G8 summit there.

Tackling Corruption

Debate between Catherine McKinnell and Anas Sarwar

Tuesday 11th December 2012 Westminster Hall

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Leigh.

Sunday 9 December marked the United Nation’s international anti-corruption day. This year, the UN Secretary-General, Ban Ki-moon, called on us all to pledge to do our part by cracking down on corruption, shaming those who practise it and engendering a culture that values ethical behaviour. Those words are poignant when considering the general feeling in the public, who have been protesting about fairness and ethical behaviour, particularly among multinational corporations.

According to the Christian relief and development agency, Tearfund, corruption hits the poorest sectors of society the hardest. It reduces access to and quality of essential public services, such as education and health care, prevents resources from reaching their intended destinations, undermines trust and harms economic growth. In Africa alone, the cost of corruption has been estimated at nearly £100 billion a year, or £3,000 a second, representing 25% of the continent’s GDP.

Tackling corruption is particularly important to ensure that money, whether tax, investment or aid, is used for economic growth and to tackle poverty. For example, the 2009 extractive industries transparency initiative report showed that in Nigeria there was a discrepancy of $800 million—equivalent to the health budget—between what companies said they pay to the Government and what the Government said that they received. That Government are rightly working to recover that money.

As co-chair of the all-party parliamentary group on anti-corruption—my fellow co-chair, my hon. Friend the Member for Glasgow Central (Anas Sarwar), is also in the Chamber—I say that we need much greater focus on this issue. The Prime Minister made it clear recently that, together, transparency and fighting corruption are part of

“‘the golden thread’ of conditions enabling open economies and open societies to thrive”.

He announced, rightly, that he is putting transparency at the heart of the G8. In addition, the UK Government have set themselves the ambitious target of becoming the most open, transparent Government in the world. We will hold the Prime Minister to that statement.

The Bribery Act 2010 is a strong piece of legislation. The Department for International Development, created by the previous Labour Government, came top in the recent ranking for aid transparency. The UK Government came third in the 2010 open budget index for transparency in budgeting. The UK is also showing strong leadership in pushing for effective transparency legislation in the European Union, so that oil, gas and mining companies publish what they pay to Governments. However, 2013 is an opportunity to continue this progress, because as chair of the G8 and co-chair of the Open Government Partnership, the UK has a unique opportunity to harness the energy and commitment of Governments, the private sector and citizens to ensure that resources are used to tackle poverty.

The UK Bribery Act has, in many ways, set the standard globally. Now, effective implementation of the Act requires sufficient resources for enforcement. The Serious Fraud Office is responsible for enforcing the new legislation, but its budget has been cut from £52 million in 2008, to approximately £33 million in 2012 and it is expected to be further reduced in forthcoming years, which is a huge worry. Without sufficient funding, the SFO will not be able to do its job of enforcement, however good the legislation may be. Given the importance of the issue at stake, I hope that the Minister will give assurances that the SFO will have sufficient funding to implement the Bribery Act effectively. What steps are the Government taking to ensure that that happens?

With at least 11 Departments and public bodies having the remit of tackling corruption, there is clearly a need for cross-departmental co-ordination and an overarching anti-corruption strategy. The Prime Minister’s commitment in June 2010 to make the then Secretary of State for Justice, now the Minister without Portfolio, the right hon. and learned Member for Rushcliffe (Mr Clarke), the Government’s anti-corruption champion was welcome. However, the role lacks clarity and after the summer’s reshuffle we heard little more about it. The all-party group recently wrote to the Prime Minister about that and, although it was reconfirmed that the right hon. and learned Member for Rushcliffe will remain anti-corruption champion, we have yet to see further details about the remit of the role or any cross-Government strategy to tackle corruption at home and overseas. Will the Minister confirm when further details of the role of anti-corruption champion will become available and when we can expect the production of a cross-departmental anti-corruption strategy?

Some 3.5 billion people live in countries rich in oil, gas and minerals. Revenue from those sectors is often one of the greatest sources of wealth generated within developing countries. In 2010, for example, exports of oil and minerals from Africa were estimated at $333 billion, nearly seven times the value of international aid to the continent, which is currently valued at $48 billion. However, such wealth provides little benefit to the people living there, especially the poor, in part due to lack of transparency.

The UK has shown leadership in Europe in pushing for strong EU transparency legislation, for oil, gas and mining companies to publish what they pay, and has received cross-party support in the UK. We in the all-party group wrote to the then Department for Business, Innovation and Skills Minister, the hon. Member for North Norfolk (Norman Lamb), to show our support for strong Government leadership in Europe on the matter. Nevertheless, more can be done. The recently passed US Dodd-Frank Act, together with the EU transparency legislation, will cover all extractive industry companies listed on the US and EU stock exchanges, including many from G8 and G20 countries, such as Australia, Canada, China and Brazil.

[Anas Sarwar (Glasgow Central) (Lab)]

I congratulate my hon. Friend on securing this important debate. It is said that developing countries lose three times as much in tax revenues as they receive in aid. We need to rush this legislation through so that we can start developing such countries and they can start raising their own income to allow their economies to prosper.

[Catherine McKinnell]

That is the crux of the issue. The Government have rightly supported the previous Labour Government’s calls for committing 0.7% of our GDP in aid to developing countries, but until we get the international structures right—the transparency—to ensure that that money goes to the right people and is spent in the right places, and that countries are able to protect their own resources and tax revenues, we will not make the progress that we would like and aid will not have the greatest effect. To win the argument on many fronts, work must be done on the anti-corruption agenda and increased transparency to improve the efficacy of that aid, which we are rightly committed to as a country.

Much more can be done. The UK has been a leader in spearheading and supporting the extractive industries transparency initiative, a mechanism by which companies report the payments that they make to Governments, host Governments report their revenues, and any discrepancies can be resolved. That has led to large differences being identified between payments made and revenues reported and, as a result, money has been recovered, as shown in the Nigeria example that I mentioned. However, despite supporting the EITI, the UK is not yet one of its 36 current members; only one G20 country is. Although many warm noises are coming from the G8 and G20 Governments on the transparency agenda, it is questionable whether we can provide global leadership without putting our own houses in order. What plans do the UK Government have to use the G8 to encourage other rich countries to pass transparency laws and to reach global standards on transparency for oil, gas and mining companies? Is there an existing timetable that the Government are using to sign up to the EITI?

Open and transparent budget systems promote development by enabling citizens in developing countries to help their Governments to formulate budgets that reflect public priorities, to reduce money lost due to corruption, and to hold their Governments to account on spending. Such systems ensure the optimal use of resources gained from tax, aid and investment, which is even more vital now in times of austerity. For example, Mexico made details of agricultural subsidies to small farmers publicly available, showing a high concentration of recipients among the wealthiest 10% of farmers, who received nearly 20 times what the bottom 80% received. In 2007, under public pressure from the International Budget Partnership, the local non-governmental organisation Fundar, and Congress, maximum and minimum limits for farm subsidies were introduced and the recipient list was then cleaned up. In Uganda, public expenditure tracking surveys led to a reduction in leaked funds from 80% to 20% in five years, from 1995 to 2000, which was connected to Government grants for school fees. Many Governments, however, do not have transparent budgets, and nor do they allow citizen participation in the process. According to the 2010 open budget index, 74 out of the 94 countries surveyed failed to meet even the most basic standards of transparency and accountability. Only seven provided extensive information, of which the UK was one.

Clearly, much more needs to be done at an international level. The UK has an opportunity to make sure that that happens through its role as chair of the G8 and co-chair of the Open Government Partnership. The partnership, with 58 member countries, had its first steering group meeting under the UK chairmanship on 3 and 4 December, led by the Minister for the Cabinet Office. Countries have committed to publish data on Government spending in a way that the public can use, but the commitment is still limited and only includes the Executive’s budget proposal and audit report, while missing other key documents. Most importantly, the commitment does not require member Governments to develop practical ways of engaging their citizens and Parliaments in the process. As a result, the Open Government Partnership eligibility criteria need to be strengthened, so that countries show year-on-year progress and reach the highest standards of budget transparency, and to state clearly how citizens and parliamentarians can be involved in the budget process. For that to work, other key G8 and G20 countries need to commit to joining—fewer than half are currently members. Greater support is also needed to support civil society groups in using the information produced to hold their Governments to account. That could also be done, for example, through DFID programmes.

The process is comprehensive but crucial, and I will welcome further information regarding the Government’s plans to support its development in the years ahead as part of their wider anti-corruption strategy. A cross-governmental commitment to fighting corruption, throughout all Departments and across parties, is vital. I look forward to hearing the Minister’s response to the various questions and challenges that I have put to her today.