Oral evidence: Proceeds of crime, HC 25Tuesday 24 May 2016
Oral evidence, 24 May 2016.
Witness
Donald Toon, Director of Economic Crime, National Crime Agency, gave evidence.
Chair
Mr Toon, thank you for attending. We will start with a question that I put to the previous witnesses about ELMER, which they said was one best put to you. What is happening about this system? We started this inquiry five months ago and we were very concerned about the figures we were given. A system that was built for about 20,000 reports is now having to deal with a third of a million. What is happening about it?
Donald Toon
Quite a lot is happening at the moment, but I should correct what I think is a misunderstanding. You suggested to the previous witnesses that the reports—as it happens, 380,000 is the latest figure—are not being looked at, but that is not a correct statement.
Chair
Okay, correct me then. That is why you are here: to give evidence to correct the record.
Donald Toon
So we key word search all the—
Chair
What is the system designed to cope with, in terms of reports?
Donald Toon
The system was designed, originally, to cope with a much smaller number. I cannot be certain that the 20,000 is accurate, but I would not be at all surprised. The system has had quite a lot of work done to it over a number of years. I think the real problem with the system is its lack of connectivity to wider systems and wider agencies.
Chair
Hold it there. Just on the figures, so we get them right: it was built to cope with about 20,000, but we do not know and cannot be absolutely certain—
Donald Toon
We cannot be certain what it was originally built to cope with.
Chair
But at the moment the number of reports is not 350,000; it is 380,000. Is that a year?
Donald Toon
Yes. The latest figure is 381,882 in the last reporting year.
Chair
We simply cannot get more accurate than that. Will it have gone up by the end of this evidence session, do you think?
Donald Toon
I have no doubt at all that it will have gone up, frankly, Chair. It is worth noting that more than 87% of those come from the banks and building societies.
Chair
Eighty-seven per cent. And that is annual figure.
Donald Toon
That is an annual figure, and one that runs—don’t ask me why—from October to September, rather than the financial year or anything more logical.
Chair
Okay, those are the figures—thank you so much for correcting them. So where do they need to be connected to? Where does the system need to be connected to in order to do a better job for the law enforcers?
Donald Toon
There are two things: first, about the system itself; and, secondly, about the legislation and the process. The system itself needs to be upgraded for two reasons, one of which is about the way in which reporters are able to submit their reports. Yes, they can do so online at the moment, but that system is old and not especially stable, and we have particular problems. For example, in the last 12 months, we had an incident when one of the major banks upgraded its own IT system and that was then totally unable to connect with ELMER. We had to put a long piece of work in to fix that position with changes from our perspective and from the bank’s. It is just not capable of operating without a lot of love, care and effort in the current environment, but that’s from the reporter’s perspective. Also—I think City of London police commented on this—with the connection between the SARs dataset and one such as the National Fraud Intelligence Bureau dataset, we can do data matches against the different datasets, but we cannot do so automatically, routinely and straightforwardly; we have to do it manually. Essentially, we have to do a process by which we download one dataset and then set it against the other.
Chair
Where are they held? Are they also held by the NCA?
Donald Toon
The National Fraud Intelligence Bureau is hosted by the City of London police. We would be interested in doing similar work with datasets that would, for example, be held by Cifas, which has a huge amount of very useful data in relation to known and suspected fraud.
Chair
Would it benefit the system if all these different databases held by all these different agencies were placed together, or does it not benefit it at all? If you can access it wherever you are—you can sit in your headquarters and access Mr Clark’s databases.
Donald Toon
If we were able to get an effective upgrade to the system and we were able to have the kind of online connectivity that we believe we need, co-location should not be an issue. The issue at the moment is that we do not have that bulk electronic access.
Chair
When do you think that is going to happen?
Donald Toon
On timing, that has to reflect the outcome of the SARs review. To build a new system, when we know that there is going to be change fairly soon, would, frankly, be a waste of resources. What matters is that we do what we can to maintain the system that we have at the moment, and then a new system is designed and put in place to meet the new suspicious activity reporting system, whatever that may be. I also think that there are some issues around the way the current process and legislation work. You heard about the moratorium period. There are certainly issues there from a law enforcement perspective, including the NCA’s. We have to consider the ability to stand up an effective capability to go in front a court and seek a restraint order in 30 days in a complex case. It is incredibly difficult, particularly with overseas evidence. I can give you examples of when it has taken us a year or more to get evidence from overseas in response to fairly straightforward mutual assistance requests, so that is a problem. But there is also something in here to do with the way in which the current system can drive unnecessary, inappropriate behaviours. The way the system currently operates means that if you submit a suspicious activity report, you submit a consent report and you gain consent, you get a defence to a money laundering charge. You therefore have a defence if we have given consent. What that can drive is a situation in which there is an infinitesimal possibility that you will need the defence, but you submit the report anyway.
Chair
Sure. We have heard some excellent evidence from Mr Clark and Mr Price about how all this affects them and the work that they do. Clearly, the City of London is a place that has been used by individuals and organisations to launder money. We were given a figure by Transparency International of £100 billion being laundered through the City of London. You have already given us some figures on SARs. Do you have any figures relating to the level of laundering that goes on either in the United Kingdom or in the City of London?
Donald Toon
The best figures that we could give—they are a very rough estimate—were given by our previous director general to you before, which put the figure as hundreds of millions of dollars going through the UK financial system. It is critical to put that in context when we are talking about a financial system that, in some areas of trading, can involve £1.5 trillion to £2 trillion a day in terms of transactions. It sounds like a large figure, but it has to be put against a very large volume and value of transactions. We have to recognise that it is happening in the UK. It is overwhelmingly happening in the City of London, but quite a lot of financial work goes on elsewhere—Edinburgh would be a good example. We have to recognise that simply the scale, the importance and the openness of the UK financial sector is such that it is extremely attractive to money launderers. It has to be.
Chair
I feel, as this inquiry progresses, that we are being overwhelmed by people targeting the UK and London in particular. Our agencies, although they are very fine agencies and they are doing their best, are facing a really difficult task in keeping up with what the criminals are doing in terms of not just the proceeds of crime, but the laundering of money through London. When you get to work in the morning, do you think, “We’re making progress here,” or, “We’re being overwhelmed because there is so much we have to deal with”?
Donald Toon
I suppose I would characterise the vision as, “We are making some progress.” Some of that progress is about understanding the scale and complexity of the problem, and starting to identify the responses. Certainly, we have worked very closely with the Home Office and others around the announcements that have been made by the Home Secretary on the anti-money laundering action plan, but there is a huge amount of work to do and it is not going to be achieved in a matter of months—it will take some years to make a fundamental difference, I think.
James Berry
I asked the last set of witnesses about the lack of a national central target in terms of the recovery of proceeds of crime. Would you support the institution of such a target?
Donald Toon
Frankly, no, I would not. There are reasons for that. On criminal finances, from our perspective we have two sides to this, one is the asset recovery piece—the proceeds of crime piece—and the other is the whole process by which money is laundered. It is important that we have a clear set of indicators of performance, and I am perfectly happy that we set out what we are achieving, and are open to question on what we are achieving, in terms of asset recovery, asset denial and money laundering. Targets tend to skew behaviours, and if you set us a target for asset recovery we will automatically be driven towards that target at the expense of areas where, frankly, targets do not exist.
James Berry
You have heard some of the evidence we have heard, and some of the public criticism is that we do not recover enough proceeds of crime, yet you do not seem to have been told by anyone what enough is. Do you find it difficult when those criticisms are levelled against you, when you are not being told how much should be recovered?
Donald Toon
No, I do not find it difficult that we are challenged on what we are achieving, but I am not sure on what basis one would actually set a target. I am not sure that we know enough, and I think it is important that you understand that from our perspective, as an agency, our responsibility is to understand the serious and organised crime threats to the UK and to secure an effective response against them. One part of that, money laundering, particularly high-end money laundering—non-cash money laundering—is, in itself, a prioritised major threat. Alongside that is the work we do on asset recovery, but that is targeted towards where we can have an impact on the serious and organised crime threat. If you set simply a target for asset recovery in and of itself, that has the potential to start driving behaviour towards the identification of cases that have assets, where the underlying harm may actually not be the most important. It is particularly important to recognise that there are areas in serious and organised crime where going after the money in and of itself is not the answer, and high-end money laundering is part of that. So asset recovery is not the biggest issue in major money laundering. What the real issue is is driving the opportunity to launder money out of the system. So we would want to be focusing on, yes, some of the criminals who may own the assets, but many of those are overseas and in difficult jurisdictions, but also on those who provide professional facilities here in the UK, whether that be company formation, the legal profession or accountancy, to work with law enforcement regulators and the professions to take action to tighten up on access to money laundering. That will not, in and of itself, lead to the recovery of a lot of money, but what it should do is make it much more difficult to find—to gain access to—money laundering through the UK.
James Berry
We hear a lot of reports of criminals hiding their ill-gotten gains before cases even get to court and the money is eligible to be subject to a confiscation order. What could Government do to help you in enabling the courts to make orders in respect of that money, to stop people being able to hide their ill-gotten gains?
Donald Toon
A lot of that has been done, so I think the position that we are now in, with the move from belief to suspicion as a test in going for early restraint, is particularly valuable. It takes time for that to work through, but it is not just about the law and it is not just about the courts. So, early restraint is valuable, but at the point at which you go for restraint of assets, you are making the existence of an investigation and the progress of that investigation overt and visible to the people who are under investigation. That is quite a difficult decision to make, particularly in our world, where the proactive, covert investigation of serious crime is core activity. The thing that needs to be looked at and continually just looked at, and I think it is more for law enforcement, the CPS and the judiciary, is the level of proof necessary to satisfy the courts that restraint is appropriate in early cases. And certainly—
James Berry
Presumably especially at an early stage, when you are still gathering your evidence?
Donald Toon
That is absolutely right, and it is absolutely right that we need to demonstrate that there is a direct link between individuals and the assets that we are alleging. That has all sorts of complexity within it, but I think we just need to keep that level of proof under examination, and whether there is a satisfaction that that restraint can be maintained for the length of time that may be required, particularly in large, complex cases, where overseas evidence is involved. That last one is a particular difficulty. I have mentioned already the time it can take to get hold of evidence in support of restraint proceedings.
James Berry
So you have plenty of time to dissipate your assets, if there is a foreign element to the case, and it is going to take you a long time to recover the evidence for assets restraint—
Donald Toon
You may have.
Victoria Atkins
We heard from Transparency International in a previous session that they claim some £100 billion is laundered through the UK each year. What are you doing to combat this?
Donald Toon
Quite a lot, but it is difficult to prove and difficult to get to the point at which one might seek to identify options for criminal action. The key thing from our perspective is that that money is largely what we would term high-end money laundering. So it’s non-cash-based money laundering, usually involving corporate structures and often involving trusts. We have taken the view that we need to work in close partnership with the financial sector to identify the routings of significant money laundering and those markers which might be used to identify that particular transactions are high-risk, and to take action to get those out of the financial system. So that takes us to the work we are doing with the Joint Money Laundering Intelligence Taskforce. We lead it, we have the Financial Conduct Authority sitting on it, along with the Serious Fraud Office, but currently there are 10 banks in a group which directly shares intelligence—customer information on money laundering. That has proved useful to us so far, in the sense that we have been able to do work in two directions. Important but often unsung is the fact that we have been able to develop with the banks 12 alerts, which we put out across the banking sector, saying, “Here is information which should guide your risk assessment of potential transactions.” So we have done work there in relation to money that may be linked to human trafficking. We have also got the identification of some 2,000 unknown problematic accounts through that process and 21 arrests. It is an area that we want to build on and an area where the criminal finances action plan and the criminal finance Bill will bring that public-private collaboration into sharp relief. It is not to any major bank’s benefit to allow money laundering to operate through their systems. They, frankly, have been working extremely closely with us and seem to be very keen to continue to do so, and we have other banks that want to join. We think that that partnership is a critical piece. Alongside that is the issue of the professional enablers that I have already mentioned. We are working with, for example, the Solicitors Regulation Authority and the Law Society on some areas where we are taking criminal investigative action. We have investigations under way at the moment into members of the legal profession linked to money laundering. We have also made a number of referrals to the Solicitors Regulation Authority for them to take disciplinary action inside the profession, and we are working through the Home Office with the Law Society to get much more concrete messages out to the profession about what the risk is and what their responsibility is. That is the sort of work we are doing. As I say, I am afraid it will take time to see that come to real fruition, but it has got to recognise that you cannot expect there to be a single law enforcement answer to this; the whole process has to involve the other stakeholders, and certainly banks. We are working closely with them now and would like to extend that work further into other aspects of banking. We are working with the majors. We are talking, for example, to the Wealth Management Association about engaging with those who are responsible for private wealth management.
Victoria Atkins
Presumably, the new reforms we have been hearing about will help improve the agency’s ability to tackle proceeds of crime offences and money laundering.
Donald Toon
We think that that is absolutely right. We think that they will make a significant difference. There is a lot to be done in terms of fleshing out the detail, and of course the criminal finances Bill will have to go through Parliament to give it effect, but there are changes to the SARs regime and changes to improve the effectiveness of public-private collaboration that we would like to see, and there are one or two areas where we would like to see changes in powers and offences. I think you have heard about unexplained wealth orders. There is talk about illicit-enrichment offences. There is also work in relation to an analogue to section 11 of the Bribery Act—for there to be an offence of failure to prevent money laundering and economic crime, which was trailed as a consultation at the anti-corruption summit. If those all come to fruition, they will make a significant difference.
Victoria Atkins
Turning to William Browder, I do not know if you heard my earlier question, but he has made some very strong allegations about corruption and fraud taking place in Russia and the money flowing from those offences into the UK. Mr Browder reported those offences to the NCA and he received an answer back from the NCA saying that “a domestic criminal investigation relating to money laundering in the UK in our case is not the most effective way forward”. How is an investigation into $30 million of criminal money coming into the UK not an effective way forward?
Donald Toon
I am relatively familiar with the allegations from Mr Browder and with some of the action that is ongoing in respect of those allegations. The bulk of the offences here took place outside the UK. We know that there are a number of international investigations already under way in respect of large segments of the criminality, and we are happy to and will co-operate with those investigations. I cannot either confirm or deny whether we are or will investigate the position within the UK itself. What matters is for us to recognise the importance—the clear strength—of the allegations made by Mr Browder and that there is an effective response to them. Our objective is to work with international partners to support and add value to investigations that they are conducting. I can’t really go any further than that.
Victoria Atkins
Just to pick you up on that: you said that you can’t confirm or deny whether investigations will take place. The NCA appears to have done that already, saying that it is not the most effective way forward. Why has the position changed?
Donald Toon
I am unsighted on precisely what has been said there. I would be very interested to know what has been said.
Chair
We will write to the director and get it clarified. Two very quick questions: Mr Berry and I went to the Queen’s warehouse at Heathrow airport and we saw a number of items which are the proceeds of crime or those that have been confiscated on arrival. We were told that alcohol, of which a huge amount is seized, and cigarettes, of which there is an even bigger amount seized, are destroyed rather than sold. Do you think that these assets should be sold rather than destroyed to raise more revenue? I don’t need a long answer, just what do you think?
Donald Toon
You have to recognise that you are bringing out my past life with HMRC as well. I don’t see how one could effectively sell those assets without achieving to some extent the ends of the people who were smuggling them, which is to undermine and distort the legitimate market.
Chair
Sure. Secondly, obviously you are now with the National Crime Agency. I am not sure, were you also with SOCA?
Donald Toon
No, I was not.
Chair
So you are one of the new entrants into the NCA. The budget of the NCA is about £400 million a year. As you know, this Committee has in the past always tried to look at the amount that has been seized by the NCA as opposed to what its budget is. Do you know what the proportion of items seized has been on your watch in your department, compared to the budget, or would you like to drop us a line and tell us this?
Donald Toon
No, I can tell you what the position is, but I must put on record that the purpose of the agency is not to recover assets. We are not a revenue generation agency. As I said, our job is to tackle the threat from serious and organised crime. The simple fact is that in 2015-16, we recovered just short of £27 million in assets. We denied—more broadly, restrained, for example—over £70 million. On both of those, if you look at the last four years, the recovery is up 80% on four years ago and the asset denial is 95% up on four years ago. The comparison in terms of looking at the agency’s budget is, I think, a false one. If you wanted to, you could, for example, simply take an analogue to my own part of the organisation, in which case we are recovering about £1.25 for every pound that is spent on my part of the organisation. But even of that, a small proportion of what we do is focused purely on assets.
Chair
But do you think it is a fair way to look at your success? You have talked about your success now, you have said that it has increased by 80% and 95%, so you will understand why Parliament keeps saying that in terms of value for money you will need to better and more, and you have proved that you can do because we have started to ask these questions.
Donald Toon
You could certainly say that we should always be aiming to do better and to be more effective, but I think that relating one output to the totality of the agency’s budget is inappropriate.
Chair
Comparing the cultures, briefly, of the new organisation you are in and the old organisation you served so well as director—how do you compare them?
Donald Toon
I moved to the National Crime Agency because I felt that there was a huge job to be done here, in relation to money laundering and wider economic crime. I find the organisation I work for now to be very open and very keen to co-operate effectively with the rest of law enforcement and with the not-for-profit and private sectors.
Chair
It certainly seems to have a better punch than SOCA had.
Donald Toon
I am glad to hear you make that assessment, Chair.
Chair
Mr Toon, thank you for the all the work that you do, and that your team does, on behalf of our country and thank you for giving evidence today. Oral evidence: Proceeds of crime, HC [XXX] 21