LONDON CITY BOND

Attached is a letter from the Economic Secretary to the Treasury, John Healey, to John McFall MP, Chairman of the Treasury Select Committee, sent today 29 September 2004.

NOTES FOR EDITORS

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Letter to the Rt Hon John McFall MP

Rt Hon John McFall MP
Chairman
Treasury Select Committee
House of Commons
London
SW1A 0AA

29 September 2004

Dear John

London City Bond

I am writing to update you on the latest position with the Metropolitan Police Service (MPS) investigation – Operation Gestalt – into Customs and Excise’s handling of a series of excise diversion frauds focused on the London City Bond in the mid-1990s. I believe it is important that this information is available to Parliament, and as we are in recess am therefore also placing a copy of this letter in the Libraries of both Houses.

As you know, as part of their established procedure for such investigations the police produce impact assessments as the investigation develops, which are intended to assist the Department in discharging its disclosure obligations. I promised to write to you once the Chairman of Customs and Excise, David Varney, had decided what action was necessary following receipt on 24 September of the MPS’s fourth Operation Gestalt impact assessment. David Varney has today informed me of his decision, and that he has completed the sequence of management actions necessary since receiving the impact assessment, including contacting all individuals potentially affected as agreed with the police, taking legal advice and consulting with the Cabinet Secretary and Attorney General. I should emphasise that these are Civil Service management decisions, taken in line with established Departmental policy, which are a matter for the Chairman, not ministers.

20 retired or serving Customs officials have been named in the fourth impact assessment. Two of the serving officials named as being under investigation hold very senior positions in the Department, and have been confirmed by Customs today as: Terry Byrne, Director General, Law Enforcement; and David Pickup, Solicitor. The police are conducting further investigations into allegations of non-disclosure to determine whether any offences have been committed. I must emphasise, as have the MPS, that the investigation is far from complete and that the term “under investigation” should not be taken to mean that charges will follow. The investigation is at an early stage and will take some time to complete, and it would be wrong and unjust to prejudge the outcome.

The Chairman has considered carefully the position of all the named officials. 6 of them have left the Department and have been informed. In relation to the other 14 serving officials, he has reached the following conclusions:

1 officer has been reclassified as a potential witness and therefore no further action is required for the moment.
6 officers can continue in their present posts because their duties have no bearing on the evidential chain in this investigation or ongoing Customs and Excise operations.
5 officers have been moved from their current posts to other duties to ensure the integrity of this investigation and ongoing Customs and Excise operations.
2 officers – Terry Byrne and David Pickup – have been suspended from duty with immediate effect, as the Chairman is announcing to the Department today. The seniority of these officers and the broad scope of their responsibilities make it impossible for them to remain in their posts pending investigation. There are no other appropriate roles available and the Chairman has decided that the public interest is best served by suspension. I repeat, the term “under investigation” should not be taken to mean that charges will follow, and it would be wrong and unjust to prejudge the outcome of the investigation.

David Varney’s priorities, which I entirely share, are to ensure: the full and active cooperation of the Department with the investigation, in order that it may be brought to a conclusion as soon as possible; that the rights of all individuals involved are protected, in full accordance with UK employment law; and that the Department’s ongoing law enforcement, prosecution and legal operations are maintained while the investigation is ongoing.

In order to secure the latter, David Varney has appointed Mike Eland as Acting Director General Law Enforcement; and the Attorney General, in consultation with David Varney, has asked Sir David Calvert-Smith QC to act as Acting Director with specific responsibility for prosecutions and casework issues for the Custom Prosecution Office, on the grounds of his significant credibility and experience. He will be working part time in order to honour his existing commitment as a CRE Nominated Commissioner. Alongside these moves, David Hogg has been appointed as Acting Solicitor to Customs and Excise. The legal implications for cases currently before the courts are a matter for the Attorney General, who is considering this issue.

In parallel with the Operation Gestalt investigation the Metropolitan Police have also provided advice on a number of other Customs and Excise investigations concerning money service bureaux. The Chairman has asked the police to extend their investigation to cover these additional issues. This aspect of the investigation is still at a very early stage which means I am unable to say any more at present; however, I will keep Parliament informed – to the extent that I am able – as the investigation progresses.

The decisions above are rightly a Civil Service matter for the Chairman. My ministerial responsibility is for policy decisions and for maintaining an overview of the work of the Department. Within this context, as you will recall the Attorney General and I asked Mr Justice Butterfield to conduct a review of the circumstances which led to the termination of certain Customs and Excise prosecutions in 2002 and to advise on whether Customs’ handling of criminal cases met statutory requirements and best professional practice. His report was published in full alongside a written statement from the Attorney General and myself on 15 July 2003, and the Government has accepted his recommendations. These included handing over responsibility for the prosecution of Customs cases to an entirely independent prosecutions authority, for which work on legislation is progressing which the Attorney General and I hope will be completed by April 2005. The Attorney General has also already put in place an exercise to recruit a Director.

Another key Butterfield recommendation was that:

“a separate study is undertaken with a view to identifying how additional external scrutiny can best be introduced into HMCE investigation work. The review might start with looking at how the existing professional standards team could be enhanced and its reputation reinforced through external input. But a review should not necessarily confine itself to that limited scope. ”

Having undertaken this study, taking account of the future requirements of Her Majesty's Revenue and Customs (HMRC), we decided that the new department should be established with tough mechanisms for independent external scrutiny. Following necessary preliminary work, including discussions with Home Office and other relevant bodies, I can now confirm that we have decided to proceed with this move.

As the first stage of implementing this I have agreed with the Chairman that with immediate effect Perry Nove, former Commissioner of the City of London Police, will provide independent expert advice to the Chairman on the handling of investigations, including the Department’s liaison with police forces on ongoing police investigations.

As the second stage, we have decided that the scrutiny mechanisms for HMRC will match those already in place for the Police. HM Inspectorate of Constabulary (HMIC) will scrutinise how HMRC ensures compliance with the requirements of the criminal justice system. The remit of the Independent Police Complaints Commission (IPCC) will be extended to cover serious complaints against HMRC officials. They will provide independent advice, supervision or management of complaint investigations and have the power to investigate directly where such action is necessary. In addition to these moves for HMRC, the Customs and Excise Prosecution Office have also subjected themselves to external scrutiny: the London office is currently undergoing an inspection by Her Majesty’s Crown Prosecution Service Inspectorate. In the future this inspection process will be a regular one with published inspection reports.

Legislation will be necessary to bring these new arrangements into effect and this will take some time. However, in order to ensure that change is as robust and swift as possible I have agreed with the Chairman that Bill Taylor, Chief HMIC in Scotland and Chief Police Officer for 8 years, will with immediate effect advise him on the development of the external scrutiny arrangements with the IPCC and HMIC. In addition, Mr Taylor will provide advice on the development of professional standards in Customs and Excise and, in the longer term, in HMRC.

I am copying this letter to the Attorney General, with whom I have agreed its contents and who is writing to Lord Peston in similar terms. The Treasury will be making this letter more widely available.

JOHN HEALEY MP