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Carillion issued 3 profit warnings. So why was it still getting government contracts?

The government should have been wary of Carillion as far back as July.

Carillion, one of the UK government’s biggest contractors, with public sector contracts that deliver services across numerous government departments including defence, transport health and education, has collapsed.

This is potentially catastrophic, not least for the provision of vital public services. It also risks the jobs of more than 20,000 UK employees, hundreds of subcontractors and supply chain businesses and the interests of those who rely on Carillion’s pension fund.

What is most alarming however, is that Carillion had issued three profit warnings over the last six months. Yet following these, the government awarded nearly £2bn worth of additional public sector contracts to Carillion.

Worse still, is that pursuant to the government’s “Strategic Risk Management Policy”, it is government policy to designate a company as “High Risk” where profit warnings and/or various other risk factors are uncovered. The policy further states that firstly, if a company is deemed “High Risk”, a Crown representative should be appointed to manage relationships between the ailing company and government. In addition to this, all government departments should be advised to ”reduce where possible” any additional work to be procured.

So how did this apply to Carillion? The first profit warning was issued in July 2017. A week later the government awarded Carillion the prestigious HS2 contract totalling £1.4bn and Hestia defence contracts totalling £158m.

The second profit warning was issued in September 2017. Yet as of that point, no Crown representative had been appointed in line with government policy. Furthermore, in November, the government-owned Network Rail awarded Carillion the contract for the London to Corby electrification, worth £62m. The third profit warning was the same month.

Why did the government fail to act when not one, but three profit warnings, had been issued? And why did it continue to award expensive public sector contracts to a company that was clearly in trouble?

Despite only reacting at the eleventh hour, the government must now move quickly.

We have called repeatedly over recent days for Carillion’s public sector contracts to be brought back in-house where possible. Doing this will ensure stability, delivery of public services and to ensure employees, supply chain companies and pension fund members are protected.

But this crisis raises larger issues. The Conservatives’ approach to outsourcing and privatisation is clearly undermining our public services. Awarding so many vital contracts to one single company has exposed public services, jobs, supply chain businesses, pension funds and the British taxpayer to an enormous amount of risk.

Labour’s manifesto pledges to ensure that any company procuring government services complies with a range of standards, ranging from full payment of suppliers within 30 days to full trade union recognition.

Under these rules, Carillion would not have been awarded these contracts.

Carillion supplier payment policy ranges from payments in advance to 120 days from month end. It was one of the eight multinational building contractors which played a role into the insidious practice of blacklisting of union members in the construction industry.

The crisis at Carillion raises deep concerns about the future security of infrastructure and capital projects. This is why Labour has pledged to end the rip off of taxpayers by committing to sign no new Private Finance Initiative (PFI) deals, looking at bringing existing contracts back in-house and developing alternative public sector models for funding infrastructure.

It is clear therefore that a full investigation is now required. This should be not only into the conduct of the government over the Carillion crisis, but also the viability of the government’s approach to public procurement overall.

 

Rebecca Long Bailey is shadow exchequer secretary and Labour MP for Salford and Eccles. 

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Can Britain’s new powers to investigate unexplained wealth prevent real-life McMafias?

The government is waking up to the fact that global criminals are fond of London. 

The BBC’s McMafia, a story of high-flying Russian mobsters and international money launderers woven into the fabric of London, ended this month. Despite the dramatic TV twists, the subject matter has its basis in reality. As a barrister dealing with cases that involve Russia and former Soviet states, my experience is that politicians and business people use the apparatus of the state to put rivals out of business by any means possible.

In McMafia, previously straight-laced fund manager Alex Godman (played by James Norton) begins transferring money under the cover of a new investment fund. With a click of a button, he can transfer a shady partner’s money around the world. As the Paradise Papers underlined, money can indeed be hidden through the use of complex company structures registered in different countries, many of which do not easily disclose the names of owners and beneficiaries. One company can be owned by another, so the owner of Company A (in Panama) might be Company B (in the Cayman Islands) which is owned by Company C (in the Seychelles) which owns property in London. To find out who owns the property, at least three separate jurisdictions must be contacted and international co-operation arranged – and that’s a simple structure. Many companies will have multiple owners, making it even more difficult to work out who the actual beneficiary is.

I represent individuals before the UK extradition and immigration courts. They are bankers, business people and politicians who have fled persecution in Russia and Ukraine or face fabricated charges in their home country and face extradition or deportation and will often be tortured or put on show trial if we lose. Their opponents will deploy spies, who may pay visits to co-defendants in Russia for “psychological work” (aka torture). Sometimes the threat of torture or ruin against a person’s family is enough to make them confess to crimes they didn’t commit. I have seen family members of my clients issued with threats of explicit violence and the implicit destruction of their life. Outside their close relatives’ homes in Russia, cars have been set on fire. Violence and intimidation are part of the creed that permeates the country’s business and political rivalries.

As in McMafia, London has long played a bit part in these rivalries, but the UK government has been slow to act. In 2006, Alexander Litvinenko, a former Russian security agent turned defector, was killed in London using Polonium 210 – a radioactive substance put into a cup of tea. Although Russian state involvement was suspected from the beginning, the UK government tried to block certain material being released into the public domain, leading his family to complain that the UK’s relations with Russia were being put before the truth. In 2016, a decade after his death, the inquiry finally delivered its verdict: there was a “strong probability” Litvinenko was murdered on the personal orders of Vladimir Putin. Yet in the same breath as condemning the act, David Cameron’s spokeswoman said the UK would have to “weigh carefully” the incident against “the broader need to work with Russia on certain issues”.

The government of Cameron’s successor has however been quick to use McMafia as a spring-board to publicise its new Unexplained Wealth Orders (UWO). These new investigatory powers are purportedly to be used to stop the likes of Alex from hiding money from the authorities. Anyone with over £50,000 of property who is politically exposed or suspected of a serious crime, will be forced to disclose the source of their wealth on request. While most British homeowners would own more than £50,000, the individuals are likely to be high profile politicians or under investigation already by the authorities. If they fail to respond punctually, they risk forfeiting their property.

The anti-corruption organisation Transparency International has long campaigned for such measures, highlighting cases such as the first family of Azerbaijan owning property in Hampstead or senior Russian politicians believed to own flats in Whitehall. Previously, confiscating hidden assets has been a lengthy and complex process: when the High Court confiscated an £11m London house belonging to a Kazakh dissident, the legal process took seven years.

The new Unexplained Wealth Orders mean that the onus is shifted to the owner of the property to prove legitimacy and the origin of the wealth. The authorities will have much greater power to investigate where finance and investment originated. But in order for them to work effectively, they will have to be backed up by expert prosecutors. The government still has a long way to go before it makes London a less attractive place to hide money.

Ben Keith is a barrister at 5 St Andrew’s Hill specialising in extradition, immigration, serious fraud, human rights and public law.