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First Solution Money Transfer Ltd

Volume 463: debated on Wednesday 18 July 2007

The collapse of First Solution Money Transfer Ltd hit the community of the east end of London and elsewhere with all the force of a flood. It has devastated some of the poorest people in England: some of the lowest paid and some of the poorest housed, who live in the chilly shade of the hedge fund operators in the richest square mile on earth in the City of London and the gleaming spires of capitalism at Canary Wharf. Those people sweated from their brow to save what often may be small amounts to you and me, Mr. Cummings, but large amounts to them, and bigger amounts to those in Bangladesh, the poorest country in the world, to whom the money was destined to be sent.

No one will know the full scale of the losses until the Insolvency Service has concluded its forensic examination of the accounts, but at the moment the directors are claiming that £1.7 million is owed to 2,000 creditors. Those figures do not begin to paint the human picture of the suffering. One man from Manchester has lost £70,000, his life savings, which has brought him to the edge of despair. Another has lost the money that he had saved for retirement back in Bangladesh. In yet another case, money saved by a man for a whole year to buy essential medical treatment for his brother has gone missing. The tale of misery is represented among the strangers here, who are some of the poorest and some of the oldest victims of this collapse.

I was first alerted to the problems in the company almost four weeks ago. Agents working for First Solution in the Home Counties contacted me and said that money that they had taken in over the previous two months for transfer to Bangladesh—some £150,000—had for the most part failed to get there. They said that a meeting had been held between more than 40 agents and the directors of First Solution in the middle of May after money had stopped getting to Bangladesh. They had been told by the directors that there were problems, but that they would soon be put right. More than one month later, the situation had merely got worse as the amount of money owed to clients had grown.

As the evidence mounted that there were problems in the company, and that good money was being paid in after bad in large quantities daily, my response was to seek the authorities’ assistance to find out what had gone wrong. I contacted the Financial Services Authority, but to my amazement was told that this financial service fell outside its remit, and that I would have to approach trading standards officers.

My office contacted trading standards officers at Tower Hamlets council with the evidence that had been presented to me, but they said that the matter was too big for them and that the police should be contacted. I sent a personal letter straight away to the borough commander in Tower Hamlets, again outlining the evidence of the very serious problems in the company, and of the suspicions, now widespread, of wrongdoing, and asked him to engage whatever agencies in the police were responsible for investigating the company. Commander Savill referred the matter to the local fraud office and an officer then contacted my office to say that he was preparing a report to send to Her Majesty's Revenue and Customs, as it was in fact the regulating body and should carry out any investigation. This was some three days before the company finally ceased trading.

Under mounting media pressure—I commend the excellent investigative reporting of Ted Jeory of the East London Advertiser—the company seems to have engaged with its accountants and lawyers, and I believe the directors were advised that they were almost certainly trading as an insolvent company, which is a criminal offence. They were advised by their lawyer to instruct their agents to stop taking business, but to this day, many agents claim that they never received any such instruction. Early in the morning on 21 June, the directors posted a notice on their office in the London Muslim centre, saying that their office was closed until further notice.

That was no tin-pot business. It had grown from a £4 million turnover in its first year of operation, 2004, to an estimated £87 million turnover in 2006-07. That growth was achieved in several ways. First, the business offered higher exchange rates for lower fees and a quicker service to more outlying areas of Bangladesh than its rivals, in particular the banks, which are subject to financial security regulation. Secondly, with its headquarters located in the London Muslim centre next to the East London mosque, it was assiduously and ruthlessly promoted as a community service on the Bangladeshi TV station Channel S. Not coincidentally, Dr. Fazal Mahmood, the driving force behind First Solution, which also includes real estate, investment, travel and other services, was also the managing director of Channel S until the day before First Solution collapsed.

I have asked Ofcom, and I demand it again today through you, Mr. Cummings, to investigate whether there was a breach of the broadcasting code as a result of that close relationship and the apparent conflicts of interest, but so far Ofcom has not agreed to an inquiry. I want to know whether the adverts that ran interminably on Channel S for First Solution, even though the two companies shared Dr. Fazal Mahmood’s services, were properly billed and paid for, and whether it was really commercial advertising or a relentless drive to get the TV station’s audience to do their business with First Solution. Ofcom has a duty to the population of east London in that regard.

Mr. Cummings, you may be surprised to know—I was—that Dr. Fazal Mahmood was convicted in 2004 on two counts of the criminal offence of breaching section 84 of the Immigration and Asylum Act 1999. A convicted criminal in 2004 was allowed to build up an £87 million business within three years because of the failure to put a fit and proper person regulation in place for people operating money transfer businesses.

The next point is even more interesting. Upon the collapse of the company, the directors appointed an insolvency firm, Panos Eliades, Franklin and Co., to register creditors, set up a creditors’ meeting and advise on liquidation. Panos Eliades himself fronted and continues to front that operation. Mr. Eliades, however, was excluded from membership of the Institute of Chartered Accountants in 2000, and, in a legal dispute over debts with the boxer Lennox Lewis, a New York court and the High Court in London ruled that Mr. Eliades had comprehensively lied in order to avoid paying the debts that he was alleged to owe. His partner, Mr. Franklin, is qualified as an insolvency practitioner, although he is subject to restriction and monitoring by the Insolvency Practitioners Association. In a word, he is in “special measures”.

One cannot help wondering why among all the insolvency firms operating in London, many of which have bombarded me with offers of help, the directors of First Solution managed to choose that one. There is a very important point to make. There is a great deal of anger in the British Bangladeshi community in the east end, and in Bangladesh itself about what has happened. There is a feeling, which I share, that it should be impossible for a money transfer company to lose money. After all, it merely takes money from Peter and promises to transfer it to Paul. In the east end, there has been much rumour and speculation that something criminal must have happened to that money.

The hon. Gentleman has rightly identified some of the gaps in the regulatory framework. A constituent of mine in Newcastle-under-Lyme in Staffordshire has also lost £70,000, and that was in late June. He tells me that he spoke to one of the directors, Shah Mohammad Abdul Hadi, before emitting the money, and he was assured that everything was fine. If it looks like a fraud, sounds like a fraud and quacks like a fraud, it is a fraud; and that is a matter for the police.

Quite so. I shall come to precisely those points in a minute.

The investigation will continue, but any investigation must carry credibility with the community who have lost their money. Normally with the collapse of a company, the investigation would be undertaken in the first place by the insolvency practitioners who were engaged by the directors and confirmed by a creditors’ meeting. There is no way that Panos Eliades, Franklin and Co., with its colourful history, possibly has the credibility to conduct such an investigation.

I am very pleased that as a result of the huge political pressure that has been brought to bear in this case, members of the Limehouse financial investigation team of the Metropolitan police executed search warrants on the headquarters of First Solution one week after the collapse. I would have much preferred the action to have been taken earlier, and I should remind the Minister that I alerted the police to the possibility of fraud three days before the company collapsed. However, I have been assured by the police that they believe that they have secured all the electronic records they need to conduct a proper investigation, and I hope that that is the case.

The company’s four directors, or perhaps it is three as one seems to have resigned, have been putting out a robust defence of their honesty. I am no expert on the international financial markets, but there is a problem with their explanation. The delays that they hold responsible for the difficulties that the business faced would in fact have benefited the company, because the long-term exchange rate trend was for the Bangladeshi currency to fall against the pound. They have claimed that people were not transferring the money from the agent to them quickly enough, and that in the delay, there had been a loss on the currency market. However, the taka has been falling like a stone compared with the pound. In just three years its value has fallen by a half, so any delays would have benefited, not suppressed the company’s profitability.

The directors’ account of events does not have any credibility at the moment. Moreover, an increasing number of people are coming to me with concerns that their investments in property in Bangladesh through First Solution have again not reached the other end. That situation includes Britannia Property Services Ltd, trading as Britannia Samana, which has among its directors both the chair of Channel S, the man now known—he changed his name—as Mohammed Mahee Ferdaush, and Dr. Fazal Mahmood.

There are some questions that must be answered. When were the losses that brought the company down first incurred? When was the informal overdraft facility with Southeast bank arranged, and how much was it for? What role did the informal overdraft facility from Southeast bank play in covering up the losses? Why was the overdraft facility withdrawn? When would a reasonable person conclude that the company had become insolvent? Is there any evidence of money paid in for transfer being diverted to other uses, including speculation? Did Mohammed Mosaddek Ali Falu, previously a Member of the Bangladeshi Parliament, now in jail in Bangladesh on money laundering charges, use First Solution to launder money from Bangladesh to the UK, and pay higher than official rates in taka? Was First Solution depositing UK sterling into Falu-nominated UK accounts, and was Falu supplying takas in Bangladesh?

Was the drying-up of money-laundered taka, as a result of the anti-corruption drive by the caretaker Government in Bangladesh, the reason why First Solution made losses? Were any significant payments made from First Solution Money Transfer Ltd client accounts to unsecured creditors—including to any directors of First Solution or other companies of which they are directors—at any time in the past three months, before the company stopped trading and after the withdrawal of the informal overdraft facility?

In that comprehensive investigation and exposé, for the many millions of members of the Bangladeshi community in the hon. Gentleman’s constituency and mine, and indeed throughout the UK, one of the questions must be—although we must ask what can be done to prevent it from happening again—what immediate relief can be offered. I am sure that the hon. Gentleman will join me in thanking Baroness Pola Uddin and the Sir William Beveridge Foundation. They are doing their utmost to help some of the crisis cases. Many in the audience here and downstairs, as well as in the community, have seen their hard-won life savings vanish in an instant. We have a collective duty to help and support them.

Quite so. In fact, we are not only demanding help for crisis cases. As I will mention in a minute, we are demanding that everyone who has lost money gets it back.

Whatever the outcome of the investigation, the burgeoning area of financial services needs more regulation. Money transfer companies receive a licence from Her Majesty’s Revenue and Customs, which is charged with monitoring money laundering, but they are not monitored for financial security. It is a big hole in the regulatory regime.

The Department for International Development was among the agencies after 9/11 that pushed out of the picture the informal networks previously used to transfer money to countries such as Bangladesh and insisted on the move to a more formal network. Some £7.5 million was paid to Bangladesh’s state bank to encourage Bangladeshi authorities to go down that road. That is the context for the emergence and extremely rapid growth of First Solution, but without proper regulation, the danger of a collapse was ever-present. Having pushed people into the sector while knowing that it was not regulated—having encouraged the process of money transfer—the Government have an obligation to help the people who have lost money in the collapse.

No, if the hon. Lady will forgive me. I am running out of time, and I want the Minister to have time to reply.

I met the Minister, who was most gracious, and she rejected direct help on the grounds that it would encourage moral hazard. But if the Government encouraged the system that failed to protect the customer, the Government have the moral obligation to help. As for regulation, it needs to be considered as a matter of urgency and proposals must be introduced. I am glad that she said that that will be done, but I stress that the regulation must include a “fit and proper” test for directors.

The Minister has agreed Government assistance in establishing a fund to raise money to pay back the many poor people who have lost money. It is early days, and I understand that the agents who have lost so much business and standing in the community are themselves trying to organise a rescue package. I have begun writing to the heads of major City institutions to ask them to contribute to the relief fund that the Minister and I discussed. If Ministers, led by the Prime Minister, added their voices to the call and led the House by example, we could raise the necessary funds swiftly to pay everybody back.

I described where most of the victims live. They live in the cold shadow of some of the richest companies, banks and finance houses in the world. If the Government put their back into it and tug at the consciences of the hedge fund managers, private equity speculators and city slickers who got £8.8 billion in Christmas bonuses six months ago—if the Government put the arm on some of the richest people in England to help some of the poorest, who are the victims of the crash—something can be rescued from the ashes. I look forward to hearing what the Minister has in mind.

I am grateful for your chairmanship, Mr. Cummings. I congratulate the hon. Member for Bethnal Green and Bow (Mr. Galloway) on securing this debate—it would be unladylike for me to add “while he is still able”, but it is nice to see him in the House today. I thank him and all hon. Members who have spoken for their contributions.

I start by expressing my sympathy for those affected by the closure of First Solution Money Transfer Ltd, including many of my own constituents as well as those of the hon. Gentleman and other hon. Members here today. Before I mention local leaders in the hon. Gentleman’s constituency, I pay tribute on a personal note to Councillor Shah Hussain in mine, who has done excellent work in representing the Bangladeshi community’s views. I realise that many of those affected worked hard to earn the money that they sent through the company, and that many in Bangladesh who did not receive money were badly in need of it. I welcome the efforts of all those who have taken the trouble to support people who have suffered as a result of the company’s closure.

Sitting suspended for a Division in the House.

On resuming—

The Government’s first step was to attempt to understand the situation and the concerns of those affected. My right hon. Friend the Minister for Competitiveness and I have met a number of representatives of the local community. In addition to the hon. Member for Bethnal Green and Bow, I want to mention in particular the grass-roots work of Councillor Denise Jones, who is leader of the council, and of Rushanara Ali and Ayub Ali, who have worked hard to raise the profile of the issue and to make representations to Government. As well as thanking the Minister for Competitiveness, I want to extend my particular thanks to the Under-Secretary of State for Transport, my hon. Friend for Poplar and Canning Town (Jim Fitzpatrick), who was here for the earlier part of the debate, and, as has been mentioned by my hon. Friend the Member for Luton, South (Margaret Moran), Baroness Uddin of Bethnal Green, of whom more later.

Of course, I am grateful to the hon. Member for Bethnal Green and Bow for the trouble that he took, as he mentioned in his opening remarks, to bring community representatives to meet me last week to express their concerns and aid my personal understanding of the issues. I want to draw the attention of the entire community to the written ministerial statement that I laid before the House last week, which set out our initial response.

In response to complaints about the circumstances of First Solution’s closure, the companies investigation branch of the Insolvency Service is also examining the facts of the case, and has been in liaison with the local police as well as keeping trading standards officers and other regulators informed of its investigation.

Although I was interested to hear the points about criminality and suggestions of the fit-and-proper-person nature—or otherwise—of various directors who were involved, as well as the suggestions made by my hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) about fraud, and the points about money laundering, they are best dealt with by the investigation that is being undertaken. It is standard practice that if the CIB finds any allegations that the law has been broken in any of those regards, it will pass them on to the police, with whom it is already in contact. Time will tell in answer to those points.

The CIB recognises the uncertainty felt by those affected by the closure of First Solution, and it is working as quickly as possible to reach conclusions and making steady progress. Obviously, it needs to be thorough, so it is unable to give a precise time for the completion of its investigations, but it is fully aware of the need to progress as swiftly and thoroughly as possible.

I also realise that the uncertainty must be difficult for those who have been affected by the case, and that they will understandably be frustrated that First Solution’s voluntary liquidation means that there is no firm time frame in which they might find out when, or if, money can be reclaimed from the company’s remaining assets, which is, of course, theoretically possible.

Many of us have constituents who are affected by this, and they need to know what to do next. I should be grateful if the Minister would outline the importance of registering their loss with the liquidator, so that they do not merely attend meetings where everyone tells them what a dreadful thing this is, but not where to go next. I know that Members in the Chamber today have met representatives from those groups who keep going to meetings but are uncertain what to do next.

I am grateful to the hon. Lady for mentioning that point. I was just coming to the two things that the people who are affected should do. First, as I laid out in last week’s written ministerial statement, they should register their interests with the insolvency practitioners who are the liquidators. The most recent information is that a liquidator has not yet been formally appointed, although that may have changed recently, but the company has told us that it intends to appoint as liquidator Panos Eliades, Franklin and Co., and the telephone number 020 8815 4000 was given in my ministerial statement. As a first step, potentially affected people should register their interest there. If assets can be returned to them, the liquidators will ensure that they are in the right place in the queue for that.

The second matter is the charitable response. With my whole heart, I want to say how delighted I am that the Sir William Beveridge Foundation has independently agreed to provide a charitable response. A helpline is in the process of being established—I understand that the number has been agreed, but that BT has not formally connected it. We will make that public next week, and everyone, all over the country, who feels that they should be eligible for a charitable response, should contact that charity, which has its own processes for checking who is eligible and who is not. It is an established organisation and I am delighted that it has come forward in these sad circumstances. The foundation will be seeking corporate and individual donations. I do not know who it is contacting, but the hon. Gentleman had some sensible suggestions. I shall certainly encourage the foundation to seek the widest possible donations to provide a substantial fund.

I am sure that we will all want to thank Baroness Uddin for her role in setting up the support fund, as well as the many others who have been involved—I know that an ad hoc advisory group set itself up—

As a member of the ad hoc advisory group, I stress that the criteria that will be used to determine eligibility will be determined by the charitable trust, not by politicians or others. Will the Minister acknowledge that although this tragedy affects the Bangladeshi community because of this company, it is important that we explain to others from other communities who use money transfer agencies—there are many others, including in my constituency—that they need to be sure about the terms on which they are using the agencies?

Those are extremely important points. The independence of the charity is crucial and it is important to point out to individual constituents the need to be vigilant and to check the status of the companies with which they transact, although I understand that it is difficult to do so. I am about to move on to the issue of regulation, but I have one final word on the charitable response. It is clear in my mind—I have said this privately to the hon. Gentleman—that as a Government, our response to this tragic situation should be the same as our response to Farepak. In that case, we were delighted to say that the Family Fund set up a charitable response, and in this case we are delighted to see that the Sir William Beveridge Foundation has taken up the mantle. I shall encourage my constituents to get in touch, and I hope that all hon. Members will do the same. It might be a couple of days before we have the final details in place, although I stand to be corrected by members of the ad hoc advisory group.

The fund will provide immediate support, I hope, to those who have been affected in this incident, but I know that we are all concerned about ways of preventing closures like this in the future. Even before the situation was known, the Government had committed to regulate money transfer companies under the payment services directive, which we agreed the terms of and negotiated on behalf of the UK at a European level earlier this year.

The directive will require money transfer operators to be subject to financial regulation. It will introduce a prudential authorisation regime for these companies, which will be tiered according to the size of the operators. It will also provide, where appropriate, for customers’ funds to be ring-fenced from other creditors’ in the event of insolvency. Furthermore, all operators must abide by new conduct-of-business rules, which concern the provision of adequate information to customers to ensure that there is transparency about the services that customers receive. There are also liability requirements, to provide greater legal certainty for customers in the event, for example, that a payment transaction goes wrong.

We will be publishing a consultation document on the implementation of the directive later this year. I encourage all those who have been involved with the First Solution experience to respond to that, and we will be seeking views from all interested stakeholders on how we can implement it most effectively, taking into account the Government’s better regulation agenda. We will also take into account lessons learned from First Solution.

Regulation is not fail-safe. It cannot guarantee that firms will not become insolvent or misbehave, and it will always need to be complemented by customer vigilance, good corporate practice and genuine competition in the marketplace. We believe that if it had been in place, that would have been a better framework than the one that we have.

I want to mention the role of the Department for International Development in supporting from the other side the role of money transfer companies. We have set up a remittances and payments partnership project with the central bank of Bangladesh to improve the speed and security with which migrants are able to remit funds home. We also fund the UK remittances taskforce to promote greater transparency and competition, and better information in the UK remittances market.

The hon. Gentleman mentioned a couple of other points. I heard what he said about Ofcom, which is an independent body and so it is up to it to decide what to do. I am sure that it is aware and is investigating the representations that have been made. In the last few seconds—