Government motion aims to ‘correct the record’ on audit findings, Feetham says 

The Minister for Justice, Trade and Industry, Nigel Feetham, defended the Gibraltar Government’s motion on the Principal Auditor’s 2018/19 report, arguing in Parliament this week that the report contains serious factual and legal errors that risk damaging Gibraltar’s reputation and international assessments of its financial system.  

Speaking on Monday during the debate on the motion, Mr Feetham rejected Opposition claims that the Government was “weaponising” the report against the former Principal Auditor or mounting a “character assassination”, insisting instead that Parliament was the proper forum to challenge the findings. 

He said it was “absolutely the correct thing to do” for MPs to scrutinise the report in the House, describing it as an abuse of the Constitution to suggest otherwise. 

Referring to Opposition criticism of Chief Minister Fabian Picardo’s intervention in the debate, Mr Feetham said he did not recognise the picture painted by the GSD, including suggestions that the debate amounted to a “constitutional outrage”. 

He added that while ministers expected to be subject to robust scrutiny, the same constitutional framework also applied to the Principal Auditor. 

“The Principal Auditor himself also has constitutional boundaries, or is it only that the members on this side of the House are bound by constitutional boundaries, but nobody else is, and certainly not the Principal Auditor?” he said. 

Drawing on his 31-year career in financial services, including roles as board chairman and chair of audit and compliance committees, Mr Feetham said he had reviewed “over 100 audit reports” in his professional life and was used to rigorous external challenge. 

Even so, he told Parliament, “I struggled with the tone of this report.” 

He said he was troubled by what he called “the anomaly of the factual inaccuracies” and legal errors he believed were contained in the report, questioning the extent of engagement between the former Principal Auditor and senior officials in the departments he criticised. 

To illustrate his point, Mr Feetham said that, based on information from the Income Tax Office, the Principal Auditor had met its senior team only once since the current administration took office, and that the Central Arrears Unit had not met him at all during the past two years. 

He contrasted this with private sector practice, where he said the lead audit partner would usually attend at least the opening and closing meetings of an audit with a board chairman and senior management. 

A central focus of his intervention was a claim in the report that the Chief Minister had sought to prevent the Principal Auditor from undertaking an audit which “it is my right to perform under the Gibraltar Constitution”, a passage Mr Feetham described as an “outrageous statement”. 

He backed Mr Picardo’s earlier contention that the Principal Auditor did not have the powers he claimed in relation to a proposed compliance audit under proceeds of crime legislation, and said this view was supported by external legal advice. 

“The advice that came back to me was that the Chief Minister was absolutely correct,” Mr Feetham told Parliament, adding that in his view the auditor’s assertion was “factually and legally incorrect”. 

Mr Feetham warned that leaving such a claim unchallenged in an official document could have consequences for Gibraltar’s next external evaluation by international bodies such as MONEYVAL. 

“This is a major red flag to whoever is looking at this report externally,” he said, arguing that failing to correct the record would “simply provide ammunition” to those seeking to question Gibraltar’s compliance standards. 

He linked this to recent international scrutiny of the Rock’s anti-money laundering regime, recalling that Gibraltar had been removed from the Financial Action Task Force grey list only to face a separate challenge in the European Parliament over its status on the European Commission’s list. 

He cited interventions by Spanish MEPs who had described Gibraltar as a tax haven and colony and argued that the timing of the publication of the Principal Auditor’s report the day after Gibraltar left the FATF grey list risked overshadowing positive news about the Rock’s regulatory improvements. 

Turning to taxation, Mr Feetham took issue with the audit report’s treatment of aggressive tax planning and accumulated losses in sectors such as financial services and gaming. 

He said the Principal Auditor’s observation that the Government “intends” to introduce measures to limit the use of carried-forward losses was out of date by the time he signed the report on May 31, because a Bill had already been tabled in Parliament on December 10 the previous year. 

“He is an officer of this Parliament,” Mr Feetham said of the former auditor, adding that “you would assume…that any officer of this parliament would have basic information” about legislation that had been brought and passed in the House. 

Mr Feetham reminded MPs that when he presented the loss restriction measures, he had told Parliament “that the aggregate accumulation of tax losses in the financial sectors at that time was £2.1 billion and that we needed to act”, adding subsequent figures showed those losses had since roughly halved. 

Mr Feetham also criticised what he said was the omission from the report of other tax measures brought by the Government, including anti-avoidance legislation and additional resources for the Income Tax Office, as well as new memoranda of understanding between the tax authorities and bodies such as the Gibraltar Financial Intelligence Unit. 

On the Central Arrears Unit, he said the Government had responded to concerns about staffing by seeking to recruit within the public sector, but that only one suitable candidate had come forward despite an expression of interest for four or five new posts. 

He told MPs he was exploring the use of artificial intelligence tools, described as a “tax agent capability”, to improve efficiency in arrears recovery given the difficulties in finding additional human resources. 

Mr Feetham further raised constitutional concerns about references in the report to proposed arrears recovery legislation, arguing that while the Principal Auditor could comment on policy, it was for the Government and Parliament to decide which Bills to table and pass. 

On employment matters, he challenged the handling of a section of the report dealing with a payment to a Gibraltar Development Corporation officer, noting that 17 pages had been devoted to “one individual”. 

He described this as “an abuse of the constitutional position of the Principal Auditor” in the manner in which he dealt with this in the report, highlighting the difficulty for the officer concerned in responding publicly because of confidentiality clauses in a settlement agreement. 

In his own ministry, Mr Feetham said three ex gratia payments highlighted by the Principal Auditor to contracted professionals, together with the departure of a fourth individual, had generated significant recurrent savings once the initial costs were absorbed. 

“The total salary saving for the Government of Gibraltar is £681,000,” he told MPs, adding that this represented value for money and had allowed the Government to promote and upskill existing civil servants at the same salary levels. 

Mr Feetham said that, taken together, the issues he had identified justified both the Chief Minister’s “forensic” critique of the report and the Government’s decision to bring the motion before the House, which he said was necessary “to correct the record” where the Government believed it was wrong.