CM cites ex-auditor’s own words to counter ‘baseless, utterly defamatory’ claim he interfered in compliance audit

Chief Minister Fabian Picardo has rejected a claim in the 2018/19 Principal Auditor’s report that he acted improperly and unconstitutionally by blocking a compliance audit of the Gibraltar Savings Bank under the Proceeds of Crime Act 2015 [POCA], describing it as a “serious, baseless and utterly defamatory” allegation that risked damaging Gibraltar.

Addressing Parliament on Wednesday during the ongoing debate on a Government motion challenging aspects of the audit report, Mr Picardo said the Principal Auditor had no legal right to carry out a POCA compliance audit except by invitation.

He said the claim contradicted a position the former Principal Auditor had previously set out in correspondence with the Government in 2022, adding this put into question the credibility of the entire report.

Mr Picardo told Parliament these were matters of “international importance and with huge potential consequences” that could impact everything from international Gibraltar-based businesses to access to everyday banking services.

“If it were true that a rogue Chief Minister has stood in the way of a constitutionally or statutorily empowered Principal Auditor to prevent a POCA compliance audit, then we would be a pariah, or a pirate, state as some say of us,” the Chief Minister said.

“It would, I venture to suggest, almost make sense to put us on every blacklist in the world.”

“But that has never happened here. It could never happen here.”

And he added: “The thing to ask ourselves is what credibility one can ascribe to any part of the report if its most remarkable allegation, its most eye-catching complaint of interference, its most startling accusation against the highest elected politician in this nation, can be shown to be entirely unreliable?”

The report’s claim was particularly significant against the backdrop of the treaty negotiation and Gibraltar’s work to get off the Financial Action Task Force’s grey list, Parliament heard.

Mr Picardo said it had been picked up outside Gibraltar by “concerned friends” and “gleeful enemies” alike.

“It is that serious,” the Chief Minister said.

“Gibraltarian ammunition for foreign cannon to fire at us.”

CONTEXT

The Chief Minister said the former Principal Auditor had been invited in 2021 by the GSB’s director to perform an independent compliance audit of the bank to test its POCA policies, controls and procedures.

That report was submitted on October 2021 and found the bank met most of its POCA obligations “effectively and efficiently”, although there was scope for improvement in some areas.

But when the former Principal Auditor sought to conduct another compliance audit this year, this time of his own volition, he ran into problems.

Unlike the first audit, which was on the GSB’s request under POCA legislation, on this occasion the audit would be carried out under his constitutional and legislative powers as Principal Auditor.

But the Government told the former auditor he did not have the legal mandate to undertake such an audit, a position reiterated by Mr Picardo on Wednesday and which he said was supported by successive Financial Secretaries, successive directors of the GSB and independent legal advice.

The Principal Auditor had no constitutional or statutory right to conduct a POCA compliance audit unless “invited” to do so, Mr Picardo insisted, adding the GSB engaged PWC to conduct its POCA compliance audits.

In setting out the Government’s view, Mr Picardo said the former Principal Auditor had himself acknowledged this position in correspondence with the Financial Secretary in February 2022.

Reading from the letter, Mr Picardo said the former Principal Auditor had acknowledged that “…because the audit is not a statutory audit for me to undertake, the onus for the audit engagement lies with the director of the GSB and not the other way round”.

In another extract read by the Chief Minister in Parliament, the former Principal Auditor acknowledged too that “…you are correct in saying that it is not my statutory function to do this audit…”

“So in the [2018/19] report, the author of it says that I acted unconstitutionally because I said he had no statutory right to carry out this audit of the Savings Bank, although I was only saying to him exactly what he had said to us,” Mr Picardo told Parliament.

And he added: “So how on earth could I have been acting unconstitutionally by agreeing with the author of the letter of February 2022, who is also the self-same author of the report that makes that serious, baseless and utterly defamatory allegation against me?”

Mr Picardo said it was “frankly senseless” and “beggars belief”.

“I still do not understand this,” he said.

“And, in particular, I do not understand how anyone might think we should not challenge such utter nonsense in the report before the House today.”

Mr Picardo said the 2022 correspondence demonstrated that the “most startling accusation” of interference against the Chief Minister could be shown to be “entirely unreliable”.

“And not just because the Government’s senior officials and legal advisers so advise us,” he said.

“And not just because the Government has a legal opinion that confirms it.”

“But because the author of the report making the remarkable allegation, couched in the terms of a noxious accusation of unconstitutionality, has himself written the opposite.”

Mr Picardo reiterated that both the former Principal Auditor’s 2021 compliance audit of the GSB, conducted after invitation, and the PWC audit confirmed the bank’s general compliance with POCA, while recommending improvements as is normal in such audits.

He said the Government took seriously its obligations and had engaged PWC – one of the “big four” international accountancy firms - to conduct compliance audits at the GSB “not only once, but three times”.

It would be wasteful to invite the Principal Auditor to conduct parallel audits, Mr Picardo said, adding the former Principal Auditor had expressed the same value-for-money concern in 2022 on learning of the PWC audit.

SAVINGS BANK ACCOUNTS

Earlier in the session, Mr Picardo said Gibraltar’s legislation requires that the annual accounts of the GSB, once audited by the Principal Auditor, be laid before the minister with responsibility for the bank by October 31 each year and published in the Gazette.

Publication of the GSB accounts was “a task assigned by law” to the minister, Mr Picardo said.

In the report, however, the Principal Auditor said he had written to the Accountant General informing her that in his view, the accounts should be published immediately in the Gazette once he had certified them.

That, Mr Picardo said, “is a position which contradicts the legislation” and exceeded the remit of the auditor’s role.

The former Principal Auditor also argued that, as an officer of Parliament, he had a constitutional right to insist that his report on the GSB accounts be tabled directly in Parliament.

He wrote to the Speaker of Parliament, former Supreme Court judge Karen Ramagge, “trenchantly” urging her to table the audited GSB accounts in Parliament, something the Speaker did not do.

“Despite it being in the nature almost of an instruction contained in the report, you were not bound to follow that request if you did not share that analysis,” Mr Picardo said, addressing the Speaker.

“You too are independent.”

The law “is clear” and the former auditor’s position contradicted it, and neither was there a conflict with the Constitution, Parliament was told.

Mr Picardo noted too that, according to the report, the former Principal Auditor said he had written to Parliament on May 30, when in fact the letter had been sent on May 31, the former auditor’s last day in office.

“Back dating is not an acceptable practice,” Mr Picardo said.

“It is certainly not something which indicates transparency or accountability.”

DEBATE CONTINUES

The debate on the motion is set to continue today.

The Chief Minister indicated on Tuesday that he would take several days to address in detail the areas of the 2018/19 report that the Government says are biased and stray beyond the constitutional and professional boundaries of the auditor’s role, and which render it “fundamentally flawed”.

So far the debate has heard solely from the Chief Minister, though other ministers are also expected to address Parliament.

The Opposition, which has described the motion as “an assault on democracy” that seeks to “trash” the former Principal Auditor and “squash” scrutiny, will also speak to the motion in the coming days.

Parliament will not sit on Friday when many of its MPs, lawyers by profession, will be attending the Ceremonial Opening of the Legal Year.