Draft Bribery Bill...British Aerospace Companies, Brinley Salzmann, Exports Director, Defence Manufacturers Association, and James Maton, Partner, Edwards Angell Palmer and Dodge UK

HL Paper 115-II HC 430-II

Published on 28 July 2009 by authority of the House of Commons London: The Stationery Office Limited

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House of Lords House of Commons

Joint Committee on the Draft Bribery Bill

Draft Bribery Bill

First Report of Session 2008–09

Volume II

Oral and written evidence

Ordered by the House of Lords to be printed 16 July 2009 Ordered by the House of Commons to be printed 16 July 2009

The Joint Committee on the Draft Bribery Bill

The Joint Committee on the Draft Bribery Bill was appointed by the House of Commons and the House of Lords on 11 May 2009 to examine the draft Bribery Bill and report to both Houses by 21 July 2009.

Current membership

Mr David S. Borrow, (Labour, South Ribble) Mr Alistair Carmichael, (Liberal Democrat, Orkney and Shetland) Mr Geoffrey Cox, (Conservative, Torridge and West Devon) Mary Creagh, (Labour, Wakefield) Mr Jonathan Djanogly, (Conservative, Huntingdon) Mr Bruce George, (Labour, Walsall South) Linda Gilroy, (Labour Co-operative, Plymouth Sutton) Dr Brian Iddon, (Labour, Bolton South East) Martin Linton, (Labour, Battersea) Mr Virendra Sharma, (Labour, Ealing Southall) Dr Desmond Turner, (Labour, Brighton Kemptown) Jeremy Wright, (Conservative, Rugby and Kenilworth) Lord Anderson of Swansea, (Labour) Viscount Colville of Culross, (Crossbench), Chairman Lord Goodhart, (Liberal Democrat) Lord Grabiner, (Labour) Baroness Henig, (Labour) Lord Lyell of Markyate, (Conservative) Lord Mayhew of Twysden, (Conservative) The Earl of Onslow, (Conservative) Lord Sheikh, (Conservative) Lord Thomas of Gresford, (Liberal Democrat) Baroness Whitaker, (Labour) Lord Williamson of Horton, (Crossbench)

Powers

The Committee has the power to require the submission of written evidence and documents, to examine witnesses, to meet away from Westminster, to meet at any time (except when Parliament is prorogued or dissolved), to appoint specialist advisers, and to make Reports to the two Houses.

Publication

The Report and evidence of the Joint Committee are published by The Stationery Office by Order of the two Houses. All publications of the Joint Committee (including press notices) are on the Internet at: www.parliament.uk/parliamentary_committees/joint_committee_on_the_draft_bribery_bill.cfm

Committee staff

The staff of the Joint Committee were drawn from both Houses and comprised Emily Commander (Commons Clerk), Christine Salmon Percival (Lords Clerk), Simon Fuller (Legal Adviser), Paul Simpkin (Senior Committee Assistant), Dilys Tonge (Committee Assistant), Michelle Garratty (Committee Assistant), Claudia Rock (Committee Assistant), Michelle Owens (Team Manager), Sam Colebrook (Committee Support Assistant) and George Fleck (Office Support Assistant). This inquiry was run from the Scrutiny Unit in the Committee Office, House of Commons.

Contacts

All correspondence should be addressed to the Clerk of the Joint Committee, House of Commons, 7 Millbank London SW1P 3JA. The telephone number for general enquiries is 020 7219 8387. The Joint Committee’s email address is [email protected]. Media inquiries should be addressed to Jessica Bridges-Palmer on 020 7219 0724.

1

Witnesses

Thursday 14 May 2009 Page

Professor Jeremy Horder, Criminal Commissioner, Law Commission Ev 1

Wednesday 20 May 2009

Mr Colin Nicholls QC, Professor Celia Wells, Professor of Criminal Law, University of Bristol, and Professor Robert Sullivan, University College, London

Ev 18

Tuesday 2 June 2009

Rt Hon Lord Robertson of Port Ellen Ev 29

Gary Campkin, Head of International Group, Confederation of British Industry, Andrew Berkeley, Adviser, International Chamber of Commerce UK, and Rosina Robson, Senior Policy Adviser, Federation of Small Businesses

Ev 34

Derek Marshall, Director of Defence and Homeland Security, Society of British Aerospace Companies, Brinley Salzmann, Exports Director, Defence Manufacturers Association, and James Maton, Partner, Edwards Angell Palmer and Dodge UK (on behalf of the UK Anti-corruption Forum)

Ev 42

Wednesday 3 June 2009

Philip Bramwell and Alan Garwood, BAE Systems, Lawrence Hammond, Solicitor, Thales UK, and Stephen Ball, Chief Executive Officer, Lockheed Martin UK

Ev 51

Jeremy Cole, Bribery and Corruption Taskforce Co-ordinator, Lovells, Louise Delahunty, Partner in Crime, Fraud and Investigations, Simmons and Simmons, and Monty Raphael, Head of Fraud and Regulatory, Peters and Peters

Ev 62


Keir Starmer, Director of Public Prosecutions, Richard Alderman, Director, Serious Fraud Office, and Detective Chief Superintendent Steve Head, Association of Chief Police Officers Portfolio Holder for Overseas Corruption and Bribery

Ev 71

Dr Malcolm Jack, Clerk of the House of Commons, Jacqy Sharpe, Clerk of the Table Office, House of Commons, Michael Pownall, Clerk of the Parliaments, and Dr Christopher Johnson, Clerk of the Journals, House of Lords

Ev 82

2

Thursday 11 June 2009

Dimitri Vlassis, Chief, Crimes Convention Section, Treaty and Legal Affairs Branch, Division for Treaty Affairs, United Nations, Nicola Bonucci, Director of Legal Affairs, Christine Uriarte, General Counsel, Anti-Corruption Division, and William Yiu Wah Loo, Policy Analyst, Anti-Corruption Division, Organisation for Economic Co-operation and Development

Ev 89

Jeremy Carver, Board Member, and Mark Pyman, Director, Defence Programme, Transparency International UK, Sarah Sexton, Co-Director, and Nicholas Hildyard, Co-Director, The Corner House

Ev 96


Rt Hon Jack Straw MP, Lord Chancellor and Secretary of State for Justice, Mr Michael des Tombe, and Mr Roderick Macauley, Ministry of Justice

Ev 104


Baroness Scotland of Asthal QC, Attorney General Ev 115

3

List of written evidence

1 Professor Jeremy Horder (BB 01) Ev 128

2 Ministry of Justice (BB 02) Ev 130

3 ICC United Kingdom (BB 03) Ev 131

4 UK Anti-Corruption Forum (BB 04) Ev 137

5 Clifford Chance LLP (BB 05) Ev 145


7 CBI (BB 07) Ev 163

8 Federation of Small Businesses (BB 08) Ev 167

9 Clerk of the House of Commons (BB 09) Ev 168

10 GC 100 (BB 10) Ev 172

11 Clerk of the Parliaments (BB 11) Ev 178


13 The Corner House (BB 13) Ev 182

14 Serious Fraud Office (BB 14) Ev 189

15 Professor Wells (BB 15) Ev 191

16 Director of Public Prosecutions (BB 16) Ev 197

17 Chairman of the Public Administration Select Committee (BB 17) Ev 201

18 Chairman of the International Development Committee (BB 18) Ev 201

19 BG Group (BB 19) Ev 202

20 DLA Piper UK LLP (BB 20) Ev 208


22 Professor Wells (BB 22) Ev 211

23 ICC (BB 23) Ev 212

24 BAE Systems (BB 24) Ev 215


26 Norton Rose LLP (BB 26) Ev 216

27 Thales UK (BB 27) Ev 218

28 Lockheed Martin UK (BB 28) Ev 221


30 UK Anti-Corruption Forum (BB 30) Ev 227

31 OECD (BB 31) Ev 228

32 PricewaterhouseCoopers LLP (BB 32) Ev 234

33 BOND (BB 33) Ev 239

34 Reynolds Porter Chamberlain LLP (BB 34) Ev 241

35 Global Witness (BB 35) Ev 243

36 ICC (BB 36) Ev 246


38 GRECO (BB 38) Ev 249

39 Jeremy Cole (BB 39) Ev 250

40 Louise Delahunty (BB 40) Ev 255


4




45 DMA and SBAC (BB 45) Ev 265

46 CBI (BB 46) Ev 266

47 Serious Fraud Office (BB 47) Ev 268

48 Director of Public Prosecutions (BB 48) Ev 271

49 Herbert Smith LLP (BB 49) Ev 274

50 Interchange Solutions (BB 50) Ev 277

51 Monty Raphael (BB 51) Ev 278



54 Transparency International (UK) (BB 54) Ev 284


56 Colin Nicholls QC (BB56) Ev 292

57 U.S Department of Justice (BB57) Ev 297

58 DCS Stephen Head (BB 58) Ev 320

59 OECD (BB 59) Ev 323

60 Attorney General (BB 60) Ev 326

61 Chairman of the Joint Committee on Human Rights (BB61) Ev 328

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Joint Committee on the Draft Bribery Bill: Evidence Ev 1

Oral evidence

Taken before the Joint Committee on the Draft Bribery Bill

on Thursday 14 May 2009

Members present:

Colville of Culross, V Mr David S Borrow(Chairman) Mr Alistair Carmichael

Goodhart, L Mr Jonathan DjanoglyHenig, B Mr Bruce GeorgeMayhew of Twysden, L Martin LintonThomas of Gresford, L Dr Desmond TurnerWhitaker, B Jeremy WrightWilliamson of Horton, L

Witness: Professor Jeremy Horder, Criminal Commissioner, Law Commission, examined.

Q1 Chairman: A very warm welcome to you,Professor Horder, and thank you for coming.Professor Horder: It is an honour to be invited,thank you.

Q2 Chairman: We have a list of questions. I do notknow whether you have seen it; I hope you have.Professor Horder: I think I have what you arespeaking about, yes. There is not a list of questions,as such, on my one, but there is a list of issues to beaddressed.

Q3 Chairman: Is there anything you would like tosay by way of introduction? I know you have sent usround a paper on this.Professor Horder: No, I think we can startstraightaway, if that is your wish.

Q4 Chairman: What about the new Bill based onbribery rather than anything else?Professor Horder: Well, I can say certainly a bitabout that by way of background. When we wereasked by Baroness Scotland, when she was at theHome OYce, to undertake this project, because ofthe pressure of time, it had to be cut down to amanageable size, so we agreed that we wouldconcentrate on bribery rather than broader aspectsof corruption, although I know that it may very wellbe that the law needs updating in that area too, butwe had to provide a manageable focus and that iswhy we ended up looking at bribery, in particular.That explains that in a way, so I hope that Memberswill not find that the focus has been too narrow. Inthe time available, I think, trying to consult properlywith those who had legitimate views on the subject,reporting and then producing a draft Bill which wasthen clearly taken over by the Ministry of Justice andturned into what is before you now, that was quite alarge task in itself, without going into the broaderaspects of corruption. However, as you will havenoted, the current Bill, probably partly for thatreason, closely reflects, I think, the LawCommission’s own recommendations in its own Bill.

Q5 Chairman: Yes, but there are some changes, arethere not?Professor Horder: There are some changes and Ihave tried to address those to a degree, because Ithought that would be helpful to you, in my paperthat I circulated, yes.Chairman: Well, I found that paper very helpful andI hope everybody else did too.

Q6 Martin Linton: Professor Horder, I see that youhave been in the Law Commission since 2005.Professor Horder: Yes.

Q7 Martin Linton: I do not know whether you willknow the answer to this question, but I wouldcertainly appreciate a better understanding of whatwent wrong with the original Corruption Billbecause it seems from the briefings that we have hadthat, even just on the narrow issue of bribery, it leftout some pretty basic things that we would considerbribery, such as from one head of a business toanother. Was there any particular reason why theoriginal Law Commission Report and CorruptionBill went awry?Professor Horder: Well, I think that it was quite acautious and conservative Bill. It focused, certainlyin the private sector, on a very narrow range of cases,broadly speaking, following the existing law whichconfines private sector bribery to the betrayal of aprincipal by the agent, so an employee or someonewho takes money to make a contract on behalf oftheir principal, something of that kind. Now, in ourconsultation we may have picked up on this. We alsotook a slightly cautious line in that regard in that weconsulted on whether private sector bribery shouldbe confined to cases where there had been a breachof trust, in the legal sense of that term, so slightlybroader than principal and agent, but still a legalconcept to try to provide some degree of certainty bykeeping the oVence quite narrow and relying on thatlegal concept, but, ironically, we were criticised intheir response by the judges themselves on that issue.They said, “We do not think it is appropriate to havelegal, already-existing civil law concepts being usedto restrict the ambit of the criminal law. We think

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Ev 2 Joint Committee on the Draft Bribery Bill: Evidence

14 May 2009 Professor Jeremy Horder

that’s wrong. We would find this very, very diYcultto implement in practice and, basically, you’ve got togo back and think again”. When criticisms of thatsort come from the senior judiciary, the circuitjudges, you do sit up and take notice and we did,therefore, go back, not literally to the drawingboard, but what we did instead, as you will have seenfrom the Bill, is to rely, and indeed this is what thejudges suggested, on the same sort of terminology of“trust”, “impartiality” and so on, but leaving thoseterms to be, in the end, decided by the jury once thejudge has satisfied him or herself that there issuYcient evidence that a breach has taken place; thatis the check, if you like. As we pointed out in ourReport, that is actually the way in which the criminallaw approaches other civil law concepts, like duty ofcare, things of that kind. It leaves it to the jury todetermine, it does not force them to follow the civillaw rule, and we were persuaded that that was theright approach, and that has not, in itself, provedcontroversial since then.

Q8 Baroness Whitaker: Would it be fair to say,Professor Horder, that the original Bill did not focusvery much on bribing foreign public oYcials andthat the present Bill takes much more account ofwhat is, arguably, a larger field of bribery?Professor Horder: In all fairness to the Commissionin its previous incarnation, the territorial applicationof the criminal law was not at that stage somethingwhich was being considered as a high priority. Therehad at that time already been an attempt to broadenthe territorial application of criminal law moregenerally, so I think it just really was not very high orvery centrally focused on the radar, so it would notbe fair, I think, to criticise them for that, but theworld has moved on, so, as you will see, we havelooked at the thing in a new light.

Q9 Chairman: We have still got “good faith”,“impartiality” and “breach of trust” in clause 3, butthose are, as it were, not technical, civil law legalterms.Professor Horder: That is right.

Q10 Chairman: We leave it to the jury to decidewhether people are in a position of trust?Professor Horder: That is the preferred view of thejudges, and we were convinced that that is the rightapproach. There is the check that you have got topass the judge, as it were, if you are going to be aprosecutor making a case. What will have to happenis that the judge will have to decide that there issuYcient evidence for the jury to come to areasonable conclusion that there was a breach oftrust or of the duty of impartiality and so on, butcertainly it is a matter for the jury. Now, I can see thatsome people might be nervous about that in terms ofan element of uncertainty that it introduces. I acceptthat, and I have already said that that is tolerated inother areas of the law, for example, gross negligencemanslaughter where the duty of care you owe to thevictim, or the question of whether you do, is just leftat large for the jury and it is not tied to the civil law.However, I think there is a broader point, which is

that you have to take account of where we arecoming from, if I can put it in that way, in that westarted with a law governed by a very vague term, thenotion of “corruptly”, and the courts themselvescould not agree what that meant in law. There aredecisions saying it involves dishonesty, there areother decisions saying it does not involve dishonesty,and, even if that dispute could be resolved, it is a veryvague term because it incorporates not only an ideaof what somebody does, the exchange of favour forsomething, but also their state of mind, what theirattitude was towards that transaction; it alludes toan idea of wrongdoing, but without actually sayingvery much about what it was. Now, that approachwe bequeathed to, for example, Canada andAustralia in their criminal codes, so you find it there;but it is very interesting, I think, that mainlandEuropean jurisdictions, France, Germany, Italy,they do not use that concept or anything like it. Theyrely on concepts of breach of a duty not to accept ora willingness to be influenced, or something of thatnature, and they use language, I think, which iscloser to the kind of language that we used in our Billand the Government has already adopted, so yes, itis true that the Bill does not point you to a particularpiece or a series of pieces of conduct and say, “Well,that’s bribery and other things are not”, but it usesgeneral terminology which means an element ofvagueness, but I genuinely believe it is a modestimprovement on what is there now. I also think that,if you tried to go further and tried to list what wouldcount as bribery and what would not, there is toomuch scope then for exploitation of the rules, and weknow perfectly well that there are lots of very highlyeducated and learned lawyers out there just waitingfor us to come up with a very stipulative definitionso that they can find a way round it, but that is trueof stipulative definitions generally, they leave gaps,that is what they do, otherwise they would not bestipulative, so I think we have tried to strike abalance. Sorry if I seem a bit defensive, but I thinkthis is an absolutely crucial point and I hope that wehave struck the balance in the right way, and Igenuinely think it would be diYcult to try to findsome more definite way of pinning down whatcounts as bribery and what does not.

Q11 Lord Thomas of Gresford: So what is expectedof a person in a particular position is to bedetermined really by the jury, having heard theevidence, and whether they find that he has notperformed the activity in question in good faith orimpartially or has been in breach of a trust is entirelya matter of fact for them to determine?Professor Horder: Well, literally speaking, you arecorrect, yes, but there will be no doubt in the sorts ofcases that are going to be taken forward, the oneswith the strongest evidence, an element of legalbackground to that in the sense that the likelihoodis that most cases that come forward with a realisticprospect of conviction will actually be the cases thatwould be pretty close to those that are an oVenceunder the existing law, so an employee pocketingmoney in order to place a contract or someonerunning a trust who is benefiting personally in terms

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of the investments they are making on behalf of thetrust, I do not see this as instituting a kind ofrevolutionary change in who ends up beingprosecuted for bribery.

Q12 Lord Thomas of Gresford: No, the prosecutorwill have some assumptions as to what a reasonableperson will expect.Professor Horder: Yes.

Q13 Lord Thomas of Gresford: Then he may or maynot be upheld by a jury representing the publicgenerally.Professor Horder: That is right, and that, I think, ispretty much in line with how things work across agood deal of the criminal law. It is always possible topick out an oVence, I do not know, say, theft orfraud, and say, “Dishonesty—what does that mean?It could mean anything”, and, in a literal sense, thatis true, but, in reality, the cases that get prosecuted,and you would know more than I would, the onesthat actually raise a question about what dishonestyis are very few and far between.

Q14 Jeremy Wright: Except, Professor Horder, inthe context of this particular draft Bill, weintroduced the international dimension, the briberyof a foreign oYcial, and, in that context, can I askyou about the definition that you expect to beapplied of “what a reasonable person would expect”because is the reasonable person the reasonableperson sitting in the jury room in London,Birmingham or Manchester, or is the reasonableperson someone who is located in the country wherethe particular act of alleged bribery may have takenplace? Is it what is reasonable to the juror, or is itwhat is reasonable to somebody in the context of theevent which is alleged to be bribery?Professor Horder: Well, that is an extremely goodpoint and we did think long and hard about that, butyou will have noticed with the oVence of bribing aforeign public oYcial that we do not use thelanguage of “what might be expected” preciselybecause there is a risk that we would fail to meet ourOECD obligations actually because it would allowexperienced and eVective counsel to say, “Well,members of the jury, what can you expect in countryX? It is only reasonable to expect that they willprovide bribes and so on”, so we wanted to tie thatdown much more specifically by talking about whatwas “legitimately due” so we avoid that language.However, we believe that for general oVences it ismore legitimate, indeed required actually, if you aregoing to get decent coverage of the law. In relationto the oVences that apply primarily domestically, itis legitimate and reasonable to use this language ofexpectation and so on because, if you are not goingto trust a jury to know what is reasonably expectedof public servants, companies doing business, well,who are you going to trust?

Q15 Jeremy Wright: I understand that, butobviously, even within clause 3(2), it makes it clearthat, in other words, the definitions which are beingused, “It applies even if the function or activity (a)

has no connection with the UK, and (b) is carriedout in a country or territory outside the UK”, so,although I understand the point you are makingabout the bribery of public oYcials, if this is aprivate transaction, if you like, then we wouldpresumably still be applying the definitions inclause 3.Professor Horder: Well, it is certainly true that thegeneral oVences clearly apply to commercial activity,as indeed the existing law does now, and they willalso apply if and insofar as the general oVencesapplied overseas, that is also absolutely true, yes,that is right. What we are saying, eVectively, is that,if you accept a bribe from a company to place acontract with that company rather than doing it inwhatever way is dictated by the marketcircumstances and so on, well, that is just as wrongwhether it takes place here or wherever it may be; itis a question of whether it would be an oVence here.I accept that, but we are in the business of trying toenforce high standards, common standards, so thatyou know exactly what is expected of you whereveryou are. It is not an edifying thought that abusinessperson would look up on the Internet to tryand find out whether this country they are about todeal with, what their sort of bribe levels are orsomething so that they are equipped; that is not avery attractive prospect. Perhaps I could also add, aswe do in the paper, that the ability to apply thegeneral oVence overseas will also be important insome contexts to catch conduct not covered by theforeign public oYcial oVence. I think the example wegive is that you are not a foreign public oYcial if youare standing for oYce as a foreign public oYcial, butwe heard during consultation that it is not unheard-of for a company to make a payment to every singleperson standing for an election to public oYcebecause, very often, there will be a limited number ofcandidates, qualified persons, who can take the postand, therefore, it is actually possible to get them allin your pocket. Now, if that is not covered by theforeign public oYcial oVence, it ought to be coveredsomewhere and the general oVence would applythere, but primarily of course what we are looking atis the bribery of a public oYcial for the overseasoVence, and I would not want to overplay thatparticular aspect.

Q16 Dr Turner: Clearly, “good faith” and“impartiality” are words which have diVerentmeanings to diVerent people in diVerent culturalcontexts, and it could be said, speaking as a non-lawyer looking at this Bill, that the Bill has beencarefully drafted to allow to continue presentbusiness practices, particularly in the defenceindustry obviously, whereby foreign oYcials expecta large commission, which, in our eyes, would beseen as a bribe, otherwise a deal does not happenand, unfortunately, billions of pounds andthousands of jobs are at stake. The Bill specificallyallows, on the face of the Bill, practices to be carriedout in foreign transactions which would be regardedas totally corrupt in the UK. This, I take it, isdeliberate and how do you feel about it?




Professor Horder: No, there may be an element ofmisunderstanding here because I think, or at least Ihope, that the way in which the foreign public oYcialoVence has been drafted is to exclude anyconsideration of, or reliance on, what is usual,culturally accepted, politically the norm, whatever itmay be, and that was the whole point about myremark that you should not be able to search theInternet and find which is the most bribe-friendlycountry or whatever it may be. No, you are onlyentitled to pay a sum of money in exchange for acontract or something if that is actually legitimate,i.e. permitted by law, in the country in question, andthat, we anticipate, will very rarely, if ever, be thecase, although there can be some instances. Forexample, it may be permissible by law in somecountries to make charitable donations when youare investing in a major way, when you are given acontract, something of that kind, but this is a very,very narrow exception. I hesitate to correct you, butI think in relation to the foreign public oYcialoVence that you would only be able to, if you like,get away with it if you could actually point to a lawin that country that permits you to make thepayment you made. Now, at the risk of slightlyblunting the point I have just made, it is certainlytrue that in some countries so deficient is the rule oflaw that you might struggle to find a law governingthis area at all, there just is not any law there, but wedid think about those situations and, to be honest, itis very hard, sitting here in England and Wales, todraft a law that is meant to have an operation in acountry that does not respect the rule of law reallyhardly at all. That is quite a hard thing to do, I think,so there will be some elements of gap in somesituations, particularly when you are dealing withcountries where there is really no eVective rule of law,but I see that situation as pretty exceptional and I donot believe that any other member countries in theOECD will tackle this any more vigorously or witha more imaginative and forceful approach than wewill; I do not see that.Dr Turner: In practice, in the sorts of countries thatwe are dealing with, or even in our own country to acertain extent, the legal profession will say, “Well, ifthe law doesn’t say you can’t do something, it mustbe legal”. Again, I am a non-lawyer, so I amspeaking in total ignorance, but I would find it verysurprising if the countries we are talking about hadstatutes which specifically said, “It is expected that apublic oYcial will receive an inflated commission inorder to seal a deal”. What it will do is not say thathe cannot, and custom and practice will dictate thathe is able to.

Q17 Lord Thomas of Gresford: Following that, in anactual case, would you not call evidence of foreignlaw to the eVect that there is nothing in that foreignjurisdiction which prevents it rather than callingevidence that it is permitted?Professor Horder: Well, I think the language of theBill is to say that the payment must be “legitimatelydue” under the law of the land.

Q18 Lord Thomas of Gresford: And that is defined asbeing permitted or allowed, but, as Dr Turner said,you call evidence to the eVect not that it is permitted,but that it is not prevented, do you not?Professor Horder: Well, that is not the same thing atall, in my book. My understanding of that clause isthat “legitimately due” means exactly what it saysand does not include informal permissions orsomething of that kind, so it is meant to be quite astrict approach in that way, so you would not be ableto say, “Oh well, the law doesn’t deal with this issue.Therefore . . . ” That is not my understanding of theway it is meant to work.

Q19 Mr George: Sorry to go back a few steps, but Iam troubled by the fact that there was a foul-upsomewhere in 2003. We have heard some estimationsand then lessons have to be learned, so whatexpectation do you have? Have you consultedsuYciently widely? I do not suppose you consultedanybody on the Committee because we did not evenknow we were going to be on it until quite recently.To lose one Bill is unfortunate, et cetera, et cetera, etcetera, so what realistic expectation do you have thatthis Committee will make recommendations largelyconsistent with what you have said? The other pointis that you speak, I would not say “reverentially” inrelation to the OECD, but you obviously admirethem. Well, if that were the case, in so manyinstances in the excellent Law Commission Report,Reforming Bribery, it was actually critical of thecontents of what the OECD has actually written andwhat it is planning to do, so where do we stand onthis? Are we obliged to follow what they say or do wehave any room for manoeuvre to say, “No, frankly,we don’t wish to do that because we have warnedyou in advance that we dispute some of the thingsthat you recommend”?Professor Horder: Well, that is an extremely goodquestion. To deal with the first one, if I may, quitequickly, the Law Commission is in a positionwhereby we can take the horse to water, but wecannot make it drink, so we made recommendationsand the Government drafts a Bill, but after that it ispurely a matter for the parliamentary process. Weare not in the business of taking it further than that,so it is your responsibility really. Obviously, we aredisappointed if our proposals do not in the end makeit into law, even in part, but it is not our role to makethat happen; our role is an advisory one, althoughwe have the added element that we draft bills. Now,in relation to the second one, I think that is anextremely good question. I do not think our attitudetowards the OECD is actually reverential at all.However, what we accept is, of course, that we mustabide by our international obligations; we havesigned up to the Convention and that means we arebound. However, what that means is that we arebound to ensure that business standards in dealingwith public oYcials are suYciently high that theywill involve a level playing field, fair competition,between companies from Britain and companieselsewhere. The OECD recognises in all of itsmembers, and there are many, many members, thatthey are all going to have diVerent ways of doing




this, diVerent legal traditions, diVerent legal systems,and what the OECD says is, “Look, we’re notcoming along and telling you how to run your legalsystem, we don’t have the expertise to do that, butwhat we are interested in, however, is outcomes. Willyour legal system, taken with whatever quirks andpermutations it has that are distinctive, the commonlaw tradition, juries and so on, produce, orcontribute to, that level playing field so that Britishbusiness will not be, as it were, getting away with itwhen their counterparts in Germany and elsewherecan’t?” They take a sensible line, I think, that it isoutcomes that matter and they leave, as it were, theprocesses to us, although of course they do advise onthat and they say, “Why can’t you do it this way, thatway, the other way?” but, in that sense, they arebeing advisory. You are completely free to draft anentirely new scheme, if that is what you want, as longas it meets the level playing field requirement. Wasthat it?Mr George: Yes, more or less.

Q20 Lord Mayhew of Twysden: I see that you arethoroughly sick of this particular horse, that youcannot make it drink, but I just wanted to follow upthe questions a minute or two ago from Dr Turnerand what followed from that, this question of thejury deciding whether the law permits the conductwe are talking about, whether it be called“facilitating a payment” or whatever. If you have asituation where the law is silent on that and you, andthis is the addition to the scenario I am putting toyou, have evidence called that it is a well-establishedpractice that the wheels are oiled in this way, can younot reasonably expect a jury to find that the lawpermits it?Professor Horder: Well, I think the way in which youput the question means that I can only answer thatyes, they may very well do that, I entirely accept that,but the point you are making is, I think, a hard oneto refute. However, what, I think, we need to focuson is that you have to imagine British and otherbusinesses coming to this country and the questionis: who can do what in order to secure business in thiscountry? What we want to avoid is a race to thebottom, who can pay the biggest bribe, who can dothis, that and the other; that is what we are trying toavoid, that is what the OECD wants to avoid andthat is what, in all good conscience, we should beavoiding, I believe. How do you do that? Well, youtry to focus on something that is in common asbetween them all, which is what is actually legallypermissible in that country, not just tolerated,permitted and so on. Now, although I accept whatLord Thomas and others have said that there may besome more explanation or that another look at thismay need to be taken slightly to make sure that whatI am saying is accurate, I genuinely believe that, ifthat is the focus, what is legally permitted, then Ithink businesses from across all OECD members willknow exactly where they stand and they will not beable to take advantage of one another, at least notunder the law as it stands, by making secretpayments and so on, but that will not be permittedunder the law. That is what we are trying to achieve,

if I could put it that way, but of course I cannot ruleout that a British jury will take a sympathetic linewith a British company when it says, “Well, I wasonly trying to do my best for Britain” and so on; theymay, that is always a possibility.

Q21 Lord Mayhew of Twysden: Possibly, theaddition of the word “expressly” might help.Professor Horder: Well, I have learnt throughexperience not to try to suggest to parliamentarycounsel what words are necessary in order toproduce certain eVects, so, if it is all right with you,I will not leap upon that suggestion with glee and say,“Yes, that’s exactly the answer that we require”because we know, we have all learnt probably, thatthat is not a wise thing to do.

Q22 Lord Williamson of Horton: Well, we will comeback again to clause 5 and we are going to come backto it a lot of times, I may say. I interpreted thestructure of the Bill as quite deliberately drawn up insuch a way that we have the separate, discreteoVence in relation to the foreign oYcial, and thatmakes possible the diVerentiation we have now beendiscussing between the general oVences and the testof whether something is legitimately due. I think Ihave to give away my position: I think that is a bigstep forward and, as I understand it, the LawCommission has actually stated that somethingwhich is customary or oYcially tolerated within acountry does not mean that it is permitted orrequired. You will find that, I am sure, in the LawCommission Report and I think it is a very, veryimportant point.Professor Horder: I remember writing it!

Q23 Lord Williamson of Horton: That is where thedistinction really lies. We know the jury may notactually go in that direction, but it is a very boldattempt and I strongly support it. I do just ask youone question, and that is the extent to which otherways of dealing with this were considered, forexample, the United States’ Foreign CorruptPractices Act of 1977 and, as we know, there areobjections to the idea of “legitimately due” in thetext from a number of important bodies and the SFOand the Crown Prosecution Service have expressedsome doubts about it. I think it is very good,“legitimately due”, but can I just ask you whetherother things, like the US practice, were considered?Professor Horder: Well, in some respects, they were,yes indeed. I have talked to US prosecutors aboutthe whole issue. They have a very diVerent way ofdoing things out there, as you will know. There aretime limits, for example, on prosecutions, which wedo not have here, which means that cases getprocessed, or have to be processed, more quickly inthe sense that the prosecution must very rapidly takea decision. Once they have taken the decision toindict, the company, let us assume it is a company,only has a short time to decide then whether they aregoing to plead or provide evidence and so on beforea point comes where they will get no credit for havingdone that, so there is a very diVerent culture and away of doing things out there, which I should say by




way of preface. The second thing of course is that theOECD Convention and its model oVence are verymuch based on the American example. You willknow the history, that the Americans passed thisquite rigorous Act and then realised that, if theyabided by it and no one else did, then they were goingto lose out, but, rather than abolish it or ignore it,they did the proper thing by making everyone elsesign up to the standards. What is interesting aboutthe Act is that of course it does some thingsdiVerently. It has an exemption for facilitationpayments, for example, which we do not have andpart of the reason we do not have it is that it isalready the case in English law that there is no suchexception, so we are just following existing practice.Now, that is not necessarily an excuse for anything,we are following existing practice, but also we weretroubled actually by the interpretation of this notionof what counts as “small” in certain contexts, whatcounts as a “facilitation payment”. It seems likesomething ready-made for litigation up and downthe courts, so in this instance, although I am alwaysreluctant to do this and I am sure you all would betoo, we thought it best to leave the matter really toprosecutorial discretion, not least because, in someinstances in another context, payments made by wayof facilitation and so on will have to show up in acompany’s accounts somewhere and they must be ina position, at least, to say what those payments were.I think that that will, in the nature of things, keep so-called “facilitation payments” in check in terms oftheir nature and degree, but the reality is that, forexample, a firm that, I do not know, has got a lot ofaircraft or ships coming in and out of countries allover the globe, it may very well be that they have togive a bottle of whisky to the harbourmaster orsomeone each time they go through, and really it isnot realistic, I think, to expect prosecutions to beundertaken in those cases, but it is a case where Ithink it is better that the law stays silent and we justcarry on as we always have, only prosecuting wherethe public interest demands that you prosecute, andthat would not be the case in such an example, Ihope.

Q24 Chairman: That is one of the things that youhave been trying to avoid though, too much relianceon prosecutorial discretion.Professor Horder: We have, but one of the thingsabout American law is that they have a de minimisdoctrine, an idea that, if your oVence is really very,very trivial, then it does not even come within thedefinition of the oVence, and we do not have thathere. I think what we do is we do rely a little bit more,by way of contrast, on prosecutorial discretion andthat is not necessarily wrong. My standard exampleis that, if I light a match from your matchboxwithout your permission, I am guilty of arson, butno one is going to charge me with arson, that wouldbe completely absurd, but it is not a reason to changethe definition of “arson” it is just a reason to rely oncommonsense and the fact that I am never going tobe prosecuted. One has to rely on that to a degreeand, although it is a diYcult question, I think, onbalance, we decided not to let the best be the enemy

of the good and to rely here, as we have becauseexperience has demonstrated this has worked, onprosecutorial discretion to avoid trivial cases beingtried.

Q25 Baroness Whitaker: We seem to have moved onto clause 4, so my questions are also about thisquestion of how it might be legitimate to bribe aforeign public oYcial. I would just like to explore alittle bit, if I may, the context in which you madeyour proposals, and I am not talking about ordinarycommissions for which there can be a framework, Iam talking about covert bribes. I just wonderedwhether you had come across anywhere where it wasexplicitly lawful for a covert bribe to be taken, andalso, since the OECD Convention on this is quiteclear on this matter, whether any of your consulteessaid, “Nevertheless, we should go ahead and make itokay to covertly bribe foreign public oYcials”, andindeed if anyone suggested that it was unreasonableor unfair to criminalise bribery in any way.Professor Horder: Well, you will have to remind meif I forget the order of your questions, but in relationto the first one, I think it was TransparencyInternational, I cannot remember now, who told usthat they did not know of any country that actuallywas so brazen as to permit covert payments, whichwould then not, I suppose, be so covert, so they didnot know about that. It may be that there are otherlegal shenanigans going on to do with donationsmade to charitable institutions that are not reallycharitable and so on, that is possible, but I do notmyself know of any such example. Perhaps peoplewill start creating them all over the place now, I donot know, but we will see, so I do not know aboutthat specifically. In relation to the broader questionof whether we encountered real opposition to thebroadening of the law, well, who would be thecandidates for that? I think the businessorganisations that we consulted were verycomfortable with the idea that doing businessoverseas is not, to use that phrase again, a race to thebottom, that there are standards that should beobserved, and they have all accepted that withoutreservation. What they were most concerned about,as we were in turn, is that the standards that theyshould be held to should not be higher than those oftheir competitors, and that is a very diYcult call andwe hope that we have pitched our clauses in such away that, although I do not really like putting it inthis way, but I will, we have complied with ourOECD obligations, but only just or, in other words,there is no gold-plating. I believe that to be the case,but no doubt others more learned than I will comealong and say, “Well, actually no, you could deletethis bit or that bit” and so on. For example, we havenot, to use the example I alluded to earlier, gonebeyond the OECD by including people who arecandidates for oYce as foreign public oYcials. Wehave not done that because they do not do itthemselves. We have tried to avoid doing that and inthat way, I hope, we have got the businesscommunity, at least to some extent, in agreementwith us. Certainly, they had no objection to theforeign public oYcial oVence, they were happy




about that, but clearly they were not happy, well, Isay they were unhappy, they just reserved theirposition on the corporate failure to prevent theoVence and, so far as I know, they have not come outand said, “That’s an appalling thing. We don’t agreewith it” or, on the other hand, “Yes, it’s a good idea.Why don’t we go ahead”. As far as I know, they havenot said, at least not to us anyway, they have notgiven an indication one way or the other, though Iam sure they will in due course and we will have tosee about that, but that was always going to be thecontroversial clause and it involved a change ofmind on our part because originally we were notgoing to have it.

Q26 Lord Goodhart: Professor, I think there is aserious problem here with the meaning of theexpression “legitimately due”. My understanding ofsomething being legitimately due to a person is thatthey are entitled to it before they receive it, but that,which would be the normal construction of thosewords, is then completely altered by subclause (4) ofclause 4 which says, “A particular financial or otheradvantage is legitimately due to F if, and only if, thelaw applicable to F permits or requires F to acceptit”. That seems to me to be an entirely diVerentconcept from what is normally understood by“legitimately due” and I think that, if you limit it to“legitimately due” that might come close to beingreasonable, but I think the redrafting of that insubclause (4) causes great diYculties here.Professor Horder: Well, I entirely take the point, andthis clause has been the focus quite a lot today, but,if I could come back to you on that, I think theproblem would be this: that someone is entitled tosomething if it is legitimate under their contract, forexample. Someone could have a public oYcial in aforeign jurisdiction whose contract, not necessarilyexpressly, but of course impliedly, allows them totake bribes because that is the way in which theirsalary is made up because of course, as you know, Ido not need to tell you, an implied term is just asmuch a term as an express term and, if, when you areemployed as a public servant in country X, you geta nominal salary or not a very high one and theexpectation is, as part of the normal businesspractice, that you will take bribes to supplement thatsalary, that is an implied part of your contract andeveryone understands that, then it becomessomething you are entitled to expect. That is exactlythe kind of practice that we did not wish to continueand that is why we have insisted on the “legitimatelydue” criterion to cut out exactly that kind of activitywhich, I think, is wrong and I do not think thatBritish businesses should be supporting it, directly orindirectly, by making large payments that are, ineVect, salary substitutes basically, so not just bottlesof whisky for the harbourmaster, but genuine salarysubstitutes. I genuinely think that is wrong and itdoes not help countries who are struggling toestablish the rule of law and set up proper publicservices, it really does not, and I hesitate to moralise,but I think we do have a responsibility to try toensure that companies think about those matters

and pay attention to them. I am sorry to be a bitsharp, but I think one does have to be quite insistenton a narrow reading of “legitimately due”.

Q27 Jeremy Wright: On the same subclause, 4(4),and back to the vexed question of whether or not ajury might conclude, in the absence of evidence, thata particular law in the relevant foreign country doesnot exclude a bribe, common practice was that theyshould be accepted, and it was, therefore,legitimately due, does this not depend on which sideof the argument has to prove what here? If theprosecution has to demonstrate that the lawapplicable to F does not permit, or require, F toaccept it and cannot do so, in other words, cannotproduce specific foreign law that says that bribes areillegitimate, then I can see there is a possibility thatthe jury might conclude, in the absence of thatevidence from the prosecution and in the presence ofevidence that it was going on all the time, that it was,therefore, legitimate or, at least, not illegitimate. If,on the other hand, the defence have got to provewhat is set out in 4(4), I can see that there is lesspossibility of that happening because, if the defencehave got to actually identify a piece of foreign lawthat permits this specifically and cannot do so, thenobviously that defence would not be available tothem. What is your understanding of where theburden of proof lies in this specific regard?Professor Horder: For a lawyer, that is a nicequestion to have been asked, so thank you.Formally, of course, the burden is on the prosecutionhere to show that the payment was not legitimatelydue, but, in a way, I think this clause 4(4) works alittle bit like a number of other elements ofunlawfulness, if you like, in oVences. My examplewould be self-defence where the prosecution is underthe obligation to show that someone did not act inself-defence, but all they have to do, in eVect, is say,“Well, there was absolutely no evidence that shedid”, and then they can sit back and it is for thedefendant to say, “Well, actually you can see fromthe medical evidence of cuts and bruises that in factI was struck before I struck my blow”, or somethingof that nature, so, in eVect, what the prosecutiondoes is to assert the negative and then it is for thedefence, in practice, to assert the positive. I see thishappening here, that the prosecution will do, nodoubt, a check on Google or somewhere to see whatit says about the law in wherever it may be and,having satisfied themselves that there is no exceptionso far as they can tell, then the case will proceed andit would be for the defence’s lawyers to do somedeeper digging to try and find something. In the end,it will turn on actual documentary evidence, so whatis said in a case, what is in a statute or the equivalentthereof in the country in question, so I see thisworking in that sort of way really. In the end, it is alegal question of course, so the jury cannot reallydecide for itself that in fact, in their learned view, thelaw requires X or Y. They are not, in practice, Ithink, going to do that; they are going to accept whatthe lawyers say on this point, I would imagine.




Q28 Lord Thomas of Gresford: Of course, thedefence have an evidential burden, as you rightly say,to raise the point, but it is still for the prosecution todisprove it at the end of the day. Supposing I were todefend somebody on the basis that the contract ofthe foreign oYcial permits, either expressly orimpliedly, the acceptance of facilitation payments orbribes, or whatever you like to call it, is that notpermitted or accepted by the law of the particularcountry? If the contract law can be enforced in thatway, is that not enough? Do I have to do any morethan that?Professor Horder: Well, do not forget, we are nottalking here about the prosecution of the publicoYcial himself. That is purely a matter for thedomestic jurisdiction and we are not in the businessreally of targeting them.

Q29 Lord Thomas of Gresford: That is not my point.My point is that the contract law of the countrypermits a person to have, either impliedly orexpressly in his contract, the right to receivefacilitation payments or bribes. Does that not nullifythe eVect of clause 4?Professor Horder: Well, no, I do not think it doesbecause, as I have been saying all along, it must bethe substantive law of the jurisdiction, not, if youlike, the binding obligations made through the law,like contracts, trusts and so on. Those are asecondary kind of law, are they not? They are a set ofbinding obligations made under the authority of thelaw rather than something the law permits youdirectly to do. My contract with the Government isnot set out in some statute, it is made under thegeneral authority that the Ministry of Justice and soon has.

Q30 Lord Thomas of Gresford: But there is nothingwhich says in the law of the foreign country, “Youmay not make a contract which would entitle you toaccept a bribe”. I do not think I have got to do anymore, under this reading of it, than to show that inthe particular country it is an implied term of thecontract, and enforceable, that a person is entitled toreceive bribes. Why am I wrong?Professor Horder: I think that, if it were given thatreading, that would be not what we intended becausewhat we intended as to what is meant here is that theobligation is actually contained in primarylegislation or in case-law, not something that resultsfrom an arrangement between private citizens or agovernment making a contract with a publicemployee; it is not meant to cover that. Yourexample mixed up, and I do not mean that in anaccusatory way, a facilitation payment and a bribe.I have already said that, with facilitation payments,we do not see those as having suYcient publicinterest such that they be prosecuted, so I think oneneeds to concentrate on the diYcult case, which isthe case where, eVectively, you are paying someonethousands of pounds to make up what wouldotherwise be their deficient salary. Well, I would saymyself that, if you cannot point to a statute or casethat actually authorises such a payment to be made

in whatever circumstances it may be, well, then it isnot enough for you, the British businessperson, torely on the contract that was made.

Q31 Lord Thomas of Gresford: I am relying on thecontract law of the foreign country, not on thecontract itself. It is not an illegal contract in thatcountry and, therefore, it is permitted for that personto receive the bribe.Professor Horder: Well, I think you are using“legally permitted” in an extended sense of thatterm, so, for example, it is true that, when I make acontract, I can put in whatever terms I like and, aslong as they are agreed, they become legally binding,but that is because the law gives me—

Q32 Lord Thomas of Gresford: That is not truebecause you can have an illegal term.Professor Horder: You can, but, putting aside thepossibility of illegal terms, it is the case that I and mycontract partner decided what the terms would beand it is just that the law gives an enforcement power,it allows me to enforce them, but I do not think,certainly on a normal interpretation, that that meansthey are actually legal provisions in the way in which,for example, Parliament passes the law or the judgesmake the law; I do not believe that they are a law inthat sense. They are a factual agreement, whatever itmay be, an exchange of 90p for a newspaper orsomething, a factual agreement which is thenenforced by the law, which is not the same thing, Ithink.

Q33 Lord Thomas of Gresford: Well, it is pointless tohave this in anyway in the sense that you have put itbecause you say that the OECD cannot come upwith any jurisdiction where the acceptance of a bribeis expressly permitted, where you are permitted toaccept a bribe as some sort of statute, so why is thisin there?Professor Horder: That is because we are talkinghere about bribes, and of course no law is so crass,no jurisdiction would be so crass as to do that, butwhat they do, or may do, is provide, and this is notuncommon, it is a bit like planning gain, I suppose,that someone seeking to invest and, therefore, dobusiness in a major way must subsidise schools,hospitals, whatever it may be, something of thatnature, and that, so long as that is legitimately duein the sense in which I have explained, which is that itis allowed by a specific law in that country, then thatshould not be the subject of a bribery investigationor prosecution. What we are trying to do here is tomake sure that good, beneficial payments thatactually improve standards and living conditions inparticular countries are allowed and that badpayments that just supplement people’s salaries thatthey should be getting are not allowed. That is,eVectively, what we are doing and I think that this isthe way to achieve it, but, clearly, a lot of you havesome doubts about that and it may be that morethinking needs to be done.

Q34 Chairman: Are there examples of the beneficialversion that you just mentioned?




Professor Horder: Yes, I think there are. I am notgoing to name particular countries because that thengets us all into diYculty, but certainly in doingbusiness in Africa, for example, it is not uncommonat all for companies to enter into thesearrangements. Now, whether those arrangementsare backed up by specific laws, I am not in a positionto say, I do not know, but that is the kind of practicewhich, if permitted by law, we would thinkabsolutely appropriate and the right way to matchup doing business and actually doing good.

Q35 Lord Thomas of Gresford: So, if an Americancompany says, “We’ll build you a hospital”, that isall right, but what if a British company says, “We’llbuild you a hospital and a school”? You are thensimply bringing in an imbalance and it is not a levelplaying field then because that is, eVectively, bribingthe whole state that you should have the contract. Isthat what you are after?Professor Horder: I confess, I did not think of thatexample, but that is what you might call “white”bribery as opposed to “black” bribery, is it not, in thesense that it is good bribery as opposed to badbribery or something like that.

Q36 Lord Thomas of Gresford: Can we have a“White Bribery Bill”?Professor Horder: I am not sure I would have anobjection actually to a British firm seeking tocompete on those terms, but the reality is of coursethat it does not happen.

Q37 Dr Turner: That is an important point. The ideaof planning gain exemplars comes into the realms ofacceptability at least, but my understanding is thatthat is not terribly common, that the things uponwhich this Bill stands or falls are very much thepersonal gain of foreign oYcials, which wouldcertainly not be invested in worthy, altruisticprojects. Are you convinced that the Bill, as drafted,deals adequately with those, and what is yourintention? Is it your intention to eliminate that sortof business practice, and have you considered theimplications for, for instance, the defence industry ofbeing successful in that, or is it your intention toallow it, but to just stop the worst excesses? I do notknow. What is your intention here?Professor Horder: Well, that sounds to me like anadmixture of law and politics, which is sort of quiteheavy on the political side, which is quite dangerousterritory for the Law Commission, generallyspeaking. I would not be being honest with you if Idid not say that we had thought about those veryissues and how we should pitch it and so on. I thinkthe reality is that this Bill will stand or fall, notnecessarily perhaps by how it is phrased, but bywhether or not, and the degree to which, it isenforced. This Bill is quite interesting for what itdoes not say as much as for what it does in the sensethat it does not say very much about what is now tobe invested in prosecution practice. I think inrelation to corporate events there is the mention ofone or two prosecutions, something like that, whichlooks very much like cutting your cloth to fit, does

it not? I think the ballpark aim is to eliminate worstpractice, the bad cases, and also, to a degree, toencourage good practice by encouraging firms tothink about due diligence, about improving theirstandards, and I talk quite a bit about that in mywritten note. We are trying, in other words, topersuade companies to become engaged in theprocess of clean business overseas, if you like, butwhat we do not want to do is to force them into itwith a whole set of extremely rigorous terms andconditions that would go way beyond anything thatthe OECD provides for on the basis that it is a kindof shock tactic or something like that. That wouldhave been, I think, inappropriate and, in any event,would never have been backed up by the resources tomake it really happen, so we have tried, I think, toprovide a set of provisions where in the existingsystem, as it is, the distribution of resources, thediYculty of proof and so on and so forth, this willactually meaningfully end in some better practicebeing adopted, but without a complete revolution;no, I do not see that happening.

Q38 Dr Turner: I think it suggests also that itprovides very big fees for lawyers!Professor Horder: Yes, well, it always seems to endthere, does it not! I have been quite popular actuallyon the city solicitors’ circuit, talking to them aboutthis, because obviously, from their point of view, ifclients come along, saying, “Oh gosh, there’s somenew law. What should we do?” that is all very goodnews from their point of view, but it is also very goodnews actually generally because, if firms are wakingup to the fact that there is legal change, that theremay be prosecutions in the pipeline, so they arethrowing money at lawyers, saying, “Look, draft usup a set of provisions about what we need to donow”, well, that is good, I think. I have learnt a lotin the time that I have spent going round to firms,finding out what they think are the diYcultiespotentially and where they have had problems andissues, and I think it has been a helpful process, soactually, although I hesitate to say it, lawyers may besome element of a force for the good in this wholeprocess, although they will make some money doingit, no doubt.

Q39 Baroness Henig: I would like to switch the focusto the scope of the Bill and, particularly, to some ofthe more political issues, for example, first of all, whyyou chose not to follow the call of the PublicAdministration Select Committee where they askedfor the Honours (Prevention of Abuses) Act to bereplaced by a single, comprehensive piece oflegislation and you clearly did not feel that wasappropriate? Secondly, I just wondered whether, andto what extent, future allegations of cash forhonours or cash for amendments cases would fallwithin the scope of the prospective legislation.Professor Horder: Well, that is a good question. Ithink the answer is that they probably wouldactually fall within it in quite a lot of instances now.Of course, the time was in, I hesitate to call them, the“good old days”, but the time was when actually youwere perfectly legitimately entitled to sell an oYce or




something that you had because it was a kind ofproperty interest that you had and you could sell on,but those days are long gone. If I may just take a stepback, when we agreed our terms of reference withBaroness Scotland and the Home OYce, one of thethings I said I did not want to do was look atparliamentary practice because I regarded that as amatter for Members of Parliament and not anappropriate thing for the Law Commission to startlecturing Members of Parliament about. Perhapssome other body could and should, but not us, so Isaid that we did not want to look at that, and I alsosaid that we did not want to look at James Bond andwhat he might be permitted to get up to in exchangefor information, I did not want to look at that either.Baroness Scotland said, “Well done, that’s fine, youjust get on with looking at the commercial andprivate side of things”, so the answer to yourquestion, in a way, is that yes, we said no, but partlybecause, I think, we were very conscious about ourplace in the role of things, if I could put it that way.

Q40 Dr Turner: On scope again, can you tell us howyou feel the Bill approaches the question of wherecorporate hospitality or facilitation payments stopand bribery begins because, clearly, there is a distinctpossibility that excessive and repeated corporatehospitality can be an eVective mechanism of briberyof, particularly, public oYcials, and in fact concernshave historically been raised in quite recent times.How do you think this Bill deals with that issue?Professor Horder: Clearly, we had long discussionsabout this with business organisations and what Isaid to them, and this was a change from what wehad originally proposed in our consultation paper,was that, yes, in some circumstances, the provisionof hospitality of a very extravagant kind can amountto bribery, there is no doubt about that, it can do, butwhat we will be saying in our Bill is that there will bea clear line in the sand which, if you cross, is briberyand which, if you stay behind, is not. That clear lineis drawn in clause 1 when it says that a person, P, thatis the payer, is guilty of an oVence, et cetera, wherehe oVers promises or gives a financial or otheradvantage and so on and intends the advantage toinduce a person to perform a function improperly,so, when you lay on your corporate hospitality, itactually has to be your intention to produce animproper influence on the people there and it is notenough that you realise that it might have that eVectin some speculative way. We were persuaded, and Igenuinely think this is right, that that would cast thenet way too wide because it would mean that evenquite modest hospitality, if, for example, oYcials arenot used to receiving any hospitality at all, mightraise the possibility in your mind that they couldconceivably be influenced by that. Well, that isputting too much of a restriction, I think, on whatcan be done and it is making liability too speculative,I think, so I am actually quite bullish about this,about the certainty that it provides for businessesand the provision of entertainment because, as I say,it is only in the case where you intended to have thatcorrupting eVect, to use the broad term.

Q41 Dr Turner: But corporate hospitality is not doneout of altruism, it is public relations, as far as thegivers of corporate hospitality are concerned, and itis designed to oil the wheels of businessrelationships. If those relationships are with publicoYcials and may, at some stage down the line, resultin government contracts, then it is very much on theborderline of bribery, is it not? Would it not bepreferable to set certain limits on corporatehospitality acceptance thereof, particularly bypublic oYcials, and the requirement for declarationand so on?Professor Horder: Well, to take the first case first, Ithink that imposing a limit on corporate hospitalitywould be a very, very diYcult, and probablyunworkable, thing to do, if I may make so bold,because I just think that it all depends on the natureof what you are oVering, what other people aredoing, what you can aVord. They are a very, verybroad range of considerations that go into that andI think that to set arbitrary limits, because it is notjust about financial hospitality, there may be otherkinds of thing that go on that do not just involvefinance, so you would have to be very careful abouthow you set out that definition, I do not regard thatas a very promising route to go down, I have to say,and that is why we focused purely on what yourintention was in giving it. I think that a jury isperfectly capable of making up its mind in acommonsense way that, if you lay on someextraordinary hospitality, to call it loosely that, inwhich you buy the relevant people a small flat inLondon as a pied-a-terre or something of that kind,well, the inference must be that you intended toinfluence them improperly by doing that, in otherwords, getting them to give you the contract purelybecause of the hospitality, but there is a big diVerencebetween that and what you might call “getting toknow you”, which is perfectly legitimate, I think,and a very important part of business activity. I donot need to lecture you on this, I am sure, but it ismuch easier for you to secure contracts if you aredoing it on the basis of which people know who youare and you are not just a set of proposals on a pieceof paper, and that seems to me perfectly normal andacceptable actually because it will still be the casethat what matters to the contractor is the merits ofputting the contract your way, but it is just that nowthey know more about you, the nature of yourbusiness, what you do, they have talked to yourpartners, your employees and so on and they are ina better position to assess those matters. Now, Iknow one could take a cynical line about that, butthe point is, I think, that insisting on, as clause 1does, that there be the intention to influence doesgive companies a very large margin of appreciationwithin which to operate, and I regard that asreasonable, I have to say, but nonetheless says, “Becareful. Don’t use this in such a way where it goesover the top and you know that actually the jury isgoing to think—”

Q42 Dr Turner: Obviously, if “improperly” meansthat it is intended to influence the choice of acontractor, for instance, clearly the hospitality has




been given in the hope that it will have that eVect, soyou could say that it was, by definition, improper ifyou pursue that to its logical conclusion.Professor Horder: I see that, but I think that theelement of impropriety there is in awarding thecontract other than on the merits, it is awarding thecontract because you so much enjoyed being takento Monte Carlo or wherever it may be. That is theimproper element and it would be for the jury, Ithink, to determine whether that actually was reallythe point of the whole thing or whether actually thiswas, as I have just indicated, and this is the generalpurpose of corporate hospitality generally, a ‘gettingto know you’ session, which of course yes, does, ormay have, an influence further down the line, butonly in terms of persuading you of the merits of thatcompany, its plausibility, its integrity and the way itdoes things. It is perfectly possible that a corporatehospitality session would be a disaster and they willend up thinking, “They’re just a bunch of flashypeople whom we don’t want to do business with”;that is always possible.

Q43 Dr Turner: That is entirely possible, but youwould not really want to see this legislation beingtested by lots of cases in the courts. Again, I am nota lawyer, but it seems to me that the best laws do notproduce too many cases because they are clear.Professor Horder: I think that will, to be honest, bethe reality. I do not see in my crystal ball hospitalitycases being taken through the courts purely ashospitality cases. What I do see is cases being takenwhere individuals perhaps, the most influential ones,whoever it may be, are provided with benefits of onekind or another, whatever they may be, either as partof, or ancillary to, the general hospitality. I can see itas being quite likely that the prosecution will seek tohome in on those because it is going to be very, verydiYcult, once you get up to a certain level of highhospitality, to avoid actually providing specificbenefits for specific people from which, the jury willinfer, actually you just straightforwardly intended todo a swap, contract for bribe. That is going to be thereality, I think, in a lot of these instances, thatactually, when you took the doctors to Val d’Isere foran extraordinary two-week holiday skiing, what youreally were saying by that is, “Well, we want you tosell our drugs and that’s what you’re going to do”,and they accepted that, in eVect.

Q44 Dr Turner: This is precisely what happens.Professor Horder: Well, you may be in a betterposition to say than I, but I think that it would notthen be the hospitality, as such, which is the focus,but the actual individuals who accepted particularbenefits, whatever they may be. What I am talkingabout is just the general run of lavish parties,meetings in hotels, flying people to expensiveconferences and so on, those kinds of things whichgo on all the time, and I just do not really see theprosecution as having any prospect of establishingthat there was an intention to influence peopleimproperly; I do not see that.

Q45 Lord Goodhart: Is there not a problem equallywith oVences under clause 2, and indeed I think itcould be more diYcult there, where you are lookingat the recipient of these benefits? The recipient isrequired to have an intention of performingsomething improperly. It is perfectly possible forsomebody to say, “Well, they invited me out toGlyndebourne and Wimbledon Centre Court andskiing and so on, and I knew perfectly well what theywere up to, but I wouldn’t have given this contractto them, unless I was satisfied that they were the bestones to do it”, and that may be totally untrue.Professor Horder: I can see someone trying to runthat argument, but the reality is that someonerunning that argument, mostly a public servant, islikely to be in a position whereby they fall withinclause 2(3). I am sorry to be very specific. This is theone where it is actually improper to accept anyadvantage, or whatever it may be, so you will not beheard to say, “Oh well, I accepted the advantage butof course I was only going to deliver the thing on themerits. Far be it from me to be influenced” and soon. That is not going to happen. That clause whichis mainly, but not solely, to cater for public servantshas to go beyond that. We found it totallyunworkable to have a public/private sector dividebecause there are too many people in the middle, forexample chairman of trustee bodies and so on, whoare not public oYcials but nonetheless are in prettymuch the same position, private arbitrators. There isany number of a list of people. I have got half an eyeon Peter over there who I know will want to disagreeon that point. We found this very diYcult. I thinkthey are going to fall foul of that provision. It isexactly that kind of case, if I may say so, for whichthat clause was provided.Chairman: I want to see what my colleagues think.We have spent a great deal of time on this, and veryprofitably so too, but, on the other hand, there arequestions which need to be canvassed. Since weprobably will not go on after half past twelve, Iwondered whether we ought to turn to some of thequestions in the paper that has been circulated. Forinstance, we have not said anything so far aboutclause 5, issues about negligent failure to provide aproper mechanism to prevent bribery.Lord Goodhart: Could I come in on this because it issomething I have got a particular interest in?Chairman: Could we look quickly at the questionsbecause some of them have been covered? I do notthink the question of the comparison with thepresent Bill and what happened in 2003 is anythingwe want to cover further, unless anybody wishes toask about that.Lord Goodhart: Questions six, seven and eight.

Q46 Chairman: We have had a very considerablediscussion about question two, impartiality, goodfaith and so on. I suppose, Professor Horder, that inthis, as in anything else, the prosecutor is going tohave to be satisfied that there is suYcient evidence tosatisfy the prosecutorial tests.Professor Horder: Yes.




Q47 Chairman: The same applies to question three.Professor Horder: I have not got these questions infront of me. They were not in my bundle of papers.Do not worry; if you just ask me the question I willtry to answer it.

Q48 Chairman: This was the hospitality facilitationand that sort of thing which you have beendiscussing. You said ultimately it is for the jury todecide what the intention was, but equally it is forthe prosecution to decide whether there is enoughmaterial to go ahead on in the first place.Professor Horder: Yes.

Q49 Chairman: It is not a matter for getting it pastthe judge, it is a matter of getting it into court at all,is it not?Professor Horder: Yes, that is right. This is always anissue with private prosecutions. It is diYcult togather evidence, there is no doubt about that. Wejust wanted to make sure that we got the substantivelaw straight, if you like. There is work to be done ontrying to make sure that there are procedures in placethat do not make evidence gathering too diYcultbut, as you know, this is treacherous territory whereone encounters problems with Article 6 and so on.

Q50 Baroness Whitaker: I just wondered if ProfessorHorder could give his very brief opinion on thathalfway house of a legal instrument between cut anddried law and prosecutorial discretion, the approvedcode of practice—I know legal oYcers do not alwayslike approved codes of practice—weightyauthoritative guidance on what is appropriate forcorporate hospitality or, indeed, commissions, butnot facilitation payments because to pay somebodyfor doing their job properly, and they will not dotheir job properly if you do not pay them, I thinkthat one should be oV limits.Professor Horder: I very much laid emphasis in mywritten material in relation to the adequate systemsdefence on the development of guidance which isabsolutely essential. You could make that self-samepoint about guidance on hospitality and facilitationpayments generally. There is such guidance,certainly on facilitation payments anyway, in otherjurisdictions, in America and so on, and one couldseek to follow that. Whether one leaves that tobusiness organisations or whether one tries to turn itinto a soft law, that would be diYcult. That dependshow determinate you can make it and how broadlyit is agreed on by those aVected by it.

Q51 Linda Gilroy: Is it your view that bungs insporting activities will be caught by this legislation?If so, what are the relative evidence gathering issuesrelating to that and the gambling industry?Professor Horder: That is a diYcult one. Iunderstand a “bung” to be where a manager orsomeone who is in charge of arranging for newplayers and so on eVectively takes a payment underthe table to secure a contract for that particularplayer or whatever it may be.

Q52 Linda Gilroy: I think it is wider than that interms of there has been a lot of recent concern and,in fact, an adjournment debate at Westminster Hallyesterday about bribery relating to fixing matches.Professor Horder: I see.

Q53 Linda Gilroy: And particularly in relation to thegambling industry where in essence it probablyought to be easier to prove that there have beenmovements in the odds at bookmakers.Professor Horder: Yes, particularly when it comes togambling on the twists and turns of an individualmatch, so whether someone will fail in their firstserve or something. The straightforward answer tothat is yes, it is capable of falling within this schemebecause a manager is clearly under a duty and anexpectation that they will purchase players only onthe basis of merit and on the other relevantconsiderations about how much they want to be paidand how long a contract they are supposed to sign upfor, how old they are and those sorts of things, thereis a clear expectation about what those are and anequally clear one that you do not take a personalpayment to have that particular player in yoursquad. That is completely unacceptable. I wouldactually regard that as a pretty straightforward case.The gambling case is more diYcult becauseexpectations in that industry will change as to whatis and is not legitimate. I think that is a trickier case.In general terms I think the expectation is very clear,is it not, which is that when you place a bet what youexpect, and certainly from the point of view of theperson with whom the bet is placed, is that there isthe appropriate element of chance in whether youwin or not. If that element of chance had beenremoved, or in eVect removed, by some other personmaking a payment then you have behavedimproperly and, again, I would have thought it is astraightforward application of the provisions in theBill.

Q54 Linda Gilroy: And their performance wouldhave been aVected in order perhaps to lose aparticular match?Professor Horder: Yes, certainly.

Q55 Chairman: We must go on with our list. We hada question about the OECD. You have already saida good deal about that and we will be hearing themanyway because they are coming. There is a questionabout what happened to your defence clause, whichin your draft Bill was clause 5, the reasonable belief,which has been dropped.Professor Horder: Yes.

Q56 Chairman: I wonder if you would like tocomment on that.Professor Horder: I addressed it in the written note.It almost sounds a bit like sour grapes whenGovernment drops one of your favourite clauses andthen you go around to whoever is willing to listensaying, “Really I think this ought to be reintroduced,isn’t it terrible” and so on. The intention was tomake it clear in my written note that I regard this asquite a diYcult issue. I completely understand the




Government’s decision to drop this as going a bit toofar. Perhaps I could start with what I do not say inthe note which is that it would be right to say that theOECD was quite troubled by this, and I do mentionthat, but I did not say the reason why they weretroubled by it. The reason why they were troubled byits inclusion was that they have a general rule that ifthere is a defence to bribery of a foreign publicoYcial or indeed anybody, or a corporate oVence,whatever it may be, that defence must in a broadsense cohere with other defences that you allow inyour legal system to other crimes. In other words,you will not be allowed to permit by law specialpleading of some kind in relation to bribery that youwould not allow in other oVences because that looksas if you are trying to, putting it crudely, weasel outof your obligations under the OECD by providingspecial defences. They said they thought that thiswas such a defence basically, which was theirobjection to it. In response, I said it is true that ingeneral ignorance of the law is not an excuse but thisis not a straightforward case of ignorance of the law,there are examples of common law when in relianceon advice given by an oYcial you will be allowed torun that excuse. It is perfectly possible in English lawfor that to happen, albeit rarely. As I say in the note,we thought that ignorance of foreign law is really avery diVerent matter from ignorance of domestic lawand that in practice this defence would not be runvery often, but when it was run it was perfectlyreasonable for a firm to say, “Well, look, the biggestlaw firm in the world has given us this advice that itis perfectly lawful to make this payment, what canwe do? We can only rely on that”. That is importantbecause we are talking about convicting someone ofa pretty serious oVence. The taint of corruption ispretty significant. I think we felt, therefore, that itadded, if you like, an element of balance to the factthat we were introducing an oVence into a whollynew area on a new basis. The new oVence was in asense breaking new ground and we wanted toprovide some kind of balance for that and it seemedreasonable that this defence was a part of that. At thesame time, for the reasons I have given, I understandwhy the Government has dropped it. I would notwant to spend time now repeating the case for havingit. I accept what the Government says and that willbe very pleasing to the OECD, and there you haveit really.

Q57 Chairman: Do you think we ought to take it upwith the OECD?Professor Horder: They will probably beemboldened by the Government’s decision in sayingmuch more clearly that they would regard itsreintroduction as unwelcome and as weakening theprotections that are otherwise given that companieswill not engage in bribery. They will say itencourages wilful blindness to legal provisions andso on. I would say that is not right because you haveto actually show that you had a reasonable belief andso on that it was lawful. Getting into thesearguments now would not be helpful. You will findyour passage much easier, I think, with the OECD

under the current proposals whereby the defence isnot in there. We had our reasons for putting it in andthey are as stated.

Q58 Chairman: Very well. I think a number of mycolleagues are very interested in the provisions inclause 5. As to that, you have got the new oVence ofcompanies and partnerships negligently failing toprevent bribery.Professor Horder: Yes.

Q59 Chairman: It would be interesting to know howyou think this is going to work.Professor Horder: The answer to that, just to give abrief bit of background, is that we believe it is notenough simply to introduce, for example, a newoVence of bribing a foreign public oYcial becauseunder the well-understood basis for corporateliability in English law that would mean that oVencecan only be committed by a director, or equivalentoYcer, making the bribery either him or herself orthrough an agent knowingly, and that would be fartoo narrow, it would not deal with the basic problemthat companies operating overseas almostinvariably will be operating through agents, throughregionally based companies and so on. It will not bethe directors out there themselves doing the businessin very many instances. For that reason it wouldvery, very substantially weaken the protection that isbeing provided by clause 4, the foreign public oYcialoVence, if eVectively you were saying it is not capableof being committed by any sort of corporateorganisation unless the directors themselvesintentionally committed it, which almost invariablythey will not do, it will be an area sales manager orsomeone of equivalent standing who actuallyauthorises and commits the oVence, or there will bean agent in that country who knows the system whohas been paid to secure the contracts on behalf of thecompany, so far so good, but then, of course, theyhave very wide-ranging discretion and engage inbribery in order to get ahead of other agentsrepresenting other companies. That would be apretty standard way in which bribery occurs in thesecircumstances and we felt it would be wrong inprinciple to allow a company to escape completely inthose circumstances but, on the other hand, we didnot want to make them, as lawyers say, strictly liablewhen that happened. In other words, you should notbe liable as a company eVectively for bribery eachand every time one of your employees or agents, andthere may be thousands of those across the globe,themselves commit bribery. It is wrong to attributethat simply directly to the company, we believe,when you are not talking about an earwig gettinginto a tin can or something where the oVence isattributed directly to the company. Bribery is a lotmore serious than that and there ought to be somekind of fault at the highest level of the company. Inthe end, what we came up with was the idea youfailed to prevent it in the sense that your systemsbreak down or are not adequate to prevent youragent or employee making the bribe overseas, andthe system breakdown was basically through yournegligence, you failed to allude, to attend to that




possibility when you should have done because youknew you were doing business in country X, countryY, where there was a problem. You failed to doanything about it, your systems were not up todealing with it and bribery occurred. I think that ispretty standardly how bribery is likely to occur oneway or another, assuming it is not being donedeliberately right from the top. We wanted to, atleast in principle, catch that kind of case. Potentiallythat is quite a big expansion of the law. The way thatwe defended and explained that to businessorganisations was to say the prosecution has got toget over four hurdles here. First of all they have gotto show that bribery took place, committed by anagent or employee of yours, and that may not beeasy but they have got to do that, that is the wholefoundation of the thing. Secondly, they have got toshow that a person responsible for preventing itfailed to do so. That may not be so hard but that isnonetheless a hurdle. They have then got to showthat there was negligence in that happening. Well,very often juries infer from the fact that somethingwent wrong that it went wrong through negligence,they very often do that, but nonetheless that is ahurdle, negligence has to be shown and shownbeyond reasonable doubt. Finally, the prosecution ifneed be will have to rebut a defence of due diligencethat is asserted by the company. I am calling it “duediligence” for short but it is about the adequacy ofsystems and procedures for dealing with bribery. Itwould be for the company to show that it hadadequate systems to prevent the bribery occurringand the prosecution, therefore, would have todisprove that in whatever circumstances. It wouldhave to go some way at least to presenting evidencethat that was not the case.

Q60 Chairman: If there are adequate procedures andthey are enforced, that cannot very well be said to benegligence, can it?Professor Horder: So you might think, but what wehad in mind were cases where there are adequatesystems but because of the devolved nature of thecompany the negligence is on the part of, and I thinkthe example we gave in the report was someone whohas been tempted by an oVer from a rival companyto go and join them and so is not paying properattention to their duties in relation to their existingfirm, something of that kind where the systems are inplace but the negligence is attributable to anindividual person who has that responsibility. Wedid not think that in those circumstances thecompany should be liable for that because it is reallydown to the individual’s negligence. We wanted toprovide some kind of balance whereby a companywould not be liable when its systems were perfectlyadequate but there was a failure solely by anindividual within a company. We did not think thatwould be fair basically. It is consistent, but Iunderstand what you are saying that the two will inmany instances be bound up together, that is to sayto show negligence on behalf of the company isalmost by definition to show that the procedureswere not adequate. That would be true in many

instances and that helps the prosecution, but in someinstances it may not be true, the two will be separate,and we wanted to allow for that.

Q61 Lord Goodhart: You seem to me to have aproblem with the formula used with it. The realproblem is your system requires that negligenceshould necessarily be attributed to one or morepeople who are on the staV, the management of thecompany, but that is going to lead to the sorts ofproblems that meant corporate manslaughter, forexample, was virtually unenforceable because in alarge company you could not find anybody who wasactually negligent. The problem is that in these largecompanies it is because there has been a failure in thesystem rather than a failure in a particularindividual. Would it not be better and simpler to saythat where somebody acting on behalf of a companyhas been found to be guilty of bribery that thecompany should be liable irrespective of anybody’snegligence unless the company can then show that ithas, in fact, had in position an adequate system forpreventing bribery?Professor Horder: The short answer to yourquestion is yes, it would be simpler, there is no doubtabout that. However, our concern here was aboutthe way that this oVence looks when stacked upagainst other similar oVences in English law. I havealready mentioned the food safety case of getting anearwig in your tin where that will be attributed to thecompany unless they can show that they hadadequate systems, or exercised due diligence, orsomething. I do not see an analogy between thatkind of oVence which occurs inevitably in theordinary course of your manufacturing or businessconduct and an oVence like bribery where it is a very,very serious oVence that carries a stigma, a taint,with it. We felt that despite the extra complication orextra hurdle that it was right, therefore to includesome fault element that had to be shown by thecompanies, if not their oYcers at least someoneresponsible, so the area sales manager or whoever itis. We thought that extra hurdle would be fairer tobusinesses and would also mean that this oVence wasa step up, if you like, in terms of severity from thoseother oVences of food safety or whatever they mayhappen to be. The model you are using is the modelthat is used.

Q62 Lord Goodhart: Is manslaughter not a seriousoVence under the Corporate Manslaughter Act?Professor Horder: Yes.

Q63 Lord Goodhart: Where it is not necessary toattribute negligence to any particular member of thecompany, it is the company which is liable for thenegligence. Should it not be just the same here?Professor Horder: I am not sure I am following younow. Under the Corporate Manslaughter Act therehas to be eVectively gross negligence shown, at leastin part, on the part of senior oYcers. It does not haveto be wholly them but it has to be partly them. It wasdesigned very specifically to catch the kind of P&Ocase where you had got some negligence on behalf ofsenior management but also negligence by




employees down the line, so it is a kind of mixedthing. You do have to show gross negligence on thepart, at the very least, of senior oYcers.

Q64 Lord Goodhart: Obviously you have to showthere has been a fault, but here it is the fault ofbribery. It may not be a senior oYcer of the companybut it is bribery and surely it must be legitimate tosay, “You must show to us that you had adequatemethods for dealing with this”. That is the point. Itdoes not matter who is guilty, you do not have to findout which particular individual failed to putadequate arrangements into service, but surely thatis the liability of the company and it should be theliability of the company.Professor Horder: Personally I would not accept thatbecause I think there is a diVerence here. Withcorporate manslaughter you are talking about aconsequence that occurs as a result of negligence, sothe company is negligent and in consequencesomeone dies. It is just a tragic event, if you like,which occurs as a result of negligence. This is not likethat. This is an oVence that can only be committeddeliberately, a deliberate act of bribery committed byan individual under the auspices of the company,and the question now is do you attribute thatdeliberate act to the company. That is very diVerentfrom attributing causal consequences, like earwigs intins or deaths occurring on ships or wherever it maybe, to a company. It is a whole diVerent ballgame, Igenuinely believe. You can only fairly, in my view,connect a deliberate act of bribery by an employee oragent to a company via the company’s own fault, ifI could put it that way, or here we have got it as “aresponsible person or number of persons” so it doesnot have to be necessarily right up at directoriallevel, it can be the area sales manager, to use thatexample. I know this adds a complication and I amvery sensitive to that point, and at the LawCommission we are all very much againstcomplication, but there is also the issue of fairnessand comparing like-with-like, and I do not think youare comparing like-with-like, when you comparecorporate manslaughter and food safety on the onehand and on the other hand bribery, they arediVerent sorts of oVences committed in diVerentcircumstances.

Q65 Lord Thomas of Gresford: Professor Horder,you have had discussions with businessorganisations and the simplified constructivecriminal liability would not be acceptable, I wouldhave thought, to those organisations. They would belooking for something rather more than theconstructive liability because of bribery at a lowerlevel.Professor Horder: To be honest, I do not believe Ihave discussed this specific point with them. Youmay be right, it is speculation. We are just trying totake a view on what is fair and what is balanced evenif trying to secure those goals involves an addedelement of complication. We have not been pressedparticularly by, for example, TransparencyInternational or someone on what you might call theother side of the table. I do not like to speak in those

terms, but if one thinks in that way they have notsaid, “Oh well, a negligence requirement will makethe whole thing impossible” and quite reasonablynot because I do not think it will. As I have alreadysaid, I think juries often infer negligence fromfailures in any event.

Q66 Lord Thomas of Gresford: You will recall fromour seminar in Hong Kong recently that we weretold in America there is a federal organisation thatgives advice so that a business can go to that personor organisation—I cannot recall which particulardepartment of state it was—and say, “Well, I havegot this contract and it is suggested that I do this orthat, can you tell me whether that would be allright”. Is that what you had in mind in relation toadequate procedures?Professor Horder: That is going quite a long waybecause that is contrary to our traditions of whatpublic servants can and cannot do, generallyspeaking. For example, if I could start from aslightly diVerent view, were we to have in thiscountry an anti-bribery body, a commission, a semi-oYcial body of some sort, charged with giving thiskind of advice I could well see as being appropriate.For the prosecution to be giving this kind of advice,for example, would put them in a rather diYcultposition, would it not, and I am not sure about that.Were we to have somebody charged with givingadvice of this kind I think that would be very muchof benefit both publicly and to companies and wouldgive them reassurance.

Q67 Lord Thomas of Gresford: There is theindependent Commission against Corruption inHong Kong.Professor Horder: Yes. Something of that naturehere would add very much. I do not want tospeculate too much about that. I have said veryfirmly in my written evidence that I would not beconfident about letting this oVence loose on thegeneral public unless and until there has beenadequate guidance agreed so that there is publicconfidence, business confidence in how this is goingto work. It is quite clear to me from having beenround City firms and talking to lawyers that there isplenty of this guidance around in relation to diVerentcompanies and the big law firms all specialise ingiving advice that is tailored to particular countrieswhere particular standards are this way or that way,they are very good about that. I do not think it willbe hard to find a model from which one can work, weare not starting from a basis of zero informationhere.

Q68 Chairman: I have got a list of people who wantto ask questions but there is, however, one thing onclause 5 that I would like to explore with ProfessorHorder. That is the extent of the jurisdiction whichis now in the Bill because it is much broader thanwhat you had in your draft and involves thepossibility of foreign companies being prosecutedsimply on the basis that they have a small part oftheir business over here in the UK. Would you liketo comment on that?




Professor Horder: We found ourselves in somediYculty about this because we are the LawCommission for England and Wales and it did notseem appropriate for us to be saying that Scottishcompanies, say, should have liability extended tothem without our proceeding fully along with theScottish Law Commission and Scottish legislature,but there was not time for any of that. We had quitea narrow understanding of where businesses shouldbe. However, when we met the OECD after thereport—eVectively the session was about “will itpass muster as far as you are concerned”—one of thethings they said was that they were a bit worriedabout businesses doing business here, if you like, butnot being registered here in England and Wales, sothey are a sort of outpost. What the Bill does is theGovernment has extended the scope, if you like, toinclude companies doing business here as well ascompanies registered in England and Wales, and thatis their choice, that seems reasonable to me. It is theparallel to the individual provision that we put in,and which appears in the Bill, that if someone isordinarily resident in Britain then they should beliable in exactly the same way as a British citizen.That seemed right to us because the number ofpeople ordinarily resident here has risen verysubstantially over the last 20 years and a lot ofpeople here are ordinarily resident in order to dobusiness so it seems wrong that they would falloutside the scope of oVences. What the Governmenthas done is provide a parallel provision forbusinesses, so businesses that are, if you like,ordinarily resident here, which means doing businesshere, are included. Clearly because that was not inour minds we did not do any impact assessment onit or any investigation of how widely that wouldimpact on companies. We have not been able to dothat because, as I say, it was not in our minds. Iperfectly see the justification for it. If two companiesare jointly making a bid for something on an illegalbasis, why should one be caught because they are aBritish company and the other one not caughtbecause they are a company just doing business here.That does not seem very logical. I can see the case forthe Government’s amendment and extension.

Q69 Lord Williamson of Horton: This is on territorialapplication and nothing whatever to do with people,it is only to do with companies. The territorialapplication for people is very widely drawn in clause7, and there is no problem with that at all, but acompany, and I refer to a company which isoperating in an overseas dependency or tax haven ofsome kind, those types of companies—Professor Horder: Yes.

Q70 Lord Williamson of Horton: In order to fallwithin this they have to be a body incorporatedunder the law of any part of the United Kingdom.That is in 7(4)(h). Is it the case that there can becompanies in the Cayman Islands, for example, awell-known place for doing business, which are notincorporated under the law of any part of the UnitedKingdom? If there are such companies incorporated,

for example, under the law of Delaware orsomething they would be excluded, of course, fromthe application of clause 5. Is that the case?Professor Horder: It is, yes. The position basically isthis: as you know perfectly well we cannot force thecrown dependencies and overseas territories toaccept a bit of our law although we can perhapsapply a little bit more pressure to the crowndependencies. If I may quote him, probably wrongly,our Ambassador to the OECD said very clearly tothe OECD, “We respect the principle of self-determination and in the case of overseas territoriesthey must decide to what extent their law goes alongwith what we are recommending for England andWales. We cannot start acting like an imperial power,even if we had the legal ability to do so, in imposinglaw on them”. You may say what is the consequencethen, what will happen, will there just be a sort ofMaginot Line type gap through which everyone willhurriedly rush setting up companies in the BVI orwherever. The medium-term answer to that is theywill not be able to escape because what may happenis that the OECD will treat the governments of BVI,the Cayman Islands or wherever as foreign publicoYcials and, therefore, it will make it easier toconvict them of oVences based on Cayman Islandlaw, whatever it may be, so in that way they will hopeto catch them. There will be a way round it but it willhave to come through an OECD initiative, unlessand except insofar as the British Government canput pressure through diplomatic channels on crowndependencies and overseas territories to change theirlaw, but what the prospects are for that I could notsay.Lord Williamson of Horton: No comment, my LordChairman, except remember the Cayman Islands!

Q71 Chairman: I think we ought to start drawingthis to a conclusion but there is one point left that Iwould like to ask Professor Horder about. Broadlyspeaking, you have confined the consent toprosecution to the Director of either the PublicProsecutions or the Serious Fraud Squad orRevenue and Customs?Professor Horder: Yes.

Q72 Chairman: That does not deal with the SeriousCrime Act 2007 which still leaves the Attorney incharge, including matters of bribery and matterswhich go to the economic interest of the UnitedKingdom, which is a very substantial anomaly as itseems to me.Professor Horder: That is right. I would have to goback now, but I thought in our report we had saidthat the consent provision should apply not only tothe completed oVence but also to inchoate oVences,but I could be wrong, that might just be wishfulthinking. My position on this has been absolutelyclear, and I gave evidence to this eVect to the JointSelect Committee on the role of the Attorney, thatthere is a serious worry about the way in which aconsent of prosecution will operate if the Attorney islikely to, will, may, take account of economic factorseither as a result of the Shawcross exercise or in someother way. There is the perception at least that may




happen. Of course, I would be perfectly happy toaccept an assurance, and an assurance was indeedgiven by Lord Goldsmith, when he held that oYce,that he would not take into account economicfactors in giving consent. If an assurance is given byan Attorney in those terms I would accept itabsolutely, but it is a sort of odd way of going aboutthings, I suppose, having to make these assuranceseach and every time a new Attorney takes up oYce.For example, would it not be better to bring the lawinto line with every other oVence and not make a bigdeal of bribery. In fact, I believe that is what thesubstance of the Constitutional Renewal Bill does, itmoves the consent down a peg, if that is the word Iam looking for, from Attorney to DPP, and thatseems to me to be entirely right. It is still open, ofcourse, for the DPP or any other prosecution oYcerto informally take advice or whatever from theAttorney General in appropriate cases, that shouldalways perhaps go on. In general terms that wouldbe my view.

Q73 Chairman: There are two points, are there not?There is the remaining power which brings in theAttorney under the 2007 Act, which is not beingrepealed, and there is the introduction of theeconomic wellbeing of the country, which is in the2007 Act, which is contrary to what the OECDrequires.Professor Horder: It is, that is right. I was mainlyaddressing myself to that point. That looks just likeit may be a legal gap, I suppose, something that has

been overlooked and we might have to look at that.I am not sure about that, I have to confess. I do notknow what the position is about the 2007 Act. Iwould have to go back and have a talk to the oYcialsto see what the position is on that one, I do not know.

Q74 Chairman: I think it would be very helpful if youcould do that because I believe it is an anomaly uponwhich we ought to comment.Professor Horder: That may well be right. It could beI have just forgotten something and I am not beinghelpful. Yes, I will do that.Chairman: I think we had better draw this to aconclusion. The next meeting will be on Wednesday20 May in the Boothroyd Room at 9.45 which oughtto give plenty of time for you to go and listen toPrime Minister’s questions if you want to. To judgeby the progress we have made this morning, and wehave covered a good deal of the ground but not byany means all of it, I have a strong suspicion that wemay have to have two sessions a day later on in theprocess of this investigation, so if you will braceyourselves for that possibility. We will not do it nextWednesday, but thereafter we may have to comeback in the afternoon as well, otherwise I do not seehow we will get through all this material inaccordance with the timetable that is in the motionthat set us up. Perhaps you would like to bear that inmind and look at your diaries accordingly. I am verysorry but we have got a very tight timetable and thereis an awful lot of ground to cover. I will adjourn untilnext Wednesday. Thank you all very much. Thankyou very much, Professor Horder.



Wednesday 20 May 2009

Members present:

Anderson of Swansea, L Thomas of Gresford, LColville of Culross, V Whitaker, B

(Chairman) Mary CreaghGoodhart, L Mr Jonathan DjanoglyHenig, B Linda GilroyMayhew of Twysden, L Martin LintonOnslow, E of Jeremy WrightSheikh, L

Witnesses: Mr Colin Nicholls QC, Professor Celia Wells, Professor of Criminal Law at the University ofBristol, and Professor Bob Sullivan, University College London, examined.

Q75 Chairman: May I, first, welcome all three ofyou. I know that you have played your role alreadybehind the scenes in getting this legislation into adraft form. Is there anything any of you would liketo say by way of introduction?Mr Nicholls: No, I think not; we have got a list ofquestions.Chairman: We have just allocated them round theMembers of the Committee. Shall we start? The firstquestion is whether it is an improvement on the 2003Bill and the draft law, and, perhaps particularly, howdoes it compare with legislation in other countries.Lord Anderson, you wanted to ask that.

Q76 Lord Anderson of Swansea: Only this: we havegone through this exercise before; there was a greatdeal of preparation on the 2003 draft Bill and a greatdeal of learned debate, which may or may not havebeen wasted. Do you believe that lessons have beenlearnt in respect of why that Bill failed, and is thecurrent draft, in your judgment, an improvementboth on the brave attempt in 2003 and the currentlaw, and the first time we looked, perhaps, at how itcompares with the similar laws in otherjurisdictions? So have lessons been learnt and is it animprovement?Mr Nicholls: Most certainly, I think, lessons havebeen learned. We have to realise that the old law wasa patchwork of legislation which was designed todeal with specific issues. From time to time thingswere added, and finally the Anti-Terrorism Crimeand Security Act. So there was this patchwork and ithad got to be remedied in some way. There was theconsultation process that led to the 2003 Bill. Whatwas wrong with that Bill, which was clearly pointedout by the Joint Committee, was that it was far toocomplex, and amongst the problems there were thecivil law concepts. This is a criminal matter and issomething that needs to be clearly understood by thepeople who have got to comply with the law. Thegreat thing is that even between the consultationprocess this time and the report this time there hasbeen a great sifting out to get to the simple issues. Mypersonal view is that this Bill has resolved a lot ofproblems. It has got rid of the civil law concepts, ithas got down to something nice and simple. The oldcommon law talked about no rules of honesty andintegrity. What we have now is this concept of

impropriety, and impropriety is divided up into threediVerent areas: good faith, etc, etc, which can copewith diVerent situations. So we have got an advanceon the old common law. There were not reallyproblems with the old common law about no rules ofhonesty and integrity, and we have got down tosomething simple. So I feel very much that this is agreat improvement. The other thing that comes fromlooking at this in a simple way is this: that we havethe general oVences here and then we have theseparate foreign public oYcials oVence. What comesfrom that is this: that when you look at the generaloVences, what you have for a jury is an issue as towhether conduct was improper. It is a jury issue as towhether it was improper. When you look at theforeign public oYcials oVence, what you find is thatParliament has already decided what is improper. Ifyou pay money to a foreign public oYcial, in certaincircumstances, that is ipso facto improper and it hasbeen decided for you. So if we look at corruption asa whole now (because one of, perhaps, thedisadvantages of this Bill is it is only concerned withbribery), what we have got is these oVences where ajury has to decide what is improper, and then wehave those oVences where Parliament has alreadydecided what is improper. As I say it is doing so inrespect of the foreign public oYcials oVence and it isalso doing it in the old law, for example, with theHonours (Prevention of Abuses) Act, the sale ofhonours and the electoral oVences, whereParliament says: “If you do this, this is improper andyou commit an oVence”. So I think it is atremendous advance. If I am asked what criticism Ihave of the Bill, at the moment, it is this: I am afraidI find the drafting almost impossible. I was lookinglast evening at clause 2, which is dealing with therecipient, and I really could not work out what wasbeing said about the test of good faith, etc, etc. Thedrafting, I am afraid, as a criminal lawyer, asopposed to a civil lawyer, in terms of case A, case B,case C; people such as F, P, R and, later, when itcomes to the corporate, A, B and C, I findimpossible. Maybe I am just not very good about it,except that I notice that the senior partners ofHerbert Smith were having problems on this issue.So I would ask that the drafting of this Bill bereconsidered. I started to do the first two clausesmyself but, I am afraid, time ran out and there wasa lot left over at the end, and I could not do it. I amsorry that is rather a long answer.



20 May 2009 Mr Colin Nicholls QC, Professor Celia Wells and Professor Bob Sullivan

Q77 Lord Anderson of Swansea: Just a little rider onthat: if you, with all your own experience in the field,from a criminal law perspective, found it lacking andyou started to have a shot at a redraft—presumablyyou are prepared to send to the Committee the fruitof your reconsideration?Mr Nicholls: Yes, I was going to say certainly I will.

Q78 Lord Thomas: I regret to say that an awful lotof the criminal legislation that has been dumped onParliament recently has contained this type of caseA, B, C, and F and D, and I find it equally asconfusing as Mr Nicholls. I wonder if I could referyou further to question 2, because you were alsoasked: what have we learnt from foreign experience?What question 2 is all about is obtaining advice andguidance from the authorities as to what is or is notsubject to the oVences in this Bill. You will be aware,as you have some slight connection with theIndependent Commission against Corruption inHong King, that that organisation is prepared togive advice to a firm who is seeking to find outwhether a course of conduct would be acceptable.Similarly, in America, we refer, in the note that youhave seen, to the US Foreign Corrupt Practices Act1977, where there is a procedure for an individual orbusiness to query whether their intended actionswould be lawful. I would be interested to know,either from Mr Nicholls or anybody else, whetherthat is considered to be a gap in this particular Bill.Can we not learn from these foreign jurisdictionsthat we should have a body or a mechanism wherebypeople can check that paying money to X in a foreigncountry or paying money within this country is alawful action?Mr Nicholls: I think part of the problem with thedrafting is that it is trying to pin, in every particular,what is corruption. I think you will add to the levelsof prolixity if you have a set of exemplary situationsby way of guidance as well. If you had a morecursory yet, in some ways, more clear way ofdrafting, then guidance examples might be morehelpful, I think. The attempt here has been to try andpin the essence of impropriety down in some veryprolix language.

Q79 Lord Thomas: I think you are missing my point.It is not so much that the Bill should contain theguidance but that, first of all, the Bill should containsomething about written guidance or have amechanism whereby people can seek advice, ashappens in America and as happens in Hong Kong.That is the point I am making, not that the Billshould set up the guidance.Mr Nicholls: I am sorry. I wonder what—and it is aquestion rather than a contribution—is the legalstatus of that guidance once it is given? Does it, inany sense, count as a barrier against subsequentprosecution?

Q80 Lord Thomas: In America it says it gives arebuttable presumption that acting in accordancewith the attorney’s advice will mean that no criminal

oVence has been committed. I have listened recently,in an ICAC seminar to the lady from Hong Kongwho was in charge of that department and who hassomething like 60,000 people around the UnitedStates who are charged with giving advice along thelines of what is said in this Bill. I do not know ifProfessor Wells has any comment to make.Professor Wells: My view is that it probably isunnecessary in the climate that we have in terms ofprosecution. We have a number of regulatory bodiesand my view is that the Bill is clear in what isprohibited. We do not pretend to provide an adviceservice for potential criminals in other areas; that isnot part of our tradition. That is a diVerent question,I agree, from whether there is some code of conduct,perhaps, to which reference could be made, but itseems to me that, given that the serious issues beingaddressed here are generally taking place within acorporate context, most corporations—andcertainly the larger corporations—where this isgoing to be a serious issue will be developing theirown compliance guides. I think, actually, it would bean unnecessary public expense, apart from anythingelse, to have that filter. That would be my view. Ithink that the United States context is both diVerent,in terms of the way that the Act works andprosecutorial discretion works, but it is also diVerentin that it was the first of those pieces of legislationthat informed the OECD, so historically we haveactually moved on in terms of corporate awarenessof the importance of avoiding this kind of behaviour.Mr Nicholls: One of the great problems is that allthese issues are case specific and so there is a problemwhen you take, shall we say, a particular case, to callit an advisory body, that you may get a certainamount of advice but all factors cannot be takenaccount of. The other thing we have to consider isthis, at the moment: if I, as a barrister, have aproblem as to whether what I am about to do isethical or not, I ring up the Bar Council and askthem. That applies in almost all industries now. Oneof the eVects of, particularly, the anticipation of thecorporate provisions of this Bill is that there is nowa massive industry amongst lawyers in corruptioncompliance, and they are outside the lawyers whoare advising; there are all the various bodies—theChamber of Commerce, the Ethical Corporation,the Builders’ this and the Construction that, and soon. All of them are providing advice, saying what isappropriate and what is not appropriate, and I thinkwe should be able to rely upon our own professionalbodies to not only give us advice but, also, help setthe standards.

Q81 Lord Thomas: Do you see anything in the Billwhich would make the receiving of advice from yourown solicitors or your own counsel or yourprofessional body a defence?Mr Nicholls: No, I do not, and I do not think itwould be a defence. I was trying to think of asituation where you do have someone who has gotadvice and then finds him or herself, or companyfinds itself, prosecuted. It has arisen in some of thetax evasion/tax avoidance cases.




Q82 Martin Linton: The Fees OYce?Mr Nicholls: The great thing is that even if it mightlead to a conviction it could certainly serve andwould always serve as mitigation and insurance. It isnot a complete insurance. The great thing is that thepart that the various industry bodies can play inraising the standards is very significant.

Q83 Lord Sheikh: In certain overseas countries, ofcourse, corruption is very rife. Would you like tocomment on somebody putting up the defence:“Look, it is the done thing in that country, and I wasjust observing what the procedures are”? Would youlike to comment on that? How do you see thatdefence being successful?Mr Nicholls: We have to consider it from two pointsof view. Firstly, there is the point of view of thegeneral oVences. With the general oVence, whatreally is the test is: what would be the expectation ofa reasonable man? There is nothing to say whetherthe reasonable man would take account of thecustoms or tolerances, or so on, of whatever part oflife you were involved in. When you come to theforeign public oYcials oVence, what you have thereis a test—if a person does something then it isimproper—and you have got this provision of whatis legitimately due. The question is, with the foreign,what would be legitimately due in the foreign publicoYcial oVence? There is no provision there relatingto the customs and tolerances of the foreign country.I have been looking in the last few days at theAustralian Criminal Code 1995 as amended in 1995,and they have dealt very specifically with the foreignpublic oYcials oVence; they had to change their lawto deal with the food scandal. They seem to me to bethe only other country that has adopted this test ofwhether a payment is legitimately due in the foreignpublic oYcial’s country. However, they do have aprovision there to the eVect that no account must betaken of the customs or tolerances in the trade orprofession or country—whatever it may be. I thinkit may be worth consideration as to whether thereshould be a similar provision, one, as to our generaloVences and, two, as to our foreign public oYcialoVence.

Q84 Chairman: We are coming back to publicoYcials, but, for the moment, perhaps, thereasonable test as applied to non-public oYcialsoverseas.Mr Nicholls: Yes.

Q85 Chairman: Is that the gap?Mr Nicholls: There may be a gap there, yes. There isa risk.Chairman: We are coming back to it.

Q86 Lord Mayhew of Twysden: Just going back, theAmerican provision in 1977 made the point that itwas the historic precursor of the OECD, I think. Itdoes strike one as being refreshingly direct, practicaland pragmatic, and I wondered whether there hasbeen any evidence of dissatisfaction as time has gone

on in America, leading to a desire to enlarge it orchange it in any way, or are they content still tooperate it, notwithstanding its long history?Professor Sullivan: I believe the terms of thatlegislation, as you say, are far more straightforwardthan this current Bill. Indeed, there has been a degreeof prosecutorial activity in the span of time since theBill became an act—the 1977 Act. So I think it is fitfor purpose in that sense; it is obviously used as anactive tool by the American prosecuting authorities.Professor Wells: It has been used increasingly withincreasing penalties. In a sense, to go back andrewrite this so that it was in the same form as theForeign Corrupt Practices Act would be quite amajor shift. There is much more inbuilt institutionalnegotiation between the prosecution authorities andmitigation, in terms of sentencing as part of theprocess. It is, of course, familiar to us as a commonlaw derivative jurisdiction, but much of it is verydiVerent.

Q87 Mr Djanogly: In the case of an English personbribing a foreign person, would the reasonableperson expectation be what was reasonable inEngland or in the foreign country where the bribehappened?Professor Sullivan: I think that is a very pertinentquestion and would be quite diYcult to answer, Ithink.

Q88 Mr Djanogly: That is the key issue—Professor Sullivan: If you are looking at the generaloVence, even if it involves a foreign person who wasaccepting the bribe, it is the test of reasonableexpectations for that person’s oYce; whether areasonable test would consider it in defiance ofreasonable expectation.

Q89 Mr Djanogly: A reasonable person in thecountry where the bribe happens?Professor Sullivan: One of the major problems ofenforcement in corruption is cultural variables. It isvery diYcult to reconcile but I think it is at the heartof the matter. What the Bill does, and we touched onit, that, is as far as foreign oYcials are concerned, itsays: if the law allows the payment or indeed requiresit, then there is no oVence, but that strikes at theheart of one of the major diYculties. If one canmention cases, in the Saudi arms contract, with hugecommission payments, arguably, those paymentswere perfectly legitimate in terms of Saudi Arabianlaw, whereas, of course, the perception of thatcontract, with its vast commission payments was, byour standards, I would have to say, a corrupttransaction.

Q90 Mr Djanogly: The position is morestraightforward if public oYcials are involved,because then you would go under a separate section,presumably?Professor Sullivan: Yes, but even so I think many ofthe transactions that have caused some problems inthis jurisdiction, in particular, for companies, doinvolve payments which, on the face of it, may be




quite legitimate but in a diVerent culture strike one,in certain terms, as outlandish payments, given thesheer scope of them.

Q91 Lord Goodhart: You did say that the reasonableexpectation test applies to what would be thereasonable expectation in, say, the DemocraticRepublic of the Congo. Are you not, basically,undermining the whole purpose of the anti-corruption movement of the OECD, and so on?Professor Sullivan: I would say yes. Quite.Mr Nicholls: I think the reasonable expectation ismeant to be the reasonable expectation of the jurorwho is a person of honesty and integrity. If one takesthat test, then that should not be somebody inanother country; it should be the juror—a person ofhonesty and integrity—and the juror will be judgingwhat he thinks of the culture in another country.That is the idea. Whether that is suYciently writteninto the Bill or not, I do not know. Maybe it is in thereport. It is suggested that a lot of these issues arisingout the Bill, particularly the reasonable person test,may have to be worked out by the case law, and maynot be a proper way to approach drafting legislation,but it may be part of it.

Q92 Lord Thomas: Can I just put this, very briefly?One of the thrusts of the Bill is, obviously, to punishdishonest bribery in the domestic context, but whenwe get to the overseas aspects of it there is a policyof providing a level trading field. That is what theOECD is all about. Is there a conflict? Should thesetwo things be in the same Bill?Mr Nicholls: I have not quite followed the question,for a moment.

Q93 Lord Thomas: One of the aspects of this Bill isto conform with the OECD directive. That, really, isnot about dishonesty; it is more about having a leveltrading field so that companies, from whatevercountry, whether it is the US or this country, inbidding for foreign contracts are not achieving anadvantage by paying bribes. That is one policyaspect of it. That is rather diVerent from thedomestic bribery that we are familiar with, whichinvolves that sort of domestic corruption, and so on.Are these in conflict? Should they be in the same Bill?Mr Nicholls: I would not have thought that they arein conflict because an essential part of the generalbribery oVence is, in fact, to create a level playingfield; it is to stop your competitor from getting anadvantage over you by paying a bribe. So, basically,whether it is a general oVence or whether it is aforeign public oYcials oVence it is all about a levelplaying field.Professor Wells: If I might say, it is a levelling uprather than a levelling down, so I do not see that asbeing in conflict. Just on that previous point, I didnot read the Bill in that way, but if there is a queryabout whose reasonable expectation it is, perhapsthere is a possibility, for the avoidance of doubt, fora clarification provision there rather than justleaving it at large.

Professor Sullivan: I think it is clear that the OECDwants an international standard of doing businessand that of course will cut across the culturalvariances, so the OECD would not be sympatheticto the “when in Rome” approach to the question.Chairman: I think we can have further discussion onthis on question five which is the foreign oYcialspoint.

Q94 Earl of Onslow: I have one small point to raiseon this. In 1804 when the Louisiana purchase wasvoted for by Congress, a third of the purchase moneywent into Tallyrand’s pocket, which I think isbribery on a scale which you can do nothing butadmire. There must be times surely, must there not,when in the national interest, as it was for the UnitedStates to buy the Louisiana purchase from France—and I am purposely using an extreme example—onehas got to overlook the fact that Tallyrand trouseredhowever much it was, even though he was one of thebest French foreign secretaries there has ever been?How do you get round that problem?Professor Sullivan: I think it is a problem which youcan cannot get round. You have to face or confrontit one way or another. We had it replayed recently inthe Saudi arms contract with the figures almost aslarge, and of course the view was taken, and it is notan unreasonable view, that it was against the publicinterest for there to be any active prosecution by theSerious Fraud OYce.

Q95 Earl of Onslow: And that defence is stillallowed for?Professor Sullivan: It is not a defence.

Q96 Earl of Onslow: Sorry, that decision not toprosecute is allowed for in this Bill is it?Professor Sullivan: Not as such.Mr Nicholls: Well, the position under the Bill is thatthe directors of the various prosecuting bodiesdecide or give their consent as to whether it would bea prosecution for bribery. There is some dispute as towhether the Attorney General should have a part inthe consent or not. This is all really being worked outin the Constitutional Renewal Bill. The idea behindthe Constitutional Renewal Bill is that the AttorneyGeneral in any case will be able to stop aninvestigation or a prosecution on national securitygrounds, so I think ultimately the issue is going to bedecided in the Constitutional Renewal Bill. Thequestion that arises under that Bill is how exactly theAttorney General exercises his or her consent, andhow it is able to be tested as to whether it is a genuineground for stopping an investigation or prosecution,namely national security, and if one takes thedecision in the House of Lords in the BAE case therehas to be a balancing process as to when it is nationalsecurity and when national security demands aparticular result. It is very diYcult to resolve this atthe moment. If there is a national security issue, andthere are massive national security issues nowadays,somebody has got to make a decision about it. Therehave got to be proper protocols in place and therehas got to be a proper oversight procedure thatParliament can operate. As I say, this ultimately is




not going to be decided, I do not think, in this Bill;this is going to be decided in the ConstitutionalRenewal Bill.

Q97 Earl of Onslow: But the likelihood of theConstitutional Renewal Bill, considering there isonly a year left of this Parliament to go, and it is notwithout the bounds of possibility there may be achange of Government next year and I put it nohigher than that, getting on to the statute book iszilch, is it not?Mr Nicholls: But let us suppose for example that theBribery Bill is in place before the ConstitutionalRenewal Bill, it is diYcult to believe at the momentthat a director of, shall we say, the Serious FraudOYce or of Customs & Excise will not also beconsidering issues of national security, and there isno reason why there should not be protocols inplace.Chairman: We are going to come back to nationalsecurity to some extent in question nine. I wonder ifwe could move on now to corporate hospitality,which I know is dealt with in the Americanlegislation but here I think is going to be a matter forthe prosecution authorities. Lady Whitaker, youwanted to ask this question.

Q98 Baroness Whitaker: The Bill is not explicit oncorporate hospitality facilitation payments and soon, unlike the American Act which exemptsfacilitation payments, I fear regrettably, andprovides a defence for reasonable corporatehospitality. Our Bill, I think, thinks thatprosecutorial discretion can cope with oVenceswhich are arguably of a much lesser import. Do youthink that is right and also, whoever chooses to pickthis up, do you think it would be reasonable to usea halfway instrument such as an Approved Code ofPractice to deal with something like corporatehospitality, and I would add the commission system,which is sometimes legitimate if it is open and clear,but sometimes amounts to bribery, and this kind ofauthoritative guidance could even deal with where areasonable person lives? Clearly in the Bill they donot live everywhere. The reasonable person seems toinhabit only where a British juror lives, which I donot think is tenable as a proposition. Should all theseaspects be dealt with in some way in the Bill, eitherwithin the guidance or more explicitly?Mr Nicholls: I think once again it comes down to thequestion of what is proper and what is not properand issues of good faith, impartiality and trust allarise, as they may be appropriate in a situation. Inotice that Professor Horder found this a diYcultquestion and if one takes the Bill as it is, it is just leftfor the jury to decide on this basis of impropriety.When do you go over the top? If you take somebodyout for two weeks on the Northern Lakes of Italy orsomewhere, is that too much? Personally, I do not seehow it can be dealt with in any other way. One of thegreat tests is—and this really applies in all theindustries and in government—take, say, theMinistry of Defence, if you are working in theMinistry of Defence there are rules about whathospitality you can give and what hospitality you

can receive. All of these things are there and so reallythe standards are going to be in the various codes ofpractice of the various bodies to which you belong.If you are prosecuted then you can point to the codesof practice. If you have broken the code of practicethen that is one against you in the prosecution. If youhave kept to the code of practice maybe it is one inyour favour, but I do not see a way of making specificprovision.

Q99 Lord Anderson of Swansea: It is not just aquestion of scale but presumably the nature of theperson who is receiving the hospitality. I recall a casewhere a boxing promoter alleged that in hispromotion every ringside seat was occupied by acommander of police in the London area. I wouldhave thought that Lord’s Cricket or English RugbyUnion would go bankrupt if there were nothospitality areas. You would say that in some casesit is so dangerous for the individual that whateverthe scale that they should avoid any form ofhospitality?Mr Nicholls: Not every form of hospitality but Ithink a jury might come to certain very strongconclusions about the front row being occupied bythe relevant police authority.Lord Thomas of Gresford: If I may give a furtherexample.

Q100 Chairman: Professor Sullivan wanted to saysomething.Professor Sullivan: Only that the previous Bill didmake an attempt to diVerentiate between bad andgood hospitality, as it were, and it was anenormously complex provision which would haveled to very speculative judgments on particularforms of going out. I think this current version of theBill is well advised not to try and pin that down, andwhat Mr Nicholls says about codes of conduct isvery much in point.

Q101 Baroness Whitaker: I absolutely understandthat, but not even an Approved Code of Practicewhich has legal status, very much as Mr Nicholls hasdescribed, in that if you do not go by it you have toprove that you have met the objective of the law insome other way? You can have a code with legalstatus like the Highway Code.Mr Nicholls: You can have a code with a disciplinarystatus within a profession, for example, but thetrouble with a code with legal status is that the codevaries according to the situations and the industry,or whatever it is, in which you are involved. One ofthe great problems in all of this is for exampleadequate procedures and all the rest of it, when wecome to the corporate area, in that so many issues inthis Bill are case specific and to try to have, shall wesay, a recognised statutory code may be diYcult.

Q102 Lord Thomas of Gresford: If I may follow thatpoint up. Of course a code of conduct in oneindustry, as you have said, may diVer from a code ofconduct in another industry, they are dealing withdiVerent things, but there is no organisation in thiscountry, no mechanism for testing whether your




code is acceptable. The Ministry of Defence mayhave one code, a large company may have a diVerentcode which is more generous and allows greaterhospitality to be received, but there is no way oftesting that, and it is clearly not a defence to theoVences set out in this Bill that you have gone by thecorporate code of hospitality, is it?Mr Nicholls: I think this is one of the issues in whichthe Director of the Serious Fraud OYce may be ableto assist because the Serious Fraud OYce is nowentering into discussion, for example, withcompanies on fraud and particularly corruptionsituations. Whether they are all ex post facto or notI am not entirely sure, but that may be somewherewhere he is able to have particular input. All that istroubling me at the present moment, and of courseLord Thomas knows I was not at that particularmeeting in Hong Kong recently, and I am sorry I wasnot, but the question is whether it is practical here asopposed to in Hong Kong.

Q103 Lord Sheikh: My business is insurance and ofcourse a number of insurance companies backvarious events where brokers and clients are invited.My concern is how do you decide whether what isbeing oVered or what is being accepted is ethical?Should we perhaps be issuing some guidelines as tothe acceptability on what is right and what is notright because I can see problems relating toinsurance and financial services and other businessesas well where hospitality is very much a done thing.I get invited to Wimbledon and I got invited toCornhill cricket when it was there. This is my slightconcern.Mr Nicholls: Again, I would be surprised if theinsurance industry does not have a code of conductwhich deals with this situation. If it does not, thenobviously it is time for it to consider doing so, butthat really is the way in which I would seek to answerthat. Another thing that is very important is ofcourse that hospitality should be recorded, againback into that Australian Criminal Code, when itcomes to certain matters. Facilitation payments is aclassic illustration. If you want to have facilitationpayment as a defence, for example, then the fact thatit was recorded as soon as practicable afterwardsmay be part of a defence.

Q104 Lord Thomas of Gresford: But recorded as afacilitation payment. The American experience isthat if they cannot get somebody for a straight bribethey will look inside the company’s accounts to seehow a particular payment has been recorded and ifit is not recorded as a facilitation payment but assomething else, then it clearly is suspicious anddemands investigation.Mr Nicholls: The Australian Criminal Code actuallysets it out in detail exactly how the reporting shouldtake place.

Q105 Lord Anderson of Swansea: Recording not justhospitality but gifts. In the Middle East when youvisit a senior oYcial there would be an exchange of

gifts and that is part of the local culture. You cannotdisregard that. It would be considered an insult ifyou were not to respond in kind.Mr Nicholls: I know that the Ministry of Defencehas very specific rules dealing with what you canaccept, what value, and so on.Lord Anderson of Swansea: For oYcials.

Q106 Chairman: I want to go on please to questionfour. I know that the draft Bill does rely on themaintenance of other legislation, at least perhaps theone about honours, but are there gaps where otherlegislation does not cover the field? There is aparticular problem about competition between twocompanies where the chairmen or the senior oYcialsare in a position to be influenced by perhapsunacceptable gifts or something and the legislationat the moment is relying on the Competition Act tolook at that. Would you like to comment on that?Mr Nicholls: I think the Law Commission on thefirst occasion referred to the issue of competition lawand really considered that it was appropriate that itshould be dealt with as a separate topic. Obviouslycertain competition issues will come within thegeneral bribery provisions, that is bound to happen,and indeed may be in the foreign public oYcialprovisions, but again, my personal view, particularlyat this present moment, is that as the remit for thisBribery Bill has been limited in a way in which thefirst consultation process was not, competitionissues really should be a matter for competition law,and particularly the Enterprise Act. As far as gapsare concerned, it also might be said that this Bill doesnot deal with the sale of oYces, honours abuses andelection oVences and the like, and so it could be saidthat the Bill leaves a gap there. Some of the oVencesarising in those situations of course come within thegeneral bribery provisions, but certainly the mostrecent view has been that all of those matters shouldbe dealt with separately and hived oV. If one looksat the corruption laws of most other countries, onefinds in a corruption statute that you get the generaloVences and then you get a whole series of specificoVences dealing with people in particular positions,et cetera, et cetera, et cetera. What we have here is aBribery Bill which deals with general oVences, andone specific matter, foreign public oYcials; all therest have been left out at the moment. That seems tome, at the moment anyway, as the only practical wayof dealing with it because we are now 35 years sinceLord Salmon recommended a reform of corruptionlaw and we are nearly 12 years since the first LawCommission considered the matter, and I do notthink I need to say any more.

Q107 Chairman: Would the two of you like tocomment on this? Professor Wells, do you want tohave a go?Professor Wells: No, I do not think there are gaps.I think it creates generic oVences. For other specificoVences there will undoubtedly be overlaps, but thatis a diVerent point than whether there are gaps. Ipersonally do not think there are gaps other than interms of the corporate provision but I will deal withthat when we come to that.




Professor Sullivan: I think the foreign oYcialsprovision is to some extent an anti-competitiveprovision anyway because, as Mr Nicholls pointedout, it says categorically that payments to producebusiness are illegal, without qualifying it, so in asense that is in the spirit of anti-competitiveprovisions and it is in the Bill.

Q108 Linda Gilroy: What about the law thatcurrently deals with issues in the sporting field ofbungs for fixing matches and also trying to deal withindividual sportspersons’ performance in aparticular way; is that likely to be caught through thegeneric oVences that are there?Professor Sullivan: It would often be forms of fraudand theft more directly, I think, depending on thespecifics that you have in mind. Payments of bungsto throw a match would be straightforward oVencesof dishonesty.

Q109 Earl of Onslow: Presumably if you give a bungto a football agent to give football club A priorityover football club B for a monetary consideration,that must be criminal as this Bill has defined it?Professor Sullivan: Yes.

Q110 Linda Gilroy: And also bribery is becomingmore complicated with the interface with gamblingif people are actually paid to either fix a match in aparticular way or for a goal to happen within the first30 minutes or whatever.Professor Sullivan: I think that is cognate butdistinct from corruption. A bung to influence abusiness decision is at the heart of corrupt practicebut throwing a match is deceptive; pretending youare playing for real and you are not is a distinctivewrong.

Q111 Linda Gilroy: But if you get a reward foraltering your performance surely that is bribery?Professor Sullivan: It can be but the actual bettingcoups and whatever are a diVerent species ofwrong-doing.Chairman: Can we go on to what happens overseas.There are two parts to this. There are the provisionsin clause 4 and the question about what is requiredor permitted under foreign law, which we havealready discussed I think with others, and itapparently has to be something that is completelylegitimate and a matter of legislation rather thanpractice overseas, and then we get on to the otherclause 5 oVence where you have got to have adequateprocedures. Lord Onslow?Lord Goodhart: Lord Chairman, I am already overmy time for moving on and I wondered whether itwould be possible to take question six now which isthe one I am particularly interested in?Chairman: I think we can cope with question sixwhen we get to it. I am sorry if you have got to go.Lord Goodhart: I am extremely reluctant to go. Ishall stay here but I may be causing diYculties at theother end because I have got another bill committeewhich started at 11 and I would have thought itmight be . . .

Chairman: We must let you get to it. What about ourwitnesses on the two questions?Linda Gilroy: Could I support Lord Goodhart?Chairman: Lord Onslow, you were going to askquestion five.Earl of Onslow: I said I would not ask question fiveso we are straight on to question six anyway, are wenot? I thought I got a note from the Clerk saying thatwe had covered question five, would I wind my trunkin, or words to that eVect.Chairman: Do you want to start with question six,Lord Goodhart, before you go?Lord Goodhart: Yes.Chairman: Why do we not go on to that and we canalways come back to question five.

Q112 Lord Goodhart: Chairman, I found ProfessorWells’ suggestion on how to deal with corporateoVences very persuasive, namely that there should bevicarious liability with the company being liable forany bribery committed by anybody acting on theirbehalf with a due diligence defence, which is in factmore or less exactly the same as what was putforward in my note which has been circulated to themembers of the Committee. I wondered thereforewhether I could ask perhaps the other two witnesseshere whether they agree that it really is unnecessaryto maintain the identification principle, that is toidentify any individuals within the company whosefault it is, or whether it would in fact be simpler andmore eVective to go on with the suggestion ofProfessor Wells in her article?Professor Sullivan: I am very much in favour of sucha proposal. I think the retention of the identificationdoctrine, or more accurately I suppose thepostponement of the question of corporate liabilitypending the wider resolution of corporate liabilityquestions in another Act, is the most salientweakness of this Bill. In terms of foreign bribery it isalmost invariably a corporate oVence, and if aperson wishing to make bribes could choose acorporate liability regime (it would prefer not tohave any at all of course but if that is not an option)then identification is perfect because it essentiallynegates the eYcacy of the legislation. I think it is veryregrettable indeed, and this point was made manytimes to the Law Commission, that there seemed tobe a great deal of intransigence on this point despiteall the promptings of the OECD and the finding thatthe UK was not compliant, principally because of itsvery limited liability regime for companies.

Q113 Chairman: They have tried to deal with it, havethey not, by saying that a defence of adequateprocedures in negligence is not available if theperson concerned was a senior member of thecompany?Professor Sullivan: Yes, but this proposal for afailure of negligence supervision is very much, Iwould say, a half-baked compromise betweenchanging the basis of corporate liability socorporations can be liable for the oVences per se andhaving this oVence whereby in certain limited




circumstances a company will be liable for a lesseroVence on the basis of less than adequatesupervision.

Q114 Chairman: But it gets away from theidentification principle?Professor Sullivan: Yes, but I think what we want isan adequate system of straightforward corporateliability for overseas bribery and we simply have notgot it and we will not have it under this Bill.

Q115 Chairman: We are not going to get it in thisBill either.Professor Sullivan: Absolutely not, no.Professor Wells: Can I just come in there because Ican see that the argument will be made that thecriticism has been addressed. We clearly cannotchange corporate liability generically in this Bill. Allwe can do is say that the generic provisions that wehave are inadequate, they do not work, andidentification has very a very limited role, and I thinkmy argument here would be that clause 5 is presentedas being a new oVence when in fact it is not a newoVence as such; it is the method within this Bill bywhich a corporate body can be held liable, so it isstanding in for identification liability, if you like,which exists at common law. It stands in for that inrelation to the oVences, although as it happens itonly applies to clause 1 and clause 4, but that ispossibly a minor point, although I think it couldapply to clause 2 as well. If we see it in that way, Ithink it is the way it is presented as being a newcriminal oVence which then sends everybody into a“and we must make it as restrictive as we can” mind-set which is where it goes wrong. We can achieve, ina sense, what Professor Sullivan is agreeing with meabout—and I am sorry I did not copy my paper toMr Nicholls but Professor Sullivan has had sight ofit—and in fact it agrees with some of ProfessorSullivan’s arguments in relation to the LawCommission’s paper. My argument is that we needa separate provision because otherwise identificationwill be the applicable principle. I do not have aproblem with that still existing but given that wehave got a separate provision, this one seems torestrict corporate liability quite unnecessarily andmakes for a very complex provision. This is where Ithink the Bill becomes unnecessarily complex. Itseems to use both negligent failure to supervise by aresponsible oYcer (but we do not know who thatwould be) plus it has due diligence in the adequateprocedures terms, and from my knowledge of otherjurisdictions which have developed their corporateliability principles, often to conform to the OECDconvention, it is most unusual to have both aspects,both the prosecution having to prove that the failureto supervise was negligent plus the defence, andtherefore I am very much in agreement that whereemployees or agents have committed the clause 1oVence or the clause 4 oVence, and that is a predicatefor this, then it is appropriate that the corporatebody in whose business they are acting and which isbenefiting then has to answer as to what provisionsit has made to prevent that kind of behaviour. That

would be the due diligence or the adequateprocedures, so I would just remove the negligentaspect.

Q116 Lord Thomas of Gresford: So they are strictlyliable for any bribery committed by an employee oragent, subject to proving due diligence? Where doesthe burden of proof rest—the evidential or the fullburden of proof—in a situation like that?Professor Wells: That is a matter for debate. Itwould need to be clarified. It could certainly be aprobative burden. I think that would be regarded asproportionate. It would then conform to the USprovision. As you probably know, the US hasaccepted vicarious liability as the means, as it were,by which corporations are liable for acts committedwithin their business, and oVences committed withintheir business in any case. It conforms with Austria’snew corporate liability provision, which is termed interms of failure of supervision but I think it comes tothe same thing, and Finland and possiblySwitzerland, so we would certainly be conforming toquite accepted principles there.

Q117 Lord Thomas of Gresford: Just to follow it up,you are saying there are two possibilities, you couldeither say the company have the burden of provingon a balance of probabilities, which would beappropriate when it is a defence, and that they havenot been negligent and that their procedures arecorrect?Professor Wells: Yes, that they have procedures inplace.

Q118 Lord Thomas of Gresford: The otheralternative is that they raise the issue, and it wouldbe for the prosecution to prove beyond reasonabledoubt that they were negligent or their procedureswere inadequate?Professor Wells: Again, although I have said theyare possibly two sides of the same coin, I wouldfavour it being put in terms of either due diligence orprocedures because that then sends a message, andthat goes back to the earlier discussion that acompany should be developing its own compliancemechanisms and codes and ensuring that those aremonitored, and that can all come within duediligence or adequate procedures. Yes, it could beeither, I agree.

Q119 Lord Thomas of Gresford: I would beinterested in Mr Nicholls’ view on that, the questionof which is the simpler thing.Mr Nicholls: I would prefer the second alternative,namely the burden being on the prosecution to showthat there were inadequate procedures. That is myimmediate reaction. You could say, of course, that ifan oVence has been committed then prima facie thereare inadequate procedures and the burden thenshifts, but certainly I would prefer the second ofLord Thomas’s proposals. I noticed last night, and Iam afraid I was looking at it very late, this questionof liability and the identification test and so on has




also been considered in the Australian CriminalCode, and if I can research it further perhaps I couldprovide some material.

Q120 Chairman: Since we are not going to get areform of corporate liability is this particularprovision worth having?Professor Wells: I think we are going to have areform because the Law Commission is nowworking on that.

Q121 Chairman: I know but we do not know whenthat is going to be brought into eVect.Professor Wells: We are not going to have it in timefor this but I think it is definitely worth havingbecause if we do not have it at all then you are leftwith identification liability, which is where theOECD regards us as non-compliant, and it is of verylimited use in this kind of situation. So I think we doneed this oVence but it needs to be a separateprovision, yes, we do need it, but the form in whichwe have it at the moment it seems to me is goingmake it very diYcult for the prosecuting authorities.How they establish who the responsible oYcer is andhow they prove that that person, having identifiedthat person, was negligent just seems to me to be anunnecessarily complicated provision.

Q122 Chairman: I suppose that if we did have a Billon corporate liability anything that was not wantedin this clause could be subsumed?Professor Wells: Yes presumably that would be partof it. You could have diVerent provisions in diVerentstatutes as of course we do anyway. We have thevicarious route in many statutes.

Q123 Lord Goodhart: The history of the LawCommission does not suggest that there is at all acertainty of a general Bill coming forward to removethe identification procedure, does it?Professor Sullivan: I think it is important that wehave the identification principle operative in this Billbecause corporations can commit the generaloVences are in the foreign public oYcials oVence, butonly on the basis of the identification doctrine, andthis I think is almost not worth having. We have aconsent and connivance oVence for directors forcorporate oVences, but of course there will not beany corporate oVences, more or less. The history todate is almost a blank sheet for foreign corruption,and so there we will have a provision which we cansay to OECD, well, we have done this, we have putdirectors under scrutiny, but, in fact, there will be noconvictions forthcoming because of theidentification doctrine. I think that is not evenworth having.

Q124 Lord Thomas of Gresford: In the whole historysince 2001 there has been one civil action, has therenot, where a corporation paid money over but therehas been no criminal liability imposed upon anycorporation?

Professor Sullivan: Yes.Lord Sheikh: I cannot see this being a serious issue.For example, in my own business we need toestablish whether it is vicarious liability in respect ofinjury or damage to third party property, but I donot necessarily agree with Lord Thomas’s pointabout strict liability because I would not like to seestrict liability. I think the onus of proof must lie withthe prosecution or with the plaintiV really. I justwondered if he agreed with that?

Q125 Lord Mayhew of Twysden: If we keep thenegligence provision in, negligent as in failure toprevent the crime, and the burden is on theprosecution to establish that, how should the jury beinstructed as to whether to find negligence or not?Negligence normally is regarded as breach of the duestandard of care but how is that to be established andby what means?Professor Sullivan: It would be a very broad questionvery often involving a lot of evidence about practiceacross the industry and, as you say, in a typical tortcase you have a specific incident and a fairly sharplyfocused question as to whether the defendant owed aduty of care, but here it would be was this particularcompany up to standard in terms of its anti-corruption code of practice, and that will involve, Iwould have thought, a lot of comparative evidencefrom companies in the same industry and in cognateindustries.

Q126 Lord Thomas of Gresford: In medicalnegligence you look at what was the standardrequired at a particular point in time across thewhole medical profession in determining what theduty of care is and whether it has been breached.Professor Sullivan: Yes.

Q127 Lord Thomas of Gresford: So you are sayingthat, as drafted, the prosecution would have toestablish what was the general standard ofcompliance across the whole field in order to seewhether negligence had been established?Professor Wells: I am not quite sure that is what itmeans because, as it is drafted, the negligence is thenegligence in failing to supervise the person that hascommitted the oVence, so it is within the context ofthe supervision of that employee or agent. One takesit as read that there was a failure to supervisepresumably because the oVence has been committedand then the question, as the Bill is drafted, would befor the prosecution to establish that that failure wasa negligent failure on the part of the responsibleoYcer.

Q128 Lord Thomas of Gresford: That might involvefor example saying well you have got a code ofconduct and your code of conduct is inadequate byindustry standards or across the board.Professor Sullivan: But even with a failure ofsupervision the company can raise the due diligencedefence. That is my diYculty with this: there can bea finding of a failure of supervision—




Professor Wells:—that was negligent.Professor Sullivan:—that was negligent, but at oneand the same time there is no liability ultimatelybecause the company is able to show that it is ofindustry standard as far as these things go, which isvery diVerent from the medical negligence case.Mr Nicholls: The very fact that an oVence has beencommitted by an individual is evidence ofinadequacy. The question is what is meant bynegligence in this context and I think it is in FSAprinciple three, was in the E.ON case I think: “Theapplication of reasonable care to organise andcontrol its aVairs responsibly and to have adequatemanagement mechanisms dependent on the size andfacilities of the company.” So that negligence isdefined, and it is defined as being in relation to itscontext.

Q129 Lord Sheikh: Would your recommendation bewith regard to a regulated business like thatregulated by the FSA that the FSA shouldincorporate something of what you are suggesting intheir rules to make sure that there are rules within theorganisation which adhere to what we are saying?Professor Wells: I am sorry, you would have torepeat the question for me.

Q130 Lord Sheikh: Certain businesses are regulated,if you take financial services for example, there arecertain rules which we need to adhere to, and I wasjust wondering whether you would suggest what is inthe proposed Bill is written in the regulations of theFSA or any other regulatory body and then ofcourse the organisation itself must set up the rightfiltering processes because obviously that would bevery, very essential and that may perhaps be one wayof ensuring that what we are saying is beingadhered to.Professor Wells: I think that is certainly the case, yes,and where you have got particular activities, and ofcourse the FSA itself already has significant powerswhich it has recently exercised in relation to E.ON tomake civil orders, so in a sense that is alreadyhappening, but I suppose what you have got here isa Bill that deals with every possible type of businessactivity, which can range from financial services,very large corporations, to relatively small playersperhaps, or even medium players that do not fit inwith one of those particular regulated fields. It willof course be the case that where you have gotsomething which falls within something like the FSAthat that would be your standard in terms of anappropriate compliance.Lord Thomas of Gresford: In other words, you wouldnot be corrupt if you had complied with the rules!

Q131 Chairman: I think the diYculty we have hadbefore is that if you have got adequate procedureshow then do you get negligence?Professor Wells: Sorry, how do you—?

Q132 Chairman: How do you prove that there hasbeen negligence?

Professor Wells: I think that is the diYculty with theway that this particular clause is drafted and what itis aiming at, which is that there is an assumption thatthe prosecution is able to discover who thisresponsible oYcer was, and you might be in anindustry that has very clear guidance as to alwaysensuring that there are people who are responsiblefor matters such as avoiding bribery but you maynot be in that kind of industry, so it is an evidentialproblem for the prosecution. Then how do you showthat it was negligent. Once you have got within thecompany and established who within the companyshould have been supervising the person whocommitted the oVence, I do not actually think thatthe negligence issue there is the problem; theproblem is establishing the evidential basis ratherthan the standard for negligence. It is my job toensure that Professor Sullivan does not bribesomebody and I am negligent because I do notactually monitor him and apply a standard for that.

Q133 Lord Thomas of Gresford: Supposing you hadmonitored him, does the prosecution not have tohave the burden under this clause as drafted ofproving that the person who oVered the bribe was ona frolic of his own or is that something that thedefence would have to show that he was on a frolicof his own? It does seem to me that there is a problemin what the prosecution have to prove in the clauseas drafted.Professor Wells: I agree.

Q134 Lord Thomas of Gresford: That is right, if hewas not on a frolic of his own, they would have toprove it.Professor Wells: And even if he were on a frolic of hisown, there should have been some supervisorymechanism which the company can point to (and Ithink that they should have that evidential burdenbecause they will be familiar with their ownprocedures) to say we have done this, we havetrained people, we have made it clear this is ourculture. This of course is where the Australianprovision is attractive because it talks in terms ofauthorising and permitting a corporate culture andso on, but if we are not going to go down that roadthen I think we need to make an assumption that ifan oVence has been committed within a company inthe course of that company’s business that thecompany cannot, as it were, disengage from that bysaying, “Oh, but he or she was just doing it on his/her own”, without actually having to show that theyhave eVective compliance standards and that theyare eVectively monitored and that there is trainingand so on. The details of that would be contingenton the nature of the business and the size of thecompany but it is the proving of the negligence, yes,that is a step too far, I think, if this is going to beeVective.Chairman: Our colleagues from the Commons aregoing to have to go and listen to Prime Minister’sQuestions pretty soon. Lord Onslow, are youcontent on question five with the evidence that we




have already had that there is going to be a very stricttest about what is allowed and permitted by law inforeign countries?Earl of Onslow: I think, frankly, the more I haveheard the more complicated it gets. We are going tohave to listen to an awful lot of other peoples view’s,but I still in no way can see how can one can avoidthese terrible conflicts in the essence of things whichare both in the public interest: firstly: do not bribepeople but, secondly, you could do the Louisianapurchase, to put it at its highest, and in spite of all theeVorts and great clarity I still find that I cannot solvethe Louisiana purchase problem.

Q135 Lord Thomas of Gresford: I just have onequestion arising out of this. Professor Sullivan, yousay that paying commission to the Saudis in the BAEcase would not be caught by the draft Bill under the“legitimately due” test. I think you said that. Is thatacceptable?Professor Sullivan: I think not but I think it is at theheart of this problem. As was just said, we have to dobusiness with Saudi Arabia, and often it will be verylarge-scale business, and that will involve, as Iunderstand, an obligation under Saudi law toappoint a commercial agent. Such agents,understandably, are very closely associated with theruling elites in Saudi Arabia.

Q136 Lord Thomas of Gresford: Sought afterpositions.Professor Sullivan: Very sought after and of coursethey are notorious conduits for the payments oflarge sums of money which end up in Switzerland,Lichtenstein or wheresoever. I think doing anythingeVective about this is extraordinarily problematic.Lord Thomas of Gresford: You did talk about settingout protocols—Chairman: Lord Thomas, I really must try and moveon because there is one quite important questionwhich is number seven, and we have got one item ofprivate business which we must deal with before allthe Members of the House of Commons disappear.It is Lady Henig’s point, question seven.

Q137 Baroness Henig: Can I just ask you about theextra-territorial reach of the draft Bill and whetheryou think it is satisfactory and consistent with theapproach taken in other countries. Also the newcorporate oVence catches any foreign company orpartnership that carries on “business, or part of abusiness” inside England, Wales or NorthernIreland. Again, what are your views on this proposalbecause I think that was not included in the LawCommission’s draft Bill?Professor Sullivan: I would just like to say briefly Ithink one of the major defects here is that foreignsubsidiaries, even wholly owned foreign subsidiariesof UK companies, will be outside the framework ofthis Bill. The territorial provisions work on a closeconnection principle and under the list of persons

closely connected with UK interests there is noreference to wholly owned, let alone partially owned,foreign subsidiaries, which is a major gap.Professor Wells: And the US Act does include that.

Q138 Earl of Onslow: If you have a situationwhereby company A owns company B in a dodgycountry, the main company appoints all thedirectors, it directly controls what they do, and thosedirectors of the wholly owned subsidiary in thedodgy country can go around bribing oYcials fromnow until next Tuesday and we cannot stop them bythis Bill; is that right?Professor Sullivan: It may be an oVence in thecountry of origin.

Q139 Earl of Onslow: But we are assuming in thiscase that the rule of law is not carried out withperhaps the diligence that Lord Bingham wouldcarry it out with.Professor Sullivan: In legal theory even the BinghamInquiry accepted that the Rhodesian subsidiarieswere wholly independent entities in law, and thattradition is carried on here. The legal theory is alsothe practical reality. There is no provision to bringwithin the net foreign subsidiary companies, so it isjust a major hole in this legislation, a sensitive one, Iknow, because the Law Commission did think aboutit and decided to pass on it because of the generalreview of corporate liability.

Q140 Chairman: Mr Djanogly, we are going to havea special session on parliamentary privilege whichwas the next question that you were going to dealwith, and I think we had better leave your questionover to that. On the other hand, I wonder whetherthe three of you would like to look at questions eight,nine and ten to see whether you would like to give usyour views in writing on those because we have notgot time to deal with them now. If that is so, I wouldlike to thank all three of you very much indeed forwhat you have been able to tell us. I think we will findit immensely useful in our considerations. Thankyou very much indeed.Mr Nicholls: May I just say because I was listeningon the internet to the evidence of Professor Horderand Lord Mayhew had suggested on the“legitimately due” test for foreign public oYcials,the addition of the words “expressly provided by theforeign law”. The Australian provision is “providedfor by the written law of the state” There may orthere may not be a diVerence, but there is a precedentfor what Lord Mayhew had suggested.Lord Mayhew of Twysden: I find that very reassuringand surprising!Chairman: We have got a supplementary list ofquestions to send to Professor Horder so could wejust check whether we have covered that or not? Ifnot, we can always add another question for him. Weare going to have to go back into private business sothank you all very much indeed for coming.



Tuesday 2 June 2009

Members present:

Mr Bruce George, in the Chair

Henig, B. Mr David S BorrowGoodhart, L. Mr Alistair CarmichaelLyell of Markyate, L. Mr GeoVrey CoxMayhew of Twysden, L. Mr Jonathan DjanoglyOnslow, E. Linda GilroyThomas of Gresford, L. Dr Brian IddonWhitaker, B. Martin LintonWilliamson of Horton, L. Dr Desmond Turner

Witness: Rt Hon Lord Robertson of Port Ellen, a Member of the House of Lords, gave evidence.

Q141 Chairman: Thank you very much for coming.I am not going to waste time by introducing youbecause if anyone does not know exactly who youare they should not be on this Committee. In yourmany guises in the defence field from NATO to theMoD, et cetera, has the issue of bribery crossed yourdesk? Have you had to deal with issues relating tobribery either in NATO or the MoD?Lord Robertson of Port Ellen: Of course. Defence isan industry made up of huge contracts. There aremany small ones but there are also vast ones andtherefore there is huge competition betweencountries and between companies to get them, andone would have suspected sometimes that there werebribes involved. In some cases one knew there werebribes involved. Whether in the Ministry of Defenceor in NATO or afterwards I was well aware that itwas going on. If I could quote one prime minister Imet, when I asked him (this was after I had leftNATO) whether he would appreciate having somemodel procurement process that in a way had theendorsement of NATO as a whole, let us say,whether he would welcome that because that hadcome up in some of the discussions I was involved inwith Transparency International, he said instantly,“Yes, absolutely, because either we are involved inbribery, in which case we have got to clear it up, orwe are accused of bribery and we want to make surethat perception does not exist”. I think that is whereyou begin to see where the problem is. A lot ofanecdotal evidence, a lot of intelligence evidence,was brought before me in various positions toindicate that things were going on. I found that bothmorally indefensible but also hugely wasteful andunfair in the international market place, and that iswhy I was pretty rigorous in what I did in the poststhat I held where I had responsibility and where,when I came out, my experience with TransparencyInternational and the forum, that I chair of theAmerican and the European companies to get aprotocol, comes in. I just think that we need to clearit up even if it is only to save taxpayers’ money andto create a level playing field.

Q142 Chairman: Have you ever had to take acontract away or bust somebody who you hadevidence was taking bribes? You may not want toname the persons but have you ever had thatexperience?

Lord Robertson of Port Ellen: I did not have anycontracts to place in NATO. I may have run thelargest and most successful military alliance theworld has ever known but I did not place anycontracts, although there were many people whobelieved I did. Certainly in the Ministry of Defence,yes, there were occasions when we stoppedsomething going on because we had reasonablegrounds to believe that corruption was involved inthat, and that is the way it should be.

Q143 Chairman: If I remember correctly, yourpredecessor by one, two or three lost his job becauseof allegations of corrupt practices in a previousoccupation.Lord Robertson of Port Ellen: Let us say in my job inNATO, not in the Ministry of Defence.

Q144 Chairman: Not in the MoD!Lord Robertson of Port Ellen: Not in the MoD. MrWilly Claes resigned in circumstances where anallegation was made, which I do not think was everproved, that his political party had taken payments.

Q145 Chairman: Back on message. It is widelyregarded, rightly or wrongly, that bribery takes placewithin the defence industry and even within UKbusinesses too because you have written about this,which we all are aware of. Do you think that theseallegations or prosecutions were able to take placebecause of weaknesses in current law or politicalculture that was alien to the concept of honesty andintegrity, because certainly in the UK there are veryfew prosecutions of anybody for having given ortaken bribes within the defence sector?Lord Robertson of Port Ellen: I think that we havegot a remarkable record for honesty in pretty wellevery part of life; and I think it is built first of all ondisproportionate penalties and secondly on a publicservice ethos that spreads throughout society andtherefore I am not really conscious of any systematiccorruption that is involved. I used to, especially inmy NATO position, sometimes get frantic, obsessedwith the level of corruption that seemed to beinvolved in government as a whole, especially in theemerging democracies, and that is a cancer thatundermines people’s faith in democracy andultimately leads to demagogues taking over, and that



2 June 2009 Rt Hon Lord Robertson of Port Ellen

seems to be acknowledged. I tried on occasion to saythat the British model was not a bad one to followbecause, even at the moment—and I agree with thisdraft Bill tightening up, clarifying the position orwhatever—we still have big penalties. Localcouncillors, who are involved in very small-scalebribery, in relation to what happens in othercountries have gone to prison in the past, so youhave this double culture of the law on the one handand also a public service ethos. When I was asked inmy post-NATO life by Transparency Internationalto chair this gathering of the American andEuropean companies, I was very keen to do that.They said it would only involve one meeting but, likeeverything else, it has led on to a major industry. TheAmericans feel constrained because they have theForeign Corrupt Practices Act, which is a majorimposition on their companies, and they see othercompanies in other countries not in any way subjectto the same degree of discipline, so that is why wedecided that we would move down the road ofestablishing a protocol that would apply tocompanies in Europe that would then marry up withthe codes that apply in the United States of America.And I think we have been more successful in thatthan anybody dared to imagine at the verybeginning, and that was largely due to a man calledProfessor Carbone, who was once Chairman ofFinnmeccanica in Italy and who was appointed bythe European industry to take forward theagreement in principle in my grouping to establishthese protocols. Having done that, there needs to bea body of law and that is why tightened and morespecific British legislation is important, and I thinkthat should also be encouraged in other countriesbut it needs the industry itself to sign up to thesepractices because legislation on its own will only evercatch a small number of people in the net. Thirdly, itneeds governments to sign up to a pretty draconianview that they will not deal with companies whohave not signed up to the protocols, and that is thenext stage of where I hope this working group thatTransparency International organised will take us,that we get the NATO countries, that is now 28countries, to establish a policy that says that weknow these protocols are out there and thatgovernments in NATO will only buy fromcompanies who have signed up to that. Thecombination of these three elements is what isrequired.

Q146 Chairman: And you think a few prosecutionswill encourage les autres?Lord Robertson of Port Ellen: Absolutely, andprosecution not just of the suspects. I used to arguewith certain people in certain countries thatcorruption trials of their political opponents was notnecessarily a way of establishing a standard. It hadto involve some of the people at the very top whowere known to be involved in corruption. This gotme into some hot water, it has to be said, but maybethey did not understand my Scottish accent.

Q147 Baroness Whitaker: May we expand, LordRobertson, on your mention of protocols? Can youtell us a little bit more about who you think shouldprepare them, government or the private sector,what principles they should enshrine and whetherthey should have some kind of legal status like theHighway Code or whether they should be voluntary?How do you see them?Lord Robertson of Port Ellen: I think we need tocrawl before we start running, and the very fact thatall of the companies are now willing to get engagedin establishing this voluntary code is a big step alongthe line. If it could be accompanied, as I said, by thecountries themselves saying that they support it andwould basically blacklist companies which were notsigning up to it, then we will have taken a big stepforward. Whether you go down the road of makingthem legally binding is another matter. It might bediYcult, given that it crosses jurisdictions. We wouldeventually like these protocols to apply not just tothe European countries, not just to NATO countries,but we are already involved in discussing with someof the Russian companies whether they might wantto be involved. After all, it is in the commercialinterests of companies to be seen to be honest and tocreate a level playing field. You used to get as manycomplaints from companies and some countriesabout the distortion to the market place that cameabout by some of the unfair practices that were goingon as you did from the people in the countriesthemselves, so I think we need to get the protocolsand they need to trickle down not just to the bigcompanies but to all of the companies that areinvolved in defence.

Q148 Baroness Whitaker: To bring the Russians onboard would obviously be a great triumph. Perhapsyour group has got something written down aboutthe principles of such protocols which they could letus have. I do not want to ask you to take up our timeenumerating the contents but it would be very usefulto have those.Lord Robertson of Port Ellen: TransparencyInternational and also the European DefenceAssociation, which drove it forward with ProfessorCarbone, would be able to give you that.

Q149 Baroness Whitaker: Thank you. Finally, is ityour view that there should be separate protocols fordiVerent sectors such as construction, defence,mining?Lord Robertson of Port Ellen: There is already anagreement in the extractive industries and that wasin many ways the model that we were working onbecause the extractive industries found themselves inexactly the same position of wanting to deal withcorruption and being accused of corruption andtheir system appears to work pretty well. Defence, ofcourse, covers a wide area. There is a lot of dual useinvolved in that as well, so it is not as simple and easyas it might seem, but even getting into the process ofdoing it and establishing it and educating on it startsto crack this view that it is somehow acceptable forthese things to happen. It is knocking thatacceptability down that is one of the biggest features.




I had experience of one government having an opencompetition for a very big procurement contract andthen finding that it got stopped and gettinginformation from the company that messages hadbeen received and documented that, if a certainpayment was made to a certain person who was closeto a deputy defence minister, the problems that werebeing created politically would be removedinstantaneously. We are not talking about some thirdworld country here; we are talking about thedeveloped world as well, so there is a public demandand I think there is also an industrial demand forthis.Chairman: Will you give us the first letter of the nameof the country?

Q150 Mr Carmichael: I have never had a problemwith your accent, if that is any comfort to you!Lord Robertson of Port Ellen: We were born aboutthree miles away from each other.

Q151 Mr Carmichael: The Port Ellen PrimarySchool mafia! I am curious though about this notionof protocols without sanctions and moving just fromNATO. Is there not a danger here that what we aredoing is going to set up a system which putsconstraint on the good boys anyway? Are we notrisking a situation where we are only going to catchhonest criminals, if I can put it like that? Surely theremust be some mechanism for a system of sanctionsif these protocols are going to be meaningful.Lord Robertson of Port Ellen: Yes, but you are notgoing to get international sanctions. You might lookat some individual sanctions but that is not going tobe particularly easy to do. They have to be tough andthey have to be invigilated and people in thecompanies have to be educated about them. Youmight want to take that up with the tradeassociations about how they see that developing, butthat was where I think the United States withcompany representatives were being slightlyunrealistic in expecting that you could have someEuropean Foreign Corrupt Practices Act in placevery quickly. It might be that the European Unionwill take it over at some later stage. That would bequite a good idea, that it should not necessarily beNATO that would be the main vehicle. TheEuropean Union has legal powers that NATO doesnot have. What we did was to try and explore waysin which we could move forward with a change inculture that might end up with making sure thatpeople faced serious sanctions. I think if individualcountries could be encouraged to implement tighterlaws than they have at the present moment withappropriate penalties, given the scale of some of thepractices that go on, that would start to change thatculture as well.

Q152 Chairman: I got into trouble when addressingOECD, and my comments were leaked, on whowould want to miss being given the normal gratuity,but I argue that if some of the British become honestand Americans and Germans what happens ifsomebody does not join the club? What can one thendo? Does it mean that honesty will be confined to

certain countries who never win any contracts andshould one give free rein to countries and defencecontractors and governments who would laugh atthe concept of integrity in the selling of arms? Thatis one of the more obvious problems that countriesthat signed up to the standards would have.Lord Robertson of Port Ellen: I agree absolutely withyou. It does seem unreasonable at the presentmoment that people are being penalised for beinghonest, but the alternative to that is not thateverybody does it and you just multiply the bribesand you move forward in that direction. You have totry and drag it back. That is why I think that gettinggovernments as part of organisations like NATOand the European Union themselves signing up tothese processes is important. In the TI grouping wetalked about a model procurement process, but theindustry itself said, “Look: this is not really for us todo because that should be something forgovernment, for politicians to do”, and I quite agreewith that except nobody at the moment is doing it.In a lot of countries therefore, maybe with newgovernments, usually with brand-new ministers ofdefence, the turnover of defence ministers generallyis pretty high, which is why—

Q153 Chairman: I think it is pretty high outsidedefence ministries as well.Lord Robertson of Port Ellen: Maybe I will just applyit to ministers. If I may just diverge for a moment,people have asked what I did during NATO. I havegot a formidable catalogue that I could give you ofwhat we did, but what I did not do was take on themight of the chiefs of defence because they are in theArmed Forces usually from youth right through,and by the time they become chief of defence theyknow it backwards and they are faced with, as RobinDay said, a minister who is here today and gonetomorrow; all they have to do is outlast him, and inmany recent cases her, and they get their way. Youhave to get an overall change of culture about howyou do that and chiefs of defence have got a verysubstantial say in what they choose. If the Chief ofDefence says to the minister, “A C130J Hercules iswhat they are referring to as ‘heavy lift’”, is theminister going to say, “You have got it wrong. Theseare, in terms of the Hindu Khush, basically toyaeroplanes and you need to have something verysubstantial to carry it?” It is about changing theculture and getting governments themselves to say,“We will adopt a practice”, so it goes beyond yourremit, but I think there should be an established wayin which defence contracts are dealt with openly,transparently, where there is a public examinationof, for instance, the counter trading involved, thecompensatory schemes that go alongside. It is not acoincidence that a lot of what is oVered in terms ofoVset happens to be a factory in the prime minister’sown constituency if they have a constituency-basedsystem. These are the grey areas that are very diYcultto pin down. Stacks of money in a black plastic bagare relatively easy to deal with but oVsetprogrammes can be finessed in a way that is verydiYcult to see. If NATO and the European Unioncould establish some model procurement process,




especially in the defence field, and if they said theywould only deal with companies who had actuallysigned up publicly to the protocols laid down, then Ithink that would be a major step forward and itwould help the honest companies and disadvantagethe dishonest.

Q154 Linda Gilroy: Lord Robertson, I think youmay in part have answered what I am about to askbut some witnesses have talked about the need tomeet the UK’s international obligations to create alevel playing field but not to go far beyond them todo this but only just as otherwise we might end upreducing UK competitiveness. You said we have tocrawl before we can run but does all of that add upto something that plays to a very low commondenominator and makes the cake not worth thecandle in writing these protocols? How do you avoiddoing that?Lord Robertson of Port Ellen: I do not really knowwhat it means by saying we only sign up to theprecise international obligations and not beyondthat. It is a little bit like saying, “My expenses claimswere within the rules”.

Q155 Linda Gilroy: But what witnesses we have hadhave put to us is that it is all very well for us to dothat but if other people are not really signed up tothis then all we end up doing is reducing thecompetitiveness of the British defence industry. Doyou think there is a danger of that, depending on theway you approach it perhaps?Lord Robertson of Port Ellen: I think you have to dowhat is right anyway. Bribery is wrong and I do notthink we should be in any way suggesting that itshould not be done that way. That is why I believethat international action is absolutely right here inorder to make sure that we are not going to bedisadvantaged by it. That is the constant complaintof the Americans, that they are constrained by adraconian Foreign Corrupt Practices Act andnobody else seems to behave according to that kindof discipline, but it does not stop them gettingcontracts. It might stop them getting one or twocontracts but I think they were right to reach out andsay, “We challenge you to sort yourself out”, andgradually that should be the best way of doing it.You cannot leave it at the Europeans and theAmericans. We have to try and get the Russians, theSouth Africans, the Chinese and the others who areinvolved in this international trade signed up to it aswell, and you will only do that if they pay anunacceptable price for being engaged in that kind ofnefarious activity, which is why I think graduallygetting governments, who have got everything togain by being seen to be clean and being good, to signup to it. The two sides of that I think will give us theprotection.

Q156 Linda Gilroy: You have probably answered mynext question but you might want to say a bit moreabout it. Are there national commercial advantagesin being seen to be leading the field in anti-briberylegislation?

Lord Robertson of Port Ellen: I think so. If you lookat the experience of BAE Systems, they set up thecommittee of inquiry under Lord Woolf and I thinkit was extremely good in its process, which wasthorough, in its detail and in the recommendationsthat it made. I chaired a committee that theyestablished. They decided to have a conference withall the diVerent stakeholders involved from theNGO world but also from the companies and theyasked me if I would chair it, and I must say it wasquite an education because there were points wherevery simple dilemmas were put on the table for whichnone of us really had a clearcut answer. For example,if the stevedores on the docks of a country say theywill not unload your ship unless a payment is madeto their union or to their corporate organisation,what do you do? You say, “No. We will just let ourships lie there”, or whatever, so it focused us on thesemicro issues as well as some of the bigger issues, andthey have now tightened up to the point wherenobody at BAE Systems will transgress the very tightlines that they have now clearly established and Ihave seen this in practice.

Q157 Linda Gilroy: Even to the extent of thestevedore one?Lord Robertson of Port Ellen: I do not know howthat one was dealt with. It was one of the questionsleft hanging in the air, but even the attending oflunches, the willingness to talk to representatives,people have now been indoctrinated completely onthe outcome of the Woolf Committee’s report and Ithink that has given BAE Systems quite aconsiderable authority now in the market place asdecent honest brokers, and that will help themultimately.

Q158 Linda Gilroy: You have touched already onwhat more NATO could do. You mentioned that theEU had legal powers that NATO does not have thatcould help it to take things further, to promotethings, but will the proposed legislation help in thathappening, whether through the EU or throughNATO, and, if so, how?Lord Robertson of Port Ellen: It is up to how theBritish Government takes it beyond its newtightened-up legislation, but it is open to membergovernments to suggest that these things take place.The common arrest warrant was an innovation thatpeople said would not work, could not work, wasreally a nonsense on a European basis, that it wouldcross all sorts of diVerent judiciaries and diVerentjudicial systems and yet it is now working in practiceand has been very successful from the point of viewof the United Kingdom. You are moving one stageforward to see whether there can be some commonapproach to corruption. It is not beyond the boundsof possibility.

Q159 Lord Thomas of Gresford: Am I right inthinking that we would be fooling ourselves tosuggest that we would be leading the way in anti-bribery legislation by passing this Bill? Surely theOECD have found Britain to be the worst of the 33countries? First of all, Britain and Japan were held




not to have the necessary legislation in place andtheir various inspections since have always said thatwe are not fulfilling our obligations and this Bill isone way of fulfilling the obligations that we signedup to in the OECD Convention, so there is noquestion of us leading the way. We are falling behind,are we not?Lord Robertson of Port Ellen: It depends on how youlook at it. By tightening the law it is a good exampleto countries whose laws may well conform with theletter of the OECD Convention but do not actuallyfollow through into practice. If we have got a badrecord for prosecutions in bribery cases, a lot ofother countries fall way behind that as well, eventhough the letter of their law might be diVerent. Bysaying and showing that we are going to tighten thelaw in accordance with that Convention and inaccordance with the Law Commission’srecommendations, I think it is another indicationthat we mean business and hope that other peoplewill do the same.

Q160 Lord Thomas of Gresford: This is a buildingblock, this Bill, is it not, towards fulfilling ourobligations, and in fact there has only been onesuccessful prosecution which resulted in a suspendedsentence under the 2001 provisions which wereintended to fulfil our obligations, whereas othercountries, like America, are bringing in prosecutionsall the time? It is a building block. You cannotpunish people if you do not have the law in place andat the moment we do not have the law in place.Lord Robertson of Port Ellen: I am not here toadvertise the Government. This is a Bill that is there.It arises not from a government manifestocommitment but from a Law Commission reportand it is a worthy contribution to what I was sayingbefore you came in, Lord Thomas, about the factthat you need to have diVerent elements here tochange the culture, to have other governmentswilling to lay down standards on the companies thatare supplying them with defence equipment. It is oneof the building blocks about changing the generalculture in relation to corruption as a whole and in thedefence industry where the contracts are very largeand get a lot more coverage and a lot more attentionthan they do in some other fields.

Q161 Baroness Henig: What are your views then ingeneral of the Draft Bribery Bill and the oVences itcreates and what changes, if any, do you think areneeded to make the law clear, predicable and fair?Lord Robertson of Port Ellen: I am not an expert onthe law or the legislation. I see it as being a reallypositive contribution to tightening up the law in thiscountry but that in itself is not going to sort thebigger problem that exists here, especially in defence.

It is going to require action by governments and byinternational organisations as a whole in order tomake sure the culture changes completely and whatcan often be seen as being retained just now becomescompletely unacceptable. This is a building blockfollowing on learned recommendations that seem tome to be pretty good in establishing what thestandards are and tightening up what we havegradually accepted here. By and large I think wehave got a pretty reasonably non-corrupt traditionin this country and we want to maintain that and wewant to toughen it and we want to make sure thatanybody who breaks that culture is punishedappropriately.

Q162 Baroness Henig: So what else do you thinkcould be done or should be done to tackle bribery,given that we are going in that respect beyond legalissues? As you say, we are talking about culturalexpectations, business expedience, limitedenforcement resources, commitment globally, all theproblems that you have referred to, so what elseapart from this Bill could be done?Lord Robertson of Port Ellen: It may be useful if a lotof companies did what BAE Systems did, which wasto say, “Look: we are being attacked for things thathappened in the company some 25 years ago”—thatis what the accusation in relation to the Al Yamamahcontract was. We are talking about things thathappened during the time when Mrs Thatcher wasPrime Minister—“so therefore we need to establishat the moment what it is we need to do as a companyto help our reputation but also to help and assist ourexecutives in the future”. If you look at the outcomeof the inquiry, which was accepted in its entirety bythe company, and I hold no brief for that; I am notengaged with them at all, if you look at what wassaid in the report independently by Lord Woolf andhis colleagues and the fact that the companyaccepted it all and has got a programme of educationwithin it, that kind of example in other companies Ithink would be very useful indeed.

Q163 Chairman: Thank you very much. I am soinspired by what you said about clearing up defencecontracting I am now going to write to the Chairmanof the Security Industry Authority to see if any of theprinciples could be transferred there because there isa dirty pool taking place.Lord Robertson of Port Ellen: I hope you are going tochair meetings, and do not suggest my name, please.

Q164 Chairman: Lord Robertson, thank you verymuch. We really appreciate your attendance, and ifwe have any further questions can we impose on youif we drop you a note?Lord Robertson of Port Ellen: Absolutely.Chairman: Thank you.



Witnesses: Mr Gary Campkin, Head of International Group, Confederation of British Industry, Mr AndrewBerkeley, Adviser, International Chamber of Commerce UK, and Ms Rosina Robson, Senior Policy Adviser,Federation of Small Businesses, gave evidence.

Chairman: Thank you very much for coming. Weappreciate your attendance and we will kick oV witha question for Mr Djanogly.

Q165 Mr Djanogly: Good afternoon. The trait onbribery often focuses on the number of prosecutions,or perhaps I should say the lack of prosecutions.Could you please start by giving us some idea of theextent to which you feel this is a problem, thatbribery is a problem in relation to UK businessesand the amount of bribery, and if you have anyfigures that would be helpful, and also the extent towhich you think that this can be blamed onweaknesses in the current legal system?Mr Campkin: Good afternoon. I think I would echothe comments of the previous witness and say that ingeneral terms the reputation of not just this countrybut also the business community is very high interms of honesty and integrity. It is one of thoseBritish values which are the hallmark of the societyin which we live. You rightly point to the fact thatthere has been some criticism, but even by indexeswhich seem to measure the degree of corruption,Transparency International, for example, the UnitedKingdom the last time I checked was 16 out of 180,ranking ahead of other OECD members like theUnited States, France, Japan, Spain, Portugal andItaly, and I think that makes the case. TheGovernment has also recognised that Britishbusiness has a good track record in terms of honestbusiness practice and integrity in the way it operatesaround the world.

Q166 Mr Djanogly: Do you think there are problemswithin the existing law that need to be addressed?Mr Campkin: The CBI is on record and has been onrecord for a number of years now, including the lasttime a draft Bill came before Parliament for pre-legislative scrutiny, to say that we support themodernisation of UK anti-bribery law. Althoughcurrent UK law complies with our internationalobligations it is messy and complex, and we believeit is right to modernise it in a way which is clear,simple to understand and easy for companies toimplement in their codes of conduct and practices.

Q167 Mr Djanogly: Do you think the Bill is the rightway to be going about it? I say that in the widestsense to start oV with. Do you think that Parliamentshould be looking at other ways of combatingbribery and corruption and is this Bill the right wayto go ahead in your view?Mr Campkin: The right legislation is certainly one ofthe right ways of going about it. I do not know yetwhether members have had the opportunity toreview the CBI’s written evidence. It was submittedyesterday because we needed to ensure that we hadfull support from our members, both corporates andlaw firms, but in that we make a number ofcomments related to the draft Bill, which we believeneeds some quite detailed thinking andimprovement before we can give it unqualified

support, so yes to the concept of a Bill but probablyin its current form the draft Bill needs quite a lot ofwork and thinking.

Q168 Chairman: Ms Robson, you represent smallerbusiness. Would you care to add anything?Ms Robson: Generally the FSB is supportive of alegal framework around bribery which is clarifiedand consolidated, certainly as far as the smallbusiness sector is concerned. I think our interest inthis is a little more focused on specific aspects of thecorporate oVence in particular, mainly because thevast majority of our members operate in what aredeemed to be quite low risk sectors, and also the factthat only a small percentage, something around sixper cent, of annual sales of our membership go oncountries outside the UK. For that reason we arevery much interested in the impact that the Bill hason small businesses across the board, , but we onlyhave a very small proportion of our membershipthat is involved in high risk sectors, such as theextractive industries, for example.

Q169 Chairman: Mr Berkeley?Mr Berkeley: I think it might be useful to theCommittee to bear in mind for analytical purposesthat we are really talking about two arenas. There isthe international arena, which in action has been ledby the United States with the Foreign CorruptPractices Act that we have heard of, and that hasbeen the focus of the interaction of the BritishGovernment with the OECD working group, andindeed with the kind of trouble that we have heardabout from the previous witness. There is thatinternational thing and that is the focus of thecontroversy. There is the entirely diVerent world, Iventure to say, of domestic bribery which has beenaround for centuries and has been treated by thecommon law, was treated by the Act of 1898, 1906,1916. Almost by historical accident, I believe, wehave now got before us a Bill which is trying to dealwith both and I think is very useful. I am not sayingit should not; I am saying it is a good idea to have aBill because the law does need revising, but I thinkfor analytical purposes when you are thinking aboutit you should think, one, domestic, and, two,international, and that does clear the mind, I think,a little bit.

Q170 Chairman: If your members or those you areaware of in British industry are dealing withAmerican companies does it make their responserather diVerent knowing that legislation in theUnited States is probably stronger than legislation inthis country or in many other countries?Mr Berkeley: I would challenge that, sir, on theassumption. I do not believe that the present UnitedKingdom dispensation is weaker. Given the 2001extension of jurisdiction to nationals, I do notbelieve the current United Kingdom legislation isweaker than the Foreign Corrupt Practices Act, and



2 June 2009 Mr Gary Campkin, Mr Andrew Berkeley and Ms Rosina Robson

I can certainly say as regards our members that webat on an equal playing field with the Americans inthis area.

Q171 Mr Djanogly: Can I come back to MsRobson’s response? You said that this is not going toapply, you think, to the majority of your members.Are you implying by that in the international field,because, of course, the Bill applies to domesticbribery, for instance, in terms of hospitality and soforth and I would have thought that it wouldpotentially apply in some form to a very largeproportion of your members, so would you like toreaddress the question?Ms Robson: If I could clarify what I said, thisabsolutely will apply to all of our members, but whatwe would like to do is make sure we work with theMoJ to minimise any unforeseen impact it mighthave in relation to administrative hassle or burden.Absolutely it will apply across the board. I simplymake the point that a lot of our members are notoperating in those higher risk sectors where, as hasbeen pointed out, it can be a particular issue.

Q172 Mr Djanogly: What is high risk?Ms Robson: High risk of corruption.

Q173 Chairman: Mr Berkeley, you were very muchinvolved with the OECD Convention in the earlystages. Did you get the impression that people inother countries thought that our record was not asgood as others or did not have the legislationnecessary, and did it cause any diYculties for you?Mr Berkeley: No, sir. The British delegation in factwas one of the leading delegations in the productionof the OECD Convention. It is fair to say that theimpetus for the OECD Convention came from theUnited States for precisely the reason that has beenmentioned, that American companies said that theywere at a disadvantage because they had thedraconian provisions of the Foreign CorruptPractices Act ruling them that was not ruling “themof us over there”, so the impetus came from it butonce the thing was properly on the table in theOECD the United Kingdom was a leader in thatnegotiation.

Q174 Lord Mayhew of Twysden: Mr Campkin, yousay in your written evidence, for which thank you, inparagraph 3, “We strongly support theGovernment’s objectives in this area as long as theproposals are simple, easy to understand and able tobe implemented by companies. This requires welldefined oVences and appropriate defences whichcriminalise conduct appropriate for suchtreatment”, and, “It is equally important thatconduct not intended to be criminalised remainslegitimate and is not inadvertently caught within theambit of the new oVences”. How do you think theBill measures up to that requirement as youexpressed it, and does it in that context strike a fairbalance between raising the standards expected ofbusinesses and preserving their competitiveness?

Mr Campkin: It is in our view a draft Bill which hassignificant problems because, as we go on to explainthroughout the rest of the document, in areas of thegeneral oVences, in the new specific foreign oVence,and indeed in the new oVence of corporate liability,there are issues which could lead to activity which isperfectly legitimate and legal being caught up as acriminal act. This ranges from lack of mens rea,which we believe is not a right position to have for acriminal oVence, to a lack of a defence in the foreignclauses which the Law Commission had and wecannot really understand why the draft Bill omits,but the eVect of that is very significant on business.And we would want to see that defence replaced inthe final piece of legislation which comes beforeParliament. Finally, in the corporate oVence thereare a number of areas where basically some of thedefences that are proposed are rendered in eVectmeaningless, so we believe there are some structuraldeficiencies which really need to be addressed and wehope this Committee will focus on those.Chairman: We certainly will. We have only just hadthe memorandum and we will look at it, I promiseyou, very carefully.

Q175 Earl of Onslow: Before the war when Lloydswas reinsuring, say, the Shanghai market, on the slipit used to say “Commissions as local custom”, whichcould probably triple or quadruple the premiumwhich Lloyds’ underwriters would take which wasgiven to agents. Is there not a great diYculty withthis concept of bribery overseas as to wherelegitimate agents verge into downright people withtheir hands out yelling, “Buckshee”?Mr Campkin: I think part and parcel of the problemwith a term like “agent” is that it has become veryvalue-laden. It is a legitimate part of doing businessand we need to recognise that. Perhaps I couldsuggest that the interesting part of your questionrevolves around trying to ascertain what the law is inother jurisdictions and this goes back to the points Iwas making to Lord Mayhew about the reasonablebelief defence. For example, in the United States themuch-mentioned Foreign Corrupt Practices Act hasa defence based on the written laws of otherjurisdictions. That has to be right and if business istrying to do the best due diligence it can, if businessis trying to ascertain what is legal in one jurisdictionand takes advice or does the due diligence and finds,for whatever reason, that problems arise, it cannotbe right to criminalise that behaviour underlegislation in this country.

Q176 Earl of Onslow: We are back, are we not, to theexample I used last time of Talleyrand who trousereda third of the money voted by Congress to theLouisiana purchase, which is bribery on a giganticscale? I can do nothing but admire that level ofbribery, but what one is trying to get at, is one not,is that one does not wish to put at a disadvantage aBritish firm which wants to sell a widget to countryX, the minister then says to all the suppliers ofwidgets, “You will go through my cousin’s agency,”




and that to me has started looking seriously corrupt?How do we address that particular problem in thisBill?Mr Berkeley: Chairman, I might be able to assist thequestioner if I may. I first mention the export creditguarantee provisions of one of our partners in theEuropean Union which some years ago had a clausein it which said, “As a condition of this insurance theinsured guarantees that fees or commissions are notin excess of seven per cent”. This was a clause in theexport credit guarantee provision. I will not say whatlanguage it was written in. Secondly, as regards thequestion of agents and their proper remuneration,there is a vast amount of material in the UnitedStates where in fact the Department of Justice laysdown guidelines as to the proper remuneration of anagent, what does he do for the money, how is heremunerated, what is that remuneration preciselyrelated to, is it related to the amount of work he doesor to the value of the contract or to what othercriteria. There are a large number of critical stepsthat one can go through to ascertain this. Certainly,when this Bill, we hope in an amended form, comesbefore Parliament, industry will expect theGovernment to spell out this sort of thing, to spellout what are the standards by which we should judgeagents, how should they be remunerated so we willnot cross the guidelines. We will expect theGovernment to do that.

Q177 Earl of Onslow: And our Governmentprovides nothing like that now?Mr Berkeley: Nothing like the United States, I cantell you, sir.

Q178 Mr Borrow: Perhaps we can move on to anissue that has just been touched on to do with thenew corporate oVence which is referred to in clauses5 and 6. I would be grateful for your views in respectof the need to strengthen corporate criminal liabilityand whether this new corporate oVence actuallydeals with that. We have had various papers in as acommittee, some of which have said they are happywith the proposal, some have said it is too narrow,some have said it is too broad. I would be grateful foryour comments, both on the need to strengthen thelaw and whether the proposals under the draft Billactually do that.Mr Berkeley: To start the answer I will say that thisis a complicated question. First of all, as weunderstand it, the Bill is not introducing corporatecriminal liability for bribery. That already exists inthe common law. The oVence in the Bill is “failure toprevent bribery”. That is a diVerent thing fromliability for bribery itself, and, of course, it is the lawtoday that if it can be shown that the directing mindof a company—its chairman, its managing directoror whatever—directly caused the company to give abribe, that company would be guilty of bribery. Onedraws that distinction first. As regards what isintroduced, as I say, this “failure to prevent bribery”,we regard that as a draconian standard because“prevent” means “prevent”. It means to stopsomething absolutely. It does not mean to do yourbest to hinder it or to try and struggle against it or,

in the words of the OECD Convention, to “combatit”; it says “prevent”, so we see that as an extremelyhigh and draconian standard and we think that theword “negligence”, as used in that particular part ofthe Bill, must be further defined.

Q179 Mr Borrow: Is that the view of all threerepresentatives?Ms Robson: We are quite open and accepting of theneed for a new corporate oVence to put the UK in aposition to be able to meet its internationalobligations, so essentially accepting the argumentsthat the Law Commission and the MoJ have made.Mr Campkin: I would endorse Andrew Berkeley’spoint. We have very significant concerns indeedabout the creation of a criminal oVence based onnegligence. We believe that that is undesirable andindeed unacceptable. We also think that as drafted“failure to prevent” the bribe could mean that evenif a business took every single precaution under thesun and the act occurred that could trigger some sortof corporate liability. That cannot be fair, so thatarea needs to be looked at. There are also sometechnical issues related to the definition of“responsible person”. Using terms like “manager”and “secretary” cover a very wide range of peoplewithin a company and it goes back to some ofAndrew’s comments about the controlling mind ofthe corporate. We need to look, I would suggest,again at that. Then, indeed, the “adequateprocedures” defence is in real danger of notrecognising the realities of business. In short, theanswer to your question is that while conceptuallywe do not have a problem with an oVence of thisnature, we would have preferred it to have beenincluded within the work that the Law Commissionis undertaking on corporate liability more generally;this is a project that is now under way. If a Bill is toinclude such an oVence it needs to be workable andit needs some significant improvements to thelanguage in the draft Bill.

Q180 Baroness Whitaker: How do you compare thenthese provisions with the Health and Safety at WorkAct, which more or less turns negligence into acriminal oVence? You can certainly be accused offailure to prevent an accident and you do not haveto have a mens rea either. If you just have such badsystems that your work people die, that is it, you canbe charged. Do you see any comparison?Mr Berkeley: Professor Horder has discussed this, Ido not know whether before you. He calls it the snailin the can of beans oVence.

Q181 Lord Mayhew of Twysden: Ginger beer.Mr Berkeley: The snail in ginger beer is negligence,but we will leave that aside if we may. There is room,I agree, for absolute oVences of the nature of a snailin a can of beans because that is the only way ofregulating that thing in the mass. However, we arenot talking here about the faults of mass production.We are talking about the actions—we are at anyrate—of individuals and, in our particular case, ofindividual executives. That is a diVerent thing from




cans on the shelf in Tesco, and therefore the questionof mens rea does arise and I think Professor Horderhas actually drawn this distinction in his discussions.

Q182 Martin Linton: I just want to follow up, MrBerkeley, on what you say is a draconian approach.I understand that the inclusion of this oVence was asa result of the Woolf report on BAE Systems ratherthan the Law Commission, so what was it aboutLord Woolf’s report that you think went too far?Mr Berkeley: The Law Commission founded itsreasoning on two things. One indeed was the WoolfReport. The other one was an expressed wish tofurther what the Law Commission called the spirit ofBritain’s convention and treaty obligations. Thosewere the two points. Lord Woolf made the pointstrongly, and it is a point with which we agree, thatit should be clearer that the directors of a company,the directing minds, the top people, have acontinuing and heavy responsibility to combatbribery, and I use the word “combat”. We agree withthat, and to that extent the existence of thisprevention oVence that we have been talking about,if the negligence is properly defined and if defence ispossible, is acceptable, but we do not disagree withLord Woolf at all.

Q183 Martin Linton: But there is an ‘adequateprocedures’ defence, is there not? Is that notsuYcient?Mr Berkeley: The ‘adequate procedures’ defence hasbeen, we believe, stripped of eVectiveness by themodifications put in by the departments to the LawCommission’s final proposal.

Q184 Mr Cox: But there are many examples ofsimilar regimes to which clause 5 is going, are therenot, such as the money-laundering regulations, forexample, which make it an oVence not to maintainadequate procedures for the purposes of preventingmoney-laundering? There are many statutes intrading standards which make it an oVence not tocarry out due diligence and take all reasonable steps,otherwise, you become a participant in the oVenceunder trading standards. What is particularlydiVerent about this clause, provided ‘adequateprocedures’ are defined in guidelines and rules and soon? What do you find diVerent?Mr Berkeley: I tried to give an answer to that, Ithink, to Baroness Whitaker where I drew adistinction between, if you like to call them, the‘hygiene’ oVences, that is to say, keeping properrecords to show that there has been no money-laundering or making sure that the tins on thesupermarket shelves do not have snails in them, thatsort of thing, where you do need that sort of wide-ranging mens rea-free oVence, and the oVences weare talking about here which are the consciousmanagement actions of commercial organisations.

Q185 Mr Cox: What this oVence is getting at is aculture. What this oVence is, eVectively, askingBritish companies is not to maintain a culture, andto make certain there are adequate procedures in

place so that a culture cannot grow up, of illicitbribery. Now, that is a perfectly reasonable thing toask of a British company, is it not?Mr Berkeley: It is a perfectly reasonable thing to askand we think it is an appropriate question, but whatwe are saying is that the answer given in the draft Billis wrong.Mr Campkin: Perhaps I can add just one commentto that, Chairman, and that is to go back to what Iwas saying before about the issues related to acompany that had done everything in its power, haddone all the due diligence, had had all the proceduresin place and something went wrong. The ‘adequateprocedures’ defence, as drafted in the draft Bill,would not provide for any sort of defence at all. Thisgoes back to intent and we think that it is wrong thata corporate should be held criminally liable whenthere is no intent, so I think again it is a question ofgoing back to the issue. It is, as Andrew said,something which the Law Commission itself hasrecognised in its own work and its own evidence. IfI may, Chairman, make just one other point, if welook at clause 6 and some of the supplementaryprovisions, we are concerned that the drafters seemnot to have understood some of the complexities ofmodern-day business structures. For example, jointventures, which can operate in a wide range of formsand functions with varying degrees of control,banking syndicates and so on, where you cannothave control over the entity, is it right to expectcriminal liability to hold in those circumstances? Wewould argue not.Mr Cox: What I think you are avoiding, forgive me,and what you are not taking on board is that thereare examples of this in the statute law and have beenfor many, many years and companies are put underduties of due diligence. If they exhaust all reasonablesteps that could have been taken to prevent themischief which the statute aims at, then they will beexempt from conviction, immune from conviction.If they do not, then they will be convicted. It existsin numerous examples of the statute law.Lord Thomas of Gresford: And the burden of proof,of course, is not beyond reasonable doubt, but on abalance of probabilities where it is an oVence, ashere, so to suggest, as Mr Campkin did, that you cantake all the procedures that you can think of and stillbe found guilty is nonsense; that is not whathappens.Mr Cox: I think it is a bit extreme. It may not be yourbest point.Chairman: Obviously, this has to be discussed.

Q186 Mr Borrow: I would just like to come back. Iam still a bit puzzled because it seems to me that, ifyou have got a defence company trying to get acontract and the worry is that somebody out in thecountry that you are trying to sell stuV to is trying tosecure that contract to make sure that they get theircommission as a salesman, then they must haveaccess to somebody to do the bribing with. Now, ifyou have got proper procedures in place and properchecks and balances, that will not happen, so thatshould be straightforward, but what you seem to besaying is that, because of joint ventures and various




other complicated systems, there could be a pot ofmoney somewhere that could be used which thecompany itself did not have full control over and,therefore, they could not be properly blamed if thatbribery took place. Have I got it wrong?Mr Berkeley: I would make two comments on that,sir. The first one is that you have put your finger onthe most powerful part of the Foreign CorruptPractices Act of the United States, which is not theprosecution, it is the bookkeeping requirements, andthat is the thing that touches every Americancorporation immediately because the ForeignCorrupt Practices Act has very, very powerfulbookkeeping requirements. The other point, and letus take a consortium developing an oilfield, one ofthe companies is the operator and actually does thework, the others own shares, there is an operatingcommittee, rather like this, sitting round and it votesand the operator has to do what the operatingcommittee decides. Now, the point we were makingis this: that the criterion in the Bill is “renderingservices”. Now, there is no doubt at all that theoperator in an oilfield renders services for all theinterest owners, but those interest owners do notcontrol the operator, all they have is their percentagevote on the operating committee, and what we aresaying is that it is wrong to make them potentiallycriminal liable for an operation which they do notcontrol.Chairman: I have looked at your brief and you areobviously very concerned about these issues. Youmay want to expand upon your brief and we wouldbe delighted to accept any further elaboration.

Q187 Earl of Onslow: You answered just now, MrBerkeley, by saying that we had identified a problemand something had to be done about it, but we haddone the wrong thing. Would you answer your ownquestion as to how to do it then?Mr Berkeley: I think that you should make thestandard of care and the standard of negligence inthe prevention of bribery clause or, as we wouldprefer it called, the “combating of bribery” clauserather like that in corporate manslaughter wherethere is specifically a degree of gross negligence. It isalso in the Ministry of Justice’s own explanatorydocument which says that it is aimed at topmanagement, the deciding factors in a company, andwe are suggesting that you be moved from a kind ofabsolute prevention thing, which it stands at at themoment, to something more like corporatemanslaughter.

Q188 Lord Goodhart: My question here is question8, which is to explore the desirability of widening theoVence. Now, is it not the case that the OECD hasbeen extremely critical of us in connection with itssection on liability of legal persons? It says thatArticle 3 of the Convention requires “eVective,proportionate and dissuasive sanctions upon legalpersons”, and that is of course companies, “forforeign bribery, including monetary sanctions”.Mr Berkeley: If I may quote the Law Commissionwhere they discuss this very point, they discuss thecomments which were made by Transparency

International and the comments made by ProfessorPieth, who is the Chairman of the working group inthe OECD, as I am sure you know, and the LawCommission finishes their wide discussion by saying,“We reject as unsustainable the view that Englandand Wales is in breach of its obligations underArticle 2”, which is the relevant Article, “of theOECD Convention”, so the Law Commissioncertainly came to the conclusion that we were notin breach.

Q189 Lord Goodhart: I was referring to Article 3rather than 2.Mr Berkeley: Please could you remind me of theprovisions of Article 3 and I will try and answer you?

Q190 Lord Goodhart: Article 3, what they say is thatit requires, “eVective, proportionate and dissuasivesanctions upon legal persons for foreign bribery”.Mr Berkeley: This varies. The OECD Conventionworks on the basis of functional equivalence. That isto say, it is not the form of the law of a country thatmatters, it is its eVect at the end of the day. Thus, forinstance, in Germany, as I am sure you know, thereis no such thing as corporate criminal liability. Youare probably well aware that Siemens wasprosecuted in Munich under breach of the duty tomaintain order, the principle of Ordnungswidrigkeit,and one of the duties is to supervise the actions ofmanagers to make sure that no bribery takes place.Now, that was suYcient in Germany; it is notquarrelled with by the OECD and it is not a criminalliability, it is a diVerent sort of liability underGerman law. What we have to look at, I suggest, isthe outcome, not the form of the national law.

Q191 Lord Goodhart: Would you agree that in factthe best way of getting a company to stop bribery isto penalise the company for acts of bribery carriedout by someone acting on their behalf?Mr Berkeley: Well, that is not within the purview ofthe present Bill.

Q192 Lord Goodhart: Do you think perhaps itshould be?Mr Berkeley: I think that should await the studywhich is going on in the Law Commission now, andin that we agree with the CBI.

Q193 Lord Goodhart: So you think that, if theconclusion is that, then you would accept that?Mr Berkeley: We would have to look at thearguments at the time. It is a very big question, as Iam sure you know much better than I do.

Q194 Lord Goodhart: You refer to corporatemanslaughter and say that corporate manslaughtershould require gross negligence before a companycould be penalised for it. Now, of course that isbecause, is it not, manslaughter is a crime which, bydefinition, requires gross negligence before anybodycan be prosecuted for it?Mr Berkeley: Yes, that is an element of the crime ofmanslaughter, as I understand it.




Q195 Lord Goodhart: Bribery is quite diVerent fromthat because somebody has to be committing thecrime of bribery.Mr Berkeley: But we are talking here about theprevention of bribery. We are not talking aboutbribery itself, we are talking about a diVerent thing.

Q196 Lord Goodhart: But you cannot call on clause5, unless somebody has committed an act of briberyon behalf of that company.Mr Berkeley: Indeed, and this is one of our mostsignificant worries about the provision, as nowdrafted, because you can have a companytechnically guilty under the present Act of failure toprevent bribery when nobody has been found guiltyof bribery or even charged.

Q197 Lord Goodhart: I think there would have tohave been an act of bribery, otherwise there is nopossible prosecution—Mr Berkeley: As I say, this matter is spelled out inour submission, in our written evidence.

Q198 Mr Cox: Why should it depend on the randomaccident as to whether he was accessible to thejurisdiction? If you could prove that there had beenan act of bribery, if you could prove it was inconnection with the company’s aVairs, if you canprove that this man was, in essence, performingservices, whether he is charged or not is simply arandom matter dependent on whether the police canlay their finger on his collar.Mr Berkeley: You take our point completely whichis set out in our evidence. We say that, if the court,seized of this matter, decides, beyond reasonabledoubt on the evidence before it, that an act of briberyhas taken place, then the matter will follow. That isprecisely what we are saying.

Q199 Mr Cox: Well, that is in the Bill.Mr Berkeley: No, it is not.

Q200 Lord Thomas of Gresford: I do not understandthe point that is being made because clause 5(1)requires it to be an essential element of the oVence offailing to prevent bribery that a person performingservices for, and on behalf of, the company bribesanother person. It has to be proved; that is part ofthe oVence, so that is the sine qua non. Unless that isestablished, there is no corporate oVence at all.Mr Berkeley: I think the Bill makes quite clear thatit is not a necessary ingredient of the oVence offailure to prevent bribery that somebody be eitherconvicted of bribery or even be charged for bribery.I think the Bill says that in express language.

Q201 Mr Cox: No, certainly not, but they have gotto be satisfied that that element is made out in thischarge. It may not be that somebody has beenconvicted, but it would be necessary to prove in thecharge against the company that somebody hadactually bribed, otherwise there is no conceivableoVence committed by the company.

Mr Berkeley: We agree with that and we say that thatsatisfaction should be measured as a finding beyondreasonable doubt on the evidence before the court,and we would ask that that be explicitly stated in theprovision.Mr Cox: But it would not have to be proved beyondreasonable doubt. There is no question about it; it isan essential element in the criminal oVence, thecharge.

Q202 Dr Turner: Now, ‘negligence’ means diVerentthings to diVerent people. Do you think that there ismore guidance required for businesses on whatactually constitutes ‘negligence’ or ‘adequateprocedures’? If so, who, do you think, shouldprepare that guidance, what principles should itenshrine and what status should it hold?Mr Campkin: Well, it is very clear from what we haveintimated at already that we believe guidance wouldbe necessary. The Law Commission has indeedrecognised that itself and we support that view. Ithink that the important issue here is to recognisethat the guidance should accompany the Bill andshould be seen as an important part of itsinterpretation, so there has to be some clear andauthoritative guidance as to what constitutes‘adequate procedures’.

Q203 Dr Turner: Would you see this on the face ofthe Bill, in a Schedule or whatever?Mr Campkin: I think it needs to be incorporated aspart of the overall package to give companiescertainty.

Q204 Earl of Onslow: Surely, adequate procedures,you know them if you see them, like negligence incourts when they are given evidence of what hashappened? They say, “Well, it’s obvious”, or “It’s notobvious that there has been negligence”. It issomething which comes in front of you like that andwe know what it means in common law and weknow, therefore, that it is up to the jury to decidewhether there have been either adequate proceduresor not or negligence or not, but you do not need tohave guidance to know whether something works ornot, I would have thought.Mr Campkin: I think, with respect, that you dobecause, as I was saying, what business needs iscertainty to be able to see from a simple and easy-to-understand piece of legislation how they can apply itin practice, and the best way, in our view, of doingthat is to ensure that, first of all, the Bill itself is ship-shape and Bristol fashion and then, secondly, toensure that there is the guidance which enablescompanies to do what they do a lot of, which is toensure, through due diligence, through codes ofconduct, through codes of practice, that they canmatch the requirement, and I would have thoughtthat that is an absolutely important point ofdeparture in terms of the law.

Q205 Earl of Onslow: But ‘due diligence’ is notdefined, so, therefore, why do you have to define‘negligence’ or ‘adequate procedures’? You knowwhat due diligence is, do you not, when you see it?




Mr Berkeley: I would merely once again refer to theUnited States where the Department of Justice issuesred lines, guidelines, for companies and they arequite compendious and there is further facility underthe Foreign Corrupt Practices Act that a companywhich is in some stage of doubt can go for a rulingfrom the Department of Justice as to whether theproposed course of action is likely to infringe the Actor not, so it is quite possible for a properlyconstituted administration or administer of policy tobe set up to provide answers to this sort of question.

Q206 Lord Thomas of Gresford: That was preciselythe point I wanted to ask Mr Berkeley about, and hehas just mentioned it, because in America you canask for advice. It does not necessarily mean to say itis a full defence if subsequently prosecuted, but theadvice of the Department of Justice is veryimportant and companies rely on it. Now, we do nothave any machinery like that in this country. Towhom would you go? We raised this at the lasthearing and one of the witnesses said, “Well, you cango to your own lawyer to get advice”, but would youagree that it would be better to go to someindependent body, like the IndependentCommission Against Corruption in Hong Kong orthe Department of Justice in the United States, toobtain advice on the proposed course of action?Mr Berkeley: I would say personally that, if the Billshould be passed in what, we think, is its present,rather draconian form, we would very much needsome such point of reference as you are suggesting.

Q207 Chairman: This is a question for Ms Robson.Professor Horder of the Law Commission told us inwritten evidence that, in implementing any briberylaw, care would need to be taken to avoid businesseshaving to deal with unnecessary (underlined) redtape. How can this be avoided?Ms Robson: I think I would certainly agree withsome of the comments that my colleagues have madeabout defining very clearly what is meant by‘adequate procedures’ to give particularly smallbusinesses a clearer steer as to what are the necessarysteps to take in their business in order to comply withthis legislation. Is it enough to merely have had aconversation with a colleague or to have factoredcertain proposals into a staV handbook or is there aneed for a written and documented evidence trail?For small businesses, that obviously begins to getmore diYcult when you have only got a handful ofemployees and you are very tight for time andresources.

Q208 Baroness Whitaker: This is a question initially,I think, for Mr Berkeley, and it is the question ofsubsidiaries and joint ventures, syndicates, which theICC, I think, thinks are not properly covered by thecorporate oVence. Perhaps you would like just toclarify that and, if there is a problem, do you thinkthe Bill should be amended and, if so, how, or is itanother matter for guidance?Mr Berkeley: I would like to draw a distinction, if Imay, between syndicates and joint ventures on theone side and subsidiaries on the other. A point on

joint ventures and syndicates is quite simply that thecompany may not control the actions of thoseentities and, therefore, we say that it is wrong thatthey should stand in danger of being foundcriminally liable for the actions of those entities, andthere should be a modification in the Bill where, forexample, in contracts for the exploitation of oilfieldsand so on, there is nowadays always an immenseclause which says that the operator shall not commitbribery and he shall account for all his spendingswith respect to local oYcials and so on, and it goeson, under the influence once again of United States’lawyers, for pages. There is a very close contractualcontrol on entities like the operator and we wouldsay that, having put in place contractual control,that should be suYcient discharge of the obligationto prevent bribery in the terms used in the Act. Thisis once again recognised in the United States wherethere are diVerent standards of liability, at least asregards the bookkeeping part of the Act, for 50 percent-owned, 25 per cent-owned or other percentageinterests which are actually spelled out, but ourprincipal way of dealing with it, I think, would be tosay that, if contractual means are taken, then thatshould be the limit of a company’s obligation overthe actions of entities which it does not control.Now, as regards subsidiaries, we have been told bythe departments that they have no intention of tryingto make holding companies automatically liable forthe actions of subsidiaries. They say it is only if thereis a connection between the business of a holdingcompany and the business of the subsidiary that thequestion should arise, and all that we are asking forin the Bill is a clarification that, if there is anaccusation of bribery on behalf of the subsidiary, itshould be shown to be in aid of a specific businessconducted by the holding company and that it issomething which would have to be proved before theholding company could be made liable for the act ofbribery on a subsidiary.

Q209 Lord Thomas of Gresford: Would that cover anoverseas subsidiary?Mr Berkeley: It would cover all subsidiaries.

Q210 Lord Thomas of Gresford: Well, if an overseassubsidiary gives a bribe which assists the business ofthe holding company, you think that the holdingcompany should be responsible and should havecorporate liability?Mr Berkeley: I do not think I made my point clearly.Business is a matter of fact and what I said was that,if the subsidiary gives a bribe in aid of an actualfactual business conducted by the holding company,then there could be liability.

Q211 Lord Thomas of Gresford: On the holdingcompany?Mr Berkeley: On the holding company.

Q212 Baroness Whitaker: Could I just revert to theoriginal point about syndicates and joint ventures.Mr Berkeley, are you saying that syndicates and jointventures should, by law, have contracts which obligeno bribery?




Mr Berkeley: I am saying that that is the inevitablepractice in international business today.

Q213 Baroness Whitaker: That would be the way todo it?Mr Berkeley: I do not think you could find a majorjoint venture agreement anywhere in the world eitherin the oil business or in the construction business orwhatever without some quite strong provisionssaying that there shall be no bribery by members ofit.

Q214 Baroness Whitaker: If such a contract wereobliged by law, then—Mr Berkeley: I think that, when you step into theground of saying that a contract should be obligedby law, that is a very deep legal question indeed.

Q215 Baroness Whitaker: Well, there are someelements of contracts which have to be in thosecontracts.Mr Berkeley: Well, the way it stands at the momentis that, given international business as it stands, acompany would be very foolish to enter into anysuch contract without such provisions being presentin it because it would fall foul almost inevitably, ifthere were any connection with the United States atall, of liability perhaps under the Foreign CorruptPractices Act.

Q216 Baroness Whitaker: Perhaps we can look atthat a bit later. We did receive in one of our evidencesessions previously quite a lot of criticism of the Billbecause foreign subsidiaries were really outside theframework of the Bill, and this was thought to beone of the defects. Now, in your view, do you thinkthat the Bill is too strong in this matter? Am I right?Mr Berkeley: I think the Bill is too strong because itseems to attribute any bribery by a subsidiary, andthe words are, I think, “in connection with thebusiness of the holding company”, and we say thatis far too strong, far too wide.

Q217 Baroness Whitaker: So you do not agree withour previous witnesses that it is too weak?Mr Berkeley: I think it catches too much. Itpotentially penalises too much conduct.

Q218 Baroness Whitaker: Do you think that foreignsubsidiary bribery is one of the chief conduits forbribery? Those of us who have been round SouthernAfrica will have seen quite a bit of it.Mr Berkeley: I would not like to say whether it wasone of the chief conduits, but I have no doubt that,if it does happen, that is a channel through which itmight well happen.

Q219 Baroness Whitaker: So do you not think thatit ought to be deterred?Mr Berkeley: Provided the principle of theautonomy of corporate entities is not prejudiced,and it would not be prejudiced if our suggestion wereadopted, namely, that that subsidiary would be

acting in fact as an agent or employee directly of aconcrete business conducted by the holdingcompany.

Q220 Baroness Whitaker: But does that aVect thereality of modern British company activity, do youthink?Mr Berkeley: Well, there is another approach. If youread the Halliburton settlement, which has just beenreached in the United States, it is quite clear that theUnited States’ Department of Justice works on theprinciple of imputed knowledge and, if a knowledgeof the bribery on the part of the subsidiary, no matterhow distant from the centre, can be established, thatimputed knowledge, then the holding company isliable under the Foreign Corrupt Practices Act. InHalliburton, they had about five layers ofsubsidiaries and the Department of Justice cutstraight through them.

Q221 Lord Lyell of Markyate: Mr Berkeley, I thinkyour last sentence really focused on one of the keyquestions in my mind, which was that there shouldnot be a deliberate shutting of the eyes to what wasgoing on at a subsidiary level and, if that could beshown, then it does not matter what you put in thecontract, you are likely to be at risk. I would nothave thought you would demur from that.Mr Berkeley: No, that is the American approach. Itis not foreshadowed in the Bill before you.

Q222 Lord Lyell of Markyate: No, I see that, but itexplains your position. There are two points in thisquestion. The first is that you have made it very, veryclear that you think that the “reasonable belief”defence, which was in the Law Commission’s draftbill, ought to be reinstated in this Bill. Speaking formyself for the moment, I have a bit of sympathy forthat and we shall look forward to your draftamendments to show how the thing is to be seen inthe round. The second part of this question relates toprosecutorial discretion. Having had a role for tenyears in supervising that, I am not terribly keen onthe law leaving too much to prosecutorial discretion,although obviously public interest matters are veryimportant in particular cases, but basically the lawshould be clear and people should understand wherethey are, so I just want your comment, which I thinkI have pretty well got on the first bit, about the“reasonable belief” defence and the idea ofintroducing into this country some sort ofprosecutorial role similar to in America, if that iswhat you had in mind.Mr Berkeley: I am glad that you see the point wewere trying to make about the defence, and maybeI can leave that there and Mr Campkin can perhapsdevelop it. On the matter of prosecutorial discretion,from a lawyer’s point of view, I think it is inherentlyundesirable. There must be some discretion, but,nevertheless, to say, “We, the Legislature, do not seeour way to spelling out what the law on this pointought to be”, as, for instance, in facilitationpayments, “and we leave it to the discretion of theprosecutor to decide what should happen”, that, inprinciple, I think, is wrong. There are, as you once




again know, I am sure, government guidelines forfederal prosecutors in the United States which gointo many, many, many pages, but our basicposition, I think, and Gary can speak for this as well,is that we would like the law to be clear and we wouldnot like it to be papered over by prosecutorialdiscretion.

Q223 Lord Williamson of Horton: I wanted to askabout facilitation payments and corporatehospitality. Do you think there should be any specificprovision about that in the Bill? Of course, in theUnited States facilitation payments arediVerentiated and they are perhaps much morewidespread than bribery in the sense of what mostpeople understand by it, so do you think that thereshould be more about that? I do bear in mind that wehave mostly been discussing external business, butactually bribery does not begin at Dover and theseare the issues which will concern the public, I think.Mr Campkin: Maybe I can kick oV with that andgive a comment which addresses the two questions,and it goes back to the issue of clarity. I hope that one

Witnesses: Mr Derek Marshall, Director of Defence and Homeland Security, Society of British AerospaceCompanies; Mr Brinley Salzmann, Exports Director, Defence Manufacturers’ Association; and Mr JamesMaton, Partner, Edwards Angell Palmer and Dodge UK (on behalf of the UK Anti-Corruption Forum),gave evidence.

Q224 Chairman: Welcome to the final session thisafternoon, and it will be interesting to come along tosee round two tomorrow on the defence sector. Thefirst question is one which has been asked earlier. Ithas been rumoured that once or twice a Britishdefence contractor has possibly indulged in activitiesthat could fall within the definition of ‘corruption’or, in the case of this Bill, ‘bribery’. Is this reputationjustified? I am sure you have a robust defence of theindustry, but have you seen any improvements, orare we going in a direction diVerent from that ofabout ten years ago when there was a great deal ofdirty pool being played? You would know, from yourown experience of the British defence sector, thatothers were being a bit naughty and winningcontracts, as is alleged the British were, so a simplequestion, but not easy to answer: are we as bad as theothers, are we better than the others, is it gettingworse, is it getting better? We are asking essentiallyfor a free flow of information please, gentlemen,from you.Mr Marshall: Thank you, Chairman, and I willattempt to start oV a reply to that very ambitiousquestion. There is no scientific study, of course, oflevels of corruption and, therefore, a lot of what weknow is anecdotal, but I think my impression, fromhaving worked with the industry for quite a fewyears now, 20 years now probably coming up, is thatthe awareness of this issue in the industry is totallydiVerent from, say, 20 years ago and we see muchmore evidence of companies embedding into theirculture that this is not the way we want to dobusiness. The Woolf Report has of course beenmentioned, but there are many companies who have

of the things we have done this afternoon is to raisesome significant issues of clarity with the draft Billwhich, quite frankly, do need to be resolved from abusiness perspective. In terms of facilitationpayments, corporate hospitality and indeedpromotion, which is the other part of this area, Ithink it goes back to a potential defect in the draftBill in that the draft Bill’s structure under the generaloVences leaves some doubt as to what is covered andwhat is not because of the ‘reasonable person’ test.Again, I think it is one of those issues which needssome degree of clarity because facilitation paymentsin some jurisdictions are legal, corporate hospitalityis not an illegal act and promotion is a part of doingbusiness, and I would suggest that the Bill needs tobe careful not to catch those things which are notintended to be caught as a criminal act.Chairman: Thank you, lady and gentlemen. If thereis anything further that you would like tocommunicate with us, we are more than prepared toread it, but thank you for answering our questions sodiligently and thank you very much for coming.

set corporate standards and have published them,and we know that they are trying to implement themglobally. I think we also should give credit toTransparency International; they have done a hugeamount of work to make everyone aware of theissues and they work both, of course, on thecustomer side as well as on the supplier side. LordRobertson, whom you heard from earlier, has beenholding meetings with the industry regularly andencouraging us to do better, and we have been tryingto do that. I think the other thing that we shouldmention is that the Foreign Corrupt Practices Act ofthe US has been mentioned quite regularly and, ofcourse, when you come to the defence sector, theUnited States is over 40 per cent of the global marketand most of the sizeable companies in the UK andindeed many of the small ones have in fact investedinto the US market and are extremely aVected by theUS regime, so that has had an eVect as well. Forourselves, we have been running a major campaignfor the last three years and it was very similar to thethings that Lord Robertson was mentioning, and theEuropean Protocol that he mentioned, we have filedwith the Committee, so you can have a look at that,and we have nationally been trying to roll out thatstandard and get British companies to sign up to theEuropean standard and, to go in behind that, toencourage implementation. We also filed with you abooklet that we launched last year to try and helpparticularly smaller companies to implement thestandards. We, therefore, are trying to show that wedo mean business in addressing these issues, but it isvery clear that reputation matters a lot in this sectorand we are concerned that reputation can be used



2 June 2009 Mr Derek Marshall, Mr Brinley Salzmann and Mr James Maton

against us, and that is why, in general terms, wesupport a Bill and we would like to see a Bill go onto the statute book; we think that would help.

Q225 Chairman: That is encouraging. Mr Salzmann,would you like to add?Mr Salzmann: I can just reinforce what Derek wasjust saying, that we would be delighted to see a Billin place as soon as possible and I think it is notnecessarily a matter of bribery and corruption beingas commonplace as it might have been, but certainlywithin the industry its awareness of bribery andcorruption is much higher than it used to be becauseof certain particular high-profile cases which havearisen.

Q226 Chairman: Mr Maton?Mr Maton: Well, I am not here as a representative ofthe defence industry, I am here from the constructionand engineering sector, so I cannot speak for thedefence industry.

Q227 Chairman: A totally flawless approach! Wehave got you here under false pretences—perfect!Mr Maton: If I could just say a few words about theindustry that my organisation is in, certainly that isan industry which has suVered enormous problemsof corruption in the past. Like the defence industry,we think that bribery is not commonplace amongstUK companies, but there is a minority, perhaps asignificant minority, that are engaged in corruptpractices and there is probably a larger number ofcompanies that do not have adequate anti-corruption procedures, systems and controls whichare vulnerable to isolated cases of corruption, andthat is, of course, something that the draft Bill isaiming at. Subject to the comments in the paper thatwe have presented to the Committee, like mycolleagues here, we are supportive of the principlesof the Bill and would like to see UK legislationamended and this Bill put in place as quickly aspossible.

Q228 Chairman: I just want to come to this question,abusing my position as Chairman: can companiessurvive in competition in your sector, Mr Maton,and the defence sector if others are not going downthe same route that the European countries andNorth America are? Is it possible to survive playingby the book and that that book is approved,legitimate and ethical?Mr Salzmann: Certainly, in the European Union, asLord Robertson mentioned, the ASD, the Europeandefence and aerospace trade association, hasdeveloped this common industry standard as amodel to harmonise policies across the industriesacross the European Union, and it is up to us to tryto persuade our member countries to sign up toharmonised standards. This sets an excellentbenchmark against which we can try to measuresuccess, and the common industry standards arecomparable to America’s Foreign CorruptPractices Act.

Q229 Chairman: The sort of problems you wouldface in the defence sector are not just bribery doneby others, but corruption, which obviously is muchbroader because you do not necessarily have to bribeif you are being corrupt, and bigger countries canwin contracts because they have muscle, they may bedefenders of a country and, therefore, they wouldhave the ability to win a contract, probablylegitimately, by playing other cards and not the cardsof corruption, so could you comment on howdiYcult the field is for countries and companiestrying to survive and trying to compete when youhave others operating to diVerent rules, notnecessarily being corrupt or resorting to bribery, buthaving other tools in their toolbox to wincompetitions?Mr Salzmann: I think ASD, in the way of a lot of thecommon industry standards, is trying to ensure thatultimately the aim is to make good business ethics acompetitive advantage. As Lord Robertsonmentioned and in questions from the Committee, ifforeign governments make it clear that they will onlydo business with companies who sign up to the CISor other comparable industry standards, then that isa competitive advantage and that drives out thosecompanies who do not sign up to such standards.Mr Marshall: I think I would make a couple ofpoints. I think Brinley is right, that all the work weare doing through ASD, and we want to movebeyond a European scene to wider global action, isintended to try and make the complete culturechange, and that is a long-term objective we wouldaccept, but we must aim for a situation where thecustomer wants to deal with companies who have agood record. In that respect, we are very supportiveof what Transparency International is trying to do tolook at the customer end of the market throughNATO and elsewhere to try and get the customerside of the equation right because it is very diYcult,as you say, for suppliers to maintain a strong level ofcompliance throughout their businesses if thecustomers are not playing ball, so we need to try anddo that. Competitiveness in the global market isobviously of great importance to the defenceindustry and, a little bit contrary to some of thecomments made earlier, in our sector we do not thinkthat our behaviour is worse than other countries’, wedo not think that, but we do think that reputationalissues are being used against us.

Q230 Chairman: Mr Maton, anything to add tothat?Mr Maton: Simply this really: that again I am in asector where corruption is an acknowledgedproblem, but there are a large number of companieswhich do not engage in corrupt practices and theyare at a competitive disadvantage because they arefaced with competitors that do and, until there iseVective legislation and an eVective enforcementregime to go along with it, that position is going toremain. Certainly, you have got three organisationshere and you have had organisations earlierrepresenting business who believe that it is in theircommercial interests for there to be an eVectiveenforcement regime.




Q231 Martin Linton: Perhaps I could just ask MrSalzmann, initially at least, about the experience ofBAE and Lockheed, both of them members of yourAssociation and both of them obviously involved inscandals over the last 20-odd years. They will be herethemselves to give evidence, so I am not asking youto speak for them, but do you think that theirexperience has led the whole of the industry to agenuine change in business practice?Mr Salzmann: It undoubtedly has, yes. Certainly,BAE Systems has learnt a lot from its experiences, asLord Robertson said, and it has committed itself tocomplying with, and implementing, therecommendations of the Woolf Committee evenbefore it saw the recommendations. I myself wasvery recently giving a tutorial on export controls atCranfield University and there were three peoplefrom BAE Systems amongst the students and oneperson from another company who was based inKinshasa. The three from BAE Systems could notpossibly even contemplate doing business in suchplaces, but this chap from the other company wassaying, “Well, actually the idea would be to try to dobusiness to sell to the British Government and forthe British Government to hand over the equipmentto the United Nations, so it’s all totally aboveboard”. The BAE Systems people said, “No, no, justthe perception of doing business in such placesmeans we couldn’t possibly do that”.

Q232 Martin Linton: The rest of industry, have theyfollowed the same learning curve?Mr Salzmann: I think a lot of them have beenlooking at the recommendations of the WoolfCommittee and seeing how they would be relevant totheir commercial activities and corporate set-up.

Q233 Martin Linton: To take up Mr Marshall’sbroader point there, do you think that actuallycreating a level playing field in defence and otherindustries is something worth doing, even if it costsus money? Indeed, do you think that it does cost usmoney or do you think that there are actualcommercial advantages in being seen as the leader ofthe field in international anti-bribery legislation, ifwe are indeed?Mr Marshall: Well, I think that we are movingtowards a situation where we are trying to createcompetitive advantage through our record in thesum done. Adding to what Brinley has just said, interms of the UK aerospace and defence industry, atpresent we have 116 companies signed up to the ASDcommon industry standards, so it is not everybody,but it is a very convincing start, so this industry hasturned the corner in terms of adopting principles andstarting to implement them across the board. It isvery diYcult obviously in an internationalcompetitive situation, but I think that we are movingtowards trying to create competitive advantage ingetting the higher ground.

Q234 Martin Linton: Is there not a danger that wewant to be pure, but not so pure that it puts us at adisadvantage?

Mr Marshall: Well, it is very hard for somebody in atrade association to give you any clear response tothat. What we do is we say to our members to lookat the examples around industry, and there is a verygood example, I think, in Sir Brian Fall of Rio Tinto,who is a very good spokesperson on behalf of thecompany which has said, “We think that in the longterm it is to our competitive advantage to embed inour company procedures which say, ‘We’re not goingto bribe’, and we think that is actually positively acompetitive advantage”, and I think that is themessage we have got to spread.

Q235 Earl of Onslow: Are there any countries for thedefence industry to whom it is obligatory to pay abribe?Mr Marshall: Well, I have to say, I am not an exportmanager, so I just do not know the answer, but twothings strike me. First of all, we have a very strictexport control regime in this country, and I suspectthat possibly some of the countries you are talkingabout we would not be able to export to anyway.Secondly, it seems to me that, if companies wereimplementing the sort of regime that is envisaged inthe Woolf Report, they would simply not be goingthere.

Q236 Lord Thomas of Gresford: I have a question forMr Maton. It was suggested by one of our colleagueson the Committee that we are leading theinternational field in anti-bribery legislation. MrMaton, your partner, Mr Joseph, is recorded assaying, “Our own [corruption] law is in such a messthat it simply does not get enforced”, and that“major global companies would be absolutelycorrect to be far more in fear of falling foul of the [USForeign Corrupt Practices Act] than of breachingour own law”. Do you agree with that statement?Mr Maton: I do agree with it. I do not think atpresent the UK can count itself as a leader in eitherits legislation or the enforcement of its legislation. Ithink what is driving international companies to putsignificant resource into anti-corruptionprogrammes is the FCPA and the enforcement of itby the DOJ and others and, if you look at mostcompliance programmes that are beingimplemented, it is with eyes firmly on that legislationand not on the UK position, so I do not think at themoment we can count ourselves among the leadersin terms of legislation. I think we could become soand, of course, we are working from a starting pointwhere British business has a good reputation and itis the minority that we are trying to clean up.

Q237 Lord Thomas of Gresford: But we could be soif we passed this Bill in the proper form, you wouldagree with that, and there is a need for it?Mr Maton: Yes.

Q238 Lord Thomas of Gresford: It will havesurprised you, no doubt, to hear Mr AndrewBerkeley suggest that we should not be regarded asweak but as strong as the United States. That is notthe case at all, is it? The Committee should not havethe feeling that, “Oh well, we’re going to be leading




the field and we’re going to be at a disadvantage”,but we need to catch up with the United States andother countries in particular, do we not?Mr Maton: Certainly, I think that is the view that isthe more common view.

Q239 Lord Thomas of Gresford: The OECD view.Mr Maton: Certainly the OECD view and, if youjust simply look at the statistics on prosecutions, weare languishing near the bottom of the league tableand are certainly a long way behind the UnitedStates and even France and other countries. It is notjust the legislation that needs to change, it is theenforcement regime that goes with it. Actually, if Ican make one other comment which is not strictly todo with the legislation, but I think it is important,certainly the prosecuting authorities in this countryare keen for there to be more self-reporting bycompanies when incidents of corruption and briberyare found. That happens in the United States, but itis not happening here, and one of the majorobstacles to that is the fact that in the EUprocurement directives, if a company is convicted ofa corruption oVence, it is automatically debarredfrom public sector contracts, regardless of theseverity of the oVence, regardless of the mitigatingcircumstances, and it would be very hard to adviseany company finding one of its employees ordivisions, whatever it may be, engaged in corruptionto consider self-reporting against that background.That is certainly something that needs to beaddressed and a proportionate debarment regimeput in place.

Q240 Lord Lyell of Markyate: That is a point youmake very strongly in your written evidence and itseems powerful. What has to be agreed by whom inorder to change it?Mr Maton: I am not sure I fully know the answer tothat. Potentially, it would need amendment to theEU procurement directives which, on this point,actually are very short and do not go into great detailat all. However, there have been other countries thathave found solutions to this, for example, who havedecided that the mandatory debarment would onlyapply for a short period of time in the circumstancesof the oVence that has been committed. I think in theUnited States there is one example where a companywas debarred for one day, for example, because theoVence was thought not to be severe, but they hadcommitted it. Certainly, those are solutions thatcould be looked at in the short term, but I think inthe medium and long term we need a properEuropean debarment regime which works and whichtakes account of the severity of the oVence andmitigating circumstances, and that could only beagreed at European level, but the UK can obviouslyplay its part in that.

Q241 Lord Lyell of Markyate: At present, the onlything which could be done in this country is if theprosecuting authority of a company had reporteditself to take that, as a public interest matter, intoaccount on whether to prosecute. Is that correct?

Mr Maton: Well, there are other solutions. Forexample, under the Proceeds of Crime Act, it ispossible to recover the proceeds of crime as a civilmatter and it would be possible, for example, for acompany which self-reported to eVectively do asettlement in civil proceedings brought by one of theprosecuting agencies that have powers to recover theproceeds of crime eVectively as a fine for the corruptbehaviour, representing perhaps the profit on thecontract, and that would not, therefore, be acriminal matter and would not, therefore, trigger themandatory debarment under the EU procurementdirectives, so there are mechanisms which, if thoughtthrough, could be used to avoid the very harshconsequences of automatic debarment, but, ofcourse, they are no replacement for a proper regimein the first place.

Q242 Lord Goodhart: Really to follow up on that,when we are dealing with enforcement procedures, isthere a case, instead of having everything dealt with,as it is in the Bill at the moment, by criminalprocedures, in some cases, for instance, where acorporate body is being prosecuted because of theactions of one of its agents, to deal with it by civilprocedures and to have civil penalties rather similar,for example, to those which are dealt with by theFSA in cases of financial misbehaviour?Mr Maton: Well, yes, and indeed in health and safetylegislation of course, which has a long pedigree ofvarious regimes and degrees of punishment, so tospeak, for oVences of diVering severity, so there areanalogies which, I think, can be usefully deployed inthis area and they do need some thought, butcertainly they are areas which could be explored.Linda Gilroy: Chair, I wonder if I could just ask youif I could, for the record, clarify something. LordThomas referred just now to a member of theCommittee suggesting that the UK was leading theinternational field. I am not sure if he was referringto the contribution I made earlier.Lord Thomas of Gresford: No.

Q243 Linda Gilroy: That is fine. I just wanted that tobe clarified because that was not with reference to theUK and you did raise the matter just a moment ortwo later after that question and I just wanted to say,for the record, that that is not a view which I hold.The question which I asked was because of LordRobertson’s international experience and thereference was if a country were to lead, notsuggesting that the UK did, and I just wanted to putthat on the record for clarity. Perhaps I could ask theAnti-Corruption Forum, Mr Maton, on clauses 5and 6, do you accept that there is a need tostrengthen corporate criminal liability for bribery,and what is the Forum’s views on the new corporateoVence which attempts to do so?Mr Maton: Yes, our position is that there is a needto strengthen corporate criminal liability; it isnotoriously diYcult to prosecute companies in thiscountry. There needs to be an eVective enforcementregime and that is lacking at the moment, so, inprinciple, yes, we do support this oVence. It has theright objectives, in our view, and it will encourage




companies to implement, to maintain and to enforceanti-corruption policies, systems and controls and itwill penalise those companies which do notimplement such controls. We do think, however, thatthe test of negligence is a low standard for thecriminal law. Gross negligence or recklessness,something like that, seems more appropriate in thecontext of a criminal oVence and, clearly, it would begrossly negligent or reckless not to have acompliance programme or simply to write a policyand never do anything with it.

Q244 Linda Gilroy: Does that have to be changed inthe actual drafting of the law or am I right inthinking, as you have suggested, that it could betackled in guidance?Mr Maton: I think that point would need to be putinto the legislation, the test of negligence replaced byrecklessness or—

Q245 Linda Gilroy: So what would be your rebuttal,in that case, to the position outlined by ProfessorWells, which I am sure you are familiar with, that infact it is too narrowly drafted rather than toogenerously drafted and it is also too complex? Asyou probably know, she favours removing the needfor the prosecution to prove negligence and thatcompanies would then be criminally liable for bribespaid on their behalf, except where due diligence isestablished and adequate procedures are in place.How do you respond to her proposal?Mr Maton: It seems a low standard for the criminallaw and actually, dealing with the point that wasdiscussed a moment ago, a law which potentially, weare not sure, could lead to mandatory debarmentfrom public sector contracts, to have relatively lowthresholds in the criminal law for this sort ofbehaviour. I am not sure we are against theamendment to the law in the way which has beensuggested in that example, but, subject to the defenceof adequate procedures, there is a need, and we willcome on to that, I think, for there to be moreguidance on what ‘adequate procedures’ might be,but again our view is that it would be necessary forthere to be recklessness or gross negligence inrelation to a breach of those adequate procedures.

Q246 Linda Gilroy: I do not know if you were herefor the first session that we had, but does that notplay into the hands of people who believe that wewould be doing just enough, but only just enough,not to ruin UK competitiveness?Mr Maton: Certainly, some people would have thatview and it is a view which has some merit, but Ithink we also need to look at the other side of thecoin which is that, if you lower the threshold, youcan have situations with companies that are tryingtheir best to implement, to maintain and to enforceproper systems, controls and procedures and, forsome reason, they fall down in a way which isnegligent, but is not reckless, and to be found guiltyof a criminal oVence, and I think that is quite a harshthing to do. It may be met by an administrative

system which has been suggested a moment ago, butI think some element that is standard in the criminallaw needs to be part of this oVence.

Q247 Linda Gilroy: Is it not the case, however, thatthe way it is drafted in the draft Bill at the momentstrikes a little way between it being either too harshor too lax?Mr Maton: It is not an unreasonable view, but it isnot one which we, as the Forum, support and we dothink that it should be recklessness or grossnegligence.

Q248 Chairman: Mr Maton, again recapitulating, inyour evidence, you have said that you think grossnegligence would be a fairer test than negligence fora serious oVence of this nature and you are havingsome diVerences over terminology, such as‘adequate’ and ‘manager’ et cetera, but the questionI would like to ask is: do you think that guidance isrequired on what constitutes ‘negligence’ or‘adequate procedures’ and, if so, who should prepareit, what principles should it enshrine and what statusshould it hold?Mr Maton: I think it is essential that there isguidance. It is not clear at the moment whatcompliance procedures will be considered adequateand in what circumstances the oVence would apply.Just on the manager point, we actually think that isquite significant because it is a term that couldinclude quite junior managers in large organisations.Guidance is essential, I think, ideally published byprosecuting authorities, but put together by somekind of working group which includes prosecutingauthorities, includes industry and includesgovernment. The objective is to assist companies,which are looking for certainty in this area, to knowwhat they have to do in order to put into placeadequate systems, controls and procedures, and atthe moment that guidance is lacking. I do think aswell that it would need to be published a reasonabletime before the introduction of the oVence. Whatmust it contain? What the components are for aproper compliance programme, what adequateprocedures, systems and controls are, what is neededinternally by way of training and so on, what isneeded in relation to foreign subsidiaries and jointventures, and it must deal with diYcult issues, suchas facilitation payments and hospitality. In relationto status, I am not sure that it would be easy toinclude it as part of the legislation itself; I think itwould be too complex a document to draft. Again, Ithink there may be an analogy here with health andsafety legislation, which, very often, has quite shortlegislation, but then has guidance produced by theHealth & Safety Executive to go along with it whichgives quite clear guidance to companies as to whatthey should do, and companies are free to departfrom that guidance, but, if they do, they have got tohave a jolly good reason why they have departedand, if they have complied with it, they are veryunlikely to be prosecuted and very unlikely to beconvicted, but I do think that it is necessary.Certainly, I know that companies are spending an




enormous amount of money on advice from lawyersand accountants on what constitutes ‘properprocedures’ both—

Q249 Chairman: Be careful, there are too manylawyers here!Mr Maton: I am a lawyer myself.

Q250 Chairman: We are just honest politicians!Mr Maton: Companies are spending enormousamounts of money and lawyers are finding it very,very diYcult to give advice on what is adequate,what is reasonable and what is necessary.

Q251 Chairman: Could you have a stab at suggestingwhat that guidance might contain so that we canshow this around to others, and maybe this willinspire other organisations to join in in providingsuch guidance?Mr Maton: In writing?

Q252 Chairman: Please, if you do not mind.Mr Maton: Yes.Mr Marshall: Chairman, could I add from our sidethat we obviously have gone out in front andpublished some guidance for what, we think, ourcompanies should do and, in drawing up thisguidance, we had advice from a number oforganisations, including Transparency International,the Institute of Business Ethics and so on, so we arepromoting this guidance actively. Along with James,what we want is certainty that the guidance we aregiving is the right guidance and whether it issupported by the Government. It is interesting thatwe now are engaging in a dialogue with an arm ofgovernment, UKTI, the defence and securityorganisation, about this guidance and how we candemonstrate that it is being implemented bycompanies. It does seem to me that we are movingalong a path here that leads to some bringingtogether of this guidance. The thought was goingthrough my head, as we heard the evidence thisafternoon, that you have brought together theconstruction sector and the defence sector and wehave not met before, but we are obviously workingon the same issues.

Q253 Chairman: And there are many other sectorswhich are not before us.Mr Marshall: Maybe we do need a national forumthat brings together the various sectors withgovernment and others to work some of thesethings out.Chairman: I am sure that is a very good suggestionand I am sure we will take that into account.

Q254 Baroness Whitaker: Another concern has beenwhether subsidiaries, joint ventures and syndicatesare adequately covered in the Bill. Some of ourexperts have thought that the Bill is seriouslydeficient in that it does not cover them properly,whereas others tell us that they think it is toodraconian on the subject. What are your views?

Mr Marshall: Well, I do not really have a lot to addto the very technical discussion you had on thatearlier, but I thought there were one or two pointsthat might be of interest. Obviously, we are gettingcompanies signed up to our common industrystandards and are finding that some companies willsign up at HQ level and say, “We’re making acommitment, we believe, through our whole group”,and, for other companies, their various subsidiarieswill sign up separately, and we have not quitethought through the implications of that yet, but itis an interesting development. Clearly, from ourpoint of view, whoever is actually running thebusiness and needs to implement the procedures isthe person we want to see signing up, and we insistit is a board-level person. In terms of cross-borderjoint ventures, it seems to me that the commonindustry standard is helpful. It is an EU-widecommitment and similar activity to that taking placein the UK is taking place in all European countriesto get individual companies to sign up to thestandards, so there is an opportunity there for somecross-border activity, and we are now trying toextend that to establishing transatlantic principleswith our colleagues in the US and Canada, so thatmight help, but I do not think I have got any moreto add on that point.Mr Salzmann: I agree entirely with Derek, and ourexperience in trying to get our member companies tosign up to the CIS similarly reflects SBAC’sexperience in that some headquarter companies signup and some filter it down to their subsidiaries to gettheir subsidiaries to sign up to it.

Q255 Baroness Whitaker: So there is good practice?Mr Salzmann: Yes, in those companies.Mr Maton: If I could make one very quick point, we,the Forum, do not have a concluded view on that, werepresent a range of organisations, and I thinkperhaps that the internal debate we have had mayinform this. The diYculty is that there is a conflictbetween a feeling that it is wrong to have the holdingcompany liable for the acts of foreign joint ventures,subsidiaries, or whatever they may be, incircumstances where there is no control over thoseactivities and the conflicting view that the paymentof bribes through subsidiaries is a relatively commonway of meeting the payment of bribes, and that is thediYculty with those two competing problems. Nothaving some source of responsibility at headcompany level does potentially leave a verysignificant gap in the law and an obvious route forthe payment of bribes. Perhaps having recklessnessor gross negligence as part of the oVence and havingsensible guidelines, which describe in some detailwhat companies should be doing in relation toforeign subsidiaries and joint ventures, dependingon their degree of control and the degree ofshareholding in those companies, would be ofassistance.

Q256 Lord Goodhart: Is there a possibility that itmight make sense here that, because the question ofthe potential liability can be based on the activities ofpartners and joint ventures or of subsidiaries, there




should be some flexibility in the legislation and thisparticular part of it should be something whichcould be altered by secondary legislation?Mr Maton: That is certainly possible. Whatcompanies need is—

Q257 Lord Goodhart: Do you think it would bepositively advantageous or not?Mr Maton: Well, what companies need is certaintyand they need to know what their position is so thatthey can put in place proper procedures, systems andcontrols and they can train their employees and theirforeign employees in foreign subsidiaries and jointventures on the issues that arise. Provided that thecriminal oVence, as it exists from time to time, isclear and everyone knows, as best they can, whatbehaviour will or will not be a contravention of thatoVence, I think business would broadly be happy.Where there is a lack of clarity for any reason,diYculties will develop.

Lord Thomas of Gresford: You will remember thatMr Andrew Berkeley drew a distinction betweensubsidiaries on the one hand—Chairman: Be careful, he is still here!

Q258 Lord Thomas of Gresford: Yes, I am not goingto criticise him in any way and I, frankly, support alot of what he said—and joint ventures andsyndicates on the other hand. He made the pointthat, when it comes to joint ventures and syndicates,a clause in the contract would be suYcient as anadequate procedure, I think that was his point,because you could not conceivably control what theoperator in an oilfield was doing, for example. I aminterested to know whether that complies with thecode which Mr Marshall was talking about or withthe view that Mr Maton has been describing whichhas collectively come together. Have you anycomment on that as being adequate, a clause in thecontract saying, “Thou shalt not bribe”?Mr Marshall: Well, first of all, I have not referred tothe Protocol, but I doubt whether it covers thatamount of detail, to be honest. Clearly, it sets outsome very detailed principles that should beadopted, but I am not sure we go into the structureof the industry in that way, and I think it is a pointwhich we indeed ought to look at because jointventures are quite a common thing in the industry,although they are mostly, I think, at the Europeanlevel and, therefore, companies across Europeshould be covered by the CIS standards. I do notreally have anything to add to the point that Andrewmade, but I do think that what we need to look at isgetting at the people who are really running thebusiness, and the one thing that I have observedabout joint ventures is that they diVer very greatly incharacter. Some are actually devolving themanagement down to a group of people who areeVectively running another business and some arereally simply bringing together the main players towork together. In the latter case, it seems to me, thecommitment made at the board level of the maincompany should apply to that organisation.

Q259 Lord Thomas of Gresford: Mr Maton, is aclause in the contract enough?Mr Maton: Clearly, clauses in contracts are animportant tool to try and prevent corrupt practices.It all really comes back to the level of control andinterest, I think, in the joint venture in this case and,as Derek has said, there is an enormous range ofdiVerent ways in which joint ventures are set up andin which they are managed and operated, and it isvery diYcult to come up with a single rule for everysingle case. Certainly, I do not think that simplyhaving a contract clause on its own would besuYcient in a number of cases, so I do not know, butit is a question of control. If you have any level ofoperational control or you have the ability to go inand see what the company is doing by some sort ofaudit, a contractual provision, as I say, is not goingto be suYcient and there are other things that youcould, or should, be doing.

Q260 Mr Cox: Would you not agree though that thispoint would be a very good submission to a judge?If the company were charged and it had very littlecontrol over its subsidiary’s activities, then no doubtits counsel would submit to the judge that themeaning of clause 5(4) and the expression ‘adequateprocedures’ had to take into account the level ofcontrol which either the partner in the joint ventureor the holding company had, so it is really just aquestion of interpretation for the judge. The judgemay well conclude, and so direct the jury, that anadequate procedure for a company that hadvirtually no control was a contractable clause alongthe lines that you and, indeed prior to you, MrBerkeley had discussed, but in another case, and itwill depend on the facts and the circumstances,where the holding company had much greatercontrol, it will expect greater degrees of procedure.This is done all the time in courts of law, is it not?Mr Maton: Well, that must be right, but the realityis, of course, that companies do not want to get intoa court of law and they want to have—

Q261 Mr Cox: But, I am afraid, it is a hazard ofhaving a law at all, is it not, that companies have tocomply with it?Mr Maton: Well, it is, but they want to know now,when the legislation is introduced, what are likely tobe considered to be adequate procedures, systemsand controls.

Q262 Mr Cox: You have made a very fair point andit is fairly obvious that what are adequate proceduresought to have some kind of industry-led and agreedguidelines, much as the money-launderingprocedures and regulations do, so that companiescan be properly advised about their compliance,dependent upon their particular situation, but againthis is perfectly normal experience.Mr Maton: And, at the moment, there is no guidancein place either in this country or envisaged which willhelp companies if this legislation is passed.

Q263 Mr Cox: But that is obviously badly needed ifthis Bill in this shape goes forward, is it not?




Mr Maton: Yes, it would be essential.

Q264 Lord Lyell of Markyate: This is question 19and it has two parts. The second part is what theattitude of you three is to the point which wasstrongly urged on us by the CBI, the InternationalChamber of Commerce and the Federation of SmallBusinesses that the defence under the clause 4oVence of reasonable belief, which wasrecommended by the Law Commission, should beput back in the Bill as it was taken out in the draft,so perhaps you could tell us what your view of thatis. Then, the other question which is rather morediVuse is: to what extent do you find clauses 1 to 4,as they are drafted, clear and predictable, but fairfrom the point of view of business? Have you studiedthem with those questions in mind? It occurs to methat you might have some doubts in some places, butperhaps you could let us know.Mr Marshall: Well, I should have probably saidearlier that we are members of the CBI and we havecontributed some views to the CBI and indeed ofcourse many of our companies are CBI members, soI think it would be fair to say, from an SBAC pointof view, that we do not have anything to add to theCBI evidence which has been given and we wouldsupport what they said about the ‘reasonable belief’issue and the other issues they raised.Mr Salzmann: The same goes for the DMA, that wesupport the evidence in the CBI’s submission.Mr Maton: We broadly support the Bill. We havesubmitted a paper, as you have seen, which makesrelatively minor points on the legislation which, wethink, should be taken into account. Broadly, wethink the Bill is workable and those oVences areworkable and, by that, we do think they are clear,fair and predictable. Our issue, as you will see fromthe paper, is that in some of the oVences we thinkthat new oVences are created where previously noneexisted and it may criminalise behaviour which is notunderstood as bribery.

Q265 Mr Cox: On that point, if I may, there is verymuch, therefore, it seems to me, a great worry aboutclause 5, that, in using this expression ‘improper’, wewill capture a great deal of conduct, and there arelevels of impropriety which may very well, in mostordinary and right-thinking people’s minds, notamount to criminal activity. I can think of a wholeseries of examples, and no doubt you can, where,frankly, one would be concerned if it ever crossed thethreshold of the criminal court. I can think of anexample of a trading department in a bank whereone organisation oVers higher pay if they all decampand walk into the bank next door. That would fulfilevery single criterion under clause 5; it would oVer afinancial advantage, it would be in breach of thecontractual duty of good faith and it would, almostcertainly, produce angry cries from the bank whichhad lost its trading department. This is something weneed to look very carefully at, is it not? The use of theword ‘improper’ in a criminal statute is somethingwe do need to look at with care, would you notagree?

Mr Maton: Yes, we do agree and, where behaviournot understood to be bribery is criminalised, we dothink there are issues of the kind which you havearticulated, and those sorts of matters which youdescribe would be best dealt with in the civil courts.Mr Cox: But it would be entirely up to theprosecutor of the day as to whether he did it and nocompany is going to know.Chairman: It would certainly decimate thepremiership!

Q266 Mr Cox: Of course it would!Mr Maton: That may be a good thing!

Q267 Lord Williamson of Horton: This is a questionabout facilitation payments and corporatehospitality which, at the moment, are notdiVerentiated in the Bill we are discussing, althoughthere are of course diVerences and facilitationpayments are diVerentiated in the United States’legislation and we all know that in some countries itis part of the life that, if you are negotiating business,people continually are asking you for facilitationpayments to do this or that, get your ship there oranything, and they are really a feature of life in someparts of the world. The question is: should we dealwith this or should we just leave these under ‘bribery’where they could be prosecuted, but perhaps wouldnot be, or should we do something separate aboutthem? That is the question.Mr Marshall: Firstly, on the question of gifts andhospitality, the common industry standard, first ofall, argues for transparency, so transparency, I think,is a first keynote that we must achieve, and, secondly,it argues that this should not be done if it is obtainingimproper advantage through any definitionalproblems that we have, but I think we understandthat we are trying to stop unfair competition, so wehave that commitment within the CIS. We have notdiscussed there the facilitation of payments as aseparate category, but I do believe in the discussionwhich took place during the drawing up of thestandards that the feeling was that this was not aseparate category, this was an element that could bebribery if it created that undue advantage, orhowever we define it, so we have not separated it out.I must say, the paper that James’s Forum produced,I thought, was very interesting and quite convincingand I think we would like to consider that a bitfurther.Mr Maton: It is an extraordinarily diYcult problemand, as a Forum, we do not again have a consensuson it. There is a range of opinion from those who feelthat facilitation payments should be outlawed tothose who feel that they should not be a matter forthe criminal law. Having said that, there is aconsensus that facilitation payments in the UKshould be criminalised, but not necessarily overseas.Very often, the person who is paying the facilitationpayment is, in eVect, the victim of extortion and veryoften that is junior employees in quite diYcultsituations with traYc police or immigration oYcers,or whatever it may be. One thing that the Forum isagreed on is that there needs to be certainty and it isnot good enough, which is the current position, to




say, “Well, we’re going to criminalise it, but we’re notgoing to prosecute”; that simply does not work. Thequestion has got to be met head-on. We think thatthere needs to be a realistic distinction betweenfacilitation payments and bribery, whatever regimeis put into place, and there need to be certainty as tothe circumstances in which they will be prosecutedand in which they will not, and detailed guidance isnecessary. If facilitation payments are going to betreated as bribes, there should be lower penalties forthem and, again going back to the point I madeearlier about debarment, it seems very unfair thatthe payment of facilitation payments by an

international company in diYcult circumstances bya junior employee could lead to mandatorydebarment from public sector contracts as it issimply not proportionate, so this is something whichneeds to be considered and decided upon.Chairman: Well, thank you very much. We have hadan excellent afternoon. We have been verydisciplined and I hope that attendance is as goodtomorrow and as sustained tomorrow as it has beentoday. Thank you very, very much for coming andfor answering our questions so diligently. If there isanything further you would like to write to us, wewould be delighted to receive it.




Members present:

Mr Bruce George, in the Chair

Goodhart, L. Mr David S BorrowLyell of Markyate, L. Mr Alistair CarmichaelMayhew of Twysden, L. Mr GeoVrey CoxOnslow, E. Mr Jonathan DjanoglyThomas of Gresford, L. Linda GilroyWhitaker, B. Martin LintonWilliamson of Horton, L. Jeremy Wright

Witnesses: Mr Philip Bramwell and Mr Alan Garwood, BAE Systems, Mr Lawrence Hammond, Solicitor,Thales UK, and Mr Stephen Ball, Chief Executive OYcer, Lockheed Martin UK, gave evidence.

Q268 Chairman: Gentlemen, Thank you very muchfor coming. We really appreciate it. You know thedraft legislation proposals we are looking at and Iam sure you have read all the necessarydocumentation. I am sorry the invitation camerather late but if you are prepared to write somememorandum to us that would be gratefullyappreciated, and, if you do not mind, if there are anyadditional questions we do not want to call you backbut if we could write to you we would appreciate thattoo. The allegations of bribery and fraud within thedefence industry, especially arms exports, have beenpretty destabilising for a lot of companies andgreatly embarrassing to a lot of companies. Thereare very few nations that have a defence industrythat engages in arms exports that has managed toavoid any serious accusations, but that has largelypassed. The question I wish to ask you all is whatlessons have you learned from your own companies’failures or accusations of failures, which can be justas damning as actual failures, and what are youputting into practice in order to meet the criticismsfor your own internal inquiries? That is obviouslytoo long; I hope it will be too long, for a one-hour—Iwill not use the word “interrogation”—questioning.We already have the Woolf Report on what BAE isdoing, but if you could send us your documentationwe would find that very helpful. Mr Ball, please. Thequestion is what are you doing to meet the criticisms?Mr Ball: Within Lockheed Martin Corporation,Chairman, we have introduced policies andprocedures and a compliance culture that aligns withUS legislation, which is FCPA, the Foreign CorruptPractices Act. We introduced that during the periodwhen we were Lockheed Corporation and when webecame Lockheed Martin Corporation wecontinued with that process. Essentially, the mostimportant component is creating an environment ofcompliance with legislation and the ethics guidanceof the corporation.

Q269 Chairman: So where you have directors or verysenior staV their oYce is responsible for ensuringthat you meet (a) your own standards and (b) thestandards of the US Government?Mr Ball: Yes. The Foreign Corrupt Practices Actrequires us to provide a regular report to them,which we are accountable for, and anybody that

joins the corporation has to go through a standardset of compliance training, and then that compliancetraining is refreshed every year through a cascadefrom the chairman of the corporation all the waythrough his line of reporting right the way to thebottom of the corporation.

Q270 Chairman: Is there any collaboration betweenUS companies on this because if one breaks ranksthey run the chance of winning a contract? Is thereany inter-American collaboration on enhancingethical standards and meeting legal requirements?Mr Ball: I cannot answer that question. All I wouldsay is that we as a corporation believe it is in our bestinterests to be absolutely compliant with the law thatis in place.

Q271 Chairman: Your company complained to oneof the agencies of the US Government about one ofyour competitors, about the way in which they hadacted to the detriment of yourselves, so if you do notcollaborate do you fall out with your competitors ifyou think they are playing dirty pool?Mr Ball: I certainly would say that we see theelimination of bribery and corruption as a way oflevelling the playing field for everybody so that it isa fair battle, if you like, for business.

Q272 Earl of Onslow: We know that Lockheed wasinvolved in bribing Prince Bernhard, so we knowthat you have been up to old-fashioned habits. Whenwas the last time Lockheed paid a bribe or dodgycommission?Mr Ball: You are referring to periods back in the1970s.

Q273 Earl of Onslow: Yes. I am assuming that thiswas the practice, because I think this has been wellestablished. What I am trying to find out is when youstopped doing it.Mr Ball: When we implemented—

Q274 Earl of Onslow: And that was the last timethere was a bribe or a dodgy commission paid, wasit?



3 June 2009 Mr Philip Bramwell, Mr Alan Garwood, Mr Lawrence Hammond and Mr Stephen Ball

Mr Ball: Yes.

Q275 Lord Thomas of Gresford: I do not think MrBall finished his sentence and I would be grateful ifhe would finish what he was about to say. You saidthere had not been commissions since something andthen the noble Earl interrupted you, I am afraid, sowe did not quite hear what you were going to say.Mr Ball: Since we implemented policies andprocedures to comply with the Foreign CorruptPractices Act.

Q276 Lord Thomas of Gresford: What year was that?Mr Ball: I cannot tell you the exact year. It was 1977,I believe, when the Act came in.

Q277 Lord Thomas of Gresford: That was followingthe problems between Lockheed and Japan ratherthan Lockheed and Prince Bernhard, was it not?Mr Ball: Yes.

Q278 Chairman: I think Prince Bernhard was themain thing, and I am not seeking to be obstreperousbut even though the legislation is pretty strong,much stronger than we have or anybody else has,there have still been misdemeanours. I was lookingat an interesting book by Shearman and Sterlingrunning to nearly 311 pages on all of the cases thathave been brought by lawyers or by the US againstcontractors, specifically Colt, Titan Corporation,Lockheed Martin, Venturian, United DefenceIndustries, et cetera, so despite the legislation, andone must aspire to that legislation, still some prettynaughty things are happening and I think we wouldlike reassurance that you do not just rely on meetingthe requirements of US legislation but you areexcessively vigilant in order to not to be having afinger pointed at you either within the US or abroad.That is the point I would wish to make.Mr Ball: Yes, and our code of ethics that we traineveryone on in the business and reinforce on aregular basis hopefully has a strap line that we “dothe right thing”.

Q279 Lord Thomas of Gresford: Mr Ball, it isobvious that the regime in the United States is muchstricter than it is in this country and prosecutions, asMr George said a moment ago, have followed quitefrequently against various companies in the UnitedStates. To what extent has it made United Statesdefence industries less competitive to have theForeign Corrupt Practices Act imposed upon them?Mr Ball: I am sorry, I cannot make that judgment.We simply recognise that we need to maintain a levelof compliance, and if that means that we are goingto lose a contract as a result of not being prepared tooVer a bribe then our choice is that we would lose thecontract.

Q280 Lord Thomas of Gresford: With the stricterrules that there are in the United States, has theUnited States defence industry as a whole becomeless competitive in the world than, for example, theUnited Kingdom defence industry?

Mr Ball: I think there is a whole range of things thatmake an industry competitive or not, and I am notsure that the particular point of bribery is a way ofmaking yourself competitive. The outcome is that asa business you need to do the right thing because,although in the short term you may lose anopportunity because you are not prepared to pay abribe, in the long term it flows to the benefit of thereputation of the company.

Q281 Lord Thomas of Gresford: So in other wordsyou would encourage this country to have a strongerlegal framework against bribery than we have atpresent and you will be in support of this Bill?Mr Ball: We would absolutely be in support of theBill. We believe that it would level the playing fieldand ensure that people were focused on selectingcontracts—

Q282 Lord Thomas of Gresford: And it follows fromthat that you would not consider that this Bill, if itintroduces a stricter regime than exists at present,would make British industry less competitive?Mr Ball: I do not believe it would.

Q283 Chairman: These questions we will be askinglater on. I do not want to make it an entirely anti-American session. After all, BAE Systems is halfAmerican now, is it not?Mr Bramwell: Yes, it is.

Q284 Martin Linton: I just wonder if you could helpus on a point of fact. It has been said that there arelots more successful prosecutions in the UnitedStates than there are in Britain and so on. Where canwe find this listed with any detail that is useful?Mr Ball: I am afraid I cannot answer that question,Chairman, at the moment, but if you would like usto take that question away and come back to youwith an answer, I would be happy to try and do that.Martin Linton: Chairman, I would find that veryuseful.

Q285 Earl of Onslow: Can you give us an instancewhere you have been asked for a bribe andconsequently lost the contract?Mr Ball: I cannot give you a specific instance. I didask in preparation for this meeting whether thecorporation had indeed behaved in that way, wherewe had refused to give a bribe and so had not bid forthe work, and I was told that, yes, that was the case,and that we had also refused to employ internationalconsultants on the basis of the fact that we did notbelieve they would correctly represent thecorporation.

Q286 Baroness Whitaker: From the point of view ofcompetitiveness would you not agree, Mr Ball, thatin fact to get a contract through bribery is a mark offailure because it is a less good product which is thensold, so from the buyer’s point of view, not themanufacturer’s, it is indeed a less eVectivecompetition?Mr Ball: I would absolutely agree with that.




Q287 Chairman: Mr Hammond, please.Mr Hammond: Thales in the UK is fully aware of theperception of corruption within the defence industryand therefore for several years has had a verysubstantial code of ethics and complianceprogramme that runs throughout its group,particularly within the UK. Obviously, it is set byour parent company that is based in France. It isbased upon predominantly international standards,such as the OECD Convention. However,subsidiaries such as Thales in the UK are able tomodify that to meet local legislation, local needs,and, as I say, it reflects our very serious attempts tomake sure that we have a fully compliantorganisation.

Q288 Chairman: If I could go back to my DefenceCommittee days, I would have said you had evenbribed in the UK if you thought you could get all thecontracts you want, but I will not say that. Thequestion I want to ask you is this, if I may follow upmy first question. The track record of Thales is thatyou have had a few bad incidents in very recentyears. South Africa is certainly one, and the FarEast, so has that had any real impact on thecompany, “We cannot aVord to have bad publicityand therefore we have got to clean our act up”?Mr Hammond: With regard to Thales in the UK,obviously, the accusations that you refer to do notrelate to the UK businesses, although, of course,they do concern the wider Thales Group, andtherefore, yes, of course, there is concern in the UKbusiness about the impact that has. I am afraid I donot have suYcient knowledge or detail to answer thespecific allegations, but certainly we work perhapseven more hard therefore in the UK to make surethat we are compliant and that we do have a verystrong code of ethics to combat such accusations.

Q289 Chairman: As legislation is now much moreinternational could you write to head oYce and askif they could perhaps oVer some light on the questionthat you were unable partly to answer?Mr Hammond: I certainly can.

Q290 Chairman: Thank you. BAE, a British/American company?Mr Garwood: What I would like to say, Chairman, isthat you mentioned publicity and one of the thingswe have learned is that the reputation of ourcompany and how we are seen to do business is asimportant as what we do in terms of programmeexecution and our financial performance. Over thelast few years you will be aware by mentioning theWoolf Committee that the board two years ago gavea full commitment to implement all 23recommendations of that committee which we arenow in the process of doing. We have a team of 18full-time executives and several dozens more co-opted to a series of committees to work out animplementation process for that, and we can talkmore about that. We have launched a code ofconduct which we will happily leave copies of for allmembers with the Clerk. It is a very substantialdocument which we have briefed now to almost

every employee. Every employee in the company willbe briefed on this and will have to sign that they havebeen briefed, have understood it and will complywith our code of conduct We have a new managingdirector of corporate responsibility who wasappointed late last year or early this year and whoreports directly to the chief executive. We alsosubstantially revised our policy on the employmentof advisers in the international marketplace sometime ago and again we have fully implemented that,so I think we have got a quite comprehensive set ofprocesses and procedures in place which are gettingus quite a lot of recognition that we are going to bethe benchmark for this industry in the future. If Imay just address the competitiveness point, I think itis absolutely a pointer for the future that the BritishGovernment’s change in this legislation and supportof the industry will improve British industry’scompetitiveness in this industry and in its marketand my colleague, who is the Legal Director andGeneral Counsel to BAE, and I are absolutely at oneon that commitment.

Q291 Chairman: That is a general commitment?Mr Garwood: A general commitment.

Q292 Chairman: Mr Bramwell, is there anything youwould like to add to that?Mr Bramwell: No, I have nothing further to add tothat point, thank you.

Q293 Chairman: You are the one with the ultimatelegal responsibility. Does the fact that you are partlyan American company and have a great deal of youroperations in the United States mean that (a) the USlaw is generally tighter, and (b) if it is, has any of thatexperience spun back towards your operationselsewhere?Mr Bramwell: Perhaps I can answer that. The USbusiness of BAE Systems, of course, is not listed inthe United States but it is a US business whichemploys roughly half the workforce, some 53,000people, I think, now, who are, of course, subject tothe FCPA, and BAE Systems’ approach is to applythe global high standard across its entire operations.We may come on later to facilitation paymentswhich would be an example where we operate asystem of prohibiting the making of facilitationpayments anywhere in the world within ourcompany, notwithstanding that in the US, forexample, I think FCPA facilitation payments arepermitted. There is some read-across and I will comeback later to one area where we think the USDepartment of Justice has some practices which maybe of interest to this Committee in terms of givingguidance on the application of them.Chairman: I think all of us have been exercised aboutthat. Thank you very much.

Q294 Lord Williamson of Horton: I think we havecovered points 1 and 2 pretty thoroughly but I wouldlike to ask whether you think that allegations or factsabout bribery and corruption in the UK businessshould be blamed specifically on weaknesses in thecurrent law? The reason I ask is that this Committee




is not a committee of inquiry; this is a committee tolook at the draft law, so what we are concerned aboutis whether the current law is not good enough andthe next one is better, and do you think that is a resultof what has happened in the past?Mr Hammond: Certainly from the Thales UKperspective we think that the current state of the lawmay be one of the factors but, obviously, we do nothave suYcient information about what allegationsof bribery are reported to the necessary authorities,what level of those are investigated and whatproportion of those end up in prosecutions. All wedo know from some of the brief statistics that areavailable is that there do seem to be a relatively lownumber but, of course, that could be for a number ofreasons. It could simply be because the evidence isnot there inasmuch as it may be because theprosecution feel that they cannot secure a convictionin an eYcient manner.Chairman: Thank you. That is a polite way ofputting it, a low number of prosecutions. That is thenicest thing I have ever heard.Lord Thomas of Gresford: I think there has been onesuccessful prosecution since 2001 in the field offoreign business.Chairman: And not many after 1900.

Q295 Jeremy Wright: I just want to go back a stageto the questions Mr George was asking about theread-across to the Americans. I think what I haveheard from two of the companies represented heretoday say is that the way in which you operate is toapply the standard that would be relevant to theUnited States legislation across the board, broadlyspeaking, so that you operate to what appears, atleast to us, to be a higher standard under USlegislation than currently exists under UKlegislation. That is certainly what Lockheed Martindo and I think I understood the gentleman fromBAE Systems to say the same. I was just wonderingwhether from a Thales point of view you can help uswith, if you do not do that, why you do not do that,assuming that you do do business in the UnitedStates under that legislation. What are the particularreasons, if you do not adopt the same practices, whyyou do not do so?Mr Hammond: We do have quite substantialbusinesses operating in the US and therefore the UScompanies will be subject to the FCPA in the sameway as any other US entity. However, beingheadquartered in France, France has decided thatthere are a number of standards that are available toit and we have already heard about the WoolfReport. There is the FCPA as well as otherconventions, and because, as it has grown into aninternational and far-reaching company, it hasdetermined that it should base its standardspredominantly at the top level on internationalstandards and then it is for the local legal entitieswithin any particular jurisdiction to make sure thatthe local rules are also abided by and overlain asnecessary.

Q296 Jeremy Wright: That I understand, but what Ido not understand is why it is not more eYcient froma corporate point of view to say, “There are a varietyof diVerent corruption standards around the world.What we will do, so everyone understands what theyare doing and what our competitors appear to bedoing, is to say that we will take the most onerous ofthose requirements and we all comply with thataround the country, around the world”. Why is thatnot the approach that is taken? Would it not be easierto understand for everyone who works within theorganisation?Mr Hammond: Indeed it may be. Unfortunately, Icannot answer that particular question because I donot know why that has not been chosen. However,what I would say is that, as we have already heard,the FCPA, for example, does make certainexceptions. It has a “reasonable belief” defence, forexample. It also has a de minimis rule for certainfacilitation payments, so can it necessarily be saidagainst, for example, some of the internationalregulations that are out there that it is in fact thetoughest one? I think in order to get the toughestposition you would probably have to mix and matchfrom a whole series of legislation and regulationsand conventions that are out there.

Q297 Linda Gilroy: Perhaps I could ask eachrepresentative of each company to set out yourposition as to whether you accept that there is a needto strengthen corporate criminal liability for bribery.We have received quite mixed evidence, as youprobably know, some people telling us it is tootough, others saying that it is only just enough not toruin UK competitiveness. What is your view onclauses 5 and 6 and do they in your view needchanging in any way? Perhaps Thales first.Mr Hammond: Perhaps I can answer that in twoparts. The first one is that you refer to the need tostrengthen corporate criminal liability for bribery inthis country. Yes, we fully support the Government’sdesire to consolidate and modernise the law andtherefore, yes, in principle we are supportive of theBribery Bill, if nothing else to meet, as we say, theperception of bribery and also perhaps to meet thecriticisms of some of our international counterpartsthat believe our law currently does not go as far as itshould. With regard to the second part of thequestion, clauses 5 and 6 with regard to corporateliability, yes, we are supportive of them. However, webelieve that the drafting of the present Bill,particularly as it relates to negligence, to thedefinition of “senior oYcer”, “adequate procedure”,and particularly questions over liability ofsubsidiaries, joint ventures and other businessconstructs is something that we would like to seeclarification on before it reaches the statute book.

Q298 Linda Gilroy: I think some of my colleaguesmight pursue some of those particular issues in amoment, but do I take it from the first part of youranswer that it is more or less to set out somethingthat improves the reputation rather than makes anyparticular diVerence to your practice at the moment?




Perhaps I can phrase that by asking you will the Billand the provisions in it make you change yourpractice in any way further?Mr Hammond: There are two elements. First of all,obviously, perception is important becausereputation to businesses within the defence industryis very important. As I have said before, I think it isquite diYcult to determine why this country does nothave a higher level of prosecutions and convictionsthan it actually does. That may be due to weaknessesin the law, and we accept fully that there may beshortcomings in that area, but equally it could be forother reasons. Will it change what we do? We believethat we already have a very substantial code of ethicsand compliance programme. We do, of course, keepthat under review and we will, of course, make anynecessary changes to reflect what we regard as anychange in the law. However, you must remember thatthere are already corruption laws. We are alreadysigned up to the OECD Convention. We are alreadysigned up to our common industry standard.Therefore, we believe that we already follow what isbest practice at this point in time.

Q299 Linda Gilroy: So would you therefore expect itto result in more prosecutions?Mr Hammond: That is possible, certainly perhapsuntil some of the messages get home to certain partsof the industry, but hopefully—

Q300 Linda Gilroy: But not your part of theindustry?Mr Hammond: In terms of the larger members of thedefence industry, and I am sitting with colleaguesfrom very large organisations, you have heard thatwe do all have substantial programmes that we haveinvested a lot of time, eVort and resource in, andtherefore we believe that we have made every eVortto minimise bribery occurring within ourorganisations.

Q301 Lord Thomas of Gresford: Mr Hammond, Ithink I heard you say a few minutes ago that Thalesin France operated a de minimis rule, and I think youspoke of them with approval. I wonder if you seeanything in the Bill to cater for that concept.Mr Hammond: With respect, with regard to deminimis, I was referring to the FCPA which doescarry it. We do not operate a de minimis ruleinternally within the Thales compliance programme.

Q302 Linda Gilroy: Can I ask Mr Bramwell the samequestion? Do you accept the need to strengthencorporate criminal liability for bribery and what areyour views on the new oVence?Mr Bramwell: Firstly, the company welcomes thisBill, as much as anything because it will clarifyEnglish law on the subject of bribery. What allcorporations need is clear law combined with clearprosecutorial policy. When we talk of convictions,we need to understand that convictions are aproduct not only of the law but of the policyassociated with prosecutions to be brought under it.From the company’s perspective, you will see thereaction that the company has made in terms of

redoubling its eVorts and redoubling its eVorts againmost particularly in the last two years. It is fair to saythat as we read the Bill now we do not think that wewould do anything that we are not already doing. Wethink we have a relatively high level of comfort—andI suspect other industry participants will as well—that our existing compliance systems are adequate tocomply with the existing law.

Q303 Linda Gilroy: Are there aspects of therecommendations of the Woolf Committee whichwould suggest that the provisions in the Bill shouldgo further if there is to be a level playing field?Mr Bramwell: No. This Bill would provide the sortof environment in which a company like ours,committed to implementing all the WoolfCommittee’s recommendations, can operate with adegree of certainty and a degree of comfort that ithas the right level of compliance. We welcome thisBill in broad terms. We think it is a step forward.

Q304 Linda Gilroy: Do any of the provisions needchecking in any way? Do you share any of thereservations that are expressed?Mr Bramwell: We share a number of concerns thatmay have been expressed to you by the CBI recently,most particularly in their written submission. Theexistence of a reasonable person test in terms ofconcluding how certain behaviour or expectationsmay be set we think is subject to wide interpretationand therefore could be associated with uncertainty.Like any company or individual citizen, we haveconcerns about creating criminal oVences which areonly established in accordance with civil standards.This seems to us to be somewhat unsafe in terms ofrisk of perverse outcomes and prosecutions. Ourpreference would therefore be that the conventionalapproach to oVences is taken in terms of appropriatecriminal intent being established. That said, if thestandard remains, we have a degree of comfort thatthe measures we have taken are so significant that weare satisfied, for example, where the adequacy testapplies, that our internal policies and processes willbe deemed to be adequate in the event of anyprosecution.Chairman: We have a policy decision to make. Thereis no way we are going to finish at 4.15 with ourwitnesses. Either we are ruthless with nointerventions, expecting short answers, or becausethis session is on an important subject, I think weshould go on.Earl of Onslow: It seems to me that the accusationsof bribery which swirl around the arms industry arequite extraordinary. We have here four people whorepresent that at its highest and I would stronglyrecommend to the Committee that we grill thesepeople as much as we possibly can so we can get theright answer out of them, because I think these areprobably some of our most important witnesses.Chairman: I think we ought to go on because this isa very, very important subject. As far as I can see, ourwitnesses are genuinely trying to forget the past—they all have form as organisations—and address thefuture. We are not addressing the past. We know thepast. We are trying to find solutions for the future.




Mr Bramwell, as you have such experience and youwill obviously be in touch with your colleagues in theUnited States, you have criticised the Bill. You haveevery right to do that but when you write amemorandum would you mind doing it in somedetail so that we can seriously considerincorporating it if we agree with your suggestions?Because you are a multi-national company, if youcould give us a company perspective on legislationand its implementation and strength in the UnitedStates, this would be an option for us.

Q305 Mr Djanogly: On the United States legislation,the corporate oVence equivalent to myunderstanding in the US has a defence if thecompany has been cleared by a regulator. This is nota concept that has any history in the UK but does thepanel think that it could do in the future in relationto this Bill?Mr Bramwell: The United States prosecutorialpractice is quite diVerent from that which wetraditionally have operated in the United Kingdom.What most sets apart a very large body of legislationand precedent in the United States from a companyoperating in the sector’s perspective at least is theavailability of what is called the Foreign CorruptPractice Act opinion procedure, wherein anycompany that is an issuer or is listed in the UnitedStates is able to write to the Department of Justice,describe a factual circumstance, not hypothetical butactual and how the company proposes to deal withit. Upon filing—which can be done over theinternet—it will receive the US Attorney General’sopinion within 30 days as to the Department ofJustice’s interpretation of the extent to which thatconduct does or does not comply with the FCPA.This is of immense value to companies looking forcertainty about how conduct would be treated andabout the eYcacy of their proposed approach tocompliance. It is especially useful around mergersand acquisitions of new businesses that may have anuncertain history. However, it must be a significantconsumer of resources and capability and I am notaware that those likely to be tasked withadministering the new Act, should it become such,would have access to the budget or the resources toprovide that.

Q306 Mr Djanogly: Should those who use it payfor it?Mr Bramwell: I have brought with me the opinionprocedures regulations, but I am not aware thatthere is any charge for that service at all.

Q307 Mr Djanogly: Should there be?Mr Bramwell: A government department chargingfor opinions as to compliance might placegovernments themselves in slightly diYcult waters.It might be best provided as a public service.

Q308 Mr Djanogly: Other regulators are paid forby users.

Mr Bramwell: One of the things we might come onto is that there is a significant diVerence in ability topay between large, medium and small companies.This Bill does not and cannot discriminate betweenthe treatment of large and small exporters.

Q309 Lord Thomas of Gresford: I understand thereis a department in the Department of Justice whichdeals with this giving of advice. It extends all the way,right through the federal system throughout theStates. They employ something like 60,000 people.You tell us about the procedures that you havedeveloped. Let us take a situation where anemployee in a subsidiary company in a foreigncountry is told, “You get the contract if you pay Xamount of pounds or dollars” or whatever it is.What, under your procedures, should that personthen do? Remember we are talking about corporateresponsibility. How far up the chain would it gobefore the decision is taken either not to pay or topay? How would it be recorded in the books of thecompany?Mr Bramwell: It would not go any further up in thefirst instance because there is an absolute prohibitionglobally within our company on the payment ofbribes or indeed facilitation payments. Thecompany does not believe that business obtainedtainted by corruption and bribery is worth having.The company would withdraw from a procedurethat it believed was tainted by corruption and then areport would be made which would go to the GlobalCompliance Department, which is based in theUnited Kingdom and also has an oYce inWashington DC. A report would be filed by thecompany with the relevant tendering governmentand any other regulator that was deemed entitled toreceive a report by the company. There would be noescalation for a decision whether or not to pursuesuch a contract.

Q310 Lord Thomas of Gresford: There would be areporting of it according to your procedures and thatwould go up the company to an appropriate level.Did you say that verification would be given to thecountry concerned, that this was in the pipeline?Mr Bramwell: It would go to the global head ofcompliance. Most tenders contain an obligation onthe respondees to notify the tendering governmentof any wrongdoing associated with it or breach ofthe procedures. There would probably be anobligation triggered immediately to notify thegovernment seeking the product and indeed thenthere would be in all likelihood parallel reportingobligations under internal company procedures andunder international law.

Q311 Chairman: Is there a French and/or Americanperspective?Mr Hammond: I do not know Mr Bramwell’s exactprocedures but it sounded very much like he wasdescribing what the Thales procedures would be inexactly those circumstances.




Q312 Earl of Onslow: I have this problem in mymind. The President of South Africa is accused oftaking a slice of the cake in something he wanted topursue. I cannot remember what it was. We had theHinduja brothers convicted of something to do withguns and the Indian Government. I cannotremember. Obviously Saudi princes seem to likegetting a slice of whatever action there may be. I canunderstand your answer to Lord Thomas about anagent at a relatively low level. When you getsomebody at that level saying, “I control the wholedefence budget and unless you go through my agentwho has a Swiss bank account, you will not get thecontract”, you and I know that is bent. You and Ialso know there are large numbers of people, eitherin Aerospatiale or in Flincher, who are earning theirliving making widgets to go into machines which killpeople. How do you get round what seems to be areal problem of people who are total controllers ofthat budget? It is not like just an agent in a companybut these are people right at the top who aredetermined to help themselves. I ask this as a seekerof information.Mr Garwood: I think the answer is you do not getround it. You just do not take the business. If you areasking will British industry lose business as a resultof this Bill, the answer is almost certainly yes.Businesses, ours included, will decline business. Ifyou ask me have we done so, we have declinedbusiness on this basis and will continue to do sobecause our rules are absolute. That is our position.There is no variation from that.

Q313 Earl of Onslow: Are you honestly telling methat, if you were asked to sell X numbers of veryexpensive aeroplanes to company A with all thatthat entailed, you would say, “I am being whiter thanwhite and I am going to turn it down because I amnot going to allow the Defence Minister’s firstcousin’s agency, wherever it may be, to take a sliceand I know that one of your other competitors isgoing to try and take it”? Would you honestly turnthat down? It is a moral dilemma which I quite see isextremely diYcult and I am not attacking you.Mr Garwood: The answer is unequivocally yes. Wewould turn it down. I repeat: we have turned downbusiness. It is bad for Britain and for British industryto take business on those terms.Chairman: A lot of what we are considering takesthis into account very strongly.

Q314 Lord Lyell of Markyate: I am going to move toquestion four, which is very closely related to whatwe have been discussing. If I may say so, gentlemen,we have the privilege of having before us four highcalibre people who understand this subject and Ihave not at the moment been able to fault a singleanswer. What we have to decide is not your calibre;we have to decide what is the right Bill to put intoEnglish law. There is a serious question in relation toclause 5 which eVectively gives a defence of having inplace adequate procedures. Some people aresuggesting that this should go wider—I am not surewhether it would or it would not—by saying thatyou should be automatically liable if a bribe has been

made in the company’s name except where duediligence is established or adequate procedures are inplace. You will see the similarity of the wording butdo you have any views as to whether you prefer theBill as it stands or do you think it should be widenedin that way?Mr Ball: My background is as an engineer, not alawyer. Although I lead a business, what I seek isclarity, something I can understand. If you wantLockheed to comment on the detailed provision ofthis, we would prefer to do that through a writtensubmission.

Q315 Lord Lyell of Markyate: You have two verygood lawyers on your team.Mr Ball: I bow to their superior knowledge on that.Mr Hammond: Would we wish to see it widened? No,I do not believe we would. As members of the CBIwe support the written evidence that has beensubmitted and the concerns raised particularlyabout the adequate procedures defence and itsavailability particularly relating to the definition ofsenior oYcer, which includes managers, which seemsto be a very broad category of people and does notnecessarily reflect the seniority within theorganisation. If that were to remain there, there is arisk that the defence is taken away immediatelybecause the negligence would be deemed to be on thepart of senior oYcers. Our understanding of the Billis that that would take away automatically thedefence of having adequate procedures in place,which we believe is rather unfair in certaincircumstances.

Q316 Lord Lyell of Markyate: If there is a blind eyeat too low a level, it is not fair on the corporation?Mr Hammond: I would not put it in those terms butwe are concerned about the fact that it is possible fora corporation to be convicted under clause 5 withouthaving intent.

Q317 Lord Lyell of Markyate: In terms of asuYciently senior level?Mr Hammond: In terms of a suYciently senior leveland there may well be extremely good procedures inplace. However, due to the acts of one particularindividual at a relatively low level, there wouldalmost automatically be a liability on the part of thecorporate entity.Mr Bramwell: I would respectfully agree with MrHammond. That is precisely the position that BAESystems would take. Large companies are wellexperienced in terms of operating sound systems ofinternal control across a wide range of activities.They have to comply with a plethora of rules andregulations and they have the resources necessary tobe able to do so. What is required is a degree ofrecognition in the law that there are no absolutes. Ina family business of six or seven people, one mayhave absolute confidence as a board member thatyou can vouchsafe for every member of yourbusiness. By the time you get to 100, it is morediYcult. 1,000 is more diYcult. With over 100,000employees, you are dealing with much more complexorganisations. You are talking about exhaustive




training procedures and sophisticated complianceand oversight programmes. The defence as drafted,subject to the caveats of the CBI input, is balancedbut I would echo what Lord Woolf said in his report.Boards should absolutely take responsibility for theeVectiveness of their internal controls across theenterprise. If there is aberrant behaviour, and therewill be statistically in 100,000 people on a fairlyregular basis, then provided there is a sound systemof internal control then that, in my view, as acorporate practitioner, should not lead to criminalliability. If the tone from the top is wrong, if there isa sense that there is a blind eye turned in the boardroom to the winning of business and the terms uponwhich it is won, I think this Bill gets it just aboutright in broad terms, in terms of making it clear thatthose in the boardrooms of companies doingbusiness internationally must take this issue veryseriously indeed.

Q318 Lord Goodhart: You say that what is desirablehere is clarity and I agree with that but would it notbe simpler and therefore clearer to cut down some ofthe provisions of clause 5 and say that, where youhave somebody acting on behalf of the companywho has committed bribery, the company is liableunless it can prove due diligence? That seemsperfectly straightforward. I think it goes with whatyou have said, Mr Bramwell, about the duty of theboard. That spares you the trouble of having todefine who has been negligent. Also, the problem isthat absence of due diligence cannot be pinned onany particular individual or group of individuals.Would that not be a simpler and therefore better wayof proceeding?Mr Bramwell: I understand your point and I think ithas much merit. The only observation I would makein response is that we are dealing here in prospectwith a Bill which will aVect a very wide range ofbusinesses in England and Wales. If I tell you that itroutinely costs in excess of £20,000, sometimes£30,000, to carry out due diligence on a singleindividual before you engage in a businessrelationship with them overseas, that is an expensewhich a high value, low volume contractor such as adefence industry contractor can absorb and invest inan attempt to win business. If you are a medium-sized, infrequent exporter of relatively low valuegoods, it will be extraordinarily diYcult to make thatsort of investment in due diligence as we call it inlarge companies. Negligence at least has a situationof awareness around it when it comes to beconsidered by a court.

Q319 Lord Goodhart: I think adequate proceduresmight lead to a problem.Mr Bramwell: Yes. My only concern is that onewould have to have confidence that the prosecutorialor investigative authorities were aware that one sizecould not fit all in this case. What it is reasonable toexpect a large, multi-national to do it is notreasonable to expect a medium sized enterprise in theprovinces to do. Their business would simply benon-viable.

Q320 Lord Thomas of Gresford: Drafting takes thatinto account obviously. The jury would ultimatelydecide in a prosecution and they would have regardto all the circumstances in which due diligence wasexercised, including the size of the company and thecost to the company of doing more than theyactually did. The diVerence here is between puttingthe burden of proof beyond reasonable doubt innegligence upon the prosecution or putting a burdenupon the defence on the balance of probabilities toshow due diligence. Which would be simpler fromyour point of view, do you think?Mr Hammond: Given the serious consequences thatwould arise as a result of a criminal conviction, Ibelieve that it should be for the prosecution to showbeyond a reasonable doubt.

Q321 Lord Thomas of Gresford: Negligence beyonda reasonable doubt?Mr Hammond: Indeed. We believe that negligencedoes not carry the necessary intent for such a seriouscrime and we would very much hope that a highertest would be required.Lord Goodhart: All the information is in thepossession of the company.Lord Thomas of Gresford: That is the burden ofproof point. You cannot expect the prosecution tohave access to all your files and procedures in orderto show negligence; whereas, if the burden wereupon you of showing on the balance of probabilitiesthat you had exercised due diligence, you wouldhave ready access to all your documentation in orderto establish your case. From the point of view of thecourt and a jury, it is far simpler, as Lord Goodharthas pointed out, to have the burden of proof provingthe defence upon the defendants who are inpossession of the facts.Chairman: Send us a group brief on this.Lord Lyell of Markyate: Would not the samediscovery be necessary whether it had in placeadequate procedures as in the Bill or had to provedue diligence? Would there be a diVerence?Lord Thomas of Gresford: It would be for thecompany to prove adequate procedures. To put theburden on the prosecution of proving negligence andthen of proving that it is negligence for example of asenior oYcer and so on is a very considerable burdenfor the state to bear when what we are postulating isvicarious liability for a bribe that has beencommitted by somebody in the name of thecompany. That has happened. That is the sine quanon of a prosecution. You have to prove that. Itshould then be, it seems to me, for the company fromits books and records, to show that they have actedwith due diligence and then the burden of proofwould be less upon them.Lord Lyell of Markyate: That is a fair point. In otherwords, the prosecution might fail at the first fence, sothe defence would not have to succeed at thesecond fence.Lord Thomas of Gresford: They would not have toraise it. The case would be thrown out half way if theprosecution failed to prove prima facie thatnegligence had occurred.




Chairman: That little exchange will cost you at least£50,000 on the open market afterwards.

Q322 Martin Linton: Can I ask Mr Bramwell to tellus, in a letter if necessary, what this £20,000 consistsof to investigate due diligence on the part of oneindividual? Is that legal fees? If you can tell us now,so much the better.Mr Bramwell: There are specialist providers of deepbackground research on companies and individualsoverseas, some of whom are based in this country,some of whom are in the United States. That wouldbe a fee which is not untypical for them to charge fora deep background report, which is the sort of thingyou would need to comply with the policies whichcompanies such as those before you today operate.

Q323 Martin Linton: An investigator?Mr Bramwell: Yes, to conduct what we in theindustry call due diligence on individuals with whomthe company is considering doing business. It is anexpensive proposition.

Q324 Chairman: It would involve privateinvestigators?Mr Bramwell: They have become public companiesin their own right now. A point that I have made tothe Minister for Justice is that there are twoobservations here. Firstly, that the United Statesagain, in terms of its practice in this area, holdscentral databases on screened individuals withwhom companies may choose to do businessoverseas, which will save US companies verysignificant costs. Also, the United States embassies,consulates and commercial attaches are verysupportive of American businesses’ local needs interms of finding appropriate people to do businesswith. That is not the case currently with Britishembassies generally if you do not have commercialattaches associated with them. It is an area that Ibelieve the Foreign OYce might consider providingsupport in because there are significantconsequences for British businesses of this type ofburden, particularly for the medium sized exporter.

Q325 Chairman: You have tried that, have you, andthey have said no?Mr Bramwell: It is not that they have said no. Theyhave very limited resource in many countries andthey are not able to provide the customised service tosupport British business in the way that USembassies will support American businesses.

Q326 Linda Gilroy: I have been sitting here thinkinghow this applies to a particular characteristic ofdefence contracts. It is something you mentioned inthe Woolf Committee report, oVset. I will not try anddescribe what oVset is because this is a questionparticularly for Mr Bramwell. Would you agree thatgetting this right is probably the remaining biggestrisk to reputation, having due diligence andprocedures which ensure that issues of oVset aredealt with in a transparent manner, and will the Billhave an impact on how you and other companies

deal with it? What impact is it likely to have ontrends in oVset being a feature of most big defencecontracts?Mr Bramwell: That is a very good question. OVset isnot generally something that is proVered by defencecontractors. It is more likely to be somethingrequested by governments putting work out totender. There are various forms of oVset and theyrequire long term presence and, in many cases, in-country delivery. The same degree of rigour needs tobe brought to bear with regard to oVsetarrangements as it does with the original contract. Ifyou operate, as BAE Systems does, a risk assessmentbased approach to doing business locally, there aresignificant risks associated with oVset becausecredits are awarded by government departments inreturn for work done. They may not be linear withthe cost of the work. We are currently yet againrevising thoroughly our oVset processes and policiesto ensure that we apply the same standards to oVsetas we do to business winning generally. I do notexpect oVset to decline, because it is a feature thatgovernment buyers of defence equipment wish to seeand indeed stipulate in their contracts.

Q327 Mr Borrow: If we can move to clauses 1 to 4 ofthe draft Bill and perhaps look at the wording ofthose clauses and the way in which it relies onconcepts such as an expectation of good faith andwhether payments were permitted under lawapplying to a foreign oYcial, I think it would behelpful to the Committee if the three businessesrepresented could let us know whether they feel thewording is clear, predictable and fair from theirperspective and, if not, how it could be improved.Would guidance be one way of improving what iscurrently on the table?Mr Hammond: In principle, Thales is supportive ofthe defences under sections 1 to 4 of the Bill.However, again we have concerns with regard to thedrafting. You have just mentioned such issues asacting in good faith, impartiality and being in aposition of trust. Obviously I was a little concernedwhen Professor Horder said in his evidence thatthese were not the civil law concepts as we knowthem and that these were matters to be determinedby the jury. I am sure the jury would be guided by thejudge in any particular case, but if those particularconcepts are not to have their civil law meanings andconnotations the question is what meanings do theyhave. Business will only find out on a case by casebasis as prosecutions abort and as clarification isgiven in the reports. One thing that businesses wantis to stay out of the courts and therefore clarity oftheir obligations in advance, so that they can takethe appropriate measures and put in place theappropriate means to prevent breaches, is obviouslyour preferred route. We would wish for clarification,either on the face of the Bill with regard to thoseparticular issues, or alternatively in the form ofguidance. Here I appreciate that guidance,particularly if it emanates from a governmentorganisation, is unlikely to carry the necessaryweight to be a complete defence. Perhaps I can takeby comparison the health and safety legislation and




the guidance that is given by the Health and SafetyExecutive. It is not mandatory for companies tofollow that guidance. However, they do not do so attheir peril unless they have a very good reason andcan justify otherwise. Perhaps that may be onepossibility for how the guidance can be given.

Q328 Mr Borrow: Are either BAE Systems orLockheed Martin in agreement with that or do youwant to add anything?Mr Ball: As somebody trying to be compliant withthe law, if I had to turn to a lawyer to explain to mewhat these terms mean, it is less useful. The exampleof health and safety law is a very good one.Mr Bramwell: I would agree wholeheartedly withMr Hammond’s remarks.

Q329 Baroness Whitaker: Taking the interestingexample you give of the approved code of practiceunder the Health and Safety at Work Act and still onthe question of clarity, do you think there are otherareas in the Bill which are too uncertain forcompanies to implement and that this could beresolved through the provision of guidance of anauthoritative kind? The phrase “adequateprocedures” comes to mind. I am not aware ofanything quite so specific in your own guidance. TheWoolf Report very properly endorses your ban onfacilitation and it has some very tight controls itoVers on subsidiaries and joint venture syndicatepartners. Do you see merit in spelling out themeaning of any of the terms in the Bill?Mr Hammond: Yes, we do see merit in clarification.

Q330 Baroness Whitaker: Which ones?Mr Hammond: As we have previously mentioned,particularly the concept in sections 1 to 4 relating toissues such as good faith, impartiality and being in aposition of trust. Also regarding the term “improperperformance”. Then we move on to the corporateoVence. Further consideration and clarificationwould be welcome by Thales if the definition of“senior oYcer” and perhaps I could point theCommittee in the direction of the CorporateManslaughter and Homicide Act which has adefinition of “senior management” which we believemuch more closely reflects the control in mind andthose at the highest levels of responsibility ratherthan what is oVered in the draft of this Bill. Likewise,as we have mentioned, I do not know whether thesame comment applies if Professor Horder wasasked. He has obviously stated that a number of theterms in this Bill he does not see as being the sameas we would understand them under the civil law. Iwonder if that can be the same as negligence. Herefers to the Manslaughter Act as one of the areaswhere he says that he leaves the concept ofnegligence to be determined by the jury. Interestinglyenough, the Manslaughter Act does not refer togross negligence. It refers to a gross breach of theduty of care that is owed and stipulated in thatlegislation. Interestingly, the drafter of that Actdetermined to embody in the legislation theirunderstanding of what they required with regard toduty and care and the test that was to apply with

regard to determining whether there had been agross breach; whether that clearly reflects aspects ofnegligence from the civil law. Whether it is exactlyone of those things we remain to see because the firstprosecution under that Act is still pending. There arevery recent examples of where, on the face of the Bill,clarification and clear guidance has been given andobviously if it is incorporated into one singledocument that would be preferable, but we areequally in favour of guidance issued by otherauthorities if that is the chosen route.

Q331 Baroness Whitaker: Do you think any suchguidance is capable of international agreement? Isthat a realistic proposition, sector wide, say?Mr Hammond: Within the defence sector, there arevery strong eVorts being made, certainly within theEuropean defence and aerospace industry, to adoptcommon standards and for each of the memberswithin those countries to lobby their parliaments inorder to make sure that there is consistency acrossthe piece. Ideally, I would like to say yes. I would liketo think it was possible but I do see a number ofpractical diYculties to that, even in terms of signingup to the OECD Convention, for example, and someof our international partners as to whether we havecomplied wholly with incorporating the terms ofthat Convention into English law.

Q332 Baroness Whitaker: You think it is worth a go?Mr Hammond: Certainly.

Q333 Mr Carmichael: I am interested in yourparallel with health and safety legislation and theissuing of guidance as part of the corpus. If you goback to the primary legislation, the Health andSafety at Work Act, that is drawn very widely. Itimposes certain very general duties in relation tooccupation of premises, the provision of a safesystem of work and the rest of it. Hereafter, there isa vast body of regulation which for all practicalpurposes is what businesses will look to in terms ofthe construction of their policy. Are you telling theCommittee that that is something that you wouldfind acceptable; that you could accept the somewhatnovel concepts that there are in some of theprovisions in clauses 1 to 4 if you were given thatsecondary guidance? Is it also your evidence thatthat would be preferable, in your view, to having theguidance provided in primary legislation?Mr Hammond: It would partly depend upon thetiming of the guidance. One thing that business doeslike to see as far in advance as possible is what itsobligations may be, because it gives it time toprepare, to review its own practices and proceduresand, if necessary, to amend those and bring theminto line. As a lawyer, I would have to say it isobviously much easier to read one single documentand to refer to one particular point of reference, butwe are equally used to rifling through numerousdocuments, sources and points. I would have noparticular objection to following the format ofsecondary guidance.




Q334 Mr Carmichael: That would eVectively curesome of the objections that you have to the noveltyof some of 1 to 4?Mr Hammond: If that guidance was forthcomingeither contemporaneously or very shortly after theprimary legislation and ideally before there are anypronouncements perhaps through the courts, yes.

Q335 Mr Djanogly: Are facilitation payments andcorporate hospitality adequately addressed withinthe Bill or in eVect is it best left to prosecutorialdiscretion, or should there be de minimis limits put infor instance?Mr Bramwell: I think we are at the de minimis level,certainly in relation to hospitality, especially in thesestrained times. I do not think that it could sensibly beargued in relation to defence contracting that almostany amount of corporate hospitality within normalbands could be viewed as amounting to somethingthat would sway a decision maker’s opinion one wayor the other. Corporations have extensive policyprocess around corporate hospitality now and Ibelieve governments and members of the ArmedForces most certainly do have very significantrestrictions on the hospitality they can accept fromthe industry in our sector. As far as facilitationpayments are concerned, you have heard BAESystems’ view. It is at one end of the spectrum. Ourpolicy recognises that, where the safety or welfare ofan employee would be placed at risk by refusing tomake a facilitation payment, they may make thatpayment, provided they immediately report it. Frommy perspective, these are at the petty end of thespectrum with which this Bill is concerned and notsomething which should cause the draftsman oryourselves a great deal of time, given that theindustry is I think across all sectors capable ofregulating itself.

Q336 Mr Djanogly: Was that just a call forprosecutors to be careful or do you think the deminimis provision should go into the Bill?Mr Bramwell: I think the de minimis provisionshould go into the Bill.

Q337 Lord Mayhew of Twysden: Would you acceptthat, if somebody were to adjust the way in which heperforms a function by reason of having acceptedhospitality, that would be an improper act on hispart? If that is something that has to be accepted—I think I see you nodding but I do not want to putwords into your mouth—it is very diYcult, is it not,to see how the Bill as drafted excludes liability for the

oVering of hospitality, because presumably peopleare oVered hospitality with a view to encouraging theexercise of a discretion in their favour? I wonderwhether you are relying, because there is not enoughclarity in section 1 on the good sense of prosecutors,in which case you can hardly rely on the good senseof a private prosecutor perhaps to the same extent.Mr Bramwell: That is a fair observation.Mr Hammond: I do not think this should be left toprosecutorial discretion. We are obviously all fullyaware of hospitality and facilitation payments andtherefore, particularly as there is precedent fordealing with this in other legislation—the FCPA forexample and the OECD Convention mention it—why could we not deal with it in the Bill? Let ustackle the issue head on and give certainty to thematter. We understand prosecutorial discretion andhow it currently operates, but perhaps that is justsimply a reflection of measured public opinion at anypoint in time. That may change.Lord Williamson of Horton: I do not ask for ananswer but I do want to make this comment onfacilitation payments. If one of your employees isasked to pay a few thousand dollars to, say, a partyoYcial in country X, you have to count that as abribe. That is the law in this draft legislation. YourAmerican competitor can take out a big bank rolland hand it straight over because, under Americanlegislation, it is explicitly excluded from beingtreated as a bribe. It is a nice little gap available toAmerican exporters owing to the very lax drafting,deliberate, of the American legislation.Chairman: We appreciate your answers and wewould appreciate even more your writing to us. Imust rush in and defend the United Kingdom onthese great charges that there are no prosecutions.The jewel in the crown of prosecuting frauds andbribers was Gordon Richmond Foxley, director ofammunition procurement, who was sent to jail forfour years and served two years in Ford OpenPrison. Part of the sentence was that unless he paid£1.5 million within 18 months he would have to dothe four years. They forgot and when finally it wasremembered the government went to the High Courtand they were told, “Too late, mate”, so even whenthere is a success it turns out as a grotesque failure.I hope that this legislation will eventually getthrough. If there is bribery, as I am sure there is, Ihope the perpetrators at whatever level at long lastin this country feel the taste of justice and not inFord Open Prison. This will not aVect any of yougentlemen, but thank you very much for coming. Weappreciate it.



Witnesses: Mr Jeremy Cole, Bribery and Corruption Taskforce Co-ordinator, Lovells, Ms Louise Delahunty,Partner in Crime, Fraud and Investigation, Simmons and Simmons, and Mr Monty Raphael, Head of Fraudand Regulatory, Peters and Peters, gave evidence.

Q338 Chairman: Thank you very much for coming.What is your general reaction to the Bill? Is it goodenough? Is it better than the last one? Can you livewith it? Were there mistakes? How can they beremedied?Mr Raphael: Thank you for inviting me. I am asolicitor in private practice and have been for almostfive decades. I am associated with a number oforganisations that have campaigned for a reform ofthe bribery laws, but the opinions I am about toexpress to you and your noble colleagues are my ownand do not represent any particular organisation. Ihope they simply represent common sense. It is amatter for you and your colleagues to judge. Mypersonal reaction to the draft Bill is that I welcomethe initiative that has produced a draft Bill so that weare nearer having some legislation. I share the viewof the majority of the legal profession in finding itrather sad that it is 103 years since Parliament lastreformed the law. As a lawyer, I am very consciousof the criticism that has been levelled at this countryfor its failure to reform the law and its allegedadherence to our treaty obligations under the OECDConvention. All my other remarks must be seen inthe context of my general welcome to the prospect oflegislation and I earnestly pray that after yourdeliberations and your Committee report thatlegislation will be introduced into Parliament andthat it will pass into law in this Parliament and willnot have to wait to be introduced or reintroduced inthe next Parliament. So far as the Bill itself isconcerned, I echo some criticisms that have alreadybeen made by witnesses before you as topresentation. It seems to me the Bill is unnecessarilyformulaic. I do not applaud the modern draftsman’spractice of giving initials to various players, Ps andRs and so on. I do not applaud the way the conductis split into cases, conditional functions andactivities. If that is thought to be cavilling, I wouldrather have these grammatical and presentationalimperfections than no legislation at all. Very briefly,when we come on to it, I would like to be given theopportunity of addressing you about the corporateoVence and the oVence of foreign bribery. If you willforgive me, perhaps I can just impose upon you forone more minute by way of general remarks. I thinkthe Bill has to be seen in the context of our generalcrime control policy in the way things are arrangedin this country. As was obvious from your previoussession, there is going to be under the structure ofthis Bill a great deal of reliance on prosecutorialdiscretion, so it is a question really for you and yourcolleagues to consider whether that is the correctway forward. I personally favour the exercise ofprosecutorial discretion over the insertion into thisBill of more prescriptive obligations. I think it isdiYcult to prescribe conduct in this way. I think thishas already been addressed to you by ProfessorHorder, who is the chairman and architect of theCommission’s legislation. We are quite familiar inthis country with allowing community justice in theform of jury trials to determine the conductstandards, the ethical standard that we require of our

citizens. We do it all the time as lawyers and there aremany lawyers sitting in front of me, ratherfrighteningly when I am addressing a number of verysenior lawyers. The test of dishonesty which informsjury decisions every day in our courts is based on anassessment of what is acceptable in our society, giventhe peer group of the suspect or the oVender, and Isee no problem at all in importing that concept intothis legislation at least so far as oVences in clauses 1to 4 are concerned. I am troubled, as are so manyother people, by the concept of criminal negligencein clause 5. The issue of hospitality I think is best leftto discretion and to the good common sense of ajury, as are facilitation payments. I do not regard thefailure to have a level playing field with ourAmerican competitors on the FCPA as disqualifyingthat. I want to say one thing about debarment,which I know is very troubling to the commercialcommunity. Thank you very much for allowing meto make these preliminary remarks.

Q339 Chairman: You can send us a detailed briefafterwards.Ms Delahunty: Again, some preliminary remarksfrom me. Like Monty, I am a criminal lawyer, abusiness crime lawyer, but I work for a City law firmwhich has oYces around the world, so I advise manycorporates in many industries and welcome this Billas a way of bringing some certainty and improvingour reputation around the world. I am concernedthough, looking at the Bill as a criminal lawyer andlooking at how it may be prosecuted, about some ofthe terminology. I tried to envisage the trial. I hearwhat Monty says about how juries have to decidematters of dishonesty, and indeed we have witnessedthat happening in many cases, but where a jury isbeing asked to look at good faith, impartiality, trustand all those other issues one has to remember thatthere will be a whole range of industries involved. Iknow from my practice that these industries are veryspecialised in their nature, whether you look at theenergy industry, the oil industry, the pharmaceuticalindustry. It troubles me about how this will beprosecuted and whether the prosecution will have toeducate the jury on what is to be expected of thisparticular, reasonable man, how complex that isgoing to be and how long that is going to take at atime when we are being encouraged to make surethat fraud trials are short and not so expensive to thestate. That is of concern to me. The other concern Ihave, having read Professor Horder’s evidence, isthat the answer seems to be when an issue is raised,“Well, we will have some guidance. There will besome guidance on what these terms mean. There willbe some guidance on adequate procedures for thecorporate oVence.” The concern here is you havecompanies which will be dealing with these issuesaround the world. At the moment you have aplethora of guidance from a number of trade bodiesinternationally. You have diVerent levels ofguidance, depending on which country you are in.To give some certainty to the companies that aregoing to have to train their staV is a major issue here.



3 June 2009 Mr Jeremy Cole, Ms Louise Delahunty and Mr Monty Raphael

There is a query in my mind about if you have a clearlaw really how much guidance should you need, butif you do need guidance how are you going to helpthe business to deal with that guidance, I think withthe assistance of government. One example which Ican speak more about if that is helpful or put inwriting as we are late in the day is to look at the anti-money laundering law model that we have in thiscountry and the fact that to enable the much widerconstituents who are now regulated within themoney laundering law to deal with their duties,professional bodies for each constituent part forbanks, for lawyers, for accountants, for trustcompany service providers and now for fine artdealers and a whole range of very popular people,including estate agents—who may even be said to bemore unpopular than lawyers—draw up their ownguidance, submit this to the Treasury, the Treasuryblesses the guidance and then this is used inprosecutions. I do not know if that might work herebut at least it gives those in those sectors somethingto look at and work on. Here I am a bit concernedabout all this discussion of guidance and how ourclients are going to get some certainty about howthey should deal with this on the risk managementside.Mr Cole: Good afternoon. Just by way ofbackground, I am, like Louise, a City lawyeradvising corporate clients on aspects of bribery andcorruption. That is reallymy perspective on this. Thequestion I asked myself was broadly will the BriberyBill be eVective. I think quite clearly the answer tothat is yes, but I went on to ask two specificquestions. One was: will corporates put in a strongercompliance regime as a result of this Bill. Again, myresponse to that is yes. You have heard from earlierwitnesses this afternoon that they already havestrong procedures in place, sophisticatedprocedures. I think even those corporations willreview their procedures as a result of this Bill, whichmust be a good thing. There are many out there thatdo not have procedures. As a result of this Bill, mysense is that they will look and inspect for themselvesas to what they are doing and put in procedures,which again is a good thing. The second question Iasked, which is coming at this in a slightly diVerentway, was will corporates self-report when they haveproblems. My answer to that is probably no. Oursystem is focused on prosecutions. As an aside, I wasconcerned that the Ministry of Justice has alreadyestimated that this new corporate oVence will resultin additional prosecution an average of 1.3 per year,which does not sound particularly threatening. Doesthe Committee want to encourage a culture of self-reporting, as is very familiar in the US? What are theadvantages? It identifies positively which corporateshave issues and ensures that they clean up their act.It enables prosecution authority resources to bespread far wider. It assists in identifying the hotspotsin particular industries where there are problems ofbribery. It clearly raises awareness and publicitybased on what we have seen in the US. Corporateswill not self-report unless there is a real opportunityto avoid criminal prosecution. Many of theseindustries will be concerned, as I am sure you have

already heard, about mandatory debarment inrelation to defence procurement, so procurementcontracts in the defence industry and theconstruction industry. Some of these businessessurvive on procurement work. If they get a criminalconviction, their business could collapse overnight.If they are going to self-report, they have to knowwhat the path is ahead of them. They have to have apretty clear understanding of what that involves. Inthe US there is a well travelled track in terms ofdeferred prosecution agreements with civil fines. Inthe UK we do have a US-style approach adopted inthe situation of cartels. Both the EuropeanCommission and domestically the OFT do have aguidance and leniency programme. The comparisonis not quite direct because in that situation thecorporate is fined. There are not criminal penalties.There are enough analogies there to say maybe thereis an environment here where we could encouragecorporates to self-report on the basis that they knowor have at least a better sense of what they are lettingthemselves in for. Thank you.

Q340 Lord Thomas of Gresford: Mr Raphaelreferred to the simplicity of dishonesty and how it isinterpreted by juries every day in every court withoutany diYculty. It is quite an easy concept, I shouldhave thought, to consider whether X bribed Y andwhether Y received a bribe from X. These are notdiYcult concepts. When we come to clause 3 wherewe are asking the jury, under sub-clause (8), to applytheir test, the test of a reasonable person, what is itthat they have to look at? They have to look atwhether a person comes within condition (a), (b) or(c), whether he is a person who is expected to act ingood faith, expected to perform somethingimpartially or is in a position of trust. Then the juryare going to ask what is the relevant expectation ofthat particular person and individual in whateverposition he is in. The summing up could besomething of a nightmare, could it not, withsomething as complex as this?Mr Raphael: I think the summing up in white collarcrime is always diYcult. This is central to the issue ofwhether we should have jury trials at all in fraud orrelated matters like corruption. It is a debate that isstill pending really in this Parliament, where we havethe means to do away with jury trials in certaincircumstances but, so far, that has not beenimplemented because we treasure the idea ofcommunity justice. I can only be anecdotal aboutthis. I have sat through many white collar crimetrials, some of them of the most immense complexity.Where they are presented skilfully, as they normallyare in the higher courts, by skilful advocates, wherethe summing up is done by extremely well-qualifiedand eloquent, experienced judges—we have specialtraining now for judges to deal with complex casesof this kind—I myself believe that they can beexplained to a jury. I do not believe we need specialjuries. All I think we need is attentive juries andskilled advocates and the elements of the oVence canbe explained. I do not say this facetiously: if thejudge can comprehend the elements of the oVence,he can enunciate them to the jury. The problem is to




make sure that the judge is well-trained and used tothese concepts and can himself comprehend them.Otherwise, if we abolish juries, we will have judgesalone and of course judges will have to tell us whythey came to their conclusions. I know from my ownexperience that many judges would rather not trywhite collar crime because they do find itintellectually very challenging, but we have a veryhigh level of judiciary in this country. I have littledoubt that that could happen. I have heard verycomplicated Stock Exchange frauds explained tojuries who had never come across shares before, whoknew nothing about a limited company or how itwas capitalised and so on. It was Janet and Johnmeets the Stock Exchange and yet they were able tojudge and distinguish between the guilt or innocenceof a variety of accused, acquit some, convict othersand so on and there were no viable appeals. I haveevery faith in this. It is diYcult. These are diYcultconcepts.

Q341 Lord Thomas of Gresford: What I am actuallyasking you is whether this requires all the complexityin clause 3 and the introduction of concepts of goodfaith, impartiality, positions of trust and relevantexpectations or whether we could not simplify thewording to a very considerable degree?Mr Cole: My sense is that it is overcomplicated. Theconcept of what we are talking about here, theunderlying lack of integrity, can be put in a muchsimpler way, but to subdivide it into three seems tome to be overcomplicated. I am sure, as Monty says,that we can get around that but it seems to me we aretaking this too far, it is lawyers taking this to anextreme.

Q342 Lord Thomas of Gresford: It is a lack of trust inthe jury system really, is it not? The pressure for trialswith a specialist jury of City bankers has beenslightly eased in recent months. The concept ofcommunity justice is clearly far better than specialistjustice with people applying their own standards.The Committee are concerned as to whether this isovercomplicating and whether it can be simplifiedand presented in a much easier way.Mr Cole: My sense is it can is the answer. My sense isthat those three subdivisions could be collapsed intoone and still retain the very element of what you aretrying to get at through this Bill.Ms Delahunty: I think you have to look at whatwould happen with a defence hat on, what is goingto be expected of the reasonable man, and it is to beexplained to the jury. You do often get in these casesthat the prosecution will call an expert to say what isexpected of the reasonable business executive or thereasonable solicitor who is being prosecuted formortgage fraud, for example, what standards areexpected, but then the defence will call anotherexpert to say—

Q343 Lord Thomas of Gresford: We successfullymanaged to exclude in a mortgage fraud I didrecently a so-called “expert” solicitor to tell us whatwas expected. Sorry to interrupt.

Ms Delahunty: Sometimes if they are not excludedyou can have a battle, you can have two experts. Ifthe jury are going to be educated on the particularbusiness so that they can think about what would bereasonable we want to make sure that theprosecution do not have to jump through so manyhoops. I would advocate that this is very, very simplydefined and agree that it could be drafted in abetter way.Mr Cole: The only thing I would add to that is thequestion of reasonableness and whether you need tomake some reference to what you are measuringagainst and whether you need something in therealong the lines of acceptable standards of integrity,international standards of business, somethingwhich gives it a position. That is just a suggestion.Lord Thomas of Gresford: It might be a question ofevidence in that particular case, of course.Chairman: Thank you. That is very helpful but putpen to paper, please, because we have to provide, ifwe can, an alternative to the Bill so we wouldwelcome your assistance.

Q344 Lord Lyell of Markyate: You have gotquestion 11 in mind. Clause 1 requires an individualto know or intend that “improper” performance hasor will arise, but the passive bribery oVence can becommitted by an individual who has no knowledgeor intention of this kind. Do you think there is amisfit between these two oVences and does it matter?I am just going to add one rider to that because youhave been saying that dishonesty is a concept whichfrankly juries do not find diYcult to understand.Dishonesty, although it has been said in previouscases that it does not apply and that in other cases itdoes, there is some judicial conflict on that, is a veryclear and long-established concept. With thosematters in mind and with a good deal of sympathyfor your view that this could be compacted, but alittle bit of trepidation since we have been round thecourse so many times, what is your answer toquestion 11? Should we stick with intention or is itsuYcient that you can be guilty with no knowledgeor intention?Mr Raphael: It is always my fate to be asked to dealwith the most diYcult questions on these occasions!Ms Delahunty: Do not worry, I will chime in. I justthought you would say it first.Mr Raphael: I understand what was in the mind ofthe draftsman of these clauses in this way: althoughquite rightly you say that dishonesty is always saidto be an unnecessary element in bribery, somethingwhich I think the average layman finds very diYcultto understand, how you can have an honest bribe,nonetheless I can understand why it has been framedin this way insofar as the idea really is to discouragepeople from asking to be bribed in some way, eitherfinancially or be given some other advantage. It is todiscourage people from asking for presents, gifts,advantages, tickets for Glyndebourne or whatever itis that is thought to be heinous. It does not troubleme for this reason: it has not caused us any problemin the area of domestic bribery at all. We have notlooked for the element of dishonesty, although in arecent case called Kensington it was said that you




could not receive a bribe unless you were dishonest.Leaving that on one side, I think this is really helpfulwhen we get to clause 4 and the bribery of foreignpublic oYcials because we have to bear in mind thatwe do not want to put on to the prosecution here anykind of burden concerning themselves with the stateof mind of the receiver of the bribe. The thrust of theOECD is to deal with the supply side and toconcentrate on the knowledge and mental element ofthe briber rather than those who receive the bribe. Iam not troubled by it. I do not think it is a mismatchand I do not think it is going to create forensicproblems.Ms Delahunty: I have a basic concern about acriminal oVence that involves a lack of intention juston basic principles. I know that there has been somecriticism of this saying this makes this an absoluteoVence without any intention, any mens rea. I hearwhat Monty says about this but I have concernsabout whether this sets a precedent for otherabsolute oVences. I am not sure how it is justified.Mr Cole: On a drafting point, I think there is atiming issue here. For some of these oVences, theoVence is not complete until you have intention, andan example of that would be under clause 2(2),whereas under clauses 2(3) to 2(5) it seems the factis the recipient has performed a function improperlyand received money for it. It seems that in thosecircumstances the oVence is already completewithout the intention having to be proved, so thatthe recipient cannot be heard to be said, “We did notintend there to be any connection, as it were,between the performance and the advantage that hegained” because it is inherent in the factualcircumstances that are being suggested under clauses2(3) to 2(5). Just from a pure drafting point of viewit does not give me a problem.

Q345 Lord Lyell of Markyate: As you say, 2(2) doesrequire intention to obtain business or a businessadvantage and then you have also got to give a bribe.If you intend to get a business advantage and give abribe there is quite a lot of intention there.Mr Cole: Yes.

Q346 Lord Lyell of Markyate: I would have thoughtit is easy to infer dishonest intention.Mr Cole: Which is what you have under 2(2).

Q347 Lord Lyell of Markyate: Except that it doesnot say it must also dishonestly intend. It is implicit.Mr Cole: Yes.

Q348 Lord Lyell of Markyate: I have a revulsionreally against the use of the word “improper” but somany academics seem to love it and the LawCommission that we may be fixed with it; time willtell.Mr Cole: My reaction to this is this is not the biggestissue in this Bill by a long way. I think some of yourlater questions to me give rise to far moreimportant points.Mr Raphael: Can I just say this colloquially. I thinkit is meant to deter people, either public oYcials orthose in a position of trust, fiduciary positions, from

holding their hand out. This is meant to be adeterrent, an absolute bar, people must think twicebefore they ask or receive anything. That is how I seeit and I do not see the harm in that. It may be toopuritanical a view and maybe Puritanism comes withsenility, but that is the way I see it.

Q349 Mr Cox: Is not the problem that the word“improper”, which I must confess I cannot recall ina criminal statute other than this one, covers anenormous range of behaviour that may, while beingimproper, nevertheless not be appropriately broughtinto a criminal court? The example I gave to some ofyour predecessors yesterday was a trainingdepartment in a City bank which is doing rather welland the next door bank rather likes the cut of theirjib, so they say to one of the deputies in thatdepartment, “Tell you what, you go and persuadeyour colleagues to come over to us and we’ll oVeryou a very attractive set of incentives and packagesthat will be much better than you’re getting whereyou are now” and X goes into his tradingdepartment and starts talking to his friends aboutleaving that bank. Now, unquestionably he has animplied duty of good faith in his contract ofemployment and you could very much argue thatwhat he should not be doing is going and bringingpeople round to the other bank. It seemed to me tocomply with every single requirement and ingredientof clause 1. He would be oVering a financial or otheradvantage, the bank that is trying to poach, becauseit would be the package that you are going to getwhen you turn up, he is breaching an expectation ofgood faith because he should not be going round ingood faith to his own employer at the time andtrying to help his colleagues over to the other bank,and there may be whole areas of life—horse racing,the Chairman suggested football—where you aregoing to get types of conduct that while somebodymight regard them as improper would notnecessarily be ones that we should see in a criminalcourt, Mr Raphael. Certainly you and I will not haveseen those things before and perhaps we wouldbenefit from having them.Mr Raphael: I can see that. May I say with thegreatest of respect that one could analyse this pieceof draft legislation and many others on the basis thatit does not fit every particular kind of model ofconduct or delinquency. The thing is that particulardelinquency, as we know, is visited very adequatelyby the law of inducing a breach of contract.

Q350 Mr Cox: That is a conspiracy. The onlycriminal oVence is a conspiracy.Mr Raphael: No, you may sue people for conspiringcivilly, and they often are.

Q351 Mr Cox: Yes.Mr Raphael: My only religious faith is my belief inthe integrity of our prosecution system and I do notbelieve that people will be prosecuted where theproper remedy is to leave it for the parties to take aremedy in the civil courts for a tortious behaviour.




Q352 Lord Thomas of Gresford: Can I take you toclause 4, the bribery of foreign public oYcials. Is thissomething that you welcome? Does it comply withthe international obligations under the OECDConvention and so on? Do you think that there arediYculties with it? For example, we seem to have adiVerent definition of what a bribe is in sub-clause(3) where the concept of what is or is not“legitimately due” enters in. That is further refinedin sub-clause 4 which says that the particularadvantage is legitimately due but “if, and only if, thelaw applicable to that person permits or requiresthem to accept it”. What does the prosecution haveto prove? Does the prosecution have to prove thatthe advantage is not legitimately due and does theprosecution then have to go into what the foreignlaw of the country is in order to prove that it is notlegitimately due and so on? I would be grateful tohave your observations on that.Mr Cole: Certainly in terms of the question of thelegal test that should be applied my sense is that youshould adopt a written law test. I do not see how elseyou can do it. To bring certainty to both the courtsand, frankly, for the clients is the way in which it isapproached under the FCPA. It talks about writtenlaws and regulations. To me, if you start to gobeyond that then you are opening up a Pandora’sBox in terms of what is the law and you will getmany, many experts coming through the door tellingyou what the custom is and, therefore, what is thelaw and you will never get to the end of that. Mysense is that it should be a written law test. There isa question at the end of whether it should be areasonable belief defence. I am open-minded on thatpoint because if you have a written law test then allthat a defendant has to fight about is whether he hasbeen reasonable in his approach. You try to find outwhat the law is, so you get advice from a local lawyerand say, “What is the law here?” and if you areadvised by that law firm in an overseas jurisdiction,“This is the law” and they have actually got it wrongbut you have placed reasonable belief in that, maybeit should have a let-out. If you take the written lawapproach the boundaries for that defence are fairlylimited and, therefore, on balance I would leave it in.Ms Delahunty: I am concerned about sub-clause (4)and how it is to be defined. Reading ProfessorHorder’s evidence, in his mind it seemed to beconfined to payments to charity, to build anorphanage or a school or something like that. Iwonder if this Committee and those involved in thedrafting of the Bill need to know more about theFCPA and how that does work with the written lawexemption and what does it apply to and what hasbeen accepted within that scheme. When I look atthis law I keep going back to the fact that we aretrying to put in a new law, first of all because we needa new law but, secondly, to comply with ourinternational obligations and perhaps to complywith what the US would like to see of us as well asthe rest of the world. We need to see what ishappening there because just to have this in to applyto countries where you can have a contract if youbuild an orphanage, I am not sure how that really

works and I am not sure how this is going to work ina trial and how it is going to be explained. I find itquite worrying actually, quite confusing.Chairman: The next question is a long question, andyou have got it in front of you. I think this is the mostinteresting question of all. Can you bribe and getaway with it? This is question 13: the foreign oYcialsoVence turns on whether an advantage was“legitimately due” in accordance with the foreignlaw that applies to the oYcial.

Q353 Lord Thomas of Gresford: I trespassed onthat earlier.Ms Delahunty: We were discussing that earlier withall due respect, Chairman.Mr Raphael: Can I just say one thing about this.Every day of the week corporations take advice ontax from tax lawyers and sometimes the tax advice iscorrect and sometimes it turns out to be incorrectand is struck down by the courts. We do not believethat should be a defence, it is a matter of judicialdiscretion and so in the first instance must be amatter of prosecutorial discretion. If we leave areasonable belief in a clause as such it seems to addnothing because a responsible corporation doingbusiness overseas will always if it is in any doubt, andthere will be very few occasions when it can be left inany doubt as to whether what is being asked for is abribe, will seek local advice. Where they have soughtlocal advice and the instructions have been good, theadvice has been unambiguous and they havefollowed the advice to the letter, it is inconceivablethat they will be prosecuted. What concerns me, andI know time is running on and if you want us to dealwith it by way of written submission so be it, issomething else that was raised in your first sessionwith Professor Horder and that is the problem oflocal partners, where you are forced to have a localpartner who is or is not related to the head of stateand you are dealing with a public procurementcontract. To a large extent that bedevilled the issuein British Aerospace, if you remember, where it wassaid to be one of the problems in bringing that caseforward. What do you do when it is legitimate to theextent that it is said you have to deal in this way andno other way otherwise you cannot deal. Theproblem is not just purely one of ethics, but once thisBill becomes law, if it does, it is a question of whetheryou are going to openly commit something that willattract criminal prosecution and conviction anddebarment in this country. It is a very tricky problemwhich I think needs to be considered and I do notknow whether it is adequately addressed in thisparticular piece of legislation.

Q354 Lord Lyell of Markyate: It may be adequatelyaddressed. I have been trying to think about that inthe context of what we know, which is limited, aboutthe British Aerospace case. We know that LordGoldsmith told the House of Lords that he was notsatisfied that the case would necessarily succeedanyway, leaving aside any representations. I surmisethat is partly or perhaps wholly because the systemin a country which is run in a very, very diVerent wayfrom our own puts the question of procurement into




the hands of some senior member of the royal familyor somebody chosen by them and that is the way thatbusiness is done. To say that is not permitted withinthe context of this Act would be diYcult, so I thinkit would be permitted. It may be that if that is theonly way that business is done there, that is whatParliament would wish to achieve. The reason I amsaying this really is to get your comment to try andfocus on the right issue in law in relation to the Billas currently drafted. On the whole do you agree withmy assessment of what “permitted” means? I willjust add one sentence. In English law if something isnot forbidden then under the common law it ispermitted, there is no law against it, no criminality.In a number of continental systems if something isnot expressly permitted by the law then it isforbidden. I think this leads to some of the OECDproblems and I would be grateful if you had anycomment on that aspect as well.Mr Raphael: Probably not at this time of day.Chairman: You will write to us.

Q355 Lord Lyell of Markyate: On the “permitted”point, do you agree with me?Mr Raphael: Yes, but we will have to look becauseobviously clause 4, as it were, is predicated on whatwent before by way of a definition in clause 1 and soon, so we have to see if you are dealing with the localpartner, somebody prescribed to you by the head ofstate who says “You must deal with this localpartner” and his commission will be paid, as wassaid in another session, into a Swiss bank account orwhatever. You have to look carefully as to seewhether that is oVensive under the prescriptiveregime of clause 1 because if it is then you are at themercy of the prosecution authorities here as towhether or not they choose to prosecute you becausethen it becomes a political decision which I do notbelieve a prosecution should ever be, it should becapable of being predicted by reference to a code forprosecutors and it should be reasonablyascertainable in advance. If you are a business youshould not be at the mercy of a whim of some verydiYcult to predict exercise of prosecutorialdiscretion, so I would agree with you. You have tolook carefully at this. I would like to have some moretime to see whether looking at clause 1, coupling itwith clause 4, you are trapped in that situation andwhether that means there are large parts of the worldnow where you simply cannot do business at all andif you choose to do business there now you would beprevented from doing business after passing this Act.Ms Delahunty: Again, you are hearing separatelyfrom the CBI and other trade bodies and there is thewhole question of competitive disadvantage. Justlooking at this, I agree with what you say about“permits” but, of course, as this is a law which willaVect our conduct around the world there has to besome certainty, so I go back to Jeremy and the needfor a reference to the written law. I do not think thatwill be perfect because the written law of some ofthese countries may not be terribly clear in itself, butthat is what is done under the FCPA and maybe thatis the best it can be.

Mr Cole: Call me old-fashioned but I go back to theold concept of principal agent and as I understand inthe Saudi situation the idea is you bribe an agent andthen that agent can no longer be impartial in his orher advice to his principal, but here it sounds as if theprincipal is fully aware, indeed is receiving.

Q356 Lord Thomas of Gresford: The principal isgetting a cut. That was the problem.Mr Cole: I am afraid that is where I have problems.This is the old fundamental of what bribing meantwhich was persuading an agent to act against theinterests of his principal and it seems to me you havenot got that situation if I understand the Saudisituation correctly.Mr Raphael: In British Aerospace, and I do not wantto dwell on that, it was said that the payments thatwere considered to be delinquent were made, orwould have been made, with the blessing of the headof state. That seemed to be the mischief which LordGoldsmith found very diYcult to deal with. I thinkthat is what my Lord, Lord Lyell, is referring to.Lord Lyell of Markyate: I think there are very realquestions here because it is quite possible for a headof state to say you must do business in a particularway but there is still to be a bribe given within thoseparameters. That could happen. I am not saying itdid happen. Equally, you could have what would beregarded as 18th century, but certainly not 21st

century, Western European conduct, or certainly notBritish conduct, which was a level playing field butgave a great advantage to what seemed to be a verysenior private citizen. It is a confused situation.

Q357 Lord Mayhew of Twysden: If we are going tohave clarity, which is one of the principal objectivesof this Bill, it is very hard to see, is it not, how arequirement for written law is not absolutely criticalbecause you may very well have a situation in whichcorruption and bribery is part of the system and thelaw of the country concerned is silent on it. How doyou overcome that point if you are the prosecutor,the point being, “Well, the law is silent. We haveorders that this is the common practice in law”? Howdo you overcome the defence point that it ispermitted? It will not deal with everything but tohave an express provision in the law does seem to meto be a necessity.Mr Raphael: The problem is this: you get thesituation which was described by ProfessorSutherland and that is how do you judge legitimacy.Are you judging legitimacy according to the cultureof the country where the bribe has been or is beingpaid or is it according to our culture here? If it isgoing to be solely judged by what is permissible inthe country where the bribe is paid it is notprosecutable if there is no written law, but if we aregoing to judge it by our standards then it isprosecutable. The analogy is not too farfetchedbecause in the law of money laundering we have nowaccepted the idea of single criminality, so even if apredicate oVence of the conduct which we sayproduced criminal property may have been lawful inthe place where it occurred, if we say it would havebeen a criminal oVence here, an acquisitive crime,




then we say it is a predicate oVence. We have movedaway from the old-fashioned idea of doublecriminality and if we have moved away from the ideaof double criminality maybe we should move awayfrom the idea that things have to be doublyunethical, as it were, or doubly illegal. I have not putit very elegantly. It is a possibility.Ms Delahunty: But was that in the mind of theauthor?Mr Raphael: I have no idea.Ms Delahunty: I am not sure if it was. I think the lawapplicable to F is meant to be the foreign law. Thatis how I read it.Chairman: You are not going to solve it now. I hopeyou will solve it by the time it gets to the full Houseof Commons and House of Lords.

Q358 Lord Williamson of Horton: I think we aregoing on now to clause 5. Mr Raphael mentionedthat he wanted to comment on that anyway. This isthe corporate oVence clause and it is quite tricky, Ithink. I wonder if I could just raise three points onit. First of all, in your view would it be desirable towiden the oVence, some people have said to us theythought it is, which makes companies criminallyliable for bribes paid on their behalf except wheredue diligence is established or adequate proceduresare in place? The second point I want to raise iswhether you think guidance is needed on some of thepoints in clause 5, for example on adequateprocedures? I think you did mention that earlier.Thirdly, do you think that we are going to run into aproblem over syndicates and joint ventures? Thereare an awful lot of joint ventures and the extent towhich they are under the control of one company isquite tricky.Mr Cole: Maybe I can deal with your last questionfirst and go in reverse order. My sense is that if youare aware a bribe is being paid by a personperforming services on behalf of that corporate it isunclear as to what the scope would be. I suggest atwo-fold test. One is a substantive control test or atest based on a company acquiescing in the briberythat it has knowledge to. Rather than trying to do itby labels, you do it by those two measurements. If itis the case that you are in a JV and you have to havecontrol over what that JV does then thatsubstantially changes how these JVs are going to bestructured, and that is not the real world. If there isa substantive control test as a result of what you haveconstructed with a JV and you do have control overthe JV partner, fine, or if you acquiesce in what theyare doing you should be responsible. To me those arethe two tests you should apply.Ms Delahunty: What I want to add is my concernpreviously raised about the adequate proceduresdefence. Professor Horder said it is essential todevelop guidance, but my concern is how with sucha wide constituency who are going to be dealing withrisk management you are going to be able to havesome sort of uniform guidance to make this work. Iam also a little concerned, if I might say, by what youwere talking about with our predecessors, LordThomas, this question of whether the defence then

has to raise the issue because that begins to say to mereversing the burden of proof, with all due respect. Iam a little bit concerned about that.

Q359 Lord Thomas of Gresford: There are two ways:either the evidential burden which would require theprosecution to disprove or the probative burdenwhich would require the defendant to prove on thebalance of probability. It seems to me the simplestthing is to say criminal vicarious liability of anemployee of yours, or someone from a subsidiary ofyours, will be imposed unless you can show, becauseyou have access to your own files and documents andso on, that you have adequate procedures or haveacted with due diligence. It seems to me the only wayyou can deal with it. What would a company prefer,that the police a la Damian Green move into thecompany and start searching through their files tofind out if they can prove that they have not gotadequate procedures or for the company to comeforward with its own documentation to show thatthey have? I would have thought that they wouldprefer the latter course.Ms Delahunty: I think for me it is just basicprinciples that in a criminal prosecution theprosecution should prove the case. I feel that if weare going to reverse the burden we have to be verysure that it is the right thing to do and dealing with abalance of probability test in a criminal prosecutioncauses me concern. We have to be absolutely surethat is the right thing. On your second point aboutwould not the company prefer to raise thisthemselves, Section 2 Notices from the SFO at themoment ask for information in a very civilised wayand companies are very happy to hand that over, andthat goes on in many cases that I am dealing with atthe moment. I am not sure just because ofadministrative issues we should think aboutreversing the burden of proof.Lord Thomas of Gresford: You then have to have avery specialist police force that knew what they werelooking for in terms of procedures and so on. Theywould have to be looking for specific things withinthe broad documentation of a company, whereas thecompany themselves would know what they havegot in place and could produce it in court. Reversingthe burden of proof happens all the time in all sortsof oVences, that is no strange concept at all.

Q360 Lord Goodhart: Would it be an improvementif they widened the liability under clause 5 butconvert it from being a criminal oVence intosomething that gave rise to a civil penalty? There areprecedents for that, are there not? For example, untila few years ago that was true of price fixing whichgave rise to a civil rather than criminal oVence.Mr Cole: It still is the case. I think that is right. Ithink the corporates would welcome that becauseclearly they have huge concerns about their exposureto criminal responsibility, not only in terms of theirreputation but, as I pointed out before on publicprocurement, it could be a bad company-typesituation. If 50 per cent of their business comes frompublic procurement and that is stopped overnight,that company will collapse. Those are high stakes




that you are playing with here. You are pre-emptingthe Law Commission’s consultation on criminalliability where you draw the line in the sand, whichis what we are talking about here, in terms ofwhether you have a vicarious liability oVence withthe adequate systems defence or whether you includesome element of negligence in there. It is almostcircular and gets confusing at that point. My sense isa civil penalty at this stage might be theappropriate answer.

Q361 Lord Lyell of Markyate: Could we just have avery quick explanation for my benefit. What is thelaw that says you are totally debarred from allprocurement and ought that law to be changed?Mr Raphael: It is a Statutory Instrument 2006 whichimplements an EU Directive.

Q362 Lord Lyell of Markyate: It is an EU law.Mr Raphael: As far as the EU is concerned each ofthe Member States of the EU has domesticallyimplemented an EU Directive. We implemented it bysecondary legislation in 2006. That says if there is tobe debarment, debarment may be mandatory, it maybe discretionary, and in the case of corruption it isexpressed to be mandatory.

Q363 Mr Cox: But this is not a conviction forcorruption, this is for failing to prevent corruption.That is rather diVerent, is it not?Mr Raphael: It is meant to deter but it is there.

Q364 Mr Cox: The conviction under clause 5—Mr Raphael: A corruption prosecution will result indebarment. Do forgive me, if I may be permitted togo back for a moment to Lord Goodhart’s questionand then come back to yours, if I am not beingdiscourteous. There are lots of central problemswhich Parliament has to struggle with. The firstthing is that white collar crime must not be devaluedas opposed to other kinds of crime in the eyes ofsociety. It must not be looked on as a soft option. Asfar as anti-competition is concerned and price fixingthe European Union does not criminalise it and wedid not criminalise it, but we did in the EnterpriseAct and are now bringing prosecutions for it, albeitat the moment we are being rather soft about it. It isstill a criminal oVence here. The Americans were notgoing to criminalise corruption post-Lockheed in1976 until they discovered that American companieswere bribing their way into business around theworld. They discovered that because more than 400companies applied for immunity and they were sohorrified they immediately decided that the FCPAshould be a criminal statute, and so it has remained.We are considering a criminal statute which we arebound to introduce, particularly about foreignbribery, because we have a Treaty obligation to do it.Whatever else we do, we have to criminalisesatisfactorily under our Treaty obligations thebribery of foreign public oYcials. It is not an optionfor us to have some regulatory or administrativepenalty alone. That may stand alone and it may bequite separate. For the moment we have to considerhow we are going to comply. There seem to me to be

three options which have occurred to thisCommittee and the Law Commission. One is we canhave this quite new oVence of negligence or we canhave an absolute defence of strict liability with a duediligence defence—it does not matter on who theburden falls for the moment—or we can have a look-alike FCPA which is with vicarious liabilityregardless of the status of the employee who pays thebribe. That is how the FCPA is constructed. It doesnot matter whether the doorman pays the bribe, itdoes not have to be the directed mind, which hasbedevilled all the lawyers in this room and criminallaw for decades, and it is very diYcult to secureconvictions because you cannot find the directedmind any more than you will be able to find aresponsible oYcer in clause 5. If I may beimpertinent enough to say that of the three options Iwould personally favour the idea of having vicariousliability with the defence of due diligence and say,“We’ve done everything we can. This chap went ona frolic of his own in Siam or wherever and he wentaround bribing people, but really we did everythingwe could to prevent it”. In those circumstances Ihave every faith that no-one would be prosecuted forit. I am not a great believer in absolute oVences. Asregards clause 5, I think it is very unhappily worded,I do not know what it means. If you look at theimpact statement which Jeremy Cole has alreadyreferred to it does not appear that whoever draftedthe impact statement feels it is going to have muchof an impact because there are going to be so fewadditional prosecutions, so one wonders why it isthere at all other than for some unworkable cosmeticpurpose which is far from desirable. I am sorry, thatwas a very long answer.

Q365 Mr Cox: Could you answer the question, MrRaphael, about whether it should be a civil penaltyor not?Mr Raphael: It is very diYcult to introduce a civilpenalty in this regime which is going to be across thewhole of industry and commerce because we do nothave the legislative machinery, the infrastructure, tocontrol the whole of our industry. The Bill deals withpublic law and private law, who is going to do this?Is it going to be the OYce of Fair Trading? Maybewe should ask them to deal with it, if they could dealwith it, and we could have a separate administrativepenalty. It cannot stand in the place of a criminalpenalty. It may be something extra which willencourage people to have good codes of practice.Yes, it will probably fill the coVers of lawyers who areasked to draft them and it may well be that is thecase, but it cannot stand in the place of a criminalpenalty, there still has to be a satisfactory way ofpunishing delinquent corporations because that iswhat we are obliged to do under the OECD.Chairman: There are four more questions and I amproposing that on questions 16 and 17 you couldpost us a note. There are two further questions, if wecould have swift questions and, if possible, swiftanswers. Lord Mayhew and then Lord Lyell tofinish.Lord Mayhew of Twysden: I think we have probablycovered my question.




Q366 Lord Lyell of Markyate: Mine is to ascertainwhether the draft Bill does enough to reform, and Ihasten to say I do not like those words at all, theAttorney General’s powers of consent and direction.Do you have any views about the AttorneyGeneral’s powers and consent and direction?Ms Delahunty: I have no problem with what is there,that the DPP and Crown Prosecution Service willdeal with it.Mr Raphael: Subject only to constitutional reform.I have read the evidence and this Bill has morechance of being passed than the ConstitutionalReform Bill. It is a race between two tortoisesmaybe, but anyway.

Q367 Lord Lyell of Markyate: I will make it quiteclear thatI have an absolutely immenseconstitutional problem with this suggestion, but wewill leave it at that.Mr Raphael: All I would say, and I am speaking tosomebody who knows more about it than mostpeople, is the problem is at the end of the day theConstitutional Reform Bill envisages that there willbe this residual power in the Attorney wherenational safety is engaged and, secondly, there will

be diYcult issues where maybe the Director of theSerious Fraud OYce or the Director of PublicProsecutions—there will not be a Director ofRevenue and Customs Prosecutions OYce becausethis is to be merged—would wish to refer the matterup. As things stand at the moment under thisproposed legislation, under the ConstitutionalReform Act, there will be no-one to refer it to. Myother objection is I do not like the idea that youcould have separate directors who have thisdiscretion because how can you guarantee that theywould exercise their discretion in a uniform manner.For example, you may have the discretion exercisedby the Director of the Serious Fraud OYce in oneway and exercised by the DPP in another. Iappreciate that the SFO has been given the job ofprosecuting serious overseas bribery but the SFOwill never be in a position to prosecute everything, sothere may be a mismatch.Lord Lyell of Markyate: The nub of the matter isparliamentary accountability, but that will be foranother debate.Chairman: Thank you. Some of us have to go andface our constituents and the rest do not. I wish I wasin the second category. Thank you, it has been mostinteresting.




Members present:

Viscount Colville of Culross, in the Chair

Anderson of Swansea, L. Whitaker, B.Goodhart, L. Williamson of Horton, L.Lyell of Markyate, L. Mr David S BorrowMayhew of Twysden, L. Mr GeoVrey CoxOnslow, E. Mr Jonathan DjanoglySheikh, L. Mr Bruce GeorgeThomas of Gresford, L. Dr Brian Iddon

Witnesses: Mr Keir Starmer, Director of Public Prosecutions, Mr Richard Alderman, Director, SeriousFraud OYce, and Detective Chief Superintendent Steve Head, ACPO Portfolio Holder for OverseasCorruption and Bribery, examined.

Q368 Chairman: Good afternoon to you all. Thankyou for coming. There has been a great deal ofdiscussion about the prosecution of these cases andyou are the perfect people to ask questions about it.We look forward to your answers. Did you have a listof the questions?Detective Chief Superintendent Head: Yes, thankyou.

Q369 Chairman: The first one is the way in which theLaw Commission has suggested the drafting of this:improper performance, expectation of good faith,impartiality and trust. Do you see that those aremanageable in terms of prosecution presentation?Mr Starmer: We do think that they are perfectlymanageable. They are terms that ought to be clearenough, with directions from a judge to juries, to beable to approach the cases in a sensible way.Obviously there is an element such as dishonesty, butwe do not foresee major problems with the wording.Mr Alderman: I agree with that. There is a precedentin the recent Fraud Act for instance where there wassome debate about whether or not the context ofabuse of position was suYciently clear for the jury.The fact is that juries have not had particulardiYculty with it and I think it is the same here. Jurorscan be trusted to use their experience and theircommon sense in assessing the tests here.Detective Chief Superintendent Head: From a policeperspective, we completely concur with that.Experience has shown that juries will not have aproblem with it and certainly from our perspectivewe do not anticipate any diYculty.Chairman: That is very helpful. Otherwise, it wouldpull the rug out from under the basis of the wholelegislation. I am very glad to hear those answers.

Q370 Lord Lyell of Markyate: Might I just explorethe word “improper”? If you look at the OxfordEnglish Dictionary, there are about ten diVerentmeanings given, of which only one rathertangentially suggests that it really includescriminality. Is this not likely to lead to someconfusion? The Director of Public Prosecutions inhis helpful statement touches on this. What is wrongwith the word “corruptly”? The Law Commissionnoted that bribery is generally understood by 95 per

cent of the population, with which I agree. Duringmy ten years of experience I do not think we had anygreat diYculty in obtaining successful prosecutionsfor fraud or corruption. They are both really oftenone branch or another. There are two forms of fraud,in my view. There is hand in the till and there areback hands. That pretty well sums it up and the juryunderstand that sort of thing extremely well. Nowwe are introducing a Bill and, while I can wellunderstand the reasons for it and I have read all theacademic material, including the LawCommission’s, what is wrong with the word“corruptly”? After all, we are talking about some ofthe most serious oVences in the statute book.Mr Starmer: I do not think I would be saying thereis anything wrong with the word “corruptly”. We donot come to this on the basis that there are problemswith the law as it is that cannot be overcome. As tothe new approach where you identify the functions,the conditions and then the breach, whilst thatintroduces a stepped approach, I do not see that itwill make it unworkable or more diYcult for a jury.I do not come to it on the basis that “corruptly” wasnot a perfectly good approach in the past but equallyI cannot see that, properly directed, a jury wouldhave too much diYculty with the stepped approachthat this proposed legislation has set out.

Q371 Lord Lyell of Markyate: You say in yourhelpful statement that we talk about modernisationbut these three statutes have on the whole workedvery well. Reading again the Law Commission’sstatement, there is reference to the fact that some ofthese words have had to be judicially interpretedand, in one case, the word “dishonesty” was said tobe relevant and in another it was said not to berelevant, but would it be possible for the twoDirectors to let the Committee have a brief note ofwhich cases have caused any trouble over the last100 years?Mr Starmer: That is not a problem at all.

Q372 Lord Thomas of Gresford: Under clause one,case one introduces the concept of P intending theadvantage to induce a person to perform improperlya function or activity to which section three applies.“Improperly” is central to the concept. If we look at



10 June 2009 Mr Keir Starmer, Mr Richard Alderman and Detective Chief Superintendent Steve Head

clause three and at sub-clause (6) a function oractivity is performed improperly if it is performed inbreach of a relevant expectation. The word“improperly” is cut down to being in breach of arelevant expectation and those expectations are setout in sub-clauses (3), (4) and (5), an expectationthat someone is going to perform a function in goodfaith or impartially, or is in a position of trust, byvirtue of performing it. Another approach would beto say that it catches someone who has a duty to actin good faith and to act impartially and not in breachof trust. Does this question of performing somethingin breach of a relevant expectation mean somethingrather diVerent than a duty to act in good faith orimpartially? Does it introduce some sort of anobjective approach to what is expected of a personrather than what is proved to be his duty? Does thatcause any problems?Mr Starmer: I had understood this to be intended tointroduce an objective test when read with sub-clause (8). Therefore, the expectation is to be judgedas set out in sub-clause (8), “ . . . what a reasonableperson would expect.” Our approach to clause threeis on the basis that that means the expectation is nottied to the locality in which the function is carriedout. It is not an expectation in country X, Y or Z. Itis an expectation that is objective and not tied tolocal conditions. On that reading, I think it is animportant part of clause three.

Q373 Lord Thomas of Gresford: If there is no duty toact fairly or impartially in country X but a jurythinks that it would be reasonable to expect a personin the position of the person in country X to actimpartially and in good faith, whoever is concernedin paying the advantage is guilty. Is that how yousee it?Mr Starmer: I think that is right. The intention, as Iunderstand it, was to ensure that somebody couldnot argue in their defence that in country X youwould not expect anything other than the behaviourthat resulted and therefore there was no wrongdoing.That is an attempt to introduce that degree ofobjectivity, but I accept it would have that result.

Q374 Lord Thomas of Gresford: It widens the oVenceas opposed to the prosecution having to prove a dutyin the particular country for a person to act in thatway. Does that make prosecution easier for peoplewho are paying foreign oYcials or something likethat?Detective Chief Superintendent Head: In terms of theinvestigation, we have liaised with the Director andthat is our interpretation of what we believe the Actis trying to say, as has just been laid out. We believethat there will be no diYculty for us in taking thatinterpretation. It may be that you are exactly rightand it will make it, for us, slightly easier in terms ofwhere people have previously said, “This is howbusiness is done in X, Y or Z.” We frequently hearthat phrase in the course of our investigations. Ithink this is an attempt to deal with that issue and forourselves we do not see any diYculty with thewording as it is.

Q375 Lord Thomas of Gresford: In other words, youare asking people to be answerable by Britishstandards for their conduct in the paying ofadvantages?Detective Chief Superintendent Head: That iscorrect.

Q376 Mr Djanogly: The Law Commission seems tohave a slightly diVerent bent on this. For instance, asregards hospitality the Commission states that to theextent that one country traditionally entertains morelavishly than is customary in other countries, thiswould be evidence tending to show that it did notmean that the executives departed from the standardof good faith or impartiality that would be observedby a person of moral integrity.Detective Chief Superintendent Head: I think that isright. From our own perspective, this is an issue ofcontext around each individual case. If you havelegislation, that will support us in putting somethinginto context. The question is reasonableness. It isthere and it is clear. That might be an issue for theDirectors in terms of how a jury might interpret thatbut it is for us to take it before a jury and ask themthat question.Mr Alderman: I am not sure juries would haveparticular diYculties with that. In connection withhospitality, I think there is a quite clear distinctionthat I am sure juries will be able to make betweeninexpensive, modest hospitality oVered to many andlavish hospitality that might be oVered to a verysmall number of people in the hope of getting acontract.Mr Starmer: I am slightly uncomfortable with itbeing an English or British test as such. I thinkprobably I would approach it on the basis that it isa test which is not tied to the local conditions wherethe function is exercised. It is objective in the sensethat it is outside those local conditions. That allowssome regard to be had to the sorts of approachesthere are around the world. It does not make itEnglish as such but it draws the right line betweenthat approach and an approach which simply says,“If you are in country X, the ‘reasonableexpectation’ would be no more than this sort ofconduct in any event.”

Q377 Lord Thomas of Gresford: You say you are notapplying English standards but of course you aretaking it before a British jury and asking them toapply their standards, are you not? You cannot askthem to apply the standards in another country. Inaddressing the jury, you would say, “You can takeinto account the fact that in the foreign country thisdoes not raise an eyebrow”.Mr Starmer: You would address the jury on the basisthat it is an objective test of what a reasonableperson would expect. There might be some factorswhich would be relevant to that evaluation, but it isnot intended because it is objective to be a test whichis simply grounded in the particular country wherethe function was performed. It is diYcult but I thinkit is an important aspect of clause three from ourperspective.




Q378 Lord Sheikh: I have a slight diYculty. I wasbrought up in an overseas country where it was thenorm for you to entertain your prospectivecustomers because hospitality and inviting people isthe done thing. I am a chairman of a publiccompany. I always say to my staV, “Do not buy inbusiness. Go and present yourself.” I have adiYculty with this because conditions are diVerentand hospitality procedures are diVerent. Juries maynot quite appreciate how things are done in Africa,Asia or China or wherever it is. That could perhapspresent a problem, as I see it. Have you anycomments on this?Mr Starmer: I think it depends which clause aninvestigation or prosecution was brought under. Sofar as clauses one and two are concerned, they areconditioned obviously by clause three so theprosecution would still be having to show that therewas the expectation of good faith, impartiality andtrust, so it is limited to those three things, and thatthe conduct was in breach of that expectation. It isquite tight in that respect. So far as clause four isconcerned, bribery of foreign, public oYcials, thereis the requirement to show that whatever advantagethere was was not legitimately due under the law ofthe country in question. If one bears in mind the twosets of constraints, I think it is perfectly workable.Mr Alderman: We are concerned to make sure thatthe argument that this is the way it is done in suchand such a country is not one that we ought topermit. The focus of this is on eradicating bribery. Itrelates to big payments and small payments and thefocus is on how we can make sure that corporatesand individuals within the jurisdiction of our courtslive up to the expectations that society and othershave of them, in order to eradicate bribery. That iswhy I think it is right that we have some objectivetests here about what is acceptable.

Q379 Lord Anderson of Swansea: I think it wasVoltaire who said that morality changes with everydegree of longitude. You cannot have surely a totallyobjective test of what the average Englishman orWelshman would say because we need a contextualanalysis of the position in any other country. How doyou set about forming that contextual analysis?Would you have experts saying, “Yes, this is thenorm” or the prosecution calling their own expertsto say that it is not the norm? Once you accept thatthere is scope for cultural diVerences, you surely getinto a very diYcult context?Mr Alderman: I would certainly anticipate thatdefendants will call evidence about local conditions.There will also be a need to have expert evidence onlocal laws. It may be that the defence will call locallawyers about that issue and the prosecution alsocall lawyers on that in order to be able to understandwhat the system is in the other country. It is up to thejury to form their own view on that.Detective Chief Superintendent Head: In the courseof an investigation, I would anticipate that personswho are spoken to in relation to this would comeforward with their defence of the fact that it isreasonable in X or in Y. In terms of the investigation,a large number of those questions will be asked as

part of whether we go forward from here and how wego forward from here. Local context will be put intoeach investigation.

Q380 Lord Anderson of Swansea: By the prosecutingauthority?Detective Chief Superintendent Head: By ourselves,the investigating authority, yes, and by theprosecuting authority. I would anticipate that alongthe way the defendant or the person underinvestigation would have the opportunity to putexactly those arguments. I do not doubt that therewill be some early diYculties in the sense of theinterpretation of this, but I do not personally believethat this would be something that is not going to beworkable in terms of taking this before people andasking them to say, with all of the information infront of you, is this reasonable.

Q381 Lord Anderson of Swansea: That does give anenormous discretion to the prosecuting authority,does it not?Mr Starmer: I am not sure. Under clause three thedefence would be trying to show there was noreasonable expectation or a reasonable personwould not expect good faith, impartiality and aperson would not reasonably expect—

Q382 Lord Anderson of Swansea: A person being theEnglish juror.Mr Starmer: It is still quite diYcult. If this is conductin an environment where someone is seriouslyarguing, “I passed this advantage in circumstanceswhere nobody would reasonably expect good faith”or, “Nobody would reasonably expect the oYcial toact impartially”, that is a tricky defence to set upunder clause three and that is the intention behindclause three. If you pass from that clause to clausefour, there is the question whether it is legitimatelydue under the law. If the law in the particular countryprovides for an advantage to be passed in certaincircumstances, the oVence simply is not made out.

Q383 Lord Anderson of Swansea: If the practice in acountry is such, are you saying that there is norelevance for the context?Mr Starmer: My understanding is that the drafterswere intending to knock out a defence which isessentially that there is no expectation of good faithin this country and therefore you cannot do anythingabout it. If that is harsh on those in the locality, Ithink it is intended to be so.

Q384 Lord Lyell of Markyate: How many cases overthe last five years have the CPS and the SFOprosecuted for bribery or corruption?Mr Starmer: Can I give a cautious answer to that?We have tried to retrieve this information. We havecome up for the CPS with about five to seven cases.This comes with a health warning because we do notinput the information on our system with a view toputting it out for committees such as this. We inputit for the purposes of charging. A number of cases ofbribery would be charged under diVerent heads—misconduct in public oYce etc.,—so pulling it back




out to give an accurate picture is fraught withdiYculties. The best I can do is to say it is definitelymore than five or seven. It is a small-ish number ofthat order and these are only cases that are charged.I am not able to give you the number of cases wherewe have considered something for prosecution andnot proceeded, I am afraid, but you get a sense of thesort of numbers, I hope.Mr Alderman: In terms of the Serious Fraud OYce,we have had one prosecution for overseascorruption that led to a conviction last year, anEnglish lawyer who tried to bribe the Americanauthorities to unblock some accounts. He wassentenced to six months in prison. That is the onlyconviction that the SFO has obtained during thecourse of the last few years. We have 17 ongoinginvestigations at the moment and we are expecting tomake some more announcements during the courseof this year about progress in ongoing cases.

Q385 Lord Lyell of Markyate: Mostly myrecollection from 1987 to 1997 is that most of thecases were big, in so far as they were brought. Youwere mentioning big and small. There may have beenone or two small. I imagine you could get somesustained acceptance in giving of bribes for smallfavours which might lead to a prosecution, but it ispretty rare. Mostly, this is a big, serious oVence. Iremember approving a planning, one where somethousands of pounds had changed hands to getplanning permission. That is the kind of thing we arefaced with in this country, amongst others. The LawCommission talks about a drink may be okay but around of golf may not. I thought that was a bitunrealistic.Mr Alderman: When we look at the amountsinvolved in dealing with cases and consideringwhether to take them on, whether to prosecute, welook not just at the amount of the bribe but theamount of the benefit that has been paid by thealleged bribe, which could be the value of thecontract. In terms of the asset forfeiture legislation,which we would want to be able to apply followinga conviction, we would be interested in the value ofthe contract. That could be very much more than theamount of the bribe, so I entirely agree. We arelooking potentially at very large sums.

Q386 Lord Lyell of Markyate: You would beunlikely to be going for it on the basis of a drink ora round of golf. Usually, the bribes are at least whatordinary people would think of as pretty substantial.Mr Alderman: Yes.

Q387 Baroness Whitaker: To revert to the relativityof conduct in diVerent countries, although there areof course huge diVerences in how people go aboutthings, surely almost all jurisdictions have lawsagainst bribery, so even if you think the law does notmatter very much, or is not going to catch you orpeople only pay lip service to it, most people knowthat bribery is wrong. That is what a jury shouldsurely bear in mind?

Mr Starmer: I think that is undoubtedly right. Thecountries do have those laws and there is aninternational law that has developed as to whatacceptable behaviour is. That is why I do not see anydiYculty in operating these clauses from aprosecution point of view.Mr Alderman: We would certainly want toencourage those countries that have not signed up tothe international laws to do so.

Q388 Lord Williamson of Horton: Can I ask whetherour witnesses would see practical diYculties aboutthe operation of the brand new clause about thebribery of foreign oYcials? To take an example, theAmerican legislation refers also to party politicalpersons. In some countries there may be no foreignoYcials but there may be party political oYcers whononetheless carry out such business. I just wonderedwhether you foresee any practical diYculty aboutoperating it.Mr Alderman: There are indeed practical diYcultiesin trying to apply clause four. They do not relate tothe clause itself, but they relate to the reality ofinvestigations. First of all, investigators andprosecutors have to prove the trail of money. Themoney may not simply pass from one person toanother. It will pass through a succession possibly ofdiVerent bank accounts and diVerent jurisdictionsand diVerent legal entities. We would hope throughmutual legal assistance to be able to obtainassistance from those other jurisdictions but thatcannot always be guaranteed. Those involved in thisarea may be seeking to choose locations that do notassist us. Another area is, the more the ultimatebeneficiary is involved at the higher levels in thereceiving state, the more diYcult it could become inpractice for us to obtain mutual legal assistance fromthe particular country, because we would need toshow various elements and we would need theassistance of that country in order to be able to showit. These are issues not relating to the clause itself,but how we go about the investigation. I think it isimportant that a realistic view is taken of this. Theclause will help us in all sorts of ways but the task forinvestigators in being able to establish whathappened and bring people to justice is still verydiYcult.

Q389 Lord Sheikh: We have referred to prosecutionsregarding anything committed overseas. Are thereany lessons we can learn where the prosecutions werenot successful? Is there something we can learn fromwhat has happened in the past?Mr Alderman: There are lots of lessons that we canlearn and I think there is a lot that we can learn fromwhat has happened in the United States as well.There is quite a contrast between the provisions inour law relating to corruption and the provisions inthe United States law and also the tools available toinvestigators and prosecutors. That is where the Billmakes quite a significant step forward, particularlyin relation to the clause dealing with corporatenegligence. In the United States—I am not sure it isfully appreciated here—the law of corporatecriminal liability is indeed very diVerent. A member




of a corporate in the United States, even at acomparatively low level, can bind the corporate andmake the corporate criminally liable if they act insuch a way that they believe will benefit thecorporate. Our test is very diVerent because itinvolves us trying to find the controlling mind of thecorporate, a big global corporation, showing thatthe necessary mens rea was at that level. That is whyI think particularly clause five strikes a very goodbalance here and certainly enables us to learn fromthe American experience but to translate it intosomething which we think will be workable here.

Q390 Lord Anderson of Swansea: There is thediYculty of a member of a jury putting himself orherself in the shoes of someone in a diVerent context.I think you conceded that possibly, if there was to bean other than objective test, evidence would have tobe called for the prosecution and the defence as towhat are the local conditions.Mr Alderman: Even on the objective test evidencewill still need to be called about local conditions andlocal law.

Q391 Lord Anderson of Swansea: It sounds verycomplex. There would have to be a register of so-called experts in the context and they would diVer,one from the prosecution, one from the defence.How is the ordinary juror to find their way betweencompeting interpretations of local practice?Mr Starmer: This is where the emerginginternational law is important. There is aninternational law of accepted behaviour now and thejury would be entitled to look at that.

Q392 Chairman: I wanted to ask about the mens reain relation to the payer and the recipient becausethey are not the same. I wonder whether you haveany comment to make about that.Mr Starmer: They are obviously not the same.Clause one is reasonably straightforward and themens rea is spelt out. Clause two has a diVerentsituation depending on whether you are in casesthree through to six. Sub-clause (7) in respect ofcases four to six states that it does not matterwhether R knows or believes that the performance ofthe function or activity is improper. As I understandit, the thinking behind this is that, if you are thepayer of the bribe, you have to have a more specificmens rea. If you are the recipient, you are expectedto know what the rules about receiving financial andother advantages are. Thus the mens rea is that muchnarrower and you only have to have mens rea as tothe act itself.

Q393 Chairman: Can you see diYculties inprosecuting a recipient?Mr Starmer: No. Clause two makes it rather easierto prosecute than it might otherwise be.

Q394 Lord Mayhew of Twysden: Mr Starmer, inyour very helpful note you say of clause four, briberyof foreign, public oYcials, that the requirement thatthe prosecution must prove that a payment to aforeign, public oYcial is not “legitimately due”

places a heavy evidential burden on the prosecutor.He will in eVect have to lead evidence that theadvantage is not legitimately due or be able to rebutthe defendant’s assertion that it is. We have touchedon this already, but I wonder whether you can tell uswhether you are unhappy with the way that clausefour is drafted, the introduction of a discrete oVenceof bribery of foreign, public oYcials, or whether youthink that it may contribute to what you say inparagraph 14 of your note: “I believe that it isunlikely that there will be a significant increase in thenumber of cases prosecuted by the CPS.” Whatwould you say about requiring that evidence shouldbe written evidence if it is to be relied upon as being“legitimately due” because the law applicablepermits or requires acceptance?Mr Starmer: Clause four does cause one or twodiYculties, one of which as you have identified isthat the prosecution would have to show that thefinancial or other advantage is not “legitimatelydue”. In order to do that, the definition following on,you would have to show that it was not legitimateunder the law of the country or territory in question.That would require some evidence of what the lawwas to be led. In some jurisdictions that might bequite easy. In other jurisdictions it might be morediYcult. What would be helpful would be for thisclause to spell out in more express terms whatconstitutes law for the purpose of this clause andwhat does not, bearing in mind in particular thediVerent jurisdictions and the diVerence between thecodified jurisdictions and the common lawjurisdictions. I do have an anxiety about that and Ithink some further attention to that would be a goodthing. Certainly that would then have to be proven.That is the first diYculty. The second issue in relationto clause four is the reasonable belief defence whichwas there on the Law Commission version and is notthere now. There are, as I understand it, two ways ofdealing with this. You either have a reasonable beliefdefence on the face of the statute in clause four orsomewhere else, or you leave it to the discretion ofthe prosecutor to look at all the circumstances thathave been investigated and take a view on whetherthere ought to be a prosecution in the public interestor not. Either of those is workable. I have someanxieties about whether it is better that that is doneby the prosecutor exercising a discretion or not,because I think these days a prosecutor, if exercisinga discretion not to prosecute, ought to say in clearterms why not and spell it out.

Q395 Chairman: You would like an amendment,would you?Mr Starmer: An amendment to clarify the law andwhat constitutes and counts for law would be helpfulif this clause remains in this form, yes.

Q396 Chairman: That might not be too diYcult todraft.Mr Starmer: No, I would not have thought so.

Q397 Lord Lyell of Markyate: I quite agree that thisis a very diYcult area. If one takes the highest profilecases of recent times, the British Aerospace one and




the one that relates to the King and Prince Bandar, ifI have the name right, this would have focused prettymuch on the question of what was “legitimatelydue”, as I understand it. Of course in this countryand in common law countries if something is notprohibited then it is permitted. In an entirelydiVerent jurisdiction, such as Saudi Arabia, it wasthe view of Lord Goldsmith when AttorneyGeneral—I think he expressed this in the House—that he was far from satisfied that it would beestablished that there had been in fact a paymentthat was—he did not use the words “legitimatelydue”, but that is what in substance he would havebeen referring to in the context of this drafting. Itseems to me that, in relation to some foreignjurisdictions and the way that they conduct theiraVairs, there will be very genuine questions of fact asto when particular methods of doing business arelegitimate and when they are corrupt.Mr Starmer: I think that may be the case althoughthe number of countries that do have a law is everincreasing, so it will be a diminishing problem. Thereare problems in the way the law is articulated,whether it is a permissible or a more codifiedapproach. I think I ought to pass this to MrAlderman who has in particular the experience ofSaudi Arabia.Mr Alderman: There are a number of issues there.Lord Goldsmith expressed certain views aboutwhether or not there was a defence available on thebasis of alleged consent. That was his particularview. My understanding is that that is not anargument that is accepted by the OECD and others.They do not regard consent as being a defence. I dotake the point there may be certain jurisdictionswhere there could be issues about what the law is inrelation to particular structures. In that type of case,it is also relevant to look not just at clause four butalso at clause five and at what could be expected onthe part of the corporate, because we have beentalking about corporates here, in carrying out theirdue diligence and what is expected from that.

Q398 Lord Lyell of Markyate: I am sure that is right.It makes it highly relevant as to the Americanpractices. I think you would be rather surprised ifyou were asked to give clearance in advance, whereasthe Justice Department in America seems to do that.We are dealing with very diVerent climates.Mr Alderman: We are. I talk to a lot of corporates. Italk to their professional advisers about all sorts ofissues, particularly about corruption but aboutother issues as well. They have been talking to meabout a system of advance appearances, rather likethe Department of Justice oVers. We are thinkingabout that but only in connection with a certainlimited type of case. What we are not prepared todo—it would be quite inappropriate forinvestigators and prosecutors—would be for acompany to come to us and say they are about to dobusiness in such and such a country with such andsuch people. Is that all right by the SFO? Clearly, itwould not be appropriate for us to get into that.

There may be other circumstances in which we mightbe able to oVer them some assistance along the linesthat the Department of Justice has.

Q399 Lord Lyell of Markyate: That is veryinteresting but my mind instantly goes to the DPP’sproblems with people who seek to commit suicidalfraud.Mr Starmer: We are awaiting the House of Lordsjudgment in that.

Q400 Dr Iddon: The Law Commission haverecommended a defence of reasonable belief. Thegovernment have dropped that defence from thepresent Bill. A number of witnesses believe that thatdefence is important to protect businesses who mightreceive poor legal advice, so there is a bit of conflictover the defence of reasonable belief. We wouldwelcome your views. Perhaps you can tell us whetherprosecutorial discretion can be relied upon in placeof a defence?Mr Starmer: There are, as I said earlier, two ways ofapproaching this. You can have the express defenceof reasonable belief put in which would allow adefendant to say, “I exercised due diligence. I tried toget all the advice I could. It just turns out that theadvice was wrong and therefore under the law thepayment or advantage that I advanced was notlegitimately due.” That is one model. That is not themodel now of clause four. The consequence is eitherthat unfortunately therefore those individuals mustbe prosecuted or it is passed over to the prosecutorto take that into account in deciding whether or notit is in the public interest to prosecute. Certainly thecode for Crown prosecutors in the current editionallows genuine mistake or misunderstanding to betaken into account as a relevant factor in exercisingthe discretion whether to prosecute. Therefore, it isa workable model. Therefore, there is a choicebetween the two models. I am not as comfortablewith the second model as the first because I do notthink that matters which might otherwise be adefence are the sorts of factors that ought to be takeninto account when exercising the public interest.There are two models. If it is workable as drafted, itwould be workable with an express defence clause init, but if it is a factor that is relevant to the publicinterest and a prosecution is not to proceed for thatreason I think it would be incumbent on me as DPPto explain that that was the reason why aprosecution was not proceeding in a particular case.

Q401 Dr Iddon: To a non-lawyer like me, it soundsas if you are lying in the middle of the two argumentsand not coming down on one side or the other. Weare looking for your recommendation and we are notgetting it, are we?Mr Starmer: Both models are workable. In theinterests of transparency and accountability, mypreference is that there ought to be a defence on theface of the statute. We could work with it as it is usingthe discretion.

Q402 Chairman: If the clause was struck out, it runsinto the opposition of the OECD, does it not?




Mr Starmer: It does. That is why it has beenconstructed in this way. I am not going so far as tosay this is unworkable by any stretch of theimagination.

Q403 Lord Thomas of Gresford: Would Mr Starmeragree with me that, where you create a defence, it isfor the company or the individual to produce thedocumentation and so on from his records and it isvery diYcult for the prosecutor to come to aconclusion as to whether there is a basis of mistakeand so on without access to those documents.Therefore, it is preferable to have a defence to put anonus on the defence to at least raise ondocumentation, records and evidence and so on whythey say they have a reasonable belief.Mr Starmer: I would agree with that.

Q404 Lord Goodhart: Professor Celia Wells, whowas one of the witnesses, suggested to us thatcorporate liability under clause five should bevicarious liability with a defence of adequateprocedures but no need to identify a responsibleperson who is at fault. Could I ask for the views ofthe witnesses on that?Mr Alderman: My preference is that the oVence isone committed by the company itself because clausefive is a very significant change. I think it is a veryimportant one because it will make sure thatcorporates take every care in ensuring that they haveprocesses in place to make sure that bribery does nottake place. That is something that should be fixed atboard level. The boards of the corporates must bealive to their responsibilities there and ready to carrythem out. I would prefer to see the company itselfliable directly rather than vicariously for particularactions. It is possible the vicarious principle is onethat could be adopted. To some extent, there areparallels for that in other areas but my preferencewould be with the clause as it is at the momentbecause I think it is a very helpful clause and movesus forward very considerably.

Q405 Lord Goodhart: Is there not a problem here,which is that failure to act by a corporation is verydiYcult often to tie to a particular identifiedindividual in that business, particularly if it is amatter of inertia rather than positive inaction, if onecan call it that? Does that not mean that the need tofind a responsible person who is guilty of negligencemakes it extremely diYcult to convict thecorporation itself, as clause five now stands?Mr Alderman: We would be looking at the individualin the corporation whose responsibility it was to stopthe person who paid the bribe from doing that, or inthe absence of a person of that nature, we would belooking higher up the corporate where necessary atthe board. I think that is exactly as it should be,because if there is not somebody in the middle partof the company who is responsible for ensuring thatbribes do not take place, that is very much a boardlevel responsibility at the highest levels. Society isentitled to expect of the corporates these days thatthey have adequate anti-bribery processes and that

those processes are carried out throughout thecorporation. If there is a significant failure, then it isa board level failure.

Q406 Lord Goodhart: If the company has built upproper procedures, they will be eligible to putforward the defence. In that case, why is it necessaryalso to go looking for the individual? Is that notgoing to make it a lot more diYcult to getconvictions where a company has failed to preventbribery?Mr Alderman: I have talked to corporates about this.When we talk to them about their procedures, it isnot just a particular account that they might give usof all the processes they have in the corporate. It iswhat actually happens in practice. Are thereprocesses about protecting the corporate frombribery being carried out? In the type of case we arejust discussing, those processes are not being carriedout. We would be looking to see whether or not thereare failures to carry out the processes anywhere.

Q407 Lord Goodhart: Could I ask the otherwitnesses for their views on this point?Detective Chief Superintendent Head: From a policeperspective, this is helpful legislation in terms ofidentifying a corporate responsibility. We would seeno problem with the current legislation in seekingevidence. We would aim it in exactly the same waythat the Director has spoken about. A lot ofcompanies set up a middle layer which is responsiblefor their due diligence in these matters.Earl of Onslow: We have had a lot of discussionabout facilitation fees and in the last question wewere talking about how you identify what is and isnot bribery, from doing business in Nigeria, whichwe know is practically impossible to do honestly atall as far as one can gather, to very big commissionspaid to the cousins of defence ministers of certainArab states that we would regard as bent beyondmeasure. It seems to me that it would be very helpfulto have what the Americans have which is a properguidance system, a checklist which can begovernment approved. It reinforces what you weresaying about how important it is that the board isresponsible. That could be part of the governmentchecklist as to what they should do. Would it not bean extremely good idea if the government were toissue, obviously in consultation with you, theindustry and so on, a proper checklist which shouldbe gone through, which could be used both by theprosecutorial authorities if they had not done it andby the defence, so that it can be shown that they havegone through these hoops? The Americans have itand the arms people are saying this is a good idea.Do you not think that it would be a good idea fromour point of view to have it? Can I not convert youto that view?

Q408 Chairman: Just before you answer that, if weare going to go on to guidance in general—and Ibelieve we definitely ought to because we have had agreat deal of evidence about this—I would like tomake sure that we concentrate our minds on that.The American system is very diVerent from what




happens in this country and I wonder if you can giveus any advice about how it might work here if it wasintroduced and how we get it into the draft Bill. Wewill come back to the question of joint ventures in amoment but could you deal with this question ofguidance, because it has been a subject that anumber of our witnesses have raised.Detective Chief Superintendent Head: Can I give anindication of an initiative going on at the momentwhich might be able to assist here? I know theDirectors would be the people better suited to giveadvice on guidance. In partnership with the UnitedStates and the Canadians at the moment, we arelooking at having an intelligence picture around theworld. We have heard some comments aboutcountries and generally they are extremely accurate,but we do not have a repository of informationabout what is really going on in those countries.What advice should we be giving to people in termsof where they are going and the business that theycan expect to do in those countries? Nothing likethat exists in the world in terms of policing at themoment. Working with our allies around the worldand also in terms of not just policing but the otheragencies, with industry itself and the third partysector, we are trying to build a picture of what existsaround the world in terms of corruption. If you aregoing to a port in country X, this is the situation.This is what you can expect to find. In that way, wewill be able to work with the government in twoways. We will be able to give advice. We will be ableto work with the SFO and the Director in terms ofbeing able to give some accurate advice as to whatyou can expect and what you should be doing. Wewill also be working with the government who arealso involved in this project about putting pressureon some of those countries, because we will havesome actual evidence as to what is going on and whatthe expectations are. Then we can address thequestion: is it what they think is reasonable in thatcountry, because this is what is happening, andconfront those countries with that evidence and hearwhat they have to say. That is in a fledgling situationat the moment but I think that will be a giant stepforward in terms of giving advice on a whole seriesof levels as to what we are talking about here today.

Q409 Chairman: Nothing like that appears at themoment in the draft Bill. There is no way in which itcan be brought into account in a trial because thedraft Bill does not make any provision for it.Detective Chief Superintendent Head: It does notbut, in terms of reasonableness and what we havebeen talking about previously in terms of howpeople behave, that will be able to give us someindication on two fronts. In terms of thereasonableness test, which we ascertained was adiYculty because it is subjective, it needs to be put incontext. I think that is important. Also, in terms ofany advice that we give, it is important to separateout what the Americans do from what we do. Thingsare very diVerent over there than they are here interms of the legislation. Even the Americans

recognise that this is a big step forward, taking thisto new levels of identifying what we can realisticallydo in terms of world corruption.

Q410 Earl of Onslow: We have been told though thatthe Americans have a detailed set of instructions. Iwould hope that we could write to the Americans tosay, “Please can we have a look at what you aredoing.” I have no diYculty at all in copyingsomebody else who is doing something very well. Ifthey are doing it very well, I would hope that wecould fit it into our legislation. If those rules areknown and published in legislation, they themselvesapply pressure to clean up in a way that would addpressure as you were saying just now.Detective Chief Superintendent Head: Iwholeheartedly agree with that. I think it isimportant to learn the lessons of others. I have noproblem with taking others’ ideas.

Q411 Earl of Onslow: Do you know a lot about theAmerican system?Detective Chief Superintendent Head: Myself and theSFO have obviously been across to America and Iwould imagine, Richard, that probably you are inthe best position to answer questions on the specificadvice they give.

Q412 Earl of Onslow: It is only because we were toldthat it was such a good idea. What do you knowabout it?Mr Alderman: I certainly would not pretend to be anexpert in all aspects of the US system. I suspect theCommittee might want to get help from the USDepartment of Justice and I would be nervous abouttrying to give you any assistance here. I think youreally need to hear from a proper representative ofthe US Government on that.

Q413 Chairman: We are going to get a memorandumfrom the Department of Justice in America. Myproblem is how do we translate this in the way thatthey do in America into something which acts as asort of defence, because there is no provisionwhatever in this draft legislation for anything ofthe kind.Mr Starmer: It seems to me that there is noinhibition in the draft legislation to the issuing ofgeneral guidance and that must be a helpful thing todo. It is done in relation to a number of diYcult areasin the law by all the prosecuting authorities. Whilstthere is a reluctance to indicate whether a particularcourse of conduct or action is going to be prosecutedor not, that is on the one hand; on the other hand,legal guidance and the approaches to be taken iscommonplace, is sensible, and I cannot see any goodreason why it should not be introduced even whenthis legislation is passed. I do not think you needanything on the face of the legislation to require thatto be done.Earl of Onslow: Why can we not put into thelegislation a clause which says, “The Minister willproduce guidance”? In other words, it will be on theface of the law that the Minister will produce the




appropriate guidance which can be used as a pillarupon which people can lean or they can prosecutefor omitting to lean upon said pillar.Chairman: There are plenty examples of codes ofpractice for instance.

Q414 Lord Lyell of Markyate: Can I suggest a noteof caution? It is not in our tradition for theprosecuting authorities to give much guidance, ifany. It is quite a dangerous path. We do not know asyet—and it will be very interesting to learn—whatthe Americans do. It will be very helpful of theDepartment of Justice to let us know. Ourobjective—I am sure it is the common objective ofthis Committee and of both Houses—is to get apure, eVective Bill that stamps down on corruptionbut does not lead to unintended consequences. Thisis a highly competitive world. Lord Onslow wassaying, quite rightly because we have heard it in asense, that defence industries rather like theAmerican system. That may or may not besomething which is better. They may prefer to havea system like that but it has never been our systemand I think we need to be very cautious. You have allbeen quite right in looking at this draft for itspracticalities, for eVective prosecution according toEnglish law. I think we should try to concentrate onthat as our principal task. Is there any comment?Mr Alderman: Could I add to that cautionary note?It is helpful to be realistic about what any guidancecould give, because we are talking about anincredibly complicated area. We are talking aboutcorporates, some of which aspire to a gold standardin respect of corruption. Others are not quite thereon that journey. We are talking about very largecorporates, medium sized corporates and smallcorporates. Giving guidance other than in generalterms in relation to diVerent sizes of corporates,diVerent industries, is quite a complex task. I wouldcertainly not want the implementation of the Bill tobe delayed for a very considerable time, while verydetailed guidance was being developed. I wouldsuggest that the important thing for investigatorsand prosecutors is to have the new oVences which wecan then implement, but I am sure there is a lot wecan discuss with corporates and others about howwe would do so.

Q415 Chairman: There has been a great deal ofdiscussion in other evidence about the guidance thatis available in America. It is not readily transferableto this country, to our system. On the other hand,there has been a request from a number of quiteimportant sources that there should be thoughtgiven to whether we could do something similar. I donot expect you to be able to answer this today. Itwould have to be something that you would be ableto introduce at trial and that juries could take intoaccount. I wonder whether it is something that youwould like to take away and think about, because wewould greatly appreciate some help on this subject.Mr Alderman: Perhaps we can take that away and letyou have a note.

Q416 Lord Thomas of Gresford: Could it not beintroduced into the trial situation, if there were adefence of reasonable belief? In other words, ifadvice had been sought from one or other of you orfrom an independent commission againstcorruption, as in Hong Kong, and that advice hadbeen followed, that would go to a defence ofreasonable belief.Mr Starmer: I think that is a really important pointbecause that is where the guidance would be mostvaluable, but the guidance on the current draftwould be pretty short: make sure you get it right,because there is no reasonable belief defence. Anylist of checks or guidance about the sort of checkstaken would not actually assist very much foranybody who really wanted some guidance on whatto do in a particular situation. The guidance wouldhave to be focused on the structure of the clauses asthey now are. Of the two models I was discussingearlier, that is the diYculty in leaving it toprosecuting discretion.

Q417 Lord Goodhart: Could I also ask whether,under the money laundering legislation whereguidance is given, that would be a useful precedent?I am not asking for an answer now but I wonderwhether that is something that could be considered.Mr Starmer: Certainly.

Q418 Lord Anderson of Swansea: I was going to askMr Head to expand a little on what he said, when hesaid that we are at a fledgling stage in theaccumulation of data, which suggests that perhaps ifone is still at the foothills it is really quite a long timebefore one is able to draft adequate andcomprehensive guidance which could lead to thedelays which I think Mr Alderman has mentioned.What did you mean by “the fledgling stage”?Detective Chief Superintendent Head: The creationof a world map in terms of corruption is a majorpiece of work. There is no denying it. The diYcultiesthat we have talked about previously would all comeinto play. There is relevance around delay in terms ofthe legislation we have here and I am not seeking tomake it part of anything that we discuss in relationto this. The reason I raise it is because of where weare on the question of reasonableness. I think we willgrow with our understanding of what is reasonablearound the world and that is an important element.In terms of where we have advice and advice issought, can I reiterate the thought that, without areasonable belief defence—Chairman: We know that the OECD does not likethe reasonable belief defence. We know that they likethe American system. It might be better if weconcentrate on trying to get something similar to theAmerican system into the British law and that wouldbe diVerent I think from the reasonable beliefdefence. If you are prepared to do a little work onthis, it would help us very much indeed.




Earl of Onslow: I accept it goes against our traditionof asking prosecutorial authorities, but surely itshould be possible for the Department of Trade toproduce those guidelines or even the Ministry ofJustice. It does not have to be done by theprosecutorial authorities.Chairman: Before we get on to who drafts it, let ussee how we can insert it into the system, because itmay or may not be possible to do it. That is what Ireally want to know from our three experts. If we canfind a way of inserting it into the system, then we cansee who might do it. Could I go back for a momentto the question about syndicates, joint ventures andsubsidiaries?

Q419 Baroness Whitaker: One of the mostsignificant areas of bribery is other companies doingit for the main company, whether as a held company,a joint venture or a syndicate. The chairman of theOECD Working Group thought that his owninstrument, the OECD Convention, was deficient inthat it did not cover foreign subsidiaries. I see fromMr Starmer’s submission that he too might havesome concerns about this. Can I ask all three of youwhether you think the Bill captures the area offoreign subsidiaries, syndicates and joint venturesenough to be able to capture all the bribery that iscommitted undoubtedly by them?Mr Starmer: I have some concerns as set out in ourwritten note about whether it captures as much asit could.

Q420 Baroness Whitaker: How could it better do it?Mr Starmer: It would mean a broadening of some ofthe definitions in clause five to capture a wider rangeof organisations.

Q421 Baroness Whitaker: Perhaps we could ask for amemorandum with some more thoughts about that.Mr Starmer: I can certainly provide some more onthat.

Q422 Baroness Whitaker: Do the other twowitnesses have any further points?Mr Alderman: I certainly agree with what MrStarmer has said. We want to make sure that all theentities that could be used by corporates to facilitatebribery are captured in this way.

Q423 Baroness Whitaker: You think that they arenot in the current text?Mr Alderman: There are some issues which MrStarmer has raised. We are very happy to work withhim on a memorandum for the Committee.

Q424 Lord Anderson of Swansea: In so extending thebodies covered for the purpose of clause 5(1) andtherefore responding to the plea of Professor MarkPieth, the chairman of the OECD Working Group,are we in danger of being on our own beyond othercountries, in going beyond the strict letter of theOECD Convention and therefore putting our owncompanies at a competitive disadvantage?

Mr Starmer: If we are going to produce anythingfurther in writing, I think the sensible thing would beto take that on board and give our best explanationon that question, if that is acceptable.Chairman: Let us consider for a moment the positionof the Attorney, of whom we have two former oneshere. There is of course the possibility of legislationon this subject.

Q425 Lord Goodhart: Can I ask whether you thinkthe arrangements made under this Bill aresatisfactory?Mr Starmer: The arrangements under this Bill aresatisfactory in that consent rests, broadly speaking,with myself and Mr Alderman. That is acceptableand we are content with that. There is an anomaly inrelation to assisting or encouraging which just needsto be tidied up in a convenient way because thecombination of this Act and the Serious Crime Actof 2007 is that the Attorney retains consent in respectof assisting or encouraging if the acts are abroad,and that is something which you may want to raisewith the Attorney General’s OYce. It is not apractical diYculty, it is not something which presentsa great hurdle; it is just something that needs to betidied up in this Bill.

Q426 Lord Goodhart: Would it be more appropriatethat the Attorney General’s responsibilities undersection 53 of the Serious Crime Act should be limitedto cases of national interest?Mr Starmer: That would certainly tidy up thatdiYculty.Chairman: Lord Lyell, have we stolen this pointfrom you?Lord Lyell of Markyate: In my view, we are not in atidying up area at all here; we are in an area ofabsolutely fundamental constitutional decision. Thelaw oYcers of the Crown are not ordinary ministers.They appointed by the Prime Minister and they canbe sacked by the Prime Minister, but they cannot betold what to do by the Prime Minister. They areappointed like a High Court judge under the GreatSeal, and Lord Mayhew and I both have two copiesof that and, by tradition, and it is a very deeptradition as you will know, they guard thatindependence very, very carefully. Lord Goldsmithhas come under a lot of attack and it is suggested—I do not think fairly but we have not seen the hottestground of attack which deals with the Iraq War, thathas been kept from us by Government—as thoughhe had not acted as pro-Chevalier with perfectindependence and integrity, and I am certainly notaccusing him of that, but the fundamental questionhere is parliamentary accountability. Prosecuting,like almost every aspect of this life, is something inwhich the Government of the day has responsibility.We have had a system going back into history, butcertainly since the Law OYcers Acts in the 19thcentury where the system of superintending whichexists at the moment comes in, whereby the lawoYcers can give directions to the DPP. Personally Iknow of no occasion when they have done so, butequally I know that that creative tension with two




people, both of whom apply the highest standardsbut have to deal very diVerent prosecuting decisions,has led to very careful and constructive discussions.In five years as Attorney (and this is where it comesfrom most hotly but to a limited extent from fiveyears as Solicitor) I always reached agreement, andI think every law oYcer in modern times has alwaysreached agreement with the Attorney of the day, butthat does not mean that the system is a dead letter;it is not in any way. The problem with handing it overto the DPP is that he or she is not directly responsibleto Parliament and that accountability with such akey part of our system of democratic governmentwould go. Is that understood or what is your answerto that?Chairman: Lord Lyell, I think that really issomething that is a comment rather than a question.Is there a specific question that you would like ourwitnesses to answer?

Q427 Lord Lyell of Markyate: I will put the questionin this way: yes, there is a good deal of comment init but what the directors are saying they are happywith in this Bill is that that should be dismantled,and if it were going to be dismantled at all “director”at the moment—and perhaps you could confirmthis—means the CPS and it means the SFO. Ifsomething is assigned to the Director of PublicProsecutions it can actually, subject of course to thewill of the director of the day, be carried out by anymember of the Crown Prosecution Service, anycrown prosecutor. I personally would stick with thepresent system but would you agree that if it is tomove at all it should be the DPP personally?Mr Starmer: No, I am afraid I would not agree withthat. I think the question I was asked was whether Iwas content with clause 10 and the answer to that isyes, I am, I think that is an appropriate way ofdealing with these oVences and puts in place theessential safeguards, so I am afraid I would notagree.Chairman: I think there are going to be other mattersthat concern the position of the Attorney and I amnot sure how far we can pursue it in relation to thisBill.Lord Lyell of Markyate: Fair enough, I thought itwas useful to put that.Chairman: I want very quickly to go on to MrBorrow and indeed Mr Djanogly with anintroduction to the parliamentary aspects of thisbecause our next witnesses are going to be the Clerksand I wonder whether you would like to deal withthat first of all, Mr Borrow, and question 11?

Q428 Mr Borrow: Clause 15 removes parliamentaryprivilege in relation to the words or conduct of anMP or Peer who is a defendant or co-defendant inbribery proceedings, but privilege is not removed inrelation to the words or conduct of other Membersor witnesses. I would be grateful, perhaps initiallyfrom Mr Head, if he could explain whetherparliamentary privilege poses a genuine challenge tothe police, and then if the prosecutors could come inafterwards, and the prosecutors in their attempt tocharge and bring to book those who are corrupt?

Detective Chief Superintendent Head: I can tell youfrom my own experience that it has never posed aproblem for me in my investigations. However, I cancheck that out and get back to you in terms ofpolicing in general and see if any of my colleagueshave ever had an example specifically if you like, andI can get back to you. In terms of my own experienceI cannot recall any occasion.

Q429 Mr Djanogly: Just to go to a slightly morecomplex level, because it seems as though theapplication of this is not going to be quite sostraightforward as may seem at first instance, thereare two examples that we have been given: firstly,that a prosecutor could rely on the words spoken byan accused Member in select committee (or other)proceedings, but the accused Member could not relyon words spoken by a witness or non-accusedMember during the same proceedings, even if theywere exculpatory; or a witness before a selectcommittee (against whom privilege could not in anycircumstances be removed) would benefit from agreater level of protection than Members againstwhom privilege could be removed if they are accusedor co-accused. Is this an issue that you have givenany thought to? Is this relevant? Could I also say thatof course we are only talking about the law ofbribery here. This will not apply to any othercriminal oVences and do you think, if we are goingto have it apply to bribery, it should apply to otherthings as well, fraud comes to mind?Detective Chief Superintendent Head: I rather fallback on my previous answer in the sense that I haveno actual experience myself of where parliamentaryprivilege has caused a problem with investigations,and that relates to the issue of bribery. If we want totake that further and look at whether it should applyacross the board, that is a whole diVerent questionthat I had not really prepared for in terms of thisforum. I can come back in the sense of whether youfeel there would be some use to it in particular inrelation to fraud, which is away from this Bill andmay be a whole diVerent debate that we do notnecessarily want to get into today. I am very happyto come back to you with some thoughts on that.

Q430 Mr Djanogly: By extension should this clausebe taken out and looked at in a diVerent context? Isit right for this Bill?Detective Chief Superintendent Head: It is in the Bill.It does not cause me any problems within the Bill.My point is that in actual fact whether it is in or it isnot in does not necessarily cause me, as aninvestigator, from my experience any problems oneway or another. What I will do, if it is okay with youChairman, is take the liberty of checking with acouple of the other units who deal with this veryspecifically. Bearing in mind it relates to bribery, Iwill just take the liberty of doing that. It should bevery quick because it is very specific and I think youwill find that the answer will be the same.




Q431 Chairman: Have either of the Directors gotanything to say on question 12, human rights orother legal concerns associated with this change inthe law?Mr Alderman: On the part of the Serious FraudOYce, Lord Chairman, it is not an issue that we haveever had to address.Mr Starmer: Nor on behalf of the CPS, although Ithink in relation to both questions 11 and 12 greaterclarity about parliamentary privilege, what preciselyit covers and what the limits are, would be of thegreatest benefit to all concerned and in particular theprosecutors and investigators; I can see diYcultiesthere.Earl of Onslow: On this particular question can I askour Clerk to drop a line to the Clerk of the JointSelect Committee on Human Rights upon which I sitdrawing their attention to this point or have youalready done it?Chairman: We have already done so.

Witnesses: Dr Malcolm Jack, Clerk of the House of Commons, Ms Jacqy Sharpe, Principal Clerk of theTable OYce, Mr Michael Pownall, Clerk of the Parliaments, and Dr Christopher Johnson, Clerk of theJournals, examined.

Q433 Chairman: Thank you for coming. You arevery familiar to most of us but not all of us. I wonderwhether we can now go on. You have a list of thequestions, have you not?Dr Jack: Yes we have, thank you very much.Chairman: I know Mr George would like to askquestion 14.

Q434 Mr George: We are tight in terms of ourquorum so please look at question 14 and it will saveme reading it out.Dr Jack: Thank you very much for inviting us herethis afternoon. I think in question 14 there are twoconcepts in an “act of corruption” and “proceedingsin connection with that act”. I thought it might beuseful to the Committee if I just said somethingabout proceedings as we understand them inParliament first because I think that aVects thewhole context of the discussion that we are aboutto have.

Q435 Chairman: Yes, what are proceedings?Dr Jack: What are proceedings, yes, and, if I may, itis always very useful to be reminded of Article IX ofthe Bill of Rights which says: “The freedom ofspeech in debate or proceedings in Parliament oughtnot to be impeached or questioned in any court orplace out of Parliament,” so Article IX makes adistinction between speech, debates andproceedings. We understand proceedings to be theres acta, the things that are done, rather than the resdicta, the things that are said, and that is decisionsthat the House or a committee collectively makes onproceedings, on bills, on amendments, onresolutions, whatever it is, or committees on reportsand so on, so those are the things that the Housedoes and those, strictly speaking, are the

Earl of Onslow: Well done!

Q432 Chairman: Is there anything else that any ofthe three of you would like to say to us before I bringthis part of the session to a close? It has been veryhelpful and there is more information to come whichI am perfectly certain will be extremely interestingfor us but for the moment?Mr Starmer: No thank you.Lord Goodhart: Could I just raise one smallcorrection. When we were discussing question 10about the role of the Attorney General I referred tothe Attorney General taking decisions on the groundof national interest. That should of course have beennational security.Chairman: Thank you very much indeed. That hasreally been extremely helpful and we are verygrateful to all three of you for what you have had tosay to us. I will now give everybody perhaps twominutes’ break while we bring in our next witnesses.Thank you so much.

proceedings. Members take part in thoseproceedings by voting, by promoting bills, bymoving amendments, whatever it is, but of course Iquoted Article IX because clearly the ingeniousauthors of Article IX realised that freedom of speechin debates had to be brought into the equation and ifthey are not strictly proceedings they had to be therebecause that is the way that Members primarily takepart in proceedings, they debate, they speak, and soArticle IX brings in the speaking. Others of courselike oYcers of the House carry out instructionswhich proceedings give rise to and witnesses ofcourse give evidence to select committees. I justthought it might also be useful, Lord Chairman, Ihave in my hands the Parliamentary Privileges Act1987 from Australia and there is quite a useful, fairlysuccinct summary as well, of proceedings in that Actand it says that: “ . . . ‘proceedings in Parliament’means all words spoken and acts done in the courseof, or for purposes of or incidental to, thetransacting of the business of the House or of acommittee . . . ” Then it goes on to define some ofthese things, documents to committees and so on.

Q436 Chairman: Does it include pre-legislativescrutiny?Dr Jack: Yes I think it does Chairman, yes certainly.So that is a round-up of what proceedings are. Ithink the other part of your question which talksabout the act of corruption, I take this to be areference to the Brewster case in the US and that iswhat the contract (if I can call it that) is, the actualact of corruption, the promise, the passing of money,and so on. I think what emerges from the Americancases, and I think the Committee will be aware thata predecessor of mine Sir William McKay gaveevidence to the last Joint Committee at that time on



10 June 2009 Dr Malcolm Jack, Ms Jacqy Sharpe, Mr Michael Pownall and Dr Christopher Johnson

the Corruption Bill, is that the American SupremeCourt came to the conclusion that it was possible todeal in evidence with matters of corruption aVectingmembers of Congress (of course, I think it is takenfor granted that the law must apply to Members)without necessarily going into the proceedings. Itwas not necessary, in the words of Chief JusticeBurger, to go into the completion of the bargain inCongress, and so he summed up the issue by saying,and I think this is the reference that has been madehere to the act of corruption: “The guilty act is theacceptance of the bribe, that is complete, withoutperformance of a legislative act”—what I have justdefined as ‘proceedings’—“which the bribe isintended to procure or influence.” Those are the twoconcepts as I understand them to be in yourquestion.

Q437 Chairman: Any addition from theirLordships’ end?Mr Pownall: As you well know, the principles ofparliamentary privilege apply to both Houses but ifI could just make the general comment that at leastin recent years issues relating to those principles havearisen far less frequently in the House of Lords, soon the whole I would simply endorse the remarks ofmy colleague from the House of Commons. We havediscussed the evidence together that we were goingto give. I would perhaps add one point which is that,speaking for the House of Lords, the Code ofConduct, which is adopted by resolution of theHouse, is therefore a proceeding.

Q438 Chairman: It is not a proceeding?Mr Pownall: It is a proceeding.Dr Jack: And that applies also in the Commons ofcourse. The Code of Conduct follows a resolution ofthe House.

Q439 Lord Lyell of Markyate: Just very quickly,Lord Chairman, a Member of either House can saywhat they like, subject to other rules of the House, inthe House and the words cannot be used againstthem in court?Dr Jack: That is absolutely correct, my Lord.

Q440 Lord Lyell of Markyate: That is key to thefreedom of speech?Dr Jack: That is key, yes, absolutely correct.Chairman: Subject to this Bill of course.Lord Lyell of Markyate: Yes subject to this Bill.Enough said.Chairman: Do you want to go on to the nextquestion, Mr George?

Q441 Mr George: Have there been any casesinvolving Members of Parliament sayingdefamatory things in all-party groups or partymeetings? I presume that would be totally excludedfrom the definition?Dr Jack: Yes those words would not be covered byprivilege because they would not be in connectionwith a proceeding of the House. I think if you are

asking about the evidence on whether there has beena hampering of prosecution, is that the question youare asking?

Q442 Mr George: We will come on to that later on.Dr Jack: Okay but that is the case, yes, that wouldnot be covered by privilege.

Q443 Earl of Onslow: For my own information if aMember of either House is given seven and six penceto say something, would a court be allowed to use inevidence the words that he said, perhaps: “I wouldurge the minister to buy sweeties from the cornershop in Scunthorpe”, or whatever the bribe is for?Would the corner shop in Scunthorpe speech beallowed to be used in evidence or is that privilege?Dr Jack: That is privileged and it would not beallowed to be used as matters stand now.

Q444 Earl of Onslow: When you get statutes beinginterpreted by what is said in Parliament, is thatincluded or am I going oV at a tangent?Dr Jack: In my quotation of Article IX the last partabout impeaching or questioning, there has beensome, how shall I put it, watering down ofquestioning in the case of Pepper V Hart which Ithink was in the early 1990s, 1992, and in that casethe courts took the view that it was proper for thecourt to look into the minister’s speech or thepromoter of a bill’s speech to ascertain what themeaning of the law was when it was obscure orambiguous, and it was limited to that, butnevertheless it is regarded as an intrusion.

Q445 Chairman: That is a matter of statutoryinterpretation rather than anything else?Dr Jack: That is right but it was nevertheless anentry into the privilege area.Chairman: Lord Anderson, I think you wanted tolook at the possibility of prosecutions.

Q446 Lord Anderson of Swansea: Yes, it was just theproblem which is relevant to clause 15 of just howrelevant is the mischief? Is it something which hasoccurred in the past or in the real world is likely tooccur in the future? I notice that Sir William McKay,who has already been quoted, suggested in the 2003proceedings that waiving privilege in corruptioncases could be compared to using “a mightysledgehammer to crack an almost invisible nut”. Isthat something with which our witnesses wouldconcur? Is there any evidence that the protection ofprivilege has indeed hampered prosecutions frombribery or corruption in the past? What in the realworld is your assessment that clause 15 of the draftBill would in fact pave the way for any increase inprosecutions in the future?Dr Jack: It is diYcult to answer this in an accurateway and I think a lot of this is anecdotal stuV. I donot mean to disagree at all with Sir William’sevidence, but he made that clear in his evidence tothe Joint Committee then. I think in 2003 SirWilliam said that he could not recollect any case inthe previous ten years of his experience that wouldcome into this category. He thought that there had




been one or two cases where in a very preliminaryway an approach might have been made toParliament and Parliament said, “Go away and findyour evidence somewhere else because you areentering into the privilege.”

Q447 Lord Anderson of Swansea: But he knew of noparticular cases?Dr Jack: He knew of no particular cases. I think if Ican just quote the Joint Committee onParliamentary Privilege which of course said, “Weare confident there are very few instances ofcorruption involving Members of Parliament.”Since Sir William’s evidence—and of course I havebeen the Clerk since 2006—I know of no cases at all.

Q448 Lord Anderson of Swansea: So in short it is nota real problem, is it?Dr Jack: It is not a real problem, no.

Q449 Dr Iddon: How would you balance thecompeting interests of convicting the corrupt andprotecting freedom of speech in Parliament? Indeed,does clause 15 of the draft Bill strike the correctbalance in your opinion?Dr Jack: I think that does come to the essence of thediscussion about the public interest test. I think thefirst thing that we must say of course is thatcorruption is obviously a serious matter, and no-oneis suggesting that it is not, and indeed it is a contemptof the House, and it is a serious contempt, it is a highcrime and misdemeanour. There is no questionabout the seriousness of it. I think what one has toweigh up, and respectfully if I may say that is whatyour Committee must do Lord Chairman, is whetherit is worth interfering with the complete and absoluteprotection of Article IX in respect first of all of justone instance of a case and also the general eVect thatit might have on debate in the House. Going back to2003 again, I think the purport of Sir William’sevidence—and he used the phrase that it would havea “chilling eVect on debate”—was that he felt thatany thought in a Member’s mind that entering acertain debate in the House would possibly end upas evidence in a court would have a chilling eVect,and he thought that it was not necessarily a matterof numbers but just the general feeling thatsomething that someone said in Parliament mightend up as evidence in court would have that eVect.That was supported very much by Harry Evans, whowas then the Clerk to the Australian Senate, and hereckoned that it was a serious attack onParliamentary immunity. I rather agree with thosewitnesses of 2003; I think it would be quite a seriousattack. However, I respectfully say I think that iswhat your Committee has to decide, LordChairman.

Q450 Lord Lyell of Markyate: I just happen to besteeped in Macaulay’s History of England at themoment and it is worth remembering James IIleading up to the Bill of Rights, and that high crimesand misdemeanours is not an American phrase,although we tend to think of it as such, it comesstraight from the English Parliament and, secondly,

the chilling eVect that Sir William referred to wasvery real in those days when if you were a thorn inthe flesh of the Government ie, principally the Kingand his ministers, then witnesses could be found tobring charges against you, and in an imperfect worldthat could happen again, indeed it does happen fromtime to time. If you were banging on endlessly aboutsomething to the annoyance of the Government, itcould perhaps be linked with some allegedcorruption, and you would then be in trouble.Dr Jack: I am very happy to follow you in the historylesson, my Lord. I think there is a problem aboutvexatious prosecutions of Members which couldoccur in the modern context, yes, I agree with that.Mr Pownall: Lord Chairman, if I could just add tothe answer to the main question. I would simplypoint out that this is the third time in a decade thata Joint Committee of both Houses has addressed thisissue and I for one would have some hesitation ingoing against the conclusion of certainly the 2003Joint Committee, which more or less recommendedthe provision in clause 15 as it currently stands, so itis an issue which is now being addressed for thethird time.Chairman: It is quite important in that case that weshould get it right this time.

Q451 Lord Lyell of Markyate: Chairman, could Ijust follow up, perhaps through you, why should wefollow it? What is it that it identified that will makeus a freer country or a better governed or a betterjudged country?Mr Pownall: It is just a question of the balancebetween public interests. I would hesitate to say thisbut I would think that the balance comes down infavour of allowing proceedings to take place inaccordance with clause 15. It is a question ofbalance.

Q452 Lord Lyell of Markyate: Although nobody canidentify a case?Mr Pownall: That is right, I cannot identify a case,that is true.

Q453 Lord Anderson of Swansea: In that case, doyou see any real purpose in clause 15?Dr Jack: I think your witnesses may have a slightdiVerence of view on this. I do not know whether itis the angels or the devils but I rather veer towardsthinking that the conclusions of the previousCommittee were not correct and that Sir Williamwas correct, and I think that is what I would—

Q454 Earl of Onslow: Is this a private fight or cananyone join in?Dr Jack: These are complex matters and I think thebalance is a fine one and in the end one just has todecide one way or the other.Chairman: Should we go on with our list because thenext question points to the diVerence in theprotection as between Members and witnesses andBaroness Whitaker wanted to ask this.




Q455 Baroness Whitaker: We could also say that theClerk of Parliaments has struck a balance in theprevious discussion on clause 15. He does have apoint, but of course the position of witnesses isslightly diVerent. Our crib says that a witness has amore privileged position because an accusedMember, if clause 15 goes ahead, could not rely onthe words said by a witness even if they wereexculpatory. A contrary view is that the witness is infact in a more vulnerable position because surelythere are proceedings in select committees wherewitnesses say things which they would only say solong as they were protected by privilege. If theywanted to say that a big company committed a bribethey might well be able to do that in a selectcommittee and would not risk it outside. Do youhave a view as to whether this greater protectionwhich witnesses have is right or should they be on thesame level as Members?Dr Jack: If I am following my argument through ofcourse they will be on the same level because theywill be protected as Members will be protected, butI think the particular worry about witnesses whichcame out in the Joint Committee, and thensubsequently the Liaison Committee of the House ofCommons, I think, became very concerned with thisissue, was simply because it was felt, the reason thatyou just said, that if witnesses were not givencomplete protection in giving evidence to selectcommittees this would be hampering the work ofselect committees. I think that was really the essenceof it. I do not know whether my colleague JacqySharpe, who has more experience of selectcommittees than I do, might throw some light onthat?Ms Sharpe: I think the one thing that one mightconsider in relation to protection for witnesses is thatwitnesses are coming from outside Parliament, theyare not part of Parliament, and if there was actuallyany need to investigate anything that they had doneyou would not usually need in any sense to rely onwhat they had said as part of proceedings becausethey would have another existence beyondParliament which could be looked at. I would saythat in what witnesses say before Parliament they dodeserve protection so that they can feel they can sayfreely what they believe and know that they will nothave any legal consequences of that.Chairman: Thank you for that. Question 18 is quitean important point about fairness of trials.Mr George: I belong to the newly formed Society forthe Protection of MPs Against Cruelty, andmembers are increasing by the hour!Mr Borrow: It was formed a bit late!

Q456 Mr George: Under the draft Bill the words ofan accused Member spoken before a selectcommittee would be admissible in court but thewords of other Members and witnesses would not. Isthis not unfair on the accused Member if he or shecould not rely on the other words spoken during theproceedings, particularly if they were exculpatory?Could this breach Article 6 of the EuropeanConvention on Human Rights relating to the rightto a fair trial?

Dr Jack: I think the answer is, yes, if the exculpatorymaterial could not be used then that could be adisadvantage to that Member. I am not sure that weare the right people perhaps to comment on Article6 of the European Convention, but I think that itwould certainly be the case, yes, a Member could bedisadvantaged.Mr Pownall: I would just add that it is diYcult toenvisage circumstances in which words spoken byanother Member or witnesses could be bothexculpatory and admissible in court. I cannot reallythink of circumstances in which words spoken bysome other Member could be relevant in a trial.Mr George: With the contemporary experience ofwhich we are all aware, is it wise to say that it has nothappened before therefore it might not happen in thefuture? This is part of the British disease. We do notseem to be prepared to think about the future,relying too much upon the past. Is your argument areasonable one: it has not happened yet—becauseit could?Earl of Onslow: May I suggest that I can think of acase. We will go back to the teashop in Scunthorpewhere a Member suggests that the teashop inScunthorpe should do something, it is alleged that hehas taken a bribe so to do. If another Member says,“I heard the Member advocating this before the dateof the bribery,” that would be witness in the man’sdefence. His speech would be unprivileged if thisclause goes through but the defence saying, “I heardhim saying he was going to do this before the bribewas proposed,” would be exculpatory and thatwould not be admissible in evidence; is that right,Lord Lyell?Lord Lyell of Markyate: It is possible.

Q457 Earl of Onslow: Have I got it right?Dr Jack: I think that is possible. The only light thatI feel I can shed on all this is in the 2003 inquiry thethen Director of Public Prosecutions actually castdoubts on the whole matter of the admissibility ofwhat was said in criminal evidence anyway and hesummed this up by saying, and I am quoting him:“Saying things about people is not evidence; factsare evidence”.

Q458 Lord Goodhart: Can I suggest another possiblecase where it would be exculpatory and that is ifMember A is being charged with bribery andMember B in the course of proceedings in the Houseadmits that it was not Member A but himself whowas guilty of bribery.Dr Jack: Yes, that is undoubtedly a veryinteresting case.

Q459 Lord Lyell of Markyate: Could I ask quicklydo you remember the Neil Hamilton case whichchanged the law in a minor degree? Does that havesome relevance to this?Dr Jack: I think it does in an indirect way in the sensethat this is the Defamation Act where the Houseagreed that a Member could waive privilege if he wasa defendant in a defamation case. I think where ittouches upon this is this very business of variousparties being involved and how you actually sorted




this out. I think it was one of the reasons why it hasbeen concluded that that reform of it, if it was areform, does not really work at all, and the JointCommittee recommended that it should be repealed,so I think it raises similar sorts of issues about morethan one person being involved.Chairman: Dr Iddon, you have asked to raise thepoints in 19 and 20. Certainly 20 would be acomprehensive provision which would allow us todiscuss all this again.

Q460 Dr Iddon: Do you think there is a need, asrecommended by the Joint Committees of 1999 and2003, for a separate Parliamentary Privileges Bill tomake further reform, bringing into account perhapsthe fraud oVences, or would this risk bringing thecourts more into conflict with Members and theirwork? I gather that the Clerk of the House ofCommons, Dr Jack, has recommended a PrivilegesBill.Dr Jack: Yes I think I have, not after a great deal ofthought, and with some trepidation. I think perhaps,without being too discursive, this probably needs abit of context, historical and otherwise. If we thinkback to the provenance of privilege in the first placeit is, as has been mentioned already, a strugglebetween Parliament, particularly the House ofCommons, and the Crown and the Executive.Subsequent to the Bill of Rights, which of coursecodified existing privilege which had existed in theHouse of Commons for very long periods, the focusof the conflict, if I can call it that, became betweenParliament and the courts, and I think thatthroughout the 19th century there is this to-ing andfro-ing between the courts and Parliament trying toestablish what are the correct boundaries, whatshould be left to Parliament and what should be leftto the courts. As early as 1839 in the case ofStockdale v Hansard Lord Denman said that theHouse controlled its internal proceedings but thecourt could determine whether privilege wasexclusive. It was the court that could hold an inquiryinto whether privilege was properly asserted. I thinkoriginally the courts took the view that there was nosuch thing as parliamentary privilege anywhere andthey simply ignored it, and then gradually, and I amsure with the Bill of Rights they became moreconvinced that there was such a thing as the law ofParliament, the lex parliamenti, and they started tolook at the borders around it. I think the story in the19th century was that the courts were generallyreluctant to get into the area of exclusive cognisance,the area really that the Houses determine forthemselves, setting their own rules and so on and soforth, but on the boundaries of privilege they werewilling to begin to question more. This went on intothe 20th century. I have got a quotation here fromLord Denning who said in the Pickin case in 1973:“The courts must ensure that the procedure ofParliament is not abused. In this matter the courtsare acting in aid of Parliament”. I think that inAustralia the background to the 1987 Act was justthis sort of gradual questioning by the courts ofwhere the boundaries of privilege lay and that led tothe 1987 Act. I am sorry to be so long-winded in

coming to this point, but I think that is one of thereasons why we have also reached this position.Jacqy Sharpe might be able to help with some recentinstances of the courts questioning proceedings.Ms Sharpe: Yes, we have had in 2007 and 2008 fourcases in which Mr Speaker has intervened not on thesubstance of the cases but in connection withprotection of the privileges of the House. One of themost recent was the case of the OYce of GovernmentCommerce and The Information Commissioner1, andthe Committee may be interested in the judgment ofMr Justice Burnton, as he then was, who gave a veryinteresting description of parliamentary privilegeand the relationship to the courts, and heemphasised that obviously conflicts betweenParliament and the courts should be avoided andthat one needed to adhere to the principle as to therisk of any interference with free speech inParliament and the principle of the separation ofpowers between the judiciary and Parliament. Thiscase concerned the use of select committee reportswhich were being referred to by the InformationTribunal and whether you could draw inferencesfrom them. There was no argument that you couldnot actually refer to the fact that there had been areport but that inferences should not then be drawnfrom them. I can certainly give the Clerk a copy ofthe judgment if that would be of any help.

Q461 Chairman: I suppose the justification forclause 15 is that nowadays, whatever may be thehistory, the public simply would not stand for it, inthe context of bribery, that parliamentary privilegeshould stand in the way of prosecution.Dr Jack: Yes, I take the weight of your comment,Chairman. I think the question really is whether it isnecessary, to obtain conviction, to go to thoseproceedings.

Q462 Dr Iddon: My Lord Chairman, I dare to askwhether the Clerk of the House of Lords agrees withthe Clerk of the House of Commons on this issue?Mr Pownall: I have to say that on the basis ofexperience alone in the House of Lords, if it was asingle chamber government by the House of Lordsalone, there is so little learning on parliamentaryprivilege in the House of Lords that I would notrecommend a dedicated Act because we have hadvery little experience or learning in the House ofLords in recent years, but I do see the force of theargument that the uncertainty of the scope forArticle IX can now be counter-productive. Thus, asI said in my memorandum, I do support the Clerk inhis suggestion that if there is to be any modificationwe should think of it in terms of a wholesalecomprehensive Act.Dr Jack: If I may add, Chairman, there are otheraspects to this. As well as the questioning in thecourts there is the fact that there is now quite a bitof legislation which in one way or another deals orimpinges on privilege which I think could be broughttogether in a Privileges Act. There are EmploymentActs, Planning Acts, FoI and these various other

1 [2008] EWCH 737 (Admin)




things and these are dispersed in various Acts. Veryrecently in the case of the Parliament Act the vires ofa bill has been questioned by the courts, the actualvalidity of an Act. This has gone much further thanhas previously been the case. On perhaps the moremodern side, if I dare say so, an Act could alsoperhaps examine matters which have been raised inthe past, although discounted by the JointCommittee, of some sort of system of redress orhearing for people who feel that privilege hasworked against them. This is something which Ithink would find quite a lot of favour in theEuropean Court where in the case of A v UK,although the case was largely one in whichparliamentary privilege was upheld in the sense thatit was recognised as necessary, the judges made quitestrong remarks about the need for nationalparliaments to look at their systems in a moderncontext of perhaps having systems of redress and soon, which they do in some of the Commonwealthcountries.

Q463 Baroness Whitaker: Just so I can get it clearbecause there has been a lot of history, now it is DrJack’s contention, is it, that Members of Parliamentshould not be like other people and have what theysay used in court proceedings against them? I do notknow whether they would be unique in that but itwould be pretty unusual. I can only think of perhapsconfession to a priest or a doctor’s surgery, but isthat your view, that Members of Parliament shouldnot be able to be tried using as evidence the wordsthey use in Parliament?Dr Jack: Yes that is my view and not only Membersof Parliament but witnesses and anyone else who isinvolved.

Q464 Baroness Whitaker: For criminal oVences?Dr Jack: For criminal oVences or for any oVences.

Q465 Baroness Whitaker: Any criminal oVence,bribery, murder?Dr Jack: Yes, that is my view.Chairman: Very well. Mr George, I think you wantedto ask the last two questions.

Q466 Mr George: I will be brief. Dr Jack, in writtenevidence you suggest that the proposal contained inclause 15 be put to each House in the form of asubstantive motion. Could you explain yourreasoning on that. What would be the advantage ofthis approach and why is legislative scrutiny aloneinsuYcient to determine the merits of theproposition?Dr Jack: I think perhaps it seems a fairly narrowpoint but it really relates to the procedures in theHouse of Commons, which are diVerent of coursefrom the House of Lords. If the Bill came forward inthe House of Commons—and of course Iunderstand that it has been already examined—thismatter could be decided in a public bill committee of16 Members of the House in a room somewhere inthe Palace of Westminster. I do not think that is theproper way to deal with a matter of this substance.I think the matter should be brought forward to the

House in a substantive motion so that all Membersof the House could express a view about it. I do notthink that necessarily negates the proceeding on thebill. The bill can go ahead, a substantive motion canbe taken at any time, but I think leaving such amatter to the possibility of 16 members in a standingcommittee does not seem to me to be proportionate.

Q467 Lord Lyell of Markyate: I agree with Dr Jackthat it could be very undesirable. I may haveforgotten my procedure but it would normally,although now things have got more truncated, comeup on report on stand part, would it not?Dr Jack: No, stand part would only be at committeestage which would be in a public bill committee ofMembers.

Q468 Lord Lyell of Markyate: And it would notcome back on report?Dr Jack: It would not come back on report.Amendments could be put down on report to thelines of the clauses in the bill but you could notreturn to the principle of the clause.Lord Lyell of Markyate: I quite agree with yourpoint then.Chairman: Very well then, the final question.

Q469 Mr George: We have heard a lot recently aboutCodes of Conduct for Members of Parliament andthis might be speculative, Dr Jack or any of thewitnesses, but what role should the proposed Codeof Conduct for Members be given perhaps indetermining whether or not a Member is guilty of abribery oVence? Can you kick that into touch or doyou think there is something worth saying at thisstage?Mr Pownall: If I could just speak a little bit to mymemorandum, Lord Chairman. We are fresh fromthe experience in the House of Lords of the recentcase of the four Members and although of coursethat is now water under the bridge I have drawn tothe Committee’s attention the comment by thepolice when they announced their decision not tolaunch a full investigation on 11 February, and thepolice indicated that there are “very clear diYcultiesin gathering and adducing evidence in thesecircumstances in the context of parliamentaryprivilege”. I do not think in fact that was correct. Ido not think any issue of privilege did in fact arise inthis case because the events which were discussedand the cross-examination and so on took place wellaway from the chamber so there was no question ofany proceedings being involved. I just wanted tomake that point. The recent case has made mewonder what is the relationship between the Code ofConduct and any proceedings under clause 15because the Codes of Conduct of both Houses, as Iindicated earlier, are privileged and thereforecovered by Article IX, but they are not mentioned inthe draft Bill so they would not be admissible asevidence in any criminal trial. It seems to me that theCodes would be a key element of the background toany trial in accordance with clause 15.




Q470 Chairman: I thought we established a momentago that the Codes of Conduct are proceedings.Mr Pownall: They are proceedings and they wouldnot therefore be admissible as evidence in a criminaltrial. That is my contention.

Q471 Chairman: Would not be admissible as such?Mr Pownall: No, that is right.

Q472 Mr Cox: Because they are not specificallyprovided for in the Bill.Mr Pownall: That is right. They are not provided forin the Bill and therefore they would not beadmissible as evidence, and yet it is diYcult to see

how actions in accordance with clauses 1 to 2 of theBill could be judged other than by some reference atleast to the Code of Conduct.

Q473 Chairman: I think this is a new point, is it not?Mr Pownall: I hope it is one that I made in mymemorandum, Lord Chairman. I suggested that theJoint Committee might wish to seek guidance fromthe Government as to how they would bring it in andwhat relevance the Code would have.Chairman: Has anybody else got any questions forour witnesses? In that case, may I thank you all verymuch for coming. We will read carefully what yousay when the transcript comes round. In themeantime, thank you very much indeed and I shalladjourn the Committee until we resume our labourstomorrow morning at 10.30.




Members present:

Colville of Culross V. Thomas of Gresford, L.(Chairman) Williamson of Horton, L.

Goodhart, L. Whitaker, B.Henig, B. Mr David S BorrowLyell of Markyate, L. Mr Bruce GeorgeMayhew of Twysden, L. Mr Jonathan DjanoglyOnslow, E. Linda GilroySheikh, L. Dr Brian Iddon

Witnesses: Mr Dimitri Vlassis, Chief, Crimes Convention Section, Treaty and Legal AVairs Branch, Divisionfor Treaty AVairs, UN, Mr Nicola Bonucci, Director of Legal AVairs, Ms Christine Uriarte, GeneralCounsel, Anti-Corruption Division, and Mr William Yiu Wah Loo, Policy Analyst, Anti-corruptionDivision, OECD, examined.

Q474 Chairman: Good morning. Thank you all forcoming. It is quite an important contribution thatyou have got to make to our considerations, so youare very welcome indeed. Could I start by asking fora general overview? You have already provided uswith something of the kind and there is a piece ofpaper which I think says very much the same thatyou have supplied us with today. Would anybodylike to do a general introduction to your views aboutthis legislation?Mr Bonucci: Thank you, my Lord Chairman. Withyour indulgence I will make a general introductionbut I will try at the same to answer questions 1 and11 of your suggested questions on our generalreaction vis-a-vis this Bill. Let me first say that I amNicola Bonucci and I am the Director of LegalAVairs at OECD. On my left I have two colleaguesfrom the OECD. I woke up at 5.30, I took a train, Iwalked one hour to get here, so I think this is alreadyan indication of the importance that the OECDattaches to this particular issue. The importance isreflected in all our written reports, which I am sureyou have seen, about the necessity for the UnitedKingdom to have a modern and eYcient legislation.While I represent the Secretariat and not the OECDmember countries, you have seen in the letter ofJanuary 2009, followed by letters on 3 February2009 and 27 April 2009 from the Secretary-General,that the OECD supports, if I may quote theSecretary-General, “the Government’s eVort andwishes this draft legislation be adopted as early aspossible and certainly before the next generalelection”. This draft, if enacted, would significantlyimprove the UK foreign bribery framework—I mustspecify that I am addressing merely the foreignbribery issue because this is where our remit is—andwould address a number of concerns expressed onvarious occasions by the Working Group, which isthe body which encapsulates all the OECDmembers, all the parties to the Convention. Let mebe very clear that when I say that this draft wouldsignificantly improve the UK foreign briberyframework I mean this draft. If the main elements ofthis Bill on the foreign bribery oVence or on thecorporate liability for failure to prevent foreignbribery were to be missing in the legislation to be

adopted by the Parliament, naturally it would not bethis draft; it would be a diVerent piece of legislationthat the Working Group would be assessing in thefuture. I will try to respond to question 11, which isto ascertain whether there are any remaining issuesthat were raised in correspondence by the Chairwhich would prevent the OECD oVering itsunqualified support for the draft Bill. I do not thinkthe OECD has ever oVered unqualified support toanybody and I would certainly not be in a positionto do that.

Q475 Chairman: Do you not think that there will bepoints arising in the course of the other questions?Mr Bonucci: Yes, naturally, but this is on the generalaspect. As I said, this will be an importantimprovement and will enhance the credibility of theUK legal framework. One often has alternatives,and the alternatives you have here are to adopt it ornot adopt it, and we respect that, but let me quotewhat the Working Group said in the Phase 2bisReport, page 71, “The Working Group stresses”—and this is the Working Group, not me—“thatfailing to enact eVective and comprehensivelegislation undermines the credibility of the UKlegal framework and potentially triggers the need forincreased due diligence over UK companies by theircommercial partners on multilateral developmentbanks”. This is the context in which we would likeyou to address this important issue and naturally wewill discuss more technical details throughout theevidence. Thank you.Chairman: I think we are trying to address it andwith your help we will address it further. Shall we goon then to this question of clause 4, “foreign publicoYcials”?

Q476 Baroness Whitaker: We hope that this clausesatisfies the UK’s obligations under the OECDConvention but perhaps you could give us theOECD’s view on that matter.Mr Bonucci: I think clause 4 is a major improvementover the current law for the following reasons. Itabolishes the reference to the concept of agent andprincipal and therefore eliminates the risk of havingto prove that the oYcial who receives the bribe



11 June 2009 Mr Dimitri Vlassis, Mr Nicola Bonucci, Ms Christine Uriarte and Mr William Yiu Wah Loo

violated the trust between an agent and principal. Itexpressly states that bribes that are paid directly tothird parties with the approval of the foreign publicoYcial are captured by the oVence. In terms of thedefinition of the oVence, it uses a lot of theterminology and the concepts that are used in theConvention, so we are quite happy with that. Thereis one caveat and I can address it now or I canaddress it later on at the request of the members ofthe Committee, which is something which is alsotouched upon in question 3, which is on the conceptof “legitimately due”.Baroness Whitaker: Please do raise it now.

Q477 Chairman: Bring them together.Mr Bonucci: Okay. Let me first finish my conclusion.On Article 2, we are overall quite satisfied except forthis caveat. On clause 4 and vis-a-vis Article 2 of theOECD Anti-Bribery Convention, again this is amajor improvement over the current state of the law.For the moment the only theory which can work inorder to trigger the liability of the legal person isidentification. By adding the failure of a commercialorganisation to prevent bribery under clause 5 youwill be meeting what are the standards of theWorking Group, as they have defined them in anexercise, which we call the mid-term study. Let merecall what the standards are. The bribery of aforeign public oYcial committed personally by asenior company oYcer should be covered, but alsothe bribery by a lower level person at the directionor with the authorisation of a senior oYcer, and thebribery by a lower level person where he or she wasnot adequately supervised by a senior oYcer or asenior oYcer knew the lower level person was goingto bribe but failed to try to stop him. We believe thatwith the new clause 5 you will be capturing all thosefigures. May I say a word on “legitimately due” andthe Convention?

Q478 Chairman: Please would you because this isquite an important point from our own legal pointof view?Mr Bonucci: And we understand that. The draft asit is goes a long way to replicating the language of theConvention and the concept of the Convention.However, one simple word which is missing butwhich I must say we would strongly prefer to see is“written”. If you look at commentary 7 andcommentary 8 to Article 1 of the OECD Anti-Bribery Convention, in particular commentary 8, itsays, “It is not an oVence, however, if the advantagewas permitted or required by the written law orregulation of the foreign public oYcial’s country,including case law”, case law in the sense of writtencase law, that is. This express reference to written lawdoes not appear in the draft as it is. Paragraph 36 ofthe explanatory note to the Bill refers to “custom ortolerance”. While it says that “custom or tolerance”is only there in order to demonstrate that it is the law,we believe that there might be some confusion and Iwould like to make it very clear that the WorkingGroup has been very clear on a number of occasionsthat this was a very restrictive exception. In 2006 theWorking Group on Bribery recommended to

Australia that they amend the defence in this regardbecause it was not in compliance with commentary8 of the Convention. At the time Australia provideda defence where the conduct of the foreign publicoYcial that was sought by the briber was lawful inthe foreign public oYcial’s country. They used theconcept of “lawful” without really defining what waslawful or not lawful. If you remember, this wassomething which was used in a case which wasimportant in Australia, dealing with the AustralianWheat Board. The Australian Wheat Board wasinvolved in what we called the oil for food case andthe report which an independent commissionpublished relied on the fact that the Iraqi law wassilent on the matter to say that because it was silentthis was permitted, which certainly was not thereading of the Working Group.

Q479 Chairman: Yes, but that is the common lawposition, is it not?Mr Bonucci: But, as I say, this was not the reading ofthe Working Group. Australia then modified itslegislation which now says that this shall beexpressly permitted or required by written law.

Q480 Baroness Whitaker: We do have two concernsin this matter. First of all, there is, as you referred to,the system that in the common law countries what isnot expressly forbidden is permitted, which mightgive a British company the feeling that they could goahead, but my own feeling is, what would happen ifwe were to do away with the exception “legitimatelydue” entirely? Could you give us examples of what islegitimately due, and have any of the other commonlaw countries run into diYculty with this concept?Mr Bonucci: Of all the 38 parties to the Conventionthe ones that in their legislation have made referenceto the concept in commentary 8 are Australia,Canada, Korea, New Zealand and the UnitedStates. All the others have no exception whatsoever.In the case of Australia, I indicated what were thefindings of the Working Group, and in the othercases that I mentioned all the legislations refer to thefact that the exception only applies if the lawexpressly provides that the specific advantage inquestion is permitted or required.

Q481 Chairman: Are there countries where that isprovided? Do some jurisdictions allow payments ofthis sort as well as written law?Mr Bonucci: If I may say so, you might be the one inthe future because you have a clause whichauthorises the Secret Service to pay bribes. Thiswould be one case in which a foreign country wouldsay, “I am relying on the UK legislation which allowsthe Secret Service to pay bribes”. In that case thiswould probably not be a defence for the person whowas seeking the bribe but, apart from this particularexample, I am not aware of any case in which the lawexpressly allows or permits.Ms Uriarte: Good morning. My name is ChristineUriarte and I am the Legal Counsel for the Anti-Corruption Division at the OECD. If I could justcomplement what Mr Bonucci said, I think theproblem is that perhaps there is a bit of a




misunderstanding about what the exception incommentary 8 is supposed to capture. What we aretalking about here is a law expressly in writingpermitting the specific payment that was made in aspecific case by a company or an individual to aforeign public oYcial. It has to be extremelyindividualised and I think the reason why so fewcountries have decided to put this exception in theirlaw is what is the chance that the law of a foreigncountry is going to say that in this specific case thispublic oYcial is permitted or required to ask for thepayment in question?

Q482 Baroness Whitaker: So why is it in theConvention, may I ask?Mr Bonucci: You may, and I will be very frank. Thiswas a provision which existed in the US legislationat the time when the Convention was negotiated.The US negotiator did not want to go back toCongress and modify the legislation, but theboundaries were so thin that if you ask my personalview this is a useless exception because, indeed, asmy Lord Chairman indicated, we can hardly see anycase for it. One can hypothetically imagine a case inwhich, for example, you would be forced to put somemoney in the custody of some public authorities fora certain type of contract, but I think it is veryhypothetical, and, as I said, we have neverencountered a case in which the law explicitlyprovided the possibility for a public oYcial to receivewhat would be equivalent to a bribe.

Q483 Chairman: I think the way in which it is beingput is, “If you are going to get this contract you willprovide us with a school and some other publicfacility”.Mr Bonucci: Again, we are not aware (and I am notsaying that this does not exist) of any suchrequirement existing in any written law. It might bepart of the deal but this is where we enter a grey area.

Q484 Lord Thomas of Gresford: Supposing there is acontract between a supplier in this country andsomeone in a foreign country in which it is a term ofthe contract that a payment be made or the buildingof a school be provided or something of that sort,and that contract is not void for illegality in theparticular country. There you would have a term inwriting which would permit the payment of a sum ofmoney or the provision of a facilitation of some sortor another. Would you say that that would becaptured by the exception in clause 5?Mr Bonucci: As I indicated, it is the written law orregulation of the foreign public oYcial and not thecontract. The validity of the contract is anotherissue. In fact, you have had cases, for example, in theArbitration Tribunal of the ICSID, the InternationalCentre for Settlement of Investment Disputes, inwhich even a contract tainted by bribe was deemedto be a valid contract in terms of contract, but still itwas a contract tainted by bribe, and you have at leastone counter example in ICSID, which is a veryinteresting case. It is World Duty Free v Kenya (4October 2006), in which the arbitral tribunal

considered that the specific contract which had beenobtained by bribing a foreign public oYcial waslegally voidable.

Q485 Lord Thomas of Gresford: So are you telling usthere are decisions both ways, that there arecontracts which have been upheld although—Mr Bonucci: In the past, yes.

Q486 Lord Thomas of Gresford:— although theyhave a bribe, but that a recent case involving Kenyahas been declared to be void?Mr Bonucci: Yes.

Q487 Lord Thomas of Gresford: If the contract isvalid is not the sum of money legitimately due? I amusing the expression that is contained in theproposed Act.Mr Bonucci: But that is exactly what we want toavoid. That is why we would prefer the legislation torefer, as in commentary 8, to the notion of writtenlaw or regulation rather than to a not very clearnotion of what is legitimately due or not.

Q488 Lord Thomas of Gresford: So as to exclude anywritten term which might amount to a bribe orfacilitation payment? You do not want to see that atall? Is that right?Mr Bonucci: The strong preference would be to stickwith the written law. If there were to be an exception,which, as I said, is a minority view in the WorkingGroup on Bribery; only a few countries have that,—actually, you might want to ask Mr Vlassis if there issuch an exception in UNCAC, which is not clear—clearly it should be in conformity with commentary8. Let me record that commentary 8 is preceded bycommentary 7 which says clearly that it is an oVenceirrespective of the value of the advantage, itsresolved perception of local custom, the tolerance ofsuch payments by local authorities or the allegednecessity of the payment in order to obtain or retainbusiness or other improper advantage, so theboundaries were very clear.

Q489 Lord Thomas of Gresford: Mr Bonucci, does itnot follow from what you say that the use of theexpression “legitimately due” in this Bill isambiguous because it could be legitimately dueunder the contract but, because it is not validated bya written law, it would fall foul of the provision? Itis ambiguous as it is currently written in this Bill, isit not?Mr Bonucci: I would concur with you that we wouldprefer the notion of “legitimately due” to disappearand to have a simpler reference to the written law.

Q490 Baroness Whitaker: That is very helpful.Perhaps we could also ask Mr Vlassis what is theUNCAC position.Mr Vlassis: Thank you and good morning. Let mestart by expressing my sincere gratitude for thehonour that you have done me by having me heretoday. I have been very excited to be able to comeand be with you, especially since it seems that in thedrafting of the Bill the provisions of the United




Nations Convention against Corruption, it does notappear from the documentation, were looked at andI think that a number of answers might have becomemore evident had this not been the case. Iunderstand that the Bill is intended to answer somequite significant criticisms levied against the UnitedKingdom by the Working Group on Bribery of theOECD, but I also see that there is a very strongdesire, which I believe is shared by the Governmentand Parliament, to make sure that the UnitedKingdom is in full compliance with its internationalobligations in general. In fact, I also detect the desirefor the United Kingdom not only to be compliantbut to be in a leadership position when it comes tothis, and that is not only through reading thematerial that was provided to me in preparation formy presence here but also in my experience with theUnited Kingdom in terms of support to theConvention and support of the development of aneVective monitoring mechanism for the Convention.Having said this, many of the issues that have beenraised here this morning are dealt with perhaps in amore straightforward manner in the Convention.One example is that the United Nations Conventiondoes not include anywhere even the notion offacilitation payments. They do not exist for theConvention. The Convention only recognises abribe. A bribe is a bribe and that is it. TheConvention has, which I think is pertinent to thediscussion up to now, a definition of “foreign publicoYcial”. I believe the Bill comes very close to thedefinition of the Convention, but the Conventionalso includes, for example, a definition for the firsttime of an oYcial of a public internationalorganisation, so there are a number of diVerences, asit were, which might simplify the work of thisCommittee and the passage of the Bill. Coming toyour specific question about “legitimately due” ornot, this is not an expression that the Conventionuses. The Convention uses the expression “undueadvantage” and I must confess the example that wasused just now about the building of the school Ifound a bit diYcult to understand as to how this canqualify in the discussion of the provision of an undueadvantage to a foreign public oYcial to do or to omitdoing something. My understanding of this is thatwe are speaking about an advantage that is intendedin some way to benefit that oYcial himself oranother, so it is a bit more personal, but, of course,I will defer to your views on the matter so that we canperhaps clarify this a bit further.

Q491 Earl of Onslow: I was going to come backexactly to this school argument. Let us take anexample, say, of a large contract which is going toinvolve a lot of workers in a less developed country.It would seem to me completely legitimate for thegovernment of that country which is giving acontract to say that construction company A willprovide schools for the workers’ children orhospitals which they will leave behind after thecompletion of the contract. In English law that isperfectly acceptable. In planning law localauthorities are always getting what is called planning

gain, in other words, making you, the developer,provide services for the community. What on earthis wrong with that?Mr Bonucci: Nothing, and this will never becaptured—

Q492 Earl of Onslow: I am sorry, Mr Bonucci; thatis exactly what I thought you said.Mr Bonucci: No, no.

Q493 Earl of Onslow: You mentioned the word“school”.Mr Bonucci: No, no, I did not mention the word“school”. It was your Committee. We are talkinghypothetically but let us be very concrete. There wasa case a few years ago in Poland of a minister whosaid, “You will get this contract but why do you notmake a gift to this charitable foundation?” This is apublic case on record, it is Schering-Plough (SECLitigation number 18740), if you want to look at thecase. The company in question made this gift to thecharitable foundation which was run by the wife ofthe minister. When you say a school, first, I wouldsay this does not necessarily benefit any publicoYcial; it is of benefit to the community, to the state.On the other hand, if the country then says, “Andyou have to hire company X and company Y”,which happen to be the uncle, the cousin, thebrother-in-law of the minister, then we have a casewhich is maybe not so clearcut even under Englishlaw.

Q494 Earl of Onslow: That is totally understood.That is obviously bent, is it not, “You will employmy cousin”?Mr Bonucci: Unfortunately, these kinds of thingshappen.

Q495 Chairman: I want to get this absolutely clear.It has got to be a generalised written law, is thatright, not specific to the individual case?Mr Bonucci: That is correct.

Q496 Chairman: You see, in this country LordOnslow was talking about planning gain. That is ingeneral law. It is a power that a local planningauthority has to ask for extra things in return forbenefit, but it is only in that sort of situation that youenvisage it as being legitimate, is that right?Mr Bonucci: That is absolutely correct.

Q497 Lord Mayhew of Twysden: Mr Vlassis, Iconfess I have not given the attention that I know itdeserves to the UN Convention, but you have madethe point that “legitimately due” is not an expressionfound in the UN document, which uses the words“undue advantage”. Do you really see anysignificant diVerence or any diVerence at all becausea due advantage is one which is owed or islegitimately due? “Undue” is the opposite. Is therereally any distinction between those two concepts?Mr Vlassis: There is supposed to be a distinction andthat is the reason that the expression was usedconsistently in all of the criminalisation provisions inboth oVences that the Convention foresees, that is,




the bribery of a national public oYcial and thebribery of a foreign public oYcial and so on. That isthe expression you will find there. It was felt duringthe negotiations that there had to be somequalification of the advantage. Much to theobjection of a number of negotiators (who alsohappened to be practitioners) who were advocatingthe view that every time you use a term which hassome form of value judgment in it you run intodiYculties of interpretation, “undue” was left at thatwithout a reference to any specific legislationbecause it was felt that it was suYciently clear, evenif it was a term that implied some sort of valuejudgment, to stand and to be guidance enough forcountries when they wished to legislate. Thenegotiators did not wish to go any further andqualify this, or, for that matter, define it againbecause they felt that it was suYciently clear. Ibelieve, from what I have seen in the documentationthat was provided to me, that the approach that thenew draft Bill is taking in qualifying what is anundue advantage is probably going to becomeguidance for other legislators in the future.Chairman: This is an important point but we mustmake some progress. Nevertheless, Lord Sheikh andLord Lyell want to pursue this matter.

Q498 Lord Sheikh: Under sub-paragraph 4, theexception we have, as we all know, is permission orrequirement to accept this. There are things whichhappen in overseas countries with regard to customsand with regard to things being done. Do you comeacross in your international work an overseascountry where things are written, where they doadmit that it is permissible, or otherwise it may causea problem with regard to these exceptions?Mr Vlassis: I have never come across any countrythat has any legislation or any other regulation thatallows public oYcials of any sort to receivepayments above their normal salaries.

Q499 Lord Sheikh: We may have problem in sayingit is an exception and use that to say, “Yes, a man wasallowed to do this”.Mr Vlassis: How would you provide the certaintythat is required for any court or any jury that thiswas indeed being allowed? The moment youintroduce the exception you provide the possibilityfor large companies to find ways to escape the law,and this is why it needs to be unqualified.Mr Bonucci: If I may complement what Mr Vlassissaid, based on our experience, as I indicated before,out of the 38 countries only Australia, Canada,Korea, New Zealand and the United States havesuch a provision. In none of these countries has thisexception ever been raised in a case. It is reallyhypothetical but the limit of that expression shouldbe the one that my Lord Chairman indicated.

Q500 Lord Lyell of Markyate: Would you be able toprovide us with the written laws of these fourcountries to which you are referring because therewould be common ground that bribes of individualoYcials, for example, would be completelyunacceptable? Do they make provision, for example,

for commissions which in some senses are of a morepublic nature? Does that happen? You are quitegood on practical cases. What actually happens? Arethere things that happen which you do regard aslegitimate, and obviously there are other thingswhich are illegitimate? Can you give a littleexplanation?Mr Bonucci: Certainly we will provide you with therelevant pieces of legislation. Turning tocommissions, again, commissions are of two sorts—bona fide or not bona fide. If you are paying an agentto perform his or her work as an agent and you arepaying a commission, that is perfectly legitimate;there is nothing against that and no violation, nobribe. If, on the other hand, you are using thedisguise of an agent to eVectively pay what youqualify as a commission but is eVectively a bribe,which is one of the main vehicles which is used, thenthere is an issue. No country as far as I know wouldsay that any payment for anything which is called acommission is ipso facto legitimate because itdepends on the facts and circumstances of the case.You might have very well presented this as acommission but in fact it is a bribe, or you mighthave indicators, which we have had in past cases, ofcontracts in which the amount of commission was 25per cent of the value of the contract. It is diYcult toimagine that there would be legitimate businessreasons to pay 25 per cent of the value of the contractin so-called commission. The answer is that I do notthink any country allows payment of commission tobe legitimately due in abstract.Ms Uriarte: Can I add to that, please? I think part ofthe discussion here is a result of this very UK-specificwording of “legitimately due”, and I think it needs tobe clarified right from the beginning that the OECDAnti-Bribery Convention, in Article 1, where itdefines the elements of the oVence, does not use theterminology “undue advantage”. It is “improperadvantage”, and so it is very diYcult, I think, tocompare the UK situation to other countries’legislation where, as far as I know, none of them hasever used the terminology “legitimately due”. It iseither “undue advantage” or something close tothat. I think that the discussion here and the use ofthe exception that you are talking about flows fromthe use of the term “legitimately due”, which thenraises the possibility that perhaps a contract couldhave been obtained and as a result of the contract thepayment is due and is that legitimate or illegitimate.Chairman: We would like to look at the texts of theseother laws you have mentioned because we need tobe satisfied that this is transferable into British legalparlance, but I would now like to go on, if I may, tothe next point, which is the defence that the LawCommission suggested, which has now been takenout, I think partly because you objected to it.

Q501 Earl of Onslow: The Government has droppedthe “reasonable belief” defence which was originallyproposed by the Law Commission. Would it beacceptable to the OECD and the UN if this defencewas reintroduced in order to protect businesses thattake eVorts to comply with the foreign oYcial’s law




but who, for example, get bad legal advice and theyhave no way of checking that that legal advice isbad?Mr Bonucci: This is indeed one area in which thedraft legislation which was submitted to the JointCommittee is an improvement in the eyes of theWorking Group and vis-a-vis the Law Commission.I cannot really speak on behalf of the WorkingGroup but we are pleased that it is changed andthanks the Government for taking this into account.The reasons why the Working Group on Bribery isnot in favour of such a defence are indicated in thePhase 2bis report in paragraphs 60-62 and they aretwo-fold. The first one is that this defence is notcontemplated in the OECD Anti-BriberyConvention. In fact, defences not exactly of that sortbut of a similar sort which have been introduced intoother countries’ legislation have always beencriticised by the Working Group on Bribery, whichsystematically asked the countries to remove thosepossibilities. The second reason why the WorkingGroup on Bribery was not in favour of this defenceis the fact that this would appear to be a defencewhich is not a general defence under UK law butonly in this particular case, so it is not a defence ofgeneral application; it would be used only in thisparticular case. The third reason is the very unclearboundaries of this defence. If I may take yourexample, my initial reaction would be to say that itis quite convenient to get bad legal advice if youwant. It is not very diYcult. I am a lawyer. I knowwhat it takes to find or to have legal advice whichgives you the flexibility that you would like to retain.The question is indeed the due diligence, that youwould then be required to check that this legal adviceis bona fide or not. Any reasonable employer in anissue like that would not rely exclusively on legaladvice but also on external analysis of the legislationand on other indicators. The question of thereasonable belief is exactly in the terms that you areputting it—the reasonable belief by whom, underwhich standard, and then you enter into a verydiYcult grey area, which, as I said, no other countryhas entered into, and that is why the WorkingGroup—Earl of Onslow: May I interrupt you here? You saidjust now that you as a lawyer know how to giveadvice which would suit your clients; that is in eVectwhat you said. Surely you should not go to a lawyerwho takes that cavalier view of his duties to the law.It is as simple as that. If you go to a reputable lawyerwho is not going to advise you in eVect how youwant to be advised rather than what the law is, thenyou must indicate reasonable belief and that surelyshould be a proper defence. If you go to properpeople who give proper and honest advice then thatshould be a proper legal defence because you haveevery good reason to believe that.

Q502 Chairman: Could I ask the team to address thisslightly more generally? We have had a lot ofrequests from commercial witnesses. They want adefence. This one apparently will not do. What canbe available to a commercial company so thatalthough they are doing their very best to comply

with the law they nevertheless receive advice orguidance or something? Is there any way of gettinground this which is legitimate?Mr Bonucci: What you are saying is that a companywill take a specific course of action based onlyexternal legal advice that they would have sought?

Q503 Chairman: No, I am not saying that. I amsaying that is one of the methods that might be used,but there might be others.Mr Bonucci: Absolutely, and that is why I thinkclause 5 is exactly what the draft tries to provide tocompanies. What is clause 5 at the end of the day?The company would be liable except if it proves thatphysically it acted diligently and it had a system inplace which would be eVective. This is the realdefence. If a company has done all it has to do toverify, to counter-check, to have a system in place,and you have a case of a rogue employee, whichhappens, even though in ten years I have never metone but let us assume, then yes, this would be thedefence. I do not think this draft has introduced thevicarious liability concept; this draft is saying thecompany should be liable, either because the bribewas made by a senior oYcial and therefore the senioroYcial engaged a company, or, if it was a lower leveloYcial, because the company did not have a systemin place which prevented this from happening. If, onthe other hand, you have done all your duty, and Iwould say your duty might be more than relyingsimply on external legal advice, this would amountto exonerating the liability of the company.

Q504 Earl of Onslow: I am sorry; I still am unhappywith the concept that it is the advice that you getfrom your lawyer, you have no possible reason tobelieve that it is not anything other than clean andabove board, that you cannot say that youreasonably believe that advice was right, and that inmy view should be a defence.Mr Bonucci: One of the diYculties in this area is thatwe tend to go into hypotheticals but we are dealingwith real issues. You would have a company that hasno compliance system at all, no control system—

Q505 Earl of Onslow: I am not saying that. I amsaying exactly the opposite of that. You have gonethrough all the hoops, you have done everything.Mr Bonucci: Then you do not need the reasonablebelief. Then you have, as I said, the defence which isprovided in clause 5.Chairman: Mr Bonucci, I think we are going to haveto pursue this on another occasion because we mustget on with the other questions on which yourevidence is going to be very important. Could weturn to the question of corporate liability?

Q506 Lord Goodhart: We have dealt with the casesjust now where the company itself was plainly liablefor committing bribery and we have moved on toclause 5 which deals with the failure of the companyto prevent bribery. What you have said about this inthe OECD report of October 2008 at page 25 was,“The examiners are seriously concerned about thelack of reform of corporate criminal liability for




foreign bribery and they consider UK law to bedeficient with respect to Articles 2 and 3 of theConvention”. What is your view of clause 5 of theBill in relation to that concern?Mr Bonucci: As I indicated in my introductorystatement, this is one of the clauses which I think isuntouched between the Law Commission report andthe draft which has been submitted to yourCommittee, and the Working Group per se has nottaken a final view because, as you know, the WorkingGroup expresses itself on pieces of legislation, not onactual drafts, but the team which visited the UK inJanuary, to take its language, “was largely of theview that the Law Commission recommendationrelevant to foreign bribery”—and this would includeclause 5—“taken as a package would address anumber of the Working Group concerns”. Weconsider that this clause 5 would meet the minimumstandards that the Working Group has set. Let merecord again what those minimum standards are.“The oVence shall cover the bribery of a foreignpublic oYcial committed personally by a seniorcompany oYcer. The oVence shall cover the briberyby a lower level person at the direction or with theauthorisation of a senior oYcer, and the oVence shallcover the bribery by a lower level person where he orshe was not adequately supervised by a senior oYcer,or a senior oYcer knew the lower level person wasgoing to bribe but failed to try to stop it.” On paperclause 5 appears to address all those points. One ofthe diYculties again in assessing a piece of legislationis that a lot will depend on the implementation ofthis legislation and on the interpretation that thecourts will make of this legislation, but certainly onpaper and based only on what we have now in placein the UK and what clause 5 seeks to introduce, itwill be a vast improvement in terms of the liability oflegal persons.

Q507 Chairman: Would it be an even greaterimprovement if we required gross negligence?Mr Bonucci: What is important for us is a system. Asyou know, the Convention is pretty flexible on thatbecause we have countries with civil law, countrieswith common law; it does not need to be a criminalliability. What is important for us is to meet the threecategories of cases that I indicated. I do not know ifby introducing gross negligence you would put athreshold which is higher than what the draft is, andso personally I would stick to the draft as it is.

Q508 Lord Goodhart: Can I ask you whether clause5 could be strengthened in this way? At the momentthere are three steps. The prosecution has to provethat there is bribery; that I think is obvious.Secondly, it has to prove that the responsible personwas negligent and failing to prevent the bribery, andthirdly, there is a defence for the company to provethat it had adequate procedures in place. Two andthree seem to really be dealing with very much thesame point. Might it not be an improvement toremove one of them?

Mr Bonucci: You are stretching my ability torespond. Would you like to receive my personalopinion or would you like to receive the opinion ofthe OECD?

Q509 Lord Goodhart: The OECD I think has notaddressed it.Mr Bonucci: To be very frank with you, this is a veryinteresting proposal and the OECD as such has notaddressed it, so I would refrain from—

Q510 Chairman: If you would like to give a personalopinion please do.Mr Bonucci: My personal opinion is that there arecountries which have basically insisted on threemore than two. In Italy, for example, the companyhas to prove that it has something in place withoutneeding step two.Mr Loo: But Italy does not require proof ofnegligence. It is almost a vicarious liability with adue diligence defence. I think what is a bit unusual isthe three-step procedure. You already have to provebribery followed by negligence and then duediligence. We have seen the version with the lasttwo steps.Mr Bonucci: But if the question was would we thinkas professionals that the Italian model would bebetter, my personal opinion would be yes.Chairman: Now we must go on, please, to theAttorney General.

Q511 Lord Lyell of Markyate: The question whichyou have got in front of you, and I think it is helpfuljust to put it in exactly that form to start with andthen perhaps to probe a little, is to explore whetherthe draft Bill goes far enough to reform the role ofthe Attorney General, including powers of consentand direction. What is the OECD’s and the UN’sview on that?Mr Bonucci: As you know, this is one issue which hasbeen tackled at length by the OECD Working Groupon Bribery. In the Phase 2bis report I would like torefer you to paragraphs 119-128 of the report. I thinkwe are very happy—I can say that—that the AGconsent has been removed in the draft that we havenow. Your question is, does this go far enough?

Q512 Lord Lyell of Markyate: Yes. The question iswhether it goes far enough to satisfy the OECD.Mr Bonucci: Certainly the fact that the AG consentis removed in this draft is a major step in the rightdirection. There are, however, a couple of pointswhich have been raised in the Phase 2bis reportwhich are not addressed in this draft. One is thepower of superintendence of the Attorney Generalover the Director of SFO. The boundaries of thispower are still a bit unclear, in particular on issueslike termination or suspension of investigations.Those are in paragraphs 109-112 of the Phase 2bisreport. The second point which has not beenexplicitly addressed in the draft Bill is the role of theAttorney General in the appointment of the Directorof SFO, paragraphs 116-118. Then there is the factthat there would still be, at least this is what weunderstand, a consent of the Attorney General for




extraterritorial cases under the Serious Crimes Actof 2007, which is referred to in paragraph 129. Thereis also another point, but I say it only for the sake ofcompleteness. I understand it is outside your remitso I will not ask you to address it. We know that thereis another Bill, the Constitutional Renewal Bill,which maintains, and one could possibly sayexpands, the power of the Attorney General inrelation to a specific field, which is the nationalsecurity consideration. So the Attorney Generalwould have the power to stop or terminate any kindof investigation if it were to deal with nationalsecurity. As you know, this would open wounds inthe Working Group on Bribery.Chairman: We really must move on. We have got alot of important questions and we have got the otherpanel waiting. I wonder if I could ask Mr George todeal with Article 5 of the Convention.

Q513 Mr George: We are hopelessly behind and theonly chance we have of treating the following groupwith deference and respect is if we ask just the mainquestion and no supplementaries. I am not usurpingthe Chairman’s role, but we will go on untilChristmas if everybody joins in with every question.Question seven, Sirs, Madam, you have thequestion, would you please answer it. I am notasking any supplementaries and I hope mycolleagues follow suit.Mr Bonucci: I will try to be as quick as possible. Theviews of the Working Group are fully set out in thePhase 2 report, paragraphs 94-108. Certainlyanything which goes in the direction of giving formalstatus under domestic law would be applauded. Thisis a request which has been made by the WorkingGroup on Bribery in the code for criminalprosecutors. As far as introducing this into law itself,you will see that the Working Group on Bribery doesnot explicitly request the UK to do it, howeveranything which would give formal status underdomestic law would be greatly appreciated, inparticular in the light of an unfortunate case whichtook place in the UK recently. The direction is veryclear on that.Chairman: Thank you, Mr George. I do not knowwhether you want to pursue question eight or not?Mr George: No, I withdraw that question, my LordChairman.Chairman: I do not know whether nine is important,but I do think that ten is. Lord Mayhew is going toask about the security services.

Witnesses: Mr Jeremy Carver, Board Member, and Mr Mark Pyman, Director, Defence Programme,Transparency International; Ms Sarah Sexton, Co-Director, The Corner House and Mr Nicholas Hildyard,Co-Director, The Corner House, examined.

Q517 Chairman: May I welcome our four newwitnesses. I hope you have a list of the questions thatwe would like to ask you. The first one, your overallreaction to the draft Bill, is something that I think wewould like you to deal with fairly briefly becausethere are a lot of other detailed questions to come.

Q514 Lord Mayhew of Twysden: Could you help uswith this, if you please. Is the power to authorisebribery by the security services compliant with theUK’s international obligations, particularly as itdoes not apply to the foreign oYcial oVence?Subsequent to that, you might like to deal with—could the power be extended to apply to the police orother investigators involved in fighting serious crimeand terrorism?Mr Vlassis: Obviously this is an area, particularlythe security services, which is not specifically coveredin the Convention. I find myself at a loss to respondas to whether any authorisation for bribery wouldcomply. On its face I would say not. I do not see whysecurity services ought to be treated diVerent fromany other public service. The only exception that youmight read into the Convention, you would have toread it by reading several Articles of the Conventiontogether. Let me give you an example if I may. TheConvention against Corruption defines in Article 2the concept of “controlled delivery” which is aconcept that you will find in other Conventions morerecently than this: the Convention againstTransnational Organised Crime, which the UnitedKingdom has also ratified, and before that theConvention on Drug TraYcking. There are otherArticles about special investigative techniques andso on. One must look at these issues in context. WhatI am saying is you might find yourself in situations inwhich, in order to pursue eVectively an investigation,the police or other forces would have to use methodslike going undercover or appearing to be complicitin the commission of certain oVences. It would onlybe in that context that I would see an exception beingmade in that regard.

Q515 Chairman: I think that must be a matter thenfor our own jurisdiction to decide.Mr Vlassis: Precisely.

Q516 Chairman: I am afraid that we must move onto the next panel because there is a great deal to askthem. May I say, Mr Bonucci, we will look at thepassages in the report to which you have specificallydrawn attention and that will be very helpful for us.In the meantime, may I thank all of you very muchindeed for coming and assisting us. We are trying tocomply with the Convention, as you see, but thereare problems.Mr Bonucci: Thank you very much. Thank you forasking us to come.Mr George: Thank you very much.

Mr Carver: Thank you, my Lord Chairman. May Itake a small amount of licence on that because Ithink the answer I would like to give to that questionwill, in fact, inform the answers that I would give onbehalf of Transparency International to all of theother questions. First of all, I would like to pay more



11 June 2009 Mr Jeremy Carver, Mr Mark Pyman, Ms Sarah Sexton and Mr Nicholas Hildyard

than lip service but my appreciation on behalf ofTransparency International UK for being invited toprovide evidence to this Committee. To us, this is amost important function, a very important role thatyou play here. As an organisation we have beencombating corruption internationally since we werefounded in 1993. Initially we addressed primarily thedemand side, the receipt of bribes, and it was not fora couple of years before we realised that you couldnot address one side of that equation, you have todeal with both. You have to deal with the supply sideas well as the demand side. You must tackle thepayment of bribes as well as the receipt of bribes. Ifyou do not, you have an imbalance, an imperfectsituation, an oddity, and it does not work. There hasbeen a lot of evidence that you have received over thelast four weeks and I have enormous sympathy forthe Committee, some of whose members are veryexperienced in these matters and some less so. Witha very short timetable you have been inundated by ahuge amount of material to absorb and a hugeamount of submissions. These submissions all startwith one basic statement, which is “We welcome theBill”. At that point, beneath the welcoming of theBill, there is a major division and it is that divisionthat I want to explore just for a second if I may,my Lord.

Q518 Chairman: Please do.Mr Carver: EVectively, the division comes betweenthose who say, “We really do need proper UnitedKingdom legislation to eliminate bribery from ourbusiness practices. We must have it. We arecommitted to have it by a whole series ofinternational commitments that we have made overthe last dozen years and it is no good pussyfootingabout with it, we must have it. We must have itstrong and clear and we must resume a leadershiprole in relation to business because this is where ournational interests lie”. Then there is another campthat eVectively says, “Well, yes, we do wantlegislation but it has got to be the right legislation. Ithas got to be very carefully moderated andmodulated so that it is legislation that eVectivelyallows us to do business as usual”. It is that worryabout business as usual that underpins and underliesa great deal of the complexity that you have beenhearing about over the last three to four weeks. If Ican take the Committee back to 1976-77, as you verywell know in that year the Lockheed scandal withJapan broke and it had a cathartic eVect in theUnited States. There was moral outrage, much morein Japan than there was in the United States, andthere were lots of complaints from Lockheed’scompetitors that they were trading on an unfairbasis, but that was a charge that would have beendealt with by the United States’ anti-trust rules.There would never have been a Foreign CorruptPractices Act if there had not been one extra thing,which has not been mentioned at all to you today,and that was the Securities and ExchangeCommission came down in force from New York toWashington and impressed upon Congress theabsolute necessity for a tough law outlawing UScompanies paying bribes abroad. This was

legislation that went through on the basis of thestrength of the case that the SEC made. This was acase based not on morality, not on competition; itwas based upon danger, upon business risk. If majorcompanies are going to sign contracts on the basis ofhaving paid a bribe that is a contract that is very,very unsafe and markets are going to build theirexpectations, their price in the marketplace, on thatbasis and their staV, their employees, are going tobase their future, their careers, on the basis of a veryuncertain future. Payment of bribes not onlyproduces business that is bad business, it is also veryunprofitable business. It is business that simply doesnot produce eVective results. A company that is usedto getting business by paying bribes is embarkingupon a quite diVerent process. It is not selling goodsand services, it is selling vehicles for bribery. It isselling means whereby bribes are paid and receivedin a way that achieves nominally business. In fact,the recipient of the bribe, the senior governmentoYcial at the other end, is not really interested in thatbecause he is interested in getting the money, so allover the world there are white elephant projects,many of them funded by international nationaldevelopment banks, aid agencies, national aidagencies, DFID and others, that are simply useless,that do nothing, that are sitting there because theironly excuse was as a vehicle for paying a bribe.Nobody was interested in the outcome. You havePakistan where the ordinary citizen in Pakistancannot aVord electricity because the way in whichthe electricity power stations were built meant theywere built for a quite diVerent purpose than theprovision of electricity. All over the world thesephenomena exist which are having a devastatinglybad eVect and they are not generating soundbusiness in this country. What it means is you do notinvest in your own business, you invest in payingbribes. Siemens has been absolutely prominentthroughout the last two to three years and has so farpaid in excess of $1 billion in fines for its conduct.This was quite simple. They had a product line intheir telecommunications division that had simplytaken the wrong turn in technological innovation,but the business decided they had to sell this stuV.They could not sell it on the basis of a valid product,they could only sell it by systematically bribingpeople to take it. That is the scale of the business. GErealised that when they were found out under theForeign Corrupt Practices Act in the 1980s forpaying an Israeli general to take some of their lesssatisfactory military hardware products. This type ofbusiness is still done on an everyday basis of sellingsub-standard stuV, not on the basis of it being useful,not on the basis of competitive price, not on the basisof having been properly invested in and providingreliable jobs in this country, but on the basis of “Howmuch will this minister want in order to place thecontract with us”. This is a fundamental diVerenceand this diVerence has to be recognised as havingchanged the situation. There are still too many,particularly in this country, who hanker after a timewhen it was possible to pay these inflatedcommissions, who want to be able to continue to dothat because that is the way they have done it in the




past. To Transparency International, to the OECDand to many people, civil society in this country andelsewhere, that is simply an unacceptable way ofgoing forward. Coming to the Bill, this—

Q519 Chairman: Just before you do that, the resultof the SEC’s intervention presumably was the 1977Act in America. Do you approve of that Act?Mr Carver: Correct.

Q520 Chairman: You do. We are trying to dosomething similar, but it may not be the same. Nowyou come on to the provisions of our Bill.Mr Carver: I would say this in a general nature aboutthe Bill. Since December 1997 when we signed inParis the OECD Anti-Bribery Convention there wasno doubt as to how much of a change we had tomake to our own legal system in order to implementit. Even within government, one department, theDepartment for International Development, took acareful view of this and took external advice, theadvice of one of the best criminal law silks at thetime, as to whether or not there was compliance, andthe opinion was quite clear that there was nocompliance at all. The Government simply ignoredthat and promised the House that we were compliantand we could go ahead and ratify, even though therewere Government departments that knew perfectlywell that was not the case. I am not saying that anyparticular minister lied at any time, but the fact isthat we shovelled over the diYculty we had in thatour law was non-compliant and successive ministershave had to say, “Oh no, we have always said we arecompliant”. We are not compliant and the OECD, inthe most polite way it can, has successfully told usfor over a decade that we are not compliant. In orderto evade this problem we have submitted to a processof consultation and legislation for the last 12 yearsfrom the first Law Commission investigation andreform, which involved its own elaborateconsultation triggered by the Nolan Committee,through to the last one. If any piece of legislation hasbeen consulted on, it is this one. The diYculty, ofcourse, has been that each body that has triggered aconsultation, whether it is the Government, whetherit is the Law Commission or previous parliamentarycommittees, has of course continued to receive thetwo points of view: one that says we must havelegislation, it should be clear, it should be decisiveand it should stop present malpractices, and theother says that, yes, we have legislation but basicallywe want to continue to do what we have always beendoing and we do not want to risk losing Britishbusiness. That British business is simply not worthkeeping. That is a realisation that many Britishcompanies have now made. I wish that theinstitutions British businesses have to representthem were also of such a clear mind becausecompanies are now accepting that they must haveproper compliance because they work not in theBritish marketplace, they work in an internationalmarketplace and that has expectations which theywill not be able to fulfil if they apply the much lower

standards of what it is that the United Kingdom hasbecome familiar with and what they would like tocontinue to achieve by this new piece of legislation.Chairman: Mr Carver, we would like to come on tosome of the nuts and bolts of the new legislation, andMr Borrow would like to ask some questionsabout those.

Q521 Mr Borrow: I am going to cover questions 13and 14, which I think you have got, which arebasically looking at the extent to which thelegislation is clear and predictable. One of the issuesthat we have explored with a number of witnesses iswhether the actual words in clauses 1-4, things like“improper” performance, reasonable person’s“expectation” of “good faith”, “impartiality” and“trust”, are actually predictable enough in ensuringthat people know what is meant to be captured and,if not, whether some sort of guidance as an additionto those clauses would be a good or bad thing.Initially we would be interested in your comments onthat particular area.Mr Carver: We are satisfied with the predictability ofthe language in the Bill. Let me just amplify that toa small extent. This Bill, because it has been through12 years of consultation, represents a whole series ofcompromises, compromises that have been madesincerely and earnestly by successive subjects ofconsultation process. The Law Commission inparticular has tried to balance the contending viewsthat I have described and have arrived at these seriesof compromises. To our mind, this is a perfectlyacceptable compromise. What I am particularlykeen to convey to the Committee is the paramounturgency of having legislation. It is far moreimportant to have legislation that eVectivelymodernises, brings up-to-date and compliant ourlaw on bribery than the precise detail of the Bill. TheBill has imperfections, and I am not in any waysuggesting that you as a Committee should abdicatefrom your responsibility in making sure that the Billin your recommendations back to the Governmentis as good as you think it can be made, but where Iworry is every single one of the witnesses who havebeen before you has appeared in every singleconsultation that has taken place in anticipation ofthis legislation. Every one of them has put their pointof view and every one has been compromised in theprocess. Of course, Parliament has its ownresponsibilities and duties to produce the rightanswer but this language, and most of the languageof the Bill, does satisfy us because it satisfies theOECD and what we believe are our internationalresponsibilities. Even if it does not, we think it wouldbe an enormous improvement on what it is atpresent. If we do not have this window for legislationI fear that we, the United Kingdom, will be doingenormous damage to the entire fight againstcorruption globally by continuing to be the oddman out.

Q522 Chairman: Mr Carver, I do not think you needto convince us about the urgency of our timetable,we are sitting day and night some of the time. Also,I take the point that we do not want to get involved




in massive amendments in the parliamentary processbecause that is clearly going to take a lot of time. Forthe moment you are saying that the variousformulations that appear in the Bill are worthhaving, are they?Mr Carver: Yes. I would prefer some of themmissing, but I am content with the Bill as it is atpresent because I believe it is much more importantto have a Bill and the only hope, I think, there canbe of having a Bill is if this Committee can producea simple, clear recommendation, with someimprovements no doubt, that, “This is what we as aCommittee representing both Houses and all partiesfeel is the right process for the Government to goahead with now”.

Q523 Chairman: Does Corner House want to comein on this?Mr Hildyard: We would, thank you.

Q524 Chairman: We would like you to do so.Mr Hildyard: We will be as quick as we can, but wewould also like to make a few introductory remarksif possible. As you probably know, The CornerHouse is a human rights environment anddevelopment group and our concerns on briberyarise from working with those at the sharp end of itsimpacts. Those impacts are very real. Bribery is not avictimless crime, “it kills”. Those are not my words,those were the words of Hilary Benn when he wasSecretary of State for International Development. Itkills because money meant for drugs, say for a smallsick child, gets siphoned oV to build a luxuryhospital. It kills because it diverts expendituretowards high kickback areas: defence rather thanless lucrative sectors such as health or education. Itkills because it bumps up the price of projects whichthe poor then have to pay for because of cutbacks insocial services to pay oV debt.The blame for corruption is often put almostexclusively out there with greasy foreign palms, theircustoms, the way they do business, “we have to paythe bribes”, but it always takes two to tango and veryoften it is Western companies who initiate the dance.I have been told many times working in thedeveloping world that the first question manyWestern companies ask when they come in is, “Whodo I pay?” If you approach contracts and businesslike that there is a dynamic and that dynamic is thatit does not take long before you squeeze out oYcialsin public institutions who have integrity, you self-select for those who will take a bribe. From myexperience, the vast majority of people in developingcountries actually have great integrity—to use alocal analogy, just as most MPs are not on the takeand most Lords are not paid to lobby, despite thereputation that may have been garnered over the lastfew months. Every country I have worked in fromIndia to Iraq, from Turkey to Azerbaijan and Sudan,has very strong anti-corruption movements, which,often at very great personal expense in terms ofpotentially being killed, for example, seek to exposethose on the take and to clean up business. Their

message to the UK is very, very clear: put your ownhouse in order, adopt a zero tolerance to bribery andgive the law real teeth.If that is to happen allegations of bribery must beinvestigated “without fear or favour”. Those werethe former Attorney General’s words. It is vital thatthere is a level playing field for prosecutions bothinternationally and domestically. That means thelaw mandating those investigations can only behalted if the case lacks merit, not because ofdiplomatic or economic reasons. In that respect, oneomission that we find in the draft Bill is a failure togive practical eVect to Article 5 of the OECDConvention.Of course, competitiveness of UK industry matters,but I repeat that bribery is not a victimless crime andthose victims include those workers here in the UKwho lose jobs because a competitor paid a bribe andgot the contract. It is in their interests too thatbribery is outlawed and the law is given realprosecutorial teeth. Does the present Bill have teeth?Broadly, we welcome it. We are satisfied with it, butthere are some areas where its teeth could besharpened and I certainly think the gums are notstrong enough to take much pulling of teeth, so tospeak, much weakening of the Bill. One area weparticularly draw attention to is the failure to givepractical eVect to Article 5.

Q525 Chairman: Thank you for that backgroundbut we want to come on to exactly these detailedpoints. Do you want to say anything more about thetests of the pathways to criminality in the Bill thatMr Borrow has asked about?Mr Carver: What might be most helpful to do, myLord Chairman, would be to give my brief—and Imean brief—answers, a few words only, and pick upif anyone wants to explore them. I have been verydiscourteous to my colleague here, Mark Pyman, innot introducing him. Mark Pyman is the Director ofTI UK’s defence initiative which has workedtirelessly with the defence industry. You heard fromLord Robertson earlier and Mark is the person whostands behind all the work that Lord Robertsondescribed to you. If there is anything on the defencesector that he can answer, he is very well able to doso. On the questions, I have no problem with thelanguage addressed in question 13 [to explore theclarity and predictability of the terms “improperperformance” and “expectation” of “good faith”,“impartiality” and “trust”]. Clause 14 [to explore theworkability of a test based on “good faith”,including a consideration of whether this wouldcatch conduct that should not be considered to bebribery]—I would not do it. Clause 15 [to explorealternatives to the “improper performance” test]—the alternatives are adequately explored in the LawCommission paper and I would not revisit them.

Q526 Chairman: These are the questions?Mr Carver: These are the questions, yes. Question 16[to ascertain whether there is an inconsistencybetween the mens rea of the active and passivebribery oVences; and whether this is problematic]—I do not find such an inconsistency. 17 [bribery of




foreign public oYcials (clause 4): to examine how the“legitimately due” test would operate in commonlaw countries and whether the draft Bill should referinstead to the “written” foreign law; to ascertainwhether guidance is needed on what is permittedunder the law in countries around the world; and toexplore whether the use of diVerent legal tests underclauses 1 to 3 and clause 4 will cause uncertainty] isimportant and it was the subject of the discussionthat took place earlier this morning with the OECDand UN ODC representatives.

Q527 Chairman: It is very clear that they want awritten general prohibition.Mr Carver: If I can just say one extra thing whichmight help the Earl of Onslow. In 40 years’ lawpractice I have never come across a law anywherewhich sanctioned the payment of bribes. This needsto be understood because when Mr Bonucci pointedout that in his experience, looking at this responsiblyon behalf of the OECD, the only suggestion ofsanctioned bribery is what is contained in the sectionof this draft Bill to sanction it on behalf of thesecurity services, that is a very impressive point. I amnot aware of any sanctioning of bribes. Indeed, forinstance, to take a country that is a very activecustomer for British defence materiale, in the Gulf,in their constitution they have a plain provisionwhich says that nobody may take a bribe, it isabsolutely clear, but a defence contract was placedand the usual arrangements were made so that acompany was formed and so on so that commissionscould be paid and, of course, it got trapped in Jerseyand that produced an investigation and ultimatelythe cover-up, as it were, had to be that the ruler ofthe particular state had to pass a special decreeauthorising the payment. Companies who operateproper compliance systems know perfectly well whatthey are supposed to do. There are two simple testsin the payment of any advantage, any bribe: “If Iwrite and tell your prime minister, is this all right?”,if it is the prime minister, “If I write and tell yourpresident or the chief justice, is that all right?”, andif he is the recipient of the bribe, “Is it all right if I putit in the newspapers?” That will answer mostquestions about whether or not this is appropriate.Chairman: Mr Carver, we have got as far as question17 which a number of my colleagues want to comein on.

Q528 Baroness Whitaker: Following what theOECD said to us, I just wonder whether you thinkwe could leave out the “legitimately due” defence. Ifnot, why not? If so, should we narrow it? I would bevery happy for both organisations to reply.Mr Carver: I would prefer it omitted.

Q529 Baroness Whitaker: Omitted, thank you.Mr Hildyard: I think it is essential that it is omitted.It is a real Trojan horse. If you have “legitimatelydue” and you have an undemocratic governmentwith a dictator who wants to allow bribes, the lawgets passed in that particular country. It is openingthe way to making bribery more feasible.

Q530 Lord Lyell of Markyate: What you are sayingis extremely helpful, but your last point reminded methat the Soviet constitution was impeccable as far ashuman rights were concerned and almost everythingelse. You will not find laws saying they permitbribery. Indeed, in a funny way it may be a credit thatthis law suggests that there should be some opennessin a narrow area, but that is a diVerent point. Is notthe problem that if you call it a bribe it will never besanctioned, but if you call it a commission orsomething else it may be sanctioned? The objectiveof this Committee and the House, and Britain Ihope, is that we have a level playing field and a fairand open system. When you were saying, “Is it allright to write to the chief justice or the president, orthe king”, I thought the way you were putting thequestion was that would be okay if the chief justiceor the king said it was okay, whereas I was thinkingit would not be okay.Mr Carver: I am happy to clarify that. Lord Lyell,you and I, as it were, had an experience in the SovietUnion some years ago. One of the things that I learntafter that particular happy occasion was that theSoviet system, which has perpetuated through intothe system of old former Soviet states and, indeed,many other centrally controlled states is thatanything from one-third to two-thirds of the laws aresubmerged, they are state secrets. The law that yousee says,“No bribes, no payments, no advantages”,it is absolutely rigorous, but special laws are passedand are hidden, not available for the public, whichsay, “This particular apparatchik is entitled to takethis benefit from that situation”. This is turning thelaw on its head and it is not something that we canpossibly sanction. I dislike a situation in which youcould because it became possible in the early 1990sto get access to these laws and you would find lawspopping up when you least expected them saying,“This oYcial had power to do that”. Is that writtenlaw sanctioning, making it legitimately due? No.This is why I say that I do not think this is a sensibleexception to write into the law.

Q531 Lord Lyell of Markyate: I understand that, butMr Bonucci was saying he wanted something sayingthat it should be a written law.Mr Carver: I think what he was saying, with respect,Lord Lyell, was that the OECD Working Groupwould prefer, like the majority of their members, notto see such an exception written in. If it is written init should be on the basis of a very specific and clearwritten law, not on the basis of some legal opinion.

Q532 Chairman: I think what they said was theywanted a general written law, not applying to yourapparatchik.Mr Carver: Yes.

Q533 Lord Lyell of Markyate: Do you agree?Mr Carver: Yes, I do.

Q534 Earl of Onslow: I want to make absolutelyclear your division of the two choices. I come downtotally and absolutely on the side of the angels inwhat you said, but I think it is equally and vitally




important that it is very, very clear to anybody whois doing business exactly what is and is notpermitted, so if they do go through all the hoops thatare required, and I hope that we will in due courseask our Government to do what the AmericanGovernment does, which is to produce the list ofguidance, one wants it to be as clear as possible sothat the defence which can be run is a clear andproper defence and there is the minimum amount ofuncertainty at the edge of what is and is not acommission and what is a bribe, et cetera, becausewe all know that people try to merge this to make itlook legitimate when it is not. As I say, I am on theside of the angels but I want as much clarity as it ispossible to get in law.Mr Carver: Professor Horder, in his supplementalwritten submission to you, made a comment aboutthe dangers of additional detail. The morecomplexity, as it were, it opens up more gaps. Thereis a danger here. I appreciate there is an enormousamount of guidance. One of the great senses ofvitality, particularly in this country, is a very quickresponse to problems. There is an enormous servicesector ready to jump in and come up with answers.The US has also had it. International bodies havecome up with a great deal of guidance. There is nolack of guidance. What I think you are suggesting isthere should be some oYcially sanctioned guidanceas to what falls which side. I do not think you can dothat. Companies have to be treated as mature entitiesthat have responsibilities to themselves, theirshareholders, their employees, and to the law. Theycan certainly choose from a variety of diVerentguidance that is available, there is no shortage ofthem, but ultimately they should be guided bycommonsense and the necessity to eliminate thepayment of bribes, or anything that smells of bribes,from their business practice.Chairman: To some extent what you have just saiddeals in part with question 18. Lord Williamsonmight wish to pursue that a little further.

Q535 Lord Williamson of Horton: Do you think thefamous “reasonable belief” defence which exists inthe Law Commission’s report could be reinstated? Alot of people do not see any good reason for that, butwe have had evidence from people who think itwould be a good idea. I just want a straightforwardopinion from you: scrap it or keep it?Mr Carver: Scrap it.Mr Hildyard: Scrap it.Lord Williamson of Horton: That makes two of us.Thank you.

Q536 Chairman: Let us go on to the question of“negligence” and “gross negligence”. Would theaddition of “gross negligence” be a help to theprosecution?Mr Carver: It would be a move in the wrongdirection. It would impede prosecutions and itwould be the wrong move to take. I would remove“negligence” altogether.Chairman: You say guidance is already dealt with. Ido not know whether Lord Goodhart wants to sayanything more about this.

Q537 Lord Goodhart: There are two kinds ofguidance, one is codes of conduct which areavailable to any interested party and the other isclearances for particular projects on application tosome public authority. Do you think either or bothof those are needed?Mr Carver: You are not going to stop theproliferation of guidance of an informal sort, privatesector guidance.

Q538 Lord Goodhart: Needed in this Act.Mr Carver: The trouble with the provision ofguidance is that it becomes a vehicle, a forum for theattempted erosion of the impact of the Bill.Lord Goodhart: I am sorry, when I first spoke Ishould have declared my interest as a member ofTransparency International.Chairman: If any of you have got interests to declareit would be a good thing if you did, please.Baroness Whitaker: Perhaps I should havereaYrmed my membership of the Advisory Councilof Transparency International.Lord Williamson of Horton: I declared my interestsat the beginning.Chairman: Not “gross negligence” you say.Guidance, you have answered that. What about theAttorney General?

Q539 Mr George: I will forego my half an houreulogy on Transparency International in theinterests of getting away at the right time. Question21, there are two parts, please answer. You are well-prepared, you can read out your brief.Mr Carver: The Bill has eliminated the need forAttorney General’s consent and it should remain asthat. I would hate to see it come through the backdoor via the Constitutional Renewal Bill, quiteunacceptable.Lord Lyell of Markyate: Can I just check that?

Q540 Mr George: Excuse me, can I finish myquestion and you can carry on afterwards? Nationalsecurity interests, you do not pay much attention tothat, do you?Mr Carver: If national security has a place in this itis not surely in an anti-bribery bill, it is to be dealtwith with the quite diVerent processes thatlegislation specific to national security has to dealwith where submissions can be properly tested inwhatever appropriate in camera arrangements arethere. It is not something that should feature and itflies a very nasty flag to the world to say that wesanction bribery.

Q541 Chairman: Mr Hildyard, you wanted to addsomething on this, I think.Mr Hildyard: First of all, I should say that wewelcome the Attorney General’s consent beingremoved, that is a very necessary step. We areconcerned about the Constitutional Renewal Billand some of the clauses there, but that is to be dealtwith at another time. There is a real concern thatnational security can be invoked to get a governmentout of an embarrassing situation, whether it isbecause it is causing a diplomatic ruckus if a bribery




prosecution goes forward or, indeed, whether it isbecause a major industry may be economicallyaVected.

Q542 Chairman: Is that what you are sayinghappened in the BAE case?Mr Hildyard: I would not want to rerun the BAEcase here. The security advice was never tested incourt. The Director of the Serious Fraud OYcenever saw the security advice; he only had it second-hand. The ambassador, who relayed it to him, as faras we know, never saw the security advice. We do notknow what the security advice was. TheParliamentary Intelligence Committee never saw thesecurity advice. What we do know from the courtproceedings is that whatever threat was made, it wasnot imminent. Our position, and it has beenconfirmed—the interpretation of the OECDConvention Article 5—in the OECD Phase 2bisreport, very much takes the same line that ourlawyers took, is that there is not a national securityexemption in Article 5 but it is a matter of customaryinternational law that a state can always invokenecessity in order to derogate from an internationalobligation if doing so is the only way to safeguard anessential interest against a grave and imminent peril.There are two tests. First of all, have all thealternatives been considered? Our view in the BAEcase was that they had not. Secondly, is a threatimminent? There is always a possibility of closingdown an investigation on national security groundsas long as it meets those two tests. Because Article 5is not part of domestic law neither the High Courtnor the Law Lords ruled on a construction of Article5. Had it been part of UK law it might have beenpossible for the courts to have ruled as to whether ornot the indication of national security was legitimateunder Article 5, or similar wording. It is of greatconcern to us, but maybe we will come to this morein a later question, that from the very start, despitethe Attorney General having given an assurance thatArticle 5 would be taken into consideration, despitethe British Government giving an assurance to theOECD that Article 5 would be taken intoconsideration in investigations, the position of theSerious Fraud OYce was that Article 5 was not amatter that needed to be considered. That was fromthe very first witness statement of the Serious FraudOYce. We do have real concerns that there is anopening for abusing national security to close downembarrassing investigations.Chairman: Mr George, do you want to pursueArticle 5?

Q543 Mr George: No, I think most of the questionshave been answered.Mr Carver: Can I just add one supplemental answerbecause I did not answer the second part of MrGeorge’s question. As an international lawyer I donot recognise the derogation that was discussed atlength that there was some permission under theOECD Convention to do what the United Kingdomdoes. I do not think that is a valid legal argument atall. It was never tested and it probably never will betested. What I do want to see, which ought to be

quite suYcient, is that the code of practice forprosecutors firmly and unequivocally recognisesArticle 5 as a necessary element of the decision whenthey exercise their discretion. That way they can beproperly tested by the courts.

Q544 Chairman: That would be the place to put it,would it?Mr Carver: In my view.Mr Hildyard: In our view that would be insuYcient.The OECD has repeatedly asked for the code to beamended but it has not happened yet and there areno signs that it is going to be. In any event the codeis merely guidance, it is not binding. It lacks eVectiveforce of primary legislation. As I have justmentioned, the Director of the Serious Fraud OYcedeclared that he would have ignored Article 5 evenif he thought his decision was in breach of it, and hepresumably would have done so if Article 5 was inthe code because it is not binding. In our view onlyprimary legislation will stop this. Moreover, primarylegislation would allow the courts to decide on themeaning of Article 5 and not leave interpretation ofTreaty obligations to a prosecutor or, indeed, to theexecutive. It is really important that the courtsshould be able to have a say in the interpretation ofthose particular clauses.

Q545 Chairman: They would not if it was just in thecode of practice.Mr Hildyard: I am not a lawyer. We have asked fora legal opinion which we will give to you.

Q546 Mr Borrow: If you like, as a non-lawyer I justwant to throw in the politician’s point of view whichis that if you are the prime minister and you feel thatsomething is a threat to national security then youwant to have the freedom and the power to do whatis necessary to protect the nation without having lotsof laws and restrictions which would actually forceyou to demonstrate in public a lot of stuV which mayundermine that national security. I understand theway you are arguing on that point, but I am sayingas a backstop, at the end, at some point the personin No 10 needs to be able to say, “I need to be ableto pull that lever to stop that in order to protectnational security”.Mr Carver: Prime ministers have to act according tothe constitutional remit and powers that they have.Governments commit the United Kingdom and,therefore, commit the constitutional powers andnarrow the constitutional powers by entering intoTreaties. If they have entered into a Treaty whichprecludes a particular course of action then that isthat. If they can convince their Treaty partners thatthis is a legitimate course of action because this is ofnecessity that it has to be, and they can argue thatcase, that is fine. They can even breach internationallaw if they want to, but they have to be answerablefor that fact and they have to answer to their co-contracting states as to why they have done it andwhether it is justifiable and what reparation has to bemade for doing so. The Treaty requires a change inthe freedom of the prime minister.




Q547 Chairman: Mr Hildyard, I am terribly sorrybut I have got an eye on the clock and the Committeeis beginning to vote with its feet. Be very quick,please.Mr Hildyard: National security is very, veryimportant and our point would be that it isextremely important for the public to trust thejudgments that are made about national security andto have confidence that the power to invoke nationalsecurity is not being abused, and that is why youneed the checks and balances.Chairman: There are a number of questions whichwe have not yet reached. Parliamentary privilege, Idare say you—Lord Lyell of Markyate: My Lord Chairman, I amsorry. May I ask a very short question?Chairman: Yes, please.

Q548 Lord Lyell of Markyate: We are aparliamentary democracy. If you remove the power,and hence the responsibility, of the AttorneyGeneral, how do you get parliamentaryaccountability?Mr Hildyard: This is—

Q549 Lord Lyell of Markyate: I would quite like MrCarver to answer.Mr Hildyard: Okay. You have got little time so go forMr Carver. I have a view.Mr Carver: Parliament is sovereign here. It has itsown rights and responsibilities. When you enter intoan international commitment you are answerable toa wider public than just this one. That is where youhave to answer to and you are accountable there. Ittakes it into a diVerent framework. You may, as itwere, argue as to whether it is suYcient but I thinkthat Parliament has to be able to scrutinise theactions of ministers. I do not see any absence ofbeing able to do so because it has been vested in thepower of the Attorney General. I was not veryconvinced, frankly, by the extent to which theAttorney General at the time really was accountablefor his actions.

Q550 Chairman: Could I ask our witnesses this: wehave got four questions left which we have nottouched on yet and I do not think we have got time,to be perfectly honest, for verbal answers. Wouldyou be prepared to express your views in writingabout those last four questions because I think thatwould be very helpful to us?Mr Hildyard: Yes.Mr Carver: Yes.

Q551 Chairman: I am sorry this has overrun a bit butit was important to hear what you had to say. We arevery grateful to you for coming and saying it. We willread particularly carefully in the transcript what hashappened this morning.Mr Pyman: My Lord Chairman, if I can just makeone comment at the end dealing, as I do, withdefence matters.

Q552 Chairman: Yes. You have been very silent, soof course you may.Mr Pyman: You have heard a lot from defencecompanies over the last few weeks stronglysupporting this Bill, and I am delighted to see it. Avoice that you have not heard, which I deal withevery month, is the people who buy the stuV, thegovernments doing the purchasing. I am askedalmost every month by that purchasing community,the director general, minister of defence, “Why isn’tthe UK being clearer and stronger on defence anti-corruption?” It is a voice from the purchasers, manyof whom are seeking to reform their ministries andthey would welcome the UK being in a goodposition on this subject. You have got half of thestory with the defence companies really supportingit and I think this is the other half that the law holdsup in the same way. Thank you.

Q553 Chairman: Thank you very much. We have gotone matter of private business, if my colleaguescould stay for a moment. In the meantime, I thankour witnesses very much indeed for what you havehad to say with some force and with muchappreciation from us. Thank you very much.Mr Carver: My Lord Chairman, thank you verymuch indeed for your time and attention.




Members present:

Anderson of Swansea, L Mr David S BorrowColville of Culross, V Mr GeoVrey Cox

(Chairman) Mr Jonathan DjanoglyGoodhart, L Mr Bruce GeorgeMayhew of Twysden, L Linda GilroyOnslow, E of Dr Brian IddonThomas of Gresford, L Martin LintonWhitaker, B Dr Desmond TurnerWilliamson of Horton, L

Witnesses: Rt Hon Jack Straw, a Member of the House of Commons, Lord Chancellor and Secretary ofState for Justice, Mr Michael des Tombe and Mr Roderick Macauley, Ministry of Justice, examined.

Q554 Chairman: Can I welcome you and your team,Mr Straw. Would you like to introduce yourcolleagues?Mr Straw: Yes, Roderick Macauley, who is theBribery Bill Manager, and Michael des Tombe, whois the Legal Adviser on this Bill.

Q555 Chairman: You have the list of questions wehave provided for you, and I know you have got togo at half past four. Before we get on to the list, mayI ask you a question about the timetable which youenvisage for this Bill? There has been a lot of pressurefrom the international community and others to geta Bill on this subject onto the statute book. We arenot going to report until the end of July before theHouses rise. How do you see this legislation gettingthrough? Presumably, you want to get it throughbefore the General Election?Mr Straw: I am determined to get it through beforethe General Election and, provided there is a fairwind from all the parties (and so far there areindications that there are), there is no reason why itshould not go through by then. There is an issueabout whether it could be introduced in the so-called“spill-over” session in middle/late October, as acarry-over Bill, and I have not got clearance from thebusiness managers about that but that wouldcertainly be my intention. That would give perfectlyadequate time. It is not a big Bill (especially, if I maysay, my Lord Chairman, since you and yourCommittee will have done your work and betterinformed the debate about this), and I think that itis possible to generate a fair wind behind this and getit through. I absolutely share your view about theurgency of this.

Q556 Chairman: The trouble is there is going to be agreat pressure for amendments of one sort oranother, and the parliamentary timetable is going tobe quite important.Mr Straw: All Bills are amended and, if you aremanaging the Bill in an active way on the floor of,certainly, the Commons, and upstairs in Committee,you make sensible judgments about whichamendments you should accept—because I havecertainly never sponsored a Bill which has been inperfect form when it began its journey through

Parliament—and then those which would just throwout the works. There may well come a moment whenI would have to say to colleagues: “Well, don’t makethe best the enemy of the good”. I am sure, my LordChairman, you and your Committee may well havereceived proposals for amendments, and what Iwould certainly be encouraging both yourCommittee and, also, outside groups is to comeforward with suggestions at this stage if they feelthere should be amendments, and so we can considerthem now. One of the things I have done is held around table with business groups and with two of themajor NGOs as well to encourage them to comeforward if they have particular proposals.

Q557 Chairman: I do not think we want any moreconsultation; we have got enough material on therecord from the witnesses already. No doubt we canincorporate some. I really wanted to get a feel abouthow much of the discussion about possibleamendments you would like to have in the report.Mr Straw: If there are thoughts about possibleamendments, my Lord Chairman, I would muchrather have them in your report so we can considerthem than they emerge later on.

Q558 Chairman: That is what I wanted to know.Thank you very much.Mr Straw: I greatly welcome the report. As I say,there is no single truth about how you draft a BriberyBill, as is illustrated by the fact that this Bill is quitediVerent in many respects from the 2003 Bill.

Q559 Chairman: Can I turn to the list of questions.The first one relates to the framework of the Bill andthe terminology involved: “expectation”, “goodfaith”, “impartiality” and “trust”. Is it all suYcientlyclear, as some of our witnesses have said it is,particularly prosecution witnesses, or is there goingto be a need for any further guidance in respect ofwhat these mean—“pathways”, for instance, whichwe have already got, and terms which may or maynot catch conduct which should not be criminal?What about the general concept of corruptness,which of course has gone now?



17 June 2009 Rt Hon Jack Straw, Mr Michael des Tombe and Mr Roderick Macauley

Mr Straw: It is, first of all, worth bearing in mindthat, in the end, it is going to be a jury which willdecide on guilt or innocence, and they will come totheir view in the round as juries applying their ownsense (obviously with guidance from the trial judge)about whether the aggregate of the conduct beforethem added up to an oVence of bribery; they willhave a sense in their heads of what bribery will mean.Secondly, in terms of the specific elements, we thinkit is clear. Will there be a need for guidance? Onething I am pretty categorical about is that it is not forthe Secretary of State for Justice, nor for mydepartment, to issue a gloss on the criminal law.There could be a case for the DPP or the AttorneyGeneral issuing guidance which is published toprosecutors. That is a matter for them. For certain,my Lord Chairman, over the years, some of thewords and phrases which are in the final Bribery Actwill be the subject of debate in the higher courtsabout their exact definition. It was ever thus.

Q560 Chairman: So you say—if there are ever anyprosecutions at all.Mr Straw: I think there will be prosecutions.Obviously, if there are no prosecutions there will beno great debate, but I suspect there will beprosecutions. I do not think one should measure thesuccess of the legislation by whether there are scoresand scores of prosecutions because, with a bit ofluck, this legislation would have a strong deterrentand chilling eVect, so it would change behaviour. Ifwe were to measure the success of, for example, theanti-smoking legislation which came into force inJuly two years ago, we could say it is a total failurebecause there has been one prosecution, but if we useour own powers of observation we would say it haschanged people’s behaviour and been a greatsuccess. In some areas when you change the criminallaw you measure the success by prosecutions andconvictions, in others you measure it by changes inbehaviour, but I think, generally, it will have adeterrent eVect. However, one way we will get achange of behaviour is by some prosecutions whichotherwise would not have taken place.Chairman: We will come back to guidance a littlelater on, but in general, I think, that is a roundanswer. Thank you very much.

Q561 Dr Iddon: Thank you, my Lord Chairman.Dealing with the main oVences containing clauses 1and 2, why does the active bribery oVence requireknowledge or intention to be proven, whereas thepassive bribery oVence does not? Is it fair to imposestrict liability for a serious crime such as bribery?Mr Macauley: The clause 1 oVence requires mens reain both cases, in both case 1 and 2. In case 1 it is“intention” and in case 2 it is “knowledge or belief”.The clause 2 oVences require intention in relation tocase 3 but for cases 4 to 6 there is no requirement forintention or any kind of mens rea on the part of theperson receiving the bribe.

Q562 Chairman: Yes, we know that but what is thejustification for it?

Mr Straw: This is an oVence of being bribed, and theassumption in those cases is that it is perfectlyobvious to the person who is taking the money thatthey are acting dishonestly. So you do not have tolabour the point. If you take, say, case 5, which issubsection 4 of clause 2, if I agree to receive or accepta financial or other advantage as a reward for theimproper performance of a function, then I think Ishould be guilty if I know it is improper. For thesepurposes, I am a public oYcial; I have to agree all thetime plenty of exercises of discretion, for example,about the liberty of individuals or the partialliberty—whether they go into open conditions inprison or whether they, in certain circumstances,may be released early, and so on. If I were to accepta financial or other advantage for the improperperformance of my discretion there, I do not thinkthe prosecution should have to prove anything elsebut that I exercised my discretion improperly and Itook the money. To ask the prosecution, on top ofthat, to show that I had acted dishonestly, I think thematter would speak for itself. That is really what weare seeking to capture in those later cases in clause 2.Is that the correct answer, Mr Macauley?Mr Macauley: Yes.

Q563 Chairman: It really is a strict liability?Mr Straw: I do not regard this as strict liability (if Iam not being pedantic) in the strict sense of the term.Strict liability is: you commit an oVence if you strayacross a double white line or you leave your carparked on a double yellow line, and if you do thenthat is an oVence. I do not accept that the phrase“strict liability” is appropriate here. What I believeis that the mens rea—the guilty mind—is embeddedin the circumstances of the oVence. It talks about“improper performance”; well, if you are defencecounsel you can have a lot of fun about whether theirperformance was proper or improper, and that begsa moral question about whether it was proper or wasnot proper. As I say, I do not accept it is strictliability, in the sense in which you say it. What we aretrying to do is get a balance here between having anoVence which would be unjust and would lead to theconviction of people who had not acted improperlyor dishonestly and, on the other hand, not creatingso many hurdles so that the jury are being invited tocome to a judgment on which the only evidencecould be that of the defendant, which he declined togive, about exactly what was going on in his mind,and try to make a judgment instead about whetherhe had performed properly or improperly. The otherthings are matters of fact. In many other crimes it isthe facts which speak for themselves, and thedishonesty is implicit in the acts. If I take MrMacauley’s jacket and go and sell it, then the courtdoes not have to enquire exactly into my state ofmind; unless I have a really, really good reason forwhy I did that, I think I am up for theft and one ortwo other oVences.

Q564 Mr Cox: Prosecutors have to prove intention,whereas this section clearly makes it regardless ofwhether he knows or believes it is improper.




Mr Straw: I am sorry, Mr Cox, I do not accept that;I think in practice—

Q565 Mr Cox: It is subsection (7) of section 2: “Incases 4 to 6 it does not matter whether R knows orbelieves that the performance of the function oractivity is improper”. So you could commit theoVence sublimely oblivious to the fact that you aredoing anything wrong at all.Mr Straw: If it is for the improper performance of anact and you have accepted a financial or otheradvantage. If you accept a financial or otheradvantage—that is the first thing. If I am workingfor a company, so I am working as a buyer in acompany and working in my current job, and Iaccept a financial or other advantage, first of all, arenot the bells supposed to be ringing in my head as towhy I have accepted that when it is not normal? Youhave to work in the real world here, and I am sureyou would have quite a lot of fun with this, Mr Cox,if you were defending such individuals.

Q566 Mr Cox: It would not be fun for the personprosecuted if he did not think he had doneanything wrong.Mr Straw: If he had done nothing wrong therewould not necessarily be a prosecution, but I amsaying if the individual has accepted a financial orother advantage as a reward, in circumstances wherethey are not supposed to accept any financial orother advantage, to begin with, then that seems tome a pretty good starting point for a prosecution.Then there is the question of whether he hasimproperly performed his duties. He is likely to havea fairly shrewd idea of whether his performance ofhis duties is improper or not, but if he does not—andhe has been negligent about that—I think he wouldhave to take the consequences. We have to ensurethat this bites, and what we have sought to do ismake it consistent with the OECD arrangementswhich, on the whole, work elsewhere and workpretty well. So the protection here, Mr Cox, my LordChairman, is that of the jury; they will be able tocome to a common-sense view, if it is palpable thatthe person had entirely proper motives all the waythrough and acted entirely properly, and the wholething was a mistake and, indeed, it was routine forbuyers in Tesco’s to accept commissions which theydid not disclose to their employer and other suchmatters. Wholly improbable, but then that would betaken into account, and there is a high level ofprosecutorial discretion as well.Chairman: I think, Secretary of State, what has beenleft out here is the material upon the basis of whichthe prosecution is brought and the witnessstatements and other investigative proceedings.These themselves would give an indication to theprosecution on what should and should not bepursued.

Q567 Lord Anderson of Swansea: A possibleexample where mens rea may be relevant is where adeveloper negotiates with a planning oYcer of alocal authority on planning gain and it so happens

that the planning gain is a benefit to a localcommunity but, also, happens to benefit relatives ofthe planning oYcer. Is not mens rea relevant in that?Mr Straw: You are talking about section 106, whichI talked about yesterday in a briefing session. MyLord Chairman, I will give you a more detailedanswer after the vote.

The Committee suspended from 3.19 pm to 3.32 pmfor a division in the House of Commons

Chairman: We have got three questions on some ofthe technicalities about “legitimately due”, and thepossibility of removing that, and the question ofwhether it should be tied up in written law ratherthan anything else.

Q568 Dr Turner: Can we look at clause 4, whichrelates to bribery of foreign oYcials? Could youexplain the rationale for including the “notlegitimately due” test in clause 4? Can you givespecific examples of the types of advantage that itmay be legitimate to give to an oYcial?Mr Straw: One of the behaviours that I can thinkabout was referred to in the last question I was askedbefore the division, and which I raised yesterday inmy briefing session. This is circumstances in whichthere is a debate and then a decision made undersection 106 of the Town and Country Planning Act1990, which provides that the developer pays over tothe benefit of the community, or for individualswithin the community, part of the planning gain thatthey are otherwise achieving. This involves whatamounts to oVsetting, common and acceptablebusiness practices but, also, common here in that: “Iam a developer, I want to put up a shopping centre,I am going to make a lot of money out of it”, and theplanning authorities say: “Okay, you can providethis amount of social housing or you can provide thiscommunity centre.” If, say, it is social housing, youcould end up in a situation where, incidentally, theoYcial is benefiting himself—not improperly but isbenefiting himself—from this social housing. It isexactly that circumstance, using an example inEnglish law, that this excludes, and it is essentially aprotection for oYcials who might otherwise (and,indeed, for P, who is the person guilty of the oVence)be thought to be bribing a foreign public oYcial. Iuse that domestic example but I assume that thereare plenty of cases where the equivalent of section106 applies in other countries.

Q569 Dr Turner: The example of section 106 is,perhaps, not an especially apposite one becausenormally an individual oYcial does not personallybenefit from a section 106 agreement; it is thecommunity at large which normally benefits fromthat. Can you give an opinion on the possibility ofwithdrawing the test of “legitimately due”, whichhas been suggested by several serious players? Whatare the implications of removing that test? Inparticular, would the removal of the phrase lead toclause 4 catching conduct which should not beviewed as criminal?




Mr Straw: Obviously, if your Committee, my LordChairman, comes to the view that “not legitimatelydue” should be excluded from the drafting, I willgive very careful consideration to that, but I do notwant to give a snap answer here. My judgment up tonow has been that this is a sensible, as it were,additional condition for a prosecution. I, for thereasons I have suggested, think that it helps to dealwith, as it were, the equivalent of section 106situations. The answer to your point about whetherthe oYcial would not normally benefit—that may ormay not be the case—was provided by LordAnderson in the question that he asked me beforethe break. He might be benefiting. If I am an oYcialand I negotiate a section 106 agreement, and Ihappen then to benefit from, say, the social housingwhich has resulted, that is not improper, but it couldbe construed as being improper unless there isprotection. That is the sort of thing we are talkingabout.

Q570 Chairman: Would it, at least, be necessary thatthere should be a written provision in the law?Mr Straw: We have also had a debate about this inthe briefing session. If you are not dealing withwritten law then you are down the track of customand practice, which typically, in certain states whichI could quote, diVers very markedly from what iswritten. As far as I know, I cannot think of a singlestate which says it is entirely legitimate to acceptbribes and to act improperly. So if you go throughsome of the nations whose practices are some of thedodgiest, the black letter text of their law will, on thewhole, be pretty impeccable. What is not impeccableis their enforcement of the law and their custom andpractice, part of which is to ignore what is in theblack letter law. If you admit that part of the law iswhat they say it is—and literally say it is rather thanhaving it written down and having been properlyapproved—they might as well, I think, tear up thisoVence. As I say, I can think of, certainly, one foreignjurisdiction (which I will not quote), to my certainknowledge, where what is written down in blackletter law is perfectly good—similar to ours, both inthe criminal law and areas of public administrationlaw—but what actually happens is somethingcompletely diVerent. What we are trying to do is toensure that we subscribe to the OECD criteria andstandards, and the OECD is trying to raise thestandards of behaviour. It will not achieve that if itactually ends up by conniving about the worst kindof practices. So if you do not add that in, as I say, itmakes the oVence risible.

Q571 Dr Turner: Where do you draw the line, Jack,between a bribe, under these circumstances—because no state is going to have a law which says:“It is perfectly legitimate to bribe our oYcials” (itjust does not happen)—and a perfectly legitimatecommission to a law oYcer or whatever?Mr Straw: That is straightforward because if it islegitimately due it is fine. That answers yourquestion.

Q572 Dr Turner: It will not necessarily be definedin law.Mr Straw: What has happened up to now is this:businesses here and in other OECD countries, andbusiness people, have been in the really invidiousposition of being, really, forced—in fact, have beenblackmailed—by foreign oYcials in the localjurisdiction to pay some kind of “commission”because they say: “That’s how we do things, and ifyou want this business you are going to have to payus a commission.” The moment they do that thenthey are compromised. What the OECD is trying todo is establish its own norms of behaviour and say:“Sorry, these things are not acceptable. If, state X,you have said in your black letter law, that you sayis your law, that something is unlawful, well, that isthe standard against which you are going to bejudged.” What we are trying to get to achieve is asituation where business men and women from allover OECD states say to these public oYcials in thisforeign jurisdiction: “We cannot do business withyou on that basis, and we are going to treat you likea pariah”.

Q573 Dr Turner: Jack, how would this apply tooYcials being given hospitality by potentialsuppliers—if you like, oiling the wheels of a deal—which is pretty normal behaviour in commercialpractice? Could this be criminalised here?Mr Straw: Whether hospitality is legitimate oroutrageous is a matter of degree and of judgment. Iwas thinking, on the way back up here, about thePoulson case. If I may say so, Dr Turner, you maybe of the same antiquity as me so will remember thePoulson case. A large part of the advantage thatJohn Poulson lavished on those he was corruptingand bribing was in terms of hospitality. If it iscorporate hospitality—if it is one lunch, one party, ina UK context, one ticket to Ladies Day at Ascot, oneday at Wimbledon—fine; if it is a corner table at theConnaught whenever you want to use it for whoeveryou wish to entertain, then that raises very bigquestions. As I say, it is a matter of degree and itwould be a matter for prosecutorial judgment, but ifit is something which is an accepted norm—normalhospitality—no prosecutor is going to prosecute andno jury, more importantly, would convict. On theother hand, if it is up at the level of Poulsonhospitality—that was his excuse: this was justnormal hospitality and the fact that he took peopleto the races and provided them with money withwhich to bet and there was a running free table wasall fine, he said; that was just normal. In the end, thepolice, prosecutors and juries did not share that view.Chairman: Dr Turner, I am terribly sorry, we mustmove on. Lord Williamson, you wanted to ask aboutthe “reasonable belief” defence.

Q574 Lord Williamson of Horton: Mr Straw, wespend hours in this Committee talking about foreignoYcials. Can I just ask you one more question? Inthe Law Commission’s version there was a“reasonable belief” defence, that is to say thatsomeone reasonably believed that a foreign oYcialwas required or permitted to accept the advantage.




The Government struck that out in the draft Bill.Some people think it was a good decision to strike itout and some of our witnesses think that it shouldstill be there. Can you say whether you think there isany risk, without the “reasonable belief” defence,that some businesses would be open to prosecutionbecause they had poor legal advice and also thatthere would be too much weight on the prosecutor’sdiscretion, which the Director of PublicProsecutions thought when he spoke to us?Mr Straw: I am sorry, Lord Williamson, too muchweight on the prosecutor?

Q575 Lord Williamson of Horton: On theprosecutor’s discretion whether to open aprosecution.Mr Straw: As I say, this goes to some of the earlierquestions, particularly in respect of clause 2, abouthow you achieve the correct balance with theseoVences, on the one hand to ensure that they are fairto defendants (and that is of fundamentalimportance), on the other hand that you do notprovide so many rabbit holes that you are never ableto convict a defendant who the public would regardas guilty of this particular oVence. Our judgment, inthe end, but I am happy to consider this further, isthat the “reasonable belief” test was unnecessaryand would simply overburden the oVences. I havequite a lot of faith in prosecutors, and I have got evenmore faith in juries. Juries operate by looking atbehaviours in the round, on the whole. They can beeccentric but, taking one jury or another, that is whatthey do. So that is my view.Chairman: Can we go on to the corporate oVence,negligence or gross negligence.

Q576 Martin Linton: Clause 5 provides thecorporate oVence, and Professor Wells pointed outthat there is something of a belt and braces approachhere, in that you have to show that failure isnegligent, but there is also the defence of adequateprocedure. She suggests that we do not actually needthe word “negligent” and we could just rely on the“adequate procedures” defence. What is your viewabout that?Mr Straw: I think that would be unfair. Here, in asense, we are leaning towards defendants, but this iswhere there would be a prosecution of a commercialorganisation, the vicarious liability of the seniorpeople in it. My own belief, Mr Linton, is that it isreasonable to have negligence as well as a failure tooperate a proper system as one of the tests and, as tonegligence, the courts are very well practised inmaking judgments about what is negligent and whatis not negligent. Ultimately, these are judgments onthe facts of the case, but the courts have spentdecades and decades assessing what is a standard ofcare and whether or not it has been breached.

Q577 Martin Linton: Is there not a danger that thiswould provide too great an onus? Bearing in mindthe history of the last Bill, which resulted in, I think,one prosecution, are there not dangers in making thethreshold too high, too diYcult?Mr Straw: For a prosecution?

Q578 Martin Linton: Yes.Mr Straw: I know from the question sheet that oneof the suggestions would be to raise the threshold togross negligence. I certainly would not go there. Thisis a matter of judgment, but, as I say, I think thatwhere you are dealing with a criminal prosecution—we are not talking about civil liability but a criminalprosecution of senior people in a company in respectof the behaviour of others—

Q579 Martin Linton: You would not have to provenegligence for the senior people, only the juniormanagers.Mr Straw: As I say, in these circumstances you haveto be really careful. That is my view.Martin Linton: I was going to ask about the grossnegligence as well, but that has already been covered.Chairman: I would like you to do so, because therehas been such trouble about corporate liability.

Q580 Martin Linton: You mentioned, as an aside,that you would not go there, but certainly the CBIdid argue the opposite to Professor Wells, that thethresholds should be lowered from negligence togross negligence.Mr Straw: There is always a diYculty with conceptslike gross negligence. If someone is negligent, areyou now accepting that there is an area where peoplecan be quite negligent, or significantly negligent butit does not carry a level of culpability?

Q581 Martin Linton: As in “slightly pregnant”!Mr Straw: Yes. We have got concepts likerecklessness, which has a rather separate meaning,and certainly one could say—I do not—that youwould have to show recklessness, but I think theaddition of the word “gross” would tend to confuseas much as anything else.Chairman: Thank you for that. Let us go on toquestion eight, Lady Whittaker, subsidiaries, jointventures and organisations which are not whollyowned.

Q582 Baroness Whitaker: Some of our evidence,Secretary of State, is not clear as to what extentclause 5 applies to foreign subsidiaries, jointventures, syndicates, because in the phrase in 5(1)(b)the bribe was “in connection with” C’s business. TheOECD thinks it is a weakness in their Conventionthat foreign subsidiaries are not completely covered.We would like to know, first of all, do you intend thatforeign subsidiaries, wholly owned, partly owned,joint ventures and syndicates should be covered by5(1)(b) and can you explain how?Mr Straw: Mr des Tombe will explain.Mr des Tombe: We recognise that the OECD hasitself identified problems with foreign subsidiaries.What clause 5 and 6 together do is say that clause6(4) makes clear that whether a person or body wasperforming services on behalf of another person is tobe determined by reference to all the circumstances.




So you have to look at whether, first, A wasperforming services for or on behalf of C. You thenalso have to look at whether the bribe was inconnection with C’s business. So, obviously, the juryand the court will be looking at those elements and,if it can be established that there was this connection,then it is fair that C shall be prima facie liable, but ifthe foreign subsidiary has no connection with theUK other than its parent company being locatedthere, then we do not think it should be caught by theoVence. We do not think that the question ofownership is suYcient justification for takingjurisdiction over foreign subsidiaries.Chairman: Does that cover your point, LadyWhittaker?

Q583 Baroness Whitaker: Do you think that thesedistinctions should be spelled out in a code ofpractice or guidance, or something like that:because, on the face of it, the business is not going toknow if its foreign holding is caught or not?Mr des Tombe: Obviously the court will have to lookat all the circumstances, and if guidance would makethis clearer, then this is something that we mightconsider.Baroness Whitaker: Thank you very much.Chairman: Let us go on to the major question ofguidance procedures. The Americans have got asystem; we have not. I am still waiting see how itcould be incorporated so that it is admissible inEnglish law. Maybe it should not be. What viewshave you got about that? Lord Thomas?

Q584 Lord Thomas of Gresford: The businessinterests that we have heard have said that when itcomes to looking at the framework of the Bill, theywill have to turn to their lawyers to get advice as towhether their procedures will comply, but inparticular instances, of course, what is going tohappen is very fact-specific. The business interestsmay want to enter into a particular contract; theymay need guidance as to whether they are actingproperly. As the Lord Chairman has said, there is aprocedure in the United States, under the AttorneyGeneral, for advising companies on whetherproposed action would be lawful, pursuant to their1997 Act, with a rebuttable presumption that actingin accordance with that advice would mean that nooVence will be committed. The Director of PublicProsecutions and the Director of the Serious FraudOYce were naturally loath to give that advice fromtheir point of view, to give advice in advance of whatthey might do in a particular case they areprosecuting, for obvious reasons. Do you have inmind some sort of department within the Ministry ofJustice that could oVer guidance to companies or theestablishment of an independent commission, as inHong Kong, to whom companies can turn to say,“We are about to enter into this contract, or thatcontract. Can you advise us as to whether we are onsafe ground?” Do you have any proposals like that?Mr Straw: I recognise that the business communityhave a point here. I do not have a direct answer, butI think they raise a serious issue here and, one wayor another, we have got to try and find a solution to

this. I am clear that simply lifting what goes on in theUnited States and trying to plonk it down herewould not work, because, as you are aware, myLord, this arrangement is run in the United States bythe Department of Justice and the Department ofJustice combines, roughly speaking, the functions ofthe Ministry of Justice here and the functions of theAttorney General’s OYce as well, combined in oneindividual, and therefore, as it were, the MoJ bit ofthe Department of Justice which deals with criminallaw can produce guidance to which the AttorneyGeneral has attached his or her endorsement, andsince the Attorney General decides on prosecutions,that feeds its way through into prosecutorialdecisions. We have a separation between theMinistry of Justice functions and law oYcers’functions in this country and there is a muchstronger wish to protect the independence anddiscretion of prosecutors than there is in the UnitedStates. It is a diVerent system. So I am very far fromclear whether we as a department would publishguidance. There will be guidance published generallyand people will write text books about this, guidebooks, and so on, but in terms of authoritativeguidance, particularly giving specific advice tocompany X which is to do a deal with country Z,does this or does this not come within the ambit ofthe law, I think, would be impossible for the Ministryof Justice. What I am willing to do (and I say this inrecognition of my briefing session for this and nowhere) is to talk to the Attorney as well as to businessorganisations about how we try and find a solutionhere. We have to be quite imaginative about this, andwe have got to take in our traditions, but that is whatI undertake to do.

Q585 Chairman: Will you be able to produce ananswer fairly soon?Mr Straw: I cannot promise that. I promise toproduce an answer, but because I am also having towork at some pace and with great assiduity toproduce a Bill that will work on parliamentarystandards as well as other minor matters of runninga big department, I cannot promise you are going tohave that before the recess, my Lord Chairman—Iwould be deceiving you—but what I do promise isthat I will pursue it.

Q586 Lord Thomas of Gresford: The most significantdiVerence between our system and the American isthe plea bargaining system.Mr Straw: Indeed.

Q587 Lord Thomas of Gresford: That is what makesthe diVerence, but you would consider, would you,some of sort of independent body to whom businesscan turn and say, “Are our procedures good? Arethey eVective? Do you approve of them?”, and alsogo to them with the particular contract in mind andsay, “What do you think about this? Do you thinkthat we can enter into it in those terms?” It wouldhave to be independent of the Department of Justice,maybe, and the Ministry of Justice or the AttorneyGeneral.




Mr Straw: I am thinking aloud here, but just ascompanies have to have their accounts audited, alsosensible companies are having their managementsystems audited by reference to internationalstandards and bodies like Investors in People, and soon, or, for example, insurers insist that if companiesare running a potentially unsafe system of work, onethat is intrinsically unsafe, then they will have tohave that audited by a test organisation. I couldcertainly envisage a situation where independentbodies—maybe they would be, say, a subset ofLloyd’s Register or people like this, these testingorganisations—would set themselves up to say that,looking at the totality of practices in well-runcompanies in countries which observe highstandards of ethics and have the OECD Convention,this is what you need to do. I think that would bevery sensible, you would give the encouragement,but, as you say, that would need to be doneindependently of government. On whether it is goingto be possible within our system to give a companya ticket which says, “We have taken account of everyconceivable circumstance of the way this deal wouldoperate and, on the information available, we thinkthat this is consistent with the law and would nottransgress the law”, I think that is something whichmay be very diYcult to achieve.

Q588 Lord Thomas of Gresford: It is a rebuttablepresumption.Mr Straw: Yes, and that is what is needed. As I say,what I want to do is to be imaginative about this andsee whether we can get there. I am thinking aloud,but it would also have the advantage of givingcompanies really no excuse but to raise theirstandards, and I think it would make quite adiVerence. As I say, what I promise to do is to go in tobat with the Attorney and the business organisationsand the NGOs as well, because people likeTransparency International, people who play suchan important part in raising standards, need to knowthat what we are not seeking to do is to water themdown, and, obviously, I also look forward to anyobservations your Committee may have, my LordChairman.

Q589 Earl of Onslow: Secretary of State, there arelots of precedents for this. The Health and Safetypeople you can go and get answers from. Whatwould be wrong with the Department of Trade doingit? After all, Lord Mandelson’s department is solarge now he would not notice the extra burden!Mr Straw: I will ignore that below the belt comment.I am sure he will be deeply oVended, and I am on hisbehalf! I do not profess to have great expertise in thefield of health and safety, but it is certainly the casethat there are plenty of bodies external togovernment which provide certification about safeprocedures at work, and it is the insurers often whoinsist on that.Chairman: Mr Djanogly, you wanted to explore thequestion of incorporating Article 5 of the OECDConvention.

Q590 Mr Djanogly: Do you accept that Article 5 ofthe OECD Convention should be incorporated intodomestic law, as has been recommended to us bycertain parties that have come before the committee,or perhaps added to the code for Crown prosecutors.Mr Straw: I think probably the latter, Mr Djanogly,rather than the former, but I will take that up withthe Attorney and the DPP.Chairman: Bribery by the security services. LordOnslow.

Q591 Earl of Onslow: The OECD has criticised thisclause. It appears that in some ways it increases thepower of government and in some ways it decreasesthe power of government. Should the clause beremoved or limited to cases involving nationalsecurity and serious crime and, as a matter ofinterest, are the powers of authorisation of realsignificance to the draft Bill? For instance, how oftenhas MI6 been authorised to bribe individuals underthe Intelligence Act 1994?Mr Straw: Lord Onslow, I am afraid I cannot giveyou the information. It is not because I do not know,but because it has never been the practice to givesuch information, just so we are clear about this. Themaximum information that is given onauthorisations of this kind is contained in thevarious published reports of the Intelligence ServiceCommissioners and the Intercept Commissioners.

Q592 Earl of Onslow: For those of us who have notread all the reports from cover to cover, could youtell us roughly? Do you have any idea?Mr Straw: I do have an idea, because for four yearsI was responsible for the Security Service and thenfor five years for the Secret Intelligence Service andGCHQ, but I am afraid what I do not have are thecopies of those reports in front of me. What I willseek to do is to ensure that the Committee is givenwhat information is available, such as it is. Please donot hold your breath for a great deal of information.Can I make a wider point, my Lord Chairman andLord Onslow, which is this: the intelligence andsecurity agencies now are the subject of a very highdegree of statutory control, they are statutory bodiesand their work is then subject to detailed invigilationby the various commissioners who are all retiredmembers of the senior judiciary, and they have staVas well. So you have got the SurveillanceCommissioner, the Intelligence ServiceCommissioner and the Intercept Commissionerlooking at various aspects of their work and, forexample, in terms of the Intercept Commissioner,crawling over warrants and checking whether theywere authorised properly, and so on, and going backto the Secretary of State if the Commissioner feelsthat they have not been, and also being available foradvice; but in terms of the coverage of this clause, thecoverage of this clause matches the functions of theIntelligence and Security Agencies and I think itwould be very curious if, through this Bill, we soughtto restrict the activities of the agencies morenarrowly than that which has been provided in theprimary legislation by Parliament.




Q593 Chairman: Secretary of State, I think that ifyou can provide us with a bit more information onthis, it would be very valuable, because, plainly, ifthis Bill gets onto the floor of either House, this is atopic which is liable to be discussed on anamendment and the more that we can publish byway of what is and is not available in terms ofinformation, I think, the better.Mr Straw: I will ask the people who put these reportstogether to provide this information.Chairman: Right. Lord Mayhew, the delegation ofpowers by the various prosecutors.

Q594 Lord Mayhew of Twysden: It is about clause10, Secretary of State, consent to a prosecution. Whydo you consider it necessary to keep a provision forconsent at all?Mr Straw: The consents are delegated because underthe Prosecution of OVences Act every Area CrownProsecutor has delegated authority overprosecutions. I have got no particularly strong viewsabout this.

Q595 Lord Mayhew of Twysden: I am just wonderingif I can come to the delegated part in a moment. Youare keeping in clause 10 a requirement that thereshall be no prosecution save with the consent of oneor other of the directors. I am wondering why youare keeping that. Might your answer also tell us howimportant you consider it, if at all, that the exerciseof that consent, discretion, should be accountable toParliament?Mr Straw: One could argue that since prosecutorshave anyway, as it were, got to give consent to aprosecution because they have got to not onlymeasure the evidence against the evidential test butalso against the public interest test, they are makinga judgment about, eVectively, giving consent. I thinkthe purpose of this is simply to ensure that theconsent levels are slightly higher up the system, andI think that can be a way of dealing with new sets ofoVences. There is some understandable anxiety, forexample, by the business community. I think thathaving these consent provisions is probably sensible,and it will not act, I am advised, as a bureaucraticbar on the CPS or the SFO because where, say, theDPP or the Director of the SFO has to give consent,these consent powers are, in practice, delegated toArea Crown Prosecutors. It is not like the AG’sconsent, but in serious cases they would, in anyevent, go up the food chain and they would make ajudgment. I know that from your experience, LordMayhew, you saw the way this operated. It is notsomething I have any really strong views about oneway or the other, but I think it is probably sensible.

Q596 Lord Mayhew of Twysden: Thank you for that.Can I suggest that whatever it is that makes itdesirable that there should be a prior consent alsomakes it desirable that it should be accountable toParliament, the exercise of that consent, or therefusal of it should be accountable to Parliament,and you cannot have that unless the AttorneyGeneral intends to give consent, I suggest.

Mr Straw: I agree with that. Plainly, if you wantthere to be accountability to Parliament directly forthese prosecutorial decisions, you have got to havethe Attorney General as the person giving theconsent. Where this Parliament is, certainly wherethe House of Commons is, is trying to move awayfrom the Attorney General’s consent and havingdecisions on prosecution dealt with much more bythe DPP and by his or her staV. That is, I think, quitea significant change in the past 25 years, but that isjust where it is; but, my Lord Chairman, if you cometo the view that this ought to be the AttorneyGeneral’s consent or there should be no need forconsent at all, then obviously we will consider it. Oneof the reasons why the consent is required, of course,is to try to eliminate the prospect of privateprosecutions, which could often be pretty vexatious.

Q597 Lord Mayhew of Twysden: We have been toldthat there are very few prosecutions and there arelikely to be not many more prosecutions. Is it not,therefore, desirable to keep this with the Director ofPublic Prosecutions at least and not allow him todelegate?Mr Straw: I am certainly told in my briefing inpractice there is normal delegation of DPP’s consentwithin the CPS. I guess it would be for the DPP tosay that for these oVences the matter would have tocome to him or her.

Q598 Chairman: Section 53 of the Serious Crime Actstill gives a role to the Attorney. In advance of theConstitutional Reform Bill, and goodness knowswhen that is going to come, is this something thatought to be addressed in this legislation?Mr Macauley: My Lord Chairman, you are quiteright in referring to section 53 of the Serious CrimeAct. Those provisions are still in place and do requirethe consent of the Attorney General forextraterritorial cases involving assisting andencouraging all crimes. This will be dealt with in theConstitutional Renewal Bill, should that goforward, but should that for some reason not goforward, then this matter will be dealt with in thisBill.

Q599 Earl of Onslow: It should be dealt with in thisBill anyway, should it not?Mr Macauley: Yes.

Q600 Earl of Onslow: Because it covers bribery.Mr Macauley: That is right. If it is not dealt with asa horizontal matter, it will be dealt with in this Billas a bribery matter.Chairman: There is a rather general question inrelation to oVsets.

Q601 Linda Gilroy: OVsets are a common feature oflarge procurement contracts and that is especiallythe case in defence. As the Woolf Committee says,“Defence companies will often employ third partyadvisers to assist them in both the development ofthe oVset package as part of the procurement processand in subsequent delivery of individual projects.




This can expose the company to similar ethical andreputational risks regarding bribery and corruption. . . ” Are you confident that the main oVences willbe able to draw the dividing line appropriately? Willspecific guidance be needed to create certainty forcompanies on the use of oVsets?Mr Straw: I think so. We have tried to draw itproperly. Would you like to say a word about this,Mr des Tombe?Mr des Tombe: Yes. The issue will be whether theoVset is improper or not. If it amounts to improperperformance, then it will be caught by the oVence. Ifit does not amount to improper performance as setout in the Act, then the oVset will not be caught bythe oVence.

Q602 Linda Gilroy: Are there not particular specialdiYculties, as the Woolf Committee points out?When we took evidence from BAE Systems they saidthat it remains one of the key reputational risks thatthere are. It has particular features to it and I wonderwhether enough thought has been given to whetherthe main oVences capture this or whether there willbe a very explicit need for guidance on it.Mr des Tombe: We will take the concern away andconsider it.Chairman: Mr Borrow on the British OverseasTerritories and Crown Dependencies incorporatedcompanies.

Q603 Mr Borrow: The OECD is recommending thatthe jurisdiction of the legislation should be extendedto cover companies incorporated in OverseasTerritories and Crown Dependencies. I would beinterested in your reaction to that and whether thatis something that you would consider bringing in asan amendment to the draft Bill.Mr Straw: Whilst we are responsible for the overseasrelations of the Crown Dependencies and also forthose of the British Overseas Territories, neither theBritish Overseas Territories nor the CrownDependencies are part of the United Kingdom. Forexample, I have a very specific role in respect of theCrown Dependencies which are the Channel Islandsand the Isle of Man because I, in practice, have todecide whether their legislation should berecommended for Royal Assent, and I have certainother functions. We would only legislate in respect ofthe Crown Dependencies where their governmentsystems had broken down. I am perfectly clear thatthe Crown Dependencies, when and if we havelegislation on the statute book, will go ahead andimplement equivalent legislation. That normallyhappens and I will be very strongly encouragingthem to do so. There is a similar but not exactly thesame situation with the British Overseas Territories.Again it is a matter for them, although if governanceis breaking down—and there is a case in point at themoment—we can seek to impose direct rule. Thatseems to me to be an inappropriate way ofhandling matters.

Q604 Earl of Onslow: Is not Scotland an even biggerhole? Are the Scots going to introduce a Bill on this?Mr Straw: The Scots are always a bigger problem!Mr Macauley: My Lord Chairman, this Bill, as youknow, applies to England, Wales and NorthernIreland. The criminal law is a matter that is devolvedto Scotland under the Scotland Act. We are liaisingwith the Scottish Executive. The Scottish Executiveis aware of the UK’s international obligations andthey have the choice of either legislating themselvesor proceeding by way of a legislative consentmotion, so that Westminster can legislate on itsbehalf. We have not yet got to the point whereScotland has to make up its mind on that, but todaythey are well aware of the situation north of theborder and our understanding is that they plan toconsult on reform there in the near future.

Q605 Chairman: To go back to the OverseasTerritories and the Crown Dependencies, there is acertain amount of persuasion that could be placedon them to legislate in accordance with whatever wehave done here.Mr Straw: I used to be responsible for these asForeign Secretary, and I am not now. We have justimposed direct rule in the Turks and Caicos. We arenot slow in coming forward in those respects and wewill be putting a lot more pressure on these OverseasTerritories to legislate or to face takeover. Thepressure comes not only from membership of theOECD but, for example, our agreement in the G20in early April, at that G20 meeting in London, toensure that we move towards almost universalstandards of probity in financial business systems.Chairman: Does that cover the point?

Q606 Mr Borrow: I was just going to emphasise theimportance that the banking problems havedemonstrated within some of the overseas territoriesand the need to ensure that in this area, as in others,we ensure that those overseas territories for whichwe have residual responsibility should be brought upto the highest standards. The second area I wantedto raise with you is the concern raised by ProfessorHorder that taking within the jurisdiction of thisdraft Bill companies who will carry out business inthe UK, risks British companies operating overseasbeing targeted by their governments in a tit-for-tatway. Do you have any response as to whether that isa legitimate concern that Professor Holder is raisingwith the Committee?Mr Straw: This is, not least, because of the universaljurisdiction which the United States seems to assert.It is a problem, but I think it has to be dealt with ona case-by-case basis. We are not seeking a situationwhere companies are prosecuted in two diVerentjurisdictions in respect of the same set of facts,because that would obviously be unfair. We cannotdo anything about the way in which the US assertsuniversal jurisdiction. We just have to live with it.




I am handling a case at the moment, not in the areaof bribery but a diVerent criminal prosecution,where there is a criminal investigation andpotentially prosecution in respect of the same set offacts, against the same set of individuals, takingplace in both Cyprus and Greece. It is very unfair onthe individuals, but that is how it is and we are tryingto sort it out.Chairman: I would like to invite Mr George to raisethe question of parliamentary privilege. Is it really agood idea to include this point in the Bill?

Q607 Mr George: The Chairman has asked thequestion. We know that parliamentary privilege isdescribed as “delicate and complex.” Do you agree,as successive committees have said, that this is bestaddressed by a Parliamentary Privileges Bill? Is thatan option?Mr Straw: It may be an option, Mr George. We donot have a plan for a Parliamentary Privileges Bill.As you know, this Bill does not make any provisionto exempt Members of Parliament from theprovision on criminal oVences. There has already, asit were, been the equivalent of statutory provision onParliamentary Privileges which is in the Bill ofRights. I do not see the point particularly of aParliamentary Privileges Bill. This issue ofparliamentary privilege has to be handled in certaincircumstances. It is taking up a significant amount oftime in preparing the Bill on the ParliamentaryStandards Authority so as to ensure that the courtsdo not get dragged into decisions on the way thatAuthority works and, indeed, the way Parliamentworks. The general view is that that is regarded asinappropriate. There are many areas of activity byMembers of Parliament which, however, are thesubject of action by the courts. To take a highlycontemporary example: the Freedom ofInformation Act Parliament decided should apply toParliament and the reason the expenses are going tobe published tomorrow is as a result of decisions bya judicial tribunal, a Freedom of InformationTribunal, and then by the Court of Appeal. That ishow it is. That is a change in the last 30 years, butthat is what Parliament has decided.Mr George: Should the draft Bill include a definitionof “manager” to make it clear who is negligent.

Q608 Chairman: Before we go on to that, the Clerksof both Houses came last week and they gave us acopy of the FOI case which came up in front of MrJustice Stanley Burnton (as he then was). It is veryplain that it is an extremely complex subject. Is itsensible to include a clause in this Bill about that—a stand alone clause—as opposed to dealing with itin another way?Mr Straw: Our current view is that it is sensible.Obviously, My Lord Chairman, if you have adiVerent view, I will think about it. These issues arenot black and white: they are matters of judgment. Iam open to argument on it.

Q609 Earl of Onslow: Can you tell us of a situationwhere this privilege clause would come into eVectand under what circumstances?

Mr des Tombe: We do not have any specific examplesthat we are trying to remedy, but that does not meanto say that in future a Member of Parliament mightnot be—

Q610 Earl of Onslow: With respect, that is not a verygood reason for legislation: “We can’t think of anypossible circumstance in which this law shouldapply, therefore we will pass it all the same.”Mr des Tombe: No, I did not—

Q611 Earl of Onslow: That is what you said.Mr Straw: With respect, no he did not, Lord Onslow.He did not say he could not think of anycircumstances.

Q612 Earl of Onslow: He did.Mr Straw: No, he said he did not have any particularcircumstances in mind now. You were gilding the lily,and so I am going to protect a good oYcial. Goon, please.Mr des Tombe: It is quite possible that there might becircumstances in future where the prosecution doesneed to look at what was said or what conductoccurred in Parliament. The view that has beentaken is that it is right that Members of Parliamentshould be subject to the same law as other people aresubject to the law. Having said that, we think it isgoing to be the very rare circumstance in which wewill actually need to lift parliamentary privilege. Onthat basis we think the very narrow lifting is justified,because it is unlikely to happen, but if it doeshappen, we think that courts and prosecutors shouldbe able to look at that information.Mr Straw: I agree.

Q613 Chairman: Mr Straw, will you stay longenough just to deal with the last question on our listwhich has been allocated to Mr George?Mr Straw: About the definition of “manager”.Chairman: Yes.

Q614 Mr George: Should the draft Bill include adefinition of “manager” to make it clear whosenegligence would prevent the adequate proceduresdefence being available (and to exclude junioremployees)?Mr Straw: We are going to think about this. Thisphrase was lifted from the Fraud Act 2006, so I amadvised. The Corporate Manslaughter andCorporate Homicide Act has used a diVerentapproach. We need to think about it.

Q615 Lord Anderson of Swansea: To avoid anyambiguity, presumably “secretary” should be“company secretary” in clause 5(7)?Mr Straw: Yes.Mr des Tombe: The intention is that it is the peopleat the top of the company whom we are seeking tocatch.

Q616 Lord Anderson of Swansea: Yes. Hence itshould be “company secretary” rather than“secretary”.




Mr des Tombe: We will look at ensuring thatintention is brought forward.Mr Straw: It is not intended to be the “personalassistant”.

Q617 Chairman: I think it would be a good idea ifyou looked at that point again.

Mr Straw: We shall.

Q618 Chairman: Mr Straw, this is the only set ofwitnesses which has got through all the questions inthe session.Mr Straw: I am sure that is a reflection of theexpertise of the Committee, not the witnesses.Chairman: Thank you very much.




Members present:

Anderson of Swansea, L Sheikh, LColville of Culross, V Whitaker, B

(Chairman) Williamson of Horton, LGoodhart, L Mr GeoVrey CoxHenig, B Linda GilroyLyell of Markyate, L Dr Brian IddonMayhew of Twysden, L Martin Linton

Witness: Baroness Scotland of Asthal QC, a Member of the House of Lords, Attorney General, examined.

Q619 Chairman: Good morning, Lady Scotland. Itis very nice to see you and your adviser. I wonder ifI could ask you one question which is not on the list.We have had a lot of support for this Bill, but, on theother hand, we have also had a pretty substantialnumber of suggestions for amendment. I wonderhow you see the timetable because we probably needto get this Bill on to the statute book and every daythere is a new government Bill which is introduced,so I wonder how you see room for amendments, ifany?Baroness Scotland of Asthal: I think the mostimportant thing is to see whether the Bill is, in itself,in good shape. If it is in good shape and theconsideration is that the amendments are narrow,then of course we know that that tends to give a Billa better chance of getting into the parliamentarytimetable. You are quite right, Chairman, thetimetable is already quite full and the challenge isthere, but you will also be conscious of the fact that,where there has been a Bill which is seen to bebasically sound and not unduly controversial, buttechnical in nature, the House has, in the past, foundtime for it. For instance, the Bills which you arefamiliar with which start in our House, the House ofLords, sometimes can go oV the floor of the Houseinto the Moses Room in committee and can be dealtwith more swiftly. I do not know what the specifictimetable is, but I know that the way in which theusual authorities deal with this means that a Billwhich is in good order and is not seen to be overlycontentious can have a fair wind. I do not knowwhether that helps you. I did not ask specifically,before I came today, what the timetable looks like,but I do know that we have relatively little timebetween now and the end of the Fifth Session.

Q620 Chairman: Yes, or indeed between now and theGeneral Election.Baroness Scotland of Asthal: Well, you can say that,Chairman. I could not possibly comment.

Q621 Lord Anderson of Swansea: That said and thefact of a pre-election session, a rather truncatedsession, is there any reason for the Governmentthinking that this Bill has any special priority?Baroness Scotland of Asthal: Well, I do not knowwhether it has special priority, but this Committeewill know that bribery is a matter which has beenhigh on our agenda for some time. There was the

previous Bill, and strenuous eVorts were made to tryand get that into the parliamentary timetable, so thishas remained high on our priority list. It is certainly,because of recent events, something which has evenmore urgency maybe than would otherwise havebeen the case, but I cannot say that it has reduced inimportance because it has always been somethingthat we thought was of extreme importance. I cancertainly undertake to make enquiries as to what theusual channels’ view is, but I am afraid, not beingone of the usual channel members, I cannot actuallyspeak for them.

Q622 Chairman: In the course of the list ofquestions, you will find that there are reflectionswhich some people have put forward by way ofamendment, and it would be very helpful if youwould apply your mind to that aspect of thesevarious matters to help us.Baroness Scotland of Asthal: I do know, Chairman,that when draftsmen come to look at the finalversion of the Bill, they will find whatever commentsthat are made by this Committee extremely helpful,and I can certainly say, without any fear ofcontradiction, that the sagacity of this Committee iswell understood and that the importance of lookingat the nuances that you may indicate will be fullyunderstood also.Chairman: Well, let us go on to the questions, andcan I just remind members that they do not get on tothe transcript unless you ask them.

Q623 Lord Sheikh: Baroness Scotland, we beginwith Article 5 of the OECD Convention. Do youthink there is any justification for incorporating thisin domestic law and perhaps to have added to it aCode for the prosecutors? As we all know, theOECD Working Group was very critical with regardto litigation and it felt that perhaps the Governmentdid not engage in enough eVorts to restrictarguments to prosecutors based on Article 5 factors.So what are your feelings about Article 5?Baroness Scotland of Asthal: Well, firstly, to say thatI think it is important for us to remember that theOECD has not explicitly requested that Article 5 beincorporated into UK law. However, I think theyhave made it clear that they wanted to see how itwould be respected and addressed, and it is quiteclear, that we, as you will know, incorporate it interms of the Prosecutorial Code, it is something



25 June 2009 Baroness Scotland of Asthal QC

which is referred to by prosecutors and it issomething which the DPP has already included inthe guidelines. Also, there is of course everypossibility that, in the guidance that I give throughthe Attorney General’s guidelines, this is somethingthat could be highlighted too, but it is important toremember that Article 5 has purchase not just onthese issues, but generally in the work that aprosecutor will do, and we do think that putting it inthe prosecutorial guidelines is the correct place forArticle 5 to sit.

Q624 Chairman: For all prosecutors?Baroness Scotland of Asthal: I think for allprosecutors because this is an important issue and itis not something which simply applies to corruptionor bribery, but it is a matter of general applicationand that is why it is in the Prosecutorial Code, it iswhy it is in the guidelines, and it is why it is an issuewhich has been directed and looked at by AttorneysGeneral past, and I am sure it will continue toexercise any Attorney General’s mind in the futurealso.

Q625 Chairman: I suppose one of the things that weneed to consider is the power to withdrawprosecutions because that would also fall within thearea of Article 5, would it not?Baroness Scotland of Asthal: Yes. It comes really, andI know that we are going to deal with it later, in termsof consent because, if consent is given to aprosecution, then it is usual for consent to withdrawa prosecution also to be applied for. Of course wewill go on later to talk about whether and whoshould have that consent and I see that that is in thequestions that we will address later on this morning.Chairman: Well, then we will go on to question 2about accountability for prosecution decisions if thepower of consent is transferred away from you, asAttorney.

Q626 Lord Mayhew of Twysden: Attorney, we comeon straightaway actually to this question, do we not?It has been confirmed to us that, if the requirementfor the consent of the Attorney for bribery oVencesis removed and is vested solely in the Directors, therewill not be any parliamentary accountability, and Iwonder if you could help us about that. To whatextent do you, in your experience, find thatparliamentary accountability is a reality, how does itwork, how important is it and what would be thereaction be, do you suppose, of the House ofCommons if it was found that it was no longeravailable from the person who actually has thedecision?Baroness Scotland of Asthal: I think, firstly, it isimplicit in your question that parliamentaryaccountability is actually very important. It isimportant because both in the House of Commonsand in the House of Lords there are questions whichMembers wish to have addressed and addresseddirectly; they want to know what is being done in aparticular case and why, and we saw that quitegraphically on a number of occasions in the Houseover the last ten years. Accountability will remain

because, for so long as the Law OYcers, that is theAttorney General and the Solicitor, remain thesupervisors and the superintendents of theprosecutorial authority, there is a vehicle throughwhich that accountability can take place. I think it isalso important, however, to have a purchase onconsistency in the way in which these consents are tobe exercised and, therefore, although it is proposedthat it should be delegated to the DPP, I think it isgoing to be important for us to underscore theimportance of that consent. At the moment, I wouldtake those decisions myself personally. The issuewould be scrutinised of course by the very ablepeople who currently assist in the AttorneyGeneral’s OYce, and we have got some very senioroYcials who are skilled in the law in relation to thisarea and they will assist me, but the final consent,whether to approve or not approve, is taken by mepersonally or by the Solicitor General, but it is a verypersonal consent. These issues are very important, soone would expect that, if the matter were to be takenor consent were to be given by a Director of the DPPor otherwise, there would be an appropriate degreeof seniority in taking that decision. When we cometo the Constitutional Renewal Bill, there have beena number of suggestions as to which decisions theDirector may choose to take himself or delegate to aperson whom he has identified as having thecompetence of seniority to take that decision, butalso we have to understand that there needs to besome flexibility in the organisation in order to enablethem to deal with that matter appropriately.

Q627 Lord Mayhew of Twysden: I think we maycome next to a little more about that aspect of thematter, but I think I understood you to say that, evenif the requirement for the consent were removed inthis Bill, there would be a measure of accountabilityby virtue of the superintendence that the Attorneyhas of the Directors.Baroness Scotland of Asthal: Yes.

Q628 Lord Mayhew of Twysden: But will thatsurvive in the Constitutional Renewal Bill because Ithought that the whole thrust of the OECD’sWorking Group’s criticisms has been theinvolvement of the Attorney, as a member of theGovernment, in matters connected withprosecutions?Baroness Scotland of Asthal: Well, I think it shouldsurvive. Our proposal is that the Attorney Generaland the Law OYcers remain the people responsiblefor the supervision and superintendence of theprosecutorial authorities, the oversight, and it is stillproposed that there should be a protocol enteredinto between the Directors and the Attorney so thatthere is clarity about that relationship and what isdue by one to the other. For example, there is goingto be the preservation of the duty or ability toconsult the Attorney and you, Lord Mayhew, willremember that many prosecutors both in theGovernment Legal Service and elsewhere very muchvalue the opportunity to come to the Attorney toseek the Attorney’s independent advice andguidance in relation to complex and diYcult issues,




but in this instance of course, where the consent istransferred, it will be the Director’s own decisionand not the Attorney’s decision which will count.Indeed, in looking at the papers, as I have, I have notfound instances when Attorneys past, and I see thatLord Lyell sits beside you, where any Attorney in theresent past has found it necessary to direct in theseissues. It has always been the case that the Directorswill take their own view, but they have, in the past,been supported and assisted by the ability to consultthe Attorney of the day in relation to complex anddiYcult matters.

Q629 Lord Lyell of Markyate: Well, I am verygrateful, and I think you are putting your finger onit, if I may say so. Accountability is extraordinarilyimportant, that is the responsibility to Parliamentand you cannot have responsibility without power.This is where you were quite right to point out thatconsent by the Director is one question, but, and thisis my view and I believe that we agree on it, it mustbe subject to the statutory duty of superintendencewhich carries with it the power, if necessary, and Iwill come to that in a moment, to direct. Now, yourightly said that in recent years, and I think it goesback a good 100 years and it was something whichwas not terribly well understood in every aspect ofGovernment, this has a very, very valuable creativetension because no Attorney has ever, in the past 100years, directed, unless you take some rather looselanguage in Lord Shawcross’s autobiography, that itis absolutely essential that the superintendencepower should contain the power, if absolutelynecessary, to direct. It is that meeting in diYcultcases of two minds which must remain in theConstitution.Baroness Scotland of Asthal: Well, I know that thatis very, very strongly felt and very strongly expressed.I also know that there is great anxiety with theproposal that we have made that the Attorneyshould no longer have the power to direct, but we dothink that it is possible now to entrust that powerquite legitimately in the Director of PublicProsecutions and/or the Director of the Services forthis reason: that we understand the view, a bit likehaving your nuclear missile, that you will never useit, but it is a comfort to know that it is there, and wedo not think that that is necessary any longer if wecan replace it with an open, transparent protocolwhich sets out very clearly the respective roles andresponsibilities of the Attorney and the Director.When I first came to review the whole role of the LawOYcers and the Directors, it seemed to me that therewas no clarity to the wider world. The Directorsunderstood the way the relationship worked, theAttorney understood the way the relationshipworked and those intimately connected were veryclear about how the relationship worked and therigour that there was and the independence thatthere was between those two roles, but I do not thinkthat that was understood by anybody outside thatsmall purview. Therefore, what we propose to do isto bring that clarity and transparency in theprotocol, so it will clearly set out the role of theDirector, clearly set out the role of the Attorney, and

it will be better understood how that tension worksbetween the two in a creative way to give realindependence and rigour to the decision-makingprocess. I do think that that is an important change,albeit I absolutely understand that it causes anxiety,but you will know, Lord Lyell, that anxiety has beenexpressed the other way by those who say that thereshould be no parliamentary or other supervision inrelation to the prosecutorial authorities, that itshould be wholly removed. That too would cause adiYculty in terms of what Lord Mayhew talks aboutin terms of accountability because how then isParliament going to be able to hold what theprosecutorial authorities do precisely to account andinterrogate it and test it in a way that does notimproperly impact upon the independent exercise ofdiscretion by the prosecutor on a day-to-day basis,on a case-by-case basis, but holds them to account interms of the strategic direction in terms of what thepublic would expect prosecutors to do? Thattension, we think, can help in a proper balance by theclarity that will come from the protocol that we havebeen able to create and would be proposing topublish or, at least, outline if the ConstitutionalRenewal Bill came forward.

Q630 Lord Lyell of Markyate: I am perfectly happywith the protocol, although I do not think you haveproduced a draft yet.Baroness Scotland of Asthal: No, not yet.

Q631 Lord Lyell of Markyate: I think the draft isgoing to be extremely important. I am much infavour of clarity and I am glad you used that wordand not “transparency”, which is getting a bitdemoted. However, the ultimate responsibility andpower must remain in the independent Law OYcersof the Crown, and that does not mean that theconsent cannot come from the Directors, which Ithink is perfectly sensible, although question 3 willidentify whether they can further delegate it, but wewill come to that in a moment, but, if you remove thepower of the Law OYcers to direct, they then do nothave power and yet they are supposed to haveresponsibility and the two do not add up. Unless thatis left, and remember it is attacked by some peoplewho, as you rightly say, do not really understandhow it works, but it does work, it has worked forgenerations and it is an essential part, and I suspectyou have already discovered yourself in the naturallyand properly confidential dealings that you have hadthat it is an essential part of the relationship, butprosecution, like judging, is ultimately part of thegovernance of this country for which theGovernment of the day, although it gives it toindependent people, is responsible, and that is whythe Law OYcers are in such a special position, asindeed is the Lord Chancellor when it comes to theappointment of the judiciary. Are we in agreement?Baroness Scotland of Asthal: We are certainly inagreement that the Law OYcers’ supervision of theprosecutorial authorities is essential foraccountability. I think that where we may not be inagreement is in the necessity to retain the power todirect. I absolutely understand the force of the




argument which is made and has been made actuallyby every Attorney General before me, but I do thinkthat it is possible for us to move forward and I dothink it is possible for us to say that that power todirect can now be removed, provided that we put inplace a clear outline of how that will be done.Accountability, I absolutely agree with you, is soimportant to both Houses of Parliament, butactually incredibly important to the people of ourcountry because, at any time anything goes wrong,people want someone to be held to account, theywant someone to be able to answer for what is done,so I do think that the comprehensive review that Ihave undertaken enables me to say that we have away forward, which will enable us to devolve moreresponsibility to the Directors, but withoutimproperly impacting upon our power and ability toaccount to Parliament. I understand that that is nota position everybody is comfortable with and Iunderstand that we will have a very robust andvigorous argument about that if and when the Billcomes forward.

Q632 Lord Anderson of Swansea: I was a littlepuzzled as to how there could be greater tensionbetween the Attorney and the Directors if theAttorney were wholly deprived of any opportunityof being a longstop, so you have tried to square thatcircle by saying, as I understand it, that the Attorneywould give strategic direction. Would, however, thatchange in fact deprive Parliament of debating orintervening on particular cases, such as the BAEone?Baroness Scotland of Asthal: The thing is thatParliament has no role in terms of intervening onindividual cases. Individual cases will always be thejurisdiction of the prosecutor and that is why wehave independent prosecutors. Parliament sets theframework, Parliament can set the agenda,Parliament can change the law and Parliament cando a great deal, but it is not quite omnipotent whenit comes to our justice system because of course it isvery important to have this separation of powers,very important that, when a prosecutor makes thatdecision, they make that decision whollyindependently of Government and whollyindependently of Parliament.

Q633 Lord Anderson of Swansea: That said,Parliament can comment—Baroness Scotland of Asthal: Yes.

Q634 Lord Anderson of Swansea:—and review, in asense, that decision. Would Parliament now bedeprived of such comment and such review if theAttorney were limited to overall strategic direction?Baroness Scotland of Asthal: I think what we have tobe clear about is that Parliament will continue tohave the opportunity to ask questions. Provided ofcourse that the Attorney and the Law OYcersremain, the Law OYcers would be able to be held toaccount for what the prosecutorial authorities did ordid not do. You are absolutely right that, when itcomes to the final decision, what the change that wepropose would mean, if there were a diVerence

between the view of the Law OYcer and the view ofthe Director and those two could not be reconciled,which has never, to my knowledge, happenedbecause we are talking about the law and, when theLaw OYcers look at these questions, they arelooking at them as lawyers and not as politicians, ifthere were that diVerence, then the Director’s viewwould prevail and the Attorney would have nopower to override that view, even if the Attorneythought that the decision which was about to bemade by the Director was wholly wrong.

Q635 Chairman: Well, that is very clear and it plainlyalso answers the question that you are not in any waysuggesting that we should abandon the idea ofconsent?Baroness Scotland of Asthal: No.Chairman: But at what level would the consent begiven, on which Lord Sheikh has a question.

Q636 Lord Sheikh: You also referred to delegation ofpower and under paragraph 2 of clause 10, we see,“The function of Director of the Serious FraudOYce may be exercised by a member of theDirector’s staV who is authorised by that Director,”which is causing me a little bit of concern. What doyou feel about this delegation of power? What is thejustification and can you see any problem relatedwith this devolution?Baroness Scotland of Asthal: Well, the first thing is ofcourse that the Director must have a reasonabledegree of flexibility to organise the administrationand operation in relation to these issues, so that iswhy it is expressed in that way. In the protocol thatwe are working on, we have been looking at whichconsents should properly be retained by theAttorney, which consents could properly bedelegated and then, if delegated, which peoplewithin the Director’s agency should properly beauthorised to give those consents. Now, in my ownview, I would anticipate that matters of thisseriousness are likely either to be taken by theDirector himself, which is what I currently do andthe Solicitor General currently does, we take thesedecisions ourselves, or to be delegated to nominatedand identified individuals. I would anticipate thatthat is the likely way in which the matter would bedealt with.

Q637 Lord Sheikh: So you and the junior oYcialmay perhaps do the investigation, but the final workwill rest with the Director? That is so, is it?Baroness Scotland of Asthal: Well, it would be amatter for the Director to decide, but I wouldanticipate that the Director would look at theseriousness of the issue, the importance of thedecision made, the need for continuity, and that isgeneral management in terms of the workload, and Iwould reasonably anticipate that the consents of thissort would be likely to be taken by the Directorhimself or an identified senior nominee.

Q638 Lord Sheikh: So it is a question of workloadreally? Am I right in thinking that?




Baroness Scotland of Asthal: It is a question ofworkload, but it is also a question of importance. Ifthese consents are as important as we believe them tobe, that they currently need the consent of one of theLaw OYcers personally, one would reasonablyanticipate that these consents would be right at thetop of the workload and, therefore, would be theones which were most likely to be taken by theDirector personally or by a named nominee. Forinstance, the Committee will know that the reasonwhy we changed the position for the SolicitorGeneral was that, in the past, all these decisionscould only be taken by the Attorney personally andnow of course the Solicitor General has, in theAttorney’s absence or as directed, the opportunity tosign these consents also, so I think it would be totallyreasonable for the Director to identify senior peoplewithin the agency who would carry out thatfunction.

Q639 Lord Lyell of Markyate: We were told by theDirector and by the Director of the Serious FraudOYce that, respectively, the Crown ProsecutionService handled five or six corruption cases in thelast five years and the Serious Fraud OYce one. Itseems to me that there is no reason at all why itshould not be the Director himself or herself whotakes these decisions because what you are saying isthat the normal rule which applies in both services isthat, once you say something is decided by theDirector, it eVectively means any Crown Prosecutor.Is there not a strong case here for saying that “theDirector” means the Director?Baroness Scotland of Asthal: There is a case forsaying that, but I just want the Committee to hesitatefor a moment for me to assure you that in theprotocol, which we are looking at, we are seeking toidentify those consents which should be taken by theDirector personally or by a named nominee andthose decisions which could be taken more broadly.I would anticipate, looking at the way in which weworked on the protocol, that this form of consentwould be taken by the Director or by a namednominee. I think it would be very diYcult to say thatit has to be taken by the Director and him alonebecause we are all mortal, not that I wish ill of ouryoung and vigorous Director, but even he maybecome incapacitated and be unable to make thesedecisions and, therefore, it must be right that he canidentify a senior nominee in his absence who wouldbe able to take these decisions in his stead. If, by yourquestion, Lord Lyell, you are saying that you do notbelieve that this decision should be taken by anyCrown Prosecutor at any level, including the mostjunior, then certainly I would agree with that.Lord Lyell of Markyate: I do not think it is apractical problem.

Q640 Lord Goodhart: Baroness Scotland, is therejustification for giving the Attorney General specialpowers in relation to matters of national securityconcerned with bribery and, if so, what should thosespecial powers be?

Baroness Scotland of Asthal: I think it is importantfor the Attorney General of the day to retainconsents in relation to national security, and that, Ithink, has been accepted by the OECD as a perfectlyproper consideration in relation to these matters, butI think that, outside of those issues, then it seems tome perfectly proper for the way in which this Bill hasbeen set out to be the way forward.

Q641 Lord Goodhart: To ask you a slightly naughtyquestion, does it follow from that that in the BAEcase it is the Attorney General who should havetaken the decision to drop further investigations?Baroness Scotland of Asthal: I think it was not theAttorney General who took that decision, and youwill know that the decision was taken by theDirector of the Serious Fraud OYce. In the eventthat there was a disagreement between the Directorand the Attorney in relation to a matter whichaVected national security, then I think in thosecircumstances it must be right for the Attorney of theday to say, “I disagree. This matter is a matter ofsuch importance to national security that I will takethe responsibility of taking this decision myself, Iwill give reasons for it and Parliament will be advisedthat I have so decided,” so I think that is animportant safeguard.

Q642 Linda Gilroy: Baroness Scotland, the OECD’sWorking Group has been very critical of the BAElitigation, including the Shawcross procedurecarried out by the then Attorney General. Whatlessons, do you think, need to be learned from thatlitigation, and perhaps you could include someobservations on the OECD’s Working Group’sconcerns about the involvement of the AttorneyGeneral?Baroness Scotland of Asthal: I think, firstly, I have tosay that it has caused me a great deal of concern thatthere was such misunderstanding about how thedecision was taken. I think we need to be very clearthat the decision was not taken by the then AttorneyGeneral, Peter Goldsmith, but the decision wastaken by the Director of the Serious Fraud OYce.We also need to be very clear that this issue has nowbeen dealt with at the highest possible judicial levelby the House of Lords, and the House of Lords saidvery clearly that this was a decision which shouldhave been taken, and they aYrmed the thinking andthe approach taken, by the Director, so I think thatis certainly a lesson which we can take from it interms of how to approach these issues. I think thesecond issue is that we need to have much clearer lawin relation to bribery and corruption and that is whyI very much welcome this Bill because this Bill doesprovide the clarity that we will need and, if I may sayso, a level of simplicity of approach which meansthat some of the worries and concerns which arose inthe last case of BAE are unlikely to come again. Iknow that you will be thinking of the fact that therewas an argument as to whether the oVence was itselfmade out because of the issue between agent andprincipal. Well, there is no agent and principal in thisBill and that is a way of removing that anxiety in away that is proper.




Q643 Linda Gilroy: One of the criticisms was in theapplication of the Shawcross procedure aboutconsultations with government ministers and thatthat may generally not be appropriate in foreignbribery cases.Baroness Scotland of Asthal: Well, I think the mostimportant thing about the Shawcross exercise is thatit must be right for anyone who has the burden oftaking that decision in the public interest to betterunderstand the consequences of it, from theGovernment’s point of view, before making thedecision. The truth is that those who are mostintimately knowledgeable about the dangers andanxieties of national security issues will be theGovernment of the day. They will be the people whowill know, and have access to, the most informationand it must be right that that view, the view of theGovernment of the day, is in some way conferred orgiven to the individual who is entrusted to make thedecision. The decision still ends up having to be whatis a legal decision made by a lawyer, and I know lotsof people do not like that, but at the end it is adecision that a lawyer has to make as to whether it isin the public interest to pursue a prosecution, andthey can only do that in terms of national security ifthey actually have some idea of the anxieties andreality of what those consequences will be and thepeople who have that information will be thoseintimately connected with Government.

Q644 Linda Gilroy: One of the criticisms they madewas that they were not convinced that theprosecutorial authorities looked suYciently at thenational security justifications and, just generally,that the whole way in which alternatives toterminating a case have been considered wereinsuYcient. Do you see any way in which that can beaddressed or do you think it should be addressedand, if so, within the context of this legislation orwithin the protocols?Baroness Scotland of Asthal: Well, I hear what theOECD said, I obviously listened to it carefully, andI read what they said, but I also looked at what thehighest court in our country said about the way inwhich that decision was made in the House of Lords,and I drew some comfort from their assessment as towhether the national security issues were well-founded or not.

Q645 Linda Gilroy: So it sounds as if that is going toleave disagreement with the OECD because, ratherthan having their fears allayed, they have actuallyexpressed the view that the House of Lords’ decisiondoes not allay their concerns and has intensifiedthem, if anything.Baroness Scotland of Asthal: Well, that then is verydepressing indeed.Chairman: I think we had better come on to anotherinternational aspect: what about the securityservices?

Q646 Linda Gilroy: The last Joint Committeerecommended narrowing the authorisation powersso that it could be applied only to bribes paid toprotect UK national security or in order to help

detect serious crime, but this draft Bill is broadenough to allow the use of bribes to protect the UK’seconomic interests which, as I say, was opposed bythe last one, so can you comment on how serious thedanger is that introducing a statutory power toauthorise bribery by security services will put theUK in breach of its international obligations not justto the OECD, but to the Council of Europe and theUN, and should we in fact be dropping clauses 13and 14?Baroness Scotland of Asthal: I do not think thatclauses 13 and 14 will do that. I think the way inwhich this Bill is structured is very clear, that, if youattempt to bribe in order to get advantage in relationto business, that is prohibited, and I think it isextremely clear. Clause 13 allows the Secretary ofState to authorise conduct which amounts to ageneral oVence of bribery under clause 1 or 2,including inchoate oVences, but he may not give anauthorisation for conduct amounting to an oVenceof bribery of a foreign public oYcial under clause 4,including an oVence under clause 1 which would alsoamount to an oVence under clause 4. I think thisreally does address the concerns raised by the JointCommittee in relation to, in particular, compliancewith the United Kingdom’s obligations under theOECD Foreign Bribery Convention and acceptedby the Government at the time because the OECDConvention is concerned with bribery of a foreignpublic oYcial in international business transactionsand, since the Bill does not allow the authorisationof conduct amounting to bribery of a foreign publicoYcial in an international business transaction,there is, and can be, I think, no infringement of theConvention. None of the relevant internationalinstruments, the OECD Convention, the UNConvention on corruption, the Council of EuropeCriminal Law Convention, contains any expressexemption for the activities of security andintelligence agencies, but I think there is an acceptedview that States are allowed to take such measures asare necessary to protect national security and,therefore, it is permissible to conduct overt lawenforcement operations which, we have alreadyacknowledged, involve actions that would otherwisebe unlawful.

Q647 Linda Gilroy: So, if I understand correctlywhat you are saying, you are arguing that the law, asproposed, also narrows the existing power, but, inthat case, why do you think that the Legal Directorof the OECD describes the clause as possibly theonly law in the world that would sanction bribery,and what can be done about that?Baroness Scotland of Asthal: With the greatestrespect to them, we have to separate the two things,what someone says and what is correct. Now, all wecan do is to look objectively at what the law is thatwe intend to create and whether we are clear thatthat satisfies the criteria which the OECD has setout. We would argue that this does. I actually thinkthat this is a really good Bill because it cures a lot ofthe quite trenchant, diYcult and knotty problemsthat we had before and it cures them in quite a simpleand straightforward way which makes it quite




diYcult for people to misunderstand it. Now, I doaccept that, in articulating what we are doing now,we are going to have to argue with the OECD witha greater degree of precision to help them to betterunderstand this Bill, but I do not accept that theiranalysis in relation to the way in which our lawoperates is correct.

Q648 Linda Gilroy: Well, on the one hand, you aresaying it makes it diYcult to misunderstand, but, onthe other hand, you have got somebody in theposition of being the Legal Director of the OECDeither misunderstanding it or simply taking adiVerent view on what it means.Baroness Scotland of Asthal: Well, all I can say toyou is that I believe that we are right.

Q649 Chairman: Baroness Scotland, could we go onto another slightly contentious point, that into thisBill there has been inserted the whole question ofparliamentary privilege and it is not, as it were, astand-alone point in terms of bribery. Do you thinkthat it is sensible to have this clause in the Bill ratherthan to deal with it in a more probabilistic way and,presumably, allow a good deal more discussion thanis going to happen under this Bill itself?Baroness Scotland of Asthal: I think it is sensiblebecause we have been looking at this issue for quitesome time, as you will know, Chairman, so it is notas if we are being precipitate in seeking to grapplewith it, but we have been trying to grapple with it forquite some time. You will know that there has beencriticism in the past that we have not dealt with thisaspect of it, so this is an attempt to do that which ispossible. It is also, I think, right for us toacknowledge that there has been no recent case of anMP or a peer seeking to behave in a way that wassanctionable with parliamentary privilege being animpediment to pursuing those issues, but I think wehave to strike a balance, a balance betweenprotecting the right of freedom of speech ofParliament and removing what could potentially bean undesirable impediment to prosecution of an MPor a peer. The possibility that parliamentaryprivilege could protect a corrupt MP or peer reallydoes undermine public confidence in Parliament as awhole, and I think in the past we have been able tolook at this as a much more theoretical issue. Publicconfidence is of the utmost importance if we aregoing to be able to have a democratic system whichpeople respect. It would be a very diYcult thingindeed if we were left in a position of saying thatthere was evidence which is available which mightassist in a significant way a prosecution, but, becauseof parliamentary privilege, we were debarred fromusing it and, therefore, parliamentary privilege hadbeen a cloak with which a Member of Parliament, beit in the Commons or in the Lords, had been able tocloak themselves to avoid proper prosecution; Ithink, particularly at this time, that would sit very illindeed. However, I think there is also a wider issue,and I understand those who say this: why shouldthere be a stark diVerence between an MP and a peerand somebody who comes to give evidence before aSelect Committee, and should they not similarly be

able to be subject to the provisions of this Bill? Icertainly understand that argument, but what Iwould say is that it is probably incumbent upon usto do that which we can do, if we can do it, when wecan, and that this is a perfectly proper opportunityfor us to try and right what might be an unfortunatewrong if we come to a prosecution and we aredisentitled or disabled in the way I have justindicated.

Q650 Lord Lyell of Markyate: Can you give apractical example of a case where this really couldhappen? Is there any identified case to date whichhas ever been frustrated by parliamentary privilege?Secondly, in the other OECD countries, do they havefreedom of speech in their legislatures and have theytaken statutory measures against it?Baroness Scotland of Asthal: I think, firstly, of coursefreedom of speech will still be absolutely there in ourParliament because we are talking about someonewho does something which is corrupt, so where theysay something in Parliament which is evidence ofthat corruption to which we cannot have access, soyou could have a situation where various statementsare made in Parliament which indicate that thatindividual knew something which subsequently theydeclaimed that they did not know, but you cannotuse it in proceedings because parliamentary privilegewould prevent you from getting that information,putting it into evidence and saying, “This is whatyou said in a parliamentary debate on the blank dayof blank when it was absolutely clear, from what yousaid at that stage, that you knew the followingfacts”. Now, I cannot point to any cases in the recentpast where parliamentary privilege has preventedthat happening. Can I anticipate that there may becases when that may happen? Yes, I can, but theemphasis is on corruption, it is not preventing peoplefrom saying whatever they want to say in a bona fideway and exploring debates; that is not what we aretalking about. We are talking about someone doingsomething which is corrupt, for which they shouldbe brought to book, and they make comments in theHouse which demonstrate that there is evidence ofthat, but we are not able to use it because it is coveredby parliamentary privilege. I think it is somethingwhich is more pressing perhaps than it has been inthe past, so it is impossible for us to ignore theanxiety that there is about this issue.

Q651 Chairman: But there is a diVerence though inthis clause as between Members themselves andothers involved as possible witnesses.Baroness Scotland of Asthal: There is indeed.

Q652 Chairman: Is that justifiable?Baroness Scotland of Asthal: Well, that is why I sayI understand that there is an issue in that regard, andI do understand those who say that, if this shouldapply in relation to MPs and peers, then surely itshould also apply to those who come before selectcommittees and give evidence, evidence which maysubsequently, for whatever reason, seem to becorrupt. I understand that argument, but I alsounderstand the argument that goes that we want to




encourage as many people as we can to come andgive information before select committees and thatthis might have a chilling eVect. It is quite diYcult, isit not, because do we want those who want to comebefore committees and lie and cheat and say corruptthings to be chilled. Well, we probably do, but do wewant those who are honest, upright and haveintegrity to come forward? Absolutely, so I think itis a diYcult issue, but I do think that it is notcontrary to human rights for this provision toremain and I do think it is an opportunity for us tograpple with it. Nothing of course in this Bill wouldprevent someone saying, “That which I said wastrue” and calling evidence to that eVect, all of thoseissues remain the same as available to them, so, evenif someone else gave evidence for them in a debate,you could still call that evidence before a court to sayexactly what was said in the House.

Q653 Mr Cox: Baroness Scotland, the example youused of the MP, who is accused of corruption andwho very simply could not have identified a conflictwith something that he may have said, is of coursequite a simple example. You are not suggesting bythat that there has to be a prima facie case beforeevidence of parliamentary proceedings could beused, are you?Baroness Scotland of Asthal: No, what I am saying isthat at the moment anything said in Parliament ofany sort, no matter how important, no matter howuseful on an evidential basis, you simply cannot usebecause it is—

Q654 Mr Cox: Forgive me, I am aware of that. Theway you put your contention in relation to the factthat a very ancient privilege should be discarded wasto suggest that there may be a simple factual pointwhich could be disproved by a reference toparliamentary proceedings in order to provecorruption, but the truth is that there is norequirement to have a prima facie case beforelooking to parliamentary proceedings to prove acase of bribery, is there?Baroness Scotland of Asthal: No.

Q655 Mr Cox: So what you might get is thecombing, by prosecutors, through every word that aMember of Parliament has said during the course ofa period of a time in Parliament in order to come upwith prima facie evidence of the case of corruption ifthere is suspicion, so that is the first point. It couldbe quite an extensive trawl, could it not, throughparliamentary utterances to see whether or not hehad been inclined in one direction or another by apayment which may be suspected?Baroness Scotland of Asthal: I think that is highlyunlikely. What you are looking at is where, if aprosecutor were seeking to establish that someonehad behaved in a corrupt way, they would be lookingfor a specific instance or a specific fact which mighthelp to elucidate that, and I do not think we aretalking about going on a general fishing exercise foreverything that anyone had ever said, not leastbecause Members of Parliament are known forwanting to express themselves quite fully, over a

period of time. Just in terms of the volume, I thinkyou would be looking with a degree of acuity at aspecific issue to see whether there was somethingthere and I do not think it is likely to be—

Q656 Mr Cox: I am not, forgive me, convinced bythat, as somebody who has prosecuted and defendedfor many years in the senior courts. I think it is quitelikely that what will happen is that the prosecutorswill examine what an MP has said to see whetherthere is evidence of inclination in relation to theconcern, person or body that has been accused ofbribing him, and I think the danger is that one willsee quite a considerable examination of an MP’swords, but perhaps I can put another point to you,which I do not think has been put squarely to you,about the diYculty with this. In interpreting thewords of a Member of Parliament, context can oftenbe everything, can it not, and, if you are notpermitted, and I think this is the point which isaddressed in our brief, to produce evidence of whatother Members of Parliament may have said andeven the immediate context of the words that arebeing used in court against the Member ofParliament, how can it possibly be fair?Baroness Scotland of Asthal: That is why I say thatthere is still nothing to prevent somebody callingthat evidence. You can call any evidence you like, asa defence counsel, and you will know that as well asanyone, so, if there are individuals who, you feel,could put what was said into better context or if youfelt that the prosecution was seeking in some way todistort or misuse the comments made in the House,then it is absolutely open to that individual to callevidence from other people to say what happened.

Q657 Mr Cox: But you cannot use the Hansard.Baroness Scotland of Asthal: No, but you can call theevidence.

Q658 Mr Cox: So he would have to call, what, tenor fifteen Members of Parliament in the course of thedebate possibly to say, “Well, I said this in the Houseand then he said that”. How on earth would thatconceivably work?Baroness Scotland of Asthal: But I also think thatthere is a premise in this that somehow theprosecutor would not do their duty without fear orfavour and would not take into account the contextin which it was said, and that is why, if we come backto our earlier debate about consent, consent is very,very important.

Q659 Mr Cox: But there may be legitimatedisagreements. You will have spent your lifedisagreeing with opponents on the other side whohave taken a diVerent view, construction andinterpretation of words used; that is what we do.Baroness Scotland of Asthal: But let us be very clearabout what we are talking about. If it is asserted thatan MP has behaved in a way contrary to the Act, aswe set out in this Bill, that is an extremely seriousallegation, and you will know as well as I that, whenyou come to prepare for those cases, you will preparevery carefully indeed, that the prosecutor will have




to apply the Prosecutorial Code in relation to boththe evidential test and the public interest test andthat all these issues which you, quite rightly, identifyare things which the prosecutor has to satisfy himselfabout before they would be able to persuade theDirector or, if I still had the consent, the Attorney ofthe day that these issues were justifiable and meritedpursuit. I can assure you, as I am sure would LordMayhew and Lord Lyell who have been similarlyburdened with the job of making these consents, thatwe take that very seriously indeed, so what youwould have to have, in eVect, is an incompetentprosecutor who is poorly supervised, poorly directedand does not understand their job.

Q660 Mr Cox: So the case is that we have to havefaith in the Attorney General of the day?Baroness Scotland of Asthal: I think we have to havefaith in the Attorney General of the day or theDirector who is going to be entrusted with this job.

Q661 Mr Cox: So we are replacing a privilege of 300years’ duration by resting upon the good fortune ofhaving a woman or a man of good sense in apublic oYce?Baroness Scotland of Asthal: It is not just good sense.It is a case of judgment, real judgment. I do not thinkanyone in this room will misunderstand me when Isay that if a prosecution of this sort were to bebrought one would have to be jolly sure that it wassound, and it would not be taken lightly.

Q662 Lord Lyell of Markyate: Corruption is quitewidespread, I do know, in a number of OECDcountries in quite small ways, perhaps to do withtransport. Somebody making a speech who owned atransport company and explained this might laythemselves open to similar fact evidence. Is this thesort of thing you are balancing and who demandedthat this section go in the Bill?Baroness Scotland of Asthal: The issue in relation toparliamentary privilege is something which, as Iindicated earlier, we have been debating for quite along time. I remember when there was the lastBribery and Corruption Bill there was a similar issuein terms of parliamentary privilege and how itshould work and whether it should go in or not, soI think it has been an issue which has been identifiedand an issue which a number of people have thoughtneeds to be addressed for quite some time. Theproblem in relation to similar fact evidence I thinkbleeds very much into the last set of questions thatwe have had. It again comes down to the legaljudgment as to whether the evidential barrier isovercome. I do not think that it is something whichwe can simply put to one side. I think there is adecision as to whether we grapple with it or not. Iunderstand everything that has been said about theimportance of it, I understand the anxiety about it,but I also think it is something that we cannot runaway from. We are talking about what steps we needto take in order to create a culture in which corruptpractices no longer prevail. I do not suggest for onemoment that we do not have a very proud history inthis country, both in the Commons and in the Lords,

notwithstanding our recent troubles, in relation tointegrity and good conduct. Nothing that I have saidshould detract from my genuine belief that we have,both in the House of Commons and in the House ofLords, much to be proud of, even in these troubledtimes.

Q663 Chairman: Nevertheless, Lady Scotland, yousee what I mean about the possibility of mens?Baroness Scotland of Asthal: I do; I do indeed, myLord Chairman.

Q664 Dr Iddon: The main oVences in clauses 1 to 3can carry terms such as breach of an “expectation”of “good faith”, “impartiality” and “trust”, alldetermined, of course, by what a “reasonableperson” would expect. Are you content, LadyScotland, that those terms are suYciently clear andpredictable?Baroness Scotland of Asthal: I think I am. You haveheard evidence from the prosecutors themselves. Ithink these are terms which are generally understoodand accepted and I do not think the prosecutorsthink that they are going to have very much troublein relation to them. I think they are sound.

Q665 Dr Iddon: Do you think they might catch anyconduct that should not be considered criminal,including minor torts or breaches of contract?Baroness Scotland of Asthal: I do not think theyshould because there is a clear divide in the way inwhich the Bill is structured to diVerentiate conductwhich is to facilitate and promote business in acorrupt way. I think it is very clear. I do think youcan diVerentiate between ordinary entertainmentand other proper activities. I do not think there willbe very much diYculty. A lot of this Bill, as youknow, will depend on prosecutorial discretion andthis is an area which I understand the Director ofPublic Prosecutions was quite clear about, as was theSFO, that neither of them think that this would beproblematic.

Q666 Dr Iddon: The present law, of course, containsreference to acts done “corruptly”. Bearing in mindmy previous questions, do you think the Bill underconsideration today is an improvement on thecurrent one, and, if so, perhaps you could explainwhy?Baroness Scotland of Asthal: I do think it is animprovement. The current position has given rise toa number of issues about whether dishonesty isinvolved and how it could come into play. The way inwhich we have structured the Bill now I think gives avery clear understanding of that which is permissibleand that which is not, and, as someone who has beenlooking at this issue for a long time, it is almost apleasure, if I may say so, to look at it because you canunderstand it. When you look at this Bill you knowexactly what is caught, I think, and what is notcaught, so I do think that is a marked improvementfrom where we have been.




Q667 Dr Iddon: The active bribery oVence in clause1 requires knowledge or intention to be proven. It isnot the case with the passive bribery oVence in clause2. Could you give us your justification for why thereis that diVerence and is it fair to impose “strict”liability for a serious crime such as bribery?Baroness Scotland of Asthal: I really do share theview of the Law Commission and the way in whichthey have approached this issue because they havesaid that R’s knowledge and intent should beimmaterial as to whether an oVence has beencommitted in cases 4 to 6, as provided by subsection(7). I agree with that, because R is really going to bein the best position to understand the duties that heor she is under and it will be possible for them toavoid liability on the grounds of lack of mens reabecause they can say, “I just didn’t know”, whereas,in fact, they will be the people who are most likely toknow what the job was. I do not regard this as a strictliability oVence because under sections (1) and (2)the person giving an advantage to a foreign publicoYcial must intend to influence the oYcial in his orher capacity as a foreign public oYcial as well asintending to obtain or retain the business oradvantage of the conduct of the business. If thedefendant has the necessary intention under bothsubsections (1) and (2) it really is diYcult to see howhe or she could oVer, promise or give an advantageto an oYcial without intending to do it. I think itwould just be very diYcult to do that. If, forexample, receipt of the money was a genuine mistakethe prosecutor would be able to take this intoconsideration when deciding whether to bring aprosecution or not, but a case will only be prosecutedwhere there is suYcient evidence that an oVence hasbeen committed and prosecution is in the publicinterest. I think that shift is very clear and the LawCommission, frankly, got it right.

Q668 Mr Cox: I am slightly concerned about that,Attorney General, because, as I understand it, if Iam an employee and I accept a financial or otheradvantage, if somebody else intends that I should beaccepting it as a reward for the improperperformance of my duty I could be guilty although Imay have no intention of improperly performingmy duty.Baroness Scotland of Asthal: No, but as a publicoYcial you will know whether it is permissible foryou to take additional monies; you will know that.

Q669 Mr Cox: Yes, but if I have no intentionwhatsoever of carrying out my duty improperly whyshould that not be at least a part of the defence, if nota defence?Baroness Scotland of Asthal: The act of taking themoney is an act which makes your exercise improper.You will know you are a public oYcial, you are a civilservant. You receive wages, you have got a code ofconduct, you will know perfectly well that you arenot entitled to take money in order to carry out yourjob even if—

Q670 Mr Cox: But this does not only apply to civilservants, does it?

Baroness Scotland of Asthal: No. It applies topublic oYcials.

Q671 Mr Cox: Or anybody else, not just publicoYcials.Baroness Scotland of Asthal: It is the person it is inrelation to.

Q672 Mr Cox: I could be an estate agent. I do nothave to be a public oYcial with a code of conduct. Icould be in any walk of life.Baroness Scotland of Asthal: If we look at the way inwhich you carry out your job, if you look at (1), itsays, “A person (‘R’) is guilty of an oVence if any ofthe following cases applies”, so we look at (2), “Case3 is where R requests, agrees to receive or accepts afinancial or other advantage intending that, inconsequence, a function or activity to which section3 applies should be performed improperly . . . ”, sothat is quite clear. It would be very diYcult to see, ifthose facts are made out, how it could be said thatan oVence has not occurred. If we look down at (7),which I know is what you are anxious about, it says,“In cases 4 to 6 it does not matter whether R knowsor believes that the performance of the function oractivity is improper”, but if it is made out in 2(2) thenthat is perfectly understandable.

Q673 Lord Sheikh: We have talked about mens rea,we have talked about strict liability, but especiallywith regard to any oVence possibly having been doneoverseas can you envisage problems in regard toinvestigations there?Baroness Scotland of Asthal: I hope that there willnot be problems in relation to investigations. Youwill know that we already have joint investigationswith a number of countries. It is certainly going to bevery important for anybody doing business tounderstand what the law is in relation to the givingof money in these terms in those other countries, andthat is why I think it is going to be of criticalimportance for anyone who does businessinternationally to understand precisely what is or isnot permissible within the law of the country inwhich they wish to do business because it will be thecase that if they do give money, which they are notentitled to give within the law of that country, thenthey will lay themselves open to possible prosecutionin relation to these oVences.

Q674 Baroness Whitaker: Is it not the case, AttorneyGeneral, that if one wanted to change a culture ofcondoning petty bribery it would be really importantto have these absence of mens rea provisions just tomake it absolutely clear that advantages, financial orotherwise, were simply out of the question in relationto the job you perform?Baroness Scotland of Asthal: I think that isabsolutely right, if I may say so. The whole importof this Bill is to bring about a change in culture tomake it wholly unacceptable to take bribes and toengage in corrupt practices. We are saying to people,in essence, “You do this at your peril”. The wholeimport of the Bill is to change the culture and youhave absolutely put your finger on it.




Q675 Baroness Whitaker: The OECD representativeadmitted that this provision, “legitimately due”, wasonly in at the insistence of the Americans and thatseveral countries with perfectly reasonablelegislatures had not seen fit to have it in. At the veryleast he agreed that we should perhaps have “writtenlaw”. We have had some examples of the kinds oflegal entitlements which might exist. I must say theylook pretty woozy to me, but do you see anydisadvantage in qualifying “legitimately due” bysaying “written [explicit] law”?Baroness Scotland of Asthal: I think I can see thatthere is perhaps advantage. “Legitimately due”, inour view, would cover written law, includingstatutory law, regulations and case law. If by“written law” you included all of those I think that isreally what we are talking about. We are not talkingabout custom and practice, which is not written ornot clear because, of course, that can be veryvariable, so for an advantage to be legitimately duewe would think that it should mean written law withthe qualifications that I have added.

Q676 Baroness Whitaker: So there would be noproblem if the word “written” were added because,of course, there are some ideas that in common lawjurisdictions what is not prohibited is allowed andthere are other ideas that if you have something in alegal contract which allows bribery then it islegitimate. Would it not help just to have the phrase“written law” so that it was the law of the land?Baroness Scotland of Asthal: We would expect thecourts to interpret “legitimately due” in the way youhave just expressed, so it may be that clarification ofthat might be helpful, but I would probably want togo slightly further than just saying “written law” incase someone suggested that it included statute butdid not include regulation or did not includeprecedents in case law. I think we would have to beclear that we are talking about an established bodyof law which is recognised in that country and we arenot talking about custom and practice, becausesometimes the custom and practice can be prettycorrupt.

Q677 Lord Williamson of Horton: Some of ourwitnesses have suggested we should take outaltogether “legitimately due” because of some of theproblems of the interpretation. Others have repliedthat if you do that you are in fact leading to asituation where you would be criminalising perfectlylegal activity like applying for an operating licence.Would you like to comment on that point as we havehad evidence on it?Baroness Scotland of Asthal: I think “legitimatelydue” is legitimately due to be included, to be frank.It does give us a degree of clarity. It accepts thereality of the situation that there are those benefitsthat are legitimately due to individuals engaged inthis practice, and it is only right and proper that thatshould be recognised, in a way, to diVerentiatebetween corrupt practices and those which areperceived and accepted by everyone as being lawful,right and proper, and thereby, if I can use the term,legitimately due. I think I would leave it in.

Q678 Martin Linton: Turning to the “reasonablebelief” defence, in this case where the LawCommission has got it wrong, or seems to havedone, do you feel happy with the position that“reasonable belief” should not be acceptablebecause it is a way of accepting ignorance of the lawas an excuse?Baroness Scotland of Asthal: I understand what theOECD’s anxiety was in relation to this. To go backto the question that we just had beforehand, it isabout changing culture, and how do we moreeVectively and clearly change that culture if we puton the face of the Bill a defence which could be usedas you have just described? The OECD indicated intheir discussions with the Law Commission that theydid not favour this kind of defence but it might beacceptable. They did not say, “No, you can’t do it”;they just said it probably was not a consummationdevoutly to be wished, and if the defendant wasrequired to show due diligence in seeking to discoverthe true legal position that might help. For instance,I could imagine that if that was included that wouldperhaps have made the Law Commission’s defenceeasier. I do know that this is causing anxiety becauseit goes in two ways. One, we want to make it clearthat this is now drawing a line in the sand, thatpractices which were corrupt in the past and mighthave been winked at will not be winked at again andthat people need to be on their guard. On the otherhand, there is an anxiety that if you do not have adefence you are falling back, to come back to theconversation we were having earlier, onprosecutorial discretion, and there is an issue onprosecutorial discretion because, of course, aprosecutor cannot exercise his or her discretion to dosomething which is totally contrary to the law. Forexample, if you had a situation where someone wasgoing to work in another country and they tookcogent advice, they believed, from some of the mosteminent lawyers they could find, perhaps someoneon this Committee, who has lots of experience onprosecutorial matters, and they were told, “It’s fine.This is absolutely lawful”, but for some reason thatperson made a mistake so that they acted in a waywhich was contrary to the law of the country inwhich they were held, they would be caught by theprovisions of this Bill and there would be, on the faceof it, no defence. The only way you could deal withit would be to try and look at it in terms ofprosecutorial discretion. Is that really the correctway of doing it or would you not have to prosecutethe person and then deal with it on sentencing? I cansee that there is a real anxiety about that matter, butthe way in which the Bill is put forward is in order togive clarity and to try and push the agenda on interms of change of culture.

Q679 Martin Linton: Is it part of the purpose as wellto put pressure on foreign countries to clarify theirlaw so that exporters, contractors, are left in nodoubt about what is legal in their terms and whatis not?Baroness Scotland of Asthal: It also puts a lot ofpressure on the companies, particularly the bigcompanies, to make sure they do make proper




inquiry and discover what is the legal position in avery concrete way before they act. It puts pressure onboth sides, I think.

Q680 Mr Cox: But in some of these countries therewill not be an established legal system; there will notbe lawyers like that. What do you do there,Attorney General?Baroness Scotland of Asthal: That is one of thetesting issues now in terms of why we say the writtenlaw. There has to be law. The question is, if youcannot do business with those people because thereis no basis upon which you can give money, then youcannot do business.

Q681 Mr Cox: Bad news for the country.Baroness Scotland of Asthal: It is a sad day, is it not,if we were to say, “You can’t do business savecorruptly?” There is always an opportunity for youto do legitimate business in a way that is clear,transparent and open.

Q682 Lord Lyell of Markyate: Change of culture isvery important in some areas, but you do not do thatby producing a law which is perceived to be unjust.That is the context of the “reasonable belief”defence. It is a very serious question, is it not?Baroness Scotland of Asthal: I think it is a veryserious question. I do think though that the way inwhich the Bill is currently structured is fair and itdoes enable those who have behaved properly toknow precisely what will be done in relation to theiract and they can be confident that if they havebehaved properly they will not fall foul of this Bill.If we had thought that this Bill could not be fairwithout the Law Commission’s “reasonable belief”defence we would certainly have put it in, but we dothink that the OECD’s anxiety about this kind ofdefence was well-founded.

Q683 Lord Goodhart: Lady Scotland, let me ask youthis. Under clause 5 one of the conditions that has tobe satisfied for the prosecution is to show that aresponsible person was negligent in failing to preventthe bribe. What is the duty of care that gives rise tonegligence, because you cannot have negligencewithout a duty of care?Baroness Scotland of Asthal: As you know, theproposal for a negligence requirement coupled witha due diligence defence which was arrived at by theLaw Commission after really carefully consideringall the options. In my view it represents a balancedsolution to the problem of the removal of oneelement; that is the negligence requirement, whichwould threaten that balance, because you weretalking about, I think, in terms of whether we shouldhave negligence or gross negligence.

Q684 Lord Goodhart: “Gross negligence” I thinkwould be dreadful. I think it would defeat the wholepurpose of the Bill. Anyway, go on.Baroness Scotland of Asthal: I think the importanceis that negligence is a well-established concept.Everyone is familiar with it in terms of the businesssense. It is an opportunity, therefore, to apply it with

the greatest degree of ease and I do not think itwould be necessary to define it because the ordinaryprinciple with which we are familiar would becapable of operating in a way that makes good sense.

Q685 Lord Goodhart: But negligence must include afailure to put into force adequate procedures toprevent bribery?Baroness Scotland of Asthal: Yes.

Q686 Lord Goodhart: Does that not mean that whatis happening here is that you end up by saying that afailure to set up adequate procedures is both a matterwhich has to be proved by the prosecution underclause 5(1)(c) and is a defence under clause 5(4),which has to be proved on the balance ofprobabilities by the defendant?Baroness Scotland of Asthal: The prosecution aregoing to have to prove that they failed in their dutyand produce evidence as to what was reasonable inthose circumstances. I suppose it is going then to befor the defence to say, “No, you have got thatentirely wrong. In fact, what we did was whollydefensible and entirely proper on the balance ofprobabilities”. I can see that you are saying, if wehave to prove it beyond reasonable doubt and theyonly have to prove it on balance of probabilities dothey then succeed? As I am rightly reminded, if welook at clause 5, it is probably the diVerence betweena responsible person who is negligent at 5(1)(c) andthe company who is negligent, and that diVerence isquite important.

Q687 Lord Goodhart: Why is it necessary to provethat a responsible person has been negligent? Is it notobvious that if the company has no adequateprocedures in position you do not really need toidentify who the individual or individuals are whoare responsible for that?Baroness Scotland of Asthal: I think you still would,Lord Goodhart, because if you are looking at the“relevant commercial organisation” you have toestablish that if the person “performing services forand on behalf of C bribes another person” the bribewas connected with the business and the“responsible person, or a number of other suchpersons taken together, was negligent in failing toprevent the bribe”. I do think you have to proveboth.

Q688 Lord Goodhart: Why do you have to identifythe individuals who are responsible for thenegligence? If there is a failure to set up adequateprocedures that is in itself negligent, surely. You donot need to go and look through the company’smanagement and say, “X is responsible for this andY is not”. Why not just abandon the need to showwho is the individual who is responsible, and say,“There is a failure here. We do not need to knowwhich individuals are concerned. There appears tous to be a failure and it is up to the company to say,‘We did have adequate procedures’.”?Baroness Scotland of Asthal: I think when they werelooking at it they were probably looking at it interms of having to establish that there was someone




in the company with that responsibility. I do see thepoint you are making. It would make it even moreonerous than that which we have currentlystructured for the company.

Q689 Lord Goodhart: It would, but rightly, surely? If5(1)(c) has to be satisfied there are going to be veryfew prosecutions that succeed, or a reduced number.Baroness Scotland of Asthal: I see what you say. Ithink you are a harder man than we, Lord Goodhart,in terms of this oVence, but I am certainly happy totake that away and think about it.Lord Goodhart: Thank you.

Q690 Chairman: Lady Scotland, corporate liabilityis going to be the subject of a completely diVerentBill and I think we do need to satisfy ourselves thatwhat we have got in here is workable.Baroness Scotland of Asthal: I think what we havehere is workable, but what the noble Lord Goodhartis suggesting is that we should be even moretrenchant in the way we deal with it, which is anothermatter. The way in which this Bill works, LordGoodhart will probably acknowledge, means that itis workable. All he is suggesting is that it would beeasier to prosecute more people if we were to changeit and make it even more trenchant in the way inwhich it has been expressed.Chairman: I knew this was going to happen. We aregoing to lose our quorum.

Linda Gilroy: There is a statement on nationalsecurity.

Q691 Chairman: I quite understand. I did want toget on to question 14 because everybody has saidthere should be guidance on the main oVences, it isvery important. I do not know how it would work atthis point.Baroness Scotland of Asthal: My Lord Chairman,would it be helpful if I were to provide a writtenanswer in relation to that matter? Would that helpthe Committee?

Q692 Chairman: I think it would be very helpfulindeed because, to start with, who would do it?Secondly, how would it be admissible in a trial? Itwould have to have some status. The Americanshave an entirely diVerent system. Nevertheless,everybody thinks it is lovely if you can get guidanceon which you can then rely and I think thepracticalities of that would be very diYcult.Baroness Scotland of Asthal: I think it would be verydiYcult and I am very happy to amplify my evidenceby giving written answers, and, if I may, I will alsogive a written answer in relation to Lord Goodhart’sintriguing suggestion.Chairman: Thank you very much indeed foreverything you have been able to tell us. It has beenextremely helpful in every way and has greatlyadvanced our deliberations.

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Written evidence

Memorandum submitted by Professor Jeremy Horder (BB01)

This is a note from Professor Jeremy Horder, Law Commissioner for England and Wales. I wasresponsible for the Law Commission Report, “Reforming Bribery” (Law Commission No 313) which ledto the draft legislation currently being considered.

It may assist the Committee, and save time, if I make some comments on a few diVerences between theGovernment’s draft Bill, and the Law Commission Bill (“the Lawcom Bill”). I apologise if these commentsseem to appear in a somewhat random order.

General Comment

1. The Commission is delighted that its recommendations, that followed wide consultation, have beeninfluential in shaping the current Bill to the extent that they have.

Clause 4 (bribing a foreign public oYcial)

1. This clause, which otherwise closely follows the Lawcom Bill, omits the excusatory defence (LawcomBill, clause 5) to this oVence that the Commission recommended.

This defence would have applied when the accused (the burden of proof being on him or her) mistakenlybut reasonably believed that making the payment was lawful, where his or her reasonable belief followedthe taking of steps to ascertain the legal position.

“Ignorance of law is no excuse” is a well-known maxim, but the maxim refers, of course, to the law ofone’s own country, not to the domestic law of another jurisdiction (“Ignorance of the law might be anexcuse” would be a better maxim in the latter case). The Law Commission concluded that, in fairness tobusinesses and individuals, perhaps seeking to do a particular kind of business in a country for the first time,they ought to be excused conviction for so serious an oVence as bribery when, for example, they had beengiven legal advice from UK lawyers that making a particular payment was lawful in that country.

However, I perfectly understand the reasons that the Government has omitted this clause (clause 5) of theLawcom Bill. During our consultation, it proved unpopular with both the OECD and anti-corruptiongroups. Some members of the judiciary, whilst sympathetic to the aim, were uneasy about departure fromthe “ignorance of the law is no excuse” maxim.

For our part, (a) we could not see how the excuse would be abused, given the stringent test for satisfyingit, (b) we thought it would be likely to arise only rarely, and (c) we thought that it did something to strike abalance between the need to combat bribery with firm action, and the need to ensure that both companiesand individuals were not unfairly labelled as, in eVect, “corrupt”, when they had only done what theyreasonably believed to be perfectly lawful in the country in question.

There are no easy answers. I merely wish to highlight our contrary view on this diYcult issue.

Clause 5 (failure of a commercial organisation to prevent bribery).

1. Whose negligence counts? To commit the oVence under clause 5, a commercial organisation must“negligently” fail to prevent bribery by one of its employees or agents anywhere in the world. Whosenegligence matters?

The Lawcom Bill [clause 7(1)(c)] spoke of the negligence of, “any person…connected with or employedby [the business], whose functions…included preventing [relevant persons] from committing [bribery]oVences”. The Government’s Bill replaces this [clause 5(1)(c)] with a reference to negligence on the part of“a responsible person, or a number of such persons taken together”.

I believe that the Commission’s original clause 7, referring to “any” person, could have been read so asto produce the same result as in clause 5(1)(c). The Government’s Bill is obviously clearer on the point. Thepoint is that a number of individuals within a firm (perhaps one or more here, and one or more in a foreigncountry where the bribe is oVered) may, through their conduct, collectively contribute to what amounts toa culpable failure to prevent that bribery.

In practical terms, there may be advantages (as well as disadvantages) to the prosecution in alleging thatthe conduct of more than one person in the company contributed to the commission of bribery. It meansthat the company in question cannot perhaps quite so easily seek to retain shareholder and market credibilitysimply by hanging one individual out to dry, possibly dismissing them for negligence in advance of the case,having heaped all the blame for what happened on that luckless individual. In some countries, there havebeen concerns that prosecutors are prone to accept such action, in lieu of prosecution, which may not servethe public interest. Taking such a “multi-party” course, in prosecuting, also makes more likely the fulfilmentof the prosecutor’s “dream ticket”, where those giving evidence about fault all seek to blame each other.



2. Collective fault. Clause 5(1)(c) will inevitably invite comparison with the analogous part (section 1) ofthe Corporate Manslaughter and Corporate Homicide Act 2007. That Act requires the relevant negligenceto be substantially attributable in part to failures on the part of “senior management” [section 1(3)]. Neitherthe Lawcom Bill, nor the Government Bill, contains any such restriction. That may not be a bad thing, inthat—as is sometimes the case with price fixing, for example—both the wrong (bribery) and the failure ofsupervision may well occur at lower, perhaps local, levels of management.

However, it should be noted that the presumption at common law is that with a fault based oVence thefault must be attributable to the directors (or equivalent persons) who can in eVect be identified with thecompany itself: the so-called “identification” doctrine. There is currently nothing express in the Bill to stopthe courts reading that doctrine in to clause 5, and hence requiring that “a responsible person” etc meanssomeone at that high level. However, the wording of clause 5(5), which deals with a situation where a director(or equivalent) is the one who has been negligent—see 3. below—suggests that for the courts to take sucha course would be wrong. Clause 5(5) implies that the oVence can be committed through the negligence ofsomeone other than a “senior oYcer”.

There is perhaps a case for being clearer on the point in the Bill than either the Law Commission, or(following the Commission’s lead) the Government, have been; but it may be ok because nowadays thecourts take a more context-specific approach to interpreting the nature and scope of corporate criminalliability.

The Law Commission is currently considering the legal status of the identification doctrine, as a part ofa general project on corporate criminal liability.

3. The “adequate systems defence”. Clause 5(4) is absolutely crucial to the legitimacy of the oVence createdby clause 5. It introduces an “ongoing compliance” element to the essentially retributive and deterrentfunction of the oVence. In other words, the message is not simply, “don’t let carelessness lead your employeesor agents to commit bribery”; the message is, “put systems in place capable of sustaining an anti-briberycorporate culture in your firm”.

The OECD were understandably anxious that there should be greater clarity over what would count asan “adequate system”, something important not just from their point of view, but from the perspective offirms seeking guidance. It was simply not possible for the Law Commission to address this issue in the timeavailable.

There is a case for saying that, even if it reaches the statute book, this clause should not be brought intoforce until some work has been done with the CBI, other business representatives, anti-corruption experts,and others, to hammer out some basic standards and procedures.

There are some serious issues to be addressed.

For example, there is the “red tape” problem. If an “adequate system” is one in which every payment/gift,no matter how small, must be logged, this will create major administrative problems for global companieswhose employees or agents move frequently across borders or in and out of (air)ports, where small “grease”payments may have to paid routinely (but which would never be the subject of prosecutions). Some mayscoV at such an objection, but the question is whether the generation of paper mountains in respect ofconduct that will never be subject to prosecution is worth the eVort.

Secondly, there is “external supervision” problem. The Woolf Committee recommended that current andprospective contractors should all be interviewed to check compliance issues (recommendation 11). Niceidea; but how realistic is meeting that ideal for a company with hundreds or even thousands of contractors,perhaps changing daily or weekly, across the globe? How realistic is meeting that ideal, in cost terms, for asmall company which (reasonably) may be asked for compensation for travel/accommodation costs fromthe contractor who is to be interviewed, if that small company cannot itself visit its prospective contractor?

In practice, it is likely to be specialist lawyers or other professionals in the area who do any suchinterviewing, or who engage in corruption policing on behalf of their client more generally. They will notoVer their services free of charge.

Moreover, there is the problem of whether interviewing will in fact reveal defects in suppliers’ ownprocedures, or whether some other kind of evidence is needed if the whole process is to be meaningful. Ingeneral, site visits are considered to be more eVective, but again, these are costly and time-consuming.Moreover, only a party in a dominant bargaining position may be able to insist on them.

Accordingly, there is a risk that big firms will come to dominate certain markets in certain countries,amongst other reasons, because smaller firms do not have the “clout” or the resources to meet the cost ofcompliance and to make compliance meaningful. Their choices will be: quit the market, or cut cornersthrough bribery. The consumer may not benefit in that situation.

I should stress that these are not insuperable problems; but the solutions must be thought through, on thebasis of wide consultation, and a careful look at what is done in, eg, the USA. We cannot aVord to leadbusinesses into the classic regulatory “dead end”, where businesses incur costs and waste time formallycomplying with procedures imposed from on high that, because they are regarded by almost everyone asmere formalities, amount to “box ticking” that does nothing to achieve the desired goal.



4. Directors’ negligence and the adequate systems defence. Clause 5(5) was something suggested to the LawCommission by the OECD during consultation. It is meant to be a purely common sense measure. What issays is, in eVect, that if the directors responsible for drawing up systems to prevent bribery themselvesnegligently fail to prevent it, it cannot be right that the directors should subsequently be able to employ theadequate systems defence.

I believe that this clause has proved to be unpopular in some quarters, because it is regarded asdiscriminating against small firms who have no “middle management” to whom the responsibility forpreventing bribery can be devolved.

It may be that the criminal law does sometimes discriminate against small firms, but I believe that this isnot an instance of it.

Inevitably, a small firm with no middle management must take responsibility for compliance at directoriallevel, whether that be health and safety, environmental, or bribery-related compliance. That is just a matterof logic, really.

The “adequate systems” defence is a defence aimed at larger firms with middle managers and agents (withdevolved responsibilities) operating partly independently of direct control at board level. It may well be farmore cost-eVective for a small firm to take responsibility for compliance at board level, rather thanemploying a middle manager to take it on; but with responsibility comes the prospect of liability.

In any event, with very small firms, any bribery committed on their behalf may well raise a suspicion ofknowledge or intention at board level. In such cases, the company—and/or the individual directors can beprosecuted directly under clauses 1 or 4.

May 2009

Memorandum submitted by the Ministry of Justice (BB 02)

Introduction

1. This Memorandum describes the purpose and content of the Draft Bribery Bill; identifies theprovisions of the draft Bill which confer powers to make delegated legislation; and explains in each case whythe power has been taken and the nature of, and reason for, the procedure selected.

2. The draft Bill reforms the criminal law of bribery to provide for a new consolidated scheme of briberyoVences to cover bribery both in this country and abroad. The Bill replaces the oVences at common law andunder the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and thePrevention of Corruption Act 1916 with two general oVences covering the oVer, promise and giving of anadvantage or the request, agreement to receive or acceptance of an advantage (clauses 1–3). The Bill alsocreates a discrete oVence of bribery of a foreign public oYcial (clause 4) and a new oVence of negligent failureby a commercial organisation to prevent bribery (clause 5).

3. The other main provisions of the Bill:

— establish extra-territorial jurisdiction to prosecute bribery committed abroad by persons ordinarilyresident in the UK (as well as UK nationals, and UK corporate bodies) (clause 7);

— replace the existing need for the Attorney General’s consent to prosecute a bribery oVence so thatproceedings for the oVences in the Bill may only be instituted by, or with the consent of, theDirector of the relevant prosecuting authority (clause 10);

— provide a maximum penalty of 10 years imprisonment for all new oVences, save the corporateoVence, which will carry an unlimited fine (clause 11);

— make provision for Secretary of State authorisation of conduct by the intelligence agencies thatwould constitute a bribery oVence (clauses 13–14); and

— set aside Parliamentary Privilege to make evidence from proceedings in Parliament admissible inthe prosecution of a member of either House of Parliament for a bribery oVence or in relatedproceedings (clause 15).



Clause 16(4)–(7) Power to Make Supplementary, Incidental or Consequential Provisions for thePurposes of the Bill or in Consequence of it

Power conferred on: Secretary of State

Power exercisable by: Order made by statutory instrument

Parliamentary procedure: AYrmative resolution where primary legislationis amended or repealed; otherwise negativeresolution

4. Clause 16(4) confers power on the Secretary of State to make such supplementary, incidental orconsequential provision as he considers appropriate for the purposes of the Bill or in consequence of it. Thepower includes power to make transitional, transitory or saving provision and to amend, repeal, revoke orotherwise modify any provision made by or under an enactment including Northern Ireland legislation(clause 16(5) and (8)).

5. The powers conferred by clause 16 are wide. They are though tied directly to the purposes of the Billor in consequence of it. There are numerous precedents for such provisions including section 333 of theCriminal Justice Act 2003, section 173 of the Serious Organised Crime and Police Act 2005, section 51 ofthe Police and Justice Act 2006 and section 148 of the Criminal Justice and Immigration Act 2008. The Billmakes significant changes to existing primary legislation (derived from a number of historical enactments)and it is possible that not all of the consequences of them have been identified in the Bill’s preparation. Tothe extent that an order under this clause amends or repeals primary legislation, it will be subject to theaYrmative resolution procedure (clause 16(6)). Otherwise, the order will be subject to the negative resolutionprocedure (clause 16(7)). It is submitted that this provides the appropriate level of Parliamentary scrutinyfor the powers conferred by this clause.

Clause 18(1) and (3): Commencement Power

Power conferred on: Secretary of State

Power exercisable by: Order made by statutory instrument

Parliamentary Procedure: None

6. Clause 18(1) and (3) contain standard powers to bring provisions of the Bill into force bycommencement order. They include the power to make such provisions as the Secretary of State considersappropriate for transitory, transitional or saving purposes in connection with the coming into force of theprovisions in the Bill (subsection (3)). The powers are conferred on the Secretary of State (subsection (1)).As usual with the commencement orders, they are not subject to any Parliamentary procedure. Parliamenthas approved the principle of the provisions to be commenced by enacting them; commencement by orderenables the provisions to be brought into force at a convenient time.

May 2009

Memorandum submitted by ICC United Kingdom (BB 03)

Introduction

1. The International Chamber of Commerce (ICC) is the largest, most representative businessorganisation in the world. Its thousands of member companies in over 130 countries have interests coveringevery sector of private enterprise. The United Nations, the World Trade Organisation, and many otherinternational intergovernmental bodies are kept informed of the views of international business throughICC. ICC United Kingdom (ICC UK) is the British aYliate of ICC. Members in the UK include 18 of thetop 20 FTSE companies, many smaller firms, law firms and business associations. In this instance, the viewsexpressed are those of ICC UK rather than of ICC as a whole.

2. For more than two decades, ICC has taken the lead in the fight against corruption. It publishesguidance for business and interacts with governments world wide and with other international organizationsto establish a rational, eVective and economically fruitful regime to reduce to the maximum extent thepernicious eVects of corruption on international trade and investment.

3. This written submission has been prepared for ICC UK by its International Trade and InvestmentAdviser Andrew W A Berkeley, who will also represent ICC UK at the evidence session on 2 June 2009. Mr.Berkeley has been International Trade and Investment Consultant to ICC UK for fifteen years. In the courseof that work, he was one of the international industry experts nominated by the Business and IndustryAdvisory Committee (“BIAC”) of OECD to advise on, and participate in, the negotiations which resultedin the OECD Convention for Combating the Bribery of Foreign Government OYcials. He is a member ofthe Investment Committee of BIAC, which deals with anti-corruption, and of the Anti CorruptionCommission of the International Chamber of Commerce. Before joining ICC Mr Berkeley held senior legalposts in industry including Secretary and Legal General Manager of the British National Oil Corporation,Legal Director, STC PLC (electronics, computers and telecommunications) and General Counsel, LaportePLC (Chemicals).



The Draft Bill—General Comments

4. The Draft Bill follows an initial consultation proposal and a final recommendation issued by the LawCommission. It is the common purpose of the Law Commission’s work and of the Draft Bill to formulatea completely new code for the law of bribery, replacing the existing common law and century-old statutorystructure. This objective has received universal support. In conjunction with the Confederation of BritishIndustry (“CBI”), we consulted with the Law Commission. We were encouraged by its initial consultationproposals which seemed to us to lay an excellent jurisprudential foundation for a new law of bribery.

5. However, the final recommendation of the Law Commission, published in November 2008, maderadical new proposals—the reformulation of the general oVence and the introduction, contrary to theCommission’s initial view, of a new corporate oVence. These have not been subject to the same depth ofconsultation as the initial proposals. The Government’s reaction in the draft Bill, issued in March 2009,which takes the tendency to rigidity even further, was not, previous to its publication, the subject of anyconsultation with business organizations. Accordingly, we think it important to make our views known assoon as possible both to the Joint Parliamentary Committee and to oYcials. ICC (UK) has continued toconsult with CBI and has canvassed the views of ICC members. The CBI, as the principal national businessorganization, will be presenting its case shortly. Our evidence concentrates on the international aspects andon the technical structure of the law, as proposed in the draft Bill, in the context of the UK’s treatyobligations and of its competitive position.

6. The initial Law Commission proposal set out a new general oVence of bribery (covering both takingand giving and “public” and “private”) which turned on the giving of the improper advantage as the“primary” reason for the wrongful conduct of the recipient of the bribe. This had utility from the point ofview of business because it neatly dealt with the vexed questions of “facilitating payments” and of corporatehospitality and promotion. Further, at that stage, the Law Commission did not propose the introduction ofany corporate oVence; it said that should await the result of its general study of corporate criminal liabilitywhich is in progress.

7. The final recommendation changed the structure of the general oVence, making it depend on the failureto fulfil a “relevant expectation”. A new corporate oVence of failure to prevent bribery was proposed.

8. The draft Bill goes further, introducing a “reasonable man” standard for the determination of therelevant expectation, removing the defence of reasonable belief that payments to foreign governmentoYcials were in accordance with local law and widening the category of oYcers and managers in a company,the negligence of whom would preclude the defence of “adequate system” in the new corporate “failure toprevent” oVence.

9. This written submission to the Joint Committee analyses the main features of the draft Bill andcomments on the policy of the Bill as it appears from the draft and from the explanation and ImpactAssessment issued along with the draft by the Ministry of Justice. It concludes with a list of the changes tothe Draft Bill which we would recommend.

The Draft Bill—Main Features

Bribery of Foreign Public OYcials

10. We accept that special provisions dealing with the bribery of foreign government oYcials should beincluded in the legislation and that these need to be framed diVerently from those covering a general oVenceof bribery because of the diYculty of ascertaining and proving the exact nature and duty of such an oYcialor what should be “relevantly expected” of him—to use the wording in the general oVence. However, thedefence included in the Law Commission’s final recommendation, that a reasonable belief existed that thepayment to the oYcial was required or permitted under local law, is now removed.

11. This would import grave disadvantages into the law. Also, we fear that it may be based on amisunderstanding by the UK Government of the proper policy of the OECD under the Convention.

12. We deal first with the working of the provision if the defence is omitted. Establishment of liabilitywould depend on the meaning of whether the payment was “legitimately due” (3(b)). It is so due if the locallaw “permits or requires” the conferring of the advantage. Thus the English Court has, in every case, as aprimary issue, to decide the state of foreign law and the prosecutor will have to prove that the payment wasnot legitimate thereunder. That will be a burden and expense on the prosecution and a considerable call onthe time of the court and on the jury. It will also involve the accused in similar eVort and expense. Expertwitnesses will have to be called and their examination will have to be detailed and protracted because acriminal standard of proof—beyond reasonable doubt—will be required. There must be considerable doubtwhether an English jury—or indeed an English court—is a suitable instrument for deciding, in a criminalcase what foreign law is. What would the position be if, upon conviction of the accused in England, theforeign government or judicial authority, either in support of its oYcial or for other reasons, stated that theEnglish court had got it wrong and that the payment was legitimate? It is, perhaps, for these sorts of reasonsthat the United States, in the Foreign Corrupt Practices Act (under which a defence of legitimacy underforeign law is permitted), demands that the accused must be able to point to a written provision of the foreignlaw. “What is written, is written”.



13. If the defence of “reasonable belief” had remained, the initial eVort and research would have beenmainly incumbent on the defence and the necessity for the trial of a fundamental issue as to the state offoreign law avoided or minimized in importance. Also, an English jury would be much more suited to findwhether a reasonable attempt to ascertain foreign law had been made rather than to decide upon that lawitself. In its proposal, which the Ministry of Justice has rejected, the Law Commission went to some lengthto specify the high standard of proof which would be required if the defence were to succeed. In the light ofthis, counter arguments that the presence of the defence would lead to the proliferation of “unmeritoriousexcuses” are invalid. Nor would the overall deterrent eVect of the provision have been weakened.

14. We now turn to the relation of the defence to OECD policy. It has been said by some OECD oYcialsthat the application of the Convention in national law should be consistent with the general scheme of thatnational law. Thus, they have argued, that since, “ignorance of the law is no excuse”, in English law, thedefence should be excluded—to do otherwise, they maintain, would be to give bribery of foreign governmentoYcials softer treatment under English law than that accorded to other crimes. In our view, this is amisinterpretation of OECD policy. The application of the Convention depends, according to the establishedinterpretation and practice of the OECD, on “functional equivalence”. This is a term borrowed fromclassical analysis in the academic study of conflict of laws. In the practical context of the application of theConvention, it means that governments must use whatever their national law is in order to achieve the endresults laid down by the Convention. The legal instrumentality is a matter for the national law alone. As faras English law is concerned, there is a sharp distinction between national law, ignorance of which is noexcuse, and foreign law which, traditionally, is a fact to be ascertained. The analysis by the OECD oYcialis therefore invalid. Practically, it is also worthy of note that the OECD has not demanded that the equivalentdefence under the Foreign Corrupt Practices Act of the United States be removed.

Failure to Prevent Bribery

15. In introducing this new oVence in its final recommendation the Law Commission said it wasinfluenced by the Woolf Report on BAE, which advocated increased responsibility of the Board of a companyfor the prevention of bribery and also by a desire (of the Law Commission?) to further the “objectives” ofinternational treaties, although, as the Commission also found and confirmed, the UK was alreadycompliant with treaty requirements. The acceptance of this recommendation by the Government and theinclusion of provisions in the draft Bill represents a clear change of policy by the Government since 1999.

16. The Second Protocol to the EU Treaty of 1997 for the protection of the financial interests of the EUprovides in paragraph 2:

“……..each Member State shall take the necessary measures to ensure that a legal person can be heldliable where the lack of supervision or control by [a leading manager] has made possible thecommission of a fraud or an act of corruption or money laundering for the benefit of that legal personby a person under its authority”.

The Foreign and Commonwealth OYce, in its Explanatory Memorandum about the Second Protocol,presented to Parliament in April 1999 states that “The Protocol does not give rise to the need for legislationin the United Kingdom”.

17. No explanation has been given by the Ministry of Justice in the materials it published along with theDraft Bill as to why, notwithstanding that Government statement to Parliament in 1999, the new provisionsabout a corporate oVence of failure to prevent bribery are now required.

18. As drafted, the provisions in the Bill present serious problems for business. They may be analysedas follows.

Negligence

19. There must be negligence by a “responsible person”. The function of such a person is to preventbribery. On the plain meaning of the word, “prevention” means to stop absolutely—it does not mean tohinder, or to take precautions against, or to do everything possible to procure non-occurrence.Consequently, the standard, departure from which will constitute negligence, is extremely high. Somethingapproaching omnipotence is required of the responsible person. This is unrealistic. Workable legislation willneed to qualify what is meant by negligence in the context.

20. Some guidance may lie in the law of corporate manslaughter. The “key information” given by theMinistry of Justice in its “Guide to the Corporate Manslaughter and Corporate Homicide Act 2007”,especially at page 12, is summarized under “When will an organization be convicted?” It is there made clearthat the oVence is concerned with the way an organization’s activities were managed or organized. Asubstantial part of the failing must have occurred at a senior management level. The threshold for the oVenceis gross negligence. We believe that a similar standard should apply for the oVence as formulated in the Billfinally presented to Parliament.

21. In its discussion of the oVence in its final recommendation the Law Commission justifies its draconianapproach, based on unqualified or undefined negligence, by the inclusion of a specific defence that adequateprocedures had been put in place to prevent bribery. That defence is not available if the negligence in questionis that of a “senior oYcer”, a category which is extended by the draft Bill to include managers (5(7)). In eVect,



if anyone of the rank of manager or above in a company is negligent, then the company will be criminallyliable if bribery should occur. It will also be noted that it will be suYcient for the prosecution to prove that“a number of responsible persons taken together” was negligent (5(1)(c)). This relieves the prosecution fromthe necessity of identifying specific persons who were negligent. Taken together, the extension in the draftBill of the categories of persons for whose activities or omissions the defence is not to be available and thelack of the necessity for any specific individuals to be identified, mean that the defence is robbed of any realcontent. This defeats the object of this part of the Bill which is to encourage companies to put in placeadequate systems to combat bribery (the term used in the OECD Convention and which should be adoptedin English legislation). If, by the terms of the legislation, the presence of an adequate system is not to be aneVective defence, then the object will not have been achieved.

22. If the definition of negligence were to be modified as is here suggested, and the category of personsin respect of which the defence of adequate system would not be available were to be narrowed back to seniormanagement, as proposed by the Law Commission, it would be acceptable that the failure of managementneed only be proved to have taken place within a group; this is, we believe, the case in corporatemanslaughter.

23. It may be argued that manslaughter, as an oVence, is not an apt comparator for bribery. This may betrue as a general proposition—one oVence results in death, the other in corruption—but, in the context ofa corporate oVence, it is valuable. The object of the law dealing with corporations in both cases is, or shouldbe, identical—to foster management in enterprises so that the evils are less likely to occur and to punishdefective management.

Proof of the occurrence of bribery

24. It should be noted that a company, under the draft Bill, can be guilty of failure to prevent briberyalthough no one has been prosecuted for, or convicted of, bribery. In its commentary, the Law Commissionsays that if the “tribunal of fact” is “satisfied” that bribery has taken place, that would be suYcient tosupport a conviction of the company. The relevant provision is 5(2). It is not clear whether the court isobliged to ascertain whether the person performing services would be guilty if he or she had been criminallycharged and whether the court is obliged to have before it all the evidence which would be necessary tosupport a criminal conviction of that person. It could be argued, and no doubt will be, in the first cases, that,if such a standard had been required, the Act would have required a prior criminal conviction. It explicitlydoes not do so, nor even need there be a prosecution.

25. An appropriate modification to 5(2) would be:

“For the purposes of subsection (1), A bribes another person if, and only if, the court is satisfiedbeyond reasonable doubt on the evidence before it that A is, or would be, guilty of an oVence undersection 1 or 4 (whether or not A has been prosecuted for such an oVence).”

Person Performing Services

26. The bribe has to be given by a “person performing services” for or on behalf of the company (5(1)(a)).The meaning of “performing services” is explained in section 6. The capacity of the person in which he (orit) was performing the services does not matter—it might be as employee, agent or subsidiary. Whetherservices were being performed will be determined by reference to relevant circumstances.

27. The draftsmen of the Bill have had in mind the conventional legal categories of relationship such asemployment, agency and subsidiary company. But they have completely failed to take into account otherimportant relationships such as joint ventures and development contracts and profit sharing agreementswith State and other entities. There may also have neglected anxiety in the banking and finance industry thatmembers of syndicates may be taken to be performing services for one another within the meaning of thedraft Bill.

28. A typical example would be a joint operating agreement for the development of an oil or gas resource.Here one company (which may be a State entity) is commonly nominated as operator. Its activities areregulated by a joint operating agreement under the supervision of an operating committee composed ofrepresentatives of the interest holders in the resource. There is no doubt that the operator is performingservices on behalf of the interest holding companies. The question arises of the position, under the draft Bill,of an interest holding company if the operator gives a bribe. It seems that the company would be liable eventhough it does not control the operator and where its influence over what the operator does is limited to itsvote on the operating committee. Section 6 is clear that the capacity in which the services were beingperformed does not matter (6(2)). Even though the operating agreement, as is common practice, containsprovisions that no bribes are to be given, the interest holding company would not be able to use the“adequate systems” defence because the Board or senior managers of the company would be responsiblefor the operating agreement and for votes on the operating committee and the defence is not available fortheir actions.

29. The distinction between joint venture service providers and the others such as employees andconventional agents is one of control. A company can control the activities of an employee or conventionalagent but it cannot control a joint venture partner or a contractor. There the relationship is regulated bycontract and the most a company can do is to ensure, as far possible, that the contract contains anti-bribery



terms or perform due diligence. It should be noted that the Second Protocol mentioned above applies onlyto the actions of persons “under the authority” of the legal person and the German legislation implementingthe protocol is framed accordingly (S130 “Verletzung der Aufsichtspflicht.”;Siemens was successfullyprosecuted under this section). The United States legislation depends on actual or imputed knowledge ofbribery by the third party on the part of the company subject to the FCPA and it makes no use of the“performing services” concept used in the Bill—it may be observed that this approach has been amplysuYcient to aVect the conduct of companies subject to the wide jurisdiction of the FCPA.

30. The necessary modification in the Bill would be a provision that the relationship contemplated bySection 6 would not include relationships with parties which the company did not control. A less satisfactorysolution would be that, where the relationship was controlled by contract only, the inclusion of anti briberyprovisions in the contract or due diligence examination before contract would count as an “adequatesystem” and that would be a defence in respect of the actions of all persons in the company, includingdirectors and senior managers.

31. The position of subsidiary companies remains obscure under the Bill. In discussion with theDepartments, they stated that it was not the intention of the Government to make the holding companycriminally liable for failing to prevent bribery by its subsidiaries in general. Only where that bribery was tofurther the holding company’s business would liability arise. What has emerged is the wording of 5(1)(b)where the bribe is to be “in connection with” the holding company’s business. The distinction is, in fact,somewhat disingenuous. It can usually be said that the activities of a subsidiary have some connection withthe holding company’s business. A rewording of 5(1)(b) along the lines of: “the bribe was to obtain benefitsfor a business or businesses operated by C” might suYce for clarification.

32. The necessary modification in the Bill would be a provision that the relationship contemplated bySection 6 would not include relationships with parties which the company did not control. A less satisfactorysolution would be that, where the relationship was controlled by contract only, the inclusion of anti briberyprovisions in the contract or due diligence examination before contract would count as an “adequatesystem” and that would be a defence in respect of the actions of all persons in the company, includingdirectors and senior managers.

The General OVence

33. This has a three layer structure. This applies both to the giving and receiving of bribes. It is analysedhere in relation to giving. Only the central pillar of the structure is given.

First

A person gives an advantage to another person intending that the recipient (or another) should performa function improperly.

Second

Improperly means that the function is performed in breach of a relevant expectation.

Third

A relevant expectation is that the function will be performed in good faith, impartially or not in breach oftrust. The expectation is to be that of a reasonable person.

34. Good faith, impartiality and trust are not defined. It is explicitly stated that it is irrelevant whetherthe recipient of the bribe knows or believes that the performance of the function is improper.

35. The proposed legislation seeks to set up an objective standard which does not depend on the actualmotivation of the actors. We have been told by the Departments that they will look to the Courts for theapplication of this standard; they admit that they cannot forecast with accuracy what the first cases willdecide.

36. As drafted, the standard is capable of requiring that each actor and, in particular, each businessman,adopt a quasi-judicial role when he is considering conferring or receiving an advantage. He must beimpartial, he must act in “good faith” and he must consider carefully the nature of the trusts to which theactivity in question may be subject. This is unrealistic in the context of everyday commercial transactions.

37. The diYculty is exacerbated by the fact that the general concept of “good faith” is technicallyunknown to English commercial law. Further, in commercial life, an actor is not impartial. He seekscommercial advantage. Also the trust requirement is artificial. An outsider cannot know what trusts aVectthe performance of a function by his counterparty and such trusts as do exist may, or may not, be anticipatedby a “reasonable person”.

38. If the basic structure of the general oVence is to be retained, it needs modification if it is to be workablein the business context. A minimum possible change would be the introduction of an “in the circumstances”provision. Thus Section 3(8) would read “For the purposes of this section, the test is what a reasonable personwould expect in the circumstances”. This would enable and require that evidence be introduced showing thereal meaning to be attributed to the three elements of the relevant expectation. The relevance of this sort ofargument is already recognized in the draft Bill in Section 6(4) where all relevant circumstances are to betaken into account when deciding whether services are being performed on behalf of a company having thenew duty to prevent bribery.



39. The provision in Section 2 ss (7) and (8) that the state of knowledge of the accused as to the proprietyor impropriety of the performance of the function is irrelevant raises serious doubts as to the mens rea ofthe general oVence. As drafted, it could fall within the category of “absolute oVences”. This is undesirablein legislation which is meant to regulate general conduct and which has moral implications. Again, suitablemodification, or the deletion of the provision, is needed. It can be argued that it is, in any event, otiosebecause of the introduction of the reasonable person test. The reasonable person should be left to decide onthe evidence put to him whether the state of knowledge or belief of the accused is relevant.

40. In previous attempts at legislation, based on a principal/agent structure, there was much debate aboutthe treatment of the case where the principal of the recipient of the bribe had assented to its receipt. The newstructure has not caused the disappearance of the problem. It could be dealt with by providing, in the caseof the third relevant expectation, that there would be no breach of trust if the beneficiary of the trust hadassented to the receipt of the advantage. This is not merely a theoretical point. There was discussion in thelast pre-legislative consultation of the position of certain financial agents employed by companies who alsoreceived commissions from the third parties with whom they were dealing.

41. The new formulation of the general oVence in the final recommendation of the Law Commissionleaves the question of facilitating payments, corporate hospitality and promotion expenditure open, onceagain. The United States Foreign Corrupt Practices Act has special and explicit provisions dealing with thesetopics. The UK Government has always resisted such an open legislative solution, preferring unoYcialexplanation and reliance on “prosecutorial discretion”. If this approach is to be maintained it makes all themore essential the inclusion of an “in the circumstances” qualification to the “relevant expectation”.

The Policy of the Draft Bill

42. The Impact Assessment published by the Ministry of Justice at the same time as the Bill deservescareful reading because it shows more clearly than the provisions of the draft Bill how the Governmentactually expects the legislation to work. It is frankly stated that the new corporate oVence is aimed at “highvalue transactions in international markets” (page 5, second paragraph).

43. Perhaps the most revealing parts of the assessment are the cost and activity estimates. It is estimatedthat the new corporate oVence will give rise to only 1.3 additional prosecutions per year. The costs for theSFO are estimated at £1 million for prosecution and £1 million for investigations (pages 7 and 8). In the caseof a defended prosecution in respect of a major matter, these figures are wrong by many orders of magnitude.If Siemens had chosen to defend the German prosecution against it in respect of breach of “Aufsichtspflicht”(duty of the Board and senior management to monitor and control) the cost to the prosecution would havebeen a high proportion of the hundreds of millions of dollars which it cost Siemens in legal and accountancyfees to settle the matter. A similar gross error appears under “costs” on page 8 where the annual cost ofdefence for the entirety of UK industry is estimated at £3 million. The Financial Services Authority statesin its Final Notice that the cost to AON of settling the complaint against it was “very large”. It is legitimateto speculate that the cost to AON in that one matter exceeded the Department’s estimate for the annual costfor the whole UK.

44. It may be deduced that the Government does not, in fact, anticipate major contested cases concerningthe bribery of foreign government oYcials or the new corporate oVence. This may be a valid assumption inthe case of some UK companies. But the draft Bill extends jurisdiction to foreign companies resident inEngland or conducting business here. Such companies, many not recognizing the OECD consensus, maynot be minded to negotiate with the UK Government or prosecuting authorities. The cost of successfullyprosecuting them, or a UK company choosing the litigation option, could be very large indeed.

45. Another consideration which may have been present in the Government’s mind in producing the draftBill is that future prosecutions/investigations in major matters will probably be multi-jurisdictional. Thereis therefore a delicate balance to be achieved. The UK will not wish to have “weaker” law against briberyin the international sphere than other countries. But it should not have a more draconian and lesssophisticated law. That would prejudice the international competitivity of UK business.

46. We are grateful to the Government for having produced the Bill as a draft, for permitting pre-legislative scrutiny and for consulting with us. We will be most willing to continue work with oYcials andwith other industry organizations to achieve an eVective and just solution.

47. Suggested changes to draft Bill:

i. reinstate defence of reasonable attempt to ascertain foreign law in the case of bribery of foreignoYcials;

ii. define the concept of negligence in the “failure to prevent” bribery oVence to mean grossnegligence;

iii. return the category of persons in respect of whose acts or omissions the “adequate systems” defenceis not available to that proposed by the Law Commission;

iv. “failure to prevent” to apply only to persons or companies over which a company has control orin respect of which it did not secure adequate contractual protection or do due diligence;



v. bribery to be proved beyond reasonable doubt to have taken place as a necessary element of theproof of “failure to prevent”;

vi. a company not to be liable for failure to prevent bribery by its subsidiary unless the bribe was givenin aid of a business actually operated and conducted by the company;

vii. in the general oVence, specific provision to be made that evidence of all the circumstances beadmitted in relation to the fulfilment or non-fulfilment of the “relevant expectations”;

viii. delete provisions in section 2 (7) (8) about irrelevance of state of mind of accused.

May 2009

Memorandum submitted by UK Anti-Corruption Forum (BB 04)

Section One

Introduction

1. The UK Anti-Corruption Forum is an alliance of UK business associations, professional institutions,civil society organisations and companies with interests in the domestic and international infrastructure,construction and engineering sectors. Organisations which are members include the Association forConsultancy and Engineering, British Expertise, the Chartered Institute of Building, the Institution of CivilEngineers, the Institution of Mechanical Engineers, the Institution of Structural Engineers, the RoyalInstitution of Chartered Surveyors, the Chartered Institute of Purchasing & Supply, Engineers againstPoverty and Transparency International (UK). These organisations represent over 1,000 UK companies and350,000 professionals. Members also include many UK construction companies and consultingengineering firms.

2. The Forum’s objective is to create a business environment that is free from corruption, giving rise tofair competition.

3. Bribery, fraud and facilitation payments are an acknowledged problem in the infrastructure,construction and engineering sectors, both in the UK and overseas (although the prevalence of suchoccurrences is far more significant in many overseas jurisdictions than it is in the UK). The Forum hasextensive experience and understanding of the practical nature of these problems and believes that it can,therefore, make a valuable contribution to this consultation in helping to formulate a law which addressesthe main issues and which is comprehensible to the wider public.

4. The Forum would be happy to meet with representatives of the Ministry of Justice or other relevantbody to discuss the proposed bill or the contents of this submission.

General comments

5. The Forum supports the reform of the law of bribery in England and Wales. It agrees that the presentlaw is outdated and uncertain. Comprehensive reform though the enactment of coherent and clearlegislation is overdue. At present, the complexity and uncertainty makes it diYcult not only to prosecutebribery cases, therefore penalising companies which do not engage in corrupt practices, but also for thepublic and business properly to understand the law, and for business eYciently to train staV.

6. The Forum also accepts that the proposed bill would, in general, provide a modern and clearly definedoVence of bribery, and ensure bribery law is consistent with the United Kingdom’s international obligations.The Forum therefore broadly supports the proposed bill, subject to the points made below, and hopes thatlegislation will be enacted as soon as possible. Schedule 1 attached lists the key points which the Forumsupports.

7. This submission covers the following areas: specific comments on the proposed Bill; the treatment offacilitation payments; and the need for a comprehensive overhaul of bribery laws to deal with the penaltyof mandatory exclusion (debarment) from tendering for public procurement contracts on conviction forbribery.

Section Two

Clause Two: Bribery: OVences relating to being bribed

8. The bill proposes four oVences covering the receipt of bribes, expressed as Cases. The formulations ofthe oVence are complex, and possibly overly so, although the Forum accepts that it is diYcult to framelegislation to cover all of the ways in which bribes or other illicit advantages are demanded or received. TheForum accepts that the proposed oVences are an improvement on previous proposals and on the existing law,and are workable, both in simplifying prosecution of bribery and in making easier for business to train staV.

9. However, the Forum submits that there are diYculties requiring rectification with the wording of therecipient oVences. In the Case 3 and 5 oVences, it may be possible for a payment to be received as a bribeeven though it was not paid as a bribe. There are three problems with this:



(a) It may create a new oVence where none previously existed. For example, P innocently takes R outfor dinner. At the time, R intends to allow the dinner to influence him to perform an improper act.Under the proposed Bill, R has committed an oVence, even without performing an improper actand even though there was no corrupt intention on P’s part.

(b) It may criminalise as bribery conduct which is not bribery as currently understood. For example,a window company oVers a legitimate commission in good faith to a sales representative based onvolume of sales, but from the outset the representative intends to and does deceive customers as tothe window quality in order to increase sales and hence his commission. Under the current law therewould be no oVence until a fraudulent misrepresentation was made, and then the oVence would beone of fraud by the sales representative. There would be no bribery oVence. Under the proposedbill, the commission could be treated as a bribe in the hands of the representative because he agreedto receive it “intending that, in consequence, a function or activity … would be performed improperly”.

(c) There could be reputational damage to innocent parties. This may arise, for example, where acompany innocently pays a sum to an agent who, unknown to the company, intends to or does usethat payment as a bribe. The agent may be convicted of bribery in relation to the receipt of themoney from the company (under the current law, the agent would only be convicted in relation tothe subsequent corrupt action, not merely for corrupt intent in receiving the money). Whilst thepaying company would not have committed a criminal oVence, it may nevertheless unfairly suVerreputational damage by association with the conviction, as it was the payer of the money whichwas deemed to be a bribe.

Clause Four: Bribery of foreign public oYcials

10. The Forum supports the criminalisation of bribes paid to a foreign public oYcial.

11. As drafted, the bill does so in two ways. First, the general oVences contained in clause 1 of the draftbill apply to bribes oVered, made, received or demanded overseas under the extra-territorial provisionscontained in clause 7 of the bill. Secondly, clause 4 of the proposed bill contains a specific and stand-aloneoVence of bribery of a foreign public oYcial. Each oVence has diVering ingredients, and the existence ofoverlapping oVences introduces complexity which risks confusion. The Forum agrees that a discreteoverseas oVence is justified on the basis of the need for the United Kingdom to demonstrate compliance withits international obligations to deter and punish corrupt transactions taking place overseas, and to assist theCourts to interpret the scope and nature of the oVence against the “evolving background” of the OECDConvention. However, attempt should be made to reduce the risk of confusion between the two sectionsdealing with overseas bribery.

12. Clause 4 of the proposed bill does not extend to inculpate the foreign public oYcial who accepts thebribe. Whilst it may be rare that foreign public oYcials will be prosecuted in England, the Forum sees noreason why the possibility should be excluded. Both the payment and the acceptance of a bribe is a corruptact and should be criminalised, as would be the case for bribes paid to a domestic public oYcial. It is possiblefor bribes to be paid directly or indirectly to accounts held by foreign public oYcials in England and Wales.It would be morally reprehensible for a company which pays a bribe to a foreign oYcial to be convicted ofbribery, and as explained below be debarred from future public contracts, and yet witness the public oYcialusing his corrupt assets to shop freely in London.

Clause Five: Failure of commercial organisations to prevent bribery

13. Under clause 5 of the proposed bill, a company or other commercial organisation may be liable fora new oVence of negligently failing to prevent bribery.

14. Under the proposed bill, it would be a defence to show that adequate procedures had beenimplemented by the company or organisation to prevent bribery. This defence would not be available if thenegligence complained of is that of a “senior oYcer” (defined as a director, manager, secretary or oYcer ofthe defendant).

15. This would be a new oVence. The Forum supports its creation in principle, as it will encouragecompanies to implement, maintain and enforce anti-bribery procedures, systems and controls. It willtherefore reward companies which do so, and penalise those that do not. The Forum believes that this is thecorrect approach to corporate liability in this area.

16. However, it is not clear how in practice the oVence and the defence to it will be interpreted, and theForum believes that there are some significant areas which require further consideration. Otherwise, therewill be uncertainty for business, which could result in an oVence being committed inadvertently. Inparticular:

(a) It is not clear what compliance procedures will be considered as “adequate”.

(b) It is not clear in what circumstances the defence would not apply. The Forum is concerned aboutthe inclusion of the term “manager” in the definition of “senior oYcer” in clause 5(7) of theproposed bill. This is an imprecise term and it is unclear how widely it will be construed by thecourts. In large organisations, it could include quite junior managers.



(c) The test of “negligence” is a very low standard for criminal law, and “gross negligence” would seemmore appropriate for a serious oVence of this nature.

17. The Forum recognises that seeking comprehensively to deal with these issues in legislation would bediYcult, and would introduce unwelcome complexity. However, the Forum submits that guidelines shouldbe published which do so (ideally agreed between prosecuting agencies and relevant business groups, andpublished a reasonable time prior to the introduction of the oVence). In particular, the guidelines shoulddescribe in detail the components of adequate compliance procedures. In the United States a degree ofguidance is given on these issues in the “Federal Sentencing Guidelines for Organizations,” issued by theU.S. Sentencing Commission and applicable to criminal violations of federal statutes such as the ForeignCorrupt Practices Act, which criminalises the bribery of foreign public oYcials.

18. The Forum would be willing to assist in the drafting of appropriate guidelines.

19. As explained in the section on debarment below, it is unclear whether it is intended that mandatorydebarment would apply to conviction for the proposed oVence of failure of commercial organisations toprevent bribery. The Forum considers that it would be unfair for it to do so.

20. The Law Commission, in a report leading to the publication of the draft bill, proposed that the oVenceof failure to prevent bribery should apply only to companies and limited partnerships whose registered oYceis in England and Wales. The Forum supports the extension of the oVence under the bill to companies whichcarry on business within the jurisdiction. The Forum proposes that it is further extended to companies whoseshares are traded on an exchange in the jurisdiction, and to foreign companies which negligently fail toprevent bribery in circumstances where a step is taken in the jurisdiction as part of a corrupt scheme.Consideration should also be given to extending the application of the oVence to foreign companies inreceipt of UK public funds (for example from the Department of International Department), in relation toprojects for which the funds are provided.

Clause Seven: OVences under sections 1, 2 and 4: extra-territorial application

21. Clause seven of the proposed bill would extend criminal liability to bribes paid overseas by Britishcitizens, UK residents and companies or partnerships incorporated in the United Kingdom (and otherindividuals listed in clause 7(4) of the draft bill).1 The Forum agrees with this approach.

22. It does not however agree with the limitation on extra-territorial application contained in clause 7(4).In particular, it believes that liability should apply to overseas companies with a place of business in theUnited Kingdom, or which trade in the United Kingdom, or whose shares are traded on an exchange in theUnited Kingdom. It should also extend to companies incorporated under the law of a Crown Dependencyor an Overseas Territory.

Section Three

Facilitation payments

23. The Forum believes that facilitation payments must be expressly dealt with. “Facilitation payment”means a payment made to induce a person to perform a duty which that person is obliged to perform,without resulting in preferred treatment, and where that payment is over and above any payment that islegitimately due.

24. Facilitation payments are often small. However, in some cases, facilitation payments may be verysignificant in size. For example a company may be forced to make a large payment so that an engineer willproperly perform his duty to certify that work has been completed and payment is due to the company.

25. It is important to distinguish facilitation payments from a payment made to obtain preferredtreatment, for example to move the payer up the queue, or to obtain a license which is not properly due.Small payments of this nature are sometimes mistakenly believed to be facilitation payments. That is wrong.They are bribes and are correctly treated as such in the proposed bill.

26. Facilitation payments are both damaging and illegal in many countries, and the Forum wishes to seetheir elimination. The Forum believes that facilitation payments should be a criminal oVence if paid in theUnited Kingdom regardless of their amount.

27. However, facilitation payments made in many overseas jurisdictions are far more problematic:

(a) The payer of a facilitation payment is normally considerably less culpable than the recipient. Thisis because the payer is the victim of extortion and it is often unjust to make a payer guilty of anoVence which it may be diYcult to avoid committing. In many cases, a company may be forced tomake such payments in order to obtain import or work permits to enable it to fulfill contractualobligations, failing which it would incur heavy penalties.

1 The proposed oVences would also apply to citizens of British Overseas Territories, British Nationals (Overseas), a BritishOverseas Citizens, British subjects and British protected persons.



(b) A further diYculty is that minor facilitation payments are endemic in many jurisdictions. Inaddition, many payers of minor facilitation payments are junior employees travelling or workingoverseas who may be compelled to make these payments in diYcult circumstances involving traYcpolice or immigration oYcials.

28. These and similar issues mean there is considerable debate as to whether facilitation payments madeoverseas should be criminalised and prosecuted in the UK. There is also considerable confusion anduncertainty as to liability for facilitation payments and whether or not they constitute bribery.

29. The OECD Convention does not require the criminalisation of facilitation payments. Some examplesof how facilitation payments made overseas are dealt with in other jurisdictions are as follows:

(a) In the USA and Canada, a payment made to a foreign public oYcial to expedite or secure theperformance of a routine government action is not prohibited.2

(b) In Australia, a payment made to expedite or secure the performance of a routine governmentaction of a minor nature is not criminal if the payment is of a minor nature and a record is kept ofthe payment.3

(c) In New Zealand, a payment made to a foreign public oYcial to ensure or expedite the performanceof a routine government action is not criminal when the value of the payment is small.4

30. Facilitation payments would be criminalised under the proposed bill. However, in its report precedingpublication of the bill, the Law Commission recognised that they pose particular diYculties, and suggestedthat it “will be rarely in the public interest to prosecute… for the payment of small sums to secure theperformance of routine tasks”. It suggested that facilitation payments are best handled through sensible useof the discretion not to prosecute.

31. The possible options in relation to facilitation payments paid overseas are as follows:

(1) To make all facilitation payments an oVence. The argument against this option is the injustice inmaking those liable who are the victims of extortion and who have no option but to make thepayment.

(2) To make all facilitation payments an oVence, but to have an express policy that these oVences willnot be prosecuted. This is the current situation in the United Kingdom, and is the approach takenin the draft bill.

(3) To make facilitation payments an oVence, except those which involve minor payments. The benefitof this option is that it will exclude the large majority of facilitation payments, which tend to besmall routine payments. There will, however, be diYculty in establishing what is meant by “minorpayment”, although other jurisdictions have felt able to do so. Also it will mean that those personswho are the victims of extortion for large payments will incur criminal liability—even where theymay have perceived that they had no choice but to make the payment. This option would thereforeunfairly favour those who have made only minor payments when, in reality, there is no greaterculpability in being forced to make a large payment.

(4) To make all facilitation payments an oVence, but to allow certain circumstances to constitute adefence or to be taken into account in sentencing. Circumstances which might constitute a defencecould include extortion. Circumstances which may aVect sentencing could include extortion,commercial or personal necessity, safety, the size of payment, whether the extortion was reported,and what eVorts the person made to avoid making the payment. For example, in the latter case,did a company approach the authorities or its local embassy to ask for help? Whilst this optionmay involve a person incurring criminal liability, it would nevertheless provide a means of dealingmore fairly with those who have been the subject of extortion.

(5) To make all facilitation payments an oVence, except those which involve minor payments, and toallow certain circumstances as a defence or to aVect sentencing for larger payments (as in (4)above).

32. In relation to facilitation payments made overseas, the Forum has been unable to reach a consensuson the correct approach due to the significant diYculties in identifying a fair and eVective solution to thisissue. However, consensus has been reached on the following points:

(a) There should be a clear distinction between bribery and facilitation payments.

(b) There needs to be certainty as to the circumstances in which a facilitation payment will beprosecuted, and the circumstances in which it will not.

(c) There also need to be certainty as to how facilitation payments should be accounted for in acompany’s books and records.

2 Section 78dd-1(b) of the Foreign and Corrupt Practices Act 1977 and Section 3(4) of the Corruption of Foreign PublicOYcials Act 1998.

3 Section 70.4 of the Criminal Code 19954 Section 105C of the Crimes Act 1961



(d) At present, there is considerable uncertainty on these issues and that uncertainty will continue ifthe proposed bill becomes law. That uncertainty does not assist with training staV, implementingcompliance programmes and combating bribery and corruption.

(e) If facilitation payments are to be outlawed, detailed guidance should be published on these issues.

(f) If facilitation payments are treated as criminal oVences, the penalty for making a facilitationpayment should be lower than that of a bribe, to reflect the fact that the payment is normallyextorted or made under urgent necessity to meet commercial or personal obligations.

(g) The payer of a facilitation payment should not face mandatory exclusion (debarment) from publicprocurement contracts, a point developed below.

Debarment

33. One of the penalties for bribery is the exclusion (debarment) of companies from participation inpublic sector projects. The Forum supports the use of debarment as one of a range of anti-corruption actionsprovided that debarment is implemented in a fair and eYcient manner, and that the penalty is proportionateto the oVence committed.

34. Some forms of debarment are mandatory, requiring a purchasing body to exclude from tendering anycompany which has been convicted of corruption. This is the case in the European Union under directiveswhich have been implemented in England, Wales and Northern Ireland.5

35. Those regulations provide for mandatory exclusion of a company from public sector and utilitycontracts if the company, or its directors, or any other person who has powers of representation, decisionor control of the company, have been convicted of bribery, fraud, money laundering, cartels and specifiedother oVences.6

36. There are currently potential material injustices in the way that debarment law is currently framed:

(a) debarment under EU Directives presently applies however minor the oVence—mandatorydebarment would apply for example to conviction for making facilitation payments;

(b) no regard is had to any mitigatory factors which should be encouraged (for example whether thecompany took steps to prevent the oVence, self-reported the oVence, co-operated with theauthorities, has robust and eVective internal anti-corruption procedures etc).

37. These points are explained in more detail in the Forum’s discussion paper entitled “Fair and eYcientdebarment procedures”. A copy is attached as Schedule 2.

38. The Forum believes that a thorough review of bribery law should consider debarment, and result inthe current law on debarment being replaced with a law which applies fair and proportionate penalties.

39. It is unclear whether it is intended that mandatory debarment would apply to conviction for theproposed oVence of failure of commercial organisations to prevent bribery. The Forum submits that it wouldbe unfair for it to do so. Further, the Forum submits:

(a) it would be unduly harsh for a conviction for making a facilitation payment automatically to leadto debarment;

(b) companies that can demonstrate robust and eVective internal anti-corruption procedures shouldnot face mandatory debarment if convicted for an isolated example of bribery.

June 2009

SCHEDULE 1

The Forum supports the following key elements of the proposed bill:

1. The repeal of the existing common law and statutory oVences, and their replacement with acomprehensive bill setting out the potential liability of the payer of the bribe and the recipient, andrelated oVences.

2. The objective of ensuring that English law is in compliance with the OECD Convention onCombating Bribery of Foreign Public OYcials in International Business Transactions.

3. The decision to abandon the “principal oVender/accessory” and “primary reason” tests initiallyproposed in the Law Commission’s initial Consultation.7

4. Subject to the comments in the body of the Forum’s submission:

4.1 the criminalisation of bribes paid to a foreign public oYcial (Clause 4 of the proposed bill),and the definition of “foreign public oYcial” (Clause 4(6));

5 The EU Public Sector and Utilities Procurement Directives 2004, which came into eVect in April 2004. England, Wales andNorthern Ireland implemented the Directives on 31 January 2006 by means of two Regulations: “The Public ContractsRegulations 2006”, and “The Utilities Contracts Regulations 2006”.

6 Regulation 23 of the “Public Contracts Regulations 2006” and Regulation 26 of the “Utilities Contracts Regulations 2006”7 “REFORMING BRIBERY: A CONSULTATION PAPER”



4.2 the proposed introduction of the oVence of failure to prevent bribery, in part intended toencourage companies to implement, maintain and enforce procedures, systems and controlsdesigned to prevent bribery (Clause 5);

4.3 the proposed extra-territorial application of the general oVences (Clause 7).8

5. The Forum has not reached a consensus on whether consent should be needed to bring aprosecution, but has reached a consensus that if consent is required it should as recommended bethat of the senior prosecuting authorities, and not of the Attorney General.

6. The following provisions which are consistent with the Fraud Act 2006:

6.1 The proposal that an individual director, manager, or equivalent person who consents to orconnives at the commission by a company of one of the general oVences or the oVence ofbribery of a foreign public oYcial, will himself or herself commit the oVence (Clause 8)

6.2 The proposed penalties (Clause 11).

SCHEDULE 2

FORUM’S DEBARMENT DISCUSSION PAPER—15.05.07

DISCUSSION PAPER

UK ANTI-CORRUPTION FORUM

FAIR AND EFFICIENT DEBARMENT PROCEDURES

Introduction

1. “Debarment” is the procedure under which a company is prevented from participating in a project fora specified reason (eg a corruption conviction). It is sometimes referred to as “exclusion” or “blacklisting”.

2. Examples of debarment are where:

a) Funders deny project finance, guarantees or insurance to a company or project owner which isfound to have been involved in corruption.

b) Project owners exclude from the tender list any company which is found to have been involved incorruption.

3. Some forms of debarment are mandatory, and require a purchasing body to exclude from tenderingany company which has been convicted of corruption (for example, exclusion under the EU ProcurementDirectives). Other forms of debarment are discretionary, and do not rely on a conviction (for example,debarment by the World Bank).

4. The wide-spread publicity given to debarment, and the increase in due diligence undertaken byprocurement authorities, makes it increasingly likely that debarment by one organisation will lead todebarment by another.

5. For a company, debarment is the equivalent of imprisonment for an individual. It is depriving thecompany of the freedom to undertake business. Debarment of a company for any significant length of timemay result in the economic destruction of that company. It would be unable to obtain work or retain staV,and may as a result have to be wound up, or be broken up and sold. Its pension fund may be placed at risk.Therefore, similar principles of jurisprudence must apply to the debarment of a company as to imprisonmentof an individual.

6. The UK Anti-Corruption Forum supports the use of debarment as one of a range of anti-corruptionactions provided that debarment is implemented in a fair and eYcient manner. This discussion paperrecommends certain minimum requirements which are necessary for fair and eYcient debarment procedures.

The Objectives of Debarment Procedures

7. Debarment procedures should have four primary objectives:

a) To deter companies from committing corrupt acts.

b) To punish companies which commit corrupt acts.

c) To encourage companies to implement eVective anti-corruption policies.

d) To encourage companies to deal promptly and openly with any instances of corruption, and to co-operate with the authorities in the investigation and prosecution of corrupt acts.

The Requirements of Debarment Procedures

8. In order to achieve these objectives, debarment procedures should:

a) be implemented in accordance with good judicial practice;

b) be transparent;

8 And other individuals listed in clause 7(4) of the draft bill.



c) be uniformly applied;

d) provide incentives as well as penalties.

These requirements are examined in more detail below.

Good judicial practice

9. Debarment is a severe penalty. Both the procedures for determining whether or not there should be adebarment, and the procedures for determining the length of the debarment, should follow good andconsistently applied judicial practice.

10. Determining whether or not there should be a debarment:

a) Where debarment is mandatory: If a company has been convicted of corruption, and is facingdebarment under a mandatory procedure:

i) If the company facing debarment is appealing the conviction, the debarment should not takeeVect or be publicised unless and until the conviction is upheld by the appeal body.

ii) The company facing debarment should be permitted a reasonable time, prior to the debarmentbecoming eVective, to introduce evidence to the debarring authority that the conviction wasobtained in a jurisdiction which did not follow due judicial process. If the company can providesatisfactory evidence to this eVect, debarment should not be implemented under themandatory procedure.

b) Where debarment is discretionary: If a company is accused of a corruption oVence, and is facingdebarment under a discretionary procedure:

i) The debarring authority should provide full disclosure to the company facing debarment ofthe evidence that it was involved in a corrupt act.

ii) The company facing debarment should be permitted a reasonable time to prepare its defenceagainst the allegations.

iii) The company facing debarment should be permitted to provide to the debarring authority itsdocumentary and witness evidence, and legal argument.

iv) The debarring authority should only debar when it is satisfied beyond all reasonable doubtthat the company facing debarment was involved in a corrupt act.

v) The company facing debarment should be allowed a reasonable time to appeal the debarmentdecision to an independent appeal body.

vi) If the company facing debarment does appeal the decision, the debarment should not takeeVect or be publicised unless and until the debarment decision is upheld by the appeal body.

c) Where a company has been convicted or debarred, and the company is appealing such convictionor debarment, a procuring entity shall be entitled to request the company facing debarment toprovide reasonable proof that it has implemented an eVective anti-corruption programme as acondition of allowing it to tender during the period prior to the appeal being decided.

d) In the case of both a) and b) above, debarment should not apply to contracts awarded prior to thedebarment coming into eVect. However, a procuring entity will retain the right to terminate acontract for corruption to the extent that right is granted under contract or by law.

11. Determining the length of the debarment period:

a) The length of the debarment should take account of the following factors:

i) the severity of the oVence;

ii) the magnitude of the loss caused by the company’s actions;

iii) whether it is a first oVence or a repeat oVence;

iv) the seniority of the relevant individuals responsible for the oVence;

v) whether the board of the company had authorised or acquiesced in the oVence;

vi) the steps taken by the company to prevent the oVence occurring;

vii) whether the company itself reported the oVence to the authorities;

viii) the extent to which the company co-operated with the authorities after the oVence had beendiscovered;

ix) whether the relevant individuals responsible for the oVence have been dismissed orappropriately disciplined by the company;

x) the impact on the company and its non-oVending employees of a debarment.

b) At one end of the spectrum, where all the following factors are present, there should only be anominal debarment: Where the corrupt payment is of a low value, causing minimal loss, and is



committed by an employee of the company against the company’s properly embedded policies andtraining, and in circumstances where the company discovered the oVence, reported the oVence,dismissed or appropriately disciplined the employee, and co-operated with the authorities.

c) At the other end of the spectrum, where all the following factors are present, there should be amaterial debarment. Where the corrupt payment is of a high value, causing significant loss, and iscommitted by an employee of the company with the authority or acquiescence of the board, andthe company concealed the oVence, did not report the oVence, did not dismiss or appropriatelydiscipline the employee and did not co-operate with the authorities.

d) A tariV should be developed and published which lists the approximate length of the debarmenttaking into account the factors listed in paragraph 11 a). The intent should be that the debarmentcreates a result proportionate to the circumstances of the oVence.

12. Reduction in debarment period:

a) Once debarment of a company has been implemented, the company should be entitled to asignificant reduction in the debarment period if it can provide satisfactory and plausibleindependent proof to the debarring authority that it has implemented an eVective anti-corruptioncorporate programme.

b) Prior to the implementation of the OECD Convention on the Bribery of Foreign Public OYcialsand United Nations Convention against Corruption, business was conducted in many countriesin a manifestly diVerent international ethical and legal environment. To take account of this fact,in relation to oVences committed by a company prior to 14th December 2005 (the date the UNConvention came into force), the debarment period should be terminated as soon as the companycan provide satisfactory and plausible independent proof to the debarring authority that it hasimplemented an eVective anti-corruption corporate programme.

Transparency

13. Debarment procedures should be transparent. It must be quite clear to a company, and to the generalpublic, what oVences will lead to debarment, what procedures will be adopted to determine the debarment,the range of debarment periods applicable, and the procedures for appealing or lifting the debarment. Thedecision and reasons of the debarring authority should be publicly available.

14. A register should be maintained which contains details of all debarred companies, and the relevantoVence, the length of the debarment, and the reasons for the debarment. This information should be publiclyavailable, and be easily accessible. Many organisations, as part of their due diligence, require to knowwhether or not a company has been debarred. This register will assist this purpose. Ideally, one internationalregister should contain details of all debarments, so that information can be obtained from a single source.

15. Procedures should be implemented which enable a company to procure correction of incorrect entrieson the register.

16. Many organisations require disclosure by bidding companies of previous debarments. Criminalconvictions are treated as “spent”, and do not require disclosure after a certain period. Similarly, adebarment should be treated as “spent”, and should not require disclosure, and should be deleted from theregister, an agreed period of time after the debarment has ceased.

Uniformity

17. Debarring authorities should as far as possible co-ordinate their systems, so that debarmentprocedures and penalties are applied uniformly.

18. Exceptions to debarment rules should not be granted to companies with special political influence ora material share of the market.

Incentives

19. Of the four objectives listed in paragraph 7 above, objective a) is to deter and b) is to punish. Thethreat of debarment must be real and serious, which therefore acts as a deterrent. However, deterrence andpunishment only form part of the objectives. As recognised by objectives c) and d), companies must beencouraged to:

a) implement eVective anti-corruption policies; and

b) deal promptly and openly with any instances of corruption, and co-operate with the authorities inthe investigation and prosecution of corrupt acts.

20. These aims are best achieved by rewarding companies for acting in this way. If a company knows thatit will receive the same debarment penalty whether or not it itself uncovers and reports the oVence, it willhave no incentive to undertake internal audit and co-operate with the authorities. On the contrary, it maybe encouraged to conceal the oVence, as it will be aware that reporting will alert the authorities and resultin no benefit. As a result, corruption will be driven underground, when preventing corruption is bestachieved by bringing it out into the open.



21. The recommendations in this paper contain significant incentives for companies to implement anti-corruption policies, and to deal openly and actively with corruption. In particular, the recommendationsthat:

a) the length of debarment takes account of mitigatory circumstances, reducing to a nominal periodin the best case (paragraph 11 b) above);

b) the introduction of anti-corruption systems can lead to a reduction in the debarment period(paragraph 12 a) above).

Liability for the Actions of other Companies

22. One of the most diYcult issues in relation to debarment is the extent to which a company should bedebarred for the actions of another company. The deterrent and punitive objectives of debarment would beneutered if an organisation could set up a series of single project companies, deliberately pay bribes to winwork, and then, if one company is debarred, continue trading corruptly though the other companies. At theother extreme, however, it would be unfair and wrong for a company to be debarred for the actions ofanother company over which it had no control, and in circumstances where it had no complicity in thecorruption.

23. The following general principles are suggested for further discussion with a view to achieving a fairand transparent system of dealing with this issue.

a) If Company A is debarred for a corrupt act, and Company B authorised or was complicit in thecorrupt act, Company B should also be debarred. This would include circumstance whereCompany A is the parent or subsidiary company, or agent, joint venture or consortium partner, orsub-contractor of Company B.

b) The lengths of debarment of Company A and Company B should take account of the factors listedin paragraph 11. The debarment period for Company A could be diVerent from that of CompanyB to take account of diVerences in the level of their involvement.

Guidelines

24. The complexity of the issue, and the need for certainty and uniformity, requires that internationalguidelines on debarment are drawn up and agreed. The UK Anti-Corruption Forum would welcome theopportunity to participate in this exercise.

Conclusion

25. Debarment of a company can be an eVective method of deterring and punishing corruption. It formsan important part of an overall anti-corruption strategy. However, debarment is a potentially devastatingpenalty. It is therefore vital that debarment procedures are implemented in accordance with good judicialpractice, are transparent, are uniformly applied, and provide incentives as well as penalties.

The UK Anti-Corruption Forum is an alliance of UK business associations, professionalinstitutions, civil society organisations and companies with interests in the domestic andinternational infrastructure, construction and engineering sectors. The purpose of the Forum is topromote industry-led actions which can help to eliminate corruption. The members of the Forumbelieve that corruption can only be eliminated if governments, banks, business and professionalassociations, and companies working in these sectors co-operate in the development andimplementation of eVective anti-corruption actions.

www.anticorruptionforum.org.uk

Memorandum submitted by CliVord Chance LLP (BB 05)

Introduction

1. This submission is made on behalf of CliVord Chance LLP in response to an invitation by the JointSelect Committee to submit evidence on the draft Bribery Bill published by the Ministry of Justice on24 March 2009.

2. CliVord Chance is one of the largest global law firms with 30 oYces in 21 countries, and over 3,500 legaladvisors, the largest number of whom are based in London. We are regulated by the Solicitors RegulatoryAuthority of England and Wales.

3. We have followed the government’s attempt to reform the law in this area closely over the past tenyears. We have seen over that period an increasing demand for advice and assistance in relation tocorruption-related issues, including the development of corporate compliance codes and trainingprogrammes, as well as advice and assistance in drawing up, and advising on, anti-corruption contractualprovisions in transactional work and representation in corruption-related litigation.



4. We have contributed to the Law Commission’s several papers on this subject, to the previousParliamentary Joint Select Committee’s Inquiry, and to the Home OYce’s consultation, and are pleased tohave the opportunity to contribute to this Inquiry.

5. The current UK law on bribery is flawed, as suYciently demonstrated by the Law Commission’sarguments. Moreover, it has been heavily criticised, both domestically and internationally—particularly bythe OECD. We therefore consider it imperative that legislation in this area is passed at the earliestopportunity. But it is also essential that the legislation be clear and eVective, and that it should notcriminalise behaviour where no criminal intent is present. We have identified four areas in which we considerthe Bill could be improved, and we set them out below.

Case 2 and Case 4: Acceptance Constitutes Improper Performance

6. We consider that there are diYculties in applying the definition of improper performance contained inClause 3 to the oVences set out in the context of Case 2 and Case 4 (Clause 1(3) and Clause 2(3) respectively).

7. Bribery is generally considered to be an oVence in which one party gives the other party a payment (orsome other advantage) in exchange for an improper act. In the Case 2 and Case 4 oVences, however, only oneact—ie the acceptance of the advantage—is required to make out the oVence. This raises a policy question ofwhether it is right that a person should be guilty of a bribery oVence when no improper act has beenperformed, or was expected to be performed, in return for the payment or advantage.

8. In addition to this policy question, we consider that the requirement that acceptance itself constitutesimproper performance puts an unnatural strain on the definition in Clause 3, making it diYcult to interpret.Further, it may mean that it is more likely that these oVences may embrace acts which most people wouldnot consider to be criminal.

9. While we understand the objective of having one overarching definition of improper performance, andthe desire to ensure that all potentially corrupt acts are caught, we are concerned that these aims may, inCases 2 and 4, have led to draft legislation which may not be workable.

10. For example, a director of a company gives £1,000 to a local councillor. In order to establish that thedirector has committed a Case 2 oVence, the prosecution must show that the director knew or believed thatthe acceptance would “constitute the improper performance of a function or activity to which section3 applies”. If the prosecution cannot show this, then there is no oVence. In the action of accepting the £1,000,is the local councillor carrying out a function of a public nature, an activity connected with a business, tradeor profession, an activity performed in the course of his employment, or an activity performed by or onbehalf of a body of persons? Or would he argue that he is accepting the £1,000 (or a car, tickets to the opera,or a luxury family holiday) in a purely private and personal capacity?

11. Where the prosecution is able to show that the acceptance of the money falls within Clause 3, thepolicy question raised in paragraph 7 above must still be addressed. In this example, if the company directorat no time requests or expects the councillor to perform any sort of function or activity which has an impacton the director or his company, should the provision of the payment or other advantage be classified as abribe, or should this rather be a question of conduct and ethics for the local councillor? Conversely, if thedirector does request or expect the councillor to perform a function or activity improperly, then this will fallwithin the Case 1 oVence, the Case 2 oVence being redundant.

12. Creating a serious criminal oVence based on acceptance alone also raises, we believe, potentialproblems under human rights legislation. The Prevention of Corruption Act 1916 created a presumption ofcorruption where money, or a gift, is paid, or given, to a public oYcial where the person giving the moneyor gift holds or is seeking to obtain a contract from the public body. Persuasive arguments have been madethat this presumption is not human rights compliant. The Case 4 scenario, in particular, appears to go evenfurther than this, creating criminal liability—not just a rebuttable presumption—for an act which may flowfrom a misunderstanding, or a mistake, as to the propriety of acceptance, rather than from any criminalintent.

Clause 2(7): No mens rea

13. In both the Cases of bribing another person, the wording of the oVence includes a clear element ofmens rea on the part of the oVeror. However, the draft Bill produced by the Ministry of Justice has amendedthe wording of the oVence of being bribed contained in the Law Commission’s draft Bill to include a newsub-clause (Clause 2(7)), which provides that it does not matter whether the recipient knows or believes thatthe performance of the function or activity is improper.

14. We understand that the purpose of this new sub-clause is to clarify that a person receiving an improperpayment is not able to evade liability by claiming he did not know it was improper to do so when, in thecircumstances, he ought to have known.

15. However, the risk must be that this could criminalise an act on the part of a person who genuinelydid not know that the performance of the function or activity was improper. For example, a senior bankoYcial of the lead arranger in a syndicate, deciding on allocation of debt, allows a particular bank toparticipate on the basis that that bank will, in return, take some of the lead arranger’s poorly-performingmortgage portfolio. All the elements of the oVence of receiving a bribe intending improper performance are



present (ie the bank oYcial is in a position of trust, and a reasonable person would expect him to performthe function of allocating the debt for reasons unrelated to the bank’s mortgage portfolio). Therefore, evenif the bank oYcial did not realise that he was doing something improper, he may still be guilty, because noelement of intent or knowledge of impropriety on his part is required.

16. We consider the formulation of these oVences with no reference to mens rea, and Clause 2(7) inparticular, to be inappropriate in a criminal statute.

Clause 4: Bribery of Foreign Public Officials

17. We understand that this clause is specifically designed to meet the UK’s obligations under the OECDConvention on combating Bribery of Foreign Public OYcials in International Business Transactions (“theOECD Convention”), and to put UK anti-corruption legislation on a parity with U.S. legislation,particularly the Foreign Corrupt Practices Act (“FCPA”).

18. Article 1 of the OECD Convention requires that:

“Each Party shall take such measures as may be necessary to establish that it is a criminal oVenceunder its law for any person intentionally to oVer, promise or give any undue pecuniary or otheradvantage, whether directly or through intermediaries, to a foreign public oYcial, for that oYcial orfor a third party, in order that the oYcial act or refrain from acting in relation to the performanceof oYcial duties, in order to obtain or retain business or other improper advantage in the conduct ofinternational business.”

19. The FCPA makes it an oVence for defined entities:

“to make use of the mails or any means or instrumentality of interstate commerce corruptly infurtherance of an oVer, payment, promise to pay, or authorization of the payment of any money, oroVer, gift, promise to give, or authorization of the giving of anything of value to—

(1) any foreign oYcial for purposes of—

(A) (i) influencing any act or decision of such foreign oYcial in his oYcial capacity, (ii) inducing suchforeign oYcial to do or omit to do any act in violation of the lawful duty of such oYcial, or (iii)securing any improper advantage; or

(B) inducing such foreign oYcial to use his influence with a foreign government or instrumentalitythereof to aVect or influence any act or decision of such government or instrumentality,

in order to assist such issuer in obtaining or retaining business for or with, or directing business to,any person;”.

20. Both the OECD Convention and the FCPA include a criminal mens rea as part of the oVence, theConvention by the use of the word “intentionally”, and the FCPA by using the word “corruptly”.

21. In contrast, the draft Bill before the Committee would create what is essentially an oVence of strictliability, where it would be possible for someone to be found guilty, even if that person had no intention tobribe a foreign public oYcial, and did not realize he was doing so (the word “intentionally” in Clause 4(1)relates only to influencing the foreign public oYcial, and does not import any criminal knowledge or intent).

22. The Law Commission draft Bribery Bill included a defence to this oVence, that the person providingthe financial or other advantage reasonably believed that the advantage was legitimately due. The omissionof this defence in the Ministry of Justice’s draft Bill, coupled with the lack of any specific requirement ofimpropriety (beyond that the advantage is not legitimately due) in the delineation of the oVence, would makeit possible for a person to be guilty of this oVence, without any criminal intent of any kind.

23. For example, a person legitimately owing money to a foreign government for, eg a licence (whichwould, for these purposes, comprise “an advantage in the conduct of business”), may be given incorrectaccount details by a corrupt public oYcial, with the result that the payment is made to the oYcial, ratherthan to the correct governmental authority. Since the payment would not be “legitimately due” to thecorrupt oYcial, the person making the payment would be guilty of a criminal oVence, even if he had noknowledge of the corruption and believed the payment to be entirely innocent.

24. In another example, a company makes a payment to a foreign public oYcial in return for a servicewhich benefits the company’s business, following—in good faith—local legal advice that the payment islegitimately due. However, the legal advice is incorrect and the payment is not legitimately due. Thecompany (or the individual who made the payment) is guilty of an oVence under Clause 4, even though ithad no criminal intent, and indeed, took steps to avoid committing a criminal oVence.

25. In both these examples, it is of limited comfort to the person or company that the UK prosecutingauthority may decide to exercise its discretion not to prosecute. If it constitutes a criminal oVence, and thecompany becomes aware of this, this may give rise to obligations to report under anti-money launderinglegislation, and to issues as to whether related proceeds can be dealt with without the risk of committing asubstantive money laundering oVence.

26. It will not always be easy to ascertain whether payments or, for example, the provision of corporatehospitality is “legitimately due”. Many countries will have rules in place on corporate hospitality setting outwhat their oYcials may and may not accept. However, even in the UK, these rules vary considerably for



diVerent government departments, for local government, and for individual public bodies, and are notalways easy to obtain. The task, for a UK company, of ascertaining and understanding these rules in aforeign country is likely to be more diYcult, or even impossible.

27. For example, a Minister of another country accepts an oVer of hospitality from a company seekingto establish a presence in that country. The company believes that the hospitality proVered is appropriateto the Minister’s status. In fact, the hospitality is in breach of strict internal rules drawn up by the Minister’sgovernment, but these rules are not publicly available. It is likely that the company would be guilty of anoVence.

28. It is not unreasonable to expect those making payments or providing other forms of advantages toforeign public oYcials to take reasonable precautions to guard against corruption. However, we do notbelieve that it is appropriate to ascribe criminal liability on the basis of an innocent mistake.

29. We would therefore support the re-insertion of the defence as drafted by the Law Commission.

Clause 5: Failure of Commercial Organisations to Prevent Bribery

30. While we consider that the Ministry of Justice’s draft Clause 5 is, in some respects, superior to thatof the Law Commission, we fear that, as currently drafted, Clause 5 would encourage companies to appointa junior employee to be responsible for anti-bribery compliance. This runs counter to best practice adviceto companies formulating policies, which is to appoint the most senior person feasible. However, Clause5 would mean that a company which appoints a senior person, who is then negligent, would be unable torely on the fact that it had put in place procedures to prevent bribery, regardless of how stringent thesemeasures may be and how deeply they had been embedded in the culture of the company.

31. We consider that this sends the wrong signal to companies and will not encourage them to appointeVective compliance oYcers, or to put in place anti-bribery procedures, if such procedures are capable ofbeing simply disregarded by a court.

32. We would therefore support the deletion of Clause 5(5), with the result that companies would be ableto provide evidence of their anti-bribery compliance procedures in defence to a charge of failure to preventbribery, even if the compliance oYcer, or a senior oYcer of the company, was negligent.

33. We understand the anxiety that a company may be able to avoid liability for this oVence by referenceto procedures which, perhaps, are in form only and not fully implemented. However, we consider that theseissues (as to full implementation, training etc) should be considered as part of the defence and not simplyexcluded from the court’s deliberations. The deletion of Clause 5(5) would not prevent a court from findinga company guilty of this oVence, on the particular circumstances of the case, on the sole grounds that it hadcompliance procedures in place.

34. Despite the addition of Clause 6, we believe there remain ambiguities in the statement of the Clause5 oVence, particularly in the interpretation of the phrases “performing services on behalf of C” (in Clause5(1)(a)) and “in connection with C’s business” (in Clause 5(1)(b)).

35. These ambiguities may create practical diYculties for banks in syndicates, companies in jointventures, and large group companies. Is the lead bank in a syndicate performing services on behalf of theother banks? Is a company in a joint venture performing services for its joint venture partner? Is a bribe paidby an employee of a subsidiary of C in order to gain a contract for that subsidiary made in connection withC’s business? Does the answer diVer if C is the sole holding company, a 51% shareholder, or a 20%shareholder? Further clarity would be helpful.

36. We, further, have some concerns about the wording “adequate procedures”. It could be argued thatthe fact that bribery has occurred and that the relevant person has been negligent, means, in itself, that theprocedures have not been adequate. We would therefore prefer that the defence be based on the existenceof “appropriate” or “reasonable” “systems and controls” rather than “adequate procedures”.“Appropriate” finds a parallel in Schedule 46 of the Finance Bill 20099 and its use would therefore promoteconsistency, while courts are well accustomed to interpreting the word “reasonable”. Either of these wouldprovide the necessary flexibility to accommodate the fact that companies in particular sectors, or operatingin particular countries, would be expected to have more stringent controls in place.

Conclusion

37. Attempts to reform the UK law on bribery are long over-due, and there is now an urgent need forprogress to be made. However, it is equally important that the new law be clear and that it should not castits net indiscriminately over acts where there is no criminal intent. All businesses are struggling in the currenteconomic climate; whether this is a result of poor regulation, or whether the credit crisis is likely to causean increase in crimes of fraud and corruption, it would still be a mistake to introduce legislation which,because of a lack of clarity, or an overly mechanistic approach, places unrealistic and onerous burdens oncompanies. Many UK companies have already invested heavily in compliance policies, procedures, training

9 “1(1) The senior accounting oYcer of a large company must take reasonable steps to ensure that the company and each ofits subsidiaries (if any) establishes and maintains appropriate tax accounting arrangements”, Schedule 46, Finance Bill, HCBill 90, Session 2009-09



and other anti-corruption initiatives. It is right that those who have not done so should follow suit, asappropriate. Companies need to feel assured, however, that the eVorts they make will not be negated bylegislative drafting which creates criminal liability without significant failings, and that these eVorts can befairly judged in court where the company itself is charged with an oVence.

June 2009

Additional memorandum submitted by Jeremy Horder (BB 06)

Jeremy Horder, Law Commission for England and Wales.

1. Comparing the “improper conduct” model with the law in other jurisdictions. The Law Commissionlooked at the law in other jurisdictions in its Consultation Paper, “Reforming Bribery” (CP No 185, 2007),appendix B. I attach a copy below. Comparing legal language, against diVerent legal backgrounds, isinevitably a potentially misleading business. In France, language such as “without a right” and in Germany“in violation of duty” are words used that could be compared with “improper conduct”, but they are usedin France and Germany exclusively for public sector bribery. In Germany, in the private sector, the word“unfairly” is used to identify transactions that, in exchange for benefits, will be regarded as involving bribery.Following the Commission’s lead, the Bill tries to avoid these diVering standards, as well as the problematicpublic/private sector distinction, by using a definition of “improper conduct” to cover both the public andthe private sector. The overwhelming majority of the Law Commission’s consultees favoured this “singletest” approach and emphatically rejected a division between public sector and private sector bribery.

2. Leaving “improper” and “not legitimately due” undefined. The Commission addressed this issue in itsReport at paras 3.100–3.110. Leaving key elements undefined has the attraction of simplicity, but would riskcreating a situation in which the reforms would not improve on the current law. To seek to answer 2(a), oneof the very problems with the current law is that courts have been at odds over what directions should begiven to juries on the meaning of “corruptly”, given that it is undefined. Moreover, turning to 2(b), in fairnessto eg public servants and companies, some guidance on what is permitted/forbidden should be provided inlaw. The Commission took the view that, by defining “improper” as breach of trust, breach of impartiality,or breach of duty of good faith, at least some guidance would be provided, giving public servants, companiesand juries something to go on. In the end, given that “good faith”, “impartiality” and “trust” are ordinaryEnglish words, with the benefit of a common sense direction from the judge I think that a jury will perfectlywell understand what is being asked of them. On “not legitimately due”, it is essential that the clause4 oVence shuts out in terms any possible attempt to extend it to customary law, otherwise the clause 4 oVencewill simply fail to meet our international obligations. Would it really be better if the courts were left to fillin the meaning of “improper” and “legitimately due” on a case by case basis? For a start, too few briberycases are litigated in the higher courts for such a policy to get oV the ground; and in any event, this is notan appropriate area for piecemeal common law development.

3. The applicability of the “what a reasonable person would expect” test. Certainly, the clause 1 and2 oVences have an international application. That follows—but seeks to improve on—the current law, andthe law would be grossly deficient without such an application. Two points here.

First, your question may show that we are in danger of missing the point about the clause 4 oVence.The clause 4 oVence is there specifically to meet our international obligations. Whilst thoseobligations could be met in other ways, the creation of a specific oVence using particular wordingallows English courts to look to international jurisprudence on the meaning of those words as theyfall to be applied. Clause 4 also constitutes a visible commitment to our international obligations,rather like the creation of the oVence of “torture” in 1988. Most kinds of torture would be coveredby oVences under the OVences against the Person Act 1861, but the Government in 1988 decidedthat a specific oVence should be created to demonstrate our commitment to our internationalobligations. All these points are set out in the Commission’s Report at paras 5.61–5.70 and weresupported by the overwhelming majority of consultees. When a case raising alleged bribery of anforeign public oYcial is being considered by prosecutors, they will in eVect be duty-bound to chargeclause 4, in any case where, if they do not do so, the defendant may seek to exploit the “what thereasonable person might expect” provision to say that what s/he did was only to be expected incountry X. It needs to be kept in mind that complying with our international obligations is not justabout passing laws. It is about prosecuting them in a way that makes compliance a real prospect,not just a prospect on paper.

Moving on from that, secondly, when a case falls outside the scope of clause 4, but still involvesforeign bribery, I think that it becomes harder to justify some alternative test, such as “notlegitimately due”. In cases involving purely private sector bribery overseas, the “not legitimatelydue” concept begins to lose all meaning. More importantly, clause 4 is as it is, in relation to publicoYcials, because we wished to avoid “gold-plating”. However, a company that bribed a candidatefor public oYce, so clause 4 was not engaged, would be taking a huge risk respecting whether thejury would be sympathetic to his or her view that it was ok, say, to boost a candidate’s expenses



to astronomical levels, “because that is the sort of thing that they expect in country X [and I wantedto have them in my pocket]”. Sure, a jury might buy that explanation, but then again they mightnot. We need to have faith in juries to make the right call, given the right guidance from the bench.

4. Gaps in the law? To take the first point about two Boards of Directors carving up market share, theHouse of Lords has made it clear time and again that conspiracy to defraud should be used onlyexceptionally in such a situation, because it is a matter to be governed by competition law. The same is trueof bribery law, which should in no circumstances ever be used in such a way that it undermines Britain’scompetition policy and the law that embodies that policy. Other than in unusual situations, agreementsabout market share are competition law matters, period. The Commission sought to explain this in itsConsultation Paper, Appendix D. There is no “gap” in the law, if one is willing to look beyond bribery andconsider the eVect of the law governing fair competition, bribery and fraud, taken together. So far as payingvoters to vote a particular way is concerned, it is hard to see why that should be regarded as bribery, as thevoter is under no duty to vote at all, and if if s/he does vote, he or she is under no duty to vote only for certainreasons. So, there is no “improper conduct” in any of the three senses set out in the Bill. It would, of course,be diVerent if it is, say, a Returning OYcer who is bribed. Again, the issue is one for other legislation, namelylegislation about voting and representation of the people. After all, when any sitting politician canvasses avoter, s/he is a public oYcial oVering an advantage (better local/national politics if his/her party wins theelection) in exchange for something (a vote). Does that mean we should think of this as a potential case ofbribery, if only we could find some impropriety? No.

More broadly, it is a conceptual truth about law that the greater the specificity in legislation themore the potential for gaps, even though greater specificity may involve better guidance.Contrariwise, vaguer or undefined concepts may reduce the potential for gaps (although thatdepends how “prosecution-minded” an Appeal Court is in interpreting an oVence) but theyprovide less by way of guidance. The Bill attempts to provide at least a degree of specificity bynaming the three key concepts (trust; impartiality; good faith) under the aegis of “improperconduct”, and in that way may risk some “gappiness”, but in my view the risk is low andoutweighed by the benefits.

5. The 1925 Act. As I indicated at the meeting, our agreement with the Home OYce (as was) was that wewould not stray into misconduct concerning Parliament/Government, and the 1925 Act was thus excludedfrom our remit. It may be that this Act would be made redundant by the Bill if it passed into law. If so, ourStatute Law Repeal division within the Commission might be persuaded to look at it with a view toabolition. Whether it can and should be done now I could not say. It is worth perhaps saying that there maybe disadvantages in making a single statute wholly and exclusively the source of bribery law, until some timehas passed to see if, indeed, other legislation is now unnecessary.

6. 6(a): The reason for the defence of “reasonable belief” is that, quite simply, companies have to dobusiness in a huge number of very diVerent countries around the world, and they often have to makedecisions whether or not to invest etc at very short notice. Access to the relevant law is now a much simplertask than it was years ago, because there are so many good internet resources. However, it is still the casethat there are no English language translations of the law for many countries, and it may be hard to knowin some instances, just by reading a statute, how the words will be understood in a particular country. Therewill still be a need to rely on lawyers’ advice in some instances, and it is in such cases that the reasonablebelief test was meant to come into its own.

6(b) This is unrealistic. Jurisprudentially, only the highest domestic court (or supreme ruler) can be a finalauthority on what the law in a given jurisdiction requires. Hence, in some instances, the need to rely onlawyers who know how the court/ruler tends to see things, legally, in that jurisdiction.

6(c) A fuller explanation of these issues can be found in the Commission’s report, at 5.91-5.11. The OECDregards the “not legitimately due” criterion as one that respects the autonomy of states in determining onwhat basis advantages should be received by oYcials. It is unlikely that corporate hospitality, in particular,will ever be “legitimately due”, although some commission payments may be. As I said at the meeting, wehave to rely on prosecutorial and jury common sense here. There is simply too little public interest inprosecuting firms, at great expense, for the provision of hospitality or commission payments, unless thosereach levels any ordinary person would regard as totally out of order.

6(d) This is dealt with in appendix B of the Commission’s Consultation Paper (below). In essence, severalcountries have a “not legitimately due” criterion, or a “without legal right” criterion, or something of thatnature, in relation to bribing foreign public oYcials.

7. Negligently failing to prevent bribery: clause 5 How many countries have such an oVence? This is notas straightforward a question to answer as it seems. In some—perhaps most—instances where one finds abasic oVence of “failing to prevent bribery” it will, in eVect, be treated as one of negligently or recklesslyfailing to prevent bribery, either because negligence/recklessness will be treated as an implicit element by thelegislature or the courts in the country in question, or because prosecution policy so dictates. As in myanswer to 1 above, it is important to stress how misleading it can be to make crude, purely text-basedcomparisons between the law in diVerent jurisdictions.



That said, there is in fact a relatively long list of countries that impose liability on the basis of what (inthe obfuscating Latin that is often insisted on overseas) is regarded as, “culpa in eligendo, instuendo, etcustodiendo” (basically negligent or reckless failures in hiring, training and supervising). Some suchcountries are listed in the Commission’s report at para 6.94.

Putting national jurisdictions on one side, the starting point in the Law Commission’s report (paras6.62–6.71) was Article 5(2) of the European Council’s Framework decision (2003/568/JHA), which requirescriminal liability to be imposed by member states:

“where the lack of supervision or control by a [natural] person…has made possible the commissionof [a bribery oVence] for the benefit of that legal person by a [natural] person under its authority.”

In my oral evidence, I perhaps ought to have mentioned article 5(2), which has hitherto been convenientlyignored by Government for law reform purposes; but no longer, if the Government’s Bill goes through. Itseems self-evident that article 5(2) is aimed at negligent failures to prevent bribery by someone in thecompany. The “failure to prevent” oVence in the Bill matches article 5’s requirements. Similarly, the OECDitself has laid emphasis on negligent failures by companies that lead to bribery being committed on acompany’s behalf (Law Commission Report, para 6.91).

7(a) I cannot answer this, because this is a Government amendment to the Commission’srecommendations.

7(b) Again, as this is a Government amendment, the issue of its consistency with what the Commissionsaid is not a matter for me. However, in support of the Government’s new position one might say thatcompanies, unlike people, can be in several places at one time and often do not really have a true nationalbase: they carry on business—and are managed— wherever is best from the company’s viewpoint. I shouldstress that if that seems an obvious point that the Law Commission should have taken on board, it isimportant to remember that the Commission only makes recommendations for England and Wales, andmust be wary of—indeed, ideally, avoid—making recommendations that extend liability to persons orentities based elsewhere. However, in support of the Commission’s position, see further the point madeunder 7(d) below.

7(c) I cannot really answer this properly, as this is a Government amendment. However, in theCommission’s report, we employed a common phrase—“business, trade or profession”—to describe thelimits of private sector bribery, and that phrase (or something like it) is in common use in the criminal andcivil law (Report, para 3.21–3.24).

7(d) I certainly drew the parallel with natural persons ordinarily resident, as a way of explaining theGovernment’s amendment to the Law Commission Bill, but clearly, given the point made above thatcompanies may have no national allegiances and may be in several places at one time (answer to 7(b) above),the analogy has limits.

By comparison, a company’s corrupt activity outside the US may be caught by US law if any element ofit is routed (eg via bank payment transfers) via the US.

However, as business organisations pointed out to us in consultation, the US is commonly regarded as aspecial case, when it comes to taking jurisdiction, because of its great political and legal power world-wide.If we were to start taking jurisdiction over companies based in, say, tyrannical regimes, just because thosecompanies did business here, what would be to stop those regimes using that as a justification for doinglikewise vis-a-vis British companies? The result would be that British business people would be liable to findthemselves arrested and imprisoned in those regimes as soon as their plane landed, just because that regimesuspected that an allegedly corrupt transaction by the business people had taken place in or been routedthrough their country, with all that that might entail in terms of the treatment of those people within thatlegal system. We did not find that an attractive prospect, but the Government feels the risk ought to beshrugged oV. Certainly, the OECD would like us to extend liability in the way that Government intends toextend it. However, the OECD does not have to worry itself about “tit for tat” legislation overseas thatentails British business people being held in what may be appalling prison conditions abroad, facingindefinite detention respecting dubious allegations that may quite possibly have been politically motivatedin the first place.

8. “Adequate procedures” under Clause 5. I believe that the Bill fully meets the Woolf Committeeexpectations, and that there will be no negative incentive of the kind indicated. Clause 5 is set up so as toprevent directors relying on the adequate procedures when it was their own negligence that led to thecommission of bribery in the first place. I find it hard to see how that could encourage directors to take a“back seat”, having appointed someone to supervise, because it is the Directors’ responsibility to ensure thatsuch a person does their (supervision) job properly. In the Woolf Committee report, we find an emphasis onthe risk of bribery being committed in the company’s name being a regular item of Board business. The Billprovides implicit support for such an approach, in that it would no doubt be expected that the “supervisor”would have to report at the relevant board meeting (or in some other report back) to discuss that item onthe agenda. Any Board that appointed someone to supervise, and then conveniently forgot all about theissue, would find themselves looking at a justified claim that they had failed to ensure truly adequateprocedures were in place. Nowhere in the Bill, or in the Commission’s report on which it is based, does itanywhere say expressly or impliedly to company directors, “so long as you set up some formal system forchecking, you can then just sit back and relax”. “Adequate” means just that: adequate. It does not mean



“adequate on the face of it”, or “adequate in theory”, or anything of that kind. Adequacy may varyaccording to the nature of a company’s trade, its size, and its resources, but that is pretty much it. The issueis discussed further by the Commission in its report at paras 6.105–6.113.

9. “Meaning of Senior OYcer”. This is something added by the Government to the Commission’s Bill,so I can only speculate. 5(7)(a) seems to imply that “manager” goes beyond “managing director” and wouldcover, say, a regional manager. It is perhaps worth enquiring of Government whether the intention was toextend the notion of “senior oYcer” as far as it is taken in the Corporate Manslaughter etc Act 2007. In thatAct, section 1(4)(c) explicitly extends “senior management” to persons who play, “significant roles” in themaking of decisions and the actual management of the company. Clearly, it is not desirable for companiesto have to grapple with many diVerent understandings in law, for the purpose of diVerent oVences, of whois “in charge”.

10. Must a “responsible person” be appointed? The adequate procedures defence is only ruled out if thenegligent failure to prevent bribery is wholly or partly attributable to a senior oYcer. The general idea isthat if directors—who have ultimate responsibility for all procedures to prevent oVences being committedby employees etc—are themselves guilty of negligently failing to prevent the oVence, why should they beable to rely on procedures (for which they were in theory responsible) to stop the oVence occurring?

A small company could decide that the (four, say) directors would jointly take responsibility forpreventing bribery by following a procedure they have devised to that end. In such a case, a failure to followthe procedure, or sticking to it when it had clearly become outdated etc, would amount to an arguable caseof negligent failure to prevent on the part of one or more of the directors, ruling out reliance on the procedureitself obviously. Neither the Commission nor Government can profitably hope to dictate to companiesexactly how they arrange their internal governance arrangements. What can be said is that thosearrangements must ensure that if it is senior oYcers who are to do the “barking” they must bark properly,but if they employ a dog to bark, there must be something in place to make sure the dog barks properly.

11. Directors and disqualification. I am afraid I do not know the answer to this question as a matter ofstrict law. However, (a) I think the answer is that it would not be possible to disqualify a director for negligentfailure to prevent bribery, and (b) it might be thought inappropriate in a case of negligence. It is unclear howone incident involving negligence could make someone unfit to run a company. It would of course be adiVerent matter if a director had consented or connived at bribery contrary to clause 8(2).

12. Professor Wells is an acknowledged authority in this area of law, and a long-term advocate of the“corporate culture” model, but I reject her contentions. First the “negligent failure” basis for the oVence isrequired by the European Council Framework Decision (see above), and is employed in a number of otherjurisdictions (see above). So, it seems perfectly appropriate.

Secondly, the “corporate culture” model is in my view hopelessly vague. Evidence of a corporate culture,if such evidence can withstand challenge as “hearsay” evidence, can certainly be a piece of evidence tosupport an allegation of negligence (that is the role it plays in the Corporate Homicide etc Act 2007). As asubstantive legal test, I do think it even gets to first base. How, for example, can a sole proprietorship, oreven family business, be said to have a “corporate culture”? Yet, such businesses (micro businesses) are theoverwhelming majority of businesses in the UK, no less than 96%.

Thirdly, vicarious liability is commonly regarded as anomalous in the criminal law, and is currentlyconfined by the legislature to such oVences as selling intoxicating liquor outside hours, or driving oVencesunder the Road TraYc Act. I do not see it suddenly being given a front-line role in relation to the commissionof a stigmatic oVence like bribery. It would obscure the reality that it is the employee/agent who commitsbribery, the company’s fault lying in failing to prevent it. In a way, it is actually nonsensical to suggest that(in virtue of vicarious liability) the company itself actually commits the bribery, but then permit the companyto plead an adequate systems defence. Such a defence presupposes that the person committing the crime andthe person responsible for the system are diVerent. So, “nul point” for this suggestion, I fear.

The only “runner” is the suggestion that there be, in eVect, strict liability for the bribery, coupled with theadequate systems defence. I discussed this in response to an early question from Lord Goodhart. I think weagreed that it would make for greater simplicity. It would not be wholly inappropriate, unworkable, oranything of that sort (unlike “corporate culture” based oVences). However, first, under the existing law, itwould put failing to prevent bribery on the same level as failing to prevent a tin of food being contaminatedduring processing, but these are very diVerent things, because supervising people is very diVerent in naturefrom supervising mechanical processes. Secondly, there is stigma attached to conviction for any briberyrelated oVence, and that fact should be reflected in a fault requirement in the oVence itself, as it is withcorporate manslaughter. Thirdly, the OECD and the European Council do not require strict liability, so tointroduce it would be “gold-plating” unpopular with businesses, respecting whom this legislation mayalready be a hard sell.

June 2009



APPENDIX B

COMPARATIVE LAW

This Appendix sets out some overseas approaches to the bribery of public oYcials, foreign and domestic,and private individuals. The Appendix should be read in conjunction with Professor Stuart Green’s paperon the approach in the United States of America.

1. France

2. Public oYcials

1. The Criminal Code provides two oVences that make it an oVence to bribe a public oYcial.

2. Article 432-11 of the Criminal Code makes it an oVence for a public oYcial10 to directly or indirectlyrequest or accept promises, donations, gifts or advantages, without the right to do so. In addition to thisthere must be an intention on the part of the public oYcial to carry out or abstain from carrying out an actrelating to his or her oYce or an intention to obtain “any distinction, employment, contract or any otherfavourable decision”.

3. The corresponding oVence is contained in Article 433-1 of the Criminal Code. This Article makes itan oVence for a person to, directly or indirectly, oVer or promise donations, gifts or advantages to a publicoYcial without the right to do so. In addition to this there must be an intention on the part of the personthat the oYcial carry out or abstain from carrying out an act relating to his or her oYce or an intention thatthe oYcial obtains “any distinction, employment, contract or any other favourable decision”.

4. The maximum penalty for these oVences for natural persons is 10 years’ imprisonment and/or a fineof 150 thousand Euros. The maximum penalty for legal persons is up to five times the maximum fine fornatural persons. Further under Article 433-25 of the Criminal Code, a legal person can be subject to any ofthe following for a period of up to five years:

(a) a ban on performing the activity in connection with which the oVence was committed, eitherdirectly or indirectly;

(b) judicial supervision;

(c) closure of the oYce within which the oVence was committed;

(d) exclusion from public procurements;

(e) a ban on appealing for public funds;

(f) a ban on issuing cheques;

(g) a ban on the use of payment cards;

(h) confiscation; or

(i) display of the court’s ruling.

5 Both natural and legal persons may also be subject to the confiscation of the “instrument that was usedor intended to be used to commit the oVence, or of the proceeds of the oVence”.11

3. Foreign public oYcials

6. Articles 435-1 and 435-2 of the Criminal Code provide oVences of bribing foreign public oYcials.Article 435-1 prohibits a foreign public oYcial12 from directly or indirectly requesting or accepting oVersor promises of gifts to carry out, or abstain from carrying out, an act of his or her duty, mission or mandateor facilitated by his or her duty without the right to do so.

7. Article 435-2 carries the corresponding oVence. The Article makes it an oVence for a person to propose,without right, gifts, presents or advantages of any kind to a foreign public oYcial. In addition the personmust intend that the foreign public oYcial will carry out, or abstain from carrying out, an act of his or herduty, mission or mandate or facilitated by his or her duty.

4. Private persons

8. Article 445-2 of the Criminal Code provides an oVence of private corruption. The Article applies toa person:

(j) not vested with public authority or discharging a public service mission; and

(k) who is performing in the course of professional or social duties, a function of management orperforming work for an individual or corporate entity or any organism.

10 Defined by the section to include persons holding public authority or discharging a public service mission, or persons holdinga public electoral mandate.

11 Act No 2000-595 of 20 June 2000, s 3.12 Defined by the article as “a European civil servant, a Member State’s civil servant or a member of the European Commission,

Parliament, European Court of Justice [or] European Court of Auditors”.



9. Such a person is guilty of an oVence if, without any right to do so to, he or she directly or indirectly,requests, accepts or promises, donations, gifts or any advantages, to carry out or abstain from carrying outan act relating to his or her duties. In addition this act or omission must infringe his or her legal, contractualor professional obligations. Article 445-1 also makes it an oVence for a person to propose a briberyagreement or consent to the bribery.

10. The maximum penalty for these oVences for natural persons is five years’ imprisonment and a fine ofup to 75,000. For legal persons the maximum penalty is a fine of up to five times the amount for individualsand/or one of the measures set out in paragraph B.5 above. Both natural and legal persons can also besubjected to confiscation of property.

5. Jurisdiction

11. The above laws apply to French nationals who commit bribery oVences overseas, if the country withinwhich the oVence was committed also criminalises bribery.13 However, such proceedings can only beinstituted by the Public Prosecutors OYce and must be preceded by a complaint by the victim of the oVenceor a legal successor or be preceded by an accusation made formally by the overseas authority.

12. The above laws also apply to a French national or foreign citizen who commits an oVence of briberyabroad against a French victim.14

6. Germany

7. Public oYcials

13. There are two types of corruption oVence concerning public oYcials, namely: accepting and grantinga benefit; and accepting and granting a bribe.

8. Benefits

14. Section 331(1) of the Criminal Code contains the oVence of accepting a benefit. The section providesthat it is an oVence for a public oYcial15 to demand, allow himself or herself to be promised or accept abenefit for himself or herself or another for the discharge of a duty.16 Section 331(3) provides a defence ifR allows himself or herself to be promised or accepts a benefit, which he or she did not demand, and thepublic authority authorises the acceptance.

15. Section 333(1) of the Criminal Code contains the oVence of granting a benefit. The section providesthat it is an oVence for a person to oVer, promise or grant a benefit to a public oYcial,17 for him or her oranother, for the discharge of a duty.18 Section 333(3) provides a defence if the public authority authorisesthe public oYcial’s acceptance of the benefit.

9. Bribes

16. Section 332(1) of the Criminal Code contains the oVence of a public oYcial accepting a bribe. Thesection provides that it is an oVence for a public oYcial19 to demand, allow himself or herself to be promisedor accept a bribe, for himself or herself or another, in return for him or her performing an oYcial act thatwould violate his or her oYcial duties.20 An attempt to commit this oVence is also punishable under thissection. Section 332(3) also provides that a public oYcial will be guilty of an oVence under subsection (1) ifhe or she accepts a bribe for a future act if he or she has either:

(l) shown a willingness to violate his or her duties by the act; or

(m) shown a willingness to be influenced by the bribe in the exercise of his or her discretion.

17. Section 334(1) of the Criminal Code contains the oVence of granting a bribe to a public oYcial. Thesection provides it is an oVence for a person to promise or grant a bribe to a public oYcial,21 for himself orherself or another, in return for the oYcial performing an oYcial act that would violate his or her oYcialduties.22 Section 334(3) provides that P will guilty of an oVence under subsection (1) if he or she promisesa bribe for a future act if he or she attempts to induce the oYcial to:

(n) violate his or her duties by the act; or

(o) be influenced by the bribe in the exercise of his or her discretion.

13 Criminal Code, Article 113-6.14 Criminal Code, Article 113-7.15 Including a person with “special public service obligations”.16 Article 331(2) provides a similar oVence in relation to judges and arbitrators.17 Including a person with specific public service obligations and a solider in the armed forces.18 Article 332(2) provides a similar oVence in relation to judges and arbitrators.19 Including a person with “special public service obligations”.20 Article 333(2) provides a similar oVence in relation to judges and arbitrators.21 Including a person with specific public service obligations and a solider in the armed forces.22 Article 334(2) provides a similar oVence in relation to judges and arbitrators.



10. Penalties

18. The maximum penalty for these oVences is imprisonment for not more than 10 years. The court canalso issue a forfeiture order.

11. Jurisdiction

19. The provisions on public bribery apply to activities outside Germany if a German national commitsthem or they involve a public oYcial who is employed by Germany or the EU. The German criminal lawgenerally also applies to oVences committed overseas if they are committed by a German national; or arecommitted jointly by co-defendants acting in Germany; or the eVects of the oVence are to the detriment ofa German national (legal or natural persons).


20. Germany implemented the Act on Combating Bribery of Foreign Public OYcials in InternationalBusiness Transactions 1998 to implement the OECD convention of the same name. Section 1 of the Actextends the reach of Section 334 of the Criminal Code to foreign public oYcials.23

21. Section 2 of the Act also makes it an oVence to bribe a foreign Member of Parliament. The sectionprohibits anyone oVering, promising or granting a Member of a foreign Parliament an advantage.24 Theadvantage must be for that Member or for a third party in order to obtain or retain for him or herself or athird party business or an unfair advantage in international business transactions. Further the business orunfair advantage in international business must be in return for the Members committing an act or omissionin the future in connection with his or her mandate or functions. The maximum penalty for this oVence isfive years’ imprisonment or a fine.

13. Jurisdiction

22. Section 3 of the Act provides the above sections apply to oVences committed abroad by a Germannational.

14. Private persons

23. In Germany the focus of the criminal law on private bribery is the protection of free competition.Bribery in business transactions is set out in section 299 of the Criminal Code. Section 299 applies to bothacts committed in the domestic markets and foreign markets.

24. Section 299(1) concerns passive bribery. An employee or agent of a business will be guilty of passivebribery if he or she demands, allows himself or herself to be promised, or accepts a benefit25 for himself orherself or another in a business transaction26 for the giving of a business preference to another unfairly.Under this section that it is not necessary that there be a breach of duty between the employer and employeeor principal and agent.

25. Section 229(2) concerns active bribery. A person will be guilty of active bribery if, for competitivepurposes, he or she oVers, promises or grants and employee or agent of a business a benefit27 for thatemployee or a third party in a business transaction. In addition the benefit must be consideration for theemployee providing the person or another with a preference unfairly. Also under this section, as above, it isnot necessary that there be a breach of duty between the employer and employee or principal and agent.

26. Under section 299, only natural persons can be charged with bribery and therefore, both businessowners and employers cannot be charged with the crime. However, both “employee” and “agent” are givena broad interpretation. “Employee” includes person bound to the instructions of the entity. “Agent” includesany person with a special function in the commercial enterprise and covers general managers, directors,bankruptcy administrators and commercial representatives.

27. The maximum penalty for both of these oVences is three years’ imprisonment or a fine. Further if anatural person commits the oVence, the company for whom he or she works can be made subject to aforfeiture order or an administrative fine up to one million Euros.

23 Including: a judge of a foreign state; a judge at an international court; a public oYcial of a foreign state; a person entrustedto exercise a public function with or for an authority of a foreign state, for a public enterprise with headquarters abroad, orother public functions for a foreign state; a public oYcial and other member of the staV of an international organisation anda person entrusted with carrying out its functions; a soldier of a foreign state; and a soldier who is entrusted to exercisefunctions of an international organisation.

24 Including: a member of a legislative body of a foreign state; or a Member of a parliamentary assembly of an internationalorganisation.

25 “Benefit” under these sections is widely interpreted and is not restricted to cash payments. This therefore can include modestgifts, hospitality or charitable donations.

26 Defined as the competitive purchase of goods or commercial services27 For the definition of benefit see n16.



15. Jurisdiction

28. The provisions on private bribery apply to foreign competition as well as national competition. Asstated above, the German criminal law generally also applies to oVences committed overseas if they arecommitted by a German national or are committed jointly by co-defendants acting in Germany or the eVectsof the oVence are to the detriment of a German national (legal or natural persons).

16. Italy

17. Private persons

29. There is no specific oVence of private commercial bribery in Italy. Therefore it is not a crime to bribean employee of a private commercial enterprise. However, there is a wide range of other criminal oVencesthat are used in practice to prosecute such cases.28

18. Public bribery and foreign public oYcials

30. There are various sections in the Penal Code that cover the area of public bribery.

31. Article 318 covers bribery “with regard to lawful acts of the oYce”. It provides a public oYcer willbe guilty of this type of bribery if, acting in an oYcial capacity, he or she receives, for himself or herself ora third party compensation, in the form of money or any other object of value, not due, or accepts a promisethereof. The maximum penalty for this oVence is imprisonment for between six months to three years.

32. Article 319 covers bribery “with regard to acts contrary to the duty of his oYce”. It provides that apublic oYcer will be guilty of this type of bribery if he or she receives for himself or herself or a third party,money or any other object of value or accepts a promise thereof in return for omitting or delaying an oYcialact. The maximum penalty for this oVence is between two to five years’ imprisonment.

33. Article 320 covers bribery “of persons charged with a public service”. It provides that Article319 applies to persons charged with a public service and that Article 318 applies to persons charged with apublic service when they are public employees.

34. Article 321 also provides that the punishments set out in relation to Articles 318 and 319 apply equallyto the person “who promises the money or other object of value to a public oYcer or person charged witha public service”.

35. Where a public oYcial is oVered a bribe but does not accept it, Article 322 provides separate oVence.It states that the person who has unduly oVered or promised money or other assets to a public oYcer in orderto induce the oYcer to do an act related to his or her oYce, will be liable to the punishment in Article 318 (isimprisonment for between six months to three years) reduced by one-third.

36. Subsection 2 of Article 322 also states if the oVer or promise was made in order to induce the publicoYcer to omit or delay an act or act in breach of his or her duties, the oVender shall be liable to thepunishment in Article 319 (between two to five years’ imprisonment) reduced by one-third.


37. To meet the requirements under the OECD convention on bribery of foreign public oYcials inbusiness transactions, Article 322-bis29 extends Articles 321. It therefore now includes: “persons carryingout functions or activities equivalent to those performed by public oYcials and persons in charge of a publicservice within other foreign states or public international organisations”.

20. Penalties

38. As well as the imprisonment penalties set out above, the following sanctions can also be applied tonatural and legal persons:

(p) closing the place of business;

(q) suspension or revocations of licences;

(r) disqualification from committing the acts with which the oVence was concerned;

(s) prohibition from dealing with the public administration;

(t) temporary exclusion from advertising goods and services; and

(u) publication of the sentence.

28 These include oVences of fraud, misappropriation, crimes against competition, protecting secrets, interference with auctionsand sports fraud.

29 Inserted by Law No 300 of 29 September 2000.



21. Jurisdiction

39. Italian law applies to nationals who commit oVences overseas if:

(v) the oVender is within Italian territory;

(w) the oVence is punishable by Italian law by at least three years’ imprisonment; and

(x) where the oVence was committed to the detriment of the EC or a foreign country, at the request ofthe Minister of Justice and only where extradition has not been granted or requested by the countryin which the oVence was committed.

40. Italian law also applies to non-nationals provided that:

(y) the oVence was committed within Italian territory;

(z) the oVence was committed to the detriment of the Italian State or an Italian citizen and the oVenceis punishable by at least one years’ imprisonment or committed to the detriment of the EC or aforeign country or alien and be punishable by at least three years’ imprisonment; and

(aa) In the case of detriment to the Italian state or a national, at the request of the minister of justiceor complaint by the victim, or, in the case of the EC or foreign country or alien, on request of theminister of justice and where extradition has not been granted or requested by the country in whichthe oVence was committed.

22. Japan

41. In Japan the focus of the bribery provisions is the protection of integrity and loyalty to the principal(the Government) for public bribery and the protection of duty of loyalty or trust between and employerand employee for private bribery. Fair competition is not seen as a protected legal interest of bribery.

23. Private bribery

42. There is no express law in Japan that makes private commercial bribery an oVence. However, thereis an oVence of breach of trust in the Penal Code that is sometimes used to prosecute situations akin toprivate bribery. Further the Code of Commerce prohibits private bribery. Article 493 makes it an oVence togive or receive a bribe30 “in connection with one’s duties” and in response to an “unlawful solicitation”.The maximum penalty for receiving a bribe is five years’ imprisonment with forced labour or a fine of up tofive million yen and the maximum penalty for giving a bribe is three years’ imprisonment and a fine of upto three million yen.

43. The oVence in Article 493 applies to certain types of recipients, namely, promoters, directors, auditor,acting director, acting auditor, manager or any other employee entrusted to undertake certain kinds ofcommercial matters. However, there are no specified types of payer.

44. There is also a defence of “mere gift” to the Code of Commerce provisions. Therefore if P can provethe bribe was actually a gift he or she will have a defence. However, it is not a defence that P’s actions wereencouraged or condoned by his or her employer although in such situations P’s employer can be prosecutedas a co-principal, instigator or accessory.

24. Public bribery

45. The provisions on bribery in the Japanese Penal Code apply to bribery of government employees and“persons deemed to be a public servant”.31 By using the terms of persons deemed to be a public servant,the Penal Code opens up the bribery provisions to cover:

(bb) government oYcials;

(cc) public entity oYcials;

(dd) public corporation oYcials;

(ee) assembly persons;

(V) committee persons; and

(gg) other employees in public duties.32

46. A bribe is defined as not only a benefit of a pecuniary nature but also any interest that may satisfyany demand or desire, such as sexual amusement, position, employment, entrance to public university etc.

47. Article 197-1 makes it an oVence for a public servant to accept a bribe. Such an oVence is committedwhen a public servant or arbitrator, upon solicitation, receives, demands or bargains for a bribe inconnection with his or her duties. The maximum penalty for this oVence is five years’ imprisonment withforced labour. However, if the public servant or arbitrator accepts a solicitation the sentence is increased toa maximum seven years’ imprisonment with forced labour.

30 Under the Code of Commerce, a bribe is defined as “any benefit of a pecuniary nature”.31 Article 197.32 Penal Code, Article 7.



48. The second part to Article 197-2 extends this oVence to a person who “intends to become a publicservant or an arbitrator” and who “receives, demands, or bargains for a bribe on acceptance of solicitationin connection with his/her duties he/she is to perform”. The maximum penalty for this oVence is five years’imprisonment with forced labour and the penalty applies once the person has become a public servant orarbitrator.

49. Article 197-2 prohibits a public servant from bribing third parties. Such an oVence is committed wherea public servant or arbitrator, upon solicitation, causes, demands or bargains for a bribe to be given to athird party in connection with his or her duties. The maximum penalty for this oVence is five years’ penalservitude.

50. Article 197-4 makes it an oVence for a public oYcial to cause another oYcial to behave dishonestly.Such an oVence is committed if a public oYcer receives, demands or promises a bribe, as a reward forarranging or having arranged, on request, to cause another public oYcer to perform an improper action inthe course of his or her duties. The maximum penalty for this oVence is imprisonment with forced labourfor not more than five years.

51. A person who gives a bribe in the same manner as set out in Article 197-4 is also guilty of an oVence.33

The maximum penalty for this oVence is fine of not more than two million and five hundred thousand yenor a maximum three years’ imprisonment with forced labour.

52. This oVence has recently been supplemented by the Law on Punishment of Elected Public OYceHolders for Receiving Graft for Arrangement. This Act makes it an oVence for politicians and secretariesto receive money or goods from corporations or individuals in return for pressuring other civil servants toperform political favours. The maximum sentence for this oVence is dependent on who the oVender is.Politicians are liable to a maximum sentence of three years’ imprisonment with forced labour. For secretariesthe maximum is two years.

53. As with the Commercial Code a defendant is often able to argue as a successful defence that the bribewas in fact a “gift in ordinary life”.34

25. Jurisdiction

54. The above oVences apply to both domestic contracts and contracts with foreign parties andinternational businesses.

26. Foreign oYcials

55. The Unfair Competition Prevention Act revised in 1998 makes it an oVence to bribe a foreign publicoYcial. The Act applies to both foreign government oYcials and government aYliated institutions andpurports to protect fair and free competition. The Act provides that a person is guilty of an oVence if he orshe gives, oVers or promises any undue pecuniary or other advantage so that the oYcial acts or refrains fromacting in relation to his or her oYcial duties in order to gain an improper business advantage.

56. The maximum penalty for this oVence for natural persons is a fine of up to three million yen for and/or imprisonment for up to three years. Legal persons can be fined up to 300 million yen.

27. Jurisdiction

57. Article 1 of the Penal Code on territorial principles results in the provisions on bribery applying toany person who commits a crime in Japan irrespective of their nationality. For oVences of bribery committedoutside of Japan, neither Japanese nationals nor foreign nationals are guilty of oVences, even if the bribe isgiven to a Japanese foreign oYcial.35 However, a Japanese public oYcial who accepts a bribe abroad givenby a Japanese or foreign national is guilty of an oVence under Article 4 of the Penal Code.

28. Australia

29. Commonwealth

30. Public oYcials

58. The statutory provisions in Australia apply only to bribery of public oYcials. Sections 141.1 and142.1 of the Commonwealth Criminal Code make it an oVence to give a bribe or corrupting benefit to aCommonwealth public oYcial and for a Commonwealth public oYcial to receive a bribe or corruptingbenefit.36 Under sections 141.1(1) and 142.1(1) a person is guilty of an oVence of giving a bribe or corruptingbenefit to a Commonwealth public oYcial if he or dishonestly:

(hh) provides a benefit;

(ii) causes a benefit to be provided; or

33 Penal Code, Article 198.34 See the comments of Saito in Heine, Huber and Rose, “Private Commercial Bribery: A Comparison of National and

Supranational Legal Structures” (2003, ICC) p 200.35 See the principles set out in the Penal Code, Articles 2 and 3.36 A corrupting benefit is defined by section 140.1 as “any advantage and is not limited to property”.



(jj) causes an oVer of the provision of a benefit or a promise of the provision of a benefit to be made.

59. In addition the person must do the above with the intention of influencing a Commonwealth publicoYcial in exercise of his or her duties The maximum penalty for the bribery oVence is 10 years’imprisonment. The maximum penalty for the corrupting benefit oVence is five years’ imprisonment.

60. Section 141.1(3) and section 142.1(3) state that a Commonwealth public oYcial is guilty of receivinga bribe or corrupting benefit if he or she dishonestly:

(kk) asks for a benefit for himself or herself or another;

(ll) receives or obtains a benefit for himself or herself or another; or

(mm) agrees to receive or obtain a benefit for himself or herself or another person.

61. In addition the public oYcial must do the above with the intention that the exercise of his or her dutieswill be influenced or of inducing, fostering or sustaining a belief that his or her duties will be influenced. Themaximum penalty for the bribery oVence is 10 years’ imprisonment. The maximum penalty for thecorrupting benefit oVence is five years’ imprisonment.

31. Jurisdiction

62. Section 141.1(4) in relation to bribery of commonwealth public oYcials and section 142.3 in relationto giving a corrupting benefit to commonwealth public oYcials provide that section 15.4 on extendedgeographical jurisdiction applies to both oVences.

63. Section 15.4 provides that sections falling within its provisions apply:

(nn) whether or not the oVence is committed in Australia; and

(oo) whether or not the eVects of the oVence were felt in Australia.

64. In addition section 16.1 provides that if an oVence falls within section 15.4’s extended geographicaljurisdiction the Attorney General’s consent will be required before a prosecution can take place if:

(pp) the oVence occurs wholly outside of Australia; and

(qq) at the time the oVence was committed P was neither an Australian citizen nor a body corporateincorporated by or under a law of the Commonwealth or of a State or Territory.


65. Under section 70.2 a person is guilty of an oVence if he or she provides, causes to be provided or oVersto provide or promises to provide an oVer of a benefit to another person and that is not legitimately due. Inaddition the person must intend to influence a foreign public oYcial37 (who may be the other person) in theexercise of his or her in order to:

(rr) obtain or retain business; or

(ss) obtain or retain a business advantage that is not legitimately due to the recipient, or intendedrecipient, of the business advantage (who may be the first mentioned person).

66. In determining whether a benefit is not legitimately due, the court is required to disregard thefollowing:

(tt) the fact that the benefit may be customary, or perceived to be customary, in the situation;

(uu) the value of the benefit; and

(vv) any oYcial tolerance of the benefit.38

37 Under the section foreign public oYcial means:(a) an employee or oYcial of a foreign government body;(b) an individual who performs work for a foreign government body under a contract;(c) an individual who holds or performs the duties of an appointment, oYce or position under a law of a foreign country

or of part of a foreign country;(d) an individual who holds or performs the duties of an appointment, oYce or position created by custom or convention

of a foreign country or of part of a foreign country;(e) an individual who is otherwise in the service of a foreign government body (including service as a member of a military

force or police force);(f) a member of the executive, judiciary or magistracy of a foreign country or of part of a foreign country;(g) an employee of a public international organisation;(h) an individual who performs work for a public international organisation under a contract;(i) an individual who holds or performs the duties of an oYce or position in a public international organisation;(j) an individual who is otherwise in the service of a public international organisation;(k) a member or oYcer of the legislature of a foreign country or of part of a foreign country; or(l) an individual who:

(i) is an authorised intermediary of a foreign public oYcial covered by any of the above paragraphs; or(ii) holds himself or herself out to be the authorised intermediary of a foreign public oYcial covered by any of the above

paragraphs.38 Section 70.2.



67. In determining if a business advantage is not legitimately due, the court is required to disregard thefollowing:

(ww) the fact that the business advantage may be customary, or perceived to be customary, in thesituation;

(xx) the value of the business advantage; and

(yy) any oYcial tolerance of the business advantage.39

68. The maximum penalty for this oVence is 10 years’ imprisonment.

69. Under this section “benefit” is given a wide interpretation to include any advantage and thisadvantage is not limited to property.

70. Section 70.3 provides a defence where the conduct of the foreign public oYcial that is sought by thepayer is lawful in the foreign public oYcial’s country. There is also a defence for facilitation payments.

33. Jurisdiction

71. Under section 70.5(2) a person will not be guilty of an oVence under section 70.2 unless:

(zz) the conduct constituting the alleged oVence occurs wholly or partly in Australia or wholly or partlyon board an Australian aircraft or ship; or

(aaa) the conduct constituting the alleged oVence occurs wholly outside Australia and the perpetratoris an Australian citizen or resident or a body corporate incorporated by or under a law of theCommonwealth or of a State or Territory.

72. In addition proceedings for bribery of foreign public oYcials must, according to section 70.5(2) notbe commenced without the Attorney General’s written consent if:

(bbb) the conduct constituting the alleged oVence occurs wholly outside Australia; and

(ccc) at the time of the alleged oVence, the person alleged to have committed the oVence is: a residentof Australia; and not an Australian citizen.

34. Canada

35. Public oYcials

73. Section 119(1)(a) of the Criminal Code makes it an oVence for a holder of a judicial oYce, a Memberof Parliament or of the legislature to receive a bribe. It provides an oVence will be committed if the oYcialcorruptly accepts, obtains, agrees to accept, or attempts to obtain any benefit40 for himself or herself oranother person in respect of anything done or omitted to be done by him or her in his of her oYcial capacity.

74. Section 119(1)(b) of the same Code makes it an oVence for a person to bribe a holder of judicial oYce,a Member of Parliament or of the legislature. It provides an oVence will be committed if a person corruptlygives or oVers any benefit41 in respect of anything done or omitted or to be done or omitted by him or herin his or her oYcial capacity for himself or herself or another person.

75. Consent of the Attorney General is required before a prosecution can be initiated42 and the maximumpenalty for both oVences is 14 years’ imprisonment.43

76. Section 120(a) of the same Code provides a similar oVence for justices, police commissioners, peaceoYcers, public oYcers or oYcers of a juvenile court, or employees in the administration of criminal law whocorruptly accept or obtain benefits.44 In addition to obtaining or accepting the benefit the oYcial must dothis with intent:

(ddd) to interfere with the administration of justice;

(eee) to procure or facilitate the commission of an oVence; or

(Vf) to protect from detection or punishment a person who has committed or who intends to commitan oVence.

77. Section 120(b) provides the corresponding oVence that makes it an oVence for anyone to corruptlygive or oVer a benefit45 to any of the oYcials in the above paragraph with the same intent.

78. The maximum term for both oVences is 14 years’ imprisonment.

39 Above.40 Defined by the same section as “any money, valuable consideration, oYce, place or employment”.41 Also defined by the same section as “any money, valuable consideration, oYce, place or employment”.42 Section 119(2).43 Section 119.44 Defined by the same section as “any money, valuable consideration, oYce, place or employment”.45 Also defined by the same section as “any money, valuable consideration, oYce, place or employment”.




79. Section 3(1) of The Corruption of Foreign Public OYcials Act 1999 makes it an oVence for anyperson, in order to obtain or retain a business advantage, to directly or indirectly give or oVer or agree togive any loan, reward, advantage or benefit of any kind in consideration for either:

(ggg) an act or omission by the foreign oYcial46 in the course of his or her oYcial duties of functions; or

(hhh) inducing the oYcial to use his or her position to influence any acts or decisions of his or her foreignstate47 or organisation.

80. There is a defence available if the recipient can prove that the payment was a “facilitation payment”to expedite or secure the performance of any act of a routine nature that is part of the oYcial’s duties offunctions.48

37. New Zealand

38. Public oYcials

81. The Crimes Act 1961 in New Zealand applies to bribery of public oYcials. Bribery is defined underthe Act as “any money, valuable consideration, oYce or employment, or any benefit, whether direct orindirect”.49 Section 105(1) makes it an oVence for a public oYcial,50 whether in New Zealand or not, tocorruptly accept, obtain, agree, oVer to accept or attempt to obtain a bribe for him or herself, in respect ofhis or her oYcial duties. Section 105(2) contains the corresponding oVence which prohibits anyone corruptlygiving, oVering or agreeing to give or oVer any bribe with the intent that the bribe influence the oYcial inrespect of his or her oYcial duties. The maximum penalty for both these oVences is seven years’imprisonment.

82. The Crimes Act 1961 also contains similar oVences in respect of bribing judicial oYcers,51 ministersof the Crown,52 members of Parliament53 and law enforcement oYcers.54

39. Jurisdiction

40. GEOGRAPHY

83. Section 105(1) states that it matters not whether the public oYcial was in New Zealand when he orshe accepted the bribe. In addition the provisions of section 105 of the Act appear to fall within the generalapplication provisions of the same Act.

84. Section 5(2) provides that the Crimes Act applies to all acts done or omitted in New Zealand. Section6 states that in general, no act done or omitted outside New Zealand is an oVence in New Zealand. However,if part of the act done or omitted to be done that forms part of the commission of the oVence is committedin New Zealand the oVence is deemed to have been committed in New Zealand by virtue of section 7. Section8 also provides the New Zealand courts have jurisdiction where P is:

(iii) on board any Commonwealth ship;

(jjj) on board any New Zealand aircraft;

(kkk) on board any ship or aircraft, if that person arrives in New Zealand on that ship or aircraft inthe course or at the end of a journey during which the act was done or omitted;

(lll) a British subject, on board any foreign ship (not being a ship to which he belongs) on the high seas,or on board any such ship within the territorial waters of any Commonwealth country; or

(mmm) a New Zealand citizen or a person ordinarily resident in New Zealand, on board any aircraftprovided the act was not done or omitted by a person, not being a British subject, on any shipor aircraft for the time being used as a ship or aircraft of any of the armed forces of a countrythat is not a Commonwealth country unless the act or omission would not have been an oVenceunder the law of the country of which the person charged was a national or citizen at the timeof the act or omission.

46 “Foreign public oYcial” is defined by section 2 to include:(a) a person who holds a legislative, administrative or judicial position of a foreign state;(b) a person who performs public duties or functions for a foreign state, including a person employed by a board,

commission, corporation or other body or authority that is established to perform a duty or function on behalf of theforeign state, or is performing such a duty or function; and

(c) an oYcial or agent of a public international organisation that is formed by two or more states or governments, or bytwo or more such public international organisations.

47 “Foreign state” is defined by section 2 and means a country other than Canada.48 Sections 3(4) and 3(5).49 Section 99.50 OYcials are defined by section 99 as “any person in the service of Her Majesty in right of New Zealand (whether that service

is honorary or not, and whether it is within or outside New Zealand), or any member or employee of any local authority orpublic body, or any person employed in the Education service.”

51 Section 101.52 Section 102.53 Section 103.54 Section 104.



41. PERSONS TO WHOM THE SECTION APPLIES

85. A public oYcial is defined by section 99 as: any person in the service of Her Majesty (whetherhonorary or not, and whether within or outside New Zealand), or any member or employee of any localauthority or public body, or any person employed in the Education service.

86. A payer who bribes a public oYcial would appear to mean a citizen or ordinary resident of NewZealand. Ordinary resident is defined by section 4 of the Crimes Act as someone:

(nnn) whose home is in New Zealand;

(ooo) who is residing in New Zealand with the intention of residing therein indefinitely; or

(ppp) who having resided in New Zealand with the intention of establishing his or her home therein, orwith the intention of residing in New Zealand indefinitely, he or she is outside New Zealand but hasan intention to return to establish his or her home therein or to reside in New Zealand indefinitely.


87. Section 105C of the Crimes Act 1961 sets out an oVence of bribing a foreign public oYcial. Section105C(2) provides a person will be guilty of such an oVence if he or she corruptly gives or oVers or agrees togive a bribe to a person with intent to influence a foreign public oYcial55 in respect of any act or omissionby that oYcial in his or her oYcial capacity (whether or not the act or omission is within the scope of theoYcial’s authority) in order to:

(qqq) obtain or retain business; or

(rrr) obtain any improper advantage in the conduct of business.

88. The section does not apply if the act that is alleged to constitute the oVence was committed for thesole or primary purpose of ensuring or expediting the performance by a foreign public oYcial of a routinegovernment action; and the value of the benefit is small.56

89. Under section 106D a person cannot be prosecuted for bribing a foreign public oYcial without theleave of the Attorney General, who before giving leave may make such inquiries as he thinks fit.

43. Jurisdiction

90. Section 105D provides that if P commits an oVence against section 105C but the public oYcial isoutside New Zealand territory he or she is still guilty of an oVence provided P is :

(sss) a New Zealand citizen;

(ttt) ordinarily resident in New Zealand;

(uuu) a body corporate incorporated in New Zealand;

(vvv) a corporation sole incorporated in New Zealand.

91. However, section 105E provides that no oVence will be committed if the act that is alleged toconstitute an oVence:

(www) was done outside New Zealand; and

(xxx) was not, at the time of its commission, an oVence under the laws of the foreign country in whichthe principal oYce of the person, organisation, or other body for whom the foreign public oYcialis employed or otherwise provides services, is situated.

44. South Africa

92. The Prevention and Combating of Corrupt Activities Act 2004 criminalises corruption in both thepublic and private sectors, including foreign oYcials. Section 3 contains a general oVence of corruptionwhich makes it an oVence for any person to, directly or indirectly, accept, agree, oVer, give or oVer to giveto any other person any gratification (whether for his or her own benefit or not) in order to act personallyor by influencing another to so act, in a manner that amounts to either:

(yyy) an illegal, dishonest, unauthorised, incomplete or biased exercise of any powers, duties or functionsarising out of an obligation;

(zzz) a misuse or selling of information or material acquired in the course of the exercise of any powers,duties or functions arising out of an obligation;

(aaaa) the abuse of a position of authority;

55 “Foreign public oYcial” foreign public oYcial includes any of the following:(a) a member or oYcer of the executive, judiciary, or legislature of a foreign country;(b) a person who is employed by a foreign government, foreign public agency, foreign public enterprise, or public

international organisation; and(c) a person, while acting in the service of or purporting to act in the service of a foreign government, foreign public agency,

foreign public enterprise, or public international organisation.56 Section 105C(3).



(bbbb) a breach of trust; or

(cccc) the violation of a legal duty or set of rules;

or is designed to achieve an unjustified result or that amounts to any other unauthorised or improperinducement to do or not to do anything.

93. Sections 4 to 9 contain similarly worded provisions in respect of the following individuals:

(dddd) public oYcers as defined by section 1 to include any person who is a member, an oYcer, anemployee or a servant of a public body, except judicial oYcers;57

(eeee) foreign public oYcials as defined by section 1 to include any person holding a legislative,administrative or judicial oYce of a foreign state; any person performing functions for any foreignstate; and oYcials and agents of public international organisations;58

(VV) agents as defined by section 1 to include any authorised representative who acts on behalf of hisor her principal,59 including any director, oYcer, employee or other person authorised to act onbehalf of his or her principal;60

(gggg) members of the legislative authority;61

(hhhh) judicial oYcers as defined by section 1 to include any judges, arbitrators, mediators, umpires,adjudicators, assessors and other presiding oYcers;62 and

(iiii) members of the prosecuting authority.63

94. The Act also criminalises certain corrupt acts, including:

(jjjj) corrupt activities relating to witnesses and evidential material;64

(kkkk) corrupt activities relating to contracts;65

(llll) corrupt activities relating to procuring and withdrawal of tenders;66

(mmmm)corrupt activities relating to auctions;67

(nnnn) corrupt activities relating to sporting events;68 and

(oooo) corrupt activities relating to gambling and games of chance.69

95. Section 25 provides it is not a defence to the above oVences for P to claim he or she:

(pppp) did not have the power, right or opportunity to perform or not perform the act in relation to whichthe gratification was given, accepted or oVered;

(qqqq) accepted or agreed or oVered to accept, or gave or agreed or oVered to give the gratification withoutintending to perform or not to perform the act in relation to which the gratification was given,accepted or oVered;

(rrrr) failed to perform or not to perform the act in relation to which the gratification was given, acceptedor oVered.


96. On 12 June 2007 South Africa became the 37th signatory and first African country to join the OECD’sAnti-Bribery Convention which outlaws the bribery of foreign public oYcials in international businesstransactions. It is thought as the above law already extends to foreign public oYcials, the provisions arelikely to stay the same.

Memorandum submitted by CBI (BB 07)

1. The Confederation of British Industry (CBI) is the national body representing the UK businesscommunity. It is an independent, non-party political organisation funded entirely by its members in industryand commerce and speaks for some 240,000 businesses which together employ around a third of the UKprivate sector workforce. Our membership stretches across the UK, with businesses from all sectors and of

57 Section 4.58 Section 5.59 Section 1 defines a “principal” to include any employer, beneficiary and representatives.60 Section 6.61 Section 7.62 Section 8.63 Section 9.64 Section 11.65 Section 12.66 Section 13.67 Section 14.68 Section 15.69 Section 16.



all sizes. It includes the majority of the FTSE 100, some 200,000 small and medium-sized enterprises (SMEs),more than 20,000 manufacturers and over 150 sectoral associations. Through their worldwide tradingactivities, UK businesses contribute 25% of UK GDP and are the second largest providers of global foreigndirect investment. The CBI also represents UK business interests internationally. It is the UK member ofthe Business and Industry Advisory Committee (BIAC) to the OECD and we chair its InvestmentCommittee under whose remit anti-bribery falls.

Overview

2. Bribery, corruption and extortion are morally wrong and distort the market. UK business retains astrong anti-corruption reputation and the Government readily acknowledges this, as do the variousindicators seeking to produce country-by-country comparisons.

3. Whilst we consider that current law meets all of the UK’s obligations, the CBI has long advocated theneed for modernisation of UK anti-bribery law. We will strongly support the Government’s objectives inthis area as long as the proposals are simple, easy to understand and able to be implemented by companies.This requires well-defined oVences with appropriate defences which criminalise conduct appropriate forsuch treatment. But it is equally important that conduct not intended to be criminalised remains legitimateand is not inadvertently caught within the ambit of the new oVences.

4. The CBI broadly endorsed the key features of the Law Commission’s original consultation proposal,but our analysis of the final report and of the draft bill that accompanied it raised a number of concerns.The current draft bribery bill before Parliament for pre-legislative scrutiny has not resolved them. Indeed,in a number of vital areas it has actually raised serious new issues which, taken together with the need toensure the competitiveness of UK companies is not undermined, mean that the CBI is unable to oVerunqualified support for the draft bill.

5. We agree that bribery law should not draw a distinction between bribery in the private sector andbribery in the public sector. The CBI also agrees that there is merit in having a separate criminal oVence ofbribing a foreign public oYcial. But in both the general oVences and in the foreign one, as well as in thedefences, there are significant legal and practical diYculties in the draft bill. In addition, the new corporateoVence raises major problems. Detailed points on these issues are explored in this submission.

Clauses 1–3: General Bribery Offences

6. The Law Commission’s original approach, which we supported, was to reform UK law based onconferring an advantage by some act or omission by the payer and an improper act involving a breach oftrust or duty by the recipient or third party. We agreed with this and also with the concept that the advantagemust be the primary reason for the recipient or third party doing the improper act. This approach wasattractive to CBI members because it helped to deal with the diYcult issues of facilitation payments,corporate hospitality and promotion.

7. However, the Law Commission’s final report changed the structure of the general oVences to includeimproper performance of a function or activity and introduced the notion of a failure to fulfil a relevantexpectation. The draft bill takes this course, which gives the oVences—both the giving and receiving ofbribes—a common structure. A relevant expectation is that the function will be performed in good faith,impartially and by a person in a position of trust (Clause 3, sub-clauses 3, 4 and 5). These terms are notdefined.

8. The draft bill then adds a reasonable person test in sub-clauses 7 and 8. There is an explicit statementthat it does not matter whether the recipient of the bribe or another performing the function knows orbelieves that the performance of the function or activity is improper. This means that behaviour which failsto meet the expectation of a reasonable person is criminalised. The lack of a mens rea or intent in the framingof these criminal oVences is a particular concern as this fails to meet a basic principle in criminal law. Briberyshould be an oVence that requires intention, and it is this requirement that the OECD Convention and theUN Convention place on their signatories. Both use the term “intentionally” in relation to the criminaloVences. It cannot be right that a person can be guilty of a criminal oVence by doing something which thatperson does not believe to be improper, or if that person reasonably believed the payment was legitimatelydue, or if that person made a genuine mistake.

9. If this structure is retained, it is the courts that will have to decide how to apply these standards. Thiswould happen through a series of as yet unknown test cases. In eVect, every individual in any business wouldhave to make his or her own judgement on the giving or receiving of an advantage of each and every actionhe or she undertakes that might be covered by the criminal law. It would include trying to assess what areasonable person may or may not believe to be right or wrong. We believe that this is an unrealistic scenarioand, accordingly, that the basic structure of the general oVences needs modification if they are to be workablein the business context.

10. It may be that the addition of the phrase “in the circumstances” to Clause 3, sub-clause 8, wouldclarify what is meant by the reasonable person test. We would support this amendment.



11. There is one other point that raises a concern in the oVence in clause 1 given the extraterritorial natureof the draft bill. Under this oVence of bribing another person, we believe it would make for a consistentapproach if the defence permitted by the Law Commission in its report under clause 4 covering the briberyof a foreign oYcial, which we discuss in detail below, was to be available in the circumstances of otherjurisdictions for clause 1 oVences too. This would allow the defendant to show that the payment islegitimately due in an international context and resolve the problem of a payment legitimately given orrequired in one country constituting an act of bribery in another.


12. We recognise that, although current law meets the UK’s international obligations in relation to thebribing of foreign public oYcials, there is some value in a clearer demonstration of that. The CBI thereforesupports in principle the creation of this new and separate oVence in addition to the general bribery oVences.

13. In the draft bill, no oVence will have been committed if the financial or other advantage is legitimatelydue (Clause 4, sub-clause 3). This is defined in terms of the laws of the country permitting or requiring it(sub-clause 4). The CBI is very concerned this will mean that the there will be significant debate over whatthese laws or regulations might be and that these decisions in every case would reside with the courts. Giventhat the burden of proof in criminal cases is rightly high, the idea that courts would be makinginterpretations of foreign laws and regulations seems to need re-assessment.

14. The draft bill compounds the problem by failing to include the defence permitted in Clause 5 of theLaw Commission’s proposed legislation. This defence—that a reasonable belief existed that the payment tothe oYcial was required or permitted under local law—would guard against the possibility that a criminaloVence may be committed without a mens rea. It would also enable companies to assure themselves thatthey are operating legitimately and it would put them on a level playing field with companies based in otherjurisdictions which already adopt this approach. We therefore fail to understand the motivation behind itsremoval from the draft bill.

15. In addition, the Law Commission’s defence requires a very high standard of proof from the defendantto show that there was reasonable belief that a payment was due. This would include what is in eVect duediligence into the circumstances pertaining to a particular jurisdiction. The CBI believes this formulation tobe a balanced and fair way of approaching the issue, and we would recommend that this omission be rectifiedin the draft bill.

16. In this regard, we would also point out that in other jurisdictions, for example the US under theForeign Corrupt Practices Act, there is an express defence of reasonable belief based on written provisionsin a foreign law. This is entirely consistent with the OECD Convention.

Clause 5: Failure of Commercial Organisations to Prevent Bribery

The oVence

17. The draft bill introduces a new oVence of corporate liability for failing to prevent bribery based largelyon the Law Commission’s final report. We had felt that it would have been preferable to review this issue aspart of the Law Commission’s project on corporate liability generally. As published, the provisions in thedraft bill present some major problems for business.

18. In framing this new oVence, the draft bill says in sub-clause 1 that a business would be liable if a personbribes another while performing services for the business, if the bribe was connected to doing business andif a responsible person, or number of persons, was negligent in failing to prevent the bribe. The CBI believesvery strongly that the creation of a criminal oVence based on negligence is undesirable and not acceptable.We recognise that negligence is a basis for imposing civil liability, but negligence does not and should notequate to criminal intent or awareness. If such an oVence is to be pursued in the final bill, we think that grossnegligence or recklessness should be the standard for criminal conviction.

19. It should also be noted that criminal liability for the general bribery oVences, and in respect of briberyof foreign public oYcials, will not attach to corporates except under the consent or connivance provisionsof Clause 8, which is clearly a higher test than negligence.

20. In addition, as drafted, failure to prevent the bribe (sub-clause 1 c) brings an absolute character tothe obligation and imposes a very high bar that will be related to negligence. This could mean that even ifthe business took every precaution to avoid an act of bribery taking place, the very fact that it happenedcould trigger corporate criminal liability. We would note that the OECD Convention uses the termcombating bribery in its title and it seems to us that this should be the intention of the draft legislation too.

Proof of an oVence

21. In sub-clause 2 as written, we are concerned that it may be possible for corporate liability to beestablished without a prior prosecution of a person. It would seem that this language should be amendedto include reference to an evidential test related to the courts. We would recommend that clarification isrequired to ensure that the courts must be satisfied beyond all reasonable doubt that a bribery oVence hasoccurred as a precondition to a finding under the corporate oVence.



Responsible person

22. The draft bill provides a definition of a responsible person in sub-clause 3. This would mean that, inthe absence of an appointed responsible person, a senior oYcer is assumed to have that function. Sub-clause7 defines senior oYcer as a director, manager, secretary or other similar oYcer. We believe the definitionshould be clarified to ensure that directors, senior oYcers and senior executives are recognised as theintended categories of person. In addition, we believe that the term manager is far too broad as it coverspeople of various seniorities throughout the business and varies from one business to another. Anappropriate qualification might be a manager fulfilling a senior executive role. Finally, it would be moreappropriate to use the term company secretary rather than secretary.

Adequate procedures defence

23. Sub-clause 4 provides an adequate procedures defence. There is a parallel with sub-clause 1c in thatthe use of this defence could automatically be nullified. This could happen because if an act of bribery tookplace, it could mean that procedures would be interpreted as not being adequate.

24. The CBI is very concerned that it is totally unclear as to what will be suYcient to constitute adequateprocedures. This issue was recognised by the Law Commission in respect of its report. We therefore believethat detailed guidance will be essential as to what is expected of companies. The application of this guidancemay vary from one company to another, depending on a range of circumstances.

25. In the absence of clarity, the CBI believes that companies will be advised, or feel compelled, to adopta precautionary approach. This could involve putting in place complex, costly and burdensome procedureswhich in reality have little practical eVect in combating bribery. For example, an annual training sessiontelling staV not to give or receive bribes may not be likely to prevent a rogue employee who is inclined tooVer or take bribes from doing so. Likewise, a box-ticking exercise may not produce the desired result ofcombating bribery.

26. We therefore propose that, in addition to the guidance required, the phrase “adequate procedures”should be amended and replaced by the phrase “reasonable systems and controls”. This would in eVectframe the defence in terms of risk management procedures, something that businesses of all sizes understandand can apply in diVerent circumstances.

27. Sub-clause 5 voids the defence if the negligence was that of a senior oYcer. We have already notedour concerns over the definition to include a manager in sub-clause 7. The inclusion of manager couldtherefore render the defence inoperative.

Clause 6: Supplementary Provisions—Person Performing Services

28. Clause 6 gives meaning to the phrase person performing services for or on behalf of the company inClause 5, sub-clause 1a. The CBI strongly believes that legislation should not make parent companies liablefor all acts of their subsidiaries. An attempt has been made to recognise that point in Clause 5, sub-clause1b, which refers to the bribe being in connection with the company’s business, and in Clause 6, sub-clause4, which introduces the concept of relevant circumstances. But we believe that this is not suYcient to meetour fundamental point and additional language is required for clarification. We would support therewording of Clause 5, sub-clause 1b to read, “the bribe was to obtain benefits for a business or businessesoperated by C”.

29. The CBI has further concerns that relate to the nature and variety of business relationships. As wellas employees, agents and subsidiaries mentioned in sub-clause 3, there are other ways in which businessesoperate that the draft bill’s language does not properly reflect. In fact, as written, the draft bill will placecertain types of business relationships in an impossible position as they could be held liable for a criminaloVence despite not exercising control in that relationship. These include joint ventures, which themselvescan operate in a wide variety of forms and degrees of control, development contracts, profit sharingagreements with State and other entities, and banking syndicates. We believe that it is unreasonable to expectcriminal liability to pertain in circumstances where there is no control and the draft bill should be amendedto reflect that.

Clause 7: Territorial Application

30. We note that the draft bill goes further than the requirements of the OECD Convention to coverextraterritorial jurisdiction for all the oVences, not just the bribery of a foreign public oYcial. The CBI haslong-standing and principled concerns about the extraterritorial application of legislation. It is wrong tocriminalise action in the UK that is perfectly legal elsewhere. We therefore agree with the Law Commissionthat a realistic and fair law of bribery must take account of the variation between jurisdictions in thecircumstances under which payments may occur as a matter of law. This provides a further reason to favoura broad application of the reasonable belief defence. We also note the draft bill provides for jurisdiction overindividuals ordinarily resident in the UK.



Clause 10: Consent to Prosecution

31. The CBI supports the requirement in the draft bill for the consent of a senior oYcial to prosecutions—the Director of Public Prosecutions, the Director of the Serious Fraud OYce or the Director of Revenueand Customs Prosecutions. We believe that delegation of consent to a specific person, persons of a specifieddescription or related to specified circumstances in sub-clause 3 should only be made to someone of suYcientseniority.

Government Impact Assessment

32. The CBI has reviewed the Ministry of Justice’s Impact Assessment issued with the draft bill. We wouldmake two observations. First, it is clear that the Impact Assessment very significantly under-estimates thecost and activity related to the operation of the draft bill. Second, we do not see much evidence that theGovernment has fully grasped the need to ensure UK companies can remain competitive by operating in orfrom a jurisdiction that complies with international obligations but does not go significantly beyond them,and which applies reasonable anti-bribery measures without impeding the ability of companies to operateeVectively and legitimately around the world.

June 2009

Memorandum submitted by Federation of Small Businesses (BB08)

Introduction

The FSB is the largest business organisation in the UK representing the interests of the self employed andsmall businesses. The FSB has 215,000 members in a range of industry sectors located across the UK, thevast majority employing 10 people or less.

The FSB is supportive of an eVective legal framework around bribery which clarifies and consolidatesexisting legislation and promotes high ethical standards in UK businesses. It is important, particularly inthe current climate, to maintain the UK as an attractive investment centre given that corruption has theability to distort markets, aVect a country’s reputation and divert investment.

The reality is that the vast majority of FSB members do not trade in markets beyond the UK so arearguably less likely to come into contact with “higher risk” countries (as listed by the Bribe Payers Index,for example). Our most recent membership survey in 2008 showed that only around 6% of members’ annualsales go to countries outside the UK. It also showed that only a small proportion of our members areengaged in sectors that are deemed to be at higher risk of corruption; such as defence, oil and gas, mining(0.5% FSB membership), construction (11%), pharmaceutical and financial services (3.7%). However, theFSB has an interest in the draft Bill and particularly around two issues raised by the corporate oVence ofnegligent failure to prevent bribery, and its impact on small businesses.

Draft Bribery Bill: Corporate offence of failure to prevent bribery

1. Section 5(4): “adequate procedures”

This clause sets out that businesses should have in place “adequate procedures” in order to prevent briberywithin the organisation which implies that systems, of some sort, should be in operation for proof. In orderto have a reasonable defence, businesses will, most likely, need a document trail or evidence of those systemshaving been implemented. Will it be enough for “the managing director to periodically remind the staV of theirobligations” (Law Commission Reforming Bribery report p.122) without having a written record?

There are both time and cost implications in terms of reading, understanding and complying with thislegislation even if that simply means a set of principles set out in a staV handbook or a code of conduct forstaV to sign up to. There are no compliance departments as such in small businesses and it should berecognised that there are costs attached to this legislation.

The point we want to make is not that small businesses should not shirk responsibilities but that thereneeds to be careful thought around implementation and communicating this legislation to small businesses.Our research shows (FSB EU Gold Plating report 2007) that businesses, for example in the case of Healthand Safety legislation, will err on the side of caution, and do too much to implement for fear of being takento court.

Administrative Burdens?

The MoJ states “that the draft Bill will not impose any significant additional administrative burden onbusiness. The corporate oVence is not regulatory in nature and there will be no monitoring of compliance” (Para98 of the Bill explanatory notes). We think that there is a need for more clarity about the fact that there willbe additional costs for businesses as outlined above. It is inevitable that there will be a cumulative burdenacross the small business sector of these costs (ie they might not be huge per business but multiplied acrossthe small business community will be more significant if this is not eVectively implemented).



Paragraph 99 of the explanatory notes also goes on to talk about “the benefits of the new corporate oVenceinclude enhanced ability on the part of business organisations to assess the suitability of their systems due toincreased clarity in the law and eYciency savings through, for example, reducing the cost of risk assessment”.The notes talk about the benefits for business without setting out clearly the costs. There are unlikely to beclear “savings” if a business has already spent money on compliance.

We do note however in the related Bill Impact assessment which talks about the fact that the Bill is notdesigned to be prescriptive and that it allows businesses to adopt a proportionate approach: “the defenceprovided to the oVence is such that it would allow a company to adopt a proportionate approach, with smallfirms in low risk sectors able to argue adequate systems on ‘light touch’ grounds, for example, demonstratingthat anti-bribery principles have been fully communicated to its workforce”.

2. Section 5(5): defence in a micro business?

“But the defence is not available if the negligence referred to in subsection (1)(c) was wholly or partly thatof a senior oYcer of C or a person purporting to act in such a capacity”.

The FSB has some concern here because, as this clause is currently worded, it eVectively removes thedefence from small businesses. The scenario in a micro business could be, for example, that five people areworking together in a business with a flat management structure which makes it more likely, that a “senior”individual is involved. This eVectively implies that small and micro businesses have no defence to thecorporate oVence at all. There are also issues around partnerships when one partner has clearly acted in theirown self-interest to the detriment of the business itself and the other partner/director. We think that the MoJneed to look carefully at the wording here and we would be open to working with them to propose suitableamendments.

FSB recommendations

— Greater clarity is needed around the costs for small businesses in the MoJ impact assessment alongwith a clear and more detailed information about the specific impact on small businesses.

— Clear and accessible guidance for businesses is needed which points out in clear, practical termswhat sort of conduct would constitute an oVence. Clarity is also needed around what smallbusinesses would need to do to comply with the legislation and what constitutes “adequateprocedures”; both in low risk sectors but also those sectors more at risk (building on and adaptingindustry standards agreed in certain sectors like the defence industry).

— A review of the impact of the legislation on small businesses after two years (not five as stated inthe impact assessment).

Penalties

— The explanatory notes set out that businesses will be liable to an unlimited fine. This fine shouldbe a proportionate one and operate on a sliding scale based on turnover of the business so thatsmall businesses are not unfairly penalised.

June 2009

Memorandum submitted by the Clerk of the House of Commons (BB 09)

Introduction

1. This memorandum is sent in response to the Committee’s request for evidence on privilege aspects ofthe Draft Bribery Bill currently being examined. The paper concentrates on the particular provisions ofClause 15 of the draft Bill, dealing with admissibility of evidence against a Member or other person protectedby parliamentary privilege for a bribery oVence.

2. The crux of the matter is a public interest consideration—namely whether the proposal impedesParliament in performing its legitimate function by allowing the words or conduct of an MP or peer to beadmissible in proceedings for a bribery oVence where the MP or peer is a defendant or co-defendantnotwithstanding Article IX of the Bill of Rights. The general principle that a criminal oVence should beapplicable to Members (or anyone protected by parliamentary privilege) is taken as a given. It accords withthe long-established practice that privilege has never been intended to set Members above the law.

Background

3. In 1695 the Commons resolved that “the oVer of money or other advantage to any Member ofParliament for the promoting of any matter whatsoever, depending or to be transacted in Parliament, is ahigh crime and misdemeanour”.70 On the behaviour of Members when oVered such a bribe, Erskine Maystates that “The acceptance by a Member of either House of a bribe to influence him in his conduct as a

70 CJ (1693–97) 331



Member, or of any fee, compensation or reward in connection with the promotion of or opposition to anybill, resolution, matter or thing submitted or intended to be submitted to either House, or to a committee,is a contempt”.71 Over the years, Members of the Commons found guilty of such oVences have beenexpelled.72 However, there have been few such cases in total and very few indeed in modern times.73

4. For some time, at least since the Salmon Commission report of 1976, there has been concern thatMembers of Parliament are not subject to the general laws on bribery when acting in a parliamentarycapacity. The Salmon Commission concluded that bribery of a Member of either House was not a statutoryoVence since the Houses of Parliament were not “public bodies” for the purposes of the Public BodiesCorrupt Practices Act 1889.74 It also concluded that it was not a common law oVence because membershipof parliament did not constitute public oYce for the purposes of the common law.75 This latter finding waschallenged in 1992 when a Member of the Commons was prosecuted for this oVence and the judge ruledthat it would be a common law oVence for a Member of the House to accept a bribe as well as for anyoneto make a corrupt oVer and that no privilege under Article 9 could be claimed.76 The Member concerned,however, was acquitted when the Crown oVered no evidence so the judge’s ruling was not tested. It is worthnoting that the case involved acts by the Member outside proceedings of Parliament, which therefore didnot invoke article IX of the Bill of Rights.

5. The Salmon Commission recommended that Parliament should consider bringing corruption, briberyand attempted bribery of a Member of Parliament acting in his parliamentary capacity within the scope ofthe criminal law. Since then, several reports and consultations have reached similar conclusions, notably theNolan Committee on Standards of Conduct in Public Life (1995) and the Joint Committee on ParliamentaryPrivilege (1999).77

6. In 2003 the Government published a draft Corruption Bill which proposed that Members should bebrought within the scope of the statutory oVence of corruption and that article IX should not apply inrelation to proceedings for such an oVence. The relevant clause of the Bill (Clause 12) was drafted in wideterms as follows:

“No enactment or rule of law preventing proceedings in Parliament being impeached or questionedin any court or place out of Parliament is to prevent any evidence being admissible in proceedingsfor a corruption oVence.”78

7. The Joint Committee which examined the draft Bill recommended:

“that Clause 12 be narrowed. This would apply only to the words or actions of an MP or peer ina case where he is the defendant. This is in line with the recommendations of the 1999 JointCommittee on Parliamentary Privilege. We also recommend that, to the extent that the words oractions of an MP or peer are admissible for or against him, they should also be admissible for oragainst all co-defendants in respect of corruption oVences based on the same facts. So the wordsof an MP could be used for or against a non-Member who was a defendant in the same trial.”79

8. The Government response put the arguments against the Committee’s view but concluded that “Wewould particularly welcome the chance to look at the concerns raised by the Joint Committee in moredetail”.80

The Current Draft Bill

9. Following the publication of a report from the Law Commission on the reform of bribery in November2008, the Government has come forward with the draft bribery Bill in the current session. The LawCommission did not directly address the position of Members of Parliament or mention parliamentaryprivilege. Clause 15 of the Draft Bill provides that:

“(1) No enactment or rule of law preventing proceedings in Parliament being impeached or questionedin any court or place out of Parliament is to prevent any evidence of:

(a) words spoken by a member of either House of Parliament in proceedings in Parliament, or

(b) any other conduct of such a member in such proceedings,

from being admissible in proceedings against the member for a bribery oVence or in relatedproceedings.

71 Erskine May, 23rd edition, p13272 Ibid, p133n173 Ibid, p13374 Ibid, 13475 The common law of corruption applies to MPs in Canada and Australia. A W Bradley & K D Ewing, Constitutional and

Administrative Law, 12th edition 1997, p 25176 Erskine May, 23rd edition, p 134. Also see G Zellick Bribery of Members of Parliament and the Criminal Law Public Law

Spring 1979 page 31–5877 See HL157, HC 705 (2002–03), p5 for a list of relevant papers up to July 200378 Bribery Draft Legislation Cm 5777, page 2479 HL 157, HC 705 (2002-03), para 134–580 Cm 6086, para 20



(2) In subsection (1) ‘related proceedings’, in relation to proceedings against a member of either Houseof Parliament for a bribery oVence, means proceedings against any other person for a briberyoVence which arise out of the same facts as the proceedings against the member.

(3) In this section ‘bribery oVence’ means:

(a) an oVence under this Act,

(b) attempting or conspiring to commit an oVence under this Act,

(c) an oVence under Part 2 of the Serious Crime Act 2007 (c.27) (encouraging or assisting crime)in relation to an oVence under this Act, or

(d) aiding, abetting, counselling or procuring the commission of an oVence under this Act.”81

Issues Arising

10. The Government response to the Joint Committee on the Draft Corruption Bill accepted that “Thisis a delicate and complex constitutional issue”.82 Article IX of the Bill of Rights provides that “proceedingsin Parliament ought not to be impeached or questioned in any court or place out of Parliament”. Unless thisright is waived in the case of Members charged with taking bribes for actions performed within Parliamentor in the case of those oVering such bribes, there are restrictions on the evidence that may be oVered in anytrial. To accept any waiver from article IX, however, is an encroachment upon the rights of Parliament whichhas to be convincingly demonstrated to be justified.

11. There have been two substantial attempts by parliamentary committees in recent years to analyse andresolve the diYculties in balancing parliamentary privilege against eVective prosecution of a serious crime.

Joint Committee on Parliamentary Privilege

12. In 1999 the first report from the Joint Committee on Parliamentary Privilege set out the dilemma. Itconcluded that the prevention of questioning of proceedings in Parliament under article IX could have theconsequence that “the prosecution might lack evidence necessary for a successful prosecution, or thedefendant might be unable to call evidence in his defence. Either way, if that were to happen, a proper trialof the Member might not be possible. For the same reason a person who oVers a bribe may also be beyondthe reach of the courts”.83 However, “Any change in the law which brings the parliamentary activities ofthe Members of both Houses within the scope of the statute law on corruption … will mean that, contraryto article 9, evidence could be given in court which questions proceedings in Parliament” and that “If corruptconduct by a Member is established, the Member will be liable for punishment primarily by the courts ratherthan by Parliament”.84

13. The Joint Committee considered possible solutions to the need they perceived for “a fair, workableand publicly acceptable system for dealing with corruption or allegations of corruption of Members of eachHouse”.85 They examined various options which would in essence either strengthen Parliament’s ownjurisdiction and make it generally acceptable, hand over jurisdiction to the courts or divide theresponsibilities between the courts and Parliament. There were drawbacks to all the options which can besummarised as below:

Self-regulation by Parliament: At present, because of article IX, Members and others are exposedto more serious punishment for oVences unrelated to proceedings in Parliament than for oVencesthat are so related. Neither House of Parliament is properly equipped to carry out the functionsnecessary to carry out a new and eVective criminal procedure for itself and even if these defectswere mended, it would be diYcult to convince the public (and the European Court of HumanRights) that the system provided a fair hearing by an independent and impartial tribunal.86

Criminal prosecution in the courts: This would allow equal treatment for all under the law but itposes a substantial challenge to the freedom of speech protections of article IX in that it wouldallow Members to be questioned in court about their motives for speeches or actions in the House.It might also lead to courts examining the motives of Members who were not themselves undersuspicion and to disagreements between Parliament and a court or prosecuting authority overwhat parliamentary behaviour was acceptable.87

Joint responsibility: The Joint Committee considered that two options proposed by the HomeOYce either to distinguish between conduct which should be dealt with by the criminal law andthat which should be left to Parliament itself, or alternatively to make criminal proceedings subjectto the approval of the relevant House, possessed all the diYculties of the separate jurisdictionsoutlined above and had additional disadvantages of their own in lacking clarity or in requiring aMember to undergo a debate in the House which might well prejudice a later trial. Other proposed

81 Bribery Draft Legislation Cm 7570, page 3482 Cm 6086 para 1883 HL 43, HC 214 (1998–99), para 13784 Ibid, para 13985 Ibid, para 14086 Ibid, para 144–4887 Ibid, para 149–151



options involved the House waiving privilege for the accused Member, perhaps after the matterhad been judged suYciently serious by a parliamentary sifting committee. This proposal wouldraise diYculties about the authority of each House as opposed to a committee of either andpractical diYculties about membership.

14. The Joint Committee recommended that the only credible option, despite its disadvantages, was tobring Members of both Houses within the criminal law of bribery by legislation containing a provision tothe eVect that evidence relating to an oVence committed or alleged to be committed under the relevantsections shall be admissible notwithstanding article IX. They regarded this as involving “only a minimalencroachment upon the territory safeguarded by article 9” because of the small number of cases likely toarise involving Members and the even smaller number of those cases which will require proceedings inParliament to be questioned.88 The Joint Committee also briefly addressed the practical implications of thisrecommendation for standards and recommended that both Houses should take steps to ensure that therules and conventions concerning standards of conduct were in a readily accessible form capable of beingunderstood outside Parliament as well as within. It also noted that there would be implications fordisciplinary proceedings in Parliament relating to the same oVence committed by a Member but made norecommendations in this regard.89

Joint Committee on the Draft Corruption Bill

15. Four years later, in 2003, the Joint Committee on the Draft Corruption Bill took as a starting pointthat Members of Parliament and peers should be subject to the same corruption law as everyone else, aprinciple previously accepted by the Joint Committee.90 They therefore concentrated on the provisions ofClause 12 to the draft Bill which sought to remove evidential diYculties in prosecuting MPs and peers.91

16. The Joint Committee was concerned about the impact of Clause 12 upon freedom of speech inparliamentary proceedings, arguing that “there is a public interest in ensuring that the fullest facts aredisclosed in Parliament and that no one—witness, Member or minister—should feel inhibited by theprospect of what he or she says being subsequently questioned in court”.92 In particular, they concludedthat the Joint Committee on Parliamentary Privilege had not intended witnesses to be questioned in courton what they had said in Parliament and that Clause 12 should be narrowed to exclude witnesses and toinclude only the words or actions of an MP or peer in a case where he is a defendant, with the same wordsand action being admissible for or against all co-defendants in respect of corruption oVences based on thesame facts.93 This position was supported by the Liaison Committee which was concerned about the impactof the proposed Clause 12 upon witnesses before select committees.

Necessity and proportionality

17. The Joint Committee on Parliamentary Privilege made their recommendations expressly in theshadow of recent cases and allegations such as the Greenway case of 1992 and the “cash for questions” caseof 1994, identifying both a need for clarification of the law and “public perception that something is wrongwhich needs to be put right”.94 They asserted, however, that “We are confident there are very few instancesof corruption involving Members of Parliament”. This was supported by the Joint Committee on the DraftCorruption Bill which commented that it had “received little evidence that any MPs and peers have avoidedprosecution for corruption either because of their status or because parliamentary proceedings cannot bequestioned in court”.95

18. On the necessity of what was then Clause 12 of the Draft Corruption Bill, the Joint Committee was“persuaded that some changes in the exclusion of parliamentary proceedings from consideration by thecourts has to be accepted if the prosecution of an MP or peer for corruption is to be achieved”,96 but italso heard evidence that the Clause as drafted, disapplying article IX, was not necessary to ensure its aimof prosecuting MPs and peers. For example, in Australia evidence of parliamentary proceedings can be citedin court as long as the participants in those proceedings are not exposed to criminal liability. In the UnitedStates of America the Supreme Court decided, in US v Brewster, that “while a prosecution might not inquireinto legislative acts or their motivation, taking or agreeing to take money to act in a certain way whenparticipating in a legislative act cannot itself be a legislative act”.97 The evidence from the Brewster caseconcludes that “The guilty act is the acceptance of the bribe, and that is complete without performance ofthe (legislative) act or ‘proceeding in Parliament’—which the bribe is intended to procure or influence.”98

The Director of Public Prosecutions doubted if comment in debate would ever be admissible in a criminaltrial as evidence since “saying things about people is not evidence. Facts are evidence.”99

88 Ibid, para 167–16989 Ibid, para 174–18490 HL157, HC 705 (2002–03), para 10191 See above, para 692 HL157, HC 705 (2002–03), para 11793 Ibid, para 111, 13494 HL 43, HC 214 (1998–99), para 14095 HL157, HC 705 (2002–03), para 10596 Ibid, para 13397 Ibid, para 11098 Ibid, Ev 45, DCB 11, para 2699 Ibid, para 129



19. The Committee also heard evidence that the Clause would have implications for proceedings inParliament beyond the type of cases under consideration. A former Clerk of the House, Sir William McKay,expressed considerable disquiet over the detrimental impact of the existence of the Clause and disapplicationof article IX on the willingness of Members to speak freely in Parliament.100 He also argued that it could haveconsequences in other circumstances where Parliament wanted to rely upon article IX: “If the protection ofArticle IX is broken into, your position is very much weaker than if you have untouched protection”.101

Conclusions

20. The proposal of Clause 15 of the Draft Bill is a step with significant constitutional implications. Evenif one sees the balance of interest as needing a restriction of the kind it implies on parliamentary privilege,that must be recognised as a serious matter which I would suggest should only be taken subject to a numberof conditions.

21. The first of these would be a commitment by the Government to proceed with a ParliamentaryPrivileges Act, advocated by the Joint Committee which would clarify the application of provisions ofArticle IX; define Parliament’s control of its internal aVairs and replace existing statute on the reporting ofparliamentary proceedings.102 The experience of the Defamation Act of 1996, intended to address oneperceived anomaly of parliamentary privilege, has led to others. The provision of Section 13 of the Act waslater held to undermine the collective right of the House to immunity in respect of proceedings by allowingan individual Member to waive privilege. Other diYculties of a practical nature where more than oneMember was involved led the Joint Committee to recommend repeal of the Section.103 Other encroachmentson parliamentary privilege suggest that a piecemeal approach to defining and defending the Houses’legitimate right to function eVectively is no longer suYcient. The Australian model for a ParliamentaryPrivileges Act is at hand for adaptation to British circumstances.

22. The second condition would be that the proposal contained in Clause 15 be put before each Housein the form of a substantive motion. Given the significance of what is being proposed, it would seemreasonable that each House should be given an opportunity to agree to the principle prior to being invitedto consider the provision in a Bill. The public interest balance—between unfettered freedom of speech inParliament and dispelling any notion that “the only place where one could lawfully act in corrupt ways isin the Houses of Parliament”104 must be thoroughly aired in Parliament itself. Debate and decision basedmerely on the Question that the Clause stand part, which could take place in a Public Bill Committee in theCommons, seems insuYcient a method of deciding a matter of such significance.

June 2009

Memorandum submitted by the GC 100 (BB10)

GC100 is the association for the general counsel and company secretaries in the FTSE 100. There arecurrently over 120 members of the group, representing some 90 issuers.

Please note, as a matter of formality, that the views expressed in this document do not necessarily reflectthe view of each and every member of GC100 or their employing company.

1. Introduction

Whilst our members are committed to ensuring compliance with the highest ethical standards of corporatebehaviour, and we welcome the codification of the existing law of bribery, we have significant concerns aboutthe uncertainties which the draft Bill creates.

The lack of certainty as to what companies are required to do to comply with the law is likely to createconfusion amongst some companies, and impose a significant additional burden and cost on companies inworking out what they must do to comply with the new law.

The Secretary of State for Justice has indicated that a pre-legislative consultation process would beadopted in relation to this Bill. We are not aware of how this process will work but the GC100 would be verywilling to participate in any discussion on the practical implications of the Bill so that we can remove areasof uncertainty and enable companies to achieve the clarity which must be desirable especially in relation tocriminal conduct.

100 Ibid, para 124101 Ibid102 HL 43–I, HC 214–I (1998–99) para 376–85103 Ibid, para 69104 HL 157 HC 705 (2002–03), Para 118



2. GC 100 Key Concerns

Our members are concerned to ensure that any reform of the existing law creates a clear and unambiguousframework within which business must operate.

2.1 Adequate procedures defence: it is a defence to prove that the business in question had in placeadequate procedures designed to prevent bribery occurring, which seems like a sensible defence for abusiness to claim, but there is no guidance as to what “adequate procedures” actually means. Without thenecessary guidance, the like of which is given by the Federal Sentencing Guidelines in the United States,diVerent businesses will introduce measures in good faith which may not, with the benefit of hindsight, besuYcient to comply with the law.

We would be happy to work with MOJ / BERR to develop guidance which can support the new oVence,to enable companies to decide with clarity what is expected of them. We attach, as Appendix 1 the GC 100proposal for a list of the sorts of procedures which, subject to an appropriate risk assessment bearing in mindthe size and activities of each company, should be put in place in order to be “adequate” and thereforecomply with the new law.

2.2 Exclusion from adequate procedures defence: the draft Bill removes the availability of the defencewhere the negligence is that of a director, manager, secretary or similar oYcer, or a person purporting tooperate in such capacity. This exclusion is very confusing, and renders it highly unlikely that any commercialorganisation would be able to rely on the adequate procedures defence, and should be removed in its entirety.A significant number of individuals within companies will be termed “managers” and this term is used verywidely. It cannot be right that the adequate procedures defence is not available to a company because a“manager” in a position of some but limited authority behaves in a particular way.

At a minimum, the term “manager”, “senior oYcer” or persons purporting to act in such capacity mustbe removed. A more detailed description of our members’ position is set out at Appendix 2.

2.3 Negligence: negligence is not the appropriate standard upon which such a serious oVence must bejudged. Unlimited fines and debarment from tendering for public contracts are real consequences of the newoVence. As a basis for criminal liability, negligence is not generally suYcient to establish liability for seriousoVences. The only oVence for which negligence is arguably suYcient is public nuisance, and the most recentcorporate oVence which is analogous is corporate manslaughter, where “gross negligence” is the requiredthreshold.

No guidance is oVered on what the test of negligence is, and we assume that the test of negligence can besatisfied where a person’s conduct departs from the standard to be expected of a reasonable person. Thistest can diVer between individuals, and there is a danger with the wording in the Bill that the well trainedand qualified person could be judged more harshly than someone who has not been properly trained.

The appropriate test in this case should be that of “gross negligence”. This would apply where thestandards of behaviour fall well below what could reasonably be expected, and is a more realistic test for anoVence with such serious consequences. It sits better with the analogous serious oVence of corporatemanslaughter.

A more detailed analysis of the negligence test and the issues associated with it is attached as Appendix 3.

2.4. Fines: there is significant concern amongst our members about the level of fines which can be leviedagainst companies who are in breach of the law, and there is no guidance given as to how the Courts wouldapproach the level of fine. Thought must be given as to the way in which the Courts should approach thelevel of fine ie would they be referable to turnover, the value of the contract, the profit, the quantum of thebribe or some other criterion. Furthermore, confiscation orders are also available, in addition to any fines.Whilst we accept that penalties must be serious, they must also be proportionate and reasonable.

3. Other Issues

3.1 Debarment: under the Public Contracts Regulations 2006, in circumstances where a company hasbeen convicted of bribery or fraud, it can be automatically debarred from tendering for public sectorcontracts, regardless of the seriousness of the oVence or any mitigating factor, in perpetuity. This could beexcessively punitive for the companies concerned, in respect of what may be an act of the individual.

Further, the Regulations do not provide for “self cleansing”, as do comparative regulations in the US, sodebarment may follow for acts many years past. Consideration must be given to amending the law to allowfor such cleansing, so that debarment is not either mandatory or perpetual.

3.2 Facilitation payments: other jurisdictions accept the fact that facilitation payments are a necessary evilin some countries. The current proposal does nothing to change the present policy of forbidding“facilitation” payments. It therefore remains technically possible for a company to be prosecuted for failingto prevent such payments. Whilst the policy appears to be that facilitation payments are best handledthrough sensible use of the discretion not to prosecute, we simply wish to flag the uncertainty caused forcompanies, particularly those subject to other jurisdictions which take a diVerent approach.

3.3 Local legal advice defence: the Law Commission recommended that a safe harbour be available incircumstances where local legal advice had been taken, but which subsequently proved to be wrong. Thedefence did not appear in the Bill, and we believe that this defence should be reinstated.



4. Conclusion

Whilst we welcome the introduction of the draft Bill, we believe that there are some serious flaws in itsapproach. The principle behind its introduction is accepted, but it would be wrong to prosecute companiesin circumstances where adequate and functioning compliance processes are in place, merely as a result ofunforeseeable negligence on the part of an individual. Action can always be taken against particularindividuals who are responsible for the particular course of action, and this, in our submission, is theappropriate course in such circumstances.

June 2009

APPENDIX 1

ANTI-CORRUPTION COMPLIANCE

GUIDANCE FOR ASSESSING WHETHER ADEQUATE PROCEDURES ARE IN PLACE TOCOMBAT BRIBERY AND CORRUPTION

1. Introduction

The GC 100 recognises that there is a significant divergence in risk profile between its own members, letalone between all commercial organisations, from the smallest to the largest. Notwithstanding this, all needto have in place adequate procedures to prevent bribery if they are to comply with the requirements of thedraft Bill and, in appropriate circumstances, avail themselves of the adequate procedures defence. Theguidance contained in this paper is not intended to be prescriptive. Its purpose is to highlight the matters acommercial organisation should consider when developing its own procedure, having undertaken a properrisk assessment. It is intended to highlight the key areas which are likely to be considered important by acourt, but only where they are appropriate to the particular organisation and the level of risk it faces.

2. Board Responsibility for the Anti-Corruption Programme

The board of directors should take responsibility for the eVective implementation of the company’s anti-corruption programme. The board should take steps to ensure that senior management is aware of its policyin respect of corruption, and accepts the programme. The Chief Executive should make a clear statementabout the culture which he expects, and the consequences of breaching these ideals.

3. Compliance Function

A senior oYcer should be made responsible for oversight of the anti-corruption programme. He shouldbe provided with proper authority to implement and monitor all programme activities.

4. Anti-Corruption Code

Commercial organisations should have a clear and unambiguous code of conduct which includes an anti-corruption element, should publicise this code adequately internally, and should publish the code on itswebsite.

5. Risk Management

Procedures should be established to asses the likely risks of corruption arising in an organisation’sbusiness.

6. Employment Procedures

Whilst not appropriate for all organisations, wherever possible:

(a) employees should be vetted before they are employed to ascertain as far as is reasonable that theyare the type of person who is likely to comply with the company’s ethical policies;

(b) employment contracts should include express contractual obligations and penalties in relation tocorruption; and

(c) disciplinary procedures should be in place which, where appropriate, entitle the company to takesuitable disciplinary action against an employee who commits a corrupt act.



7. Gifts and Hospitality Policy

A commercial organisation should develop and implement a gifts and hospitality policy whereby itprovides guidance to employees of its policies in relation to the giving and receiving of gifts andentertainment, and puts in place measures to monitors this activity.

8. Training

It is important for commercial organisations to ensure that their codes of conduct and other policies areproperly embedded throughout their businesses. Anti-corruption training should therefore be provided,with reminders on a regular basis, to all relevant employees to make them aware of the types of corruption,the risks of engaging in corrupt activity, the organisation’s anti-corruption code, and how they may reportcorruption.

9. Due Diligence

Before entering into any business relationship or project, the organisation should carry out due diligenceon the country in which the business is to be conducted, on its potential business partners, agents used andon the proposed project or business transaction in order to identify as far as reasonably possible the risk ofcorruption.

10. Anti-Corruption Contract Terms

Consideration should be given to the contracts which are entered into between the company and itsbusiness partners to contain anti-corruption contract terms, and whether or not they should provide expresscontractual obligations and penalties in relation to corruption. Particular care should be taken when agentsare being used.

11. Decision-Making Process

An organisation should formalise its decision-making processes, so that where a greater risk of corruptionis perceived to exist, the decision is taken be a suitably senior individual within the organisation.

12. Financial Controls

An organisation should ensure that it puts in place financial controls to minimise the risk of the companycommitting a corrupt act against another individual or organisation (eg employees, clients, businesspartners, sub-contractors or suppliers), or of any corrupt act being committed against the company byanother individual or organisation. This can be done through an organisation’s internal audit function, ifone exists.

13. Commercial Controls

An organisation should ensure that its commercial controls minimise the risk of the company committinga corrupt act against another individual or organisation (eg employees, clients, business partners, sub-contractors or suppliers), or of any corrupt act being committed against the company by another individualor organisation.

14. Supply Chain Management

Wherever possible, an organisation should use procurement and contract management procedures whichminimise the opportunity for corruption by sub-contractors and suppliers against the company.

15. Reporting and Investigation Procedures

An organisation should develop and implement procedures (“whistleblowing”) for reporting corruptionwhich enable employees to report corruption in a safe and confidential manner to a responsible senior oYcerof the company. Similarly, organisations should ensure that all allegations of corruption are properlyinvestigated by properly qualified individuals, and, where appropriate, the results of those investigations arereported back to the individual who made the original complaint.

APPENDIX 2

SENIOR OFFICER: LIMITS TO THE ADEQUATE PROCEDURES DEFENCE

The adequate procedures defence is set out in clause 5(4). Clause 5(5) limits the circumstances in whichthe defence is available:

. . . the defence is not available if the negligence referred to in subsection (1)(c) was wholly or partlythat of a senior oYcer of C or a person purporting to act in such a capacity.



Although the Law Commission recommended that the defence should not be available when thenegligence was attributable to a director of the company (or equivalent person), the Government’s draft Billgoes further than this. The defence is not available where the negligence is wholly or partly that of a senioroYcer or someone purporting to operate in such a capacity. This is far wider than the Law Commissionenvisaged.

The fundamental question is whether the fault of a senior oYcer should mean that an organisation cannotrely on the adequate procedures defence. In our view it should not.

In deciding to recommend the creation of an oVence of corporate liability for bribery, the LawCommission in its Report stated that “it would be right to recommend that the criminal law be used toaddress the issue of culpable organisational failure to prevent bribery oVences” (paragraph 6.42). By makingpivotal the fault of a senior oYcer, both the Law Commission’s proposal and the Government’s draft Billplace incidents of negligence, which may be a “one oV” occurrence, in an inappropriately paramountposition, rather than eVectively target the systemic failure of an organisation.

Further, given that one of the purposes of criminalising a failure to prevent bribery is to encourage theadoption of the appropriate preventative measures, it is surprising that a commercial organisation whichtakes its obligations seriously and appoints a senior oYcer to carry out an anti-corruption function arguablyopens itself up to a greater risk of prosecution. On the face of it, a commercial organisation would limit itsrisk of being found criminally liable if it appointed someone below senior oYcer level, as it would then atleast have an opportunity to rely on the adequate procedures defence.

However this would pose a significant diYculty to multinational organisations which are subject to thejurisdiction of the US Foreign Corrupt Practices Act. Under the US Federal Sentencing Guidelines, whichdescribe what an eVective compliance programme entails and upon which many corporate ethics andcompliance programmes are based, an organisation must give overall responsibility for compliance to amember of high level personnel in order to obtain sentencing credit. The problem is that whilst appointinga senior oYcer with overall responsibility is clearly desirable from the US perspective, as the draft Bill stands,it is equally undesirable from the UK perspective.

In any event, and for the reasons we set out more fully below, we are concerned that the exclusion meansthat the prospect of a corporate defendant being able to employ the defence are more illusory than real.

There are three distinct reasons for this: (a) the definition of “senior oYcer”, (b) the concept of collectivenegligence and (c) the concept of purporting to act.

Senior OYcer

A senior oYcer is defined in clause 5(7) as:

(a) in relation to a body corporate, means a director, manager, secretary or other similar oYcer of thebody corporate, and

(b) in relation to a partnership, means a partner or any person who has control of management of thebusiness of the partnership.

This is a very wide definition, and one that will lead to considerable uncertainty and inconsistency ofapplication. DiVerent organisations will designate diVerent levels of employee as directors or managers, butby including managers at all in the definition the exclusionary net is cast unnecessarily wide.

In order to avoid the potential problems caused by the involvement of a senior oYcer of a company inan anti-corruption capacity, there may be an understandable inclination to outsource the anti-corruptionfunction. The use of the phrase “any person . . . connected with” a company to define a “responsible person”(clause 5(3)) appears to cover the delegation of the anti-corruption function to either a subsidiary or evena wholly independent entity. If the delegation were to such a wholly independent entity, such a person/bodycould not fall within the definition of “senior oYcer” in which event the adequate procedures defence wouldbe available notwithstanding negligence on the part of that wholly independent entity.

This might present as an attractive possibility to the corporate: delegate the function out as such a coursemay allow the adequate procedure defence to be claimed. However it may be contended either that (i) asenior oYcer was responsible for the delegated function and that therefore the negligence of that personoverseeing the wholly independent entity could be a basis for liability, or (ii) such a delegation is not, bydefinition, an adequate procedure. Clearly, the Bill as drafted leaves significant issues for corporates towrestle with, and given the consequences of conviction should they get it wrong, such a state of aVairs ishighly unsatisfactory.



Collective Negligence

Given that the oVence in the draft Bill is committed not only where the senior oYcer himself was negligent,but where the appropriate standard was not reached by the senior oYcer as one of a number of personscharged with preventing bribery, the circumstances in which the exclusion will apply are widened further.

Notwithstanding that a commercial organisation might have procedures which go beyond mere (andsuYcient) adequacy, a single instance of negligent failure to prevent a bribe, which, may be due partly to aone oV lapse of attention by a senior oYcer, which although not by itself negligent, when taken as part ofthe conduct of a number of persons taken together, is found to be negligent, the organisation cannot relyon what may, in all other regards, be a model of best practice.

Purporting to Act

It is not clear what “purporting to act” in the capacity of a senior oYcer means. The Oxford EnglishDictionary defines “purport” as “appear to be or do something; especially falsely”.

It is unclear whether a person must have the knowledge and intention to act “falsely” in order to comewithin this test.

More fundamentally, given that the involvement of a senior oYcer in the collective negligence of othersprevents reliance upon the adequate procedures defence the temptation for a prosecutor will be to invokethis provision. It is possible that prosecutors may argue that, given the importance to an organisation ofhaving an eVective anti-corruption policy, any person, whatever their level, whose function was to preventthe payment of bribes was purporting to act in the capacity of a senior oYcer. The phrase furtherunnecessarily limits the availability of the defence.

APPENDIX 3

THE NEGLIGENCE TEST

The OVence

The liability of a commercial organisation (as defined) for the oVence is proved by the prosecutionestablishing the three elements set out in clause 5(1) sub-clauses (a) to (c):

A relevant commercial organisation (“C”) is guilty of an oVence under this section if:

(a) a person (“A”) performing services for or on behalf of C bribes another person,

(b) the bribe was in connection with C’s business, and

(c) a responsible person, or a number of such persons taken together, was negligent in failing toprevent the bribe.

Negligence

The test of fault included in clause 5(1)(c) of the draft Bill is the negligent failure to prevent the bribeproved under limbs (a) and (b).

In its Report “Reforming Bribery” the Law Commission does not oVer any guidance on what the test ofnegligence is. However, in its Working Paper No 31 The Mental Element in Crime, the Law Commissiondescribed negligence thus: “a person is negligent if he fails to exercise such care, skill or foresight as areasonable man in his situation would exercise”.

Thus it would be no defence for the allegedly negligent person to say that he considered whether there wasa risk and decided there was none. According to this definition, if, objectively, he ought to have foreseen arisk, that is suYcient.

However, if we have correctly described the test of negligence that a jury would be directed to apply, thereis an argument that one of the factors a jury would be entitled to take into account in deciding how “areasonable man in his situation” would behave is the training the allegedly negligent person received andthe procedures he followed: essentially the anti- corruption policy of his employer.

By importing into the test the anti-corruption policy and procedures of the employer, negligence is notnecessarily a purely objective test, although this would appear to operate to the detriment of the allegedlynegligent and the company which employs him. If the allegedly negligent person has a higher standard ofknowledge and training than the reasonable person, as a senior employee may well have, a higher standardwill be expected of him. The reverse is not true.

Does this lead to an unintended consequence: that a corporate that has an exceptionally well thought outand implemented anti-corruption policy is in a worse position if a bribery oVence is committed in connectionwith its business, as the standards expected of its employees and oYcers would be that much higher by virtueof the training received and procedures in place?



If correct, and if the limitation on the availability of the statutory defence remains, a company with a welltrained senior oYcer in charge of its anti-corruption policy who is allegedly negligent (or as described below,is not himself negligent, but is one of a number of persons whose collective actions were) a higher standardwill be expected of him due to the company’s exemplary anti-corruption policy, yet the company will beunable to rely on that exemplary policy to establish the statutory defence.

Negligence of a number of persons taken together

It would appear that the negligence requirement can be satisfied by the collective actions of a number ofindividuals having an anti-corruption function falling below a reasonable standard (if that is what thenegligence of a number of responsible persons taken together means). By implication the test must besatisfied where no one individual was negligent in failing to prevent the bribe, otherwise the words wouldbe unnecessary.

This is notwithstanding the Law Commission counselling against the adoption of something akin to theregime introduced by the Corporate Manslaughter and Corporate Homicide Act 2007 (“the CMCHA2007”), where it is not necessary to prove that any one person possessed a subjective fault element(paragraphs 6.33 to 6.39 of the Report). Under the CMCHA 2007 it is possible to aggregate negligent actsto come to a global view that an unlawful killing was caused by gross negligence on the part of the company.

However, whilst the CMCHA 2007 aggregates the individual negligence of a number of employees for thepurpose of considering whether or not a company was grossly negligent, the current draft Bribery Billproposes an aggregate of diVerent acts or omissions, which may not individually be negligent, but whichtogether form a basis for arguing that there has been ‘collective negligence’.

The Law Commission was clearly opposed to this, amounting as it does to a significant extension ofliability. It states at paragraph 6.103 of its Report that enabling the prosecution to fall back on proof ofnegligent failure to prevent bribery through proof of a series of acts or omissions (by one or more peopleconnected to the company) that cumulatively amount to such negligence, would be inconsistent with theprovision of the adequate systems defence.

It is far from clear how this test of collective negligence might operate in practice. What is clear is that thesuYciency of collective negligence is an extension of liability to that envisaged by the Law Commission. Itis, we suggest an unnecessary and unwarranted one, particularly bearing in mind what we say about thelimitation of the defence where a senior oYcer with an anti-corruption function is one of those responsiblepersons but is not, by himself, negligent.

Gross Negligence

The most serious example of negligence as a basis for criminal liability is that found in gross negligencemanslaughter. Here, the negligence requirement is qualified: it must be gross negligence—an objective testrequiring the failure to recognise a risk obvious to the reasonable and prudent professional which is so badin all the circumstances as to amount to a criminal act or omission. Given the gravity of this oVence, wesuggest that gross negligence would be the appropriate test.

It is worth adding that although gross negligence does not require the prosecution to adduce evidence ofa person’s state of mind (which is probably irrelevant for the purposes of ‘ordinary’ criminal negligence)such evidence might be relevant to the jury’s consideration when assessing the grossness and criminality ofthe conduct (see Attorney General’s Reference No.2 of 1999 [2000] 1 Cr App R 207).

Burden and Standard of Proof

Finally, we are concerned to understand how the test of negligence will fit with the burden and standardof proof in criminal proceedings. It is clear that it will be for the prosecution to prove to the jury beyond areasonable doubt that there has been negligence. However, it is less clear what test is to be applied by thejury in these circumstances ie must they be sure in relation to an act or omission which a reasonable“responsible person” would regard as negligent, or must they be sure of that, which on a civil standard (iebalance of probabilities), would amount to negligence? If it were the latter the prosecution would have toprove beyond a reasonable doubt that something happened/failed to happen which on the balance ofprobabilities amounts to negligence. This, we contend, is a confusing position.

Memorandum submitted by the Clerk of the Parliaments (BB 11)

1. This memorandum is sent in response to the Committee’s request for evidence on privilege aspects ofthe Draft Bribery Bill. It supplements the memorandum sent by the Clerk of the House of Commons. Iwholly endorse the content of his memorandum, in particular his suggestion that the Government shouldbe invited to make a commitment to proceed with a Parliamentary Privileges Act, as advocated by the JointCommittee on Parliamentary Privilege in 1999.



2. I would like to add one detailed comment on the Clerk of the House’s memorandum. In setting outthe background to the current proposal he mentions a resolution of the House of Commons in 1695, that“the oVer of money or other advantage to any Member of Parliament for the promoting of any matterwhatsoever, depending or to be transacted in Parliament, is a high crime and misdemeanour”. I should pointout that while the House of Lords has no comparable resolution, bribery of a peer would be regarded as acontempt in the same way as bribery of a Member of the Commons. This is clear in the words taken fromErskine May, that “The acceptance by a Member of either House of a bribe to influence him in his conductas a Member, or of any fee, compensation or reward in connection with the promotion of or opposition toany bill, resolution, matter or thing submitted or intended to be submitted to either House, or to acommittee, is a contempt”.

3. In the remainder of this memorandum, I focus on a number practical issues surrounding the Draft Bill,with particular reference to recent events in the House of Lords.

4. As members of the Joint Committee will be aware, the Draft Bribery Bill was published while theHouse of Lords Committee for Privileges, through its Sub-Committee on Lords’ Interests, was investigatinga serious complaint against four peers, which arose out of allegations made in the Sunday Times on 25January 2009. This in turn followed a “sting” operation by undercover journalists, similar to that which ledto the “cash for questions” case in the House of Commons in 1994.

5. Shortly after the allegations appeared a Member of the House of Commons requested that the policeexamine them. The decision of the police not to launch a full investigation was announced on 11 February.105

Explaining this decision, the police stated that “the application of the criminal law to members of the Houseof Lords in the circumstances that have arisen here is far from clear. In addition, there are very cleardiYculties in gathering and adducing evidence in these circumstances in the context of ParliamentaryPrivilege”.106

6. The first diYculty faced by the police was clearly legitimate, and has been confronted in the presentDraft Bill. However, the second diYculty, that of parliamentary privilege, is less persuasive. In this particularcase, none of the peers oVered themselves to table amendments, or engage in any activities which would becovered by parliamentary privilege. Instead the emphasis was on behind the scenes lobbying, setting upmeetings, and so on. In other words, parliamentary privilege had little or no bearing on the case. It is diYcultto see either how parliamentary privilege could have impeded a police investigation, or how clause 15 of theDraft Bill would have assisted such an investigation or any subsequent prosecution.

7. There is a further consideration. The Committee for Privileges report on the four peers was publishedon 14 May, and agreed by the House of Lords on 20 May.107 The Committee found that even though nomoney had changed hands, two of the peers had expressed clear willingness to exercise improperparliamentary influence in return for financial inducement (in other words, to breach the “no paid advocacyrule”), and that in so doing they had breached paragraph 4(b) of the House of Lords Code of Conduct, whichrequires peers to “act always on their personal honour”.

8. It is unclear whether the conduct of the sort described in the Committee for Privileges report wouldnecessarily bring peers within the ambit of the proposed oVence of bribery, as set out in clauses 1 to 3 of theDraft Bill. It could certainly be argued that a breach of the Code of Conduct’s prohibition on paid advocacy,even to the extent of an expression of “clear willingness” to engage in paid advocacy, would in itselfconstitute an oVence as described in the Draft Bill.

9. However, it does not appear that either the police or the courts could take cognisance of any suchfinding by a Committee of the House. The Joint Committee on Parliamentary Privilege asserted that “itreally goes without saying that, on a charge of corruption, the court must be able to take into accountcompliance with these obligations and restrictions [in the Code of Conduct] when deciding whether amember’s intention was corrupt”.108 It is not clear that the Draft Bill in fact achieves this, given that theCode of Conduct is itself the product of a resolution of the House and therefore subject to parliamentaryprivilege; yet it falls outside the scope of the modification of Article IX contained in clause 15. Similarly, thefindings of select committees, such as the Committee for Privileges, fall outside the scope of clause 15.

10. I suggest that the Joint Committee might wish to seek the Government’s views on the practical eVectof the provisions in the Draft Bill on such cases. In particular, the Joint Committee could seek clarity from

105 See HL Deb, 11 February 2009, col 1120.106 See the Metropolitan Police statement on

http://cms.met.police.uk/news/major operational announcements/mps statement re lords allegations.107 Committee for Privileges, 2nd Report, 2008–09, The Conduct of Lord Snape, Lord Moonie, Lord Truscott and Lord Taylor

of Blackburn (HL Paper 88); HL Deb, 20 May 2009, cols 1394–1418.108 Report of the Joint Committee on Parliamentary Privilege, Session 1998–99 (Paper HL 41/HC 214), paragraph 178.



the Government on how the oVence described in clauses 1 to 3 of the Draft Bill would relate to the provisionsof the Codes of Conduct adopted by the two Houses. The Joint Committee may also wish to ask theGovernment for an explanation of the ways in which the modification of Article IX contained in clause 15would assist police investigations or prosecutions.

June 2009

Additional memorandum submitted by Professor Jeremy Horder (BB 12)

BRIBERY BILL: ANSWERS TO FURTHER QUESTIONS

1. Will the Bill catch simple breaches of tort and contract in its “improper performance” test?

The simple answer to this question is that no acts are expressly included, or expressly excluded, by the Bill,as potential candidates for a breach of trust/faith/impartiality. It is ultimately a matter for the jury, guided bycommon sense guidance from the judge (see below). If that seems unsatisfactory consider the alternative:

A very good reason for the approach taken in the Bill, is that to have express inclusions or exclusionswould be to invite secondary litigation over the nature and limits of the inclusions and exclusions (see LawCom Report, 3.88-3.98).

Suppose for example that the Bill said that a bribery charge could not be founded “simply on a tort orbreach of contract”. That would entail the court having to decide whether there had indeed been a “tort”committed by one or other of the parties, or a contract broken (hardly an appropriate matter for a criminalcourt). This would then have to be followed by an investigation into whether this was a “simple” case oftort/breach of contract, or involved something more.

Further, there are further problems with a focus on “breach of contract”. If this is the focus, it would bepossible to mount a bribery prosecution respecting acts leading up to the contract (a very common situationin which bribery will be encountered) when there may well be duties of good faith but breach of them is noa “breach of contract”. But it would apparently then be diVerent post-contract, where an act of breachshould not (?) be the basis for a bribery prosecution unless further criteria are specified.

I find this kind of legal point-and-distinction making, as the basis for limiting the scope of the oVence,very unattractive. What the Bill does is try to get at the heart of the issue—was there a breach of good faithetc?—leaving aside other kinds of legal relations that there might have been between the parties. The veryproblem with the 1998 Law Commission Bill was that, with the best of intentions, it sought to clarify mattersby bringing in legal concepts to mediate, but ended up just complicating matters and leavingunacceptable gaps.

The Law Commission was this time perhaps a bit too definite in its conclusions about what should happenin the examples at and around 3.158 of its Report. This is something we actually try not to do in general,as it is a matter for the courts (and so I apologise for that).

I actually anticipate that, in the case where the security guard just changes jobs in breach of contract, thejudge would terminate the case at the end of the prosecution’s evidence on the grounds of “no case toanswer”. Were the judge not to do this, and to let the case go ahead, what the judge will/should say to thejury is something along the lines of:

“The prosecution is claiming that you can be sure that the guard’s simple decision to move jobswas not just a breach of his contract, but an improper breach of good faith amounting to bribery.It is entirely a matter for you, but you must remember, as the defence has strongly argued, that thisis not a case where the guard has betrayed his employer by revealing his employer’s secrets inexchange for money, or given a rival business a tour round the building, or something of that kind.There are probably some of your number who have left your jobs early to go to other jobs. It is ofcourse a common practice; and there are economists who actually argue in favour of it as anexample of what they call ‘eYcient’ breach of contract. Whether or not you accept these pointsmade by the defence, and whether they raise a doubt in your mind about the defendant’s guilt, isentirely for you to decide; but so far as the prosecution’s case is concerned, you must be satisfiedso that you are sure that the guard’s conduct amounted to a breach of a duty of good faith andhence amounted to bribery.”

The same point could be made about the banking example. Whether or not a banker’s receipt of apayment to secure the move of an entire trading team from his or her firm to another firm is bribery, dependson the circumstances.

If the other firm has said simply, “look, there will be advantages for all of you in coming here in salaryterms’, then I don’t see a jury finding bribery, or even a judge leaving a case for the jury to consider.



However, it is certainly possible—and not in my view wrong—for the jury to have a harder look if thebanker has received a specific secret commission to persuade his or her fellow traders to switch firms. Inprinciple, is it wrong for the judge/jury to consider that a genuine candidate for bribery? I don’t believe thatit is.

2. Is the meaning of “good faith” simply loose and rhetorical?

As for the definition of good faith, the reference to it being “loose and rhetorical” is taken completely outof context. We were at that point seeking to explain why a legal definition of “good faith” would not beappropriate because it has diVerent meanings in law. At 3.170-3.189 we explain why we agreed with thejudges that it was perfectly acceptable for the jury to apply concepts such as “good faith” in judgingdefendants’ conduct, once a judge had decided there was suYcient evidence of it to go to the jury (and thatis an important threshold check).

Moreover, Transparency International’s own Bill rested entirely on the notion of a breach of good faith(not defined in law) as the basis for bribery (Report 3.140). Would TI have done this if they had thought theconcept “loose and rhetorical”? I hardly think so. So, the Bill’s wording is not something completely newin this context. TI—people very experienced in tackling corruption through law—have recommended theuse of this term, and not just the Commission and the Government.

What the Bill does is to provide some greater clarity by providing separately for breaches of impartialityand trust. An entire legal edifice should not ideally be founded on a single phrase, “breach of good faith”.

Having said all that, it would be possible to insert a “for guidance” provision in the Bill that said:

“In relation to ‘improper performance’, a person shall not be found guilty under clauses x to xsimply in virtue of having committed a wrong in civil law’; or, less pointedly,”

“In relation to ‘improper performance’, the jury should be directed to take into account whetherthe defendant’s acts amounted to no more than a civil wrong”.

I suppose that something like this might not do too much harm, but I don’t believe that it would do muchgood either. The Government has decided to trust the collective common sense of judges and jurors on theissue of what amounts to a breach of good faith etc. That follows the Commission’s recommendations.

3. Is there a misfit between the fault elements for P and for R?

There is a deliberate mis-match between the fault elements for P and for R. P’s fault element must bestringent, whereas it is questionable whether R needs protection by way of explicit fault element. All bar oneof the Law Commission consultees who addressed this question thought that no specific fault requirementwas needed in R’s case, beyond what is implicit in the notion of improperly asking for an advantage etc.

Especially in private commercial contexts, it is vital that companies know what they can and cannot do,in seeking to secure business from other companies and from Governments. In that regard, as I said to theCommittee, P’s acting on an intention that R should behave improperly provides the “line in the sand” thatmust not be crossed.

However, when it comes to R’s conduct, matters are diVerent because R is occupying a role (customsoYcer; judge, European sales manager, managing director; security guard etc) which is partly defined by itsgood faith, or trust, or impartiality requirements. That has the following consequence.

To insist that the prosecution prove that R knew that he or she was not meant to depart from theseobligations is a bit like asking the prosecution to show, in a case where a nurse has stolen from a patient,that the nurse was aware that it was a breach of trust in the nurse-patient relationship to steal from patients.To require proof of that would be superfluous.

There might be an exceptional case in which it could plausibly be claimed that a company agent, say, wasunaware that he or she could not place a contract with the company that paid him or her the highest secretcommission (but how plausible is that?). Then, this lack of awareness could be taken account of insentencing.

It must be kept in mind that, in many cases, the prosecution will have a choice whether or not to pursueP, or R, or both together. No doubt, if R seems genuinely innocent when agreeing to accept an advantagein breach of a duty of good faith/impartiality/trust, then that would be a reason to pursue P, and to persuadeR to give evidence against P.

4. The concerns of the UK Anti-Corruption Forum

I do not really have enough information to go on here. It may be that the Forum is concerned with thepoints made in my 3. above.

Further, under both clauses 1 and 2, it is of course not necessary that any advantage actually changeshands. It is enough that there has been an oVer, or an acceptance, in circumstances where it would beimproper to accept and it is P’s intention that R perform a duty improperly or be rewarded for the same. Idon’t see this as controversial.



Finally, there can obviously also be cases where both P and R commit the oVence independently, withoutthe other being involved. P may make the oVer, but R never receives it, or discards it, or is an under-coveragent investigating corruption etc. Contrariwise, R may make special arrangements for P in anticipationthat P will reward R, but P never takes up the arrangements or never makes any payment. Again, I don’tsee this as controversial.

June 2009

Memorandum submitted by the Corner House (BB 13)

Introduction

1. The Corner House is a non-governmental organisation focusing on environment, development andhuman rights. It has a track record of detailed policy research and analysis on overseas corruption and oncorporate accountability.109 It has brought two judicial reviews on corruption-related decisions by publicbodies: one, by the Export Credits Guarantee Department to weaken in November 2004 its rules aimed atreducing corruption;110 the other by the Director of the Serious Fraud OYce (SFO) in December 2006 toterminate the SFO investigation into alleged bribery and false accounting by BAE Systems in relation to theAl Yamamah deals with Saudi Arabia.111

2. The Corner House welcomes the invitation from the Joint Committee to give evidence on the draftBribery Bill.112

3. The Corner House also welcomes the various aims of the draft Bribery Bill, namely:

— to consolidate, remove inconsistencies and fill gaps in the existing criminal law of bribery;

— to reform and modernise the legislation so as to bring “transparency and accountability to [theUK’s] international business transactions”113;

— to make anti-bribery legislation easier for the public to understand and for prosecutors and thecourts to apply.114

4. The Corner House supports the desired result of the reforms:

“a modern, clear and consolidated law that complements and supports [the UK’s] internationaleVorts and equips [the UK’s] courts and prosecutors to deal eVectively with bribery of all kinds,wherever it occurs”.115

5. The Corner House broadly welcomes several clauses in the draft Bribery Bill, in particular:

— coverage of payments made through third parties (Clause 1, Subsection 5);

— the new discrete oVence of bribery of foreign public oYcials (Clause 4);

— extra-territorial jurisdiction to prosecute bribery committed abroad not just by UK nationals andbodies incorporated under UK law (as provided for in Part 12 of the Anti-terrorism, Crime andSecurity Act 2001) but also by persons ordinarily resident in the UK (Clause 7); and

— removing the existing requirement for the Attorney General’s consent to prosecute a briberyoVence, so that consent in future will be required only from the Director of the relevant prosecutingauthority (Clause 10).

6. The Corner House has reservations and concerns, however, about several other clauses in the draft Billand about some significant omissions.

109 http://www.thecornerhouse.org/uk/corruption110 In December 2004, The Corner House instituted legal proceedings after the Export Credits Guarantee Department (ECGD)

significantly weakened its rules aimed at reducing corruption in November 2004. On 13 January 2005, the government agreedto instigate a full public consultation on these changes to the anti-corruption rules and to make public the correspondencebetween the ECGD and Airbus, BAe Systems, Rolls Royce and the Confederation of British Industry (CBI) that had led tothe weakening of the anti-corruption rules.See “Corner House Double Victory on UK Government Department’s Anti-Bribery Rules and Public Interest Litigation”,25 January 2005, http://www.thecornerhouse.org.uk/item.shtml?x%107362.

111 The judicial review brought by The Corner House jointly with Campaign Against Arms Trade was taken on the two maingrounds that stopping the BAE-Saudi investigation was unlawful because:–it contravened Article 5 of the OECD Anti Bribery Convention, which prevents signatories from terminating aninvestigation because of its “potential eVect upon relations with another State”; and –an independent prosecutor hadsurrendered the rule of law in permitting threats or blackmail to influence his decision.For further information and links to legal documents and arguments, see: http://www.controlbae.org.

112 http://www.justice.gov.uk/publications/docs/draft-bribery-bill-tagged.pdf113 Jack Straw MP, Lord Chancellor and Secretary of State for Justice, “Foreword”, Bribery: Draft Legislation, Ministry of

Justice, 25 March 2009, p.3, http://www.justice.gov.uk/publications/docs/draft-bribery-bill-tagged.pdf.114 Ibid.115 Ibid., p.4.



7. This submission focuses on the investigation and prosecution of the new discrete oVence of bribery offoreign public oYcials (Clause 4). The Corner House believes that if this clause is to be eVective in tacklingforeign bribery, well-founded allegations of bribing a foreign public oYcial must be investigated properlyand, if the evidence so warrants, prosecuted.

The Corner House therefore believes that additional clauses are needed in the draft Bribery Bill to ensurethat such investigations and prosecutions are carried out. In particular, clauses are needed to ensure thatthose investigating and prosecuting the bribery of foreign public oYcials are not influenced byconsiderations of national economic interest or the potential eVect upon relations with another state or theidentity of the natural or legal persons involved. These clauses should reflect Article 5 of the OECDConvention on Combating Bribery of Foreign Public OYcials in International Business Transactions.

Without such clauses, the draft Bribery Bill is highly unlikely to be eVective in tackling foreign briberyand will fail to achieve the objective of making the law easier for prosecutors and the courts to apply. It mayresult in the law not being applied equally across the board to all, and it may (ironically) even encouragecross-border bribery.

Investigation and Prosecution of Bribery of Foreign Public Officials

8. Cross-border corruption is notoriously diYcult to tackle. This is particularly so if the bribed foreignpublic oYcial is senior in status and is in a position to blackmail or otherwise threaten adverse consequencesif his/her conduct is exposed through an investigation or prosecution or to protect the interests of thecompany or individual that bribed.

Tackling cross-border corruption is particularly diYcult if the bribing company, or individual acting ona company’s behalf, is able to exert undue or improper influence over those investigating and prosecutingbribery, or is able to persuade others to exert such influence, such as other public oYcials, whether domesticor foreign. Larger companies are more likely to be in a position to exert such influence than are small andmedium enterprises (SMEs).

Investigators, prosecutors and the Courts need to have legislative, Parliamentary and Executive supportand backing to resist such threats, blackmail or other undue or improper influence. Without such backing,the demands of realpolitik often mean that bribery investigations and prosecutions do not take place or areterminated.

If investigators, prosecutors and the courts capitulate to such threats, blackmail or influence, the endresult is that bribery flourishes.

Article 5 of the OECD Convention on Combating Bribery of Foreign Public OYcials in InternationalBusiness Transactions (“the OECD Convention)116 is intended to address this mischief.

Article 5 of the OECD Convention and its Status in UK Law

9. The essence of the OECD Convention is to require an eVective domestic remedy against foreign briberyand corruption by means of prosecution and enforcement by competent national authorities in accordancewith the standards set out in the Convention.

10. Article 5 of the OECD Convention provides for the enforcement of Article 1117 (which relates to

116 The OECD Convention is a multilateral treaty aiming to ensure that all 30 OECD countries and 8 other non-membersignatory countries present a combined and united front against the bribery and corruption of foreign public oYcials. Thenon-member signatory countries are Argentina, Brazil, Bulgaria, Chile, Estonia, Israel, the Slovak Republic and SouthAfrica.http://www.oecd.org/document/21/0,3343,en 2649 34859 2017813 1 1 1 1,00.html

117 OECD Convention, Article 1:1. Each Party shall take such measures as may be necessary to establish that it is a criminal oVence under its law for any personintentionally to oVer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries,to a foreign public oYcial, for that oYcial or for a third party, in order that the oYcial act or refrain from acting in relationto the performance of oYcial duties, in order to obtain or retain business or other improper advantage in the conduct ofinternational business.2. Each Party shall take any measures necessary to establish that complicity in, including incitement, aiding and abetting, orauthorisation of an act of bribery of a foreign public oYcial shall be a criminal oVence. Attempt and conspiracy to bribe aforeign public oYcial shall be criminal oVences to the same extent as attempt and conspiracy to bribe a public oYcial of thatParty.3. The oVences set out in paragraphs 1 and 2 above are hereinafter referred to as “bribery of a foreign public oYcial”.4. For the purpose of this Convention:a. “foreign public oYcial” means any person holding a legislative, administrative or judicial oYce of a foreign country,whether appointed or elected; any person exercising a public function for a foreign country, including for a public agency orpublic enterprise; and any oYcial or agent of a public international organisation;b. “foreign country” includes all levels and subdivisions of government, from national to local;c. “act or refrain from acting in relation to the performance of oYcial duties” includes any use of the public oYcial’s position,whether or not within the oYcial’s authorised competence.OECD Convention, http://www.oecd.org/dataoecd/4/18/38028044.pdf



creating the domestic criminal oVence of foreign bribery118). Article 5 states that:

“Investigation and prosecution of the bribery of a foreign public oYcial... shall not be influencedby considerations of national economic interest, the potential eVect upon relations with anotherState or the identity of the natural or legal persons involved.”

The purpose of Article 5 is to remove barriers to the investigation and prosecution of international briberyand corruption. Signatories to the OECD Convention agree not to accede to diplomatic threats and otherforms of blackmail commonly used to frustrate embarrassing international bribery prosecutions in exchangefor a similar promise by other states. If all signatory countries maintain the same common high standard ofrefusing to abandon bribery investigations and prosecutions on the basis of diplomatic and economic threats(real or bluVed), all states ultimately benefit. Each country agrees to limit its freedom of action individualcases in order to secure long-term benefits for all. To do so, uniformity of interpretation of the Conventionand of enforcement is essential.

11. The United Kingdom signed the OECD Convention on 17 December 1997 and deposited itsinstrument of ratification on 14 December 1998.

12. But the current legal situation is that the provisions of Article 5 are completely unenforceable in theUK. Investigators and prosecutors do not need to apply its requirements in practice. They can thereforelegally abandon an investigation into the criminal oVence of bribery overseas allegedly instigated by a UKcorporate body or individual if they perceive that the investigation or prosecution might aVect the UK’snational economic interest, or the UK’s relations with another country, or because the person or companybeing investigated has a high profile or position of influence.

13. This legal status was made clear as a result of the House of Lords ruling in the Appeal of the Directorof the Serious Fraud OYce against the High Court judgment of the judicial review application brought byThe Corner House and Campaign Against Arms Trade of the Director’s decision to stop the investigationinto BAE System’s alleged corruption in arms deals with Saudi Arabia.119

14. The House of Lords ruling means that there is an entirely inadequate level of protection in domesticlaw to ensure that all the factors highlighted in Article 5 (national economic interest; relations with anotherState; the identity of those involved) do not influence investigations and prosecutions of bribery of foreignpublic oYcials.

15. Public assurances by government oYcials, investigators and prosecutors that the UK will abide byArticle 5 even though it has not been incorporated into UK law cannot be trusted and have been shown tohave no validity.

118 The UK gave eVect to Article 1 by means of Part 12 of the Anti-terrorism, Crime and Security Act 2001, which extended thereach of existing (anti) bribery and corruption laws to oVences committed outside the UK and to the bribery of foreign publicoYcials. According to the Law Commission, this “was intended as a temporary measure, pending the introduction ofcomprehensive corruption legislation” (Reforming Bribery, Law Commission, 19 November 2008, p.63. http://www.lawcom.gov.uk/docs/lc313.pdf).Clause 4 of the draft Bribery Bill gives eVect to Article 1. The first Explanatory Note (Paragraph 29, page 9) produced by theMinistry of Justice accompanying the draft (anti) Bribery Bill explains that Clause 4:“creates a separate oVence of bribery of a foreign public oYcial. This oVence closely follows the requirements of the OECDConvention on Combating Bribery of Foreign Public OYcials in International Business Transactions.”Paragraph 31, page 10, of the Explanatory Notes indicates that the definition of a foreign public oYcial in the draft BriberyBill “draws on Article 1.4(a) of the OECD Convention”. It also states “similarly, the definition of ‘public internationalorganisation’ in subsection (7) draws on Commentary 17 to the OECD Convention”.Other Explanatory Notes also refer to the OECD Convention. Paragraph 37, page 10, in describing what a person will havedone to be construed as committing an oVence of bribing a foreign oYcial—the conduct element—states that:“The language of the OECD Convention is mirrored in the phrases ‘obtain or retain business’ and ‘oVers, promises or gives’and in the word ‘advantage’ in subsection (3), and in the words ‘public function’ in subsection 96)(b).”Paragraph 59, page 14, explaining the Clauses that would authorise the UK’s security services to bribe—clauses that TheCorner House believe should be removed in their entirety—indicates that such authorisation does not extend to authorisingthe bribery of a foreign public oYcial because of concerns raised in 2003 on an earlier draft (anti) Corruption Bill about“compliance with the UK’s obligations under the OECD Convention”.See Bribery: Draft Legislation, Ministry of Justice, 25 March 2009, http://www.justice.gov.uk/publications/docs/draft-bribery-bill-tagged.pdf.The Law Commission, in its November 2008 report, Reforming Bribery, that forms the basis for this draft Bribery Bill,supported the case for a discrete oVence of bribing a foreign public oYcial on the grounds that it would not only be“demonstrating a commitment to our international obligations” [the OECD Convention] but would also be “making it easierto interpret the law in the light of international obligations”.(Law Commission, Reforming Bribery, 19 November 2008, p.80.http://www.lawcom.gov.uk/docs/lc313.pdf).

119 “R (Corner House Research & Campaign Against Arms Trade) v Director of the Serious Fraud OYce [2008] 3 WLR 568”,Opinions of the Lords of Appeal by Lord Bingham, Lord HoVmann, Lord Rodger, Baroness Hale and Lord Brown, 30 July2008, http://www.thecornerhouse.org.uk/pdf/document/Lords-Judgment.pdf.



During the Serious Fraud OYce’s BAE-Saudi investigation and after its termination, the Director of theSerious Fraud OYce and the Attorney General informed government departments, Parliament, the OECDand the general public that they intended to abide by Article 5.120

Yet during the judicial review of his decision to stop the investigation, the SFO Director stated that hewas prepared to ignore Article 5 and the UK’s international legal obligations, even if he was in breach ofthem, so as to stop the investigation.121

Consequences of Failure to Incorporate Article 5

16. As a result of the current status of the UK law to ensure that considerations of national economicinterest, relations with another state or the identity of those involved do not influence investigations andprosecutions of bribery of foreign public oYcials, all foreign states and oYcials know that they can disposeof an embarrassing or awkward bribery prosecution in the UK and protect the interests of the company thatpurchased their cooperation through the bribe if they can construct a credible threat to the UK’s economicinterest or diplomatic relations.

The more ruthless and powerful the recipient of the bribe, the less likely that the bribe payer will ever beprosecuted. As larger companies are more likely than small and medium enterprises to have “friends in highplaces” who can bring suYcient pressure to bear, the notion of equality before the law is turned on its head.

By not applying Article 5 of the OECD Convention, moreover, the UK is currently jeopardising the wholeConvention.

17. As UK companies become aware that investigations into bribing a foreign public oYcial can bescotched in the UK if they might be construed as jeopardising relationships with another country or theUK’s interests, some companies may believe that they can bribe with impunity. In the current economicrecession and resulting higher unemployment, arguments about potential job losses, or loss of orders andcontracts may be more persuasive and readily accepted as reasons not to investigate or prosecute.

18. Knowing that an investigation or prosecution of a foreign bribery allegation can be scuppered in theUK may also encourage foreign public oYcials to demand bribes from UK companies, UK nationals andUK residents.

19. It could therefore be said that, unless additional clauses are included in this draft Bribery Bill, theproposed legislation could have the bizarre eVect of encouraging bribery of foreign public oYcials ratherthan having a preventive eVect.

OECD Calls for Article 5 to be Clearly Binding in the UK

20. The OECD Working Group on Bribery122 has urged the UK since December 1999 “to enactappropriate legislation and to do so as a matter of priority”123 in order to implement the OECD Convention.

It has made several comments, observations and recommendations about the status of Article 5 in theUK’s domestic legal order124 and its application in practice.

120 See, for example:–Index to Exhibit RW2-Redacted Documents, CO/1567/07 (correspondence between the Prime Minister and/or CabinetOYce and the Attorney General dating from December 2005 to December 2006), http://www.thecornerhouse.org.uk/pdf/document/RedactedDocsRW2.pdf.–SFO Press Release, 14 December 2006, http://www.sfo.gov.uk/news/prout/pr 497.asp?id%497.–Attorney General statement to House of Lords, 14 December 2006, http://www.publications.parliament.uk/pa/ld200607/ldhansrd/text/61214-0014.htm<06121476000283

121 SFO Director Robert Wardle stated that although he “did not specifically consider the question at the time” of making hisdecision to stop the BAE-Saudi investigation as to whether it was contrary to Article 5 or not, he would have taken the samedecision even if he had thought that it was contrary. He stated that “Article 5 was not a critical or decisive matter for me”.See First Witness Statement of Robert Wardle, CO/1567/07, 17 December 2007, paragraphs 50-51, http://www.thecornerhouse.org.uk/pdf/document/WardleWitState.pdf

122 The OECD Working Group on Bribery comprises public servants from the 38 country signatories to the OECD Convention.It monitors parties’ performance in implementing the Convention through a peer review process to which parties agree whenthey sign and ratify the Convention. The monitoring process usually comprises two stages: Phase 1 assesses legislation andPhase 2 examines overall implementation. In cases where countries fail to meet their commitments, a follow-up evaluationof key weaknesses, Phase 1bis and Phase 2bis, is carried out.

123 OECD Working Group on Bribery, United Kingdom, Review of Implementation of the Convention and 1997Recommendation, Phase 1 Report, December 1999, http://www.oecd.org/dataoecd/8/24/2754266.pdf

124 When some countries sign or ratify an international treaty, that treaty immediately comes into eVect within that country. Inthe UK, however, the treaty has to be incorporated by an Act of Parliament—that is, Parliament has to pass or amend a lawso as to give it domestic legal eVect. But it has been a well-established principle of UK public law that where a public bodyhad stated that it has complied with, or taken into account, an international law obligation when making a decision, the courthas jurisdiction to review the decision so as to assess whether the public body has correctly interpreted that law or not.The Opinions of the Lords of Appeal (see note 11 above) has the eVect of ruling that unincorporated treaties (internationaltreaties for which an Act of Parliament has not been passed) do not limit the statutory discretion of decision-makers such asthe Director of the Serious Fraud OYce.



21. In 2005, it noted that the Crown Prosecution Service (CPS) and the Serious Fraud OYce appearedto follow the Code for Crown Prosecutors (CCP)125—the principles guiding decision making in whether toprosecute a criminal oVence or not—which, it observed, contains public interest criteria that could be read asinconsistent with Article 5.126 The Working Group urged the UK to amend the Code, the Crown ProsecutionService Manual and other documents so as:

“to clarify that the investigation and prosecution of bribery of foreign public oYcials shall not beinfluenced by considerations of national economic interest, the potential eVect upon relations withanother state or the identity of the natural or legal persons involved.”127

In other words, the OECD urged the UK to clarify the Code for Crown Prosecutors to ensure thatimproper factors were not taken into account when deciding whether to prosecute or not.

22. In 2007, the OECD Working Group noted that the UK had still not done so.128 In October 2008,however, it acknowledged that the UK had indicated that “it amended the CPS [Crown Prosecution Service]Manual in January 2008 to include a reference to Article 5”.129

The Working Group acknowledged this to be a “significant step”130 but nevertheless pointed out that:

— the manual is addressed only to the Crown Prosecution Service and not to other key agencies, suchas the SFO, the police or the Attorney General’s OYce. The SFO has its own manual, which does

125 The Code for Crown Prosecutors (CCP) was issued pursuant to section 10 of the Prosecution of OVences Act 1985. http://www.cps.gov.uk/publications/docs/codeeng.pdf.The Crown Prosecution Service is the government department responsible for prosecuting criminal cases investigated by thepolice in England and Wales.

126 “... public interest factors that can aVect the decision to prosecute... also include such matters as the impact of the case oninternational relations, which raises concerns about compliance with Article 5 of the Convention.”See Paragraph 163, OECD Working Group on Bribery, United Kingdom: Phase 2, Report on the Application of theConvention on Combating Bribery of Foreign Public OYcials in International Business Transactions and the 1997Recommendation on Combating Bribery in International Business Transactions, 17 March 2005,http://www.oecd.org/dataoecd/62/32/34599062.pdf.

127 On 17 March 2005, the OECD Working Group on Bribery issued its Phase 2 Report examining the UK’s overallimplementation of the OECD Convention. Paragraphs 158 to 167 concern “Prosecutor decisions about the appropriatenessof prosecution”.158. “The Code for Crown Prosecutors, which is a public statement of the principles which guide decision making in everycase, set forth a two part test for the evaluation of the appropriateness of prosecution. The same tests appear to be appliedby both the CPS [Crown Prosecution Service] and the SFO [Serious Fraud OYce]. The first part of the test examines if thereis suYcient evidence to provide a realistic prospect of a conviction. If so, it is decided whether the prosecution is required inthe public interest....”Paragraphs 163 and 164 focus on this subsequent public interest test.163. “The public interest test must be considered in each case where there is enough evidence to provide a realistic prospectof conviction. The Code for Crown Prosecutors states that a prosecution will take place unless there are public interest factorstending against prosecution which clearly outweigh those tending in favour. As set forth in the Code, public interest factorsthat can aVect the decision to prosecute usually depend on the seriousness of the oVence and the circumstances of the suspect,but... they also include such matters as the impact of the case on international relations, which raises concerns aboutcompliance with Article 5 of the Convention.”164. “The examiners consider that the Code should be amended to clarify that, consistent with Article 5, investigation andprosecution of foreign bribery cases shall not be influenced by considerations of national economic interest or the potentialeVect upon relations with another state. The UK authorities have indicated that the Code is not intended to be case specificand is a general statement of principles, and suggest that guidance be included in the CPS Manual of Legal Guidance.However, in light of the importance of Article 5 on the one hand, and of the Code in UK practice on the other hand, theexaminers consider that, while retaining its general nature, the Code should reflect in some manner that Article 5 limits exist.The Manual and other relevant documents (including documents used by the SFO) should then address the applicablelimitations in detail.”The OECD Working Group on Bribery concluded this section of its 2005 report as follows:“The examiners note that the Code for Crown Prosecutors can be read to suggest consideration of public interest factors thatare not permitted to be considered in foreign bribery cases under Article 5 of the Convention. The lead examiners urge theUK authorities to amend where appropriate the Code, the CPS Manual and other documents to clarify that the investigationand prosecution of bribery of foreign public oYcials shall not be influenced by considerations of national economic interest,the potential eVect upon relations with another state or the identity of the natural or legal persons involved...”See: OECD Working Group on Bribery, United Kingdom: Phase 2, Report on the Application of the Convention on CombatingBribery of Foreign Public OYcials in International Business Transactions and the 1997 Recommendation on Combating Briberyin International Business Transactions 17 March 2005, http://www.oecd.org/dataoecd/62/32/34599062.pdf

128 “The 2007 Working Group Summary and Conclusions with regard to the UK Phase 2 Follow-up Report noted that the UKhad not implemented the recommendation. The CCP had notbeen amended. The Working Group noted that ‘particularly inlight of intervening events since the Phase 2 Report, the text of the CCP remains of concern’. The UK intended to amend theCPS Manual, but had not done so.”Paragraph 101, OECD Working Group on Bribery, United Kingdom: Phase 2bis, Report on the Application of theConvention on Combating Bribery of Foreign Public OYcials in International Business Transactions and the 1997Recommendation on Combating Bribery in International Business Transactions, 16 October 2008, http://www.oecd.org/dataoecd/23/20/41515077.pdf. (hereafter OECD United Kingdom: Phase 2bis Report)

129 Paragraph 102, OECD United Kingdom: Phase 2bis Report, 16 October 2008, http://www.oecd.org/dataoecd/23/20/41515077.pdf.

130 Ibid.



not refer to Article 5, and there is no evidence that relevant police manuals refer to Article 5.131

— the CPS Manual refers to Article 5 only with regard to prosecution and does not refer to itsapplication in investigations.132

23. It should also be noted that the Code for Crown Prosecutors provides only guidance to prosecutors,is not binding and lacks the eVective force of primary legislation. Given that the Director of the SeriousFraud OYce declared in his first witness statement in the BAE-Saudi judicial review that he would haveignored the OECD Convention’s Article 5 even if he thought his decision breached it,133 he wouldpresumably have done the same if the excluded considerations had been included in the Code.

24. The Working Group’s current position therefore is that “modification of the CCP [Code for CrownProsecutions]... continues to be necessary, particularly in light of the Al Yamamah case.”134

25. Furthermore, in October 2008, the OECD Working Group on Bribery continued to highlight the“inadequate status of Article 5 in the domestic legal order”135 governing both investigations andprosecutions of alleged foreign bribery.136

It noted that:

“Because Article 5 has not been incorporated in UK domestic legislation or in the CCP [Code forCrown Prosecutors], the Director of the SFO is not generally subject to Article 5 with regard tothe exercise of his/her discretionary powers over investigations and prosecutions under the CJA[Criminal Justice Act] 1987.”137

It stressed that:

“Neither the application of Article 5 nor its binding nature in the UK domestic sphere shoulddepend on a discretionary decision to consider it in an individual foreign bribery case. Article 5 doesnot leave any room for discretion with regard to its prohibited considerations.” (emphasis added)138

It pointed out that if the Director of the Serious Fraud OYce “considered Article 5, but decided that inhis/her view the national economic interest nonetheless prevailed”, s/he could make the same argument asthat made by the Director in the BAE-Saudi judicial review: that he would have taken the same decision tostop the investigation even if he had thought that his decision ran contrary to Article 5.139

131 Paragraph 103, OECD United Kingdom: Phase 2bis Report, 16 October 2008, http://www.oecd.org/dataoecd/23/20/41515077.pdf.Paragraph 103 continues to note that after theOECD’s Working Groupon Bribery made an on-site visit to the UK to conductits Phase 2bis Report, “the SFO stated that it was about to update its own manual and would look into including Article 5in the manual. It also stated that it would raise the issue of Article 5 with the police through a Home OYce circular.”The paragraph also states that “The AGO [Attorney General’s OYce] indicated in 2005 that it generally relies on the CCP[Code for Crown Prosecutors]; while the previous Attorney General then clarified to the Working Group that Article 5 wouldbe respected, that commitment is not reflected in any internal AGO rule or document.”

132 Ibid.133 SFO Director Robert Wardle stated that although he “did not specifically consider the question at the time” of making his

decision to stop the BAE-Saudi investigation as to whether it was contrary to Article 5 or not, he would have taken the samedecision even if he had thought that it was contrary. He stated that “Article 5 was not a critical or decisive matter for me”.See First Witness Statement of Robert Wardle, CO/1567/07, 17 December 2007, paragraphs 50-51, http://www.thecornerhouse.org.uk/pdf/document/WardleWitState.pdf


135 Page 95, OECD United Kingdom: Phase 2bis Report, 16 October 2008,, http://www.oecd.org/dataoecd/23/20/41515077.pdf.136 “Under current law, the Director of the SFO [Serious Fraud OYce] makes decisions about investigations of foreign bribery

allegations in accordance with section 1(3) of the CJA [Criminal Justice Act] 1987. It gives him/her a broad discretion, statingthat the Director may investigate any suspected oVence which appears to him on reasonable grounds to involve serious orcomplex fraud. It does not refer to Article 5 or require that considerations of national economic interest, relations with otherstates or the identity of the persons at issue not influence the Director’s decisions. Prosecutors in the CPS [Crown ProsecutionService] and SFOmake decisions concerning foreign bribery prosecutions in accordancewith the Code forCrownProsecutors(CCP), which was issued pursuant to section 10 of the Prosecution of OVences Act 1985. As noted in the Phase 2 Report [seenote 19 above], the CCP contains public interest criteria that can be read to be inconsistent with Article 5.”Paragraph 94, OECD United Kingdom: Phase 2bis Report 16 October 2008, http://www.oecd.org/dataoecd/23/20/41515077.pdf.



139 Paragraph 98, OECD United Kingdom: Phase 2bis Report, 16 October 2008, http://www.oecd.org/dataoecd/23/20/41515077.pdf.Paragraph 98 continues:“The UK government has not explained how such action would be consistent with the Attorney General’s commitment tothe Working Group that Article 5 will apply (see Phase 2 Report, para. 171).”Paragraph 171 of the OECD’s March 2005 Phase 2 Report reports that:“... the Attorney-General... confirmed that none of the considerations prohibited by Article 5 would be taken into accountas public interest factors [in the Code for Crown Prosecutors] not to prosecute. Moreover, the Attorney General noted thatpublic interest factors in favour of prosecution of foreign briberywould include its nature as a serious oVence and as an oVenceinvolving a breach of the public trust. In addition, the UK authorities note that by acceding to the Convention, the UK hasconfirmed that the circumstances covered by the Convention are public interest factors in favour of a prosecution. The UKauthorities also emphasised that the Code is a general document and does not mandate any particular decision. The leadexaminers take note of the Attorney General’s clarification and the UK’s commitment to comply fully with Article 5.”See: OECD Working Group on Bribery, United Kingdom: Phase 2, Report, 17 March 2005,http://www.oecd.org/dataoecd/62/32/34599062.pdf



26. The OECD Working Group on Bribery recapped that the Attorney General had made a commitmentto it in 2005 that “Article 5 will apply”140 in the UK and observed that, as of October 2008, the commitmenthas not been modified.141 It therefore held that:

“the UK recognition that Article 5 imposes obligations that directly address a critical issue of domesticpolicy—whether to prosecute in individual foreign bribery cases—underlines the need for theprovision to be clearly binding in the UK domestic sphere.” (emphasis added)

It concluded that “introducing Article 5 as a limit on prosecutorial discretion should not be diYcult.”142

27. In sum, the current position of the OECD Working Group on Bribery concerning the UK’simplementation of Article 5 the OECD Convention is that:

“... Article 5 must be equally applicable in all member states of the Working Group. Because theArticle addresses investigation and prosecution decisions taken in the domestic legal order, it mustapply with full force and eVect in that sphere, both as a practical and legal matter, in order for itspurposes to be achieved.

“The lead examiners consider that the uncertain application of Article 5 in the domestic sphere[in the UK] as a substantive matter is inconsistent with the Convention.... They note the January2008 amendments to the CPS Manual to refer to Article 5, but... do not consider this to suYcientlyaddress the need for eVective application of Article 5. The lead examiners accordingly recommendthat the UK take all necessary measures to ensure that Article 5 applies to all investigation andprosecution decisions in foreign bribery cases.”143

28. In addition to amending the Code for Crown Prosecutors, as the OECD has indicated repeatedly, anecessary (and simple) measure would be to incorporate Article 5 in primary legislation as a limit oninvestigatory and prosecutorial discretion in bribery cases. The draft Bribery Bill is the most appropriateand opportune place to do so. It would also clearly demonstrate the UK’s commitment to proper andeVective anti-bribery provisions in the future.

In his role as “anti-corruption champion”, Jack Straw MP (also Lord Chancellor and Secretary of Statefor Justice) stresses in his Foreword to the draft legislation that “concerted international action” is a keyelement in tackling foreign bribery, that “the UK is determined to work closely with its internationalpartners to tackle bribery” and that “The UK is... supporting the implementation of . . . the OECD BriberyConvention . . .”144

Conclusion

29. The new Bribery law needs to lead to both eVective enforcement and to have a preventative eVect.The Corner House believes that additional clauses must be included in the draft Bill requiring thatconsiderations of national economic interest, relations with other states or the identity of the persons at issueshall not influence decisions to investigate or prosecute the new criminal oVence of bribery of foreign publicoYcials. Such clauses would directly and expressly implement Article 5 of the OECD Convention intoUK law.

30. Without such additions, the new law will not lead to eVective enforcement or have a preventativeeVect—rather the reverse. There is a high risk that it will not in practice be applied to those for whose benefitand on whose behalf most large-scale bribery and corruption crime is committed: companies.

Without such additions, the result will be a new bribery law that will be just as diYcult for investigators,prosecutors and the courts to apply as the existing “old and anachronistic” law with its “significant gaps”.

Without these additional clauses, the inclusion of the new oVence in the draft Bribery Bill will, at best,amount to little more than a box-ticking exercise encompassing just a part of the OECD Convention and willmake little practical diVerence to tackling large-scale bribery; at worst, it will allow bribery in internationalbusiness transactions to flourish.

Without these additions, the UK will not have properly implemented the OECD Convention more thanten years after its ratification.

31. Jack Straw also states in his Foreword to the draft legislation that:

“As . . . all economies become increasingly more inter-reliant, we must ensure that the law providesour courts and prosecutors with the tools they need to tackle bribery eVectively, whether it occurs athome or abroad”.145 (emphasis added)



142 34 Ibid.143 After paragraph 108, OECD United Kingdom: Phase 2bis Report, 16 October 2008, http://www.oecd.org/dataoecd/23/20/

41515077.pdf.144 Jack Straw, “Foreword”, Bribery: Draft Legislation, Ministry of Justice, 25 March 2009, p.4, http://www.justice.gov.uk/

publications/docs/draft-bribery-bill-tagged.pdf145 Ibid., p.3.



An essential and readily available tool that would assist the UK’s investigators, prosecutors and courtsto tackle bribery eVectively is to incorporate Article 5 of the OECD Convention in domestic law. The draftBribery Bill is the most appropriate place to do so because of its stated aims and objectives in filling gaps inthe law, modernising the legislation to bring transparency and accountability to the UK’s internationalbusiness transactions, and equipping the courts and prosecutors “to deal eVectively with bribery of all kinds,wherever it occurs”.146

June 2009

Memorandum submitted by the Serious Fraud OYce (BB 14)

A Overview of the Serious Fraud Office’s Role

The Serious Fraud OYce (SFO) is responsible for the Overseas Corruption Register. This is a centralregister which records all allegations of corrupt activity overseas involving British nationals, companies orpartnerships. Allegations are allocated to the agency best placed to conduct an investigation. This usuallymeans the SFO if the allegations pass our acceptance threshold:

— there must be serious or complex fraud or corruption;

— there is a significant international dimension;

— the case is likely to be of widespread public concern;

— the case requires highly specialised knowledge, eg of financial markets;

— the case would require us to use our special powers such as Section 2 of the Criminal Justice Act,1987; and

— the value of the alleged fraud or corruption is more than £1 million.

In assessing the amount potentially involved, the SFO looks at the value of any contract obtained througha bribe and not just at the amount of the bribe.

The SFO is a lead player in the International Anti-corruption Strategic Group for Corruption Overseas.This group, which is chaired by SOCA and also includes the FCO, DfID, City of London Police,Metropolitan Police and the FSA, enables these agencies to liaise on the challenges faced.

A Tactical Group comprises representatives of SFO, SOCA (Terrorist Funding team) Police and FSA.This group shares intelligence, discusses areas of common interest and identifies areas for possible targeting.

Anti-corruption is one of the three key areas of the SFO’s work. The others are City Fraud and Individualand Investment Fraud. The SFO is responsible both for investigating issues in these areas as well asprosecuting. This follows the recommendation in the Roskill Report that a taskforce approach, involvingvery close teamworking between lawyers and investigators, was required to tackle the most complex casesof fraud (and corruption).

The SFO is currently investigating 17 cases of corruption. This involves large corporates as well asindividuals. Some of these are likely to result in prosecution in due course. We are allocating substantialresource (close to 100 members of staV, ie a third of our people) to this area.

We have already had one successful prosecution for overseas bribery. In 2008 an English lawyer wasconvicted in the Crown Court of conspiring to corrupt authorities in the US so that they would unblockassets that had been frozen after the 11 September events. He was sentenced to 6 months imprisonment.

B. Comments on the Bill

The SFO welcomes the Bill. The current law is widely seen as fragmented and out of date. It has provedto be very diYcult for prosecutors to enforce. This has led to considerable public concern about the diVerentapproaches the UK and the US take under the Foreign Corrupt Finances Act.

There are substantial diVerences between the powers available to the US authorities and those currentlyavailable to the SFO. The Committee may find it helpful to have a brief account of these diVerences.These are:

— the law on corporate criminal liability is diVerent. In the US a corporation may be held criminallyliable for the illegal acts of its directors, oYcers, employees and agents if those acts were (1) withinthe scope of the individual’s duties, and (2) intended, at least in part, to benefit the corporation.The test in England and Wales is very diVerent. Prosecutors need to establish that the necessarymental element in the oVence was committed by the controlling mind of the corporate. This meanslooking to see if the Board of the corporate (or those close to it) were involved in the illegal action.This is a very diVerent test;

146 Ibid., p.4.



— a number of the most significant US cases have been dealt with by way of deferred prosecutionagreements within the context of the US criminal justice system. There is no counterpart for thisin this jurisdiction;

— the US prosecuting authorities can impose fines and these are frequently very substantial.Prosecuting agencies in the UK, such as the SFO, cannot do this;

— a culture of self reporting of infringements of the Foreign Corrupt Practices Act has developed inthe US. There is no such culture here (in the absence of any reports required to be made to the FSAor to SOCA). The SFO is trying to encourage this culture here.

The oVence under clause 5 of the Bill is therefore particularly significant for the SFO and we welcome thebalance that has been struck here. We particularly welcome the incentive that this clause gives to corporatesto ensure that their internal procedures are appropriate.

The SFO has engaged corporates in discussions about our approach to enforcing this provision if the Billbecomes law. We have made it clear that our approach would be pragmatic and would recognise thediVerences between what can be expected of very large and smaller corporates. There may also be diVerencesdepending on any progress a corporate has already made in living up to its obligations. The SFO has saidthat it is looking for a very visible commitment at the highest level of the corporate to doing what is neededto prevent corruption and real action in carrying out that commitment.

We are also encouraging corporates to disclose any issues relating to corruption. This is an important partof the culture of self reporting we want to see. There may also be non-prosecution outcomes here whichsatisfy the public interest.

The SFO will direct a large part of its investigative work at those corporates which are involved incorruption and which are not prepared to take the necessary steps to eradicate it. We see prosecution as beingvery important here.

While the SFO therefore welcomes the Bill, it is right to say that the process of investigating overseascorruption cases remains very complex. Some of the issues here are outside the scope of the Bill and it maybe relevant to mention these diYculties:

— we have to trace the bribe. The bribe may go through many diVerent jurisdictions disguised invarious ways. There will be a complex trail.

— while we would hope to obtain assistance from the authorities in the various jurisdictions throughwhich the bribe passes, this cannot be taken for granted. Those involved in the transactions willdo their best to route the bribe through jurisdictions that provide most diYculties for us.

— we may also need to obtain assistance from the jurisdiction in which the ultimate recipient is based.Again, we would hope to receive this but it may not always happen.

There are likely to be more cases for the SFO if the Bill becomes law. Reference has been made in theRegulatory Impact Assessment (page 7) to the cost of one additional prosecution a year. This reference wasintended to refer to the cost of one additional contested trial. We would expect to see guilty pleas in othercases and a range of non-prosecution outcomes where appropriate. The additional costs to the criminaljustice system of guilty pleas and other outcomes are unlikely to be large. This issue is particularly significantin dealing with foreign public oYcials.

Responses to the Joint Committee’s Questions

Q1. Is the extra-territorial reach of the draft Bill satisfactory? In practice, would you investigate and prosecutecompanies that have a limited connection to the UK?

We welcome the ability to investigate and prosecute companies carrying on part of a business here,irrespective of where they are registered. It is part of creating a world level playing field which would see thosecompanies having to adhere to the same international standards of our own companies and the internationalcommunity. The SFO will look at appropriate cases with a view to investigation and prosecution.

Potential conflicts of jurisdiction will have to be agreed by the respective authorities in each country onan individual case basis. The SFO already has agreements like this with US colleagues.

Q2. Does the draft Bill make it clear when facilitation payments and corporate hospitality will be unlawful?

Facilitation payments will be unlawful. In some cases the mere oVer (and/or acceptance) of the advantageitself may amount to improper conduct. Most countries in the world outlaw such payments since it is verydiYcult to remove bribery if they remain legal.

Because of our acceptance threshold, small facilitation payments are unlikely to concern the SFO unlessthey are part of a larger pattern (when, by definition, they would no longer be small facilitation payments)where their nature and scale has to be evaluated.

The US does not make small facilitation payments illegal unless they occur “to continue or to obtainbusiness”.



The SFO considers, like Lord Woolf and a number of UK corporates, that any facilitation is unjustifiableand should be removed because these payments cut across transparency and openness. They also render acorporate (and other corporates) more vulnerable to demands for larger bribes. They are a majorcontributor to the belief that bribery is a necessary part of business culture. The “demand side” should alsomake it clear that these payments are not acceptable.

Hospitality is diVerent in that most routine and inexpensive hospitality would be unlikely to lead to areasonable expectation of improper conduct. This would therefore not trigger the general oVences.

For the oVence we must still prove that the payer’s intent is to influence the foreign public oYcial in his/her capacity as a foreign public oYcial. The provision of routine and inexpensive hospitality to a large groupmay not have that specific intent.

It becomes more diYcult when more than routine hospitality is oVered to targeted individuals. Incircumstances like these, the SFO would advise the corporate to check the local laws about what foreignpublic oYcials can legitimately accept. This should not be too onerous for the corporate as it ought to bepart of their due diligence in doing business there.

One would expect government and industry wide standards or codes of behaviour to cover such conductin any event.

The SFO considers that prosecutorial discretion, backed by appropriate guidance, is the proper wayforward on small facilitation payments and hospitality. If a case were to pass our threshold for acceptancehowever, we would rarely exercise the discretion and would look to prosecute.

Q3. Are you concerned that security services can be exempted from prosecution for bribery, whereas police andother investigators can not?

This was a Government addition to the Bill. Exemptions from prosecution for serious crime can only befor exceptional, necessary and proportional reasons. These are justifiable for the intelligence services. TheSFO does not consider that this justification applies to us.

Q4. Do you have adequate resources to tackle bribery at home and abroad?

We are the lead agency for investigating and prosecuting overseas bribery. As stated above, anti-corruption overseas is one of the leading areas of our work. We have committed to putting 100 staV intothis area.

The SFO is facing budget reductions in line with other departments. The challenge for us is to improveour eYciency so that we are able to deliver much more than before. For this reason we have had a majorTransformation Programme in place in the SFO over the past year looking at how we work and how we canwork more eVectively. The SFO believes that the resource we are allocating to this area will make a significantimprovement in delivering results.

June 2009

Memorandum submitted by Professor Wells (BB 15)

Supplementary Questions to Professor Celia Wells

(a) Professor Horder stated in evidence that removing the requirement to prove negligence underclause 5 would be unfair to businesses and mark a step change from any comparable criminaloVence (Qq 61–64). What is your response?

Response to question 1:

1. Background 2. Other jurisdictions 3. A step change? 4. Unfair?

1. Background comments

We have a long tradition of corporate liability for criminal oVences committed by employees/agents. Themost straightforward case is where the oVence committed by the employee is one of strict liability (no proofof intention, recklessness, knowledge etc required). Although a matter of statutory interpretation,companies are generally held liable, hence Professor Horder’s example of selling tainted food.

The next category is where the oVence committed is strict liability but with a reasonable practicabilityqualification. Health and safety oVences fall in this category. Here the statute places liability on “employers”via duties the breach of which is a criminal oVence subject to a “reasonable practicability” defence (s 40).Where the employer is a company it will be liable for health and safety breaches committed by its employees.The failure to prevent oVence in clause 5 could be seen as analogous. Here the duty is to prevent bribery. (Iexplore this further in the answer to the burden of proof question below).



The much criticised common law identification doctrine is applied to the next category, where the oVencerequires proof of intention, recklessness or knowledge. Under this the company can only “intend” or“know” through its directors and senior oYcers. It is much criticised because it so restricted in scope andonly of practical application in very small companies. Bribery oVences fall in this category and this explainsthe OECD’s view that we do not comply with art 2 of the Bribery Convention.

In my view it is the thinking behind the identification model—thinking which seems also to inform theLaw Commission and the draft Bill—that has led us astray. Companies are separate “legal” persons as amatter of law but that does not mean they are in fact separate from the many human persons who make uptheir operations. There is no particular reason why a particular layer of company oYcer should be said toact as the company than any other. Companies are complex organisations which function as a whole, asentities producing goods, providing services etc through many diVerent people and roles.

2. What do other jurisdictions do?

Common law derivative jurisdictions such as the US and Australia have taken a much broader approachto corporate liability at the federal level. The thinking which led to the identification model (thatcorporations can only “intend” through senior oYcers because only they can be said to embody thecorporation) has not been followed. Similarly, most of those European jurisdictions which previously hadquite limited Penal Codes with no corporate liability at all have now developed general provisions whichuse a broad liability (some based on failure to supervise, others strict liability with a due diligence defence).

The draft Bill adopts the Law Commission’s proposal of negligent failure to supervise combined with anadequate procedures defence conforms to none of these broader models. The proposal appeared only in theReport in November 2008 and was therefore not tested at the consultation stage.

3. Is removing proof of negligence a step change?

1. The proposed oVence is itself a change. We need that change because otherwise we will be left with theineVective common law identification method of holding companies/businesses liable for their employees’/agents’ bribery oVences. But as it stands it is not a step change. It is much narrower than both current liabilityfor regulatory strict liability oVences and liability for breach of health and safety duties. It is also narrowerthan comparable bribery provisions in other jurisdictions.

2. It would perhaps be a step change for corporate liability for an oVence requiring proof of intention orknowledge if both the requirement to prove negligence and the adequate procedures defence were removed.

3. Removing the negligence requirement would bring corporate liability in line with employers’ liabilityfor health and safety oVences. It would also bring us approximately in line with the US, Austria, Finlandand Switzerland (see Appendices below for examples).

4. The Australian corporate culture approach is also more expansive. Rather than seeking to attributefault from an individual to the company, it begins with the company itself. The OECD commented that theAustralian provision is “ambitious and progressive . . . in particular liability based on a corporate cultureconducive to the criminal conduct in question. The lead examiners regard section 12 as a commendabledevelopment, and well-suited to prosecutions for foreign bribery.’147 The relevant sections are set out in fullin Appendix 1 but in summary it provides: “bodies corporate” are liable for oVences committed by “anemployee, agent or oYcer of a body corporate acting within the actual or apparent scope of his or heremployment, or within his or her actual or apparent authority” where the body corporate “expressly, tacitly,or impliedly authorised or permitted the commission of the oVence”. The OECD comments that “Section12 is generally detailed enough to enable companies to know with adequate precision what conduct isprohibited.”148

4. Would it be unfair on businesses?

Not in my view because, as I argue above, the debate about corporate liability starts from the wrong footor premise. A company’s liability for the acts of its employees is appropriate—and this is particularlyapplicable in the bribery context—because those acts benefit the company, those acts are undertaken withcompany resources (where does the money for the bribe come from? who signs the contracts? where do theprofits end up? The answer in each case is “the business”) and companies are peculiarly equipped to superviseand monitor the acts of their employees and agents.

(b) The burden of proving “adequate procedures” is due to fall on the defendant. What would be thepros and cons of placing this burden on the prosecution? Is this something that you recommend?

147 http://www.oecd.org/dataoecd/57/42/35937659.pdf (para 148)148 OECD above n 1.



Response to question 2:

1. Clause 5 is intended to address a deficit in our law in respect of corporate liability for bribery oVences.It is hard to think of a pro if both the evidential and the probative burden in relation to adequate procedureswere to fall on the prosecution. At most it could be said that if the prosecution has the burden of provingbeyond reasonable doubt that the procedures were adequate this would allay the fears that the businesscommunity may have about the proposed oVence because it would make it very hard to prove!

2. The cons of placing the burden on the prosecution are that company procedures may be diYcult toaccess. Clause 5 can only be triggered where the prosecution has proved that a bribery oVence has beencommitted. If the burden is placed on the prosecution it is likely to be very diYcult to prove that theprocedures were inadequate beyond showing that the oVence—the bribe—has in fact taken place.

3. Placing the burden on the defence is consistent with employers’ liability for breaches of health andsafety duties under the Health and Safety at Work etc Act 1974. The House of Lords recently consideredthe respective obligations of the prosecution and the defence. In rejecting the appellants’ argument that theprosecution should identify and prove particular acts or omissions consisting of the failure to comply withthe duties laid down in sections 2 and 3, Lord Hope stated:

“What the prosecution must prove is that the result that those provisions [the duties to ensurehealth and safety under ss 2–4] describe was not achieved or prevented. Once that is done a primafacie case of breach is established. The onus then passes to the defendant to make good the defencewhich section 40 provides on grounds of reasonable practicability”. (R v Chargot Ltd [2008]UKHL 73 at para 21).

In that case the House of Lords also rejected the argument that it was disproportionate (particularly inlight of the increased penalties under the HSAW Act 2008) for the burden of proving that it was notreasonably practicable to be placed on the defendant. Lord Hope approved the reasons given by Tucker LJ in R v Davies (David Janway) [2003] ICR 586:

“Regard had to be had to the fact that the Act’s purpose was both social and economic, to the factthat duty holders were persons who had chosen to engage in work or commercial activity and werein charge of it and that in choosing to operate in a regulated sphere they must be taken to haveaccepted the regulatory controls that went with it.” ([2008]UKL 73 at para 29).

The same argument applies with equal force to the prevention of bribery.

(c) Do any other countries extend their anti-bribery law to cover bribery by a foreign subsidiary of ahome parent company? Should the draft Bill be amended (given that clause 5 may catchsubsidiaries that pay a bribe on behalf of their parent)?

1. In answer to the first part of the question: The US FCPA makes the US parent company responsiblefor any foreign subsidiary in which it has at least 50 per cent ownership. The parent company is responsiblefor ensuring that the accounting systems etc comply with the FCPA and the intent of the subsidiaries’ agentsmay be attributed to the parent so that it is liable under the anti bribery provision. The subsidiary itself mayalso be liable (a recent example concerned Vetco Gray Controls Ltd, the UK subsidiary of VetcoInternational, which agreed in 2007 to pay $12million under FCPA for corruption in a Nigerian drillingproject).

2. Clause 5 should be amended so that:

The parent company is liable for any wholly owned foreign subsidiary. And there is an argumentthat it should mirror the FCPA and cover majority owned subsidiaries.

An analogy can be drawn with State responsibility in international law under which a State is responsiblefor the conduct of persons or entities exercising elements of governmental authority, or acting on theinstructions of, or under the direct control of, that State.

3. In answer to the statement in parentheses: yes clause 5 could possibly include parent liability where thesubsidiary is clearly performing services on the parent’s behalf. There is nothing wrong with that outcome.The more significant point is in answer to the main question- the need for a specific provision to ensure thatparent companies do not avoid liability under the cover of separate entity subsidiary companies.

Optional Additional Questions to Professor Wells

NB Please only answer these questions if you have matters you wish to raise in relation to them.

Clauses 1 to 3

(d) Is there a need for specific provision in the draft Bill to address facilitation payments or trading ininfluence?

Response to question 4.

1. The Law Commission’s arguments on this are persuasive. Facilitation payments are regarded as anunfortunate fact of life in some businesses in some countries. That does not make them right. They aregenerally prohibited even in those countries in which they are rife. The Codes of Conduct of many leadingcompanies state that facilitation payments are unethical. While they are not clearly wrong in the way that



bribes are they are not exactly right either. By including a specific defence there is a danger that they areendorsed as legitimate. In many cases they will fall outside the definition of bribery as there may be nointention to obtain or retain business or an advantage. Prosecutorial discretion is preferable in those caseswhere they do. The message of the Bill that bribery is wrong would be diluted if there is a defence. LC313 states:

“It should be noted that the OECD Working Group on Bribery has identified two problems thatcan arise where Parties have provided a defence for small facilitation payments:

(1) a certain level of confusion on the part of the private sector and sometimes the public sectorconcerning the diVerentiation between facilitation payments and bribes; and

2) an absence of judicial interpretations of the scope of the defence.” (para 5.90)

2. Against this it can be said that the FCPA includes a defence for facilitation payments, although it israrely invoked presumably because prosecutions concentrate on serious instances of bribery. Australia alsoprovides a tightly drawn defence:

Australia: Criminal Code Amendment (Bribery of Foreign Public OYcials) Act 1999 No. 43, 1999.

70.4 Defence⁄facilitation payments

(1) A person is not guilty of an oVence against section 70.2 [bribing foreign public oYcial] if:

(a) the value of the benefit was of a minor nature; and

(b) the person’s conduct was engaged in for the sole or dominant purpose of expediting or securingthe performance of a routine government action of a minor nature; and

(c) as soon as practicable after the conduct occurred, the person made a record of the conduct thatcomplies with subsection (3); and

(d) any of the following subparagraphs applies:

(i) the person has retained that record at all relevant times;

(ii) that record has been lost or destroyed because of the actions of another person over whomthe first-mentioned person had no control, or because of a non-human act or event over whichthe first-mentioned person had no control, and the first-mentioned person could notreasonably be expected to have guarded against the bringing about of that loss or thatdestruction;

(iii) a prosecution for the oVence is instituted more than 7 years after the conduct occurred.

Note: A defendant bears an evidential burden in relation to the matter in subsection (1). See subsection13.3(3).

Clause 4

(e) How should the test of what is “legitimately due” operate in common law systems where acts aregenerally permitted unless prohibited. For instance, would it catch matters that are legitimate butwhich may not be expressly permitted (such as commission or hospitality)?

(f) The Government has dropped the “reasonable belief” defence that was proposed by the LawCommission. Was this justified?

Clause 5

(g) The “adequate procedures” defence is not available where the negligence was on the part of a senioroYcer. Does this create a negative incentive on senior executives to appoint lower level employeesto be the responsible person (or potentially disadvantage smaller companies where a senior oYcermay only be only individual able to act as the responsible person)?

Response to question 7.

1. Cl 5 will only be eVective if it encourages companies to develop systems to prevent the commission ofbribery oVences by its employees/agents. I think in large companies this aspect of clause 5 creates anincentive to appoint one or more responsible oYcers. There are any number of permutations depending onthe size and structure of the company.

2. If a company wishes to find shelter under the adequate procedure defence, it will need to show as partof that defence that the appointment of lower level responsible oYcer(s) is appropriate. If it does not appointsuch a person, or if it places the responsibility on a senior oYcer, it loses the potential protection of thatdefence.

3. I am not sure this is a negative incentive if by that is meant that it would somehow be better if theresponsible oYcer were a senior oYcer. It would be a sensible response to a provision that is intended toensure that we do have an eVective regime of corporate liability. As I have commented, I am not sure it



achieves that aim because of the requirement to identify this person and then prove their negligence buttaken alone I do not see the unavailability of the adequate procedure defence where the responsible oYceris a senior oYcer as at all problematic.

4. It may be that smaller companies are more at risk of corporate liability (as indeed they are under theidentification doctrine) but I don’t think that is a matter of unfairness. It is merely a reflection of practicalissues in enforcement against large companies.

June 2009

APPENDIX 1

Australia Criminal Code Act 1995

Part 2.5—Corporate Criminal Responsibility

Division 12 General principles

12.1(1) This Code applies to bodies corporate in the same way as it applies to individuals. It so applieswith such modifications as are set out in this Part, and with such other modifications as are made necessaryby the fact that criminal liability is being imposed on bodies corporate rather than individuals.

(2) A body corporate may be found guilty of any oVence, including one punishable by imprisonment.Note: Section 4B of the Crimes Act 1914 enables a fine to be imposed for oVences that only specifyimprisonment as a penalty.

Physical elements

12.2 If a physical element of an oVence is committed by an employee, agent or oYcer of a body corporateacting within the actual or apparent scope of his or her employment, or within his or her actual or apparentauthority, the physical element must also be attributed to the body corporate.

Fault elements other than negligence

12.3(1) If intention, knowledge or recklessness is a fault element in relation to a physical element of anoVence, that fault element must be attributed to a body corporate that expressly, tacitly or impliedlyauthorised or permitted the commission of the oVence.

(2) The means by which such an authorisation or permission may be established include:

(a) proving that the body corporate’s board of directors intentionally, knowingly or recklessly carriedout the relevant conduct, or expressly, tacitly or impliedly authorised or permitted the commissionof the oVence; or

(b) proving that a high managerial agent of the body corporate intentionally, knowingly or recklesslyengaged in the relevant conduct, or expressly, tacitly or impliedly authorised or permitted thecommission of the oVence; or

(c) proving that a corporate culture existed within the body corporate that directed, encouraged,tolerated or led to non-compliance with the relevant provision; or

(d) proving that the body corporate failed to create and maintain a corporate culture that requiredcompliance with the relevant provision.

(3) Paragraph (2)(b) does not apply if the body corporate proves that it exercised due diligence to preventthe conduct, or the authorisation or permission.

(4) Factors relevant to the application of paragraph (2)(c) or (d) include:

(a) whether authority to commit an oVence of the same or a similar character had been given by a highmanagerial agent of the body corporate; and

(b) whether the employee, agent or oYcer of the body corporate who committed the oVence believedon reasonable grounds, or entertained a reasonable expectation, that a high managerial agent ofthe body corporate would have authorised or permitted the commission of the oVence.

(5) If recklessness is not a fault element in relation to a physical element of an oVence, subsection (2) doesnot enable the fault element to be proved by proving that the board of directors, or a high managerial agent,of the body corporate recklessly engaged in the conduct or recklessly authorised or permitted thecommission of the oVence.

(6) In this section:

“board of directors” means the body (by whatever name called) exercising the executive authorityof the body corporate;

“corporate culture” means an attitude, policy, rule, course of conduct or practice existing withinthe body corporate generally or in the part of the body corporate in which the relevantactivities takes place;



“high managerial agent” means an employee, agent or oYcer of the body corporate with duties ofsuch responsibility that his or her conduct may fairly be assumed to represent the bodycorporate’s policy.

APPENDIX 2

Austria

O:·TEXT·Zeder·JURPERS·Englisch·VbVG-english-Zeder.doc

Translation from German

(adopted by the Nationalrat [upper chamber of the Austrian Parliament] on 28 September 2005) IN force1 January 2006.

Section 1.

(2) For the purpose of this statute entities shall mean corporations, general and limited commercialpartnerships [Personenhandelsgesellschaften], registered partnerships [EingetrageneErwerbesgesellschaften] and European Economic Interest Groupings.

(3) For the purpose of this statute the following shall not be entities:

1. a (deceased person’s) estate;

2. the federal state, provinces and municipalities and other corporations to the extent they enforcelaws;

3. recognised churches, religious societies and religious communities to the extent they are engagedin pastoral care.

Decision Makers and StaV

Section 2.

(1) For the purpose of this statute decision maker shall mean a person who

1. is a managing director, an executive board member or Prokurist [translator’s note: compare:authorised oYcer] or who is authorised in a comparable manner to represent the entity vis-a‡-visthird parties either according to statutory power of representation or based upon contract,

2. is a member of the supervisory board or board of directors or otherwise exercises controllingpowers in a leading position, or

3. otherwise exercises relevant influence on the management of the entity.

(2) For the purpose of this Statute staV shall mean a person who works for the entity 1. on the basis ofan employment relationship, apprentice relationship or other training relationship,

2. on the basis of a relationship that is subject to the provisions of the Outwork Act[Heimarbeitsgesetz] 1960, BGBl. [Federal Law Gazette] No 105/1961 or that is of an employee-like status,

3. as an employee provided on a temporary basis as defined in Section 3 para 4 of the Act onTemporary Provision of Employees [Arbeitskrufteberlassungsgesetz—AuG], BGBl. No 196/1988, or

4. on the basis of a service relationship or other special public-law relationship.

Chapter 2

Responsibility of Entities—Provisions relating to Substantive Law

Responsibility

Section 3.

(1) Subject to the additional conditions defined in paragraphs 2 or 3 an entity shall be responsible for acriminal oVence if

1. the oVence was committed for the benefit of the entity or

2. duties of the entity have been neglected by such oVence.

(2) The entity shall be responsible for oVences committed by a decision maker if the decision maker actedillegally and culpably.

(3) The entity shall be responsible for criminal oVences of staV if

1. the facts and circumstances which correspond to the statutory definition of an oVence have beenrealised in an illegal manner; the entity shall be responsible for an oVence that requires wilful actiononly if a staV has acted with wilful intent, and for a criminal oVence that requires negligent actiononly if a staV has failed to apply the due care required in the respective circumstances; and



2. commission of the oVence was made possible or considerably easier due to the fact that decisionmakers failed to apply the due and reasonable care required in the respective circumstances, inparticular by omitting to take material technical, organisational or staV-related measures toprevent such oVences.

(4) Responsibility of an entity for an oVence and criminal liability of decision makers or staV on groundsof the same oVence shall not exclude each other.

APPENDIX 3

Switzerland

Art 102 Swiss Code Penal

1. A crime or a misdemeanour that is committed in a corporation in the exercise of commercial activitiesconforming to its objects is imputed to the corporation if it cannot be imputed to an identified physicalperson by reason of the lack of organisation of the corporation. In such a case, the corporation shall bepunished with a maximum fine of five million francs.

2. In the case of a breach referred to in articles [money laundering, financing terrorism, corruption] thecorporation is punished independently of the culpability of physical persons if the corporation can be saidto have not taken all reasonable and necessary organisational measures to prevent such a breach.

3. The judge shall fix the fine, in particular, according to the gravity of the breach, the lack of theorganisation and the damage caused, and in accordance with the economic capacity of the corporation.

APPENDIX 4

Finland deems any oVence by management and employees on behalf of or for the benefit of thecorporation as committed “in the operations of a corporation”. The prerequisites for corporate liability forsuch oVences are that a director or person with decision-making authority has allowed the oVence, or if thecare and diligence necessary to prevent the oVence has not been observed in the operations of thecorporation.149

Memorandum submitted by the Director of Public Prosecutions (BB 16)

I am grateful for the opportunity of setting out my views on the provisions of the draft Bill.

In so doing I have taken account of aspects of the oral evidence already presented to the Committee on14th May from Professor Jeremy Horder and on 20th May from Professors Celia Wells and Bob Sullivanand from Colin Nicholls QC.

My statement also addresses the three specific questions on which I have been asked by the Committeeto comment in writing.

In relation to our general evidence I submit:

The Advantages of the draft Bill

1. The proposals provide for long overdue modernisation and consolidation of the law on bribery andcorruption, although they do not include the sale of honours or election oVences.

2. I welcome the removal of the distinction between private and public functions in the Public Bodies(Corrupt Practices) Act 1889 and the Prevention of Corruption Act 1906. I also welcome the replacementof the need to show a relationship of “agency” in respect of bribery in a private context.

3. The definition of “functions of a public nature” is consistent with the meaning of a public body in theHuman Rights Act 1998. Removal of the presumption of corruption in the Prevention of Corruption Act1916 in respect of payments to a person in a public body or by a person seeking to obtain a contract froma public body also deals with a potential problem of ECHR compatibility.

4. The new oVences in Clause 4 (bribery of a foreign public oYcial) and Clause 5 (corporate liability forfailing to prevent bribery) would help meet the UK’s international obligations under the OECD and UNConventions;

5. I welcome the removal of the need for AG consent for the proposed new oVences, although I note thatunder current proposals for constitutional reform the Attorney General would retain a general power to haltproceedings in the interests of national security.

149 Penal Code of Finland, chapter 9, s 2, http://www.finlex.fi/pdf/saadkaan/E8890039.PDF, see AAR Report above n,Appendix 6.



6. The scope of the revised “general oVences” in Clauses 1 and 2 is very broad. These oVences will captureall the oVending that could be prosecuted under the existing law. In fact they are likely to capture behaviourthat could not be successfully prosecuted now because of the need to show that an advantage was given orreceived “corruptly’. This may require a greater use of prosecutorial discretion not to prosecute in thepublic interest.

The Disadvantages of the draft Bill

7. The drafting is much more complex than the current law, despite the somewhat archaic language ofthe Prevention of Corruption Acts. This is in contrast to the simplicity and eVectiveness of the Fraud Act2006 as a prosecutorial tool. However, the removal of the “prime motivator” concept and the emphasis onbreaches of legal and equitable duties in the earlier draft bill provide a less complex basis for the oVencesthan would otherwise have been the case.

8. The requirement that the prosecutor must prove that a payment to a foreign public oYcial was not“legitimately due” places a heavy evidential burden on the prosecutor. The prosecutor will, in eVect, needto lead evidence that the advantage is not legitimately due, or be able to rebut the defendant’s assertion thatit is.

9. The provision for vicarious liability for corporations, hinged as it is on prosecution of an individual,points out the weaknesses in the current law of corporate liability. The bribe will have been made on behalfof the corporation, yet the “identification” doctrine makes successful direct prosecutions of corporationsalmost impossible. In order successfully to prosecute a corporation under these proposals there must be asuccessful prosecution of an individual to prove that a bribe has occurred.

10. The oVence of “consent or connivance” to the general oVences or of bribing a foreign public oYcialwill be unused until there is a likelihood of prosecutions of corporations for the underlying oVences. Therewould appear to have been no prosecutions by the CPS under the equivalent provisions in section 18 TheftAct 1968 and section 12 Fraud Act 2006.

11. Actions which would not currently be proved to have been done “corruptly” may well pass theevidential test for the proposed general oVences. Examples would be where money was eVectively extortedfrom individuals under duress (short of a threat to life) or where a person ‘bribes’ in order to expose corruptpractices.

12. It is also possible that an individual may not be aware that a demand for payment is not legitimate.Nevertheless the relevant expectation on which improper performance is based is not that of the individualconcerned (a subjective test) but that of the “reasonable person” (an objective test). The individual may nottherefore know that the performance of the function is improper, but is still guilty of the oVence.

13. Removal of the defence of reasonable belief (contained within the Law Commission draft Bill atClause 5) in relation to bribery of a foreign public oYcial increases the reliance on prosecutorial discretionin such cases.

Will There be More Successful Prosecutions?

14. I believe that it is unlikely that there will be a significant increase in the number of cases prosecutedby the CPS. It is rather less because of shortcomings in the law that cases may not be prosecuted, thanbecause of the diYculty in obtaining evidence in the first place.

15. The oVences prosecuted under the general oVences may prove easier to prove because of the shift infocus from the impropriety of the payment to the impropriety of the behaviour itself.

16. I consider the corporate oVence is more likely to operate as a spur to good practice and as a form ofregulation of corporate behaviour.

In response to the three questions raised by the Committee I make the following submission:

Q1. Is the extra-territorial reach of the draft Bill satisfactory? In practice, would you investigate and prosecutecompanies that have a limited connection to the UK?

Extra-territorial jurisdiction is already provided for in respect of bribery by the Anti-Terrorism Crime andSecurity Act 2001 for nationals of the United Kingdom (UK).

The draft Bill provides directly for extra-territorial provision for the oVences it creates, principallythrough the provisions of Clause 7, but there are problems with bribery by foreign nationals and foreignincorporated subsidiaries of UK companies.

General Offences and Foreign Bribery

For the general oVences and the oVence of bribing a foreign public oYcial, the draft bill requires a “closeconnection” with the UK.

The definition of a “close connection” with the UK includes British citizens, individuals ordinarilyresident in the UK and bodies incorporated under the law of any part of the UK.



Individuals

An individual who is not a British citizen or ordinarily resident in the UK and who commits acts of briberywholly outside the jurisdiction does not have a “close connection”. by Clauses 7(2) and (4).

This is so even if he/she were an employee of a UK company and acting entirely on its behalf. The LawCommission considered whether the legislation should apply to foreign nationals resident in CrownDependencies or Overseas Territories, but left the decision to the Government. It did not seem right that aforeign national ordinarily resident in Southampton could face prosecution in England and Wales orNorthern Ireland (EWNI) for bribery overseas, but not if ordinarily resident in Guernsey.

Companies

Bribery carried out wholly abroad by a foreign subsidiary or associate acting entirely on behalf of the UKcompany and even on its instructions would not be directly criminally liable for behaviour that would bean oVence under Clauses 1, 2 and 4.

Such a company, would not have a “close connection” with the UK under Clause 7(4)(h) even ifincorporated in one of the Crown Dependencies or Overseas Territories and could not be prosecuted usingClause 7.

Failing to Prevent Bribery

Foreign companies and partnerships

The oVence of failure to prevent bribery can be committed only by a “relevant commercial organisation”[Clause 5(7)].

This includes only corporate bodies or partnerships formed under the law of EWNI, or which carry onbusiness there. (We are unsure whether a partnership in Scotland falls within this definition).

A foreign company could therefore not be prosecuted for failure to prevent bribery.

UK companies

Before a UK company can be liable for failing to prevent bribery, there must have been a bribe by a person“performing services for or on behalf of” the company. That person must also be capable of being guilty ofbribing [Clause 5(2)].

An individual working for a foreign company, who commits an act of bribery wholly outside EWNI, andwho is not a British citizen or ordinarily resident in the UK, does not have a “close connection” with theUK. He/she cannot therefore be guilty of bribing, even if performing services for or on behalf of the UKcompany.

Equally, a foreign company cannot be guilty of bribery. It too cannot be a “person” for the purposes ofthe triggering bribery oVence.

The UK company cannot therefore be prosecuted for failing to prevent bribery either by such anindividual or foreign company acting entirely outside EWNI, however close in fact the relationship betweenthe UK company.

The Law Commission concluded (8.44–8.46) that whether the law should extend to companiesincorporated outside the UK (including a Crown Dependency or Overseas Territory) was best suited to amore general review of corporate liability. It raised an issue of relevance to many crimes committed by legalpersons, not just bribery. They did, however, conclude (8.52) that where the body was incorporated in aCrown Dependency or Overseas Territory, this would fill a “significant gap” in the current law.

In its current form, foreign companies, including foreign subsidiaries that may be wholly-owned by aBritish company, are outside the scope of the Bill. This may encourage companies intent on evading criminalliability. Whether this would actually occur in practice is not something that we would be qualified tocomment on as prosecutors. It may, of course, be the case that the foreign corporation or any individualsacting on its behalf would be subject to similar sanctions in the country of incorporation.

As prosecutors we prosecute according to the laws passed by Parliament. The decision as to whether theyshould be included within the Bill is a policy matter for the Government to decide upon. Should the positionbe reconsidered, we would be in a position to comment on any practical and legal issues raised.

Investigation and Prosecution of Companies with a Limited Connection with the UK

We would apply the Code for Crown Prosecutors in such a case in the same way as we would with anyother case referred to us—if there were suYcient evidence to prosecute and it was in the public interest todo so, a prosecution would ensue, subject to resolution of any jurisdictional issues that might arise. Wherethere was jurisdiction to prosecute in England and Wales we would need to consider whether the companyhad committed oVences that could also be prosecuted in another jurisdiction. If so, we would liaise with thelaw enforcement and prosecuting authorities in that jurisdiction with a view to reaching decisions aboutwhich jurisdiction should take primacy, if appropriate, in the investigation and prosecution.



Q2. Does the draft Bill make it clear when facilitation payments and corporate hospitality will be unlawful?Can we rely on prosecutorial discretion or guidance to ensure that enforcement is well targeted?

In this context we understand “facilitation payments” to mean the payment of monies, or the provisionof some other advantage, to another person, with the intention of inducing the other person to perform afunction improperly or to perform a function at all. This latter category includes the situation where anoYcial demands payment without which he will not carry out an act which he is required to do as part ofhis normal duties; such a payment would fall foul of clause 1(3). However, if the law of any country permittedan oYcial to require “facilitation payments” (perhaps using the term “commission”) such activity would notbe an oVence because it was lawful in the country in question and not therefore improper.

We understand and agree with the policy rationale for not providing an exemption for such payments andwe consider that the Bill is clear in this regard—facilitation payments will be unlawful, however small andirrespective of the degree to which such payments were “extorted” from the payer. The lack of any exemptionor defence in the Bill (unlike, say, the US provisions) means that it will fall to the investigators andprosecutors to make a judgement as to whether activity that is unlawful should be prosecuted The Bill doesnot provide any guidance for prosecutors as to what to take into account when reaching this decision—andit would be unusual for legislation to do so. It will normally be in the public interest to prosecute casesinvolving corruption, including the making of facilitation payments. Where payments are small we wouldargue that prosecutors can use their discretion and reach decisions applying the public interest factors setout in the Code for Crown Prosecutors.

Corporate hospitality raises other issues from the types of facilitation payments described above. Theprimary one for prosecutors will be deciding whether there is evidence in any particular case that thehospitality provided contravenes clauses 1 and 2 of the Bill. The Bill does not provide guidance as to whencorporate hospitality would be unlawful, that is to say improper, but it is not reasonable to expect thatprimary legislation could cover every situation.

Corporate hospitality may not be, and in many cases probably is not, provided with a view to inducingsomeone to perform a relevant function improperly. Culturally, corporate hospitality is generally accepted,though diVerent standards may be expected and required of public oYcials or others working within or forthe public sector. In many, if not most, cases it will simply be regarded as legitimate relationship-buildingand networking, with a view to obtaining a contract or maintaining a client relationship and would not beindicative of improper conduct. In some cases it may go beyond that; while it is dependent on thecircumstances of the case, the greater the advantage conferred, the more likely it is that this is evidence thatthe advantage was promised or given to induce the recipient to perform his function improperly.

However, this is a matter of degree and there will inevitably be a grey area around the boundary of what isconsidered acceptable. To an extent, it may be possible to resolve some of the issues as to what is acceptable,legitimate, hospitality, and what is not, through the adoption and implementation of codes of practice inindustries, professions and the public sector (though with self-regulation, there is obviously a risk ofinconsistency of practice between industries). Codes of practice do provide clarity and assist in preventionand enforcement; when considering whether hospitality was improper, investigators and prosecutors wouldconsider codes of practice as part of the investigation and review process.

Q3. Do you have adequate resources to tackle bribery at home and abroad?

The CPS is dependent upon investigations carried out by the police. There would be an additional needfor resources if there were significantly more investigations undertaken by the police as a result of theseproposals

It is unlikely, however, that there will be a significant number of additional prosecutions by the CPS as aresult of the proposals. Although the general oVences in Clauses 1 and 2 have a broader scope than thecurrent law, their eVect is likely to be to make the oVences currently prosecuted easier to prove by virtue ofthat broader scope and the removal of the need to prove actions were done ‘corruptly’.

The CPS considers that oVences of bribing a foreign public oYcial are no more likely to be prosecutedthan as at present because of the evidential diYculties implicit in proving the oVence under Clause 4. If theywere, then they would be high cost cases and likely to have a significant impact on resources in a time ofconstraint.

Prosecution of oVences of corporate liability under Clause 5 would take place only in the context of aprosecution of an individual for domestic or foreign bribery. There would be some additional cost becauseof the evidential requirements of the corporate oVence. In the context of the underlying case, however, it islikely that the increase would be marginal.

June 2009



Letter from the Chairman of the Public Administration Select Committee (BB 17)

Congratulations on your election as Chairman of the Joint Committee. I am writing to ensure that youare aware of my Committee’s interest in the draft Bribery Bill, which stems from our inquiry into Proprietyand Peerages, on which we reported in December 2007. I am attaching a copy of the relevant section ofour Report.

Our focus was the Honours (Sale of Abuses) Act 1925 (“the 1925 Act”). We concluded that that thelikelihood of securing prosecutions under this Act would always be very low even if peerages or honourswere covertly traded. To secure a conviction in practice, the police would almost certainly have to catchsomeone red-handed. Given the nature of clandestine deals, this seemed to us unlikely to happen. Wetherefore identified a need to look for ways to improve the law in this area.

We then discussed the potential for increasing the likelihood of securing convictions, either bycriminalising additional forms of behaviour or by altering the burden of proof. Our broad view was that,on balance neither course of action was to be recommended. We did, however, propose that the LawCommission should consider incorporating the behaviour outlawed by the 1925 Act in their new draft Bill(the one you are now to consider), and give serious attention to the points we had raised.

We also urged the Government to find time for a bill in the parliamentary schedule, noting that a modernlaw was overdue, and suggested that we should be invited to play some part in giving pre-legislative scrutinyto the draft Bill—evidently without success on this occasion!

In our view there are two issues which it would be well worth the Joint Committee finding the time topursue:

— Would the Government’s proposals make it any easier in practice to secure a conviction for thesale or attempted sale of a peerage or an honour? This is well worth exploring in the light of ourconcerns about the diYculty of securing prosecutions under the 1925 Act.

— What would be the practical impact of allowing the new draft bill and the 1925 Act to sit alongsideone another on the statute book? The Law Commission has decided not to recommend the repealof the 1925 Act, but at the same time it claims that its “recommendations [contained in the draftBribery Bill] are suYciently broad to catch criminal activity of [the] sort” proscribed by the 1925Act. This begs the question of whether oVences under the two Acts are essentially identical or not.Has an opportunity for further consolidation been missed?

I hope your Committee’s work is fruitful and enjoyable, and I look forward to seeing the results of itsinquiries.

Dr Tony Wright MP

June 2009

Letter from the Chairman of the International Development Committee (BB 18)

The International Development Committee welcomes the establishment of your Joint Committee toexamine the provisions of the draft Bribery Bill.

The IDC has commented in a number of its reports on the negative impact which the absence of eVectivebribery legislation in the UK has on developing countries. I attach a short paper summarising ourconclusions and recommendations which I hope will be helpful to your Committee in carrying out itsscrutiny of the draft Bill.

1. The International Development Committee’s interest in UK bribery legislation arose from our2006 inquiry into Conflict and Development and our identification of possible irregularities in the activitiesof UK-based companies involved in the exploitation of natural resources in developing countries.150 In thatreport we focused on the apparent unwillingness of the then Department of Trade and Industry to beproactive in investigating companies identified by the UN Panel on the Illegal Exploitation of NaturalResources.

2. We also found serious deficiencies in the UK Government’s approach to ensuring that the Organisationfor Economic Co-operation and Development’s (OECD) Guidelines for Multinational Enterprises wereproperly adhered to by British companies. The UK ratified the OECD Anti-Bribery Convention in 1998.This is a legally-binding instrument viewed internationally as a key tool in tackling corruption.

3. In our 2006 Report, we undertook to pursue these issues with the DTI at an early opportunity. Due tonon-availability of the relevant Ministers, we were not able to take further oral evidence from theGovernment until October 2007. Our findings are reported (as part of a broader inquiry) in our Report onDevelopment and Trade: Cross-Departmental Working.151

150 Sixth Report of Session 2005-06, Conflict and Development: Peacebuilding and Post-Conflict Reconstruction, HC 923, paras105-119.

151 Second Report of Session 2007-08, Development and Trade: Cross-Departmental Working, HC 68, paras 41-58.



4. We noted that the Anti-Terrorism, Crime and Security Act 2001 made bribery committed overseas byUK nationals and companies a criminal oVence. We were concerned, however, that although the SeriousFraud OYce had since investigated a number of allegations of trans-national bribery, no cases had beenbrought to court.

5. The OECD Working Group on Bribery had also produced a report in June 2007 which repeatedprevious concerns about shortcomings in UK anti-corruption legislation. Earlier reports from the WorkingGroup had recommended that the UK enact modern foreign bribery legislation and address issues ofcorporate liability at the earliest opportunity. The Chairman of the Working Group told us in evidence thathe was very worried that the UK had made no progress on this since 1999. Moreover, the lack of prosecutionsin the UK led the Working Group to question where there was an “inherent or a systemic impediment”between investigation of bribery cases and their prosecution in the UK.

6. We recommended in 2007 that the UK Government give a clear commitment that time would be foundin either the 2007–08 or the 2008–09 Sessions to enact the new bribery legislation which the OECD wishedto see. Whilst progress has not been as swift as we would have wished, we are pleased that draft legislationhas now been produced.

7. We particularly welcome the extra-territorial jurisdiction provisions in the draft Bill (Clause 7) whichwould allow prosecution for oVences taking place abroad, where they involved British nationals or residentsor UK corporate bodies. However, it would be worthwhile examining the extent to which these diVer fromthe provisions of the 2001 Anti-Terrorism Act referred to above and to ascertain the extent to which theystrengthen and improve the existing law.

8. As we have pointed, one of the OECD’s concerns is that, although some cases of alleged bribery byUK companies operating overseas have been investigated, no prosecutions have resulted. There maytherefore well be questions to pursue about the implementation of the law as well as its drafting.

9. In his Foreword to the draft Bill, the Secretary of State for Justice says that the UK is already providingtechnical assistance to developing countries to strengthen their capacity to tackle corruption. We wouldemphasise that such assistance is vital if the legislation is to have a real impact on reducing illegal commercialactivities in poor countries and allow them to receive the full benefits from their natural resources andeconomic development.

10. We also note the Government’s commitment to support the implementation of internationalconventions on bribery and corruption, including the OECD Bribery Convention. We regard it as essentialthat the legislation as enacted fully conforms to the recommendations made to the UK Government by theOECD Working Group on Bribery.

Rt Hon Malcolm Bruce MP

June 2009

Memorandum submitted by BG Group (BB 19)

Introductory Comments

1. This written submission is made by BG Group plc (“BG”). We are grateful to the Joint Committee forseeking the views of interested parties during pre-legislative scrutiny of the draft Bill. BG welcomes the UKGovernment’s initiative to modernise, and consolidate, anti-bribery legislation. We also support much ofthe draft Bill’s proposed core content.

2. We set out below some substantive comments on the draft Bill. We also include some suggested changesto drafting. If these aspects of the Bill can be satisfactorily addressed, we believe that UK commercialorganisations (and enforcement agencies) will find it significantly easier to apply the proposed statute,without the overall eYcacy of the legislation being compromised.

3. It is essential to BG’s business that the legislation under which we operate is clearly drawn. This isparticularly the case with the proposed Bribery Bill, given that it carries the potential to incur criminalliability, substantial penalties and significant damage to corporate reputation. BG considers that the draftBill needs to specify more clearly: (a) the precise scope of the oVences created; (b) the extent of any availabledefences; and (c) the categories of person capable of rendering a commercial organisation criminally liablefor bribery, when acting on that organisation’s behalf.

4. BG is a UK Stock Exchange-listed energy company. Through our global activities, we have acquiredconsiderable practical experience of foreign anti-bribery legislation, especially the US Foreign CorruptPractices Act 1977 (“FCPA”). BG has subsidiary companies or participating interests in various countriesworldwide including India, Kazakhstan, Egypt, Libya, Tunisia, China, Nigeria, Brazil, Australia, USA andUK. As the Joint Committee will doubtless be aware, corruption monitors such as TransparencyInternational regularly classify some of these countries as being of relatively “high” perceived bribery risk.



Whilst our corporate headquarters and some of our assets are UK-based, the majority of BG’s operationalinterests and activities are abroad. Furthermore, at any given time, approximately 65% of BG’s staV isworking outside of the UK.

5. BG participates in various incorporated and unincorporated joint ventures worldwide, either asproject operator or minority partner/shareholder. BG subsidiary companies regularly enter into long-termventures with other international energy companies, foreign state-owned corporations and local privateentities. These activities necessitate dealings with foreign public oYcials, contractors and agents. Ouroperations cover the full chain of oil and gas activities. These range from oVshore exploration andproduction to processing, transportation, distribution and trading.

Summary of Submissions

6. BG’s submissions may be summarised as follows:

6.1 We suggest that the draft Bill would be greatly improved, if it expressly required a designated UKenforcement agency to issue guidelines and (upon request) advisory opinions to the business community.Our specific suggestions are at Paragraph 7.1 below. The relevant guidelines and opinions would clarify whatkind of business conduct is deemed to be compliant, under the relevant agency’s then current enforcementpolicy. Aside from the general statutory duties suggested below, we recommend a specific statutoryrequirement for guidance on what would constitute “adequate procedures”, for the purpose of the Section5 defence.

6.2 Greater clarity is needed on the circumstances in which Section 5(5) will deprive a relevant commercialorganisation of the “adequate procedures” defence. In particular, the meaning of the phrases “partlynegligent” and “purporting to act in the capacity of a senior oYcer” needs to be clarified. Also, the term“senior oYcer” should be restricted to that of “director or equivalent”, consistent with the LawCommission’s recommendation, and the precise ambit of persons “equivalent” to directors should beclarified.

6.3 As under the FCPA, the Bill should contain a rebuttable presumption of compliant conduct. Thepresumption would apply, where a relevant commercial organisation has obtained an advisory opinion fromthe designated enforcement agency.

6.4 The proposed Section 4 oVence (bribing foreign public oYcials) should include an “aYrmativedefence” concerning the hosting of foreign public oYcials. This would clarify that a relevant commercialorganisation has a defence, where it pays the reasonable and bona fide business expenses of visits by foreignpublic oYcials, in specified circumstances. An equivalent “aYrmative defence” exists under the FCPA.

6.5 In order for a relevant commercial organisation to be held criminally liable under Section 5 for“failing to prevent” bribery:

(a) the culpability standard under the Section 5(1) oVence should be that of “gross negligence” (notmere “negligence”);

(b) the concept in Sections 5 and 6 of persons “performing services for or on behalf of” a relevantcommercial organisation needs to be clarified. It should expressly exclude entities which a relevantcommercial organisation does not control. This would prevent an organisation being heldcriminally liable for failing to prevent bribery in a joint venture in which it has a non-controllingstake.

Detailed Submissions

7. OYcial guidance and advisory opinions

7.1 We recommend that the draft Bill should require a designated UK anti-bribery enforcement agencyto issue oYcial guidance and (upon request) advisory opinions on compliant business conduct. As the JointCommittee has heard during oral evidence, both the FCPA and the Independent Commission AgainstCorruption Ordinance of Hong Kong (“ICAC Ordinance”) enshrine statutory duties for the giving of suchguidance and advice.152 For the Joint Committee’s ease of reference, we attach relevant extracts from thoseitems of legislation: see Appendices A and B.153 Specifically, we suggest that the draft Bill include thefollowing duties and powers upon the designated agency:

(a) a general duty to determine whether issuing oYcial guidelines (or general precautionaryprocedures) might enhance compliance with the statute and assist the business community;

(b) a power to issue such guidelines or procedures (based upon such determination), specifyingbusiness conduct deemed compliant, in principle, with the agency’s then current enforcementpolicy;

152 Sections 78dd-2(e) and (f) of US FCPA and Sections 12(e) to (h) inclusive of Cap 204, 2003 Independent Commission AgainstCorruption Ordinance of Hong Kong. See also Paragraph 8.1 of BG’s submissions.

153 In this context, we refer to Question 205 by the Earl of Onslow and Question 206 by Lord Thomas of Gresford (and theresponses of witness Andrew Berkeley of ICC UK): Joint Committee’s proceedings of Wednesday 3 June 2009: from theuncorrected transcript of oral evidence (which remains subject to review by Committee members and witnesses), to bepublished as HC 430-ii: http://www.publications.parliament.uk/pa/jt200809/jtselect/jtbribe/uc430-iii/uc43002.htm



(c) a specific duty to issue guidance on procedures that would potentially constitute “adequateprocedures”, for the purpose of the Section 5(4) defence; and

(d) a general duty to issue advisory opinions, upon request by commercial organisations. Suchopinions would advise the applicant whether particular business conduct would be compliant withthe agency’s then current enforcement policy. The Bill should specify a reasonable time limit, withinwhich such advisory opinion would have to be provided. The opinion should be made publiclyavailable only with the consent of the applicant.

7.2 As the Joint Committee has also noted during oral evidence, the ICAC Ordinance expressly imposesa statutory duty upon the Commissioner of the Independent Commission Against Corruption (“ICAC”).The duty is to guide and advise any person, in relation to corrupt practices generally. We understand thatICAC’s Corruption Prevention Department administers an “Advisory Services Group”. Its Websitecommits to responding within 2 days to specific requests. Furthermore, ICAC provides free guidance tocommercial organisations on anti-bribery matters, including best practice modules. One such ICAC moduleis a 70-page “Corruption Prevention Guide for Listed Companies”. ICAC also undertakes to assistorganisations in drawing up compliance documents, such as codes of conduct.

7.3 Similarly, the FCPA expressly requires the US Attorney-General to publish guidelines and to produceadvisory opinions (upon request), in relation to bribery of foreign public oYcials. Periodically, the USDepartment of Justice publishes such advisory opinions, with the consent of the entity requesting theopinion. The published opinions do not represent a binding precedent. However, commercial organisationsmay usefully have regard to them, when framing their own corporate anti-bribery procedures and controls.

7.4 The US Department of Justice regularly publishes memoranda, summarising present prosecutionpolicy in respect of business organisations (the current version being the “Filip Memorandum”).154 Thesememoranda represent a clear statement to the business community of the principles that prosecutors willapply. They cover important issues such as (a) the factors considered to be relevant in determining whetherto charge a corporation and (b) the weight to be given to corporate compliance programmes. BG sees valuein a similarly transparent approach being adopted in the UK, at least in relation to bribery oVences. In thisway, commercial organisations can readily understand how UK enforcement agencies will, in practice, bringprosecutions under the proposed Bribery Act.

7.5 When giving oral evidence to the Joint Committee, Professor Celia Wells acknowledged that anoYcial UK compliance code of conduct might be a possibility. However, as regards prosecutorial guidelinesor advisory opinions, Professor Wells expressed the view that it would be an “unnecessary publicexpense … to have that filter”.155 She cited the diVerent historical approach to prosecutorial discretion inthe USA, and legislative diVerences in the FCPA, as justifying the absence in the draft Bribery Bill of anyprovision for oYcial UK guidance/opinions. We respectfully disagree with Professor Wells’ conclusion. BGrecognises that there are currently diVerences in prosecutorial approach and the anti-bribery statutoryframework, as between the USA and the UK. However, recent UK enforcement action—coupled withinformation in the Ministry of Justice’s own impact assessment, published with the draft Bill—indicates alikely future narrowing of such diVerences (see Paragraph 8.3 below). We suggest that any remainingdiVerences in US/UK approach should not prevent the draft Bill from requiring a designated UKenforcement agency to publish oYcial guidance on compliance “best practice”. In our view, this would bea sound investment of public funds. We acknowledge that the nature of such model guidance may need todiVer, depending on the size and industry sector of the organisation in question.

8. “Adequate procedures” defence/Non-applicability of defence

8.1 We suggest that the proposed Section 5 “adequate procedures” defence provides a compellingexample of why the Bill should require oYcial guidelines on compliant conduct. Currently, the draft BilloVers no definition of the term “adequate procedures”. Likewise, it contains no mechanism for a commercialorganisation to seek oYcial guidance on the meaning of the term. Commercial organisations need tounderstand how relevant UK enforcement agencies are likely to apply the phrase in practice.

8.2 As with other UK-listed public companies, BG places very substantial corporate emphasis on ethicalconduct by our directors, employees, agents and contractors. We have various mandatory governanceprocedures (including corporate “Ethical Conduct” standards). These cover practical issues – for example,undertaking due diligence, reporting corruption incidents and the giving or receiving of hospitality.However, absent any oYcial guidance, these measures necessarily represent our subjective corporate viewof appropriate ethical conduct procedures.

154 “Principles of Federal Prosecution of Business Organisations“ dated 28 August 2008, issued by the US Department of Justice’sOYce of the Deputy Attorney-General, Mark Filip.

155 Comment by Professor Wells in response to Question 80 put by Lord Thomas of Gresford: Joint Committee’s proceedingsof Wednesday 20 May 2009 – from the uncorrected transcript of oral evidence (which remains subject to review by Committeemembers and witnesses), to be published as HC 430-ii: http://www.publications.parliament.uk/pa/jt200809/jtselect/jtbribe/uc430-ii/uc43002.htm.



8.3 We suggest that some common benchmark is needed, in order to assess the “adequacy” of corporateanti-bribery procedures, in relation to the Section 5 defence. It would be unsatisfactory for the draft Bill toleave commercial organisations (or their external legal advisers or representative trade bodies) to second-guess what may be “adequate”, in this context. There seems little realistic prospect of guidance from futureprosecutions brought under the new legislation, once enacted. The Ministry of Justice’s impact assessmentfor the draft Bill indicates that it anticipates only an additional 1.3 prosecutions per year, in relation to thenew corporate oVence. This estimate gives the perception that the Government does not envisage UKprosecutors taking many Bribery Act cases to a full jury trial. That perception is perhaps compounded bya recent report in the legal press. From this report, we understand that the UK SFO is actively consideringseeking statutory powers for US-style “non-prosecution agreements”, “deferred prosecution agreements”and “plea-bargaining” arrangements.156 Accordingly, it seems unlikely that a body of case law will developin the UK, which might otherwise have assisted organisations to interpret the undefined term “adequateprocedures”.

8.4 BG would, therefore, welcome a statutory mechanism that requires UK prosecutors to establish abase reference point on the meaning of “adequate procedures”. The Ministry of Justice’s impact assessmentstates: “The proposals should support the Government’s strategy for tackling international corruption notonly by deterring and penalising bribery, but also by encouraging and supporting business to applyappropriate standards of ethical business conduct” (BG’s emphasis added here). 157 We believe that the mostpractical way in which the Government can encourage and support business in this regard is through astatutory requirement for guidance on the term “adequate procedures”.

8.5 We also suggest that Section 5 should specify a non-exhaustive list of evidential criteria, to assist acriminal jury in deciding at trial whether an organisation, in fact, had “adequate procedures” in place.Currently, the draft Bill contains no such criteria. This leaves it unclear how a jury might assess (or howa judge might guide a jury on the issue of) whether a given organisation’s procedures could be considered“adequate”, if the Section 5 defence is invoked.

8.6 Furthermore, greater clarity is needed on when Section 5(5) might deprive a relevant commercialorganisation of the Section 5(4) “adequate procedures” defence. In particular, we suggest that the Section5(7) term “senior oYcer” be restricted to that of director or equivalent. This would be consistent with theLaw Commission’s recommendation: see Paragraph 8.8 below. The proposed Section 5(7)(a) definition of“senior oYcer” encompasses the undefined term “manager”, which seems to go significantly beyond the LawCommission’s recommended position. In BG’s experience, the term “manager” could potentially cover aplethora of persons – operating at widely diVerent levels in a company—whose position does not equate tothat of director or equivalent.

8.7 The meaning of the Section 5(5) phrases “partly negligent” and “purporting to act in the capacity ofa senior oYcer” also need to be properly clarified. As regards a senior oYcer being “partly” negligent, thedraft Bill gives no guidance as to what level of negligence might suYce to dis-apply the defence. Would itbe assessed in percentage terms, as with contributory negligence in tort? If so, would (say) 25% “part”negligence of a senior oYcer render the corporate defence unavailable to an organisation? It is unclear howthe concept would be applied, in practice. Additionally, we would urge that the phrase “purporting to actin the capacity of a senior oYcer” be clarified. Given that the proposed culpability standard is the tortiousone of negligence, can an organisation rely upon the defence where a person purports to act as a senior oYcerand commits a negligent “frolic of his own” by bribing someone (assuming that the organisation has in place“adequate” anti-bribery procedures)?158

8.8 The Law Commission Report includes the following comment on the “adequate procedures” defence:“The existence of this defence is an important limitation on liability for the oVence. It shows that our concernis to direct the criminal law at companies that fail to make continuing and systematic eVorts to ensure thatactive bribery is not committed on their behalf, even when the risk of that happening may be high. Our focusis not on ethically well-run companies which have made an error (albeit culpable) in a particular case leadingto the commission of bribery by someone providing services on their behalf. However, the defence shouldnot be available when the negligence that led to the failure to prevent bribery being committed wasattributable to a director of the company (or equivalent person) him or herself…. “ (BG’s emphasisadded here).159

156 See article in Law Society Gazette of Thursday 7 May 2009: “Serious Fraud OYce to ask Parliament to grant it new powers“.157 Ministry of Justice’s “Impact Assessment of draft Bill on reform of the law on bribery“ dated 20 February 2009, Version 1.158 See the exchanges between Lord Thomas of Gresford and Professor Wells: Questions 132-134 of the Joint Committee’s

proceedings of Wednesday 20 May 2009 – from the uncorrected transcript of oral evidence (which remains subject to reviewby Committee members and witnesses), to be published as HC 430-ii: http://www.publications.parliament.uk/pa/jt200809/jtselect/jtbribe/uc430-ii/uc43002.htm.

159 Paragraphs 6.6 and 6.7, Part 6 of the Law Commission Report (LAW COM No 313) entitled “Reforming Bribery“, issuedon 19 November 2008.



9. Rebuttable presumption

We suggest that the Bill contain a rebuttable presumption of compliant conduct, where a relevantcommercial organisation has obtained an advisory opinion from the designated enforcement agency. TheFCPA contains just such a rebuttable presumption. As under the FCPA, the presumption should berebuttable by a preponderance of factual evidence. Such evidence could include whether the organisationhad submitted complete information, when seeking the opinion. We consider that including an equivalentprovision in the draft Bill would represent a fair and proportionate approach to enforcement action. If acommercial organisation has taken the step of pro-actively seeking advice on compliance conduct, it seemsreasonable that the evidential burden of proof should shift to the relevant enforcement agency.

10. AYrmative defence/Hosting public oYcials

10.1 Periodically, businesses such as BG are formally asked to meet the legitimate expenses of a foreignpublic oYcial’s business visit. An example might be a request to meet the direct costs of a foreign publicoYcial visiting an LNG plant operated by BG or attending a particular technical course. It is common foroil and gas licences (or production sharing contracts) to impose express obligations to provide technicaltraining to the host government’s oYcials. Under the FCPA, an “aYrmative defence” can be raised if anorganisation faces criminal allegations that particular hosting of a foreign public oYcial amounted tobribery. The defence applies where a commercial organisation has paid the oYcial’s “reasonable and bonafide” business expenses. In order successfully to invoke the defence, the FCPA requires such expenses to bedirectly related to: (a) the promotion, demonstration or explanation of business products or services; or (b)the execution or performance of a contract with a foreign government or its agency: see Appendix A. BGrecommends that Section 4 of the draft Bill should incorporate an equivalent defence.

10.2 As currently drafted, the proposed Section 4 oVence would be committed through the giving to aforeign public oYcial of “any financial or other advantage … not legitimately due…”, assuming there existsthe requisite Section 4(1)/(2) intent. By Section 4(5), a particular financial or other advantage is legitimatelydue to that oYcial “if, and only if, the law applicable to [the oYcial] permits or requires [the oYcial] to acceptit”. In BG’s experience, foreign legislation does not necessarily explicitly state whether an oYcial is“permitted or required” to accept business hospitality. Sometimes, the foreign law is simply silent on thepoint. Commercial organisations need certainty over the extent to which it will be legally defensible to hostforeign public oYcials, under the statute. If the draft Bill were to include a defence similar to that in theFCPA, this – combined with the oYcial guidance suggested at Paragraph 7 above – should provide adequatebusiness certainty on what comprises non-corrupt hosting of foreign public oYcials.

11. Corporate oVence of failing to prevent bribery

11.1 We suggest that the culpability standard under the proposed Section 5 corporate oVence (failing toprevent bribery) should be that of “gross negligence”, not mere “negligence”. This higher standard wouldseem consistent with the Law Commission’s view – namely, that the oVence should penalise “continuing andsystemic” corporate failures to prevent bribery, rather than criminalising organisations for isolatedincidents: see Paragraph 8.8 above. Our position on the point is, therefore, the same as that in the writtensubmissions of ICC UK and GC 100 to the Joint Committee.

11.2 The concept in Sections 5 and 6 of persons “performing services for or on behalf of” a relevantcommercial organisation needs to be clarified. We consider that it should expressly exclude entities which arelevant commercial organisation does not control. It is important to ensure that an organisation is not heldcriminally liable for failing to prevent bribery in a joint venture in which it has a non-controlling stake.Where an organisation has only a non-controlling interest in a joint venture, the draft Bill should expresslymake the “adequate procedures” defence available. A suitable proviso would be that the organisationundertook adequate due diligence and obtained appropriate contractual anti-bribery assurances from thejoint venture participants. We suggest that any oYcial guidance (of the kind suggested at Paragraph7.1 above) indicate the minimum due diligence expected. It should perhaps also contain model anti-briberyprovisions.

12. BG would be pleased to supplement this written submission with more detailed drafting suggestions,if that were deemed to be of assistance to the Joint Committee. BG representatives would also be willing tomeet with oYcials from the Ministry of Justice and the Department for Business, Innovation and Skills todiscuss the draft Bill in greater detail.

June 2009



APPENDIX A – EXTRACTS FROM U.S. FCPA 1977

Anti-Bribery and Books & Records Provisions of The Foreign Corrupt Practices Act

UNITED STATES CODE TITLE 15. COMMERCE AND TRADE

CHAPTER 2B--SECURITIES EXCHANGES

H 78dd-2. Prohibited foreign trade practices by domestic concerns

--------------------

(c) AYrmative defenses

It shall be an aYrmative defense to actions under subsection (a) or (i) of this section that — …

. . . (2) the payment, gift, oVer, or promise of anything of value that was made, was a reasonable and bonafide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign oYcial, party,party oYcial, or candidate and was directly related to--

(A) the promotion, demonstration, or explanation of products or services; or

(B) the execution or performance of a contract with a foreign government or agency thereof.

------------------------

(e) Guidelines by Attorney General

Not later than 6 months after August 23, 1988, the Attorney General, after consultation with theSecurities and Exchange Commission, the Secretary of Commerce, the United States Trade Representative,the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interestedpersons through public notice and comment procedures, shall determine to what extent compliance withthis section would be enhanced and the business community would be assisted by further clarification of thepreceding provisions of this section and may, based on such determination and to the extent necessary andappropriate, issue--

(1) guidelines describing specific types of conduct, associated with common types of export salesarrangements and business contracts, which for purposes of the Department of Justice’s presentenforcement policy, the Attorney General determines would be in conformance with the precedingprovisions of this section; and

(2) general precautionary procedures which domestic concerns may use on a voluntary basis to conformtheir conduct to the Department of Justice’s present enforcement policy regarding the preceding provisionsof this section.

The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence inaccordance with the provisions of subchapter II of chapter 5 of Title 5 and those guidelines and proceduresshall be subject to the provisions of chapter 7 of that title.

---------------------------

(f) Opinions of Attorney General

(1) The Attorney General, after consultation with appropriate departments and agencies of the UnitedStates and after obtaining the views of all interested persons through public notice and comment procedures,shall establish a procedure to provide responses to specific inquiries by domestic concerns concerningconformance of their conduct with the Department of Justice’s present enforcement policy regarding thepreceding provisions of this section. The Attorney General shall, within 30 days after receiving such arequest, issue an opinion in response to that request. The opinion shall state whether or not certain specifiedprospective conduct would, for purposes of the Department of Justice’s present enforcement policy, violatethe preceding provisions of this section. Additional requests for opinions may be filed with the AttorneyGeneral regarding other specified prospective conduct that is beyond the scope of conduct specified inprevious requests. In any action brought under the applicable provisions of this section, there shall be arebuttable presumption that conduct, which is specified in a request by a domestic concern and for whichthe Attorney General has issued an opinion that such conduct is in conformity with the Department ofJustice’s present enforcement policy, is in compliance with the preceding provisions of this section. Such apresumption may be rebutted by a preponderance of the evidence. In considering the presumption forpurposes of this paragraph, a court shall weigh all relevant factors, including but not limited to whether theinformation submitted to the Attorney General was accurate and complete and whether it was within thescope of the conduct specified in any request received by the Attorney General. The Attorney General shallestablish the procedure required by this paragraph in accordance with the provisions of subchapter II ofchapter 5 of Title 5 and that procedure shall be subject to the provisions of chapter 7 of that title.

(2) Any document or other material which is provided to, received by, or prepared in the Department ofJustice or any other department or agency of the United States in connection with a request by a domesticconcern under the procedure established under paragraph (1), shall be exempt from disclosure under section



552 of Title 5 and shall not, except with the consent of the domestic concern, by made publicly available,regardless of whether the Attorney General response to such a request or the domestic concern withdrawssuch request before receiving a response.

(3) Any domestic concern who has made a request to the Attorney General under paragraph (1) maywithdraw such request prior to the time the Attorney General issues an opinion in response to such request.Any request so withdrawn shall have no force or eVect.

(4) The Attorney General shall, to the maximum extent practicable, provide timely guidance concerningthe Department of Justice’s present enforcement policy with respect to the preceding provisions of thissection to potential exporters and small businesses that are unable to obtain specialized counsel on issuespertaining to such provisions. Such guidance shall be limited to responses to requests under paragraph (1)concerning conformity of specified prospective conduct with the Department of Justice’s presentenforcement policy regarding the preceding provisions of this section and general explanations ofcompliance responsibilities and of potential liabilities under the preceding provisions of this section.

APPENDIX B

EXTRACT FROM 2003 INDEPENDENT COMMISSION AGAINST CORRUPTIONORDINANCE OF HONG KONG

Chapter: 204 Title: INDEPENDENT Gazette Number: 14 of 2003COMMISSION AGAINSTCORRUPTION ORDINANCE

Section: 12 Heading: Duties of the Commissioner Version Date: 09/05/2003

It shall be the duty of the Commissioner, on behalf of the Chief Executive, to—

(Amended 1 of 2003 s. 3)

. . .

(e) instruct, advise and assist any person, on the latter’s request, on ways in which corrupt practices maybe eliminated by such person;

(f) advise heads of Government departments or of public bodies of changes in practices or procedurescompatible with the eVective discharge of the duties of such departments or public bodies which theCommissioner thinks necessary to reduce the likelihood of the occurrence of corrupt practices;

(g) educate the public against the evils of corruption; and

(h) enlist and foster public support in combatting corruption.

Memorandum submitted by DLA Piper UK LLP (BB 20)

DLA Piper is an international law firm. These submissions are made by its Corporate Crime andInvestigations Team based in London. This team advises many multinational corporate clients on all briberyand corruption issues, including cross-jurisdictional and compliance matters. We also have regular contactwith the Serious Fraud OYce and the US Department of Justice in connection with investigatory andprosecution matters.

Overview

Our clients generally understand the importance of anti-bribery and corruption measures and want to becompliant with the law, wherever they operate in the world. However, they also need the law to be certainand are often confused about such issues as facilitation payments and whether they are legal in certainjurisdictions.

We support the intention to create a new consolidated scheme of bribery oVences to cover bribery inEngland, Wales, Northern Ireland and overseas. We believe that the draft bill is concise, yet comprehensiveand represents a considerable step forward in simplifying the bribery laws. However, we also believe thatcertain areas need more clarity if we are going to be able to advise and assist our clients in understandingand acting on the new provisions.

Clauses 1-3: Bribing another person; OVences related to being bribed; Function or activity to whichbribe relates

We note that the draft bill has moved away from the agent/principal model originally recommended bythe Law Commission. Although the bribery oVences in clauses 1-3 are now based on the intention to induceimproper conduct model we do not envisage any problems in being able to explain these oVences to ourclients. It will be an oVence to oVer, promise or give a bribe, or to request, agree to receive or request a bribe



and the test for jury will be to consider whether the conduct is improper. The six cases cited are relativelyhelpful (although the drafting is somewhat tortuous) in demonstrating the application, with the activitiesdescribed covering situations involving private business and public oYce functions.


This new and separate oVence is a very important step in demonstrating a clearer commitment to the UK’sinternational obligations and the OECD Convention. We think that the requirement that payments mustbe legitimately due to the foreign public oYcial under local law or the rules of public internationalorganisations is acceptable in principle. However, we think that it will be diYcult for our clients to establishthe point without taking legal advice in every territory where they operate, which will add significantly tothe cost of doing business overseas.

There would also be an added burden for prosecutors in trying to establish and interpret foreign legislationin order to determine whether an oVence has been committed and then to produce evidence to the standardthat will satisfy a judge.

Clause 5: Failure of Commercial Organisation to Prevent Bribery

This clause of most concern to our clients and is the one which we believe needs further clarification.

We accept that companies must be compliant with relevant law and take steps to prevent bribery andcorruption happening in their operations, whether in the UK or overseas. Our clients wish to be compliantbut from our experience we also recognise that companies need some degree of guidance as to what isexpected of them. If the aim of the bill is to encourage good practice then some form of guidance is required.Companies should not have to face many years of uncertainty while case law establishes what is and whatis not acceptable.

In this respect we have two points of concern about clause 5:

1. The use of the words “adequate procedures” at subsection 4. How will a company be able to determinewhat is reasonable? How will it establish that its procedures were adequate once an act of bribery hastaken place?

2. There needs to be some clarification in respect of the defence and when it is available. Subsection 5 saysthat the defence is not available if the negligence is that of a senior oYcer or a person purporting to be asenior oYcer. Our clients will ask the question—”If we appoint a senior oYcer we lose the defence. Whathappens if we appoint someone to look after our anti-bribery and corruption plans who is not a senioroYcer?”

As the draft currently stands, we seem to fall into a circular argument. If you do appoint a senior oYceryou lose the defence, if you don’t appoint a senior oYcer the defence will still be available but you mightthen be guilty of not having “adequate procedures” if you do not have a senior oYcer in charge.

This tortuous clause appears to be an attempt to avoid imposing strict liability on a company where anemployee or agent has paid a bribe but in doing so the requirements for the adequate procedures defencehave become confusing to say the least.

If our clients have to adopt an overly cautious approach this will inevitably increase the burden for themin terms of cost and resources. Our clients fear that this is, in fact, compliance regulation through the backdoor and that they will incur significant costs in reviewing and monitoring policies and contracts at a globallevel (especially when considered in conjunction with clause 6) to ensure that there are “adequateprocedures” in place in every oYce.

The uncertainty of the oVence under clause 5 may result in prosecutions designed to test its ambit.Defending such cases will be an additional cost and even if acquitted recovery will at best be limited underthe proposals to cap payments out of Central Funds.

Perhaps the Government might also consider, through the auspices of one of the relevant departmentssuch as the Department of Business, Enterprise and Regulatory Reform, issuing a code of conduct or someother form of guidance for businesses. It is accepted that one size does not fit all when it comes to anti-corruption strategies but our clients would welcome some guidance on the basic standards or elements ofan eVective compliance programme, especially if they are to be judged by a standard of negligence, ratherthan gross negligence or recklessness.



Finally, on a minor point, we believe that for the avoidance of doubt the reference to “secretary” in thedefinition of a “senior oYcer” at subsection 7 should be changed to “company secretary”.

June 2009


Bribery Bill: Clause 4.

The foreign law exception: does the Convention sanction it?

The inclusion of this exception follows the Law Commission’s recommendations (Report. Para 5.81 etseq), and its draft Bill.

It should be stressed that the inclusion of this exception follows the OECD’s own analysis of what ispermitted. OYcial Commentary 8 says:

“[I]it is not an oVence, however, if the advantage was permitted or required by the written law orregulation of the foreign public oYcial’s country, including case law.”

In her analysis of Article 1(1), Professor Zerbes says in her commentary on the issue:

The advantage will be regarded as undue, if it is not foreseen by a binding legal provision (usuallya statutory norm) . . . The question whether the benefit was in fact due is a matter for the law ofthe victim foreign state to determine. [her emphasis].”160

In our view, thus, it could not be any clearer that the “foreign law” exception is integral to limits of theprohibition on making payments to public oYcials. Further, according to Professor Zerbes:

“Most of the signatory states have indeed implemented the Convention to the eVect that paymentsor other benefits which are made in conformity with a strict legal basis are not criminalised”.161

She goes on to mention a series of countries that criminalise only payments ‘sans droit’, such as France,Italy and Greece, amongst many others.

It is also worth pointing out that, under the FCPA in the USA (which you asked me about), 15 USC &&78dd-1(c)(1) refers to the legitimacy of an advantage that is:

“lawful under the written laws and regulations of the foreign oYcial’s country”.

Picking up another point that was discussed when I gave my evidence, Professor Zerbes says that in virtueof OYcial Commentary 7:

Only a clearly binding legal norm of the foreign state—embedded in legislation or case law—is anadequate legal basis for permitting an advantage.”162

This was also the view of the Law Commission, and is the intended eVect of the Bill.

It would be right to point out that, in Professor Zerbes opinion, ‘the defence appears to have been of littlepractical impact’.163

However, that seems to me not to constitute a suYcient reason for the UK to be in the vanguard when itcomes to doing without the exception. Two important principles are at stake: first, respecting state autonomymeans respecting states’ legislative freedom of action, particularly if they are not signatories to the OECDConvention,164 and secondly, this would be clear and unambiguous gold-plating of a kind that is to beavoided.

The foreign law exception: in what circumstances can it play a role?

The principal focus would appear to be standard fees or tariVs paid directly to public oYcials, rather thaninto a general fund.165 Professor Zerbes gives the following example:

Such [permissible] advantages may take the form of a legal entitlement or claim, for example,payments to a notary, who may in some countries, and in some circumstances, take fees for a dutyperformed in the public interest. The criminal law of the signatory states will either exclude suchlegal advantages, or will make them part of a legitimate defence.166

160 Ingeborg Xerbes, ‘Article 1: The OVence of Bribery of Foreign Public OYcials’, in M Pieth, L Low, and P Cullen (eds), TheOECD Convention on Bribery: A Commentary (2007), at p 104–05.

161 Ibid, at p 106.162 Ibid, at p 105.163 Ibid, at p 107.164 The Law Commission considered and rejected a test applicable only when a country was not a signatory. Some signatories

to the Convention fail according to the Convention’s own standards, and so such a test is an unhelpful one. There would alsobe ambiguities where a country was a new signatory, but had not yet brought its law into conformity.

165 Ibid, at p 105.166 Ibid, at p 106 (my emphasis).



In my view, we have to make allowance for the fact that some countries will try to reduce transactioncosts—ironically, quite possibly in an attempt to prevent oYcial corruption somewhere else in the chain—by making it legally possible for the provider to pay a state oYcial a fee etc directly, rather than into acentral fund.

Hospitality/Commission payments and clause 4

I don’t think that it is helpful to analyse the “legitimately due” exception in terms of the eVect that it willhave on hospitality or commission payments. These are unlikely to be provided for by the written law,although they may—as in this country—be dealt with in an individual’s contract of employment (but as thisis not part of a country’s written law, it is not relevant).

More relevant is a comparison between the oVences in clauses 1 and 2, and the oVence in clause 4. Inclauses 1 and 2, it is always open to the provider to say that he or she did not, in providing hospitality etc,intend to induce the recipient to behave improperly. That line of argument is not open under clause 4,because the oVence is “influence” based not “impropriety” based. Clearly, any hospitality may “influence”a foreign public oYcial, often perfectly legitimately. An example would be when a hospitality showcasingevent shows how much better organised and committed the relevant organisation is to provide goods andservices etc, and the oYcial is influenced by that.

However, I do not see this as an inherent weakness in the scheme under clause 4. There could not possiblybe any public interest in prosecuting for bribery, when the influence secured over the oYcial was perfectlyproper. However, a company might have a hard time justifying taking oYcials on a foreign skiing trip, if theidea is simply to set out their wares and illustrate their reliability as a company. Even that example wouldbe diVerent if the company was a skiing equipment manufacturer seeking to secure a contract to supply anAlpine Army division, or the like.

Might it not be said, then, that “improperly” should be tacked on as an adverb after “influence”, so as todistinguish legitimate from illegitimate hospitality? The Law Commission goes into this issue in the Report,and the answer is “no”, because that would inevitably re-introduce questions about whether cultural normsand expectations can make a payment “proper”, and that is exactly the result that this oVence is designedto prevent.

Doing without the exception: too harsh?

For the reasons given, I believe that it would be too harsh, as well as not required by Convention law, todo without the exception. There is an additional worry.

A criminal oVence of a serious kind, like bribery, should be based on a clear prima facie wrong, whateverdefences there may be to that wrong. The House of Lords has said that serious oVences that criminalisetranches of innocent conduct are unlikely to be compliant with human rights legislation (because they breachthe presumption of innocence), even if they provide for defendants to exculpate themselves.167

There is a risk that clause 4 will fall foul of the HL ruling, if the “legitimately due” element is omitted.This is because it is not necessarily wrong to oVer something to influence a public oYcial to secure a businessadvantage. By stipulating that it is prima facie wrong to influence a public oYcial other than in accordancewith that person’s country’s written law, provides an intelligible prima facie wrong.

June 2009

Additional memorandum submitted by Professor Wells (BB 22)

I would like to add the following to my written evidence (the answers to the supplementary questions).

If clause 5 is amended to remove the need to prove that the failure to prevent the bribe was negligent, thereshould be added a rider to the adequate procedure defence something along the lines of the following:

“For the avoidance of doubt, the defence of adequate procedures does not apply where the failureto prevent the oVence is attributable to the negligence, neglect or fault of one or more senioroYcers.”

I think the complexity is reduced as soon as the requirement to prove that the failure to prevent in the firstplace was negligent. And in many cases (those where the senior oYcers have not been at fault in relation tothe specific bribe) the complexity will be removed altogether.

Under this proposal the steps would be:

(i) prove the oVence took place;

(ii) from this would follow there was a failure to prevent it;

(iii) the defence of adequate procedures can be raised; and

167 “Sheldrake” [2004] UKHL 43.



(iv) it is hard to imagine that the procedures could be shown to be adequate where senior oYcers werenegligent in the implementation or monitoring of any procedures. The avoidance of doubt clauseputs that into concrete form to save lengthy and expensive legal argument.

June 2009

Additional memorandum submitted by ICC (BB 23)

Supplementary Questions to Andrew Berkeley, International Chamber of Commerce (United Kingdom)

Answers

I am very pleased to answer the further questions which were sent to me by the Clerk to the JointCommittee on 10 June 2009. Since I gave evidence, the Joint Committee has heard evidence from Mr NicolaBonucci of OECD. Some of his answers dealt with the question of corporate criminal liability which wasalso the context of several of the questions which the Joint Committee put to me. Some of the clarificationswhich he gave are, in our opinion, of great importance, especially in relation to the proposed new corporatecriminal oVence of failing to prevent bribery. I therefore ask the indulgence of the Joint Committee to allowme to enlarge on these points in my answers to the questions.

First Question

The CBI has stated that it is not satisfied with the “improper performance” test in the Bill. To the extent thatthe test is unclear or unworkable, what changes should be made to the draft Bill? Can Guidance be used to makeit workable?

We asked the Clerk to clarify whether this question related to the proposed general oVence of bribery, towhich “improper performance” is, indeed, relevant, or to the new corporate criminal oVence of “failure toprevent”. She answered that the question related to the general oVence.

For the reasons which we gave in our written evidence, we do believe that the “improper performance”test is unclear because of the nature of the definitions of “relevant expectation”. In this we agree, with respect,with Mr GeoVrey Cox in his comments about Question 265. However, such lack of clarity as there may beis due to the fact that the Bill is embodying a new legal concept. We accept that, if a move is to be made awayfrom the principal/agent model, a new furrow will have to be ploughed. We also accept, as does the LawCommission quoting the judges’ comments to it, “there comes a point when you have to leave it to the jury”.

Accordingly, our comments on the general oVence are of amendment only. Given that the “reasonableman” has been employed (with which we agree), he should be able to look at all the facts. There should beamendment, as we suggest, to ensure that evidence of all the circumstances should be admissible.Accordingly, the provision that the state of mind of the recipient is irrelevant should be deleted. Evidenceof all the circumstances would, we submit, assist the court in diVerentiating, for example, between innocentand improper corporate hospitality or facilitating payments.

In the view of the above the Joint Committee will, we hope, understand that our most earnest request forguidance related not to the general oVence but to the corporate criminal oVence and to the bribery of foreigngovernment oYcials.

OECD Requirements

It is with respect to the question of the corporate criminal oVence that we find the evidence of Mr NicolaBonucci to be of great value.

In answer to Question 477 and, again, to Question 506 he stated the criteria required by the OECD inrespect of corporate liability for bribery. They are that a corporation should be liable if:

1. bribery is personally committed by a senior oYcer,

2. bribery is committed by a lower level person at the direction or with the authorisation of a senior oYcer,

3. bribery is committed by a lower level person where he or she was not adequately supervised by a senioroYcer or if a senior oYcer knew the lower level person was going to bribe but failed to try to stop him.

These criteria are to be met in the law of each adherent to the Convention under the principle of functionalequivalence.

In the context of English law, criteria 1 and 2 relate to the direct criminal liability, as such, of a corporation.It may be argued that they are already reflected in the common law. The diYculty, which has been muchdiscussed, is one of attribution and proof. These matters are currently being studied by the Law Commissionin the context of general criminal liability of corporations. They are not addressed in the draft Bill.

It is the third criterion which is of immediate interest in the examination of the draft Bill.



In our written evidence and in answering the questions of the Joint Committee we stated that theformulation of the new corporate criminal oVence of failing to prevent bribery was draconian. We say that“prevent” means “stop, forestall or avoid”. This is an enormously high standard. We say that, to meet it,the ship would be obliged to have so much armour that it might sink—or that, at the least, it would becomeunmanoeuvrable in the battle of international commercial competition.

But now, having seen the clarification given in evidence by Mr Bonucci, we learn that “prevention” is notrequired of companies by the OECD. What is required, in the clear terms, which he repeated twice, ispowerful and eVective supervision by senior management—the third criterion. With this, we are inagreement and I so stated in the course of my oral evidence.

It may be of assistance to the Joint Committee if I quote the German law on this point. It is contained inSection 130 of the law on “Good Order” which sanctions the breach of the duty of supervision. The centralprovision may be translated as follows:

Section 130(1): Whoever, as owner [or proprietor] of a business or undertaking, deliberately or negligentlyfails to take measures of supervision which are requisite to prevent, in the business or undertaking, breaches ofduties which apply to the owner as such and [which] are punishable by criminal or other fines, [such owner]acts against Good Order [Ordnung] when such breach is committed, which [breach] could have been preventedor significantly hindered by appropriate supervision. Amongst such measures are the recruitment andmonitoring of supervisory personnel. (The German text is annexed hereto.)

This is a powerful provision. It was suYcient to make Siemens settle a penalty for breach of Good Orderbefore the Munich State Court of several hundreds of millions of Euros.

The OECD is content with German law in this matter.

Of course, breach of “Good Order” (“Ordnungswidrigkeit”) is not known to English law as a definedoVence and it is not a criminal oVence, per se, under German law. But the principle of application of theOECD Convention is functional equivalence. We submit that the question before the English legislature isto find a functional equivalent to the OECD third criterion, as enunciated by Mr Bonucci (who wasrepeating the findings of the examination, number 2bis, by the OECD of the United Kingdom).

We also submit, as our fundamental point on this matter, that the current formulation, as contained inthe draft Bill, which depends on “prevention” goes beyond what is required by the OECD.

The common law formulation of the tort of negligence is based on the concept of a breach of duty. Thishas proved a solid foundation which has supported development in many fields. We would invite the JointCommittee to consider whether “negligence” in the context of the draft Bill should be explicitly defined asbreach of a duty to supervise.

In our view, this could be a fruitful approach, because the duty could be spelled out in the statute fairlyconcisely. This would then marry well to a governmental (or novel instance) source of guidance forcompanies, which we believe to be essential, as to the actual working and standards of supervision to beobserved.

It would also comprehend, in full logic, the notion of the defence proposed in the draft Bill that themanagement structure in place in a company might be a defence—in terms of this new formulation, that theduty to supervise had been performed.

We have noted that questions to us and other witnesses by the Joint Committee showed that somemembers were troubled by our initial suggestion that the negligence in question should be defined as grossnegligence on the model of the crime of corporate manslaughter. We made that suggestion in the convictionthat the draft Bill was too draconian and that, in some way, the nature of negligence in it needed to beredefined. That remains our fundamental point. But we now think that the OECD, in the testimony of MrBonucci, may have pointed us towards a diVerent approach which may make the task of achieving functionalequivalence in English law with the OECD criterion easier.

The Joint Committee will note that the OECD formulation of the third criterion, and also the Germanlaw, say nothing about duties in respect of persons or entities which are not controlled by the companyaccused. The extension in the draft Bill of criminal liability for those who are “performing services” for acompany is an “add-on” It is not, to our knowledge, present explicitly in the legislation of other countriesalthough the doctrine, promulgated by the Department of Justice of the United States, of “imputedknowledge” may tend in the same direction. We have made our point about joint ventures and syndicateswhich are not under the control of a company. With great respect, we think that those who drafted the Bill didnot know enough about the way international projects in the extractive, construction and banking industriesactually operate. Of all the points on the draft Bill, this is the one which may have the most practicalsignificance.

If it is, indeed, to be the policy of the United Kingdom to go beyond what is required of it by treaty, themodel which we here suggest of criminal liability being founded on deficient supervision could be extendedif the concept of “control” were added. Thus, the duty to supervise could be extended to those performingservices, subject to an explicit provision that such duty would be discharged, in the case where the companyhad no control, by the adequate performance of due diligence before contract and by reasonable and



proportionate attempts to have anti-bribery provisions incorporated in the contract. Proof of the dischargeof such duty would be a defence in respect of the actions or omissions of all personnel in a company,including the most senior personnel.

In the course of giving oral evidence, I was asked about contractual provisions in joint venture or similarcontracts requiring the parties not to bribe. I said that such provisions were common. For the assistance ofthe Joint Committee, I am attaching, as an example, the relevant clause from the model form of OperatingAgreement issued by the Association of International Petroleum Negotiators (AIPN), of which I am amember. I emphasise that the inclusion of such provisions, and their form, must remain a matter fornegotiation between parties. We would not support any attempt to impose the adoption of any particularmodel. The contracts in question are international; any attempt by the United Kingdom unilaterally toimpose requirements would be of marginal significance only.

Since the formulation of a duty to supervise in a statute would require full knowledge of the businesscontext and since, in our submission, any statutory provision imposing criminal liability for “failure toprevent” or “failure to supervise”, would entail the provision of guidance by government (or some newinstance), we and other representatives of industry would be very willing to consult in order to achieve asatisfactory solution.

Strict or Absolute Liability

Several of the questions put to me and to other witnesses related to the possible adoption of a model forcorporate liability diVerent from that contained in the draft Bill. There were suggestions that a company,upon proof of bribery, would be automatically liable unless it could show a required standard of duediligence. Questioners mentioned the example of various public health laws and requirements in moneylaundering law for the keeping of defined records. On this point, we agree, with respect, with ProfessorHorder when he said, in answer to question 59:

“it would be wrong to attribute that [bribery] simply directly to the company, we believe, when you areNOT talking about an earwig getting into a tin can or something where the oVence is attributed directly tothe company. Bribery is a lot more serious than that …”

There are valid reasons why absolute liability should attach to the failure to maintain standards in thepublic health context or in the matter of administrative record keeping. In these cases the intention of theperson causing the failure, or of the company employing him or her is irrelevant. What matters is the failureto meet the standard. To adopt Professor Horder’s metaphor, very few people or companies actually intendto put earwigs in a can destined for a supermarket’s shelves.

But bribery is inevitably an intentional act. The general oVence, as formulated in the draft Bill, dependson intention. We submit, with the Law Commission, that it would be wrong to create a corporate oVenceof bribery where intention was altogether irrelevant.

Second Question

Are there specific changes that should be made to the draft Bill (besides any changes that you raised in oralevidence)?

In our written evidence we listed the changes that we think should be made to the draft Bill. In view ofthe foregoing analysis, in particular of our new suggestion that the duty to supervise be considered and itspossible new direct relationship to control, we are amending points 2 and 4. Our suggested changestherefore are:

1. reinstate defence of reasonable attempt to ascertain foreign law in the case of bribery of foreignoYcials,

2. define the concept of negligence in the “failure to prevent” bribery oVence to mean gross negligence,or, in the alternative, that the duty, breach of which would constitute negligence, should be expressly bedefined as breach of a duty to supervise,

3. return the category of persons in respect of whose acts or omissions the “adequate systems” defenceis not available to that proposed by the Law Commission,

4. “failure to prevent” to apply only to persons or companies over which a company has control,,

5. bribery to be proved beyond reasonable doubt to have taken place as a necessary element of the proofof “failure to prevent”,

6. a company not to be liable for failure to prevent bribery by its subsidiary unless the bribe was given inaid of a business actually operated and conducted by the company,

7. in the general oVence, specific provision to be made that evidence of all the circumstances be admittedin relation to the fulfilment or non-fulfilment of the “relevant expectations”,

8. delete provisions in section 2 (7) (8) about irrelevance of state of mind of accused.



Question 3

Is there any further information that you wish to supply in connection with your appearance on 2 June?

Further information is covered above.

June 2009

Memorandum submitted by BAE Systems (BB 24)

Supplementary Questions to BAE Systems

Introduction

BAE Systems welcomes the draft Bribery Bill and supports the objectives of the draft legislation. Webelieve that it provides further evidence of the UK’s commitment to combat bribery, and that it will helpenable British companies to compete for business based on commercial factors alone. The draft Bill providesthe opportunity to clarify English law on this important subject, and would provide the sort of environmentin which a company such as ours can operate with a degree of certainty and comfort that it has the rightlevel of compliance. So we think the Bill represents an important step forward. As foreshadowed in thewritten evidence submitted to the Committee by the CBI, which we support, there is a need for some furtherclarification and guidance, which should be addressed before the Bill is finalised, but we consider itimportant that this new legislation should be on the statute book as soon as practicable.

Q1. Please could you summarise the impact that the US Foreign Corrupt Practices Act has had on yourbusiness

As a company which has operated in the US for many years, BAE Systems has ensured that its policies,processes and behaviours are designed fully to comply with the FCPA. As we made clear in oral evidence,the company’s approach is to maintain the highest global standard across all of our operations worldwide,which in practical terms means that our global internal standards exceed what is required by the FCPA.

Q2. What impact, if any, would the draft Bribery Bill have on your organisation’s systems and businesspractices were it to be made law?

As we explained in the oral evidence session on 3 June, BAE Systems has put in place, over the past 2.5years, a number of major changes and improvements to the company’s policies and processes, with the aim,not only of ensuring that we operate in full compliance with the existing law, but also of ensuring that wemeet the benchmark for ethical business conduct, which was set out in the Woolf Committee’s report.Against that background, we do not believe that the Bill would cause us to make any particular changes toour systems or practices. We believe that we have a high level of comfort that our existing policies andprocesses will be adequate to comply with the new law.

Q3. How workable, from your company’s perspective, is the “legitimately due” test under clause 4(3)(b) ofthe draft Bill?

BAE Systems has some sympathy for the views of the CBI on the legitimately due test set out in clause4(3)(b) of the draft bill.

Q4. What is your view on where the burden of proof should lie for the new corporate oVence provided for inclauses 5 and 6 of the draft Bill: should it be a matter for the prosecution to prove negligence, or for the defenceto prove adequate procedures or due diligence?

We have concerns about creating criminal oVences which are only established in accordance with civilstandards. In this context, BAE Systems supports the CBI position regarding the imposition of criminalliability on the basis of negligence. This raises the possibility that a company which has taken reasonableprecautions to prevent bribery may be criminally liable where bribery has, in spite of those precautions,occurred. This is particularly an issue for small and medium size exporters with less ability to fund extensivecompliance programmes than large global corporations. Against that background, we consider that theCBI’s recommendation that gross negligence or recklessness should be the standard for criminal convictionhas some merit. We believe that the burden of proof for criminal oVences should remain with theprosecution.

Q5. Are there any specific changes that should be made to the draft Bill that you have not had an opportunityto identify before now?

We share a number of concerns that have been expressed to you by the CBI recently, most particularly intheir written submission. The existence of a reasonable person test, in terms of concluding how certainbehaviour or expectations may be set, we think, is subject to wide interpretation, and therefore could beassociated with uncertainty. This seems to us to be somewhat unsafe in terms of risk of perverse outcomesand prosecutions. Our preference would therefore be that the conventional approach to oVences is taken in



terms of appropriate criminal intent being established. That said, if the standard remains, we have a degreeof comfort that the measures we have taken are such that we are satisfied, for example, where the adequacytest applies, that our internal policies and processes will be deemed to be adequate in the event of anyprosecution.

Q6. Is there any further information that you wish to supply in connection with your appearance on 3 June?

We consider that some form of prosecutorial guidance will be essential if companies are to have the clarity,both as to law, and to enforcement policy to be applied by prosecutors. We are open as to the means by whichsuch guidance might be provided but, as an example, we provided evidence to the Committee on 3 June inrelation to the Foreign Corrupt Practice Act opinion procedure, which operates in the Untied States andwhich enables any company that is an issuer or is listed in the United States, to write to the Department ofJustice, describe a factual circumstance, and how the company proposes to deal with it. Upon filing, whichcan be done over the internet, the company will receive the US Attorney General’s opinion within 30 daysas to the Department of Justice’s interpretation of the extent to which that conduct does or does not complywith the FCPA.

June 2009


Question—The Money Laundering Regulations 2007 make it a criminal oVence for a relevant person to failto carry out (among other things) “due diligence measures” and “ongoing monitoring” to prevent moneylaundering. The regulations provide that “a person is not guilty of an oVence under this regulation if he tookall reasonable steps and exercised all due diligence to avoid committing the oVence”(regulation 45(4)). Cana legitimate parallel be drawn between this kind of oVence and the proposal that companies be made strictlyliable for failing to prevent bribery, subject to due diligence?

The Money Laundering Regulations 2007 create a very wide “risk-focused” oVence that is regulatory incharacter despite the criminal label. It is an oVence to carry out proper monitoring etc, even when thatmonitoring would have revealed no money laundering oVences committed, nor even the remotest chancethat such an oVence would have been committed. Such an oVence cannot be compared to the proposedcorporate oVence, which is harm-focused and involves what the courts refer to as “truly criminal” conduct(not just regulatory transgression), namely bribery. The diVerence is perhaps like the diVerence between, onthe one hand, committing an oVence under the HSWA of failing to ensure that employees are not exposedto risk, and on the other hand, committing manslaughter through an omission leading to a fatal accident atwork attributable to unsafe working practices. The fault requirements are higher if a company is to beconvicted of manslaughter (in eVect, gross negligence) than they are if the company is to be convicted of therisk-based HSWA oVence where no harm may have in fact been done.

Given that the oVences are so diVerent in character, I would have thought it right to require proof of ahigher fault element for failing to prevent the actual commission of a criminal oVence (bribery), than isrequired for failing to reduce the risk of such an oVence occurring (through inadequate accountingprocedures, or whatever). This would then show consistency of principle with the approach to health andsafety risk-creation (something close to strict liability, with due diligence defence), as opposed to causingdeath through health and safety failures (“gross” negligence required).

I am not sure I have much confidence in the analogy that is being made, in any event. It is arguable thatthe oVence under the Money Laundering Regulations 2007 is not a wholly strict liability oVence, with a duediligence defence. The oVence is based on a failure to carry out “due diligence” measures and “ongoingmonitoring”. That allows a defendant at least some scope to say that he or she was in fact carrying out suchmeasures or monitoring, even if the regulator disputes whether the measures were suYcient to amount to“due” diligence, or real “monitoring”. The defendant may say that this threshold must be crossed before thedue diligence defence even comes into play. My real point here is that you cannot compare the unlike withthe unlike.”

June 2009

Memorandum submitted by Norton Rose LLP (BB 26)

We have three comments on the draft Bribery Bill (“the Bill”).

Clause 3(8)

1. Clause 3(8) makes the expectation of a reasonable person the test for deciding: (a) whether a particularfunction or activity is one to which the oVences in clauses 1 and 2 apply; and (b) what is “improper” for thepurposes of deciding whether the oVences are committed.

2. When the facts occur in England and Wales that test will probably create few problems.



3. However, the oVences in clauses 1 and 2 apply, in some circumstances, even where the function oractivity has no connection to the UK (clause 3(2)) and no act or omission occurred in England, Wales orNorthern Ireland (clause 3(2) and clause 7).

4. In these circumstances it is necessary to decide what policy the legislation is seeking to achieve. Is itseeking to apply solely English standards to public and private conduct overseas? (c.f. the oral evidence givento the committee by the Director of Public Prosecutions and the Director of the Serious Fraud OYce). Is itseeking to apply the standards and expectations of the place where the conduct occurred? In addition, whatrole does local law play in this test? Is it reasonable to conform to what is permitted in local law, even if thatdoes not conform to the expectations of the English reasonable person?

5. These questions are important because clauses 1 and 2 apply to private transactions whereveroccurring and can also apply to “any function of a public nature” (clause 3(1)(a)). Professor Horder saysthat clause 4 should be used to prosecute bribery of foreign public oYcials, but one wonders whether aprosecutor in the right case could by-pass clause 4 (with its “legitimately due” provision).

6. Parliament should clarify this aspect of the Bill.

Clause 5(1)(c)

7. Workable legislation will need to define “negligence” in a bribery context. An analogy could be drawnwith the law on manslaughter. In its Guide to the Corporate Manslaughter and Corporate Homicide Act 2007,the Ministry of Justice makes it clear that the oVence under the 2007 Act is concerned with the way anorganisation’s activities were managed or organised, with a significant part of the failing happening at seniormanagement level. The test there is gross negligence. We believe a similar threshold should be required inthe Bill.

Clause 5(4)168

8. The defence of adequate procedures is going to be crucial to the operation of the new corporate‘negligence’ oVence in clause 5.

9. The Committee is reminded of the following extract from the evidence given by Professor Horder:

The OECD were understandably anxious that there should be greater clarity over what would count as an‘adequate system’, something important not just from their point of view, but from the perspective of firmsseeking guidance. It was simply not possible for the Law Commission to address this issue in the time available.

There is a case for saying that, even if it reaches the statute book, this clause should not be brought into forceuntil some work has been done with the CBI, other business representatives, anti-corruption experts, and others,to hammer out some basic standards and procedures.

There are some serious issues to be addressed.169

10. We agree. It is fundamentally important that the defence can work in practice in the wide variety ofcircumstances in which it may arise.

11. There are a number of sources that could provide guidance (for example, a legislative model such asthe systems requirements in the field of money laundering).

12. Guidance could also be taken from Aon Limited, which was fined by the FSA despite having controlsystems in place. Aon’s systems were, in the view of the FSA, ‘inadequate’; they did not ensure suYcientattention was paid to the risks associated with overseas third parties.

13. Aon’s payment procedures did not require adequate levels of due diligence, it failed to monitor itsrelationships with overseas third parties, it did not provide its staV with suYcient guidance or training, andit did not ensure the committees it appointed to oversee risks received relevant management information.

14. Lord Woolf’s recommendations in his report on BAE Systems in May 2008, which set a high ethicalstandard for companies, should also be considered as a source of ideas when formulating a standard. Itcontains guidance on key risk areas that could usefully assist any company that has to defend itself againstcorruption allegations.

15. It should be noted however that the Woolf standard is higher than most companies can realisticallyachieve and should not be the actual standard that is expected of all companies.

16. The standard for “adequate procedures” should, in our view, be placed at a level between the Woolfstandard and a baseline minimum standard. The challenge for the government is to create a standard thatis compliant with international expectations and that also stands a realistic chance of being achieved bycompanies of all sizes.

17. One option could be to develop a standard that applies to all companies equally. This might howeverbe limited to the extent that it would have to be at a low level so small less resourced companies could aVordto comply with it.

168 We are grateful to the Institute of Business Ethics for commenting on our views on adequate procedures.169 J. Horder, Joint Committee On The Draft Bribery Renewal - Additional Memoranda HC340 (BB01), para. 3.



18. Conversely, if that level was too low to meet the UK’s international obligations, the standard wouldhave to be higher and this could make the “adequate procedures” defence unattainable to smaller companiesthat do not have the resources to set such high standards.

19. A more satisfactory option might be for the government to adopt a scaled approach, comprising oneoverall set of values and principles to which all companies must adhere, and then specific proportionatepolicy, procedure and implementation guidance to each of small, medium and large companies, determinedby size of company revenue.

20. Companies would have to do all that could be reasonably expected of them, given their resources, tomanage corruption risk in their everyday practices. To be able to rely on the ‘adequate procedures’ defenceunder this approach, large multinational companies would have to comply with higher standards thansmaller less well resourced companies. Standards would be set as high as they could be for all companiesand in a way that could be realistically achieved.

21. This approach would in our view reflect current thinking from the Ministry of Justice which, in itsrecent impact assessment on the Bill, explained the defence:

would allow a company to adopt a proportionate approach, with small firms in low risk sectors able to argueadequate systems on “light touch” grounds, for example demonstrating that anti-bribery principles have beenfully communicated to its workforce … Guidance on broad principles and best practice models, while notstatutory guidance, is likely to be of particular value in minimising the additional costs to SMEs and companiesoperating in low-risk sectors and markets.170

22. We would welcome the opportunity to contribute to developing this part of the legislative schemefurther.

June 2009

Memorandum submitted by Thales UK (BB 27)

Further to our presentation of oral evidence to the Joint Committee on the Draft Bribery Bill onWednesday 3 June, I attach, as requested by the Chairman of the Joint Committee, the following additionalevidence on behalf of Thales UK :

Annex 1—A response from Mr. Dominique Lamoureux, VP, Ethics & Corporate Responsibility, Thalesregarding “lessons learned”;

Annex 2—A response from Thales UK to the Supplementary Questions raised on behalf of the JointCommittee; and

Annex 3—Thales UK General Evidence on the Bribery Bill.

Lawrence Hammond, SolicitorVP—Legal (UK)

Annex 1

WRITTEN RESPONSE FROM THE VICE PRESIDENT OF ETHICS AND CORPORATERESPONSIBILITY, THALES GROUP

What Lessons have been learnt from company’s previous failures or accusations, particularly for Thales inSouth Africa and the Far East? What real impact have they had on the company to clean up its act?

Thales has in the past faced a few allegations and a limited number of criminal investigations. The Grouphas been cleared from any charge in the vast majority of the cases, particularly in South Africa and in theFar East.

Nevertheless, taking into account the reputational damage that accompanied the allegations and in orderto strictly abide by the new regulatory framework that followed the signature of the 1997 OECDConvention, Thales has, as early as the end of the 1990s, issued a complete set of directives and process andset up a dedicated organization to ensure compliance with the new laws.

On top of Thales senior executive management commitment to zero tolerance, the Group has createdtools to raise awareness of all employees on these issues and has rolled-out specific training programmestargeted at employees directly or indirectly involved in sales and marketing. In parallel, a continuousimprovement process based on internal and external benchmarking and audits has been deployed.

Moreover, as a global leader in its field of activity and promoter of a healthy level-playing field, Thaleshas been an active player in many of the most prominent internationally recognized anti-corruptioninitiatives, to mention the United Nations Global Compact (UNGC) 10th principle working group, the

170 Impact Assessment of draft Bill on reform of the law on bribery (Ministry of Justice, 2009), 9.



International Chamber of Commerce (ICC) commission on anti-corruption, or the AeroSpace & DefenceIndustries Association of Europe (ASD)’s Common Industry Standards (CIS) signed by all the aerospaceand defence professional associations in Europe.

Annex 2

SUPPLEMENTARY QUESTIONS TO BAE SYSTEMS, LOCKHEED MARTIN AND THALES

Thales UK Responses

1. Please could you summarise the impact that the US Foreign Corrupt Practices Act has had on your business.

Thales’ policy has always been to strictly abide by the laws of the countries where it operates. It isparticularly true for the subsidiaries that operate in the US, which have internal procedures to comply withAmerican laws.

The 1997 OECD Convention, signed 20 years after the FCPA, integrated the goal of the FCPA andenhanced it marginally. Thales anti-corruption Group-wide procedures and organisation is set to abide bythe OECD Convention as a whole, and by all national implementing legislations of the signatory countrieswhere the Group operates.

2. What impact, if any, would the draft Bribery Bill have on your organisation’s systems and business practiceswere it to be made law?

Following the 1997 OECD Convention, Thales has deployed a robust Group-wide organisation andpolicy to prevent corruption. Whilst we would review our policies and procedures in the light of any newlegislation in order to ensure compliance, we do not anticipate the need to make substantial changes werethe Bribery Bill to be enacted in its current form.

3. How workable, from your company’s perspective, is the “legitimately due” test under clause 4(3)(b) of thedraft Bill?

We fully endorse the concerns expressed, and amendments suggested, by the CBI in their written evidencepaper to the Committee.

4. What is your view on where the burden of proof should lie for the new corporate oVence provided for inclauses 5 and 6 of the draft Bill: should it be a matter for the prosecution to prove negligence, or for the defenceto prove adequate procedures or due diligence?

We endorse the views of the CBI and the Anti-Corruption Forum in their written evidence to theCommittee on this proposed oVence.

5. Are there any specific changes that should be made to the draft Bill that you have not had an opportunity toidentify before now?

Please see our general evidence paper that accompanies these responses.

6. Is there any further information that you wish to supply in connection with your appearance on 3 June?

Please see our general evidence paper and the Thales Group Head OYce response requested by theCommittee.

Annex 3

THALES UK GENERAL EVIDENCE TO THE JOINT COMMITTEE ON THE BRIBERY BILL

Thales Group—Background

Thales is a leading international electronics and systems group, addressing Aerospace and Space, Defenceand Security markets worldwide. The Group’s civil and military businesses develop in parallel and share acommon base of technologies to serve a single objective: the security of people, property and nations. Thales’leading-edge technology is supported by 22,500 R&D engineers who oVer a capability unmatched in Europeto develop and deploy field-proven mission-critical information systems. The Group builds its growth on itsunique multi-domestic strategy based on trusted partnerships with national customers and market players,while leveraging its global expertise to support local technology and industrial development. Thales employs68,000 people in 50 countries with 2008 revenues of £10.2 billion.



Thales in the UK

Thales UK employs 8,500 staV based at more than 40 locations. In 2008 Thales UK’s revenues were over£1.4 billion.

Thales on Ethics

Thales not only pursues a strict policy of compliance with laws and regulations around the world, but hasalso implemented a system of ethical practices based on demanding international standards. We have aglobal Code of Ethics.

Meeting these requirements is mandatory for all employees.

Responding to deep-seated change in the worldwide geopolitical picture, growing complexity in thelegislative and normative context and burgeoning demand from stakeholders for greater transparency,Thales recognises the need for commercial organisations to conduct its business in a broader strategic spaceand apply new modes of management.

Given its areas of business, Thales attaches particular importance to the prevention of corruption. Overthe last several years the Group has issued a complete set of directives on this matter and implemented adedicated organisation to ensure compliance with national and international laws. Based on worldwide bestpractices, these measures are constantly reviewed as part of a continuous improvement process.

Thales on Bribery (Extracts from our Code of Ethics)

Thales operates in strict compliance with the rules of fair trading and with applicable legislation and codesof practice. Under no circumstances may the Group grant any undue direct or indirect advantage to anypublic oYcial or customer employee in order that they may act, or refrain from acting, in the performanceof their oYcial duties to Thales’ benefit.

Similarly, when dealing with partners and suppliers all Group employees, regardless of their role, mustact with complete integrity. This entails refusing any personal benefits or gifts of significant value. Employeesare required to inform their line management of all gifts received to ensure that the Group’s ethicalcommitments and requirements for all employees to act with integrity are not breached.

Thales on the Bribery Bill

Thales welcomes and supports the Government’s initiative to consolidate and modernise the criminal lawin the area of bribery. We are particularly aware, as part of an international company, of the damage to theimage of British Industry that lack of clarity in this area causes. Thales appreciates the challenges of draftinglegislation of this type and accepts that it will not be possible to frame the Bill in a way that will satisfy allinterested parties. However, there are areas of the Bill that may mean it is diYcult for businesses to determinewhat their obligations may be and, in turn, what policies and procedures need to be implemented to ensurecompliance.

As members of the CBI, Thales UK agrees with the written evidence submitted to the Joint Committeesetting out the areas of concern with regard to principles introduced by the draft Bribery Bill as well as thedrafting of certain provisions.

In addition to the CBI’s evidence Thales UK respectfully asks the Joint Committee to consider thefollowing points.

— In respect of matters identified by the CBI as lacking in suYcient clarity to give businesses certaintyof obligations and to allow them to put measures in place to ensure compliance, Thales UK’spreference is for the Bill to be amended rather than having subordinate legislation or other formsof guidance issued. Thales UK believes that this is possible and has previously been achieved inlegislation eg the definition of “senior management” in the Corporate Manslaughter andCorporate Homicide Act 2007, we believe, much more closely reflects the controlling mind of thecorporate entity (and is therefore a more appropriate definition) than that oVered in the draftBribery Bill.

— If the decision is to provide clarification by way of guidance Thales would wish to see the following :

— A clear statement as to the status of the guidance eg whether it can be relied on as a defenceto prosecution.

— The guidance issued contemporaneously or, if not possible, shortly after the Bill comes intoeVect.

— Responsibility for issuing guidance on appropriate best practice that could be implemented byindustry in order to mitigate risk of prosecution under the Bribery legislation being given to thecreation of an executive body similar to the Health and Safety Executive.

June 2009



Memorandum by Lockheed Martin UK (BB 28)

Response of Lockheed Martin UK Ltd. (Lockheed Martin) to the Supplementary Questions fromthe Joint Parliamentary Committee on the Draft Bribery Bill

This letter has been written to give general comments on the provisions in the Draft Bribery Bill and togive the Committee further detail on points raised during my testimony on 3 June 2009.

Lockheed Martin is providing this written response in the hope of assisting the UK Government indrafting a robust and readily understandable law to prevent corruption. The elimination of bribery is a goalthat will be of benefit to all who want to conduct business in a transparent and ethical manner.

Given the corrosive eVect that corruption has on business, Lockheed Martin supports any reform of thelegislation that has the eVect of clarifying and strengthening the law and thereby preventing corruption. Aswell as answering the specific supplementary questions posed in writing by the Committee, we havecomments on those provisions in the Bill that are unclear and which seem likely to create uncertainty. Wealso have comments on the formulation of the corporate oVence and whether in this regard the Bill containsboth a clear standard and the attribution of fault to the appropriate management level within a business.Set out below are the answers to the Supplementary questions enclosed with your letter of 10 June 2008.

Supplementary Question 1—Please could you summarise the impact that the US Foreign Corrupt PracticesAct (FCPA) has had on your business

After the FCPA was enacted the predecessor companies which are now part of Lockheed Martinintroduced codes of conduct to ensure compliance with the FCPA. A culture of corporate compliance isdeeply engrained in Lockheed Martin. The development of this culture of business probity has continuedsince the group’s establishment as the Lockheed Martin Corporation in 1995. Lockheed Martin is part ofa very international business group and while our culture of compliance is designed to ensure compliancewith the FCPA it also exists independently of these requirements. Lockheed Martin trains its employeesannually to ensure awareness of and compliance with Lockheed Martin’s anti-corruption policy, proceduresand its Code of Ethics and Business Conduct (the Code). The company reviews these policies and proceduresand the Code as a matter of routine in order to maintain the strength of the provisions and to keep them upto date with any legislative or regulatory changes. Lockheed Martin employees work to the standards whichare mandated in its anti-corruption policies and procedures and Code. These require those working forLockheed Martin to conduct business to the highest legal and ethical standard. The Lockheed Martin anti-corruption policies, procedures and Code have been developed expressly to meet the commercial and ethicaldemands and challenges which Lockheed Martin has to deal with in the course of its operations around theworld. Every business needs to develop its own policies, procedures and code that fit the needs of thatbusiness, taking into account the size of the business, its goals and strategy and the risks to which thebusiness is exposed. These considerations are particularly relevant for companies operating in aninternational context.

Supplementary Question 2—What impact, if any, would the draft Bribery Bill have on your organisation’ssystems and business practices were it to be made law?

The enactment of the Bill would not have any significant impact on the way Lockheed Martin doesbusiness. Lockheed Martin already adheres to high anti-corruption standards and has already on occasionwalked away from substantial pieces of business where demands were made which, if met, would havebreached the Lockheed Martin Code. Lockheed Martin has also not used the services of certain third partybusiness intermediaries out of concern over their potential failure to comply with Lockheed Martin’s anti-corruption policies and Code. As the Bribery Bill moves towards legislation, its provisions will be taken intoaccount when the Lockheed Martin anti-corruption policies and procedures and its Code are subject to theirregular review.

Supplementary Question 3—How workable, from your company’s perspective, is the “legitimately due” testunder clause 4(3)(b) of the draft Bill?

Lockheed Martin has concern over the terms of the defence available to the charge of bribing a foreignpublic oYcial. Clause 4(3)(b) provides that no bribe takes place if the advantage oVered is “legitimately due”,which is defined as being “permitted or required” by local law. This means firstly that a judge during acriminal trial will have to determine what exactly the foreign law is in order to resolve the guilt or innocenceof the person accused of this oVence. Secondly, and of perhaps more concern, this formula allows anindividual to be convicted of a criminal oVence without ever having intended to bribe at all. The LawCommission had proposed that a defence be included which provides that a person will not be guilty of theoVence if that person had a reasonable belief that the payment to the oYcial is required or permitted underlocal law. Lockheed Martin would support an amendment to the Bill to incorporate this “reasonable belief”defence into clause 4 to ensure that only those who intended to commit a crime are convicted of a crime.



Supplementary Question 4—What is your view on where the burden of proof should lie for the new corporateoVence provided for in clause 5 and 6 of the draft Bill; should it matter for the prosecution to prove negligence,or for the defence to prove adequate procedures or due diligence?

It is not possible to answer a question about where the burden of proof should lie in the new corporateoVence without first commenting on the oVence itself. The proposed corporate criminal oVence ofnegligence appears to import into the criminal law concepts which are more properly applicable to civilproceedings. We note in this regard that, in contrast, the new Corporate Manslaughter and CorporateHomicide Act refers to the higher standard of “gross breach of duty of care”, as opposed to negligence.

One essential element of negligence is the existence of a duty of care. It is not clear from the Bill to whomthe corporate entity would owe a duty of care. Also, it is not clear from the Bill what standard of proof theprosecution would have to meet to secure a conviction for negligence. It could be either the usual higherstandard required in criminal cases or the standard usually required in cases involving allegations ofnegligence (those being cases in the civil courts) which is the “balance of probabilities”. If it is envisaged thatthe lower, civil standard for negligence should apply then the burden should rest purely on the prosecutionto prove the oVence. This is particularly important since it would be possible for a negligence conviction tobe made without any actual conviction for an underlying criminal act. If the burden is not placed on theprosecution but is placed instead on the corporate entity to prove a defence of adequate procedures or duediligence, then this would create a quasi-strict liability oVence, a situation which puts even greaterimportance on it being clearly prescribed how a business will know in practice that it has in place “adequateprocedures”. This problem is discussed further in the sections on guidance below.

Supplementary Question 5—Are there any specific changes that should be made to the draft Bill that you havenot had an opportunity to identify before now?

General Abstract Conditions at the Heart of the General Offence

From a business standpoint, what is required of a law is that it be clear, easily understood and consistentlyenforced so that those businesses which want to comply with the law are able to do so. In this regard,Lockheed Martin notes that the general oVence of giving a bribe can be summarised from the Bill as givingan advantage to another person intending that the recipient or a third party should perform a functionimproperly, where “improperly” is defined in clause 3(6) to mean “in breach of a relevant expectation”. Themeaning of “relevant expectation” is then defined by reference to three conditions:

(i) Condition A is that a person performing the function or activity is expected to perform it ingood faith;

(ii) Condition B is that a person performing the function or activity is expected to perform itimpartially;

(iii) Condition C is that a person performing the function or activity is in a position of trust by virtueof performing it.

Difficulty of Understanding Legal Meaning of “Good Faith” in an Everyday Business Context

Lockheed Martin has reservations about the practical application of the three concepts in clause 3 of theBill, since their inclusion does not tend towards making this law clear, fair and predictable, particularly forthose who will have to observe it in the everyday context of business transactions. The concept of “goodfaith”, for example, has a common sense meaning but is here being given a particular legal significance whicha lay person would not be in a position fully to understand or to apply to an everyday business context. Asa legal term, “good faith” has hitherto been confined chiefly to insurance contracts and the law dealing withbills of exchange. If it is intended that the meaning of “good faith” is to be decided by juries rather thanthrough any recourse to civil law concepts, it still means that the meaning will be derived from case law, soin order for those undertaking business transactions to have a clear understanding of what the conceptmeans legally (or for that matter what the other two concepts mean in terms of this proposed law) they willhave to seek legal advice which will lack certainty until there have been judicial decisions dealing with therelevant provisions.

Evaluating Three Conditions using a “Reasonable Person” Standard gives Potential for aConviction Without Actual Intent

The draft Bill appears to require those in business to make an evaluation of each proposed transactionagainst these three concepts which the Bill has invested with legal significance. The same problem ariseswhen the proposed law enjoins a person not to intend making a payment to another person so that otherperson acts in breach of trust. The concept of trust is very broad; it is very diYcult to know in a commercialcontext what obligations of trust may be operating on a counterparty to a particular transaction and it isnot practical for an employee or agent of a company to make thorough enquiries to satisfy him or herselfon this point. The standard of expectation which the draft Bill adopts in clause 3(8) is that of a reasonableperson. The possibility therefore presents itself that “trusts” may be anticipated in a trial by the “reasonableperson” which were not anticipated by the person accused of the oVence, with the result that the person could



be criminally convicted without actually intending to bribe anyone. Since what business seeks from the lawis certainty and clarity, a law that relies upon concepts such as “good faith” and “breach of trust” whichcannot be properly understood without legal advice surely falls short in this respect.

The concepts contained within the three Conditions are matters which would benefit from being thesubject of guidance. It would be better if the law was drafted in such a way that the meaning of the law isclear and easily understood but if that is not possible then guidance should be provided. We again refer tothe sections below relating to guidance.

Corporate Offence should be Tightened so there can be no Conviction when the Criminal Actionis Outside of the Company’s Control

Lockheed Martin recognises that companies must take responsibility for preventing bribery on theirbehalf and welcomes measures which make illegal any wilful attempt by a company to gain an unfairadvantage through the payment of bribes. It is generally not possible under the criminal law of England orWales to secure a conviction of a company of a crime except for some limited exceptions where the companyis run by an owner manager. This weakness in the criminal law has resulted in specific laws being passed todeal with specific problems of corporate criminality, such as the law dealing with corporate manslaughter,and the whole question of corporate criminal responsibility is a matter which is due to be considered by theLaw Commission. Under the provisions in clause 5 of the Draft Bill, a company may be found criminallyliable when a responsible person or persons employed by or connected with that company negligently failsto prevent bribery in connection with the company’s business. It appears from the wording of the Bill thata business could be convicted of a criminal oVence if the payer of the bribe is, using the language of the Bill,connected with the company’s business. This very broad definition means that a company could beconvicted of a crime as a result of the actions of, for example, a joint venture partner or contractor whenthe company has no knowledge of those actions nor control over them. We would encourage the Committeeto recommend that the corporate oVence is tightened to exclude this possibility.

Definition of “Senior Officer” which includes “Managers” too broad

Even if a board of directors ensures that adequate procedures are in place, the defence is lost if there is anegligent failure by a senior oYcer. The term “senior oYcer” appears to have been given very wide definition.This means that the defence may be lost and a company may be found criminally liable for the negligenceof one of its “managers”, as “managers” has been introduced into the definition of a senior oYcer. Corporatecriminal liability has traditionally been based on the decisions of directors as opposed to managers. It is notclear who will be included in the definition of manager. Does it extend to an individual who has a singleperson reporting to him or her, which could be limited to his or her secretary? The answer to this and otherquestions is not to be found in the wording of the Bill.

The definition of fault for the corporate oVence needs to be focused at the appropriate level within thecompany, which is at the level which is responsible for the culture of the company. It is sometimes assertedthat it is appropriate to punish a company, as opposed to an individual, when there is a need to change theculture of the company. Taking on board that principle the corporate oVence should focus within thecompany at the management level that is responsible for the formation of the company’s culture. Thisresponsibility may only be found at the level of the board or, at the very least, of senior executivemanagement. As the Bill stands a company could, like Lockheed Martin, have very thorough complianceprocedures and training and yet still be convicted of a crime as a result of the unilateral and unauthorisedactions of a junior manager with very limited management responsibility even though those actions areentirely contrary to the policies, procedures and culture of the company.

Potential Unfairness of a Strict Liability Corporate Offence

The possibility of a company being convicted for negligence by persons connected to it but over whichthe company had no control also creates a quasi-strict liability oVence since the “adequate procedures”which would constitute the only defence will be of no avail when the bribe was paid by a person to whomthose procedures do not apply. This gives rise to the possibility of a business being convicted of a briberyoVence even when its directors and senior managers had no intent and indeed had taken thorough measuresto prevent bribery. It should be borne in mind that a criminal conviction will usually be catastrophic. Anybusiness convicted of a criminal oVence which relies on public contracts in, for example, the defence orconstruction sector, will under the procurement rules be excluded from the tendering process.

Lack of Guidance over what constitutes “Adequate Procedures”

As I have already noted, a defence is provided in the Bill if the company can prove that it had “adequateprocedures” to prevent oVences. As it currently stands, this defence is too vague. Lockheed Martin has beenan industry leader in strictly enforcing its anti-corruption policies, procedures and Code. It conducts annualcompliance training for all of its employees engaged in international business and annual ethics training forall of its international consultants. We are proud of our ethics and compliance record, but there is still noway of knowing from this Bill whether our policies, procedures, Code and training in this area would satisfythe proposed “adequate procedures” standard. There is no guidance in the Bill for any company to knowwhether its internal code, training and other procedures are “adequate” for this defence to apply, and if left



in its current form companies would instead have to await the first prosecutions under the new law to seewhat standard constitutes a valid defence to the corporate negligence oVence proposed in the Bill. We againrefer to the sections below relating to guidance.

Any Due Diligence Defence needs to be Clearly Defined while also be flexible enough forDifferent-Sized Companies

Businesses operating internationally have to comply with sometimes conflicting requirements. Whatcould be required in one country might be illegal in another, because, by way of example, of privacy lawsor data protection. In the United States it is expected that a company’s procedures will include provisionsto receive anonymous information about wrongdoing within the company (sometimes called, “whistleblowing”), whereas in France a business which reacts to an anonymous message relating to an employee ofa business in France would be in breach of French law. There has been some discussion of the defence beingbroadened so that a company will not be criminally liable for the payment of a bribe in connection with itsbusiness if it has in place adequate procedures and/or proper due diligence has been undertaken. While abroader defence would be welcome, the inclusion of reference to due diligence in such a defence would stillrequire clear advice and guidance, preferably in the Bill itself, to allow companies to understand the natureand the extent of the due diligence that is expected by the law. It should also be borne in mind that duediligence, particularly across diVerent countries, is expensive and it would need to be clear whether the levelof due diligence expected from a small or medium-sized business is the same as that expected from a largemulti-national corporation. Adequacy in the context of this defence may have diVerent meanings fordiVerent companies and may be very dependent on the risks to which the business is exposed, and anyguidance would need to make this clear.

Guidance should Preferably be Contained in the Text of the Statute

The provision of separate guidance and advice is in many ways a poor substitute for the production of alaw that is drafted so that its provisions are easily understood and are clear and certain. If guidance andadvice is to be provided outside of the text of the law itself, there are in our experience three broad ways inwhich this might be done.

Difficulty of having Guidance in the Form of Opinions from a Government Agency

The first model for guidance to be provided is through opinions from a government agency. In the UnitedStates there is a system in place which allows companies to make requests for an opinion from theDepartment of Justice following specific requests from companies as to whether a particular proposedtransaction or set of facts would be in compliance with the Foreign Corrupt Practices Act (FCPA). This hasbeen of great value in, for example, mergers, where the other company might be a business with an uncertainhistory. It is unclear whether such a system could operate within the framework proposed in the Bill giventhat it is intended that a number of diVerent institutions will be involved in the prosecution of oVencescontained within the Bribery Bill. The following are named in the Bill:

The Director of Public Prosecutions

The Director of the Serious Fraud OYce

The Director of Revenue and Customs Prosecutions

The Director of Public Prosecutions for Northern Ireland

In addition to the problem of multiple agencies there may also be budgetary constraints on this systembeing instituted in the UK.

Guidance needs to have Formal Status in order to Influence the Decision whether to Prosecuteor the Outcome of Criminal Trials

The second method is for guidance and advice to be provided by a statutory body. The analogy here wouldbe the guidance on health and safety provided by the Health and Safety Executive.

The third method is for guidance to be provided by a trade body in consultation with government.Guidance in connection with the anti-money laundering legislation, for example, is currently provided bythe JMLSG (the Joint Money Laundering Steering Group), which is an association of insurers and financialinstitutions. It produces guidance notes, in consultation with both the Treasury and the Home OYce, foruse by financial institutions. The guidance notes contain detailed guidance as to the internal control, policyand procedures which institutions need to put into place to ensure compliance with the anti-moneylaundering laws and regulations.

Lockheed Martin is not in a position to say which of these methods is likely to be the most eVective, butif the UK government decides to provide advice or guidance which is external to the text of the statute thenthe Bill ought to be amended so that guidance or advice has a formal status which can be recognised byprosecuting bodies and the courts. It is important that any guidance on the meaning of the proposed“adequate procedures” defence be available to companies in advance of the law coming into force and beforethe first cases are prosecuted.



International Agreement as to Standards

The suggested questions sent to me in advance of the Committee hearing on 3 June asked at question6 whether there should be international agreement of any guidance and advice which may be provided insupport of the Draft Bill. There are clear and obvious advantages to multi-national businesses if bribery lawsadhere to a common international standard and Lockheed Martin would support eVorts on the part of theGovernment to ensure that standards are commonly held across diVerent jurisdictions.

Supplementary Question 6—Is there any further information that you wish to supply in connection with yourappearance on 3 June?

I shall here add some comments to supplement my answers to questions asked by the Committee duringmy appearance on 3 June.

Lockheed Martin’s Record

At the committee hearing I was asked about events that happened over thirty years ago involving apredecessor company to Lockheed Martin Corporation. In my direct knowledge, I have never knownLockheed Martin Corporation to have paid a bribe nor has Lockheed Martin UK ever paid a bribe or beenthe subject of any bribery-related investigation. A predecessor company of Lockheed Martin Corporationpaid fines to settle criminal and civil claims.

De Minimis Provisions, Corporate Hospitality and Facilitation Payments

The questions of a de minimis provision and the status of corporate hospitality under the draft Bill wereraised by the Committee. I understand that the UK Government expects that a de minimis level will beapplied by way of the exercise of prosecutorial discretion. As a general rule, the certainty which companieslike Lockheed Martin seek in the law is not assisted by a policy of non-enforcement of particular provisionsthrough the exercise of prosecutorial discretion. If prosecutors are able to determine how they will exercisetheir discretion then it should be possible to encapsulate that discretion into words such as a de minimisprovision which could be included within the law itself.

Facilitation payments and corporate hospitality are not areas of great concern for Lockheed Martin asthe standard which the company maintains through its anti-corruption policies, procedures and the Codemean that any provisions which are included are unlikely to result in Lockheed Martin having to revisesignificantly these policies, procedures and Code. As the Bill passes into law, whatever provisions areincluded would be considered as part of Lockheed Martin’s regular review of its internal policies andprocedures.

Discussion of Compliance between US Defence Companies

During the Committee meeting I was asked whether there is any collaboration between US companies inthe defence sector. Although Lockheed Martin sets its own standards of internal legal compliance andpractice it does collaborate with other US Defence businesses in discussions as to best practices in relation tocodes of conduct and associated practices and procedures. These discussions are done through the DefenseIndustry Initiative on Business Ethics and Conduct (DII), a voluntary, private, non-partisan, non-profitorganisation of responsible US defence companies which are committed to conducting all business aVairsat the highest ethical level and in compliance with the law.

Competitiveness

Another point raised was whether the FCPA means that US companies operate under a competitivedisadvantage since they are governed by tighter regulation. While we are not in position to speak for othercompanies, it should be borne in mind that most international corporations doing business with or in theUnited States will be subject to the provisions of the FCPA and so will seek to maintain internal rules andprocedures which do not place them in breach of the FCPA. We at Lockheed Martin agree with the remarkof Baroness Whittaker during the Committee meeting that to secure a contract through bribery means thatthe contract was not won on the merits of the product and that company will consequently have lessincentive to improve its product, with the result that the product is poorer and the company less competitivein the long term. We do not believe that Lockheed Martin’s competitiveness will be impaired by thisproposed legislation. On the contrary, by enforcing a standard to which Lockheed Martin already adheres,we believe that the company’s competitiveness will be enhanced by this legislation.

Effectiveness of UK compared with US Enforcement

A question was asked about the eVectiveness of US enforcement in comparison with UK enforcement,in particular in the context of the FCPA. Information can be found using the link to the US Department ofJustice Website http://www.usdoj.gov/criminal/fraud/fcpa/. A good place to find out reports of enforcementaction in relation to the FCPA is at http://fcpablog.blogspot.com/.



It is our understanding that a report has been prepared by a former US prosecutor, Ms De Grazia, inwhich she reportedly compared the eVectiveness of US enforcement authorities with the SFO. We only knowof the report through press reports but understand from those reports that copies of the De Grazia reporthave been made available to UK government agencies including the SFO.

Conclusion

Because it is important that the UK has a strong, clear and consistently enforced anti-bribery law, wewould strongly encourage the Joint Committee to recommend that the Draft Bill be amended to address theareas of diYculty discussed above. Lockheed Martin fully supports the eVorts of the UK government tostrengthen the law on bribery and hopes that its evidence to the Committee, together with that of others,will ensure that the final law will provide a clear and practical legal framework so that all those in businesswho want to conduct business in a fair and ethical manner are able to do so confident that they comply withthe UK laws that prohibit bribery.

June 2009

Additional memorandum submitted by The Corner House (BB 29)

Supplementary Question to Corner House and Transparency International

You stated that the “legitimately due” test should be removed from clause 4. Would this lead to any conductbeing criminalised which should not be criminalised? In particular, should clause 4 be amended to require the“advantage” to be “undue” or “improper”?

1. The Corner House believes that the “legitimately due” test can be removed without criminalisingconduct that should not be criminalised, provided that Clause 4 is amended to embrace an intention toinduce or reward improper behaviour. The Corner House would support amending Clause 4 to require the“advantage” to be “improper”.

2. Clause 1 of the draft Bribery Bill clearly conditions the act of bribery on its intended eVect, namely toinduce or reward improper behaviour. Merely making a payment or giving a gift to a person is therefore, bydefinition, not a crime under the proposed Bill. Corporate hospitality would thus be legal under the Bill,unless its intention was to induce or reward improper behaviour. Similarly payments made under, say, aconsultancy agreement would be protected from criminalisation except in circumstances where it could beshown that the purpose of the agreement was to provide a vehicle for making a payment that was intendedto corrupt. Where that intention is demonstrated, no payment is legitimate, regardless of whether it appearsto have a legal contractual basis, since, under the draft Bill, it would by definition constitute a bribe.

3. Clause 4 of the draft Bill abandons this approach, however, making the test of legality not an intentionto induce or reward improper conduct but instead whether the advantage oVered, promised or given to aforeign oYcial is “legitimately due” or not. As the explanatory notes make clear, Clause 4 “does not requirethat action expected in return [for a financial or other advantage] must itself be improper”, only that “thegiver of the bribe must intend to influence the recipient in the performance of their functions as a publicoYcial, and must intend to obtain or retain business or a business advantage”.171 As a result, the oVeringof an advantage that is not intended to induce or reward improper behaviour could be criminalised if thelegitimately due test was removed. Corporate hospitality, for example, is clearly intended to gain influencein order to obtain a business advantage.

4. The Corner House believes that the draft Bill should adopt a uniform approach to what constitutesbribery throughout all its clauses. The test should be whether the advantage oVered to a foreign oYcial,whether directly or through a third party, is intended to induce or reward improper behaviour which, in turn,would secure an improper advantage for the briber.

5. The Corner House would therefore argue for the removal of the “legitimately due” test and for thephrase “advantage” to be amended to “improper financial or other advantage”. The definition of“improper”, if it is needed, could be based on improper influence or improper conduct models, where theintention behind the advantage oVered, promised or paid is to induce a public oYcial to conduct an improperact. As in Clause 3 of the draft Bill (“Function or activity to which briber relates”) defining what isreasonable and unreasonable, “improper” can be defined in relation to general, universal norms of a dutyon public oYcials, including breach of trust, duty to act impartially, and duty to act in the public interest(as recognised by the International Code of Conduct for Public OYcials adopted by the UN GeneralAssembly in December 1996 and noted in the UN Convention Against Corruption, Article 8 on Codes ofConduct for Public OYcials). Such norms would recognise that receiving advantages in return for taking aparticular action in favour of an individual or company is never in the public interest. This approach wouldbe in keeping with the commentaries on the OECD Anti-Bribery Convention, which state that where (for

171 Draft Bribery Bill, Explanatory Notes, paragraph 30.



instance) the notion of a breach of duty is implied in a statute, it must be “understood that every publicoYcial had a duty to exercise judgment or discretion impartially and that this was an “autonomous”definition not requiring proof of the law of the particular oYcial’s country”.172

6. If Clause 4 was amended along these lines, The Corner House believes that the removal of the“legitimately due” test would not result in the criminalisation of behaviour that should not be criminalised.It does not know of any countries whose written laws require or permit an oYcial to accept an advantagethat is intended to induce or reward improper behaviour. It cannot therefore conceive of any “legitimatelydue” advantage that is permissible to a foreign oYcial but which would be unfairly criminalised as a resultof removing the “legitimately due” test. For this reason, The Corner House would argue, as stated in oralevidence, for the removal of the “legitimately due” test.

June 2009

Additional memorandum submitted by UK Anti-Corruption Forum (BB 30)

Response to Supplementary Questions to the UK Anti-corruption Forum

1. You stated that there would be a need for guidance for companies on what constitutes “negligence” and“adequate procedures” under the draft Bill (Qq 248–251). Who should prepare this; what principles should itenshrine; and what status should it hold? Please could you also supply any draft guidance that you have alreadyprepared.

The Forum has established a Business Practices Working Group which will, over the next few months, beidentifying and agreeing on the elements of a best practice corporate programme. The Working Group hasnot yet undertaken this task.

However, we can provide you with three references to existing recommended programmes:

GC100

The GC100 is the association for general counsel and company secretaries in the FTSE 100. It has fileda submission to the Joint Committee. Appendix 1 of that submission contained a summary guidance on ananti-corruption compliance programme.

Global Infrastructure Anti-Corruption Centre

GIACC is an independent not-for-profit organisation which provides resources and services for thepurpose of preventing corruption in the infrastructure, construction and engineering sectors. It haspublished a template for a corporate anti-corruption programme, together with supporting tools. Thistemplate is used both to help companies establish an anti-corruption programme, and to assess theircompliance. The template is available at:http://www.giaccentre.org/project companies.php

Transparency International

TI has produced, in conjunction with several leading international organisations, the Business Principlesfor Countering Bribery suite of documents designed to assist organisations to implement and manage aneVective anti-bribery system. The Business Principles for Countering Bribery is an anti-bribery code thatorganisations can either adopt or use to benchmark against their own systems. This is available at:http://www.transparency.org/global priorities/private sector/business principles

Formal guidance for companies on what constitutes “negligence” and “adequate procedures” is, in theopinion of the Forum, essential. That guidance should be discussed and agreed by a working group includingappropriate representatives of prosecuting authorities, business, Government and civil society. Thatworking group should also consider the status of the guidance. The Forum’s preliminary view is thatcompliance should not be a legal requirement, but it could have the status of an approved code of practice.Compliance would be treated as compliance with the law. A failure to follow the guidance would not itselfbe an oVence, but would need to be justified.

2. You raised concerns about the workability of the “improper conduct” model (Q 265). What model wouldyou replace it with in the draft legislation? Can guidance be used to make it workable?

The Forum’s comments on the model are contained in the written submissions provided on 22 May2009 entitled “Comments by the UK Anti-Corruption Forum on the proposed bribery bill published by theMinistry of Justice”.

172 “Commentaries on the OECD Convention on Combating Bribery”, 21 November 1997, paragraph 3, http://www.oecd.org/document/1/0,3343,en 2649 34859 20482129 1 1 1 1,00.html



3. Are there specific changes that should be made to the draft Bill (besides any changes that you raised in oralevidence)?

The Forum proposes no specific changes other than those raised in oral evidence, and in the writtensubmissions referred to above.


The Forum has no further comments, other than the points already made in its written submissions.

June 2009

Memorandum Submitted by OECD (BB 31)

Introduction

1. The OECD would like to thank the Joint Committee for the opportunity to give oral evidence on thedraft Bribery Bill, as well as this invitation to provide these additional written submissions to the Committee.These submissions supplement and elaborate on our oral evidence. They also address specific questions thatthe Committee put to us in writing after the oral evidence session. The OECD Secretariat cannot speak forthe OECD Working Group on Bribery in International Business Transactions. Nevertheless, we hope thatour comments will be useful to the Committee.

2. The Working Group has not had an opportunity to study the draft Bribery Bill; its precise views onthe Bill are therefore unknown. However, experts from several Working Group member countriescommented on the Law Commission’s proposals in its November 2008 report Reforming Bribery (see letterof Prof. Mark Pieth dated 21 January 2009). Many of these comments apply to the draft Bill because of thesimilarity between the draft Bill and the Commission’s proposals.

3. On this basis, the Working Group will likely find that the draft Bill addresses many of its concernsabout UK foreign bribery law. This conclusion, however, is premised on the assumption that the UK enacts,without further delay and with no substantial changes, all elements of the draft Bill, including the provisionson foreign bribery and corporate liability for failure to prevent foreign bribery.

Questions Provided prior to Evidence Session

Q8. To explore what changes, if any, should be made to the jurisdictional reach of the draft Bill; and toascertain whether the fact that the new corporate oVence catches bribes made on behalf of any company thatcarries on a part of its business within the jurisdiction gives cause for any concern.

4. As in other areas, the draft Bill addresses many of the Working Group’s concerns on the issue ofjurisdiction. Additional issues have been raised, such as the absence of nationality jurisdiction over legalpersons incorporated in the Crown Dependencies (CDs) and Overseas Territories (OTs),173 and theapplication of the draft Bill to Scotland, CDs and OTs.174 Other countries may also have jurisdiction overa company incorporated abroad but has its seat of operations or principal place of business in the country.175

Nevertheless, these additional issues should not preclude the UK from enacting the draft Bill in its presentform. Once enacted, the eVectiveness in practice of the draft Bill’s jurisdictional reach would of course beassessed by the Working Group on Bribery in the regular course of its continued monitoring of Parties’implementation of the Convention.

5. There are no concerns if the new corporate oVence catches bribes made on behalf of any company thatcarries on only a part of its business within the jurisdiction. Indeed, such coverage is necessary, since foreignbribery is often committed by multinational enterprises that operate in multiple jurisdictions around theworld.

6. It should be further noted, however, that the oVence in Clause 5 only catches bribes made “inconnection with” the legal person’s business. This could be interpreted to mean that a company is only liableif the bribe was intended to benefit the company directly or indirectly. As well, this provision might be toorestrictive because a “relevant commercial organisation” is limited to companies incorporated, organisedunder the laws of, or carries on business in the UK (sub-clause (7)). The Convention does not limit territorialjurisdiction in this way.

173 Phase 2bis Report paras. 261–262; Annex of Prof. Pieth letter dated 21 January 2009; Law Commission Report paras.8.47–8.52; Phase 2 Report paras. 226–227.

174 Annex of Prof. Pieth letter dated 21 January 2009.175 For example, France, Greece, Italy and US.



Q11. Whether there are any remaining issues that were raised in correspondence by the Chair (Mark Pieth)which would prevent the OECD oVering its unqualified support for the draft Bill

7. The Annex to the letter of Prof. Pieth suggests further improvements to the Law Commission’sproposals which are not reflected in the draft Bill. Nevertheless, as noted at the outset, the draft Bill addressesmany of the Working Group’s concerns about UK foreign bribery law. The Group accordingly fullysupports the UK’s eVorts to pass the draft Bribery Bill in its current form.

Additional Questions received after Evidence Session

Question 2: Whether Draft Bill makes Adequate Provision for Facilitation Payments

8. Commentary 9 on the Convention states that “small facilitation payments” do not constitute anoVence under Article 1 of the Convention.176 As currently worded, the draft Bill does not provide anexception for small facilitation payments and the OECD Secretariat believes that this approach would befully supported by the Working Group on Bribery. Indeed, Parties to the Convention are under no obligationto provide such an exception, and the majority of Parties have not implemented Commentary 9. Out of38 Parties, only the following five provide an express exception or defence in the law for small facilitationpayments: Australia, Canada, Korea, New Zealand and the United States.

Working Group on Bribery recommendations to specific Parties

9. The Parties that provide an express exception or defence for small facilitation payments follow asimilar approach. However, there are some important diVerences, such as the description of the type ofadvantage to which the exception or defence applies (eg the size and whether it is limited to monetarypayments). Important diVerences also exist concerning the description of the benefit that is sought by thepayment (in particular what is considered a routine government action or an act of a routine nature).

10. The Phase 2 Report on Australia describes confusion in the private sector on the limits of theexception for small facilitation payments. It also explains that somewhat confusing information on suchpayments in a government publication was corrected following the Phase 2 on-site visit. The Working Grouprecommended a similar correction to information available on the Internet, and follow-up of the applicationof the defence as practice develops.

11. In the Phase 2 Report on Canada, the Working Group notes a high level of dissatisfaction with theexception for facilitation payments on the part of corporate and criminal defence lawyers, and that it wasthe opinion of some lawyers that the defence creates a large area of uncertainty. The Working Grouprecommended that the Canadian authorities should consider issuing some form of guidance to assist ininterpreting the oVence.

12. In Phase 2 the Working Group recommended follow-up of the application of the exception in Korea’slaw. In the case of New Zealand, in order to achieve compliance with the Convention the Working Grouprecommended clarification of the exception to ensure that the foreign bribery oVence applies to any bribefor the purpose of obtaining: (1) discretionary or illegal acts by a foreign public oYcial; or (2) the grantingof any improper advantage in the conduct of international business, including advantages such as tax breaksthat may be unrelated to the specific terms of benefits. New Zealand was also recommended to clarify thatthe exception applies only to “small” payments.

13. The Phase 2 Report on the United States comments that a similar exception is not provided in relationto the oVence of bribing a domestic public oYcial. It also points out that the exception has not beeninterpreted by any US court, and there are not any relevant Opinion Releases from the Department ofJustice. The Working Group recommended that the United States consider developing specific guidance onthe exception.

Recent developments

14. In the 2006 Mid-Term Study of Phase 2 Reports, the Working Group concluded that it mightundertake a mid—to long-term analysis about whether the exception for small facilitation payments inCommentary 9 on the Convention is too vague to implement in practice. It also concluded that it might beprudent to canvass whether Parties that do not provide such an exception under their laws neverthelessprovide one in practice, through, for instance, the exercise of prosecutorial discretion.

15. In January 2008, the Working Group published its Consultation Paper on the Review of the OECDAnti-Bribery Instruments for the purpose of obtaining input from external stakeholders on the review of theOECD anti-bribery instruments. The Consultation Paper summarizes the situation in the Parties to theConvention as follows:

176 Commentary 9 describes “small facilitation payments” as follows: “Such payments, which, in some countries, are made toinduce public oYcials to perform their functions, such as issuing licenses or permits, are generally illegal in the foreign countryconcerned”.



Some Parties to the Convention have expressly established an exception for facilitation paymentsthat is intended to implement Commentary 9. A few Parties have not expressly established suchan exception, but apply one in practice. The rest of the Parties have chosen to not implementCommentary 9.

16. The Consultation Paper also states that “the Working Group has consistently asked Parties thatprovide an exception for small facilitation payments to ensure that the exception is clear and does not exceedthe limits of Commentary 9”.

17. Seven respondents to the Consultation Paper provided written input on small facilitation payments.These respondents represented the external and internal auditing professions, civil society, private sector andtrade unions. Respondents from the external auditing profession recommended that an exception for suchpayments in a Party’s legislation should be clear and not exceed the limits of Commentary 9. The internalauditing profession also called for clarity, and stated that serious consideration should be given to allowingno exceptions for facilitation payments.

18. Transparency International recommended elimination of the exception in Commentary 9, andpointed out that attitudes regarding these payments have changed since the Convention was negotiated dueto factors including the following: (1) they are often part of a widespread extortion scheme, and not isolatedacts by low-level oYcials; and (2) it is very diYcult to draw the line between facilitation payments and otherbribes. Trade union representatives also recommended removal of this exception.

19. The International Chamber of Commerce stated that the perception of the business community onsuch payments is changing. In addition, since 2005 the ICC has been saying that “enterprises should notmake facilitation payments” and that “the need for the continued use of facilitation payments should bereviewed periodically with the objective of eliminating them as soon as possible”.

Question 3: What does UK need to do diVerently in future to address the OECD’s concerns regarding theBAE case

20. The Working Group’s concerns regarding the BAE case are fully set out in the Phase 2 bis Report.The draft Bribery Bill, if enacted, would address some of these concerns, eg deficiencies in the UK’s foreignbribery oVence that were cited as reasons in part for discontinuing the BAE case. Other concerns were brieflydiscussed during the oral evidence session, eg the role of the Attorney General, and the status of Article 5 ofthe OECD Convention under UK domestic law. Additional issues dealing specifically with the BAE AlYamamah case are at paragraphs 130–169 of the Report. Also relevant are paragraphs 226–229 concerningaccess to tax and other government information.

21. One important way to address the concerns expressed by the Working Group in this case is to clarifythe status of Article 5 of the Convention in domestic law and to ensure that it applies eVectively to allinvestigators and prosecutors at all stages of a foreign bribery case (see Phase 2 bis report paragraphs94–108).

Question 4: Comments on Exception to “Not Legitimately Due” Requirement in relation to Foreign Law

Whether exception exceeds Commentary 8 on Convention

22. The OECD Anti-Bribery Convention provides for two exceptions to the oVence of bribing a foreignpublic oYcial under Article 1 of the Convention. Commentary 8 on the Convention states that an oVenceis not committed “if the advantage was permitted or required by the written law or regulation of the foreignpublic oYcial’s country, including case law”. Commentary 9 states that “‘small facilitation payments’ do notconstitute payments made ‘to obtain or retain business or other improper advantage’” within the meaningof Article 1 of the Convention and therefore are not an oVence.

23. Since both exceptions are carefully delineated in the Commentaries, when a Party chooses toimplement one (or both), the Working Group routinely assesses whether it has been implemented inconformity with the Convention. As a result, the Working Group has accumulated a body of interpretivematerial (Phase 1 and Phase 2 Reports, and 2006 Mid-Term Study of Phase 2 Reports) on the limits of theCommentaries. The discussion in this part of the submission focuses on the Working Group’s assessmentsof compliance with Commentary 8 since the monitoring process began in 1999.

Question 4(d): Meaning of “written law” exception in Commentary 8

24. Commentary 8 is commonly understood by the Working Group on Bribery to require the followingelements:

(i) the advantage must be permitted or required

(ii) the permission or requirement must be expressly provided (ie stated in writing under the law)

(iii) written law refers to legislation, regulations or case law

25. Since the advantage must have been required or permitted in writing, Commentary 8 does not providean exception to the case when the law of the foreign public oYcial’s country does not prohibit oVering,promising or giving the advantage in question (ie the law of the foreign public oYcial’s country is silent onthe matter).



26. It is important to keep in mind, that the exception under Commentary 8 has nothing to do with theapplication of jurisdiction to foreign bribery oVences. Thus it does not provide a rule on the application ofdual criminality for oVences committed abroad. Issues of jurisdiction are governed by Article 4 of theConvention, and jurisdiction over oVences that take place abroad is specifically governed by Article 4.2. Itis therefore submitted that any possible concerns of the Joint Committee regarding dual criminalityrequirements need to be addressed through an assessment of Clause 7 of the Draft Bill, including whetherit complies with Article 4.2 of the Convention and related Commentary 26 on Article 4.2, which states thatfor the purpose of applying “nationality jurisdiction”, “dual criminality should be deemed to be met if theact is unlawful where it occurred, even if under a diVerent criminal statute”.

Summary of treatment of Commentary 8 by other Parties and resulting Working Group comments andrecommendations

27. Given that Commentary 8 is very restrictive, it is perhaps not surprising that the vast majority ofParties to the OECD Anti-Bribery Convention have chosen not to implement it, with only the following fiveout of 38 Parties choosing to provide an exception: Australia, Canada, Korea, New Zealand and the UnitedStates. The Canadian oVence of bribing a foreign public oYcial states that no person is guilty of bribing aforeign public oYcial if the loan, reward, advantage or benefit “is permitted or required under the laws ofthe foreign state or public international organization for which the foreign public oYcial performs duties orfunctions”. The Working Group did not comment on this language in its Phase 2 Report on Canada,choosing to focus on the absence of nationality jurisdiction for the foreign bribery oVence in Canada.

28. The Korean oVence provides a defence where a payment to a foreign public oYcial “is permitted orrequired by the law of the foreign public oYcial’s country”. The Phase 2 Report on Korea points out thatthis exception is not entirely consistent with Commentary 8, because it is not limited in application to“written” law. However, the Working Group was persuaded that the exception would be restricted inpractice to the “written” law because the Explanatory Manual on the oVence published by the Ministry ofJustice clarified that it would only apply where the payment was permitted or required by the “written lawof regulation of the foreign public oYcial’s country”.

29. The United States provides an aYrmative defence to the foreign bribery oVence where “the payment,gift, oVer or promise of anything of value that was made, was lawful under the written laws and regulationsof the foreign oYcial’s, political party’s, party oYcial’s, or candidate’s country”. The Phase 2 Report on theUnited States points out that the term “unlawful” leaves open the issue of what is lawful under the writtenlaws of a country. A Department of Justice publication (Fighting Global Corruption—Business RiskManagement) stated that “whether a payment was lawful under the written laws of a foreign country maybe diYcult to determine. You should consider seeking the advice of counsel or utilizing the Department ofJustice’s Foreign Corrupt Practices Act Opinion Procedure when faced with an issue of the legality of sucha payment”. Prosecutors from the Department of Justice were not aware of any prosecutions where thisdefence was raised.

30. Australia’s foreign bribery oVence provided an exception where the briber “would not have beenguilty of an oVence against a law in force” in the place where the central administration is located for whichthe oYcial performs his or her duties. The risk of creating a loophole in the foreign bribery oVence whenlegislation is not fully in line with Commentary 8 is illustrated in the findings of the 2006 Report of the Inquiryinto certain Australian companies in relation to the UN Oil-for-Food Programme (Cole Inquiry Report).Regarding alleged payments of inland transportation or after-sales-service fees to the Iraqi Government bythe Australian Wheat Board (AWB) in order to sell “humanitarian goods” (in this case wheat) to Iraq, theCole Inquiry Report states the following:

There is evidence that points to the likelihood that if AWB’s conduct in promising to make thepayment to the Iraqis had occurred in Baghdad, AWB would not have been guilty of an oVenceagainst a law in force in that place. That is because the requirement to pay inland transport or after-sales-service fees to Iraqi entities was the result of directives or orders by Iraqi governmentMinisters or oYcials. The available inference is, therefore, that it was not unlawful in Iraq to makesuch payments. The fact that the payment may have been contrary to the United Nations sanctionswould not have aVected the lawfulness of the payments as a matter of Iraqi law.

It follows that, at least in relation to the payment of inland transport and after-sales-service fees,there is no reasonable basis for concluding that an oVence may have been committed againstsubsection 70.2(1) of the Criminal Code.

31. It should be noted that the Working Group felt that the exception in the Australian legislationprovided a rule of dual criminality which would apply even if the oVence were committed in Australia, andfelt that Australia had exceeded the limits of Commentary 8. Following Phase 2, Australia amended thelegislation in 2007 to clarify that it is only available where the advantage given or oVered to the foreign publicoYcial is “expressly permitted or required by written law”.

32. Perhaps the most in-depth discussion on this issue to date by the Working Group on Bribery takesplace in the Phase 2 Report on New Zealand. Pursuant to the oVence of bribing a foreign public oYcial inNew Zealand, an oVence is not committed if (1) the act took place outside New Zealand; and (2) was not,at the time of its commission, an oVence under the laws of the foreign country in which the principal oYce



of the person, organization, or other body for whom the foreign pubic oYcial is employed or otherwiseprovides services, is situated. The Working Group comments in the Report on Commentary 8 on theConvention as follows:

The requirement that the advantage be permitted or required by the written law of the foreignjurisdiction appears to have three main purposes. First, the reference to “permi[tting] or requiring”by written law requires that the foreign law-maker must have adverted with some specificity to thepractice at issue. The words “permit” and “require”, particularly when associated with arequirement of a writing, connote a conscious act in which the act in question is identified and thenaccepted or mandated. Second, by requiring that the act be permitted or required by “written lawor regulation”—and not merely by administrative practice that may be relatively opaque—Commentary 8 requires that a law-making authority in the foreign jurisdiction must have publiclyendorsed the practice in question. Conduct that would fall within the scope of Art. 1 of theConvention is unlikely to constitute publicly acceptable behaviour in many jurisdictions. Third,as New Zealand has noted, Commentary 8 creates an exception to the autonomy of the foreignbribery oVence by contemplating the consideration of foreign law. In this context, the requirementof written and relatively specific foreign law permitting or requiring the practice facilitates issuesof proof because it is comparatively easy to determine whether the strict conditions for applicationof the Commentary are satisfied.

33. The Working Group concluded that the exception in New Zealand’s legislation was inconsistent withArticle 1, Article 4.2 (on nationality jurisdiction) and Commentary 8 on the Convention, and recommendedthat New Zealand repeal or amend the exception to achieve full compliance with the Convention.

Approach of Parties that do not expressly provide for an exception in line with Commentary 8

34. In the 2006 Mid-Term Study, the Working Group on Bribery recognized that some Parties that do notimplement Commentary 8 by codifying it in their law might still provide an exception in practice. TheWorking Group therefore concluded that “it might be prudent to canvass whether Parties that do notprovide such a defence under their laws will nevertheless apply it in practice through, for instance, theexercise of prosecutorial discretion”.

35. It should be noted in this respect that no Party has ever reported that a defendant raised this exceptionin the course of foreign bribery proceedings.

Question 4(b): The importance of including a test of whether an advantage was “improper” or “undue” if theforeign law exception is removed

36. Article 1 of the Convention establishes an oVence in relation to oVering, promising or giving “anyundue pecuniary or other advantage” to a foreign public oYcial. The United Kingdom Draft Law uses theterm “advantage is not legitimately due” in sub-clause (3) (b) of Clause 4.

37. The Convention does not define what is covered by the term “undue”. Although the Commentariesdo not define “undue”, they clarify that the oVering, promising or giving of an advantage to a foreign publicoYcial in certain situations is an oVence under Article 1. In particular, Commentary 4 confirms that it isan oVence to “bribe to obtain or retain business or other improper advantage whether or not the companyconcerned was the best qualified bidder or was otherwise a company which could properly have beenawarded the business”. Commentary 7 confirms that it is an oVence “irrespective, inter alia, the value of theadvantage, its results, perceptions of local custom, the tolerance of such payments by the local authorities,or the alleged necessity of the payment in order to obtain or retain business or other improper advantage”.

38. Moreover, the Commentaries provide only two possible exceptions to the foreign bribery oVence——under Commentary 8, as already discussed, and Commentary 9 on “small facilitation payments”. Otherwise,they do not provide for any situations in which an advantage might be due to a foreign public oYcial.

39. In sum, the important point for the Convention is not whether a foreign bribery oVence contains an“improper” or “undue” test, but whether the oVence meets all of the elements of Article 1 and the relevantCommentaries.

Question 4(c): Parties that do not include the qualification that an “advantage” must be “improper” or“undue” or an equivalent term

40. Examples of how the term “undue” (or other terms adopted by Parties for the same purpose) has beeninterpreted by five Parties—Australia, France, Luxembourg, Norway and Switzerland—might be ofassistance to the Joint Committee. Otherwise, Parties have not interpreted this term or equivalent term usedin their legislation, and the Working Group has not recommended that they do so. It has also not commentedon the use of prosecutorial discretion to determine whether a particular oVer, promise or gift is “undue”.

41. Australia uses the term “not legitimately due” and clarifies that an advantage is not legitimately duein some of the circumstances listed in Commentary 7. However, since Australia did not include all theprohibited circumstances in Commentary 7, the Working Group recommended that Australia takeappropriate measures to clarify and ensure that the foreign bribery oVence apply to such cases.



42. Under the French oVence, the oVer, promise or giving of advantages must be made “without right”.This term is not defined, but the Ministry of Justice believes that the advantage is neither based on norjustified by a current legal text or court ruling. There was also some discrepancy between the PublicProsecutor’s OYce and a trial judge on the onus of proving whether a foreign public oYcial is entitled toreceive an advantage. The Working Group recommended follow-up of this issue as case law evolves.

43. The oVence in Luxembourg also incorporates the notion of “without right”, which the Luxembourgauthorities stated excludes the oVering, promising or giving any salary or advantage to a foreign publicoYcial that is formally provided by statute. The Working Group recommended follow-up of this issue inlight of evolving jurisprudence.

44. The oVence in Norway employs the term “improper advantage”. The Preparatory Works to theoVence state that criteria for determining whether an advantage is improper include its purpose, and whetherthe employee’s principal was aware of it. They also state that the determination of whether an advantage isimproper must be made on a case-by-case basis. Again the Working Group recommended follow-up of howthe term is applied in practice.

Question submitted by Joint Committee on 17 June 2009 regarding comments of Corner House

45. On 17 June, the Joint Committee asked the OECD to address the recommendation by Corner Housethat the “legitimately due” test in Clause 4 of the Draft Bill be replaced by an “improper” advantage test,and that what is “improper” be qualified in the same way that Clause 2 is qualified by conditions 1, 2 and3 in Clause 3.

46. The UK is encouraged to stick to as closely as possible to the language of the Convention. Article1 of the Convention in respect to this element of the foreign bribery oVence is “undue pecuniary or otheradvantage … in order that the oYcial act or refrain from acting in relation to the performance of oYcialduties”. There is no further requirement in the Convention that the oYcial acts “in breach of an expectationof good faith, impartiality or trust”. Adding these elements to the UK foreign bribery oVence could thereforerender the UK oVence narrower than Article 1 of the Convention.

47. Regarding conditions 1, 2, and 3 under Clause 3 (ie expectation of good faith, impartiality and trust),there may be concerns that they might not comply with Article 1 of the Convention. In particular,Commentary 3 states that a statute that defines the oVence in terms of a breach of the oYcial’s duty “couldmeet the standard provided that it was understood that every public oYcial had a duty to exercise judgementor discretion impartially and this was an autonomous definition not requiring proof of the law of theparticular oYcial’s country”. Under Conditions 1 and 2, it would not necessarily be “understood” that aforeign public oYcial has a duty to perform the function or activity in good faith, or exercise judgement ordiscretion impartially. Thus it appears that it would be necessary to prove the law of the particular oYcial’scountry. Condition 3, which requires that the person performing the function or activity is in a position oftrust, could appear to reintroduce the agency principle—ie that it must be proven that the person who wasbribed breached the duty of trust between agent and principle. The Working Group stated already in itsPhase 2 report on the United Kingdom that the “agency/principal basis of the foreign bribery oVence couldlead to interpretations of the oVence that are not in compliance with the Convention”. In Phase 2bis theWorking Group recommended that the United Kingdom “ensure, in particular, that such legislation doesnot permit principal consent as a defence to foreign bribery”.

48. For these reasons, the UK is encouraged to follow the language of Article 1 of the Convention insteadof using a test of breach of an expectation of good faith, impartiality or trust” for the foreign bribery oVence.

Question 4(a): What types of advantages might be legitimately conferred on an oYcial

49. In Switzerland, the foreign bribery oVence does not apply where the advantage is “of minor value inconformity with socially accepted practices”. The Swiss authorities explained that the purpose of thisprovision is to exclude from the oVence insignificant advantages that present no risk of inciting foreignpublic oYcials to act in a manner inconsistent with their duties or likely to influence them in the exercise oftheir discretion”. The Working Group recommended follow-up of this issue in light of evolving practice.

Corporate hospitality

50. Regarding the specific example of “corporate hospitality” provided by the Joint Committee, twoParties to the Convention—Canada and the United States—have provided a defence for these kinds ofexpenses. In the Canadian legislation, it is stated that no person is guilty of bribing a foreign public oYcialif “the loan, reward, advantage or benefit” “was made to pay the reasonable expenses incurred in good faithby or on behalf of the foreign public oYcial that are directly related to (i) the promotion, demonstration orexplanation of the person’s products and services, or (ii) the execution or performance of a contract betweenthe person and the foreign state for which the oYcial performs duties or functions”. In Canada theprosecution has the burden of proving beyond a reasonable doubt that the defence does not apply. TheWorking Group recommended follow-up of how Canada applies this defence in practice.

51. The defence in the United States legislation is similar to the Canadian one except in the following twomain respects: (1) it provides an aYrmative defence, which means that the defendant has the burden ofraising and proving that it applies beyond a reasonable doubt; and (2) it expressly clarifies that “travel and



lodging expenses” are of the nature of expenditures covered by the defence. In the Phase 2 Report on theUnited States, the Working Group states that some companies were not sure of the scope of the defence. Thisobservation was based on the level of corporate resources that had been used to seek counsel’s clarification ofthe issue. The Working Group questioned the need for this defence in the US legislation, and recommendedthat if the defence is to be maintained, appropriate guidance be provided.

52. In addition, in the 2006 Mid-Term Study of Phase 2 Reports, the Working Group states that in theabsence of an express defence for reasonable expenses incurred in good faith, a Party could apply the defenceimplicitly in the exercise of prosecutorial discretion, and recommended canvassing this issue systematicallyin all Phase 2 examinations. The Phase 2 evaluations have not revealed that Parties that did not provide sucha defence in their laws are applying one in practice, through, for instance, prosecutorial discretion. Inaddition, no Party has reported that a defendant raised this defence in the course of foreign briberyproceedings.

Commissions

53. The Joint Commission asks whether “commissions” paid to a foreign public oYcial would constitutean “undue” advantage pursuant to Article 1 of the Convention. The Anti-Corruption Division cannot thinkof a situation where paying a foreign public oYcial a commission in return for obtaining or retainingbusiness or other improper advantage in the conduct of international business would not violate Article 1 ofthe Convention. In all the cases that we can think of, the payment of a commission would amount to a formof a kick-back to the foreign public oYcial. On the other hand if the commission were permitted or requiredby the written law of the foreign public oYcial’s country, this would appear to satisfy the exception underCommentary 8.

Additional services to community such as building a school

When oral evidence was given by the OECD on 11 June 2009, the Joint Committee asked whether thefollowing situation would constitute an oVence under Article 1 of the OECD Anti-Bribery Convention: Inorder to obtain a large construction contract from a foreign government, a company from the UnitedKingdom must agree to provide additional services to the foreign community, such as building a school.

54. The Working Group has done significant horizontal analysis on the coverage of the oVence underArticle 1 of the Convention where the advantage benefits a third party (even when it is transferred directlyto a third party with the agreement of the foreign public oYcial). We can confirm that the Working Groupinterprets a third party to include a charity in certain circumstances, political party, spouse of the foreignpublic oYcial, or company in which the foreign public oYcial holds a beneficial interest. However, theWorking Group has not yet addressed the case where the third party beneficiary is the general public or asegment of the population; although it is possible that some Parties have experience in these kinds oftransactions.

55. In the absence of a clear finding from the Working Group, the OECD Secretariat can only confirmthat if constructing the school in return for the large contract sought by the company was permitted orrequired by the written law of the foreign public oYcial’s country, this would appear to satisfy the exceptionunder Commentary 8. Entering into “planning agreements” in order to obtain construction contracts froma government might be permitted or required under a statute such as a local planning act.

56. To our knowledge, the only Party to the Convention that has explicitly dealt with the issue in thecontext of an actual case was the United States We invite the Joint Committee to address any furtherquestions to the U.S. authorities as the Committee deems appropriate.

June 2009

Memorandum submitted by PricewaterhouseCoopers LLP (BB 32)

We appreciate that this written submission is made late in the Joint Committee’s scrutiny period. We arenot requesting to provide oral evidence. However, if the Joint Committee requires clarification or expansionof any of the points made in our submission, we will be happy to provide this.

Our Interest in the Draft Bribery Bill

PricewaterhouseCoopers LLP has an interest in the draft Bribery Bill from various perspectives,including:

— As a UK firm we, and our staV and partners around the world, will be subject to the provisions ofthe Bill when it becomes law;

— As a member of the UK business community, we have an interest in the impact of the Bill on thebusiness community generally;

— As Forensic Accountants, we regularly get involved in internal and external investigations intoalleged improper activity; and



— As Advisors, we assist our clients in the development and implementation of anti-corruptioncompliance frameworks—both as proactive initiative, and remediation following a failure.

We are submitting this evidence mainly, but not exclusively, in the context of the work we undertake inthe latter two categories—in other words, in our professional capacity working with clients in this area.

In this context, our comments will focus mainly on the corporate implications of the Bill, rather than theindividual oVences.

Existing and Evolving Standards

In the course of our work as investigators and advisors, we frequently have cause to reflect on the variousanti-corruption standards globally, in order to provide best service to our clients. Of these standards, the USForeign Corrupt Practices Act (FCPA) is probably the most prevalent in client’s minds, due to the robustenforcement regime. Related to the FCPA, and important for us and our clients in seeking to build eVectivecompliance regimes, the US Federal Sentencing Guidelines requirements for an “EVective Compliance andEthics Program” give clear guidance on specific measures organisations can adopt. Similarly, the OECDConvention on Combating Bribery of Foreign Public OYcials and related OECD Guidelines forMultinational Enterprises and OECD Business Approaches to Combating Corrupt Practices, provideadditional valuable content. There are numerous other respected guidelines and approaches prepared bylearned bodies.

As full-time practitioners in this area, we are also acutely aware that both expectations and standards havebeen evolving, and continue to evolve. In this context and directly relevant to the UK, the work and reportof the Woolf Committee has proposed challenging new standards for organisations to aspire to.

Values-based and Rules-based Regimes

Whilst this rich body of advice is fundamental, our daily experience leads us to a further observation: tobuild and sustain an eVective anti-corruption regime, organisations need a framework based on both valuesand rules.

Our experience and academic research (Dr Donald Cressey) indicates three conditions commonly foundtogether where financial crime occurs: opportunity, incentive or pressure, and attitude or rationalisation.Conversely, the most eVective regime to minimise financial crime, including corruption, addresses all threeconditions. Whilst many organisations focus heavily on reducing the opportunity, largely through rules-based actions (Codes of Conduct or Ethics, Policies, Guidelines, Standard Operating Procedures, InternalControls), if both incentive or pressure (eg excessive pressure on delivering financial results) and attitude orrationalisation (eg our competitors do it, it is in the interests of the company, previous breaches or near-misses have been ignored) exist, ingenious personnel will find ways around the rules.

Positive incentives and pressures can derive from both rules (eg specific compliance-related performanceincentives, giving full performance credit for business lost due to ethical behaviour) and values (eg a senseof belonging to an ethically-minded business). Attitude and rationalisation tend to be much more dependenton values (personal and organisational).

It is therefore our view that to address all three conditions leading to corrupt behaviour, organisationsneed to adopt compliance frameworks addressing both values and rules. Rules will define some clearoperating boundaries; where in complex situations these boundaries are unavoidably unclear, values willensure personnel make the right judgements.

In our opinion the combination of rules (prescriptive) and values (judgemental) should be reflected inguidance provided to organisations by the legal and regulatory framework.

Specific Comments on the Draft Bribery Bill

We fully support the intent of the Bill and implementation into UK law of the OECD Convention onCombating Bribery of Foreign Public OYcials in a clear and unequivocal way.

We are not lawyers and do not seek to comment on the legal drafting of the Bill; however, as practitionerswe have a number of observations relating to the practical adoption and potential eVectiveness of the Billin seeking to reduce corruption. In particular, a number of important terms are not clearly defined withinthe Bill—the interpretation of these by regulators, enforcement agencies and, ultimately, the courts couldhave a significant impact on the eVectiveness of the Bill and implications for companies and individuals.Consequently we would advocate clearer definition of these terms. Key areas set out below.

“Senior Officer”

The inclusion of “manager” or “similar oYcer” within the definition of a “senior oYcer” may include avery wide range of company staV within this role, with significant implications for those individuals (in termsof being held responsible for consenting to or conniving in a corporate oVence) and for organisations (interms of negligent failure by these senior oYcers to prevent bribery disallowing the adequate proceduresdefence).

We recommend that separate definitions should be used for:



1. Those oYcers who may be held liable for consenting to or conniving in a corporate oVence (wherea wide definition including “managers” is appropriate);

2. Those oYcers whose negligence will disallow an adequate procedures defence.

In respect of 2 above, the current drafting may encourage companies to define anti-bribery complianceresponsibilities at a junior level, in order to try to avoid losing the adequate procedures defence. This wouldbe counter productive, and general good practice (eg US Federal Sentencing Guidelines) would advocatethe appointment of a senior oYcial as “Chief Compliance OYcer” (or equivalent) with overall responsibilityfor the programme.

In our experience as professional advisors, we have noted that in large corporate groups rogue individualsmay operate even at subsidiary general manager level without consent from or even knowledge of corporatemanagement; recognising this, in these circumstances the adequate procedures defence should not be deniedto the group (although the failure to root out these senior level rogue personnel should be taken into accountwhen assessing the adequacy of the procedures).

We would therefore suggest a narrower definition when considering corporate liability (case 2 above):

— Negligent failure by directors or similar, those acting as directors, and the oYcials designated asholding Chief Compliance OYcer and Chief Audit OYcer responsibilities (whatever theirseniority) should deny the organisation the adequate procedures defence;

— Negligent failure by management (including directors and other roles as above) in a subsidiary butnot by holding company management should negate the adequate procedures defence for thesubsidiary but not automatically for the holding company (although weakening the holdingcompany’s claim to have adequate procedures in place);

— Negligent failure by holding company management should negate the defence for all subsidiariesof that holding company.

“Consent or Connive”

Consent implies active knowledge and agreement, and is therefore clear; however, the interpretation of“connive” is less clear—for example, would wilful ignorance be included? We believe more guidance isrequired on the nature of connivance in the context of the Bill.

“Responsible for Preventing”

In our view the issue with responsibility for preventing as used in the Bill relates to how clearly definedor assigned the responsibility has to be by the organisation to apply. We illustrate the potential forresponsibility to be taken widely or narrowly through examples we have seen in practice:

— A Code of Conduct or Anti-Bribery Policy may invoke a general responsibility on all employeesnot only to ensure that they do not breach anti-bribery provisions personally, but to be vigilant forevidence of wrongdoing around them and report, if they have suspicions, to a whistle blowingfacility.

— Line management may be assigned anti-bribery objectives, which may be specific (particular tasksand actions) or general (oversight of their area of responsibility).

— A Compliance OYcer may well have a specific anti-bribery role covering the relevant area of thebusiness.

Where responsibility is assigned in a specific and explicit way, there is little room for doubt. However,where anti-bribery compliance responsibilities are more implicit (as in the example above where they arestated in broad terms for all personnel in a Code of Conduct or Anti-Bribery Policy), then the population ofresponsible persons may be diYcult to determine. We recommend more clarity here, perhaps distinguishingbetween explicitly assigned responsibilities (carrying a more onerous duty of care) and implicitly definedresponsibilities (carrying a less onerous duty of care).

“Negligent Failure”

The degree of default by the responsible persons that would be regarded as “negligent failure” is clearlyjudgemental on a case by case basis. We have already recommended that consideration should be given asto how the level of default that would constitute negligence might vary depending on the clarity with whichthe person is assigned responsibility and how specifically that responsibility is defined, as discussed above.Whereas a Chief Compliance OYcer or local Compliance OYcer would be expected to exercise significantcare, personnel assigned a general responsibility in high level Codes or Policies should have a lower dutyof care.



“Adequate Procedures”

The expectation of what would constitute adequate procedures is probably the most significant area ofuncertainty for organisations, as it is exactly these procedures that organisations need to ensure are fully inplace by the time the Bill becomes law. This area is therefore not only important but also urgent, insofar asdesign and implementation of a complete compliance framework can take many months of sustained eVort.

We believe “adequate procedures” carries a too narrow implication of the expectations of activitiescompanies should undertake. We prefer the US Federal Sentencing Guidelines terminology “EVectiveCompliance and Ethics Program”, which indicates requirements beyond the procedural, for examplegovernance structures, organisational units, and resourcing.

What constitutes “adequate procedures” in the context of a corporate defence to negligently failing toprevent bribery is not defined in the current draft. We believe that clear guidance based on current goodpractice should be provided, preferably outside the Bill itself to facilitate update and greater flexibility.

There are several sources that can be taken as “standards” in setting this guidance:

— US Federal Sentencing Guidelines—define for US courts dealing with FCPA cases an “EVectiveCompliance and Ethics Program”; this, together with common requirements imposed by USDepartment of Justice appointed compliance monitors provide a comprehensive set ofrequirements;

— OECD Guidelines for Multinational Enterprises (Section VI—Combating Bribery) and OECDBusiness Approaches to Combating Corrupt Practices;

— Industry-specific standards; and

— Woolf Committee Report.

We consider below the main common elements of this body of guidance, together with our experience ofworking with International clients implementing FCPA and OECD compliance structures, in suggestingcore elements that might be included in UK guidance on expectations of standards:

— Governance—clear definitions of roles and responsibilities for anti-bribery compliance at Board orequivalent governing body and Non-Executive Director (NED) committee level and within centralfunctions (where these exist), particularly Legal, Compliance and Internal Audit, and clearlydefined delegations of authority;

— Board or equivalent governing body to exercise reasonable oversight over the compliance andethics programme, to devote reasonable time to compliance and ethics responsibilities, and to haveadequate training and experience, collectively and individually;

— Appointment of a specific senior level individual to have overall responsibility for the complianceand ethics programme (“Chief Compliance OYcer” role) (may be part time in smaller enterprises),this individual to have adequate time, training and experience to fulfil the role;

— Allocation of adequate budget, resource and authority to those responsible for the compliance andethics programme, including direct access to the governing authority and responsible NEDcommittees;

— Explicit Code of Conduct or Code or Ethics with clear anti-bribery commitments, supported bypolicies, procedures and internal controls appropriate to the size and risk profile of theorganisation;

— Risk-based programme—regular and formalised bribery risk assessment process with resultsapproved at governing body level, and more eVort and resources directed to areas of highest risk;

— Communication of compliance programme requirements (including Code of Conduct or Code ofEthics, policies, procedures and internal controls) by the governing body to all personnel, andwhere appropriate, third parties (suppliers, contractors, sales intermediaries, outsourcing partners,joint venture partners and other co-investors, non-controlled associates);

— Adequate training in anti-bribery compliance provided to all personnel, and where appropriate,third parties, on a regular basis, suitable for their job function and risk exposure, such trainingto include:

— Legal requirements;

— Corporate values;

— Policies, procedures and internal controls;

— Recognition of compliance risk in daily duties;

— Consultation and decision support facilities;

— Whistleblowing facilities.

— Compliance programme in relation to third parties (as defined above), the programme to includepre-relationship due diligence, formal contracting, anti-bribery contract terms in contracts, andappropriate performance monitoring and auditing;



— Personnel measures to reinforce compliance, including performance incentives and performancemanagement, screening of applicants (internal and external) for sensitive positions, and a formalsanction/disciplinary process applied consistently and transparently;

— Provision of consultation or other decision support facilities to enable personnel to consult andreceive advice prior to making sensitive decisions, and communication of the availability ofthese facilities;

— Provision of whistleblowing facilities to enable personnel to report confidentially (and wheredesired anonymously) suspected breaches, and communication of these facilities. Formalprocedures for follow-up of whistleblower reports;

— Regular (eg annual) self-certification by personnel, especially those in sensitive positions, ofpersonal adherence to the compliance standards and all applicable laws, including a self-disclosurerequirement, and a reminder that known or suspected breaches by others can be reported throughthe whistleblowing facility;

— Update and enhance the programme periodically, including assessing and responding to causes ofbreaches;

— Board or equivalent governing body and relevant NED committee to obtain assurance (throughInternal Audit or equivalent or through competent external provider) on the eVectiveness of thecompliance programme;

— Larger organisations, and those engaged in higher risk business activities and in higher risklocations, should devote more resources to the compliance programme than smaller organisations,including extending support to business partners.

These provisions should not be taken as individually mandatory (although some will be, for exampleprovision of whistleblowing facilities), but taken as a whole to represent expected good practice. In seekingto assert that “adequate procedures” were in place, an organisation would need to justify any departure fromthese standards. Hence, the guidance would follow the model advocated by us above, combining valuesand rules.

Similarly, where industry standards exist relevant to anti-bribery compliance, failure to implement andfollow these standards would be strong evidence that “adequate procedures” were not in place.

Accounting Provisions

The Bribery Bill does not contain any accounting and bookkeeping requirements that would correspondto the Books and Records provisions of the FCPA.

In our experience these provisions have been a valuable tool in the hands of US enforcement agencies. Theclandestine nature of financial crime and bribery specifically means that even after extensive investigation itcan be impossible to identify the recipient of a payment made through a third party intermediary (as iscommon in such situations) with certainty. In that case legal proof of a bribe may not be forthcoming;however, asserting a violation of the requirement to maintain accurate books and records will usually beeasier and therefore provide a route for regulators and enforcement agencies to act.

Similarly, the OECD Convention emphasises the importance of accounting, recordkeeping and disclosurerequirements and related sanctions.

Proactive Advice to Organisations

The US regime provides for organisations to obtain an opinion from the US Attorney General regardingprospective conduct in relation to the FCPA. In our view this facility is in keeping with the approach ofcombining both values-based and rules-based regulation, and it ensures that the legislative framework canprovide guidance (such as the Federal Sentencing Guidelines “EVective Compliance and Ethics Program”)which can be interpreted more precisely on a case-by-case basis in advance.

We believe a similar mechanism would be a valuable resource for both the corporate world and regulators,enhancing compliance whilst potentially reducing the costs for all parties of testing approachesretrospectively in court.

June 2009



Memorandum submitted by BOND (BB 33)

1. Introduction

1.1 This submission is made by Tearfund, CAFOD, and Christian Aid on behalf of the BONDGovernance Group.

1.2 Tearfund is a Christian relief and development agency building a global network of local churches tohelp eradicate poverty. CAFOD is the oYcial development agency of the Catholic Church in England andWales. Christian Aid is an agency of churches in Britain and Ireland mandated to work on relief,development and advocacy for poverty eradication. Together we work with partner organisations, in over50 developing countries, including many who focus on issues of governance and corruption and have directexperience of the impacts of bribery.

1.3 BOND (British Overseas NGOS for Development) is the UK membership body for non-governmental organisations (NGOs) working in international development. Established in 1993, BONDnow has over 340 member organizations, from large organizations with a world-wide presence to smaller,more specialist organisations, working in specific regions or with specific groups of people. The BONDGovernance Group is a network of 35 organisations that focus on governance within internationaldevelopment, both at a policy and practice level.

1.4 We welcome the opportunity to respond to the call for evidence by the Joint Committee on the DraftBribery Bill as we have deep concerns about the impact of bribery and corruption on poverty and inequalityin developing countries.

1.5 Companies operate in a global context where business transactions cross national boundaries andlegal jurisdictions. According to the UNCTAD World Investment Report 2008, there are 78,817 parentcorporations and 794,894 foreign aYliates in the world today.1 Bribery is therefore a global phenomenonthat takes place across, as well as between, national boundaries in both developed and developing countries.

1.6 We believe that action by the UK government to tackle bribery is essential in the fight against globalpoverty. Our work in Africa, Asia and Latin America has demonstrated that it is the poorest and mostvulnerable people in society who suVer most from bribery—as the former Secretary of State forInternational Development Hilary Benn said of bribery and corruption “in poor countries it can kill.”2 TheOrganisation for Economic Cooperation & Development (OECD) conservatively estimates thatmultinational companies pay bribes totalling US $80 billion each year.3 In addition to the money lost,bribery can lead to loss of investment and reduction in tax revenues. It undermines public services, increasesthe cost of consumer goods and a higher percentage of poor people’s incomes are taken up by bribes.4 It hasa corrosive impact on governance and undermines democracy5.

1.7 For the draft bill to be eVective in tackling illicit payments to and from companies and individuals itmust be part of a broader package of reforms enabling the judicial authorities to identify the beneficialowners of bank accounts in any jurisdiction involved. This will require, first, that each jurisdiction collectthis information; and second, that the information is exchanged between jurisdictions in an eVectivemanner—ideally, automatically on the basis of a multilateral deal such as is now being discussed within theG20 process to tackle tax evasion.

2. General Comments and Main Recommendations

2.1 The BOND Governance Group supports the reform of the bribery law in the UK. The present lawis complex and outdated and this has hindered prosecutions for bribery oVences to date.

2.2 Comprehensive reform of the UK’s bribery law is long overdue. We note the OECD Working Groupon Bribery and the US Committee on Foreign Relations criticisms of the UK’s commitment to addressingcorruption and bribery.6 This has impacted on the UK’s reputation, and left it vulnerable to accusations ofhypocrisy, reducing its ability to influence other countries on these issues. The UK’s political leadership atthe G20 and at the United Nations Convention against Corruption negotiations is, in our view, significantlyundermined by the delay in incorporating the OECD Convention into UK law.

2.3 We broadly accept the proposed bill would, in general, provide a modern and clearly defined oVenceof bribery, and ensure bribery law is consistent with the UK’s international obligations, subject to severalnotable concerns, outlined below.

2.4 In particular, we welcome the proposed creation of new oVences of paying and receiving bribes. Theformulation of a discreet oVence addresses the diYculties that had been associated with current legislation,which focuses on whether a payment to someone is corrupt without oVering a definition of “corrupt”.

2.5 In addition, this new oVence covers third parties; acts done outside of the United Kingdom and; itcaptures bribery carried out by agents, a major channel through which bribes are paid. Generally, it shouldcontribute to tackling some of the problems associated with grand corruption which have a direct impacton the lives of people living in poverty. Specifically, the Group anticipates that this will serve as a deterrentand speed up the investigation and prosecution of cases.

2.6 We are, however, concerned about the complexity of the formulation of some of the oVences. Thismay create diYculties for jurors in interpretation and thus possibly make it harder to secure prosecutions.



2.7 Finally, we encourage the speedy enactment of the draft bill.

2.8 This submission does not cover all aspects of the draft bill, instead it concentrates on those areas thatrelate directly to our work in developing countries.

3. Bribery of Foreign Public Officials (clause 4)

3.1 The Group supports the creation of a new oVence of bribery of foreign public oYcials. This wouldensure that the UK complies fully with its international obligations under Article 1 of the OECD Anti-Bribery Convention.

3.2 The multi-million dollar scandals involving big companies such as Siemens (Germany) in Libya,Nigeria and Russia7, Halliburton (US) in Nigeria8 and irregular payments made by a subsidiary of BalfourBeatty (UK) in Egypt are just few of many examples of the scale of incidences with respect to bribery offoreign oYcials.

3.3 The proposed provisions on bribery of foreign public oYcials are derived from the OECD Anti-Bribery Convention and it utilises language very close to the words of the convention. As the UK’scompliance with the OECD Convention and in eVect its commitment to deal with foreign bribery has beenat issue for a number of years, the Group sees this as a welcome development.

3.4 Furthermore, the Group fully supports the comprehensive definition of foreign public oYcials toinclude third parties or agents. We envisage that if this bill is passed into law the introduction of this muchbroader definition will curtail the use of agents to carry out acts of inducement.

3.5 Nonetheless, the Group notes that this proposed new oVence is only committed if an advantage is“not legitimately due” to a foreign public oYcial, a concept which originates from the OECD Convention.Given the fact that cross-border bribery is diYcult to tackle; that laws in some contexts are also complex,fragmented and largely unwritten; as is the possibility that what is “legitimately due” can be wittinglyexploited by either the bribe giver or receiver, the Group believes this a significant loophole that weakensthe draft bill. We propose that sub-section (4) is removed and the law that applies to person (“P”) be appliedin all instances of the investigation and prosecution of bribery.

3.6 In addition, the Group proposes the inclusion of new provisions under this clause to reflect Article5 of the OECD Convention, thus bringing the UK into line with its international obligations under theConvention. These provisions are needed to enable those carrying out investigations and prosecutions ofbribery of foreign public oYcials to do so without being unduly subject to considerations of nationaleconomic interest, the potential eVect upon relations with another state, or the identity of the legal personsinvolved. We are of the opinion that not introducing such provisions will undermine the objective ofpreventing and eVectively prosecuting allegations or cases of foreign bribery.

4. Failure of Commercial Organisations to Prevent Bribery (Clause 5)

4.1 The Group strongly supports the proposed creation of a new oVence of negligently failing to preventbribery which can be committed by a commercial organisation. This is in line with the recommendations ofthe OECD Working Group on Bribery and Law Commission on reform of corporate criminal liability forforeign bribery.9 We note the diYculty in bringing prosecutions against corporate wrongdoers under thecurrent law and the lack of prosecutions of commercial organisations to date.

4.2 Given the global reach of many commercial organisations, we welcome the proposed definition of acommercial organisation to include bodies incorporated in England and Wales or Northern Ireland, or bya partnership that is formed under the law of England and Wales or Northern Ireland and which carries onbusiness there or elsewhere, and any other company which has a place of business in the UK.

4.3 However, we believe that the oVence should be extended to apply to companies listed on a stockexchange within the UK. The UK and London in particular, remains a global business centre with manyUK and foreign companies listed on the LSE Main Market or the Alternative Investment Market (AIM).This is especially so for the extractive industries, a sector particularly at risk, as they are involved innegotiating and agreeing large contracts with foreign governments. Extending the oVence to cover allcompanies listed in the UK, would significantly improve the eVectiveness of the new legislation.

4.4 We believe it is essential that the proposed legislation covers foreign subsidiaries, wholly or partowned by UK companies, given that many instances of bribery have involved foreign subsidiaries, forexample the Balfour Beatty case. Current legal structures mean it is very diYcult to bring successfulprosecutions against part or wholly-owned subsidiaries. Under the section 5 supplementary provision of thedraft bill (Clause 6), an employee, agent or subsidiary performing services on behalf of a relevant commercialorganization may be found guilty of the oVence of negligently failing to prevent bribery only if the subsidiarywas performing services on behalf of the commercial organization and the bribery was in connection withthe business of the commercial organization (emphasis added). We welcome this inclusion, but would liketo see the draft bill strengthened so that the territorial provisions cover part or wholly owned foreignsubsidiaries.

4.5 Under the proposed bill it would be a defence for the commercial organisation to show that it hadadequate procedures in place designed to prevent persons performing services on its behalf from committingbribery oVences in connection with its business, but that this oVence would not be available where the act



of negligence was that of a senior oYcer of the organisation. The group welcomes any steps that help fostera culture of anti-bribery and encourages companies to implement strong preventative measures. However,we are concerned that this would merely encourage commercial organisations to appoint junior oYcers incharge of anti-corruption procedures.

4.6 The group believes it would be helpful for the government to issue separate guidelines for companiesdetailing what constitutes “adequate procedures.”

5. Offences under this Act: Territorial Application (Clause 7)

5.1 The group welcomes the proposed extension of extraterritorial jurisdiction for all the oVences underthe draft act, not just bribery of foreign public oYcials.

5.2 However, we note that the proposed legislation does not extend to the UK’s Crown Dependencies orOverseas Territories except in so far as acts of bribery are committed in those jurisdictions by Britishnationals, persons ordinarily resident in the UK or UK companies, or where the corporate negligenceoVence is committed by a company registered in those jurisdictions but also based England and Wales, asabove. We believe this is a significant loophole, given that a significant number of parent companies arebased in Crown dependencies or Overseas Territories. For example, the UNCTAD World Investment reportshows that in 2007 there were 1,464 parent companies based in the British Virgin Islands, 404 based in theCayman Islands, 555 based in Bermuda and 238 based in Gibraltar.10

5.3 We therefore believe that the new oVences proposed in the draft bill should apply to bodiesincorporated under the laws of both the UK and the Crown Dependencies or Overseas territories.

References1 UNCTAD World Investment Report 2008, page 2122 Hilary Benn, Secretary of State for International Development, speech on “Governance and Development“at Holyrood, Edinburgh, 22 June 20063 ”Corruption: Myth and Facts,“ The Irish Association of Non-Governmental Development Associations,March 20074 ”The Other Side of the Coin: The UK and Corruption in Africa,” Africa All Party Parliamentary Group,March 20065 ”From Local to Global: Stopping corruption from stunting growth,” Christian Aid, December 20086 OECD United Kingdom, Phase 2 Report, paragraph 255 (c), 17 March 2005 and OECD UnitedKingdom, Phase 2bis Report, 16 October 2008 and “The Petroleum and Poverty Paradox: assessing U.S. andinternational community eVorts to fight the resource curse,” Report to the members of the committee onForeign Relations United States Senate, 16 October 20087 In the Siemens bribery case, the German conglomerate was alleged to have oVered 12 million Euros topublic oYcials in Nigeria, Russia and Libya to win infrastructure contracts. After Liechtenstein rolled backbanking privacy laws post-9/11, a flurry of transfers to and from oVshore firms controlled by Siemens execscaught auditors’ attention in 2003. The scandal ballooned as Liechtenstein froze ƒ7.6 million in Siemensassets and German police raided Siemens oYces. For more information, see, for example,http://www.kommersant.com/p-11656/r 500/Siemens bribes /8 The Halliburton case came to the limelight following an investigation of Kellogg, Brown and Root (KBR)a subsidiary of Halliburton was claimed to have issued US $180 million in bribes to Nigerian public oYcialsfor a contract worth US $1.6 billion. For more information see, for example, “Wanted Halliburton: ForBribery, Fraud and Trading with the Enemy,” Halliburton Watch, http://www.halliburtonwatch.org/about hal/nigeria timeline.html9 OECD United Kingdom, Phase 2 Report, paragraph 255 (c), 17 March 2005 and OECD UnitedKingdom, Phase 2bis Report, pg 25, 16 October 2008 and Law Commission, Reforming Bribery,19 November 200810 UNCTAD World Investment Report 2008, page 211–12

June 2009

Memorandum submitted by Reynolds Porter Chamberlain LLP (BB 34)

With reference to the Committee’s call for written evidence, please find below our submissions to theCommittee regarding the draft Bribery Bill:

1. We have concerns about the way in which the Law Commission proposes to treat facilitationpayments. As is explained in the Law Commission’s report, a facilitation payment is a paymentmade with the purpose of expediting or facilitating the provision of services or routine governmentactions which an oYcial is normally obliged to perform and which he intends to perform. Thus the



purpose of the facilitation payment may perhaps be to encourage the oYcial to perform the servicemore carefully or more quickly than he otherwise would or simply because, in the particularcountry concerned, the payment is expected and is entirely lawful.

2. We have grave concerns with the proposal set out at 5.108 of the Law Commission’s paper, thatfacilitation payments are best handled through sensible use of the discretion not to prosecute. Suchan approach would have the eVect of criminalising conduct which the Law Commission says itwould very rarely be in the public interest to prosecute. The creation of unnecessary and rarelyinvoked criminal laws is a clear example of bad regulation. Individuals and organisations that seekto operate on an ethical and entirely lawful basis would be put at an unfair disadvantage to thosewho took comfort from the fact that, despite committing oVences, they would not be prosecutedfor them. The Law Commission’s reluctance to suggest a defence seems to be based on the diYcultyin drafting one, rather than on the principled belief that the behaviour is egregious enough toattract criminal prosecution.

3. Organisations would also have diYculty in complying with their Proceeds of Crime Act2002 (POCA) obligations. POCA, and the associated reporting obligations attached to it, comesinto play when an organisation is in receipt of, or is otherwise dealing in, the proceeds crime. Itdoes not matter that the crime that is connected with the person’s receipt or dealing is not onewhich, ordinarily, the authorities will seek to prosecute.

4. It is also unclear how such a formulation would operate in the context of a firm which is, forexample, authorised by the Financial Services Authority (FSA). In such a case, it is diYcult to seehow any internal arrangements that such a firm would adopt could conceivably allow it to makefacilitation payments of any nature. The FSA’s approach to financial crime is that firms shouldseek to ensure that they have systems and controls in place that prevent them being used as a vehicleby which financial crime is perpetrated. The FSA in no way distinguishes between crimes that arelikely to be prosecuted and those which are very unlikely to be.

5. The paper ignores the possibility of private prosecutions and, even if those private prosecutions aretaken over by the DPP and, subsequently, no evidence oVered, the individual or organisation wouldincur costs and potential reputational damage for doing something which, quite clearly, the LawCommission does not believe justifies it being the subject of criminal proceedings.

6. We therefore suggest that it is necessary to make special provision or exception for facilitationpayments and that there should be a defence formulated for what the Law Commission regards asinnocent facilitation payment. In our view, a defence should operate for payments which are smallin nature, which are made to secure the performance of routine tasks and where the individual ororganisation making the payment believes, in good faith and on reasonable grounds, that thepayment is lawful under the law of the particular country in which the payment is made. We takethe view that it is not appropriate for individuals or organisations to be exposed to the criticismthat they are breaching the criminal law with respect to activities which the Law Commissionclearly believes should not be criminal in nature.

7. The new oVence of failing to prevent bribery (clause 7) will focus the attention of large corporatebusinesses, especially those authorised and regulated by the FSA. The FSA’s enforcement actionagainst Aon Limited in January 2009 (Aon were fined £5.25 million by the FSA) highlighted theliability of regulated firms to receive substantial regulatory fines for having inadequate anti-corruption systems and controls, regardless of any evidence of actual corrupt payments.

8. To meet the requirement imposed by the new oVence, companies and limited liability partnershipswill require robust anti-corruption systems and controls and regular training for its managers andemployees. Whilst this is achievable for large organisations, smaller corporate entities will struggleto meet this new regulatory burden.

9. A similarity could be drawn with the regulatory burden imposed on all businesses under the Health& Safety at Work etc Act 1974, but there is an inherent degree of awareness within the UKbusinesses of the requirement to ensure the health, safety and welfare of their employees. To ensurethat all UK businesses are aware of the need to prevent bribery and meet this regulatory burdenrequires wide publicity of the Act. Again, parallels can be drawn from health and safety regulationand the publicity that surrounded the Corporate Manslaughter Act.

10. We consider it essential that the UK strengthens its current anti-corruption legislation to repair thedamage to our international reputation in the field of anti-corruption, but the regulatory burdenmust be proportionate.

We trust that these submissions are of assistance to the Committee.The team who have prepared these submissions, Steven Francis, partner and Richard Burger, seniorassociate, are experienced regulatory lawyers. If we can be of any further assistance, for example, by givingoral evidence, we would be delighted to do so.

June 2009



Memorandum submitted by Global Witness (BB 35)

Introduction

Global Witness is an NGO that exposes the corrupt exploitation of natural resources and internationaltrade systems. We obtain evidence which we use to drive campaigns that end impunity, resource-linkedconflict, and human rights and environmental abuses. Global Witness was co-nominated for the 2003 NobelPeace Prize for its work on conflict diamonds. We welcome the opportunity to comment on the UK DraftBribery Bill.

We have carried out numerous investigations concerning allegations of bribery and corruption on the partof companies or public oYcials around the world, whose findings we make public in our reports. Our workhas given us a detailed understanding of the anti-corruption laws of diVerent countries and of the practicesof corporations in respect to bribery and corruption.

Bribery, particularly the bribery of foreign public oYcials, by multinational companies, is prevalent inmany developing countries, including countries rich in natural resources where our work is concentrated.Bribery undermines the rule of law and the principle of fair competition and entrenches bad governance insuch countries, hindering their eVorts to alleviate poverty and often contributing to instability and humanrights abuses.

Bribery can lead directly to human suVering and death, for example where it results in governmentcontracts being awarded to companies that perform substandard construction work or provide substandardgoods and services in the health sector. Bribery of foreign oYcials can help to entrench corrupt elites byproviding the incentive and the means to maintain a tight grip on power, particularly in natural resourcerich states where the stakes and potential rewards are higher.

Thus bribery is not a victimless crime or a regrettable but unavoidable cost of business for companiesoverseas. It is a morally poisonous and economically destructive crime which contributes, directly andindirectly, to poverty and human suVering.

We strongly believe that the UK has an obligation to ensure that companies based here do not contributeto corruption in foreign countries through bribery, or other means, and we welcome the commitment on thepart of this government to tackling this issue.

Furthermore, as a signatory to both the UN Convention against Corruption and the OECD Convention onCombating Bribery, the UK Government has an international duty to ensure that these crimes are adequatelyinvestigated and prosecuted. Past evaluations indicate that the UK Government has failed to fulfil thisobligation thus far and have questioned the government’s commitment to doing so.177

The Bill is an important step towards tackling bribery by UK companies, however more must be done toensure that companies that facilitate and/or engage in high-level corruption are formally investigated andheld to account in UK courts. We note with disappointment that the current Bill does not address broaderconcerns relating to UK companies’ relationship to corruption around the world or provide additionalresources for enforcement agencies and prosecutors.

We broadly support the introduction of a Bill and commend a number of its clauses. However, we areconcerned that the Bill may not be eVectively implemented without further changes. As such our submissionis split into two sections. The first section is a series of positive endorsements of the provisions in the Billwhich we hope will remain in the final version. The second section outlines our concerns about itsinadequacies and makes recommendations for improvements.

Section 1—Positive developments relating to the Bill.

We acknowledge that the language of the Bill, for example in its definition of the oVence of bribery, doesbring the UK largely in line with its obligations under the OECD Guidelines on Combating Bribery andmodernises the crimes of corruption and bribery in the UK. We also commend the following points madein the Bill

1.1 The broad definition of bribery as set out in Sections 1 and 2. The definition of a bribe as “afinancial or other advantage” is broad and should, if properly applied, make it harder forcompanies to circumvent the law by paying bribes in forms other than cash payments, for example;payments in kind.

1.2 The inclusion of third parties within the remit of the Bill; Section 1(4) and 1(5). The fact that theBill prohibits bribery of, or via, third parties, not just direct payments to foreign public oYcials bythe person paying the bribe. The act of bribery should therefore cover bribes paid to relatives andclose associates of foreign oYcials, not just the oYcials themselves. This is a crucially importantprovision because it would otherwise be easy for companies to circumvent the law by ensuring thatbribes are not paid directly to foreign public oYcials but to their relatives or associates.

1.3 The broad definition of the function or activity to which a bribe relates as described in Section 3.

177 Joint Statement, Call for UK Government Action on Bribery located at http://www.thecornerhouse.org.uk/item.shtml?x%369017 (last accessed 17 June 2009).



1.4 The inclusion of Section 4—“Bribery of foreign public oYcials” which we believe to be ofparticular importance in tackling corruption and poverty in areas of high level corruption andcommodity fuelled conflict. We also welcome the broad definition of foreign public oYcial inthis context.

1.5 The clarification in Section 7 that oVences under sections 1, 2 and 4 will apply on an extra-territorial basis.

1.6 The inclusion of Section 5—which should give companies an incentive to prevent bribery on thepart of their employees. We see this as an essential component in stopping the practice of bribery.

1.7 The defence available under Section 5—“Failure of commercial organisations to prevent bribery”,that payments to foreign public oYcials have to be allowed or required by the foreign country’slaw in order to be deemed legitimate. This is an important point because it should prevent payersor recipients of bribes from attempting to justify them by the claim that such payments arecustomary or acceptable within the culture of the foreign country concerned.

On this basis we welcome the introduction of the draft Bill and we call on the government to provide atimetable for the Bill’s passage through parliament which will see the Bill passed in the next parliamentarysession. However, we do have a number of concerns and recommendations which we would like to see takeninto account.

Section 2—Inadequacies relating to the Bill

Our overriding concern relates to the weakness of the provisions included under Section 5—“Failure ofcommercial organisations to prevent bribery”. Although the creation of this oVence is welcome and vitallyimportant in principle, we are concerned that as drafted, the Bill will not lead to significant numbers ofprosecutions under this oVence and thus will fail to be an eVective deterrent to corporate bribery.

Our concerns predominantly fall into three areas.

(1) The lack of clear reference or clear application to subsidiaries of UK companies. Our concern isthat this will allow companies to circumvent the law by using their foreign subsidiaries to paybribes, thus defeating the spirit and purpose of the law.

(2) Section 5: The lack of suYcient obligation and accountability on the part of companies, andindividuals within the companies, specifically senior corporate oYcer, to actively record andactively provide i) information that proves that “adequate” measures were in place to preventbribery, and ii) evidence of any payment of bribes associated with the company. Without activeobligations on companies the Bill lacks teeth. Multinational companies typically employ a varietyof measures against bribery by their employees, including codes of conduct, internal training andcompliance monitors. Such measures might be deemed “adequate” on paper but in practice wehave seen significant cases where such measures have failed to prevent bribery as a matter of de-facto corporate policy. We would be happy to provide specific evidence of such cases, if it is useful.We believe that a greater onus and responsibility to self-monitor, record and report any suspiciousactivity must be placed on a senior corporate oYcer to ensure the successful application of the law.

(3) The lack of additional resources for the enforcement of the legislation. According to the impactassessment for implementation stage, under the legislation proposed in the Bill, there is likely toonly be 1.3 additional prosecutions a year which suggests that the Bill will not act as a successfuldeterrent. Only properly enforced legislation will successfully disincentivise bribery. The notionthat bribery is not a problem for UK businesses is challenged by recent research by US law firmFreshfields Bruckhaus Deringer, which shows that 16 out of 29 investigations currently beingconducted by the US government into corporate bribery are focused on companies based in theUK, Bermuda or the Cayman Islands. We find it deeply disturbing that a foreign government isinvestigating allegations of corruption by British companies, while Britain is not: this amplydemonstrates the need for enforcement of the new law to be adequately resourced.

Our concerns are further elaborated below.

Section 5—“Failure of commercial organisations to prevent bribery”

a. As per 2) above. Under Section 5—“Failure of commercial organisations to prevent bribery” thereis no equivalent to the “books and records” provisions of the Foreign Corruption Practices ActFCPA in the United States, which make it an oVence for a company not to keep accurate recordsof its payments. There is therefore an insuYcient onus on the company itself to uncover corruptionon the part of its employees and disclose it to the authorities. In the U.S. system self-reporting bycompanies is a major source of FCPA cases and usually earns more lenient treatment for thecompany concerned hence providing an incentive to act. It is our firm opinion that a robustobligation must be placed on companies and its senior corporate oYcers to demonstrate that theyhave kept accurate records of their payments with the specific aim of preventing bribery by theiremployees.

b. Particular concern arises with respect to the interplay between Section 5(4) and Section 5(5) suchthat the implication will be that the responsibility for implementing “adequate procedures” to



prevent persons from committing bribery will be designed to middle management and not todirectors, managers, secretary or other similar level oYcer in the company. Alternatively, GlobalWitness recommends that the text of sub-section (5) be modified to reflect that a senior corporateoYcer will be responsible for ensuring that adequate procedures are in place. This will have thedouble eVect of (i) ensuring that adequate procedures are, in fact, put into place, and (ii) ensuringthat the defense of adequate procedures is not abused. In the U.S. the Sarbanes-Oxley requirementsrequire company executives to confirm that the company’s records are accurate It is vital that underthe provisions of the Bill senior executives are liable for ensuring that rigorous and adequateprocedures are in place to prevent bribery occurring within their organisations.

c. According to the notes accompanying the Bill (98): “The corporate oVence is not regulatory innature and there will be no monitoring of compliance.” So there is no obligation on companies toreport bribes by their employees and no onus on the authorities to monitor whether or notcompanies’ anti-bribery mechanisms are “adequate” or not. Once again it seems that there is littleincentive for compliance.

Additional Resources and Potential Prosecutions

a. As per 3) above. According to the notes, the government believes that there will only be “a smallnumber of additional prosecutions a year arising from the introduction of the new corporateoVence” (note 94)”. We are dismayed that the government appears to have decided, a priori, thatthe new law will not significantly aVect a dismal record of anti-corruption enforcement which hasbeen condemned in detail by the OECD, and which the new law is itself supposed to redress. Aspreviously mentioned, in 2005, the OECD Working Group on Bribery criticized the UKGovernment’s lack of prosecutions for bribery.178

b. This view has an alarmingly self-defeating quality. The corporate oVence rests entirely on thepremise that a fear of prosecution might lead companies to tighten their anti-corruption measures,but the government itself appears to believe (and is stating quite publicly to all those who read thedraft bill and its notes) that there will not be more than a handful of prosecutions. We contrastthis to the United States where anecdotal evidence suggests that U.S. companies do fear the FCPA,because they are quite aware that investigation and huge fines are a real possibility. TheeVectiveness of law often lies in its deterrent eVect. Without real threat of prosecution, whenweighed against the financial incentive for bribery of foreign oYcials, companies will continue topay bribes.

c. Given that there is insuYcient onus on companies to report bribery, and given that the governmentenvisages little in the way of extra resources for prosecutors to investigate, then the two most likelyroutes for bribery cases to emerge are from corporate whistleblowers or investigative reporting. Weknow from our own experience that it is almost impossible for investigative reporters to obtainevidence of bribery because financial transactions through the banking system are, by their nature,secret. We also know from our work that banks cannot be relied on to spot and report onpotentially corrupt transactions. This leaves only corporate whistleblowers. In the absence of anyincentives for whistleblowers to come forward, it seems unlikely that the Bill will have any tangibleeVect on the payment of bribes to foreign oYcials. The hope that individuals within companies willchoose to come forward is an alarmingly thin basis for the application of a law that is supposed todemonstrate Britain’s commitment to fighting corporate bribery.

d. We believe it is vitally important for the credibility and reputation of the British government andBritish business that this Bill and its implementation be seen as a serious deterrent to corruption.This is why we are at the same time encouraged by the fact of this Bill, and impressed by some ofits elements, while remaining deeply worried about whether it can achieve its stated purpose.

We have a genuine concern that the flaws in the current Bill will seriously undermine its eVectiveness. Wewould therefore strongly encourage the Joint Scrutiny Committee to reflect our concerns in theirrecommendations on the Bill. We hope that these recommendations will be reflected in a final draft of theBill and in the UK’s broader anti-corruption strategy. We very much hope that a final draft of the Bill willbe presented to Parliament with a time table to pass before early next year.

June 2009

178 http://www.oecd.org/dataoecd/62/32/34599062.pdf (last accessed on 17 June 2009).



Additional memorandum submitted by ICC (BB 36)

SUPPLEMENTARY QUESTION TO WITNESSES ABOUT CLAUSE 4 AND EVIDENCE OFMR NICOLA BONUCCI, OECD, SUGGESTING THAT THE “LEGITIMATELY DUE” TEST BE

REMOVED

Answer

Andrew Berkeley, International Chamber of Commerce (United Kingdom)

Five, not four, Convention States provide an exemption for “advantages” that are permitted under theforeign oYcial’s home law. They are Australia, Canada, Korea, New Zealand and the United States. As MrBonucci said, Australia has modified its position to approximate to that of the United States, which requiresthat the advantage be justified by written law. Of these five States, four are mature common law jurisdictions.

We commence this evidence about the assertions with an analysis of the way Clause 4 is drafted and itsrelationship to the actual requirements of the OECD Convention. We fear that Mr Bonucci has not fullyunderstood the way in which the clause, or the Law Commission recommendations, from which it derives,would operate. We acknowledge, in setting out this initial analysis, the advice and participation of MsPatricia Barratt of CliVord Chance for which we are most grateful.

Clause 4 is drafted in a very diVerent way from either the Convention oVence or the laws of othercountries, which all include some element of wrongdoing in the statement of the oVence itself. Thus, theConvention (which, of course, is not an attempt at legislative drafting in the same way as the draft Bill) hastwo elements of wrongdoing, ie the advantage oVered to the oYcial must be “undue” and must be made inorder to obtain an “improper” advantage. The UN Convention also uses the language “undue advantage”to describe the bribe, and (again) “undue advantage” to describe the benefit sought. The Foreign CorruptPractices Act (“FCPA”) requires the person bribing a foreign public oYcial to act “corruptly”.

By contrast, the draft Bill attempts to cut out any element of subjective wrongdoing in the statement of theoVence; the definition of “bribe” is that P oVers or promises “any financial or other advantage”, intending toobtain “an advantage in the conduct of business”. The phrase “not legitimately due”, instead, stands in forthe word “undue”.

All businesses are constantly looking for an advantage in the conduct of business—this is capitalism, andnot in any way strange or corrupt. Similarly, there will be many occasions on which businesses will providean “advantage” to a foreign oYcial—eg the simple payment of a licence fee, paying for a visa, paying aparking fine, paying a foreign taxation charge. Where this can be related to an intention to retain business(and it is not hard to see how this could be the case, entirely innocently), the initial elements of the oVenceare present.

If the words “legitimately due” were to be removed, the statement of the oVence would thus potentiallycatch a vastly enlarged range of activity, much of which may be 100% legal and proper. The carve-out for thegiving of advantages which are “legitimately due” is not, in our opinion, at all intended to allow the giving ofbribes in countries where bribes are allowed, but simply to allow businesses to give normal, legitimatepayments to oYcials, which may otherwise be, entirely unfairly, criminalised.

Mr Bonucci seemed to be equating Clause 4(3)(b) with Commentary 8 to the OECD Convention, and byanalogy, to the aYrmative defence in the FCPA that the payment is legal under written law. But Clause4(3)(b) does not act in the same way as the FCPA aYrmative defence . Mr Bonucci argued in favour of areference to a “written law”, because of this misunderstanding. However, as above, the function of Clause4(3)(b) is entirely diVerent; it acts as the fault element that is present in the OECD and UN language(“undue”) and in the FCPA (“corruptly”). It is therefore a completely necessary part of the statement of theoVence. If “written law” were to be introduced as the sole criterion, this would, again because of the widecompass of the statement of the oVence, be likely to criminalise behaviour which no reasonable personwould consider criminal. It would mean that any payment, which a specific written law did not permit orrequire, would be potentially illegal, whether it was improper or not.

As for the assertion that “the exception has never been relied upon in practice”. Once again, this seemsto betray a lack of understanding. The most developed administrative and juridical system in the field is thatof the United States FCPA. There are two aYrmative defences in the FCPA. The first is the “actions legalunder foreign (written) law”, which is directly relevant to the present questions as put by the JointCommittee. The second is “reasonable and bona fide expenditures” relating to “promotion, demonstration,or explanation of products or services” or to “the execution or performance of a contract with a foreigngovernment or agency thereof”. In order to evaluate the eVect of these two aYrmative defences, it isimportant to realize that cases brought against companies for breach of the FCPA only extremely rarely evergo to full trial. They are always settled by negotiations between an agency of the Executive, the Departmentof Justice, which propounds its view of what the law is, and the accused company which is subject toconsiderations of business necessity. It is recognized, by advisers to companies accused, that the seconddefence, the “promotional” exception is capable of wider interpretation than the first “written law”exception. This is especially so in relation to the second limb of the second exception which has beenrecognized by the Department of Justice as justifying a wide spectrum of payments ancillary to theperformance of main contracts with foreign governments or agencies. It would not be going too far to saythat the promotional exception is regarded as vital by international business. If the draft Bill were to be



adopted, even without Mr Bonucci’s suggestion, UK businesses would not have the benefit of a promotionalexception and thus would be in an inferior competitive position to those which have to look only to theFCPA.

It is, further, worthy of note that the administration of the FCPA depends on the issue of Guidelines bythe Department of Justice and for the issue of specific guidance on questions put to it by business. As anexample, I attach a copy of DOJ Release 92–1 which allowed the payment of certain expenses to Pakistangovernment employees and oYcials. It is basic to our evidence on this draft Bill, that, if it is adopted inanything like its present form, a statutory duty should be placed on government departments or on somenew agency, to give guidance and to answer questions.

While it is the case that FCPA cases against companies almost never go to court, except to register andapprove settlements reached between the company and the Department of Justice, the same is not true ofcases involving individuals. The most recent significant case dealing with the “written law” aYrmativedefence is United States v Viktor Kozeny, Frederick Bourke Jr. and David Pinkerton decided in the FederalDistrict of the Southern District of New York in 2008. This concerned Azerbijan. Payments were made toAzeri oYcials for participation in a proposed privatization. The accused individuals pleaded the defence,citing an Azeri law which, while forbidding bribery, relieved from criminal responsibility the bribe-giver ifhe reported the matter to the authorities and/or if the payment was the result of extortion. The paymentshad been reported. The court held that the defence failed because the FCPA sanctions the giving of apayment and the exculpation of the payer, because of reporting to authority, was irrelevant. But the questionof extortion was left open, as was the construction of other such laws. They exist, in various forms, in othercountries such as, we believe, Kazakhstan, Ukraine, Saudi Arabia, Kuwait, United Arab Emirates, Bahrain,Oman, Qatar and Yemen. Their proponents seek to justify them by saying that they encourage a degree oftransparency which would otherwise not exist. We take no position on the desirability or eYcacy of suchlaws but the fact that they are adopted in some countries and the question of the proper conduct of businessin such countries provide another example of an area in which the UK government ought to give guidance.The question might present itself as whether, if a payment was made and was duly reported to the authoritiesunder the anti-bribery law and the authorities took no action, the payment was legitimately due.

During the hearing of Mr Bonucci, Lord Thomas raised the matter of “planning gain” referring to thealmost routine practice, under UK planning, of a Planning Authority to require the provision of someancillary benefits as a condition of the grant of planning permission. On the international stage, we submitthat nothing in a UK Bribery Bill should forbid the equivalent. Frequently, in large projects, the companiesare asked, as a condition of consent to proceed, that they should provide welfare, educational,environmental, infra-structure or social benefits, sometimes at the instance of oYcials or organizationswhich are not the licence granting authorities for the project as such. Many of our members pride themselveson having agreed to such requests. If the Joint Committee will permit, I would like to close this submissionby giving two examples from personal experience.

Some years ago, there was a project for new, massive, oil development in the Santa Barbara Channel,oVshore California. In preliminary negotiations, the consortium met oYcials of a littoral municipality, inwhich the proposed terminal of the pipelines would have been located, to discuss the question of approachroads and access. In the course of those discussions the oYcials stated that, not only would the consortiumhave to pay for the approach roads, but that it would have to pay for a reconstruction of the entire traYccontrol and regulation system of the municipality, whose jurisdiction and responsibility extended far inlandfrom the site of the terminal. Contracts would have to be placed with nominated suppliers for this purpose.Negotiations were overtaken by the cancellation of the project on environmental grounds and Federallicensing in the area was stopped by Presidential decree. But the question had already been raised internallyin the consortium as to the status of the payments to the nominated suppliers.

The second example concerns the UK North Sea. The Joint Committee will be aware that the pipelinesfrom two of the most important fields, Brent and Ninian (and their satellites) come ashore in the ShetlandIslands and that their oil is exported from a major terminal at Sullom Voe. Negotiations commenced in theearly 70’s between the oil companies and the oYcials of the Zetland County Council, led by its formidableGeneral Manager, Mr Ian Clark. It soon became clear that the demands of the Shetlands would go farbeyond rights of way for the pipelines, planning permission for the terminal and compensation for damageto the local fishing industry. They were determined to create a massive fund for the present and future benefitof the population by levying charges on all oil landed in and exported from the Shetlands. The oil companieswere willing to pay, subject to agreement on quantum and conditions. It also became clear that the Shetlandshad no legal power to levy such payments. They would not have been “legitimately due” in the words of thedraft Bill. The solution was the Zetland County Council Act 1974. It is expressly stated in the Act that itsobjectives could not have been eVected without the authority of Parliament (“Whereas” clause number 4).We submit that this Act is a classical example of a law in writing making payments, the status of which wasquestionable, “legitimately due”. We say that any Bribery Bill must contain explicit provisions givingbusiness certainty that payments of this kind (or the payments to nominated suppliers in California) arenot bribes.



Answers to Questions

Accordingly, we have the following answers the Joint Committee’s two questions.

1. The “legitimately due” test should be retained and the defence of “reasonable enquiry” proposedby the Law Commission retained. As mentioned in our previous evidence, we do not believe thatan English court is the proper place to decide substantive questions of foreign criminal law and sowe could support a position that “legitimately due” was to be decided according to the written lawsof the foreign country (as provided in the FCPA) provided that the functional equivalent of“undue”, as used in the Convention, (or “corruptly”, as used in the FCPA) is incorporated in theBill to be presented to Parliament.

2. The question is framed in terms of “strictness” and “fairness”. This is understandable andadvocacy supporting either is not lacking. But we are concerned with having a law which isworkable for business, especially international business, and which would not damage UKcommercial interests. The suggestions of the OECD Legal Director do not further these objectives.

June 2009


Bribery Bill: Queries on Clauses 4 & 5 from the ICC and Clifford Chance.

1. Should the term “corruptly” be added to the clause 4 oVence?

The short answer to this is “no”.

To begin with, the term “corrupt” is vague and the subject of conflicting judicial authorities on its meaning(Law Com Report, 2.33).

One of the main themes of the Bill, and central to the Law Commission Report, is the claim that the term“corrupt” is far too susceptible to use as a cover for laxity in a particular “national-cultural” context. If ajury can decide that it is not “corrupt” to do in country X what is the normal expectation in X, then we willnot be addressing supply-side corruption issues in the way we are required by the OECD to do. We will notbe tackling the unhealthy willingness of some companies to trade bribes for influence/contracts if they findan environment in a country where this is tolerated. This is as bad, politically and socially, for those countriesas it is for the reputation of British businesses.

Perhaps as important is the point that, in fact, clause 4 does employ key elements of the notion of“corrupt” conduct in the way that it constructs the fault element. The definition requires P to be shown tohave “intended to influence” F, in F’s public oYcial capacity, and “intended to obtain/retain a businessadvantage” in so doing, by the “promise of a financial or other advantage”. In eVect, requiring proof of thisis requiring proof of corruption, barring special cases (see next para). It is just that the way in which thelanguage is employed means that there is no scope for making the test sensitive to what is regarded as normalin country X.

So far as the US Foreign Corrupt Practices Act is concerned, I would direct your attention to what theSerious Fraud OYce said about this (in the context of considering the “not legitimately due” test). Thepassage is cited at para 5.95 of the Law Com Report:

[I]f “not legitimately due” is removed where does the impropriety lie? It lies in the undue influenceintention and not in any act. However, the FCPA does not demand that the value oVered is“undue”. It [the FCPA] also rolls up just about everything in the intention lying behind theinfluence: with intent to corruptly influence…or induce a violation of duty…or secure an improperadvantage. However it also includes intent, “to induce an act”, in essence for a business reason.[This] is much more wide-ranging and unlikely to pass muster here (my emphasis).

What this shows you is that if one accepts the “not legitimately due” criterion, the Bill is in fact a clearerand more focused version of what is in the FCPA: that is what the OECD “model” oVence is meant to belike, and the Bill has followed that model. As you know, the Commission also favours the “reasonable beliefthat a payment is legitimately due” defence. Including that defence would have added yet further to the sensethat there is a substantial and eVective fault element in this oVence, without the need to rely on the term,“corruptly”.

When CliVord Chance/ICC complain about innocent conduct being caught, they may have in mind smallcommission payments. We have already talked about those, and I will not repeat the argument. Obviously,the Committee may feel that, as in the FCPA, such a specific exemption should be included. That wouldplease business interests, and be acceptable to the OECD. The Commission did not support it because it isin eVect the introduction of a “de minimis” principle. Such a principle is not known to English criminal law,which deals with such cases through the exercise of prosecutorial common sense restraint. The OECD’sfundamental requirement is that signatories make bribery of foreign oYcial oVences consistent with thesignatory’s own criminal law traditions and principles, ie without special exemptions or favours (Article 2).So, it would be somewhat ironic—possibly a breach of the convention—if a de minimis principle wereintroduced at this stage, for the clause 4 oVence, when it is not proposed to have it for the oVence in clause 1.



Should clause 5 involve a civil penalty only?

It must be kept in mind that companies can only be fined for the clause 5 oVence, in any event (see clause11(3)). So, we may to some extent be splitting hairs here.

The Law Commission’s review of corporate liability will not include specific consideration of bribery.

What the Law Commission’s review of corporate liability has to date found is that regimes of civil liability/civil penalties usually need to be backed up with a “last resort” criminal oVence. This is how a good deal ofmodern regulatory legislation works, such as that dealing with the employment of illegal immigrants. Atpresent, we do not have an across-the-board civil liability regime for bribery, although it can be addressedin that way in the financial services sector by the FSA.

Even if a regime of civil penalties—which would be much more expensive, intrusive and productive ofbureaucracy than a criminal oVence—was introduced across the board, it would almost certainly need a “topend” criminal oVence to back it up. So far as financial services are concerned, these can be found in theEnterprise Act 2002, and to some extent in the Fraud Act 2006. So, even if a comprehensive civil penaltyscheme, with “bribery regulators” and all, was introduced, the normal expectation would be that a criminaloVence would be there in the background for the worst cases/worst oVenders.

The Government estimates the criminal courts being faced with a “small number” of additionalprosecutions under clause 5 (White paper, para 94), possibly as few as 1 or 2 annually. This shows that thisoVence is meant to influence behaviour by sending a message, setting standards and raising expectations,rather than through the brute force of deterrent prosecution and punishment imposed on a large number ofoVenders.

June 2009

Memorandum submitted by GRECO (BB 38)

Draft Bribery Bill

The following comments on the draft Bribery Bill have been drawn up under the sole responsibility of theSecretariat of the Group of States against Corruption (GRECO), the Council of Europe’s anti-corruptionmonitoring body.179 These comments concern selected aspects of the Bill in relation to which previous resultsfrom GRECO evaluations appear relevant. They cannot be construed as a binding opinion or pre-empt anyposition GRECO might take at a later stage in respect of the United Kingdom’s compliance with previousGRECO recommendations.

The Proposed New Offences of Active and Passive Bribery

In 2007, GRECO examined within the framework of its Third Evaluation Round, the compliance ofUnited Kingdom bribery legislation and practice with the Council of Europe Criminal Law Convention andits Additional Protocol (ETS 173 and 191) (hereinafter “the Convention”). In the Third Round EvaluationReport it is concluded that “…current legislation, which is drawn from a number of sources, would benefit fromreform in order to provide a fully coherent and consistent terminology and legal framework for corruptionoVences. This would no doubt be beneficial for legal practitioners as well as for the wider public. The on-goingreform process is therefore supported…” (paragraph 133, GRECO Eval III Rep (2007) 3E). The same Reportalso explains where current bribery legislation raises issues in respect of the Convention; for example, thereis inconsistent terminology regarding the advantage which constitutes a bribe in the various sources of law,third party beneficiaries are not explicitly covered by the common law oVence, bribery in the private sectordoes not expressly capture situations where the advantage is given to a third party, the categories of personscovered by the bribery oVences would merit clarification and trading in influence is not criminalised as such.GRECO addressed the following recommendations to the United Kingdom180 (paragraph 134, GRECOEval III Rep (2007) 3E):

i. to proceed with the eVorts to revise existing criminal law in order to provide for comprehensive,consistent and clearer definitions of bribery oVences;

ii. to consider criminalising trading in influence in accordance with Article 12 of the Criminal LawConvention on Corruption (ETS 173) and thus withdrawing or not renewing the reservationrelating to this Article of the Convention.

179 The United Kingdom is a contracting party to the Council of Europe Criminal Law Convention on Corruption (ETS 173)and the Additional Protocol thereto (ETS 191) as well as a member of the Group of States against Corruption (GRECO),which monitors the implementation of Council of Europe anti-corruption instruments in 46 States, including the UnitedStates of America. GRECO has adopted three evaluation reports in respect of the United Kingdom, in 2001, 2004 and2008 and four compliance reports.

180 The United Kingdom has been invited to present a report on the implementation of the recommendations by 31 August 2009.



It follows from the above that the objective of the Bribery Bill, which is to provide for a new consolidatedlaw of bribery oVences to replace the current blend of common law and statutory legislation is fully in linewith GRECO’s recommendation i. However, it does not appear from the Bribery Bill that the oVence tradingin influence will be an oVence as such.

Extra-Territorial Reach of the Offences

GRECO would always favour wide possibilities for the prosecution of corruption oVences committedabroad. Moreover, the suggested extension in this area may hopefully make it possible for the UnitedKingdom to withdraw or limit current reservations in respect of Article 17 of the Convention.

Removal of the Requirement for the Attorney General’s consent for Prosecution of BriberyOffences

This matter was already raised in GRECO’s First Round Evaluation Report on the United Kingdom in2001: “The second recommendation that the GET181 wished to address in this connection concerns therequirement that the Attorney General or the Solicitor General, who are legally qualified members of theexecutive, should give his/her consent before any prosecution for the oVences under the Prevention of CorruptionActs can be instituted. The GET notes that this is one of the occasions where the Attorney General can interferewith the autonomy of the DPP when making decisions to prosecute or not. The GET considered that there doesnot seem to be any evident justification why decisions to prosecute made by professionals pursuant to establishedstandards should be reviewed by the Law OYcers (which might be interpreted as a form of political control)in corruption cases […]. On the contrary, the existing arrangement carries the risk of undermining publicconfidence in the functioning of the system” (paragraph 90, GRECO Eval I Rep (2001) 8E).

Consequently, the abolishment of the requirement for the Attorney General’s consent for prosecution ofbribery oVences would eliminate the reasons for the concerns highlighted in the above mentioned report.

The Penalties Proposed in Relation to the New Offences

The penalties proposed—maximum 10 years of imprisonment—go beyond the current maximum penalty,which carries up to seven years of imprisonment. The proposal appears adequate in comparison with thesanctions provided for in several other GRECO member States.

Parliamentary Privilege in Respect of Evidence

This matter was raised in GRECO’s First Round Evaluation Report on the United Kingdom: “The GETnoted that United Kingdom law provides for immunity from prosecution in very limited situations. The onlyissue that appears to exist is Article 9 of the Bill of Rights, which prevents evidence being given in court thatquestions proceedings in Westminster. The GET already commented on the need to hold Members ofParliament to the highest standard of probity. The Home OYce’s White Paper, which proposes exempting thenew corruption oVence from the application of Article 9, seeks to achieve precisely that and the GET wouldnaturally support this change. The GET, therefore, recommended that corruption oVences be exempted fromthe application of Article 9 of the Bill of Rights” (paragraph 97, GRECO Eval I Rep (2001) 8E).

It follows that the proposal in the Bribery Bill to set aside Parliamentary privileges to make evidence fromproceedings in Parliament admissible in the prosecution of a member of Parliament for bribery oVences wasalready supported by GRECO at the time.

June 2009

Memorandum submitted by Jeremy Cole (BB 39)

Responses to the Joint Committee on the Draft Bribery Bill’s Supplementary Questions to MontyRaphael, Louise Delahunty and Jeremy Cole

The following are the responses to the questions the Committee has posed, following on from oralsubmissions to the Committee by Monty Raphael, Louise Delahunty and I on 3 June 2009.

1. To the extent that the “improper” performance test is unclear or unworkable, what changes should be madeto the draft Bill?

Summary

1.1 We consider that the test is conceptually easy enough to apply but that it is obscured by the way inwhich clause 3 is drafted and the possibility of cultural questions entering the jury’s mind in foreign briberycases. We suggest:

(a) the removal of the sub-tests of “good faith”, “impartiality” and “breach of trust” (currently clause3(3)–(5));

181 “GET”—GRECO Evaluation Team.



(b) the simplification of clause 3(6)–(8) into a single sub-clause explaining that a function is improperlyperformed when performed below the standards of integrity reasonably expected of an“international business person”; and

(c) the inclusion of an explanation in the Explanatory Notes to the Bill that the test referred to inparagraph 1.1(b) above is intended to be applied by the jury as people of integrity without referenceto the social standards applicable in the state (i) of the person performing the function or (ii) wherethe function is to be performed.

We take the view that this should clarify the test to make it suYciently clear for a jury to apply and forlawyers to be able to advise their clients.

Reasons

1.2 Some lawyers, academics and businessmen have expressed the view that the word “improper” is insome unparticularised way too conceptually diYcult to be included in the Bill. We take the contrary view.The basic idea that the Bill is seeking to convey is simple, but it does not follow that it is easily reduced towords. “Improper” is the best word so far suggested. A properly directed jury could quite easily cope withdiscerning what constitutes improper performance of a function and what does not. In this regard, we wouldendorse the view Professor Horder expressed before the Committee that “improper performance” (and thelinked issue of “reasonable expectation”: clause 3(8)) is supposed to be a jury question.

1.3 If a jury is trusted to be able to tell when a function has been performed “improperly”, the Committeemust ensure that the question of what is “improper” is not obscured by distracting sub-tests or the possibilityof a jury trying to consider “impropriety” from a particular foreign cultural perspective. In this light, the testof improper performance is diYcult on its face due to the manner in which clause 3 of the Bill is over-drafted.

1.4 With the greatest respect to Professor Horder and the Law Commission, the conditions of “goodfaith”, “impartiality” and “breach of trust” contained in clause 3(3)–(5) unnecessarily complicate matters.These terms seem to serve the function of glosses on the core question of whether the function was performedproperly. As such, they add little and introduce scope for confusion. If a judge feels that the particular casebeing tried would be more easily understood by the jury if a term such as “good faith” were used in

1.5 Summing up, then that judge would be free to use it. A judge should not be forced to explain, norshould a jury be forced to consider, every case in those terms.

1.6 On similar lines, clause 3(6)–(8) seems unwieldy. The expectation of the reasonable person should becapable of explanation in far simpler terms. If the “conditions” set out in clause 3(3)–(5) are removed, thenclause 3(7) is unnecessary and can also be removed. Clause 3(6) and (8) can be collapsed into a single, simpleclause as suggested in paragraph 1.1(b) above.

1.7 In collapsing the sub-clauses on improper performance and reasonable expectation, some furthercontent should be given to the test. In particular, we refer to the problem of the stance or position of thereasonable man that the Committee has raised with several consultees. Given the Law Commission’sunderstandable concerns to apply standards that are as objective as possible, and the scope for lawyersadvising clients to raise such a defence, we recommend that steps be taken to deal with this problem.

1.8 We submit that the Committee should consider using a standard of integrity of the “internationalbusiness person” as a clear way to give the most objective possible content to the test. Further explanationcan most appropriately be provided in the Explanatory Notes to the Bill.

2. Does the draft Bill leave any gaps in the law or can we rely on other legislation (for example theCompetition Acts) to prevent holes emerging?

We are inclined to agree with the views expressed by both Professor Celia Wells and Professor Bob Sullivanin their evidence to the Committee that there are no substantive gaps of note left by the draft Bill. As theyexplained, the use of general oVences rather than attempting to particularise should ensure that those gapsare not left to be exploited.

3.Should the draft Bill subsume any of the overlapping statutory bribery oVences (such as oVences under theHonours (Prevention of Abuses) Act 1925), or is there merit in keeping them separate?

We have no strong views on this point.

4. Are there any specific changes that should be made to the draft Bill that you have not had an opportunityto identify before now?

When a Payment is “legitimately due” under the Foreign Public Official offence: Summary

4.1 During the course of my oral submissions to the Committee, Lord Lyell quite rightly raised thequestion of what the result would be under an FCPA-style “written law” test if there was no written law onthe point in the jurisdiction in question. In particular, there is concern that a normal common law approachwould conclude that a payment would be permitted where there was no specific prohibition. Emphasis waslaid upon an alternative “reasonable belief” test.



4.2 We consider that the Committee could decide to deal with this in one of three ways. However, wesubmit that a “reasonable belief” test is not appropriate. The possibilities are:

(a) including a “written law” test equivalent to that contained in the FCPA (see HH 78dd–1(b) and78dd–2(b)) which is suYciently broad in its drafting to encompass many diVerent written sourcesof law, while excluding the diYculties presented by “practices” and soft law; or

(b) including a “reasonable belief” test, limited to belief arising from independent advice on the locallaw; or

(c) leaving the question open.

4.3 On further consideration, we submit that the “written law” test is preferable. A “reasonable belief”that the law is X when it is in fact Y is not considered appropriate in other contexts. Leaving the questionopen creates too much scope for the use of socially relative arguments on the local practice of accepting ofbribes. These arguments are precisely what the concept of “legitimately due” should be used to exclude, giventhe apparent aim of the Bill to apply as objective an international standard as possible.

4.4 A “written law” test not only excludes such arguments but provides businesses with far greatercertainty.

“Legitimately due”: A “Reasonable belief” test?

4.5 The application of the law of any country to a particular situation is often not immediately clear.Individuals and entities are in a position to take advice on the law if its application to their situation issuYciently important to them. On receiving advice, they act on it and take the risk that it is incorrect. Thisis precisely what happens in many diVerent areas of the law.

4.6 As the Bill stands at present, obtaining legal advice does not remove the risk of prosecution, but ratherallows a company to understand the risk and make an informed decision. An equivalent need to obtain andrely on advice might arise under English law for a UK company because the law is not clear. There is noreason in principle or in practice why the mere fact that the unclear law is that of a foreign country shouldlead the Committee to create such a defence.

4.7 The fact that a person seeks the advice may, however, be relevant to their intention in making thepayment. This could be dealt with within the question of whether the person’s intention was to influence theforeign public oYcial (clause 4(1)).

“Legitimately Due”: Leaving the Question Open or a Written Law Test?

4.8 The reasons for our preference for a written law test are as follows. First, the scope for socially relativearguments to be put is too great without such a test. This has already been dealt with at length by the LawCommission and we agree with their position.

4.9 Secondly, the scope for lengthy academic arguments on whether local customs count as law isintroduced without such a test. Given the point made in paragraph 4.8 above, it is questionable how mucha jury should be asked to take account of such customs. Assuming that we would want to, but only wherethey really constitute “law”, the idea that defendants could engage the court in protracted debate about thestatus of customs and practices is unattractive from a practical perspective. It seems unlikely that such adebate would so frequently lead to a diVerent conclusion than if the debate were excluded. On balance, thiswould lead to the conclusion that the line of argument should not be available to defendants.

4.10 Thirdly, such a test provides greater certainty for businesses. While an extra defence of “reasonablebelief” could look like an attractive proposition for defendants, in reality we believe that it would rarely berelied on as part of a compliance programme. It is too uncertain in circumstances where a conviction canoften be a “bet the company” issue. Therefore, a standard that is less open to varied interpretation is to bepreferred. We consider that the written law test would achieve this.

4.11 Fourthly, the maxim that payment “is permitted if it is not expressly prohibited” can be misleadingand is insuYcient to require exclusion of such a test. In a common law country there are often several sourcesof written law. The concern that, in any common law country, this will necessarily lead to the diYculty thata payment will look like it is permitted seems more imagined than real. Unless the law is generally unwrittenin that country it is far more likely that the problem will never arise.

4.12 Finally, a written law test is the best way to deal with the Bill’s indecisive stance on double/singlecriminality. The Bill, and the Law Commission Report, seems to suggest that there is a tendency towards asingle criminality approach in a bribery context. If the Committee is minded to agree, a written law testwould not present concerns of the type set out in paragraphs 4.8 and 4.9 above. If we do not concernourselves with whether the payment is criminal in the foreign country, the extreme conclusion would be notto concern ourselves with whether it is permitted there either. This is the position suggested by the Committeein its most recent question, based on the oral evidence of representatives of the OECD.



4.13 However, the Bill is not presently fully committed to single criminality. The mid-position it occupiesis understandable: UK businesses should be able to operate abroad without undue fear of prosecution whileadhering to an appropriate bribery standard. The strict logic of single criminality would leave a business noleeway to take account of standards in the country in which they operate. To allow for some leeway whilemaintaining bribery standards and legal certainty, some form of written law test would be the best solution.

Further Question concerning the Removal of any Question of whether a Payment was“legitimately due”

4.14 We suggest that the OECD’s views, while informative, should not lead to the exclusion of anyconsideration of the legal position in the foreign country in question. The “written law” exception to Article1 of the OECD Convention182 is specifically allowed for in the Commentary to that Convention. Despitethe fact that the OECD has presented anecdotal evidence that this exception has not be brought into law bymany countries, or relied upon by many defendants, we consider that it is an important layer of protectionfor UK businesses.

4.15 It must be remembered that the complete exclusion of the “legitimately due” test would leave clause4 of the Bill requiring only that a person confer an advantage on a foreign public oYcial with the intent toobtain business. As others have observed, this would create an oVence without the several layers ofprotection provided by the OECD Convention and the FCPA. In particular, the Convention utilises twoconcepts: of a payment being “undue” and of the advantage the payer seeks to obtain being “improper”.183

The Law Commission has consulted on and considered the structure of the oVence at length. The result isthat, while not specifically referring to whether the business advantage sought is “improper”, it wasconsidered necessary to maintain a concept of whether the payment to the foreign oYcial was due or not.Without either concept, the oVence would have no explicit reference to a fault element at all.

4.16 As indicated in paragraph 4.12 above, the removal of any consideration of foreign law is thereforean extreme step not contemplated by the Bill. It is a point that the Law Commission consulted on and, afterdetailed consideration, concluded that a level of reference to the law of the foreign country wasappropriate.184 While we have suggested, by reference to the OECD Convention and the FCPA, to restrictthe terms of reference to the “written law” of the foreign country the Committee should note that this stillreflects the in-depth consideration of compliance with the Convention and the interests of UK businessesengaged in by the Law Commission. This can be seen from the statement in paragraph 5.83 of the LawCommission Report that the deliberate aim was for the UK to meet the OECD’s minimum standard.

4.17 English law is far from whole-heartedly adopting a single criminality approach to oVences with aninternational element. The Law Commission has considered the position under the OECD Convention andsought to ensure that UK businesses are not unduly disadvantaged by an over-intrusive single criminalityapproach. No real justification has been given for UK businesses being unable rely on the same provisionof foreign law as (for example) a US company. Even if such a situation rarely arises, the fact that it wouldremain possible is precisely what the Law Commission considered and rejected. The desires of the OECDfor a maximalist response, while understandable given that organisation’s position, should not override theclear policy aims of the current drafting of the Bill.

4.18 Even the minimal response should be viewed in light of the concerns raised by entities such as theICC that the written law requirement may not cover all the permutations of payments that are made ininternational commerce. We consider that that risk is not significant enough to warrant rejecting a narrowview of what is “legitimately due”. The reasoning of OECD and the Law Commission in its Report185 seemsto support a narrow view, and our proposal is that the written law test is more eVective in achieving this thanthe current drafting of clause 4(4) of the Bill.

Corporate Offence and the Requirement for Negligence: Summary

4.19 Some individuals giving evidence to the Committee have expressed a preference for an absoluteoVence of failing to prevent bribery subject to a defence of adequate procedures. While we can see thatgreater elegance in drafting would flow from such an amendment, we consider that:

(a) the conceptual simplicity that might result may have been overstated; and

(b) the reduction in protection from prosecution for international businesses that do put in placestrong anti-bribery procedures could be significant.

4.20 In considering the competing considerations of elegant drafting and conceptual simplicity againstthe loss of protection for businesses that appear to be fully compliant, we submit that the Committee shouldfavour protecting UK businesses. We suggest that the best balance is achieved by maintaining therequirement for the prosecution to prove negligence, while clarifying which oYcers shall be considered a“responsible person”.

182 Convention on Combating Bribery of Foreign Public OYcials in International Business Transactions183 ibid., Article 1(1)184 See paragraphs 5.81-5.84, Law Commission Report No 313, Reforming Bribery.185 ibid.



Corporate Offence and the Requirement for Negligence: The Loss of Protection

4.21 Our concerns in this area are as follows. First, we consider that the “simplicity” arguments in favourof removing the requirement for negligence are overstated. Even without a specific requirement fornegligence on the part of a responsible person, consideration of whether procedures were adequate will stilllead to asking virtually the same questions in any event. A jury is being asked to determine what caused thefailure to prevent bribery. If a procedure is in place the answer to why it did not work will often, if not always,lead to the question of whether a responsible person failed to perform their oversight duties.

4.22 In circumstances where the two issues seem to be so intertwined, it is less than obvious how removingthe negligence requirement will make the overall test more conceptually simple. The Committee shouldtherefore take great care to assess what will be sacrificed in an eVort to seek an elusive level of clarity.

4.23 Secondly, there is a serious and considerable risk that any attempt to pre-empt the LawCommission’s consultation process on corporate criminal liability will result in the enactment of insuYcientprovisions. The Committee is not well placed to consider the wider implications of adopting an absoluteoVence subject to defences and, in our view, the Bill is not the place to test them.

4.24 We agree with Professor Horder that an oVence carrying this reputational risk should carry an extrarequirement of “negligence” in order to justify attributing criminal liability. Otherwise, we would haveautomatic vicarious criminal liability subject only to a defence—the ambit of which remains unclear. Asdiscussed in oral evidence before the Committee, for many companies reliant on public procurement,liability is a “bet-the-company” issue. These companies need to have suYcient certainty that their eVorts toprevent bribery will be recognised and not undermined.

4.25 Thirdly, the lack of a negligence requirement gives the question of whether the bribing employee inquestion was really on a “frolic of his own” which the policy could not have prevented. We have a sense that,in many cases, this could be the subject of hot debate. If this is accurate then the ability of companies to relyon their policy, and protect the life of their business, may hang on a very thin thread.

4.26 We suggest the following clarifications to deal with the problems linked to the negligencerequirement:

(a) That a “senior oYcer” (clause 5(7)) can only be a person in a position of influence in theformulation of the bribery policy (or policies of that type in general). It seems right that thecompany should not be entitled to rely on that policy where such a person has been negligent informulating or implementing that policy.

(b) Therefore, the culpability of a person responsible solely for operational implementation of abribery policy does not prevent a company’s reliance on the adequate systems defence. This shouldbe covered by the amendment suggested in paragraph 4.26(a) above. Further clarification mightbe provided in the Explanatory Notes to the Bill.

4.27 Applying the above clarifications, a “negligent implementation” element to the oVence will ensurethat companies are not faced with the extreme uncertainty of whether a system will be considered to be“adequate”.

The Current Jurisdictional Gap in the Bill: Summary

4.28 There appears to be a gap in the Bill which means that a company cannot be liable for failing toprevent foreign private or public bribery by non-UK persons. This can be fixed by adopting a sub-clause inclause 5 with wording similar to that found in paragraph 8.60 of the Law Commission Report. This readsas follows:

“(2) the payer’s…act of bribery:

(a) constitutes an oVence of bribery under English law; or

(b) (b) would have constituted an oVence of bribery under English law had the payer…satisfied acondition relating to citizenship, nationality or residence [in section 7(5)].”

[words in square brackets added for clarity and completeness]

The Current Jurisdictional Gap: Explanation of the Problem

4.29 The problem arises due to the combined eVect of clause 5 (Failure of commercial organisations toprevent bribery) and clause 7 (OVences under this Act: territorial application). To understand this problem,one must track through the provisions as follows:

(a) it is a condition of the company’s liability that “A” (ie. the person or entity performing services onbehalf of the company) is or would be guilty under clause 1 or 4 (clause 5(2));

(b) to be guilty of a clause 1 or 4 oVence, A must either

(i) have committed part of the oVence in England, Wales or N.Ireland (cl 7(1)), or

(ii) be a British citizen, etc (cl 7(2)–(4);



(c) clause 7(5) only seems to apply to the acts or omissions which are part of the clause 5 oVence—ie.the negligent acts or omissions of the responsible person; and

(d) the words “is, or would be, guilty” in clause 5(2) do not appear to prevent this eVect.

4.30 The examples provided in the Law Commission Report clearly indicate that clause 5 liability issupposed to apply in such a situation (see paragraphs 6.106, 6.110–6.113). If this gap is not plugged, acompany may be able to organise its aVairs so that it is never liable for failing to prevent foreign bribery. Inaddition, a company prosecuted for failing to prevent foreign bribery will be advised to raise this argument.

The Current Jurisdictional Gap: Conclusion

4.31 In light of the UK’s obligations under the OECD Convention to ensure that companies are heldliable and that sanctions are eVective for bribery of foreign public oYcials, the need to ensure that this gapis plugged is acute. Adopting the clause set out above is a simple means of ensuring that this occurs.

Use of the requirement for intention on the part of the recipient of a bribe present in clause 2(2) and its removalfrom clauses 2(3)–(5): follow up on discussions before the Committee

4.32 This issue was canvassed relatively briefly in oral evidence before the Committee. A more fullexplanation is provided here. Once understood, we believe that the Law Commission’s explanation isconsistent and appropriate to the structure of the recipient oVence: both oVences are essentially based onimproper performance.

4.33 The reason for including a requirement for intention in clause 2(2) is that, at the point of prosecutionunder that particular sub-clause, the “function” in question has not been “improperly performed”.Therefore, that version of the oVence must include a requirement as to the recipient’s intention in order toestablish a level of culpability that warrants a criminal prosecution.

4.34 Put another way—intention is the factor which “completes” the oVence, because there is nopossibility of connecting advantage to performance (because there is no performance). If completing theoVence without such a connection is not possible, the mischief of seeking bribes would not be suYcientlyaddressed by the Bill.

4.35 On the other hand, in sub-clauses 2(3)–(5) the function will already have been performed. Theprosecution must prove that this performance was improper. As has been discussed at length before theCommittee, clause 3 is intended to leave this as a question for the jury. The prosecution must also prove thatthe advantage received is attributable to this performance—since it is possible to connect advantage andperformance.

4.36 Assuming that these elements are proven, the recipient has:

(a) performed a function improperly; and

(b) received money for this.

In such circumstances, it seems appropriate that the recipient’s intention is not a necessary element as theoVence is already “complete”. If justification in terms of the level of culpability is necessary, it seems fair tosay that a recipient that has been found to have done (a) and (b) cannot be heard to say that they did notintend there to be any connection. At the very least, this would allow spurious defences and waste thecourt’s time.

4.37 Clause 2 thus operates on a similar basis to clause 1 in this regard. Namely, where the oVence isdrafted to be complete (and capable of prosecution) prior to the actual performance of the “function”,intention is required. The apparent diVerence comes from the fact that, in clause 1(2) and (3), prosecutionmust always be possible without the “function” having been performed.

4.38 To do otherwise would probably create a myriad of problems with having complete and inchoateoVences separately treated—something the Law Commission has tried very hard not to have to deal with.In terms of enabling us to advise clients, the present approach is far simpler and is to be commended.

June 2009

Memorandum submitted by Louise Delahunty (BB 40)

Written Response to Supplementary Questions from Joint Committee on the Draft Bribery Bill

1. To the extent that the “improper” performance test is unclear or unworkable, what changes should be madeto the draft Bill?

1.1 The general oVences of giving or receiving bribes are framed around the “improper performance” test.Under the draft Bill, “improper” means that the function is performed in breach of a “relevant expectation”.A “relevant expectation” is that the function will be performed in “good faith”, “impartially” or not in“breach of trust”. The expectation is to be that of a “reasonable person”.



1.2 In our view, the first issue with the “improper performance” test is that good faith, impartiality andtrust are not defined. The second issue relates to the “reasonable person” test. The Law Commission hasindicated that these are not technical, civil law terms, but that it will be left to the jury, having heard theevidence, to determine what is expected of a person in a particular position and whether or not he hasperformed the function in good faith or impartially or in breach of trust.

1.3 We understand that in seeking to define “improper” by reference to good faith, impartiality andbreach of trust, the Law Commission has sought to achieve greater clarity and certainty in the law. However,we do not believe that defining “improper” in this way does this, but rather raises further questionsconcerning what is good faith, impartiality and breach of trust. We are of the view that this complicates thetest to be applied and that a simpler approach may be to delete Conditions A to C in Clauses 3(3) to 3(5)and leave it for the jury to be directed upon the meaning of “improper”, on the basis of the specific facts ofthe case. There are other consequential amendments, including the deletion of clauses 3(6) and 3(7).

1.4 If the “improper” performance test is to be retained, we believe that the Law Commission’srecommendation that an “in the circumstances” test should be applied is right, and that this should be thedirection given to the jury.

1.5 An alternative approach to provide clarity would be to adopt the test advocated by the Criminal BarAssociation and the Law Reform Committee of the Bar Council.186 For oVering or soliciting a bribe theyrecommend: “an inducement dishonestly oVered and intended to persuade someone who has a legal duty to actproperly and impartially, to act improperly and partially towards another when purporting to discharge hisduty.” For receiving a bribe, they recommend: “the receipt by any person having a legal duty to act properlyand impartially, of any consideration, payment of promise, which was or may have been made as an inducementto act improperly or partially.” The mental element would be achieved if the recipient knew, or believed thatthe payment or promise might be such an inducement. This test also has the advantage of incorporating theGhosh test.

1.6 Businesses must know the parameters within which they operate so the Bill should also be amendedto take account of relevant industry standards and guidance. In the course of evidence to the Committee,the need for guidance has been highlighted, but currently diVerent guidance can be found around the worldfor diVerent industries. In order that a UK corporate can properly mitigate risk it should be dealing withstandard, Government approved guidance. A new Clause 3(9) could be inserted dealing with this point asfollows, “In deciding what a reasonable person would expect, the Court must consider whether he followedany relevant guidance which was at the time concerned (a) issued by a supervisory authority or any otherappropriate body, (b) approved by the Government, and (c) published in a manner it approved asappropriate in its opinion to bring the guidance to the attention of persons likely to be aVected by it.” Thismirrors clause 330(7B)(8) of the Proceeds of Crime Act 2002 for which guidance is drafted by regulatedbusinesses and submitted to the Treasury for approval. This gives the option for trade associations or theirbodies to draft their own guidance and have it approved by, for example, BERR.

1.7 Guidance will need to take into account the diVerences between a multi-national corporation andsmaller businesses. It may also need to recognise matters which are specific to certain industries and sectors.There is guidance currently available for businesses, (both international and domestic guidance), but it needsto be brought together under one umbrella for the purposes of this legislation. BERR already providesguidance on anti-corruption policies and best practice and should work with businesses and industry tocreate approved guidance.

2. Does the draft bill leave any gaps in the law or can we rely on other legislation (for example the CompetitionActs) to prevent holes emerging?

2.1 The current consultation on bribery is intended to be much narrower in remit than the previousconsultations. The Law Commission and the Home OYce agreed that the review should concentrate onbribery alone rather than the broader aspects of corruption. OVences such as insider dealing and those undercompetition law are therefore expressly outside the scope of the bribery review.

2.2 The Bribery Bill creates a number of generic oVences. Separate legislation such as the Enterprise Act2002 or the Honours (Prevention of Abuses) Act 1925 deal with specific oVences arising in a specific context.It is appropriate to deal with specific oVences in other legislation, although the generic oVences in the BriberyBill may overlap with conduct falling within the scope of that other legislation.

3. Should the draft Bill subsume any of the overlapping statutory bribery oVences (such as oVences under theHonours (Prevention of Abuses) Act 1925), or is there merit in keeping them separate?

3.1 The correct approach is to keep separate the general oVences proposed under the draft Bill from otherexisting corruption-related oVences. This is a practical way of dealing with reforming the law on bribery.

3.2 With regard to legislation such as the Honours (Prevention of Abuses) Act 1925 and the PoliticalParties, Elections and Referendums Act 2000, this is rightly kept as separate legislation.

186 Joint Response of the Criminal Bar Association and the Law Reform Committee of the Bar Council to the Law CommissionReforming Bribery Consultation Paper LC185.



3.3 This approach would also be in line with the regimes in a number of other jurisdictions (includingGermany, France and Italy) in which general bribery oVences are dealt with in the respective criminal codesand the more specific corruption oVences in separate legislation.

4. Are there any specific changes that should be made to the draft Bill that you have not had an opportunity toidentify before now?

4.1 It is recognised that the “adequate systems” defence to Clause 5 is important. As others includingProfessor Horder have recommended, a set of guidance and standards to detail what is expected ofbusinesses should be created. Ideally, for some industries and sectors this will need to be specific to thatindustry or sector. When looking at this guidance consideration should be given to how small businesses willensure they can meet the standards required. We would not be starting from scratch in drafting suchguidance, but as noted above it needs to be brought together in one approved Code of Practice whichbusinesses can rely upon. We recommend that this is done in consultation with the CBI and other businessorganisations and experts.

4.2 We do not think that case 6, as set out in Clause 2(5) of the draft Bill, is needed and should be deleted.We cannot conceive of any situation where a case will be able to be prosecuted against R for being bribed,where R does an act “in anticipation of” R requesting, agreeing to receive or accepting an advantage wherethe advantage is not subsequently oVered/requested. The second scenario envisaged by case 6, where R doesan act which “in consequence of” R requesting, agreeing to receive or accepting an advantage is already dealtwith by case 3.

5. What is your reaction to the proposal that the “legitimately due” test be removed from clause 4 (whilekeeping the clause as it stands in all other respects)? Would it lead to the oVence being overly strict orcriminalising conduct that would not be criminalised under the present clause?

5.1 In our view if the “legitimately due” clause was to be removed this would create a strict liabilityoVence.

5.2 It is accepted that the meaning of the term “legitimately due” should be clarified and we suggest thatit should be amended so that the oVence is not committed if the advantage was permitted or required by awritten law or regulation of the foreign public oYcial’s country, as in the case of the FCPA. Under the FCPA,it is a defence if, “the payment , gift, oVer, or promise of anything of value that was made, was lawful underthe written laws and regulations of the foreign oYcial’s, political party’s, party oYcial’s, or candidate’scountry…..“.187

5.3 The “reasonable belief” test has also been removed in the current draft of the Bill. The “reasonablebelief” defence allows a person making a payment to a foreign oYcial to take steps to identify whether thepayment is legitimate or not, for example by taking legal advice, and in doing so he should be able to relyupon such advice. This would ensure that companies can properly determine whether they are operating on alegitimate basis. In the Law Commission’s proposed Bill, whether a belief is reasonable would be determinedhaving regard to all the circumstances, including any steps taken to find out what was required or permitted,(see Clause 5(2) of the Law Commission’s draft Bill).

5.4 This type of defence exists in bribery legislation in other jurisdictions, including under the FCPA. TheDepartment of Justice’s guide to the FCPA notes that, “whether a payment was lawful under the written lawsof the foreign country may be diYcult to determine. You should consider seeking the advice of counsel orutilizing the Foreign Corrupt Practices Act Opinion Procedure when faced with an issue of the legality of sucha payment.”

5.5 By removing the “legitimately due” test and the “reasonable belief defence” from Clause 4 there is aconcern that UK businesses will be put at a competitive disadvantage by eliminating the means of allowinga business to take steps to identify whether a payment is legitimate or not.

June 2009

Additional memorandum submitted by Ministry of Justice (BB 41)

Draft Bribery Bill—Note on Informal Consultation

1. Following publication of the Law Commission’s report on Reforming Bribery in November 2008,which followed an extensive public consultation exercise, the Bribery Bill Team supplemented its discussionswith other interested Departments with informal engagement with a range of stakeholders in order toeVectively inform the draft Bribery Bill.

2. This note provides details of those stakeholders that were consulted informally prior to publication ofthe draft Bill. However this process of stakeholder engagement is an ongoing exercise and will inform thefinal Bill that is introduced.

187 H 78dd-1 (c) (1).



Investigating and Prosecuting Authorities

3. As the investigatory body for suspected cases of large-scale (minimum £1 million) bribery andcorruption, the Serious Fraud OYce was consulted at various points during the drafting process.

4. The Crown Prosecution Service was consulted as the prosecuting body for alleged cases of bribery ona smaller scale.

5. The Overseas Anti-Corruption Unit of the City of London Police investigates cases of suspectedoverseas bribery, sometimes working jointly with the SFO.

6. The Financial Services Authority was consulted in light of its regulatory role in relation to thefinancial sector.

Business Organisations

7. The Bill Team held discussions with the Confederation of British Industry, the International Chamberof Commerce (UK), and the Federation of Small Businesses on the Law Commission’s proposed briberylaw reforms on the business sector.

International Organisations

8. The Bill Team held discussions with the Organisation for Economic Co-operation and Development’sWorking Group on Bribery, to ensure that the Draft Bill meets fully the obligations of the United Kingdomunder the OECD Convention Against Bribery of Foreign Public oYcials.

9. Discussions were held with Transparency International (UK) as the leading anti-corruption NGO.

June 2009

Additional Memorandum submitted by Ministry of Justice (BB 42)

SUMMARY OF CHANGES FROM DRAFT CORRUPTION BILL 2003 TO DRAFT BRIBERYBILL 2009

Law CommissionDraft Bribery Bill Draft Bribery Bill Draft Corruption Bill Comment on

Provision 2009 2008 2003 change(s)

OVences of Clause 1 makes it an Clause 2 is Clause 1 made it an The currentbribing oVence for P to substantially the oVence to corruptly 2009 Bill andanother oVer, promise or same [the 2009 Draft confer, oVer or agree the Lawperson give an advantage to Bill changes the to confer an Commission

another in one of order of oVences to advantage. Bill are basedtwo cases. place the ‘active’ on anCase 1 applies where oVence first]. Clauses 4–7 further improperP intends the defined this oVence, conductadvantage either: to based on the agent- model,induce a person to principal model instead of theperform improperly under existing agent/a function or bribery law. principalactivity; or to reward model of thea person for such Clause 11 defined 2003 Bill.improper the meaning of agentperformance. and principal.Case 2 applies whereP knows or believesthat the acceptanceof the advantage initself constitutes theimproperperformance of afunction or activity.

OVences Clause 2 makes it an Clause 1 is almost Clause 2 made it anrelating to oVence to request, identical. oVence to corruptlybeing bribed agree to receive or obtain, solicit, or

accept an advantage Cl 2(7)–(8) of the agree to obtain anin any of four cases 2009 Draft Bill advantage, further





relating to the makes explicit the defined in clauses 8-improper LC’s intention 9.performance of a relating to the Clause 3 made it anfunction or activity. mental element. oVence to perform

functions as anagent corruptly,further defined inclause 10.

Function or Clause 3 defines the Clause 3 is almost No such provisionactivity to types of function or identical. [see above forwhich bribery activity that can be It does not refer to references to clausesrelates improperly the expectations of a defining and limiting

performed for the reasonable person. the oVence].purposes of cls 1–2.It makes clear thatthe expectations ofhow a personperforms are thoseof a reasonableperson.

Bribery of Clause 4 creates a Clause 4 is almost No separate oVence. Ensuresforeign public separate oVence identical. internationaloYcials where P oVers, obligations

promises or gives an are met,advantage to F (or coveringto another with F’s Clause 5 creates a advantagesacquiescence) that is specific defence to given to thirdnot legitimately due, the FPO oVence parties.with the intention to where P reasonablyinfluence F in F’s believed that hiscapacity as an FPO; actions wereP must also intend required orto obtain or retain permitted under the(an advantage in the law applicable to F.conduct of) business.

No specific defence.

Failure of Clause 5 creates an Clause 7 is No corporatecommercial oVence where a substantially the oVence of failure toorganisations relevant commercial same as the prevent bribery.to prevent organisation (C) is 2009 Bill, although itbribery negligent in failing refers only to

to prevent bribery companies or limitedbeing committed in liability partnershipsconnection with C’s whose registeredbusiness. The oYce is situated indefinition of C England or Wales.includes allcorporations andpartnerships It also includescarrying on (part of) supplementarya business in provisions which areEngland, Wales or N found in theIreland, wherever separate Clause 6 ofincorporated or the 2009 Draft Bill.formed.Clause 6 containssupplementaryprovisions.





Territorial Clause 7 provides Clause 6 is Clause 13 wouldapplication that an oVence is substantially the have had largely the

committed under cl same as cl 7 of the same eVect as cl 7 of1, 2 or 4 if any act or 2009 draft Bill. the 2009 Draft Bill.omission whichforms part of the This clause does not There was nooVence takes place refer to the corporate failurein E & W or NI, or corporate failure oVence in theis performed by a oVence but note cl 2003 Bill.person with a close 7(5), which statesconnection to the that it does notUK (as defined). matter where theIt makes clear that acts or omissionsunder cl 5 it does not take place.matter where theacts or omissionstake place.

OVences by Clause 8 provides Clause 8 is almost No such provision.bodies that, where a body identical.corporate corporate is guilty of

an oVence underclause 1,2 or 4, asenior manager ofthe body is guilty ofthe same oVence ifhe or she hasconsented orconnived at thecommission of theoVence.

OVences Clause 9 covers There is no such No such provision.under section proceedings for an provision in the LC5 by oVence under section Bill as partnershipspartnerships 5 alleged to have are not liable for the

been committed by a equivalent oVence [clpartnership. 7].

Consent to Clause 10 provides Clause 9 is Clause 17 providedprosecution that a prosecution in substantially the that the Attorney

E & W can only be same as the General mustbrought with the 2009 draft Bill consent to aconsent of the DPP, insofar as it relates prosecution underthe Director of the to England and the 2003 Bill.Serious Fraud OYce Wales.or the Director ofRevenue and It does not refer toCustoms NI.Prosecutions. In NIit can only bebrought with theconsent of the DPPfor NI or theDirector of the SFO.

Penalties Clause 11 sets out a Clause 10 is Clause 18 providedmaximum penalty of substantially the for a maximum10 years same, but does not penalty of 7 yearsimprisonment and/ exclude summary imprisonment and/or an unlimited fine, conviction for the or an unlimited fine.specifying that the corporate failurecorporate failure oVence.oVence is triable onindictment only.





Crown Clause 12 makes The LC Bill makes Clause 32 madeapplication clear that the Act no provision similar provision. It

applies to regarding also allowed theindividuals in the application to the High Court topublic service of the Crown. declare acts orCrown as it applies omissions of theto other individuals. Crown unlawful

under the Bill, whilstexcluding criminalliability.

Authorisations Clause 13 provides The LC Bill makes Clause 15 was The exclusionfor that acts or no reference to substantially the of clintelligence omissions carried authorisations. same as cl 13 of the 4 oVencesservices out by persons on 2009 Draft Bill, but addresses

behalf of the did not exclude concernsintelligence services bribery of foreign raised by thedo not constitute an public oYcials for a JC on theoVence under the business purpose. 2003 BillBill if they are relating toauthorised by the complianceSecretary of State. with the UKThe scheme excludes internationalan oVence of bribery obligationsof a FPO for a including thebusiness purpose Clause 16 is almost OECDunder Clause 4 and identical to cl 14 of Convention.an authorisation the current Draftmay not relate to a Bill.cl 1 oVence whichwould also amountto an oVence undercl 4.

Clause 14 coverstime limits andrenewal ofauthorisations.

Proceedings Clause 15 makes the The LC Bill makes Clause 12 was drawn Changein Parliament words or conduct of no reference to more widely, lifting implemented

an MP or Peer proceedings in Parliamentary followingadmissible in Parliament. privilege in its recommend-proceedings for an entirety in relation ation of theoVence under the to proceedings for a JC on theBill where the MP is corruption oVence. 2003 Bill.a defendant or co-defendantnotwithstanding anyenactment or rule oflaw which wouldprevent those wordsor conduct frombeing admissible.

Consequential Clause 16 abolishes Clause 11 is the same Clause 19 abolishesprovision the common law except that it does the common law

oVences of bribery not refer to powers oVence of briberyand embracery, and of the Secretary of and other statutoryrefers to the two State. provisions.Schedules, whichcontain There is no referenceconsequential to embracery or to aamendments and power of therepeals. It also Secretary of State.creates a power for





the Secretary ofState to makesupplementary,incidental orconsequentialprovision by order.

Other The 2009 Draft Bill The LC Bill makes Clauses 22–28 referprovisions makes no reference no reference to civil to limitation periods

to civil law. law. and actions inrespect of trustproperty under civillaw.

June 2009


Background Note on the Draft Implementation Stage Impact Assessment

The objective

1. A Draft Implementation Stage Impact Assessment was prepared to accompany the publication of thecommand paper Bribery—Draft Legislation (Cm7570) on 25 March 2009.

2. The aim of this document was to provide a preliminary assessment of the potential impact of the newproposed oVences in the Draft Bribery Bill on the criminal justice system and the private sector, and businessin particular.

3. Impact assessments are generally a continuous process reflecting the development of Governmentpolicy from the initial identification of policy challenges and options, through consultation toimplementation and the review of implementation. In this instance, the demand for reform of the law ofbribery dates back to before the 2003 draft Corruption Bill and the current proposals for reform have beensubject to extensive consultation and development by the Law Commission. This made it impractical toproduce a Government impact assessment before publication. The published document provides apreliminary assessment of the potential impact of the new oVences in the draft Bill. The Government willdevelop the Impact Assessment further while pre-legislative scrutiny is underway.

The Content

4. The Draft Implementation Impact Assessment follows a similar format to other impact assessments;

— A background section—this set out the reasons for Government intervention; it also describes theprevious attempts to reform the law on bribery.

— A policy objectives section—this elaborates on the objectives for reform of the law.

— A policy options section—this outlines the options considered to meet the policy objectives.

— A proposals section—this outlines the proposals for new bribery oVences; and

— A costs section.

5. The costs section of the impact assessment is divided into two principal parts; the impact on thecriminal justice system and on the private sector. The information provided in respect of the former is morecomplete than the latter. The assessment of the number of additional cases, in particular in relation to thenew corporate oVence, and the likely costs has been based on information provided by the CrownProsecution Service, the Serious Fraud OYce and the Overseas Anti-Corruption Unit of City of LondonPolice.

6. There was more limited opportunity prior to publication of the Command Paper to consultrepresentatives of the private sector on the impact of the proposals, although the Law Commission hadtaken account of these issues as much as possible in the course of its work.



7. As the impact assessment indicates, we intend to continue working with representatives of business toassess in further detail the potential impact of the proposals and also to consider the scope to encourage andsupport business to identify and promote broad principles and best practice models for preventing bribery.This will be reflected in later impact assessments on the proposals.

June 2009


NOTE ON PARLIAMENTARY PRIVILEGE

Introduction

1. Clause 15 of the draft Bribery Bill has the eVect of ensuring that the words or conduct of an MP orPeer in Parliamentary proceedings are admissible in proceedings for a bribery oVence under the Bill wherethat MP or Peer is a defendant notwithstanding any enactment or rule of law (including Article 9 of the Billof Rights 1689) which would prevent those words or conduct from being admissible. The words or conductwould also be admissible against any other person charged with a bribery oVence arising out of the samefacts as the proceedings against the MP or Peer. The clause implements the recommendations of the JointCommittee on Parliamentary Privilege (HL Paper 43 and HC214, March 1999, paragraph 167) and the JointCommittee on the draft Corruption Bill (HL paper 157 and HC 705, 31 July 2003, paragraph 134).

2. This note sets out the policy objective of the draft Clause and the background to the development ofGovernment policy in this area.

Overarching Policy Objective

3. There are two separate issues involved in the consideration of Clause 15. The first and morefundamental issue is the liability of members of Parliament for the criminal law of bribery. Bribery of amember of either House is contempt of Parliament and as such can be punished by the House. It is generallyaccepted though that members cannot be liable for the current statutory corruption oVences as neitherHouse is a “public body” for the purposes of the Public Bodies Corrupt Practices Act 1889 Act and membersare not “agents” for the purposes of the Prevention of Corruption Act 1906 Act. There is a degree ofuncertainty around whether a member can be liable for the common law oVence of bribery, which appliesto persons “in a public oYce”. A 1975 Royal Commission concluded that the common law oVence of briberywould not apply to members whereas the Nolan Committee in 1995 thought it “quite likely” that thecommon law would cover bribes taken by members. An MP (Harry Greenaway) was prosecuted for thecommon law oVence of bribery in 1992. The trial judge ruled the common law oVence did apply to MPs but,as the MP was ultimately acquitted, the point was not tested at the Court of Appeal. The 1999 JointCommittee on Parliamentary Privilege recommended that Members of both Houses should be broughtwithin the statutory law of bribery.

4. The Government agrees with the 1999 Committee and considers it important that Members of bothHouses are brought within the scope of the statutory law on bribery. The oVences in the Bill clearly applyto members of both Houses by implication. Clause 15 would not serve any purpose unless members of theboth Houses of Parliament are subject to the Bill’s provisions.

5. The second issue, and the focus of Clause 15, is the eVect of the principle of Parliamentary Privilege(enshrined in Article 9 of the Bill of Rights) as an impediment to eVective prosecutions for bribery and themanner in which the Bill should address this problem. Criminal proceedings may prove unfeasible if eitherthe prosecution or defence seek to rely on evidence falling within the protection of Article 9 of the Bill ofRights 1689 (which prevents proceedings in Parliament being impeached or questioned in court). Article9 may therefore have the eVect of providing immunity from prosecution for an MP or Peer in cases whereevidence of their words or conduct in Parliamentary proceedings is essential for establishing one or moreelements of the oVence. Bribery is a serious oVence and, in line with the recommendations of the JointCommittees in 1999 and 2003, the Government considers that lifting privilege to an appropriate extent isjustified by the overriding concern to ensure that privilege does not impede evidence being adduced, eitherby the prosecution or the defence. By the same token the requirements of criminal justice must also takeaccount of the public interest in preserving Parliamentary freedom of speech.

Background and Development of the Proposals

6. The 1999 Joint Committee on Parliamentary Privilege recommended that the legislation bringingMembers within the criminal law of bribery should contain “a provision to the eVect that evidence relatingto an oVence….shall be admissible notwithstanding article 9 [of the Bill of Rights 1688]”. Thisrecommendation was accepted by the Government. Although the Joint Committee also suggested that itslegislative recommendations should form a new Parliamentary Privilege Act, it added that “we assume ourrecommendations on bribery will be incorporated into the [Government’s] proposed criminal legislation”.In its report, the Committee observed that a trial could encounter insuperable diYculty should either sidewish to call evidence falling within Article 9 of the Bill of Rights. This was because the prosecution might



lack the evidence necessary for a successful prosecution, or the defendant might be unable to call evidenceneeded for his defence. The Committee commented that, either way, if that were to happen, a proper trialof the member might not be possible and for the same reason a person who oVers a bribe may also be beyondthe reach of the courts.

7. The report of the 1999 Joint Committee noted that uncertainty existed over what is covered by“Parliamentary proceedings” and recommended that it should be clarified and defined. However, it notedthat Article 9 protects activities that are recognisably part of the formal collegiate activities of Parliament;that it “protects a person from legal liability for words spoken or things done in the course of, or for thepurposes of or incidental to, any proceedings in Parliament”; and that it “applies to oYcers of Parliamentand non-members who participate in proceedings in Parliament, such as witnesses giving evidence to acommittee of one of the Houses”. The Joint Committee also noted that this immunity is “comprehensiveand absolute” and “not excluded by the presence of malice or fraudulent purpose”. Article 9 was said “toprotect the Member who knows what he is saying is untrue as much as the Member who acts honestly andresponsibly”.

8. The oVences in the Government’s 2003 draft Corruption Bill were based on the agent/principalconstruct. For these purposes an MP of either House of Parliament qualified as an “agent”. TheGovernment took the view that bribery is a serious oVence and the public interest lay in removing anyimpediment to a prosecution. The Bill therefore, as presented to the Joint Committee, provided for theunlimited removal of Parliamentary Privilege for the oVences in the Bill.

9. The Joint Committee that undertook pre-legislative scrutiny of the 2003 Bill agreed that in order forthe prosecution of an MP or Peer for corruption to be achieved, there would need to be some provision inrespect of Article 9. The Joint Committee noted that the Government’s Bill would have made MPs/Peersand others liable to questioning about statements or evidence given in Parliament even where the personwhose words were in question was not the defendant and did not support the unlimited removal ofParliamentary Privilege for the oVences in the Bill. The Committee recommended instead that it should beremoved only in respect of the words or actions of an MP or peer in a case where he is the defendant; andthat, to the extent that such evidence is admissible for or against him, it should also be admissible in respectof any co-defendants. This, the Committee argued, was the intention of the original recommendation of the1999 Joint Committee on Parliamentary Privilege. In their view, removing the protection of Article 9 mightinhibit a Member or witness from commenting on cases in which there was a possibility that they might bequestioned in court, even though there was no suggestion that they themselves were corrupt. This wouldrepresent an unreasonable infringement of the protection of freedom of speech under Article 9. The balanceof the public interest therefore, in its view, rested in restricting the removal of Parliamentary Privilege toessential cases only.

10. The Government announced in its 2005 Consultation Paper on reform of the bribery laws that itaccepted the Joint Committee’s recommendation, and the Summary of Responses and Next Steps,published in March 2007, confirmed that “we think this strikes the right balance between the desirability oflessening evidential bars to prosecution and the need to ensure there is no impediment to freedom of speechin Parliament”.

11. Evidence from proceedings in Parliament may be unnecessary in most instances, but it cannot be ruledout that a conviction may depend on such evidence because it is important in proving one or more elementsof the oVence. Although cases will be very rare, allowing Parliamentary Privilege to protect a corruptMember potentially damages the reputation of Parliament as a whole. The ability to use Parliamentaryproceedings in evidence could also be argued to enhance freedom of speech, by making sure that a persondoes not speak in Parliament as a result of a corrupt deal.

12. Clause 15 of the current draft Bill seeks to put the 2005 announcement into eVect. The Clause providesfor anything said or done by a Member of either House in Parliament to be admissible against him or her,notwithstanding any enactment or rule of law (including Article 9 of the Bill of Rights), in proceedings forbribery. The words or conduct would also be admissible against any other person charged with a briberyoVence arising out of the same facts as the proceedings against the MP or Peer.

Devolved Administrations

13. The position in the devolved assemblies diVers from the Westminster Parliament in that there is noconcept of Parliamentary Privilege as understood by reference to the Bill of Rights. The only applicableprivileges are those conferred by or under their relevant establishing Acts (Scotland Act 1998, NorthernIreland Act 1998; Government of Wales Act 2006). All the Acts provide for statements in proceedings to beabsolutely privileged for the purposes of the law of defamation. The Acts relating to Scotland and Walesexplicitly provide that the Scottish Parliament and Welsh Assembly are public bodies for the purposes ofthe statutory corruption oVences, meaning that members of those bodies can be liable for those oVences.

June 2009



Memorandum submitted by DMA and SBAC (BB 45)

Responses to Supplementary Questions to the DMA and SBAC

1. You stated that there would be a need for guidance for companies on what constitutes “negligence” and“adequate procedures” under the draft Bill (Qq 248–251). Who should prepare this; what principles shouldit enshrine; and what status should it hold? Please could you also supply any draft guidance you have alreadyprepared.

DMA and SBAC remain concerned at the uncertainty for businesses that would be caused by passage ofthe Bill into law without clear guidance as to what procedures are regarded as “adequate” to prevent bribery.DMA and SBAC support the call from the CBI and other representative organisations for statutoryguidance to be issued at the same time the Bill becomes law and would like to work with the relevantauthorities in shaping that guidance to meet business needs.

DMA and SBAC believe that the statutory guidance should take account of existing guidance that hasbeen issued where this has achieved a widespread acceptance in industry and is consistent with the Bill. TheUK aerospace and defence industry has been involved in the preparation of the Common IndustryStandards (CIS) for European Aerospace and Defence issued by the Aerospace and Defence IndustriesAssociation of Europe (ASD). DMA and SBAC have together issued the guidance booklet “Tools to GrowYour Business in a Changing Ethical Environment” which is designed to help companies implement the CIS.Copies of both documents have been provided to the Committee. DMA and SBAC have led outreachactivity to get these documents out to as wide a spread of industry as possible via the Business Ethics Forumwhich we organize and ad hoc events like the conference we held last year to launch the guidance booklet,which was addressed by John Hutton, then the Government’s anti-corruption champion.

DMA and SBAC (the two organisations are due to merge on 1 October 2009) are committed to providingguidance to their members and to the industrial sectors they represent (civil aeronautics, defence, securityand space) more generally on combating bribery. To this end they are planning to update the guidancebooklet mentioned above and issue a second edition in the autumn of 2009. DMA and SBAC are in touchwith oYcials of DBIS/MoJ, MoD and UKTI and intend to take their comments into account in theupdating. They would welcome further contact with the relevant authorities on the preparation of guidancein connection with the Bill and would be happy to pilot the guidance with their members if this would help.

DMA and SBAC has also agreed to take part in an international eVort to achieve voluntary principlesfor combating bribery and corruption in the aerospace and defence sectors that can be applied globally.Discussions are taking place between ASD and US industry which it is hoped will lead to agreement on thefirst elements of a set of principles by the end of 2009. DMA and SBAC will consult with the relevant UKauthorities on the application of these principles.

2. Your raised concerns about the workability of the “improper conduct” model (Q 265). What model wouldyou replace it with in the draft legislation? Can guidance be used to make it workable?

DMA and SBAC, along with other witnesses, wishes to avoid criminalization of activity that would beconsidered legitimate promotional activity by a business or of unintended breaches of guidelines. We areconcerned to see the elimination of deliberate attempts to distort competition. To this end, the CBI hasproposed a number of changes to the Bill which DMA and SBAC support.

3. Are there any specific changes that should be made to the draft Bill (besides any changes that you raised inoral evidence)?

As mentioned in our oral evidence we have been consulted by the CBI on their evidence to the JointCommittee and DMA and SBAC support the changes they have proposed.


DMA and SBAC would like to re-aYrm their support, expressed publicly on a number of occasions, forthe early passage of a Bill to modernize and consolidate the UK anti-bribery laws. We believe that to bestrongly in the interest of our members because of the importance of reputational issues in internationalbusiness. At the same time it is important that the Bill is easy to explain to companies and that it reinforcesmeasures that can be implemented by organisations of all sizes, including SMEs.

June 2009



Additional Memorandum submitted by CBI (BB 46)

Supplementary Questions to the CBI and a Further Issue for Consideration

1. The Confederation of British Industry (CBI) submitted written evidence to the Joint Committee onthe Draft Bribery Bill and was called for oral evidence. Following that, we received a request for answersto supplementary questions under cover of a letter from the Clerk on 10 June 2009 and a request forcomment on a further issue by e-mail on 15 June 2009. This note responds to both requests and , in commonwith our earlier evidence, it is the result of member consultation.

2. As stated in our original evidence, the CBI has long advocated the need for modernisation of UK anti-bribery law. The CBI seeks a Bill that is clear, easy to understand and able to be implemented by companies.We believe it should not criminalise behaviour that is not intended to be criminalised. By achieving that, theUK will apply reasonable anti-bribery measures that reinforce compliance with international obligationswhilst ensuring that the competitiveness of UK companies is not undermined. We consolidate our suggestedchanges to the draft Bill in paragraph 16 of this paper.

3. UK business has a strong anti-corruption reputation and this is reflected in the indices that seek tocompare the image of diVerent countries. For example, in the Transparency International index the UKranks above other OECD members such as the US, France, Japan, Spain, Portugal and Italy. This puts someof the proper context around comments that dealing with UK companies somehow requires greater duediligence from their partners, a charge that we strongly reject.

Question 1: The CBI has stated that it is not satisfied with the “improper performance” test in the Bill. To theextent that the test is unclear or unworkable, what changes should be made to the draft Bill? Can guidance beused to make it workable?

4. In relation to the general oVences in Clauses 1–3, we have two concerns. The first, as we explain in ourwritten evidence, is with the clarity of the language related to “improper performance”. As currently drafted,there would be practical diYculties that could lead to oVences being committed even if that activity wasentirely innocent. We believe that this situation would be significantly improved if Clause 3, sub-clause 8,had the phrase “in all the circumstances” added. It would therefore read, “For the purposes of this section,the test of what is expected is a test of what a reasonable person would expect in all the circumstances”. Thiswould ensure that evidence pertaining to all the circumstances would be admissible and it would avoid thecriminalisation of activity that was a genuine mistake or misunderstanding, or where the activity involvesbone fide corporate hospitality or promotion.

5. The second concern relates to the lack of a criminal mens rea in the overall formulation of the generaloVences. As we pointed out in our evidence, we believe that intent lies at the heart of criminal acts, of whichbribery is one. This is the requirement placed upon the UK as a signatory to both the OECD Conventionand the UN Convention to meet in its national legislation. The draft Bill should be amended to reflect thenature of those obligations, in particular by deleting Clause 2, sub-clause 7, and replacing it with: “It is adefence in cases 4 to 6 that R did not know or believe that the performance of the function or activity wasimproper”.

Question 2: Are there specific changes that should be made to the draft Bill (besides any changes that you raisedin oral evidence)?

6. The CBI’s written evidence suggested a number of changes to the draft Bill, some of which we referredto in oral evidence. We will list these at the end of this paper, as it may be more logical to place this after ourdiscussion of the other questions.

Question 3: Is there any further information that you wish to supply in connection with your appearance on2 June?

7. We have already made comments relating to the general oVences in clauses 1-3, and we will respondto the issues raised by clause 4 in our response in paragraphs 13–15.

8. It is important for the UK to have a law that works, which includes penalties where appropriate.Companies that put in place proper procedures should not be at a competitive disadvantage. During ourevidence session, we referred to the need for guidance. This was specifically related to the Clause 5 oVence,the failure of commercial organisations to prevent bribery. We remain firmly of the view that sub-clause 4 isunclear as to what constitutes “adequate procedures”. There is therefore no way that a company or thosefrom whom it seeks advice can be assured that its procedures are adequate and comply with the Bill ascurrently drafted. This cannot be right. The Law Commission has recognised this point and the JusticeSecretary acknowledged the business point in his oral evidence before the Joint Committee. He went furtherby committing to investigate this issue through consultation with business and others.

9. In order to prevent a situation where business is unable to have the certainty it requires and the negativeconsequences that flow from that, the CBI believes that statutory guidance and a facility to respond toenquiries from business will be required if the Bill is enacted in its current or similar form. This will establisha common point of reference to enable business to apply the phrase in practice. It can also be relied uponas a defence to prosecution and it will assist a jury, or a judge in providing guidance to a jury, in determining



whether “adequate procedures” were in place by looking at all the relevant facts. Finally, we would hopeand expect that such guidance should be issued at the same time as the Bill becomes law. We recognise,however, that the guidance process should have suYcient flexibility to enable it to develop in line withemerging best practice.

10. A related point arises here because of evidence given by the OECD. We believe that the OECD hasmis-interpreted the draft Bill’s defence of “adequate procedures”. It would only be available in thecircumstances of the clause 5 corporate oVence and not, as was claimed in oral evidence, to the clause4 bribery of foreign public oYcials oVence.

11. There are other points relating to clause 5 that we would wish to highlight. As we have noted, an actof bribery requires intent. The corporate oVence as drafted merely refers to negligence. We believe that itdesirable to avoid automatic criminal liability as we do not see the direct equivalence of an act of briberywith that of public health standards or administrative record-keeping. We would refer the Joint Committeeto the Law the Law Commission’s report that relate to the need to focus on the failure of “continuing andsystemic eVorts to ensure that active bribery is not committed”. We would therefore argue for a higherstandard such as gross negligence or recklessness, which brings with it the element of intention, to apply tothe corporate oVence.

12. We are concerned that Clause 5, sub-clause 5, removes the “adequate procedures” defence availablein sub-clause 4 if a “senior oYcer” is negligent. This presents serious potential for confusion in circumstanceswhere prosecutions are being pursued against a company in more than one jurisdiction. For example, theUS Sentencing Guidelines (Section 8 B2.1b 2 B) expressly give credit for “high level personnel of theorganization” “with overall responsibility for the compliance and ethics program”, whereas the draft Billwould lead to punishment in the UK for doing the same thing precisely because a “senior oYcer” wasinvolved. We believe this situation needs to be addressed, particularly since the eVect of the draft Bill wouldbe to penalise companies that invest time and resource in combating bribery.

13. The CBI confirms its view that Clause 5, sub-clause 7, requires clarification of the term “senior oYcer”to ensure that it equates to a director or equivalent level person. This would entail focusing on people whoare, in eVect, the controlling mind of the company for the purposes of the corporate oVence.

14. We would also underline our evidence that there is need for greater clarity in clause 6 over the nature ofcontrol vested in the variety of business relationships and the implications that has for the clause 5 corporateoVence. The Bill as drafted extends corporate criminal liability even to situations where the company hasno control over the entity. The draft Bill should be amended to ensure that a parent company cannot be heldcriminally liable for all the acts of its subsidiaries or where there is a non-controlling interest. In addition,we believe it would be helpful to include oYcial guidance to business on due diligence and the obtaining ofappropriate assurances in circumstances where control is not present.

Further issue for consideration: What is the witnesses’ reaction to the proposal that the “legitimately due” testbe removed from clause 4 (while keeping the clause as it stands in all other respects)? Would it lead to the oVencebeing overly strict or criminalising conduct that would not be criminialised under the present clause. If so, canthe witness provide any scenarios where unfairness may arise?

15. Clause 4—the bribery of foreign public oYcials—is a new and separate oVence which the CBIsupports in principle. The problem that we have identified with this clause relates to its omission of the LawCommission’s defence of reasonable belief, accompanied by a high standard of proof from the defendantsurrounding the due diligence undertaken into arriving at that belief, that a payment was required orpermitted under local law. We have given evidence that this defence should be replaced in order for the clauseto work in a way that meets the UK international obligations but does not put UK companies at acompetitive disadvantage.

16. The CBI contends that the oral evidence on which these questions appear to be based—that of MrNicola Bonucci, Legal Director at the OECD—is based on a mis-reading of the draft Bill. We believestrongly that Clause 4 must have sub-clause 3b, where “legitimately due” appears, retained. Its removal, asMr Bonucci suggests, would have the eVect of criminalising any payment given or oVered to a foreign oYcialin order to obtain or retain business or an advantage, regardless of whether that payment was legitimateor not. “Legitimately due” in this context reflects the requirements of the OECD Convention and the UNConvention to enact legislation that criminalises undue payments that obtain an improper advantage.

17. We believe that Mr Bonucci’s suggestion would have serious negative consequences in practical aswell as legal terms. The criminalisation of perfectly legal activity cannot conceptually be right; the removalof the words “legitimately due” would lead to situations where payments such as tender fees, visa applicationfees, operating licence fees and multiple other routine activities that equate to the normal and legitimatecosts of doing business are caught by the oVence. In common with other points that we make, the CBI viewis that oVences in the draft Bill must have an element of wrongdoing and an intent to commit a wrongdoing.



Question 2: Changes to the draft Bill

18. Given our comments here and in previous evidence, the CBI would like to see the following changesto the draft Bill. We list them in relation to the clause numbers:

— in Clause 2, remove sub-clause 7 that relates to the irrelevance of knowledge or belief.

— in Clause 3, sub-clause 8, add “in the circumstances” to the test of what a reasonable personwould expect.

— in Clause 4, re-insert the Law Commission’s reasonable belief defence. This defence should also beavailable to the Clause 1 general oVence to ensure consistency within the draft Bill’s structure.

— in Clause 5, ensure that the oVence of failure to prevent bribery relates to gross negligence orrecklessness, not just negligence.

— in Clause 5, sub-clause 5, resolve the potential tension relating to “senior oYcer” and theavailability of the defence in sub-clause 4.

— in Clause 5, sub-clause 7, clarify the term “senior oYcer” to ensure that it equates to a director orequivalent level.

— in Clauses 5 and 6, amend the draft Bill to ensure that a company cannot be held criminally liablewhere it has no control over an entity.

— in Clauses 5 and 6, prepare oYcial guidance for business on due diligence.

— in Clauses 5 and 6, amend the draft Bill to ensure that parent companies will not be liable for theacts of their subsidiaries unless the act was in relation to a business operated and controlled by theparent. This could be done by re-wording Clause 5, sub-clause 1b, to read “the bribe was to obtainbenefits for a business or businesses operated by C”.

19. The CBI remains at the disposal of the Joint Committee should it require any further clarification onpoints that will lead to Bill that recognises the UK’s international obligations and does so in a workable waythat allows UK companies to operate eVectively and legitimately in the global marketplace.

June 2009

Additional Memorandum submitted by Serious Fraud OYce (BB 47)

Joint Committee on the Draft Bribery Bill

Supplementary Questions to the Serious Fraud Office

1. How many investigations and prosecutions, if any, have been undermined by weaknesses associated withthe current law of bribery?

The SFO was given the lead role for investigating overseas corruption in 2005. We can therefore only referto cases since then.

There have been three cases since 2005 where the agency concept has been raised or where it has beensuggested that it stood in the way of securing a conviction.

Had the Bill as it currently stands been enacted:

— it would have enabled us to proceed in each case for an oVence under clause 1 or clause 4, subjectto the overriding need to obtain evidence that an advantage was oVered, agreed or paid.

— Clauses 5 and 6 might have given the UK jurisdiction to investigate and prosecute (subject tosuYcient evidence) several of the other cases that were referred to us. We consider that there werethree cases where we certainly would have proceeded against the main company and two otherswhere this would have been a distinct possibility.

2. Should the test of “negligence” at clause 5 be replaced with a test of “gross negligence”?

Clause 5 strikes an appropriate balance between the US approach and the current approach in thisjurisdiction. Under the US approach a corporate is liable if an individual member of the corporate atwhatever level does an act that they believe to be for the benefit of the corporate. The approach in thisjurisdiction is to look at the controlling mind of the organisation. This means that in prosecuting corruptionthe SFO needs to establish that the corruption involved the participation of Board members of the corporateor those close to the Board. This test is diYcult to justify for modern global corporations and would meanthat there would be few prosecutions of corporates for corruption.

The SFO takes the view that negligence is the right test. It requires fault in the corporate. Gross negligencewould be a very diYcult test to satisfy and would lead to many questions about the meaning of “gross”.

There is a defence relating to adequate procedures here. It would not matter therefore if there is negligenceor gross negligence if there were adequate procedures.



3. You stated that it may be helpful for guidance to be prepared in relation to the proposed oVences. In brief:

(a) Should guidance be given an oYcial status (akin to approved guidance under the Money LaunderingRegulations)?

The Money Laundering Regulations cover a completely diVerent situation. Nearly everyone collecting orreceiving certain sums of money by virtue of occupation or profession could potentially be caught byProceeds of Crime Act oVences. In our view, bribery does not involve, or potentially capture, the “innocent”who take proper safeguards. Serious bribery, however, is generally intended to obtain a business advantageand has the tacit approval and encouragement of the company involved.

(b) Who should prepare guidance (ie Government, prosecutors, trade associations, the private sector, ora combination)?

A combination of trade associations and the private sector already prepare good guidance on propercompliance programmes including anti-bribery elements. Companies are undoubtedly in the best position toensure that the enormous damage done is reduced or eliminated, especially in the context of overseas trade.

There are always diYculties with oYcial guidance. For example, I am keen on the US Department ofJustice’s Voluntary Disclosure model, but I am mindful that in the US there is no consensus over the extentof Voluntary Disclosure. The DoJ says that companies must report every compliance failure (on the basisthat it demonstrates a lack of control) but the companies say that they will report only “material violations”.

The SFO has a policy of engagement with corporates and professional advisers. We have many discussionswith them. We have discussed what we would expect to see from the corporate and how we might implementthe legislation if it is enacted.

(c) In broad terms, what issues should be covered by the guidance and in what level of detail?

Most business and trade guidance already states the principles—that bribery is not acceptable or to betolerated within the business community—and suggests ways in which it could be eliminated, including thedue diligence that companies should already be exercising when they employ foreign intermediaries oragents.

I would want to see evidence of a robust compliance tool kit to assess how successful the company hasbeen in mitigating risk including:

— a clear statement of an anti-corruption programme fully and visibly supported at the highest levelsin the company (what is prohibited behaviour, etc)

— a clear and personalised reporting structure from the CEO down to all managers

— a code of ethics

— principles that are applicable regardless of local laws or culture

— individual accountability

— a policy on gifts and hospitality and facilitation payments

— a policy on outside advisors/third parties, including vetting and due diligence

— training—to enable staV to comment and input

— robust maintenance—auditing/updating/evaluation/actions.

This should encourage self-reporting because companies should be able to self-evaluate and come forward(in confidence) with details of what they have found.

At the very least it would be a strong factor to take into account in mitigation should the wrongdoing beso serious that it must be prosecuted. In cases where the company has taken appropriate remedial steps toensure it does not happen again, and put right any loss (by accepting a civil recovery order and monitoringthe position going forward) then, provided the oVending is not too serious, there are fairly compellinggrounds not to prosecute.

Small and medium enterprises may not have dedicated compliance oYcers but they could comply byensuring that all their employees and intermediaries are aware of the company’s anti-bribery stance and byencouraging feedback on it. These companies ought to be doing due diligence checks in any event, especiallyon the third parties they employ. Although the SFO is unlikely to deal with many small and medium sizedenterprises, we shall be sensitive to the particular needs and constraints of this important sector. In particularwe shall take into account the limited resource likely to be available.

A company which does not come forward when it uncovers wrongdoing faces a diYcult hurdle because thepublic cannot be confident that that the remedial action has taken place. and that it will not happen again. Itmay also be indicative of a company that is not prepared to live by the standards required by modern society.



(d) What status should the protocols be given (ie purely informal, capable of being used as evidence atcourt, or binding)? If you consider that guidance should either be capable of being used as evidenceor binding, would you welcome an additional clause being added to the draft Bill to make this clear?

Guidance should/can only be informal because each case will depend upon its own facts andcircumstances.

(e) Are separate guides needed for diVerent sectors of industry or for small domestic firms in contrast tolarge exporters?

There could be a shorter guide for smaller companies, based on larger corporate guidance. Even smalldomestic companies are unlikely to completely escape using intermediaries and agents. Indeed, the smallerthe company, the more likely they are to rely on them.

4. The Director of the Serious Fraud OYce expressed reservations about prosecutors being asked to advisebusinesses in relation to prospective transactions, other than in some limited circumstances:

(a) What are those limited circumstances?

The SFO has a dedicated team (“Outreach”) to advise and help business. On the wider front this teamengages with business stakeholders to understand their needs and problems and to discuss what the SFOcan do to help. It also conducts specific, educative campaigns on issues such as the risks of bribery and howto prevent it. As part of this work, we would clearly listen sympathetically to potential problem areas andhow to mitigate them. However it can only give advice on prospective transactions that throw up points ofgeneral principle. We would be reluctant to give formal approval to the agreement of specific contracts orthe use of specific intermediaries because we may well not have suYcient information.

The circumstances where we are likely to be able to give specific assurances to corporates followrepresentations made to us by corporates as part of our engagement programme. We were told, for example,that a corporate that is in the process of acquiring another group might discover problems relating tocorruption or fraud in that group. The acquiring corporate might well though wish to complete thetransaction for commercial reasons and then introduce a better corporate culture. We were asked if we wouldbe prepared to give assurances about our approach once the fraud or corruption is reported to us so thatthe acquiring corporate has reasonable certainty about the consequences of the takeover.

The SFO has been sympathetic to this request because it will help legitimise commercial activity. The SFOhas said it is content in principle to adopt such an approach. The details still need to be worked out.

It should be noted though that this concerns the SFO’s approach to transactions that have already takenplace and are now being uncovered rather than transactions that have not yet taken place.

(b) Would it be acceptable for an independent body or commission to provide advice of this kind?

Industry guidelines would be better. The diYculty with a more formal body is that the corporate wouldwant binding advice from it. Furthermore there would be a natural temptation to seek advice on eachtransaction so as to show compliance with adequate procedure. This would be unmanageable.

5. Does the draft Bill clearly and adequately address the circumstances in which a legal person can be liablefor the actions of its subsidiaries, joint venture vehicles, or syndicates (including under clause 5(1) which adoptsa test of whether services are being performed “on behalf of” the company and “in connection with [thecompany’s] business”?

The draft Bill makes it plain that it is not intended to increase subsidiary, joint venture, or syndicateliability as such. This will have to wait for the Law Commission’s wider corporate liability review. Briberynearly always involves intermediaries or third parties acting on behalf of a company and, as subsidiaries areoften used in this way, it is not unreasonable to extend liability on a “services performed” basis and inconnection with the company business which will always be assessed on a factual basis.

We still have to prove that a bribe has been oVered or received by the subsidiary, so it is not unreasonableto ask for whose benefit was it oVered or received, and in what context.

6. Should the jurisdictional reach of clauses 1 to 5 be extended to cover companies incorporated in OverseasTerritories (OT), Crown Dependencies (CD) and (subject to your views outlined above) subsidiaries of UKincorporated companies?

This is a matter for HMG as it involves diYcult extra territorial reach issues that would exceed the Bill’scurrent jurisdictional emphasis. However, if a company incorporated in the OT or CD carries on a business(or part) in England, Wales or Northern Ireland, they would be caught by s5.

June 2009



Additional Memorandum submitted by the Director of Public Prosecutions (BB 48)

Supplementary Questions to the Serious Fraud Office and the Crown Prosecution Service

1. How many investigations and prosecutions, if any, have been undermined by weaknesses associated with thecurrent law of bribery?

Over the years there have been cases which have addressed the diYculties arising from attempts to define“corruptly”. These are referred to in the Law Commission’s final report and were addressed comprehensivelyby Mr Justice Silber in his further memorandum in June 2003 on the previous draft bill. I can add nothingto what is said there.

I have canvassed prosecutors for examples of cases in which the existing legislation has created problemsover the years. The responses received do not indicate that there have been significant issues for prosecutors.However, it is necessary to bear in mind two things. First, that the number of cases of corruption prosecutedannually by the CPS is small. Secondly, prosecutors may make use of other oVences, such as misconduct ina public oYce or money laundering, where such oVences are seen as a more viable option.

Overall I find the new tests in the draft Bill are likely to provide a practical and workable replacement.The removal of the uncertainty in the law over the meaning of corruptly will be eVectively achieved by theproposals.

2. Should the test of “negligence” at clause 5 be replaced with a test of “gross negligence”?

The current requirement in the draft Bill is that a responsible person be negligent in failing to prevent thebribe. This would involve “failing to exercise such care, skill or foresight as a reasonable man in his situationwould exercise” (See Law Commission Working Paper No. 31). This is an objective and not especiallyonerous test.

The concept of gross negligence is currently restricted to manslaughter. In R v Bateman (1925) 19 Cr AppR 8, the court held that “the facts must be such that, in the opinion of the jury, the negligence of the accusedwent beyond a mere matter of compensation between subjects and showed such disregard for the life and safetyof others, as to amount to a crime against the State and conduct deserving punishment”. This was quoted withapproval by Lord Mackay of Clashfern in the leading case of R v Adomako (1994) 3 All ER 79. Variouswords have been used by the courts to describe “gross” conduct: “culpable”, “criminal”, “wicked”, “clear”,“reprehensible”.

It is clear therefore that gross negligence requires a very high degree of negligence. Inclusion of such a testin Clause 5 would seriously stifle, perhaps terminally, the policy intentions we understand to be behind thecreation of the corporate liability provisions. First, it would generally be extremely diYcult in a given caseto establish that any negligence was gross. Secondly, and as a consequence of the diYculty of being able toprosecute the oVence, such a test could substantially reduce the incentive for companies to put in placestringent anti-bribery procedures. Thirdly, it would be inappropriate for an adequate procedures defence tobe applicable if gross negligence were the test, given the high level of culpability that gross negligence implies.

3. You stated that it may be helpful for guidance to be prepared in relation to the proposed oVences. In brief:

Before dealing with the specific questions, I would like to deal with the question of guidance generally.First, the Government and Parliament need to decide what the purpose of any guidance would be.

For my part I think that guidance may fall into two types. The first is compliance guidance for businessesto assist them in ensuring that they have robust anti-bribery procedures in place. This may include policieson corporate hospitality, gifts and so forth, but would also include training and clear lines of reporting andresponsibility. I would anticipate the Serious Fraud OYce may be in a position to provide concrete detailon what guidance might look like, but I understand that such guidance is already produced by the privatesector in relation to the current corruption laws. The second type is legal guidance. I would envisage thatlegal guidance would be issued centrally, possibly by the Attorney General, and would provide guidance toprosecutors as to their approach to prosecution of oVences created under the Act. I would argue thatguidance on compliance would sit apart from legal guidance to prosecutors.

(a) Should guidance be given an oYcial status (akin to approved guidance under the Money LaunderingRegulations)?

The Money Laundering Regulations (MLR) are themselves detailed and complex regulations arisingfrom the requirements of a number of statutes such as the Proceeds of Crime Act 2002 and the FinancialServices and Markets Act 2000. They require specific processes and procedures to be followed, includingrecord keeping plus a regime of supervision, registration and enforcement.

There are two points to note. The first is that the money laundering legislation is something of a diVerentbeast from the draft Bribery Bill, setting out clear positive obligations and requirements which by definitionrequire a regulatory regime to be put in place. It does not therefore provide an obvious model for guidanceon the draft Bribery Bill to follow.



The second point is that, despite the existence of the MLR, other authorities have issued their ownguidance. The OYce of Fair Trading (OFT) and the Financial Services Authority (FSA) have issuedguidance as supervisory authorities. Her Majesty’s Revenue and Customs (HMRC) has issued guidance.Professional and membership organisations have also provided their own guidance for the protection oftheir members. There is therefore no one set of guidance that can be used as a template for guidance forindividuals and businesses seeking to avoid falling foul of the provisions of a future Bribery Act.

The Committee made mention of the formal system of guidance in existence in the USA in relation to theapplication of the Foreign and Corrupt Practices Act (FCPA). The Foreign Corrupt Practices Act OpinionProcedure permits the obtaining of opinions of the Attorney General on conformity with the Departmentof Justice’s enforcement policy. Such an opinion raises a rebuttable presumption that specified conduct is inaccordance with relevant enforcement policy.

The apparent advantage of such a system, for business at least, is that companies can, in advance, takeadvice from the prosecution authorities as to whether the actions they propose to take would fall foul of theAmerican corruption legislation, and act accordingly on the advice received.

Although we do not claim to have any detailed knowledge of this system, it would seem that the provisionof advice is essential in ensuring a high degree of certainty for businesses. The provision of generic guidanceon the application of any given law cannot possibly cover every situation—the circumstances of every casediVer—and therefore without the formal opinions process, businesses concerned as to whether theiractivities may amount to criminal conduct would have no choice but to take their own legal advice and actaccordingly.

I would make the following comments about the US system as it appears to operate. First, it would be aradical departure to provide such assurances in this jurisdiction, certainly in respect of behaviour that would,were it to be criminal, amount to a very serious oVence. Secondly, the creation of such advisory procedureswould raise questions as to who would provide the advice and how it would be resourced—opinionsprovided under the FCPA (available on the Department of Justice website) can be of considerable length.

Dealing with the question, I have no strong views on whether guidance on compliance should be oYcial,or whether it should be left to the private sector to prepare, though the latter places the responsibility toensure compliance firmly in the hands of business. I would suggest that the development of legal guidancefor prosecutors would be a matter for the Attorney General working with those prosecuting authoritiesunder her superintendence.

This leads me on to the second question posed.

(b) Who should prepare guidance (ie Government, prosecutors, trade associations, the private sector, or acombination)?

The question of who should be involved in the preparation of guidance depends to a large extent on whatthe guidance is intended to cover. As I have indicated, guidance to businesses on how to set up anti-briberysystems or codes of practice is not something on which prosecutors would normally advise.

However, working on the assumption that the Committee is predominantly concerned with the questionon guidance as to how the legislation will be enforced, then I am firmly of the view that any guidance on theprosecution of oVences should be prepared by the prosecution authorities under the superintendence of theAttorney General—for any other department to issue such guidance would not only be unrealistic forobvious practical reasons but would also be contrary to the independence of the prosecutor.

(c) In broad terms, what issues should be covered by the guidance and in what level of detail?

Broadly speaking, we would anticipate that any prosecution guidance would cover the legal elements ofthe oVences, the application of the Code for Crown Prosecutors and any relevant processes and procedures.The level of detail is something on that would have to be determined having regard to the purpose to whichthe guidance would be put.

However, it is essential to recognise that no guidance can cover every situation that may confrontprosecutors and necessarily has to be broad in nature. Given this, I am firmly of the view that it is neitherdesirable nor possible for guidance to indicate in advance whether or not a particular activity would amountto an oVence. The opinion procedure under the FCPA may amount to a recognition of this reality—everycase must be considered on its own facts.



(d) What status should the protocols be given (ie purely informal, capable of being used as evidence at court,or binding)? If you consider that guidance should either be capable of being used as evidence or binding, wouldyou welcome an additional clause being added to the draft Bill to make this clear?

The answer to this question really depends on the nature of the guidance provided. I understand thatunder the US FCPA opinion procedure, the decisions may be cited in court, which is perhaps a naturalcorollary of such a system.

OYcial non-binding guidance on compliance would be a matter that either party might be able tointroduce in evidence either to show compliance or otherwise, though I doubt that (unless the AmericanFCPA opinions procedure were adopted) guidance issued by the prosecution authorities would be relevantto the determination of criminal proceedings. However, parties to criminal proceedings may wish tointroduce, for example, codes of practice, in order to show compliance or otherwise with accepted industrystandards. This may help inform a jury’s deliberations as to what, for example, the expectations of areasonable person might be.

(e) Are separate guides needed for diVerent sectors of industry or for small domestic firms in contrast to largeexporters?

In terms of prosecution policy and practice, the essential principles applied by prosecutors will be the samewhatever the industry or size of business so I would not anticipate separate guidance being necessary orappropriate.

4. The Director of the Serious Fraud OYce expressed reservations about prosecutors being asked to advisebusinesses in relation to prospective transactions, except for in some limited circumstances:

(a) What are those limited circumstances?

(b) Would it be acceptable for an independent body or commission to provide advice of this kind?

I believe the Director of the Serious Fraud OYce is probably better placed to provide an informed answerto this question. However in general terms I would make the following points. First, as I have indicatedearlier, the US Department of Justice operates such a system under the FCPA, so there is a common lawprecedent. I have already made comments in relation to the novelty and practicality of creating such a systemin England and Wales. It may well be the case that there are other objections or issues of which I am notaware. In answer to the second limb of the question, while it is of course open to any company to take theadvice of their lawyers as to the applicability of the criminal law in any given situation, I think there wouldbe real issues in relation to prosecutorial independence if an independent commission or body (as opposed tothe prosecutor) were set up to provide advice along the lines of the Department of Justice opinion procedure.

5. Does the draft Bill clearly and adequately address the circumstances in which a legal person can be liablefor the actions of its subsidiaries, joint venture vehicles, or syndicates (including under clause 5(1) which adoptsa test of whether services are being performed “on behalf of” the company and “in connection with [thecompany’s] business”)?

General Offences

A foreign subsidiary of a UK company or part of a joint corporate venture registered outside the UK(“foreign body”) cannot commit general oVences of bribery outside EWNI under the draft bill. It is not aperson having a “close connection” with the UK—as required by Clause 7(2)(c) and as defined in Clause7(4)(h)—even if acting for or on behalf of a UK company.

Foreign Public Official

A foreign body cannot be guilty of bribing a foreign public oYcial (FPO) outside EWNI. It does not havea close connection with the UK by virtue of Clause 7(4). It can, however, be guilty of bribing an FPO withinEWNI by virtue of Clause 7(1).

Corporate Liability

A foreign body can be guilty of a general oVence committed within EWNI but the identification doctrinemakes a conviction extremely unlikely. Clause 5 seeks to remedy this diYculty.

A foreign body cannot, however, be guilty of an oVence under Clause 5 for an act of bribery occurringeither inside or outside EWNI, unless it carries on a business or part of a business in EWNI as required byClauses 5(1) and 5(7).

It is not clear on the face of the draft bill what “carries on a business” means. We wonder whether a foreignbody without a place of business in EWNI would be a “relevant commercial organisation”.

Furthermore a UK registered body cannot be guilty of an oVence under Clause 5 for bribery by a foreignbody outside EWNI . The bribe would not be an oVence under Clauses 1, 2 or 4 as required by Clause 5(2).The foreign body therefore does not have a close connection with the UK as required by Clause 7(2)(c). Thisincludes companies incorporated in the Crown Dependencies or Overseas Territories (CDOT).



Comment

The current draft leads to potential anomalies. The definition of “relevant commercial organisation”excludes bodies incorporated in the CDOT that do not carry on a business in EWNI; the definition of “closeconnection” excludes both these and joint venture partners and foreign subsidiaries of UK companies. Thisprovides loopholes that could be exploited by the unscrupulous.

The test of services performed “for or on behalf of” is one that I expect to work eVectively as it is clearand non-technical.

6. Should the jurisdictional reach of clauses 1 to 5 be extended to cover companies incorporated in OverseasTerritories, Crown Dependencies and (subject to your views outlined above) subsidiaries of UK incorporatedcompanies?

This is essentially a policy decision for the Government and Parliament and I would not wish to comment,beyond setting out some practical consequences of the propose legislation as it is currently drafted.

Obviously a consequence of the jurisdictional limitation is that we will be unable to prosecute someoVences of bribery that some might consider ought properly to be prosecuted, or be capable of prosecution,in England and Wales. Clause 7 provides for extra-territorial jurisdiction both in respect of individuals andcorporate bodies where the oVence is committed abroad. However, this is limited by the requirement thatthe person has a close connection with England and Wales. This creates some odd situations. For example,if the act or omission takes place in the Channel Islands, the company may be prosecuted in England andWales if it is incorporated in the United Kingdom, but is beyond the reach of the British authorities if it isnot. Where the company is a foreign incorporated subsidiary of a UK company this may, in some cases, besomething of an artificial distinction.

June 2009

Memorandum submitted by Herbert Smith LLP (BB 49)

Summary

1. This written submission is made by Herbert Smith LLP. We are extremely grateful to the JointCommittee for seeking the views of interested parties during their scrutiny of the draft Bill and we welcomethe Government’s desire to modernise and consolidate the Anti Bribery Legislation.

2. These comments are based on our experience of advising clients for a number of years in relation tothe systems and controls needed to be put in place to reduce the risk of corrupt conduct by employees andthose acting on behalf of an organisation as well as acting for clients who are the subject of SFO/policeinvestigations with respect to corrupt activity.

Submissions

Clause 5—Failure of Commercial Organisations to Prevent Bribery

3. Clause 5 (7) of the draft Bill extends the definition of senior oYcer to manager. Our understanding(which is consistent with the Law Commission’s Final Report which included a similar definition and whichstated that the defence did not apply to a director or their equivalent) is that a manager for these purposesis to be the same as the definition used for the directing mind and will concept. This is a concept whichprovides that a company will only be criminally liable for an oVence (for which there is some mens reaelement) where someone suYciently senior within the organisation would be guilty of the same oVence.Under the concept of directing of mind and will, only directors or senior managers (usually taken to be nolower than two levels below board level) are suYciently senior within the organisation such that their guiltshould be attributed to the company.

4. The proposed definition in the Bill at present (Clause 5 (5)) is that “the defence is not available if thenegligence referred to …. was wholly or partly that of a senior oYcer ….. or a person purporting to act in sucha capacity.” The definition in clause 5 (7) defines senior oYcer as “in relation to a body corporate, means adirector, manager, secretary or other similar oYcer of the body corporate, and in relation to a partnership,means a partner or any person who has control or management of the business of the partnership.”

5. The extension of senior oYcer to include “manager” is causing some confusion as to whether thisapplies to senior manager (utilising the directing mind and will definition) or whether it extends to anymanager (including low level managers and/or staV having some managerial expertise). Our workingassumption has been that the intention of clause 5 is to dis-apply the defence only in circumstances wherethe negligence is due to that of a senior individual. We consider the legislation could be clarified in this regardto avoid confusion, perhaps a definition could be used for “manager” for example, we note a statutorydefinition appears in the Corporate Manslaughter and Corporate Homicide Act 2007, Section 1(4)(c). Itstates “senior management…..means the persons who play significant roles in—

(i) the making of decisions about how the whole or a substantial part of its activities are to be managedor organised, or



(ii) the actual managing or organising of the whole or a substantial part of those activities.”

We see no reason not to use that definition.

In what circumstances would the adequate procedures defence apply?

6. There is a great deal of debate as to what constitutes adequate procedures, or best practice etc. Thatuncertainty means it will be diYcult for a company to know whether it has complied with the law. It isgenerally accepted that the criminal law should be suYciently certain so that people can know what isprohibited. In the absence of that certainty, any prosecution could infringe the ECHR. We also recognisethat the law needs to be adaptable and that a one size fits all approach for all companies, public, private,English and overseas may not be appropriate. We also consider that leaving this question to a prosecutorand ultimately a jury may increase uncertainty. The Money Laundering Regulations similarly requirecompanies (and others) to have relevant systems and controls to forestall money laundering. To assist thoserequired to comply, the provision requires a court to take into account relevant guidance issued by anappropriate body and approved by the Treasury. This has proved very successful, with a number of diVerentindustry bodies producing detailed guidance to assist compliance which has then been approved. Forexample, the Joint Money Laundering Steering Group, which is a representative body of a number oforganisations, has successfully promulgated guidance notes for the financial services sector on what systemsand controls are required in order to prevent and reduce the risk from money laundering. The inclusion ofsuch a defence in the Bribery Act would allow the various trade bodies to promulgate guidance as to thesystems and controls which are required in order to prevent and reduce the risk of engaging in corruptactivity. This would promote and publicise best practice, which would help the Bill met its aims. In additionthis would ease the burden considerably on organisations trying to comply with the proposed legislation.

7. Regulation 45 (2) of the Money Laundering Regulations 2007 specifies that “in deciding whether aperson has committed an oVence under paragraph (1), the court must consider whether he followed any relevantguidance which was at the time—

(a) issued by a supervisory authority or any other appropriate body;

(b) approved by the Treasury; and

(c) published in a manner approved by the Treasury as suitable in their opinion to bring the guidance tothe attention of persons likely to be aVected by it”

An “appropriate body” means any body which regulates or is representative of any trade, profession,business or employment carried on by the alleged defender.

We consider that the adequate procedures defence in clause 5 (4) should provide protection where acompany can show that it has complied with guidance set by industry bodies which has been approved bya relevant ministry.

Should the defence apply to the conduct of senior management?

8. As you will see, the inclusion of the defence in the Money Laundering Regulations 2007, provides adefence to an organisation which can show that it had followed relevant guidance. Putting aside thediYculties with identifying who should be classed as a senior manager (supra) we are concerned as towhether the dis-application of the adequate procedures defence to the conduct of senior management is, asa matter of policy, required and secondly whether it could in fact weaken the controls firms have in place.

9. As regards the first issue; we fail to see why public policy requires a more stringent regime to countercorruption than it does to combat money laundering, which flows from all crimes, and terrorist financing.

10. As regards the second issue; one of the appropriate systems and controls which firms need to have inplace to prevent corrupt conduct is the involvement of senior management, ie. tone from the top and seniormanagement taking direct responsibility for ensuring that their organisation complies with requirements tohave in place proper systems and controls to prevent bribery. If an act of bribery occurred as a result of thefailure by senior management involved in these issues, for example, to ensure that the organisation hadadequate polices in place then the defence in clause 5 (4) would not apply. In which case the dis-applicationof the defence in clause 5 (5) to the conduct of a senior oYcer would not be necessary. We are concerned thatproviding that the adequate procedures defence does not apply where the negligence was due in whole or inpart to that of a senior oYcer would mean that companies may design their systems in such a way as to ensurethat low level management have responsibility for these issues in order to ensure that the dis-application ofthe defence could not apply to them. This would be an unfortunate and unintended consequence since, it isgenerally accepted that it is important that senior management are involved. Secondly, it is also likely thatthe defence would more frequently apply in large companies where there is much more opportunity todelegate than in small ones. The law has already encountered diYculties in pursuing corporate manslaughtercharges given the diYculty of securing convictions of large companies leading to a change in the law. Wethink it sensible to avoid such an issue arising with new legislation. We would therefore propose thatconsideration be given to not removing the availability of the defence where senior management areinvolved.



Those who provide “services”

11. The oVence of a commercial organisation failing to prevent bribery extends to those personsperforming services for and on behalf of the organisation. This is further defined at clause 6. The capacityin which “A” was performing services for and on behalf of “C” does not matter and, for example “A” maybe “C’s” employee, agent or subsidiary. In practice, this could encapsulate a wide range of persons, fromsmall contractors to outsourced service providers. The cost of ensuring compliance could be significantdespite the corruption risks being, in some cases, small. This reinforces our view of the need for a safeharbour through approved industry guidance. Secondly, we are concerned that the Bill does not containsome of the defences in the FCPA, thereby making it more onerous. Not many, if any, commentatorsconsider the FCPA to be defective or “soft” on corruption. For example, many large scale projectsundertaken overseas often involve two or more entities through a joint venture entity. Where one holds morethan 50%, then clearly it has control over the ethical direction that the joint venture entity takes. We areconcerned, however, with the situation in which a joint venture partner does not have a controlling stake(ie. over 50%) in the joint venture entity. There is a risk, given the current drafting of clause 5 of the Bill, thatthe joint venture entity is performing services on their behalf. However, where a joint venture partner cannotcontrol the activities of the joint venture entity, we do not consider it should be liable for the acts of the jointventure entity. By comparison, the FCPA provides, in the books and records provisions, that where an issuerholds 50% or less of the voting power, it is only required to proceed in good faith to use its influence, to theextent reasonable under the circumstances, to cause such domestic or foreign firm to devise and maintain asystem of internal accounting controls consistent with the provisions in the FCPA. This recognises thatwhere there is only limited control, only reasonable steps in good faith have to be taken to reduce the riskof corruption in a joint venture entity. We consider that such a provision would be appropriate here and notleft for guidance.

Bribery of Foreign Public OYcials

12. In the Law Commission’s final report they proposed that a defence should apply where a person hada reasonable belief that payment to an oYcial was required or permitted under local law. That has now beenremoved in the proposals prepared by the Ministry of Justice.

13. Our own experience and that of clients is that it can be diYcult to get reliable local law advice aboutwhether a particular situation will be corrupt or not. Often that advice is heavily caveated because of a dearthof authority on what the legislation means in practice and is dependent on a number of assumptions, someof which the person on the ground having to make the decision will not know the answers to and willtherefore have to make a best guess based on the information at hand. We fail to see why public policy shouldrequire that individual’s actions be criminalised and for the individual then to rely on a prosecutor’sdiscretion, on whether with hindsight, the public interest requires a prosecution. For those reasons weconsider that the defence of “reasonable belief” should be retained.

Jurisdiction

14. The legislation adopts two diVerent tests as regards jurisdiction. In respect of clauses 1, 2 or 4 (wherethe relevant acts or omissions are committed outside the United Kingdom) then the English and Welshcourts can take jurisdiction over a body incorporated under the law of any part of the United Kingdom. Asregards clause 5 (the clause dealing with failures by commercial organisations to prevent bribery), this clauseapplies (irrespective of whether the acts or omissions take place in England and Wales or elsewhere) to abody which is incorporated under the law of England and Wales or Northern Ireland or to any other bodycorporate which carries on a business or part of a business in England, Wales or Northern Ireland.

15. It is not clear why two diVerent tests as regards jurisdiction should be adopted. This produces ananomaly, where for example, a Scottish company incorporated in Scotland but which does not do businessin whole or in part in England and Wales or Northern Ireland, could not be guilty of an oVence under clause5, but could however be guilty of an oVence under clauses 1, 2 or 4, regardless of whether or not there is anyconnection to England or Wales.

16. We also note that the oVence under clause 5 could apply to a French company which has an oYce inLondon even if the act or omission constituting the act of negligence takes place outside England, etc; A’sacts also take place outside England etc, and where these issues are wholly unconnected to the businesscarried out by the London oYce. That is because the definition of “relevant commercial organisation” fors.5 (1) includes any body corporate which carries on part of its business in England etc (s. 5 (7)(b)) but theproposed legislation does not require that the relevant act (or omission) has any connection to the businesscarried on by the company in England, Wales or Northern Ireland (Section 7 (5)), only to the corporate’sbusiness generally. These proposals extend the jurisdiction beyond that enjoyed even by the US authoritiesunder the FCPA. We are not sure these consequences were intended and would consider that in the situationoutlined above it should be a matter for the French courts to take jurisdiction over. We would propose thatthis be remedied by making it clear that for non UK companies, the person, A, who is providing services



under section 5(1)(a) for C is doing so for that part of C’s business which is carried on in England, Wales,or Northern Ireland, even if A’s acts took place outside the UK. This could be dealt with by a small additionto section 5(7) or section 7(5).

June 2009

Memorandum submitted by Interchange Solutions (BB 50)

I am aware of the work of the Scrutiny Committee on the Draft Bribery Bill and the tight timescale,through our input to the submissions of SBAC and DMA.

Interchange Solutions helps companies and organisations to mitigate bribery and corruption risk, beforenot after the event. Working with our clients we embed ethical compliance and help them change theirbusiness culture by translating business ethics into value adding business process. We are members of SBACand worked with SBAC, the DMA and others, to compile the guidance booklet “Tools to Grow YourBusiness in a Changing Ethical Environment”. A copy has been submitted to your Committee by SBAC/DMA.

I am aware of some of the issues around Clause 5 Failure of commercial organisations to prevent briberyand would like to make some specific comments on sub section (4) in relation to what might constituteadequate procedures.

The concept of adequate procedures and what that means, seems to be fundamental to the case for boththe prosecution and the defence and yet nowhere in the draft Bill are those adequate procedures defined orguidance given. Without definition or a benchmark, it may be diYcult to prosecute or defend a case broughtunder Clause 5 if there is no basis to prove that adequate procedures were/were not in place. This omissionmight lead to costly and failed prosecutions thereby undermining the credibility of the new law.

I also believe that evidence has been given to the Committee, that the implementation of adequateprocedures may be a costly imposition on SMEs. From our own experience we would not entirely supportthat view. A small company, with the will to tackle the issue, can with minimal guidance, achieve much usingits internal resources to develop and implement policies and working processes to mitigate bribery risk,especially if it knows what those adequate procedures are. Smaller companies are often more adaptable thanlarger ones in addressing such issues and do not need to be so expansive in such areas of compliance.

There is plenty of best practice policy and procedural guidance for business: from TransparencyInternational, the Institute of Business Ethics, the ICC etc. Much is crystallised in reports such as that of theWoolf Committee (May 2008). There are also international conventions and pacts which provide an insight.However, to our knowledge, there are no recognised international standards which companies might attain,although we understand that one on “social responsibility” will be published by the International StandardsOrganisation (ISO 26000) in 2010. It will reportedly cover certain forms of ethical behaviour includingbribery and corruption. Smaller companies in particular, have neither the time nor the resources to secondguess what they should be doing, hence the value of tools like the SBAC/DMA handbook and the Europeanwide Common Industry Standards.

Therefore to assist in this matter, I thought it might be helpful to lay out what to us, to many of our clients(large and small…SMEs) could be the basis of those adequate procedures. The scale and depth ofimplementation of these adequate procedures will vary according to the size of the business, where in theworld it operates and the nature of its goods and services. We believe that the components of what wouldconstitute adequate procedures can be simplified under four headings, which could be incorporated asguidance (in a form that is appropriate) to the Bill. Once agreed, these practical steps would provide a basicchecklist to companies, the enforcement authorities and the courts, as to whether the responsible personswere negligent or otherwise in preventing bribery. We would view these as a guide rather than prescriptive,as circumstances will diVer from case to case:—

Policies—“the guidance”

— Business Ethics policy creating a sense and culture of doing the “right thing” in all areas ofbusiness*

— Code of Conduct including conflicts of interest, donations

— Dealing with the giving and receiving of gifts and hospitality*

— Disclosure mechanisms (whistle blowing)

— and where appropriate to the industry, adherence to regulatory standards*

Process—“embedding policy in normal business practice”

— Measurement and benchmarking through audit (externally if necessary)

— Independent integrity due diligence of third parties (supply and sales sides)*

— Process that extends into M&A, IPO, JVs, OVset trading etc



— Embedded in company business strategy, enmeshed with budgets and financial reporting*

— Review mechanisms for the management of third party sales channels such as agents, advisors,consultants and distributors*

— Ethical compliance/standards conditional in trading Terms and Conditions, discussed with JVpartners (even if company has minority holding)

— Properly maintained and timely record keeping of all transactions related to third parties especiallysales and supply sides*

People—“changing behaviours and corporate culture”

— Zero tolerance “tone from the top”*

— Specifically nominated board/executive/management responsibilities (responsible persons)*

— Appropriate oversight of adherence to the processes, “checks and balances”, from boarddownwards*

— Sanctions for inappropriate behaviour and incentives for changing behaviours*

— Demonstrable training programmes*

Communication—“putting out the message”

— Message communicated across cultures and languages

— Disclosure of policy, process and breaches in Reports and Accounts

— To suppliers, customers and all third parties*

Whilst all are important, those marked * are in our view, key areas which smaller companies could costeVectively implement and gain business benefit as a first step to implementing best practice in mitigatingbribery risk.

Should you feel that you and your Committee would wish to discuss this further, I would be prepared togive evidence on this particular aspect of the Bill.

June 2009

Memorandum submitted by Monty Raphael (BB 51)

Written Response by Monty Raphael (Special Counsel, Peters and Peters) to the SupplementaryQuestions of the Joint Committee on the Draft Bribery Bill

I have now had the opportunity, along with Jeremy Cole and Louise Delahunty, of addressing the JointCommittee in full on what is likely to happen in practice with the advent of any new law of bribery. Thisdocument is intended as an addendum to those submissions and seeks to address the supplementaryquestions posed by the Committee at the conclusion of our oral evidence.

My remarks should be read in the context of the general observation that the Draft Bill represents a soundbasis for agreement between the various interest groups, which have, at diVerent times, dominated thedebate. I am grateful for the opportunity to read the notes of Jeremy Cole and Louise Delahunty.

To the extent that the “improper” performance test is unclear or unworkable, what changes should be made tothe draft Bill?

I do not agree that the test is unclear and unworkable. The test is a very simple one; it is, and indeed mustbe, the standard which is to be applied to international business persons of high integrity (deliberateemphasis). Moreover, it does not matter where the function took place, or where it is to be performed.

I agree with paragraphs 1.1 (b), 1.2 and 1.5 of Mr Cole’s written submissions, and adopt them in theirentirety.

Whilst I agree that the Committee must ensure that the question of what is “improper” does not result inthe possibility of a jury trying to consider impropriety from a particular foreign culture perspective, I do notagree that this or any other part of the Draft Bill is over-drafted and nor do I agree that the conditions of“good faith,” “impartiality” and “breach of trust” unnecessarily complicate matters. The Draft Bill containswithin its provisions a useful guide, with useful pegs on which a judge can frame a direction. The case maybe made at some stage for a model direction, but that cannot be done before the appellate courts havegrappled with this legislation, nor before courts, practitioners and legislators have had the opportunity ofseeing how such cases will be presented and what issues will arise.



Does the draft bill leave any gaps in the law or can we rely on other legislation (for example the CompetitionActs) to prevent holes emerging?

I am of the view, which I know to be shared by others asked to comment on the Draft Bill, that there areno gaps of consequence. The Draft Bill achieves what it is hoping to; it is necessarily narrow in focus andimplements the OECD Convention. It does not, nor does it profess to, implement the whole of UNCAC.

Should the draft Bill subsume any of the overlapping statutory bribery oVences (such as oVences under theHonours (Prevention of Abuses) Act 1925), or is there merit in keeping them separate?

The Draft Bill should not subsume any of the overlapping statutory bribery oVences. Wider reform mayprove necessary but I agree that there is merit in keeping these oVences separate. Furthermore, I am not keenfor the long-awaited Draft Bill to be delayed for the consideration of amendments that will no doubt provecontroversial.

Are there any specific changes that should be made to the draft Bill that you have not had an opportunity toidentify before now?

(i) Should the “legitimately due” test be removed?

We cannot find ourselves in a position whereby the proposition that “that which is not forbidden ispermitted” is acceptable. The test should make it perfectly clear that the bestowing of that particularadvantage on that person holding that particular oYce is permitted by the written law in the country ofwhich he is a public oYcial, is the only test of legitimately due.

I am aware of the concerns expressed by the OECD representatives; however, I am of the view that thisdefence should remain for the very very few cases where it can be shown that the payment was legitimatelydue. I do not anticipate that it would ever have any application if the strict test is applied properly as nooVence will have been committed and no prosecution brought, at least in the absence of the introduction ofa single criminality test.

I do not support the “reasonable belief” test; it will leave a gateway open where it is clear that we do notwant people to even contemplate bribery or to consider the application of such a test by reference, forexample, to local opinion, or the Transparency International Indexes. It is not, of course, a defence in thiscountry to have taken legal advice prior to the commission of an oVence.

I agree, and again adopt entirely, the views expressed by Mr Cole in paragraphs 4.14–4.18 of his writtenresponse to the Committee.

(ii) The Corporate OVence

I have had the considerable benefit of reading the oral evidence and written work of Professors Celia Wellsand Bob Sullivan, by which I was greatly assisted. I take the view that it is desirable to keep clause 5 as aseparate corporate oVence; it may be the real key to making progress on supply side bribery as unless anduntil UK corporate entities begin to feel the bite of enforcement there is little incentive to ensure compliance(the only real threat is from the United States of America). I do however take the view that corporationsshould be held on a vicarious liability test. All that needs to be established is that a bribe has been paid; itwould then be for the company to demonstrate that it had made every reasonable eVort by way of internalprotocols, training and sanctions to prevent any of its oYcers or employees directly or indirectly bribingforeign public oYcials.

I am firmly of the view that the introduction of the negligence test is misconceived; it is not the correctstandard upon which this oVence should be judged. The test can diVer between individuals and a morequalified person may be judged more harshly on the basis that they would be expected to operate at a higherlevel of diligence.

June 2009


Answers to Written Questions from the Joint Committee to the Ministry of Justice

1. Please could you supply a list of cases for which the current law was insuYcient to bring a successfulprosecution and where it is envisaged that the draft bill would have made a diVerence?

Although we understand the Committee’s interest in identifying instances where the deficiencies of thecurrent law have hindered investigations and prosecutions, it is not possible to obtain any hard “negative”data of this kind. It might also be inappropriate to refer to specific cases in this way. However as the LawCommission Consultation Paper on Reforming Bribery noted, it is almost universally believed that the



current law is in need of rationalisation and simplification. Criticism of the current law has focussed on theconfusion caused by statutory oVences which are often inconsistent and which overlap with each other andthe common law, rather than the existence of significant “gaps” in the law that hinder eVective prosecutions.

We can, however, refer to several contexts where liability will be clearer under the draft Bill or where thecurrent law can be seen as insuYcient.

(a) An act of bribery committed abroad by a foreign national resident in England and Wales

The Anti-terrorism, Crime and Security Act 2001 extended the domestic courts’ jurisdiction to acts ofbribery committed abroad by UK nationals or bodies incorporated under UK law. However, as wasemphasised in the Law Commission report, the extension does not apply to foreign nationals who reside andconduct their business in England and Wales. The draft Bill provides for liability under clauses 1, 2 and 4 forall persons with a “close connection” to the UK. This includes individuals ordinarily resident in any part ofthe UK.

(b) A bribe through an intermediary

The OECD has expressed concern that under current law it is not clear that it is an oVence for a personto use a non-UK national as an intermediary to bribe a foreign public oYcial if the act of bribery takes placeoutside the UK. The concern here relates to the current law governing participation in crime, which requiresthe commission of an oVence before a person can be convicted of aiding and abetting, counselling orprocuring. If a non-UK national bribes another person overseas on behalf of someone in the UK there will,under current law, be no oVence because our extra-territorial provision in the 2001 Anti-terrorism, Crimeand Security Act does not extend to non-UK nationals. Thus there can be no secondary participation anda natural or legal person that counselled the crime cannot be prosecuted in the UK.

The Government is addressing this issue in a number of ways. As regards the bribery of foreign publicoYcials for a business advantage, Clause 4 of the draft Bill expressly covers bribery through a third partyof any nationality. As regards the proposed general bribery oVences under clauses 1 and 2, the draft Billextends our courts’ extra-territorial jurisdiction for bribery oVences to cover foreign nationals ordinarilyresident in the UK. Secondary participation in the commission of an oVence abroad by such a person wouldtherefore give rise to liability in the UK. In addition a natural or legal person in the UK that encouraged abribe to be paid overseas on its behalf by a non-UK national that is not ordinarily resident in the UK cannow be prosecuted under the assisting and encouraging crime provision in the Serious Crime Act 2007.

(c) An act of bribery committed by or on behalf of a company

Under current law a company will only be liable for an act of bribery if a “directing mind”, usually amanaging director or board member, is found to have acted “corruptly”. This “identification doctrine” hasbeen criticised, particularly by the OECD Bribery Working Group, as a severe hindrance in adequatelyaddressing bribery in the corporate context. Under clause 5 of the draft Bill, where any person performingservices for a company has bribed another person in connection with the company’s business, the companywill be liable if another person connected with the company, who is responsible for preventing bribery,negligently failed to prevent the bribe. (This discrete “corporate failure” oVence does not abrogate the directliability under the “identification doctrine but” is supplementary to it. The wider issues relating to corporateliability generally are the subject of a wider review by the Law Commission.)

(d) The “principal” consents to the “agent’s” actions

The bribery oVence under the Prevention of Corruption Act 1906 is based on an agent/principal concept.The OECD WGB has expressed concerns that, although the UK has stated firmly that the principal’sconsent to the agent’s actions does not constitute a defence under the 1906 Act, such consent may have beena factor in decisions to discontinue investigations into foreign bribery. As there is no agent/principal conceptin the draft Bill, there is no question of the principal’s consent constituting a defence.

(e) Bribery of an MP or Peer

Bribery of a member of either House is contempt of Parliament and as such can be punished by the House.It is generally accepted though that members cannot be liable for the current statutory corruption oVencesas neither House is a “public body” for the purposes of the Public Bodies Corrupt Practices Act 1889 Actand members are not “agents” for the purposes of the Prevention of Corruption Act 1906 Act. There is adegree of uncertainty around whether a member can be liable for the common law oVence of bribery, whichapplies to persons “in a public oYce”. In line with the recommendation of the 1999 Joint Committee onParliamentary Privilege, the draft Bill brings Members of both Houses within the statutory law of bribery.



2. Please could you supply a list of foreign countries which have laws that permit bribery, or which requireoYcials to accept “advantages”?

We are not aware of any countries that have laws permitting or requiring oYcials to accept “advantages”.We are aware, however, that some countries, for example, the United States of America (Foreign CorruptPractices Act) provide for a limited exception for small “facilitation payments” made to facilitate or expedite“routine governmental action”. Our Bill provides no such exception. Most countries are signatories to oneor more of the international instruments which require member states to criminalise bribery. The UnitedNations Convention against Corruption (UNCAC), which entered into force on 14 December 2005, hasbeen signed by 140 countries, of which so far 136 countries have ratified the Convention. We do not maintaincomprehensive information about the law in other countries that would allow us to confirm whether or nottheir laws address bribery in all its forms.

3. Please could you supply pathways for the oVences in clauses 4 and 5 of the draft bill?

Clause 4—Bribery of a Foreign Public OYcial

Step 1—The pathway starts with the conduct element. This is expressed as bribery of the foreign publicoYcial (“F”) by a person (“P”) (clause 4(1)).

Step 2—One needs then to assess whether what P did amounted to “bribery” for the purpose of the Clause(clause 4(3)).

Subsection (3) provides 2 possibilities.

1. P oVers, promises or gives any financial or other advantage (not defined) to F, which is notlegitimately due to F. The oVer, promise or gift can be made directly or through a third party; or

2. P oVers, promises or gives any financial or other advantage to a person other than F but at F’srequest, or with Fs assent or acquiescence, which would not be legitimately due to F if the oVer,promise or gift was made directly to F. Again the oVer, promise or gift can be made directly orthrough a third party.

Step 3—Then one needs to consider whether the advantage can or cannot be regarded as not legitimatelydue to F. Clause 4 (4) makes it clear that an advantage is only legitimately due of the law applicable to Fpermits or requires F to accept it.

Step 4—The next step is to look at P’s intentions in order to assess whether a fault element can beestablished (clause 4 (1) and (2)). In order to establish the fault element P needs to intend:

1. to influence F in F’s capacity as a foreign public oYcial; and

2. to obtain or retain a business or a business advantage.

Clause 5—Failure of commercial organisations to prevent bribery

The pathway starts with the conduct element. This has two parts, both of which must be satisfied for thecommission of the oVence:

Step 1—Has a person (“A”) performing services for or on behalf of a commercial organisation bribedanother person in connection with the organisation’s business (clause 5(1) (a) and (b))? Performing servicesis defined in clause 6. A commercial organisation is defined at clause 5 (7).

Step 2—In order to fulfil Step 1 it is necessary to establish if A has committed an oVence under clause 1 or4 of the draft Bill (clause 5 (2)) (although there’s no need for a conviction) and it does not matter whetherthe oVence is committed in E&W, NI or elsewhere (clause 7(5)).

Step 3—Is there a person responsible for preventing bribery? If the organisation has not appointed anysuch responsible person the responsibility will fall to a senior oYcer of the organisation.

Step 4—Has a responsible person, or a number of such persons taken together, been negligent in failingto prevent the bribe (clause 5(1)(c))?

If the requirements in these four steps are satisfied then the Clause 5 oVence is made out.

Step 4—However, save for circumstances in which the negligent failure to prevent bribery was on the partof a senior oYcer (clause 5(5)), the organisation has a full defence to a charge under this clause if it can showthat it had adequate procedures in place designed to prevent persons from committing bribery oVences(clause 5(4)).

4. Is Scotland considering similar legislation? If not, how will the UK-wide obligations under the OCEDconvention (among others) be addressed?

We have shared details of our proposed legislation with the Scottish Executive. It is for Scottish Ministersto consider whether any similar changes will be necessary to Scots law and the process by which any changesmight be achieved. The Scottish Government is equally aware of the need to comply fully with ourinternational obligations against bribery.



5. Please could you elaborate on the partial impact assessment that was published alongside the draft bill,including a response to the following issues:

(a) In the section entitled “what is the problem? why is Government intervention necessary?”, there is nomention of the need to comply with the UK’s international obligations. Please could you supply a list of all therelevant treaties and conventions, compliance with which will be enabled by the draft bill?

The various international Conventions and other instruments on bribery that are currently binding onthe UK are set out in detail in Appendix A of the Law Commission’s Consultation Paper (CP No. 185) andlisted below:

The 1999 OECD Convention on combating the bribery of foreign public oYcials in internationalbusiness transactions;

The 2002 Council of Europe Criminal Law Convention on Corruption and the 2005 additionalprotocol;

The 2003 UN Convention Against Corruption;

European Union instruments

The First Protocol of the 1995 Convention on the protection of the European

Communities’ financial interests;

The Second Protocol of the 1995 Convention on the protection of the European Communities’financial interests;

The Convention of 1997 on the fight against corruption involving oYcials of the EuropeanCommunities or oYcials of member states of the European Union;

The Council Framework Decision 568 of 2003 on combating corruption in the private sector.

(b) To what extent would the Ministry of Justice consider the improvement of public sector provisiondomestically and also across the developing world to be a relevant objective under the “policy objectives”section?

Bribery poses a risk to the provision of eYcient public services, both in this country and in the developingworld. Although the UK is recognised as one of the least corrupt countries in the world we must, as allcountries must, be concerned about the threat it poses to the integrity of our public authorities, achievingvalue for money in public procurement and fair access to services. But the damaging impact is most evidentin the developing world where significant funds can be diverted away from social and infrastructure projectsand it has the eVect of lowering the standard of living for the poorest of societies. It is important that that wehave modern and comprehensive legislation in place to tackle bribery eVectively whether it occurs at home orabroad and in the public or commercial sectors.

(c) Please could you provide a fuller list of the risks posed by bribery, including the risks to ordinary citizenswho experience the eVects of corruption on the facilities that they use for day-to-day life?

There are multiple and wide-ranging risks associated with societies exposed to bribery:

— It undermines good governance in public and commercial sectors as well as democratic systemsand values.

— It restricts access, particularly in developing countries, to essential public services such as health,education and public utilities.

— It distorts the supply of goods and services and in so doing inhibits free and fair competition andundermines the delivery of value for money in public procurement.

— It increases the risks and costs of doing business, with a particular impact on small enterprises; italso denies tax revenue to the wider benefit of society.

— It adversely aVects investment and economic growth, particularly in vulnerable developingcountries with a negative impact on foreign direct investment equivalent to an extra 20 per centin tax.

As part of your response, please could you supply an explanation of why a fuller impact assessment wasnot produced at this stage.

A draft implementation stage impact assessment was published alongside the draft Bribery Bill. Thisprovided a preliminary assessment of the potential impact of the new oVences in the draft Bill. Impactassessments are usually developed as a continuous process from the initial identification of policy challengesand options through public consultation and on to implementation. In the case of bribery, there has been aprotracted and faltering history to proposals for reform but the Government’s draft Bill was informed bythe report of the Law Commission in November 2008. This report represented a new approach to reformof the law on bribery and included two new discrete oVences. There was limited opportunity ahead of the



publication of the draft Bill for the Government to prepare a detailed impact assessment. The approachtaken therefore was to publish the proposals as draft legislation and to develop the impact assessment furtheronce it was published.

June 2009


Questions for Written Answer by the Secretary of State for Justice

These are questions that would ordinarily have been posed at the oral evidence session on 17 June.However, due to a lack of available time, they are provided for written answer instead.

Penalties

Q1. How real is the danger that civil recovery proceedings are likely to breach human rights legislation or giverise to excessively punitive outcomes?

A Court is a public authority for the purposes of the Human Rights Act 1998 and must not act in a waythat is incompatible with Convention rights when considering whether to confiscate property that has beenidentified as the proceeds of crime. The court should take into account all relevant circumstances, includingany interests of third parties such as creditors.

Crown Application

Q2. What is the justification for excluding Crown departments (such as the Ministry of Defence) from theoVences under the draft Bill?

Clause 12 makes clear that the oVences apply to Crown servants. Crown departments are not ordinarilyliable to prosecution for criminal oVences. In relation to the new clause 5 oVence the Crown does not fallwithin its policy focus. This clause seeks to address the potential for bribery to be employed on the part ofthose businesses operating in the UK in the acquisition of business in foreign markets, principallydeveloping markets. Generally the Crown does not engage in commercial activity. The mischief that theoVence seeks to address is failure of governance structures within commercial organisations which allowsbribery to be used to secure a business advantage.

Transitional Issues

Q3. Would the Bill catch payments made after it comes into force under agreements that were entered beforeit came into force, provided the agreements were subsequently maintained or re-iterated?

In accordance with the general principle that criminal oVences should not have retrospective eVectoVences which are committed wholly or partly before the commencement of the new provisions will fall tobe prosecuted under the current law (clause 18). Therefore an agreement before commencement date that aseries of payments as part of a corrupt bargain shall be paid in the future can be prosecuted as a substantivebribery oVence or possibly a conspiracy to bribe, depending on the precise circumstances, under existing law.The future payments if taking place after commencement of the new provision may well, depending on thecircumstances of the case, amount to a series of separate bribes and therefore be susceptible to the newprovision. In the alternative, if the court took the view that the future payments were all part of a singlescheme that began before commencement then the conduct would fall to be dealt with under exiting law.The oVences at clauses 1, 2 and 4 reflect the scope of criminality under the existing law and therefore it isreally to a very large extent immaterial which law applies.

[Clause 5]

Q4. It has been suggested that clause 5 should be turned into a civil/regulatory regime for imposing fines oncompanies rather than imposing a criminal oVence. This would leave corporate criminal liability for bribery tobe addressed (as with other criminal oVences) by the Law Commission’s ongoing review. What are your views,including whether a civil regime would meet the UK’s international commitments?

It is the Government’s view that it is inappropriate for bribery to be treated as anything other than aserious criminal oVence. The government has however considered the civil or administrative option. Ourview is that while a civil scheme may deliver a similar impact as the criminal route (ie financial penalty) thestigma of criminal oVence has much more deterrent potential than a civil penalty. In addition anadministrative or regulatory scheme would be required to deal with all levels of infringements ranging fromrelatively minor procedural matters, relating to record keeping for example, right through to serious casesof bribery. There was therefore a risk that cases of serious corporate bribery might be disposed of as lessermore regulatory infringements through self-referral and plea bargaining. Also, although self-referral with aview to a non-criminal sanction is one of our policy aims the serious criminal oVence plays an importantrole as an incentive to self-referral. Finally the establishment of a civil regulatory regime would involve very



significant amounts of public funds and it would also give rise to a very large new regulatory burden forbusiness. So in summary such a scheme would provide little benefit in return for considerable publicresources.

As regards the UK’s international obligations, the relevant obligations including the OECD Convention,are drafted in such a way as to give states the alternative of applying civil or administrative sanctions.However, consistent with our approach in creating the explicit oVence of bribery of a foreign public oYcialin clause 4, we believe that creating a criminal oVence in clause 5 ensures the highest international standardsfor combating bribery in the business context.

June 2009

Memorandum submitted by Transparency International (UK) (BB 54)

When giving evidence to the Joint Committee on 11th June 2009, the Chairman asked Jeremy Carver andMark Pyman representing TI(UK) to provide written answers to the last four of the written questionsprovided in advance by the Committee. We do so below, providing the text of each question. Jeremy Carverwas subsequently asked on behalf of the Committee to answer two specific supplementary questions, theanswers to which are also set out.

TI(UK) expresses its appreciation to the Committee for inviting its evidence on this draft Bill. We trustthat our general remarks were suYciently clear and understood. We remain utterly convinced of the needfor the Government urgently to introduce a Bribery Bill, in no weaker terms than the draft, at the earliestopportunity. Twelve years of consultation, consideration and procrastination have generated a draft Billwhich, while not perfect, is an enormous improvement on the present ineVective law.

Q.23 To obtain a view on the proposed narrowing of parliamentary privilege.

Recalling the reasoning of the Joint Committee on the draft Corruption Bill (HL paper 157 & HC paper705, 31 July 2003, paragraph 134) TI(UK) supports the proposal.

Q.24 To obtain a view on the extra-territorial reach of the draft Bill.

TI(UK) agrees with the draft Bill in ensuring that prosecutions can be brought if the act or omission isby a person with a close association (as defined) with the United Kingdom. This country plays anextraordinarily broad role as a market forum for commercial transactions and international services; andthere is a national interest in ensuring that this huge volume of business is encouraged, and is conducted tohigh standards, without which the country’s reputation is damaged and the economy suVers. English civillaw is chosen to govern transactions having little or no connection with the United Kingdom. It isappropriate that UK anti-bribery law should have a similar reach. TI(UK) supports the proposed provision.

Q.25 To explore whether the power to authorise bribery by the security services is appropriate and compatiblewith the UK’s international obligations.

TI(UK) opposes the entire Clause 13 of the draft Bill. As the Committee heard from Mr Bonucci, theOECD Working Group on Bribery is aware of no provision of law anywhere whereby bribery is expresslysanctioned; and we share the WGB’s astonishment that the Government should have put forward such aprovision. While we welcome the Government’s openness in acknowledging that bribery may be used by thesecurity services, we have the gravest doubts as to whether any worthwhile long-term national interest isserved. If the security services can make a case for such an “opt-out”, they should present it for appropriateparliamentary scrutiny; and it should form no part of any general law of bribery.

Q.26 To explore the extent to which facilitation payments and corporate hospitality will be unlawful; and toascertain whether prosecutorial discretion can be relied upon to ensure that enforcement is well targeted.

It has been the long-standing policy of Transparency International to oppose the use of facilitationpayments. At its Annual Membership Meeting in October 2007, TI resolved formally to advocate forrevisions of national and international laws to eliminate tolerance of facilitation payments. In a 2002 survey,TI found that the United Kingdom was one of nine OECD member States to have criminalised the paymentof facilitation payments, the others being: Belgium, Finland, Italy, Luxembourg, Netherlands, Norway,Slovenia and Spain. It would be inconceivable that a Bill modernising and reforming the UK law on briberyshould step backwards on this point. Other countries have perhaps taken their lead from the US FCPA,which was adopted in 1976, when there was perhaps greater tolerance of facilitation payments than existstoday.

TI(UK) would expect that prosecutors would develop sensible criteria for assessing when prosecution wasjustified, and these too would evolve in the light of experience. At a time of greater scrutiny of inappropriatecosts, companies are increasingly adopting strict and enforceable internal codes on use of hospitality and



other inducements for business; just as government departments and public bodies have done. Theirattempts to maintain good business practice would be undermined by legislation that provided any “optout”. These codes of conduct will in turn help to inform prosecutors where lines should be drawn.

Supplemenary question 1: You stated that the “legitimately due” test should be removed from Clause 4. Wouldthis lead to any conduct being criminalised which should not be criminalised? In particular, should clause 4 beamended to require the “advantage” to be “undue” or “improper”?

TI(UK) confirms its view that the “legitimately due” test is misconceived and inappropriate in this Bill.Essentially, pressure to retain or even enlarge this additional hurdle to prosecution is directed at supportingthe “business-as-usual” approach which we consider both wrong in practice and contrary to ourinternational commitments under various Conventions. Clause 4 is specifically designed to leave no doubtwhatsoever of our fulfilment of the OECD Anti-Bribery Convention, and this test is not consistent with theConvention. In their evidence, the OECD Working Group on Bribery expressed similar views, and explainedthat of their 38 member States, only five had included a much clearer test based on “written” general law188—the rest have no exception in this regard whatsoever. If the United Kingdom adopts the present language,it will be asked by other OECD Convention States to change it—as happened to Australia when they hadsimilar language in their earlier bribery law.

The concern seems to be that, with no further test, the oVence can be established on the basis of provinga payment to foreign public oYcial, irrespective of the motive behind the payment. This was and remainsthe aim of the Convention, as Commentary 7 makes clear.189 Present UK law criminalises payments to publicoYcials with a rebuttable presumption that the payment is improper. The Law Commission, inrecommending a defence based on “reasonable belief” that a payment is legitimately due (Reforming Bribery,para 7.47), placed the burden of proving the defence on the bribe-payer (paragraph 7.49). The draft Billseems to have reversed this so that the prosecution would have to prove the negative, which places theprosecution back in the present unsatisfactory situation of being unable to prosecute a bribe payer if thereare doubts as to whether the payment was authorised.190

In TI(UK)’s view, the test should be removed from Clause 4, and not replaced by a requirement that thepayment be “undue” or “improper”. The OECD Convention requires that payments to foreign publicoYcials be criminalised; and that should be our standard. We doubt the risk that “innocent” conduct willbe criminalised, because prosecutors are unlikely to prosecute if the circumstances are plainly innocent. Therisk is the far greater one that companies will make payments to foreign public oYcials under cover of“fuzziness” of domestic law, or a spurious legal opinion.

Supplementary Question 2: It has been suggested that clause 5 should be turned into a civil regulatory regimefor imposing fines on companies rather than imposing a criminal oVence. This would leave corporate criminalliability for bribery to be addressed (as with other criminal oVences) by the Law Commission’s ongoing review.What are your views, including whether a civil regime would meet the UK’s international commitments?

TI(UK) does not believe this would provide a better answer. The importance of criminal sanctions forcorporate wrongdoing is well established in many areas of business regulation in the United Kingdom.191 Itwould weaken the impact of the law significantly if this were not to be criminal, ie a mere regulatory breach.

The general review of corporate liability—which can in any case be expected to take years to result inlegislation—can usefully be informed by the experience developed here in relation to bribery. Should it provenecessary, it would be far easier to amend the bribery oVence at some point in the future to bring it in linewith a general enactment, than to re-institute criminal liability into the bribery regime having failed to adoptit in the first place.

Article 4 of the OECD Convention requires States to criminalize corporate bribery to the extent that ourlaw allows, and there is no inability here to criminalize corporate conduct. For the United Kingdom to backoV meeting its treaty obligations because of concern about the impact of the EU procurement rules on thosewho pay bribes would be hypocritical and wrong.

June 2009

188 Australia, Canada, Korea, New Zealand and the United States. This suggests that Professor Zerbes’ comment that “most ofthe signatory states have indeed implemented the Convention to the eVect that payments or other benefits which are madein conformity with a strict legal basis are not criminalized.” is mistaken. It is clearly not correct that the foreign written lawexception is “integral” to the oVence.

189 Commentary 8 recognises a narrower exception reflecting the much earlier language of the FCPA; but there would be littledoubt in the light of more recent events that even the narrower language could introduce unhealthy confusion, and underminethe Convention.

190 This was precisely the concern of the then Attorney General when he gave an interview to the Financial Times on his reasonswhy the criminal investigation of the Al-Yamama project had to be discontinued.

191 Contrast Germany, where punitive administrative fines are used in the absence of corporate liability in the penal code.



Additional Memorandum submitted by The Corner House (BB 55)

1. There was insuYcient time on 11 June when The Corner House gave oral evidence to the JointCommittee to answer fully two points raised by Committee members. We should like to respond to these inthis additional written submission.

Lord Lyell of Markyate asked:

“We are a parliamentary democracy. If you remove the power, and hence the responsibility, of theAttorney General, how do you get parliamentary accountability?”

His oral question was supplementary to the Committee’s written question:

“To explore whether the draft Bill does enough to reform the Attorney General’s powers of consentand direction; and whether it is likely that serious cases of bribery may never be prosecuted due to‘national security’ concerns.”

Mr David Borrow MP stated:

“. . . if you are the prime minister and you feel that something is a threat to national security thenyou want to have the freedom and the power to do what is necessary to protect the nation withouthaving lots of laws and restrictions which would actually force you to demonstrate in public a lotof stuV which may undermine that national security . . . [A]s a backstop, at the end, at some pointthe person in No 10 needs to be able to say, ‘I need to be able to pull that lever to stop that in orderto protect national security’.”

If you remove the power of the Attorney General, how do you get parliamentary accountability?

2. The Corner House welcomes the Attorney General’s consent for bribery prosecutions being removed.At present, the Attorney General is appointed by the Prime Minister, is a member of the Government anda member of parliament and is the Government’s chief legal adviser; s/he is also responsible for all crownor state litigation. As long as the oYce of Attorney General has this dual role combining political and legalfunctions, The Corner House (and the OECD Working Group on Bribery) contend that a political appointeeshould not determine which bribery cases are investigated and prosecuted and which not.

3. The UK’s parliamentary democracy is based upon a clear separation of powers between Parliament,the Executive/Government and the Judiciary: Parliament creates, amends and ratifies laws; the Judiciaryinterprets the law on a case-by-case basis (within which independent prosecutors apply the laws as passedby Parliament); and the Executive manages and administers the country on a day-to-day management andpromotes laws.

Under this separation of powers, the judiciary, encompassing judges and prosecutors, is not accountableto Parliament, and neither the executive nor Parliament should be involved in prosecution decisions (whichis why we welcome the removal of Attorney General consent for bribery prosecutions).Parliament and the Executive have no proper constitutional role to object to or be involved in a specificdecision concerning a bribery prosecution or investigation; they should have no role in applying the law.Parliament, however, does have the role of amending a law if it is not content with the application ofexisting law.Indeed, one reason for removing Attorney General consent for bribery prosecutions is to remove theobligation on the prosecutorial decision maker to be accountable to Parliament or the Executive.

4. If the Attorney General’s consent for bribery prosecutions is removed, however, there are mechanismsfor informing parliament about bribery investigations and prosecutions that could be explored.

For example, since the Bank of England was granted operational independence in 1998 allowing it to setdomestic interest rates, the Bank’s Monetary Policy Committee explains its actions regularly toparliamentary committees, particularly the Treasury Committee.i

A similar mechanism could be introduced in order that Parliament is fully informed about prosecutorialdecisions.

5. The Corner House believes that the existing mechanisms for informing Parliament about decisions toinvestigate and prosecute bribery oVences and for public accountability could, in any event, be improved.

The OECD Working Group on Bribery has noted that the Director of the Serious Fraud OYce (SFO)does not have to make public any decision about investigations or prosecutions, or to give reasons forproceeding or terminating investigations and prosecutions.ii

When the Attorney General gave a brief explanation to the House of Lords about the Serious FraudOYce’s termination of its BAE-Saudi investigation in December 2006, he stated that he did so only becauseof “the intense interest in this issue and its market sensitivity”.iii This suggests that, in the absence of suchinterest or commercial considerations, the Attorney General would not have made such a statement toParliament.



6. Any duty or requirement to report to or inform Parliament, however, does not substitute for judicialreview. It is important that whoever takes a controversial decision knows that s/he may have to explain andjustify that decision before independent judges. As noted above, the judiciary can rule whether a decision islawful or not and can interpret and clarify the law in the process; it would be up to Parliament to considerchanging the law subsequently if needs be.

Does the draft Bill do enough to reform the Attorney General’s powers of consent and direction?

7. Even though the draft Bribery Bill would remove the requirement for the Attorney General to giveconsent to bribery prosecutions, concerns remain about the power of the Attorney General to stop a briberyinvestigation or prosecution in circumstances when continuing is deemed to threaten national security, andthe accountability of exercising such a power.

8. There seems to be general confusion as to what the existing powers of the Attorney General are, a lackof consensus as to what they should be and an underlying lack of clarity as to what checks and balancesshould be applied when prosecutions are halted on national security grounds. All these issues are connectedto the combined political and legal role of the Attorney General; diYculties thrown up by this dual role havestill to be resolved and are part of ongoing constitutional reform.

9. The confusion came to the fore after March 2008 when the Government published its draftConstitutional Renewal Bill, which aims, in part, to separate the Attorney General’s political and legalfunctions.

But it would also establish a statutory right for the Government, through the Attorney General, to haltany criminal prosecution or a Serious Fraud OYce investigation on the grounds of a broadly definednational security; would provide for extremely limited oversight by Parliament when this power is exercised;and would eVectively prevent judicial review of it.iv

Giving the Executive the statutory right to intervene directly in the independent prosecution process raisessignificant domestic constitutional issues that need to be properly assessed, given the unprecedented natureof such a right.

10. The draft Constitutional Renewal Bill is separate legislation that this Joint Committee is notconsidering. But The Corner House notes that there is always the risk when politicians rely on nationalsecurity that it will be elided with the interests of the Government, especially if there is no democratic orlegal scrutiny of the relevant decision (see further below).

Will serious cases of bribery never be prosecuted due to “national security” concerns?

11. If the Attorney General’s consent to prosecute a bribery oVence is removed, consent in future will berequired only from the Director of the Serious Fraud OYce (SFO).

12. To halt a prosecution or investigation on “national security” grounds, the Director should be able todemonstrate to a court that his/her decision passes a “strict necessity test”. This test comprises threeelements:

(i) There was an imminent threat of loss of life or serious injury to identifiable persons or groups ofpersons unless the decision was taken.

(ii) All reasonable alternatives to violating the rule of law had been tried and failed.

(iii) The consequences of violating the rule of law had been properly recognised and considered (inparticular the encouragement given to others to make similar threats in the future), and weighedin the balance.

13. It would not be necessary for the Director to seek the permission of a court to apply this test beforedeciding to stop on national security grounds an investigation or prosecution that otherwise would continue.But if s/he made a decision and if a judicial review of that decision were to be brought, the decision-makershould satisfy this necessity test for the decision to be considered lawful. This is similar to the onus on adecision-maker to justify, when challenged, that their decision accords with human rights legislation.

This test ensures that a proper balance is maintained between the (sometimes urgent) interests of nationalsecurity and the integrity of the UK criminal justice system, including that it does not easily capitulate toblackmail or threats. It also ensures that the separation of powers and rule of law essential to its functioningdemocracy is maintained.

14. The Director of the SFO is not a national security expert, however, and may feel s/he does not haveenough expertise on national security to make such a decision. Depending on when and how the role of theAttorney General is reformed, the Director of the SFO should consult before taking such a decision with amember of the Executive who would have greater access to special information and expertise on securityand international law.

15. But given the evidence released during the judicial review of the decision by the SFO Director toterminate the SFO’s BAE-Saudi investigation, The Corner House has grave concerns about the manner inwhich national security issues are currently raised and assessed by the Executive, and the real potentialfor abuse.



Documents released during the judicial review show that the national security issues raised were not basedon rigorous intelligence assessments from the Security Services themselves on the basis of any objectivecriteria, but from an assessment made by the Cabinet OYce’s Permanent Secretary for Intelligence, Securityand Resilience that did not include any detailed analysis of the credibility of the threats, the reliability of thesource of the threats, the impact if such threats were to be carried out, or the measures the Government andsecurity services might be able to take to mitigate any such impact.

16. Thus any decision by the Director of the Serious Fraud OYce to stop a briber investigation orprosecution on national security grounds should be based on full, rigorous objectively verifiable intelligenceassessments from the security services with no political mediation or interpretation through ministers; theDirector should see such assessments directly. As much of this assessment should be made public as possibleto ensure as much transparency as possible about the grounds on which the decision is based.

17. The procedures outlined above would go some way to ensuring that national security does not serveas a pretext upon which to stop a bribery investigation or prosecution. The incorporation of Article 5 of theOECD Anti-Bribery Convention into domestic law would also assist.

Documents released during the judicial review of the decision by the SFO Director to terminate the SFO’sBAE-Saudi investigation illustrate that concerns about the UK’s national security were raised only after theDirector had refused to stop the investigation because of commercial considerations or potential damage tointernational relations—concerns that had been raised by various Government ministers and BAE itself.Article 5 of the OECD Anti-Bribery Convention prohibits a bribery investigation or prosecution from beingstopped because of these latter considerations.

Given that national security issues can become intermingled with commercial considerations andpotential damage to international relations during bribery investigations and prosecutions, the UK courtswould be able to assess whether any decision by the Director of the Serious Fraud OYce to stop a briberyinvestigation or prosecution was made on national security grounds or on Article 5 prohibitions, andwhether the Director had correctly understood and applied Article 5, if and only if Article 5 wasincorporated into domestic law (see Corner House first submission to Joint Committee).

18. At present under UK law, the courts cannot consider whether a decision to stop an investigation orprosecution breaches Article 5 of the OECD’s Anti-Bribery Convention and the Director of the SeriousFraud OYce has no obligation to do anything to resist a threat made by someone abroad if the UKGovernment asserts that the threat endangers national security.

19. The Corner House believes that unless Article 5 is incorporated by primary legislation and unless thecourts are required to assess whether a decision to abandon a bribery investigation or prosecution followsa strict necessity test, it may well continue to be the case that serious cases of bribery may not be prosecutedbecause “national security” concerns are cited.

How could the prime minister do what is necessary to protect the nation from a national security threat withouthaving to reveal publicly information that may undermine that national security?

20. The Corner House welcomes statements in the Cabinet OYce’s March 2008 document, The nationalsecurity strategy of the United Kingdom,v that repeatedly emphasise the importance of “legitimate andaccountable government” and “strong parliamentary and judicial oversight” in maintaining nationalsecurity.

21. The Corner House accepts that the Executive has a duty to protect the public from threats tonational security.

But it is critical that the public has absolute confidence and trust that national security arguments are notbeing abused in order to avoid political, commercial or diplomatic embarrassment or to pursue thecommercial interests of favoured companies or for the UK to get out of its obligations under internationallaw. Public confidence and trust in such Executive decisions needs to be upheld and maintained and isespecially important at a time of heightened concern about international terrorism.

As noted above, The Corner House believes that there is always the risk when politicians rely on nationalsecurity that it will be elided with the interests of the Government, especially if there is no democratic orlegal scrutiny of the relevant decision.

22. Under current constitutional arrangements, administrative decisions involving national security aregenerally accepted to be the sole responsibility of the Executive; the courts give wide discretion to theExecutive on decisions that invoke national security. But the UK courts do have competence, expertise andresponsibility to assess whether a decision justifies a departure from the law, even in contexts of terrorismand national security.vi

Under general international law, moreover, when a state wishes to breach an international obligation onthe grounds of national security, the state is not entitled to be the sole judge of whether it has met theobjective standard allowing it to do so lawfully. A national security justification is a matter for determinationon objective grounds, one that should ultimately be carried out by the courts. There is clear authority forthis from the International Court of Justice.



23. In the context of bribery investigations and prosecutions, where the Executive has national securityconcerns, its responsibility is to explain those concerns to an independent prosecutor. Procedures for doingso have been established since 1951.vii

The prosecutor will make an impartial assessment of the extent to which national security requires theinvestigation or prosecution to be halted. This is the role currently undertaken by the Attorney General ina quasi-judicial capacity entirely independent from her/his political functions.

It is an important part of the UK’s existing constitutional framework that the Attorney General maydisagree with the opinions of the Executive (the Prime Minister or other Government ministers) as towhether a bribery prosecution or investigation should continue or not.

The Prime Minister (as head of the Executive) does not have and should not have the power to halt abribery prosecution on national security grounds. It would be a retrograde step undermining parliamentarydemocracy if the Executive were to be given more power to do so (see paras 7-10 above).

Supplementary Questions from the Joint Committee

24. After The Corner House had given oral evidence, the Joint Committee asked two furthersupplementary questions to which it requested written replies:

You stated that the “legitimately due” test should be removed from Clause 4 [of the draft BriberyBill]. Would this lead to any conduct being criminalised which should not be criminalised? Inparticular, should clause 4 be amended to require the “advantage” to be “undue” or “improper”?

It has been suggested that clause 5 should be turned into a civil/regulatory regime for imposingfines on companies rather than imposing a criminal oVence. This would leave corporate criminalliability for bribery to be addressed (as with other criminal oVences) by the Law Commission’songoing review. What are your views, including whether a civil regime would meet the UK’sinternational commitments?

If the “legitimately due” test was removed from Clause 4, would any conduct be criminalised that should notbe criminalised?

Should Clause 4 be amended to require the “advantage” to be “undue” or “improper”?

25. The Corner House believes that the “legitimately due” test can be removed without criminalisingconduct that should not be criminalised, provided that Clause 4 is amended to embrace an intention toinduce or reward improper behaviour. The Corner House would support amending Clause 4 to require the“advantage” to be “improper”.

26. Clause 1 of the draft Bribery Bill clearly conditions the act of bribery on its intended eVect, namelyto induce or reward improper behaviour. Merely making a payment or giving a gift to a person is therefore,by definition, not a crime under the proposed Bill. Corporate hospitality would thus be legal under the Bill,unless its intention was to induce or reward improper behaviour. Similarly payments made under, say, aconsultancy agreement would be protected from criminalisation except in circumstances where it could beshown that the purpose of the agreement was to provide a vehicle for making a payment that was intendedto corrupt. Where that intention is demonstrated, no payment is legitimate, regardless of whether it appearsto have a legal contractual basis, since, under the draft Bill, it would by definition constitute a bribe.

27. Clause 4 of the draft Bill abandons this approach, however, making the test of legality not an intentionto induce or reward improper conduct but instead whether the advantage oVered, promised or given to aforeign oYcial is “legitimately due”or not. As the explanatory notes make clear, Clause 4 “does not requirethat action expected in return [for a financial or other advantage] must itself be improper”, only that “thegiver of the bribe must intend to influence the recipient in the performance of their functions as a publicoYcial, and must intend to obtain or retain business or a business advantage”.viii As a result, the oVeringof an advantage that is not intended to induce or reward improper behaviour could be criminalised if thelegitimately due test was removed. Corporate hospitality, for example, is clearly intended to gain influencein order to obtain a business advantage.

28. The Corner House believes that the draft Bill should adopt a uniform approach to what constitutesbribery throughout all its clauses. The test should be whether the advantage oVered to a foreign oYcial,whether directly or through a third party, is intended to induce or reward improper behaviour which, in turn,would secure an improper advantage for the briber.

29. The Corner House would therefore argue for the removal of the “legitimately due” test and for thephrase “advantage” to be amended to “improper financial or other advantage”. The definition of“improper”, if it is needed, could be based on improper influence or improper conduct models, where theintention behind the advantage oVered, promised or paid is to induce a public oYcial to conduct an improperact. As in Clause 3 of the draft Bill (“Function or activity to which briber relates”) defining what isreasonable and unreasonable, “improper” can be defined in relation to general, universal norms of a dutyon public oYcials, including breach of trust, duty to act impartially, and duty to act in the public interest(as recognised by the International Code of Conduct for Public OYcials adopted by the UN GeneralAssembly in December 1996 and noted in the UN Convention Against Corruption, Article 8 on Codes ofConduct for Public OYcials). Such norms would recognise that receiving advantages in return for taking a



particular action in favour of an individual or company is never in the public interest. This approach wouldbe in keeping with the commentaries on the OECD Anti-Bribery Convention, which state that where (forinstance) the notion of a breach of duty is implied in a statute, it must be “understood that every publicoYcial had a duty to exercise judgment or discretion impartially and that this was an ‘autonomous’definition not requiring proof of the law of the particular oYcial’s country”.ix

30. If Clause 4 was amended along these lines, The Corner House believes that the removal of the“legitimately due” test would not result in the criminalisation of behaviour that should not be criminalised.It does not know of any countries whose written laws require or permit an oYcial to accept an advantagethat is intended to induce or reward improper behaviour. It cannot therefore conceive of any “legitimatelydue” advantage that is permissible to a foreign oYcial but which would be unfairly criminalised as a resultof removing the “legitimately due” test. For this reason, The Corner House would argue, as stated in oralevidence, for the removal of the “legitimately due” test.

Should Clause 5 be turned into a civil/regulatory regime imposing fines on companies rather than a criminaloVence?

Would a civil regime meet the UK’s international commitments?

31. The Corner House believes that Clause 5 of the draft Bribery Bill (“Failure of commercialorganizations to prevent bribery”) should not be turned into a civil or regulatory regime for imposing fineson companies rather than imposing a criminal oVence.

32. Bribes are invariably paid by an employee or individual for company benefit and advantage, if notwith company facilitation and knowledge, rather than solely for the employee’s or individual’s personalgain. As the Serious Fraud OYce itself has noted:

“. . . it is in the pursuit of corporate objectives that individual employees use bribes. Individuals dothe bribing, corporations benefit. Thus to sideline the key player/oVender is to ignore the essence ofthe problem. This is not a case of an oVence which sometimes corporations also commit, such asfor example fraud or even manslaughter. The mischief at which the bribery oVences are directedis almost entirely confined within business activity . . . “x

As such, it is the company that should face criminal liabilities for the criminal oVence of bribery.

Imposing a civil or regulatory scheme of fines would send a message that bribing and any attendant finesare simply the cost of doing business abroad. It might also encourage companies based in those countriesthat do have corporate criminal liability to channel their bribes through their UK-registered subsidiaries andaYliates.

33. It would be preferable for corporate criminal liability to be introduced across the board for allcriminal oVences. But it is unclear when the Law Commission’s ongoing review of corporate criminalliability for criminal oVences will be completed and its recommendations followed up by Government. Theprocess is, however, likely to continue for another few years.

The OECD Phase 2bis report on the United Kingdom recommended that “the UK adopt appropriatelegislation on a high priority basis irrespective of any broader reform eVorts on corporate liability“.xi

Given that the UK has not introduced an eVective regime against corporate bribery with dissuasivesanctions despite signing and ratifying the OECD Anti-Bribery Convention more than ten years ago, TheCorner House does not believe that corporate criminal liability for bribery should be left any longer.

When the Law Commission’s review is completed, however (and depending on its conclusions,recommendations and Government follow-up), there should be scope to improve the Clause 5 oVence ofcorporate failure to prevent bribery and bring it into line with overall corporate criminal liability. The OECDWorking Group on Bribery and others have noted that “any appropriate harmonisation of the law relatingto bribery with a broader corporate liability regime could be addressed if broader reform is subsequentlyachieved.”xii

34. In considering whether to turn the proposed criminal oVence, “Failure of commercial organizationsto prevent bribery”, outlined in Clause 5 into a civil/regulatory regime, The Corner House would like tostress the opening points made in its oral evidence to the Committee: bribery is not a victimless crime; it kills.

June 2009

Referencesi ”The Bank’s relationship with Parliament”, http://www.bankofengland.co.uk/about/parliament/

index.htmii paras 113 and 114, OECD Working Group on Bribery, United Kingdom: Phase 2bis, Report on the

Application of the Convention on Combating Bribery of Foreign Public OYcials in International BusinessTransactions and the 1997 Recommendation on Combating Bribery in International Business Transactions,16 October 2008, http://www.oecd.org/dataoecd/23/20/41515077.pdf.



113. There is no guarantee of publicity for decisions in the UK to shut down viable investigationsbased on the public interest (or not to open investigations for the same reason). No statistics arekept. The existence of allegations not investigated for public interest reasons may never becomeknown to the public; if the allegations were received in confidence by the SFO, they also mayremain secret after the case is closed.

114. There is also no general requirement for any written recording of the public interest reasonsfor termination of the investigation. The only written recording of reasons by the Director of theSFO in the Al Yamamah case is in the very short SFO press release . . .

iii ”BAE Systems: Al Yamamah Contract”, Statement by Attorney General Lord Goldsmith to House ofLords, 14 December 2006, http://www.publications.parliament.uk/pa/ld200607/ldhansrd/text/61214-0014.htm.

iv For more information, see:

— Dinah Rose QC, Ben JaVey, Richard Stein and Jamie Beagent, “Note on draft ConstitutionalRenewal Bill for OECD”, 31st March 2008, http://www.thecornerhouse.org.uk/pdf/document/ConstRenBillOECD.pdf.

— The Corner House, “Submission to the Joint Committee on the Draft Constitutional RenewalBill”, May-June 2008, http://www.thecornerhouse.org.uk/pdf/document/ConRenBillSubJointCom.pdf.

— JeVrey Jowell QC, “Legal Opinion on the ‘constitutionality’ of draft Constitutional Renewal Bill”,12 June 2008, http://www.thecornerhouse.org.uk/pdf/document/JeVreyJowellLegOp.pdf.

v http://interactive.cabinetoYce.gov.uk/documents/security/national security strategy.pdfvi The Law Lords have reviewed two executive decisions (the use of evidence obtained by torture, and

indefinite detention) taken to combat terrorism and protect national security to assess whether the correctlegal principles had been applied in making these decisions and whether the evidence for doing so met theapplicable legal standard.

— In December 2005, seven law lords ruled that evidence that may have been obtained from terroristsuspects by torture cannot be used in British courts (http://www.parliament.the-stationery-oYce.com/pa/ld200506/ldjudgmt/jd051208/aand-1.htm).

— In December 2004, nine law lords ruled that foreign nationals suspected of terrorism cannot bedetained indefinitely without being charged but are entitled to a fair trial (http://hansard.millbanksystems.com/lords/2004/dec/20/anti-terrorism-laws-law-lords-judgment).

vii The proper role of the Executive in prosecution decisions was stated by Attorney General Sir HartleyShawcross in Parliament on 29 January 1951:

“I think the true doctrine is that it is the duty of an Attorney-General, in deciding whether or notto authorise the prosecution, to acquaint himself with all the relevant facts, including, for instance,the eVect which the prosecution, successful or unsuccessful as the case may be, would have uponpublic morale and order, and with any other considerations aVecting public policy.

In order so to inform himself, he may, although I do not think he is obliged to, consult with anyof his colleagues in the Government; and indeed, as Lord Simon once said, he would in some casesbe a fool if he did not. On the other hand, the assistance of his colleagues is confined to informinghim of particular considerations which might aVect his own decision, and does not consist, andmust not consist, in telling him what the decision ought to be. The responsibility for the eventualdecision rests with the Attorney General, and he is not to be put, and is not put, under pressureby his colleagues in the matter.”

The immediate genesis of this Shawcross statement of principle was a series of illegal strikes during thethird Labour Government (1945–51) during which the Executive seemed not to recognise or accept theproper role of an independent prosecutor. Sir Hartley Shawcross was concerned about “somemisunderstanding… as to the constitutional position of the Attorney General in relation to his politicalcolleagues in such matters” (Edwards, p.320) because there had been “wide-ranging discussions [in Cabinet]in which, it is understood, some ministers exhibited an eagerness to express their views on the wisdom ofinstituting criminal proceedings” (Edwards p. 323).

Sir Hartley prepared a memorandum to the Cabinet setting out his concerns:

“Cabinet discussion of these matters [prosecution decisions]… may be as embarrassing for mycolleagues as indeed it is for me. For whilst my colleagues are scrupulously careful to remind methat they do not share any responsibility for the decision which is constitutionally placed upon methey do not fail to make clear what they consider my decision should be!”(Edwards, p. 321)

It was because Ministers were improperly expressing their views on prosecution decisions that Sir HartleyShawcross’s statement was drafted and consulted upon:

“This carefully phrased exposition of the proper approach to be followed by the Attorney General,when faced with a situation in which questions of national or international public policy maysurround the exercise of his prosecutorial discretion, was the result of a major collaborative eVort



that serves to further underline the major importance which has been accorded to Shawcross’sstatement in the intervening years. For, as the files in the Law OYcers’ Department reveal, theAttorney General went to infinite pains to ensure, as he put it ‘that the integrity of the oYce shouldbe very fully maintained since its position is, I am afraid, often widely misunderstood’.”(Edwards,p. 319–320).

The eVect of the Shawcross statement of principle is that Government Ministers may not express theirview as to what the prosecutor’s decision should be. Their role is confined to the provision of informationas to the eVect of a prosecution on the public interest:

“What is not permissible and would be treated as constitutionally improper is the expression bythe Prime Minister, another minister or the government of their individual or collective view onthe question whether or not the Attorney General should prosecute. The same position must surelyapply to the solicitation of such views by the Attorney General or anyone acting on his behalf(Edwards, p. 323).

See: John Edwards, The Attorney General, Politics and the Public Interest, Sweet & Maxwell, London,1984.

viii Draft Bribery Bill, Explanatory Notes, paragraph 30.ix ”Commentaries on the OECD Convention on Combating Bribery”, 21 November 1997, paragraph 3,

http://www.oecd.org/document/1/0,3343,en 2649 34859 20482129 1 1 1 1,00.htmlx Serious Fraud OYce, written response to the Law Commission’s consultation on anti-bribery

legislation, quoted in para 75, OECD Working Group on Bribery, United Kingdom: Phase 2bis, Report onthe Application of the Convention on Combating Bribery of Foreign Public OYcials in International BusinessTransactions and the 1997 Recommendation on Combating Bribery in International Business Transactions,16 October 2008, http://www.oecd.org/dataoecd/23/20/41515077.pdf.

xi After para 92, page 25, OECD Working Group on Bribery, United Kingdom: Phase 2bis, Report on theApplication of the Convention on Combating Bribery of Foreign Public OYcials in International BusinessTransactions and the 1997 Recommendation on Combating Bribery in International Business Transactions,16 October 2008, http://www.oecd.org/dataoecd/23/20/41515077.pdf.

xii Para 78, OECD Working Group on Bribery, United Kingdom: Phase 2bis, Report on the Application ofthe Convention on Combating Bribery of Foreign Public OYcials in International Business Transactions andthe 1997 Recommendation on Combating Bribery in International Business Transactions, 16 October 2008,http://www.oecd.org/dataoecd/23/20/41515077.pdf.

Memorandum submitted by Colin Nicholls QC (BB 56)

Answers to Supplementary Questions

Q1 How does the draft Bill compare to the anti-bribery laws adopted in other countries, particularly Australiaand the United States? Are there elements of foreign legislation that could usefully be incorporated within thedraft Bill?

1.1 I will restrict this answer to the general oVences and, except in so far as is necessary, deal with theforeign public oYcials (FPO) oVence when answering Question 2

AI(a) Comparison of the Draft Bill with the anti-bribery laws adopted in other countries, particularlyAustralia and the United States

The Draft Bill (Clause 1, 2 and 3)

1.2 The essence of the general bribery oVences is intentionally giving or receiving an advantage as aninducement or reward for acting improperly. A jury has to decide whether what was sought to be inducedor rewarded is improper according to the standards of a reasonable person of honesty and integrity. In thecase of the FPO oVence the inducement to act in the prohibited manner is itself improper.192

1.3 The insertion of the words “corruptly”,193 “dishonestly” and “undue” is otiose as giving an advantageas an inducement to act improperly is itself corrupt and dishonest and the advantage is undue.

The Conventions

1.4 The essence of the OECD oVence is intentionally giving an “undue” advantage as an inducement for“acting improperly”.194 The essence of the UNCAC public sector oVence and the COE195 oVences isintentionally giving or receiving an “undue advantage”196 in order that an oYcial act or refrain from acting

192 The same applies to the existing oVences relating to the sale of oYces and honours and electoral oVences.193 Q.470 Lord Lyell of Markyate. The common law interpretation of the word “corruptly” has been described by Professor

Lanham as being in “impressive disarray”. For a critique see Nicholls, Daniel, Polaine and Hatchard Corruption and theMisuse of Public OYce, (2006) paras 2.35–2.37.

194 Art.1.195 Council of Europe Convention Arts 2 & 3.196 TheCouncil of Europe’s Convention states that ‘undue’ for the purpose of theConvention should be interpreted as something

the recipient is not lawfully entitled to receive.



in his oYcial capacity.197 The essence of the UNCAC private sector oVence is intentionally giving an “undueadvantage” in order that a person act or refrain from acting in breach of his duties.198

1.5 The repetition in the Conventions of the words “undue” and the combined use of the words “undue”and “improperly” is otiose. The simple solution adopted in the Draft Bill of qualifying the advantage as onewhich has been improperly obtained may well become “guidance for other legislators in the future.”199

Countries with Federal constitutions

1.5 The United States, Australia, Canada and New Zealand are federal states. Their federal laws providefor oVences involving the bribery of federal oYcials and foreign public oYcials. The provincial states providefor provincial state bribery and private sector bribery.

The United States

1.6 The US Federal Code prohibits bribery involving federal public oYcials.200 The essence of the oVenceis “corruptly” giving or receiving anything of value to a public oYcial to influence any oYcial act.

17. The word “corruptly” is not defined in the Code but has been interpreted by case law as connotingan evil motive or purpose; an intent to wrongly influence the recipient.201

“The word corruptly is used in order to make clear that the oVer, payment, promise or gift mustbe intended to induce the recipient to misuse his oYcial position in order to wrongfully directbusiness to the payer or his client, or to obtain preferential legislation or a favourable regulation.The word “corruptly connotes an evil motive or purpose; an intent to wrongly influence therecipient”.202

1.7 Other provisions of the Federal Code provide for corruption and conflicts of interest oVencescommitted by specific groups.203 As in many jurisdictions, the specific group oVences do not all require anact to be performed “corruptly”, the prohibited conduct being deemed corrupt.

Australia

1.8 The Commonwealth Criminal Code 1995 makes it an oVence for a person “dishonestly” to bribe aCommonwealth oYcial or for a Commonwealth oYcial “dishonestly” to receive a bribe.204

1.9 The word “dishonestly” was preferred to the word “corruptly” as being the best available mechanismfor assessing community standards in the political context as well as in other contexts and being moreaccessible for juries than the word “corruptly”.205 The laws of the Australian states variously use the terms“dishonestly”, “corruptly” and “improper”.206

1.10 I have been informed by the Financial Crime and Border Management Section of the AttorneyGeneral’s Department that the use of the term “dishonestly has not been a bar to prosecution.”

Canada, New Zealand, South Africa.

1.11 The Canadian Criminal Code requires a bribe to be given or received “corruptly”. The word“corruptly” is not defined, but has been held to refer to an act done mala fides “designed wholly or partiallyfor bringing about the eVect forbidden by the section” and as not importing any concept of wickedness ordishonesty.207 As the forbidden act is inducing an oYcial to act or refrain from acting in his oYcial capacity,the word “corruptly” may be regarded as necessary to distinguish a bribe from a lawful payment such asa salary.

1.12 The New Zealand Crimes Act 1961, as amended also requires a bribe to be given or received“corruptly”. As in Canada, the forbidden act is inducing an oYcial to act or refrain from acting in his oYcialcapacity. There are further oVences relating to corruption in relation to specific oYcials.

1.13 In South Africa, the Prevention and Combating of Corrupt Activities Act 2004 enacted a wideranging piece of legislation that, in part, provides for an international example of good practice. It includesan extensive list of corruption oVences in both the public and private sectors.

197 UNCAC Arts 15 and 21; ECC Arts. 2,3,7 and 8.198 Art. 21.199 Q497, Mr Vlassis to Lord Mayhew of Twysden.200 18 USC H201(a) and (b).201 U.S. v Liebo 923 F. 2d. 1308 (8th Cir. Minn) (1991).202 Report of Senate Committee that considered the FCPA in 1977.” International Lawyer’s Deskbook, Lucinda A. Low, Daniel

M Crory, Patrick M Norton, American Bar Association Section of International Law and Practice.203 18 USC H203 and 205; 208–209, 210, 599–600.204 Chapter 7, Part 7.6 of the Code ss. 141–2205 MCCOC Commentary, page 263.206 English common law also favours the ‘honesty’ test in requiring bribery to be ‘contrary to the known rules of ‘ honesty

and integrity.’207 Canadian Criminal Code, section 119; R v Brown (1996) 116ccc 287 (Ontario CA).



A1(b) Elements of foreign legislation that could usefully be incorporated within the Draft Bill

1.14 I do not recommend that the Draft Bill should be amended to incorporate the element of “dishonestyas set out in the Australian model, or to incorporate the ‘corruptly’ test as set out in the United States”Federal Code. For the reasons set out in paragraphs 3.136–3.227 of the Law Commission’s Report,208 Ibelieve that lack of “good faith” and “impartiality” and “breach of trust” are forms of dishonesty. Theadvantage of these terms is that they particularise the relevant form of dishonesty in a case thereby providingthe jury with the necessary guidance in reaching their decision. I agree with the witness, Mr Vlassis, who saidthat “the approach the new Draft Bill is taking in qualifying what is an undue advantage is probably goingto become guidance for other legislators in the future”.209

Q2. Which other jurisdictions adopt a test of whether an advantage is lawful under the foreign law applying toa foreign public oYcial? Has the test worked adequately in those jurisdictions? What would be the implicationsof adding reference to the “written” law of another country in line with Australia and the United States?

A2(a) Other jurisdictions which adopt a test whether an advantage is lawful under foreign law applying to aforeign public oYcial.

The Draft Bill (Clause 4)

2.1 The essence of the proposed FPO oVence is intentionally giving an advantage to an FPO which is “notlegitimately due” with intent to influence him in his capacity as an FPO and with intent to obtain or retainbusiness or a business advantage. Clause 4(4) provides that an advantage is legitimately due to an FPO “ifand only if, the law applicable to [the FPO] permits or requires [the FPO] to accept it.” There is no provisionfor a defence that an advantage is “legitimately due”, or for a defence of belief that it is “legitimately due”.

The United States

2.2 The Foreign Corrupt Practices Act 1977, as amended in 1988 and 1998 makes it an oVence for UScitizens and companies “corruptly to make a payment to an FPO for the purposes of (1) influencing any actor decision of such FPO in his oYcial capacity, (2) inducing him to do or omit to do any act in violation ofhis lawful duty, or (3) securing an improper advantage, or (4) inducing him to use his influence with a foreigngovernment to aVect or influence any act or decision of such government in order to assist such domesticconcern to obtain or retain business.210 Provision (4) above “securing improper advantage” was inserted in1998 to conform to the OECD Convention.

2.3 ”Corruptly” is not defined by the FCPA, but is interpreted by case law.211

….the report of the House Committee that considered the FCPA states that the “evil purpose”required for a violation is similar to “that required under 18 USC section 201(b), which prohibitsdomestic bribery. The meaning of the term “corruptly” as used in the domestic bribery statute iswell established. A payment or promise involves corrupt intent if it is knowingly made in exchangefor particular conduct on the part of the foreign oYcial. The practical significance of the corruptintent requirement is rather limited because there are few situations in which all the other elementsof an FCPA oVence are satisfied (that is, payment made to a foreign oYcial to influence hisperformance of his public duties to obtain or retain business) that would not also be corrupt. Themost important eVect of this element may be to exclude goodwill gifts, that are so small in valuethat it is inconceivable to believe would induce the recipient to misuse his or her oYcial position.The corrupt-intent requirement also can operate to exclude instances of true extortion, that is,instances in which a payment is made in response to a threat to life or property.212 (Emphasisadded).

2.4 It is not an element of the FCPA oVence that a payment shall “not be legitimately due”, or “undue”but the 1998 Act provides an aYrmative defence for payments that are lawful under the “written” laws ofthe relevant foreign country provided those laws explicitly permit the payment rather than merely notprohibit it. . The burden is on the defendant to raise the “lawful payment defence” in the first instance.

2.5 The 1988 amendment to the FCPA expressly excludes liability for facilitation payments.

208 No. 313.209 Q497, Lord Mayhew of Twysden.210 15 USC H 78dd-2(a)211 US v Liebo 923 F. 2d. 1308 (8th Cir. Minn).(1991).212 Report of Senate Committee that considered the FCPA in 1977.” International Lawyer’s Deskbook, Lucinda A. Low, Daniel

M Crory, Patrick M Norton, American Bar Association Section of International Law and Practice.



Australia

2.6 Australia gave eVect to the OECD Convention in the Criminal Code Amendment (Bribery of ForeignOYcials) Act 1999. Its provisions were considered by the OECD Working Group on Bribery in InternationalBusiness Transactions on 4 January 4 2006.

2.7 Not legitimately due. The essence of the oVence is intentionally providing a benefit to another personwhich is not legitimately due to that person with the intention of influencing a foreign oYcial, in the exerciseof his duties as a foreign oYcial in order to obtain a business advantage that is not legitimately due.213

2.8 It is expressly provided that in deciding whether a benefit or advantage is legitimately due the factthat the benefit may be or be perceived to be customary, necessary or required in the situation; the value ofthe benefit; and any oYcial tolerance of the benefit should be disregarded.214

2.9 The defence of “not legitimately due”. The Criminal Code sets out a list of circumstances in which aperson would not be guilty of a foreign bribery oVence. In general terms, these are where he “would not havebeen guilty of an oVence against a law in force” in the place where the central administration is located forwhich the oYcial performs his duties.215 The OECD criticised the use of the words “not guilty” as extendingthe exception to apply even where pursuant to the law of the foreign public oYcial’s country, the personwould not be guilty of an oVence, eg, because of an amnesty or an expired statute of limitations TheAustralian authorities agreed to amend the provision on the basis that it might in some circumstancesoperate more broadly than is contemplated by Commentary 8.216

2.10 The burden of proof that a benefit is not legitimately due is on the prosecution because it is anelement of the oVence. The burden of proving the defence that a benefit is legitimately due is an evidentialburden on the balance of probabilities.217

2.11 The OECD Working Group recommended in its follow up Phase 2 report, that Australia shouldamend its “lawful conduct” defence to ensure consistency with Commentary 8 of the Convention whichstates that conduct is not an oVence “if the advantage was permitted or required by the written law orregulation of the FPO’s country, including case law.218 Australia adopted the recommendation in theInternational Trade Integrity Act 2007 by requiring that the payment should be “expressly permitted orrequired by written law”.

2.12 In view of the importance which the Joint Committee attaches to the FPO provisions of the DraftBill relating to the terms “not legitimately due”, the insertion of a defence that a benefit was “legitimatelydue” and the insertion of a defence relating to facilitation payments, I attach as Appendix A, a copy of therelevant articles of the Criminal Code and the relevant Recommendations of the OECD Working Group.

A2(b) Has the test worked adequately in those jurisdictions?

Australia

2.13 I have been informed by the Financial Crime and Border Management Section of the AttorneyGeneral’s Department that “no person (natural or legal) has been prosecuted for the FPO oVence.Accordingly, the words ‘legitimately due’ in section 70 have not been judicially considered in the context ofan actual case.”

The United States

2.14 In the United States the “legitimately due defence”219 has been considered for the first time in U.S.v Kozeny et al. No. 05–518 (S.D.N/Y filed 21 October 2008) in the context of an extortion defence. Accordingto legal opinion, it has provided little guidance of the type of facts that would establish a viable defence andappears to have raised more questions than it has answered.220

A2(c) What would be the implications of adding reference to the “written” law of another country in line withAustralia and the United States?

2.15 The advantage of adding the word “written” would be that the Draft Bill would comply with theexpress requirements of the OECD Commentary 8. Any arguments about contractual terms would beavoided as contracts would be subject to the written law.

213 Australian Criminal Code section 70.2.214 Australian Criminal Code section 70.2(2) & (3).215 Section 70.3 of the Criminal Code.216 Phase 2 Report, paras. 140–141. The issue has arisen in the United States in U.S.v Kozeny, see para. 2.14 infra..217 Section 13.3 of the Criminal Code.218 Convention, Art. 1, Commentary.)219 ‘lawful under the written laws and regulations’.220 First Judicial Construction of the FCPA Local law AYrmative Defense Raises More Questions than it Answers: Thomas R. L.

Best and Lucinda A. Low (Steptoe & Johnson).



Q3 A copy of Professor Wells’ article on clause 5 is attached. What are your views on the three alternativeapproaches to clause 5 that are proposed? (Clause 5)

A3 Professor Wells’ alternatives

3.1 Professor Wells’ three alternatives are:

(1) The identification route plus the corporate culture model (the Australian scheme);

(2) Vicarious liability with a due diligence defence;

(3) A broader version of failure to prevent the oVence (minus the responsible oYcer’s negligence or,better without the responsible oYcer layer at all.

3.2 I prefer (1) above; the identification route plus the corporate culture model (the Australian scheme).In so far as the corporate culture provisions are concerned, I prefer the adequate procedure provisions ofthe Draft Bill with a definition of “adequate procedures” such as in Principle 3 of the FSA “the applicationof reasonable care to organise its aVairs responsibly and to have adequate management systems dependenton the size and facilities of the company, or as in the Health and Safety Act 1974.

Q4 The burden of proving “adequate procedures” currently falls on the defence. What would be the pros andcons of placing this burden on the prosecution? Is this something that you recommend?

4.1 The principle to be applied should be the same as in the Health and Safety at Work Act 1974. Theprosecution should be required to establish the bribery as alleged and the defence should be required toestablish an evidential burden on the balance of probabilities. A simple test would be that it was notreasonably practical for the company to do more than it did to prevent the bribery oVence.221 This approachis justified by the policy of the Conventions to impose a duty on businesses to prevent bribery in theirorganisations. Once bribery and its connection with a company is established, it should be for the companyto prove it had adequate procedures in place.

Optional Additional Questions to Colin Nicholls QC

Clauses 1 to 3

Q5 Is there a need for specific provision in the draft Bill to address facilitation payments or trading in influence?(Clauses 1, 3 & 4).

A5(1) Facilitation payments (Clauses 1, 2, and 3)

5.1 The test defined in the general oVence provisions in Clauses 1, 2, and 3 together with the Guide forCrown Prosecutors should be suYcient to distinguish facilitation payments from bribery.

5.2 The facilitation payment provisions in the Australian FPO oVence,222 which are largely modelled onthe FCPA provisions, are impressive and could be adopted by business organisations as part of their codesof conduct in which case they would a useful aid to prosecutors. The oVence of extortion was replaced byblackmail in section 21 of the Theft Act 1968, the blackmail provisions are also available.223 The advantageof specific provisions is that they can serve as guidance to businesses of the kind which has been mootedduring the Committee’s evidence hearings.

5.3 Facilitation payments (Clause 4). One of the diYculties with Clause 4 as currently drafted is that itcatches facilitation payments. This is why it is necessary in the FCPA and Australian FPO oVence to havean express facilitation payment defence. I have been informed that the Australian courts have not had anopportunity to interpret this defence. Interpretive guidelines on the application of the defence have not beenissued by the Commonwealth government. Unlike the Department of Justice in the United States, theAustralian authorities do not provide a service whereby individuals and companies can request adviceregarding prospective payments to FPO’s.

5.4 Trading in influence. The general bribery oVences, the FPO oVence and specific oVences such as theSale of Honours Act are suYcient to cover trading in influence. Trading in influence is covered by clauses1, 2 and 4 and the Honours (Prevention of Abuses) Act. and can also be dealt with by specific oVences.

Q6 How should the test of what is “legitimately due” operate in common law systems where acts are generallypermitted unless prohibited? For instance, would it catch matters that are legitimate but which may not beexpressly permitted (such as commission or hospitality)? (Clause 5)

A6 The inclusion of the word “written” enables a court in England and Wales to determine on expertevidence whether a commission or hospitality is lawful according to a foreign law, for example according tothe provisions of a criminal code or case law. For example, the intention “to influence a foreign oYcial inhis capacity as a foreign oYcial” appears to be regarded as suYcient to exclude hospitality up to anacceptable level on the basis that it is not the hospitality which influences the oYcial, but the excellence ofthe host’s capacity to fulfil the terms of a contract. .

221 R v Chargot Ltd [2008] UKHL 73.222 Australian Criminal Code, section 70.4.223 Nicholls, Daniel, Polaine and Hatchard Corruption and the Misuse of Public OYce, (2006) para. 2.28.



Guidance (Clauses 1–6)

Q10 What would be the pros and cons of retaining the terms “improper performance” or “legitimately due”but without any further elaboration in the draft Bill, with a view to giving them their ordinary meaning?

A10 There would be no advantage in retaining the terms “improper performance” and “legitimately due”without further elaboration.

10.1 The words “good faith, impartial, and breach of trust” particularise the forms of impropriety (ordishonesty) which are likely to arise in situations encountered under the Bill. If the Bill did not elaborate onthe terms “improper performance” and “legitimately due” include the judges would either not elaborate onthem, as in the case of dishonesty, or elaborate on them leading the “impressive disarray” which has arisenin interpreting “corruptly” described by Professor Lanham.224

10.2 The words “legitimately due” need to be defined in order to comply with the requirements of theOECD, as in the case of Australia.

Additional question of 15 June 2009 (Clause 4).

Should the “legitimately due” exception be removed?

11.1 It is not correct that the “legitimately due” defence exception has never been relied on in practice.225

It has been relied on in the United States in U. S. v Kozeny.226 As I have previously stated, there has beenno FPO prosecutions in Australia. I have not researched whether there have been any prosecutions inCanada, New Zealand, or Korea.

11.2 The diYculty is in knowing whether there is any circumstance in which a person would be entitledto provide a benefit to an FPO with the intention of influencing him in his oYcial capacity and in order toobtain business. If there is not, I agree, the exception is useless and the Legal Director is correct.

Would it lead to the oVence being overly strict or criminalising conduct that would not be criminalised underthe present clause? If so, can you provide any scenarios where unfairness may arise?

11.3 The only situation that occurs to me is a case of extortion, but in that case the payment would notbe made to obtain or retain business. The diYculty is that as drafted the oVence is committed even if theFPO is merely provided with hospitality subject to the proper interpretation of the intent to influence himin his oYcial capacity. The circumstances in which the intent arises are set out in Clause 4(5) of the DraftBill. Whether they are too wide to exclude hospitality is a matter of interpretation.

12. Q77. Lord Anderson of Swansea.

During my evidence I commented on the drafting of the Draft Bill and the diYculty for a laymanunderstanding its terms. Monty Raphael also commented on this. In response to Lord Anderson’s invitationI have re-drafted Clauses 1–4 of the Bill avoiding terms such as “Case 1–6”, “P”, “R”, “F” and “conditionA” etc. I have provided for each of the prescribed set of circumstances in a separate section with its relevantprovisions. Although this results in repetition, it avoids the reader having to search for the relevantprovisions in each case, makes for easier understanding and clarifies the mens rea. This form of repetitionis adopted in the foreign public oYcial provisions of the Australian Criminal Code when dealing with themeaning of “legitimately due”. I hasten to add that I have no experience as a parliamentary draftsman andsubmit my eVort with that reservation.

June 2009

Memorandum submitted by U.S. Department of Justice (BB 57)

Introduction

1. This submission is made on behalf of the U.S. Department of Justice (DOJ) in response to an invitationby the Joint Select Committee to respond to certain questions regarding the U.S. Foreign Corrupt PracticesAct (FCPA), 15 U.S.C. HH 78dd–1, et seq., and U.S. experience over the past thirty-two years in prosecutingcorruption in international business transactions.

2. The DOJ Criminal Division, Fraud Section, is principally responsible for all criminal enforcement ofthe FCPA, as well as all civil FCPA enforcement of the antibribery provisions with respect to domesticconcerns and foreign companies and nationals.

3. The U.S. Securities and Exchange Commission (SEC) is responsible for civil enforcement of the FCPAwith respect to issuers, corporations that have issued securities registered in the U.S. or that are required tofile periodic reports with the SEC.

224 Footnote 2.225 Q499 Mr Bonucci to Lord Sheikh.226 Para. 2.14 supra.



4. A representative of the Fraud Section regularly participates as a member of the U.S. delegation to theOECD Working Group on Bribery, and participated in a consultation by OECD Parties and the OECDSecretariat in London with the U.K. Law Commission following the publication of its November2008 report “Reforming Bribery.”

Background

5. As a result of SEC investigations in the mid-1970’s, over 400 U.S. companies admitted makingquestionable or illegal payments in excess of $300 million to foreign government oYcials, politicians, andpolitical parties. The abuses ran the gamut from bribery of high level foreign oYcials to secure favorableaction by a foreign government to so-called facilitating payments that allegedly were made to ensure thatgovernment functionaries discharged certain ministerial or clerical duties. Congress enacted the FCPA tobring a halt to the bribery of foreign oYcials and to restore public confidence in the integrity of the Americanbusiness system.

The FCPA was intended to have and has had an enormous impact on the way American firms do business.Numerous firms that paid bribes to foreign oYcials have been the subject of criminal and civil enforcementactions, resulting in large fines and suspension and debarment from federal procurement contracting, andtheir oYcers and employees have gone to prison. To avoid such consequences, many firms have implementeddetailed compliance programs intended to prevent and detect improper payments by employees and agents.

Following the passage of the FCPA, the Congress became concerned that American companies wereoperating at a disadvantage compared to foreign companies who routinely paid bribes and, in somecountries, were permitted to deduct the cost of such bribes as business expenses on their taxes. Accordingly,in 1988, the Congress directed the Executive Branch to commence negotiations in the Organization ofEconomic Cooperation and Development (OECD) to obtain the agreement of the United States’ majortrading partners to enact legislation similar to the FCPA. In 1997, almost ten years later, the United Statesand thirty-three other countries, including the U.K., signed the OECD Convention on Combating Briberyof Foreign Public OYcials in International Business Transactions (the OECD Antibribery Convention). TheUnited States ratified this Convention and enacted implementing legislation in 1998.

6. The FCPA contains two sets of core provisions, the antibribery provisions and the accountingprovisions.

Antibribery Provisions: Basic Prohibition

The FCPA makes it unlawful to bribe foreign government oYcials to assist in obtaining or retainingbusiness. With respect to the basic prohibition, there are five elements which must be met to constitute aviolation of the Act:

7. Elements:

A. Who—The FCPA potentially applies to any individual, firm, oYcer, director, employee, or agent of afirm and any stockholder acting on behalf of a firm. Individuals and firms may also be penalized if they order,authorize, or assist someone else to violate the antibribery provisions or if they conspire to violate thoseprovisions.

Under the FCPA, U.S. jurisdiction over corrupt payments to foreign oYcials depends upon whether theviolator is an “issuer,” a “domestic concern,” or a foreign national or business.

An “issuer” is a corporation that has issued securities that have been registered in the United States orthat is required to file periodic reports with the SEC. A “domestic concern” is any individual who is a citizen,national, or resident of the United States, or any corporation, partnership, association, joint-stock company,business trust, unincorporated organization, or sole proprietorship which has its principal place of businessin the United States, or which is organized under the laws of a State of the United States, or a territory,possession, or commonwealth of the United States.

U.S. issuers and domestic concerns may be held liable under the FCPA under either territorial ornationality jurisdiction principles. Foreign issuers may only be held liable under the FCPA’s antibriberyprovisions under territorial jurisdiction principles. U.S. and foreign issuers and domestic concerns are liableif they take an act in furtherance of a corrupt payment to a foreign oYcial using the U.S. mails or othermeans or instrumentalities of interstate commerce. Such means or instrumentalities include telephone calls,facsimile transmissions, emails, wire transfers, and interstate or international travel. In addition, issuersorganized under the laws of the U.S., or a U.S. State, territory, possession, or commonwealth and domesticconcerns may be held liable for any act in furtherance of a corrupt payment taken outside the United States,regardless of whether any means of interstate commerce is used. Thus, a U.S. company or national may beheld liable for a corrupt payment authorized by employees or agents operating entirely outside the UnitedStates, using money from foreign bank accounts, and without any involvement by personnel located withinthe United States. Such nationality-based jurisdiction obviously does not extend to foreign issuers.

Prior to 1998, foreign companies, with the exception of those who qualified as “issuers,” and foreignnationals were generally not covered by the FCPA. The 1998 amendments expanded the FCPA to assertterritorial jurisdiction over foreign companies and nationals. A foreign company or person is now subject



to the FCPA if it causes, directly or through agents, an act in furtherance of the corrupt payment to takeplace within the territory of the United States. There is, however, no requirement that such act make use ofthe U.S. mails or other means or instrumentalities of interstate commerce.

Finally, U.S. parent corporations can be held liable for the acts of foreign subsidiaries where theyauthorized, directed, or controlled the activity in question, as can U.S. citizens or residents, themselves“domestic concerns,” who were employed by or acting on behalf of such foreign-incorporated subsidiaries.

B. Corrupt intent— The person making or authorizing the payment must have corrupt intent, and thepayment must be intended to induce the recipient to misuse his oYcial position to direct business wrongfullyto the payer or to any other person. The FCPA does not require that a corrupt act succeed in its purpose.The oVer or promise of a corrupt payment can constitute a violation of the statute. The FCPA prohibits anycorrupt payment intended to influence any act or decision of a foreign oYcial in his or her oYcial capacity,to induce the oYcial to do or omit to do any act in violation of his or her lawful duty, to obtain any improperadvantage, or to induce a foreign oYcial to use his or her influence improperly to aVect or influence any actor decision.

C. Payment—The FCPA prohibits paying, oVering, promising to pay (or authorizing to pay or oVer)money or anything of value.

D. Recipient—The prohibition extends only to corrupt payments to a foreign oYcial, a foreign politicalparty or party oYcial, or any candidate for foreign political oYce. A “foreign oYcial” means any oYcer oremployee of a foreign government, a public international organization, or any department or agencythereof, or any person acting in an oYcial capacity.

The FCPA applies to payments to any public oYcial, regardless of rank or position. The FCPA focuseson the purpose of the payment instead of the particular duties of the oYcial receiving the payment, oVer, orpromise of payment, and there are exceptions to the antibribery provision for “facilitating payments forroutine governmental action.”

E. Business Purpose Test—The FCPA prohibits payments made in order to assist a company or person inobtaining or retaining business for or with, or directing business to, any person. The Department of Justiceinterprets “obtaining or retaining business” broadly, such that the term encompasses more than the mereaward or renewal of a contract. It should be noted that the business to be obtained or retained does not needto be with a foreign government or foreign government instrumentality.

8. AYrmative Defenses and Exception

The FCPA’s antibribery provisions provide two aYrmative defenses: (1) that the payment was lawfulunder the written laws of the foreign country; or (2) that the payment was a reasonable and bona fideexpenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign oYcial, and directlyrelated to the demonstration or explanation of a product or service or performance of a contract with agovernment agency.

Additionally, the FCPA includes an exception allowing “facilitating” payments, which are paymentsmade to expedite or secure performance of a routine, non-discretionary governmental action.

Accounting Provisions

9. The FCPA’s accounting provisions consist of two parts. First, the “books and records” provisionsrequire all issuers to “make and keep books, records, and accounts, which, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the assets of the issuer.” 15 U.S.C. H 78m(b)(2)(A).Second, the “internal controls” provisions require issuers to “devise and maintain” an adequate “system ofinternal accounting controls.” 15 U.S.C. H 78m(b)(2)(B). The knowing circumvention or knowing failure toimplement a system of internal accounting controls or the knowing failure to falsify any book, record oraccount is a crime. 15 U.S.C. H 78m(b)(5).

Enforcement Statistics

10. Since its enactment, DOJ has brought FCPA enforcement actions (including criminal charges,deferred prosecution agreements, non-prosecution agreements, and civil injunctions) against 78 naturalpersons and 63 legal persons. These statistics do not include civil enforcement actions brought by the SEC.Appended to this memorandum as Annex A is a list of public DOJ enforcement actions from January 1,2000 to June 1, 2009.

“Written Law” Affirmative Defense

11. The FCPA has an aYrmative defense where “the payment, gift, oVer, or promise of anything of valuethat was made, was lawful under the written laws and regulations of the foreign oYcial’s, political party’s,party oYcial’s, or candidate’s country.” The requirement of written laws and regulations precludes relianceon local business customs, practices, or norms. Similarly, the Commentaries to the OECD AntibriberyConvention provide in paragraph 8 that it is not an oVence “if the advantage was permitted or required bythe written law or regulation of the foreign public oYcial’s country, including case law.”



This “written law” defense under the FCPA has been raised by a defendant in only one court proceeding,where it was rejected in a written decision of the trial court. A copy of the decision is appended to thismemorandum as Annex B. In that decision, the Honorable Shira Scheindlin, United States District Judgefor the Southern District of New York, wrote:

For purposes of the FCPA’s aYrmative defense, the focus is on the payment, not the payer. Aperson cannot be guilty of violating the FCPA if the payment was lawful under foreign law. Butthere is no immunity from prosecution under the FCPA if a person could not have been prosecutedin the foreign country due to a technicality (eg, time-barred) or because a provision in the foreignlaw “relieves” a person of criminal responsibility. An individual may be prosecuted under theFCPA for a payment that violates foreign law even if the individual is relieved of criminalresponsibility for his actions by a provision of the foreign law.

United States v. Kozeny, et al., 05 Cr. 518 (SAS), 2008 WL 4658807 (21 October 2008). DOJ is not awareof any occasion in which FCPA charges were brought and the defense succeeded. There may be a smallnumber of instances in which the written-law defense was relevant to a DOJ decision not to bring charges.Importantly, there may be instances in which a payment itself is lawful under local written law, but not if itis made for corrupt purposes. For example, it may be lawful in Country X for a company to give a directcampaign contribution to a political candidate; however, it is probably not lawful under local written lawin Country X for the company to give that campaign contribution expressly in exchange for the candidate’sagreement to endorse legislative action favorable to the company once that candidate is elected.

On one occasion, a request was submitted to DOJ under its Opinion Procedure (described further below)for an opinion related to the written law defense. In Release 92–01, a U.S. company entering into a jointventure with Pakistan’s Ministry of Petroleum and Natural Resources was required by Pakistani law toprovide a minimum of $200,000 in annual funding to train various Pakistani government personnel intechnical and management disciplines. The company requested DOJ to review its plans to provide fundingand hold trainings in the United States and Europe and pay for government oYcials’ travel, lodging, meals,and seminar fees. DOJ stated that it did not presently intend to take any enforcement action with respect tothis prospective activity up to $250,000 per annum. A copy of Release 92–01 is appended as Attachment C.

As the Joint Committee has noted, under the FCPA there is no express defense for individuals whoreasonably, but erroneously, believe that they were acting in accordance with the foreign law of the oYcial.Criminal violations of the FCPA, however, require that an individual act “corruptly” and “willfully.” Inaddition, advice of legal counsel that certain conduct is not in violation of the FCPA may, under certaincircumstances, serve as a defense.

Corporate Liability

12. Companies or other legal persons can be held liable for violating the FCPA’s antibribery provisionsunder a variety of circumstances. Principles of criminal corporate liability under U.S. law are generally aresult of case law. In addition to case law, DOJ prosecutors are guided in the prosecution of legal personsby a DOJ policy document called “The Principles of Prosecution of Business Organizations,” United StatesAttorney’s Manual, Title 9, Chapter 9–28.000. A copy of the Principles is appended as Annex D. Consistentwith DOJ policy, DOJ prosecutors have discretion whether or not to criminally charge a legal person, evenunder circumstances in which such a legal person could be charged.

13. The Principles of Federal Prosecution of Business Organizations state the following, with respect tocorporate liability:

Corporations are “legal persons,” capable of suing and being sued, and capable of committingcrimes. Under the doctrine of respondeat superior, a corporation may be held criminally liable forthe illegal acts of its directors, oYcers, employees, and agents. To hold a corporation liable forthese actions, the government must establish that the corporate agent’s actions (I) were within thescope of his duties and (ii) were intended, at least in part, to benefit the corporation. In all casesinvolving wrongdoing by corporate agents, prosecutors should not limit their focus solely toindividuals or the corporation, but should consider both as potential targets.

Agents may act for mixed reasons—both for self-aggrandizement (both direct and indirect) andfor the benefit of the corporation, and a corporation may be held liable as long as one motivationof its agent is to benefit the corporation. See United States v. Potter, 463 F.3d 9, 25 (1st Cir. 2006)(stating that the test to determine whether an agent is acting within the scope of employment is“whether the agent is performing acts of the kind which he is authorized to perform, and those actsare motivated, at least in part, by an intent to benefit the corporation.”). In United States v.Automated Medical Laboratories, Inc., 110 F.2d 399 (4th Cir. 1985), for example, the FourthCircuit aYrmed a corporation’s conviction for the actions of a subsidiary’s employee despite thecorporation’s claim that the employee was acting for his own benefit, namely his “ambitious natureand his desire to ascend the corporate ladder.” Id at 407. The court stated, “Partucci was clearlyacting in part to benefit AML since his advancement within the corporation depended on AML’swell-being and its lack of diYculties with the FDA.” Id; see also United States v. Cincotta, 689 F.2d238, 241–42 (1st Cir. 1982) (upholding a corporation’s conviction, notwithstanding the substantial



personal benefit reaped by its miscreant agents, because the fraudulent scheme required money topass through the corporation’s treasury and the fraudulently obtained goods were resold to thecorporation’s customers in the corporation’s name).

Moreover, the corporation need not even necessarily profit from its agent’s actions for it to be heldliable. In Automated Medical Laboratories, the Fourth Circuit stated: “[B]enefit is not a“touchstone of criminal corporate liability; benefit at best is an evidential, not an operative, fact.”Thus, whether the agent’s actions ultimately redounded to the benefit of the corporation is lesssignificant than whether the agent acted with the intent to benefit the corporation. The basicpurpose of requiring that an agent have acted with the intent to benefit the corporation, however,is to insulate the corporation from criminal liability for actions of its agents which may be inimicalto the interests of the corporation or which may have been undertaken solely to advance theinterests of that agent or of a party other than the corporation.

770 F.2d at 407 (internal citation omitted) (quoting Old Monastery Co. v. United States, 147 F.2d 905,908 (4th Cir. 1945)).

Self-Reporting

14. DOJ encourages companies to self-report possible violations of the FCPA. Some companies do self-report. The reasons for self-reporting vary depending on the particular circumstances. In some cases,companies self-report in the hope of receiving some tangible benefit, although exactly what that benefit willbe varies from case to case. It may be that a company that self-reports a violation is sanctioned through civilbut not criminal charges. Or it may be that a criminal enforcement action is deemed appropriate, but thatthe company is permitted to enter into a deferred prosecution agreement or a non-prosecution agreement,or that some other benefits are conferred in reaching a resolution.

The United States Sentencing Guidelines do provide that a company is only eligible for the maximumdeduction (5 points) oV its Culpability Score if “the organization (A) prior to an imminent threat ofdisclosure or government investigation; and (B) within a reasonably prompt time after becoming aware ofthe oVense, reported the oVense to appropriate governmental authorities, fully cooperated in theinvestigation, and clearly demonstrated recognition and aYrmative acceptance of responsibility for itscriminal conduct.” U.S.S.G. H8C2.5(g)(1). Companies that self-report are not guaranteed any particularoutcome, such as civil rather than criminal enforcement.

Suspension And Debarment

15. Under guidelines issued by the OYce of Management and Budget (OMB), a person or firm found inviolation of the FCPA may be barred from doing business with the Federal government. Indictment alonecan lead to suspension of the right to do business with the government. The President has directed that noexecutive agency shall allow any party to participate in any procurement or nonprocurement activity if anyagency has debarred, suspended, or otherwise excluded that party from participation in a procurement ornonprocurement activity. Guidance for agency suspension and debarment activities is provided by ExecutiveOrder 12549, “Debarment and Suspension,” and Executive Order 12689, with the same title. Pertinentregulations appear at Federal Acquisitions Regulations (FAR) Subpart 9.4, “Debarment, Suspension andIneligibility.” Suspension and debarment determinations are made by the Suspending OYcial of the relevantgovernment agency and not by DOJ prosecutors, although DOJ prosecutors may be consulted regarding acompany’s cooperation, acceptance of responsibility, remediation eVorts, or other pertinent issues.

FAR Subpart 9’s Policy provision explains that suspension and debarment are neither punitive norautomatic:

9.402 Policy.

(a) Agencies shall solicit oVers from, award contracts to, and consent to subcontracts with responsiblecontractors only. Debarment and suspension are discretionary actions that, taken in accordancewith this subpart, are appropriate means to eVectuate this policy.

(b) The serious nature of debarment and suspension requires that these sanctions be imposed only inthe public interest for the Government’s protection and not for purposes of punishment. Agenciesshall impose debarment or suspension to protect the Government’s interest and only for the causesand in accordance with the procedures set forth in this subpart.

DOJ Guidance Regarding the FCPA

16. In the Omnibus Trade and Competitiveness Act of 1988, Congress directed the Attorney General toprovide guidance concerning the Department of Justice’s enforcement policy with respect to the FCPA topotential exporters and small businesses that are unable to obtain specialized counsel on issues related to theFCPA. The guidance is limited to responses to requests under the Department of Justice’s Foreign CorruptPractices Act Opinion Procedure and to general explanations of compliance responsibilities and potential



liabilities under the FCPA. A brochure entitled “The Layperson’s Guide to the FCPA” constitutes theDepartment of Justice’s general explanation of the FCPA. See http://www.usdoj.gov/criminal/fraud/docs/dojdocb.html

17. The Layperson’s Guide expressly provides: “This brochure is intended to provide a general descriptionof the FCPA and is not intended to substitute for the advice of private counsel on specific issues related to theFCPA. Moreover, material in this brochure is not intended to set forth the present enforcement intentions ofthe Department of Justice or the SEC with respect to particular fact situations”. The OYce of General Counselof the Department of Commerce also answers general questions from U.S. exporters concerning the FCPA’sbasic requirements and constraints. The Commerce Department has also had the FCPA translated intoArabic, Spanish, Chinese and Russian in order to increase general awareness of the FCPA by U.S. exportersand their trading partners. See http://www.ogc.doc.gov/trans anti bribery.html.

18. The Department of Justice has established a Foreign Corrupt Practices Act Opinion Procedure bywhich any issuer or domestic concern may request a statement of the Justice Department’s presentenforcement intentions under the antibribery provisions of the FCPA regarding any proposed businessconduct. The details of the opinion procedure may be found at 28 CFR Part 80. Under this procedure, theAttorney General will issue an opinion in response to a specific inquiry from a person or firm within thirtydays of the request. (The thirty-day period does not run until the Department of Justice has received all theinformation it requires to issue the opinion.) Conduct for which the Department of Justice has issued anopinion stating that such conduct conforms with current enforcement policy will be entitled to apresumption, in any subsequent enforcement action, of conformity with the FCPA. Copies of releases issuedregarding previous opinions are available on the Department of Justice’s FCPA web site.

19. Requests for opinions are typically received at a rate of fewer than five per year. DOJ does notcalculate how expensive it is to operate this procedure. Businesses or individuals requesting opinions do notcontribute to DOJ’s costs of providing the advice.

Facilitation Payments

20. DOJ believes that the U.S. government’s overall FCPA enforcement eVorts, including DOJ andSEC’s enforcement of the accounting provisions, as well as its eVorts to promote eVective antibriberypolicies, compliance systems, and procedures in companies, and its significant eVorts to promote the rule oflaw and good corporate governance have helped reduce the phenomenon of facilitation payments.

Competitiveness

21. Critics persist in arguing that vigorous enforcement of the FCPA undermines the competitiveness ofU.S. businesses. DOJ is firmly of the view that high antibribery standards, good corporate governance, androbust compliance systems and procedures strengthen U.S. businesses and provide them a competitiveadvantage. Through the OECD monitoring process and other eVorts, the U.S. seeks to ensure that otherparties to the OECD Antibribery Convention diligently enforce their foreign bribery laws. In this way, theU.S. strives to achieve a level global playing field and to raise anticorruption standards globally and allowcompetition in international business on the merits.

Annexes

A. DOJ Enforcement Actions, January 1, 2000—1 June 2009

B. United States v. Kozeny, et al, 05 Cr. 518 (SAS), 2008 WL 4658807 (21 October 2008)

C. FCPA Opinion Release 92–01

D. ”The Principles of Prosecution of Business Organizations,” United States Attorney’s Manual, Title9, Chapter 9–28.000

Annex A

DOJ FCPA ENFORCEMENT ACTIONS BROUGHT—2000–09 [with corporate penalties]

2000: 0 prosecutions

2001: 6 prosecutions:

— U.S. v. David Kay, S.D. Texas 2001

— U.S. v. Daniel Ray Rothrock, W.D. Texas 2001

— U.S. v. Joshua Cantor, S.D.N.Y. 2001

— U.S. v. Richard K. Halford, W.D. Mo. 2001

— U.S. v. Albert Franklin Reitz, W.D. Mo. 2001

— U.S. v. Robert Richard King and Pablo Barquero Hernandez, W.D. Mo. 2001


— U.S. v. David Kay and Douglas Murphy, S.D. Texas 2002



— U.S. v. Gautam Sengupta, D.D.C. 2002

— U.S. v. Ramendra Basu, D.D.C. 2002

— U.S. v. Richard G. Pitchford, D.D.C. 2002

— U.S. v. Syncor Taiwan, Inc., C.D.Cal. 2002 [$2 million penalty]


— U.S. v. James H. GiVen, S.D.N.Y. 2003

— U.S. v. Clayton Lewis, S.D.N.Y. 2003

— U.S. v. Thomas Farrell, S.D.N.Y. 2003

2004: 3 prosecutions

— U.S. v. ABB Vetco Gray Inc. and ABB Vetco Gray (UK) Ltd., S.D. Texas 2004 [$10.5 millionpenalty]

— Invision Technologies, 2004 [$800,000 penalty]

— U.S. v. Hans Bodmer, S.D.N.Y. 2004


— U.S. v. Monsanto, D.D.C. 2005 [$1.5 million penalty]

— U.S. v. Titan Corporation, S.D. Cal. 2005 [$13 million penalty]

— Micrus Corporation, 2005 [$450,000 penalty]

— U.S. v. DPC (Tianjin) Co. Ltd, CD. Cal. 2005 [$2 million penalty]

— U.S. v. Viktor Kozeny, Frederick Bourke, Jr., and David Pinkerton, S.D.N.Y. 2005


— U.S. v. Yaw Osei Amoaka, D.N.J. 2006

— U.S.v. Faheem Mousa Salam, D.D.C. 2006

— U.S. v. Richard John Novak, E.D. Washington 2006

— U.S. v. Jim Bob Brown, S.D. Texas 2006

— U.S. v. Statoil ASA, S.D.N.Y. 2006 [$10.5 million penalty]

— U.S. v. SSI International Far East Ltd., D. Oregon 2006Schnitzer Steel, 2006 [$7.5 million penalty]

— U.S. v. Steven Lynwood Head, S.D. Cal. 2006

— U.S. v. Christian Sapsizian, S.D. Fla. 2006

2007: 16 prosecutions (including 4 OFF):

— U.S. v. Vetco Gray Controls Inc., Vetco Gray Controls Ltd. and Vetco Gray UK Ltd.,S.D. Texas 2007Aibel Group Ltd, 2007 [$26 million in penalties]

— U.S. v. Christian Sapsizian and Edgar Valverde Acosta, S.D. Fla. 2007

— U.S. v. Baker Hughes Services International, S.D. Texas 2007Baker Hughes Inc., 2007 [$11 million penalty]

— U.S. v. William J. JeVerson, E.D. Va. 2007

— U.S. v. Leo Winston Smith, CD. Ca. 2007

— Omega Advisors, 2007 [$500,000 civil forfeiture]

— U.S. v. Si Chan Wooh, D. Oregon 2007

— U.S. v. Jason Steph, S.D. Texas 2007

— U.S. v. Steven Ott, D.N J. 2007

— U.S. v. Roger Young, D.N.J. 2007

— Textron Inc., 2007 [OFF], 2007 [$1.15 million penalty]

— Paradigm B.V., 2007 [$1 million penalty]

— U.S. v. York International Corporation [OFF], D.D.C. 2007 [$10 million penalty]

— The Ingersoll-Rand Company Limited [OFF], 2007U.S. v. Ingersoll-Rand Italiana SpA and Thermo King Ireland Limited,D.D.C. 2007 [$2.5 million penalty]

— U.S. v. Gerald Green and Patricia Green, CDCA 2007



— Akzo Nobel N.V. [OFF], 2007 [no U.S. penalty in light of 381,602 Euro fine paid to theNetherlands]

— Lucent Technologies, Inc., 2007 [$1 million penalty]

2008: 16 prosecutions (including 3 OFF):

— U.S. v. James K. Tillery and Paul G. Novak, S.D. Texas 2008

— Westinghouse Air Brake Technologies Corporation, 2008 [$300,000 penalty]

— Flowserve, Flowserve Pompes SAS [OFF], D.D.C. 2008 [$4 million penalty]

— AB Volvo, Renault Trucks SAS, Volvo Construction Equipment AB [OFF], 2008 [$7 millionpenalty]

— U.S. v. Martin Self, CDCA 2008

— U.S. v. Willbros Group, Inc. and Willbros International, Inc., S.D. Texas 2008 [$22 million penalty]

— U.S. v. AGA Medical Corporation, D. Minn. 2008 [$2 million penalty]

— FARO Technologies, Inc., 2008 [$1.1 million penalty]

— U.S. v. Albert “Jack” Stanley, S.D. Texas 2008

— U.S. v. Nam Quoc Nguyen, et al., E.D. Pa. 2008

— U.S. v. Shu Quan-Sheng, E.D. Va. 2008

— U.S. v. Aibel Group Ltd., S.D. Texas 2008 [$4.2 million penalty]

— U.S. v. Misao Hioki, S.D. Texas 2008

— U.S. v. Siemens AG; U.S. v. Siemens S.A. (Argentina); U.S. v. Siemens

— Bangladesh Ltd.; and U.S. v. Siemens S.A. (Venezuela), D.D.C. 2008 [$450 million penalty]

— U.S. v. Mario Covino, CDCA 2008

— Fiat S.p.A. [OFF], 2008U.S. v. Iveco S.p.A., U.S. v. CNH Italia S.p.A., U.S. v. CNH France S.A.,D.D.C. 2008 [$7 million penalty]

2009: 7 prosecutions (to date) (including 1 OFF)

— U.S. v. Richard Morlok, CD. Ca. 2008

— U.S. v. Kellogg, Brown & Root LLC, S.D. Texas 2009 [$402 million penalty]

— U.S. v. JeVrey Tessler and Wojciech Chodan, S.D. Texas 2009

— U.S. v. Latin Node, Inc.. S.D. Fla. 2009

— U.S. v. Stuart Carson, Hong Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti and HanYong Kim, CD. Ca. 2009

— U.S. v. Novo Nordisk A/S, D.D.C. 2009 [$9 million penalty]

— U.S. v. Juan Diaz; U.S. v. Antonio Perez, S.D. Fla. 2009

Annex B

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

United States of America

—against—

Viktor Kozeny, Frederic Bourke, Jr., and David Pinkerton,

Defendants.

Opinion and Order

05 Cr. 518 (SAS)

Shira A. Scheindlin, U.S.D.J.:

I. Introduction

This prosecution relates to alleged violations of the Foreign Corrupt Practices Act (“FCPA”) bydefendant David Bourke and others in connection with the privatization of the State Oil Company of theAzerbaijan Republic (“SOCAR”). Bourke has requested that the Court make determinations as to thecontent of applicable law in Azerbaijan and instruct the jury on certain defenses that might be availableunder the law of Azerbaijan. The Government and Bourke were unable to agree on the contents orapplicability of that law. To resolve this disagreement, the Court held a hearing on September 11, 2008. ThisOpinion and Order contains the Court’s determinations.



II. Background

A. Facts

The Government’s allegations in this case are complex, and it is unnecessary to recite them here. Therelevant facts are as follows: SOCAR is the state oil company of the Republic of Azerbaijan.227 In the mid-1990s, Azerbaijan began a program of privatization.228 The program gave the President of Azerbaijan,Heydar Aliyev, discretionary authority as to whether and when to privatize SOCAR.229 Bourke and othersallegedly violated the FCPA by making payments to Azeri oYcials to encourage the privatization of SOCARand to permit them to participate in that privatization.230 Bourke argues that the alleged payments were legalunder Azeri law and thus under the FCPA (which provides an aYrmative defense for payments that are legalunder relevant foreign law) because they were the product of extortion.231 He also argues that pursuant toAzeri law, any criminality associated with the payments was excused when he reported them to the Presidentof Azerbaijan.232

The Government and Bourke have submitted expert reports. The Government’s expert is William E. Butler,John Edward Fowler Distinguished Professor of Law at the Dickinson School of Law, Pennsylvania StateUniversity, and Emeritus Professor of Comparative Law at the University of London.233 Bourke’s expert,Paul B. Stephan, is the Lewis F. Powell, Jr. Professor of Law at the University of Virginia.234 On September11, 2008, the Court held a hearing in which the experts testified as to their interpretations of the relevantlaw.235

B. The Legal System of Azerbaijan

Azerbaijan, a sovereign nation in the Caspian Sea region that borders Russia, was formerly integrated asa Republic of the Soviet Union.236 Azerbaijan declared independence in 1991 .237 The current criminal codeof Azerbaijan took eVect in 2000.238 In Azerbaijan, decisions of most courts are not considered bindingauthority; however, the highest court in Azerbaijan has the authority to give oYcial interpretations of theAzeri Constitution and laws.239

III. Legal Standard

A. The FCPA

The FCPA prohibits giving something of value for the purpose of “(i) influencing any act or decision of[a] foreign oYcial in his oYcial capacity, (ii) inducing such foreign oYcial to do or omit any act in violationof the lawful duty of such oYcial, or (iii) securing any improper advantage … to obtain or retain businessfor or with any person.”240 The law provides an aYrmative defense for payments that are “lawful under thewritten laws and regulations” of the country.241

B. Foreign Law

“Though foreign law once was treated as an issue of fact, it now is viewed as a question of law and maybe determined through the use of any relevant source, including expert testimony.”242 Rule 26.1 of theFederal Rules of Criminal Procedure provides that “[a] party intending to raise an issue of foreign law mustprovide the court and all parties with reasonable written notice. Issues of foreign law are questions of law,but in deciding such issues a court may consider any relevant material or source—including testimony—without regard to the Federal Rules of Evidence.”

IV. Discussion

During the relevant period, Article 170 of the Azerbaijan Criminal Code (“ACC”) provided that “[t]hereceiving by an oYcial… of a bribe in any form whatsoever for the fulfillment or the failure to fulfill anyaction in the interest of the person giving the bribe which the oYcial should have or might perform with theuse of his employment position … shall be punished by deprivation of freedom . . .”243 Professor Stephan

227 See generally Frontera Res. Azerbaijan Corp. v. State Oil Co. of Azerbaijan Republic, 479 F. Supp. 2d 376, 378 (S.D.N.Y.2007).

228 See Indictment of Vicktor Kozeny, Frederic Bourke, Jr., and David Pinkerton (“Ind.”) para 4.229 See id.230 Ind. para 18.231 See Supplemental Memorandum of Law in Support of Defendant Frederic A. Bourke’s Motion Regarding Azeri Law Issues

(“Def. Supp. Br.”) at 4; see also Daventree Ltd. v. Republic of Azerbaijan, 349 F. Supp. 2d 736 (S.D.N.Y. 2004) (addressingclaims by private investors in SOCAR privatization alleging extortion and various corrupt practices).

232 See Def. Supp. Br. at 4.233 See 8/21/08 Declaration of the Government’s Expert Professor William E. Butler (“Butler Decl.”) para 1.234 See 4/7/08 Declaration of Defendant’s Expert Professor Paul B. Stephan (“Stephan Deck”) para 1.235 See 9/11/08 Transcript (“Tr.”).236 See lnd. para 3.237 See The Constitutional Act on Restoration of the State Independence of the Republic of Azerbaijan (Oct. 18, 1991).238 See Stephan Decl. para 5.239 See id.240 15 U.S.C. H 78dd-2(a)(l)(A).241 Id. H 78dd-2(c).242 United States v. Vilar, No. 05 Cr. 621, 2007 WL 1075041, at *55 n.35 (S.D.N.Y. Apr. 4, 2007).243 Butler Decl. para 10.



asserts that during the same period, Article 171 of the ACC provided that “[giving a bribe shall be punishedby deprivation of freedom for a term of from three to eight years…. A person who has given a bribe shallbe free from criminal responsibility if with respect to him there was extortion of the bribe or if that personafter giving the bribe voluntarily made a report of the occurrence.”244 Professor Butler believes that a moreaccurate translation of the last clause is “[a] person who has given a bribe shall be relieved from criminalresponsibility if extortion of the bribe occurred with respect to him or if this person after giving the bribevoluntarily stated what happened.”245

The Supreme Court of the USSR interpreted Article 171 in a Resolution published in 1990.246 The partiesagree that the Resolution is relevant to the Azeri courts’ interpretation of the Article.247 It defines extortionas “a demand by an oYcial for a bribe under the threat of carrying out actions that could do damage to thelegal interests of the briber . . .”248 The Resolution further explains that “a voluntary declaration of havingcommitted the crime absolves from criminal responsibility not only the bribe giver but his accomplices.”249

Finally, the Resolution provides that “[t]he absolution of a bribe-giver from criminal responsibility becauseof extortion of the bribe or the voluntary declaration of the giving of the bribe … does not signify an absencein the actions of such persons of the elements of an oVense. For that reason, they cannot be consideredvictims and are not entitled to claim restitution of the items of value given as bribes.”250

As a threshold matter, I must determine the meaning of “relieved (or free) from criminal responsibility.”Bourke contends that if an individual is relieved of criminal responsibility, his action was “lawful” and hemay thus avail himself of the FCPA’s aYrmative defense. I disagree.

For purposes of the FCPA’s aYrmative defense, the focus is on the payment, not the payer.251 A personcannot be guilty of violating the FCPA if the payment was lawful under foreign law. But there is no immunityfrom prosecution under the FCPA if a person could not have been prosecuted in the foreign country dueto a technicality (eg, time-barred) or because a provision in the foreign law “relieves” a person of criminalresponsibility. An individual may be prosecuted under the FCPA for a payment that violates foreign laweven if the individual is relieved of criminal responsibility for his actions by a provision of the foreign law.

A. The Reporting Exception

As Professor Butler observes, the structure of the reporting exception to liability in Article 171 illustratesthat the initial payment of a bribe was certainly not lawful.252 The ACC relieves the payer of a bribe fromcriminal liability if the bribe is properly reported not because such an action retroactively erases the stainof criminality, but because the state has a strong interest in prosecuting the government oYcial who receivedthe bribe. By waiving liability for reporting payers, the state increases the likelihood that it will learn ofthe bribery.

But at the moment that an individual pays a bribe, the individual has violated Article 171. At that time,the payment was clearly not “lawful under the written laws” of Azerbaijan.253 If the individual later reportsthe bribe, she can no longer be prosecuted for that payment. But it is inaccurate to suggest that the paymentitself suddenly became “lawful”—on the contrary, the payment was unlawful, though the payer is relievedof responsibility for it.254 This is why the Resolution provides that the payer cannot receive restitution.Further, if the payment were retroactively lawful, the oYcial who received the payment could not beprosecuted for receiving it. This cannot be correct because the purpose of the reporting exception is to enablethe government to pursue the oYcial. Thus, the relief from liability in Article 171 operates to excuse thepayer, not the payment.

244 Stephan Decl. para 3 (emphasis added).245 Butler Decl. para 10 (emphasis added). The word appears to be “russian text or russian text,” which is generally translated

as “liberation,” but can also mean “relieved.” See Tr. at 174. See also russian text (Deutsche Film-Aktiengesellschaft/Mosfilm1969), a Soviet film that depicts the “liberation” of Berlin during World War II.

246 See Resolution of the Plenum of the Supreme Court of the U.S.S.R. of March 30, 1990, No. 3, “On Court Practice in BriberyCases,” (“Res.”) Ex. C to Stephan Decl.

247 See Stephan Decl. para 7; Butler Decl. para 16.248 Res. pt. 11.249 Id. pt. 19.250 Id. pt 20.251 The FCPA focuses on payments, not payers, throughout its structure. For example, it provides that there is no liability for

“any facilitating or expediting payment to a foreign oYcial… the purpose of which is to expedite or to secure the performanceof a routine governmental action by a foreign oYcial….” 15 U.S.C. H 78dd-2(b). The purpose of this subsection was to“acknowledge[ ] … that some payments that would be unethical or even illegal within the United States might not beperceived similarly in foreign countries, and those payments should not be criminalized.” United States v. Castle, 925 F.2d831, 834 (5th Cir. 1991).

252 See Butler Decl. para 46.253 In this sense, the relief from liability operates in a fashion similar to that of a statute of limitations in the United States. If

an individual commits a crime but that individual is not prosecuted within the statute of limitations, the individual’s actionsdo not become “lawful”—rather, the criminal cannot be prosecuted.

254 Cf. Tr. at 37 (testimony of Stephan) (“It’s my understanding that the term relief from criminal responsibility means that thecriminal code no longer applies to this person … .”).



B. The Extortion Exception

The exception for extortion contained in the same sentence must operate in the same manner.255 Apayment to an Azeri oYcial that is made under threat to the payer’s legal interests is still an illegal payment,though the payer cannot be prosecuted for the payment.256

This conclusion does not preclude Bourke from arguing that he cannot be guilty of violating the FCPAby making a payment to an oYcial who extorted the payment because he lacked the requisite corrupt intentto make a bribe.257 The legislative history of the FCPA makes clear that “true extortion situations wouldnot be covered by this provision.”258 Thus, while the FCPA would apply to a situation in which a “payment[is] demanded on the part of a government oYcial as a price for gaining entry into a market or to obtain acontract,” it would not apply to one in which payment is made to an oYcial “to keep an oil rig from beingdynamited,” an example of “true extortion.”259 The reason is that in the former situation, the bribe payercannot argue that he lacked the intent to bribe the oYcial because he made the “conscious decision” to paythe oYcial.260 In other words, in the first example, the payer could have turned his back and walked away—in the latter example, he could not.

If Bourke provides an evidentiary foundation for the claim that he was the victim of “true extortion,” Iwill instruct the jury on what constitutes a situation of “true extortion” such that Bourke would not be foundto have possessed the “corrupt” intent required for a violation under the FCPA. In any event, the jury will beinstructed regarding the “corrupt” intent that the Government must prove he possessed beyond a reasonabledoubt he possessed.261 Such instruction will define “corrupt” intent as “having an improper motive orpurpose” and will explain that the payment must have been intended to “induce the recipient to misuse hisoYcial position” in discharging an oYcial act.262 The charge will also emphasize that the proper focus is onBourke’s intent and that the Government is not required to show that “the oYcial accepted the bribe,” thatthe “oYcial had the power or authority to perform the act sought” or that the “defendant intended toinfluence an oYcial act which was lawful.”263

V. Conclusion

For the reasons stated above, the Court will not instruct the jury on the exceptions to criminal liabilityin Article 171. However, if Bourke provides an evidentiary foundation for “true extortion,” the Court willinstruct the jury on what constitutes a “true extortion” situation such that Bourke would not be found topossess the “corrupt” intent required for a violation under the FCPA.264 The Court will, in any case, instructthe jury on the requisite elements of the crime of bribery under the FCPA, including the element of“corrupt” intent.

SO ORDERED;

Shira A. ScheindlinU.S.D.J.

Dated: New York, New York

October 21, 2008

255 While in the American system, it is generally accepted that a payment that was extorted was not a “bribe,” the language ofArticle 171 clearly indicates that Azeri law considers extorted payments to be bribes. Otherwise, the phrase “[a] person whohas given a bribe shall be free from criminal responsibility if with respect to him there was extortion of the bribe” would makeno sense.

256 See Tr. at 215-216 (testimony of Butler) (“Let’s assume for a moment the worst forms of extortion. … So that I as the bribegiver, I will pay no matter what. … I am still guilty of giving the bribe because the code says I am. So now the question iswhether having done so under these circumstances the court will convict me of bribery, and I think the answer is no, but it’sgoing to have to be at the court level that that’s determined, not before.”).

257 By the same token, an individual who is forced to make payment on threat of injury or death would not be liable under theFCPA. Federal criminal law provides that actions taken under duress do not ordinarily constitute crimes. See generallyUnited States v. Gonzalez, 407 F.3d 118, 122 (2d Cir. 2005) (“Three discrete elements must be met to establish coercion orduress. These are: (1) a threat of force directed at the time of the defendant’s conduct; (2) a threat suYcient to induce a well-founded fear of impending death or serious bodily injury; and (3) a lack of a reasonable opportunity to escape harm otherthan by engaging in the illegal activity.”) (citing United States v. Podlog, 35 F.3d 699, 704 (2d Cir. 1994)). If a payment wasobtained under duress, no liability attaches under the FCPA.

258 See S.Rep. No. 95-114, at 10-11 (1977), reprinted in 1977 U.S.C.C.A.N. 4098, 4108.259 Id.260 Id. at 10.261 See United States v. Alfisi, 308 F.3d 144, 150 n. 1 (2d Cir. 2002) (citing United States v. Kahn, 472 F.2d 272, 279 (2d Cir. 1973)

(finding that the issue of extortion or “economic coercion” is addressed by instructing the jury on the requisite intent ofbribery).

262 S.Rep. No. 95–114, at 10 (defining the word “corruptly” for purposes of the FCPA).263 1 L. Sand, et. al., Modern Federal Jury Instructions—Criminal para 16.01, instr. 16–6(2008).264 If Bourke demonstrates an evidentiary foundation for an aYrmative defense of duress, the Court will also instruct the jury

on its elements. See Gonzalez, 407 F.3d at 122 (“A defendant is entitled to an instruction on an aYrmative defense only ifthe defense has ‘a foundation in the evidence’”) (quoting Podlog, 35 F.3d at 704).



Annex C

1992–2001 REVIEW PROCEDURE RELEASES

Review Procedure Releases

Review Procedure Release

The Department has reviewed a request of Union Texas Pakistan, Inc.

The requestor plans to enter into a joint-venture agreement with the Ministry of Petroleum and NaturalResources of the Government of Pakistan and has asked for a determination of the Department’s presentenforcement intention under the Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. H 78dd, etseq., with respect to providing certain training, travel and subsistence expenses of oYcials and employees ofthe Government of Pakistan in connection with the execution and performance of its proposed agreement.

The requestor has represented, among other things, that under the relevant provisions of Pakistan law,the Government of Pakistan may require petroleum exploration and production companies to providetraining to government personnel—in various technical and management disciplines—to eYciently performtheir duties related to the supervision of the Pakistan petroleum industry. The agreement proposed to therequestor by the Ministry of Petroleum and Natural Resources contains a provision implementing therelevant provision of Pakistan law and obligating the requestor to a minimum annual expenditure of$200,000 for such training. The requestor has represented that, while certain of the training will take placein Pakistan, some portion of the training will more readily be accomplished at seminars, symposia andworkshops attended by other industry personnel in the United States and Europe. To this end, the requestorhas proposed that it pay the necessary and reasonable expenses for such training—all of which will be relatedto the eYcient performance of duties in connection with the supervision of the Pakistan petroleumindustry—including seminar fees, airfare, lodging, meals and ground transportation. The requestor hasfurther represented that in the event it proposes to exceed $250,000 in annual expenditures for trainingoutside Pakistan, it will request a further review by the Department with respect to any such additionalexpenditure.

Based upon all of the facts and circumstances, as represented by the requestor, the Department does notpresently intend to take any enforcement action with respect to the prospective contractual relationshipdescribed in this request.

The FCPA Review Request herein, and this release, have no binding application to any party which didnot join in the request and can be relied upon by the requesting parties only to the extent that the disclosureof facts and circumstances in the request is accurate and complete and continues to accurately andcompletely reflect such facts and circumstances.

Annex D

TITLE 9, CHAPTER 9–28.000

Principles of Federal Prosecution of Business Organizations

9-28.000 Principles of Federal Prosecution of Business Organizations

9-28.100 Duties of Federal Prosecutors and Duties of Corporate Leaders

9-28.200 General Considerations of Corporate Liability

9-28.300 Factors to Be Considered

9-28.400 Special Policy Concerns

9-28.500 Pervasiveness of Wrongdoing Within the Corporation

9-28.600 The Corporation’s Past History

9-28.700 The Value of Cooperation

9-28.710 Attorney-Client and Work Product Protections

9-28.720 Cooperation: Disclosing the Relevant Facts

9-28,730 Obstructing the In vestigation

9-28.740 OVering Cooperation: No Entitlement to Immunity

9-28.750 Qualifying for Immunity, Amnesty, or Reduced Sanctions Through Voluntary Disclosures

9-28.760 Oversight Concerning Demands for Waivers of Attorney-Client Privilege or Work Product ByCorporations Contrary to This Policy

9-28.800 Corporate Compliance Programs

9-28.900 Restitution and Remediation

9-28.1000 Collateral Consequences

9-28.1100 Other Civil or Regulatory Alternatives

9-28.1200 Selecting Charges



9-28.1300 Plea Agreements with Corporations

9-28.000 Principles of Federal Prosecution of Business Organizations265

9-28.100 Duties of Federal Prosecutors and Duties of Corporate Leaders

The prosecution, of corporate crime is a high priority for the Department of Justice. By investigatingallegations of wrongdoing and by bringing charges where appropriate for criminal misconduct, theDepartment promotes critical public interests. These interests include, to take just a few examples: (1)protecting the integrity of our free economic and capital markets; (2) protecting consumers, investors, andbusiness entities that compete only through lawful means; and (3) protecting the American people frommisconduct that would violate criminal laws safeguarding the environment.

In this regard, federal prosecutors and corporate leaders typically share common goals. For example,directors and oYcers owe a fiduciary duty to a corporation’s shareholders, the corporation’s true owners,and they owe duties of honest dealing to the investing public in connection with the corporation’s regulatoryfilings and public statements. The faithful execution of these duties by corporate leadership serves the samevalues in promoting public trust and confidence that our criminal cases are designed to serve.

A prosecutor’s duty to enforce the law requires the investigation and prosecution, of criminal wrongdoingif it is discovered. In carrying out this mission with the diligence and resolve necessary to vindicate theimportant public interests discussed above, prosecutors should be mindful of the common cause we sharewith responsible corporate leaders. Prosecutors should also be mindful that confidence in the Departmentis aVected both by the results we achieve and by the real and perceived ways in which we achieve them. Thus,the manner in which we do our job as prosecutors—including the professionalism we demonstrate, ourwillingness to secure the facts in a manner that encourages corporate compliance and self-regulation, andalso our appreciation that corporate prosecutions can potentially harm blameless investors, employees, andothers—aVects public perception of our mission. Federal prosecutors recognize that they must maintainpublic confidence in the way in which they exercise their charging discretion. This endeavor requires thethoughtful analysis of all facts and circumstances presented in a given case. As always, professionalism andcivility play an important part in the Department’s discharge of its responsibilities in all areas, including thearea of corporate investigations and prosecutions.

9-28.200 General Considerations of Corporate Liability

A. General Principle: Corporations should not be treated leniently because of their artificial nature norshould they be subject to harsher treatment. Vigorous enforcement of the criminal laws against corporatewrongdoers, where appropriate, results in great benefits for law enforcement and the public, particularly inthe area of white collar crime. Indicting corporations for wrongdoing enables the government to be a forcefor positive change of corporate culture, and a force to prevent, discover, and punish serious crimes.

B. Comment: In all cases involving corporate wrongdoing, prosecutors should consider the factorsdiscussed further below. In doing so, prosecutors should be aware of the public benefits that can flow fromindicting a corporation in appropriate cases, For instance corporations are likely to take immediate remedialsteps when one is indicted for criminal misconduct that is pervasive throughout a particular industry, andthus an indictment can provide a unique opportunity for deterrence on a broad scale. In addition, acorporate indictment may result in specific deterrence by changing the culture of the indicted corporationand the behavior of its employees. Finally, certain crimes that carry with them a substantial risk of greatpublic harm—eg, environmental crimes or sweeping financial frauds—may be committed by a businessentity, and there may therefore be a substantial federal interest in indicting a corporation under suchcircumstances.

In certain instances, it may be appropriate, upon consideration of the factors set forth herein, to resolvea corporate criminal case by means other than indictment. Non-prosecution and deferred, prosecutionagreements, for example, occupy an important middle ground between declining prosecution and obtainingthe conviction of a corporation. These agreements are discussed further in Section X, infra. Likewise, civiland regulatory alternatives may be appropriate in certain cases, as discussed in Section XI, infra.

Where a decision is made to charge a corporation, it does not necessarily follow that individual directors,oYcers, employees, or shareholders should not also be charged. Prosecution of a corporation is not asubstitute for the prosecution of criminally culpable individuals within or without the corporation. Becausea corporation can act only through individuals, imposition of individual criminal liability may provide thestrongest deterrent against future corporate wrongdoing. Only rarely should provable individual culpabilitynot be pursued, particularly if it relates to high-level corporate oYcers, even in the face of an oVer of acorporate guilty plea or some other disposition of the charges against the corporation.

Corporations are “legal persons,” capable of suing and being sued, and. capable of committing crimes.Under the doctrine of respondent superior, a corporation may be held criminally liable for the illegal acts ofits directors, oYcers, employees, and agents. To hold a corporation liable for these actions, the governmentmust establish that the corporate agent’s actions (i) were within the scope of his duties and (ii) were intended,

265 While these guidelines refer to corporations, they apply to the consideration of the prosecution of all types of businessorganizations, including partnerships, sole proprietorships, government entities, and unincorporated associations.



at least in part, to benefit the corporation. In all cases involving wrongdoing by corporate agents,prosecutors should not limit their focus solely to individuals or the corporation, but should consider bothas potential targets.

Agents may act for mixed reasons—both for self-aggrandizement (both, direct and indirect) and for thebenefit of the corporation, and a corporation, may be held liable as long as one motivation of its agent is tobenefit the corporation. See United States v. Potter, 463 F3d 9, 25 (1st Cir. 2006) (stating that the test todetermine whether an agent is acting within the scope of employment is “whether the agent is performingacts of the kind which he is authorized to perform, and those acts are motivated, at least in part, by an intentto benefit the corporation.”). In United States v. Automated Medical Laboratories, Inc., 770 F.2d 399 (4thCir. 1985), for example, the Fourth Circuit aYrmed a corporation’s conviction for the actions of asubsidiary’s employee despite the corporation’s claim that the employee was acting for his own benefit,namely his “ambitious nature and his desire to ascend the corporate ladder.” Id. at 407. The court stated,“Partucci was clearly acting in part to benefit AML since his advancement within the corporation dependedon AML’s well-being and its lack of diYculties with the FDA.” Id.; see also United States v. Cincotta,689 F.2d 238, 241-42 (1st Cir. 1982) (upholding a corporation’s conviction, notwithstanding the substantialpersonal benefit reaped by its miscreant agents, because the fraudulent scheme required money to passthrough the corporation’s treasury and the fraudulently obtained goods were resold to the corporation’scustomers in the corporation’s name).

Moreover, the corporation need not even necessarily profit from its agent’s actions for it to be held liable.In Automated Medical Laboratories, the Fourth Circuit stated:

Benefit is not a “touchstone of criminal corporate liability; benefit at best is an evidential, not anoperative, fact.” Thus, whether the agent’s actions ultimately redounded to the benefit of thecorporation is less significant than whether the agent acted with the intent to benefit thecorporation. The basic purpose of requiring that an agent have acted with the intent to benefit thecorporation, however, is to insulate the corporation from criminal liability for actions of its agentswhich may be inimical to the interests of the corporation or which may have been undertaken solelyto advance the interests of that agent or of a party other than the corporation.

770 F.2d at 407 (internal citation omitted) (quoting Old Monastery Co. v. United States, 147 F.2d 905,908 (4th Cir. 1945)).

9-28.300 Factors to Be Considered

A. General Principle: Generally, prosecutors apply the same factors in determining whether to charge acorporation as they do with respect to individuals. See USAM H 9–27.220, et seq. Thus, the prosecutor mustweigh all of the factors normally considered in the sound exercise of prosecutorial judgment: the suYciencyof the evidence; the likelihood of success at trial; the probable deterrent, rehabilitative, and otherconsequences of conviction; and the adequacy of noncriminal approaches. See id. However, due to thenature of the corporate “person,” some additional factors are present. In conducting an investigation,determining whether to bring charges, and negotiating plea or other agreements, prosecutors shouldconsider the following factors in reaching a decision as to the proper treatment of a corporate target:

1. the nature and seriousness of the oVense, including the risk of harm to the public, and applicablepolicies and priorities, if any, governing the prosecution of corporations for particular categoriesof crime (see infra section IV);

2. the pervasiveness of wrongdoing within the corporation, including the complicity in, or thecondoning of, the wrongdoing by corporate management (see infra section V);

3. the corporation’s history of similar misconduct, including prior criminal, civil, and regulatoryenforcement actions against it (see infra section VI);

4. the corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperatein the investigation of its agents (see infra section VII);

5. the existence and eVectiveness of the corporation’s pre-existing compliance program (see infrasection VIII);

6. the corporation’s remedial actions, including any eVorts to implement an eVective corporatecompliance program or to improve an existing one, to replace responsible management, todiscipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevantgovernment agencies (see infra section IX);

7. collateral consequences, including whether there is disproportionate harm to shareholders, pensionholders, employees, and others not proven personally culpable, as well as impact on the publicarising from the prosecution (see infra section X);

8. the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance; and

9. the adequacy of remedies such as civil or regulatory enforcement actions (see infra section XI).

B. Comment: The factors listed in this section are intended to be illustrative of those that should beevaluated and are not an exhaustive list of potentially relevant considerations. Some of these factors maynot apply to specific cases, and in some cases one factor may override all others. For example, the nature



and seriousness of the oVense may be such as to warrant prosecution regardless of the other factors. In mostcases, however, no single factor will be dispositive. In addition, national law enforcement policies in variousenforcement areas may require that more or less weight be given to certain of these factors than to others.Of course, prosecutors must exercise their thoughtful and pragmatic judgment in applying and balancingthese factors, so as to achieve a fair and just outcome and promote respect for the law.

In making a decision to charge a corporation, the prosecutor generally has substantial latitude indetermining when, whom, how, and even whether to prosecute for violations of federal criminal law. Inexercising that discretion, prosecutors should consider the following statements of principles that summarizethe considerations they should weigh and the practices they should follow in discharging their prosecutorialresponsibilities. In doing so, prosecutors should ensure that the general purposes of the criminal law—assurance of warranted punishment, deterrence of further criminal conduct, protection of the public fromdangerous and fraudulent conduct, rehabilitation of oVenders, and restitution for victims and aVectedcommunities—are adequately met, taking into account the special nature of the corporate “person.”

9-28.400 Special Policy Concerns

A. General Principle: The nature and seriousness of the crime, including the risk of harm to the publicfrom the criminal misconduct, are obviously primary factors in determining whether to charge acorporation. In addition, corporate conduct, particularly that of national and multi-national corporations,necessarily intersects with federal economic, tax, and criminal law enforcement policies. In applying thesePrinciples, prosecutors must consider the practices and policies of the appropriate Division of theDepartment, and must comply with those policies to the extent required by the facts presented.

B. Comment: In determining whether to charge a corporation, prosecutors should take into accountfederal law enforcement priorities as discussed above. See USAM H 9"27*"230. In addition, however,prosecutors must he aware of the specific policy goals and incentive programs established by the respectiveDivisions and regulatory agencies. Thus, whereas natural persons may be given incremental degrees of credit(ranging from immunity to lesser charges to sentencing considerations) for turning themselves in, makingstatements against their penal interest, and cooperating in the government’s investigation of their own andothers’ wrongdoing, the same approach may not be appropriate in all circumstances with respect tocorporations. As an example, it is entirely proper in many investigations for a prospector to consider thecorporation’s pre-indictment conduct, eg, voluntary disclosure, cooperation, remediation or restitution, indetermining whether to seek an indictment. However, this would not neeessarily be appropriate in anantitrust investigation, in which antitrust violations, by definition, go to the heart of the corporation’sbusiness. With this in mind, the Antitrust Division has established a firm policy, understood in the businesscommunity, that credit should not be given at the charging stage for a compliance program and that amnestyis available only to the first corpoiation to make full disclosure to the government, As another example, theTax Division has a strong preference for prosecuting responsible individuals, rather than entities, forcorporate tax oVences. Thus, in deteimining whether or not to charge a corporation, prosecutors mustconsult with the Criminal, Antitrust, Tax, Environmental and Natural Resources, and National SecurityDivisions, as appropriate.

9–28.500 Pervasiveness of Wrongdoing Within the Corporation

A. General Principle: A corporation can only act through natural persons, and it is therefore heldresponsible for the acts of such persons fairly attributable to it. Charging a corporation for even minormisconduct may be appropriate where the wrongdoing was pervasive and was undertaken by a large numberof employees, or by all the employees in a particular role within the corporation, or was condoned by uppermanagement. On the other hand it may not be appropriate to impose liability upon a corporation,particularly one with a robust compliance program in place, under a strict respondeat superior theory for thesingle isolated act of a rogue employee. There is, of course, a wide spectrum between these two extremes,and a prosecutor should exercise sound discretion in evaluating the pervasiveness of wrongdoing within acorporation.

B. Comment: Of these factors, the most important is the role and conduct of management. Although actsof even low-level employees may result in criminal liability, a corporation is directed by its management andmanagement is responsible for a corporate culture in which criminal conduct is either discouraged or tacitlyencouraged. As stated in commentary to the Sentencing Guidelines:

Pervasiveness [is] case specific and [will] depend on the number, and degree of responsibility, ofindividuals [with] substantial authority … who participated in, condoned, or were willfullyignorant of the oVense. Fewer individuals need to be involved for a finding of pervasiveness if thoseindividuals exercised a relatively high degree of authority. Pervasiveness can occur either within anorganization as a whole or within a unit of an organization.USSG H 8C2.5, cmt. (n, 4).



9–28.600 The Corporation’s Past History

A. General Principle: Prosecutors may consider a corporation’s history of similar conduct, includingprior criminal, civil, and regulatory enforcement actions against it, in determining whether to bring criminal,charges and how best to resolve cases.

B. Comment: A corporation, like a natural person, is expected to learn from its mistakes. A history ofsimilar misconduct may be probative of a corporate culture that encouraged, or at least condoned, suchmisdeeds, regardless of any compliance programs. Criminal prosecution of a corporation may beparticularly appropriate where the corporation previously had been subject to non-criminal guidance,warnings, or sanctions, or previous criminal charges, and it either had not taken adequate action to preventfuture unlawful conduct or had continued to engage in the misconduct in spite of the warnings orenforcement actions taken against it. The corporate structure itself (eg, the creation or existence ofsubsidiaries or operating divisions) is not dispositive in this analysis, and enforcement actions taken againstthe corporation or any of its divisions, subsidiaries, and aYliates may be considered, if germane. See USSGH 8C2.5(c), cmt. (n. 6).

9–28.700 The Value of Cooperation

A. General Principle: In determining whether to charge a corporation and how to resolve corporatecriminal cases, the corporation’s timely and voluntary disclosure of wrongdoing and its cooperation withthe government’s investigation may be relevant factors. In gauging the extent of the corporation’scooperation, the prosecutor may consider, among other things, whether the corporation made a voluntaryand timely disclosure, and the corporation’s willingness to provide relevant information and evidence andidentify relevant actors within and outside the corporation, including senior executives.

Cooperation is a potential mitigating factor, by which a corporation—just like any other subject of acriminal investigation—can gain credit in a case that otherwise is appropriate for indictment andprosecution. Of course, the decision not to cooperate by a corporation (or individual) is not itself evidenceof misconduct, at least where the lack of cooperation does not involve criminal misconduct or demonstrateconsciousness of guilt (eg, suborning perjury or false statements, or refusing to comply with lawful discoveryrequests). Thus, failure to cooperate, in and of itself, does not support or require the filing of charges withrespect to a corporation any more than with respect to an individual.

B. Comment: In investigating wrongdoing by or within a corporation, a prosecutor is likely to encounterseveral obstacles resulting from the nature of the corporation itself. It will often be diYcult to determinewhich individual took which action on behalf of the corporation. Lines of authority and responsibility maybe shared among operating divisions or departments, and records and personnel may be spread throughoutthe United States or even among several countries. Where the criminal conduct continued over an extendedperiod of time, the culpable or knowledgeable personnel may have been promoted, transferred, or fired, orthey may have quit or retired. Accordingly, a corporation’s cooperation may be critical in identifyingpotentially relevant actors and locating relevant evidence, among other things, and in doing so expeditiously.

This dynamic—ie, the diYculty of determining what happened, where the evidence is, and whichindividuals took or promoted putatively illegal corporate actions—can have negative consequences for boththe government and the corporation that is the subject or target of a government investigation. Morespecifically, because of corporate attribution principles concerning actions of corporate oYcers andemployees (see, eg, supra section II), uncertainty about exactly who authorized or directed apparentcorporate misconduct can inure to the detriment of a corporation. For example, it may not matter underthe law which of several possible executives or leaders in a chain of command approved of or authorizedcriminal conduct; however, that information if known might bear on the propriety of a particular dispositionshort of indictment of the corporation. It may not be in the interest of a corporation or the government fora charging decision to be made in the absence of such information, which might occur if for example, astatute of limitations were relevant and authorization by any one of the oYcials were enough to justify acharge under the law. Moreover, and at a minimum, a protracted government investigation of such an issuecould, as a collateral consequence, disrupt the corporation’s business operations or even, depress its stockprice.

For these reasons and more, cooperation can be a favorable course for both the government and thecorporation. Cooperation benefits the government—and ultimately shareholders, employees, and otheroften blameless victims—by allowing prosecutors and federal agents, for example, to avoid protracteddelays, which compromise their ability to quickly uncover and address the full extent of widespreadcorporate crimes, With cooperation by the corporation, the government may be able to reduce tangiblelosses, limit damage to reputation, and preserve assets for restitution. At the same time, cooperation maybenefit the corporation by enabling the government to focus its investigative resources in a manner that willnot unduly disrupt the corporation’s legitimate business operations. In addition, and critically, cooperationmay benefit the corporation by presenting it with the opportunity to earn credit for its eVorts.



9–28.710 Attorney-Client and Work Product Protections

The attorney-client privilege and the attorney work product protection serve an extremely importantfunction in the American legal system. The attorney-client privilege is one of the oldest and most sacrosanctprivileges under the law. See Upjohn v. United States, 449 U.S. 383, 389 (1981). As the Supreme Court hasstated, ’[i]ts purpose is to encourage full and frank communication between attorneys and their clients andthereby promote broader public interests in the observance of law and administration of justice.” Id. Thevalue of promoting a corporation’s ability to seek frank and comprehensive legal advice is particularlyimportant in the contemporary global business environment, where corporations often face complex anddynamic legal and regulatory obligations imposed by the federal government and also by states and foreigngovernments. The work product doctrine serves similarly important goals.

For these reasons, waiving the attorney-client and work product protections has never been a prerequisiteunder the Department’s prosecution guidelines for a corporation to be viewed as cooperative. Nonetheless,a wide range of commentators and members of the American legal community and criminal justice systemhave asserted that the Department’s policies have been used, either wittingly or unwittingly, to coercebusiness entities into waiving attorney-client privilege and work-product protection. Everyone agrees thata corporation may freely waive its own privileges if it chooses to do so; indeed, such waivers occur routinelywhen corporations are victimized by their employees or others, conduct an internal investigation, and thendisclose the details of the investigation to law enforcement oYcials in an eVort to seek prosecution of theoVenders. However, the contention, from a broad array of voices, is that the Department’s position onattorney-client privilege and work product protection waivers has promoted an environment in which thoseprotections are being unfairly eroded to the detriment of all.

The Department understands that the attorney-client privilege and attorney work product protection areessential and long-recognised components of the American legal system. What the government seeks andneeds to advance its legitimate (indeed, essential) law enforcement mission is not waiver of those protections,but rather the facts known to the corporation about the putative criminal misconduct under review. Inaddition, while a corporation remains free to convey non-factual or “core” attorney-client communicationsor work product—if and only if the corporation voluntarily chooses to do so—prosecutors should not askfor such waivers and are directed not to do so. The critical factor is whether the corporation has providedthe facts about the events, as explained further herein.

9–28.720 Cooperation: Disclosing the Relevant Facts

Eligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or workproduct protection. Instead, the sort of cooperation that is most valuable to resolving allegations ofmisconduct by a corporation and its oYcers, directors, employees, or agents is disclosure of the relevant factsconcerning such misconduct. In this regard, the analysis parallels that for a. non-corporate defendant, wherecooperation typically requires disclosure of relevant factual knowledge and not of discussions between anindividual and his attorneys.

Thus, when the government investigates potential corporate wrongdoing, it seeks the relevant facts. Forexample, how and when did the alleged misconduct occur? Who promoted or approved it? Who wasresponsible for committing it? in this respect, the investigation of a corporation diVers little from theinvestigation of an individual. In both cases, the government needs to know the facts to achieve a just andfair outcome. The party under investigation may choose to cooperate by disclosing the facts, and thegovernment may give credit for the party’s disclosures. If a corporation wishes to receive credit for suchcooperation, which then can be considered with all other cooperative eVorts and circumstances in evaluatinghow fairly to proceed, then the corporation, like any person, must disclose the relevant facts of which it hasknowledge.266

(a) Disclosing the Relevant Facts—Facts Gathered Through Internal Investigation

Individuals and corporations often obtain knowledge of facts in diVerent ways. An individual knows thefacts of his or others’ misconduct through his own experience and perceptions. A corporation is an artificialconstruct that cannot, by definition, have personal knowledge of the facts. Some of those facts may bereflected in documentary or electronic media like emails, transaction or accounting documents, and otherrecords. Often, the corporation gathers facts through an internal investigation. Exactly how and by whomthe facts are gathered is for the corporation to decide. Many corporations choose to collect informationabout potential misconduct through lawyers, a process that may confer attorney-client privilege or attorneywork product protection on at least some of the information collected. Other corporations may choose amethod of fact-gathering that does not have that eVect—for example, having employee or other witnessstatements collected after interviews by non-attorney personnel.

266 There are other dimensions of cooperation beyond the mere disclosure of facts, of course. These can include, for example,providing non-privileged documents and other evidence, making witnesses available for interviews, and assisting in theinterpretation of complex business records,. This section of the Principles focuses solely on the disclosure of facts and theprivilege issues that may be implicated thereby.



Whichever process the corporation selects, the government’s key measure of cooperation must remain thesame as it does for an individual: has the party timely disclosed the relevant facts about the putativemisconduct? That is the operative question in assigning cooperation credit for the disclosure ofinformation—not whether the corporation discloses attorney-client or work product materials. Accordingly,a corporation should receive the same credit for disclosing facts contained in materials that are not protectedby the attorney-client privilege or attorney work product as it would for disclosing identical facts containedin materials that are so protected.267 On this point the Report of the House Judiciary Committee, submittedin connection with the attorney-client privilege bill passed by the House of Representatives (H.R. 3013),comports with the approach required here:

[A]n. . . attorney of the United States may base cooperation credit on the facts that are disclosed,but is prohibited from basing cooperation credit upon whether or not the materials are protectedby attorney-client privilege or attorney work product. As a result, an entity that voluntarilydiscloses should receive the same amount of cooperation credit for disclosing facts that happen tobe contained in materials not protected by attorney-client privilege or attorney work product asit would receive for disclosing identical facts that are contained in materials protected by attorney-client privilege or attorney work product. There should be no diVerentials in an assessment ofcooperation (ie, neither a credit nor a penalty) based upon whether or not the materials disclosedare protected by attorney-client privilege or attorney work product.

H.R. Rep. No. 110–445 at 4 (2007).

In short, so long as the corporation timely discloses relevant facts about fee putative misconduct, thecorporation may receive due credit for such cooperation, regardless of whether it chooses to waive privilegeor work product protection in the process.268 Likewise, a corporation that does not disclose the relevant factsabout the alleged misconduct—for whatever reason—typically should not be entitled to receive credit forcooperation.

Two final and related points bear noting about the disclosure of facts, although they should be obvious.First, the government cannot compel, and the corporation has no obligation to make, such disclosures(although the government can obviously compel the disclosure of certain records and witness testimonythrough subpoenas). Second, a corporation’s failure to provide relevant information does not mean thecorporation will be indicted, It simply means that the corporation will not be entitled to mitigating credit forthat cooperation. Whether the corporation faces charges will turn, as it does in any case, on the suYciency ofthe evidence, the likelihood of success at trial, and all of the other factors identified in Section III above. Ifthere is insuYcient evidence to warrant indictment, after appropriate investigation, has been completed, orif the other factors weigh against indictment, then the corporation should not be indicted, irrespective ofwhether it has earned cooperation credit. The converse is also true: The government may charge even themost cooperative corporation pursuant to these Principles if, in weighing and balancing the factorsdescribed herein, the prosecutor determines that a charge is required in the interests of justice. Put diVerently,even the most sincere and thorough eVort to cooperate cannot necessarily absolve a corporation that has, forexample, engaged in an egregious, orchestrated, and widespread fraud. Cooperation is a relevant potentialmitigating factor, but it alone is not dispositive.

(b) Legal Advice and Attorney Work Product

Separate from (and usually preceding) the fact-gathering process in an internal investigation, acorporation, through its oYcers, employees, directors, or others, may have consulted with corporate counselregarding or in a manner that concerns the legal implications of the putative misconduct at issue.Communications of this sort, which are both independent of the fact-gathering component of an internalinvestigation and made for the purpose of seeking or dispensing legal advice, lie at the core of the attorney-client privilege. Such communications can naturally have a. salutary eVect on corporate behavior—facilitating, for example, a corporation’s eVort to comply with complex and evolving legal and regulatoryregimes.269 Except as noted in subparagraphs (b)(1) and (b)(ii) below, a corporation need not disclose andprosecutors may not request the disclosure of such communications as a condition for the corporation’seligibility to receive cooperation credit.

267 By way of example, corporate personnel are typically interviewed during an internal investigation.. If the interviews areconducted by counsel for the corporation, certain notes and memoranda generated from the interviews may be subject, atleast in part, to the protections of attorney-client privilege and/or attorney work product. To receive cooperation credit forproviding factual, information, the corporation need not produce, and prosecutors may not request, protected notes ormemoranda, generated by the lawyers’ interviews. To earn such credit, however, the corporation does need to produce, andprosecutors may request, relevant factual information—including relevant factual information acquired through thoseinterviews, unless the identical information has otherwise been provided—as well as relevant non-privileged evidence suchas accounting and business records and emails between non-attorney employees or agents

268 In assessing the timeliness of a corporation’s disclosures, prosecutors should apply a standard of reasonableness in light ofthe totality of circumstances.

269 These privileged communications are not necessarily limited to those that occur contemporaneously with the underlyingmisconduct. They would include, for instance, legal advice provided by corporate counsel in an internal investigation report.Again, the key measure of cooperation is the disclosure of factual information known to the corporation, not the disclosureof legal advice or theories rendered in connection with the conduct at issue (subject to the two exceptions noted, in Section.VII(2)(b)(i-ii)).



Likewise, non-factual or core attorney work product—for example, an attorney’s mental impressions orlegal theories—lies at the core of the attorney work product doctrine, A corporation need not disclose, andprosecutors may not request, the disclosure of such attorney work product as a condition for thecorporation’s eligibility to receive cooperation credit.

(i) Advice of Counsel. Defense in the Instant Context

Occasionally a corporation or one of its employees may assert an advice-of-counsel defense, based uponcommunications with in-house or outside counsel that took place prior to or contemporaneously with theunderlying conduct at issue. In such situations, the defendant must tender a legitimate factual basis tosupport the assertion of the advice-of-counsel defense. See eg, Pitt vxDistrict of Columbia, 491 F.3d 494,504-05 (D.C. Cir. 2007); United States v. Wenger, 427 F.3d 840, 853-54 (I0th Cir, 2005); United States v.Cheek, 3 F.3d 1057, 1061-62 (7th Cir. 1993). The Department cannot fairly be asked to discharge itsresponsibility to the public to investigate alleged corporate crime, or to temper what would otherwise be theappropriate course of prosecutive action, by simply accepting on. faith an otherwise unproven assertion thatan attorney—perhaps even, an unnamed attorney—approved potentially unlawful practices. Accordingly,where an advice-of-counsel defense has been asserted, prosecutors may ask for the disclosure of thecommunications allegedly supporting it.

(ii) Communications in Furtherance of a Crime or Fraud

Communications between a corporation (through its oYcers, employees,, directors, or agents) andcorporate counsel that are made in furtherance of a crime or fraud are, under settled precedent, outside thescope and protection of the attorney-client privilege. See United States v. Zolin, 491 U.S. 554, 563 (1989);United States v. BDO Seidman, LLP, 492 F.3d 806, 818 (7th Cir. 2007). As a result, the Department mayproperly request such communications if they in fact exist

9–28.730 Obstructing the Investigation

Another factor to be weighed by the prosecutor is whether the corporation has engaged in conductintended, to impede the investigation. Examples of such conduct could include: inappropriate directions toemployees or their counsel, such as directions not to be truthful or to conceal relevant facts; makingrepresentations or submissions that contain misleading assertions or material omissions; and incomplete ordelayed production of records.

In evaluating cooperation, however, prosecutors should not take into account whether a corporation isadvancing or reimbursing attorneys’ fees or providing counsel to employees, oYcers, or directors underinvestigation or indictment, Likewise, prosecutors may not request that a corporation refrain from: takingsuch action. This prohibition is not meant to prevent a prosecutor from asking questions about an attorney’srepresentation of a corporation or its employees, oYcers, or directors, where otherwise appropriate underthe law.270 Neither is it intended to limit the otherwise applicable reach of criminal obstruction of justicestatutes such as 18 US.C. H 1503. If the payment of attorney fees were used in a manner that would otherwiseconstitute criminal obstruction of justice—for example, if fees were advanced on the condition that anemployee adhere to a version of the facts that the corporation and the employee knew to be false—thesePrinciples would not (and could not) render inapplicable such criminal prohibitions.

Similarly, the mere participation by a corporation in a joint defense agreement does not render thecorporation ineligible to receive cooperation credit, and prosecutors may not request that a corporationrefrain from entering into such agreements. Of course, the corporation may wish to avoid putting itself inthe position of being disabled, by virtue of a particular joint defense or similar agreement, from providingsome relevant facts to the government and thereby limiting its ability to seek such cooperation credit. Suchmight be the case if the corporation gathers facts from employees who have entered into a joint defenseagreement with the corporation, and who may later seek to prevent the corporation from disclosing the factsit has acquired. Corporations may wish to address this situation by crafting or participating in joint defenseagreements, to the extent they choose to enter them, that provide such flexibility as they deem appropriate.

Finally, it may on occasion be appropriate for the government to consider whether the corporation hasshared with others sensitive information about the investigation that the government provided to thecorporation. In appropriate situations, as it does with individuals, the government may properly requestthat, if a corporation wishes to receive credit for cooperation, the information provided by the governmentto the corporation not be transmitted to others—for example, where the disclosure of such informationcould lead to flight by individual subjects, destruction of evidence, or dissipation or concealment of assets.

270 Routine questions regarding the representation status of a corporation and its employees, including how and by whomattorneys’ fees are paid, sometimes arise in the course of an investigation under certain circumstances—to take one example,to assess conflict-of-interest issues. Such questions can be appropriate and this guidance is not intended to prohibit suchlimited inquiries.



9–28.740 OVering Cooperation; No Entitlement to Immunity

A corporation’s oVer of cooperation or cooperation itself does not automatically entitle it to immunityfrom prosecution or a favorable resolution of its case. A corporation should not be able to escape liabilitymerely by oVering up its directors, oYcers, employees, or agents, Thus, a corporation’s willingness tocooperate is not determinative; that factor, while relevant, needs to be considered in conjunction with allother factors.

9–28.750 Qualifying for Immunity, Amnesty, or Reduced Sanctions Through Voluntary Disclosures

In conjunction with regulatory agencies and other executive branch departments, the Departmentencourages corporations, as part of their compliance programs, to conduct internal investigations and todisclose the relevant facts to the appropriate authorities. Some agencies, such as the Securities and ExchangeCommission and the .Environmental Protection Agency, as well as the Department’s Environmental and.Natural Resources Division, have formal voluntary disclosure programs in which—self-reporting, coupledwith remediation and additional criteria, may qualify the corporation for amnesty or reduced sanctions.Even in the absence of a formal program, prosecutors may consider a corporation’s timely and voluntarydisclosure in evaluating the adequacy of the corporation’s compliance program, and its management’scommitment to the compliance program. However, prosecution and economic policies specific to theindustry or statute may require prosecution notwithstanding a corporation’s willingness to cooperate. Forexample, the Antitrust Division has a policy of oVering amnesty only to the first corporation to agree tocooperate. Moreover, amnesty, immunity, or reduced sanctions may not be appropriate where thecorporation’s business is permeated with fraud or other crimes.

9–28.760 Oversight Concerning Demands for Waivers of Attorney-Client Privilege or Work ProductProtection By Corporations Contrary to This Policy

The Department underscores its commitment to attorney practices that are consistent with Departmentpolicies like those set forth herein concerning cooperation credit and due respect for the attorney-clientprivilege and work product protection. Counsel for corporations who believe that prosecutors are violatingsuch guidance are encouraged to raise their concerns with supervisors, including the appropriate UnitedStates Attorney or Assistant Attorney General. Like any other allegation of attorney misconduct, suchallegations are subject to potential investigation through established mechanisms.

9–28.800 Corporate Compliance Programs

A. General Principle: Compliance programs are established by corporate management to prevent anddetect misconduct and to ensure that corporate activities are conducted in accordance with applicablecriminal and civil laws, regulations, and rules. The Department encourages such corporate self-policing,including voluntary disclosures to the government of any problems that a corporation discovers on its own.However, the existence of a compliance program is not suYcient, in and of itself, to justify not charging acorporation for criminal misconduct undertaken by its oYcers, directors, employees, or agents. In addition,the nature of some crimes, eg, antitrust violations, may be such that national law enforcement policiesmandate prosecutions of corporations notwithstanding the existence of a compliance program.

B. Comment: The existence of a corporate compliance program, even one that specifically prohibited thevery conduct in question, does not absolve the corporation from criminal liability under the doctrine ofrespondent superior. See Untied States v. Basic Constr. Co., 711 F.2d 570, 573 (4th Cir. 1983) (“[A]corporation may be held criminally responsible for antitrust violations committed by its employees if theywere acting within the scope of their authority, or apparent authority, and for the benefit of the corporation,even if, such acts were against corporate policy or express instructions.’) As explained in United States v.Potter, 463 F.3d 9 (1st Cir. 2006), a corporation cannot “avoid liability by adopting abstract rules” thatforbid its agents from engaging in illegal acts, because [e]ven a specific directive to an agent or employee orhonest eVorts to police such rules do not automatically free the company for the wrongful acts of agents.”Id. at 25-26, See also United States v. Hilton Hotels Corp., 467 F.2d 1000, 1007 (9th Cir. 1972) (noting thata corporation “could not gain exculpation by issuing general instructions without undertaking to enforcethose instructions by means commensurate with the obvious risks”); United States v. Beusch, 596 F.2d 871,878 (9th Cir. 1979) (“[A] corporation may be liable for acts of its employees done contrary to expressinstructions and policies, but, the existence of such instructions and policies may be considered indetermining whether the employee in fact acted to benefit the corporation.”).

While the Department recognizes that no compliance program can. ever prevent all criminal activity bya corporation’s employees, the critical factors in evaluating any program are whether the program isadequately designed for maximum eVectiveness in preventing and detecting wrongdoing by employees andwhether corporate management is enforcing the program or is tacitly encouraging or pressuring employeesto engage in misconduct to achieve business objectives. The Department has no formulaic requirementsregarding corporate compliance programs. The fundamental questions any prosecutor should ask. are: Isthe corporation’s compliance program well designed? Is the program being applied earnestly and in goodfaith? Does the corporation’s compliance program work? In answering these questions, the prosecutorshould consider the comprehensiveness of the compliance program; the extent and pervasiveness of the



criminal misconduct; the number and level of the corporate employees involved; the seriousness, duration,and frequency of the misconduct; and any remedial actions taken by the corporation, including, for example,disciplinary action against past violators uncovered by the prior compliance program, and revisions tocorporate compliance programs in light of lessons learned.271 Prosecutors should also consider thepromptness of any disclosure of wrongdoing to the government. In evaluating compliance programs,prosecutors may consider whether the corporation has established corporate governance mechanisms thatcan eVectively detect and prevent misconduct. For example, do the corporation’s directors exerciseindependent review over proposed corporate actions rather than unquestioningly ratifyingoYcers’ recommendations; are internal audit functions conducted at a level suYcient to ensure theirindependence and accuracy: and have the directors established an information and reporting system in theorganization reasonably designed to provide management and directors with timely and accurateinformation suYcient to allow them to reach an informed decision regarding the organization’s compliancewith the law. See, eg, In re Caremark hit’I Inc. Derivative Litig., 698 A.2d 959, 968-70 (Del. Ch. 1996).

Prosecutors should therefore attempt to determine whether a corporation’s compliance program is merelya “paper program” or whether it was designed, implemented, reviewed, and revised, as appropriate, in aneVective manner. In addition, prosecutors should determine whether the corporation has provided for a staVsuYcient to audit, document, analyze, and utilize the results of the corporation’s compliance eVorts.Prosecutors also should determine whether the corporation’s employees are adequately informed about thecompliance program and are convinced of the corporation’s commitment to it. This will enable theprosecutor to make an informed decision as to whether the corporation has adopted and implemented atruly eVective compliance program that, when consistent with other federal law enforcement policies, mayresult in a decision to charge only the corporation’s employees and agents or to mitigate charges or sanctionsagainst the corporation.

Compliance programs should be designed to detect the particular types of misconduct most likely to occurin a particular corporation’s line of business. Many corporations operate in complex regulatoryenvironments outside the normal experience of criminal prosecutors. Accordingly, prosecutors shouldconsult with relevant federal and state agencies with the expertise to evaluate the adequacy of a program’sdesign and implementation. For instance, state and federal banking, insurance, and medical boards, theDepartment of Defense, the Department of Health and Human Services, the Environmental ProtectionAgency, and the Securities and Exchange Commission have considerable experience with complianceprograms and can be helpful to a prosecutor in evaluating such programs. In addition, the Fraud Sectionof the Criminal Division, the Commercial Litigation Branch of the Civil Division, and the EnvironmentalCrimes Section of the Environment and Natural Resources Division can assist United States Attorneys’OYces in finding the appropriate agency oYce(s) for such consultation.

9–28.900 Restitution and Remediation

A. General Principle: Although neither a corporation nor an individual target may avoid prosecutionmerely by paying a sum of money, a prosecutor may consider the corporation’s willingness to makerestitution and steps already taken to do so. A prosecutor may also consider other remedial actions, suchas improving an existing compliance program or disciplining wrongdoers, in determining whether to chargethe corporation and how to resolve corporate criminal cases.

B. Comment: In determining whether or not to prosecute a corporation, the government may considerwhether the corporation has taken meaningful remedial measures. A corporation’s response to misconductsays much about its willingness to ensure that such misconduct does not recur. Thus, corporations that fullyrecognize the seriousness of their misconduct and accept responsibility for it should be taking steps toimplement the personnel, operational, and organizational changes necessary to establish an awarenessamong employees that criminal conduct will not be tolerated.

Among the factors prosecutors should consider and weigh are whether the corporation appropriatelydisciplined wrongdoers, once those employees are identified by the corporation as culpable for themisconduct. Employee discipline is a diYcult task for many corporations because of the human elementinvolved and sometimes because of the seniority of the employees concerned. Although corporations needto be fair to their employees, they must also be committed, at all levels of the corporation, to the higheststandards of legal and ethical behavior. EVective internal discipline can be a powerful deterrent againstimproper behavior by a corporation’s employees. Prosecutors should be satisfied that the corporation’sfocus is on the integrity and credibility of its remedial and disciplinary measures rather than on theprotection of the wrongdoers.

In addition to employee discipline, two other factors used in evaluating a corporation’s remedial eVortsare restitution and reform. As with natural persons, the decision whether or not to prosecute should notdepend upon the target’s ability to pay restitution. A corporation’s eVorts to pay restitution even in advanceof any court order is, however, evidence of its acceptance of responsibility and, consistent with the practicesand policies of the appropriate Division of the Department entrusted with enforcing specific criminal laws,may be considered in determining whether to bring criminal charges. Similarly, although the inadequacy of

271 For a detailed review of these and other factors concerning corporate compliance programs, see USSG H 8B2.1.



a corporate compliance program is a factor to consider when deciding whether to charge a corporation, thatcorporation’s quick recognition of the flaws in the program and its eVorts to improve the program are alsofactors to consider as to appropriate disposition of a case.

9–28.1000 Collateral Consequences

A. General Principle: Prosecutors may consider the collateral consequences of a corporate criminalconviction or indictment in determining whether to charge the corporation with a criminal oVense and howto resolve corporate criminal cases.

B. Comment: One of the factors in determining whether to charge a natural person or a corporation iswhether the likely punishment is appropriate given the nature and seriousness of the crime. In the corporatecontext, prosecutors may take into account the possibly substantial consequences to a corporation’semployees, investors, pensioners, and customers, many of whom may, depending on the size and nature ofthe corporation and their role in its operations, have played no role in the criminal conduct, have beenunaware of it, or have been unable to prevent it. Prosecutors should also be aware of non-penal sanctionsthat may accompany a criminal charge, such as potential suspension or debarment from eligibility forgovernment contracts or federally funded programs such as health care programs. Determining whether ornot such non-penal sanctions are appropriate or required in a particular case is the responsibility of therelevant agency and is a decision that will be made based on the applicable statutes, regulations, and policies.

Virtually every conviction of a corporation, like virtually every conviction of an individual, will have animpact on innocent third parties, and the mere existence of such an eVect is not suYcient to precludeprosecution of the corporation. Therefore, in evaluating the relevance of collateral consequences, variousfactors already discussed, such as the pervasiveness of the criminal conduct and the adequacy of thecorporation’s compliance programs, should be considered in determining the weight to be given to thisfactor. For instance, the balance may tip in favor of prosecuting corporations in situations where the scopeof the misconduct in a case is widespread and sustained within a corporate division (or spread throughoutpockets of the corporate organization). In such cases, the possible unfairness of visiting punishment for thecorporation’s crimes upon shareholders may be of much less concern where those shareholders havesubstantially profited, even unknowingly, from widespread or pervasive criminal activity. Similarly, wherethe top layers of the corporation’s management or the shareholders of a closely-held coiporation wereengaged in or aware of the wrongdoing, and the conduct at issue was accepted as a way of doing businessfor an extended period, debarment may be deemed not collateral, but a direct and entirely appropriateconsequence of the corporation’s wrongdoing.

On the other hand, where the collateral consequences of a corporate conviction for innocent third partieswould be significant, it may be appropriate to consider a non-prosecution or deferred prosecution agreementwith conditions designed, among other things, to promote compliance with applicable law and to preventrecidivism. Such agreements are a third option, besides a criminal indictment, on the one hand, and adeclination, on the other. Declining prosecution may allow a corporate criminal to escape withoutconsequences. Obtaining a conviction may produce a result that seriously harms innocent third parties whoplayed no role in the criminal conduct. Under appropriate circumstances, a deferred prosecution or non-prosecution agreement can help restore the integrity of a company’s operations and preserve the financialviability of a corporation that has engaged in criminal conduct, while preserving the government’s ability toprosecute a recalcitrant corporation that materially breaches the agreement. Such agreements achieve otherimportant objectives as well, like prompt restitution for victims.272 Ultimately, the appropriateness of acriminal charge against a corporation, or some lesser alternative, must be evaluated in a pragmatic andreasoned way that produces a fair outcome, taking into consideration, among other things, theDepartment’s need to promote and ensure respect for the law.

9–28.1100 Other Civil or Regulatory Alternatives

A. General Principle: Non-criminal alternatives to prosecution often exist and prosecutors may considerwhether such sanctions would adequately deter, punish, and rehabilitate a corporation that has engaged inwrongful conduct. In evaluating the adequacy of non-criminal alternatives to prosecution—eg, civil orregulatory enforcement: actions—the prosecutor may consider all relevant factors, including:

1. the sanctions available under the alternative means of disposition;

2. the likelihood that an eVective sanction will be imposed; and

3. the eVect of non-criminal disposition on federal law enforcement interests.

B. Comment: The primary goals of criminal law are deterrence, punishment, and rehabilitation. Non-criminal sanctions may not be an appropriate response to a serious violation, a pattern of wrongdoing, orprior non-criminal sanctions without proper remediation. In other cases, however, these goals may besatisfied through civil or regulatory actions. In determining whether a federal criminal resolution is

272 Prosecutors should note that in the case of national ormulti-national corporations,multi-district or global agreementsmay benecessary. Such agreementsmay only be entered intowith the approval of each aVected district or the appropriateDepartmentoYcial. See id. H 9-27.641.



appropriate, the prosecutor should consider the same factors (modified appropriately for the regulatorycontext) considered when determining whether to leave prosecution of a natural person to anotherjurisdiction or to seek non-criminal alternatives to prosecution. These factors include: the strength of theregulatory authority’s interest; the regulatory authority’s ability and willingness to take eVectiveenforcement action; the probable sanction, if the regulatory authority’s enforcement action is upheld; andthe eVect of a non-criminal disposition on federal law enforcement interests. See USAM HH 9-27.240, 9-27.250.

9–28,1200 Selecting Charges

A. General.Principle: Once a prosecutor has decided to charge a corporation, the prosecutor at leastpresumptively should charge, or should recommend that the grand jury charge,, the most serious oVensethat is consistent with the nature of the defendant’s misconduct and that is likely to result in a sustainableconviction.

B. Comment: Once the decision to charge is made, the same rules as govern charging natural personsapply. These rules require “a faithful and honest application of the Sentencing Guidelines” and an“individualized assessment of the extent to which, particular charges fit the specific circumstances of thecase, are consistent with the purposes of the Federal criminal code, and maximize the impact of federalresources on crime” See USAM H 9-27.300. In making this determination, “it is appropriate that the attorneyfor the government consider, inter alia, such factors as the [advisory] sentencing guideline range yielded bythe charge, whether the penalty yielded by such sentencing range … is proportional to the seriousness ofthe defendant’s conduct, and whether the charge achieves such purposes of the criminal law as punishment,protection of the public, specific and general deterrence, and rehabilitation.” Id.

9—28.1300 Plea Agreements with Corporations

A. General Principle: In negotiating plea agreements with, corporations, as with individuals, prosecutorsshould generally seek a plea to the most serious, readily provable oVense charged, In addition, the terms ofthe plea agreement should contain appropriate provisions to ensure punishment, deterrence, rehabilitation,and compliance with the plea agreement in the corporate context. Although special circumstances maymandate a diVerent conclusion, prosecutors generally should not agree to accept a corporate guilty plea inexchange far non-prosecution or dismissal of charges against individual oYcers and employees.

B. Comment: Prosecutors may enter into plea agreements with corporations for the same reasons andunder the same constraints as apply to plea agreements with natural persons. See USAM HH 9-27.400-530.This means, inter alia, that the corporation should generally be required to plead guilty to the most serious,readily provable oVense charged. In addition, any negotiated departures or recommended variances fromthe advisory Sentencing Guidelines must be justifiable under the Guidelines or 18 U.S.C H 3553 and mustbe disclosed to the sentencing court. A corporation should be made to realize that pleading guilty to criminalcharges constitutes an admission of guilt and not merely a resolution of an inconvenient distraction fromits business. As with natural persons, pleas should be structured so that the corporation may not later“proclaim lack of culpability or even complete innocence”. See USAM HH 9-27.420(b)(4), 9-27.440, 9-27,500.Thus, for instance, there should be placed upon the record a suYcient factual basts for the plea to preventlater corporate assertions of innocence.

A corporate plea agreement should also contain provisions that recognize the nature of the corporate“person” and that ensure that the principles of punishment, deterrence, and rehabilitation are met. In thecorporate context, punishment and deterrence are generally accomplished by substantial fines, mandatoryrestitution, and institution of appropriate compliance measures, including, if necessary, continued judicialoversight or the use of special masters or corporate monitors. See USSG HH 8B1.1, 8C2.1, et seq. In addition,where the corporation is a government contractor, permanent or temporary debarment may be appropriate.Where the corporation was engaged in fraud against the government (eg, contracting fraud), a prosecutormay not negotiate away an agency’s right to debar or delist the corporate defendant.

In negotiating a plea agreement, prosecutors should also consider the deterrent value of prosecutions ofindividuals within the corporation. Therefore, one factor that a prosecutor may consider in determiningwhether to enter into a plea agreement is whether the corporation is seeking immunity for its employees andoYcers or whether the corporation is willing to cooperate in the investigation of culpable individuals asoutlined herein. Prosecutors should rarely negotiate away individual criminal liability in a corporate plea.

Rehabilitation, of course, requires that the corporation undertake to be law-abiding in the future. It is,therefore, appropriate to require the corporation, as a condition of probation, to implement a complianceprogram, or to reform an existing one. As discussed above, prosecutors may consult with the appropriatestate and federal agencies and components of the Justice Department to ensure that a proposed complianceprogram is adequate and meets industry standards and best practices. See supra section VIII.

In plea agreements in which the corporation agrees to cooperate, the prosecutor should ensure that thecooperation is entirely truthful. To do so, the prosecutor may request that the corporation make appropriatedisclosures of relevant factual information and documents make employees and agents available fordebriefing, file appropriate certified financial statements, agree to governmental or third-party audits, andtake whatever other steps are necessary to ensure that the full scope of the corporate wrongdoing is disclosed



and that the responsible personnel, are identified and, if appropriate, prosecuted. See generally supra sectionVII. In taking such steps, Department prosecutors should recognize that attorney-client communicationsare often essential to a corporation’s eVorts to comply with complex regulatory and legal regimes, and that,as discussed at length above, cooperation is not measured by the waiver of attorney-client privilege and workproduct protection, but rather is measured by the disclosure of facts and other considerations identifiedherein such as making witnesses available for interviews and assisting in the interpretation of complexdocuments or business records.

These Principles provide only internal Department of Justice guidance. They are not intended to, do not,and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any partyin any matter civil or criminal. Nor are any limitations hereby placed on otherwise lawful litigativeprerogatives of the Department of Justice.

Memorandum submitted by Detective Chief Superintendent Stephen Head (City of London Police) (BB 58)

This document is submitted by Detective Chief Superintendent Stephen Head, of the City of LondonPolice, as written evidence in support of the oral evidence provided to the committee on 10 June 2009.

This evidence is focused on the four specific questions, set by the “Joint Committee”, where writtenevidence has been requested. This report also includes an additional section outlining the work beingconducted by the City of London Police’s “Overseas Anti Corruption Unit”, in relation to the extent andnature of overseas corruption and bribery. This has been included following a request for more information,relating to this initiative, during the oral evidence provided by Detective Chief Superintendent Head on10 June 2009.

This written submission does not consider the Bribery Bill in detail. The legal scrutiny and examinationhas been provided directly by the Director of Public Prosecutions, and as I am in full agreement with hiswritten and oral evidence it is felt that there is no value in further comment, other than to place on recordthe full support for the views of the DPP, on the proposed Bill.

1. Q: Is the extra-territorial reach of the draft bill satisfactory? In practice, would you investigate andprosecute companies that have a limited connection to the UK?

The proposed legislation outlined in the draft Bribery Bill provides the police service with a necessary setof enforcement tools to appropriately investigate oVences of corruption and bribery, wherever they occur.The current legislation and proposed bill do not alter in this regard and as such do not cause the police serviceany area of concern. The challenges in this area are not the scope of the extra-territorial reach but of thecapability and capacity for International “Mutual Legal Assistance”. The nature of overseas corruption andbribery oVences require significant international co-operation. The relationships with European, US andCommonwealth partners provide a solid foundation for the capture and exchange of information andevidence. OVences of this nature however often involve the development of international “law enforcement”relationships in emerging and developing countries and it is in this area where the challenges lay. Thelegislation may allow us to reach further; however this is a diVerent thing than being able to do somethingmeaningful once we are there. We would therefore like to highlight this area to ensure that the strategic roleout of the legislation is cognisant of these challenges.

The priority for the police service, and the OACU, is to focus on the areas that are causing the greatestharm and our scope is to investigate corruption and bribery involving UK (registered) business or citizens.This includes oVences committed within the UK, but involving overseas contracts, companies andindividuals, in addition to oVences committed overseas where UK citizens or businesses are involved in theoVence. This therefore captures a wide range of possibilities and thus creates many scenarios wherecompanies, who have a limited connection with the UK, fall within an investigation. Where this occurs suchcompanies will be investigated in the same way, as a “UK” originating company would be.

The unit will however also consider wider “Money Laundering” and “Fraud Act” oVences, and will workwith the regulators, HMRC and overseas law enforcement agencies where the scope and powers of othersare better placed to take the necessary action.

2. Q: Does the draft Bill make it clear when facilitation payments and corporate hospitality will be lawful?Can we rely on prosecutorial discretion or guidance to ensure that enforcement is well targeted?

The draft Bill does not spell out a template for each and every occasion and nor should it seek to. TheBill does however make it clear that such behaviour must be considered in context, and I am satisfied thatthe draft Bill is workable in this area.

There is however scope for better guidance to be given to allow greater consistency in the interpretationof context and that the authors of such guidance could significantly reduce the need for the context to beset by way of case law. Such guidance would need to be meaningful, well informed and accessible to providethe context from which behaviour can be assessed.



This works well in other areas, such as money laundering, and greatly assists all involved in thedevelopment of a clear code of conduct and acts as the point where behaviour can be assessed before itreaches the stage of having to enforce the law. In essence a stronger code, or regulatory framework, wouldassist law enforcement activity by reducing the need to investigate each case and wait for a court, alone, todecide the context of the hospitality of facility payment.

Prosecutorial discretion cannot provide this guidance and the targeting of enforcement activity must pullits focus from pools of information that direct the need, on behalf of society. The prosecution agencies canonly assess what is presented to them and there are many cases, intelligence products and forms ofinformation, that are considered and investigated that are never presented to the prosecution agencies.

Enforcement therefore must develop a system and model for assessing allegations of overseas corruptionand bribery so that resource and enforcement powers are appropriately focused on the areas that cause thecreates harm. This can be achieved through a robust assessment and intelligence collection process, whichwould collate and interpret knowledge relating to corruption, from all sources. This pilot for this frameworkis currently being tested and is described in section 5 of this report.

3. Q: Are you concerned that security services can be exempted from prosecution for bribery, whereas policeand other investigators cannot?

It is a vital that law enforcement or security agencies are provided with powers and framework necessaryfor them to complete their roles, as described by the relevant legislation, and on behalf of the UK. There istherefore no concern that the security services are sighted as requiring a specific exemption, which will bescrutinised through the appropriate structure.

I cannot see any reason why such an exemption should and could apply to the police service.

4. Q: Do you have adequate resources to tackle bribery at home and abroad?

My evidence to the “Joint Committee” is on the work of the City of London Police’s “Overseas AntiCorruption Unit” and therefore this evidence does not widen to considering the role of domestic corruption.Within the police service there is a strong and accountable framework for the management and investigationof all areas of misconduct, which includes corruption. This role is conducted by force “ProfessionalStandards Departments” and is considered to be a key priority for these dedicated units. Complaints againstpolice or concerns over misconduct are also investigated by the Independent Police ComplaintsCommission, whom also oversee specific force led investigations. I recommend that if further informationis required in this area then a view should be taken from ACPO in relation to the “Professional Standards”dimension.

The police service, across the UK, also investigates allegations of corruption, within all areas of society.These investigations, depending on the scale, are investigated by the specialist crime sections of forces andthere is a wide range of examples of such domestic corruption. Such cases are however often concluded usingalternative legislation such as “Fraud Act”, “Money Laundering”, “Misconduct in a public oYce”.

With regards to the investigation of “Overseas Corruption and Bribery” the Department for InternationalDevelopment and the Department for Business Enterprise and Regulatory Reform jointly fund the“Overseas Anti Corruption Unit” (OACU) which is held within the City of London Police. The fundingsecures a dedicated team of twelve oYcers who have a full time focus on overseas corruption oVences.

The OACU is however part of the City of London Police, Economic Crime Directorate, which has thestatus as the “Lead Force” for Economic Crime in England and Wales. As such the ECD has a team of 200,including the OACU, who are experienced and dedicated in the investigation of all areas of Economic Crime.The OACU is therefore supported by this wider resource and can pull upon this resource if required. TheOACU, although housed within the City of London Police, conducts this work on behalf of all UK policeforces and therefore they also have access to the resources held within all forces, should they be required.

The OACU work closely with the SFO in all areas of overseas corruption and provide the SFO with thenecessary investigative experience and use of police powers and tactics on select investigations. The OACUalso conduct joint investigations with the FSA and international law enforcement of relevant governmentagencies. The OACU currently has 43 cases under investigation, achieved the UK’s first conviction foroverseas corruption and charge a further three more suspects in recent days.

To answer the question of how adequate this resource is, this written evidence requires cross-referencingwith section 5 of this report, “The Overseas Corruption Intelligence Assessment”. The level of resource,currently available, has been suYcient to obtain the results identified thus far. The level of focus on this areais however significantly increasing the level of referrals and intelligence and therefore driving up the needfor greater enforcement. There are, however, only ever so many police oYcers that can investigate a specificcrime type and as such the current question is not one of resources but of priority and it is in developingsuYcient knowledge to inform this priority process is the area where we require greater resource. Only oncewe have a stronger body of knowledge about the scale of the threat can we assess the level of resource thatwill be truly required.

This is explained in section 5.



5. “The Overseas Corruption Assessment” initiative.

During the “Joint Committee” session on 10 June 2009, Detective Chief Superintendent Head, providedan outline of the “Overseas Corruption and Bribery Assessment” being conducted by the City of LondonPolice “OACU”.

There is currently no cross industry, government, law enforcement and 3rd sector intelligence assessmentrelating to Overseas Corruption. This is equally as true in other jurisdictions as it is in the UK.

The lack of such an assessment denies the OACU the ability to focus resources and influence change inthe areas that pose the highest level of threat. The formulation of such an assessment is therefore vital indeveloping OACU’s understanding, identifying intelligence gaps and implementing intelligence, preventionand enforcement initiatives.

The recent revelations of high value, worldwide corruption illustrates how widespread and damagingcorruption can be. The reliance on whistle-blowers to reveal this corruption illustrates the fact that lawenforcement agencies around the world are struggling to identify where corruption is taking place and tosuccessfully prosecute oVending individuals and companies.

It is widely recognised that there is a clear case for a very strong fight against bribery and corruption.Bribery and corruption increase poverty in developing nations and significantly distort markets punishing“clean” companies, their shareholders and employees.

The OACU has identified a number of immediate priorities to help it develop its work. The first of theseis to develop a detailed map of where corruption takes place and where most harm is caused (at present nomapping of this type exists). The aim of this document is to set out how this mapping exercise can take placeand also to identify the actions needed to ensure that this new “intelligence assessment” can be regularlyupdated and maintained.

The current lack of such an assessment denies law enforcement agencies the ability to focus resources andinfluence change in the areas that pose the highest level of harm. The formulation of such an assessment istherefore vital in developing a detailed understanding of practices on the ground, identifying intelligencegaps and implementing intelligence, prevention and enforcement initiatives.

The aim is to develop this intelligence assessment by combining expertise from the private sector, lawenforcement agencies, governments and third sector organisations. The initial project is scheduled to runfrom 1 June 2009 for six months.

To achieve this the OACU appreciates that the police perspective on this issue alone will not reach thedesired outcome. We have therefore sourced specialists with experience of government, business, economicsand overseas security to bring together the necessary skills and knowledge to achieve the projects aims. Therequired skill set does not exist within the police service and therefore key individuals have been identifiedto join the team.

Objectives

The objectives of the project are as follows:

— To pull together practitioners from the private sector, law enforcement agencies, governments andthe third sector to work

— To develop a detailed mapping of where corruption is taking place, in which jurisdictions

— Assess what corruption means looks like in each sector, involving which type of public bodies andpublic representatives, involving which type of private sector companies and individuals and ofwhat type.

— To produce a report of the findings of the mapping which will become the benchmark worldwidefor mapping corruption

— To develop a mechanism whereby this report can be enhanced (or combined with) and developedby law enforcement bodies working in other jurisdictions

— To develop a mechanism whereby the report can be continuously updated and improved

— To develop a report that provides solid intelligence for the OACU and other law enforcementbodies so that it can investigate further and prosecute successfully

— To enhance the reputation of the UK in taking a lead in combating corruption worldwide

— To help the UK government and other governments to identify the areas that are causing greatestharm and put pressure on local politicians and agencies to stamp out public sector complicity incorruption

— To encourage and strengthen cross-sector working in the private sector to promote and supportthe success of anti-corruption initiatives



This submission has focused on the areas where written evidence has been requested however moredetailed information is available if required.

June 2009

Additional Memorandum by OECD (BB 59)

Supplementary Question:

Following the submissions by the OECD to the Joint Committee on 17 June 2009, the Joint Committeefollowed-up with the following additional question on 18 June 2009:

It has been suggested that clause 5 should be turned into a civil regulatory regime for imposingfines on companies, rather than imposing a criminal oVence. This would leave corporate criminalliability for bribery to be addressed (as with other criminal oVences) by the Law Commission’songoing review. What are your views, including whether a civil regime would meet the UK’sinternational commitments?

Response to Supplementary Question:

1. The OECD Secretariat would like to remind the Joint Committee that the OECD Working Group onBribery has not had an opportunity to assess the draft Bribery Bill even though a large group of itsrepresentatives could examine the draft prepared by the Law Commission and was able to discuss it withGovernment’s representatives last January. The OECD Secretariat does not therefore speak on behalf of theWorking Group, but hopes that its response to the above question is useful to the Committee.Basic principles under the Convention on the liability of legal persons

2. Articles 2 and 3.2 of the OECD Anti-Bribery Convention and Commentary 20 on the Conventionprovide the main standards relevant to the question posed by the Joint Committee as follows:

Article 2:

Each Party shall take such measures as may be necessary, in accordance with its legal principles,to establish the liability of legal persons for the bribery of a foreign public oYcial.

Article 3.2:

In the event that, under the legal system of a Party, criminal responsibility is not applicable to legalpersons, that Party shall ensure that legal persons shall be subject to eVective, proportionate anddissuasive non-criminal sanctions, including monetary sanctions, for bribery of foreign publicoYcials.

Commentary 20:

In the event that, under the legal system of a Party, criminal responsibility is not applicable to legalpersons, that Party shall not be required to establish such criminal responsibility.

Monitoring the application of those principles by the Working Group on Bribery

3. Essentially two schools of thought have emerged in the Working Group on Bribery on whether theConvention requires Parties to establish the criminal liability of legal persons for the bribery of a foreignpublic oYcial. Some Parties believe a Party is required to establish criminal liability if its legal system allowsfor such liability. Other Parties believe that there is always a choice between criminal and administrativeliability. Nevertheless, by the time of the 2006 Mid-Term Study on Phase 2 Reports, the majority of Partiesincluded in the Study had established the criminal liability of legal persons for the foreign bribery oVence(Australia, Belgium, Canada, Finland, France, Iceland, Japan, Korea, Norway, Switzerland, UnitedKingdom and United States). Those Parties that had established a non-criminal form of liability for legalpersons (Germany, Greece, Hungary, Italy, Mexico and Sweden) had not established the criminal liabilityof legal persons for any oVences. In addition, at least two Parties (Italy and Greece) were precluded fromestablishing criminal liability for legal persons due to restrictions on such liability in its Constitution.

4. Given the split between the two schools of thought and the underlying principle in the Convention of“functional equivalence”, the Working Group has chosen to focus on the eVectiveness of the form of liabilitychosen when assessing whether Parties have adequately implemented the relevant provisions in theConvention and Commentaries, and does not pre-suppose that criminal liability is superior toadministrative.

5. In the 2006 Mid-Term Study, the Working Group explains that it assesses the eVectiveness of a Party’sliability of legal persons by reviewing factors including the following:

(a) The types of legal persons covered by the liability;



(b) The application of territorial and nationality jurisdiction to legal persons who commit the briberyof foreign public oYcials in the Party’s territory and abroad;

(c) Whether the natural person(s) who perpetrated the oVence must be identified, prosecuted orconvicted in order to investigate, prosecute or convict the legal person;

(d) The availability of coercive investigative powers for the investigation of legal persons;

(e) How eVectively the Party can obtain and provide mutual legal assistance regarding legalpersons; and

(f) The application of prosecutorial discretion to the liability of a legal person.

Issues that would arise by changing liability under Clause 5 to non-criminal

6. It is submitted to the Joint Committee that turning Clause 5 into a civil regulatory regime for legalpersons would place the United Kingdom in a unique situation, since it would be the only Party with acombined criminal/non-criminal liability of legal persons for the bribery of foreign public oYcials. Weunderstand that the “identification theory or directing mind” form of liability, which is criminal in nature,would continue to operate in addition to the non-criminal form under Clause 5. Although this is notexpressly stated in the Draft Bribery Bill, it seems implicit in, for instance, sub-clause (1) of Clause 8, whichrefers to the commission of an oVence under Clause 4 by a body corporate. Due to this dual form of liabilityof legal persons, assessing the United Kingdom’s compliance with Article 2 might therefore be morecomplicated for the Working Group than assessing other Parties’ compliance.

7. More importantly, it is unclear whether the suggested approach would be eVective in practice. Even ifit is assumed that Clause 5 would otherwise remain unchanged and sub-clause (5) of Clause 7 would stillprovide for jurisdiction over oVences committed under Clause 5 “irrespective of whether the acts oromissions which form part of the oVence take place in England and Wales, Northern Ireland or elsewhere”—ie in any foreign jurisdiction—it is not clear that the resulting procedure for investigating, adjudicating anddetermining sanctions would be eVective in practice.

8. In particular, a legal person is liable for the bribery of a foreign public oYcial under Clause 5 “if, andonly if” the natural perpetrator “A” “is or would be guilty of an oVence under” section 4 “(whether or notA has been prosecuted for such an oVence”. In the event of a related criminal prosecution of the naturalperson under Clause 4, how would the criminal procedure against the natural perpetrator “A” be linked tothe non-criminal procedure against the legal person? Would the criminal court that hears the case againstthe natural person be competent to hear the case against the legal person? Would the criminal court becompetent to apply non-criminal sanctions to the legal person? Would confiscation or monetary sanctionsof a comparable eVect be available as a sanction as required by Article 3.3 of the Convention?

9. In addition, the Working Group considers that compliance with Article 2 of the Convention requiresthat proceedings against the legal person may be taken independently of any procedure against the naturalperpetrator, since it is not always possible or appropriate to prosecute the natural person. Indeed, the UnitedKingdom appears to have provided for this situation under sub-clause (2) of Clause 5. However, if theliability of legal persons under Clause 5 were to be made non-criminal, would it still be possible in practiceto proceed independently against the legal person? How would it be determined whether the natural person“would be guilty of an oVence under” section 4, as required under sub-clause (2) of Clause 5. Would the casebe heard in a criminal court. Or would a special non-criminal tribunal have to be established for thispurpose? Would the procedure diVer from the procedure currently envisaged under Clause 5? Would it beequally eVective?

10. Changing the liability to non-criminal would also raise issues about the eVectiveness of investigationsunder Clause 5. As Clause 5 stands now, it is assumed that the full range of coercive investigative measuresapplicable to the oVences under Clauses 1, 2 and 4 would be available. This would not be clear if the liabilitywere non-criminal. It might be feasible to obtain evidence of a non-criminal oVence committed by the legalperson in the course of applying coercive measures in the investigation of a natural person under Article 4.However, in the absence of a related criminal investigation would it be possible in practice to search andseize a legal person’s financial and company records to obtain evidence of an oVence under Clause 5? Wouldit be possible to apply pre-trial confiscation to ensure the availability of the proceeds of bribing the foreignpublic oYcial in the event that the legal person is found liable? In the event of a related criminal investigation,would evidence obtained through coercive measures be admissible in relation to the non-criminalproceedings against the legal person under Clause 5?

11. Moreover, would the same rules of investigative and prosecutorial discretion apply to cases underClause 5? In particular, would rules prohibiting consideration of the factors under Article 5 of theConvention in investigations and prosecutions of foreign bribery (ie “considerations of national economicinterest, the potential eVect upon relations with another State or the identity of the natural or legal personsinvolved”) apply equally to proceedings under Clause 5?



12. Pursuant to Article 9.1 of the Convention, the Working Group would also consider whether theUnited Kingdom would be able to provide prompt and eVective mutual legal assistance to Parties for thepurpose of criminal proceedings concerning oVences within the scope of Clause 5.

13. Changing liability under Clause 5 from criminal to civil in nature could also significantly reduce theUK’s ability to gather foreign evidence. Since liability is civil, the UK may not be able to seek evidence fromforeign countries, under treaties and arrangements on mutual legal assistance (MLA), in criminal matters.Treaties and arrangements on MLA in civil matters would be available, but these generally do not includethe more powerful criminal investigative tools. One may argue that MLA in criminal matters would still beavailable because there may be a concurrent criminal investigation or prosecution against a natural personin the same case. This argument would not apply, however, if the UK does not or cannot investigate anynatural person in the case, eg because the natural person has fled, died, or has been convicted/acquitted, orbecause the UK has no jurisdiction to prosecute.

Conclusions

14. To introduce a non criminal liability in lieu of a criminal one at this late stage and after both the LawCommission and the Government proposed a diVerent approach is likely to raise a number of questionswithin the Working Group.

15. If the United Kingdom were to establish non-criminal liability for legal persons under Clause 5 of theDraft Bribery Bill, it would be the only Party to the OECD Anti-Bribery Convention to use a dual criminal/non-criminal regime for legal persons. The majority of Parties to the Convention have established criminalliability for legal persons, with the rest establishing non-criminal liability. Assessing compliance of a dualregime for legal persons would therefore be unprecedented and present certain challenges.

16. In addition, to determine whether a civil regime for the liability of legal persons under Clause 5 of theDraft Bribery Bill (in conjunction with the criminal liability of legal persons under Clause 4) meets theUnited Kingdom’s commitments under the OECD Anti-Bribery Convention, the Working Group wouldassess the eVectiveness of this regime in practice. In assessing such eVectiveness, the Working Grouproutinely reviews several factors, including the availability of coercive investigative techniques, eVectivemutual legal assistance and the application of prosecutorial discretion.

17. If the United Kingdom were to establish a civil regime for the liability of legal persons under Clause5 of the Draft Bribery Bill, it is anticipated that the Working Group would consider several issues, includingthe following, regarding the eVectiveness of that regime:

(a) Where the natural perpetrator is prosecuted under Clause 4, the link between these procedures andthose against the legal person under Clause 5;

(b) Where the natural perpetrator is not prosecuted under Clause 4, whether it would still be possiblein practice to proceed independently against the legal person under Clause 5, including what wouldbe the nature of these proceedings, and how it would be determined whether the natural person“would be guilty of an oVence” under Clause 4;

(c) Whether the full range of coercive investigative measures applicable to criminal oVences underClause 4 would be applicable to legal persons under Clause 5, and whether evidence obtainedthrough coercive measures for oVences under Clause 4 would be admissible in non-criminalproceedings under Clause 5;

(d) Whether the rules on prosecutorial discretion prohibiting consideration of the factors in Article5 of the Convention would apply equally to non-criminal proceedings under Clause 5;

(e) Whether the United Kingdom would be able to provide prompt and eVective mutual legalassistance to Parties to the Convention for the purpose of criminal proceedings concerning oVenceswithin the scope of Clause 5; and

(f) Whether the United Kingdom could eVectively seek evidence from a foreign jurisdiction wheninvestigating or prosecuting an oVence under Clause 5.

June 2009



Memorandum submitted by the Attorney General (BB 60)

This Memorandum gives my answers to the questions that were not reached when I appeared before theCommittee on 25 June due to the lack of available time. I have also taken the opportunity to make someadditional points in relation to some of the questions to which I gave oral answers.

Q.2 To enquire about the accountability for prosecutorial decisions in bribery cases if the power of consent istransferred from the Attorney General to the Directors; and to explore the implications of abolishing therequirement to obtain consent altogether.

Q.4 To discuss concerns that the most serious allegations of bribery may never be prosecuted due to “nationalsecurity” concerns; and to ascertain whether the Constitutional Renewal Bill is likely to take forward proposalsto limit the Attorney General’s powers of direction to “national security” cases.

When I gave oral evidence, there was quite a lengthy discussion of my role in superintending theprosecuting authorities and my power to give directions in relation to the conduct of individual cases. It isimportant to remember that the draft Bribery Bill contains no provision in this regard. Should the draft Billin its current form become law, the consent function in relation to bribery cases will pass from me to theprosecuting authorities, but my power of direction will remain unchanged. It appears to me that the powerof direction and the wider constitutional position of the Attorney General should be addressed in the contextof the draft Constitutional Renewal Bill, rather than this Bill.

Q.6 To ascertain whether introducing a statutory power to authorise bribery by the security services will placethe UK in breach of its international obligations.

In oral evidence I made specific reference to the OECD Convention on Combating Bribery of ForeignPublic OYcials in International Business Transactions. Clause 13 of the draft Bill is designed to avoidinfringement of this convention by ensuring that conduct by the intelligence services amounting to briberyof a foreign public oYcial cannot be authorised by the Secretary of State. I did not deal explicitly with theUnited Nation Convention against Corruption and the Council of Europe Criminal Law Convention onCorruption. I do appreciate the concern that an exemption for the intelligence services that is applicable toactivities intended to protect the country’s economic interests, and not just to safeguard national securityand combat serious crime, may be incompatible with these instruments.

Each of these instruments makes it clear in its preamble that it is designed to address the damage causedto society by corruption, in terms of the threat to the rule of law, democratic values and good governance.They are not intended, in my view, to address the activities of state intelligence agencies acting in accordancewith domestic law. I do not see Clause 13 as being inconsistent with the principles or provisions of theseinstruments. Taken with Clause 14, it contains several important safeguards—only necessary and reasonableaction can be authorised, the authorisation must be given by the Secretary of State personally or (in casesof urgency) by a senior oYcial, and authorisations are time-limited. It should also be remembered that ourintelligence services, unlike those of many other countries, are regulated by statute, accountable toParliament, and subject to external scrutiny by independent Commissioners. It seems to me that the creationof a narrowly circumscribed legal exemption for servants of the state in these circumstances cannot properlybe regarded as contrary to our international obligations. Accordingly I would not think it necessary to limitthe Clauses to activities relating to national security and serious crime. I would stress that I am simplyexpressing my own initial view, rather than giving formal or fully researched international law advice.

Q.7 To explore the practical, human rights or other legal concerns associated with removing privilege over thewords and conduct of accused Members, but not over the words and conduct of other Members and witnesses(particularly if doing so prevents exculpatory material being taken into account).

In oral evidence I mentioned that prosecutorial discretion, in accordance with the Code for CrownProsecutors and subject to the scrutiny of the Attorney General, would be an important safeguard againstthe possibility of an unmeritorious allegation against a Member being taken forward. It was suggested inresponse, I think, that this was a dangerous basis upon which to remove a privilege of 300 years’ duration.I should stress that the draft Bill does not remove Parliamentary privilege. It merely provides a narrowexception to the general rule, in the particular circumstances where a Member has committed a briberyoVence. I would also add that prosecutorial discretion is not the only safeguard. The final arbiter in thesematters would be the court. If a Member being prosecuted for bribery in reliance on evidence tendered underClause 15 was unable to receive a fair trial because Parliamentary privilege prevented him or her fromadducing exculpatory evidence, it would be open to the court to stop the case as an abuse of process.However, I would expect the prosecutor to be alive to the issue and terminate the case before that pointwas reached.

The Committee asked how Clause 15 comes to be in the Bill. It would be necessary to go back to the2003 draft Corruption Bill and beyond to trace the origin of the proposal. I understand that Clause 15 inits current form follows the recommendations of the Joint Committee on parliamentary Privilege in1999 and the Joint Committee on the 2003 Bill who, I am sure, considered these diYcult issues with care.



Q.9 To obtain a justification for the diVerence between the mens rea of the active and passive bribery oVences;and to explore the reasonableness of imposing “strict” liability for a serious crime such as bribery.

The Committee gave the example of an employee who accepted a financial or other advantage, incircumstances where another person intended that it would be accepted as a reward for improperperformance of the employee’s duty. It was suggested that the employee would be guilty of the oVence underClause 2, even if he or she had no intention of improperly performing his or her duty. I assume that theCommittee has in mind case 5 under Clause 2(4), which makes it an oVence for the employee (R) to acceptan advantage as a reward for the improper performance of a function, whether by R or another person. Byvirtue of Clause 2(7), it does not matter whether R knows or believes that the performance of the functionis improper. However, the prosecution would still have to prove that the advantage was actually a rewardfor the improper performance of the function. It also seems to me to be implicit in Clause 2(4) that theprosecution would have to prove that R knew that he or she was accepting the advantage as a reward forperforming the function (whether or not he or she knew or believed that the performance of the functionwas, or would be, improper).

The question is, therefore, whether or not there could be a case where R was genuinely unaware that theperformance of the function for which he or she was being rewarded was improper. I find it hard to imaginethat such a situation could arise in the real world. From the point of view of the payer of the bribe, he orshe would have to communicate to R what it was that R was expected to do in exchange for the bribe, inorder for the bribe to have any chance of achieving the desired eVect. If R knew what it was that the payerwanted him or her to do, how could he or she not know that it amounted to improper performance, havingregard to the way that the term is defined in Clause 3 (breach of an expectation of good faith or impartiality,or of a position of trust)? In the unlikely event that R genuinely had no intention of performing his or herfunctions improperly, and was guilty of an oVence in a purely technical sense, I would not expect aprosecutor to regard it as being in the public interest to bring proceedings.

Q.11 To explore whether clause 4 risks catching conduct that should not be viewed as criminal, such as basichospitality; and to discuss the implications of adding a qualification to clause 4 requiring the advantage to be“undue” or “corrupt”.

Whether or not any particular conduct amounts to an oVence under Clause 4 will turn on whether or notthe person giving the advantage intends to influence the foreign public oYcial, and whether or not theadvantage is “legitimately due”. As we discussed when I gave oral evidence, “legitimately due” is intendedto mean permitted or required by the local written law (legislation and, in a common law jurisdiction,reported case law).

This applies whether the context is that of corporate hospitality, a low-level facilitation payment or anoVset or planning gain scenario. If there is no written law which permits or requires a foreign public oYcialto accept corporate hospitality, for example, or hospitality of the kind and level given in the particular case,then the Clause 4 oVence will be committed. In these circumstances it would still be for the prosecutor todecide whether or not it would be in the public interest to bring a case. In this regard, the full factualcircumstances, including the nature of the hospitality oVered, and the link with any particular transactionor contract, would need to be taken into account.

I would not see much benefit in adding in a further requirement that the advantage had to be “undue” or“corrupt”. It is not clear to me what “undue” is meant to add to the existing “not legitimately due” formula.The OECD Convention uses the word “undue”, but this is to be interpreted as meaning not permitted orrequired by local written law or regulation, according to paragraph 8 of the Commentaries to theConvention. This is exactly what “not legitimately due” is meant to mean under the draft Bill. Having movedaway from “corrupt” as a concept in the draft Bill, I would not be in favour of reintroducing it in the limitedarea of this oVence.

Q.13 To explore proposals to simplify the corporate oVence either by removing the need to prove negligenceor by raising the threshold to “gross negligence”; and to ascertain whether the establishment of a body to imposefines under a civil liability regime would be a satisfactory alternative to a new criminal oVence.

The Committee is concerned that a failure to have in place adequate procedures to prevent briberyappeared to be both an element of the oVence for the prosecution to prove under Clause 5(1)(c), and adefence under Clause 5(4). It appears to me that these provisions are actually quite separate and distinct.What is required under Clause 5(1) is for the prosecution to prove a negligent failure to prevent bribery. Thismay be a systemic failure due to an absence of eVective anti-bribery controls, but it could equally be a one-oV failure. In the latter case, it is right that the commercial organisation should be able to avoid liability ifit can show that it had controls in place that had otherwise proved adequate, provided that the negligencewas not on the part of a senior oYcer. This is the purpose of Clause 5(4).

This Clause has to balance the concerns of business, who are facing potential criminal liability where nonehad existed before, against the wider public policy imperative of tackling bribery. It appears to me that theClause as drafted strikes a satisfactory balance, but there may be other ways of achieving the same ends.The Committee mentions the possibility of a model based on vicarious liability with a due diligence defence,which I think has been advocated by Professor Celia Wells. I do not have strong views on which approach



is taken, but it may be thought unwise to depart to a significant extent from the general law on corporateliability by removing the need to prove fault on the part of the company, in advance of the findings of theLaw Commission’s review of the subject as a whole.

In relation to the suggestion that corporate liability could be dealt with by a regime of civil sanctions, Itake the view that bribery is a very serious matter that properly lies within the reach of the criminal law.Dealing with corporate liability by way of civil sanctions would risk sending out the wrong message aboutour view of the gravity of this kind of misconduct and our determination to tackle it. This does not meanthat I am opposed to the use of alternatives to prosecution in appropriate cases, at the discretion of theprosecutor and having proper regard to the relevant public interest factors. I have in mind cases where acompany reports past wrongdoing and demonstrates a commitment to complying with the law in thefuture—a prosecution may not be necessary, and it may be appropriate to combine a civil recovery orderwith monitoring arrangements to ensure future compliance.

Q.14 To discuss the desirability of providing oYcial guidance on the main oVences and an advisory service thatcan be relied upon by businesses; and to ascertain whether the Attorney General or a new independent bodywould be best placed to provide that guidance and advice.

Dealing with the suggestion for an advisory service first, I would be concerned if it was proposed thatcompanies were to be given specific advice that a particular transaction would be within the law, amountingeVectively to a prospective immunity from prosecution. I am aware that there is such a system in the UnitedStates, but I think we should be wary of importing an idea like this from a diVerent jurisdiction withoutcareful consideration of how it would fit into our system. The role of the US Attorney General, for example,is very diVerent to mine in a number of respects. If the advice was to be given by a body other than theprosecuting authority, my concern would be that the discretion of the independent prosecutor to bringproceedings in due course would be fettered. If it was suggested that the prosecuting authorities themselves(or my OYce) should give the advice, that would be a significant change in their role, and could have seriousresource implications. I think this is also the view expressed by the Director of Public Prosecutions and theDirector of the Serious Fraud OYce in their evidence.

Turning to the question of published guidance, there are a number of questions—who should issue theguidance, what it should cover, and what its legal status should be. As a matter of principle, it does not seemto me that it would be appropriate for Government to issue this kind of guidance. I am not aware of anothersituation where guidance is given on what would constitute a defence to criminal oVences, other than inheavily regulated areas like antimony laundering or health and safety, which are not comparable in my view.

There is also the practical consideration that the guidance would potentially have to cover a huge rangeof circumstances, in terms of countries, business sectors and size of organisation. I do not believe that theGovernment could do more than provide high-level statements of principle.

The private sector is much better placed to give detailed guidance on a sector-by-sector basis. There isalready a good deal of this kind of guidance available—for example, the Woolf Committee’s Report intoethical business in BAE Systems plc and the Common Industry Standards of ethics in the European defencesector. The Government encourages the development of high business standards and has supportedadoption of industry-wide codes of ethical practice—for example, the previous Anti-Corruption Championhas endorsed a practical toolkit to help small companies implement the defence sector Common IndustryStandards. There are also many legal and accountancy firms providing advice to business on corporategovernance systems generally, and anti-bribery controls in particular.

Guidance of this kind issued by the private sector would not have the force of law, but it would be takeninto account by prosecutors and the courts in assessing the standards to be expected of a business inparticular circumstances.

I hope these comments are useful, and I am grateful for the opportunity to give evidence.

The Rt Hon Baroness Scotland QC

July 2009

Letter from the Chairman of the Joint Committee on Human Rights (BB 61)

Thank you for your letter dated 12 May 2009 requesting the view of the Joint Committee on HumanRights (JCHR) about a number of potential human rights issues arising from your scrutiny of the DraftBribery Bill.

I apologise for my delayed response, but understand that this letter will arrive in time for you to considerits contents before you agree your final report. My Committee is currently dealing with a high volume ofwork and therefore I have limited our substantive comments to three headline issues: (a) the ability of theBill to enhance the protection of human rights by the UK; (b) reverse burden of proof (Clause 5); and (c)the right to a fair hearing and the application of parliamentary privilege (Clause 12). The JCHR looks atevery bill which is considered by Parliament, after its introduction on second reading. We may return to someof the issues which you have identified in your letter when the Bill is introduced in its final form.



(a) A human rights enhancing Bill?

As the Secretary of State for Justice makes clear in his introduction to the Draft Bill, the purpose of thisBill is to implement the United Kingdom’s obligations under the UN Convention against Corruption, theOECD Convention on Combating Bribery of Foreign Public OYcials in International BusinessTransactions and the Council of Europe’s Criminal Law Convention on Corruption.

In the 2004 foreword to the UN Convention, the then UN Secretary General, Kofi Annan said:

Corruption is an insidious plague that has a wide range of corrosive eVects on societies. Itundermines democracy and the rule of law, leads to violations of human rights, distorts markets,erodes the quality of life and allows organised crime, terrorism and other threats to human securityto flourish.273

A very similar statement is made in the preamble to the Council of Europe Criminal Convention. TheJCHR is currently running an inquiry on business and human rights. Although we are focusing on therelationship between the UK Government and the activities of UK Companies, we have received asignificant number of submissions containing allegations about the impacts which the operations ofindividual private businesses may have on human rights in countries where the Government may be unableor unwilling to meet its obligations to implement fundamental guarantees and protections for human rights.Operations in countries with weak governance or in conflict zones lead to enhanced risks of negative humanrights impacts and may call for enhanced due diligence on the part of any companies considering theirpractices.

We welcome the policy in the Bill, which aims to enhance the transparency of the law on bribery andcorruption in the UK. In so far as this Bill aims to give eVect to the underlying international law on briberyand corruption, we consider that it has significant potential as a human rights enhancing measure bothwithin the UK and in respect of its proposed extraterritorial eVects.

(b) Reverse burden of proof (Clause 5)

The first of the issues which you asked us to examine relates to the new corporate criminal oVence ofnegligently failing to prevent bribery (Clause 5). In your letter, you expressed your Committee’s concern thatthe reverse burden of proof proposed in relation to a proposed defence could engage the presumption ofinnocence guaranteed under Article 6(2) ECHR. The Explanatory Notes produced by the Governmentexplain:

Article 6(2) of the Convention requires that every person charged with a criminal oVence shall bepresumed innocent until proved guilty by law. The Government considers that placing the legalburden on the defendant is compatible with Article 6(2). The Government considers that thereverse burden pursues a legitimate aim—namely ensuring that an organisation whose responsibleperson (or persons) has failed to prevent bribery on its behalf should be guilty of an oVence unlessthe organisation had adequate procedures in place to prevent bribery being employed on itsbehalf—and is proportionate to achieve that aim. The Government notes that the procedures thatan organisation had in place to prevent bribery being employed on its behalf is a matter that isparticularly within the knowledge of the defendant organisation. The organisation will have readyaccess to the information needed to establish the existence of the defence. In light of this, it wouldbe very diYcult to place the legal burden on the prosecution to establish the contrary.274

In short, we consider that the Government’s analysis is broadly correct. We do not consider thatthe proposal to reverse the legal burden of proof in respect of the proposed defence in Clause 5 islikely to lead to a significant risk of incompatibility with Article 6(2), as currently drafted.

The presumption of innocence in the Convention—and the common law of England and Wales—doesnot place a complete prohibition on reverse onus oVences (ie where the burden to prove innocence is placedon a defendant). However, reverse onus oVences must operate within reasonable limits.275 Placing a purelyevidential burden on a defendant is generally thought to be reasonable and compatible with Article 6(2)ECHR. Where the persuasive, or legal, burden passes to the defendant, both domestic courts and theEuropean Court of Human Rights consider whether the wider purpose of the oVence can be met while alsosecuring a fair trial. It is clear that in this case, the Government intends the legal burden to pass to thedefendant company to show that they had procedures in place to prevent bribery and that those procedureswere adequate.

Domestic courts generally ask themselves three questions to determine whether a reverse legal burden iscompatible with Article 6(2): (a) What do the prosecution have to prove in order to transfer the burden tothe defendant?; (b) Does the burden imposed on the accused relate to something which is likely to be diYcultfor him to prove, or does it relate to something which is likely to be within his knowledge or to which he hasready access?; (c) What is the nature of the threat to society which the provision is designed to combat?276

Courts will also bear in mind the seriousness of the penalty faced by the accused.277

273 UN OYce on Drugs and Crime, Foreword, The UN Convention against Corruption, Kofi Annan, pages iii–iv.274 Cm 7570, paragraphs 104–105275 Salabiaku v France (1988) 13 EHRR 379, para 28. For a recent summary of relevant cases on this issue, please refer to R v

Roy Clarke [2008] EWCA Crim 893, paras 13–31.276 R v Roy Clarke [2008] EWCA Crim 893, para 19 (citing Lord Hope)277 Ibid, paras 20–21.



Applying this test to Clause 5, it is our view that there is very little risk of incompatibility with Article6(2). Before the reverse onus provision comes into play, the prosecution must first show that relevant personsat the accused company had negligently failed to prevent the bribery concerned taking place. The Committeehas heard evidence that this exercise may include consideration of the procedures in place at the individualcompany, but that the evidential and persuasive burden will remain with the prosecution to establishnegligence. Secondly, information relating to the procedures of the company will be entirely within thatcompany’s knowledge. Finally, the oVence seeks to implement international standards designed to curtailcorruption in public oYces, a clearly recognised threat to democracy and good governance. Although thepenalty associated with this oVence is an unlimited fine, unless the fine is disproportionate in thecircumstances, our view would not be changed by the monetary value of the fine.

Proposal to change current draft to remove requirement for “negligent failure”

In her evidence to the Committee, Professor Celia Wells has suggested that the current draft of Clause5 should be amended to remove the requirement for the prosecution to prove negligent failure to preventbribery taking place. She argued that this provision made the oVence unduly complex and eVectivelyrequired the prosecution to prove negligence while then introducing a defence based on the assertion thatthe accused Company had not been negligent. Professor Wells recommended that there should be apresumption that where a senior oYcer of the defendant Company was negligent or otherwise at fault, theprocedures in place were not adequate. We have been asked to express our view on this proposal.

In our view, the removal of the requirement that the prosecution prove negligence would clearly eVect theCourt’s analysis of the compatibility of this provision with the presumption of innocence and could increasethe risk of incompatibility with Article 6(2) ECHR. The reason for this is simple: by changing the oVencein this way, the oVence becomes in eVect a strict liability oVence which the defendant Company can onlyavoid by proving that the procedures which it had in place to avoid bribery were “adequate”. In our view,despite the increased risk of incompatibility, provided the penalties involved were proportionate, the publicinterest in avoiding bribery and corruption may be suYciently high to render the reversal of the burden ofproof in this case reasonable.

Professor Wells is correct to limit the presumption that Company procedures are inadequate tocircumstances where senior oYcers of the company are proved to be negligent or otherwise at fault. In ourview, there would be a significant risk of incompatibility with Article 6 unless the burden remains with theprosecution to prove that those oYcials had been negligent or otherwise at fault. Without this requirement,in our view, there would be a significant risk of incompatibility, as the defendant company would be subjectto a strict liability oVence without any opportunity to raise a substantive defence.

If domestic courts were to conclude that the revised Clause 5 were incompatible with Article 6(2), theywould in our view be able to read down the provision in question to leave the evidential burden with thecompany, but pass the persuasive burden to the prosecution. This would mean that the company would berequired to prove that they had procedures in place to prevent bribery, but the prosecution would retain theburden of persuading the Court that those procedures were inadequate.

If this lesser burden were placed on the defendant company, this would not, in our view, lead to asignificant risk of a breach of the presumption of innocence either at common law or under Article 6(2).

(c) Parliamentary privilege and the right to a fair hearing (Clause 12)

The second substantive issue which you have asked us to consider is the impact of Clause 15 on the rightto a fair hearing as guaranteed by Article 6 ECHR. That clause removes parliamentary privilege in relationto the words or conduct of any MP or Peer who is a defendant or co-defendant in bribery proceedings. Youasked us to address the issue of fair trial under these proceedings because although a statement made by adefendant could be used as evidence against him, exculpatory statements made by others could not, unlessthey were repeated or confirmed outside Parliament. Article 6 ECHR imposes particular standards in respectof criminal proceedings. In addition to general right to equality of arms as between the prosecution and thedefence,278 the Convention protects the right of any defendant to have access to witnesses who support hisdefence on the same conditions as the prosecution has access to witnesses who intend to produce evidenceagainst him.279 So, for example, where the prosecution fails to call a witness who is central to the defencecase there may be a breach of Article 6 ECHR280 Similarly, where a procedural rule operates to ensure thata certain witness cannot be compelled to give evidence, this immunity may lead to a breach of Article6 ECHR when the witnesses’ testimony is key either to the case against the accused or to his defence.281

Against this background, we consider that there is a significant risk that breaches of Article 6 ECHR couldarise as a result of the operation of Clause 15. We understand that the Clerk of the House of Commons hasagreed with this position in his submission to the House of Commons Justice Select Committee inquiry onthe Parliamentary Standards Bill.

278 See Jespers v Belgium App No 8403/78, 27 DR 61, para 54 for guidance on the equality of arms in a criminal trial.279 Article 6(3)(d).280 Bricmont v Belgium (1990) 12 EHRR 217281 See for example Unterpertinger v Austria (1991) 13 EHRR 175.



There are a number of means of reducing this risk, each of which would have very diVerent consequences.The first, would be to remove the limited exemption from privilege currently proposed. The second, wouldbe to extend the exemption to remove the unfairness which the limited exemption creates. We recognise thatthis may be an issue with which your Committee will have to grapple.

Looking at this issue from a human rights perspective, we would prefer the second solution unless a stronghuman rights based argument can be made for maintaining privilege to the possible exclusion of prosecutionin cases where prosecution would otherwise be possible. If absolute privilege were retained, circumstancescould still arise where an individual might seek to rely on exculpatory evidence only available inparliamentary proceedings. If this evidence were key to an individual’s defence and not able to be broughtbefore the court by other means, we consider that a similar risk of incompatibility with Article 6 ECHRcould arise and it would be open to the accused to apply to the European Court of Human Rights to establishthat the UK had beached his or her right to a fair trial.

In any event, our view, the retention of privilege in these cases could mean that prosecutions may befrustrated in respect of serious allegations of corruption. For example, if a Member were implicated in anallegation of corruption, which involved a payment in return for taking certain actions in respect of acommittee report or in debates on the floor of the House, should and would privilege impede a policeinvestigation looking at his or her conduct in the House for the purposes of a prosecution? On the otherhand, is the risk that members or witnesses to select committees might be deterred from speaking freely inparliamentary proceedings, which is in itself an important right. In the light of the social importance ofending corruption in public life and that the limited exemption to privilege is being proposed for this solepurpose, we would argue that the chilling eVect on individual members should be limited.

It has been argued that, since these cases may be few and far between, absolute privilege should bemaintained. The same argument runs in the opposite direction: the exemption will only apply in those fewcases where corruption is alleged and evidence adduced in Parliament is relevant to a prosecution andunavailable through other means. In the light of the limited number of cases where bribery might be alleged,in our view, the limited impact on privilege is likely to be proportionate to the beneficial impact of theseproposals on public conduct, including the conduct of MPs and Peers.

I hope that this response assists you in your scrutiny of the Bill and look forward to reading yourCommittee’s report in due course.

Andrew Dismore MPChair, Joint Committee on Human Rights

July 2009

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