Taken before the Joint Committee on the Draft Corruption Bill on Tuesday 13 May 2003
Vera Baird Bernstein of Craigweil, L.
Mr Paul Stinchcombe
Memorandum submitted by Transparency International (UK)
Examination of Witnesses
Witnesses: MR LAURENCE COCKCROFT, Chairman, MR JEREMY CARVER, CBE, Head of International Law, Clifford Chance LLP, and MR GRAHAM RODMELL, Director of Corporate and Regulatory Affairs, examined.
Q1 Chairman: Thank you all very much for coming and for the paper which you provided for us. This is the first session in which we have taken oral evidence. The Committee has already received 20 or so statements from various interested bodies and groups. From now until early June, we shall continue to take oral evidence on the basis of some of the written documents which we have. It is hoped that we can have our report ready to be presented in July. May I invite you to answer questions and to add any further comments if you would like to do so on the report you presented? Perhaps you would be good enough to introduce yourselves and could you tell us what the company is and what its objectives are?
Mr Cockcroft: My name is Laurence Cockcroft. I am the chairman of Transparency International (UK). We are part of a set of 90 national chapters of the international network of Transparency International which is an NGO that is ten years old and has been providing advocacy and lobbying on the corruption issue worldwide for the last ten years. We are active in the UK and in a number of places. Our secretariat is in Berlin.
Mr Carver: Jeremy Carver. I am also on the board of management of TI (UK). I am an international lawyer and until very recently I was a partner in Clifford Chance. I am still a consultant and I have been concerned in corruption issues and corruption cases for at least the last seven or eight years and, in some senses, possibly even longer, for as long as I have practised law, primarily international law, representing and advising governments.
Mr Rodmell: Graham Rodmell. I hold the post of director of corporate and regulatory affairs for Transparency International. I am a solicitor but not practising. Before I worked for TI (UK) I was a consultant. I have spent most of my time working for TI (UK) and I was general counsel for CDC, a government owned investment organisation.
Q2 Chairman: We have been told already that the main problem here is in relation to the public service, broadly understood. Professor Robert Neild has suggested that perhaps the opportunity for corruption has increased with the way in which the work of the Civil Service has been changed over recent years, with much of the public service work being contracted out to other bodies, with new agencies acting in the sector which previously would have been done by the Civil Service and perhaps it may have been increased by the changes which have been made to the managerial structure of the Civil Service. Do you agree with that? Has this added to the possibility of corruption and to actual corruption?
Mr Cockcroft: I am familiar with Robert Neild's line of argument and I think it is quite persuasive because he has shown that the code of conduct that might be assumed to govern written or unwritten Civil Service procedures and ethos has been seriously changed by those institutional arrangements. One has to give some credence to that as a threat, because it simply means that the opportunities for people to behave according to a different set of values to those which historically have been preserved in the Civil Service have changed.
Q3 Chairman: The Committee on Public Service investigated these matters and commented on them. Why do you think this has happened?
Mr Cockcroft: Simply because the decisions being taken within the devolved institutions are much more complex, much more diverse and involve dealing with a much larger number of contractors and subcontractors than would have been the case before that devolution took place. The appointment of the individuals concerned is being carried out on a completely different basis, not by the Civil Service but by those companies who are providing the service.
Q4 Chairman: Yet the main prosecutions have not covered people in the private sector in the way they have in the public sector, properly understood.
Mr Cockcroft: That is true.
Mr Carver: The public sector as such has become a much broader and less well defined body of people. The complexity, I suggest, of modern life is such that wherever you have any deterioration in definition of function you will always find corruption creeping in. It is simply a compliment of the process whereby complexity breeds deterioration, breeds corruption or the propensity for corruption. Much of corruption is not to do necessarily with straightforward greed. It is simply a response to the fact that things do not get done in the right way. I suggest that it is largely a factor of the increasing complexity of life where public service is no longer clearly defined at all; where many, many functions are performed by private sector actors. It is not so much that the private sector is intrinsically more corrupt than the public sector. I do not believe that at all, but I do believe where you have this confusion you will have an increasing tendency for corruption.
Q5 Chairman: I understand that very well but does it apply in the same way to the contracting out of services which by definition are contracting services to the private sector where you do not have the same extent of the problem?
Mr Carver: I am not in a position to say dogmatically that that is the reason for it. I believe instinctively that, where you have confusion, you will inevitably find corruption in a variety of different manifestations. It is not necessarily the classical form of taking money for the delivery of service.
The Committee suspended from 5.34pm to 5.41pm for a division in the House
Q6 Chairman: We have considered the change in the structure of the Civil Service. Are there any other factors in the way that government operates these days, whether in this sort of country or another type of country, which add to the risk of corruption? The World Development Report last year identified a number of factors which increased the risk of corruption, including different methods of regulation and so on. Apart from changing the Civil Service structure, are there any other factors in this country which have increased the risk of corruption?
Mr Cockcroft: Generally speaking, the close relationship between some areas of government and the export drive, which is entirely desirable and legitimate in itself, creates in some sectors -- particularly construction and the arms trade -- a conflict of interest which is not being dealt with very adequately. We think that is one of the explanations for the wording of this Bill which I am sure you will want to come on to.
Q7 Chairman: These are not peculiar to the United Kingdom?
Mr Cockcroft: That is correct.
Q8 Chairman: Are there ones which are particularly relevant here?
Mr Cockcroft: This country has certainly taken a very high profile in its own promotion of the arms trade and to some extent in the construction industry. If one wants to look at the way in which our arms exports are handled and supported by DESO, the Ministry of Defence and so on, one can see the quite close relationship between that export drive and UK leading exporters. In that case I think there is an issue. Secondly, on the question of privatisation, not only in this country but overseas, privatisation has run apace during the last ten years. That has created a hugely different climate in many countries where decision making has therefore been taken well away from government; where the privatisation arrangements themselves have frequently been corrupt and where the follow-up activity between the privatised agency, which may be providing a service to the public such as water, and contractors and subcontractors is a very different cup of tea to that which prevailed 15 years ago.
Mr Carver: I would urge the Committee not to under-estimate the importance of export business for the United Kingdom. It is not so much what is revealed by official statistics but a vast volume of business is assembled through the United Kingdom and it is very important, in our view, that we have an exemplary law which demonstrates that there is no tolerance at all for the type of business practices that have developed in a very fluid market, with opportunities being taken without really any reference to clear laws. There is one other factor that is very important which is the clarity of law. If law is not clear, business does not know quite what to do. They will find whatever level is appropriate in order to secure business. If the law is clear, business by and large, 99 per cent of business, will abide by it. They have clear reference points against which to conduct whatever activities they carry out but where the law is unclear it will simply always be shaved. Clarity of law is another vital issue, in my view.
Q9 Chairman: There are two very different issues here. One is whether what the Bill is proposing to do is the right thing and, secondly, whether, accepting its objectives and what it is trying to do, it has made it as clear and simple as possible so that businessmen know what it demands and how its procedures are going to be enforced. Is this present Bill as clear and simple as possible?
Mr Rodmell: We rejoice that there is to be a reform of the law on corruption because the present statutory law has endured for about 100 years. When you come to look at the 1889 Act and the 1906 Act, at least allowing for the quaint language of that period and the curious forms of public body that existed at that time, when you read the sections you know what it is driving at. You are not left in any doubt as to what you cannot do. When you compare that with the Bill with which we are presented, you probably have to read the entire Bill to understand what it is you are really driving at. You certainly have to read the whole of part one. I find I and numerous other lawyers to whom I have spoken are struggling with it. This is what has driven us in our paper to suggest that there should be much more in the way of specific offences, particularly if you come to apply those in an overseas situation. If you take as an example a specific offence which there is in the South Africa Bill -- I do not know whether that has been supplied to the Committee -- when you read the specific offence, it is self-contained and you understand what it is driving at.
The Committee suspended from 3.47pm to 3.55pm for a division in the House
Q10 Chairman: Assuming that the approach, the road map, they have taken is the right one, could it be done in a more simple form to make it easily understandable to people or do you have to go through all these technical provisions that we have in this Bill?
Mr Rodmell: I think the technical provisions in the Bill will make a field day for lawyers but will not be helpful to the average person who has to refer to it in terms of seeing what it is driving at.
Q11 Chairman: How would you do it?
Mr Rodmell: Could I illustrate this by taking you to the South Africa Bill? There is a specific offence which is of interest to us. Picking up on the OECD Convention for Bribery of Foreign Public Officials, when you read this offence, it says, "A person is guilty of an offence if he or she in order to obtain or retain business or an improper advantage in the course of business corruptly gives or agrees to give a gratification, whether directly or indirectly, to a foreign public official as consideration for such official performing or failing to perform any of his or her public functions; or to induce that official to use his or her position to influence any acts or decisions of the foreign state or the public international organisation concerned." That is a self-contained section. There are terms within it that are defined in a definition section of the Bill. When I try to imagine how I would put that offence within the current Bill, I find I have to look at numerous clauses. I have to look at least at one and three or two and three. I then have to look within the body of the Act at what is meant by conferring an advantage. I then have to look at an extremely complex clause five to decide what is the meaning of "corruptly" which involves proving questions of what are the elements which primarily affected the person doing the act or refraining from doing the act. I also have to look at whether he believes that that is the primary purpose of what was being done. Even as a prosecutor, I then have to think about whether one of the defences in clause six or seven applies. I then have to look at eight and nine as to what is really meant by an advantage in clause two. I may have to look at ten if I am dealing with an agent performing his functions as such. There is again a very complex and difficult clause dealing with what is the meaning of "agency" and "principal". If you leave any of those out, you do not get a sense of what the Bill is driving at. If I think about translating that into obtaining evidence from another country and issuing commissions rogatoires translated into the language of that country, which could be French, Spanish or Swahili, these are concepts which are difficult enough in English, so I think it is absolutely formidable. I do not think one needs to go wholly for this broad approach, which I know has been welcomed by some other people who have put in papers to the Committee, or wholly specific offences. The broad approach is so complex that it will be totally ineffective. I am not exaggerating, I do not think.
Q12 Chairman: Apart from the South African model, have you had a go at drafting a very simple Bill which would follow the broad approach that we have here?
Mr Rodmell: No, I have not.
Q13 Chairman: Has anybody done it in an effective way in other countries or in any other form of legislation?
Mr Rodmell: I do not feel that we have made a sufficient study to say. I think the South African one presents what I might call a third way in that you have a number of specific offences. If something is clearly within the mischief at which that section is aimed, no one is going to have any difficulty in understanding it. No one is going to have any difficulty in another country in understanding it and the thing can go forward. That does not mean to say that there should not be a more generally expressed offence to sweep up and catch those that might otherwise escape through there not being a specific offence targeted at that set of circumstances. I think it would be a great mistake to have to rely upon judges' directions throughout.
Q14 Mr Stinchcombe: What is the definition of the word "corruptly" in South African law?
Mr Cockcroft: Providing gratification to an individual, enabling an individual to be gratified by a payment or some other favour.
Mr Rodmell: I can quote the first two or three lines: "'Corruptly' means in contravention of or against the spirit of any law, provision, rule, procedure, process, system , policy, practice directive, order or any other term or condition pertaining to certain relationships ... the performance of any function in whatever capacity." It is very wide.
Q15 Chairman: It seems extraordinarily wide.
Mr Rodmell: It is. I am not necessarily commending the drafting. I think a smart parliamentary draftsman could probably do better but it does convey the impression of a sense of impropriety and dishonesty which is not obvious in our Bill.
Q16 Chairman: It certainly does not scream out that you are talking about dishonesty or impropriety.
Mr Carver: Probably the drafting of this Bill has largely been informed by a concern not to leave things out, not to leave gaps. Therefore, one has virtually an all-encompassing Bill with virtually anything. One of the particular concerns that has been expressed to you orally is that there are vast areas of ordinary interfaces between the public and the provision of services which are almost certainly corrupt by definition, although there is no element of dishonesty involved in the process at all, even to the point of paying for motorway tolls and things like that. That sort of element can be caught. The essence of what is corruption is caught in that definition in the South Africa Bill which is contrary to something. The difficulty one has in drafting a definition of corruption is that most people say, "It is like an elephant. I will know it when I see it", but that is not satisfactory for law making. You have to have something clearer. If you confine it to breaking something , what are you breaking? The South African definition takes a very broad sweep through something being broken in order to produce a corruption. That is why it is a more commendable effort than this Bill which strives to be part of a process whereby you include everything and then you exclude certain things. In the process, you rely upon a process of discretion which, to my mind, makes the Bill something that is really for the benefit of just a few of us. You, my Lord Chairman, and I are lawyers. Is it a Bill just for the benefit of lawyers in terms of interpreting and all the other elements that a lawyer will exercise his or her skills on, or is it something that is supposed to be for the citizen or business that needs to understand how to conduct a business life in ordinary, social intercourse?
Q17 Chairman: In the general approach in this Bill, there is obviously still much emphasis on the agent/principal relationship. Is that something that is necessary? Is it something which, if it is kept, could be dealt with more simply, more clearly, in the Bill or could it be got rid of altogether?
Mr Rodmell: I do not have a problem with the agency concept as such but it is in the language the Law Commission uses "agency of the type recognised and understood by lawyers." Where I have a problem is when the concept of agency gets stretched to such an extent that almost by definition it is not understood by lawyers. That is the danger. That may be the trap the draftsman has fallen into here. They have stretched the meaning of "agency" beyond what is going to be understood not just by lawyers but by the normal people who are going to have to refer to the Bill. The whole concept of agency for the public is a very difficult one, particularly when you look at the way "public" is defined. If I can refer to that clause dealing with agent and principal, clause 11(3): "A person is an agent performing functions for the public if the functions he performs are of a public nature." Functions of a public nature are very difficult to define in today's world because I do not know where they begin and end. I think it means those sorts of things that have been privatised and are now all in the private sector but we should not have to refer to the history of services to define what is of a public nature. "A person is an agent performing functions for the public ..." is one thing. They have to resort to that because clearly "agency" is not capable of being extended to a functions basis without defining an authority for which a person or company is an agent. It is a difficult concept. It is there already in our existing 1906 Act, section one, so with more modern language that could be brought up to date. There the agency concept is not being unduly stretched. It is what lawyers understand by the meaning of the word.
Q18 Chairman: Another topic that also comes from the past is the presumption that the law today is still kept in the present form. Is that necessary or desirable?
Mr Carver: My understanding of the Bill is that the draftsmen have sought to eliminate the presumption on the basis that it might infringe the European Convention of Human Rights. I have never been convinced that this is the right analysis. What is needed is a definition of the offence that is sufficiently clear so that the prosecutor knows what the ingredients are that he or she has to demonstrate in order to present the case to court. If you get the definition of the offence right, there is not any problem about whether or not you are going to transgress the European Convention or any other human rights covenant. The fact is that you will have satisfied the necessary ingredients in order to establish the offence.
Q19 Chairman: If you do that you do not need the presumption?
Mr Carver: You do not need the presumption as such. It is what the jury is entitled to infer from a set of circumstances. That is what is necessary. If you have been clear about that, you do not have to get into the problems about presumption or otherwise.
Q20 Chairman: It seems clear that the prosecution has not relied on the presumption in recent years to any great extent, if at all.
Mr Carver: That is almost certainly true.
Chairman: On individual offences, apart from the South African model, what is the position in other countries in Europe? Do they have specific offences as well as or rather than the global, general approach?
Mr Garnier: To add to that, could I ask whether other countries claim extraterritoriality for their law?
Q21 Lord Campbell-Savours: Could you comment on Malaysia which you referred to in inquorate session?
Mr Carver: I think all three of us would be floored by your last question. I do not think we are sufficiently up with Malaysian legislation. The South African legislation we have examined and that owes at least part of its origin to legislation that has been presented in Malaysia and Nigeria, at least some parts of which Transparency International has contributed to. I suspect we looked in particular at the South African Bill because it is very recent. The fact is that it is essentially a common law principle that has been done. It is relatively clear and simple. We felt it had very many advantages over the type of scheme of the legislation that had been presented to Parliament. On the second question about legislation on the continent, the fact that it comes from a different tradition is less important, to my mind. Law making today in a world that is increasingly converging should not rely too heavily on differences of tradition between common law and civil law. I am quite sure that you, my Lord Chairman, would endorse that from your own experience. Legislation should, so far as possible, be comprehensible to anybody in Europe. I know that, for example, Switzerland has been through an enormous exercise in trying to reform its legislation because, at a time when Switzerland played a leading part in concluding the OECD Anti-Bribery Convention in 1987, there was a consciousness within the Swiss authorities that their own legislation was hopeless in terms of criminalising corruption. Therefore, they had to make a major reform in order to be able to ratify. It was not an easy process to present and to drive that legislation through and I wish that I was in a position to report more accurately what the result was.
Q22 Chairman: Without going into detail, in the Community do countries on the whole have specific offences rather than this global approach or do they divide so that some do and some do not?
Mr Rodmell: I am not in a position to comment and I think it might be more helpful if we offer to supply a paper that perhaps looks at one or two continental systems. In terms of implementing the OECD Convention, one or two of those countries have brought that in as a specific offence.
Q23 Chairman: Where you have specific offences rather than this general offence, how often do gaps appear? Is it that people escape because, although they are doing things which are within the general concept of these individual offences, some clever lawyer manages to persuade the court that they are not within the individual offence?
Mr Carver: One of the manifestations of gaps is absence of prosecution. Prosecutors tend to be very hard pressed. They tend to have too many things on their plate anyway. If there is an element of doubt as to whether or not they can bring home this particular charge, they simply will not make the charge at all. That is part of the problem. Where the law is unclear, where it simply does not help to comprehend where an offence has been taken, there will not be prosecutions.
Q24 Chairman: It is not a question of prosecutions failing but howls from the public that people cannot be prosecuted?
Mr Carver: I suspect that is where it manifests itself.
Q25 Mr Garnier: Have there been howls of that nature in this country recently?
Mr Carver: Howls in the sense that there is a mounting degree of concern among those involved, not just NGOs, but those involved with the integrity of the city and business, that we really are in a very poor state indeed in terms of legislating against corruption. This brings into play quite unnecessary risk into business activities which should be eliminated. This risk element is unacceptable from a narrow perspective of trying to conduct a business profitably and successfully and also in terms of colossal waste, particularly in the field that we are plainly concerned with, which is effective development around the world.
Q26 Mr Garnier: Is the push coming for the prosecution of British people and companies for things they do overseas in order to get contracts or is the push in this country to catch people for insider trading or taking public officials on corrupt holidays? I am not sure where the main pressure is coming from.
Mr Cockcroft: Because this is an omnibus reform of the law on corruption it is coming from several different sides presumably because the existing legislation is considered to be too weak in relation to domestic offences and, on the overseas side, it is coming from the accumulation of several international conventions and responsibilities which the UK has. On the convergence of legislation, particularly on the continent, it is important to recognise the role of the Council of Europe Convention on Criminal Law which is designed exactly to bring the legislation within Member States or the EU accession countries and so on, into a common framework. That Convention is extensively based on specific offences. Since we are all trying to move in that direction, I think that is a very important issue. The UK is not currently in a position to ratify that or will only ratify it by making an exception of certain offences such as trading and influence.
Chairman: We are not only concerned with what goes on in this country; we are concerned with what people and companies in this country do overseas in looking at this matter.
Q27 Baroness Whitaker: I wanted to ask about the reputation risk to companies which have links with UK companies. In your paper you say that clause 13 should be broader to include subsidiary countries' joint ventures. I am aware of an awful lot of shadows over companies which are not direct UK companies but which are held by them, related to them or have joint ventures with them. In various kinds of employment law, the subcontractor is bound by the law and it is the main contractor's legal duty to ensure that the subcontractor obeys the same law. Can you expand a little on your recommendation?
Mr Cockcroft: Our central argument is that United Kingdom prosecutors should be able to prosecute companies which are responsible for the actions of subsidiaries or effectively controlled joint ventures so that very few bribes or corrupt acts would take place directly from a UK based company or any country in the world. In nearly all cases, it would be done through an intermediary. Sometimes that would be a subsidiary. Sometimes it would be an intermediary agent working closely with that subsidiary. Even more often, it would be a joint venture which is rather more difficult to catch, but nonetheless highly relevant. If we look at the case of IBM in Argentina, IBM Argentina was found guilty of paying a bribe about two years ago. IBM in the US finally accepted responsibility for that and paid the fine to the SEC. These linkages are crucial and we would like to see this legislation drawn in such a way that, where a UK company has effective control over a subsidiary or even a joint venture partner, that is covered by the Bill.
Mr Carver: The United Kingdom law against corruption, the mixture of common law and statutory offences that this Bill proposes to sweep away, has on certain interpretations been quite tough anyway. The well advised company for many years now has been set up. There are commission arrangements for establishing a company using probably lawyers in another jurisdiction that is able to establish a company in this way. There is no formal link, save for the purpose of being able to deduct the payments made to the intermediary for tax purposes. That system, which has been used and multiplied many times over at least 20 or 30 years, is not necessarily brought under control by this Bill. There is a suggestion that intermediaries will still be left out. If the Bill is really going to tackle the mischief, most people who understand the way in which international business is conducted are aware of the role of intermediaries. I have heard, for instance, Italian businessmen describe the mechanisms that British companies have used in order to set up their doubtful payments as being crude in the extreme and no self-respecting Italian company would possibly do it this way. We are not tackling that problem.
Q28 Vera Baird: I wanted to ask you about the comparison between clause 13 and the Anti-Terrorist Crime and Security Act where clause 13 goes significantly beyond the offences in the 2001 Act, noting that there have been no prosecutions under that so far. Why would you say that was?
Mr Rodmell: Perhaps I can take the second part first, as to why there have not been prosecutions so far under part 12 of the 2001 Act. There is a practical point here that it only came into force in February of last year. Certainly in terms of international corruption, some of these deals take a long time. If the view is taken, as I know it is, by the Serious Fraud Office that every component of that offence has to take place after 14 February then there is a time of gestation through which it has to go. There are a number of other reasons why there are not any prosecutions yet. There is the question of gathering the information. The detailed arrangements as between the various investigative prosecuting authorities have quite recently been formulated so that each body knows what it is now to be doing. There is a feeling I have detected within those that should be prosecuting, within the police, that it is just all too difficult. They do not have the resources. It is all too expensive. They do not have budgets. They cannot count on the cooperation of the country in which the bribe has taken place, which frequently can be the case because you are dealing with a country where corruption is endemic and it is likely that the government authorities will be closely implicated. We would not under-estimate those difficulties but if you have part 12 there we do not want to think that people are perhaps collapsing in front of the difficulty. They should be addressing those points. There is also a belief around that somehow it is a victimless crime. It is taking place somewhere else and nobody is damaged; whereas we would say that there are real victims. If it is referred to police forces, we find that many of them do not have fraud squads any more, let alone anyone able to understand corruption. The SFO is dependent on the use of specialist police being made available. They have some professional staff but they do not have the police back-up allocated to them as such. There are a lot of reasons why it does not happen. I do not think they are getting all the intelligence they could from the ECGD because the ECGD will tolerate a certain percentage o every contract deal that they support by way of being reasonable in the circumstances. If you take a percentage of a multimillion contract, that is a lot of money. We are not talking about small payments. They will not inquire into the services that are provided for those commission payments, so there is work to be done in that area. I suspect, having looked briefly at the Criminal Bar's submission to this Committee, in opposing extraterritorial jurisdiction, the Bar -- no disrespect to members of the Bar -- I do not think are in touch with the reality of this world where corruption respects no borders between countries. It is going on internationally. Simply to make this offence prosecutable at all anywhere it has to be extraterritorial. Those are some of the reasons why there is none at the moment. One expects and hopes that, with the information coming through from the diplomatic posts, perhaps some will shortly start. We have a concern about the comparison of this Bill with the 2001 Act, part 12. That came in following 11 September and had to be done with what was available, and what was available was the common law and the quaint old statutory offences of 1899, 1906 and 1916. That was very effectively done in very short compass. Those sections have been capable of being used and have guided what businessmen will do more for many years. At least those offences, for what they were, read over into the new international situation. When you come to look at this Bill, for some of the reasons I have already illustrated, I think it would be virtually impossible to prosecute for the foreign element. I am really quite disturbed when I see the way in which the foreign element is brought in. It comes in like a side wind. If you look at 6(6) you get: "References to the public are not confined to the public of the United Kingdom or of any part of it" You get 11(2) where it says: "It is immaterial, if - (a) the functions of the first person have no connection with the United Kingdom; (b) the affairs or business of the second person ... have no connection with the United Kingdom." Legally it probably gets there but why should there not be a specific inclusion of the offence wherever it takes place? It is an offence to commit these crimes in any part of the world. It is a side wind approach and I do not think it will be as effective as part 12 of the 2001 Act, I am sorry to say.
Q29 Mr Garnier: Have any of you noticed in legislation in other countries where they have strict anti-corruption laws dealing with extra-territorial matters whether a) that has an effect upon conduct of business and businessmen and women in those countries and whether b) it has had an effect upon the commercial culture of overseas countries, or does it purely displace corruption from American businessmen to French businessmen or from French businessmen to Italian businessmen or whatever?
Mr Carver: There probably is evidence to demonstrate that it does have an effect. For example, Germany was one country that had no foreign extra-territorial element to its anti-corruption legislation and it was said that Germany was corruption free on the domestic front but there would be no inhibition whatsoever in terms of the illegality of paying bribes to foreigners, that German companies did this as a matter of course, and certainly I have heard of a former Trade Minister of a British government make the claim that the German and French governments bribe foreign officials as a matter of course and therefore it is essential that British companies should be able to do the same. This to my mind is not only unacceptable as a proposition but it is also something that is dealt with and has been dealt with where countries have taken seriously the transformation of their domestic law to be able to abide by the obligations under particularly the OECD Convention and increasingly the other Conventions that are coming along, not least the UN Convention, in due course.
Mr Cockcroft: I catch the flavour of your question and as TI, not only in this country but elsewhere, we are being approached increasingly by large mainly multi-nationals to discuss with us their approach to the issue of international bribery and what they might do about that, and of course from this country BP and Shell are leaders in that field and have set quite a powerful example. Several inter-related points. First of all, the Convention covers 80 per cent of world trade so the countries which are signatories to the Convention account for 80 per cent of world trade, which is quite significant. Secondly, in some of the countries in which TI is active such as Kenya we are finding that, for example, a corporate ethical business forum has been established and is relating to the new regime led by President Kibaki. That is a step that was started ten years ago and it is not just because of a change of government, it is something that was planned before the change of government, so it is a change of mood in the corporate sector. In South Africa the Corporate Governance Reform Act had a huge impact on businesses there, including the ones listed here. I think you can see there has been a change of mood. Most countries that are signatories to the OECD Convention have only changed their legislation in the last three years. The Convention was signed in 1997 and ratified in 1998 so it is still relatively early days.
Q30 Mr Stinchcombe: Just one final question going back to your side wind argument. Given the terminology of clause 13 whereby corruption committed outside of the UK is covered here, could we simplify the Bill by deleting those offending provisions you referred to 6(6) and 11(2)(a)?
Mr Rodmell: I would want to think quite long about that. I think that 13 is directed more to jurisdiction, although I have to say 13(3) rather backs up your argument. I really would not want to make a snap judgment on that, I would like to think about that.
Chairman: It is already clear to me that there are questions which will come to us in the course of the next two or three weeks which we will probably want to ask for your answers in writing and we will keep that as one of the topics to which we will come back. We have got a number of other shorter topics which we ought to try and deal with tonight if only in item form. One of the things that concerns some people is the level at which you pitch corruption.
Q31 Mr MacDougall: I think it has been widely accepted as the CBI's opinion on this that they would like specific exemptions or defences provided for corporate hospitality and promotional expenditure as happens in the United States. We are talking here about facilitation and the clear link between facilitation and corruption and how and whether you bring about a system where if you did introduce a particular piece of legislation that covered particular topics. You mentioned level playing surfaces. The International Development Committee rejected tolerance of facilitation payments or petty disbursements although we all accept in certain sectors in Europe and in the United States this is quite acceptable. I suppose my question leads me to ask you in your opinion should there be a threshold below which prosecutions would not apply? Do you think that should be something that should be considered?
Mr Cockcroft: No, we are against having a minimum threshold spelt out in any sense of the word, whether in terms of the question of prosecution or otherwise. I would like to break down your question between entertainment and hospitality and facilitation payments because in our analysis of the issues they are rather different things. Entertainment and hospitality can edge into trying to influence a particular deal. Facilitation payments is often presented as a source of extortion in a difficult developing country where conditions are overwhelming. We would tend to dispute that that extortion is really the leitmotiv that underlies facilitation payments if I can focus on that for a moment. You are right to say that the Foreign Corrupt Practices Act exempts facilitation payments from the Act but we have done an analysis of how all of signatories of the OECD Convention have dealt with facilitation payments in their legislation. There are at least three different categories: those who outlaw it completely; those who make an exception; and those who are ambivalent and where it can be interpreted either way. It is roughly 33 per cent in each category. It seems to us that that differentiation is not going to be sustainable over a period of time so it seems extremely likely that the monitoring process that is built into the OECD Convention is going to allow that situation to continue indefinitely, because of the competitive level and the alleged advantage which it gives certain companies. I think in a way, perhaps more crucially, what we are finding - and it relates to what I was saying five minutes ago - is that as leading companies begin to set a pattern on this others are certainly going to follow. BP has announced a strategy of zero tolerance. Motorola in the US had a strategy of zero tolerance about seven or eight years ago and other companies are certainly going to following that mould. It is obviously much easier for a very large company which has clout to that do and there are going to be exceptions. We see that as part of the process which is on going. The related and last point I would want to make on facilitation payments is that, as one finds in addressing the contents of a Bill such as this one, it is impossible in terms of domestic legislation to avoid defining facilitation payments as a bribe. So it is really only when you apply a payment overseas that you can say, "However in certain circumstances this will not apply up to a certain sum", so there is a strong element of double think in that and as an organisation we are now definitely in favour of moving away from that exemption.
Q32 Lord Waddington: But would it not be quite wrong to stigmatise as corrupt the payment, for instance, of a sum to a foreign official which is made by the payer in the belief that it is necessary to make that payment in order for the payer to get his legal rights? Would an ordinary person say that that was corrupt any more than they would say it was corrupt of me to say to a baggage handler who had emerged by a carrousel at London airport, "Here's a tenner. For God's sake go back behind the carrousel and try and extricate my bag which has not yet appeared." Nobody in his right mind would say that that is a corrupt thing. Why is it a corrupt payment therefore for somebody in a foreign country to pay money to an official because he knows perfectly well that he is not going to get his legal rights unless the payment is made? That is what worries me.
Mr Carver: With respect, my Lord, I am not sure that I can share your analysis, even though you make it very emphatically, and I do so for two reasons. I have been struck over the last two or three years in discussing these problems with major companies how their own analysis of the way in which they conduct business around the world leads them inexorably to the conclusion that they have to eliminate the practice altogether and they have to make that part of the central thesis on which the company does its business, the elimination of facilitation payments altogether. That process puts me in mind of a long-established American client with which I have had various dealings over the years which has been international for much longer than I have been in practice, which had for many years a very, very well-established and elaborate compliance programme which went into this type of detail in every single respect so there was a procedure for dealing with these problems every single time they arose. Even though the maintenance of that compliance programme was one that involved expense it had paid off time and time again to make sure that that was exposed. The test in every case to my mind as to whether or not this is a corrupt payment or not is if it is exposed to the person's employer, is it a problem? The invariable answer is if it is a problem it is corrupt and should not be made at all - transparency.
Chairman: Perhaps we could move on to two other topics. We ought to look at public interest defence and what the mechanisms are for investigating and pursuing bribery and corruption.
Q33 Lord Campbell-Savours: Do you feel that the tracking of transfers of money through bank accounts is a principal investigative tool in large-scale bribery? Do you regard it as an important tool to use?
Mr Carver: Yes. Recent high profile cases have demonstrated that this is an essential tool because many countries now place an enormous, particularly in the developed world, emphasis on the extent to which they feel that the established financial markets, and of course we are talking particularly about the United Kingdom, New York, Switzerland, have in effect stolen money belonging to them. We need devices to be able to deal with that accusation because it is not by any means always true; it just happens from time to time. Certainly the case of the Abacha funds which were laundered through Switzerland, through London and through other markets, the ability to track that has been absolutely essential. Whether or not it is going to produce enough evidence to convict all the people involved of the necessary offences still remains to be seen. In the case of Pakistan, for example, there is more than enough evidence that the previous Prime Minister, as it were, had funds translated through financial centres but that process of completing prosecution is very difficult indeed. The availability of evidence is not going to come, to my mind, unless we have even more effective money laundering techniques, money laundering analysis, the ability to capture laundered money, and to capture the tracing. It is perfectly possible to do because now electronic money always leaves a trace. It is just what the requirement is on banks to do it. They will, by and large, do exactly what they are obliged to do by law and they will not do any more. It is very important that the law and regulations governing international banks is sufficiently clear.
Q34 Lord Campbell-Savours: What about the investigative journalist, the whistleblower, and accountants generally, what do you think about their role in all this?
Mr Carver: I have always had great difficulty with the notion of lawyers, which is the case that is often cited, being some sort of sacred group that should not be obliged to disclose, I do not accept that at all. It seems to me that where a lawyer has been engaged, either wittingly or unwittingly, in a process of secreting funds or hiding them - and it is usually the simple act of creating or giving instructions to some firm of lawyers in Panama or the British Virgin Islands to create a company which provides a nice anonymous vehicle for funds to be translated through - there is absolutely no excuse whatsoever why a lawyer or accountant or any other intermediary, whether governed by a professional code or not, should not disclose suspicious transactions. It seems to me a totally simple, straightforward case.
Q35 Lord Campbell-Savours: Have you any information about the exemption of the intelligence services in clauses 15 and 16?
Mr Carver: Personally I see no justification for it whatsoever but I do not pretend to be an expert on the intelligence services. I find it disturbing to find it in this Bill but I see no basis and see no justification for this at all.
Q36 Lord Waddington: I think some time ago you were calling for greater co-operation between the Serious Fraud Office, National Criminal Intelligence Service and the FSA. Has there been better co-operation in recent years?
Mr Carver: I think the answer is yes there has been better co-operation. There had been strenuous attempts on their part to collaborate more effectively.
Mr Rodmell: Perhaps it is worth adding, as I did mention earlier, that there does now seem to be a memorandum of understanding between these various agencies that says who does what, which must be an aid to greater co-operation. My impression talking to NCIS is that they are getting rather better at feedback on suspicious transactions but we have not really undertaken detailed research.
Q37 Lord Waddington: But which should be the lead agency in tackling corruption?
Mr Cockcroft: In our view it should be an expanded SFO. NCIS is obviously in the business of providing information, the Crown Prosecution Service has many different duties, and the individual police forces are unlikely to be credible in this area which is complex especially when there is an international dimension.
Q38 Lord Waddington: What about this idea that it should not have to deal with cases involving less than £1 million?
Mr Rodmell: We are talking there about serious corruption and putting it on a level with serious fraud so that basic criterion applies. Clearly if it is below £1 million, which I think is their criterion, there has to be a case for a less well-equipped, in terms of investigative powers, body to deal with it but maybe one should be thinking about increasing the powers of whoever is going to deal with it, whether it is the Crown Prosecution Service, the police, or whoever, so that they can cope with it but where there is an international dimension, even if you are dealing with quite a low level of bribery I think the Serious Fraud Office would take on a fraud case for even less than £1 million if it was complex particularly because of the overseas element. I think the same should apply to corruption. I personally think it is a nonsense that there is no express jurisdiction for the SFO to deal not only with fraud but with corruption and money laundering and other types of economic crime which typically are cross border and operate disregarding borders.
Chairman: International obligations are obviously very important in this.
Q39 Mr Garnier: I was just wondering whether you thought if this draft Bill becomes an Act whether the Part 12 bits of the 2001 Anti-Terrorism Act are suitably replaced by relevant parts of the draft Bill?
Mr Rodmell: I tried to indicate earlier that I think the nature of this Bill would make it virtually impossible to operate in a situation of foreign bribery, which is what Part 12 deals with. I would hope that on a significantly redrafted Bill that would be less of a problem because it would make more sense to have all of those anti-corruption provisions in one Bill, but one way of dealing with that, again I hate to come back to specific offences, is to have a specific offence dealing with, for example, bribery of foreign public officials and it would be much clearer and easier even than under the 2001 Act. The way it is at the moment I do not think it will work.
Q40 Mr Garnier: Are there sections and clauses from the South African legislation, I think you have read out bits, but also from the other foreign acts which you commend, which we could usefully steal and make useful for our purposes?
Mr Rodmell: There are a number of provisions but I do not know whether they fall within our brief or that of the Committee. For example, there is a duty in the South African Act for people to report bribery. I do not know whether policy wise the UK legislature would go quite that far. Obviously because corruption is such a covert offence, if you take away, in view of Jeremy's comments, a presumption clause because that raises Human Rights Act issues you should think about an evidential inference clause. If that is to be removed totally you are losing one tool. If you then remove or do not insert something which compensates for that, be it disclosure of assets by public officials for the public area or be it a duty to report corruption which comes within the knowledge of particular public servants or indeed within the private sector either to report or superiors or outside to the police, those need further examination. However, they do not fall within the concept of this Bill so we did not put them in our paper. Yes, given a free hand there would be a number of other provisions that we would like to see.
Q41 Mr Garnier: But if we are in the business of "bringing up-to-date" the law of corruption I do not think we need to be confined to the draft Bill with which we have been provided. If that is not right, our advice should be to do something else and if you have got some information to make that advice better I for one would like to hear it.
Mr Carver: It seems to me that is part of the homework the Committee may be setting us!
Q42 Mr Garnier: Just on a matter of detail, is it your view as an organisation that the granting of soft loans, loans below the current market interest rate, are prima facie corrupt?
Mr Cockcroft: It depends on the context.
Q43 Mr Garnier: Let's take the case of a company that would not do it, Shell or BP, the ones that you say have zero tolerance. If they wanted to have a deal with a foreign company or even a foreign government, and part of the way of getting that deal successfully through was to lend the buyer a huge amount of money at a below market rate, would that be an acceptable commercial practice or would that, in your view, be an unacceptable, corrupt practice?
Mr Carver: I think the test may well be the same test which is can it be disclosed? If it cannot be disclosed, then the automatic inference is that it is corrupt, it seems to me.
Q44 Mr Garnier: So there is no room for commercial confidence?
Mr Carver: I think not and certainly the way in which the oil industry is reacting to the some of the criticisms it has received over the last four or five years suggests that the oil companies have already accepted that it is essential that they be totally open about the payments that are made, but the mere fact that some sweet deal has been done goes into another area of concern which the Parliament has been concerned with over a number of years, which is state aid. State aid which is given and is of a somewhat covert nature which is not disclosed by government and not sufficiently understood and analysed within the public sphere, is itself a source of corruption, and that is something that has been the subject of criticism in the past.
Chairman: We have not said very much about the European Union. Have you anything relevant to ask?
Q45 Mr Stinchcombe: Coming from the last point that you have made, is there any evidence or suggestion of which you were aware that the system of EU subsidies has caused corrupt practices to spread?
Mr Carver: Anecdotally I would say that the general perception is that the CAP is rife with corruption, but I have never made a sufficient study of it to be able to say whether that is true or not. It is just the general perception that subsidy produces corruption. I suspect that is probably a generalisation which TI generally accepts.
Mr Cockcroft: Yes, I think if you extend that to EU-sponsored aid programmes both in the ACP states and in the accession states and further into Europe, that aspect, unfortunately, of the Commission activities is generally considered to be extensively corrupt, much more so than our own bilateral aid programme.
Chairman: Unless anyone has any specific questions perhaps we could just consider briefly whether, even if you had a general catch-all provision, there are other areas of the law that perhaps we ought to look at?
Q46 Vera Baird: You drew our attention to two omissions of the Bill, first the offence of misuse of public office, and we have had some submissions from the CPS to suggest that misfeasance in a public office, which exists and has been revised quite a bit recently, would need to be amended to fit that gap. What are your views about that? I think you suggested unless we had an offence of trading in influence we might not meet our international obligations. Is that your view and what ought we take on from that? Should we do something about that, make a recommendation?
Mr Carver: Yes, we would like to see trading in influence included in the Bill. Misfeasance of public office is rather complicated and we are not so definitive about that.
Mr Rodmell: If I could offer a comment on the abuse of public office. The point I think we made in our paper is that there may well be a case for having such an offence because it may be very clear that a public official has breached his or her duty. But the main corrupter might be beyond jurisdiction and very difficult to define or catch. I was looking recently at the Law Commission consultation paper and I notice that they referred to the some Australian law reform proposals which had a very simple definition, that it was an offence for a public official to exercise functions or influence that the official has because of the public office, et cetera. Very neatly defined, not very difficult to prove and which might well be salutary and useful. I do not know what is going to happen to the common law or the misfeasance in public office offence. I think this Bill we have is only sweeping away common law corruption so presumably the misfeasance will stay. I think we need to examine whether it is necessary to have it but it would be quite neat and it is corruption related.
Q47 Vera Baird: I do not know if this applies abroad at all, misfeasance in a public office.
Mr Rodmell: Yes, of course because otherwise it would be the concern of the host country, so to speak.
Chairman: Any other questions?
Q48 Baroness Whitaker: When you think about all these other things perhaps this is one you would like to think about. It occurs to me that some of these areas of company good practice might be better dealt with by an improved Code of Practice where non-compliance would be prima facie evidence of breach of statute. Thus the company would have to prove they had met the objectives of the statute as set out in the Code. It might do quite well for the facilitation payments issue for instance. It is rather like the Highway Code or obligations under the Health and Safety at Work Act, so guidance is given with a statutory backing where, as I said, you have to show that if you have not complied with it you have done something which achieves the objectives of the statute as well.
Mr Carver: My understanding is that with the Foreign Corrupt Practices Act in the United States, one of the perceptions that the prosecuting authorities take of a company involved in the payment of corrupt practices is an extensive audit of their control and compliance systems, and it will have an effect on what the Department of Justice, or whichever prosecuting authority is involved, does in response to it. They are tough in enforcing it. Prosecution can often be very difficult. They face the same difficulty prosectors have all over the world in bringing home successful prosecutions of complex crime, but this is certainly one of the things that they expect. I have been struck by the extent to which the Department of Justice in particular has been able to work with companies involved in large-scale bribery in order to ensure that the whole system changes and is seen to change in a way that it is unlikely to manifest itself again. I think this is an important element which companies in this country are beginning to realise has to be done too.
Q49 Chairman: Thank you very much indeed. It has been an extremely valuable session. We are most grateful to you for coming and for the time you have given. We reserve, if we may, the opportunity to write to you if we have anything else to raise with you. I am sorry you have been kept so late.
Mr Carver: I have been struck, my Lord, by the absence of any question about Attorney General consent which suggests to me either there is not enough time or, alternatively, the Committee is not concerned about this issue.
Chairman: On the contrary, we were reserving that one. It is one of the first matters we will turn to tomorrow afternoon. Sorry we have been delayed and thank you very much indeed.