Draft Bribery Bill - Joint Committee on the Draft Bribery Bill

Draft Bribery Bill - Joint Committee on the Draft Bribery Bill Contents

5 NEGLIGENT FAILURE BY ORGANISATIONS

72. Clauses 5 and 6 propose a new offence for companies and partnerships that negligently fail to prevent bribery by persons who are performing services on their behalf. At present, a company can only be convicted under corporate liability principles where a senior officer who is its "controlling mind" is responsible for key elements of the offence (under what is known as the "identification" doctrine). The Director of Public Prosecutions described it as "almost impossible" to prosecute successfully under this principle.[135] It has attracted criticism from the OECD's Working Group for not being "effective, proportionate and dissuasive".[136]

73. Some surprise was expressed by the business community at clauses 5 and 6, since the Law Commission had initially decided not to pursue these proposals pending its ongoing review of the way that companies are held accountable under the criminal law as a whole. However, the Law Commission reversed its decision in light of the Woolf Committee's conclusion that boards of directors must take an active role in preventing bribery. It also followed the recommendations of the Serious Fraud Office, which highlighted the need to tackle corporate liability given its view that bribes are most often paid in order to benefit a commercial organisation.[137]

74. Under the proposed offence a "responsible person" must be found negligent for failing to prevent an act of bribery. Clause 5(3) defines a responsible person to be anyone (other than the briber) whose "functions" included preventing bribes being paid in connection with the business. The draft Bill treats any "senior officer" as the responsible person where no-one else has been allocated this function. Significantly, a defence is available where "adequate procedures" were in place to prevent bribery (clause 5(4)).

Too complex and narrow?

75. Several witnesses were concerned by what they viewed as an uncomfortable relationship between negligence (as a fault element) and adequate procedures (as a defence), asking whether this artificially separated out two versions of the same thing.[138] Professor Horder accepted that in most cases the two issues will merge, but favoured separate steps to create a balance "whereby a company would not be liable when its systems were perfectly adequate but there was a failure solely by an individual". He gave the example of an isolated failure by a "responsible person" who had been "tempted by an offer from a rival company to go and join them and so is not paying proper attention".[139]

76. A more sustained criticism related to the need to prove fault on the part of an individual within the company, rather than focusing on the company's collective failure to maintain adequate procedures. In particular, Professor Wells listed the steps that this approach entailed (proving bribery, identifying a responsible person, proving they were negligent, and then countering an adequate procedures defence), before describing clause 5 as a "narrow and complex solution to a pressing problem".[140] Monty Raphael of Peters and Peters was also concerned that linking "negligence" to a specific individual unfairly risked the introduction of a variable standard:

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77. PricewaterhouseCoopers noted that references in the draft Bill to a "responsible person" could be given a wide range of meanings, both broad and narrow. For instance, it questioned whether a general obligation placed on every line manager, or even on every employee, to be vigilant for evidence of wrongdoing risked making every member of staff a responsible person: "we recommend more clarity here, perhaps distinguishing between explicitly assigned responsibilities (carrying a more onerous duty of care) and implicitly defined responsibilities (carrying a less onerous duty of care)".[142]

78. We considered a number of alternatives put forward by Professor Wells, in particular removing the need to prove a responsible person's negligence, thus leaving the company strictly (or vicariously) liable for bribes paid on its behalf, subject to an adequate procedures defence.[143] This was supported by a number of witnesses including Transparency International UK, officials from the OECD and also Professor Sullivan, who described clauses 5 and 6 as a "half-baked compromise".[144]

79. We were informed about a number of jurisdictions which impose corporate criminal liability in a way that is at least as strict as Professor Wells's proposal, including the United States, Australia, Switzerland, Finland, Italy and Austria.[145] Examples were also provided of analogous strict liability offences under health and safety legislation and money laundering regulations.[146]

80. Under Professor Wells's proposal it would be necessary to reconsider the burden of proof in relation to the adequate procedures defence:

The commercial organisation could be required to raise the defence as part of an "evidential" burden, but leave the "probative" burden on the prosecution to establish the inadequacy of the organisation's procedures beyond reasonable doubt;
Alternatively, the commercial organisation could be required to raise the defence and also bear the "probative" burden of establishing the adequacy of procedures on the balance of probabilities.

81. Professor Wells described it as a "matter for debate", but both she and Colin Nicholls QC preferred the probative burden being placed on the organisation due to:

The organisation's greater access to information about the anti-bribery procedures that it had in place; and
the policy aims of the Conventions from which the offence is drawn.[147]

82. We were advised by the Joint Committee on Human Rights that a "reverse burden" of the type proposed by Professor Wells posed little risk of violating the presumption of innocence under Article 6(2) of the European Convention on Human Rights.[148] However, Louise Delahunty and Lawrence Hammond of BAE Systems considered it fairer to require the prosecution, rather than the organisation, to bear the probative burden, particularly as the Serious Fraud Office has the power to request information on the procedures that were in place.[149]

83. Professor Horder acknowledged the greater simplicity of dropping negligence as an element of the offence, but he did not believe that it would be fair to convict a company for the criminal act of its employee or agent without requiring the prosecution to prove that the company was itself at fault. He distinguished bribery as a "step up" in seriousness from any existing strict liability offence under health and safety or other legislation:

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The Directors of the Serious Fraud Office and Crown Prosecution Service agreed, as did business representatives including the International Chamber of Commerce (UK).[151] Jeremy Cole of Lovells viewed the requirement to prove negligence as an important layer of protection for business, while questioning whether the benefits of Professor Wells's alternatives were overstated, given that "consideration of whether procedures were adequate will still lead to asking virtually the same questions".[152]

84. The Attorney General did not rule out the benefits of removing the need to prove negligence, but urged caution:

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85. For completeness, we note that the International Chamber of Commerce (UK), among others, was concerned that clause 5(1)'s test of being "negligent in failing to prevent" introduced an absolute obligation to stop bribery altogether. This raised an underlying fear that a company risked being punished for any bribe that slipped through the net, irrespective of the circumstances.[154] We note, however, the Law Commission's previous elaboration on the meaning of negligence:

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This definition does not create an absolute obligation that will be breached automatically when a bribe is paid. On the contrary, it imposes an obligation on the responsible person(s) to take reasonable steps to prevent bribery. The Attorney General rejected calls to further define "negligence" on the basis that it is a "well-established concept" that could be applied "with the greatest degree of ease".[156]

Gross negligence?

86. There was broad agreement among business and some legal representatives that "negligence" represented an insufficiently high threshold for a bribery conviction. This led to calls for a test of "gross negligence", "recklessness" or both. For instance, a body that represents the General Counsel of leading companies, GC100, stated:

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87. There was strong opposition to this proposal from non-business witnesses and others, including the Secretary of State for Justice, the Attorney General and the Director of the Serious Fraud Office. In particular, the Director of Public Prosecutions stated that it would "substantially reduce the incentive for companies to put in place stringent anti-bribery procedures" while impeding prosecutions in a way that might "stifle, perhaps terminally, the policy intentions we understand to be behind the creation of the corporate liability provisions".[158] We note that more can be done to ensure that fines are proportionate and debarment is non-mandatory, as addressed below.

A civil regime?

88. We considered the option of introducing a civil regulatory regime under which companies would be fined for failing to prevent bribery unless adequate procedures were in place. This would have left the development of criminal corporate liability to the Law Commission's broader review of the subject. It would also have been broadly analogous with the Financial Services Authority's power to penalise companies that breach its third regulatory principle, including by failing to prevent bribery:

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We note, however, that a civil regime received little support during the Law Commission's consultation.[160] Its critics stated that it would lack deterrence value and, in any event, would require a criminal offence to be available as a punishment of last resort.[161] The Ministry of Justice emphasised its potential cost, while Professor Horder was concerned that it would increase bureaucracy.[162] The OECD also warned against the conflicting message that would be sent through criminalising individuals but not companies.[163] Monty Raphael stated that it would represent a "soft option" which would continue to leave a corrupt company in greater fear of the US Foreign Corrupt Practices Act than UK law.[164] We also note that the European Commission has stated that civil or administrative penalties would be insufficient to comply with the UK's international obligations to the European Union.[165]

89. We support the Government's proposals for a new offence that targets companies and partnerships which fail to prevent bribery by persons acting on their behalf. The current law has proven wholly ineffective and in need of reform. However, we are concerned by the focus on whether a "responsible person" was negligent, rather than on the collective failure of the company to ensure that adequate anti-bribery procedures were in place. In our view, clauses 5 and 6 introduce a narrow and complex solution to a pressing problem. We therefore recommend the removal of the need to prove negligence under clause 5(1)(c). While it would lead to the commercial organisation being strictly liable, subject to an adequate procedures defence, nevertheless we do not believe this would be unfair, particularly given the parallel with the approach taken in other leading countries. A commercial organisation is well placed to demonstrate the adequacy of its procedures, preferably on a probative burden of proof.

90. We do not accept the merits of increasing the threshold of the offence to "gross negligence" or the introduction of an alternative civil enforcement regime, since neither will satisfy the policy aims of the draft Bill.

The "adequate procedures" defence

(A) MEANING

91. There was near-unanimous agreement in evidence that the meaning of "adequate procedures" in clause 5 will require amplification through guidance. For instance, Professor Horder stated:

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92. The content and status of guidance is addressed more generally below, in Chapter 6. However, we note two important points that emerged on the meaning of the phrase "adequate procedures" in clause 5:

First, it must be interpreted in a flexible and proportionate way depending on the size and resources of the company, alongside the ethical risks associated with the industry, geographical area and the types of transaction concerned.
Second, it must depend on what a commercial organisation is doing in practice rather than in theory.

93. As part of taking a flexible approach, it is clear that the impact on small businesses will need to be carefully reviewed.[167] Professor Horder warned about the "classic regulatory dead end" under which businesses are forced to "tick-box" without there being a clear link to the effectiveness of the measures concerned.[168] The Federation of Small Businesses called for this to be avoided through "clear and accessible" guidance on the practical steps to be taken:

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In this respect, we note the "light-touch" approach endorsed by the Impact Assessment for small firms in low risk sectors where it may be sufficient to demonstrate that "anti-bribery principles have been fully communicated to its workforce".[170] We return to the impact of clause 5 on commercial organisations later in this chapter.

(B) SENIOR OFFICERS

94. The adequate procedures defence is not available where a "senior officer" is negligent in their role as a responsible person (clause 5(5)). As the Law Commission explained:

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95. A good deal of criticism was directed at the lack of certainty about the meaning of "senior officer" which is defined to include any "director, manager, secretary or other similar officer of the body corporate" (clause 5(7)). The term "manager", in particular, has an uncertain meaning within the workplace. The UK Anti-Corruption Forum noted that it could include "quite junior" levels of employee.[172]

96. These concerns led the International Chamber of Commerce (UK), and others, to state that an expansive interpretation would lead to the defence being "robbed of any real content".[173] The same could be said to a lesser extent about the meaning of "secretary", which the Secretary of State for Justice confirmed is intended to be limited to the traditional notion of a senior-level "company secretary".[174]

97. Professor Horder highlighted the need for clarity, particularly given the different definition of "senior management" that is used under the Corporate Manslaughter and Corporate Homicide Act 2007: "It is not desirable for companies to have to grapple with many different understandings in law, for the purpose of different offences, of who is 'in charge'".[175]

98. Both Herbert Smith and Thales UK recommended that the draft Bill incorporate the definition of senior management that is used under corporate manslaughter legislation, namely:

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The Secretary of State for Justice explained that the draft Bill's definition of "senior officer" was "lifted from the Fraud Act 2006 [… while t]he Corporate Manslaughter and Corporate Homicide Act has used a different approach. We need to think about it".[177]

99. Other witnesses called for the "senior officer" exception to be dropped rather than simply clarified, with the effect that negligence by a senior officer would be a matter to be considered as part of the adequate procedures defence. For instance, Clifford Chance stated that the exception risked creating a negative incentive to appoint lower level employees to the post of "responsible person" as a way of ensuring that the defence remained available. Several witnesses, including GC100, also commented that the senior officer exception worked in contradiction to the US Federal Sentencing Guidelines, which require high level personnel to be responsible for preventing bribery in order to qualify for sentencing credit.[178] Herbert Smith, among others, argued that the exception served no useful purpose since a court would be unlikely to find the organisation's procedures to be adequate where a senior officer acted negligently in designing or implementing those procedures.[179]

100. Professor Horder rejected the idea that the exception created a negative incentive since senior officers who employ a "dog to bark […] must make sure the dog barks properly":[180]

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This argument did not satisfy the law firm, DLA Piper:

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101. However, Professor Wells stated that the senior officer exception could be retained under her proposal for strict or vicarious liability by replacing clause 5(5) (which creates the exception) with an "avoidance of doubt" provision along the following lines: "For the avoidance of doubt, the defence of adequate procedures does not apply where the failure to prevent the offence is attributable to the negligence, neglect or fault of one or more senior officers".[183]

While accepting that this potentially re-introduces the complexity involved in proving negligence in any case involving a senior officer, she added:

[I]n many cases (those where the senior officers have not been at fault in relation to the specific bribe) the complexity will be removed altogether […and] it is hard to imagine that the procedures could be shown to be adequate where senior officers were negligent in the implementation or monitoring of any procedures. The avoidance of doubt clause puts that into concrete form to save lengthy and expensive legal argument.

Under Professor Wells's proposal it would, in essence, become a choice for the prosecution either to prove that a senior officer had been negligent (upon which the defence would not apply), or leave the issue to be resolved as part of the adequate procedures defence (under which any failure by a senior officer would then be relevant to the broader issue of "adequacy").

102. On a related point, the Federation of Small Businesses stated that many small companies would have no option other than to appoint a senior officer to be responsible for anti-bribery procedures. This was viewed as unfair, since small business would automatically be unable to rely on the defence given the senior officer exception.[184] Professor Horder rejected this argument since "a small firm with no middle management must take responsibility for compliance at directorial level". He re-iterated the Law Commission's proposals that failure by senior management should be a bar to the defence being available.[185]

103. The adequate procedures defence does not apply where a "senior officer" is negligent in performing their role as a responsible person by virtue of clause 5(5). It is hard to imagine any circumstances in which the procedures would be adequate where a senior officer was at fault. In line with our recommendation to remove the requirement to prove negligence, we further recommend that clause 5(5) be removed. This would leave the role that has been played by senior officers to be determined as part of the adequate procedures defence. It would also reflect difficulties identified in relation to the meaning of the term "senior officer".

Subsidiaries, joint ventures and syndicates

104. The new corporate offence applies only in relation to bribes paid by persons who are "performing services for or on behalf" of the commercial organisation and "in connection with" that organisation's business (clause 5(1)). An official at the Ministry of Justice has stated that "all the circumstances" would need to be considered to determine whether a subsidiary was acting on behalf of its parent, but that ownership alone would not be viewed as sufficient to mean that a subsidiary was performing services within clause 5(1).[186] This raises two issues. The first is whether the Government has adopted the correct approach by excluding subsidiaries from automatically being covered by the draft Bill. As James Maton of the UK Anti-Corruption Forum explained:

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105. There are strongly held views on both sides of the line, with business representatives particularly keen to ensure that subsidiaries are not automatically being covered by the draft Bill, while academics and some enforcement agencies being equally keen to ensure that their omission does not lead to loopholes emerging.[188] The limited time that was available to complete our inquiry has prevented us from focusing on this issue in more detail. However, we note that a parent company's liability for a subsidiary is one of the issues due to be considered as part of the Law Commission's general review of corporate criminal liability and we anticipate that the Law Commission's conclusions will valuably inform future debate on this difficult issue.

106. A second issue is whether the draft Bill achieves the Government's aim of excluding subsidiaries (among other legal entities) except where a subsidiary is actually performing services on the parent's behalf. Some witnesses considered that the draft Bill risked creating an automatic liability for subsidiaries, joint ventures and syndicates, notwithstanding the lack of control over the activities of those entities. Several amendments were proposed by witnesses, including to:

Limit clause 5(1) to cases where the commercial organisation "controls" the subsidiary, joint venture or syndicate under an ownership interest of 50% or more;[189]
Limit clause 5(1) to cases where there is either "control" (as above) or "knowledge" of bribery;[190]
Limit clause 5(1) so that a subsidiary is treated as performing services on behalf of its parent only in circumstances where the parent wholly owns the subsidiary;[191]
Limit clause 5(1) so that a parent company will only be liable for its subsidiary where it pays a bribe in connection with a business that is being operated by the parent company, rather than a business that is being operated by the subsidiary on its own behalf.[192]

107. Several witnesses viewed guidance as the appropriate solution, rather than an amendment to the Bill. For instance, James Maton of the UK Anti-Corruption Forum stated that what businesses need is certainty above all else and that therefore there should be "sensible guidelines, which describe in some detail what companies should be doing in relation to foreign subsidiaries and joint ventures, depending on their degree of control and the degree of shareholding in those companies".[193] Clifford Chance agreed, and a Ministry of Justice official stated that the Government might consider this request.[194] We note that any of the proposals for an amendment, above, could effectively be achieved through suitable guidance to that effect. We therefore return to this issue in Chapter 6 below, on guidance.

135 BB16, para 9 Back

136 OECD Phase 2 bis report, above, para 92 Back

137 Response of the Serious Fraud Office to the Law Commission Consultation paper No 185, Reforming Bribery, cited in the OECD Phase 2 bis report, above, para 75 Back

138 For instance BB05, para 36 Back

139 Q60 Back

140 "Bribery: Corporate Liability under the Draft Bill 2009", 2009 Criminal Law Review 479; Q121 Back

141 BB51 Back

142 BB32 Back

143 "Bribery: Corporate Liability under the Draft Bill 2009", 2009 Criminal Law Review 479 Back

144 Ibid; Qq 113, 510; 536 Back

145 BB15; Qq 116, 510 Back

146 For instance BB15, para 1 Back