7 SPECIAL CASES
Facilitation payments
130. A "facilitation payment" refers to
the practice of paying a small sum of money to a public official
(or other person) as a way of ensuring that they perform their
duty, either more promptly or at all. This type of payment is
illegal under the current law, but there is a general understanding
that a prosecution is unlikely for an offence involving such small
amounts of money. The position is different in the United States
and several other OECD member states where anti-corruption legislation
includes a specific exception or defence for small facilitation
payments.
131. Under the provisions of the draft Bill, facilitation
payments will usually continue to be illegal. This is because
a facilitation payment is likely to be "improper" under
the general offences, while not being "legitimately due"
under the foreign official offence, at least in the absence of
authorisation under a local written law.[231]
The law firm, Reynolds Porter Chamberlain, expressed "grave
concerns" that UK business would be put at a competitive
disadvantage compared to businesses from states - such as the
US - where a legal exception was provided. It called for the
draft Bill to include a defence similar to that in the US. It
also noted that reliance on prosecutorial discretion caused difficulties
for organisations with reporting obligations under the Proceeds
of Crime Act 2002.[232]
Several other witnesses agreed.[233]
132. A defence for facilitation payments was strongly
opposed by Professor Wells on grounds of principle: "by including
a specific defence there is a danger that they are endorsed as
legitimate.[…] The message of the Bill that bribery is wrong
would be diluted".[234]
Transparency International UK added: "it would be inconceivable
that a Bill modernising and reforming the UK law on bribery should
step backwards on this point".[235]
133. We also note information provided by the OECD
Secretariat outlining the practical difficulties that have been
encountered in those states that operate a defence for facilitation
payments, rather than relying on prosecutorial discretion.[236]
Professor Horder elaborated:
[W]e were troubled actually by the definition
of this notion of what constitutes 'small' in certain contexts,
what counts as a 'facilitation payment'. It seems like something
ready made for litigation up and down the courts […] payments
made by way of facilitation and so on will have to show up in
a company's accounts somewhere and they must be in a 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 […] and we just carry on as we always have, only
prosecuting where the public interest demands that you prosecute.[237]
134. There are undoubtedly difficult and unanswered
dilemmas facing business, as Lord Robertson illustrated: "stevedores
on the docks of a country say they will not unload your ship unless
a payment is made to their union or to their corporate organisation,
what do you do? You say, 'No. We will just let our ships lie
there'[?]".[238]
135. These dilemmas were manifest in the fact that
the UK Anti-Corruption Forum's members were unable to reach consensus
on the approach that should be taken. While the Forum is strongly
in favour of treating facilitation payments as an offence for
acts within the UK, it noted the need for caution in the international
arena:
It is an extraordinarily difficult problem and
[… t]here is a range of opinion from those who feel that
facilitation payments should be outlawed to those who feel that
they should not be a matter for the criminal law […] Very
often, the person who is paying the facilitation payment is, in
effect, the victim of extortion and very often that is junior
employees in quite difficult situations with traffic police or
immigration officers, or whatever it may be.[239]
136. The Forum was united, however, in calling for
the issue to be tackled "head-on": "whatever regime
is put into place […] there need[s] to be certainty as to
the circumstances in which they will be prosecuted and in which
they will not, and detailed guidance is necessary".[240]
Transparency International UK stated that the best approach was
for prosecutors to develop "sensible criteria" that
could evolve in light of experience.[241]
137. Prosecutors were generally content with this
approach. For instance, the Director of the Serious Fraud Office
endorsed "prosecutorial discretion, backed by appropriate
guidance":
Facilitation payments will be unlawful […
but] small facilitation payments are unlikely to concern the SFO
unless they 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 SFO considers,
like Lord Woolf and a number of UK corporates, that any facilitation
is unjustifiable and should be removed because these payments
cut across transparency and openness. They also render a corporate
(and other corporates) more vulnerable to demands for larger bribes.
They are a major contributor to the belief that bribery is a
necessary part of business culture.[242]
138. We agree with the Government that facilitation
payments should continue to be criminalised. A specific defence
risks legitimising corruption at the thin end of the wedge. At
the same time we recognise that business needs clarity about the
circumstances in which facilitation payments will be prosecuted,
particularly given the difficult situations that can arise. Therefore
the basic principles of prosecution policy, which we would expect
to adhere firmly to the concept of proportionality, must be made
clear. But we would not welcome guidance that was so detailed
that it effectively introduced a defence into the law.
Corporate hospitality
139. It is generally accepted that corporate hospitality
is a legitimate part of doing business at home and abroad, provided
that it remains within appropriate limits. The main offences
draw those limits around whether or not there has been improper
conduct, as outlined above. The Director of the Serious Fraud
Office believed that this was a sensible approach, since "most
routine and inexpensive hospitality would be unlikely to lead
to a reasonable expectation of improper conduct. This would therefore
not trigger the general offences".[243]
140. Professor Horder stated that there was an additional
layer of protection under clause 1 since it requires proof that
the person giving the hospitality intended the recipient to be
improperly influenced. For instance, he illustrated the difference
between holding a "getting to know you" session and
buying someone a flat in Central London: the latter would show
an intention to improperly influence someone, namely to gain a
contract other than on the merits. The Director of the Serious
Fraud Office added: "there is a quite clear distinction that
I am sure juries will be able to make between inexpensive, modest
hospitality offered to many and lavish hospitality that might
be offered to a very small number of people in the hope of getting
a contract".[244]
141. The situation is altogether different under
clause 4 (bribery of foreign public officials) where the "improper"
test is replaced with different criteria:
- First, an advantage must be
offered or given to a foreign official;
- Second, there must be an intention a) to influence
the official and b) to obtain or retain business; and
- Third, the advantage must not be permitted under
the local written law applying to the official.
142. There was a difference of opinion about whether
these criteria would routinely criminalise modest hospitality
in light of the unlikelihood that a local written law would exist.
For instance, the Director of the Serious Fraud Office stated
that modest hospitality might fall outside the offence because
there might be no intention to influence in these circumstances.[245]
Professor Horder, however, took a different view:
In clauses 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 offence
is 'influence' based not 'impropriety' based. Clearly, any hospitality
may 'influence' a foreign public official, often perfectly legitimately.
An example would be when a hospitality showcasing event shows
how much better organised and committed the relevant organisation
is to provide goods and services etc., and the official is influenced
by that.[246]
143. Following Professor Horder's analysis would
mean that hospitality would be routinely caught by clause 4.
He stated that this was not an "inherent weakness" in
the design of the draft Bill given that prosecutorial discretion
can differentiate the good from the bad:
There could not possibly be any public interest
in prosecuting for bribery, when the influence secured over the
official was perfectly proper. However, a company might have a
hard time justifying taking officials on a foreign skiing trip,
if the idea is simply to set out their wares and illustrate their
reliability as a company. Even that example would be different
if the company was a skiing equipment manufacturer seeking to
secure a contract to supply an Alpine Army division, or the like.[247]
144. BG Group Plc told us that it is periodically
required to meet the expenses of a foreign official visiting one
of its plants or attending a technical training course. It called
for greater certainty to be provided under clause 4 through a
statutory defence for "reasonable and bona fide" expenses
spent promoting or performing part of its business. A defence
of this kind exists in the United States and in Canada. [248]
145. A statutory defence was viewed by Professor
Horder as an "unworkable" solution:
Imposing a limit on corporate hospitality would
be a very, very difficult, and probably unworkable, thing to do
[... because] it all depends on the nature of what you are offering,
what other people are doing, what you can afford. There are a
very, very broad range of considerations […] so you would
have to be very careful about how you set out that definition,
I do not regard that as a very promising route to go down.[249]
146. As we noted in chapter 4 above, The Corner House
and the International Chamber of Commerce (UK) both proposed the
broader solution of adding the words "improper", "undue",
or "corrupt" to clause 4 as a way of excluding legitimate
hospitality and other conduct that they viewed as justifiable.
This was opposed by the Attorney General, who favoured hospitality
being addressed through prosecutors applying on the public interest
test.[250] It was
also opposed by Professor Horder:
Might it not be said, then, that 'improperly'
should be tacked on as an adverb after 'influence', so as to distinguish
legitimate from illegitimate hospitality? [… T]he answer
is 'no', because that would inevitably re-introduce questions
about whether cultural norms and expectations can make a payment
'proper', and that is exactly the result that this offence is
designed to prevent.[251]
147. Corporate hospitality is a legitimate part
of doing business at home and abroad, provided it remains within
appropriate limits. The general offences impose an appropriate
limit on this activity under the "improper" performance
test. However, the main limit under clause 4 is based on prosecutorial
discretion. We are content with this and call on the Government
to reassure the business community that it does not risk facing
prosecution for providing proportionate levels of hospitality
as part of competing fairly in the international arena.
Offset
148. "Offset" refers to the established
practice of companies providing industrial, commercial or other
economic benefits as part of winning a state-funded contract.
For instance, an offset might require the company to build schools,
improve the transport network or make a technology transfer.
It is a particularly common feature of contracts in the defence
industry, which led the Woolf Committee to conclude:
Offset represents a key area of ethical and reputational
risk. Defence companies will often employ third party advisers
to assist them in both the development of the Offset package as
part of the procurement process and in the subsequent delivery
of individual projects. This can expose the company to similar
ethical and reputational risks regarding bribery and corruption
as does the use of Advisers on the main contract. Offset contracts
need to clearly demonstrate value for money if they are not to
generate suspicions and allegations that their purpose is to hide
a payment to a third party, and due diligence undertaken to ensure
anyone involved in, or related to, the awarding of the main contract
does not receive financial benefit from an Offset contract.[252]
149. A Ministry of Justice official stated that any
offset arrangement that advantages particular individuals will
be lawful under clauses 1 and 2 provided there is no issue of
improper performance; and by analogy it would also be lawful under
clause 4 provided it is permitted under a local law.[253]
However, the tougher issue which the Woolf Committee identified
(and which businesses will have to resolve as part of maintaining
"adequate procedures") is how to monitor whether the
arrangements represent a genuine offset as opposed to the illegitimate
siphoning of funds to a particular individual. As Lord Robertson
stated:
It is not a coincidence that a lot of what is
offered in terms of offset happens to be a factory in the prime
minister's own constituency if they have a constituency-based
system. These are grey areas that are very difficult to pin down.
Stacks of money in a black plastic bag are relatively easy to
deal with but offset programmes can be finessed in a way that
is very difficult to see.[254]
150. Philip Bramwell of BAE Systems also made us
aware of the difficulties posed by offset to companies, including
those with significant levels of resource:
[T]here are significant risks associated with
offset because credits are awarded by government departments in
return for work done. They may not be linear with the cost of
the work. We are currently yet again revising thoroughly our offset
processes and policies to ensure that we apply the same standards
to offset as we do to business winning generally. I do not expect
offset to decline, because it is a feature that government buyers
of defence equipment wish to see and indeed stipulate in their
contracts.[255]
151. We see merit in official guidance addressing
"offset", given that it is one of the key ethical risks
identified by the Woolf Committee, while recognising that it can
have a proper place in commercial negotiation.
231 BB14 Back
232
BB34, para 3 Back
233
Q337 (Lawrence Hammond, Philip Bramwell); Q222 (Andrew Berkeley) Back
234
BB15 Back
235
BB54 Back
236
BB31, paras 10-13 Back
237
Q23 Back
238
Q156 Back
239
Q267 (James Maton) Back
240
Q267 ibid Back
241
BB54 Back
242
BB14 Back
243
BB14 Back
244
Q376 (Richard Alderman) Back
245
BB14 Back
246
BB21 Back
247
Ibid Back
248
BB31, paras 50-51 Back
249
Q41 Back
250
BB60 Back
251
BB21 Back
252
Woolf Committee, Business ethics, global companies and the defence
industry, May 2008, para 3.45 Back
253
Q601 (Michael des Tombe) Back
254
Q153 Back
255
Q326 Back
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