ANNEX 1
Review of the Draft Bribery Bill
Impact Assessment by the House of Commons Scrutiny Unit
a) Key
points
- A partial Impact Assessment (IA) has been
provided. Further explanation is required as to why it is not
complete;
- The average annual cost of the provisions of
the draft Bill is estimated at £4.1 million, including £2.1
million to fund additional enforcement activities by the Serious
Fraud Office (and others) and £2 million for additional private
sector defence costs. This is based on an additional 1.3 criminal
prosecutions and three extra civil recovery proceedings per year
due to the draft Bill. The basis of these figures and cost estimates
is insufficiently explained;
- There is no detailed explanation of the impact
on the private sector beyond the estimated additional defence
costs of £2 million. In particular:
- The financial and practical impact on small and
medium sized businesses arising due to the new corporate offence
(i.e. negligently failing to prevent bribery) is not quantified;
- A Competition Assessment was not undertaken as
part of the IA, and there is no evidence supporting the Impact
Assessment's statement that the draft Bill will improve the competitiveness
of UK companies;
- There is a one-off budget for awareness training
of £50,000. The intended use and sufficiency of this budget
could be explored further;
- There will be no compliance monitoring process
to assess private sector compliance with the new discrete corporate
offence.
INTRODUCTION
The House of Commons Scrutiny Unit provides specialist
help to select committees and joint committees of both Houses,
especially in the fields of financial and performance reporting
and pre-legislative scrutiny of draft bills. For more information
about its work, see www.parliament.uk/scrutiny.
The Unit provides an analysis of impact assessments to assist
committees with their scrutiny of draft bills.
The following review relates to the partial Impact
Assessment produced by the Ministry of Justice (MoJ) in support
of the draft Bribery Bill.
ANALYSIS OF THE IA
An IA provides a framework for departments to analyse
the likely impacts of policy changes and draft bills, including
a cost-benefit analysis. The MoJ estimates that the total annual
cost of the provisions of the draft Bill is £4.13 million.
However, it does not provide a range for this estimate. A one-off
transitional cost of £50,000 is also anticipated for "awareness
raising". No monetary benefits are estimated, although non-monetised
benefits are highlighted by the MoJ (p2). The related Equality
Impact Assessment states that, based on a range of existing evidence,
no equality issues have been identified associated with the implementation
of the draft Bill.
Guidance by the Department for Business, Enterprise
and Regulatory Reform (BERR) outlines a number of minimum requirements
for an IA.[371] These
include:
- the rationale for the proposal;
- details of the costs and benefits of the policy
change;
- consideration of the options; and
- the consultation summary.
While a consultation summary is not provided in the
IA for the draft Bill,[372]
the structure of the IA broadly conforms to BERR guidance with
major headings clearly set out.
However, the IA is short and only partial; the "Summary:
Intervention & Options" page indicates that the IA is
at the "draft implementation" stage. It is understood
the Bill Team intend to send the Joint Committee a paper explaining
why the IA is currently only partial; this will include information
on ongoing work to assess the draft Bill's impact.[373]
The following sections examine the key issues identified
by the Scrutiny Unit's analysis of the IA and draws out some aspects
that the Joint Committee may wish to explore further, including
suggestions for how the IA may be improved during pre-legislative
scrutiny. Questions and suggestions the Joint Committee may wish
to put to the Bill Team are in bold.
IA SUMMARY: ANALYSIS AND EVIDENCE
(P2)
The average annual cost of £4.13 million (of
which £2 million is private sector defence related) is calculated
"on the basis of 1.3 additional prosecutions a year".
However, it is unclear:
- On what basis the net cost
to the private sector has been calculated.
- What assumptions were made in calculating
total costs to the public and private sector on the basis of 1.3
additional prosecutions a year; and
- Whether the cost estimates are subject to
any sensitivities/margins of error.
Pending clarification of these points, there may
be implications for the 'Net Benefit Range' field, which is not
completed in the IA. Notably, BERR's IA guidance specifically
states that "spurious accuracy in the presentation of the
cost and benefit figures should be avoided with ranges used where
appropriate".[374]
It is also stated that there will be a one-off transitional
cost of £50,000 for "awareness raising". However,
the IA does not detail the basis on which this figure is calculated.
How was the one-off cost of £50,000 for "awareness
raising" calculated, and will this be sufficient to inform
all UK companies of the implications associated with the new legislation?
How will this money be used?
Additionally, it is stated that implementation would
go beyond the minimum EU requirements. However, the case for this
is not provided in the Evidence Base, as is required by BERR's
guidance on IAs.[375]
EVIDENCE BASE: BACKGROUND AND REASONS
FOR GOVERNMENT INTERVENTION (PP 3-4)
This section of the IA initially outlines the risks
posed by bribery:
Bribery distorts free and fair competition in
the market, with over £1,000 billion ($1 trillion) worth
of bribes paid globally each year. It hurts honest companies and
increases the cost of business both domestically and internationally,
adding up to 10% to the total cost of doing business globally
and up to 25% to the cost of procurement contracts in developing
countries. Although comparatively rare in the UK, corruption remains
an insidious threat globally and is particularly harmful where
it affects trade and development in the developing world, with
a negative impact on foreign direct investment equivalent to an
extra 20% in tax.
However, the IA fails to provide the source of these
figures. The DFID press release issued on publication of the draft
Bill states that these figures are World Bank estimates.[376]
It is recommended that any future version of the IA adequately
sources supporting data. This section of the IA also mentions
OECD criticism of the existing UK law on bribery; neither is this
sourced.
EVIDENCE BASE: POLICY OBJECTIVES
(PP 4-6)
The IA suggests that the new discrete corporate offence
contained within the draft Bill is "intended particularly
to combat the use of bribery in high value transactions in international
markets" (p5). On this basis, the IA assumes that in "most
cases" the activities of small and medium sized enterprises
(SMEs) will not fall within the main focus of enforcement activity.
While this may be an acceptable assumption, the Joint Committee
may wish to enquire as to whether there is any evidence that UK-based
SMEs do, in some cases, tender for larger scale public procurement
internationally. It is notable that in recent years, the UK Government
has actively encouraged SMEs to tender for domestic public procurement
through a range of measures.[377]
In relation to the new discrete corporate offence,
what evidence is there for the IA's assertion that in "most
cases" the activities of SMEs will not fall within the main
focus of enforcement activity?
The subsection 'Policy Options' is the only area
where the policy options considered are discussed in any detail.
However, there is little detail on the potential costs and benefits
of these two options. In particular, the IA states that Option
(iii), establishing a regulatory framework overseen by a regulatory
authority with powers to impose administrative penalties for non-compliance,
would be "very costly to the public purse" (p6). It
would be useful for the IA explicitly to quantify the potential
costs of creating and maintaining such a framework and regulatory
authority. Notably, the Financial Services Authority (FSA) already
has a statutory duty to promote market confidence and reduce financial
crime by "authorised persons" within the financial services
sector (i.e. banks, insurers, etc).[378]
To this end it has regulatory powers to impose fines to combat
overseas bribery and corruption by UK companies operating within
this sector.[379]
The IA also states that such a framework would impose
an additional burden on business, citing the example of the Trade
Description Act 1968 which is estimated to impose £35 million
of administrative burdens on complying firms per annum (note:
the source of this figure is not provided). It would have been
useful for the IA to quantify the potential burden to businesses
of this option.
What assessment has the MoJ made of the monetary
costs and benefits to Government and the private sector of options
(i) and (iii)?
EVIDENCE BASE: CRIMINAL JUSTICE
COSTS (PP 7-8)
Regarding the general offences and the new discrete
offence of bribing a foreign public official, the IA states that
(p7):
Based upon our analysis of bribery offences and
given the fact that the new proposed general offences and the
new discrete offence of bribing a foreign public official are
reformulation of existing criminality we do not expect any significant
additional burden on the CJS (police, prosecution, courts and
prison).
The Joint Committee may wish to ask for additional
details of the analysis used to come to this conclusion. Equally,
while the IA notes that an increase in the maximum penalty from
seven to ten years imprisonment will "have some limited impact
on sentences handed down", it would be useful for the IA
to explicitly state what this impact will be (in terms of prison
places and associated costs).
What is the evidence for the assertion in the
IA that the draft Bill's general offences and the new discrete
offence of bribing a foreign public official will only have minimal
cost implications for the criminal justice system?
On the new discrete corporate offence the IA states
that, based on existing statistics (p7):
[…] there would be only around 1.3 additional
prosecutions a year (1 SFO prosecution per year and 1 CPS prosecution
in a 3 year period) arising from the introduction of the new corporate
offence.
The costs overall to SFO is estimated at £1m
for prosecution (counsel/witness) and £1m for investigations.
SFO would expect to recover most court costs from the company
upon conviction.
However, the IA does not provide the source, methodology
or assumptions on which these figures are based. Furthermore,
while the paragraph above states that most court cost would be
recovered, the net extra expense to the Serious Fraud Office (SFO)
is still put at £1.5 million.
It is also stated that the SFO estimates that the
new discrete corporate offence would lead to three extra civil
recovery/monitoring orders on companies per year. It is, however,
unclear on what this estimate is based, or what the net cost will
be (taking into account recovered costs) of these additional three
orders.
The IA also notes (p8):
Corporate cases can be among the more complex
and lengthy to investigate and prosecute […] The award of
costs against the Crown is a possibility in failed prosecutions
and could be equally as expensive.
Has the MoJ made any estimates of the cost to
the criminal justice system of failed prosecutions under the new
discrete corporate offence?
EVIDENCE BASE: COSTS ON THE PRIVATE
SECTOR (PP 8-9)
The IA does not provide detailed quantitative analysis
of the potential impact of the draft Bill on businesses, and in
particular SMEs. An estimated cost to the private sector of approximately
£2 million annually for defence legal costs, arising from
criminal or civil proceedings is provided. It is unclear, however,
how this estimate has been calculated and indeed how this corresponds.
The IA assessment also asserts that (p8):
[…] most, if not all, large companies already
have established systems of corporate governance in place which
address the prevention of bribery either directly or indirectly
by means of strategies, guidance and/or codes of conduct. The
few that currently do not address bribery would be capable of
being readily directed to provide effective supervision.
SMEs may not have previously addressed the need
for anti-bribery measures. However, industry standards increasingly
require this, with detailed sector-specific initiatives in the
defence, oil and gas, mining, construction and pharmaceutical
sectors. Companies meeting these various standards should already
have access to the adequate systems defence without incurring
additional costs.
Statistics are not provided to support the suggestion
that most companies have existing systems in place to prevent
bribery, and potential costs incurred for those that do not is
not provided. In particular, the Joint Committee may wish to question
why the IA does not address and quantify the potential costs to
SMEs, those businesses which are most likely not to have adequate
systems in place.
What will the costs be to companies that do not
have anti-bribery measures in place within their system of corporate
governance, particularly SMEs? How will such companies be "readily
directed" in order to ensure effective supervision?
OTHER ISSUES: FURTHER CONSULTATION
OF BUSINESS
The IA states that the MoJ will:
[…] continue working with representatives
of business at all levels, such as the Confederation of British
Industry, International Chamber of Commerce and the Federation
of Small Businesses, following the publication of the draft Bill
to address any concerns about the impact of the new corporate
offence. In particular, we will consider the scope to reduce familiarisation
and implementation costs by targeted awareness raising and guidance
on anti-bribery procedures, if appropriate on a sectoral basis.
Members of business organisations representing SMEs may benefit
for free legal advice from those organisations. We can also consolidate
guidance and good practice already in existence. Guidance on broad
principles and best practice models, while not statutory guidance,
is likely to be of particular value in minimising the additional
costs to SMEs and companies operating in low-risk sectors and
markets.
BERR's guidance on IAs states that one purpose of
their publication is to ensure affected parties are given an opportunity
to identify potential unintended consequences, primarily through
the IA's consultation process.[380]
However, it is unclear the approach identified in the quote above
will enable businesses, and particularly SMEs, equivalent opportunity
to voice any concerns on the impact of business from the draft
Bill that would come from a formal and open consultation process.
This is particularly pertinent given the lack of quantitative
analysis in the IA of the effect on the private sector.
OTHER ISSUES: COMPETITION ASSESSMENT
Within the Evidence Base, under the heading 'Benefits',
the IA states that (p9):
[…] the enhancement of the UK reputation
as consequence of these reforms will allow UK business to compete
more successfully in international markets, as there will be those
who choose to do business with UK companies precisely because
we have a no-bribery reputation, and the costs and style of doing
business are more transparent.
However, the IA does not include a formal Competition
Assessment. No evidence is provided to support the assertion that
the draft Bill will have a positive effect on UK companies' international
competitiveness; while it may be reasonably assumed that such
legislation will make the UK a more attractive place to do business
for some international companies, it is also possible that some
companies may find such additional regulation to be a reason to
not conduct business with UK companies. Therefore, the Committee
may wish to recommend that a formal Competition Assessment is
undertaken as part of any primary legislation resulting from the
draft Bill.
OTHER ISSUES: POST IMPLEMENTATION
REVIEW
The IA states that the legislation would be reviewed
between three to five years after it comes into effect (p1). However,
regarding the new discrete corporate offence, the IA states that
there will be no monitoring process of compliance by companies
to adopt anti-bribery measures (p9).
Why will an assessment of the compliance of the
private sector to the new discrete corporate offence not be included
in the review process?
House of Commons Scrutiny Unit
April 2009
371 Note: this analysis was prepared before the creation
of the new Department for Business, Innovation and Skills. The
guidance on Impact Assessments is available at: http://www.berr.gov.uk/files/file44544.pdf Back
372
It is stated that this is because of the range of consultations
previously carried out in relation to the reform of the law on
bribery (p4). No further formal consultation process on the impact
of the draft Bill is anticipated. Back
373
This paper was subsequently received and is printed with the written
evidence submitted to the Joint Committee as BB43. Back
374
ibid. para 28 Back
375
ibid. para 39 Back
376
DFID Press Release, "New draft Bribery Bill to support international fair trade",
26 March 2009 Back
377
See for example: HM Treasury, Accelerating the SME economic engine: through transparent, simpleand strategic procurement,
November 2008 Back
378
Financial Services and Markets Act 2000, section 2 Back
379
ibid. section 206 Back
380
BERR guidance on Impact Assessments, para 2 Back
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