Memorandum submitted by ICC United Kingdom
(BB 03)
INTRODUCTION
1. The International Chamber of Commerce
(ICC) is the largest, most representative business organisation
in the world. Its thousands of member companies in over 130 countries
have interests covering every sector of private enterprise. The
United Nations, the World Trade Organisation, and many other international
intergovernmental bodies are kept informed of the views of international
business through ICC. ICC United Kingdom (ICC UK) is the British
affiliate of ICC. Members in the UK include 18 of the top
20 FTSE companies, many smaller firms, law firms and business
associations. In this instance, the views expressed are those
of ICC UK rather than of ICC as a whole.
2. For more than two decades, ICC has taken
the lead in the fight against corruption. It publishes guidance
for business and interacts with governments world wide and with
other international organizations to establish a rational, effective
and economically fruitful regime to reduce to the maximum extent
the pernicious effects of corruption on international trade and
investment.
3. This written submission has been prepared
for ICC UK by its International Trade and Investment Adviser Andrew
W A Berkeley, who will also represent ICC UK at the evidence session
on 2 June 2009. Mr. Berkeley has been International Trade
and Investment Consultant to ICC UK for fifteen years. In the
course of that work, he was one of the international industry
experts nominated by the Business and Industry Advisory Committee
("BIAC") of OECD to advise on, and participate in, the
negotiations which resulted in the OECD Convention for Combating
the Bribery of Foreign Government Officials. He is a member of
the Investment Committee of BIAC, which deals with anti-corruption,
and of the Anti Corruption Commission of the International Chamber
of Commerce. Before joining ICC Mr Berkeley held senior legal
posts in industry including Secretary and Legal General Manager
of the British National Oil Corporation, Legal Director, STC PLC
(electronics, computers and telecommunications) and General Counsel,
Laporte PLC (Chemicals).
THE DRAFT
BILL—GENERAL
COMMENTS
4. The Draft Bill follows an initial consultation
proposal and a final recommendation issued by the Law Commission.
It is the common purpose of the Law Commission's work and of the
Draft Bill to formulate a completely new code for the law of bribery,
replacing the existing common law and century-old statutory structure.
This objective has received universal support. In conjunction
with the Confederation of British Industry ("CBI"),
we consulted with the Law Commission. We were encouraged by its
initial consultation proposals which seemed to us to lay an excellent
jurisprudential foundation for a new law of bribery.
5. However, the final recommendation of
the Law Commission, published in November 2008, made radical new
proposals—the reformulation of the general offence and the
introduction, contrary to the Commission's initial view, of a
new corporate offence. These have not been subject to the same
depth of consultation as the initial proposals. The Government's
reaction in the draft Bill, issued in March 2009, which takes
the tendency to rigidity even further, was not, previous to its
publication, the subject of any consultation with business organizations.
Accordingly, we think it important to make our views known as
soon as possible both to the Joint Parliamentary Committee and
to officials. ICC (UK) has continued to consult with CBI and has
canvassed the views of ICC members. The CBI, as the principal
national business organization, will be presenting its case shortly.
Our evidence concentrates on the international aspects and on
the technical structure of the law, as proposed in the draft Bill,
in the context of the UK's treaty obligations and of its competitive
position.
6. The initial Law Commission proposal set
out a new general offence of bribery (covering both taking and
giving and "public" and "private") which turned
on the giving of the improper advantage as the "primary"
reason for the wrongful conduct of the recipient of the bribe.
This had utility from the point of view of business because it
neatly dealt with the vexed questions of "facilitating payments"
and of corporate hospitality and promotion. Further, at that stage,
the Law Commission did not propose the introduction of any corporate
offence; it said that should await the result of its general study
of corporate criminal liability which is in progress.
7. The final recommendation changed the
structure of the general offence, making it depend on the failure
to fulfil a "relevant expectation". A new corporate
offence of failure to prevent bribery was proposed.
8. The draft Bill goes further, introducing
a "reasonable man" standard for the determination of
the relevant expectation, removing the defence of reasonable belief
that payments to foreign government officials were in accordance
with local law and widening the category of officers and managers
in a company, the negligence of whom would preclude the defence
of "adequate system" in the new corporate "failure
to prevent" offence.
9. This written submission to the Joint
Committee analyses the main features of the draft Bill and comments
on the policy of the Bill as it appears from the draft and from
the explanation and Impact Assessment issued along with the draft
by the Ministry of Justice. It concludes with a list of the changes
to the Draft Bill which we would recommend.
THE DRAFT
BILL—MAIN
FEATURES
Bribery of Foreign Public Officials
10. We accept that special provisions dealing
with the bribery of foreign government officials should be included
in the legislation and that these need to be framed differently
from those covering a general offence of bribery because of the
difficulty of ascertaining and proving the exact nature and duty
of such an official or what should be "relevantly expected"
of him—to use the wording in the general offence. However,
the defence included in the Law Commission's final recommendation,
that a reasonable belief existed that the payment to the official
was required or permitted under local law, is now removed.
11. This would import grave disadvantages
into the law. Also, we fear that it may be based on a misunderstanding
by the UK Government of the proper policy of the OECD under the
Convention.
12. We deal first with the working of the
provision if the defence is omitted. Establishment of liability
would depend on the meaning of whether the payment was "legitimately
due" (3(b)). It is so due if the local law "permits
or requires" the conferring of the advantage. Thus the English
Court has, in every case, as a primary issue, to decide the state
of foreign law and the prosecutor will have to prove that the
payment was not legitimate thereunder. That will be a burden and
expense on the prosecution and a considerable call on the time
of the court and on the jury. It will also involve the accused
in similar effort and expense. Expert witnesses will have to be
called and their examination will have to be detailed and protracted
because a criminal standard of proof—beyond reasonable doubt—will
be required. There must be considerable doubt whether an English
jury—or indeed an English court—is a suitable instrument
for deciding, in a criminal case what foreign law is. What would
the position be if, upon conviction of the accused in England,
the foreign government or judicial authority, either in support
of its official or for other reasons, stated that the English
court had got it wrong and that the payment was legitimate? It
is, perhaps, for these sorts of reasons that the United States,
in the Foreign Corrupt Practices Act (under which a defence of
legitimacy under foreign law is permitted), demands that the accused
must be able to point to a written provision of the foreign law.
"What is written, is written".
13. If the defence of "reasonable belief"
had remained, the initial effort and research would have been
mainly incumbent on the defence and the necessity for the trial
of a fundamental issue as to the state of foreign law avoided
or minimized in importance. Also, an English jury would be much
more suited to find whether a reasonable attempt to ascertain
foreign law had been made rather than to decide upon that law
itself. In its proposal, which the Ministry of Justice has rejected,
the Law Commission went to some length to specify the high standard
of proof which would be required if the defence were to succeed.
In the light of this, counter arguments that the presence of the
defence would lead to the proliferation of "unmeritorious
excuses" are invalid. Nor would the overall deterrent effect
of the provision have been weakened.
14. We now turn to the relation of the defence
to OECD policy. It has been said by some OECD officials that the
application of the Convention in national law should be consistent
with the general scheme of that national law. Thus, they have
argued, that since, "ignorance of the law is no excuse",
in English law, the defence should be excluded—to do otherwise,
they maintain, would be to give bribery of foreign government
officials softer treatment under English law than that accorded
to other crimes. In our view, this is a misinterpretation of OECD
policy. The application of the Convention depends, according to
the established interpretation and practice of the OECD, on "functional
equivalence". This is a term borrowed from classical analysis
in the academic study of conflict of laws. In the practical context
of the application of the Convention, it means that governments
must use whatever their national law is in order to achieve the
end results laid down by the Convention. The legal instrumentality
is a matter for the national law alone. As far as English law
is concerned, there is a sharp distinction between national law,
ignorance of which is no excuse, and foreign law which, traditionally,
is a fact to be ascertained. The analysis by the OECD official
is therefore invalid. Practically, it is also worthy of note that
the OECD has not demanded that the equivalent defence under the
Foreign Corrupt Practices Act of the United States be removed.
Failure to Prevent Bribery
15. In introducing this new offence in its
final recommendation the Law Commission said it was influenced
by the Woolf Report on BAE, which advocated increased responsibility
of the Board of a company for the prevention of bribery and also
by a desire (of the Law Commission?) to further the "objectives"
of international treaties, although, as the Commission also found
and confirmed, the UK was already compliant with treaty requirements.
The acceptance of this recommendation by the Government and the
inclusion of provisions in the draft Bill represents a clear change
of policy by the Government since 1999.
16. The Second Protocol to the EU Treaty
of 1997 for the protection of the financial interests of
the EU provides in paragraph 2:
"……..each Member State shall
take the necessary measures to ensure that a legal person can
be held liable where the lack of supervision or control by [a
leading manager] has made possible the commission of a fraud
or an act of corruption or money laundering for the benefit of
that legal person by a person under its authority".
The Foreign and Commonwealth Office, in its
Explanatory Memorandum about the Second Protocol, presented to
Parliament in April 1999 states that "The Protocol
does not give rise to the need for legislation in the United Kingdom".
17. No explanation has been given by the
Ministry of Justice in the materials it published along with the
Draft Bill as to why, notwithstanding that Government statement
to Parliament in 1999, the new provisions about a corporate offence
of failure to prevent bribery are now required.
18. As drafted, the provisions in the Bill
present serious problems for business. They may be analysed as
follows.
Negligence
19. There must be negligence by a "responsible
person". The function of such a person is to prevent bribery.
On the plain meaning of the word, "prevention" means
to stop absolutely—it does not mean to hinder, or to take
precautions against, or to do everything possible to procure non-occurrence.
Consequently, the standard, departure from which will constitute
negligence, is extremely high. Something approaching omnipotence
is required of the responsible person. This is unrealistic. Workable
legislation will need to qualify what is meant by negligence in
the context.
20. Some guidance may lie in the law of
corporate manslaughter. The "key information" given
by the Ministry of Justice in its "Guide to the Corporate
Manslaughter and Corporate Homicide Act 2007", especially
at page 12, is summarized under "When will an organization
be convicted?" It is there made clear that the offence is
concerned with the way an organization's activities were managed
or organized. A substantial part of the failing must have occurred
at a senior management level. The threshold for the offence is
gross negligence. We believe that a similar standard should apply
for the offence as formulated in the Bill finally presented to
Parliament.
21. In its discussion of the offence in
its final recommendation the Law Commission justifies its draconian
approach, based on unqualified or undefined negligence, by the
inclusion of a specific defence that adequate procedures had been
put in place to prevent bribery. That defence is not available
if the negligence in question is that of a "senior officer",
a category which is extended by the draft Bill to include managers
(5(7)). In effect, if anyone of the rank of manager or above in
a company is negligent, then the company will be criminally liable
if bribery should occur. It will also be noted that it will be
sufficient for the prosecution to prove that "a number of
responsible persons taken together" was negligent (5(1)(c)).
This relieves the prosecution from the necessity of identifying
specific persons who were negligent. Taken together, the extension
in the draft Bill of the categories of persons for whose activities
or omissions the defence is not to be available and the lack of
the necessity for any specific individuals to be identified, mean
that the defence is robbed of any real content. This defeats the
object of this part of the Bill which is to encourage companies
to put in place adequate systems to combat bribery (the term used
in the OECD Convention and which should be adopted in English
legislation). If, by the terms of the legislation, the presence
of an adequate system is not to be an effective defence, then
the object will not have been achieved.
22. If the definition of negligence were
to be modified as is here suggested, and the category of persons
in respect of which the defence of adequate system would not be
available were to be narrowed back to senior management, as proposed
by the Law Commission, it would be acceptable that the failure
of management need only be proved to have taken place within a
group; this is, we believe, the case in corporate manslaughter.
23. It may be argued that manslaughter,
as an offence, is not an apt comparator for bribery. This may
be true as a general proposition—one offence results in
death, the other in corruption—but, in the context of a
corporate offence, it is valuable. The object of the law dealing
with corporations in both cases is, or should be, identical—to
foster management in enterprises so that the evils are less likely
to occur and to punish defective management.
Proof of the occurrence of bribery
24. It should be noted that a company, under
the draft Bill, can be guilty of failure to prevent bribery although
no one has been prosecuted for, or convicted of, bribery. In its
commentary, the Law Commission says that if the "tribunal
of fact" is "satisfied" that bribery has taken
place, that would be sufficient to support a conviction of the
company. The relevant provision is 5(2). It is not clear whether
the court is obliged to ascertain whether the person performing
services would be guilty if he or she had been criminally charged
and whether the court is obliged to have before it all the evidence
which would be necessary to support a criminal conviction of that
person. It could be argued, and no doubt will be, in the first
cases, that, if such a standard had been required, the Act would
have required a prior criminal conviction. It explicitly does
not do so, nor even need there be a prosecution.
25. An appropriate modification to 5(2)
would be:
"For the purposes of subsection (1),
A bribes another person if, and only if, the court is satisfied
beyond reasonable doubt on the evidence before it that A is, or
would be, guilty of an offence under section 1 or 4 (whether
or not A has been prosecuted for such an offence)."
Person Performing Services
26. The bribe has to be given by a "person
performing services" for or on behalf of the company (5(1)(a)).
The meaning of "performing services" is explained in
section 6. The capacity of the person in which he (or it) was
performing the services does not matter—it might be as employee,
agent or subsidiary. Whether services were being performed will
be determined by reference to relevant circumstances.
27. The draftsmen of the Bill have had in
mind the conventional legal categories of relationship such as
employment, agency and subsidiary company. But they have completely
failed to take into account other important relationships such
as joint ventures and development contracts and profit sharing
agreements with State and other entities. There may also have
neglected anxiety in the banking and finance industry that members
of syndicates may be taken to be performing services for one another
within the meaning of the draft Bill.
28. A typical example would be a joint operating
agreement for the development of an oil or gas resource. Here
one company (which may be a State entity) is commonly nominated
as operator. Its activities are regulated by a joint operating
agreement under the supervision of an operating committee composed
of representatives of the interest holders in the resource. There
is no doubt that the operator is performing services on behalf
of the interest holding companies. The question arises of the
position, under the draft Bill, of an interest holding company
if the operator gives a bribe. It seems that the company would
be liable even though it does not control the operator and where
its influence over what the operator does is limited to its vote
on the operating committee. Section 6 is clear that the capacity
in which the services were being performed does not matter (6(2)).
Even though the operating agreement, as is common practice, contains
provisions that no bribes are to be given, the interest holding
company would not be able to use the "adequate systems"
defence because the Board or senior managers of the company would
be responsible for the operating agreement and for votes on the
operating committee and the defence is not available for their
actions.
29. The distinction between joint venture
service providers and the others such as employees and conventional
agents is one of control. A company can control the activities
of an employee or conventional agent but it cannot control a joint
venture partner or a contractor. There the relationship is regulated
by contract and the most a company can do is to ensure, as far
possible, that the contract contains anti-bribery terms or perform
due diligence. It should be noted that the Second Protocol mentioned
above applies only to the actions of persons "under the authority"
of the legal person and the German legislation implementing the
protocol is framed accordingly (S130 "Verletzung
der Aufsichtspflicht.";Siemens was successfully prosecuted
under this section). The United States legislation depends on
actual or imputed knowledge of bribery by the third party on the
part of the company subject to the FCPA and it makes no use of
the "performing services" concept used in the Bill—it
may be observed that this approach has been amply sufficient to
affect the conduct of companies subject to the wide jurisdiction
of the FCPA.
30. The necessary modification in the Bill
would be a provision that the relationship contemplated by Section
6 would not include relationships with parties which the
company did not control. A less satisfactory solution would be
that, where the relationship was controlled by contract only,
the inclusion of anti bribery provisions in the contract or due
diligence examination before contract would count as an "adequate
system" and that would be a defence in respect of the actions
of all persons in the company, including directors and senior
managers.
31. The position of subsidiary companies
remains obscure under the Bill. In discussion with the Departments,
they stated that it was not the intention of the Government to
make the holding company criminally liable for failing to prevent
bribery by its subsidiaries in general. Only where that bribery
was to further the holding company's business would liability
arise. What has emerged is the wording of 5(1)(b) where the bribe
is to be "in connection with" the holding company's
business. The distinction is, in fact, somewhat disingenuous.
It can usually be said that the activities of a subsidiary have
some connection with the holding company's business. A rewording
of 5(1)(b) along the lines of: "the bribe was to obtain
benefits for a business or businesses operated by C" might
suffice for clarification.
32. The necessary modification in the Bill
would be a provision that the relationship contemplated by Section
6 would not include relationships with parties which the
company did not control. A less satisfactory solution would be
that, where the relationship was controlled by contract only,
the inclusion of anti bribery provisions in the contract or due
diligence examination before contract would count as an "adequate
system" and that would be a defence in respect of the actions
of all persons in the company, including directors and senior
managers.
The General Offence
33. This has a three layer structure. This
applies both to the giving and receiving of bribes. It is analysed
here in relation to giving. Only the central pillar of the structure
is given.
First
A person gives an advantage to another person
intending that the recipient (or another) should perform
a function improperly.
Second
Improperly means that the function is
performed in breach of a relevant expectation.
Third
A relevant expectation is that the function
will be performed in good faith, impartially or
not in breach of trust. The expectation is to be that of
a reasonable person.
34. Good faith, impartiality and trust are
not defined. It is explicitly stated that it is irrelevant whether
the recipient of the bribe knows or believes that the performance
of the function is improper.
35. The proposed legislation seeks to set
up an objective standard which does not depend on the actual motivation
of the actors. We have been told by the Departments that they
will look to the Courts for the application of this standard;
they admit that they cannot forecast with accuracy what the first
cases will decide.
36. As drafted, the standard is capable
of requiring that each actor and, in particular, each businessman,
adopt a quasi-judicial role when he is considering conferring
or receiving an advantage. He must be impartial, he must act in
"good faith" and he must consider carefully the nature
of the trusts to which the activity in question may be subject.
This is unrealistic in the context of everyday commercial transactions.
37. The difficulty is exacerbated by the
fact that the general concept of "good faith" is technically
unknown to English commercial law. Further, in commercial life,
an actor is not impartial. He seeks commercial advantage. Also
the trust requirement is artificial. An outsider cannot know what
trusts affect the performance of a function by his counterparty
and such trusts as do exist may, or may not, be anticipated by
a "reasonable person".
38. If the basic structure of the general
offence is to be retained, it needs modification if it is to be
workable in the business context. A minimum possible change would
be the introduction of an "in the circumstances"
provision. Thus Section 3(8) would read "For the purposes
of this section, the test is what a reasonable person would expect
in the circumstances". This would enable and require
that evidence be introduced showing the real meaning to be attributed
to the three elements of the relevant expectation. The relevance
of this sort of argument is already recognized in the draft Bill
in Section 6(4) where all relevant circumstances are to be taken
into account when deciding whether services are being performed
on behalf of a company having the new duty to prevent bribery.
39. The provision in Section 2 ss (7)
and (8) that the state of knowledge of the accused as to the propriety
or impropriety of the performance of the function is irrelevant
raises serious doubts as to the mens rea of the general
offence. As drafted, it could fall within the category of "absolute
offences". This is undesirable in legislation which is meant
to regulate general conduct and which has moral implications.
Again, suitable modification, or the deletion of the provision,
is needed. It can be argued that it is, in any event, otiose because
of the introduction of the reasonable person test. The reasonable
person should be left to decide on the evidence put to him whether
the state of knowledge or belief of the accused is relevant.
40. In previous attempts at legislation,
based on a principal/agent structure, there was much debate about
the treatment of the case where the principal of the recipient
of the bribe had assented to its receipt. The new structure has
not caused the disappearance of the problem. It could be dealt
with by providing, in the case of the third relevant expectation,
that there would be no breach of trust if the beneficiary of the
trust had assented to the receipt of the advantage. This is not
merely a theoretical point. There was discussion in the last pre-legislative
consultation of the position of certain financial agents employed
by companies who also received commissions from the third parties
with whom they were dealing.
41. The new formulation of the general offence
in the final recommendation of the Law Commission leaves the question
of facilitating payments, corporate hospitality and promotion
expenditure open, once again. The United States Foreign Corrupt
Practices Act has special and explicit provisions dealing with
these topics. The UK Government has always resisted such an open
legislative solution, preferring unofficial explanation and reliance
on "prosecutorial discretion". If this approach is to
be maintained it makes all the more essential the inclusion of
an "in the circumstances" qualification to the
"relevant expectation".
The Policy of the Draft Bill
42. The Impact Assessment published by the
Ministry of Justice at the same time as the Bill deserves careful
reading because it shows more clearly than the provisions of the
draft Bill how the Government actually expects the legislation
to work. It is frankly stated that the new corporate offence is
aimed at "high value transactions in international markets"
(page 5, second paragraph).
43. Perhaps the most revealing parts of
the assessment are the cost and activity estimates. It is estimated
that the new corporate offence will give rise to only 1.3 additional
prosecutions per year. The costs for the SFO are estimated at
£1 million for prosecution and £1 million
for investigations (pages 7 and 8). In the case of a defended
prosecution in respect of a major matter, these figures are wrong
by many orders of magnitude. If Siemens had chosen to defend the
German prosecution against it in respect of breach of "Aufsichtspflicht"
(duty of the Board and senior management to monitor and control)
the cost to the prosecution would have been a high proportion
of the hundreds of millions of dollars which it cost Siemens in
legal and accountancy fees to settle the matter. A similar gross
error appears under "costs" on page 8 where the
annual cost of defence for the entirety of UK industry is estimated
at £3 million. The Financial Services Authority states
in its Final Notice that the cost to AON of settling the complaint
against it was "very large". It is legitimate to speculate
that the cost to AON in that one matter exceeded the Department's
estimate for the annual cost for the whole UK.
44. It may be deduced that the Government
does not, in fact, anticipate major contested cases concerning
the bribery of foreign government officials or the new corporate
offence. This may be a valid assumption in the case of some UK
companies. But the draft Bill extends jurisdiction to foreign
companies resident in England or conducting business here. Such
companies, many not recognizing the OECD consensus, may not be
minded to negotiate with the UK Government or prosecuting authorities.
The cost of successfully prosecuting them, or a UK company choosing
the litigation option, could be very large indeed.
45. Another consideration which may have
been present in the Government's mind in producing the draft Bill
is that future prosecutions/investigations in major matters will
probably be multi-jurisdictional. There is therefore a delicate
balance to be achieved. The UK will not wish to have "weaker"
law against bribery in the international sphere than other countries.
But it should not have a more draconian and less sophisticated
law. That would prejudice the international competitivity of UK
business.
46. We are grateful to the Government for
having produced the Bill as a draft, for permitting pre-legislative
scrutiny and for consulting with us. We will be most willing to
continue work with officials and with other industry organizations
to achieve an effective and just solution.
47. Suggested changes to draft Bill:
i. reinstate defence of reasonable attempt to
ascertain foreign law in the case of bribery of foreign officials;
ii. define the concept of negligence in the "failure
to prevent" bribery offence to mean gross negligence;
iii. return the category of persons in respect
of whose acts or omissions the "adequate systems" defence
is not available to that proposed by the Law Commission;
iv. "failure to prevent" to apply only
to persons or companies over which a company has control or in
respect of which it did not secure adequate contractual protection
or do due diligence;
v. bribery to be proved beyond reasonable doubt
to have taken place as a necessary element of the proof of "failure
to prevent";
vi. a company not to be liable for failure to
prevent bribery by its subsidiary unless the bribe was given in
aid of a business actually operated and conducted by the company;
vii. in the general offence, specific provision
to be made that evidence of all the circumstances be admitted
in relation to the fulfilment or non-fulfilment of the "relevant
expectations";
viii. delete provisions in section 2 (7)
(8) about irrelevance of state of mind of accused.
May 2009
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